• And Now Trucking is Suddenly Slowing Down

  This comes at the totally wrong time. Trucking had been booming. 2014 had been a banner year. Capacity was squeezed, and rates were rising, so trucking companies went on a buying binge, ordering everything in the book in preparation for red-hot demand in 2015 and more banner years down the road. But then came 2015.

  Among businesses, over-ordering and tepid sales caused inventories to rise and the inventory-to-sales ratio to spike to Financial Crisis proportions. And now businesses are trying to bring them down by trimming orders because they’re having trouble selling more to the middle class, the over-indebted modern proletariat whose stagnant incomes are being eaten up by skyrocketing costs of housing, healthcare, college, and the like – and they simply can’t spend that much on shippable items.

  And now this is ricocheting through the industry.

  Monday after hours, the largest US truckload carrier, Swift, announced earnings. And on Tuesday, it clarified the debacle. It’s suffering from indigestion. The high costs from its red-hot capacity increase – average truck count jumped by 831 trucks in the third quarter from a year earlier – are now slamming into swooning freight demand.

  Operating revenue declined 1%, which Swift blamed on the disappearing fuel surcharge, though it didn’t explain why it is getting away with still charging $109 million in fuel surcharges when diesel prices have plunged to rock-bottom.

  So it’s cutting back. In its pervious disclosure, it announced that its average truck count for 2015 would grow by 700-1,100 trucks. Now it cut the growth down to 500-600 trucks, “given that the freight environment is softer than we originally expected, and peak volumes have not yet materialized as in years past,” it said.

  September is the beginning of the holiday shipping season. Volume should be sharply higher. But it’s not happening [read… US Freight Shipments Have Worst September since 2010].

  Now it’s down to cost cutting and focusing on “improved utilization” of the fleet. So it lowered its outlook for 2015 earnings, “in light of the items discussed” on September 25, 2015, which is when it had issued its original earnings warning. Its shares have plummeted 49.6% from their 52-week high in December.

  “Effective immediately we will enter into a zero fleet growth mode,” Swift CEO Jerry Moyes told analysts. The company “will not be adding any new equipment,” he said, and is considering actually reducing its truck count.

  This has already ricocheted to diesel-engine makers: Cummins announced its earnings debacle on Tuesday – revenues down 11%, earnings down 5%. It plans to axe 3.7% of its workforce, or about 2,000 folks. It would whittle down its manufacturing capacity and might have to take more aggressive measures, it said. It lowered its outlook further and expects “challenging conditions to persist for some time.”

  It blamed Brazil and China. In the US, demand for heavy-duty truck engines had been strong, and orders were expected to reach a decade high, as Swift and others had been ordering trucks from truck makers, and they’d been ordering engines from engine makers such as Cummins. But then the third quarter came around; suddenly Cummins’ sales of heavy-duty truck engines fell 9% year-over-year, and orders plunged.

  “It’s evident now that retail sales [of trucks] and production will be down going forward,” explained COO Rich Freeland. Cummins shares, which plunged 8.7% on Tuesday, are down 32.5% from their 52-week high in December.

  In this scenario of overcapacity and slack demand, the critical load-to-truck ratio has collapsed to the lowest level in years.

  Transportation data provider DAT publishes load-to-truck ratios on a weekly and monthly basis. It calls them “a sensitive, real-time indicator of the balance between spot market demand and capacity.” They’re a function of the number of loads for every truck posted on DAT Load Boards. And here is the key: “Changes in the ratio often signal impending changes in rates.”

  Unusually “slack demand” in September – the beginning of shipping season – after “a quiet July and even quieter August,” impacted most of the nation, except in the Pacific Northwest, where “fall harvests of apples, potatoes and onions rolled to market in vans as well as reefers,” explained Mark Montague, a statistician at DAT.

  September looks terrible compared to September in banner-year 2014. It still “looks anemic even when compared to the more typical freight movement of September 2013,” Montague said. This slack demand whacked load-to-truck ratios. And that matters:

  Load-to-truck ratios signal changes in the marketplace that are usually reflected in truckload rates. In the past five years, a change in the load-to-truck ratio has correlated at a rate of 0.8 with an immediate change in spot market rates, and a sustained change in spot market rates is typically followed by a change in contract rates, as well.

  Since late last year, DAT’s van load-to-truck ratios have been on a declining trend. Every month this year, the ratios were below the ratios in 2014. In July, August, and September, the ratios hit 1.8, the lowest in years. In September, the ratio was 42% below a year earlier:

  

  The hump in the chart above in February and March 2014 was caused by the tough winter, which “squeezed truckload capacity in the northern band of U.S. states, and load-to-truck ratios spiked.” This caused an immediate increase in spot market rates, and by April, contract rates began to rise. But by December 2014, the party was over. Spot market rates began to fall. Contract rates eventually followed.

  So far in October, on a weekly basis, the load-to-truck ratio looks even worse. In the week ending October 24 (published October 27), the ratio dropped to 1.3 loads per truck:

  

  Trucking is a thermometer for the merchandise economy. It doesn’t track consumer expenses like rent or college. But it tracks exports and imports, manufacturing, distribution, retail, and other sectors. It tracks a big part of the real economy. And the sudden slowdown in the trucking industry is another wildly flashing signal in our recession watch.

  “It’s been a rotten year for distressed and defaulted loan paper.” That’s how S&P Capital IQ starts out its report on leveraged loans. “Rotten” may be a euphemism. The worst since 2008, as “fear has become a strong undercurrent.” Read… And Now Defaulted “Leveraged Loans” Go Kaboom 

  

  

  

  

• 'Celebrating' 14 Years Since America Kissed Its Freedoms Goodbye

  Submitted by Simon Black via SovereignMan.com,

  If you haven’t already, now’s the time to get out your party hats to celebrate the 14th anniversary of the USA PATRIOT Act.

  You know about the law, I’m sure; passed barely six weeks after the 9/11 attacks, the USA PATRIOT Act is one of the most sweeping, liberty-destroying pieces of legislation in American history.

  Remember the rule of thumb: the more high-sounding the name of a law, the more disastrous its effects. And the USA PATRIOT Act absolutely conformed.

  It stands for Uniting and Strengthening America by Providing Appropriate Tools Required to Interdict and Obstruct Terrorism.

  And this name is truly disingenuous when you think about it.

  Seriously, how was America to become more ‘united’ by allowing warrantless searches, vastly expanding the powers of secret courts, and completely doing away with entire sections of the Constitution?? That’s just absurd.

  The name itself is a cruel joke on liberty.

  At 132 pages, the USA PATRIOT Act was a pretty beefy piece of legislation. But what most people fail to realize is that the law is entirely incomprehensible.

  Instead of simply stating in black & white what the new dark powers of government would be, the USA PATRIOT Act makes obscure modifications to other laws.

  Here’s an example of what I’m talking about, pulled from page 20 of the text of the legislation:

  Section 3123(d)(2) of title 18, United States Code, is amended (A) by inserting “or other facility” after “the line”; and (B) by striking “, or who has been ordered by the court” and inserting “or applied, or who is obligated by the order”

  Is that supposed to mean anything to anyone? The language is completely mystifying.

  Well, as it turns out, this precise section is part of what authorizes the government to monitor your phone and Internet communications.

  This is, of course, one of the primary criticisms of the law: it was rushed through Congress before anyone had a chance to read or understand it, at a time when everyone was scared and willing to give the government any power it wanted.

  The end result was a de facto Police State in the Land of the Free.

