Dec 19

Today’s News December 19, 2015

  • The New York Times Just Memory-Holed This Devastating Obama Admission

    By Sean Davis, co-founder of The Federalist

    The New York Times Just Memory-Holed This Devastating Obama Admission

    “Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino.”

    A story published by the New York Times late Thursday night caused some major media waves. The story, which was written by reporters Peter Baker and Gardiner Harris, included a remarkable admission by Obama about his response to the recent terror attacks in Paris and San Bernardino, California.

    By Friday morning, however, the entire passage containing Obama’s admission had been erased from the story without any explanation from the New York Times. Here’s the passage that was included in the story when it was published Thursday night, courtesy of CNN’s Brian Stelter:

    In his meeting with the columnists, Mr. Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino, and made clear that he plans to step up his public arguments. Republicans were telling Americans that he is not doing anything when he is doing a lot, he said.

    The version of the New York Times story that was published early Thursday evening indicated that Obama knew he was out of touch with the country on terrorism, and he thought that was due to not watching enough television. Obama critics immediately pounced on the stunning admission from the president, expressing shock that he would claim that a lack of TV time was the real reason for him not understanding Americans’ anxiety about terrorism.

    As of Friday morning, however, the passage containing Obama’s admission was gone. Newsdiffs.org, a web site which captures changes made to online news stories, indicates that the major revision to the NYT story happened late on Thursday night, several hours after the story was published (text with a red background and strike-through is text that was eliminated from the story; text with a green background is text that was added to the story since its last revision):

     

    The unexplained deletion of that major passage wasn’t the only significant change made to the story since it was first published. New York Times editors also changed the story’s headline four separate times, according to Newsdiffs.org. Each headline revision either put Obama in a better light or put the GOP in a worse one.

    The original headline when the story was first published was “Obama Visiting National Counterterrorism Center.” Less than two hours later, the headline was “Obama, at Counterterrorism Center, Offers Assurances On Safety.” Then the headline was changed to “Frustrated by Republican Critics, Obama Defends Muted Response to Attacks.” Two hours later, the headline was once again revised to “Under Fire From G.O.P., Obama Defends Response to Terror Attacks.” The most recent headline revision, which accompanied the deletion of the passage where Obama admitted he didn’t understand the American public’s anxiety about terrorism, now reads, “Assailed by G.O.P., Obama Defends His Response To Terror Attacks.”

     

     

    Baker and Gardiner, the two reporters who authored the NYT story, have yet to explain why Obama’s admission about being out of touch with the public on terrorism was deleted from their story.

    UPDATE: The New York Times claimed in a statement late Friday morning that its deletion of the Obama passage was not “unusual” and that it was merely “trimmed for space in the print paper”:

    The problem with this explanation is that it doesn’t make any sense when you review the first major online revision, which Newsdiffs.org archived at 10:21 p.m. EST. In that version, only one substantive revision was made: the paragraph about Obama not watching enough cable TV was removed and replaced with two paragraphs about Obama’s plan to combat ISIS.

    The section that was removed contained 66 words. The section that was added in its place contained 116 words. If the New York Times was indeed “trimming for space” in that particular revision, it will need to explain why its revision to that section added 50 words.

  • The Farsi Awakens

    If you like your nuclear-capable weapons, you can keep your nuclear-capable weapons…

     

     

    Source: Investors.com

  • When All Else Fails, Erdogan Calls Israel

    Submitted by Shoshana Bryen via The Gatestone Institute,

    • Erdogan came to office in 2003 with a policy of "zero problems with neighbors," but has since led Turkey to problems with most, if not all, of them.

    • Turkey's foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help.

    • Israel has weighed the price and found it acceptable: Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will buy Israeli gas.

    • The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey's last five years of diplomatic endeavor.

    The announcement of the restoration of Israel-Turkish relations should be seen in the context of Turkey having nowhere else to go.

    Turkey's relations with Israel have been strained, to put it mildly, since 2010 when, through a non-profit organization, Turkey funded the 2010 Gaza Flotilla aimed at breaking the Israeli-Egyptian blockade of the Hamas-ruled Gaza Strip.

    After a bloody confrontation, which ended in the deaths of nine Turks, Turkey demanded that Israel be tried in the International Criminal Court (ICC) and subjected to UN sanction. The ICC ruled that Israel's actions did not constitute war crimes. In addition, the UN's Palmer Commission concluded that the blockade of Gaza was legal, and that the IDF commandos who boarded the Mavi Marmara ship had faced "organized and violent resistance from a group of passengers," and were therefore required to use force for their own protection. The commission, however, did label the commandos' force "excessive and unreasonable."

    Turkey's President Recep Tayyip Erdogan had already in the past show hostility towards Israel. Already in 2009, then Prime Minister Erdogan denounced Israel's President Shimon Peres publicly at the Davos World Economic Forum. "When it comes to killing, you know very well how to kill. You know very well how to kill." When Hamas was thrown out of Damascus, Erdogan invited Hamas leaders Khaled Mashaal and Ismail Haniyeh to put the terrorist organization's "West Bank and Jerusalem Headquarters" in Istanbul.

    Speaking at the Paris rally in January 2015, after the murderous attack on the Charlie Hebdo offices and the terrorist murder of four Jews in a kosher supermarket, Turkey's Foreign Minister Ahmet Davutoglu said, "Just as the massacre in Paris committed by terrorists is a crime against humanity, Netanyahu… has committed crimes against humanity." Erdogan, speaking in Ankara, said he could "hardly understand how he (Netanyahu) dared to go" to the march in the French capital. Just last month, Davutoglu told an audience, "Israel kneels down to us."

    Not exactly.

    Turkey's foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help. Erdogan came to office as Prime Minister in 2003 with a policy of "zero problems with neighbors," but has since led Turkey to problems with most, if not all, of them. Alon Liel, former Director General of the Israeli Foreign Ministry said, "Turkey didn't do very well in the last five years in the region. Turkey needs friends."

    That is an understatement.

    Turkey helped Iran evade international sanctions, but has since fallen out with the Islamic Republic of Iran over its support of Syria's Bashar Assad. A Muslim Brotherhood supporter, Erdogan was close to Egypt's former President, Muslim Brotherhood member Mohamed Morsi, and has been an outspoken adversary of President Abdel Fattah el-Sisi. Turkey was and remains a conduit for arms and money for various parties to the Syrian civil war. The U.S. has demanded that Erdogan seal Turkey's border with Syria, which he has not done. Turkey also has bombed Kurdish fighters; deployed its forces to Iraqi territory and declined to remove them; and sold ISIS oil on the black market. There are allegations that the Turkish government knew sarin gas was transferred to ISIS across Turkish territory. In November, Turkey shot down a Russian military jet, in the biggest move down the current slide of Turkish-Russian relations, which began when Vladimir Putin stepped in to prevent the collapse of Syria. [This is on top of historical animosity between Turkey, the successor to Muslim Ottoman rule, and Russia, the self-proclaimed defender of the Christian Orthodox Church.]

    Russia, furious at the downing of its plane, instituted a series of economic sanctions against Turkey, the most important of which is suspension of the TurkStream project, designed to boost Russian gas exports to Turkey. Turkey is the second-largest importer of Russian gas, after Germany.

    As a corrective to all of Turkey's "problems with neighbors," Erdogan raised the possibility of renewed relations with Israel — which is currently finalizing the mechanism for developing large offshore natural gas fields. Erdogan told Turkish media last week that normalization of ties with Israel would have benefits for Turkey. Insisting that Israel must still end the blockade of Gaza (not happening), apologize, and pay reparations for the flotilla, Erdogan nevertheless made clear his desire for progress — or at least for Israeli gas.

    Which way will Turkish President Erdogan go on Israel?
    Left: Erdogan (then Prime Minister) shakes hands with then Israeli Prime Minister Ariel Sharon, on May 1, 2005. Right: Erdogan shakes hands with Hamas leader Ismail Haniyeh on January 3, 2012.

    It's not as if Turkish-Israel relations were ever entirely severed. Since the flotilla confrontation, Turkey-Israel trade doubled in the past five years, to $5.6 billion. While arms deals signed prior to 2010 have been put on hold, trade in civilian chemicals, agricultural products, and manufactured goods has increased. And, in one of those "only in the Middle East" stories, Turkish businesses have been shipping goods to Israel by sea, then trucking them across the country to Jordan and beyond, in order to avoid having to ship overland through Syria.

    The basis for increased trade, including gas sales, is there, and Israel has weighed the price and found it acceptable. Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will purchase Israeli gas.

    After entering office in 2003, Erdogan offered Turkey as a model for democratic governance in a Muslim country. President Obama called him one of the foreign leaders with whom he was most comfortable. But Turkey's was always a double game. The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey's last five years of diplomatic endeavor.
     

  • "It's Hot Out There" – Here's Why In One Visualization

    “It’s not just warm, but very warm,” exclaims one east coast ski resort owner, adding “I can’t remember it ever being like this here.” But why? As WSJ reports, two weather occurrences – the Arctic Oscillation and El Niño – are combining to shake up temperatures from coast to coast in the U.S., bringing springlike conditions to the Northeast for much of this month and leaving parts of the West colder and wetter than usual.

    Typically this time of year, Arctic Oscillation would bring cold air to the Eastern U.S., bringing temperatures down. But so far this year, the oscillation has stayed much farther north, allowing warm air from the south to fill the void, said Mike Halpert, deputy director of the National Oceanic and Atmospheric Administration’s climate prediction center.

     

     

    The other factor is El Niño, a periodic climate cycle in which sea surface temperatures over the eastern Pacific become warmer than usual. The effects from changes in Arctic Oscillations generally last only a few weeks, but the balmy weather in the Northeast could continue because of the El Niño effect, experts say.

     

    El Niños push the subtropical and polar jet streams, which help define weather around the world, to the north. The result is that the southern U.S. gets rain that normally falls in Central and South America, while the Northeast and Midwest get a reprieve from winter as the polar jet stream is pushed up into Canada.

    “If people are nervous, they should be nervous.”

    The current El Niño is on track to rank among the top three strongest since record-keeping began in 1950, according to federal climatologists.

    “The El Niño impact is not dominating yet,” said Bill Patzert, a climate scientist with NASA’s Jet Propulsion Laboratory in Pasadena, Calif. “It’s like the tale of two climates here.

    And since every failure of central planning to achieve its  seasonally-adjusted  economic targets must be blamed on something, even something as ridiculous as the weather, regardless if it is “too cold” like in the past two years, or “too hot”, now we know why Q4 GDP will be crap!

  • Peter Schiff: "Mission Accomplished"

    By Peter Schiff of EuroPacific Capital

    Mission Accomplished

    On May 1, 2003 on the flight deck of the USS Abraham Lincoln then President George W. Bush, after becoming the first U.S. president to land on an aircraft carrier in a fixed wing aircraft (in a dashing olive drab flight suit), declared underneath an enormous “Mission Accomplished” banner that “major combat operations” in Iraq had been concluded, that regime change had been effected, and that America had prevailed in its mission to transform the Middle East. 13 years later, after years of additional combat operations in Iraq, and a Middle East that is spiraling out of control and increasingly disdainful of America’s influence, we look back at the “Mission Accomplished” event as the epitome of false confidence and premature celebration.

     

    The image of W on the flight deck comes to mind in much of the reaction to this week’s decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a “concluded experiment” and the “dawning of a new era,” few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq.
     
    In its initial story of the day’s events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is “ending an era of easy money that helped save the nation from another Great Depression.” Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page.
     
    Historically, the Fed has begun its tightening cycles during the early stages of expansions, when the economy had enough forward momentum to absorb the headwinds of rate increases. But that is not at all the case this time around.
     
    Prior to the recent Great Recession, there had been six recessions since 1969, and over those episodes, on average 13.3 months passed from the time the recession ended to when the Fed felt confident enough in the recovery to raise rates. (The lag time was just 3.5 months in the four recessions between 1971 and 1991). (The National Bureau of Economic Research, US Business Cycle Expansions and Contractions, 4/23/12) 
     
    But after the recession of 2008 – 2009, the Fed waited a staggering 78 months to tighten the monetary levers. Those prior tightening cycles also occurred at times when GDP was much higher than it is today. Over the prior six occasions GDP, in the quarter when the Fed moved, averaged a robust 5.3%. While the current quarterly GDP is still unknown, the data suggests that we will get a figure between 1% and 2% annualized. (Bureau of Economic Analysis)

     
    Another key difference is the level of unemployment at the time the hikes occurred. As they started tightening much earlier in the expansion cycles, unemployment at the times of those prior recoveries tended to be high but falling. The average unemployment rate at the time the six prior tightenings occurred was 7.5%. But that average rate had fallen to 5.1% (a level that most economists consider to be “full employment”) an average of 42 months after the initial Fed tightening. In other words, those expansions were young enough and strong enough to absorb the rate hikes while still bringing down unemployment. (Bureau of Labor Statistics; Federal Reserve Bank of NY)
     
    Our current unemployment rate has already fallen to 5.0% (mostly because workers have dropped out of the labor force). Few economists allow for the possibility that it could fall much lower. This is particularly true when you acknowledge the rapidly deteriorating economic conditions that we are seeing today.
     
    As I stated in my most recent commentary, there is a growing troth of data that shows that the U.S. economy is rapidly losing momentum. Some data points, such as the inventory to sales ratio and the ISM manufacturing data suggest that a bona fide recession may be right around the corner (among them, this week’s truly terrible manufacturing PMI and industrial production numbers, a very weak Philly Fed Outlook, the weakest service sector PMI of the year, a big drop in the Kansas City Fed Manufacturing Index, and the announcement that the Third Quarter current account deficit had “unexpectedly” increased 11.7% to post the widest gap since the fourth quarter of 2008, are just the latest such indicators).
     
    Given that the U.S. economy has, on average, experienced a recession every six years, the 6.5-year longevity of the current “expansion” should be raising eyebrows, even if the data wasn’t falling faster than a bowling ball with wings.
     
    So what happens when the Fed postpones its first rate hike until the death throes of a tepid recovery rather than doing so at the beginning of a strong one? If unemployment starts ticking up during an election cycle, can anyone really expect the Fed to follow through with its projected additional rate hikes and allow a full-blown recession to take hold prior to voters casting their ballots? All of this strongly suggests that this week’s rate hike was a “one-and-done” scenario that does nothing to extricate the Fed from the monetary trap it has created for itself.
     
    Another big question is why the Fed decided to move in December, after doing nothing for so long. Clearly the markets were surprised and confused by the Fed’s failure to pull the trigger in September, when the economy appeared, at least to those who chose to ignore the bad data, to be on relatively solid footing. At that time, the Fed suggested that it needed to see more improvement before green lighting a liftoff. And while I tend not to place much stock in the pronouncements of most economists, one would be hard-pressed to find anyone who would claim that the data in December looks better than it did in September.
     
    A much more likely explanation is that through its rhetoric the Fed had inadvertently backed itself into a corner. Even though the Fed would have preferred to leave rates at zero, the fear was that failure to raise them would damage its credibility. After having indicated for much of the past year that they had believed that the economy had improved enough to merit a rate increase later in 2015, to continue do to nothing would suggest that the Fed did not actually believe what it was saying. This was an outcome that they could not abide. If we could doubt them about their economic pronouncements, perhaps they have been equally disingenuous with their professed ability to shrink their balance sheet over the next few years, contain inflation if it ever reared its ugly head, or to prevent financial contagion from spreading during a new recession.
     
    In truth there should be very little confidence that a new era has begun. A symbolic 25 basis point credibility-saving gesture, coming just two weeks before year-end, is really a non-event. It’s the equivalent of a credibility Hail Mary, with the Fed desperately trying to infuse confidence into a “recovery” that for all practical purposes has already ended.
     
    The question will be whether such a small move will be enough to push an already slowing economy into recession that much sooner. Over the past seven years the U.S. economy has become dependent on zero percent interest rates. But as with the famous Warren Buffet bathing suit maxim, these dependencies won’t be fully revealed until the tide rolls out and those zero percent rates are taken away. The bigger question is how quickly the Fed will reverse course. Will it move once it becomes painfully obvious to everyone that we are headed into another recession, or will it wait until we are officially knee deep in a contraction that is even bigger than the last one?
     
    The new rounds of rate cutting and Quantitative Easing that the Fed will have to unleash will echo the military “surge” in Iraq in 2007. Those fresh troops were needed to roll back the chaos that the Administration had ignored for so long. But just as that surge only bought us a few years of relative calm, look for the gains brought about by our next monetary surge to be even more transitory. That is a development for which virtually no one on Wall Street is preparing.

  • "Quad Witches, Bitches" – Stocks Crash On OpEx

    CNBC was awash with "Remain Calm" comments today as yesterday's carnage extended into today post-option-expiration misery.. "I would call this a rather stable sell-off" and stocks are "in a bit of a funk" were among them… but for those buying the well-sponsored rip post-Yellen, here's what you get:

    Quad-Witch Bitches:. The last two days are the worst since Black Monday for stocks, and just as we warned a week ago, Yellen's confidence-inspiring rate-hike was undone by 'technicals' in the so-called market:

    The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market's read through of monetary policy but by the "pin" in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the "psychological" stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

     

    Whether this happens remains to be seen, and we are confident the Fed's "arm's length" market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic' track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an "August 24" type event.

    The "quad's" outcome – bloodbath. 

     

    With S&P 500 Futures breaking the 2,000 level after-hours…

     

    Post-Yellen, bonds are outperforming notably.

     

    Post-Fed… not exactly confidence-inspring…

     

    The Dow is down 700 points from post-Yellen exuberance… Nasdaq broke 5,000; Dow nears 17,000; and S&P 2,000 was defended with valor…

     

    Leaving everything Red for the week…

     

    Trannies are down 18% YoY… the fastest accelerating drop since Lehman…

     

    FANGs all red post-Fed…

     

    Stocks caught down to credit markets – as credit crashes…

     

    Equities still have a long way to go…

     

    Treasury yields (most notably the longer-end) ripped lower after the Fed… but remain higher on the week…

     

    With a dramatic "policy error" style flattening of the yield curve…

     

    The USDollar rose over 1% on the week but the last 24 hours has seen some fading as carry trades were unwound en masse, driving JPY higher…

     

    Commodities were very mixed this week. Silver, gold, and copper surged today

     

    Silver's best day in 11 weeks…

     

    Crude collapsed to fresh cycle lows…

     

    Charts: Bloomberg

  • Canadians Sell Cans Of "Rocky Mountain Air" To Choking Chinese

    The Chinese are so desperate for clean air – amid the most disgusting pollution in history – that they have turned to buying cans of fresh air to breathe during the most smog-filled days. With low oil prices crushing their economy, Canada has begun to export another resource as CNBC reports Alberta-based Vitality Air is selling "Rocky Mountain air" to the Chinese for $10 to $20 per can.

    Facing this…

     

    The Chinese have turned to this…

     

    Canada may be struggling with low oil prices, but China's latest environmental crisis is proving to be a lucrative opportunity for another of its natural resources – Rocky Mountain air.

    Alberta-based Vitality Air has been cashing in on Beijing's worsening air quality problems, selling aluminum cans of "fresh clean air and oxygen" from the picturesque Rocky Mountains for around $10 to $20 each.

     

    Vitality Air's China representative Harrison Wang said told MailOnline that they sold out almost instantly after marketing the product on China's e-commerce website Taobao. They'll be sending another 700 bottles to China in the coming weeks, topping their first 500-bottle shipment.

     

    "We have sold everything, and we now have a bunch of customers and people wanting to be our distributors," Harrison said.

    As CNBC reports,

    Founders Moses Lam and Troy Paquette admitted to Canadian media that the project first started as a joke, selling their first sealable food bag of air for 99 cents on eBay. The then sold a second bag that raked in $168 Canadian dollars ($122).

     

    They launched Vitality Air shortly afterward.

     

    But for those who are still laughing at the idea of selling air that usually comes for free, the website reminds us that bottled water also used to be a punchline: "The truth is we've begun to appreciate the clean, pure and refreshing taste of quality water," the website reads. "Air is going the same way."

     

    "Just like bottled water, premium air is a growing industry because people are noticing the difference."

    *  *  *

    How long before Canadian air is taxed…?

  • On Conspiracy Theories

    Submitted by HardScrabbleFarmer via The Burning Platform blog,

    “In many nations, rational people end up believing crazy things, including (false) conspiracy theories. Those crazy thoughts can lead to violence, including terrorism. Many terrorist acts have been fueled by false conspiracy theories, and there is a good argument that some such acts would not have occurred in the absence of such theories. The key point—and, in a way, the most puzzling and disturbing one—is that the crazy thoughts are often held by people who are not crazy at all.”

    Cass Sunstein- White House Office of Information and Regulatory Affairs

    If you don’t know who Cass Sunstein is, or what he does now would be a good time to do some research. Not only because of his position with the White House and the power that entails, but because he understands quite clearly what problems are posed by people who, in his own words are, “…neither ignorant, not ill-educated. On the contrary they can be spectacularly well informed…”

    Conspiracy theories are, in short, the belief that others conspire in secret to commit criminal acts. They do, no secret there. In fact the majority of prisoners in Federal Penitentiaries are serving time not for a specific crime, but for conspiracy to commit a felony, more simply discussing their intentions with another person in secret. It must be difficult indeed to simultaneously prosecute large numbers of people for the very activity that you are assigned to debunk and then somehow explain to people that it’s dangerous to believe in them. Yes, yes, you can imagine them saying, other people do engage in conspiracies, but we never would and you’d have to be crazy to even consider it.

    Point taken, Mr. Sunstein.

    Prior to the advent of the Internet there were few places where people could openly engage in any discussion of the misgivings they had about certain events. Mailing lists, fringe publications, but no open forum for expressing doubt and discovering the fundamental and underlying reasons behind such thoughts. Mr. Sunstein has often argued that the reason most people believe in conspiracy theories is because it makes them feel safe, a notion that is as hard to believe as the one that says the government would never engage in a conspiracy. If anything, the dawning realization that those entrusted to care for and protect you are engaged in a pattern of behaviors that are not only dangerous, but wantonly destructive to the very values and beliefs we hold most dear. To believe in a conspiracy committed by a government that is powerful, that is actively spying on it’s own people without legal justification and that appears immune to the law is not reassuring or comforting, it is terrifying. It is also, based on what we actually know for a fact, common sense

    Let’s begin by covering a few basics-

    Operation Northwoods

    In 1962 the Department of Defense acting in cooperation with the Joint Chiefs of Staff submitted a paper detailing covert operation by either the CIA or other Government operatives to commit acts of terrorism against innocent American civilians, specifically to either hijack US commercial aircraft, shoot down commercial aircraft, attacks and kill US soldiers at Guantanamo or an attack on the Organization of American States with the intent of blaming the actions on Cuba in order to destabilize or overturn the government. These plans were signed and submitted by a host of top ranking US Military officials including the Chairman of the Joint Chiefs of Staff Lyman Lemnitzer and submitted to the Secretary of Defense, Robert McNamara who would later play a large role in the US war in Viet Nam.

    None of the people involved in the research, planning, drafting or submission of this authorized government conspiracy was ever charged with a crime or held accountable. In fact the chief defense has always been that it was rejected by then President John F Kennedy, rendering further discussion null and void. Think about it for a moment and decide for yourself what the implications of such a plan mean for people who are, in the words of Cass Sunstein, spectacularly well informed, i.e conspiracy theorists. The government of the United States of America, using top secret clearance and taxpayer dollars actively plotted to murder innocent Americans in acts of terror in order to instigate a war on false grounds. To know this, according to the leading expert on conspiracy theories, makes us feel safer.

    Incontrovertible proof that the government does in fact engage in criminal conspiracies that target innocent civilians in order to promote government sanctioned programs or military actions while it’s criminal participants escape justice has now been established as a fact, not a theory. Why this important piece of American history is unknown to most people is not puzzling, it is because it has been deliberately pushed off to the side, dismissed as irrelevant or pointless because it didn’t happen. Conspiracy theories do not require action, however, only the conspiracy.

    One of the greatest issues the Government has in dealing with the conspiracies currently circulating is the ease with which the Internet allows them to propagate. While the vast majority of Americans have never heard of the Gulf of Tonkin, quite a few have heard the term “9/11 was an inside job” or know that something is not quite right about Sandy Hook. The ubiquitous nature of cell phone cameras has given people the ability to see for themselves without having to look through the lens of the MSM and depend upon sanitized news coverage to inform them of the details of various events taking place around the troubled world. The time when the government was kept in check by the 5th estate has long ago ceased to restrain them. The news organizations have become a tool of the establishment rather than a check on their power. The only option left is for either whistle blowers to come forward or citizen journalists to investigate on their own time and dime.

    The MSM

    Proof TV Media 100% Fake – Fake/Green Screen Compilation…

    The Illusion of the Mainstream Media (MSM). #BreakTheIllusion

    The sheer number of poorly faked news stories gives rise to the legitimate question, how many fake stories were done well? Why would any news organization feel that it is necessary to use false coverage to report actual news? It makes no sense to falsify something in order to tell the truth, so something else must be in play. The participants and producers are clearly aware of what they are doing when they use props or green screens, and since they are doing it without informing the viewing public it wouldn’t be unfair to call it a conspiracy. The more often these events are uncovered the less trust anyone feels in the institutions and representatives that commit these frauds on an unsuspecting population. Whether it is for altruistic or evil ends is irrelevant, the duplicity is it’s own crime and since it is done in secret, involving multiple parties we are left with little room to consider it as anything other than a conspiracy. That isn’t a theory, it’s a fact.

    We live in an era that seems to be on the cutting edge of human civilization due to the proliferation of technically sophisticated gadgetry, but in many ways were are as ignorant and intellectually shallow as we have ever been, pacified by our good fortune, stable diets and creature comforts, bereft of the intellectual curiosity that has been the hallmark of cultures at their zenith. Grand sounding memes have been the trademark of great cultures, from Pax Romana to Rule Britannia. They are utilized to galvanize a people or a nation and lead them to greater heights and achievements or they serve as an epitaph on the gravestones of Empires, like Blood and Soil or Liberte’, Egalite’, Fraternite’. Numerous cultures experience a tumultuous birth, a meteoric rise and blossoming and slowly and inexorably decline into decadence and degeneracy.

    Those who sit at the top of an empire in decline often employ the same tactics that their predecessors have used throughout history in order to remain in power; suppression of dissent, violent retaliation against those who resist, open condemnation of those who are often the most stalwart supporters of the earlier forms of the same government and eventually the emptying of the treasury and plundering of resources while the masses suffer. The employ various techniques of coercion and dependency as well as draconian measures in security and intelligence. One of the hallmarks of a failing regime is the way they turn a blind eye to the flagrant criminality of those at the top while increasingly stifling even the mildest forms of dissent at the bottom. Employing men like Cass Sunstein to float the idea that conspiracy theories are the seedbed of violent terrorist cells is only the beginning.

    Many people believe that the restriction on free speech, the rise of the PC movement, the talk of microaggressions and safe spaces are about protecting marginalized minorities when in fact they are nothing more than tools used to entrench the positions of power, to eliminate resistance to their aims and objectives and to silence, once and for all every voice that fails to sing in the chorus of the State. The reason men like Cass Sunstein are employed by the State is because the veil has begun to fall. When people begin to question the veracity of the government, the next step, logically, is to question the legitimacy of the institutions that keep it in power. It is not a safe or reassuring thing to believe that your government is capable of plotting to kill you or those you love for it’s own ends, it is frightening, and demoralizing. It is also the first step in reclaiming our sovereignty. Just as no rational person would want to remain in a relationship with someone who repeatedly lies and cheats, neither would they be expected to offer allegiance to a State that would do worse.

    Few people live in the natural world, experiencing the outdoors daily through all weather, dealing with real issues of life and death, the cycles of the seasons, the endless tasks associated with meeting our most fundamental needs, from feeding ourselves to teaching our own children the values and lessons that resonate with how we wish to live. For the rest of our population there is endless hours of mindless distraction, inhumane workplaces in unnatural environments far removed from the basic needs of life. We spend more time with people we hardly know than the ones we love the most, we eat food that we have no connection with and that fails to nourish, we depend more and more on a government that is further and further away from us, both in distance and in understanding, in short we have become disconnected from our own lives. Perhaps the first step in rectifying our situation is to begin to look at the world not as it could be, but how it is. To see things for what they are, to discard the falsehoods, no matter how pleasant they may seem in order to embrace the truth regardless of how painful it may be. And that’s not a theory, that’s a reality.

    In closing I offer a speech filled with optimism in the face of desperation, hope in a time of bitter loss, and an appeal to the better part in all of us that calls out to be heard in times like these.

    No man thinks more highly than I do of the patriotism, as well as abilities, of the very worthy gentlemen who have just addressed the House. But different men often see the same subject in different lights; and, therefore, I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do, opinions of a character very opposite to theirs, I shall speak forth my sentiments freely, and without reserve. This is no time for ceremony. The question before the House is one of awful moment to this country. For my own part, I consider it as nothing less than a question of freedom or slavery; and in proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth, and fulfil the great responsibility which we hold to God and our country. Should I keep back my opinions at such a time, through fear of giving offence, I should consider myself as guilty of treason towards my country, and of an act of disloyalty toward the majesty of heaven, which I revere above all earthly kings.

    Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.

    I have but one lamp by which my feet are guided; and that is the lamp of experience. I know of no way of judging of the future but by the past. And judging by the past, I wish to know what there has been in the conduct of the British ministry for the last ten years, to justify those hopes with which gentlemen have been pleased to solace themselves, and the House? Is it that insidious smile with which our petition has been lately received? Trust it not, sir; it will prove a snare to your feet. Suffer not yourselves to be betrayed with a kiss. Ask yourselves how this gracious reception of our petition comports with these war-like preparations which cover our waters and darken our land. Are fleets and armies necessary to a work of love and reconciliation? Have we shown ourselves so unwilling to be reconciled, that force must be called in to win back our love?

    Let us not deceive ourselves, sir. These are the implements of war and subjugation; the last arguments to which kings resort. I ask, gentlemen, sir, what means this martial array, if its purpose be not to force us to submission? Can gentlemen assign any other possible motive for it? Has Great Britain any enemy, in this quarter of the world, to call for all this accumulation of navies and armies? No, sir, she has none. They are meant for us; they can be meant for no other. They are sent over to bind and rivet upon us those chains which the British ministry have been so long forging. And what have we to oppose to them? Shall we try argument? Sir, we have been trying that for the last ten years. Have we anything new to offer upon the subject? Nothing. We have held the subject up in every light of which it is capable; but it has been all in vain.

    Shall we resort to entreaty and humble supplication? What terms shall we find which have not been already exhausted? Let us not, I beseech you, sir, deceive ourselves. Sir, we have done everything that could be done, to avert the storm which is now coming on. We have petitioned; we have remonstrated; we have supplicated; we have prostrated ourselves before the throne, and have implored its interposition to arrest the tyrannical hands of the ministry and Parliament. Our petitions have been slighted; our remonstrances have produced additional violence and insult; our supplications have been disregarded; and we have been spurned, with contempt, from the foot of the throne. In vain, after these things, may we indulge the fond hope of peace and reconciliation. There is no longer any room for hope. If we wish to be free² if we mean to preserve inviolate those inestimable privileges for which we have been so long contending²if we mean not basely to abandon the noble struggle in which we have been so long engaged, and which we have pledged ourselves never to abandon until the glorious object of our contest shall be obtained, we must fight! I repeat it, sir, we must fight! An appeal to arms and to the God of Hosts is all that is left us!

    They tell us, sir, that we are weak; unable to cope with so formidable an adversary. But when shall we be stronger? Will it be the next week, or the next year? Will it be when we are totally disarmed, and when a British guard shall be stationed in every house? Shall we gather strength by irresolution and inaction? Shall we acquire the means of effectual resistance, by lying supinely on our backs, and hugging the delusive phantom of hope, until our enemies shall have bound us hand and foot? Sir, we are not weak if we make a proper use of those means which the God of nature hath placed in our power.

    Three millions of people, armed in the holy cause of liberty, and in such a country as that which we possess, are invincible by any force which our enemy can send against us. Besides, sir, we shall not fight our battles alone. There is a just God who presides over the destinies of nations; and who will raise up friends to fight our battles for us. The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave. Besides, sir, we have no election. If we were base enough to desire it, it is now too late to retire from the contest. There is no retreat but in submission and slavery! Our chains are forged! Their clanking may be heard on the plains of Boston! The war is inevitable²and let it come! I repeat it, sir, let it come.

    It is in vain, sir, to extenuate the matter. Gentlemen may cry, Peace, Peace²but there is no peace. The war is actually begun! The next gale that sweeps from the north will bring to our ears the clash of resounding arms! Our brethren are already in the field! Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!

    Patrick Henry

  • MSNBC Anchor Stunned By Trump-Putin Lovefest

    Following Vladimir Putin's 'endorsement' of The Donald, explaining his hope for "a more substantial, deeper relationship," with America, Trump has reciprocated the show of respect by thanking the Russian president for the "great honor." This mutual back-patting stunned MSNBC anchor Joe Scarborough, who exclaimed, Putin "is a person who kills journalists, political opponents and invades countries," to which Trump responded, silencing Scarborough, "he's running his country, and at least he's a leader, unlike what we have in our country."

    “It is always a great honor to be so nicely complimented by a man so highly respected within his own country and beyond,” the GOP presidential front-runner told supporters at a rally in Columbus, Ohio.

    "I have always felt that Russia and the United States should be able to work well with each other towards defeating terrorism and restoring world peace, not to mention trade and all of the other benefits derived from mutual respect,” he added. However, as The Hill reports,"Morning Joe" co-host Joe Scarborough was not impressed…

    Putin "is a person who kills journalists, political opponents and invades countries"

    To which Trump responded…

    "Certainly over the last couple of years they've respected him as a leader. I think he's up in the 80s, where you see Obama is in the 30s and low 40s — and he's up in the 80s," Trump said of Putin's popularity.

     

    "I don't know who does the polls, maybe he does the polls," Trump added.

    "You obviously condemn Vladimir Putin killing journalists and political opponents, right?" Scarborough asked.

    "Well I think our country does plenty of killing also, Joe, so…" Trump said, trailing off.

     

    “I would get along with him,” Trump said in September. “I would get along with a lot of the world leaders that this country is not getting along with.”

     

    He's also said Putin does not respect President Obama."Oh sure, absolutely," Trump responded.

    GOP rivals such as former Florida Gov. Jeb Bush have gone after Trump over his endorsement from Putin, who critics have blasted over his country's response to events including the situation in Ukraine.

    "To get praise from Vladimir Putin is not going to help Donald Trump," Bush told CNN on Thursday evening.

    “I would get along with him,” Trump said in September. “I would get along with a lot of the world leaders that this country is not getting along with.” He's also said Putin does not respect President Obama.

     

  • Argentinians Are Now Poorer Than Citizens Of Equatorial Guinea After Massive Devaluation

    On Wednesday evening, Argentina’s FinMin (and former head of global FX research at JP Morgan) Alfonso Prat-Gay abolished currency controls, fulfilling new President Mauricio Macri’s promise to unify the official and black market peso rates.

    The move came on the heels of central bank governor Alejandro Vanoli’s forced resignation. Macri has accused Vanoli of endangering the country’s finances by racking up some $17 billion in dollar futures which the new government attempted to renegotiate ahead of the deval.

    “For those interested in a case study of what happens after a dramatic devaluation, you now have front row seats for what is likely to be a 25-30% peso plunge,” we said two days ago. Yesterday, the peso did indeed take a nosedive as the parallel rates converged on 14 ARS/USD. 

    What does this mean for Argentinians, you ask?

    Well, as FT reports, “Argentines woke up on Thursday richer than Poles, Chileans and Hungarians [but] by bedtime they were not only poorer than all three, but also more pecunious than Mexicans, Costa Ricans and the good people of Equatorial Guinea.”

    In dollar terms, the sharp peso plunge pushed the country down eleven slots on the list of richest nations in GDP per capita terms. As the following table shows, Argentineans are now worse off than citizens of Chile, Poland, Equatorial Guinea, Hungary, Lebanon, Panama, Croatia, Kazakhstan, Costa Rica, Malaysia, and Mexico.

    More generally, the devaluation will cost the country some $167 billion in GDP. “[This is] just the latest ignominy to hit the seemingly accident-prone nation, which just over a century ago was the seventh-wealthiest country in the world on a per capita basis, ahead of the likes of Denmark, Canada and the Netherlands and five times wealthier than Brazil,” FT goes on to say.

    While the devaluation is likely the right move from a long-term perspective, in the short-run things will be painful. “The peso devaluation is a bitter pill for Argentinian households who kept their savings in pesos and for multinationals who had reported peso cash balances at the official exchange rate on financial disclosures,” Bill Adams, senior international economist at PNC Financial Services Group says.

    And with that, we’ll close with a few passages from one of the world’s greatest economic minds. This is from May 3, 2012: 

    “…press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right.

     

    Articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly. 

     

    Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar ‘convertibility law’. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.”

     

     

     

  • CEO To Yellen: "Let Us Tell You What We Are Seeing!!"

    With Financial Stress Index near cycle highs and macro data collapsing (in Services and Manufacturing) even CEOs are questioning Janet Yellen’s timing…

    “I don’t mean to make anybody too worried about this stuff, right?

     

    …

     

    We can speak less about stuff and pretend like everything’s just always great. I don’t think – I don’t think that’s the right way to build partnerships. I think, we tell you when things are working, we tell you when things are not working, we tell you when we make changes, we tell you when the changes are working, we tell you when the changes are not working.”

     

    …the areas that are affected by oil… the Texas markets specifically…In the first half of the year, they were pulling down total Company sales a little under 2 points…

     

    In Q3, that accelerated to 4 points, and that’s meaningful, right? It’s not just meaningful to us, I’d say it’s meaningful to anybody who’s thinking about what the US economy ought to look like…

     

    It makes me think hey, should we be calling Yellen… and saying, let us tell you what we are seeing.“

    – Restoration Hardware CEO Gary Friedman (Home Furnishing)

    h/t Avondale Asset Management

  • Yet Again, The Media Got The Facts Wrong About The San Bernardino Attacks

    Submitted by Derrick Broze via TheAntiMedia.org,

    On Wednesday, the Director of the Federal Bureau of Investigations said the agency has no evidence the married couple accused of killing 14 people in San Bernardino, California earlier this month had any connection to an active terror cell. This admission from the FBI directly contradicts media reports that immediately claimed the San Bernardino shooters were linked to Daesh (ISIS) via social media.

    Speaking at a counterterrorism conference in New York, Director James Comey said Syed Farook and Tashfeen Malik were inspired by Daesh, but were not directly involved with any specific terror group. Reuters reports that Comey believes Daesh has “revolutionized” terrorism by using social media to spread propaganda to inspire small-scale attacks.

    “Your parents’ al Qaeda was a very different model than the threat we face today,” Comey said.

    Despite the admission the couple had no connection to Daesh, Comey said Farook and Malik had shown support for “jihad and martyrdom” in private communications as early as 2013, but never in public on social media. The director also stated the FBI has “hundreds” of ongoing investigations in every state in the nation that involve potential Daesh-inspired terror plots.

    Comey also repeated his calls for ending encrypted communication based on the premise that Daesh uses encryption to plan terror attacks. “We are not going to break the Internet,” he said while challenging technology companies to stop creating services that cannot be accessed by law enforcement. Comey’s calls for breaking encrypted communications echo the recent efforts of police chiefs and attorney generals across the United States.

    Another piece of the puzzle that must be considered pertains to conflicting eyewitness accounts of the San Bernardino shooting. Although the oldstream media quickly accepted the narrative of a Muslim couple radicalized by anti-American sentiment and radical Islam, there was at least one conflicting account that should be investigated.

    Shortly after the shooting, witness Sally Abdelmageed talked to CBS News about what she saw.  Abdelmageed works at the Inland Regional Center and saw the shooters enter the building. She told CBS’s Scott Pelley that she saw what appeared to be three white men dressed in military clothes.

    “We saw three men dressed in all black military attire, with vests on, holding assault rifles, and they opened up the doors to building 3 and one of them starts to spray and shoot all over the room,” Sally Abdelmageed told Pelley.

    When asked to provide more detail about the shooters she said, “I couldn’t see a face, he had a black hat on, from my view all i could see was a black hat. A black long sleeve shirt, possibly gloves on, he had black cargo pants, the kinds with zippers and big puffy pockets. He had a huge assault rifle and extra ammo. I just saw three.”

    “You’re certain you saw three men?” Pelley asked.

    “Yes, it looked like their skin color was white. They looked like they were athletic and they appeared to be tall.”

    Her account matches the original report from Southern California’s Fox 11, which tweeted that police were searching for “3 white males dressed in military gear.” Another eyewitness expressed doubt that Farook was the culprit.

    Whatever the truth is, it seems obvious the government will use this crisis to add more fuel to the fire that is the global War on Terror. This fire — and the insanity it breeds — threatens to consume the planet, leaving behind a scorched Earth devoid of common sense and critical thinking. Avoiding catastrophe and further division of the people is going to take each and every awakened soul.

  • Islamic Blitzkrieg Coming To Germany, Arrested Jihadist Warns

    On Thursday, German authorities arrested Leeth Abdalhmeed at the refugee shelter in Unna-Massen. Abdalhmeed is suspected of having links to a Sunni terror organization.

    According to WSJ, “German authorities were alerted by a Syrian national who had seen an article on a website connecting Mr. Abdalhmeed with Islamic State.” Apparently, Abdalhmeed is actually Leith Abdul Hamid, a “midranking” Islamic State official from Deir Ezzour (where Paris “mastermind” Abdelhamid Abaaoud was Emir of war) who “ran a money-transfer operation for the terror group and was responsible for smuggling medicine and ammunition from Turkey” (where else?). 

    “We mustn’t regard refugees with a general suspicion. But it’s also true that concerns aren’t unfounded that some potential threats might be among refugees,” Wolfgang Bosbach, a lawmaker with Chancellor Angela Merkel’s Christian Democratic Union party said this week.

    As we and countless others have documented, the Paris attacks served to undermine the goodwill Europeans had shown towards the millions of asylum seekers flooding into the EU from the war-torn Mid-East. A subsequent bomb scare in Hannover that triggered the evacuation of two soccer stadiums didn’t help matters and now, German lawmakers and voters alike are pressuring Merkel to reconsider Berlin’s open-door refugee policy.

    In her keynote speech at the CDU party congress in Karlsruhe earlier this week, the iron chancellor committed to “appreciably reducing the number of refugees,” entering the country.

    Now that Berlin has promised to send 1,200 troops, a warship, and six Tornado surveillance planes to the fight in Syria, you can expect Germany to become a prime target for future ISIS attacks. 

    Indeed, a new piece from Spiegel documents the story of “Harry S.”, a jihadist from Bremen who, after returning to Germany following a three month stint in Islamic State-held territory in Syria, says the group is intent on carrying out further attacks in Western Europe and is constantly asking foreign-born fighters if they are willing to return to their home country to wage jihad.

    Harry, who made an appearance in an ISIS video depicting an execution near the ancient city of Palmyra, is now “reformed” and sharing information with German public prosecutors.

    Here’s more from the story:

    On several occasions, IS members tried to recruit volunteers for terrorist attacks in Germany. In the spring, just after he first arrived in Syria, he says that he and another Islamist from Bremen were asked if they could imagine perpetrating attacks in Germany. Later, when he was staying not far from Raqqa, the self-proclaimed Islamic State capital city, masked men drove up in a jeep. They too asked him if he was interested in bringing the jihad to his homeland. Harry S. says he told them that he wasn’t prepared to do so.

     

    Harry S. was only in IS controlled territory for three months. Yet he might nevertheless become a vital witness for German security officials. Since the Nov. 13 attacks in Paris, fear of terrorism has risen across Europe, including in Germany, and security has been stepped up in train stations and airports. And the testimony from the Bremen returnee would seem to indicate that the fear is justified. Harry S. says that, during his time in the Syrian warzone, he frequently heard people talking about attacks in the West and says that pretty much every European jihadist was approached with the same questions he had been asked. “They want something that happens everywhere at the same time,” Harry S. says.

     

    A large man with broad shoulders, Harry was trained as a fighter in Syria. He claims to have been drilled in training camps together with 50 other men: sit-ups, hours of standing in the sun and forced marches lasting the entire day. Those who gave up were locked up or beaten. His Kalashnikov, it was driven home to him, should become like his “third arm” and he was told to keep the weapon in bed with him while sleeping.

     


     

    The insights of the Bremen convert into Islamic State are of interest for security officials. Harry S. is the first returnee who can offer insight into the roles played by two notorious German-speaking jihadists who have joined Islamic State: Mohamed Mahmoud, an Islamist from Austria, and the former Berlin rapper Denis Cuspert (aka Deso Dogg). Rumors that they were recently killed in Syria have thus far not been confirmed by German officials.

     

    Mahmoud initially attracted attention in Vienna for his radical Internet postings and spent four years in prison there. He then moved to Germany, where he founded a Salafist group called “Millatu Ibrahim” together with Cuspert. The association was banned by the German Interior Ministry three years ago, whereupon several members went underground, only to reappear as members of Islamic State in Syria and Iraq.

     

    Harry S. met both Cuspert and Mahmoud in Raqqa. He sat together in a mosque with Cuspert and says the former rapper had just come back from the front. S. said his impression was that Cuspert was more important to Islamic State as the “hero” of propaganda videos used to attract Western recruits than as a fighter. Mahmoud, he said, had more influence and would hold ideology training sessions on Fridays in Raqqa. Mahmoud, Harry S. says, is “really dangerous,” adding that he had never before met such a disturbed person. After the executions in Palmyra, S. says, Mahmoud was proud of what he’d done.

     

    There is proof of the executions in Palmyra that Harry S. claims he saw. In the summer, Islamic State released a five-and-a-half minute video that was edited in some parts like a horror film. It was the first German-language execution video released by IS and it depicts two men kneeling between antique columns with Mahmoud and another Islamist from Germany standing behind them, weapons in hand. “Merkel, you dirty dog,” Mahmoud calls into the camera. “We will take revenge.” Then they shoot the prisoners in the head; a jihad hymn plays in the background.

     

    Harry S. likewise makes a brief appearance in the video. Clad in camouflage, he carries an Islamic State flag across the picture.

    Below, find two screenshots from the execution video mentioned above (Mahmoud is the one on the left):

    And here is the video featuring the vocals of “Deso Dogg”:

    Needless to say, if “Harry S” is correct and a few Leeth Abdalhmeeds manage to slip through undetected at German refugee camps only to carry out coordinated attacks, TIME magazine’s newly-minted person of the year will suddenly become the most unpopular figure in all of Germany thanks to TIME’s runner-up:

    Put simply: all it will take to destroy the legacy of the most powerful politician in the world (with the possible exception of Putin and Xi) is one night of terror perpetrated by a handful of extremists, and as we’ve been keen to note, the odds of a few “bad apples” slipping through go up by the day:

    On the “bright” side, one or two well placed passports in the wake of an attack will surely be enough to win over the 146 lawmakers in the Bundestag who voted against German military action in Syria.

  • The Market’s Gamblers Are Pumping Air

    Submitted by David Stockman via Contra Corner blog,

    The Fed pricked the financial bubblethis week  as expected. Janet Yellen’s press conference couldn’t have been more perfect for our investment thesis at my new research publication, Stockman’s Bubble Finance Trader. It confirmed that the money printers have come to a stark dead end.

    The fact is, the global economy is deflating rapidly and the U.S. is sliding into recession. But our Fed chairman is clueless about what’s happening. She and her posse of money printers are going to get bushwhacked by reality in the year ahead.

    She insisted repeatedly that the “economic fundamentals” are sound yesterday. Even though practically everything that matters is going south. This includes business investment, exports, retail sales, industrial production, inventory ratios, commodity prices, freight volumes and much more.

    Our Keynesian school marm hangs all of her groundless optimism on the completely misleading and heavily medicated jobs numbers put out by the Bureau of Labor Statistics.

    But here’s the thing: You can’t keep saying that the US labor market is in the pink of health when there are 102 million adult Americans without jobs. Or when there are still 3% fewer full-time, full-pay breadwinner jobs than there were 16 years ago when Bill Clinton was still in the White House.

    So here’s where we stand after yesterday’s watershed moment…

    Yellen officially admitted that, after the lunacy of free money for 84 months running, the Fed is out of excuses. And that it will start draining up to $1 trillion per day from the Wall Street swamp of liquidity.

    If the Fed doesn’t follow through on this huge draining action, interest rates won’t go up, even by its trivial 25 basis points target. Its credibility would be shattered.

    But if it does start heavily draining liquidity, it will catalyze the current sell off in the massive $2.6 trillion high yield market. That in turn will pull the props out from under the stock market. Here’s why: massive debt financed stock buybacks and mergers and acquisition (M&A) deals have inflated equities to their current nosebleed heights.

    Beyond that, Yellen also admitted the Fed is out of dry powder when she stumbled and stammered on a question about the business cycle being long in the tooth. She was also reminded of the obvious fact that the Fed can’t slash interest rates in response to a recession, because it’s still effectively at the zero bound.

    So there were two takeaways yesterday. First, the clarification that the Fed has three ways to lose. And our Bubble Finance Trading strategy wins regardless. (We just sold our first position for a 73% gain this morning. And that in about a month’s time.)

    The market will plunge sharply in the coming months if…

    • The Fed fails to raise interest rates as now promised; or…
    • If it drains liquidity as now proposed; or…
    • If it is confronted with the recessionary forces and bursting bubbles that it absolutely does not see on the path ahead.

    As I warned earlier this week, the “market” staged a relief rally after the Fed’s announcement. But that was as phony as a $3 bill. It was just the work of the robo-machines and fast money traders trying to bang loose some buy orders above the 50-day and 200-day moving averages. Both are right in the 2070 range where the S&P 500 stalled out after the press conference ended.

    But here’s the more relevant chart:

    Screen Shot 2015-12-17 at 4.43.21 PM

    The S&P 500 has been chopping and turmoiling on the flat-line for a full year since it first hit yesterday’s closing price in early December 2014.

    It’s tried to rally 34 separate times since QE ended in October 2014, and has failed each time. Like Pavlov’s famous dogs, the market has been trained to buy-the-dips, and for years was handsomely rewarded.

    But that is no longer working. It’s only a matter of time before the buy-the-dips mantra morphs into “sell the dead cat bounce”. Like today’s action.

    In a selfish sense, these flagging efforts by the casino players to levitate another last gasp “rip” are welcome. They give you a chance to pick entry prices for our Bubble Finance Trader recommendations that offer even more upside when the inexorable bursting of the bubble fully incepts.

    They may even succeed in generating one last Santa Claus rally before next year’s recessionary forces spook the remaining gamblers out of the casino. Gamblers, we might add, who no longer have a friend at the Fed.

    Like Wile E. Coyote, they are just pumping air and don’t even know it…

  • Japan Still Leads The Way Towards Our ENDGAME

    japan_SI

    Successful investors live by a golden rule: what the mainstream financial media talks about is not important. They focus on what they don’t hear instead. So forget about Yellen for a second. Let go of Draghi, oil, the South African rand and Syria. That’s all in the now. But investing is about the future.

    We are convinced there is one proverbial elephant in the room in particular that will shape our future. And that elephant is Japan. The ‘widowmaker’ trade has been claiming financial lives for multiple decades now. That is, short JGBs, or Japanese Government Bonds, was so obvious a trade that it never worked. The 10-year yield currently trades at 0.3%, which is close to the all-time low. We’re still waiting for the shoe to drop.

    Will it ever drop? We believe it will. ‘Drop’ might not be the appropriate word. The accumulation of imbalances might trigger a cascade of events that will shake the world at its core. Let’s investigate some data.

    Schermafbeelding 2015-12-18 om 23.06.30

    Japan’s debt-to-GDP ratio has hit a unprecedented 230%. You probably knew that. But it doesn’t keep you awake at night. We are genetically wired to focus on acute danger. If a tiger approaches us, we focus. But if stands still and doesn’t move for years, we turn around in search for other dangers. Wise investors remind themselves constantly of the tiger though. They never let their guard down.

    What about the pace at which debt-to-GDP is ramping up? The budget deficit tells us all we need to know.

    Schermafbeelding 2015-12-18 om 23.06.52

    For six years in a row already, Japan scored around minus 8%. And given the flattish GDP, these annual percentages head straight to the public debt pile. Japan’s long term potential real GDP-growth rate is simply close to zero, given the demographics. The latest quarterly print was a minus 0.3%. This makes the debt grow even faster.

    The GDP leads us to the approach that governments used time and again in history to reduce debt loads: nominal GDP-targeting. Also known as inflation-targeting, financial repression, money printing, and monetary stimulus. The Bank of Japan (BoJ) is working hard in that respect. It already owns over 30% of the total JGB market. In a few years, Japan Macro Advisors (JMA) projects the BoJ might be holding over 60% of the total market given its current policies.

    japan_1

    What does that look like from a total balance sheet-perspective? With the BoJ also buying all kinds of non-JGB assets, the other central banks’ balance sheets just pale in comparison. We are witnessing a truly historic experiment.

    japan_2It doesn’t take an Einstein to figure out that this is totally unsustainable. The BoJ-policies will have consequences. The most likely scenario is that inflation slowly develops at first. Commodity prices could turn. The yen could take another beating. And then suddenly, inflation accelerates.

    Now, there has always been a lack of ‘demand’ for stuff in Japan. It has always been lucrative to hold cash. Yens were safe. Every year, you could buy more stuff. But as inflation develops, the growing flock of elderly will realize their government benefits are just paper promises. When the price of everything rises, as already happened in the Japanse stock market, they will realize their savings are losing value. Money will then become the hot potato. The velocity of money will rise. Suddenly, ‘demand’ will appear. Inflation accelerates. 

    Hyperinflation is a possibility. It is not yet well-understood how this develops. There are multiple theories on the process. But historically, nearly all hyperinflations have been caused by government budget deficits financed by money creation. And that condition for sure is present in Japan.

    Once the bond market realizes what is happening, the game is over. The JGB market will crash. The ‘widowmaker’ will make millionaires of the ones still hanging on. There will be a fiscal crisis. Panic develops. A banking crisis ensues, as yen denominated asset prices and the yen itself both crash.

    Japan leads the way

    The most scary prospect is that Japan is our leading indicator. Remember what we heard after the financial crisis. The US was not Japan. Europe was not Japan. There was not going to be deflation here. We were smarter. We learned Japan’s lessons. Well, as we’re heading into 2016 you would be hard-pressed to find anyone who would deny that the US, and especially Europe, both struggle with anemic growth and deflation. Despite all the extraordinary efforts of the Fed and ECB.

    Japan does lead our way. One morning, Japan’s experiment will reach its logical conclusion. The sun will rise in the East and the world will be a different place. That morning might arrive sooner than you think.

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

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  • ISIS Axis Assemble! Turkey To Establish Military Base In Qatar

    As we never tire of reminding readers, it’s critical to understand that the conflict in Syria, as interesting and important as it is in isolation, is part of larger story. As we documented in “Mid-East Coup: As Russia Pounds Militant Targets, Iran Readies Ground Invasions While Saudis Panic,” an epochal shift is taking place in the region

    Preserving the Assad government is absolutely critical for Iran. Syria serves as a key link between Tehran and Hezbollah in Lebanon and were Damascus to fall to a Western puppet government, Iran’s so-called “Shiite crescent” would wane. Riyadh, Doha, and Ankara know this of course and would like nothing more than to push the Iranians out of the Arab Peninsula, and ideally, undercut Tehran’s influence in Iraq as well.

    The conflict in Yemen is the same story. Iran backs the Houthis and just about the last thing the Saudis, Qatar, and the UAE want to happen is for Iran to effectively establish a colony on Riyadh’s southern border with a cozy view of the  Bab-el-Mandeb. That explains why the Gulf monarchies have put so much effort into driving the Houthis back and why the they won’t likely stop until Sana’a is recaptured (even if a few MSF hospitals and a UNESCO world heritage site have to be destroyed along the way).

    In short, this is an all-out regional Sunni vs. Shiite proxy war with the US backing the Sunnis and Russia backing the Shiites. If Iran and Russia win, Tehran will have cemented its foothold in Syria and Iraq just as international sanctions are lifted. If the Saudis win, the status quo will be preserved only with a “friendly” government in Damascus and a restored Hadi regime in Yemen. 

    With the stakes so high, it’s no wonder that all sides are sparing no expense. The Saudis are pouring resources into the Yemen fight even as Riyadh’s fiscal deficit has ballooned to some 20% of GDP in the face of slumping crude prices. Qatar and Turkey are funneling weapons and money to proxy armies in Syria and Ankara is apparently willing to risk its international reputation on the way to facilitating the ISIS oil trade. Meanwhile, Russia is all-in on the air campaign in Syria and Iran has committed Hezbollah, thousands of Iraqi Shiite militiamen, and its most important generals to Assad’s cause.

    As Hezbollah advances on Aleppo under cover of Russian airstrikes, the anti-Iran/anti-Assad nexus is getting concerned. Recall that in October, Qatar hinted at direct military action in Syria when Foreign Minister Khalid al-Attiyah told CNN that “if a military intervention will protect the Syrian people from the brutality of the regime, we will do it [along with] our Saudi and Turkish brothers.”

    Well don’t look now, but Turkey is set to establish a military base in Qatar in order to help the countries “confront common enemies.” As Reuters reports, “establishment of the base, part of an agreement signed in 2014 and ratified by Turkey’s parliament in June, intensifies the partnership with Qatar at a time of rising instability and a perceived waning of U.S. interest in the region.”

    “The two countries have provided support for the Muslim Brotherhood in Egypt, backed rebels fighting to overthrow Syrian President Bashar al-Assad and raised the alarm about creeping Iranian influence in the region,” Reuters goes on to note, adding that “3,000 ground troops would be stationed at the base – Turkey’s first overseas military installation in the Middle East – as well as air and naval units, military trainers and special operations forces.”

    The deal also opens the door for Doha to establish its own base in Turkey in the future. “Turkey and Qatar face common problems and we are both very concerned about developments in the region and uncertain policies of other countries,” Turkey’s ambassador to Qatar Ahmet Demirok said. “We confront common enemies. At this critical time for the Middle East cooperation between us is vital.”

    Yes, “more cooperation” is “crtical.” Because the current level of cooperation apprently hasn’t created enough instability and outright carnage. 

    Bear in mind that this comes just as speculation is running high regarding the possibility that the US, Saudi Arabia, Qatar, and Turkey may soon look to send in tens of thousands of ground troops to Iraq (and possibly Syria). The takeaway is this: even as Germany (and next France) seem to be moving towards a more cooperative approach when it comes to coordinating with the Assad government in the war on terror, Saudi Arabia, Qatar, and Turkey’s resolve to see the Syrian government fall has only hardened. The question is whether the US will continue to back its allies in the region or follow Germany down a more conciliatory path when it comes to dealing with the Syrian “problem.”

  • Weekend Reading: All About Janet

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    Well… she did it. After eleven years of maintaining emergency rates in order to boost asset prices, valuations, speculative debt accumulation back to pre-financial crisis levels, Janet Yellen officially hiked rates this past week.

    More interesting was that while banks are getting paid more on excessive reserves, and hiked the lending rates, they have not offered to share any of their new found income with savers. Of course, that revelation should not really surprise anyone at this point.

    However, as I discussed earlier this week, there is a nagging question as to why they would raise interest rates at this late juncture in the economic cycle.

    “With economic growth currently running at THE LOWEST average growth rate in American history, the time frame between the first rate and next recession will not be long.

    Fed-Funds-GDP-5yr-Avg-Table-121715

    However, as I have stated many times in the past, it is quite likely the Fed is already well aware that we are very late in the current economic cycle. For them, the worst of all possible outcomes is being caught at the “zero bound” of interest rates when the next recession begins which removes one of the more effective policy tools at their disposal.

    For investors, there is little “reward” in the current environment for taking on excess exposure to risk assets. The deteriorating junk bond market, declining profitability and weak economic underpinnings suggest that the clock has already begun ticking. The only question is how much time is left.

    This week’s reading list is a compilation of opinions on the Federal Reserve’s latest actions and the myriad of potential outcomes that are expected. How you choose will be very important, so choose wisely.

    1) Yellen, You’re Nuts by Karl Denninger via Market Ticker

    “The effective fed-funds rate has been running at 0.15% for a bit now. To ‘raise rates’ to 0.25% the net change in system liquidity required is about 60%.

     

    This is math folks. It’s the reason The Fed has a monstrous balance sheet; they had to in order to influence rates the way they wanted to on the way down. But to reverse that policy you must unwind that which you did in exactly the same sort of fashion.

     

    So how much does The Fed have to drain themselves? I don’t know and neither do they. But that they have to reduce the amount of the ‘overfill’ in the liquidity pool by some 60% isn’t conjecture, it’s arithmetic.

     

    We’ll see if the EFF actually moves in coming days as they “desire” and where the drain comes from. But this much is certain: If the rate does move, the drain will have occurred somewhere.”

    But Also Read: Fed Raises Key Rates by Binyamin Appelbaum via NY Times

     

    2) Yellen Takes A Huge Gamble by Ambrose Evans-Pritchard via The Telegraph

    “The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world.”

    NGDP-Growth-121815

    But Also Read: Fed Finally Raises Rates, Pent-Up Risks Emerge by Greg Ip via WSJ

     

    3) Overoptimistic Fed Strains Credibility On Forecasts by Lindsay Dunsmuir via Reuters

    “But Fed policymakers have a mixed record in predicting the nation’s economic health, casting doubt on their ability to set a rate path that will keep one of the longest-running yet most anemic recoveries in modern history on track.

     

    An analysis of the rate-setters’ year-ahead projections over the past five years shows they have generally overestimated real GDP growth and inflation, while underestimating improvement in the unemployment rate.”

    USA-FED-FORECASTS
    But Also Read: A Fight For The Soul Of The Fed by Jeff Spross via The Week

     

    4) Rate Hike Marks Start Of Correction by Michael Gayed via Market Watch

    “Several signs are flashing red, indicating that a correction may be about to begin just as the Fed begins hiking rates. The zero-interest-rate policy has created massive distortions and a surprisingly large number of false positives when tracking historically proven leading indicators of corrections and volatility.

     

    Perhaps the time has come for the bull market in risk management to make a comeback as the Fed slowly takes the punchbowl away. Regardless of one’s opinion, quantitative inter-market relationships which over time have shown their worth are signaling to watch out.”

    But Also Read: How The Fed Just Launched The Next Bear Market by Tyler Durden via Zero Hedge

    Zero-Hedge-121715

    5) Rate Hike And The Potential For Recession by Edward Harrison via Credit Writedowns

    “So let me give you a scenario here. In an environment in which earnings are shrinking and oil prices are declining, capital investment gets cut. And then the question becomes how much residential investment and consumer consumption growth can overcome this factor.

     

    In a Goldilocks scenario low rate lock-in behavior causes borrowers to pull forward their borrowing decision, pushing up credit growth while the energy sector works through its malaise and the baton is passed to wage growth to do the heavy lifting of maintaining consumer spending . That’s what the Fed hopes will happen.

     

    In a worst case scenario, the real economy effects of the oil sector and the earnings slowdown hit the frothy commercial real estate and REIT sector, which in turn begin the widening of the contagion begun by energy high yield. Combine this with the sudden stop to lower quality energy credits I believe is inevitable and you likely have stall speed – or even recession. And that’s where subprime auto ABS, student loan securitization and US munis come into the picture for the US domestic economy. Those markets get hit in recession.”

    But Also Read: Rate Hike Will Help The Economy by Drew Greenblatt via Inc.

    MUST READS

    “Where are the customer’s yachts?” – Fred Schwed, Jr.

  • 'Twas The Hike Before Christmas

    “Christmas at my house is always at least six or seven times more pleasant than anywhere else. We start drinking early. And while everyone else is seeing only one Santa Claus, we’ll be seeing six or seven.”

    – W.C. Fields.

    ‘Twas the hike before Christmas, and all over the shop
    Short end traders were waiting for prices to drop.
    Bloomberg and Reuters, the FT all there
    To capture the moment – if Yellen would dare.

     

    Stockbrokers slept fitfully, dreaming of when
    Fed policy meant lower rates, thank you Ben;
    The hedgies, meanwhile, partied on in their yachts,
    With barely a thought of ascending Fed dots.

     

    Commodities managers searched in despair
    For solace, in cupboards, but cupboards were bare.
    BRIC managers looked at each other in shock,
    With a new acronym for EM markets – COCK.

     

    The dollar was rallying, higher and higher –
    For frontier debt markets, a funeral pyre.
    There were sellers of iron ore, zinc, copper and gold;
    What was mined or extracted got ruthlessly sold.

     

    And CNBC then went live with its anchors
    Though all in the market considered them disappointing,
    The cameras all turned to report news from Janet,
    The Fed chief who lived on a different planet.

     

    “Information received since we met in October.”
    But by now there was nobody left who was sober;
    So when she announced her first quarter-point hike,
    Since nobody heard her, all markets did spike.

     

    The Nasdaq went higher, the S&P too;
    The bond market loved it, and Treasuries flew.
    The Far East went mental and over in China
    The rally in mid-caps could not have been finer.

     

    At which point a figure in red fled the room,
    Concerned that he’d caused an untenable boom.
    The Santa Claus Rally* was with us all right –
    “Happy Christmas to all, and to all a good night!”

    *Ends December 24th.

    Source: SovereignMan.com

  • The Exception

    “Exceptional” American…

     

     

    Source: Townhall.com

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Dec 18

Today’s News December 18, 2015

  • Financial Warfare & The Big Reset: Koos Jansen Interviews Willem Middelkoop

    Submitted by Koos Jansen via BullionStar.com,

    The very reason I became interested in gold after the financial crisis in 2008 was because of Dutch gold guru, author, journalist, entrepreneur, and fund manager Willem Middelkoop. When I started reading his books I was immediately obsessed with economics and the gold market – along with thousands of others across the world.  Who would have thought that I would become a precious metals analyst a few years later?

    It was an honor to have contributed to Willem’s latest book The Big Reset with translations from Chinese policy makers that stimulate their citizenry to accumulate physical gold and my initial research into the Shanghai Gold Exchange that revealed Chinese gold demand was approximately twice a large as what was previously thought in the English-speaking world.

    When The Big Reset was first released in January 2014 I’ve conducted an interview with its author about the inevitable reset of the international monetary system (the interview was published in two parts on this blog – one, two). Since then a lot has happened in the global realm of economics and at the same time The Big Reset became an international best seller. As we speak The Big Reset has been translated in Dutch, German and Chinese and is expected to appear in Portuguese, Arabic, Polish and Vietnamese.

    To keep up with the most recent developments Willem has added 70 pages in the revised edition of The Big Reset. For me a reason to have another chat with him about what he saw has happened in the past two years:

    The Big Reset

    J: Is it a coincidence that after the financial crisis more tensions between the West and East emerged and is there a financial war played by the US?

    WM: Economic warfare aims to capture or otherwise control the supply of critical economic resources or destroying a country’s currency.  The US understands better than anybody else that a country can sometimes be hurt more by doing this than by bombing its infrastructure. A recent example of financial economic warfare was the sudden crash of the price of oil and value of the ruble soon after the annexation of the Crimea by Russia, in the second part of 2014. In less than six months the price of oil halved. This large drop could not be explained by fundamentals like supply and demand. Some market commentators said it reminded them of the Cold War era when the US and the former USSR competed not only in a military way, but also tried ‘to play the economy’. Because the USSR was increasingly more dependent on food imports, especially grain, the export of oil had to bring in enough dollars. The US decided to use its influence on Saudi Arabia (OPEC) and persuaded them to expand the supply of oil, making the oil price plunge in the 1980s. It would soon prove to be a fatal attack for Russia and the Soviet Union collapsed in 1991. The fact that Saudi Arabia in 2014 again increased its oil production fuelled rumours of a new economic war against Russia. The collapse of the oil price led to collapse of the Russian ruble. The Russian Sberbank, confirmed that it had come under a financial economic attack in December 2014. Herman Gref, CEO of Sberbank, disclosed a foreign-based attempt to provoke a bank run during the December ruble crisis. In an interview he said that about $6 billion had been withdrawn from the Sberbank in a single day after a massive information attack, with people receiving text messages saying Sberbank was facing problems paying out deposits. Thousands of SMS-messages were sent, including a large number of mailings done from foreign websites.

    Willem Middelkoop the big reset

    Willem Middelkoop

    J: What more do you see around the world in terms of financial warfare?

    WM: In May 2015, the US had a number of high-ranking FIFA officials arrested in Switzerland in connection to a bribery case. Most observers did not understand that the US action was designed to pressure FIFA, ‘urging it to consider removing Russia as host of the 2018 FIFA World Cup because of its role in the Ukraine crisis and occupation of Crimea.’ China and Russia were also shocked to learn how the SWIFT international payment system was used as a means to attack Russia. In 2014, the United Kingdom pressed the EU to block Russia from the SWIFT network as a sanction for the Russian aggression in Ukraine. China responded quickly and launched its own alternative, the China International Payment System (CIPS). In addition, by 2012 SWIFT disconnected all Iranian banks from its international network. Alastair Crooke, a former MI6 official is one of the few individuals who has been very open about the purpose of this kind of financial and economic warfare.

    J: Is this all meant to defend the US dollar hegemony?

    WM: In a book, ‘Treasury’s War,’ the tool of exclusion from the dollar-denominated global financial system is described as a ‘neutron bomb.’ When a country must be isolated, a ‘scarlet letter’ is issued by the US Treasury that asserts that such-and-such bank is somehow suspected of being linked to a terrorist movement – or of being involved in money laundering. The author of ‘Treasury’s War’ Juan Zarate, chief architect of modern financial warfare and a former senior Treasury and White House official, writes this scarlet letter constitutes a more potent bomb than any military weapon. With Ukraine we have a substantial, geostrategic conflict taking place, being part of a geo-financial war between the US and Russia.

    J: What’s China’s roll in this?

    WM: It has brought about a close alliance between Russia and China. China understands that Russia constitutes the first domino; if Russia is to fall, China will be next. These two states are together moving to create a parallel financial system, disentangled from the Western financial system. That’s why both are accumulating so much physical gold. It includes replicating SWIFT and creating entities such as the Asian Infrastructure Investment Bank. One of the principal tools in the hands of Washington to control the global system was always the International Monetary Fund (IMF). Nations have to go to the IMF to ask for financial help, when in difficulties, but recently it was China – and not the IMF – which bailed out Venezuela, Argentina and Russia as their currencies crashed. China became concerned when the ruble crashed late 2014, and intervened to halt a run on the currency. The IMF and the World Bank are no longer at the center of the global financial order.

    J: Why is this dollar hegemony so important for the US?

    WM: ‘Great nations have great currencies and great currencies can give countries great power so they can even grow into empires’, political scientist Jonathan Kirshner once said. In order to maintain its monetary hegemony, the United States must weaken any potential competitors who will possibly challenge the US monetary hegemony. Wars in the Middle East are fought to strengthen the dollar’s position and fight regimes that have been supporting Russia. General Wesley Clark, the Supreme Allied Commander of NATO during the 1999 War on Yugoslavia, confirmed in an interview that the US had decided to work toward regime changes in seven countries, in order to secure US interest in the region before any new world power might arise.

    J: Through the dollar the US has unlimited powers?

    WM: Any country, like the US, that issues the dominant world reserve currency has almost limitless power to finance other countries. It gives the monetary hegemony ‘exorbitant privilege,’ as the French remarked in the 1960s. Because it can print the world currency the US can buy anything it wishes without having to worry about its liabilities. While the Soviet Union collapsed because they had to import food with hard-earned dollars from their oil exports, in the 70s and 80s, the US could start the Korean War and the Vietnam War with freshly printed greenbacks. By ‘obliging’ foreign central banks to keep their monetary reserves in Treasury bonds, the US in fact forced them to finance US military spending abroad, as Michael Hudson explains in his book ‘Super Imperialism’.

    In this new form of imperialism, the US is able to rule not through its position as world creditor, but as world debtor. America’s weakness as a debtor country has indeed become the foundation of the world’s monetary and financial system. A Chinese market commentator once remarked: ‘World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy … a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US … Everyone accepts dollars because dollars can buy oil.’ Only when dollar-holding nations decide to buy natural resources instead of US treasuries, is the dollar’s reserve currency status in danger. This is exactly the exit strategy China and Russia seems to be playing right now. In recent years, the Russians have sold most of their dollar holdings, while they tripled their gold position. The Chinese have stopped buying extra US Treasuries since 2010 while they have imported and invested in huge amounts of gold. These developments signal the first stages of the US dollar’s decay.

  • Markets Brace For More Fund Liquidations As Record Outflows Slam Debt Funds

    Among the fixed income community, this week’s most important number, more so than the pre-telegraphed 25 bps increase in the Fed’s interest rate, was the weekly report of capital flows in and out of bond funds by Lipper/EPFR, which came out moments ago and which following last week’s junk bond fund fireworks involving Third Avenue and several other gating or liquidating funds, was expected to be a doozy.

    It did not disappoint: in the words of Bank of America, there was  “Carnage in Fixed Income” as a result of the largest outflows from bond funds since Jun’13 ($13bn) with outflows concentraing, as expected, in illiquid & low-quality assets.

