• Authoritarian Leftist "Activists" Demand The End Of Free Speech, Extensive Re-Education

  Submitted by Alex Thomas bia Intellihub.com,

  Hard left authoritarians at Amherst College have issued a series of demands, under the threat of civil disobedience, that include the complete end of free speech on campus as well as extensive re-education for offenders.

  The demands, issued in support of the so-called uprising at the University of Missouri, read like a literal fascist manifesto and are conclusive proof that the mainstream media supported protests at multiple colleges over the last few weeks are not about racial equality but rather are about totally and completely shutting down the speech of anyone who disagrees with the opinions of the protesters.

  The fact that the group is attempting to get the President of a major university to sign off on re-education classes and punishment for anyone who speaks about free speech or says all lives matter is a startling reminder of the extreme authoritarianism that runs through the veins of the college hard left.

  Here are the demands. Take note of the outright fascism.

  We, Students of Amherst College, refuse to accept the negative social climate created towards our peers of color and other marginalized groups. We have begun this movement, Amherst Uprising, in an effort to change the status quo for a more just and inclusive environment within our campus. We demand that Amherst become a leader in the fight to promote a better social climate towards individuals who have been systematically oppressed. Student leaders acknowledge and support the demands previously stated and currently being presented. Furthermore, we demand the College acknowledge its ethical and moral responsibilities as an institution and community of our world. Amherst College should not be complicit in oppressive organizations and systems, no less.

   

  We as a compassionate student body have gathered to address the legacy of oppression on campus. If these goals are not initiated within the next 24 to 48 hours, and completed by November 18th, we will organize and respond in a radical manner, through civil disobedience. If there is a continued failure to meet our demands, it will result in an escalation of our response.

   

  1.    President Martin must issue a statement of apology to students, alumni and former students, faculty, administration and staff who have been victims of several injustices including but not limited to our institutional legacy of white supremacy, colonialism, anti-black racism, anti-Latinx racism, anti-Native American racism, anti-Native/ indigenous racism, anti-Asian racism, anti-Middle Eastern racism, heterosexism, cis-sexism, xenophobia, anti-Semitism, ableism, mental health stigma, and classism. Also include that marginalized communities and their allies should feel safe at Amherst College.

   

  2.    We demand Cullen Murphy ‘74, Chairman of the Board of Trustees, to issue a statement of apology to students, alumni and former students, faculty, administration, and staff who have been victims of several injustices including but not limited to our institutional legacy of white supremacy, colonialism, anti-black racism, anti-Latinx racism, anti-Native American racism, anti-Native/ indigenous racism, anti-Asian racism, anti-Middle Eastern racism, heterosexism, cis-sexism, xenophobia, anti-Semitism, ableism, mental health stigma, and classism

   

  3.     Amherst College Police Department must issue a statement of protection and defense from any form of violence, threats, or retaliation of any kind resulting from this movement.

   

  4.   President Martin must issue a statement of apology to faculty, staff and administrators of color as well as their allies, neither of whom were provided a safe space for them to thrive while at Amherst College.

   

  5.    President Martin must issue a statement to the Amherst College community at large that states we do not tolerate the actions of student(s) who posted the “All Lives Matter” posters, and the “Free Speech” posters that stated that “in memoriam of the true victim of the Missouri Protests: Free Speech.” Also let the student body know that it was racially insensitive to the students of color on our college campus and beyond who are victim to racial harassment and death threats; alert them that Student Affairs may require them to go through the Disciplinary Process if a formal complaint is filed, and that they will be required to attend extensive training for racial and cultural competency.

   

  6.     President Martin must issue a statement of support for the revision of the Honor Code to reflect a zero-tolerance policy for racial insensitivity and hate speech.

   

  7.     President Martin must release a statement by Friday, November 13th, 2015 by 5:00pm that condemns the inherent racist nature of the unofficial mascot, the Lord Jeff, and circulate it to the student body, faculty, alumni, and Board of Trustees. This will be followed up by the encouraged removal of all imagery including but not limited to apparel, memorabilia, facilities, etc. for Amherst College and all of its affiliates via a phasing out process within the next year.

   

  8.     Dean Epstein must ask faculty to excuse all students from all 5 College classes, work shifts, and assignments from November 12th, 2015 to November 13th, 2015 given their organization of and attendance at the Sit-In.

   

  9.     Do not threaten the jobs of the faculty, staff, or administrators that support our list of demands. Such threats will result in an escalation of our response.

   

  10.   The Office of Alumni and Parent Programs must send former students an email of current events on campus including a statement that Amherst College does not condone any racist or culturally insensitive reactions to this information.

   

  11.   Dean Epstein must encourage faculty to provide a space for students to discuss this week’s events during class time.

   

  Please acknowledge that all of these statements of apology are not the end all – that they are only a part of short-term healing and by no means achieve all of the goals we will set forth. We are in the process of finalizing long-term goals which we hope to collaborate on regularly with all members of the community.

  While most of the demands are ludicrous in their own right, demand number five literally calls for punishing students who want all lives to matter and who displayed this horrific flyer on campus.

  

  There you have it. The demands of the “Amherst Uprising” include literally disciplining and then reeducating students for speaking out in support of free speech.

  There is simply no middle ground here. You are either an outright fascist who wants to institute a kind of leftist thought police on college campuses or you are fighting against this.

  Leftist news outlets such as Salon have spent the last week publishing article after article about how the student protests are not about censorship, claims that we now know to be transparent lies. Any organization or person that gets behind these demands must be exposed. This is not the time to play nice.

  

  

  

  

  

• "It's Getting Worse" – Visualizing 14 Years Of Terror In Western Europe

  Who is really winning the “war on terror”?

  “Contained?”

  

   

  Chart: The Economist

  

  

  

  

  

• Copper Is Crashing In China

  Shanghai Copper is down 4.6%, hitting fresh cycle lows not seen since March 2009. No clear catalyst is evident for now aside from stronger USDollar, Codelco’s cuts, and more chatter of CCFD unwinds. If COMEX Copper holds these losses, it will be down for 10 straight days – the longest on record from what we could tell.

  Copper is crashing in China…

  

   

  To lows not seen since March 2009…

  

   

  The USDollar is pushing higher, weighing broadly on commodities. Also continued forced liquidations in CCFDsis not helping as hope for a low evaporates. However, it appears the Codelco cuts are the most prescient…

  Concerns metals demand is ebbing deepened as Codelco, the biggest copper producer, cut its surcharge for sales to China by 26 percent next year, according to two buyers. The reduction highlighted waning consumption in the Asian country.

   

  Obviously the tragic developments in Paris have caused a capital flight out of metal and into safety. Secondly, collapsing physical premiums for metal being imported into China really underscores how anemic demand is there.”

   

  China is facing an unprecedented drop in refined copper imports as a slowing economy erodes demand, according to one of the country’s largest buyers. Shipments to the country will shrink 10 percent next year, Stephen Huang, chief executive officer of trading house Arc Resources Co., said in an interview.

  Charts: Bloomberg

  

  

  

  

  

• What Did VIX Know? The Mysterious Link Between Terrorist Attacks & Rising Risk

  Correlation is, of course, not correlation; but following our earlier coincidental chart on the extraordinary drop (and recent rise) in VIX today – after the worst terrorist attack in a decade…

   

   

  

   

  We found some additionally 'odd' research by ABCEconomics.com,showing that this is not the first time that VIX has 'predicted' a terrorist attack…

  Earlier today we published an analysis by Nik Crepaldi highlighting the fact that the VIX Index rose in the week preceding the Paris Attacks. Hereafter I extended the analysis to cover some of the most notable Al-Qaeda/ISIS-related terrorist acts since 9/11.

  But firstly, let us briefly define the VIX Index. VIX is a trademarked ticker symbol for the CBOE Volatility Index, a popular measure of the implied volatility of S&P 500 index options; the VIX is calculated by the Chicago Board Options Exchange (CBOE). Often referred to as the fear index or the fear gauge, the VIX represents one measure of the market’s expectation of stock market volatility over the next 30-day period.

  Observed events

  • 13 November 2015: Paris Attacks
  • 7 January 2015: Charlie Hebdo Shootings, Paris
  • 7 July 2005: London Bombings
  • 11 March 2004: Madrid Train Bombings
  • 11 September 2001: World Trade Centre, New York

  Results

  As previously noted, VIX is intended to be a forward-looking index, predominantly focussing on US stocks. However, the author of this research observed the following:

  • in all the instances the Index increased in the 5 trading days prior to the terrorist event i.e. the VIX closing value on day -5 is always lower than the close on the day of the event;
  • with the except of 9/11, the VIX Index closed lower on the day following the attacks;
  • on 9/11 the VIX did not trade as the attacks struck the Twin Towers before the Chicago Stock Exchange opened. Additionally, normal trading activity did not resume until 17 September 2001.

   

  

   

  

   

  

   

  

   

  

  Preliminary conclusions

  The above mentioned patterns may indeed have happened by chance, i.e. other elements may have determined the VIX Index to increase prior to the terrorist acts (on the broad assumption that the markets, of course, could not possibly anticipate their occurrence)…

  Or not…

  

  

  

  

• Japan's Problems Will Not Be Solved By More QE, RBS Warns

  One thing that became abundantly clear about QE long ago even if it hasn’t yet dawned on Mario Draghi or Haruhiko Kuroda, is that the practice of monetizing anything and everything that isn’t tied down (or that you can’t pry from the cold dead hand of an institutional investor), is subject to the law of diminishing returns. 

  Put simply: eventually it just stops working in terms of stimulating aggregate demand and/or boosting growth and inflation expectations.

  Unfortunately, the deleterious effects of QE are not subject to the same dynamic. 

  That is, when you print another say, €750 million to monetize everything from periphery EGBs to SSAs to munis, you invariably impair market liquidity on the way to creating the conditions for dangerous bouts of volatility (see the great bund VaR shock for instance). 

  Of course when you go full-Kuroda and simply corner the market for ETFs by stepping in to provide plunge protection at the first sign of Nikkei weakness, there’s no telling what kind of chaos you’ve set everyone up for once you step out of the market. Meanwhile, the mad dash to inflate the value of stocks and bonds has served to create enormous bubbles not only in those assets, but also in the things people who hold those assets are likely to buy when they get bored – like real estate and high end art. 

  In short, the drug addiction analogy (as cliche as it now is) still holds up remarkably well. For a drug addict, the benefits (i.e. the high) diminishes the more the addiction grows, but the harmful effects on the body do not. It’s the same thing with QE. The initial “high” wears off, but the asset bubbles only grow. 

  Nowhere is this more apparent than in Japan where just last night, we witnessed the unprecedented “quintuple recession”: 

  

  As if that wasn’t bad enough, Japanese business spending dropped 1.3% QoQ – its worst drop since Q2 2014.

  Of course the Nikkei is doing just fine, surging right alongside the BoJ’s balance sheet.

  

  In honor of Kuroda and his special brand of Peter Pan-inspired, neo-Keynesian madness, we present a bit of color from RBS’ Alberto Gallo on Japan and QQE.:

  QE infinity? Japan re-enters into recession; the Economy Minister suggests that labour unions are still stuck in a deflationary mind-set. The Japanese economy suffered a technical recession again in Q3, contracting -0.8% QoQ on an annualised basis, following a -0.7% drop in Q2.

  
  

  Inflation has also fallen back again, reaching 0% in September (below). One major reason for this is weak wage growth. 

   

  

  
  

  Why has QQE failed to boost growth and inflation for Japan? Cyclical tools are insufficient to tackle the country’s structural issues. Japan’s problem started in the 1980s, when firms increased debt by 14% of GDP per year to reach 130% of GDP by 1995 (BoJ). This was followed by two decades of slow corporate deleveraging, deflation/weak inflation, near-zero interest rates and compressed bond yields, albeit with few bond defaults. Under PM Abe, the Bank of Japan has stepped up monetary easing by initiating the Quantitative and Qualitative Easing (QQE) programme in April 2013 and expanding it in October 2014. 

  
  

  However, the issues faced by Japan are more structural, including an ageing population, low investment appetite for corporates and a widespread deflationary mindset as suggested by Amari. 

  
  

   

  Japan’s experience suggests that QE has its limits, and could bring a range of side effects, in our view. These include years of tepid growth (see below), the reduction in secondary trading liquidity, an increase in asset ownership by central banks (the BoJ now owns half of the national ETF market), potential formation of asset bubbles and social problems like inequality.

   

  

   

  Ok, so in other words: Kuroda isn’t going to be able cure the country’s structural problems which include the well worn issue of Japanese demographics as well the much maligned “deflationary mindset” which seems largely immune to the hum of the BoJ’s prinitng press. Nevertheless, Japan is all-in and is apparently prepared to keep the pedal to the floor until 2018 when, as we’ve documented extensively, the game will officially be up (see here for instance).

  

  In the meantime, as Gallo rightly points out, you can expect an impaired secondary market for JGBs, asset bubbles, and rising inequality (all outcomes we’ve discussed at great length) as Kuroda triples, quadruples, and quintuples down on policies that now seem to be producing around one recession per QE iteration. 

  Summed up…

  

  

  

  

  

  

• The Saudis Are Stumbling (And They May Take The Middle-East Down With Them)

  Submitted by Conn Hallina via AntiWar.com,

  For the past eight decades Saudi Arabia has been careful.

  Using its vast oil wealth, it’s quietly spread its ultra-conservative brand of Islam throughout the Muslim world, secretly undermined secular regimes in its region, and prudently kept to the shadows while others did the fighting and dying. It was Saudi money that fueled the Mujahedeen in Afghanistan, underwrote Saddam Hussein’s invasion of Iran, and bankrolled Islamic movements and terrorist groups from the Caucasus to the Hindu Kush.

  It wasn’t a modest foreign policy, but it was a discreet one.

  Today that circumspect diplomacy is in ruins, and the House of Saud looks more vulnerable than it has since the country was founded in 1926. Unraveling the reasons for the current train wreck is a study in how easily hubris, delusion, and old-fashioned ineptness can trump even bottomless wealth.

  Oil Slick

  The kingdom’s first stumble was a strategic decision last fall to undermine competitors by scaling up its oil production and thus lowering the global price.

  They figured that if the price of a barrel of oil dropped from over $100 to around $80, it would strangle competitors that relied on more expensive sources and new technologies, including the U.S. fracking industry, companies exploring the Arctic, and emergent producers like Brazil. That, in turn, would allow Riyadh to reclaim its shrinking share of the energy market. There was also the added benefit that lower oil prices would damage oil-reliant countries that the Saudis didn’t like – including Russia, Venezuela, Ecuador, and Iran.

  In one sense it worked. The American fracking industry is scaling back, the exploitation of Canada’s tar sands has slowed, and many Arctic drillers have closed up shop. And indeed, countries like Venezuela, Ecuador, and Russia have taken serious economic hits.

  But it may have worked a little too well, particularly with China’s economic slowdown reducing demand and further depressing the price – a result that should have been entirely foreseeable but that the Saudis somehow missed.

  The price of oil dropped from $115 a barrel in June 2014 to around $44 today. While it costs less than $10 to produce a barrel of Saudi oil, the Saudis need a price between $95 and $105 to balance their budget. The country’s leaders, who figured that oil wouldn’t fall below $80 a barrel – and then only for a few months – are now burning through their foreign reserves to make up the difference.

  While oil prices will likely rise over the next five years, projections are that the price per barrel won’t top $65 for the foreseeable future. Saudi debt is on schedule to rise from 6.7 percent of GDP this year to 17.3 percent next year, and its 2015 budget deficit is $130 billion.

  The country is now spending $10 billion a month in foreign exchange reserves to pay the bills and has been forced to borrow money on the international financial market. Recently the International Monetary Fund’s regional director, Masood Ahmed, warned Riyadh that the country would deplete its financial reserves in five years unless it drastically cut its budget.

  Buying the Peace (While Funding War)

  But the kingdom can’t do that.

  When the Arab Spring broke out in 2011, Saudi Arabia headed it off by pumping $130 billion into the economy, raising wages, improving services, and providing jobs for its growing population. Saudi Arabia has one of the youngest populations in the Middle East, many of whom are unemployed and poorly educated. Some 25 percent of the population lives in poverty. Money keeps the lid on, but – even with the heavy-handed repression that characterizes Saudi political life – for how long?

  Meanwhile they’re racking up bills with ill-advised foreign interventions. In March, the kingdom intervened in Yemen’s civil conflict, launching an air war, a naval blockade, and partial ground campaign on the pretense that Iran was behind one of the war’s factions – a conclusion not even the Americans agree with.

  Again, the Saudis miscalculated, even though one of their major allies, Pakistan, warned them they were headed for trouble. In part, the kingdom’s hubris was fed by the illusion that US support would make it a short war. The Americans are arming the Saudis, supplying them with bombing targets, backing up the naval blockade, and refueling their warplanes in midair.

  But six months down the line the conflict has turned into a stalemate. The war has killed 5,000 people (including over 500 children), flattened cities, and alienated much of the local population. It’s also generated a horrendous food and medical crisis and created opportunities for the Islamic State and al-Qaeda to seize territory in southern Yemen. Efforts by the UN to investigate the possibility of war crimes were blocked by Saudi Arabia and the US

  As the Saudis are finding out, war is a very expensive business – a burden they could meet under normal circumstances, but not when the price of the kingdom’s only commodity, oil, is plummeting.

  Nor is Yemen the only war that the Saudis are involved in. Riyadh, along with Qatar and the United Arab Emirates, are underwriting many of the groups trying to overthrow Syrian president Bashar al-Assad. When antigovernment demonstrations broke out there in 2011, the Saudis – along with the Americans and the Turks – calculated that Assad could be toppled in a few months.

  But that was magical thinking. As bad as Assad is, a lot of Syrians – particularly minorities like Shiites, Christians, and Druze – were far more afraid of the Islamists from al-Qaeda and the Islamic State than they were of their own government. So the war has dragged on for four years and has now killed close to 250,000 people.

  Once again, the Saudis miscalculated, though in this case they were hardly alone. The Syrian government turned out to be more resilient than it appeared. And Riyadh’s bottom line that Assad had to go just ended up bringing Iran and Russia into the picture, checkmating any direct intervention by the anti-Assad coalition. Any attempt to establish a no-fly zone against Assad will now have to confront the Russian air force – not something that anyone other than certain US presidential aspirants are eager to do.

  The war has also generated a flood of refugees, deeply alarming the European Union, which finally seems to be listening to Moscow’s point about the consequences of overthrowing governments without a plan for who takes over. There’s nothing like millions of refugees headed in your direction to cause some serious rethinking of strategic goals.

  The Saudis goal of isolating Iran, meanwhile, is rapidly collapsing. The P5+1 – the US, China, Russia, Great Britain, France, and Germany – successfully completed a nuclear agreement with Tehran, despite every effort by the Saudis and Israel to torpedo it. And at Moscow’s insistence, Washington has reversed its opposition to Iran being included in peace talks around Syria.

  Bills Coming Due

  Stymied in Syria, mired down in Yemen, and its finances increasingly fragile, the kingdom also faces internal unrest from its long marginalized Shia minority in the country’s east and south. To top it off, the Islamic State has called for the “liberation” of Mecca from the House of Saud and launched a bombing campaign aimed at the Kingdom’s Shiites.

  This fall’s Hajj disaster – a stampede that killed more than 2,100 pilgrims and provoked anger at the Saudi authorities for their foot dragging on investigating it – have added to the royal family’s woes. The Saudis claim just 769 people were killed, a figure that no other country in the world accepts. And there are persistent rumors that the deadly stampede was caused when police blocked off an area in order to allow high-ranking Saudis special access to the holy sites.

  Some of these missteps can be laid at the feet of the new king, Salman bin Abdulaziz Al Saud, and of a younger, more aggressive generation of Saudis he’s appointed to key positions. But Saudi Arabia’s troubles are also a reflection of a Middle East in transition. Exactly where it’s headed is by no means clear, but change is in the wind.

  Iran is breaking out of its isolation. With its large, well-educated population, strong industrial base, and plentiful energy resources, it’s poised to play a major regional, if not international, role. Turkey is in the midst of a political upheaval, and there’s growing opposition among Turks to Ankara’s meddling in the Syrian civil war.

  Saudi Arabia, on the other hand, is impaled on its own policies, both foreign and domestic. “The expensive social contract between the Royal family and Saudi citizens will get more difficult, and eventually impossible to sustain if oil prices don’t recover,” Meghan L. O’Sullivan, director of the Geopolitics of Energy project at Harvard, told the New York Times.

  However, the House of Saud has little choice but to keep pumping oil to pay for its wars and keep the internal peace. Yet more production drives down prices even further. And once the sanctions come off Iran, the oil glut will become worse.

  While it’s still immensely wealthy, there are lots of bills coming due. It’s not clear the kingdom has the capital or the ability to meet them.

  

  

  

  

  

• Meet The 27-Year Old "Mastermind" Behind The Paris Attacks

  Behold! A terrorist “mastermind”: 

  

  That’s Abdelhamid Abaaoud, the 27-year old Belgian/ Moroccan that, as we outlined on Monday, is the alleged ringleader of the attacks that killed 129 in Paris last Friday. 

  Oh what a difference a decade makes. Compare and contrast: 

  

  But you know what they say, “you can’t judge a jihadist book by its cover,” and by all accounts, Abaaoud isn’t as friendly in person as he appears in the photos shown above – at least not if you’re an infidel. 

  Abaaoud apparently popped onto authorities’ radar screens after a January raid in Verviers, Belgium where police claimed to have disrupted an ISIS cell just prior to an attack. 

  “This was in the framework of an operation looking into an operational cell made up of people, some of whom coming back from Syria. The investigation made it possible to determine that the group was about to carry out major terrorist attacks in Belgium imminently,” prosecutor’s spokesman Thierry Werts said at the time. 

  Three people were targeted during the raid, two of whom were killed after a shootout with police. Here’s video footage shot by a neighbor:

  According to CNN, “Abaaoud, who lived at one point in Molenbeek — where several raids were conducted Monday — was apparently in touch by phone with the three ISIS fighters targeted in the January raid. In the weeks preceding that raid, Belgian counterterrorism agencies traced the calls to a cell phone in Greece that they believed was being used by Abaaoud.”

  Here is Abaaoud’s account of the battle as published in Dabiq (embedded below): 

  Dabiq: What happened on the day of the battle with the Belgian authorities? 

   

  Abaaoud: Abuz-Zubayr and Abu Khalid were together and had their weapons and explosives ready. The kuffar raided the place with more than 150 soldiers from both French and Belgian special forces units. After a gun battle that lasted about 10 minutes, both brothers were blessed with shahadah, which is what they had desired for so long. I ask Allah to accept them both.

  So commandos raided the safehouse and Abaaoud’s operatives were shot and killed. Got it. Here’s Abaaoud with the two men killed in Belgium:

  

  Anyway, Abaaoud was apparently the cell’s link to the ISIS senior command (the ones in Raqqa not the ones at Langley). According to Abaaoud (who quite possibly had delusions of grandeur at the time of the Dabiq interview), Belgium “gathered intelligence agents from all over the world” in a futile attempt to track him down after the Verviers raid.

  After being “chased by all those intelligence agents,” Abaaoud escaped to Syria after Allah “blinded [the authorities’] vision.”

  Shortly after the attacks, journalist Etienne Huver obtained Abaaoud’s cell phone (Abaaoud told Dabiq it was “lost” and later “sold” to a Western journalist). Huver aired the footage. Here it is:

  And here’s some color, Google translated from the original RTBF piece:

  An exceptional document 7 on A. The contents of the cell phone the most wanted man in Europe. Abdelhamid Abaaoud, the alleged sponsor of foiled attacks last week leading the jihad in Syria as if it were vacation. The fighting and atrocities and more.

   

  These images are not images of propaganda, it is the mobile phone of the contents of a jihadist wanted by all Europe, Abdelhamid Abaaoud, the alleged sponsor of foiled attacks last week in Belgium.

   

  The first images are uplifting banality. Around pictures, charming images, some cartoons … Well no wonder, rather, a fairly standard inventory the contents of a GSM young Belgian. But from January 7, 2014, the data from this device indicate that looking to rent spacious, fast cars, obviously for a long drive.

   

  We do not find pictures of the trip in his phone but early February snapshots show that has arrived in Syria. Selfies of which is often seen smiling, posing with other fighters.

  As The New York Times reported back in January, “when Abdelhamid Abaaoud, the Belgian-born son of an immigrant shopkeeper from Morocco, went to Syria a year ago to wage jihad, nobody paid much attention.” It was only when “a few months later” Abaaoud brought his own 13-year-old brother to Syria, that people took notice. 

   The younger brother -who is apparently now known as “the youngest jihadi in the world” – left Belgium just after Abbaoud was seen dragging a pile of mutilated bodies from the back of pickup truck (depicted in the video above). Here’s more from The Times:

  Yasmina Abaaoud, Mr. Abaaoud’s older sister, a professional woman who does not wear a veil and now lives in a more upscale area of Brussels, said neither of the brothers who went to Syria ever showed a zealous interest in religion before their departure. “They did not even go to the mosque,” she said.

   

  The whereabouts of Mr. Abaaoud, also known as Abou Omar Soussi, is not known. His sister Yasmina said the family received calls last fall from Syria saying he had become a “martyr,” meaning he had been killed in battle. She said the family has not heard from him or the younger brother, now 14, since.

   

  But investigators now believe the “martyr” report was a ruse to try to throw Western intelligence services off his scent so that he could try to re-enter Europe.

  Yes, indeed that now appears to have been a “ruse.” 

  Reports also indicate Abbaoud was behind the train attack that was famously foiled by American soldiers, winning one the medal of honor. “One French official with direct knowledge of the investigation told The Associated Press that Abaaoud is believed to have links to earlier terror attacks that were thwarted: one against a Paris-bound high-speed train that was foiled by three young Americans in August, and the other against a church in the French capital’s suburbs,” AP reported earlier today.

  

  Whatever his role in the Paris massacre or in any other attacks recently perpetrated in the name of ISIS, the interesting thing here is that this most certainly is not a battle-hardened Mujahideen who earned his stripes fighting the Soviets in Afghanistan.

  No, Abbaoud is just a kid from Belgium. He’s the son of an immigrant shopkeeper from Morocco, he wasn’t religious (according to his sister), and he spent a year at Collège Saint-Pierre, a prestigious Catholic school. Here’s his school picture: 

  

  With all of the above in mind, we close with two quotes, one from a former classmate, describing Abaaoud and one from Abaaoud himself. 

  From a classmate (translated): “…he liked to do small silly things, it trifouillait in our lockers to put a bit of a mess, but never any flights. He got along well with everyone, it was often with a group of boys who loved playing football, set of classroom atmosphere. It was even a little flirty which was related quite normal with the girls in the class.”

   

  From Abaaoud: “Are you satisfied with the life you lead, a humiliating life, whether you are in Europe, in Africa, in Arab countries or in America? Are you satisfied with this life, with this life of humiliation? Only violent jihad [can] restore [your] pride and honor. You will find this only in your religion, only in jihad. Is there anything better than jihad or a martyr?”

  

  

  

  

• The Delirium Of Milliards – How Monetary Heroin Tempts Hyperinflation

  Submitted by Jefff Thomas via InternationalMan.com,

  Recently, I received an article by Alasdair Macleod, entitled “Economics of a Crash.” It’s an excellent overview of what’s to come over the next few years.

  In reading the article, I was particularly taken by this reference:

  …we can more easily imagine central bankers being drawn into repeating the mistaken policies of Rudolf Havenstein, president of Germany’s Reichsbank in 1921-1923. In predicting this final crisis for any country that treads down the path of government corruption of its money, the economist von Mises described its manifestation as a crack-up boom, the boom to end all booms, when ordinary people finally realise the worthlessness of government currency and dump it as rapidly as possible for anything they can get hold of.

  Herr Havenstein is a forgotten man today, but he should not be. What he did as President of the Reichsbank in his day should not be forgotten, as the same conditions that existed in Germany back then are just around the bend once again.

  With the coming market crash (what we’ve witnessed recently is just a preview of what’s yet to come), we shall see significant deflation. The central banks, particularly the U.S. Federal Reserve, have for years promised that if deflation rears its ugly head, as it did following the 1929 crash, they will not hesitate to print money unceasingly until the problem is solved. Money creation will be possible at a rate never before seen in history. In 1922-1923 Germany, it was necessary to physically print bank notes and distribute them. Today, all that’s necessary is to type credits into a computer. Billions can be created overnight.

  When this money creation first occurs, there will be prominent support from the media that the central banks are doing what’s necessary to combat deflation. Everyone will support the idea, just as they did in Germany in the 1920s. Trouble is, it won’t work.

  One reason deflation takes place is due to a fall in aggregate demand. An economic crash creates a fear of spending, resulting in lower prices for goods and services. A major crash creates major fear, one that’s unlikely to be overcome by increasing the money in circulation. People will praise the increase in money, whilst continuing to avoid major personal spending. They instead will focus their spending on necessities, such as food, fuel, clothing, etc. The less necessary an item is, the less likely there will be purchasers. As a result, the price of such items will fall.

  Any asset that’s a luxury – boats, motorcycles, luxury homes, etc. will become difficult to unload, causing repeated drops in the asking prices over time.

  Money creation will seem to be a good solution, as it suggests that people will have more of the stuff to spend, but overcoming the fear will take considerable money creation. And money creation has a habit of creating a greater increase in the prices of those goods that people are already focusing their spending on, like consumable commodities. Therefore, commodities will rise in price whilst assets will remain down.

  Since the problem of deflation has not been solved, the central banks will do the only thing they know how to do, create even more money, which in turn creates more price increases in those commodities. Along the way, wages will need to rise to allow people to pay the new, higher prices but, historically, wages never keep pace when dramatic money creation is undertaken.

  The net result is that the average individual will find it harder and harder to put food on the table and fuel in the car, and, in order to cope, will lower the asking price on the assets he’s still trying to unload, which of course signals the central banks that more money creation is needed.

  Historically, this cycle never ends well, but how bad can it get? If we’re fortunate, the fear will be broken at some point by the creation of money. But before we heave a sigh of relief, it’s important to recognise that this happens rarely. And, to my knowledge, it has never happened in an instance in which the cause of the problem was insurmountable debt.

  After World War I, under the Treaty of Versailles, the war’s victors forced Germany to accept a repayment burden for causing the war. The debt level, as it was assessed, was so great that it was virtually impossible to pay. The German people were taxed to a degree that made it difficult to afford necessities. They responded by offering for sale any assets they felt they could do without.

  Enter Rudolf Havenstein, new President of the Reichsbank. Herr Havenstein set about the creation of more money and was widely praised for his action. This caused price increases in commodities, so he created more Papiermarks (the name for the German currency at the time) so that people could pay the increased prices. But the cycle described above kicked in. He then did the only thing he knew how to do, he kept printing.

