• Why The Neocons Hate The Donald

  Submitted by Justin Raimondo via Anti-War.com,

  Most Americans don’t think much about politics, let alone foreign policy issues, as they go about their daily lives. It’s not that they don’t care: it’s just that the daily grind doesn’t permit most people outside of Washington, D.C. the luxury of contemplating the fate of nations with any regularity. There is one exception, however, and that is during election season, and specifically – when it comes to foreign policy –  every four years, when the race for the White House begins to heat up. The President, as commander in chief, shapes US foreign policy: indeed, in our post-constitutional era, now that Congress has abdicated its responsibility, he has the de facto power to single-handedly take us into war. Which is why, paraphrasing Trotsky, you may not be interested in politics, but politics is certainly interested in you.

  The most recent episode of the continuing GOP reality show, otherwise known as the presidential debates, certainly gave us a glimpse of what we are in for if the candidates on that stage actually make it into the Oval Office – and, folks, it wasn’t pretty, for the most part. But there were plenty of bright spots.

  This was supposed to have been a debate about economics, but in the Age of Empire there is no real division between economic and foreign policy issues. That was brought home by the collision between Marco Rubio and Rand Paul about half way through the debate when Rubio touted his child tax credit  program as being “pro-family.” A newly-aggressive and articulate Rand Paul jumped in with this:

  “Is it conservative to have $1 trillion in transfer payments – a new welfare program that’s a refundable tax credit? Add that to Marco’s plan for $1 trillion in new military spending, and you get something that looks, to me, not very conservative.”

  Rubio’s blow-dried exterior seemed to fray momentarily, as he gave his “it’s for the children” reply:

  “But if you invest it in your children, in the future of America and strengthening your family, we’re not going to recognize that in our tax code? The family is the most important institution in society. And, yes…

   

  ”PAUL: Nevertheless, it’s not very conservative, Marco.”

  Stung to the quick, Rubio played what he thought was his trump card:

  ”I know that Rand is a committed isolationist. I’m not. I believe the world is a stronger and a better place, when the United States is the strongest military power in the world.

   

  “PAUL: Yeah, but, Marco! … How is it conservative … to add a trillion-dollar expenditure for the federal government that you’re not paying for?

   

  ”RUBIO: Because…

   

  “PAUL: … How is it conservative to add a trillion dollars in military expenditures? You can not be a conservative if you’re going to keep promoting new programs that you’re not going to pay for.

   

  (APPLAUSE)”

  Here, in one dramatic encounter, were two worldviews colliding: the older conservative vision embodied by Rand Paul, which puts domestic issues like fiscal solvency first, and the “internationalist” stance taken by what used to be called Rockefeller Republicans, and now goes under the neoconservative rubric, which puts the maintenance and expansion of America’s overseas empire – dubbed “world leadership” by Rubio’s doppelganger, Jeb Bush – over and above any concerns over budgetary common sense.

  Rubio then descended into waving the bloody shirt and evoking Trump’s favorite bogeyman – the Yellow Peril – to justify his budget-busting:

  “We can’t even have an economy if we’re not safe. There are radical jihadists in the Middle East beheading people and crucifying Christians. A radical Shia cleric in Iran trying to get a nuclear weapon, the Chinese taking over the South China Sea…”

  If the presence of the Islamic State in the Middle East precludes us from having an economy, then those doing their Christmas shopping early this year don’t seem to be aware of it. As for the Iranians and their alleged quest for nuclear weapons, IAEA inspectors are at this very moment verifying the complete absence of such an effort – although Sen. Paul, who stupidly opposed the Iran deal, is in no position to point this out. As for the fate of the South China Sea – if we could take a poll, I wonder how many Americans would rather have their budget out of balance in order to keep the Chinese from constructing artificial islands a few miles off their own coastline. My guess: not many.

  Playing the “isolationist” card got Rubio nowhere: I doubt if a third of the television audience even knows what that term is supposed to mean. It may resonate in Washington, but out in the heartland it carries little if any weight with people more concerned about their shrinking bank accounts than the possibility that the South China Sea might fall to … the Chinese.

  Ted Cruz underscored his sleaziness (and, incidentally, his entire election strategy) by jumping in and claiming the “middle ground” between Rubio’s fulsome internationalism and Paul’s call to rein in our extravagant military budget – by siding with Rubio. We can do what Rubio wants to do – radically increase military expenditures – but first, he averred, we have to cut sugar subsidies so we can afford it. This was an attack on Rubio’s enthusiasm for sugar subsidies, without which, avers the Senator from the state that produces the most sugar, “we lose the capacity to produce our own food, at which point we’re at the mercy of a foreign country for food security.” Yes, there’s a jihadist-Iranian-Chinese conspiracy to deprive America of its sweet tooth – but not if President Rubio can stop it!

  Cruz is a master at prodding the weaknesses of his opponents, but his math is way off: sugar subsidies have cost us some $15 billion since 2008. Rubio’s proposed military budget – $696 billion – represents a $35 billion increase over what the Pentagon is requesting. Cutting sugar subsidies – an unlikely prospect, especially given the support of Republicans of Rubio’s ilk for the program – won’t pay for it.

  However, if we want to go deeper into those weeds, Sen. Paul also endorses the $696 billion figure, but touts the fact that his proposal comes with cuts that will supposedly pay for the hike. This is something all those military contractors can live with, and so everybody’s happy, at least on the Republican side of the aisle, and yet the likelihood of cutting $21 billion from “international affairs,” never mind $20 billion from social services, is unlikely to garner enough support from his own party – let alone the Democrats – to get through Congress. So it’s just more of Washington’s kabuki theater: all symbolism, no action.

  Paul’s too-clever-by-half legislative maneuvering may have effectively exposed Rubio – and Sen. Tom Cotton, Marco’s co-pilot on this flight into fiscal profligacy – as the faux-conservative that he is, but it evaded the broader question attached to the issue of military spending: what are we going to do with all that shiny-new military hardware? Send more weapons to Ukraine? Outfit an expeditionary force to re-invade Iraq and venture into Syria? This brings to mind Madeleine Albright’s infamous remark directed at Gen. Colin Powell: “What’s the point of having this superb military you’re always talking about if we can’t use it?”

  In this way, Paul undermines his own case against global intervention – and even his own eloquent argument, advanced in answer to Rubio’s contention that increasing the military budget would make us “safer”:

  “I do not think we are any safer from bankruptcy court. As we go further, and further into debt, we become less, and less safe. This is the most important thing we’re going to talk about tonight. Can you be a conservative, and be liberal on military spending? Can you be for unlimited military spending, and say, Oh, I’m going to make the country safe? No, we need a safe country, but, you know, we spend more on our military than the next ten countries combined.”

  I have to say Sen. Paul shone at this debate. His arguments were clear, consistent, and made with calm forcefulness. He distinguished himself from the pack, including Trump, who said “I agree with Marco, I agree with Ted,” and went on to mouth his usual “bigger, better, stronger” hyperbole that amounted to so much hot hair air.

  Speaking of Trumpian hot air: Paul showed up The Donald for the ignorant blowhard he is by pointing out, after another of Trump’s jeremiads aimed at the Yellow Peril, that China is not a party to the trade deal, which is aimed at deflecting Beijing. That was another shining moment for Paul, who successfully juxtaposed his superior knowledge to Trump’s babbling.

  This obsession with China’s allegedly malign influence extended to the next round, when foreign policy was again the focus. In answer to a question about whether he supports President Obama’s plan to send Special Operations forces to Syria, Ben Carson said yes, because Russia is going to make it “their base,” oh, and by the way: “You know, the Chinese are there, as well as the Russians.” Unless he’s talking about these guys, Carson intel seems a bit off.

  Jeb Bush gave the usual boilerplate, delivered in his preferred monotone, contradicting himself when he endorsed a no-fly zone over Syria and then attacked Hillary Clinton for not offering “leadership” – when she endorsed the idea practically in unison with him. Bush added his usual incoherence to the mix by averring that somehow not intervening more in the region “will have a huge impact on our economy” – but of course the last time we intervened it had a $2 trillion-plus impact in terms of costs, and that’s a conservative estimate.

  Oddly characterizing Russia’s air strikes on the Islamic State as “aggression” – do our air strikes count as aggression? – the clueless Marie Bartiromo asked Trump what he intends to do about it. Trump evaded the question for a few minutes, going on about North Korea, Iran, and of course the Yellow Peril, finally coming out with a great line that not even the newly-noninterventionist Sen. Paul had the gumption to muster:

  “If Putin wants to go and knock the hell out of ISIS, I am all for it, one-hundred percent, and I can’t understand how anybody would be against it.”

  Bush butted in with “But they aren’t doing that,” which is the Obama administration’s demonstrably inaccurate line, and Trump made short work of him with the now undeniable fact that the Islamic State blew up a Russian passenger jet with over 200 people on it. “He [Putin] cannot be in love with these people,” countered Trump. “He’s going in, and we can go in, and everybody should go in. As far as the Ukraine is concerned, we have a group of people, and a group of countries, including Germany – tremendous economic behemoth – why are we always doing the work?”

  Why indeed.

  Trump, for all his contradictions, gives voice to the “isolationist” populism that Rubio and his neocon confederates despise, and which is implanted so deeply in the American consciousness. Why us? Why are we paying everybody’s bills? Why are we fighting everybody else’s wars? It’s a bad deal!

  This is why the neocons hate Trump’s guts even more than they hate Paul. The former, after all, is the frontrunner. What the War Party fears is that Trump’s contradictory mixture of bluster – “bigger, better, stronger!” – and complaints that our allies are taking advantage of us means a victory for the dreaded “isolationists” at the polls.

  As for Carly Fiorina and John Kasich: they merely served as a Greek chorus to the exhortations of Rubio and Bush to take on Putin, Assad, Iran, China, and (in Trump’s case) North Korea. They left out Venezuela only because they ran out of time, and breath. Fiorina and Kasich were mirror images of each other in their studied belligerence: both are aspiring vice-presidential running mates for whatever Establishment candidate takes the prize.

  Yes, it’s election season, the one time – short of when we’re about to invade yet another country – when the American people are engaged with the foreign policy issues of the day. And what we are seeing is a rising tide of disgust with our policy of global intervention – in a confused inchoate sense, in the case of Trump, and in a focused, self-conscious, occasionally eloquent and yet still slightly confused and inconsistent way in the case of Sen. Paul. Either way, the real voice of the American heartland is being heard.

   

  

  

  

  

  

• Context for Paris Terror Attack: U.S. and Its Allies C-R-E-A-T-E-D ISIS

  We are horrified by the terror attack in Paris, and send our prayers and good wishes to the French people (we were just there on a wonderful family vacation).

  Here’s the context that we dare the Western press to discuss: the U.S. and its allies CREATED ISIS. And see this.

  Postscript:  The First Question to Ask After Any Terror Attack: Was It a False Flag?

  

  

  

  

• The Buffet Backlash: Anger Builds At "Hypocrite" Billionaire Hiding Behind "Folksy" Facade

  Two days ago in “Billionaire Bitch Fight: Ackman Slams Munger, Buffett For Profiting Off Fat Americans” we highlighted an absurd back-and-forth exchange between Bill Ackman and Buffett’s incorrigible right-hand man Charlie Munger who called Valeant’s business strategy “deeply immoral.” 

  That jab struck a nerve with Ackman who at certain times over the past 45 or so days has suffered dramatic paper losses in a matter of seconds on his Valeant stake as the stock plunged, and so, the Pershing Square chief fired back, accusing Munger and Buffett of essentially promoting childhood obesity and profiting from fat Americans’ addiction to “sugar water.”

  As we noted on Wednesday, Ackman isn’t the first person to implicitly (or explicitly for that matter), call Buffett a hypocrite. Indeed, we’ve been keen to note just how convenient it is that the Obama administration has come out against the Keystone Pipeline on environment grounds while the administration’s friend Uncle Warren corners the railroad market. Of course the environment argument kind of goes out the window when Buffett-owned BNSF derailments seem to be a dime a dozen these days. 

  Perhaps the most poignant critique came earlier this year when Dan Loeb, speaking at the SkyBridge Alternatives Conference in May, said the following about Omaha’s favorite octogenarian: 

  “I love reading Warren Buffett’s letters and I love contrasting his words with his actions. He’s a very wise guy.”

   

  “I love how he criticizes hedge funds, yet he had the first hedge fund. He criticizes activists, he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself.”

  Now, Ackman’s spat with Munger seems to have prompted WSJ to take a look at Buffett’s folksy hypocrisy. Here’s more:

  Behind the latest barbs is a paradoxical view of Mr. Buffett on Wall Street, where many people admire his investing record and envy his immense wealth—Mr. Ackman is a self-confessed fan who made his comments at a New York symposium to commemorate Berkshire. Yet many of the same people also say Mr. Buffett hides behind the image of a folksy, benevolent businessman while he pursues the same profit-maximizing deals that are the target of some of his attacks.

   

  There is even an adage in the investing community: “Do as Warren Buffett does, not as he says.”

   

  He routinely speaks out against the fees charged by hedge funds and investment banks, the tactics of activist shareholders, the danger of derivatives and the heavy use of debt by private-equity firms. He has needled Wall Street in 17 of his last 25 letters.

   

  Mr. Buffett also readily dispenses his views on politics, business, finance and other matters that have little to do with Berkshire directly. 

   

  Take taxes. Critics often accuse Mr. Buffett, a Democrat, of advocating higher taxes while pursuing tax-saving moves at Berkshire. Over the years he has taken public stances that inflamed Republicans, including urging Congress not to repeal estate and gift taxes and opposing tax cuts on dividends. In 2011, he wrote an op-ed article in the New York

  Timesarguing for higher taxes on the wealthy and pointing out that his office staff paid a higher tax rate than he did.

   

  Even as Mr. Buffett has supported tax increases, Berkshire has been a savvy navigator of tax rules. As of the end of 2014, the company had been able to defer $61.9 billion in cumulative corporate taxes by taking advantage of credits and other incentives—money that Berkshire invests and compounds until the taxes come due.

   

  Another tax-related criticism of Mr. Buffett emerged last year when Berkshire participated in a deal to merge Burger King with a Canadian company. Critics said Mr. Buffett was supporting an “inversion” deal that could eventually reduce U.S. tax revenue. Burger King executives have said the deal was driven by global ambitions rather than by tax savings.

  And then there’s the Heinz deal. Recall that back in August, we said “thanks uncle Warren” on the heels of reports which indicated it was time for Kraft employees to do their part to facilitate merger “synergies” in the wake of the Kraft-Heinz tie-up engineered earlier this year by Beuffett along with 3G. 

  In short, Kraft Heinz said it would lay off 700 workers at Kraft’s corporate headquarters in north suburban Northfield, part of a cost-cutting plan that would slash the combined entity’s headcount in the U.S. and Canada by 2,500 jobs.

  Earlier this month we got more of the same with CNBC reporting that Kraft Heinz will close seven plants and lay off 2,600 employees.

  Back to WSJ:

  Perhaps the best example of Mr. Buffett’s complex reasoning is his move in 2013 to team up Berkshire with Brazilian buyout firm 3G Capital for several joint acquisitions. 3G pushes for drastic change at the companies it buys, stripping costs, cutting jobs and installing new management. The partnership riled many shareholders of Berkshire, where subsidiaries operate with little interference and layoffs and management turnover are rare.

  As one Florida hedge fund manager told The Journal: “He has always been about: ‘How can I compound money at the fastest after-tax rate in a sustainable way?’”

  And to a certain extent that’s Buffett’s right as a successful capitalist, but when you publicly deride others for doing in some instances not only the very same things you do, but the very same things you do better than anyone else, well that’s a whole different story. 

  More importantly, when you are able to move deftly between the public and private sectors while influencing policymakers’ decisions along the way, it’s important you don’t appear to be profiting from those policy decisions – especially in a way that seems to undercut the reasoning the government employed when explaining those decisions to the public.

  And that looks like exaclty what’s going on with the Keystone Pipeline and Buffett’s railroads. 

  

  

  

  There have been three BNSF oil train derailments in the past 8 months, but at least the environment is safe because Obama finally pulled the plug on the “dangerous” Keystone XL pipeline…

  

  

  

  

  

  

• The First Amendment Is Dying

  Submitted by David Harsanyi via Reason.com,

  "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof;"

  Unless we're talking about a white chocolate-paneled cake for a gay wedding or perpetual funding for "women's health" clinics because it's the "right thing to do."

  "or abridging the freedom of speech;"

  Unless that speech is used by boorish climate change denialists to peddle dirty fossil fuels and run capitalist death machines that wreck the Earth, by anyone engaging in upsetting hate speech or other forms of "aggression," by a wealthy person supporting candidates who undermine "progress," by a pro-life protester who makes people feel uncomfortable about their life decisions, by a cisnormative white male who displays insufficient appreciation for the "systematic oppression" that minorities experience in places of higher learning or by anyone who has a desire to undermine the state-protected union monopolies that help fund political parties.

  "or of the press, or the right of the people peaceably to assemble,"

  Unless the press invades safe spaces designated by mobs or writes about incorrect topics at incorrect times.

  "and to petition the Government for a redress of grievances."

  Unless someone is a member of a predesignated special interest group, he should report to the IRS before doing so.

  That's pretty much the state of the First Amendment today. Climate change, abortion, gay marriage, race, taxes, what have you, even in mainstream political debate, these interests outweigh your piddling concerns about the First Amendment. So the notion that a bunch of students and leftist professors would agitate to shut down free expression in a public space in Missouri because they feel their special issue trumps your antiquated list of rules is not particularly surprising.

  Now, we shouldn't overstate the problem. Most of us are able to freely engage in arguments and express ourselves without worrying about the state's interfering. This will not end tomorrow. But it is difficult to ignore how creeping illiberalism has infected our discourse and how not many people seem to care.

  The thousands of other University of Missouri students, for example, could have held a counter-protest against dimwitted fascists cloistered in safe spaces. Where are those student groups? Why was there no pushback from those kids—and really, there was none as far as I can tell, at either Missouri or Yale—against the bullies who want administrators fired for thought crimes? It can mean that students are too intimidated, too uninterested or not very idealistic about these freedoms. None of those things bodes well for the future.

  And where is the faculty, those brave souls who value the freedom to debate and champion sometimes-controversial ideas when mobs of students are making wild accusations against their school without any real evidence? Where are they when students shut down conservative, libertarian or not-progressive-enough Democrats from speaking at their schools?

  In fact, the campus police—not the hissy-fitting communications professor or the would-be authoritarian student—asked students to call authorities and report "incidents of hateful and/or hurtful speech" in detail. A school, the place where young people supposedly ponder challenging ideas, now has students reporting any instances of unsavory speech. What does "hurtful speech" entail anyway? Is it enough for someone to challenge your priggish worldview? Is it enough for someone to hurt your brittle feelings? And what is the consequence?

  You may also remember when Chris Cuomo of CNN, a lawyer, tweeted (since deleted) that "hate speech is excluded from protection" under the First Amendment. He wasn't alone.

  Not long ago, 51 percent of Democrats in a YouGov poll claimed to support criminalizing "hate speech." (A third of Republicans did so, as well.) Another study, by the First Amendment Center a few years back, found that nearly 40 percent of Americans said the First Amendment "goes too far" guaranteeing rights—a record high.

  People are scared. They're scared to be accused of bigotry or racism, an ugly accusation that is easy to level but impossible to disprove. It's a lazy but effective method of intimidation.

  So we can laugh at the confused millennial J-school major, but he is not alone. When the mayors of Chicago and Boston used their positions of power to keep Chick-fil-A out of their cities because of the CEO's thoughts on same-sex marriage, they were working under the same notion as kids who want to be in safe spaces where their worldviews remain unchallenged. (Using the state to punish a person or company for its beliefs is even worse.) When Bill Nye argues that climate change skeptics are nuts who hate science and should be ignored by any right-thinking person, he is attempting to convince you of something. When Nye contends that America needs to drum climate change skeptics completely "out of our discourse," he's no longer a liberal.

  Because what's happening on college campuses hasn't happened in a vacuum.

  

  

  

  

  

• These Are America's Fattest States

  A couple of weeks ago, in what we said could be the “worst news” ever, the World Health Organisation added steak to (long) list of things that can give you cancer. As we pointed out at the time, America’s weight problem has become so bad, that nearly three quarters of men are either overweight or obese. But as we also noted, Americans are used to their sedentary lifestyle and have become accustomed to gorging themselves at meal time and if persisting in such creature comforts means shaving a few years off their lifespans well, for most people that’s probably a reasonable trade off so the whole heart disease/heart attack threat isn’t likely to be exceptionally effect. Hence the WHO decided it was time to break out the big gun: the “C” word. 

  Now, WalletHub is out with a new analysis that looks to “pinpoint where the weight problem is most prevalent” in America by comparing states on 12 “key” metrics. New statistics, the analysis notes, show that in 2014, some 83 million Americans were completely inactive, the highest number in seven years. With the holidays on the horizon, WalletHub figured it would do America a favor and identify the “problem” states so that residents might exercise a little discretion going back for seconds, or thirds.

  What was the methodology?

  In order to identify the states with the biggest weight problems, WalletHub’s analysts compared the 50 states and the District of Columbia across two key dimensions, including “Obesity & Overweight Prevalence” and “Unhealthy Habits & Consequences.”

  Next, we compiled 12 relevant metrics, which are listed below with their corresponding weights.

  To obtain the final rankings, we attributed a score between 0 and 100 to each metric. The more points a state accrued, the bigger its weight problems are. Therefore, 100 points = the worst state. We then calculated the weighted sum of the scores and used the overall result to rank the states. Together, the points attributed to the two major dimensions add up to 100 points.

  The dimensions are as follows:

  Obesity & Overweight Prevalence – Total Points: 70

  • Percentage of Adults Who Are Overweight: Full Weight (~11.67 Points)
  • Percentage of Adults Who Are Obese: Double Weight (~23.33 Points)
  • Percentage of Children Who Are Overweight: Full Weight (~11.67 Points)
  • Percentage of Children Who Are Obese: Double Weight (~23.33 Points)

  Unhealthy Habits & Consequences: 30

  • Percentage of Residents Who Are Physically Inactive: Full Weight (~3.75 Points)
  • Percentage of Residents with High Cholesterol: Full Weight (~3.75 Points)
  • Percentage of Adults Eating Less than 1 Serving of Fruits/Vegetables per Day: Full Weight (~3.75 Points)
  • Percentage of Residents with Diabetes: Full Weight (~3.75 Points)
  • Percentage of Residents with Hypertension: Full Weight (~3.75 Points)
  • Sugar-Sweetened Beverage Consumption Among Adolescents: Full Weight (~3.75 Points)
  • Death Rate Due to Obesity: Full Weight (~3.75 Points)
  • Healthy-Food Access (percentage of urban-area residents with low income and living more than 1 mi. from a grocery store or supermarket): Full Weight (~3.75 Points)

  And as for the results, here’s an interactive map which shows the breakdown by state (the closer to one you are, the higher your state’s obesity rate):

  Source: WalletHub

  Here are the top 10 fattest states:

  

  Finally, the full 50 state breakdown:

  

  

  

  

  

  

• JPMorgan's "Gandalf" Quant Nailed It Again

  Over the past 3 months, the name Marko Kolanovic, head of JPM's Quant Team, has become one of the most loved, or feared (depending on which way he is leaning) and respected on all of Wall Street for one simple reason: think Dennis Gartman, only correct every time. Well, the man Bloomberg calls "Gandalf" just did it again – "nailing" the top in stocks last week.

   

  There are three possible explanations for Kolanovic’s mojo:

  1. He’s Gandalf. This guy is truly a wizard who deciphers the quant tea leaves like few others out there.

   

  2. Self-Fulfilling Prophecy. There are enough traders and investors out there who are so completely flummoxed by this market that they’re inclined to believe Marko’s take and trade accordingly.

   

  3. Random Luck. If you flip a quarter four times and it lands on heads four times, it doesn’t mean you’ve found a magic quarter.

  The reason, however, as we have profiled before, is simple: he has somehow succeeded in calling every single market inflection point since the August 24 flash crash, and we have documented them all:

  • August 21, just before the Black Monday flash crash: "Why The Market Is Crashing Into The Close: JPM Explains"
  • August 27: "JPM Head Quant Warns Second Market Crash May Be Imminent: Violent Selling Could Return On Thursday"
  • September 3, before the next leg lower in stocks: "Home JPM Head Quant Is Back With New Warning: "Only Half The Selling Is Done; Expect More Downside""

  But his most prodigious call came on September 24 when we wrote "Bears Beware, JPM's Head Quant Just Flipped To Bullish: "The Technical Buying Begins." So it did, leading to the biggest market ramp in history, and biggest monthly point gain ever.

  But then, on November 5th, he said "The Rally Drivers Are Gone" and 'mysteriously' this happened…

  

   

  A reminder of his reasoning….

   

   

  In our reports in August, we forecasted the selling pressure from option hedging and pointed to the role various systematic strategies had in the selloff. In our note from September 24th, we predicted a reversion of these technical flows and their potential to lift the market. We believe that most of these equity inflows played out over the past month and were a significant driver of the October market rally.

  Just add a historic short squeeze and buybacks greater than even during last year's record, and you get the three catalyst that led to the massive rally since September. More importantly, according to Kolanovic the "technical inflows" that led to the rally are now over.

   

   

  After the September option expiry, investors rolled protection lower, and as the market moved higher, convexity in index option products declined. We estimate that hedging of index options during the week of September 28th contributed to ~$20bn of equity inflows. During the month of October, the gamma exposure of put options declined significantly (and gamma of call options increased), such that the net effect of option hedging has been muted since (and likely contributed to lower realized volatility given the imbalance of option gamma towards calls).

  Where did the inflows come from? Why the momos of course, as the best performing stocks were once again those which were going up because they were going up:

   

   

  Perhaps the most significant inflows came from trend following strategies, i.e. CTAs. As discussed in our previous reports, all of the equity momentum signals (short, medium and long term momentum) turned negative in late August. As a result, CTA Equity exposure (as measured by its equity beta) reached record short levels in mid-September. On October 2nd, short term momentum turned positive (e.g. 1M momentum) and shortly afterwards long term momentum turned positive as well (e.g. 12M momentum). This implied a significant re-levering of CTAs during the week of October 5th (which we observe from the sharp increase in CTA beta – as shown in Figure 1).

   

  

   

  At the end of October/early November intermediate equity momentum (e.g. 3M-6M) also turned positive, and this resulted in another large equity inflow from CTA strategies. Currently, all of the equity momentum terms are positive, which suggests that CTA equity exposure should be at the high levels observed in early summer (also confirmed with the short term beta of a CTA index to the S&P 500 in Figure 1). In short, trend followers made a full circle of equity investing from record long, to record short and  then long again over the past quarter. Our estimate of equity inflows from trend following strategies over the past month is ~$70-90bn.

  Then it was the constant vol traders, who too were caught in a feedback loop of buying stocks as vol dropped:

   

   

  Given the sharp decline in realized volatility, strategies that target constant volatility also had to re-lever. Figure 2 shows estimated equity exposure of Volatility Targeting strategies (our asset/signal assumptions about Volatility Targeting (VT) strategies are unchanged: ~$300bn in assets, with an average 8-9% target volatility).

   

  

   

  VT strategies likely started buying equities in late September and through October, at a pace of ~$5-8bn per week (or a total of ~$30-50bn). Given that levels of volatility are still below those observed in early summer, in theory, VT strategies could continue buying equities if volatility were to decline further. However, our view is that realized volatility is unlikely to drift much lower (e.g. to the summer lows), so any residual buying from VT strategies may not be sufficient to push the market much higher.

  And then, the infamous risk parity funds:

   

   

  Finally, we want to address Risk Parity strategies. Our estimate of assets following various versions of Risk Parity is ~$500bn. However, Risk Parity strategies employed by Hedge Funds may be substantially different from those employed by e.g. Pension funds (using risk parity in house as a longer term asset allocation method). For this reason, we use different models for ~$150bn in ‘HF-like’ risk parity assets (leverage >1, higher rebalance frequencies, and typically using volatility target overlays) and ~$350 in Risk Parity pension asset allocations (leverage < 1, slower rebalance frequencies and signals, and typically not using volatility targeting overlays). Figure 3 shows the equity exposure of a prototype ‘HF-like’ Risk Parity allocation, which indicates that these funds de-levered in August and September, but re-levered in October to finish at their pre-crash equity allocations.

   

  

   

  Equity inflows from these funds may have amounted to ~$20bn in October. Risk parity strategies that use slower signals (e.g. 12M covariances) did not materially change their equity exposures.

  His conclusion: the catalysts behind the furious, technically-driven October rally are now gone, but unlike mid-August, at least the likelihood of another flash crash is lower…

   

   

  Summarizing technical flows from option hedges, volatility targeting, CTA and Risk Parity funds, we believe that these strategies largely re-levered to pre August crash levels. This was a significant driver of the S&P 500 performance in October and hence poses some downside risk. Additionally, given the tight trading range over the past year, CTA signals have risk of changing on relatively small market moves (i.e. there is elevated ‘CTA gamma’). On the other hand, given the lack of a large put option gamma imbalance, and perhaps some residual buying from VT funds, near term the market is likely more resilient to the risk of another technically driven flash crash.

  … unless the Fed surprises: according to Kolanovic one person can overturn the cart, and that person is Janet Yellen if she once again confuses the market:

   

   

  Over the past year, macro momentum trades increased exposure to various liquid assets in anticipation of a rise in US rates. Example trades include going long USD and Developed Markets, and short Commodities and Emerging Markets. These macro trends have also percolated into equity long-short momentum trades which are currently short Energy, Materials and Industrials, and Long Health Care and Consumer Discretionary sectors. Several of these macro and stock trends are relying on an anticipated Fed tightening that would boost the USD and further weaken commodities and EM assets. The risk of this increasingly one dimensional positioning across CTAs, Macro and some of Equity Long-Short managers is that these trends don’t materialize and trades become too crowded. The result could be a sharp reversion as positions are exited.

  The only question then is: does the Fed want to risk such a "sharp reversion as positions are exited." The answer is revealed on December 16

  

  

  

  

  

• French President Declares State Of Emergency, Enforces Curfew, Closes Borders, Reinforces Army

  In the wake of the stunning wave of bombings, shootouts, and hostage situations unfolding in Paris on Friday, French President Francois Hollande has closed the French border.

  Addressing the nation, President Francois Hollande called on everyone to remain strong and show “compassion and unity.”

   

  “There is much to fear, but we must face these fears as a nation that knows how to muster its forces and will confront the terrorists,” the president said.

  He has also declared a state of emergency and called for more army assistance.

  • HOLLANDE SAYS STATE OF ALERT IMPOSED IN FRANCE
  • HOLLANDE SAYS CLOSING FRENCH BORDERS
  • HOLLANDE REQUESTS MILITARY REINFORCEMENT

  

  The dramatic move comes amid an ongoing situation in the streets of Paris that will likely go down in history as one of the more daring terrorist attacks in history. 

  A series of bombs echoed through the streets followed by sporadic gunfire. What unfolded afterwards turned the streets into a veritable war zone with dozens killed thus far and a hostage situation involving some 100 people. 

  The move to close the border will likely serve as a rallying cry for those who oppose the accommodation of the millions of refugees seeking asylum in Europe. 

  The President ended his speech with "Vive la Republique et Vive la France."

  

  

  

  

  

• Something Went Wrong On The Way To The Future

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

  Lies and Misunderstandings

  As we keep saying, you can get any opinion you want. The problem is you can also get any fact you want…

   

  

  Ford F-150, 1976 model. Sold for $5,000 back then. Reportedly did get people from A to B.

   

  Yesterday, our friend and economist Pierre Lemieux challenged the numbers in Monday’s Diary on the U.S. manufacturing recession:

  “You write, ‘In real terms, the typical man of working age in the U.S. earns less today than he did in 1975 – 40 years ago.’ Where did you get this data?

   

  Even the notably unreliable data of the Census Bureau on median family income are not that dark. All data I know show that, in the U.S., real incomes have grown over the last 40 years. I am sure it is the same in Europe. Some prices have increased, like home prices, relative to other prices, and it is quite certainly more difficult to buy a house now than back then.

   

  Most other things are easier to afford – including for the typical worker. This is confirmed by casual observation: Look at their cars, their TV sets, their boats, their vacations, their appliances, their restaurants (not to speak of computers). Look at their children’s cars, iPhones, shoes, etc. Indeed, look at their hunting or hiking boots with Thinsulate and Gore-Tex!”

   

  

  “Real median household income” as calculated by the Fed (based on inflation statistics that are more than just questionable). That the data nevertheless yield this downtrend is all the more remarkable. The reasons for this development are inflationary policy and other types government meddling with the economy – click to enlarge.

   

  In general, we have little confidence in numbers or statistics. Except in the world of science, where they mean something precise, they are mostly lies and misunderstandings. Many of them are plain wrong. Many are pure inventions. We don’t trust them – especially our own.

  You’d think it would be a fairly simple matter to tell if wages, after you account for inflation, have gone up. But it’s not. You can begin with the raw data. Then you need to adjust it for inflation… which is where the trouble comes in. How much is a 1975 dollar worth today?

   

  

  Since the Fed has begun to “help us” in 1913 by providing “monetary stability”, the dollar’s purchasing power has crashed by 96% (this is what they themselves admit to). So a 1913 dollar is now worth 4 cents. According to the same statistic, a 1975 dollar is worth 21.9 cents, so since then the collapse amounts “only” to 78.1% – click to enlarge.

   

  Real Earnings

  We don’t want to mislead readers with faulty numbers, so we put the issue to our research team. “The data supports us,” says Bonner & Partners researcher Nick Rokke. “Real income for men was higher throughout the 1970s.”

  The data from the Census Bureau has the average American working man’s income, in 2012 dollars, at about $37,000 in 1972 – its highest level of the decade. Today, it is close to $34,000. We also have the news of lower incomes reported as “fact” in the New York Times on October 22, 2012:

  “[T]he real earnings of the median male have actually declined by 19% since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 – nearly a half-century ago.

   

  Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41% from 1970 to 2010.”

  But wait. It’s not that simple. Pierre again:

  “The data makes (a bit) more sense for males. But, as I suspected, the figures come from unreliable Census Bureau data. The Census Bureau gets it from its Current Population Survey, which amounts to asking people what they earn. This data is inconsistent with NIPA (National Income and Product Accounts) data, which contains multiple cross-checks (total income must be equal to total expenditure and to total value added). Note also that the Census data do not include in-kind transfers (such as food stamps, Medicaid, and employee benefits)…”

   

  

  Bill from Anchorage has the right idea

   

  Right. Add in the free company T-shirts and state welfare handouts, and you seem to have a working man who is better off. But he can’t be much better off. Just taking the unvarnished numbers, the average working stiff in 1975 earned $8,853 (in 1975 dollars). Now, he earns $36,302.

  Ford introduced its F-150 in 1975. We weren’t able to find an exact price, but it appears to have been sold at about $5,000. Today, an F-150 Super Cab sells for about $28,000.

  The average new home sold for $39,000 in 1975. Today, it sells for $364,100. In very raw terms, if a man wanted to buy a house and a car in 1975 he had to work just under five years to pay for them. If he wants a house and a car today, he has to work almost 11 years…

   

  Happier, Healthier, Richer?

  Whoa! This makes it sound like his real income has been cut in half. Of course, it’s never that simple. He gets more house and more car for his money today. Still, the remarkable thing is that we are doing this calculation at all.

  We shouldn’t be wondering about it. It should be obvious that we are all far better off today than we were a half-century ago. This should have been the easiest period in human history in which to make financial progress.

  Never before had there been so many inventors and entrepreneurs. Never before had they so much accumulated science and capital to work with. Never before had there been so many people making things… and so many consumers with money in their pockets to buy them.

  And never before were there so many earnest lawmakers, PhD economists, curious researchers, diligent policymakers, and nonprofit-employed do-gooders – millions of people all doing their level best to make us happier, healthier, and richer!

  Something seems to have gone wrong on the way to the future…

   

  

  It’s a case of too much GOSPLAN…

  Cartoon by Rube Goldberg

  

  

  

  

  

• ECB Had 3 Accused Rate Manipulators In Crisis Focus Group

  Earlier this month in “Secret ‘Diaries’ Show ECB Board Members Met With Banks, Hedge Funds ‘Days’ Before Policy Meetings,” we brought you just the latest example of nefarious intermingling between central planners and a select group of private sector operators who essentially bet on policy. 

  As it turns out, top ECB officials met personally with “banks and asset managers” just “days” and sometimes “hours” before policy meetings. This rather disconcerting revelation came courtesy of ECB officials’ “diaries” and although you would have to be completely devoid of a healthy sense of skepticism and/or entirely naive to believe that no nonpublic information was passed at those meetings, that’s what Mario Draghi wants you to believe. Here’s an ECB spokesperson: “The same underlying principles — guarding against signalling future monetary policy — are of course applied to bilateral meetings. In any case, no market-sensitive information is disclosed by the ECB in any non-public forum.” 

  Right. “the same underlying principles” that led Benoit Coeure to tip off a non-public audience of hedge funds in London about PSPP frontloading.

  And then of course there was the story of Martin Mallett, the BOE’s chief currency trader who was let go last year after 30 years with the bank after it became apparent that he might have known traders were rigging FX markets for years before the scandal became public but nevertheless failed to escalate the issue. 

  Well now, we find out that the ECB – the same ECB where policymakers like to meet with banks and asset managers before major policy meetings, actually had three of the traders accused of gaming Euribor by Britain’s Serious Fraud Office on Friday in a group that helped the the bank craft its response to the financial crisis! From Reuters:

  The documents on the ECB website show that former Barclays euro money market desk head Colin Bermingham and Joerg Vogt and Ardalan Gharagozlou from Deutsche Bank – three of 10 people charged by the SFO on Friday – were part of the central bank’s Money Market Contact Group at the height of the crisis.

   

  The group regularly met and held conference calls as the central bank scrambled to stabilise markets that were threatening to push debt-strained Greece, Portugal, Ireland and even Italy and Spain out of the euro in 2010 and 2011.

  Amusingly, the 10 people charged include Deutsche Bank’s Christian Bittar who can’t seem to get away from his title as rate rigger par excellence (although that’s not the term Anshu Jain used, that’s the spirit of a conversation the ex-Deutsche CEO once had about Bittar with a colleague back in the good ol’ days). Here’s Bloomberg:

  U.K. prosecutors charged 10 former Deutsche Bank AG and Barclays Plc employees with manipulating a benchmark interest rate, including high-profile trader Christian Bittar, with an 11th facing indictment as soon as next week.

   

  Six traders from Deutsche Bank employees and four from Barclays were charged with conspiracy to manipulate the Euribor benchmark, the Serious Fraud Office said in a statement Friday. Another trader listed anonymously in court documents may also be charged, according to three people familiar with the case.

   

  Alongside Bittar, those linked to Deutsche Bank are Andreas Hauschild, Joerg Vogt, Ardalan Gharagozlou,  Achim Kraemer and Kai-Uwe Kappauf. Former Barclays employees Colin Bermingham, Carlo Palombo, Philippe Moryoussef and Sisse Bohart also face charges.

  Ok, so the ECB was regularly communicating with three traders who are now charged with manipulating Euribor. Here’s what Francesco Papadia, head of market operations at the ECB during the financial and euro zone debt crises has to say about the group: 

  “They helped understand what was going on beyond what you see on the screens.”

  If you follow financial markets and that doesn’t strike you as hilarious, then check your pulse. That is, we bet they did “help the ECB what was going on behind the screen”, after all, they were the ones colluding to fix the market! 

  In any case, we’ll have to see what the time frames were here and if there was any overlap between when the allegations stem from and when this ECB committee operated (it’s probably a better bet that the manipulation took place before the euro debt crisis), but in any case, we’ll close with the following amusing quote for now: 

  “The ECB plays no role in the setting of the Euribor rate,” the ECB said in a statement.

  Are you guys sure about that?…

  

  

  

  

  

• Weekend Reading: Will They, Or Won't They?

  Submitted by Lance Roberts via STA Wealth Management,

  The past week has been fairly quiet as all eyes have turned to focus on the Fed and the expected rate hike at the December meeting. Will they, won't they, should they or shouldn't they? Those are the questions being hotly contested by the mainstream media on a daily basis.

  Of course, the reality is the Federal Reserve faces the huge obstacle of weak global growth and deflationary pressures which could very well keep them on hold well into 2016. The potential loss of credibility in the Fed by the markets could be the bigger issue to be concerned with.

  For now, we wait. The markets rapid surge in October has run into resistance as earnings season rapidly comes to an end. This is at a time when much of the economic data flow shows weakness and investors remain skittish following the summer bruising.

  While the markets have entered into the "seasonally strong" time of year, there is a marked difference between the current market environment and that of either the 2010 or 2011 summer corrections. In fact, the current market action as discussed earlier this week, is more reminiscent of a market topping process rather than a simple correction within an ongoing bull market. To wit:

   There is little evidence currently that the rally over the last couple of months has done much to reverse the more "bearish" market signals that currently exist. Furthermore, as noted by Jochen Schmidt, the current market action may be more indicative of market topping process."

   

  "Not unlike previous market topping action, the markets could indeed even register 'new highs,' as witnessed in both 2000 and 2007 before the major market correction begins. This is typically how 'bull markets' end by providing false signals and sucking in the last of those willing to 'buy the top.' The devastation comes soon after."

  There is sufficient evidence that warrants more caution by investors currently, and patience for a better entry point remains a virtue.

  As Gen. James Mattis once stated:

  "The problem with being too busy to read is that you learn by experience (or by your men's experience), i.e. the hard way. By reading, you learn through others' experiences, generally a better way to do business, especially in our line of work where the consequences of incompetence are so final for young men … Ultimately, a real understanding of history means that we face NOTHING new under the sun."

  Therefore, while we wait for the market to tell us what to do next, we shall read. 

  ---

  ON THE FED

  Jobs Report Greenlights Irrelevant Fed Rate Move by Louis Woodhill via Real Clear Markets

  “To the FOMC, the whole point of raising the Fed Funds rate would be to prevent the economy from 'overheating.' So it would make sense for the markets to fall in anticipation of a policy move whose purpose was to slow economic growth.

   

  So, why the late recovery? It could be because, upon reflection, the markets realized that, as long as the FOMC is thinking of monetary policy in terms of the Fed Funds rate, it makes no difference what they do. If the economy were a car, the Fed Funds rate would be the rearview mirror. It is possible to turn it like a steering wheel, but it doesn't affect anything."

  As "FedExodus" Looms, Big Stock Gains Behind Us by Paul Vigna via WSJ MoneyBeat

  A Debate With Bernanke Over Fed Policies by William Cohan via DealB%k 

  Not A Done Deal by Joe Calhoun via Alhambra Partners

  "Stocks also belie this belief that the Fed finally has it right, that growth is finally accelerating and the real recovery is finally underway. Yes, stocks have rallied nicely the last few weeks and have nearly recovered from their August swoon. But all that has done so far is to bring stocks back to where they were in mid-August just before the sell off. While it is certainly possible that we will yet make new highs, I think it is important that momentum is not confirming the move higher except, again, in the very short term. Long term momentum indicators still show a market in the process of topping."

  Worst Case Scenario via Kessler Companies

  On To The Next Question by Tim Duy via Fed Watch

  ON THE MARKETS

  The 60/40 Portfolio Is Dead In 2016 by Jeff Reeves via USA Today

  “The two big reasons that clinging to the old 60/40 formula is a bad idea, Puritz says, are a combination of short- and long-term factors.

   

  There's the historic low-interest-rate environment, but also the fact that people are living dramatically longer." 

  

   Now Is The Time To Go To Cash by Mitch Goldberg via CNBC

  "It isn't too late to sell. In fact, if an older client came to me today and wanted to sell stocks to raise cash, I would find it harder to argue against that strategy."

  Is Investor Sentiment Indicative Of Major Top? by Simon Maierhoer via MarketWatch

  Next 3-Weeks Will Decide 2016 For The S&P by Avi Gilburt via MarketWatch

  "As you can also see from the chart, if wave (iv) support holds, we should be going directly to the 2200 region before we see another larger consolidation, which then sets us up to target the 2300 region to complete wave (3) of wave V of Primary wave 3, potentially near the end of the year.

   

  I will warn you now that this would not be the preferable path for those who are bullish for 2016. Rather, if this is the path we take, then Primary wave 4 will take hold in the first quarter of 2016, will likely last for the remainder of 2016, and potentially take us back toward the 1800 region."

  Time For A Pause by Macro Man via Macro Man Blog

  The Next 1000-Point Down Day Is Coming by Kirk Spano via MarketWatch

  ON THE ECONOMY

  Decline And Fall Of America's Working Class by Noah Smith via Bloomberg

  “The paper highlights a very disturbing trend — death rates are increasing for white people in America, especially for working-class middle-aged whites. The increase looks like it has been going on since the late 1990s.

   

  Something very troubling and very unique is happening to American working-class whites.

   

  The immediate causes of the increase are not hard to identify. Drugs and suicide are the culprits. There is an epidemic of prescription painkillers, alcohol and heroin abuse among American whites."

  Despair, American Style by Paul Krugman via NYT

  Older American's Never More Miserable by Catey Hill via MarketWatch

  Social Security – The Long, Slow Default by Kirby Cundiff via Mises Institute

  VIDEOS

  Jim Grant – 2008 Crisis Didn't Come From Nowhere via Bloomberg

  Stanley Druckenmiller – The Chickens Will Come Home To Roost via CNBC

  Senator McCaskill Has A Message For Men (Humor…maybe?)

  ---

  OTHER READING

  • 13 Military Leaders Quotes For Better Investing by Elena Holodny via Business Insider
  • 18 Inspiring Quotes To Get You Thru Any Challenge by Lolly Daskal via Inc.
  • EBITDA Can Be Hazardous To Your Health by Ramy Elitzur via The Accounting Art Of War
  • America's Education Bubble by Mohamed El-Erian via Project Syndicate
  • The Power Of Common Sense by Morgan Housel via Motley Fool
  • The Most Brazen Corporate Power Grab In US History by Chris Hedges via TruthDig
  • Q3 Earnings – A Summary And 4-Main Themes by Tyler Durden via Zerohedge
  • Lagging Job Numbers Give Investors Whiplash by John Hussman via Hussman Funds

  ---

  “It is better to be approximately right, than precisely wrong” – J. Maynard Keynes 

  Have a great weekend.