    The details showed a broad revulsion to all aspects of the fixed income space, from Investment Grade, to Junk to bank loans. To quote Bank of America:

    • Huge $5.3bn outflows from HY bond funds (largest in 12 months)
    •  $3.3bn outflows from IG bond funds (outflows in 4 of past 5 weeks) (2nd biggest in 2 years)
    • $2.2bn outflows from EM debt funds (largest in 15 weeks) (outflows in 20 of 21 weeks)
    • Huge $1.8bn outflows from bank loan funds (largest in 12 months) (outflows in 19 of past 20 weeks)

    Bloomberg, which cited BofA numbers, and yet which had different totals was nonetheless close enough. It reported that investors “pulled $3.81 billion from U.S. high-yield bond funds in the past week, the biggest withdrawal since August 2014, according to Lipper.”

    The FT’s numbers were even more different:

    Investment grade bond funds in the US have been hit with a record wave of redemptions, a week after two high-yield funds announced they would shutter and another barred withdrawals as the credit market showed further cracks.

     

    Investors withdrew $5.1bn from US mutual funds and exchange traded funds purchasing investment grade bonds — those rated triple B minus or higher by one of the major rating agencies — in the latest week, according to fund flows tracked by Lipper.

     

    The figures, the largest since Lipper began tracking flows in 1992, accompanied another week of $3bn-plus withdrawals from junk bond funds.

    Whatever the real number, the result is clear: investors have launched a feedback loop where lower bond prices lead to more redemptions which force more selling, leading to more redemptions and so on.

    As Bloomberg reminds us, the average yield on junk bonds jumped to more than 9 percent on Dec. 14 for the first time since 2011, according to Bank of America Merrill Lynch indexes. And yet despite endless laments that there is “not enough yield”, investors couldn’t get out fast enough. It appears investors aren’t “starved for yield”… they are simply “starved for safety in numbers.”

    “The negative headline feeds upon itself,” Ricky Liu, a money manager at HSBC Global Asset Management told Bloomberg. “And if you are in a poorly performing retail fund, there is also the concern that there could be more pain to follow. The commodities space is still a pretty big part of high yield and there is no relief there yet.”

    The visual breakdown: junk bonds.

     

    Bad news for buybacks: Investment Grade outflows soared in the last week to the highest in over a year driven entirely by redemptions from mutual funds, and offset by a small injection in IG ETFs.

     

    Total fixed income fund flows.

    But the one category that was certainly the most interesting, is the one we highlighted earlier today when we said “the one asset class that has so far slipped through the cracks, but which will be very closely scrutinized in the coming weeks now that rates are rising: leveraged loans.” The reason: the underperformance in leveraged loans so far this year is on par if not worse than that of junk bonds.

     

    Result: bank loan funds just recorded their 2nd biggest outflow since August 2011.

    And longer term.

     

    The bottom line: as new investor liquidity evaporates and as billions are redeemed first from the junk bond universe, then investment grade and then loans, the debt crisis which was unleashed in anticipation of the Fed’s rate hike, is about to get much worse, and lead to even more prominent hedge fund “gates” and liquidations, while in the equity space, the lack of Investment Grade dry powder means that buybacks are about to grind to a halt.

  • All Of The World’s Money And Markets In One Visualization

    By Jeff Desjardins of Visual Capitalist and the Money Project

    How much money exists in the world?

    Strangely enough, there are multiple answers to this question, and the amount of money that exists changes depending on how we define it. The more abstract definition of money we use, the higher the number is.

    In this data visualization of the world’s total money supply, we wanted to not only compare the different definitions of money, but to also show powerful context for this information. That’s why we’ve also added in recognizable benchmarks such as the wealth of the richest people in the world, the market capitalizations of the largest publicly-traded companies, the value of all stock markets, and the total of all global debt.

    The end result is a hierarchy of information that ranges from some of the smallest markets (Bitcoin = $5 billion, Silver above-ground stock = $14 billion) to the world’s largest markets (Derivatives on a notional contract basis = somewhere in the range of $630 trillion to $1.2 quadrillion).

    In between those benchmarks is the total of the world’s money, depending on how it is defined. This includes the global supply of all coinage and banknotes ($5 trillion), the above-ground gold supply ($7.8 trillion), the narrow money supply ($28.6 trillion), and the broad money supply ($80.9 trillion).

    All figures are in the equivalent of US dollars.

    Courtesy of: The Money Project

  • We Disappeared Some Folks: Details Emerge In China's Sweeping Probe Of Stock Market Rescue

    It was exactly one week ago today when we reported that Guo Guangchang, a self-styled Chinese Warren Buffett worth some $7 billion, had disappeared. 

    For those who follow developments in China’s capital markets, it was obvious what had happened. Guo was swept up in Xi’s campaign to root out misconduct tied to the country’s equity market meltdown and subsequent government-engineered rescue effort. 

    Dubbed “kill the chicken to scare the monkey,” the witch hunt has ensnared a number of high profile government officials and bankers tied to Beijing’s plunge protection “national” team, which poured in excess of CNY1.5 trillion into Chinese stocks in Q3 in a desperate attempt to push back against an epic unwind in the half dozen backdoor margin lending channels that helped push stocks to nosebleed valuations earlier this year.

    Guo’s detention (he was allegedly met by authorities when he arrived in Shanghai on a flight from Hong Kong) sent shockwaves through Chinese markets. “His disappearance will fuel anxieties in the private sector that the anti-corruption crackdown launched by President Xi Jinping three years ago is being extended to high-profile entrepreneurs,” FT noted last week. 

    Guo has since resurfaced, but the crackdown – which, you’re reminded, is led by Fu Zhenghua, a former Beijing police chief responsible for orchestrating an infamous prostitution bust, a campaign against “popular bloggers whose sometimes anti-establishment comments drew the ire of party leaders,” and a decree prohibiting police officers from drinking alcohol outside of their homes – continues unabated. On Thursday, we get still more details about Beijing’s comical crusade courtesy of WSJ who notes that the focus of the probe has shifted squarely to members of the national team. 

    “Communist Party graft busters have been taking officials, one by one, to a hotel close to the [CSRC’s] headquarters to press them to come clean or report on others,” The Journal says, adding that “the investigators also have set up shop on the top floor of the agency’s 22-story headquarters in downtown Beijing, banned agency officials from leaving China and set up a hotline and red mailbox in the lobby for anonymous tips.”

    We’re also now beginning to understand the connection between Guotai Junan Chairman and CEO Yim Fung, Citic executives Jun Chen, Jianlin Yan, Xu Gang, hedge fund manager Xu Xiang, and CSRC vice chairman Yao Gang. Here’s more from The Journal: 

    Authorities have arrested or put under corruption probes major figures including executives at well-connected brokerage Citic Securities Co. and a highflying hedge-fund boss suspected of insider trading.

     

    The CSRC has grown in importance as China’s leadership seeks to turn the nation’s underdeveloped capital markets into a viable corporate funding source. 

     

    The top official accused so far is Yao Gang, 53 years old, until recently its vice chairman and a rising star within the party.

     

    On Nov. 13, the commission said Mr. Yao was taken away for “suspected serious violation of party discipline.” The officials with knowledge of the matter say investigators are probing whether Mr. Yao leaked classified information about the government’s market rescue to executives at brokerages including Citic Securities and Guotai Junan Securities Co. so they could buy stocks before they were purchased by state funds.

     

    “The focus of the investigation is on him potentially having enabled those big brokerage executives to make a killing at the expense of the nation’s interest,” one of the officials said. “Another question is whether he received any personal gains in return.”

    Apparently, Yim Fung has known Yao Gang for at least 15 years. Both worked at Guotai, and “they’ve been friends since then.” Beijing is also probing CFS, the state-sponsored margin lender under CSRC’s control.

    At this point, it’s not entirely clear what Xi is trying accomplish. We already know selling and especially short selling can “get you buried real quick” (to quote Black Mass) in China, and it now appears front running (in this case buying ahead of the plunge protection team) is a one way ticket to a Politburo prison as well. 

    With 15% of the market still halted, and with further yuan turbulence dead ahead, China may want to consider whether abducting executives and hauling them off to clandestine interrogation sessions in hotel rooms is the right approach when it comes to promoting the liberalization of capital markets and projecting the “right” image to the rest of the world on the eve of the yuan’s SDR inclusion.

  • Gold & The Federal Funds Rate

    Submitted by Pater Tenebrarum via Acting-Man.com,

    Wrong Assumptions

    It is widely assumed that the gold price must decline when the Federal Reserve is hiking interest rates. An example is given by this recent article on Bloomberg, which informs us that SocGen believes “gold will be a casualty of Federal Reserve policy”. Never mind that the assumption that the Fed will now be able to simply embark on a “normal” rate hike cycle is in our opinion utterly absurd. It will only do that if the inflation genie unexpectedly gets out of the bottle, and is guaranteed to remain “behind the curve” if that happens (more on this further below).

     

    gold-and-dollar

     

     

    It seems logical enough: gold has no yield, so if competing investment assets such as bonds or savings deposits do offer a yield, gold will presumably be exchanged for those. There is only a slight problem with this idea. The simple assumption “Fed rate hikes equal a falling gold price” is not supported by even a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one!

    Let us look at exhibit one – the 1970s:

     

    1-1970s

    So the gold price is falling when the Fed hikes rates? Not in the 10 years depicted above, when it did the exact opposite. It rose by 2,350% over the decade, and the vast bulk of the increase happened while the FF rate rose sharply. Gold did however plunge by almost 50% in a mid cycle correction from late 1974 to mid 1976 – while the FF rate actually went down – click to enlarge.

     

    So the guessers at SocGen might actually have improved their statistical odds a bit if they had said “now that the Fed is hiking rates, gold prices should rise”. The reality is though that even if they knew perfectly well what the Fed was going to do next year – which they don’t, as not even the Fed itself knows – they could not possibly make a correct gold price forecast based on that information.

    Let us look at a few more historical data – here is the gold price and the FF rate from 2001 to 2015. The best interpretation one can come up with on the basis of the raw data is that there simply exists no fixed correlation:

     

    2-2000ds

    Gold and the FF rate since 2001: What the gold price ends up doing seems to have very little to do with the federal funds rate – click to enlarge.

     

    It Simply Isn’t That Simple

    Now, if you have taken the time to read the article at Bloomberg we linked to above in its entirety, you will have noticed that it actually offers no analysis whatsoever. The SocGen analyst quoted by Bloomberg is simply parroting the current consensus.

    In August of 2011, the same guy would probably have told us why gold was certain to go higher over the next year (this is beside the fact that Wall Street loves to hate gold – after all, a rising gold price most of the time coincides with bad business for WS).

    The way markets – and the economy for that matter – appear to be analyzed most of the time is as follows: a ruler is applied to the most recent tred in the data, so as to be able to extrapolate a target. Then stuff is made up to provide “reasons” for the forecast. This is quite an easy exercise, because at any given time, statistical data can be used to support just about any forecast.

    This is why one first needs a correct theory – theory will help to constrain one’s forecasts (certain things are simply not possible) and can be used to properly interpret historical data. The data are practically useless by themselves. Naturally even a reasonably good grasp of theory will by no means ensure that one will be able to make a correct forecast – especially not in terms of timing. Considerable uncertainties will attend any attempt at prediction.

    However, we can be absolutely certain that 99% of mainstream financial and economic analysts will fail to correctly forecast turning points in prevailing trends. The analysts quoted by Bloomberg will never tell us when the trend is going to change.

    Once the trend has changed, they will however begin to “explain” the new trend to us at some point and forecast its continuation – after it has been underway for about three years. In the case of gold it may take a bit longer – last time they realized it was in an uptrend, the trend was about to celebrate its 10th birthday 🙂

    Obviously, things are not as simple as these analysts are making them out to be.

     

    The Fundamental Drivers of Gold

    We have recently made an updated list of the most important fundamental drivers of the gold price – not necessarily in order of their importance. Moreover, many of these drivers are obviously not independent of each other. Here is the list:

    1. real interest rates, as determined by the difference in market-derived inflation expectations and nominal interest rates
    2. the trend in credit spreads
    3. the steepness of the yield curve
    4. the trend of the US dollar
    5. faith in the banking system’s solvency
    6. faith in the monetary authority
    7. faith in government more generally (with a special focus on fiscal policy)
    8. the trend in risk asset prices
    9. the relative performance of financial stocks vs. the broad market
    10. the rate of change in money supply growth
    11. the demand for money and the desire to increase precautionary savings
    12. the trend in economic confidence in general
    13. the trend in commodity prices

     

    Below we show a simple chart that serves as a quick explanation why the trend in the federal funds rate as such is not relevant to the gold price. It is “simple” in the sense that while it is connected with point one of the above list of fundamental gold price drivers, it doesn’t employ a proper calculation of real interest rates (which would involve deducting expected price inflation rates from nominal interest rates).

    Instead we have merely calculated the real federal funds rate by deducting the annualized rate of change of CPI from the nominal FF rate. This has not only saved us a bit of time (since the proper calculation mentioned above involves more steps), but it also keeps the focus on the one interest rate the Fed actually controls.

     

    3-Real FF rate and gold, LT-ann

    The “real” federal funds rate vs. the gold price. This obviously provides a much better explanation than the simple (and completely wrong) formula “FF rate up/gold down, FF rate down/gold up” – click to enlarge.

     

    If one looks at the above chart more closely – readers can easily zoom in and out of it by constructing their own version at the Fed’s FRED database (in order to illustrate the point, we will show a close-up of the 1970s period below though) – one can see that even the real FF rate is only part of the explanation, or rather, insufficient as an explanation of the gold price trend.

    In particular once can see that there are considerable leads and lags involved. These partly reflect market expectations of future trends in the fundamental backdrop and partly the influence of the other gold price drivers listed above. In short, it is the totality of contingent circumstances that needs to be considered when attempting to forecast the future trend of the gold price.

    One has to adopt a holistic view of the economy and try to make an educated guess of the future evolution of the fundamental backdrop – always keeping in mind that there is a limit with respect to what can be known about the future. After all, new information constantly emerges – the only true “constant” in the market economy is the fact that is is subject to unceasing change.

     

    4-1970s real-a

    A close-up of the real FF rate in the 1970s and the gold price reveals significant leads and lags in the negative correlation between these data series. These are based on market expectations as well as the other drivers of the gold price – click to enlarge.

     

    Central Planning Quandary

    We can conclude that it is simply incorrect that a rising federal funds rate “guarantees” further declines in the gold price. On the contrary, one could well argue that the decline in the gold price since 2011/12 very likely already more than fully discounts a period of rising rates.

    One also needs to keep in mind that the Fed finds itself in quite a quandary. It has just begun to hike rates based on the trend in a lagging indicator of the economy (i.e., employment). At the same time, leading economic indicators are already indicating that a recession is probably fairly imminent. How likely is it that a true “rate hike cycle” will even happen?

    If the Fed is correct that CPI statistics will soon show rising price inflation (which they may well, mainly due to base effects), it will be in an even bigger quandary. Any attempt to stay “ahead of the curve” will immediately lead to a dramatic implosion of the asset bubbles it has fostered with its ultra-loose monetary policy in recent years. The economy will be taken right down with them (actually, we believe it is even more likely that the economy will tank before the stock market does).

    What one really needs to consider when thinking about the gold price is whether the idea that the economy is back to “business as usual” has any merit. The answer to this question is a clear and unequivocal no. Globally, the level of debt in the economy has increased by around 60% since the “great financial crisis” of 2008. In the US alone, the broad true money supply has grown by almost 115% since then (as of November 2015).

    In spite, or rather because of these bubble-blowing efforts, the economy has produced the by far weakest recovery of the entire post WW2 period. Nota bene that this applies to the US economy, which has actually stood out as the best performing developed market economy in recent years. Meanwhile, all indications are that this weak recovery will soon succumb to another cyclical recession.

    A recession could easily turn into a truly catastrophic bust if market confidence in the monetary authorities and the sustainability of the huge global debtberg evaporates – which will inevitably happen one of these days. What encore can the authorities offer when (not if) that happens?

    Obviously, gold bulls have been wrong for the past four years and they may well be wrong for a while longer – we don’t think it is very likely, but obviously we cannot rule it out. Then again, prior to that the bears were wrong for 11 years running and gold is still up more than four-fold since late 1999/2000. How much has the S&P 500 gained since 2000? There is a good reason for this discrepancy, and that reason hasn’t disappeared – on the contrary.

     

    Conclusion

    Our assessment is that one simply cannot afford to ignore the fact that gold provides insurance against a potential blow-up of the global fiat money and debt bubble – regardless of its near to medium term price performance. Its performance is in any case only negative in USD terms – in no other currency can gold be deemed to be in a significant bear market. In fact, as we have recently pointed out, it is already making new all time highs in some fiat currencies.

    Gold’s characteristic as a hedge/insurance against the consequences of policymaker machinations has recently gained additional importance in light of the fact that the echo bubble is clearly fraying at the edges already. Sooner or later there will be another full-blown crisis, at which point gold ownership will definitely be of great advantage. It is often said that the only certainties in life are death and taxes, but that is not quite true. There is another apodictic certainty: all booms driven by credit expansion will eventually blow up.

  • Dear Janet, Explain This!

    Having been unable – or unwilling – to answer various reporters' questions with regard the 'odd' timing of The Fed's rate hike yesterday, we thought we would offer just one more chart to question the credibility of the central planners. Plucked from The Fed's own research, last week saw the largest surge in St.Louis Fed's Financial Stress Index (FSI) since August… and as Yellen proclaimed "all clear" the FSI was screaming "Danger" even louder than it did in September – when The Fed folded.

    So, Financial Stress was surging and higher than in September when you folded… WTF Janet?

     

    Financial market stress rose sharply in the latest reporting week. For the week ending Dec. 11, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.691, up from the prior week’s revised value of -0.835. Last week’s increase was the fifth in the past six weeks and the largest since the week ending Aug. 28, 2015.

    Source: St.Louis Fed

     

    So, Janet, explain that!!

  • Martin Shkreli, "America's Most Hated", "Price Gouging" Biotech Mogul Arrested For Securities Fraud, Released On $5 MM Bond

    Update: Shkreli was released on a $5 million bond after a hearing Thursday, and had his travel restricted to parts of New York. It was not immediately clear how he pleaded to the charges.  Evan Greebel, whom the SEC said was Shkreli’s lawyer, also faces a count of wire fraud conspiracy. He was arrested Thursday and released on a $1 million bail.

    It is unclear if somehow Shkreli got 2.5x leverage on repackaged Collateralized Wu Tang Obligations.

    * * *

    The “most hated man in America” just got arrested for securities fraud.

    • SHKRELI, CEO REVILED FOR DRUG PRICE GOUGING, ARRESTED FOR FRAUD
    • N.Y. LAWYER EVAN GREEBEL ARRESTED IN SHKRELI INVESTIGATION

    Shkreli, the baby faced, former Jim Cramer protege and serial biotech mogul who famously raised the price of a toxoplasmosis drug by 5000% in September, igniting a media and political firestorm in the process, is accused of using Retrophin (a company he founded and ran until he was ousted by the board) as a kind of slush fund. As an aside, you’re reminded that Retrophin once raised the price of a drug used to treat a rare condition that causes reoccurring kidney stones from $1.50 a pill to $30.

    Retrophin claims that after Shkreli’s hedge fund, MSMB Capital, went bust after a $7 million loss on a “disastrous” trade with Merrill Lynch four years ago, he used a series of complex transactions involving Retrophin to pay back MSMB’s investors.

    “Retrophin sued Shkreli in August for misuse of company funds,” Bloomberg recounts. The company “claims he engineered numerous transactions between investors in MSMB and the biotechnology firm.” 

    Retrophin goes on to allege that “Shkreli paid some [MSMB] investors through fake consulting agreements and others through unauthorized appropriations of stock and cash”

    At one point, Shkreli allegedly decided to reclassify a $900,000 investment MSMB made in Retrophin as a loan. So basically, he invested in himself and then decided later that he had actually loaned himself money and needed to pay himself back. Retrophin did indeed pay back the “borrowings” and Shkreli subsequently used the funds to “settle another unrelated legal dispute.”

    As Bloomberg goes on to note, “The Securities and Exchange Commission, which according to court documents opened an investigation into Shkreli in 2012, is expected to file a parallel civil complaint against him, according to people familiar with the matter.”

    While Shkreli is known for laughing in the face of criticism and ridicule, this one might be hard to shrug off. It’s at least possible he could end up banned from running a public company, meaning Turing and KaloBios would need to find new executives (maybe Joe Campbell’s KBIO short will pay off after all).

    “Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies,” said Senator Susan Collins, a Maine Republican who ran the recent hearing into the soaring cost of specialty drugs.

    On the bright side for Shkreli, he’ll have plenty of time to listen to the one-of-a-kind Wu-Tang album he bought in May for $2 million if he ends up incarcerated.

    Incidentally, we predicted this might happen way back in September when we said that while “we doubt the SEC will investigate his shorting activity of biotech indices – we are confident the young ‘hedge funder’ will have bigger headaches to deal with soon enough.”

    And as for the ultimate punchline – drumroll – Shrekli had planned a meeting just two days ago with lawyers for incarcerated rapper “Bobby Shmurda” who Shrekli planned to bail out of jail. We’ll close with the following quote from Shkreli, who spoke to Vanity Fair: 

    “We’re actually in discussion to try to bail out Bobby Shmurda. Forget whether you think he’s guilty or not, the guy should not be sitting in jail right now. He deserves a fair trial. He deserves good lawyers. He doesn’t have good lawyers. His label is hanging him out to dry and so I have a conference call tomorrow morning with them (December 15). I’ll show up with $2 million bail money no fucking problem.”

    Better save that $2 million in bail money Martin. You may need it for yourself.

     

    Meanwhile, Jim Cramer is getting nervous:

     

    Full indictment:

    Sh Krel i Indictment

  • ISIS, Al Qaeda And The CIA: The Documented Connection

    The Middle East is fertile ground for conspiracy theories, and one growing to towering heights these days says the US created the Islamic State.  But while the US may well have aided ISIS in its formative days with covert supplies of weapons and CIA funding (directly or indirectly, via Turkey leading political families) the one nation most responsible for iteration after iteration of “terrorist organizations” is Saudi Arabia which “created” not only the Islamic State, but al-Qaeda, al-Nusra, and many other Sunni Jihadist groups in Thailand, the Philippines, Indonesia, India, Pakistan. 

    The US has long been aware of this, of course, and it has provided material support to some of them in the distant past, for example to the Taliban in the war against Russia.  But the more reasonable among us have questioned recent claims that the US intentionally created the Islamic State, a group of the same lineage as the Saudi terrorists responsible for 9/11. 

    Those rejecting a direct link between the US and the Islamic State instead ask a perfectly logical question: why would the US allow a country ruled by monarchs with dark-age-sensibilities get away with attacking us on 9/11, funding al-Qadea in Iraq (a group that killed a few thousand US soldiers), and now the Islamic State?  Two answers: fat, senile Saudi kings are preferable to the Islamic monsters that would replace them in a regime change, and the Bush family/Carlyle Group would prefer not to kill the goose that lays the golden egg. 

    Thanks to the resurrection of “J Pierpont Morgan”, these doubts and questions are no longer reasonable.  They are, in fact, irrelevant.  Because J Pierpont Morgan, apparently experiencing a Scrooge-like transformation, has seen the light.  Yesterday he tweeted three public source documents that conclusively show a Senior CIA Spy- a major figure in operations from South America to the Middle East-is lobbying the US Government to destroy Iraq and formally create an independent Sunnistan on behalf of a Sunni terrorist. 

     

    That terrorist joined the Iraq insurgency in 2004 under the Al-Qaeda Iraq banner, and was given hundreds of millions of dollars by the CIA and CENTCOM to defect, joining the US-led coalition in the now famous “Surge.”  Known as H.E. Shaykh Abdalrazzaq Hatem al-Sulayman, this self-described prince is the head of a 4 million strong (mostly Sunni) tribe in Anbar, and lived the high life on US taxpayer money- that is until Obama declared AQ and AQI dead, bolted from Iraq and pivoted toward Asia.  No CIA.  No Surge.  No money.  Just the wasteland that is Anbar, and a Baghdad government intent on consolidating power at Sulayman’s expense. 

    His Eminence, with his children in need of Bugatti supercars, flats in London, multiple Vertu mobiles, and an entourage of slaves, did what any good dad would: he created an insurgency called The Anbar Tribes Revolutionary Council in 2013, and solicited funds from Sunni Monarchs and individuals throughout the GCC.  The goal: destroy Baghdad and restore the Sunni to power in Iraq.  His allies: the Ba’ath and ISIS.

    In late 2014 Sulayman connected with Jonathan Greenhill, “former” Senior Operations Officer at the CIA who set up shop in DC as a lobbyist.  Makes sense.  CIA Spy since the early 1980s, probably living oversees under non-official-cover, comes home to lobby Congress.  Anyway, Mr. Greenhill incorporated the Greenhill Group, and Sulayman retained him.  One wonders how Sulayman became aware of Greenhill’s lobbying venture. 

     

    Mr. Greenhill’s LinkedIn page says he “conceptualized and executed one of the Agency’s most successful counterterrorism covert action operations while leading a CIA Base in an exceptionally dangerous, high stress war zone environment.”  Might that be the Surge?  Might Mr. Greenhill have played a role in funneling hundreds of millions of dollars to members of the AQ Iraq insurgency like Sulayman? 

     

     

    Oddly enough, Mr. Greenhill has a Facebook page too.

    Who knows?  What we do know is one of the most important spies in the CIA, one with a major role in the Near East (probably Iraq), definitely was retained as a lobbyist by Sulayman.  And Sulayman retained him to “create an autonomous Sunni region in Iraq or an independent Sunni State.”  In other words, destroy Iraq by formally creating and recognizing Sunni-Jihadi-stan.  Or a safe-zone for Sunni terrorists.  Or what it actually is, a caliphate.  It was recently written in the Washington Post that many Shia Iraqis harbor the conspiratorial belief the US created the Islamic State to destroy Iraq.  Conspiracy theory becomes conspiracy fact. 

    h/t @pierpont_morgan

  • Artist's Impression Of The Fed Rate Hike Hangover

    Data-dependent… and unrepentent!

     

     

    Source: Investors.com

  • "Let Them Fly There Now": Putin Threatens To Shoot Down Turkish Jets In Syria, Calls Erdogan An Ass Kisser

    It’s been nearly a month since Turkey shot down a Russian Su-24 in what not only represented the most serious escalation to date in Syria’s five year conflict but also marked the first time a NATO member has engaged a Russian or Soviet aircraft in at least six decades.

    The “incident” – which came several weeks after Ankara downed what certainly appeared to be a Russian drone – infuriated The Kremlin, setting off a war of words that culminated in a lengthy presentation by the Russian MoD which purported to prove that illicit Islamic State oil flows through Turkey. Both Putin and a number of other Russian officials have implicated Erdogan and his family in the trafficking of illegal crude and there’s speculation that Ankara’s brazen move to fire on the Russian warplane stemmed from Erdogan’s desire to “punish” Russia for disrupting what Deputy Minister of Defence Anatoly Antonov sarcastically called “a brilliant family business.” 

    As for the Russian foreign ministry, Sergei Lavrov canceled a planned trip to Turkey and Maria Zakharova went so far as to reference Turkey’s infamous political blogger Fuat Avni (a pseudonym) on the way to suggesting that Ankara had been planning to shoot down a Russian fighter jet for at least a month.

    In an effort to ensure that the downing of a Russian warplane in Syria was a “one and done” event, Moscow deployed the Moskva off the coast of Latakia and sent in the S-400 air defense systems (which were rumored to have already been in place). 

    Those moves rattled the US and its partners who fear that a nervous Putin might “inadvertently” shoot down an American, French, or British warplane. Indeed Putin ratcheted up the rhetoric last week. While not detailing ‘who’ he was focused on, the President told a session of the Defense Ministry’s collegium that “I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed.”

    Well, in case that wasn’t clear enough, Putin took it a step further on Thursday. 

    During his annual news conference in Moscow, the Russian President literally dared Erdogan to send Turkish F-16s into Syrian airspace. 

    As Bloomberg reports, “President Vladimir Putin signaled that Russia is ready to shoot down any Turkish military aircraft that strays into Syrian airspace.” 

    “Turkey constantly violated Syrian airspace in the past. Let them fly there now,” he said, pointing out that Russia’s most advanced air-defense system, the S-400, is covering all of Syria.

    (in case the S-400s and the Moskva should prove insufficient, Putin always has the “hands on” option)

    “This is the 11th press conference Putin will have with Russian and international journalists during the three terms he has served as head of state,” Sputnik notes. “These large press meetings, held once a year, usually last several hours. Almost 1,400 journalists have received accreditation for this year’s event.” 

    As for whether The Kremlin thinks the US was in any way involved in the downing of the Russian warplane, Putin said he wasn’t aware of any American involvement, but did suggest (literally) that Erdogan may have been trying to kiss Washington’s ass or, in Bloomberg’s more politically correct terminology, “Turkey may have been trying to curry favor with the largest member of NATO”.

    Putin: “If someone in Turkey decided to kiss Americans on a certain body part, I don’t know whether it was right or not.”

    Watch the full video below.

    For those who missed it, here’s an infographic look at the S-400:

  • America, It's Over! Yale Students Sign Petition To Repeal First Amendment

    Satirist Ami Horowitz tests the waters at Yale University to see if today's Ivy League students would actually sign a petition to repeal the First Amendment…

    It goes exactly how you might think it would…

     

    Within an hour on the Yale campus, Horowitz collected over 50 signatures from student who wanted to repeal a significant part of the Constitution.

    The petition to “blow up” the First Amendment (which protects freedom of speech, freedom of religion, freedom of assembly, freedom of the press, and freedom of petition), was met with such comments as "I think this is fantastic, I absolutely agree," and "excellent," or "I love it."  

    And as DailyCaller noted, one female student ironically agreed with Horowitz when he suggested, "I think the Constitution should be one big safe space."

    *  *  *

    To sum it all up… America, It's Over!

  • Dramatic Footage Of Reporters Mugging Martin Shkreli At Brooklyn Courthouse

    The last time the frenzied media was mugging an alleged financial criminal with utter abandon took place 7 years ago, when days after the Lehman collapse, respected “fund manager” Bernie Madoff was found to be nothing but a $60 billion Ponzi scheme.

     

    And while we don’t know if the emergence of the latest “financial criminal of a generation”, America’s most hated man Martin Shkreli, who earlier today was arrested and is facaing both civil and criminal charges and up to 20 yeasr in prison, is indicative of another Lehman-like even, what we do know is that a scene such as the one which unfolded in front of a Brooklyn courthouse, where dozens of reporters mugged the diminutive and scandalous figure after he posted a $5 million bond to be released back into society, is something that has not happened since Bernie Madoff’s time.

    Also earlier the FBI took an opportunity to explain that since there was no seizure warrant at Shkreli’s arrest, the infamous Wu-Tang clan album still remains in Shkreli’s possession.

    Ironically, while it took just months for the full wrath of the US government to crack down on Shkreli, Madoff, whose $60 billion ponzi scheme, somehow operated for three decades and had to blow up on its own before the authorities got involved. Odd how that happens.

    But who cares about Madoff: when talking about financial criminals of unmatched skill and the highest calibre, there really can be only one.

    The one seen with Hillary Clinton in the photo below…

     

    … The same Hillary Clinton who, incidentally, sealed Shkreli’s fate:

  • Thursday Humor: Lawyer For Martin Shkreli Hike Fees 5,000%

    Earlier today, the “most hated man in America”, serial biotech entrepreneur and former Jim Cramer protege Martin Shkreli was arrested by the FBI. 

    As Shkreli reminded the world earlier this week while discussing an absurd plan to free an incarcerated rapper, coming up with $2 million in bail money is “no fucking problem,” so we assume he’ll be able to afford an OJ-esque legal team. 

    Or will he…

    *  *  *

    A bit of humor, via The New Yorker:

    A criminal lawyer representing Turing Pharmaceuticals chief Martin Shkreli has informed his client that he is raising his hourly legal fees by five thousand per cent, the lawyer has confirmed.

    Minutes after Shkreli’s arrest on charges of securities fraud, the attorney, Harland Dorrinson, announced that he was hiking his fees from twelve hundred dollars an hour to sixty thousand dollars.

    Shkreli, who reportedly received the news about the price hike while he was being fingerprinted, cried foul and accused his attorney of “outrageous and inhumane price gouging.”

    “This is the behavior of a sociopath,” Shkreli was heard screaming.

    For his part, Shkreli’s lawyer was unmoved by his client’s complaint. “Compared to what he pays for an hour of Wu-Tang Clan, sixty thou is a bargain,” he said.

  • Refining ISIS Oil: Images From A Syrian Cottage Industry

    From the time Turkey ambushed and downed a Russian Su-24 near the Syrian border late last month, the world has developed a fascination with Islamic State’s illicit and highly lucrative oil smuggling business. 

    Although there are multiple accounts which purport to explain how the group ultimately gets its oil to market, the general consensus is that there are a series of trafficking routes that all converge on the Turkish port of Ceyhan. The Russian defense ministry says it’s identified at least three such routes and a report by Al-Araby al-Jadeed documented the path the illegal crude takes from northern Iraq to the southeast coast of Turkey.

    While no one has yet offered any conclusive evidence to prove that Turkish President Recep Tayyip Erdogan and his family are behind the trade, there’s quite a bit of circumstantial and anecdotal evidence to tie Ankara to “Raqqa’s Rockefellers” (if you will).

    And while everyone loves watching Russian MoD clips of oil tankers barreling across the Turkish border without so much as slowing down, what you don’t see that often are images from the various cottage industries that have grown up around Islamic State’s oil trade. 

    Below are several pictures of a makeshift refinery near Idlib (the site of Tuesday’s Russian airstrike on a fuel market) which Reuters says runs on Islamic State oil. 

    Men work at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015. The refinery site, owned by Yousef Ayoub, 34, has been active for 4 months. Ayoub says that he gets the crude oil from Islamic State-controlled areas in Deir al-Zor province and Iraq. The price for a barrel of crude oil varies and is controlled by the Islamic State, but it is currently at $44 dollars per barrel, he said. 

    A youth works at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015. Islamic State is looking at potentially vulnerable oil assets in Libya and elsewhere outside its Syria stronghold, where the militant group controls about roughly 80 percent of the oil and gas fields, a senior U.S. official said.

    A worker shows off the final fuel product at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015.

  • How The Fed Just Launched The Next Bear Market: BofA's Unexpected Conclusion In 8 Charts

    While the afterglow of exuberance remains in stocks, BofAML's Michael Hartnett is less than impressed by what comes next…

    As Fed hikes rates for the first time in 3,460 days, officially ending the era of extreme, abnormal monetary policy in the form of QE and zero rates, what do we see?

     

    Risk assets were very oversold going into the Fed hike…they now bounce.

     

    But the Fed hike follows significant tightening of liquidity; negative blowback is more and more visible, e.g. credit crunch causing less stock buybacks.

     

    And global banks being at all-time relative lows indicate Fed tightening into deflationary expansion, as does the narrow breadth of economic growth, wealth and asset price gains.

    Rising rates and falling profits are not a good combination for asset prices, so we will turn sellers of risk in early 2016.


     

    The FOMC In 8 Charts

    The Fed hiked 25bps, thus officially ending an unprecedented era of ZIRP and QE.  Some quick thoughts:

    The BofAML Global Breadth Indicator is on the verge of a tactical "buy" signal (Chart 2). Combined with high cash levels (5.2% in the Dec FMS = "buy signal") and the largest UW of US stocks since Jan'08, this suggests the final "pain trade" of a painful year is a squeeze higher in the most oversold risky assets.

     

    The rate of growth of global liquidity (CB balance sheets + global FX reserves) is now shrinking (Chart 3). In the past 15 months, liquidity has unambiguously tightened as Fed QE3 ended, US real rates rose (see USGGT05Y INDEX), and China/OPEC FX reserves fell. Excess liquidity caused excess returns. But returns have been low and volatile in 2015 (cash is outperforming stocks and bonds for the 1st time since 1990) and we think the Fed hike will simply extend this backdrop…at least until stronger US data signals Quantitative Success.

     

    Credit and commodities were two big "QE winners". The Fed hike coincides with a marked deterioration in the credit cycle, as evidenced by the widening of credit spreads. Rising rates and spreads means lower debt issuance, which in turn means less money for stock buybacks. Last week's S&P downgrade of Yum was driven by its announcement of a stock buyback program likely to be funded by even more debt. If companies cannot now issue debt to fund buybacks, this marks an important turning point for the stock market. Note wider credit spreads have gone hand in hand with underperformance of the stock buyback theme in recent months (Chart 4). We would thus take profits in any short-term bounce in stocks.

     

    In every cycle, higher rates punish financial excess. The commodity crash of 2015 was driven by the combo of tighter liquidity (thus strong $) and excess supply (driven by tech disruption and the zero rate policies of recent years). The widening of Saudi Arabia's CDS (Chart 5) indicates the crash and its secondary impact are still being felt.

     

    The end of QE3 in the autumn of 2014 sparked a bull market in QE "losers" such as the US dollar, volatility and cash, and a bear markets in QE "winners", such as EM, commodities & credit. The bear market in EM, commodities, credit would be irrelevant were the Fed hiking into a strong economy and a strong EPS trend. But the Fed is hiking at the same time as global bank stocks are at all-time relative lows versus global stocks (Chart 6). The absence of a bull market in bank stocks and a bear market in government bonds indicates the Fed is hiking into a very "deflationary expansion", hints at Quantitative Failure, and puts great onus on corporate earnings to support asset prices in 2016.

     

    Unfortunately US corporate profits are currently falling 4.7% YoY and this has historically been associated with negative US payroll growth (Chart 7).

     

    And while the overall stock market looks healthy, it betrays a fragile, deflationary bull market with increasingly narrow leadership (Chart 8).

    The Fed's hike still leaves US and global interest rates close to "depression era" levels (Chart 9) and history is littered with examples of central banks struggling to escape from zero rates (Fed 1937, BoJ 1994 & 2000). We will turn sellers of risk in early '16 because rising rates and falling profits are ultimately not a good combination for asset prices.
     

  • A Big, Fat "Policy Error" Or Worse? Find Out Tomorrow

    On Tuesday, the day before Yellen’s historic rate hike, the S&P closed at 2,043. Today, the day after a Fed announcement which everyone cheered overnight as simply fantastic, perfect, “dovishly goldilocks”, and countless other superlatives because it sent the market surging, the S&P closed at…. 2,042. In the process all the euphoric gains from the widely telegraphed Yellen announcement and press conference have been completely wiped out, not just for stocks…

     

    … but also for the most “sensitive” asset class in recent weeks, junk bonds which suffered a bruising wipeout today.

     

    … and then there is the one asset classess that has so far slipped through the cracks, but which will be very closely scrutinized in the coming weeks now that rates are rising: leveraged loans.

     

    All of which begs the question: did algos finally figure out precisely what we said first thing this morning, namely that the market completely ignored what was a hawkish hike..

    Yesterday, in a carbon-copy response to what happened in December 2013 when the Fed announced the Tapering of QE, stocks first sold off then, as if to validate the Fed’s decision as being accurate, saw a dramatic buying surge which pushed them to close just off the highs. With bonds and gold selling off while the dollar rebounded, the Fed could not have asked for – or engineered – a better reaction, while markets, as Bloomberg’s Richard Breslow points out, ‘chose to hear the parts of the statement and press conference that they wanted to.”

     

    That was the easy part. The hard part now is how to ween the market away from the old narrative, the one which has pushed the S&P to record highs over the past 7 years on bad economic news, and to renormalize the market’s own “reaction function” to that of the Fed. The problem is that from day one there is a major discrepancy between the two: as previously observed, the Fed did not deliver the desired dovish hike, and kept its 2016 year-end fed funds rate unchanged at 1.4% suggesting 4 rate hikes in the coming year, and which as Breslow notes means “being less dovish than the meeting previews suggested is now a sign of bullishness on the economy.” This sets the Fed on a collision course with the market because “with the market pricing fewer hikes than the Fed suggests, someone is going to end up being wrong. If we do get four hikes next year, markets (read equities) will need to deal with a hawkish surprise. If the Fed is forced to backtrack, there goes the full-speed ahead theme.”

     

    What this explicitly means is two things: bad economic news is no longer good for the market – after all the dominant paradigm now is one of strong dollar=strong economy=strong S&P (ignoring that the stronger the dollar, the worse the earnings recession sets up to be, the sharper the full economic recession), and that as Breslow concludes, the “Fed needs to focus on the real economy and get out of the QE mindset. I suspect that will be easier said than done.”

    … and that as a result, what Yellen has done, now that the kneejerk reaction is over, is policy error, pure and simple? To be sure, the pancaking of the 2s30s screams “error” and an imminent global deflationary wave:

     

    Or maybe it has nothing to do with the Fed, and everything to do with tomorrow’s quad witching. We warned about just this in last week’s “Beware The “Massive Stop Loss.” Recall:

    [The Fed’s rate hike] falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

    And what is the number one rule about broken markets? All stops get taken out.The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

    This is how we concluded:

    “The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days! “

    If so, tomorrow’s already illiquid expiration may be an event for the ages, one which may culminate with a Kervielesque-rate cut just days after the historic first ratae hike, only this time the Fed can’t do a 75 bps rate cut in response to one panicked futures trader, so 25 will have to suffice.

    Or perhaps it is neither the Fed, nor tomorrow’s market technicals, and the reason is an old and familiar one. Dennis Gartman.

    This is what the “world-renowned commodity king” said in his overnight letter:

    What then do we make of this? How then are we to invest? What then are we supposed to do? … All we know is that the trend remains upward and it was for that reason that although we were cautious and recommended openly that it was wise, ahead of the Fed’s to become neutral of equities (a position obviously we wish we had not taken, with the benefit of hindsight), we did not and would not recommend being short of the equity market. As we have said for years, and shall say as long as we are able to write TGL on a daily basis, in a bull market there are only three positions that one can have: Aggressively long of equities; modestly long of equities, or neutral of them. As of earlier this week, ahead of the Fed meeting, we advocated neutrality. Now we have to suggest the middle course once again. We’ve really no choice.

     

    There we sit this morning, knowing yet again that these things do not end well, but knowing too that it is better to be modestly long than otherwise.

    The rest is history.

    So tune in tomorrow when, if the JPM “Gandalf” is right again, things are about to get very exciting.

  • Time For A Rate Cut? Dollar Surge Sparks Stocks, Credit, Crude Purge

    From this – "See, rate hikes are awesome…"

    To this…

     

    US equities quickly tumbled as the NY session opened, erasing Yellen's gains, then trod water… then ended the day "NOT OFF THE LOWS"

     

    FANGs puked into the close…

     

    Leaving S&P, and Dow back in the red for 2015…

     

    And while stocks are up for the week, they have just managed to clawback losses from last Thursday's pre-3rd-Avenue close…

     

    The concentration (or lack of breadth) is becoming ridiculous…

     

    Stocks caught down to credit markets today, which did not explode as exubersatly as stocks yesterday… Today's 24bps decompression in HYCDX is the biggest (ex rolls and last Thursday) widening since October 2014.

     

    HYG broke below support…

     

    But we note that the tip of the spear in credit continues to utterly collapse…

     

    The Long-Bond is now the best-performing asset post-Fed, and crude worst with Gold notably weak…

     

    Treasury yields tumbled with the long-end outperforming…

     

    Cough "policy error" cough…

     

    With the curve smashing 2s30s back below 200bps to 9-month lows…

     

    And financials waking up to reality just a little…

     

    The USDollar was well bid today… extending gains from the immediate "sell the news" reaction after The Fed…

     

    Rallying against all the majors…

     

    Of serious note in FX markets was the 9th consecutive weakening of The Yuan… (longest streak since 2008)

     

    And the collapse of the Argentine Peso… plunging 30% to catch up with its unofficial rate…

     

    And some volatility in Mexican Peso as they raised rates…

     

     

    USDollar strength sparked weakness across the entire commodity complex with gold and silver suffering…

     

    And crude testing new cycle lows…

     

    And gold tumbled near cycle lows…

     

    Charts: Bloomberg

    Bonus Chart: Well, ok it's not a chart…but still…

  • WTF Headline Of The Day: Saudi Millionaire Edition

    Presented with no comment…

     

     

     

    Read more here…

  • 3 Things: Tick-Tocks, Stocks, & Shocks

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    Yesterday, Janet Yellen announced the first hike in the Fed Funds rate in eleven years from .25% to .50%. When asked about why the Fed decided to raise rates now, Ms. Yellen responded by suggesting that the “odds were good” the economy would have ended up overshooting the Fed’s employment, growth and inflation goals had rates remained at low levels. She then went on to state that it was a “myth” that economic growth cycles die of “old age.”

    While such an optimistic outlook for economic growth was certainly welcomed by the markets, both of her statements expose the challenges that lie ahead for the Fed.

    Tick-Tock, The Fed Starts The Clock

    Ms. Yellen is correct in stating that economic growth cycles do not die of “old age.” It is historically the impact of an exogenous impact that ultimately slows economic growth rates into a recessionary cycle. What Ms. Yellen failed to explain is that historically it has been the “tightening” of monetary policies that have been the “exogenous impact” to the economic growth cycle. 

    Looking back through history, the evidence is quite compelling that from the time the first rate hike is induced into the system, it has started the countdown to the next recession. However, the timing between the first rate hike and the next recession is dependent on the level of economic growth at that time. As I stated earlier this week:

    “When looking at historical time frames, one must not look at averages of all rate hikes but rather what happened when a rate hiking campaign began from similar economic growth levels. Looking back in history we can only identify TWO previous times when the Fed began tightening monetary policy when economic growth rates were at 2% or less.

     

    (There is a vast difference in timing for the economy to slide into recession from 6%, 4%, and 2% annual growth rates.)”

    Fed-Funds-GDP-5yr-Avg-Table-121715

    “With economic growth currently running at THE LOWEST average growth rate in American history, the time frame between the first rate and next recession will not be long.”

    Given the reality that increases in interest rates is a monetary policy action that by its nature slows economic growth and quells inflation by raising borrowing costs, the only real issue is the timing.

    As Sam Zell noted yesterday:

    “I think this interest rate hike is too late, this economy is closer to falling over than it is to going up. I think there’s a high probability that we’re looking at a recession in the next twelve months.”

    Looking at the historical data above, Zell’s timing appears to be just about right.

    Fed Rate Hikes And Bull Markets

    The other common meme this morning, following yesterday’s rate hike decision is that “stocks have nowhere to go but up.”

    Again, this is a timing issue. If you have a very short-term view, history suggests that stocks do rise on average following an initial rate hike. However, as shown in the chart below, historically rate hikes have occurred when earnings growth was on the rise, not peaking and deteriorating.

    Profit-Margins-Fed-Funds-121415

    Furthermore, as explained by Jason Goepfert of Sentiment Trader yesterday:

    “The S&P 500, gold and 10-year Treasury note yield are all up by more than 0.5% on the day. The knee-jerk assumption from that would be that traders are pricing in higher inflation.

     

    This is occurring on a day the FOMC raised its Federal Funds target rate. If we go back to 1971 and look for every time all three rallied at least 0.5% on a day the Fed hiked rates, we get the following future performance.”

    Sentiment-Trader-121615

    However, if we step our time frame out to longer-term, since we are all supposed to be long-term investors, the outlook becomes rather grim.

    Fed-Funds-Table-121715

    In every single instance when the Fed has started a rate hiking campaign, that campaign ended in a market correction or worse. (The Fed then began lowering rates immediately to stop the ensuing carnage.)

    With corporate profits deteriorating, economic growth weak and the dollar surging, the Fed is very late to the game. This puts the time frame between now and the next recession at the very short end of the scale.

    Growth So Bright, Lower Outlook

    One thing that is always interesting is comparing what the Fed “says” during their press conference and then looking at the history of their own forecasts.

    During yesterday’s press conference, Ms. Yellen made several references, as noted above, about the strength of the economy and that despite the surging dollar and collapsing oil prices, everything should continue to improve. The problem is that is NOT what was reflected in their forecasts released along with their announcement.

    The table/chart below shows the history of the Fed’s average range of their estimates going back to 2011 when they started releasing their forecasts as compared to what actually occurred.

    FOMC-Forecasts-GDP-121715

    Currently, economic growth forecasts for 2016 and 2017 are at their lowest rate since the Fed began predicting for those two years. Furthermore, it is worth noting that for 2015, the Fed had originally estimated growth to be 3.35% rather than the current run rate of 2.2%.

    Furthermore, they lowered their long-term outlook to just 2.05% from 2.25% at the last release.

    Yellen-GrowthForecasts-121615

    Yes, please meet the “worst economic forecasters” ever. And while the mainstream media quickly laps up the optimistic outlook of the Fed, you might want to consider their own record of forecasts when making long-term investment bets.

    Based on statistical history combined with the current underpinnings in the market, the outlook really isn’t as bright as Ms. Yellen suggests.

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Dec 17

Today’s News December 17, 2015

  • A Free Market in Interest Rates

    by Keith Weiner

     

    Unless you’re living under a rock, you know that we have an administered interest rate. This means that the bureaucrats at the Federal Reserve decide what’s good for the little people. Then they impose it on us.

    In trying to return to freedom, many people wonder why couldn’t we let the market set the interest rate. After all, we don’t have a Corn Control Agency or a Lumber Board (pun intended). So why do we have a Federal Open Market Committee? It’s a very good question.

    Someone asked it at the recent Cato Monetary Conference. George Selgin answered: no matter if the Fed stands pat or does something, it’s still setting rates. This is a profound truth, which brings us to a fatal flaw in the dollar.

    In our irredeemable currency, interest cannot be set by the market. There’s literally no mechanism for it. To understand why, let’s start by looking at the gold standard.

    Under gold, the saver always has a choice. If he likes the rate of interest, he can deposit his gold coin. If not, he can withdraw it. By withdrawing, he forces the bank to sell an asset. That in turn ticks down the price of the bond, which is the same as ticking up the rate of interest. His preference has real teeth, and that’s an essential corrective mechanism.

    Unfortunately, the government removed gold from the monetary system. Now you can own it, but your choices have no effect on interest. If you buy gold, then you get out of the banking system. However, the seller takes your place, getting rid of his gold and thereby taking your place in the banking system. The dollars and gold merely swap owners, with no effect on interest rates.

    The Fed has kicked savers to the curb, along with gold. Now the dollar is considered to be money. And what is it, exactly? The dollar is the Fed’s IOU. If you have dollars, then you are funding the Fed. You—along with billions of others around the globe—are empowering the Fed. It can lend at any rate it wishes, because it has a seemingly unlimited credit line. The Fed is lending your wealth to profligate borrowers who use it for nonproductive
    purposes—and that’s putting it mildly.

    The Fed can buy mass quantities of long term bonds. Obviously, this has a profound effect on the interest rate. However, it has a more important way of influencing rates. The Fed dictates the rate for short-term borrowing. This enables banks to borrow short-term, at nearly zero interest, and use the proceeds to fund the purchase of long-term bonds.

    Normally that’s unstable, because the bank’s funding keeps expiring. Imagine buying a house, using a loan with a balloon payment after one month. Every month, you would be sweating bullets about getting a new loan. Banks don’t have to worry about this, with the Fed as lender of last resort. They love this trade, because they pocket the difference between the interest rate they pay (near zero) and the interest rate they earn on long bonds (over two percent). It’s a crony handout, unfair to the people.

    More importantly, the banks are pulling the long-term rate down near the short-term rate.

    Getting back to the question about an interest rate market, we have to ask: how else could the present system work? The Fed is the source of what passes for money. Even if it could just stop lending—and this would quickly lead to disaster—that would still be a monetary policy.

    So long as we use the Fed’s IOU as if it were money, then the Fed is in charge of our interest rate. It’s that simple.

     

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

  • Ecological Panic: The New Rationale For Globalist Cultism

    Submitted by Brandon Smith via Alt-Market.com,

    Faith in an ideology based on a desire for power over others and the need to feel personally superior without any legitimate accomplishment is perhaps the most dangerous state of being an individual or society can adopt. I would refer to such a mindset as “zealotry,” an integral element of cultism and an extreme result of the elitist side of faith.

    Zealotry and cultism are not limited to the realm of the religious. Zealotry is a clever devil hiding in the woodwork of any political or academic construct, and this includes the scientific community when it strays away from empirical logic and honest data into a world of pseudoscience and social engineering. I cannot think of a better example of zealotry feeding scientific cultism than the highly propagandized climate change/global warming movement.

    Anthropogenic (man-made) global warming is quickly becoming the overarching rationale for almost every policy toward global centralization, as well as a scapegoat for nearly every major crisis from mass shootings and the rise of ISIS to geopolitical shifts in economic structures. Global warming has been projected as a magical force deviously underlying everything. It is presented by climate scientists and activists as an all-encompassing behemoth of cause and effect, yet nearly all of this frantic pontificating is supported by faith, rather than hard data.

    The issue is one of transparency. Without transparency of experimental data, climate scientists and think tank operatives become immune to examination. That is to say, if climate scientists and organizations, many of which are funded by public tax dollars, are not required to reveal the raw data behind their claims on global warming, then their claims are no longer a matter of “fact” or scientific process. Rather, the assertions of climate scientists now become edicts from on high, messages from high priests with a private line to the god of science — a god that no one is allowed to question. Their words become gospel: carbon footprints in the sand.

    Climate research institutions like the Climatic Research Unit at the University of East Anglia, NASA and the National Oceanic and Atmospheric Administration have refused for decades to release the raw data behind their experiments, which they say prove the existence of man-made global warming. For many years the CRU refused to release any data that was not first processed to reflect its own desired outcomes and still refuses to release emails that might prove that climate scientists had rigged data in their warming models.

    Professor Phil Jones of the CRU in charge of maintaining data sets famously told an Australian climate scientist in 2004:

    “Even if WMO agrees, I will still not pass on the data. We have 25 or so years invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it.”

    When opposition became more intense in reaction to the CRU’s secretive data, the organization had this to say:

    “We are not in a position to supply data for a particular country not covered by the example agreements referred to earlier, as we have never had sufficient resources to keep track of the exact source of each individual monthly value. Since the 1980s, we have merged the data we have received into existing series or begun new ones, so it is impossible to say if all stations within a particular country or if all of an individual record should be freely available. Data storage availability in the 1980s meant that we were not able to keep the multiple sources for some sites, only the station series after adjustment for homogeneity issues. We, therefore, do not hold the original raw data but only the value-added (i.e. quality controlled and homogenized) data.”

    Whenever the data issue becomes mainstream and pressure builds, climate scientists simply "lose" the original raw data, and once again we are asked to take them at their word.

    Now think about that for a moment. Only in the past few years have climate scientists been pushed to give up raw data to the public, as well as to other unaffiliated scientists, for review. They have enjoyed almost complete immunity from scrutiny since the global warming farce began while acting as the CORE drivers of political and economic policy models by international organizations like the U.N.’s Intergovernmental Panel on Climate Change (IPCC). Future laws and taxes that could affect the entire globe are being written and established on the word of a handful of unaccountable scientists who see their claims as sacrosanct and above investigation.

    Despite the assertions of some global warming enthusiasts, little has changed since the release of the hacked “climategate” data and emails or public pressure on climate research institutions. These organizations continue to dismiss data requests made through the Freedom Of Information Act.

    Recently, the NOAA released studies which it conveniently claims refutes satellite data proving that there has actually been NO global warming for at least 19 years. When asked by lawmakers to release research papers pertaining to the experiments that supposedly back the assertions of the NOAA, the NOAA refused.

    Eventually, apologists for the climate cartel are forced to admit that the raw data is not available to the public.  Climate scientists seem to be the only scientists in the world who get away with presenting theories and conclusions without being required to back what they say with hard data.  Instead of admitting this is an absurd standard, apologists often defend the act of scientific secrecy, claiming that "average people" are not smart enough to interpret the data even if it was made available to us.  We the "profane" public are too unclean to examine the holy books of climate scientists; we are expected to simply bow down to them and globalist entities like the UN as mediators between us and the gods.

    Again, there is no available raw data that proves that overt global warming or “climate change” is even occurring, let alone that it is caused by human beings or carbon dioxide. There is far more hard evidence suggesting that changes in climate are determined by the SUN; you know, that massive ball of heat and radiation at the center of our solar system the size of 1.3 million Earths. This was outlined expertly in a Channel Four documentary on the global warming hoax.

    Until climate scientists are willing to present their findings including all raw data in a legitimate and transparent manner for independent review, NOTHING they have to say on global warming is relevant. Period. They are not high priests. They are not infallible. They are not even particularly honest. Every chart you see in the mainstream showing warming corresponding to human carbon dioxide production is based on hearsay from these pseudoscientists, not hard evidence. Thus, all current and future laws and regulations based on said hearsay are ultimately erroneous and dangerous.

    Unfortunately, corruption within climate research is not where the problem stops. There are people within the halls of power that see the climate change ideology as the perfect vehicle to promote a new kind of social order — an order in which collectivism and centralized governance are “scientifically” indispensable.

    The Club of Rome, a globalist think tank with close ties to the climate change agenda stated on page 75 of its publication “The First Global Revolution” in 1990:

    "In searching for a common enemy against whom we can unite, we came up with the idea that pollution, the threat of global warming, water shortages, famine and the like would fit the bill…. All these dangers are caused by human intervention… The real enemy, then, is humanity itself…"

    The passage appears under the subhead “The Common Enemy Of Humanity Is Man.”

    There is a particular genius in the strategy of essentially uniting humanity against itself. We have heard arguments from politicians in the mainstream about the infinite threats caused by global warming. We have heard many political leaders from across the world demand centralization under the oversight of the U.N. to stop said threats. From Barack Obama to Vladimir Putin, there is considerable geopolitical consensus that the idea of climate change is real (yes, Putin in his last speech at the U.N. demanded action on climate change and more power to the U.N., proving once again that he is not anti-globalist).

    Secretary of State John Kerry, among others, has even suggested that ISIS was caused by climate change. This political rhetoric is meant for the masses who consume 15 minutes or less of news per day from the worst possible mainstream sources.

    There are, however, more clever snake-oil salesmen writing what I would call “refined propaganda.” These are the think tank analysts who turn lies into highly reasonable sounding treatise built on complex but always circular logical fallacies. If you want to know how future history texts will be written if the globalists get everything they want, simply read the papers and books of the think tank agents today.

    Years ago, I wrote about one of these elitist analysts in “The Linchpin Lie: How Global Collapse Will Be Sold To The Masses.” The article focused on a member of Rand Corporation named John Casti and his propaganda mechanism called the “Linchpin Theory.” Casti presented the false idea that “overcomplexity” was the primary cause of global crisis’ leading to minor incidents cascading like dominoes into worldwide catastrophes. Casti’s solution is, of course, simplification (Translation: globalization and centralization under a streamlined one-world system). This argument conveniently gives a free pass to the organized criminality of international elites — as if these men and their engineered disasters do not exist or never mattered, and all the fiscal pain and endless war we suffer is merely a product of random chaos.

    I have come across another think tank elitist peddling a similar propaganda mechanism called “Ecological Panic.” Timothy Snyder is a member of the Council On Foreign Relations and the writer of “Black Earth: The Holocaust As History And Warning.” I highly suggest readers listen to this interview with Snyder on Reuters to get a sense of what I mean by “propaganda.”

    Snyder conjures a vast array of disinformation in that interview alone, but I was particularly intrigued with the idea of “ecological panic,” which, I believe, is the next phase (or a more carefully defined phase) in the climate change agenda. Here is a summary:

    Snyder presents the foundational theory that crises — more specifically, “holocausts” — are a product of resource scarcity and unrealistic ideas of proper living standards. He blames these unrealistic standards on his own conceptions of free market systems, which supposedly encourage societies to demand more access to resources than what is practical (keep in mind that the elites want to be the people who have the power to determine what is practical and what is not). Snyder offers up the notion that Hitler himself, in a way that is not exactly made clear, was a promoter of a brand of free market greed, which lured unsuspecting Germans into the mentality of war and genocide for profit.

     

    At every turn, Snyder and the Reuters interviewers attempt to link Hitler’s philosophies and actions back to current principles that are original pillars of Western culture. Snyder suggests that Hitler’s social Darwinism is related to the free-market mentality of competition, which he seems to think means competition at any cost. He argues that the German ideal of high living standards was derived from ranking themselves against American standards. The interview leapfrogs into a comparison between the German obsession with high living standards at the onset of fascism and the American conception of high livings standards today.

     

    Ostensibly, the hint is that high living standards lead to totalitarianism and holocausts.

     

    The final thrust of the discussion revolves around the key idea that state conquests for resources along with global warming are today’s “linchpins” for further war, mass immigrations and genocide. Snyder directly relates Hitlerian genocidal philosophy with resource conquest and Hitler’s refusal to take science into account as a warning or a solution. Snyder links this to “ecological panic,” the claim that a lack of resource management and practicality lead to amoral thought processes and genocide. He suggests that global warming is a new catalyst for ecological panic and that the U.S. and much of the world are diving headlong into the same pattern as Nazi Germany out of greed for resources and a refusal to acknowledge the “wisdom” of climate science.

    So, if you were wondering where the root source was for the argument that climate change skeptics are the same as “holocaust deniers,” this kind of thinking is it.

    Snyder constructs a narrative of moral relativism in which people cannot be saved by enlightenment or moral compass because, according to him (and I am paraphrasing), resource crisis removes all morality from the situation and automatically turns people into monsters.  This is yet another elitist attempt to discount inborn conscience as a factor and elevate collectivist control of environment to mold society.     

    For someone who claims that understanding history requires “undoing the things we think we know implanted in our minds by nationalist history,” Snyder injects a rather ridiculous abstract regurgitation of mainstream history with vast voids of space in his information.

    First off, as shown above, Snyder’s primary thesis falls apart if the ideology of man-made global warming is a lie, a lie generated by false data provided by climate scientists who keep the raw and real data to themselves like some kind of occult knowledge.

    Second, true free markets did not exist in Germany during the Great Depression or World War II; and they certainly do not exist in America today. I’m getting a little tired of socialists and globalists constantly blaming “free markets” for the problems they created.

    Third, Snyder, like Casti from Rand Corporation, completely skips over the historical record when it comes to the influences of internationalists in the creation of disasters or totalitarian governments like the Third Reich. I highly suggest anyone interested in the REAL history of the Nazi Party read the well-documented works of Antony Sutton, including “Wall Street And The Rise Of Hitler.”

    While consistently attempting to connect Hitler’s fancies and genocidal tendencies to his admiration for American history, Snyder utterly ignores the fact that Hitler’s ideas on genocide were directly affected by the philosophy of eugenics, a philosophy which was launched by global elitists like the Rockefellers in the U.S. in the early 1900s — the same elites who later funded the Nazi infrastructure. Resource entitlement and "ecological panic" had little or nothing to do with Hitler’s eugenics background.

    It is documented fact that the success of ISIS in Syria and Iraq is due to the openly admitted support by covert government agencies, including U.S. agencies, tied to internationalist interests — NOT due to global warming, which is perhaps the most insane connect-the-dot theory I have ever heard.

    What we have here from this CFR mouthpiece is a carefully crafted rationalization for globalism. Look at it this way: If ecological panic is the primary trigger of collapse, war and industrialized death, the elites escape all blame. They are the ones, after all, trying to “save us” from ourselves by introducing carbon emissions controls, not to mention the idea of population controls.

    Global warming becomes a catch-all bogeyman, a Frankenstein monstrosity created by humanity and plaguing humanity. Those who deny the existence of global warming or who question the legitimacy of its high priests (climate scientists) are not exercising their right to skepticism; they are contributing to inevitable genocide. Therefore, climate denial would have to be punished by governments, as climate scientists have been publicly suggesting.

    Climate change and Snyder’s world of ecological panic would naturally facilitate the development of population controls and institutionalized eugenics. I have no idea if Snyder is aware of the irony that his ideology is actually more closely related to Hitler’s ideology than free markets ever will be. Being that he is a member of the CFR, I suspect he is aware indeed.

    If you want to know why internationalists and collectivists have been force-feeding the climate change agenda to the world despite considerable opposition and well-publicized incidences of exposed fraud on the part of climate scientists, consider the prize at the end of the game. If climate change and ecological panic become ingrained “truths” within our social framework, literally any horror can be justified.

    Under ecological panic, human beings must apply social Darwinism in order to survive. Amoral rationalizations must prevail. Pseudoscientists and the establishment become the purveyors of life and death, prosperity and poverty. It will be the elitist class, given license by the power of blind faith rather than hard data, that will determine every aspect of existence from resource allocation, to production, to labor, to relationships and birth, to child rearing, to an individual’s very life span and access to healthcare. Globalism, if allowed to continue in the name of climate defense, will become the most pervasive and powerful cult in history.

  • KeRRY STaReDoWN…

    KERRY STAREDOWN

  • The Fed Hike Will Unleash A Monster Dollar Rally Goldman Predicts; Merrill Disagrees

    The “long dollar” trade may be the most crowded ever…

    …but that doesn’t mean there aren’t disagreements where the greenback goes from here, especially after the Fed’s historic first rate hike which according to some means the end of the dollar’s tremendous year-plus long rally as the market starts to price in the next recession as a result of the Fed’s own action, while according to others as a result of rate differentials and other central banks’ ongoing debasement of their own currencies, the dollar surge is only getting started.

    Among the latter, is none other than infamous Goldman FX strategist Robin Brooks, whose recent firm conviction that the ECB would crush the EUR led to massive losses for anyone who listened. This time, Goldman is intent on making anyone who still isn’t onboard the long-USD monorail, shown originally here in this January 2015 post…

    … get right on board.

    From Goldman’s FX team explaining why “they hiked it and they liked it”

    The Fed today raised interest rates for the first time since 2006, without – as our economists note – resorting to an overly dovish message. This was very much in line with our “hike it and like it” expectation and markets responded in the way we anticipated: the SPX bounced, EM currencies like the Mexican Peso strengthened, buoyed by the recovery in risk appetite, and the Dollar rose versus the G10. The turning point for price action came in the press conference, when Chair Yellen did not use a question on credit markets to head in a dovish direction, but emphasized the soundness of the financial system and strength of the economy instead (Exhibit 1).

     

     

    As we argued prior to the meeting, risk markets tend to take direction from the Fed when uncertainty is elevated, as in September when a dovish FOMC caused risk to sell off, while risk rallied on the hawkish October statement. This pattern held true today, as Chair Yellen’s upbeat message helped markets put aside worries over credit markets.

    Yes, sure, let’s just forget the terrible September jobs report which unleashed the tremendous October market surge on hopes of a dovish Fed, which then magically morphed into a narrative that it was a hawkish Fed that is good for stocks all along. Anyway back to Goldman:

    The biggest beneficiary in G10 FX was $/JPY, which moved higher on a double lift via rate differentials and the relaxation in risk aversion. Into year-end, long $/JPY is our favorite expression of Dollar strength, as aggressive QQE implementation from the BoJ – 10-year JGB yields have been anchored at 30 bps through recent market gyrations – has on multiple occasions given rise to “phantom” moves higher in this cross, which we think reflect the power that QQE has on domestics shifting their portfolios out of JGBs into risk assets and out of the Yen. This channel, incidentally, is not operating as effectively for the Euro, where the volatility in Bund yields since May and the most recent press conference have undercut the effectiveness of QE.

    As yes, the Euro. Let’s recall what happened to that particular Goldman recommendation. On second thought, let’s not and let’s give the podium back to Goldman:

    There is no doubt that 2015 was a difficult year for the divergence trade, notably EUR/$ lower.

    Yes, that’s one way of putting it.

    But we don’t think there is a mystery as to what happened. Disagreement within the ECB has hampered the implementation of QE, which was one driver that caused the bounce in EUR/$ from 1.05 to 1.14 and temporarily put the Dollar on the back foot (the other driver being the dovish shift from the Fed at the March meeting). We certainly do not subscribe to the theory that Dollar strength is over now that lift-off has occurred, which is a popular view in some quarters given the behavior of the greenback during past hiking cycles. We think such historical comparisons ignore what a unique policy experiment has just ended: an emergency setting for policy rates since 2008, large scale asset purchases that more than quintupled the Fed’s balance sheet, and forward guidance that prevented interest differentials from moving more strongly in favor of the Dollar. The unwinding of all this will on our estimates drive the Dollar around 14 percent stronger through end-2017, with front-end rate differentials continuing to dictate that move (Exhibit 2). The Dollar is a buy.

    For the benefit of those who are not convinced, and who have been kermitted one time too many, here is BofA Merrill Lynch with the variant perspective:

    The dollar was mixed in the aftermath of the FOMC today with the market nearly fully priced for the first hike in 9 years. The still optimistic tone of the statement with respect to the labor market and growth, the unlimited ON RRP facility (strengthening the Fed’s ability to control short-rates) and with the dot plots still signaling 4 2016 hikes, the USD initially rallied–though later retraced—price action inconsistent with market’s expectation for a dovish hike. However, the USD’s experience of strengthening the 3-6 months into the first Fed hike, only to selloff in the months after, leaves us hesitant to read today’s Statement and Press conference as unencumbered bullish USD factor. More specifically, net USD long positioning was still quite high heading into the meeting, therefore, the USD’s retracement was likely a reflection of position adjustment than a fundamental catalyst. The mixed price action suggests today’s meeting will not be a near-term catalyst for the USD to rally further.

     

    Dollar performance going forward (now that the Fed has started the normalization process) will depend on: First, US data and the pace of hikes—if the Fed is able to hike 4 times next year versus the 2 priced into the market, the USD will move higher in our view, particularly against a backdrop of further policy easing by the ECB and BOJ in 2016. A sharp RMB depreciation could slow the pace of USD appreciation, in our view. And second, equity performance which, in part, will reflect the market’s assessment of the ability of the economy to handle higher rates (and a higher USD). Given the USD’s positive correlation with equities, any weakness here will likely hamper USD gains against funding currencies like the EUR and JPY in this scenario. Recent financial market volatility and the Fed’s still consistent message of conducting 4 hikes in 2016 (vs only 2 priced by the market) make us cautious on this front.

    And there you have it: two opinions, two diametrically opposite conclusions.

    Confused? That’s the point. However, if one had to come up with a coherent trade from all of the above, it would be to go alongside Goldman’s prop traders, which is by definition precisely the opposite of what Goldman’s clients are advised to do.

  • Search For Fabled Nazi Gold Train Is A Bust: "There May Be A Tunnel…But There Is No Train"

    Submitted by Mac Slavo via SHTFPlan.com,

    It’s no secret that the Nazis stole millions of dollars worth of art, gold jewelry and personal belongings of the millions of people who were eventually sent to one of their many concentration camps across northern Europe. What does remain a secret are the whereabouts of the fabled Nazi gold train, which according to local legend was used to ferry away the Reich’s riches at the end of World War II.

     

    Several months ago a couple of amatuer explorers in Poland thought they had finally found the location of the train and the Polish government even sent military teams to start digging it up because it was believed to be hidden in secret railway tunnels some 30 feet underground.

    But as the New York Times reports, the hunt for the train may be a bust:

    “There may be a tunnel,” said Janusz Madej, the head of the scientific team, “but there is no train.”

     

    …

     

    The Krakow University team of geologists and engineers surveyed the site in November using magnetic and gravitation methods, Mr. Madej said at a news conference. The examination revealed some anomalies in the ground, he said, but they are no more than about eight feet below the surface, while the train was supposed to be 30 feet underground.

     

  • Congress Fumes As Experts Say Iran Violated UN Ban By Test-Firing Nuclear Capable Ballistic Missile

    On October 11, Iran test-fired a new generation of surface-to-surface ballistic missiles capable of hitting Israel. 

    The Emad, as the long-range weapon is called, is a variant of Tehran’s Shahab-3, has a range of 1,700 kilometers, and is accurate to within 500 meters, according to  Anthony Cordesman, a researcher at the Center for Strategic and International Studies. For those who might have missed it, here is the clip:

    As we said at the time, the embarrassment for The White House in the wake of the “historic” nuclear accord continues as Iran will apparently continue to exploit any and all ambiguities to its advantage up to and including building new ballistic missle systems, an act which certainly goes against the spirit of the deal if not the letter. 

    As it turns out, the Emad launch may in fact have represented more than a symbolic violation of the July nuclear accord. As Reuters reports, “Iran violated a U.N. Security Council resolution in October by test-firing a missile capable of delivering a nuclear warhead,” a team of sanctions monitors says.

    As we noted at the time of the launch, the test-fire didn’t technically violate the terms of the P5+1 nuclear deal, but a report from The Security Council’s Panel of Experts suggests that the Emad launch “is a violation by Iran of paragraph 9 of Security Council resolution 1929.” 

    This puts the Obama administration in a decisively precarious position. Congress is now calling for more sanctions but hitting Tehran with further punitive measures risks derailing the deal altogether. “If Washington failed to call for sanctions over the Emad launch, it would likely be perceived as weakness,” For his part, Democratic U.S. Senator Chris Coons (who supported the nuclear deal) said that in the absence of Security Council action, the US should impose direct sanctions on those responsible for the missile tests.

    Indeed, attemps by the Security Council to expand the Iran blacklist would likely run into stiff opposition from Russia and China. 