  

   

  Thus began “The Delirium of Milliards,” Milliard being a term for billions. Prices of goods and services rose more and more quickly, as more money was supplied. By mid-1923, hyperinflation was in full swing. Prices rose daily and workmen were paid several times a day to allow them to spend the money, to get rid of it, buying anything tangible, to avoid holding the rapidly inflating fiat currency. Even though bills were printed in ever-higher denominations, people eventually needed baskets, even wheelbarrows, of bank notes to pay for daily needs. Eventually, it took 200 Five Milliarden Mark notes like the one pictured above, issued in Berlin in 1923, to pay for a loaf of bread.

  It’s important to recognise that Herr Havenstein received full support from everyone for his actions, the government, the war’s victors, the communist party, Hitler’s growing contingent, and the people themselves all supported the printing, as it was clearly the most immediate approach to the problem.

  Unfortunately, just as more heroin is the most immediate approach to the problem of heroin addiction, the printing of Papiermarks was headed toward an overdose.

  But, along the way, the hyperinflation created chaos throughout society. It brought out the worst in everyone, fear, greed, panic, class hatred, and corruption.

  Farmers produced bumper crops, but were loath to accept Papiermarks for their goods. Storehouses were full, but people in cities starved. City-dwellers rode out to the farms on their bicycles in gangs, stealing food and killing farmers and any livestock that they couldn’t carry with them. Gluttony became a legally punishable offense. Unlimited fines were imposed upon anyone deemed to be hoarding.

  Demands rose from many factions for a redistribution of wealth, each group thinking that the others should pay more. Transfer of funds was made illegal without government authorisation. All German capital abroad was confiscated. Social entitlements received diminished increases until the amounts being paid became worthless. The taxation system broke down. No one knew what to charge or what to pay.

  New banknotes were being delivered daily in boxcar loads. In October 1923, banknote circulation amounted to 2,496,822,909,038,000,000 and everyone called for more.

  It is this last fact that is most telling, that every group believed that the solution was simply more money. They failed to grasp that what was needed was to simply cease all manipulation of the system and let the free market return. Their failure assured that the only possible outcome was the collapse of the system.

  And so, as crazy as the above seems, it’s likely to happen again, as human nature is the same today as in 1923. Whether the extreme of hyperinflation will occur, we can’t be sure. What is certain however, is that each of us should be prepared.

  

  

  

  

  

• This Is What A Billionaire's Apocalypse Shelter Looks Like

  Back in June we presented the latest (and only) product from Vivos: a company which specializes in creating the ultimate in luxurious Doomsday bunkers – both in the US (Indiana) and Europe (Germany) – which, however, are not only for the world’s wealthiest (read billionaires only need apply) but also for those who Vivos founder, California entrepreneur Robert Vicino, deems worthy: anyone can apply for a spot in the post-apocalypse world but only a select few will be admitted.

  So to all those who did not make the list and are terrified that once the Fed and its central bank peers finally lose control and the apocalypse begins to unfold, they will burn with the mere peasants in the resulting mushroom clouds, we have good news: there is a backup option.

  As Forbes reports, in a quiet valley in the Czech Republic, stand a complex surrounded by high walls, which is not visible at ground level and from the air appears to be nothing more than a boring administration center.

  This is The Oppidum, a massive 323,000 square foot property. Construction on the secret facility began in 1984, at the height of the Cold War, as a classified joint venture between the governments of what were then Czechoslovakia and The Soviet Union. It was built between 1984 and 1994, at a time when global instability and the possibility of weapons of mass destruction were entirely real, just as they are again today.

  Because the construction of the facility occurred at a time of heightened world tension, the enormous level of resources used to develop it would be all but impossible to match today. It is extremely unlikely that any government would approve a non-military structure of this size to be built today.

  

  Aerial rendering of The Oppidum Complex

  What lies hidden beneath, carved deep in the mountain is the largest residential doomsday shelter in the world.

  Just like Vivos Europa One, the Oppidum will be more than an underground bunker for dangerous times. It provides an above-ground residential estate in which the owners can maintain a high standard of living in a secluded area above ground during times of potential danger.

  

  Terrain cut rendering of the Bunker below the estate

  Again, just like Vivos’ products, the entrance is hidden so that only billionaires who know the secret handshake can go back to their post-apocalyptic 5-star hotel. No zombies allowed:

  The residents can enter the shelter by descending through a secret corridor to the bunker, sealing it with a blast door in less than a minute. It enables inhabitants to return quickly to the above-ground residence once the threat has passed.

   

  The below-ground Bunker of The Oppidum will be the area in which inhabitants can be isolated and protected from the threat of war, disease, natural disasters, or personal threats ranging from terrorists to zombies.

  Did we mention that billionaire will live here? That means that while it may be 6,000 degrees Kelvin outside, the inside better be draped in luxury.

  And it will be: the planned luxurious underground compound on two levels includes a total space of 77,500 sf with 13 foot high ceilings. The layout features one large 6,750 sf apartment  and six 1,720 sf apartments.

  Among the luxury features are an underground garden with simulated natural light, as well as a spa, swimming pool, cinema, library, and other leisure facilities. There will be offices and a conference room as well as medical and surgical facilities and supplies. Custom private vaults will also be designed to store valuables and personal art collections.

  The Oppidum complex will provide its owner with a safe haven for family, friends, business partners, other professionals, and staff in an above-ground residential estate before disaster strikes.

  

  Interior bedroom of bunker

  

  Bunker swimming pool and garden using artificial lighting

  

  Underground bunker wine cellar
  

  As Forbes adds, the location of The Oppidum is the foundation of its security. The Czech Republic is in central Europe and is surrounded by mountains. “The country is not a target of aggression by any other countries or organizations.” Well maybe not right this moment, but there is a funny story about what happened in 1939…

  In any event, the hopes is that any potential conflict in the world is likely to avoid the Czech Republic or, at the very least, reach it at a later stage, which would enable the owners of The Oppidum to arrive at the compound and make preparations.

  

  First floor of the underground shelter

  

  Second floor of the underground shelter

  The entire Oppidum complex can be operated from an underground control center, with exclusive access to communications networks internally and to the outside world.

  

  Then again why bother: if the world truly suffers an apocalyptic event, there won’t be an “outside world.”

  So what’s the point?

  Well, assuming a “less than global extinction event“, i.e., a less catastrophic situation, the bunker will allow the inhabitants to survive natural or man-made disasters, or long-term power outages. The bunker will also be able to provide long-term accommodation for residents – up to 10 years if necessary – without the need for external supplies. This would involve large-scale stocks of non-perishable food and water, along with water purification equipment, medical supplies, surgical facilities, and communication networks with the outside world.

  Even so, a question emerges: is it really necessary? Furthermore, the entire complex is still incomplete and needs an (even bigger billionaire) buyer:

  “the underground levels of The Oppidum are in a newly reconstructed shell-and-core state.  Communication and other technologies are not yet in place.  They will be incorporated during the customization process.

   

  The above-ground section of The Oppidum is in its original condition, also ready to be customized to the buyer’s wishes. The buyer will be able to choose whether to commission The Oppidum project team to customize the facility or to do the customization of some or all of it independently.”

  Still, with the amount of discretionary funds held by the world’s 0.01%, we are confident someone will step up and purchase the “boutique post-apocalyptic hotel.”

  Who is the seller of the Oppidium concept?

  A Czech entrepreneur Jakub Zamrazil, with a successful track record in real estate development, sales and marketing. When Mr Zamrazil first toured the unique former military facility, he was impressed by its massive scale. He saw its potential to be transformed into the ultimate life-assurance solution and named it The Oppidum, from the Latin word meaning the main settlement in an administrative area of ancient Rome. The word was derived from the earlier Latin op-pedum, an “enclosed space”, used to describe fortresses that were constructed in Europe as early as the Iron Age.

  Mr Zamrazil joined forces with top professionals in the fields of security and luxury development to put together the concept of the ultimate life-assurance solution for the modern age. General Andor Šándor (Retired) is the security director and guarantor of the Oppidum project. He is a former Chief of the Military Intelligence Service of the Czech Republic, with the rank of Brigadier General.

   

  According to General Šándor, “The uniqueness of the bunker lies in the fact that it combines state of the art security with luxury and comfort. It is the largest known such facility on earth.”

  Why concept? Because while billionaires may or may not have a luxurious transition into the post-apocalyptic world, what they are really needed for right now is their money. Because as of this moment the Oppidium is nothing more than a largely useless Cold War structure, with a few potential floorplans and 3D room designs.

  Then again, the true believers of a graceful transition into the “post-apocalypse” will have no qualms about being fleeced. After all, if the end of the world is really coming, nothing will be more worthless than fiat paper: one may as well spend it now.

  Plus, don’t forget – priorities…

  

   

  The full promotional video of the Oppidium is below:

  

  

  

  

• Chuck Norris: World War III Started Last Friday In Paris

  If you know anything about Chuck Norris (or his alter ego Walker Texas Ranger), you know that he’s not one to take things lying down. 

  Just look at what happened over the summer when, after a number of Texans got worried about the US Spec Ops Command’s Jade Helm 15 “exercises,” Norris warned The Pentagon that the drills came “a little too close to the backdoor of [his] ranch.” 

  A few months later, after Norris became “exhausted” with Tehran’s nuclear “antics”, Walker suggested that if he were allowed to speak for and act on behalf of the entire international community, the Bahamas would never obtain a nuclear weapon, Iranian drug dealers would never be given a 90-day heads up to hide their stash, and most importantly, Iran’s nuclear ambitions would be “sniffed” out and “pre-emptive strikes” would be launched.

  Well, in the wake of the Paris attacks, Norris is out with a new missive titled simply, “World War III?”

  No, really. Just click the link, you’ll see.

  In it, we get a history lesson, a quantitative assessment of Islamic State’s power vis-a-vis other Sunni extremist groups, and all sorts of semantic shenanigans. Below, find some highlights and commentary. 

  First, Norris says this:

  ...if you weren’t convinced before, now you know what a disorganized World War III looks like from the six simultaneous Paris terror attacks by ISIS that killed at least 129 precious souls and injured more than 300 more. And to think just a year ago, President Obama called ISIS “a jayvee team.” In fact, on Friday morning just before the attacks in Paris, President Obama again minimized ISIS’ power as he shared on “Good Morning America,” “I don’t think they’re gaining ground. What is true is that from the start, our goal has been first to contain, and we have contained them. … We’ve [also] made some progress in trying to reduce the flow of foreign fighters…”

   

  Whoops. Another misdirected miscalculation.

  We’re not sure what a “misdirected miscalculation” is, and the word “convinced” doesn’t work with the phrase “now you know”, but Norris is correct that Obama had a rather unfortunate soundbite on Good Morning America and we think we understand what Chuck is trying to say. But just so we’re sure, let’s see if he can clear it up:

  I believe these coordinated murder sprees in Paris may go down in history like the Nazis’ invasion of Poland on Sept. 1, 1939, as the spark that lit the fuse for a wider European involvement in World War II. Though apples and oranges in warfare, the impact of ISIS in Syria and Iraq is comparable to Hitler’s annexation of Czechoslovakia and Austria, which caused great concern and condemnation but not greater European revolt.

  Ok, got it. ISIS taking territory in Syria and Iraq is a lot like Anschluss and the German occupation of Sudetenland. You see, late 1930s Germany was a rising industrial and military powerhouse capable of annexing entire states by decree. Much like ISIS, a ragtag group of desert bandits operating out of bombed out cities in the war-torn Middle East.

  But hey, at least Norris admits their style of warfare is “apples to oranges.” 

  It took the closer invasion of Poland to provoke a military battle from France and Great Britain. So, I believe, ISIS’ attacks on Paris will prompt Western nations and others to coalesce against ISIS like never before, especially for those countries whose victims lie among the dead and injured.

  Well, on that point we’d have to agree, although we think Chuck may be missing a thing or two when it comes to understanding the real motivation for Western troops going to Syria. 

  The expansion of ISIS’ footprint is undeniable. The jihadists possess a hundredfold the power of al-Qaida and, in their own estimation, are well on the way to Caliphate victory.

  Yes, they “possess a hundredfold the power of al-Qaeda.” We would love to know how Norris calculated that and we’d also like to know what “well on the way to Caliphate victory” means. Does that mean the Caliphate itself is nearly victorious? Or does that mean ISIS is soon to be victorious in realizing its goal of creating a Caliphate? Because if it’s the former, well, of course they’re going to say that – we’re sure that “by their own estimation”, ISIS is a lot of things. If it’s the latter, we suggest Norris take a look at a map of some real historical Caliphates and decide how close he thinks ISIS is to realizing their goal.

  
  

  In true Walker fashion, Norris goes out in a blaze of glory with four policy recommendations. 

  Number 1: Mr. President, we need you to quit sticking your head in the sands of cultural, military and religious ignorance and minimizing the power of ISIS. We need you to unleash the full force of the U.S. military and U.S. Intelligence to destroy it both domestically and abroad. We must triple the protection at all of our ports and borders. It is also imperative that nations around the globe join us in collectively stopping ISIS’ Caliphate.

  Right. It is imperative that nations around the globe “join in collectively stopping ISIS”, which is why it’s so damn curious that Washington steadfastly refuses to cooperate with Russia and Iran on doing just that.

  Number 2: We need the White House and major mainstream media to quit downplaying Islamic terrorism and playing politically correct cards by moving away from terms like terrorists and jihadists, and condoning Islamic extremism under the rubric of pacifying peaceful Muslims.

  Yeah, really. What’s with the lack of ISIS media coverage? Besides the fact that CNN has run nothing but ISIS coverage for 72 straight hours to the point that apparently, everyone other than Anderson Cooper and Erin Burnett just got to take three whole days off, and besides this…

  

  

  …it’s almost like no one cares. 

  Number 3: We do not need Washington to foolishly open its arms to Syrian refugees when we are in a war with ISIS. Are we naïve enough to believe that the jihadists aren’t packing the flood of Syrian refugees with their minions and importing their jihad into multiple nations around the world, including the U.S.?

  Honestly Chuck, who knows at this point and since we’ve covered it on any number of occasions, we’ll just leave it for now.

  Number 4: One year from now, we absolutely need a new (Republican) president who rebuilds and expands the U.S. military and U.S. Intelligence, fighting Islamic jihadists like never before, before they succeed in coordinated acts of terror in the U.S. that make Paris and even Sept. 11 seem like Islamic child’s play.

  Ah, yes and there it is. The obligatory political plug. Fair enough. Everyone is entitled to that every now and again we suppose.

  The irony here is that Norris’ premise may in fact be right. That is, what happened in Paris may very well be the spark that starts World War III and so on that point we have to give it to Walker: he seems to be drawing a plausible connection between Poland ca. 1939 and Paris 2015 although it’s not at all clear that he fully appreciates what might well be going on behind the scenes.

  If Norris is right and World War III did indeed start last Friday in Paris, the only question for ISIS now is this: will Walker be joining the fight? 

  Because if so, expect Raqqa to fall in about, oh, let’s just call it 14 minutes…

  

  

  

  

  

• Nomi Prins: Crony Capitalism & Corruption – An Entirely Rigged Political-Financial System

  Via Jesse's Cafe Americain,

  Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid.

  Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales.

  There is no such thing as isolated 'Big Bank' problems. Rather, complex products, risky practices, leverage and co-dependent transactions have contagion ramifications, particularly in emerging markets whose histories are already lined with disproportionate shares of debt, interest rate and currency related travails.

  The notion of free markets, mechanisms where buyers and sellers can meet to exchange securities or various kinds of goods, in which each participant has access to the same information, is a fallacy. Transparency in trading across global financial markets is a fallacy. Not only are markets rigged by, and for, the biggest players, so is the entire political-financial system.

  The connection between democracy and free markets is interesting though. Democracy is predicated on the idea that every vote counts equally, and in the utopian perspective, the government adopts policies that benefit or adhere to the majority of those votes. In fact, it's the minority of elite families and private individuals that exercise the most control over America's policies and actions.

  The myth of a free market is that every trader or participant is equal, when in fact the biggest players with access to the most information and technology are the ones that have a disproportionate advantage over the smaller players. What we have is a plutocracy of government and markets. The privileged few don't care, or need to care, about democracy any more than they would ever want to have truly "free" markets, though what they do want are markets liberated from as many regulations as possible. In practice, that leads to huge inherent risk.

  Michael Lewis' latest book on high frequency trading seems to have struck some sort of a national chord. Yet what he writes about is the mere tip of the iceberg covered in my book. He's talking about rigged markets – which have been a problem since small investors began investing with the big boys, believing they had an equal shot.

  I'm talking about an entirely rigged political-financial system.

  *  *  *

  Nomi Prins explores bank conspiracy, collapse and the failure of the Federal Reserve…

  

  

  

  

  

• BLoWBaCK SuCKS…

  

  

  

  

  

• "Nothing Makes Sense Anymore" Traders Fear Debt Market Distortions Signal "Something Big Is Brewing"

  In the last few months we have warned of the "perversions" in US money markets (here, here, and most recently here) adding that "to ignore them at your own peril." And now, as Bloomberg reports, it appears the mainstream is beginning to recognize that something very strange is going on in debt markets. Across developed markets, the conventional relationship between ('risk-free') government debt and other 'more risky' assets has been turned upside-down. "Everybody in the fixed-income market should care about this," warns a rates strategist and in fact, it’s hard to overstate how illogical it is when swap spreads are inverted, as JPM warns the moves in swap-spreads "should be viewed as symptomatic of deeper problems."

  As we stated before, a negative swap spread holds no interpretative meaning, the very fact of which is the most important element.

  In other words, we don’t have to figure out what the “market” is saying about a negative spread because it isn’t saying anything other than “something” is wrong (and very wrong with so many and deeper negative and compressed maturities).

   

  

   

  There are numerous reasons for this "nonsense" – as we detailed here, and as Bloomberg adds,

  “These kinds of dislocations can be expected to grow over time,” said Aaron Kohli, a fixed-income strategist at Bank of Montreal, one of 22 primary dealers that trade directly with the Fed. “The market structure and regulatory structure has evolved in a period with very low volatility. Once you take that away, it’s not clear what the secondary implications of that will be.”

   

  …

   

  As the phenomenon becomes more widespread, it adds to evidence that it’s not just a one-off, according to Priya Misra, the New York-based head of global interest-rate strategy at TD Securities, another primary dealer.

   

  “Everybody in the fixed-income market should care about this,” she said.

   

  In the U.K., where the Bank of England is also debating whether to raise rates, the swap spread reached minus 0.05 percentage points on Nov. 12, the least since December 2013. The difference between 10-year Australian notes and comparable swaps fell to a record last week as speculation diminished the central bank will cut borrowing costs.

   

  “Traditional pricing and relative-value rules are breaking down,” said David Goodman, head of global capital markets strategy at Westpac Banking Corp.

   

  …

   

  “This is not really just a somewhat esoteric story about interest-rate derivatives,” JPMorgan strategists led by Joshua Younger wrote in a Nov. 6 report. “Moves in spreads should be viewed as symptomatic of deeper problems.”

   

  Another potential problem is that inverted swap spreads may ultimately cause investors and borrowers to lose confidence in the bond market’s ability to correctly price risk and provide capital to those who need it, according to Steve Major, head of fixed income research at HSBC Holdings Plc.

  *  *  *

  Alhambra's Jeffrey Snider detailss,

  That presents enormous potential problems for the future outlook in all things “dollar.” Again, with interest rates pinned against ZIRP already and any lingering expectations for a rate hike (or somehow a series of them) can only serve as aggravation on this “demand” side for the math. In terms of economic expectations, the growing sense of recession amounts to the same if not more so as it would continue to adversely impact against credit spreads generally. In other words, by far the most likely modeled path for the future direction of at least pension liability discounting (along with the same in insurance company mechanics) is higher in almost every case – the only one where that wouldn’t be true is where the Fed sticks to “lower for longer” as the economy actually strengthens considerably.

   

  From that current midpoint, we can reasonably assume that both sides of the dark leverage imbalance will remain in their current directions; eurodollar dealers keep looking to exit while swap and hedging demand continues to sharpen. The resulting compressing swap spreads thus act as quite visible signal of continuing and further financial irregularity that only reinforces both sides of the trend to begin with – just as 2008. It goes until the imbalance forces a full-scale break, like that of August 24, with widespread and forced systemic rebalancing.

   

  When I wrote back in September that you ignore swap spreads at your own peril, this is one part that I had in mind – but it is not the only channel. Pension funds and insurance companies represent massive, unthinkably so, pools of both assets and offsetting liabilities that are highly, highly attuned to this math absurdity. Negative swap spreads all over the place, and getting more so, tell us that these huge pools are highly perturbed, as those spread “prices” represent the increasing cost (and reduced availability) of hedging against very real liability upset. Such a condition is, quite simply, highly dangerous. Math is money; and where there is less reliable math, there is less money and then geometrically less patience.

  Finally, we leave it to Bloomberg to conclude,

  The role of the bond market is to provide funding at the right rates for the real economy,” Major said. “That’s why the bond market exists — to help efficiently finance projects, businesses etcetera. If that efficiency is undermined, it’s not going to be a positive thing for the economy.”

   

  Whatever the reason, the severity of the distortions is unnerving many investors.

   

  “What there doesn’t appear to be is any single smoking gun that says why swap spread changes have been so dramatic,” said Thomas Urano, a money manager at Sage Advisory Services Ltd., which oversees $11 billion. The big question remains whether there is “something bigger brewing under the surface that so far hasn’t been pinpointed yet.”

  

  

  

  

  

• Guest Post: The Western Roots Of Anti-Western Terror

  Authored by Brahma Chellaney, originally posted at Project Syndicate,

  The Islamic State’s horrific attacks in Paris provide a stark reminder that Western powers cannot contain – let alone insulate themselves from – the unintended consequences of their interventions in the Middle East. The unraveling of Syria, Iraq, and Libya, together with the civil war that is tearing Yemen apart, have created vast killing fields, generated waves of refugees, and spawned Islamist militants who will remain a threat to international security for years to come. And the West has had more than a little to do with it.

  Obviously, Western intervention in the Middle East is not a new phenomenon. With the exceptions of Iran, Egypt, and Turkey, every major power in the Middle East is a modern construct created largely by the British and the French. The United States-led interventions in Afghanistan and Iraq since 2001 represent only the most recent effort by Western powers to shape the region’s geopolitics.

  But these powers have always preferred intervention by proxy, and it is this strategy – training, funding, and arming jihadists who are deemed “moderate” to fight against the “radicals” – that is backfiring today. Despite repeated proof to the contrary, Western powers have remained wedded to an approach that endangers their own internal security.

  It should be obvious that those waging violent jihad can never be moderate. Yet, even after acknowledging that a majority of the Free Syrian Army’s CIA-trained members have defected to the Islamic State, the US recently pledged nearly $100 million in fresh aid for Syrian rebels.

  France, too, has distributed aid to Syrian rebels, and it recently began launching airstrikes against the Islamic State. And that is precisely why France was targeted. According to witnesses, the attackers at Paris’s Bataclan concert hall – where most of the night’s victims were killed – declared that their actions were President François Hollande’s fault. “He didn’t have to intervene in Syria,” they shouted.

  To be sure, France has a tradition of independent-minded and pragmatic foreign policy, reflected in its opposition to the 2003 US-led invasion and occupation of Iraq. But after Nicolas Sarkozy became President in 2007, France aligned its policies more firmly with the US and NATO, and participated actively in toppling Libyan leader Muammar el-Qaddafi in 2011. And after Hollande succeeded Sarkozy in 2012, France emerged as one of the world’s most interventionist countries, undertaking military operations in the Central African Republic, the Ivory Coast, Mali, the Sahel, and Somalia before launching its airstrikes in Syria.

  Such interventions neglect the lessons of history. Simply put, nearly every Western intervention this century has had unforeseen consequences, which have spilled over borders and ultimately prompted another intervention.

  It was no different in the late twentieth century. In the 1980s, under President Ronald Reagan, the US (with funding from Saudi Arabia) trained thousands of Islamic extremists to fight against the Soviet Union in Afghanistan. The result was Al Qaeda, whose actions ultimately prompted President George W. Bush’s invasion of Afghanistan and provided a pretext for invading Iraq. As then-Secretary of State Hillary Clinton admitted in 2010, “We trained them, we equipped them, we funded them, including somebody named Osama bin Laden….And it didn’t work out so well for us.”

  And yet, disregarding this lesson, Western powers intervened in Libya to topple Qaddafi, effectively creating a jihadist citadel at Europe’s southern doorstep, while opening the way for arms and militants to flow to other countries. It was this fallout that spurred the French counter-terrorist interventions in Mali and the Sahel.

  Having barely stopped to catch their breath, the US, France, and Britain – with the support of Wahhabi states like Saudi Arabia and Qatar – then moved to bring down Syrian President Bashar al-Assad, fueling a civil war that enabled the Islamic State to seize territory and flourish. With the group rapidly gaining control over vast areas extending into Iraq, the US – along with Bahrain, Jordan, Qatar, Saudi Arabia, and the United Arab Emirates – began launching airstrikes inside Syria last year. France joined the effort more recently, as has Russia.

  Though Russia is pursuing its military campaign independently of the Western powers (reflecting its support for Assad), it, too, has apparently become a target, with US and European officials increasingly convinced that the Islamic State was behind October’s crash of a Russian airliner in the Sinai Peninsula. That incident, together with the Paris attacks, may spur even greater outside military involvement in Syria and Iraq, thereby accelerating the destructive cycle of intervention. Already, the danger that emotion, not reason, will guide policy is apparent in France, the US, and elsewhere.

  What is needed most is a more measured approach that reflects the lessons of recent mistakes. For starters, Western leaders should avoid playing into the terrorists’ hands, as Hollande is doing by calling the Paris attacks “an act of war” and implementing unprecedented measures at home. Instead, they should heed Margaret Thatcher’s advice and starve terrorists of “the oxygen of publicity on which they depend.”

  More important, they should recognize that the war on terror cannot credibly be fought with unsavory allies, such as Islamist fighters or fundamentalist-financing sheikhdoms. The risk of adverse unintended consequences – whether terrorist blowback, as in Paris, or military spillovers, as in Syria – is unjustifiably high.

  It is not too late for Western powers to consider the lessons of past mistakes and recalibrate their counterterrorism policies accordingly. Unfortunately, this appears to be the least likely response to the Islamic State’s recent attacks.

  

  

  

  

  

• Austerity And Anarchy: Tying Budget Cuts To Riots, Assassinations, And Attempted Revolutions

  If you’ve been paying attention, you know that the PIIGS are restless.

  By PIIGS, we of course mean the EU periphery where over the past month or so, things haven’t exactly been playing out the way Brussels would prefer from a political perspective. 

  Take Portugal for instance where, earlier this month, after what amounted to inconclusive elections in October, Socialist leader Antonio Costa joined up with the Left Bloc and the Communists to overthrow the Passos Coelho government just days after the PM was reappointed by President Anibal Cavaco Silva. 

  Whatever you want to say about the likelihood that Portugal sticks by its explicit and implicit promises to the troika, the odds that some manner of break with Brussels over austerity, debt, or both occurs down the road are now exponentially higher.

  This is precisely what Brussels and Berlin were hoping to deter by adopting a hardline stance towards the Greeks over the summer and indeed we may have gotten the first shot across the bow last week when some analysts reminded the world that should Portugal lose its last investment grade rating at DBRS, the ECB could theoretically cut Lisbon off from PSPP. 

  
  

  Meanwhile, in Spain, PM Mariano Rajoy is attempting to negotiate the Catalan independence bid while prepping for elections next month. In short, he needs to strike a delicate balance between being firm and coming across as autocratic. Either way, the political situation is fractious to say the least and the Catalonia “problem” only muddies the waters as the political establishment looks warily towards Pablo Iglesias and an ascendant Podemos. 

  

  Finally, in Italy, a recent poll showed that if elections were held today, comedian Beppe Grillo’s 5-Star movement would actually win. Here’s how Reuters summarized the situation earlier this month: 

  An opinion poll by the EMG polling agency put 5-Star on 27.3 percent, about five points behind Prime Minister Matteo Renzi’s center-left Democratic Party (PD) on 32.2 percent, broadly in line with most other recent polls.

   

  
  

   

  But this would leave both the two leading parties below the 40 percent threshold needed to avoid a run-off. The EMG survey was the first to put 5-Star ahead of the PD in a second round of voting, finding that it would take 50.6 percent to the PD’s 49.4 percent.

  It’s not hard to trace the proximate cause here. The periphery electorate is sick and tired of enduring austerity and persistently high unemployment and if voters were tracking debt-to-GDP ratios, they’d probably be even more sick and more tired of it because as we never tire of mentioning, not only are the “recoveries” not real, the debt isn’t going down either.

  

  It’s the worst of all possible worlds.

  In light of the above, we bring you the following interesting commentary from RBS’ Alberto Gallo who has endeavored to put together a couple of interesting graphics, one of which depicts the incidence of social upheaval (described as either anti-government demonstrations, riots, assassinations, general strikes, and/or attempted revolutions) in Europe dating back to 1919 and broken down by depth of budget cut (i.e. how bad the austerity is/was). 

  *  *  *

  From RBS

  One question to ask is whether a link exists between economic stagnation and high unemployment with episodes of social unrest, both domestic and foreign. Research from VOX and CEPR analysing the occurrence of assassinations, riots, demonstrations and general strikes over the past 100 years suggests a link between social unrest and austerity and negative growth exists. 

  

  

   

  Even going by common sense, the story makes sense. Persistent low growth, high youth unemployment and increasing inequality have hurt Europe’s young generation. Youth unemployment is in double digits in most countries. The wealth gap between the haves and have-nots continues to grow: people below 35 years of age only own 5% of all financial assets, according to ECB data – putting them far away from the windfall of QE. Domestically, one symptom of this situation has been the radicalisation of European politics, with the protest vote rising in most countries, from Greece to Finland. 

  

  *  *  *

  Note in the last graphic shown above that not all “radical” parties are created equal. Podemos is one thing and Golden Dawn is entirely another.

  In fact, Golden Dawn’s rising popularity (they won nearly 17% among unemployed voters in Greece’s September snap elections) suggests that when the disaffected masses feel they have been let down by leaders who they thought promised change (i.e. Syriza), they will simply move further towards the end of the political spectrum in search of “salvation.” 

