• China Halts Stock Trading For Day After Entire Market Crashes

  Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early).

  As Bloomberg reports,

  Chinese stock trading was halted for the rest of the day after the CSI 300 Index plunged more than 7 percent.

   

  Trading of shares and index futures was halted from about 1:34 p.m. local time, according to data compiled by Bloomberg.

   

  Stocks fell as manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders.

   

  Under the mechanism which only became effective Monday, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent close the market for the rest of the day. The CSI 300 of companies listed in Shanghai and Shenzhen fell as much as 7.02 percent before trading was suspended.

  Not a happy new year…

  

   

  Dow futures are now down over 150 points from NYE close, Gold and Treasuries are bid, and offshore Yuan has plunged most since the August devaluation.

  

  

  

  

  

• Murphy’s Law of Gold Analysis, Report 3 Jan

  by Keith Weiner

   

  Perhaps it may be lesser known than his other Laws, but Murphy wrote one for the basis analysis. It goes like this. If we observe that the fundamental price of a metal is far removed from the market price, the two won’t likely converge the next week. On the other hand, suppose we say this (as we did last week):

  “The Monetary Metals fundamental price is measuring just that, the fundamentals. As with stocks or any other asset, our centrally banked, government-distorted markets can experience price volatility and even prices that deviate from the fundamentals for a long period of time. Just because we have been calculating a fundamental price for gold that is well over a hundred bucks above the market price, does not mean that the market price has to spike up $100 tomorrow morning. It might—and we certainly would not short gold when the market is in such a state. But as the market has proven since August, it might remain depressed for quite a while.”

  Then something is bound to happen the next week.

  No, the price of gold did not shoot up to approach our published fundamental. The gold-silver ratio promptly moved up +2.3%. As readers will recall, we have been calling for a ratio value over 80 for a while.

  Read on for the only true look at the fundamentals of gold and silver…

  But first, here’s the graph of the metals’ prices.

                The Prices of Gold and Silver
  
  

  We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it
  exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.

  One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

  Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production (stocks to flows) can be measured in months. The world just does not keep much inventory in wheat or oil.

  With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential
  demand. At the right price, and under the right conditions. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

  Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio jumped up this week. 

  The Ratio of the Gold Price to the Silver Price
  
  

  For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

  Here is the gold graph.

                The Gold Basis and Cobasis and the Dollar Price
  
  

  The cobasis (i.e. scarcity of gold) rose more than the dollar (which is the inverse of the price of gold). In other words, the gold price fell a few bucks but the metal became more scarce. By the way, the above graph had to be rescaled to make the higher cobasis fit. The move in the cobasis would appear larger on the scale used last week.

  Not only is the Feb contract backwardated, but so is Apr. As long speculators are selling Feb to buy Apr, the latter backwardation is more notable.

  The fundamental price jumped up this week, with most of the action on Wednesday.

  Now let’s look at silver.

  The Silver Basis and Cobasis and the Dollar Price
  
  

  The price of the dollar in silver terms moved up considerably more than the price in gold terms. Conventional analysis would say that silver fell 52 cents, but we reject that view. The dollar is not the economic constant.

  While the scarcity of silver rose a bit in response, it didn’t rise that much. The May silver contract is nowhere near backwardated.

  Unfortunately for silver bugs, the fundamental price for silver fell 25 cents this week. This puts it above the market price, but not by a large margin.

  It also means the fundamental price of the gold-silver ratio went up. We are almost embarrassed to say what it is now. Suffice to say, quite a lot higher than the market ratio of 76.7, as of Thursday…

   

  © 2016 Monetary Metals

  

  

  

  

• Dow Futures Dump 300 Points From New Year's Eve Highs As China Crashes

  With China closing the morning session limit down, US equity futures are extending their losses (even though crude futures are holding some of their gains). The initial knee-jerk jump as crude rose on Saudi tensions has been entirely erased and Dow Futures are now down 300 points from New Year’s Eve highs… Happy New Year.

  China closed the morning session “not off the lows” with a bloodbath in ChiNext and Shenzhen…

  

   

  With Offshore Yuan crashing over 440 pips – the most since the August deval…

  

   

  And US futures are tumbling…

  

   

  But bonds and bullion are bid…

  

  

  

  

  

  

• Puerto Rico Is Greece, & These 5 States Are Next To Go

  As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning… and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.

  Wilbur Ross discusses Puerto Rico's debt struggles and where it goes from here…

   

  But, as JPMorgan details, Muni risk is on the rise for US states, but broad generalizations do not apply (in other words, these five states are 'screwed')…

  The direct indebtedness of US states (excluding revenue bonds) is $500 billion.  However, bonds are just one part of the picture: states have another trillion in future obligations related to pension and retiree healthcare.  In the summer of 2014, we conducted a deep-dive analysis of US states, incorporating bonds, pension obligations and retiree healthcare obligations.  After reviewing over 300 Comprehensive Annual Financial Reports from different states, we pulled together an assessment of each state’s total debt service relative to its tax collections, incorporating the need to pay down underfunded pension and retiree healthcare obligations. 

  While there are five states with significant challenges (Illinois, Connecticut, Hawaii, New Jersey, and Kentucky) , the majority of states have debt service-to-revenue ratios that are more manageable.

  As a brief summary, we computed the ratio of debt, pension and retiree healthcare payments to state revenues.  The blue bars show what states are currently paying.  The orange bars show this ratio assuming that states pay what they owe on a full-accrual basis, assuming a 30-year term for amortizing unfunded pension and retiree healthcare obligations, and assuming a 6% return on pension plan assets.  States below the green bar are spending less than 15% of total revenues on debt, which seems manageable from an economic and political perspective.  When this ratio rises above 15%, harder discussions in the state legislature about difficult choices begin.  

   

  

   

  It would take a long time for underfunded pension plans (e.g., 60% funded) to run out of cash, given the long duration of plan liabilities.  But as investors learned in Puerto Rico and Greece, bond markets can drift along unconcerned with mounting fundamental problems, only to experience a rapid repricing at times that cannot be predicted.  As a reminder, this analysis applies to states and not to city, county and other in-state issuers.

  

  

  

  

  

• Oregon Standoff: A Terrible Plan That We Might Be Stuck With

  Submitted by Brandon Smith via Alt-Market.com,

  Well, there is whole host of things wrong with this situation, which is why I never supported or endorsed "Operation Hammond Freedom" to begin with.  There is a lot of misinformation out there at this time on the debacle in Oregon, and certain alternative media outlets seem to be conveniently overlooking particular facts.  I suspect that some people in the movement simply want to "kick it off" (a second American revolution), and they don't care if the circumstances of that kick-off are favorable or terrible (I realize "favorable" is relative, but starting this fight from a much stronger position is more than possible).  This attitude was prevalent among some at Bundy Ranch, as certain groups refused to dig in positions for a real fight in the hopes that they would be "martyred" for the cause.  This, in case you were wondering, is idiotic.

  Oath Keepers including founder Stewart Rhodes was the only organization to predict how Ammon Bundy's vague calls for action on the part of the Hammond Family would actually play out.  They received a lot of ignorant attacks in response, and yet, they were absolutely right.

  Ammon, apparently trying to recreate what cannot be recreated, is looking for another Bundy Ranch stand-off.  First, I would point out that such events can't be artificially fabricated.  They have to happen in an organic way.  Whenever a group of people attempt to engineer a revolutionary moment, even if their underlying motivations are righteous, it usually ends up kicking them in the ass (Fort Sumter is a good example).  Ammon's wingmen appear to be Blaine Cooper aka Stanley Blaine Hicks (a convicted felon), and Ryan Payne (who claimed falsely during the Bundy Ranch standoff that he was an Army Ranger and who worked diligently to cause divisions between involved parties on the ground).  This was the first sign that nothing good was going to come from the Hammond protest.

  I have watched extensive video from the event in Oregon and am privy to accounts from participants.  From the information at my disposal, it would appear that Ammon and team did NOT make clear their intentions to occupy the federal wildlife refuge building except to a select few, inviting protesters to "take a hard stand" without revealing what this would entail until they were already in the middle of it all.  OPSEC?  No, I think not.  Obviously the goal was to lure as many protesters to Oregon as possible to the event in the hopes that they would jump on board with the stand-off plan once they were more personally involved.  Numerous protesters were rightly enraged once they discovered the ultimate motives behind the event.

  The plan is basically this – use the Hammond family as a vehicle (yes, this is what is being done) even though they did not want any kind of standoff to result and specifically refused aid.  Occupy federally owned buildings which have little to do with anything of importance and have no symbolic power as did Bundy Ranch.  Elicit federal response.  Wash, rinse, repeat.

  Bundy Ranch had many positive elements going for it, which is why it ended the way it did.  This standoff has none of the same elements.  I suppose one could ask, though, why do I care?

  It's true, these people have every right to make positively naive strategic errors and I don't have to participate directly if I don't like it.  The problem, however, is that Ammon and friends have decided they want to be the "tip of the spear" (his words, not mine).  I do not think they understand what this means, or they don't care.  What it means is, even though I think the entire Oregon plan is ill conceived; literally the WORST possible way to launch a fight against federal corruption, if the federal government moves in a heavy handed manner to kill these people, I and many others will have to fight as well by default when a FAR better tactical and social position could have been achieved.  My conscience simply will not allow the rationalization of the deaths of liberty minded people even if their stupidity brought about the circumstances.  And frankly, that pisses me off.

  As a student of asymmetrics, I understand that choosing the time, place and circumstances is 95% of the battle ahead against an advanced opponent.  More organization is needed.  More preparedness.  More training.  More public awareness.  The Oregon standoff could steal away what little time we had left.

  The Oregon standoff potentially forces the hand of the Liberty Movement, not the hand of corrupt government – the exact reverse of what should be happening.

  Mike Vanderboegh has outlined similar thoughts expertly in this article.  Everything he has written is exactly what was going through my own mind when I heard of the happenings in Oregon.  Ammon Bundy and companions are not the tip of the spear.  Not even close.  What I do fear is that they are cannon fodder beckoning a nationwide government crackdown to which I and others will then be forced to personally respond to with equal f*cking measure.  And all of this on the worst possible terms and at a very inconvenient time (executive actions on gun control mere weeks from now).

  And here's the best part; those of us who remain critical of the clinically retarded maneuver being executed here are going to be called cowards and "keyboard warriors"; it's a given.  We are all ready to fight for the future of this country, we have been training diligently for it and helping many others along the way.  But, because we do not support two dimensional planning there are those that will say – "Now we find out who the real patriots are!"

  Against stupid plan = coward against freedom and action.  Just watch.

  If the Feds use brutality to handle the Oregon conflict, it will indeed "kick-off".  There wont be any way to stop it.  Just don't get too excited, folks.  This is no Lexington or Concord.  I really don't know what to call it…

  

  

  

  

  

• 2016 Off To A Miserable Start: Asian Stocks Drop; Futures Slide After China PMI Tumbles On Dire Commentary

  Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did… for about 3 hours.

  Then moments ago, Caixin Media and Markit Economics released China’s December manufacturing purchasing managers’ index.  It was a doozy, falling to 48.2 from 48.6 in November, well below the 48.9 consensus estimate and even lower than the 49.6 printed a year ago, its tenth consecutive month in contraction territory and the lowest reading since September 2015.

  The trend is clearly not one's friend, especially if one is part of Beijing's political oligarchy.

  

  As the report noted, there was a renewed contraction of output, with total new work continuing to fall, while new export work declines for first time in three months; finally, companies continued to shed staff as the greatest threat facing China, a massive labor revolt, continues to slowly simmer.

  The details were quite frankly, stunning, in their negativity: as if Markit wanted to paint China's economy in the worst way possible:

  Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall.

   

  A renewed contraction of manufacturing output weighed on the headline index reading in December. Although the rate of reduction was modest overall, it was the seventh time in the past eight months that production has fallen, and contrasted with a stabilisation in November. Anecdotal evidence suggested that relatively weak market conditions and reduced client demand had prompted firms to cut output in the latest survey period.

   

  Indeed, total new business declined again in December, and at a similarly modest rate to those seen in the prior two months. Data suggested that softer domestic and international demand led to lower overall new work, with new export business also falling in December. Furthermore, this was the first time that new work from overseas had fallen since September.

   

  Lower output requirements underpinned a further fall in purchasing activity in December. Moreover, the rate of contraction quickened slightly since November and was marked overall. As a result, stocks of inputs also declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.

   

  Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panellists, lower staff numbers were the result of company down-sizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high.

   

  December data signalled a further fall in average cost burdens faced by Chinese manufacturers. Moreover, the rate of reduction eased only slightly since November and remained sharp overall. Panellists that reported decreased input costs widely attributed this to lower raw material prices. Manufacturers generally passed on their cost savings to clients in the form of lower selling prices, while some companies mentioned that greater market competition had led them to cut their tariffs.

  The summary from He Fan, Caixin's Chief Economist was downright dire:

  “The Caixin China General Manufacturing PMI for December is 48.2, down 0.4 points from the reading for November. This shows that  the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening. More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising interest rates. The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff. It needs to simultaneously push forward the supply-side reform to release its potential and reap the benefits.”

  Here, again, is the key part: "The government needs to fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff."

  But… 7% GDP.

  Incidentally, all this is happening as China's set the Yuan's fixing at 6.5032, another multi-year low for the currency as China's devaluation is accelerating with every passing day.

  

   

  Furthermore, offshore Yuan is collapsing… breaking above 6.6100…

  

  As a result, algos quickly got the hint that nothing has changed from the deteriorating trends of late 2015, and promptly applied that pattern to the E-mini, which after optimistically rising as high as 2043, has since dropped 11 points and was trading at the lows of the session, well in the red…

  

   

  … and following its favorite carry trade partner, the USDJPY, which has likewise dumped, below the key 120.00 support, and is currently trading at a 2-month low.

  Which reminds us of what Goldman said just on December 20: "we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months."

  It really never fails.

  And speaking of things that are falling, it wasn't just US equity futures and the USDJPY. It was everything, with Asia largely down by 1% or more as of this writing:

  • MSCI AP Index -1.2% to 130.46; telecoms services, IT fall most
  • MXAPJ Index -1.4%; S&P 500 Futures +0.2%
  • Nikkei 225 -1.1%; Topix -0.8%; yen +0.3% to 120.3/USD
  • Hang Seng Index -1.5%, HSCI -1.4%, HSCEI -1.6%; H.K.’s HSI falls most in 3 weeks.
  • ASX 200 -0.1%
  • Kospi -1.2%
  • Straits Times Index -1%
  • KLCI -0.7%
  • TWSE -2%
  • Philippines Composite -0.4%

  Finally, remember when "bad news was good news"? Well, as of this moment the Shanghai Composite is down -4% and sliding fast… and the broader CSI-300 is limit down 5%…

  

  

  

  

  

  

• Trump Vs Hillary: The ISIS Perspective

  Presented with no comment…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Nassim "Black Swan" Taleb On The Real Financial Risks Of 2016

  Authored by Nassim Nicholas Taleb, publish op-ed via The Wall Street Journal,

  Worry less about the banking system, but commodities, epidemics and climate volatility could be trouble

  How should we think about financial risks in 2016? 

  First, worry less about the banking system. Financial institutions today are less fragile than they were a few years ago. This isn’t because they got better at understanding risk (they didn’t) but because, since 2009, banks have been shedding their exposures to extreme events. Hedge funds, which are much more adept at risk-taking, now function as reinsurers of sorts. Because hedge-fund owners have skin in the game, they are less prone to hiding risks than are bankers. 

  This isn’t to say that the financial system has healed: Monetary policy made itself ineffective with low interest rates, which were seen as a cure rather than a transitory painkiller. Zero interest rates turn monetary policy into a massive weapon that has no ammunition. There’s no evidence that “zero” interest rates are better than, say, 2% or 3%, as the Federal Reserve may be realizing. 

  I worry about asset values that have swelled in response to easy money. Low interest rates invite speculation in assets such as junk bonds, real estate and emerging market securities. The effect of tightening in 1994 was disproportionately felt with Italian, Mexican and Thai securities. The rule is: Investments with micro-Ponzi attributes (i.e., a need to borrow to repay) will be hit. 

  Though “another Lehman Brothers” isn’t likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices. Dubai is more threatened by oil prices than Islamic State. Commodity people have been shouting, “We’ve hit bottom,” which leads me to believe that they still have inventory to liquidate. Long-term agricultural commodity prices might be threatened by improvement in the storage of solar energy, which could prompt some governments to cancel ethanol programs as a mandatory use of land for “clean” energy. 

  We also need to focus on risks in the physical world. Terrorism is a problem we’re managing, but epidemics such as Ebola are patently not. The most worrisome fact of 2015 was the reaction to the threat of Ebola, with the media confusing a multiplicative disease with an ordinary one and shaming people for overreacting. Cancer rates cannot quadruple from one month to the next; epidemics can. We are clearly unprepared to deal with such threats. 

  Finally, climate volatility will produce some nonlinear effects, and these will be compounded in our interconnected world, in which disruptions are more acute. The East Coast blackout of August 2003 was nothing compared with what may come.

  

  

  

  

  

• The Movies Are Becoming Just Like The Markets: A Handful Of Blockbusters And Tons Of Losers

  Back in July we first revealed something troubling: leadership breadth was collapsing not just across the Nasdaq…

  

   

  … but the broader market as well:

  

   

  As the WSJ had calculated, out of a total of 500 stocks, just Amazon, Google, Apple, Facebook, Gilead and Walt Disney accounted for more than all of the $199 billion in market-capitalization gains in the S&P 500. In fact, as of July, just these six firms were responsible for more than half of the $664 billion in value added to the Nasdaq Composite Index as of July.

  

   

  Since then, the situation became more acute as the leadership thinned even further and as Goldman updated in November, only 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. Without these stocks the index would have posted a 220 bp lower total return or -2.2% YTD.

  Of course, in the end, not even the thinning leadership was enough to offset the market being dragged down to a negative print, its first since 2008.

  While all of the above should be well-known to regular readers, what may come as a surprise is that as go the markets, so go the movies.

  According to the WSJ, Hollywood just had its biggest-ever year at the box office in 2015, collecting $11.1 billion in ticket sales, up 7% from the previous year and surpassing the record of $10.92 billion set in 2013. All of the growth, however, occurred at the top of the heap, or in other words, 2015 was a record year “thanks to a handful of blockbusters that left a whole lot of duds in the dust.”

  

  ‘Jurassic World,’ left, was one of 2015’s blockbusters, Disney’s
  ‘Tomorrowland’ was among the year’s costly disappointments

  But the runaway success of “Star Wars: The Force Awakens” and “Jurassic World” raises questions about the overall health of the movie business. The problem: More films that don’t have the muscle to be megahits are struggling to attract any audience at all.

  What may be also little known is that for every megahit like Star Wars there were countless just as expensive flops:

  A startling number of big-budget movies bombed in 2015, proving that no amount of marketing can pull audiences into theaters at a time when Netflix queues are long and social media spreads word about a stinker in a heartbeat. The year’s costly disappointments included “Pan” and “Jupiter Ascending” from Time Warner Inc. ’s Warner Bros., “Fantastic Four” from 21st Century Fox ’s Twentieth Century Fox studio, Walt Disney Co. ’s “Tomorrowland,” and “Pixels” from Sony.

  It wasn’t just a question of marketing: in 2015 eight movies failed to gross even $10 million despite full-fledged advertising campaigns, a record in recent years. In the past, spending $20 million or more to promote a film almost always guaranteed a respectable performance, said Chris Aronson, president of domestic distribution for Fox. But “there is no bottom anymore,” he said.

  Another curious parallel: just like the middle class is disappearing in US society, so that staple of solidly profitable, if not blockbuster, 2nd tier movies is also on the extinction list: “worrisome to some in Hollywood is the disappearance of second-tier movies—those that aren’t blockbusters but are solidly profitable. Last year, 22 movies grossed between $100 million and $350 million domestically, down from 31 in 2014 and the fewest since 2006.”

  “Gigantic hits are actually becoming more common and the midsize hits are becoming rarer,” said Adam Goodman, a producer and former film group president of Viacom Inc.’s Paramount Pictures.

  In total, the WSJ calculates that the five most successful movies of 2015 grossed $2.47 billion, accounting for 22% of the year’s total box office. The previous high for the top five was $2.05 billion, or 19% of the overall take, in 2012.

  And here comes the punchline: for the other 129 films released nationally last year, the results were anything but impressive. They brought in a collective $8.65 billion, the lowest total for non-top-five movies since 2008, when ticket prices were 14% lower.

  In other words, just like in the stock market, a record high portion of Hollywood “gains”, or rather box office ticket sales, came from just five movies.

  How to explain this curious schism?

  Audiences have become “very binary” in their moviegoing choices, said Tom Rothman, chairman of Sony Pictures Entertainment’s motion picture business. “Either a film is relevant to them and penetrates the pop-cultural zeitgeist, in which case the upside is enormous, or it doesn’t rise to that level and they’re out altogether.”

   

  “Many younger people no longer feel compelled to go to the movies as an activity in general,” said Sony’s Mr. Rothman. “Instead, they go to see a particular movie.”

  One silver lining: overseas ticket sales, which rose an estimated 5% last year to $27.5 billion according to Rentrak, can help make up for losses at home. “Terminator: Genisys,” for instance, grossed $351 million internationally, compared with $90 million in the U.S. and Canada. But foreign box office more often exacerbates domestic trends. The top five domestic movies were all among the eight highest grossing internationally.

  Consider this the movies’ equivalent of the “least dirty shirt” phenomenon in markets where foreign capital flows enter the US “just because.”

  But what is most troubling for Hollywood is the evaporation of creativity and originality when it comes to box office success.

  As they have for a number of years, sequels and reboots continued to rule the box office last year. The only exceptions that made the top 10 were animated features, such as Pixar Animation Studios’ “Inside Out,” and Fox’s surprise hit adaptation of best-selling book “The Martian.”

   

  The trend toward sequels, reboots, computer-animated films and adaptations of comic books, toys or videogames is likely to accelerate in coming years as the major studios, increasingly focused on big-budget “event” movies they hope will become blockbuster hits, rely on formulas that have worked for them before.

  This trend toward mindless recreation of a successful formula which has worked while undergoing minor tweaks will continue:

  there were about 27 such films last year, and nearly 40 are scheduled for release this year and in 2017. Some of them are new installments of successful movie series like “X-Men” and “Fast and Furious” while others, such as “Wonder Woman” and “Ghostbusters” are attempts to create or refresh big-screen franchises.

  The appropriate market analogy? Since nothing else is working, take the one thing that still does work, namely parasitic frontrunning of order flow by HFTs and make it better, faster, more profitable: in short – change HFTs technology from microwaves to lasers.

  The only good news is that at least unlike the “market”, humans are at least still directly involved in the creation of movies. When algos start typing up movie scripts and participating in the obligatory sex scenes, that’s when Hollywood execs should quietly exit stage left.

  

  

  

  

  

• Spot The Difference: Salafist Edition

  Earlier today, we highlighted comments from the Ayatollah who spoke out yesterday against the execution of prominent Shiite cleric Nimr al-Nimr.

  The Sheikh was killed by the Saudis for his role in anti-government protests during the Arab Spring. His execution sent shockwaves across the Shiite world as protesters took to the streets from Bahrain to Pakistan in a dramatic outpouring of grief and anger.

  On Saturday evening, protests in Tehran turned violent as Iranians firebombed and ransacked the Saudi embassy while police struggled to contain crowds near the consulate in Mashhad where the outcry continued on Sunday. Here’s an excerpt from a statement posted to the Ayatollah’s webpage:

  “Strongly criticizing the silence of the self-proclaimed advocates of freedom, democracy and human rights, and their support for the Saudi regime, who spills the blood of the innocent only for criticism and protest, Ayatollah Khamenei said: “The Muslim world and the entire world must feel responsible towards this issue. Those who honestly care for the future of humanity and the fate of human rights and justice must pursue these issues and should not remain indifferent vis-à-vis this situation.”

  This has become a familiar refrain of late. In short, it’s becoming difficult for the Western world to obscure the fact that the poisonous ideology espoused by the Saudis is virtually identical to that promoted and promulgated by ISIS, al-Qaeda, and many other Sunni extremist groups that the world at large generally identifies with terrorism.

  As Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” put it in an op-ed for The New York Times, Saudi Arabia is simply “an ISIS that made it.” On that note, we present a passage from Daoud’s article followed by an image posted by the Ayatollah on Saturday.

  Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on.

  

  And for good measure:

  

  

  

  

  

  

  

• Unmanageable Money: Hedge Funds Keep Losing (And Closing) – Why It Matters

  Submitted by John Rubino via DollarCollapse.com,

  How do you make money in a world where history is meaningless? The answer, for a growing number of big fund managers, is that you don’t.

  Hedge funds, generally the most aggressive species of money manager, do a lot of “black box” trading in which bets are placed on previously-identified patterns and relationships on the assumption that those patterns will repeat in the future.

  But with governments randomly buying stocks and bonds and bailing out/subsidizing everything is sight, old relationships are distorted and strategies that worked in the past begin to fail, as do the money managers who rely on them. A few recent examples:

  Whitebox Closes Its Mutual Funds Ahead Of January Liquidation

   

  (Value Walk) – Ending its foray into mutual funds, Whitebox Advisors LLC, said it has shuttered all three of its three mutual funds after poor results. According to Amara Kaiyalethe, a spokeswoman, the three mutual funds, which collectively held over $300 million, were closed on December 17th, and will be liquidated January 19th. She said the decision to close the mutual funds was related to performance and the concentration risk investors that remained in the funds faced as redemptions accelerated.

   

  The Whitebox Tactical Opportunities Fund is the biggest among the three mutual funds, which less than two years ago managed over $1 billion, but tumbled by over 21% this year. The fund has suffered a rush of investors heading towards the exits. The fund managed about $240 million at the time it was closed.

   

  Hedge Fund Lutetium Plans to Liquidate, Return Investor Cash

   

  (Bloomberg) – Lutetium Capital LLC, a hedge-fund firm that invests in distressed securities, is liquidating its two credit funds and returning all of the money it was managing to investors by next month, according to co-founder Michael Carley.

   

  The Stamford, Connecticut-based business told investors it would liquidate the funds in a letter last week following redemption requests from some of its clients and losses, Carley said. Investors in Lutetium’s liquid alternatives product had wanted their money back and the firm decided to liquidate its hedge fund holdings as well, he said.

   

  “We returned capital to every one of our investors to treat all investors equally,” said Carley, the former co-head of distressed debt at UBS Group AG. The firm invested money from its liquid-alternatives fund and its hedge fund in the same debt securities, meaning that selling the holdings from one of the funds would likely push down the value of the assets in the other, Carley said.

   

  The firm’s funds lost 4 percent this year, Carley said. Hedge funds that invest in distressed debt globally have lost an average of nearly 6.8 percent this year, according to data compiled by Bloomberg.

   

  Bommer Is Returning Money From Hedge Fund SAB After 17 Years

   

  (Bloomberg) – Scott Bommer, founder of SAB Capital Management LP, is returning all client money from his hedge fund after 17 years so that he can focus on managing his own wealth.

   

  SAB Capital will return most money before mid January, Bommer said in an investor letter Tuesday, a copy of which was obtained by Bloomberg. The firm posted a 10.6 percent loss in the first eight months of the year in its SAB Overseas Fund, according to an investor document. Bommer started New York-based SAB Capital in 1998, and oversaw $1.1 billion as of the end of last year, according to a government filing.

   

  Hirsch to Close Hedge Fund Seneca After Almost 20 Years

   

  (Bloomberg) – Doug Hirsch, one of the founders of the Sohn Investment Conference, is returning money to clients from his hedge fund after almost 20 years.

   

  Seneca Capital Investments, which managed about $500 million, is returning most capital by today, according to a client letter obtained by Bloomberg. Seneca, which made wagers on corporate events such as mergers, spinoffs and restructurings, a strategy called event-driven, said it lost 6 percent this year in its domestic fund.

   

  The Year the Hedge-Fund Model Stalled on Main Street

   

  (Wall Street Journal) – More “liquid alternative” mutual funds closed in 2015 than in any year on record, according to research firm Morningstar Inc., as inflows dwindled and performance weakened.

   

  The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management—funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds.

   

  In all, 31 liquid-alternative funds have been closed this year, up from 22 a year earlier, according to Morningstar.

   

  The host of funds liquidated this year included strategies run by J.P. Morgan Asset Management and Guggenheim Partners LLC. The closed funds were a range of unconstrained bond funds; managed future funds, which bet on futures contracts in a number of markets; and equity funds that bet on stocks rising and falling.

   

  “You had so many funds that were launched in the last couple of years and hadn’t really been tested by market volatility and you’re starting to see the cracks in them,” said Jason Kephart, an analyst at Morningstar.

   

  Fund companies aggressively pitched liquid-alternative products, saying they could help protect investors from volatility and offer better returns.

   

  Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010. But the inflows have slowed as performance faltered this year.

   

  The average liquid-alternative fund was down 1.64% this year through the end of November, compared with losses of 0.38% for the average actively managed stock fund and 0.5% for the average actively managed bond fund. Just $85.1 million has flowed into liquid-alternative funds this year, down from $37.7 billion in 2014, according to Morningstar.

   

  The MainStay Marketfield Fund, managed by Michael Aronstein, exemplifies the sector’s struggles. Started in 2007, MainStay Marketfield rose quickly to become the largest liquid-alternative mutual fund, with $21.5 billion of assets at its peak in February 2014, according to Morningstar. But the fund has been hit by poor performance and heavy withdrawals since then. It had $2.9 billion in assets at the end of November.

  Why should regular people care about the travails of the leveraged speculating community? Because these guys are generally considered to be the finance world’s best and brightest, and if they can’t figure out what’s going on, no one can. And if no one can, then risky assets are no longer worth the attendant stress.

  In response, a system that had previously embraced leverage and “alternative” asset classes will go risk-off in a heartbeat, and all those richly-priced growth stocks and trophy buildings and corporate bonds will find air pockets under their prices. And since pretty much everything else now depends on high asset prices, things will get ugly in the real world.

  A case can be made that such a contagion is already underway but is being hidden from Americans by the recent strength of the dollar. According to Deutsche Bank, when measured in dollars the rest off the world is now deeply in recession and falling fast.

  In other words, Main Street is vulnerable to leveraged trading algorithms and Brazilian bonds because it’s not just exotica that is overleveraged. Virtually all governments have to refinance trillions of short-term debt each year. Corporations have borrowed record amounts of money in this expansion (and wasted much of it on share buy-backs). Pension funds (the last remaining leg of the middle-class stool for millions of Americans) are grossly underfunded and will have to slash benefits if their portfolios decline from here.

  Risk-off, in short, is no longer just a temporary swing of the pendulum, guaranteed to reverse in a year or two. As amazing as this sounds, we’ve borrowed so much money that as hedge funds go, so goes the world.

  

  

  

  

  

• "Now Is The Time To Stand Up": Armed Activists, Militiamen Seize Federal Wildlife Refuge Office In Oregon

  On Saturday, militants seized a remote government outpost following a protest by hundreds of angry citizens. 

  That could very easily be the opening line for a story about a Mid-East country beset by civil war. Instead, it’s a description of what happened in Oregon yesterday. 

  It all started back in 2001 when Dwight Hammond and his son Steven set fire to leased government land in what they said was an effort to beat back invasive plant species and – ironically – prevent wildfires. They set more fires in 2006 and were later convicted of arson. 

  

  (the elder Hammond)

  Both men served time in prison but a judge eventually determined that their sentences were too light and ordered them back to jail. 

  Some folks were displeased with the ruling and staged a protest that saw some 300 people march through Burns, a city of around 3,000. The procession made a stop by the Hammond residence and proceeded to make an appearance at the local sheriff’s office as well.

  

  

  

  “As marchers reached the courthouse, they tossed hundreds of pennies at the locked door. Their message: civilians were buying back their government,” AP recounts. “A few blocks away, Hammond and his wife, Susan, greeted marchers, who planted flower bouquets in the snow [after which they] sang some songs, Hammond said a few words, and the protesters marched back to their cars.”

  Enter Ammon Bundy.

  Ammon is the son of Nevada rancher Cliven Bundy who famously clashed with the government last year after his cattle were kidnapped by the Feds. Around 400 of Cliven’s cows were busy grazing on land Bundy said he owned when the Bureau of Land Managment began to round them up and ship them off to a bovine internment camp at Bunkerville. 

  The government says the cattle were grazing on public rangeland, which is legal as long as the owner pays a fee. Bundy allegedly racked up some $1 million in such fees and so, the government decided to seize the cows, which the Nevada Bureau of Land Management accused of “trespassing.”

  

  Evenutally, the cavalry arrived (literally) as cowboys rode in and broke the cows out of jail. No, really.

  Fast forward to November and Bundy’s son Ammon was busy trying to come up with a way to keep Dwight Hammond and his son from going back to jail. “Ammon Bundy met with Dwight Hammond and his wife in November, seeking a way to keep the elderly rancher from having to surrender for prison,” The Oregonian writes, adding that “the Hammonds professed through their attorneys that they had no interest in ignoring the order to report for prison.”

  But while the Hammonds have apparently come to terms with their fate, Bundy hasn’t and in a brazen move, he and an unspecified number of “outside militants” seized control of the Malheur Wildlife Refuge headquarters, which is a short drive from Burns (where the protest took place).

  

  The federal outpost fell to the militants without a fight presumably because it was deserted for the holidays. Here’s more from the Oregonian:

  “The facility has been the tool to do all the tyranny that has been placed upon the Hammonds,” Ammon Bundy said.

   

  “We’re planning on staying here for years, absolutely,” he added. “This is not a decision we’ve made at the last minute.”

   

  “The best possible outcome is that the ranchers that have been kicked out of the area, then they will come back and reclaim their land, and the wildlife refuge will be shut down forever and the federal government will relinquish such control,” he said. “What we’re doing is not rebellious. What we’re doing is in accordance with the Constitution, which is the supreme law of the land.” 

  “After the peaceful rally was completed today, a group of outside militants drove to the Malheur Wildlife Refuge, where they seized and occupied the refuge headquarters. A collective effort from multiple agencies is currently working on a solution. For the time being please stay away from that area. More information will be provided as it becomes available. Please maintain a peaceful and united front and allow us to work through this situation,” Harney County Sheriff Dave Ward said, in a statement. The elder Bundy weighed in as well, noting that the occuption isn’t “exactly what [he] thought should happen.” “But I didn’t know what to do,” he added. “You know, if the Hammonds wouldn’t stand, if the sheriff didn’t stand, then, you know, the people had to do something. And I guess this is what they did decide to do. I wasn’t in on that.”

  Ammon Bundy explained the rationale for the occupation as follows:

  Got that? This wildlife refuge office will become “a base place where patriots from all over the country will live and be housed.” Although from the looks of it, space is limited so reserve your spots now:

  

  The Guardian apparently stopped by the refuge for a visit:

  The occupation appears to have begun at about 2pm. Two hours later, the Guardian approached the refuge, which lies about 60 miles south of the town of Burns and is only accessible via a lakeside road slick with ice and banked with snow.

   

  There were no law enforcement agents visible in the area around the refuge. A man with a goatee beard and wraparound sunglasses stood guard, armed with an AR-15-style rifle, and refused entry to the federally owned facility.

   

  He declined to give his name or affiliation, citing “operational security”. He did confirm, however, that the men – several of whom were openly carrying assault weapons – would be camping on the site. “This public land belongs to ‘we the people’,” he said. “We’ll be here enjoying the snow and the scenery.”

  This is as close as I was allowed to get to the armed militia occupying the Malheur Wildlife Refuge HQ. #burnsoregon pic.twitter.com/DPztu0VsVU

  — Jason Wilson (@jason_a_w) January 3, 2016

  The Guardian was allowed to take a few photographs, and then it was strongly advised to leave the scene. Within hours, police had descended on the remote corner of Harney county, blocking roads and urging members of the public to stay away.

   

  Ammon Bundy, whose father became a folk hero among rightwing constitutionalists after his previous confrontation with federal authorities in Nevada, appeared to be a key figure.

   

  He called for other likeminded US citizens to travel to the refuge in solidarity and to support what he said would be a symbolic showdown between impoverished farmers and overzealous federal authorities.

   

  “We’re out here because the people have been abused long enough,” he said in a video interview posted on his Facebook page on Saturday night.

  It isn’t entirely clear how these “patriots” plan to last “years” in the small building without supplies but that’s probably irrelevant because it’s difficult to imagine the oppressors in Washington will let this go on for very long. On that note, we’ll close with two quotes, one from The Oregonian and one from US Army veteran Ryan Payne who is among the occupiers.

  From The Oregonian: “In phone interviews from inside the occupied building Saturday night, Ammon Bundy and his brother, Ryan Bundy, said they are not looking to hurt anyone. But they would not rule out violence if police tried to remove them, they said.”

   

  From Payne: “When local and federal authorities arrive whatever else is going to happen will happen”.

  

  

  

  

• Why Silicon Valley May Be At "DEFCON 1" Status

  Authored by Mark St.Cyr,

  For anyone not familiar with the term “DEFCON 1” it’s a military term used to identify the most sever military condition in the U.S. The degrees of severity range from “5” being the least severe or, at general peaceful conditions, and “1” representing the threat of imminent nuclear war. As I look out and extrapolate many of the warning signs that have been showing their hands over 2015 when it comes to everything “Silicon Valley.” I can’t help but use this military descriptor as an overlay of what’s taking place there currently. For I truly believe as I’ve written and spoken over these last 5 years – things are really about to hit the fan.

  Over the last 5 years in “The Valley” (meaning everything representing tech and disrupting) there has been no other land of opportunity that lived, created, self defined, along with redefined its business metrics than the tech world. Unicorns, Non-GAAP, IPO’s, and more were the terms bandied or used to encapsulate what it was to be a “disrupter.”

  Start a company (or idea) and make the rounds to get funded first – net profits are a trivial after thought. And for some they were an outright theory altogether. Then if you’re successful (i.e., you haven’t burned through all your start-up cash) turn your sagging or profitless business into a “We’re killing it!” fairy tale using Non-GAAP accounting. Once steps one and two are complete – IPO, cash out, and buy an island, yacht, McMansion, and more with the proceeds. Boom – done – next!!!

  Yes the example is over-simplistic – but it’s not far off the mark. This has pretty much been the meme and/or state of business prevalent within the Valley for quite some time. However, as I’ve stated during all of that time; without the intervention of the Fed’s QE (quantitative easing) free money enabling risk taking to supersede business fundamentals to fund and fuel speculative investments in ways that mirror the dot-com days: there would be no “Valley” as it currently stands.

  The amount of wasteful over investment on companies and ideas that should have never seen the light of a ledger book, let alone day, has been astounding. Billions upon Billions upon Billions (I could go on a billion more times) of $Dollars thrown at companies like it were water has been literally breathtaking. Need I remind you of WhatsApp™?

  The only thing that challenged this sensation was the jaw-dropping rationales by nearly everyone involved in how, or why, it all made sense. And I mean everyone from the founders, investors, right down to the financial media et al. To say they’ve all been drinking the Kool-Aid® is being kind. Let me put a few things down for some context.

  Uber™ for all intents and purposes; is an app that let’s you hail a cab. Current valuation? $50+ BILLION dollars looking to finance another round bringing it up to over $60 BILLION. The reaction, analysis and commentary? “Absolutely! Sounds logical and reasonable. After all They’re killing it!” Fair enough. I’ll just ask you this:

  This business model and plan is worth more than 80% of all the companies listed in the S&P?

  I mean maybe its’ me for here I am, myself, a once lowly card-carrying taxi driver. Does this now mean I surpassed all those other kids in school who dreamed of rocket science, and engineering to gain the ability as to then work at a predominant innovator? e.g., Lockheed Martin™ or Dow™ or Merck™. Little did anyone know in 2015 driving a car, not a rocket or science was the way to hang out with the stars. For when it comes to “innovative companies” do the numbers now lie? Or tell half truths? See what I mean.

  This is just one of the myriad of examples currently contained within the “Unicorn” club for there’s still many more such as AirBnB™, Snapchat™, Dropbox™, Pintrest™ and over 100 others. Yet, there is another interesting data point that coincides with this currently heralded club.

  Of the current 130+ that fall into this category (a valuation of $1 Billion or more) 60 of those were created in 2015 alone. To my eyes – that’s a glaring problem. Why? Well, think of it this way:

  Nearly half of all the current unicorns that were/are praying, dreaming, and hoping for their day in the rainbow garden of IPO heaven with some big pay-out that was previously near-a-given when they gained their coveted title of recognition in 2015, are slowly waking up with a hangover from that Kool-Aid induced drunken stupor to a reality not based on the unicorn meme and metrics they were so drunk with. No: 2015 ended with a cold dose of reality with IPO letdowns, valuation markdowns, and a whole lot more putting many of these unicorn ambitions or dreams out to pasture. Some are now mulling around within an area that contains a building that ominously resembles a glue factory yet seem oblivious to the implications.

  Another metric (as in inescapable reality) that is going to work against everything which previously “The Valley” hasn’t needed to contend with is the overarching result or knock-on effect that had yet occurred when the “free money” (QE) spigot was turned off but, as a direct consequence, and in combination with the raising of interest rates, may in fact push a global rush headlong into the $Dollar sending it skyward, causing balance sheets of companies around the globe into a complete an utter tizzy.

  Some might think, “Oh, well that will only pertain if you’re a commodity company and such.” No, I’m sorry, it will influence far more sectors than just that. And the Valley is going to face this in ways just like many of the commodity producers have. A fact that for many have remained absolutely oblivious to.  Or better yet; behave just like many are viewing that building at the edge of the unicorn meadow. Content to mull around under the watchful gaze of another animal friendly face (e.g., that of a bull) that adorns the building’s facade never contemplating for a moment the implications of the business contained within is called Elmer’s™.

  If the $Dollar does indeed grow stronger from here it will add to the ever challenging issue of earnings reporting where revenue will take place front-and-center in a more pronounced way than ever before in the life of not only today’s Unicorn club – but the Valley as a whole.

  User growth, eyeballs for dollars, and all the other metrics that were spun in a vortex of idiotic reasoning’s and rationales will not only not help – they’ll hurt if not outright maim any investor confidence if it’s coupled with the all but inevitable “foreign exchange conversion.” i.e., Had it not been for the $Dollar we would have made money rather than losing it.

  Couple the $Dollar paradigm with another (now even more prevalent) “user growth was X coming in less than our projected Y” and you have a prescription for an investor revolt with a ticking time bomb laced with nuclear styled repercussions on your hands in my estimation. And that countdown clock has already started and is easily view-able as the first earnings season of 2016 is already making its presence known with an ever growing/worsening reporting of retailing metrics.

  However, the $Dollar issues don’t stop there. They will fall even harder on companies that make things and sell them around the world. And, more importantly – buy the ads to sell them with.

  Many advertisers will be hit with $Dollar issues to their own revenue sides of the ledger, and with that, all expenses will become more acute in their reasoning and rationale. And just like a company that needs to cut personnel to help bolster values. (i.e., send the Wall St. signal to buy, buy, buy) So to will ad expenditures fall into this same category. And with the holiday season now in the rear view mirror, just throwing money onto any and all platforms in a “hail Mary” fashion will no longer be expedient or allowed. And this will hit right at the heart of many of not only today’s Unicorns, but rather right at the bell-weathers such as Facebook™ and others.

  If this happens the fallout will not be contained within the Valley itself in my estimation. It will be a global, all out nuclear winter in the ad space. How severe, and long is the only question.

  So what does all this have to do with a comparison to something like a DEFCON 1 you maybe asking. Or, you might be thinking “That’s all a little hyperbolic” when talking about issues concerning Silicon Valley. Well, may be it is, yet, maybe it isn’t so far-fetched if you think about it using the following:

  Back in September of 2014 I penned the following article titled “The Shot Heard Round The Valley World.” At that time my viewpoint on the issues I saw facing Unicorns and IPO’s was anathema to anything emanating not only from the Valley itself, but across all of the financial media. In that article I made the following statements:

  “Problem is for a great many, they have never seen the real Jeckyll and Hyde personality of “investor funding.”

   

  “IPO is not going to have the same term of endearment it now has. I believe it will turn into the last and most dreaded three-letter acronym no one ever imagined in Silicon Valley.”

  There was more but, it was all predicated or inspired by tweet-storm unleashed at that time when Marc Andreessen ended his viewpoint about conditions within the space with the word “WORRY” too which I agreed was spot on. The resulting backlash to his argument took on rebuttals more in line with condescension rather than informed push-back in my opinion. And that viewpoint resumed with an attitude of retrenchment for much of 2015 rather, than viewing the unfolding reality objectively.