    Ultimately, this is a dispute about nukes versus Tehran’s arsenal of missiles. As we documented extensively in “Inside Iran’s Secret Underground Missile Tunnels,” Iran has the largest ballistic missile cache in the Mid-East. Here’s a rundown courtesy of The US Institute of Peace:

    • Shahab missiles: Since the late 1980s, Iran has purchased additional short- and medium-range missiles from foreign suppliers and adapted them to its strategic needs. The Shahabs, Persian for “meteors,” were long the core of Iran’s program. They use liquid fuel, which involves a time-consuming launch. They include:
    • The Shahab-1 is based on the Scud-B. (The Scud series was originally developed by the Soviet Union). It has a range of about 300 kms or 185 miles
    • The Shahab-2 is based on the Scud-C. It has a range of about 500 kms, or 310 miles. In mid-2010, Iran is widely estimated to have between 200 and 300 Shahab-1 and Shahab-2 missiles capable of reaching targets in neighboring countries.
    • The Shahab-3 is based on the Nodong, which is a North Korean missile. It has a range of about 900 km or 560 miles. It has a nominal payload of 1,000 kg. A modified version of the Shahab-3, renamed the Ghadr-1, began flight tests in 2004. It theoretically extends Iran’s reach to about 1,600 km or 1,000 miles, which qualifies as a medium-range missile. But it carries a smaller, 750-kg warhead.
    • Although the Ghadr-1 was built with key North Korean components, Defense Minister Ali Shamkhani boasted at the time, “Today, by relying on our defense industry capabilities, we have been able to increase our deterrent capacity against the military expansion of our enemies.”
    • Sajjil missiles: Sajjil means “baked clay” in Persian. These are a class of medium-range missiles that use solid fuel, which offer many strategic advantages. They are less vulnerable to preemption because the launch requires shorter preparation – minutes rather than hours. Iran is the only country to have developed missiles of this range without first having developed nuclear weapons.

    While Iran vigorously denies that its scientists have pursued a nuclear weapon, Tehran has made it abundantly clear that it will continue to pursue its missile program unimpeded. As Defense Minister Hossein Dehghan said on the heels of the Emad launch, “...we don’t ask anyone’s permission to enhance our defense power or missile capability and will firmly pursue our defense plans, particularly in the field of missiles.”

    Although a new IAEA report clearly suggests that Iran pursued a nuclear bomb at least until 2003, the Agency’s Board of Governors passed a resolution on Tuesday to close its investigation into the history of Tehran’s nuclear program. “The decision by the Board of Governors will open a new chapter for cooperation between Iran and the agency,” Iran’s ambassador to the IAEA, Reza Najafi said on Tuesday. 

    Others aren’t so sure. “Iran’s cooperation was certainly not sufficient to close the overall PMD file,” Reuters quotes the Washington-based Institute for Science and International Security, as saying.

    So ultimately, this is just a game of cat and mouse between Tehran and the Western powers – as clear cut as the question might seem (i.e. “are you developing a nuclear bomb or aren’t you?”), the Emad launch suggests that implementing the nuclear deal may prove to be nothing short of impossible. For instance, it’s nothing short of absurd that Congress is now debating whether to slap Iran with more sanctions in connection with the missile launch less than a month before existing sanctions are set to be lifted. 

    At the end of the day, perhaps the US should consider whether Washington’s relationship with Tehran needs to be fundamentally rexamined, and on that note, we close with what we said in October: 

    “…imposing crippling economic sanctions on countries in order to deter their defense buildup (Iran) or otherwise force them into acting in a way that fits your definition of being an internationally responsible country (Russia) is a fool’s errand to the extent that it only serves to aggravate the situation and perpetuates still more of the very same behavior you’re trying to deter in the first place. Need proof? See the video shown above.”

  • China Weakens Yuan For 9th Consecutive Day, Longest Streak Since 2008

    In the first two weeks of August 2008 (just a month before Lehman imploded), as tensions built in US financial markets, China weakened the Yuan for 10 straight days. Tonight, China just extended its streak of weakening the Yuan fix to 9 days (for an aggregate 1.4% devaluation, the largest such drop outside of August’s devaluation in history). This pushes the Yuan back to June 2011 levels.

    Yuan fix at lowest since June 2011…

     

    as CNYUSD has been in freefall since The IMF…

     

    Why it “might” matter…

     

    Now where have we seen that before…

     

    And finally, this chart raised our eyebrows… as the now ‘vicious’ Petrodollar circle of death accelerates…

    h/t Jeffrey Snider

     

    Charts: Bloomberg

  • A Majority Of Americans Oppose "Assault Weapons Ban" – Highest Number On Record

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

     

    The person who bothers me the most on this entire topic is Mayor Michael Bloomberg, of my hometown NYC.  You can tell when someone is disingenuous if they freak out over gun violence like it is the biggest issue in America today and at the same time protect the banksters and their “too big to fail” culture, which has and continues to systemically steal trillions of dollars from the poor.  This is Michael Bloomberg to a tee, so this man should have no credibility on any moral subject when he protects and coddles the most dangerous criminal organizations on this planet.  I guess there is something “liberal” about white collar crime.

     

    The other way to spot a hypocrite is to see whether they ever speak out about other acts of violence, or if they only open their mouths when it comes to gun incidents.  I see this attitude all over the “fake left” landscape. If someone you know, or someone in the media never decries American drones strikes that kill children regularly in the forgotten parts of the globe, yet jumps at every gun incident like it is the end of the world, that person has an agenda. That person hates guns, not necessarily violence.  They do not have a clear head in this argument.

     

    – From the post: How to Spot a Hypocrite in the Gun Debate and Other Reflections on Newtown

    U.S. President Barack Obama is not just the world’s best gun salesman, he’s also the world’s worst gun control spokesperson.

    Despite immediately politicizing every single shooting event in recent years by using his bully pulpit to lecture the American public on why citizens must give up their rights to feel safe, his message has fallen on deaf ears. Why?

    Mainly because a man who consistently orders drone strikes on women and children all over the world, intentionally bombs a Doctors Without Borders hospital into oblivion, and who launched more shady wars across the globe than George W. Bush, doesn’t exactly hold much credibility as a humanitarian pacifist looking to “save the children.”

    Beyond this obvious hypocrisy, his gun control “sales pitch” is generally void of any logic whatsoever. For the perfect example, read the post: How Obama is Using the Grossly Unconstitutional “No Fly List” to Push Gun Control.

    Meanwhile, countless Americans have no doubt watched the following video, in which the White House Press Secretary stumbles and stutters in a embarrassing attempt to answer a reporter’s simple questions on the potential effectiveness of Obama’s “common sense” gun control measures.

    Put all of this together, and you get the following. From ABC News:

    A majority of Americans oppose banning assault weapons for the first time in more than 20 years of ABC News/Washington Post polls, with the public expressing vast doubt that the authorities can prevent “lone wolf” terrorist attacks and a substantial sense that armed citizens can help.

     

    Just 45 percent in this national survey favor an assault weapons ban, down 11 percentage points from an ABC/Post poll in 2013 and down from a peak of 80 percent in 1994. Fifty-three percent oppose such a ban, the most on record.

    To see just how dramatically public perception has changed, take a look at this chart:

    Screen Shot 2015-12-16 at 10.16.54 AM

     

    Indeed, while the division is a close one, Americans by 47-42 percent think that encouraging more people to carry guns legally is a better response to terrorism than enacting stricter gun control laws. Divisions across groups are vast, underscoring the nation’s gulf on gun issues.

     

    There’s lopsided agreement on another concern: Just 22 percent express confidence in the government’s ability to prevent lone-wolf terrorist attacks, with 77 percent skeptical about it. Confidence in the government’s ability to stop a large-scale organized terrorist attack is much higher, albeit still well short of a majority -– 43 percent.

     

    The results of this survey, produced for ABC by Langer Research Associates, point to a shift away from the position favored by Barack Obama and others who responded to the recent attack in San Bernadino, California, by calling for stricter gun control measures. Notably, in a statistical analysis, Obama’s overall job approval rating is the single strongest factor in views on an assault weapons ban.

     

    The increase in opposition to banning assault weapons since 2013 peaks in some groups -– up 18 points among strong conservatives, 17 points among higher-income earners and 16 points in the generally more liberal Northeast. But it’s a broadly based trend. Many groups have moved from majority support for an assault weapons ban two years ago to majority opposition now: whites, 30- to 64-year-olds, suburbanites, political independents, moderates, residents of the West and Midwest, anyone without a post-graduate degree and those in $100,000-plus households.

    No wonder he’s attempting to push gun control via executive action. Before trying to “spread democracy around the world,” I think Obama should take a long hard look in the mirror.

  • In Dramatic Reversal, US Vice President Biden Calls On Turkey To Withdraw Its Troops From Iraq

    It has been a strange two days for US foreign policy.

    Earlier today we reported that in what amounts to a significant blow to the official US position over Syria, namely the multi-year demands to replace president Assad with a western puppet ruler, John Kerry on Tuesday accepted Russia’s long-standing demand that President Bashar Assad’s future be determined by his own people, as Washington and Moscow edged toward putting aside years of disagreement over how to end Syria’s civil war.”

    “The United States and our partners are not seeking so-called regime change,” Kerry said, adding that the focus is no longer “on our differences about what can or cannot be done immediately about Assad.”

     

    In a testament to the fact that mainstream media is beginning to understand just how weak America’s negotiating position has become, AP offered the following rather sarcastic assessment: “President Barack Obama first called on Assad to leave power in the summer of 2011, with “Assad must go” being a consistent rallying cry. Later, American officials allowed that he wouldn’t have to resign on “Day One” of a transition. Now, no one can say when Assad might step down.”

     

    Kerry also called demands by the “moderate” opposition that Assad step down before peace negotiations begin an “obvious nonstarter.”

    All of the above, some may say, makes the US presence in Syria, whether through CIA covert ops, commandos, or even the Islamic State, moot: after all, if the US has folded on an Assad regime change, then there is no longer any point in continuing the proxy war, which revolves around one key issue: regime change in Syria.

    But then something even more surprising happened.

    Earlier today, Islamic State militants launched an attack on a military camp in northern Iraq where Turkish troops have been stationed. According to officials and press reports, seven Kurdish peshmerga fighters were killed and four Turkish troops were injured in the bombardment and rushed to a hospital in Sirnak, a Turkish province bordering Iraq, according to Anadolu Agency. A Kurdish Rudaw news agency report suggested that two of the trainees at the camp were killed and six wounded.

    Turkey’s general staff said in a statement that Katyusha projectiles fell into the camp around 3 pm local time. Turkish troops returned fire following the attack according to Turkish officials, who provided no further details. Additionally, according to a report by a Kurdish news website, the Slemani Times, over 70 Turkish soldiers went missing after the attack.

    The attack on Turkish soldiers by the Islamic State takes place two weeks after the Turkish military deployed troops in northern Iraq without preclearance from Iraq in what has been seen by some as a military invasion of sovereign territory and has become a major stumbling block in relations between Ankara and Baghdad. While Turkey claims the troops had been deployed at the invitation of the Iraqi government, Baghdad denies this, describing Ankara’s actions as an “incursion.”

    But while the attack on the Turkish soldiers by those they allegedly invaded Iraq to fight may be seen as oddly ironic, the real surprise is what followed shortly thereafter.

    Moments ago, the office of the Vice President released a readout of a phone call Joe Biden had with Iraq’s PM Al-Abadi. The stunning part is that in a dramatic reversion of the NATO narrative on Turkey’s incursion in Iraq as justified, Biden just called on Turkey to withdraw from Iraq.

    Here is the full readout of Vice President Biden’s Call With Iraq’s Prime Minister Haider Al-Abadi

    The Vice President spoke with Iraqi Prime Minister Haider Al-Abadi yesterday following his December 14 call with Turkish Prime Minister Ahmet Davutoglu. The Vice President noted the recent deployment of Turkish forces into northern Iraq had occurred without the prior consent of the Iraqi government. Both leaders welcomed initial indications of the withdrawal of some Turkish forces and agreed this should continue, reiterating that any foreign forces can only be present in Iraq with the coordination and permission of the Iraqi government. The Vice President reaffirmed the United States’ commitment to Iraqi sovereignty and territorial integrity and called on Turkey to do the same by withdrawing any military forces from Iraqi territory that have not been authorized by the Iraqi government. The Vice President encouraged continued dialogue between Iraq and Turkey to address any outstanding grievances in the spirit of mutual cooperation. Both leaders reaffirmed their continued commitment to the fight against ISIL in Iraq.

    So first the US backtracks on its core long-running demand that “Assad must go”, and now it has just turned its back on a key NATO-member ally and what is allegedly the biggest provider of funding and supplies (including Ford F250 pick up trucks) to the Islamic State, Turkey.

    Perhaps if only Putin, Lavrov, and Kerry had more staring contests such as this one…

    … in which the latter invariably blinks, the world’s geopolitical conflicts would be promptly resolved.

  • Asset Protection? Silver Has Held Its Value For 23 Centuries

    Submitted by Simon Black via SovereignMan.com,

    Thousands of years ago in ancient city of Babylon, specially trained scribes gathered each day in the Temple of Marduk to record the day’s events.

    They used cuneiform writing instruments and clay tablets, over 1200 of which still survive today.

    These scribes kept excellent records, detailing astronomical observances and water levels of the Euphrates River, as well as market prices for the most popular commodities like wheat, barley, and wool.

    It’s incredible that we have detailed records of grain prices going back thousands of years.

    The ancient Babylonians quoted grain prices in shekels, a unit of weight equivalent to 8.33 grams of silver.

    Over the 3+ century period between 384 BC and 60 BC, for example, the price of barley averaged 0.02053 shekels per quart in Babylonia.

    At 8.33 grams per shekel, this would be equivalent to about 0.171 grams of silver per quart, or about $3.75 based on today’s silver price.

    After converting the unit of measurement from ancient quart to modern hundredweight (cwt), that means that barley in Babylonian times sold for $5.23 per cwt when priced in today’s dollars.

    And according to the US Department of Agriculture, yesterday’s price for barley was… $5.25 per cwt.

    Amazing. When denominated in silver, the price of barley is almost exactly the same as it was thousands of years ago.

    In other words, if a farmer from 23 centuries ago had sold a quart of barley, he would have received 0.171 grams of silver.

    Fast forward to today and that 0.171 grams of silver would buy almost the exact same amount of grain as it did 23 centuries ago.

    This is an important reminder, especially today as the entire financial system waits with bated breath to see if the US Federal Reserve will raise interest rates for the first time in nearly a decade.

    It’s ultimately a complete farce. Our entire financial system is based on awarding total control of our money to a tiny, unelected committee of bureaucrats.

    They have the power to conjure trillions of dollars, euros, yen, pounds, renminbi, etc. out of thin air that are backed by absolutely nothing other than a thin veneer of confidence.

    Civilizations have been experimenting with this model for thousands of years. And every single time it has failed.

    Future historians will certainly wonder why we chose a financial system based on a model with such a long history of failure, and why we gave control of our savings and economic activity to unelected bureaucrats who are consistently wrong.

    When you step back and look at the big picture, this system is totally mad. And full of risk.

    Governments are insolvent. Central banks are nearly insolvent. Banking systems are extremely illiquid. National pension funds are insolvent.

    And their solution is to keep borrowing and printing more money.

    Look, holding some physical cash does make sense right now as a *short-term* hedge against risks in the financial system.

    If the GFC 2.0 hits, you’ll be glad that you’re holding some physical cash (more on this soon).

    But how much do you think your paper currency will be worth 23 centuries from now? Or even 23 years? Or potentially even 23 months?

    Bottom line– you’re not protected unless you own some real assets. Gold. Silver. Land. Productive business. This should be part of any rational person’s Plan B.

  • Why the Fed Is WRONG About Interest Rates

    Richard Werner – an economics professor and the creator of quantitative easing – says that it’s a myth that interest rates drive the level of economic activity. The data shows that the opposite is true: rates lag the economy.

    Economics prof Steve Keen – who called the Great Recession before it happened – points out today in Forbes that the Fed’s rate dashboard is missing crucial instrumentation:

    The Fed will probably hike rates 2 to 4 more times—maybe even get the rate back to 1 per cent—and then suddenly find that the economy “unexpectedly” takes a turn for the worse, and be forced to start cutting rates again.

     

    This is because there are at least two more numbers that need to be factored in to get an adequate handle on the economy: 142 and 6—the level and the rate of change of private debt. Several other numbers matter too—the current account and the government deficit for starters—but private debt is the most significant omitted variable in The Fed’s toy model of the economy. These two numbers (shown in Figure 2) explain why the US economy is growing now, and also why it won’t keep growing for long—especially if The Fed embarks on a period of rate hiking.

    Figure 2: The two key numbers The Fed is ignoring

    image004

    [T]he dilemma this poses for The Fed—a dilemma about which it is blissfully unaware—is that a sustained growth rate of credit faster than GDP is needed to generate the magic numbers on which it is placing its current wager in favor of higher interest rates.

     

    The Fed, along with all mainstream economists, dismisses this argument on the basis that the level of private debt doesn’t matter to the macroeconomy: for every debtor who can spend less because of higher rates, there is a saver who can spend more, so the two effects cancel out. This is naïve nonsense [background], because it pretends that banks don’t create money when they lend—which they do, as the Bank of England recently explained in painstaking detail—and equally, destroy it when they take in more in repayments than they pay out in new loans. So expanding bank credit adds to demand (and income and capital gains) in the economy, while contracting bank credit subtracts from demand.

     

    With bank credit expanding at about 6% per year, total demand in the economy is expanding fast enough to give the appearance of a recovery: recorded unemployment now seems to be back to pre-crisis levels, and asset markets have boomed. But a few rate hikes over the next year will be enough to trigger a reversal in credit growth, because the level of private debt is substantially higher than it was when the last big boom began in the mid-1990s. The increased debt servicing burden will put enough debtors into distress to cause credit growth to slow down, and when it does, so will the economy.

     

    The Fed will then be forced to do what every other bullish Central Bank has been forced to do since this crisis began: reverse direction and cut rates once more as the economy tanks, rather than returning to “Equilibrium”. It will never get back to its preferred Federal Funds rate of 4% until it learns, finally, that credit matters, and it starts to consider policies to reduce private debt to a manageable level—which is something like half its current number of 142% of GDP.

    Sigh …

  • Something Strange Is Taking Place In The Middle Of The Atlantic Ocean

    Early last month, we noted that something very strange was happening off the coast of Galveston, Texas. 

    As FT reported, “the amount of oil [now] at sea is at least double the levels of earlier this year and is equivalent to more than a day of global oil supply.” In short: the global deflationary crude supply glut is beginning to manifest itself in a flotilla of stationary supertankers, as millions of barrels of oil are simply stuck in the ocean as VLCCs wait to unload.

    Ultimately, this led to nearly 40 crude tankers with a combined cargo capacity of 28.4 million barrels waiting to anchor near Galveston. Here’s what the logjam looked like:

     

    In the latest sign that the world is simply running out of capacity when it comes to coping with an inexorable supply of commodities, three diesel tankers en route from the Gulf to Europe did something rather odd on Wednesday: they stopped, turned around in the middle of the ocean, and headed back the way they came! 

    “At least three 37,000 tonne tankers – Vendome Street, Atlantic Star and Atlantic Titan – have made U-turns in the Atlantic ocean in recent days and are now heading back west,” Reuters reported, citing its own tracking data.

    The Vendome Street actually made it to within 800 miles of Portgual (so around 75% of the way there) before abruptly turning around. “Ship brokers said a turnaround so late in the journey would come at a cost to the charterer,” Reuters notes. 

    The problem: low prices, no storage capacity, and soft demand.

    Here’s Reuters again:

    “European diesel prices and refining margins have collapsed in recent days to six-year lows as the market has been overwhelmed by imports from huge refineries in the United States, Russia, Asia and the Middle East. At the same time, unusually mild temperatures in Europe and North America further limited demand for diesel and heating oil, ptting even more pressure on the market.

     

    Gasoil stocks, which include diesel and heating oil, in the Amsterdam-Rotterdam-Antwerp storage hub climbed to a fresh record high last week.

    And here are the stunning visuals via MarineTraffic.

    Vendome Street

    Atlantic Titan

    As of now, it’s “unclear if the tankers will discharge their diesel cargoes in the Gulf Coast or await new orders,” but what you’re seeing is a supply glut so acute that tankers are literally just sailing around with nowhere to go as there are reportedly some 250,000 tonnes of diesel anchored off Europe and the Mediterranean looking for a home. On that note, we’ll close with the following quote from a trader who spoke to Reuters: 

    “The idea is to keep tankers on the water as long as you can and try to find a stronger market.”

  • Meet The Foreign Criminals Using L.A. Real Estate To Launder Money & The Developers Who Help Them

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Here, as in other roosting places of the superrich, the recent influx of foreign money has gone hand in hand with the rising use of shell companies — generally limited liability companies. Shell companies were used in three-quarters of purchases of over $5 million in Los Angeles over the last three years, a higher rate even than the roughly 55 percent in New York, according to a New York Times analysis of data from PropertyShark. What is more, in Los Angeles, where so many of the new palaces are spec houses — luxury magnets for global wealth — not only are the buyers shielded by shell companies, but the developers are, too.

     

    – From the New York Times article: A Mansion, a Shell Company and Resentment in Bel Air

    While New York City and London are already well known as top destinations for shady, foreign-money laundering oligarchs who often attain untold riches by thieving from their own people, the Los Angeles area has likewise morphed into a criminal real estate hub.

    Monday’s article in the New York Times, titled, A Mansion, a Shell Company and Resentment in Bel Air, sums up so much of what is wrong about the U.S. economy and society as we reflect on how far we’ve fallen in 2015. A culture in which not only are the rich and powerful above the law, but where foreign criminals also can do whatever the heck they want and get away with it as long as they have billions to throw around. The fact that no one seems to be doing anything about any of it tells you all you need to know.

    What follows are a few excerpts, but you should really read the entire article. From the New York Times:

    Yet for all that, over four years of violation notices, inspections and hearings, efforts to hold someone accountable for the mess at 901 Strada Vecchia have repeatedly hit a legal wall. It is, as a judge said during an October session where once again nothing got done, “an extremely complicated case.”

     

    That is because “themodernhouseofhadid” belongs not to Mr. Hadid but to an entity that keeps the actual owner at a legal remove — a shell company named 901 Strada L.L.C.

     

    Fueled largely by the vast streams of wealth crossing the globe as never before, a new generation of hyper-luxury homes with stratospheric price tags is colonizing the most gilded hillsides and canyons of Los Angeles. In some areas, every third or fourth home has been torn down, leaving gashes of dirt and debris where new mansions will rise.

     

    And more often than not, the people behind the purchases are hidden by shell companies. 

     

    Here, as in other roosting places of the superrich, the recent influx of foreign money has gone hand in hand with the rising use of shell companies — generally limited liability companies. Shell companies were used in three-quarters of purchases of over $5 million in Los Angeles over the last three years, a higher rate even than the roughly 55 percent in New York, according to a New York Times analysis of data from PropertyShark. What is more, in Los Angeles, where so many of the new palaces are spec houses — luxury magnets for global wealth — not only are the buyers shielded by shell companies, but the developers are, too.

     

    Today in Los Angeles, as at 901 Strada Vecchia, L.L.C.s have provided insulation — some would say impunity — amid a gathering anti-development backlash.

     

    Head up North Alpine Drive in Beverly Hills, for example, and on the right is a $14.7 million home owned by a shell company tied to Kola Aluko, a Nigerian businessman who is a figure in an investigation of that country’s former oil minister. 

     

    A block away is one of several local properties that have been owned by shell companies tied to a son of Suharto, the corrupt and brutal former president of Indonesia. 

     

    And back down the hill is Le Palais, a faux chateau — with a swan pond and a Turkish bath with hand-carved Egyptian limestone columns — that a shell company tied to Mr. Hadid sold to a shell company tied to Lola Karimova-Tillyaeva, a daughter of the president of Uzbekistan. The Karimov family faces corruption investigations in several countries, according to two people who have worked in law enforcement and have knowledge of the inquiries.

     

    The property at 901 Strada Vecchia is the crystallization of all this — in its grandiosity, its 60 pages of violations and other notices, and the ire it has provoked.

     

    Silver-maned at 67, Mr. Hadid, like many of his clients, is an immigrant. Born in Israel, he moved to Virginia as a teenager with his Palestinian family and spent his early business career in the Washington, D.C., area, developing office buildings and Ritz-Carlton hotels. Central to his success even then was his ability to woo foreign financiers — French and German backers, and in particular the SAAR Foundation, a group of Saudi investors.

     

    Among his big-ticket sales was a Beverly Hills house, with a glowing pyramid in a reflecting pool, that was acquired in 2010 by a shell company tied to the stepson of the prime minister of Malaysia. (The prime minister is now a target of corruption investigations at home and abroad.) 

     

    No. 73 is a home owned by TBN Holdings Inc., which traces to a Saudi prince, Turki bin Nasser. As a high-ranking military official during the 1980s and ’90s, Prince Turki was involved in arms deals with the aerospace company BAE that led to allegations of bribery and large fines in Britain and the United States. According to reports by The Guardian, the BBC and “Frontline,” Prince Turki was a bribe recipient, but, as had long been their practice, American and British authorities prosecuted only the company. 

     

    Prince Turki did not respond to requests for comment.

     

    At No. 58 is a home bought in 2004 by a shell company tied to another Russian politician, a former senator named Alexander Sabadash. Last spring, Mr. Sabadash was sentenced in Russia to six years in prison for attempted embezzlement of public funds, according to Russian news reports. A man who answered at the phone number listed for the shell company said the Sabadashes might be renting the house. 

     

    Finally, at No. 27, is a home owned by a shell company that has ties to the family of Bambang Trihatmodjo, long a contentious figure in Indonesia because his businesses amassed great wealth during the reign of his father, Mr. Suharto. Though Mr. Suharto died in 2008, his family’s fortune remains a focus of questions and legal action. Last summer, the Indonesian Supreme Court ordered the Suharto family to return $324 million that was embezzled from a foundation established with public money, according to news reports. 

     

    The money was to have paid for education for the poor. 

     

    In July 2014, the city said it intended to revoke the project’s work permits. That week, Mr. Hadid posted on Instagram, “The construction must go on.” It did, even after the permits were pulled. Neighbors documented workers on the site that Thanksgiving.

     

    Mr. Hadid is not the only developer flirting with nine-figure price tags. His main competitor is Nile Niami, a former film producer building a Bel Air home he has said he hopes to sell for $500 million.

     

    One of Mr. Niami’s past projects was a boxy, modern house at 755 Sarbonne Road. In April 2012, a shell company tied to Mr. Niami sold it to a shell company traced to Kola Aluko, the Nigerian businessman.

     

    What followed was a tangle of events spanning two continents, involving oil and water, a host of shell companies and lessons in the difficulty of tracing responsibility.

     

    Mr. Aluko, it turned out, was on a buying spree. In addition to purchasing the Sarbonne Road house for $24 million, shell companies tied to him soon bought another Beverly Hills house for $14.7 million and two others in Santa Barbara for $33 million.

     

    Letting these characters and their billions enter the country is a far bigger threat than Mexican immigrants, but as is typically the case, people prefer to punch downward.

  • Caption Contest: Kerry, Putin, Lavrov Staring Match Edition

    Earlier today, in “The Humiliation Is Complete: Assad Can Stay, Kerry Concedes After Meeting With Putin,” we documented John Kerry’s visit to Moscow where America’s top diplomat discovered there are Dunkin Donuts in Russia and also found some time to talk Syria with Vladimir Putin and Sergei Lavrov.

    After what amounted to a staring contest over the fate of Bashar al-Assad, Kerry blinked as expected, and the US is now willing to concede that the Syrian President may remain in power indefinitely. 

  • Fed Hikes Rates, Unleashing First Tightening Cycle In Over 11 Years

    On the 7th anniversary of entering ZIRP, and for the first time since June 29th 2006, The Federal Reserve announced today that it will try and raise interest rates:

    *FED RAISES INTEREST RATES 0.25 POINT IN UNANIMOUS VOTE

    Of course, the flowery language and dots are as dovish as possible while maintaining some semblance of credibility with regard growth expectations as The Fed unleashes a tightening cycle for the first time in over 11 years.

    Pre-FOMC: S&P Futs 2050, 2Y 98bps, 10Y 2.29%, Gold $1072, Oil $36, EURUSD 1.0960

     

     

    Heading into the decision, gold and silver suddenly started to fade, bond yields slid notably, and the USD jerked lower.

    What's happened since The Fed folded in September? Macro "data" got worse… Market "data" got better…

     

    The Fed has never raised rates in December when stocks were down over the last 6 months…

    h/t @RyanDetrick

    And when it has raised rates in December, stocks have pushed lower.

     

    The Fed is raising rates today with the VIX above 20 for the first time since 2000…

     

    That did not end well…

     

    The Fed is also raising rates with Junk bonds trading worse that after Lehman…

     

    * * *

    In the end, the Fed did not surprise, and raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be “gradual” and in line with previous projections. The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.

    “The committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective,” the FOMC said in a statement Wednesday following a two-day meeting in Washington. The Fed said it raised rates “given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes.”

    The increase draws to a close an unprecedented period of record-low rates that were part of extraordinary and controversial Fed policies designed to stimulate the U.S. economy in the wake of the most devastating financial crisis since the Great Depression. The FOMC lowered its benchmark rate to near zero in December 2008, three months after the collapse of investment bank Lehman Brothers Holdings Inc. and 10 months before unemployment in the U.S. peaked at 10 percent.
     

    *  *  *

    Full Redline below:

    The number of words per statement:

     

    There was much expectation that the Fed's announcement would be a Dovish hike based on a reduction in the 2016 median dot, however the Fed did not do that, and instead while the Kocherlakota negative dot was removed, the FOMC kept the median 2016 fed funds rate at 1.4% for year end, suggesting 4 rate hikes during 2016 and that the market is underestimating the pace of rate increases.

    Where there was some dovishness was in the 2017 year end median FF, which was reduced from 2.6% to 2.4%. This can be seen in the compared dot plots.

    Additionally, what is perhaps even more surprising is that while the Fed did boost its 2016 year end GDP forecast, it cut the median core PCE forecast from 1.7% to 1.6%, suggesting that the deflationary forces continue to prevail aside from the "transitory" impact of oil.

  • Hoax Or No Hoax? You Decide – Here Is The Full Text Of The Email Threat That Closed LA Schools

    Below is the full text of the threatening email directed toward the Los Angeles Unified School District that led to the closing of all schools (and which NYC School District decided was a hoax)… you decide?

    Via ABC7

    TO WHOM IT MAY CONCERN:

     

    I am emailing you to inform you of the happenings on Tuesday, 12/15/15.

     

    Something big is going down. Something very big. It will make national headlines. Perhaps, even international ones. You see, my last 4 years here at one of the district high schools has been absolute hell. Pure, unmitigated, agony. The bullying, the loneliness, the rejection… it is never-ending. And for what? Just because I'm 'different'?

     

    No. No more. I am a devout Muslim, and was once against violence, but I have teamed up with a local jihadist cell as it is the only way I'll be able to accomplish my massacre the correct way. I would not be able to do it alone. Me, and my 32 comrades, will die tomorrow in the name of Allah. Every school in the L.A. Unified district is being targeted. We have bombs hidden in lockers already at several schools. They are strategically placed and are meant to crumble the foundations of the very buildings that monger so much hate and discrimination. They are pressure cooker bombs, hidden in backpacks around the schools. They are loaded with 20 lbs. of gunpowder, for maximum damage. They will be detonated via Cell Phone. Not only are there bombs, but there are nerve gas agents set to go off at a specific time: during lunch hour. To top it off, my brothers in Allah and I have Kalashnikov rifles, Glock 18 Machine pistols, and multiple handheld grenades. The students at every school in the L.A. Unified district will be massacred, mercilessly. And there is nothing you can do to stop it.

     

    If you do end up trying to, by perhaps, beefing up security, or canceling classes for the day, it won't matter. Your security will not be able to stop us. We are an army of Allah. If you cancel classes, the bombings will take place regardless, and we will bring our guns to the streets and offices of Los Angeles, San Bernardino, Bakersfield, and San Diego.

     

    I wish you the best luck. It is time to pray to allah, as this may be your last day.

    *  *  *

    Better safe than sorry?

  • Presenting Saxo Bank's 10 "Outrageous Predictions" For 2016

    On Tuesday, we brought you Bloomberg’s top 10 “worst case scenarios” for 2016. The list, compiled by polling “dozens of former and current diplomats, geopolitical strategists, security consultants, and economists” included everything from devastating cyber attacks by Iranian and Russian hackers to a military coup in China. 

    They even threw in a Trump victory in the national elections for good measure.

    Bloomberg’s “pessimist’s guide” to 2016 was just the latest in a number of outlook pieces by pundits, journalists and sellside macro strategists who are all engaged in a black swan spotting expedition. We’ve laid out a number of risk factors both for capital markets and on the geopolitical front that are worth paying attention to as we head into the new year. Here are a few notable flashpoints:

    • soaring junk bond redemptions; 
    • rising investment grade (and high yield) yields pressuring corporate buybacks; 
    • record corporate leverage and sliding cash flows; 
    • Chinese devaluation back with a vengeance; 
    • capital outflows from EM accelerating as dollar strength returns; 
    • corporate profits and revenues in recession; 
    • CEOs most pessimistic since 2012, 
    • the Fed’s first rate hike in 9 years expected to soak up as much as $800 billion in excess liquidity
    • Syria’s seemingly intractable civil war
    • the still simmering conflict in Ukraine
    • Brazil’s political crisis which threatens to keep one of the world’s most important emerging markets mired in a stagflationary nightmare
    • a migrant crisis that threatens to tear Europe apart at the seams
    • the resurgence of the far left and far right as voters lose faith in the political status quo

    For their part, Saxo Bank has taken a unique approach by presenting ten “outrageous” and in some cases counterintuitive predictions that could play out over the course of the next 12 months. 

    *  *  *

    From Saxo Bank

    Intro by Steen Jakobsen 

    The irony in this year’s batch of outrageous predictions is that some of them are “outrageous” merely because they run counter to overwhelming market consensus. In fact, many would not look particularly outrageous at all in more “normal” times – if there even is such a thing!

    In other words, it has become outrageous to suggest that emerging markets will outperform, that the Russian rouble will be the best-performing currency of 2016, and that the credit market will collapse under the weight of yet more issuance. We have been stuck in a zero-bound, forward-guidance lowering state for so long that there exists a whole generation of traders who have never seen a rate hike from the Federal Reserve. 

    As we close out 2015, it has been nearly 12 years (early 2004) since the US economy was seen as recovering strongly enough to warrant starting a series of hikes – and that series ended in early 2006, nearly ten years ago.

    Mind you, I have been trading for over 25 years and I have only seen three Fed rate hike cycles in my entire career: 1994, 1998 and 2004.

    We are truly entering a new paradigm for many market participants and the new reality is that the marginal cost of money will rise, and thus so will volatility and uncertainty.

    All of this is embedded in this year’s Outrageous Predictions.

    EURUSD direction? It’s 1.23…

    Many years ago back in 1989 I wrote one of my first research reports and I made the call that USDDEM should trade all the way down to 1.23. It was an outrageous call and colleagues from back then still remind me when we meet (the dollar to the deutsche mark was trading in the high 1.60s at the time). Now it’s again time to call for 1.23 but this time in EURUSD. In four of the last five Fed rate hike cycles, the US dollar has peaked around the first hike indicating that the direction of the US dollar is inversely correlated to the Fed rate cycle. A higher EURUSD will not only make the European Central Bank lose face but also catch the consensus out as most investors and traders believe parity between the EUR and USD is only a matter of time.

    Russia’s rouble rises 20% by end-2016

    By late 2015, the combination of collapsing oil prices and financial sanctions against Russia over the situation in Ukraine saw a rough ride for Russian assets and its currency, the rouble. But in 2016, oil prices surge again as demand growth in the US and especially China outstrip overly pessimistic estimates, just as US oil production growth is slowing and even reversing on a financial debacle linked to shale oil companies. This is a boon to Russia’s energy dependent economy. Meanwhile, in 2016, the US Federal Reserve allows the US economy to run a little bit hot as the strong USD sees the Fed raising rates at perhaps an inappropriately slow pace. This represents a bonanza for emerging markets and their currencies, in particular Russia as commodity bears are left out in the cold in 2016. 

    Silicon Valley’s unicorns brought back down to earth

    The first half of 2015 had the lowest number of venture capital deals in 25 years as VC firms rushed to plough money into so-called unicorns – startups valued above $1 billion each. This rush to capture everything that might have blockbuster potential inflated the bubble in unlisted US tech firms. 2016 will smell a little like 2000 in Silicon Valley with more startups delaying monetisation and tangible business models in exchange for adding users and trying to achieve critical mass. Remember the dotcom gospel of clicks and page views instead of focusing on revenue and profits? 

    Olympics to turbo-charge EM’s Brazil-led recovery 

    The poster child for emerging market weakness is Brazil with its recession, collapsing consumer confidence, skyrocketing unemployment and plunging currency. USDBRL has nearly doubled so far this year while confidence is at a decade low and unemployment is at a five-year high. Oh, and lest we forget; yearly GDP growth has been negative for five straight quarters – and this count could turn double-digit before it is over. A poster child, maybe, but Brazil is hardly alone in struggling to come to terms with the end of the commodity super-cycle, which has morphed into a full-scale oil price meltdown, a weakening China-led global manufacturing cycle and a run-up in dollar-denominated debt. Add uncertainty about the Federal Reserve’s first rate hike in more than a decade to the mix and the picture is bleak. Against this disturbing backdrop we look for the host of the 2016 Olympics to lead EM out of the current malaise with equities outperforming. Leading indicators are stabilising in China and climbing in India, and recent policy easing furthermore helps the outlook for the former. 

    Democrats retain presidency, retake Congress in 2016 landslide

    In 2016, the Republican primaries descend into chaos after the party’s voters narrowly manage to nominate another weak, centrist candidate after the long self-destructive process of the nomination process. Donald Trump goes down in flames, taking the Republican Party with him and leaving its voters demoralised with their weak options in the presidential and congressional elections. In Congress, the Republican Party goes from strength to dramatic weakness as the rifts from its civil war on its future direction play out over the next four years. This leads to a landslide victory for the Democratic Party as the Democrats successfully execute a successful get-outthe-vote campaign. That campaign gains traction among the US’ now largest generation: the younger, more diverse, more liberal, overeducated and underemployed Millennials, who come out to vote in droves in favour of the Democratic ticket as they have been frustrated by the political stalemate and weak job prospects of the last eight years. 

    Opec turmoil triggers brief return to $100/b oil

    The oil market remains under pressure as we enter 2016 with oversupply and the imminent increase in exports from Iran adding some additional downside pressure. During the first quarter, Brent crude reaches and breaches the 2009 recession low as US tight oil producers continue to show resilience. The selling is driven by capitulation from investors in exchange-traded products while hedge funds build a new record short position in the futures market. Opec’s crude oil basket price drops to the lowest since 2009 and the unease among weaker as well as wealthier members of the cartel over the supply-and-rule strategy continues to grow as the economic pain spreads across the 12-member group. The long awaited sign of an accelerated slowdown in non-Opec production finally begins to flicker. Suitably buoyed, Opec catches the market on the hop with a downward adjustment in output.That move breaks the downward price spiral and price mounts a quick recovery with investors scrambling to re-enter the market to the long side. 

    Silver breaks golden shackles to rally 33% 

    Semi-precious metal silver’s price direction is driven by movements in both gold and industrial metals. Its third consecutive annual decline in 2015 was driven by worries about demand (industrials) and tightening US monetary policy (gold). However, towards the end of 2015, mining companies began responding to falling prices by announcing production cutbacks of key metals such as copper and zinc. Silver is often mined as a by-product from the extraction of other metals including copper, zinc and gold with primary production only accounting for a third. With copper and zinc both hitting six-year lows at the end of 2015 as the outlook for Chinese demand deteriorated, the only way to support prices was to cut production even more. During 2016, this will add to production cuts already in place from major producers such as Glencore and BHP Billiton. While production of silver from these reductions slows economic activity and demand in key markets such as China, both Europe and the US strengthen, helping to boost confidence in silver. 

    Aggressive Fed sees meltdown in global corporate bonds

    When Bridgewater Associates founder Ray Dalio told markets last August that the next big Fed monetary policy move would be to ease and not to tighten, it was a clear message that a tightening path will not be common sense as long as strong secular disinflationary forces are at play. More importantly, he argued that ending the long-term debt cycle with a series of rate hikes would inevitably cause turmoil, because ever-declining interest rates have encouraged endless borrowing and leverage, growing the cycle into a monstrous supercycle. In other words: the bubble is simply too big to burst. But late in 2016 the Fed will come to believe that there is no way out, and growing evidence of overheating markets – affecting labour, housing, equities and bonds – will propel Fed chief Janet Yellen down a hawkish path with a series of aggressive rate hikes.Although expected for years, this action triggers huge selloffs in all major bond markets as global bond yields start to rise, quickly magnifying the risk premium investors demand on riskier assets, when the risk free rate is not zero anymore. All of this is expected and normal in a rate hike scenario. But what happens next is so unusual and scary that it’s eerily reminiscent of the bond market apocalypse after the Lehman collapse. As the portions of bank and broker balance sheets allotted to bond trading and market making have almost disappeared, one of the vital parts of a functioning market is simply not there.

    El Niño sparks inflation surge

    According to many climate forecasters, 2015 and 2016 will likely be the hottest two years on record, adding to the growing number of droughts around the world. The volatile weather we’ve experienced in recent years has also increased the number of floods and other devastating weather extremes. On top of this, next year’s El Niño will be the strongest on record and will cause moisture deficits in many areas of southeast Asia and droughts in Australia. Global agricultural production will be affected negatively. Lower yields across agricultural commodities will curb supply at a time when demand is still increasing on the back of global economic expansion. The outcome will be a 40% surge in the Bloomberg Agriculture Spot Index, adding some much-needed inflationary pressure.

    Inequality has last laugh on luxury

    Luxury is the reflection of an unequal society. The conspicuous consumption of luxury goods and services is a way of demonstrating membership of the elite. The elite is ready to pay extra just for the privilege of it and to differentiate themselves from the rest of society. It is what we call the snob effect. The money spent on luxury cars, jewellery and clothing items could have been used for better infrastructure, education or for poverty alleviation. In that sense, luxury is a net economic loss. Since the global financial crisis, poverty has increased in Europe because of the economic downturn and austerity measures. The International Labour Organization estimates that 123 million people are at risk of poverty in the EU, which represents a quarter of the European population. This total has risen from 116 million in 2008. Faced with rising inequality and unemployment of over 10%, Europe is considering the introduction of a basic universal income to ensure that all citizens, regardless of whether they work, can afford to meet their basic needs. In a more egalitarian society where other values are promoted, demand for luxury goods decrease sharply.

    See the full presentation here

  • What Benefits To Savers? Banks Rush To Hike Prime Rate To 3.50%, Forget To Increase Deposit Rate

    Someone forgot to give the banks the memo that the Fed’s first rate hike since 2006 was supposed to, at least on paper, benefit the savers of America and not so much the, well, banks.. Because the ink hadn’t even dried on the Fed’s statement and one after another banks revealed that they would promptly boost their Prime lending rate from the current benchmark of 3.25% to the new Fed Funds-implied prime rate of 3.50%.

    As a reminder, while generically comparable to LIBOR, a bank’s prime rate is the rate at which banks lend to their most creditworthy customers, clients and large corporations. But what makes the Prime hike most important is that it is used as the benchmark for other loans like credit card and small-business loans. In other words, banks wasted no time to serve their indebted customers with the cost of the Fed’s rate hike. Banks such as:

    • Wells Fargo
    • US Bankcorp
    • JPMorgan
    • M&T
    • PNC
    • Citi

    And soon every other bank.

    As CNBC reported, “a change in the federal funds rate will have no impact on the interest rates on existing fixed-rate mortgage and other fixed-rate consumer loans, a Wells Fargo representative told CNBC. Existing home equity lines of credit, credit cards and other consumer loans with variable interest rates tied to the prime rate will be impacted if the prime rate rises, the person said.”

    The good news: the rates on mortgages, auto loans or college tuition aren’t expected to jump anytime soon, according to AP, although in time those will rise as well unless the long-end of the curve flattens even more than the 25 bps increase on the short end.

    What about the other end of the question: the interest banks pay on deposits? Well, no rush there:

    “We won’t automatically change deposit rates because they aren’t tied directly to the prime,” a JPMorgan Chase spokesperson told CNBC. “We’ll continue to monitor the market to make sure we stay competitive.”

    Bottom line: for those who carry a balance on their credit cards, their interest payment is about to increase. Meanwhile, 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.

  • SEC Throws Up On Third Avenue's Gating Plan (Then Folds)

    Update: The SEC Folds:

    • SEC PERMITS TEMPORARY SUSPENSION OF THIRD AVENUE REDEMPTIONS
    • THIRD AVENUE WILL BE SUBJECT TO ONGOING SEC OVERSIGHT
    • SEC SAYS IT REQUIRED FUND TO PUT IN PLACE INVESTOR PROTECTIONS

    As Bloomberg reports, Third Avenue Management LLC received approval from U.S. regulators to temporarily suspend redemptions from its $788.5 million high-yield bond fund.

    “The commission required the fund to put in place investor and market protections, including ongoing commission oversight and provisions involving an orderly and fair process as a condition of its approval of the order,” an SEC spokeswoman said in an emailed statement Wednesday.

    *  *  *

    As we detailed previously, HYG, the now infamous high-yield bond ETF, had an "ok" day, rallying along with everything else post-Fed. However, shortly after the close, it started to fade quickly as SEC "expressed concerns" about Third Avenue's plan for liquidation.

    Third Avenue last week said it plans to move assets from the fund, the Third Avenue Focused Credit Fund, into a liquidating trust after losses and redemptions left it unable to pay back redeeming clients without resorting to fire sales. Clients would have gotten interests in the trust, but would not have been able to pull out cash until the assets were liquidated over time. But as Bloomberg reports, new regulatory filings show:

    • *THIRD AVENUE CANCELS PLAN TO PLACE ASSETS IN LIQUIDATING TRUST

    Third Avenue Management LLC canceled plans to place assets from its $788.5 million high-yield bond fund in a liquidating trust after the staff of the Securities and Exchange Commission “expressed concern” about the idea, according to a regulatory filing.

     

    The New York based management firm, headed by Martin Whitman, is now asking the SEC to issue an order that would permit the fund to suspend redemptions, the filing said.

    The fund claimed:

    • *THIRD AVENUE: FUND WAS UNABLE TO SELL ASSETS AT RATIONAL PRICES

    And noted that

    • *THIRD AVENUE: FAIR VALUED PART OF FUND EXCEEDED 15% BY NOV. 30

    Which translated means:

    1. The SEC threw up on Third Avenue's plan to stash the "guess the market value" bonds in a trust;
    2. Which means Third Avenue will be forced to sell at market; unless
    3. The SEC grants them permission to suspend redemptions.

    As a reminder, The Investment Company Act of 1940 requires mutual funds to stand ready to redeem their shares at net asset value on a daily basis. Suspending such redemptions normally requires an explicit authorization from the SEC, securities attorneys have said.

    Why would The SEC allow this? Would it not seem like encouraging moral hazard? Or pandering?

    The reaction so far:

     

    You didn't really think it was all over, right?

     

    Charts: Bloomberg

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Dec 16

Today’s News December 16, 2015

  • GOP Debate Post-Mortem: "Chaos" Trump, "Full Vagina" Fiorina, & "Thug-Life" Cruz Vs "Carpet-Bomb-'em" Rubio

    Despite the best efforts to "Le Pen" Trump out of the debate, he still managed to garner the highest votes among poll audiences with regard who 'won' the debate, focusing on killing ISIS family members, border walls, shutting down the internet, and fixing America's roads and bridges. Ben Carson's moment of silence was his first truthful statement in months. The comes the Cruz-Rubio-Paul-Kasich death-match of who can explain Sunni-Shia turmoil in the most confusing way (with 'coughing' Cruz calling himself the most determined "thug" and Rubio lashing out at Cruz's plans to carpet-bomb Syria). Jeb took a swing at Trump as the "chaos president" and missed. In sum, aside from an Iowa conservative radio host who endorsed Cruz proclaiming Fiorina went "full vagina," the GOP debate appeared more a dick-measuring competition as contestant after contestant lined up to seem more hawkish.

     

    And the winner is…

     

    To better understand the evening's tensions…

    *  *  *

    So we start with Ben Carson's moment of slience for San Bernardino…

    Quickly followed by Fiorina's opening statement, as the ex-Hewlett Packard CEO detailed overcoming adversity in her life during the remarks – "I have been tested. I have beaten breast cancer, I have buried a child," Fiorina said. "I started as a secretary, and I fought my way to the top of corporate America while being called every b-word in the book," which was described by a conservative Iowan radio host and Cruz endorser…

     

     

    Rand Paul took a swing at Trump's "close that internet thing"…

     

    And then Paul moved on to Rubio's mass surveillance state plans…

     

    Cruz vs Rubio got quite heated at times as they sparred over who was the bigger thug, warmonger, slayer of nations…

     

     

    A quick moment of slience for Lindsey Graham's campaign as he apologized to America for Donald Trump…

    After talking about the importance of destroying the Islamic State, Jeb Bush turned his fire on Mr. Trump: “Donald is great at the one-liners, but he’d be a chaos candidate and he’d be a chaos president.”

    Mr. Trump accused Mr. Bush of attacking only because his campaign has been “a total disaster” and “nobody cares.”

     

     

    John Harwood actually reflected something intelligent…

     

    *  *  *

    Finally a quick summary of the news…

     

    Summing it all up nicely…

  • Freight Shipments Plummet as Inventory Glut Bites

    The transportation sector just keeps getting worse. Even after today’s uptick, the Dow Jones Transportation Average is back where it was in April 2014, and down 18% from its peak a year ago. Within this transportation sector is freight, a gauge of the goods-based economy, which is having a rough time.

    In November, the number of freight shipments in North America plunged 5.1% from a year ago, according to the Cass Freight Index. It hit the worst level for any November since 2011.

    The index is based on $28 billion in freight transactions processed by Cass on behalf of its client base of “hundreds of large shippers,” Cass explains. It covers shipments, regardless of the mode of transportation, including shipments by truck and rail. It does not cover bulk commodities. Shippers include companies in consumer packaged goods, food, automotive, chemical, OEM, heavy equipment, and retail.

    This index of shipment volume has been lower year-over-year every month, with the exception of January and February, which makes for an increasingly awful looking year:

    US-freight-index-2015-11-shipments

    Reasons for these lousy shipment volumes are spread throughout the economy, including a litany of big retailers that have come forward with crummy results and disappointing projections.

    Yesterday it was Dallas-based Neiman Marcus, which caters to luxury shoppers. It reported its first quarterly sales decline since 2009, down 1.8% from a year ago, with same-store sales down 5.6%. It booked a loss and laid off 500 people. As so many times, there’s a private-equity angle to it: Subject of an LBO in 2005, it’s now owned by Ares Capital and the Canadian Pension Plan Investment Board. They were hoping to make a bundle via an IPO. But now the IPO has been put on hold.

    CEO Karen Katz blamed the oil and gas fiasco. Its customers in Texas run and own companies in the depressed energy sector, or they receive royalty checks. Alas… “Business conditions were quite challenging,” Katz said. She also blamed the “strong dollar” that prevented foreign tourists from splurging at its stores in the gateway cities Honolulu, San Francisco, Las Vegas, New York, Washington, and Miam.

    This follows the disastrous results at Men’s Wearhouse, which blamed its misbegotten foray into M&A. At the company it acquired, Jos. A Banks, same-store sales plunged 14.6%.

    Retailers are also lamenting their high inventories. But not just retailers. Total business inventories across the country have piled up to suffocating levels. Given lackluster sales, the crucial inventory-to-sales ratio, which measures inventory turnover, has reached 1.38, worse than it had been in October 2009 during the Financial Crisis:

    US-business-inventories-2004=2015-11

    And Cass issued a warning about this inventory glut:

    The Federal Reserve has held back from raising interest rates, but is expected to announce higher rates in December. This will negatively affect those companies holding record high inventories, as carrying costs will begin to rise more rapidly.

    So companies are trying to whittle down their inventories, and since it’s not happening via booming sales, they’re cutting orders. Shipment volume follows. And the Cass index for shipments, including rail and trucking, has been taking a drubbing in November – particularly among railroads. Cass:

    The Association of American Railroads reported a drop of 7.4% and 6.0% in carloads carried and intermodal [containers], respectively.

    The drop in intermodal reflects the high inventory levels faced by retailers and wholesalers and is more reflective of the goods included in the Cass Freight Shipments Index.

    Much of the carload loss is due to drops in bulk commodities such as coal, petroleum products and metallic ores—products not as well represented in the Cass data.

    Cass summarized the situation in the economy as it impacts transportation this way:

    Imports have slowed down considerably as retailers and wholesalers have ample supply for the holiday season. The November Institute for Supply Management’s Purchasing Manager’s Index (PMI) declined almost 3%, while production was down 7%, new orders off 7.6%, and order backlog increasing 1.2%. For the first time since August 2012, the PMI Production Index has dropped to a level indicating that it is contracting.

    And so the index for freight expenditures, which tracks the money spent on shipping products, plunged 9.1% in November from a year ago, on a combination of lower volumes and lower shipping rates. Except for January and February, the index has been lower year-over-year every month.

    US-freight-index-2015-11-expenditures

    And December is going to be even worse: “Expect freight to erode in December following established seasonal trends,” Cass said to soothe our frayed nerves.

    Retailers of all kinds in once booming Texas, not just luxury-focused Neiman Marcus, are getting hit as Oil Bust Contagion spreads into the broader economy. Read…  Retail Sales in Texas Plunge

  • You Want War? Russia Is Ready For War

    Authored by Pepe Escobar, originally posted at Sputnik News,

    Nobody needs to read Zbigniew “Grand Chessboard” Brzezinski’s 1997 opus to know US foreign policy revolves around one single overarching theme: prevent – by all means necessary – the emergence of a power, or powers, capable of constraining Washington’s unilateral swagger, not only in Eurasia but across the world.

    The Pentagon carries the same message embedded in newspeak: the Full Spectrum Dominance doctrine.

    Syria is leading all these assumptions to collapse like a house of cards. So no wonder in a Beltway under no visible chain of command – the Obama administration barely qualifies as lame duck – angst is the norm.

    The Pentagon is now engaged in a Vietnam-style escalation of boots on the ground across “Syraq”. 50 commandos are already in northern Syria “advising” the YPG Syrian Kurds as well as a few “moderate” Sunnis. Translation: telling them what Washington wants them to do. The official White House spin is that these commandos “support local forces” (Obama’s words) in cutting off supply lines leading to the fake “Caliphate” capital, Raqqa.

    Another 200 Special Forces sent to Iraq will soon follow, allegedly to “engage in direct combat” against the leadership of ISIS/ISIL/Daesh, which is now ensconced in Mosul.

    The US Air Force fighter jets

     
    These developments, billed as “efforts” to “partially re-engage in Iraq and Syria” are leading US Think Tankland to pen hilarious reports in search of “the perfect balance between wide-scale invasion and complete disengagement” – when everyone knows Washington will never disengage from the Middle East’s strategic oil wealth.

    All these American boots on the ground in theory should be coordinating, soon, with a new, spectacularly surrealist 34-country “Islamic” coalition (Iran was not invited), set up to fight ISIS/ISIL/Daesh by no less than the ideological matrix of all strands of Salafi-jihadism: Wahhabi Saudi Arabia.     

    Syria is now Coalition Central. There are at least four; the “4+1” (Russia, Syria, Iran, Iraq plus Hezbollah), which is actually fighting Daesh; the US-led coalition, a sort of mini NATO-GCC combo, but with the GCC doing nothing; the Russia-France direct military collaboration; and the new Saudi-led “Islamic” charade. They are pitted against an astonishing number of Salafi-jhadi coalitions and alliances of convenience that last from a few months to a few hours.

    And then there’s Turkey, which under Sultan Erdogan plays a vicious double game.  

    Sarajevo All Over Again?

    “Tense” does not even begin to describe the current Russia-Turkey geopolitical tension, which shows no sign of abating. The Empire of Chaos lavishly profits from it as a privileged spectator; as long as the tension lasts, prospects of Eurasia integration are hampered.

    Russian intel has certainly played all possible scenarios involving a  NATO Turkish army on the Turkish-Syrian border as well as the possibility of Ankara closing the Bosphorus and the Dardanelles for the Russian “Syria Express”. Erdogan may not be foolish enough to offer Russia yet another casus belli. But Moscow is taking no chances.

    NATO country flags wave outside NATO headquarters in Brussels on Tuesday July 28, 2015

     
    Russia has placed ships and submarines capable of launching nuclear missiles in case Turkey under the cover of NATO decides to strike out against the Russian position. President Putin has been clear; Russia will use nuclear weapons if necessary if conventional forces are threatened.

    If Ankara opts for a suicide mission of knocking out yet another Su-24, or Su-34, Russia will simply clear the airspace all across the border via the S-400s. If Ankara under the cover of NATO responds by launching the Turkish Army on Russian positions, Russia will use nuclear missiles, drawing NATO into war not only in Syria but potentially also in Europe. And this would include using nuclear missiles to keep Russian strategic use of the Bosphorus open.

    That’s how we can draw a parallel of Syria today as the equivalent of Sarajevo 1914.

    Since mid-2014 the Pentagon has run all manner of war games – as  many as 16 times, under different scenarios – pitting NATO against Russia. All scenarios were favorable to NATO. All simulations yielded the same victor: Russia.

    And that’s why Erdogan’s erratic behavior actually terrifies quite a few real players from Washington to Brussels.  

    Let Me Take You on a Missile Cruise

    The Pentagon is very much aware of the tremendous heavy metal Russia may unleash if provoked to the limit by someone like Erdogan. Let's roll out an abridged list. 

    Russia can use the mighty SS-18 – which NATO codenames “Satan”; each “Satan” carries 10 warheads, with a yield of 750 to 1000 kilotons each, enough to destroy an area the size of New York state.

    The Topol M ICBM is the world's fastest missile at 21 Mach (16,000 miles an hour); against it, there’s no defense. Launched from Moscow, it hits New York City in 18 minutes, and L.A. in 22.8 minutes.

    Russian submarines – as well as Chinese submarines – are able to launch offshore the US, striking coastal targets within a minute. Chinese submarines have surfaced next to US aircraft carriers undetected, and Russian submarines can do the same.

    S-400 Triumph (SA-21 Growler) air defense system
     

    The S-500 anti-missile system is capable of sealing Russia off from ICBMs and cruise missiles. (Moscow will only admit on the record that the S-500s will be rolled out in 2016; but the fact the S-400s will soon be delivered to China implies the S-500s may be already   operational.)

    The S-500 makes the Patriot missile look like a V-2 from WWII.

    Here, a former adviser to the US Chief of Naval Operations essentially goes on the record saying the whole US missile defense apparatus is worthless.

    Russia has a supersonic bomber fleet of Tupolev Tu-160s; they can take off from airbases deep in the heart of Russia, fly over the North Pole, launch nuclear-tipped cruise missiles from safe distances over the Atlantic, and return home to watch the whole thing on TV.

    Russia can cripple virtually every forward NATO base with tactical – or battlefield – small-yield nuclear weapons. It’s not by accident that Russia over the past few months tested NATO response times in multiple occasions.

    The Iskander missile travels at seven times the speed of sound with a range of 400 km. It’s deadly to airfields, logistics points and other stationary infrastructure along a broad war theatre, for instance in southern Turkey.

    NATO would need to knock out all these Iskanders. But then they would need to face the S-400s – or, worse, S-500s — which Russia can layer in defense zones in nearly every conceivable theater of war. Positioning the S-400s in Kaliningrad, for instance, would cripple all NATO air operations deep inside Europe.

    And presiding over military decisions, Russia privileges the use of Reflexive Control (RC). This is a tactic that aims to convey selected information to the enemy that forces him into making self-defeating decisions; a sort of virus influencing and controlling his decision-making process. Russia uses RC tactically, strategically and geopolitically. A young Vladimir Putin learned all there is to know about RC at the 401st KGB School and further on in his career as a KGB/FSB officer.

    All right, Erdogan and NATO; do you still wanna go to war?

     

  • 2015's Final Republican Presidential Nominee Debate – Live Feed

    In the fifth and final GOP presidential nominee debate deathmatch (from The Ventian in Vegas), all eyes will be on the Cruz and Rubio as they vie for 2nd place to The Teflon Don. It won't be all plain-sailing for Trump (who warned CNN about "fairness" and slammed FOX's Megyn Kelly in the pre-debate tweetfest), who expects "them all to be coming for me," but we suspect Ben Carson will be a little quieter. With the stakes highest so far (and Iowa caucuses just 7 weeks away) for some of the also-rans it is put-up-or-shut-up time which may mean more fireworks and spectacle as Americans are distracted from their fear of terror, stagnant income, pre-Fed last supper.

    As RedState.com notes, it’s obvious – the media and the pundits have been waiting for Donald Trump and Sen. Ted Cruz (R-TX) to blow each other up and leave neither man standing. They positively relish the idea of this fight. And it is an obvious one. Wolf Blitzer, at the CNN debate, will no doubt set up questions to draw out that fight.

    But don’t look there. That’s not the real fight.

    The real fight on stage tonight is going to be Sen. Ted Cruz (R-TX) vs. Sen. Marco Rubio (R-FL). Rubio needs to hold on to the establishment as Bush fades. Cruz needs to convince the establishment that he is the only guy who can take on Trump. Rubio needs conservatives to give him a second chance after his Gang of Eight deal. Cruz needs to hold conservatives and convince them his mastery of debate and willingness to fight overcomes Rubio’s communication skills.

     

    In the last debate, Cruz took a subtle dig at Rubio on sugar subsidies. Since then, Rubio’s Super PAC has gone after Cruz on national security. Rubio has suggesSen. Ted Cruz (R-TX) 100% would be weaker on national security.

     

    Cruz has gone after Rubio as a neocon internationalist who agreed with Barack Obama on Libya and Syria.

     

    That’s where the fight is going to be tonight. Cruz v. Trump will be gravy. Cruz v. Rubio will be the real fight.

     

    As Vox reports,

    This debate (the fifth for the GOP) will feature nine candidates on the primetime stage. Just five of those nine managed to qualify by topping 3.5 percent in an average of national polls — Donald Trump, Ted Cruz, Marco Rubio, Ben Carson, and Jeb Bush. However, CNN also took polling averages in Iowa and New Hampshire into account, so Chris Christie, John Kasich, Carly Fiorina, and Rand Paul also made the cut (though CNN had to bend its rules a bit to get Paul in). For Chris Christie, the main debate marks a moment of redemption. Christie was relegated to the so-called "undercard" debate in November after failing to qualify for the prime-time event.

     

    Four other candidates — Mike Huckabee, Lindsey Graham, Rick Santorum, and George Pataki — will be relegated to the earlier undercard debate.

     

    The other GOP candidate still running, Jim Gilmore, failed to qualify.

    Live Feed (due to start at 830ET).. (click image for link to CNN.com feed, no embed)

    *  *  *

    Despite all the excitement over Cruz's gains, let's get some context here…

     

    Caption Contest…

     

    Trump unleashed a torrent of tweets heading into the debate, taking swipes at everyone…

    *  *  *

    Rolling Stone released probably the best 'drinking game' – please imbibe responsibly – to make the debate bearable…The rules: 

    DRINK AFTER EVERY VIOLATION OF:

    1. The doctor's note rule: Self-explanatory. Drink after any riffing on Trump's latest stunt.

    2. The nuke 'em till they glow rule: Drink after any promise to "carpet bomb" the Middle East, or after any attempt to one-up Ted Cruz's recent comments about how, "I don't know if sand can glow in the dark, but we're going to find out."

    3. The Obama won't say "terrorism" rule: Candidate complains that the president is afraid to use the words "radical Islam" or "Islamic terrorism."

    4. The climate change denial rule: Complaint about the Paris climate change agreement. Shotgun a beer if it comes with a mention of how the nice local weather renders climate change talk meaningless.

    5. The War on Christmas rule: Mention of "red cups," nativity controversies, etc.

    6. The Reince Priebus rule: Mention of a brokered convention or use of the phrase "Let the people decide" in a discussion of RNC/Reince Priebus controversy. Double shot if the latter's name pronounced incorrectly.

    7. The George Lucas rule: Gratuitous mention of Star Wars. Double shot if it comes with an impersonation or a sound effect (e.g., Cruz does a Yoda voice while threatening ISIS).

    8. The I'm just a simple caveman rule: A candidate mentions that he/she is not a scientist, or generally derides higher education before proceeding to make a "common sense" point.

    9. The wet blanket rule: Attempt by Kasich to implore his fellow candidates to be more realistic, followed by boos/catcalls from the audience.

    10. The Hitler had some really good ideas rule: Salutary mention of Japanese internment, religious registries or other similar policies.

    11. The I don't just believe in the American dream, I'm a product of it rule: Anyone talks about how they are the son/daughter/husband/wife of a humble bartender/maid/tow truck driver/whatever because dreams and opportunity.

    12. The good guy with a gun rule: Self-explanatory.

    13. The empty God platitudes rule: An anti gun-control candidate extends "thoughts and prayers" to the victims of Paris, San Bernardino or whatever other mass shooting we'll have in the next ten minutes.

    14. The we're not racist rule: A candidate complains that people with "traditional values" are being accused of being bigots. Double shot if it's Rubio.

    15. The Carly, interrupted rule: Carly Fiorina interrupts someone and/or uses a bogus statistic. Double shot if it's that "73,000-page tax code" line she continues to send out there at every opportunity.

    THE EVERGREEN RULES

    ALWAYS drink, in every debate, when:

    16. Trump brags about how much money he makes.

    17. Anyone says, "I'm the only one on this stage who…"

    18. Someone says, "Any one of us onstage is better than Hillary Clinton…"

    19. The crowd breaks into uncomfortable applause at a racist/sexist statement.

    20. Any candidate evokes Nazis, the Gestapo, Neville Chamberlain, concentration camps, etc.

    21. Anyone force-feeds an Israel reference into a question where it doesn't belong. Also known as the Ann Coulter rule.

    22. Anyone pledges to "take our country back."

    23. The Jim Webb rule: Candidate complains about not getting enough time.

    24. Any candidate illustrates the virtue of one of his/her positions by pointing out how not PC it is.

    25. Someone invokes St. Reagan. Beware, people, this is an every time rule again.

    *  *  *

    Finally a quick summary of the news…

     

     

  • The Road To Galactic Serfdom – Libertarian Lessons From Star Wars

    Submitted by Dan Sanchez via AntiWar.com,

    o-STAR-WARS-FORCE-AWAKENS-facebook

    Star Wars: The Force Awakens hits theaters this week, continuing the cinematic saga of an interplanetary civilization’s struggles with galactic war and tyranny. It will be watched by millions whose own civilization is beset by global warfare driven by a planetary empire on the verge of descending into a militarized police state. So now would be a good time to review the lessons to be found in the first two Star Wars trilogies concerning the road to universal serfdom and how to keep off it.

    *  *  *

    The story of how the Galactic Empire arose is told in the prequels trilogy. The whole process is orchestrated from within the Galactic Republic by Palpatine, a seemingly benign politician who is secretly Darth Sidious, grand master of the Sith, a power hungry order of mystic warriors wielding the dark side of the Force. The Sith are a dark reflection of the Jedi Knights, who use the Force to protect life and in service to the Republic.

     

    Sidious is the “phantom menace” who, aided by his apprentice Darth Maul, covertly manipulates the galaxy’s republican government to progressively increase his own power, steadily advancing toward a total Sith coup. Just as with real life democracies, the Galactic Republic masks the machinations of the true wielders of power with the facade of “representative government” and drapes their seizures of still greater power with the sanctifying mantle of “popular sovereignty.” The Sith can be seen as an analogy for the deep state.

    Sidious’s implement of choice for accumulating power is war. His modus operandi is as follows. He first manufactures an interplanetary conflict and crisis, manipulating one side as Palpatine and commanding the other side as Sidious. He then engineers enhancements of his own power over the Republic, justifying them as regrettably necessary for decisively dealing with that crisis.

    In Episode 1, as Darth Sidious, he commands the Trade Federation to blockade and occupy the planet of Naboo. Then as Senator Palpatine, he convinces Naboo’s elected queen Padme Amidala to call for a vote of no confidence against the Republic’s Chancellor after he and the Galactic Senate fail to come to the aid of her people. This paves the way for Palpatine’s own election to the Chancellorship.

    In Episode 2, as Darth Sidious, he organizes a secessionist movement and directs the separatist Confederacy of Independent Systems to build a massive droid army. Meanwhile, he also oversees the spawning of a vast army of clone troopers, bio-engineered for docility.

     

     

    The Republic had been hesitant to raise an army to confront the secessionists. But after news breaks of the Confederacy’s droid build-up, the Senate grants Chancellor Palpatine emergency powers, enabling him to enlist and deploy the clone troopers as the Grand Army of the Republic. Palpatine assures the Senators:

    “It is with great reluctance that I have agreed to this calling. I love democracy! I love the Republic! Once this crisis has abated, I will lay down the powers you have given me.”

    In Episode 3, the fielding of the clone and droid armies has engulfed the galaxy in all-out war between the Confederacy and the Republic, with the Jedi leading the clone troopers into battle. This presents the opportunity for Sidious to issue Order 66, which activates the clones’ bio-programmed “Protocol 66,” under which they turn on and kill their Jedi commanders. (I will cover Anakin Skywalker’s role in all this later in the essay.)

    Finally, unhampered by the Jedi, wreathed with emergency powers, and backed by a perfectly obedient standing army, Palpatine declares himself Emperor with the following address to the Senate:

    “In order to ensure our security and continuing stability, the Republic will be reorganized into the first Galactic Empire, for a safe and secure society.”

    All the steps in the Dark Lord’s rise to total power were enabled by the crises of wars that he himself engineered. The overriding theme of the first trilogy is that the star wars engendered galactic tyranny. This is a perfectly realistic narrative motif, because it is merely an interstellar extrapolation of Randolph Bourne’s insight that war is the health of the State. The emergency-propelled rise of the Sith also fits with Robert Higgs’s broader insight that crisis is the health of Leviathan.

    Indeed, throughout history, rulers, regimes, and power cliques (just like Sidious and the Sith) have dragged their countries into wars in order to acquire, shore up, and enhance their power. This power play almost always works, because war activates in indoctrinated adherents of a State what Randolph Bourne called the “herd mind”: a sort of statist Protocol 66.

    Terrorized by the menaces of war, and aroused by its prizes, State citizens react like a spooked herd or a ravenous pack. They become as docile as sheep or dogs (or Sith-bred clones) to their shepherds and masters in government, swarming to their feet and granting them sweeping emergency authority, just as the war-spooked Galactic Senate repeatedly empowered Palpatine. They yield their liberties, even to the point of renouncing their individuality (like how the imperial troopers were all clones of a single man). Under the exigencies of war, the people, as Bourne put it:

    “…proceed to allow them­selves to be regimented, coerced, de­ranged in all the environments of their lives, and turned into a solid manufactory of destruction to­ward whatever other people may have, in the appointed scheme of things, come with­in the range of the Government’s disapprobation. The citizen throws off his contempt and indifference to Government, identifies himself with its purposes, revives all his military memories and symbols, and the State once more walks, an au­gust presence, through the imaginations of men.”

    As Higgs detailed, the expansions of state size and power that occur during a war or other emergency are generally scaled back after the crisis passes, but never all the way down to the pre-crisis level. Thus, the power of the state ratchets up with every war.

    This is why governments pursue war, and why war eventually leads to tyranny, and ultimately to totalitarianism.

    Empires are so enamored with the empowering effects of war, that they will often try to maximize the clash by, like Palpatine, deliberately provoking (or fabricating) attacks, arming future enemies, and aiding both sides in a conflict. Especially egregious in this regard has been the US empire.

    The casus belli of the Mexican-American War (the Thornton Affair), the Spanish-American War (the USS Maine), World War I (the Lusitania and the Zimmerman telegram), World War II (Pearl Harbor), and the Vietnam War (Gulf of Tonkin) all involved engineered conflicts, deliberate provocation and baiting, deception, or outright fabrication on the part of the US.

    The US armed the Soviets against the Nazis in the Second World War, then armed international jihadis against the Soviets in the Cold War, and is now devastating the Greater Middle East under the pretext of fighting international jihadis in the Terror War.

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    The US sold weapons of mass destruction (WMDs) to Saddam Hussein’s Iraq for use in invading Iran, while secretly selling arms to Iran at the same time.

    To provoke a crisis which led to the first war on Iraq, the US greenlit Saddam’s invasion of Kuwait over an oil rights dispute, just as Sidious greenlit the Trade Federation’s invasion of Naboo over a trade taxation dispute.

    After having sold WMDs to Saddam, the US invaded Iraq again years later over then non-existent WMDs, as well as non-existent ties to the international jihadi movement that the US first built up.

    And now the US is arming the new Iraq government to fight the jihadis of ISIS, while also arming the jihadis fighting alongside ISIS in Syria.