  Faceless government agencies now spy on every form of communication, local police turned into federally funded paramilitary forces, and the Fourth Amendment became an endangered species.

  Earlier this year, several key provisions of the USA PATRIOT Act were set to expire. It was an opportunity to take back some of the freedom that had been lost.

  Yet Mr. Hope and Change himself, Barack Obama, signed multiple bills into law to extend, and even expand, the USA PATRIOT Act’s powers.

  It’s amazing when you think about it: a nation that was founded on the principles of personal liberty, which fought the Nazis and built the most powerful economy in the world, is so fragile and afraid of men in caves that it cannot imagine its existence without Orwellian surveillance programs.

  George W. Bush used to famously say that terrorists hated America for its freedoms.

  So he and Barack Obama conveniently solved that problem by eliminating America’s freedoms.

  This is life now in America 2.0; it’s not the America we once knew, and it’s time to adjust accordingly.

  I invite you to listen in to today’s podcast as we discuss some of the most striking differences between now and America’s golden days.

  You won’t believe what once used to be possible in the Land of the Free.

  (click image for podcast)

  

  

  

  

  

  

• Brits Turn To "Sugar Daddy" To 'Date' Their Way Out Of Student Debt

  While record numbers of indebted Americans are increasingly turning to exchanging bodily fluids directly for cash, it appears (by implication) British students are taking a similar (but indirect) path to reducing their debt loads. As Sky News reports, thousands of British students are funding their way through university on so-called "Sugar Daddy" websites. One site, SeekingArrangement.com, claims 12,600 UK students have signed up with proof of university enrolment, with some making over $3,000 per month for her 'arrangement' enabling her to pay off her student loan and travel more. While sex is not 'expected', as one female student explained, "there's a fine line between being a 'sugar baby' and prostitution."

  Well, not really…

  The sites advertise themselves as a way for "beautiful, ambitious people to graduate debt free" through "arrangements" with older "sponsors"…

  "Attending college means you have a choice: take out loans and eat ramen, or get a Sugar Daddy and live the life you always wanted." (on your back?)

  All seems above board?!??

  In an interview with Sky News, Brandon Wade, the founder of SeekingArrangement.com denied it was an escort site but that it enabled "sugar babies" to "upgrade their lifestyle".

  He said sex was never expected, but it is aspired to and that the website had led to countless marriages worldwide.

  "You want to find somebody who is well educated, who can provide for you financially, you know it's sort of the Disney dream so to say," said Mr Wade.

  However, a married 62-year-old sugar daddy who is currently seeing four sugar babies told Sky News:

  "I wouldn't be able to meet girls as young and as beautiful as this through an ordinary dating website".

   

  He also said that "sex is an integral part of the site".

   

  He believed consensual relationships were "really appropriate for students" looking to supplement their bank accounts.

   

  "What a great way to get a little bit of extra pocket money and much better than having to spend eight hours slogging in a bar earning the minimum wage," he added.

  *  *  *

  What better way indeed…

  

  

  

  

  

• 'Untouchables': Obama Cronies "Protected Wall Street's Most Criminal From Prosecution"

  Submitted by Mac Slavo via SHTFPlan.com,

  The slow motion financial holocaust has been underway for some time now.

  Goldman Sach recently commented that we are in the third wave of the great crisis. What happened in 2008 remains directly relevant to the personal financial risk that most Americans face at the brink of the next phase of the collapse.

  It’s almost like they’re looking for a sacrificial lamb… the banks have gotten away with murder too many times to count. Those who might be tried under a truly fair system instead stand firm with their understanding of impunity, an arrangement befitting their position and stature in society, that they will never be seriously investigated, much less prosecuted, for their role in the manipulation that caused the biggest problems.

  

  Worse, it is utterly clear that Obama’s Justice Department went out of their way to avoid prosecuting Wall Street executives – even despite pressure from Congress’ Oversight Panel, created as a condition of TARP, to do so as a result of piles of evidence that criminal misbehavior was behind the worst of the collapse.

  Attorney General Eric Holder was nominally in charge of the Justice Department’s investigations – and it is well worth pointing out that he spent the entirety of his time after being Clinton’s Deputy Attorney General, at Covington & Burling, a legal firm that specializes in representing top Wall Street institutions. Wikipedia notes:

  In July 2015, Holder rejoined Covington & Burling, the law firm at which he worked before becoming Attorney General. The law firm’s clients have included many of the large banks Holder declined to prosecute for their alleged role in the financial crisis. Matt Taibbi of Rolling Stone opined about the move, “I think this is probably the single biggest example of the revolving door that we’ve ever had.”

  Clearly, with big banks as a client in-waiting and a past benefactor with him his law firm had a deep relationship, Holder was never realistically capable of considering a meaningful prosecution of the banks. Most of the rationale given to the public remained based around the despicable idea that banks were “too big to fail.”

  Investigative journalist Glenn Greenwald – notorious for launchign the first interviews and data dumps with Edward Snowden – taken on the criminality of the Wall Street banks during the period surrounding the 2008 financial crisis, focusing on the obstruction of the Justice Department, who have effectively refused to target higher-ups in any of their probes:

  PBS’ Frontline broadcast a new one-hour report on one of the greatest and most shameful failings of the Obama administration: the lack of even a single arrest or prosecution of any senior Wall Street banker for the systemic fraud that precipitated the 2008 financial crisis: a crisis from which millions of people around the world are still suffering. What this program particularly demonstrated was that the Obama justice department, in particular the Chief of its Criminal Division, Lanny Breuer, never even tried to hold the high-level criminals accountable.

   

  What Obama justice officials did instead is exactly what they did in the face of high-level Bush era crimes of torture and warrantless eavesdropping: namely, acted to protect the most powerful factions in the society in the face of overwhelming evidence of serious criminality. Indeed, financial elites were not only vested with immunity for their fraud, but thrived as a result of it, even as ordinary Americans continue to suffer the effects of that crisis.

   

  […] As “The Untouchables” put it: while no senior Wall Street executives have been prosecuted, “many small mortgage brokers, loan appraisers and even home buyers” have been.

   

  […]  the DOJ’s excuse for failing to prosecute Wall Street executives – that it was too hard to obtain convictions – “has always defied common sense – and all the more so now that a fuller picture is emerging of the range of banks’ reckless and lawless activities, including interest-rate rigging, money laundering, securities fraud and excessive speculation.”

  […]

   

  As former Wall Street analyst Yves Smith wrote: “What went on at Lehman and AIG, as well as the chicanery in the CDO [collateralized debt obligation] business, by any sensible standard is criminal.” Even lifelong Wall Street defender Alan Greenspan, the former Federal Reserve Chair, said in Congressional testimony that “a lot of that stuff was just plain fraud.”

   

  […]

   

  “In 2009… “there was broad support for prosecuting Wall Street.” Nonetheless: “four years later, there have been no arrests of any senior Wall Street executives” … the key point: Obama officials never even tried.

  Now dated by four years, PBS Frontline ran an investigative report on the topic: The Untouchables: How the Obama administration protected Wall Street from prosecutions:

   

  As regular readers already know at SHTF, countless voices have come forward to expose the criminal fraud surrounding the banks, and the bipartisan criminal cover-up taking place in Washington.

  Greenwald noted:

  The reason there have been no efforts made to criminally investigate is obvious. Former banking regulator and current securities Professor Bill Black told Bill Moyers in 2009 that “Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong.” In the documentary “Inside Job”, the economist Nouriel Roubini, when asked why there have been no such investigations, replied: “Because then you’d find the culprits.” Underlying all of that is what the Senate’s second-highest ranking Democrat, Dick Durbin, admitted in 2009: the banks “frankly own the place”.