  Yet, if I were to classify that period using the headline induced classification we were then at DEFCON 5. Over the subsequent 12 months we have moved progressively up the scale passing 4, and 3 jumping directly to 2 when the IPO’s of Square™ and Match™ showed the undeniable scary truth of the markets ending bewilderment of horns-over-hooves stampede to “get in-front of the IPO bandwagon.” But if that was “2” what causes a call of “1” you’re asking? Fair enough, for that happened just days ago.

  It’s been reported or at least rumored to be that Peter Thiel and/or others are trying to cash out of Palantir™ (a current member in the Unicorn club) without an IPO. They cite many reasons and rationales why this may be good, bad or indifferent and that’s fine. However, I’m just going to throw this in for your own contemplation:

  Do you think this argument, rational, or anything else resembling it would be taking place if we were still in a QE driven market circa mid 2014?

   

  Welcome to DEFCON 1 is how I’m viewing it. For just this change in mindset with all the implications it can unleash within the Valley itself is enough to compound the impending fear of an all out debacle off the horizon – and straight into one’s own back yard.

  And speaking of “back yard.” If anyone remembers, I also said not all that long ago you’ll know everything has changed when “I’m going to live in this shipping container till we IPO and then I’m going to get myself a McMansion!” looks more and more plausible that one might be looking at life as – living in a shipping container! This was in direct response to the current supposed craze of people opting to live out of metal storage containers in San Francisco as they pursued their IPO dreams.

  Now with iconic Silicon Valley impresarios such as Theil or others being reported that they may be looking for ways as to NOT IPO rather that too? Those shipping containers may morph far faster than anyone previously thought straight into indefinite fallout shelters rather, than the start-up kits many view them as. For a nuclear winter pertaining to the world of Unicorns may be as “1” is said to represent: imminent.

  

  

  

  

  

• Meanwhile In Texas: Celebrating The New Open-Carry Gun Law

  As reported previously, in addition to celebrating the new year, starting January 1, Texans also celebrated a new open-carry gun law which took effect in the new year. Handgun license holders in Texas will now be allowed to carry their guns in visible holsters on their hip or shoulder.

  Previously, Texans wanting to carry a handgun had to obtain a concealed handgun license and conceal their weapon. With the new law, the more than 826,000 state license holders will be allowed to openly display their handguns in most public places.

  Proponents of the new open carry law say making guns more visible will deter mass shootings. The bill became law after a spirited debate.

  However, not everyone was in favor of the idea to discourage violence through demonstrating weapons: a majority of the state’s police chiefs opposed it.

  “The question is: Does it make sense and is it good judgment to have a bunch of people running around with guns visible? And I think the answer is: Absolutely not,” said Chief Art Acevedo of Austin.

  Others are for it: Perkins owns Dallas-based The Slow Bone, a barbecue spot, and Maple & Motor, which specializes in burgers. He says his weapon of choice is a Glock 43, and he frequently carries it in his front pocket. He doesn’t object to customers bringing concealed weapons into his restaurants.

  “Carrying a concealed weapon is all about eventualities — things that might happen, and protection in that case,” he says. “There’s a lot of cash in my business. I have employees too. Restaurants get robbed, businesses get robbed, and I have employees that I would like to protect.”

  “Carrying a gun outside, on your person where it’s visible, is at least an implied threat,” he says. “If deadly force is your final threat, you’re making it right away, visibly. … I just really don’t want that kind of threat feeling in either of the restaurants.”

  Even with the new state legislation, the number of people with handgun permits makes up only about 4 percent of Texas’ population of more than 27 million. Out of these, Perkins thinks the number of people who want to openly carry weapons is pretty small.

  Furthermore, private businesses are allowed to ban guns if they choose. In response, chains including Starbucks, Jack In The Box, Chili’s, Sonic and Chipotle have asked customers to leave weapons at home.

  If private businesses want to prevent people from bringing weapons inside, they are required by the law to display a sign with 1-inch block lettering. Separate signs are required for banning open carry and concealed carry. Perkins says he plans to put one up, but he doesn’t foresee it causing any issues. “I don’t think it’s going to be a problem for us,” Perkins says. “I don’t think we’re going to have confrontations.”

  Hopefully he is right and openly displayed weapons will indeed deter violence.

  In the meantime Texans should get accustomed to sights such as this one which over the coming weeks and months will become increasingly recurring.

  

  

  

  

  

  

• Comcast, We Have a Problem

  By EconMatters

  The bigger news in the cable industry is that the U.S. Justice Department’s threat to block the purchase/merger of Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) did result in Comcast withdrawing its stock-swap proposal to acquire TWC in April, 2015. However, TWC soon afterwards entered into an agreement to be acquired by Charter Communications in May.

  The Charter’s deals totaling $67.1 billion for TWC and Bright House Networks is still under review by Federal Regulators. If approved, that merger would create the country’s second-largest cable operator, with about 24 million customers in 41 states, after Comcast.

  I personally think it is insane that anyone would even entertain the idea that a merger of any cable companies would be a good thing to consumers. On the surface, the cable industry is not entirely “consolidated”. Nonetheless, the fact is that almost all cable companies operate as de facto monopolies in the United States since frequently only one cable company offers cable service in a given community. Things have gotten worse as cable also has become one of the very few choices for residential Internet services.

  For example, in Houston, the fourth most populous city in the nation, Comcast has a virtual monopoly over residential cable services. Leveraging its cable TV monopoly, Comcast is also the more popular choice for Internet service within the city (cable modem is supposed to have better speed than phone lines). With this kind of dominance, would any business strive to “innovate” or “improve the quality of customer service?

  Comcast already had several widely reported customer service related scandals in 2014 and 2015 (there’s a whole section on Wikipedia). Since EconMatters is based in Houston, I will share some of my personal experience.

  Before Comcast, Houston market was served by TWC. Then TWC and Comcast did a swap in 2006 so Comcast is now serving Houston cable TV. Although both have horrible customer service, Comcast is even worse due to the increasing complexity of service tiers and “billable” items requiring much higher skilled employees.

  To sum it up, it seems a common cable industry practice to have a very cumbersome and “labor intensive” billing system coupled with poorly trained employees. EconMatters are made up of market analysts, so believe it when we say cable bills are hard to understand and reconcile. I almost think this is intentional so to kills two birds with one stone:

  1. Customers are less likely to call and dispute if they cannot make sense of a bill.
  2. Poorly trained employees not only serve as good “gatekeepers” to frustrate customers but also less likely to grant ‘disadvantageous” (to Comcast) adjustments regardless of the merit.

  Due to various factors (moving, homeowner association change, etc.) at one time or another within the past 12 months, I had to go through a few rounds with Comcast either to correct billing errors or to properly reflect prices agreed upon over the phone. “Onerous” does not even begin to describe the process.  

  First, Comcast makes you jump through hoops to get to a live person, and Comcast outsources part of the Customer Call Center to places like Jamaica (there’s a serious frustrating communication issue here). This live customer service person serves as a gatekeeper that can only handle routine issues from a script. So discussing non-routine issues over the phone is very time-consuming, repetitive and frustrating exercise. 

  And get this, Comcast does not give email confirmation of what was agreed upon over the phone. I encountered a situation where I was triple assured everything was fully documented in my account (Comcast rep even gave me a “confirmation number”) and nothing to worry about since everything was noted. However, I later found out the so-called “documentation” or note consists of one sentence “Customer called to discussed pay service package”, so with nothing to go back on, I ended up repeating the same process again. 

  It takes about two months for any billing adjustments to appear on your account, so by the time you realize the expected adjustment fails to appear (like I said, most of Comcast employees I’ve encountered are poorly trained), two months would have gone by. Because Comcast does not give email confirmation or document properly what’s agreed on over the phone, you need to repeat the same process of explaining and diligently monitoring your account. At this stage, most of the customers would have given up. 

  EconMatters does not like to give up anything without a fight. In my experience, it took up to six months and very long (up to 1.5 hours) five phone calls escalated to the manager level to resolve one of the more complicated billing issues. And because of several issues taking place one after the other, it has become almost a full-time job to call, reconcile and monitor monthly bills to ensure everything goes as expected. 

  In addition to billing, Comcast has serious technical issues as well.  I have made at least 5 trips to Comcast service centers swapping out cable boxes due to mal-function.  Then, I got charged almost $250 for the technician visit that did not solve any problem.  That ended up taking me 2 long phone calls and 3 months to get the credit back from Comcast.     

  This is where Comcast is penny wise, pound foolish. Yes, I can see how some brainy act at Comcast think they have a virtual monopoly and outsourcing customer service to Jamaica, saving employees training costs could be beneficial to the bottom line. What Comcast fails to see is that providing bad service in a service business means the days of the current business model are numbered. Brick and mortar companies such as Fidelity, Discover Card (NYSE: DFS), CitiCorp (NYSE: C), and TriEagle Energy are able to move with the latest consumer trend without sacrificing customer service. These companies understand customers should be the most important part of their business and a wide spread negative consumer response will be like a tsunami crushing the entire industry. 

  One thing for certain is that the core cable part of Comcast business is facing increasing downward pressure. It is no accident that 2015 is The year Wall Street Discovered Cord-Cutting. There’s a growing number of Americans either migrate to cheaper packages with fewer channel, watch shows via online services like Netflix (Nasdaq: NFLX), or drop cable altogether. This new cord-cutting consumer trend is killing the business model of an entire industry from cable providers to program producers. Disney (NYSE: DIS) sparked a panic sale of media stocks in August after revealing its ESPN sports network had lost subscribers and cutting its cable-TV outlook.

   

  

   

  For 2015, Comcast stock seems to have held up better than some other media stocks. However, this is mostly due to Comcast’s entertainment properties like Universal Pictures that had a banner year with three films — Minions, Furious 7, and Jurassic World — exceeding $1 billion in global box office. In addition, the company experienced record attendance at its theme parks. That being said, movie and theme park business is quite cyclical, and it’s unrealistic to expect Universal and theme parks to come through for Comcast year after year as they did in 2015. 

  Comcast only acquired Universal NBC in 2006, and most likely retain the legacy operation model and talents. It is likely, or even already happening, that Comcast brings its failing cable operation model into the entertainment part of the business. Bad management believing in bad business model will take down any company regardless how lucrative it is going.  

  I think the only part of Comcast business that may have some customer-retention power is in the Internet Service. But companies like Google already saw that void and started its Google Fiber business. With consumers moving towards cord-cutting, and the line expansion like Google Fiber and other players, it is only a matter of time the entire cable industry could become obsolete real quick.                   

  

  

  

  

• Crude Oil Opens Above $38, Takes Out 1-Week Highs

  With hedge fund short positions near record highs and speculators at their least bullish in almost five years, oil prices have spurted higher in the early trading as the diplomatic gloves come off in The Middle East. Despite record levels of crude inventory around the world, WTI Crude is trading above $38, up over 3% from its $37.07 close on New Year's Eve. Algos ran the stops above last week's highs ($38.32) but for now prices are not as excited as many would have expected. Brent, for now, is outperforming and trade 45c rich to WTI.

  WTI tags last week's highs but is holding for now…

  

   

  Some context – back to the early December inventory build levels…

  '

   

  As expected, Brent is outperforming – now trading 45c above WTI…

  

   

  Hedge fund shorts near record highs may get hurt…

  

   

  But don't forget that while a "war premium" makes sense in the marginal production barrel sense, with inventories at their limits amid a record glut, unless this escalates even more, the physical demand/supply divergence remains vast…

  

  And of course, if oil prices are higher then US equity prices are higher because "lower oil prices are unequivocally good for America"… oh wait.

   

  Source: Bloomberg

  

  

  

  

  

• Gail Tverberg: Something Has Got To Break

  Submitted by Adam Taggart via PeakProsperity.com,

  Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction.

  That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning: 

  The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then — and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.

   

  I think the thing that people don’t realize is how closely the growth in debt is tied to the growth in the economy. Even back many years ago we needed to add more debt as the economy attempted to grow, and what you would see very often back then was some country would add debt to fund a war. And if they were successful, maybe they would get some increment into the economy so that the debt made sense. And if they lost the war then somebody got their bonds written off. But what’s happened is that, as the cost of energy has gone up, especially since about the mid 70’s, the amount of debt required to find GDP growth has gone way, way up. And I think this is because it takes a given quantity of energy in terms of BTU’s or in terms of how far it can make a truck go — if it now costs a whole lot more to do that, we’re going to have to borrow a whole lot more money in order to make the whole system operate. We have a seen a spiraling of debt since the mid 70’s, and I think that’s very much related to the higher cost of energy since then.

   

  That only works for a while. You can dial up your debt growth for a while but then you discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society.

   

  I’m afraid what it means is that at some point there’s got to be a discontinuity. Something has got to break. 

  Click the play button below to listen to Chris' interview with Gail Tverberg (61m:03s):

   

  

  

  

  

  

• Saudi Arabia "Doesn't Care" If White House Angered As US Urges 'Ally' To Ease Tensions

  Hours ago, in the latest sign that tensions between Riyadh and Tehran are set to spiral into a full blown diplomatic crisis of historic proportions, Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir announced that the kingdom has cut diplomatic ties with the Iranians. The Iran mission was ordered to leave Saudi Arabia within 48 hours.

  Al-Jubeir went on to accuse Iran of stoking sectarian violence in the region (a contention that represents the worst kind of hypocrisy) and suggested Riyadh may need to do more to counter the expansion of Iranian influence.  

  As we put it, this an exceptionally serious situation that could well mushroom into a direct conflict between the two countries which are already on opposite sides of multiple regional proxy wars.

  Washington is caught in the middle. Saudi Arabia and the US have a “special” relationship that neither side is keen on damaging while the Obama administration has been walking on egg shells vis-a-vis the Iranians in order to ensure that the “historic” nuclear accord doesn’t end up falling apart in Obama’s last year in The White House.

  On Sunday, Washington responded to Saudi Arabia’s decision to cut diplomatic ties with Iran by encouraging diplomatic engagement and calling for leaders throughout the region to take “affirmative steps” to reduce tensions, Reuters reports.

  “We’re aware of reports that the Kingdom of Saudi Arabia has ordered the closure of Iranian diplomatic missions in the Kingdom,” an Obama administration official said.

  “We believe that diplomatic engagement and direct conversations remain essential in working through differences and we will continue to urge leaders across the region to take affirmative steps to calm tensions.”

  Not to put too fine a point on it, but when it comes to sectarian tensions, the Saudis really don’t care what Washington thinks. Here’s the latest out of Riyadh:

  • SAUDI DIPLOMATS EVACUATED FROM IRAN AFTER EMBASSY ATTACK ARRIVE IN DUBAI ON WAY HOME-AL ARABIYA TV
  • SAUDI ARABIA DOES NOT CARE IF IT HAS ANGERED THE WHITE HOUSE, SOURCE FAMILIAR WITH SAUDI GOVERNMENT’S THINKING SAYS: RTRS
  • SAUDI ARABIA’S POSITION TOWARD IRAN IS ‘ENOUGH IS ENOUGH,‘ SOURCE  FAMILIAR WITH SAUDI GOVERNMENT’S THINKING SAYS: RTRS

  Make no mistake, this dispute is going to get far worse before it gets better which means the Obama administration will have to make a choice: stick with the Saudis in order to preserve the prevailing Mid-East order and ensure that the “special” relationship between Washington and Riyadh isn’t damaged, or finally take the plunge and side with the Iranians with whom the administration is desperate to establish a cordial relationship after years of mutual distrust and hostility.

  

  This also comes at a decidedly inopportune time as the White House weighs whether or not to impose a fresh set of sanctions on Tehran in response to the test-firing of a next generation surface-to-surface missile back in October. Now, any new sanctions will likely be viewed by the Iranians as a kind of underhanded way of supporting the Saudi position.

  Needless to say, all of this has implications for the mutliple regional proxy wars unfolding across the Mid-East.

  Finally, don’t forget that the Saudis are a major buyer of US arms and contributed mightily to a 35% increase in foreign arms sales in 2014.

  

  

  

  

  

• The Looming Environmental Disaster In Missouri That Nobody Is Talking About

  Since we first highlighted the potential for a "catastrophic event" in Missouri three months ago, there has been little mainstream media coverage. However, as Claire Bernish via TheAntiMedia.org notes, residents near the smoldering fill have expressed increasing frustration with the quarreling agencies offering few answers for an increasing number of health issues, like asthma. For now, it’s startlingly apparent no one knows exactly what’s happening with the West Lake and Bridgeton Landfills – though the smoldering below the surface doesn’t cease and floodwaters continue to rise.

  What happens when radioactive byproduct from the Manhattan Project comes into contact with an “underground fire” at a landfill? Surprisingly, no one actually knows for sure; but residents of Bridgeton, Missouri, near the West Lake and Bridgeton Landfills — just northwest of the St. Louis International Airport — may find out sooner than they’d like.

   

  And that conundrum isn’t the only issue for the area. Contradicting reports from both the government and the landfill’s responsible parties, radioactive contamination is actively leaching into the surrounding populated area from the West Lake site — and likely has been for the past 42 years.

   

  In order to grasp this startling confluence of circumstances, it’s important to understand the history of these sites. Pertinent information either hasn’t been forthcoming or is muddied by disputes among the various government agencies and companies that should be held accountable for keeping area residents safe.

  *  *  *

  West Lake Landfill was placed on the National Priorities List in 1990, giving the Environmental Protection Agency regulatory authority through its designation as a Superfund site. However, the area wasn’t a planned radioactive waste storage site. Uranium processing residue leftover from the World War II-era Manhattan Project was originally dumped there, illegally, by a contractor for former uranium processing company and General Atomics affiliate, Cotter Corporation in 1973.

  Cotter, Republic Services subsidiaries Bridgeton Landfill LLC and Rock Road Industries LLC, as well as the U.S. Department of Energy are “potentially responsible parties” for West Lake under Superfund guidelines. Power company Exelon Corporation, which owned Cotter from 1974 until 2000, “agreed to retain certain financial obligations relating to environmental claims arising from past Cotter actions, including those at West Lake,” reported St. Louis Public Radio journalist, Véronique LaCapra, who has extensively covered this mess. Bridgeton Landfill falls under the regulatory control of the Missouri Department of Natural Resources (MDNR) and is owned and managed by Republic Services subsidiary, Bridgeton Landfill LLC.

  Unfortunately, though at least 100,000 tons of nuclear weapons-related residue made their way to West Lake, the exact physical boundaries marking the location of this radioactive waste remain unknown to this day. In fact, because of the ongoing subsurface “fire” at the Bridgeton Landfill, the EPA began conducting tests, which in March 2014 detected the presence of radioactive material further south than it expected — 100 feet inside the bounds of the Bridgeton fill. According to Senior Scholar at the Institute for Policy Studies in Washington, D.C., Robert Alvarez, in a 2013 report investigating the West Lake site:

  “Of significance is the fact that the largest estimated amount of thorium-230, a long-lived, highly radiotoxic element is present at West Lake — more than any other U.S. weapons storage or disposal site. Soil concentrations of radium-226 and thorium-230 are substantially greater than mill tailing waste. The waste residues from the Mallinckrodt [Chemical Works uranium processing] site were found to contain the largest concentration of thorium-230 from any single source in the United States and possibly the world. Thorium-230 concentrations were found to be some 25,000 times greater than its natural isotopic abundance. […]

   

  “Given these circumstances, the West Lake Landfill would violate all federal legal requirements, established over 30 years ago, for licensing of a radioactive waste disposal site.”

  Though the EPA promised results of testing to determine the physical extent of the makeshift nuclear disposal site would be reported by November or December, according to its site, those determinations won’t be available until early spring 2016. In the interim, a small brush fire near West Lake on October 24 prompted the EPA to order the responsible parties to implement a specific prevention work plan on December 9, due to concerns radiologically impacted material (RIM) — present in surrounding trees and vegetation — could catch fire and thus migrate from the area. In the Endangerment Determination section of the report, the EPA stated:

  “The actual release or threatened release of hazardous substances at and from the Site, if not addressed by implementing the [specified steps] in this Action Memorandum, may present an imminent and substantial endangerment to public health, or welfare, and the environment.”

  Later that month, torrential rains brought what is now being described as ongoing historic flooding to the area — and with it, yet another set of problems and controversy to West Lake Landfill and the people of Bridgeton and nearby Coldwater Creek.

  On Dec 30, a peer-reviewed study, published in the Journal for Environmental Radioactivity, disclosed a startling fact about West Lake: radiological contamination has, indeed, seeped outside the already vague boundaries of the site. According to the study:

  “Analysis of 287 soil, sediment, and house dust samples collected in a 200 km2 [77.2 mi2] zone in northern St. Louis County, Missouri, establish that offsite migration of radiological contaminants from Manhattan Project-era uranium processing wastes has occurred in this populated area.”

  In fact, nearly half the samples were found to have concentrations of Lead-210 above the acceptable limits established by the U.S. Department of Energy in managing the uranium plant in Fernald, Ohio, which stored the same Manhattan Project-era wastes. The samples “are consistent with water and radon gas releases” from landfill sites employed for storage of such legacy uranium. Alvarez, who wrote the previously-mentioned report in 2013 and who co-authored this study, stated in an interview Tuesday,

  “The stuff we’re talking about at West Lake is hotter than what you would find in a typical uranium mill tailings operation.”

  As the Nuclear Regulatory Commission has previously explained, West Lake Landfill emits radon gas because of the radium, thorium, uranium, and other radioactive substances in the decay series. This radon gas decays into Lead-210, a solid particulate — which is the substance the study investigated — once it drifts from the site. Because the Lead-210 detected in the samples “showed distinctive secular disequilibrium among uranium and its progeny indicative of uranium ore processing wastes” — in other words, distinguishable from naturally-occurring uranium — “this is strong evidence that the Lead-210 originated by decay of short-lived, fugitive radon gas that escaped the landfill.”

  As journalist Byron DeLear noted in the Examiner, “It’s important to recognize that the radon daughters, Lead-210, Polonium, Bismuth, etc., are what makes radon exposure the second leading cause of lung cancer.”

  Earlier this week, as rain inundated the area, several stills and videos uploaded to the West Lake Landfill Facebook page evidenced spontaneous, active runoff waterfalls flowing directly from areas designated radioactive, collecting in pools, traveling in drainage ditches to streams and creeks — and ultimately, pouring into the now epically-flooded Missouri River. “How could anyone make the argument that RIM is not leaving that site?” State Rep. Bill Otto asked rhetorically after viewing the footage. But EPA spokesperson, Angela Brees, did exactly that, saying — despite strikingly plain evidence to the contrary — the runoff rainwater “came from within the Bridgeton Landfill.”

  There is, of course, yet another aspect to this radioactive tangle: the ongoing subsurface fire at Bridgeton Landfill, West Lake’s all-too-immediate neighbor.

  ???

  Technically, what is occurring isn’t a typical fire with thick, black smoke and flames; rather, “it is a self-sustaining, high-temperature reaction that consumes waste underground, producing rapid ‘settlement’ of the landfill’s surface.”

  Bridgeton Landfill LLC alerted MDNR on Dec. 23, 2010, that it discovered high levels of carbon monoxide and hydrogen, low levels of methane, as well as elevated temperatures from several gas extraction wells in the area of the fill known as the south quarry — all indicators of a chemical reaction known as a “subsurface smoldering event” or “underground fire.”

  Todd Thalhammer, a landfill fire consultant with the state of Missouri, explained there are several characteristics to determine the presence of an ongoing subsurface fire, including underground temperatures in excess of 170°F and substantial settlement of the land in a short time period. At Bridgeton, an event Thalhammer described as both “catastrophic” and “preventable,”  temperatures have been recorded over 300°F, and Republic Services stated the hottest area of the fire is settling at a rate of two to three feet per month. Though it would be impossible to determine the exact cause of this fire, often, such events occur if oxygen manages to permeate below the surface should underground gases be vented too rapidly.

  Residents in Bridgeton and nearby Coldwater Creek noticed unusually strong fumes from the fill beginning in early spring 2012, for which MDNR began more frequent monitoring. Though unsafe levels of certain compounds are occasionally indicated, the Missouri Department of Health and Senior Services (DHSS) recommends “that during periods of objectionable odor, sensitive individuals should stay indoors as much as possible …”

  ???

  Of greater urgency for many, partly due to a number of unknowns, concerns the increasing likelihood the subsurface fire will reach and ignite the nuclear weapons-waste material.

  As of May 2013, Republic estimated the fire to be only 1,200 feet from the radioactive waste, but this contradicted Missouri Attorney General Chris Koster’s determination the same month that the distance measured just 1,000 feet. Of course, until the bounds of the radioactive waste are thoroughly mapped, it’s impossible to determine an accurate distance — but, as mentioned above, the EPA found evidence that waste extended 100 feet into the landfill, which would make that distance a mere 900 feet.

  In September, Koster released nine reports about the West Lake and Bridgeton maelstrom. In one of those reports, landfill fire expert Tony Sperling explained the subsurface fire had “unequivocally” gone beyond two gas interceptor wells designed to halt its progress, and with “the reaction moving closer to the North Quarry there exists only a very limited window to take further action to prevent [the underground fire] from once again escalating out of control and causing additional hardship on the community of Bridgeton.”

  Sperling inexplicably backed down from the emphatic statement in a deposition in October, but his original assertion certainly raised the level of concern. Republic continues to contest claims the fire isn’t contained within the south quarry, and says temperatures have stabilized in the so-called ‘neck’ area running between the landfill and the nuclear waste fill.

  All of this depends on the rate at which the underground reaction is advancing, which, unsurprisingly, is also an open question.

  ???

  In June 2013, the MDNR commissioned a report that found the fire had slowed its advancement from a rate of three feet per day to around one to two feet per day. Then, in March 2014, a spokesperson for Republic said the rate had slowed to a mere six inches per month, though MDNR did not corroborate, except to agree — based on the company’s temperature evaluation along with physical observations by Bridgeton Landfill — the subsurface fire had “slowed substantially.”

  However, Sperling’s report last month claimed drastically accelerated figures, stating the fire had spread north into the neck area of the site, while the reaction in the south quarry sped along at around 150 to 300 feet per month, or five to ten feet per day. If the smoldering reaction were to advance into the north quarry at a similar rate, “high temperatures from the reaction could conceivably reach [the radioactive waste area] in 3 to 6 months.” Sperling’s report came out in September.

  The EPA disputes all the findings in Koster’s reports, saying the agency “completely disagrees” and hasn’t found evidence to support claims the fire is nearing the radioactive fill at all.

  In order to better understand what would happen should the subsurface fire actually reach the radioactive waste, in 2014, Kansas City Region 7 EPA asked officials from the EPA in Cincinnati to review a report prepared by contractor Engineering Management Support, Inc. In March of that year, the Cincinnati EPA published its analysis, which agreed heat from the reaction would not make the waste more or less radioactive, nor would it explode on its own; however, due to possible unknown substances mixed with the radiological materials, the potential for explosion does exist.

  Second, in 2008, the EPA released its Record of Decision, which proposed a “cap” of clay, rock, and soil to constrain the weapons-waste to the West Lake site. Though capping hasn’t begun, it now appears such a cap would be adversely affected by heat generated from the subsurface reaction — thus cracking and releasing radon gas, steam, and radioactive dust.

  Further, the constant heat generation could increase pressure below the surface under the cap and force the release of radon gas — which, if only inspected once a year, could avoid detection for months. Also, should the fire continue consuming radioactive waste long-term, area residents would be exposed to unsafe levels of radon gas. Further still, liquid building up below the surface could evacuate radon gas and other radioactive contaminants into groundwater supply.

  ???

  Residents near the smoldering fill have expressed increasing frustration with the quarreling agencies offering few answers for an increasing number of health issues, like asthma. Meanwhile, a group of residents in Coldwater Creek, nearer the West Lake site, filed a class action lawsuit against Mallinckrodt, the original handler of the nuclear waste material, claiming there have been an astonishing 2,700 cancer cases clustered around the creek — including a number of rare cases of appendix cancer. Even fully testing the creek for radioactive materials will take years to complete.

  By its very nature, this incredibly complex and interwoven morass makes solutions difficult and laboriously slow in coming. Theoretical fixes that could apply to, say, containing radioactive materials to the West Lake site, might have negative consequences should the long-smoldering subsurface reaction come into play. Inaction in containing the subsurface fire, in the hope of definitively locating bounds of radioactive waste, have meant further advancement of that very fire in the meantime. With so many unknowns, St. Louis County issued an emergency plan in 2014 “to save lives in the event of a catastrophic event at the West Lake Landfill” — which, though well-intentioned, did nothing to calm nervous residents in the area.

  For now, it’s startlingly apparent no one knows exactly what’s happening with the West Lake and Bridgeton Landfills — though the smoldering below the surface doesn’t cease and floodwaters continue to rise.

  

  

  

  

  

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• ISIS: The 'Enemy' The US Created, Armed, & Funded

  Submitted by Robert Fantina via TheAntiMedia.org,

  Out of nowhere, it seems, Daesh, also commonly referred to as ISIL or ISIS, spontaneously formed, a group that perverts aspects of Islam for its own violent ends, and threatens, we are told, all that the civilized world holds dear.

  The “war on terror,” governments inform their citizens, has a new front. And that front is Daesh.

  Let us not be too hasty. Things are not always what they appear. Daesh is well-financed, and that money must be coming from somewhere other than a ragtag band of malcontents. Daesh soldiers have advanced weaponry and sophisticated communications methods. They have tanks and Humvees. None of these can be obtained without significant funding. Though the source is quite illusive, there is some evidence that will lead to a trail.

  First, we must look at Daesh’s origins, and even that is not easily discernible. Writing for The Guardian in August 2014, Ali Khedery suggests:

  “Principally, Isis is the product of a genocide that continued unabated as the world stood back and watched. It is the illegitimate child born of pure hate and pure fear – the result of 200,000 murdered Syrians and of millions more displaced and divorced from their hopes and dreams. Isis’s rise is also a reminder of how Bashar al-Assad’s Machiavellian embrace of al-Qaida would come back to haunt him.

   

  Facing Assad’s army and intelligence services, Lebanon’s Hezbollah, Iraq’s Shia Islamist militias and their grand patron, Iran’s Revolutionary Guards, Syria’s initially peaceful protesters quickly became disenchanted, disillusioned and disenfranchised – and then radicalised and violently militant.”

  It is interesting that Mr. Khedery says that Assad’s “embrace of al-Qaida” came back to haunt him. It brings to mind a parallel situation in the United States. (Actually, there are many, but we will look at only one.)

  Examining the theories of the origins of Daesh

  In the early 1960s, when the U.S.-supported leadership of Iraq was becoming just a bit too big for its britches — at least in the United States’ view — in wanting to challenge Israel as a major player in the Middle East, the U.S. decided that its leader, Abdel Karim Kassem, had to go. Selecting a virulent anti-communist party to throw its support to, the U.S. worked closely with a young man named Saddam Hussein. We all know how well that ultimately worked out. The source of much, but not all, of the unrest in the Middle East today can be traced back to that U.S. decision.

  Other theories on the formation of Daesh are also worth considering. Yasmina Haifi, a senior employee of the Dutch Justice Ministry’s National Cyber Security Center, asserted that Daesh was created by Zionists seeking to give Islam a bad reputation. “ISIS has nothing to do with Islam. It’s part of a plan by Zionists who are deliberately trying to blacken Islam’s name,” she wrote on Twitter in August 2014.

  And finally, it has been more than suggested that Daesh “is made-in-the-USA, an instrument of terror designed to divide and conquer the oil-rich Middle East and to counter Iran’s growing influence in the region,” as Garikai Chengu, a research scholar at Harvard University, put it in September 2014.

  Yet if the United States’ role wasn’t that blatant, it certainly existed, according to Seumas Milne, a columnist and associate editor at The Guardian. He argued in a June opinion piece:

  “[T]he U.S. and its allies weren’t only supporting and arming an opposition they knew to be dominated by extreme sectarian groups; they were prepared to countenance the creation of some sort of ‘Islamic state’ – despite the ‘grave danger’ to Iraq’s unity – as a Sunni buffer to weaken Syria.”

  No matter how one looks at it, there are many possible causes that spawned Daesh. As we look at its funding sources, it may all become clearer.

  Funding and materiel, courtesy of Uncle Sam and his friends

  In Daesh’s role as opposing Syria (just one of its many roles) the terrorist outfit is believed to have received funding from Saudi Arabia, Kuwait, Qatar and the United Arab Emirates, as part of their opposition to the Assad regime.

  But it also generates its own income, having taken control of local businesses, taxing others, and selling oil. Among its customers, incredibly, is Syria. Since Daesh controls much of the oil-production infrastructure in the country, Syria has little choice but to purchase oil from the very group that seeks to overthrow its government.

  Reports also indicate that Israel is a main buyer of Daesh oil. The sale is not direct; oil is smuggled by Kurdish and Turkish smugglers, and then Turkish and Israeli negotiators determine the price. As a result of these oil sales, Daesh has annual revenues estimated at $500 million, according to data compiled by the U.S. Treasury.

  In November of this year, Russian President Vladimir Putin claimed that Daesh is being financed by at least 40 countries — including G20 members. With such widespread financing, it will be difficult to defeat Deash.

  The U.S., in its misguided and destructive foreign policy toward the Middle East (its misguided and destructive foreign policies toward the rest of the world are topics for a separate discussion), also provided Daesh with a vast arsenal.

  Last year, the Department of Defense, bragging about advances against this new “enemy” in Iraq, issued a press release: “The three strikes destroyed three ISIL armed vehicles, and ISIL vehicle-mounted anti-aircraft artillery gun, an ISIL checkpoint and an IED emplacement.” Commenting on that statement in Alternet, Alex Kane wrote:

  “What went unmentioned by the Pentagon is that those armed vehicles and artillery guns they bombed were likely paid for with American tax dollars. The arms ISIS possesses are another grim form of blowback from the American invasion of the country (Iraq) in 2003. It’s similar to how U.S. intervention in Libya, which overthrew the dictator Muammar Gaddafi but also destabilized the country,  let to a flood of arms to militants in Mali, where France and the U.S. waged war in 2013.”

  The U.S. left untold amounts of weaponry in Iraq, and as that country descended into civil war following the United States’ odd salvation of it, that weaponry was free for the taking.

  So even if, as suggested above, the U.S. didn’t give birth to Daesh, it has certainly nourished it.

  A merry-go-round that never stops spinning

  It is interesting to note that U.S. taxpayers are spending $615,482 every hour to fight a “war” in which the “enemy” is being well-financed by countries with whom the U.S. has full diplomatic relations. Does this not make it appear that “victory” over this enemy is not the goal? With many countries financing and supplying Daesh, might the world’s largest supplier of weaponry, the U.S., not be too interested in losing such a lucrative market? It’s worth noting that the United States’ “foreign military sales rose to a record high of $46.6 billion for fiscal 2015.” With such a healthy cash cow, would the country’s power-brokers really want to end war? Why kill the goose that is laying such pretty golden eggs?

  As the U.S. and its hapless allies continue this “war on terror,” an ill-defined and nebulous “enemy” if ever there was one, Syria and Yemen seem to be bearing the brunt of the violence. As in every modern war at least since World War I, innocent men, women and children are the most frequent victims, suffering unspeakably and dying horrible deaths. And, somehow, the world’s most powerful military machine, owned and operated by the U.S., is unable to defeat Daesh. It must, therefore, continue to arm its allies, which are arming Daesh. So the U.S. provides funding to countries to fight Deash; some of those countries transfer money and armaments to Daesh, who the U.S. is bombing. And it seems that this deadly merry-go-round will continue its endless spinning.

  And why shouldn’t it? The U.S. can, with ever-decreasing credibility, pretend to stand as a beacon of freedom and liberty, arming revolutionaries and destabilizing governments that displease it, while arming allies of the country in revolution, which in turn assist that country. So this “war on terror” never ends, and neither do the abundant profits from war-making.

  And when possession of the moral high ground is just an illusion, when rhetoric spewed from the mouths of hypocritical politicians to get the citizenry to wrap themselves in the flag and shed a tear for apple pie, motherhood and Old Glory, and when the almighty dollar is always the bottom line, nothing is going to change.

  

  

  

  

  

• The Incredible Shrinking Benefits Of Massive Japanese Money Printing

  Excerpted from JPMorgan CIO Michael Cembalest 2016 Outlook,

  Something is wrong with this picture.  In the US and Japan, corporate profits sank during the global financial crisis.  In the US, the profit recovery was accompanied by a recovery in household income.  In Japan, however, corporate profits and household income moved in opposite directions, as dynamics that helped profits recover did not help consumers. 
   
  

  How can we explain the outcome in Japan? The benefits of a weak Yen are mostly concentrated among large corporations, given translation gains on offshore non-Yen income relative to Yen-denominated costs.  For smaller companies and households, a weaker Yen simply resulted in imported inflation.  While consumer spending has stabilized after a decline caused by the imposition of a Value Added Tax in 2014, there are few signs of a rebound to pre-VAT levels.  Japanese GDP growth has been volatile and averaged 1.5% in 2015; we’re expecting a similar outcome in 2016.  

  

  In October 2015, the Bank of Japan did not take further steps which markets were anticipating (e.g., an increase in equity ETF purchases from ¥3tn per year, an increase in REIT purchases from ¥90bn per year or an increase in government bond purchases from ¥80tn per year).  Perhaps concerns about the negative domestic impacts from a weaker Yen are affecting BoJ policy.

  

   

  Our contacts in Japan believe that the BoJ is no longer being pre-emptive, and will wait until November 2016 to act.

  The Japanese experiment.

  There are few precedents for the kind of experiment Japan is conducting.  At the current pace of BoJ purchases, private sector banks might actually run out of JGBs by the end of 2016, at which point the BoJ would have to buy them directly from the non-bank private sector; I think it’s fair to say that no one really knows what would happen then. 

  

  One thing is certain: like riding a tiger the BoJ can’t stop now, and has little choice but to continue with debt monetization as Japan’s Federal debt grows higher, and as it veers further and further into the economic unknown.

  

  

  

  

  

• Google Is Collecting Information On Public School Students – Here's How

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  As a new parent, the idea of sending my children to public school is a frightening thought. The more you read, the more you realize the importance of extreme vigilance when it comes to what’s happening at whatever place you send your kids to for majority of their day. Quite often, parents are simply left completely in the dark about some very important matters.

  One such example relates to Google’s penetration of the U.S. public school system, and how the company employs a loophole in order to collect data on children. Google achieves this by referring to itself as a “school official” under the law. I truly wish I was making this up.

  From the Washington Post:

  Google is a major player in U.S. education. In fact, in many public schools around the country, it’s technically a “school official.” And that designation means parents may not get a chance to opt out of having information about their children shared with the online advertising giant. 

   

  The combined allure of Google’s free suite of productivity tools and cheap laptops that use the company’s Web-based ChromeOS operating system have made Google’s products a popular choice at schools around the country. And the company’s growing dominance is raising concern from some privacy advocates who allege it is using some student data for its own benefit.

   

  Google’s standard agreement for providing its education suite defines the company as a “school official” for the purpose of that student privacy law. In Google’s case, the company is providing software that districts might otherwise have to develop or support themselves, such as email services or tools that help students digitally collaborate on assignments.

   

  But schools are supposed to have “direct control” of how a company or individual uses and maintains education records to deem them a “school official,” according to the department’s regulation. Khaliah Barnes, an associate director at the Electronic Privacy Information Center or EPIC, argues that isn’t happening with many ed tech providers, including Google.

   

  “The schools don’t have access to Google’s servers or a lot of the way that it uses the information because it is proprietary,” she said. In 2012, EPIC brought a lawsuit against the Education Department in an attempt to stop the government from interpreting the law in ways it argued could allow schools to share more data about students with less explicit consent, but the case was later dismissed on standing grounds.

  Why am I not surprised in the least.

  Today, Google and many other tech companies are increasingly part of students’ daily classroom lives under the “school official” designation. And that leaves parents in the dark about who has access to an increasingly large cache of information about their children and may compromise their privacy down the line, experts say. But as previously reported, Google said it has “always been firmly committed to keeping student information private and secure.”

  Private and secure, ok, but they are still collecting this data aren’t they? They are still essentially tracking the activity of little children without their consent or parental consent, are they not?

  Even 20 years ago, parents really didn’t expect schools to track more than basic information about their children’s school performance — things like attendance and test scores. But the latest generation of educational tech products are cataloging a nearly limitless amount of data on what students do everyday — from emails and chats, to metadata, such as location history, that educators may not even realize is being collected, Barnes said.

   

  “The companies themselves aren’t transparent, and often times schools even aren’t aware of the extent of data collection,” Barnes said.

   

  “School districts are just generally not providing notice to parents,” said Reidenberg.

  You’ve been warned.

  

  

  

  

  

• What Does The Future Hold For Negative Rates In Europe? Goldman Answers

  A week before Mario Draghi disappointed a thoroughly spoiled market by “only” cutting the depo rate by 10 bps, “merely” extending QE by six months, and failing to boost the monthly rate of asset purchases under PSPP, we explained why the ECB is effectively chasing its own tail. 

  The argument goes something like this: as the market continues to price in further rate cuts, extensions of QE, and increases in the pace of PSPP bond buying, yields on core paper will be driven inexorably lower, quickly negating any benefit the ECB would have gotten vis-a-vis the expansion of the purchase-eligible universe of bonds.The only alternative is to do away with the depo rate floor altogether and thus lock in even greater losses for the central bank on its trillion euro, “held to maturity”, pile of EGBs. Absent that, the ECB is effectively forced to delay the expansion of PSPP. In short: Draghi, like Kuroda, is running out of bonds to buy and the ECB’s situation is complicated by the depo rate constraint. Each incremental purchase takes Draghi closer to the QE endgame at which point the bank will either be forced to buy riskier assets (like IG corporates or, gasp, stocks) or else concede defeat on the inflation target.

  While the market might have been disappointed by the ECB’s “underdelivery”, it came as a relief for the Riksbank, the SNB, the Norges Bank, and the Nationalbank who are effectively forced to cut each time the ECB eases or risk seeing upward pressure on their respective currencies. That dynamic has led to a veritable race to the Keynesian bottom with Norway as the last man standing in terms of conducting monetary policy with rates above zero. 

  As we head into 2016, a number of questions remain. Is Draghi done or will sluggish inflation “force” the former Goldmanite – gun to his head – to expand PSPP and/or take the depo rate to -0.40% (or lower)? If the ECB does cut further but doesn’t adopt a two-tiered approach to the application of NIRP, will the SNB be forced to go “nuclear” and apply negative rates to depositors in order to mitigate excess pressure on the EURCHF cross (remember, because the SNB has different rules for the application of NIRP, ECB cuts tend to impact the franc more than other currencies)? Will low inflation force Sweden to cut further despite a frightening housing bubble? Can the Norges Bank afford to keep rates in positive territory given the continued plunge in crude prices? And on and on. 

  For those who enjoy pondering such things, we present the following excerpts and graphics from Goldman’s Allison Nathan who looks at where we stand now, and where we’re going in the year ahead.

  *  *  *

  From Goldman

  Where we stand

  Official interest rates have fallen further in the Euro area and Sweden. The European Central Bank (ECB) lowered its deposit facility rate 10bp to -0.30% on December 3, pushing beyond levels previously described by Mario Draghi as the bank’s lower bound. The latest ECB measures fell short of market expectations, likely reducing the pressure for neighboring central banks to add stimulus; the Swiss National Bank (SNB) and Riksbank have subsequently been on hold. 

  Sweden’s Riksbank has been the only other central bank to push rates further into negative territory since we published in February, with cuts of 15bp in March and 10bp in July motivated by appreciation pressures on the krona. All the while, inflation—the Riksbank’s original reason for introducing negative rates—has been rising.

  Government bond yields remain in negative territory. As of December 14, over 50% of European government bonds maturing in less than five years had a negative yield, roughly the same as in the run-up to the launch of ECB QE in March. Two-year government bond yields were generally lower on the year, despite some rebound after aggressively pricing further ECB easing ahead of the December meeting. (The German two-year yield, for example, bottomed out at -0.44% on December 2.) Looking beyond Europe, roughly half of two-year government bonds in the developed world trades at a negative yield. 

  Sovereigns have issued debt at record-low—or altogether negative—yields. In April, Switzerland became the first country to issue 10-year government bonds at a negative yield; other governments did the same at shorter maturities.

  By contrast, companies with large pension deficits have struggled and continued to underperform, as the present value of their future liabilities continues to rise. Alongside mixed asset returns, pension funding ratios have continued to deteriorate. Similarly, insurance companies have struggled with falling reinvestment yields and solvency ratios.

  Where we’re going

  Risks that could push the ECB’s lower bound. While our base case is for the ECB to stay on hold, low inflation or a stronger euro could open the door for further monetary easing. We see the ECB’s effective lower bound in the ballpark of -0.50%. Should the ECB cut rates further, it would likely pressure neighboring economies in Europe to do the same or to implement other easing measures, particularly in cases where the local currency is pegged to the euro. 