  What all of the above underscores is that this is a dangerous time for the EU. Not only is the periphery vulnerable to the type of political and social upheaval we saw in Greece over the summer, and not only is it exceedingly possible that sometime in the not-so-distant future, Brussels could find itself in yet another protracted debt negotiation with one of the PIIGS, but the entire dynamic is complicated immeasurably by the worsening refugee crisis and by the intense feelings that crisis now engenders as a result of the events that unfolded in Paris last Friday. 

  Get ready Europe, it’s going to be a bumpy ride.

  

  

  

  

  

• Are 'We' Bombing The Wrong Country?

  Presented with no comment…

   

  

   

  h/t @ianbremmer

  

  

  

  

  

• "What Are The Markets Telling Us" – The Hedge Funds' Favorite Newsletter Explains

  Kiril Sokoloff’s “13D” has over the past decade carved out a niche for itself as the most insightful newsletter available, and with a price tag to match, it is almost exclusively distributed among the hedge fund community (those hedge funds which actually are making money, which these days it not many).

  However, 13-D has always been relatively cautious when making bold predictions. Not so much this time, when in his latest note he is about as bearish as we have seen him in years.

  This is what he says in his most recent observations of “What Are The Markets Telling Us?”

  What can we learn from the downturn in U.S. retail stocks? Our experience, supported by market history, suggests that broad and sustained equity bull markets often feature rotational characteristics as the favorable impact from rising liquidity alternates from one industry to another, generating a healthy advance in the broader market and stimulating investor risk-appetite. Bear markets also tend to feature rotational characteristics. During a broadening downturn––as measured by many of the internal leading market-indicators and market divergences––the destructive fallout from receding liquidity causes capital flows to become much more discriminating as investor risk-appetite diminishes.

   

  This shift in the character of the price-action leads to an outcome that is the opposite of what is seen during a healthy market advance. In other words, receding liquidity and waning risk-appetite tend to cause sudden air-pocket declines in entire industries, which can come as a shock to many market participants. This is yet another painful and important lesson that came from the four-plus year bear market in commodities. In this regard, we are highly intrigued by the sharp equity market selloff last August, as well as the recent sharp selloffs in the healthcare and retail sectors, in addition to the previous selloffs in the high-yield bond market.

   

  These downdrafts appear consistent with the months of warnings signaled by the deterioration in numerous leading-indicators, bearish divergences and broad evidence of waning investor risk-appetite, and they appear to fit the historical model regarding the rotational nature of broad market advances and downturns.

   

  If these selloffs are any guide, and if the market has indeed entered a broader downturn, we fear that any further significant dislocations could catch many market participants off-guard. Weeks and months of sideways price-action in a particular industry or sector––which causes investors to become complacent––can suddenly be followed by a sharp selloff that wipes out many months or years of price-appreciation.

  * * *

  To substantiate his sense of pervasive market weakness, Sokoloff provides several charts, including the JNK-to-BND ratio, the RCD vs the RYE, the XLI vs the XLY, and others, including most notably this take on the SPX vs the OEX and the RSP vs the SPY.

  CHART 1: S&P 500 (SPX) vs S&P 100 (OEX) and S&P 500 Equal Weight ETF (RSP) vs S&P 500 SPDR (SPY) – Weekly. Falling lines indicate diminishing investor risk-appetite. The charts below have been excellent guides in determining the broad market’s risk/reward dynamics and illustrate the view regarding the receding tide of liquidity. It should be noted that the broader RSP-to-SPY ratio has been leading the relatively-narrower SPX-to-OEX ratio.

  It is noteworthy and ominous that despite the large recovery in the S&P 500 from the August selloff, both ratios have continued to plunge and have registered new lows for the move. Notably, the RSP-to-SPY ratio appears to have formed a broad topping-pattern that looks roughly similar to the previous topping-pattern formed from 2005 to 2007. In 2007, the downtrend in the ratio accelerated once the support line was breached. If a similar pattern develops again, an eventual acceleration in the current downturn could herald rapid and unexpected selloffs in the stocks in sectors or industries that have questionable fundamentals or poor technical conditions––or where perceptions of financial-excess during the previous up-cycle could result in greater scrutiny by investors.

  Close appraisal of relative performance trends and weakening technical conditions could provide important clues regarding industries or sectors that could be most vulnerable to selloffs––as suggested by the sudden downdraft in retail stocks.

  

  

  

  

  

  

• War Is Bullish: Stocks, Oil Surge Off Paris Panic Lows After Dismal Economic Data

  Stocks End Green – The Terrorists Lose!!

  

   

  This just seemed appropriate… (WARNING – Highly NSFW!!)

   

  Because if one thing says Buy Stocks – it's ISIS showing just how ineffective Western governments and intelligence is in the new normal, raising uncertainty, an unprecedented 5th recession in 5 years in Japan and dismal US Empire manufacturing data…

  

   

  Cash indices perfectly bottom-ticked as Europe closed…

  

   

  The Dow and S&P recovered all of Friday's losses…

  

   

  Of course the real reason for the rally is 'Gartman'!

  Dow Futures are up over 400 points from the opening lows…

  

   

  SUNE Sucked…

  

   

  And Clovis was crapped on…

  

   

  *  *  *

  "123" was really all that mattered to the machines in charge of the manipulation…

  

   

  But it was crude that really ran the show…

  

   

  VIX was clubbed like a baby seal… with all sorts of noisy tails…biggest drop in 4 weeks

  

   

  VXX dropped over 10% – the biggest single-day drop since October 2013!!!!

  

   

  Sell Vol when the terrorists strike…

  

   

  Credit markets continue to get crushed (with loans back at 5 year lows)…

  

   

  Treasury yields were not as excited as stocks… 10Y ended the day unchanged…

  

   

  Decoupling from stocks once again…

  

   

  Perhaps this is why… (near record net spec shorts)

  

   

  The USDollar rallied notably on EUR weakness… (1.06 handle)

  

   

  Commodities were very mixed with copper and PMs drifting lower as the dollar strengthened…

  

   

  Most notably crude again as algos could not help themselves…

  

   

  As Copper plunged to fresh lows not seen since April 2009 – down 9 days in a row!

  

   

  Charts: Bloomberg

  Bonus Chart: SKEW (tail risk) is once again blowing out but VIX (normal risk) is relatively fearful perhaps signaling another abrupt drop in stocks is due…

  

  

  

  

  

• France’s Answer To Terrorism: The "Law Of Suspects"

  Submitted by Simon Black from Sovereign Man

  France’s answer to terrorism: The Law of Suspects

  On April 5, 1793, decorated French military commander Charles Dumouriez caused a sensational panic in Paris when he fled the country and defected to Austria.

  It had been nearly four years since French peasants stormed the Bastille, the event that historians generally regard as the start of the French Revolution.

  And hardly a week had gone by since without some major crisis, emergency, or tragedy in France.

  There were regular violent riots across the country– in Paris, other major cities, and even the rural countryside. Widespread massacres were commonplace.

  And given that one of the key goals of France’s new revolutionary government was to eliminate Christianity from the nation, civil war between religious factions broke out as well.

  To cap things off, France was under constant threat of foreign invasion.

  Austria and Prussia were not only waging conventional war against France, but both nations had sent highly trained agents to infiltrate French borders to pursue violence and chaos from within.

  It was exhausting. French people were living in perpetual fear, and the wanton death of innocents had become an unfortunately normal part of life.

  So when it was found that Dumouriez (a French citizen) had defected to the enemy, people hit their breaking points. Enough was enough. And they cried out to the government to save them.

  The government listened.

  The very next day, on April 6, 1793, the new French government established the Committee of Public Safety (though it was originally known as the Danton Committee).

  The Committee was given broad, emergency powers since it was a time of such crisis.

  And under the leadership Maximilien Robespierre, the French people got their protection.

  Robespierre passed the ‘Law of Suspects’, allowing the government to essentially imprison anyone they wanted for any reason.

  It was impossible to tell friend from foe back then; you never knew if someone was a loyalist, or a Christian, or an Austrian spy, or any number of counter-revolutionaries.

  So people were required to carry special certificates indicating that they were good and dutiful citizens. Those without would be imprisoned, and potentially executed.

  The University of Chicago estimates that nearly 30,000 either died in prison or were executed as a result of this law.

  Then there was the Law of the Maximum, which attempted to stabilize an ongoing financial crisis by fixing the prices of goods and services in the country. The law also imposed the death penalty on those who did not follow the rules.

  They also passed the Law of 22 Prairial, which awarded the Committee even more power to arrest, try, and execute anyone deemed to be suspicious or disloyal.

  The law also prevented anyone accused of a crime from being able to call witnesses or have defense counsel.

  Plus it required that ALL citizens report potentially suspicious or disloyal neighbors to the Committee. If you see something, say something.

  As you are likely well aware, this period in French history became known as the Reign of Terror, or often simply ‘the Terror’.

  Coincidentally, this is where the first modern use of the word ‘terrorist’ is found.

  Except that it wasn’t used to describe the counter-revolutionaries. Or the rebels. Or the foreign agents.

  It turns out that “terrorist” was originally a term used to describe the government officials who created and executed these oppressive tactics under the guise of keeping people safe from their enemies.

  Governments have a dangerous tendency to never let a serious crisis go to waste.

  The US government spent trillions of taxpayer dollars to fight a War on Terror that made the world less safe and Americans less free, all to protect them from a threat that has a statistical likelihood of 0.0%.

  (You’re far more likely to be shot by a police officer than to ever even see a terrorist.)

  Yes, the desire for revenge runs deep. And that’s understandable.

  But the greatest thing to fear is not men in caves. It is the consequent loss of freedom and the never-ending cycle of costly, destructive war.

  

  

  

  

  

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• How Do People Destroy Their Capital?

  I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one here.

  Artificially low interest makes it necessary to seek other ways to make money. Deprived of a decent yield, people are encouraged (pushed, really) to go speculating. And so the juice in bonds spills over into other markets. When rates fall, people find other assets more attractive. As they adjust their portfolios and go questing for yield, they buy equities and real estate.

  Dirt cheap credit is also the fuel for rising asset prices. People can use leverage to buy assets, and further enhance their gains.

  And it’s wonderful fun. A bull market, especially one that is believed to be infinite—if not Fed-guaranteed—seemingly provides free money. All you have to do is buy something, wait, and sell it. You can get your capital back plus something extra.

  Many people spend most of this extra. This is their gain, their income. Their brokers, advisers, and other professionals also make their income off of it.

  However, there’s a contradiction. Common sense tells us that it should be impossible to consume without first producing something. How can this be possible? How can an entire sector of economy get away with it?

  It can’t. There is no Santa Claus. Something else is happening, something insidious.

  The falling-rate-driven bull market is a process of conversion of someone’s wealth into your income.

  Let’s look at how this works. Suppose Jennifer buys a condominium for a million bucks. If she pays cash, this is a large chunk of her life savings or inheritance. If she borrows to buy it, then she’s disbursing someone else’s savings. That saver has no idea what is being done with his savings. He probably thinks it’s safe in
  the bank.

  Jen forks over this cash to the seller, David. Dave recovers his original cost to buy the asset, say six hundred grand. The rest, say four hundred, is profit. He goes out and uses much of the profit to buy a Ferrari, drink a 1983 Bordeaux, and dine on beluga caviar. Dave is driving, drinking, and eating Jen’s life savings.

  What was Jennifer thinking? Why did she place so much of her wealth into his hands of David, who will only consume a large part of it?

  Simple. Jen sees the bull market, and expects it to continue. She is hoping that after a while, she will sell at a profit. That is, she relies on the next guy to come along and give over an even larger chunk of wealth to her, so she can consume it. Maybe Ferraris aren’t her thing, but she fancies a cruise around the world, a diamond necklace, and she will enjoy some caviar too.

  Charles Ponzi is now infamous for having promoted a scheme, where people who buy in later are enabling the earlier participants to cash out with profits. Such schemes can’t go on forever, because they are cannibalizing the participants. They do not generate real profits by increasing production. There are mere transfers, converting the wealth of some into the income of others.

  Ponzi had nothing on the Fed, with its endless bond bull market, speculation, and capital destruction. Don’t blame Jennifer or David. Blame the Fed and its perverse game.

   

  Gold is an international issue from China to Switzerland to India. It’s also a national issue in the US, as it is part of the Republican primary debate. And it is an issue in Arizona, soon to become (we hope!) the third state to pass a gold legal tender law. Please come to the Monetary Innovation Conference in Phoenix on Tuesday. Keith will discuss his ideas about falling interest rates and how it’s hurting everyone from savers to retirees. Entrepreneurs will discuss the problems they’re solving using gold. Please click here to register

  

  

  

  

• The Problem With Education Today, by JS Kim

  The institutional academic system is broken. We need less systemic, traditional education that only provides knowledge of low utility and more alternative education that provides the right high-utility knowledge to thrive during today’s global currency wars. We will be introducing the SmartKnowledgeU SmartWealth Academy before the end of this year as an alternate and competitive education choice to not only all college and university business and all graduate MBA programs, but also as an alternate choice to typical and expensive professional continuing education programs such as Certified Financial Planner and Chartered Financial Analyst programs, all of which we believe have very low utility in contributing to sound financial plans to cope with the ongoing Central Banking currency wars.

   

  What is the SmartWealth Academy? The SmartWealth Academy is an online academy that I designed to make much of the current traditional business curricula taught in brick and mortar classrooms today entirely irrelevant. Education is one of the most important determinants of financial success in life. Yet, even though I attended an Ivy League university in America and earned two Masters degrees, an MBA and a Master in Public Policy, were I 18-years-old again and just entering college, I would quite happily choose to forego both my Ivy League university education and any knowledge I gained during the course of my two Master degrees. Why? Today, academia has devolved into much more of a business and a social conditioning lab experiment than an education lab that produces educated young men and women. I designed the SmartWealth Academy to return education back to a purpose that is has not served in over a century– preparing boys and girls, young men and young women, and adult men and adult women with all the requisite knowledge necessary to understand, cope with, and prosper from the extreme socioeconomic paradigm shifts we are experiencing today, a mission that traditional academia miserably fails to accomplish. Today, my understanding of financial markets is so superior to my level of understanding at the time I earned my MBA, that I now realize that no traditional schooling at all would have left me in a far better position to understand how global financial markets truly operated and how to truly preserve and build wealth during the course of my lifetime. Instead, I had to waste several years of my life just deprogramming myself from the ridiculous garbage I learned in my MBA program and to rid myself of the inflexible mindset that my professors had programmed into me before I could even truly start to learn the truths I am aware of today.

   

  The dirty secret of the business academic world is that all the economic theory, marketing theory, accounting theory and statistical models they teach us in brick and mortar classrooms have very low utility in contributing to financial success later in life, though it certainly helps to provide for the multi-million dollar salaries of top University Presidents today. For example, the median earnings of alumni from my alma mater, the University of Pennsylvania, was reported at $78,000 a year in 2015. Comparatively speaking, University of Pennsylvania President Amy Gutmann raked in in over $2.8 million in salary in 2014, or about 36 times the median earning of a Penn graduate. This, despite, the fact that nearly all university business programs don’t reveal any relevant knowledge about the inner workings and mechanisms of asset prices in capital markets today, but instead still feed students that pay up to $100,000 a year for MBA degrees, outdated curricula and theory that no longer apply to a world that has radically changed due to technological developments such as dark pools and HFT algorithms that provide bankers with excessive competitive advantages not only over their clients, but also with advantages to conceal bankers’ theft from their clients. I have always conceded that degrees offering specialized knowledge in medicine, architecture, engineering, etc. are still valuable, but as far as traditional business degrees are concerned, I find little value in these bloviated, low-utility degrees.

   

  In fact, more than five years ago, I wrote a 3-part series titled “The Astounding Failure of the US Educational System” and followed that series up with a 2011 article titled, “Everything I Learned About Succeeding in Business, I Learned Outside of the University Education System.”

   

  Reactions of disdain from many business school professors regarding these series of articles only reinforced my belief that most professors working within the confines of traditional brick and mortar classroom business curricula were inflexible, set in their ways, and shut off to the possibility that they contributed very little to their students’ understanding of how today’s opaque financial markets truly operate.

   

  I had concluded, after graduating from a top 15 MBA program in the US and a top 5 university, that the theory and case studies I learned in business school simply were not applicable to real world situations. Learning about the concepts of dark pools, high frequency trading algorithms, fractional reserve banking, the differences between sound money and unsound money, Central Bankers’ managed perceptions of asset price behavior, cognitive dissonance, and social conditioning, all topics that were self-taught outside the brick and mortar classrooms of business school, were integral in my ability to eventually free myself from the deceitful web of compliance and ignorance in which my traditional education had successfully entangled me. Albert Einstein once stated, “The value of an education … is not the learning of many facts, but the training of the mind to think something that cannot be learned from textbooks.” (Source: Frank, Phillip. Einstein, His Life and Times. Boston: De Capo Press, 2002.) Unfortunately, all traditional universities have devolved into the learning of facts, and often, the teaching of facts that are not even facts. For example, even though I attended so-called top-tier universities, I later discovered that 95% of the “facts” I learned about the monetary system and about the gold standard in school was completely wrong. So not only were the “facts” I learned of zero utility, but they actually were harmful to my understanding of how finance and capital markets actually operate, because they were wrong.

  
  

  A journalism professor at the University of Texas at Austin, Dr. Mercedes Lynn de Uriarte, taught me one of my most valuable lessons in life at a young age. In my elective graduate-level journalism class, which consisted of a small group of about a dozen students, 11 of the 12 or so students always seemed to reach a consensus on most debated topics and would always jump all over the one student that had a differing opinion from the rest of us. Dr. Uriarte admonished all of us for ganging up on the one dissenting voice, pointing out that a room full of people with consenting opinions could often leave everyone blind, and that the one person that offered a dissenting voice was the most valuable person in the room. She lauded the one dissenting voice, right or wrong, for his was the only one that challenged the rest of us to exercise our brains, develop our critical thinking skills, and defend our positions on a regular basis. In fact, on the same day I posted this very article on my SmartKnowledgeU blog, ZeroHedge posted this video of a Yale University student, Jerelyn Luther, that literally screamed at a professor because she believed, of the professor, “It’s your job to create a place of comfort and home for the students”. Um, no it isn’t, confused student. If you truly believe that it’s the job of a professor to create a place of comfort and home for you, then you should have never pursued a learning experience and you should have just stayed within the sheltered confines and comfort of your parent’s home. The job of the professor, as so aptly pointed out by Dr. Uriarte, is to provide a learning environment that challenges, not coddles to, the comfort level of all students and develops their critical thinking skills.

   

  If you take the time to examine the radical shifts happening in wealth distribution in every country in the world today, there is no doubt that something is fundamentally wrong with the pillars of capital markets, banking and money in every nation today. According to studies conducted by Oxfam, in 2010 the richest 388 people owned the same wealth as half of the entire world. By 2015, this number had shrunk to just 80 people. And by 2016, Oxfam has predicted, using current data, that the richest 1% of people will own the same wealth as the rest of the 7.3 billion people in the entire world. Obviously these massive disparities in wealth are not happening because of hard work. There is no way 1% of the entire world can hoard as much wealth as 7.3 billion people just by working hard, as some of the privileged recipients of this massive wealth redistribution cycle, like Australian mining magnate Gina Rinehart, would have us foolishly believe.

   

  So what does wealth inequality have to do with education and our SmartWealth Academy? Everything. If you don’t understand why every nation in the world is experiencing, by leaps and bounds, the worst wealth inequality in human history, it is precisely because the knowledge we learn in business-focused school programs is generally of very low utility, and often even very harmful, to our ability to build wealth. There certainly is a very organized effort by the banking and political class to mislead us about how stock markets, commodity markets, real estate markets and real estate markets actually work. I learned this very quickly after graduating from an MBA program and entering the global banking industry, when I learned that nothing operated in the real world as I was taught to believe it did during my immersion in my classroom “education” environment.

   

  None of us will never learn the truth about how financial markets truly operate in any traditional academic classroom in the world, because the richest people in the world fund universities and colleges and they do not want us to learn these truths, because such truths plant the seeds of dissent, revolution and freedom. Most people do not even understand that Industrialists implemented mass institutional schooling during the Industrial Revolution in the late 1700s to early 1800s as a means to fulfill their need for a steady mass supply of obedient and compliant workers to fill their factories. If you realize that this was the original intent of mass schooling, then it becomes infinitely easier to connect the dots and not to rest on the false and hollow laurels of graduating from a top-tier school as one’s answer in ever debate as to why one is correct and one’s opponent is wrong. Unfortunately, most teachers today do not even realize that they are complicit partners in an academic system designed to strip away critical thinking skills and instead replace critical thought, ingenuity and creativity with blind obedience and compliance to authority. Of course, there are always outstanding teachers and gifted students that survive and flourish within the academic system despite its social conditioning goals of instilling blind obedience and compliance to authority.

   

  No school should ever have a “gifted” program that separates students that teachers have identified as having more potential, from students that teachers believe to have less potential. Every teacher, if they were educating their students properly and encouraging the development of their critical thinking skills and creativity, would realize that every single one of his or her students is gifted, and they would not create a false and artificial distinction between “gifted” and non-gifted students. Universities often spit out students that think in alarmingly similar terms instead of producing students with a diversity of opinions, thoughts, and ideas. Though they exist, is indeed the rare student and rare teacher that successfully finds a way to overcome the extremely stifling limitations of traditional academic curricula to allow a student’s creativity to blossom. I have no doubt that if our high schools, universities, colleges and graduate programs encouraged real thought and education and fostered classroom environments that encouraged creativity and divergent thinking and allowed students to customize their own curricula that awakened their passions instead of killed them, that every year, universities around the world would graduate 100 Steve Jobs, 100 Elon Musks, 100 Jeff Bezoses, and 100 Herve Hoppenots. Instead, traditional brick and mortar academic institutions fail miserably today to educate and inspire us.

   

  In many cases, the institutional academic institution stops innovation dead in its tracks at its most basic level, when it is just an idea, never granting this idea the room to breathe and blossom and crushing all dissent to an accepted consensus. Unfortunately, innovation does not grow from consensus or an accepted methodology, but rather from radical, unproven ideas and from the ether of the unknown, the unchallenged and the realm of the previously impossible. When new ideas and beliefs are ridiculed, instead of tested and explored, we wallow in stagnant waters that kill creativity and innovation. Far too often today, I have found people dismiss any idea that clashes with their own beliefs without giving any credence that this new idea may be correct. And traditional academic education is largely responsible for this inflexible, privileged mindset in which we fail to ever challenge our current beliefs as possibly being erroneous. Just read the comments on YouTube of the below embedded video, and I am almost certain that there will at least be a smattering of comments that proves that our academic system churns out inflexible mindsets that hate to be challenged.

   

  As an illustration of this point, let’s briefly explore an article I wrote on my SmartKnowledgeU blog more than five years ago that academics, and especially university economic professors, absolutely ridiculed at the time I wrote it. Because I predicted economic conditions in America four years into the future back then, and it is now 5 years later, we can now determine, with the benefit of hindsight, if I was right or if the university economic professors were correct in ridiculing my sentiments, without exploring even the slightest possibility that they would be wrong and I would be right. Here is the link to my article, “Delaying a College Education in this Economy is the Right Choice”, so you can read this article for yourself if you would like to do so. In any event, during the time I wrote that article, in May of 2010, US President Obama and dozens of American university economic professors were stating that the US economic recovery was well on its way, following the 2008 economic crisis, referencing job creation reports, housing start data, and the recovering US stock market as “proof” that the job market would be outstanding for university graduates in just a few years.

   

  In stark contrast to this delusional viewpoint, I analyzed the data that the President and economic professors were quoting to build their argument of a strongly recovering economy, found the “official” government data of key economic indicators they were using to be highly suspect and greatly manipulated to build a false narrative, and therefore concluded the following. Here is a direct quote from my 2010 article:

   

  “Since college students are already likely to end up living back at home with their parents after they graduate, as the job horizon will appear no better in four years than it is today (unless you believe the drivel of government officials and economists), why not spend that time immersed in self-education of how the financial and monetary systems really work? In the process, students will save their parents tens of thousands, or even hundreds of thousands of dollars, in tuition and save themselves the fate of being a sheep led to the slaughter by banking shills like Joseph Stiglitz, Paul Krugman and Jeffrey Sachs. Furthermore, students will be much better prepared to face the ongoing global economic crisis from not only a financial perspective but also from an educational perspective.”

  
  

  I recall giving a couple of public speeches about this topic in Asia in 2010, and I was again ridiculed by a few economic professors in attendance. There were also many that supported my viewpoint, but I want to emphasize that career academics were often the ones that most strongly opposed me and were the quickest to insist that my viewpoints were foolish and wrong. Their blind acceptance of “official” US data that produced a consensus view that the US economy was getting much better led to their vehement opposition of the points I made above. As I had already analyzed the “official” data, I informed them that the official data was highly manipulated to paint a picture that bankers and politicians wanted to sell the public, and I even offered to explain, by using unemployment and GDP statistics, of how greatly these official statistics were manipulated away from any version of reality.

   

  Instead of being interested in my non-consensus view, these professors stated that my views were very dangerous, because they might actually succeed in convincing potential students to delay college for four years and prevent them from entering, in their words, what they were certain would be, “one of the best job markets in US history”. These professors scolded me and told me that I would be responsible for ruining these student’s lives by preventing them from being ready to take advantage of one of the best US job markets in recent history. In fact, these professors were extremely upset that I even dared to challenge their views, because they were the self-anointed “authority” in such matters. To counter their arguments, my advice was never for the students to sleep all day, lie in bed and watch Game of Thrones, The Walking Dead, and House of Cards during all of their waking hours. My advice was for students to forego a four-year traditional university education and to spend that time engaging in self-education, concentrating on the subjects that would serve them and enable them to thrive in a continuing poor economy. I guess these professors believed that they were the only ones capable of providing students with this type of real education, even though history has proven these types of professors to be very rare at any traditional institution of academia.

   

  If these professors truly believed that the only classroom that mattered in a person’s educational life was a brick and mortar classroom, then they should not be teaching. Tell William Kamkwamba, a kid that grew up in a small Malawi African village that was completely off the grid, and who built 3 windmills from gathering adhesive from blue gum trees and foraging public dumps for PVC tubes, car and bicycle parts, that the only classroom that matters is a traditional one. For William Kamkwamba, the most important classroom was a virtual one that existed in his imagination. The 3 windmills young William built in the classroom of life have put his village on the grid today by generating enough electricity to light several light bulbs in his family’s house, power radios and a TV, charge his neighbors’ cellphones, and pump water for the village’s fields and homes. However, this was not only the case for William in his small village in Malawi, but this was most definitely the case for yours truly who attended an Ivy League university and top graduate programs. By far, the greatest amount of my real learning and valuable attained knowledge occurred outside, not inside of, the brick and mortar classroom.

   

  Here we are 5 years later in 2015 and here are the facts regarding my so-called“dangerous” advice that I provided in 2010. According to data gathered by David Pasch of Generation Opportunity, a non-profit organization that promotes economic opportunity in America, “If you look at the numbers starting in 2009, we’ve been in the longest sustained period of unemployment since the Bureau of Labor Statistics began collecting their data following World War II. This misconception that [the millienial generation] doesn’t want jobs or that we’re lazy and entitled is nonsense.” Pasch states matter-of- factly that millennials are receiving lower earnings compared with the nation’s median income, versus people of that age a decade ago. If you simply watch our SmartKnowledgeU_Vlog_009: Why It’s Such a Struggle to Make Ends Meet, you will actually discover that the reality of lower earnings is actually much more horrifying than it appears to be on the surface. Pasch continues: “We find that because of the difficulties facing millennials, they are delaying these important life decisions, like getting married, buying a home, starting a family.” A 25-year-old young American woman who recently earned a master degree is waitressing and sharing an apartment with a friend in Washington, D.C., while looking for a job better suited to her qualifications. She told Newseek magazine “It’s hard. They don’t want to pay you extra for your master’s. There are enough people with master’s degrees that they can require them.”

  
  

  The fact that my stance turned out to be correct and the stance of many academic professors in 2010 could have not turned out to be any more wrong speaks much more to the fact that the “knowledge” many economics professors are teaching in schools around the world today is simply wrong. Even worse than the fact that this knowledge will hurt the ability of the students they are teaching to survive our current global currency wars is the fact that these professors are typically inflexible to even the possibility that they could be wrong. Understand the right knowledge, and anyone, even a 6-year old, could have predicted the same things I correctly predicted back in 2010. Remain close-minded, and teach this same level of close-mindedness about economic concepts, and these professors will unfortunately lead their students down a path of ignorance and blind obedience to tyrannical authority in the future.

   

  The staff at the Carnevale Center at Georgetown recently stated that having a high school degree used to be enough to make it into the middle class, but that the bar is being set much higher today. They state that today’s generation is “the first generation that needs to have a college degree and experience to compete, before they even enter the workforce.” I highly disagree with this statement. The younger generation does not need a college degree to compete at all. The younger generation does not need MORE institutional classroom education of low utility, but it is in dire need of the right education to compete. But it is not just the younger generation that is indeed of real knowledge to survive. The older generation also needs the right education to understand how to properly preserve and grow the wealth they’ve saved as we enter a period of time in which the top 0.1% of every nation is seizing the entire nation’s wealth for only themselves. The older generation needs the right knowledge to know how to compete in a system that is rigged against them from the very start.

   

  It is for this very reason that I spent the past 10 years of my life designing the SmartWealth Academy to demonstrate to every student that he or she is gifted enough to accomplish whatever he or she desires in life, despite perhaps having been negatively reinforced multiple times as he or she passed through the academic system with the false notion that he or she was not smart enough. To learn more about our soon-to-be-launched SmartWealth Academy, how you can nominate a student for a free SmartWealth Academy scholarship, and win a free membership for yourself, please watch the video below.

   

   

  please click on the image above to watch the video

   

  About the Author: JS Kim is the founder and managing director of SmartKnowledgeU, a fiercely independent research, consulting and education firm focused on helping Main Street understand and avoid the fraud of Wall Street by exposing the fraud of the global banking industry. This year our fee-based services have managed to return positive yields ytd by strategically shorting gold and silver markets and US stock markets. Don’t forget to sign up for our free SmartKnowledgeU newsletter and subscribe to our SmartKnowledgeU YouTube channel to keep up-to-date with our market views.

  

  

  

  

  

• The Problem With Education Today, by JS Kim

  We will be introducing the SmartKnowledgeU SmartWealth Academy before the end of this year as an alternate and competitive education choice to not only all college and university business and all graduate MBA programs but also as an alternate choice to typical professional continuing education programs such as Certified Financial Planner and Chartered Financial Analyst programs, all of which we believe have very low utility in contributing to sound financial plans to cope with the ongoing Central Banking currency wars.