  

  

  

  

  

• Paris Under Siege: French Military Deployed After Shootout, Explosions Leave 60 Dead, 100 Hostages Taken – Live Feed
  • AROUND 100 DEAD IN ATTACK ON PARIS CONCERT VENUE: AFP
  • FRENCH POLICE HAVE TAKEN CHARGE OF PARIS THEATER, BFM TV SAY
  • FRENCH SPECIAL FORCES ATTACK BATCLAN THEATER, ITELE REPORTS

  #BREAKING Attacker in Paris concert hall shouted 'Allahu akbar', fired into crowd, witness says

  — Agence France-Presse (@AFP) November 13, 2015

  There are now reports of multiple gunshots and "booms" inside the location where the hostages are being held.

  • BOMB DISPOSALTRUCK AT STADE DE FRANCE STADIUM:FRANCE INFO RADIO
  • ATTACKS IN PARIS TOOK PLACE AT SEVEN LOCATIONS, AFP SAYS
  • GUNFIRE HEARD NEAR LOCATION OF HOSTAGE SITUATION: AP

  Update: Reports on social media indicate that the Louvre, Pompidou Centre & Les Halles may be under attack as well.

  • *FRENCH POLICE ASKS PUBLIC IN PARIS REGION TO STAY INSIDE
  • *FRENCH POLICE ASKS PUBLIC ESTABLISHMENTS TO REINFORCE SECURITY
  • *FRENCH POLICE REQUESTS A STOP TO OUTDOOR PUBLIC EVENTS
  • *NYC: NYPD IS IN CLOSE CONTACT WITH INTL LIAISON IN PARIS

  *PRESIDENT OBAMA BEGINS REMARKS AT WHITE HOUSE

  

  • *OBAMA SAYS ATTACKS IN PARIS `OUTRAGEOUS'
  • *OBAMA SAYS ATTACKS ARE ON `ALL OF HUMANITY'
  • *OBAMA SAYS U.S. WILL PROVIDE ANY ASSISTANCE NEEDED TO FRANCE
  • *OBAMA SAYS SITUATION IN PARIS IS `HEARTBREAKING'

  A 4th event has occurred…

  BREAKING: Another shooting reported in Paris, at Les Halles shopping mall: Europe 1 Radio. https://t.co/uixSvEfEMR

  — Reuters Top News (@Reuters) November 13, 2015

  * * *

  UPDATE: Bataclan hostages communicate on social media, report being slaughtered "one by one." #Paris @JuliaDavisNews pic.twitter.com/9YzOTc8ABl

  — Julia Davis (@JuliaDavisNews) November 13, 2015

   

  BREAKING: At least 60 dead in Paris attacks, BFM-TV reports https://t.co/oPcKAQxWD0

  — BNO News (@BNONews) November 13, 2015

  Vidéo de la fusillade pic.twitter.com/bpO7mLNcci

  — a (@dihlaz_Y) November 13, 2015

   

  • @JeremyCliffe: Reports from Bataclan: some escaped, describing pools of blood and attackers using pump-action shotgun against crowd inside
  • @Reuters: BREAKING: U.S. security officials believe #Paris attacks were coordinated

  Syria has been implicated:

  • @FKrumbmuller: Shooter in #Bataclan said to have shouted "this is for Syria" #BFMTV #parisattacks

   

  2) Recently #ISIS fans campaigned against #France. Hackers launched "FranceUnderHacks" against French websites pic.twitter.com/yXR7JGi9K1

  — Rita Katz (@Rita_Katz) November 13, 2015

  As we previously detailed: reports are coming in fast and furious from Paris where witnesses have reported multiple explosions along with possible shootout in a restaurant near Place de la République.

   

  • FRENCH PRESIDENT HOLLANDE EVACUATED FROM STADIUM: ITELE
  • TWO BLASTS HEARD NEAR STADE DE FRANCE STADIUM NEAR PARIS: BFMTV

  Explosions can be heard during the game…

  Fans are too afraid to leave the satdium, amassing on the field…

  pic.twitter.com/A5QQFBo6Eg

  — Lucie B. (@LucieBacon) November 13, 2015

   

  • *AROUND 100 HOSTAGES TAKEN AT PARIS THEATER, 35 DEAD: AP
  • 15 DIED IN ATTACK AT CONCERT HALL, 3 NEAR STADIUM:POLICE TO AFP
  • ONE HOSTAGE SITUATION UNDERWAY IN PARIS: ITELE, CITING POLICE

   

  BREAKING: 60 hostages being at concert hall in Paris

  — Lisa Daftari (@LisaDaftari) November 13, 2015

  France 24 is reporting that "masked armed men fired from all sides":

   

  #URGENT Fusillade à #Paris : "Plus de 10 victimes. Des gens masqués, armés ont tiré de tous les côtés" https://t.co/bh9OxBs6Wq

  — FRANCE 24 Français (@France24_fr) November 13, 2015

  From BFMTV:

  A shooting at the Kalashnikov has left several dead in a restaurant in the tenth arrondissement. At least seven people were injured, according to our information. According to a reporter on site BFMTV, bodies lying on the ground.

   

  The shots were heard near the metro station Goncourt. A large security cordon was established around the perimeter. The police are asking all residents to take cover in buildings and gradually close all the streets. They evacuated all the bars, restaurants and terraces nearby.

   

  The shooters or have not yet been apprehended.

  Here some images from the scene:

  Suivi – Photo du lieu de la fusillade Rue #Bichat à #paris via @Odonata2000 pic.twitter.com/R8bKQuP1ZL

  — LesNews (@LesNews) November 13, 2015

  Fusillade paris pic.twitter.com/APtH7Zx5b4

  — petemystrong (@pierre75010) November 13, 2015

  Tirs à la Kalash au petit Cambodge dans le 10 ème à #Paris plusieurs morts. Secours et police sur place #tir pic.twitter.com/BBKaYocMz7

  — Vincent Berthézène (@Vince66240) November 13, 2015

  It now looks as though there were at least three explosives.

  

   

  Here are the locatios of the 3 events…

  

   

  Au 90 rue de Charonne, un 7ème corps … pic.twitter.com/PGFh63cwTj

  — Tommy Pouilly (@5h55) November 13, 2015

  MORE: Live feed from scene of #ParisAttacks https://t.co/h5irPM03C6 pic.twitter.com/bKPuHozDms

  — Sputnik (@SputnikInt) November 13, 2015

   

  Victims lay on the pavement in a #Paris restaurant pic.twitter.com/n6u45qH5Ji

  — Michele Galvani (@GalvaniM) November 13, 2015

  

   

  While it feels a little callous to mention it, we note dthat US equity futures are tumbling on this news…

  

  

  

  

  

• Stocks, Commodities & Credit Collapse As Retail Rapture Wrecks Rate-Hike Hype

  But "hawkish" was "bullish"?

  

   

  Roughly translated….

   

  A Week of turmoiling…

  • S&P -3.2% – worst week in 3 months
  • Retail -8.2% – worst week in 4 years
  • VXX +17.9% – biggest week in over 2 months
  • VRX -8% – down 7 of last 8 weeks
  • AAPL -6.4% – worst week in 2 months
  • Financials -3.2% – worst week in 2 months.

  • Copper -3.5% – worst week in 2 months (down 5 in a row)
  • WTI Crude -8.7% – worst week since Dec 2014

  • HYG -1.7% – worst week in last 7 weeks
  • HY CDX +35bps – worst (non-roll) week since Decmber 2014
  • Long Bond +0.8% – best week in last 4
  • 5Y Yield dropped 5bps – most in over a month today

  Futures markets show a clear pattern throughout the week of US session weakness and overnight recovery…

  

   

  Nasdaq closed very ugly on the day…

  

   

  Which left Small Caps worst but everything red for the week…

  

   

  Retail pukefest…

  

   

  FANG FUBAR since FedSpeak began…

  

   

  TWTR back below its IPO price…

  

   

  And Camera-on-a-stick below its IPO price…

  

   

  Eveything is red since FOMC…

  

   

  Financials and Energy wewre ugly this week….

  

   

  As financial stocks catch down to credit once again…

  

   

  Stocks year-to-date…

  

   

  Once again "123" was the number that mattered… As soon as Europe closed, USDJPY ramped to 123.00 dragging S&P Futures with it… and then rolled over…

  

   

  Trannies caught down to Crude once again…

  

   

  Stocks are catching down to credit…

  

   

  Treasury yields closed down notably on the week after consistent early selling and late buying… (with today's rally the biggest of the week)

  

   

  The dollar ended the week modestly lower against the majors…

  

   

  Commodities were a bloodbath this week…notice the similar pattern in the USD and crude…

  

   

  Gold closed lower for the 4th week in a row – lowest weekly close since Jan 2010…

  

   

  Crude carnage…

  

   

  Charts: Bloomberg

  

  

  

  

• Will 92% Of Economists Be Wrong Again?

  Three months ago, when looking at the predictive track record of US economists, we said that “if PhD economists were serious about getting things right, they would have a tough job. That goes double for PhD economists charged with making policy decisions based on their conclusions.”

  We furher explained that’s because economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course.

  Back then we were specifically looking at economist’s predictions about the Fed’s first rate hike, which based on a WSJ survey of “respected” economists, nearly 95% said the Fed would hike by September.

  

  It did not… once again showing just how truly clueless about a binary event a short 9 months in the future, economists truly are.

  * * *

  Where are we now? Here is the latest WSJ poll:

  About 92% of the business and academic economists polled by The Wall Street Journal in recent days said they expected the Fed to raise its benchmark federal-funds rate at its Dec. 15-16 policy meeting. Some 5% said the Fed would stay on hold until March and 3% predicted the Fed would keep rates at near-zero even longer.

  Charted:

  

   

  To summarize: in January, 95% of economists were wrong in their forecast about a binary event 9 months into the future.

  And now we have an even better bogey: should the Fed not hike rates on December 16, then we will know with certainty that over 90% of economists are unable to accurately forecast a simple yes/no event, which is due to take place in just over a month.

  No pressure.

  We, for one, can’t wait: should Yellen pull the rug on everyone again, it won’t be the Fed whose credibility will be terminally crushed: it has been for years. It will be that of the army of Fed sycophants, the sad souls whose job it is to perpetuate a failed and dying system, known as economists.

  

  

  

  

  

• EU Commissioner's Dire Warning: "The Only Alternative To Europe Is War"

  While the saying goes "good fences make good neighbors," it appears the leadership of The EU is starting to get frustrated with the lack of acquiescence among some of the 'union's' newer or more marginal members. In a somewhat stunning statement, following ongoing and contentious meetings to discuss solutions to the migrant 'problem', EU Commissioner Timmermanns appeared to warn disagreeable member states, "There is an alternative to everything. I believe in EU cooperation because of all other forms in history have been tried to help Europeans get on better, and with the exception of this one, all other forms have led to war – so let's stick to this one."

   

  @MattTempest @TimmermansEU pic.twitter.com/ZXWf9BoydU

  — Bruno Waterfield (@BrunoBrussels) November 13, 2015

   

  As Elsevier reports (via Google Translate),

  European leaders read the last few days the alarm about the survival of the European Union (EU). Prague said Commissioner Frans Timmermans (PvdA) Friday that the EU is only one alternative: war.

   

  "The only alternative to the EU is war," said Timmermans Friday gave a speech at a conference in Prague, said a reporter for The Times of London who attended the speech.

   

  Timmermans is the way Europe responds to the migration crisis' the biggest threat to the EU ever. The Commissioner underlined that countries should cooperate better when it comes to border controls. "Migration is part of life, but we must lead these movements together in the right direction," said Timmermans.

   

  Matching words Timmermans in the alarmist tone that European leaders were heard in recent days about the survival of the EU. Earlier this week, Timmermans at the House of Europe Lecture in Amsterdam that he fears for the survival of the EU. "I do not optimistic about doing that, because I'm just not. This is the first time in my conscious experience of European cooperation that I think: it could ever really be able beaches.

   

  Luxembourg Foreign Minister, who will chair the Council of the European Union on behalf of his country, spoke in an interview about identical words.

   

  The current migration crisis is the European ideal of free movement shaking on its foundations. EU President Donald Tusk said that the EU is engaged in "a race against the clock." "But we are determined to win this race," said Tusk. "As I warned earlier, the only way not to dismantle the Schengen ensure proper management of the external borders of the EU."

   

  The EU appears to be unable to curb migration flows. Because the borders are not guarded, seeing more and more countries are forced to protect their own borders. Even the welcoming Sweden went on Thursday to intensive checks on the southern border.

  Remember when Hank Paulson waved the "Mutual Assured Destruction" card in the face of the U.S. with his infamous "blank check" three page term sheet? Now, it's Europe's turn.

  What's worse, however, for things to devolve this much, it confirms that the European 'Union' is rapidly disintegrating, much more than the recent surge in barbed wire fences around European nations will demonstrate, and as Timmermanns warns, that means war.

  

  

  

  

  

• What's Wrong With This Picture?

  Demand, Supply, or Outright Manipulation?

   

  

   

  Charts: Bloomberg

  

  

  

  

  

• Never Forget

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  

  

  

• It's Official: Barack Obama Wants To "Help" You Manage Your Retirement Savings

  Submitted by Simon Black via SovereignMan.com,

  In 1875, right around the time the United States overtook the UK as the largest economy in the world, the American Express Company established the very first private pension plan in the US.

  American Express had a simple goal: attract the best and brightest employees by giving them retirement security.

  At the time, this was a revolutionary idea. The concept of “retirement” was practically martian.

  Back then, most people worked until they were no longer medically fit to do so.

  To voluntarily stop working and live out your golden years on perpetual vacation was a complete fantasy.

  But a century after American Express, thanks in large part to rising prosperity in the 20th century, retirement had become the norm.

  Private companies’ pension plans covered over 40% of the American workforce and millions of Americans were receiving Social Security by the 1970s.

  Then in 1974 the government passed the Employee Retirement Income Security Act, establishing Individual Retirement Accounts (IRAs) to help people save for retirement in a tax advantageous way.

  Fast-forwarding to 2015, we can see that none of this turned out quite like they’d expected. The state of retirement in America is now pretty abysmal.

  First and foremost, Social Security is desperately, woefully unfunded.

  Again, this is not Simon Black’s conjecture. The Treasury Secretary and the Labor Secretary both sign an annual report stating that Social Security is close to “trust fund depletion”.

  In fact one of Social Security’s major trust funds is literally days away from running out of money.

  Federal retirement trust funds across the board, like the Railroad Retirement Fund, are also nearly exhausted.

  Meanwhile, private companies have followed the government’s example, with many private pension funds similarly approaching insolvency.

  You see this frequently in the news as the cost of their pension funds push airlines and manufacturers into bankruptcy. They simply cannot pay their retirees.

  Not to worry, the federal government has an agency called the Pension Benefit Guaranty Corporation to bail out guarantee insolvent private pensions.

  It’s like the FDIC for private pension funds.

  There’s just one problem. The PBGC itself needs a bailout.

  PBGC’s latest report shows a net financial position of NEGATIVE $62 billion, which is how much more they have in liabilities than assets. There’s another word for that: insolvent. So there goes that idea.

  Last, there are individual retirement plans, like IRAs and 401(k)s.

  Unfortunately, most Americans’ individual retirement plans are woefully underfunded.

  According to the Employee Benefit Research Institute, the median IRA balance in the US was just $32,179 at the end of 2013.

  And the median amount saved by baby boomers amounts to just 13% of what their projected retirement needs are.

  But not to worry, once again the federal government is to the rescue.

  Last week the Obama administration officially rolled out its MyRA program.

  MyRA is a special form of IRA that ‘helps’ Americans save for retirement by making it easy for you to loan your money to the federal government.

  Like a retirement account, the idea is to save a little bit every month or every year to be set-aside in a tax-advantageous way for retirement.

  The big catch here is that for MyRA accounts, there’s only one investment: US government bonds.

  At present, US government bonds fail to pay interest rates that meet the government’s officially published rate of inflation.

  So with these MyRA accounts, when adjusted for inflation, you’re guaranteed to lose money.

  The Obama administration, of course, entirely dismisses this criticism, saying that these MyRA accounts are for “people who aren’t saving and who have a fear of losing their principal.”

  It’s pretty appalling when you think about it.

  Private pensions are nearing insolvency, and the government’s guarantee agency is insolvent.

  Public pensions and retirement funds are also nearing insolvency. And individual retirement funds are completely undercapitalized.

  This will become an epic retirement funding crisis..

  Yet the government ‘solution’ is to encourage Americans who are at risk of losing their retirement to loan their money to the greatest debtor that has ever existed in the history of the world at interest rates that don’t even keep pace with inflation.

  The government claims that MyRAs are guaranteed.

  But the only thing guaranteed is that you’ll lose money… whether through inflation, default, or confiscation.

  The lesson here is clear: don’t rely on the government for your retirement. YOU are a far more reliable manager of your own money.

  But as with anything, financial success starts with financial education.

  So before you invest your money, invest your time in learning about winning investment strategies, unconventional investments, and real retirement options.

  You might find that you could live in absolute luxury somewhere overseas for a tiny fraction of what it would cost you back home. (Colombia comes to mind)

  Or that you can generate substantial rates of return from buying high-yielding private businesses, or through asset-backed peer-to-peer lending programs.

  You won’t hear about any real solution from the government. But with a reset in thinking, that dream of sipping Mai Tai’s by the pool can still be a realistic vision.

  

  

  

  

  

• Caught On Tape: Pollution 1 – 0 China

  Over the past 3 years, as a result of its accelerated launch into the industrial-age with no emission controls, China has been fighting an unprecedented war with air pollution, which as documented extensively before, has resulted in air quality in most Chinese  metropolitan areas which in virtually unbreathable, and which is estimated to kill 4,000 people per day. 

  Sadly, when it comes to its war with pollution, China keeps on losing the war. The latest proof comes from the following clip by Reuters showing that for all the grandiose talk out of Beijing, China is simply unable to have both an economy growing at 7% (really below 3%) and breathable air.

  Here’s the latest video from Reuters explaining why:

   

  And in stils:

  

  

  

  

  

  

  

  

  

  

• The Recessions Are Underway

  Submitted by Andrew Zaitlin of Moneyball Economics

  “People’s confidence that the consumer can somehow offset this industrial recession that we’ve had is really being shaken to the core with the disappointing numbers from some of these major retailers”

        – James Abate, CIO of Centre Funds.
  

  Recessions Are Underway

  China drove the recent economic boom, just as it is behind the recent malaise. A turnaround in Chinese demand would certainly change things but the current data does not look promising.

  For China’s trade partners, it means recession today. Only Germany and the US look positioned to weather the storm. Expect the next macroeconomic leg down to start in January. Between now and then, data will continue to weaken incrementally. Expect urgent Central Bank intervention in Taiwan, Korea, Brazil, and Australia.

  It’s Not a US Recession… Yet

  The US economy may be only 30% dependent on exports, but a sudden drop still hurts. Especially when GDP is growing only 2%.

  The domestic hit this year from the downturn in commodities is well known. Falling prices and production immediately led to lower capital expenditure (CAPEX) spending on pipelines, extraction equipment, and so on. That extended to basic industrial component suppliers like pumps and fasteners, among others.

  US exports pulled down as global customers got whacked.

  

  After rising 2% from 2013 to 2014, non-petroleum exports suddenly contracted: down -3.5% year-to-date through August.

  • Metal Exports -$3B
  • Machinery Exports -$8B
  • Industrial Machinery -$3B or -5%

  While direct exports to China have fallen only $2B, the remaining drop is still China-related. The bulk of the export drop comes from commodity producing countries. Mexico and Canada account for $20B of the export drop and finished-goods producing countries that export to China (EU) account for $10B.

  Bottom line: You can’t strip out $34B from the US economy without significant blow-back. If oil and mining companies were the first to be hit, the second victim of China’s downturn has been industrial goods suppliers. The next wave will be operating expenditures (OPEX), in the form of temporary workers.

  The US Response: Slower Production

  Hats off to US producers for responding quickly. Businesses have dramatically curtailed factory expansion and spending on capital goods.

  

  The swift response is also a warning sign: if demand remains sluggish, additional cuts will come quickly.

  Capital goods spending has also dropped. Some of that comes from IT spending shifts (Windows 10 release has pushed out some IT spending, the Cloud is reducing hardware spending). Most of the drop is business retrenching in the face of an inventory overhang.

  

  Unfortunately, US producers are still behind the curve. While inventory production has slowed, demand is slowing even faster. US non-petroleum exports are contracting faster. The result: inventory overhang.

  

  

  US: Weak Exports, Sudden Downturn in Imports

  Not only have exports fallen to the lowest level since 2012; per the latest Census Bureau trade data through August, the pace is accelerating. That extends to exports minus food, autos, and oil which shrank 2X the rate of the previous six months.

  The worst is yet to come. For more recent data, we looked at the biggest ports on either US coastline: Los Angeles, Long Beach, New York, and Savannah. (The individual port data was distorted by the 1Q 2015 West Coast ports slowdown and subsequent re-routing of cargo shipments via East Coast ports. So we combined all ports to get a clear overview.)

  

  No surprise, the export story remains grim. Volumes continue to contract although the pace is flat, but this data includes oil exports and we know that they contracted in 4Q 2014 and 1Q 2015. Adjusting for oil and cargo, exports have probably contracted at a more constant pace. This means that it is possible that we are approaching a bottom of sorts.

  

  Big surprise, imports turned for the worse. September imports suddenly collapsed to 0% y/y. The China-facing ports of Long Beach (-2%) and LA (-9%) fared the worst. It’s the lowest level of shipments since 2009. Just a guess, but it fits the industrial slowdown story (not holiday shopping season related).

  Semiconductors: No Bottom and Continued Manufacturing Softness

  Back in August, Southbay Research noted that semiconductor companies were uniformly less bullish. Recent earnings calls have reinforced the less bullish picture, and no wonder: top-lines have begun to contract.

  Semiconductor companies are preparing for no growth. Silicon wafers are the basic building blocks of semiconductors. After surging last year, volume demand has collapsed from 11% in 2014 to barely 2% this year. Expectations are for 1% growth next year.

  

  The standard playbook says to start with CAPEX cuts. The top three semiconductor manufacturers announced CAPEX cuts in the last month:

  • Intel lowered CAPEX a further $500M, bringing total CAPEX budgets down from $11B last year to $7B.
  • Samsung cut CAPEX $2B or 20%.
  • TSMC to cut CAPEX $3B or ~30%.

  The reason: China demand is lower than expected. Last year was a boom time for semiconductor makers as the Chinese smartphone market continued to surge. In particular, a new cellular infrastructure roll-out boosted sales of higher end phones. However, actual demand was overstated. The desire to not miss out on a sale drove handset makers to over-order.

  “[There was] an artificial peak in retrospect meaning there was a lot of inventory being built up by our customers who all thought they were going to get a higher share… we had many customers thinking they were going to get a bigger share out of that.” -Jon Olson, XLNX CFO

  The result was that supply exceeded demand and inventories surged. As the CEO of TSMC put it, the sudden weakness was surprising. The smartphone supply chain spent the summer bleeding off excess inventory. But demand remains weak. The China smartphone market contracted in 2Q. TSMC now forecasts 0% semiconductor growth in 2016, down from the previous forecast of 3%, citing China as the reason for weakness.

  “Most of our customers are pretty optimistic about their own business… but growth has just slowed at least for now. And I think when you are CEO of the company and you take a look at what’s going on out there, you are sort of trying to save a little bit of money right now and waiting to see what happens.” -Don Zerio, CFO LLTC

  

  Indeed, recent semiconductor sales continue to contract, and that’s after we include the massive production ramping for the new iPhone release (heavy demand for chips).

  

  Expect more cost cutting and the start of layoffs. Beyond cutting back expansion plans, some companies are selectively shutting down production lines. Adding to the pain of excess capacity, more capacity is coming online. We expect layoffs and consolidation to accelerate into 1Q 2016. This is a great time for Chinese companies looking to hire talented engineers.

  Adjusting to Slower Chinese Demand

  “It’s not like [our customers have] seen a significant decline in demand. It’s just they haven’t seen the increase that they had originally planned.” -Richard Clemmer, CEO NXPI

  Global exporters and producers are in a recession. China’s iron ore imports epitomize the current situation as Chinese demand flattened. While technically that’s not a recession (demand quantity has not dropped), the impact feels the same (falling prices and profits) and the response is the same: cuts in OPEX and CAPEX.

  

  

  How did this all start? It began in late 2013, when China popped its credit bubble. The chilling effect was seen across the entire Chinese economy, from iron ore to housing prices. Everything proceeded to downshift in late 2013 as credit tightened. Credit bubbles tend to behave in the same way: hot money bids up assets and popping the bubble leads to over selling.

  

  China’s bubble and current blow-back have some unique qualities:

  1. Significant global impact from changes in Chinese marginal demand
  2. Over reliance on real estate

  

  The origins of the bubble started with China setting course on returning to economic might by becoming a manufacturing powerhouse and having world-class infrastructure. Both objectives turned China into a capital intensive economy and a destination for global industrial suppliers (machinery, commodities, etc.). Loose monetary policy facilitated the growth.

  A boom in asset prices followed. This was partially the natural outcome of real demand driven by an unprecedented boom in consumption for domestic development and exports. It was also partially the outcome of credit bubble hot money that bid up asset prices.

  Trouble came from significant and extreme corporate gambling in real estate and commodities. Seeing ever-rising asset prices, Chinese companies saw an opportunity: using special access to cheap credit, they bought iron ore, copper, and real estate which they then used as collateral to buy more iron, copper, and real estate. Actual demand, together with this artificial demand, combined to create the impression that consumption was racing higher. A false high growth trajectory was established and then reality hit. First came monetary tightening. Then came the Chinese government’s 2014 infrastructure budget which called for no growth. Producers were hit hard but borrowers were hit even harder. In other words: a textbook popping of a credit bubble.

  • Overvalued assets get oversold and fall in price (commodities and real estate)
  • Discretionary spending gets squeezed (gambling in Macau)
  • Liquidity squeeze

  Commodities have been hit especially hard.

  1. Focus of corporate gambling: loss of big demand coupled with stockpile sell-off
  2. Factory production slowdown: unprofitable factories dependent on loans to stay afloat are suddenly facing liquidity crunch
  3. Sluggish infrastructure spending: slowdown in public sector projects and private sector real estate development

  Inventory adjustments define global trade through 2016. The market is still trying to discover the true levels of sustainable demand.

  • Today: Bleed inventory, push out expansion
  • Tomorrow: Reduce production and capacity

  The first step is dealing with excess capacity. Here’s that iron ore chart again. Demand was on a trajectory of 80M-90M tons, and capacity was expanding accordingly. Instead, demand has stopped at 70M tons. That’s 15%-20% excess capacity.

  

  As China exports deflation, political reality takes over. The Chinese government talked a good game.

  When the new government took over in early 2014, one of its first moves was to emphasize the need for a more market-driven economy. In May 2014, President Xi stressed the point: a “decisive” role of market forces to allocate resources. We never believed it for a moment.

  Then reality hit. The normal market reaction to a manufacturing recession is to close factories, reduce capacity, and fire workers. But that’s politically impossible in China. Instead the government is saving companies and hoping to export its way to growth. The Chinese government could reignite demand through more infrastructure spending. That would create a bottom in prices. We’ll know in December when the 2016 budget gets released. Regardless of spending initiatives, monetary policy will be to weaken the yuan, provide easy credit, and support dumping of excess supply into global markets. This is all very deflationary for the US and EU.

  What This All Means

  In the near-term (4Q 2015-1Q 2016), bleed inventory. The sequence of events will be:

  • Push out factory expansion plans (CAPEX to drop)
  • Reduce production (cut back extra shifts, slow hiring)

  Longer term (2016-2017), cope with excess factory capacity. The sequence of events will be:

  • Stop factory expansion plans (severe CAPEX cuts)
  • Reduce production (shutter production lines, fire workers)

  Industrial layoffs have already started, but will begin in earnest in 1Q 2016. Companies have entered a wait-and-see mode which is a precursor to layoffs.

  This is a bearish place to be. Industrial company dividends are not at risk yet, but growth is very much under pressure. For the next 3-4 months, consider ETFs which are short Asia or short US industry.

  One risk to this strategy is that Asian stock markets may jump on various currency moves or Chinese stimulus. Another risk is that the current adjustments to lower demand start to wind down by 3Q 2016, which would create a temporary boost to industrial stock.

  The overall theme is excess supply, and it has yet to finish playing out across the ecosystem.

  

  

  

  

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• Did Russia Just "Gently" Threaten The USA?

  Authored by The Saker,

  Interesting stuff today.  A major Russian TV channel just aired a report about Putin meeting with his top military commanders.  I don’t have the time to translate what Putin said word for word, but basically he said that the USA had refused every single Russian offer to negotiate about the US anti-missile system in Europe and that while the US had initially promised that the real target of this system was Iran, now that the Iranian nuclear issue had been solved, the US was still deploying the system.  Putin added that the US was clearly attempting to change the world’s military balance.  And then the Russian footage showed this:

   

  

   

  According to the Kremlin, it was a mistakenly leaked secret document.  And just to make sure that everybody got it, RT wrote a full article in English about this in an article entitled “‘Assured unacceptable damage’: Russian TV accidentally leaks secret ‘nuclear torpedo’ design“. According to RT

  The presentation slide titled “Ocean Multipurpose System: Status-6” showed some drawings of a new nuclear submarine weapons system. It is apparently designed to bypass NATO radars and any existing missile defense systems, while also causing heavy damage to “important economic facilities” along the enemy’s coastal regions. The footnote to the slide stated that Status-6 is intended to cause “assured unacceptable damage” to an adversary force. Its detonation “in the area of the enemy coast” would result in “extensive zones of radioactive contamination” that would ensure that the region would not be used for “military, economic, business or other activity” for a “long time.” According to the blurred information provided in the slide, the system represents a massive torpedo, designated as “self-propelled underwater vehicle,” with a range of up to 10 thousand kilometers and capable of operating at a depth of up to 1,000 meters.

  Actually, such ideas are nothing new.  The late Andrei Sakharov had already proposed a similar idea to basically wipe out the entire US East Coast.  The Russians have also look into the possibility to detonate a nuclear device to set off the “Yellowstone Caldera” and basically destroy most of the USA in one shot.  While in the early years following WWII the Soviets did look into all sort of schemes to threaten the USA with destruction, the subsequent development of Soviet nuclear capabilities made the development of this type of “doomsday weapons” useless.  Personally, I don’t believe for one second that the Russians are now serious about developing such system as it would be literally a waste of resources.  So what is going on here?

  This so-called “leak” of “secret documents” is, of course, no leak at all.  This is a completely deliberate action.  To imagine that a Russian journalist could, just by mistake, film a secret document (helpfully held up for him by a general) and then just walk away, get it passed his editor and air it is laughable.  Any footage taken in a meeting of the President with his senior generals would be checked many times over.  No, this was a deliberate way to remind the USA that if they really are hell-bent on spending billions of dollars in a futile quest to create some kind of anti-missile system Russia could easily develop a cheap weapon system to still threaten the USA with total annihilation.  Because, make no mistake, the kind of long range torpedo being suggested here would be rather cheap to build using only already existing technologies.  I would even add that rather than setting such a weapon off the US coast the system could also be designed to fire off a secondary missile (ballistic or cruise) which could then fly to any inland target.  Again, such technologies already exist in the Russian military and have even been deployed on a smaller scale. See for yourself:

   

  Coming back to the real world, I don’t believe for one second that any type of anti-missile system could be deployed in Europe to shield NATO the EU or the US from a Russian retaliatory strike should the Empire ever decide to attack Russia.  All the East Europeans are doing is painting a cross-hair on themselves as these will be the very first targets to be destroyed in case of a crisis.  How? By use of special forces first and, if needed, by Iskander missile strikes if all else fails.  But the most likely scenario is that key components of the anti-missile system will suddenly experience “inexplicable failures” which will render the entire system useless.  The Russians know that and so do the Americans.  But just to make sure that everybody got the message the Russians have now shown that even a fully functional and survivable US anti-missile system will not protect anybody from a Russian retaliation.

  The sad thing is that US analysts all fully understand that but they have no say in a fantastically corrupt Pentagon.  The real purpose of the US program is not to protect anybody against a non-existing Russian threat, but to dole out billions of dollars to US corporations and their shareholders.  And if in the process the US destabilizes the entire planet and threatens the Russians – then “to hell with ‘em Russikes!  We are the indispensable nation and f**k the rest of the planet!”  Right?

  Wrong.

  What happened today is a gentle reminder of that.

  

  

  

  

  

• How To Know If You're A Fascist – Lessons From Yale & Mizzou

  Submitted by Bill Barlow via The Harvard Law Record,

  Usually, we at Harvard are more than happy to see Yale students make fools of themselves on camera. The video that emerged this week of Yale students screaming down one of their professors might make for a good laugh, if its implications were not quite so serious. It’s a scene we’ve seen played out far too often at college campuses in recent years, and it deserves to be called by what it is: a nascent form of fascism.

  In case you haven’t heard, Yale has recently endured a firestorm of protest after a lecturer that presides over one of the undergraduate colleges questioned whether concerns about the offensiveness of Halloween costumes had gone too far in impinging on free speech.

  In response, hundreds of protesters gathered on the quad, calling for Nicholas and Erika Christakis to be removed from their roles. Nicholas voluntarily came to discuss the matter with them, and soon, a crowd of students enveloped him.

  The video is chilling.

  One student is heard saying, “Walk away. He doesn’t deserve to be listened to.” When Nicholas started to explain himself, a student yells, “Be quiet!” and then proceeds to lecture him. When Nicholas calmly and politely says “I disagree,” the protestor explodes, screaming, “Why the fuck did you accept the position?! Who the fuck hired you?! You should step down!” Then, finally, “You’re disgusting!”

  The problem here isn’t that people disagree with what Nicholas said. The problem is that they are calling for reprisals against Nicholas and Erika simply for saying it. This recent movement of university students to use administrative procedures to punish speech with which they disagree should be called by its rightful name: proto-fascism.

  Several days later, students disrupted an event held by the William F. Buckley, Jr. program that was designed to highlight the importance of free speech. According to reports by the Yale Daily News, several attendees were spat on as they left.

  Once again, the problem isn’t that you disagree with what the event said (though, if you disagree with an event about the importance of free speech, that might be a cause for concern itself), but that you are using a tactic—spitting—that constitutes battery, and should never be used against someone for expressing beliefs that you disagree with.

  I understand that it can sometimes be difficult for college students today to tell the difference between fascist methods and non-fascist methods of advancing their beliefs and agendas. Luckily, I spent my senior thesis studying the rise of fascism in Europe, and am happy to give a few, easy tips about whether the activity you are engaged in adopts fascist tactics or not. To make it even easier, I’ve put it in table form:

  

   

  Of course, this isn’t an exhaustive list, but it’s a good starting point. Ask yourself the question: Am I calling for people to be officially sanctioned because of what they believe, or am I committing a crime against someone because of what they believe? If the answer is yes, you are probably engaging in fascist tactics.

  Given the public outcry, it seems that the majority of people, including the majority of progressive liberals, believe that Yale students calling for the resignation of those professors have gone too far in punishing free speech. The problem is that no one is willing to stand up to them. If we are going to begin anywhere, we are going to begin by calling them by their rightful name.

  They are fascists.

  They are fascists.

  They are fascists.

  

  

  

  

  

• Another Bubble Bursts: Ultra Luxury London Home Prices Tumble 12%

  In mid-September, when we looked at the Australian housing market, we said that in the aftermath of Beijing’s crack down on capital controls following its August currency devaluation, that “new Chinese ‘regulations’ may just kill Australia’s golden goose of ‘weath creation’ as Aussie’s largest trade partner sees its economy collapse.” More:

  While the Aussies themselves proclaimed a “war on cash,” it appears, as AFR reports, that Chinese purchases of Australian property have dropped significantly in the past month, according to agents, as buyers struggle to shift money out of the country following Beijing’s move to tighten capital controls. With Chinese banks now limiting any overseas transfer to USD50,000 – in an effort to control capital outflows – and with China dominating the Aussie housing market, one agent exclaimed, “it has affected 70 to 80 per cent of current transactions and some have already been suspended.”

  The results were immediate: “the tighter rules in China come as Sydney recorded its lowest auction clearance rate for the year this past weekend, while Melbourne has now recorded two weekends below the same time last year, according to Corelogic RP Data.”

  Two months later, the sudden withdrawal of Chinese hot and laundered money has just popped another housing bubble: perhaps the biggest one of all. London.

  Citing Richard Barber, a director at broker W.A. Ellis LLP, a unit of Jones Lang LaSalle Inc., Bloomberg reports that prices of homes valued at 5 million pounds ($7.6 million) or more fell 11.5% on a per square foot basis from the third quarter of 2014. Bloomberg is eager to assign the plunge on “the government’s stamp duty sales tax”, however that has been around for a while and only after the Chinese devaluation was there such a sudden drop in prices.

  What changed? Why China’s far more aggressive crackdown on the exporting of hot money, of course. Just like in Australia.

  The result has been sharp and acute: sales volumes across all homes in the best parts of central London dropped 14%, the realtor said on Thursday.

  “The bubble may already have burst” for the most expensive homes, Barber said. Now, “36 percent of all properties currently on the market across prime central London are being marketed at a lower price than they were originally listed at, with the average reduction in price being 8.5 percent.”

  

  According to the W.A. Ellis report, values across all homes in London’s best central districts rose 1.4 percent during the third quarter to 1,832 pounds a square foot, which means that the one segment most impacted was the one which also happens to be most desirable to offshore (read Chinese “all cash”) clients. 

  Neither the London housing bubble nor its sudden pop should come as a surprise to central bankers, either in the UK or in China. After all it is their easy money policies, and the creation of tens of trillions in excess deposits in banks via the reserve pathway (deposits which had to be parked in “safe” jurisdictions such as Swiss bank accounts until recently or in London/NY/SF/Vancouver real estate, that caused this.

  Sadly, and as usual feigning ignorance for the consequences of their actions, instead of finally admitting they are at fault, these same central bankers decided to take the easy way out and simply blame the market itself.

  Case in point BOE chief economist Andrew Haldane, who said on Thursday that the British housing market is “broken.”

  According to him, Britain needed to build around 200,000 new homes a year, and that its failure to build much more than half that, largely due to a lack of new public housing, had caused prices to rocket. “The UK housing market is broken,” he said at a meeting hosted by Britain’s Trades Union Congress. “There is a chronic and accumulated imbalance between demand and supply, and it is that which is sending skyward – and has sent skyward – house prices.”

  So a “broken market” leading to skyward prices due to lack of public housing (read even more debt creation and misallocation) – not a single word about price indescriminate foreign buyers benefitting from years of ZIRP and China’s 300 debt/GDP, not a single word about why private-sector builders are not building houses in the first place (after all if the demand was there, the private sector would have supplied the good).

  Just… “broken.”

  Sure – it’s easier to blame the market for being broken – and always in the passive voice – than taking responsibility for being the one whose policies broke it.

  And now, with the luxury bubbles in Australia and London popped and soon to be in tatters, we sit back and wait to see how long before it crosses the Atlantic, and such real abominations of the second housing bubble as Million Dollar Listing, can finally meet the fate of Wall Street Warriors.

  

  

  

  

  

  

• US Flies B-52 Bomber Near China Sandcastles: "Get Away From Our Islands!"

  The Pentagon was pretty proud of itself when, late last month, Washington sailed a guided missile destroyer by Subi Reef, one of Beijing’s man-made islands in the South Pacific. 

  The “freedom of navigation” exercise was designed to prove to China that the US wouldn’t be deterred from sailing through the disputed waters near the Spratlys even as Beijing claims the islands it’s built atop reefs represent new sovereign territory. 

  To be sure, the Obama administration really didn’t have much of a choice. America’s regional allies have become extremely unnerved with regard to the islands and so it was ultimately incumbent upon The White House to green light the pass-by to avoid giving the appearance that the US will no longer stand with its “friends” against “aggression.”

  And while the PLA didn’t surround the USS Lassen nor fire upon it, Beijing was livid and Admiral Wu Shengli went so far as to tell US chief of naval operations Admiral John Richardson that this needs to stop now unless the US wants to go to war.

  Late this afternoon, reports surfaced that the US has now flown a B-52 bomber over or least “near” the islands. Here’s Reuters with more:

  A U.S. B-52 strategic bomber flew over Chinese manmade islands in the South China Sea recently and was contacted by Chinese ground controllers but continued its mission undeterred, the Pentagon said on Thursday.

   

  “We conduct B-52 flights in international air space in that part of the world all the time,” Pentagon spokesman Peter Cook told a briefing. “My understanding is there was one B-52 flight, I’m not even sure the date on it, but there was an effort made by Chinese ground controllers to reach out to that aircraft and that aircraft continued its mission. … Nothing changed.”

  And here’s a more colorful account from The Hill:

  The United States flew two B-52 bombers over the weekend near man-made islands constructed by China in the South China Sea, a U.S. official tells The Hill, in a clear challenge to China’s territorial claims to the area.

   

  The bombers made one pass within 12 nautical miles of the islands, the official said, in what the military refers to as a “freedom of navigation” operation.

   

  During the operation, the Chinese military radioed the bombers, telling them to “get away from our islands.” The bombers did not comply, according to the U.S. official. 

   

  Questioned by The Hill about the official’s account, Pentagon press secretary Peter Cook on Thursday confirmed that a B-52 incident with China near the islands took place, but declined to say when.

   

  Pentagon spokesman Navy Cmdr. Bill Urban later said the B-52s did not get within 12 miles of the man-made islands, and called the flight part of “routine operations.”

  As The Hill goes on to note, and as we reported earlier this week, this comes as China sends J-11BH/BHS fighter jets to Woody Island, south of Hainan in what one could be forgiven for believing is an attempt to discourage US military flyovers. 

  US military flyover like the one described above.

  

  So there you have it, the latest escalation in what frankly is becoming an increasingly dangerous (and largely uneccesary) game of chicken.

  We’d also note that the US has expressed its intention to conduct the destroyer operations twice per quarter, so one wonders how many times the B-52s will be flying over “near” the islands.

  

  

  

  

  

• An Interactive Look At China's Massive Coal Bubble

  Submitted by Zachary Davies Boren via Greenpeace Energy Desk,

  China has given the green light to more than 150 coal power plants so far this year despite falling coal consumption, flatlining production and existing overcapacity.

  According to a new Greenpeace analysis, in the first nine months of 2015 China’s central and provincial governments issued environmental approvals to 155 coal-fired power plants — that’s four per week.

  

   

  The numbers associated with this prospective new fleet of plants are suitably astronomical.

  Should they all go ahead they would have a capacity of 123GW, more than twice Germany’s entire coal fleet; their carbon emissions would be around 560 million tonnes a year, roughly equal to the annual energy emissions of Brazil; they would produce more particle pollution than all the cars in Beijing, Shanghai, Tianjin and Chongqing put together; and consequently would cause around 6,100 premature deaths a year.

  But they’re unlikely to be used to their maximum since China has practically no need for the energy they would produce.

  Coal-fired electricity hasn’t increased for four years, and this year coal plant utilisation fell below 50%.

  It looks like this trend will continue, with China committing to renewables, gas and nuclear targets for 2020 — together they will cover any increase in electricity demand.

  Wasted trillions

  What looks to have triggered this phenomenon is Beijing’s decision to decentralise the authority to approve environmental impact assessments on coal projects starting in March of this year.

  But it’s been a problem years-in-the-making, driven by the Chinese economy’s addiction to debt-fuelled capital spending.

  Almost 50% of China’s GDP is taken up by capital spending on power plants, factories, real estate and infrastructure.

  It’s what fuelled the country’s enormous economic growth in recent decades, but diminishing returns have fast become massive losses.

  Recent research estimated that the equivalent of $11 trillion (more than one year’s GDP) has been spent on projects that generated no or almost no economic value.

  Since the country’s power tariffs are state controlled, energy producers still receive a good price despite the oversupply.

  And boy is it a huge oversupply: China’s thermal power capacity has increased by 60GW in the last 12 months whilst coal generation has fallen by more than 2% and capacity utilisation has fallen by 8%.

  With thermal power generation this year is equal to what it was in 2011, China has essentially spent four years building 300 large coal power plants it doesn’t use.

  Total spend on the upcoming projects would be an estimated $70 billion, with the 60% controlled by the ‘Big 5′ state-owned groups potentially adding 40% to company debt without any likely increase in revenue.

  Basically, if these plants get built China’s coal bubble will be inflating faster than ever.

  <img alt="Yellow river water pollution coal" data-facebook="http://energydesk.greenpeace.org/2015/11/11/chinas-coal-bubble-155-new-overcapacity/?picshare=2030" data-tweet="China's coal bubble:… http://pic.twitter.com/wExMgbwZsH http://energydesk.greenpeace.org/2015/11/11/chinas-coal-bubble-155-new-overcapacity/” src=”http://energydesk.greenpeace.org/wp-content/uploads/2014/12/19-490A7676.jpg” style=”height: 400px; width: 600px;” />

   

  Environmental impacts

  Because there’s no room for this much new coal, and because China is sticking to its 15% non-fossil fuel target by 2020, older plants will likely be closed.

  Because of that it’s unlikely the new fleet would cause a net increase in carbon emissions, particulate pollution or premature deaths.

  To appreciate the sheer scale of the plan, however, here are some of eye-watering stats:

  Assuming they operate the same number of hours per year as the most efficient Chinese coal plants did in 2012, these 155 would produce 96,000 tonnes of SO2 pollution, 124,000 tonnes of NOx and 29,000 tonnes of particulates per year.

  Modelling suggests that this would cause 6,100 premature deaths a year — that’s 150,000 over a 24-year operating life.

  Around Shenyang, where there are reports of record pollution levels 50 times worse than the World Health Organisation’s recommended limit, there are plans for five new coal plants.

  Annual carbon emissions of 560 million tonnes would equal 6% of China’s total CO2.