  Impunity has been the norm. Systemic money laundering for terrorists, gangs and drug cartels, the likes of which has been officially tied to institutions like HSBC and Wachovia – were settled with fines that represent a slap on the wrist to these ‘too big to jail’ globally-linked banks.

  Meanwhile, the next wave is upon us.

  

  

  

  

  

• China Margin Debt Hits 8-Week High, Japan Pumps'n'Dumps As Kyle Bass Fears Looming EM Banking Crisis

  Following Marc Faber's reality check on China recently, Hayman Capital's Kyle Bass took a swing tonight noting that "China's 7% GDP growth is a farce," and adding that, just as we detailed previously, China's credit cycle has begun and non-performing loans will rise rapidly leading to an emerging Asia banking crisis ahead. Japanese markets continue to entertain with "someone" insta-ramping NKY Futs 100 points at the open only to give it all back as USDJPY slides back towards 120.00 (and 10Y JGB yields drop below 30bps for the first time in 6 months).

  Hayman Capital's Kyle Bass discusses China at Sohn San Francisco:

  • *HAYMAN'S BASS SAYS CHINA 7% GDP GROWTH IS A 'FARCE'
    *HAYMAN'S BASS SAYS HE'S ASSUMING CHINA CREDIT CYCLE HAS BEGUN
    *HAYMAN'S BASS: CHINA WILL FACE NPL CYCLE, CREDIT CONTRACTING
    *HAYMAN'S BASS: ASSUMES 8.5%-10% CHINA LOANS NON-PERFORMING
  • *HAYMAN'S BASS SEES EMERGING ASIA BANKING CRISIS AHEAD

  Confirming our previous detailed analysis on China's Banking System's Neutron Bomb.

  China continues to drift quietly under the hammer ofthe Polituburo ahead of The Plenum

  

   

  The Chinese continue to lever up…

  • *SHANGHAI MARGIN DEBT BALANCE RISES TO EIGHT-WEEK HIGH

  

   

  *  *  *

  Japanese markets are once again a farce also…

  A mysterious insta-buyer lifted Nikkei futures 100 points in one big bid at the open, but USDJPY continues to tumble as hopes of moar from The BoJ fade…

  

   

  It's been a ride..

  

   

  10Y JGB yields are back under 30bps – lowest in 6 months…

  

   

  The spread between Offshore an Onshore Yuan continues to widen suggesting outflows are picking up once again.

  

   

  And that appears to be flowing – as we have detailed extensively – to Bitcoin…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Millennials: 70% Want To Be Debt Free, 66% Refuse To "Gamble" In The Stock Market

  Over the past seven years, despite the constant posturing, confused propaganda and endless platitudes about inflation this, and unemployment that, the Fed’s goal has been a very simple one: to get everyone to liquidate their savings and to spend, spend, spend, either on trinkets in the economy, or by “investing” in the “market.”

  The Fed did this by confusing cause and effect, and pushed stocks to record highs thanks to the debt monetization and reserve creation pathway known as Q.E., even as the actual economy was imploding, in the process only enriching the wealthiest asset holders. In doing so it led not only to record inequality, but also unprecedented instability in what was once the discounting mechanism known as the “market”, and now – seven years into the biggest, and final, reflation experiment of all time – not a month passes without some asset classes suddenly flash crashing.

  But that doesn’t matter to the Fed: it is now all-in, and its only purpose is to strip every American of their savings, first “voluntarily” through greed (“oh look at today’s record high in the S&P500 – I wonder how much my neighbor made today”), or suasion (negative rates) until finally actual confiscation (see Executive Order 6102) will be enforced.

  This is the neo-Keynesian prerogative 101.

  Sadly for the Fed, when it comes to the biggest (not to mention most indebted) U.S. generation, the Millennials, the Fed has failed in indoctrinating them with the most basic fallacy of modern and not so modern economics – that one must spend, spend, spend their way to prosperity.

  According to a new survey by Bank of America and USA Today, millennials ages 18 to 34 say they have a clear understanding of their financial situation and 44% are prepared for a rainy day, with three months of living expenses saved up. But 75% say they worry about their finances “often” or at least “sometimes,” with 39% saying they are “chronically stressed” about money.

  All of this is understandable: after all Millennials, as we reported before, have a 50% chance of being found living in their parents basement, as a result of unaffordable housing, gargantuan debt, and terrible job prospects.

  The survey admits as much: “This pressure can be traced back to factors outside of their control, like uncertainty in the job market, a volatile global economy and student loan debt, according to the report.”

  That’s not the bad news, at least not for the Fed.

  The bad news is that according to the BofA survey, the top financial priorities of Millennials are the following:

  • 70% said being debt-free was a top priority
  • 63% said having an emergency savings fund was a top priority
  • 62% said spending less than they earn was a top priority

  These just happen to be, in descending order, the three most hated concepts to every neo-Keynesian. They also explain why the Fed will fail each and every time in its attempt to force an entire generation to lever up when the three things said generation wants more than anything is to have no debt, and to live within its means.

  That’s not all.

  In a separate survey conducted by BlackRock, WSJ reports that the Millennial generation is not only likely to be frugal, it is almost certainly not going to be investing in the so-called HFT-rigged, Fed-manipulated casino known as the “market.”

  Nearly four in 10 people surveyed said they want to make sure they have enough cash saved as a security blanket for an emergency before they save for retirement. And the vast majority said they find it difficult to keep up with bills and save for retirement at the same time.

  That squares with other recent data from U.S. Financial Diaries, a project of the New York University Financial Access Initiative and Center for Financial Services Innovation, which found many households are saving regularly for small, short-term emergencies, such as an unexpected dip in income or a spike in expenses. But those emergencies happen so often it prevents them from building up larger amounts to put toward long-term goals.

  More than a third of respondents in the BlackRock survey also said investing money felt risky, and they were afraid of losing money–even though only 7% said they had actually lost money on a past investment. And a full 72% said they did not see investing as a way to help them reach their financial goals.

  The punchline: nearly half of people ages 25 to 34 agreed that “what you might earn investing isn’t worth the risk of losing your money,” the most of any other generation.

  Two out of three agreed that “investing is like gambling.” And despite having decades to save for retirement, 70% of their portfolios are in cash or cashlike investments, according to BlackRock.

  This is bad news to BlackRock whose entire business model revolves around fooling naive individuals that they can make money participating in a ponzi scheme which only generates commission for the likes of BlackRock; everyone else better pray that Janet Yellen’s next fainting spell isn’t her last.

  In an environment where cash is paying nothing, and bond yields are well below where they were for the past 40 or 50 years, Mr. Koesterich argued younger workers will need to embrace the volatility of the stock market if they want to generate the returns they need to live comfortably for decades in retirement.

   

  “The math is what it is, and it’s hard to get around it,” he said.

  Well, Russ, the math on a world that has $200 trillion in debt and $50 trillion in GDP is even worse, and yet everyone is getting around it.

  But this is the worst possible news for the Fed because after the baby Boomers grow tired of flipping stocks, and cash out their securities to the Fed and the primary dealers and retire, suddenly all those trillions in “paper wealth” will be totally worthless to their holders as they will have nobody to sell to. And a market, especially one as rigged as this one, only works if there is at least one sucker on the table.

  Surprisingly, perhaps because they lived in their parents basement for too long, the Millennials simply refuse to be that “last sucker on the table” one last time.