   

  What is the SmartWealth Academy? The SmartWealth Academy is an online academy that I designed to make much of the current traditional business curricula taught in brick and mortar classrooms today entirely irrelevant. Education is one of the most important determinants of financial success in life. Yet, even though I attended an Ivy League university in America and earned two Masters degrees, an MBA and a Master in Public Policy, were I 18-years-old again and just entering college, I would quite happily choose to forego both my Ivy League university education and any knowledge I gained during the course of my two Master degrees. Why? Today, academia has devolved into much more of a business and a social conditioning lab experiment than an education lab that produces educated young men and women. I designed the SmartWealth Academy to return education back to a purpose that is has not served in over a century– preparing boys and girls, young men and young women, and adult men and adult women with all the requisite knowledge necessary to understand, cope with, and prosper from the extreme socioeconomic paradigm shifts we are experiencing today, a mission that traditional academia miserably fails to accomplish. Today, my understanding of financial markets is so superior to my level of understanding at the time I earned my MBA, that I now realize that no traditional schooling at all would have left me in a far better position to understand how global financial markets truly operated and how to truly preserve and build wealth during the course of my lifetime. Instead, I had to waste several years of my life just deprogramming myself from the ridiculous garbage I learned in my MBA program and to rid myself of the inflexible mindset that my professors had programmed into me before I could even truly start to learn the truths I am aware of today.

   

  The dirty secret of the business academic world is that all the economic theory, marketing theory, accounting theory and statistical models they teach us in brick and mortar classrooms have very low utility in contributing to financial success later in life, though it certainly helps to provide for the multi-million dollar salaries of top University Presidents today. For example, the median earnings of alumni from my alma mater, the University of Pennsylvania, was reported at $78,000 a year in 2015. Comparatively speaking, University of Pennsylvania President Amy Gutmann raked in in over $2.8 million in salary in 2014, or about 36 times the median earning of a Penn graduate. This, despite, the fact that nearly all university business programs don’t reveal any relevant knowledge about the inner workings and mechanisms of asset prices in capital markets today, but instead still feed students that pay up to $100,000 a year for MBA degrees, outdated curricula and theory that no longer apply to a world that has radically changed due to technological developments such as dark pools and HFT algorithms that provide bankers with excessive competitive advantages not only over their clients, but also with advantages to conceal bankers’ theft from their clients. I have always conceded that degrees offering specialized knowledge in medicine, architecture, engineering, etc. are still valuable, but as far as traditional business degrees are concerned, I find little value in these bloviated, low-utility degrees.

   

  In fact, more than five years ago, I wrote a 3-part series titled “The Astounding Failure of the US Educational System” and followed that series up with a 2011 article titled, “Everything I Learned About Succeeding in Business, I Learned Outside of the University Education System.”

   

  Reactions of disdain from many business school professors regarding these series of articles only reinforced my belief that most professors working within the confines of traditional brick and mortar classroom business curricula were inflexible, set in their ways, and shut off to the possibility that they contributed very little to their students’ understanding of how today’s opaque financial markets truly operate.

   

  I had concluded, after graduating from a top 15 MBA program in the US and a top 5 university, that the theory and case studies I learned in business school simply were not applicable to real world situations. Learning about the concepts of dark pools, high frequency trading algorithms, fractional reserve banking, the differences between sound money and unsound money, Central Bankers’ managed perceptions of asset price behavior, cognitive dissonance, and social conditioning, all topics that were self-taught outside the brick and mortar classrooms of business school, were integral in my ability to eventually free myself from the deceitful web of compliance and ignorance in which my traditional education had successfully entangled me. Albert Einstein once stated, “The value of an education … is not the learning of many facts, but the training of the mind to think something that cannot be learned from textbooks.” (Source: Frank, Phillip. Einstein, His Life and Times. Boston: De Capo Press, 2002.) Unfortunately, all traditional universities have devolved into the learning of facts, and often, the teaching of facts that are not even facts. For example, even though I attended so-called top-tier universities, I later discovered that 95% of the “facts” I learned about the monetary system and about the gold standard in school was completely wrong. So not only were the “facts” I learned of zero utility, but they actually were harmful to my understanding of how finance and capital markets actually operate, because they were wrong.

  
  

  A journalism professor at the University of Texas at Austin, Dr. Mercedes Lynn de Uriarte, taught me one of my most valuable lessons in life at a young age. In my elective graduate-level journalism class, which consisted of a small group of about a dozen students, 11 of the 12 or so students always seemed to reach a consensus on most debated topics and would always jump all over the one student that had a differing opinion from the rest of us. Dr. Uriarte admonished all of us for ganging up on the one dissenting voice, pointing out that a room full of people with consenting opinions could often leave everyone blind, and that the one person that offered a dissenting voice was the most valuable person in the room. She lauded the one dissenting voice, right or wrong, for his was the only one that challenged the rest of us to exercise our brains, develop our critical thinking skills, and defend our positions on a regular basis. In fact, on the same day I posted this very article on my SmartKnowledgeU blog, ZeroHedge posted this video of a Yale University student, Jerelyn Luther, that literally screamed at a professor because she believed, of the professor, “It’s your job to create a place of comfort and home for the students”. Um, no it isn’t, confused student. If you truly believe that it’s the job of a professor to create a place of comfort and home for you, then you should have never pursued a learning experience and you should have just stayed within the sheltered confines and comfort of your parent’s home. The job of the professor, as so aptly pointed out by Dr. Uriarte, is to provide a learning environment that challenges, not coddles to, the comfort level of all students and develops their critical thinking skills.

   

  If you take the time to examine the radical shifts happening in wealth distribution in every country in the world today, there is no doubt that something is fundamentally wrong with the pillars of capital markets, banking and money in every nation today. According to studies conducted by Oxfam, in 2010 the richest 388 people owned the same wealth as half of the entire world. By 2015, this number had shrunk to just 80 people. And by 2016, Oxfam has predicted, using current data, that the richest 1% of people will own the same wealth as the rest of the 7.3 billion people in the entire world. Obviously these massive disparities in wealth are not happening because of hard work. There is no way 1% of the entire world can hoard as much wealth as 7.3 billion people just by working hard, as some of the privileged recipients of this massive wealth redistribution cycle, like Australian mining magnate Gina Rinehart, would have us foolishly believe.

   

  So what does wealth inequality have to do with education and our SmartWealth Academy? Everything. If you don’t understand why every nation in the world is experiencing, by leaps and bounds, the worst wealth inequality in human history, it is precisely because the knowledge we learn in business-focused school programs is generally of very low utility, and often even very harmful, to our ability to build wealth. There certainly is a very organized effort by the banking and political class to mislead us about how stock markets, commodity markets, real estate markets and real estate markets actually work. I learned this very quickly after graduating from an MBA program and entering the global banking industry, when I learned that nothing operated in the real world as I was taught to believe it did during my immersion in my classroom “education” environment.

   

  None of us will never learn the truth about how financial markets truly operate in any traditional academic classroom in the world, because the richest people in the world fund universities and colleges and they do not want us to learn these truths, because such truths plant the seeds of dissent, revolution and freedom. Most people do not even understand that Industrialists implemented mass institutional schooling during the Industrial Revolution in the late 1700s to early 1800s as a means to fulfill their need for a steady mass supply of obedient and compliant workers to fill their factories. If you realize that this was the original intent of mass schooling, then it becomes infinitely easier to connect the dots and not to rest on the false and hollow laurels of graduating from a top-tier school as one’s answer in ever debate as to why one is correct and one’s opponent is wrong. Unfortunately, most teachers today do not even realize that they are complicit partners in an academic system designed to strip away critical thinking skills and instead replace critical thought, ingenuity and creativity with blind obedience and compliance to authority. Of course, there are always outstanding teachers and gifted students that survive and flourish within the academic system despite its social conditioning goals of instilling blind obedience and compliance to authority.

   

  No school should ever have a “gifted” program that separates students that teachers have identified as having more potential, from students that teachers believe to have less potential. Every teacher, if they were educating their students properly and encouraging the development of their critical thinking skills and creativity, would realize that every single one of his or her students is gifted, and they would not create a false and artificial distinction between “gifted” and non-gifted students. Universities often spit out students that think in alarmingly similar terms instead of producing students with a diversity of opinions, thoughts, and ideas. Though they exist, is indeed the rare student and rare teacher that successfully finds a way to overcome the extremely stifling limitations of traditional academic curricula to allow a student’s creativity to blossom. I have no doubt that if our high schools, universities, colleges and graduate programs encouraged real thought and education and fostered classroom environments that encouraged creativity and divergent thinking and allowed students to customize their own curricula that awakened their passions instead of killed them, that every year, universities around the world would graduate 100 Steve Jobs, 100 Elon Musks, 100 Jeff Bezoses, and 100 Herve Hoppenots. Instead, traditional brick and mortar academic institutions fail miserably today to educate and inspire us.

   

  In many cases, the institutional academic institution stops innovation dead in its tracks at its most basic level, when it is just an idea, never granting this idea the room to breathe and blossom and crushing all dissent to an accepted consensus. Unfortunately, innovation does not grow from consensus or an accepted methodology, but rather from radical, unproven ideas and from the ether of the unknown, the unchallenged and the realm of the previously impossible. When new ideas and beliefs are ridiculed, instead of tested and explored, we wallow in stagnant waters that kill creativity and innovation. Far too often today, I have found people dismiss any idea that clashes with their own beliefs without giving any credence that this new idea may be correct. And traditional academic education is largely responsible for this inflexible, privileged mindset in which we fail to ever challenge our current beliefs as possibly being erroneous. Just read the comments on YouTube of the below embedded video, and I am almost certain that there will at least be a smattering of comments that proves that our academic system churns out inflexible mindsets that hate to be challenged.

   

  As an illustration of this point, let’s briefly explore an article I wrote on my SmartKnowledgeU blog more than five years ago that academics, and especially university economic professors, absolutely ridiculed at the time I wrote it. Because I predicted economic conditions in America four years into the future back then, and it is now 5 years later, we can now determine, with the benefit of hindsight, if I was right or if the university economic professors were correct in ridiculing my sentiments, without exploring even the slightest possibility that they would be wrong and I would be right. Here is the link to my article, “Delaying a College Education in this Economy is the Right Choice”, so you can read this article for yourself if you would like to do so. In any event, during the time I wrote that article, in May of 2010, US President Obama and dozens of American university economic professors were stating that the US economic recovery was well on its way, following the 2008 economic crisis, referencing job creation reports, housing start data, and the recovering US stock market as “proof” that the job market would be outstanding for university graduates in just a few years.

   

  In stark contrast to this delusional viewpoint, I analyzed the data that the President and economic professors were quoting to build their argument of a strongly recovering economy, found the “official” government data of key economic indicators they were using to be highly suspect and greatly manipulated to build a false narrative, and therefore concluded the following. Here is a direct quote from my 2010 article:

   

  “Since college students are already likely to end up living back at home with their parents after they graduate, as the job horizon will appear no better in four years than it is today (unless you believe the drivel of government officials and economists), why not spend that time immersed in self-education of how the financial and monetary systems really work? In the process, students will save their parents tens of thousands, or even hundreds of thousands of dollars, in tuition and save themselves the fate of being a sheep led to the slaughter by banking shills like Joseph Stiglitz, Paul Krugman and Jeffrey Sachs. Furthermore, students will be much better prepared to face the ongoing global economic crisis from not only a financial perspective but also from an educational perspective.”

  
  

  I recall giving a couple of public speeches about this topic in Asia in 2010, and I was again ridiculed by a few economic professors in attendance. There were also many that supported my viewpoint, but I want to emphasize that career academics were often the ones that most strongly opposed me and were the quickest to insist that my viewpoints were foolish and wrong. Their blind acceptance of “official” US data that produced a consensus view that the US economy was getting much better led to their vehement opposition of the points I made above. As I had already analyzed the “official” data, I informed them that the official data was highly manipulated to paint a picture that bankers and politicians wanted to sell the public, and I even offered to explain, by using unemployment and GDP statistics, of how greatly these official statistics were manipulated away from any version of reality.

   

  Instead of being interested in my non-consensus view, these professors stated that my views were very dangerous, because they might actually succeed in convincing potential students to delay college for four years and prevent them from entering, in their words, what they were certain would be, “one of the best job markets in US history”. These professors scolded me and told me that I would be responsible for ruining these student’s lives by preventing them from being ready to take advantage of one of the best US job markets in recent history. In fact, these professors were extremely upset that I even dared to challenge their views, because they were the self-anointed “authority” in such matters. To counter their arguments, my advice was never for the students to sleep all day, lie in bed and watch Game of Thrones, The Walking Dead, and House of Cards during all of their waking hours. My advice was for students to forego a four-year traditional university education and to spend that time engaging in self-education, concentrating on the subjects that would serve them and enable them to thrive in a continuing poor economy. I guess these professors believed that they were the only ones capable of providing students with this type of real education, even though history has proven these types of professors to be very rare at any traditional institution of academia.

   

  If these professors truly believed that the only classroom that mattered in a person’s educational life was a brick and mortar classroom, then they should not be teaching. Tell William Kamkwamba, a kid that grew up in a small Malawi African village that was completely off the grid, and who built 3 windmills from gathering adhesive from blue gum trees and foraging public dumps for PVC tubes, car and bicycle parts, that the only classroom that matters is a traditional one. For William Kamkwamba, the most important classroom was a virtual one that existed in his imagination. The 3 windmills young William built in the classroom of life have put his village on the grid today by generating enough electricity to light several light bulbs in his family’s house, power radios and a TV, charge his neighbors’ cellphones, and pump water for the village’s fields and homes. However, this was not only the case for William in his small village in Malawi, but this was most definitely the case for yours truly who attended an Ivy League university and top graduate programs. By far, the greatest amount of my real learning and valuable attained knowledge occurred outside, not inside of, the brick and mortar classroom.

   

  Here we are 5 years later in 2015 and here are the facts regarding my so-called“dangerous” advice that I provided in 2010. According to data gathered by David Pasch of Generation Opportunity, a non-profit organization that promotes economic opportunity in America, “If you look at the numbers starting in 2009, we’ve been in the longest sustained period of unemployment since the Bureau of Labor Statistics began collecting their data following World War II. This misconception that [the millienial generation] doesn’t want jobs or that we’re lazy and entitled is nonsense.” Pasch states matter-of- factly that millennials are receiving lower earnings compared with the nation’s median income, versus people of that age a decade ago. If you simply watch our SmartKnowledgeU_Vlog_009: Why It’s Such a Struggle to Make Ends Meet, you will actually discover that the reality of lower earnings is actually much more horrifying than it appears to be on the surface. Pasch continues: “We find that because of the difficulties facing millennials, they are delaying these important life decisions, like getting married, buying a home, starting a family.” A 25-year-old young American woman who recently earned a master degree is waitressing and sharing an apartment with a friend in Washington, D.C., while looking for a job better suited to her qualifications. She told Newseek magazine “It’s hard. They don’t want to pay you extra for your master’s. There are enough people with master’s degrees that they can require them.”

  
  

  The fact that my stance turned out to be correct and the stance of many academic professors in 2010 could have not turned out to be any more wrong speaks much more to the fact that the “knowledge” many economics professors are teaching in schools around the world today is simply wrong. Even worse than the fact that this knowledge will hurt the ability of the students they are teaching to survive our current global currency wars is the fact that these professors are typically inflexible to even the possibility that they could be wrong. Understand the right knowledge, and anyone, even a 6-year old, could have predicted the same things I correctly predicted back in 2010. Remain close-minded, and teach this same level of close-mindedness about economic concepts, and these professors will unfortunately lead their students down a path of ignorance and blind obedience to tyrannical authority in the future.

   

  The staff at the Carnevale Center at Georgetown recently stated that having a high school degree used to be enough to make it into the middle class, but that the bar is being set much higher today. They state that today’s generation is “the first generation that needs to have a college degree and experience to compete, before they even enter the workforce.” I highly disagree with this statement. The younger generation does not need a college degree to compete at all. The younger generation does not need MORE institutional classroom education of low utility, but it is in dire need of the right education to compete. But it is not just the younger generation that is indeed of real knowledge to survive. The older generation also needs the right education to understand how to properly preserve and grow the wealth they’ve saved as we enter a period of time in which the top 0.1% of every nation is seizing the entire nation’s wealth for only themselves. The older generation needs the right knowledge to know how to compete in a system that is rigged against them from the very start.

   

  It is for this very reason that I spent the past 10 years of my life designing the SmartWealth Academy to demonstrate to every student that he or she is gifted enough to accomplish whatever he or she desires in life, despite perhaps having been negatively reinforced multiple times as he or she passed through the academic system with the false notion that he or she was not smart enough. To learn more about our soon-to-be-launched SmartWealth Academy, how you can nominate a student for a free SmartWealth Academy scholarship, and win a free membership for yourself, please watch the video below.

   

   

  please click on the image above to watch the video

   

  About the Author: JS Kim is the founder and managing director of SmartKnowledgeU, a fiercely independent research, consulting and education firm focused on helping Main Street understand and avoid the fraud of Wall Street by exposing the fraud of the global banking industry. This year our fee-based services have managed to return positive yields ytd by strategically shorting gold and silver markets and US stock markets. Don’t forget to sign up for our free SmartKnowledgeU newsletter and subscribe to our SmartKnowledgeU YouTube channel to keep up-to-date with our market views.

  

  

  

  

• Paul Craig Roberts: "The Matrix" Extends Its Reach

  Submitted by Paul Craig Roberts,

  The remnant of the American left has again fallen in with the official terror story of the Paris attacks, because the official story serves the left-wing’s denunciatory needs. I see that the Russians as well are on board with the official story as it serves their posture that we must all unite against terrorism. Amazing. Washington can rely on the world’s total blindness.

  Within one hour of the Paris attacks and without any evidence, the story was set in stone that the perpetrator was ISIL. This is the way propaganda works.

  When the West does it, it always succeeds, because the world is accustomed to following the lead of the West. I was amazed to see, for example, Russian news services helping to spread the official story of the Paris attacks despite Russia herself having suffered so often from planted false stories.

  Has the Russian media forgotten MH-17? The minute the story was reported that the Malaysian airliner was hit by a Russian missile over eastern Ukraine in the hands of separatists, the blame was ascribed to Russia. And that is where the blame remains despite the absence of evidence.

   

  Has the Russian media also forgotten the “Russian invasion of Ukraine”? This preposterous story is accepted everywhere in the West as gospel.

   

  Has the Russian media forgot about the book by the German newspaper editor who wrote that every European journalist of consequence was an asset of the CIA?

  One would have thought that experience would have taught Russian media sources to be careful about explanations that originate in the West.

  So now we have what is likely to be another false story set in stone. Just as a few Saudis with box cutters outwitted the entire US national security state, ISIL managed to acquire unacquirable weapons and outwit French intelligence while organizing a series of attacks in Paris.

  Why did ISIL do this? Blowback for France’s small role in Washington’s Middle East violence? Why not the US instead?

  Or was ISIL’s purpose to have the flow of refugees into Europe blocked by closed borders? Does ISIL really want to keep all of its opponents in Syria and Iraq when instead it can drive them out to Europe? Why have to kill or control millions of people by preventing their flight?

  Don’t expect any explanations or questions from the media about the story that is set in stone.

  The threat to the European political establishment is not ISIL. The threats are the rising anti-EU, anti-immigrant political parties: Pegida in Germany, the UK Independence Party, and the National Front in France. The latest poll shows the National Front’s Marine Le Pen leading as the likely French president.

  Something had to be done about the hordes of refugees from Washington’s wars, or the establishment political parties faced defeat at the hands of political parties that are also unfriendly to Europe’s subservience to Washington.

  EU rules about refugees and immigrants and Germany’s acceptance of one million of the refugees, together with heavy criticism of those governments in Eastern Europe that wanted to put up fences to keep out the refugees, made closing borders impossible.

  With the Paris terror attacks, what was impossible became possible, and the President of France immediately announced the closing of France’s borders. The border closings will spread. The main issue of the rising dissident political parties will be defused. The EU will be safe, and so will Washington’s sovereignty over Europe.

  Whether or not the Paris attacks were a false flag operation for the purpose of obtaining these results, these results are the consequences of the attacks. These results serve the interests of the European political establishment and Washington.

  Is ISIL so unsophisticated not to have realized that? If ISIL is that unsophisticated, how did ISIL so easily deceive French intelligence? Indeed, can French intelligence be intelligent?

  Can Western peoples be so unintelligent to fall for a story set in stone prior to any evidence? In the West, facts are created by self-serving statements from governments. Investigation is not part of the process. When 90 percent of the US media is owned by six mega-corporations, it cannot be any different.

  As The Matrix grows in the absurdity of its claims, it nevertheless manages to become even more invulnerable.

  

  

  

  

  

• An Infographic Look At Russia's Advanced Anti-Aircraft Missile Defense System

  A few days ago, The Daily Mail reported that Moscow had deployed S-400 air defense systems to Latakia. Here was the “proof”:

  

  And here’s some color from the article:

  Vladimir Putin has deployed an advanced anti-aircraft missile defense system to Syria with a range capable of taking down jets as far away as Tel Aviv. 

   

  The Russian military released photographs of the S-400 Air Defense System, known to NATO as SA-21 ‘Growler’, at the Latakia Airbase on the Syrian coast.

   

  The advanced missile system, which is understood to have a maximum range of 250 miles is capable of bringing down an aircraft at a maximum altitude of 90,000 feet – which is more than twice the height of a cruising passenger airliner.

   

  Russian analyst Yury Barmin said on Twitter: ‘Alleged S400 complex radar was spotted at the Russian air base in Latakia. Another “accidental” leak by Russia’s MoD. 

   

  ‘By deploying S400 to Latakia, Russia sends signal to Turkey and Israel but also creates a shield over Syria’s coastal areas.’

   

  The S-400 is also able to intercept cruise missiles and other potential airborne threats. 

   

  It is also believed to be a major threat to military aircraft such as the RAF Tornado and the US Air Force F-15 and F-16.

  The obvious implication there is that Russia has built up its capabilities at Latakia in order to threaten US, British, and now perhaps French fighter jets and maybe even to deter Israel from targeting Hezbollah.

  On the one hand, it’s not exactly like ISIS has an air force, but then again, do you really want to roll out your military hardware, build an airbase, and not have the capability to defend it when there are multiple nations (some of which are hostile) flying combat missions in the same country? 

  In any event, the Russian Defense Ministry has denied reports that there are S-400s in Syria. Here’s what Maj. Gen. Igor Konashenkov told foreign reporters visiting the base: 

  “You had the opportunity to see everything here with your own eyes…There are no S-400s here, and never have been.

   

  Before attempting to scare the British public and the world with the deployment of our S-400 air defense system here, they should have consulted Wikipedia or the site of the Russian defense ministry as to how this system looks like.”

  Well, because we’d hate for readers to get a similar scolding from Konashenkov, we present the following infographic which should tell you everything you ever wanted to know about the S-400:

  

  

  

  

  

• Guest Post: Gold, Oil, & 'Grandmaster' Putin's Trap

  Via The Oriental Review,

  In December of last year we published an intriguing article by Dmitry Kalinichenko, “Grandmaster Putin’s Trap,” which has drawn far more attention from readers than we ever expected. It continues to be cited by many international political and economic experts. That article addressed Russia’s latent strategy to get rid of US bonds and use its petrodollars to buy monetary gold. It seemed for a while that the ruble’s nosedive late last year, coupled with the Kremlin’s reduced fiscal space, has left Moscow unable to pursue its plan to permanently diversify the international financial system. Nevertheless, taking a look at 2015, it turned out that Putin’s strategy is working quite well.

  Due to invisible market’s hand the gold-to-oil price ratio has more than doubled in the past two years. While in May 2014 it costed 12 barrels of oil to buy one ounce of gold, this ratio rose to 26 barrels/ounce in January 2015 (where it currently remains). By lowering the price of oil relative to gold, it looks like Wall Street & London’s City are trying to hamper Russian tactic of buying gold in exchange for oil and natural gas (gas prices are linked to oil via BTU). However, these actions fell short of their goals.

  Declining oil prices and a depreciating national currency have not led to a slowdown in the Bank of Russia’s gold purchases on the domestic market for rubles. Despite threats and sanctions, Russia has continued to add to its gold reserves. Bank of Russia bought a record 171 tons of gold in 2014 and another 120 tons in the first ten months of 2015. Consequently, by Nov. 1, 2015 the Bank of Russia had accumulated a total of 1,200 tons of gold in its reserves, which are officially the fifth largest in the world, although in reality Russia is actually in 4th place, as Germany is allowed to store only one-third of its reserves at home. In fairness it should be noted that China has not provided updated data on its gold reserves since 2009, when it officially possessed 1,054 tons. According to some estimates, Chinese reserves may have tripled since than.

  

  Monetary gold in Bank of Russia reserves since 1995, in millions US$. Source: CBR.RU

   

  The year 2014 brought Wall Street yet another unpleasant surprise. Russia emerged as the world’s second biggest gold producer, surpassed only by China. China and Russia’s global leadership in gold mining enables them to create their own currency and trading systems, built on a solid foundation of gold, which will be used by the BRICS countries as a universal unit of account and as a fixed measure of cost.

  Faced with the prospect of having to grapple with a powerful Russian-Chinese gold alliance soon that will call into question the dollar’s future as global reserve currency, the United States has begun to employ all its traditional punitive measures against a country that has dared to challenge America’s financial clout in the world. Ignore all the blather about “democratic values” – these measures are nothing but a way to force Russia to sell gold.

  The Russian people have heard Washington’s ultimatum and understand it perfectly: the US has imposed sanctions in order to oust the legitimate and democratically elected government in Moscow. But not surprisingly, the sanctions levied by the US against the Russian public – at great cost to the EU – have had the opposite effect. Russians have rallied around their nation’s leader, and China and Russia are now closer than ever before. The foreign policy of dictatorship of unmitigated arrogance, so fecklessly conducted by Washington, has had the expected consequences. By habitually and universally replacing the force of law with the right of force, the US has bungled away all of the political capital and credibility it had previously earned among the Russian and Chinese public.

  It is China’s support of Russia’s position that is neutralizing all of Washington’s attempts to lean on Moscow. Even if Russia is forced to sell gold, it will sell it … to China, meaning that it will remain within the “gold alliance.” It is noteworthy that President Xi Jinping’s September visit to the US has not led to any substantial agreements. China is well aware that if Washington is able to sever the alliance between Russia and China, the first action of a Russia’s hypothetic pro-US government would be putting an energy garrote on China’s neck. Wall Street needs to colonize Russia first in order to subsequently colonize China. China’s leaders understand this very well. Incidentally, the same fate awaits Europe, which is yet another geopolitical competitor of the US. However, unlike Beijing, Europe’s leaders have not yet figured this out.

  

  It is important to keep in mind that the dollar’s attacks on gold end always end the same way – in a painful knockout for the dollar. There have been no exceptions to this rule throughout monetary history. Nor will there be this time. Hence the well-known market rule: “Any maximum of the gold price is not the last one.” It would be naive to believe that this golden rule is unknown to that grandmaster of patience, Vladimir Putin, and to Xi Jinping. By systematically increasing their gold reserves, Russia and China are relentlessly moving forward to strip the US dollar of its status as a global reserve currency.

  America’s standard military solution won’t work in this situation. Russia is not Iraq, Libya, or Yugoslavia. Were the US to launch direct aggression against a country like Russia, that would be their last move ever. Therefore, the White House is trying to use radical militants from Muslim and European countries as cannon fodder. There was a time when that approach was more effective. In the mid-twentieth century, Wall Street & London’s City managed to drag Europe into a war against the Soviet Union using their protégé Hitler, whom they had literally brought to power in Germany. Today Ukraine and Syria are the theaters for America’s hot war against Russia, and the European Union is the theater for America’s economic war against Russia (it is noteworthy that while European entrepreneurs are suffering under the sanctions imposed on Russia, their American competitors are busy signing lucrative new deals with Moscow).

  Recently, European countries have begun to realize that Washington is simply conning them. After all, any product is, first and foremost, nothing but energy manifested in the form of a commodity. Taking its cue from America’s geopolitical ambitions, Europe is single-handedly reducing its own level of competitiveness. If we peel away the lofty slogans and declarations about “values” and just consider the dry economics of the matter, everything becomes clear: if the EU is cut off from its supply of cheap Russian energy, in addition to being cut off from the massive Russian market for its goods, Europe will not be able to survive in its present form.

  Wall Street & London’s City, as before, do not know what Putin has in mind. But everyone is quite certain that Putin is up to something, and whatever that is will surprise everyone and advance the interests of Russia and its allies.

  Trying to make sense of Putin’s and his counterpart Xi Jinping’s actions, Bloomberg published an interesting article six months ago about the future of the gold market:

  “It would probably have to be very different than an old gold standard,” Kenneth Hoffman, the Princeton-based head of global metals and mining research at Bloomberg Intelligence… “It wouldn’t be a traditional system where you walk into a bank and you walk out with an ounce of gold. It would have to be something new and different.”

  Predictions by leading Western media outlets about the imminent emergence of a Russian-Chinese alliance to revive the gold standard are heard often enough that they now seem like signals or even calls for such a step, addressed to Moscow and Beijing.

  Back in the 18th century, the philosopher and writer Voltaire stated: “Paper money eventually returns to its intrinsic value – zero,” and he was absolutely right. There have been many different paper currencies throughout the history of mankind. But all of them, in one way or another, eventually reverted to zero and vanished. Those who lived during the reigns of such historical figures as Alexander the Great, Napoleon, Hitler, and Stalin honestly believed that the currency existing at that time would remain in circulation forever. But not one of those currencies still exists. And all that today’s dollar and ruble have in common with their previous incarnations from 100 years ago is the fact that their names are unchanged.

  

  The modern dollar and ruble are entirely different currencies, with different purchasing power, and a different appearance. Some currencies die off suddenly, some revert to zero through gradual depreciation, but somehow or other they are all worth nothing in the end. Obviously, the enfeebled US dollar that has lost 98% of its purchasing power in the last 40 years (as just another unsecured pseudo-currency) is already on the brink of its natural devolution to zero.

  This argument is increasingly used by advocates of a return to the gold standard. However, they forget that all gold currencies previously in circulation eventually died just as surely as the paper currencies. Why did this happen, since the gold currencies were secured by the gold they physically contained? Because any gold currency is, first and foremost, a currency with a designated value, not money based on the weight of the gold contained in those coins!