  But here’s an oft-overlooked consequence of these coal plants: water.

  Nearly half of the proposed power plants are in areas of extremely high water stress, a further 5% are in high water stress regions and another 6% are in arid places.

  Demanding at least 310-370 million cubic metres of water every year (which would meet the needs of 5-6 million city dwellers), these projects would exacerbate the conflict between urban, agricultural and industrial consumption.

  So they’re not only a waste of money.

   

  

  

  

  

  

• "What We've Got Here Is A Failure To Communicate"

  The Fed goes 6 for 6 today as Bullard, Yellen,Lacker, Evans, Dudley, and Fischer (respectively) all manage to jawbone a looming rate hike without any confirmation of the "well everything must be awesome" meme to satisfy increasingly doubtful stock market worshippers…

   

  

   

   

  Summarized…

  • *BULLARD: NO REASON TO CONTINUE EXPERIMENT WITH `EXTREME' POLICY
  • *BULLARD WANTS TO RETURN TO 1984-2007 U.S. MACROECONOMIC SETTING

  • *YELLEN: MUST BE MINDFUL OF NEW POLICY TRANSMISSION CHANNELS
  • *YELLEN DOESN'T DISCUSS OUTLOOK FOR FED POLICY, ECONOMY IN TEXT

  • *LACKER SAYS NOT SURPRISED BY `POPULIST ANGER' AGAINST FED
  • *LACKER SAYS `PLAUSIBLE' QE HAD SCANT REAL EFFECTS ON ECONOMY

  • *EVANS SAYS U.S. FUNDAMENTALS LOOK `PRETTY GOOD' AT THE MOMENT
  • *EVANS: TIMING OF FED LIFTOFF LESS IMPORTANT THAN RATE PATH

  • *EVANS FAVORS `SOMEWHAT LATER LIFTOFF' THAN MANY FED COLLEAGUES
  • *EVANS SEEKS SLOWER RATE-RISE PATH THAN 25 BPS EVERY OTHER MTG

  • *DUDLEY: IT'S POSSIBLE LIFTOFF CONDITIONS MAY SOON BE SATISFIED
  • *DUDLEY: RISKS OF MOVING TOO FAST VS TOO SLOWLY NEARLY BALANCED

  • *FISCHER: U.S. ECONOMY WEATHERING HEADWINDS FROM STRONGER DOLLAR
  • *FISCHER: OCT. FOMC SIGNALED DEC. RATE RISE MAY BE APPROPRIATE

  By the close, December rate hike odds had actually dropped very modestly to 66.0%. If these guys can't 'communicate' with one another, then how are investors (and algorithms) supposed to understand what they are doing?

  

  

  

  

  

• Runaway Stories & Fairy Tale Endings: The Cautionary Tale Of Theranos

  Looking back at the build up and the let down on the Theranos story, the recurring question that comes up is how the smart people that funded, promoted and wrote about this company never stopped and looked beyond the claim of “30 tests from one drop of blood” that seemed to be the mantra for the company. While we may never know the answer to the question, Aswath Damodaran offers three possible reasons that should operate as red flags on future young company narratives…

  1. The Runaway Story: If Aaron Sorkin were writing a movie about a young start up, it would be almost impossible for him to come up with one as gripping as the Theranos story: a nineteen-year old woman (that already makes it different from the typical start up founder), drops out of Stanford (the new Harvard) and disrupts a business that makes us go through a health ritual that we all dislike. Who amongst us has not sat for hours at a lab for a blood test, subjected ourselves to multiple syringe shots as the technician draw large vials of blood, waited for days to get the test back and then blanched at the bill for $1,500 for the tests? To add to its allure, the story had a missionary component to it, of a product that would change health care around the world by bringing cheap and speedy blood testing to the vast multitudes that cannot afford the status quo.

   

  The mix of exuberance, passion and missionary zeal that animated the company comes through in this interview that Ms. Holmes gave Wired magazine before the dam broke a few weeks ago. As you read the interview, you can perhaps see why there was so little questioning and skepticism along the way. With a story this good and a heroine this likeable, would you want to be the Grinch raising mundane questions about whether the product actually works?

   

  2. The Black Turtleneck: I must confess that the one aspect of this story that has always bothered me (and I am probably being petty) is the black turtleneck that has become Ms. Holmes’s uniform. She has boasted of having dozens of black turtlenecks in her closet and while there is mention that her original model for the outfit was Sharon Stone, and that Ms. Holmes does this because it saves her time, she has never tamped down the predictable comparisons that people made to Steve Jobs.

   

  

   

  If a central ingredient of a credible narrative is authenticity, and I think it is, trying to dress like someone else (Steve Jobs, Warren Buffett or the Dalai Lama) undercuts that quality.

   

  3. Governance matters (even at private businesses): I have always been surprised by the absence of attention paid to corporate governance at young, start ups and private businesses, but I have attributed that to two factors. One is that these businesses are often run by their founders, who have their wealth (both financial and human capital) vested in these businesses, and are therefore as less likely to act like “managers” do in publicly traded companies where there is separation of ownership and management. The other is that the venture capitalists who invest in these firms often have a much more direct role to play in how they are run, and thus should be able to protect themselves. Theranos illustrates the limitations of these built in governance mechanisms, with a board of directors in August 2015 had twelve members:

   

   

  

   

  I apologize if I am hurting anyone’s feelings, but my first reaction as I was reading through the list was “Really? He is still alive?”, followed by the suspicion that Theranos was in the process of developing a biological weapon of some sort. This is a board that may have made sense (twenty years ago) for a defense contractor, but not for a company whose primary task is working through the FDA approval process and getting customers in the health care business. (Theranos does some work for the US Military, though like almost everything else about the company, the work is so secret that no one seems to know what it involves.)

   

  The only two outside members that may have had the remotest link to the health care business were Bill Frist, a doctor and lead stockholder in Hospital Corporation of America, and William Foege, worthy for honor because of his role in eradicating small pox. My cynical reaction is that if you were Ms. Holmes and wanted to create a board of directors that had little idea what you were doing as a business and had no interest in asking, you could not have done much better than this group of septuagenarians. 

   

  Bottom Line

   

  I would like to believe that I would have asked some fundamental questions about the science behind the product and how it was faring in the FDA approval process, if I had been a potential investor or journalist. However, it is entirely possible that listening to the story, I too would have been tempted to go along, wanting it so much to be true that I let hope override good sense. Some of my worst mistakes in investing (and life) have been when I have fallen in love with a story so much that I have willed a happy ending to it, facts notwithstanding.

   

  The question of whether Theranos makes it back to being a valuable, going concern rests squarely on the science of its product(s).

  • If the Nanotainer is a revolutionary breakthrough and what it needs is scientific fixes to become a reliable product, there is hope. But for that hope to become real, Theranos has to be restructured to make this the focus of the business and become much more transparent about the results of its tests, even if they are not favorable. Ms. Holmes has to scale back many of her high profile projects (virtuous and noble though they might be) and return to running the business.
  • If the Nanotainer turns out to be an over hyped product that is unfixable, because it is scientifically flawed, Theranos has a bleak future and while it may survive, it will be as a smaller, low profile company. The investors who have put hundreds of millions in the company will lose much of that money but as I look at the list, I don’t see any of them entering the poor house as a consequence.

  There is a chance that the lessons about not letting runaway stories stomp the facts, never trusting CEOs who wear only black turtlenecks and caring about governance and oversight at even private businesses may be learned, but I will not hold my breath expecting them to have staying power.

  Excerpted from Musings On Markets, read more here…

  

  

  

  

  

• Here Is The Biggest, And Most Underreported, Risk Facing China

  When it comes to the laundry list of China “hard-landing” risk factors, after many years, even the mainstream media has finally gotten it mostly right:

  • a slowing economy crippled by soaring debt, now over 300% of GDP
  • an economy which is overly reliant on fixed investment
  • an artificially high exchange rate which is adversely impacting exports and impairing trade, in a “beggar thy neighbor” world everyone is rapidly devaluing their own currency
  • the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments at current prices of industrial commodities, leading to surging business failures and defaults
  • a burst housing bubble which recently popped (although slowly growing again)
  • a burst stock market bubble which recently popped (although slowly growing again)
  • Non-performing loans, as high as 20%, and metastssizing across the Chinese banking sector

  And much more.

  However one risk, perhaps the biggest one, which has so far flown deep under the radar, is also the biggest one – which may explain why so few have noticed it – namely social discontent, resulting from a breakdown in recent “agreeable” labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.

  Over the past few months we have chronicled several such incident which suggest that the labor market is rapidly becoming China’s biggest risk factor, such as:

  • The “Hard-Landing” Has Arrived: Chinese Coal Company Fires 100,000
  • Thousands Of Angry Unpaid Chinese Workers Protest Shocking Bankruptcy Of Major Telecom Supplier.
  • And earlier today, 600 Hungry, Angry Chinese Workers “Sleep On The Street” After CEO Disappears With Their Wages

  But the best confirmation just how serious the employment situation in China is getting comes courtesy of the China Labour Bulletin website, which tracks the number of largely unreported labor protests and strikes across China.

  Presenting exhibit A demonstrating how, quietly, deteriorating employment conditions have become a gaping risk for China’s politburo: the total number of strikes over the past 5 years:

  

   

  And for those who prefer a hands on experience, here is an interactive tracker of every single reported strike that has been caught by the website over the past 5 years:

  

  We wonder: just how much “more exponential” will China’s “strike chart” have to get before everyone else finally notices?

  

  

  

  

  

• Veterans Affairs Paid Out $142 Million In Cash Bonuses Immediately Following Deadly Scandal

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  The Department of Veterans Affairs doled out more than $142 million in bonuses to executives and employees for performance in 2014 even as scandals over veterans’ health care and other issues racked the agency.

   

  The agency paid more than $380,000 in 2013 performance bonuses to top officials at hospitals where veterans faced long delays in receiving treatment, including those under investigation for wait-time manipulation.

   

  In Tomah, Wis., the former chief of staff of the VA medical center there, Dr. David Houlihan — whom veterans nicknamed the “Candy Man” because of his prolific prescribing of narcotics — received a $4,000 bonus in December. That was nine months after an inspector general investigation report concluded he was prescribing alarmingly high amounts of opiates. And it was four months after Marine Corps veteran Jason Simcakoski, 35, died of “mixed-drug toxicity” as an inpatient at Tomah after he was prescribed a fatal cocktail of medications, including opiates. The inpatient pharmacist supervisor also received a $1,050 bonus in December. A spokesman for the Tomah VA declined to comment. The VA moved last month to fire Houlihan. A lawyer who represented him did not respond to a message Tuesday seeking comment.

   

  In Augusta, Ga., VA financial manager Jed Fillingim was awarded a $900 performance bonus. He drew scrutiny from Congress last year after news reports revealed he admitted drinking and driving a government truck to a VA meeting in 2010 and a co-worker fell from the truck and was killed.

   

  – From the excellent USA Today article: Veterans Affairs Pays $142 Million in Bonuses Amid Scandals

  For several months in 2014, one of the biggest stories in America revolved around revelations of incompetence and death at the Department of Veterans Affairs (VA). Specifically, an internal VA investigation admitted at least 23 veterans died while waiting for care, and that 120,000 were being affected by delinquent care. The FBI subsequently launched a criminal probe into the VA, and here’s what the White House had to say about the entire affair:

  A summary of the review by deputy White House chief of staff Rob Nabors says the Veterans Health Administration must be restructured and that a “corrosive culture” has hurt morale and affected the timeliness of health care. The review also found that a 14-day standard for scheduling veterans’ medical appointments is unrealistic and that some employees manipulated the wait times so they would appear to be shorter.

  So how did the VA respond to its shocking and deadly mismanagement of U.S. veterans’ affairs? By spending $142 million in cash bonuses to its employees, some of whom should have clearly been fired, if not jailed. Thank you U.S. taxpayer.

  From USA Today:

   

  WASHINGTON – The Department of Veterans Affairs doled out more than $142 million in bonuses to executives and employees for performance in 2014 even as scandals over veterans’ health care and other issues racked the agency.

   

  Among the recipients were claims processors in a Philadelphia benefits office that investigators dubbed the worst in the country last year. They received $300 to $900 each. Managers in Tomah, Wis., got $1,000 to $4,000, even though they oversaw the over-prescription of opiates to veterans – one of whom died.

   

  The VA also rewarded executives who managed construction of a facility in Denver, a disastrous project years overdue and more than $1 billion over budget. They took home $4,000 to $8,000 each. And in St. Cloud, Minn., where an internal investigation report last year outlined mismanagement that led to mass resignations of health care providers, the chief of staff cited by investigators received a performance bonus of almost $4,000.

  Yes, you read that right: $1 billion over budget. Somebody got paid…

   In all, some 156,000 executives, managers and employees received them for 2014 performance.

   

  The agency paid more than $380,000 in 2013 performance bonuses to top officials at hospitals where veterans faced long delays in receiving treatment, including those under investigation for wait-time manipulation. “Rewarding failure only breeds more failure,” he said Tuesday. “Until VA leaders learn this important lesson and make a commitment to supporting real accountability at the department, efforts to reform VA are doomed to fail.”

   

  Miller spearheaded – and the House passed – a measure last year that would have eliminated bonuses for VA senior executives for five years. But ultimately the House and Senate compromised on legislation that still allows the VA to hand out up to $360 million annually to executives, managers and employees.

   

  Overall, the agency awarded $276 million in incentives in 2014, including retention and relocation payments, rewards for saving money on travel and coming up with inventive ideas, according to committee data.

  The cash bonuses of $142.5 million were tied to performance reviews.

  Now here are some of the more egregious examples of bonus payments highlighted by USA Today:

  Tomah, Wis., the former chief of staff of the VA medical center there, Dr. David Houlihan — whom veterans nicknamed the “Candy Man” because of his prolific prescribing of narcotics — received a $4,000 bonus in December. That was nine months after an inspector general investigation report concluded he was prescribing alarmingly high amounts of opiates.  And it was four months after Marine Corps veteran Jason Simcakoski, 35, died of “mixed-drug toxicity” as an inpatient at Tomah after he was prescribed a fatal cocktail of medications, including opiates. The inpatient pharmacist supervisor also received a $1,050 bonus in December. A spokesman for the Tomah VA declined to comment. The VA moved last month to fire Houlihan. A lawyer who represented him did not respond to a message Tuesday seeking comment

   

  In Augusta, Ga., VA financial manager Jed Fillingim was awarded a $900 performance bonus. He drew scrutiny from Congress last year after news reports revealed he admitted drinking and driving a government truck to a VA meeting in 2010 and a co-worker fell from the truck and was killed.  Fillingim resigned from the VA after the incident but was rehired in March 2011, WRC-TV reported. A spokesman for the VA Medical Center in Augusta, Brian Rothwell, said Fillingim is not employed there.

   

  In St. Paul, Minn., VA benefits office director Kimberly Graves received a bonus of $8,697 for 2014 performance. A VA inspector general report issued in September this year concluded Graves improperly used her authority to engineer a switch into her current post in October 2014. IG investigators concluded she also improperly received an additional $129,000 related to the move. Graves pleaded the Fifth Amendment and declined to answer questions at a House VA Committee hearing last week.

  Of course, this is just the latest example of government bureaucrats not only being “above the law,” but actually being rewarded for criminal behavior. The incentive structure throughout government, Wall Street, and big business generally is that “crime pays,” which is exactly why we’re seeing more and more of it. It will only get worse, until we grow up as a culture and demand accountability.

  Until then…

  

  

  

  

  

  

• Japan Was Just Added To List Of "Partially Dangerous" Places For Tourists To Visit In The World

  Whether it is because of Abe’s shift to a newly militaristic doctrine or simply its proximity to a more sabre-rattling China is unclear, but Britain’s Foreign Office just added Japan to its list of “dangerous” or “partially dangerous” countries.

   

  

   

  As ValueWalk’s Vikas Shukla notes, the list of “high risk” countries includes Syria, Yemen, Tunisia,
  Afghanistan, Iraq, Somalia, Congo, Libya, Burundi, Chad, Central African
  Republic, Guinea, Somaliland, South Sudan, Sierra Leone, Niger,
  Mauritania, and the Palestinian territories.

  Japan among partially dangerous countries

  Then there are 45 countries that are partially dangerous.
  Surprisingly, Japan has been included in this list. Parts of Russia,
  including areas of Chechnya and regions near the border with Ukraine,
  are also deemed dangerous. Here’s the full list of 45 “partially
  dangerous” countries.

  • Algeria
  • Angola
  • Armenia
  • Azerbaijan
  • Bangladesh
  • Burkina Faso
  • Burma (Myanmar)
  • Cambodia
  • Cameroon
  • Colombia
  • Djibouti
  • Ecuador
  • Egypt
  • Eritrea
  • Ethiopia
  • Georgia
  • Haiti
  • India
  • Iran
  • Israel
  • Ivory Coast
  • Japan
  • Jordan
  • Kenya
  • Kosovo
  • Lebanon
  • Madagascar
  • Malaysia
  • Mali
  • Nepal
  • Nigeria
  • Pakistan
  • Philippines
  • Republic of Congo
  • Russia
  • Saudi Arabia
  • Sudan
  • Tajikistan
  • Thailand
  • Turkey
  • Uganda
  • Ukraine
  • Venezuela
  • Western
  • Sahara

  If you have already booked tickets to any of these countries, you may want to reconsider it.

  

  

  

  

• This All Has A Familiar Ring To It

  Via NorthmanTrader.com,

  The recent new highs on the $NDX accompanying the recent rally off of the August and September lows have been accompanied by bullish headlines. $SPX 2300+, $DJIA 20K, etc. And it is true the action in some stocks is truly awe inspiring.

  Yet all the action has an oddly familiar ring to it and it may not be bullish. While most traders today haven’t really lived through the 2000 bubble older hats like me have institutional memory. Back then it was the “horsemen” of stocks that seemed to defy gravity and just kept pushing higher to stratospheric valuations. Yet back then the leadership was ever more narrowing and oddly enough we are now finding ourselves at a very similar spot.

  And not only is the leadership narrowing, but it is happening at exactly the same price level.

  In the $NDX chart below the horizontal red line is representing the exact same price as 15 years ago, right at the market’s peak of the year 2000. Note the negative divergence on the bullish percentage of stocks in the $COMPQ (click chart to zoom in). New highs with fewer stocks participating:

  

  It is of course the $COMPQ that did not confirm news highs during this recent rally:

  

   

  Not even close. Does this all point to an imminent crash similar to 2000? I can’t know, nobody can, but we can observe that the recent rally excels in non participation as opposed to participation.

  On an equal weight basis both $RSP and $XVG indicate significant weakness:

  

  

  Insiders are not buying:

  

   

  And high yield? $JNK and $HYG are not playing along either:

  

   

  Now here’s where it gets interesting. The leaders that have been driving this rally are vastly disconnected from their moving averages and very overbought. Just a basic reconnect to their weekly 5EMA and 8MAs risks a 5-10% correction in these stocks.

  Weekly chart examples:

  

  

  

   

  Extended much? You decide. But all these factors together have a very familiar ring to them.

  But before you think this issue is one of tech only, it is not. It’s one of haves versus have nots. And this large negative divergence extends to large cap stocks across the board as seen here in the $OEX:

  

  The big difference now compared to 2000? All the central banks are “all in”, although the ECB may add to its QE program in December.

  Last time central banks came to the rescue of a sharply correcting market by cutting rates. Who will be coming now?

  

  

  

  

  

• Can't Afford To Buy A House? Buy It Anyway Housing "Experts" Advise

  “In metros with high-income growth, unaffordable mortgage payments can become affordable within a few years,” writes Trulia Housing Economist Ralph McLaughlin in a blog post titled “For Millennials, Buying an Unaffordable Home Isn’t Always a Bad Idea”. 

  Now first, buying an unaffordable home is always a bad idea, just like buying an unaffordable anything. 

  Sure, it might one day become affordable, but saying it’s a good idea to buy something that you can’t afford because circumstances could eventually conspire to make you richer is like saying it’s a good idea to quit your day job and become a traveling magician because there’s a chance people will love your act. After all, on this logic, one could buy a Ferrari because there's a chance you could win the lottery next week (well, unless you're playing in Illinois where they'll pay you in IOUs).

  In other words, you can justify anything you want by saying it might turn out ok, but the flaw in that logic seems to have escaped McLaughlin (who has a Ph.D. in Planning, Policy, and Design from the University of California at Irvine) because as you’ll read below, he thinks millennials should consider buying houses where mortgage costs are too high as a percentage of their income on the assumption that based on local trends, their incomes will eventually rise. Here’s more:

  In many housing markets where most workers see strong wage and income growth – New Haven, Conn., Providence, R.I., and Newark, N.J., among them – mortgage payments actually shrink as part of the monthly budget and can become affordable within just a few years and, in some places, in just a few months. 

   

  We’ve crunched the numbers to identify where, and when, buying an unaffordable home might not be such a terrible idea. To do this, we’ve identified metros: 

  • Where the median home is feasibly unaffordable to millennial households (25-34 year olds), that is, where initial mortgage payments exceed 31% the federal government’s definition of unaffordable 
  • And those payments don’t exceed 43% of income, the limit a vast majority of lenders place on new mortgages 
  • And finally, we projected lifecycle income growth of millennial households to calculate the number of years it would take for mortgage payments to drop below 31% of a household’s income. 

  It gets still better. Here's a look an infographic which shows you how many it would take in select areas of the country for your mortgage payment to become "affordable":

  

  And here's a chart from Bloomberg which shows New Haven and Providence (mentioned above by McLaughlin as places millennials may want to consider if they want to buy above their means):

  

  So just to be clear, Trulia is saying that it would be a good idea for millennials to buy a house they can't afford in New Haven and Providence because in 3 years it will be "affordable." Here's how Trulia came up with these figures:

  Second, we’ve estimated projected 30-year income growth of millennial households. To do so, we looked at the percentage difference in median household income between households aged 25-34 and households aged 55-64 in each metro using 2014 American Community Survey Data. We annualized this percentage over 30 years to get an idea of how much income growth a 25-34 year old can expect over their career, and then, assuming an inflation rate of 2%, use it project future monthly income for the median 25-34 year old household. 

  That's it? You just took a look at what older people make versus younger people and annualized it? What happens if that changes? What happens if there's another deep recession? You're looking at a 30-year time frame here. Anything could happen to income trends in these areas over three decades. Not to mention the fact that while losing one's job is always a bad thing when it comes to making mortgage payments, it's made that much worse if you've bought a house you can't afford.

  Trulia does go on to show that there are plently of places where buying a home is easily affordable now – like pristine Detroit – and based on the same income analysis, you'd have plenty of cushion the event circumstances change. We recommend millennials choose wisely when it comes to overreaching based on simplistic analysis lest you should end up not being able to make the payments, because then you might find yourself in the market for a rental and with current asking prices in that market going parabolic, you might soon find yourself back in your parents' basement.

  

  

  

  

  

• World's Largest Hedge Fund Dumped 31% Of Its US Equity Holdings In The Third Quarter

  The world’s biggest hedge fund, Ray Dalio’s Bridgewater Associates got into some hot water in the past few months when it was accused by many members of the underperforming “hedge fund hotel” club for being the “risk parity” catalyst that sent the market tumbling in August, and perhaps for being the catalyst for the August 24 market crash.

  And while the bulk of Bridgewater’s asset are in various commodities and futures, most of which are never reported to the public, earlier today it did disclose its long holdings in public equities when it filed its latest 13F. Perhaps those accusing Bridgewater of being the market-moving catalyst did have a point, because after posting a total AUM of $10.8 billion at June, this total declined by a whopping 31% to just $7.5 billion as of September 30.

  Here is what Brigewater was dumping (and adding).

  Bridgewater sold 41% of its holdings in the world’s two largest EM ETFs in the third quarter amid a rout in developing-nation assets.  Specifically, it cut its investments in Vanguard Group Inc. and BlackRock Inc.’s ETFs to a combined 104 million shares, from 175 million in the previous three-month period.

  The value of the ETF holdings dropped more than 50 percent to $3.4 billion as a result of share price declines and the divestments.

  In other words, if anyone is looking for the culprits behind the aggressive ETFlash Crash of August 24, Bridgewater may indeed be a good starting point.

  As a result of this major unwind in Emerging Market exposure, Bridgewater’s total US public equity holdings dropped 31%.

  As Bloomberg adds, the company has said the impact of emerging-market losses is likely to be more widespread than in the crises of the 1980s and 1990s because investors have more money invested in developing markets. Of course, that also means that the company’s prior belief in an EM resurgence has gone the way of the “beautiful deleveraging.”

  The reduction in the emerging-market investments marked a sharp reversal after Bridgewater had steadily boosted its holdings in recent years.

  Its holdings in the $36 billion Vanguard FTSE Emerging Markets ETF dropped to 67.4 million shares by September, from a peak of 116.2 million in December. It had 19 million shares in June 2011.

  The hedge fund’s investment in the $23 billion iShares MSCI Emerging Markets ETF fell to 36.5 million shares from 80.1 million a year earlier.

  Also notable: Bridgewater’s SPY holdings declined by 230,000 shares, which happened at the same time as Dalio was buying up single name constituents of the ETF. Was that the risk-imparity pair trade?

  Finally, note that while Bridgewater was buying up single names as it was selling ETFs, it also sold half its AAPL stake.

  Altogether, a dramatic deleveraging and gross derisking over the third quarter. The question is whether now that Bridgewater has once again rerisked, it will repeat the whole exercise all over again leading to the next market crash.

  Finally, here is a break down of Bridgewater’s top 10 publicly held equities.

  

  

  

  

  

  

• Get Ready For Crazy

  Submitted by Jeff Thomas via InternationalMan.com,

  Recently, the Honduras homes and businesses of the family of Jaime Rosenthal were raided by the Honduran government. The properties themselves were seized and other assets taken. The family-owned bank was also seized and has been forced into liquidation, creating potential financial crisis for its 220,000 clients.

   

  Throngs of angry clients, unable to go about their personal and professional business, have blocked surrounding streets, demanding the release of their savings.

   

  

   

  In response, the government has promised that each depositor will have the opportunity to withdraw up to US$9,600 from other banks, beginning with the smallest depositors.

  At first glance, those of us who live in the First World may regard this sort of crazy seizure as typical Third World governmental behaviour, but, in recent years, the First World has been changing. We’ve witnessed banks and governments confiscating depositors’ funds, increasing capital controls, and instituting asset forfeiture laws that have turned police departments into looters. They’ve created dramatically increased powers for all authorities, leading the populace to live in fear of detention or arrest for the smallest perceived infraction.

  Some First World governments have taken a decidedly Third World turn.

  And in this instance we see an ironic twist: The raids in Third World Honduras were a direct result of the legalised shakedowns that are occurring in the First World.

  With the understanding that the U.S. government now seizes the assets of those they charge with a crime (and sometimes with no charge having been made), the government of Honduras undertook their seizure of the Rosenthals’ assets as a preemptive act, after one of the Rosenthals had been arrested in the U.S.

  In essence, what we’re seeing is one government acting in a totalitarian manner to preempt another government acting in a totalitarian manner. Worse, the latter government is that of the U.S., once regarded as the leader of the Free World.

  In discussing the event with a colleague in Honduras, I was advised that, as she is British, she has come to assume that the First World, into which she had been born, was more developed, more civilised than the Central American country in which she now resides. Although she was aware of the 2013 bank confiscation in Cyprus and has heard rumblings of new restrictive laws in the EU and U.S., she had not pieced together the fact that, whilst Third World countries continue to develop, the First World is going in the opposite direction and is beginning to pass the Third World level on their way down.

  The First One to Make the Grab Gets the Spoils

  The Honduran government said in a statement that it conducted the raids and closed the bank because it “wants to prevent the transfer of assets during the investigation.”

  It would seem that they were content to leave the future of the Rosenthal businesses to the free market, but were not willing to allow the U.S. government to seize substantial assets that make up a part of the Honduras economy. The choice, then, was to either allow the U.S. plunderers to seize assets located in another country, or to become the plunderers themselves. In essence, “I don’t wish to see my neighbour robbed, but if I know someone’s coming to my neighbourhood to rob him, I’ll rob him myself first.”

  If this were to be the only incident of its kind, it wouldn’t be worth the effort to provide comment. However, it may well be a bellwether of events to come. Certainly, those who seek public office (in all or at least most countries) are far more focused on their own benefit than the well-being of their constituents. As such, if they feel that the squeeze is on (be it a political, military or monetary squeeze), we can expect them to behave in a manner that’s intended to save their own skin, not that of their people.

  Historically, such conditions begin with a few small warnings, such as the one in Honduras, then, at some point, bubble over quickly. The “crazy” period is usually brief, usually a few years at most, then it burns itself out after the wealth has disbursed.

  If this premise is correct, we can predict a period of increased looting by governments in general. We already know that the leading jurisdictions of the First World are in serious economic trouble and are instituting draconian measures at home in order to grab what they can from their citizens on their way down. In addition, they’re spreading their reach throughout the world under the auspices of organisations like the Organisation for Economic Cooperation and Development to loot assets in other countries under the pretence that they constitute “the good guys,” whilst the rest of the world constitutes, “the bad guys.”

  The real truth, of course, is that “the good guys” are in no way better than the rest of the world; they merely have more power and, at least for the present, have the ability to presume their good guy status through force.

  By extension, we can anticipate that, as the Great Unravelling progresses, we shall see actions being taken by governments and financial institutions worldwide that we’ve never seen in our lifetimes. An aggressive action taken by one entity will cause a knee-jerk reaction by the target entity and, in some cases, chain reactions will occur. In addition, as in Honduras, we shall see preemptive aggressive actions taken in the belief that another entity may move first. Along the way, a sense of what is morally right will lose its importance. In its place, we shall see a “Nice guys finish last,” ethic come to the fore. Those who behave the most honourably in this period will become the foremost victims of those whose ethics have, until the present, been more the product of convention than conviction.

  The looting of the tribes is nothing new. It goes back throughout history. It flourishes during crisis times, then subsides, as productivity reasserts itself.

  The question that remains is what to do during the crisis period, when, it seems, everyone is going after each other’s possessions.

  History tells us that the vast majority of people hunker down and hope that they’re not victimised too badly. In the end, they generally end up as casualties to a greater or lesser degree.

  Others vote with their feet. Throughout history, whenever there’s been turmoil in some countries, there have been other countries where the government and/or society is less aggressive and less rapacious. The same is true today. There are many jurisdictions where those who plan ahead can either move permanently, or merely plan to wait out the storm.

  

  

  

  

  

• US Government Shocked To Find Job Openings Continue To Surge Above Actual Hires

  Something odd is happening in the US labor market.

  As the BLS reports in its latest JOLTS report, “the number of hires has exceeded the number of job openings for most of the JOLTS history” which should make intuitive sense for any normal, “growing” economy, where the labor market works as expected. However, as JOLTs also adds, “over the past year, this relationship has changed as job  openings have outnumbered hires for several months.”

  This is how this shocking inverted relationship looks like:

  

   

  What is really happening is that hires have plateaued and at 5.049MM in September, were the lowest since April! The last time we have seen such a dramatic peak in hiring was in 2005-2006, just before the economy and the market crashed.

  Is the labor market rolling over?

  

  

  The JOLTs economists at the BLS are very confused, as the following shows:

  Hires exceeded job openings for over thirteen years, between December 2000 and July 2014. Job openings exceeded hires for the first time in August 2014, although hires then outnumbered job openings for the next five months. Since February 2015, however, this new relationship has persisted with job openings exceeding hires for eight consecutive months

   

  At the end of the most recent recession in June 2009, there were 1.3 million more hires throughout the month than there were job openings on the last business day of the month.

   

  In September 2015, there were 477,000 fewer hires throughout the month than there were job openings on the last business day of the month.

  So what is going on here? Simple: a broken labor market, in which as a result of 94 million people out of the labor force, most of whom have been out of a job for years and have lost their “hirability”, US businesses are unable to grow and fill open slots, as a result hiring is sliding. And, since hiring is so low, the other end of the job pipeline, separations, are also painfully low.

  Which means that workers have little ability to negotiate wage hikes using the threat of quitting and finding a better paid job elsewhere, due to precisely this dislocation in the labor market.

  Worst of all, with every passing month this dislocation is getting worse and continues to press down on wages: which is precisely the conundrum the Fed has been unable to solve and is the reason why the missing piece in the US economic puzzle “wage growth”, refuses to appear.

  

  

  

  

  

• Black Fridays Matter

  Submitted by Lance Roberts via STA Wealth Management,

  Small Business Not Optimistic About Spending

  The perennial hopes of a strong retail shopping season are once again upon us. As always, the National Retail Federation (NRF) is kicking of the season with their always cheerful holiday forecast. To wit:

  "The National Retail Federation announced today it expects sales in November and December (excluding autos, gas and restaurant sales) to increase a solid 3.7 percent to $630.5 billion — significantly higher than the 10-year average of 2.5 percent. Holiday sales in 2015 are expected to represent approximately 19 percent of the retail industry's annual sales of $3.2 trillion. Additionally, NRF is forecasting online sales to increase between 6 and 8 percent to as much as $105 billion."

   

  To no great surprise, since the NRF is an industry trade group, their forecasts are generally much more optimistic than reality eventually turns out to be. 

  For a more "realistic" expectation of retail sales over the next couple of months, we might want to look at data from actual retail businesses. The National Federation of Independent Business Small Business Survey shows a substantially different outlook from retailers.

  

  As shown, the percent of businesses surveyed expecting higher sales over the next three months is declined sharply from the beginning of the year. Not surprisingly, when forward expectations decline so do actual nominal sales.

  Furthermore, if we look at "control purchases," which also excludes gas, food and autos, we see that actual activity in the economy is at levels more normally associated with recessionary environments. 

  

  Given the current deflationary backdrop, the sharp decline in imports and weak wage growth, it is quite likely that actual retail sales will likely disappoint the NRF's forecast of a "shopping season significantly above the 10-year average."

  Regardless, I do suspect that consumers will once again be breaking out the credit cards and maxing out the remaining limits. The "shopping party" of chasing deals over a 36-48 hour "shopping day" has become a holiday tradition. Unfortunately, it is the "hangover" that hurts when the bills come due.

  But it is truly important to remember that for retailers all #BlackFridaysMatter

   

  Debt Funded Buybacks Failing To Boost Performance

  I have written many times in the past about the use of debt-funded share buybacks as a method to boost bottom line earnings reports even as top-line revenue remains weak. Since 2009, the reported earnings per share of corporations has increased by a total of 190%. This is the sharpest post-recession rise in reported EPS in history. The issue is that the sharp increase in earnings did not come from a similar surge in revenue that is reported at the top line of the income statement. Revenue from sales of goods and services has only increased by a marginal 23% during the same period. To wit:

  "For profitability to surge, despite rather weak revenue growth, corporations have resorted have resorted to using debt to accelerate share buybacks. The chart below shows the total number of outstanding shares as compared to the difference between operating earnings on a per/share basis before and after buybacks."

  

  "The reality is that share buybacks create an illusion of profitability. If a company earns $0.90 per share and has one million shares outstanding – reducing those shares to 900,000 will increase earnings per share to $1.00. No additional revenue was created; no more product was sold, it is simply accounting magic."

  This point was further made by Mike Bird via Business Insider in a discussion of a recent report from Goldman Sachs:

  "US corporations have loaded up on a lot of debt since the financial crisis. In fact, America's corporations have doubled their total debt levels, according to a note Tuesday from analysts at Goldman Sachs. The debt has been raised by American firms to fund mergers and acquisitions and to buy back their own shares."

  

  Over the last several years, corporations have been extremely effective at slashing costs to boost bottom line earnings. However, as I have stated many times, the benefits of cost-cutting, wage suppression and artificially manipulating bottom line earnings through share repurchases, are finite. Eventually, weak top-line growth will be reflected in bottom line earnings.

  As reality begins to catch up with "earnings fantasy," the performance of the "buyback index" is showing relative underperformance in recent months as compared to the index as a whole. (Note: that chart below is a total return calculation to put both indices on an equal scale.)

  

  As Goldman notes:

  "Following the crisis, imbalances of all types have been created. Chief among them, in our view, is the re-leveraging of America and the quiet growth of goodwill, as a percentage of assets on balance sheets. While neither poses an immediate terminal risk to the health of corporate America the changing nature of corporate balance sheets does raise the question, again, about the lack of organic growth and reinvestment post the crisis. Taken a step further, the spectre of rising rates, potential global disinflation (dare we say "deflation"?), declining operating profits and wider credit spreads continues to create near-term consternation for weak balance sheet stocks."

  That brings me to EBITDA.

   

  EBITDA Is A Trap

  I have written in the past about the fallacy of using EBITDA (Earnings Before Interest Taxes Depreciation and Amoritization) due to the ability to fudge/manipulate the number. To wit:

  

   

  "As shown in the table, it is not surprising to see that 93% of the respondents pointed to "influence on stock price" and "outside pressure" as the reason for manipulating earnings figures. For fundamental investors this manipulation of earnings skews valuation analysis particularly with respect to P/E's, EV/EBITDA, PEG, etc."

  Ramy Elitzur, via The Account Art Of War, recently expounded on the problems of using EBITDA.

  "Being a CPA and having an MBA, in my arrogance I thought that I am well beyond such materials. I stood corrected, whatever I thought I knew about accounting was turned on its head. One of the things that I thought that I knew well was the importance of income-based metrics such as EBITDA and that cash flow information is not as important. It turned out that common garden variety metrics, such as EBITDA, could be hazardous to your health."

  The article is worth reading and chocked full of good information, however, here are the four-crucial points:

  1. EBITDA is not a good surrogate to cash flow analysis because it assumes that all revenues are collected immediately and all expenses are paid immediately, leading, as I illustrated above, to a false sense of liquidity.
  2. Superficial common garden-variety accounting ratios will fail to detect signs of liquidity problems.
  3. Direct cash flow statements provide a much deeper insight than the indirect cash flow statements as to what happened in operating cash flows. Note that the vast majority (well over 90%) of public companies use the indirect format.
  4. EBITDA just like net income is very sensitive to accounting manipulations.

  The last point is the most critical. The tricks to manipulate earnings are well-known. A difficult quarter can be made easier by releasing reserves set aside for a rainy day, recognizing revenues before sales are made, slashing costs, buying back shares, etc. More importantly, these "accounting gimmicks" can account for as much as 10% of the reported earnings per share numbers. So, before you jump off the "EBITDA Bridge", you may want to take a much closer look at the real underlying picture.

  Just something to think about.

  

  

  

  

  

• Nordstrom Plummets After Abysmal Results, Slashing Guidance

  If there were any questions if the US consumer was merely “strong” or “quite strong”, after the abysmal results from Macy’s first, and moments ago, Nordstrom, they should all be safely swept away now.

  Any time a company starts its press release with a blatant mea culpa… run. Like in the case of Nordstrom: “The Company’s third quarter performance was below Company expectations, reflecting softer sales trends that were generally consistent across channels and merchandise categories.”

  What happened was ugly: the company reported revenue of $3.24 billion, a miss to the $3.38 billion expected, and EPS of $0.42, nearly 50% below the expected $72. Q3 EBIT likewise crashed from $262 million to $151 Y/Y, as comp store sales of 0.9% were massively below the 3.6% expected.

  Amusingly the retailers are unable to keep their lies straight – on one hand you have Macy’s blame the warm weather for plunging sales, and here you have JWN saying costs were among its best sellers: “Nordstrom comparable sales, which consist of full-line stores and Nordstrom.com, increased 0.3 percent. The top-performing merchandise category was Cosmetics. In addition, coats, younger customer-focused departments and dresses continued to reflect strength in Women’s Apparel.”

  Considering we already mocked the “it’s the weather” bullshit, there is little we can add.

  Where things get really bad though, is when looking at the acceleration in markdowns and the surge in inventory:

  Gross profit of $1.1 billion, or 33.9 percent of net sales, decreased 163 basis points compared with the same period in fiscal 2014, primarily due to higher markdowns in addition to the planned impact of higher occupancy costs related to store growth and the increased mix of Nordstrom Rack. Ending inventory increase of 8.0 percent...

  But wait, there’s more because just before the abysmal earnings report the Company paid a special cash dividend of $900 million, or $4.85 per share of outstanding common stock on October 27. Better to do that when the stock is higher rather then lower, eh?

  It gets better: “the Company expects to initiate share repurchase for the remaining net proceeds beginning in the fourth quarter…. . For fiscal 2016, the Company estimates the net financial impact, including the share repurchase impact, to be approximately neutral to earnings per diluted share.”

  And the punchline:

  On October 1, 2015, Nordstrom’s board of directors authorized an additional $1.0 billion share repurchase program. During the third quarter, the Company repurchased 3.5 million shares of its common stock for $250 million. A total of $1,486 million remains available under its existing share repurchase board authorizations. The actual number, price, manner and timing of future share repurchases, if any, will be subject to market and economic conditions and applicable Securities and Exchange Commission

  And to think it could have waited just a few weeks and gotten 15% more for its money consiering the absolutely collapse in JWN stock after hours.

  

   

  … but no, its management team had to go ahead and buyback half a billion of its shares in 2015 at an average price of $72, a -26% return that is even worse than that of Bill Ackman.

  

  Finally, and not unexpectedly, JWN slashed its outlook across the board confirming just how “strong” the US economy really is.

  

   

  Three weeks ago we asked a simple question.

  https://twitter.com/zerohedge/status/658427632284008448?lang=en

  We now have the answer.

  

  

  

  

  

• "Sell Mortimer": Stocks Tumble Most In 6 Weeks, Back To Red For 2015

  Given this…

  

   

  And the fact that The Dow is down over 500 points from last week's highs…

  

   

  We suspect the message to Fed Speakers from "the bulls" is…

  Or this…

  

   

  The biggest issues today were the collapse in credit, crude, and copper; but stock weakness dragged the S&P 500 into negative territory for the year…

  

   

  On the day, Fed speak dragged us lower along with carnage in copper, crude and credit but towards the close USDJPY snapped and EURUSD broke 1.08 and seemed to extend the losses in stocks…

  

   

  Biotechs broke below the 50DMA…

  

   

  VRX closed at the lows of the day…

  

   

  VXX surged…

  

   

  And erased all the gains post-Payrolls (so good news is bad news after all)… with the S&P leading the way…

  

   

  And Bonds are now outperforming post-payrolls…

  

   

   

  Crude's carnage is starting to wake up Dow Transports traders (again!!!)…

  

   

  Today saw HY Credit spreads widen over 15bps – the biggest jump (for a non-roll day) since Dec 2014…

  

   

  And stocks are catching down to credit…

  

   

  Bonds & Stocks appear to be recoupling…

  

   

  FX markets were noisy but the main message wqas dumping dollars…

  

   

  And notice EURUSD tested up to 1.08 twice and broke 3rd time…

  

   

  Commodities were big news today…

  

   

  First gold crashed to 2010 lows, before spiking back higher…

  

   

  Then crude crumbled to the late-August lows…

  

   

  And Copper continues to get clubbed…7th down day in a row…having tagged perfectly the 50DMA before plunging

  

   

   

  Charts: Bloomberg

  Bonus Chart: What Happens Next-er?

  

   

  Bonus Bonus Chart: What Happens Next-er?

  

  

  

  

  

• Welcome To Crickhowell – The Entire Welsh Town That Just Went 'Offshore'

  Submitted by Simon Black via SovereignMan.com,

  On September 25, 1794, US President George Washington issued a proclamation authorizing the use of military force against a group of defiant citizens.

  It had all started a few years before when a handful of politicians had succeeded in passing an excise tax on liquor, something that became known as the Whiskey Tax.

  The Whiskey Tax was the brainchild of Treasury Secretary Alexander Hamilton, who was under pressure to pay off the government’s debts from the Revolutionary War.

  The thing is, much of the debt had been originally owed to soldiers who fought in the war. They had been paid in IOUs, many of which had been scooped up by bankers in New York for pennies on the dollar.

  Hamilton had family connections to prominent New York banks– the first example of Wall Street infiltrating the Treasury Department. It wouldn’t be the last.

  (Over 200 years later, the American taxpayer would again be on the hook to bail out banks.)

  Back then the Whiskey Tax was a big deal. America was a ‘whiskey nation’.

  Whiskey was such a prevalent part of American culture in the 1790s, in fact, that it was even commonly used as a medium of exchange in parts of the country.

  So you can imagine that the government’s intent to tax whiskey distillation was met with pockets of staunch opposition, especially once people found out that the entire reason for the tax was to pay back the New York bankers.

  In some cases the opposition was militant. Parts of Pennsylvania, Maryland, and Virginia swelled with local resistance to the point that people began physically assaulting federal tax collectors and forming rebel militias.

  Washington eventually had to dispatch federal troops (which he personally commanded) to put down the insurrection.

  The rebels lost. But this conflict between government and the taxpayer continued to run deep.

  It still exists to this day. It’s ingrained in the DNA of the nation, and in every free individual around the world.

  At its core, taxation is an elaborate form of theft based on deeply flawed premises that we all have a claim on each others’ earnings, and that the government knows how to spend your own money better than you do.

  There are certainly some places where people do receive value for the taxes that they pay.

  Norwegians are commonly cited as tolerating their incredibly high levels of taxation because they receive relatively good quality medical care, education, etc. in return.

  But for most people in the West, taxes fund wars, debt, dropping bombs on brown people by remote control, and yes, bailing out banks.

  It’s perfectly natural to be enraged at such immoral waste, and people deal with it in different ways.

  Some take the approach that if we’re going to be screwed then we should all be screwed together, equally.

  They throw childish temper tantrums when anyone uses perfectly legal means to reduce their taxes, labeling them ‘tax dodgers’.

  Usually this is an emotion grounded in petty jealousy and ignorance, wanting everyone to be equally miserable, and failing to realize that tax mitigation solutions are open to everyone.

  Right now there’s actually an entire town in Wales called Crickhowell that is ‘protesting’ how big businesses use the tax code to slash what they owe.

  They’re angered that Facebook, Google, Amazon, etc. pay very little tax.

  And to voice their frustration, the butcher, the baker, and candlestick maker decided to employ the exact same tax strategies used by big companies to reduce their own tax burdens.