  

  

  

  

  

  

• 2015 Year In Review: "Terminal Phase" Excess & Peak Cognitive Dissonance

  Excerpted from Doug Noland's Credit Bubble Bulletin,

  The year 2015 was extraordinary. Incredibly, despite powerful confirmation of the bursting global Bubble thesis, market optimism remained deeply entrenched. All leading strategists surveyed in December by Barron’s remained bullish – some were borderline crazy optimistic.

  Optimism withstood a commodity price collapse. Crude, the world’s most important commodity, crashed almost 35% to an eleven-year low, much to the peril of scores of highly leveraged companies and countries. The Bloomberg Commodities Index dropped 25%, its fifth straight year of declines. Copper fell 24%, with platinum and palladium down about 30%. In agriculture commodities, wheat fell 20%, with soybeans and corn down about 10%. Coffee sank 25%.

  Bullishness persevered through deepening EM turmoil and a crisis of confidence. The Brazilian real dropped about a third (worst year since 2002), and Brazil’s sovereign debt suffered major losses. Brazil’s corporate debt market was pummeled (Petrobras, Vale, BTG, Samarco, etc.) while confidence in the nation’s major banks and government waned. Russia and Turkey showed further deterioration. Fragility surfaced in EM linchpin Mexico. Currencies suffered generally throughout EM – Latin America, Asia, the Middle East, Eastern Europe, etc. Collapsing currency peg regimes saw almost 50% devaluations for the Azerbaijani manat and Kazakh tenge. Argentina devalued the peso 30% versus the dollar. Throughout EM, dollar-denominated debt became a market concern.

  Optimism survived the major financial tumult that unfolded in China. Early 2015 stimulus efforts stoked “Terminal Phase” excess in Chinese equities, a Bubble that came crashing down in a 40% summer drubbing. An August yuan devaluation destabilized markets across the globe. Aggressive (invasive) monetary, fiscal and regulatory measures somewhat stabilized equities and the yuan, at the heavy cost of extending “Terminal Phase” excess throughout the Credit system (i.e. corporate debt and “shadow banking”). The yuan posted a 4.5% 2015 decline against the dollar, the worst performance since 1994. The “offshore yuan” trading in Hong Kong dropped 5.3%.

  Bullishness endured despite the August global market “flash crash.” And while the summer market dislocation provided important confirmation of mounting fragilities throughout the markets on a global basis, the bulls interpreted the event as further validating their view of unwavering central bank support and liquidity backstops. The Fed’s September flip-flop emboldened speculative excess, with U.S. equities back within striking distance of record highs by early-November.

  From the perspective of my analytical framework, 2015 was momentous; not necessarily because of the year’s occurrences as much as for the far-reaching dynamics set in motion. The “Core and Periphery” analytical framework is an especially valuable tool in our efforts to decipher an easily perplexing 2015. Instability afflicting the EM “Periphery” in 2014 gravitated to the EM's “Core.” In particular, and central to the “momentous 2015” view, faltering Bubbles in commodities and China were transmitted to the “developed” world’s markets and economies (at least at the “Periphery of the Core”).

  Troubled energy and commodities companies led a surge in U.S. corporate debt troubles, with the U.S. actually accounting for 60% of global defaults (from S&P). U.S. junk bonds posted negative returns for the year. Junk bond sales slowed sharply after the August “flash crash,” with 2015 issuance down about 16% from the previous year (2014 $348bn). Leveraged loan issuance was down about 20% (from S&P Capital IQ). Confidence was further shaken by a public mutual fund (Third Avenue) barring redemptions. ETF outflows became a serious market concern.

  The year ended with heavy outflows from bond funds – junk as well as, notably, investment-grade. Beyond devastating consequences for highly leveraged energy and commodities players, the tightening of financial conditions was transmitted to “Core” equities market. The volume of U.S. IPO deals fell more than 40% in 2015, with money raised sinking 65% to $30 billion (from Renaissance Capital). Global IPO volumes were down 35% from 2014 to $156 billion.

  In the face of a wrenching commodities collapse, a slowing global economy, heightened risk aversion and prospects for Fed rate increases, Wall Street remained undaunted. A December 28 Bloomberg headline: “Wall Street Predicts Corporate America's Bond Binge Will Go on – Wall Street’s biggest dealers are forecasting that blue chip U.S. companies will sell more than $1 trillion of bonds for a fifth straight year in 2016 as corporate America’s borrowing binge endures…” In equities, investors gravitated away from the deteriorating broader market in favor of crowding securely in “FANG” (Facebook, Amazon, Netflix and Google).

  For much of 2015, deterioration at the “Periphery” worked to bolster flows to “Core” markets. Investment-grade issuance jumped to a record $1.31 TN, up about 17% from 2014’s record $1.168 TN. Record low corporate yields and the Fed-induced insatiable demand for investment-grade debt sustained the historic M&A boom. For the year, global M&A reached a record $5.04 TN (from Dealogic), surpassing 2007’s record. U.S. M&A surged 56% to $2.43 TN. Despite rapidly slowing earnings growth, corporate America repurchased stock and paid dividends at record levels.

  The U.S. economy likely grew about 2% in 2015, below earlier expectations and a dismal performance considering the prolonged ultra-loose monetary backdrop. Most notably, the U.S. economy turned only more unbalanced. The bust in energy and commodities gathered momentum, while Bubbles in tech and biotech inflated precariously. In general, housing markets slowed meaningfully into year-end. Yet aggregate data mask downturns in some markets and runaway booms in others. The commercial real estate Bubble inflated further. The unemployment rate dropped to 5%, yet income and wealth inequality had Americans feeling increasingly uneasy with the economic backdrop, the Fed, government and Wall Street.

  Importantly, Credit growth slowed markedly in 2015, with implications for income growth, corporate profits and the asset markets more generally. Through three-quarters of 2015, Non-Financial Credit growth slowed markedly to an annualized pace of about $1.32 TN. Assuming weak Q4 growth, 2015 will see the slowest Credit expansion since 2009 ($1.204 TN). For perspective, Credit expanded $1.843 TN in 2014, $1.608 TN in 2013 and $1.923 TN in 2012. And after three-years of major stock market-induced gains in Household Assets, 2015 will see the smallest rise in Household Net Worth since 2011.

  The year was notable for the increasingly problematic central bank-induced divergence between inflating securities markets and deflating real economy prospects. Bursting commodities and EM Bubbles weighed on global growth, while QE and ultra-dovish monetary policies spurred ongoing speculative excess. As the global economy deflated (in the face of aggressive monetary stimulus), over-abundant liquidity was further enticed into the inflating global financial asset Bubble. And as speculators rushed to exit faltering markets, asset classes and individual stocks, the Crowded Trade phenomenon turned only more destabilizing. The huge bets on central bank policies left markets at high risk for abrupt reversals and trade unwinds – 2015 The Year of the Erratic Crowded Trade.

  The Swiss National Bank’s surprising January decision to break the swissy’s cap with the euro proved a precursor of 2015’s disorderly Crowded Trades – and the general inhospitable backdrop for leveraged speculation. Recall how the swissy moved a massive 30% as the news broke, the type of market discontinuity that blows out both leveraged trades and dynamic-trading hedging strategies. While not as dramatic, currency markets again dislocated during the August “flash crash.” Later, the euro moved an immediate 4% in early-December when Mario Draghi was unable to deliver on his vow to “do what we must to raise inflation as quickly as possible.” The year saw the risk vs. reward calculus deteriorate significantly for leveraged speculation, especially in currency trading.

  January 1 – Wall Street Journal (Rob Copeland): “Hedge funds start the New Year with something to prove—again. The money managers who charge some of the highest fees on Wall Street had a chance in 2015 to outperform a flat stock market and end years of subpar performance. Instead, hedge funds lost more than 3%, on average, according to early estimates from hedge-fund-research firm HFR Inc., while the S&P 500 returned 1.4%, including dividends. Managers stumbled for myriad factors, including bad wagers on energy and currencies and an overreliance on certain stocks. ‘Everything went wrong,’ said Alexander Roepers, founder of $1.5 billion hedge-fund firm Atlantic Investment Management. ‘There were very few places to hide.’”

  Hedge fund travails have been well publicized. The industry overall lost money in 2015, following several unimpressive years. Some major funds suffered their worst year since the financial crisis. Many funds closed and/or returned money to outside investors. Still, investor confidence for the most part held up. The industry overall did not suffer major outflows. Yet it wasn’t only hedge funds that struggled in 2015’s unsettled market backdrop.

  December 31 – Wall Street Journal (Sarah Krouse): “It is getting a lot harder to sell hedge-fund-style investing to the masses. More ‘liquid alternative’ mutual funds closed in 2015 than in any year on record, according to… Morningstar Inc., as inflows dwindled and performance weakened. The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management—funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds. In all, 31 liquid-alternative funds have been closed this year, up from 22 a year earlier… ‘You had so many funds that were launched in the last couple of years and hadn’t really been tested by market volatility and you’re starting to see the cracks in them,’ said Jason Kephart, an analyst at Morningstar… Fund companies aggressively pitched liquid-alternative products, saying they could help protect investors from volatility and offer better returns. Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010.”

  It was certainly not the year of the “non-correlated” fund or asset class. Overall, most funds and strategies that were expected to perform well in the event of market instability failed to live up to expectations. Symptomatic of the general backdrop, too much “money” has flooded into various “liquid alternative,” “risk parity,” and sophisticated hedging strategies. Instead of providing investor protection, the proliferation of variations of model-directed, trend-following strategies only exacerbated market instability.

  An overarching theme from 2015 was that the market turned increasingly unstable, while the vast majority of strategies used for market risk mitigation performed disappointingly. This is closely related to another critical market development illuminated in 2015: rapidly waning benefits to diversification. The halcyon post-crisis backdrop of holding (leveraging?) a portfolio of U.S. equities, fixed-income and global stocks & bonds – all generating positive returns – ended with a vengeance. Commodities were a disaster and EM was a minefield. Moreover, bonds were no longer providing a reliable hedge against “risk off” market turbulence. Perhaps not obviously, but the game turned much more difficult in 2015. Bloomberg: “The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere”

  I didn’t adopt the terminology, but “quantitative tightening” was used (initially by Deutsche Bank) starting in August to describe the dynamic whereby EM outflows forced EM central bankers to liquidate Treasuries and “developed” sovereign debt securities. A key “virtuous cycle” dynamic from the global government finance Bubble period had been the large flow of finance into EM that was then easily/predictably recycled back into “developed” markets through the purchase of sovereign debt.

  2015 marked a key inflection point for EM international reserved holdings, with important implications for EM and global market stability. The potential for big EM central bank liquidations became a significant market uncertainty. Moreover, the prevailing dynamic where “risk off” instability led predictably (great for hedging!) to aggressive buying of Treasuries (and “developed” sovereigns) was supplanted by fear that global tumult would spur EM outflows, Treasury sales and a destabilizing pop in global yields. Importantly, Treasuries lost the attribute of providing a cheap and reliable hedge against faltering global risk markets. This greatly compromised popular diversification and hedging strategies.

  China’s international reserve position ended November at $3.4 TN, declining from the 2014 high of $4.0 TN. Reserves were down $405bn through November. Estimates had outflows from China surging to $200 billion monthly during the summer, and perhaps remaining near $100 billion per month through year-end  China imposed onerous measures throughout the summer and fall that amounted to capital controls. These, along with the late-summer market crackdown on selling, short-selling and derivatives trading, ensured an international investor crisis of confidence in the course of Chinese policymaking. Crackdowns on the securities firms and what has evolved into "wildcat banking" significantly complicates the already fragile Chinese Credit backdrop.

  Fundamental to “momentous 2015” is the thesis that the year marks a pivotal year in confidence in global policymaking generally. Clearly, the unfolding bust saw a dramatic change in perceptions with respect to the aptitude of Chinese officials. In general, confidence in the effectiveness of QE waned throughout the year. A global commodities collapse in the face of ongoing QE was unnerving.

  As the year progressed, it seemed only central bankers remained confident that QE could reverse the downward trajectory of global CPI. Within individual central banks, skepticism mounted as to both the effectiveness of QE and the associated risks to financial stability. The Bank of Japan hesitated to increase QE, while market darling Draghi couldn’t deliver on what the market had believed was promised more aggressive QE. Market perceptions shifted from “whatever it takes” QE on demand to fears that current QE, while not all that effective, could be as good as it gets.

  2015 developments also support the view that the bursting of the global Bubble portends serious geopolitical risk and instability. Geopolitical tensions were on the rise virtually everywhere. Strongman Putin took his show to the Middle East, a region increasingly a volatile cauldron of mayhem. Strongman Erdogan’s Turkey shot down a Russian fighter jet. Millions of refugees to Europe, further destabilizing the political backdrop. Multiple terrorist attacks. ISIS. The U.S. challenged China in the South China Sea. Strongman Xi Jinping took further measures to centralize authority and solidify power. Japan’s Shinzo Abe pushed forcefully ahead with reform and militarization. 2015 was the year of the authoritative leader – on a seemingly global basis. With pundits and traditional analysts in disbelief, Bernie Sander catches fire with an anti-capitalism and anti-Wall Street message, while the Donald Trump phenomenon takes the Republican primary season by storm. And few see the association to Credit Bubbles, unsound “money” and Credit, inflationism and resulting central bank-induced monetary disorder.

  Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.

  

  

  

  

  

• From $500,000 To $170 Million In A Few Months: The Next "Subprime Trade" Emerges

  Ever since a few far-sighted, contrarian traders made a killing by betting on the collapse of subprime in 2005 and 2006 – and by implication on the implosion of the capital markets – a trade famously resurrected in the latest Wall Street movie The Big Short (whose Michael Burry recently warned that “The Little Guy Will Pay” For The Next Crisis, again) everyone has been dreaming to uncover the next “subprime” – a trade that has a 20-to-1 upside to downside ratio, which can be put on in massive size, and which would lead to a quick and lucrative retirement.

  So far the next “subprime trade” remains elusive, with global capital markets continuing to grind ever higher thanks to constant central bank manipulation, as first called out on this website many years ago, and as admitted recently even by such “serious” legacy institutions banks as Bank of America which in an attempt to explain market instability

  Central bank’s risk manipulation well explains local tails

   

  A good way to explain why we have seen local tail risks arise so frequently since central banks began to heavily manipulate asset prices is with the following analogy, illustrated in Exhibit 1. Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels. Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant.

   

  This then creates a highly unstable (fragile) situation that breaks violently when a sufficient catalyst causes risk to rise – overly crowded positioning meets a market with little conviction.

  The above explanation leads to a critical line of thought: perhaps the next “subprime” trade is not shorting a mispriced asset at all?

  After all, all assets are mispriced as a result of central bank intervention.

  As BofA admits “the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade“, which is logical: after all why should one fight the Fed when any time there is even a 5% drop in the S&P500, the Fed can and will either jawbone and threaten to cut rates or launch QE4 or NIRP, or just do it? In doing so, of course, the Fed merely “kicks the can” and with every failed attempt at reprice risk and bring back some trace of price discovery, guarantees that the next market crash will be the most epic ever, one which will wipe out not only the Fed’s credibility but the bedrock of the modern financial and economic system, a monetarist system based on neo-Keynesian rules. Frankly, the devastation can not come fast enough.

  But first, why not make some money?

  And if one is limited from generating 20-1 returns in a market of suppressed volatility due to a global central bank puts, perhaps the next “subprime” trade has to do with the process of actually putting the trade on.

  A process which involves ETFs.

  To be sure, we – and many others – had issued many warnings about the very nature of ETFs in recent years, especially during 2015. Here is a brief chronology of the countless warnings we have issued on this topic in the past year alone:

  • March 2015: What Would Happen If ETF Holders Sold All At Once? Howard Marks Explains
  • May 2015: ETF Issuers Quietly Prepare For “Market Meltdown” With Billions In Emergency Liquidity
  • June 2015: How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown
  • July 2015: The Complete Guide To ETF Phantom Liquidity

  All of these warnings became realized on August 24, the day of the infamous ETFlash Crash which even the SEC remarked on in the last week of December with an 88-page note on “Equity Market Volatility on August 24, 2015.”  What the SEC essentially said is that it is generally concerned with plumbing and exchange regulation, with an emphasis on ETFs.

  To be sure the story of broken markets as a result of the epic proliferation of Exchange Traded Funds continued after August, with stories such as:

  • August 2015: Was Monday’s ETF Collapse Just A Warmup?
  • September 2015: Mom And Pop “Will Probably Get Trampled”: Alliance Bernstein Warns On Bond ETF Armageddon
  • October 2015: How The Entire Short Volatility ETF Complex Could Be Wiped Out Overnight
  • November 2015: How Illiquid Are Bond ETFs, Really? (Spoiler Alert: Very!)

  Is it possible that “the next subprime trade” was so obvious that it was staring everyone in the face for the past year?

  A trade which involved betting on the collapse not of the central-bank supported market, but the death of the instrument which allows this unprecedented global central bank “put” to prop up markets, and which like the infamous coiled spring in the Bank of America “revelation” is just waiting for a catalyst to snap: in other words, betting against ETFs?

  Actually the answer is yes, and for some, the “next subprime trade” is already happening.

  Meet David Miller and his Catalyst Macro Strategist Fund (ticker: MCXCX). The introduction, provided by WaPo reads like something straight out of a Michael Lewis book:

  The Michigan-native is betting against one of the most popular investment vehicles for mom-and-pop investors: exchange-traded funds. The bets have paid off, turning Miller’s little known Catalyst Mutual Funds into one of Wall Street’s most successful players in 2015.

  It sure sounds like a story about one of the lucky few who correctly predicted in 2006 what would happen to not just subprime, but the overall market just a few years later… and would retired filthy rich.

  The comparisons between Miller’s story and the “Michael Burry’s” of the subprime era don’t end there, because the young asset manager has not only figured out what to bet against, but how to make a lot of money in the process: ever since it started making complicated bets against some leveraged ETFs, Miller’s Catalyst Macro Strategies Funds has since grown from $500,000 in assets at the start of the year to about $170 million. It achieved a more than 50 percent return this year, placing it far ahead of its competitors.

  In a year in which virtually not one hedge fund generated notable returns, and most were an embarrassment, it is surprising that not all financial media outlets are talking about Catalyst’s performance, which as shown below, is quite impressive. Behold the 2015 performance of the Catalyst Macro Strategy Fund, which according to Morningstar held a total of $169.5 million in assets most recently.

  

   

  Miller’s initial target in the broken sector: leveraged ETFs: “Our goal is to identify poorly designed financial vehicles,” said Miller, Catalyst’s senior portfolio manager. “The strategy has certainly worked out well for us.”

  While still a tiny part of the market, the growth of leveraged ETFs has been explosive. Nearly nonexistent in 2005, the market has grown to more than $20 billion this year, according to data from Lipper. The market has doubled since 2011.

  The regulators have, as usual, been asleep at the wheel, making such debacles as August 24 a recurring reality, and allowing people like Miller to make outrageous profits by betting against the broken market:

  [A]s the industry has grown, so have concerns around whether investors understand the risks. The Securities and Exchange Commission proposed rules in December to rein in these type of funds. And the Financial Industry Regulatory Authority, also known as FINRA, has cracked down on brokers who have sold complicated ETFs they didn’t understand.

   

  “The SEC and FINRA have been coming down on them, and they still have not gone away,” Miller said. “Money keeps coming into them despite their poor performance.”

  But if leveraged ETFs are the “BBB” CDO tranches in the subprime analogy, then regular, and just as broken ETFs, will be the A, AAs and higher which will be the next to flame out: “Even traditional ETFs aren’t immune from market volatility. Over the summer, the price of some ETFs dropped off a cliff, then bounced back within minutes. Investors who automatically sold as their value plunged, faced heavy losses.”

  Catalyst may have been the first, but many more are coming, looking to profit from problematic ETFs. New York hedge fund Hilltop Park has employed complicated trades to bet against some ETFs, according to The Wall Street Journal.

  Perhaps the final analogy to the subprime crisis is the infamous straw that broke the camel’s back: back then, just like now, the fulcrum security was safe… until enough bets had been made against it (infamously by such as Goldman itself, which via Abacus and others, was selling exposure to CDOs only to short them at the same time), at which point the bubble bursts.

  And while 10 years ago it was the subprime bubble, this time it will be the ETFs that go first as more and more bets against them proliferate, and when they do, it will be all up to the central banks to preserve the last artificial asset prices in “markets” which over the past eight years forgot how to discount reality, and merely reflect the intentions of a few clueless economist hacks.

  To help accelerate this process, we present Catalyst Macro Strategy’s latest prospectus, with hopes more modern “Michael Burrys” emerge and take on what the fulcrum security of today’s broken markets.

  

  

  

  

  

• Earnings Revisions Tumble To Weakest In 9 Months, BofAML Warns "More To Come"

  Until recently healthcare had been the only sector offering any optimism from an earnings perspective but even that has collapsed now. The three-month earnings revision ratio (ERR) fell for the fifth month in a row to 0.53 from 0.55 – its lowest level in nine months, indicating twice as many cuts as increases. As BofAML notes, this is well below the long-term average of 0.84, and given S&P 500 sales revisions have collapsed to April 2009 lows, they forecast more cuts are likely to come… and a muted January effect looms.

  S&P 500 Sales Forecast Revisions are the worst since April 2009…

  

   

  And Earnings Revisions have re-plunged to nine-month lows (as mid-year hope collapses)

  

  The ratio suggests nearly twice as many downgrades as upgrades to earnings. The ratio remains below the long-term average of 0.84, suggesting more muted near-term market returns. The more volatile one-month ratio fell to 0.54 from 0.59.

   

  Which implies a drastically weaker January effect…

  

   

  As all 10 Sectors have seen more downward than upward revisions to earnings over the past three months.

  

  Previously, Health Care had been the only sector with positive revisions, but the ERR has fallen below one in this sector as well, to its lowest level in 2½ years. Materials continues to have the worst three-month ratio, with 5x as many cuts vs. increases to estimates — but an improvement from the prior month’s post-crisis low. Also of note: Industrials’ 3-month ERR is the lowest in three years (and still falling).

  But, it's not just US corporates, Global earnings revision trends also remain weak…

  Based on our global quantitative strategy team’s last update, the 3-month global earnings revision ratio fell in November to 0.59 from 0.68, as analysts accelerated their pace of downgrades. All regions saw the three-month ERR deteriorate, led by the US and Europe. Japan and the US continue to have the highest ratios, while Asia ex-Japan has the lowest, but all regions are now seeing more downgrades than upgrades.

  

  The one-month ratio fell to 0.56 from 0.59 – the lowest in nearly four years. Global equity returns tend to be muted when the Global ERR is near current levels.

   

  Source: BofAML

  

  

  

  

  

• "Tread Lightly" – 2016 Technical Outlook

  Via NorthmanTrader.com,

  If there was one key trading lesson to draw from 2015 it is this: Ignore the noise and focus on the technicals. Hence in today’s article I’m outlining what I’m seeing from a technical perspective across multiple time frames and asset classes. Note I’m not trying to convince you of any particular view here, but my aim is to share, what I consider to be, fascinating data sets that hopefully offer some insights worth considering.

  But before I go into the technicals I want to provide some context on the noise factor. What is noise? Well mostly it’s the myriad of opinions, forecasts, predictions and news flashes that come our screens every day and they can be of detriment to traders and investors alike. Now I’m not saying not to seek out information and other perspectives, but I am saying to not take anything as gospel especially when it comes to consensus.

  Consider the following:

  Wall Street forecasts for 2015 were largely wrong across the board. Now I have no problem with anybody being wrong. I’m wrong all the time and my wife is sure to let me know when I am. But what I do take issue with is that Wall Street largely insisted on staying wrong even though the facts were changing in 2015. The main factor changing: Earnings forecasts were coming down. Hard. And yet price targets stayed higher. The only thing that really changed was the narrative, i.e. “well if earnings are down so what then markets go up because fund managers have to chase performance”. And hence you end up with overly optimistic forecasts not based on reality. But Wall Street is in the business of selling supply to the public.

  

   

  And nothing has changed on this front. For 2016 Wall Street appears to see little risk in markets and the same forecasts for 2015 have been moved into 2016. Not a single analyst sees the $SPX moving below 2000 or even 2,100 for that matter. No downside. None. And none was projected in 2015.

  Yet Hedge funds got hammered in 2015 resulting in hundreds of closings and many well known funds and hedge fund managers are down severely. Heck even Warren Buffet had a lousy year being down 11%.

  Economists also have widely missed the boat on economic growth projections. It’s been a year of slowing growth globally and yet forecasts kept pointing to more optimistic outlooks. For along time markets have been either ignoring or outright celebrating any bad news as it suggested more central bank easing to come. And to be fair this has worked for years. After all central banks have cut rates over 650 times since 2008 and even in the 2015 the ECB and BOJ added $1.2 trillion in assets to their balance sheets. 

  But the scale and scope of forecast misses is eye opening. Just this last week the Chicago PMI figure came in so mismatched in both direction and magnitude versus economists’ forecasts one has to wonder what they are actually looking at: “The index fell to 42.9 from 48.7 in November. Economists had expected it to rise 1.3 points to 50 in the December reading. The index has spent much of the year below the 50 mark that separates expansion from contraction”.

  What’s the standard excuse for the missed forecasts? The weather of course which prompted this sarcastic tweet from me:

   

  Lessons for 2016: Never trust an economist without a degree in meteorology

  — Northy (@NorthmanTrader) December 31, 2015

   

  Which brings me to my beloved Fed. After months and months and months of talking, tinkering, and handwringing they finally hiked rates while insisting it meant nothing. Janet Yellen keeps claiming the Fed is data dependent. Yet their own forecasts continued to be wrong and GDP growth figures continued to be revised downward throughout the year. So why did they hike rates? To maintain credibility?

  Certainly not because of the mentioned PMI figures. In fact, during the last two rate hike cycles (who can even remember those) PMI was leading by expanding not contracting as it does now. So I have to ask: They want to hike rates into a declining PMI trend into the lows 40s?

  

  So one has to really wonder if the Fed really knows what they are doing here. I have my well founded doubts.

  And finally: 2015 put to shame statistical folklore. “Stocks go up in December” “Years ending in a 5 are always positive”, etc. All these historical notions were really off base. Yes historical stats can be interesting to look at, but perhaps the breaking of many historical precedents raises a key question:

  If all forecasts and predictions and conventional wisdoms are wrong perhaps nobody really knows what kind of market we are dealing with here?

  After all, never before has the world seen such a combination of massive expansion in debt, central bank intervention and low to negative interest rates for such an extended period of time.

  Do the technicals provide clarity? Let me walk you through the charts and I’ll outline both bearish and bullish considerations. Note my aim is to be as clinical as possible in my review here.

  First off, please note that during this past year the $SPX has moved from a series of higher highs to a series of lower highs. Until proven otherwise this could be regarded as a rounding top:

  

  The $SPX finished the year just below its 50 and 200 day moving averages. These are still on a so called golden cross and could easily be recaptured unless further selling commences in early January. Also note that since September 2014 we have seen 2 larger corrective events. Both recovered quickly in price and in the process produced a very well defined supporting trend line connecting these lows (see above).

  Yet a very clear message comes across here: Months of price discovery can disappear in an instant. Who can forget this morning in August?

  

  Anybody remember what stopped this? Circuit breakers. Trading was stopped and for many it was a travesty. Why? Because many trading platforms only reopened AFTER markets already bounced higher. Many people simply couldn’t enter or re-enter if they had been stopped out on the way down.

  The seeming good news for investors: Every time markets break down a magic hand appears and markets bounce back. I have to admit I do worry about this repetitive market expectation as it breeds a certain level of complacency: Nothing bad can ever happen right? Markets always come back. Buy the dip. And technically one has to respect the results. And we did ourselves as we bought long on the technical signals.

  But the subsequent recovery produced lower highs. And we can’t ignore this. Nor can we ignore that internals have been horrid and this is where the bearish evidence comes in.

  Purely technically speaking we are observing a very similar pattern for previous major tops.

  Consider the equal weight charts:

  

  While the value line geometric index temporarily broke above its 1998 and 2007 highs it has since literally fallen off the cliff and is sporting a potential bear flag similar to the one in 2007/2008.

  This similarity is supported by the Guggenheim equal weight index and it raises the question of a repeat to come:

  

  Equal weight of course is reflective of a harsh reality: Most stocks are underperforming the indices greatly. Here too we see similar behavior to the 2007/2008 top, specifically stocks above their 200 day moving averages are showing a seeming repetitive pattern of lower highs:

  

  

  If the pattern is to repeat new lows could well be in this market’s future.

  And there are many bearish patterns to support this notion. Consider several large heads and shoulders patterns on indices and key individual stocks:

  

  

  MACD patterns are well below the center lines on all of them. And the larger monthly charts highlight the technical bearish picture with negative RSI divergences, negative MACD patterns and broken trend lines in many cases:

  

  

  Even the best performing index in 2015 the $NDX is showing negative divergences and the broken trend line is yet to be recaptured:

  

  But, and I need to stress this here as well: Nothing has really broken yet. None of the patterns above really mean anything until they show a confirmed break. In the case of the heads and shoulders patterns they won’t confirm until they break their necklines.

  Will we see a similar corrective move in the months to come? That is the key question isn’t it as it has potentially significant ramifications. Consider the potential target of such a corrective move. If the rounding top indeed plays out and price were to break below the established lower trend line there is an obvious target: The .382 fib off the 2009 lows as it also coincides with the 2007 highs or 1574 on the $SPX:

  

  This would constitute a 26.2% correction off the highs. After years of a steady uptrend such a price event seems unfathomable for most investors these days.

  What could cause such a break of the various necklines?

  Perhaps the very same reason that has prevented markets from breaking down so far: The winners. Much like society the stock market has morphed into a basket of haves and have nots. And while internals are horrid 2015 has seen incredible market cap expansion in several high cap stocks leading them to historically overbought levels with negative divergences on top of it.

  Some familiar examples:

  

  

  Note all of them are widely disconnected from their monthly 5 EMAs. If market history teaches us anything it is that these disconnects do not last. A simple reconnect would not be a bearish event in itself, but standard market practice, yet as you can see in many cases a simple reconnect could invite a 7-10% correction in just these stocks. How would the market handle such a correction in its leaders?

  And if you think I’m perhaps overstating the historic nature of some of these disconnects perhaps a little broader perspective may help.

  I won’t mention the names not to cloud your view, but here are the quarterly charts of two major companies with a combined market cap of over $400B. But here’s a hint: One distributes stuff and one sells burgers:

  

  See any corrective potential here? Any excess?

  One additional technical perspective: Despite closing slightly down on the year the $SPX is still vastly disconnected from its annual 5 EMA (12.2%) and has not touched it in 2 years now. History suggests it doesn’t like extended disconnects especially on weakening internals:

  

  So admittedly this is all looking rather gloomy and suggests markets are at major risk of a very sizable correction in 2016.

  One could argue that the combination of these technical facts support Mella’s $VIX chart she posted a couple of weeks ago:

   

  $VIX monthly. Happy New Year lol pic.twitter.com/5tKch8qzJ9

  — Mella (@Mella_TA) December 21, 2015

   

  Wowser.

  But as Mella also says: “Generally a bull market just doesn’t roll over and die.” And that’s a fair comment. Where’s the euphoria? Where’s the blow off top?

  While one may argue we may see it in some of the individual stocks the vast majority of stocks have corrected and are down. And the very technical issues outlined above may also serve as the foundation for a vastly different technical outlook.

  Consider that for the past year the $SPX has really not gone anywhere. Yes we have lower highs for now, but in terms of price we remain stuck in a range, and as pointed out above nothing has really broken yet. This type of consolidation is not unprecedented. In fact, the notion of an aggressively rising $VIX is also not incompatible with rising prices. See what happened in the mid 90s after a lengthy consolidation with a low $VIX: Both rose.

  

  What could prompt a break higher? Consider some of key culprits for the negative divergences in 2015: Energy and high yield. These divergences have been in place for months now. The obvious question: What happens if these things were to improve?

  

  Note, one could view the recent weekly price consolidation to be in context of a bull flag. Should price break above the pattern and make a high above recent highs the technical picture could change rather dramatically and quickly so.

  One of the worst performers in 2015: Oil. What does the chart suggest? A descending wedge with a positive RSI, an intrinsically bullish pattern:

  

  A break higher in oil prices may certainly invite a rally in energy stocks and with it an improvement in high yield and junk. In short, internals could improve quickly and what was a bearish scenario could turn bullish:

  

  After all markets are generally still oversold:

  

  And such an improvement would bring back the bullish case we recently discussed. Here are the updated charts:

  

  As regular readers know the above pitchfork has been a key technical indicator we’ve been watching since the summer lows. The middle line is clearly now resistance. If markets can break above it then indeed we may see a blow off top along with a rising $VIX.

  Last but not least: Global central banks remain highly active and despite its difficulties since the spring highs the DAX, for example, as retained its trend line. So far anyways:

  

  Confused yet? It’s actually not confusing. What we are seeing is a market in a consolidation phase and it still is in range and it has to still make its case: To break up or down.

  One could even make a case that new highs could be bearish. What would constitute such a scenario? Simply a move to tag along the rising trend line without recapturing it. This scenario may perhaps be the most deceptive as it could capitulate sellers and turn participants bullish, yet be technically very suspect as it could produce new highs on even greater negative divergences:

  

  So which way will this play? The technicals suggest that a break in either direction will produce an outsized move providing significant swing and day trade opportunities in 2016. The $VIX chart suggests that volatility will likely rise either way.

  But until we know specifically with what kind of market we are really dealing with perhaps traders and investors may want to heed the words of Walter White:

  Tread lightly indeed. Which is exactly what the technicals are telling me until this market reveals its true character.

  Good luck in 2016. It’s shaping up to be a wild one.

  

  

  

  

  

• Protesters Storm, Set Fire To Saudi Embassy In Iran

  Earlier today, Saudi Arabia announced it had staged its largest mass execution in 25 years. 

  43 al-Qaeda conspirators were killed along with 4 Shiites accused of shooting policemen in the anti-government protests which broke out during the Arab Spring. Among the Shiites killed: prominent cleric Nimr al-Nimr.

  

  His death drew sharp criticism from Iran and Hezbollah with the latter calling the execution a “grave mistake.” Here’s WSJ:

  Lebanese militant group Hezbollah called Mr. al-Nemer’s execution a “stain that would haunt this regime,” while former Iraqi Prime Minister Nouri al-Malki, another ally of Iran, said the execution “will topple the Saudi regime.”

   

  Arab Gulf allies of the kingdom such as Bahrain and the United Arab Emirates said they supported steps taken by Saudi Arabia to “confront terrorism.”

   

  Mr. al-Nemer was sentenced to death in October 2014 and charged with crimes including disobeying the ruler, inciting sectarian strife and bearing arms against security forces.

   

  Mr. al-Nemer wasn’t widely known outside Qatif before 2011, when he emerged as a leading voice behind Shiite protests that rocked the oil-rich eastern part of Saudi Arabia for two years.

   

  He was arrested after a car chase near his family’s farm in their hometown of Awwamiya in July 2012. Authorities said he opened fire at security forces. His family has denied this and said he was unarmed.

  “We condemn a deplore this unjust killing and consider it an example of killing wisdom and moderation,” Mr. al-Nemer’s family said in a statement.

  “The Saudi government supports terrorists and takfiri [heretic] extremists, while executing and suppressing critics inside the country,” Iran’s Foreign Ministry declared. These are “hostile statements,” Riyadh responded, adding that Iran’s comments constitute “a blatant intervention in the kingdom’s affairs.”

  Protests erupted in the Qatif district of Saudi Arabia’s Eastern Province as well as in Bahrain, where hundreds took to the streets, burning tires and braving tear gas fired by police. As we reported earlier today, protesters had also converged on the Saudi embassy in Iran. 

  Now, in what looks like a repeat of the Iran Hostage Crisis, the protesters in Tehran have reportedly broken into the Saudi embassy and set it ablaze with Molotov cocktails. 

  

  “Images shared on social media early on Sunday morning appeared to show Iranian protesters breaking into Saudi Arabia’s embassy in Tehran and starting fires, after gathering there to denounce the kingdom’s execution of a Shi’ite cleric,” Reuters reports. “One photograph, posted on Twitter, showed protesters outside the embassy building with small fires burning inside, while another showed a room with smashed furniture purportedly inside the building.”

  Video shows protesters inside Saudi embassy in Tehran pic.twitter.com/DEmsNLI6ZG

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  It’s 23:50 here in Tehran, seems protest agnst Nimr execution continues outside Saudi embassy in Tehran right now pic.twitter.com/5LLj89FhYn

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  #BREAKING: Angry protesters storm Saudi embassy in Tehran
  pic.twitter.com/xOX5n6QtsR

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  Protesters break into Saudi embassy building in Tehran pic.twitter.com/7wtBGpZuco

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  Police disperse protesters at Saudi embassy in Tehran
  Firefighters are trying to put off fire at embassy pic.twitter.com/WWb1QCURQG

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  Saudi Arabia flag brought down at embassy in Tehran pic.twitter.com/7ptL0gV0ZF

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  Protesters in Mashhad bring down Saudi flag at consulate following al-Nimr execution pic.twitter.com/2abn4V2KgW

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  VIDEO: Footage from earlier tonight of protesters throwing Molotov cocktails at Saudi embassy in Tehran – @hamid3663
  pic.twitter.com/j6ATZDYEzZ

  — Conflict News (@Conflicts) January 2, 2016

  As a reminder, the Sheikh was a prominent voice in the anti-government movement in Saudi Arabia. Riyadh effectively killed (literally) two birds with one stone with his execution: 1) a dissident voice was forever silenced, 2) a message was sent to Tehran, whose regional influence is expanding in Iraq and Yemen and whose forces have served to shore up the Assad government in its fight against Sunni extremists in Syria.

  Now, the Iranians look set to send a message back to Riyadh as the sectarian divide once again rears its ugly head.

  Meanwhile, Iran’s foreign ministry is calling for “calm.” Here’s Reuters:

  Iran’s Foreign Ministry called for calm in the early hours of Sunday after police dispersed angry protesters who had stormed Saudi Arabia’s embassy in Tehran.

   

  Demonstrators broke into the embassy and started fires before being cleared away by the police, Iran’s ISNA news agency reported, after gathering there to denounce the kingdom for executing a prominent Shi’ite cleric on Saturday.

   

  The ministry issued a statement calling on protesters to respect the diplomatic premises, according to the Entekhab news website.

  If this situation escalates, clearly crude oil will be well bid on Sunday afternoon.

  

  

  

  

• Trump Muslim Ban Comments Featured In Al-Qaeda Propaganda Video

  Early last month, Donald Trump shocked the American electorate by “calling for a total and complete shutdown of Muslims entering the United States until [the] country’s representatives can figure out what is going on.”

  While it wasn’t entirely clear what Trump meant by “until lawmakers can figure out what is going on,” the message was unequivocal: the GOP frontrunner was calling for the nation to filter those entering the country based on religion. 

  In the wake of Trump’s declaration, many analysts, commentators, and pundits assumed the brazen billionaire had finally crossed the line. That is, up to that point, Trump had proven to be largely “gaffe proof,” so to speak. Nothing he said – from calling illegal immigrants “rapists” to suggesting Fox anchor Megyn Kelly was “bleeding out of her wherever” – seemed to dent his run for the White House and in fact, his poll numbers seemed to rise with each passing insult. 

  The Muslim ban however, would be another story. Or so many people thought. 

  As it turns out, Trump’s lead over the rest of the field only widened as his message with regard to combating radical Islam resonated with many Americans who are struggling to discern how best to ensure what happened in Paris doesn’t happen in New York or Washington DC. 

  Irrespective of one’s take on Trump’s Muslim diktat, it was fairly obvious from the beginning that extremists around the world would use it to recruit. Here’s what Hillary Clinton said during the third Democratic primary debate: “He is becoming ISIS’s best recruiter. They are going to people, showing videos of Donald Trump insulting Islam and Muslims in order to recruit more radical jihadists.” 

  That’s not so much a politically-motivated attack on Trump from an entrenched member of America’s political aristocracy as it is an objective assessment of reality. That is, if you were a member of an extremist group and you were in charge of recruiting, you’d be remiss not to mention Trump.

  For his part, Trump denies the allegations. Here’s what he said in the wake of Clinton’s comments:

  “Nobody has been able to back that up. It’s nonsense. It’s just another Hillary lie. She lies like crazy about everything, whether it’s trips where she was being gunned down in a helicopter or an airplane. She’s a liar, and everybody knows that. But she just made this up in thin air. No fact-checker has been able to back up her claim on that.”

  Well, no fact checkers are needed now because al-Shabaab (al-Qaeda’s Somali arm) has released the following video featuring Trump:

  Besides Trump, the video stars Anwar al-Awlaki, the top al-Qaeda recruiter who was killed in a US drone strike in 2011. “There are ominous clouds gathering in your horizon,” al-Awlaki says. “Yesterday, America was a land of slavery, segregation, lynching, and Ku Klux Klan. And tomorrow it will be a land of religious discrimination and concentration camps,” he continues.

  Will Trump shake this off with the ease he’s shed each and every controversy surrounding his campaign thus far? Probably. 

  However, it’s worth noting that al-Awlaki gives Muslims living in the West “two choices”: “Either you leave, or you fight,” he says. How would voters respond if this particular video were to serve as the inspiration for an attack on American soil by a US citizen? Would it cause the portion of the electorate who supports the notion of a Muslim ban to reconsier their position or, would such a tragedy only strengthen Trump’s hand by reinforcing the link between Islam and violence? 

  We’ll leave it to readers to decide.

  

  

  

  

  

• On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

  On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring – perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai. 

  What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.

  However, while the broad framework of Turkey’s exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold “trading” company of Gold.A.E. – is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.

  The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company’s “new” management team admitted that after many months of “inquiries”, it had discovered that not only had the “old” management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money – and gold – held at Gold.A.E. which once again was primarily a “trading” front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.

  Here, for those who missed it the first time, is the letter that Gold.A.E.’s stunned clients received in late December:

  Dear Client

   

  A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

   

  Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.

   

  Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

   

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

   

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

   

  We trust the forgoing is of assistance.

   

  Sincerely,

   

  On behalf of GOLD AE MANAGEMENT

  Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park‘s infamous episode: “aaaannd it’s gone. The gold is all gone.“

  In a follow up article, “The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens“, we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner – one of the most important people in the United Arab Amirates – and “washing” their hands of any accountability.

  Recall, “the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

  “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

  But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.

  When Arabian Business emailed the public inquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

   

  Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

  In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money – and gold – of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.

  * * *

  So while we continue to dig into the mystery of Dubai’s stolen gold, one which has received absolutely no mention in the western press – in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year’s Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.

  I’m a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM’s. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.

   

  I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM’s were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].

   

  The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my ‘source’ who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!

  And here is the punchline from our source’s letter:

  My source has told me that he now understands that the company knew something was terribly wrong in the March – May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I’ve been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.

  Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings – a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf – waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.

  Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai’s gold.

  According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, “A new integrated Gold and silver investment vehicle”, one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.

  This is what the October 2014 presentation boasted about Gold Holding’s ambitions – nothing short of global gold commerce dominance:

  • To be a premier precious metals investment vehicle, physical.
  • To provide shareholders with high quality, long-term exposure to precious metals.
  • To offer mine owners an attractive alternative to debt or equity.
  • To be a significant and Reliable trader of Gold and Silver

  Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.

  

   

  The company’s Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in… Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing…

  

   

  Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk – that of corporate fraud and embezzlement – was at the Trading level, where the risk was supposed to be the lowest. Oops.

  

   

  The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of… Gold Holding?

  

   

  Wait, wasn’t Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:

  “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

   

  “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

  It appears “your” knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company’s own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the “old management team”, the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed “substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”

  In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.

  Which brings us to our conclusion from a week ago:

  So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

   

  And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by… the United States!

  Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important – and richest – people in the country, if not the entire middle eastern region.

  But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.

  As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something “out of place”, in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE… which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.

   

  * * *

  And finally, while not directly related to the topic of Gold AE’s massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.

   

  … and not only that, but it was here where we found what may be the most fascinating detail of today’s article, namely Gold Holding’s (aka Dubai’s) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan…. as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!

  

   

  Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.

  Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?

  Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing… and all with Dubai’s blessings?

  

  

  

  

  

• Saudi Arabia Carries Out Largest Mass Execution In 25 Years After Beheadings Soar In 2015

  While we wouldn’t go so far as to say it’s possible to find a “silver lining” in the San Bernardino massacre, the fact that Tashfeen Malik’s connection to Saudi Arabia has focused the world’s attention on Riyadh’s role in promoting Sunni extremism means the tragedy will at least serve a kind of utilitarian purpose. 