  Gold currencies had a fiat value represented by the denomination embossed on them, which imposed a legal duty on all market players. This duty required that they use all gold coins exclusively as currency, with a face value specified and assigned by law. But eventually an inevitable inconsistency emerged between the market value of the gold contained in the coin in accordance with its weight vs. the fiat value of the denomination that was embossed on the gold coin itself. This inconsistency has spelled the end for every single form of gold currency throughout humanity’s monetary history. There are no exceptions to this rule, which is well known on Wall Street. It is critically important for that crowd that Russia and China be goaded into minting yet another doomed gold currency. As soon as Russia and (or) China issues such a gold currency, it will be immediately attacked by Soros and other speculators in Wall Street’s pocket like him. Whatever the face value, in rubles or yuan, that is embossed on the gold currency of Russia or China, after a while that value will begin to diverge from the value of the gold within the coin. It will become profitable for speculators to cyclically exchange paper currency for gold currency, which will deplete the country’s gold reserves and consequently lead to default.

  As the situation currently stands, there is no one in the world who can answer this ostensibly simple question: why, knowing that it is not feasible to mint a gold national currency, are Russia and China continuing the rush to build up their gold reserves? Right now no one in the world knows that…. except Putin himself and his colleague Xi Jinping…

  

  

  

  

  

• College Campuses & "Safe Spaces" – Circling The Drain Of The Sanity Toilet

  Presented with little comment, aside to say, WTF!!!

  Having posted the following rather too honest (and hilarious) cartoon…

  PC CENSORSHIP FACEBOOK has removed "CryBullies"from my FB pages saying it "violates" their "Community Standards!" pic.twitter.com/QjxhA3V3yE

  — GrrrGraphics (@GrrrGraphics) November 14, 2015

  Ben Garrison noted that Facebook has "censored" it from his pages…

  

   

  And then Paris happened, which appears to have upset the Social Justice Warriors at The University of Missouri… but not for the reasons you'd expect…

  Black Lives Matter and Mizzou protesters responded to the murder of scores of people in Paris at the hands of Islamic extremists by complaining about losing the spotlight and saying their “struggles” were being “erased.” Their struggles, remember, consist of a poop swastika of unknown provenance and unsubstantiated claims of racially-charged remarks somewhere near Missouri’s campus.

   

   

  

   

  

  

  

   
    

   

   

  So debased has the language on American campuses become that these incidents, which many observers believe to be hoaxes, just like previous campus scandals celebrated by progressive media, are being referred to as “terrorism” and a “tragedy” by moronic 20-year-olds who have never been told, “No.”

  The creation of this special kind of narcisistic insanity was capttured by one artist…

  

   

  All of which implies the endgame for this idiocy unless common-sense somehow re-emerges…

  

   

   

  Source: @GrrrGraphics, Townhall.com, Breitbart

  

  

  

  

  

• Depression Tracker: Brazil Braces For Big Week Of Bad Data

  Late last week, Brazil was back in the spotlight on speculation about the future of embattled finance minister Joaquim Levy. 

  The BRL can’t seem to decide if the uncertainty surrounding a Levy exit should outweigh any optimism around a Henrique Meirelles appointment, and it all comes against the backdrop of Brazil’s stagflationary nightmare that has plunged one of the world’s most important emerging economies into what, on some measures, certainly looks like a depression. 

  To be sure, the pace at which the situation continues to deteriorate in terms of Brazilian economic data has been something to behold and indeed, many fear the combination of rising unemployment and overleveraged households could be a ticking time bomb especially in places like the southern end of Sao Paulo, where, as Bloomberg documented last month, people like 43-year old steelworker Rossini Santos are now relying on unemployment insurance to service debt incurred to buy small homes and cars.

  This week, we’ll get a fresh look at three key Brazilian depression recession trackers: GDP, inflation, and unemployment. Here’s Goldman with the preview and a few charts which serve to underscore the malaise.

  *  *  *

  From Goldman

  The central bank will release on Wednesday the IBC-Br monthly real GDP indicator. We expect real GDP to decline 0.6% mom sa in September; the fourth consecutive monthly decline. This would be consistent with a 1%-plus qoq sa decline in real GDP during 3Q2015, and a contraction of real GDP during 2015 topping 3%. 

  

  IPCA-15 inflation will be released on Thursday and we forecast a high reading of 0.87%. Our forecast implies headline inflation would come in at a very high 10.3% yoy; which would be the highest print in more than a decade (since Nov 2003). 

  

  Finally, on Thursday IBGE will release the October labor market report. We expect the unemployment rate to increase to 7.6% in October, up from 4.7% a year ago and the highest print in seasonally adjusted terms since September 2009. We expect the labor market to deteriorate further in 2015 and 2016. 

  

  *  *  *

  So, running that down, it’s likely we’ll see, i) fourth consecutive monthly decline in GDP, ii) highest inflation print in nearly 11 years, iii) highest seasonally adjusted unemployment since September 2009. 

  

  As those who’ve followed this story closely may be aware, Goldman’s Alberto Ramos has a way of employing a kind of subtle, deadpan humor when it comes to explaining the situation in Brazil. The sad fact is that when you list all of the country’s problems, it invariably comes across as comical. Case in point:

  The recessionary dynamics are forecasted to extend into 2016. We expect the economy to continue to face strong headwinds from higher interest rates, exigent financing conditions, high inflation, significant labor market deterioration, higher levels of inventory in key industrial sectors, higher public tariffs and taxes, high levels of household indebtedness, weak external demand, soft commodity prices, political uncertainty, and extremely depressed consumer and business confidence.

  On the other hand…

  On the positive side, a more competitive exchange rate and weak domestic demand conditions should gradually lift the contribution of net exports to growth and provide a floor for the expected contraction of real GDP in 2015.

  
  

  

  

  

  

  

• "It's Different This Time" Or "Same As It Ever Was"

  Authored by Mark St.Cyr,

  Over the past few years when it’s come to any criticism of business models, valuations, or other concerns encompassing the social media space, along with other dubious “hacking” inspired businesses emanating from Silicon Valley, the immediate rebuttal posed fell along the lines of first being looked as “you just don’t get it” (or just crawled out from under some rock) followed with, “It’s different this time.”

  If one posed any real push back as to move nebulous assertions out from the sky and back into more true ledger accounting? Those “looks” turned into outright disdain, and disgust followed with ridicule as the assertions of “It’s different…” and “You just…” morphed into closing statements as to implicitly cement the questioning door closed. For to go any further, it was a waste of their time and/or breath. After all, why try to prove you’re right when today’s version of the teenage “Because! Just because!” works just as handily.

  Over the past few years that defense has worked splendidly. Only problem? Just like with teenagers; there comes a time it no longer works. This is where the once go-to responses begin to work against – not for. Welcome to same as it ever was. Or, one could say, “Welcome back to reality.” Where nebulous business plans no longer attract attention never-mind – cold hard cash.

  As a matter of fact, what has been recently embraced as some entrepreneurial birthright in Silicon Valley (i.e., VC funding at the whim) seems to be going the way of “Because…” itself.

  You’re not hearing precise reasoning or explanations for it (although the reasons are as clear as day: No QE.) However, what you are beginning to now see are the inevitable storm clouds moving from the horizon, and making landfall. All one needs to do is get their heads out-of-the-clouds and start reading the writing on the walls right in front of them. For the messages they portend are writ large – if one wants to see. Here are a few that have caught my attention…

  A few weeks ago I was watching a Bloomberg™ morning show where the guest was one of social media’s well-known aficionados. (I’m not being coy by not naming, it really doesn’t matter) During the discussion there were a few things that struck me. One was the on air tension. It seemed the more the questioning – the more antagonist or dismissive the retorts became. Another was in response to a question about Twitter™. The response? “Do people even use Twitter any longer?” For he implied he’d already moved from there to another platform. Which in many ways validates what I’ve stated for years and have been publicly scorned for: “When the price is free – loyalty is as enduring as a Unicorn’s balance sheet is real.”

  Another point to ponder is this: Let’s put aside anything IPO for a moment and look directly at the VC funding meme. Remember (for it wasn’t all that long ago) when those in the VC world were being touted as some form of Superheros to the rescue? As a matter of fact one prominent website to this very topic sported a drawing depicting many as just that with capes, costumes, and more.

  It seems that maybe there’s just a few too many seeking their birthright VC money in today’s market environment.

  Just 12 months ago VC firms and others would be hosting “come one – come all” stylized events or meetings as to vet the latest group to be showered with some form of initial funding. The game (as I had written about previously) had morphed into more of a numbers game funded via the hot money provided by the Fed’s ongoing QE policy. i.e., Throw money at all of them, for the IPO’ing of just one will make all sins disappear. However, that meme is showing signs it to is going the way of “its different this time.”

  Today you don’t need to look deep (for it’s everywhere if you want to see.) All you need to do is look. There are articles sporting titles along the lines of “Why you shouldn’t seek VC money” and more. And not from obscure names. Some are from the very people who only months ago were depicting as VC superheros. Quite a shift and peculiar timing one might infer, no?

  So what about “everything social?” After all, social media is the “be all – end all” platform in which all dreams are made (and cashed out.) Again, after all, everyone still instinctively points to Facebook™ as the continuation of promised milk and honey. “Just look at their stock price!” is shouted. Another is “Just look at mobile: they’re killing it!” “You don’t understand: it’s different this time!” Sure it is. All I’ll point to for a contrasting argument is AOL™.

  Facebook currently sports a market cap larger than GE™, Johnson & Johnson™, Walmart™, and a host of others. These are not trivial companies by any stretch. However, there is one very distinct difference that should not be lost. They sell products and buy ads. Facebook primarily sells only ads (and all your data but that’s for a different discussion.) In the last bubble AOL also fell into this same paragon of ad-based business models. It was unique, email was “the hottest thing.” Banner ads (remember those) was the next be all, end all to advertising. Till – it wasn’t.

  AOL-Time Warner™ stood with a market cap of some $350 BILLION dollars in 2000. It was for all intents and purposes “the king” of ad sales in the every growing, and developing, tech based medium. Then, the bubble burst (i.e., the recession took hold) and ad sales literally dried up crushing AOL and anyone else supported purely on an “ad” model.

  Yet, let’s not forget about the one thing that takes place right before such a hatchet bears down on ad revenues that many just don’t contemplate. For AOL did have real ad sales as does Facebook. And right before the bottom fell out AOL was also (much like Facebook is today) being pushed ever higher in valuation.

  That “thing” is this: Right before the axe falls – the preceding volume of ad buying becomes more concentrated. Any and all peripheral ad money gets bundled and focused into one medium more than the others in what could be classified as a “Hail Mary” seasonal cycle buy. This is how I look at Facebook’s latest earnings report. The meme of “they’re just killing it/firing on all cylinders” hearkens to my ears just what happened before the implosion of “everything dot-com.”

  I am still of the belief the “everything social” is not “it’s different this time” but more of “the same as it ever was.”

  The latest retail sales report wasn’t bad – it was horrible. Once again missing expectations. But there’s a much bigger problem. More and more retailers are reporting abysmal earnings reports. Macy’™, Nordstrom™, Walmart™ and others are reporting nothing more than anyone with a shred of common sense knows intuitively as summed up so succinctly by retail maven Howard Davidowitz when speaking on the challenges of retail malls: “…what’s going on is the customers don’t have the fucking money. That’s it. This isn’t rocket science.”

  Current ad spending by retailers as of this writing I believe fits into the same description echoed by Mr. Davidowitz: It’s not rocket science.

  Facebook and a few others are going to be the go-to recipients of any and all “Hail Mary” ad buys for this coming earnings quarter and holiday season. Just like with what has taken place with previous assigned “Holy Grail” inspired ad platforms.

  If retail sales for this shopping season mirror anything close to what this past report portends? Again, just look to AOL post 2000 for hints. Ad revenue went from robust to abysmal in the blink of an eye.

  In 2001 AOL was still considered “the hottest, biggest, bad ass of everything ad/internet generating revenue.” By 2002 it’s $2.3 BILLION in ad revenue would be cut in half. Then just a year later it would fall even further to nearly cutting itself by another third if not half once again. Till finally AOL became “Who?”

  For comparison: Facebook is now just about the same size in market cap as AOL was in 2000. The parallels are striking if one dares to look back with any quantitative as well as qualitative analysis eschewing any “it’s different this time” reasoning.

  For further clues I’ll only point just a few more…

  First: Isn’t it just a little odd or, at the least something that makes you go Hmmmmm when none other than one of the most prominent cheerleaders of everything VC and/or social Marc Andreessen sells 73% of his Facebook stock in the last two weeks?

  If that doesn’t inspire a change in thinking maybe the following will. For if there’s anything to be gained for insight such as the much touted “front page article” to mark a bubble. How about the very week Facebook hit its peak share price the following was reported with great fanfare. To wit: President Obama announces launch of his very own Facebook page.

  Remember, government has been shown to be with near Swiss watch precision – the last to arrive to the party.

  Oh, and one last point just for a little more context. Remember I said at the beginning of this article to put aside anything IPO for the moment? I was scorned and ridiculed by many (especially those within The Valley itself) when I penned an article titled, “Crying Towels: Silicon Valley’s Next Big Investment Op” Yet, a funny thing has shown itself on its way to “Unicorn paradise.”

  The much-anticipated IPO of Square™ was announced. The issue? The price is some $2 BILLION less (i.e., at a 30% discount) to its latest private funding round for valuation. That while simultaneously the other company Mr. Dorsey is heading up as CEO (Twitter) once again falls below its IPO price. So now, with all that said, the only question one needs to ask and answer is this:

  It’s different this time? Or: same as it ever was?

  We’re going to find out much sooner than later. That I’m sure of.

  

  

  

  

  

• Meet The Family That Just Spent Half Its Annual Income Paying For Obamacare

  Not a week passes without some incremental revelation showing precisely what happens when Congress passes a bill just to see what's in it.

  Well, since the passage of the Affordable Care Act, also known as the Obamacare tax, we have watched in horror as shocker after shocker are revealed.

  Some examples:

  • In Latest Obamacare Fiasco, Most Low-Income Workers Can't Afford "Affordable Care Act"
  • The Stunning "Explanation" An Insurance Company Just Used To Boost Health Premiums By 60%
  • Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why
  • Obama Promised Healthcare Premiums Would Fall $2,500 Per Family; They Have Climbed $4,865
  • Largest Health Insurer On Colorado Exchange Abruptly Collapses
  • Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud
  • "$19,000 Premiums, Up 4x Since Passage": The 'Crippling Effect' Of Obamacare On The Middle Class

  Now we can add one more thing that "was in it": soaring deductibles, which give the fake impression of contained, low all-in costs… until one actually needs expensive medial help (and these days there is no other kind).

  The latest expose against Obamacare comes not from its usual nemesis, but the hard-left NYT, suggesting that even the ideological supporters of Obama's "crowning achievement" are losing faith. To wit:

  Obama administration officials, urging people to sign up for health insurance under the Affordable Care Act, have trumpeted the low premiums available on the law’s new marketplaces.

   

  But for many consumers, the sticker shock is coming not on the front end, when they purchase the plans, but on the back end when they get sick: sky-high deductibles that are leaving some newly insured feeling nearly as vulnerable as they were before they had coverage.

   

  “The deductible, $3,000 a year, makes it impossible to actually go to the doctor,” said David R. Reines, 60, of Jefferson Township, N.J., a former hardware salesman with chronic knee pain. “We have insurance, but can’t afford to use it.”

   

  In many states, more than half the plans offered for sale through HealthCare.gov, the federal online marketplace, have a deductible of $3,000 or more, a New York Times review has found. Those deductibles are causing concern among Democrats — and some Republican detractors of the health law, who once pushed high-deductible health plans in the belief that consumers would be more cost-conscious if they had more of a financial stake or skin in the game.

   

  “We could not afford the deductible,” said Kevin Fanning, 59, who lives in North Texas, near Wichita Falls. “Basically I was paying for insurance I could not afford to use.” He dropped his policy.

  In other words, Obamacare's "affordable care" is affordable, as long as one doesn't actually have to use it!

  Here is the damage when one does:

  • In Miami, the median deductible, according to HealthCare.gov, is $5,000.
  • In Jackson, Miss., the comparable figure is $5,500.
  • In Chicago, the median deductible is $3,400.
  • In Phoenix, it is $4,000;
  • In Houston and Des Moines, $3,000.

  Considering far more than half the US population has less than $1,000 in savings, there are quite literally tens of millions of people who are one ER visit away from the poor house. And they are unhappy. But at least the liberal think tanks have words of advice:

  To those worried about high out-of-pocket costs, Dave Chandra, a policy analyst at the liberal-leaning Center on Budget and Policy Priorities, has some advice: “Everyone should come back to the marketplace and shop. You may get a better deal.”

  But you almost certainly won't, because the whole structuring of Obamacare was to lower future costs at the expense of a surge in deductible payments, aka the oldest trick in the insurance book. And America fell for it.

  So here is what happens when one does find out what is in the "affordable" care law, after it was passed.

  Meet Mr. Fanning, from North Texas, who said he and his wife had a policy with a monthly premium of about $500 and an annual deductible of about $10,000 after taking account of financial assistance. Their income is about $32,000 a year.

  The Fannings dropped the policy in July after he had a one-night hospital stay and she had tests for kidney problems, and the bills started to roll in.

  And just like that a family of two spent half their annual income on insurance and deductibles courtesy of the "Affordable" care act.

  It gets better:

  Another consumer, Anne Cornwell of Chattanooga, Tenn., said she was excited when Congress passed the Affordable Care Act because she had been uninsured for several years. She is glad that she and her husband now have insurance, because he has had tonsil cancer, heart problems and kidney stones this year.

   

  But with a $10,000 deductible, it has still not been easy.

  Her conclusion: "When they said affordable, I thought they really meant affordable," she said.

  Nothing more to add.

  

  

  

  

  

• Companies Vs. Countries: Comparing US Corporate Market Caps To Emerging Markets

  Back in July, during the depths of Greece’s fraught bailout negotiations, BofA made a rather amusing observation:

  “The market cap of MSCI Greece is now the same as Bed, Bath and Beyond” – BofA

  — zerohedge (@zerohedge) July 2, 2015

  That’s pretty astonishing, although we’ll admit that during June and July, choosing between spending an afternoon in Athens and spending an afternoon in a Bed, Bath, and Beyond would have indeed been a tough call. 

  Well, if you’ve ever wondered how your favorite US corporations stack up against the entire MSCI free float market cap of the world’s emerging economies, BofAML has the complete map for your viewing pleasure, presented below without further comment:

  

  

  

  

  

  

• What Hath The Fed Wrought?

  "Absent the performance on FOMC days, the stock market has gone nowhere in 17 years. If you're a believer in capitalism and free markets, you sit back and think about that statistic for a moment and ask yourself – 'have I really made any money without The Fed?'"

  

   

  Since gold peaked in 2011, there have been 37 Fed meetings (and minutes released 33 times) and 8 congressional testimonies. Removing the 164 days covered by these events (15% of the 1092 trading days since Sept 5 2011's gold peak), reduced gold's drop by almost half to just 25%.

  

   

  As Santiago Capital's Brent Johnson warns "never underestimate the power of The Fed" but in the long-run this is unsustainable as while The Fed has consistently forecast, promised, guaranteed that economic green shoots are showing up, they have been horribly wrong… and with December's meeting looming, their credibility is running on fumes.

  

  We have transitioned from free markets to centrally-planned and financially-engineered markets as the PhDs attempt to control the greatest monetary experiment ever undertaken. But they are almost out of runway… and they know it as mainstream market participants belief in their omniscience is rapidly fading.

  Watch the full presentation below as Santiago Capital's Brent Johnson transitions from the manipulated markets to the loss of trust and faith that is coming – "god help us all" he ominously concludes as he notes it is not important where gold trades now but where the precvious metal will trade when you do need it…

   

  Source: Santiago Capital

  

  

  

  

  

• For The First Time Ever, Japan Enters A Quintuple-Dip Recession (Courtesy Of Abenomics)

  Because nothing says ‘successful monetary policy’ like 5 ‘technical’ recessions in 5 years…

  Japan 3Q GDP Falls Annualized 0.8% Q/q; Est. -0.2%

  

   

  As if this was not bad enough, Japanese business spending dropped 1.3% QoQ – its worst drop since Q2 2014…

  

   

  And finally – what is working…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Breadth, Buybacks, & The Piercing Of The "Grandaddy Of All Bubbles"

  Submitted by Doug Noland via The Credit Bubble Bulletin,

  The “Granddaddy of All Bubbles” thesis rests upon the view that the world is in the midst of the precarious grand finale of a multi-decade global Credit and financial Bubble. When a Bubble bursts, system reflation requires an even larger fresh new Bubble. This has repeatedly been the case going back at least to the “decade of greed” late-eighties Bubble in the U.S. These days the world confronts the terminal Bubble phase partially because of the unprecedented scope of the China and EM Bubbles. It’s simply difficult to imagine another more far-reaching Bubble.

  Also critical to the finale Bubble thesis is that the “global government finance Bubble” – encompassing unprecedented excesses in sovereign debt, central bank Credit and government market manipulation – has engulfed the very foundation of contemporary “money” and Credit. It’s again quite a challenge to envisage a new financial Bubble inflation cycle following a crisis of confidence at the heart of global finance.

  As I’ve posited repeatedly, the global Bubble has been pierced. There's more confirmation again this week.  The collapse in commodities and EM currencies along with the faltering Chinese financial Bubble mark an historic inflection point. Global policymakers have gone to incredible measures to stabilize market, financial and economic backdrops. Yet reflationary measures will continue to only further destabilize.

  When policy-induced “risk on” is overpowering global securities markets, fragilities remain well concealed (and my prognosis appears ridiculous). Fragilities, however, swiftly manifest with the reappearance of “risk off.”  Rather quickly securities markets demonstrate their proclivity for illiquidity and so-called “flash crashes.” So after an unsettled week in global markets, the critical issue is whether “risk on” is giving way to “risk off” dynamics.

  There is no doubt that a powerful “risk off” has again gripped commodities markets.

  Crude (WTI) sank 8.5% this week to $40.71, the low since the tumultuous August period. The “GSCI” Commodities Index dropped 4.0% this week, increasing 2015 losses to almost 19% while trading down to near August lows. The Bloomberg Commodities Index sank to an almost 16-year low. Copper prices this week sank 3.6%, trading to a new six-year low. Zinc also traded to a six-year low, with nickel at a five-year low. Unleaded gasoline dropped almost 10%. Wheat fell 5.3% and Corn dropped 4.0%.

   

  With commodities succumbing to another leg in an increasingly brutal bear market, worries quickly returned to EM. The Brazilian eal declined 2.1% this week and the Colombian peso sank 6.4%. The Russian ruble fell 3.5% and the South African rand declined 1.6%. Mexican stocks were hit 3.6%.

   

  November 9 – Bloomberg (Taylor Hall): “Debt in developing markets is estimated to have reached $58.6 trillion at the start of 2015, with credit in China, Hong Kong, India, Indonesia, Malaysia, Singapore, South Korea and Thailand exceeding that of Latin America, emerging Europe and the Middle East, according to the Institute of International Finance. Emerging-market debt has grown $28 trillion since 2009, according to the IIF… Global debt has soared $50 trillion during the period to surpass a total of $240 trillion, or 320% of gross domestic product, in early 2015. While credit has increased for almost all countries included in the new monitor over the past decade, debt-to-GDP ratios in developing Asia for non-financial corporate, household and financial corporate sectors have risen the most… Non-financial corporate sector debt in emerging markets has risen $13 trillion since 2009, increasing more than five-fold over the past decade to surpass $23.7 trillion in the first quarter of 2015. The advance has been most concentrated in emerging Asia, where it rose to 125% of GDP.”

   

  And with market attention seemingly returning to the world’s precarious debt overhang, “developing” Asian equities were hit hard this week. Stocks were down 4.2% in Taiwan (TAIEX), 2.8% in Singapore (STI), 2.8% in Thailand (SET), 3.1% in the Philippines (SE IDX), 2.1% in Indonesia (Jakarta Comp) and 1.6% in Malaysia (KLCI). Australian stocks (ASX 200) were hit 3.1% and New Zealand stocks (NZX 20) fell 1.7%. Hong Kong’s Hang Seng Financial index dropped 2.6%, increasing its 2015 decline to 30.4%.

   

  Disappointing Chinese economic data (imports, exports, producer inflation, etc.) already had investors on edge. A (rapidly?) deteriorating corporate Credit backdrop was beginning to cause angst. And then Thursday’s Chinese Credit data was stunningly disappointing. October saw total Credit growth (“Total Social Financing”) cut by more than half. After September’s jump to $204bn, Credit growth slowed sharply to $75bn, the weakest month of Credit expansion since July 2014. New bank loans, at $81bn, were less than half of September’s $165bn. This is insufficient Credit to hold bust at bay.

   

  In short order, confidence that Chinese policymakers have everything under control has begun to wane. The view that Beijing can simply dictate Credit growth through mandates to the big state-directed lenders is being shaken by anecdotes of increasingly nervous bankers and cautious borrowers. Suddenly there’s talk of the Chinese “pushing on a string.”

   

  When global markets are in a bullish mood, commodities and EM currencies appear to have bottomed. Yields on energy, commodities and deep cyclical company debt around the globe seem enticing. “Developing” country debt is attractively priced. Chinese officials seem capable of ensuring 6.5% growth as far as the eye can see. China enjoys the capacity to stabilize its currency, inflation level and debt load. And stable Chinese growth will backstop commodities markets, EM markets and economies and the global economy (and markets!) more generally.

   

  But this optimistic view of things turns flimsy in a hurry. When crude and commodities begin to tank, large quantities of debt (company, country and financial) look increasingly suspect. King dollar takes off, putting added pressure on faltering commodities and EM (currencies, debt and stocks) Bubbles. And with the Chinese currency pegged to king dollar, the markets’ view of the China Credit situation can abruptly shift from “manageable” to “potentially very troubling.”

  And returning to the “Granddaddy Bubble Finale” thesis, the Chinese and EM Bubbles fundamentally changed the “producer” and “consumer” inflationary backdrops. Ultra-loose global finance has ensured massive overcapacity in too many things. It has created an unprecedented divergence between bubbling financial markets and weakening fundamental prospects. There’s way too much debt almost everywhere, a debt burden that central bankers would like to inflate away to more manageable levels. The Chinese are desperate for inflation to grow out of historic amounts of debt. They’ve been able to inflate out of debt troubles previously, and they’ve watched U.S. reflationary measures work their magic repeatedly.

  The bursting global Bubble is especially problematic for China. EM currencies have been devalued, while the U.S. and Chinese currencies have skyrocketed. The old reflationary measures no longer work. Loose “money” only exacerbates overcapacity, inequalities and financial Bubbles. The strong dollar further pressures global pricing, while adding to heightened Credit stress globally (certainly including EM dollar-denominated debt). Meanwhile, China’s currency peg to the dollar ensures the already vulnerable Chinese manufacturing complex becomes further uncompetitive. It ensures major problems related to the country’s enormous lending and investing boom in global resources. The resulting Credit stress only exacerbates disinflationary pricing pressures.

  In 2014 and again in August, it appeared China was to commence meaningful currency devaluation. In both instances acute financial stress forced Chinese officials to immediately backtrack. Trying to recover from the August fiasco, the Chinese have focused on currency stability. And when markets are in that optimistic state of mind, Chinese policy appears sensible and sustainable. But when “risk off” begins to take hold, China’s mountains of overcapacity and debt appear completely at odds with a strong currency – with a peg to king dollar – in a disinflationary global environment.

  It wasn’t only commodities and EM that succumbed to “risk off” this week. European stocks were down about 3%. U.S. stocks had a really rough week. The S&P500 declined 3.6%, with the broader market down even more. Selling was broad-based. Credit spreads also widened, most notably in high-yield. Junk bond funds saw flows reverse to sizable outflows. There were anecdotes of waning demand for leveraged loans, high-yield municipal debt and risky Credits more generally. Puerto Rico… Hedge fund performance… This is all consistent with heightened risk aversion and self-reinforcing pressure to de-leverage.

  * * *

  Which is especially cocnerning with breadth at near record lows…

  

   

  Leaving US equity markets balanced precariously atop an ever-decreasing ponzi of ever-increasingly mega-cap firms… (Top 10 firms in the S&P 500 gained equivalent of the losses of the remaining 490 firms year to date)

  

   

  Just what is The Fed to do now that the low-cost buyback bonanza is dying…

  

   

  Just ask Macy's or Nordstrom this week…

  

  

   

  *  *  *

  Confidence was so high that the bulls had essentially already taken a big year-end rally to the bank. “Risk off” into December would catch the bullish consensus completely flatfooted. “Risk off” would also catch most market operators un-hedged and over-exposed on the long side. “Risk off” would also complicate life for the Fed. Just when they had finally gathered the nerve to move, global markets turn sour. And perhaps the Fed has been whipsawed by the markets one too many times. But I still think global markets are being dictated much more by China than the Fed. And at this point, Chinese officials have the much more difficult decisions. Do they bite the bullet and start devaluing? Or do they stick with the peg and hope?

  My Friday writing has been interrupted by the news of terrible terrorist attacks in Paris. It’s a reminder of the increasingly hostile world in which we live. And it’s consistent with a darkening of the social mood in Europe, as well as here in the U.S. and around the world more generally. It’s also part of the troubling backdrop conducive to a problematic “risk off” when faith in global central bankers and Chinese officials wanes.

  November 13 – Bloomberg (Candice Zachariahs, Anchalee Worrachate and Lananh Nguyen): “…While dislocations may provide opportunities for investors, they also bring challenges, according to… Luke Bartholomew, an investment manager at Aberdeen Asset Management… 'The real worry about liquidity is that it behaves like a bad friend — it is there when you don’t especially need it, but as soon as you do need it, it disappears.'"

  

  

  

  

  

• Dow Drops 140 Points, Bonds & Bullion Pop As Markets Open

  As futures markets reopen, a flight to safety bid is evident with gold ($1090) and bonds bid as US equity futures extend Friday's losses (erasing half of the October surge gains). The Dollar is modestly bid against the euro (EURUSD 1.06 handle looms) and oil is holding slightly in the green (war premium)…

  "Market uncertainty"

  

   

  Leaving Dow Futures down 140 points from Friday's close…

  

   

  And The S&P has erased half the October surge gains…

  

   

  As EURUSD tests back down to a 1.06 handle…

  

  

  

  

  

  

• They're Coming For Your Cash

  Submitted by Mark Nestmann via Nestmann.com,

  It might sound like a conspiracy theory spun by right-wing crazies. But judging by the increasing desperation of governments to reboot the world economy, it just might happen.

  “It” is the recall or confiscation of cash, i.e., dollars, euros, pounds, etc., in physical form. And a key justification that those calling for this radical measure cite is that it reinforces the ability of central banks to impose negative interest rates.