  As the proprietor of the local smokery put it, the plan is “jolly clever.”

  Clever indeed. Because they’ll soon realize the tremendous power and freedom of using completely legal solutions to keep more of what you’ve earned.

  Doing this is not immoral or unpatriotic.

  In fact, if you believe that your government makes your country worse off and less free, then reducing the financial resources available to them is a highly effective expression of patriotism.

  Rather than people whining about everyone else paying less tax, it would be a much better use of time to learn about ways to reduce their own taxes.

  This is a far more powerful way of voicing your opposition to a government than standing in a voting booth. And you’ll be better off financially as well.

  To be fair, most of these concepts aren’t far fetched or complicated.

  How many of us have gone shopping at a duty-free store in order to save a few bucks from not paying taxes?

  Plenty of people already incorporate businesses in no-tax states like Delaware. Or they’ll work in a place like Boston (high tax) but live nearby in New Hampshire (zero tax).

  There are plenty of other solutions. US taxpayers who live on investment income can move down to the beach in Puerto Rico and pay 0% tax.

  Or you can move abroad and earn over $100,000 per year (per spouse) tax free.

  There are also more complicated solutions such as setting up captive insurance companies to reduce business profits tax, trust structures to eliminate estate tax, and much more.

  These aren’t ‘loopholes’ where you need teams of lawyers to misuse or take advantage of some cryptic language in the tax code.

  It’s all right there in black and white, part of the law.

  Criticizing a very sensible, legal strategy to keep more of what you earn is like criticizing someone for driving the speed limit, claiming that it’s some sort of traffic ‘loophole’.

  There are completely legal options out there for everyone. Taking advantage of them just makes sense.

  

  

  

  

  

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• Why Preppers have it all wrong

  Prepping has not only gone mainstream, it’s infected even the billionaire culture as referenced recently on a ZH article:

  When it comes to “prepping”, many among the elite take things to an entirely different level.  As you will see below, the elite are willing to pay big money for cutting edge home security measures, luxury bomb shelters and superyacht getaway submarines. Some of the things that the elite are demanding for their own protection go beyond even what we would see in a James Bond film, and serving the prepping needs of the elite has become a multi-billion dollar business.  Meanwhile, the media outlets that the elite own continue to mock the rest of us for getting prepared.  All the time we see headlines like this one that appeared in a major American news source: “Preppers: Meet the paranoid Americans awaiting the apocalypse“.  Well, if we are paranoid for setting aside some extra food and supplies for the future, what does that make the people that you will read about in this article?

  Financial prepping has been the mantra of the ‘hedge’ fund community since it started to exist.  Instead of just blindly buying stocks and hoping the market always goes up, ‘hedge funds’ provided a ‘hedge’ in case the market actually didn’t go straight up.  Of course, this is now just for lazy investors, now it’s possible to buy options for almost any situation, and insurance companies will sell insurance for anything – even being abducted by aliens (over 30,000 policies sold in Europe according to Geico).

  Description of the prepper & background

  So let’s take the average prepper, metaphorically speaking.  You have your safe house, stockpile of supplies, food, ammo, tools, toilet paper, shortwave radios and other electronics powered by cranks, etc. etc. etc. (depending on how deep your infection).

  Financially speaking, you keep your savings in a combination of cash (US Dollars, Euros, and Swiss Francs), gold, silver, bitcoin, and bearer bonds.  If you are really savvy, you’re holding the paper on several nearby farms in a fair deal whereby they pay down their principle in cash and interest & fees in milk, beef, and in the summer vegetables.

  You own several properties in the names of charities you’ve setup just for this purpose… ok you get the idea.  Take it to the extreme.  The estute prepper has done all this and more – he’s ready for anything!

  The problem

  Now the calamity comes – whether it be a global pandemic, alien invasion, terrorists, the United Nations with foreign troop invasion – take your pick.  It’s really bad, but you survive – because you are ready for anything!  So now you’ve survived – NOW WHAT?  

  Do you come out of your bunker after the smoke has cleared?  What will you do all day?  What will other survivors do?  Will you try to communicate with other preppers?  What if in the process of that communication – you discover that you are a little more prepared than they, and they trick you into a meet whereby they kidnap you and force you at gunpoint to give up your safe location and supplies?  

  What if there is a secret group of ‘anti-preppers’ who are right now preparing for ways to steal from preppers, based on their security flaws and lack of planning?  

  What if there is a group right now setup by the government, who is monitoring preppers, that within 24 hours of said ‘calamity’ will be taken into custody (or otherwise dealt with).

  What is to stop the military from seizing your supplies, and forcing you to join their chain gang?  

  The problem is that in order to really be ‘prepared’ – one must strive to be a stronger fighting force than the strongest army in the world (be it whatever you think in your opinion) because in a real crisis, the only currencies are 1) intelligence and 2) accelerated lead.  Accelerated lead is a quickly depleting resource whereas intelligence can grow and be self-replicating.  

  Prepping generally speaking is a good thing, to use example of global pandemic – if everyone in the world is prepared and follows WHO guidelines, the pandemic will not exist!  Probably the same could be true with financial markets.

  The point here is to realize that like with anything – the popularization of ‘prepping’ has warped the purity of the concept.  

  The idea itself – very noble.  But in practicality, in reality, if there is an apocalypse, where are you going to go shopping with your gold and silver coins?  

  Especially in America where we like to do things to extremes (like eating for example) – we’ve taken prepping to a new fangled art form.  But it’s this ‘new level’ that is the snake oil – not the concept of prepping.

  Just in case

  Mossberg sells a package “Just in Case” that includes survival kit, shotgun, all neatly packaged in a waterproof tube (that also can double as a flotation device).  It’s a great analogy for the prepping movement.  It’s a great thing to have – JUST IN CASE.  99% of buyers of this will never use it.  

  But – IT’S BETTER TO HAVE IT AND NOT NEED IT, THAN TO NEED IT AND NOT HAVE IT!  -The Avid Prepper

  Financial Prepping

  What can one do to financial prepare themselves?  This completely depends on the situation, and depends on the extent you want to prepare for.  As a general rule, you just want to be more prepared than your neighbor, but only a little.  That means – forget about the kevlar suit that can withstand 1,000F burns, or the bitcoin wallet that can only be opened with one time pad; each hidden in 2 secure locations in Europe.

  Also, forget this naive idea about hoarding physical gold or cash – as if it will help you.  You’re just painting a target on your back!  Where will you spend this cash?

  Some reasonable prepping steps to be a ‘pure prepper’ 

  • Have a healthy options portfolio
  • Take the other side (even if you don’t agree with it)
  • Invest in some really crazy ideas – if everyone you know says ‘don’t do it – it’s crazy’ – DO IT!
  • Invest and trade LOCALLY, at least a little.
  • Keep multiple accounts open with different TYPES of brokerage firms/banks – not only the same institution where your 401k is.  Not all of them will die.
  • Participate in some class action lawsuits for securities or similar cases – even if you won’t get a big payout.  When the dollar bubble really pops, you’ll have a friend who can help you get 20 cents on the dollar from Bank of America.
  • Make some foreign connections, who may not be in the same predicament as most in America
  • As much as possible, try to do things for yourself.  Having your deck resurfaced?  Do it yourself!  Do your own research – don’t rely on a service (and certainly not your broker!)  
  • Educate yourself!  Learn a foreign language, or study that course in wreath making you’ve been putting off for so long.  Remember, although the world is a large place – the majority of nuclear fuel rods are made by hand by Samurais in Japan:

  Although Japan Steel Works is a major corporation with 5,000 employees, it also maintains a samurai sword blacksmith, in a small shack on a hill above the factory in Muroran, where a single craftsman still hammers steel into broadswords, as the company has done since 1917.

  Just remember.  For those who think the apocalypse is coming – there are just as many who believe it’s already here.  Just ask some Detroit residents.  

  

  Looks like the Zombies have already invaded and destroyed our cities.  

   

  

  

  

  

• Methods For Fighting Back Against Collectivist Tyranny

  Submitted by Brandon Smith via Alt-Market.com,

  In any examination of historical precedence, it is easy to see that the sheer number of collectivist and tyrannical systems have far outweighed any experiments in individual liberty. I have explored the reasons for this in numerous articles, including recent pieces such as “How To Stamp Out Cultural Marxism In A Single Generation” and “The Tools Collectivists Use To Gain Power.” To summarize, there is a driving desire among weaker-minded people to seek control over other people in the name of arbitrary standards of safety as well as arbitrary standards of “civil” conformity. While such people proclaim publicly that they do what they do for the “greater good,” in reality they seek only to satiate a private lust for power.

  In the darkest corners of their souls, many people have personal aspirations to attain godhood in their own little worlds. And if they cannot achieve such godhood outright on their own, then they will join a mob with similar aspirations so that they can at least feel omnipotent through vicarious tyranny.

  This is why collectivism and individualism are mutually exclusive. A collectivist uses force or manipulation to compel the masses to accept a society that follows his personal ideology. An individualist adheres only to the tenets of natural law and the non-aggression principle. He believes force is justified only when the personal liberties of an individual are threatened by others. And he demands that if he participates in any society, it be voluntary. Collectivism is society through coercion. Individualism promotes society through voluntary cooperation. The two philosophies cannot coexist.

  I'll say it again because there are some people out there with severe reading comprehension issues; the definition of collectivism requires the prioritization of the group over the rights of the individual.  Collectivism by its very nature denies or destroys individualism and individual choice in this prioritization.  Collectivism therefore requires the engineered organization of individuals predicated by COERCION, or force.  Period.  If a group organizes voluntarily, then it is NOT collectivist.  If a group is organized through force and manipulation, then it IS collectivist. Period.  Bananas are yellow.  Oranges are orange.  The sky is blue.  Two plus two equals four.  And, collectivism compels participation by force, while voluntary community does not.

  There is no rational debate to be made against this clear dichotomy.  It is truly amazing how some folks cannot seem to grasp the very obvious difference between collectivism and voluntary community; the same people that will likely still attempt to argue that collectivism and individualism are "not mutually exclusive" after reading this very article.

  I certainly would never make the claim that most collectivists are intelligent…

  The collectivist threat is not merely due to environmental factors alone. As the psychologist Carl Jung outlined in his collected papers titled “The Undiscovered Self,” at any given point in history at least 10% of the human population has inherent (but often latent) psychopathic tendencies. Less than 1% of these people will actually act out their full psychopathy under stable social conditions. However, in times of great distress or political and economic upheaval, the psychopathic 10% are given a kind of playground in which to let the devil out; Jung called this the “collective shadow.”

  As I have explained in the past, these are the “useful idiots” within any society. They are the reason why there will never be a time now or in the future in which collectivist oppression will not be a potential threat, and why individualists will have to remain forever on guard. That said, they are only a part of the bigger problem. In almost every instance of mass tragedy or despotic government, an elitist minority pulls the strings of the useful idiots, aiming them like a shotgun at individualists in order to clear a path for total centralization. The elites are another horror altogether.

  These are the men and women who EMBRACE their psychopathy. It is not latent or subconscious; it is a fully integrated and accepted part of their psychological life. They have found that psychopathy can be an effective tool for gaining power and influence when average people around them are less vigilant or less confrontational due to fear or apathy. And contrary to popular belief, psychopaths CONSTANTLY organize into effective working groups, some of them vast and global in scope, as long as there is the promise of mutual benefit involved.

  This is not to say that they organize around “gain” alone. Elitists have their own pervasive ideology and their own rationalizations for seeking control of others.

  They see themselves as “philosopher kings” as described in Plato’s 'Republic,' exemplary and “special” people who are born with the inherent genetic capacity to rule over the masses with the utmost clarity. They believe they know what is best not only for you, but for the human experiment in total. Their goal is to construct a sociopolitical apparatus that will allow them to have complete overreaching influence over every aspect of every individual life, up to and including the erasure of that life if they think it serves their ends.

  "…You would be forcibly fed, clothed, lodged, taught, and employed whether you like it or not. If it were discovered that you had not character and industry enough to be worth all this trouble, you might possibly be executed in a kindly manner…” — George Bernard Shaw, Fabian socialist, from 'The Intelligent Woman’s Guide to Socialism and Capitalism'

   

  "My conclusion is that a scientific society can be stable given certain conditions. The first of these is a single government of the whole world, possessing a monopoly of armed force and therefore able to enforce peace. The second condition is a general diffusion of prosperity, so that there is no occasion for envy of one part of the world by another. The third condition (which supposes the second fulfilled) is a low birth rate everywhere, so that the population of the world becomes stationary, or nearly so. The fourth condition is the provision for individual initiative both in work and in play, and the greatest diffusion of power compatible with maintaining the necessary political and economic framework.” — Bertrand Russell, member of the Fabian Society, from 'The Impact Of Science On Society'(Note: Russell believed that individuals should be given at least the illusion of choice within minor aspects of society in order to maintain their willing participation.)

   

  "The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. … [I]t remains a fact that in almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons… It is they who pull the wires which control the public mind, who harness old social forces and contrive new ways to bind and guide the world.” — Edward Bernays, father of modern propaganda, from 'Propaganda'

  Elitists are rarely as open about their true intentions as the men quoted above. They often entice the public with fantastical promises if collectivist systems are supported, including: equality of wealth and prosperity; reduction of labor and increases in leisure time; incredible technological advances; universal education; universal healthcare; the end of nationalism, resulting in the end of war, resulting in infinite global peace; etc.

  When they are not able to sell the public on a particular aspect of collectivism, they will create artificial divisions and artificial crises in order to engineer chaos. As per the Hegelian dialectic, when we are thoroughly tenderized by fear and disaster, the elites return to the scene with a “solution” to their original crime, a solution that usually involves more collectivism.

  So how do individualists fight back against collectivism, elitists and the useful idiots they exploit? Here are some practical strategies that anyone can employ in his daily life.

  Stop Participating In False Paradigms

  Yes, in the everyday world there are leftists and right wingers, liberals and conservatives, Republicans and Democrats. People subscribe to particular ideologies and philosophies backed by fundamental differences in belief. These divisions between regular people are indeed real. However, it is important to realize that at the gatekeeper level in these systems, the leadership in both parties subscribe to the same goals. They are not divided. They are part of the elitist structure. And while their rhetoric differs cosmetically, in policy and in action they will always work to destroy individual liberty and promote collectivism, whether they claim to be on the right or the left.

  This reality also applies to supposed conflicts between nations. If two nations appear to be at odds with each other, yet the leadership of each nation remains in league with the same international elitists (bankers, Fabians, globalists, etc.), then their conflict is a sham designed as theater for the masses.

  Refuse to participate in false paradigms. Point out the inconsistencies of BOTH parties or sides and identify how each works against individualism and toward collectivism. Do not affiliate with any group or institution that has a demonstrated history of antagonism towards individual freedom or that partners with known collectivist (globalist) organizations and frontmen. If you are going to fight for any side, make sure it truly represents liberty through its actions and associations.  Rhetoric is meaningless.

  Decouple From Dependency On Corrupt Systems

  As our economic situation becomes more and more dire, people are much more apt to become dependent on the system for survival, and this is an intentional result. I would not expect, for example, that the 94 million people in the U.S. who have been unemployed for so long they are no longer counted by the Bureau of Labor Statistics should refrain from government aid or cut themselves off from welfare measures and become immediately self-reliant. They should, however, consider working toward that goal over time; and so should everyone else.

  This is not quite as impossible as it seems. Can you produce or repair items that act as survival necessities? Can you teach a necessary skill? If so, then you are already well on your way to independence. Once you have a necessary skill, trade is possible outside the controlled economic framework. The more individuals involved in an alternative economy, the more diversity of skill sets will be available and the more prosperous that voluntary community will become.

  The ultimate achievement in my view would be similar in aspects to the American agrarian models of the past with the integration of helpful technology: completely voluntary communities in which free trade is the foundation; the existence of grid water and grid power is unnecessary; food production is local and ample rather than reliant on national or international freight systems and the artificial scarcity of corporate farming models; and security is provided by each individual for himself, as well as for the community, through voluntary neighborhood watches or militias.

  All of this starts with each individual taking action to become a producer, rather than a wage slave or welfare slave.

  Organize Locally With People Of Like Mind

  Again, organizing voluntarily is counter to collectivism.  Collectivist systems cannot be defeated unless you are willing to establish a competing model that works better while maintaining freedom. This is not hard to do, considering collectivist models are failure-driven machines that devour people and use them as fuel to move society as a whole towards a “greater good” which is neither great nor good.

  As outlined above, independent localism is the answer. It is a voluntary structure that encourages self-reliance and preparedness, while making production and innovation the mainstays of a healthy society. It rewards personal success and achievement, rather than punishing it. And, it helps a larger percentage of wealth to keep cycling locally, rather than being siphoned out of communities by governments or government-chartered and protected corporations.

  Localism always starts small, with families, friends and neighbors. But as your organization continues to make life better for those involved, it will inevitably attract more participants.  The redundancy of localized economies would also protect people from economic collapse.  In fact, without the forced interdependency of centralized collectivist economic models, large scale financial crises would probably become a thing of the past.

  Educate Children Privately

  I’ve been saying it a lot lately, and I’ll say it again: Public schooling as it stands today is an apparatus for brainwashing, nothing more. With the dismal world ranking of U.S. students in math, science and reading, I hardly see what service public education is actually performing in America. The only service public schools do seem to excel at is indoctrination, with children now being immersed in collectivist lessons through Common Core and being conditioned into pacifism and fear through insane zero-tolerance policies.

  The only working solutions available for parents today are to decouple from the federally dominated public school system and place their children in a well-vetted private school or to home-school. Any sacrifice, financial or otherwise, is worth it to save American children from a vicious system of propaganda and conditioning that could conceivably suppress their individualism and warp them into collectivist monsters.

  Arm And Train For Self-Defense

  I think it should be pretty obvious that there is a simple reason behind the collectivist habit of attempting to disarm common people: Armed people are harder to manage or control.  If an armed population was not a threat to collectivists then they would not keep trying to disarm everyone. Therefore, if you are not armed and trained in self-defense, then you are not a threat to collectivists.

  You can be the most brilliant of thinkers with pristine logic and truth on your side; but without the means and ability to destroy an attacker or tyrant, you are nothing in the grand scheme. Intellectual warriors are not really warriors. And as a writer, I will say in all honesty that the threat of the pen is not mightier than the threat of the sword.

  Keep in mind, though, that it is not enough to merely purchase a firearm or shoot at the range. Team tactics and training are essential for free people, which is why they are so admonished by collectivist elements in our society. Train with friends and family or with your Community Preparedness Team, as I do through Oath Keepers; but learn tactical methodologies and how to fight with others. Present a viable danger to collectivists, or be subsumed by them.

  Remove The Elitist Hierarchy

  Eventually, the fight between individualism and collectivism will become physical rather than informational. There is no way around it. The more individuals begin to decouple from the corrupt system and construct their own alternative framework, the more violent collectivists will turn in response. The virtue of self-defense requires that tyrants be cut off from their means to project violence onto others.

  While it is impossible to stop the inherent nature of psychopathy other than to participate in communities where psychopaths are not welcome or encouraged, there is the matter of organized elitism to deal with.

  Any fight for freedom from collectivists will require the removal of command and control. This is the only way that humanity can be given breathing room to rebuild without remaining under constant preplanned threat. There are, in fact, many organizations that openly work toward collectivist oligarchy, from central banks (this means central bankers in ALL nations, not just in the West), to the Council On Foreign Relations, to Tavistock, to the Rand Corporation, to the International Monetary Fund or the Bank for International Settlements, to Bilderberg, to the Fabian Society, etc. These institutions need to be dismantled by any means necessary and the participants removed from positions of control. Make no mistake; it will take a war before such people give up the reins of power. This is the inevitable cost of individualism and the inevitable cost of freedom.

  

  

  

  

  

• Visualizing The Worst US/NATO Collateral Damage Disasters In History

  Early last month, the US did something tragically stupid. The Green Berets, operating in Kunduz in an attempt to beat back Taliban insurgents who have racked up a series of gains prompting Obama to cancel a planned troop drawdown, called in an AC-130 gunship strike and laid waste to a hospital. 

  Why they did that is the subject of some debate but Doctors Without Borders claims the US and its spec ops knew it was a hospital and while Washington doesn’t necessary dispute that contention, the military claims the Taliban were using the facility as an operating base and firing on the soldiers. Whatever the case, dozens were killed and then just weeks later, the Saudis hit an MSF facility in Yemen. 

  With that in mind we present the following infographic which details the worst instances of “collateral damage” from US/NATO military operations throughout history.

  
  

  

  

  

  

  

• Is It Time To Renounce U.S. Citizenship While You Still Can?

  Submitted by Nick Giambruno via InternationalMan.com,

  The number of people abandoning the “greatest country in the world” just hit a record high…

  The U.S. government recently reported that 1,426 people renounced their U.S. citizenship in the third quarter. That’s a record quarterly high. Like all government statistics, I view this one skeptically. Many observers think the actual number is much higher.

  Still, with another quarter left in 2015, the number of Americans who renounce U.S. citizenship this year could easily top the previous annual record set last year.

  I recently spoke with a consultant who gave up his U.S. citizenship. He’s now a citizen of Dominica, a small Caribbean country, and splits his time between Asia and South America.

  He said he was leaving a sinking ship for a better life elsewhere. On top of that, the U.S. government is placing an increasing number of hurdles on Americans who want to renounce their citizenship. So he thought it was time to do just that.

  This isn’t how the average person sees things. Unthinking Americans are puzzled when they read about the increasing number of people renouncing their citizenship.

  As you can see in the chart below, this trend is exploding. And it has important implications for your personal freedom and financial prosperity.

  

  This trend really shouldn’t surprise anyone. The U.S. tax system is the most rapacious in the world. It’s also the most aggressively enforced. For many, the benefits of U.S. citizenship no longer outweigh the costs.

  The U.S. is the only country in the world that successfully taxes its citizens no matter where they are in the world…even if they leave and never step foot in the country again. It’s called citizenship-based taxation.

  If you’re a U.S. citizen, you should think of citizenship-based taxation as a ball and chain attached to your leg.

  Nearly every other country in the world taxes people based on residency, not citizenship. For example, if you’re a Canadian citizen and leave Canada to live in Dubai, the Canadian government won’t force you to pay taxes on the income you earn in Dubai. However, if you’re a U.S. citizen, you have to pay taxes to the U.S. government no matter where you live and work.

  Only one other country in the entire world, Eritrea, has citizenship-based taxation.

  Eritrea is a tiny, mostly unknown, country in East Africa. It levies a 2% flat tax on the income of Eritrean citizens who live abroad. Unlike the U.S., Eritrea is an impoverished country. Its government has a hard time enforcing its tax system within its own borders, let alone the rest of the world. Many Eritreans who live abroad have never even heard of this tax, and those who have don’t worry too much about paying it.

  The U.S., on the other hand, does have the ability to enforce its Byzantine tax system literally anywhere in the world. When you consider the reach of the U.S. government and the penalties for not paying (which can only be described as cruel and unusual), it’s no surprise Americans are terrified. And they should be… or they aren’t paying attention.

  The U.S. government threatens Americans with years in prison and outrageous fines if they don’t file a litany of complex forms correctly… even if they don’t owe taxes in the first place. U.S. citizens are in the uniquely unfavorable position of having the world’s worst tax policies and a government that relentlessly enforces them everywhere on the planet.

  For many, it’s a tight and suffocating tax leash. Renouncing your U.S. citizenship is the only way to free yourself from U.S. taxation while you’re still breathing. It’s only logical that an increasing number of people are taking this step.

  UN Resolution 2023

  The media routinely condemns Eritrea for its attempts to tax nonresident citizens. Even the United Nations has weighed in. In Resolution 2023, the UN Security Council condemned Eritrea for “using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals.”

  The U.S. government supported Resolution 2023, even though it does the very same thing on an industrial scale.

  When you think about, it’s actually not fair to compare an impotent country like Eritrea and its relatively modest 2% expat tax to the monstrous U.S. tax system.

  Of course, I’m not endorsing the UN. I dislike bureaucracies of any sort…especially ones with a global reach. But it’s noteworthy that they would even bother to weigh in on the repressive practice of citizenship-based taxation.

  Unfortunately, the UN is being opportunistic. They don’t care about the tax burdens of Eritreans. If they did, they’d condemn citizenship-based taxation consistently.

  But the UN hasn’t made so much as a peep about the U.S.’s racket. If you listen for it, you’ll only hear the crickets chirping.

  This isn’t surprising. Even though it’s clearly a double standard, it’s easy to understand why it exists. As the world’s sole superpower and issuer of the premier reserve currency, the U.S. isn’t accountable to anyone.

  No other country has the courage or incentive to call the U.S. out. It’s a heck of a lot easier to push around some small, impoverished African country than it is to stand up to the U.S. juggernaut.

  The Exit Tax – A Form of People Controls

  Desperate governments always try to control money with capital controls and individuals with people controls.

  Take Cuba, for example. After Castro came to power, his government made Cuban citizens apply for exit visas before they left the island. They were not easy to get. The Soviet Union, North Korea, and others have also used similar restrictions.

  Preventing people from leaving has always been a hallmark of authoritarianism.

  It’s hardly shocking that productive people are fleeing the U.S. tax system. The U.S. government doesn’t like this one bit. Naturally, it would prefer to squeeze every last drop out of its best milk cows.

  To keep them from leaving, the U.S. government has imposed a so-called Exit Tax on Americans who renounce their citizenship.

  Eduardo Saverin, the billionaire cofounder of Facebook, is a notable example. By renouncing his U.S. citizenship, Saverin escaped paying an estimated $700 million plus in future income and estate taxes. He could not, however, escape the Exit Tax.

  For the Exit Tax, the U.S. government deems you to have sold everything you own on the day before you renounce citizenship at a price equal to its “fair market value.” Any appreciation in your investments or home and any deferred income becomes taxable.

  The Exit Tax is a big impediment to leaving. But, as the growing number of Americans renouncing their citizenship shows, it’s not always an effective one. I expect the U.S. government to impose much harsher restrictions – more people controls – in the future.

  The Canary in the Coal Mine

  I think the growing number of Americans renouncing their citizenship is an important sign of what’s to come. It’s never a good thing when a society’s most productive members flee for greener pastures.

  Many of these former Americans grew tired of the government treating them as piggy banks for the social program du jour.

  Social Security, Medicare, Medicaid, and the entire U.S. government are broken and bleeding money. Like most governments that get into financial trouble, I think American politicians will keep choosing the easy option…money printing on a massive scale. This has tremendous implications for your financial security.

  Politicians are playing with fire and inviting a currency catastrophe. Most people have no idea what really happens when a currency collapses, let alone how to prepare…

  How will you protect your savings in the event of a currency crisis? This just-released video will show you exactly how. Click here to watch it now.

  

  

  

  

  

• The 60-Second Summary Of Europe's Latest Crisis

  Since the creation of the European Union, and its mutant cousin, the common currency Eurozone, it seems that Europe has been in a state of constant crisis… which, as a very prophetic AIG presentation foresaw has been precisely the point from day one.  But while Greece is no longer a source of stress, now that the insolvent Mediterranean country gave up and conceded its sovereignty to its European overlords, Europe now finds itself in what many say is a far more serious crisis – one in which the cultural sovereignty of Europe itself is at risk from an unprecedented wave of mideast migrants which are entering the continent by the thousands every single day.

  For those who have not been keeping up, and also for those who have, here courtesy of ohboywhatashot, is a “60 second summary” snapshot of how this latest crisis is affecting at least 23 countries across the old continent, and how while the European Union is gradually becoming a “Disunion”, one thing as usual reigns: chaos.

  

  

  

  

  

  

  

  

• So You Want To Be A Modern "Trader": Here Are The Requirements

  Igor Oystracher’s 3Red trading firm may not exist much longer after the recent vicious crackdown against the company’s spoofing practices profiled a month ago in “Russian College Dropout Busted For 1,316 Spoofs Of Everything From E-Minis, To Copper, To VIX“, an assault orchestrated by none other than king of HFT market-manipulation, Citadel itself, but for now he is busy looking for new trader meat…. ideally with pimples.

  Back in 2010 we predicted that as a result of the advent of HFTs as the most profitable form of market manipulation on Wall Street, old school rolodex-and-phone, carbon-based traders were a dying breed and on their way out. Little did we know just how accurate we would be.

  Below is a “help wanted” ad for a “trader” by none other than the abovementioned 3Red spoofers.  We put trader in quotation marks because… well, just read the ad and you will see.

  Here are the required skills you must have to be a successful “trader” in the new normal. For all those who satisfy the requirements, best of luck and may the best man (or vacuum tube) win, preferably in less time than it takes to frontrun a Bank of Japan E-mini “buy” order.

  

  h/t @sellputs

  

  

  

  

  

• "Currency War By 1000 Cuts" Continues – PBOC Weakens Yuan For Longest Streak Since Lehman

  Amid warnings from Daiwa Capital Markets that policy-makers "will sacrifice Yuan stability" in order to manage the deterioration in the economy (trade and industrial production data confirming the weakness), The PBOC weakened the Yuan fix for the 8th straight day. This is the longest streak of weakness since August 2008.

   

  As Bloomberg notes,

  Chinese policy makers will sacrifice yuan stability as it is clear that growth is being impeded by currency being stronger than it needs to be, according to Daiwa Capital Markets.

   

  PBOC will allow currency to weaken to 7.5000 per dollar by end of next year, representing a 15% drop from yesterday’s closing level of 6.3665

   

  “The authorities need to stop intervening in the currency market for the purpose of making the currency stable, as a strong currency is offsetting the policy easing so far,” Kevin Lai, HK-based Chief Asia ex-Japan economist, says in interview

   

  Still, any currency weakness wouldn’t be without challenges: it would increase debt burden of companies that have borrowed in foreign currency.

  And sure enough…

  

   

  • *CHINA WEAKENS YUAN FIXING FOR 8TH DAY, LONGEST RUN SINCE 2008

  

   

  Charts: bloomberg

  

  

  

  

  

• 21 Signs That Americans May Be The Unhappiest People In The World

  Submitted by Michael Snyder via The End of The American Dream blog,

  How can we possibly be so miserably unhappy?  For a nation that supposedly “has it all”, we sure are depressed.

  In America today, suicide rates are soaring, antidepressant use is skyrocketing and virtually every new survey that comes out shows that we are deeply dissatisfied about something.  But we live at a time when there are more things to enjoy than ever before. 

  When I was growing up there was only a handful of television channels to choose from, but now there are hundreds.  We have more movies than we could ever possibly watch, more books than we could ever possibly read, and the greatest video games ever made are at our fingertips.  With all of the entertainment that surrounds us, you would think that Americans would be happier than ever before, and yet we continue to become even more depressed.  Everywhere I go, I see people that look like they have had the life completely sucked out of them.

  So why is this happening?  The following are 21 signs that Americans are the unhappiest people in the entire world…

  #1 A scientific study that was just released found that U.S. adults are becoming less happy over the years…

  “Adults over 30 are less happy than their predecessors,” concludes a study published online Thursday in the journal Social Psychology and Personality Science, which examined happiness data from more than 50,000 adults, gleaned from the General Social Survey, carried out by NORC at the University of Chicago, a nonpartisan, independent research organization, which has collected information about American adults since 1972.

   

  From 2010 to 2014, adults over 30 had an average happiness score of just 2.18, compared with 2.24 a decade ago. That’s significant considering happiness scores were measured on a tiny scale from just 1 to 3, with 1 being “not too happy” and 3 being “very happy.”

  #2 Young people are also becoming increasingly depressed.  Just check out what one study conducted at San Diego State University discovered…

  Americans are more depressed now than they have been in decades, a recent study has found. San Diego State University (SDSU) psychology professor Jean M. Twenge analyzed data from nearly 7 million adolescents and adults from across the country and found that more people reported symptoms of depression — including sleeplessness and trouble concentrating — compared to the 1980s.

   

  Twenge’s findings show that teenagers in the 2010s experience memory trouble 38 percent more often than their 1980s counterparts. Teens are also 74 percent more likely to have trouble sleeping and twice as likely to see a professional for mental health issues. College students in the study reported feeling overwhelmed by academic and personal demands 50 percent more often than their 1980s counterparts.

  #3 Back in 1987, 61.1 percent of all Americans reported being happy at work.  Today, 52.3 percent of all Americans say that they are unhappy at work.

  #4 A different survey found that 70 percent of all Americans do not “feel engaged or inspired at their jobs”.

  #5 One survey of 50-year-old men in the U.S. found that only 12 percent of them said that they were “very happy”.

  #6 The number of Americans diagnosed with depression increases by about 20 percent each year.

  #7 According to the New York Times, more than 30 million Americans take antidepressants.

  #8 Doctors in the United States write more than 250 million prescriptions for antidepressants each year.

  #9 The rate of antidepressant use among middle aged women is far higher than for the population as a whole.  It is hard to believe, but right now one out of every four women in their 40s and 50s is taking an antidepressant medication.

  #10 Compared to children in Europe, children in the United States are three times more likely to be prescribed antidepressants.

  #11 In America today, there are 60 million people that abuse alcohol and there are 22 million people that use illegal drugs.

  #12 America has the highest rate of illegal drug use on the entire planet.

  #13 One recent poll found that 71 percent of Americans are dissatisfied with the direction that things are going in this country.

  #14 America has the highest divorce rate in the world by a wide margin.

  #15 America has the highest percentage of one person households on the entire planet.

  #16 100 years ago, 4.52 people were living in the average U.S. household, but now the average U.S. household only consists of 2.59 people.

  #17 According to the Pew Research Center, only 51 percent of all American adults are married.  Back in 1960, 72 percent of all adults in the United States were married.

  #18 The suicide rate in the United States is now the highest that it has been in 25 years.

  #19 According to one absolutely shocking study, 22 military veterans kill themselves in the United States every single day.

  #20 The suicide rate for Americans between the ages of 35 and 64 rose by close to 30 percent between 1999 and 2010.  The number of Americans that are killed by suicide now exceeds the number of Americans that die as a result of automobile accidents every year.

  #21 The rate of suicide is highest during the holidays that come at the end of the year, and 45 percent of all Americans say that they dread the Christmas season.  The following comes from a Psychology Today article…

  We are told that Christmas, for Christians, should be the happiest time of year, an opportunity to be joyful and grateful with family, friends and colleagues. Yet, according to the National Institute of Health, Christmas is the time of year that people experience the highest incidence of depression. Hospitals and police forces report the highest incidences of suicide and attempted suicide. Psychiatrists, psychologists and other mental health professionals report a significant increase in patients complaining about depression. One North American survey reported that 45% of respondents dreaded the festive season.

  So why in the world is this happening?

  We have one of the highest standards of living in the world and we are surrounded by massive amounts of entertainment.

  Yet we are severely depressed.

  And during the “happiest time of the year” we get even more depressed.

  Clearly something has gone very wrong.

  Even more entertainment is not going to fix us, and neither will more drugging.

  

  

  

  

  

• Record Number Of Women Now Live In Parents' Basement, Lack Of Weddings Blamed

  It was less than two months ago that we brought you “The Mystery Of The ‘Missing Inflation’ Solved, And Why The US Housing Crisis Is About To Get Much Worse.” In it, we documented the inexorable rise of rents in America which, thanks to the housing crisis, has gone from being  a society of homeowners to a society of renters, wiping out two decades of “progress” on the homeownership rate in the short span of seven years. 

  

  Of course to a certain extent (scratch that, to a “great” extent), the market sowed the seeds of its own destruction by creating ever more “creative” was to allow everyone, even those who couldn’t document their income, to realize the American dream. 

  Now, the surge in demand for rentals coupled with the fact that because the cost of capital on Wall Street is zero allowing PE to compete with everyday homebuyers has left millennials effectively stuck between rents the can’t afford and homes they don’t qualify for. Throw in a post-crisis economy that churns out waiters and bartenders thanks in part to the fact the very same $1.2 trillion in student loans that are weighing heavily on recent graduates’ finances and you have the perfect setup for a return to mom and dad’s basement. 

  On Wednesday, Bloomberg is out noting that at an astounding 36.4 percent, the number of women age 18 to 34 living with their parents is now the highest since record keeping began more than seven decades ago:

  Some 36.4 percent of women age 18 to 34 lived with their parents or relatives in 2014, the highest since records began in 1940, according to a report released Wednesday by Pew Research Center in Washington. While the share of young men was even greater at 42.8 percent, it wasn’t quite as high as it was some 75 years ago.

   

  

  But the punchline here is that the Pew Center blames this rather alarming statistic on school and weddings: 

  College enrollment rates for both full- and part-time students have generally increased over the past couple decades, and some students may be trying to offset stiff tuition costs by bunking with their parents. 

   

  Eternal happiness can wait. Millennials are much less likely to be married than their parents were at their age, and marriage often serves as an impetus to move out. 

  We’ll close with Pew’s take on the economy and Harvard’s. Note the vastly divergent “opinions.” We’ll let you decide who’s right:

  Pew: 

  The increase is puzzling considering the improved state of the economy and an improving job market that has helped more young people earn enough to venture out on their own. Here are some of the longer term forces that could be at play.

  Harvard: 

  Millennials are also expected to continue experiencing rent burdens as they age. Having entered the labor market during and following the Great Recession, those in the millennial generation have received lower wages and experienced higher rates of unemployment and underemployment than their older counterparts at this point in their lives. As a result, millennials have less wealth accumulated, have delayed forming new households, and are less likely to become owners at the age that older generations had previously. In combination, we are likely to see additional household formation by millennials over the next decade and expect a relatively higher share to remain renters during that period.

  

  

  

  

  

• Aussie Bonds Crushed After "Everything Is Awesome" Best October Job Gains Since 2007

  China must be fixed because 'seasonally-adjusted' Aussie full-time employment just surged 58,600 MoM (almost quadruple expectations of a 15k rise). This is the best monthly gain in jobs since September 2012 and best October since 2007 – which all makes perfect sense. The resultant bloodbath in Aussie bonds (3Y +13bps to 6 month highs is worst day since Jan 2014) is all too real however. The question is – will this "good news" be jawboned down by RBA in order to give them some easing room?

   

  Aussie job gains explode…

  

   

  The best October since 2007…

  

   

  Crushing Aussie bonds…

  

   

   

  Charts: bloomberg

  

  

  

  

  

• Social Security: The Long Slow Default

  Submitted by Kirby Cundiff via The Mises Institute,

  When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system.

   

  When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) – also known as Social Security – the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.

  Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”

  The “Primary Insurance Amount”

  The way that Social Security benefits are calculated is complicated, and can, of course, be modified at any time.

  The amount of monthly income a Social Security enrollee receives is called the Primary Insurance Amount. The current Primary Insurance Amount (PIA) benefit formula was created in 1979 and is based on two “bend points.”

  For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, his PIA will be the sum of:

  (a) 90 percent of the first $826 of his average indexed monthly earnings (AIME), plus,
  (b) 32 percent of his average indexed monthly earnings (AIME) over $826 and through $4,980, plus,
  (c) 15 percent of his average indexed monthly earnings (AIME) over $4,980,

  where the Average Indexed Monthly Earnings (AIME) is currently the average of the Social Security recipients top thirty-five years of income during his lifetime divided by 12.  

  Significantly, each year’s monthly income is expressed in 2015 dollars using the Consumer Price Index (CPI).

  Benefit Cuts Since the 1970s

  By the late 1970s, it became obvious that the Social Security system was going to have significant solvency problems since the ratio of workers to retirees decreased from around 40-to-1 in 1945 to around 3-to-1 in 1980, and most of the money paid into the system had been spent on other government programs.

  Payroll taxes were therefore increased, and a series of changes were made to the Primary Insurance Amount (PIA) payment formula to cut the benefits that Social Security enrollees would receive. 

  The PIA formula before 1979 was even more complicated than the one used in 2015. It had ten bend points, but gave more credit to high income workers. According to Robert J. Myers in his book Social Security, the changes in the benefit formula in 1979 resulted in, on average, a 7 percent reduction in monthly Social Security payments for new retirees. Under that current benefit formula, if a Social Security enrollee has a life-time income over $2 million, he will very likely have a negative return on his investment. For lifetime incomes between $0.5 million and $2 million, the enrollee has a chance to break even. Enrollees with a lifetime income less than $0.5 million have a good chance of still benefiting from the Social Security system. The number of years included in the earnings base (the number of years of income averaged to determine the monthly benefit payment) was gradually increased from twenty-three years, for people born in 1917, to twenty-nine years for people born in 1923 to thirty-five years, for people retiring in 2015. 

  For mothers who took time off from their career, people who spent a long time in graduate school, and people whose income was much larger during later parts of their life, this resulted in a significant decrease in benefits. (See The Social Security Book by Jack and Erwin Gaumnitz.)

  Using the CPI to Keep Payments Down

  Since the 1970s, the AIME used to determine the PIA has been indexed using the Consumer Price Index (CPI). So the higher the CPI, the larger a recipient’s monthly Social Security benefits will be. Social Security benefits for current retirees are also increased annually by the CPI. This means that one way the government can lower benefit payments is by under-estimating the inflation rate. The Bureau of Labor Statistics (BLS) has redefined how the CPI is calculated several times since the 1980s, lowering the CPI in each case. According to economists at Shadow Government Statistics, the CPI currently underestimates the inflation rate by at least 4 percent per year. If this is the case, Social Security recipients receive a 4 percent reduction in their buying power each year.

  “Mini-Defaults” in the Social Security System

  The US government knows it cannot keep up its end of the original Social Security bargain. So, to address its insolvency issue, the federal government simply responds by reducing benefits while increasing taxes. Increasing the retirement age, for example, is an easy way to reduce benefits.

  The retirement age was increased from sixty-five for those born in 1937 or before to sixty-seven for those born in 1960 or after. Since enrollees do not get maximum benefits until age seventy, it could be argued that seventy is really the current full retirement age.

  The taxable earnings base (the maximum income that is subject to Social Security taxes) and Social Security tax rates have increased drastically since the system was first created. The taxable earnings base was $3,000 in 1937, $25,900 in 1980, and $118,500 in 2015. The Old-Age and Survivors Insurance (OASI) tax was 2 percent in 1937, 9.04 percent in 1980, and 10.98 percent in 2015. This number includes both the employer and employee portion. When the 1.42 percent Disability Insurance tax and the 2.9 percent Medicare tax is added, the total payroll tax is currently 15.3 percent.  

  In 1983, legislation was passed to tax Social Security benefits for the first time. Currently, if a taxpayer’s provisional income is more than $25,000 on a single return or $32,000 on a joint return, their Social Security benefits will be taxed at between 50 percent and 85 percent of their normal tax rate.

  Further Tax Increases and Benefits Cuts are Likely in the Near Future

  According to the Social Security Administration, by 2033 future payroll taxes will only cover around 77 percent of estimated benefits. It is therefore likely that even further benefit cuts and tax increases will occur in the near future. Increasing Social Security tax rates from 12.4 percent to 15.5 percent and eliminating the taxable maximum (i.e., making all income subject to Social Security taxes) is currently being considered. Other tax increases being proposed include taxing contributions to flexible spending accounts and creating a national Value Added Tax (VAT).

  Further cuts to Social Security benefits are also on the table. Proposals to cut benefits include increasing the retirement age from sixty-seven to seventy years, increasing the number of years included in the earnings base from thirty-give to thirty-eight or forty, and increasing the percentage of Social Security benefits that are subject to income taxes. Redefining the CPI index to further underestimate the inflation rate is also on the table.  

  Social Security has long been sold to the public on the notion that what a worker will receive back is what he or she pays into the system. For decades, however, the government has been changing the terms of this “agreement” as part of an effort to avoid outright default. This long, slow method of piecemeal default, however, is likely to continue.

   

  

  

  

  

  

• The Forced Collective Suicide Of European Nations

  You are witnessing what will be shown to future generations as the reason for the fall of an Empire. At current immigration levels and disappearing birth rates native Europeans are destined to become a minority in their own countries within decades. This is already the case for many of Europe's largest cities.

  Because of this injustice, far-right parties everywhere in Europe are gaining astonishing amounts of support, becoming the biggest parties in some countries.

  The following brief documentary lays out the rising fear across Europe of the so-called "refugee" crisis, as the narrator concludes,  "patriotism, the most basic and fundamental trait of any nation that wants to survive, has become something to be ashamed of."

   

  

  

  

  

  

• The ECB Should Stop QE Before Draghi Causes A "Financial Crisis", German "Wise Men" Warn

  Back in July, Germany’s economic “wise men” took a look at bailout “success” and “failures” and came to a rather disconcerting conclusion. Here’s what the Council of Economic Experts said in their report:

  A permanently uncooperative member state should not be able to threaten the existence of the euro. In view of this, the Council of Economic Experts recommends that the withdrawal of a member state from the currency union must be possible as an utterly last resort.

  Yes, “a permanently uncooperative member”, and by “uncooperative” they of course meant states which do not subscribe to the German brand of fiscal rectitude and who may seeking to rollback previously agreed upon austerity measures. To be sure, there’s a whole to be said for honoring one’s commitments, especially when those commitments came with billions in loans attached to them, but the report served to underscore the extent to which Berlin effectively controls the eurozone by wielding the purse string. 

  Anyway, one thing we know about Germany is that officials have a low tolerance for anything that even looks like irresponsible fiscal policy or other types of shenanigans that could, in the end, create crises which is why no one was surprised to see Wolfgang Schaeuble give a number speeches over the past several months in which in incorrigible finance minister derided money printing and ZIRP. 

  Well don’t look now, but the same Council of Economic Experts is out with their latest annual report and they are not happy with ECB QE and contend that the further expansion of the central bank’s balance sheet could risk sparking a new financial crisis. Here’s more:

  Another important debate centres on the current low interest rate environment in the euro area. In January 2015, the European Central Bank (ECB) further eased its already very accommodating monetary policy by introducing a new sovereign bond-buying programme. Recently, it put forth the possibility of further easing. Core inflation has, however, stood near 1 % for months, and has recently risen slightly. Simple interest rate rules, such as the Taylor Rule or a rule that explains past ECB interest rate decisions quite well, suggest that monetary policy should be tightened given the current economic outlook. 