    And Washington has used every single war and crisis it has concocted to expand its global empire and justify the accumulation of greater power over its domestic subjects. Are you getting the picture yet? We are ruled by a power clique just as diabolical and ruthless as the Sith.

    *  *  *

    What especially accelerated Palpatine’s accumulation of autocratic power was general frustration over the fractious Galactic Senate’s inability to come to decisive agreement over how to deal with the Sith-generated crises. This was most fully expressed in an intimate interlude between Padme Amidala and the young Jedi apprentice Anakin Skywalker (who later becomes the evil Darth Vader), following a romantic romp through the countryside.

    ANAKIN: I don’t think the system works.

    PADME: How would you have it work?

    ANAKIN: We need a system where the politicians sit down and discuss the problems, agree what’s in the best interests of all the people, and then do it.

    PADME: That is exactly what we do. The trouble is that people don’t always agree. In fact, they hardly ever do.

    ANAKIN: Then they should be made to.

    PADME: By whom? Who’s going to make them? (…)

    ANAKIN: Someone wise.

    PADME: That sounds an awful lot like a dictatorship to me.

    ANAKIN: Well, if it works…

    Padme then decides that Anakin is teasing her, and, sitting in a meadow with the future Fuhrer, laughs it off. “You’re so bad!” she playfully chides him, as if to say, “Oh, Adolph…!”

    As F.A. Hayek explained in The Road to Serfdom, such an impulse toward dictatorship among those “impatient with the impotence of democracy,” as he put it, occurs frequently. He argued that it is a function of citizens giving their republics too expansive a mandate for addressing the ills of society through central planning. As Hayek put it:

    “…agreement that planning is necessary, together with the inability of democratic assemblies to produce a plan, will evoke stronger and stronger demands that the government or some single individual should be given powers to act on their own responsibility. The belief is becoming more and more widespread that, if things are to get done, the responsible authorities must be freed from the fetters of democratic procedure.”

    For example, Hayek argued that Weimar Germany’s embrace of planning paved the way for the rise of Adolph Hitler:

    “In Germany, even before Hitler came into power, the movement had already progressed much further. It is important to remember that for some time before 1933 Germany had reached a stage in which it had, in effect, had to be governed dictatorially. Nobody could then doubt that for the time being democracy had broken down… Hitler did not have to destroy democracy; he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done.”

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    When dictators come to power, it is generally because many in the public are clamoring for it, yearning for an Alexander who will cut the Gordian knot of parliamentary discord, and who will use unchecked power to finally deliver all the good things that they believe can only flow from the State. As Padme remarked upon Palpatine’s declaration of the Empire, “So this is how liberty dies: with thunderous applause.”

    All this is very disquieting when we reflect on our present political state of affairs. We ourselves are mired in war, crisis, and insecurity. Great swaths of the country are demanding more planning (whether escalation of the war on ISIS or a larger welfare state at home), and expressing frustration over the republic’s inability to decisively deliver on those demands. Moreover, every one of the leading Presidential candidates is a potential strongman.

    Trump preens as a “tough guy” and his ardent followers want him “make America great again,” with a strong, authoritarian hand. Trump, echoing Palpatine’s promise of a “safe and secure society”, foretells that:

    “…security is going to rule. […] And so we’re going to have to do certain things that were frankly unthinkable a year ago.”

    Then there is Marco Rubio, a loyal apprentice of the neocon Sith who parrots his masters in everything from his phraseology (“New American Century,” “Clash of Civilizations,” etc.) to his dedication to an ever-expanding Empire and ever-proliferating wars.

    And Ted Cruz would have loved to command his own Death Star, judging from his expressed enthusiasm for civilian casualties and dropping nukes.

    On the Democratic side, there is the Machiavellian Hillary Clinton who is almost as imperialistic and warlike as Rubio. Clinton is also eager to disarm the American public, which would place us in completely prostrate serfdom under the government’s stormtroopers in the military and militarized police departments.

    Then there is the avowed advocate of all-around economic planning, Bernie Sanders.

    In America we have the blessed freedom to select our flavor of dictator. We can choose where we want the coming totalitarianism to begin before spreading everywhere else: total war, a total police state, or total economic planning. “I love democracy! I love the Republic!”

    *  *  *

    The Jedi suspect that Anakin is the prophesied “chosen one” who will restore balance to the Force. Yet his turn to the dark side is also anticipated. When Anakin is brought before Yoda as a child, the Jedi Master senses much fear in the boy: specifically fear of losing his mother.

    “What has that got to do with anything?” Anakin objects. “Everything!” Yoda answers, “Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering.”

    This echoes the 12th century Muslim philosopher Ibn Rushd (Averroes), who wrote:

    “Ignorance leads to fear, fear leads to hate, and hate leads to violence. This is the equation.”

    Years later, after Anakin does turn, becoming Darth Vader, Yoda warns his son Luke Skywalker not to follow in Vader’s footsteps:

    “Yes, a Jedi’s strength flows from the Force. But beware of the dark side. Anger, fear, aggression; the dark side of the Force are they. Easily they flow, quick to join you in a fight. If once you start down the dark path, forever will it dominate your destiny, consume you it will, as it did [Darth Vader].”

    Yoda later clarifies that:

    “A Jedi uses the Force for knowledge and defense, never for attack.”

    Yoda’s references to “aggression” and “attack,” as opposed to “defense” invite a libertarian interpretation of what the dark side of the Force is. Indeed a fundamental libertarian concept is the “Non-Aggression Principle” (NAP). According to the NAP, violence is unjust (crosses over to the dark side) when it is aggression: that is, violence initiated against another. Violence, as Yoda would say, is only justified in defense against aggression (which, according to libertarians, includes violence to reclaim stolen property or restitution).

    What about the “path to the dark side” that Yoda spelled out? It is difficult to believe that anger and fear never serve a good function.

    However, if instead of “anger,” we stress Yoda’s and Ibn Rushd’s reference to “hate,” it makes more sense. We can define “hate” as anger that is so overwhelming that it leads one to commit aggression against the target of that anger, as well as to indiscriminately attack those lumped in with that target.

    Similarly, we might substitute “terror” for “fear,” defining “terror” as fear that is so overwhelming that it drives one into hate, and thus into aggression.

    Terror is the path to the dark side. Terror leads to hate. Hate leads to aggression. Aggression leads to suffering.

    Especially with these refinements, we can see Yoda’s warning about Anakin being vindicated throughout the prequels trilogy. The terror Anakin feels over losing his mother, which Yoda identifies in Episode 1, emerges again in Episode 2, as he begins having dreams about her suffering.

    Later, after his mother is killed by Tusken Raiders, the terrorized Anakin slips into hateful indiscriminate vengeance: into aggression, the dark side. As he later confesses to Padme, he massacres the entire camp of “Sand People”, including even innocent children and babies.

    With this massacre, Anakin starts down the “dark path,” and from then on it “dominates his destiny.” He takes another step down that path at the beginning of Episode 3, when he again yields to hate and executes a surrendered prisoner under the prodding of Palpatine.

    He also begins having premonitions of his beloved Padme suffering. And so terror of losing his mother is replaced by terror of losing his wife. This leads to his final turn, after Palpatine offers to teach Anakin how to use the dark side of the Force to stave off Padme’s death. After helping Palpatine kill a Jedi Knight, Anakin swears himself to the Sith, taking on the name Darth Vader. When his new master activates Protocol 66, Vader participates in that Night of Long Knives, even massacring young children in a Jedi temple school.

    Nonetheless, his terror of losing Padme ensures that he does lose her. Thinking she had turned against him, he lashes out using the Force and wounds her. Despondent over her husband’s dark turn, she soon after dies giving birth to Luke and his sister Leia. As Yoda warned, the path to the Dark Side only leads to suffering.

    Anakin then takes his station beside the new Emperor in the “benevolent” ironfisted dictatorship that he had dreamed of years ago.

    *  *  *

    Throughout the original Star Wars trilogy, Luke faces challenges similar to those of his father. In Episode 5, Yoda has misgivings about Luke as well, complaining that his new apprentice is too impatient and impetuous. But Luke assures Yoda, “I’m not afraid,” marking out the fundamental difference between himself and his father: freedom from terror.

    Yoda is dubious, especially when Luke, like his father, begins having his own premonitions about people close to him suffering: in his case, Leia and Han Solo. Terrified of losing his friends, Luke insists on breaking off his training with Yoda to go help them. Yoda worries that this is Luke’s own start down the same dark path that his father followed.

    And Luke indeed is faced with temptations to join the Dark Side, especially after learning he is Vader’s son, and upon his father’s invitation to help him rule the galaxy. But Luke rejects the offer, choosing to jump to his own possible death instead.

    Far from turning to the dark side, Luke is determined to turn his father away from it. To this end, he allows himself to be captured by the Empire in Episode 6. This leads to a duel with his father, during which Vader terrorizes Luke by threatening to turn Leia to the dark side. This drives the young Jedi into hate, causing him to temporarily lose control, and to grievously injure and incapacitate Vader.

    The Emperor is also present, and urges Luke to complete his turn to the dark side by striking his helpless father down:

    “Good! Your hate has made you powerful. Now, fulfill your destiny and take your father’s place at my side!”

    But Luke catches and calms himself, breaks the spell of terror and hate, casts his lightsaber away, and refuses to commit aggression against his father, a defeated opponent. He says:

    “Never. I’ll never turn to the Dark Side. You have failed, Your Highness. I am a Jedi, like my father before me.”

    Enraged by failure, the Emperor tries to kill Luke. Seeing his son about to be slain by his master, Anakin finally turns back against the dark side and against the Sith. In defense of his boy, he incurs mortal injury by hurling the Dark Lord into the Death Star’s reactor.

    As Anakin lay dying, his son pleads with him, “No, you’re coming with me. I won’t leave you here. I’ve got to save you!”

    His father answers, “You already have, Luke.”

    *  *  *

    The libertarian spin on the path to the dark side has many lessons for our country.

    As a result of decades of foreign wars and intervention, on 9/11, we were struck by terrorists and allowed ourselves to be stricken with terror. This terror drove us into irrational, broad-brush hatred toward Muslims in general. That hatred provided cover for a war of aggression in Iraq which has resulted in over a million dead, followed by over a decade of wreaking havoc throughout the Muslim world, which has left over four million dead. Having suffered the massacre of our innocents, like Anakin after the murder of his mother, we ourselves allowed for the massacre of innocents, and in far greater numbers.

    Shortly after 9/11, Vice President Dick Cheney said on television, “We also have to work, though, sort of the dark side, if you will.” And, stricken with terror and indulging in hate, America did embrace the dark side, accepting torture, indefinite detention, warrantless surveillance, assassination, perpetual illegal wars, and mass civilian casualties.

    Terror led to hate, hate led to aggression, and aggression has led to suffering, not only for the the direct victims of the wars, but for Westerners at home, as we find ourselves afflicted by blowback in the form of a refugee crisis and terrorist attacks.

    This blowback has, in turn, provoked a fresh bout of Islamophobic terror and hate, driving calls for still more aggression in the form of more foreign militancy as well as domestic oppression against Muslims. This too will only lead to suffering, both in the form of further blowback,and in the form of an oppressive militarized garrison state that will not stop at persecuting only Muslims. As Yoda warned: “If once you start down the dark path, forever will it dominate your destiny, consume you it will…”

    But it need not dominate our destiny literally forever. As difficult as it may be, we can always choose to turn away from the dark side.

    It will help if we recognize that our giving in to the dark side is precisely what the terrorists want. They are, like the Sith, striving to terrorize us into hatred and aggression. They want us to sink ourselves into military quagmires, where we can be “bled to bankruptcy,” as Osama bin Laden put it. They also want our indiscriminate violence to radicalize Muslims in order to boost their recruitment.

    Also like the Sith, the terrorists want to breed antagonism. As ISIS proclaimed in its own official magazine, the strategy of its terrorism is to polarize the whole world into two warring camps (Islamists and Crusaders) locked in a black-and-white clash of civilizations, with no “gray zone” in between. “If you’re not with me, then you’re my enemy,” said Anakin after he turned, echoing a sentiment expressed by President Bush, and explicitly seconded by Osama bin Laden. “Only a Sith deals in absolutes,” responded Anakin’s former master Obi Wan.

    We must also realize that the ultimate source of most of our terror and suffering is our own government. As discussed above, the Sith-like State accumulates power by making enemy menaces (terror), cultivating nationalistic furor (hatred), and instigating foreign wars (aggression).

    Indeed the very essence of the State is regularized aggression, which it terrorizes the populace into accepting as the only possible way of providing security. And the modern democratic State wins loyalty and revenue by stimulating mutual hatred and fear among its citizens, and then brokering the mutual aggression that results.

    The dark side is the health of the State. But it is the sickness of civilization.

    Luke Skywalker’s heroic victory was that he resisted terror, renounced hate, and rejected aggression. Inspired by his son’s example, Anakin finally turned back from the Dark Side, and so was redeemed.

    If we would but be similarly inspired, then America could be redeemed as well. And we would finally step off the dark path to global suffering and universal serfdom.

    May liberty, justice, and peace be with you. And enjoy Episode 7.

     

  • Which Corporations Own The White House

    The president and his top advisers have kept an open door for CEOs of Fortune 100 companies, keeping almost 1,000 appointments with them, a Reuters review of White House records shows. Of the hundreds of appointments listed, Obama himself was present at about half. As the corrupting hand of government intervention spreads, so CEOs and the White House have become allies in advocating for immigration reform, the Trans-Pacific Partnership trade deal and reauthorization for the Export-Import Bank. So who really owns The White House?

     

    And the winner is…

    "I do take a fair amount of grief from Republican colleagues who think that I've just like totally lost my mind," said Honeywell International Inc's David Cote, 63, the most frequent CEO visitor to Obama's White House, having turned up more than 50 times.

     

    Cote was part of a high-profile commission on the nation's debt in 2010 and serves on another advisory panel on technology and manufacturing. He said he thinks CEOs should not delegate their responsibility to help politicians understand business. "You've got to be able to talk about this stuff and have both sides understand the needs of the other," he said.

     

    Cote, a life-long Republican, said he doesn't always agree with Obama but enjoys talking with him, calling him "a very smart guy" who doesn't get enough credit for his work on the economy.

    Since the economic downturn of 2008, the critics of capitalism have redoubled their efforts to persuade the American people and many others around the world that the system of individual freedom and free enterprise has failed.

    The first observation to make is that many if not most of the social and economic misfortunes that are most frequently talked about are not the product of a “failed” free enterprise. The reason for this is that a consistently practiced free enterprise system no longer exists in the United States.

     

    …

     

    What we live under is a heavily regulated, managed and controlled interventionist-welfare state. The over 80,000 pages of the Federal Register, the volume that specifies and enumerates all the Federal regulations that are imposed on and to which all American businesses are expected to comply, is just one manifestation of the extent to which government has weaved a spider’s web of commands over the business community.

    As we detailed previously, the Austrian economist, Ludwig von Mises, described this twisted, corrupted, and politicized capitalism over 80 years ago, in 1932, in an essay on “The Myth of the Failure of Capitalism,” published shortly before the coming of Hitler and the Nazi movement to power.

    In such a politicized market economy, working for and serving “national” and “social” interests become the guiding principle of business decision-making.

     

    What all these examples and facts about lobbying activities, campaign funding and government-business partnerships highlight is the pervasive extent to which “capitalism” as it now exists in the United States or Europe – or in fact all other parts of the world – has nothing to do with free market, laissez-faire capitalism.

     

    …

     

    In a real free market, there is no place for politicians to offer privileges and favors, because there are none to sell. There is no motive or gain for special interest groups to spend huge sums of money in campaign contributions or lobbying expenses, because political benefits for some at others’ expense cannot be bought.

     

    Wasteful and corrupting “partnerships” between government and business enterprises cannot occur because political authority is restrained from any task other than the securing of each individual’s right to his life, liberty, and peacefully acquired property.

    As Ludwig von Mises said, the political and economic crises through which the world suffers is not the crisis or failure of the free market. No, it is the crisis and failure of the interventionist-welfare state, and its anti-free market capitalist ideology.

  • Grant Williams: The End Of The Road

    Submitted by Adam Taggart via PeakProsperity.com,

    Grant Williams returns this week to set the context for this week's FOMC meeting, where the Federal Reserve is widely expected to hike interest rates for the first time in nearly a decade. To say he is very skeptical of the Fed's ability to continue to control market forces much longer is a gross understatement:

    None of this has been tried before and, to me, that just demonstrates the dangers. Once you get into a situation like the central banks did in ’08 with this panicking — everyone calls it the Hotel California — you can’t get out. And, so incrementally, they have to keep doing something. Instead of stepping back and letting free markets and business cycles and forces of nature have their way and flush out all of the impurities in the system, this is what happens. And, yet, this time, for whatever reason, I think since post-Volker, Greenspan has basically started this ball rolling with this knee-jerk reaction to slash interest rates. And, you can kind of understand it, because everyone was still traumatized by the high inflation of the ‘70s. But, they started and they started down that road.

     

    And, if you look at a chart of interest rates in the U.S., you can see. It’s just, from 1980—I’ve marked two points on all my charts for presentations. One is the end of the gold standard, August 15, ’71, when Nixon closed the gold window. And, the next is peak interest rates in 1980. And, if you look at those two charts and you see what’s happened with interest rates since, they’ve been on a course to hit zero ever since.

     

    But, if you step back from that and you say forget the creeping nature of this and how we’ve gradually got here, try and parachute yourself in and look at the situation, and look at it through clear eyes, you'll say, “Hang on, we have negative nominal interest rates, and we have people queuing up to buy the debt of what are clearly bankrupt governments at negative interest rates.” It would take you no time at all to think, “Well, this is, this is ridiculous. Not only that, but this is the end of the road. It has to end here or near here.”

     

    And, so I think that’s where we are. I think we’ve reached the end of the road. That’s not to say the end of the road is a brick wall. We can be trying to turn the car around for a year, who knows, trying to find another way out of this thing. But, we’re there. I mean, believe it or not, we are there. And, so how this thing plays out, none of us know. But, I suspect that the tactics that are going to be employed are going to get more and more desperate, because they have to keep going now. They’re so far in, they have to keep going, and keeping going means doing more and more extraordinary things.

     

    It’s a relative game. There are people that have to be invested. And, so you can herd them by taking away the chance of investing into one thing, i.e., putting rates at zero so you can’t just put your money in cash or short-term Treasuries. By doing that, you know, psychologically, you’re going to herd them somewhere else, and that’s been into the stock market, it’s been into asset prices, which is fine. But, it’s not a temporary removal of that ability to put stock in cash. You have to keep that away from them, because if you give it back to them, if you give them back that option, it’s going to mean interest rates are at much higher levels, which is going to screw all the debt payments. They are going to run for the hills faster than you can imagine, because none of this stuff is what you would choose to invest in, all things being equal. You wouldn’t invest in the S&P where it is now, after the run it’s had. God knows you wouldn’t invest in government bonds where they are now. You might take a long hard look at asset prices and think, “Well, you know what, actually, I might buy some base commodities here, because they’ve been just completely slaughtered.” But, you certainly wouldn’t be investing in the two things that they need you to invest in, which are government bonds and equities.

     

    So, that’s the real problem. And, the fact that they realize that tells me that we are getting to the end of this road, because that credibility is not something they can maintain forever, particularly when they’ve boxed themselves in with negative interest rates.

    Click the play button below to listen to Chris' interview with Grant Williams (59m:06s)

  • Obama's Vendetta With Gun Makers Gets Personal: Smith & Wesson Shares Plunge After Call For SEC Investigation

    Last Friday, in the aftermath of the most recent mass shooting in San Bernardino and the latest attempt by Obama to impose further gun control measures, ostensibly by executive order, we pointed out the one thing, or rather person, who even the NYT begrudgingly admitted in an article on “What Drives Gun Sales” has been the primary driver of gun sales in the US: US president Barack Obama.

     

    The irony in all this, of course, was that just last Friday the stock price of Smith & Wesson hit an all time high on expectations gun sales are about to hit even greater all time highs in the coming weeks.

    Alas, as it turns out, Obama is not a fan of efficient market irony and instead of letting the chips on gun control fall where they may especially if it means record stock prices for the shareholders of SWHC and RGR, the president – in pulling a page straight out of the “US Government vs Exxon” in which the company will soon be prosecuted over its Global Warming denials as reported previously – has decided to take his vendetta with US gun makers to the next level and as the NYT reported overnight, “the New York City public advocate on Monday asked federal regulators to investigate whether the gun manufacturer Smith & Wesson had made adequate disclosures in its financial statements.“

    One would think that being in compliance with all existing SEC regulatory requirements would be sufficient, but when one is on Obama’s black list there are additional requirements for “adequate disclosure” one must follow, especially the ones that one does not know about because they appear only after the fact.

    The NYT continues:

    In an eight-page letter, the public advocate, Letitia James, said the Securities and Exchange Commission should examine whether Smith & Wesson misrepresented or omitted information about how often its products are involved in crimes and what it has done to keep its guns out of the hands of criminals.

    In the letter “public advocate” Letitia James says that “with the increase in mass shootings, public concern about the proliferation of firearms has animated a national dialogue about gun control measures, interstate gun trafficking, and whether gun manufacturers should take additional steps to ensure that their products do not end up in the hands of criminals,” the letter says. “Smith & Wesson knows that it is at risk of grave reputational harm.”

    It probably also did not know that the US government is capable of extortion when it does not get its way; it will be quite aware of that now.

    Ms. James’ punchline: “shareholders would want to know whether Smith & Wesson faced heightened regulatory scrutiny or significant litigation risk.”

    They would, especially now that the administration of the world’s biggest democracy is taking a “negotiating tactic” page right out of Stalinist Russia.

    To be sure, this is merely the latest escalation in Obama’s witch hunt against gunmakers, of which Lelita James has tasked herself with being the mouthpiece for the administration’s relentless attempt to crush the US gun industry.

    Ms. James is opening a new avenue in her fight against gun sellers and makers. Earlier this month, she called on TD Bank, a big lender, to stop financing Smith & Wesson. This summer, she convinced the New York City Employee Retirement System, the city’s largest pension fund, to explore divesting itself of its holdings of gun retailers like Walmart and Dick’s Sporting Goods.

    Smith & Wesson, which makes 50 percent of all the revolvers owned in the United States, did not respond to a request for comment, although we can imagine what it would say: “If Obama has determined that the best way to protect the nation against CIA-funded terrorist organizations is by a creeping nationalization of the gun industry, then so be it.”

    Finally, if it was Obama’s intention to force the shareholders of Smith & Wesson into selling their shares from record high levels, he succeeded, if only for the time being.

  • Majority Of Millennials Have Under $1,000 In Savings

    Millennials are projected to number 75.3 million for 2015, surpassing a projected 74.9 million for Baby Boomers. The Millennials will therefore comprise a greater percentage of the population than Baby Boomers for the first time. To gain insight into the saving habits of Millennials, we recently performed a survey of those from the ages of 18 to 34. We received 2,585 responses to our survey. The results of our survey found that over 50% of Millennials have less than $1,000 in savings. This would indicate that most millennials do not have a cushion to fall back on in case of an emergency. The rest of our findings can be analyzed with the visualizations below:

    For those surveyed, we found that:

    • 51.8% of Millennials have less than $1,000 in savings.

    • 18% of Millennials have savings of $1,000 to $5,000.

    • 7.3% of Millennials have savings of $5,000 to $10,000.

    • 6.4% of Millennials have savings of $10,000 to $20,000.

    • 16.5% of Millennials have savings of more than $20,000.

    Millennials Savings by Income Group

    Breaking it down by the income of the survey participant, we unsurprisingly found that the level of income appeared to have a correlation with the amount of savings. We found that:

    • 56.3% of Millennials earning $25,000 to $49,000 had less than $1,000 in savings. This compared with 31.2% of those earning $75,000 to $99,999.

    • Among those earning $100,000 to $149,000, 14.8% had savings of $5,000 to $10,000

    • 14.3% of those with savings of $10,000 to $20,000 were those Millennials with incomes in excess of $150,000, the highest percentage in that range of savings.

    • Around 50% of those with incomes in excess of $150,000 had savings of more than $20,000.

    Millennials Savings by Gender Group

    We also found differences in the amount of savings between male and female respondents:

    • 56.7% of females have less than $1,000 in savings as compared to 46.5% for males.

    • On the upper end of the savings scale, 21.5% of males have more than $20,000 saved versus only 11.9% for females.

    • For savings in the range of $1,000 to $20,000, the percentages between male and females respondents were roughly the same.

    Millennials Savings by Age Group

    For a breakdown of savings by age groups we found:

    • 57.6% of respondents from the ages of 18 to 24 have less than $1,000 in savings. This compared to 47.1% of those from the ages of 25 to 34.

    • For savings of $1,000 to $5,000, 19.6% of respondents from 18 to 24 had savings in this range, compared to 16.6% of those from 25 to 34.

    • On the upper end of the scale, 11.7% of those from 18 to 24 had savings in excess of $20,000, compared with 20.5% of those from 25 to 34.

    Surprisingly, it appears that Millennials may be saving more money than other those in other age groups. Still, their financial behavior remains a mystery even to Janet Yellen, the head of the Federal Reserve. Since Millennials are growing as a percentage of the population, their savings and spending habits will increasingly have a major impact on the overall economy.

    Source: HowMuch.net

  • The Billionaire's Pick: How Marco Rubio Became The Preferred Puppet Of GOP Oligarchs

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    As much as I dislike all the leading candidates for President of these United States, there’s no one on the Republican side who disgusts me more than Marco Rubio.

    As concerning and hateful as so much of Trump’s commentary is, we can at least be sure he speaks from his own twisted mind. This is precisely why he appeals to so many people in this day and age of completely captured politicians. People like the fact that every word out of his mouth hasn’t been carefully placed there by some billionaire patron.

    On the exact opposite end of that spectrum we find Marco Rubio. A man so incapable of free-thought, he becomes the ideal target for billionaires looking to craft the perfect puppet. Forget Jeb Bush, Marco Rubio is now the establishment GOP’s pick, and they will do everything in their power to get him the nomination.

    There are three billionaire oligarchs in particular who seem to really love Rubio. They are Sheldon Adelson, Paul Singer and Ken Griffin. Let’s look at the evidence so far.

    Although Adelson hasn’t officially endorsed Rubio, it’s likely just a matter of time. See the following excerpt from yesterday’s Miami Herald:

    As GOP presidential candidates take the debate stage Tuesday at an extravagant Las Vegas hotel, they will once again compete for voters in an increasingly unpredictable race. But they are also vying for the attention of the man who owns the building — and no candidate has worked harder than Florida’s Marco Rubio.

     

    The U.S. senator has avidly courted casino magnate Sheldon Adelson, sitting down with him privately numerous times, including a dinner in Washington weeks before launching his campaign in April, and checking in regularly by phone to talk about Israel and the campaign.

     

    All told, Adelson and his Israeli-born wife spent $93 million that cycle [2008], the No. 1 individual donors, by far.

     

    This time, Adelson, whose worth is valued at somewhere between $20 billion and $30 billion, reportedly wants to throw his weight behind a more electable candidate and he’s prepared to spend even more. “I don’t cry when I lose,” he told the Wall Street Journal in 2012. “There’s always a new hand coming up.”

     

    Rubio has benefited from an outside group that has run TV ads featuring his hawkish foreign policy views, including a vow to tear up the Iran nuclear deal, which Adelson loathes. Rubio is also backing legislation Adelson is pushing to crush an expansion of online gambling, which threatens his global casino empire.

     

    Much of Rubio’s supposed favor has been conveyed by people who are close to Adelson, not Adelson himself, who rarely talks to the media.

     

    Adelson is a critic of unions but moderate on social issues and supports stem-cell research and immigration reform.

     

    Adelson does have business interests, and earlier this year Rubio attracted attention when he signed onto a bill that Adelson is trying to get through Congress that aims to curtail online gambling in states, a threat to his casino empire.

     

    Though Rubio has talked about states’ rights and avoiding picking “winners and losers,” he has attributed his support for the bill to a feeling that the Internet has fewer safeguards to protect people from fraud and addiction.

     

    “Rubio calls and says, ‘Hey, did you see this speech? Did you see my floor statement on Iran? What do you think I should do about this issue?’ ” a September New York magazine story quoted an unnamed Adelson friend as saying. “It’s impressive. Rubio is persistent.”

    For more on Adelson, see:

    Sheldon Adelson – The Dangerous American Oligarch Behind Benjamin Netanyahu

    Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism”

    Moving along, Rubio already has the official support of hedge fund billionaire Paul Singer. CNBC reports:

    Marco Rubio got some great news on with backing from influential hedge fund billionaire Paul Singer, who was heavily courted by multiple GOP presidential candidates, including former Florida Gov. Jeb Bush.

     

    But Singer’s backing — while a huge positive for Rubio in the money race — does not come without some risks for the Florida senator. Singer is distrusted in the conservative base of the GOP both for his support of same-sex marriage and his support of Rubio’s immigration reform efforts in the Senate. According to a person close to Singer, the hedge fund billionaire gave $100,000 to support immigration reform, which the right widely regards as “amnesty” for undocumented immigrants.

     

    Singer’s backing encapsulates a major potential problem for the Rubio candidacy. The senator wants and needs the vast piles of money the GOP’s Wall Street establishment is capable of pushing his way. Nobody organizes and directs that money better than Singer.

    But there’s far more to Singer’s support than ideology. From the Huffington Post:

    All that is music to Singer’s ears, but Rubio’s “work on the Senate Foreign Relations Committee” is about something else altogether: his political support for Singer’s efforts to drain more than $1.5 billion dollars from Argentina in payments on old bonds that lost most of their value after the country defaulted in 2001.

     

    Singer’s Elliott Management bought that debt several years ago for less than $50 million, and then successfully sued in U.S. court to demand full recovery of the face amount — in the face of opposition from the Obama administration, most other bondholders, and, above all, Argentina’s government, led by President Cristina Fernandez de Kirchner.

     

    Last year, another member of Congress got in on the act: Senator Marco Rubio. While grilling President Obama’s nominee as U.S. ambassador to Argentina, Rubio complained that Buenos Aires “doesn’t pay bondholders, doesn’t work with our security operations… These aren’t the actions of an ally.”

     

    This May, Rubio introduced a resolution in the Senate suggesting that Kirchner conspiried to “cover up Iranian involvement in the 1994 terrorist bombing.” Rubio declared that the issues in the case “extend well beyond Argentina and involve the international community, and more importantly, U.S. national security.”

     

    As Eli Clifton noted, “It turns out that Singer’s hedge fund, Elliott Management, was Rubio’s second largest source of campaign contributions between 2009 and 2014, providing the presidential hopeful with $122,620, according to the nonpartisan Center for Responsive Politics.”

    Next up, we have the billionaire CEO of hedge fund Citadel, Ken Griffin, also thought to be the richest man in Illinois. He recently endorsed Rubio. From CNBC:

    Ken Griffin, the billionaire hedge-fund manager who has become a major Republican Party donor in recent years, is throwing his support behind Florida Sen. Marco Rubio for president.

     

    “I’m really excited to be supporting Marco Rubio,” Griffin, who is the founder and chief executive of the Chicago firm Citadel, said in an exclusive interview with CNBC. “He will be the next president of the United States.”

     

    With a net worth estimated by Forbes to be $7 billion, Griffin is thought to be the richest person in Illinois, so depending on the level of financial support he provides, he could be crucial to a Rubio candidacy. In 2014, for instance, Griffin helped secure a gubernatorial victory for private-equity executive Bruce Rauner in Illinois by contributing $5.5 million and reportedly offering the use of his private plane.

     

    In the telephone interview Thursday, Griffin said he would play an active role in raising money for Rubio from his own network of associates. He also said he would contribute “several million dollars” to Rubio’s PAC starting “imminently.”

    Which brings us to Rubio’s latest squirmy tactic, in which he sacrifices individual choice in favor of protecting mega corporations. From the Intercept:

    Rubio, who is raising campaign cash from the telecom industry for his presidential campaign, fired off a letter to the Federal Communications Commission asking the agency to allow states to block municipal broadband services.

     

    The letter was the latest salvo in a long-running effort by the major telecom companies to outlaw municipal broadband programs that have taken off in cities such as Lafayette, Louisiana, and Chattanooga, Tennessee, because they pose a threat to a business model that calls for slow, expensive internet access without competition.

     

    In Chattanooga, for instance, city officials set up a service known as “The Gig,” a municipal broadband network that provides data transfers at one gigabit per second for less than $70 a month — a rate that is 50 times faster than the average speed American customers have available through private broadband networks.

     

    AT&T, Cox Communications, Comcast, and other broadband providers, fearing competition, have used their influence in state government to make an end-run around local municipalities. Through surrogates like the American Legislative Exchange Council, the industry gets states to pass laws that ban municipal broadband networks, despite the obvious benefits to both the municipalities and their residents.

     

    That’s why the FCC has become involved. The agency stepped in to prevent states from crushing municipal broadband and released a rule this year that allows local cities to make the decision on their own.

     

    As a result, telecom companies are furiously lobbying the FCC, litigating the rule in court, and leaning on GOP lawmakers to pressure the agency to back down.

    Naturally, Marco Rubio is leading the charge.

    Personally, I don’t think Rubio is even capable of all that much independent thought in the first place, but even if he was, the guy will do anything for campaign money. If you tried to create the perfect puppet in a test-tube, what would likely emerge is something very close to Marco Rubio. A man who consistently talks about small government and free markets, but who will fight to protect cronyism and oligarchy whenever somebody hangs a fresh dollar bill in front of his face. And all the smartest GOP billionaires know it.

  • A Pessimists' Guide To 2016: When Everything That Can Go Wrong, Does Go Wrong

    There’s a lot to be worried about going into 2016 both in terms of financial markets and in terms of geopolitical concerns. 

    We outlined the risks that pervade capital markets earlier today on the way to noting that the sellside penguin brigade seems to believe that somehow, nothing can derail the market’s momentum going forward. Here are the potential landmines investors face going into the new year:

    • soaring junk bond redemptions; 
    • rising investment grade (and high yield) yields pressuring corporate buybacks; 
    • record corporate leverage and sliding cash flows; 
    • Chinese devaluation back with a vengeance; 
    • capital outflows from EM accelerating as dollar strength returns; 
    • corporate profits and revenues in recession; 
    • CEOs most pessimistic since 2012, 
    • oh and the Fed’s first rate hike in 9 years expected to soak up as much as $800 billion in excess liquidity

    As ominous as all of that most assuredly is, the geopolitical outlook is even scarier. Here’s a rundown of some of the key issues politicians will need to grapple with in 2016:

    • Syria’s seemingly intractable civil war
    • the still simmering conflict in Ukraine
    • Brazil’s political crisis which threatens to keep one of the world’s most important emerging markets mired in a stagflationary nightmare
    • a migrant crisis that threatens to tear Europe apart at the seams
    • the resurgence of the far left and far right as voters lose faith in the political status quo

    In fact, we’ve already seen quite a few black swan landings in the past several months. Here’s our black swan map (click the image to read the background):

    Those who frequent these pages likely recall that both SocGen and Citi were out recently with their take on the risks that lie ahead (here and here). We encourage you to review their respective analyses in their entirety, but below, find two graphics which summarize a few key points.

    From Citi:

    From SocGen:

    For those who can’t get enough black swans, we present excerpts from a new infographic put together by Bloomberg, who outlines 10 “worst case scenarios” for 2016 as dreamed up by “dozens of former and current diplomats, geopolitical strategists, security consultants, and economists” (“Scenario #3 is priceless): 

    *  *  *

    Scenario #1: Oil climbs to $100 barrel

    Scenario #2: The UK leaves the EU

    Scenario #3: Banks hit by cyber attack

    Scenario #4: The EU crumbles over anti-migration fears

    Scenario #5: China’s economy falls, military rises

    For the entire list, including “Putin sidelines America,” and “Trump wins the White House,” see the full infographic here.

  • ISIS Twitter Handles Traced To UK Government By Hackers

    There’s no shortage of speculation about the possible role the West plays in funding, arming, and otherwise assisting Islamic State. 

    The theories range from the outright conspiratorial (the CIA created and to this day supports the group) to the probable (the US and its allies saw the establishment of a Salafist principality in Syria as a potentially destabilizing event for the Assad government and so initially encouraged Islamic State’s rise, only to face the worst case of blowback the world has ever known). 

    Recent revelations about Turkey’s role in facilitating Islamic State’s 45,000 b/d illicit oil trade have only added fuel to the fire and little by little, the Western public is starting to wake up to the fact that ISIS is more than the progeny of Abu-Mus’ab al-Zarqawi – it’s an entity that enjoys a great degree of state sponsorship.

    The question is this: which states ultimately participate in the conspiracy?

    One way to track down possible collaborators would be to go unit by unit through the network of regional affiliates that comprise Islamic State’s vast propaganda machine:

    The group should have a sizeable digital footprint given how active its followers are on Twitter and given the fact that ISIS distributes some 40 pieces of propaganda each day in various formats, most of which is disseminated on the web. 

    With that in mind, we bring you an interesting story from The Mirror who reports that “a number of Islamic State supporters’ social media accounts are being run from internet addresses linked to the UK Department of Work and Pensions.”

    “A group of four young computer experts who call themselves VandaSec have unearthed evidence indicating that at least three ISIS-supporting accounts can be traced back to the DWP’s London offices,” the paper says, adding that “at first glance, the IP addresses seem to be based in Saudi Arabia, but upon further inspection using specialist tools they appeared to link back to the DWP.”

    The Mirror did its own investigating and found that the IP addresses in question were sold by the British government as part of a larger deal to two Saudi Arabian firms.

    “After the sale completed in October of this year, they were used by extremists to spread their message of hate,” the paper concludes.

    Asked why the addresses still pointed back to the British government (which, you’re reminded, is bombing the ISIS home office in Raqqa), an “expert” told The Mirror that the “records of the addresses had not yet been fully updated.”

    As for the UK government, here’s the official line: 

    “The government owns millions of unused IP addresses which we are selling to get a good return for hardworking taxpayers.

     

    “We have sold a number of these addresses to telecoms companies both in the UK and internationally to allow their customers to connect to the internet.

     

    “We think carefully about which companies we sell addresses to, but how their customers use this internet connection is beyond our control.”

    An article that appeared on Medium yesterday lumps VandaSec in with several other hacker groups who have answered Anonymous’ call to wage cyber war on Baghdadi’s caliphate. “Operation ISIS (OpISIS) is a project, launched by Anonymous hacktivists, for the purpose of countering terrorist activities online,” Canidce Lanier writes. “Over time, there have been various Anonymous factions involved in OpISIS, including GhostSec, Binary Sec, VandaSec and CtrlSec.”

    For the punchline, we go to Huffington Post:

    UK security minister John Hayes has said he is “grateful” for the actions of hackers including Anonymous who have targeted Islamic State.

     

    The minister was asked by Keith Vaz, the chairman of the committee. “A lot of radicalisation happens online. Are you grateful from the support you receive from online activist groups that seek to take down the Twitter accounts of Daesh supporters?

     

    Hayes told the MPs the activitiy of radical Isamist groups online was “immense”. He added: “I am grateful for any of those who are engaged in the battle against this kind of wickedness.”

    That was three weeks ago. We wonder if Hayes is still “grateful.”

  • Which President Has Received The Most "Charity" From The Fed?

    Submitted by Roger Thomas via Valuewalk.com,

    If you’re an observer of the political aspect of the Fed policy, you’re likely aware that central bankers like to stay out of the spotlight.  Spotlight creates political pressure, something Fed technocrats publicly dislike.

    With this thought in mind, here’s a look at the federal funds rate overlaid with politics.

    Question – Before going further, which president would you guess has received the most charity from the Federal Reserve?  Meaning, after adjusting for inflation and employment growth (the two factors that theoretically determine the federal funds target interest rate), which president has experienced a very charitable Fed (i.e. keeps interest rates abnormally lower than what the inflation rate and employment growth would predict) and which presidents experienced a tough-willed Fed? 

    Another way of saying it is – Which presidents needed the Fed’s help and which presidents didn’t?

    Here’s a look.

    The Federal Funds Rate

    First, a look at the federal funds target rate.  The black lines represent periods when the rate was declining or steady.  The red lines are periods when the Fed was raising rates.

    Overall, the target rate generally declined for the first half of the 1980s and then rose to end the 1980s.  In the early 1990s, the Fed rate declined, bottoming out in 1994 before the Federal Reserve started raising rates again.  The early 2000s saw the Fed lower rates in response to the collapse of the technology bubble, and then raise rates in an attempt to deal with a global housing market bubble.  Since the bursting of the housing bubble and the near collapse of the global financial system, the Fed has kept rates near 0%.

    The last time the Federal Reserve raised the federal funds target rate was in 2006.

    Federal Funds Target Rate The Fed

    Federal Funds Rate with Presidents

    Next, here’s a look at the federal funds rate by president.

    Overall, it’s difficult to see any political cycle, likely because two important data points are missing from the graph.  The two points are the inflation rate and the employment growth picture.

    As John Taylor pointed out more than two decades ago, the Fed’s interest rate can be approximated by movements in the inflation rate and output against its long-run trend.

    So, to see which presidents the Federal Reserve thought needed the most help, one would need to adjust the actual federal funds rate for inflation and output conditions.  This would give an idea of which presidents the Federal Reserve thought (thinks) needed help.

     

    Federal Funds Rate by President, Color Represents History The Fed

    A Look at the Charitable Fed

    With the previous discussion as the background, take one last guess at which president you think the Federal Reserve was most charitable to.  Was it Bush I?  Perhaps Clinton?  Reagan?

    Which president needed the most help?

    Here’s the results.

    (As a note on methodology for technicians, the Taylor rule presented here uses employment growth as a proxy for output, with 2% employment growth as the long-term trend.  Both components of the Taylor rule are equally weighted.)

    Interestingly, the Fed has been most charitable to Mr. Obama.  During his tenure, the Fed has kept interest rates lower by an amazing 4%.

    Other the other end, the Fed’s least preferred presidents were Reagan and Bush II.  Both presidents saw a Fed much tougher than what inflation and employment would predict.

    Average Taylor Rule Less the Actual Federal Funds Target Rate The Fed

    The Fed  Conclusion

    In connecting Federal Reserve interest rate policy since the 1950s with inflation and employment conditions, some interesting results materialize.

    Of the interesting findings is that the Fed has presidents it wants to be tough on and presidents it likes to show charity to.

    In looking at the details,of the past 11 presidents, the Fed has shown the most charity to the sitting president, Mr. Obama.

    The charity shown during Obama’s administration is astounding.  When adjusting for inflation and employment growth, the Fed has kept to federal funds rate almost 4% below where it should be (based on a forked-Taylor rule).

    One of these days Mr. Obama ought to publicly thank Mr. Bernanke and  Ms. Yellen for their incredible generosity.  He needed the help.

    On the other end, the Fed was toughest on Ronald Reagan and Bush I.  They apparently didn’t need the Fed’s help.

    Overall, a fascinating view of Federal Reserve policy and its connection with politics.

  • The Unexpected Explanation How "That Ford Truck" Ended Up In ISIS Hands

    Almost exactly a year ago, the media world was abuzz when as we reported then, a picture posted by Ansar al-Din Front, an Islamic extremist brigade, and which promptly went viral showed a Ford F250 truck with a “Mark-1 Plumbing” decal on the door and a militant standing in the bed firing the anti-aircraft gun.

     

    And while most moved on quickly from this story, for one person the picture had a dramatic and scarring effect: the owner of said Mark-1 Plumbing company, a Texan by the name of Mark Oberholtzer, who as many know by now, is suing a Texas Ford dealership (Charlie Thomas Gord) for more than $1 million in financial losses and damages to his company’s reputation, as a result of this pickup truck which he once owned, ending up with Islamic militants fighting in Syria’s civil war.

    As CNN summarizes, “all Mark Oberholtzer wanted to do was upgrade his ride. What he got instead was a world of trouble from half a world away.”

    “By the end of the day, Mark-1’s office, Mark-1’s business phone, and Mark’s personal cell had received over 1,000 phone calls from around the nation,” Oberholtzer’s lawyer wrote in the lawsuit, filed December 9 in Harris County, Texas. “These phone calls were in large part harassing and contained countless threats of violence, property harm, injury and even death.”

    Oberholtzer said this wouldn’t have happened if the dealership had just removed the decals before the truck was resold, as he had demanded, thus serving as the basis for his lawsuit (attached below).

    But while we commiserate with Mr. Oberholzer, and wish him prompt restitution of damages as a result of unnecessary harassment, a far more important question is just how did Mark’s 2005 Ford F250 Super Duty end up in under the control of the Islamic State.

    The answer would be critical, as it will provide a factual, tracable answer how it is that ISIS is if not funded (we know already revealed a critical part of that story), then supplied with equipment and perhaps weapons.

    The answer is stunning.

    This is what the plaintiff states in his lawsuit:

    According to a CARFAX Vehicle History Report (see Exhibit B), the vehicle was listed as a dealer vehicle sold at a Texas auto auction on November 11, 2013. On December 18, 2013 the vehicle was exported from Houston, Texas and imported to Mersin, Turkey.

    And here is the proof straight from CARFAX, provided in Exhibit B of Oberholzer’s lawsuit:

     

    And the transaction history, with the relevant final clue highlighted:

     

    Presenting Mersin, Turkey, a stone’s throw from the infamous port of Ceyhan and about a hundred miles from the territory of the Islamic State:

     

    Here is what happened:

    • On October 23, 2013, Mark Oberholtzer entered into a transaction with Charlie Thomas Ford, in which he traded-in his old 2005 Ford F-250 pickup truck for a newer 2012 Ford F-250 pickup truck.
    • Promptly thereafter, the vehicle was listed as a dealer vehicle sold at a Texas auto auction on November 11, 2013
    • Less than a month later, on December 18, 2013 the vehicle was exported from Houston, Texas and imported to Mersin, Turkey.
    • Less than a year later it was in the documented possession of the Islamic State.

    So once again the “missing link” supplying ISIS emerges as none other than Turkey.

    For those to whom the Turkey-ISIS connection comes as a surprise, we urge you to reread:

    And while NATO-member Turkey supplying ISIS with funding, supplies, weapons or equipment is hardly groundbreaking news, the Ford “clue” poses new and important questions, such as:

    • who is the Turkish party that ordered and paid for the Ford truck’s transfer to Turkey, and subsequently received compensation from the Islamic State in the subsequent resale?
    • which is the US party which transacts with Turkish counterparts, who ultimately ship US products to Islamic State fighters?
    • is the US party aware that its Turkish counterparty has dealings with ISIS
    • what is the role of the US government in all of this, because it would be surprising that an administration that has sworn it would crack down on all outside assistance to the Islamic State would be unaware that “made in the USA” trucks ended up in the Islamic State by way of its faitful NATO ally, Turkey.
    • how many other such vehicles sold  in the US and exported to Turkey, have  made their way to the Islamic State

    We are confident that it will be relatively easy for any aspiring reporter to track down the US-based exporter of the Ford truck (and thus recipient of Turkish funds), just as it will be facile to uncover who was the Turkish buyer who signed the receipt invoice in Mersin, Turkey. What may be more difficult to uncover is whether the governments of the US and Turkey, respectively, were or are appraised about transactions such as this one, and if not, then why not?

    We hope to be able to answer as many of the above as possible in the very near future.

    The full Oberholtzer vs Charlie Thomas Ford lawsuit is below.

  • Foreigners Sell A Record $55.2 Billion In US Treasuries In October

    After several months of significant reserves liquidations by China (specifically by its Euroclear proxy “Belgium”) which tracked the drop in China’s reserves practically tick for tick, in October Chinese+Belgian holdings were virtually unchanged according to the latest TIC data, as China moderated its defense of its sliding currency. Of course, putting this in context still shows a China which has sold $600 billion of US paper since 2014, as this website was first to note over half a year ago.

     

    And while we expect a prompt resumption of Treasury selling in the coming months following China’s recent aggressive devaluation of its currency, what was more notable in today’s TIC data was the consolidated total change of all foreign US Treasury holdings.

    As shown in the chart below, following an increase of $17.4 billion in September, foreign net sales of Treasuries hit an all time high of $55.2 billion, surpassing the previous record of $55.0 billion set in January. In absolute terms, October’s total foreign holdings by major holders declined to $6,046.3 trillion the lowest since the summer of 2014.

     

    What is the reason? There are two possible explanations, the first being that foreigners are unloading US paper (ostensibly to domestic accounts) ahead of what they perceive an imminent Fed rate hike which would pressure prices lower, or more likely, the ongoing surge in the dollar and collapse in commodity prices continues to pressures foreign reserve managers to liquidate US  Treasury holdings as they scramble to satisfy surging dollar demand domestically and unable to obtain this much needed USD-denominated funding, are selling what US assets they have.

    Should this selling continue or accelerate in the coming months and if it has an adverse impact on TSY yields, it may also force the Fed’s tightening hand if, as some expect, the liquidation of foreign reserves becomes a self-fulfilling prophecy and leads to a material drop in Treasury prices.

    Source: Treasury International Capital

  • Denmark To Confiscate Gold, Jewelry, & Valuables From Refugees

    Submitted by Simon Black via SovereignMan.com,

    It started on December 8, 1931.

    Germany was in a world of pain at the time. They were still financially debilitated from having to make reparation payments after losing World War I, and had just barely recovered from one of the worst bouts of hyperinflation in recorded history.

    By the early 1930s, the onset of the Great Depression had taken hold in Germany, driving the government to desperation once again.

    They needed cash. And rather than go back to the printing press and risk hyperinflation again, German President Paul von Hindenburg signed a decree to create a new tax called the Reichsfluchtsteuer, nearly 84 years ago to the day.

    It was an exit tax… a type of capital control to dissuade people from leaving with their savings.

    So any German citizen with a certain level of income or assets who left the country would be charged a 25% wealth tax.

    The following year, in 1932, the government generated about 1 million marks in revenue from the tax.

    Of course since the tax was a ‘temporary’ measure, it was set to expire at the end of 1932.

    But they extended it. And kept extending it.

    By 1938, the German government collected an astounding 346 million marks from this tax.

    This nearly 350x increase in tax revenue over 6 years is incredible, making the Reichsfluchtsteuer one of the fastest growing taxes in human history.

    (By comparison, income tax receipts in the United States grew about 9-fold in the first six years of its history.)

    So what was the German government’s secret in having so much success with this tax?

    Simple. Their secret was the Secret Police.

    By the late 1930s, the Nazis had taken over.

    And even though there was no longer a reason to keep the Reichsfluchtsteuer on the books since the Depression had largely subsided, the Nazi regime kept extending the law, using it almost exclusively to target Jewish citizens.

    In fact, the Reichsfluchtsteuer became one of the core components of the Nazi’s confiscation strategy to plunder Jewish wealth.

    Now, I couldn’t help but think of the Reichsfluchtsteuer when I heard about the government of Denmark’s latest tactic against refugees today.

    This isn’t even something that has made the international, English-language news. We just happen to have a Danish-speaking member of our team.

    As he explained to me, Danish Justice Minister Soren Pind recently announced his intention to have border guards confiscate gold, jewelry, diamonds, and other valuables from refugees as they enter the country.

    After a bit of popular backlash, wedding rings are now off limits.

    But just about anything else ranging from cash to expensive wristwatches, is fair game for confiscation, as long as the ‘loot’ (as they call it) is valuable.

    So apparently Danish border guards are expected to discern whether a refugee is wearing a $15,000 IWC Schaffhausen or a $15 knock-off.

    (Clearly they spent a lot of time thinking about this policy and how to implement it.)

    Having armed men indiscriminately seize refugees’ personal belongings doesn’t strike me as the best representation of a free society. Not that this matters anymore.

    The Danish government’s excuse is that they need to confiscate assets from refugees in order to pay for the services they’re providing to those same refugees.

    This might even sound reasonable… until you realize that a government could make the same argument for every other public service they provide.

    It’s the same logic as confiscating funds from your bank account in order to provide you with the FDIC. Or seizing other assets to provide ‘free’ healthcare or education.

    When a government awards itself the authority to attack one particular group, they give themselves that same power to attack everyone.

    In the Land of the Free, they call it Civil Asset Forfeiture– a legal form of theft in which the government can administratively steal your assets with no Constitutionally guaranteed due process.

    The US government stole $4.5 billion worth of private property from its citizens last year alone, far more than the $3.9 billion stolen by common thieves according to FBI data.

    The trend is pretty obvious—governments are not shy at awarding themselves the authority to take whatever they want, whenever they want, from whomever they want.

    And they’ll always come up with a good excuse to justify it.

    This risk is not negligible. So as an insurance policy, it makes sense to ensure that you’re not holding 100% of your assets and savings within the control of a single government.

    After all, they may one day be so desperate that they’ll steal from you in the name of protecting you.

  • WTI Slumps Under $37 After API Reports Unexpected, Large Inventory Build

    Following last week's huge draw, total crude inventories were expected to drop 1 million barrels this week driven by expectations that refinery utilization rose last week. When API reported a hugely surprising 2.3 million barrel build, crude prices, which had drifted off highs after NYMEX close, dropped further as disappointment set in, back under $37.

    A majorly unexpected build…

     

    Ansd crude prices slumped back under $27…

     

    Charts: Bloomberg

  • Stephen Roach: "The Fed Has Set The Market Up For A Crisis"

    “The Fed is in total denial. It hasn’t learned the lessons of what it put the world through a decade ago,” Stephen Roach said, back in January.

    “I just go back to 2005 and 2006 where the Fed was so incremental in normalizing rates during a time of enormous froth in property markets, equity markets, credit markets and ultimately that led to huge distortions in the real economy and finally when the bubbles popped, the whole house of cards came down,” he added.

    Eleven months later and the Fed is just now getting around to an “incremental” (and if Roach thought past episodes of FOMC policy normalization where “incremental” just wait until he sees the trajectory this time around) hike. 

    Ahead of tomorrow’s oh so critical Fed decision (which may or may not trigger some kind of dramatic meltdown in EM), Roach is out with some fresh commentary on the Fed, the FOMC’s role in creating asset bubbles, China, and commodities. 

    “They pushed interest rates down to zero in the depths of the crisis, the crisis ended and they kept the policy rate at an emergency setting,” Roach told Bloomberg TV’s Angie Lau in an interview, bemoaning the fact that the world has been stuck in ZIRP for so long that nearly a third of Wall Street has never seen a rate hike. 

    The effect of this is and has always been the creation of asset bubbles. As Jeremy Grantham put it earlier this year, “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.” 

    Now back to Roach. “That [lower for longer rates] is 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.”

    Right. And you can clearly see this from the following chart via RBS’ Alberto Gallo (note the ever larger swings in the financial cycle):

    When it comes to creating speculative excess, it’s almost as though the Fed has an unspoken third mandate.

    Here’s Roach driving the point home: “While Fed did a great job in reacting to global financial crisis, it played an equal role in setting markets up for the crisis by running uber-accommodative monetary policy.”

    He goes on to discuss China which he says “can’t be emphasized enough.”

    Beijing’s epochal shift from an investment-led, smokestack economy to a consumption and services-driven model is something many market participants still don’t understand – or at least not fully, he says. “Commodities are, after a super-cycle, obviously going the other way, big time,” Roach said. Some companies “are in denial that China is changing its character, its structure. It’s going to take a while for that to sink in, and until it sinks in, there’s still downward pressure on commodity markets and prices.”

    More in the interview below.

  • Pre-Fed Pandemonium – "Confident" Traders Buy Stocks, Dollars, Crude; Dump Bonds & Protection

    Artist's impression of The Fed statement and press conference tomorrow…

     

    Stocks, Crude, and USDJPY were loving it…

     

    Cash stock indices gapped open then went nowhere…

     

    Equities ran on the back of the algos to the stops at Thursday's pre-3rd Avenue collapse… then faded…

     

    Breadth was not buying it…

     

    FANGs ended the day very weak…

     

    Smith & Wesson was whacked… Revenge?

     

    Equity protection was puked like a bad Chipotle Burrito… (who needs hedges?) Notice the lack of beta in stocks even as VXX was slammed lower in the last hour…

     

    IG credit continues to underperform this week…

    The US high-yield market was on a firmer footing Tuesday with buying from both Exchange Traded Funds and institutional buyers – but market participants said it was far too early to say with any confidence that the recent rout in the asset class was over. The HY CDX 25 was 1.25bp higher at 100.6bp, according to Tradeweb, and cash bonds up to three points higher, a day after the Bank of America Merrill Lynch high-yield index breached 9% yields for the first time in four years. To be sure, the market is still wincing from the slap given by the Third Avenue junk fund redemption freeze and liquidation announced last week.

    Treasuries continued to get dumped…note again that the selling was dominated by the European session (smells of China dumping through Belgium?)

     

    The USDollar was heavily bid from the early morning…

     

    Commodities were mixed once again. Depsite a surging USDollar, PMs flatlined, copper crashed and crude soared…

     

    Crude algos ran the stops again…

     

    Nattie collapsed to near record lows…

     

    Charts: Bloomberg

    Bonus Chart: A Gentle Reminder of The Last Pre-FOMC Statement Ramp…

     

     

Digest powered by RSS Digest

Dec 15

Today’s News December 15, 2015

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

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

     

     

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

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

    We think SPX through 1860.

     

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

     

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

    And then what…

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

     

    Charts: Bloomberg

  • Cornering Russia – Risking World War III

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    *  *  *

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

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

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

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

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

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

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

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

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

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

     

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

     

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

     

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

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

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

     

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

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

    *  *  *

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

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

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

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

     

    – POTUS

    That should put an end to it all.

    h/t @TopThird

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

    Submitted by Martin Armstrong via ArmstrongEconomics.com,

    IntRate-Manipulate

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

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

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

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

    Keynes-5

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

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

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

    Keynes explained further:

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

    TAX-CYC

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

    Bill Murry on Taxes

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

     

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

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

     

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

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

     

    Charts: Bloomberg

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

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

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

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

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

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

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

     

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

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

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

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

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

     

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

     

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

     

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

     

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

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

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

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

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

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

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

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

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

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

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

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

     

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Full AP story here..

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

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

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

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

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

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

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

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

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

    We get it: ixnay on the Koolaid-ay.

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

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

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

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

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

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

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

    Just as Hilsenrath warned yesterday would happen.

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

    yellen

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

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

    yellen_qe

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

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

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

    yellen_empl

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

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

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

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

    yellen_bkln

    Even spreads in investment grade credits are widening sharply.

    yellen_ig

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

    yellen_default

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

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

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  • Paper Money Versus The Gold Standard

    Submitted by Richard Ebeling via EpicTimes.com,

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

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

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

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

     

    Central Banking as Monetary Central Planning

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

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

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

     

    Continual Government Abuse of Money

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

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

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

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

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

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

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

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

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

     

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

     

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

     

    The Social Benefits of a Gold Standard

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

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

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

     

    A Gold Standard Can Limit Government Monetary Abuse

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

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

    As Austrian economist, Ludwig von Mises, expressed it:

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

     

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

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

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

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

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

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

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

     

    Monetary Mismanagement versus Markets and Gold

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

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

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

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

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

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

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

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

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

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

     

    The Return to the Gold Standard as a Monetary Constitution

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Wow. Ok, was there anything else? 

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

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

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

    Goodness. So what’s the grand total? 

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

     

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

     

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

     

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

     

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

    So millions upon millions upon millions. Got it.

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

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

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

     

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

     

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

     

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

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

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

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

     

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

     

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

     

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

     

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

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

     

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

    And on, and on, and on. 

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

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

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

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

  • Did Goldman Just Do It Again?

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

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

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

    Why?

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

     

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

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

    h/t @insidegame

  • Credit Carnage & Contagion Sparks Panic… Buying Of Stocks

    Today…

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    Stocks and credit did not agree…

     

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

     

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

     

     

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

     

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

     

    After Speculative crude shorts hit a new record high…

     

     

    Charts: Bloomberg

  • Fed-pocalypse Now?

    Submitted by Howard Kunstler via Kunstler.com,

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

    — Oliver Hardy

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

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

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

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

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

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

  • "Nobody Could Have Possibly Seen This Coming"

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

    And so on.

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

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

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

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

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

     

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

     

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

    And then there was everyone else.

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

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

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

    Here are official regulators warning about “run risk”:

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

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

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

    Finally, ETFs:

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

    * * *

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

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

    “nobody could have possibly seen this coming.“

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Dec 14

Today’s News December 14, 2015

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

    Authored by Paul Craig Roberts,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • "Reassured?"

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

    Yes?

     

    No!

     

    Source: Townhall.com

  • Guest Post: The Ugly Truth Donald Trump Has Exposed

    Authored by Karl Denninger via The Market Ticker blog,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    That is what is driving the animus toward Trump.

    Wake up America.

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

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

     

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

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

     

    Offshore Yuan was extending recent weakness into the Fix…

     

    Earlier we asked…

    And the answer is… yes

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

     

    The Middle-East closed weak…

     

    As Oil faded…

     

    After Speculative crude shorts hit a new record high…

     

    Japanese bond futures price just hit a record high…

     

    And Nikkei plunged as China came to life…

     

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

     

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

     

    Other currencies are turmoiling…

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

    MSCI AsiaPac (MXAPEXA) is drifting lower…

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

    And EM is getting hammered…

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

    Metals are all lower…

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

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

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

    But…

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

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

    Charts: Bloomberg

    For now US equity futures are flat.

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

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

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

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

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

     

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

     

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

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

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

    * * *

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

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

     

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

     

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

     

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

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

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

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

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

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

     

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

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

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

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

    Submitted by Paul-Martin Foss via The Mises Institute,

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

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

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

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

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

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

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

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

    "Shots fired"

     

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

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

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

    Ironically, as The Hill reports,

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

     

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

    Black pots and kettles everywhere…

  • "Ferocious Surprises" Await Bonds Traders In 2016

    Submitted by Salil Mehta via Staistical Ideas blog,

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

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

     

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

     

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

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

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

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

     

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

     

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

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

     

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

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

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

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

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

     

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

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

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

    Goldman Sachs writes…

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

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

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

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

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

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

    *  *   *

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

     

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

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

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

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

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

     

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

    Welcome to the future, ladies and gentleman.

    From ZDNet:

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    It’s a brave new world out there.

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

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

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

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

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

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

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

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

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

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

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

    * * *

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

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

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

    Wow.

    * * *

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

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

    * * *

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

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

    * * *

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

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

    * * *

    Read the full article at FP

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

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

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

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

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

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

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

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

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

     

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

     

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

     

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

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

    The pre-emptive excuses continue:

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

     

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

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

    Hilsenrath’s odd litany of preemptive excuses continues:

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

     

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

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

    The excuses continue:

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

     

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

     

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

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

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

     

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

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

  • About That Rate Hike…

    Authored by Mark St.Cyr,

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

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

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

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

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

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

     

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     

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

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

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

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

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

    Predictable.

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

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

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

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

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

    This is what Barron’s says:

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

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

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

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

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

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

     

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

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

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

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

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

     

    What happened next? This.

     

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

    In other words, the Fed.

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

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

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

     

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

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

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

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

     

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

     

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

     

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

     

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

     

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

    *  *  *

    No Dark Blue FN wins…

     

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

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

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

    The Statement…

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

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

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

     

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

     

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

     

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

     

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

     

    ***

     

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

     

    ***

     

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

     

    ***

     

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

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

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

     

    ***

     

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

     

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

     

    ***

     

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

     

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

     

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

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

  • The End Of The Bubble Finance Era

    Submitted by David Stockman via The Daily Reckoning blog,

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

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

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

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

    BloombergCommodityIndex

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

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

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

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

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

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

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

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

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

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

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

    Here’s why.

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

    Caterpillar

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

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

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

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

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

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

    GlobalCapex

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

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

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

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

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

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

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

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

    The graph below summarizes this great deformation.

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

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

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

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

    GlobalDebt

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

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

    EasyButton

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

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

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

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

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

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

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

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

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

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

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

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

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Dec 13

Today’s News December 13, 2015

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

    Authored by F. William Engdahl via New Eastern Outlook,

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

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

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

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

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

    Something major missing

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

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

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

    Saudi ‘impulsive intervention policy’

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

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

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

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

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

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

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

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

    A Saudi Oil Imperium

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

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

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

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

    The Saudis Behind Erdo?an

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

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

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

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

    Saudi TOW missiles to ISIS

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

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

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

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

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

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

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

    Don’t bet on that Salman.

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

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

     

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

    The darkest shaded regions indicate the largest risks.

     

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

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

    Source: Goldman Sachs

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

    Submitted by David Stockman via Contra Corner blog,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Capture

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • ZARpocalypse Now?

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

     

    Source: BofAML

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

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

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

    And here’s a look at the political context:

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

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

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

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

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

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

    Here’s more from Deutsche Welle‎:

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

     

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

     

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

     

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

     

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

     

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

     

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

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

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

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

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

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

  • Trump's Cunning Plan Revealed

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

    You decide…

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

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

     

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

     

    Americans dislike Islam

     

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

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

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

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

     

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

     

    The establishment seemed to have become unhinged.

     

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

     

    But is this really true?

     

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

     

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

     

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

     

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

     

    Did this represent 40 years of fascism?

     

    Why might Trump want a moratorium on Muslim immigration?

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

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    *  *  *

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

  • China's Gold Army

    Submitted by Koos Jansen via BullionStar.com,

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

    Shanghai Gold Exchange SGE withdrawals delivery 2015 week 46

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

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

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

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

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

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

    Chinese mining 1949-2014 x

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

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

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

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

    gold8.jpg

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

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

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

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

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

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

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

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

    Source The China Times, Global Edition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     

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

     

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


     

     

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

     

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

     

     

    We are currently seeing the likely completion of a double top (yellow shading on upper chart).  When the Coppock Guide falls below zero, it confirms that a bear market is in place 77% of the time.  The current value is 4.9 – which has resulted in a further drop below zero in 22 out of 24 instances.

    Bottom line:  If the Coppock Guide continues falling through zero, the probability of a bear market will increase… as will our portfolio defenses.

  • The American Dream "Exposed" In 22 Depressing Datapoints

    Submitted by Michael Snyder via The End of The American Dream blog,

    Once upon a time, middle class households took home 62 percent of all income in America. Today, that number has dropped to just 43 percent. This is just one of the absolutely astounding statistics that you will read about in this article. Over the years, the middle class in America has been in steady decline. Our incomes have been going down, our net worth has been going down, the quality of our jobs has been going down, and yet the cost of living just keeps going up. As a result of all of these factors, more Americans are living in poverty today than ever before, and dependence on the government has exploded to unprecedented levels.

    But of course it doesn’t take a genius to figure any of this out. In fact, politicians of all stripes are saying the exact same thing during this election season…

    Bernie Sanders says it is in the midst of “a 40-year decline.” Jeb Bush says it is “shrinking.” Ted Cruz says it is “headed in the wrong direction.” And Hillary Clinton says the “basic bargain” that hard work could move families into the middle class “has eroded.”

    Sadly, when we send these politicians to Washington D.C. they just continue on with business as usual. No matter who resides in the White House and no matter who controls Congress, the game remains the same and the middle class just continues to suffer. The following are 22 cold, hard pieces of evidence that show that the middle class in America is dying…

    #1 This week we learned that for the first time ever recorded, middle class Americans make up a minority of the population. But back in 1971, 61 percent of all Americans lived in middle class households.

    #2 According to the Pew Research Center, the median income of middle class households declined by 4 percent from 2000 to 2014.

    #3 The Pew Research Center has also found that median wealth for middle class households dropped by an astounding 28 percent between 2001 and 2013.

    #4 In 1970, the middle class took home approximately 62 percent of all income. Today, that number has plummeted to just 43 percent.

    #5 There are still 900,000 fewer middle class jobs in America than there were when the last recession began, but our population has gotten significantly larger since that time.

    #6 According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.

    #7 For the poorest 20 percent of all Americans, median household wealth declined from negative 905 dollars in 2000 to negative 6,029 dollars in 2011.

    #8 A recent nationwide survey discovered that 48 percent of all U.S. adults under the age of 30 believe that “the American Dream is dead”.

    #9 At this point, the U.S. only ranks 19th in the world when it comes to median wealth per adult.

    #10 Traditionally, entrepreneurship has been one of the engines that has fueled the growth of the middle class in the United States, but today the level of entrepreneurship in this country is sitting at an all-time low.

    #11 If you can believe it, the 20 wealthiest people in this country now have more money than the poorest 152 million Americans combined.

    #12 The top 0.1 percent of all American families have about as much wealth as the bottom 90 percent of all American families combined.

    #13 If you have no debt and you also have ten dollars in your pocket, that gives you a greater net worth than about 25 percent of all Americans.

    #14 The number of Americans that are living in concentrated areas of high poverty has doubled since the year 2000.

    #15 An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.

    #16 According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.

    #17 In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.

    #18 According to Kathryn J. Edin and H. Luke Shaefer, the authors of a new book entitled “$2.00 a Day: Living on Almost Nothing in America“, there are 1.5 million “ultrapoor” households in the United States that live on less than two dollars a day. That number has doubled since 1996.

    #19 46 million Americans use food banks each year, and lines start forming at some U.S. food banks as early as 6:30 in the morning because people want to get something before the food supplies run out.

    #20 The number of homeless children in the U.S. has increased by 60 percent over the past six years.

    #21 According to Poverty USA, 1.6 million American children slept in a homeless shelter or some other form of emergency housing last year.

    #22 The median net worth of families in the United States was $137, 955 in 2007. Today, it is just $82,756.

    The wealth of U.S. families increased from 1983 to 2007, fell sharply since

    That last number really stunned me.

    According to Pew Research, the median net worth of U.S. families has fallen by more than $55,000 since 2007.

    That sure doesn’t sound like an “economic recovery” to me.

    I think that everyone can agree that we have a major problem on our hands.

    So what is the solution?

    Well, in order to have a healthy middle class, we need to have an economy that produces lots of middle class jobs and lots of thriving small businesses. But in America today, our small businesses are being strangled out of existence by mountains of red tape and excessive taxation, and millions of middle class jobs have been shipped out of the country to other nations where it is legal to pay slave labor wages.

    Until we start doing things differently, we are going to continue to get the same results that we have been getting, and the middle class will just keep getting smaller and smaller and smaller.

    The middle class is now a minority in this country. How much worse do things have to get before we say that enough is enough? Are we just going to stand on the sidelines and watch the middle class disappear entirely?

    At one time, the United States had the most vibrant middle class the world had ever seen. We were the envy of the rest of the planet, and people all over the world wanted to come here and live out “the American Dream”.

    Unfortunately, “the American Dream” is now dying, and most Americans don’t seem to care.

    What in the world is it going to take for people to finally wake up and start taking action?

  • Austria Proudly Shows Off The 15 Tons Of Gold It Repatriated From London

    On May 28, the Austrian Central Bank surprised the world when it announced that it too would follow in the footsteps of Germany and the Netherlands, and repatriate half of its sovereign physical gold, currently held almost entirely at the Bank of England, to Austria while transferring a modest portion in Switzerland by the year 2020.

    Back then, the central bank headed by Ewald Nowotny said it took the decision after recommendations made by the Austrian Court of Audit in February, which warned of a “heightened concentration risk” linked to storing the majority of its reserves in Britain. At the time, the bank had argued the policy was warranted because London was a major international centre for the gold trade.”

    This was the official statement the Austrian National Bank (OeNB) released in May:

    In May 2015, the gold reserves held by the OeNB amounted to 280 tons, having remained unchanged since 2007. Austria’s gold reserves are fully owned by the OeNB, which maintains and manages them with utmost care. In line with the OeNB’s current gold storage policy, 17 % of its gold holdings are at present kept in Austria, 80 % in the United Kingdom and 3 % in Switzerland.

     

    Recently, the Governing Board of the OeNB adopted the 2020 gold storage policy following a regular in-house gold strategy and storage policy review, while also considering the recommendations made by the Austrian Court of Audit. The cornerstones of this policy are as follows:

    • By the year 2020, 50% of Austria’s gold reserves are to be held in Austria (OeNB and Münze Österreich AG), 30% in London and 20% in Switzerland.
    • Starting from mid-2015, the new storage policy will be gradually implemented in keeping with security and logistical requirements.
    • A comprehensive review and, if need be, adaptation of the storage policy is scheduled for 2019.
    • The OeNB will regularly report on the progress in its upcoming annual reports.

    What the central bank did not say, is that by repatriating its gold from the UK, it was implicitly confirming that trust is now very publicly fraying at the highest levels of the international monetary system, with first Germany, then the Netherlands, then Austria, and most recently China, all demonstrating they are moving and/or building up their domestic gold reserves, and withdrawing their gold held at either the NY Fed or the Bank of England, something hardly surprising for those who have read our article explaining What Happens When You Hand Over Your Gold To The Bank Of England For “Safekeeping”.

    Which is also why yesterday, with great fanfare, Austria proudly announced to the world that it has moved 15 tonnes of gold from London of its gold reserves as part of its aforementioned repatriation plan.

    “By the end of November, the Austrian National Bank brought 15 tonnes of its gold back into its own vaults,” the OeNB said in a statement. A spokesman for the central bank said it had begun repatriating the gold from London in October.

    According to Reuters, after the repatriation, Austria held roughly 65 tonnes of gold, or about 23 percent of its reserves, on its territory, the spokesman said. Around three quarters, 209 tonnes, were in London, he said, and six tonnes were in Switzerland.