  Negative rates mean that lenders literally pay businesses and consumers to borrow money. They also penalize savers for hoarding it. The Danish and Swiss national banks have gone the farthest into negative territory, with interest rates of -0.75%. That means €100,000 in a euro-denominated account in Switzerland would be worth only €99,250 after one year. While these rates apply only to “excess reserves” banks maintain at the central bank, nothing stops banks from requiring depositors to share the pain.

  But that’s not enough, according to some economists. Citicorp’s chief economist, a technocrat named Willem Buiter, thinks the US needs much lower interest rates to push the economy out of the doldrums. He thinks negative interest rates around -6% would do the job. But there’s one condition: For his plan to work, he says, the government must abolish cash.

  It’s easy to understand why Buiter might not have warm and fuzzy thoughts about cash. After all, if your bank is taking 6% from your savings, $100 in your account would be worth only $94 at the end of one year, $88.36 after two years, and $83.06 after three years. On the other hand, a $100 bill with Ben Franklin’s picture on it would still be worth… well, $100. Buiter understands that as long as cash exists, no one will voluntarily keep their savings in accounts with negative interest rates.

  And Buiter isn’t the only one pointing out that outlawing cash could stimulate the economy, especially in a crisis. In a recent article, Michael Pento, president and founder of Pento Portfolio Strategies, observed:

  “Strategies such as pushing interest rates into negative territory, outlawing cash, and sending electronic credits directly into private bank accounts may appear more palatable in the midst of market distress.” (emphasis added)

  And the Fed seems to be catching on to the prospect of negative interest rates. At the latest meeting of the Fed’s Open Market Committee, at least one member suggested that negative interest rates might be worth considering.

  As for abolishing cash altogether, proposals to do so are much further advanced outside the US. Italy and France have banned allcash transactions over €1,000. Spain has banned cash transactions exceeding €2,500. Similar restrictions are in place in Belgium, Bulgaria, Greece, Mexico, Russia, Uruguay, and other countries.

  In the US, cash transaction limits don’t yet exist, but de facto limits already are enforced. I’ve received reports from several clients of interrogations by banks if they withdraw more than a few thousand dollars in cash from their accounts. And depositing or withdrawing more than $10,000 in cash from an account requires that banks (as well as other “financial institutions”) file a Currency Transaction Report with the IRS. “Structuring” a single cash transaction into multiple transactions to avoid this requirement is a crime. And if the circumstances surrounding a transaction above $5,000 are “suspicious,” financial institutions must file a Suspicious Activity Report.

  Federal, state, and local law enforcement agencies consider cash holdings inherently suspicious. Under the Alice-in-Wonderland legal process of civil forfeiture, they can seize your cash if they believe that it’s somehow connected to a crime. That’s easy, since nearly 100% of cash circulating today contains tiny concentrations of narcotics residues – primarily cocaine. All police need to do is bring in a drug-sniffing dog to inspect the cash. If the dog alerts, police seize the cash. And under civil forfeiture rules, it’s up to you to prove that the cash has a legitimate origin.

  If the government decides to restrict cash transactions or outlaw cash altogether, how would they do it? Actually, efforts along this line are already well under way. Many airlines accept only credit or debit cards for inflight purchases. Louisiana forbids cash for some secondhand sales of scrap metal. A proposal in Wisconsin would ban cash payments for treatment at pain clinics.

  But for negative interest rates to really take hold, the Fed will need to step in. One proposal is for cash to be recalled in a very short period – as little as 10 days. Anyone turning in more than a relatively low threshold – perhaps as little as $1,000 – would be required to prove that the cash was generated legally and that all taxes on the income had been paid. Otherwise, 30% or more of the cash would be confiscated.

  It’s easy to be frightened by these proposals. But if governments think they can force us to accept negative interest rates on our savings by abolishing cash, they need to think again. It’s preposterous to assume that savers will passively accept outright confiscation of their assets via negative interest rates or a ban on cash.

  Instead, people will simply revert to other stores of value. The Yapese people who inhabit some of the Caroline Islands in the Pacific Ocean, for instance, once used giant stone disks as money. Some of the disks were as large as 13 feet in diameter.

  Other forms of “currency” are more convenient. For instance, at the end of World War II, a cigarette economy developed in occupied Germany. Cash was scarce, so ordinary Germans adapted by exchanging cigarettes for food and other necessities.

  Indeed, barter of all kinds flourishes when money is scarce. It will flourish even more if governments make a serious effort to abolish cash. And of course, ending cash will only encourage the growth of digital currencies such as Bitcoin.

  Finally, I believe that there will be significant movements of cash into precious metals – especially gold. If you don’t already own some gold in fully allocated form, now would be a good time to consider buying some.

  

  

  

  

  

• The Fed Gave Wall Street The Lowest Rates In 5000 Years & All Main Street Got Was This

  It's simple – in theory – a central planning body, who knows what is best for the rest of society, lowers interest rates (to reduce the cost of capital, encourage entrepreneurial actvities, and stimuluate the economy – and therefore jobs – for the average joes and josephines of the world).

  So the 'smartest people in the room' cut interest rates, lowering the cost of capital to the lowest in 5000 years…

  

   

  But a funny thing happens when the world is saturated in debt, leveraged to the max, and liquidified by lenders of last resort… the textbook breaks!

  And the real economy "gets nothing"

  

   

  But do not let that stop them trying it again.

  Charts: BofAML

  

  

  

  

  

• How Many More Recession Confirmations Do You Need?

  Submitted by Jim Quinn via The Burning Platform blog,

  Despite the bogus BLS employment report last week (so the Fed could raise rates before the next financial crisis hits), all economic data confirms an economic recession. Corporate profits are falling, and their forecasts for next quarter are worse. Global trade is slowing dramatically.

  

   

  Oil prices and other commodities are plummeting to multi-year lows. Manufacturing and Services surveys are flashing red.

  

   

  China, Japan and European economies continue to suck wind. Layoff announcements by major corporations are up 40% over last year.

  A global deflationary recession is underway. Only a CNBC bimbo, shill or Ivy League educated economist isn’t bright enough to see it.

  Retail sales came out Friday morning and they were worse than dreadful. They confirmed the horrific quarterly reports from Macy’s, Nordstrom’s, and Kohl’s.

  

   

  Total retail sales grew a minuscule 0.1% from September and only 1.7% versus last year. It’s even worse than it looks. When you back out the subprime auto loan spurred auto sales (long term rentals), retail sales grew only 0.5% over last year.  That is far less than true inflation, so on a real basis retail sales are FALLING like a rock. This only happens during recessions. And it isn’t a one month thing. Retail sales, even including loan boosted auto sales, are flat over the last three months and up only 2.1% for the first 10 months of the year.

  

  The decline in gasoline sales due to plunging prices has contributed to the lousy retail sales numbers, but the storyline of the economic bulls was how this was going to boost the spending of consumers across the board. That storyline is as dead as an Obamacare patient. It seems all the gasoline savings immediately went to pay for the soaring cost of Obamacare, even though the BLS says there is no healthcare inflation. There are a few areas that jump out at me and paint an even darker picture:

  • Three of the strongest retail sales categories over the last year were auto sales, furniture sales, and building materials, with growth of 6.2%, 5.2%, and 4.3% respectively. The main reason these three areas have been relatively strong is because you don’t need cash, a minimal level of income, or even a job to make a purchase at these retailers. All you need is for the finance company employed by the retailer to approve you for a loan. The 7 year 0% auto loans go to those with decent credit. The subprime loans go to anyone that can fog a mirror. Every furniture retailer is offering 5 years with no interest payments for their Veterans Day sales. Lowes and Home Depot offer no interest for 12 or 24 months for any purchase over $500. It’s the Fed’s easy money 0% interest scheme that is producing this fake strength. The people “buying” those cars, sofas, and washing machines don’t have the money and when the bill comes due, the losses will be epic.
  • The powers that be should really start worrying after seeing the auto sales crash, despite huge incentives being offered by the desperate car dealers, along with the easy credit. It seems they may have saturated the market by giving away brand new cars to anyone with a pulse. At least the Repo companies will be booming over the next few years and used car prices should crash.
  • Another strong area has been restaurants and bars, with 5.5% year over year growth in October. This is significantly lower than the growth earlier in the year, but it is still decent. I believe this is the area that will be the last to crash. Older people are drowning their sorrows at bars. Young people, living with their parents, can’t afford houses, rent, or vehicles, but socializing with their friends using a credit card is still possible. Life has become so miserable for so many people, the only enjoyment they can find is going out to a restaurant or bar.
  • The last strong area is internet retail, with a 7.1% growth over last year. Despite state governments doing their best to crush internet retailers by adding sales tax to most transactions, consumers are staying away from malls in droves. Who would possibly want to drive miles to a crowded decaying mall, venture into a Sears, Kmart, or JC Penneys and deal with the low IQ drone employees, find out what you wanted is out of stock, or pay more than you would on-line? Amazon and the rest of the on-line retail establishment will continue to destroy bricks and mortar retailers.
  • Besides gas stations, only department stores and electronics stores have negative YTD sales after 10 months. The downward death spiral of Sears, Penney, Macys, Best Buy and many lesser retailers will not reverse. Their real estate is old, decrepit, and antiquated. After this Christmas season there will be announcements of hundreds of store closings, as ghost malls spook our suburban sprawl landscape.

  Lastly, one final chart to show even the most brainless twit on CNBC that we are presently in a recession, despite the rhetoric and propaganda being spewed by the dying legacy media. Look closely at where retail sales peaked and began to fall. Quantitative easing stopped on October 29, 2014. Shockingly, retail sales began falling and haven’t stopped. The trillions of fiat printed since 2008 has solved nothing.

  

   

  Doctor Bernanke and doctor Yellen injected a massive dose of adrenaline into a patient with cancer. The patient showed the appearance of recovery…

  

   

  but the cancer has metastasized and spread through the entire system.

  Competent doctors would have cut the cancer out by allowing bankrupt banks to liquidate and purging the system of cancerous debt. Instead they took steps to promote the proliferation and spread of the cancerous debt. Now the patient is terminal.

  If it looks like a recession, walks like a recession and quacks like a recession, it’s a recession.

  

  

  

  

  

• Goldman Assesses EM's "Original Debt Sin," Finds Burnt Turkey

  Over the course of what can only be described as a protracted EM FX bloodbath – catalyzed, of course, by slumping commodity prices, the yuan deval, and threat of a Fed hike – one topic that’s been brought up repeatedly is that emerging economies with a large amount of foreign currency debt could find themselves in a decisively tough spot. 

  After all, if you’re sitting on a pile of USD-denominated liabilities and the currency you print crashes against the dollar, well then, you’ve got a big problem on your hands. This time around, most analysts point to better developed markets for local currency debt, which has allowed governments to avoid the so called “original sin” of becoming overly reliant of FX debt for funding. 

  Now, as we go into December, the market should be probably be asking more questions about what the potential for a soaring dollar means for emerging market balance sheets. As Bloomberg’s Richard Breslow put it last week, “emerging markets are not panicking, despite the Fed talk. The fall in their currencies in the last year and improved fiscal conditions are perceived as allowing them to withstand a Fed hike. Maybe wishful thinking but there you have it.”

  Yes maybe. On Sunday, Goldman is out with an interesting take on the “original sin” issue, noting that you have to look at the whole picture (i.e. NIIP) if you want to understand where EM balance sheets really stand. Here’s more:

  EM FX has been under pressure in 2015. For example, both the ZAR and the TRY have depreciated by 22% against the Dollar year-to-date.

   

  This is not all bad news…but from a sovereign balance sheet perspective (i.e., credit risk perspective), this development is a concern as many emerging economies have issued significant amounts of foreign currency denominated debt (the ‘original sin’) which rises in local currency terms when FX depreciates. 

  Many emerging economies issue debt in foreign currency (the ‘original sin’) to reduce interest rate payments or because the market will not fund them in their own currency. This makes the country’s debt dynamics vulnerable to sharp currency movements and, as a result, incentivizes the local central bank to hold FX reserves. Exhibit 3 illustrates the level of external debt across EMs, divided into FX and local currency.

   

  
  

   

  The large amounts of FX denominated debt, combined with the sharp FX movements, are a dangerous cocktail from a credit perspective. For example, a 10% TRY depreciation against the dollar will lead to a 3.5pp of GDP rise in Turkey’s external debt level (10% x 35% of GDP), all else being equal. Therefore, at first glance, it is no surprise that EM sovereign credit sold off in sync with EM FX over the summer. 

   

  But one also needs to assess the impact on external assets (e.g., FX reserves) when evaluating the credit implications of the sharp FX re-pricing. The asset side of the emerging markets net international investment position (NIIP) is illustrated in Exhibit 4. 

   

  

   

  Exhibit 5 illustrates the net external FX position (i.e., external assets minus FX dominated debt), divided into a USD, EUR and ‘other’ component. Within the CEEMEA region, Romania and Turkey are most vulnerable to generic currency weakness, as their net FX position is negative (in sharp contrast to Russia and especially South Africa). 

   

  

  In the simplest possible terms: Turkey doesn’t have enough in the way of external assets that can appreciate in an unfavorable FX environment to offset the pain said environment will have on the country’s pile of FX debt.

  Just how big of a problem is that for Ankara you ask? Here’s Goldman again: 

  So how have EM balance sheets been affected by the latest FX adjustment? Exhibit 6 illustrates the estimated change in the net international investment position following the EM FX adjustment in 2015 (for Russia since September 1, 2014). Turkey’s balance sheet (NIIP) has weakened by around 5pp of GDP following the large TRY adjustment, as the rise in the level of FX denominated debt dominated the rise in Turkey’s external assets.

   

  

   

  So you can add “balance sheet problem” to Turkey’s laundry list of troubling issues and what the above means, in a nutshell, is that if the dollar continues to appreciate against the lira, this is going to get materially worse.

  

  One important thing to note about this particular situation, is that Turkey has been reluctant to hike in order to arrest the lira’s decline. In fact, the central bank has on any number of occasions explicitly stated that it will follow the Fed. But when, back in August, Turkey attempted to release a “roadmap” of how its central bank intended to respond to policy normalization by DM central banks, the market wasn’t buying it, suggesting that if the Fed hikes, it may not be as simple as simpy saying “oh, ok, we’ll hike too.” That is, they may find themselves unable to catch up, portending still more lira weakness, exacerbating the problem outlined above.

  

  And for anyone who thinks that a “strong” AKP government is going to give the lira anything that even approximates lasting relief, or that further ECB easing will give the central scope to remain on hold (or even to cut) in the face of a Fed hike, we suggest you take a hard look at exactly what’s going on politically and militarily both within Turkey and on its borders. There are huge (and likely intractable) idiosyncratic risk factors here that could send the currency plunging at any time. And then there is of course sheer autocratic incompetence (via Reuters): 

  Turkish President Tayyip Erdogan renewed his call for lower interest rates on Sunday, saying they were too high to encourage investment and entrepreneurship, an argument likely to unnerve investors already worried about central bank independence.

   

  Long a champion of populist economics, Erdogan has repeatedly called for lower rates to spur growth, equating higher financing costs with treason.

   

  Economists say Turkey’s central bank needs to hike rates to rein in inflation. Its refusal to do so has sparked worries about political interference in monetary policy, helping send the lira currency to a series of record lows this year.

  

  

  

  

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• Time Is Running Out For Pax Americana

  Submitted by Rostislav Ischenko via The Oriental Review,

  The paradox of the current global crisis is that for the last five years, all relatively responsible and independent nations have made tremendous efforts to save the United States from the financial, economic, military, and political disaster that looms ahead. And this is all despite Washington’s equally systematic moves to destabilize the world order, rightly known as the Pax Americana.

  Since policy is not a zero-sum game, i.e., one participant’s loss does not necessarily entail a gain for another, this paradox has a logical explanation. A crisis erupts within any system when there is a discrepancy between its internal structure and the sum total of available resources (that is, those resources will eventually prove inadequate for the system to function normally and in the usual way).

  There are at least three basic options for addressing this situation:

  1. Through reform, in which the system’s internal structure evolves in such a way as to better correspond to the available resources.
  2. Through the system’s collapse, in which the same result is achieved via revolution.
  3. Through preservation, in which the inputs threatening the system are eliminated by force, and the relationships within the system are carefully preserved on an inequitable relationship basis (whether between classes, social strata, castes, or nations).

  The preservation method was attempted by the Ming and Qing dynasties in China, as well as the Tokugawa Shogunate in Japan. It was utilized successfully (in the 19th century) prior to the era of capitalist globalization. But neither of those Eastern civilizations (although fairly robust internally) survived their collision with the technologically more advanced (and hence more militarily and politically powerful) European civilization. Japan found its answer on the path of modernization (reform) back in the second half of the 19th century, China spent a century immersed in the quagmire of semi-colonial dependence and bloody civil wars, until the new leadership of Deng Xiaoping was able to articulate its own vision of modernizing reforms.

  This point leads us to the conclusion that a system can be preserved only if it is safeguarded from any unwanted external influences, i.e., if it controls the globalized world.

  The contradiction between the concept of escaping the crisis, which has been adopted the US elite, and the alternative concept – proposed by Russia and backed by China, then by the BRICS nations and now a large part of the world – lay in the fact that the politicians in Washington were working from the premise that they are able to fully control the globalized world and guide its development in the direction they wish. Therefore, faced with dwindling resources to sustain the mechanisms that perpetuate their global hegemony, they tried to resolve the problem by forcefully suppressing potential opponents in order to reallocate global resources in their favor.

   

  

   

  If successful, the United States would be able to reenact the events of the late 1980s – early 1990s, when the collapse of the Soviet Union and the global socialist system under its control allowed the West to escape its crisis. At this new stage, it has become a question of no longer simply reallocating resources in favor of the West as a collective whole, but solely in favor of the United States. This move offered the system a respite that could be used to create a regime for preserving inequitable relationships, during which the American elite’s definitive control over the resources of power, raw materials, finance, and industrial resources safeguarded them from the danger of the system’s internal implosion, while the elimination of alternative power centers shielded the system from external breaches, rendering it eternal (at least for a historically foreseeable period of time).

  The alternative approach postulated that the system’s total resources might be depleted before the United States can manage to generate the mechanisms to perpetuate its global hegemony. In turn, this will lead to strain (and overstrain) on the forces that ensure the imperial suppression of those nations existing on the global periphery, all in the interests of the Washington-based center, which will later bring about the inevitable collapse of the system.

  Two hundred, or even one hundred years ago, politicians would have acted on the principle of “what is falling, that one should also push” and prepared to divvy up the legacy of yet another crumbling empire. However, the globalization of not only the world’s industry and trade (that was achieved by the end of the 19th century), but also global finance, caused the collapse of the American empire through a policy that was extremely dangerous and costly for the whole world. To put it bluntly, the United States could bury civilization under its own wreckage.

  Consequently, the Russian-Chinese approach has made a point of offering Washington a compromise option that endorses the gradual, evolutionary erosion of American hegemony, plus the incremental reform of international financial, economic, military, and political relations on the basis of the existing system of international law.

  America’s elite have been offered a “soft landing” that would preserve much of their influence and assets, while gradually adapting the system to better correspond to the present facts of life (bringing it into line with the available reserve of resources), taking into account the interests of humanity, and not only of its “top echelon” as exemplified by the “300 families” who are actually dwindling to no more than thirty.

  In the end, it is always better to negotiate than to build a new world upon the ashes of the old. Especially since there has been a global precedent for similar agreements.

  

  Up until 2015, America’s elite (or at least the ones who determine US policy) had been assured that they possessed sufficient financial, economic, military, and political strength to cripple the rest of the world, while still preserving Washington’s hegemony by depriving everyone, including (at the final stage) even the American people of any real political sovereignty or economic rights. European bureaucrats were important allies for that elite – i.e., the cosmopolitan, comprador-bourgeoisie sector of the EU elite, whose welfare hinged on the further integration of transatlantic (i.e., under US control) EU entities (in which the premise of Atlantic solidarity has become geopolitical dogma) and NATO, although this is in conflict with the interests of the EU member states.

  However, the crisis in Ukraine, which has dragged on much longer than originally planned, Russia’s impressive surge of military and political energy as it moved to resolve the Syrian crisis (something for which the US did not have an appropriate response) and, most important, the progressive creation of alternative financial and economic entities that call into question the dollar’s position as the de facto world currency, have forced a sector of America’s elite that is amenable to compromise to rouse itself (over the last 15 years that elite has been effectively excluded from participation in any strategic decisions).

  The latest statements by Kerry  and Obama which seesaw from a willingness to consider a mutually acceptable compromise on all contentious issues (even Kiev was given instructions “to implement Minsk “) to a determination to continue the policy of confrontation – are evidence of the escalating battle being fought within the Washington establishment.

  It is impossible to predict the outcome of this struggle – too many high-status politicians and influential families have tied their futures to an agenda that preserves imperial domination for that to be renounced painlessly. In reality, multibillion-dollar positions and entire political dynasties are at stake.

  However, we can say with absolute certainty that there is a certain window of opportunity during which any decision can be made. And a window of opportunity is closing that would allow the US to make a soft landing with a few trade-offs. The Washington elite cannot escape the fact that they are up against far more serious problems than those of 10-15 years ago. Right now the big question is about how they are going to land, and although that landing will already be harder than it would have been and will come with costs, the situation is not yet a disaster.

  But the US needs to think fast. Their resources are shrinking much faster than the authors of the plan for imperial preservation had expected. To their loss of control over the BRICS countries can be added the incipient, but still fairly rapid loss of control over EU policy as well as the onset of geopolitical maneuvering among the monarchies of the Middle East. The financial and economic entities created and set in motion by the BRICS nations are developing in accordance with their own logic, and Moscow and Beijing are not able to delay their development overlong while waiting for the US to suddenly discover a capacity to negotiate.

  The point of no return will pass once and for all sometime in 2016, and America’s elite will no longer be able to choose between the provisions of compromise and collapse. The only thing that they will then be able to do is to slam the door loudly, trying to drag the rest of the world after them into the abyss.

  

  

  

  

  

• Which Countries Pay The Most For Medicinal Drugs?

  USA! USA! USA! Exceptional America is #1 once again… oh wait!

  Why does America spend 35% to 90% more per capita than all other developed countries?

  

   

  There are numerous reasons, as Michael Snyder explains, if you have a health problem, even if it is just an imaginary one, some giant pharmaceutical company out there is probably making a pill for it.  According to shocking new research published in the Journal of the American Medical Association, 59 percent of all U.S. adults are on at least one prescription drug, and 15 percent of all U.S. adults are on at least five prescription drugs.  These numbers have never been higher, and they tell us that the United States is the most drugged nation on the entire planet.  And it turns out that pushing these drugs on the American people is extremely profitable.  For instance, Americans spent 100 billion dollars on cancer drugs alone last year.  That isn’t “million” with an “m” – that is “billion” with a “b”.  The profits that some of these pharmaceutical companies are making are absolutely obscene, and it is our pain and suffering that is making them rich.

  So why is prescription drug use rising so rapidly?  As noted above, 15 percent of us are now taking 5 or more of these drugs on a regular basis, but back in 1999 that number was sitting at just 8.2 percent.

  This newly released report blames much of the problem on obesity…

  The population is getting older, but that doesn’t explain it, Kantor said. The pattern looks more related to obesity, which is steadily rising, More than two-thirds of the adult U.S. population is overweight or obese, and many suffer the heart disease, diabetes and other metabolic disorders that go along with being too heavy.

  And without a doubt, we have an epidemic of obesity in the United States.

  But the truth is that obesity is only part of the story.

  Drug use of all types is soaring, and commercials for the latest and greatest drugs seem to run around the clock on virtually every television network.  Here are some more specific numbers from this newly released report…

  In the study, blood pressure drugs were among the most prescribed, increasing from 20% of adults in 1999-2000 to 27% in 2011-2012.

   

  Statins increased from 6.9% to 17%; antidepressants increased from 6.8% 13%; antidiabetic drugs increased from 4.6% to 8.2%;and tranquilizers and sedatives increased from 4.2% to 6.1%.

  The increase in the use of antidepressants really disturbs me.  They are often prescribed needlessly, and they can have some extremely negative side effects.

  In particular, I think that it is important to mention that nearly every single mass shooter in the United States in recent years has been on antidepressants.  The mainstream media never talks about this connection because the pharmaceutical companies purchase gobs of advertising time from them.  But the reality of the matter is that these drugs can cause people to behave in extremely irrational ways.  Even the Mayo Clinic admits this…

  Most antidepressants are generally safe, but the Food and Drug Administration requires that all antidepressants carry black box warnings, the strictest warnings for prescriptions. In some cases, children, teenagers and young adults under 25 may have an increase in suicidal thoughts or behavior when taking antidepressants, especially in the first few weeks after starting or when the dose is changed.

  Of course that is a very watered down version of the truth, and if you start seriously digging into this you will soon discover a whole host of absolutely horrifying stories.

  Here are some more statistics about the drugging of America that come from one of my previous articles…

  –According to the CDC, approximately 9 out of every 10 Americans that are at least 60 years old say that they have taken at least one prescription drug within the last month.

   

  –There is an unintentional drug overdose death in the United States every 19 minutes.

   

  –In the United States today, prescription painkillers kill more Americans than heroin and cocaine combined.

   

  –According to the CDC, approximately three quarters of a million people a year are rushed to emergency rooms in the United States because of adverse reactions to pharmaceutical drugs.

   

  –The percentage of women taking antidepressants in America is higher than in any other country in the world.

   

  –Children in the United States are three times more likely to be prescribed antidepressants as children in Europe are.

   

  –A shocking Government Accountability Office report discovered that approximately one-third of all foster children in the United States are on at least one psychiatric drug.

   

  –A survey conducted for the National Institute on Drug Abuse found that more than 15 percent of all U.S. high school seniors abuse prescription drugs.

   

  –Many of these antidepressants contain warnings that “suicidal thoughts” are one of the side effects that should be expected.  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 car accidents every year.

  But the pharmaceutical companies are never going to stop what they are doing, because it is making them exceedingly wealthy. 

  

  

  

  

  

• Rethinking Money As The Greater Depression Deepens

  Submitted by Doug Casey via InternationalMan.com,

  We talk a lot in these pages about what to do with one’s money, but I question whether most subscribers (forget about the public at large) have an adequate grasp of the basics. Without it, much of what we say may seem capricious or outlandish, crazy ideas readers tolerate only because we’ve been so right about the big trends. But the basics in speculating and investing are like the basics in martial arts: Just remembering them isn't enough; they need to be second nature. That means reviewing and practicing over and over.

  It's not an accident that we usually make good investment calls; the selections arise from a constant awareness of the basics. So I want to briefly review those fundamentals. Let’s start with gold. We’re very gold-oriented around here.

  You undoubtedly have a good position in gold. Many of your friends are aware that you’re a gold bug, and more than a few of them question your wisdom. Are you able to give them a succinct and cogent explanation not just for why gold is cyclically a good speculation, but why it’s money? I’ll wager the answer in many cases is, “No.”

  I say that because when I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now; what are they? Can’t recall them? Read on, and this time, burn them into your memory.

  Money

  If you can’t define a word precisely, clearly, and quickly, that's proof you don’t understand what you’re talking about as well as you might. Here, we talk a lot about money, so it only makes sense to know the subject completely. So, what is money? The proper definition of money is: Something that functions as 1) a medium of exchange and 2) a store of value.

  Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:

  • Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money.
  • Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money; half a Ming vase isn’t worth much.
  • Consistent: A good money is something that always looks the same, so that it's easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials, is unique.
  • Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is. Just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow.
  • Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I'm not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t, or shouldn’t, use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.

  Gold is uniquely well qualified for use as money. No other substance meets those five characteristics so well. Gold’s main use, contrary to the belief of some, isn't in jewelry or dentistry, although those uses are important. Its main use has almost always been as money. But gold's ancillary uses are growing in importance, because, given its physical characteristics, it’s a high-tech metal. Of the 92 naturally occurring elements, it’s the most resistant to chemical reaction, the most ductile, and the most malleable of all the elements. It's also highly reflective, and an exceptional conductor of both heat and electricity.

  There are lots of other advantages to gold as money. It’s by far the most private kind of money; gold coins, unlike paper currency, don't even carry serial numbers. That makes it truly untraceable. At current prices, it's more portable than cash, even in the form of $100 bills. It doesn’t retain traces of drugs, as does currency, which makes it less liable to arbitrary confiscation. Although efforts have been made to counterfeit gold bars, with tungsten filler and such, it’s much easier to authenticate than currency.

  And it’s becoming increasingly apparent to all the world that paper currencies are nothing but floating abstractions; they will not hold value. Paradoxically, gold is now far more useful as money than it was at $35, and becoming more useful than $100 bills. That will be even truer as it goes to $5,000 (my current guess) in terms of today’s dollars.

  Until quite recently, 90% of the world’s people were either flat-out prohibited from owning gold (Russia, China and the rest of the ex-communist world) or simply too poor to consider it (most Indians and other residents of the Third World). But these people are now allowed to own gold and have a fast-increasing ability to buy it. And they’re rapidly doing so. Their cultures have long histories with the metal and recent histories of living in a police state; they understand the value of real money. Although common people are now the biggest gold buyers, many governments and central banks are accumulating it as well.

  I expect that gold will soon become the preferred medium of exchange for many. Early adopters will include dealers in drugs, armaments, and other prescribed merchandise; these folks are very security conscious. They will be joined by all manner of people who just want to do business below government radar. And in the years to come, paper currency is gradually going to be eliminated by governments in favor of debit cards, credit cards, and other media of electronic transfer. Governments prefer these things, for obvious reasons; they make anything you buy or sell a matter of permanent record. People, therefore, are going to need a private way to trade when paper cash is unavailable.

  It’s not just that cash will be harder to come by and harder to use. People won’t want to hold it as inflation gets serious; as U.S. dollars are increasingly viewed as hot potatoes, people around the world will gradually go to gold. In 100 or so countries, the dollar is already the de facto currency for large purchases and long-term saving. What will people in these countries do as the dollar starts losing value rapidly? They won’t go back to their untrustworthy local currencies; their only reasonable alternative is gold. All these things will add to demand for the metal. This is good news for those who own gold in size now.

  The downside, of course, is that these same things will draw more attention to gold from the state, which doesn’t like to see competition to its currency. Will they, therefore, attempt to outlaw gold again? Or, more likely, regulate its use; perhaps by requiring all gold owners to register it and/or store it in approved facilities? Anything is possible.

  Right now, you can still move coins across most borders with relatively little risk or aggravation. There’s the $10,000 declaration rule, of course. But U.S. Eagles, for instance, have a $50 face value, and 200 of them are worth several hundred thousand dollars; although I don't suggest you carry anything like that with you for lots of reasons, even though it may be technically within the law. My guess is the rules will soon be modified to encompass market value and will be more strictly enforced. Already you can find jump-suited imperial troopers on the jetways of many international flights, ready to interrogate you and search your carry-on luggage for violations.