   

  While the risk of deflation is currently low, there are risks for the development of the economy in the longer term. The ECB’s bond buying programme has created favourable financing conditions and provides member states with an incentive to defer much-needed budget consolidation and structural reforms. However, further structural reforms to strengthen markets and competitiveness are crucial for a self-sustaining economic recovery.

   

  In addition, monetary policy is leading to a build-up of risks to financial stability which could pave the way for a new financial crisis.

   

  Persistently low interest rates erode the earnings of banks and life insurance companies, and raise the appetite for taking risks. Although there are so far no signs of excessive credit expansion, some sectors, like real estate, are showing some signs of exaggerated prices.

   

  Macroprudential policy alone cannot guarantee the stability of the financial system. It is important to avoid delaying an exit from the low interest rate environment for too long. A timely end to monetary policy accommodation could effectively prevent the further build-up of risks in the financial system. 

   

  Considering current economic developments and balancing deflation risks against the risks to longer-term economic developments and financial stability suggest that the ECB should slow down the expansion of its balance sheet, or even end it earlier than announced.

  Apparently nobody asked Peter Bofinger for whom “cash in an anachronism.”

  So, contrary to what the ECB said in minutes from its April policy meeting, intentionally driving down borrowing costs for fiscally irresponsible member states isn’t at all compatible with budget reform and indeed, suggest that was outright absurd in the first place. Recall what we said: 

  This of course highlights something rather absurd about the ECB’s asset purchase program specifically, and about Brussels’ stance on fiscal discipline more generally. Namely, there’s something quite contradictory about telling governments to tighten their belts while promising to buy any and every piece of paper their treasury departments care to issue. In fact, it’s probably fair to say that a €1.1 trillion QE program simply cannot peacefully coexist with a strict, currency bloc-wide austerity policy.

  And of course now, Draghi is set to double down in December with either an expansion of PSPP, another depo cut, or both.

  Also, it’s worth noting that if the wisemen think the current program is embedding an enormous amount of risk, just wait until the ECB starts monetizing muni bonds, corporate bonds, and stocks. 

  Finally, while we agree with the Council’s take on PSPP, we’d be remiss given recent political events in the periphery if we didn’t remind you of the following quote from their July “special report”: 

  “Firstly, the crisis response averted a systemic crisis and thus maintained the cohesion of Monetary Union. Secondly, the time was used to implement reforms to make Monetary Union more resilient against economic crises. Thirdly, the economic situation in Ireland, Portugal, and Spain has improved markedly.”

  Tell that to Portugal’s Costa and the new government in Lisbon.

  

  

  

  

  

• If You Run A Hedge Fund, This Is The One Chart You Never Want To Show To Your Investors

  2015 has been tough for Bill Ackman, as we noted previously, having extended his year-to-date losses to 21.2%.

  But Q3 was particularly noteworthy in its unhedged magnificence. As the following table shows, of all his positions, his only positive contributors to returns added a whopping 0.1%, not so much his other 13 positions…

  Pershing Square's Q3 Contributors to Returns…

  

  It appears Bill Ackman is taking the "Zero Hedge" mantra to heart.

   

  And for many of the names, things have got considerably worse since the end of Q3…

  

   

  And now – with the Valeant-Allergan transactions under question – one wonders what related liquidations may do to Q4's returns.

  Charts: Bloomberg

  

  

  

  

• Female Senator Says Men Should "Just Shut The Hell Up"

  In an age of "safe spaces", media oppression, and the resurgence of the right not to be offended, leave it to an American Senator to move the free speech repression amplifier knob to 11. As The Hill reports, Sen. Claire McCaskill (D-Mo.) says men should "just shut the hell up" on a number of issues…

   "It's not that women don't value your thoughts, it's just that we don't value all of them," McCaskill tells male viewers. "The world doesn't need your opinion on everything."

   

   

  McCaskill lists a number of issues where "women no longer need to hear men's opinions on," including Star Wars, pantsuits, selfies, "Scandal" creator Shonda Rhimes, curtains and carbs.

  Finally – after getting significant pushback from social media on her hypocritical comments – McCaskill went full 'teenage girl' excuse: "I was just kidding."

  It's a joke silly. Love your bro pic. https://t.co/QTtskdotrX

  — Claire McCaskill (@clairecmc) November 10, 2015

    Joking, or not, we can only imagine the fallout if a male senator said the same of women? And just one more thought – what would happen if this 'joke' was said aloud on the Mizzou campus? 

  

  

  

  

  

• "The Populist Upsurge is Real" When A Liberal College Professor Finds Common Ground With The Tea Party

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  People are going to be pissed off no matter who wins this election and that is a very important social dynamic I believe is vastly under appreciated by the majority of mainstream pundits and analysts out there.  This is also very distinct from the environment that prevailed in 2008.  Four years ago, the financial markets were crashing and the economic future of America was circling the toilet bowl, yet a majority of Americans embraced the potential of a young, inexperienced biracial politician from Illinois who was saying all of the right things.  Despite the gigantic disappointment he has proven to be as President, there is no denying that he had all of the Democrats and most Independents under his spell on this day four years ago.

   

  Fast forward to 2012 and the county isn’t “divided” as mainstream media talking heads like to say.  The country is pissed off.  Genuine and legitimate frustration permeates the land from sea to shining sea and rightly so.

   

  – From my 2012 pre-election article: The Seventy Percent

  Robert Reich is Professor of Public Policy at the University of California at Berkeley. I know of the man mainly from his frequent appearances on CNBC when I used to watch the channel (I’m proud to say I haven’t tuned in, even for five minutes, for several years now). He was always held up as the token “liberal,” always more than eager to spar with CNBC’s endless parade of crony capitalist heroes and “socialism for the rich” supporting statists. During my post Wall Street years, I have from time to time come across his musings, but none have struck me like the insightful post he published three days ago.

  The post is titled, What I Learned on My Red State Book Tour, and it’s an extremely important that all Americans read it. Here are a few excepts:

  I’ve just returned from three weeks in “red” America.

   

  It was ostensibly a book tour but I wanted to talk with conservative Republicans and Tea Partiers.

   

  I intended to put into practice what I tell my students – that the best way to learn is to talk with people who disagree you. I wanted to learn from red America, and hoped they’d also learn a bit from me (and perhaps also buy my book).

   

  But something odd happened. It turned out that many of the conservative Republicans and Tea Partiers I met agreed with much of what I had to say, and I agreed with them.

   

  For example, most condemned what they called “crony capitalism,” by which they mean big corporations getting sweetheart deals from the government because of lobbying and campaign contributions.

   

  I met with group of small farmers in Missouri who were livid about growth of “factory farms” owned and run by big corporations, that abused land and cattle, damaged the environment, and ultimately harmed consumers.

   

  They claimed giant food processors were using their monopoly power to squeeze the farmers dry, and the government was doing squat about it because of Big Agriculture’s money.

   

  I met in Cincinnati with Republican small-business owners who are still hurting from the bursting of the housing bubble and the bailout of Wall Street.

   

  “Why didn’t underwater homeowners get any help?” one of them asked rhetorically. “Because Wall Street has all the power.” Others nodded in agreement. 

   

  Whenever I suggested that big Wall Street banks be busted up – “any bank that’s too big to fail is too big, period” – I got loud applause.

   

  In Raleigh, I heard from local bankers who thought Bill Clinton should never have repealed the Glass-Steagall Act. “Clinton was in the pockets of Wall Street just like George W. Bush was,” said one.

   

  Most of the people I met in America’s heartland want big money out of politics, and think the Supreme Court’s “Citizens United” decision was shameful.

   

  Most are also dead-set against the Trans Pacific Partnership. In fact, they’re opposed to trade agreements, including NAFTA, that they believe have made it easier for corporations to outsource American jobs abroad.

   

  Heartland Republicans and progressive Democrats remain wide apart on social and cultural issues.

   

  But there’s a growing overlap on economics. The populist upsurge is real.

   

  I sincerely hope Donald Trump doesn’t become president. He’s a divider and a buffoon.

   

  But I do hope the economic populists in both parties come together.

   

  That’s the only way we’re going to reform a system that’s now rigged against most of us.  

  The above is both depressing and encouraging, but mostly encouraging. It’s depressing because Robert Reich is a man who clearly means well. He isn’t trying to grab as much money and power as possible, rather, he genuinely seems to want the best thing for this country. Despite all of that, it wasn’t until he actually visited “red states” and talked to people who he assumed he had very little in common with from a public policy perspective that he discovered their common ground. In other words, an intelligent, thoughtful and well meaning professor had been so successfully siloed into partisan group think, he wasn’t able to see the bigger political picture. If that was the case for Mr. Reich, imagine how divided and conquered the general population is?

  Writing the above isn’t meant as a critique of Mr. Reich, we are all constantly learning. That said, the obvious overlap between “progressives” and “tea partiers,” has been obvious for years. This is why I’ve always posted the following venn diagram whenever possible:

  

  Of course, it’s not just me saying it. Ralph Nader actually wrote a book titled, Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State. While I agree with Ralph’s prediction in the long run, what is “stopping” this alliance from flexing its muscle in the present day? The longer we wait to confront the major issues of the day, the more pain and suffering the population will have to deal with. So what’s taking so long?

  I believe there are two primary drivers behind our current predicament.

  The first is human nature. People are tribal. Generally speaking, most individuals will ultimately gravitate toward an ideology that helps them understand the world around them, and will then cling to that ideology and defend it to the bitter end against those who disagree (those people become their “enemies” and are easily vilified). This can manifest in many different forms, from religion, to political party partisanship, to nationalism. Such unbending adherence to one ideology or another leads to most of the conflict and irrationality we see around us. This is because once someone has “committed” to an ideology, they close themselves off to even hearing other points of view. At that point, learning and critical thinking ends, and dogmatism takes over. To help those in finance understand what I’m trying to say, it’s very much like when you are in a losing stock position, but can’t get yourself to close out the trade and cut your losses. It’s the exact same seemingly insurmountable emotional commitment at play.

  One of the ways I’ve tried to prevent this mindset from infecting my own psyche, is by shunning political labels entirely. In my early days of writing many people characterized me as “libertarian,” although I never personally embraced such a label. As discussed earlier, once you embrace a label you end up defending a side more so than thinking critically. You have committed the sin of identity politics, and from that point forward you feel it is your duty to defend other “libertarians” and wage war against those who you perceive to be “on the other side.” Although discarding political labels confers obvious advantages, many people simply can’t do it. Why?

  Again, back to human nature. Most people feel a need to identify with, and become part of, a larger group. Unfortunately that larger group is almost never “the human race” as it should be. Why? Because if people tried to identify with everyone then they couldn’t feel special. People like to feel special, and that they’re a small part of a bigger struggle against other groups of humans who are in the wrong. Not in the wrong about specific policies mind you, but in the wrong merely because those other humans have not chosen to identify with the particular group you have aligned yourself with. You can usually tell identify who these brainwashed people are, because they constantly critique other people as “libtards” or “tea party wackos.” There’s no need for these loaded labels, but many people love to use them anyway. Why? Because with a single word they can be dismissive and degrading without ever having to talk to the other side and discuss real issues.

  Which brings me to the second reason American citizens have yet to unite on the greatest issues of national importance, despite the fact that a vast majority of the population agrees on them: Status quo propaganda.

  The status quo are deeply unethical and corrupt, but they aren’t stupid. They know how to divide and conquer people, and through the media, they are doing a great job of keeping citizens of these United States angry at each other, as opposed to angry at them.

  Robert Reich’s experience presents the perfect example. He admits he didn’t realize how much he has in common with “red state” tea partiers until he went out and talked to them. The problem here is that it’s not exactly feasible all for coastal people to travel to the heartland and vice versa in order to come to a mutual understanding. Most people depend on the media for information about the world around them and “those other people out there.”

  Unfortunately, the media intentionally misinforms people and makes them distrustful of “the others.” Fox News will make it seem like liberals are child-sacrificing heathens who simply want to get everyone to have an abortion while taking away their Christmas tress. Likewise, MSNBC makes it seem like it’s an indisputable fact tea partiers are ignorant, racist schmucks who want to shoot everything that moves and turn American into a Taliban-like Christian theocracy. Of course, neither of these things are true.

  The truth is, the American public is tricked into thinking they disagree with each other on the big issues, when in reality there’s enormous overlap. Until we stop being tricked, the status quo will continue to suck the economy dry through their religious-like embrace of corruption and crony capitalism. Unfortunately, the people who could benefit the most from reading this post, will never see it.

  

  

  

  

  

• Obama's Word Or Damocles' Sword

  Forget Damocles’ Sword, it is Obama’s Word that hovers catastrophically over the US economy’s ‘head’…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Why It Absolutely, Positively Does Not Matter

  Submitted by Simon Black via SovereignMan.com,

  I’ll admit that when I was a kid, I used to spend hours watching wrestling on television.

  Hulk Hogan, the Macho Man Randy Savage… I loved all the old-school guys from the WWF, as they used to call it back in the 1980s.

  It was mesmerizing, a bit like I’d imagined gladiator combat would be.

  But I’ll never forget when the dream completely collapsed.

  My father took me to a live match when they came to our town and we had great seats near the front row.

  For the first time it was obvious to me, even from a young age, that it was all fake.

  I was devastated. I had actually believed that there were good guys versus bad guys beating each other up in the ring.

  It turned out to be a complete hoax, something that’s known today as “sports entertainment”.

  In fact, it’s essentially the same with elections today, which I see as “political entertainment”.

  Watching Hilary Clinton debate Bernie Sanders—or like yesterday evening, Jeb Bush against Donald Trump—doesn’t strike me as too different from when Hulk Hogan faced off against Andre the Giant in Wrestlemania.

  It’s all fake. It’s sound bites, jabs and jibes, and pointless banter completely devoid of any real substance.

  Having lunch yesterday with a good friend from the UK, he asked if I thought that any political candidate was worth it.

  I told him that I’m sure they’re all very nice people. Many of them might even mean very well and have very good intentions.

  I’ll also admit that occasionally they have decent ideas and that there are small steps in a positive direction.

  But the truth is, none of it really matters.

  As I explained to my friend, the United States objectively speaking is far past the point of no return.

  The government’s own financial statements prove beyond all doubt that they are flat broke to the tune of more than $60 trillion, and that they lose hundreds of billions of dollars more every year.

  In 2013, for example, the government lost $805 billion according to the Government Accountability Office.

  Every major pension program is either already insolvent or desperately unfunded.

  This isn’t Simon Black’s analysis; the Treasury Secretary of the United States of America himself tells us that the Social Security’s Trust Funds are nearly out of money.

  The Federal Reserve is nearly insolvent, and on a mark to market basis is likely already insolvent.

  The FDIC, which is supposed to support the entire US banking system, admits that it fails to meet the minimum capital requirements as required by law.

  US banks are precariously illiquid and exposed to trillions of dollars worth of very high-risk assets. Something that even the Fed and the FDIC do not consider to be “sound”.

  So to presume that a single individual is going to ride in on a white horse, wave a magic wand and fix all this is just a childish fantasy.

  The hope is that “the right person” can at least start to steer the ship in the right direction.

  This is the delusion every election cycle; people end up believing the entertainment is real, and that the right person can start to fix everything.

  Then a few years later, they realize that the ‘right person’ is almost exactly like the last person.

  Not to mention, ‘righting the ship’, mathematically speaking, is an impossibility.

  The government now spends almost all of its tax revenue just to pay interest on the debt, and the mandatory programs, like Social Security and Medicare.

  Both of which, by the way, are expenses that grow every year.

  There is no way out. It’s like trying to change directions for a ship that’s already half-sunk.

  At that point, it really doesn’t matter who’s the captain of the ship. All that matters is if you have a seat on a lifeboat.

  This is not intended to be a downer.

  It’s a little dose of reality, but in it there’s actually good news. Because all the tools and resources exist for you to build your own lifeboat.

  You don’t need to rely on a government to fix the problems that they themselves created.

  Rational people have a plan B.

  And with a little bit of planning, backed up by small, common sense action, you can ensure that you’re an amused spectator to this bizarre entertainment, rather than a victim of it.

  

  

  

  

  

• Ackman's Terrible Year Just Got Even Worse With News He Will Be Sued For Collusive Insider Trading

  It was in April 2014 when Valeant first revealed the collusive scheme it had hatched with financier Bill Ackman: upon consultation with Ackman, Valeant’s soon to be embattled CEO Michael Pearson would announce a hostile takeover bid of Allergan (this is before the company was acquired by white knight Actavis), but not before Ackman would load up on $4 billion in AGN shares (mostly in the form of calls) to generate massive profits when the news of the hostile offer not by Ackman but by a technically unrelated party was either leaked or announced.

  At the time we said this smacks of criminal, and collusive, insider trading. From our April 22, 2014 post:

  In yet another page of the activist investor’s sleaze book, last night Bill Ackman showed that when it comes to unethical way to generate “alpha” he truly may have no equal, when we learned that together with serial-acquirer and emplyee terminator Valeant, Ackman’s Pershing Square would join in on a debt-funded (thank you ZIRP) acquisition of botox maker Allergan.

   

  Nothing about that is odd. Where the story, however, would becomes a near-criminal farce if the US actually had a regulator which itself was not an agency designed to promote and reward criminality (in hopes of getting a job there as a kickback), is that as Valeant was preparing to announce its bid, Pershing Square – well aware of what was coming – was buying, and buying, and buying Valeant stock. Actually, scratch that – Ackman bought almost no stock: in fact he only bought some $76 million in AGN stock in late February. The balance: all call options, accumulated on an almost daily basis through March all the way until April 21, the day the news was leaked.

   

  As Bloomberg explained, Ackman began buying Allergan stock Feb. 25 and then in March switched to over-the-counter call options to accumulate his stake, regulatory filings show. A buying pause April 9 and 10 helped lower the price, before Ackman resumed in earnest April 11, according to two people familiar with the matter.

   

  Valeant was interested in the unusual arrangement with Ackman because the hedge fund could amass more of Allergan’s shares before making a public disclosure, said a person familiar with the matter. The shares rallied the most since 2009 in the six days before the stake and bid were disclosed yesterday, soaring 22 percent, and trading volume last week approached the highest level in a year.

   

  Why? Because Ackman had accumulated so many calls, it was in his interest at this point to leak the “news” about not his but Valeant’s involvement, which is always happy to trade off its balance sheet and future growth prospects in exchange for a pop in the stock price here and now, even if that means firing thousands of workers, and actually cutting back even more on the company’s own internal organic R&D spending.

   

  Or said otherwise, if you know your “partner” is about to submit a takeover bid for a company, wouldn’t you buy every call option you can find ahead of the announcement? That is precisely what Ackman did.

   

  Here is what Ackman’s furious call buying spree, which in turn pushed the stock price ever higher based on delta-hedging desks.

   

  

   

  And this is the total amount of calls Ackman bought. Remember: he only bought $76 million in AGN stock on February 25 and 26.

  

   

  Needless to say, Ackman made off like a bandit with a profit on his $4 billion initial stake in the hundreds of millions if not billions, once AGN stock soared.

  Naturally, we screamed bloody murder but we assumed that because this is such a glaring example of insider trading we must have missed something – some massive loophole because not even Ackman would be so dumb as to engage in such a blatant frontrunning of material news in which not he but someone else was the acquiror of a company.

  Sure enough, the very next day NYT‘s William Cohan scrambled to Ackman’s defense:

  Mr. Ackman is no fool. Rather, he is brazenly intelligent — he once volunteered to me, unsolicited, his breathtaking SAT scores – and before leaping into this particular abyss he consulted, deliberately, with Robert Khuzami, the former head of enforcement at the S.E.C., who is now a $5 million-a-year-man at Kirkland & Ellis, the Wall Street law firm. Mr. Khuzami assured Mr. Ackman that buying nearly $4 billion of Allergan’s shares knowing that Valeant intended to start a hostile takeover at a premium to market did not violate the S.E.C.’s rule 10b5-1 about insider trading.

  Robert Khuzami, who served as General Councel of the criminal disaster that is Deutsche Bank until 2009 and whom we profiled years ago, is shown below in this photo from his SEC days:

  

   

  Alas, as recent events involving Ackman’s investment in Valeant have demonstrated, not only is Ackman’s intelligence suddenly very much in question, but so is his entire research methodology: how many other managers would allocate billions into a company they never fully diligences and which has cost Ackman over $2 billion in losses if it wasn’t for two things: hubris and laziness.

  And now we get a second confirmation that Ackman may not only not have been “brazenly intelligent” but was downright stupid when moments ago we learned that a District Judge in Santa Ana, California, David Carter, has said Valeant and Ackman must both face a lawsuit accusing them of insider trading in Allergan before making an unsuccessful takeover bid for the maker of Botox.

  In other words, the judge has tacitly admitted that precisely what we said Ackman (and Valeant) criminally did with Allergan, is what may have happened.

  As Reuters reports the Judge rejected arguments by Valeant, Ackman and Ackman’s Pershing Square Capital that the lawsuit should be dismissed because their activity was not fraudulent.

  The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan.

   

  Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile.

  Again, exactly as we said happened on April 22, 2014.

  Naturally, Valeant and Ackman said there was no intent to defraud, and that they breached no duties by sharing information before the takeover bid became public.  

  But the judge, without ruling on the merits, found “serious questions” as to whether “substantial steps” had been taken toward a possible hostile bid, which would have required Valeant to disclose more or Ackman to stop his buying.

  “Plaintiffs must plead defendants knew they were in possession of material nonpublic information at the time of the trade and that they acted with the intent to deceive, manipulate, or defraud,” Carter wrote. “Plaintiffs have alleged both elements.”

  And now it’s off to court. Valeant spokeswoman Laurie Little said the Laval, Quebec-company was disappointed with the decision, and believes it complied with securities laws. “We look forward to presenting evidence to establish that we did nothing improper,” she added. 

  Valeant’s adversary in court, and the lead plaintiffs on the insider trading suit, are the State Teachers Retirement System of Ohio, the Iowa Public Employees Retirement System, and Allergan employee Patrick Johnson.

  * * *

  But the biggest irony in all this is that the only reason Ackman proceeded with an action that clearly is collusive insider trading, is that he got a greenlight by a former SEC head of enforcement that this was legal!

  Let that sink in: the person whose job it was to be the first line of defense against blatantly criminal activity greenlight precisely the action that a district judge now says stinks of insider trading.

  No wonder said SEC enforcer Robert Khuzami, formerly of Deutsche Bank (wink wink), is currently paid a $5 million salary at Kirkland and Ellis to defend Wall Street criminals.

  * * *

  We look forward to the lawsuit and will be amused to find if, as we expected all along, Ackman is forced to repay the billion or so in illegally obtained proceeds. Considering the state his hedge fund finds itself in, he too may soon need a loan from Valeant.

  And speaking of Valeant, today’s news was hardly welcome – the stock closed down another 6% at the lows.

  

   

  While Ackman is not a publicly traded corporation, we are confident his value followed the same intraday trajectory. But a bigger question is what happens to Pershing Square: since Ackman made over $1BN on his AGN long; if found guilty of insider trading he will have to sell more of Pershing Square’s already distressed holdings, largest among them, ironically, being Valeant stock.

  Will LPs wait around until the end of the lawsuit or will they frontrun (or frontbike) Ackman’s own selling of his own stake from his own fund?

  

  * * *

  Full District Court Judge ruling below:

  

  

  

  

  

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• What’s Different about Monetary Policy?

  by Keith Weiner

   

  Many people agree that it’s important to move to a free market in money (i.e. the gold standard). They also say that it’s just as important to fight bad taxes and regulation. In their view, government interference in the economy is like friction in a car. The more friction you add, the slower the car goes. One source of friction is much the same as any other.

  Let me explain why it doesn’t quite work that way, using a few examples.

  Suppose the government imposes an expensive tax on employers based on the number of full-time employees. Full time is defined as working at least 30 hours per week. Employers respond to this tax by reducing the hours of as many employees as possible below the threshold. The law still harms employers, but less than intended. If the law were a bullet aimed at the chest of the employer, it ends up causing a flesh wound.

  Another example is a law that makes it illegal for startup companies to pitch their deals to non-accredited investors. Accredited investors form organized groups that entrepreneurs can safely go to and raise capital. It’s cumbersome, and it leaves some entrepreneurs out in the cold, but as with the employer tax, everyone works to minimize the damage.

  Both the employer tax and the investment regulation fit the analogy of friction that slows down the economy. However, our monetary system causes a different kind of effect.

  For over three decades, the interest rate has been falling. This causes all asset prices to rise. Rising asset prices incentivize people to consume their capital (as I’ve written in
  many
  articles). In short, it’s a process of converting someone’s wealth into someone else’s income. The owner of the wealth would never consume it, but the recipient of income is happy to consume most of it.

  Everyone has seen traders and money managers driving expensive cars and dining in high end restaurants. There’s nothing wrong with making a lot of money and spending it. The problem I am describing is not that they make a lot of money, but that the money they make does not come from producing anything of value. It’s other people’s life savings that they are driving and eating.

  This is the difference between monetary policy and tax or regulatory policy. Monetary policy makes people excited to destroy their wealth. There is no other kind of government intrusion in the market that sets off such a feeding frenzy of self-destructive behavior.

  How does it do this? It makes it profitable to do so. Why does someone hand over his wealth to someone else for consumption? He buys an asset in the hope that it will go up further in price. So long as asset prices are rising, people exchange their capital for a chance to win cash in the falling interest rate game.

  Most people would say that the problem is when assets fall again. They miss the point. The destruction occurs when the price is rising, and winners are spending their profits which are others’ accumulated savings. The accounting catches up eventually when prices fall back down, and then losses are taken.

  The goal of my writing is to help people come to a clear understanding and diagnosis of the problem.

  Let’s end with a sobering quote, made doubly significant by who said it and who he was quoting.

  “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.” – John Maynard Keynes

   

  Do you support the gold standard? Please come and be counted. Show the legislature and governor in Arizona that honest money is popular! Please come to the Monetary

  Innovation Conference in Phoenix on Nov 17 (Keith Weiner is a speaker). At the conference, speakers will discuss gold and how innovators are using it to solve real problems for real people. Please click here to register.

  

  

  

  

• China's 'Nasdaq' Rises For 6th Straight Day As Commodities, Freight Index Collapse

  The PBOC weakened the Yuan fix for the 7th straight day – the longest such streak of 'devaluation' since 2012 – which appears to have helped fuel yet another day of gains for China's most-levered Shenzhen and ChiNext stock indices (even though the USDollar is losing altitude against Asian FX). At the break we note that the lower beta CSI-300 and Shanghai Composite are diverging lower. Meanwhile, over in real economy land, Copper is hitting new lows, nickel is weak, zinc is down, and China Containerized Freight Index just hit a new record low… but when has any of that ever mattered?

   

  PBOC devalued the Yuan Fix for the 7th straight day – that is the longest streak since May 2012…Currency war death by a thousand cuts?

  

   

  But The USDollar is losing ground against Asian FX in general overnight…

  

   

  High-beta Shenzhen is now up 6 straight days…almost entirely retracing the drop from China's devaluation…

  

   

  But Shenzhen (red) and ChiNext (yellow) are notably diverging from Shanghai Composite (blue) and CSI-300 (green) in the last few days…

  

   

  However, amid all this exuberant releveraging and stability, Commodity prices are plunging and Containerized Freight (i.e. exports) costs have hit record lows…

  

   

   

  Charts: Bloomberg

  

  

  

  

  

• The Deep State: The Unelected Shadow Government Is Here To Stay

  Submitted by John Whitehead via The Rutherford Institute,

  “Behind the ostensible government sits enthroned an invisible government, owing no allegiance and acknowledging no responsibility to the people.” ? Theodore Roosevelt

  America’s next president will inherit more than a bitterly divided nation teetering on the brink of financial catastrophe when he or she assumes office. He will also inherit a shadow government, one that is fully operational and staffed by unelected officials who are, in essence, running the country.

  To be precise, however, the future president will actually inherit not one but two shadow governments.

  The first shadow government, referred to as COG or continuity of government, is made up of unelected individuals who have been appointed to run the government in the event of a “catastrophe.”

   

  The second shadow government, referred to as the Deep State, is comprised of unelected government bureaucrats, corporations, contractors, paper-pushers, and button-pushers who are actually calling the shots behind the scenes right now.

  The first shadow government, COG, is a phantom menace waiting for the right circumstances—a terrorist attack, a natural disaster, an economic meltdown—to bring it out of the shadows, where it operates even now. When and if COG takes over, the police state will transition to martial law.

  Yet as I point out in my book Battlefield America: The War on the American People, it is the second shadow government, the Deep State, which poses the greater threat to our freedoms. This permanent, corporatized, militarized, entrenched bureaucracy is unaffected by elections, unaltered by populist movements, and beyond the reach of the law.

  This is the hidden face of the police state.

  These two shadow governments, which make a mockery of representative government and the “reassurance ritual” of voting, have been a long time in the making. Yet they have been so shrouded in secrecy, well hidden from the eyes and ears of the American people, that they exist and function in contravention to the principles of democratic government.

  As the following makes clear, these shadow governments, which operate beyond the reach of the Constitution and with no real accountability to the citizenry, are the reason why “we the people” have no control over our government.

  The COG shadow government plan was devised during the Cold War as a means of ensuring that a nuclear strike didn’t paralyze the federal government.

  COG initially called for three teams consisting of a cabinet member, an executive chief of staff and military and intelligence officials to practice evacuating and directing a counter nuclear strike against the Soviet Union from a variety of high-tech, mobile command vehicles. If the president and vice president were both killed, one of these teams would take control, with the ranking cabinet official serving as president.

  This all changed after the attacks of September 11, 2001, when it became clear that there would be no warning against a terrorist attack. Instead of waiting until an attack occurred to mobilize part-time bureaucrats and activate evacuation schemes, George W. Bush opted to change COG and establish a full-time, permanent shadow government, stationed outside the capital, run by permanently appointed (not elected) executive officials.

  COG has since taken on a power—and a budget—of its own.

  Incredibly, under the Obama administration, the plans for the shadow government have expanded and grown far more elaborate and costly than many realize. It is what investigative journalist William M. Arkin refers to as “the latest manifestation of an obsession with government survival.”

  In much the same way that the nation was taken hostage after 9/11 by color-coded terror alerts and “See Something, Say Something” campaigns that transformed us into a fearful, watchful nation of suspects, the government’s efforts to prepare us for a so-called national disaster have, in turn, left us a constant state of near-emergency and acclimated us to the sight of militarized police, military drills on American soil, privatized prisons, the specter of internment camps, and the erosion of constitutional rights, especially as they pertain to so-called “extremists,” domestic or otherwise.

  Study the COG plans carefully, however, and you’ll find that the concern isn’t so much about protecting our government as it is about protecting the nation’s governmental elite.

  As Arkin reports: “Countless billions have been spent on this endeavor over the years, a secret orgy of preparedness going on behind the scenes, one that ensures Washington can defend itself, take care of its own, and survive no matter what.”

  To this end, the government has invested heavily in the “architecture of fear”: massive underground bunkers—the size of small cities—which are sprinkled throughout the country for the government elite to escape to “in case of an imminent nuclear strike so that they can set up a kind of Administration-in-exile, directing every order of business from retaliation to recovery.”

  These bunkers, strategically located around the nation’s capital and in key states, represent a who’s who on the shadow government’s payroll, with every department and agency represented, from the Department of Education and the Trademark Office to the Small Business Administration and the National Archives.

  No sector has been overlooked: military, surveillance, counterintelligence, scientific, political, judicial, corporate contractors, as well as computer programmers, engineers, fire fighters, craftsmen, security guards, branch chiefs, financial managers, supply officers, secretaries and stenographers, all of whom have been entrusted with special ID cards allowing them clearance into the doomsday survival sites. They’ve even included individuals tasked with patent and trademark processing. They even have contingency plans to save priceless works of art.

  The Federal Relocation Arc near Washington DC will reportedly serve as the emergency bunker for “every Cabinet department (and every government organization deemed essential).” Site R, a 700,000-foot facility inside Raven Rock Mountain near Camp David, will serve as a backup Pentagon. Peters Mountain near Charlottesville, Va., is the likely site for the nation’s domestic spies to hide out. Congress will retire to a subterranean facility near the posh Greenbrier resort in West Virginia, which served as an internment facility for Japanese, Italian and German diplomats during World War II. And a 600,000-square-foot complex inside Virginia’s Mount Weather is expected to be the primary relocation site for the White House, the Supreme Court and much of the executive branch.

  Built into the side of a mountain, Mount Weather, near Bluemont, Va., is staffed 24 hours a day, seven days a week. This self-contained facility contains, among other things, a hospital, crematorium, dining and recreation areas, sleeping quarters, reservoirs of drinking and cooling water, an emergency power plant, a radio/television studio and a full-time police and fire department.

  There is also an Office of the Presidency at Mount Weather, which regularly receives top-secret national security information from all the federal departments and agencies. This facility was largely unknown to everyone, including Congress, until it came to light in the mid-1970s. Military personnel connected to the bunker have refused to reveal any information about it, even before congressional committees. In fact, Congress has no oversight, budgetary or otherwise, on Mount Weather, and the specifics of the facility remain top-secret.

  These facilities reinforce a troubling government mindset that treats the American people as relatively insignificant and expendable. Because you know who’s not on the list of key-individuals-to-be-saved-in-the-eventuality-of-a-disaster? You and me and every other American citizen who is viewed as a mere economic unit to be tallied, bought and sold by those in power.

  Not to worry, however. The government hasn’t completely forgotten about us.

  In the event of a “national emergency”—loosely defined as “any incident, regardless of location, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the U.S. population, infrastructure, environment, economy, or government functions”—the executive branch and its unelected appointees will be given unchecked executive, legislative and judicial power.

  In such an event, the Constitution will effectively be suspended, thereby ushering in martial law.

  However, writing for Radar magazine, Christopher Ketcham suggests that the government won’t have completely forgotten about the rest of us. In fact, Ketcham believes that the government also has plans to imprison hundreds of thousands of “potentially suspect” Americans in detention camps.

  Ketcham describes a program created by the Department of Homeland Security that relies on a database of Americans who might be considered potential threats in the event of a national emergency. Referred to by the code name Main Core, this database reportedly contains the names of millions of Americans who, “often for the slightest and most trivial reason, are considered unfriendly, and who, in a time of panic, might be incarcerated. The database can identify and locate perceived ‘enemies of the state’ almost instantaneously.”

  Sounds unnervingly like the objectives of the government’s new Domestic Terrorism Czar and the Strong Cities network, which will be working to identify and target potential extremists, doesn’t it?

  Under Ketcham's scenario, if a terrorist attack occurs, the president will declare a national emergency, activating COG procedures and throwing the country into martial law with the shadow government at the helm. The administration will then round up the “dangerous” Americans listed in Main Core and place them in one of the many internment camps or private prisons built for just such an eventuality.

  For all intents and purposes, the nation is one national “emergency” away from having a full-fledged, unelected, authoritarian state emerge from the shadows. All it will take is the right event—another terrorist attack, perhaps, or a natural disaster—for such a regime to emerge from the shadows.

  As unnerving as that prospect may be, however, it is the second shadow government, what former congressional staffer Mike Lofgren refers to as “the Deep State, which operates according to its own compass heading regardless of who is formally in power,” that poses the greater threat right now.

  Consider this: how is it that partisan gridlock has seemingly jammed up the gears (and funding sources) in Washington, yet the government has been unhindered in its ability to wage endless wars abroad, in the process turning America into a battlefield and its citizens into enemy combatants?

  The credit for such relentless, entrenched, profit-driven governance, according to Lofgren, goes to “another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.”

  This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

  Rather, Lofgren continues:

  It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street.

   

  All these agencies are coordinated by the Executive Office of the President via the National Security Council. Certain key areas of the judiciary belong to the Deep State, such as the Foreign Intelligence Surveillance Court, whose actions are mysterious even to most members of Congress. Also included are a handful of vital federal trial courts, such as the Eastern District of Virginia and the Southern District of Manhattan, where sensitive proceedings in national security cases are conducted.

   

  The final government component (and possibly last in precedence among the formal branches of government established by the Constitution) is a kind of rump Congress consisting of the congressional leadership and some (but not all) of the members of the defense and intelligence committees. The rest of Congress, normally so fractious and partisan, is mostly only intermittently aware of the Deep State and when required usually submits to a few well-chosen words from the State’s emissaries.

  In an expose titled “Top Secret America,” The Washington Post revealed the private side of this shadow government, made up of 854,000 contract personnel with top-secret clearances, “a number greater than that of top-secret-cleared civilian employees of the government.”

  Reporting on the Post’s findings, Lofgren points out:

  These contractors now set the political and social tone of Washington, just as they are increasingly setting the direction of the country, but they are doing it quietly, their doings unrecorded in the Congressional Record or the Federal Register, and are rarely subject to congressional hearings…

  The Deep State not only holds the nation’s capital in thrall, but it also controls Wall Street (“which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater”) and Silicon Valley.

  As Lofgren concludes:

  [T]he Deep State is so heavily entrenched, so well protected by surveillance, firepower, money and its ability to co-opt resistance that it is almost impervious to change… If there is anything the Deep State requires it is silent, uninterrupted cash flow and the confidence that things will go on as they have in the past. It is even willing to tolerate a degree of gridlock: Partisan mud wrestling over cultural issues may be a useful distraction from its agenda.

  Remember this the next time you find yourselves mesmerized by the antics of the 2016 presidential candidates or drawn into a politicized debate over the machinations of Congress, the president or the judiciary: it’s all intended to distract you from the fact that you have no authority and no rights in the face of the shadow governments.

  

  

  

  

  

• Which 2 Nations Received 75% Of America's $5.9 Billion Foreign Military Financing?

  According to the U.S. State Government 2013-2015 Foreign Assistance report, an estimated $5.9 billion was spent on foreign military funding alone in fiscal year 2014.  This is equivalent to 17% of the estimated $35 billion spent on total global aid discussed in our previous article. U.S. foreign military aid to countries ranged from $200,000 to $3.1 billion. Of the top 10 recipients, two countries received 75% of the $5.9 billion. 

   

  Take a look on the map below to see who is getting the most foreign military financing from the U.S….

  

   

  Below is a ranking of the the top 10 recipients and their respective world regions.

  • Israel: $3.1B (Middle East)

  • Egypt: $1.3B (Africa)

  • Iraq: $300M (Middle East)

  • Jordan: $300M (Middle East)

  • Pakistan: $280M (Asia)

  • Lebanon: $75M (Middle East)

  • Philippines: $50M (Asia)

  • Colombia: $29M (Latin America)

  • Tunisia: $20M (Africa)

  Research conducted by the World Bank shows that the on average, countries spend approximately 2.2% of GDP on the military. Israel, Iraq, Jordan and Pakistan allocated above average spending towards their military in 2014. The data shows that each country spent approximately 5.2%, 4.3%, 3.5%, and 3.4% of GDP, respectively, on military expenditures. These countries are also part of the top 5 recipients of U.S. foreign military financing, totaling $4.0 billion. 

  Funding by World Region

  Approached from a different perspective, approximately 87% of the $5.9 billion was distributed among two of five world regions. The Middle East tops this list, followed by Africa.

  • Middle East: 64%

  • Africa: 23%

  • Asia: 7%

  • General Programs: 4%

  • Europe: 1%

  • Latin America: 1%

  An interesting point to note is that while the Latin American region received only 1% of foreign military financing, Colombia made the top 10 list with $28 million. The second highest recipient in Latin America was Mexico, with $7 million of U.S. funding. On the other hand, Africa received roughly 23% of military aid; however, five African countries made the bottom of the list, receiving $200,000 each (Cote d’Ivoire, Guinea, Botswana, Tanzania, and Uganda). Of the 74 countries that received U.S. foreign military funding, not all received aid in proportion to its geographic region.

  Past, Present, and Future

  Allocation of foreign military financing may differ over time as the social, economic, and political climate changes across the globe. In the past three years; however, foreign military financing has been relatively consistent, with $5.7 and $5.9 billion distributed in 2013 and 2014, respectively, and $5.6 billion requested in 2015. Additionally, Israel, Egypt, Iraq, Jordan, and Pakistan made the top 5 in all three years, receiving roughly the same amount of aid year over year. It is difficult to predict future foreign military financing allocations; however, if remaining consistent, five countries will receive approximately 89% of these distributions, leaving 69 other countries to receive the remaining 11% of funds

   

  Source: HowMuch.net

  

  

  

  

  

• On The Verge Of The Great Unraveling, Looking Back From 2050

  The future remains eternally unknown and invariably holds its surprises. Fortunately however, it will prove far less unknown because among our number we happen to have one, John Feffer, with the ability to channel a geo-paleontologist who’s had some experience with the world 35 years from now and so, unlike the rest of us, can look back on our planetary fate from what turns out to be a distinctly dystopian future.

  Submitted by John Feffer via TomDispatch.com,

  Splinterlands, The View From 2050

  Let me start with a confession. I’m old-fashioned and I have an old-fashioned profession. I’m a geo-paleontologist. That means I dig around in archives to exhume the extinct: all the empires and federations and territorial unions that have passed into history. I practically created the profession of geo-paleontology as a young scholar in 2020. (We used to joke that we were the only historians with true 2020 hindsight).  Now, my profession is becoming as extinct as its subject matter.

  Today, in 2050, fewer and fewer people can recall what it was like to live among those leviathans. Back in my youth, we imagined that lumbering dinosaurs like Russia and China and the European Union would endure regardless of the global convulsions taking place around them. Of course, at that time, our United States still functioned as its name suggests rather than as a motley collection of regional fragments that today fight over a shrinking resource base.

  Empires, like adolescents, think they’ll live forever. In geopolitics, as in biology, expiration dates are never visible. When death comes, it’s always a shock.

  Consider the clash of the titans in World War I. Four enormous empires — the Ottoman, Austro-Hungarian, Russian, and German — went into that conflict imagining that victory would give them not just a new lease on life, but possibly even more territory to call their own. And all four came crashing down. The war was horrific enough, but the aftershocks just kept piling up the bodies. The flu epidemic of 1918-1919 alone — which soldiers unwittingly transported from the trenches to their homelands — wiped out at least 50 million people worldwide.

  When dinosaurs collapse, they crush all manner of smaller creatures beneath them. No one today remembers the death throes of the last of the colonial empires in the mid-twentieth century with their staggering population transfers, fierce insurgencies, and endless proxy wars — even if the infant states that emerged from those bloody afterbirths gained at least a measure of independence.

  My own specialty as a geo-paleontologist has been the post-1989 period. The break-up of the Soviet Union heralded the last phase of decolonization. So, too, did the redrawing of boundaries that took place in parts of Asia and Africa from the 1990s into the twenty-first century, producing new states like East Timor, Eritrea, South Sudan. The break-up of the Middle East, in the aftermath of the U.S. invasion of Iraq and the “Arab Spring,” followed a similar, if far more chaotic and bloody pattern, though religious extremism more than nationalist sentiment tore apart the multiethnic countries of the region.

  Even in this inhospitable environment, the future still seemed to belong to the dinosaurs. Despite setbacks, the U.S. continued to loom over the rest of the planet as the “sole superpower,” with its military in constant intervention mode.  China was on the rise.  Russia seemed bent on reconstituting the old Soviet Union. The need to compete on an increasingly interconnected planet contributed to what seemed like a trend: pushing countries together to create economies of scale. The European Union (EU) deepened its integration and expanded its membership. Nations of very different backgrounds formed economic pacts like the Association of Southeast Asian Nations (ASEAN) and the North American Free Trade Agreement (NAFTA). Even countries without any shared borders contemplated such joint enterprises, like the Organization of Petroleum Exporting Countries (OPEC) and, later, Brazil, Russia, India, China, and South Africa (the “BRICS” nations).

  As everyone now knows, however, this spirit of integration would, in the end, go down to defeat as the bloodlands of the twentieth century gave way to the splinterlands of the twenty-first. The sense of disintegration and disunity that settled over our world came at precisely the wrong moment. To combat a host of collective problems, we needed more unity, not less. As we are all learning the hard way, a planet divided against itself will not long stand.

  The Wrath of Nations

  Water boils most fiercely just before it disappears. And so it is, evidently, with human affairs.

  Just before all hell broke lose in 1914, the world witnessed an unprecedented explosion of global trade at levels that would not be seen again until the 1980s. Just before the Nazis took over in 1932, Germans in the Weimar Republic were enjoying an extraordinary blossoming of cultural and political liberalism. Just before the Soviet Union imploded in 1991, Soviet scholars were pointing proudly to rising rates of intermarriage among the many nationalities of the federation as a sign of ever-greater social cohesion.

  And in 2015, just before the great unraveling, the world still seemed to be in the grip of what was then labeled “globalization.” The volume of world trade was at an all-time high. Facebook had created a network of 1.5 billion active users. People on every continent were dancing to Drake, watching the World Cup final, and eating sushi. At the other end of the socio-economic spectrum, more people were on the move as migrants and refugees than at any time since the end of World War II.

  Borders seemed to be crumbling everywhere.

  Before 2015, almost everyone believed that time’s arrow pointed in the direction of greater integration. Some hoped (and others feared) that the world was converging on ever-larger conglomerations of nations. The internationalists campaigned for a United Nations that had some actual political power. The free traders imagined a frictionless global market where identical superstores would sell the same products at all their global locations. The technotopians imagined a world united by Twitter and Instagram.

  In 2015, people were so busy crossing borders — real and conceptual — that they barely registered the backlash against globalization. Officially, more and more countries had committed themselves to diversity, multiculturalism, and the cosmopolitan ideals of liberty, solidarity, and equality. But everything began to change in 2015, a phenomenon I first chronicled in my landmark study Splinterlands (Dispatch Books, 2025). The movements that came to the fore in 2015 championed a historic turn inward: the erection of walls, the enforcement of homogeneity, and the trumpeting of exclusively national virtues.

  The leaders of these movements — Donald Trump in the United States, Hungarian Prime Minister Viktor Orban, Russian President Vladimir Putin, French National Front Party leader Marine Le Pen, Indian Prime Minister Nahendra Modi, Japanese Prime Minister Shinzo Abe, and Egyptian President Abdel Fattah el-Sisi, to name just a few — were not members of a single party. They did not consider themselves part of a single movement. Indeed, they were quite skeptical of anything that smacked of transnational cooperation. Personally, they were cosmopolitans, comfortable in a variety of cultural environments, but their politics were parochial. As a group, they heralded a change in world politics still working itself out 35 years later.