  As we and others have documented extensively, Saudi Arabia’s promotion of Wahhabism makes the kingdom the number one state sponsor of terror almost by default (Erdogan’s support for ISIS notwithstanding). Despite the best efforts of quite a few commentators and analysts who this year have drawn attention to the fact that the ideology espoused and promulgated by the Saudis is really no different than that promoted by ISIS, the Western public is still largely in the dark – we know this because if the US electorate were truly in tune to what’s going on, voters would stage a popular revolt before they’d allow King Salman to parade into Washington in a fleet of Mercedes on the way to commandeering the entire Four Seasons for a two day stay. 

  As Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” put it in a New York Times op-ed in November, Saudi Arabia is simply “an ISIS that made it.” Here’s an excerpt from that piece:

  Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on.

  Of course the kingdom’s support for radical Islam isn’t confined to the promotion of a poisonous ideology. The Saudis have a history of arming and funding Sunni extremist groups when those groups are thought to be advancing Riyadh’s geopolitical interests. Syria is the latest example but there are others including, for instance, the Saudis’ support for the mujahideen during the Soviet-Afghan war. At the risk of generalizing, those fighters went on to become al-Qaeda.

  We bring that up because today, Saudi Arabia (that bastion of human rights) executed 47 people, many of whom were al-Qaeda members. “Most of the 47 executed in the kingdom’s biggest mass execution for decades were Sunnis convicted of al Qaeda attacks in Saudi Arabia a decade ago,” Reuters reports, adding that “the executions took place in 12 cities in Saudi Arabia, four prisons using firing squads and the others beheading.” Here’s more: 

  The simultaneous execution of 47 people – 45 saudis, one Egytian and a man from Chad – was the biggest mass execution for security offences in Saudi Arabia since the 1980 killing of 63 jihadist rebels who seized Mecca’s Grand Mosque in 1979.

   

  The 43 Sunni jihadists executed on Saturday included several prominent al Qaeda figures, including those convicted for attacks on Western compounds, government buildings and diplomatic missions that killed hundreds from 2003-06.

  Obviously, there’s something terribly absurd about this. The Saudis are executing Sunni extremists with one hand, and promoting Sunni extremism with the other. While they’re busy beheading al-Qaeda members in Saudi Arabia, they’re effectively creating a Hydra by funneling arms and funds to al-Nusra in Syria and promulgating the “dark” (to quote Bashar al-Assad) ideology that inspires the group.

  But that’s not all. Among those executed on Saturday was prominent Shiite cleric Nimr al-Nimra. As BBC notes, “Sheikh Nimr was a vocal supporter of the mass anti-government protests that erupted in Eastern Province in 2011, where a Shia majority have long complained of marginalisation.”

  

  Here are some fast facts about the Sheikh, again, courtesy of BBC:

  • In his 50s when he was executed, he has been a persistent critic of Saudi Arabia’s Sunni royal family
  • Arrested several times over the past decade, alleging he was beaten by Saudi secret police during one detention
  • Met US officials in 2008, Wikileaks revealed, seeking to distance himself from anti-American and pro-Iranian statements
  • Emerged as a figurehead in the protests that began in 2011 inspired by the Arab Spring
  • Said to have a particularly strong following among Saudi Shia youth

  Ultimately, the Saudis killed (literally) two birds with one stone here: they silenced a dissident political voice and they dealt a slap in the face to Iran by killing a prominent member of the Shiite community.

  

  The Sheikh’s death sparked protests in the Eastern Province, the site of the 2011 uprising in which Nimr played a key role. “Scores of Shi’ite Muslims marched through the Qatif district of Saudi Arabia’s Eastern Province in protest at the execution of cleric Nimr al-Nimra,” Reuters says, citing an eyewitness. “They chanted ‘down with the Al Saud’, the name of the ruling Saudi royal family.” Here’s more, from al-Jazeera:

  Scores of Shias in Saudi Arabia’s Eastern Province marched through Nimr’s home district of Qatif to protest against the execution. Dozens of protesters also took to the streets in neighbouring Bahrain, where police fired tear gas to disperse them.

   

  
  

   

  Nimr had called for the oil-rich Eastern Province, where about two million Shia live, to be separated from the rest of Saudi Arabia.

  He also criticised the government for what he said was the marginalisation of the Shia minority in the country.

   

  Lebanon’s Shia Hezbollah movement condemned the execution, calling it an “assassination”.

   

  The “real reason” for the execution was “that Sheikh Nimr … demanded the squandered rights of an oppressed people,” the group said in a statement. 

  

  They’re also protesting at the Saudi embassy in Tehran:

  protest at Saudi embassy in Tehran over al-Nimr execution
  Bigger protest planned for tomorrow
  pic.twitter.com/UG2lSnzufv

  — Sobhan Hassanvand (@Hassanvand) January 2, 2016

  Officially, Nimr’s crime was sedition, disobedience and bearing arms. Oh, and “foreign meddling.” Speaking of “foreigners,” Iran isn’t happy, and neither is Hezbollah. “Saudi Arabia is executing the opponents of terrorism,” Tehran said. Even the Houthis jumped into the fray. Here’s Reuters again:

  Riyadh’s main regional rival Iran and its Shi’ite allies immediately reacted with vigorous condemnation of the execution of Nimr, and Saudi police raised security in a district where the sect is a majority in case of protests, residents said.

   

  But a top Iranian cleric said the kingdom’s Al Saud ruling family would be “wiped from the pages of history”, Yemen’s Houthi group described Nimr as a “holy warrior” and Lebanese militia Hezbollah said Riyadh had made “a grave mistake”.

   

  “The (royal) Al Saud family executed today the holy warrior, the grand cleric Nimr Baqr al-Nimr after a mock trial … a flagrant violation of human rights,” an obituary on the Houthis’ official Al Maseera website said.

  This comes on the heels of a banner year for beheadings in the kingdom. As AP reports, “Saudi Arabia carried out at least 157 executions in 2015, with beheadings reaching their highest level in the kingdom in two decades, according to several advocacy groups that monitor the death penalty worldwide.”

  The Saudis would be wise to exercise caution in 2016. Now that Riyadh has been forced to rollback subsidies and overhaul the welfare state in order to buy itself some budget breathing room, the conditions are ripe for social unrest. Inflaming sectarian tensions by killing prominent Shiite opposition leaders isn’t exactly conducive to the promotion of stability.

  Additionally, it’s not clear that this is an opportune time to poke Iran in the eye. Between Yemen and Iraq, Tehran’s influence is expanding and thanks to Russia, it doesn’t appear likely that Damascus will fall to Saudi-backed rebels. In short, Iran’s Shiite cresent is waxing while the House of Saud is waning. Throw in the fact that Iran is set to shed the “pariah state” label with the lifting of international sanctions and the fact that Islamic State’s meteoric rise has served to increase public awareness of just how dangerous the ideology espoused by the Saudis truly is, and you have a truly precarious situation for Washington’s favorite oil-rich monarchy.

  

  

  

  

  

• Monopoly Much? America's Largest Utility Hikes Rates Most In 9 Years Despite NatGas Price Crash

  Happy New Year Californians – behold the power of monopoly and regulatory capture.

  Submitted by Wolf Richter via WolfStreet.com,

  “We want our customers and their families to know that we are here to help them make smart energy choices and save money whenever possible,” cooed Laurie Giammona, senior VP and chief customer officer of Pacific Gas and Electric, on Wednesday between Christmas and New Year’s, when no one was supposed to pay attention.

  It was the propitious day when the beloved utility that distributes gas and electricity in the northern two-thirds of California announced that on January 1st it would jack up its rates.

  America’s largest electric utility and the second largest gas utility by number of customers, the utility whose 2010 gas-pipeline explosion in San Bruno, just south of San Francisco, killed 8 people, injured another 66, and burned down 38 homes, the utility that is still digging in its heels after five years since the explosion and is now under investigation by the California Public Utilities Commission because it failed to deliver certain documents, the very same PUC that is being probed by a federal grand jury for potential illegal ties between the regulators and the executives of PG&E in this ballooning corruption scandal … well, this beloved utility now has announced a very special New Year’s resolution.

  It will hike natural gas rates for the average residential customer by 4.0% and electricity rates by a stunning 8.5%, for a combined rate increase of 7%, the steepest since 2006.

  The average small business is going to get whacked by a combined rate increase of 5.1%.

  That’s on top of the 6% rate increase it had successfully inflicted on its customers a year ago.

  Rate increases, despite a plunge in the price of natural gas

  That plunge started in 2008 and has hit new lows on December 17, when the price of natural gas hit $1.68 per million Btu at the NYMEX, the lowest since March 23, 1999. When adjusted for inflation, it was below the prices tracked by NYMEX going back to 1990. This historic price collapse has been eviscerating the US natural gas industry and its investors [read…  Carnage in US Natural Gas as Price Falls off the Chart.]

  Much of the power PG&E distributes is generated by natural gas. And all of the natural gas it distributes is, well, the same natural gas whose price has plunged to historic lows.

  In fact, in its third quarter financial statement, PG&E admits as much: its cost of electricity over the first nine months of 2015 dropped 8.8% year-over-year, and its cost of natural gas plunged 36%!

  The thing is, despite the juicy rate increases imposed at the beginning of 2015, operating revenues have fallen about 1% so far in 2015, as Californians use less energy from their beloved utilities. It’s an existential struggle all utilities face.

  However, the company pointed out that the rate increases won’t be used to pay for the fines and penalties associated with the San Bruno pipeline explosion.

  Those will largely be covered by the proceeds from a public offering last August of 6.8 million common shares at $51.90 per share. Wells Fargo, the underwriter for the offering, got a bundle of fees. But money is fungible. It’s like water. It flows wherever gravity pulls it, and no one can separate it.

  So why the rate increase? The SFGate:

  The changes follow a decision by the California Public Utilities Commission in 2014 to let PG&E collect an extra $2.37 billion in revenue from its customers over three years, from the start of 2014 through the end of 2016. The additional money will pay for maintenance and upgrades to PG&E’s sprawling electricity grid and natural gas pipeline network….

  What else is PG&E doing with this moolah?

  It is paying rich quarterly dividends of $0.455 per common share. With 489 million shares outstanding in the third quarter, dividends for a year would amount to $890 million. So for the three-year period in question (2014-2016), this would amount to, give or take, $2.7 billion, more than enough to pay for the maintenance and upgrades of its system.

  If it faced real competition, or a real regulator, PG&E would be forced to pay for maintenance and upgrades with other means than rate increases when its input costs are plunging while it’s paying out a rich dividend.

  And how are its customers supposed to deal with the rate increases? PG&E, according to the SFGate, “urged its customers to contact the utility for ways to save energy.” So, turn down the heater, put on another fleece, buy more efficient appliances, and hunt down subsidies for low-income households.

  As always, it’s just the beginning.

  In September, PG&E asked the Public Utility Commission for another $2.7 billion in revenue increases for the three-year period of 2017-2019. That particular amount of money would be used ostensibly to prepare for natural disasters. Over the same period, it would still pay out $2.7 billion in dividends. The PUC, under federal grand-jury investigation for its cozy ties to PG&E, has not yet voted on this doozie.

  Turns out, for utilities, the party is over, again. Read… Dear Electric Utility CEO: Merry Xmas and Cut the Dividend?

  

  

  

  

  

• 2016's Planet Of The Aches

  Some 'aches and pains' are constraining the global economy, with JPMorgan warning of more severe strains occurring in the emerging world. These aggravating but generally not life-threatening conditions are meant to convey a slow growth world, but, JPM is careful to note, not one on the immediate precipice of collapse or recession. 

   

  (click image for large legible version)

  

  Source: JPMorgan

  The key issue for 2016 then is whether economic illnesses in emerging markets will result in contagion in the developed world as "dollar altitude sickness" and "earnings anemia" do little to support the domestic 'immune' system.

  

  

  

  

  

• Protesters Set The Streets On Fire In Bahrain After Saudis Kill Top Shiite Cleric

  Earlier today, we documented Saudi Arabia’s largest mass execution in 25 years. 

  In what was billed as an effort to rid the world of 47 “terrorists”, the Saudis killed dozens of al-Qaeda affiliates and four Shiites who stood accused of shooting policemen in the anti-government protests which broke out during the Arab Spring.

  Among the Shiites killed was prominent cleric Nimr al-Nimr. The Sheikh was an outspoken supporter of the anti-government movement and his death drew sharp condemnation from Iran, Hezbollah, and the Houthis on Saturday.

  

  In the wake of the execution, “scores marched through Nimr’s home district of Qatif shouting ‘down with the Al Saud’ and, in neighboring Bahrain, police fired tear gas at several dozen people who gathered to protest the news,” AP reported.

  “Bahrain’s Saudi-backed Sunni authorities crushed protests led by its majority Shia shortly after they erupted on February 14, 2011, taking their cue from Arab Spring uprisings in the Middle East and North Africa,” al-Jazeera wrote back in February when hundreds took to the streets of Manama to commemorate the anniversary of the Arab Spring uprising. “Tensions are running high in the kingdom where a sectarian divide is deepening and there is a growing gap between the Sunni minority government and the Island’s Shia majority.”

  Below, find the searing (literally) images from Bahrain where police fired tear gas at protesters to disperse the crowds.

  

  

  

  

  

  

  

  

  

  Are the days of the Gulf monarchies numbered?

  

  

  

  

• Noble Group’s "Collateral Margin Call"

  By Simon Jacques

  Noble Group’s “Collateral Margin Call”
  

  The downgrade of Noble Group by Moody’s depicts an aggressive financial risk and a vulnerable business risk profile

  I) the first-order problem is Macro.

  “The downgrade of Noble Group to junk status is worrisome, but the main story is about the evolution of the commodity price downtrend. 1st round effects were felt in macro indicators (lower CapEx & growth for producers and following FX/interest rate adjustments). 2nd round effects will be about commodity exporters’ governments reactions.”

  Those effects will dominate in 2016 said Sacha Duparc, Head trader and structurer at Banque Cantonale Vaudoise.

  II) Collateral margin call.

  The trader has billions of dollars in commodity prepays with NOCs and producer, the value of inventories and receivables collateralized by traders into trade finance arrangements have cratered in the past year.

  This collateral value of Noble Group is being depressed, those loans are been called even Noble Group (buoyed by liquidity in 2015) never missed a payment because the market say this property and assets are worth less they claim it is worth on their books.

  Banks are requiring at least $1.6 Bn more in additional collateral that Noble Group doesn’t have… Noble is being placed into either bankruptcy or they are being placed in a tremendous economic adversity that so far they’ve not seen in 2015.

  “People have been hopeful that Noble might avoid a rating downgrade after the asset sale but it couldn’t,” said a Hong Kong-based credit trader at a Japanese investment bank.

  Noble’s move to raise US$750 million by selling its remaining stake in Noble Agri. I repeat what was said in a previous comment: Noble Agri Sale was strictly a Collateral margin call.

  Noble Group must raise money but their collateral base is new book value of 4,528 million while their Net Positive fair values gains of commodity contracts and derivatives exceeds MTM is over 4,500 million…

  By any model, this MTM represents between 90% and 105% of their book value.

  

  Banks aren’t provided with the access of the exact breakout of the 4,500 million and PwC has not been able to review the exact assumptions and models behind these Net Positive fair values gains of commodity contracts and derivatives. Perhaps, Antoine Lavoisier, French nobleman of the 18th century and father of modern chemistry must have a great influence on the financial reporting of Asia’s Largest Commodity trader with “Nothing is lost, nothing is created, and everything is transformed”.

  

  Solvency Problem, not liquidity

  I will make it clear that it is not Liquidity that banks are asking but for more Collateral from Noble starting this year because they also understand that this MTM gain on commodity contracts and derivatives of Noble will unlikely be realized at more than 10% and therefore is not valid collateral for the trader’s working capital borrowing base requirements.

  A close friend hedgie in NY reminded me that at the height of 08′, a IB sale desk lured them into “taking a position into undervalued trading books of the bank temporarily mispriced because of market illiquidity”. At only 66 cents on the Dollar, the deal turned-out to be 0.6 cent sinky.

  Enron-esque memes

  To put Enron in the context of 1999-2001s, it was not only the world’s largest energy trader; it had also the same gleaming and appeal of the Trafiguras or Vitols of today.

  A trading or a mgmt position at Enron meant that you could do a 6 digits salary and touch a 7 digits bonus. Most of it was a management incentive program with the Enron Corp share derivatives used as a currency.

  Many people at other firms were lured into mgmt and trading positions by commodity headhunters hired by Enron Corp providing “an offer that nobody could refuse” just months before the collapse.

  There are some parallels with Noble Group, one I guess is that Noble recently brought new faces people from other firms in Geneva like Kev Brassington into offers that they could not refuse in their career path.

  Enronesques parallels with Trafigura.

  Medias have recently bragged about “$775m bonuses” to 600 of Trafigura employees related to bumper profits from oil trading”. However I note in the disclaimer that’s as an all stock 5 year LOCK buyback type program, again something tied to its future performance and the commodity curve.

  When Enron collapsed, the story that I know is that an average trader and VP have registered 7 digits each (real losses), so it is fair to say that VPs, Management and traders were also conned. More than financial losses, can you think about the moral damages that they still endure because they spent between 12 and 6 months at Enron ?

  

  

  

  

  

• "New Research Suggests [Fluoridating Water] Is Dramatically Misguided"

  Preface: One of our pet peeves is when erroneous groupthink persists even in the face of contradictory evidence.

  As shown below, water fluoridation is based on very shaky science.  And yet – despite the science – the big dental associations in the U.S. and other countries continue to push it as safe and effective.

  The Guardian reported last week:

  Health experts are calling for a moratorium on water fluoridation, claiming that the benefits of such schemes, as opposed to those of topical fluoride (directly applied to the teeth), are unproved.

   

  ***

   

  Stephen Peckham, director and professor of health policy at Kent University’s centre for health service studies, said: “Water fluoridation was implemented before statistics had been compiled on its safety or effectiveness. It was the only cannon shot they had in their armoury. It gets rolled out, becomes – in England – policy and then you look for evidence to support it.

   

  “The fat debate [whereby fat used to be the big enemy in food before that was revised] is an example of evidence getting built up to support a theory. It’s a dental health policy that’s got up a head of steam and people have been reluctant to see it criticised.

   

  “You can’t really confidently say that water fluoridation is either safe or effective.

  Newsweek reported last June:

  You might think, then, that fluoridated water’s efficacy as a cavity preventer would be proven beyond a reasonable doubt. But new research suggests that assumption is dramatically misguided; while using fluoridated toothpaste has been proven to be good for oral health, consuming fluoridated water may have no positive impact.

   

  The Cochrane Collaboration, a group of doctors and researchers known for their comprehensive reviews—which are widely regarded as the gold standard of scientific rigor in assessing effectiveness of public health policies—recently set out to find out if fluoridation reduces cavities. They reviewed every study done on fluoridation that they could find, and then winnowed down the collection to only the most comprehensive, well-designed and reliable papers. Then they analyzed these studies’ results, and published their conclusion in a review earlier this month.

   

  The review identified only three studies since 1975—of sufficient quality to be included—that addressed the effectiveness of fluoridation on tooth decay in the population at large. These papers determined that fluoridation does not reduce cavities to a statistically significant degree in permanent teeth, says study co-author Anne-Marie Glenny, a health science researcher at Manchester University in the United Kingdom. The authors found only seven other studies worthy of inclusion dating prior to 1975.

   

  The authors also found only two studies since 1975 that looked at the effectiveness of reducing cavities in baby teeth, and found fluoridation to have no statistically significant impact here, either.

   

  The scientists also found “insufficient evidence” that fluoridation reduces tooth decay in adults (children excluded).

   

  “From the review, we’re unable to determine whether water fluoridation has an impact on caries levels in adults,” Glenny says. (“Tooth decay,” “cavities” and “caries” all mean the same thing: breakdown of enamel by mouth-dwelling microbes.)

   

  “Frankly, this is pretty shocking,” says Thomas Zoeller, a scientist at UMass-Amherst uninvolved in the work. “This study does not support the use of fluoride in drinking water.” Trevor Sheldon concurred. Sheldon is the dean of the Hull York Medical School in the United Kingdom who led the advisory board that conducted a systematic review of water fluoridation in 2000, that came to similar conclusions as the Cochrane review. The lack of good evidence of effectiveness has shocked him. “I had assumed because of everything I’d heard that water fluoridation reduces cavities but I was completely amazed by the lack of evidence,” he says. “My prior view was completely reversed.”

   

  “There’s really hardly any evidence” the practice works, Sheldon adds. “And if anything there may be some evidence the other way.” One 2001 study covered in the Cochrane review of two neighboring British Columbia communities found that when fluoridation was stopped in one city, cavity prevalence actually went down slightly amongst schoolchildren, while cavity rates in the fluoridated community remained stable.

   

  Overall the review suggests that stopping fluoridation would be unlikely to increase the risk of tooth decay, says Kathleen Thiessen, a senior scientist at the Oak Ridge Center for Risk Analysis, which does human health risk assessments of environmental contaminants.

   

  “The sad story is that very little has been done in recent years to ensure that fluoridation is still needed [or] to ensure that adverse effects do not happen,” says Dr. Philippe Grandjean, an environmental health researcher and physician at Harvard University.

   

  The scientists also couldn’t find enough evidence to support the oft-repeated notion that fluoridation reduces dental health disparities among different socioeconomic groups, which the CDC and others use as a rationale for fluoridating water.

   

  “The fact that there is insufficient information to determine whether fluoridation reduces social inequalities in dental health is troublesome given that this is often cited as a reason for fluoridating water,” say Christine Till and Ashley Malin, researchers at Toronto’s York University.

   

  Studies that attest to the effectiveness of fluoridation were generally done before the widespread usage of fluoride-containing dental products like rinses and toothpastes in the 1970s and later, according to the recent Cochrane study. So while it may have once made sense to add fluoride to water, it no longer appears to be necessary or useful, Thiessen says.

   

  It has also become clear in the last 15 years that fluoride primarily acts topically, according to the CDC. It reacts with the surface of the tooth enamel, making it more resistant to acids excreted by bacteria. Thus, there’s no good reason to swallow fluoride and subject every tissue of your body to it, Thiessen says.

   

  Another 2009 review by the Cochrane group clearly shows that fluoride toothpaste prevents cavities, serving as a useful counterpoint to fluoridation’s uncertain benefits.

   

  ***

   

  “I couldn’t believe the low quality of the research” on fluoridation, Sheldon says.

   

  ***

   

  Cavity rates have declined by similar amounts in countries with and without fluoridation.

   

  ***

   

  Sheldon says that if fluoridation were to be submitted anew for approval today, “nobody would even think about it” due to the shoddy evidence of effectiveness and obvious downside of fluorosis.

   

  ***

   

  The CDC and others “are somehow suspending disbelief,” Sheldon says. They are “all in the mindset that this is a really good thing, and just not accepting that they might be wrong.” Sheldon and others suggest pro-fluoridation beliefs are entrenched and will not easily change, despite the poor data quality and lack of evidence from the past 40 years.

  Indeed, an overwhelming number of scientific studies conclude that cavity levels are falling worldwide … even in countries which don’t fluoridate water.

  World Health Organization Data (2004) –
  Tooth Decay Trends (12 year olds) in Fluoridated vs. Unfluoridated Countries:
  

  And the scientific literature shows that – when fluoridation of water supplies is stopped – cavities do not increase (but may in some cases actually decrease). See this, this, this, this, this and this.

  A couple of weeks ago, the British Medical Journal reported that Americans lose a lot more of their teeth than the Brits … even though the U.S. fluoridates a lot more of its water than the UK.

  Fluoridating may water also cause reduction in IQ, depression and a variety of other illnesses.

  The Guardian notes:

  Critics cite studies claiming to have identified a number of possible negative associations of fluoridation, including bone cancer in boys, bladder cancer, hypothyroidism, hip fractures and lower IQ in children.

  Newsweek reports:

  A growing number of studies have suggested … that the chemical may present a number of health risks, for example interfering with the endocrine system and increasing the risk of impaired brain function; two studies in the last few months, for example, have linked fluoridation to ADHD and underactive thyroid.

  But how did the myth that water fluoridation is effective and safe get started in the first place?

  The government allegedly ordered Manhattan Project scientists to whitewash the toxicity of flouride (flouride is a byproduct in the production of weapons-grade plutonium and uranium). As Project Censored noted in 1999:

  Recently declassified government documents have shed new light on the decades-old debate over the fluoridation of drinking water, and have added to a growing body of scientific evidence concerning the health effects of fluoride. Much of the original evidence about fluoride, which suggested it was safe for human consumption in low doses, was actually generated by “Manhattan Project” scientists in the 1940s. As it turns out, these officials were ordered by government powers to provide information that would be “useful in litigation” and that would obfuscate its improper handling and disposal. The once top-secret documents, say the authors, reveal that vast quantities of fluoride, one of the most toxic substances known, were required for the production of weapons-grade plutonium and uranium. As a result, fluoride soon became the leading health hazard to bomb program workers and surrounding communities.

   

  Studies commissioned after chemical mishaps by the medical division of the “Manhattan Project” document highly controversial findings. For instance, toxic accidents in the vicinity of fluoride-producing facilities like the one near Lower Penns Neck, New Jersey, left crops poisoned or blighted, and humans and livestock sick. Symptoms noted in the findings included extreme joint stiffness, uncontrollable vomiting and diarrhea, severe headaches, and death. These and other facts from the secret documents directly contradict the findings concurrently published in scientific journals which praised the positive effects of fluoride.

   

  Regional environmental fluoride releases in the northeast United States also resulted in several legal suits against the government by farmers after the end of World War II, according to Griffiths and Bryson. Military and public health officials feared legal victories would snowball, opening the door to further suits which might have kept the bomb program from continuing to use fluoride. With the Cold War underway, the New Jersey lawsuits proved to be a roadblock to America’s already full-scale production of atomic weapons. Officials were subsequently ordered to protect the interests of the government.

   

  After the war, … the dissemination of misinformation continued.

  And Edward Bernays – the father of modern propaganda techniques – may have been the mastermind behind the “safe and effective” myth.

  Austrian economist Murray Rothbard wrote in 1993:

  The mobilization, the national clamor for fluoridation, and the stamping of opponents with the right-wing kook image, was all generated by the public relations man hired by Oscar Ewing to direct the drive. [Ewing was the chief counsel for Alcoa aluminum company, and fluoride is a byproduct of aluminum production.] For Ewing hired none other than Edward L. Bernays, the man with the dubious honor of being called the “father of public relations.” Bernays, the nephew of Sigmund Freud, was called “The Original Spin Doctor” in an admiring article in the Washington Post on the occasion of the old manipulator’s 100th birthday in late 1991.

   

  ***

   

  As a retrospective scientific article pointed out about the fluoridation movement, one of its widely distributed dossiers listed opponents of fluoridation “in alphabetical order reputable scientists, convicted felons, food faddists, scientific organizations, and the Ku Klux Klan.” (Bette Hileman, “Fluoridation of Water,” Chemical and Engineering News 66 [August 1, 1988], p. 37; quoted in Griffiths, p. 63) In his 1928 book Propaganda, Bernays laid bare the devices he would use: Speaking of the “mechanism which controls the public mind,” which people like himself could manipulate, Bernays added that “Those who manipulate the unseen mechanism of society constitute an invisible government which is the true ruling power of our country…our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of…” And the process of manipulating leaders of groups, “either with or without their conscious cooperation,” will “automatically influence” the members of such groups.

   

  In describing his practices as PR man for Beech-Nut Bacon, Bernays tells how he would suggest to physicians to say publicly that “it is wholesome to eat bacon.” For, Bernays added, he “knows as a mathematical certainty that large numbers of persons will follow the advice of their doctors because he (the PR man) understands the psychological relationship of dependence of men on their physicians.” (Edward L. Bernays, Propaganda [New York: Liveright, 1928], pp. 9, 18, 49, 53. Quoted in Griffiths, p.63) Add “dentists” to the equation, and substitute “fluoride” for “bacon,” and we have the essence of the Bernays propaganda campaign.

   

  Before the Bernays campaign, fluoride was largely known in the public mind as the chief ingredient of bug and rat poison; after the campaign, it was widely hailed as a safe provider of healthy teeth and gleaming smiles.

  And award-winning BBC producer and investigative journalist Christopher Bryson writes:

  [Bernays] operated from the same office building, One Wall Street, where the Alcoa lawyer Oscar Ewing had also worked. In 1950 Ewing had been the top government official to sign off on the endorsement of water fluoridation, as Federal Security Administrator in charge of the US Public Health Service.

   

  “Do you recall working with Oscar Ewing on fluoridation?” I asked Bernays.

   

  “Yes,” he replied.

   

  ***

   

  Bernays’s personal papers detail his involvement in one of the nation’s earliest and biggest water fluoridation battles ….

  Bryson goes on for pages describing how Bernays master-minded the campaign to convince Americans to accept water fluoridation.

  And watch this brief interview:

  (The whole 25-minute interview is a must-watch.)

  Even Chemical and Engineering News noted in 1999:

  According to Edward Groth III, an associate technical director of Consumers Union who wrote his Ph.D. thesis in biology on the fluoridation controversy in 1973, pro- and antifluoridationists approach the issue from completely different perspectives. “Proponents see it as a simple public health measure, effective and safe, which they need to ‘sell’ to the public, almost like a box of soap.

  In other words, the U.S. government apparently hired the leading propagandist to create the myth that fluoride is safe and effective in order to protect its bomb-making program.

  

  

  

  

• Re-Branding Dissent – The Quiet Destruction Of Democracy

  Authored by Golem XIV,

  I am one of those who thinks that democracy is being destroyed.  I know its fashionable to play cynical one-upmanship and say – ‘we’ve never had democracy’, or, ‘it was destroyed long ago’,  but that game aside, I think its worth actually thinking about how, many forms of democratic expression, effective dissent and peaceful self-determination are being buried.

  In “The Next Crisis” I argued that the Global Over-Class have decided that Democracy is a threat to their wealth and power and have more than likely given some thought to how best to neuter it while appearing to do no such thing.  I suggested they would wish to keep the outward form of democracy, so as to keep us reassured and entertained, but remove any substance from it, leaving us with an empty but colourful stage show. 

  In part two  of the series, I offered a list of the various ways this could be done (a sort of manifesto for the Over Class or, as I have called them elsewhere, The Disloyal and noted how many of those things were clearly already underway.

  For example item three of the manifesto said,

  3) professionalized Governance. Democracy can be and must be neutered, and an effective way of doing this is to insist that amateur, elected officials MUST take the advice of professional (read corporate) advisors. Expand current law to enforce this.

   

  If this seems monstrous now, their argument, I suspect,  will be that in an increasingly crowded, interconnected and globalised world we can no longer leave critically important decisions in the hands of the uneducated, in-expert and amateur.  We must, of course, still be free to choose but must, from now on, be helped to choose ‘wisely’. And how can we choose wisely if we aren’t given wise choices to choose from?  Oh, the Orwellian beauty of it! No prizes for guessing who will decide what is and what is not wise. 

  We cannot any longer allow you to choose unwisely! There is so much at stake and so much you and your representatives simply do not fully understand.

  You only need think how much legislation is already written by these ‘advisors’ and how many ‘experts’ are routinely seconded from corporations in order to ‘help’ the government departments regulate those same corporations to appreciate how far towards this we have already come. Two examples of ‘expert advice’ spring readily to mind. Back in May 2014  Citi drafted, word for word, many of the ‘amendments’ to the Frank Dodd financial regulation law.  While professional experts from  J PM Morgan did the same for the new derivatives trading law which puts the US tax payer back on the hook for any really serious losses.

  Choose wisely

  ‘Choose wisely’ is a good first step in neutering democracy. It is easy to sell, appears wise, benevolent even, and who could advocate the opposite?  But being admonished to ‘choose wisely’ is quite different to being forced to do so by having ‘experts’ pre-choose your range of choices for you and having your representatives forced to follow the pre-narrowed ‘wise’ choice or choices handed to them by paid-for lobbyists and seconded experts. However I think the Over Class knows ‘Choose wisely’ and Professionalized Governance are not going to be enough on their own – given the scale of unpleasantness which will have to be imposed and maintained on voters if the current structures of power and privilege are to be maintained.

  ‘Choose wisely’ and Professionalized Governance are an efficient and well camouflaged way to stop radical democratic ideas getting traction in Parliament or Congress or ever making it in to law. But, they leave unaddressed the more urgent task of how to properly neuter the people at source – in their own minds. How much better and stable it would be, for the Over Class, if the people voluntarily shied away from dissenting opinions rather than having  to corral such opinions once they are voiced and people start voting for them.

  I began to look at how this second front in the war on democracy might be fought, in part three.  I  suggested that what you and I might call public engagement would be re-branded as ill-informed ‘populism’. And wouldn’t you know it, Prime Minister David Cameron speaking – or should I say condescending – in the House of Commons on 17.11.15 about opposition to the TTIP trade agreement, said,

  …when you [Members of Parliament] get that barrage of emails – people sometimes have signed up without fully understanding every part of what they’ve been asked to sign – people want to spread some fear about this thing, and we have a role, I think, of trying to explain properly why these things are good for our country.

  Et voila! A wonderful early example. This is the start of the re-branding of political dissent.

  But wait , as the  old advertizing saying goes, there’s more!

  From ‘Professionalize Democracy’ to ‘Demonize Dissent’

  The key problem for the Over Class is that no matter how much they might like to, they cannot just come out and say dissent – AKA radically different opinion – is a bad thing. Being able to hold a dissenting opinion, even a radically dissenting opinion, is, after all, the core of democratic freedom.

  So I think the Over Class’ task is two-fold. First, create conditions which will make people want to stifle dissent; other people’s first then even their own – or at least start to see a dark and threatening side to it – and then give them a whole new vocabulary of catchy new phrases and ideas with which to express their new-found caution about dissent and dissenters. Seen this way it is clear that this re-branding of dissent is a psychological/marketing/propaganda problem.

  Of course it is relatively trivial to get people to accept that while many kinds of dissent are acceptable, some kinds  just aren’t because, for example, they’re felt to be dangerous. We already accept that certain kinds of ‘extremist’ dissent is dangerous and unacceptable. And while some are uneasy, sensing how the term ‘extremist’ could be softened and inflated to accommodate everyone from animal rights activists, to – oh I don’t know…how about ‘militant peace activists’, or those who oppose austerity, people are just about willing to be bullied and frightened into accepting this ‘extremist’ curtailment of democracy.

  ‘Extremists’ and ‘Extremism’ have been the millennial threat-du-jour and have done wonders for justifying any and all actions claimed to be essential for ‘protecting national security’. No one wants to be accused of supporting ‘extremists.’ In America, Extremism is the new Communism. The rhetoric and paranoia around the ‘threat from Extremism’ in America and in Europe looks and sounds, to me at least,  very similar to McCarthyism. In the UK another new Bill will soon give the British security services and police yet more powers to stop travel, cancel passports and even ban people from talking at universities.

  But the “extremist’ narrative is not going to do what needs to be done. The problem is the terms currently used  to label people as dangerous are less than perfect for demonizing the dissent that worries our leaders most: those to do with economics, finance and globalisation and the environment.  ‘Extremism’ and ‘extremist’ are, perversely, just too …well, extreme. Talking about National Security, is very effective in its sphere, but it is just too specifically military to be very useful when it comes to undermining most peaceful, domestic, democratic dissent. What the ‘extremism’ narrative has done, however, is get people used to the idea that there can and should be limits to democratic dissent.

  What I think the Over Class now need is a new label for the  mind-set of dissenters and their dissent which can be applied to those who oppose the ‘necessary welfare and economic reforms’, ‘essential austerity cut backs’,  ‘misunderstood’ trade agreements and environmental problems. They need a label for a mind-set which they will readily admit isn’t ‘extremist’ but which they can argue ‘can lead to extremism’; much as people used to talk about marijuana being the gateway drug leading inevitably to harder drugs.

  What will that label be? Well I think the clue is there in the drive to ‘professionalize’ governance. ‘Professional’ is already a shorthand for the  claim that someone or something is rational, balanced and ‘evidence based’. The term ‘Professional’, all on its own, already implies that those opposed to the ‘professional’ opinion/plan, are probably slightly ‘irrational’ and quite likely to be advocating actions and opinions that are without a firm base in scientific evidence. After all if that were not the case the professionals would have advocated it themselves.

  Of course this brings us wonderfully back to the questions of who claims to have the authority and expertise to say what is and isn’t good solid rational and evidence-based. We are already mired in such arguments.

  The threat from the Irrational

  I suggest the new label will be ‘Irrational’. “He’s irrational!” “You’re being irrational.” “That’s irrational.” Irrational is already a term of abuse. What’s needed is to suggest that being irrational can be much more than a personal intellectual short-coming. That in fact, people who support irrational causes, and have irrational beliefs – who are …irrational, can be a dangerous threat when they organise their irrational beliefs into a political cause. Because, the argument will go, irrational fears can be used by those who have ulterior motives to prey upon the ordinary but unwary citizen, by creating irrational fears and then offering a seductive but irrational solutions.

  And of course what will be held up as acceptable rational beliefs will be generally those which the Over Class, their media outlets, pundits and paid for political lick-spittles say are rational.

  In this new narrative of demonizing dissent,

  “It is not what you chose to believe – you are free to believe what you want – but HOW you believe it.

   

  Believe it rationally, based on evidence and with regard for how your belief affects the well-being and security of those around you and there is no problem.

   

  But choose to believe irrationally and without regard for how your irrational belief may harm others and you are an Irrationalist. “

  This leaves intact your right to believe what you want but adds a subtle but insidious ‘responsibility test.’

  If I’m right then we will soon see a broader new narrative built around the idea that Irrationality and an irresponsible disregard for the well-being of others, together, pose a grave threat to Stability and Safety. These four notions, Irrationality, Irresponsibility, Stability and Safety will form the central mechanism for re-branding dissent.  ‘Safety’  people will recognise from its National Security guise. But by pairing it with ideas of Stability it helps bridge the gap between national security (safety) and national economic security (stability). Security becomes more than simply physical safety and is expanded to include economic stability.

  And the enemy of both, of course, is the Irrational Dissenter. Being irrational is, we will be told, particularly dangerous when it is paired with fervent claims that we are in danger and we should all act now to fend off the danger. Such  people will be likened to idiots who shout ‘fire’ in a crowded theatre.

  A new mental condition could be coined for them – something along the lines of Attention Seeking Disorder – people who get a perverse pleasure simply from dissenting. How easy it would be to cast doubt on someone’s dissent if you suggest it is not about caring for others but actually a disorder of the ego. A desire for notoriety above all else with total disregard for what effect they might have on the stability and safety of those round them.

  Troublesome dissent could be rebranded as a thoughtless and selfish advocating of something knowing it will cause widespread harm to others but not caring.

  Extremism is a problem out there on the fringes of society – Irrationalism – The paranoid fear of imagined dangers and those who promote such fears – is the enemy within.  They are the sinister fringe who constantly look to radicalize the inexpert.

  So let us all recite the liturgy our leaders would have us believe, that in the 21st century –

  1. Democracy is the freedom to choose wisely.
  2. In a globalized, inter-dependant world we cannot afford to choose irrationally or disastrously.
  3. It is not what you believe but how you believe it.
  4. Believe things rationally, based on evidence, with regard to how your beliefs affect those around you.
  5. If you know someone who doesn’t, they may be irrational and suffering from a mental disorder in which the personal notoriety of being contrarian matters more to them than any harm they might do to the safety and stability we all depend upon.

  

  

  

  

  

• EiGHT YeaRS AFTeR…

  

  

  

  

  

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• Why Did The Pentagon Falsify Reports About Military Successes In Fight Against ISIS?

  Via tamarlomidze blog,

  December 11, 2015 Republicans from the House of representatives of the U.S. Congress announced the creation of a special task team that will investigate the facts of distortion of data about the operations of the coalition in Iraq and Syria. The group will be to identify falsification in the reports, as well as figure out whether the problem is systemic in nature. The decision to create special group was adopted in November after more than fifty analysts of CENTCOM complained that their reports on the results of operations of the coalition against ISIS have been reduced in order to present the situation more positively.

  

  Despite the fact that the preliminary results of the investigation must b? submitted only in January, Rep Jackie Speier has confirmed that the falsifications which underestimate combat capabilities of ISIS took place indeed. As one of such examples is the May statement of General Thomas Weidle, which said ISIS “loses and remains in the defense”. However, immediately after his speech, terrorists has captured the Central quarter of Ramadi, the administrative center of Anbar province. If American leadership possessed a clear picture of what is happening, it could take emergency measures and even prevent the ingress of arms, military equipment and ammunition to the hands of militants. The value of US arms and military equipment captured by jihadists equals hundreds of million dollars.

  Indeed questions about whether we can trust the CENTCOM generals had to appear in October last year when ISIS captured supplies which US Air Force were supposed to delivered to Kurdish militia in besieged Kobani. According to the military press-release, in order to avoid capturing one of the caches which was blown by the wind from the place of destination, the military container was destroyed by the air strike. The rest of caches were successfully delivered. However, Pentagon spokesman Steve Warren reported that the two containers were lost on the route and only one cache was destroyed.

  Moreover the military representatives thwart one another talking about the diversion of weapons into the hands of terrorists, they are confused about the total number of dropped containers for Kobani defenders (Warren reported about 28 containers, whereas previously said only 6).

  In addition, the soothing assurances that the container captured by ISIS won’t give any advantage to the enemy are not convincing. Pentagon reported that only 80% of water and food which were transported by air for religious minorities in northern Iraq were successfully delivered. And as we see the Kobani example shows that even the use of GPS-guided parachutes can’t be insured. So, how many weapon American taxpayers gave to jihadists?

  “Carefully selected” participants of the CIA program on training “moderate” opposition who easily join the jihadists tell us about the lack of awareness or even falsity of the American military leadership. Thus in September 2015 almost immediately after arriving from training camps to Syria “Division 30” has transferred all their equipment, arms and ammunition to Jabhat al Nusra. Unfortunately that was not the first time. Once again the unit commander told about the shortage of instructors and the lack of supply during the preparation of the CIA program. But it was allocated about $500 million for these purposes! What the money was spent on? To buy weapons for terrorists!

  During the discussion of 2016 budget, almost every article in the mainstream media avoided the issue connected with the effectiveness and practicability of training “moderate” opposition in order to fight ISIS to the issue of what are the results of this opposition efforts against Assad. Are these things of equal value?

  We hope that the special group of the House of Representatives will identify not only the scale of the fraud reports about the results of the coalition activity against terrorism, but also those persons who are responsible for these misconducts, as well as their motives. The international community wants to know who exactly Pentagon supplies with weapons and what installations it bombs.

  

  

  

  

  

• Something Went Wrong In Baltimore

  It has been a bloody year in Baltimore, that much everyone knows, but as The Economist shows, something changed dramatically after Freddie Gray's death in April…

  On November 14th the police department reported the city’s 300th homicide in 2015, a total not seen since 1999.

  

   

  The surge in killings in the majority-black city of roughly 623,000 began after the death on April 19th of Freddie Gray, a 25-year-old black man who was fatally injured while in police custody. Since Mr Gray’s death the city has recorded 244 homicides, a 78% increase over the same period in 2014, representing more than 100 additional deaths.

  

  Criminologists and city officials disagree as to the causes:

  • Some say police have deliberately pulled back from poor, black neighbourhoods, a theory that the police disputes.
  • Others blame an influx of drugs from pharmacies looted during the April riots.
  • A third theory is that a decline in trust between the police and the policed has had deadly consequences: fewer residents talk to the police, which leads to fewer murders being solved, which – by lowering the odds of being caught – results in more murders.

  Whatever the reason, the killing continues. Just hours after the 300th murder, police reported a shooting in the city’s Westport neighbourhood, the fourth homicide of the day. The total for the year now stands at 305.

  

  

  

  

  

• Carmen Reinhart Warns "Serious Sovereign Debt Defaults" Are Looming

  Authored by Carmen Reinhart, originally posted at Project Syndicate,

  When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default,” according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”).

  If history is a guide, such conversations may be happening a lot in 2016.

  Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults.

  The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors.

  Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts. But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions.

  And, indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises. As my recent work with Vincent Reinhart and Christoph Trebesch reveals, peaks and troughs in the international capital-flow cycle are especially dangerous, with defaults proliferating at the end of a capital-inflow bonanza.

  

  As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.

  For some sovereigns, the main problem stems from internal debt dynamics. Ukraine’s situation is certainly precarious, though, given its unique drivers, it is probably best not to draw broader conclusions from its trajectory.

  Greece’s situation, by contrast, is all too familiar. The government continued to accumulate debt until the burden was no longer sustainable. When the evidence of these excesses became overwhelming, new credit stopped flowing, making it impossible to service existing debts. Last July, in highly charged negotiations with its official creditors – the European Commission, the European Central Bank, and the International Monetary Fund – Greece defaulted on its obligations to the IMF. That makes Greece the first – and, so far, the only – advanced economy ever to do so.