  

  

  

  

  

• Free Trade Vs. American Jobs

  With half of all 25-year-olds living with their parents as Zero Hedge reports, it is the perfect time to enact a mystery trade agreement that increases unemployment and puts pressure on already stagnant wages. 

  Free Trade Vs. American Jobs

  Courtesy of Dr. Paul Price at Market Shadows

  Thursday’s Wall Street Journal included a feature article on the Trans-Pacific Partnership, commonly called the TPP. The headline read, “TPP is a surprising vote of confidence in globalization.”

  The WSJ’s subtitle spoke about the bill’s limitations on national sovereignty. Member countries would give up control of their own laws while subjugating decision-making to unelected officials and business groups with vested interests in the results. The WSJ noted that political support for the TPP was strong, except here in the USA.

  Americans should be opposed to this secretive, Wall Street-promoted trade agreement. Here’s why:

  Tariffs and patent protection periods would be reduced while most rules and regulations would be set and enforced by outsiders. Many of the new terms will be in conflict with exisiting American laws, but they will take preference.

  The advertised intent of the TPP is to make international trade cheaper and easier. And it probably will — for large, international corporations. Some business will benefit, but others will lose. Not surprisingly, Wall Street strongly supports the agreement.

  All the negotiations have been done behind closed doors. The public cannot see what is actually being agreed to. There has been no opportunity to openly debate the terms of the agreement and the likely effects of the TPP on the American economy. We are being asked (or ordered), once again, to approve a massive change in our economic system without knowing what we will be encumbered with. 

                  

   Nancy Pelosi’s line on March 10, 2010, when speaking about the Affordable Care Act (a.k.a. Obamacare).

  There is one thing we know, however, and that is that historically agreements like the TPP have not benefitted the public.

  The General Agreement on Tariffs and Trade (GATT) was hammered out and implemented between 1947 and  1956. Its tariff reductions jump-started the rise of international trade as a percentage of global GDP. It also facilitated the offshoring of US manufacturing jobs to lower wage areas.

  The North American Free Trade Agreement (NAFTA) kicked in after 1992. Presidential candidate Ross Perot warned of the “giant sucking sound” from Mexico as US jobs migrated to south of the border.

  The Canadian-US Free Trade Agreement brought more competition for American workers. Each expansion of ‘free trade’ gave US companies larger incentives and greater ease in moving jobs out of America. 

  

  China was given World Trade Organization (WTO) privileges early in this century. Through permanently normalized trade relations and lower tariffs, China gained easier access for exporting goods to America. NAFTA was bad but the setting the Chinese free to sell goods here with little restriction was the final nail in the coffin for domestic manufacturing jobs.

  It is not a coincidence that our own labor participation rate (the percentage of all working age people who actually hold jobs) peaked in the mid-to-late 1990s. As of Sep. 30, 2015, that very important measure had retreated to 62.4%, a 38-year low. 

  Seeing the WSJ’s  “Path to Free Trade” and America’s Labor Participation Rate together shows how much damage was done to our industrial job base since the most significant [red framed on the chart below] trade agreements were put into force. 

   

  You don’t need to be Einstein, or an economist, to realize that lowering trade barriers reduces domestic manufacturing jobs on a continual basis.

  

  The chart below from The Atlantic shows that US manufacturing jobs have been starting to slowly improve since the 2008 financial meltdown. But the TPP will likely work against an already weak recovery. Considering that there has been no recovery in wages, further outsourcing will only add to the pressure on wages in the US:

  Scott, of EPI, worries that the biggest damage from TPP could be to U.S. wages. The trade pact will increase the importation of competing goods, which will drive down the cost of U.S.-made goods, putting downward pressure on wages. It will open up countries such as Malaysia and Vietnam to foreign direct investment. It may be good for certain businesses and holders of intellectual property patents, but that doesn’t mean it’s going to be good for everyone.

   

  “Make no mistake, it’s certainly going to increase income inequality, and it will, in all likelihood, lead to offshoring a job loss,” Scott said.

   

  Perhaps what is most worrying, though, is the potential that TPP, or any trade agreement, could slow the reshoring of American jobs, especially in some fields such as auto-parts manufacturing, which states in the South such as Tennessee and South Carolina are competing to attract.

  […]

   

  U.S. Manufacturing Jobs, in Thousands

   

   

  There are many reasons to oppose the TPP including the likelihood of more job losses in the US, further eroding of the US middle class, the strong potential for increasing inequality, stronger intellectual property protections for pharmaceuticals, looser restrictions on corporations polluting the environment, and the undermining of democracy in favor of corporate rule. But the chart above is a powerful reason alone to reject the TPP.

  

  

  

  

• Leaked TAFTA/TTIP Chapter Shows EU Breaking Its Promises On The Environment

  By Glyn Moody of TechDirt

  Leaked TAFTA/TTIP Chapter Shows EU Breaking Its Promises On The Environment

  As far as trade agreements are concerned, the recent focus here on Techdirt and elsewhere has been on TPP as it finally achieved some kind of agreement — what kind, we still don’t know, despite promises that the text would be released as soon as it was finished. But during this time, TPP’s sibling, TAFTA/TTIP, has been grinding away slowly in the background. It’s already well behind schedule — there were rather ridiculous initial plans to get it finished by the end of last year — and there’s now evidence of growing panic among the negotiators that they won’t even get it finished by the end of President Obama’s second term, which would pose huge problems in terms of ratification.

  One sign of that panic is that the original ambitions to include just about everything are being jettisoned, as it becomes clear that in some sectors — cosmetics, for example — the US and EU regulatory approaches are just too different to reconcile. Another indicator is an important leaked document obtained by the Guardian last week. It’s the latest (29 September) draft proposal for the chapter on sustainable development. What emerges from every page of the document, embedded below, is that the European Commission is now so desperate for a deal — any deal — that it has gone back on just about every promise it made (pdf) to protect the environment and ensure that TTIP promoted sustainable development. Three environmental groups — the Sierra Club, Friends of the Earth Europe and PowerShift — have taken advantage of this leak to offer an analysis of the European Commission’s real intent in the environmental field. They see four key problems:

  The leaked text fails to provide any adequate defense for environment-related policies likely to be undermined by TTIP. For example, nothing in the text would prevent foreign corporations from launching challenges against climate or other environmental policies adopted on either side of the Atlantic in unaccountable trade tribunals.

  The environmental provisions are vaguely worded, creating loopholes that would allow governments to continue environmentally harmful practices. The chapter lacks any obligation to ratify multilateral agreements that would bolster environmental protection and includes a set of vague goals with respect to biological diversity, illegal wildlife trade, and chemicals.

  The leaked text includes several provisions that the European Commission may claim as “safeguards,” such as a recognition of the “right of each Party determine its sustainable development policies and priorities” but none would effectively shield environmental policies from being challenged by rules in TTIP.

  There is no enforcement mechanism for any of the provisions mentioned in the text. Even if one were included, it would still be weaker than the enforcement mechanism provided for foreign investors either through the investor-state dispute settlement mechanism or the renamed investment court system.