  Ironically enough, at the time these figures were the ones labeled “dinosaurs” because of their focus on imaginary golden ages of the past. But when history presses the rewind button, as it has for the last 35 years, it can turn reactionaries into visionaries.

  Few serious thinkers during the waning days of the Cold War imagined that, in the long run, nationalism would survive as anything more significant than flag and anthem. As the historian Eric Hobsbawm concluded in 1990, that force was almost spent, or as he put it, “no longer a major vector of historical development.” Commerce and the voracious desire for wealth were expected to rub away at national differences until all that remained would be a single global marketplace of supposedly rational actors. New technologies of travel and communication would unite strangers and dissolve the passions of particularism. The enormous bloodlettings that nations visited on one another in the nineteenth and twentieth centuries would surely convince all but the lunatic that appeals to motherland and fatherland had no place in a modern society.

  As it turned out, however, commerce and its relentless push for comparative advantage merely rebranded nationalism as another marketable commodity. Although travel and communication did indeed bring people together, they also increased the opportunities for misunderstanding and conflict. As a result, nationalism did not go gently into the night. Quite the opposite: it literally remapped the world we now live in.

  The Fracture Lines

  The fracturing of the so-called international community did not happen with one momentous crack. Rather, it proceeded much like the calving of Arctic ice masses under the pressure of global warming, leaving behind only a herd of modest ice floes. Rising geopolitical temperatures had a similar effect on the world’s map.

  At first, it was difficult to understand how the war in Syria, the conflict in Ukraine, the simmering discontent in Xinjiang, the uprisings in Mali, the crisis of the Europe Union, and the upsurge in anti-immigrant sentiment in both Europe and the United States were connected. But connected they were.

  The initial cracks in that now-dead global system appeared in the Middle East. As a geo-paleontologist, I must admit that I wasn’t particularly interested in those changes themselves, only in their impact on larger entities. Iraq and Syria, multiethnic countries forged in the post-colonial fires of Arab nationalism, split along ethnic and confessional lines. Under the pressure of a NATO air intervention led by the U.S., Libya similarly fell apart when its autocratic leader was killed and its arsenals were pillaged and sent to terror groups across a broad crescent of crisis. The fracturing then continued to spread — to Yemen, Egypt, Saudi Arabia, Lebanon, and Jordan. People poured out of these disintegrating countries like creatures fleeing a forest fire.

  This vast flood of refugees by land and sea proved to be the tipping point for the European Union. Having expanded dramatically in the 2000s, the 28-member association hit a wall of Euroskepticism, fiscal austerity, and xenophobia. As they reacted to the rising tide of refugees, the anti-immigrant forces managed to end the Schengen system of open borders. Next to unravel was the European currency system as the highly indebted countries on the periphery of the Eurozone reasserted their fiscal sovereignty.

  The Euroskeptics took heart from these developments. In 2015, the anti-immigrant Democratic Party in Sweden leaped to the top of the opinion polls for the first time. Once the epitome of tolerance and social democracy, Sweden led the great turn in Scandinavia away from the European mainland. On the heels of local elections and those for the European Parliament, the far-right National Front of Marine Le Pen became the most popular French party and, with its newfound power, began to pry apart the informal pact with Germany that had once been the engine for European integration. Euroskeptical parties consolidated power in Poland, Portugal, Hungary, and Slovakia. Desperate to curry favor with its hardcore constituents, the British Conservative Party sponsored a referendum that guided Great Britain out of the EU. What had once been only scattered voices of dissatisfaction suddenly became a rush to the exits. The EU survived for some years more — until the Acts of Dis-Integration of 2028 — but only as a shell.

  The unrest in the Middle East and the unraveling of the EU had a profound impact on Russia. The last of that country’s Soviet-era politicians had been attempting to reconstruct the old federation through new Eurasian arrangements. At the same time, they were trying to expand jurisdiction over Russian-speaking populations through border wars with Ukraine, Georgia, and Moldova. But in their grab for more, they were left with less. Mother Russia could no longer corral its children, neither the Buryats of the trans-Baikal region nor the Sakha of Siberia, neither the inhabitants of westernmost Kaliningrad nor those of the maritime regions of Primorye in the far east. Moscow’s entrance into the Syrian conflict on the side of Damascus contributed to an upsurge in separatist sentiment in the trans-Caucasus republics of Chechnya and Dagestan. In the Second Great Perestroika of 2031, Russia divided along the lines we know so well today, separating its European and Asian halves and its industrial wastelands in the north from its creeping deserts in the south.

  China found itself on a similar trajectory. A global economic slowdown frayed the unstated social contract — incremental improvements in prosperity in exchange for political quiescence — that the Communist Party had developed in the wake of the Tiananmen Square protests of 1989. Beijing’s crackdown on anything that smacked of “terrorism” only pushed the Uighurs of Xinjiang into open revolt. The Tibetans, too, continued to advance their claims for greater autonomy. Inner Mongolia, with almost twice as many ethnic Mongolians as Mongolia itself, also pulled at the strings that held China together. Taiwan stopped talking about cross-Straits reunification; Hong Kong reasserted its earlier status as an entrepôt city. But these rebellions along the frontiers paled in comparison to the Middle Uprising of the 2030s. In retrospect, it was obvious that the underemployed workers and farmers in China’s heartland, who had only marginally benefited from the country’s great capitalist leap forward of the late twentieth century, would attack the political order. But who would have thought that the middle could drop so quickly out of the Middle Kingdom?

  The United States, as we all know, has not fallen apart. But the American empire (which U.S. leaders took such pains to deny ever existed) has effectively collapsed. Once the U.S. government went into receivership over its mountainous debt and its infrastructure began to truly collapse, its vast overseas military footprint became unsupportable. As it withdrew, Washington deputized its allies — Germany, Japan, South Korea, Saudi Arabia, and Israel — to do the same work, but they regularly worked at cross-purposes and in any case held their own national interests above those of Washington.

  Meanwhile, U.S. domestic politics remained so polarized and congealed that Congress and the executive branch could not establish a consensus on how to re-energize the economy or reconceive the “national interest.” Up went higher walls to keep out foreigners and foreign products. With the exception of military affairs and immigration control, the government dwindled to the status of caretaker. Then there was the epidemic of assault rifles, armed personal drones, and WBA (weaponized biological agents), all easily downloaded at home on 3-D printers. The state lost its traditionally inviolable monopoly on violence and our society, though many refuse to acknowledge the trend, drifted into a condition closely approximating psychosis. An increasingly embittered and armed white minority seemed determined to adopt a scorched-earth policy rather than leave anything of value to its mixed-race heirs. Today, of course, the country exists in name alone, for the only policies that matter are enacted on a regional basis.

  The centrifugal forces first set in motion in 2015 tore apart the great multiethnic nations in a terrifying version of Yugoslavization that spread across the planet. Farseeing pundits had predicted a wave of separatism in the 1990s. They were wrong only in terms of pace. The fissures were slower to appear, but appear they did. In South Asia, separatist movements ate away at both India and Pakistan. In Southeast Asia, Indonesia, Malaysia, and Myanmar fractured along ethnic lines. In Africa, the center could not hold, and things inevitably fell apart — in the Congo, the Central African Republic, Nigeria, and Chad, among other places.

  There was much talk in the early twenty-first century of failed states like Afghanistan, Iraq, Somalia, Yemen, and Haiti. Looking back, it’s now far clearer that, in a certain sense, all states were failing. They had little chance against the governance-eroding winds of globalization from above and the ever-greater upheavals of non-state actors from below.

  Perhaps under the best of environmental conditions, these forces would have pushed empires, federations, and trade pacts to the edge but no further. As it happened, however, despite conferences and manifestos and sort-of-binding agreements, the global thermometer continued to rise. The effects of climate change turned out to be the proverbial tipping point. Water shortages intensified conflict throughout China, as did food shortages in Russia. The tropics, the islands, the coastlines: all were vulnerable to the rising waters. And virtually every country entered into a pitched battle over drinking water, clean air, indispensible minerals, and arable land.

  All of us have our own personal climate-change disaster stories. For instance, I lost my home in Hurricane Donald, which destroyed so much of Washington, D.C. and its suburbs in 2029. I started all over in Nebraska only to be forced to move again when the Oglala aquifer gave out in 2034, precipitating what we now call the Midwest Megadrought. And like so many others, I lost a loved one only three years ago in that terrible month of superstorms — 7/47 — which devastated such a large swath of the planet.

  What no one anticipated was the impact climate change would have on nationalism. But how else would people divvy up increasingly precious natural resources? National sentiment proved to be the go-to principle for determining what “our” people deserved and those “others” didn’t. As a result, instead of becoming an atavistic remnant of another age, nationalism has proved to be this century’s most potent ideology. On an increasingly desperate planet, we face not the benevolence or tyranny of one world, but the multiple confusions of many worlds.

  All That Was Solid

  It was not only the multiethnic nation-state that proved untenable in our century. Everything seemed to be fracturing.

  The middle class shattered. The promise of a stable job and income — the iron rice bowl in the East and the ironclad pension in the West — disappeared into a maelstrom of inequality in which the super-rich 1% effectively seceded from society while the poorest of the poor had nowhere to turn. Back in 2015, pundits loved to promote new trends like the “sharing economy” of millions of employees turned entrepreneurs or the “long tail” of a splintering consumer market. But the bottom line was grimly straightforward: the forces that could have acted to countervail the fissiparous competition of the market gradually disappeared. Gone was the guiding hand of the government. Gone were the restraining pressures of morality.

  Technology certainly played a role in this transformation, first when computers and cell phones untethered individuals from fixed workplaces and then when biochips turned each individual into his or her own “work station.” The application of market principles to every facet of existence whittled away the public sphere in favor of the private one. Such dynamics at the social level also contributed to the great fracturing that took place in the international sphere.

  Yes, I can anticipate your criticism. Perhaps it’s true that, in 2050, we are at a nadir of cooperation and some new form of centralization and globalization lies ahead. Clearly, the jihadis, who operate their mini-caliphates around the world, dream of uniting the faithful under a single banner. There are diplomats even today who hope to get all 300-plus members of the United Nations to agree to the sort of institutional reforms that could provide the world with some semblance of global governance. And maybe a brilliant programmer is even now creating a new “killer app” that will put every single person on the same page, literally.

  As a geo-paleontologist, I am reluctant to speculate. I focus on the past, on what has actually happened. Anyone can make predictions. But none of these scenarios of future integration seems at all plausible to me. “That’s the way the cookie crumbles,” we used to say when I was a kid. And a cookie can only crumble in one direction.

  Still, I would be remiss if I didn’t point out something that many have noted over the years. We have been fragmenting at precisely the time when we should be coming together, for the problems that face the planet cannot be solved by millions of individuals or masses of statelets acting alone. And yet how can we expect, with desperate millions on the move, the rise of pandemics, and the deepening of economic inequality globally, that people can unite against common existential threats? Only today can we all see clearly, as I wrote so many years ago, that the rise of the splinterlands has been humanity’s true tragedy. The inability of cultures to compromise within single states, it seems, anticipated our current moment when multiplying nation-states can’t compromise on a single planet to address our global scourges. The glue that once held us together — namely, solidarity across religion, ethnicity, and class — has lost its binding force.

  At the beginning of the great unraveling, in 2015, I was still a young man. Like everyone else, I didn’t see this coming. We all lived in a common home, I thought. Some rooms were in terrible disrepair. Those living in the attic were often exposed to the elements. The house as a whole needed better insulation, more efficient appliances, solar panels on the roof, and we had indeed fallen behind on the mortgage payments. But like so many of my peers, I seldom doubted that we could scrape together the funds and the will to make the necessary repairs by asking the richer residents of the house to pay their fair share.

  Thirty-five years and endless catastrophes later on a poorer, bleaker, less hospitable planet, it’s clear that we just weren’t paying sufficient attention. Had we been listening, we would have heard the termites. There, in the basement of our common home, they were eating the very foundations out from under us. Suddenly, before we knew quite what was happening, all that was solid had melted into air.

  

  

  

  

  

• Inside The Fukushima Radioactive Wasteland: A Trip Through The "Exclusion Zone"

  One month ago, we showed an eerie, drone’s-eye-view of the radioactive wasteland that is Fukushima, courtesy of the following video clip showcasing the toxic area located just 200 miles away from the venue of the 2020 summer Olympics.

   

  But while the scenery from above was dramatic, what about life on the actual ground? Because just like with Chernobyl, the world may have been eager to move on and leave the wasteland on its own, the empty ghost towns that neighbor ground zero remain stuck in time. This is the “exclusion zone,” and it’s one of the most radioactive places on Earth.

  Inside the zone, chunks are ripped out of buildings, totaled cars lie on the street, and clocks are stopped at the moment the tsunami struck. Nature is slowly taking over the houses and possessions of those who once called this place home.

  “I feel like I’m in a parallel world,” says Norikatsu Nakazato, who is only rarely allowed to visit his family’s 110-year-old house. “I don’t think I’ll be able to live here again in this lifetime.”

  Fusion’s Tim Pool took a trip to the heart of the exclusion zone in October to talk with Nakazato and other survivors who refuse to leave, one of whom gives the following poignant answer when asked why he won’t leave and whether he is scared. He answer is no, because “I just gave up.“

  

  

  

  

• Finland To House Refugees In Shipping Containers

  First the good news: with a cold winter about to slam Europe where thousand of refugees make their way north every day, and where many of these migrants have been scrambling to find any form of lodging ahead of the first snow, Finland has decided to generously provide much needed housing facilities.

  The bad news: said facilities are empty shipping containers and tents. Neither has heating.

  According to Reuters Finland, like Germany, has seen an acceleration in the influx of migrants this month, following a modest slow down last month, the interior ministry said on Tuesday. As a result, the Nordic nation “is preparing to house asylum seekers in tents and shipping containers.”

  The country took in just over 7,000 refugees in October – about 3,800 fewer than in September – but just last week more than 2,000 asylum seekers arrived. It expects 30,000-35,000 migrants to arrive this year, mostly from Iraq, compared with just 3,600 in 2014.

   

  “Even with new centers being opened, the reception capacity will not be sufficient, and authorities are preparing for the use of tent and container accommodation,” the ministry said in a statement.

   

  Afghanis were the biggest single group in those who arrived last week, according to ministry figures. Finland recently stopped processing asylum claims from Afghanis out of security concerns, but has narrowed asylum criteria for Iraqis and Somalis based on its assessment that the security situation has improved in both countries.

  Living in a shipping container may hardly be as comfortable an option as residing in NJ’s bankrupt Revel casino, but it is better than nothing, which is what migrants in neighboring Sweden have to look forward to. Reuters notes that Sweden, which expects 190,000 asylum seekers this year, last week warned it could no longer guarantee finding accommodation for newly arrived refugees, and applied for EU emergency aid to cope with asylum seekers.

  The worst news, however, is for residents of San Francisco: as reported previously, they too have the opportunity of living in a shipping container box, however unlike Finland’s migrants they get to pay $1000/month for the privilege.

  This is what a thousand dollars rents you in San Francisco.

  

  

  We conclude with some good news: if Finland ever runs out of empty shipping container boxes, it should just kindly ask for the port of Long Beach to send it some. After all, as we wrote a month ago, a third of all containers “shipped” from the largest west coast port are empty as a result of an accelerating global recession. At least this way instead of fooling economists about the “recovering” state of the US economy, those thousands of containers, or as they are better known in Helsinki and San Francisco “houses”, could save some lives.

  

  

  

  

  

• Dear Striking Fast-Food Workers: Meet The Machine That Just Put You Out Of A Job

  Today, U.S. fast-food workers will strike across 270 cities in a protest for higher wages and union rights that they hope will catch the attention of candidates in 2016 elections, organizers said.

  The walkouts will be followed by protests in 500 cities by low-wage workers in such sectors as fast food and home and child care, a statement by organizers of the Fight for $15 campaign said on Monday.

  The protests and strikes are aimed at gaining candidates’ support heading into the 2016 election for a minimum wage of $15 an hour and union rights, it said.

  The strikes and protests will include workers from McDonald’s, Wendy’s, Burger King , KFC and other restaurants, the statement said.

  And while we sympathize with their demands for higher wages, here is the simple reason why they will be very much futile.

  Dear fast food workers of the US – presenting you nemesis: the Momentum Machines burger maker.

  According to a recent BofA reported on how robotics will reshape the world, San Francisco start up Momentum Machines are out to fully automate the production of burgers with the aim of replacing a human fast food worker. The machine can shape burgers from ground meat, grill them to order with the specified amount of char, toast buns, add tomatoes, onions, pickles, and finally place it on a conveyor belt.
  

  The robot is shown below. It occupies 24 square feet, and is much smaller and efficient than most assembly-line fast-food operations. It provides “gourmet cooking methods never before used in a fast food restaurant” and will deposit the completed burger into a bag. It does all of this without a trace of attitude.
  

  
  

  According to public data, the company’s robot can “slice toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible.” Unlike human workers, the robot is “more consistent, more sanitary, and can produce ~360 hamburgers per hour” or a burger every 10 seconds.

  Furthermore, future generations of the device “will offer custom meat grinds for every single customer. Want a patty with 1/3 pork and 2/3 bison ground to order? No problem.”

  As the company’s website adds, “our various technologies can produce an ever-growing list of common choices like salads, sandwiches, hamburgers, and many other multi-ingredient foods with a gourmet focus.”

  But most importantly, it has no wage demands: once one is purchashed it will work with 100% efficiency for years. And it never goes on strike.

  As the company’s co-founder Alexandros Vardakostas told Xconomy his “device isn’t meant to make employees more efficient. It’s meant to completely obviate them.”

  

  The company’s philosophy on making millions of fast food workers obsolete:

  The issue of machines and job displacement has been around for centuries and economists generally accept that technology like ours actually causes an increase in employment.

  The three factors that contribute to this are

  1. the company that makes the robots must hire new employees,
  2. the restaurant that uses our robots can expand their frontiers of production which requires hiring more people, and
  3. the general public saves money on the reduced cost of our burgers. This saved money can then be spent on the rest of the economy.

  This is a major problem for the US economy, which once built on a manufacturing backbone, has seen the fastest jobs growth in recent years for workers employed by “food service and drinking places” i.e., fast food workers, waiters and bartenders.

  

   

  Finally, for those complaining that there will be no “human touch” left to take the orders, robots have that covered too:

  

   

  And now it’s time to calculate how many tens if not hundreds of billions in additional welfare spending these soon to be unemployed millions in low-skilled workers will cost US taxpayers.

  

  

  

  

  

• Supreme Court Justice Slams Cops For "Shoot First, Think Later" Mentality

  Submitted by Carey Wedler via TheAntiMedia.org,

  On Monday, the United States Supreme Court ruled to exonerate a Texas state trooper who, against orders from his superior, lethally fired his gun at a driver involved in a high speed chase. Though the majority opinion argued the officer acted reasonably, Justice Sonia Sotomayor issued a scathing dissent against the decision.

  The 2010 case involved Israel Leijas Jr., who had had been stopped by a Tulia, Texas, officer and informed he was wanted on a previously issued warrant. Leijas sped away, commencing a chase that reached speeds from 85 to over 100 miles per hour. As the chase began, the initial officer warned that Leijas might be intoxicated.

  Leijas reportedly called police multiple times from his cell phone during the chase to warn officers he had a gun and would fire at them if they attempted to capture him.

  Though officers planned to put spikes on the road at three different locations in an attempt to halt Leijas’ vehicle, Texas Department of Public Safety State Trooper Chad Mullenix wanted to shoot directly at the car to stop it. When he radioed his superior, Robert Byrd, to ask for permission, he was told to stand by until the car passed over spikes situated near an overpass where Mullenix was located. Byrd wanted to see if the spikes would effectively stop the vehicle before taking further action.

  Moments before the car reached the spikes, however, Mullenix began firing at the vehicle — in direct defiance of Byrd’s orders. The car skidded into the spikes and flipped two and a half times. Though Leijas was killed in the vehicle, authorities determined he had not been killed by the crash, but by Mullenix’s bullets. The officer shot six times, hitting Leijas in the upper body four times.

  Leijas’ family sued, arguing Mullenix used excessive force in violation of the Fourth Amendment. Mullenix argued he was entitled to the qualified immunity often granted to public officials when they act in the line of duty. Though Mullenix initially prevailed after several court battles, in 2014, the Fifth Circuit Court of Appeals overturned the prior ruling. Instead, it decided Mullenix was not entitled to immunity because the immediacy of the risk Leija posed was disputable.

  On Monday, the Supreme Court overturned that decision, finding Mullenix entitled to immunity and therefore exonerated of his charges. In its unsigned per curiam ruling, the court said, “The doctrine of police immunity protects ‘all but the plainly incompetent or those who knowingly violate the law,” NBC reported, noting the court added “its previous rulings have never said that the use of deadly force during a dangerous car chase is automatically a constitutional violation.”

  That conclusion was likely all but decided before the case even reached the Supreme Court. The court ruled on Mullenix v. Luna using only written briefings. It never heard verbal arguments or conducted a trial, which indicates “a sign that a majority of the justices considered the issue so clear cut that further briefing and courtroom argument were unnecessary,” NBC explained.

  Only one justice, Sonia Sotomayor, objected to the opinion — and in doing so, indicted a philosophy that permeates police conduct in the United States.

  She first noted that Mullenix “fired six rounds in the dark at a car traveling 85 miles per hour. He did so without any training in that tactic, against the wait order of his superior officers, and less than a second before the car hit spike strips deployed to stop it.”

  She argued that had the majority on the court correctly interpreted the case, they would have been left “with no choice but to conclude that Mullenix ignored the longstanding and well-settled Fourth Amendment rule that there must be a governmental interest not just in seizing a suspect, but in the level of force used to effectuate that seizure.”

  Sotomayor concluded:

  “By sanctioning a ‘shoot first, think later’ approach to policing, the Court renders protections of the Fourth Amendment hollow.”

  In spite of her captivating dissent, the Supreme Court ruling signals an ominous future for further police brutality cases brought before the nation’s highest court.

  

  

  

  

  

• Did Someone Try To Sabotage Russia's North Stream Gas Pipeline With An Underwater Drone

  When last we visited the Nord Stream pipeline story we noted that the prospect of doubling the line’s capacity in conjunction with Western O&G companies was effectively allowing Moscow to adopt a hardline approach in talks with Ankara.

  Turkish autocrat President Recep Tayyip Erdogan is keen on seeing Syria’s Bashar al-Assad pushed aside and, as everyone who doesn’t live in a cave knows, Russia and Iran are keen on preserving the Assad government. This makes for a rather awkward scenario. Ankara and Moscow have established deep trade ties and when Russian jets venture into Turkish airspace whilst attempting to bomb some of the very same militants Turkey has supported, the relationship becomes strained. That goes double when Turkey shoots down Russian drones. 

  Now obviously, there are very real questions about whether Erdogan can support Ankara’s assertion that Turkey can survive without Russian gas. The idea that either Russia or Turkey would jeopardize the Turkish Stream based on differences of opinion about the President of Syria is to a certain extent absurd (although what happens to that President may shape the future of energy transports from the Mid-East to Europe), but whatever the case, the Nord Stream has become key for the Russians and as we documented in the hilarious “They’re Making Idiots Of Us!”: Eastern Europe Furious At West For Doing Gas Deals With Russian Devils,” Ukraine and Slovakia aren’t pleased with Moscow’s memorandum of intent with Shell, E.On and OMV.

  Here’s a look at the Nord Stream:

  

  Well, in what certainly may be a coincidence but in what also looks remarkably suspicious given the current geopolitcal circumstances, an underwater drone “rigged with explosives” (to quote RT) was spotted near the Nord Stream by Sweden. Here’s more: 

  An unmanned military underwater vehicle rigged with explosives was spotted on the seabed in the vicinity of the Nord Stream gas pipeline in the Baltics on Friday, Swedish media report. The device is expected to be disarmed on November 9.

   

  An abandoned expendable remotely-operated mine clearance underwater vehicle allegedly with explosives onboard has been detected in multinational waters of the Baltic Sea by the Swedish Navy, Svenska Daglabet reports.

   

  The discovery was made during a routine check of the Nord Stream pipeline. Since it was discovered in the Swedish economic zone, north of the island of Gotland, the Nord Stream pipeline operator immediately notified the Swedish military.

   

  The type of ROV (remote operated vehicle) found near Gotland is typically used to disarm big unremovable munitions found on seabed, as the drone is blown up along with the dangerous object.

   

  The national identity of the drone has not been verified so far, as many countries use UUVs of a similar construction, Stolpe said.

  So, here’s a drone equipped with explosives that shows up near the Nord Stream just as the expansion of the pipeline’s capacity threatens Ukraine and Slovakia and gives Russia negotiating leverage with Ankara in the middle of war in a country that shares a border with Turkey.

  Maybe it’s nothing, but bear in mind this is Russia’s go-to pipeline at this juncture and since no one seems to want to come forward and claim they own the drone, one is certaily left to wonder if this could possibly have been an attempt at sabotage. 

  

  

  

  

  

• Guest Post: Can Europe Survive This Invasion?

  Submitted by Patrick Buchanan via Buchanan.org,

  “A modern day mass migration is taking place … that could change the face of Europe’s civilization,” warned Hungarian President Viktor Orban.

   

  “If that happens, that is irreversible. … There is no way back from a multicultural Europe,” said Orban. “If we make a mistake now, it will be forever.”

  Orban acted on his beliefs. He erected a 110-mile fence on the Serb border, redirecting hundreds of thousands of migrants away from Hungary to Croatia, thence to Austria and Germany.

  Sunday, after a third of a million had passed through, Croatia replaced a center-left with a rightist party. A fortnight ago, the right-wing eurosceptic Law and Justice Party won a landslide victory in Poland.

  Support for Angela Merkel, who has opened Germany to a million migrants, is plummeting. Bavaria’s CSU, sister party of Merkel’s CDU, is in rebellion. Bavaria has been the main port of entry for the hundreds of thousands of arriving migrants.

  Europe is undergoing the greatest mass migration since World War II, when 14 million Germans were driven out of Prussia and eastern Germany and Central and Eastern Europe.

  That mass migration halted after two years. But no end is in sight to the migrations from Africa and the Middle East.

  As long as Europe’s borders remain open, they will come. And the people who wish to come number not just in the millions but the tens and scores of millions. And they know how to get there.

  The routes — through Turkey to the Balkans on land, or across a few miles of the Med to the Greek islands, or from Libya to Lampedusa and Sicily, or into the Spanish enclaves on the Moroccan coast, or out to the Canary Islands — are arduous but not impossible.

  Why should they not come?

  Why should Arabs and Africans not flee the tyranny, terror, poverty and war that are their lot to come to Europe, live the good life, and have life’s necessities provided for their families by the munificent welfare states of northern Europe? And what is to stop them?

  Jean Revel’s “The Camp of the Saints” is proving more prophetic than Aldous Huxley’s “Brave New World” or Orwell’s “1984.”

  Considering the crises facing Europe, the question is no longer: Will the EU survive? It is Orban’s question: Will European civilization survive the century?

  This year, the EU monetary union, the eurozone, avoided breaking apart because Athens capitulated and accepted austerity, and the hard-bargaining Germans agreed to a bailout.

  How long will Greeks and Club Med members of the EU accept austerity? How long will Germans bail out nations whose people like to work fewer hours while enjoying superior social benefits?

  Under the Schengen Agreement, there are to be no barriers to trade and travel, to the movement of goods and people inside the EU.

  Yet, across Europe, fences are going up, borders are being re-established, anti-immigrant and anti-EU parties like the National Front of France’s Marine Le Pen, are gaining converts.

  If the mass migrations are not halted, the rise of nationalist regimes at the expense of Europe’s liberals and leftists is inevitable.

  With birth rates in this smallest and least populated of continents below replacement levels for decades, Europe is aging, shrinking and dying, as it is being invaded and altered forever.

  Optimists point to how America absorbed the 15 million that arrived in the Great Wave of immigration from 1890 to 1920.

  But they ignore the differences. America’s immigrants were Europeans from Christian nations coming to a country with a history of assimilation. And the Great Wave stopped in 1924, for 40 years.

  Unlike America, Europe has never known mass immigration. And those pouring into Europe are Arab, African and Muslim, not European Christians or Jews. They come from other civilizations and cultures. And they are not all assimilating but rather creating enclaves in Europe that replicate the lands whence they came.

  Last year, the Swiss voted to cut back on immigration.

  This year, with the UK Independence Party growing in popularity, Prime Minister David Cameron is demanding reforms in the EU charter, before the British vote on whether to leave the EU altogether.

  With migrants in the thousands milling around Calais and the entrance to the tunnel to Dover, Brits must be wondering whether it was wise to dig that tunnel beneath the Channel to their island home.

  The threats raised by the mass migration into Europe rise to the level of the existential.

  Can a civilization survive the replacement of the people who created it by people of other races, religions, and civilizations?

  Ask the Native Americans.

  Will Europe remain Europe if she is repopulated by Arabs, Muslims, Asians and Africans? What will hold Europe together? Free trade?

  In 1981, when Solidarity was crushed by the Warsaw regime on the orders of Moscow, Americans took up the cry — “Let Poland be Poland.”

  One day soon, a voice will arise across the Atlantic calling for an end to this invasion, by force if necessary, and declare: “Let Europe be Europe!”

  

  

  

  

  

• Microsoft Just Gave Brazilian Consumers A Stunning Inflationary Wake Up Call

  Day after day, investors hear about "foreign currency impacts" on earnings… which are dutifully shrugged off by pandering protagonists on mainstream media – "if you just ignore the currency effect, everything is awesome."

  Well the truth is – unless you have lived it and seen it, you have no idea of the massive impacts that a soaring dollar (and collapsing currencies across the emerging markets – which every firm still believes is the engine of global economic growth).

  So here, for some terrifying clarification, is Microsoft's latest product pricing announcement:

  

   

  So – for various countries from Russia to Brazil and from Algeria to New Zealand, while maintaining its USD purchase price, Microsoft has adjusted its loal price "to reflect fluctuations in the currency exchange rate."

  In the case of Brazil shown above as an example – the local price of a Microsoft product just went up from BRL 6.5 to BRL 10.3…

  That is an enormous 58% inflation in local pricing!!

  How would you imagine that will affect local demand? And this is happening in every country and for every US corporation's products.

  *  *  *

  Is The Fed about to hike rates, sending the Dollar even higher, and simultaneously crushing global demand?

  h/t ForrestM

  

  

  

  

• Son Of Billionaire Steel Magnate Plunges To His Death Amid Demise Of UK Industry

  Angad Paul, chief executive of Caparo Holdings, had done a lot of things in his 45 years. 

  He created the world’s fastest road-legal car, for instance. The Caparo T1.

  

  He also executive produced the classic “Lock, Stock, and Two Smoking Barrels“:

  

  Aside from supercars and gangster movies, Paul was, to quote FT, one of the Midlands’ leading industrialists as the head of Caparo Holdings. He was the son of Lord Paul, the 84 year old billionaire steel magnate who’s one the UK’s wealthiest people. Paul replaced his father as CEO nearly two decades ago. He was married to lawyer Michelle Bonn, 40, in 2005, and lived at his family’s home in Marylebone with his parents, Lord and Lady Paul

  

  We’re using the past tense here because on Sunday, Paul tragically fell from “high up” at his home in London. He was pronounced dead at the scene. Here’s the statement from a Met spokesperson:

  “London ambulance service and London’s air ambulance both attended and the man, believed to be in his mid-40s, was pronounced dead at the scene.

   

  “London fire brigade have also been called to the scene to assist with the recovery of the body. The man’s next of kin has been informed, although we still await formal identification. Enquiries into the circumstances of the incident continue but it is being treated as non-suspicious at this stage.”

  The timing of the “accident” raises questions. Caparo was placed in administration last month in what was characterized as a “shattering, devasting hammer blow” to the UK’s steel industry. For those who might have missed it, The Telegraph reported the following in mid-October:

  “The crisis in Britain’s steel industry could be about to claim another victim, with parts of Labour peer Lord Paul’s Caparo empire under enormous pressure.

   

  Caparo Industries, a major producer of steel products with 1,800 staff across 20 sites, was understood to be looking at all funding options over the weekend.

   

  Lord Paul – one of the country’s 50 wealthiest people, with a fortune estimated at £2bn – has a large stake in the privately-owned business through its parent company, Caparo Group. 

  And then, two days later, there was this (again from The Telegraph):

  Britain’s beleaguered steel industry has been dealt a “shattering” and “devastating hammer” blow after Caparo Industries went into administration, with doubts over the future of its 1,700 staff.

   

  The global business, which has about 20 sites in the Midlands as well as operations sites in India and the US, filed for administration as pressure on the steel industry intensifies.

   

  The problems at Caparo, first revealed on Monday by The Telegraph, came ahead of an announcement expected on Tuesday from Tata that it will slash up to 1,200 jobs at its steel plants in Scunthorpe and Scotland. It follows the closure of SSI in Redcar with the loss of 2,000 jobs.

   

  Britain’s largest union, Unite, warned of a “domino effect” in the steel industry, as it renewed calls for the Government to step in to support the sector following Caparo Industries’ collapse.

   

  “This is yet another hammer blow for steel and manufacturing communities already reeling from the closure of Redcar and job losses at Tata,” said Tony Burke, the union’s general secretary. “Ministers need to ask themselves how many more steel firms need to go to the wall before they step in. Failure to act could lead to a ‘domino effect’ taking hold across the industry.”

  Finally, more color from FT:

  Caparo, which comprises about 20 companies, was placed in administration last month, leading to the loss of 323 jobs and the closure of Black Country plants at Darlaston, Dudley and West Bromwich.

   

  Its activities range from the forging and pressing of metal products for aerospace, automotive and other industries. It also produces fastenings, wire, tubes and other accessories.

   

  The UK company is part of a global network of businesses under the Caparo name, with operations in China, India and the US.

   

  In addition to steel, Caparo’s global business is also involved in product development, materials testing services, hotels, media, furniture and interior design, financial services, energy and private equity investment.

   

  PwC, the administrators, said at the time of their appointment that 1,700 West Midlands jobs were at risk.

  It isn’t difficult to guess how this came about. Excess capacity in China (a topic we’ve covered exhaustively) and the now ubiquitous exported deflation effectively killed the industry: 

  Business Secretary Sajid Javid has called for an EU-wide emergency summit on steel. This is due to be held with the next fortnight. At the event he is expected to campaign for European consent to the UK’s early introduction of the energy compensation package and for co-ordinated EU action to stop China dumping excess steel on international markets.

   

  

  

   

  From BNP, earlier this year: 

  

  As a reminder, ArcelorMittal just reported a massive loss attributable to the same dynamic. As we noted on Friday, the obvious implication of China’s excess capacity problem is that the country will simply export its deflation…

  

  Given that, it shouldn’t come as any surprise that the world’s biggest steelmaker suspended its dividend and cut its outlook.

  Here’s more from Bloomberg: 

  The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its dividend, putting the blame on the flood of cheap steel from China’s loss-making mills. The market is being overwhelmed with material coming from the nation’s state-owned and state-supported producers, a collection of industry associations said Thursday.

   

  “It is obvious that we are operating in a very challenging market,” Chief Financial Officer Aditya Mittal said on a call with reporters. “This is essentially the result of very low export prices out of China that are impacting prices worldwide.”

   

  The steel industry has been roiled by the slowest economic growth in two decades in China, the biggest consumer.

   

  The flood of cheap exports from the nation has drawn complaints from Europe and the U.S. that the shipments are unfair. Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100 million metric tons this year, more than the combined output of Europe’s top four producing countries.

   

  While demand for steel in the company’s largest markets of the U.S. and Europe is recovering, producers’ profits are being hit by slumping prices because China has been pushing excess supply onto the world market as its economy slows.

  So again, we’re seeing disinflation (the exact opposite of what DM central bankers intended when they decided to expand their balance sheets into the trillions) as global growth and trade enters a new era, characterized by a systemic slump in demand. Here’s the damage in terms of the Arcelor’s equity:

   

  And here’s more from The New York Times on the impact of Chinese “dumping: 

  “The Chinese are dumping in our core markets,” Mr. Mittal said. “The question is how long the Chinese will continue to export below their cost.”

   

  The company’s loss for the period compared with a $22 million profit for last year’s third quarter.

   

  ArcelorMittal, which is based in Luxembourg, also sharply cut its projection for 2015 earnings before interest, taxes, depreciation and amortization — the main measure of a steel company’s finances. The new estimate is $5.2 billion to $5.4 billion, down from the previous projection of $6 billion to $7 billion.

   

  On a call with reporters, Aditya Mittal, Mr. Mittal’s son and the company’s chief financial officer, said that a flood of low-price Chinese exports was the biggest challenge for ArcelorMittal in the European and North American markets.

   

  The company estimates that Chinese steel exports this year will reach 110 million metric tons, compared with 94 million tons last year and 63 million tons in 2013. ArcelorMittal produced 93 million metric tons of steel in 2014.

  Of course when the standing government policy is to roll over bad debt and avoid SOE defaults at all costs, uneconomic producers can and will continue to produce. This means the deflationary impulse ArcelorMittal cites isn’t likely to dissipate anytime soon.

  So, it would appear that Paul is the latest “casualty” of the worldwide commodity downturn, the global deflationary supply glut, and the habitual exportation of deflation. It will be interesting to see what, if any, impact this rather morbid wake up call has on Downing Street’s “courting” of Xi.

  

  

  

  

  

• The Most Important Earnings Report You Should Know About

  Submitted by Andrew Zeitlin of Moneyball Economics

  The Most Important Earnings Report You Should Know About

  

  ROK: Better than CAT as a barometer of macroeconomic/industrial trends

  All industrial equipment uses semiconductors, and ROK (Rockwell Automation) is the premier industrial automation focused semiconductor company.

  Factories and mines are hostile environments: lots of dust, heat, chemicals, liquids and vibrations. Less than ideal conditions for delicate components like semiconductors. But increased automation means more semiconductors, and ROK specializes in making hardy components.

  ROK as best barometer

  1. Breadth of industrial customer base: hard to find a company that touches more capital intensive projects.
  2. Upstream in the demand chain: ROK demand comes in before CAT demand. In fact, that CAT extractor needed ROK chips

  Correlation to US Industrial Production

  ROK revenues strongly correlate to the US Industrial Production. That’s because much of the business is cyclical.

  The advantage comes with ROK’s forward guidance: it’s 1:1 with developments in the manufacturing space and with regional growth.

  The latest data says: US is deteriorating rapidly and so is China.

   

  Latest Earnings: Bad News

  Nothing pretty on today’s earnings call

  3QCY Revenue dropped (-10%)

  FY2016 Sales guidance lowered to -4% y/y

  “As we progressed through the quarter, conditions softened. And September was especially weak, particularly in the U.S. product businesses….September typically is the strongest month of the year.”

        – Keith Norbusch, ROK CEO

   

  The accelerating pace of contraction and regional distribution is very noteworthy

  

  • Canada, Latin America, US: Exposure to commodities is the general trend. The pace and timing of the slowdown reflects the lag in capital intensive projects. This means that the worst has not hit yet and the pain will continue at a faster pace into 1Q 2016.
  • Asia Pacific (aka China): Collapse.
  • EMEA: Good news as signs of a bottom are in place. Maybe.

  Forward Guidance

  “There appears to be a general slowdown in U.S. industrial customer spending, both capital and operating spending”

        – Theodore Crandall, ROK CFO

  Secular trends remain healthy (industrial growth continues) but near-term customers are pushing out spending. And there is no visibility.

   

  Our view: producers are still adapting to China’s real level of demand.

  At this stage, small cuts in spending (CAPEX & OPEX) until we get to 1Q 2016 and clearer visibility to Chinese demand. This is driving poor visibility.

  When does it change? MAYBE in 12 months. Maybe. And that’s based on nothing but hope. There is no customer ordering or data that ROK uses to base their 2H 2016 call for improving conditions.

  “we’re not expecting to see sequential growth until the second half of the year (2016)”

        – Theodore Crandall, ROK CFO

  Every manufacturer is looking at two options.

  • Plan A: Hold steady. Stop hiring, stop CAPEX
  • Plan B: Cut CAPEX, Cut Payrolls, Cut Orders

  Plan B is ready to go starting in January, pending customer order outlook.

  The silver lining:

  Per the ROK CFO, weaker sales means lower commissions, which equals a margin and EPS tailwind! (That was actually said on the earnings call.)

  Goodbye wage inflation.

  

  

  

  

  

• "No More Bets": New York Shuts "Illegal Gambling" Fantasy Sports Sites

  A little less than a month ago, Nevada shut down fantasy sports sites, effectively telling the likes of DraftKings and FanDuel to apply for a gaming license or face a decade in prison.

  As we noted at the time, the move came on the heels of an announcement by the FBI and the Justice Department that the US was investigating whether the business models of daily fantasy-sports sites violate a Congressional exemption around the legality of transfers from financial institutions to online gambling sites.

  Sites like DraftKings and FanDuel rely on a loophole for “games of skill” which effectively allows them to say that betting on the “skills” of others is itself a “skill.”

   That is, if I know more about how the skills of say, one NFL player stack up against the skills of another NFL player, well then I too have a “skill”, and so therefore, sites which pay me to play my skills against the skills of other fans can exploit a Congressional exemption on financial companies transferring money to online gambling sites.

  Obviously, that’s a ridiculous loophole and it looks like everyone who isn’t getting their cut (i.e. state and local goverments) have had just about enough of it because now, New York attorney general Eric Schneiderman is set to shut down FanDuel and DraftKings in NewYork. Here’s The New York Times:

  The New York State attorney general on Tuesday ordered the two biggest daily fantasy sports companies, DraftKings and FanDuel, to stop accepting bets in New York, saying that their games constituted illegal gambling under state law, according to people with knowledge of his investigation.

  
  

  The cease-and-desist order by the attorney general, Eric T. Schneiderman, is a major blow to a multibillion-dollar industry that introduced sports betting to legions of young sports fans and has formed partnerships with many of the nation’s professional sports teams. Given the New York attorney general’s historic role as a consumer-protection advocate, legal experts say the action will most likely reverberate in other states where legislators and investigators are increasingly questioning whether the industry should operate unfettered by regulations that govern legalized gambling.

  
  

  Fantasy sports companies contend that their games are not gambling because they involve more skill than luck and were legally sanctioned by a 2006 federal law that exempted fantasy sports from a prohibition against processing online financial wagering. That view is increasingly being challenged as fantasy sites have begun offering million-dollar prizes and bets on individual sports, such as golf, mixed martial arts and Nascar races, magnifying the element of chance and making the exemption more difficult to defend.

  
  

  On Tuesday afternoon, as news of the attorney general’s order began to trickle out, DraftKings sent an email to its players, saying, “Attorney General Eric Schneiderman is considering preventing New Yorkers from playing daily fantasy sports,” and added: “Hey, New York, protect your right to keep playing daily fantasy sports. Contact the attorney general today!”

  
  

  Sabrina Macias, a spokeswoman for DraftKings, said: “We’re disappointed he hasn’t taken the time to meet with us or ask any questions about our business model before his opinion.” She said the company had 500,000 users in New York State.

  
  

  In a statement, FanDuel said: “Fantasy sports is a game of skill and legal under New York state law. This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country.”

  Right FanDuel, that’s exactly what this is and we’re not sayng that’s at all justified, but you shouldn’t exactly be surprised.

  Frankly, this is a lot like multi-level marketing or (gasp) selling drugs. That is, it’s not that it necessarily should be illegal – after all, in a free society people should be allowed to do as they please with their money and their free time – but the fact is that it ultimately is illegal, which means that when you’ve gotten away with it for years, you can’t really play the “what’s going on here?!” card as though you had no idea this was coming. 

  Anyway, weigh in as you will, but right or wrong the government is out to put an end to this industry and if you’re a betting man (or woman) we wouldn’t recommend wagering on FanDuel or DraftKings being able to fend this off.

  From here on out, please just stick to such legalized, and “regulated” gambling at the state lottery, and the stock market of course.
  

  In short.. “All. Bets. Are. Off”…

  

  

  

  

  

• Caught On Tape: University of Missouri Media Professor Incites Mob Violence Against Reporter For Doing His Job

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Meet Melissa Click. Assistant Professor of Mass Media at the University of Missouri, and woman who was caught on video asking for “muscle” in order to physically remove a reporter from reporting on a story in a public place. Yes ladies and gentleman, welcome to America’s college campuses.

  If you haven’t seen this video, you must watch it immediately, and trust me, you need to watch it from beginning to end to truly understanding how dangerous Melissa’s Click’s request is. She is essentially advocating a mob of student inflict violence upon another student merely for taking pictures in public.

   

  Thanks to this, what began as protests against systemic racism at the school has morphed into another prime example of how college campuses have devolved into ignorant, pro-censorship intellectual wastelands.

  Now that you’ve watched the video, here’s some background on the incident and the key players involved from the New York Times:

  COLUMBIA, Mo. — A video that showed University of Missouri protesters restricting a student photographer’s access to a public area of campus on Monday ignited discussions about press freedom.

   

  Tim Tai, a student photographer on freelance assignment for ESPN, was trying to take photos of a small tent city that protesters had created on a campus quad. Concerned Student 1950, an activist group that formed to push for increased awareness and action around racial issues on campus, did not want reporters near the encampment.

  Reporters are supposed to go precisely where they are not wanted. Was “Concerned Student 1950” also opposed to reporters trying to get near the front lines during the Ferguson protests? The police demanded their space as well, and by these students’ twisted, infantile logic, the police should get their way.

  Protesters blocked Mr. Tai’s view and argued with him, eventually pushing him away. At one point, they chanted, “Hey hey, ho ho, reporters have got to go.”

  Yes, in 2015 students are so mentally damaged that they think it’s rebellious and brave to chant slogans against the First Amendment.

  “What is so hard about respecting our wishes?” one protester asked.

   

  “Because I have a job to do,” Mr. Tai answered. That elicited a retort: “We don’t care about your job.”