  But, as is so often the case, what happened was not a complete default so much as a step toward a new deal. Greece’s European partners eventually agreed to provide additional financial support, in exchange for a pledge from Greek Prime Minister Alexis Tsipras’s government to implement difficult structural reforms and deep budget cuts. Unfortunately, it seems that these measures did not so much resolve the Greek debt crisis as delay it.

  Another economy in serious danger is the Commonwealth of Puerto Rico, which urgently needs a comprehensive restructuring of its $73 billion in sovereign debt. Recent agreements to restructure some debt are just the beginning; in fact, they are not even adequate to rule out an outright default.

  It should be noted, however, that while such a “credit event” would obviously be a big problem, creditors may be overstating its potential external impacts. They like to warn that although Puerto Rico is a commonwealth, not a state, its failure to service its debts would set a bad precedent for US states and municipalities.

  But that precedent was set a long time ago. In the 1840s, nine US states stopped servicing their debts. Some eventually settled at full value; others did so at a discount; and several more repudiated a portion of their debt altogether. In the 1870s, another round of defaults engulfed 11 states. West Virginia’s bout of default and restructuring lasted until 1919.

  Some of the biggest risks lie in the emerging economies, which are suffering primarily from a sea change in the global economic environment. During China’s infrastructure boom, it was importing huge volumes of commodities, pushing up their prices and, in turn, growth in the world’s commodity exporters, including large emerging economies like Brazil. Add to that increased lending from China and huge capital inflows propelled by low US interest rates, and the emerging economies were thriving. The global economic crisis of 2008-2009 disrupted, but did not derail, this rapid growth, and emerging economies enjoyed an unusually crisis-free decade until early 2013.

  But the US Federal Reserve’s move to increase interest rates, together with slowing growth (and, in turn, investment) in China and collapsing oil and commodity prices, has brought the capital inflow bonanza to a halt. Lately, many emerging-market currencies have slid sharply, increasing the cost of servicing external dollar debts. Export and public-sector revenues have declined, giving way to widening current-account and fiscal deficits. Growth and investment have slowed almost across the board.

  From a historical perspective, the emerging economies seem to be headed toward a major crisis. Of course, they may prove more resilient than their predecessors. But we shouldn’t count on it.

   

  

  

  

  

  

• Keynesian vs. Austrian Economics – The Infographic

  There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).

  In order to get a full understanding of the two schools of economic thought, we offer the following via The Austrian Insider…

  
  

  

   

  And some responses to popular criticisms:

  – “Animal Spirits is misrepresented” – I just personally thought explaining that further would be too much text.  If anyone would like to get a full explination of what Keynes meant by this term, read this Wikipedia article on Animal Spirits

  – “This is biased towards the Austrian School” – Well I am obviously an Austrian economist, so there is only so much I can argue with that point.  That said, I HONESTLY tried to represent Keynes properly and would love to hear from any Keynesians what can be changed to help represent them properly.

  – “Malthus was not an economist” – He may be more of a philosopher, but many consider him an influence of Keynes.

  – “Ron Paul is not an economist” – Just because he is a doctor and politician by profession does not mean he is not a well known Austrian Economist.  He has many books on the subject, is a senior fellow of the Mises Institute, and has personally got many individuals to research Austrianism further

  – “It should not be total utils, but marginal utility on that graph” – It is supposed to represent the marginal utility graph, I just didn’t label it.  The graph should show total utility marginally decreases with each dollar increase.  The printable version has the entire chart labeled.

  – “Praxeology is not the right term to describe the whole organizational pattern of the social order. It refers only to the logical implications of human action that can be known through deduction.” – Well put.  Just hard to figure out how to graphically represent that…

  

  

  

  

• "Not Transitory" – The Year In Junk Bonds

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The most important outbreak or story of 2015 had to have been the junk bond reversal. It combined all the major elements of what investors and economic agents are both fearing and, at one point in the past anyway, hoping. It is the confluence of finance, “dollars”, liquidity and economics with or without recovery and the best scenario. The FOMC raising rates is supposed to confirm the brightest outlook, which would only lead to more extension in the credit cycle, and yet junk bonds traded as if the worst were only just around the corner. It isn’t so much the selloff, though that is obviously important, but rather how increasingly the selloff is being treated as permanent.

  It is the expression of an obvious and apparently durable shift in risk perceptions, and I think it the most significant development. You can see it clearly in the changes this year to last. After the selloffs in October and December 2014, junk was bid in clear bargain hunting patterns of behavior. The rebound after last December lasted months and was quite significant even if it didn’t quite bring prices and yields quite back to the full comfort of prior complacency.

  This year, each discrete selloff was met instead by listlessness and palpable uninterest, including the past week or so after what was undoubtedly the most intense selloff yet. That leaves the waves of selling only pushing the idea of the continuation in the credit cycle further and further remote; bringing instead the sense of doom closer and closer. This alteration in outlook and perception really could not be more unmistakable:

  

  It is not your typical market behavior; not at all the “wall of worry” that represents healthy skepticism and functional fundamental discounting but rather a “get the hell out of Dodge” and stay out.

  

   

  Not transitory at all, then, rather a paradigm shift that isn’t yet even close to a new steady state. Welcome to 2016.

  

  

  

  

  

• On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

  On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring – perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai. 

  What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.

  However, while the broad framework of Turkey’s exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold “trading” company of Gold.A.E. – is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.

  The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company’s “new” management team admitted that after many months of “inquiries”, it had discovered that not only had the “old” management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money – and gold – held at Gold.A.E. which once again was primarily a “trading” front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.

  Here, for those who missed it the first time, is the letter that Gold.A.E.’s stunned clients received in late December:

  Dear Client

   

  A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

   

  Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.

   

  Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

   

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

   

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

   

  We trust the forgoing is of assistance.

   

  Sincerely,

   

  On behalf of GOLD AE MANAGEMENT

  Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park‘s infamous episode: “aaaannd it’s gone. The gold is all gone.“

  In a follow up article, “The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens“, we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner – one of the most important people in the United Arab Amirates – and “washing” their hands of any accountability.

  Recall, “the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

  “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

  But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.

  When Arabian Business emailed the public inquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

   

  Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

  In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money – and gold – of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.

  * * *

  So while we continue to dig into the mystery of Dubai’s stolen gold, one which has received absolutely no mention in the western press – in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year’s Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.

  I’m a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM’s. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.

   

  I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM’s were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].

   

  The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my ‘source’ who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!

  And here is the punchline from our source’s letter:

  My source has told me that he now understands that the company knew something was terribly wrong in the March – May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I’ve been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.

  Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings – a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf – waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.

  Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai’s gold.

  According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, “A new integrated Gold and silver investment vehicle”, one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.

  This is what the October 2014 presentation boasted about Gold Holding’s ambitions – nothing short of global gold commerce dominance:

  • To be a premier precious metals investment vehicle, physical.
  • To provide shareholders with high quality, long-term exposure to precious metals.
  • To offer mine owners an attractive alternative to debt or equity.
  • To be a significant and Reliable trader of Gold and Silver

  Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.

  

   

  The company’s Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in… Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing…

  

   

  Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk – that of corporate fraud and embezzlement – was at the Trading level, where the risk was supposed to be the lowest. Oops.

  

   

  The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of… Gold Holding?

  

   

  Wait, wasn’t Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:

  “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

   

  “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

  It appears “your” knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company’s own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the “old management team”, the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed “substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”

  In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.

  Which brings us to our conclusion from a week ago:

  So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

   

  And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by… the United States!

  Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important – and richest – people in the country, if not the entire middle eastern region.

  But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.

  As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something “out of place”, in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE… which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.

   

  * * *

  And finally, while not directly related to the topic of Gold AE’s massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.

   

  … and not only that, but it was here where we found what may be the most fascinating detail of today’s article, namely Gold Holding’s (aka Dubai’s) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan…. as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!

  

   

  Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.

  Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?

  Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing… and all with Dubai’s blessings?

  

  

  

  

  

• Caption Contest: "And Then I Said Obamacare Would Lower Insurance Costs"

  “Comedians” in cars…

   

  

   

  or driving Miss ‘Crazy’?

  

  

  

  

  

• Mapping China's Hilarious European Stereotypes

  To many in the Western world, China is still something of a mystery. 

  Even as Xi works to liberalize the country’s capital markets, promote the yuan in international trade and investment, and generally open the country’s doors to the world, it’s still a strange, foreboding place in the eyes of the Western public.

  Tales of censorship, “disappearing” journalists, and endemic corruption don’t help, and neither does the ambiguity inherent in attempting to run a communist state with a semi-capitalistic economy.

  Of course this is a two-way street. That is, the West is something of an enigma for many Chinese as well.

  For those wondering what comes to mind for the average Chinese web surfer with regard to nations in Europe, we present the following map from Foreign Policy who “plotted the most common Chinese-language Baidu query for each European nation.” Highlights include “likes to fight” for Russia, “why doesn’t it annex Portugal” for Spain, and “beautiful women” for Ukraine.

  

  From Foreign Policy:

  This provides a glimpse into how Chinese netizens view the peoples and countries of Europe — a continent whose industrialization once both humiliated China and inspired its admiration, and that has loomed large in the country’s imagination ever since.

   

  The ghosts of the past haunt Chinese queries for many countries. Chinese netizens ask why France and Poland can’t beat Germany — though vague phrasing and the Chinese language’s lack of verb tenses admittedly mean these might just be soccer questions, which also appear frequently in search results about World War II. (Those Belgian red devils? That has been thecolloquial name for Belgian soccer players since 1906.) There is no ambiguity about Italy: Netizens ask why that nation was not subjected to the same postwar criticism as Japan and Germany. Britain’s role in the Opium Wars, the successive 19th-century conflicts that forced China to grant territorial concessions to European nations, comes up. And for Germany, references to killing and hating Jews topped the search suggestions, though another top query, “Why do Germans still hate Hitler?” indicates a modicum of balance.

   

  Quirks of European political divisions and territorial boundaries also arouse Chinese curiosity. There is considerable confusion about who does and does not belong to institutions like the European Union and the eurozone. The political status of parts of the British Isles is an object of intense interest to China’s online community, which asks about the independence (or the lack thereof) of Ireland, Northern Ireland, Scotland, and Wales. Netizens also ask why German-speaking Austria does not unite with Germany, and why Italy and Spain do not respectively annex the Vatican City and Portugal.

  

  

  

  

  

• Will 2016 Be The End Of The Current Skyscraper Boom?

  Submitted by Mark Thornton via The Mises Institute,

  With more financing in place, the world’s tallest skyscraper is moving forward.

  Recent media reports indicate that the final segment of financing has been obtained for the $1.2 billion Jeddah Tower project in Saudi Arabia. This is the financing that would be necessary to bring the project to record heights. Media reports also show that the structure has risen to more than seventy-five meters (246 feet) and construction is proceeding at an uninterrupted pace.

  Above ground construction on the long delayed Jeddah Tower started in September 2014, but there was considerable doubt that the financing of the one kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.

  But the Jeddah Tower is only the latest phase in an enormous boom that began setting new records in 2014. As I reported nearly a year ago:

  Super tall buildings, or skyscrapers, are being built at an astonishing rate. Ninety-seven buildings that exceed 200 meters (656 feet) high were constructed in 2014, setting a new record. The previous record was eighty-one buildings completed in 2011. The total number of skyscrapers in existence now is 935, a whopping 350 percent increase since the year 2000.

  If completed as planned, the Jeddah Tower will be the tallest in the world. The International Business Times reports:

  Saudi Arabia’s Kingdom Tower in Jeddah is slated to become the world’s highest skyscraper when it is erected in 2020, knocking Dubai’s Burj Khalifa tower from its perch as tallest building at 2,716 feet. The new tower will claim the title if it reaches its planned height of 3,280 feet. …The 200-floor Kingdom Tower will be part of a reported $8.4 billion project to construct Jeddah City. Construction of the skyscraper will entail 5.7 million square feet of concrete and 80,000 tons of steel …

  Time for a Skyscraper Alert?

  In other words, the Tower is just part of an even more massive project, and it’s time for a new skyscraper alert.

  A skyscraper alert is a market indicator suggesting a significant economic crisis in the near future. This alert could have been issued earlier because the alert is based on the ground breaking ceremonies of a world record setting skyscraper, not the initial announcement of the project which occurred in August of 2011.

  

  The completion of record-setting skyscrapers has long seemed to indicate the beginning of economic crises.

  The Singer Building (September 1906) and Metropolitan Life Insurance Building (1907) began construction before the Panic of 1907 and were later completed in 1908 and 1909, respectively.

  Construction began on 40 Wall Street (now the Trump Building), Chrysler Building, and the Empire State Building all prior to the crash on Wall Street which began in the fall of 1929 only to have the record-setting buildings open in the beginning of the Great Depression in 1929, 1930, and 1931, respectively.

  Construction of the World Trade Center towers began in August 1968 and January 1969 and opened in December 1970 and January 1972, respectively. The economy was then in a bad recession and the Bretton Woods Crisis at hand. The Sears Tower (now the Willis Tower) began construction in April of 1971 and opened in May of 1973 during the 1973–1974 stock market crash and the 1973 oil crisis.

  Such alerts indicate looming danger in the economy of significance. However, the danger is not necessarily imminent. The next pivotal date is when the construction project reaches a point where it has broken the record. That date is difficult to estimate given the whims of construction. Media reports indicate that the Jeddah project will possibly be completed in 2020 without indicating whether that date is the record setting date, the completion date, or the opening ceremonies.

  It is significant that the record being broken by the Jeddah Tower is the record set by the Burj Khalifa in Dubai. In some ways, the Burj Khalifa has become something of a symbol of the excesses of the last bubble.

  Set to become the tallest building in the world, the Burj Khalifa in 2009 began to experience financial trouble and had to delay payment on its debt to finance construction. When the Burj Khalifa officially opened in January of 2010, the sovereign fund of the United Arab Emirates, which built the skyscraper, was broke and had to be bailed out by the sheikh of Abu Dhabi for $10 billion.

  So, will this latest frenzy of new construction tip us off to the next bust? The skyscraper index is silent on the issue of timing so the dating of when the skyscraper curse is apparent is just guess work. It seems that the boom-bust cycle reaches its peak around the time the new record is set and is called a Skyscraper Signal, if imminent economic danger is looming. In most episodes, record breaking skyscrapers have their opening ceremonies when the economic crisis is readily apparent.

  The important thing to remember is that skyscrapers do not cause economic crises. Rather they are just a very noticeable example of the distortions taking place throughout the economy when interest rates are keep artificially low by the central bank.

  In addition to record breaking skyscrapers, there are many less perceptible changes taking place. Entrepreneurs are building bigger, longer term projects and production processes. Relative prices, i.e., interest, land, capital, and labor prices, are being distorted. Technology, nearly everywhere, is on the fast track. The economy is booming.

  If the Skyscraper Curse is at work, then these distorted economic activities will soon be revealed to be malinvestments.

  

  

  

  

  

• Obama To Unveil "Multiple Gun Control" Executive Actions Next Week

  A month ago, after the mass San Bernardino shooting, we predicted that “the US will see increasingly more escalating “attacks” until ultimately Obama’s crackdown on gun sales and possession hits its breaking point and the president’s gun confiscation mandate is finally executed.”

  Without a Democratic majority in Congress, and faced with a GOP that is firmly against any form of gun control measures, Obama has repeatedly warned that he would act on his own. Next week he will do just that, and his “gun confiscation” mandate will get a substantial boost on Monday, when according to the WSJ Obama will meet with US Attorney General Loretta Lynch “to consider measures aimed at reducing gun violence, a conversation that comes as he prepares to announce new executive actions in the coming days.”

  The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”

  Once he has Lynch’s “blessing”, the WSJ adds that Obama “could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.“

  White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.

  Why act now?

  “I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Obama said in the address, which was released Friday morning.

  

  Something tells Obama gets even more letters from supporters of the Second amendment, although their contents may be just slighly more “colorful.”

  “We know that we can’t stop every act of violence. But what if we tried to stop even one?” Obama added. “What if Congress did something—anything—to protect our kids from gun violence?”

  “The president has made clear he’s not satisfied with where we are and expects that work to be completed soon,” the White House spokesman added. In other words, it’s time for the president to micromanage yet another aspect of daily US lives, because Obamacare turned out so well.

  One executive action that will almost certainly be unveiled is the “tightening” of rules for firearms sellers by requiring more of them to be licensed and, as a result, to conduct background checks on buyers.

  Anything Obama does unveil will be met with stiff resistance.

  Many gun-rights groups already have signaled opposition to new rules for private sellers and an expansion of background checks. And they have questioned whether Mr. Obama has the legal authority to act unilaterally.

   

  Research by the National Rifle Association showed that dating back to the 2007 mass murder at Virginia Tech, none of the high-profile mass shootings has been conducted600 with a firearm bought from a private seller. Adam Lanza is believed to have stolen his mother’s gun after killing her then using it in the Sandy Hook Elementary School massacre.

   

  “I don’t think the president has the authority to redefine what a dealer is because that is defined in existing federal statute,” said Dave Workman, senior editor of the Second Amendment Foundation’s The Gun Mag. “He can’t snap his fingers and suddenly say to someone who sells a gun at a gun show is now a dealer. That would take congressional action.”

  Meanwhile, while the US wait to see what executive orders Obama will implement, at the state level numerous gun-related laws just kicked in starting in the new year.

  In Texas, beginning today, adults with the proper permits no longer need to hide the handguns they carry in their shoulder or belt holsters. Proponents of the new open carry law say making guns more visible will deter mass shootings.The bill became law after a spirited debate. A majority of the state’s police chiefs opposed it.

  “The question is: Does it make sense and is it good judgment to have a bunch of people running around with guns visible? And I think the answer is: Absolutely not,” said Chief Art Acevedo of Austin.

  While Texas is easing gun regulations, starting Friday in California it will be illegal for holders of concealed carry permits to bring handguns to school campuses.  Meanwhile, the city of Albany, New York, will now require owners of firearms to store their guns in a secure container or install trigger locks. Repeat violators could face up to a one-year jail term.

  Ironically, instead of implementing executive orders, what Obama should do instead if he wants to make an immediate change, is focus on his home state. According to the Chicago Tribune, Chicago’s first homicide of 2016 occurred barely 2 hours into the new year.

  Two people were shot in the 4600 block of South St. Lawrence Avenue at about 2 a.m., police said. One of them, a 24-year-old man, reportedly had been arguing with someone who pulled out a gun and shot him in the chest. He was declared dead on the scene. 

   

  In the latest homicide, a 36-year-old man was shot in the chest and died at a hospital, said Nicole Trainor, a spokeswoman for the Chicago Police Department. The shooting happened at 6:40 a.m. in the 1900 block of West Garfield Boulevard in the city’s Back of the Yards neighborhood, said Trainor. The victim was driving a sport-utility vehicle westbound on Garfield when he heard shots and realized he’d been wounded, said Officer Janel Sedevic, a spokeswoman for the Chicago Police. The 36-year-old was driven to the Artesian Avenue and 55th Street where an ambulance was called and he was taken to Stroger Hospital where he died, Trainor said.

  In short, eradicating gun violence in Chicago (and D.C.) would likely do miracles for the average gun homicide rate across all of the US. Which is why it will never happen.

  Meanwhile, if Obama wants to truly curb gun ownership at the national level, the solution there is also simple, as the following chart from the NYT reveals:

  

  He should resign.

  

  

  

  

  

• A Year Of Living Technically: Charting The Markets Of 2015

  Via Dana Lyons' Tumblr,

  As we wrap up 2015, we again pause to reflect on the noteworthy events that took place across the financial markets this year.

  It is a fairly extensive list which really serves as a recap of the entire year. These charts aren’t necessarily our most popular ones (see The 5 Most Viewed Charts Of 2015 for those). Consider these our “editor’s picks”. The charts range from those that had the most impact on the markets in 2015 to those that may have the most impact on 2016 to those whose impact is totally unknown to us. They don’t necessarily include after-shots of the big movers of the year. However, you will see “before” shots of many of the big movers. After all, we are money managers and the objective behind these charts is to identify potentially profitable moves before they happen. Like last year, there are bullish charts but more bearish charts. Finally, there is our chart of the year for 2015.

  2015 Charts Of The Year

  (in chronological order – click on the titles to visit the respective posts):

  Speculators Hold Massive Record Long Position in the U.S. Dollar – January 12

  

  At the beginning of the year, Speculators held a record net long position in U.S. Dollar futures. While the currency had been on a tear, we surmised that given the position of the Speculators, who are typically on the wrong side of markets at major turning points, the U.S. Dollar rally could be in danger at some point soon thereafter. While the Dollar was able to continue its advance for another 2 months, and extend the Speculators record long position, it has stalled over the past 9 months. During this time, the Speculators’ net long position has dropped considerably, perhaps allowing for another advance to come in the Dollar? This one will obviously be an important development to track going forward.

   

  Bearish Fund Bets Hit All-Time Low – January 15

  

  While there has been a structural trend away from inverse mutual funds and toward inverse ETF’s, January still marked a milestone all-time low in the amount of assets in Rydex bear funds. This was an indication that investors were ill-equipped to withstand a significant decline and dispelled the still-perpetuated notion of “the most-hated bull market in history”. And while the stock market would not suffer a significant decline for another 7 months, it was unable to make any upside progress either.

   

  Swiss Market Index Goes From 52-Wk High To 52-Wk Low In Same Week! – January 16

  

  What kinds of things tend to happen when your central bank is heavily involved in currency intervention? How about your stock market going from a 52-week high on Tuesday to a 52-week low on Friday. That happened to the Swiss stock market following the Swiss National Bank’s decision to remove the Swiss Franc’s cap versus the Euro.

   

  European Stocks Set To Blast Higher? – January 20

  

  One lesson that is reinforced on a daily basis across the globe is that a stock market is not necessarily representative of the economy at any given time. So it was across Europe in January as the broad Dow Jones STOXX 600 broke out of a bullish inverse head-&-shoulder pattern. Based on the pattern, a successful breakout suggested potential upside targets of 9%-18% higher. The breakout was indeed successful and European equities were the stars of the 1st quarter. By April, the 18% rally target was achieved – and the rally hit a brick wall. Stopped by a combination of a 100% extension of the inverse head-&-shoulder pattern as well as the 2000 and 2007 highs, the STOXX 600 has trended downward since.

   

  How Ominous Is The S&P 500 Monthly MACD Sell Signal? – February 2

  

  One popular tool in technical analysis for gauging momentum (and change in momentum) is the MACD. Used on a monthly time frame, MACD sell signals have often, though not perfectly, signaled cyclical peaks and downturns. The signals have been especially helpful when the S&P 500 is both overvalued (via CAPE) and extended versus its long-term price trend. This was the case upon the January sell signal in the indicator. So, while the technical signal has not been perfect historically (what has?), the loss of momentum signaled by the MACD, in conjunction with other concerns, was another unwelcomed development for a market as stretched as it was.

   

  Unemployment Hits 6-Year Low; Bad News For Stocks? – March 6

  

  No, we do not bemoan the vast improvement in the U3 Unemployment Rate in recent years (though, we have serious doubts as to whether it’s the best measure of the strength of the labor market). This chart provides lessons regarding market cycle proximity as well as psychology. Historically, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. That message is driven home here by the fact that since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.

   

  Volatility Has Not Expanded With Recent Euro Plunge – March 13

  

  Typically, when the price of (most) assets drops, their expected volatility, as expressed by a volatility index, rises. This has generally been the case with the Euro as well. Interestingly, however, despite the Euro plunge to new lows in March, its volatility index (EVZ) did not make a higher high above its January peak. This non-confirmation was seen at other significant lows in the currency over the past 7 years. Indeed again, March 13 proved to be the low for the year in the Euro.

   

  Signs of Froth in the Biotech Sector – March 23

  

  The hottest sector over the past few years has been biotech. And while there is a debate about whether it is or is not a bubble, there have certainly been signs of froth related to the sector’s recent extraordinary gains. For example, while total assets in Rydex’ “bullish”-oriented index funds have been essentially flat since 2007, the Rydex Biotechnology Fund is a different story. In 8 years as of March 20, assets in the fund increased from around $58 million to $567 million, a nearly ten-fold jump in assets. That struck us as a little bit bubbly. As it happens, March 20 marked the top in the biotech sector for the year, outside of a 2-week span in July.

   

  One-Way Market Due For A U-Turn? – April 28

  

  If there is one thing that characterized the stock market’s run from 2012 to 2015, it is the lack of volatility. As it turns out, this period was truly historic in that regard. Since 1950, this was just the 5th time that the S&P 500 had gone 3 years without a single 10% reversal in prices. Well, that streak ended in August. And despite the bounce back thus far in prices, if the current market tracks previous such streak-enders, the market may not be out of the woods just yet.

   

  May Has Become The “Toppiest” Month – April 30

  

  As we laid out in this April post, the month of May has recently become the toppiest month for stocks in the short-term, i.e., 3 months. Perhaps it corresponds with the “Sell in May and Go Away” phenomenon. Whatever the reason, since 1996, there had been twice as many 3-month tops in the Dow Jones Industrial Average (DJIA) in May as any other month. Well, you can now add one more to the tally as the DJIA still has not surpassed its peak from this past May.

   

  Despite Historic Compression, Stocks Remain Range-Bound – May 6

  

  May was a busy month in terms of important stock market developments and, as such, produced many noteworthy charts. The DJIA entered the month stuck in a month-long trading range. Eventually, the DJIA would last 40 days without making a 1-month high or low, its longest such streak in more than 100 years.

   

  Final Pillar Of Bull Market Showing Cracks? – May 8

  

  One of the major themes in 2015 was the extensive deterioration in the market’s underlying internals. It was a trend that started in mid-2014 and really accelerated during this past spring. While that was occurring, however, the prices of the major averages continued to score new highs. One of the first signs of an actual price breakdown occurred in the Value Line Geometric Composite (VLGC). As we’ve mentioned many times, since the VLGC is an unweighted index of some 1700 stocks, it is a favorite of ours as a measure of overall market health. That’s why we considered it a warning sign in early May when the VLGC was unable to sustain its breakout above its tri-decadal triple top.

   

  Stock Indicator Suggests Big Move (Lower?) Coming – May 12

  

  Another indication of the stock market’s spring range-bound trade came from the ADX, or Average Directional Index. The ADX is essentially an indicator of the strength (or lack of strength) of the prevailing trend over a specified period, regardless of the trend’s direction. In May, the ADX of the S&P 500 recorded one of the lowest readings of the last 65 years, indicating an extremely “trendless” market. Specifically, on several days in early May, the ADX hit a level of 9, a reading reached on just 42 total days – or ¼ of 1% – since 1950. As periods of compression are followed by periods of expansion, an out-sized move emanating from this condition was expected. And our bet, based on the aforementioned one-way market was that it would be lower.

   

  The Grand-Daddy Of All Divergences Strikes – May 21

  

  As the aforementioned breakdown in the market’s internals accelerated, more divergences began to crop up. That is, while the S&P 500 continued to score new highs, other key averages or metrics failed to make concurrent new highs as well. That was the case in mid-May with what we refer to as the “grand-daddy of divergences”. While many divergences can occur and persist without much damage, a failure to confirm new highs by the NYSE Advance-Decline Line is of the utmost gravity in our view. A glance at the chart reveals that a divergence by the NYSE A-D Line has preceded every cyclical market top of the past 50 years. This was one of the most consequential stock market developments in 2015.

   

  Bull Market Dealt Significant Blow?: NYSE A-D Line Breaks Post-2009 Uptrend – May 27

  

  As you can see, the breakdown in the market’s internals began to unfold fast and furiously in May. Following the divergence in the NYSE Advance-Decline Line, another red flag was raised when the A-D Line broke its post-2009 Up trendline. One might want to argue that trendlines on indicators are meaningless, but we disagree. Look on the chart at the last two occasions that the A-D Line broke its uptrend line. Each marked the end of cyclical bull markets for stocks.

   

  Household Stock Investment Hits 2007 Levels – June 11

  

  While folks still try to foment the “most hated bull market” rhetoric, the data unanimously disputes the notion. Sure, short-term sentiment can shift with the wind, but longer-term “real money” measures like the Fed’s “Equities as a % of Household Financial Assets” paint the true picture. And while some of these types of measures have not reached the 2000 levels, why should they? That period marked the most froth-laden point in U.S. stock market history. Therefore, it should not serve as a reasonable or attainable barometer of investment level. The facts that A) Household investment never got truly “oversold” following that top, and B) in the 1st quarter, it matched the 2nd highest level ever attained, in 2007, are the most pertinent conclusions from the data series, in our view. If you’re interested in reading more on the topic, we took a very balanced approach in the June 11 link above.

   

  Dow Divergences Reaching Historic Levels – June 18

  

  On the topic of divergences, one of the oft-mentioned examples refers to the “Dow Theory” whereby the DJIA and the Dow Jones Transportation Average (DJT) diverge from each other. While people too often blindly follow such market platitudes, we prefer to test their veracity. In doing so, we actually found less relevance to DJIA divergences with Transports than we did with Dow Jones Utilities (DJU). And when the DJT and the DJU diverged from the DJIA by as much as they did in June, it has often spelled trouble for the stock market. As shown by the blue markers in the chart, outside of a false alarm in the mid-90’s, such divergences have strictly occurred near cyclical market tops over the past 60 years.

   

  July 20: The Thinnest New High In Stock Market History – July 21

  

   

  

  The divergence between deteriorating market internals and the resilient stock averages hit a crescendo on July 20. The Nasdaq Composite hit a new all-time high on the date while the S&P 500 came within 2 points of its all-time high. However, those feats were accomplished amid the worst breadth, the worst volume and worst new high-new low differentials of any such day in our recorded history. The 2 charts above are examples of the “thin” nature of the high. And while we did not know for sure if the day would turn out to be the high for the rest of the year (it was), there was no escaping the historically inadequate breadth statistics as we reported in real-time.

   

  Even The Stronger Areas Of The Market Are Starting To Weaken – July 22

  

  Another area where we monitored the deteriorating breadth situation over the spring-summer months was in the “equal-weight” averages. Cap-weighted averages weight the largest stocks the most heavily and, thus, a few strong-performing larger stocks can mask softness among the larger group. Conversely, equal-weight averages weight each component equally so you get a truer sense of the health of the entire sector or market. As the chart shows, at the July highs, even the stronger areas of the market like the Nasdaq 100 were beginning to show weakness among their broader ranks.

   

  Add Junk Bonds To The Growing Pile Of Concerns – July 23

  

  In addition to the deteriorating breadth situation, other concerns began to pop up as well during the summer. Chief among them was the substantial weakness in the high yield bond market, despite the stock market being near its highs. This combination has historically occurred near stock market tops of some significance, as the chart shows. And as we know now, it was merely the beginning of the carnage that would befall the junk bond market.

   

  The Summation Of All Fears – July 30

  

  With more than 170,000 hits, this was the most viewed post on our blog in 2015. It is fitting because, as much as any chart, this one portrays the historically weak state of the breadth and new high-new low situation this summer, even as the S&P 500 remained near its high. Ominously, as the chart indicates, similar conditions have been present on just 58 days since 1970. Each of those days was in close proximity to a cyclical top and each of them showed negative returns over the subsequent 1 and 2 years.

   

  Pfff…The Post-2009 Commodity Gains Are Gone – August 3

  

  One theme from 2014 that continued into 2015 is deflation. This year brought multi-year or all-time lows in the 5-Year Breakeven Rate, the Baltic Dry Index, and commodities across the board. Evidence of the latter is seen in this August chart showing that the broad basket of commodities represented by the CRB Index actually wiped out its entire post-2009 gains. Incidentally, the deflation trend has not stopped as the CRB has continued to drop into year-end.

   

  The Junkie Market – Too Many Highs & Lows – August 7

  

  Another manifestation of the developing concern over the market’s internals was seen in the proliferation of New Highs AND New Lows with the market near its highs. As the chart demonstrates, this variation of the “Hindenburg Omen” has historically occurred near tops of intermediate-term or cyclical importance, thus the -20% median 2-year return. One did not have to wait too long following this post before a substantial decline unfolded.

   

  “Smart Money” Ready To Bet On Gold? – August 7

  

  Given the events of the past 4 years, perhaps the most downtrodden investors right now are the “gold bugs”. With the metal working on its 3rd straight losing year, not to mention gold stocks near all-time lows, the pessimism is understandable. However, that is a good thing. Considering gold rallied for the 12 years prior, there was way too much bullishness built up. That has finally waned, as evidenced by the “smart money” Commercial Hedgers’ largest net long position in gold futures since the beginning of gold’s bull market in 2001. The metal was able to bounce for 3 months following this signal in August before dropping to new lows again. So, it might not quite be time for gold to shine again, but it’s getting there.

   

  Was The Most Important Line In The Equity Market Just Broken? – August 21

  

  Following the significant deterioration in the market’s internals that we documented extensively, price eventually began to follow suit. This included a break of what we labeled as the “most important line in the equity market”: the post-2009 Up trendline on the Value Line Geometric Composite. As we’ve indicated, we view the VLG as the most important index as it essentially reflects the median stock across the broad market. Thus, the break below its bull market uptrend in August was a serious development.

   

  August 24 – A True Market Washout – August 25

  

  Following a systematic breakdown of key levels on the various indices in July-August, the market’s decline devolved into a near crash-like cascade in late August. The decline culminated on August 24 in what we referred to as a true “wash-out”, or capitulation. While the July 20 top raised numerous alarm bells based on its internal structure, August 24 did the same in the opposite manner. Various metrics related to trading on that day, including this chart showing 40% of all NYSE stocks closing at new 52-week lows, hit levels seen (almost) unanimously at major market lows. These circumstances suggested that a bounce of some magnitude was likely imminent.

   

  Volatility Of Volatility Flies Off The Charts – August 27

  

  As testimony to the wild action in the stock market towards the end of August, the VVIX soared well into record territory. This indicator that we have just recently begun to track is literally the Volatility Index OF the S&P 500 Volatility Index, or VIX. As the chart shows, since the inception of the VVIX, it has generally registered its extreme high readings following substantial market declines. However, it has also occurred following lesser weakness that came on the heels of an extremely calm market. This appears to reflect the recent circumstances and does not guarantee that a longer-term bottom has been put in.

   

  What Happens After A Crash? – September 4

  

  While the term “crash” is subjective, the circumstances surrounding the August plunge in stocks have been seen on only a limited number of occasions (9) since 1950. We looked at the 9 precedents for guidance on what we might expect in the way of a potential bottoming process in the aftermath of the crash. While each incident was unique, they did follow a similar template along the lines of A) a dead-cat bounce for a few weeks, followed by B) a re-test of the original crash low after roughly a month, followed by C) a more substantial rally. This was a template we monitored as September trading unfolded.

   

  Global Equity Index Hanging On Precipice – September 8

  

  Besides the Value Line Geometric Composite, another key index garnering our focus in 2015 was the Global Dow. Despite the fact that not much money is directly tied to the index, it has been very instructive because it tracks 150 of the largest stocks in the world on an equal-weight basis and it has conformed very closely to technical chart analyses. For example, its break of its well-defined post-2012 Up trendline in June preceded the July-August global equity selloff. As it happens, the selloff took the Global Dow down to its post-2009 Up trendline, along with some key Fibonacci Retracement levels. After a brief false breakdown in late September, this level held and prompted a months-long rally. Just recently, the index tested the trendline again, so this will be a situation to monitor into 2016.

   

  Even Biotech Bulls Should Be Watching This Level – September 17

  

  While the post-crash bounce progressed, we remained mindful of the strong possibility of a re-test. Thus, were watchful for areas of potential resistance in the various indices and sectors. On September 17, a day which included a Fed meeting, we identified many market segments as reaching such resistance levels. One example was in the highly watched biotech sector. We identified on the Biotech Index (BTK) chart several layers of potential resistance in close proximity to where the index was trading. Sure enough, the BTK topped that very day and proceeded to drop some 20% over the next 8 days. They don’t all work out this well, but the evidence was certainly compelling.

   

  U.S. Stocks Facing Their Biggest Test In 8 Years? – September 29

  

  As I said, our “calls” and analysis don’t always work out perfectly, but this post was another one that, looking back, was right on the screws. During the late-September stock market re-test, the Value Line Geometric Composite dropped down to an area of critical consequence, in our mind. As the VLG was hitting the major Fibonacci Retracement lines of the post-2009 bull market era, we labeled this a “pass-fail” test for stocks. It was perhaps as simple as pass=post-2009 bull market could continue and fail=bull market was likely done. Well, stocks did pass this test as they put in a bottom for the year on that very day, launching a strong 4th quarter rally.

   

  Can The 4th Quarter Save 140-Year “Year 5″ Streak In Stocks? – September 30

  

  At the beginning of the year, we noted that years ending in “5” have not had a losing year in the stock market since 1875. And while these kinds of statistics are more trivia than useful to us, 140 years is a long time. So at the end of September, with the S&P 500 down over 7%, the streak looked to be in serious jeopardy. On plus side, looking back to 1905, it would merely take an average “year 5” 4th quarter to get the S&P 500 back into positive territory. That’s because all 11 “year 5’s” since 1905 have had positive returns during the 4th quarter, at an average of +10%. As of this writing, the S&P 500 is up 8% for the quarter and back into the green for 2015. So, trivial or not, this is another trend that has continued to play out according to precedent.

   

  Stock Market Reaches Key Post-Crash Milestone – October 2

  

  As an update to the post-crash post from September 4, we looked at how the market had traded since the late-August lows in comparison to the similar historical post-crash events. We chose October 2 to update it as it marked the average time (27 days) that it took the previous crashes to complete their re-test. As it turns out, while the re-test had already completed its process 3 days earlier, the basic pattern from the August crash to the late-September re-test held fairly close to historical form. Thus, this study was a useful one in guiding our expectations during the volatile aftermath of the August decline.

   

  Bearish Fund Assets Hit 3-Year High…AFTER Big Rally – October 7

  

  Following a 6-day rally off of the late-September lows that took the S&P 500 up over 100 points, or 6%, we took measure of the “quality” of the rally, as we always do. We always want to attempt to discern whether a rally is merely another dead-cat bounce or if it has legs. One clue that more upside was likely came from the behavior of traders in Rydex mutual funds. Interestingly, assets in Rydex’ bearish funds jumped to a 3- year high after the 100-point S&P 500 rally. This was one suggestion that there was considerable skepticism about the rally, a condition that, per contrarian thinking, argued for further extension of the rally.

   

  Relatively Few Big Stocks Bearing Weight Of This Rally – October 28

  

  As we continued to take stock of the quality of the post-September stock rally, we began to notice some of the same concerns from earlier in the year related to relatively weak internals and lack of broad participation. Evidence of this was seen in this October chart comparing the relative strength of the Rydex Equal-Weight S&P 500 ETF (RSP) vs. the cap-weighted S&P 500 SPDR (SPY). In late October, as the chart shows, the ratio of the RSP to the SPY actually dropped to a 3-year low. This was an indication that the broad market was lagging badly behind a relatively few mega-cap names. It was also a situation seen only in July 2015 and October 2007.

   

  Corporate Junk-It: When Stocks AND Bonds Sell Off – November 4

  

  This was a retrospective post, looking at the carnage that had taken place in the corporate financial markets over the summer. Specifically, we looked back 100 years at similar examples when corporate bonds AND stocks both suffered significant declines as they did during the 6 months into the late summer lows. The point was to try to discern whether there was possibly a larger, longer-term message being sent by the weakness in the 2 asset classes. As it turns out, it has historically been the case that, at least for stocks, more challenges remained in store in the intermediate to longer-term. Thus, despite the 4th quarter rally, stocks may not be out of the woods.

   

  Short-Term Rates Break Out: Another Rising Rates “Set-Up”? – November 6

  

  For probably 10 years we’ve been hearing about the impending “rising interest rate” environment. Yet, rates have continued to remain low during this time. Of course, ZIRP has had something to do with this. Yet, every time rates threatened to break higher, it has proven to be a fake-out. In November, when the 2-Year Treasury Yield broke out to its highest level in over 5 years, we had to ask “is this another set-up?” In this case, it was probably in anticipation of the Fed’s rate hike in December and it has held its gains thus far (though longer-term rates have remained subdued). Maybe “this time, it’s different?”

   

  Is It Too Late To Sink Your Teeth Into F.A.N.G. Stocks? – November 25

  

  Every year, the stock market provides new themes that a year earlier hadn’t even been considered. This year it was F.A.N.G., an acronym created to extoll the prodigious gains in the stocks of Facebook, Amazon, Netflix and Google (now Alphabet). The F.A.N.G. concept has served to drive home the reality that any gains in the market this year were for the most part concentrated in a limited number of mega-cap stocks – stocks, by the way, that were in position to keep the major large-cap indices near their all-time highs. In this chart, which turned out to be our most popular on Twitter this year, we compared the strikingly similar F.A.N.G. performance of the past 3 years to the performance of Cisco, Intel, Microsoft and Qualcomm (C.I.M.Q.) in the mid-1990’s. While this was not a prediction, the point was to show that, despite the out-sized gains, further upside was possible in F.A.N.G., based on what C.I.M.Q. did in the 2 years following 1998. Of course, then there was the post-2000 period.

   

  A Whole Lot Of New Lows For A “Market” Near Its High – December 9

  

  If there has been one persistent theme this year, it’s been the weak internals for a market so close to its all-time highs, at least as judged by the S&P 500. This trend continued into year-end as we saw on December 8 when the number of NYSE New Lows minus New Highs amounted to over 10% of all issues. This was despite the fact that the S&P 500 was within 3.5% of its all-time high. In the past 45 years, this situation has almost exclusively occurred near major, cyclical market tops.

   

  U.S. Stocks Back At The Pass/Fail Line – December 14

  

  Following a mid-December swoon, the Value Line Geometric Composite found itself back testing the “pass-fail” we pointed out at the end of September. Once again, the VLG was up to the task and passed the test. However, the more times this line gets tested, the greater the odds are that it will eventually fail. That would open up another 10% downside and, as we noted previously, put the post-2009 uptrend in stocks in jeopardy.

   

  “Smart Money” Options Indicator Has Never Been More Bearish – December 21

  

  Most of the sentiment metrics that we monitor are viewed as contrary indicators. That is, once they reach an extreme, investors or traders would be wise to act “contrary” to the extreme. One exception can be found in the traders of S&P 100, or OEX, options. Historically, this group has been on the right side of the market more times than not when their collective options position is at an extreme. And though OEX volume is much lower than it used to be, this market may be something to take note of as OEX traders have never held more put options relative to call options than they do right now.

   

  The 2015 Chart Of The Year:

  S&P 500 Higher In 2015 While Most Stocks Suck Wind – December 31

  

  As good an illustration as any this year of the divergence between the major indices and the majority of stocks comes in our final chart of 2015. It shows that, through December 30, the S&P 500 was positive for 2015, albeit barely. Meanwhile, the median stock, as represented by the Value Line Geometric Composite (VLG), was actually down double digits. This is a rare situation over the past 45 years. And, considering the likely location of stocks within the cyclical market cycle, this serious deterioration in the market’s internals is a major warning sign for the stock market.

  Here’s to another interesting and prosperous year in 2016!

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

• 2016

  Faith! Hope? Then Clarity…

   

  

   

  Source: Cagle.com

  

  

  

  

  

• Poker's 10 Most Valuable Investment Lessons

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  “Step right up and try your luck…spin the wheel and watch where she lands…everybody’s a winner” – sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to “step up and try their luck” in a game that in many ways have become rigged against them. During the last three decades, it has been amazing to watch the transformation of Wall Street from a place where individuals actually invested to a “casino” where institutions controlled the outcomes through high-speed automation, algorithms, and liquidity.

  But nonetheless, individuals continue to stroll through the doors of the “Casino Wall Street” to try their luck by betting “against the house” for a dream of riches. However, just as anyone who has been to Vegas knows, you do indeed win sometimes; but the “house” wins most of the time.

  However, “professional gamblers” can succeed at playing the odds in both Vegas and on Wall Street. Why? Because they understand “risk” in its various forms.

  While most amateurs will bet on most hands, take speculative positions where the odds of success are stacked against them or try to bluff their way through a losing hand; professionals play with a cold, calculated and unemotional discipline. The professional gambler understands the odds of success of every play and measures his “bets” accordingly. He knows when to be “all in” and when to “fold and walk away.” 

  Do they succeed all the time – of course not. However, by understanding how to limit losses they survive long enough to come out a winner over time.

  10 Lessons Learned From Poker

  1) You need an edge

  As Peter Lynch once stated:

  “Investing without research is like playing stud poker and never looking at the cards.”