    “London and Zurich remain the most significant trading centres for physical gold,” the OeNB said in its statement, a point it has made before in explaining why it kept such a large share of its reserves abroad.

    In the decades after World War Two, security concerns also played a part because international trading centres were the best place to make use of the gold if needed in the case of an international crisis, the OeNB said in its statement.

    “Geopolitical considerations in the time of the Cold War also played a role,” said the central bank in Vienna, which was only an hour’s drive away from the Iron Curtain that divided Europe for four decades.

    It would appear that despite conditions between the west and Russia deteriorating to levels not seen since the depths of the cold war, Austira is more confident it can withstand the renewed Russian “threat” by storing its gold in house, rather than “trusting” Goldman’s Mark Carney, currently performing his GS alumnus duties as the head of the Bank of England, with possession of its gold.

    How times have changed.

    * * *

    But perhaps what was most surprising about the repatriation is that in order to “prove” the gold is indeed back, the Austrian central bank also released a 3 minute clip showing not only where the Austrian gold is located now:

     

    … but where it is headed:

     

    … how it is measured:

     

    … how it is tested using ultrasound:

     

    … while validating its Rand Refinery serial numbers (read more about the refinery that has processed one third of all gold ever mined here):

     

    … and finally holding a gold welcoming celebration party for media and journalists in its vault room:

     

    The full clip is below.

    We congratulate the Austrians on have such access and transparency to their own gold: sadly, for some unknown reason, when it comes to the US gold held at Fort Knox, the secrecy over the past several decades has prevented any member of the media or public to observe the thousands of tons which the US allegedly holds in storage. On behalf of the general population.

    We wonder: why do Austrians celebrate the arrival of their gold and televize it for the entire world to see, while the world’s allegedly biggest gold inventory remains a national secret, even, or rather especially, from those to whom it supposedly belongs – the citizens of USA?

  • Zombies, Cronies, And The Trouble With Yellen's Future

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

    “As democracy is perfected, the office of the President represents, more and more closely, the inner soul of the people. On some great and glorious day, the plain folks of the land will reach their heart’s desire at last and the White House will be occupied by a downright fool and complete narcissistic moron.”

    – H.L.Mencken

    All over the world, elections allow the people to express their innermost thoughts and feelings. This was a big week in Argentina, for example. Outgoing president Cristina Kirchner is supposed to hand over power to her successor, Mauricio Macri.

    But when we looked yesterday, there was dispute as to exactly what time the baton would be passed. And Cristina has let it be known she would not attend the inaugural and would generally make life as difficult for Mr. Macri as possible.

     

    meeting

    This photo is simply too funny not to show it – it cries out for a caption contest actually. Background: Kirchner asked Macri to visit her in the presidential palace, so she could personally congratulate him on his victory. And she said to him to “come alone”, which immediately spawned the twitter hashtag #VeniSolo (#ComeAlone)

     

    CUoS_ZqW4AEcc-5

    Image from an #VeniSolo tweet …

     

    Deep State in Control

    Elections are misunderstood. On the surface they are contests between zombies and cronies. The zombies (leftists, socialists, Democrats) want lots of little handouts. The cronies (rightists, Wall Streeters, Republicans) want fewer but bigger ones.

    All the loot comes from the voters – who willingly give up both their money and their liberty believing that, somehow, they are better off for it. But the real winner is the Deep State. It usually controls the candidates… and continues to gain power and resources, no matter which side wins.

    But the Deep State is not immune to setbacks. On the pampas, it must be worried that Macri may actually believe in free markets rather than markets controlled by cronies. If so, it may be harder to work with him than they had hoped.

     

    Deep State Issue 5

    The Deep State meme is really getting ingrained – now there’s even a comic book entitled “Deep State”

    Image credit: Matt Taylor

     

    And in the U.S., poor Janet Yellen must be having trouble sleeping again. The Deep State, the zombies, the cronies – all turn their black hearts and beady eyes unto her.

    Next Wednesday, she takes center stage again. And with the whole world watching, she’ll make a complete fool of herself.

     

    The Trouble with the Future … and Yellen’s Next Move

    Yellen is supposed to announce a tiny increase in the Fed’s key lending rate… currently sitting at 0.25%. Analysts will examine every word. Commentators will report, confuse, and misinterpret her remarks. And the economy and the markets will react.

    But they may not react as the insiders hope.

    Each generation has its market myths. Each decides what is important and what is not. The generation of the 1970s and 1980s watched inflation rates and money supply figures.

    Investors had been beaten up by the inflation of the 1970s. Then they learned from Milton Friedman at the Chicago School that inflation was “always and everywhere a monetary phenomenon.” So they began to watch the Fed’s M2 money supply figures like scouts looking for early warning of an enemy attack.

    The attack never came. The rate of consumer price inflation fell from a high of about 15% in 1980 to its near-zero levels today. Investors are always looking in the wrong direction. They have to be…

    “I’m going home to the U.S. to die,” said an old friend the other day.

    “If you know you’re going to die at home,” we asked, “why not stay in Paris?”

    Likewise, if investors knew what the future held, it wouldn’t happen that way. They would sell their positions before the top was in, avoiding a crash. And they’d buy before stocks hit rock bottom, never allowing a bear market to fully express itself.

     

    future

    The future remains a mystery … particularly to modern-day economic forecasters

    Image credit: Scanpix

     

    Surprises would be eliminated. Accidents avoided. If everyone knew where they would have a fender-bender, auto-body shops would be out of business! That is the trouble with the future: It must come as a surprise.

     

    Looking in the Wrong Direction

    We talk about borrowing as “taking from the future.” But it’s not really possible. Because the future hasn’t happened yet. It’s just a metaphor for understanding what is going on.

    Farmers – at least in the old days – saved some of their corn each year as “seed corn.” This is what they would plant the following year. And if they ate it rather than saving it, they would have been “taking from the future.” Next year’s crop would be reduced as a result. More today but less tomorrow.

    But it is always a risk to take from tomorrow. Centuries ago, fewer seeds – and perhaps less rainfall, or too much rainfall, or too much wind, or hail, or frost – might have meant starvation. What might it mean today?

    We don’t know. The future is always a surprise… especially to people with PhDs in economics. And now we watch Ms. Yellen. Acres of print will be devoted to speculating on how much of an increase she will announce… and how it will be followed up.

     

    yellenDoes it even matter?

     

    Guessing about the “pace of tightening” (that is, how soon will the first rate hike be followed by another) and positioning portfolios for tighter money – more dollars, less emerging market debt – are already growth businesses.

    Could it be that investors are looking in the wrong direction? Has the future moved on… without Ms. Yellen? Have stocks already topped out? Are sales already dropping? Is subprime student, energy, auto, corporate, and emerging market debt already sinking?

    Have the trains already left their stations, headed to destinations that investors haven’t even thought of? Could it be that the Deep State’s debt-based financing system is already in trouble? And, after 84 months of zero interest rates and roughly $4.5 trillion of central bank stimulus, can Ms. Yellen save it?

  • President Obama Explains How He Just 'Saved' The World From Its Greatest Threat – Live Feed

    "Mission Accomplished?" Amid failure after failure for President Obama's 'legacy' policies, Americans can rest assured that the "historic" signing of today's climate accord will be spun in its most positive, "see, I saved the world from its greatest threat" awesomeness, despite, as we detailed earlier, the utter farce of it all. 

     

    Despite its watering down for The Saudis, and total lack of enforceability, leaders and the environmental community hailed the United Nations agreement has a historic turning point that has the potential to stave off the worst expected effects of global warming.

    The media is already crowing of Obama's "big win"…

    Adoption of the accord is a major win for President Obama. He has made it a central piece of his second-term climate agenda to get an international agreement, since domestic action can only make a small dent in the world’s greenhouse gases.

     

    Obama has taken a leading international role leading up to the Paris conference, securing major environmental pledges from countries like Brazil and Mexico, and the first-ever promise from China to limit its greenhouse gas output.

    And so is he…And all "thanks to American leadership…"

    Live Feed (President Obama is due to speak at 1730ET…)

    See you in 2099… After all the warm words of developed countries on a 1.5C limit, the new text contains no obligation to stay under this threshold. Shockingly, the text could allow for carbon emissions to continue until 2099.

  • 500,000 Reasons Why Millennials Are Having Fewer Babies

    In the US, the average age of a first-time mother is now over 26 years old, up from 21.4 years-old in 1970.

    Through 2008-2013, the birth rate declined each year, likely the result of the financial crisis and its aftermath. Furthermore, as Goldman's Taposh Bari notes, amid the decline in births since the beginning of the Great Recession, one thing that stands out is that the decline in births has come from the youngest mothers – women under 25 years of age.

    There are a number of factors that have contributed to this continued increase including: (1) advances in medicine which have increased life expectancies and are making pregnancies safer and more successful for older women; (2) higher levels of educational attainment among women; (3) the aftermath of the great recession which has led to weaker job prospects and confidence about the future; and finally, and perhaps most importantly (4) highly inflationary education costs, which, coupled with lower wages and  igher educational attainment, have led to higher levels of student debt.

    The cost of raising a child

    A skittishness around family formation is bourne out in other data series like rates of home homeownership and marriage. Having a child is probably one of the most expensive decisions a parent will make in their life. In 2013, the annual cost of raising a newborn was approximately US$13k for married families in the middle income bracket in the US. On a cumulative basis through age 17, families having babies will have to commit to US$245k in total spending per child (US$304k accounting for inflation).

    The exhibit above excludes the cost of a college education (and all other costs for children over 17 years-old), which was US$19k (4-year public school tuition, room and board) for enrollment in the 2014-2015 academic year. Inflation adjusted, this cost is up 80% over the past 20 years, growing at real and nominal CAGRs of 2.9% and 5.4% respectively over that period.

    Assuming that the rate of college education continues at its current pace, Millennial parents can expect their newborn’s college education to be US$205k, making the total cost of raising a child over US$500k.

    Source: Goldman Sachs

  • The West’s Alliance With Saudi Arabia Fuels Islamism

    By Toby Matthiesen is a senior research fellow in the international relations of the Middle East at St. Antony’s College, University of Oxford. He is the author of “Sectarian Gulf: Bahrain, Saudi Arabia, and the Arab Spring That Wasn’t” and “The Other Saudis: Shiism, Dissent and Sectarianism.” Originally posted on the NYT.

    The West’s Alliance With Saudi Arabia Fuels Islamism

    One of the key contradictions of Western foreign policy toward the Middle East is the strong alliance with Saudi Arabia. With its vast oil resources and its strategic location between the Red Sea and the Persian Gulf, staunchly anticommunist Saudi Arabia became a key Western ally during the Cold War.

    This alliance with the West and the influx of enormous oil revenues since the 1970s have allowed Saudi Arabia to export its brand of Sunni Islam, named Wahhabism after its founder Muhammad Ibn Abd al-Wahhab, encouraging the homogenization of Islamic practices around the world after the model of the Wahhabiya. Known for its rejection of pre-Islamic history, visitation of tombs, the mixing of men and women, its zeal to purify Islam from allegedly deviant practices (such as Sufism and Shiism) and its disdain for other religions, the Wahhabiya was a puritan movement that gave religious legitimacy to the conquests of the Al Saud.

    The United States teamed up with Saudi Arabia to undermine the Soviet Union in 1980s Afghanistan. This cooperation with radical Islam was to have disastrous consequences and the rise of Al Qaeda and ISIS is an outcome of this pairing of an alluring ideology with the resources of an oil-rich state allied to a global superpower.

    The spread of extremist Islamist ideology is then as much a result of Western foreign policy as of Saudi machinations. Western and Gulf support for the rebels in Syria followed a similar path as the one observed in Afghanistan, before ISIS started to turn against the West and the Gulf states. But it is no coincidence that ISIS is adopting Saudi religious textbooks in its schools, killing Shia in Saudi Arabia just like the early Wahhabi zealots wanted to, and generally garnering much support on a popular level in the kingdom.

    The West’s strong alliance with the Saudi ruling family has not led to a moderation of the country’s religious policies. But in the recruitment strategy of ISIS it makes it much easier to describe Middle Eastern monarchies as puppets.

    The key ideological difference between ISIS and the early Saudi-Wahhabi movement is that the Islamic State wants to establish a caliphate, and regards monarchy as an un-Islamic form of government. Frightened by this challenge, which the Gulf states helped to create, Saudi Arabia has reaffirmed its alliance with the conservative Wahhabi religious forces in the country.

    But in ISIS, Saudi Arabia now has a foe that is so close to its own religious interpretation of Islam, that Saudi Arabia can not be seen to be fighting ISIS very strongly because it would undermine its authority at home. And so the West’s support for Middle East dictatorships continues to fuel the flames that have given rise to Al Qaeda and ISIS, despite a growing awareness that these alliances are a double-edged sword.

  • Ask Santa

    Can GOP Establishment dreams come true… after all it’s nearly Christmas…

     

     

    Source: Townhall.com

  • World Leaders Just Agreed To A "Historic" Climate Accord… Which Is Non-Binding And Has No Enforcement Language

    Great news! The "greatest threat to future generations of the world" has apparently been solved. World leaders Saturday adopted an historic international climate accord in Paris, the first-ever agreement to commit almost every country to fight climate change. However, as we knew all along and just got confirmation, the 31-page pact does not have binding language or a mechanism to force countries to live up to the promises to cut greenhouse gases emissions or provide money for developing and poor nations to cope with the effects of global warming.

    Basically, COP21 was a massive taxpayer-funded boondoggle, in which "leaders" enjoyed all the perks of Paris for two weeks, burned through hundreds of millions in public funding, and created millions of tons in greenhouse gases (what do you think to private jets and government 747s use to fly?) that has achieved absolutely nothing.

    In other words…

    Nonetheless, leaders and the environmental community hailed the United Nations agreement has a historic turning point that has the potential to stave off the worst expected effects of global warming.

    And The UN reports a large round of mutual masturbation…

     

     

    The Borg press is happy, clearly having no idea that absolutely nothing just took place:

     

    Obama was delighted that "American leadership" was responsible for an agreement that is neither binding nor enforceable, in other words, something one would write on the back of a napkin:

     

    So, on one hand, and the hand that the same Borged media as shown in the tweet above will bombard everyone with over the next week, moments ago world leaders Saturday adopted an historic international climate accord in Paris, the first-ever agreement to commit almost every country to fight climate change.

    On the other hand, the hand which will get zero mention at all, the pact has zero binding language or a mechanism to force countries to live up to the promises to cut greenhouse gases emissions or provide money for developing and poor nations to cope with the effects of global warming.

    In other words, world leaders just spent hundreds of millions in taxpayer funds on an epic boondoggle in Paris to write a 31-page pamphlet summarizing everyone's best intentions about the future and… that's it.

    *  *  *

    So if the document is such a farce, what does it contain? This.

    As The FT reports,

    The latest draft says governments should stick to a previously agreed goal to keep warming below 2C from pre-industrial times and “pursue efforts” to stop temperatures rising more than 1.5C, a target favoured by a large number of countries at the talks but opposed by China, Saudi Arabia and others.

     

    In order to meet this temperature goal, earlier drafts of the accord had echoed a call by G7 leaders in June for the “decarbonisation” of the global economy over the course of this century and a specific cut in greenhouse gas emissions of at least 40 per cent by 2050.

     

    This was opposed by several countries including Saudi Arabia, a leading exporter of fossil fuels that produce carbon dioxide when burnt to produce energy.

     

    In a statement explaining its position on Thursday, Saudi delegates said the agreement should “consider all greenhouse gas emissions and not just CO2”.

     

    Policies to reduce emissions “must cover all sectors instead of focusing exclusively on energy” and should not “discriminate against any of the energy sources”, the Saudi delegates said.

    In other words, the world's leaders are releasing a non-binding, long-enough-away-target-as-not-to-matter-for-any-of-those-involved-in-its-drafting document watered down to meet the needs of, drum roll please.. The Saudis.

    After all the warm words of developed countries on a 1.5C limit, the new text contains no obligation to stay under this threshold. Shockingly, the text could allow for carbon emissions to continue until 2099.

    If implemented, it would force companies and citizens to sharply reduce their use of fossil fuels and could herald in a transformation of the world economy. Which, judging by this week in Beijing…

    If enforced by authorities, means China is heading for its very own Great Depression.

    We leave it to Raul Ilargi Meijer (of The Automatic Earth) to explain the utter CON of this 'pact' that The IMF's Christine Lagarde has called "a critical step forward."

    * * *

    I understand some people may get offended by some of the things I have to say about this – though not all for the same reasons either-, but please try and understand that and why the entire CON21 conference has offended me. After watching the horse and pony show just now, I thought I’d let ‘er rip:

    I don’t know what makes me lose faith in mankind faster, the way we destroy our habitat through wanton random killing of everything alive, plants, animals and people, through pollution and climate change and blood-thirsty sheer stupidity, or if it is the way these things are being ‘protested’.

    I’m certainly not a climate denier or anything like that, though I do think there are questions people gloss over very easily. And one of those questions has to be that of priorities. Is there anyone who has thought over whether the COP21 stage in Paris is the right one to target in protest, whatever shape it takes? Is there anyone who doesn’t think the ‘leaders’ are laughing out loud in -plush, fine wine and gourmet filled- private about the protests?

    Protesters and other well-intended folk, from what I can see, are falling into the trap set for them: they are the frame to the picture in a political photo-op. They allow the ‘leaders’ to emanate the image that yes, there are protests and disagreements as everyone would expect, but that’s just a sign that people’s interests are properly presented, so all’s well.

    COP21 is not a major event, that’s only what politicians and media make of it. In reality, it’s a mere showcase in which the protesters have been co-opted. They’re not in the director’s chair, they’re not even actors, they’re just extras.

    I fully agree, and more than fully sympathize, with the notion of saving this planet before it’s too late. But I wouldn’t want to rely on a bunch of sociopaths to make it happen. There are children drowning every single day in the sea between Turkey and Greece, and the very same world leaders who are gathered in Paris are letting that happen. They have for a long time, without lifting a finger. And they’ve done worse -if that is possible-.

    The only thing standing between the refugees and even greater and more lethal carnage are a wide, even confusingly so, array of volunteers, and the people of the Greek coastguard, who by now must be so traumatized from picking up little wide-eyed lifeless bodies from the water and the beaches, they’ll live the rest of their lives through sleepless nightmares.

    Neither Obama nor Merkel nor Hollande will have those same nightmares. And let’s be honest, will you? You weren’t even there. And still, you guys are targeting a conference in Paris on climate change that features the exact same leaders that let babies drown with impunity. Drowned babies, climate change and warfare, these things all come from the same source. And you’re appealing to that very same source to stop climate change.

    What on earth makes you think the leaders you appeal to would care about the climate when they can’t be bothered for a minute with people, and the conditions they live in, if they’re lucky enough to live at all? Why are you not instead protesting the preventable drownings of innocent children? Or is it that you think the climate is more important than human life? That perhaps one is a bigger issue than the other?

    Moreover, the very same leaders that you for some reason expect to save the planet -which they won’t- don’t just let babies drown, they also, in the lands the refugees are fleeing, kill children and their parents on a daily basis with bombs and drones. Dozens, hundreds, if not thousands, every single day. That’s how much they care for a ‘healthy’ planet (how about we discuss what that actually is?).

    And in the hallways of the CON21 conference they’ve been actively discussing plans to do more of the same, more killing, more war. Save the world, bombs away! That’s their view of the planet. And they’re supposed to save ‘the climate’?

    There are a number of reasons why the CON21 conference will not move us one inch towards saving this planet. One of the biggest is outlined in just a few quoted words from a senior member of India’s delegation -nothing new, but a useful reminder.

    India Opposes Deal To Phase Out Fossil Fuels By 2100

    India would reject a deal to combat climate change that includes a pledge for the world to wean itself off fossil fuels this century, a senior official said, underlying the difficulties countries face in agreeing how to slow global warming.

     

    India, the world’s third largest carbon emitter, is dependent on coal for most of its energy needs, and despite a pledge to expand solar and wind power has said its economy is too small and its people too poor to end use of the fossil fuel anytime soon. “It’s problematic for us to make that commitment at this point in time. It’s certainly a stumbling block (to a deal),” Ajay Mathur, a senior member of India’s negotiating team for Paris, told Reuters in an interview this week.

     

    “The entire prosperity of the world has been built on cheap energy. And suddenly we are being forced into higher cost energy. That’s grossly unfair,” he said.

    This means the ‘poorer’ countries, -by no means just India; China has 155 more coal plants in the pipeline despite their pollution levels moving ‘beyond index’-, the poorer counties won’t volunteer to lower their emissions unless richer nations lower theirs even a lot more. US per capita emissions are over 10 times higher than India’s, those of the EU six times. Ergo: Step 1: lower US emissions by 90%. It also means that richer nations won’t do this, because it would kill their economies.

    Which, in case you haven’t noticed, are already doing very poorly, much worse than the media -let alone politicians- will tell you. In fact, the chances that the richer countries will ‘recover’ from the effects of their debt binge are about on par with those of renewable energy sources becoming cheaper than fossil fuels -barring subsidies. If only because producing them depends entirely on those same fossil fuels. All the rest of what you hear is just con.

    The people of India obviously know it, and you might as well. It’s going to cost many trillions of dollars to replace even a halfway substantial part of our fossil energy use with renewables, and we already don’t have that kind of money today. We will have much less tomorrow.

    Besides, despite all the talk of Big Oil turning into Big Energy, Shell et al are not energy companies, they’re oil -and gas- companies, and they’ll defend their (near) monopolies tooth and claw. Especially now that their market caps are sinking like so many stones. They have no money left to invest in anything, let alone an industry that’s not theirs. They lost some $250 billion in ‘value’ this week alone. They’re getting killed.

    In the same vein, China can’t close more than a token few of its most polluting plants. China’s getting killed economically. And for all nations and corporations there’s one principle that trumps all: competitive advantage. If going ‘green’ means losing that, or even some of it, forget it. We won’t volunteer to go green if it makes us less rich.

    And who do you think represents big oil -and the bankers that finance them- more than anyone else? Right, your same leaders again, who make you pay for the by now very extensive and expensive security details that keep them from having to face you. Just like they’re planning to make you pay dearly for the illusion of a world running on renewables.

    Because that’s where the profit is: in the illusion.

    Whatever makes most money is what will drive people’s, corporations’, and nations’ actions going forward. Saving energy and/or substituting energy sources is not what makes most money, and it will therefore not happen. Not on any meaningful scale, that is.

    There will be attempts to force people to pay through the nose to soothe their consciences -which will be very profitable for those on the receiving end-, but people’s ability to pay for this is shrinking fast, so that won’t go anywhere.

    The only thing that could help save this planet is for all westerners to reduce their energy use by 90%+, but, though it is theoretically and technically feasible, it won’t happen because the majority of us won’t give up even a part of our wealth, and the powers that be in today’s economies refuse to see their profits (re: power) and those of their backers go up in -ever hotter- air.

    The current economic model depends on our profligate use of energy. A new economic model, then, you say? Good luck with that. The current one has left all political power with those who profit most from it. And besides, that’s a whole other problem, and a whole other issue to protest.

    If you’re serious about wanting to save the planet, and I have no doubt you are, then I think you need to refocus. COP21 is not your thing, it’s not your stage. It’s your leaders’ stage, and your leaders are not your friends. They don’t even represent you either. The decisions that you want made will not be made there.

    There will be lofty declarations loaded with targets for 2030, 2050 and 2100, and none of it will have any real value. Because none of the ‘leaders’ will be around to be held accountable when any of those dates will come to pass.

    An imploding global economy may be your best shot at lowering emissions. But then again, it will lead to people burning anything they can get their hands on just to keep warm. Not a pretty prospect either. To be successful, we would need to abandon our current political and economic organizational structures, national governments and ‘up’, which select for the sociopaths that gather behind their heavy security details to decide on your future while gloating with glee in their power positions.

    Better still, we should make it impossible for any single one of them to ever be elected to any important position ever again. For now, though, our political systems don’t select for those who care most for the world, or its children. We select for those who promise us the most wealth. And we’re willing to turn a blind eye to very many things to acquire that wealth and hold on to it.

    The entire conference is just an exercise in “feel good”, on all sides. Is there anyone out there who really thinks the likes of Bill Gates and Richard Branson will do anything at all to stop this world from burning to the ground? You have any idea what their ecological footprints are?

    Sometimes I think it’s the very ignorance of the protesting side that dooms this planet. There’s a huge profit-seeking sociopathic part of the equation, which has caused the problems in the first place, and there’s no serious counterweight in sight.

    Having these oversized walking talking ego’s sign petitions and declarations they know they will never have to live up to is completely useless. Branson will still fly his planes, Gates will keep running his ultra-cooled server parks, and Obama and Merkel will make sure their economies churn out growth ahead of anything else. Every single country still demands growth. Whatever gains you make in terms of lower emissions will be nullified by that growth.

    And in the hallways, ‘smart’ entrepreneurs stand ready to pocket a ‘smart’ profit from the alleged switch to clean energy. At the cost of you, the taxpayer. And you believe them, because you want to, and because it makes you feel good. And you don’t have the knowledge available to dispute their claims (hint: try thermodynamics).

    You’re seeking the cooperation of people who let babies drown and who incessantly bomb the countries these babies and their families were seeking to escape.

    I’m sorry, I know a lot of you have a lot of emotion invested in this, and it’s a good emotion, and you’re thinking this conference is really important and all, and our ‘last chance’ to save the planet. But you’ve been had, it’s as simple as that. And co-opted. And conned.

    And it’s not the first time, either. All these conferences go the same way. To halt the demise of the planet, you can’t rely on the same people who cause it. Never works.

    *  *  *

    And now we can sit back and calculate how many million tons of greenhouse gasses the private and government jets that ferried world leaders to (and soon, from) Paris, burned to get this epic farce "signed."

  • Artist's Impression Of Middle-Class America

    The American middle class is getting poorer. Wages have been stagnant for decades – if jobs can be found to get those wages. Jobs are exported overseas by big corporations. Small businesses get harassed with taxes and big government red tape. There are bailouts to central bankers to the tune of trillions while Main Street businesses go bankrupt. Endless QEs have propped up ‘their’ stock market, largely owned by the 1 percent. The rich are getting fabulously richer while a record number of people are on food stamps.

     

     

    I blame the Federal Reserve. It’s the heart of darkness. They’re a private group of elites who get to print up money for themselves and their cronies while their mainstream media tells everyone it’s all fine and dandy. They get richer and more powerful while the middle class gets the debt and abuse. The middle class has one foot in the grave and the other foot on a banana peel, thanks to our corrupt and dysfunctional system of money.

    It’s time to end audit the Federal Reserve. It’s time to end the Federal Reserve. It’s time to shut down the IRS. It’s time to end crony capitalism, which is leading us deeper into fascism.

    Via RogueCartoonist.com's Ben Garrison

  • Market Panics As "China's Warren Buffett" Detained In "Richter Scale 9 Event"

    As several CSRC officials have learned over the past four months, being a “connected guy” vis-a-vis the Politburo does not necessarily mean you are immune when Xi and the Party decide it’s time to make an example of a few “chickens” in order to scare some “monkeys.” 

    China’s sweeping crackdown on sellers, “manipulators”, frontrunners, financial journalists and anyone else “suspected” of acting in such a way as to sow fear and uncertainty in the wake of the dramatic meltdown in Chinese equities that unfolded over the summer has ensnared money managers, high profile executives, and government officials alike. Earlier this week, it reached a crescendo with the disappearance of Guo Guangchang, known to some as “China’s Warren Buffett.” 

    As we reported on Thursday, the Fosun chief was “unreachable” according to the company which said only that it was “handling the situation.”

    For anyone familiar with Beijing’s “kill the chicken to scare the monkey” campaign, it was easy to venture a guess as to what might have happened. While it seemed obvious that Guo had been “disappeared” by the Party, it wasn’t as yet clear what he was ultimately suspected of doing “wrong.” “Whether Beijing is questioning Guo about his habit of eschewing investments in China in favor of deploying capital overseas or whether Fosun did something ‘wrong’ in the markets during the selloff is hard to know,” we said.

    We now have a bit more in the way of color regarding Guo’s detention and sure enough, he’s being “held in connection with an investigation.” In a statement, Fosun did not divulge Guo’s whereabouts, saying only that he’s helping with “certain investigations carried out by the mainland judicial authorities” and that he is still able to oversee “major matters” pertaining to his businesses. 

    As FT notes, “rumours of Mr Guo’s disappearance began to circulate in China on Thursday when influential financial publication Caixin cited unconfirmed reports that police had detained him when he arrived in Shanghai on a flight from Hong Kong.” Subsequently, business partners have only been able to establish “minimal contact” – his family has not been able to reach him. 

    As usual, there’s no word on whether Guo is in fact the subject of the investigation. If you’ve followed the witch hunt – which we recently learned is being run by Fu Zhenghua, a former Beijing police chief responsible for orchestrating an infamous prostitution bust, a campaign against “popular bloggers whose sometimes anti-establishment comments drew the ire of party leaders,” and a decree prohibiting police officers from drinking alcohol outside of their homes – China likes to keep the explanations as vague as possible presumably for the chilling effect the ambiguity has on the rest of the market.

    Guo, who earlier this year called himself an “apprentice” of everyone’s favorite octogenarian from Omaha, is worth nearly $8 billion, a fact which may have landed him in Xi’s crosshairs. “As China’s economy slows after three decades of furious expansion, conspicuous wealth has become suspect,” WSJ says, adding that “uncertainty about his situation has added to a chill in finance circles.”  

    As for the wider implications of Guo’s arrest, consider the following from FT:

    His disappearance will fuel anxieties in the private sector that the anti-corruption crackdown launched by President Xi Jinping three years ago is being extended to high-profile entrepreneurs and the prime beneficiaries of China’s decades of rapid growth. It initially focused on ensnaring senior members of the government and military and financiers and is now broadening to prominent businesspeople in Shanghai.

    Significantly, FT also suggests that “[Guo’s] case threatens to accelerate the pace of capital flight out of China as the country’s wealthy elite scramble to shift their assets offshore and out of reach of the Chinese authorities.”

    “This is Richter scale 9 for the private sector in China,” one observer who tracks China’s wealthiest people said.

    Guo is also well connected in the Politburo. Here’s The Journal: 

    In August, the tycoon was named during the sentencing for corruption of a former senior Communist Party member in Shanghai who had run a government-owned dairy company. Mr. Guo had granted the man favors for unspecified benefits, according to China’s official Xinhua News Agency, which said that Mr. Guo wasn’t accused of wrongdoing. Fosun issued a statement at the time, saying Mr. Guo supported China’s anticorruption push.

     

    Like many other entrepreneurs in China, Mr. Guo has also remained close to Chinese leaders with positions on numerous official bodies, while some of Fosun’s businesses have overlapped with government priorities.

     

    He has served as a deputy to China’s legislature, the National People’s Congress, as well as represented Shanghai on a high-level government advisory body called the Chinese People’s Political Consultative Conference. 

    “In March 2012, he met Mr Xi as he was poised to take over as the country’s top leader, and urged him to enact a series of economic reforms, including greater court protection for insurance companies, increased lending by non-bank financial institutions and greater scope for private equity businesses to operate,” FT adds.

    As we mentioned on Thursday, Fosun spent more than $6 billion buying stakes in 18 overseas companies between February and July. Here’s a snapshot: 

    And here’s an org chart: 

    Due to the fact that Guo has so much influence over the company, his absence (especially if he ends up being detained for a prolonged period) could well have a serious impact, something which WSJ notes was “illustrated in trading Friday when [a] trading halt for its primary business triggered selling in related stocks and bonds.”

    In other words, it’s possible that this entire effort becomes self-defeating for Xi. If the widening probe ends up triggering trading halts and harrowing declines in the assets connected to the targets of the crackdown, then Beijing is simply fostering the type of instability it claims to be stamping out. 

    Furthermore, if the country’s wealthiest people start to get the idea that they too will be targeted and brought up on trumped up charges, then you can bet they will move their money out of the country by any means necessary and no UnionPay POS mointoring scheme is going to stop them. Obvisouly, just about the last thing China needs to be doing right now is creating more excuses for rich Chinese to skirt capital controls just as the CFETS telegraphs a much larger devaluation for the yuan on the horizon.

    *  *  *

    Bonus color from Deutsche Bank

    Given that the company responded promptly in the past couple of episodes, we think any delay this time could be taken more negatively by the investors. Separately, it seems China has learnt its lessons from the Kaisa episode and hasn’t lifted the corporate veil in such cases, clearly differentiating between the management vs. company operations. In almost every instance since Kaisa, Chairmen/founders have resigned, letting new management run the operations. We need to be mindful that Fosun is one of China’s largest private sector enterprises and the repurcurssions of a Kaisa-like episode could be huge for China Inc. 

    Fosun 20s are marked around 15 points lower at ~90 (mid, 10% ytm) amidst thin liquidity, at the time of writing. This is a bit more than the roughly 10 point drop we have seen in recent times in the USD bond space in similar situations (Wuzhou being the latest). Our base case and gut feel at this stage is that the company should eventually be fine. Key risks include resignation of Mr. Guo as Chairman and possible breach of bank loan covenants (though we expect this to be waived, if at all), black box nature of company’s operations, etc. 

  • Good Luck Getting Your Money Out When the Next Crisis Hits

    Why is it that when a banking crisis hits, everyone acts surprised?

     

    The reason is actually quite simple: everyone at the top of the financial food chain are highly incentivized to keep quiet about the problems.

     

    Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

     

    For that reason, you will never and I repeat NEVER see a Central banker, Bank CEO, or politician admit openly what is happening in the financial system. Even middle managers and lower level employees won’t talk about it because A) they don’t know the truth concerning their institutions or B) they could be fired for warning others.

     

    Please take a few minutes to digest what I’m telling you here. You will not be warned of the risks to your wealth by anyone in a position of power in the political financial hierarchy (with the exception of folks like Ron Paul who are usually marginalized by the media).

     

    Moreover, when the Crisis DOES hit, it will be much, much harder to get your money out.

     

    Consider the recent regulations implemented by SEC to stop withdrawals from happening should another crisis occur.

     

    The regulation is called Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds. It sounds relatively innocuous until you get to the below quote:

     

    Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate).  To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests.  A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier.  Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period…

     

    Also see…

     

    Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions.  However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors.

     

    http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347

     

    In simple terms, if the system is ever under duress again, Money market funds can lock in capital (meaning you can’t get your money out) for up to 10 days. If the financial system was healthy and stable, there is no reason the regulators would be implementing this kind of reform.

     

    As Zerohedge noted earlier today, the use of “gates” is spreading. A hedge fund just suspended redemptions… meaning investors cannot get their money out. Expect more and more of this to hit in the coming months as anyone who is has bet the farm on the system continuing to expand gets taken to the cleaners.

     

    The solution, as it was in 2008, will not be to allow the defaults/ debt restructuring to occur. Instead, it will be focused on forcing investors to stay fully invested at whatever cost.

     

    This is just the start of a much larger strategy of declaring War on Cash.

     

    Indeed, we’ve uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

     

    We detail this paper and outline three investment strategies you can implement

    right now to protect your capital from the Fed’s sinister plan in our Special Report

    Survive the Fed’s War on Cash.

     

    We are making 1,000 copies available for FREE the general public.

     

    To pick up yours, swing by….

    http://www.phoenixcapitalmarketing.com/cash.html

     

    Best Regards

    Phoenix Capital Research

     

     

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Dec 12

Today’s News December 12, 2015

  • Trump's Cunning Plan Revealed

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

    You decide…

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

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

     

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

     

    Americans dislike Islam

     

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

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

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

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

     

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

     

    The establishment seemed to have become unhinged.

     

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

     

    But is this really true?

     

    The Constitution protects freedom of religion for U.S. citizens. But citizens of foreign lands have no constitutional right to migrate. And federal law gives a president broad powers in deciding who comes and who does not, especially in wartime.

     

    In 1924, Congress restricted immigration from Asia, reduced the numbers coming from southern and Central Europe, and produced a 40-year moratorium on most immigration into the United States.

     

    Its authors and President Coolidge wanted ours to remain a nation whose primary religious and ethnic ties were to Europe, not Africa or Asia.

     

    Under FDR, Truman and JFK, this was the law of the land.

     

    Did this represent 40 years of fascism?

     

    Why might Trump want a moratorium on Muslim immigration?

    • Reason one: terrorism. The 9/11 terrorists were Muslim, as were the shoe and underwear bombers on those planes, the Fort Hood shooter, the Times Square bomber and the San Bernardino killers. And as San Bernardino showed again, Islamist terrorists are exploiting our liberal immigration policies to come here and kill us. Thus, a pause, a timeout on immigration from Muslim countries, until we fix the problem, would seem to be simple common sense.
    • Second, Muslims are clearly more susceptible to the siren call of terrorism, and more likely to be radicalized on the Internet and in mosques than are Christians at church or Jews at synagogue. Which is why we monitor mosques more closely than cathedrals.
    • Third, according to Harvard’s late Samuel Huntington, a “clash of civilizations” is coming between the West and the Islamic world. Other scholars somberly concur. But if such a conflict is in the cards, how many more millions of devout Muslims do we want inside the gates?

    Set aside al-Qaida, ISIS and their sympathizers. Among the 1.6 billion Muslims worldwide are untold millions of followers of the Prophet who pray for the coming of a day when sharia is universal and the infidels, i.e., everyone else, are either converted or subjugated.

     

    In nations where Muslims are already huge majorities, where are the Jews? Where have all the Christians gone?

     

    With ethnic and sectarian wars raging in Afghanistan, Iraq, Syria, Turkey, Yemen, Libya, Nigeria and Somalia, why would we bring into our own country people from all sides of these murderous conflicts?

     

    Many European nations — Germans, French, Swedes, Brits — appear to regret having thrown open their doors to immigrants and refugees from the Islamic world, who have now formed unassimilated clusters and enclaves inside their countries.

     

    Ought we not explore why, before we continue down this road?

     

    In some countries of the Muslim world, Americans who embrace “Hollywood values” regarding abortion, adultery and homosexuality, can get their heads chopped off as quickly as converts to Christianity.

     

    In what Muslim countries does Earl Warren’s interpretation of the First Amendment — about any and all religious presence being banned in public schools and all religions being treated equally — apply?

     

    When is the next “Crusade for Christ” coming to Saudi Arabia?

     

    Japan has no immigration from the Muslim world, nor does Israel, which declares itself a Jewish state. Are they also fascistic?

     

    President Obama and the guilt-besotted West often bawl their apologies for the horrors of the Crusades that liberated Jerusalem.

     

    Anyone heard Muslim rulers lately apologizing for Saladin, who butchered Christians to take Jerusalem back, or for Suleiman the Magnificent, who conquered the Christian Balkans rampaging through Hungary all the way to the gates of Vienna?

     

    Trump’s surge this week, in the teeth of universal denunciation, suggests that a large slice of America agrees with his indictment — that our political-media establishment is dumb as a box of rocks and leading us down a path to national suicide.

     

    Trump’s success tells us that the American people really do not celebrate “globalization.” They think our negotiators got snookered out of the most magnificent industrial machine ever built, which once guaranteed our workers the highest standard of living on earth.

     

    They don’t want open borders or mass immigration. They want people here illegally to be sent back, the borders secured, and a moratorium imposed on Muslim immigration until we fix the broken system.

     

    As for the establishment, they are saying pretty much what The Donald is saying. To paraphrase Oliver Cromwell’s speech to the Rump Parliament: You have sat here too long for any good you have done here. In the name of God, go!

    *  *  *

    And if you still need further proof.. here are the numbers…

  • Visualizing The World's "Hot" Money

    Every year, roughly $1 trillion flows illegally out of developing and emerging economies due to crime, corruption, and tax evasion. This amount is more than these countries receive in foreign direct investment and foreign aid combined.

    This week, a new report was released that highlights the latest data available on this “hot” money. Assembled by Global Financial Integrity, a research and advisory organization based in Washington, DC, the report details illicit financial flows of money from developing countries using the latest information available, which is up until the end of 2013.

     

    Courtesy of: Visual Capitalist

     

    The cumulative amount of this “hot money” coming out of developing countries totaled just over $7.8 trillion between 2004 and 2013. On an annual basis, it breached the $1 trillion mark each of the last three years of data available, which is good for a growth rate of 6.5% rate annually.

    In Asia, illicit financial outflows are growing even quicker at an 8.6% clip. It’s also on the continent that five of the ten largest source economies for these flows can be found, including the largest offender, which is Mainland China.

    How does this “hot” money leave these countries? Global Financial Integrity has calculated that 83% of illicit financial flows are due to what it calls “trade misinvoicing”.

    It’s defined as the following:

    The misinvoicing of trade is accomplished by misstating the value or volume of an export or import on a customs invoice. Trade misinvoicing is a form of trade-based money laundering made possible by the fact that trading partners write their own trade documents, or arrange to have the documents prepared in a third country (typically a tax haven), a method known as re-invoicing. Fraudulent manipulation of the price, quantity, or quality of a good or service on an invoice allows criminals, corrupt government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly, easily, and nearly always undetected.

    Trade misinvoicing accounted for an average of $654.7 billion per year of lost trade in developing markets over the data set covered by the report.

    Source: Visual Capitalist

  • White House Unable To Explain How Gun Control Will Stop Mass Shootings

    Authored by Steve Watson, originally posted at PrisonPlanet.com,

    The White House cannot name one single shooting incident that would have been prevented by gun control legislation.

    As President Obama prepares executive action to pass further gun control legislation, one errant reporter asked the White House press secretary exactly how such proposals would have prevented any recent mass shootings.

    Josh Earnest couldn’t directly answer the question and floundered around repeating the same talking points over and over again.

    Reporter Byron Tau referred to a statement made by Sen. Marco Rubio that no mass shootings in recent memory would have been prevented by gun legislation, which even the Washington Post fact-checked as true.

    “If not a single recent mass shooting would have been stopped by the kind of gun control measures you champion, are those the right approach to this problem?” Tau asked.

     

    “Well, Byron, I think we’ve been pretty direct and upfront,” replied Earnest, not being very direct and upfront.

     

    “…there is no piece of legislation that Congress can pass that would prevent every single act of gun violence,” Earnest added, avoiding the question.

     

    “I think the case that we have made is one that rests primarily on our concern about national security and our careful consideration of common sense.” he stated, again avoiding the question entirely.

     

    Earnest then diverted the talking point to the terrorist no-fly-list, prompting Tau to follow up, “Were any of the recent mass shooters on the ‘no-fly’ list?”

     

    “Not that I’m aware of,” Earnest admitted. “You’ll probably have to ask the director of national intelligence to confirm that.”

     

    The reporter stuck to the central issue at hand – that gun control legislation is not a fix for mass shootings.

     

    “Can the White House point to a recent mass shooting that would have been stopped by a expanded assault weapons ban or stricter background checks?” Tau asked.

     

    “The evidence seems to be that in all these recent mass shootings, these folks either passed background checks or were very determined to circumvent the strict gun laws that are already on the books.” the reporter added.

    Indeed, The shooters at Virginia Tech, the Aurora Colorado movie theater, Fort Hood, Isla Vista, the Washington Navy Yard, the attempted mass killing at Arapahoe High School ALL passed background checks.

    The shooter at Washington Navy Yard even managed to buy his firearm after the background check system was supposedly strengthened following the incident at Virgina Tech.

    The BATF has also determined that Syed Rizwan Farook, one of the two shooters in San Bernardino, also legally purchased two of the weapons at a gun shop in Corona.

    The reporter pressed Earnest, asking “Can you point to any that would have been prevented or stopped by the kind of proposals the White House is championing?”

    Earnest again repeated the “common sense” talking point without addressing the actual question and threw in a smattering of empty “national security” rhetoric.

    Last week when addressing the same line of questioning, Earnest admitted that further gun control legislation would not have prevented the San Bernardino shooting, and that it is purely “hypothetical” that terrorist incidents could be prevented with such new laws.

    While the Obama administration is seemingly hell bent on going after stricter gun control, research from Pew Research Center, the FBI, and the Centers for Disease Control and Prevention, reveals that gun violence in the US is actually on the decline, and is at its lowest since the 1960s.

    In addition, gun crime, despite an exponential increase in privately owned firearms over the same period, has steadily declined for about 20 years, except for high-profile shootings in gun-free zones.

  • Bitcoin Breaks Out Higher After China Announces Crackdown On UnionPay POS Devices

    When we first detailed the link between a devaluing currency, increasing restrictions on outflows of China capital, and Bitcoin, the virtual currency soared (driven by Chinese flows, just as predicted). The last few days, as China has once again started devaluing its currency, authorities once again moved to tighten capital outflows – this time through caps on credit-card withdrawals (as warned here) – and sure enough, Bitcoin has been soaring recently. Specifically, a nationwide crackdown on illegal UnionPay point-of-sale devices, has sparked capital flight (on heavy volume) through the vurtual currrency.

    Having previously documented Beijing’s mad dash to tighten up capital controls in China in order to stem outflows in the wake of the PBoC’s move to transition towards a new FX regime; increasing expectations that a (much) deeper devaluation is on the horizon (blessed by The IMF) coupled with China’s efforts to manage the fallout from those expectations by liquidating hundreds of billions in FX reserves to support the onshore and offshore spots have understandably put authorities on edge, leading directly to efforts to stop the bleeding.

    As we put it a few weeks ago, “while China may succeed in maintaining an orderly pace of FX depreciation, if the local population is concerned it will lose substantial purchasing power in the coming months and years, it will accelerate the capital flight from the country, forcing even greater reserve liquidation as the government finds itself defending not only the capital but also the current account, not to mention the sheer capital flight panic resulting from the crashing stock market.”

    However, as we detailed here, one of the more straightforward ways of circumventing China’s official capital controls has been by “abusing” UnionPay cards. Roughly speaking, the process works like this (via Reuters):

    Growing numbers of Chinese are using the country's state-backed bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found.

     

    This underground money is flowing across the border into the gambling hub of Macau, a former Portuguese colony that like Hong Kong is an autonomous region of China. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay.

     

    In a warren of gritty streets around Macau's ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases – a way of evading China's strict currency-export controls.

     

    On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 ($50,000) in cash. She signed a credit card receipt describing the transaction as a "general sale", stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door.

     

    The withdrawal far exceeded the daily limit of 20,000 yuan, or $3,200, in cash that individual Chinese can legally move out of the mainland. "Don't worry," said a store clerk when asked about the legality of the transaction. "Everyone does this."

    Yes, “everyone does this,” but not for long because now that the yuan deval debacle has served to accelerate the capital outflows, Beijing is set to double down on efforts to curb the degree to which capital controls are openly subverted and as WSJ reported, China “put a new annual cap on overseas cash withdrawals using UnionPay.”

    Which leads us to the past week, where, as Bloomberg reports, China is now cracking down on illegal use and manipulation of UnionPay point-of-sale devices to cirumvent the limits…

    A nationwide crackdown targets use of illegal UnionPay “point of service” devices used by retailers which have been altered to mask cash transactions to circumvent China’s strict currency control, South China Morning Post reports, citing a UnionPay internal memo.

     

    Illegal use involves customers purchase goods, only to return them to retailer and receive cash, minus retailer’s commission: report

     

    New measures require mobile POS transaction devices across China to be properly registered.

    We note this is a mainland version of the previous 'tricks' that the ultra-wealthy used in Macau and these newly reported UnionPay measures may prompt greater scrutiny on Macau pawnshop business model in which cash transactions are recorded as goods purchases, analysts led by Vitaly Umansky write in Dec. 10 note. Use of illegal POS devices in Macau pawnshops, and on some casino floors, have occurred in the past, but represent only "a minuscule fraction" of dealings in Macau’s pawnshops.

    Will this help to reverse the momentum? No, probably not. 

    The problem here – and this is something that quite a few people are still struggling to understand – is that Beijing has telegraphed a much larger devaluation, which means the pressure on the yuan will likely continue.

    So yes, as difficult as this is to come to terms with, this is a scenario where China played the deval card and is looking to ever-so-gradually move from a 3% deval to an export-boosting double-digit deval, but in the meantime, Beijing must manage the pace, which means supporting the yuan via direct interventions. But the last week it appears that The IMF's decision to include the Yuan in the SDR basket has green lit another round of devaluation…

    *  *  *

    And the result is obvious, virtual currencies are surging once again as the Chinese find another route to get their savings out of the country…

     

    It appears the moves are becoming increasingly aggressive among those wishing to get their capital out, as we detailed here, it is starting to directly correlate with Yuan movements…

     

    And most clearly on increasingly heavy volume… Notice the surge in October and again now as capital controls increase once again…

    So, evidently, the last week or two suggest, perhaps more importantly, that China easing (and outflows implict from further devaluation) now appears to go straight to Bitcoin.
    As Overstock's Chairman noted previously: gold is great, but tough to transport; thus, forcing Chinese into Bitcoin as we previously explained:

    As we concluded previously, while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which – as every Cypriot and Greek knows by now – is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.

     

    So what happens then: well, China's propensity for gold is well-known. We would not be surprised to see a surge of gold imports into China, only instead of going to the traditional Commodity Financing Deals we have written extensively about before, where gold is merely a commodity used to fund domestic carry trades, it ends up in domestic households.

     

    However, while gold has historically been the best store of value in history and has outlasted every currency known to man, it is problematic when it comes to transferring funds in and out of a nation – it tends to show up quite distinctly on X-rays.

     

    Which is why we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented "forking" with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.

    Charts: Bloomberg

  • Kinder Morgan – Poster Boy For Bubble Finance

    Submitted by David Stockman via Contra Corner blog,

    The graph below belongs in the “what were they thinking category”.

    After Tuesday’s dividend massacre, it’s plain as day that Kinder Morgan (KMI) wasn’t the greatest thing since slice bread after all. That is, a “growth” business paying rich dividends out of rock solid profit margins and flourishing cash flow.

    In fact, it was just a momo stock on a borrowing spree.

    During the 27 quarters since the beginning of 2009, the consolidated entities which comprise KMI generated $20.8 billion of operating cash flow, but spent $24.3 billion on CapEx and acquisitions.

    So the “growth” side of the house ended-up in the red by $3.5 billion. Presumably that’s because it was “investing” for long haul value gains.

    But wait. It also had to finance those juicy dividends, and there was a reassuring answer for that, too. The payout was held to be ultra safe owing to KMI’s business model as strictly a toll gate operator in the oil and gas midstream, harvesting risk-free fees from gathering systems, transportation pipelines and gas processing plants.

    Accordingly, even when its stock price was riding high north of $40 per share, the yield was 5%. So over the last 27 quarters KMI paid out $17.3 billion in dividends from cash it didn’t have.

    It borrowed the difference, of course, swelling its net debt load from $14 billion at the end of 2009 to $44 billion at present. And that’s exactly the modus operandi of our entire present regime of Bubble Finance.

    Kinder Morgan is the poster boy.

    KMI Chart

    KMI data by YCharts

    Yes, you can chalk this off to another “lesson learned” in the Wall Street casino. After all, some definable group of investors and speculators thought they owned $98 billion of market cap a few months ago, and now their accounts are suddenly $60 billion lighter—–including about $7 billion of bottled air that evaporated from the net worth of its founder and indefatigable promoter, Richard Kinder.

    But in the alternative, perhaps its time to recognize that healthy, properly functioning free markets do not make egregious $60 billion “mistakes”  such as this one over and over. What surely led to the insane peak valuation of KMI is the relentless scramble for yield that has been triggered by 84 months of ZIRP and endless coddling of the stock market by the Fed and other central banks.

    The fact is, during the last 31 quarter (i.e. since Q1 2008) KMI has posted the grand total of $900 million in cumulative net income. This means that at its peak April valuation it was trading a 100X the totality of what it had earned during nearly an entire decade; and that during that period it paid out 17 times more in dividends than it earned.

    That’s right. The Wall Street gamblers and punters had followed the pied piper of Houston right out of Enron, and into an even greater bubble predicated on the same old scam.

    Indeed, KMI is a pipeline company just like Enron. It’s original building block, Enron Liquids Pipeline, was purchased by Richard Kinder and his partner for $40 million back in the late 1990s.

    Yet it had no more chance of being worth $100 billion than Enron had of being worth $60 billion before its implosion. It didn’t even have the razz mataz of a fiber optics trading business or a franchise to bring power and light to impoverished villages of India.

    The apologists are want to argue, of course, that net income doesn’t mean anything when it comes to valuation. Perhaps we should therefore dispense with the several billions spent annually by the SEC, DOJ and sundry state attorneys general hauling business executives to court and jail for violating GAAP.

    On the other hand, there is a reason why GAAP accounting statements require that asset write-offs, goodwill impairments, restructuring charges and stock option costs be charged to net income. At one point or another every one of these charges involved the waste of cash or other corporate assets.

    They are not merely “non-recurring” expenses. They always and everywhere generate a recurring loss of value because these charges reflect a business mistake or the impact of Mr. Market’s penchant for “creative destruction”.

    Even then, clamber on board with the LBO boys and consider the LTM results for KMI on a so-called cash flow basis. During the year ended September, it posted $5.89 billion of EBITDA and spent $3.9 billion on CapEx and $1 billion on acquisitions. So its free cash flow was a round $1 billion.

    Let’s see. At its April stock market peak, Kinder Morgan’s total unlevered enterprise value (TEV) was $140 billion. So the casino was valuing the company at 24X EBITDA, 70X EBITDA less CapEx and 140X free cash flow! 

    If you have another pipeline company in Houston, I’ve got some swampland in Florida that I will swap for it.

    If not, at least believe this. Two decades of Wall Street coddling by the Fed and 84 months of free carry trade money means that the casino is riddled with momo plays and debt-fueled scams like Kinder Morgan.

    Now would be an excellent time to get out of harm’s way – as any sensible KMI shareholder would have done long before Bloody Tuesday.

  • Bank of America: "Sadly, It Took World War II…"

    One week ago, we explained what happened to both the US economy and the stock market the last time the Fed tightened financial conditions back in 1936 when it, like now, erroneously thought the economy was strong enough to sustain it:

    “The Fed exit strategy completely failed as the money supply immediately contracted; Fed tightening in H1’37 was followed in H2’37 by a severe recession and a 49% collapse in the Dow Jones.”

    This is what it looked like courtesy of BofA strategist Michael Hartnett:

    We concluded with the following:

    As can be seen on the above, in 1938, the stock market began to recover some. However, despite the easing stocks didn’t fully regain their 1937 highs until the end of the war nearly a decade later.

     

    It needed a world war for that.

    Alas, the sad reality that a war is what will be needed to get out of the ridiculous broken market/record debt state the world finds itself in due to the unprecedented central bank intervention over the past 7 years to make the rich richer, is spreading.

    Today we read from none other than the same Bank of America strategist who points out that while the Fed’s next step may well be the opposite of success, i.e., quantitative failure, the resulting shock to the system will have to endure the same type of catharsis, as what “saved” the US financial system from the first Great Depression.

    To wit:

    The rotation from growth to value, DM to EM and so on, could occur in a bad way, following a potential Quantitative Failure.

     

    The clash between a tightening Fed, QE in Europe & Japan, and potential devaluations in China & Saudi Arabia mean 2016 “tail risks” are high in our view. BofAML forecasts a 10% devaluation of the Chinese renminbi in 2016, and regards a de-pegging of the Saudi riyal as a potential “black swan”. Like a game of Jenga, a bull market built by central banks can collapse if further BoJ/ECB QE and Fed hikes engender US dollar spikes and EM/commodity swoons, FX-wars and volatility. 1937, 1987 & 1994 were all years of “policy divergence” and all years of market crashes.

     

    If deflation intensifies, causing bear markets and recessions, investors should ultimately anticipate a major policy shift in 2016…in US/EU/Japan from QE to fiscal stimulus. A flip to fiscal stimulus is the most likely catalyst for a Great Rotation out of “deflation plays” into “inflation plays”, undoubtedly the biggest investment decision of 2016. Sadly it took the New Deal and WW2 to end the dominance of “growth” over “value” in the 1930s.

    What Mr. Hartnett failed to mention, is that in addition to forcing the rotation out of “growth” and into “value” stocks – hardly the most important consequence of, well, a global war – it also took World War 2 to pull the US out of the Second Great Depression.

    Which may also explain why currently in the Syria proxy war there already are US, British, French, German, Saudi, Turkish, Russian, Iranian (and shortly Chinese) forces in the air and on the ground. Because if the $200 trillion in global debt will not inflate itself on its own, it may just need the “push” of a few million tons of TNT to get it rolling.

  • BRaCe YouRSeLVeS…

    BRACE YOURSELVES

  • 3 Signs We've Reached 'The Top' In The Financial System

    Submitted by Simon Black via SovereignMan.com,

    It was 1720, and Paris was completely mad.

    The city’s brand new stock exchange, located at the ultra-swanky Hotel de Soissons, swarmed with citizens of all stripes looking to get rich.

    Stocks were still a novel concept back then, and the allure of getting rich overnight was so appealing that people lined up for hours to buy shares.

    The most popular was the ill-fated Mississippi Company, whose share price frequently rose up to 20% in the course of a single morning.

    It was said fortunes changed so quickly that people often woke up poor and went to bed rich.

    Newfound wealth was visible everywhere. Luxury home construction boomed. Lucky speculators erected statues of themselves. The jewelry market surged.

    Of course, it didn’t last. Within a few years, the market crashed, and the Mississippi Company went down in history as one of the greatest bubbles of all times.

    Looking back it should have been obvious.

    In fact, all great financial bubbles often have watershed moments that in many ways signify the height of lunacy.

    Joseph Kennedy, for example, famously sold all of his stocks right before the great crash in 1929 after a shoeshine boy started giving him investment advice.

    Pets.com, a symbol of the 1990s tech bubble, IPO’d just two years after it was founded with a $300 million market capitalization.

    They were so flush with capital that they spent $2 million on a tacky Superbowl ad, only to go bust 268 days later.

    Duh. It’s so obvious looking back.

    I’ve long believed our entire financial system is in a similar position.

    Western banking systems are dangerously illiquid and in many cases undercapitalized.

    Meanwhile the central banks and governments meant to support them are nearly insolvent and bankrupt themselves.

    There are a lot of flashing warning signs right now that the system is quickly running out of steam.

    China’s vast, multi-trillion dollar stockpile of foreign reserves is dropping rapidly, down by $87 billion in November, the third highest decline on record.

    A whopping $1.2 trillion worth of corporate bonds in the United States has just been downgraded by rating agencies.

    Median home prices in over a third of major American cities have once again surpassed all-time highs from the last bubble.

    US government debt is at an all-time high after rising an astounding $674 billion just in the month of November.

    It’s pretty clear there’s an incredible amount of risk in the system.

    And in the future when we look back and say, “It should have been so obvious,” here are a few events that may become famous watershed moments:

    1) The $75 billion loan

     

    AB InBev just secured an astonishing $75 BILLION loan to buy rival SABMiller.

     

    This is the biggest commercial loan in the history of the world, roughly equivalent to the GDP of Azerbaijan.

     

    It’s incredible that anyone is able to borrow an amount like this, let alone at the low rate of just 1.1% above LIBOR.

     

    It’s not a stretch to think that we may look back at this and say, ‘that was the top… what an obvious example of how much money central bankers have printed.’

     

    2) The junk bond collapse

     

    Back in 2013, the yield on ‘high yield corporate bonds’ aka junk bonds dipped below 5% for the first time in history.

     

    It shouldn’t have taken a rocket scientist to figure out how absurd that was, but now that the trend is reversing and the junk bond market is stalling investors are losing their shirts.

     

    One hedge fund that had invested heavily in junk bonds just suspended redemptions for its investors, something only really done in times of crisis.

     

    This could be the historical watershed moment that signals the beginning of the end of our massive financial bubble.

     

    3) The POPPY Loan [my favorite]

     

    San Francisco Federal Credit Union wants to help its customers buy unaffordable homes in the astonishingly overpriced region of northern California.

     

    So they just rolled out a new loan program called the Proud Ownership Purchase Program for You, or POPPY for short.

     

    POPPY loans allow customers to borrow up to $2 MILLION with absolutely no money down.

     

    And no, I am not making this up.

     

    $0 down. $2 million. At 4% interest.

     

    Oh, and you don’t have to take out private mortgage insurance (PMI) either.

     

    If you’re not familiar, PMI is something that banks typically require when borrowers don’t contribute a sufficient down payment; it insures the bank against loss in case the borrower defaults.

     

    So here the bank is taking 100% of the financial risk lending against property in an overpriced market that’s near its all-time high.

     

    And they’re doing it with your money.

     

    This is a story so familiar it’s as if they ripped it from the playbook of the 2006 housing bubble.

     

    We know what happened. We know how that bubble ended.

    Central banks have printed so many trillions of dollars that there’s hardly anything that makes sense in the financial system anymore.

    This is not a consequence-free environment… it’s time to find safety.

    Gold and silver are traditionally great hedges against systemic risk.

    Physical cash, as we’ll discuss next week, may also be a good option. Especially given that there’s minimal downside in doing so.

    Private equity investments in productive, undervalued companies are also traditionally safe bets in both good times and bad.

    Most of all, don’t ignore the risks or assume everything’s going to be OK because our politicians and central bankers are so smart that they can solve anything.

    They’re not.

    And they’ve obviously missed the message that 2006 called: he wants his bubble back.

  • What Drives Gun Sales In America

    Several days after releasing a historic front-page Op-Ed calling for gun control in the aftermath of the San Bernardino shooting, the NYT decided to actually do the analysis to find out just what it is that drives gun sales.

    In an article title “What Drives Gun Sales“, the NYT tries to spread the blame around, accusing everything from loose restrictions, to higher handgun sales, to hurricanes, but the real reason is a simple one. It begins with the letter O, ends in bama, and has made the crusade for gun control one of the core prerogatives of its presidency, as the following chart from the NYT itself shows.

     

    Which, incidentally, is what we showed just a few days ago:

     

    So in case Smith & Wesson, whose stock just hit an all time high today, wants to thank someone, just thank the top gun salesman of the century.

  • "Inconvenient Truth" Chart Of The Day

    Submitted by Jim Quinn via The Burning Platform blog,

    The three quotes below sum up my views on the chart below. 

    “Facts do not cease to exist because they are ignored.” – Aldous Huxley

     

    “That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” – Aldous Huxley

     

    “Sooner or later we all sit down to a banquet of consequences” – Robert Louis Stevenson

     

     

    The stock market is the most overvalued in history.

    You’ve been warned.

  • Is This What Happens On Monday?

    Four months ago, China decided to devalue the Yuan sending a shudder up and down collateral chains globally and forcing carry trade unwinds and derisking everywhere. Friday August 21st saw notable weakness as that weakness washed ashore in US equities.. and then Black Monday struck. The ensuing debacle stalled The Fed and shocked markets.

    The last week, we have seen China devalue the Yuan very significantly, EM capital markets turmoiling, and today, that was ashore in US equities… what happens next?

    Deja vu?

     

    Deja vu?

     

    As a reminder, JPMorgan’s “seer” Marko Kolanovic warned this week that…

    “As for near-term risks—we believe the most imminent market catalyst will be the December Fed meeting in which we are likely to see the first rate hike of the cycle.“

    But to a market which has traded mostly on technicals and program buying (and selling) in recent months, there is something far more troubling than just what the Fed will announce:

    This important event falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

    What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers, and since the vol surface of the market will be well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered, and the market could trade to a level equivalent to the strike price, somewhere in the 1,800 area, or nearly 200 points below current levels.

    Which would be a tragedy for the Fed: after all, nothing is more important to Yellen, Draghi et al, than affirmative market signaling – pointing to the (surging) market’s reaction and saying “look, we did the right thing”, just as Draghi did on Friday when he explicitly talked the market higher in the aftermath of the ECB’s disastrous announcement.

    The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

    Whether this happens remains to be seen, and we are confident the Fed’s “arm’s length” market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic’ track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an “August 24” type event.

     

    Charts: Bloomberg

  • Why Liberals Oppose a Gun Ban for People On Terror Watchlist

    Everyone agrees – other than ISIS and a handful of crazies – that we have to stop the epidemic of mass shootings  (mass shootings have skyrocketed under Obama; 5 of the 12 deadliest mass shootings in history took place during Obama’s first term alone).

    President Obama plans to introduce – through executive action – a gun ban on those on no-fly lists.   So does the governor of Connecticut.

    Sound like a no-brainer … stopping terrorists from having guns?

    But as Daily Beast points out, in an article called “My Fellow LIBERALS, DON’T Support Obama’s Terror Watch List Gun Ban“:

    As Americans we understand well how important due process is. No one, for instance, should be thrown in jail just on the say-so of some government official who declares they deserve it. Such is the behavior of tyrants, the Founding Fathers understood, and so we enshrined in our Constitution the right to counsel, the right against being compelled to testify against oneself, the right to trial by jury, etc.All of these rights are checks to ensure the government can’t simply pluck innocent people out of their lives and strip them of their life, liberty, or property. Only after fairly testing the charges against them can the government punish people with such deprivation.

     

    But none of these hurdles must be overcome for the government to put someone on a list, especially not a list like this, which is a watch list. It is a list of people that for whatever reason (a reason that no one outside the government knows) the government has decided deserve closer scrutiny of their actions.

     

    Is the government right to be concerned about these people? Maybe yes, but maybe not, and there is no way for ordinary citizens to know. Which means there is also no way for ordinary citizens to know whether any of them, even people who in no way intend to commit acts of terrorism, are also on that list.

     

    In other words, there is no way to know whether you are on that list. Nor is there any way to know how to get off it.

     

    That there is any list at all should give us all pause. It has not historically been the hallmark of a healthy democracy when governments have kept lists of people they didn’t like. It is hard to be a government of the people, by the people, and for the people when the government keeps track of the people, including those dissidents who would challenge it (which is something that in a democracy they are allowed, and even supposed, to do).

     

    ***

     

    What this proposal calls for is the government using the list as a basis to deny the people on it a right to which they were otherwise entitled.

     

    ***

     

    Based on the plain text of the Second Amendment and subsequent jurisprudence it is clear that some right is in there somewhere, and what this proposal calls for is for the government to arbitrarily and un-transparently deny this right to certain people without any sort of the due process ordinarily required. And that’s a problem.

     

    ***

     

    With this proposal we would be authorizing the government to act capriciously and unaccountably for any reason, including—and this point cannot be emphasized enough—bad reasons or no reasons at all, and against anyone, including—and this point cannot be emphasized enough, either—people just like you. There would also be no reason why, if the government could take away this right this way today, it couldn’t take away other rights you depend on having tomorrow the same way.

    Liberal journalists Jeremy Scahill and Ryan Devereaux document:

    The Obama administration has quietly approved a substantial expansion of the terrorist watchlist system, authorizing a secret process that requires neither “concrete facts” nor “irrefutable evidence” to designate an American or foreigner as a terrorist, according to a key government document obtained by The Intercept.

     

    The “March 2013 Watchlisting Guidance,” a 166-page document issued last year by the National Counterterrorism Center, spells out the government’s secret rules for putting individuals on its main terrorist database, as well as the no fly list and the selectee list, which triggers enhanced screening at airports and border crossings. The new guidelines allow individuals to be designated as representatives of terror organizations without any evidence they are actually connected to such organizations, and it gives a single White House official the unilateral authority to place entire “categories” of people the government is tracking onto the no fly and selectee lists. It broadens the authority of government officials to “nominate” people to the watchlists based on what is vaguely described as “fragmentary information.”

     

    ***

     

    The document’s definition of “terrorist” activity includes actions that fall far short of bombing or hijacking. In addition to expected crimes, such as assassination or hostage-taking, the guidelines also define destruction of government property and damaging computers used by financial institutions as activities meriting placement on a list. They also define as terrorism any act that is “dangerous” to property and intended to influence government policy through intimidation.

     

    This combination—a broad definition of what constitutes terrorism and a low threshold for designating someone a terrorist—opens the way to ensnaring innocent people in secret government dragnets. It can also be counterproductive. When resources are devoted to tracking people who are not genuine risks to national security, the actual threats get fewer resources—and might go unnoticed.

     

    “If reasonable suspicion is the only standard you need to label somebody, then it’s a slippery slope we’re sliding down here, because then you can label anybody anything,” says David Gomez, a former senior FBI special agent with experience running high-profile terrorism investigations. “Because you appear on a telephone list of somebody doesn’t make you a terrorist. That’s the kind of information that gets put in there.”

     

    ***

     

    In 2004, [liberal] Sen. Ted Kennedy complained that he was barred from boarding flights on five separate occasions because his name resembled the alias of a suspected terrorist. Two years later, CBS News obtained a copy of the no fly list and reported that it included [liberal] Bolivian president Evo Morales and Lebanese parliament head Nabih Berri. One of the watchlists snared Mikey Hicks, a Cub Scout who got his first of many airport pat-downs at age two. In 2007, the Justice Department’s inspector general issued a scathing report identifying “significant weaknesses” in the system. And in 2009, after a Nigerian terrorist was able to board a passenger flight to Detroit and nearly detonated a bomb sewn into his underwear despite his name having been placed on the TIDE list, President Obama admitted that there had been a “systemic failure.”

     

    ***

     

    The rulebook appears to invert the legal principle of due process, defining nominations as “presumptively valid.”

    Left-leaning Nation tells how two middle-aged, lesbian peace activists got put on the no-fly list.

    Bleeding heart Huffington Post noted last year:

    You could post something on Facebook or Twitter that raises “reasonable suspicion.”

     

    ***

     

    Or somebody else could just think you’re a potential terror threat.

     

    ***

     

    You could be a little terrorist-ish, at least according to someone.

     

    ***

     

    Or you could just know someone terrorist-y, maybe.

     

    ***

     

    Finally, you could just be unlucky.

     

    ***

     

    A federal judge ruled in June that the government must develop a new process under which individuals can challenge their inclusion on the no-fly list. The judge found the current process “wholly ineffective.”

    Progressive Salon reports:

    In fact, the rules for putting someone on the list are so weak that it’s acceptable for entire “categories” of people to be considered threats at a White House official’s choosing.

     

    ***

     

    Scahill told HuffPost Live. “The government will not tell you if you are on the list, but it will share its labeling of you as a ‘known or suspected terrorist’ with foreign governments and private contractors. These policies make it nearly impossible to challenge your secret designation. The American public has a right to understand the policies of what amounts to a shadow legal system.”

    Liberal Slate writes:

    The U.S. government’s reliance on “predictive judgments” to deprive Americans of their constitutionally protected liberties is no fiction. It’s now central to the government’s defense of its no-fly list—a secretive watch list that bans people from flying to or from the United States or over American airspace….

     

    Worse, the U.S. government launched its predictive judgment model without offering any evidence whatsoever about its accuracy, any scientific basis or methodology that might justify it, or the extent to which it results in errors. In our case, we turned to two independent experts to evaluate the government’s predictive method: Marc Sageman, a former longtime intelligence community professional and forensic psychologist with expertise in terrorism research, and James Austin, an expert in risk assessment in the criminal justice system. Neither found any indication that the government’s predictive model even tries to use basic scientific methods to make and test its predictions. As Sageman says, despite years of research, no one inside or outside the government has devised a model that can predict with any reliability if a person will commit an act of terrorism.

     

     

    ***

     

    Because the government’s predictive model results in the blacklisting of people who are not terrorists, individuals on the no-fly list need a meaningful method of redress—a fair way to demonstrate their “innocence” of crimes they will never commit. The government refuses to provide these safeguards in its current so-called redress system, which violates the due process guarantees of the Constitution. It refuses to tell our clients all the reasons the government has for predicting future misconduct, leaving them to guess. It won’t provide the evidence underlying those reasons, including government evidence that would undermine its predictions. And it refuses to provide a hearing for our clients to press their case to a neutral decision-maker and challenge government witnesses’ hearsay or biases.

    Indeed, the government has a history of labeling dissident as terrorists.  Any type of criticism of the fatcats may get you labeled as a terrorist in post-9/11 America.

    Are any of the government’s so-called “terrorism” programs really only focused on stopping terrorism?  Of course not.

    Liberals might remember that George W. Bush said that “you’re either with us or against us” … and stripped Americans of many of our liberties.

    One specific example: spying on Americans is all about power, control and money … not protecting Americans from terrorists.

    Another example: indefinite detention.

    So we've got to stop mass shootings … but using a Kafkaesque, fatally flawed watchlist system is not the way.

    Postscript: What does the Daily Beast article linked above mean when it says that – while liberals may dislike the Second Amendment – it’s still a Constitutional right?

    A top liberal Constitutional law expert explains:

    Like many academics, I was happy to blissfully ignore the Second Amendment. It did not fit neatly into my socially liberal agenda.

     

    ***

     

    It is hard to read the Second Amendment and not honestly conclude that the Framers intended gun ownership to be an individual right. It is true that the amendment begins with a reference to militias: “A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed.” Accordingly, it is argued, this amendment protects the right of the militia to bear arms, not the individual.

     

    Yet, if true, the Second Amendment would be effectively declared a defunct provision. The National Guard is not a true militia in the sense of the Second Amendment and, since the District and others believe governments can ban guns entirely, the Second Amendment would be read out of existence.

     

    ***

     

    More important, the mere reference to a purpose of the Second Amendment does not alter the fact that an individual right is created. The right of the people to keep and bear arms is stated in the same way as the right to free speech or free press. The statement of a purpose was intended to reaffirm the power of the states and the people against the central government. At the time, many feared the federal government and its national army. Gun ownership was viewed as a deterrent against abuse by the government, which would be less likely to mess with a well-armed populace.