   

  As the video nears its end, the person taking the video, Mark Schierbecker, emerged from the scrum and approached a woman, later identified as an assistant professor of mass media, Melissa Click, close to the tents. When he revealed that he was a journalist, Ms. Click appeared to grab at his camera.

   

  She then yelled, “Who wants to help me get this reporter out of here? I need some muscle over here.”

  This woman should be filing for unemployment benefits yesterday.

  As the video circulated online, Mr. Tai, who won an award in June for Best Single Photograph in a college journalism awards program, received widespread support, much of it from members of the news media.

  Indeed, this is what Mr. Tai generously had to say about the incident on Twitter:

  I don't have any ill will toward the people in the video. I think they had good intentions though I'm not sure why it resorted to shoving.

  — Tim Tai (@nonorganical) November 10, 2015

  *  *  *

  For more on how American college campuses have become havens for censorship and unimaginable idiocy, see:

  From Protesting Vietnam to Demanding “Safe Spaces” – What Happened to America’s College Kids?

  Speechless – UCLA Engages in Absurd, Anti-Intellectual and Dangerous Attack on Campus Free Speech

  Rutgers University Warns Students – “There is No Such Thing as Free Speech”

  A Professor Speaks Out – How Coddled, Hyper Sensitive Undergrads are Ruining College Learning

  Statists Declare War on Free Speech – College Students Banned from Handing Out Constitutions in Hawaii

  California Student Banned from Handing Out Constitutions on Campus

  A Winter Wonderland of Fear – Cities Across the U.S. Move to Ban Unregulated Sledding

  Brave New World Revisited…Key Excerpts and My Summary

  Here We Go…Slate Magazine Bashes the First Amendment

   

  

  

  

  

  

• It's Not The Record High Debt That Is The Biggest Risk, It's This

  Earlier today, Bloomberg “discovered” that “Corporate America Has Quietly Re-levered“, reporting that “one of the biggest post-financial crisis imbalances sits on corporate balance sheets” citing a Goldman report.

  Actually it hasn’t been quiet at all: while to some this is news, our readers have been well-aware of this trend since January 2014 when we first reported that “Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Above Its 2008 Peak“, and then most recently this weekend when on Sunday we reported, again very unquietly, that “Corporate Leverage Is At Record Levels.”

  

   

  Furthermore, as we further noted in “Why The Stock Buyback Spree Is Ending” that “the 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general.”

  Two days later, Goldman also confirmed this observation: “So, does this mean the levered re-cap is dead? In our view, the answer is yes for the broad market, though legacy Tech should prove an exception given substantial balance sheet capacity“

  Goldman added even scarier overtones overnight, when it said that “like a bad dream, imbalances have been building the last few years. Corporates have levered up and the M&A boom has driven goodwill to multi-year highs. With the United States on the verge of the first interest rate hikes in almost a decade, we question the sustainability of these trends. Companies that have “manufactured earnings” vs. generating organic growth and reinvesting in their businesses are in the spotlight with investors rewarding high-returning stocks while punishing those with weak balance sheets, outsized buybacks and/or EPS growth.”

  Bloomberg wasn’t too far behind in admitting what we have said three years ago when in November 2012 we revealed “Where The Levered Corporate “Cash On The Sidelines” Is Truly Going“, i.e., buybacks.

  

  * * *

  But while even Goldman has admitted that rising leverage and the soaring buybacks are, “like a bad dream”, the major problem for corporate imbalances, the truth is that surging debt is not the full story, nor is it the scariest aspect of this story.

  The real risk is that while debt is rising on both a relative and an absolute basis, EBITDA, or cash flow, of both junk companies as well as Investment Grades, has been declining for at least one year. Or rather, while junk-rated companies have seen their EBITDA decline consistently over the past 5 years, the big inflection point came in early 2014 when IG EBITDA also plateaued, and has been declining since.

  

  It is this ongoing decline in actual cash flows, which tracks the third consecutive quarter of declining Y/Y revenues (the decline in EPS is far slower as hundreds of billions in shares have been removed from the market, keeping the EPS ratio higher than where it would be) that is the biggest risk to both the S&P500 and the market, if such a thing still existed.

  Even Goldman is unable to provide a counterfactual case:

  Now, the counter-argument one hears is that the cost of this debt has never been this cheap with the average interest rate paid dropping from close to 6% to 4% in 2015. Put another way, as debt has more than doubled, the amount of interest expense has only gone up by 40%. This is all good until you normalize EBITDA. Indeed, if EBITDA was at “normalized levels” (which we define as median NTM EBITDA from 1Q07-2Q15), leverage would move to 1.75X, over 30% higher than the average over the last 10 years.

  But here is the real kicker: with even Goldman admitting that buybacks as a shortcut to creating “engineered” earnings will no longer work and instead may be punished by investors, companies refuse to accept this. Certainly don’t tell that to McDonalds, which earlier today defied S&P to announce a major debt increase to boost shareholder returns, even if it meant its A rating would be lost as it was downgraded to BBB+. Contrary to Goldman’s take, it was rewarded by shareholders.

  So even as cash flows continue to decline, companies will engage in this one and only line of defense against sellers and shorters as in a world where 2% growth is the new norm (and that with the benefit of $13 trillion in central bank liquidity). And instead of investing in the future, replenishing their asset base, this asset stripping of corporations to reward shareholders will continue.

  Until it can’t, an threshold which will certainly be catalyzed by any Fed rate hike(s).

  At that point, desperate for cash companies (loaded to the gills with debt) will again try to access the bond market and be unsuccessful. It is then when the bulk of the S&P, cash flows declining, will resort to the oldest form of capital raising in the book – selling equity. From that point onward, it will be all downhill for the market.

  The only question is how many savvy shareholders will try to frontrun it and sell while they still can, not when they have to, and are competing with management to find willing buyers.

  

  

  

  

  

• The Rise Of Trump & Sanders – Distrust & Anger Ripples Across America

  Authored by Paul Brandus, originally posted Op-Ed via MarketWatch.com,

  The ‘wasted generation’ may not bother voting, for good reason

  One year from now, we’ll elect a new president. It’ll be the first opportunity for what I call the wasted generation to vote – not that many will bother. What do I mean by wasted generation?

  I’m talking about the 15.6 million Americans born between 1995 and 1999 – the first generation of the post-World War II era to grow up in a land of diminished economic expectations, corrosive cynicism and institutional distrust.

  Think about it. Born during the petty, partisan end of the Clinton era, they were barely out of their diapers when the towers fell on 9/11 and elementary, middle school and high schoolers while their country fought, at the same time, the two longest wars in its history. They came into the world just as their parents’ incomes were probably peaking — median wages, adjusted for inflation, topped out in 1998 and 1999 — and their Moms and Dads have since been squeezed by the two most devastating stock collapses since the Great Depression and a housing collapse of historic proportions. Now they’re heading off to college or already there, and can expect to rack up nearly $29,000 in debt before even graduating.

  Older Americans may remember better times. But for this group—and tens of millions born after them—it’s all they’ve known. Cynicism, war, economic stagnation—this is their “normal.” This is what we have bequeathed them. Is it any wonder polls show that young Americans don’t trust government or big corporations? They don’t trust organized religion. They don’t trust us—the media—either, and I don’t blame them.

  They don’t trust the financial system, either. When you’re 20 and have a 40-to-50 year investment horizon, you should be plowing cash into stocks—but when the market crashes 50% like it did between March 1999 and October 2002—only to be eclipsed just five later by a 57% bloodbath, it makes it easier to understand their skittishness. No surprise, then, that anti-establishment candidates like Democrat Bernie “the markets are rigged” Sanders and Republican Donald “make America great again” Trump are popular with this young, emerging slice of the electorate.

  On Facebook, for example, nearly two million people like Sanders’s page — 600,000 more than Hillary Clinton. As for Trump, one poll showed Republican millennials backing him by a 3-to-1 margin over anyone else.

  This may sound like one of those generation gap stories, where older folks complain about the “kids” doing their own thing and the kids not trusting “anyone over 30.” It’s not. From sea to shining sea, distrust and anger ripples across America: Only about a quarter of us think the country is on the right track; it hasn’t topped 50% since December 2003.

  But it’s the corrosive effect on the millennials that’s most bothersome. Based on two decades worth of data, the Pew Research Center, a respected Washington think tank, notes that “generations carry with them the imprint of early political experiences.” In other words, it’s going to be awfully hard for millions and millions of young Americans to overcome the wide distrust they have—and again, the only thing they’ve known—of establishment institutions; the economic and political implications in the years ahead could be huge.

  Here’s the way millennials see it:

  Those that can scrape together the means to go to college know there’s now a school shooting once a week in this country.

   

  Thanks to that average $29 grand in debt and uncertain job prospects, an increasing number of them will move back in with Mom and Dad when they graduate.

   

  Invest in stocks? Even if millennials didn’t think the market was fixed they don’t have the dough.

   

  Buy a home? What a joke: the number of first-time home buyers is at its lowest level in three decades.

   

  Only a handful of these kids will have steady employment with the same company over the course of their careers; many will have multiple employers — few of which will offer pensions.

   

  Millennials don’t expect Social Security to be around in 40 years and unless painful changes are made to shore up the system, it won’t be.

   

  The slow-moving and undeniable effects of climate change will affect them far more than the rest of us; and while we bicker about the cost of action, we’re too ignorant to realize that the cost of inaction is likely to be far greater.

  Older age groups like to criticize millennials: they’re spoiled, have a sense of entitlement. Actually, the rest of us should look in the mirror. We’re leaving those who will follow one hell of a mess.

  

  

  

  

  

• America's Most 'Unequal' Big Cities Exposed

  Thanks in large part to Fed policies, if Neel Kashkari is to be believed, America as a whole has become a significantly more unequal country in the last five years. In fact, as a recent report finds, "if you look at the long-term trend, there's a really steady increase in inequality." But inequality is all about location, location, location; and, as Bloomberg reports, the idea that hard work leads to prosperity is increasingly becoming an American pipe dream, in some places more than others.

  Bloomberg ranked big cities – those with populations of at least 250,000 – based on their inequality as measured by the Gini coefficients calculated by the U.S. Census Bureau (a Gini index of zero reflects absolute equality, while an index of one represents complete inequality).

  New Orleans is the most unequal city in America, according to the Bloomberg ranking.

   

  

   

  Areas with high levels of income inequality also often have diverse populations and high levels of residential segregation, according to a report last year from Mark Mather and Beth Jarosz at the Population Reference Bureau, a Washington-based non-profit group. New Orleans has both of those factors, with blacks making up 60 percent of the population in 2014 and often living in starkly different areas than whites.

   

  "New Orleans has some very clear neighborhood segregation going on," Jarosz said in an interview. "The fact that it is the most unequal among the cities is not terribly surprising."

   

  Inequality happens when there's a concentration of people at the highest and lowest ends of the income spectrum without much middle-ground in between. Big cities are often hotbeds for such conditions because they attract rich individuals who can afford the cost of living — think rents in New York City or Los Angeles — as well as lower-income households who need access to services that large municipalities can often provide.

   

  "You get this concentration both of poverty and of wealth in the same space," Jarosz said.

   

  Places with wide ranges of educational attainment also run into inequality issues, with higher levels of schooling linked not only to a person's ability to get a job, but what type of job and what they'll be paid.

  *  *  *

  The U.S. as a whole has become a more unequal country in the last five years, with its Gini index climbing to 0.48 last year from 0.469 in 2009.

  "The overall story is that inequality has been rising steadily for about the past three decades," Jarosz said. While changes from year to year are often small or nonexistent, "if you look at the long-term trend, there's a really steady increase in inequality."

  Racially diverse cities also often exhibit higher levels of inequality, as minorities have lower incomes and higher poverty rates, Jarosz said. The median income for non-Hispanic white households was $59,622 in 2014, compared to $42,748 for Hispanic families and $35,481 for blacks, according to data from the Census bureau's American Community Survey.

   

  

  

  

  

  

  

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• Chinese Stocks Longest Win Streak Since Bubble Peak After CPI, Commodities Tumble; Philippines Exports Crash

  A busy night in Asia began with a total collapse in Philippines Exports (-24.7% YoY – the biggest miss since Lehman). This was quickly followed by a 0.3% drop (deflation) in CPI MoM (thanks to a drop in pork -1.9%, eggs -6.9%, and veggies -5.6%) which sparked buying in stocks (because moar stimulus). Chatter of a few large fund houses under investigation stymied the rally quickly but as nobody was summoned stocks recovered, then rallied strongly back into the green on renewed chatter of Stock Connect occurring sooner than expected. With CSI-300 (China's S&P 500), up at the break, this is the longest winning streak since the peak of the bubble in May. And finally Shanghai Copper and Nickel tumbled to new multi-year lows, dragging Bloomberg's Commodity Index to fresh 16-year lows.

  Philippines Exports crash, miss by most since Lehman..

  

   

  Then China inflation data hit… CPI missed +1.3% YoY, the lowest since January (with a 0.3% drop MoM – the most since March) ; PPI tumbled 5.9% – its 44th monthly decline in a row...

  

   

  A choppy morning in China leaves Shanghai Composite higher at the break…

  

   

  Leaving CSI-300 set for the longest win streak since the peak of the bubble…

  

   

  Shanghai Copper hit a new 6-year low (and nickel tumbled)…

  

   

  Leaving Bloomberg's Commodity Index at fresh 16 year lows…

  

   

  Charts: Bloomberg

  h/t @SimonTing

  

  

  

  

  

• JS Kim Issues Critical Warning About Newly Introduced Global Banking "Gold Programs"

  JS Kim Issues Critical Warning About Newly Introduced Global Banking “Gold Programs”. Could Bankers Be Duping Us into Yet Another One of Their Reverse Alchemy Schemes?

  
  

  Indian Prime Minister Narendra Modi launched a 3-pronged scheme to allow gold to become an important part of the Indian economy – a gold monetization and bank deposit scheme, the issuance of bank and federal gold-backed bonds, and a gold coin and bullion selling program, in which an initial 15,000 5gm gold coins, 20,000 10 gm coins, and 3,750 20gm bullion bars will be made available to the Indian public.

   

  The only aspect of this 3-pronged program, however, that I deem trustworthy at this point, until proven otherwise, is the gold coin and bullion selling program. Why? The answer is simple. The other 2-aspects of this 3-pronged program advocate against our advice at SmartKnowledgeU to specifically hold all of your gold in physical form only and outside of the global banking system. Both the gold monetization scheme and the gold-backed bond scheme require depositing physical gold at a bank and receiving digital credits and paper in return. If bankers never commit fraud and always keep 100% of the gold allocated specifically to the depositor, and we can be 100% guaranteed of this stipulation always being enforced at all times, then I would not have a problem with India’s gold monetization program and gold-backed bond program. The only problem is that history tells us that bankers will always commit fraud under these circumstances. Consequently, why should we take their word this time around that they will not commit fraud again and use the gold deposits to undermine and suppress the price of gold against the gold depositors’ best interests?

   

  For example, we already know, beyond a shadow of a doubt, that the gold derivatives futures markets in New York and London are entirely fraudulent and that pricing mechanisms in these markets literally have zero relationship to the supply and demand determinants of physical gold. The UK Financial Conduct Authority fined Barclays Bank £26 million and banned Barclays banker Daniel Plunkett for artificially engineering a gold “puke” in gold futures markets to plunge gold prices on a specific day to ensure that they would cheat their client out of a payment of £2.3 million. Furthermore, this fraud would never have even been exposed had it not been for the client’s sophistication in understanding and identifying the fraud executed by the Barclays banker. I literally have witnessed other bankers execute the exact same pattern of fraud executed by Barclays banker Plunkett dozens of times in the past, and for which no banker was arrested or prosecuted. Given the history of banker fraud in gold paper derivative markets in which banks use paper markets to plunge gold prices, Indian citizens must ask themselves this pressing question, “Do I really want to give up the security of holding my physical gold outside of the banking system and then deposit it with the very bankers that have been repeatedly proven to execute fraud against my best interests?”

   

  A second example of very likely fraud executed by bankers in gold derivatives markets is the gold GLD ETF (along with the silver SLV ETF). Bankers have always refused and/or failed to provide any proof that their paper gold ETF, the GLD, which they claim to be 100% backed by gold, is actually 100% backed by gold instead of just fractionally backed with gold rehypothecated many times, as is almost certain to be the case. And when bankers attempted to assuage concerns of GLD holders that their paper purchases were actually 100% backed by physical gold held in their vaults, as they claimed, they failed miserably, as the serial number of a bullion bar they claimed was part of the vaulted gold that backed GLD purchases failed to match serial numbers of bullion bars contained on the GLD ETF bullion bar list.

   

  In fact, 2 years before the potential scam of the GLD was revealed to the world through this mismatch of gold bar serial number fiasco, I reported on our SmartKnowledgeU blog multiple reasons why people should question the legitimacy of banker claims that the GLD and SLV ETFs were fully backed by physical holdings after I inspected the prospectuses of both paper vehicles that contained a plethora of questionable language and banker claims. By the way, since 2009, bankers have removed a lot of the shady language that was first contained in the original prospectuses of the GLD and SLV. However, just because they have removed the questionable statements that orginally appeared in the prospectuses, this certainly does not mean that bankers are now operating both investment vehicles honestly.

   

  Various Indian government officials are pushing their potential reverse alchemy schemes upon the public, urging them to turnover their physical gold holdings to bankers in exchange for digital credits to bank accounts and the issuance of paper certificates. PM Modri has claimed that gold bonds can “empower women”, a claim that reeks of the 1960s and 1970s women’s liberation “right of women to work” movement that succeeded in doubling the tax base for the Rothschild banking cartel. Finance Minister Arun Jaitley has already announced that interest earned on physical gold deposited into the banking system will be exempt from all taxes. On the surface that appears to be a fantastic benefit to Indian citizens, but before Indians embrace this benefit, they must question whether or not the physical gold they turn over to bankers will actually be kept in bank vaults or if it will be hypothecated hundreds of times and leased into the open market to suppress the price of gold as Central Bankers have historically chosen to do when given access to physical gold. This is a question Germans wished they had asked of themselves before they turned over their physical gold to US Central Bankers for holding.

   

  In 2011, German Central Bankers employed by the Bundesbank announced that they were holding 3,396 metric tonnes of gold on behalf of the German people. They revealed that 45% of these holdings, or 1,536 tonnes, was being held by US Federal Reserve bankers. In 2012, the German government, under extreme pressure from its citizens to prove that US Central Bankers actually still had their gold and had not sold it off in the open market or leased it out to their puppet bullion banks on Wall Street in previous years to suppress the price of gold, demanded the repatriation of just a tiny fraction, or 150 tonnes of the 1,536 tonnes held by US Central Bankers. During the first year after Germany’s repatriation request, US Central Bankers returned a paltry 5 tonnes of gold out of the 150 tonnes requested. After this insult, Germany increased the request for 300 tonnes to be returned by 2020, which was still less than 20% of their gold held by US Central Bankers. In 2014, US Central Bankers returned 85 tonnes to Germany, and earlier this year, an additional 90 tonnes had been confirmed as returned to Germany. Still, there are many questionable irregularities with the return of even this small fraction of Germany’s gold to date thus far.

   

  In 2014, the 5 tonnes of gold returned to Germany came in the form of melted down and recast gold bars, thereby confirming that the gold returned to Germany was not the gold Germany had deposited with US Central Bankers. If this gold was not Germany’s gold, whose was it? Was it gold stolen from Iraq or Libya?

  Since Germany only asked for less than 20% of their gold back from US Central Bankers, why is it taking 8 years for US Central Bankers to return it?

  Why can it not be returned in a few weeks time, as is entirely logical if the US Federal Reserve bankers actually still have it?

  Why has Germany not requested for all of its 1,536 tonnes of gold to be returned, and why did they only ask for a paltry 300 tonnes be returned?

  This is not a broke and bankrupt post-WWII Germany of which we are speaking and certainly Germany can build vaults secure enough to store all 1,536 tonnes of its gold. As there is absolutely no reason for Germany not to hold 100% of its gold within its domestic borders, why are they continuing to allow other countries to keep their gold?

  Finally, why did the Bundesbank release statements that all of the gold returned to them in 2014 and 2015 matched serial numbers, fineness and weight of bars given to the US Central Bankers for holding when in 2013 none of the bars matched?

   

  Though German Central Bankers released their gold bar list, only because of extreme public pressure to do so, the gold bar list contained bar melt/inventory numbers, fineness, and weight, but still lacked refinery names, refinery numbers and manufactured years. In other words, the bar list released by the Bundesbank was still far from transparent.

   

  So Indian citizens, with tons of historical precedent from which not only to draw, but also from which to learn, one would be advised to weigh bankers’ claims that physical gold deposited with a bank will remain there with extreme skepticism. Unless you can be given written assurances in any contract you sign with a banker that they will expressly not use the gold deposited with them to suppress the price of gold, you should refrain from participating in their physical gold into paper gold programs. With gold bonds ranging from 1-3 years, 5-7 years, and up to a whopping 12-15 years, with penalties for early withdrawals, if I had to guess, I would say there is a 99.9999% chance that your gold is going to be sold off into the open market during the duration of these bonds, even if bankers claim in the bond prospectuses that the gold that backs these bonds will never leave their vaults.

   

  The only way I would trust any “gold program” other than one in which I can buy physical gold coins and bullion and hold it outside the banking system, were if these following conditions existed, in writing, in the contracts that describe these programs and in Indian law:

   

  • (1) the bank keeps the specific allocated gold bullion bars and coins I deposit at a bank in their vaults 100% of the time in my name only, with a way to verify this process, such as serial number engravements on all deposited gold,
  • I am allowed to verify the physical location and the purity of said gold bars and coins at any time I desire by means of an independent, not a bank, auditor at the bank’s expense, and
  • the punishment to a banker were he to ever violate either of the above two conditions (for both stored coins and bullion) is the same as outlined in the US Coinage Act of 1792 below:

  Section 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

  
  

  Even if PM Modri and Finance Minister Jaitley’s intentions are pure with their newly instituted gold programs, if they have not instituted severe punishments to uphold the integrity of their gold programs to ensure that fraud does not occur, then their trust that bankers will uphold these gold programs honestly is misplaced and naïve. Without such regulations in place, this leaves their gold programs incredibly open to banker fraud, which history has already informed us will happen. The only way to ensure the integrity of such programs is to adopt the same punishments for banker fraud as contained in the US Coinage Act of 1792. And even so, if such punishments were adopted, I would still have second, third, and fourth thoughts, were I Indian, of willingly putting my physical gold into the hands of bankers. Every time the public has done so, such programs have ended very poorly for the people with no benefit to them despite false and hollow banker promises of many benefits to the people.

   

  Recall that bankers duped South Koreans, including very sadly even my own grandmother, to hand over physical gold in a “Collect Gold for the Love of Korea” campaign during the 1997 SE Asian Financial Crisis. Bankers took advantage of the extreme nationalism of Korean citizens to trick them into willingly handing over 8 tonnes of gold for zero compensation in just the first week of the program. The final amount of collected gold was kept hidden from the public and never revealed after the bankers reached their target early in their campaign and they successfully robbed South Korean citizens of their gold and much of their life savings. Since all the collected gold was sold off and immediately given to IMF bankers to pay down interest on IMF debt, the program would have been much more appropriately called “Collect Gold for the Love of Bankers”. I wonder how much gold Koreans would have willingly donated to “save their country” if they knew they were saving not their country, but only bankers.

   

  In conclusion, even if Modi’s and Jaitley’s intentions are pure, bankers will corrupt their gold programs without severe penalties to discourage this fraud. Of this I have zero doubt. The collective history of banker fraud in LIBOR markets, Forex markets, gold and silver derivative markets, and the resultant billions of Euros and dollars that they have already paid as an indictment for their crimes, has proven to us that there is no fine that can be imposed upon them that will stop their fraud. And if severe punishments are not in place to protect Indian citizens, then Indian citizens, I urge all of you just to continue what you have been doing and to ignore the allure of these newly introduced gold programs. Despite the claims of politicians and bankers of how wonderful it will be for you to convert your physical gold into digital bits on a hard drive on a bank’s server and into paper certificates, keep converting your digital and paper rupees into physical gold and physical silver whenever you can, and keep possession of your family’s wealth outside of the banking system.

  
  

   

  Recall that politicians in India have a recent history of colluding with the Reserve Bank of India (RBI) to prevent Indian citizens from converting their digital rupees into physical gold. In early 2012, the Indian government raised import taxes on gold by 900% from a mere 1%  to a massive 10% within a little over a year’s time. Furthermore, by 2013, they had raised import taxes on gold jewelry to a stifling 15% in an attempt to stop Indian citizens from converting unsound digitial and paper rupees into the sound money of gold. Politicians, when working with bankers to establish gold programs, do not deserve the benefit of any doubt because of their past history, and unless their gold programs live up to the conditions I’ve stated above, we should be wary to reject them. India may very well be a testing ground for bankers to discover if they can convince people to turn their physical gold into digital and paper gold, and they may very well attempt to spread these programs to other countries worldwide if they achieve success with them in India. If similar “gold programs” are introduced in your country, you now know why you should remain highly skeptical of them as well.

   

   

  Other related SmartKnowledgeU posts released in the past week:

  SKU_Vlog_010: If This Doesn’t Convince You to Exit the Global Banking System, Then Nothing Will

  Is This the Gold and Silver Mining Stock Washout For Which We’ve Been Waiting All Year?

  SKU-Vlog_002: What is the Fair Value of Gold? Ounces Over Dollars

  To receive notification of our articles when we release them, please bookmark our SmartKnowledgeU blog, subscribe to our SmartKnowledgeU free newsletter, and subscribe to our SmartKnowledgeU YouTube channel.

   

  About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent research, consulting and education company that focuses on analyzing the fraud of the global banking and investment industry to formulate low-risk, high-reward wealth preservation strategies for clients in more than 30 countries worldwide. Our mission is to restore integrity to our monetary system through a return to sound money worldwide. This year, all of our fee-based services have yielded positive returns ytd because of our focus on identifying banker executed fraud in gold and silver markets and of predicting lower trends for gold and silver for the duration of this year.

  

  

  

  

  

• When You're Popular, You Don't Need Freedom of Speech

  Submitted by Andrew Syrios via The Mises Institute,

  Free speech is not something that people would normally see as a realm of economics, but in many ways, an economic understanding of the support and opposition to free speech can shed a lot of light on what’s happening now in the West.

  The first thing that needs to be noted is that the left is winning the culture war. Even though more people identify as “conservative” than “liberal” in the United States, more people now identify as “liberal” than in the past by a substantial margin. Attitudes toward gay marriage shifted extremely quickly toward the left while support for legal abortion stayed mostly steady. And obviously the media, academia, and Hollywood are far to the left as a study by the non-partisan political analytics firm Crowdpac found (and as anyone who watches anything other than Fox News can tell after about five minutes).

  Now, some of this is certainly good, such as the shifting views on marijuana legalization. Some is troubling, such as the growing popularity of socialism.

  Regardless though, the left, having ascended to cultural dominance, is no longer in need of free speech. After all, no one ever got in trouble for agreeing with the conventional wisdom. As Noam Chomsky said, “Even Goebbels was in favor of free speech he liked.”

  On the other hand, the right is behind the eight ball in the culture wars and thereby supports the concept of free speech because they need it lest their very opinions be outlawed. In an economic sense, this could be called the “diminishing marginal utility of free speech.”

  The law of diminishing marginal utility states that while keeping consumption of other products constant, there is decline in marginal utility that a person derives from consuming an additional unit of that product. In this case, the product is free speech. New leftists may have proposed unfettered free speech back in the early 1960s, but that was just because the right was the one in power culturally at the time. Free speech had a high utility to the left at the time and low utility to the right.

  Now the situation has reversed. The right is at the disadvantage so it appeals to free speech. The left is ahead and no longer needs free speech, so it has discarded it.

  If that statement sounds hyperbolic, just think of all of the campus speech codes and the ever expanding list of mostly trivial microagressions that can be taken for “hate speech.”  Here is just a small sampling of examples to illustrate how absurd this has become:

  • Brendan Eich was forced to resign as CEO of Mozilla after a massive backlash for having opposed gay marriage.
  • A candidate in the European elections was arrested in Britain for quoting a passage from Winston Churchill about Islam.
  • Gert Wilders, a politician in the Netherlands, was tried on five counts including “criminally insulting Muslims because of their religion.”
  • Conservative radio host Michael Savage was banned from the airwaves in Britain.
  • Both Mark Steyn and Ezra Levant were dragged in front of the Canadian Human Rights Commission on charges of being “Islamophobic.”
  • A man was fired because someone eaves dropped on his joke about dongles and caused a fuss about it on social media.
  • A group called Color of Change applied enough pressure to get Patrick Buchanan fired from MSNBC for expressing politically incorrect opinions in his book Suicide of a Superpower.
  • The “Pickup Artist” Julien Blanc was barred from entering Britain for making sexist comments.
  • A student at Purdue University was found guilty of “racial harassment” for reading (yes, reading) a book called Notre Dame Vs the Klan in which — it should be noted — the Klan is the bad guy.

  Indeed, the list goes on endlessly, and is perhaps best summed up by the almost unconscionable lack of self-awareness required by University of Manchester feminists who recently censored the anti-feminist columnist Milo Yiannopoulos from participating in a debate on — you guessed it — censorship.

  Of course much of this is just social pressure or the decisions of private institutions, which is permissible (albeit not condoned) under a libertarian framework. But much of it does involve outright government force, or the longing to use it. For example, Adam Weinstein wants to literally “Arrest Climate-Change Deniers.”

  Indeed, while many believe that the youth of today are the most politically tolerant in history, they are actually the least. As April Kelly-Woessner notes, “political tolerance is generally defined as the willingness to extend civil liberties and basic democratic rights to members of unpopular groups.” Which groups are unpopular, is not the question being asked.

  So, for example, someone who believes that a man should be able to marry his pet goat is not necessarily politically tolerant. What would make him tolerant in this sense is whether he is willing to recognize the rights (particularly regarding speech) of those who disagree with him and his marital proclivities.

  In this respect, political tolerance has declined substantially. For the first time since it was measured, the political tolerance of young people has fallen below that of their parents and as Kelly-Woessner again notes, “… is correlated with a ‘social justice’ orientation,” at least for those under forty.

  Indeed, the inability to tolerate political views that run counter to one’s own, particularly on the left, has become so ridiculous to be comical. Just take, for example, Judith Shulevtiz’s description of the “safe space” set up at Brown University because of a debate between the feminist Jessica Valentia and Wendy McElroy where McElroy was likely to criticize the term “rape culture.”

  The safe space … was intended to give people who might find comments “troubling” or “triggering,” a place to recuperate. The room was equipped with cookies, coloring books, bubbles, Play-Doh, calming music, pillows, blankets and a video of frolicking puppies, as well as students and staff members trained to deal with trauma.

  Well, at least they actually let the debate happen.

  But the left has not always had a monopoly on anti-free speech thought and legislation. Nor does the right seem to be opposed to it when it can push such things through today. Helen Thomas was fired from the White House Press Corps for saying “The Jews should get the Hell out of Palestine.” Shirley Sherrod was fired for allegedly anti-white statements, a Kansas woman was fired for a fifty-word Facebook post that was considered anti-American-soldier, and the right went into a fervor over Jeremy Wright’s “chickens coming home to roost” comment.

  Whereas liberals want to ban words such as “slut” and, at least in Sheryl Sandberg’s case, “bossy” too, conservatives used to all but ban those “seven words you couldn’t say.”

  When the right had more cultural authority, alleged communists were being dragged in front of the House Committee on Un-American Activities, Civil Rights activists were harassed, and the Motion Picture Production Code banned Hollywood directors from showing things such as miscegenation.

  But that was then and this is now. As the pendulum of cultural prominence swung from one side to the other, the left and right swapped their support for free speech.

  Nevertheless, I don’t want to draw a false equivalence here and say the right would be just as bad as the left if they were winning the culture wars. Much of the ideology on the left, at least the far left, is derived from the likes of Herbert Marcuse and other cultural Marxists who explicitly wanted to limit the free speech of “oppressor classes.”

  Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?

  

  

  

  

  

• Sickening Images Of China Plagued By "Extremely Hazardous" Record Smog As Winter Heating Season Arrives

  "Today’s haze is pretty severe and choking – when I walked out the door I thought someone’s house was on fire," exclaimed one resident as AFP reports a huge swathe of China is engulfed by acrid smog Monday after levels of dangerous particulates reached around 56 times World Health Organization maximums, in what environmental campaigners said were the highest figures ever recorded in the country.

   

  Spot the 'Winter' difference…

  

   

  As The Guardian details,

  Residents of north-eastern China donned gas masks and locked themselves indoors on Sunday after their homes were enveloped by some of the worst levels of smog on record.

   

  Levels of PM2.5, a tiny airborne particulate linked to cancer and heart disease, soared in Liaoning province as northern China began burning coal to heat homes at the start of the winter.

   

  

   

  “The air stings and makes my eyes and throat feel sore when I’m outdoors,” one woman, who had ventured out to buy a face mask, was quoted as saying. “As for what exactly we should do, I don’t know,” she added.

   

  

   

  The Associated Press said Sunday’s smog represented one of the worst episodes of air pollution recorded in China since authorities began releasing air quality data in 2013.

   

  

   

  There was indignation on social media as China confronted its latest “airpocalypse”.

   

  

   

  “The government knows how severe the smog problem is, so why haven’t they tackled it?” one critic wrote on Weibo, China’s Twitter.

   

  

   

  “What’s the point of having an environmental protection department? The precondition for developing the economy is not damaging the environment. Our leaders are all well educated. Can’t they understand this simple truth?”

   

  

   

  Others reacted with resignation. “Other than reporting it, what can the government do?”

   

  

   

  Shenyang, a major industrial centre since the days of Mao Zedong, has been attempting to clean up its act in recent years by relocating factories and starting to use natural gas instead of coal to heat homes.

   

  

   

  But on Monday doctors in Shenyang were dealing with the consequences of the latest bout of toxic pollution to hit their city.

   

  Yang Shenjia, who works at the Liaoning Jinqiu Hospital, said there had been a sudden influx of patients suffering from breathing complaints over the past two days. “The respiratory department’s inpatient wards are full,” the doctor told Xinhua.

   

  

  *  *  *

  Finally, and perhaps the most ironic of all, is the juxtaposition of the images above of a coal-smoke-plagued China with 'official' data that coal usage is collapsing amid China's "successful" reforms of the Coal industry in line with the newly signed Climate Change agreements with President Obama…

  Coal consumption is poised for its biggest decline in history, driven by China’s battle against pollution, economic reforms and its efforts to promote renewable energy.

   

  Global use of the most polluting fuel fell 2.3 percent to 4.6 percent in the first nine months of 2015 from the same period last year, according to a report released Monday by the environmental group Greenpeace. That’s a decline of as much as 180 million tons of standard coal, 40 million tons more than Japan used in the same period.

   

  The report confirms that worldwide efforts to fight global warming are having a significant impact on the coal industry, the biggest source of carbon emissions.

  Call us old-fashioned but color us skeptical that any of that is true given the record levels of coal pollution that is choking reality out of Chinese lives.

  

  

  

  

• The Russian Question – How The War Party Has Demonized Putin & Co

  Submitted by Justin Raimondo via AntiWar.com,

  It’s 2018, and President Hillary Clinton has announced that the Russians have violated her “no fly zone” over Syria. Damascus is about to fall, as jihadists – some armed and supported by the United States – gather in a final assault on the city. In the fog of war, a Russian fighter jet nearly collides with a US warplane sent in to fulfill the US “responsibility to protect” the “moderate” rebels.

   

  Meanwhile, in Ukraine, the newly-elected ultra-nationalist government has declared its intention to take back Crimea, and the freshly-rearmed Ukrainian military – with the neo-Nazi Azov Brigade in the lead – moves into the city of Mariupol, which has just voted to secede from Ukraine and asked for Russian protection. In Kalingrad, the isolated Russian outpost completely surrounded by Poland and Lithuania on the Baltic Sea, groups funded by the EU are staging demonstrations demanding reunification with Germany. In the midst of all this, Vladimir Putin announces Russia’s withdrawal from the INF treaty, Russian forces converge on the border with the Baltic states, and President Clinton puts US nuclear forces in Germany – which have just undergone a second “upgrade” – on high alert.

   

  Since the US-Russian verification and information exchange, mandated by the INF treaty, has been suspended since 2016, both countries are flying blind as far as monitoring the actions and intentions of the other.

   

  It is near midnight in a small town in eastern Germany, as NATO radar picks up indications that what may be a Russian fighter squadron is headed for Kaliningrad, and NATO’s missile defense system – just installed in Poland last summer – readies its response. The world teeters on the brink of World War III, as Hillary Clinton gets that call at 3 a.m.….

  Given the resumption of the cold war with Russia, some variation on the scenario described above is not only entirely possible, it is nearly inevitable. The INF treaty signed by Ronald Reagan is in danger of falling apart at the seams as NATO moves its forces ever closer to the Russian border and the Russians respond in kind. The US-EU coup d’etat in Ukraine, Georgia’s imminent entry into NATO, the “upgrading” of US nuclear weapons in Germany, and the radical uptick in anti-Russian rhetoric by US military and political figures has returned us to a danger we thought ended with the implosion of the Soviet empire: the threat of nuclear war.

  Accusations that Russia has violated the terms of the INF Treaty are not quite true, but what is clear is that the US and its NATO allies are prepositioning heavy weaponry on their eastern frontier and doubling the size of our “Response Force” in Europe. The Russian response has been largely rhetorical: in terms of facts on the ground, their much-touted nuclear modernization effort still puts them many miles behind the US. As Adam Mount, Stanton Nuclear Security Fellow at the Council on Foreign Relations, puts it:

  “Even if Russia were somehow to accelerate its nuclear modernization efforts, the U.S. Department of Defense recognizes that Russia “would not be able to achieve a militarily significant advantage by any plausible expansion of its strategic nuclear forces, even in a cheating or breakout scenario under the New START Treaty.”

   

  “To summarize: Russia could deploy many more missiles and still remain behind the United States in numbers of launchers and under the New START caps. Even if it cheated on the New START treaty and deployed still more, the Pentagon does not believe that this would significantly affect the strategic balance.”

  The United States withdrew from the Anti-Ballistic Missile Treaty in 2002, installed anti-ballistic missile systems in two east European countries, and has aggressively moved to expand NATO to the point that they are standing before the gates of Moscow. The Treaty on Conventional Armed Forces in Europe, signed by President George Herbert Walker Bush and then Soviet leader Mikhail Gorbachev in the winter of 1990, was effectively breached by the construction of permanent US military bases in Bulgaria and Romania, and the installation of US ABM facilities: the general atmosphere produced by the new cold war caused the Russians to formally withdraw from the treaty in 2007.

  The encirclement of Russia is a key element of Putin’s justified paranoia: not only in Europe but also in Central Asia, the Americans are on the march, as John Kerry’s recent trip to the region demonstrates. There Kerry canoodled with Central Asian despots like Islam Karimov, whose bloody dictatorship is a model for tyrants everywhere, making stops in Kazakhstan, Kyrgyzstan, Tajikistan, and Turkmenistan as well as Uzbekistan, where the USA maintains a military base not far from the Tajikistan border. Manas Air Base, near Bishkek, Kyrgyzstan, has been a key link in the supply chain servicing US troops in Afghanistan. Kerry’s Uzbekistan sojourn was marked by a news conference in which a Washington Post reporter was hustled out of the room by US and Uzbek security for asking inconvenient questions about Karimov’s horrendous human rights record.

  But human rights are only an issue for Washington in this context insofar as they can be used to indict Putin: the arrest and imprisonment of, say, journalists in Ukraine for questioning government policies is not even mentioned by our State Department, let alone protested.

  The anti-Russian hysteria sweeping Washington doesn’t discriminate as to party: while Hillary Clinton has been vocal about the alleged Russian “threat,” and hasn’t backed down from her “no fly zone” advocacy since the Russian intervention, GOP presidential hopeful Marco Rubio has done her one better by openly coming out for shooting down Russian planes in Syrian skies. Falsely claiming that the US isn’t modernizing its nuclear arsenal, Rubio wants to install more ABM sites throughout eastern Europe, and says Ukraine should be allowed to join NATO – setting the stage for a full-on showdown with the Russians. Rubio’s “vision for Europe” would send us back to the 1950s, when the specter of all-out war between the superpowers haunted the headlines.

  This retrograde vision is shared by most of Rubio’s Republican rivals, with the exception of Sen. Rand Paul – who is far behind in most polls. With Mrs. Clinton waxing hawkish when it comes to Putin’s Russia, and even Bernie Sanders echoing cold war propaganda – he supports US aid, including military aid, to Ukraine, and “freezing Russian assets all over the world” –   the political atmosphere here in the US does not bode well for Russo-American relations.

  With the general collapse of the post-cold war arms agreements with Moscow, and escalating tensions with the Kremlin in eastern Europe and the Middle East, the danger of a military confrontation between the US and  Russia is as great as it has ever been. This represents a shift by the Washington elite away from their seemingly eternal “war on terrorism” to a Russia-centric policy targeting Putinism rather than Islamism as the main danger to US interests.

  What is needed is a grassroots movement to counter the hysterical cold war propaganda being beamed at us by the “mainstream” media. We’ve been warning against the dangers posed by a new cold war with Russia for years, and the latest developments simply underscore how right we were.

  While grassroots campaigns can't hope to match the Washington think-tanks monetarily, it does have one huge advantage, and that is the natural unwillingness of the American people to be drawn into another cold war. Popular support for arming Ukraine and provoking the Russians is very low, and no one wants a nuclear showdown with the Kremlin. Significantly, the less Americans know about Ukraine the more they support US intervention – which just underlines how important our educational campaign is

  The demonization of Putin has been relatively successful, but the reality is that Russia has come a long way since the days of Stalin, and the willingness of the American people to engage in another international crusade against the Kremlin is highly problematic, at best. We have enough problems here at home that need addressing.

  What is desperately needed is a revived grassroots movement to reduce our nuclear weapons arsenal and rebuild the arms agreements with Russia that have been gathering dust in the wake of the new cold war. Do we really want another version of the Cuban missile crisis?

  I was struck by what one participant in the recent “Realism and Restraint” conference, co-sponsored by The American Conservative, the Charles Koch Institute, and the Georgetown University political science department, had to say at the outset of the event. In the first panel, Kori Schake, a research associate at the Hoover Institution who thinks US foreign policy must necessitate the recreation of the British Empire, raised a question that was meant as a litmus test of the other panel members’ views. What, she wanted to know, “should we do about Russia?”

  That we need to “do something” about Russia is in itself an assumption that hardly anyone in the foreign policy community “mainstream” questions. Undergoing economic convulsions and suffering from a rapidly falling birth rate, Russia is in no position to challenge the policy of US “primacy” so lovingly advanced by Schake and her fellow neocons. The reality, however, is that the policy of global hegemony pursued by our foreign policy elites requires the subjugation of Russia – which is, after all, a nuclear power. And that represents a dire threat to the peace of the world.

  The Russian question is, today, the main issue before us – and how we answer it will make the difference between war and peace.

  The War Party never rests: their cold war propaganda campaign is off and running.

  

  

  

  

  

• What's Wrong with Class War?

  From time to time, I will hear someone on the news cautioning participants in a conversation that they are saying things in support of “class warfare.” Inevitably, that shuts the conversation even quicker than calling someone a racist (or trotting out some stomach-churning childishness like references to ‘the N word”) . Apparently any notion that doesn’t glorify socioeconomic stratification in our society is denigrated as “class warfare”, and all parties go scurrying for cover.

  This has irked me for quite some time, but it never occurred to me to mention it on Slope until today, when I saw the following letter to the editor in that centerpiece of superb journalism, the Palo Alto Daily Post. The emphasis in yellow I added, although I encourage you to read the entire letter:

  

  Now, let me say at the outset I understand what this person is saying, and in a certain world, I would actually agree with him. That “world” would have……..

  • Had no TARP or any other bailout in 2008;
  • Would have allowed any business facing bankruptcy (Goldman Sachs, Morgan Stanley, etc.) to have done so;
  • Would have seen hundreds, if not thousands, of white collar zillionaires tossed into prison, led by Lloyd Blankfein and Dick Fuld;
  • Would have passed draconian regulation following the financial crisis to assure it never happening again;
  • Would provide simple-to-understand information to the public laying out what had happened and who the perpetrators are, just so Joe Six-Pack had a sporting chance of understanding what actually took place (I assure you, in the real world, Mr. Six Pack has no clue)

  In case you didn’t notice, we don’t live in a world anything like that. Instead, the rich got richer (much, much richer), none of them went to jail, and it’s as if nothing had ever happened (with the sole exception of Madoff, who was some kind of sacrificial lamb in the whole thing). So the notion that we live in some kind of meritocracy in which everyone plays by the rules is just plain wrong. The game is heavily, heavily, heavily tilted toward the “haves”.

  If, in fact, it was pretty much a dog-eat-dog world (even if the “dog” in question is Lloyd Blankfein or Goldman Sachs), I’d align pretty squarely with the letter writer’s main point, which is not to pick on folks who have made it to to the top. After all, if you’re a so-so actor working at your local playhouse doing musicals in the summer, should you shoot arrows at Kevin Spacey just because he’s a rich, successful actor? No, you shouldn’t. Because he’s undoubtedly a hell of a lot better actor than you are, and he deserves his success.

  Let’s stay in fantasy world for another moment and pretend there were no bailouts and there was no moral hazard. Should we agitate for punitive taxes against Bill Gates, Warren Buffett, Mark Zuckerberg, and other billionaires, simply because they are billionaires and we are not? Again, no. If we’re all playing by the same rules, and the system is fundamentally fair, then I say: good for you, billionaires! Well-played!

  As it is now, though, things are far afield from the level playing field I’m pretending might exist, thus, I really have no beef with someone like Bernie Sanders trying to raise hell and take on the rich corporations and rich individuals as well as specific issues like offshore tax havens and the ridiculous carried interest tax rate.

  To compare someone like Bernie Sanders to bloodthirsty monsters like Stalin and Pol Pot is too ludicrous for words. I’ve heard of slippery slopes before, but good lord, this guy must be totally off his rocker. And as for the mewing about how we should never engage in talk that might incite class warfare? My response is: the class war is already started, and it’s the rich that fired the first shots.