  He’s absolutely right. There is a clear parallel between how successful poker players operate and those who are generally less sober, more emotional, and less expert. The financial markets are nothing more than a very large poker table where your job is to take advantage of those who allow emotions to drive their decisions and those who “bet recklessly” based on “hope” and “intuition.” 

  2) Develop an expertise in more than one area

  The difference between winning occasionally and winning consistently in the financial markets is to be able to adapt to the changing market environments. There is no one investment style that is in favor every single year – which is why those that chase last years performing mutual funds are generally the least successful investors over a 10 and 20 year period.

  Flexibility is the cornerstone of long-term investing success and investors that are unwilling to adapt and change are doomed to extinction – much like the dinosaur. Having a methodology that adapts to changing market environments will separate you from weak players and allow you to capitalize on their mistakes.

  As the great Wayne Gretzky once said:

  “I skate where the puck is going to be, not where it has been.”

  3) Figure out why people are betting against you.

  “We know nothing for certain.” We know what a company’s business is today, maybe even what they are most likely to do in the coming months. We can determine whether the price of its stock is trending higher or lower. But in the grand scheme of things, we don’t know much. In fact, we are closer to knowing nothing than to knowing everything, so let’s just round down and be done with it.

  All we really know is what “IS,” and all we can really do is create and implement a plan that will deal with what “IS” and protect us from what “Might Be”.

  Managing a portfolio for “what we don’t know” is the hardest part of investing. With stocks, we have to always remember that there is always someone on the other side of the trade. Every time some fund manager on television encourages you to “buy,” someone else has to be willing to sell those shares to you. Why are they selling? What do they know that you don’t?

  In poker, you may hold a couple of “aces” in your hand and believe now is the time to be “all in.” However, the player sitting across from you continues to match your bets. In poker, this is called “checking,” in investing it is called “hedging.” Both are simply forms of managing the “risk” of “not knowing what you do not know.” 

  Don’t assume you are the smartest person at the table. When an investment meets your objectives, be willing to take some profits. When it begins to break down, hedge the risk. When your reasons for buying have changed, be willing call it a day and walk away from the table.

  4) When you have the best of it – make the most of it.

  In a game of “Texas Hold’em” when the right hand comes along you can be “all in” and bet it all. The risk with this, of course, is that if another player “calls” you and you lose – you’re busted.

  In investing when you have the right set of environmental ingredients in your favor such as an extremely oversold market condition, panic and fear from investors, deep discounts in valuations, etc., these are times to invest more heavily into equities as the “risk” of loss is mitigated by the “strong hand” you are holding.  

  The single biggest mistake that investors repeatedly make is continuing to be “all in” on every hand regardless of market conditions. “Risk” is a function of how much money you will lose “when”, not “if”, you are wrong.

  5) It often pays to pass, and 6) Know when to quit and cash in your chips

  Kenny Rogers summed this up best: 

  “If you’re gonna play the game, boy…You gotta learn to play it right – You’ve got to know when to hold ’em. Know when to fold ’em. Know when to walk away.  Know when to run. You never count your money when you’re sittin’ at the table.  There’ll be time enough for countin’ when the dealin’s done.

   

  Now every gambler knows the secret to survivin’ – Is knowin’ what to throw away and knowin’ what to keep.  ‘Cause every hand’s a winner and every hand’s a loser and the best you can hope for is to die in the sleep”.

  This is the hardest thing for individuals to do. Your portfolio is your “hand” and there are times that you have to get rid of bad cards (losing positions) and replace them with hopefully better ones. However, even that may not be enough. There are times that things are just working against you in general and it is time to walk away from the table.

  Using some measure of risk management in your portfolio is critical to long-term success. Due to emotional biases most investors wind up doing the exact opposite of what they should do:

  • They sell when they should buy and vice versa,
  • They hold onto losing positions hoping they will come back,
  • They double down on losing positions,
  • They sell winning positions too soon, and;
  • They refuse to admit they are wrong.

  These mistakes, and many more, are entirely driven by emotion rather than logic. Emotional players ALWAYS lose in gambling and investing.  

  The error that most investors make is that they are playing poker without a hand of cards. Since most investors buy investments, because of what they read in a newspaper, saw on television or heard about on the radio, they have effectively “anted” up for the game. They then basically walk away from the table and begin to hope that the hand they were dealt is the winning hand – this is the basis of the “buy & hold” strategy.

  All great investors develop a risk management philosophy (a sell discipline) and combining that with a set of tools to implement that strategy. This increases the odds of success by removing the emotional biases that interfere with investment decisions. Just as a professional poker player is disciplined with his craft, a disciplined strategy allows for the successful navigation of a fluid investment landscape. A disciplined strategy no only tells you when you to “make a bet,” but also when to “walk away.” 

  7) Know your strengths AND your weaknesses & 8) When you can’t focus 100% on the task at hand – take a break.

  Two-time World Series of Poker winner Doyle Brunson joked a bit about his book with which he had thrown around two alternative ideas for titles before going with “Super/System“. The first was “How I made over $1,000,000 Playing Poker,” and the second equally accurate idea was, “How I lost over $1,000,000 playing Golf.“

  The larger point here is that invariably there will be things in life that you are good at, and there are things you are much better off paying someone else to do.

  Many investors believe they can manage money effectively on their own – and they are likely right as long as they are in a cyclical bull market. Of course, this idea is equivalent to being the only person seated at a poker table and the dealer deals all the cards face up. You might still lose a hand every now and then, but most likely you are going to win.

  I would love to be a graphic artist, but until pie charts and analytical tables come into vogue as contemporary art it is unlikely I will be able to fund my retirement by doing it. However, just because my emotions tell me I want to be an artist doesn’t mean that I will be good at it. So, for the time being, I will leave it to others that have a penchant for paint. (But if you happen to be interested in a pie chart for your living room, let me know…)

  Emotion causes us to attach significance to things that have little influence on whether a trade works out or not. Emotions have a nasty habit of overriding logical thought processes that lead ultimately to poor decision making. 

  Tom Dorsey once wrote;

  “Consider this, if someone offered to flip a coin for you and offers you a better payout on heads than tails, the only logical bet would be on heads. So there is only one decision, logically, but emotion may cause you to remember that the last time you took heads was in the 1958 NFL Championship game at Yankee stadium. You were with the Giants and called for heads in the overtime session, losing not only the coin toss, but also the game, eventually, to Johnny Unitas and the Colts.

   

  That decision may be one you will remember for the rest of your life, but it isn’t one that will have any impact on the bet at hand. Nonetheless, we are all human and all susceptible to these types of thoughts, just some more than others.”

  That is why there are so few successful poker players in the world but so many people willing to fund the Las Vegas strip. Most people are more than willing to take a risk with their money in the hopes of hitting the jackpot, the dream of being rich has been embedded in us since birth, however, very few investors have any idea of the “possibilities” of success versus the overwhelming “probabilities” of failure. Therefore, as in my case, I can’t paint, therefore, I understand that there is a huge probability that I will not be successful as an artist versus the slim hope (possibility) that people will flock to my door wanting 8 ½ X 11 framed pie charts. (Readily available at this website)

  If you are not successful at managing your money over the long term you will wind up losing money, which is why roughly 80% of all investors do. It is better to be honest with yourself and begin an approach to increase your probabilities of success. In a blink of an eye a professional can read the table and make a determination as to whether it’s time to “hold’em” or “fold’em,” can you?

  9) Be patient

  Patience is hard. Most investors want immediate gratification when they make an investment. However, real investments can take years to produce their real results, sometimes, even decades. More importantly, as with playing poker, you are not going to win every hand and there are going to be times that nothing seems to be “going your way”. 

  No investment discipline works ALL of the time. However, it is sticking with your discipline and remaining patient, provided it is a sound discipline to start with, that will ultimately lead to long-term success.

  I remember in the late 1990’s the media equated investing with Warren Buffet to driving “Dad’s old Pontiac” since Warren didn’t embrace new technology. He didn’t embrace new technology because he didn’t understand and valuations on those companies made no sense to him. He stuck with his discipline even though he was lagging the market. Eventually, his discipline paid off because it was sound and he was patient enough to allow it to work for him over time. Oh, and those that chastised him were crushed in the ensuing “bear market.” 

  10) Examine your motivation for playing.

  Why are you trying to manage your own money? Is it that you love doing it? Is it the “thrill of the chase and the agony of defeat” syndrome? Or, did you just think that is what you are supposed to do?

  These are fair questions that you have probably been asked before. However, the real question that you need to ask yourself is “Am I successful at managing the future of my family and my retirement?”

  “To a real player, gambling is only a certain part of what happens at casinos or at the track. Gamblers (or average investors) are people who either don’t know what they are doing, or like to bet against the odds.

   

  Good poker players (and good investment advisors), like good horse players, search for value. They leverage advantage. They look for small truths and they hope other people (competitors) don’t notice. They manage risk, and expect rewards for playing well. They like the sport. They like knowing. Call these people craftsmen. Don’t call them gamblers.”

  

  

  

  

  

• Gun Sales Surge In Switzerland As Army Chief Warns "Arm Yourselves"

  It would appear the people of Switzerland have been listening to their military leaders. Having recently been warned by the Swiss army chief of growing social unrest, SwissInfo reports applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons. But while the army proposes "arm yourselves," Swiss crime prevention officials warn against the false sense of security that guns bring.

  Whereas in 2011 numerous people in Switzerland voluntarily gave up their firearms, today more and more people are purchasing guns.

  Swiss army chief André Blattmann warned, "The threat of terror is rising, hybrid wars are being fought around the globe; the economic outlook is gloomy and the resulting migration flows of displaced persons and refugees have assumed unforeseen dimensions," adding that "Social unrest can not be ruled out."

  He further recalled the situation around the two world wars in the last century and advised the people of Switzerland to arm themselves…

  And, as SwissInfo reports, it appears they have…

  Applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons by Swiss public television, SRF.

   

  The survey, published on Wednesday, showed that in the 12 (out of 26) cantons surveyed, the Swiss are increasingly interested in purchasing pistols, rifles and other firearms for private use.

   

  The greatest increase – more than 70% – was measured in canton Vaud, with more than 4,200 applications in 2015, compared with 2,427 in 2014.

   

  There is a general climate of uncertainty and an increased fear of intruders, said Pierre-Olivier Gaudard, head of crime prevention for canton Vaud.

  But Martin Boess, director of Swiss crime prevention, warned against the false sense of security that guns bring.

  “When there are more guns in circulation, there is a greater danger for society,” he said in an interview on the 10 vor 10 news programme. “That’s shown by experience in places like the United States. When there are more guns, there are more accidents with guns.”

   

  In Switzerland, with more than 8 million inhabitants, there are about 2.5 million legal weapons, around half of which are used for Swiss military service.

  *  *  *

  And while the Swiss go about their legal business of arming themselves, President Obama is preparing to unleash another weapon – the executive order – to enact gun-control legislation.

  Facing stiff resistance to gun-control legislation in Congress, Mr. Obama has signaled that he plans to act on his own. The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”

   

  “I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Mr. Obama said in the address, which was released Friday morning.

   

  Gun-control advocates who are familiar with the White House’s plans say Mr. Obama could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.

   

  White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.

  Free-dom indeed.

  

  

  

  

  

• The Next Big Short

  Submitted by David Stockman via Contra Corner blog,

  If you have forgotten your Gulliver’s Travels, recall that Jonathan Swift described the people of Brobdingnag as being as tall as church steeples and having a ten foot stride. Everything else was in proportion – with rats the size of mastiffs and the latter the size of four elephants, while flies were “as big as a Dunstable lark” and wasps were the size of partridges.

  Hence the word for this fictional land has come to mean colossal, enormous, gigantic, huge, immense or, as the urban dictionary puts it, “really f*cking big”.

  That would also describe the $325 billion bubble which comprises Amazon’s market cap. It is at once brobdangnagian and preposterous – a trick on the casino signifying that the crowd has once again gone stark raving mad.

  When you have arrived at a condition of extreme “irrational exuberance” there is probably no insult to ordinary valuation metrics that can shock. But for want of doubt consider that AMZN earned the grand sum of $79 million last quarter and $328 million for the LTM period ending in September.

  That’s right. Its conventional PE multiple is 985X!

  And, no, its not a biotech start-up in phase 3 FDA trials with a sure fire cancer cure set to be approved any day; its actually been around more than a quarter century, putting it in the oldest quartile of businesses in the US.

  But according to the loony posse of sell-side apologists who cover the company——there are 15 buy recommendations—–Amazon is still furiously investing in “growth” after all of these years. So never mind the PE multiple; earnings are being temporarily sacrificed for growth.

  Well, yes. On its approximate $100 billion in LTM sales Amazon did generate $32.6 billion of gross profit. But the great builder behind the curtain in Seattle choose to “reinvest” $5 billion in sales and marketing, $14 billion in general and administrative expense and $11.6 billion in R&D.

  So there wasn’t much left for the bottom line, and not surprisingly. Amazon’s huge R&D expense alone was actually nearly three times higher than that of pharmaceutical giant Bristol-Myers Squibb. But apparently that’s why Bezos boldly bags the big valuation multiples.

  Not so fast, we think. Is there any evidence that all this madcap “investment” in the upper lines of the P&L for all these years is showing signs of momentum in cash generation? After all, sooner or later valuation has to be about free cash flow, even if you set aside GAAP accounting income.

  In fact, AMZN generated $9.8 billion in operating cash flow during its most recent LTM period and spent $7.0 billion on CapEx and other investments. So its modest $2.8 billion of free cash flow implies a multiple of 117X.

  Needless to say, the sell side chorus insists that one doesn’t matter, either. At the drop of a hat Bezos could purportedly hit the investment “pause” bottom and unleash a surge of free cash flow.

  The cynic might say good luck on that, considering the record. But then again, he might also ask why was Bezos’ pause button massively rerated upward just as this bull market was reaching its fevered peak?

  That is, we are just completing a year in which the Fabulous Four FANG stocks (Facebook, Amazon, Netflix and Google) gained $500 billion of market cap while the remaining 496 companies in the S&P index went down by more than one-half trillion dollars.

  In that context, AMZN’s market cap one year ago was just $145 billion, meaning that it gained a stunning $180 billion or 125 percent during the interim.

  By contrast, its free cash flow for the year ended September 2014 was $2.3 billion, meaning not only that it grew by a modest amount, but that a year ago the so-called “market” was valuing AMZN at just 62X free cash flow. And to complete the picture, during the year ended in December 2011 Amazon generated $2.0 billion of free cash flow, meaning that is was then being valued at just 40X.

  Can you say bubble mania?  Bezos is surely the greatest empire builder since Genghis Kahn, and has never wavered in his determination to spend every dime the company generates in sales. Profits be damned.

  But history will surely record that the 48 months since December 2011 comprised the final stages of the most stupendous financial bubble in recorded history. During that period, the casino re-rated Amazon’s meager free cash flow from 40X to 62X to 117X on virtually no improvement in performance.

  It was just plain old multiple inflation gone wild with respect to the last momo stocks standing.

  We have been here before, and there is no better analogy than Cisco and its fellow shooting stars in early 2000 on the eve of the dotcom crash.

  Indeed, Amazon’s $325 billion valuation is just plain irrational exuberance having one more fling. Spasms like this year $180 billion gain (125%) on the AMZN ticker or the $190 billion gain (55%) on the GOOG account are absolutely reminiscent of the final days before the tech wreck exactly 15 years ago.

  In a recent post I demonstrated how the 12 Big Cap Techs of 2000—-led by Microsoft, Intel, Dell and Cisco——-saw their combined valuation soar from $900 billion to $3.8 trillion in the 48 months leading up to the March 2000 peak; and that they then plunged to just $875 billion a decade later.

  To wit, their bubble era market cap got whacked by $3 trillion in the years ahead, even as their sales and earnings continued to grow. What got purged was irrational exuberance in a casino high on the central bank’s monetary heroin.

  In this regard, Cisco was the poster child last time around for this kind of top-of-the-bubble disconnect.  During the 48 month run to March 2000, its market cap had exploded from $40 billion to $506 billion or by nearly 13X.

  By contrast, it net income had increased from $1.0 to $2.5 billion or by just 2.5X. Accordingly, its PE multiple was rerated during this classic era of irrational exuberance from 40X to 200X.

  Even then, Cisco was not only the provider of all things for the internet, but was actually run by a CEO who had a decent respect for the idea of profits.

  Indeed, during the most recent twelve months in the spring of 2000 CISCO had earned a respectable $2.5 billion of net income on $15 billion of sales. Moreover, this most recent net income posting had grown for eight straight years at a spectacular 50% compound rate from $100 million in 1992.

  So its earnings track record was far more impressive and reliably rising than Amazon’s recent results. In fact, AMZN’s net income peaked at $1.15 billion way back in 2010 and has not come close to that high water mark since.

  Still, Cisco’s problem at the turn of the century was the market’s lunatic valuation at 200X its smartly growing net income.

  But here’s the thing. Cisco was already a mature technology company. There was no growth rate in the known universe that would have permitted it to earn into a $500 billion valuation.

  Even at a standard 20X market multiple on its existing fulsome net margins (17%), it would have needed $25 billion of net income on $150 billion of sales to make valuation ends meet.

  In fact, during the next 15 years Cisco’s performance steadily improved,  but one and one-half decades later it is still at only one-third of the levels implied by its dotcom era market cap. That is, revenues have grown from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.

  Needless to say, it’s market cap today at $140 billion is just 25% of its dotcom bubble peak!

  In short, its market cap was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.
  

  CSCO Market Cap data by YCharts

  At the end of the day, AMZN’s current preposterous $325 billion market cap has nothing to do with the business prospects of Amazon or the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters.

  It is more in the nature of financial rigor mortis – the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino.

  And, yes, notwithstanding all the “good things it brings to life” daily, it is not the present day incarnation of  even the mighty General Electric of the 1950s;  and for one blindingly obvious reason. It has never made a profit beyond occasional quarterly chump change.

  Not only has its net income been falling for five years, but what it has generated in the interim is actually a joke. To wit, during the last 23 quarters its has posted cumulative sales of nearly $380 billion but only $2 billion of net income and half of that was in 2010.

  That’s right. The Kool Aid drinkers in the casino are betting $325 billion on a massive e-commerce distributor of books and merchandise that has a steady state profit rate at 0.5% of sales.

  Admittedly, in these waning days of the third great central bank enabled bubble of this century, GAAP net income is a decidedly quaint concept. In the casino it’s all about beanstalks which grow to the sky and sell-side gobbledygook.

  Here’s how one of Silicon Valley’s most unabashed circus barkers, Piper Jaffray’s Gene Munster, explains it:

  Next Steps For AWS… SaaS Applications? We believe AWS has an opportunity to move up the cloud stack to applications and leverage its existing base of AWS IaaS/PaaS 1M + users.

   

  AWS dipped its toes into the SaaS pool earlier this year when it expanded its offerings to include an email management program and we believe it will continue to extend its expertise to other offerings. We do not believe that this optionality is baked into investors’ outlook for AWS.

  Got that?

  Instead, better try this.  As indicated above, AMZN’s operating free cash flow during its most recent LTM period was $2.76 billion compared to $2.26 billion way back in 2009.

  So its six year free cash flow growth rate computes to just 3.35% per annum. And on that going nowhere track record,  AMZN is being valued at, well, like we said, 117X free cash flow!

  The fact is, Amazon is one of the greatest cash burning machines ever invented. Its net revenues of just $8.5 billion in 2005 have since grown by 12X to $101 billion for the LTM period ending in September, meaning that during the last ten and three-fourths years it has booked $455 billion in sales. But its cumulative operating free cash flow over that same period was just $6 billion or 1.3% of its turnover.

  So, no, Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino.

  In an honest free market, real investors would never give a $325 billion valuation to a business that refuses to make a profit, never pays a dividend and is a one-percenter at best in the free cash flow department—–that is, in the very thing that capitalist enterprises are born to produce.

  Indeed, the Wall Street brokers’ explanation for AMZN’s $325 billion of bottled air is actually proof positive that the casino has become unhinged. For more than two decades, Amazon has been promoted as the monster of the E-commerce midway, which it surely is.

  But this year’s $180 billion roll of the dice has absolutely nothing to do with its capacity for same day delivery of healthy treats for your pooch. This most recent rip was all about the purportedly “scorching” performance of its AWS division——-that is, Amazon’s totally unrelated business as a vendor of cloud computing services.

  Indeed, CNBC recently gave air time to one of the most rabid analyst on the block, and this particular stock peddler from UBS left nothing to the imagination. Never mind whether anything emanating from that serial swindler and confessed criminal organization can be taken seriously, here’s what the man said.

  AWS is technology’s second coming and is worth $110 billion. We know that because AMZN has recently been thoughtful enough to break out its financials.

  They show AWS had sales of $2.1 billion in the September quarter and revenues of $7 billion on an LTM basis. So that puts its cloud computing business’ value at 16X sales. No sweat!

  Moreover, this means that the balance of the company—–that is, its core E-commerce business—– is “only” valued at an apparently much more reasonable $215 billion. And by golly, said the UBS man, that’s just 1.4X sales. So what’s not to like?

  Well, hold it right there. Someone forgot to do the math in all the excitement about AWS. Yes, the company’s release did show that AWS posted $1.33 billion of operating income or about 20% of sales in the during the LTM period.

  But consolidated operating income during the quarter was only $1.72 billion, meaning that by the lights of subtraction, Jeff Bezos’ great empire of E-commerce earned the microscopic sum of  $390 million in operating income during its most recent year.

  By the same magic of subtraction we can see that AMZN’s E-commerce business generated $94 billion of sales. This means that its operating margin was exactly 40 basis points.

  That’s right—–after 25 years of crushing it on the E-commerce front, Amazon’s core business operating margin is truly a rounding error.

  And might we also ask why you would value at $215 billion the profitless sales of an E-commerce monster that just can’t stop spending every dime it takes-in on distribution centers, package handlers, hired delivery trucks and drone prototypes; and now, apparently, same hour delivery service by out-of-work actors and bank tellers who happen to own a Vespa!

  Stated differently, AMZN’s $180 billion market cap gain in 2015 was not actually a re-rating; it was a bait-and-switch operation by the high-rollers in the casino.

  Amazon is not the inventor and first-mover of E-commerce, after all. Instead, it’s now suddenly held to be the monster of the midway in the totally unrelated business of cloud computing services.

  By the lights of the UBS man and Wall Street’s amen chorus, AWS is valued at 16X sales now. But it will surely crush any competitor in the stretch ahead, and thereby grow its way into that outsized valuation.

  Except don’t tell Google, Microsoft, Oracle or several others about the beanstalk thing. Indeed, the current nattering about AWS was truly ridiculous. Why would anyone endowed with a modicum of sanity believe that these tech powerhouses are about to cede the cloud to Amazon merely because it comes first in the alphabet?

  There is no other real reason for thinking so. Between them, the big three mentioned above have about $220 billion of cash and deep franchises in the world of computing and the internet.

  Sure, when technology moved from owned boxes, corporate computer centers and software licenses to a rent-a-server model,  Amazon got out of the gate first because it had no installed base of old technology to protect.

  But there are no barriers to entry, no killer patents, no material brand equity, no irreproducible sales and service network etc. that will permit Amazon to ring-fence the cloud. So there will be viscous competition and prices will fall at a rate which will make Moore’s law look tepid.

  Indeed, Larry Ellison has recently promised to cut prices by 90%, and he has rarely failed to follow through on exactly that kind of competitive rampage.

  Likewise, it would appear that the cloud is destined to be the future home of Microsoft’s entire franchise. Surely it is probable that AMZN’s Seattle neighbor can make the transition from selling computer software to renting cloud services.

  In short, AMZN has disclosed almost nothing about AWS’s detailed business model, its fixed and variable cost structure or the investment requirements of its rentable clouds and the rates of return on the massive amounts of capital employed.

  Only the Wall Street boys, girls and robo-traders betting on red could come up with $110 billion valuation of a nascent business that is positioned in the cross-fire of the Big Tech battlefield.

  So Amazon’s total $325 billion valuation is just plain irrational exuberance. It is also surely the short of a lifetime.

  

  

  

  

  

• Norwegian Car-B-Q: Tesla Model S Bursts Into Flames, Burns To A Crisp While Charging

  The Norwegian owner of a Tesla Model S found an unexpected f(i)ringe benefit during a cold Friday afternoon when shortly after he had parked his luxury electric car at a supercharging station in Gjerstad, and left, he realized the car could serve as a very quick and efficient, if quite toxic, source of heating for the cold Scandinavian country, after the Model S spontaneously burst into flames.

  Nobody was injured in the incident in which the Tesla unexpectedly started burning, at which point emergency services were alerted.

  By the time firefighters arrived, the car was completely ablaze.

  As Norway’s FVN reports, the fire department could not use water to extinguish the electric car fire, so it just let Tesla burn out completely while dousing it with foam and watching the luxury paperweight burn to a crisp.

  FVN adds that the only way to extinguish electric car fire is by using water with a copper material. However, it is too costly for the Norwegian fire departments. There were more f(i)ringe benefits: according to firefighter, Steinar Olsen, it is dangerous to breathe the smoke from the fire because it has fluorine gas in it, and when an electric car burns down the toxic gases emitted are far more dangerous than those from a normal car.

  As Jalopnik adds, the Model S has been involved in a handful of documented fires in the past few years, as a result of both crashes and charging, although Tesla has disagreed on the latter cause.

  Photos from the scene of the incident courtesy of FVN:

  

  

  

  

  

   

  On various previous occasions when a Model S burned down under similar circumstances, the stock price of TSLA reacted accordingly, although it always rebounded after Elon Musk soothed the market’s nerves about the “one-time” nature of the Car-B-Q.

  However, now that even Consumer Reports yanked its glowing endorsement of the car, the rebound may be delayed especially if the NHTSA finally wakes up and forces Musk to do another recall for a car which unexpectedly combusted just because it was being charged. One thing is certain: a recall “fixing” the battery pack would have a massive price tag attached to it, and it is possible that after years of ignoring the company’s cash burn and liquidity, those two “fundamental” drivers of value will finally come back to haunt the market with a vengeance.

  In other news, Chinese corporate fraudsters just came up with a new and improved excuse for misplacing their financial records: “we left it in the Tesla as it was charging and everything burned down.”

  

  

  

  

  

• Turkey's Erdogan Praises "Hitler's Germany" As Example Of Effective Government

  Back in August, Nationalist opposition leader Devlet Bahceli took to Twitter to call Turkish President Recep Tayyip Erdogan a “locally produced Hitler, Stalin or Qaddafi”:

  Yönetim sistemi bir ki?inin eline kald?ysa vay halimize! Bizim yerli üretim Hitler’e, Stalin’e, Kaddafi’ye tahammülümüz olmaz, bu iyi biline

  — Devlet Bahçeli (@dbdevletbahceli) August 15, 2015

  That comment came as Erdogan was busy undermining the coalition building process on the way to calling for new elections. “Accept it or not, Turkey’s governmental system has become one of an executive presidency,” Erdogan said, the day before the tweet shown above was published. “What should be done now is to finalize the legal framework of this de facto situation with a new constitution,” Erdogan continued. 

  For anyone in need of a refresher, Erdogan’s plans to make Turkey an executive presidency were derailed in June when the pro-Kurdish HDP put on a better show at the ballot box than expected, robbing AKP of its absolute majority in parliament.

  The President effectively nullified the election results by calling for a November redo ballot.

  “He’s now saying ‘I won’t listen to the laws or constitution.’ This is a very dangerous period,” warned Kemal Kilicdaroglu, leader of the Main Republican People’s Party. “He wants to give a legal foundation to this coup he’s carried out. Those who carry out coups always do this: First they carry out the coup, then they give it a legal foundation.’”

  Fast forward four months and we’ve seen Erdogan shoot down a Russian warplane and intensify a crackdown on the Kurds which many thought would dissipate once AKP reinstated its iron grip on politics in November.

  Now, as Erdogan pushes to officially transform the Turkish presidency from a figurehead role (obviously Erdogan is anything but a figurehead, but this is about enshrining powers he shouldn’t have into law) into a chief executive position, the President is appealing to history. As it turns out, the opposition aren’t the only ones who compare the strongman to Hitler. 

  “There are already examples in the world. You can see it when you look at Hitler’s Germany,” Erdogan said on Thursday, when asked whether it was possible to maintain the unitary structure of the state under an executive presidential system. “There are later examples in various other countries,” he added, in an apparent effort to soften the blow.

  

  AKP agreed this week to work with CHP on a new constitution. As Reuters notes, “Opposition parties agree on the need to change the constitution, drawn up after a 1980 coup and still bearing the stamp of its military authors, but do not back the presidential system envisaged by Erdogan, fearing it will consolidate too much power in the hands of an authoritarian leader.”

  Of course PM and yes man par excellence Ahmet Davutoglu is on board. “What is right for Turkey is to adopt the presidential system in line with the [democratic] spirit,” he says. “This system will not evolve into dictatorship but if we do not have this spirit, even the parliamentary system can turn into this [dictatorship].” Who knows what that means other than that Erdogan won’t get any argument out of Davutoglu.

   “[Erdogan] wants a presidential system in Turkey. He did not change his mind after the last election. I think he will force that, somehow. And I think this is the last exit before the full dictatorship for Turkey,” Ceyda Karan, an opposition journalist at Cumhuriyet newspaper, told RT. “We’re dealing with the situation here that is close to a kind of civil war, and that is really dangerous – it is dangerous for Turkey domestically, and it is also dangerous for the international scene where Turkey, the US, Russia, Syria – all these countries, the Kurds are all involved in the struggle against ISIS in Syria and in Iraq.” 

  Yes, yes they are – and maybe that’s part of the reason why Erdogan despises them more now than ever.

  If it’s Hitler’s Germany that Erdogan plans to model Turkey after once he manages to rewrite the constitution, we shudder to think what that will mean for the Kurds who are already being persecuted in places like Diyarbakir, Cizre, Silopi and Nusaybin. 

  

  

  

  

  

• George Soros Regrets Supporting Obama, Eagerly Awaits President Hillary

  Several weeks ago, we presented a list of CEOs and corporations who have had the highest number of direct visits to the White House and, by implication, president Obama. As we said, these are the corporations (and CEOs) who own the White House, and the US presidency .

  

   

  One name oddly missing was that of George Soros: the billionaire liberal donor whose fundraising efforts have been critical for the Democratic party in recent years. Which is surprising considering the substantial backing, mostly financial, Soros provided in 2007 and 2008 to a then largely unknown Senator from Illinois.

  Or perhaps it is not surprising: a 2012 New Yorker profile of the relationship between the US president and one of the left’s most generous donors reveals stormy clouds:

  “although he still supports Obama, Soros has been disappointed by him, both politically and personally. Small slights can loom large with wealthy donors. When Soros wanted to meet with Obama in Washington to discuss global economic problems, Obama’s staff failed to respond. Eventually, they arranged not a White House interview but, rather, a low-profile, private meeting in New York, when the President was in town for other business. Soros found this back-door treatment confounding. “He feels hurt,” a Democratic donor says.”

  Fast forward to December 31, when in the pre-New Year’s lull, the State Department released its latest dump of Hillary Clinton emails, amounting to some 5,500 pages, a move Trump promptly slammed.

  Do you believe that The State Department, on NEW YEAR’S EVE, just released more of Hillary’s e-mails. They just want it all to end. BAD!

  — Donald J. Trump (@realDonaldTrump) December 31, 2015

  And while it will take the media a few days to parse through all the emails, one already stands out: one revealing not only the relationship between Soros and Obama, but more importantly, Soros and the person who will likely be America’s next president.

  As the following excerpt reveals, the abovementioned George Soros told a close Hillary Clinton ally in 2012 that he regretted supporting Barack Obama over her in the 2008 primaries and praised Clinton for giving him an open door to discuss policy, according to emails released Thursday by the State Department.

  As first reported by Politico, in an email to Clinton, Neera Tanden, head of the Center for American Progress, recounted a conversation she had while seated next to Soros at a dinner sponsored by the liberal major donor club called Democracy Alliance.

  After Tanden informed Soros that she had worked for Clinton during her bitter 2008 campaign for the Democratic nomination against Obama, Tanden wrote that Soros “said he’s been impressed that he can always call/meet with you on an issue of policy and said he hasn’t met with the President ever (though I thought he had). He then said he regretted his decision in the primary – he likes to admit mistakes when he makes them and that was one of them. He then extolled his work with you from your time as First Lady on.”

  The full email below:

  

   

  Going back to the NY Mag 2012 article, it added that according to a source, although “Soros might have contributed far more money to Obama if the Administration had engaged with him more intently, he said, “Part of me respects Obama for not spending more time with him. This President doesn’t want to spend a lot of time with donors. You have to admire that.””

  Actually he does, as the chart up top shows it. However, for some odd reason Obama simply did not want to spend a lot of time with George Soros.

  The time of snubbing Soros, however, is at an end, as Hillary is well-known for having no qualms about spending “a lot of time with donors”, especially since virtually every entity on Wall Street is a donor either directly or to the Clinton Foundation.

  

  

   

  

   

  Which means that as Obama’s time in the White House runs out, and as Hillary prepares to take over the throne (barring some Republican miracle), Soros is about to rectify his mistake from 8 years ago and make sure that the special interest puppet in charge of the U.S., is precisely the one he wanted all along.

  

   

  Then again, perhaps it is really just Obama’s fault, and behind the charming facade is a pool of unlikability. According to another email released yeserday , this time citing Germany’s foreign minister circa 2009, Germany’s Angela Merkel despised the “Obama phenomenon:”

  Sydney Blumenthal sent Clinton a memo on Sept. 30, 2009 with background information on John Kornblum, who was at the time taking over as Germany’s foreign minister. “Kornblum strongly suggests you try to develop your personal relationship with Merkel as you can,” Blumenthal writes.

   

  “He says she dislikes the atmospherics surrounding the Obama phenomenon, that it’s contrary to her whole idea of politics and how to conduct oneself in general. She would welcome a more conversational relationship with you.”

  Eight years later, all of America is eager to move on from the “Obama phenomenon.”  The problem is that the “Hillary phenomenon” is on deck.

  * * *

  We conclude with a few lines from Ludwig von Mises who 80 years ago described and previewed this twisted, corrupted and politicized mutant that passes for modern “capitalism” in his essay “The Myth of the Failure Of Capitalism”, which was published shortly before the coming of Adolf Hitler to power:

  “In the interventionist state it is no longer of crucial importance for the success of an enterprise that the business should be managed in a way that it satisfies the demands of consumers in the best and least costly manner.

   

  “It is far more important that one has ‘good relationships’ with the political authorities so that the interventions work to the advantage and not the disadvantage of the enterprise. A few marks’ more tariff protection for the products of the enterprise and a few marks’ less tariff for the raw materials used in the manufacturing process can be of far more benefit to the enterprise than the greatest care in managing the business.

   

  “No matter how well an enterprise may be managed, it will fail if it does not know how to protect its interests in the drawing up of the custom rates, in the negotiations before the arbitration boards, and with the cartel authorities. To have ‘connections’ becomes more important that to produce well and cheaply.

   

  “So the leadership positions within the enterprises are no longer achieved by men who understand how to organize companies and to direct production in the way the market situation demands, but by men who are well thought of ‘above’ and ‘below,’ men who understand how to get along well with the press and all the political parties, especially with the radicals, so that they and their company give no offense. It is that class of general directors that negotiate far more often with state functionaries and party leaders than with those from whom they buy or to whom they sell.

   

  “Since it is a question of obtaining political favors for these enterprises, their directors must repay the politicians with favors. In recent years, there have been relatively few large enterprises that have not had to spend very considerable sums for various undertakings in spite of it being clear from the start that they would yield no profit. But in spite of the expected loss it had to be done for political reasons. Let us not even mention contributions for purposes unrelated to business – for campaign funds, public welfare organizations, and the like.

   

  “Forces are becoming more and more generally accepted that aim at making the direction of large banks, industrial concerns, and stock corporations independent of the shareholders . . . The directors of large enterprises nowadays no longer think they need to give consideration to the interests of the shareholders, since they feel themselves thoroughly supported by the state and that they have interventionist public opinion behind them.

   

  “In those countries in which statism has most fully gained control . . . they manage the affairs of their corporations with about as little concern for the firm’s profitability as do the directors of public enterprises. The result is ruin.

  

  

  

  

• Gold's Timeless Truth

  

  StealthFlation.org

  
  One should not be concerned about the gold price measured by the currently standing monetary regime. The value placed on Gold in terms of fiat paper currency solely backed by the good faith and credit of bankrupt Governments whose Central Banks are counterfeiting money is only viable should those presiding suspect monetary authorities actually maintain their credibility and veritable supremacy over time. 
  
  
  
  The inevitable collapse of the western world’s monetary system will leave gold as the only trusted store of value still standing after the financial / economic breakdown befalls.  The trust between the nations tied to the previous monetary order will have been decimated.  Gold then emerges as the essential and only long standing common denominator between nations which no longer trust each others’ previously accepted paper obligations, having been entirely discredited, that hitherto had facilitated the exchange of goods and services between themselves, 

  
  
  
  The monetary and geopolitical mayhem that invariably ensues, always follows the collapse of the previous global means of trade, in this case the Dollar. This is the moment when Gold takes center stage.  As, when the dust finally settles, the only remaining trusted store of value / means of exchange still standing is gold.  It always has been for over 4,000 years of civilized monetary history, which is about determinative a probability as they come……. 
  
  
  
  Finally, a new monetary system which is eventually invariably reestablished between the decimated distrusting parties, forced to the negotiating table in order to resolve the ongoing global financial anarchy, can only be based on a universally trusted and acceptable common denominator between themselves, which is always gold.  At the end of the day, it’s quite simply the only store of value still standing and still valued by all concerned parties at that critical perilous juncture in time.. 

   

  It’s really that simple………..the question is, will it always be a Happy New Year for our cocksure monetary mad men?

  

  

  

  

  

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• HaPPY NeW FeaR 2016

  

   

   

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• Slope's Best Posts of 2015

  Slope of Hope celebrated its 10th anniversary last March, and during the course of 2015, thousands of interesting charts and articles were published. Here’s a sampling of the best of them:

  • The Charlie X Solution – my response to the Charlie Hebdo killings. I think this is some of the finest writing I’ve ever done. Sadly, the world has not taken me up on my brilliant plan.
  • Perfect Palo Alto – in which I examine the hiring of guards at the train tracks to try to reduce the number of Palo Alto high school students throwing themselves in front of locomotives.
  • Learning to Learn – some lessons I took away as I tried my hand at binary trading.
  • Relativity – a very interesting success story about how my method of trading was able to prosper in the face of what seemed like very dire circumstances.
  • The Time Warp Again – if I may say so, an really good post about how much the Silicon Valley has changed since when I was in my teens.
  • Ten Years of Hope – celebrating Slope of Hope’s 10th anniversary
  • Negative Interest – in which I despair about my almost total lack of interest in the market at the time. Not surprisingly, this was almost exactly the peak of the entire world of equities.
  • Do You Want to Know a Secret? – wherein I tear apart another idiotic startup.
  • Transports Less than 2% Away From Failure – here I call for the Dow Transports to begin dropping hard. I, umm, was correct.
  • Silicon Shark Jumps the Shark – a snarky overview of the so-called Startup Castle. Out of curiosity, I clicked on the link, and it goes straight to a 404 page. Figures.

  I hope you enjoy some of these! Happy 2016, ZH-ers. Let’s some some reality starts breaking the walls down.

  

  

  

  

• We're All Fascists Now

  Submitted by James E. Miller via TakiMag.com,

  After decades of bitterly partisan acrimony, a consensus has been forged. Americans on all sides of the political compass finally agree on something: Donald Trump is a “fascist.”

  And they say our country is too divided politically to see eye to eye on anything.

  Liberals, who are more apt to liken someone they disagree with to Hitler than any other group, get their rocks off pinning the fascist label on Trump. The Week’s Ryan Cooper is the biggest perpetrator of this linguistic stratagem. He’s written numerous articles on why Trump is a fascist threat to the nation. Democratic presidential hopeful Martin O’Malley is also fond of calling the Donald the F-word.

  Fascist-mongering is not exclusive to the left. A national security advisor for illegal-alien-loving Jeb! Bush is guilty of the verbal slander. One of Ohio governor John Kasich’s super PACs is subtly linking Trump to fascism by comparing him to Nazi Germany. Marco Rubio’s war cheerleader Max Boot called Trump a fascist while admitting it’s not a term he “uses loosely or often.” Libertarian writer Jeffrey Tucker says that Trump’s ideology “is best described as fascism.”

  With all this fashy talk, one might get the idea that the two sides of the political establishment are working in cahoots to take down the candidate who best represents all those Middle American Radicals. You might also think that Donald Trump is an anomaly—that his creeping fascistic style is new to American politics.

  But what does “fascism” even mean? The way commentators toss around the word, you’d think it came with a precise definition. And you’d think that Mr. Trump embodies that definition in his unpredictable, fuck-you-style campaign.

  But, of course, you’d be wrong to assume such veracity on the part of the media. The problem with the word “fascism” is that it’s used so much it has lost all meaning. Basically, pundits use “fascism” to describe anything or anyone who goes against their ideology. With Donald Trump rampaging Godzilla-like through all the political establishment’s sacred idols—political correctness, porous borders, the aversion to criticizing any race or religion besides white Christians—it only makes sense that he’s been attacked as an überfascist.

  In the mid–20th century, fascism actually meant something. The Old Right journalist John T. Flynn described the governing philosophy as a capricious, power-mongering dictatorship. “First we must note one important difference between Communism and Fascism which becomes clear here,” he wrote. While socialists and communists had a “definite philosophy,” fascists, on the other hand, “improvised as the movement went along.” Citing Benito Mussolini’s governing style in Italy, Flynn deduced the “essential ingredients of fascism.” They include a government unrestrained by constitutional limits, a dictator who makes it his job to lead the nation to full vitality, an economy that is overseen by a vast bureaucracy, and a society that is highly militaristic and dependent on an imperialist complex.

  Gee, don’t those all sound eerily similar to the federal gargantuan we call Washington today?

  Certainly, Donald Trump is running on a fascist campaign platform. He’s using the sheer power of his celebrity to drown out all opposition. He talks about using the Oval Office as a tool to get the country winning again, and not as a solemn duty. Plus, he boasts recklessly about bombing the shit out of our enemies.

  The critics are right, Donald Trump’s campaign is based upon fascist principles. But here’s the thing: What campaign isn’t?

  Former first lady, senator, and secretary of state Hillary Clinton is running for president based solely on her personality and connections to the country’s elite. She wants the government to play an even larger role in people’s personal lives than it does now. In a recent debate she declared, “The American president has to both keep our families safe and make the economy grow in a way that helps everyone—not just those at the top.” Control freak, much?

  Florida senator Marco Rubio is no different. The boy wonder has based his entire campaign on a muscular foreign policy and his reputation as a great communicator. He has his own plan to create an “economic renaissance in America.” And he speaks glowingly about restoring America’s leadership in the world.

  If Donald Trump is a megalomaniac salivating over taking control of American Weimar, then both Hillary Clinton and Marco Rubio are führers in the making. The same goes for the rest of the field, where each and every candidate aspires to be the Celebrity-in-Chief. Trump only looks worse because he doesn’t have the benefit of a sympathetic media on his side.

  Nobody wants to admit it, but fascism defines modern American government. Washington, D.C., isn’t just a leviathan with its controlling tentacles in, around, and on top of everything. It is the molder and shaper of nearly all public life. Corporations take their cues from the federal government. The president tells us how to behave, what norms are appropriate, and how we should feel after a national catastrophe. The American public looks with reverence to the Oval Office.

  In his book Fascism Versus Capitalism, Lew Rockwell wrote, “The state, for the fascist, is the instrument by which the people’s common destiny is realized, and in which the potential for greatness is to be found.”

  Is that not the platform of every leading presidential aspirant, including Donald Trump?

  The sensationalism of the modern presidency means that we’re all fascists now. All social systems rely on power to keep the citizenry in line. We happen to live in a constitutional republic that has fascist elements. We should thank our lucky stars that it isn’t much worse.

  

  

  

  

  

• How ISIS Broadcasts Its Message To The World: Satellite Dishes Bought In Turkey

  Over the last six or so months, it’s become abundantly clear that Turkey is home to several of the key transit and supply routes utilized by Islamic State. 

  Ankara has long been suspected of turning a blind eye to the legions of foreign fighters that flow across the border into Syria and as Nafeez Ahmed noted last month, there’s voluminous evidence to support the contention that Turkey’s government is complicit in the terror group’s activities. This evidence was available long before the Russian MoD blew the whistle on Erdogan’s ties to the group’s illicit crude trade.

  Here are some key excerpts from Nafeez’s piece “NATO is harbouring the Islamic State: Why France’s brave new war on ISIS is a sick joke,” as originally published in Medium:

  A senior Western official familiar with a large cache of intelligence obtained this summer from a major raid on an ISIS safehouse told the Guardian that “direct dealings between Turkish officials and ranking ISIS members was now ‘undeniable.’”