     

    Considering the Framers and their own traditions of hunting and self-defense, it is clear that they would have viewed such ownership as an individual right — consistent with the plain meaning of the amendment.

     

    None of this is easy for someone raised to believe that the Second Amendment was the dividing line between the enlightenment and the dark ages of American culture. Yet, it is time to honestly reconsider this amendment and admit that … here’s the really hard part … the NRA may have been right. This does not mean that Charlton Heston is the new Rosa Parks or that no restrictions can be placed on gun ownership. But it does appear that gun ownership was made a protected right by the Framers and, while we might not celebrate it, it is time that we recognize it.

    And liberal icons Gandhi and the Dalai Lama accept gun ownership as moral.

  • Watch Jimmy Carter Ban Iran Immigrants And Deport Students During The Hostage Crisis

    One of Donald Trump’s recurring refrains ever since the San Bernardino shooting, ostensibly the one which prompted him to declare he would bar Muslims from entering the country – an announcement which has unleashed an unprecedented media scandal – is that the “US is at war.” Whether or not that is the case remains to be seen (we expect tens of thousands of US troops to be deployed soon, this time  without the protective cloak of CIA “covert ops”) but what is certain is that Trump is merely proposing to do what Democrat Jimmy Carter did back on April 7, 1980, when he banned Iranians from the US and deported Iranian students during the Iran hostage crisis – a time when some could argue the US was likewise in war with the Iranian regime.

    Courtesy of the Gateway Pundit, here is a screengrab from the ABC News report of President Carter’s Iran speech regarding US cutting relations with Khomeini’s regime in Iran.

     

    The full video of Carter’s speech is below:

    ABC Breaking News | Latest News Videos

     

    And here is the full transcript from ABC News:

    Ever since Iranian terrorists imprisoned American Embassy personnel in Tehran early in November, these 50 men and women—their safety, their health, and their future—have been our central concern. We’ve made every effort to obtain their release on honorable, peaceful, and humanitarian terms, but the Iranians have refused to release them or even to improve the inhumane conditions under which these Americans are being held captive.

     

    The events of the last few days have revealed a new and significant dimension in this matter. The militants controlling the Embassy have stated they are willing to turn the hostages over to the Government of Iran, but the Government has refused to take custody of the American hostages. This lays bare the full responsibility of the Ayatollah Khomeini and the Revolutionary Council for the continued illegal and outrageous holding of the innocent hostages. The Iranian Government can no longer escape full responsibility by hiding behind the militants at the Embassy.

     

    It must be made clear that the failure to release the hostages will involve increasingly heavy costs to Iran and to its interests. I have today ordered the following steps.

     

    First, the United States of America is breaking diplomatic relations with the Government of Iran. The Secretary of State has informed the Government of Iran that its Embassy and consulates in the United States are to be closed immediately. All Iranian diplomatic and consular officials have been declared persona non grata and must leave this country by midnight tomorrow.

     

    Second, the Secretary of the Treasury will put into effect official sanctions prohibiting exports from the United States to Iran, in accordance with the sanctions approved by 10 members of the United Nations Security Council on January 13 in the resolution which was vetoed by the Soviet Union. Although shipment of food and medicine were not included in the U.N. Security Council vote, it is expected that exports even of these items to Iran will be minimal or nonexistent.

     

    Third, the Secretary of Treasury will make a formal inventory of the assets of the Iranian Government, which were frozen by my previous order, and also will make a census or an inventory of the outstanding claims of American citizens and corporations against the Government of Iran. This accounting of claims will aid in designing a program against Iran for the hostages, for the hostage families, and other U.S. claimants. We are now preparing legislation, which will be introduced in the Congress, to facilitate processing and paying of these claims.

     

    Fourth, the Secretary of Treasury [State] and the Attorney General will invalidate all visas issued to Iranian citizens for future entry into the United States, effective today. We will not reissue visas, nor will we issue new visas, except for compelling and proven humanitarian reasons or where the national interest of our own country requires. This directive will be interpreted very strictly.

  • Here Is "Gate" #2: $1.3 Billion Hedge Fund Founded By Ex-Bear Stearns Traders, Just Suspended Redemptions

    Yesterday, in the aftermath of the shocking news that the Third Avenue Focused Credit Fund was liquidating and had gated investors due to its “illiquid” portfolio, we had one simple prediction:

    “What this means is that now that the dreaded “gates” are back, investors in all other junk bond-focused hedge funds, fearing they too will be gated, will rush to pull what funds they can and submit redemption requests, in the process potentially unleashing a liquidity – and liquidation – scramble within the hedge fund community, which will first impact bonds and then, if the liquidity demands continue, equities as well.“

    We had to wait just over 24 hours to be proven correct, because moments ago Dow Jones reported that the $1.3 billion Manhattan-based Stone Lion Capital, a distress-focused hedge fund, has just suspended redemptions after “substantial requests.”

    The WSJ adds:

    It is the latest example of the sudden crunch facing traders across Wall Street looking to sell beaten-down positions.

     

    Stone Lion manages around $1.3 billion and specializes in distressed debt and other risky investments that have plunged in value lately.

     

    It received “substantial redemption requests” in its oldest hedge fund, the $400 million Stone Lion Portfolio LP, precipitating the decision, the firm said.

    At least the had a pretty logo:


     

    The management team via CapIQ:

     

    And here is the punchline:

    • Alan Jay Mintz, CPA, a co-founder of Stone Lion Capital was Co-Head of the Distressed Debt and High Yield trading group at Bear Stearns
    • Gregory Augustine Hanley, a co-founder of Stone Lion Capital was Co-Head of the Distressed Debt and High Yield trading group at Bear Stearns

    One really couldn’t make this up.

  • Putin Orders Military To "Immediately Destroy" Any Threat To Russian Forces

    Russian President Vladimir Putin has ratcheted up the rhetoric in what appears to be one step closer to the potential for direct conflict with The West. While not detailing 'who' he was focued on, amid the obvious Turkey-Russia tensions, Putin told a session of the Defense Ministry's collegium that "I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed."

    During the meeting of the most senior defense officials, ITAR TASS reports that Putin also warned against "those who will again try to organize any provocations against our servicemen."

     "We have already taken additional measures to ensure security of Russian servicemen and air base. It was strengthened by new aviation groups and missile defense systems. Strike aircraft will now carry out operations under cover of fighter jets,"

    Putin said that the Russian military have caused a substantial damage to terrorists in Syria, adding that the actions of the Russian Armed Forces are worthy of praise.

    "The combined operation of the Aerospace Defence Forces and the Navy, the use of newest high precision weapons systems has caused a serious damage to the terrorist infrastructure, thus qualitatively changing the situation in Syria," the president said.

    The president also ordered the defense ministry to coordinate actions in Syria with Israel’s command post and the US-led international coalition.

    "It’s important to develop cooperation with all countries really interested in destroying terrorists. I am talking about contacts on ensuring flight safety with the command post of Israel’s air force and forces of the US-led coalition," Putin said.

    According to the official, terrorists in Syria pose a direct threat to Russia and Moscow’s actions are carried out to protect the country rather than due to abstract interests.

    "Our soldiers in Syria are, first and foremost, defending their country. Our actions there aren’t motivated by some obscure and abstract geopolitical interests or a desire to train our forces and test new weapons – which is of course an important goal as well. Our main objective is to avert a threat to the Russian Federation,"

    As we noted previously, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 

    On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.

  • Prince Of World Beheading Champion Saudi Arabia Calls Trump "A Disgrace To America"

    You know you’ve ‘made it’ when the prince of one of the world’s biggest human rights abuser (and leading ‘beheader’) nations calls you a “disgrace to America.”

     

    From “respected investor” – just ask him about Citi and Twitter – Prince Alwaleed bin Talal…

     

     

    We wonder if all these detractors and critics realize they are all, massively boosting Trump’s case? Probably not.

    Meanwhile, we anxiously await Trump’s twitter response.

  • Stocks Slammed To Worst Week Since Black Monday Amid Crude & Credit Carnage

    Some folks were suddenly forced to sell…

    And for those "shocked" that credit markets sparked this…

    Before we start, summarizing the bloodbath…

    • Russell 2000 (Small Caps) Down 4.8% – worst week since May 2012
    • Trannies Down 4.8% – worst week in 4 months (Black Monday)
    • S&P 500 Down 3.5% – worst week in 4 months (Black Monday)
    • FANGs Down 3.75% – worst week in 3 months
    • HYG (HY Bond ETF) Down 3.75% – worst week since March 2009
    • HY CDX Up 60bps – biggest weekly spike in spreads since Dec 2014
    • USD Index Down 2.5% – worst 2-week drop in 4 months
    • JPY Stronger by 1.9% – worst week in 4 months
    • CAD Weaker by 2.75% – worst week in 5 months
    • EUR Stronger by 3.75% – best 2 week gain since Sept 2012
    • Yuan down 6 weeks in a row to weakest since July 2011 – longest losing streak in history
    • WTI Crude Down 10.9% – worst week since Dec 2014
    • 5Y Yield Drops 13bps – biggest absolute drop in 2 months
    • 30Y Yield Drops 13bps – biggest absolute drop since March 2015

     

    The biggest news of the day/week was the sudden awakening of the rest of the world that credit's collapse is real…

     

    This was the biggest weekly collapse in High-Yield Bonds since March 2009… with today's move, HYG wipes out all total return back to 12/12/2012 (assuming divs reinvested)

    (h/t @groditi)

     

    Weakness in US equities began early this morning after the IEA report sent crude crashing…Dow Futs down 400 from overnight highs!

     

    Ugly day with high beta Nasdaq and Small Caps smashed lower…

     

    On the week Trannies and Small Caps were the biggest losers…

     

    Financials and Energy were butchered this week…

     

    Dow joins S&P, Russell, and Trannies in red post-Paris… we're gonna need more radicals!!

     

    Small Caps were monkey-hammered…

     

    FANGs had their worst week in 3 months…

     

    Led by NFLX..

     

    But Guns were in great demand…

     

    VIX term structure inverted short-term…

     

    HYG had its worst day since Aug2011…

     

    Treasury yields collaped…

     

    2Y Yields dropped 6.5bps today… the biggest drop in 3 months…

     

    The FX markets also turmoiled… USD weakness against all the majors (but EM FX and commodity producers crushed)…

     

    The Yuan plunged for the 6th week in a row…

     

    EM FX crashed by most since June 2013 (Taper Tantrum)…

     

    Gold rallied today, but ended the week lower (along with silver) despite a weaker dollar. Copper rallied, crude didn't…

     

    Black Gold Baumgartner'd…

     

    Charts: Bloomberg

    Bonus Chart: What Happens Next?

  • Weekend Reading: Risk – That Is All

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    While the world patiently waits for Janet Yellen to raise interest rates this month, the markets have been unable to decide as of yet whether such an event is good or bad thing.

    As I discussed earlier this week, there is an ongoing belief that despite the rest of the world struggling with deflationary pressures and weak economic growth pushing Central Bankers globally toward further negative interest rate environments and more liquidity, the U.S. can remain an “island of economic prosperity.” To wit:

    “International And Emerging Market Divergence. As I stated above, there is currently a belief that the U.S. can remain isolated from the rest of the world.  Given the global interconnectedness of the world today, there is little ability for the U.S. to permanently diverge from the rest of the world. As shown below, historically when international and emerging markets have declined, the U.S. has been soon to follow.”

    SP500-vs-International-120815

    The reality is that such divergences have rarely lasted for very long and the ultimate reversion to reality have been brutally painful to investors.

    This week’s reading list is a compilation of articles and research notes dedicated to understanding more clearly the “risks” that are currently building within the financial markets and economic environment. What you choose to do with that information is entirely up to you, however, ignoring it has generally never worked out well.

    1) Give Me Only The Good News by Jeremy Grantham via GMO

    “This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff ‘that just ain’t so.’

     

    We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.”

    But Also Read: Voters Know The American Dream Is Over by Charles Hugh-Smith via OfTwoMinds

     

    2) Reasons “Not To Hike” Pile Up by Caroline Baum via MarketWatch

    “What do Larry Summers, market monetarists, gold bugs and other hard-money types have in common?

     

    No, it’s not a trick question, but it yields a surprising answer. Three different economic philosophies are aligned in challenging the wisdom of the Federal Reserve’s stated intention to raise interest rates next week.

     

    The better question is why the Fed is determined to raise rates now. The world’s major economies are diverging, with Europe, Japan and China requiring additional stimulus from their central banks. The dollar is likely to strength further, crimping U.S. exports and restraining import prices. A renewed decline in oil prices is going to prevent inflation from moving up to the Fed’s 2% target, a premise for any Fed action.

    The 5% unemployment rate remains the only reason for starting to normalize rates, and that’s based on the Fed’s flawed Phillips-Curve thinking. A sustained increase in wages is more hope than reality at this point. And since wages lag prices, not the other way around, forecasts of higher compensation may have to wait.”

    FedBalanceSheet-121015

    But Also Read: OK Jobs Report Paves Way For $6.8B Fed Giveaway by Louis Woodhill via Real Clear Markets

     

    3) Rare Data Point Sighting Sends Warning by Tim Mullaney via CNBC

    “The S&P 500 has a big performance issue that should be a focus for investors: Too much of the index return is coming from too few of its stocks.

     

    The 10 most valuable companies in the market are up roughly 21.4 percent as a group this year, versus a loss of 2.6 percent for the rest of the stock market.

     

    That 24 percentage-point spread between the biggest stocks and the index as a whole is the widest since 1999, heading into the dot-com bust.”

     

    SP500-LeaderBoard-121015

    But Also Read: A 20-Year-Old Perversion In The Stock Market Is Ending by Sam Ro via Business Insider

    Contra-Take: Is It Time To Go Full Zero Hedge? by Cam Hui via Humble Student Of The Markets

     

    4) The Junk Bond Market’s Early Warning Signals by Ben Wright via The Telegraph

    “The relatively high global equity prices point to expectations of strong economic growth; the historically very high bond prices point to expectations of weak economic growth. How does one reconcile these two wildly inconsistent worldviews? The short answer is quantitative easing, which has pumped up asset values far beyond what the fundamentals would justify. Any bad news that comes along – and there has been a fair bit of that in recent months – merely serves to highlight that growing disconnect.

     

    With the paths of the US Federal Reserve, the Bank of England and the European Central Bank starting to diverge as we enter the new year, it is clear that, at the very least, investors are in for a bumpy ride in 2016.”

    But Also Read: Corporate Loan Charge-Offs & Delinquencies Surge by Pater Tenebrarum via Acting-Man Blog

    Charge-offs-and-Delinquencies-900x541

    And Also Read: This Time Is Not Different For Credit by David Keohane via FTAlphaville

     

    5) When Forward Guidance Leads To Misdirection by Joe Calhoun via Alhambra Partners

    “As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.”

    But Also Read: Fed’s Decisions Really Come Down To Guessing by Alex Pollock via AEI

    MUST READS

    “There are few things more important than the preservation of capital” – Dick Davis

  • Carl Icahn Warns "Meltdown In High Yield Is Just Beginning"

    Amid the biggest weekly collapse in high-yield bonds since March 2009, Carl Icahn gently reminds investors that he saw this coming… and that it's only just getting started!

    As we warned here, and confirmed here, something has blown-up in high-yield…

     

    With the biggest discount to NAV since 2011…

     

    The carnage is across the entire credit complex… with yields on 'triple hooks' back to 2009 levels…

     

    As fund outflows explode..

    And here's why equity investors simply can't ignore it anymore…

     

    If all of that wasn't bad enough… the week is apocalyptic…

     

    Icahn says, it's only just getting started…

    He followed up with a brief appearance on CNBC:

    As we detailed previously, to be sure, no one ever accused Carl Icahn of being shy and earlier this year he had a very candid sitdown with Larry Fink at whom Icahn leveled quite a bit of sharp (if good natured) criticism related to BlackRock’s role in creating the conditions that could end up conspiring to cause a meltdown in illiquid corporate credit markets. Still, talking one’s book speaking one’s mind is one thing, while making a video that might as well be called “The Sky Is Falling” is another and amusingly that is precisely what Carl Icahn has done. 

    Over the course of 15 minutes, Icahn lays out his concerns about many of the issues we’ve been warning about for years and while none of what he says will come as a surprise (especially to those who frequent these pages), the video, called “Danger Ahead”, is probably worth your time as it does a fairly good job of summarizing how the various risk factors work to reinforce one another on the way to setting the stage for a meltdown. Here’s a list of Icahn’s concerns:

    • Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso’s Women of Algiers (Version O) for proof of this.
    • Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. 
    • Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there’s something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn’t exactly been quiet about his opinion with regard to Apple’s buyback program (he does add that healthy companies with lots of cash should repurchases shares). 
    • Fake earnings: Companies are being deceptive about their bottom lines.
    • Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates. 
    • Corporate taxes are too high: Inversions are costing the US jobs.

    Ultimately what Icahn has done is put the pieces together for anyone who might have been struggling to understand how it all fits together and how the multiple dynamics at play serve to feed off one another to pyramid risk on top of risk. Put differently: one more very "serious" person is now shouting about any and all of the things Zero Hedge readers have been keenly aware of for years.

    Full video below.

     

    * * *

    Finally, here is Bill Gross also chiming in:

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Dec 11

Today’s News December 11, 2015

  • Jeremy Grantham Urges "Easily Manipulated" Americans To "Become More Realistic" About World's Demise

    Authored by Jeremy Grantham via GMO,

    Give Me Only Good News!

    “It ain’t what you don’t know that gets you into trouble.    It’s what you know for sure that just ain’t so.”

    (Attributed to Mark Twain)

    It takes little experience in the investment business to realize that investors prefer good news. As a bear in the bull market of 1999 I was banned from an institution’s building as being “dangerously persuasive and totally wrong!” The investment industry also has a great incentive to encourage this optimistic bias, for little money would be made if the market ticked slowly upwards. Five steps forward and two back are far more profitable.

    Similarly, we environmentalists were shocked to realize how profoundly the general public preferred to believe good news on our climate, even if it meant disregarding the National Academies of the world. The fossil fuel industry, not surprisingly, encouraged this positive attitude. They had billions of dollars to protect. If the realistic information were to be widely believed, most of their assets would be stranded.

    When dealing with realistic limits to growth it is also obvious how reluctant everyone is to accept the natural mathematical limits: There simply cannot be compound growth in a finite world. A modest 1% growth compounded for the 3,000 years of Ancient Egypt’s population would have multiplied its economic output by nine trillion times!1 Yet, the improbability of feeding ten billion or so global inhabitants in 50 years is shrugged off with ease. And the entire economic and political system appears eager to encourage optimism on resources for it is completely wedded to the virtues of quantitative growth forever.

    Hard realities in these three fields are inconvenient for vested interests and because the day of reckoning can always be seen as “later,” politicians can always find a way to postpone necessary actions, as can we all:  “Because markets are efficient, these high prices must be reflecting the remarkable potential of the internet”; “the U.S. housing market largely reflects a strong U.S. economy”; “the climate has always changed”; “how could mere mortals change something as immense as the weather”; “we have nearly infinite resources, it is only a question of price”; “the infinite capacity of the human brain will always solve our problems.”

    Having realized the seriousness of this bias over the last few decades, I have noticed how hard it is to effectively pass on a warning for the same reason: No one wants to hear this bad news. So a while ago I came up with a list of propositions that are widely accepted by an educated business audience. They are widely accepted but totally wrong. It is my attempt to bring home how extreme is our preference for good news over accurate news. When you have run through this list you may be a little more aware of how dangerous our wishful thinking can be in investing and in the much more important fields of resource (especially food) limitations and the potentially life-threatening risks of climate damage. Wishful thinking and denial of unpleasant facts are simply not survival characteristics.

    Let me start with one of my favorites. For the 50 years I have been in America, Business Week and The Wall Street Journal have been telling us how incompetent at business the French are and how persistently we have been kicking their bottoms. If only they could get over their state socialism and their acute Eurosclerosis. And as far as I can tell we have generally accepted this thesis. Yet Exhibit 1 shows what has actually happened to France’s median hourly wage. It has gone from 100 to 280. Up 180% in 45 years!  Japan is up 140% and even the often sluggish Brits are up 60%. But the killer is the U.S. median wage. Dead flat for 45 years! These are the uncontestable facts. So, all I can say is that it is just as well the French have not been kicking our bottoms. But how is it that we can believe so firmly in something that just ain’t so, and by such a convincing amount?

    Exhibit 2 examines the proposition that although our wages may have done poorly, we are still the place that creates jobs. The left-hand panel certainly seems to confirm that with our modest official unemployment rate for 25- to 54-year-olds of below 5% compared to 9% for the E.U. The righthand panel, though, shows the true picture. It looks at the unemployment rate adjusted for the nonparticipation rate, the percentage of all 25- to 54-year-olds who are not actually working (i.e., it includes those discouraged, uninterested, or even sitting in jail). There are now 21% not employed in the U.S. compared to 20.5% for the E.U., and our long-suggested job creating skills are looking a little thin.

    The problem lies in the so-called participation rate, as shown in Exhibit 3. The U.S. was one of the leaders in the percentage of women working, and from 1972 to a peak in 1997 the U.S. participation rate rose from 70% to 80%. From 1984 on, the U.S. spent 20 years ahead of most other countries in participation rates, but after 1997 something appears to have gone wrong: While other developed countries continued to increase their participation rate, that of the U.S. declined from first to last in fairly rapid order.

    What a far cry this reality is from the view generally accepted by our business world.

    Exhibit 4 examines our belief that we have the best health care system in the world. And why shouldn’t we, given the money we put in (left-hand bar chart), over twice the average cost paid by the E.U. But the right-hand bar chart shows what we get back. Two years less life than the median. And watch out for when the Turks, Poles, and Czechs cut back on smoking, for then we may find our way to the bottom of the list.

    But if you really want to be worried about our comparative health you should take a look at  Exhibit 5, which comes hot off the press from the guy who was just awarded the Nobel Prize for Economics (wait a minute, must be some mistake, this work seems perfectly useful). The data shows the death rate for U.S. whites between the ages of 45 and 54, which happily these days is when very few people drop off. Since 1990 there has been a quite remarkable decline for other developed countries, about a one-third reduction, as you can see, including for U.S. Hispanics. But for U.S. whites there is a slight increase!  Further analysis for that group reveals that the general increase is caused by quite severe increases in deaths related to alcoholism, drug use, and suicides. Had the rate for U.S. whites declined in line with the others there would have been about 50,000 fewer deaths a year!  (For scale, this is nearly twice the yearly number of traffic deaths in the U.S.)

    You have to be careful these days when you suggest connections. For example, people have been told off for proposing that dramatic increases in population can help destabilize societies. Syria had two and a half million people when I was born and has 29 million people now. You can guess how much worse the situation is because of this but you should not talk about it. Similarly, Prince Charles has been extensively criticized by professors in The Guardian for suggesting that a several-year drought in Syria exacerbated social tensions by ruining many farmers. As if!  (You cannot prove precisely what effect climate damage had, but you certainly cannot prove that it did not have a large effect. It certainly had a contributory effect.)

    With that caveat, let me seriously suggest a connection between Exhibit 1, which shows no increase in the U.S. median wage for over 40 years following a wonderful prior 30 years of a rise of over 3% a year, and Exhibit 5, which shows the uptick in unnecessary deaths among U.S. non-Hispanic whites aged 45 to 54. This is precisely the age group that was led to expect better for themselves and much better for their children. But those aspirations have not been generously fulfilled. The U.S. Hispanics, in contrast, mostly arrived later and had different expectations. All in all, this data is quite bleak. The point here is that it bears absolutely no similarity to the more optimistic belief set that is generally accepted.

    The data presented in Exhibit 6 examines the proposition that “more and more goes to the government and soon they will have everything.”  You have heard that many times recently in the political debate. Sorry, “bull sessions.”  You can see that the U.S. share going to the government in taxes is about the least in the developed world and that it has barely twitched for 50 years. Yet, apparently we have been steadily going to hell. How is it possible that such a view is given such credence in the face of the data, which is, after all, official and simple, not ingeniously manipulated by some perfidious Brit. (Yes, I admit it, I consider myself American or British depending on whether the context is favorable or not.)

    “At least we live in a fair society” is the proposition examined in Exhibit 7. The Gini Ratio is a measure of income inequality. Low is good. Only Turkey and Mexico outflank the U.S. as more unequal amongst the richer countries. I was a bit surprised to see how high the U.S. already was in 1980 (I had been drinking from the same culture dissemination trough after all), but it was at least importantly lower.

    “We have a democracy where people really count” is an idea that is built into the background cultural noise. Exhibit 8 (also covered last quarter) on the left shows how the probability of a bill passing through Congress is affected by the general public’s enthusiasm or horror. In a nutshell, not at all!  The financial elite, on the other hand, can double the chance of a bill passing or, much more disturbingly, can completely block passage. Clearly these facts are totally incompatible with the concept of participatory democracy and equally entirely at odds with the much more favorable and optimistic beliefs we share about our democracy. We really, really want to believe good news and to believe that we have a superior system that only needs fine-tuning. But, it ain’t necessarily so.

    “We have the best education system in the world” is a proposition that goes without saying in Boston, with Harvard, MIT, and literally dozens of other universities. But Exhibit 9 shows the more downto-earth fact: mediocrity.

    Less than mediocre, though, is the data in Exhibit 10, which shows the percentage of 3- to 4-year-olds enrolled in school. This is an area of emphasis where the returns on investment are said to be particularly high – six for one – although I would not like to guarantee such returns myself. However, our relatively low ranking at the start of the process is not heartwarming.

    Exhibit 11 moves on to our production of CO2, which per capita is the largest in the world, just ahead of Australia. The two of us also worry the least, except for one Middle Eastern oil producer. There is a nice, i.e., interesting, negative correlation here of -0.54. Not bad at all. The greater your fossil fuel intensity, the more ingenious your fossil fuel propaganda is to create doubt and the more we are encouraged to think beautiful optimistic thoughts: clean coal and clean oil. And even as more people can see the climate damage, the richer countries can convince themselves that the damage is not that serious. Poorer countries, meanwhile, do not have that luxury and about 20% more are actively concerned (about 80% vs. 60%) than are the richer countries.

    And this brings me to the last and my absolute favorite of these false propositions, which I label, “I wish the U.S. government wouldn’t give so much to foreign countries (especially when times are bad)!” Now, I do not think I have met a single American who does not believe that the U.S. government is generous in its foreign aid. Yet, it just ain’t so, and by a remarkable degree. Exhibit 12 shows what other developed countries give, with the usual goody-goody Sweden leading the way with 1.4% of their GDP and the U.K. having quite recently shot up to 0.8%, for once ahead of Japan and Germany. Dead last is the U.S. at 0.2% of GDP, which it has averaged forever. This is the item with the biggest and most permanent gap between reality and perception. And, as always, the misperception is in favor of the favorable, the data that we would wish to be true.

    Conclusion

    This is more or less the best I can do to prove the point. We in the U.S. have a broad and heavy bias away from unpleasant data. We are ready to be manipulated by vested interests in finance, economics, and climate change, whose interests might be better served by our believing optimistic stuff “that just ain’t so.”  We are dealing today with important issues, one so important that it may affect the long-term viability of our global society and perhaps our species. It may well be necessary to our survival that we become more realistic, more willing to process the unpleasant, and, above all, less easily manipulated through our need for good news.

  • China 'Stealth' Devaluation Continues – Yuan Plunges For 6th Day, Default Risk Soars, Fosun Bonds Crash

    USDCNY broke above 6.4500 for the first time since the August devaluation, extending its post-IMF plunge to 6 days. This is the largest and longest streak of weakness since March 2014 as China seems to have taken the SDR-inclusion as blessing to devalue its currency drip by drip. Default risk is once again stomping higher as CDS surge from 94bps to 112bps (2-month highs). The biggest news in China tonight is the disappearance of Fosun International's Chairman, China's 17th richest man (and the collapse in the company's bonds, since stocks are suspended).

    For the 6th day in a row (something which has not happened since March 2014), Yuan has plunged, now below the Augsut devaluation lows….

     

    The pressure on onshore Yuan (above) is being driven by even more significant selling pressure in offshore Yuan as outflows appear to be accelerating… and PBOC seems happy to "allow" the onshore Yuan to devalue alongside it

     

    to its lowest since July 2011…

     

    And Chinese default risk is on the rise…

     

    But what everyone is talking about is the disappearance of Fosun International's chairman.

    Its USD 2020 bonds plunged by a record and the company suspended its shares in Hong Kong after Caixin magazine reported that billionaire Chairman Guo Guangchang had gone missing.

     

    The shares declined for a sixth consecutive day on Thursday in Hong Kong, losing 1 percent to close at HK$13.34, and tumbled more than 11 percent to $1.55 in over-the-counter trading in New York. Fosun International dollar bonds fell by a record, with the $400 million of 6.875 percent bonds due in 2020 slumping 16.1 cents to 88.3 cents on the dollar as of 9:10 a.m. in Hong Kong.

    Closely held Fosun Group, which controls Fosun International, has “lost contact” with Guo, 48, the magazine said, citing people it didn’t identify.

    “The news that the chairman went missing will take a toll on the bond prices and until the company can clarify the situations, we’d expect further weakness in the near term,” Nuj Chiaranussati, a Singapore-based debt analyst at Gimme Credit LLC.

    Broadly speaking, Chinese stocks continue to drift lower after the rescue from carnage into month-end…

     

    Charts: Bloomberg

  • War Is On The Horizon: Is It Too Late To Stop It?

    Authored by Paul Craig Roberts,

    One lesson from military history is that once mobilization for war begins, it takes on a momentum of its own and is uncontrollable.

    This might be what is occuring unrecognized before our eyes.

    In his September 28 speech at the 70th Anniversity of the United Nations, Russian President Vladimir Putin stated that Russia can no longer tolerate the state of affairs in the world. Two days later at the invitation of the Syrian government Russia began war against ISIS.

    Russia was quickly successful in destroying ISIS arms depots and helping the Syrian army to roll back ISIS gains. Russia also destroyed thousands of oil tankers, the contents of which were financing ISIS by transporting stolen Syrian oil to Turkey where it is sold to the family of the current gangster who rules Turkey.

    Washington was caught off guard by Russia’s decisiveness. Fearful that the quick success of such decisive action by Russia would discourage Washington’s NATO vassals from continuing to support Washington’s war against Assad and Washington’s use of its puppet government in Kiev to pressure Russia, Washington arranged for Turkey to shoot down a Russian fighter-bomber despite the agreement between Russia and NATO that there would be no air-to-air encounters in Russia’s area of air operation in Syria.

    Although denying all responsibility, Washington used Russia’s low key response to the attack, for which Turkey did not apologize, to reassure Europe that Russia is a paper tiger. The Western presstitutes trumpeted: “Russia A Paper Tiger.”

    The Russian government’s low key response to the provocation was used by Washington to reassure Europe that there is no risk in continuing to pressure Russia in the Middle East, Ukraine, Georgia, Montenegro, and elsewhere. Washington’s attack on Assad’s military is being used to reinforce the belief that is being inculcated in European governments that Russia’s responsible behavior to avoid war is a sign of fear and weakness.

    It is unclear to what extent the Russian and Chinese governments understand that their independent policies, reaffirmed by the Russian and Chinese presidents On September 28, are regarded by Washington as “existential threats” to US hegemony.

    The basis of US foreign policy is the commitment to prevent the rise of powers capable of constraining Washington’s unilateral action. The ability of Russia and China to do this makes them both a target.

    Washington is not opposed to terrorism. Washington has been purposely creating terrorism for many years. Terrorism is a weapon that Washington intends to use to destabilize Russia and China by exporting it to the Muslim populations in Russia and China.

    Washington is using Syria, as it used Ukraine, to demonstrate Russia’s impotence to Europe— and to China, as an impotent Russia is less attractive to China as an ally.

    For Russia, responsible response to provocation has become a liability, because it encourages more provocation.

    In other words, Washington and the gullibility of its European vassals have put humanity in a very dangerous situation, as the only choices left to Russia and China are to accept American vassalage or to prepare for war.

    Putin must be respected for putting more value on human life than do Washington and its European vassals and avoiding military responses to provocations. However, Russia must do something to make the NATO countries aware that there are serious costs of their accommodation of Washington’s aggression against Russia. For example, the Russian government could decide that it makes no sense to sell energy to European countries that are in a de facto state of war against Russia. With winter upon us, the Russian government could announce that Russia does not sell energy to NATO member countries. Russia would lose the money, but that is cheaper than losing one’s sovereignty or a war.

    To end the conflict in Ukraine, or to escalate it to a level beyond Europe’s willingness to participate, Russia could accept the requests of the breakaway provinces to be reunited with Russia. For Kiev to continue the conflict, Ukraine would have to attack Russia herself.

    The Russian government has relied on responsible, non-provocative responses. Russia has taken the diplomatic approach, relying on European governments coming to their senses, realizing that their national interests diverge from Washington’s, and ceasing to enable Washington’s hegemonic policy. Russia’s policy has failed. To repeat, Russia’s low key, responsible responses have been used by Washington to paint Russia as a paper tiger that no one needs to fear.

    We are left with the paradox that Russia’s determination to avoid war is leading directly to war.

    Whether or not the Russian media, Russian people, and the entirety of the Russian government understand this, it must be obvious to the Russian military. All that Russian military leaders need to do is to look at the composition of the forces sent by NATO to “combat ISIS.” As George Abert notes, the American, French, and British aircraft that have been deployed are jet fighters whose purpose is air-to-air combat, not ground attack. The jet fighters are not deployed to attack ISIS on the ground, but to threaten the Russian fighter-bombers that are attacking ISIS ground targets.

    There is no doubt that Washington is driving the world toward Armageddon, and Europe is the enabler. Washington’s bought-and-paid-for-puppets in Germany, France, and UK are either stupid, unconcerned, or powerless to escape from Washington’s grip. Unless Russia can wake up Europe, war is inevitable.

    Have the totally evil, dumbshit neocon warmongers who control the US government taught Putin that war is inevitable?

  • Credit Suisse Warns On China: "Some Companies Are Having To Borrow To Pay Staff Salaries"

    During October, the credit impulse in China rolled over and died. 

    To be sure, the writing was on the wall before the data was released. Early in November, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. As we noted at the time, that would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.  “One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI added. 

    Sure enough, when the numbers came in, new RMB loans to households fell 60% M/M and new loans to corporates declined nearly 40% from September. 

    To some, this was a shock. After all, multiple rate cuts and round after round of liquidity injections should have given banks plenty of dry powder to lend. But as we discussed at length (see here), liquidity isn’t the issue. 

    An acute overcapacity problem means corporates don’t need to invest and even if they did, overleveraged borrowers are beginning to have problems servicing their debt which makes banks reluctant to extend credit. Indeed, we really have no idea what the NPL picture really looks like in China thanks to the fact that lenders are encouraged to roll debt and thanks to the fact that some 40% of credit risk is carried off balance sheet or classified as something other than what it is (i.e. carried as an “investment”). 

    So what did China do? Well, they increased fiscal stimulus by a whopping 36%:

    In short, when monetary policy fails to give the economy the defibrillator shock it needs, authorities must resort to fiscal stimulus and if the likes of Citi’s Willem Buiter have their way, China will just print bonds for the PBoC to monetize (nothing like printing a liability and buying it from yourself with another liability that you also print). 

    For their part, Credit Suisse doesn’t think any of this is going to work. Not the easing, not the fiscal stimulus, nothing. In a note out out today, the bank goes point by meticulous point to explain why “the impact from stimulus is muted.”

    First there’s the big picture: 

    The government has become more active in terms of counter-cyclical measures since late summer. The PBoC has injected liquidity into the policy banks, through its selective easing program, and policy banks have invested in special infrastructure projects approved by planning agency NDRC. On top of the two batches launched at the end of August and October, NDRC is preparing another batch, probably for launch before the end of 2015. However, the impact of these stimulus measures on the real economy has been weak. 1) The private sector has not appeared enthusiastic about following Beijing’s lead. 2) Banks seem reluctant to lend. 3) Government officials and SOE executives have been demoralized by the anti-corruption campaign and salary cuts. 

    The “weak impact” of stimulus means that although the economy may “stabilize” in Q4, it will “slide again” in Q1 201

    Export order flows have been slow while export manufacturers are shutting down factories amid surging costs and the recent threat from the TPP agreement. The private sector does not seem keen to invest because of poor profitability in the manufacturing sector. Private consumption is not weak, but is by no means robust. Property developers have substantially slowed down construction activity in order to cut inventories. 

    And although Credit Suisse contends that a hard landing isn’t their base case (which is odd because frankly, the hard landing has already occurred), the bank does offer the following rather alarming account of corporate health and the read through for bank balance sheets:

    Still, we expect corporate profits to deteriorate significantly in 2016, as indicated by industrial sector nominal GDP growth. Feedback from the ground also suggests that not only are account receivables on the rise, but that some companies are now having to borrow to pay staff salaries. Corporate balance sheet deterioration may well be a theme in 2016, raising market concerns, in our view. A mirror image of that is the rise in bank non- performing loans. Our contacts among the banks seem increasingly concerned about the NPL issue in 2016.  

    Somehow, Credit Suisse’s takeaway from that assessment is that there’s no “systemic risk,” but we would beg to differ. We’re not at all surprised to learn that Chinese corporates are borrowing to pay employees. It was just three weeks ago when we reported that, just as we predicted in March of 2014, China is reaching its dreaded Minsky Moment, as companies are set to borrow some $1.2 trillion just to service the debt they already have and otherwise remain operational:

    As for what comes next, Credit Suisse says “the PBoC is likely to look at a deep cut in RRR in order to create more space for the banks combatting a rise in NPLs.” What counts as “deep” you ask? Up to 400 bps. 

    Here, courtesy of RBS’ Alberto Gallo, is a look at Chinese NPLs. Note that although the graphics also show special mention loans and doubtful accounts, the “real” numbers are still far, far higher:

    Finally, note that Credit Suisse is now “less concerned” about the possibility that Chinese corporates that have borrowed in dollars will run into trouble should a Fed hike and China’s desire to gradually let the yuan depreciate hurt the corporate sector’s ability to service its debt: “Fed tightening may create turbulence for Chinese dollar debt borrowers, but we are less concerned now than we would have been before as the domestic debt market is now available to fund the rollover.” Here’s a chart that shows Chinese corporate USD borrowings – decide for yourself if the domestic market will fund the rollover:

  • Texas Police Chief Warns Obama Of "Approaching Revolution", Urges Citizens To Arms Themselves

    Randy Kennedy, the chief of the Hughes Springs Police Department (in Texas), is the latest in a string of police chiefs across the nation urging citizens to arm themselves following the recent mass shootings in Colorado Springs and San Bernardino.

    In this brief clip, Kennedy warns President Obama that trying to take away American's guns will "cause a revolution," adding that the 2nd Amendment is "there to protect us against a government that has over-reached its power," exclaiming "you are not our potentate, sir. You are our servant."

    As AP reports, Kennedy said his call to arms was the result of his disappointment with Obama's Oval Office speech Sunday in which the president vowed the U.S. will overcome a new phase of the terror threat that seeks to "poison the minds" of people here and around the world. The police chief told The Associated Press on Wednesday that he's not asking residents to turn into vigilantes or "become super action heroes."

    He warned people in his town to prepare themselves: "Be ready when the wolf comes to the door, because it's on its way."

    Kennedy is not the first to warn his citizens…Law enforcement officials in Arizona, Florida and New York also have recently prompted citizens to arm themselves – some using similar comments aimed at terrorism.

     Wayne Ivey, the sheriff in Brevard County, Florida, said in a video post on the department's Facebook page over the weekend that political leaders appear more interested in being politically correct than protecting people. He urged residents to arm themselves as a first line of defense against an active shooter.

     

    "The only thing that stops a bad guy with a gun is a good guy with a gun," Ivey said.

     

    Another Florida sheriff, Steve Whidden in Hendry County, this week encouraged more people to carry weapons because "we as a nation are under attack by radical Islamic terrorists."

     

    Maricopa County Sheriff Joe Arpaio in Arizona issued a statement Tuesday asking "legally armed citizens to take a stand, and take action during a mass shooting/terrorist event until law enforcement arrives."

     

    And last week, Ulster County Sheriff Paul Van Blarcum in upstate New York called for licensed gun owners in his county to arm themselves when leaving home, citing mass shootings in Paris and San Bernardino, California.

  • Declassified U.S. Government Report on Fukushima: “100% of The Total Spent Fuel Was Released to the Atmosphere from Unit 4”

    We reported in 2011 that the International Atomic Energy Commission knew within weeks that Fukushima had melted down … but failed and refused to tell the public.

    The same year, we reported in 2011 that the U.S. knew within days of the Fukushima accident that Fukushima had melted down … but failed to tell the public.

    We noted in 2012:

    The fuel pools and rods at Fukushima appear to have “boiled”, caught fire and/or exploded soon after the earthquake knocked out power systems. See this, this, this, this and this.

    Now, a declassified report written by the U.S. Nuclear Regulatory Commission on March 18, 2011 – one week after the tidal wave hit Fukushima – states:

    The source term provided to NARAC was: (1) 25% of the total fuel in unit 2 released to the atmosphere, (2) 50% of the total spent fuel from unit 3 was released to the atmosphere, and (3) 100% of the total spent fuel was released to the atmosphere from unit 4.

    FukushimaNARAC is the the U.S. National Atmospheric Release Advisory Center, located at the University of California’s Lawrence Livermore National Laboratory. NARAC “provides tools and services that map the probable spread of hazardous material accidentally or intentionally released into the atmosphere“.

    The fuel pools at Units 3 and 4 contained enormous amounts of radiation.

    For example, there was “more cesium in that [Unit 4] fuel pool than in all 800 nuclear bombs exploded above ground.”

  • TEPCO Admits Fukushima Radiation Leaks Have Spiked Sharply

    Just weeks after the completion (and failure) of one supposed 'containment' wall (and as the construction of the "ice wall" begins), TEPCO, the operator of the crippled Fukushima nuclear plant, has admitted that the levels of radioactivity in underground tunnels has risen sharply (4000x last year's levels). As NHKWorld reports, TEPCO officials have stated that they plan to investigate what caused the spike in radiation… yes, that would seem like a good idea.

    With the newly constructed 780-meter 'containment' wall "already leaning," news that the radiation leaks are growing is a grave concern. As NHKWorld details,

    Tokyo Electric Power Company has detected 482,000 becquerels per liter of radioactive cesium in water samples taken from the tunnels on December 3rd. That's 4000 times higher than data taken in December last year.

     

    The samples also contained 500,000 becquerels of a beta-ray-emitting substance, up 4,100 times from the same period.

     

    Around 400 to 500 tons of radioactive water, including seawater washed ashore in the March 2011 tsunami, is still pooled in the tunnels.

     

    The tunnels lie next to a structure used to temporarily store highly radioactive water, which cooled melted nuclear fuel inside the damaged reactors.

     

    TEPCO officials say it is unlikely the wastewater stored in the building has seeped into the tunnels.

     

    They say the water level in the tunnels is higher than that in the building and measures are in place to stop the toxic water from leaking out.

     

    They plan to investigate what caused the spike in radiation.

    Do not panic though, since…

    They say there has been no leakage out of the tunnels as radiation levels in underground water nearby have not risen.

    Because why would they lie (again)?

  • Playing Chess With Putin

    Submitted by Nick Giambruno via InternationalMan.com,

    “What’s it like playing chess with Obama?” asks a top aid of Russian president Vladimir Putin.

     

    Putin replies, “It’s like playing chess with a pigeon. First it knocks over all the pieces, then it shits on the board, and finally it struts around like it won.”

    Now, Putin hasn’t actually said this on record. It’s just a popular joke circulating in Russia.

    But I wouldn’t be surprised if he really did say it. It’s not far off base.

    Putin outmaneuvered the West in Ukraine and most recently in Syria. Most importantly, he has outflanked Western sanctions through increased financial and economic cooperation with China and other Eurasian powers.

    No matter what happens in the West, Russia’s recent power plays are creating tectonic shifts in geopolitics. This could be the largest shift in global power since World War II.

    Ultimately, this could threaten the U.S. dollar’s role as the world’s premier reserve currency. That would have huge negative implications for your personal freedom and financial prosperity.

    Will Russia End the Unipolar World?

    Actually, it’s not just Russia we have to watch. China, Iran, and other Eurasian powers are working with Russia on an ambitious goal. They’re trying to end U.S. dominance in global trade, finance, and military power.

    These countries want to create what Russian officials call a “multipolar world.” It would replace the unipolar world that’s existed since the early 1990s, when the Soviet Union collapsed. The U.S. has been the world’s sole superpower ever since.

    In short, Russia and its partners want to completely redraw the lines of global power. Here’s how they’re doing it…

    First, there’s China’s New Silk Road. It’s the biggest and most comprehensive infrastructure project in all of human history. The plan is to link Asia to Europe via modern land transit corridors.

    The project includes high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. Much of this new infrastructure will flow through Russia.

    If everything goes as planned, the New Silk Road will be a reality by 2025.

    This will free Russia, China, Iran, and others from dependence on ocean transport. At that point, control of the high seas, which the U.S. has had for many decades, won’t be nearly as important.

    In addition to the New Silk Road, a set of interlocking international organizations is emerging. These new organizations are supporting Russia’s plans for a multipolar world.

    Trade – The Eurasian Economic Union

    The Eurasian Economic Union (EEU) is a Russian-led trading bloc.

    The EEU allows for free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. It’s gradually expanding as countries along the New Silk Road remove trade barriers.

    Security – The Shanghai Cooperation Organization

    In the military and security realm, there’s the Shanghai Cooperation Organization (SCO). It could become a NATO of the East.

    Current members include Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

    A Parallel International Financial System

    China’s Asian Infrastructure Investment Bank (AIIB) will provide funding for international infrastructure projects. It’s an alternative to the International Monetary Fund (IMF) and World Bank, which are both dominated by the U.S.

    The BRICS countries – Brazil, Russia, India, China, and South Africa – all support Russia’s goal of creating a multipolar world. Like the AIIB, the BRICS New Development Bank (NDB) is an international financial institution based in China. It’s another alternative to the IMF and World Bank.

    The NDB and AIIB will complement, not compete with, each other in financing New Silk Road projects. The NDB will also finance infrastructure projects in Africa and South America.

    It’s important to note that the NDB will use members’ national currencies, not the U.S. dollar. It won’t depend on U.S.-controlled institutions for anything. This reduces the NDB’s exposure to U.S. pressure.

    The BRICS countries are also looking to build an alternative to SWIFT, the major international payments system.

    SWIFT is truly essential to the current international financial system. Without it, it’s nearly impossible to move money from a bank in country A to a bank in country B.

    The U.S. kicked Iran out of SWIFT in 2012. This crippled Iran’s international trade. It also showed that the U.S. could use SWIFT as a political weapon. The BRICS countries want their own system so they can neutralize that power.

    AIIB, NDB, and the potential SWIFT alternative are the seeds of a parallel international financial system. Together, they will reduce the importance and demand for U.S. dollars.

    What it Means for You

    Today, most international trade is done in U.S. dollars. When one country wants to trade with another, it almost always has to buy U.S. dollars on the foreign exchange market first. This creates demand for U.S. dollars – much more than there would be otherwise. That boosts the value of the dollar.

    Imagine how much this arrangement props up the U.S. dollar. It’s incredible.

    This arrangement has allowed the U.S. government (and U.S. citizens) to live way beyond its means for decades. It also gives the U.S. unchecked geopolitical leverage. The U.S. could exclude virtually any country from the U.S. dollar-based financial system…and by extension the vast majority of international trade.

    The U.S. takes this unique position for granted. But it will disappear once the dollar loses its premier status.

    This will likely be the tipping point…

    Afterward, the U.S. government will be desperate enough to implement capital controls, people controls, nationalization of retirement savings, and other forms of wealth confiscation.

    It would be wise to prepare for the economic and sociopolitical fallout while you still can. Expect bigger government, less freedom, shrinking prosperity…and possibly worse.

    It’s probably not going to happen tomorrow. But it’s clear where the bankrupt governments of the U.S. and most of the West are headed.

    Once the dollar loses its status as the world’s premier reserve currency, you will have few, if any options, to protect yourself.

    This is why it’s essential to act before that happens.

    If Putin continues to outmaneuver the U.S. on the geopolitical chessboard, the dollar could collapse sooner rather than later.

    The sad truth is, most people have no idea how bad things could get, let alone how to prepare…

    There are straightforward steps you can start taking today to protect your savings and yourself. You don’t have to be on the losing team in this high-stakes chess match with Putin.

    This just-released video will show you where to begin. Click here to watch it now.

  • "Straddle-Up" Goldman's 'Winning' Options Strategy Into Year-End

    As 2015 draws to a close, Goldman identifies 15 straddle-buying opportunities on stocks with liquid options, reporting in December. Our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event. Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

    As Goldman Sachs writes, our studies analyzing historical earnings events show at-the-money straddles are systematically undervalued ahead of the event.

    Buying straddles ahead of earnings has returned 10% through early December vs. the long term average of 2%.

     

    The average cost of a straddle on this list is only slightly above the historical earnings move despite capturing more than a week of trading days outside earnings. We see KMX, ACN and ORCL particularly inexpensive compared to prior earnings moves.

     

    Straddle buyers risk losing the premium paid if shares close at the strike price on expiration.

  • FT Bombshell: EU Unveils Standing Border Force That Will Act "Even If A Government Objects"

    Last weekend we wrote that in Europe’s attempt to contain the greatest refugee crisis since WWII, it would directly take control over the border control of the one country which over the summer lost its sovereignty (but at least it still has the euro), and which serves as a springboard for tens of thousands of migrants to proceed onward with their journey to Germany (where as reported earlier, they are no longer desired, as their continued arrival results in a plunging approval rating for Angela Merkel).

    We added that the deployment of additional officers will begin next week, and noted that as our friends at Keep Talking Greece wrote:

    “the masks have fallen. Hand in hand, the European Union and the Frontex want to cancel national sovereignty and take over border controls in the pretext of “safeguarding the Schengen borders”. With controversial claims, they use the case of Greece to create an example that could soon happen “in the border area near you.”  And the plan is all German.”

    Finally, we asked whether this was merely Paranoia…

    “or just another confirmation that the Eurozone is using every incremental, and produced, crisis to cement its power over discrete European state sovereignty and wipe out the cultural and religious borders the prevent the amalgamation of Europe into a Brussels, Berlin and Frankfurt-controlled superstate? “

    It was not paranoia, because according to blockbuster FT report released moments ago, “Brussels is to propose the creation of a standing European border force that could take control of the bloc’s external frontiers — even if a government objected.“

    As even the otherwise pro-EU FT cautiously notes, “The move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”

    We agree, because this is precisely what we said would happen.

    … the European Commission will unveil plans next week to replace the Frontex border agency with a permanent border force and coastguard — deployed with the final say of the commission, according to EU officials and documents seen by the Financial Times.

     

    The blueprint represents a last-ditch attempt to save the Schengen passport-free travel zone, by introducing the kind of common border policing repeatedly demanded by Paris and Berlin. Britain and Ireland have opt-outs from EU migration policy, and would not be obliged to take part in the scheme.

    Naturally, the first guniea pig wil be Greece: the state which has already lost its sovereignty courtesy of capital controls that will likely persist in some form in perpetuity, and which is most distressed and thus least equipped to say no. It will spread from there and promptly become the norm for a “project” which the European apparatchiks think is long overdue.

    Indeed, as the FT adds, “European leaders have discussed a common border force for more than 15 years, but always struggled to overcome deep-seated objections to yielding national powers to monitor or enforce borders — one of the core functions of a sovereign state. Greece, for instance, only recently agreed to accept EU offers to send border teams, after months of wrangling over their remit.”

    However now in the aftermath of the Paris suicide bombings and the indefinite emergency “pre-crime” laws instituted in France, conventional wisdom in Brussels is that Europeans’ eagerness to trade sovereignty (and thus liberty) in exchange for (border) security, is far greater.

    The result: a loss of border sovereignty, which woul effectively make the customs union one big superstate controlled by Brussels:

    One of the most contentious elements of the regulation would hand the commission the power to authorise a deployment to a frontier, on the recommendation of the management board of the newly formed European Border and Coast Guard. This would also apply to non-EU members of Schengen, such as Norway.

    And the absolute kicker:

    Although member states would be consulted, they would not have the power to veto a deployment unilaterally.

    And just like that, goodbye sovereignty… all in the name of halting the endless onslaught of Syrian refugees, which ironically was unleashed in the first place just so Europe could get its supplies of natural gas from Qatar instead of Russia.

    Europe has a prepared response, of course, saying that individual states are clearly unable to defend themselves against the barbarian refugee hordes:

    “Dimitris Avramopoulos, who is responsible for EU migration policy, said: “The refugee crisis has shown the limitations of the current EU border agency, Frontex, to effectively address and remedy the situation created by . . . the pressure on Europe’s external borders.” He said the EBCG would be a way to “protect and strengthen Schengen”.

    Actually, it would be a way to hand over all military control to a body of unelected bureaucrats. Here’s why:

    If the plan is approved by EU states, Frontex’s replacement will have a slew of new powers, including the ability to hire and control its own border guards and buy its own equipment. It will also be allowed to operate in non-EU countries — such as Serbia and Macedonia, which have become transit countries for people trying to reach northern Europe — if requested.

    One doesn’t have to even be a member of the EU any more to become a vassal state of Brussels.  But the scariest aspect is the following:

    The new agency will be able to deport people who do not have the right to remain in Europe — a power Frontex lacked.

    And just like that, the decision of who can and who can’t stay in any one European country will be delegated to some faceless bureaucrat in Brussels, circumventing all sovereign laws.

    The new force will also be able to call on a pool of border guards set aside by member states in reserve, as well as its own guards. National capitals will retain day-to-day control of their borders, but the new agency will be able to monitor their efforts and step in if it feels the protection on offer is inadequate.

    * * *

    Now we admit that some of this may come as a shock to some naive Europhiles, who still do not realize that all of this was preplanned, and predicted as long ago as 2008 when an internal AIG presentation answered the simple question: What Europe Wants. The answer:

    To use global issues as excuses to extend its power:

    • environmental issues: increase control over member countries; advance idea of global governance
    • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
    • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
    • EMU: create a crisis to force introduction of “European economic government”

    All have been spot on, but not even this aggressive and accurate forecast predicted that Europe would be so bold as to effectively take over border and population control sovereignty across the entire continent. It is about to do just that.

  • Trump Takes Nation By Storm: More Americans Agree With Muslim Ban Than Reject It

    In case you were confused how it is that Donald Trump's polling numbers could increase following his Muslim-ban comments (which have beeen widely denigrated by any and all talking head who can fog a mirror – from The White House down…), here is the "surely not us?" answer.

    As The Hill reports, a new post-Trump survey by Rasmussed finds that 46% of likely voters would favor a policy preventing Muslim immigrants from entering the country until tighter screening procedures can be implemented, while only 40% would oppose such a measure.

     

     

    In direct opposition to what The White House said (that Trump’s proposal is "totally contrary to our values as Americans,") it is apparent from this survey that the Obama Administration does not know its 'constituents' as well as it may have thought.

    Simply put, based on this poll, more Americans – republicans and democrats – support Trump's idea of banning the entry of Muslims into America than oppose it, and now that it is 'polling' as a populist idea, we await Hillary Clinton to jump on the bandwagon.

  • Rand Paul Backs Trump, Unleashes "Top Ten Things That Make Obama Unqualified" For Office

    Submitted by Mac Slavo via SHTFPlan.com,

    The White House, which is running a blatantly unconstitutional regime, is now attempting to vet potential successors to the Oval Office, and yet again take out opposition leaders.

    First, Obama said that Assad lost all legitimacy, and should step down, and partnered with al Qaeda and ISIS to back up his opinions.

    Now, Obama’s press secretary has claimed that Donald Trump has lost all legitimacy and has been “disqualified” from running for office. Just how does the White House plan to back up its opinions this time? Trump claims that he won’t be intimidated and exit the race, but one has to wonder how far the system will go to get its way.

    “The fact is the first thing a President does when he or she takes the oath of office is to swear an oath to preserve, protect and defend the Constitution of the United States. And the fact is that what Donald Trump said yesterday disqualifies him from serving as President… And any Republican who’s too fearful of the Republican base to admit it has no business serving as president either,” Earnest said.

    See video and details of White House press secretary Josh Earnest’s comments here.

    Senator Rand Paul, who is also running for the GOP nomination, but who has received only a fraction of the coverage that Trump has, blasted back at the arrogance of the Obama White House, suggesting that President Obama should address his own “disqualifying” characteristics first:

    Rand Paul did make a list of his top reasons, and tweeted them out in succession. Of course, there are many more examples that should be dealt with. Here are Rand’s reasons, listed on the Washington Examiner, or here on Twitter:

    1. “Tried to take over 1/6 of the economy in Obamacare, wrecked the system and hurt patients and taxpayers.”

    2. “Thinks an executive order is legislation and how you make law.”

     

    3. “Fought an undeclared, unconstitutional war in Libya, turned it into Jihadist wonderland.”

    — Dr. Rand Paul (@RandPaul) December 9, 2015

    4. “Fighting an undeclared, unconstitutional war in Syria, [and] trying to put ISIS in Damascus.”

    5. “Signed into law the indefinite detention of American citizens.” (Paul is referring to the National Defense Authorization Act (NDAA) signed by Obama in 2011, which earned heavy criticism from groups like the American Civil Liberties Union).

    6. “His copy of the bill of rights obviously goes from 1 to 3, skipping the 2nd amendment.”

    7. [A federal appeals] Court ruled his NSA spying on every American was illegal.”

    8. “He has added more debt than anyone in history.”

    9. “Appointed an attorney general who thinks speech against Muslims is a bigger threat than terrorism.”

    10. “[Environmental Protection Agency] rules by executive FIAT trying to kill an entire American industry and way of life (coal).”

    Not sure how Rand interprets the first amendment, but it’s pretty obvious that the administration that has punished more whistleblowers than any other, and allowed the NSA, intelligence community and private business to spy on and censor anyone it wishes, has no respect for the 1st Amendment or 4th Amendment either. Due process and whole back of the original ten amendments has definitely eroded to point where the ink is no longer legible.

    Benghazi/Gaddafi, Fast and Furious and the use of drones all belong on this list as well, but it is only 10 and a good start. ISIS and the covert support of terrorism is its own giant issue that should be a nationwide scandal, with impeachments, prosecutions and a gutting of the entire staff of every major office in Washington, D.C. But it will never happen.

    Obama’s role in the bankers bailout and the failure to prosecute Wall Street executives, or end legalized derivatives are all crimes that will also escape any notion of justice, even if the criminals strike again.

    Though none of these men are perfect or trustworthy with ultimate power, President Obama and his team make Donald Trump and Rand Paul look like founding fathers.

  • Visualizing Russia's Intervention In Syria

    Earlier this week, a rather amusing piece appeared on Sputnik entitled “Ahead of the Game: Russia Moving Faster in Syria Than US Media Can Report.” In it, Russian media outlined five steps US diplomacy expert Robert Farley thinks Russia will take next in Syria. The point of the article is this: Russia had already taken four of the five steps by the time Farley produced his list. 

    That is in many ways emblematic of Moscow’s deployment in Syria. From the time a Russian three star general strolled into the US embassy in Baghdad and informed the staff that airstrikes “start in one hour,” the rapidity with which Putin’s forces have established a base, sent in equipment, and launched a coordinated campaign with the IRGC and Hezbollah has been nothing short of astonishing. 

    That said, the mission hasn’t been without setbacks. There was of course the downing of a warplane by Turkey and the subsequent destruction of a Russian search and rescue helicopter by the FSA and as Bloomberg correctly points out (although the article is absurdly biased), “many senior officials in Moscow underestimated how long the operation in support of Bashar al-Assad would take when Putin entered Syria’s civil war on Sept. 30 and no longer talk in terms of just a few months, with one saying the hope now is that it won’t last several years.”

    But Putin isn’t Obama and irrespective of how long the campaign will ultimately take, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 

    On that note, we present the following update graphic prepared by Louis Martin-Vézian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.

  • The Fed's Painted Itself Into The Most Dangerous Corner In History – Why There Will Soon Be A Riot In The Casino

    Submitted by David Stockman via Contra Corner blog,

    The chart below crystalizes why the Fed is stranded in a monetary no man’s land. By the time of next week’s meeting the federal funds rate will have been pinned at about 10 bps, or effectively zero, for 84 straight months.

    Yet during that same period, the consumer price level has risen by 1.75% per year. And that’s if you give credit to all of the BLS gimmicks, such as hedonic adjustments for quality change, homeowners “imputed” rents and product basket substitution, which cause inflation to be systematically understated.

    On a basis that is close enough for government work, therefore, the real money market interest rate has been negative 2% for seven years. But that’s so crazy, unjustified, and unprecedented that even the Keynesian money printers who run the Fed have run out of excuses.

    Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.

    So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino – the very outcome that has filled them with fear and dread all these years.

    CPI and Fed Funds - Click to enlarge

    Indeed, Yellen and Bernanke before her have made a huge deal out of communications clarity and forward guidance. But how do you explain to even the credulous gamblers and day traders on Wall Street that the business cycle has not been outlawed and that free money can not last forever, world without end?

    Likewise, after all these years of saying that the dollar’s exchange rate is the responsibility of the US Treasury— and that the Eccles Building only does domestic monetary policy—– how will the Fed heads explain that they have wrapped themselves around the axle of an unrelentingly strong dollar?

    And that they are impotent to stop the gale force of global deflation and recession being imported into the domestic economy by the inexorable unwinding of the massive dollar short that they have spent years fueling?

    For years now the dollar has been a “funding” currency in the global casino—-something the gamblers borrowed or effectively sold short in order to pile into higher yielding EM debt, equities and commodities until they peaked awhile back.

    But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

    This time the correction will not be in the overbuilt and over-valued domestic (and other DMs like Spain) housing market. Instead, there will be a global CapEx depression and its contractionary cascade will cause the entire global economy to shrink for the first time since the 1930s.

    In fact, it is already happening, even by the lights of the IMF. The world’s nominal GDP has dropped 5% in dollar terms during the past year, and that’s what counts because the world’s $225 trillion tower of debt is heavily denominated in dollars, or linked to it through exchange rates, most especially the Chinese RMB.

    But unlike the short-lived recessionary dips of the past, the southward turn in the graph below still has a long way to go. Brazil is plunging into its so-called hard-landing and China is not far behind—-along with its supply chain and DM materials exporters like Canada and Australia.

    Figure 1. Gross Planet Product at current prices (trillions of dollars, 1980 – 2015)

    van bergelijk fig1 4 dec

    Source: IMF World Economic Outlook Database, October 2015.

    Shrinking GPP (Gross Planet Product) is not even in the Fed’s vocabulary yet, and even when they do latch on to it, they won’t dare explain it honestly and cogently.

    That’s because contracting GPP measures the abysmal failure of the two-decade long global experiment in massive central bank money printing, and the unsustainable credit fueled economic boom it enabled. And it is a stark reminder that the world’s effective leverage ratio will be rising—even as income and cash flow sink deeper into deflation.

    So the Fed will have some heavy duty “splanin”  to do, but it will be hard-pressed to come up with words that comfort the casino, rather than spook it.

    After all, for most of this century the Fed’s post meeting statements and minutes have been progressively degenerating into embarrassingly empty pabulum; and its seemingly rock solid voting consensus was an artifact of being on the Easy Button 80% of the time.

    In that environment there was little to debate and less to explain. They simply delivered an economic weather report and urged Wall Street to hang on for the ride.

    easybutton-480x286

    But now the Fed must emerge from the shaded zone shown above for the first time on a sustained basis since the 1980s. Yet as it seeks to explain a macro-economic slump that it absolutely did not see coming, and confesses to its complete lack of policy tools to reverse the worldwide deflationary tide now lapping at these shores, its statements will be reduced to self-evident and self-contradictory gibberish.

    Likewise, the 19 members of the Board will take to noisy public quarrelling right in front of the boys and girls on Wall Street for the first time in their lives.

    The reason that there will soon be a riot in the casino, therefore, is not owing to the prospect of a 25 bps pinprick after all this time on the zero bound.

    The hissy fit will happen because the Fed’s words and actions starting next week will not say “we have your back, keep buying”.

    The message will be “we are lost and you are on your own”.

    And that’s not “priced in”. Not even close.

    Evidence that a completely new monetary policy ball game is commencing comes from JM Keynes’ current vicar on earth himself, Larry Summers. Three days ago he penned a strange op ed in which he apparently reminded himself that the business cycle has not been outlawed——something most non-PhDs presumably already knew:

    U.S. and international experience suggests that once a recovery is mature, the odds that it will end within two years are about half and that it will end in less than three years are over two-thirds. Because normal growth is now below 2 percent rather than near 3 percent, as has been the case historically, the risk may even be greater now. While the risk of recession may seem remote given recent growth, it bears emphasizing that since World War II, no postwar recession has been predicted a year in advance by the Fed, the White House or the consensus forecast.

    Well now. If you wait until month 78 of a business expansion to end the emergency policy, and then hesitate to venture more than a few basis points off the zero bound, you will indeed use up the remaining runway right quick.

    That’s because the average of ten business cycle expansions since 1948 have lasted but 61 months; and the only expansion that was appreciably longer than the present tepid affair was the 119 month stretch of the 1990s.

    Historical Length of Recoveries - Click to enlarge

    Historical Length of Recoveries

    But let’s see. Back then the Fed’s balance sheet was $300 billion, not $4.5 trillion. The world had less than $40 trillion of debt or about 1.4X GDP, not $225 trillion or nearly 3X global income.

    Global Debt and GDP- 1994 and 2014

    And, most importantly, China was still a quasi-agrarian victim of Mao’s destructrutive experiments in collectivist economics and state generated famine, not today’s towering Red Ponzi.

    That is, it was irrelevant then, but is now a bloated economic whale sinking under the weight of $30 trillion of debt and the most reckless spree of over-investment and mindless public and private construction in recorded history.

    So as this domestic business expansion cycle get long in the tooth, the US economy is confronted by a veritable engine of global deflation in the form of China and its EM supply chain. After a 20-year credit driven boom, it now payback time. All of these economies find their exports stalled, their exchange rates falling, and their debt service exploding higher.

    What this means, of course, is that Wall Street’s “decoupling” myth will soon be on the scrap heap. US exports and imports are now crumbling, and even the standard measures of goods transit are cliff diving.

    Likewise, today’s wholesale report for November was a red alert warning that a big recession inducing inventory liquidation is just around the corner.  Even if Janet Yellen won’t find this chart on her dash board of 19 lagging labor indicators, the message is unmistakable.

    According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain’t going to happen this time.

    Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

    Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

     

    Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

    So if the endlessly clever word-splitter who currently heads the church of Keynes on earth can do not better than the above ill-disguised punt, can you imagine what blithering incoherence will be contained in the meeting statements as the recession gathers force next year?

    Yes, there will be a riot in the casino.

  • "Let's Just Hope Shipping Isn't Telling the Real Story of China"

    One of the recurring topics we have focused on extensively in the past few months has been the dramatic collapse of all shipping-related metrics when it comes to seaborne trade with China, from the recent record plunge in the Baltic Dry index…

     

    … to Shanghai Containerized Freight…

     

    … both of which are taking place even as China exports record amount of commodities to the outside world…

     

    We have also repeatedly noted that the implications for both China, and the entire world, from these charts are dire because they suggest that not only is China not growing, but the entire world is now gripped in not only an earnings and GDP (in USD-denominated terms, global GDP is set to decline by several trillion dollars) recession, but also suffering its first trade contraction since the financial crisis.

     

    And now, Bloomberg has turned its attention to just these, and other comparable charts, and published an article titled “Let’s Just Hope Shipping Isn’t Telling the Real Story of China“, prudently adding that investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news.

    Here’s why:

    For the first time in at least a decade, combined seaborne imports of iron ore and coal – commodities that helped fuel a manufacturing boom in the world’s second-largest economy — are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

     

    The article notes that China accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed to the point where any speculation that China may be growing at anything near to 7% is a joke.

    Combined seaborne imports of iron ore and coal will drop 4.8 percent to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5 percent increase for 2015. The broker expects growth to increase just 0.04 percent next year.

     

    It will get worse: “The China Iron and Steel Association predicted crude-steel output will tumble by 23 million tons to 783 million tons next year. That lost output is more than a quarter of what U.S. steelmakers produce.”

    A big reason for the collapse in Chinese demand are Beijing’s attempts to crack down on excess leverage.

    Imports are weakening even as China’s economy keeps expanding because of reduced spending by local governments that are dominant players in the economy, according to Fielding Chen, a Hong Kong-based economist for Bloomberg Intelligence. The central government in January withdrew guarantees for Local Government Financing Vehicles used to finance infrastructure projects during the country’s boom years, when domestic capacity surged over the past decade, he said.

     

    “This has reduced China’s appetite for steel and copper and other commodities that are used to build roads, subways and reservoirs,” Chen said. “It is not good for the economy and is one of the main reasons China cannot import more.”

    While China has attempted to boost the economy using monetary (cutting RRR ratios and interest rates) and fiscal (boosting spending at the local government level) stimulus, for now it appears to have cut back on the traditional growth dynamo which propelled China as the focus of global growth during the financial crisis – its relentless debt creation, which has doubled its total debt/EBITDA from just over 150% in 2007 to over 300% as of this year (282% as of 2014).

    It is this slowdown in China’s debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe.

    Bloomberg offers a ray of hope when it notes that the rout in buying showed signs of easing last month. China’s iron-ore imports rose to 82.13 million tons, a jump of 22 percent compared with a year earlier. Even so, the extra shipments are mostly because of rising Chinese steel exports, or tolling, rather than the nation’s own demand, according to Andy Xie who predicted in February that iron-ore prices would sink into the $30s this year, compared with $71 at the start of the year.

    Unfortunately, there is only so much time China can buy: Chinese steel mills have been pressured by losses, low prices and overcapacity as demand drops to levels unseen since 2009, cutting profits and reducing incentive for re-stocking. Worse, as we first showed two months ago, as a result of until recently soaring debt levels and collapsing commodity prices, more than half of indebted Chinese commodity companies are facing the grim prospect of imminent bankruptcy as they can’t even cover one year of interest with their existing cash flows.

    As a result, the commentary is downright disastrous:

    “For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.”

     

    “China’s slowdown has come as a major shock to the system,” said Hartland Shipping’s Prentis. “We are now caught in the twilight zone between shifts in China’s economy, and it is uncomfortable as it’s causing unexpected slowing of demand.”

    So what can one do?

    There are two options: do as the Blooomberg article sarcastically suggests, and Hope Shipping Isn’t Telling the Real Story of China, or one can prepare for the mother of all mean reversions: after all it was China that dragged the world out of the second great depression (if only temporarily) when it unleashed the biggest debt-creation spree in history (one putting the Fed and all its peers to shame as we showed previously). It will be only fitting that China’s drags it back in.

  • Czech President: Turkey “Behaves As If [It’s] An Ally of the Islamic State; Removes Oil … Which Finances [ISIS]]

    Czech President Milos Zeman said yesterday (English translation):

    I think [Turkey] is indeed a member of NATO, but sometimes behaves as if more was an ally of the Islamic Republic: removes oil from the Syrian sites, which finances the Islamic state.

     

    ***

     

    They do not like the Kurds, which are the only ones who fought effectively with the Islamic state. That is why Turkey [should be viewed] with caution and why it should not be an EU member.

    He is one hundred percent right …

    Postscript: The date of the article is “9.12.2015”, which 0 in the Czech way of writing dates – means December 9, 2015.

     

  • This Is The Scariest Chart For Angela Merkel

    Having won Time’s “Person of the Year” award, German chancellor Angela Merkel may have little time, or cause, for celebration.

    The reason for that is that, as we noted yesterday when commenting on Donald Trump’s snub of Time in which he said that it “picked person who is ruining Germany”, is that according to increasingly more Germans, Trump just may be – in his trademark politically incorrect way – right.

    Recall:

    In past years, Angela Merkel has been feted like a superstar at annual meetings of her Christian Democratic Union (CDU) party, earning thunderous ovations for defending German interests in the euro crisis and facing down Vladimir Putin over Ukraine. But a CDU congress in the southwestern city of Karlsruhe next week is shaping up to be a very different affair. Under intense pressure from conservative allies to reduce the flood of refugees into Germany, the 61-year-old chancellor faces the biggest test of her authority from within the party in years.

     

    Her Bavarian allies, the Christian Social Union (CSU), have been pressing for a cap for months, and even some of Merkel’s own ministers are lobbying openly for a tougher stance from the chancellor, who marked 10 years in office last month and must decide by next autumn whether she will seek a fourth term in 2017.

     

    “Merkel has never endured such sharp criticism from within her own ranks since becoming chancellor,” read a front-page editorial in conservative daily newspaper Frankfurter Allgemeine Zeitung on Monday. “Under no circumstances can she allow the congress to approve a resolution on refugee policy that includes the word ‘Obergrenze’.” 

     

    “The mood among conservative members of parliament is really catastrophic right now,” said one senior CDU lawmaker, declining to be named. “Merkel is totally isolated.” “She needs to wake up,” said another top ranking party member.