  You may be thinking to yourself, “I already know this stuff; I don’t need to hear it again.” That would be missing the point. Almost everybody, even gold bugs, has far too little gold to buy more. Most people have none at all. Pity the poor fools. Gold is going to be reinstituted as money within our lifetimes, simply out of necessity. But that can only happen at higher prices, since only about six billion ounces exist above ground in the entire world.

  Here’s the bottom line: Forget those ridiculous nostrums about having 5% of your portfolio in physical gold, for insurance. I’d say, have a very significant portion of your net worth in gold. And if you can manage it, keep most of it outside your home country. And get working on it as soon as you finish reading this.

  Debt

  Now that we’ve defined what money is, let me further define what money is not: Debt. All U.S. dollars, which is to say Federal Reserve Notes, are debt. They are neither redeemable for anything by their issuer, nor is there a limit on how many can be created. They represent only a vague claim against the “good faith and credit” of the United States government, which is to say the government's ability to extract taxes from its subjects. But Uncle Sam has shown himself to be remarkably lacking in good faith and is currently embarked on a course to destroy his credit.

  Remember that the dollar is literally an “IOU nothing.” It’s true that your grocer and your barber have to accept the dollar because of “legal tender” laws, and because they currently wouldn’t know what else to take in payment. But that’s not true of foreigners, who own something like $10 trillion; they’re starting to look at them more and more as “trading sardines.”

  That’s a simple fact, and it has economic and investment implications we’ve written about extensively. Other currencies are no better; most are worse, and many of them are backed largely by dollars. Most countries’ currencies have only very little value outside of their issuer’s borders. Be glad you don’t have too many Zambian kwacha or Burmese kyat…

  Governments, however, are not the only ones who think that debt is money. It seems that many people who get a bunch of credit cards, enabling them to spend beyond their means, imagine that they have money. And they also think that owning the debt of others, like government bonds, means they have money. A bank deposit isn’t really cash; it’s a debt of the bank. There are several trillion dollars in money market funds; 100% of that money is invested in the short-term debt of banks, corporations and governments. I would be very leery of these things. Debt is not always repaid. Money, which is to say gold, simply “is.” That distinction is lost on almost everyone. Don’t be among them.

  Here, I want to emphasize something else you certainly know but may not have acted on. You not only want to own gold, you want to “short” the dollar. But trying to trade currencies and interest rate futures is not the way to do it; that approach is risky and entirely too focused on the short term.

  Here’s the smartest thing you can do with debt: Take out the largest, longest-term, fixed-rate mortgage you can on your home, especially with rates near all-time lows. You’ll win as the dollar is destroyed, and you’ll win as interest rates eventually go to the moon. And you’ll win as the asset you place the proceeds in appreciates.

  This last part is critical. Borrowing $500,000 and then frittering it away will only leave you renting in a trailer park. Take the money and buy gold. Or, perhaps, just leave it in secure short-term instruments that will earn the high interest rates that are always the companion of high inflation. That money also will be safest in a foreign jurisdiction, but if you keep it in the U.S., consider keeping it in an IRA or other tax-sheltered vehicle.

  Yes, I know it’s a comfort living in a debt-free home. But even if it appears debt-free, your ownership is no more than an ambiguity. Try not paying the property taxes, and you’ll find out who really owns it. The bottom line is that, in a few years, as interest rates and inflation go up, you’ll see that mortgage as a gift.

  This relates to the issue of “cash” in dollars. There’s something to be said for being very liquid today and holding dollars, even though the dollars are a ticking bomb. But that’s simply because almost everything else in the world is overpriced.

  That sounds paradoxical, or perhaps even metaphysically impossible. How can “everything” be overpriced? It’s happening because trillions of currency units have been created all over the world in the last few years, and other asset bubbles are in process of inflation. People are holding dollars only because they’re liquid and they see no bargains elsewhere.

  Large, successful corporations, like Intel, Apple, Microsoft, and Exxon, each has scores of billions of dollars. The cash holdings of U.S. corporations are in the trillions. When the dollar starts losing value rapidly, the people running those corporations will panic and look for a place to hide from inflation. Many will buy their own stock, try to take over other companies, or buy raw materials for their own business. Others will just be deer in the headlights. (I don’t want to get into a discussion of where the stock market is going; there are titanic forces pulling it down as well as pushing it up. That’s a subject for a future article.)

  Let me reemphasize that the Greater Depression is still in its early stages. The low interest rates and relatively low inflation rates we’ve had recently aren’t going to last. They will soon be replaced by wildly fluctuating markets and rapidly depreciating currencies. We could have a catastrophic deflation, where trillions of currency units are wiped out. Or we could have a hyperinflation, as governments create trillions more of them. Or both phenomena in sequence.

  But, as bad as they are, those are just financial phenomena; what will be much, much more serious are things looming on the political, economic, social, and military fronts of the Greater Depression. These things are why I suggest you own more gold, even though it runs counter to my instincts as a bottom fisher to buy something that’s no longer cheap.

  The bottom line is that you want to get out of the dollar before everyone else does. Now is an excellent time to short the dollar with a long-term, fixed-rate mortgage. And put the proceeds in gold.

  *  * *

  Editor’s Note: Most people have no idea what really happens when a currency collapses, let alone how to prepare…

  Owning gold is essential.

  But there’s more to do to make sure your wealth doesn’t get wiped out in the coming financial tidal wave.

  How will you protect your savings in the event of a currency crisis?

  This video we just released will show you exactly how. Click here to watch it now.

  

  

  

  

  

• Can "SPECTRE" And Trillions In Free Money Finally Save The Global Economy?

  It’s certainly no secret to anyone who frequents these pages that trillions in global QE have failed to engineer a robust worldwide economic recovery. Aggregate demand is still soft and global trade is stuck in what amounts to neutral.

  But the world’s central planners have a penchant for Einsteinian insanity and despite the glaringly obvious fact that QE long ago began to succumb to the law of diminishing returns, most DM central banks are ready to enact still more stimulus and persist in ZIRP (and NIRP) in what might as well be perpetuity in a race to the bottom of the effective lower bound and the top of central bank balance sheet lunacy. 

  In his latest missive, Grant Williams takes a look at the dynamic described above and how “SPECTRE”, “The Special Executive for Continually Trying to Resuscitate the Economy” (an amusing take on the villainous cabal from the Bond films) has gone about trying to “fix” it for going on seven years now. 

  *  *  *

  From Grant Williams

  Ladies and gentlemen, I give you SPECTRE – The Special Executive for Continually Trying to Resuscitate the Economy.

  This shady organization operates in plain sight but wholly above the law and, though the international flavour of its executive board is consistent with Fleming’s criminal franchise, the public face of SPECTRE shifts regularly.

  In short, not the sort of people you’d choose to do business with.

  Back in 2008, in the midst of a crisis of global proportions, Ernst Stavro Paulson and the enigmatic Dr.Yes brought SPECTRE out of the shadows and into the collective conscious of the world. They did so by seemingly offering a cunning solution to the fears that gripped mankind in the wake of the GFC—free money!

  Since then, an ever-widening group of SPECTRE luminaries has worked tirelessly to increase their grip on the world and to achieve their stated aim of world domination resuscitating the global economy.

  With Paulson & Dr. Yes now seemingly retired (presumably, the SPECTRE pension plan is both defined benefit and, at the very top levels, extremely generous), it has fallen to the organization’s #3, Emilio Dragho to take the reins—aided and abetted by the fearsome Rosie Outlook—and their lieutenants stationed in places as far-flung as London and Tokyo.

  But can the modern-day SPECTRE achieve their aims or will they, like Fleming’s villainous cadre be foiled—not by 007, but rather a global economy that simply refuses to bend to their will and get off its knees? 

  […]

  Rather than focusing exclusively on ‘growth,’ there are a great many ways of measuring economic ‘health’ and those benchmarks are perhaps a better indication as to what lies ahead.

  In the US, for example, the ground level data have been fairly poor.

  Manufacturing ISM is barely above recession levels and, while non-manufacturing has been strong in recent months, the divergence between them is a worrying sign given their tight historical correlation. 

  

  […]

  It’s beneath the surface where the real disconnects between perception and reality lie and there is nobody better at not only identifying such misalignments, but putting them in the perspective they so desperately need than the brilliant Stephanie Pomboy of MacroMavens who this week has very kindly allowed me to share a few short excerpts from a recent piece she published. 

  It was Stephanie’s final chart which had me breathing into a brown paper bag like a dowager having an attack of the vapours. Pray silence for the inventory-to-sales ratio: 

  

  […]

  [Before] I move a little farther down the list of those economies supposed to do the heavy-lifting in the next couple of decades, a few more observations as to the real health of the US:

  

  

  Full letter below

  Ttmygh 2015-11-08 Spectre s

  

  

  

  

  

• The March Of The Cry-Bullies

  Submitted by Ben Garrison via RogueCartoonist.com,

  I like the fact that college students are angry enough to revolt against the massive debt being piled on their backs just because they want to get a college degree and a good job. They should be protesting because the expenses involved have gotten ridiculous. Then, if they do graduate, a great many of them can’t find employment. Too many are forced to remain living with their parents without a chance at the American Dream, which has now become just that—a dream.

  Unfortunately, too many of these young people are also upset about ridiculous things. They are part of a hypersensitive, hyper-politically correct group known as ‘Social Justice Warriors.’

   

  

   

  A few years ago when I first heard the term 'Social Justice Warrior,’ I wasn’t sure what it meant. I thought SJWs were doing some kind of noble, laudable work. I pictured them as volunteers at food banks. Maybe they were trying to help senior citizens get the prescription medicine they couldn’t afford. I pictured them trying to help the downtrodden in society. Instead, SJWs epitomize political correctness gone amuck. They are 'special snowflakes' who are also incredibly thin-skinned. They browbeat and scold others into giving up freedom of speech or expression. Want to wear a Halloween costume? You’d better check with the campus commissar of political correctness first. (Yes, the protesters want some sort of official on campus who will determine what can and cannot be said or done). Don’t want to date a tranny? What a hateful person you are!

  Now we hear terms such as ‘micro-agression’ which can mean a tone of voice or expression that might cause slight discomfort to the recipient. Micro-transgressors are vilified, shamed and screamed at. Slights don’t even have to be real—they only need be imagined. Political correctness has now become a form of mass insanity. Do you still say ‘Merry Christmas?’ Watch out! Did you accidentally call a man from China a ‘Chinaman?’ OMG—look out for the pearl clutchers—you’re a horrible human being who needs to be shunned! It doesnt’ matter if the man from China was offended or not. He probably wasn’t. After all, he’s a man and he came from China.

  What matters is YOU said the WRONG thing. During the Spanish Inquisition, people who said wrong things were labeled ‘heretics.’ A heretic was seen as someone who was contaminated with erroneous thinking. A heretic was going to go Hell. A heretic could be tortured because such a person had lost a connection with the omniscient church. Now that word is ‘racist.’ A racist can be scolded, driven out of jobs or forced to make a blubbering apology because they are no longer seen as connected with humanity. It doesn’t matter if the person is actually racist or not…all that needs to happen is for a SJW to perceive or imagine such a heinous transgression. It’s not only insanity, it can be amusing at times. The liberal scolds are now themselves being scolded by the generation they mollycoddled.

  Please, SJWs, if you really want to do something useful, hold a mass protest calling for the end of the Federal Reserve. You’d be doing all races a favor. It’s also time to END the tyranny of ‘political correctness.'

  

  

  

  

  

• The Class War Has Already Started

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  Here's what's obvious, but unacceptable: we need a new system.

  Pundits and apologists are quick to chastise anyone who even speaks of class war, as if the words alone might spark what the pundits and apologists fear.

  The pundits and apologists dread the words because they know the Class War has already started. The mainstream media's hope is that denial will somehow suppress the broader recognition that the fault lines in American society are cracking wide open.

  Last week's entries explained why increasing wealth/income inequality is the only possible output of the current social- political -economic order. All the proposed "fixes"–more regulations, more taxes, more bureaucracies, etc.– will fail because they are merely extensions of a failed system that optimizes inequality, monopoly, cronyism, stagnation, low social mobility and systemic instability.

  Here is my delineation of America's nine socio-economic classes:

  The Changing World of Work I: America's Nine Classes: Eight of the nine classes are hidebound by backward-looking conventions, neofeudal arrangements and a spectrum of perverse incentives and false choices.

  A few commentators see the fault lines and understand the Class War is already rumbling. Correspondent Mark G. submitted these two articles as examples of the widening divides between various classes in the U.S.:

  Are We Heading for an Economic Civil War?

  How the widening urban-rural divide threatens America

  In the first piece, Joel Kotkin describes the political capture of the Status Quo Imperial Democrats by the Left Coast media and tech culture of Silicon Valley and Hollywood, both of which have thrived in our hyper-financialized economy of 95% losers and 5% winners, and the Right Coast financiers, lobbyists, government bureaucrats and Wall Streeters who have benefited so handsomely from the hyper-financialization of the U.S. economy, politics, media and zeitgeist.

  This Class War is illustrated by this chart: a tiny financial-political Elite (the top 1/10th of 1%) now own as much wealth as the bottom 90%:

  

  The second piece describes the widening gulf between the wealthy cities vacuuming up global capital (NYC, San Francisco, West LA, Seattle, etc.) and opportunity-impoverished rural America.

  But these gaping divides do not fully explain the many fronts of the Class War. We can add another fault line–the one between those exploiting institutions to validate their indignation and victimhood, and those far from the feeding troughs of universities and state bureaucracies.

  The divide between those using the media and institutions to reward their indignation and victimhood crosses a variety of ethnic, religious and income lines, and as such it is a Cultural Divide with financial ramifications: one camp sees the Central State as the infinite feeding trough of benefits, lifetime employment, and power, while the other camp sees the Central State's limitless power as the primary threat to the well-being of the economy, nation and culture.

  The first camp revels in Bread and Circuses, and demands more; the second camp reviles Bread and Circuses and sees the demanding crowd in the Coliseum as proof the nation is fracturing/falling apart.

  Then there's the demographic divide between entitled retirees and the younger workers with stagnant incomes who must support the retirees "pay as you go" social programs (Social Security and Medicare).

  As I have tirelessly explained for years, the Social Security/Medicare "Trust Fund" is a fiction, a ledger entry of non-marketable securities. When Social Security runs a deficit, the deficit is filled by selling Treasury bonds– the same way any other program deficit is filled. The only way to pay for these programs is to increase the national debt. The "Trust Fund" is nothing but a propaganda Big Lie.

  The younger workers are chained to a system that is completely out of whack with the real-world demographics of an enormous generation of retirees who are living decades longer than the population the system was designed to serve, with medical care costs that are the financial equivalent of a runaway train.

  As painful as it might be to retiring Boomers, here's the perspective of those facing decades of taxes to pay for programs that can't possibly fund their retirement in the same fashion:

  Baby boomers are what’s wrong with America’s economy: They chewed up resources, ran up the debt and escaped responsibility.

  All of these fault lines result from one basic truth: the system is broken and cannot be reformed/fixed. As the pressures of a system that optimizes inequality, monopoly, cronyism, stagnation, low social mobility and systemic instability build, the fissures in our economy and society will widen.

  Here's what's obvious, but unacceptable: we need a new system. Not a system modified with tiny tweaks and a feeding trough filled with borrowed money–an entirely new system designed from scratch to be sustainable and with opportunities to build capital for all.

  This is why I wrote A Radically Beneficial World–to start the discussion of what a new system could accomplish, not just for the top .01% or top 10%, but for all of us.

  

  

  

  

  

• Goldman's Clients Are Suddenly Very Worried About Collapsing Market Breadth

  Three days ago, just before the biggest market drop in weeks, we wrote an article attempting to answer “when does the market breakdown again” where we said the answer is in the advance-decline line….

  

   

  … for one reason:  the absolute collapse in market breadth had become the biggest threat to the rally since late September.

  BofA noted that “the rise in the US Dollar has had a bearish impact on global equity market breadth (many equity markets have done much better in local currencies) and this A-D line has not confirmed the global equity market rally. This is a major bearish breadth divergence and a classic sign of diminishing breadth for global equity market indices.”

  We added that what this “means that the central banks, whose only mandate is to keep the global market from crashing, is they will have to buy – either directly like the SNB and BOJ or indirectly/spoof like the NY Fed via Citadel – much more than just the E-mini and a handful of stocks to give the impression that the market is healthy when in fact, it is not.”

  For now they are failing.

  Which explains why suddenly the topic of collapsing market breadth is the biggest concern among Goldman’s clients.

  As Goldman’s David Kostin explains, narrow market breadth has been a recent topic of investor discussions.

  Clients are quick to point out similarities between the current low breadth environment and the narrow breadth regime that emerged during the tech bubble in the late 1990s. A narrow market exists when a few stocks drive the majority of the index-level return. Five firms – AMZN, GOOGL, MSFT, FB, and GE – totaling 9% of the equity cap of the index have accounted for more than 100% of the S&P 500 YTD return. Stated alternatively, without these stocks the index would have posted a 220 bp lower total return or -2.2% YTD.

   

  We introduce the Goldman Sachs Breadth Index (GSBI) to track market breadth (see Exhibit 1). The index utilizes S&P 500 constituent weights and 6-month returns to assign a market breadth value between 0 and 100. Readings below 5 indicate that market breadth is especially narrow.

   

  

   

  Our Breadth index currently equals 1, one of the lowest levels in the 30- year series. The Breadth index has stayed below 5 for at least two consecutive months just 11 times since 1985 (Exhibit 1). The typical episode lasted four months, with past episodes ranging from two months in 2007 to a high of 14 months during the tech bubble. The current exceptionally narrow breadth period is just one month old but is on track for a second month, so this environment could reasonably be expected to persist into early 2016.

   

  

   

  Factor analysis shows that high quality stocks tend to outperform in narrow breadth environments, although results were inconsistent. Using our long/short Micro Equity Factors (MEFs), we can evaluate the types of stocks that typically outperform in narrow breadth environments. Firms with strong balance sheets outperformed firms with weak balance sheets in 7 of 11 narrow breadth periods. Low volatility stocks also outperformed their higher volatility counterparts in 7 of 11 episodes. In contrast, the “lower quality” Russell 2000 index outperformed the S&P 500 during 8 of the 11 periods, the best factor hit rate (see Exhibit 3).

   

  

   

   

  The subsequent performance of stocks in a narrow breadth market has been mixed. Factor analysis shows that high momentum stocks outperformed low momentum stocks in 64% of narrow breadth episodes. During the six months leading into the 1994 low breadth episode, the top ten contributing stocks accounted for nearly 90% of the S&P 500 return. However, during the six months following the initial low breadth index reading, the median stock in the list fell by 4% while the S&P 500 returned 3% during the same period. The 1999 episode was a different story: The top 10 contributing stocks accounted for nearly 900% of the S&P 500 return ahead of the first low reading of our breadth index. The median stock surged by 62% during the subsequent six months and accounted for 51% of the index return and pushed the overall S&P 500 index up by 18% during that period.

  In other words, BTFD is nothing new.

  But is breadth a relevant indicator? That depends: just like there has not been a major market crash without a Hindenburg Omen, so market breadth has collapsed before every single prior recession. However, just like the H-Omen, breadth has had numerous false negatives, and 8 very narrow breadth periods ended without an economic contraction. To wit:

  On its own, narrow breadth is an unreliable indicator of a recession or market peak. Breadth was extremely narrow preceding each of the three recessions during the last 30 years, but the remaining eight narrow breadth periods ended in relatively healthy growth environments. While breadth was especially narrow before the market collapses of 2000 and 2007, the S&P 500 exited 7 of the 11 narrow breadth episodes in a positive fashion, with the median episode producing 6- and 12-month returns of 3% and 9%. In short, narrow breadth by itself does not appear to be a cause for investor concern.

  And while Goldman is eager to spin the bullish case, its clients are no longer as believing:

  On the other hand, clients continue to point to similarities between the current narrow breadth environment and that of the later years of the tech bubble. S&P 500 forward P/E currently equals 16.3x, near the highest level since the tech bubble. Mega-cap growth stocks explain a vast majority of the trailing 6- and 12-month S&P 500 return. Other similarities to the late 1990s provide a persuasive case for why mega cap outperformance will likely persist, at least in the near term. Modest US economic growth and peak margins should put a premium on stocks with perceived high secular growth prospects. 

  Or, said otherwise, Goldman’s clients are nervous because with just 5 stocks (!) propping up the entire market, the party is to end with a bang (especially for the small and mid-cap momos). And, as the action on Friday confirmed, the “market” is finally getting the memo.

  

  

  

  

  

• Senate Quietly Passes Bipartisan Bill To Allow Conquest Of Space

  Submitted by Deirdre Fulton via TheAntiMedia.org,

  In a bipartisan bid to encourage commercial exploitation of outer space, the U.S. Senate this week unanimously passed the Space Act of 2015, which grants U.S. citizens or corporations the right to legally claim non-living natural resources—including water and minerals—mined in the final frontier.

  The legislation – described by IGN‘s Jenna Pitcher as “a celestial ‘Finders Keepers’ law” – could be a direct affront to an international treaty that bars nations from owning property in space. The bill will now be sent back to the House of Representatives, which is expected to approve the changes, and then on to President Barack Obama for his anticipated signature.

  Pitcher continued:

  The new Space Act allows ventures to keep and sell any natural resources mined on planets, asteroids and other celestial bodies. Commercial operations could reap trillions of dollars from mining precious metals like platinum, common metallic elements such as iron, and water, the “oil of space.”

  The vote was celebrated by the Google-backed “asteroid mining company” Planetary Resources, which lobbied hard for the legislation and says “the market in space is ripe to bloom.”

  Planetary Resources president and chief engineer Chris Lewicki added: “Throughout history, governments have spurred growth in new frontiers by instituting sensible legislation. Long ago, The Homestead Act of 1862 advocated for the search for gold and timber, and today, H.R. 2262 fuels a new economy that will open many avenues for the continual growth and prosperity of humanity.”

  “This off-planet economy,” he said, “will forever change our lives for the better here on Earth.”

  But there could be a snag. Along with Britain, France, and Russia, the U.S. is a signatory to the 1967 Outer Space Treaty, which reads in part: “Outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means.”

  As Wired noted on Thursday,

  “[h]anding out the right to exploit chunks of space to your citizens sounds very much like a claim of sovereignty, despite the Space Act’s direct statement that ‘the United States does not thereby assert sovereignty or sovereign or exclusive rights or jurisdiction over, or the ownership of, any celestial body’.”

   

  “[O]n the one hand Congress is saying to these companies, ‘Go get these rights and we’ll defend you,’ and at the same time saying, ‘We’re making no sovereign claim of ownership’,” space lawyer Michael Listner told the Guardian.

   

  “They’re trying to dance around the issue,” he said of U.S. lawmakers. “I tend to think it doesn’t create any rights because it conflicts with international law. The bottom line is before you can give somebody the right to harvest a resource you have to have ownership.”

  *  *  *

  How long before the US begins counting future net present vale of mined resources from Mars as current GDP? And will The ECB accept water-rights on Venus as collateral?

  

  

  

  

  

• France's Far-Right Party Calls For Nation To "Re-Arm Itself", Revoke Muslims' Passports, "Eradicate" Radical Islam

  If there is one 'winner' from last night's terrible events in Paris, it is France's anti-EU, anti-immigration far-right wing Front Nationale party leader Marine Le Pen. Having already ascended to the lead in yet another poll ahead of France's 2017 elections, Le Pen came out swinging this morning call for France to "re-arm itself," stating that radical Islam must be "eradicated" from France. She further demanded that border controls be made "permanent" and binational Islamists must be depreived of their French passport.

  As Bloomberg notes:

  • *FAR RIGHT PARTY LEADER MARINE LE PEN COMMENTS IN TV SPEECH
  • *LE PEN SAYS FRANCE NEEDS TO CONTROL ITS BORDERS PERMANENTLY
  • *LE PEN CALLS FOR PERMANENT BORDER CONTROLS
  • *LE PEN CALLS FOR 'ERADICATION' OF RADICAL ISLAMISM IN FRANCE
  • *LE PEN: FRANCE IS 'VULNERABLE', 'MUST RE-ARM ITSELF'
  • *LE PEN: FRENCH PEOPLE ARE NO LONGER SAFE
  • *LE PEN: BI-NATIONAL ISLAMISTS MUST DEPRIVED OF FRENCH PASSEPORT

  Which is all fine if this was some extreme and unpopular party, but in fact…

  Marine Le Pen Tops Another French Presidency Poll

  The Front National party in France are moving one step closer to seriously challenging for the country’s presidency. A new opinion poll reveals that their leader, nationalist firebrand Marine Le Pen, has topped yet another poll ahead of the elections in 2017.

   

  The IFOP poll in conjunction with Sud Radio and Lyon Capitale gives Ms. Le Pen a lead under three different scenarios, reflecting the panic setting into the French political establishment which is considering a ‘grand coalition’ of centre-left and centre-right parties to keep the Front National out.

   

  According to IFOP, if centrist politician Francois Bayrou and centre-right Nicolas Sarkozy ran, Ms. Le Pen would top the first choice in the multi-round election with 28 per cent of the votes. In second, the Republican Party’s Sarkozy (23), and in third, current president, socialist Francois Hollande (21).

  As John Rubino noted previously, there are two reasons for the rise of National Front and other anti-euro parties:

  1) The adoption of a common currency hasn’t delivered the broad-based prosperity that was promised. Instead, Germany has entered a golden age of soaring exports, massive trade surpluses and balanced budgets while most other eurozone countries have been unable to function with a currency they can’t devalue at will.

   

  2) The European Union’s decision to counter falling birthrates with rising immigration from Africa and the Middle East has, in the opinion of a growing number of Europeans, produced a two-tiered society in which a shrinking layer of liberal, pacifist, aging “natives” sits atop a growing, restless layer of newcomers who instead of assimilating are trying to impose their culture on traditional Europe.

  And then came the Paris attacks. The perps are Middle Eastern though it’s not clear what group they’re affiliated with. But no one seems to care whether it’s ISIS or al-Qaeda. Their ancestry is all that will matter in the next election, and any politician with an anti-euro, anti-immigrant platform will find a suddenly very receptive audience.

  

  

  

  

  

• The Cost Of China's "Manipulated Market Stability" May Be Too High, BofAML Warns

  In August, we learned that even spending CNY1 trillion in plunge protection to prop up an equity market reeling from the unwind of a bevy of backdoor margin lending channels was woefully insufficient. The reason (or one of the reasons): the millions of semi-literate retail investors, housewives, and farmers that had poured money into the market and had previously been inclined to buy every last dip were suddenly selling every last rip in a desperate attempt to recoup their savings which had just been vaporized before their very eyes. 

  Ultimately, once Beijing had tried halting three quarters of the market and then throwing more than a trillion yuan at the “problem”, Chinese authorities just started arresting people. First short-sellers, then brokers, then journalists, and finally, just plain old sellers. 

  True, that’s not good for China’s international reputation from a kind of human rights/freedom of speech perspective, but when it comes to showing the world that you’re committed to liberalizing capital markets, it sure beats effectively nationalizing a whole collection of equities and halting 75% of trading. Not to mention the fact that when you’re trying to execute a “controlled” currency deval on your own terms and there’s already quite a bit of downward pressure, it’s not entirely clear that you want to be printing too many more trillions of yuan. 

  Of course even though China may have succeeded in “arresting” some of the pressure with its “kill the chicken to scare the monkey” witch hunt and thereby might possibly have avoided having to dump still more money into buying shares, to a certain extent the reputational damage was done from June-July when CSRC bought some CNY900 billion in shares. As we’ve put it before, that falls outside the bounds of manipulated market decorum even in a world that’s used to central banks providing plunge protection. 

  On Friday, BofA’s David Cui is out with a look back at China’s Q3 plunge protection and a look forward at what the numbers mean for the effort’s future. 

  *  *  *

  From BofA

  Largely based on top-10 shareholder information disclosed by A-share companies, we estimate that the government likely spent at least Rmb1.5tr in Q3 to support the market (Table 1). Given the potential damage to the PBoC’s and RMB’s reputation, economic growth and long-term financial system stability, we think it unlikely that the government has the resolve to keep buying if heavy selling pressure in the A-share market resumes at certain point. 

  The prices paid so far 

  Excluding ETF positions, the government and affiliated funds bought shares in at least 1,365 A-share companies in 3Q, representing 49% of the total number of A-shares and roughly 7% of the A-share market’s free float. Of this, by number of stocks, 58% are listed on the Main Boards, 26% on SME and 16% on GEM (Table 2); by market value, close to 90% is on the Main Boards, 7% SME and 3% on GEM (Table 3); by market cap in value, about 60% are in stocks with Rmb50bn+ market cap (Table 4); by sectors in value, some 40% are in financials and 20% in industries (Table 5); by trailing 12-month PE, about 30% is at 40x+ or loss-making and 20% at is 20-40x (Table 6); by yield, about half is at 0-1% (Table 7). We estimate that the government’s position, including ETFs, incurred a Rmb220bn loss as of Sept 30, but the loss had turned into a small gain by Nov 11, after the recent market rebound (Table 1). 

  

  The unintended consequences Leaving aside damage to its reform credentials, the government’s stock-buying program may negatively impact the economy and financial system: few central or commercial banks lend money to fund stock purchases, especially at this expensive valuation – this cannot be enhancing investor confidence in RMB; the related lending had contributed to an acceleration in M2 growth (13.5% YoY in Oct vs. 6.2% nominal GDP growth in 3Q); this excessive liquidity appears to be rushing into the tier-1 city housing market and the bond market.

  *  *  *

  Right, so nothing particularly new in the first few sentences there. China will be unwilling to continue the plunge protection because, i) it damages their reputation in terms of liberalizing capital markets, ii) printing trillions of yuan in the middle of an uncertain FX enviornment is probaby not the best idea, especially when you’re trying to “control” the deval, iii) there are potentially dangerous spillover effects into other “assets.”

  What is interesting is that CSRC had incurred a CNY200 billion loss as of the end of September. Although that loss appears to have been recouped, that speaks to the potential for disaster here should the A-share market take another turn for the worst. Consider one more table which shows that nearly a quarter of the national team’s massive portfolio was purchased at a PE of 40 or greater:

  

  Which brings us to BofA’s conclusion: 

  Selling pressure likely to resume This is because the A-share market is expensive and leverage in the market is still high.

   

  Ex. banks, the A-share market is trading at 32.4x trailing 12-month earnings. On leverage, we estimate that approximately Rmb8.9tr market value, including all the government’s positions, is either partially funded by borrowing or pledged for lending (Table 8). This is equivalent to around 43% of the A-share market’s free float. Given the high financing cost of these positions and the expensive valuation, we suspect that it could be a matter of time before heavy selling resumes.