   

  The same official confirmed that Turkey, a longstanding member of NATO, is not just supporting ISIS, but also other jihadist groups, including Ahrar al-Sham and Jabhat al-Nusra, al-Qaeda’s affiliate in Syria. “The distinctions they draw [with other opposition groups] are thin indeed,” said the official. “There is no doubt at all that they militarily cooperate with both.”

   

  In a rare insight into this brazen state-sponsorship of ISIS, a year ago Newsweek reported the testimony of a former ISIS communications technician, who had travelled to Syria to fight the regime of Bashir al-Assad.

   

  The former ISIS fighter told Newsweek that Turkey was allowing ISIS trucks from Raqqa to cross the “border, through Turkey and then back across the border to attack Syrian Kurds in the city of Serekaniye in northern Syria in February.” ISIS militants would freely travel “through Turkey in a convoy of trucks,” and stop “at safehouses along the way.”

   

  The former ISIS communication technician also admitted that he would routinely “connect ISIS field captains and commanders from Syria with people in Turkey on innumerable occasions,” adding that “the people they talked to were Turkish officials… ISIS commanders told us to fear nothing at all because there was full cooperation with the Turks.”

  Back in May, The New York Times reported that in addition to foreign fighters and weapons, ammonium nitrate also flows across the porous border between Syria and Turkey. “The open transport of ammonium nitrate into Islamic State territory points to lingering questions about Turkey’s commitment to isolating its jihadist neighbors,” The Times wrote on the way to documenting how the fertilizer (which is also used to build bombs) makes its way from Akcakale, which is home to 90,000 Turks to the Syrian town of Tel Abyad. 

  

  As if all of the above wasn’t enough, testimony from an ISIS fighter captured by the Kurdish YPG points to Turkey as a training ground for new ISIS recruits. “The training took place in Turkey because the Daesh command thought that it was safer there than in Syria. It wasn’t possible to carry out training in Syria because of airstrikes,” the soldier said, adding that “the media wrote that we were training in an FSA military camp, but in fact, all 60 of us were members of Daesh.”

  And then there is of course the infamous illegal crude racket in which ISIS is suspected to work closely with the Turks in trafficking stolen oil from captured fields in Syria and Iraq to the Turkish port of Ceyhan. 

  Now, thanks to an investigative report by Spiegel, we learn that Islamic State also procures satellite dishes in Turkey and before you write that off as immaterial, or inconsequential compared to everything else ISIS gets across the Syrian border, consider that without these dishes, the group could not disemminate its propaganda. “No terror organization uses the Internet as successfully when it comes to marketing itself and recruiting supporters as Islamic State (IS) does,” Spiegel begins, before asking the following: “…how is it able to do so given that the group operates in a region where telecommunications infrastructure has been largely destroyed?“

  Here’s more: 

  If you need to get online in Syria or Iraq, the technology needed to do so can be purchased in the Hatay province — a corner of Turkey located between the Mediterranean Sea and the Syrian border. 

   

  Thousands of dishes have been installed in the region allowing users to access the Internet by satellite. There has been a huge surge in recent years in the satellite Internet business.

   

  In Antakya, the demand for satellite technology on the other side of the border has fueled a boom in business. Two of the numerous dealers based here say independently of each other that they each have about 2,500 users in Syria and that they have monthly revenues of around $100,000. When asked who, specifically, they are selling their equipment and services to, they cautiously answer that they provide them only to commercial partners. They say they don’t know who the end customers are.

   

  Syrian activists claim that satellite dishes are located all over the place — on the rooftops of IS media centers and on top of the private homes of members of the terrorist militia. Without them, IS would be cut off from the outside world.

   

  A number of distribution firms are involved in the sales chain of the technologies required to obtain satellite Internet access. At the beginning of this chain are the major European satellite operators, led by France’s Eutelsat, Great Britain’s Avanti Communications and Luxembourg’s SES. 

   

  Distribution firms then buy facilities and satellite capacity from the big companies and resell it to corporate or private customers. 

   

  Sales in Turkey are fairly slow too, because satellite connections are more expensive than classic DSL access.

   

  According to the most recent data available from Turkey’s telecommunications authority, there were 11,000 registered satellite Internet users in Turkey during the first quarter of 2015, only 500 more than the previous year.

   

  But during 2013 and 2014, alone, Neustadt-based Sat Internet Services exported more than 6,000 dishes to Turkey, customs agency documents obtained by SPIEGEL ONLINE show. It is likely that most of those satellite dishes did not remain in Turkey, and there’s a strong chance a good deal of them ended up in Syria. The Syrian market has a decisive advantage in that there is no alternative Internet access available, meaning prices can be set very high.

  Spiegel then asks why, given how clear it seemingly is that Islamic State is operating dishes purchased in Turkey, the companies involved in providing the service can’t simply cut the militants’ access. After noting that both SES and Eutelsat denied having any knowledge or control of who their end customers ultimately are, Spiegel says that “satellite operators and their distribution partners generally can determine the location of the equipment they are supplying.” Afterall, the German weekly continues, “when they install satellite dishes and configure Internet access, their customers are required to provide their GPS coordinates.” The fact that many of the satellite dishes are located in Raqqa, al-Bab, Deir al-Zor and along the Euphrates River into Iraq and the IS-occupied city of Mosul leads to one rather obvious question: “Why don’t the companies take action to stop it?” 

  That is of course just a reformulation of the question that has been asked over and over again with regard to Islamic State’s operations. For instance, the US knows where ISIS media centers are located but hasn’t bombed them. Similarly, it took Russia exposing the Islamic State oil trade for the whole world to see before the US moved to target the group’s oil convoys despite the fact that Washington was well aware of their locations prior to Moscow’s intervention. The excuse was always fear of “collateral damage.”

  As it relates to the satellite dishes, Spiegel suggests the answer may lie in the profit motive. It’s also suggested that perhaps the companies are passing the data along to authorities. We’ll leave you with two final quotes and leave it to readers to decide for themselves.

  Although most satellite operators do not publish their internal figures, industry analysts say it costs between €300 million and €400 million to build a satellite and to launch it into orbit. Does that explain why satellite operators might be willing to accept the fact that they provide the infrastructure needed by a terrorist group to communicate, disseminate their propaganda and possibly plan attacks? 

   

  Or perhaps the companies have full knowledge of who is using their services and are sharing that information with intelligence services.  

  

  

  

  

  

• Russian Imperialism Meets Illusions Of Ottoman Grandeur

  Submitted by Burak Bekdil via The Gatestone Institute,

  • Earlier in 2015, President Recep Tayyip Erdogan said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria."

  • By that logic, Turkey should not be "doing anything" in the Palestinian territories, Somalia, Egypt, Pakistan, Afghanistan or any of the non-bordering lands into which its neo-Ottoman impulses have pushed it.

  In a 2012 speech, Turkish Prime Minister Ahmet Davutoglu, then foreign minister, predicted that Syrian President Bashar al-Assad's days in power were numbered and that he would depart "within months or weeks." Almost three and a half years have passed, with Assad still in power, and Davutoglu keeps on making one passionate speech after another about the fate of Syria.

  Turkey's failure to devise a credible policy on Syria has made the country's leaders nervous. Both Davutoglu and President Recep Tayyip Erdogan have lately resorted to more aggressive, but less convincing, rhetoric on Syria. The new rhetoric features many aspects of a Sunni Islamist thinking blended with illusions of Ottoman grandeur.

  On December 22, Davutoglu said, "Syrian soil is not, and will not be, part of Russia's imperialistic goals." That was a relief to know! All the same, Davutoglu could have been more direct and honest if he said that: "Syrian soil will not be part of Russia's imperialistic goals because we want it to be part of Turkey's pro-Sunni, neo-Ottoman imperialistic goals."

  It is obvious that Davutoglu's concern is not about a neighboring territory becoming a theater of war before it serves any foreign nation's imperialistic goals. His concern, rather, is that neighboring soil will become a theater of war and serve a pro-Shiite's imperialist goals. Hardly surprising.

  "What," Davutoglu asked Russia, "is the basis of your presence in Syria?" The Russians could unconvincingly reply to this unconvincing question: "Fighting terror, in general, and ISIL in particular."

  But then Davutoglu claims that the Russian military hits more "moderates" (read: merely jihadist killers, not to be mixed with jihadist barbarians who behead people and cheerfully release their videos). Translation: more Islamist targets and fewer ISIL targets.

  A legitimate question to ask the Turkish prime minister might be: What is the basis of "moderate" Islamists' presence in Syria — especially when we know that a clear majority of the "moderate" fighters are not even Syrians. According to Turkish police records, they are mainly Chinese Uighurs, several Europeans and even one from Trinidad and Tobago.

  Could the basis be the religious bond? Could Prime Minister Davutoglu have politely reminded the Russians that the "moderate" fighters are Muslim whereas Russia is not? But then, one should ask, using Davutoglu's logic, "What is the basis of the U.S.-led Western coalition's airstrikes in Syria?" Since when are the Americans, British, Germans and French Muslims?

  In Turkish thinking, there is just one difference between non-Muslim Russia's presence in Syria and non-Muslim allies' presence: The non-Muslim Russians seriously threaten the advancement of our pro-Sunni sectarian war in the Levant, whereas the non-Muslim allies can be instrumental in favor of it. Hence Turkey's selective objection to some of the non-Muslim players in Syria.

  Earlier in 2015, President Recep Tayyip Erdogan said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria." By that logic, Turkey should not be "doing anything" in the Palestinian territories, Somalia, Egypt, Pakistan, Afghanistan or any of the non-bordering lands into which its neo-Ottoman impulses have pushed it over the past several years. By the same logic, also, Turkey should be objecting to any allied (non-Muslim) intervention in Syria, or to any Qatari or Saudi (non-bordering) intervention in the Syrian theater.

  Turkish President Recep Tayyip Erdogan has said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria." Pictured: Russian President Vladimir Putin (left) with then Prime Minister Erdogan, meeting in Istanbul on December 3, 2012. (Image source: kremlin.ru)

  In the unrealistic imperial Turkish psyche, only Turkey and the countries that pursue regional ambitions convergent with Turkey's can have any legitimate right to design or re-design the former Ottoman lands.

  Such self-righteous and assertive thinking can hardly comply with international law. The Turks and their imperial ambitions have already been declared unwelcome in Libya, Tunisia, Egypt, Lebanon, Syria and Iraq. Nor would such ambitions be welcomed in any former Ottoman land to Turkey's west. But if, as Turkey's Islamists are programmed to believe, "historical and geographical bonds" give a foreign nation the right to design a polity in another nation, what better justification could the Russians have had for their post-imperial designs in Crimea?

  When they have a moment of distraction from their wars against Western values, the West, Israel, Jews or infidels, the Sunni and Shiite Islamists in the Middle East fight subtle-looking (but less subtle than they think) and cunning (but less cunning than they think) wars and proxy wars, and accuse each other of pursuing sectarian policies. Turkey's rulers are no exception.

  

  

  

  

  

• 2015 Greatest Hits: Presenting The Most Popular Posts Of The Past Year

  One year ago, when looking at the 20 most popular stories of 2014, we were troubled by a recurring thread: “despite the just concluded 6th consecutive year of a rising S&P 500 – the longest such stretch since 1999 of what otherwise would be deemed optimism – despite what should be a steadily improving economy and improving social and economic conditions, what readers founds most fascinating, and troubling, was the increasing preponderance of social disobedience, of covert, proxy or outright wars, and of civil unrest: all phenomena that accompany a world sliding deeper into distress, not as most central banks and their puppet media would have us believe, a global recovery.”

  We will be the first to admit that while it is more difficult to find a coherent theme unifying the most popular posts on Zero Hedge as determined by you, our readers, in the past year, several major domestic socio-economic tensions all came to a head in 2015: class warfare in the US approached unprecedented levels with antagonism between races, genders, ethnicities, ideologies, age groups and incomes all approaching peak levels, and spilling over, literally, on the street as the US public was inundated with daily reports of mass shootings, of trigger-happy policemen, of petulant students demanding conformity, of a president demanding the population hand over even more constitutional rights, of a nation torn in the most volatile presidential race yet.

  All this took place as the median income across the US continued to decline: the rich got richer, the poor got poorer, and the middle class was officially put on the endangered species list, although in 2015, for the first time since the financial crisis, the market closed red in no small part due to the action of the Fed, which after seven years of ZIRP, hiked rates for the first time in nine years despite all other central banks “giving it all they’ve got.” 

  For those trading, it was a year of rising, and in many cases, brutal intraday volatility, of ever more flash crashes across virtually all asset classes, of pain for anyone who was not invested in the five largest companies, and overall a year of change and losses for those hoping the Fed would “have their back” no matter what.

  Meanwhile, the geopolitical situation outside of the U.S. got decidedly worse, with the Syrian global proxy war resulting in the first instance of a NATO nation attacking and taking down a Russian fighter jet in decades, but more importantly, in a historic refugee crisis that will alter the face of Europe for years to come, as well as unleashing a wave of terrorist events which are likely just beginning, as governments across the globe seek to exploit the crisis for their own selfish reasons.

  Overall, it was a year of flux and of dramatic change: change which was largely amorphous and chaotic in 2015 but which will crystallize over the next 12 months, in unpredictable and, sadly, violent ways. Perhaps this change is why 2015 was a record year for Zero Hedge: for the first time this website clocked in over half a billion page views thanks to record readership.

  We thank all of our readers for making this website – which has never seen one dollar of outside funding and has never spent one dollar on marketing – a small (or not so small) part of your daily routine!

  But before we get into the details of what has now become an annual tradition for the last day of the year, those who wish to jog down memory lane, can refresh our most popular articles for every year during our brief 6-year existence, starting with 2009 and continuing with 2010, 2011, 2012, 2013 and 2014.

  So without further ado, here are the articles that readers found to be the most popular over the past year.

  • In 20th place, with 560,000 page views, was the event that for millions of Greeks was the defining event of the summer, the year, and perhaps, a generation: the complete collapse of the country’s financial system, and the imposition of capital controls: a regime of financial repression that will remain with the insolvent German colony indefinitely, as we first showed in “It’s 2 In The Morning And Greeks Are Lining Up At ATMs; Alpha Limits Online Banking.”
  • In 19th place, with over 571,000 reads was a simple chart post, one which summarized “Obama’s Recovery In Just Nine Charts.” The post was popular because it succinctly captured what everyone knows too well: for the vast majority of the population there has been no recovery, just spin and propaganda. We hope the next update of these 9 charts, due some time in 2016, will show some improvement but we doubt it.
  • In 18th spot, read 604,000 times, was our explanation of a phenomenon that has perplexed none other than the career economists at the Federal Reserve, one which we solved in “The Mystery Of The “Missing Inflation” Solved, And Why The US Housing Crisis Is About To Get Much Worse.” We demonstrated how, despite persistently weak CPI, for a record number of Americans renting is now prohibitively expensive, a finding which together with the adverse effect of Obamacare, explained why despite countless predictions for a surge in consumer spending (due to “plunging gas prices”) consumers did precisely the opposite and not only did personal consumption and expenditures decline, but GDP tumbled, ending last year just under 3% and subsequently sliding to just above 2%: a confounding paradox considering the Fed recently launched a rate hiking cycle just to “demonstrate” how strong the US economy has become.
  • In 17th spot, and deservedly with over 626,000 page views, was the man who has been right all along: Ron Paul explained how “Reality Is Now Setting In For America… It Was All Based On Lies & Ignorance.” Unfortunately, his message has yet to be believed and appreciated by the majority of Americans, many of whom prefer to stick their head in the sand and pretend that all is well, but sooner or later they, and everyone else, will come to grips with the truth, unpleasant as it may be.
  • In 16th place, with an impressive 632,000 reads, we revealed the man who serves as the “ISIS connection” with the western world, and the source of funding for the Islamic State. “Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey’s President” caused shockwaves across the globe, leading to a dramatic reappraisal of the ISIS conflict in the past month. We hope that as the influence of NATO member Turkey on the Syrian conflict wanes, that peace may finally return as a handful of corrupt Turkish politicians can no longer make billions in profits from the death and misery of thousands.
  • In 15th spot, with nearly 650,000 page views, was a post touching the barely beating heart of America’s centrally-planned regime, the Fed Chairwoman herself, who entered the history books by being the first Fed head in nearly a decade to raise interest rates. Many wondered why. The answer was provided by her when “Yellen Said Negative Rates On The Table “If Outlook Worsened.” We await the Fed to realize it has committed what many admit was a “policy mistake” and for Yellen to enter the history books for another dubious achievement: lowering rates to negative for the first time in US history.
  • A curious tangent on US social commentary was found in the 14th spot, in which we and 668,000 other readers listened as a professor slammed both the “Thin-Skinned Minority Ruining This Nation”, and damning the “Political Correctness” Wave Sweeping America. Sadly, the willingness of increasingly more “smart, progressive” young men and women to trade their fundamental rights to expression just to avoid any conflict and reside in the “safety” of an emotional cocoon, is one which leads to a dangerous state of uniformity and ultimately to the failure of all individual rights and liberties. We hope this trend is reversed in the coming year.
  • In 13th spot, and reverting back to the core economic and financial malaise eating away at the US, 680,000 found out that “Texas Pulls $1 Billion In Gold From NY Fed, Makes It “Non-Confiscatable.” To be sure, 2015 was another year in which gold suffered, however with central banks around the world continuing their debasement of fiat, it is only a matter of time before the age-old question has to be finally answered: hard or soft money. Perhaps 2016 will be the year.
  • Related to that last question, was the 12th most popular post of the year, in which hedge fund legend “Paul Tudor Jones Warned that “Disastrous Market Mania” Will End In “Revolution, Taxes, Or War.” This is something we have warned since the beginning of this website, and is hardly a profound observation: history is littered with “French Revolutions” which spontaneously happen when the impoverished majority has had enough of the status quo and rebels against the tiny minority which sets the status quo. The outcome is always tragic, and is why since the beginning we have been trying to warn anyone who cares to listen that the path this nation is on will have devastating consequences unless something changes. We hope that as more people agree with us, that some tangible change will finally take place.
  • But we are pessimistic. The reason for that is while the plight of billions of people gets worse despite constant daily distraction, a handful of plutocrats continues to control everything, and does so entirely for their own benefit. We revealed this tiny group and their agents in “Meet The Secretive Group That Runs The World“, the 11th most popular post of the year. With nearly 700,000 views we are happy that the group’s actions and identities are at least a little less secret.
  • Stepping away from the secretive cabals of finance, we shift to what has been perhaps the most important geopolitical event for Germany, if not all of Europe, and judging by the US reaction, for many Americans as well: in 10th spot, 705,000 were quick to read that “10,000 Syrians Are Headed For The Following 180 US “Refugee Processing Centers.” The final number may well be greater, and while we know where many Syrians refugees will end up, what we don’t know is how they will be welcomed and treated in their newly adoptive country.
  • In 9th spot is an article we wrote in September in which we showed that “The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play.” We were referring to the gradual realization by the tenured economists that both the ECB and the BOJ are increasingly more cornered and are running out of things to monetize, and thus, of ways to boost manipulated market ever higher and surprise with ever bigger bazookas. And yet, even though the post was read by 717,000, countless asset managers were “shocked” when first the ECB and then the BOJ, both expected to reveal the latest and greatest bazooka, sprayed the market with a water pistol. The FX losses for those caught on the wrong side of these trades was astounding.
  • In spot #8, with 763,000 reads was a shocking update by Vladimir Putin, who claimed that “ISIS Is Now On The Ropes As Fighters Desert After 60 Airstrikes In 72 Hours.” To be sure, Russia’s involvement in the ISIS conflict, and its “blitzkrieg”-like success against the Islamic State led to quick and dramatic consequences, chief among which was the US once again folded on its demands to replace Syrian president al Assad: the second time in two years. For a nation for which installing puppet leaders is ordinary course of action, this dramatic derailment of US national policy by Russia has led many to ask if the world is once again truly multipolar.
  • In 7th spot was an article revealing the curious congregation of tankers filled to the brim with oil off the coast of Texas. Indeed, nearly 800,000 were shocked to find that “Something Very Strange Is Taking Place Off The Coast Of Galveston, TX“, that something being that with no storage space to accommodate the millions of barrels of oversupplied crude, the oil would have to float on the ocean until either supply slowed down dramatically, which seems unlikely for the time being, or demand surges, which for a world sliding into recession is also impractical. The result: the price of oil dropped another 30% in 2015, suffering its worst back to back decline in history.
  • In 6th spot was a tragic reminder that every major geopolitical action tends to have deadly consequence, and just weeks after Russia boasted of its military success against ISIS, the Islamic terrorist organization blew up a Russian passanger jet departing Egypt. Nearly 830,000 saw the morbid video clip ISIS made of the exploding airplane. The result was an even more furious military campaign by Putin which ultimately went after what we said should be the goal all along: the Islamic State’s financial lifeline – its crude oil infrastructure and its sales of balck gold to Turkey and other willing buyers.
  • In 5th spot we go back to a prediction we made back in 2014, namely that as a result of plunging oil prices, the death of the Petrodollar had finally arrived. Many ignored our observations of the dramatic liquidation of Chinese Treasurys which started in early 2015, although eventually everyone noticed, even the biggest banks and 872,000 read that “China’s Record Dumping Of US Treasuries Leaves Goldman Speechless.” Since then, the historic liquidation of foreign reserves by petroleum exporters and sovereign wealth funds has been dubbed a “reverse QE”, something which will only accelerate in the future with dramatic results.
  • Related to the above was the 4th most popular post of 2015: over 900,000 were surprised to learn that “China Confirmed It Has Begun Liquidating Treasuries, Warns Washington.”Will China continue to strategically sell US paper, or will it use it tacticaly as a “diplomatic” tool? And will others join? Now that the seal has been broken, expect to see many more “surprises” such as this one, as it is increasingly every player for themselves in a world of currency and trade (and proxy shooting) warfare, and where mixed messages by central banks leave everyone confused.
  • It is no surprise that the third most popular article of 2015 was one which turned the official narrative of the Syrian war on its head, as it revealed just who is stoking the Syrian war. Over 1 million read that a “Secret Pentagon Report Reveals US “Created” ISIS As A “Tool” To Overthrow Syria’s President Assad.” In a world where transparency of motives of governments working on behalf of corporate interests is critical, we hope many more such articles will expose the hypocrisy and duplicity not only of the U.S. but every other regime that openly lies to its people, just so a handful can benefit from death and suffering.
  • The second most popular article of 2015 was one which followed in the aftermath of fears, that a cyber attack had taken down the NYSE. We, as well as 1.1 million others, asked “Is This What The First World Cyber War Looks Like: Global Real Time Cyber Attack Map.” Subsequently we found out that the NYSE suffered a historic outage simply because someone had “updated the software” incorrectly, although in a time when cyber terrorism is increasingly prevalent, we expect to revert to the real time map of  cyber attacks on many more occasions in the future.
  • The top post of 2015 was one in which we – and 1.2 million others – asked “Why Is WalMart Mysteriously Shuttering Stores Nationwide For “Plumbing Issues“?” The answer was revealed a few months later when WalMart shocked the investing world by revealing just how dire the financial situation at this iconic US retailer truly was, a revelation which cut the price of the largest US-based employer by a third and allowed its online competitor Amazon to finally surpass it in market capitalization, a historic moment in the tension between the old and new economies.

  With all that behind us, what is in store for 2016?

  We don’t know: as frequent and not so frequent readers know, we do not pretend to be able to predict the future and we don’t try (despite endless allegations that we constantly predict the collapse of everything): we leave the predicting to the “smartest people in the room” who year after year have been dead wrong. We merely observe and try to find what is entertaining, amusing, surprising or grotesque in an increasingly sad world.

  We do know, however, that after $14 trillion in liquidity has been conjured out of thin air by the world’s central banks, and the tens of trillions of credit money created (and misallocated) by China – a country which was the world’s growth dynamo for the past three decades and which is now rapidly slowing down – the entire world is floating on an ocean of excess money, which for one more year has succeeded in masking just how ugly the truth beneath the calm surface is. Now, with the Fed hiking, as the tide starts to come out, those swimming naked will finally be exposed. How far will the receding tide go?

  We are confident, however, this in the end it will be the very final backstoppers of the status quo regime, the central banking emperors of the New Normal, who will eventually be revealed as fully naked. When that happens and what happens then is anyone’s guess. But, as we have promised – and delivered – every year for the past seven, we will be there to document every aspect of it.

  Finally, and as always, we wish all our readers the best of luck and success in 2016, with lots of trading success, and depart with our now traditional and unwavering year-end promise: Zero Hedge will be there each and every day helping readers expose, unravel and comprehend the fallacy, fiction, fraud and farce that the system is reduced to (ab)using each and every day just to keep the grand tragicomedy going for at least one more day.

  

  

  

  

  

• What's Ahead In 2016 – Key Events Of The Next 12 Months

  Elections, elections, and more elections is the 'change' meme for 2016 but, as Bloomberg details, the key events of the year ahead vary from a California marijuana referendum to Brazil's Olympics, and from Davos to SCOTUS. No matter what, 2016 holds a lot of opportunity for volatility, and without The Fed's safety net, who knows what that means for markets…

  Here's a selected calendar of key events for the year.

  January 

  

  Construction at Cheniere Energy Inc.'s liquified natural gas (LNG) terminal.

  Source: Cheniere Energy via Bloomberg

   

  Taiwan holds an election and may choose its first female president.

  U.S. begins production of liquefied natural gas for export from Cheniere Energy's terminal in Louisiana, the first since 1969. 

  World leaders gather for the World Economic Forum in Davos, Switzerland. Follow our special report.

  Vietnam's Communist Party Congress convenes to make leadership changes and set policy.

  UN monitors may conclude that Iran has implemented all steps required under July nuclear accord, allowing the U.S. and Europe to lift sanctions.

   

  February

  

  Donald Trump.

  Photographer: Patrick T. Fallon/Bloomberg

   

  The race to elect America’s 45th president kicks off with the Iowa caucuses and the New Hampshire primary. The caucuses in Nevada and the primary in South Carolina will also be closely watched.

  Pope Francis visits Mexico.

  Academy Awards in Los Angeles.

   

  March

  

  A paramilitary police officer stands guard in front of red flags at Tiananmen Square in Beijing, China.

  Photographer: Tomohiro Ohsumi/Bloomberg

   

  U.S. begins auction of airwaves to make room for faster mobile phone connections.

  China's National People's Congress, the country's top lawmaking body, meets and the government releases details of its new five-year plan.

  Deadline for Colombian government negotiators and FARC rebels to reach a peace deal in Havana, ending a five-decade-old conflict.

  U.S holds so-called Super Tuesday primaries and caucuses in Alabama, Alaska, Arkansas, Colorado, Georgia, Massachusetts, Minnesota, Oklahoma, Tennessee, Texas, Vermont and Virginia and Wyoming.

  Fifth anniversary of the uprising that led to the civil war in Syria.

   

  April

  

  Cranes stand at a construction site for the expansion of the the Panama Canal, on the Pacific side of the canal near Panama City on April, 24, 2014.

  Photographer: Susana Gonzalez/Bloomberg

   

  The Panama Canal is expected to open a $5.3 billion expansion.

  The United Nations holds a signing ceremony for the Paris climate accord.

  South Korea has parliamentary elections.

  Peru holds the first round of presidential elections. Unless a candidate wins more than 50 percent of the vote, there'll be a runoff in June with parliamentary elections on the same day.

  Bloomberg New Energy Finance holds its annual “Future of Energy” summit in New York.

   

  May

  

  Photographer: Daniel Acker/Bloomberg

   

  The Philippines elects a legislature and president.

  Scotland votes for members of its parliament.

  A law requiring plain cigarette packaging takes effect in the U.K.

  G-7 leaders meet in Japan's Mie Prefecture, home to the 2,000-year-old Ise Shrine.

  North Korea's Workers Party holds congress. 

   

  June

  

  The U.S. Supreme Court stands in Washington, D.C., U.S.

  Photographer: Drew Angerer/Bloomberg

   

  U.S. Federal Reserve releases annual stress tests of the nation’s banks.

  U.S. Supreme Court session ends, with rulings expected on closely watched cases on affirmative action, immigration reform, abortion and voting rights.

  The U.K.'s referendum on leaving the European Union could come as early as mid-2016, though no official date had been set by the end of 2015.

   

  July

  

  Photographer: Andrew Harrer/Bloomberg

   

  Puerto Rico, in talks with creditors to ease its $70 billion debt burden, faces payments of $1.98 billion on bonds sold by the U.S. territory and its agencies.

  The race for the White House heats up as Republicans and Democrats select their presidential candidates at party conventions.

  Japan expected to hold upper house election. Prime Minister Shinzo Abe could also call a snap poll for the lower house.

  NASA’s Juno spacecraft begins visit to Jupiter.

   

  August

  

  Construction of the 2016 Olympic Park continues in Rio de Janeiro, Brazil.

  Photographer: Dado Galdieri/Bloomberg

   

  Summer Olympics in Rio de Janeiro.

  U.S. Federal Reserve’s Jackson Hole symposium.

   

  September

  

  People look at portraits of former Chinese leaders Zhou Enlai, left, Mao Zedong, center, and Liu Shaoqi displayed in a shop on Wangfujing Street in Beijing, China, on Tuesday, Sept. 9, 2014.

  Photographer: Brent Lewin/Bloomberg

   

  Russia holds election for lower house of parliament.

  Annual meeting of the U.N. General Assembly in New York.

  G-20 world leaders hold their summit in China for the first time.

  Hong Kong Legislative Council election.

  China marks the 40th anniversary of Mao Zedong's death.

   

  October

   

  

  Source: The Nobel Prize

   

  Nobel Prizes announced in Stockholm.

  World Bank/IMF meetings held in Washington, D.C.

   

  November

  

  Source: Gallery Stock

   

  Americans elect a president and determine control of Congress. A referendum on the legalization of marijuana is expected in California.

  The Democratic Republic of Congo holds an election.

  China’s shoppers go online on Single’s Day, while retailers in the U.S. wrestle with Black Friday.

  APEC leaders head to Lima, Peru for their 28^th annual gathering.

  Asean/East Asia leaders meet at a summit in Laos. 

   

  December

  

  Photograph by Jock Fistick/Bloomberg

   

  75th anniversary of the bombing of Pearl Harbor.

  Russian President Vladimir Putin delivers his annual press conference in Moscow, an event that typically lasts about three hours.

  India expects to start operations at the strategic Chabahar port in Iran, which will give it access to Afghanistan and bypass rival Pakistan.

  

  

  

  

  

• Donald Trump's Comprehensive 2015 Insult Highlight Reel

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  What better way to end 2015, than with a highlight reel of Donald Trump’s more colorful insults. The Washington Post has done an excellent job of putting together “A Comprehensive Guide to Everyone Donald Trump Insulted in 2015.”

  Here are a few of my favorite clips:

  

  

  

  

  

  

  

  Love him or hate him, this is highly entertaining.

  Watch the entire video below. Enjoy.

   

  Happy New Year.

  

  

  

  

  

• This Is What Stocks Do During Hyperinflation

  One of the classical refrains for buying stocks is that they preserve purchasing power and add value, even under such extreme monetary conditions as hyperinflation, or in other words, on a relative basis, local equities when denominated in a stable currency, will increase in value even as the local currency disintegrates.

  As one example of this phenomenon, historians and equity bulls provide the widely referenced example showing that during the Weimar period, even as the mark lost all of its value, the stock market in USD terms actually rose during the parabolic phase.

  

   

  But is that widely documented example really true, and even if it is, is it the case that stocks preserve value during hyperinflation in modern days? Luckily, we have an actual, ongoing case of currency destruction and hyperinflation in a country that was supposed to be a “socialist paradise”, but ended up just a little short: Venezuela, whose annual inflation is estimated at just shy of 400% annually according to the Troubled Currencies Project.

  The same Venezuela which as we showed yesterday, Germany’s Handelsblatt, found was the “best investment” in the world in 2015.

  

   

  Indeed, looking at the performance of the Caracas stock exchange, when denominated in the “official” currency rate, the one which is completely meaningless for virtually everyone, an equity investment in the could not be better: the index clearly soared fourfold in the past year.

  

   

  There is a problem with this chart, however: as noted above, it uses the official Venezuela exchange rate, one which is completely meaningless to the local population if they actually want to buy USD either locally or in the US.

  To get the real picture, one has to use the actual “black market” rate as calculated daily by DolarToday, which at 833 bid is quite a bit “different” from the 200 official rate.

  Here is a chart of how Venezuela’s real currency has performed in 2015:

  

   

  What happens when one shows the Caracas exchange in official “currency terms” on one hand, versus “real currency” terms on the other? The answers are shown by the green and blue lines in the chart below, respesctively.

  

  So to answer the original question: how did Venezuela stocks perform in the past year under the country’s hyperinflation? The answer: using a meaningless exchange rate, they rose 4x and, as Handelsblatt incorrectly concluded, “were the best investment of the year”; on the other hand using an exchange rates that actually reflects the country’s economic implosion, they lost just over 20% of their value in the past year. 

  Which, considering oil plunged by 30% in USD terms in the past year, was not the worst possible return.

  Of course, one asset which Venezuelans could have bought on December 31, 2014 and not lost any purchasing power despite the greater than fourfold plunge in the currency, is a simple one: gold.

  

  

  

  

  

• 15 News Stories From 2015 You Should Have Heard About But Probably Didn't

  Submitted by Carey Wedler via TheAntiMedia.org,
  In 2015, the iron fist of power clamped down on humanity, from warfare to terrorism (I repeat myself) to surveillance, police brutality, and corporate hegemony. The environment was repeatedly decimated, the health of citizens was constantly put at risk, and the justice system and media alike were perverted to serve the interests of the powers that be.

  However, while 2015 was discouraging for more reasons than most of us can count, many of the year’s most underreported stories evidence not only a widespread pattern that explicitly reveals the nature of power, but pushback from human beings worldwide on a path toward a better world.

   1. CISA Pushed Through the Senate, Effectively Clamping Down on Internet Freedom: For years, Congress has attempted to legalize corporate and state control of the internet. In 2011, they attempted to pass PIPA and SOPA, companion bills slammed by internet and tech companies and ultimately defeated after overwhelming public outcry. Then they passed  CISPA — which the president threatened to veto, having caught wind of the public’s opposition to heavy regulation of the internet (earlier this year, Obama reversed his position). However, corporate interests, like Hollywood’s studio monopoly, kept lawmakers’ tenacity afloat.

  In October, Congress passed CISA, the Cybersecurity Information Sharing Act, but as the Electronic Freedom Foundation explained: “CISA is fundamentally flawed. The bill’s broad immunity clauses, vague definitions, and aggressive spying powers combine to make the bill a surveillance bill in disguise. Further, the bill does not address problems from the recent highly publicized computer data breaches that were caused by unencrypted files, poor computer architecture, un-updated servers, and employees (or contractors) clicking malware links.” Just before Christmas, Congress went even further, adding an amendment to the annual omnibus budget bill that strips CISA’s minimal privacy provisions even more. That budget bill was approved, though Representative Justin Amash of Michigan has vowed to introduce legislation to repeal the CISA provisions when Congress reconvenes.

  But CISA wasn’t the only attack on citizens’ privacy this year. Though lawmakers touted the USA Freedom Act as a repeal of the mass surveillance state, in reality, it simply added a bureaucratic step to the process by which government agencies obtain private information. Further, a hack on Italian security firm, aptly called Hacker Tools, revealed that various agencies — including the DEA, NSA, Army, and FBI — possess software that enables them to, as Anti-Media reported, “view suspects’ photos, emails, listen to and record their conversations, and activate the cameras on their computers…” At the same time, the United Kingdom and France moved to tighten their already comprehensive surveillance apparatuses in the wake of multiple terrorist attacks. Though governments claim systematic surveillance is necessary to protect citizens — and Snowden’s leaks endangered that safety — the United States government has been unable to produce sufficient evidence the programs work. Instead, the documents the Department of Defense released this year as proof of the alleged endangerment were entirely redacted.

  2. CIA Whistleblower Sent to Prison for Revealing Damning Information to a Journalist: While the government has no problem invading the privacy of its citizens, it offers swift backlash for those who attempt to violate its own clandestine operations. Jeffrey Sterling, a former CIA agent, had his first altercation with the CIA when he sued for racial discrimination in 2001. He was subsequently fired. Years later, the CIA filed espionage charges against him for speaking with New York Times journalist, James Risen. Sterling had revealed a botched CIA scheme, Operation Merlin, to infiltrate Iranian intelligence that ultimately worsened the situation, gave Iran a nuclear blueprint, and was deemed by some to be espionage, itself. Rather than acknowledge the woeful misstep, the CIA arrested him, charged him, and ultimately sentenced him to 42 months in prison. The trial was reportedly biased, but nevertheless, was severely underreported by the media. Sterling’s conviction reflects the ongoing war on whistleblowers, which Obama has successfully expanded during his presidency. Sterling joins the ranks of Edward Snowden, Chelsea (formerly Bradley) Manning, and others, including a whistleblower who worked for OSHA’s Whistleblower Protection Program and was fired for exposing dysfunction and incompetence within the ranks.

  3. Press Freedom Continued to Deteriorate: An annual report from the World Press Freedom Index saw the United States slip 29 spots from last year, landing 49th out of 180 total. In January, journalist Barrett Brown was sentenced to five years in prison for exposing the findings of hacker Jeremy Hammond. Brown was charged with obstructing justice, aiding and abetting, and separate charges of allegedly threatening the FBI in a rant. Hammond, who exposed severe violations of privacy on the part of Stratfor, a CIA contractor, was sentenced to ten years in prison. Brown’s experience was not an isolated incident. Journalists around the world, like several journalists who were killed while investigating ISIS in Turkey, faced increased danger. One small-town journalist in India was burned alive after exposing a corrupt politician.

  4. Multiple Activists Arrested, Charged with Felonies for Educating Jurors About Their Rights: In an ongoing trend, otherwise peaceful, non-violent individuals were harassed by police and courts — not for exposing secret information, but for providing information to potential jurors about their rights in the courtroom. One Denver jury nullification activist, followed by another, was charged with multiple felonies for handing out pamphlets that explain a juror’s right to vote “not guilty” in a verdict, even if the defendant is clearly guilty. This right was established to allow jurors to vote with their conscience and question the morality of laws, from the 19th century’s Fugitive Slave Act to Prohibition, both of alcohol in the 1920s and of marijuana today. The Denver activists are awaiting trial, while more recently, a former pastor was charged with a felony for the same reason.

  In other unjust convictions and failings of the “justice” system, an African-American man was sentenced to seven years in prison for barking at a police dog, a Kansas mother faces decades in prison for using marijuana to treat her debilitating Crohn’s disease, and a mentally ill man died in jail after being held for stealing five dollars worth of snacks from a convenience store. He had inexplicably been waiting months to be transferred to a medical facility. Ross Ulbricht, founder of the dark web marketplace, the Silk Road, was sentenced to life in prison in spite of the fact that he committed no violent crimes — though the FBI attempted to paint a false picture that he did, albeit without filing formal charges. The prosecution was rife with corruption and scandal; two FBI agents involved in the case were charged with stealing Bitcoin during the investigation. In July, one admitted to stealing $700,000 worth of the digital currency.

  5. Six-Year-Old Autistic Boy Killed by Police: 2015 established not only that the justice system remains broken, but the the enforcement class — police officers — continues to terrorize citizens. In one underreported case, a six-year-old boy was fatally caught in the crossfire of a police shootout against his father, who was unarmed. In another case, an African-American motorist was shot and killed by University of Cincinnati police over a missing front license plate. While high-profile cases of misconduct, including Freddie Gray and Sandra Bland, rightly dominated the news cycle, many more cases of police brutality received little attention. In fact, in 2015, it was revealed not only that the media-propagated “War on Cops” in America was a myth, but that American police kill exponentially more people in weeks than other countries’ police kill in years. On the bright side, many police officers did face charges — and even prosecution — in 2015, including one repeat rapist who recently cried upon being convicted of his crimes. The officers involved in the shooting of the six-year-old boy were also charged with murder.

  6. Earth Enters Sixth Mass Extinction: 2015, like many years before, was disastrous for the environment. Researchers from Stanford University, University of California, Berkeley, and Princeton determined Earth is entering its sixth mass extinction, reporting that species are disappearing at a rate 100 times faster than the normal rate between mass extinctions. Further, thanks, in part, to the widespread use of Monsanto’s glyphosate-based Roundup herbicide, populations of bees and Monarch butterflies dwindled — though, happily, the Monarchs appear to have bounced back. Polar bears also met continued endangerment.

  The much-anticipated Paris Climate Conference yielded what many environmental activists deemed weak, if not fraudulent, solutions. Meanwhile, man-made environmental catastrophes endangered humans. In Flint, Michigan, lead levels in the water led to increased rates of contamination in children’s blood, prompting the mayor to declare a state of emergency. A massive methane gas leak in the San Fernando Valley, located just north of Los Angeles, has sickened residents and forced countless families to relocate. Authorities have been unable to stop the leak.

  Thankfully, some measures to help the environment were taken in 2015, including creative solutions to stop animal poaching, the first flight of a solar-powered plane, the launch of a solar-powered airport in India, and Costa Rica’s successful effort to draw 99% of its energy from renewable sources.

  7. Civilian Casualties in Western Wars Continue: Though ISIS and other terrorist groups were rightly condemned for killing civilians in 2015, the West pointed fingers while committing the same crimes. In fact, one U.N. report released in September found U.S. drone strikes have killed more civilians in Yemen than al-Qaeda. Another analysis released this year concluded Obama’s ongoing drone wars have killed more people than were murdered during the Spanish Inquisition. Though the U.S. military’s bombing of a Doctors Without Borders (MSF) hospital received global attention and outrage, many other incidents went underreported. In May, one U.S. airstrike on Syria killed 52 civilians in one fell swoop. Additionally, U.S.-backed coalitions have bombed civilian populations, like in Yemen, where Saudi Arabia killed at least 500 children, not to mention two thousand more adult civilians. In other egregious misdeeds, it was revealed that the U.S. military sanctions pedophilia in Afghanistan.

  8. Insurrection at the Pentagon’s Defense Intelligence Agency Over Misleading Reports on ISIS: Over the summer, dissent grew within the ranks of the DIA, the Pentagon’s internal intelligence agency. In September, news broke that 50 intelligence analysts filed a report with the Department of Defense’s Inspector General to expose their superiors’ alleged manipulation of intelligence. The intention of the coverup was reportedly to downplay the threat of ISIS and the U.S.’s losing effort to fight it, all to maintain the Obama administration’s narrative the bombing campaigns have been successful.

  Similar mishandlings of foreign affairs plagued 2015. It was revealed that the Pentagon had no idea what it did with $8.5 trillion, lost track of $500 million worth of weapons and equipment, and spent $43 million on a single gas station in Afghanistan. A DIA report released in June intimated the military was aware of the rising threat of ISIS, and not only allowed it, but welcomed it. The program to train moderate rebels in the fight cost half a billion dollars but yielded only four or five fighters. Further, multiple generals spoke out this year about the U.S. military’s role in creating ISIS. Additionally, news broke in 2015 that one ISIS recruiter had previously been trained by infamous Iraq War profiteer, Blackwater.

  9. Activists Inch a Small Step Closer to Exposing the Actors Behind 9/11: Though few Americans heard about it, in August, a New York judge allowed a trial to move forward that could expose a potential government cover-up in the notorious terrorist attack. The ruling was tepid, allowing a 60 to 90 day window for the case to be dismissed or proceed. A later ruling hindered the effort, citing a lack of evidence; but activists have not stopped fighting for the release of 28 redacted pages from the 9/11 commission report that allegedly implicate Saudi Arabia (a majority of the hijackers on 9/11 were of Saudi origin).

  Whatever the truth may be, 2015 witnessed growing doubts about the Saudi government, which beheaded more people than ISIS this year. It also sentenced a poet to beheading for writing poetry about his experience as a refugee from Palestine, sentenced a young man, Ali al-Nimr, to crucifixion for participating in anti-government protests, attempted to issue 350 lashings to a British man in possession of wine (though the U.K. intervened on his behalf, and that of al-Nimr; neither will be punished), and initiated a punishment of 1,000 lashings for a pro-democracy blogger, Raif Badawi.

  10. The FDA Approved OxyContin for Use in Children: Though the approval of the powerful, addictive painkiller for use in 11-year-olds and younger children was unsurprising to those who follow the agency’s track record, the FDA’s justification was shocking. After lawmakers wrote a letter expressing concern to the FDA, the agency’s spokesperson, Eric Pahon, said the news was, in fact, not that serious because it was already standard practice. “It’s important to stress that this approval was not intended to expand or otherwise change the pattern of use of extended-release opioids in pediatric patients,” Pahon said. “Doctors were already prescribing it to children, without the safety and efficacy data in hand with regard to the pediatric population.”