  

  

  

  

  

• What An Industrial Depression Looks Like: Photos From An Australian Heavy-Machinery Auction

  Two weeks ago, when looking at the latest Caterpillar retail sales data…

  

   

  … we said that “If Caterpillar’s Data Is Right, This Is A Global Industrial Depression.”

  Today we get visual evidence of this, courtesy of an Australian heavy industrial equipment auction where machines such as a Caterpillar 992C wheel loader, which normally costs $2.9 million, can now be bought for just $15,000, a 99% discount!

  As Australia’s ABC reports, now that the commodity bubble has burst for good, auctioneers are hard at work selling tens of millions of dollars of suddenly useless coal mining machinery for just a fraction of its original market value.

  The reason is known: the severe downturn in the Australian resources sector (courtesy of China’s whose commodity imports are declining with every passing month) has led to a massive oversupply of equipment, and much of it is unsuitable for use in any other industry. This means unwanted excavators, trucks and sundry heavy machinery will end up as scrap, if not sold at auction.

  ABC’s reporter visited just one such auction in New South Wales, which was owned by Big Rim, a mining services contractor which also collapsed after the miners it serviced also closed.

  What he saw was stunning:

  “At the moment we’ve probably got the worst downturn I’ve seen in 25 years,” said Chris Hassall, whose company is conducting the auction.

  Peter Turner’s Gold Coast company Turner Engineering used to compete for contracts with Big Rim. “I’d be interested in at least 50 per cent of what’s here, and there are at least 100 machines here,” he said.

  One of those machines was a large water tanker which Peter Turner was running the ruler over. “It’s not worth a lot. It’s worth $75,000 or something, but you can’t build the tank for that.”

  Worse, when the auction began the owners of a once-thriving business were hoping this fire sale would at the very least cover their debts. No such luck as the photos of the epic discounts on the equipment show.

  “Some of the old equipment that was working in the last two years is now redundant, won’t go back to work,” said auctioneer Chris Hassall.

  “We had 20 trucks in the Hunter Valley recently that 18 months ago were probably worth $600,000 each. We’ve just cut ’em up, returned about $40,000.”

  It’s prices like these which help explain why shares of the Kerry Stokes-controlled Seven Group are less than half what they were two-and-a-half years ago. Seven holds the largest Caterpillar franchises in both Australia and China.

  Coupled with the mining downturn, with good second hand machinery so cheap, it is little wonder new sales have been hit hard.

  For the sellers it was a bloobath; however at least some of the buyers were happy. “Contractor Peter Turner had been hoping to pay $75,000 for a water tanker, and in the end paid a little more at $77,500.”

  As ABC concludes, “it was a day which displayed the stark reality of a coal mining industry which has gone from boom to bust in a very short space of time.”

  Unless China ravenous appetite for all possible commodities returns, the industrial depression, already the worst Australia has seen in 25 years, will only get worse.

  And this is what an industrial depression looks like in numbers:

  Was: $2.9m | Now: $15,000: Caterpillar 992C wheel loader

  

   

  Was: $1.4m | Now: $50,000: Hitachi EX1200 hydraulic excavator

  

   

  Was: $2.7m | Now: $46,000: Caterpillar D11N crawler tractor

  

   

  Was: $900,000 | Now: $47,500: Caterpillar 775D rear dump truck
  

  

   

  Was: $200,000 | Now: $2,000: Large workshop with water tank

  

  

  

  

  

• As Q3 Earnings Season Winds Down, A Summary Of Where We Stand And The 4 Main Themes From Conference Calls

  With the third quarter earnings season almost over, and 90% of companies
  having reported, here is a quick look at where we stand and what has
  emerged as the 4 main themes during earnings calls.

  As of this moment, 71% of companies have beaten earnings expectations and just 44% have beaten top line estimates. The current consensus estimate is for a 2.2% decline in Q3 EPS across the S&P500.

  The improvement in bottom line beats were to be expected: as we showed this summer, the reason why companies aggressively beat expectations is because of the even more aggressive sandbagging and guiding down ahead of earnings. As the following chart shows, since 2011 the average EPS cut prior to reporting has been 4%, while the average beat: 3.3%.

  

  What is far more surprising is why so many companies missed the top line, and as Deutsche Bank says, “that’s a weaker trend compared to what we’ve seen in the last two quarters.” How does Q3 compare to prior quarters: in Q1 earnings and sales beats stood at 73% and 48% respectively, before improving slightly to 75% and 49% in Q2.

  If we take a look at the aggregate moves, the obvious weakness is at the sales line where YoY aggregate sales are -5.0%.

  And while Q3 will be the first earnings recession with two negative EPS quarters in a row, recall that the S&P500 already is in a revenue recession.

  According to FactSet, the blended revenue decline for Q3 2015 is -3.7%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since Q1 2009 through Q3 2009. It will also mark the largest year-over-year decline in revenue since Q3 2009 (-11.5%).

  

  Furthermore, it is not just energy: while five sectors are reporting year-over-year growth in revenue, led by the Telecom Services and Health Care sectors, another five sectors are reporting a year-over-year decline in revenue, led by the Energy and Materials sectors.

  Should Q4 revenue also post annual declines what then: a revenue depression?

  Meanwhile, over in Europe and with 318 Stoxx 600 companies having now reported, 48% have beaten earnings expectations and 45% sales expectations. That’s well down on both Q1 (57% and 72% respectively) and also Q2 (61% and 67% respectively) this year although it’s worth noting that the data is a little less reliable for European companies given not all have earnings expectations are on Bloomberg.

  * * *

  That’s the quantitative summary. For the qualitative one we go to Goldman Sachs, whose Beige Book summarizes the 4 key themes observed during the numerous earnings calls. Here is the punchline:

  • Theme 1: Divergence between consumer and industrial economies Many firms noted that the consumer economy continued to experience steady but unspectacular growth, while pockets of the industrial economy lagged and confronted recession-like conditions.
  • Theme 2: Early signs of inflation, particularly in the labor market Consumer-facing firms highlighted upward pressure on wages. Goods and services inflation remained limited, although some companies preemptively initiated price increases.
  • Theme 3: Buybacks remain a popular use of cash Use of cash was an important topic of management discussions. Many firms increased buyback authorizations and emphasized plans to return cash to shareholders, while others engaged in M&A.
  • Theme 4: Foreign exchange headwinds expected to continue A strong US dollar continued to weigh on earnings, particularly for companies with significant international exposure.

  Some additional company-level details.

  Theme 1: Divergence between consumer and industrial economies

  The economy continued to diverge along two paths: (1) consumer-facing companies experienced steady, positive growth; (2) industrial companies operated in a challenging, low-growth economy. The consumer economy benefited from solid, though not spectacular, US economic growth and an improving labor market. In contrast, the industrial economy experienced some recession-like conditions as a result of low oil prices and weak global demand.

  Consumer Economy

  Equity Residential (EQR)

  It’s no secret that fundamentals remain very good. Demographic picture is incredibly favorable. The economy continues to improve, perhaps not at the rate many would like, but improve nonetheless, which is generating job growth…

  Southern Co. (SO)

  Industrial sales are a leading indicator; commercial sales are typically your lagging indicator. Well, it looks as if the leading indicator is slowing and the lagging indicator is what’s really carrying the day.

  Ford Motor Co. (F)

  …we’re expecting North America to have a very, very strong year with top-line growth and also a full year profit that will be higher than what we achieved last year…so a really strong performance from North America driving the overall company.

  Apple Inc. (AAPL)

  …our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500.

  Starbucks Corp. (SBUX)

  Our fast-growing Americas segment continues to deliver industry-leading growth…and it opened 612 net new stores over the past 12 months.

  Industrial Economy

  Fastenal Co. (FAST)

  The industrial environmental is in a recession. I don’t care what anybody says because nobody knows that market better than we do with the number. We touch 250,000 active customers a month.

  Illinois Tool Works (ITW)

  …it’s a tale of two economies: industrial and consumer. We continue to see solid organic growth in our consumer-facing businesses, such as Automotive, Food Equipment, and parts of Specialty and Construction, which represents about 60% of our total revenues… on the other hand, our industrial-facing businesses, like Welding, Test & Measurement/Electronics, declined in the high single digits organic.

  E.I. du Pont and Co. (DD)

  Things have clearly softened up. You just look at every industrial company that’s reported this quarter. Having said that, I don’t think things are in any draconian situation. I think it’s just a low-growth to no-growth environment across some of the industrial spaces.

  3M Co. (MMM)

  Our U.S. Industrial business, which experienced softer end market conditions and a challenging year-on-year comparison, declined organically.

  Caterpillar Inc. (CAT)

  We anticipate between now and 2018 about $1.5B of annual cost reduction…we plan on reducing about 4,000 to 5,000 of our non-production workforce before the end of 2016.

  American Electric Power (AEP)

  Starting with GDP, you can see that the estimated 1.6% growth for the AEP service area is about 0.5% less than the estimated growth for the U.S. This is not surprising considering the impact of falling oil prices, especially in our Western footprint. While the nation benefits from lower fuel prices, the regional economies supporting the shale plays are  experiencing the direct impact of lost jobs.

   

  Theme 2: Early signs of inflation, particularly in the labor market [don’t shoot the messenger, it’s Goldman’s propaganda]

  Companies continued to see early signs of inflation, particularly in the labor market. Some consumer-facing firms and particularly food and retailing companies responded to mandatory wage changes and provided additional benefits to employees, placing upward pressure on wages. A limited number of companies highlighted preemptive price increases while others raised prices in response to food inflation.

  Wage Inflation

  Chipotle Mexican Grill (CMG)

  Labor costs were 22.2% of sales in the quarter, an increase of 100 basis points from last year, and year-to-date labor costs were up 40 basis points…Labor de-leveraged versus last year by 100 basis points as a result of wage inflation, with our hourly wages up nearly 5% over last year, along with the cost of adding enhanced benefits such as tuition reimbursement, paid sick leave, and increased paid vacation for our hourly restaurant employees as we discussed during our Q2 earnings call.

  McDonald’s Corp (MCD)

  The incremental labor cost in the U.S. related primarily to our decision to invest in our people by raising wages and providing paid time off for employees at our company-operated restaurants, as well as providing educational assistance to all eligible U.S. restaurant employees effective July 1. These costs, along with wage increases mandated by several states during H1, impacted third quarter U.S. margins by about 400BPS.

  Union Pacific Corp (UNP)

  Labor inflation was about 4% for the third quarter, driven by agreement wage inflation as well as higher pension and other benefit expense. For the fourth quarter, we expect labor inflation to also be about 4%.

  On the other hand, some firms are using technology to reduce wage costs in an attempt to maintain margins:

  PepsiCo Inc. (PEP)

  …we have installed packaging automation across approximately a third of our snacks plants worldwide, enabling us to reduce packaging labor costs in these facilities by at least 50%.

  Goods and Services Inflation

  Costco Wholesale (COST)

  I think the pressure on the fresh food side is us. When you’ve got some inflation on some of the commodity items like eggs or nuts, you’ve got a – we’re not changing the price of a 16-pack of muffins or a slice of pizza or a hot dog.

  FedEx Corp. (FDX)

  As we announced yesterday, we’ll be raising rates at FedEx Express, Ground and Freight by an average of 4.9% on January, the 4th of 2016. … we’re also updating certain fuel surcharge tables at FedEx Express and Ground effective November, the 2nd of 2015.

  Illinois Tool Works. (ITW)

  …the big driver of price here is new products that get launched that solve some pretty challenging problems for sophisticated customers, and then you see that – Food Equipment’s a good example and Automotive and others. That’s really the main driver of price here.

  UnitedHealth Group (UNH)

  Rather than wait for our own experience with our new members to fully develop, we increased rates and repositioned certain products market-by-market for 2016, and we expect improved performance next year.

   

  Theme 3: Buybacks remain a popular use of cash

  Companies continued to contemplate how best to use their cash, as many firms increased buyback authorizations and others engaged in M&A. Increased buyback authorizations were popular, despite some companies reiterating their commitment to other uses of cash. However, some companies paused buybacks as M&A activity also continued at a rapid pace.

  Buybacks

  United Technologies (UTX)

  …we’re going to keep driving the share repurchase agenda as long as we feel that there’s a significant discount between the intrinsic value of UTC and the share price. We continue to see that today, of course, that’s why our board recently authorized a new $12B share repurchase program…

  Phillips 66 (PSX)

  In addition, we announced an incremental $2 billion of share repurchase authorization. Today, we’ve completed $6 billion of the $9 billion in share repurchases authorized by our board…

  Alphabet, Inc. (GOOGL)

  As we announced today, our board has authorized us to commence a repurchase of our Class C capital stock of up to $5 billion. This decision is consistent with our overall capital management framework and complements a disciplined capital allocation program. Our primary uses of capital will, of course, remain CapEx and M&A across the breadth of our business.

  E.I. du Pont and Co. (DD)

  In the quarter, we entered into an accelerated share repurchase agreement to enable our $2B share repurchase commitment for 2015. In the quarter, we received and retired an initial delivery of about 29mm shares, which represents 80% of our $2B commitment.

  Johnson & Johnson (JNJ)

  Just this morning, we announced a $10 billion share repurchase program. We are very well positioned to drive continued growth in shareholder value with our exceptional financial strength, including our strong balance sheet and cash flow…as we have discussed before, we have a well-known and disciplined capital allocation strategy that starts with paying dividends, followed by value-creating M&A, and then we consider other ways to return value to shareholders, such as through a share repurchase program.

  Visa Inc. (V)

  Finally, we did not repurchase stock in the quarter due to the Visa Europe conversations that were underway… now that we’ve announced the Visa Europe transaction, we can resume our stock buyback. It is fully our intent to step up the pace of buybacks immediately to make up for buybacks not completed in Q4 FY 2015.

  M&A

  Aetna, Inc. (AET)

  Our ability to repurchase shares was constrained by the proposed Humana acquisition, and we did not repurchase any shares during the quarter. We did, however, distribute $87 million through our quarterly shareholder dividend.

  Walgreens Boot Alliance Inc (WBA)

  …as we are paying cash for the acquisition, we have taken the decision to suspend our share repurchase program and intend to redeploy that cash to partly fund the transaction. This means that in 2016 we will not enjoy the earnings accretion of the buybacks we originally planned.

  Gilead Sciences (GILD)

  …I’ve seen these cycles go up and down over the years. And when there’s a deal to be put together and it’s timely, it can be done. And so I don’t think it changes the overall outlook for M&A at all. I just think from my perspective, it’s about the same as it was in the beginning of the year.

   

  Theme 4: Foreign exchange headwinds expected to continue

  The strong US dollar continues to be a drag on top- and bottom-line results, particularly for companies with significant international exposure. Managements generally expect the foreign exchange headwinds to persist into 2016.

  Johnson & Johnson (JNJ)

  …but to give you an idea of the potential impact on earnings per share, if currency exchange rates for all of 2015 were to remain where they were as of last week. Then our reported adjusted EPS would be negatively impacted by approximately $0.60 per share.

  Monsanto Co. (MON)

  We currently estimate ongoing EPS headwinds of $0.35 to $0.40 from currency, $0.50 to $0.85 from year-over-year Ag productivity pricing declines, and $0.20 to $0.30 from elevated cost of goods for corn and the planned Xtend launch.

  Costco Wholesale (COST)

  In terms of a year-over-year EPS comparison, a few items of note, and the biggest item of note, FX. In Q4 year over year, the foreign currencies where we operate were weaker versus the U.S. dollar, resulting in our reported foreign earnings this year in Q4 being lower by about $53 million after tax or $0.12 a share than these earnings would have been had FX exchange rates been flat year over year.

  PepsiCo Inc. (PEP)

  We now expect foreign exchange translation to negatively impact net revenue and core EPS growth by approximately 10 percentage points and 11 percentage points respectively…

  Procter & Gamble (PG)

  The headwind from foreign exchange has increased since the start of year. We now expect FX will have a five to six percentage point impact on all-in sales growth.

  McDonald’s Corp (MCD)

  Currency translation is expected to be a headwind for the final quarter of 2015, as the U.S. dollar remains strong against nearly all of the world’s other major currencies. Based on current exchange rates, we expect currency translation to negatively impact fourth quarter EPS by $0.08 to $0.10.

  Visa Inc. (V)

  The fiscal year 2015 impact of exchange rates was a 2.5 percentage point drag on net revenues, higher than we had anticipated at the start of the year. If we look at where the dollar is today and the basket of currencies we are exposed to, the FY 2016 impact looks to be 3 percentage points.

  American Express (AXP)

  Like other U.S. companies with a significant global footprint, our reported results are being significantly impacted by changes in foreign exchange rates. Over the past year, the dollar has strengthened significantly year over year against the currencies that we are most exposed to outside the U.S…. The dollar’s strength will have an impact on our performance for the balance of the year and could impact 2016 as well.

  3M Co. (MMM)

  Foreign exchange impacts reduced sales by 7.4 percentage points, with notable year-onyear declines in the euro, yen, and Brazilian Real. These currencies devalued versus the U.S. dollar by 15%, 14%, and 37% respectively. In dollar terms, worldwide sales declined 5.2% versus the third quarter of 2014.

  Simon Property Group (SPG)

  And the other impact we’ve had on the negative side is that we’ve lost certain amount of percentage rent from the outlet business because of the fact that the strong dollar has also hurt tourism shopping.

  Microsoft Corp. (MSFT)

  Based on the current rates and the forecasted geographic mix of revenue, we expect 4 points of negative impact on total revenue in Q2.

  Sherwin-Williams (SHW)

  Unfavorable currency translation decreased earnings per share, $0.09 in the quarter.

   

   

  

  

  

  

  

• About That Surge In Retail & Construction Jobs

  As one witty observer noted over the weekend, "no one with an IQ greater than their shoe size, save corrupt, captured American economists, buys the fake October unemployment report," and while we agreed with the pretext of his thesis, we thought a quick sanity check on the sudden surges in Retail employment and Construction jobs and wage growth would help clarify a few things for those who 'believe' in miracles. As the following two simple charts show, we have seen this odious pattern of mal-investment, mis-allocation, and erroneous executuve extrapolation before… and it did not end well.

  First – Retail..

  Something stinks. Retail stock prices have been plunging (despite the promises of increased spending amid expectations of wage growth – which today NYFed admitted was at its lowest on record) and just tonight we see Banana Republic see Same Store Sales collapse 15% and Gap overall down 4%.

  We have seen this before…

  

  Coincidence we are sure.

  Second – Construction.

  Having already pointed out the anomalous surge in construction jobs weekly payrolls print, we thought exposure of the raw underbelly of the construction industry would help. As Framing Lumber prices crash over 21% year-over-year, it just seems odd that construction jobs would keep surging onwards and upwards as if nothing had happened. Of course, this 'confidence' in the face of market-implied doom has been seen before…

  

  And did not end well.

  *  *  *
  So apart from Retail and Construction sectors entirely decoupling – in an almost perfect replay of the lead-up to the last crash – it seems everything is on target for a rate hike.

  

  

  

  

  

• "Grieving" Mother Of Murdered 9-Year-Old Spends Online Donations On New Car

  Having very recently pointed out the growing epidemic of "online begging," seeing a mother use an online donation platform to raise funds to "lay her son to rest" seems like a laudible and donation-worthy cause. However, as ABC7 reports, the 'grieving' mother of murdered Chicago 9-year-old Tysham Lee used the funds to purchase a 2015 Chrysler 200 and after facing a torrent of abuse attempted to defend her seemingly callous act – "Y'all don't know nothing about me."

   

   

  As ABC7 reports,

  The mother of a 9-year-old boy fatally shot earlier this week is being accused of spending money donated through a GoFundMe effort intended for funeral expenses on a new car.

   

  Karla Lee strongly denies the claim and commented on those who have taken to social media to criticize her.

   

  The mother of slain Tyshawn Lee says it's simply not true. She said she did not use money donated to help pay for her son's funeral to buy a new car.

  Karla Lee posted several videos to Instagram Saturday morning after a flurry of social media posts accused her of using money from her son’s GoFundMe account to buy the car. Lee says she used her own money.

  The emotional 26-year-old says she bought the car to protect herself so she wouldn't become a target by walking or taking the bus.

   

  "I told them I was scared and I was fearing," she said. "Too bad if y'all don't understand that."

   

  “I got this s*** for my protection…I’m pretty sure that’s something my son would have wanted me to do,” she said in one of the videos. In another video, she says she was afraid of being targeted if she took public transportation.

   

  "Y'all don't know nothing about me," she said. "For y'all to be bashing me like that, and I just lost my child."

  Lee is defending herself after heavy criticism on social media accusing her of using donated money from a GoFundMe page. While she admits to buying a car, she says she used her own money to make the down payment for the 2015 Chrysler 200.

  Lee said the controversy began after the dealership where she bought the car posted her purchase on Facebook without her knowledge. The post was deleted after negative reactions by supporters who donated.

   

  "Once again, it just looks offsetting that out of nowhere you're driving around in a new car," said Aundra Lewis.

   

  More than $17,000 was raised in four days through the donation page, which was created by a friend of Lee's to "Help Karla lay her son to rest."

  *  *  *

  We have no comment, the story speaks for itself. One can only imagine in this mother's mind, a brand new Chrysler was considered 'deserved, fair' given the loss of her son.

  

  

  

  

  

• University Of Missouri President Resigns After Claims He "Enabled A Culture Of Racism"

  For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white (79% white and 8% black) flagship campus of the Missouri's four-college system. Today, amid a campus in open revolt and at least 30 black football players announcing that they would not play until the president was gone, AP reports that Mizzou President Tim Wolfe has resigned effective immediately urging students and faculty "to heal and start talking again to make the changes necessary." Protestors demanded that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.

   

  Tensions have built dramatically over the past few months…

   

  And now, as AP reports, the president of the University of Missouri system resigned Monday with the football team and others on campus in open revolt over his handling of racial tensions at the school. President Tim Wolfe said his resignation was effective immediately. He made the announcement at the start of what had been expected to be a lengthy closed-door meeting of the school's governing board.

  The complaints came to a head a day earlier, when at least 30 black football players announced that they would not play until the president was gone. One student went on a weeklong hunger strike.

  Wolfe took "full responsibility for the frustration" students had expressed and said their complaints were "clear" and "real."

   

  "This is not the way change comes about," he said, alluding to recent protests, in a halting statement that was simultaneously apologetic, clumsy and defiant. "We stopped listening to each other."

   

  He urged students, faculty and staff to use the resignation "to heal and start talking again to make the changes necessary."

   

  A poor audio feed for the one board member who was attending the meeting via conference call left Wolfe standing awkwardly at the podium for nearly three minutes after only being able to read the first sentence of his statement.

  For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white flagship campus of the state's four-college system. Frustrations flared during a homecoming parade Oct. 10 when black protesters blocked Wolfe's car, and he did not get out and talk to them. They were removed by police.

  Black members of the football team joined the outcry on Saturday night. By Sunday, a campus sit-in had grown in size, graduate student groups planned walkouts and politicians began to weigh in.

   

  Until Monday, Wolfe did not indicate that he had any intention of stepping down. He agreed in a statement issued Sunday that "change is needed" and said the university was working to draw up a plan by April to promote diversity and tolerance.

   

  The Tigers' next game is Saturday against Brigham Young University at Arrowhead Stadium, the home of the NFL's Kansas City Chiefs, and canceling it could cost the school more than $1 million.

   

  "The athletes of color on the University of Missouri football team truly believe 'Injustice Anywhere is a threat to Justice Everywhere,'" the players said in a statement. "We will no longer participate in any football related activities until President Tim Wolfe resigns or is removed due to his negligence toward marginalized students' experience. WE ARE UNITED!!!!!"

   

  Head football coach Gary Pinkel expressed solidarity on Twitter, posting a picture of the team and coaches locking arms. The tweet said: "The Mizzou Family stands as one. We are united. We are behind our players."

   

  A statement issued by Pinkel and Missouri athletic director Mack Rhoades linked the return of the protesting football players to the end of a hunger strike by a black graduate student who began the effort Nov. 2 and has vowed to not eat until Wolfe is gone.

   

  "Our focus right now is on the health of Jonathan Butler, the concerns of our student-athletes and working with our community to address this serious issue," the statement said.

   

  After Wolfe's announcement, Butler said in a tweet that his strike was over.

  The protests began after the student government president, who is black, said in September that people in a passing pickup truck shouted racial slurs at him.

  In early October, members of a black student organization said slurs were hurled at them by an apparently drunken white student.

   

  Also, a swastika drawn in feces was found recently in a dormitory bathroom.

   

  Many of the protests have been led by an organization called Concerned Student 1950, which gets its name from the year the university accepted its first black student. Its members besieged Wolfe's car at the parade, and they have been conducting a sit-in on a campus plaza since last Monday.

   

  Two trucks flying Confederate flags drove past the site Sunday, a move many saw as an attempt at intimidation. At least 150 students gathered at the plaza Sunday night to pray, sing and read Bible verses, a larger crowd than on previous days. Many planned to camp there overnight, despite temperatures that had dropped into the upper 30s.

  Also joining in the protest effort were two graduate student groups that called for walkouts Monday and Tuesday and the student government at the Columbia campus, the Missouri Students Association. The association said in a letter Sunday to the system's governing body that there had been "an increase in tension and inequality with no systemic support" since last year's fatal shooting of Michael Brown in Ferguson, which is about 120 miles east of Columbia.

  The association said Wolfe heads a university leadership that "has undeniably failed us and the students that we represent."

   

  "He has not only enabled a culture of racism since the start of his tenure in 2012, but blatantly ignored and disrespected the concerns of students," the group wrote.

   

  Concerned Student 1950 has demanded, among other things, that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.

   

  One of the sit-in participants, Abigail Hollis, a black undergraduate, said the campus is "unhealthy and unsafe for us."

   

  "The way white students are treated is in stark contrast to the way black students and other marginalized students are treated, and it's time to stop that," Hollis said. "It's 2015."

  *  *  *

  A victory for cultural marxism or a righteous move to accelerate an end to serial racism (absent "safe spaces")?

  

  

  

  

  

• The Re-Enserfment Of Western Peoples

  Authored by Paul Craig Roberts,

  The re-enserfment of Western peoples is taking place on several levels.

  One about which I have been writing for more than a decade comes from the offshoring of jobs. Americans, for example, have a shrinking participation in the production of the goods and services that are marketed to them.

  On another level we are experiencing the financialization of the Western economy about which Michael Hudson is the leading expert (Killing The Host). Financialization is the process of removing any public presence in the economy and converting the economic surplus into interest payments to the financial sector.

  These two developments deprive people of economic prospects.

  A third development deprives them of political rights. The Trans-Pacific and Trans-Atlantic Partnerships eliminate political sovereignty and turn governance over to global corporations.

  These so called “trade partnerships” have nothing to do with trade. These agreements negotiated in secrecy grant immunity to corporations from the laws of the countries in which they do business. This is achieved by declaring any interference by existing and prospective laws and regulations on corporate profits as restraints on trade for which corporations can sue and fine “sovereign” governments. For example, the ban in France and other counries on GMO products would be negated by the Trans-Atlantic Partnership. Democracy is simply replaced by corporate rule.

  I have been meaning to write about this at length. However, others, such as Chris Hedges, are doing a good job of explaining the power grab that eliminates representative government.

  There is more than enough evidence from past trade agreements to indicate where the TPP — often called "NAFTA on steroids" — will lead. It is part of the inexorable march by corporations to wrest from us the ability to use government to defend the public and to build social and political organizations that promote the common good.

   

  Our corporate masters seek to turn the natural world and human beings into malleable commodities that will be used and exploited until exhaustion or collapse. Trade agreements are the tools being used to achieve this subjugation. The only response left is open, sustained and defiant popular revolt.

  The corporations are buying power cheaply. They bought the entire US House of Representatives for just under $200 million. This is what the corporations paid Congress to go along with “Fast Track,” which permits the corporations’ agent, the US Trade Representative, to negotiate in secret without congressional input or oversight.

  Corporations are taking control of what policies are approved or blocked in the U.S.

   

  We cannot sit around while corporations decide what is "good" for America or not! This is a democracy, not a plutocracy! Contact your representatives and let them know that you do not want them to vote in favor of TPA!

  In other words, a US corporate agent deals with corporate agents in the countries that will comprise the “partnership,” and this handful of well-bribed people draw up an agreement that supplants law with the interests of corporations. No one negotiating the partnership represents the peoples’ or public’s interests. The governments of the partnership countries get to vote the deal up or down, and they will be well paid to vote for the agreement.

  Once these partnerships are in effect, government itself is privatized. There is no longer any point in legislatures, presidents, prime ministers, judges. Corporate tribunals decide law and court rulings.

  It is likely that these “partnerships” will have unintended consequences. For example, Russia and China are not part of the arrangements, and neither are Iran, Brazil, India, and South Africa, although seperately the Indian government appears to have been purchased by American agribusiness and is in the process of destroying its self-sufficient food production system. These countries will be the repositories for national sovereignty and public control while freedom and democracy are extinguished in the West and the West’s Asian vassals.

  Violent revolution throughout the West and the complete elimination of the One Percent is another possible outcome. Once, for example, the French people discover that they have lost all control over their diet to Monsanto and American agribusiness, the members of the French government that delivered France into dietary bondage to toxic foods are likely to be killed in the streets.

  Events of this sort are possible throughout the West as peoples discover that they have lost all control over every aspect of their lives and that their only choice is revolution or death.

  

  

  

  

  

• Obama's Trade Deal Will Bankrupt Canada's Farming Industry "Overnight", Expert Says

  Earlier this month, in “Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever,” we took a close look at Canada, where slumping crude prices are beginning to take a serious toll. As we noted, citing BofAML, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

  

   

  Citing Sharma’s data Bloomberg wrote that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

  

  Well now, on the heels of the Obama administration’s rejection of the “dangerous” Keystone Pipeline (which comes as oil tankers continue to derail across the country), some critics say The White House’s controversial new trade deal could end up costing beleaguered Canada massive job along with the “overnight” collapse of their agriculture industry. Here’s more, from Sputnik:

  There are also major concerns over the effects the trade deal will have on Canadian agriculture industries.

   

  Dr Sylvain Charlebois, professor of distribution and food policy at the University of Guelph’s Food Institute in Canada, told Sputnik there were many unanswered questions in the deal.

   

  “I think overall, reading the deal, there are some very strong elements to support Canada’s membership into this partnership. However, there are a lot of unknowns unfortunately, particularly in the area of agriculture.”

   

  Dr Charlebois said that Canada’s protectionist supply management scheme, which works to protect local industries, would be thrown out under the TPP, with concerns over how this would impact local producers.

   

  “Canada has supply management, particularly with poultry, milk and eggs, so we basically produce what we need in Canada. Now the Trans-Pacific Partnership would compromise the equilibrium we have between supply and demand domestically […] allowing milk from other member countries to come into the Canadian market.”

   

  “What would happen to quotas for example? But most importantly, what would happen to processing? So there’s lots of questions being asked by farmers and processors, and now with the changing government, hopefully we’ll get some clarity on these issues.”

  Charlebois goes on to say that the dairy, egg, and poultry sectors may indeed collapse “overnight”:

  The supply management scheme has been in place since the mid-60s in order to protect Canadian agricultural sectors from larger US corporations. 

   

  As a result, Dr Charlebois says the local industries have become complacent and inefficient, and would not be able to survive under the TPP if it was implemented immediately. “Overnight if we were to eliminate tariffs on imports, we would likely see the dairy sector in Canada, and perhaps the poultry and egg sectors, collapse overnight.

   

  “We’re just not competitive so we need to give it some time for these sectors to adapt and change their modus operandi to make sure they do become more productive and efficient over the next 15 years or so.”

  So, with Canada already stinging from plunging crude, some are now suggesting that TPP could be set to cripple the country’s economy even further. Meanwhile, Jim Balsillie, former co-CEO of BlackBerry – which is of course “dominating” the global smartphone market – thinks this is the “worst thing Canada has ever done”: 

  “I’m not a partisan actor, but I actually think this is the worst thing that the Harper government has done for Canada… I think in 10 years from now, we’ll call that the signature worst thing in policy that Canada’s ever done. It’s such brilliantly systemic encirclement.

   

  I’m just in awe at its powerful purity by the Americans… We’ve been outfoxed.”

  Yeah ok, maybe, but let’s just be honest, the Obama administration has never “outfoxed” anyone on anything. In fact, if recent geopolitical outcomes have taught us anything, Obama and Kerry couldn’t “outfox” their way out of a wet paper bag, so to the extent they’ve designed some kind of cunning trade policy with the aim of bankrupting the Canadian dairy industry it would out of character, but again, stupidity sometimes produces unpredictable outcomes. 

  Anyway, incompetence and naïvety do have a way of creating unexpected consequences so we hope, for Canada’s sake, that the The White House doesn’t end up bankrupting everything chicken-related north of the border but if it does, don’t worry, because that same incompetence will invariably end up starting a world war in Syria which will swiftly drive crude prices through the roof and then it’s problem solved for the Canadians…

  

  

  

  

  

• Ron Paul: Does The Bell Toll For The Fed?

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

  Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve Board will increase interest rates at the board’s December meeting. The positive jobs report that was released following Yellen’s remarks caused many observers to say that the Federal Reserve’s first interest rate increase in almost a decade is practically inevitable.

  However, there are several reasons to doubt that the Fed will increase rates anytime in the near future. One reason is that the official unemployment rate understates unemployment by ignoring the over 94 million Americans who have either withdrawn from the labor force or settled for part-time work. Presumably the Federal Reserve Board has access to the real unemployment numbers and is thus aware that the economy is actually far from full employment.

  The decline in the stock market following Friday’s jobs report was attributed to many investors’ fears over the impact of the predicted interest rate increase. Wall Street’s jitters about the effects of a rate increase is another reason to doubt that the Fed will soon increase rates. After all, according to former Federal Reserve official Andrew Huszar, protecting Wall Street was the main goal of “quantitative easing,” so why would the Fed now risk a Christmastime downturn in the stock markets?

  Donald Trump made headlines last week by accusing Janet Yellen of keeping interest rates low because she does not want to risk another economic downturn in President Obama’s last year in office. I have many disagreements with Mr. Trump, but I do agree with him that the Federal Reserve’s polices may be influenced by partisan politics.

  Janet Yellen would hardly be the first Fed chair to allow politics to influence decision-making. Almost all Fed chairs have felt pressure to “adjust” monetary policy to suit the incumbent administration, and almost all have bowed to the pressure. Economists refer to the Fed’s propensity to tailor monetary policy to suit the needs of incumbent presidents as the “political” business cycle.

  Presidents of both parties, and all ideologies, have interfered with the Federal Reserve’s conduct of monetary policy. President Dwight D. Eisenhower actually threatened to force the Fed chair to resign if he did not give in to Ike's demands for easy money, while then-Federal Reserve Chair Arthur Burns was taped joking about Fed independence with President Richard Nixon.

  The failure of the Fed’s policies of massive money creation, corporate bailouts, and quantitative easing to produce economic growth is a sign that the fiat money system’s day of reckoning is near. The only way to prevent the monetary system’s inevitable crash from causing a major economic crisis is the restoration of a free-market monetary policy.

  One positive step Congress may take this year is passing the Audit the Fed bill. Fortunately, Senator Rand Paul is using Senate rules to force the Senate to hold a roll-call vote on Audit the Fed. The vote is expected to take place in the next two-to-three weeks. If Audit the Fed passes, the American people can finally learn the full truth about the Fed’s operations. If it fails, the American people will at least know which senators side with them and which ones side with the Federal Reserve.

  Allowing a secretive central bank to control monetary policy has resulted in an ever-expanding government, growing income inequality, a series of ever-worsening economic crises, and a steady erosion of the dollar’s purchasing power. Unless this system is changed, America, and the world, will soon experience a major economic crisis. It is time to finally audit, then end, the Fed.

  

  

  

  

  

• Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

  In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and pateiently repatriated by his deceased predecessor) gold to repay creditors.

  Specifically, in the past several months, Caracas has quietly parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May.  At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”

  But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.

  What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

  Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.

  The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.

  Venezuela holds part of its reserves with the International Monetary Fund in an instrument called Special Drawing Rights (SDR), a basket of international currencies made up of the euro, Japanese yen, pound sterling and U.S. dollar.

   

  The withdrawal will allow Venezuela to use the funds for imports or debt service, but does not change its total reserve holdings as SDRs are already accounted for.

  Needless to say, it is far wiser to use up all paper “assets” to repay “paper” liabilities, before resorting to hart money. By then, it is usually game over anyway, so our advise to Mr. Maduro: just default now, and save your gold.

  Referentially, the country’s international reserves as of Thursday stood at $14.819 billion: and dropping fast.  At this rate of depletion, we give Venezuela a few more months before the army takes over.

  

   

  Finally, the central bank’s most recent financial statements as of May, showed that 58% of reserves were held in gold.  It is unclear how much, if any, were held in “toilet paper”.

  

  

  

  

  

  

• EM Exodus: Emerging Economies See Half Trillion In Capital Flight

  When Janet Yellen and the rest of the Eccles cabal decided to stay on hold in September, the “new” reaction function was all anyone wanted to talk about. 

  Of course, the idea that the Fed was to that point “data dependent” (versus market dependent) was something of a joke in the first place, but the specificity the FOMC employed when referring to global financial markets still took some observers off guard. The worry for the Fed revolved primarily around the possibility that a hike could accelerate EM capital outflows at a time when a series of idiosyncratic factors (like a civil war in Turkey, a political crisis in Brazil, and the 1MDB scandal in Malaysia) had already pushed the emerging world to the brink of crisis. Enormous outflows from China as a result of the yuan deval didn’t help.

  In short, the theory was that even a “symbolic” 25 bps hike had the potential to trigger an EM exodus that would make the taper tantrum look like a walk in the park as a soaring dollar exacerbated an already tenuous scenario playing out across the space. 

  Now, as we look back at Q2 and Q3, we learn that all told, well more than a half trillion in capital fled EM over six months.

  Here’s JP Morgan who calls the capital flight “unprecedented”: 

  Recent capital outflows from EM have raised fears of a potential credit crunch, which if it materializes, could exacerbate the economic downshifting of EM economies. On our estimates $360bn of capital left China during the previous two quarters and an additional $210bn left from the rest of EM.

   

  

   

  This of course led directly to a massive FX reserve drawdown and indeed, over the past 18 or so months, the end of the so-called “Great Accumulation” of USD assets has come to a rather unceremonious end. Here are two graphics from Goldman which demonstrate the scope of build and subsequent unwind:

  

  

  

  

  But for anyone who’s concerned about the effect this might have on tightening global monetary conditions or otherwise amplfying a “liftoff”, don’t worry because while QT may indeed be QE in reverse, Goldman thinks it can’t possibly be as “negative” as QE was “positive”given the fact that it’s inherently limited by how much EMs have to sell whereas QE is only limited by central planners’ collective imagination:

  Countering widespread worries about QT, Zach Pandl of our US Economics Research team argues that the impact of EM reserve selling does not amount to QE in reverse. Even if the pace of dollar-denominated asset sales lines up roughly with the Fed’s Treasury purchases over the main phase of QE, the former won’t pack the same punch.

   

  Specifically, QT lacks the signaling value of QE, actually works to weaken the dollar (as does QE), and is finite because reserves can only decline to zero (in contrast to theoretically unlimited asset purchases—a key source of QE’s potency).

  Or, summed up…

  

  

  

  

  

  

• Video: U.S. Apache Attack Helicopter Follows Behind ISIS Convoy … Doesn’t Fire a Single Shot

  This video from LiveLeak purports to be an Apache attack helicopter following a huge ISIS convoy of white pickup trucks crossing from Iraq to Syria … and – instead of attacking – more or less "escorting" it across the border:

  What do you think?

  

  

  

  

• The Courage To Print Money

  Submitted by Tim Price via SovereignMan.com,

  If you’ve seen the movie The Usual Suspects, you know that wonderful line “The greatest trick the Devil ever pulled was convincing the world he didn’t exist.”

  We believe the greatest trick central bankers ever pulled was convincing the world they were acting in the interests of anyone other than the banks.

  With that in mind, it’s almost surreal to see former Fed Chairman Ben Bernanke making victory laps around the world to celebrate the launch of his new book, curiously entitled The Courage to Act.

  Does it really take courage for unelected economic bureaucrats to print up trillions of dollars of taxpayers’ money in order to bail out Wall Street banks?

  I’m sure it will certainly take courage if the taxpayer finally wakes up to the ruse before it fails.

  And sooner or later, every ruse does fail, even when run by the world’s most powerful cartel.

  The Fed, along with its cousins in Europe and Asia, is up against a force of nature in the form of the free market. A banking cartel can clearly achieve a lot in its own interest, but in the fullness of time, the market will win out.

  To suppose otherwise is to believe that central planning works. As if putting Janet Yellen in charge of the Soviet Empire would have somehow averted the fall of Communism.

  Here in the UK, we have a crime known as High Treason: the crime of disloyalty to the Crown. “Adhering to the sovereign’s enemies, giving them aid or comfort” is a High Treason offence.

  So is “counterfeiting money”.

  Destabilizing the monetary system to the point of potential collapse would probably qualify, we think, perhaps on both grounds.

  So the next time a central banker (the Bank of England’s Chief Economist), or one of their banker buddies, proposes that the abolition of physical cash or the introduction of negative interest rates, is in the best interests of the taxpayer and not the banks, they should be grateful that we no longer have the death penalty for High Treason.

  

  

  

  

  

• Shares Of World's Largest Miner Plunge To Seven-Year Low After Massive Toxic Mudslide Engulfs Brazilian Village

  Ok, so if you’re the world’s largest mining company, one thing you don’t want is a global deflationary supply glut brought on by depressed demand from China and a worldwide excess capacity problem. 

  Another thing you don’t want is for a tailings dam to burst, sending a river of toxic mud into a nearby village in South America.

  Well, BHP Billiton is now dealing with both of those issues and the market is punishing the stock, which hit a seven-year low on Monday as analysts and investors alike attempt to figure out how the company intends to clean up a spectacular (in a bad way) mess in Minas Gerais. 

  

  Here’s what happened, in BHP’s words: 

  The Samarco operations include a three tiered tailings dam complex. Within this complex, the Fundão dam failed and the downstream Santarém dam has been affected. This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream. The third dam in the complex, the Germano dam, is being monitored by Samarco. At this time, there is no confirmation of the causes of the tailings release.

  Samarco is jointly operated with Brazilian giant Vale and BHP has been keen to note that the joint venture is “responsible for the entirety” of the Minas Gerais operations. After the company’s operating license was revoked on Monday, its debt plunged, with some $2.2 billion in paper due 2022, 2023, and 2024 hitting record lows.

  

  For those who might have missed it, the following images will tell you pretty much all you need to know about what happened:

  

  

  

  

  

  

  

  

  

  

  (via WSJ)

  And here’s Deutsche Bank’s take, which underscores the significance:

  BHP and Vale’s 30Mtpa Samarco iron ore mine in Southern Brazil (50/50 JV) has suffered a catastrophic tailings dam failure. The mine represents c. 10% of our BHP earnings and 3% of NPV, we now assume the mine is shut until FY19. Pellet production was recently expanded to 30Mtpa at a cost of US$3.2b. Media reports have stated that there is a significant and tragic loss of life. Based on public images of the failure we estimate that the dam contained over 300Mt or 150Mm3 of tailings and Samarco could be down for years while the clean-up costs may exceed US$1b. This accident will add further pressure to BHP’s cash flow, growth and safeguarding of the progressive dividend

   

  At around 0530am AEST on Nov 6, Samarco’s largest tailings facility failed causing slurry to race through the open pit and down the valley into the local village of Bento Rodrigues and into local waterways. The media is reporting that between 15 and 17 people have died and 45 others are missing. Samarco states in its FY14 sustainability report that it employs a management system referred to as “Failure Modes and Effects Analysis (FMEA) system” to control tailings dam failure risks. It could be months before Vale, BHP, State and Federal governments complete their assessment of the incident. The clean-up, community support, litigation and rebuilding of the tailings dam (if approved and deemed feasible) could mean that Samarco is shut for years. The mine employs 3,100 people and is one of the largest employers in the region. Samarco contributed US$369m to BHP earnings in FY15 and before this incident we estimated it would contribute US$308m in FY16. We have assumed the mine is shut until FY19, the workforce remains employed, and BHP’s share of the clean-up and dam rebuild costs US$500m. We have excluded any recouping of costs from insurance at this stage. 

  Of course this is the sellside penguin brigade so naturally, all of that somehow translates to a “Hold“:

  

  As WSJ notes: 

  Brazilian officials on Sunday raised the death toll to three people, two of whom were found in the path of the mud flow, and a third who died while receiving medical treatment. That number is expected to rise, as at least 28 people are now confirmed missing.

   

  “BHP Billiton will continue to work with Samarco, Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident,” BHP said.

   

  The shutdown will reduce BHP’s iron-ore production this fiscal year—cutting into profit when falling commodity prices already are already making it more difficult for the company to keep its promise to maintain or lift shareholder dividends. Samarco last year accounted for roughly 3% of BHP’s underlying earnings.

  Right, so in other words, this is an unmitigated disaster. 

  On the “bright” side, the fallout could take some excess supply offline, and could impact prices. Here’s more, via Bloomberg:

  • Deactivation of production at Samarco Mineracao mine, a JV between BHP Billiton and Vale, is likely to pressure iron-ore prices, Christopher Tuck, mineral commodity specialist at U.S. Geological Survey’s National Minerals Information Center, says in interview in Rio.
    • “Any deactivation, on this scale, will have an impact on seaborne trade. The varying factor that would affect prices is the length of time this mine remains inoperable. The larger time it remains idled, the greater the likelihood it will have an impact on prices’’
    • Potential impact on price of pellets much more significant than effect on overall market
    • Short-term idling could level off prices through end of 2015; if output is halted long-term, prices could increase slightly

  We suppose the takeaway here is that an already abysmal backdrop for BHP just got a lot worse, which means you may want to brace yourself if you’re a shareholder and if you’re a Brazilian villager, just hold your breath and wait for your compensatory check from Samarco – we’re sure it’s in the mail.