  The environmental groups have produced a detailed five-page document (pdf) that goes through each of these points in turn, and it’s well-worth reading. But it’s striking that the central problem is Techdirt’s old friend, corporate sovereignty, aka investor-state dispute settlement (ISDS):

  Nothing in the text would prevent foreign corporations, on either side of the Atlantic, from challenging climate or other environmental policies via an “investor-state dispute settlement” (ISDS) mechanism or via the European Commission’s proposed “Investment Court System.” Both enable foreign investors to challenge environmental policies before a tribunal that would sit outside any domestic legal system and be able to order governments to compensate companies for the alleged costs of an environmental policy. While the Commission claims that its new investment “reforms” would protect the right to regulate, States could still be “sued” if foreign investors considered that a policy change violated the broad, special rights that the Commission’s “reformed” investment proposal would give them.

  In other words, at the heart of the European Commission’s philosophy is the implicit acceptance that investors’ rights take precedence over the public’s rights — in this case, those concerning the environment. Everything in the leaked sustainable chapter is couched in terms of aspirations — the US and EU are encouraged to do the right thing as far as sustainable development is concerned, but there are few, if any, obligations or enforcement mechanisms. When it comes to protecting investors, on the other hand, everything is compulsory, backed up by supranational tribunals that can impose arbitrarily large fines, payable by the public. Although it is true that governments are given the “right” to legislate as they wish when it comes to the environment, investors are given the “right” to sue those governments black and blue if they attempt to do so.

  Nor is this mere theory. Research carried out last year by Friends of the Earth Europe shows that of the 127 known ISDS cases that have been brought against 20 EU member states since 1994, fully 60% concern environment-related legislation. In other words, if the European Commission’s proposals or something like them became part of the final TTIP agreement, it would almost guarantee a torrent of litigation aimed at blocking or neutering environmental legislation on both sides of the Atlantic.

  This is an important leak because it reveals, once more, that a central problem of TAFTA/TTIP is the corporate sovereignty that is inherent in ISDS — the fact that companies are allowed to place the preservation of their future profits above any other consideration, such as the environment, health and safety or social goals. The EU’s sustainability chapter — an area that is widely recognized as increasingly important in a world where lack of sustainability poses all kinds of problems — is framed entirely in outdated, 20th-century terms: boosting trade and maximizing profits are the only metrics that matter. The European Commission’s willing embrace of that approach confirms both its contempt for the 500 million Europeans it supposedly serves, and the fact that, far from protecting the environment, TAFTA/TTIP is shaping up to be a very toxic trade deal.

  

  

  

  

  

• The Calm Before The Storm

  Submitted by Michael Snyder via The Economic Collapse blog,

  Have you noticed that things have gotten eerily quiet in the month of October?  After the chaos of late August and early September, many had anticipated that we would be dealing with a full-blown financial collapse by now, but instead we have entered a period of “dead calm” in which things have become exceedingly quiet in almost every way that you can possibly imagine.  Other “watchmen” that I highly respect have made the exact same observation.

  Even though the economic numbers are screaming that we have entered a global recession, they aren’t really making any headline news.  A whole host of major financial institutions around the planet are currently in danger of collapsing and creating the next “Lehman Brothers moment”, but none of them has imploded just yet.  And of course Barack Obama seems bound and determined to start World War III.  On Monday, it was announced that he is sending a guided missile destroyer into Chinese waters in the South China Sea.  The Chinese have already stated that they might just start shooting if this happens, but Barack Obama doesn’t seem to care.  But until the shooting actually begins, that is not likely to upset the current tranquility that we are enjoying either.

  To me, what we are experiencing at the moment would best be described as “the calm before the storm”.  If you are not familiar with this concept, this is how it is defined by How Stuff Works…

  Have you ever spent an afternoon in the backyard, maybe grilling or enjoying a game of croquet, when suddenly you notice that everything goes quiet? The air seems still and calm — even the birds stop singing and quickly return to their nests.

   

  After a few minutes, you feel a change in the air, and suddenly a line of clouds ominously appears on the horizon — clouds with a look that tells you they aren’t fooling around. You quickly dash in the house and narrowly miss the first fat raindrops that fall right before the downpour. At this moment, you might stop and ask yourself, “Why was it so calm and peaceful right before the storm hit?”

  Like so many others, I believe that a great storm is coming, and yet right at this moment things seem so peaceful.

  Unfortunately, this period of peace and quiet is not going to last for long, and most Americans know deep down that something is seriously wrong with our nation.  In fact, a new WND/Clout poll has found that 85.3 percent of all likely voters in the United States believe that our country is going in the wrong direction…

  The poll found 92.6 percent of those who identified themselves as conservative believe the nation is on the wrong track. Among those who call themselves liberal, 90.9 percent said it is going the wrong direction.

   

  When asked what they think of the American economy after seven years of Obama’s leadership and economic policies, nearly 80 percent described it as “very fragile” or “somewhat fragile.”

   

  Self-identified Democrats, Republicans, liberals and conservatives were in general agreement, with about 75 percent to 80 percent describing the economy as “somewhat fragile” or “very fragile.”

  But even though we are steamrolling in the wrong direction, we haven’t suffered any incredibly serious consequences for it yet.

  For the moment, this is allowing the mockers to have a field day.  They are fully confident that Barack Obama and the Federal Reserve knew what they were doing after all, and they are gleefully taunting those of us that have been warning of the great disaster that is heading our way.

  However, those that are wise are getting prepared.

  I think that we could all learn some lessons from what Overstock.com Chairman Jonathan Johnson is doing. The following is an extended excerpt from a recent Zero Hedge article…

  *****

  One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.

  What did Johnson tell the UPMA? Here are some choice quotes:

  We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

   

  So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

   

  We also happen to have three months of food supply for every employee that we can live on.

  *****

  Why would such a seemingly intelligent and successful CEO of a large Internet company do such things?

  It is because he can see the writing on the wall.

  This period of calm will not last.  A great storm is coming, and when it does arrive those that have not prepared for it are going to suffer tremendously.

  Most people have no idea just how fragile our system really is.  Today, some of these “too big to fail” banks supposedly have trillions of dollars in assets, but if you want to withdraw $10,000 or more in cash you have got to give them 24 hours notice to get enough money…

  This is just the beginning. As anyone can tell you, it’s all but impossible to move large amounts of money into cash in the US. Even the large banks will routinely ask you for 24 hours notice if you need $10,000 or more in cash. These are banks will TRILLIONS of dollars worth of assets on their books.

  And with each passing day we see even more signs of the global economic slowdown that is emerging all around us.  For example, we just learned that the China Containerized Freight Index has dropped to the lowest level ever recorded.  China accounts for more global trade than anyone else, and so this is a very clear sign that global economic activity is slowing down dramatically…

  By early July, the index dropped below 800 for the first time in its history, which started in 1998 when the index was set at 1,000. It soon recovered to about 850. And just when bouts of hope were rising that the worst was over, it plunged again and hit even lower levels.

   

  

   

  The latest weekly reading dropped another 1.7% from the prior week to 752.21, the worst level ever. The CCFI is now 30% below where it had been in February this year and 25% below where it had been 17 years ago at its inception.

  But for those that don’t want to believe that hard times are on the way, they can take comfort in the eerie period of calm that we are experiencing right now.

  What they don’t realize is that this truly is “the calm before the storm”, and the global economic crisis that is ahead of us is going to be far beyond what most people ever dared to imagine was possible.

  

  

  

  

  

• Chewbacca Arrested Driving Darth Vader To Polls In Ukraine

  As much as we’d like to believe in the fairytale that the seeds of democracy can take root anywhere in the world at any time as long as the will of the people is strong, that just isn’t the case. 

  Sometimes, the circumstances surrounding “elections” just aren’t conducive to the perpetuation of the democratic process and attempts to derive anything meaningful in terms of divining the preferences of the electorate are hopelessly complicated by questions about the integrity of the polling process. 