    Why this dramatic shift in opinion about a chancellor who until recently was seen as untouchable and simply indestructable, and suddenly appears to be all too fragile? The answer is shown in the simple chart below, which shows the soaring numbers of migrant arrivals in Germany.

     

    The chart has major implications for Merkel’s political career because, as the WSJ notes, the higher the number of migrants, the lower her approval rating… and the higher the rating of her conservative ally, Bavarian Premier Horst Seedorf.

     

    Suddenly invincible Angela does not seem so unshakable. For those who have missed the story, here is what happened from the WSJ:

    When refugees marched from Budapest Sept. 4, paralyzing Hungary’s main highway to Austria, Mr. Orban phoned Vienna. Mr. Faymann wouldn’t take his calls, aides to each say. Mr. Orban convened his national-security cabinet and decided to bus the migrants to the border. “If Austria wants them, they can have them,” Mr. Orban said, according to a person present.

     

    Hungary’s foreign minister told his shocked Austrian counterpart the news at an EU meeting that day. Austrian officials, unprepared for mass arrivals, urgently sought German help.

     

    The emergency caught Ms. Merkel on a day of party events in Essen and Cologne. In a volley of phone calls, she and Mr. Faymann shared a calculus, say aides to each: Only force could halt the migrants at the border; inaction could result in exhausted refugees dying on the highway. 

     

    Ms. Merkel made a snap decision that sent shock waves around Europe: Throw Germany’s doors open. Bypassing Europe’s asylum rules and skeptical members of her government, she ordered trains to carry the migrants to Munich.

     

    Her aides couldn’t reach her coalition partner, Bavaria’s premier Mr. Seehofer. He, like Mr. Orban, wanted to stop the migrants; the two men became Ms. Merkel’s most outspoken adversaries. Mr. Seehofer declined to be interviewed.

    Initially the Germans were delighted…

    As Germans greeted refugees in Munich with sweets, toys and hugs, Mr. Orban told Ms. Merkel by phone her decision undermined the fight against illegal immigration and lured migrants to Europe, aides to each say. He lambasted German and Austrian volunteers who drove into Hungary to give Syrians a lift: “Legally they are human traffickers. Is that what you want?”

     

    He told her Hungary was fencing off its southern border. If all EU countries did the same, he said, the crisis would end. “The Hungarian solution,” he said, “is the only solution.”

     

    Ms. Merkel replied that if Europe wanted a wall, it would have to be high and defended with violence against civilians, and Greece could hardly wall the Aegean Sea. A fence might work for Hungary, she told Mr. Orban, but she sought answers for all Europe.

    … But then the mood at home turned decidedly sour:

    Backlash built against Ms. Merkel at home, where pro-refugee euphoria faded while as many as 10,000 arrived daily. Local governments struggled to house and feed them. In overstretched Bavaria, Mr. Seehofer threatened to sue the federal government unless Ms. Merkel set a cap on arrivals.

     

    She dismissed the demand. “If we have to start apologizing now for showing a friendly face in emergencies,” she told reporters, “then this is not my country.” She knew she had to convince voters the situation wasn’t out of control. Immersing herself in the logistics of accommodating migrants, she learned details about heated tents and housing containers. She tightened rules on asylum-seekers’ benefits. She pushed for EU migrant-processing centers in Greece and Italy to block bogus asylum claimants.

    Merkel then did half a U-turn, doing everything in her power to court not only Turkey but Eastern European nations in hopes they would accommodate the bulk of the refugees.

    She courted Turkish President Recep Tayyip Erdogan, whom she had long mistrusted but whose help she needed to reduce the migrant flow. Mr. Erdogan’s demands, EU officials say, included money for refugee camps, visa-free European travel for Turks, revitalizing stalled talks on EU membership and regular summits with EU leaders. Visiting Istanbul in October, Ms. Merkel told him she was willing to talk about everything. One problem: Her party opposes Turkey’s joining the EU.

    No problem: two weekends ago, Turkey was fast tracked for EU accession, with visa requirements set to be reduced, even as Turkey gets billions in “aid” to help with the refugee settlement

    Then it was the Balkans’ turn:

    Balkan countries struggled with the buildup of migrants south of Hungary, whose anti-migrant fence created bottlenecks elsewhere. And many governments criticized Greece for waving migrants through.

     

    At a summit of countries along the Balkan migration trail, called at Ms. Merkel’s behest, leaders warned they would build fences if Germany closed its border. Ms. Merkel said that, having grown up in communist East Germany, she opposed walling off countries but that there might be no alternative unless Greece and others helped manage the flow.

     

    Under German pressure, the Balkan countries agreed to put up 100,000 people until the EU could find long-term homes. By November, far more were entering Europe. Germany alone expects to receive a million asylum-seekers this year.

    When it came to vassal state Greece, Germany, pardon Europe, had a simple solution: threaten the country with expulsion from Schengen and an indefinite isolation from the European Union. Greece promptly threw in the towel and handed over control of its border to Brussels.

    Meanwhile, the Paris terrorist event has rendered Merkel’s initial “welcoming” stance impossible:

    The Paris attacks have made Ms. Merkel’s remedies harder to sell. Eastern European leaders are still balking at taking Muslim refugees, although the EU quota decision is binding. Mr. Orban blames Germany’s open-door policy for admitting terrorists. “We are monitoring every Muslim in our territory,” Slovakian Prime Minister Robert Fico said publicly after visiting the French embassy there following the Paris attacks. He declined to comment.

    In the end the biggest loser may be Europe itself, whose “union” is unraveling before our eyes. However, before Europe falls, the first casualty will be the person for whom a united Europe, at any means and at any cost, will be her one legacy, or perhaps epitaph.

    In Germany, pressure on the chancellor is mounting inside her coalition. At their Nov. 19 party congress, Mr. Seehofer’s Bavarian conservatives voted to cap migration. Ms. Merkel told the congress turning refugees away was unworkable: “Isolation is not a solution in the 21st century.” Applause was sparse.

     

    “You know we’re unrelenting,” Mr. Seehofer replied. “You haven’t heard the last of this.” He earned a thunderous ovation.

    How does this end? Keep an eye on Merkel’s “scariest chart” for hints: unless Germany can stem the influx of refugees (while making other European nations increasingly angry and unhappy with their lot in the EU) the damage to Germany’s chancellor (who once cried when faced with the prospect of a Greek default) inflicted by five years of an insolvency European periphery will seem like a walk in the park compared to what the “refugee tsunami” will unleash first in Germany and then across all of Europe.

  • Two US Military Servicemen Claim 'Doctors Without Borders' Hospital Was Intentionally Targeted

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    Over the last month or so, there’s been a bit of a flurry of U.S. military members with conscience coming forward to tell the truth about incidents or practices they deem unethical.

    For example, just last month, four former drone operators came forward to denounce the program publicly, coupled with a letter addressed to President Obama. As noted in the post, Drone Whistleblower Claim – Pilots Often High on Drugs; Refer to Children as “Fun Size Terrorists”:

    The killings, part of the Obama administration’s targeted assassination program, are aiding terrorist recruitment and thus undermining the program’s goal of eliminating such fighters, the veterans added. Drone operators refer to children as “fun-size terrorists” and liken killing them to “cutting the grass before it grows too long,” said one of the operators, Michael Haas, a former senior airman in the Air Force. Haas also described widespread drug and alcohol abuse, further stating that some operators had flown missions while impaired.

     

    Haas also described widespread alcohol and drug abuse among drone pilots. Drone operators, he said, would frequently get intoxicated using bath salts and synthetic marijuana to avoid possible drug testing and in an effort to “bend that reality and try to picture yourself not being there.” Haas said that he knew at least a half-dozen people in his unit who were using bath salts and that drug use had “impaired” them during missions.

    Moving along to today’s piece, two U.S. servicemen have come forward to claim that, as opposed to the Pentagon’s official story, the military intentionally targeted the Afghan Doctors without Borders hospital, in an attack that killed 31 civilians.

    The AP reports:

    WASHINGTON (AP) — Two servicemen have told Congress that American special forces called in an air strike on a hospital in Afghanistan because they believed the Taliban were using it as a command center, contradicting the military’s explanation that the attack was meant for a different building.

     

    Rep. Duncan Hunter, a California Republican who serves on the House Armed Services Committee, quoted the servicemen without naming them in a letter he sent Tuesday to Defense Secretary Ash Carter. The letter highlights gaps in the military’s explanation of an October air strike on a Doctors Without Borders hospital in Kunduz that killed 31 civilians.

     

    Hunter said the accounts provided to him raise the possibility that the U.S. was manipulated by its Afghan partners into attacking the hospital. If true, that would be a setback in the U.S. effort to work with and train a local force capable of securing that country.

     

    The two servicemen told Hunter the U.S. special forces soldiers who called in the air strike were not aware the Doctors Without Borders building was still being used as a hospital. Afghan forces, they say, told them it had become a Taliban command and control center.

     

    Doctors Without Borders leaders and independent witnesses insist there were no armed men in the hospital, and the military’s investigation supported that contention.

     

    The military’s official account, a summary of which was disclosed on Nov. 25 by the commanding U.S. general in Afghanistan, says the soldiers and airmen intended the air strike to hit a different building a half mile away — an Afghan intelligence facility said to be occupied by the Taliban.

     

    It was only because of technical failures and human error, Gen. John Campbell told reporters, that an AC-130 mistakenly struck and destroyed the trauma center in the Doctors Without Borders hospital.

     

    Campbell’s account didn’t address the evidence that the U.S. had been focusing on the hospital.

     

    The day before the attack, a senior special forces commander wrote in a report that the hospital was in Taliban hands and his objective was to clear it. A senior Pentagon official called Doctors Without Borders to ask whether their hospital had been overrun; he was told it had not.

     

    Hunter wrote to Carter of his concern “that inaccurate information and poor intelligence was provided by Afghan forces — including information that was both incorrect and unverified by U.S. intelligence and personnel.”

     

    Campbell said the AC-130 was sent to attack a different building, but when its sensors malfunctioned, the crew used visual cues to home in on what turned out to be the wrong building. One minute before the attack, he said, the crew passed on the coordinates of the building it was about to strike to its headquarters, which knew Doctors Without Borders was in that compound but was unable to detect the mistake in time.

     

    Hunter’s letter questioned how the military could misidentify an internationally run hospital that had been operating for years, given the billions of dollars that have been spent on technology designed to help commanders understand their battlespace.

    Mistakes happen. In war and in pretty much everything in life. That’s simply unavoidable. What is avoidable is lying after the fact, which is clearly what the U.S. military has chosen to do in this case. It is also what it chooses to do in all sorts of cases in which the truth would be embarrassing or harmful to the agenda of empire and the military-industrial complex. Which is precisely why people are increasingly distrustful of all institutions. “We the people” suspect we’re constantly lied to in the pursuit of an elitist agenda which is counter to our best interests.

    We are right.

  • Brazil Faces Disastrous Downgrade Debacle: Here's What You Need To Know

    Back on September 9, S&P threw Brazil in the junk bin. 

    “We anticipate that within the next year [another] downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet,” the ratings agency noted, explaining its negative outlook. “A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment.”

    Suffice to say that the political “dynamics” have not become more favorable despite some observers’ contention that the further we move down the road to a Rousseff impeachment, the happier the market will be given her track record. House Speaker Eduardo Cunha faces an investigation by the ethics committee in connection with his alleged role in the Carwash scandal while the relationship between Rousseff and VP Michel Temer looks increasingly tenuous. Meanwhile, the arrest of Delcidio Amaral seemed to have ushered in a new era wherein sitting lawmakers aren’t above the law and may be too busy looking over their shoulders going forward to legislate. All of this casts considerable doubt on the country’s ability to overcome fractious politics on the way to adopting some semblance of fiscal rectitude. 

    As for “economic turmoil,” well, Brazil has effectively descended into a depression since S&P’s downgrade. GDP is collapsing, inflation is sitting at 10.5%, a 12-year high, and unemployment is soaring. Everything that could possibly go wrong economically is going wrong and thanks to rising prices and the incipient threat of lagged FX pass through, Copom is powerless to adopt counter-cyclical policies and will in fact be forced to hike in January. 

    Against this backdrop, Moody’s put the country’s investment grade rating on review Wednesday, suggesting it may not be long before Brazil gets junked again (don’t worry, Cunha says it’s priced in). 

    For those wondering how long it will be before the “B” in BRICS gets junked by everyone, look no further than the following slides from Credit Suisse who notes that “the continuation of unfavorable fiscal balances, prolonged recession, high inflation, and continued rise in public debt as a percentage of GDP are compatible with the expectation of additional downgrades in 2016 and 2017.” 

    And it’s not just the sovereign. Brazilian corporates are in trouble as well. As Bloomberg reports, “Fitch Ratings estimates it may slash the ratings of as many as 10 companies for every one it upgrades in 2016.” Here’s more: 

    Fitch has a negative outlook on Brazil and on the grades of more than half of the Brazilian companies it rates. Its BBB- ranking for sovereign bonds is the lowest possible investment grade. Standard & Poor’s cut the country to junk in September.

     

    Brazilian companies have accounted for 11 of 15 bond defaults in Latin America this year as a widening bribery probe into Petroleo Brasileiro SA roils the nation’s construction and banking industries.

     

    Rising yields threaten to make it harder for Brazil’s debt-laden businesses to refinance obligations as $30 billion of overseas bonds come due in the next two years.

    Needless to say, if the BRL continues to weaken in the face of still depressed commodity prices and a worsening political situation, it will become more and more difficult for Brazilian corporates that have borrowed in dollars to service their debt. Don’t forget, Brazil has some $89 billion in USD bonds trading above 9% (a large chunk is Petrobras paper). Here’s the full breakdown: Petrobras (USD37bn), USD20bn of industrials, USD15bn of banks (mostly subordinated), USD6bn of rigs, USD3bn of royalty-backed bonds and USD8bn of other sectors. 

    We’ll close with two tables. One from Deutsche Bank and one from the BIS. The first gives you an idea of what Brazil is facing in terms of USD bond maturities going forward and the second shows you the aggregate burden.

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Dec 10

Today’s News December 10, 2015

  • Onshore Yuan Has Been In Freefall Since The IMF Added China To The SDR Basket

    For the 5th day in a row, Onshore Yuan has tumbled against the USDollar. Absent the violent devaluation in August, this is the largest drop since March 2014, leaving the Chinese currency at its weakest level against the USD since August 2011. It appears that after showing some signs of 'stability' to appease The IMF's political decision, and following the weak trade data this week, China has decided to escalate the currency wars, perhaps in anticipation of (or in an attempt to stall) any market turbulence when The Fed hikes rates next week and withdraws up to $800bn in liquidity from global markets.

     

    Onshore Yuan is now at its weakest since August 2011…

     

    As it seems, with the blessing of The IMF, China has begun its competitive devaluation efforts…slowly and under the cover of darkness from America's mainstream media…

     

    Put simply, something is going on as the world's money markets prepare for what lies ahead next week and the asset classes with the most risk (see CCC US Corps, EM FX, Oil) are the first to suffer before the effects of shortened collateral chains ripple up into mom-and-pop's 401k.

     

    Charts: Bloomberg

  • The Global Economic Reset Has Begun

    Submitted by Brandon Smith via Alt-Market.com,

    In my last article, I outlined the deliberately engineered trend toward the forced “harmonization” of national economies and monetary policies, as well as the ultimate end goal of globalists: a single world currency system controlled by the International Monetary Fund and, by extension, global governance, which internationalists sometimes refer to in their more honest public moments as the “new world order.”

    The schematic for the new world order, according to the admissions of the internationalists, cannot possibly include the continued existence of U.S. geopolitical and economic dominance. The plan, in fact, requires the destabilization and reformation of America into a shell of its former glory. The most important element of this plan demands the removal of the U.S. dollar as the de facto world reserve currency, a change that would devastate our current financial structure.

    I outlined with undeniable evidence the reality that major governments, including the BRICS governments of the East, are fully on board with the globalist agenda. There is no way around it; the BRICS, including Russia and China, have openly called for a global monetary system centralized and dictated by the IMF using the SDR basket. This same plan was outlined decades ago in the Rothschild-owned magazine The Economist. We are witnessing that plan being implemented in front of our very eyes today.

    For the past couple of years, the current head of the IMF, Christine Lagarde, has used the phrase “global economic reset” often in her speeches and interviews. There is some (deliberate) ambiguity to this notion, but after sitting through hours upon hours of her most boring and repetitive discussions in globalist think tanks such as the Council On Foreign Relations, the consistent message is pretty straightforward. If anyone can stand to listen to this woman's carefully crafted prattle and well-vetted half-truths for more than five minutes, I suggest they watch this particular speech given in January at the CFR:

    Her message on the global economic reset is essentially this: “Collective” cooperation will not just be encouraged in the new order, it will be required — meaning, the collective cooperation of all nations toward the same geopolitical and economic framework. If this is not accomplished, great fiscal pain will be felt and “spillover” will result. Translation: Due to the forced interdependency of globalism, crisis in one country could cause a domino effect of crisis in other countries; therefore, all countries and their economic behavior must be managed by a central authority to prevent blundering governments or "rogue central banks" from upsetting the balance.

    It’s interesting how the IMF’s answer to the failings of globalization is MORE globalization. In other words, Lagarde would argue that while we are in the midst of an international system, we are not centralized enough for such a system to succeed.

    The IMF points out correctly that the economic situation around the world is not stable and could revert once again to the chaos of the initial 2008 crash. The Bank for International Settlements, the primary hub of central bank control, has also given numerous warnings this year on the potential for disaster, including in its latest quarterly report.

    The warnings of the BIS in particular should not be taken lightly (some analysts are indeed taking them lightly). The BIS knows exactly when financial disasters will erupt because it wrote the central bank policies that created those same events. For example, in 2007, the BIS released a warning that perfectly predicted the elements of the derivatives and credit crisis in 2008.

    What these globalist institutions will not tell you in a direct manner are the real causes and motivations behind the inevitable next stage in the ongoing destruction of the current economic system

    The global reset is not a “response” to the process of collapse we are trapped in today. No, the global reset as implemented by central banks and the BIS/IMF are the CAUSE of the collapse. The collapse is a tool, a flamethrower burning a great hole in the forest to make way for the foundations of the globalist Ziggurat to be built. As outlined in my last article, economic disaster serves the interests of elitists.

    When you look at these actions by the Federal Reserve and the U.S. government in particular, questions arise. Is it “stupidity” that is causing them to sabotage the golden goose? Is it hubris and greed? Their actions are clearly facilitating a program of incremental implosion, yet they continue to ignore the obvious. Why?

    The people who ask these questions are operating on a false assumption; they have assumed that the international bankers and the puppet politicians they control have any interest in protecting the longevity of the U.S. The fact is they do not. They have no loyalty whatsoever to the U.S. system, nor do they see the U.S. as “too big to fail.” This is utter nonsense to globalists. Rather, they see each nation and central bank as a piece in a game, much like chess. Some pieces have to be sacrificed in order to gain a better position on the board. This is all that the U.S., the Federal Reserve and even the dollar are to them: expendable pieces in a larger game.

    The U.S. is now experiencing the next stage of the great reset. Two pillars were put in place on top of an already existing pillar by the central banks in order to maintain a semblance of stability after the 2008 crash.  This faux stability appears to have been necessary in order to allow time for the conditioning of the masses towards greater acceptance of globalist initiatives, to ensure the debt slavery of future generations through the taxation of government generated long term debts, and to allow for internationalists to safely position their own assets.  The three pillars are now being systematically removed by the same central bankers. Why? I believe that they are simply ready to carry on with the next stage of the controlled demolition of the American structure as we know it.

    Bailouts And QE:  The First Pillar Removed

    The bailout bonanza was in part a direct intervention in the deflationary avalanche of the derivatives bubble, but also an indirect intervention in that it changed the psychological dynamics of the markets. As former Fed chairmans Alan Greenspan and Ben Bernanke have both hinted at in interviews and op-eds, one of the primary concerns of the central bank was the psychology behind higher stock prices.

    Stock prices could be propped up by the Fed itself through proxy buyers using the printing press. Or the Fed could inject billions, if not trillions, of dollars into banks and allow them to run wild, artificially boosting investment while doing nothing to solve the existing dilemma of negative fundamentals.  Beyond this, the markets began to move on the mere words or edicts of Fed officials as algo-computers and the general investment world placed bets on rhetoric rather than reality; a dynamic which is now ending.

    The bailouts also reanimated the cadavers of large corporations and banks, not just in the U.S. but in Europe, giving the illusion of life to the financial system while leaving Main Street to rot. In the meantime, quantitative easing measures provided a way to continue financing U.S. government debt at the expense of generations of taxpayers as numerous primary lenders began to abandon typical long-term bond purchases.

    Furthermore, oil markets appear to have been directly inflated by QE intervention. It is important to take note that oil prices remained extraordinarily high despite the continuous fall in global demand UNTIL the moment the Federal Reserve instituted the taper of QE3. Then, prices began to plunge.

    In a September 2013 article, I predicted that the Fed, despite all common sense and the claims of banks like Goldman Sachs, would indeed follow through with the taper: a removal of the first pillar levitating the U.S. system.

    I was, of course, called crazy at the time for this prediction by some people within the alternative economic community.

    “Why in the world” they asked, “would the Fed taper QE when they can simply print to infinity and kick the can down the road perpetually?” Again, these people do not understand that America is under scheduled demolition by the international banks; it is not being protected by them.

    The taper occurred in December of that year.

    Near Zero Interest Rates:  The Second Pillar Nearly Removed

    After the taper of QE, volatility not seen since 2008/2009 returned to the markets. And the public once again was reminded in sporadic moments that the recovery might not be real after all. Europe and Japan quickly stepped in with their own renewed stimulus measures, and Fed officials began using strategic media interviews to “hint” falsely that QE might return. Markets rallied, then fell dramatically, then rallied again, then fell again in a shocking manner. And this volatility has been the trend up until recently, when the question of the end of zero interest rate policy arose.

    Again, very few people have ever asked or demanded the Fed end QE or ZIRP. There was never any legitimate public pressure on the fed to remove these pillars. The investment world has been essentially addicted like heroin junkies to assured gains for three years.  The war cry of the investment world has been BTFD! (Buy the f'ing dip) for quite some time; investors have come to expect and demand inevitable central bank intervention and fiat driven stock market rallies.  Yet, the Fed is ending the party anyway.

    ZIRP is the only pillar left holding stocks in place. Without zero interest rates, and with even the most minor of .25 basis points added, cost-free overnight lending to banks and corporations will end. They will not be able to afford continued lending on the massive scale seen since 2009/2010. This means no more stock buybacks for dying companies like IBM or General Motors, among others. This means a considerable decline in the markets, declines which we have had a taste of in recent plunges in equities at the mere mention of interest rate increases.

    In August in an article entitled 'Economic Crisis Goes Mainstream: What Happen's Next?', I wrote:

    "The Federal Reserve push for a rate hike will likely be determined before 2015 is over. Talk of a September increase in interest rates may be a ploy, and a last-minute decision to delay could be on the table. This tactic of edge-of-the-seat meetings and surprise delays was used during the QE taper scenario, which threw a lot of analysts off their guard and caused many to believe that a taper would never happen. Well, it did happen, just as a rate hike will happen, only slightly later than mainstream analysts expect.

     

    If a delay occurs, it will be short-lived, triggering a dead cat bounce in stocks, with rates increasing by December as dismal retail sales become undeniable leading into the Christmas season."

    You can also read my analysis on the motivations behind a Fed rate hike as well as the theater surrounding their policies.

    The cat seems to have finished its bounce and stocks are returning to volatility.  Retail sales so far for Black Friday weekend (including Thanksgiving) have posted a staggering 10% drop with online sales below expectations. Chain Store sales have recently crashed 6.3% week over week.  Plunging freight rates and global shipping indicate a severe lack of global demand and a terrible sales season ahead.  Janet Yellen, ignoring all negative economic signals as predicted, has all but declared a rate hike a given by Dec. 16.

    I was, yet again, called crazy for this assertion by some at the time; and to be clear, I could still be wrong. The Fed could pull a fast one and not raise rates, though the rhetoric coming from the fed today almost guarantees they will take action. Not raising rates doesn’t match with their past habits; they seem to be following the timing of the taper model perfectly. The point is, despite common assumptions within the alternative media, the Fed is not “trapped” and can do whatever it wants, including killing the markets if it benefits the greater goal of a global economic authority. With the ZIRP pillar gone, expect even more violent swings in stocks and general uncertainty and panic among day-traders and the public.

    U.S. Dollar's World Reserve Status:  The Third Pillar In Progress Of Removal

    I’ve been writing about the loss of the dollar’s reserve status since 2008. And as I have always said, the removal of this final pillar is a process, not an overnight affair. The BRICS nations have been positioning themselves for years — China since 2005, the rest of the BRICS since at least 2010.

    The delusion that some economic analysts have been under is that the BRICS were strategically vying for power by building their own unified banking institution in “opposition” to the IMF and the West. As I presented in my last article, this has proven to be completely false. They were in fact positioning to take their place as puppets within the new global paradigm taking shape. China has now joined the IMF’s SDR basket (as predicted); and Russia, along with the other BRICS, has openly called for the IMF to take control of the global monetary system.

    China’s inclusion, I believe, will hasten the loss of the dollar’s market share of reserve status over the next year, along with other factors. Saudi Arabia has also brought the idea of a depeg from the U.S. dollar into the mainstream discussion. This action, which mainstream economists are calling a possible Black Swan, would end the dollar’s petro-status and result in catastrophe for the U.S. economy. The removal of the final pillar is well underway.

    As I have stated in the past, the U.S. system as it stands does not necessarily deserve to survive, but then again, this does not mean that it should be sacrificed in order to breathe life into the monstrosity of global economic governance. Such a trade-off only serves the interests of a select group of elites, with the global reset ending in the mechanized multicultural suicide of sovereignty, leeching prosperity from the rest of us in the name of “collective progress.” Globalists want us to believe there is no other option but their leadership, and they will create any measure of chaos in order to convince us of their necessity.

  • In Lehman Rerun, Banks Are Buying Protection Against Their Own Systemic Demise Again

    At the peak of the craziness of the last cycle, banks took to protecting themselves by buying (credit) protection on other banks as a 'hedge' for systemic risk (which instead exacerbated contagion concerns, seemingly missing the facts that their bids drove risk wider, increaing counterparty risks, and that the inevitable collapse required to trigger these trades would also mean the payoffs to the 'hedges' would never be realized). Fast forward 8 years and it appears once again, as Bloomberg reports, that banks are buying (equity) protection in order to hedge the stress-test downside scenarios enforced by The Fed.

    For more than a year, dealers in the U.S. equity derivatives market have noted a widening gap in the price of certain options. (chart below shows the absolute premium for downside protection over upside protection)

     

    If you want to buy a put to protect against losses in the Standard & Poor’s 500 Index, often you’ll pay twice as much as you would for a bullish call betting on gains. (chart below shows the relative premium for downside protection over upside protection)

     

    New research suggests the divergence is a consequence of financial institutions hoarding insurance against declines in stocks. As Bloomberg details,

    While various explanations exist including simply nervousness following a six-year bull market, Deutsche Bank AG says in a Dec. 6 research report that the likeliest explanation may be that demand is being created for downside protection among banks that are subject to stress test evaluations by federal regulators. In short, financial institutions are either hoarding puts or leaving places for them in their models should markets turn turbulent.

     

    “Since so many banking institutions are facing these stress tests, the types of protection that help banks do well in these scenarios obtain extra value,” said Rocky Fishman, an equity derivatives strategist at Deutsche Bank.

     

    “The way the marketplace has compensated for that is by driving up S&P skew.”

    The Federal Reserve’s Comprehensive Capital Analysis & Review, or CCAR, has become one of the most important annual events for the largest banks. It determines whether trading units, including equity derivatives, can handle a market shock and pay out capital to shareholders. In the test, banks must demonstrate that they can weather a crisis and stay above minimum capital ratios even as their amount of equity is reduced by losses and the planned dividends and buybacks.

    One aspect of the stress test is gauging how banks respond to what’s the Fed describes as a “severely adverse” scenario. It’s the most extreme of three situations laid out by the central bank during the annual CCAR.

     

    “One of the reasons S&P puts have been so expensive relative to at-the-money options this year is that the severely adverse scenario prescribed by CCAR program implies a very negative shock to the S&P,” said Fishman. “It creates value for the downside options.”

    Of course, we have seen this kind of systemic hedging by banks before. When banks bought credit protection against other banks during the last crisis. Still, the Fed stress tests remain the cornerstone of the U.S. central bank’s efforts to prevent a repeat of the 2008 financial crisis and to gauge the ability of banks to withstand economic turmoil. To Dan Deming of KKM Financial LLC, their presence will have a lasting effect on risk tolerance.

    “Risk requirements have ramped up to a point where market participants are forced to buy downside puts as an insurance policy against open option positions,” said Deming. “What was perceived as reasonable risk five years ago is no longer seen as reasonable amid all the new requirements.”

    But what regulators (since we are sure the banks know) miss in their math is that these so-called hedges only payoff when a systemic collapse happens and, in the case of the last crisis, the actual assumed payoff disappears as counterparty collateral chains dry up, banks implode, and just when you needed the hedge the most… there is no one left to pay you.

    Charts: Bloomberg

  • Does Fear Lead To Fascism?

    Submitted by John Whitehead via The Rutherford Institute,

    “No one can terrorize a whole nation, unless we are all his accomplices.”—Edward R. Murrow, broadcast journalist

    America is in the midst of an epidemic of historic proportions.

    The contagion being spread like wildfire is turning communities into battlegrounds and setting Americans one against the other.

    Normally mild-mannered individuals caught up in the throes of this disease have been transformed into belligerent zealots, while others inclined to pacifism have taken to stockpiling weapons and practicing defensive drills.

    This plague on our nation—one that has been spreading like wildfire—is a potent mix of fear coupled with unhealthy doses of paranoia and intolerance, tragic hallmarks of the post-9/11 America in which we live.

    Everywhere you turn, those on both the left- and right-wing are fomenting distrust and division. You can’t escape it.

    We’re being fed a constant diet of fear: fear of terrorists, fear of illegal immigrants, fear of people who are too religious, fear of people who are not religious enough, fear of Muslims, fear of extremists, fear of the government, fear of those who fear the government. The list goes on and on.

    The strategy is simple yet effective: the best way to control a populace is through fear and discord.

    Fear makes people stupid.

    Confound them, distract them with mindless news chatter and entertainment, pit them against one another by turning minor disagreements into major skirmishes, and tie them up in knots over matters lacking in national significance.

    Most importantly, divide the people into factions, persuade them to see each other as the enemy and keep them screaming at each other so that they drown out all other sounds. In this way, they will never reach consensus about anything and will be too distracted to notice the police state closing in on them until the final crushing curtain falls.

    This is how free people enslave themselves and allow tyrants to prevail. 

    This Machiavellian scheme has so ensnared the nation that few Americans even realize they are being manipulated into adopting an “us” against “them” mindset. Instead, fueled with fear and loathing for phantom opponents, they agree to pour millions of dollars and resources into political elections, militarized police, spy technology and endless wars, hoping for a guarantee of safety that never comes.

    All the while, those in power—bought and paid for by lobbyists and corporations—move their costly agendas forward, and “we the suckers” get saddled with the tax bills and subjected to pat downs, police raids and round-the-clock surveillance.

    Turn on the TV or flip open the newspaper on any given day, and you will find yourself accosted by reports of government corruption, corporate malfeasance, militarized police and marauding SWAT teams.

    America has already entered a new phase, one in which children are arrested in schools, military veterans are forcibly detained by government agents because of the content of their Facebook posts, and law-abiding Americans are having their movements tracked, their financial transactions documented and their communications monitored

    These threats are not to be underestimated.

    Yet even more dangerous than these violations of our basic rights is the language in which they are couched: the language of fear. It is a language spoken effectively by politicians on both sides of the aisle, shouted by media pundits from their cable TV pulpits, marketed by corporations, and codified into bureaucratic laws that do little to make our lives safer or more secure.

    Fear, as history shows, is the method most often used by politicians to increase the power of government. Even while President Obama insists that “freedom is more powerful than fear,” the tactics of his administration continue to rely on fear of another terrorist attack in order to further advance the agenda of the military/security industrial complex.

    An atmosphere of fear permeates modern America. However, with crime at a 40-year low, is such fear of terrorism rational?

    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. You are 12 times more likely to die from accidental suffocating in bed than from a terrorist attack. And you are 9 more times likely to choke to death in your own vomit than die in a terrorist attack.

    Indeed, those living in the American police state are 8 times more likely to be killed by a police officer than by a terrorist. Thus, the government’s endless jabbering about terrorism amounts to little more than propaganda—the propaganda of fear—a tactic used to terrorize, cower and control the population.

    So far, these tactics are working.

    The 9/11 attacks, the Paris attacks, and now the San Bernardino shooting have succeeded in reducing the American people to what commentator Dan Sanchez refers to as “herd-minded hundreds of millions [who] will stampede to the State for security, bleating to please, please be shorn of their remaining liberties.”

    Sanchez continues:

    I am not terrified of the terrorists; i.e., I am not, myself, terrorized. Rather, I am terrified of the terrorized; terrified of the bovine masses who are so easily manipulated by terrorists, governments, and the terror-amplifying media into allowing our country to slip toward totalitarianism and total war…

     

    I do not irrationally and disproportionately fear Muslim bomb-wielding jihadists or white, gun-toting nutcases. But I rationally and proportionately fear those who do, and the regimes such terror empowers. History demonstrates that governments are capable of mass murder and enslavement far beyond what rogue militants can muster. Industrial-scale terrorists are the ones who wear ties, chevrons, and badges. But such terrorists are a powerless few without the supine acquiescence of the terrorized many. There is nothing to fear but the fearful themselves…

     

    Stop swallowing the overblown scaremongering of the government and its corporate media cronies. Stop letting them use hysteria over small menaces to drive you into the arms of tyranny, which is the greatest menace of all.

    As history makes clear, fear leads to fascistic, totalitarian regimes.

    It’s a simple enough formula. National crises, reported terrorist attacks, and sporadic shootings leave us in a constant state of fear. Fear prevents us from thinking. The emotional panic that accompanies fear actually shuts down the prefrontal cortex or the rational thinking part of our brains. In other words, when we are consumed by fear, we stop thinking.

    A populace that stops thinking for themselves is a populace that is easily led, easily manipulated and easily controlled.

    As I document in my book Battlefield America: The War on the American People, the following are a few of the necessary ingredients for a fascist state:

    • The government is managed by a powerful leader (even if he or she assumes office by way of the electoral process). This is the fascistic leadership principle (or father figure).
    • The government assumes it is not restrained in its power. This is authoritarianism, which eventually evolves into totalitarianism.
    • The government ostensibly operates under a capitalist system while being undergirded by an immense bureaucracy.
    • The government through its politicians emits powerful and continuing expressions of nationalism.
    • The government has an obsession with national security while constantly invoking terrifying internal and external enemies.
    • The government establishes a domestic and invasive surveillance system and develops a paramilitary force that is not answerable to the citizenry.
    • The government and its various agencies (federal, state, and local) develop an obsession with crime and punishment. This is overcriminalization.
    • The government becomes increasingly centralized while aligning closely with corporate powers to control all aspects of the country’s social, economic, military, and governmental structures.
    • The government uses militarism as a center point of its economic and taxing structure.
    • The government is increasingly imperialistic in order to maintain the military-industrial corporate forces.

    The parallels to modern America are impossible to ignore.

    “Every industry is regulated. Every profession is classified and organized,” writes Jeffrey Tucker. “Every good or service is taxed. Endless debt accumulation is preserved. Immense doesn’t begin to describe the bureaucracy. Military preparedness never stops, and war with some evil foreign foe, remains a daily prospect.”

    For the final hammer of fascism to fall, it will require the most crucial ingredient: the majority of the people will have to agree that it’s not only expedient but necessary. In times of “crisis,” expediency is upheld as the central principle—that is, in order to keep us safe and secure, the government must militarize the police, strip us of basic constitutional rights and criminalize virtually every form of behavior.

    Not only does fear grease the wheels of the transition to fascism by cultivating fearful, controlled, pacified, cowed citizens, but it also embeds itself in our very DNA so that we pass on our fear and compliance to our offspring.

    It’s called epigenetic inheritance, the transmission through DNA of traumatic experiences.

    For example, neuroscientists observed how quickly fear can travel through generations of mice DNA. As The Washington Post reports:

    In the experiment, researchers taught male mice to fear the smell of cherry blossoms by associating the scent with mild foot shocks. Two weeks later, they bred with females. The resulting pups were raised to adulthood having never been exposed to the smell. Yet when the critters caught a whiff of it for the first time, they suddenly became anxious and fearful. They were even born with more cherry-blossom-detecting neurons in their noses and more brain space devoted to cherry-blossom-smelling.

    The conclusion? “A newborn mouse pup, seemingly innocent to the workings of the world, may actually harbor generations’ worth of information passed down by its ancestors.”

    Now consider the ramifications of inherited generations of fears and experiences on human beings. As the Post reports, “Studies on humans suggest that children and grandchildren may have felt the epigenetic impact of such traumatic events such as famine, the Holocaust and the Sept. 11, 2001, terrorist attacks.”

    In other words, fear, trauma and compliance can be passed down through the generations.

    Fear has been a critical tool in past fascistic regimes, and it now operates in our contemporary world—all of which raises fundamental questions about us as human beings and what we will give up in order to perpetuate the illusions of safety and security.

    In the words of psychologist Erich Fromm:

    [C]an human nature be changed in such a way that man will forget his longing for freedom, for dignity, for integrity, for love—that is to say, can man forget he is human? Or does human nature have a dynamism which will react to the violation of these basic human needs by attempting to change an inhuman society into a human one?

    We are at a critical crossroads in American history, and we have a choice: freedom or fascism.

    Let’s hope the American people make the right choice while we still have the freedom to choose.

  • Guest Post: Could Trump Become One Of America's Greatest Presidents?

    Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

    Ganging up on the Donald

    Poor Donald Trump. Everybody’s against him.

    Jeb Bush says he’s “unhinged”…

    …Chris Christie says he has “no idea what [he’s] talking about”…

    …John Kasich accuses him of “outrageous divisiveness”…

     

    love

    The Donald – in reality, they love him…

     

     

    …and Marco Rubio describes him as “offensive and outlandish.”

    And those are just his fellow Republicans!

    “Reprehensible… prejudiced…” adds Hillary Clinton.

    Piling on, Martin O’Malley says Trump is a “fascist demagogue.”

    Can a man with enemies like these really be bad?

     

    Looney Leanings

    Donald Trump brought the wrath, ire, and contempt of the mainstream political establishment down on his head yesterday. He called for a “total and complete shutdown on Muslims entering the United States.”

    Most commentators quickly condemned him, pointing out that such a ban would be unconstitutional and completely against the principles on which the nation was founded.

     

    Hair questions

    Alien anchor hair discovered…

     

    But in a spirit of pure mischief (a blustery billionaire hardly qualifies for our customary support for die-hards, lost causes, and underdogs), we rush to the defense of “The Donald.”

    Yes, his proposal is reckless, stupid, unworkable, unfair, and un-American. But it might not be unpopular. Give the man credit. He’s running for president. To win, he needs the votes of people who are at least as block-headed as he is.

    In that respect (perhaps the only respect) his latest proposal may not be a bad idea. Also, making preposterous and outrageous proposals hardly disqualifies you for the White House.

    Some of our “best” presidents – at least, according to historians and the public – were those who did the looniest things… things that were completely at odds with the Constitution, the spirit of liberty, and their own policy goals.

    President Lincoln told the crowd at Gettysburg that his war against the South was in line with the Declaration of Independence, which clearly asserted the right of a people to choose their own government.

    The war would determine, he said, whether “that nation, or any nation so conceived and so dedicated, can long endure.” The answer was “no.” And he made sure of it.

     

    ColDemands12w

    Contemporary cartoon of Lincoln attack him over the human toll of the Union war effort. Columbia, wearing a liberty cap and a shirt made of an American flag, demands, “Mr. Lincoln, give me back my 500,000 sons!” At the right, Lincoln, unfazed, sits at a writing desk, his leg thrown over the chair back. A proclamation calling for “500 Thous. More Troops,” signed by him, lies at his feet – click to enlarge.

    Image credit: Joseph E. Baker

     

    President Wilson did the same thing for foreigners – invading more countries than any other president… while proclaiming the right to self-determination. Elections were fine, said Wilson, as long as they chose “good men.” If he didn’t like the men chosen… he sent in the troops.

    By the standards set by Lincoln and Wilson, Donald Trump has the capacity to be one of our greatest leaders.

     

    wilson

    Vote for Woodrow Wilson “who kept you out of war” (and didn’t saddle you with a Federal Reserve…)

    Image credit: Punch

     

    PS:

    It doesn’t really matter who wins the race for the White House, because the Deep State already controls just about every aspect of American life. From health care, to education, to the food on our tables, to the never-ending war on terror, the Deep State is pulling the strings.

  • America Crosses The Tipping Point: The Middle Class Is Now A Minority

    Americans have long lived in a nation made up primarily of middle-class families, neither rich nor poor, but comfortable enough, notes NPR's Marilyn Geewax, but this year – for the first time in US history, that changed. A new analysis of government data shows that as of 2015, middle-income households have become the minority, extending a multi-decade decline that confirms the hollowing out of society as 49% of all Americans now live in a home that receives money from the government each month. Sadly, the trends that are destroying the middle class in America just continue to accelerate.

    Back in 1971, about 2 out of 3 Americans lived in middle-income households. Since then, the middle has been steadily shrinking.

    Today, just a shade under half of all households (about 49.9 percent) have middle incomes. Slightly more than half of Americans (about 50.1 percent) either live in a lower-class household (roughly 29 percent) or an upper-class household (about 21 percent).

    As NPR explains, thanks to factory closings and other economic factors, the country now has 120.8 million adults living in middle-income households, the study found. That compares with the 121.3 million who are living in either upper- or lower-income households.

    "The hollowing of the middle has proceeded steadily for the past four decades," Pew concluded.

    And middle-income Americans not only have shrunk as a share of the population but have fallen further behind financially, with their median income down 4 percent compared with the year 2000, Pew said.

     

    Since 1970, the U.S. economy has been growing, and we all have been getting wealthier. But people who have the biggest incomes have been pulling away from the pack in a trend that shows no sign of slowing… as middle-income jobs are still 900,000 short of pre-recession employment levels…

     

    And if you’re a millennial, you’d be forgiven for being disillusioned with the American dream. As we recently noted, compared to young Americans in 1986, you’re three times as likely to think the American dream is dead and buried. As WaPo notes, "young workers today are significantly more pessimistic about the possibility of success in America than their counterparts were in 1986, according to a new Fusion 2016 Issues poll – a shift that appears to reflect lingering damage from the Great Recession and more than a decade of wage stagnation for typical workers.”

     

    While there are numerous reasons for the collapse of the American Middle Class (most appear driven by political 'fairness' or monetary policy intended consequences), though we suspect politicians learned long ago that it's easier to just import non-Americanized voters to vote for you, than, as FutureMoneyTrends notes, to get naturalized citizens who still cherish the idea of America to vote for things like national healthcare systems, higher taxes on business owners, and the catering to every little tribal group that declares themselves a minority.   

    It is only a matter of time before the middle class is wiped out and America begins to resemble the poverty, violence and tyranny so often associated with the countries from which many illegal migrants originate.

    It appears that time is drawing near as Charles Hugh-Smith recently noted, the mainstream is finally waking up to the future of the American Dream: downward mobility for all but the top 10% of households.

    Downward mobility and social defeat lead to social depression. Here are the conditions that characterize social depression:

     

    1. High expectations of endless rising prosperity have been instilled in generations of citizens as a birthright.

     

    2. Part-time and unemployed people are marginalized, not just financially but socially.

     

    3. Widening income/wealth disparity as those in the top 10% pull away from the shrinking middle class.

     

    4. A systemic decline in social/economic mobility as it becomes increasingly difficult to move from dependence on the state (welfare) or one's parents to financial independence.

     

    5. A widening disconnect between higher education and employment: a college/university degree no longer guarantees a stable, good-paying job.

     

    6. A failure in the Status Quo institutions and mainstream media to recognize social recession as a reality.

     

    7. A systemic failure of imagination within state and private-sector institutions on how to address social recession issues.

     

    8. The abandonment of middle class aspirations by the generations ensnared by the social recession: young people no longer aspire to (or cannot afford) consumerist status symbols such as luxury autos or homeownership.

     

    9. A generational abandonment of marriage, families and independent households as these are no longer affordable to those with part-time or unstable employment, i.e. what I have termed (following Jeremy Rifkin) the end of work.

     

    10. A loss of hope in the young generations as a result of the above conditions.

    If you don't think these apply, please check back in a year. We'll have a firmer grasp of social depression in December 2016.

  • China Says Turkey Needs To Respect Iraq's Sovereignty, Territorial Integrity

    “Turkey is acting recklessly and inexplicably,” Vitaly Churkin, Russia’s ambassador to the UN told the Security Council at a closed-door meeting on Tuesday.

    Churkin was not, as you might have guessed, referring to Ankara’s brazen move to shoot down a Russian warplane near the Syrian border late last month (although we’re quite sure that Moscow would classify that as “reckless and inexplicable” as well).

    Churkin was referencing Erdogan’s decision to send between 150 and 300 Turkish troops along with around two dozen tanks to Bashiqa, just northeast of the ISIS stronghold in Mosul. 

    The Russian ambassador is correct to characterize the deployment as “inexplicable” – at least in terms of Ankara being able to offer an explanation that makes sense to the general public. The official line is that it’s part of an ongoing “training mission” that Iraqi officials agreed to at some point in the past. Baghdad denies this.

    Masoud Barzani supports the Turkish effort (and how could he not, given the fact that without Turkey, the Kurds wouldn’t be able to transport crude independently of Baghdad) which serves to provide a kind of quasi-legitimacy to the Turkish presence. But as we outlined last weekend, this may simply be an attempt to secure oil smuggling routes and ensure that Turkey’s interests in Islamic State-held territory are preserved. 

    The latest from Iraq – as we outlined earlier today – is that some lawmakers are now looking to annul the country’ security agreement with the US on the way to inviting the Russians in to help fight ISIS. As for the “situation” with Turkey, Iraq’s UN ambassador Mohamed Ali Alhakim told reporters after Russia raised the issue that Baghdad and Ankara “are solving it bilaterally.”

    “We have not yet escalated it to the Security Council or to the United Nations,” he added.

    Yes, “not yet,” but it’s difficult to see how “bilateral” talks are going to solve this given the fact that Erdogan clearly had some idea of what he wanted to accomplish by sending troops and tanks to Mosul. He had to have known going in that the whole “we’re just replacing 90 troops that had been there for the better part of two years” excuse wasn’t going to fly with Shiite politicians and the various Iran-backed militias who are all hyper-sensitive now that the The Pentagon has suggested the US is set to insert ground troops to assist the Peshmerga in their efforts against ISIS. 

    Well, when you start to discuss the Security Council in the context of the conflicts raging in Syria and Iraq, it’s important to remember that Russia isn’t the lone voice of dissent among the five permanent members. Recall that back in May of 2014 Beijing voted with Moscow to veto a Security Council resolution that would have seen the conflict in Syria referred to the Hague. Here’s what China had to say at the time:

    For some time now, the Security Council has maintained unity and coordination on the question of Syria, thanks to efforts by Council members, including China, to accommodate the major concerns of all parties. At a time when seriously diverging views exist among the parties concerning the draft resolution, we believe that the Council should continue holding consultations, rather than forcing a vote on the draft resolution, in order to avoid undermining Council unity or obstructing coordination and cooperation on questions such as Syria and other major serious issues. Regrettably, China’s approach has not been taken on board; China therefore voted against the draft resolution.

    Thus far, China hasn’t involved itself directly in the latest round of Mid-East conflicts, but if Xi were to step in, it’s clear that he would side with the Russians and the Iranians which means that when it comes to Turkey and the US putting boots on the ground in Iraq against Baghdad’s wishes, Beijing would almost surely fall on the side of the Iraqis. 

    Sure enough, on Wednesday, the Chinese Foreign Ministry weighed in for the first time. Here’s an excerpt from the statement by spokesperson Hua Chunying:

    “The Chinese side believes that we should deal with state-to-state relationship in accordance with purposes and principles of the UN Charter as well as other widely-recognized basic norms governing international relations, and that Iraq’s sovereignty and territorial integrity shall be respected.”

    That may sound like a rather generic statement, but in fact it sends a very clear message. The implication is that Turkey has violated Iraq’s sovereignty and territorial integrity and that is not something the Security Council should condone. 

    The question becomes this: what happens when Baghdad annuls its agreement with Washington and the US troop presence ends up representing a similar violation of Iraq’s sovereignty?

    If Baghdad were to go to the Security Council and claim that The Pentagon’s deployment of SpecOps to northern Iraq constitutes an illegal act, how would the five permanent members resolve an intractable dispute between the US and France on one side (don’t forget, the French are bombing Iraq as well) and Russia and China on the other? 

    In short: how long until Xi decides it’s time to awaken the sleeping dragon and enter the Mid-East fray?

    For now, Chunying says Beijing will “closely follow the development of the incident.” 

  • Amid Commodity Collapse, World's Most Resource-Driven Economy Posts Greatest Jobs Gain In 15 Years

    When Australia released its October jobs data a month ago (printing an astonishing 58k increase – almost 6 times expectations of a 10k increase), the media threw up all over the farce of the best jobs gain in 3 years (amid commodity price collapses, mining industry bankruptcy fears, and China trade implosions) saying simply "don't believe the jobs figure for October." So we cannot wait to see what the men from downunder make of November's print. With expectations of a 10k drop, Australia added a mind-numbing 71,400 jobs – the most in 15 years!! This is equivalent to the US adding almost 1.75 million jobs in 2 months… They just don't care anymore!

    Best Jobs print in 15 months…

     

    November was an 8 standard deviation beat… which followed a 6 standard deviation beat in October…

    The big surge in jobs last month, which was the largest gain since July 2000, raised renewed skepticism about the accuracy of the data, which the Australian Bureau of Statistics has acknowledged in the past.

    This is the biggest 2-month increase in jobs since January 1988…

     

    Does this look like companies that are hiring at the fastest pace in 27 years!!!

    “It’s hard to believe that employment has grown 130,000 over two months in the context of everything else,” said Michael Turner, fixed-income and currency strategist at Royal Bank of Canada in Sydney. “But there’s got to be some signal in this, not just noise.”

    No – there really doesn't. It seems Australia has figured out how to create jobs when its biggest trading partner is hemorrhaging them…

     

    And it appears the hiring has been going on "stealthily" as businesses are not reporting any improvment at all…

     

    The economic propaganda was slammed last month:

    The ABS is itself cautions against placing too much credence on the monthly figures, which are based on a changing sample, particularly the seasonally adjusted data. The statistician encourages people to focus on the trend estimate (which had the unemployment rate unchanged). 

     

    And, after a series of stuff ups, revisions and methodological changes over the past year, there is even more room for caution.

     

    Last year, the ABS was forced to abandon seasonally adjusted labour force numbers for a period after conceding they were unreliable. The former chief statistician recently said the data was not worth the paper it was written on.

    Wait, what: confidence boosting data is unreliable? Surely you jest.

    And here is the ABC's conclusion confirming at least one "developed" country still have a thinking media: "don't be surprised if the October labour market data is revised."

    Nope, no revision – just an even more ridiculous "injection" of confidence.

    * * *

    If only we could say the same about propaganda rags in the United States

  • "We Are Living Amid An Islamic Threat", French Mayor Says: "Our Country Is At War Inside Our Borders"

    Whatever one’s opinion of the Muslim attacks and the perpetrators behind them, one thing is without dispute – the French response, which has been to quickly impose unlimited emergency laws, is nothing short of the second coming of “Operation Gladio.”

    In addition to warrantless searches and raids, France’s state of emergency laws allow the government to put people under house arrest, seal the country’s borders and ban demonstrations. The laws were created during the Algerian war in 1955.

    France is currently aiming to change its constitution to allow a state of emergency to last for six months, according to government sources. The proposal, which has been slammed by many who say the government is abusing its powers, will be put to ministers on December 23, according to AFP.

    As a result of this unprecedented expansion of the French police state and the emergency legislation enacted after last month’s Paris attacks, there has been a fierce crackdown on not only France’s Islamic population but also on various tangential hotspots such as the arrest of 24 climate activists before the culmination of start of the COP21 climate change summit in Paris at the end of November courtesy of the recently introduced “pre-crime” laws.

    As the local press notes, warrantless searches and raids have become commonplace, a move which many say violates the civil liberties of all citizens, not just Muslims.

    But Muslims definitely are getting the short end of the stick.

    Case in point, Daniel Bushell, the manager of the Pepper Grill restaurant on the outskirts of Paris, who recalled a police raid at his restaurant on Saturday night.

    As the restaurant manager recounted to RT, “They blocked the roads with trucks, and up to 40 armed men stormed our restaurant…Saturday night’s the busiest time. Children were eating. The cops had shotguns, black masks, and shields, making the women tremble with fear. Several officers rushed downstairs, then suddenly…they began breaking the doors with battering rams. The door wasn’t even locked.”

    Elsewhere, the emergency laws, implemented after last month’s terror attacks which killed 130 people and left 352 others injured, have led to thousands of warrantless searches and raids.

    It it’s not just private property that is being targeted – Muslims are also being singled out on the street.

    “Police tried to pull the hood off the head of an Arab friend eating with my little brother. Then they detained him, saying it’s a state of emergency so they have the right,” a local told RT on condition of anonymity, fearing police reprisals. He added that the community is “sick of being targeted.”

    Such targeting is reportedly worse for young people, many of whom said they pull hoods over their faces as soon as they see a police car, so officers can’t see the color of their skin.

    The result: even more antagonism, even more retaliations by both sides, until an intifada-like atmosphere settles, with the two groups determined to hurt and kill each other at every opportunity, for reasons lost in the sands of time (for a historical precedent, look no further than the middle east where virtually every ethnic and religious group has been in a two thousand-year long vendetta with every other group).

    Ultimately, there is just one winner – the Police State, which gets more powerful with every passing day as people have no choice but to abdicate even more civil liberties in order to preserve the illusion of “government security.”

    And just to make sure this continues, one French mayor is willing to go the distance and is not backing down, believing that extra security is necessary because France is “living amid an Islamic threat.”

    This is what Robert Menard, mayor of the French town of Beziers, told RT:

    “I’ve already doubled the number of city policemen, but I went even further. I asked all the former policemen, firefighters and servicemen to come and help to protect our citizens. If my initiative goes against the law, we should change the law. We are living amid an Islamic threat and we should be aware of the consequences. Our country, as well as other European countries, is at war – both outside our borders, in Syria for instance, and inside our borders, because our enemies live in our own country,”

    Robert Menard used to be a journalist, a socialist and the outspoken founder of an international press group, Reporters Without Borders. But 18 months ago he caused shockwaves by winning the town hall of Beziers, a city of more than 71,000, on a far-right ticket.

    In the US, this man’s comments would lead to an unprecedented media scandal; in France they have barely registered.

    As a reminder, all of this was predicted with uncanny precision by AIG in a presentation from May 2008, in which the author answered the question “What Europe Wants“. His answer:

    To use global issues as excuses to extend its power:

    • environmental issues: increase control over member countries; advance idea of global governance
    • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
    • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
    • EMU: create a crisis to force introduction of “European economic government”

    The US police state wants exactly the same things, and it is coming to get them.

  • "Most Hated Man In America" Martin Shkreli Spends $2 Million On Wu-Tang Clan Album

    Back in September, Martin Shkreli became “the most hated man in America” when the Turing Pharma CEO moved to boost the price of a toxoplasmosis drug by 5000%.

    That rather egregious example of unbridled greed immediately caused the American public as well as lawmakers in Washington to begin taking a closer look at a practice that actually happens all the time in Big Pharma even if the industry’s larger players are careful to be a bit less audacious about it than Shkreli. 

    Following the Turing price hike, Democrats on the House oversight committee sent a letter demanding that serial biotech rollup Valeant Pharmaceuticals provide documents explaining hefty price increases for two heart drugs. Around two months later, Senators Susan Collins (R-Maine) and Claire McCaskill (D-Mo.), who together lead the Senate Special Committee on Aging, opened a bipartisan investigation into pharmaceutical drug pricing.

    At that point, we thought Shkreli’s fifteen minutes of fame might have been up – we were wrong.

    Exactly two weeks after the launch of the Senate investigation, Shkreli swooped in and bought over half of the outstanding shares of KaloBios, which at the time was was trading between $1-2/share, representing a market cap between $5 and $10 million. What happened next was the stuff of market tragicomedy legend as the E-trading Joe Campbells of the world lost a small fortune after Shkreli’s purchase sparked a relentless rally that would have been impressive enough on its own had he stopped there. But he didn’t. He then pulled the borrow and “Volkswagen-ed” some folks as we documented in a series of hilarious pieces posted late last month (see here, here, and here). Summing up:

    Ok. Now, prepare yourself for something that will briefly seem like a complete non sequitur – bear with us. 

    Sometime in 2011, or 2012, or 2013, the Wu-Tang Clan began to record a double disc entitled “Once Upon A Time In Shaolin.”

    For those unfamiliar, the Wu-Tang Clan are, well, legends in the rap industry. The group features some of the most famous names to ever touch a mic including Method Man, Raekwon, and Ghostface, all three of which are institutions to hip hop heads the world over. As a team, Wu-Tang has released multiple long plays considered classics among rap aficionados and when you count the various solo offerings from the group’s 10 members, their catalogue is unparalleled in rap’s short history. 

    In March of 2014, Forbes reported that “Once Upon A Time In Shaolin” would be a different type of album. The group would mint only a single copy. It would be sold for at least $1 million and would come in a series of handcrafted boxes by British-Moroccan artist Yahya, whose works have been commissioned by royal families and business leaders around the world.”

    Last month, Forbes reported that the album had been sold in May to an American collector for a price tag “in the millions” which made it at least four times more expensive than “Jack White’s $300,000 purchase of a rare acetate recording of Elvis Presley’s first song.”

    Now you’re probably starting to see where this is going.

    According to RZA (who has always been the group’s frontman if never the Clan’s most famous member), the album attracted many bidders: “Private collectors, trophy hunters, millionaires, billionaires, unknown folks, publicly known folks, businesses, companies with commercial intent, young, old,” he told Bloomberg. “It varied.” Serious bidders got to hear the 13-minute highlights in private listening sessions arranged by Paddle8 (an upstart, angel investor-backed auction house) in New York.

    Enter America’s most hated man (via Bloomberg): 

    One of [the bidders] was a pharmaceutical company executive named Martin Shkreli. He’s 32 years old but seems much younger, with a tendency to fiddle with his hair and squirm in his seat like an adolescent. The son of Albanian immigrants, Shkreli grew up in what he describes as a tough part of Brooklyn’s Sheepshead Bay neighborhood. He skipped grades in school because he was so bright. Shkreli idolized scientists, but he was also a music fan. Primarily interested in rock as a teenager, he didn’t understand rap, but that changed when he read Shakespeare in high school. “You would get these rhyming couplets and soliloquies and stuff like that, but the couplets would really kind of jar you,” he says. “They would be really these big, soul-crushing moments that Shakespeare intended to stir your spirit. And in many ways, music does that.”

     

    Shkreli was taken by the Wu-Tang song C.R.E.A.M., which stands for “Cash Rules Everything Around Me.” It includes the often-repeated phrase “Dolla dolla bill, y’all!” Shkreli turned out to be good at making dollars himself. He founded two hedge funds that shorted pharmaceutical stocks and then started his own drug company, Retrophin, earning a reputation on Wall Street as something of a boy genius. In September 2014, however, he says he was “asked to leave” by the company’s board. Retrophin later alleged after an internal investigation that he’d abused his position and misused assets. Shkreli says that he didn’t do anything without the company’s approval. Retrophin and its former CEO are now facing off in court. “I was pretty pissed,” Shkreli says. “But I realized that it actually would be better for me, maybe not ego-wise, but financially. I could just sell my stock and build my own next company.”

     

    Now that Shkreli had more money, he started collecting music-related items. He once joked on Twitter about trying to buy Katy Perry’s guitar so he could get a date with her. He purchased Kurt Cobain’s Visa card in a Paddle8 auction and occasionally produces it to get a rise out of people when it’s time to pay a check.

     

    Shkreli heard about Once Upon a Time in Shaolin and thought it would be nice to own, too. He attended a private listening session at the Standard Hotel hosted by Paddle8 co-founder Alexander Gilkes. Shkreli, who describes himself as a bit of a recluse, recalls Gilkes telling him that if he bought the record, he would have the opportunity to rub shoulders with celebrities and rappers who would want to hear it. “Then I really became convinced that I should be the buyer,” Shkreli says. (Paddle8 declined to comment, citing their policy of client confidentiality.)

     

    He also got to have lunch with RZA. “We didn’t have a ton in common,” Shkreli says. “I can’t say I got to know him that well, but I obviously like him.”

    Yes, “obviously,” but what also seems obvious is that RZA doesn’t like Shkreli: “The sale of Once Upon a Time in Shaolin was agreed upon in May, well before Martin Skhreli’s [sic] business practices came to light. We decided to give a significant portion of the proceeds to charity,” he told Bloomberg, in a statement.

    Needless to say, Congress is not amused. “My biggest challenge today is to not lose my temper. The facts underlying this hearing are so egregious but it’s hard not to get emotional about it,” Sen. Claire McCaskill (D-Mo.) said on Wednesday. “This is the same guy who thought it was a great idea to pay millions of dollars for the only existing album of the Wu Tang Clan,” she added, incredulous.

    Now, Claire, that’s not true. It’s not “the only existing Wu-Tang album.” In fact, the Clan has sold many millions in their day:

    What he bought was the only existing copy of “Once Upon A Time In Shaolin.” We’re sure that once the Congresswoman understands the distinction, she’ll feel a lot better about the situation. 

    So coming full circle, we can now see why the Martin Shkrelis of the world need to raise prices by thousands of percent (in the process raising healthcare premiums for all Americans as insurers pass along the soaring cost of specialty drugs, which as we reported a few weeks back, has now surpassed the median US household income). If they didn’t, how would they afford one-of-a-kind Wu-Tang albums?

    But before you’re too hard on Shkreli, ask yourself this: how different is this from the big pharma CEO who buys a Rolls Royce and a couple of $50 million Picassos after hiking drug prices? Why is one a titan of industry lauded by the mainstream financial news media and the other a pariah? Both are skewering Americans and getting rich at the expense of the sick. The fact that the public thinks one has better taste than the other is meaningless. 

    *  *  *

    Bonus: Bloomberg’s not-so-subtle tribute to deceased Wu-Tang member Ol’ Dirty Bastard…

    Bonus, Bonus: “Once Upon A Time In Shaolin” documentary from Forbes…

  • Economic Growth: How It Works, How It Fails, & Why Wealth Disparity Occurs

    Submitted by Gail Tverberg via Our Finite World,

    Economists have put together models of how an economy works, but these models were developed years ago, when the world economy was far from limits. These models may have been reasonably adequate when they were developed, but there is increasing evidence that they don’t work in an economy that is reaching limits. For example, my most recent post, “Why ‘supply and demand’ doesn’t work for oil,” showed that when the world is facing the rising cost of oil extraction, “supply and demand” doesn’t work in the expected way.

    In order to figure out what really does happen, we need to consider findings from a variety of different fields, including biology, physics, systems analysis, finance, and the study of past economic collapses. Since I started studying the situation in 2005, I have had the privilege of meeting many people who work in areas related to this problem.

    My own background is in mathematics and actuarial science. Actuarial projections, such as those that underlie pensions and long term care policies, are one place where historical assumptions are not likely to be accurate, if an economy is reaching limits. Because of this connection to actuarial work, I have a particular interest in the problem.

    How Other Species Grow 

    We know that other species don’t amass wealth in the way humans do. However, the number of plants or animals of a given type can grow, at least within a range. Techniques that seem to be helpful for increasing the number of a given species include:

    • Natural selection. With natural selection, all species have more offspring than needed to reproduce the parent. A species is able to continuously adapt to the changing environment because the best-adapted offspring tend to live.
    • Cooperation. Individual cells within an organism cooperate in terms of the functions they perform. Cooperation also occurs among members of the same species, and among different species (symbiosis, parasites, hosts). In some cases, division of labor may occur (for example, bees, other social insects).
    • Use of tools. Animals frequently use tools. Sometimes items such as rocks or logs are used directly. At other times, animals craft tools with their forepaws or beaks.

    All species have specific needs of various kinds, including energy needs, water needs, mineral needs, and lack of pollution. They are in constant competition with both other members of the same species and with members of other species to meet these needs. It is individuals who can out-compete others in the resource battle that survive. In some cases, animals find hierarchical behavior helpful in the competition for resources.

    There are various feedbacks that regulate the growth of a biological system. For example, a person or animal eats, and later becomes hungry. Likewise, an animal drinks, and later becomes thirsty. Over the longer term, animals have a reserve of fat for times when food is scarce, and a small reserve of water. If they are not able to eat and drink within the required timeframe, they will die. Another feedback within the system regulates overuse of resources: if any kind of animal eats all of a type of plant or animal that it requires for food, it will not have food in the future.

    Energy needs are one of the limiting factors, both for individual biological members of an ecosystem, and for the overall ecosystem. Energy systems need greater power (energy use per period of time) to out-compete one another. The Maximum Power Principle by Howard Odum says that biological systems will organize to increase power whenever system constraints allow.

    Another way of viewing energy needs comes from the work of Ilya Prigogine, who studied how ordered structures, such as biological systems, can develop from disorder in a thermodynamically open system. Prigogine has called these ordered structures dissipative systems. These systems can temporarily exist as long as the system is held far from equilibrium by a continual flow of energy through the system. If the flow energy disappears, the biological system will die.

    Using either Odum’s or Prigogine’s view, energy of the right type is essential for the growth of an overall ecosystem as well as for the continued health of its individual members.

    How Humans Separated Themselves from Other Animals

    Animals generally get energy from food. It stands to reason that if an animal has a unique way of obtaining additional energy to supplement the energy it gets from food, it will have an advantage over other animals. In fact, this approach seems to have been the secret to the growth of human populations.

    Human population, plus the domesticated plants and animals of humans, now dominate the globe. Humans’ path toward population growth seems to have started when early members of the species learned how to burn biomass in a controlled way. The burning of biomass had many benefits, including being able to keep warm, cook food and ward off predators. Cooking food was especially beneficial, because it allowed humans to use a wider range of foodstuffs. It also allowed bodies of humans to more easily get nutrition from food that was eaten. As a result, stomachs, jaws, and teeth could become smaller, and brains could become bigger, enabling more intelligence. The use of cooked food began long enough ago that our bodies are now adapted to the use of some cooked food.

    With the use of fire to burn biomass, humans could better “win” in the competition against other species, allowing the number of humans to increase. In this way, humans could, to some extent, circumvent natural selection. From the point of the individual who could live longer, or whose children could live to maturity, this was a benefit. Unfortunately, it had at least two drawbacks:

    1. While animal populations tended to become increasingly adapted to a changing environment through natural selection, humans tend not to become better adapted, because of the high survival rate that results from more adequate food supplies and better healthcare. Humans might eventually find themselves becoming less well adapted: more overweight, or having more physical disabilities, or having more of a tendency toward diabetes.
    2. Without a natural limit to population, the quantity of resources per person tends to decline over time. For example, such a tendency tends to lead to less farmland per person. This would be a problem if techniques remained the same. Thus, rising population tends to lead to constant pressure to raise output (more food per arable acre or technological advancements that allow the economy to “do more with less”).

    How Humans Have Been Able to Meet the Challenge of Rising Population Relative to Resources

    Humans were able to meet the challenge of rising population by taking the techniques many animals use, as described above, and raising them to new levels. The fact that humans figured out how to burn biomass, and later would learn to harness other kinds of energy, gave humans many capabilities that other animals did not have.

    • Co-operation with other humans became possible, through a variety of mechanisms (learning of language with our bigger brains, development of financial systems to facilitate trade). Even as hunter-gatherers, researchers have found that economies of scale (enabled by co-operation) allowed greater food gathering per hectare. Division of labor allowed some specialization, even in very early days (gathering, fishing, hunting).
    • Humans have been able to domesticate many kinds of plants and animals.  Generally, the relationship with other species is a symbiotic relationship–the animals gain the benefit of a steady food supply and protection from predators, so their population can increase. Chosen plants have little competition from “weeds,” thanks to the protection humans provide. As a result, they can flourish whether or not they would be competitive with other plants and predators in the wild.
    • Humans have been able to take the idea of making and using tools to an extreme level. Humans first started by using fire to sharpen rocks. With the sharpened rocks, they could make new devices such as boats, and they could make spears to help kill animals for food. Tools could be used for planting the seeds they wanted to grow, so they did not have to live with the mixture of plants nature provided. We don’t think of roads, pipelines, and lines for transmitting electricity as tools, but as a practical matter, they also provide functions similar to those of tools. The many chemicals humans use, such as herbicides, insecticides, and antibiotics, also act in way similar to tools. The many objects that humans create to make life “better” (houses, cars, dishwashers, prepared foods, cosmetics) might in some very broad sense be considered tools as well. Some tools might be considered “capital,” when used to create additional goods and services.
    • Humans created businesses and governments to enable better organization, including division of labor and hierarchical behavior. A single person can create a simple tool, just as an animal can. But there are economies of scale, such as when many devices of a particular kind can be made, or when some individuals learn specialized skills that enable them to perform particular tasks better. As mentioned previously, even in the days of hunter-gatherers, there were economies of scale, if a larger group of workers could be organized so that specialization could take place.
    • Financial systems and changing systems of laws and regulations provide additional structure to the system, telling businesses and customers how much of a given product is required at a given time, and at what prices. In animals, appetite and thirst determine how important obtaining food and water are at a given point in time. Financial systems provide a somewhat similar role for an economy, but the financial system doesn’t operate within as constrained a system as hunger and thirst. As a result, the financial system can give strange signals, including prices that at times fall below the cost of extraction.
    • Humans have tended to put resources of many kinds (arable land, land for homes and businesses, fresh water, mineral resources) under the control of governments. Governments then authorize particular individuals and business to use this land, under various arrangements (“ownership,” leases, or authorized temporary usage). Governments often collect taxes for use of the resources. The practice is in some ways similar to the use of territoriality by animals, but it can have the opposite result. With animals, territoriality is used to prevent crowding, and can act to prevent overuse of shared resources. With human economies, ownership or temporary use permits can lead to a government sanctioned way of depleting resources, and thus, over time, can lead to a higher cost of resource extraction.

    Physicist François Roddier has described individual human economies as another type of dissipative structure, not too different from biological systems, such as plants, animals, and ecosystems. If this is true, an adequate supply of energy is absolutely essential for the growth of the world economy.

    We know that there is a very close tie between energy use and the growth of the world economy. Energy consumption has recently been dropping (Figure 1), suggesting that the world is heading into recession again. The Wall Street Journal indicates that a junk bond selloff also points in the direction of a likely recession in the not-too-distant future.

    Figure 1. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

    Figure 1. Three year average growth rate in world energy consumption and in GDP. World energy consumption based on BP Review of World Energy, 2015 data; real GDP from USDA in 2010$.

    What Goes Wrong as Economic Growth Approaches Limits?

    We know that in the past, many economies have collapsed. In fact, if Roddier is correct about economies being dissipative structures, then we know that economies cannot be expected to last forever. Economies will tend to run into energy limits, and these energy limits will ultimately bring them down.

    The symptoms that occur when economies run into energy limits are not intuitively obvious. The following are some of the things that generally go wrong:

    Item 1. A slowdown in economic growth.

    Research by Turchin and Nefedov regarding historical collapses shows that growth tended to start in an economy when a group of people discovered a new energy-related resource. For example, a piece of land might be cleared to allow more arable land, or existing arable land might be irrigated. At first, these new resources allowed economies to grow rapidly for many years. Once the population grew to match the new carrying capacity of the land, economies tended to hit a period of “stagflation” for another period, say 50 or 60 years. Eventually “collapse” occurred, typically over a period of 20 or more years.

    Today’s world economy seems to be following a similar pattern. The world started using coal in quantity in the early 1800s. This helped ramp up economic growth above a baseline of less than 1% per year. A second larger ramp up in economic growth occurred about the time of World War II, as oil began to be put to greater use (Figure 2).

    Figure 2. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil's Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

    Figure 2. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends for 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.

    Worldwide, the economic growth rate hit a high point in the 1950 to 1965 period, and since then has trended downward. Figure 2 indicates that in all periods analyzed, the increase in energy consumption accounts for the majority of economic growth.

    Since 2001, when China joined the World Trade Organization, world economic growth has been supported by economic growth in China. This growth was made possible by China’s rapid growth in coal consumption (Figure 3).

    Figure 3. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

    Figure 3. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

    China’s growth in energy consumption, particularly coal consumption, is now slowing. Its economy is slowing at the same time, so its leadership in world economic growth is now being lost. There is no new major source of cheap energy coming online. This is a major reason why world economic growth is slowing.