  In other words, the CNY220 billion paper loss the CSRC was staring down at the end of September could end up looking small by comparison should things take a turn for the worst given valuations and given the amount of leverage still built into the market.

  Should massive losses materialize, we imagine the Politburo will be arresting a lot more Yao Gangs and other CSRC officials for “graft”…

  

  

  

  

  

• 2008 Flashback: The Risk Of Redefining Recession

  Submitted by Lakshman Achuthan via The Economic Cycle Research Institute,

  Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in GDP or, more broadly, a situation where we see some, but not all, of the typical markers of recession.

  Recession? Or just a slowdown? Some will tell you it doesn't much matter – that it's a distinction without a difference. Nothing could be further from the truth – or as dangerous a delusion.

  Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in growth domestic product, a measure of the nation's output.

  The idea originated in a 1974 New York Times article by Julius Shiskin, who provided a laundry list of recession-spotting rules of thumb, including two down quarters of GDP. Over the years the rest of his rules somehow dropped away, leaving behind only "two down quarters of GDP."

  Like most rules of thumb, it's far from perfect. It failed in the 2001 recession, for example. At the time and until July 2002, data showed just one down quarter of GDP, leading policy makers to claim there had been no recession. Yet, later that month, revisions showed GDP down for three straight quarters. Complicating matters further, with the benefit of time, we now know that GDP actually zigzagged between negative and positive readings, never showing two negative quarters in a row.

  The far more important issue in 2001 was the loss of 2.7 million jobs – more than in any postwar recession. Even taking into account labor force growth, those job losses were greater than in most recessions over the past 50 years.

  Clearly, there are times when the reality of the economy outside your window is harsher than GDP might imply.

  In fact, if you insist on using a rule of thumb, you're better off "defining" recession as a period when the economy sees four straight months of job losses, since that rule has been much more accurate. However, like the GDP-based definition, even that is too narrow a rule.

  Any trustworthy definition of recession needs to encompass the key elements of the recessionary vicious cycle – output, employment, income and sales.

  While all government data are subject to revision, simultaneous reliance on all four of these aspects of the economy produces judgments that can stand the test of time.

  To appreciate why, we must first understand what a recession really is.

  A recession is a self-reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and thus jobs, triggering a loss of income that spreads across the country and from industry to industry, hurting sales and in turn feeding back into a further drop in production – in effect a vicious cycle.

  

  That's why the proper definition of recession cannot be limited to GDP and industrial production, but must also include jobs, income and spending, all spiraling down in concert.

  To keep it simple, just look for the "Three P's" – a pronounced, pervasive and persistent downturn in the broad measures of those factors.

  Are we there yet?

  Having established the facts about recession, we'd like to offer our opinion about where we are in this business cycle.

  While GDP has yet to decline, we have already seen four straight months of payroll job losses. That suggests that the economy is on a recession track. And it implies that either one or both of the recent, slightly positive GDP estimates will be revised down to negative readings by next year. Or, we will see a negative GDP quarter or two later this year.

  But while the final determination of recession might be delayed by a year of more, our leading indexes have never been this weak outside a recession. If this is indeed a recession, policy makers would be remiss in assuming that this is an economic slowdown rather than a recessionary vicious cycle.

  Japan is a case in point. Not many know that Japan didn't experience sustained deflation until nine years after its asset bubble burst in 1989. Because of their misguided belief in the "two down quarters of GDP" recession definition, Japanese officials only belatedly recognized the reality of their 1997-1999 recession 15 months after it had begun, when that "rule" was finally satisfied.

  This enabled wrong-footed economic policy, resulting in a prolonged, severe recession that set off years of deflation. It's easy to see how definitional delusions can cause a lot of damage.

  Simply put, if an economy is in recession, economic stimulus can be provided without much concern about inflation, since recession always kills inflation. But if this were just a slowdown, such stimulus could set off an inflationary spiral.

  That's why it is essential not to be misled by a flawed rule of thumb, or imagine that it makes no difference to policy whether or not we are in a real recession. This is even truer in an election year, when politically expedient policy prescriptions are all the rage.

  This was originally published by CNN on May 6, 2008… and seemed rather appropriate once again.

  

  

  

  

  

• Passport Found Next To Paris Suicide Bomber Belongs To Syrian "Political Refugee" Who Entered Greece

  Exactly two months ago we reported that as Europe’s biggest refugees crisis since World War II was getting worse with each passing day, suddenly Europe was flooded with reports of “ISIS Terrorists” posing as refugees.

  What we said we disturbingly prophetic when looking at the immediate consequences of Europe’s “infiltration” by the CIA-crated fighters meant to overthrow Assad’s regime, also known as ISIS. Specifically, we said “focus on the propaganda, [which] is in full crisis mode: A recent article in the UK Express Daily claimed that IS “smuggled thousands of covert jihadists into Europe.” It cited a January BuzzFeed interview with an IS operative who said the militants have already sent some 4,000 fighters into Europe under guise of refugees.

  This was the first of two punchlines, underlined for effect:

  “These speculations have not been confirmed by Western security officials, although that’s only temporary: as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions thrown in for good effect.”

  The second:

  “And since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.”

  Overnight we got both numerous “chilling explosions” as well as “innocent casualties” on a sufficiently short notice, just as predicted.

  Just one thing was missing: a link between the Paris suicide bombers (for whose actions ISIS has already claimed responsibility) and refugees.

  That missing link appeared earlier today today, when the Greek government said that not only was a Syrian passport found next to the body of one of the suicide bombers in Paris yesterday, but that passport was registered on the Greek island of Leros, suggesting that the holder came into Europe claiming to be a political refugee according to Bloomberg.

  

  The passport was recorded by Greek officials on Oct. 3, Greek Deputy Citizen Protection Minister Nikos Toskas said on a statement posted on the ministry’s website Saturday. Toskas said he didn’t know whether the passport was later processed by other authorities elsewhere in Europe.

  The full statement, google translated:

  Statement by the Deputy Minister of Citizen Protection Nikos Tosca on terrorist attacks in Paris

   

  The Deputy Minister of Citizen Protection Nikos Toskas announces the following:

   

  “On the case of the Syrian passport found at the scene of the terrorist attack.

   

  We announce that the passport holder, had passed from Leros on 03.10.2015 where identified based on EU rules, as decided at the Summit on the refugee issue.

   

  We do not know if the passport was checked by other countries which are likely to be passed by the holder.

   

  We will continue the painstaking and persistent effort under difficult circumstances to ensure the security of our country and Europe, insisting on complete identification of passing through the refugee stream. ”

  A tangential point, and one again pointing to motive, is that also just two months ago, the Greek defense minister threatened that Greece would open borders to jihadis and other mideast terrorists, if there was no deal.

  On 9/3/15, Greek defence minister @PanosKammenos threatened that Greece would open borders to jihadis if no € deal pic.twitter.com/otBYrlxL8H

  — The Konstantinos (@cocodinos) November 14, 2015

  And just to cement the “refugee link”, French newspaper Liberation also reported that an Egyptian passport was also found on one of the attackers the Stade de France.

  Now, we admit to not being experts on the nuances, or even basics, of “suicide bombing for terrorists 101“, but is bringing your own passport to an event that will be your last, really that crucial, especially when the passport is such a critical smoking gun?

  Also, if a suicide bomber blows up while carrying the passport, does the passport survive intact every single time or just on specific occasions?

  Whatever the reason, the trifecta has emerged: just as expected, the link between Syrian refugees, ISIS, and Terrorism has now been set in stone. And Marine Le Pen could not be any happier…

  What happens next?

  One possible chain of events involves Syria suddenly finding full-blown NATO support for a renewed attack on Syria and, of course, Assad.

  France is in a military driving seat now if it wanted to invoke NATO’s article 5 it could – and the ‘State’ of IS could be the target

  — Phillip Blond (@Phillip_Blond) November 14, 2015

  And with the only French aircraft carrier already en route to Syria, and meant to support to mission against Assad ISIS, France is oddly prepared for an all out attack to take out the Syrian president. Most importantly, it now has the outraged, incensed public’s blessing to do just that.

  The second path of future events goes back to what we said on September 11 of this year when we predicted the French terrorist attacks:

  … the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.

   

  …

   

  Certainly expect a version of Europe’a Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.

  So far things are panning out precisely as we expected they would; we expect this chain of events to continue.

  

  

  

  

  

• In Oregon There Are Now More Marijuana Shops Than Starbucks Or McDonalds

  Submitted by John Vibes via TheAntiMedia.org,

  In the state of Oregon, where marijuana for recreational purposes was legalized just over a month ago, there are already more retail marijuana shops than there are McDonald’s or Starbucks.

  According to Oregon’s Health Authority, there are 281 marijuana businesses in the state due to the fact that there was already a vast network of medical dispensaries there. When legalization kicked in, these dispensaries were able to quickly repurpose themselves as retail outlets. This allowed the industry to grow much quicker in Oregon than it did in Colorado or Washington.

  In Oregon, there were over 250 medical marijuana dispensaries that were immediately able to sell to recreational customers, while in Colorado there were just 24 retailers open on the first day of legalization — and Washington had only four.

  In fact, in Oregon, the cannabis industry is already becoming as visible as major fast food corporations, with more locations in the state than both Starbucks and McDonald’s. They have 248 and 205 locations, respectively.

  It is important to mention that many different businesses and owners make up the 281 marijuana shops across the state, while Starbucks and McDonald’s are individual businesses. For example, the total number of marijuana shops are not being compared to the total number of fast food or coffee shops, but to specific fast food and coffee corporations. However, it still shows how marijuana is quickly becoming a very important part of the economy and of pop culture.

  According to Business Insider, Oregon already has the second-highest number of medical marijuana patients, running close behind Colorado.

  The state sold over $11 million dollars worth of marijuana in the first week of legalization. The sales in Oregon in the first week actually outshined both Colorado and Washington.

  In Colorado, sales reached nearly $5 million in the first week, while Washington retailers made just $2 million in that state’s first week of sales.

  As with the retail locations in Colorado and Washington, many of Oregon’s shops are concentrated in major cities like Portland, with only a few locations in rural areas.

  The growing marijuana industry is not only extremely lucrative, but it is also a more gender-equal environment than many other businesses. As we reported last month, there are more female executives in the marijuana industry than there are in any other industry.

  

  

  

  

  

• Who Said This On Friday? "ISIS Is Not Getting Stronger, We Have Contained Them"

  President Barack Obama seemingly downplayed the threat of ISIS in an interview with ABC’s George Stephanopoulos that aired on Friday’s broadcast of “Good Morning America.”

  Stephanopoulos asked Obama if ISIS was gaining in strength, to which Obama denied they were.

  “I don’t think they’re gaining strength,” Obama responded. “What is true is that from the start, our goal has been first to contain and we have contained them.”

  via ABC…

   

  “Contained” – we are not sure that word means what you think it does.

  h/t @Jeff_Poor

  

  

  

  

  

• A Storm Of Bad "Incoming Data" Strikes As The World Economy Rolls Over

  Submitted by John Rubino via DollarCollapse.com,

  Brutal news is pouring in from pretty much everywhere.

  US retail sales are flat and wholesale prices are falling. Big retail chains are missing on earnings and seeing their shares plunge.

  Chinese nonperforming loans are soaring while imports, car sales and steel production are way down.

  Oil is flirting with multi-year lows as tankers wander the ocean with nowhere to offload their crude. Other commodities like aluminum and copper are back at 2009 levels and still falling.

  A general strike has paralyzed Greece and a far-left coalition is taking power in Portugal. Middle Eastern refugees keep pouring into Europe and no one seems to know where to put them. Eurozone growth is sliding back towards zero and the once-bulletproof Scandinavian countries are now the “sick men” of the region.

  Argentine inflation is 35%, Brazil’s political/economic crisis is threatening to topple the government, and a giant copper mine just dumped millions of gallons of toxic sludge on some Brazilian villages.

  Equities in Asia, Europe and the US are getting whacked as the sheer volume of bad news swamps the hope that European and Chinese QE programs will keep the asset price party going.

  The world, in short, is rolling over. Debt monetization on the scale so far attempted has failed to stop the implosion of tens of trillions of dollars of bad paper, growth has stalled and geopolitics has begun to resemble the parking lot of a British soccer match, with scary people doing random, incomprehensibly violent things and no generally recognized authority able to impose control. Elections are now fearful rather than hopeful prospects and anti-status quo parties in France, Britain, Italy and Spain have become serious contenders.

  And none of this is a surprise. It’s just what you get when you put monetary printing presses in the hands of governments and/or big banks. That is, soaring debt, increasing corruption and inequality as newly-created currency flows to the already-rich, political instability as the have-nots of the world decide they’ve got nothing to lose, and uncomprehending paralysis among sitting leaders who have only ever known easy money.

  It’s time for us all to go back and read Friedrich Hayek’s Road To Serfdom and to pay renewed attention to the relative handful of people who got it right, such as Ludwig von Mises…

  There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

  …Hyman Minsky…

  Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.

  … and of course Ron Paul:

  You cannot print money forever and deceive the markets forever. Eventually, the markets will rule and it’s only a question of when that will happen. Gold is your defense against the policies of the Fed.

  

  

  

  

  

• Assad Condemns "Savage" Paris Attacks, Blames French Foreign Policy

  On the morning after the stunning and tragic wave of terror attacks that turned the streets of Paris into a veritable warzone on Friday evening, the French (not to mention the world) are searching for answers. 

  And we don’t mean in terms of assigning blame. ISIS has claimed responsibility and indeed, despite some early suggestions by terrorist “experts” that the attack looked more like the work of al-Qaeda, there was never any real question as to who would be blamed and who would take “credit.”

  Rather, the questions now revolve around how it could have come to this. Between last night’s massacre in the streets of Paris and a refugee crisis that to most Europeans probably seems to have come out of nowhere, it must appear to some as if the world has inexplicably descended into chaos over the past six or so months.

  Of course that’s not the case. The events that ultimately led to the enormous people flows into Europe and to Friday’s attacks in Paris have been unfolding in Syria for the better part of five years and because this probably isn’t the time for a scathing Western foreign policy critique on our part, we simply present comments below from Syrian President Bashar al-Assad with not further comment. The first passages are from mid-September, the second from today. 

  *  *  *

  From September

  (via CNN)

  Syrian President Bashar al-Assad is blaming Western nations for fueling the refugee crisis by supporting opposition groups in his country’s bloody civil war.

  “If you are worried about them, stop supporting terrorists,” he said in an interview with Russian news organizations. “That’s what we think regarding the crisis. This is the core of the whole issue of refugees.”

  “Europe is responsible because it supported terrorism,” he said in the interview at his home in Damascus, the capital.

  The European Union in May 2013 ended an arms embargo on rebel groups fighting the Syrian government. The United States, meanwhile, has been offering limited support to moderate Syrian rebels in the fight against ISIS.

  “Can you feel sad for a child’s death in the sea and not for thousands of children who have been killed by the terrorists in Syria?” al-Assad said, referring to images of a dead Syrian boy that shocked the world. “And also for men, women, and the elderly? These European double standards are no longer acceptable.”

  Despite his bitter accusations, al-Assad said he was willing to shake hands with any leader who would join the fight against ISIS and hoped to cooperate with the West and Saudi Arabia in building a “real antiterrorist coalition,” the Russian news agency Interfax reported.

  He said his forces weren’t communicating or cooperating tactically with the U.S.-led coalition that’s carrying out airstrikes against ISIS positions in Syria and Iraq.

  “They cannot accept the reality that we are the only power fighting ISIS on the ground,” he said in reference to the United States. “For them, maybe if they cooperate with the Syrian Army, this is like a recognition or our effectiveness in fighting ISIS.”

  He accused the U.S. government of “willful blindness” on the matter.

  *  *  *

  From today 

  (via Reuters)

  Syrian President Bashar al Assad condemned Friday’s attacks in Paris and said that such acts of terror were similar to what his people had faced in years of violent civil war.

  “What France suffered from savage terror is what the Syrian people have been enduring for over five years,” the Syrian President was quoted as saying on state media and Lebanese TV station al Mayadeen

  (via AFP)

  Syrian President Bashar al-Assad said Saturday that French policy had contributed to the “spread of terrorism” that culminated in attacks claimed by the Islamic State group which killed 128 people in Paris.

  In a meeting with a delegation of French lawmakers in Damascus, Assad said France’s “mistaken policies… had contributed to the spread of terrorism.”

  “The terrorist attacks that targeted the French capital Paris cannot be separated from what happened in the Lebanese capital Beirut lately and from what has been happening in Syria for the past five years and in other areas,” he said.

  Assad was referring to twin bombings claimed by IS which killed 44 people on Thursday in the southern suburbs of Beirut, a stronghold of his Lebanese ally, Shiite militant group Hezbollah.

  Assad regards all the rebel groups fighting his forces inside Syria as “terrorists”, not just IS.

  Assad said he had “warned against what would happen in Europe for the past three years.”

  “We said, don’t take what is happening in Syria lightly. Unfortunately, European officials did not listen,” he said, in comments to the delegation broadcast by France’s Europe 1 radio.

  He said French President Francois Hollande “should change his policy.”

  “The question that is being asked throughout France today is, was France’s policy over the past five years the right one? The answer is no.”

  

  

  

  

  

• Peter Schiff Warns "The Shadow Rate" Casts Gloom

  Submitted by Peter Schiff via Euro Pacific Capital,

  Nearly 92% of economists surveyed this week by the Wall Street Journal expect that our eight-year experiment with unprecedented monetary easing from the Federal Reserve will come to an end at the next Fed meeting in December. Since we have had the monetary wind at our back for so many years, at least a few have begun to question our ability to make economic and financial gains against actual headwinds. But in reality, the tightening cycle that the forecasters are waiting for actually started last year. Sadly, the markets and the economy are already showing an inability to handle it.

  While it’s true that we have yet to achieve “lift-off” from zero percent interest rates, rates have not been the only means by which the Fed has provided stimulus. We also have to account for the effects of Quantitative Easing (QE) and forward guidance of the Fed. Changes in those inputs over the past year have already created conditions of monetary tightening.

  QE has been the process by which the central bank expands its balance sheet (otherwise known as printing money) to buy government and asset-backed bonds on the longer end of the duration spectrum. In so doing, it is able to help hold down long-term interest rates, a result that it would be difficult to achieve by changes in the federal funds rate. Zero percent interest rates represent a loose monetary policy, but once at the zero lower bound, QE is the way the bank eases even further.

  Another big input is Fed “forward guidance.” This comes in the form of official and unofficial pronouncements from top Fed policy makers as to the possible trajectory of rates in the future. If the Fed communicates that rates will stay low, or QE will remain in place, for some time, then policy becomes looser still. Such assurances effectively remove near term interest rate risk, which stimulates financial activity. Ever since the Financial Crisis of 2008, the Fed has engaged in unprecedented forward guidance, without which monetary conditions could have been expected to be tighter.

  To account for these important factors, University of Chicago professors Cynthia Wu and Fan Dora Xia, constructed a model for the “Shadow Rate.” While the fed funds rate has remained between 0.0% and 0.25% ever since November of 2008 (Federal Reserve Board), the Shadow Rate moved much lower, factoring in the effects of QE and forward guidance. That rate got as low as -2.99% in May of 2014. (Federal Reserve Bank of Atlanta, CQER, Shadow Rate)

  

  But the Fed’s QE tapering campaign, which gradually reduced the amount of securities purchased monthly by the Fed, effectively began a campaign of monetary tightening that helped push up the Shadow Rate sharply even as the fed funds rate itself did not budge. After QE was officially wound down in October 2014, the Fed began to change its forward guidance to actively suggest that a long-term campaign to lift interest rates would begin in 2015. This also worked to help tighten monetary conditions. As a result, the Shadow Rate moved up from -2.99% in May of 2014 to just -.74% in September of 2015, (FRB Atlanta, CQER, Shadow Rate) an increase of 225 basis points in just over a year.

  This is a fairly robust tightening trajectory that can be said to have clearly taken a toll. Since January of this year, the major market index, the S&P 500, has essentially been flat. While in contrast, it had been up by double-digits in five of the last six calendar years. Similarly, GDP growth has slowed considerably in the months since the QE program was finally tapered down to zero in October of 2014.

  U.S. stock investors may be complacent regarding the ability of the stock market to withstand higher interest rates. Their confidence may come from the fact that, historically, markets have not peaked until 12-24 months after the Fed begins to tighten. This assumes the tightening cycle begins with the first official rate hike. But if it really began with the increase in the Shadow Rate, then a December rate hike will already be 19 months into the tightening cycle! Plus, given how overvalued stocks may currently be, and the amount of corporate debt accumulated to finance share buybacks, this bull market may be far more vulnerable than most to higher interest rates.

  The last three times that the Fed had conducted a rate tightening cycle (1986-1989, 1994-2000 and 2004-2006), the increases in rates averaged 388 basis points. But those moves upward occurred when QE did not exist and when forward guidance was hardly a factor (the Fed only started doing press conferences in the last few years). So the tightening that has occurred to the Shadow Rate in the last year is already 58% of the size of the average of the last three tightening cycles.

  

  Created by Euro Pacific Capital with Data from Bloomberg

  If the Fed does as it has suggested it will, and takes fed funds up to 2.6% by the end of 2017 (which is the Fed’s own median forecast), then the total effective move (that includes the tightening of the Shadow Rate) would be a tightening of 559 basis points, well larger than the average of the last three tightening cycles. Does anyone really believe that our fragile and slowing economy can deal with that kind of headwind?

  Generally, the Fed tends to wait until the economy is on solid footing before tightening. For instance, in the 12 months prior to the 390 basis point tightening that occurred between 1986-1989, real GDP was 3.2%. GDP was 2.65% in 1993, the year before a six-year tightening cycle raised rates by 350 basis points. GDP was a solid 4.3% in 2003, the year before Alan Greenspan began raising rates in 2004, a move that took up fed funds by 425 basis points. But current GDP, which is somewhere around 2.0% over the past four quarters, is not nearly as robust. (Bureau of Economic Analysis)

  But what’s more concerning is the magnitude of the easing cycle that has gotten us to this point. It began in 2007, lasted a full 80 months, and took the effective fed funds rate (accounting for the Shadow Rate) down by 825 basis points. In contrast, the prior two easing cycles averaged 612 basis points and 34.5 months. This huge dose of stimulus is certain to have caused distortions in the economy that won’t be seen until we get more normalized levels of monetary policy. As Warren Buffet has most famously quipped, “We have to wait till the tide goes out before we see who has been swimming without bathing suits.”

  Since the Second World War, recessions have begun, on average, every seven years. Since the current recovery is already seven years old, how much longer should we expect this historically anemic recovery to last? If the slowdown occurs next year, can we really expect the Fed to remain on the sidelines and risk the possibility that the economy goes into a recession leading into a presidential election? Both the chairperson and vice chairman of the Fed are solidly associated with the left side of the political spectrum. Should we expect that they would be hesitant to support the markets and the economy and thereby create conditions that might help Republicans take the White House?

  Nevertheless, most people assume that rates are on the way up to 2% or more. But from my perspective it’s much more likely that the rates never get close to that level. I would argue that any positive rate of interest would be enough to stop this economy cold. Years of negative rates have so corrupted our economy that I believe it is now fully addicted and cannot survive under any other condition.

  Since this historically weak recovery is already decelerating, one might expect the removal of stimulus could cause the next recession to start quicker and be far deeper than any experienced in the past. Since the Fed may recognize this, the next easing cycle could likely start much sooner, and the accompanying monetary stimulus be much larger than just about anyone believes.

  Each of the last three easing cycles took rates lower than where they were at the end of the prior easing cycle. Given that the fed funds rate is at zero (and the Shadow Rate got to as low as -2.99%), one shudders to think how low the Fed is prepared to go the next time around. As a result, investors may want to consider re-positioning their assets for another period of possible monetary easing not a period of tightening, which I believe, in fact, is already well underway and will soon be a thing of the past. December is far less significant than what almost everyone has been led to believe.

  

  

  

  

  

• Russian Track And Field Athletes Banned From International Competition

  Earlier this week, the “independent” anti-doping commission WADA found that Russia engaged in state-sponsored doping and more importantly, recommended that Russia’s track and field athletes be suspended from Olympic competition in 2016. Apparently, the corruption was “on a whole different scale” that involved extorting athletes and ultimately ended up “significantly changing the actual results and final standings of international athletics competitions.”

  The report includes allegations that Russian security services interfered with the Moscow doping lab ahead of the Sochi Winter Olympics as part of a conspiracy that involved all levels of Russian sport. During the Sochi Games, Russia pulled off a stunning turnaround from its performance in Vancouver in 2010, where it won 3 gold medals and 15 overall. In 2014 Russia won 13 gold medals and 33 overall, an unprecedented level of improvement.

  As we noted on Monday, “in the event that IAAF were to adopt the commission’s recommendation, Russia could be excluded from major competitions including the Olympics.” 

  Well, as it turns out, that’s exactly what happened because as WSJ reports, “track and field’s world governing body provisionally suspended Russia’s athletes from international competition indefinitely,” late on Friday evening. Here’s more:

  The suspension, which was expected, was approved by a vote of 22 to 1 by the international federation’s ruling council and takes effect immediately. It will prevent Russian track-and-field athletes from participating in all international events, including—as of now—the 2016 Rio Olympics in August.

   

  While condemning the Russians, Sebastian Coe, the newly elected president of the IAAF, said the federation had to work to fix a broken system.

  
  

   

  “We discussed and agreed that the whole system has failed the athletes, not just in Russia, but around the world,” Mr. Coe’s statement read. “This has been a shameful wake-up call and we are clear that cheating at any level will not be tolerated.”

  The Russians will be able to appeal, possibly in time to win back the “privilege” of competing in beautiful Rio where hopefully, the scent of feces will no longer linger in the air by the time the games roll around (of course giant public works projects don’t look to be in the cards given Brazil’s insistence on running a primary surplus): 

  However, as often happens in international sports when countries or teams are sanctioned, the International Association of Athletics Federations will set terms for what the Russians must do to have the suspension lifted, perhaps even in time for the Rio Olympics.

   

  The Russian federation can appeal the ban during the next month, with a ruling coming shortly after that. The federation could also take its case to the international Court of Arbitration for Sport.

  For their part, the Russians have taken steps to “clean up” the situation, while Putin and several individual athletes claim the ban punishes all of the nation’s participants for the actions of a few bad actors:

  Russian officials have urged international authorities not to punish a broad swath of athletes for the sins of a smaller group. President Vladimir Putin called on Russian authorities to hold people personally responsible rather than making innocent athletes pay for the wrongdoing of others.

   

  Russian pole-vaulting champion Yelena Isinbayeva, who has won two Olympic gold medals, called the situation sad in a statement released Friday by the All-Russia Athletics Federation.

   

  “The situation that the Russian team has ended up in is sad. But I urge against painting all athletes with the same brush,” Ms. Isinbayeva said, describing all of her own victories as honest, clean and deserved. “Taking away the right of innocent and uninvolved athletes to participate in international competitions under the auspices of the IAAF and at the 2016 Olympic Games in Rio de Janeiro is unjust and unfair.”

  Of course this is just another example of the fox guarding the hen house. As WSJ goes on to point out, it was just last week when French authorities unveiled an nvestigation into the IAAF’s recently retired leadership, including its former president for various alleged criminal behavior including accepting bribes to cover up Russian doping results. 

  And if they were doing that, then who knows what else they were doing which in turn means that yes, this was probably exaclty what the Russians said it was initially, which is politically motivated move that’s inextricably related to a variety of geopolitical issues and you can probably put in the same file as the deliberate suppression of oil prices by the Saudis, economic sanctions, and the anti-trust suit against Gazprom.

  That’s not to say there wasn’t doping going on here, but just like all organizational corruption, everyone has something on everyone else and it’s just a matter of politics when someone’s card gets pulled. 

  In a supremely amusing bit of irony, The Guardian notes that in 1980, the abovementioned Sebastian Coe “a charismatic, supremely talented runner but yet to win a major championship medal, was approached privately by the British government and asked to boycott the Moscow Olympics in protest at the Soviet invasion of Afghanistan. Coe refused. He went to Russia. He won gold, ignited his own personal legend and has ridden the wave ever since.”

  History may not repeat itself, but it does often rhyme.

  

  

  

  

  

• About 38% Of All The COMEX Gold In Hong Kong Left The Warehouses Yesterday

  Via Jesse's Cafe Americain,

  Roughly 21 tonnes, or 685,652 troy ounces of gold in .999 fine kilo bars, was withdrawn, net of a small deposit of 27,328 ounces, from the Brinks warehouse in Hong Kong yesterday.

  

  To put that into some perspective, that is the same amount of all gold in the entire JPM warehouse in the US.

  Now compared to the Comex US, in which very little gold bullion actually changes hands or goes anywhere, that is a huge number.  But Hong Kong is typically seeing large inflows and outflows of gold.  Because that is how the precious metals market has been manifesting in Asia since about 2007: not with endless chains of paper just changing hands in a grand game of liar's poker, but with the physical exchange of bullion.

  And most of that bullion leaves the warehouse and does not come right back, as Koos Jansen has explained repeatedly about the operations on the Shanghai Gold Exchange.  It is being accumulated on the mainland, and this probably does not include the PBOC official purchases.

  The point of this is that the price discovery in New York is becoming increasingly distinct from the actual physical supply and demand flows of bullion which are taking place in Asia.  As I have said, gold is 'trading like a modern currency' without respect to its nature as a commodity bound by physical supply.  The Fed et al. can print money, but they cannot print bullion.  That is the point of it.

  And that is a potentially dangerous development, especially with respect to a commodity that is being traded at a leverage in excess of 200:1.  And in the face of shrinking inventories of gold available for delivery at current prices in both New York and London.

  I have put the most recent report for all the US warehouses registered with Comex below that of Hong Kong.

  As the Comex told Kyle Bass, 'price' will take care of any imbalances.  Yes, just as smoothly and seamlessly as it did when the price of highly levered and risky paper corrected back to reality in 2008.  Ba-boom!

  Are you kidding me? That is what Kyle Bass said, not me.  "Just give me the gold."

  And if people should choose to stand for physical delivery given the relative scarcity, how much of a price adjustment might be required if they could even find any to be had without an onerous delay and in sufficient numbers?

  How many people, once again, are going to be allowed to walk blindly into another financial buzz saw caused by reckless gambling on Wall Street?   Are we willing to repeat the folly of MF Global on a grand scale?  Will the rest of the world be so cowed by the Banks as its investors?

  

  

  

  

  

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• 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.