  Take Syria for instance, where some are now suggesting that Bashar al-Assad may hold elections even as the country’s years-old civil war still rages. And then there is of course Turkey, where President Recep Tayyip Erdogan has done virtually everything in his power to subvert the democratic process on the way to ensuring that one way or another, AKP will win an absolute majority in parliament. 

  Well, now that Syria has become the mainstream media’s geopolitical topic du jour, Ukraine has faded into the background but on Sunday, the country held local elections which served as a kind of referendum on where Ukrainians stand in terms of i) the current government in Kiev, ii) the nationalist movement as embodied by the various “volunteer” battalions fighting in the east, and iii) the pro-Russian separatist movement. Here’s a bit of color from AP for what it’s worth:

  Four exit polls from Ukraine’s local elections released Monday indicated the governing coalition would retain its dominant position in the west and center of the country despite widespread disappointment with the government of President Petro Poroshenko.

   

  In the south and east, voters favored the Opposition Bloc, formed from the remnants of the party of the former pro-Russia president, who was overthrown in early 2014 after months of street protests.

   

  The Central Election Committee said it had received data from only 30 percent of the vote by Monday morning, reflecting the challenge of calculating the results of elections for more than 10,700 local councils as well as mayors.

   

  More than 130 parties fielded candidates. Complete results were expected Nov. 4.

   

  Sunday’s elections were held nationwide, except for parts of the Donetsk and Luhansk regions of eastern Ukraine controlled by Russia-backed rebels. In eastern areas recaptured by government forces, former separatists ran for office as candidates from the Opposition Bloc.

   

  Poroshenko’s party and others in his coalition had hoped to expand their influence through the local elections, but this proved not so easy to do, political analyst Vladimir Fesenko said. “The disposition of forces shows that the country is divided,” he said.

  Despite the fact that the US State Department says “these elections largely reflected the will of the Ukrainian people and generally respected democratic process,” The Guardian contends that “the elections were marked by traditional dirty tactics such as voter-buying, spoiler candidates and backroom deals, leading many observers to claim that the new Ukrainian government has not yet managed to introduce the ‘new kind of politics’ promised after the Maidan revolution last year.”

  And the “dirty tactics” aren’t limited to vote-buying and backroom deals. 

  Ukrainian police have also resorted to forcibly preventing voters from making it to the ballot box. Case in point: Chewbacca was on his way to deliver one of several Darth Vaders running for local office to a polling station when the Wookiee was arrested for having “improper papers.”

  Here’s The Guardian: 

  The Star Wars character Chewbacca has been dragged before a court in Odessa, in perhaps the most surreal episode in local elections across Ukraine that have been both hotly contested and full of dirty tricks.

   

  The man inside the costume was fined 170 hryvnia (£5) for the “administrative offence” of not being able to produce identification documents.

   

  A statement posted on the official Instagram account of the Ukrainian police read: “Nothing unusual here, just Chewbacca detained for being without documents while driving Darth Vader to the elections in Odessa. The Sith Lord has already claimed this was illegal as Chewbacca is his pet and general servant and thus does not require documents.”

   

  Police had earlier dragged Chewbacca from a polling station and put him in a van after accusing him of disrupting proceedings. Chewbacca said he had been there to support Darth Vader, who was attempting to vote.

   

  Darth Vaders have been frequent candidates at Ukrainian elections, with a reported 16 of them taking part in last year’s parliamentary vote. The Vaders, many of whom have changed their names legally, usually campaign in full costume.

  Chewbacca appeared in court today in Odessa and was fined $7.50. Ukraine: never boring. (via @ItsBorys) pic.twitter.com/uo57cdJl6H

  — Shaun Walker (@shaunwalker7) October 26, 2015

  And before you ask yes, there is a video… or two… or three… 

  But try as they might, the Ukrainian authorities were unable to undercut the will of the people which explains why Emperor Palpatine won nearly 55% of the vote and a seat on the on Odessa City Council.

  We close with a quote from Odessa mayoral candidate Aleksandr Borovik and a classic video clip which we’re reasonably sure readers will appreciate in the context of everything outlined above.

  “A cartoon comrade of Darth Vader – Palpatine – received 54.4 percent of votes in Poselok Kotovskogo [one of Odessa’s neighborhoods]. Palpatin Dmitry, born in 1990, who works as an emperor at ‘LLC Palpatine Finance Group’ makes it to the city council on the Trust Affairs party list.”

  

  

  

  

• The Military Industrial Complex 'Unicorn': Former NSA Chief Raises $32.5 Million For "Startup"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Former head of the NSA, Keith Alexander, has been a busy guy since he left government. Having avoided any accountability whatsoever despite systematically using the U.S. Constitution as toilet paper, Mr. Alexander is doing what every government official does upon leaving office. He’s trying to grab as much money as possible.

  Liberty Blitzkrieg readers will recall the 2014 post, Ex-NSA Chief Keith Alexander is Now Pimping Advice to Wall Street Banks for $1 Million a Month, in which I introduced his firm, IronNet Cybersecurity Inc. Fast forward a year, and Silicon Valley is chomping at the bit to embrace a company headed by a man who by all accounts should be in prison.

  From the Wall Street Journal:

  The former head of the National Security Agency has attracted funding for his cybersecurity startup from a prominent venture-capital firm, highlighting the continuing ties between Silicon Valley and Washington despite recent tensions.

   

  Kleiner Perkins Caufield & Byers is among the investors providing a $32.5 million infusion to IronNet Cybersecurity Inc., which aims to help companies fight computer hackers with software.

   

  IronNet was founded by Keith Alexander, who was NSA director in 2013 when former agency contractor Edward Snowden revealed that the NSA had snooped with help from technology firms. Since then, government officials and tech executives have clashed over the proper limits of encryption technology.

   

  As IronNet builds its technology, officials such as Mr. Olsen have offered consulting services to bring in extra revenue. Mr. Alexander said he has been boning up on how to run a startup, such as drafting term sheets for investors.

   

  “It’s been a good year,” Mr. Alexander said of IronNet in an interview. “I’m not going to say it’s been an easy year.”

   

  It also hasn’t been without controversy. Some critics accused Mr. Alexander of too quickly cashing in or potentially relying on classified intelligence to turn a buck.

  Banana Republic justice.

  

  

  

  

  

  

• "Everything We Know" About Russian Intervention In Syria: The Infographic

  Over the course of the past four weeks, Russia has captured the world’s attention with Moscow’s “unexpected” intervention in Syria’s protracted civil war. 

  While it wasn’t difficult to predict some manner of intervention by The Kremlin (the world has long known Putin to be a staunch Assad ally and both Russia and China have voted together on the Security Council to prevent the conflict from being referred to The Hague), what was surprising to some observers was the rapidity and efficiency with which Moscow deployed to Latakia. 

  Russia’s swift buildup and subsequent air campaign took the West completely off guard as Washington and its European and regional allies apparently assumed Moscow would adopt a similar strategy to that pursued in eastern Ukraine where Kremlin support has been more tacit than explicit. 

  For those interested, we present the following infographic which endeavors to outline “everything we know” about Russia’s deployment in Syria from sorties flown out of Latakia, to overflight denials, to cruise missile strikes.

  

  

  

  

  

  

• China Unleashes The Jingoist Rhetoric: "If U.S. Ships Stop, We Should Lock Them By Fire-Control Radar"

  Now that the U.S. has sailed the guided missile destroyer USS Lassen within 12 miles of the disputed islands in the South China Sea as “an assertion of freedom of navigation and as a means to balance power in the region”, it was time for China to offer its “diplomatic” response.