    Item 2. Increased use of debt, with less and less productivity of that debt in terms of increased goods and services produced.  

    Another finding of Turchin and Nefedov is that the use of debt tended to increase in the stagflation period. Since growth was lower in this period, it is clear that the use of debt was becoming less productive.

    If we look at the world situation today, we find a similar situation. More and more debt is being used, but that debt is becoming less productive in terms of the amount of GDP being provided. In fact, this pattern of falling productivity of debt seems to have been taking place since the early 1970s, when the price of oil rose above $20 per barrel (in 2014$). It is doubtful that that economic growth can occur if the price of oil is above $20 per barrel, without debt spiraling ever upward as a percentage of GDP. It is supplemental energy that allows the economy to function. If the price of energy is too high, it becomes unaffordable, and economic growth slows.

    Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.

    Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See author’s post on debt for explanation of methodology.

    China has been using debt to fund its recent expansion. There is evidence that it, too, is encountering falling productivity of additional debt.

    We mentioned that appetite controls how much an animal eats. Debt helps control demand for energy products, and in fact, for products of all kinds in the economy. Appetite is different from debt as a regulator of demand. For one thing, debt can be used for an almost unlimited number of purposes, whether or not these purposes have any real possibility of adding GDP to the economy. (This is especially true if interest rates are close to 0%, or even negative.) There are few controls on debt. Governments have discovered that in some instances, debt stimulates an economy. Because of this, governments have tended to be very liberal in encouraging growth in debt. Often, when a debtor is near default, this problem is hidden by extending the term of the loan and pretending that no problem exists.

    With respect to biological organisms, energy is often stored up as fat and used later when there is a shortfall of energy. This is the opposite of the way financing for human “tools” generally works. Here financing is often obtained when a tool is put into operation, with the hope that the new tool will pay back its worth, plus interest, over the life of the tool. Much debt doesn’t even have such a purpose; sometimes it is used simply to make an expensive object easier to purchase, or to give a young person (perhaps with poor grades) an opportunity to attend college. When debt has such poor regulation, we cannot expect it to work as reliably as biological mechanisms in feeding back information regarding true “demand” through the price system.

    Item 3. Increased disparity of wages; non-elite workers earning less.

    Item 3 is another problem that Turchin and Nefedov encountered in reviewing economies that collapsed. One of the reasons for the increased disparity of wages is the increased need for hierarchical relationships if an economy wants to work around a shortfall in goods and services by adding new “tools”. Businesses and governments need to grow larger if they are to accommodate these more complex processes. In such a case, the natural tendency is for these organizations to become more hierarchical in nature. Also, if there is growth, followed by a temporary need to shrink back, the cutbacks are likely to come disproportionately from the lower ranks of workers, reinforcing the hierarchical structure.

    Figure 5. Chart by Pavlina Tscherneva, in Reorienting Fiscal Policy, as reprinted by the Washington Post.

    Figure 5. Chart by Pavlina Tscherneva, in Reorienting Fiscal Policy, as reprinted by the Washington Post.

    Funding arrangements for the new “tools” to work around shortages add to the hierarchical behavior. Typically, businesses must expand to fund the development of the new tools. This expansion may be funded by debt, or by stock programs. Regardless of which approach is used for funding, the programs tend to funnel an increasing share of the wealth of the economy to the wealthier members of the economy. This happens because interest payments and dividend payments both go disproportionately to benefit those who are already high up on the wealth hierarchy.

    Furthermore, the inherent problem of fewer resources per person is not really solved, so an increasingly large share of jobs become “service” jobs, using only a small quantity of energy products, but also providing little true benefit to the economy. The wages for these jobs are thus low. The addition of these low-paid jobs to the economy further reinforces the hierarchical nature of the system.

    In a sense, what is happening is that the economy as a whole is growing very little in output of goods and services. An ever-larger share of the output is going to the wealthier members of the economy, because of increased hierarchical behavior and because of growth in debt and dividend payments. Non-elite members of the economy find their wages falling in inflation adjusted terms, because, in a sense, the productivity of their labor as leveraged by a falling amount of energy resources is gradually contracting, rather than increasing. It becomes increasingly difficult for the low-paid members of the economy to “pay the wages” of the high-paid members of the economy, so overall demand for goods and services tends to contract. As a result, the increasingly hierarchical behavior of the economy pushes the economy even more toward contraction.

    Item 4. Increased difficulty in obtaining adequate funding for government programs.

    Governments operate on the surpluses of an economy. As an economy finds itself in a squeeze (job loss, more workers with lower wages, fewer goods and services being produced), governments find themselves increasingly called upon to deal with these problems. Governments may need larger armies to try to obtain resources elsewhere, or they may be needed to build a public works project (like a dam, to get more water and hydroelectric power), or they may need to make transfer payments to displaced workers. Here again, Turchin and Nefedov found governmental funding to be one of the problems of economies reaching limits.

    Energy products are unique in that their value to society can be quite different from their cost of extraction. A third value, which may be different from either of the first two values, is the selling price of the energy product. When the cost of producing energy products is low, the wide difference between the value to society and the cost of extraction can be used to fund government programs and to raise the wages of workers. In fact, this difference seems to be a primary reason why economic growth occurs. (This difference is not recognized by most economists.)

    As the cost of extraction of energy products rises, the difference between the value to society and the cost of extraction falls, because the value to society is pretty close to fixed (except for changes taking place because of energy efficiency changes), based on how far a barrel of oil can move a truck or how many British thermal units of energy it can provide. As the cost of energy extraction rises, it becomes increasingly difficult to obtain enough tax revenue, either from taxing energy products directly, or from taxing wages. Wages tend to reflect the energy consumption required to support each job because supplemental energy acts to leverage the abilities of workers, and thus improves their productivity.

    Energy selling prices may behave in a strange manner, as an economy increasingly reaches limits. Falling prices redistribute what gain is available, so that energy importers get more, while energy exporters get less. Of course, the problem we are now seeing is that oil exporting countries are having difficulty obtaining sufficient revenue for their programs.

    Debt is different this time

    This time truly is different. We should have learned from past experience that debt tends not to be very permanent; it often defaults. We should therefore expect huge periods of debt defaults, and we should expect to need frequent debt jubilees. Economist Michael Hudson reports that the structure of debt was very different in the past (Killing the Host or excerpt). In early times, he found that by far the major creditors were the temples and palaces of Bronze Age Mesopotamia, not private individuals acting on their own. Because of the top-down nature of the debt, it was easy for the temples and palaces to forgive debt and restore balance to the social structure.

    Now, especially since World War II, there is a new belief in the permanency of debt, and about its suitability for funding insurance companies, banks, and pension plans. The rise in economic growth after World War II was important in this new belief in permanency, because without economic growth, it is extremely difficult to pay back debt with interest, unless debt is used for a truly productive purpose. (See also Figures 2 and 4, above)

    FIgure 6. Ngram showing frequency of words over a period of years, by Google searches in books.

    Figure 6. Ngram showing frequency of words over a period of years, by Google searches of a large number of books. Words searched from top to bottom are “economic growth, IRA, financial services, MBA, and pension plans.”

    The Ngram chart above, showing the frequency of word searches for “economic growth, IRA (Individual Retirement Accounts), financial services, MBA (Master of Business Administration), and pension plans” indicates that economic growth was essentially a new concept after World War II. Once it became clear that the economy could grow, financial services began to grow, as did the training of MBAs. Pension plans grew at first, but once companies with pension programs found that it was difficult to keep them adequately funded, there was a shift to IRAs. With IRAs, employees are expected to fund their own retirements, generally using a combination of stock and debt purchases.

    Now that debt is “reused” and integrated into the economy, it becomes much more difficult to forgive. We have a situation where insurance companies, banks, and pension plans are all tied together. They all depend on the current economic growth paradigm, including use of debt with interest, continued dividend plans, and rising stock market prices. We have a major problem if widespread debt defaults start.

    Demographic Bubble

    The other problem we are up against, making government funding even more difficult than it would otherwise be, is the retirement of the baby boomers, born soon after World War II. This by itself would be a problem for maintaining adequate government funding. When it is added to multiple other problems, including bailing out banks, insurance companies, and pension plans if there are debt defaults, the demographic bubble leaves us in much worse shape than economies that reached limits in the past.

    Note that High Energy Prices Are Not on the List of Expected Problems

    The idea that as we approach limits, we should expect ever-higher energy prices, is simply not true. It should be viewed as a superstition, or as an erroneous understanding of our current situation, based on a poor model of energy supply and demand. Turchin and Nefedov found evidence of spiking food prices, perhaps similar to the spiking we saw in energy prices as we approached the peak in prices in 2008. But with wages of non-elite workers falling too low, especially on an after-tax basis, it was hard for prices to continue to spike.

    The idea that collapse can come from low prices, rather than high, is something that is not obvious, unless a person thinks through the situation carefully. Prices seem to be primarily influenced by two factors:

    (1) Wages of non-elite workers. These wages are important because there is such a large number of them. If their wages are high enough, they buy homes, cars, and other products that are big users of commodities, both when they are made, and as they are operated.

     

    (2) Increases or decreases in the amount of debt outstanding. If debt defaults start to rise, it is very easy for growth in the quantity of debt outstanding to slow, or even to fall. In such a case, low commodity prices, rather than high, become a problem. As economic growth slows, we should expect more debt defaults, not fewer. There is also a limit to how high Debt/GDP ratios can rise before many suspect that the world economy functions much like a Ponzi Scheme.

    Mark Twain wrote, “It ain’t what you know that gets you in trouble. It’s what you know for sure, that just ain’t so.” This is especially a problem for academic researchers who depend on the precedents of past academic papers. A researcher may have come to a conclusion years ago, based on a narrow set of research that didn’t cover today’s conditions. The belief can get carried forward endlessly, even though it isn’t really true in today’s situation.

    If we are going to figure out the real answer to how the economy operates, we need to look closely at indications from many areas of research. Such an approach can allow us to see the situation in a broader context and thus “weed out” firmly held beliefs that aren’t really true.

  • Mark Zuckerberg Storms Into The Trump 'Muslim Ban' Scandal, Tells Muslims "You Are Always Welcome Here"

    Moments ago, the latest high profile media figure to boldly go into the rapidly spreading Trump “ban Muslims” scandal, was none other than Facebook CEO Mark Zuckerberg, who in a post on his social network, took the other side of Trump declaring that “Muslims are always welcome here” and that Facebook will “fight to protect your rights and create a peaceful and safe environment for you.” It was not immediately clear if the “community” he was welcoming Muslims to is the United States or the online world of Facebook ad clickers. 

    His full Facebook post (which has so far been “liked” over 215K times) is below:

    I want to add my voice in support of Muslims in our community and around the world.

     

    After the Paris attacks and hate this week, I can only imagine the fear Muslims feel that they will be persecuted for the actions of others.

     

    As a Jew, my parents taught me that we must stand up against attacks on all communities. Even if an attack isn’t against you today, in time attacks on freedom for anyone will hurt everyone.

     

    If you’re a Muslim in this community, as the leader of Facebook I want you to know that you are always welcome here and that we will fight to protect your rights and create a peaceful and safe environment for you.

     

    Having a child has given us so much hope, but the hate of some can make it easy to succumb to cynicism. We must not lose hope. As long as we stand together and see the good in each other, we can build a better world for all people.

    To some online commentators, the statement rings of hollow cynicism, since the gentrified Palo Alto enclave for uber wealthy tech millionaires where Zuckerberg lives is hardly the diverse melting pot of social, ethical and religious strife and tensions, which have come to characterize many of the world’s geographic areas where cohabitation between Muslims and other religions has in recent months unleashed an unprecedented backlash – especially in Europe – against Muslims.

    To others, Zucherberg’s statement comes as a surprise that the social media mogul, who has until now resisted involvement in any openly political debates, has decided to so loudly wage right into this one.

    The reason is that according to a just released poll, nearly two-thirds of likely GOP primary voters support Trump’s proposal to ban Muslims from coming into the country. The latest Bloomberg Politics/Purple Strategies PulsePoll released Wednesday reveals that the real estate mogul’s latest remarks are backed by 65 percent of likely GOP voters. When told both sides of the argument, support for Trump’s proposal remained relatively unchanged at 64 percent.

    The online poll conducted Wednesday also found that about 37 percent of those surveyed would be more likely to vote for the businessman after his call to temporarily halt Muslims from entering the United States until elected leaders can “figure out what’s going on.”

    The risk that Zuckerberg is taking is that by openly endorsing the other side of the argument, while making an ethical stand he is also jeopardizing a business model which relies on the goodwill of its users, many of whom may be openly antagonized by Zuckerberg’s moral stance. And since that 65% of GOP potential GOP voters, whose ideological position is now diametrically opposed to that of the Facebook CEO, is in the tens of millions of Americans, one wonder just how many of the 167 million in North American Daily Active Users…

    … Zuckerberg is willing to sacrifice in order to make his stand?

    Meanwhile, even as support for Trump’s proposal appears to be widespread within the republican constituency, others don’t share that view as can be seen by what Atlanta police have dubbed to be “Trump Swastika” which have been reported in various locations in Atlanta.

     

    Finally, taking a campaign that has been unorthodox, to say the least, from the start, late yesterday one of the biggest losers from Trump’s relentless popularity, Jeb Bush, went on twitter to speculate that Trump’s campaign is nothing but a conspiracy with Hillary, one which will “put here in the White House”

    The Telegraph had some thoughts on the matter:

    Could Donald Trump be doing all this to wreck the Republican Party and clear the path for his old friend Hillary Clinton to take the White House. Here’s the supporting evidence, such as it is:

    1. As recently as 2012 Trump said this of Mrs Clinton: “Hillary Clinton I think is a terrific woman. I am biased because I have known her for years. I live in New York. She lives in New York. I really like her and her husband both a lot. I think she really works hard.”
    2. Trump previously donated money to Mrs Clinton in 2002, 2005, 2006 and 2007.
    3. Trump has donated more than $100,000 to the Clinton Foundation.
    4. Trump’s daughter Ivanka is close friends with Chelsea Clinton.
    5. In 2005 Hillary Clinton attended Mr Trump’s wedding to Melania Knauss, his current wife, in Florida.
    6. Trump was a registered Democrat between 2001 and 2009 before switching to the Republican Party.
    7. It all adds up for Jeb Bush, whose campaign has been killed by Trump’s popularity. Bush said: “Maybe Donald negotiated a deal with his buddy Hillary Clinton. Continuing this path will put her in the White House.”

    Or perhaps, the conspiracy is even greater.

    According to the Chief Investment Officer of CalSTRS, “a presidential matchup between Republican Donald Trump and Democrat Hillary Clinton could sap a full percentage point from anticipated growth in the gross domestic product, the chief investment officer of the second-largest U.S. pension fund said.“

    “Can you imagine a whole year of Trump and Hillary going at each other?” Christopher Ailman, who manages the California State Teachers’ Retirement System’s $184 billion portfolio, said Tuesday on Bloomberg Television. “It’s going to be a drag on the economy.”

    Ailman said 70 percent of the U.S. economy is based on consumer sales, and a divisive presidential campaign is likely to depress consumer confidence. He didn’t comment on Clinton but said Trump’s statements “reverberate” across the global economy. The Republican real-estate mogul, who leads in all national polls for his party’s nomination, this week called for a ban on Muslims entering the U.S.

     

    “I’m worried about 2016,” said Ailman, who has a degree in business economics. “If you took everybody’s GDP projections of 2 to 3 percent growth, I’m sad to say you could probably take a full percentage point off of that.”

    In a year in which a record El Nino is expected to make the GDP-crushing “harsh winter” a distant memory, perhaps a Trump vs Clinton campaign is precisely what the soon to be much weaker US economy needs as the Fed is in urgently need of an alibi when the “expected” growth resulting from the December 16 rate hike fails to materialize – and in fact leads to just the opposite outcome – and the Fed is forced to backtrack instead, launching either NIRP or more QE or both. Thanks to Trump and Hillary going “at each other”, of course.

    What the answer is we don’t know, although as US society appears ready to split along racial, social, cultural and religious lines, we have somehow never felt quite so entertained even as society is quietly tearing itself apart.

  • How Many People Were Shot Near Your Home This Year: Find Out With This Interactive Map

    In the wake of last week’s massacre in San Bernardino, gun violence is once again the topic du jour in America. 

    Gun control crusaders claim the problem is easy access to firearms while gun advocates say America would actually be safer if more responsible citizens obtained concealed carry permits. In between the two extremes are those who support tougher background checks and/or limits on what type of firearms citizens should legally be allowed to purchase. 

    And the debate doesn’t just center around the string of mass shootings that have unfolded across the US over the past several years. There are also very real concerns about the proliferation of gun violence in cities like Chicago and Baltimore.

    The debate reaches to the highest levels of government with politicians on both sides of the aisle weighing and indeed, just two days ago The Supreme Court came down on the side of limiting access to “assault weapons”, a classification which one Illinois resident called “pejorative” in a complaint. 

    Given all the attention the issue has received of late, you might be curious to know just how prevalent gun violence actually is where you live. Fortunately, there’s a map for that courtesy of Slate and The Trace, an independent, nonprofit news organization dedicated to expanding coverage of guns in the United States.

    Utilizing data from the Gun Violence Archive, The Trace has developed an interactive map which allows you to discover how many fatal and non-fatal shooting have occurred in a particular area. Essentially, the map uses location data to find where you are, and tells you if anyone has been shot there recently.

    (click for interactive version)

    *  *  *

    Excerpts from “How Many People Have Been Shot Near You This Year“, by Alex Yablon and Chris Kirk, as published in The Trace

    In relentless succession, a parade of towns and cities have this year joined the bloodstained ranks of American mass shooting locations. The mere mention of the places — Charleston, Chattanooga, Colorado Springs, San Bernardino — evokes images made familiar at Columbine and Virginia Tech and Tucson and Newtown: the police battalions rushing to respond, the shocked survivors and bereft loved ones, the eerie portraits of newly infamous killers.

    But the truth is that these cities and towns and the events that now define them, however lethal they were and however large they understandably loom, comprise just a small fraction of the gun violence recorded in America during this or any year. In 2013, the last year for which government statistics are available, less than 2 percent of more than 33,000 gun deaths in the country were due to mass shootings. Tallies of gun-related fatalities are in turn dwarfed by totals for gun injuries. Every 12 months, more than 130,000 people are shot; many are left with devastating physical impairments and crippling health care bills.

    Thanks to a nonprofit, nonpartisan project known as the Gun Violence Archive, data on gun homicides and non-fatal shootings is now available well before the federal government releases its statistics. That data includes location information that makes it possible to plot those shootings on a map showing how many have taken place in your vicinity. Where someone was killed, the shooting is coded in red (this includes multiple victim incidents with a mix of fatalities and injuries). Shootings resulting in injuries but not deaths are coded in yellow.

    In all, the map contains 30,284 incidents recorded by the Gun Violence Archive from December 5, 2014 to December 5, 2015. As comprehensive as it is, it’s also incomplete: Guns are used in twice as many suicides as homicides (and are the most lethal means of suicide). But because many suicides are not reported in real time by the law enforcement sites and news outlets that the GVA mines in compiling its database, they are missing from this visualization. 

    What you’re seeing, then, is gun violence in all its other forms: homicides, attempted murders, assaults, self-defense shootings, and accidents. For 80 percent of cases, location information for the shooting is available down to the block level. Another 18 percent of locations are exact to the street level, with the remaining 2 percent limited to the city level.

  • How Hillary Clinton Abused Her State Department Role To Help Her Hedge Funder Son-In-Law

    While Hillary Clinton may have had some entertaining problems when using her Blackberry (or was that iPad) as US Secretary of State, one thing she excelled at was nepotism.

    According to the latest set of emails released by the State Department, and first reported by the Daily Caller, Hillary intervened in a request forwarded by her son-in-law, Marc Mezvisnky, on behalf of a deep-sea mining firm, Neptune Minerals, to meet with her or other State Department officials.

    One of the firm’s investors, Harry Siklas who was Mezvinsky’s coworker at Goldman (which donated between $1 and $5 million to the Clinton Foundation) had asked Mezvinsky, who married Chelsea Clinton in 2010 and who currently runs his own hedge fund (in which Goldman CEO Blankfein is also an investor) for help setting up such contacts, an email from May 25, 2012 shows.

    Siklas told Mezvinsky that Neptune Minerals (a company founded by one of Siklas’ close friends) was poised for great things. He also touted an investment that Goldman Sachs –  had made in the company, which had underwater tenements in the South Pacific.

    Siklas said that he and Adam hoped to meet with State Department officials, including Clinton, to discuss deep sea mining “and the current legal issues and regulations” surrounding it.

    “I introduced them to GS and the bankers took them on as a client,” Siklas wrote.

    “There is a favor I need to ask, and hopefully it will not put you out, as I’m not one to ask for favors typically,” Siklas wrote to Mezvinsky. “I need a contact in Hillary’s office.”

    “Siklas said that he and Adam hoped to meet with State Department officials, including Clinton, to discuss deep sea mining “and the current legal issues and regulations” surrounding it.

    As AP adds, the lobbying effort on behalf of Neptune Minerals  came while Hillary Clinton — now the leading Democratic presidential candidate — was advocating for an Obama administration push for Senate approval of a sweeping Law of the Sea Treaty. The pact would have aided U.S. mining companies scouring for minerals in international waters, but the Republican-dominated Senate blocked it.

    Clinton then ordered a senior State Department official, Thomas Nides and now a vice chairman at Morgan Stanley, to look into the request in August 2012.

    “Could you have someone follow up on this request, which was forwarded to me?” Clinton asked Nides.

    Nides replied: “I’ll get on it.”

    The emails do not show whether Clinton or other State Department officials met with Harry Siklas or with executives from the Florida-based firm. Clinton’s official calendars, recently obtained by The Associated Press, also do not show any meetings between Clinton and Neptune representatives.

    Clinton’s campaign declined through a spokesman to discuss the issue, despite AP asking detailed questions about the matter since Nov. 30. The AP attempted to reach Siklas and a Neptune executive, Josh Adam, by phone, email and in-person visits to their homes last week but received no replies.

    As noted above, Siklas had said in his email that his then-employer, Goldman Sachs, was representing Neptune.

    Unperturbed by the State Department’s stonewalling, AP then dug deeper into its quest to see just how extensive the nepotism ran:

    A spokesman for Eaglevale said Mezvinsky would not comment on his role. Emails to a spokeswoman for Chelsea Clinton went unreturned. Morgan Stanley officials did not respond to an AP request to interview Nides. The AP also left three phone messages with Neptune Minerals’ office in St. Petersburg, Florida, and also left several phone and email messages with Hans Smit, the firm’s current president, also with no reply.

     

    Federal ethics guidelines warn government employees to “not give preferential treatment to any private organization or individual,” but there are no specific provisions prohibiting officials from considering requests prompted by relatives.

    As the AP then notes, “Clinton’s willingness to intercede as a result of her son-in-law’s involvement is the latest example of how the Clinton family’s interests cut across intersecting spheres of influence in American politics, commerce and charity.”

    There’s more:

    A lawyer for an environmental group opposing deep-sea mining said Clinton’s action was “cause for concern that the State Department might take any action that could encourage such activity.” Emily Jeffers, an attorney for the Center for Biological Diversity, a group opposing deep-sea mining, filed suit against Commerce Secretary Penny Pritzker and the National Oceanic and Atmospheric Administration last May, accusing the agencies of failing to conduct comprehensive environmental tests before licensing Lockheed Martin Corp. to mine for minerals in U.S. territorial waters in the Pacific Ocean.

     

    Jeffers said her organization supports the Law of the Sea Treaty that Clinton championed during her tenure at the State Department. She said the proposal would give the U.S. and other countries roles in establishing standards to explore for oil, gas and minerals. Jeffers said her group worries that the U.S. and other commercial nations will encourage deep-sea mining once the treaty is adopted.

     

    One provision of the treaty, backed by corporate interests, would allow nations, including the U.S., to sponsor mining companies seeking to scour deep seas for minerals. Clinton told senators in May 2012 that American mining firms would only be able to compete freely against foreign rivals under standards set by the treaty.

     

    Seabed mining is “very expensive, and before any company will explore a mine site, it will naturally insist on having a secure title to the site and the minerals it will recover,” she said.

    Clinton’s public push for a U.S. role in securing deep sea mining rights quickly hit home at Neptune Mining. Three days after her Senate appearance, Siklas, who described himself as a “passive investor” in Neptune, emailed Mezvinsky.

    As Siklas explained to Clinton’s son in law, Neptune was pursuing sea-floor massive sulfide (SMS) mining in the South Pacific and had just bought out two other mining firms. Siklas said that he and Adam needed “a contact in Hillary’s office: someone my friend Josh (and I perhaps) can reach out via email or phone to discuss SMS mining and the current legal issues and regulations.” Siklas, then registered as a stockbroker at Goldman Sachs in New York, had contributed $2,000 to Hillary Clinton’s 2008 unsuccessful presidential bid.

    Siklas said the State Department would be interested in the subject following Clinton’s Senate testimony. He said he and Adam “would feel very fortunate to have someone’s ear on this topical issue, with the hope that at some point we get in front of the secretary herself.”

    And since the emails do not show how Clinton became directly aware of Siklas’ email to Mezvinsky or why it took three months for her to act after Mezvinsky became involved, it also raises questions how many emails in the chain had been illegally deleted, and what may be contained in them. As the Daily Caller observes:

    … it is unclear why there is no record of Clinton being forwarded the email that Siklas sent to Mezvinsky. Clinton wrote in her email to Nides that she was forwarded the email from Siklas to her son-in-law. If Clinton had turned over all work-related emails that she has sent or received — as she has repeatedly claimed — it would be expected that she had an email sent directly to her inbox with Siklas’s email attached.

    The answer is simple: Clinton did not in fact produce all emails as had been demanded. But while the emails do not show a reply from Mezvinsky, Hillary Clinton eventually obtained a copy and sent it to Nides that August, ordering a follow-up.

    Most importantly, as DC concludes, the email shows that people close to Clinton had the inside track in pushing her their pet projects — a pattern that has been on display with nearly every monthly release of Clinton emails. 

    For those who are shocked, feel free to read what little evidence Clinton did provide of just that, shown below.

  • The Screaming Fundamentals For Owning Gold

    Submitted by Chris Martenson via PeakProsperity.com,

    Every year or two we update this report, which lays out the investment thesis for gold. Here is this year's version.

     

    Silver is touched upon only as necessary; as a separate report of equal scope is required for that precious metal.

     

    Gold is one of the few investments that every investor should have in their portfolio. We are now at the dangerous end-game period of a very bold but very reckless & disappointing experiment with the world's fiat (unbacked) currencies. If this experiment fails — and we observe it's in the process of failing — gold will provide one of the best forms of wealth insurance. But like all insurance products, it only works if you buy it before you need to rely on it.

    Risky Markets

    As the world’s central banks perform increasingly bizarre and desperate maneuvers to keep the financial system from falling apart, the most frequently asked question we receive is: What should I do?

    Unfortunately, there’s no simple answer to that question. Even seasoned pros running gigantic funds are baffled by the unusual set of conditions created by 4 decades of excessive borrowing and 7 years of aggressive money printing by central banks.  We expect market conditions to be even more perilous in 2016 as they are here in December 2015. Worse, we fear a major market correction — if not a financial/banking accident of historic proportions — could easily happen in the not too distant future.

    In short: this is a dangerous time for investors. At a time like this, we believe it's prudent to focus more on protecting one’s wealth rather than gambling for capital gains.

    The Opportunity In These Strange Times

    In 2001, as we witnessed the painful end of the long stock bull market, like many of you I imagine, I began to grow quite concerned about my traditionally-managed stock and bond holdings. Other than a house with 27 years left on a 30-year mortgage, these paper assets represented 100% of my investing portfolio.

    So I dug into the economic data to discover what the future likely held. What I found shocked me. The insights are all in the Crash Course, in both video and book form, so I won't go into all of that data here. But one key takeaway for me was: the US and many other governments around the world are spending far more than they are taking in, and are supporting that gap by printing a whole lot of new money.

    By 2002, I had investigated enough about our monetary, economic, and political systems that I came to the conclusion that holding gold and silver would be a very good idea for protecting the purchasing power of my financial wealth from all this money printing. So took an extreme step: I poured 50% of my liquid net worth into precious metals at that time, and sat back and waited.

    Despite the ups and downs in the years that followed — years of ups until 2011, years of down since — that move has still turned out to be a very sound investment for me. And I forecast the best is yet to come for precious metals holders like me. 

    But part of my is depressed by that conviction. Why? Because the forces that are going to drive the price of gold (and silver) higher are the very same trends that are going to leave most people on the planet financially much worse off than they are now.

    Here at PeakProsperity.com, we admit that we initially were utterly baffled that the vicious secular decline in the price of gold began at almost the exact same time that the US Federal Reserve announced the largest and most aggressive money printing operation in all of history – known as QE3 – which pumped over $1.7 trillion into the financial system between 2012-2014, throwing an astonishing $85 billion dollars of newly created 'thin air' money into the financial system every month!

    Such an unprecedented and excessive act of monetary desperation should have sent gold's price to the moon; but in fact, the opposite happened. Strange times.

    As we’ll soon explain, even as the price of gold futures were being relentlessly driven down in the US paper markets, the purchase of physical gold by China exploded. It's as if the West suddenly decided gold wasn't worth owning. Strange times, indeed.

    As we'll now explain in detail, we are witness to an incredibly aberrant moment in financial history — one where the price of gold is extremely undervalued relative to its true value. And similarly, many paper assets are overvalued well-above their intrinsic worth. The dichotomy of this moment in time is likely not to be repeated in our lifetimes; and those who understand the fundamentals accurately have the opportunity to position themselves now to benefit greatly (or at least, to not be impoverished) as this extreme imbalance corrects, as it must. 

    Why Own Gold?

    The reasons to hold gold (and silver) — I mean physical bullion here — are pretty straightforward. Let’s begin with the primary ones:

    1. To protect against monetary recklessness
    2. As insurance against the possibility of a major calamity in the banking/financial system
    3. For the embedded 'option value' that will pay out handsomely if gold is re-monetized

    Reason No. 1: To Protect Against Monetary Recklessness

    By ‘monetary recklessness,’ we mean the creation of more money out of thin air than the productive economy actually needs or can use. The central banks of the world have been doing this for decades, but it has kicked into high gear ever since the onset of the 2008 financial crisis.

    In our system money is created out of thin air.  It is created when a bank lends you money for a mortgage and it is created when the Federal Reserve buys a trillion dollars’ worth of mortgages from the banks.  If you didn’t know that money was ‘loaned into existence’ then you should really watch (or read) those parts of the Crash Course that explain the significance of this process.

    Since 1970 the US has been compounding its total credit market debts at the astounding rate of nearly 8% per annum which gives us a chart that swoops into the air, and which reveals an astonishing 39-fold expansion since 1970 to nearly $60 trillion dollars:

    Why is this astonishing? Isn’t it true that our economy has expanded tremendously since 1970, as well? After all, if our economy has expanded by the same amount, then the advance is not astonishing at all.

    But sadly, the economy, as measure by Gross Domestic Product, or GDP, has grown by less than half as much over the same time frame:

    Where credit zoomed from $1.5 trillion to $59 trillion, GDP only advanced from $1.1 trillion to $18 trillion. In other words, debt has been growing far faster than real things that have real value. (And to make things worse, as we explain in Chapter 18 of the Crash Course, GDP numbers are artificially overstated. The debt figures, sadly, are not.)

    The crazy part of this story is that the financial and monetary system are so addicted to exponential expansion that they literally threaten to collapse violently if that growth ceases or even slows.  Remember 2008 and 2009, back when the financial world seemed to be ending?  Well, collapse was a very real possibility and here’s what almost caused that:

    Anything other than smooth, continuous, exponential growth at a pace faster than GDP seems to be a death knell for our current over-indebted system of finance.  If you are like us, you see the problem in that right away.

    The short version is this: Nothing can grow exponentially forever. But our credit system not only wants to, but has to. Or else it will collapse. 

    This desperate drive for continuous compounding growth in money and credit is a principal piece of evidence that convinces us that hard assets — of which gold is perhaps the star representative for the average person — are an essential ingredient in a crash-proof portfolio.

    Back to our main narrative: because all money is loaned into existence, the next thing we should be wondering is where’s all the money that was created when those loans were made?  We’d expect it to mirror credit creation in shape.

    What we find, unsurprisingly, is another exponential chart. This time of the money supply (of zero maturity, or MZM in banker parlance):

    Money is a claim on real things, which you buy with it. Money is no good all by itself; it’s useful because you can buy a car with it, or land, or groceries, or medical services.  Which is why we state that money is a claim on goods and services.

    Debt, on the other hand, is a claim on future money. Your mortgage is your debt, and you satisfy that debt by paying out money, in the future.  That’s why we say that debt is a claim on future money. 

    By now you should be thinking about how important it is that money and debt grow at the same rate as goods and services. If they grow at a slower rate, then there won’t be enough money and credit to make purchases, and the economy would thus contract. 

    But it's equally important that money and credit do not grow faster than goods and services. If they do, then there will be too much money chasing too few real things, which causes prices to rise. That’s inflation.

    Here’s the punch-line: Since 1980, money and credit have been growing at more than twice the rate of real things. There’s far more money and debt in the economy than there is real "stuff" all that paper is laying claim to.  Worse, the system seems addicted to forever growing its debts faster than its income (or GDP) — a mathematical impossibility any 4th grader can point out.

    This is a dangerously unstable system. And it’s going to either crumble slowly for a long time  — or violently explode at some point. This isn't an opinion, it’s just math. 

    The Federal Reserve has created and nourished a monster. It simply does not know how to begin starving the beast without it turning on the hand that feeds it, and thus destroying huge swaths of so-called paper "wealth" along with the actual economy. 

    So the Fed and its central bank brethren just keep pumping more and more money into the syste, fueling ever-higher levels of debt while hoping for an outcome that is simply impossible. 

    Negative Real Interest Rates

    Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). Even more startling, there are trillions of dollars worth of sovereign debt that has negative nominal yields.  This means that investors pay various governments to take their money from them for periods as long as seven years. For example, at the time of this writing in late 2015, $1,000 loaned to the German government for 5 years will pay back $980 at the end of those five years.  That’s insane. Or at least, a very new wrinkle that we have yet to determine how it will alter investor decisions and psychology. 

    Negative interest rates are a forced, manipulated outcome courtesy of central banks. Of course, the true rate of inflation is much higher than the officially-reported statistics by at least a full percent or possibly two; and so I consider real bond yields to be far more negative than is currently reported. 

    Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver but not until then. That's as close to an absolute requirement as I have in this business.  Recently commodities have been hard-hit, declining in price by large amounts. So negative interest rates are giving us different results this time than we'd expect…so far. 

    Dangerous Policies

    Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan's 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke engineered over his more recent tenure. Janet Yellen has extended those polices along with the help of foreign central banks into extreme, never-before-seen territory that now includes negative nominal interest rates!  As mentioned above, this means people are paying governments for the ‘privilege’ of lending those same governments their money.

    But it is the highly aggressive and ‘alternative’ use of the Federal Reserve's balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no end to these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the European Central Bank (ECB) is aggressively expanding its balance sheet. In Japan we have Prime Minister Abe's ultra-aggressive policy of doubling the monetary base in just two years. Suffice it to say that such grand experiments have never been tried before, and anyone that has the vast bulk of their wealth tied up in financial assets is making an explicit bet that these experiments will go exactly as planned. Who in their right mind thinks it will?

    Reason No 2: To Protect Against a Major Banking Failure

    Reason #2, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold.

    And let me clear: I’m not referring to “paper" gold, which includes the various tradable vehicles (like the "GLD" ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver (coins, bars, etc). Its their unusual ability to sit outside of the banking/monetary system and act as monetary assets that appeals to me.

    Literally everything else financial, including the paper US bills in our wallets and purses, is simultaneously somebody else’s liability. But gold and silver bullion are not. They are simply — boringly, perhaps — just assets. This is a highly desirable characteristic that is not easily replicated in today's world of ‘money.’

    Should the banking system suffer a systemic breakdown — to which I ascribe a reasonably high probability of greater than 1-in-3 over the next 5 years — I expect banks to close for some period of time. Whether it's two weeks or six months is unimportant. No matter the length of time, I'd prefer to be holding gold than bank deposits if/when that happens.

    What most people don’t know is that the banking crisis in Cyprus in 2013 ushered in an entirely new set of rules as well as a new financial term: the “bail-in.”   Where a bail-out uses taxpayer funds to re-capitalize a failed bank, a bail-in uses internal assets to accomplish that task.  Which ‘internal assets?’  Bank deposits, as in the accounts regular people like you hold at your bank. Even worse, the new rules adopted within the US specifically call for the derivative bets made between banks to have seniority over bank deposits when it comes to a bail-in restructuring event.  That means that the money you hold in your bank account will be used to pay off any and all reckless bets your bank may have made with another financial entity via derivative bets. And US banks hold a LOT of derivatives on their books right now.

    During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rockets up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy: keep some ‘money’ out of the system to spend during an emergency. We advocate three months of living expenses in cold, hard cash; but you owe it to yourself to have at least a little gold and silver in your possession as well.

    The test run for such a bank holiday recently played out in Cyprus where people woke up one day and discovered that their bank accounts were frozen. Those with large deposits had a very material percentage of those funds seized so that the bank's more senior creditors, the bondholders, could avoid the losses they were due. Sound fair to you? Me neither.

    Most people, at least those paying attention, learned two things from Cyprus:

    1. In a time of crisis, those in power will do whatever it takes to assure that the losses are spread across the population rather than be taken by the relatively few institutions and individuals responsible for those losses.
    2. If you make a deposit with a bank, you are actually an unsecured creditor of that institution. This means you are legally last in line for repayment should that institution fail.

    Reason No. 3 – Gold May Be Re-monetized

    The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high for those holding gold should it occur.

    Here are some numbers: the total amount of 'official gold', that held by central banks around the world, is 31,320 tonnes, or 1.01 billion troy ounces. In 2013 the total amount of money stock in the world was roughly $55 trillion.

    If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($55T/1.01BOz) = $54,455 per troy ounce.

    Clearly that's a silly number (or is it?). But even a 10% partial backing of money yields $5,400 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world's money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a small fraction of the world's money supply by gold will result in a far higher number than today's ~$1,080/oz.

    The Difference Between Silver & Gold

    A quick word on silver: often people ask me if I hold "goldandsilver" as if it were one word. I do own both, but for almost entirely different reasons.

    Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

    There is a slight chance that gold will be re-monetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know from the past that works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

    So gold is money.

    Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive element on the periodic table, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in vanishingly-small quantities that are hardly worth recovering at the end of the product life cycle — so they often aren't.

    Because of this dispersion effect, above-ground silver is actually quite a bit less abundant than you might suspect. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed. Today it's calculated that roughly half of all the silver ever mined in human history has been irretrievably dispersed.  

    Because of this consumption dynamic, it's entirely possible that over the next twenty years not one single net new ounce of above-ground silver will be added to inventories. In contrast, a few billion ounces of gold are forecast to be added.

    I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

    The Fed Indeed Cares About Gold

    Gold, when unfettered, has a habit of sending signals that the Fed very much doesn’t like. Therefore the Fed is at the top of everyone’s suspect list when it comes to wondering who might be behind the suspicious gold slams seen almost daily in today's markets. Whether the Fed does this directly is doubtful; but it has a lot of proxies out there in its cartel network who likely are doing its dirty work.

    To reveal the extent to which gold sits front and center in the Fed’s mind, and how the Fed thinks of gold, here’s an excerpt from a 1993 FOMC meeting’s full transcript. Note that the full meeting notes from Fed meetings are only released many years after the fact, long after many or all of the voting members are no longer serving. (The most recent ones available are only from 2009.) Listen to what this FOMC voting member had to say about gold:

    At the last meeting I was very concerned about what commodity prices were doing. And as you know, they got lucky again and told us that the rate of inflation was higher than we thought it was.

     

    Now, I know there's nothing to it but they did get lucky. I've had plenty of econometric studies tell me how lucky commodity prices can get. I told you at the time that the reason I had not been upset before the March FOMC meeting was that the price of gold was well behaved.

     

    But I said that the price of gold was moving. The price of gold at that time had moved up from 328 to 344, and I don't know what I was so excited about! I guess it was that I thought the price of gold was going on up. Now, if the price of gold goes up, long bond rates will not be involved.

     

    People can talk about gold's price being due to what the Chinese are buying; that's the silliest nonsense that ever was. The price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency, and they want to gain security through owning gold.

     

    A monetary policy step at this time is a win/win. I don't know what is going to happen for sure. I hope Mike is correct that the rate of inflation will move back down to 2.6 percent for the remaining 8 months of this calendar year. If we make a move and Mike is correct, we could take credit for having accomplished this and the price of gold will soon be down to the 328 level and we can lower the fed funds rate at that point in time and declare victory.

    (Source – Fed)

    There it is, in black and white from an FOMC member’s own mouth spelling out the primary reason why I hold gold: I lack faith in our fiat money system. He nailed it.  Or rather, I have very great faith that the people managing the money system will print too much and ultimately destroy it. Same thing, said differently.

    And of course the people at the Fed are acutely aware of gold's role as a barometer of people’s faith in ‘fiat money.’ Of course they track it very carefully, discuss it, and worry about it when it is sending ‘the wrong signals.’ I would, too, if in their shoes.

    The Federal Reserve Note (a.k.a. the US dollar) is literally nothing more than an idea. It has no intrinsic value. America's money supply is just digital ones and zeros careening about the planet, accompanied by a much smaller amount of actual paper currency. The last thing an idea needs is to be exposed as fraudulent. Trust is everything for a currency — when that dies, the currency dies.

    The other thing you can note from these FOMC minutes is that gold pops up 19 times in the conversation. The Fed members are actively and deliberately discussing its price, its role in setting interest rates, and the psychological impact of a rising or falling gold price.

    Later in that same meeting Mr. Greenspan says:

    My inclination for today–and I'm frankly most curious to get other people's views–would be to go to a tilt toward tightness and to watch the psychology as best we can. By the latter I mean to watch what is happening to the bond market, the exchange markets, and the price of gold…

     

    I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.

     

    There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology. Now, we don't have the legal right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing.

    The recap of all this is that the Fed watches the price of gold carefully, frets over whether the price of gold is ‘sending the right signals’ to market participants, and pays attention to gold's impact on market psychology (with an eye to controlling it).

    In short, the Fed keeps a close eye on the "golden thermometer".

    Back to the supply story for gold.  Not long after gold began its downward price movement in 2012, the GLD ETF trust began coughing up a lot of gold, eventually shedding more than 500 tonnes; a truly massive amount.

    (Source)

    In my mind, the absolute slamming of gold in 2013 was done by a few select entities and represents one of the clearest cases of price manipulation on the recent record. While we can debate the reasons ‘why’ gold was manipulated lower or ‘who’ did it, to me, there’s no question about how it was done. Or that it was done. 

    Massive amounts of paper gold were dumped into a thin overnight market with the specific intent of driving down the price of gold.

    It’s an open and shut case of price manipulation. Textbook perfect. 

    Even if these bear raids were performed by self-interested parties that made money while doing it, you can be sure the Fed was smiling thankfully in the background and that the SEC wasn’t going to spend one minute looking into whether any securities laws were broken (especially those related to price manipulation).

    Gold's falling "thermometer" was exactly what the central planners wanted the world to see.

    Down And Out

    The paper markets for gold are centered in the US, while the physical market for gold is centered in London (and increasingly Shanghai). It’s safe to say that the paper markets set the spot price, while the physical movement of gold originates in London.

    What’s increasingly obvious is the growing disconnect between the paper and physical markets. This is exactly what we’d expect to see if the paper markets were pushing in one direction (down) while physical gold was heading in a different direction (out).

    The tension between these ‘down and out’ movements is building and, according to a senior manager of one of the largest gold refineries in the world located in Switzerland, the current price of gold “has no correlation to the physical market.”

    He notes a lot of on-going tightness in the physical market. Unsurprisingly, gold is moving from West to East with vaults in London supplying much of the physical metal that's being refined into fresh kilo bars and sent off to China and India.

    But given the astonishing amount of physical demand, why has the price of gold been heading steadily lower over the past several years? 

    The aforementioned Swiss refiner is equally perplexed:

    If I am honest, the only thing I could share now with you would be that I’m perplexed about the discrepancy between the prices and the situation of the physical market.

     

    This is something I still do not understand and is a riddle for me every day. For all people who are interested in precious metals, the physical side of this business should be given more emphasis.

    (Source – Transcript)

    There’s no mystery as to demand going up in China and India as the price of gold has moved down. Interested buyers will buy more at a lower price.

    But it’s a big mystery as to why Western “investors” seem more interested in selling gold than buying it right now.

    Go East Young Man

    The biggest untold story of the past few years has been the absolutely massive extent of the flow of gold heading from the West to the East.  Gold has been leaving London and Switzerland and heading to China and India.

    Besides the first-hand experience of the Swiss refiner, there have been numerous stories in the main stream press also pointing to tightness in the London physical gold market as well as relentless demand from China and India being the driver of that condition:

    Gold demand from China and India picks up

    Sep 2, 2015

     

    London’s gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.

     

    The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants

     

    “[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

     

    The move comes as Indian gold demand picked up in July, with shipments of gold from Switzerland to India more than trebling. Most of that gold is likely to originally come from London before it is melted down into kilobars by Swiss refineries, according to analysts.

     

    In the first half of this year, total recorded exports of gold from the UK were 50 per cent higher than the first half of 2014, on a monthly average basis, according to Rhona O’Connell, head of metals for GFMS at Thomson Reuters. More than 90 per cent was headed for a combination of China, Hong Kong and Switzerland.

     

    London remains the world’s biggest centre for trading and storing gold.

    (Source)

    (Source)

    Shipments and exports are up very strongly and nearly all of that gold is headed to just two countries; China and India. 

    India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

    Sept 10, 2015

     

    In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data from Infodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.

     

    Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.

     

    Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.

     

    Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y! This would be a staggering 37 % of world mining.

    (Source)

    To summarize, the gold and silver imports into India have been absolutely on a tear lately as that country tends to buy more and more as the price drops lower and lower. 

    While the paper games setting the price of gold and silver in the West continue to support lower and lower prices, for whatever reasons, this only stimulates more demand from China and India.

    Seen collectively, there’s what gold demand looks like for “Chindia.”

    (Source)

    To make things even more interesting, the world’s central banks have been increasingly strong net buyers, not sellers, of gold for the past 5 years.

    Central Banks

    Another factor driving demand has been the reemergence of central banks as net acquirers of gold. This is actually a pretty big deal. Over the past few decades, central banks have been actively reducing their gold holdings, preferring paper assets over the 'barbarous relic.' Famously, Canada and Switzerland vastly reduced their official gold holdings during this period (to effectively zero in the case of Canada), a decision that many citizens of those countries have openly and actively questioned.

    The UK-based World Gold Council is the primary firm that aggregates and reports on gold supply-and-demand statistics. Here's their most recent data on official (i.e., central bank) gold holdings:

    (Source)

    After more than a decade of selling gold to suppress the price, central banks turned into net acquirers right as gold began its plummet from its 2011 highs.  2015 looks to be an even stronger year for central bank purchases.

    With China and India’s combined appetite for gold being higher than total world mining output, and central banks on a buying spree, it only stands to reason that somebody has to be parting with their physical gold — and those selling entities appear to be substantially located in the US and UK.

    An interesting piece of detective work was done by Ronan Manly at Bullionstar.com where he noted that the LBMA reported pronounced drops in the amount of gold stored in London vaults, which includes both gold held at the Bank of England as well as non-official vaults within the LBMA system.

    To summarize his report, here’s the amount of gold reportedly held in London:

    • April 2014 – 9,000 tonnes
    • Early 2015 – 7,500 tonnes
    • June 2015 – 6,250 tonnes

    That means that 2,750 tonnes left London over the past 1+ year.

    Does such a large number even make sense?

    Well, sure, if we consider that just these four countries cumulatively imported (or increased reserves) by ~4,500 tonnes since the beginning of 2014.

    (Source)

    Confirming this is this handy chart of UK gold flows as compared to Shanghai Gold Exchange (SGE) withdrawals:

    (Source)

    Quite interestingly, the highest flows out of the UK were during the months of the gold price bloodbath in early 2013 (a coincidence?), but the flows had picked up in earnest in the months prior.  Without the ‘liberation’ of gold from GLD, it’s quite possible that physical shortages would have appeared much earlier.  Again, the price smash of gold seems to have been a stroke of good luck for the central planners in the West, both for the psychological impact but also for liberating so much physical gold from weak hands.

    What we can also see is that, generally speaking, the UK has been steadily losing gold month in and month out for the past 2.5 years. Also interestingly, the gold that the UK does import has mainly come, of late, from the US and Canada. 

    The only question is: How much longer can this continue?

    Ronan Manly took a stab at estimating how much of the remaining 6,250 tonnes of gold in the UK was available for export and the answer was ‘not very much.’  He estimated that, of the gold that did not belong to the BoE, that perhaps ~120 tonnes was not spoken for by various gold ETFs and other allocated accounts. To put that in context, 120 tonnes is a couple of weeks of demand at China's Shanghai Exchange, or a month of Indian demand.

    Warning Signs At The COMEX

    While I used to be among the people that expected the eventual default on gold to happen in the COMEX warehouse, I no longer think that.  In fact, should things ever get to the point that COMEX cannot deliver on a physical contract, the rules will almost certainly be changed to force a cash settlement and that will be that.

    When things get serious, they lie. Or change the rules. Or both.

    However, the internet has been abuzz lately with some very interesting oddities coming out of the COMEX, notably a sharp decline in the amount of gold that is ‘registered’ to be delivered to settle a futures contract that has matured and declared for physical delivery.

    (Source)

    When compared to the number of contracts outstanding, the ratio of open contracts to registered gold has never been higher.

    This means that, if just 0.5% of the futures contracts stood for delivery, the COMEX warehouse would be wiped out of registered gold.

    The reason this is not actually a big concern is that new gold can and would be moved out of the ‘eligible’ category and over to the registered category to satisfy whatever shortfall existed.

    For those interested, here’s a quick primer on the distinction between ‘eligible’ and ‘registered’:

    Eligible Silver

     

    To be eligible for storage in a CME-authorized depository, silver must be 99.9 percent pure. For the standard 5,000-ounce futures contract, the silver must be cast into bars weighing 1,000 troy ounces, give or take 6 percent. Each silver bar must be marked with its weight, purity, a serial number and the brand of the refiner. Only brands officially listed by the CME can be eligible for storage. Should a refiner deliver silver that is below standard, the metal is rejected or sold, and the refiner risks losing its authorization to warehouse silver for Comex futures.

     

    Registered Silver

    Eligible silver stored at a CME-authorized depository is not available for sale unless it is registered. An owner can register eligible silver deposits by having the depository issue a warrant that certifies the details of ownership. Silver warrants were once printed on paper, but were converted to electronic form in 2011. Not all eligible silver is registered for sale, but all registered silver must first be eligible. Silver owners frequently extend or withdraw registration depending on whether or not they wish to sell their holdings at current prices.

    (Source)

    The real question is whether there’s enough total gold at the COMEX to cover any physical buying demand that might arise and the answer, for now, is ‘yes’:

    The reason I don’t worry about (or hope for) a COMEX default is that it’s not really a place where players show up to get physical gold (or silver). It's merely a depository that provides the necessary optics for paper speculators to place bets against each other.

    Yes, it’s the place that ends up setting the price of gold and silver for the world, but the number of shenanigans that can be pulled to manipulate prices higher or lower are numerous and routinely used.

    When I Would Worry About (or Hope For) A Default

    My view is that the first stage of a sharp rebound in the price of gold will begin with increasing tightness and eventually shortages in the London bullion market.

    Needing to secure more gold, on a reasonable time frame, refiners would then turn to the COMEX market, but with the intention of taking delivery. If/when that happens it won’t take long for COMEX to be stripped clean of both categories of gold.

    There’s ~220 tonnes of gold in COMEX and, again, that’s just a month or two of current demand (that is in excess of total world mining output).

    As soon as it’s recognized that COMEX is being drawn upon to satisfy Eastern demand, the price fireworks will start.  Or the rules will be changed.  But I’m betting on price being the chosen mechanism to align supply and demand.

    The summary of the fundamental analysis of gold demand is

    • there is a huge and pronounced flow of gold from the West to the East
    • there is rising demand from all quarters except for the 'hot money' GLD investment vehicle (which I have never been a fan of)
    • all of this demand has handily outstripped mine supply which means that someone's vaults are being emptied (the West's) as someone else's are rapidly filling (the East's)

    Now about that supply…

    Gold Supply

    Not surprisingly, the high prices for gold and silver in 2010 and 2011 stimulated a lot of exploration and new mine production. Conversely, the bear market from 2012 though 2015 has done the opposite.

    However, the odd part of the story for those with a pure economic view is that, with more than a decade of steadily rising prices, there has been relatively little incremental new mine production. But for those of us with an understanding of resource depletion, it's not surprising at all.

    In 2011, the analytical firm Standard Chartered calculated a subdued 3.6% rate of gold production growth over the next five years based on lowered ore grades and very high cash operating costs:

    Most market commentary on gold centers on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

    (Source – Standard Chartered)

    Since then, the trends for lower ore grade and higher costs have only gotten worse. But the huge drop in the price of gold in 2011 and 2012 was the final nail in the coffin and resulted in the slashing of CAPEX investment by gold mining companies.

    Of course, none of this is actually surprising to anyone who understands where we are in the depletion cycle, but it's probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs, while green field, or brand-new, projects require a gold price of $2,000 an ounce.

    This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it's not as simple as the fuel that goes into the Caterpillar D-9s; it's the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

    Just as is the case with oil shales that always seem to need an oil price $10 higher than the current price to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, gold ore body from being developed. Given declining net energy, that's that same as "forever" as far as I'm concerned.

    Just like any resource, before you can produce it you have to find it. Therefore the relationship between gold discoveries and future output is a simple one; the more you have discovered in the past, the more you can expect to produce in the future, all things being equal. 

    This next chart should tell you everything you need to know about where we are in the depletion cycle for gold, as even with the steadily rising prices between 1999 and 2011 (going from $300 an ounce to $1,900), gold discoveries plummeted in 1999 and remained on the floor thereafter:

    (Source)

    Here we see that the 1990's decade saw quite a number of large discoveries that are currently still in production but which were not matched in later years. Since it takes roughly ten years to bring a mine into full production following discovery, it's fair to say that we are currently enjoying production from the discoveries of the 1990's. Future gold production will largely be shaped by the discoveries made since then.

    In other words: Expect less gold production in the future.

    Meanwhile, there will be more money, more credit, and more people (especially in the East) competing for that diminished supply of gold going forward.

    Let's take another angle on gold supply, one which circles back and supports the above chart showing fewer and smaller discoveries in recent years.

    The United States Geological Survey, or USGS, keeps a mountain of data on literally every important mined substance. I think it's staffed by credible people, doing good work, and I've yet to detect overt political influence in their reported statistics.

    At any rate, the latest assessment on gold reveals that their best guess for world supply is that something on the order of 52,000 tonnes of reserves are left. Which means that, at the 2012 mining rate of 2,700 tonnes, there are 19 years of reserves left:

    (Source)

    This doesn't mean that in 19 years there will be no more new gold to be had, as reserves are always a function of price; but it gives us a sense of what's out there right now at current prices.

    As much as I like the folks at the USGS, I will point out one glaring discrepancy in their data as a means of exposing why I think these reserves, like those for many other critical things like oil, are probably overstated.  And that story begins with South Africa.

    There you'll note that, at 6,000 tonnes, South Africa has the second largest stated country reserves. However, according to official South African data, they claim to have an astonishing 36,000 tonnes of reserves.  Which is right? 

    Neither as it turns out.

    First, the true story of South African gold production is completely obvious from the production data. It's a story of being well and truly past the peak of production:

    (Source)

    And not just a little bit past peak, but 44 years past; down a bit more than 80% from the peak in 1970. The above chart is simply not even slightly in alignment with the claims of the South African government to have 36,000 tonnes of reserves. But pity the poor South African government, which knows that gold exports represent fully one third of all their exports. Of course they will want to loudly proclaim massive reserves that will support many future years of robust exports.

    Instead, the South African production data can be modeled by the same methods as any other depleting resource and one such analysis has been done and arrived at the conclusion that there are around 2,900 tonnes left to be mined in South Africa.

    (Source)

    The analysis is quite sound; and the authors went on to point out that the social, economic, energy, and environmental costs of extracting those last 2,900 tonnes are quite probably higher than the current market value of those same tonnes. If they are extracted, South Africa will be net poorer for those efforts. This is the same losing proposition as if it took more than one barrel of oil to get a barrel of oil out of the ground — the activity is a loss and should not be undertaken.

    For lots of political and economic reasons, however, gold mining will continue in South Africa. But, realistically… someone in government there should be thinking this through quite carefully.

    The larger story wrapped into the South African example is this: Perhaps there are 19 years of global gold reserves left (at current rates of production), but I doubt it.

    Instead, the story of future gold production will be one of declining production at ever higher extraction costs — exacerbated by the 80,000,000 new people who swell the planet's population every twelve months, the hundreds of millions of people in the East who enter the ranks of the middle class annually, and the trillions of new monetary claims that are forced into the system each year.

    And this brings me to my final point of the public part of this report.

    Scarcity

    If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 4x more than today, we have to ask ourselves some important questions:

    • How many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation then?
    • How many will simply shut down because their energy and associated costs will have exceeded their marginal economic benefits?

    After just 100 years of modern, machine-powered mining, all of the great ore bodies are gone, most of the good ones are already in operation, and only the poorest ones are left to be exploited in the future.

    By the time you are reading stories like this next one, you should be thinking, man, we’re pretty far along in the story of depletion, aren’t we?

    South African Miners Dig Deeper to Extend Gold Veins' Life Spans

    Feb, 2011

     

    JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa's gold miners are planning to dig deeper than ever before to get access to rich veins.

     

    Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company's Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn't in time operate an additional 3,000-plus feet deeper. Deep mining isn't easy, nor pleasant. The deeper a mine goes, the more at risk it is from underground earthquakes, rock bursts, gas discharges and flooding. And for workers, conditions themselves get progressively more uncomfortable from heat and cramped spaces.

     

    South Africa is at the forefront of deep mining. Agnico-Eagle Mines Ltd.'s LaRonde mine in northwestern Quebec, one of the deepest mines outside South Africa, operates at about 7,260 feet below the surface. Before closing in 2002, Homestake Gold Mine in South Dakota was considered the deepest mine in the Western Hemisphere at about 8,045 feet. 

    (Source)

    The above article is just a different version of the story that led to the Deepwater Horizon incident. Greater risks and engineering challenges are being met by hardworking people going to ever greater lengths to overcome the lack of high quality reserves to go after.

    By the time efforts this exceptional are being expended to scrape a little deeper, after ever smaller and more dilute deposits, it tells the alert observer everything they need to know about where we are in the depletion cycle, which is, we are closer to the end than the beginning.  Perhaps there are a few decades left, but we're not far off from the day where it will take far more energy to get new metals out of the ground compared to scavenging those already above ground in refined form.

    At that point we won't be getting any more of them out of the ground, and we'll have to figure out how to divvy up the ones we have on the surface. This is such a new concept for humanity — the idea of actual physical limits — that only very few have incorporated this thinking into their actions.  Most still trade and invest as is the future will always be larger and more plentiful, but the data no longer supports that view. 

    We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore grades. Gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

    Protecting Your Wealth With Gold

    For all the reasons above, it's only prudent to consider gold an essential element of a sound investment portfolio.

    In Part 2: Using Gold to Protect Yourself In Advance of the Greatest Wealth Transfer of Our Lifetime we detail out the specifics of how much of your net worth to consider investing in gold, in what forms to hold it, which price targets are gold and silver most likely to reach, and which eventual indicators to look for that will signal that it's time to sell out of your precious metal investments.

    The battle to keep gold's price in check is truly one for the ages. Not because gold deserves such treatment, but because the alternative is for the world's central planners to admit that they've poorly managed an ill-designed monetary system of their own creation. 

    Make sure you're taking steps today to ensure that the purchasing power of your wealth is protected, if not enhanced, when the trends identified above arrive in full force.

    Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

     

  • Australian Police Storm Home Of Outed Bitcoin "Founder"

    On Tuesday, Wired and Gizmodo revealed the identity of the man they say is Satoshi Nakamoto, the pseudonymous creator of Bitcoin. 

    Although they stop short of saying that the “trove” of evidence obtained from Gwern Branwen (another pseudonym), an independent security researcher and dark web analyst is conclusive, they seem all but certain that Nakamoto is actually a 44-year-old Australian named Craig Steven Wright. 

    In the world of bitcoin enthusiasts Wright was, until yesterday anyway, a “nobody.” When he spoke via Skype at the Bitcoin Investor’s Conference in Las Vegas, the moderator had to ask him who he was.

    Branwen allegedly began receiving leaked documents from a source close to Nakamoto last month – he then passed along the information to Wired. According to Wired’s detailed account, the documents immediately led to several direct, publicly visible connections between Nakamoto and Wright. Here they are: 

    • An August 2008 post on Wright’s blog, months before the November 2008 introduction of the bitcoin whitepaper on a cryptography mailing list. It mentions his intention to release a “cryptocurrency paper,” and references “triple entry accounting,” the title of a 2005 paper by financial cryptographer Ian Grigg that outlines several bitcoin-like ideas.
    • A post on the same blog from November, 2008. It includes a request that readers who want to get in touch encrypt their messages to him using a PGP public key apparently linked to Satoshi Nakamoto. A PGP key is a unique string of characters that allows a user of that encryption software to receive encrypted messages. This one, when checked against the database of the MIT server where it was stored, is associated with the email address satoshin@vistomail.com, an email address very similar to the satoshi@vistomail.com address Nakamoto used to send the whitepaper introducing bitcoin to a cryptography mailing list.
    • An archived copy of a now-deleted blog post from Wright dated January 10, 2009, which reads: “The Beta of Bitcoin is live tomorrow. This is decentralized… We try until it works.” (The post was dated January 10, 2009, a day after Bitcoin’s official launch on January 9th of that year. But if Wright, living in Eastern Australia, posted it after midnight his time on the night of the 9th, that would have still been before bitcoin’s launch at 3pm EST on the 9th.) That post was later replaced with the rather cryptic text “Bitcoin – AKA bloody nosey you be…It does always surprise me how at times the best place to hide [is] right in the open.” Sometime after October of this year, it was deleted entirely.

    Of course this isn’t the first time Nakamoto has been “found” and we’ll leave it to readers to review the Wired piece and evaluate the evidence in its entirety, but it seems fairly clear that Wired managed to convince the Australian Federal Police because on Wednesday, they broke into what Reuters describes as “a modest brick house in the leafy middle class suburb of Gordon” in an apparent raid on Wright’s property. 

    “Locksmiths broke open the door of the property, in a suburb on Sydney’s north shore,” Reuters writes, adding that “when asked what they were doing, one officer told a reporter they were ‘clearing the house.'”

    “More than 10 police personnel arrived at the house in the Sydney suburb of Gordon at about 1.30pm. Two police staff wearing white gloves could be seen from the street searching the cupboards and surfaces of the garage. At least three more were seen from the front door,” The Guardian adds.

    Authorities then proceeded to “clear” Wright’s businesses as well. Again, from Reuters: “A reporter who approached an office listed as the location of two of Wright’s registered businesses, DeMorgan Ltd and Panopticrypt Pty Ltd, in another Sydney suburb, was turned away by police with one officer saying: ‘There’s an operation going on at the moment, I can’t answer any questions.'” 

    Yes “an operation” was going on and although you’d have to be completely naive to believe that the raids aren’t connected with the revelation that Wright may be Nakamoto, that was the official line: “Officers’ presence at Mr. Wright’s property is not associated with the media reporting overnight about bitcoins”.

    Of course not – it’s a complete coincidence.

    As Reuters goes on to remind readers, “the treatment of bitcoin for tax purposes in Australia has been the subject of considerable debate [and] the ATO ruled in December 2014 that cryptocurrency should be considered an asset, rather than a currency, for capital gains tax purposes.”

    Police referred all inquiries to the Australian Tax Office, which in turn said it wouldn’t comment due to legal confidentiality of individuals’ tax affairs.

    Wright lived at the home with his wife Ramona Watts, who landlord Gary Hayres described as “a lovely lady,” “They didn’t seem bad,” he added.

    Amusingly, one neighbor said Wright had a nickname: “Cold fish Craig.” 

    Gizmodo published a transcript of an interview Wright allegedly conducted with Australian Tax authorities (embedded below). “I did my best to try and hide the fact that I’ve been running bitcoin since 2009 but I think it’s getting – most – most – by the end of this half the world is going to bloody know,” the document quotes Wright as saying. 

    As Gizmodo goes on to recount, “Wright appears to have been trying to persuade the Australian government to treat his Bitcoin holdings as currency, as opposed to an asset subject to greater taxation. Without this regulatory move, his business interests would be scuttled.”

    John Chesher, Wright’s accountant, who attended one of the ATO meetings told Gizmodo that he “may have” told autorities that Wright was in possession of a Satoshi-sized Bitcoin sum. For the uninitiated, a “Satoshi size sum” is rumored to be somewhere in the neighborhood of nine figures worth of the cryptocurrency. 

    So clearly, the idea that the raids and the revelations published by Wired and Gizmodo aren’t related is patently absurd, but hey, it’s the governement so what do you expect? 

    Regardless of whether Wright is Satoshi (and we wouldn’t be entirely surprised to see this story fade away like those that came before it), the bottom line here seems to be that the Australian Tax authority thinks this is a guy who may be sitting on a rather sizeable fortune that isn’t getting taxed “properly” and we all know what happens when the government thinks it might not be getting its cut.

    *  *  *

    20140218 Transcript Redacted

  • Carnage In Currency-Land – Dollar Dump Sparks Stock Slump

    Well that escalated quickly…

     

    The big story of the day – as long as you don't watch CNBC – was the bloodbath in currencies. China's devaluation to 4 year lows overnight…

     

    Appears to have acccelerated a shift away from the USDollar across all the majors… (biggest USD drop ex-ECB since the post-China devaluation collapse) – the only thing saving the USD modestly was weakness in commodity currencies (AUD and CAD)…

     

    Slamming the USD to 6-week lows… with the biggest 5-day drop since China devalued

     

    Some context for that move are evident in the world's most used carry currency – USDJPY crashed…

     

    And in EURUSD, which had its biggest (ex ECB) jump since the China devaluation….

     

    In case you were wondering what "fundamentals" were weighing on stocks…

     

    Focusing on stocks, futures provides the cleearest view of the last few days/weeks…

     

    On the day, it was extremely volatile… with stocks ending up back to pre-payrolls levels…

     

    Nasdaq was the worst on the day… Dow was saved by DuPont which added 50 points…

     

    S&P broke below its 50- and 200-DMA…

     

    As FANGs faded…

     

    With Trannies worst on the week…

     

    Leaving all the major indices back in the red for 2015 (apart from Nasdaq)…

     

    Since The ECB let the world down (and implicitly left The Fed set to remove up to $800 bn of liquidity next week)… Gold and EUR are the winners, stocks and Crude the losers…

     

    Stocks played nicely with crude all day…

     

    What happens next?

     

    Treasury yields were mixed today with the short-end rallying, long-end flat (dragging yields below pre-ECB levels…

     

     

    Commodities ignored the USD dump as once again the 8ET to 12ET period saw dramatic volatility across all…

     

    The post-DOE data ramp perfectly tagged $39 stops and then dumped back below $37 finding support there again…

     

    Charts: Bloomberg

    Bonus Chart: What happens next?

  • The "American Dream" Is Over… And Voters Know It

    Submitted by Charles Hugh-Smith of OfTwoMinds blog,

    If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over.

    Despite a ceaseless propaganda campaign declaring all is well with the U.S. economy, the Status Quo is fragile – and voters know it. Not only do they know the economy–and their financial security–is one crisis away from meltdown, they're also fed up with all the official gerrymandering of data to make the economy appear healthy.

    The Economy Is Better — Why Don’t Voters Believe It?

    The American Dream–characterized by plentiful jobs offering living wages, security and opportunities to get ahead–is over, and voters know this, too. People are realizing the U.S. economy has changed qualitatively in the past 20 years, and claims that it's stronger then ever ring hollow to people outside Washington D.C., academic ivory-towers and ideologically driven think-tanks.

    Many econo-gurus lay the blame for the Great Depression on the Federal Reserve tightening too soon, or not loosening credit enough, but this is nonsense: The Great Depression was the result of credit/borrowing (i.e. debt) outrunning the foundation that supports debt: productivity and income.

    Piling more debt on a base that isn't expanding fast enough to support skyrocketing debt leads to a collapse of the feebly supported debt: borrowers default, asset prices crash as buyers vanish and lenders go bankrupt as the assets held as collateral are repriced.

    To suggest that policy tweaks could have averted the collapse of unsupportable debt is absurd. Farmers were leveraging farmland that was already mortgaged to the hilt to buy more land to increase production. When grain prices softened, the debt bubble burst. No policy tweak could reverse the supply-demand imbalance or magically force marginal farmland to suddenly be worth a fortune.

    When credit expansion gets ahead of productivity and the production of goods, services and income that support all borrowing, the only possible result is a repricing of debt, risk, collateral and assets–that is, a crash. The global central banks have pushed that repricing forward seven years by lowering interest rates to near-zero (or less than zero), enabling borrowers to add more debt even though their incomes have stagnated or declined.

    But enabling more debt does not reverse supply-demand imbalances or create income out of thin air. As a result, piling on more debt is not a solution; it's simply a politically expedient method to forestall the crisis, while guaranteeing the eventual repricing will be even more severe because the debt load is now so much larger.

    Unsurprisingly, adding more debt to a weakening base of real productivity and income yields diminishing returns. Seven years of strong, widely distributed global growth before the 2008 Global Financial meltdown required $15 trillion in additional non-financial global debt. Seven years of tepid, fragile expansion since 2008 required $40 trillion in additional debt.

    That is the definition of diminishing returns:

    In the U.S., debt has completely outpaced the expansion of goods, services and income for years: look how debt has soared while GDP has expanded only modestly:

    GDP (not adjusted for inflation) is up 282% since 1990, while total credit skyrocketed 444%. The tiny decline in credit in the 2008 Global Financial Meltdown almost destroyed the entire credit-bubble dependent economy:

    Meanwhile, earned income as a percentage of GDP has been falling for decades. How can an economy support additional debt if earned income is declining as a percentage of economic activity? It can't.

    Here's another look at wage stagnation:

    Does the trendline of federal debt look remotely sustainable to you? if so, I strongly recommend reducing your dosage of Delusionol. The New Drug of Choice in the White House, Federal Reserve and Treasury: Delusionol

    At long last, credit growth is rolling over. The trick of enabling more debt by weakening lending standards and lowering interest rates has now reached diminishing returns.

    If the American Dream depends on skyrocketing debt built on a weakening foundation of stagnant productivity and income, then it is indeed over. Voters sense this fragile, debt-dependent economy is one repricing away from implosion, and they're uneasy for good reason. Voters are rightly angry that the official statistics mask or manipulate this reality, for if we can't face reality then we have zero hope of solving any problems.

    *  *  *

    My new book is in the top 10 of Amazon's category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.

  • Credit Card Data Reveals First Core Retail Sales Decline Since The Recession

    While we await the government’s retail sales data on December 11, the last official economic report the Fed will see before its December 16 FOMC decision, Bank of America has been kind enough to provide its own full-month credit card spending data.

    And while a week ago the same Bank of America disclosed the first holiday spending decline since the recession, in today’s follow up report BofA reveals that if one goes off actual credit card spending – which conveniently resolves the debate if one spends online or in brick and mortar stores as it is all funded by the same credit card – the picture is even more dire.

    According to the bank’s credit and debit card spending data, core retail sales (those excluding autos which are mostly non-revolving credit funded) just dropped by 0.2% in November, the first annual decline since the financial crisis!

    At this point, BofA which recently laid out its bullish 2016 year-end forecast which sees the S&P rising almost as high as 2,300, and is thus conflicted from presenting a version of events that does not foot with its erroenous economic narrative, engages in a desperate attempt to cover up the ugly reality with the following verbiage, which ironically confirms that a Fed hike here would be a major policy error and lead to even more downside once it is digested by the market.

    • Retail sales ex-autos are down 0.2% yoy. However, part of this weakness owes to a decline in prices. After controlling for deflation, real retail sales ex-autos are up 1.3% yoy in November, revealing a slowing trend but not an outright decline.
    • Much of the decline in the deflator is due to the drop in gasoline prices. The most recent drop in oil prices could imply there is another leg lower in gasoline prices as well.
    • Moreover, there are disinflationary pressures elsewhere, presumably reflecting pass-through from the stronger dollar, which could continue.

    In other words, nominal spending down for the first time, and while “much” of the decline is due to gas prices, these are a tiny fraction of the overall spending basket. And then the punchline BofA throws in: “disinflationary pressures elsewhere.”

    To sum up: retail spending is now negative, and one can add deflation on top.

    Can someone please explain to us again just what “data” the “data” dependent Fed is looking at, because we are lost…

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