  However disturbing, the FDA’s decision comported with other related events this year: President Obama appointed a pharmaceutical lobbyist Deputy Commissioner of medical and tobacco products, a study found swaths of heroin users graduate from prescription painkillers, and similarly, 75% of high school students who used heroin had previously abused pharmaceuticals.

  In other stories regarding the misconduct of agencies tasked with keeping people safe, the FDA continued to allow meat companies to use a pharmaceutical additive banned in 150 countries, while whistleblowers at the USDA revealed several plants were producing pork products filled with fingernails, hair, bile, and feces.

  11. The Federal Government Admitted Cannabis May Help Fight Brain Cancer: Though the government has long known about the medical benefits of cannabis — it holds patents on several medicinal qualities — the National Institute on Drug Abuse made waves this year when it published a document acknowledging the healing properties of cannabidiol, a non-psychoactive endocannabinoid. In particular, it noted “[e]vidence from one animal study suggests that extracts from whole-plant marijuana can shrink one of the most serious types of brain tumors.” Though more research is needed, the government’s admission was unexpected, albeit welcomed by many cannabis enthusiasts. Other studies this year suggested cannabis may help heal broken bones and is associated with lower rates of obesity.

  Though many Americans still faced criminal prosecution for treating themselves and their children with cannabis, 2015 demonstrated the long-term trend of decriminalization and legalization will not be reversed. Nations around the world, from Ireland to Costa Rica to Canada laid groundwork to legalize marijuana to various degrees, while a majority of Americans now support legalization.

  12. Nestle Paid $524 to Plunder the Public’s Water Resources: This year, Anti-Media reported on the insidious relationship between Nestle and the Forest Service in California. The investigation found not only that Nestle was using an expired permit to turn exponential profit on 27 million gallons of water, but that a former Forest Service official went on to consult for the company.

  While corporate exploitation ran rampant in 2015, many countries around the world fought back. India sued Nestle after finding one of its products contained lead, while nations around the world banned Monsanto and GE products. Scotland, Denmark, and Bulgaria, among others, all moved to ban GE crops, while multiple lawsuits, highlighted the serious potential health consequences of the widespread use of pesticides (though the EPA disputed that glyphosate, the key ingredient in Monsanto’s Roundup, was an endocrine disrupter in June, in November, news broke that the majority of studies the EPA used to make its decision were funded by industry). Though corporate power remains all but monolithic, 2015 saw humans across the world rise up to resist it. Most recently (and comically), a proposed initiative in California is about to enter the next phase — signature gathering — to place it on the 2016 ballot. If placed on the ballot and passed, it will force California legislators to wear the logos of their top ten donors while they participate in legislative activities. The effort has drawn widespread praise and enthusiasm.

  13. Establishment Caught Manipulating News to Fit Narratives: Following the death of Freddie Gray in Baltimore, contentious protests broke out, eventually resulting in limited rioting and looting. However, while the media attempted to paint protesters as aggressive, it failed to report officers’ prolonged prohibition of their physical movement, to say nothing of the riot gear police showed up wearing. After being unable to move, a brick was thrown, but the media failed to report the instigation and discrimination law enforcement imposed that ultimately led the students and protesters to grow unruly.

  In other manipulations, it was revealed that one Fox News contributor lied about his experience as a CIA agent; he had never been employed at the agency, and only obtained later national security jobs by lying about his CIA experience. Further, CBS edited out comments from Muslims, who discussed U.S. foreign policy as a driver of Islamic extremism during a televised focus group.

  A study by fact checker, Politifact, revealed that all the major outlets surveyed — Fox News, CNN, and MSNBC— consistently report half-truths and lies. It is little wonder, then, that another survey found only 7% of Americans still harbor “a great deal of trust” in the mainstream media.

  Still, it wasn’t just the media that lied. On multiple occasions, government employees were caught attempting to distort facts. In March, news emerged that an IP address linked to the NYPD had attempted to edit the Wikipedia page on Eric Garner. Computers inside Britain’s parliament were linked to attempted edits on pages detailing sex scandals, among other transgressions. In a related story, the FBI reported it had foiled yet another terrorist plot, and once again, it was revealed the culprits were provided support from an informant working for the bureau. Further, in August, Wikileaks released cables that showed an American lobbyist for Saudi Arabia organized a $6 million ad campaign against the president’s nuclear deal with Iran, all through a well-funded group called the “American Security Initiative.” The lobbyist, Norm Coleman, is a former Republican senator.

  14. TPP: In one of the most widely-contested pieces of legislation in recent memory, the Trans-Pacific Partnership moved forward, often in secret. The TPP has been condemned as a corporate power grab that ensures profit for pharmaceutical companies, among many other loathed industries. From clamping down on internet freedom to effectively sanctioning sex trafficking, TPP signals an ominous fate for the future of freedom.

  15. Sharp Uptick in Islamophobia: Amid the carnage of the Paris terror attacks, the recent shooting in San Bernardino, and the surge in Syrian refugees seeking asylum in Western nations, attacks against Muslims skyrocketed in 2015. In the United States, Muslims have been attacked for praying in public, wearing traditional head scarves, and for simply being out in public. Sikhs have been caught in the crossfire for the crime of being brown and wearing cloth on their heads — and thus being confused with Muslims — while at least one Christian has been terrorized as a result of the unmitigated hate currently permeating modern society. Many European nations and U.S. states have rejected the influx of refugees from war-torn Syria.

  Amid the increased hate against Muslims, however, has come an outpouring of love and tolerance. Muslim groups across the world have condemned terror attacks, raised money to help the families of victims, and promoted programs to discourage extremism. At the same time, citizens across Europe, Canada, and even parts of the United States have welcomed Syrian refugees with open arms.

  2015 was a year of chaos, violence, hate, and an ongoing struggle of freedom versus oppression. In many ways, it was like the years, decades, and even centuries and millenia that came before. But amid the conflict and often discouraging headlines, humanity has continued to persevere, offering resistance to seemingly all-powerful forces and paving the way for, if nothing else, potential peace, freedom, and respect for human life.

  

  

  

  

  

• 2015 Was First Pre-Election Year to End In the Red Since the Great Depression

  The year before elections is almost always the best year for stocks.

  Investors notes:

  Pre-election years takes the top spot as the best-performing year for stocks.

  UBS reports:

  Ahead of US Presidential Elections  (Pre-Election Year or Year 3 and Election Year or Year 4) politicians often promote an accommodating and pro-business agenda so that the economy is  strong,  stock  market  is  bullish,  and  voters  are  upbeat  heading
  to the polls.

  The Stock Trader’s Almanac notes (via a press release by publisher Wiley):

  Pre-election years are notoriously the best year of the four-year cycle and fifth years of decades are the strongest, so 2015 has some solid history behind it,” says the Almanac’s Editor-in-chief Jeffrey A. Hirsch. “The Dow has not had a loss in a pre-election year since 1939.

  But in 2015, the Dow closed down for the year … 2.2% into the red.

  

  

  

  

• German Police Evacuate Munich Train Stations, Warn Of Imminent Terrorist Attack

  Munich police have evacuated two train stations in the Germany city of Munich and issued a statement warning citizens of an imminent terrorist attack.

  Aktuelle Hinweise, dass in #München ein Terroranschlag geplant ist. Bitte meidet Menschenansammlungen und die Bahnhöfe Hauptbahnhof + Pasing

  — Polizei München (@PolizeiMuenchen) December 31, 2015

  As BNO News reports,

  The warning by police in the capital of Bavaria state was issued just before 10:45 p.m. local time, but few details were immediately available. It is unclear if any festivities will be canceled.

   

  "Current information indicates that a terrorist attack has been planned in Munich," police said in a statement. "Please avoid crowds and train stations. We will provide updates on the current situation."

   

  

   

  Both the main railway station and the Pasing station have been evacuated and police are working to identify possible suspects, the statement added.

   

  

  *  *  *

  One can only imagine what is going to happen tonight in Times Square…

  

  

  

  

  

• A Year In The Fabulous Life Of Kim Jong-Un, In Pictures

  As the November attacks in Paris and the downing of a Russian passenger jet over the Sinai Peninsula vividly demonstrate, we live in a dangerous world. 

  Indeed, these are trying times for civilized society as countries across the globe struggle to comprehend the phenomenon that is Islamic State whose atrocities have reminded us all that man is capable of committing unspeakable acts of violence. 

  But by focusing squarely on ISIS or on other jihadists inspired by radical Islam, we risk forgetting about the most dangerous man on the planet, whose evil knows no bounds and whose military genius is rivaled only by the likes of Napoleon: 

  

  To be sure, Kim Jong Un did his best to stay in the spotlight this year in a geopolitical environment dominated by the global proxy conflicts in Syria, Ukraine, Iraq, and Yemen. 

  For instance, the young Supreme Leader nearly restarted the Korean War back in August when the North took a pot shot at a South Korean loudspeaker that was blaring propaganda across the DMZ.

  Kim also threatened to invade the US mainland on at least one occasion and reiterated that the North is prepared to use “weapons unknown to the world.”

  Oh, and he executed defense minister Hyon Yong Chol with an anti-aircraft gun for falling asleep at an official event: 

  

  And so, because we know everyone is wondering what Kim is up to now that the more “pressing” matters of international security have pushed Pyongyang to the backburner, we present the following 2015 Kim Jong Un photo album courtesy of Reuters:

  

  North Korean leader Kim Jong Un greets North Korea’s female soccer team as they arrive at Pyongyang International Airport on Monday after winning the 2015 EAFF East Asian Cup, in this photo released August 10, 2015

  

  Kim Jong Un provides field guidance to the Wonsan Baby Home and Orphanage in the run-up to a ceremony for their completion, in this photo released June 2, 2015.

  

  Kim Jong Un views the dawn from the summit of Mt Paektu April 18, 2015

  

  Kim Jong Un attends the 3rd Meeting of Activists in Fisheries under the Korean People’s Army (KPA) in this photo released December 29, 2015.

  

  Kim Jong Un visits Farm No. 1116, under KPA (Korean People’s Army) Unit 810, in this photo released June 1, 2015.

  

  Kim Jong Un has a photo session with participants in the second meeting of KPA logistic personnel in this photo 

   

  

  Kim Jong Un guides artillery fire and landing exercises in this photo released February 21, 2015

  

  Kim Jong Un visits the January 18 General Machinery Plant in this photo released December 20, 2015

  

  Kim Jong Un gives field guidance to the Taedonggang Combined Fruit Farm in this photo released August 19, 2015. 

  *  *  *

  Now that’s a renaissance man if we’ve ever seen one. More here.

  

  

  

  

• Yellen, You Have A Problem: The "Rate Hike Corridor" Just Broke

  One week before the Fed hiked rates by 25 bps we warned that “nobody knows if the Fed can actually do it“, citing not only our previous post on the topic, explaining the lack of a detailed framework by the Fed on the mechanics of the rate hike, but also a Bloomberg piece in which we noted the broader logistical concern: “with so much cash sloshing around, will Fed officials be able to nudge rates as high as they want? Will the new-fangled tools they’ve created to engineer the move work, or instead sow the kind of confusion that can dent the Fed’s credibility and spur a broader market selloff?”

  The good news, at least initially, was that the Fed’s plumbing worked smoothly, and instead of the Fed draining up to the $1 trillion in excess liquidity some such as Citi had predicted, the very first fixed-rate reverse repo operation saw just $105 billion in liquidity soaked up by the Fed from 49 counterparties.

  

   

  Was there somehow too little excess liquidity, or was there something more structural at hand. It didn’t matter: after all the Federal Funds rates was solidly inbetween the 0.25% floor and 0.50% ceiling set by the Fed’s Reverse Repo and Interest on Overnight Excess Reserves, and there was no reason to worry that the Fed had made a mistake.

  

  

   

  However, this changed today when the Fed Funds rate just tumbled to 0.12%, far below the required 0.25% floor set by the Fed, and down 23 bps from the effective 0.35% Fed Funds rate set yesterday, confirming that indeed the rate hike corridor can and has been breached at least once, and just two weeks into the Fed’s rate hike experiment.

  

   

  To be sure, while this is clearly a structural failure of the rate hike corridor, it also reflect the quarter and year-end window dressing we discussed first well over a year ago. SMRA confirms as much:  

  the fed funds rate has dropped to 0.12% this morning, down from 0.47% yesterday. The fed funds rate has dropped at month-end for all of 2015, with some of the larger of these moves occurring at quarter end, like today.

  

   

  It appears that these drops will still occur even after the fed rate hike, and possibly that the will be even more extreme, since today’s drop was about 23 basis points, as opposed to previous declines this year, which were usually between 5 and 10 basis points.

  True, there is always an excuse, and in this case it has to do with banks window dressing their balance sheets for the quarter or year-end.

  However, the fact that there is this kind of major discontinuity in the Fed’s rate hike process, throws a huge wrench in the credibilty of the Fed tightening effort.

  After all, if banks can steamroll with impunity the Reverse Repo 0.25% floor to park hundreds of billions, or trillions, in liquidity, then the Fed’s entire experiment will be worth nothing. Keep in mind, the rate hike process only works if banks don’t get a chance to revert to an old standby liquidity regime on the last day of any quarter, in the process getting all the benefits of ZIRP even as the Fed parades just how tight financial conditions are getting.

  Just imagine what would happen on December 31, 2016 if the Fed Funds rate plunged from 1.25% to 0.12% overnight? That would suggest that while the Fed may have drained liquidity for 99% of the quarter, on the one day it matters – the day when the bank’s balance sheet snapshot is formalized for 10-Q and 10-K purposes, ZIRP regime has returned.

  What all this means is that the Fed’s attempt to allow banks to “voluntarily” return excess liquidity has failed, just as we expected it would courtesy of these kinds of dramatic rate discotninuities, and that if Yellen is indeed serious about soaking up liquidity and “bursting bubbles”, she will have to either force banks to submit far greater amounts of liquidity, or drain liquidity structurally, by unwinding the Fed’s balance sheet instead of pretending financial conditions are tighter by pushing the Fed Funds rate by 25 bps even as the Fed still own trillions in various assets. Because another way of putting all this is that the Fed is tightening bank financial conditions on all days in the quarter… except the one when it actually matters!

  And needless to say, the impact on risk assets as a result of the Fed announcing a real liquidity drain – like trimming its balance sheet by a trillion or more – would be dire.

  For now, we sit back and watch to see just how the Fed will spin this first failure of the rate hike process, because now it is no longer merely a speculation: the market knows that Yellen has a problem.

  

  

  

  

  

• Now Comes The Great Unwind – How Evaporating Commodity Wealth Will Slam The Casino

  Submitted by David Stockman via Contra Corner blog,

  The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

  That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

  But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

  As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

  Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

  

  The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

  One of these was an explosion of CapEx in the oil patch and the mining sector in response to massive price and margin gains and the resulting windfall rents on existing assets. In the case of upstream oil and gas, for example, worldwide investment grew from $250 billion to $700 billion in less than a decade.

  Needless to say, there is now so much excess supply and capacity on the world market that oil has plunged into a collapse that is likely to last for years, as old investment come on-stream while world demand falters in the face of the gathering global recession. Already, investment is estimated to have dropped by 20% in 2015, and that is just the beginning.

  

  This unfolding collapse of oil and gas investments, of course, will ricochet through the capital goods and heavy construction sectors with gale force. Eventually, annual investment may decline by $250 to $400 billion before balance is restored, meaning that what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead.

  Contrary to the circular logic of our Keynesian central planners and Wall Street stock peddlers, the pending massive loss of value added capital spending in the energy patch is not a part of some grand reallocation game; it won’t be made up by households—-which are already at peak debt—— borrowing even more in order to go to the restaurant or yoga studio.

  Instead, as the credit bubble begins to shrink it means that profits, incomes, balance sheets and credit-worthiness are all shrinking, too. So is the related GDP.

  The same kind of malinvestment occurred in the mining sectors where Australia’s boom in iron ore, coal, bauxite and other industrial materials provides a good proxy.  As shown below, CapEx in mining grew by nearly 6X in less than a decade.

  

  But given the massive oversupply and plunging prices and margins in these commodities, and the overhang of still more capacity in the pipeline coming to completion, it is fair to say that investment in the global mining industry is sinking into a depression that will last the better part of a decade.

  

   

  Indeed, as shown above, global mining industry CapEx soared by 5X during the seven years through the 2012 peak, but the overwhelming share of that was in greenfield and brownfield investments. Yet given the massive global overcapacity in iron ore, copper, metallurgical coal, bauxite/alumina etc., those kinds of projects are likely to be few and far between in the years ahead.

  Needless to say, that means shrinking profits and the massive loss of high wage jobs and vendor service contracts. Even baristas at Starbucks do not earn a fraction of what had been paid to miners and UAW members on the Caterpillar assembly line.

  Nor was the credit-fueled CapEx boom limited to energy and metals. Bloomberg carried a story today outlining a similar super-cycle in the global rubber industry. As a result of massive rubber plantation expansion in response to soaring prices and windfall profits, the industry is now facing investment and job killing surpluses as far as the eye can see.

  Global demand for natural rubber, used mostly in tires, is slowing as the economy cools in China, the world’s largest buyer of new cars. Supplies are expanding after a decade-long rally in prices to a record in 2011 encouraged top producers like Thailand, Indonesia and Vietnam to plant more trees. Output will exceed use for two more years, with the surplus quadrupling in 2016, according to The Rubber Economist Ltd., a London-based industry researcher.

   

  ……Rubber traded in Tokyo, a global benchmark, has tumbled 70 percent from a record in 2011, touching a six-year low of 153 yen ($1.26) a kilogram on Nov. 6. Futures in Shanghai have slumped 22 percent in 2015. The export price from Thailand, the top producer, is down 23 percent…..

   

  Global production is set to exceed demand by 411,000 metric tons next year and by 430,000 tons in 2017, compared with a surplus of 98,000 tons in 2015, The Rubber Economist predicted on Dec. 9. Output will increase 3.8 percent next year to 13 million tons and will keep expanding through 2018, the researcher said. Consumption won’t grow nearly as fast, which will leave stockpiles by the end of 2017 at a record 3.7 million tons, said Prachaya Jumpasut, managing director of The Rubber Economist.

   

  Excess supplies may keep prices subdued for a decade, said Hidde Smit, an industry adviser who has studied the market for more than 30 years and is the former secretary-general of the International Rubber Study Group. Even with some smaller farms cutting back now, the planted area across 11 Asian countries that are the primary growers has surged 45 percent since 2004, he said.

   

  

   

  So with producer profits and incomes falling in commodity sectors and capital goods industries all over the world, there is no prospect of a smooth rotation into more services and consumption. Deflation means not just lower oil or steel prices; it also means the evaporation of production and incomes which were falsely inflated by the 20-year credit binge.

  And that’s not the half of it. The massive windfalls on commodities and capital goods earned by producers during the great credit inflation were not entirely reinvested in new capacity and fixed assets. As the Wall Street Journal documented recently, it also enabled a huge increase in the balance sheets of sovereign wealth funds due to state ownership or heavy taxation of oil and mineral production.

  But now the days of heady accumulation of “sovereign wealth” in Saudi Arabia, Norway, Kazakhstan and dozens of commodity producers in between is over and done. What is happening is that these funds are entering a cycle of liquidation which is unprecedented in financial history.

  Indeed, the data for Saudi Arabia, Qatar, Kuwait, the UAE and other members of the Gulf Cooperation Council (GCC) is stunning. During the global credit boom they amassed sovereign wealth funds totaling $2.3 trillion. But with deficits now estimated at 13% of GDP and rising, the level of asset liquidation is soaring.

  Thus, if crude oil prices recover to $56 per barrel next year, the GCC states will need to liquidate $208 billion of investments. Yet if prices fall to $20 per barrel, as Goldman Sachs has warned, they would need to liquidate nearly $500 billion of their booty in a single year.

  But regardless of the exact crude oil path in the years ahead, prices are sure to stay in the sub-basement for an extended period. That means that the GCC states may need to liquidate the entirety of their sovereign wealth funds by early in the next decade.

   

  

  The same is true on a worldwide basis for all of the energy and mineral based sovereign wealth funds. They will be in a liquidation mode for years to come as the great commodity deflation runs its course.

  In a word, the unnatural Big Fat Bid of the sovereign wealth funds is going All Offers as oil and commodity producers struggle to fund their budgets.

  Stated differently, just as the commodity bubble effects did not stay contained in the energy and metals markets as the global credit bubble expand, the same will be true in the deflation cycle.

  The unfolding correction of the visible excesses of the credit inflation – such as overinvestment and malinvestment – will destroy incomes and profits; the Great Unwind of the less visible effects, such as the sovereign wealth fund liquidations, are a giant pin aimed squarely at the monumental worldwide bubbles in stock, bonds and real estate.

  

  

  

  

  

• Technical Analysis of the Corn Market

  By EconMatters

  

    

  Corn Market 2015

   

  I have been watching corn prices lately as they are getting low enough to at least pique my interest into looking at a market that usually just gets bypassed with the rest of my agricultural futures prices tab on my trading platform, more out of habit than having anything in particular against the agricultural markets. The March 2016 Futures contract was down about 16% in 2015 along with most of the commodity space on fund outflows, a weak China, and a strong dollar.

   

  

  Economics of Agricultural Space

   

  This goes against my intuition regarding long-term supply and demand drivers in the global economy. For example, the world population continues to grow, good farming land with proper soil management is a finite resource, and the world is going to need more food in the future. The Corn market looks like a buy over a five year time frame, unless the Midwest lobby loses big in Washington politics and the corn ethanol production market completely goes by the wayside, this probably would result in a drop before another spike as farmers readjust crop sizes to the new economics. But all else being equal I expect the corn market to go on another one of those massive runs higher sometime over the next five years given its recent history from a trading standpoint, and the broader economic drivers for the commodity over time.

   

  

  Market Timing

   

  But from a trading standpoint what I really want to know is are there any good trading setups because although I try to eat relatively healthy and exercise when I can for practical purposes I could be dead in five years. Maybe Warren Buffet can wait for 5 years for his investments to pay off but most of the street gets paid on an annual and quarterly basis. If a fund has a bad quarter, redemptions go up, and their assets under management go down. This is not good for fund managers as their compensation goes down from a lower management fee base, and obviously if they are having a bad quarter their percentage of profits number is headed in the wrong direction.

   

  

  The bottom line is that most people have to get the timing right in an investment or trade, at least within the same calendar year. So what do the technical look like in the corn market? The theory is that everything that is going on with the fundamentals of the corn market are reflected in the charts, along with the technical and psychological drivers of the market. The idea is that the technicals will tell me when to get back into the corn market at least for a nice trading setup, they will tell me when something regarding market sentiment is changing at least from a fund flows perspective.

   

  

  Technicals

   

  Therefore in looking at the two year futures chart I have picked out the 410.00 cents per bushel area where I start to get interested in the corn market. We are currently at the 358.00 cents per bushel area, and I am not looking for a short in this market. However, from a trader`s perspective there is a two year trend line going from the 510.00 cents per bushel area to the current price area of 358.00 cents per bushel area. If price breaks above this trend line around 370.00 cents per bushel, this could be a good buy stop entry with a relatively tight protective stop in the area of 364.00 cents per bushel to 357.00 cents per bushel depending upon your trading style.

   

  

  Overhead Resistance

   

  The first target on this entry would be a break of the 396.60 cents per bushel high in late October of this year on the six month chart to test overhead resistance at the 410.00 cents per bushel high last hit October 7^th of 2015. The Reward to Risk profile is 6.67 Units of Reward to 1 Units of Risk with the tighter stop around 364.00 cents per bushel , and 3 to 1 with the wider protective stop at 357.00 cents per bushel. I would watch price very carefully because what I am in this trade for is a break of the 410.00 cents per bushel overhead resistance area with the next profit target around 464.00 cents per bushel last established in July of 2015.

   

  

  As long as you have a winning trade, why not let the market tell you when it is done going in your direction? Has the trade broken any key technical levels of support? These markets are a lot bigger than one would think, and once the fund flows start coming into a market, a trader or investor needs to take this into account, as often the results are binary. For example the market is either going to go your direction, and if it does expand your profit target more because it is going to move a good way on changing capital structures. Or alternatively the trade is a non-starter, and a tight stop will tell you pretty early that your timing is just not right on the trade for a relatively cheap price.

   

  

  The next overhead resistance level in the corn market is around 510.00 cents per bushel last established in late April of 2014. The five year high in the corn market was established on August 6^th 2012 at around 845.00 cents per bushel. The 10-Year Corn Futures chart basically has a double top on it around the 800.00 cents per bushel area, which give or take the short squeeze effect, is good enough for a price barometer where the market starts to entertain that it is overvalued, and lots of shorts and hedges enter the market for good.

   

  

  Long Term Support

   

  The fifteen year chart has the 200.00 to 250.00 cents per bushel area as longer term support for those wanting to look at the trade on the short side. With the 25-Year chart reinforcing the idea that the 200.00 cents per bushel area represents solid long term support for corn futures. The problem is that a lot of this history is before modern electronic markets really took off and became global marketplaces for investors. And when inflation effects are factored into the equation, on an inflation adjusted basis corn is probably at or near a 25 year low right now at the current price.

   

  

  The Patient Investor

   

  And for those investors with a five year time frame and no pressure from outside investors, given the nice bull moves of the last 10 years in the corn market, it makes sense to try and anticipate the next large move in this agricultural staple. Therefore, if you want to get into the corn market now and wait for the move, one needs an instrument or asset where they can stay in the trade and not be liquidated, depreciated beyond reasonable time decay, and get the best full value of the move if it transpires.

   

  Corn Futures Curve

   

  For example, the December 2019 Corn Futures contract only has 9 contracts of open interest at the close today with a prior close at 417.40 cents per bushel with the last actual trading volume today in the December 2018 futures contract with a price of 410.00 cents per bushel with a lofty 3 contracts trading hands. Most of the open interest in the corn futures market only goes out 2 years to the December 2017 futures contract which is trading around the 400.00 cents per bushel area at the close of this year.

   

  For those who don`t like to roll over futures contracts the December 2017 contract probably isn`t the worst way to play it since most investors may not want to get into the complexities of buying up farm land, and are not going to have access to the swaps market for practical purposes. Thus, we will see if 2016 brings better fortune for the corn market than the past 3 years where corn futures are down nearly 50% over this timeframe.

  © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

  

  

  

  

• Stocks End 2015 In The Red, Worst Year With Oil Since 1984

  We end the year with a dump bump and the best analogy for US equity markets we could find all year… (Forward to 2:00)

  Never Gets Old, sorry.

  *  *  *

  WORST SINCE 2008…

  2015 ended with The S&P 500 (oops!), The Dow Industrials (weak), Dow Transports (monkey-hammered), and Small Caps (slammed) in the red, But Nasdaq well in the green…

  

   

  Thanks to FANGs…

  

   

  And not thanks to Energy stocks…

  

   

  As Breadth collapsed…

  

   

  The 140 year streak is over – a year ending with "5" closed red for the S&P 500!!…

  

   

  A year of living cognitively dissonant…

  

   

  Gold, Oil, and The Dow all lower on the year for the first time since 1984…

  

  1985 saw WTI rally 29%, Gold rally 14%, and Dow surge 30%

   

  This was Apple's worst year since 2008 – down 4% (while Netflix gained 140%). This means the "no brainer" trade has made no money for investors since October 27th 2014…

  

  Shares have shed about a fifth of their value since touching a high of $134.54 on April 28, and are down 17.5 percent since the inclusion of the stock in the Dow Jones industrial average in March. During its six-year run of gains, the stock has risen by at least 25 percent in five of those years.

  Crude was the worst in 2015. The Dollar Index rose 9.2% and PMs dropped 10-11%. Bonds broadly speaking lost 4.3% as The Dow dropped around 2%…

  

   

  Crude had its worst 2-year drop on record…

  

   

  Leveraged Loans tumbled almost 3% YoY – the biggest drop since the financial crisis (and 2nd biggest drop on record). Lev100 is now at its lowest since August 2013…

  

  *  *  *

  Q4 was a big quarter for stocks… (except Trannies)

  

   

  As they outperformed bonds (-2.5%), HY (+1.3%), and PMs (-5%)

  

  *  *  *

  On the day every effort was made to get The S&P 500 above 2058.90 and ensure a green close for the year…

  

   

  But despite the best effort for a post-EU-close ramp, it failed…

  

   

  As USDJPY was ramped (fail)

  

   

  Crude was epically ramped (fail)

  

   

  and VIX was crushed the moment Europe closed.. but it did not last and towards the end of the day VIX went bananas…

  

   

  Shorts were instantly squeezed as soon as Europe closed… but that effort stalled once the S&P broke above breakeven for the year… and it was dumped into the close…

  

   

  *  *  *

  On the week, stocks were red as Santa's rally faded… with a very ugly close…

  

   

  Futures show the peak right at the cash close on Tuesday…

  

   

  Since The FOMC, everything is down…

  

   

  Treasury yields rose on the week but rallied into the close today…

  

   

  The Dollar Index ended the week around 1% higher driven by weakness in EUR and Swissy…

  

   

  Commodities mostly dropped this week (though copper clung to short-squeeze gains)…

  

   

  Charts: Bloomberg

  Bonus Chart: Because Fun-Durr-Mentals…

  

   

  Bonus Bonus Chart: Bad Breadth Breaking Bad-der…

  

  

  

  

  

• America In 2015 (The Chart)

  2015 – the year when The Fed hiked rates for the first time in a decade to confirm its own narrative that "everything is awesome" and the US economy can handle 'normalization'.

  And/Or

  2015 – the worst collapse in US macro-economic data since 2008 on both an absolute and relative to expectations basis.

   

  

   

  It was different this time. The 'new normal' pattern has been an optimistic start to the year which then disappoints into mid-year only to resurge and surprise meteoroconomists in the second half of the year as government fiscal year-end spending and some form of stimulus invariably drove surveys back into optimistic territory.

  

   

  That didn't happen in 2015.

  

  

  

  

• Turks Warn "We're One Step Away From Civil War" On Erdogan Crackdown

  “When Justice and Development won by a landslide — a result that Mr. Erdogan interpreted as the public’s demand for stability — many had hoped it would lead to the revival of peace talks.”

  That’s from The New York Times, who is out on Thursday with a look at Turkey’s escalating civil war. 

  To be sure, we haven’t been shy in our assessment of the conflict. We’ve branded the fighting a “civil war” since the summer, when HDP’s strong showing at the ballot box derailed Erdogan’s efforts to transition the country to an executive presidency, a move which would help to strongman consolidate his power.

  A subsequent suicide bombing in Suruc prompted the PKK to kill two Turkish policemen the group says were cooperating with Islamic State (which was blamed for the initial attack). That was more than Ankara needed to justify a crackdown on the PKK in the name of the war on “terror.” From there, it was an all-out war between Erdogan and the Kurds, a conflict which quickly transformed cities like Cizre, into warzones.

  As al-Jazeera wrote in August, government attacks ”have put Cizre, a long-defiant bastion of pro-Kurdish sentiment, back on the front lines of a conflict that has cost more than 30,000 lives since 1984.” Here’s some useful color from Vice: 

  Cizre has spent years on the fringes of war. The unremarkable-looking town of just over 100,000 lies on the Tigris River, around 30 miles from the tripoint where Turkey meets conflict-ravaged Syria and Iraq, and violence regularly strays over the national boundaries. Now, the cycle of airstrikes and renewed PKK attacks on Turkish troops threaten a return to the three-decade-long struggle between the two sides that claimed more than 40,000 lives. And here, residents feel like they’re at the heart of the fight. 

   

  

   

  “There’s a saying, ‘if there’s peace, it will start from Cizre, and if there’s war, it will start from here as well,'” the town’s co-mayor Leyla Imret, 28, told VICE News recently. “And we can say we have a civil war in Turkey.” 

  Less than a month after those words were written, two Vice journalists were arrest in Southeast Turkey.

  Sadly, Erdogan’s campaign against the Kurds did not end after AKP put on a better showing in November’s manipulated rerun elections. “Instead,” The New York Times notes, “the violence has sharply escalated, stoking fears that it might spread.”

   WSJ ran a piece last week that documented the transformation of Kurdish cities and towns into warzones. “Since the government declared what it called a ‘decisive’ campaign to end five months of limited violence between Kurds and government security forces, young Kurdish militants in the cities of Diyarbakir, Cizre, Silopi and Nusaybin have been targeted by Turkish tanks, helicopters, artillery and snipers,” The Journal wrote. 

  

  “Things are reaching a critical point, and it’s not clear where things are heading,” one Western official in Turkey warned. Well, according to The Times – whose piece echoes what The Journal wrote last week and what we’ve been keen on documenting for the better part of six months – “things” are headed towards civil war. 

  Earlier this week, Erdogan accused HDP co-head Selahattin Demirtas of treason after the politician suggested over the weekend that the Kurds needed to declare and defend their automony or “live under one man’s tyranny.” 

  

  “Where do you get the right to talk about establishing a state in east and southeast regions within Turkey’s unitary structure?,” Erdogan fumed, on his way to Saudi Arabi to discuss matters of mutual interest in Riyadh. Demirtas may have his parliamentary immunity revoked on the way to prosecution. 

  But while HDP politicians are prosecuted, PKK sympathizers are persecuted and the world is now beginning to worry that Southeast Turkey could soon end up looking a lot like Syria. Here’s more from The Times:

  For Mr. Erdogan, the Kurdish militants in Turkey are now the most important enemy.

   

  “You will be annihilated in those houses, those buildings, those ditches which you have dug,” he said recently, speaking about the militants to a crowd of his supporters in the central Anatolian city of Konya. “Our security forces will continue this fight until it has been completely cleansed and a peaceful atmosphere established.”

   

  Photographs and video clips from the region distributed by local officials show chaos and destruction, with black smoke rising above shelled buildings and neighborhoods.

   

  The town of Cizre, in the southeastern province of Sirnak, has been under a curfew for more than two weeks, with mounting civilian casualties. Last Friday, a 3-month-old baby and her grandfather were killed in crossfire between security forces and militants, according to local medics, who said the family was unable to reach help after its house had been shelled.

   

  
  

   

  Three soldiers were killed by the Kurdistan Workers’ Party in Cizre over the weekend, the Turkish military said in a statement. At least 200 members of Turkey’s security forces have been killed since the conflict resumed.

   

  In the district of Silopi, which borders northern Iraq, residents say they are trapped in a war zone.

   

  “The tanks fire all day and we have nowhere left to hide,” said Nurettin Kurtay, a teacher reached by phone.

   

  “People are dying in their own homes,” he said. “Our schools and our infrastructure has been destroyed. There is no difference between what is going on here and next door in Iraq and Syria.”

  Indeed.

  And yet this week, Erdogan – with a straight face – accused the Assad government of “mercilessly killing” civilians. But what’s going on in Turkey is precisely the same thing that began to unfold in Syria in 2011. That is, certain elements in the country were subjected to a government crackdown when they agitated for change. In both cases, the government (Assad in Syria and Erdogan in Turkey) accused the other side of being “terrorists” and in both cases, civilian casulaties began to pile up. 

  Somehow though, Assad is a “butcher” and Erdogan is a democratically elected leader who is merely fighting to eradicate terrorist elements. 

  Needless to say, this is completely despicable at this point, especially considering the fact that the PKK’s Syrian affiliate (the YPG) are fighting the real “terrorists” (ISIS) across the border. A border which Turkey has made highly porous on purpose in order to allow for the easy flow of Sunni extremists (not to mention Islamic State oil) into and out of Syria.

  Perhaps when NATO looks back four years from now on what may by then be a genocide, someone in Washington will have the decency to admit that a disastrous foreign policy combined with the blatant hypocrisy inherent in how the US characterizes Assad’s fight against rebels and Erdogan’s crackdown on the Kurds ultimately led to the death of half a million people in the Mid-East.

  We close with the following quote from Engin Gur, a father of two who came to Istanbul from the southeastern district of Sur, and who spoke to The Times:

  “What people here in the west do not realize is that we are one step away from a civil war.”

  *  *  *

  More images from Cizre

  

  

  

  
  

  

  

  

  

  

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From David Stockman’s Contra Corner – davidstockmanscontracorner.com

Yellen said at least one thing of importance last week, but not in a good way. She confessed to the frightening truth that the FOMC formulates its policies and actions based on forecasts of future economic developments.

My point is not simply that our monetary politburo couldn’t forecast its way out of a paper bag; that much they have proved in spades during their last few years of madcap money printing.

Notwithstanding the most aggressive monetary stimulus in recorded history—-84 months of ZIRP and $3.5 trillion of bond purchases—–average real GDP growth has barely amounted to 50% of the Fed’s preceding year forecast; and even that shortfall is understated owing to the BEA’s systemic suppression of the GDP deflator.

What I am getting at is that it’s inherently impossible to forecast the economic future, but that is especially true when the forecasting model is an obsolete Keynesian relic which essentially assumes a closed US economy and that balance sheets don’t matter.

Actually, balance sheets now matter more than anything else. The $225 trillion of debt weighing on the world economy——up an astonishing 5.5X in the last two decades—– imposes a stiff barrier to growth that our Keynesian monetary suzerains ignore entirely.

Likewise, the economy is now seamlessly global, meaning that everything which counts such as labor supply and wage trends, capacity utilization and investment rates and the pace of business activity and inventory stocks is planetary in nature.

By contrast, due to the narrow range of activity they capture, the BLS’ deeply flawed domestic labor statistics are nearly useless. And they are a seriously lagging indicator to boot.

Nevertheless, Yellen & Co. are obsessed with the immeasurable and largely irrelevant level of “slack” in the domestic labor market. They falsely view it as a proxy for the purported gap between potential and actual GDP. Not surprisingly, they are now under the supreme illusion that the labor slack has been largely absorbed and the output gap nearly closed.

So they are raising money market rates by a smidgeon to confirm the US economy’s strength and that the Keynesian nirvana of full employment is near at hand.

No it isn’t! These academic pettifoggers are so blinded by their tinker toy macro-model that they can’t even see the flashing red lights warning of recession just ahead.

Just consider the most recent data on wholesale sales and inventory. This sector of the domestic economy embodies the leading edge of business activity, meaning that trends in wholesale level sales and inventory stocking are advance indicators of the general macroeconomic outlook.

Needless to say, the soaring inventory-sales ratio is not a sign that “escape velocity” is just around the corner. Contrariwise, whenever the ratio has busted through 1.30X in the past, what came next was a recession.

Recessions happen on the main street economy, of course, when sales weaken and inventories build to the point where liquidation of excess stocks becomes unavoidable.  Accordingly, of far greater significance than the 19 labor market graphs supposedly on Yellen’s dashboard is the unassailable fact that wholesale sales have now rolled over.

The natural market driven bounce back from the deep liquidation during the Great Recession is now over and done. Wholesale sales are down 4.5% from their June 2014 peak and have returned to September 2013 levels.

Moreover, it is also well worth noting that at the most recent October 2015 level, wholesale sales are now up at only a 1.6% annual rate from the pre-crisis peak. Surely that does not measure an economy that is healed and heading toward the promised land of full-employment.

So the false conclusion about the US economy’s strength derived from the Fed’s faulty labor market telemetry cannot be emphasized enough.

There has been no Fed driven main street recovery. Instead, the tepid business expansion after the 2009 bottom embodied nothing more than the natural regenerative impulses of our badly impaired but still functioning capitalist system. As the inventories of goods and labor that were thrown overboard during the post-crisis plunge were rebuilt, incomes recovered and the cycle of expansion paddled forward on its own motion.

But that’s now done, and the US economy stands fully exposed to the albatross of peak debt and the gale forces of global deflation. Yet as we indicated last week, the delusion that the Fed has actually been steering the main street expansion stems from the archaic jobs and unemployment rate data published by the BLS.

Consequently, it bears repeating that those metrics are derived from what is a 50 year-old factory based model of “potential GDP”; and reflect a full employment notion based on a census style count of job holders versus what was then mainly an adult male work force.

By contrast, in today’s world of global labor competition in goods, off-shored business services, episodic domestic gigs, temp agency labor delivery and Wal-Mart style labor scheduling by the hour and time of day, week, month and season the whole idea of “full employment” is a relic. And a stupid one at that.

The only common denominator left is the adult population, which numbers 255 million by headcount and 510 billion by standard work-year hours count.  Over and against that, the US economy is currently utilizing about 243 billion labor hours annually according to the BLS, and that’s not the half of it.

Even as total labor hours employed by the private business economy have barely returned to 2007 levels—- and for that matter have scarcely grown at all from levels at the turn of the century—– the mix has continued to deteriorate. There is a larger share of even these flat-lining labor hours attributable to low-pay, part-time jobs than ever before.

No, this doesn’t mean that we have a 50% unemployment rate. But it does underscore the fact that in today’s world there are no “natural” or structurally fixed coefficients for withdrawal of available population hours from the labor force owing to retirement age, disability rates, election to non-monetized homemaker status, student status, or lifestyle preferences for malingering, begging, free charitable endeavors or asceticism.

Self-evidently, these decrements from the nation’s 250 billion undeployed potential labor hours are affected by tax and welfare policies, accumulated retirement savings and an endless list of cultural and psychological factors.

But they have little to do with any measurable business cycle; and they shift and morph steadily over time and in response to new technological and cultural developments. They are utterly beyond the reach of 25 basis points of interest rate shifts on the money markets.

In fact, what they are responsive to is global economic forces and the impact of debt on household spending and business cash flow allocation. As to the former, the overriding factor is the epic global commodity deflation now underway and the inexorable CapEx depression which is emerging in its wake.

Since our Keynesian central bankers have no clue that their prodigious money printing resulted in the drastic underpricing of credit and capital over the course of the past two decades, they are flying blind. They simply fail to see that the global economy is now swamped in more excess capacity than at any time since the 1930s, and probably even then.

So they keep expecting the commodity cycle to momentarily bottom and prices to rebound, thereby reflating CapEx and household spending. In that context, the following chart showing how the Keynesian fellow-travelers at the IMF viewed the outlook for Brent oil prices as recently in June 2015 is dispositive.

That’s right. The least probable downside scenario was for oil above $40 per barrel through 2015. Needless to say, the Brent price has already penetrated through that level, and still has not inconsiderable downside to go—-given the rapid rate at which economic activity in China and among its EM supply chain is weakening.

In Part 2 we will further demonstrate why the labor market has become such a lagging indicator. Suffice it to say that this untoward development is mainly due to the fact that the C-suite in corporate America has been transformed into a stock trading room.

That is, it reflects a state of mind among top executives that is obsessively focused on short-run share prices and financial engineering maneuvers such as stock buybacks and M&A deals designed to goose stock prices higher, along with the value of their stock options.

Consequently, as the Fed’s serial financial bubbles rise toward their apogee, the C-suite remains inordinately bullish until the last minute, hoarding labor far longer than would otherwise be the case. Then when sales begin to visibly weaken, they liquidate payrolls with a vengeance—-that is, after the recession has already incepted.

So the unemployment rate tells you almost nothing useful. By contrast, there are an immense number of leading indicators which track the global credit bubble and false boom it enabled.

They bear far more directly and efficaciously on the main street outlook than does the Fed’s primitive bathtub model of the US economy. The latter assumes that the unemployment rate is a proxy for how close it has come to being filled to the full employment brim, but tells nothing about the leading edge global forces which drive future outcomes.

As has been widely lamented, the last stages of the US recovery in 2013-2015 have been tepid by all historic standards. Yet even these “disappointing”  quarterly outcomes did not reflect Fed stimulated domestic growth, as claimed by the Keynesians.

Rather, the 2% or so GDP growth of the last several years reflects the inertial momentum in the US domestic economy that was triggered by China’s massive credit and construction spree during 2009-2013 and the upstream bow wave it generated in EM economies. But that impulse, which was driven by massive central bank enabled credit expansion, crested long ago and has now morphed into the global commodity collapse and rapid weakening of world trade.

The data on US exports of industrial supplies and materials track that cycle quite dramatically. After an initial surge that peaked in 2011-2012, these exports have plunged by nearly 40%.

The crucial point here is not that the US first gained competitive advantage in industrial materials at the end of the Great Recession, and then suddenly lost it owing the strengthening dollar. While the exchange rate effect is of some importance, what really happened is altogether different and cannot be found anywhere in the Fed’s standard Keynesian model.

To wit, the credit-driven China/EM boom sucked in scrap steel, recycled paper and cardboard, coking coal and numerous other industrial feedstocks like there was no tomorrow. While the Obama White House and Fed alike were crowing about the rebound of US exports and recapture of former competitive advantage, and Obama was projecting that a revived American export sector would double by 2015, they were actually taking credit for  nothing more than the one-time evacuation of America’s scrap yards and coal mines.