  

  And the best place to do that would be ultranationalistic Global Times, a newspaper described as “a Chinese tabloid under the auspices of the People’s Daily newspaper, focusing on international issues at a communist Chinese perspective. The Global Times differentiates itself from other Chinese newspapers in part through its more populist approach to journalism, coupled with a tendency to court controversy.”

  Here is what the editors said in an agitated, jingoist Op-Ed published earlier today.

  After the show, it’s time for US destroyer to leave

  According to Reuters and the Wall Street Journal, the US Navy sent the guided-missile destroyer USS Lassen within 12 nautical miles of islands built by China in the South China Sea. US officials claimed that the action is aimed at safeguarding the freedom of navigation and did not target China. The patrols could also be conducted around features that Vietnam and the Philippines have built up in the South China Sea. According to the US side, the action has been approved by President Barack Obama, but with no notification for China.

  Washington hinted long ago that it would send ships within 12 nautical miles of China’s islands, but it didn’t say explicitly what it would do. The US said the action would last several hours. According to Western media, Chinese navy ships are closely watching the Lassen. The Pentagon is obviously provoking China. It is time to test the wisdom and determination of the Chinese people.

  We should stay calm. If we feel disgraced and utter some furious words, it will only make the US achieve its goal of irritating us.

  We should analyze the actual condition of the US harassment. It seems that the US only wants to display its presence as it didn’t raise the imprudent demand that China stops island-building. It has no intention to launch a military clash with China. It is just the US’ political show. The UN Convention of the Law of the Sea provides three categories. The first is islands, which are naturally formed, habitable areas above water at high tide, and are therefore entitled to 12 nautical miles of territorial waters and a 200 nautical mile exclusive economic zones (EEZs). The second is reefs that have portions above water at low tide, and are uninhabitable, which have territorial waters but no EEZs. Finally, completely submerged “low tide elevations” have no territorial waters.

  The islands and reefs in the Nansha Islands under the control of the Chinese mainland belong to the latter two categories. China did not elaborate whether it will expand its territorial seas after land construction. This is where the ambiguity of the international law. In addition, China hasn’t announced its territorial baseline in the South China Sea, making the legal meaning of Sino-US contention in the South China Sea vague.

  China and the US have no conflicting views over the international law. Instead, the two are competing with each other over the rules and orders in the South China Sea. Beijing’s construction work in the area is completely legal, and there is nothing Washington can blame it for. Yet, from Washington’s perspective, the geopolitical situation in the area will be changed following China’s island reclamation. Beijing may seize the advantage to control the Nansha Islands and their adjacent seas. The US also conjectures that China will gain strategic pivots for power projection to the south in the future. Therefore, Washington, annoyed and anxious, has taken actions in order to balance Beijing’s clout and to consolidate its dominance in the South China Sea.

  It has to be noticed that China has already carried out construction work in the area. This is the concrete achievements Beijing has gained. Completing building the islands still remains as a major task for China in the future. At present, no country, the US included, is able to obstruct Beijing’s island reclamation in the region.

  In face of the US harassment, Beijing should deal with Washington tactfully and prepare for the worst. This can convince the White House that China, despite its unwillingness, is not frightened to fight a war with the US in the region, and is determined to safeguard its national interests and dignity.

  Beijing ought to carry out anti-harassment operations. We should first track the US warships. If they, instead of passing by, stop for further actions, it is necessary for us to launch electronic interventions, and even send out warships, lock them by fire-control radar and fly over the US vessels.

  Chinese should be aware that the US harassment is only a common challenge in China’s rise. We should regard it with calm and be confident of our government and troops. It is certain that the Chinese government, ordering the land reclamation, is able and determined to safeguard the islands. China is gradually recovering its justified rights in the South China Sea. China has not emphasized the “12 nautical miles.” It is the US that helps us to build and reinforce this concept. Then, it is fine for us to accept the “12 nautical miles” and we have no intention to accept 13 or more than 13 nautical miles.

  

  

  

  

  

• Why Are Half Of All 25-Year-Olds Living With Their Parents? The Federal Reserve Answers

  Back in 1999, a quarter of all 25-year-olds lived with their parents. By 2013 this number has doubled, and currently half of young adults live in their parents home.

  While the troubling implications for the economy from this startling increase are self-evident, and have been extensively discussed both here and elsewhere (and are among the key factors pushing both the US and global economy into secular stagnation), a just as important question is why are increasingly more young adults still living at home.

  

   

  While we admit there is something morbidly grotesque in none other than the Fed taking an active interest in this most devastating development (for the simple reason that it has been the Fed’s own policies that have unleashed not only the $1.3 trillion wave of student debt but an army of Millennials in their parents’ basement), it is the Fed itself that has been the latest to attempt an answer.

  Here is the Fed’s response to “Why Are More Young Adults Still Living at Home?”

  Economist Maria Canon and Regional Economist Charles Gascon noted that many factors have been suggested for why young adults return to or continue living at home, including significant student debt, weak job prospects and an uncertain housing market. The table below breaks down the percentage of 25-year-olds who were living at home for the period 2012-2013 in each state in the Federal Reserve’s Eighth District as well as in the country as a whole.

  

  Labor Market and Higher Education

  One potential reason for the increase in young adults living with their parents is the labor market. The authors highlighted research showing that individuals at the beginning of their careers often need more time to transition into the labor market. This is reflected in the unemployment rates of those between 21 and 27, which are often higher than for other age groups.

  Earning a college degree can help with labor market outcomes, as young adults with a college degree are more likely to live independently. However, additional research has shown that the underemployment rate for recent graduates was about 40 percent during the Great Recession. Canon and Gascon noted: “An implication is that a significant portion of recent graduates were earning lower wages than what they should have been, given their education.”

  Also affecting many young adults is that they started their post-education careers during a recession. Canon and Gascon discussed a study noting that those entering the job market during a recession pay a price for about a decade. They wrote: “That’s because they start work for lower-paying employers and slowly work their way up toward better-paying jobs.”

  Housing Market

  The nation’s recovery may also play a role in young adults remaining at home. As the economy has grown, so have house prices. Canon and Gascon pointed out that national house prices have increased 21 percent since 2012, and rental prices have grown even faster in many areas. They wrote: “Because most youth would be first-time homebuyers, they have no housing equity to regain from the rebound in house prices after the housing crash.”

  In the Eighth District, housing generally remains more affordable. The authors noted that the median house costs 3.3 times the median household income nationally, but less than 3 times the median household income in most District states.

  Student Debt

  According to a 2014 survey, more than half of first-time homebuyers said student loan debt was delaying saving for a down payment for a house. A 2015 report from the Federal Reserve Bank of New York found that a $10,000 increase in a student’s average debt increases the probability of living with parents or other family members by the age of 25 by about 2 percentage points.

  * * *

  To all the 25-year olds out there reading this from their parents’ basement, all we can add is that these are actually all correct. There is just one thing left to add: for all of the above you can thank, who else, the Fed for blowing the biggest debt-funded asset bubble in history.

  

  

  

  

  

• Guest Post: Donald Trump Says The U.S. Should Have Stolen Iraqis' Oil After Destroying Their Country

  Authored by Eric Zuesse,

  On Sunday the 25th of October, Republican U.S. Presidential aspirant Donald Trump was interviewed on CNN’s “State of the Union” show, and was asked about Iraq. He said, "I told you very early on, if we're going to leave, take the oil.” He then repeated this theme again, in this CNN interview: “And I said, take the oil when we leave. But we shouldn't have really left.”

  So: he thinks that the U.S. occupation of Iraq should have continued on, and should be continuing, and that the U.S. should have “taken” Iraq’s oil. But he added that, “We shouldn’t have gotten in” to Iraq in the first place. This latter opinion from him was purely a retrospective comment, and Trump had never even expressed himself publicly about the invasion until it had already been done. He had said at that time (August 2004) only that it was a mess and had been done incompetently.

  This new retrospective evaluation by Trump of the invasion of Iraq, now on CNN, sparked from the interviewer, questions about whether Trump thinks that “the world would be better off with Saddam Hussein” in power in Iraq. Trump answered directly, “A hundred percent.” He added: "They're worse now than they ever were. People are getting their heads chopped off. They're being drowned. They're — right now, they are far worse than they were ever under Saddam Hussein.” And, in fact, no reasonable person can doubt the truth of that statement. The recently released "Gallup 2015 Global Emotions Report” interviewed a thousand citizens of each of 148 countries and found: "Iraqis Are the Saddest & One of the Angriest Populations in the World.” Furthermore, Iraqis were found to have the world’s “Highest Negative Experience Scores,” which is a misery-index. Therefore, Trump is accurate to say that the American government did such a thing as that, to the people of Iraq. 

  So: he thinks the U.S. destroyed the lives of the Iraqi people, but that “we” (no one asked him who, or how) should have taken their "oil when we leave” (would it go to Exxon, the Kochs, the U.S. government that invaded Iraq — whom, and how?) — and that American occupiers shouldn’t have left Iraq, that the U.S. military should instead still be occupying their country.

  On 11 April 2011, he had told the Wall Street Journal

   

  (8:05– on their video): “I always heard that when we went into Iraq we went in for the oil. I said, ‘oh, that sounds smart.’ But, we never did. …

  (8:35-) I would take the oil. … You know, we have thousands of people that died, our great soldiers, they died. … I would not want to be the one that would tell their [U.S. soldiers who had fought in Iraq] parents that your son or daughter has died in vain, been wounded in vain.”

  Then, he said (9:30-): “I’d give plenty to Iraq [first he’d steal all of it from them, then he’d generously let them have some of it back], I’d keep plenty for us, I’d pay back Britain, I’d pay back everybody that was involved. …

  (10:35): We will make a fortune. They have fifteen trillion dollars worth of oil. … We are not going to hand that oil to Iran.” He was saying that it’ll go to either Iran or “us.” It won’t go to Iraq, except for what “we” will give to Iraq, of Iraq’s oil. Also, he mentioned China many times there as being an enemy-nation, which now is getting oil from both Iraq and Libya, and he said that he wants China to have to pay “us,” for all of that oil, too.

  *  *  *

  This interview was by Ms. Kelly Evans, and her name didn’t even appear in the blogpost (Rupert Murdoch’s print newspaper didn’t publish it) except at the end, but she performed such a superb job of interrogating a Republican Presidential candidate (against Romney in 2012), that this, which is still the best-ever interview of Trump, got buried by Rupert Murdoch’s operation, as a mere blogpost, headlined "Trump Will ‘Probably’ Run as Independent If He Doesn’t Win GOP Nomination.” From then, till now, Trump revealed more than he has yet revealed in his 2016 Presidential run. And what he revealed there was buried, and has largely remained buried, for the past four years.

  So: Trump would want the U.S. something-or-others (Exxon? Koch? He has always refused to say who “we” are) to “take their oil” in order for U.S. warriors not to have “died in vain.” He also said in his interview with Kelly Evans (7:55– and repeated by him at 11:20-), “I’m only interested in Libya if we take the oil. If we don’t take the oil, I have no interest in Libya.” He wants to steal Iraq’s oil “for our great soldiers, they died.” But why he’d want to steal Libya’s  oil? He said in that 2011 interview, that the reason is because (11:25-) “China gets its oil from Libya; we get nothing from Libya.” So: “we” should steal Libya’s oil because China wants it.

  Months after that WSJ-blog-video interview, Reuters headlined on 18 December 2011, “Last U.S. troops leave Iraq, ending war.” Iraq had not handed its oil over to the United States. This fact continued to disturb Trump. On 16 August 2015, he told “Meet the Press”: “Take back the oil. We take over the oil which we should have done in the first place. … And what I would do with the money that we make, which would be tremendous, I would take care of the families of the soldiers that were killed, the families of the soldiers, the wounded warriors that I see. I love them.”

  So: somehow, he’d give them a chunk. Who would get the rest? He didn’t say. He wasn’t asked. He has never been asked, beyond what Kelly Evans extracted from him — and even she could have drilled much farther than she did.

  What’s refreshing about Trump is the directness with which he expresses his psychopathy. For example, candidates such as Hillary Clinton sugar-coat theirpsychopathy, or even find ways to get their interviewers to join eagerly in their expressions of it (camaraderie with power-holders), but they don’t say such blatant things as (to paraphrase Trump here), “After we raped them — which we shouldn’t have done — we should have stolen from them, and we should still be  stealing from them.”

  The delight that Trump gives his Republican admirers might be due to his "F-U!” responses to politicians such as Clinton, Obama, and other conservative Democrats, and to liberal commentators who support them (including most media other than Fox ‘News,’ etc.), for those liberals’ hypocrisies. Even blatant psychopaths can take delight in knocking down the hypocritical moralisms of liberals.

  As for progressives such as Bernie Sanders — they’re not really conservatives of either the overtly conservative type (Republicans), or the covertly conservative type (almost all Presidential-level Democrats, plus the national ‘news’ media). Sanders is trying to shoehorn himself into the Democratic Party at the Presidential level, but at his heart he’s a progressive, who’s trying to restore the Democratic Party to the progressivism that it was under President Franklin Delano Roosevelt. Sanders calls that (and the existing versions of it in Scandinavia) “socialism.”

  Trump is certainly no progressive (no “socialist,” to use Sanders’s term for progressivism). But he’s more than just an “entertainer” (to employ the characterization of his political involvement, from Arianna Huffington). Among Republicans and other psychopaths, his political appeal is very real, and is hardly “entertainment.” It’s revenge and anger against liberal hypocrites. Among Republicans, life is a blood-sport, not just dripping blood. It’s all “red in tooth and claw.” To them, that’s what business should be all about; and government is just the CEO who’s the king of the hill. Successful people in business tend to have that attitude, but so too do fundamentalists and true-believers in any religious faith — everything’s either “us” or “them”; and everyone’s goal is that, as much as possible, all of the blood that’s on the floor will be “theirs,” not “ours.”

  Crusades and jihads can be in business and government, not merely in religions. Donald Trump is a warrior, and he has now seriously entered the political battlefield, claiming to be the most effective warrior for “us.”

  *  *  *

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

   

  

  

  

  

  

• Pentagon: Ready For Direct Ground Action In Syria, Iraq

  Update: While it’s not entirely clear whether this represents an explicit pivot or simply amounts to a reiteration of comments US defense officials made in the wake of the ISIS prison raid that freed some 70 captives in Iraq and led to the first US casualty in ground combat since 2011, the media is alive with reports this evening which indicate that Defense Secretary Ash Carter may be set to send more spec ops ground troops to Iraq and “engage directly” in Syria. Here’s CNN with the official White House-approved line:

  The U.S. is considering increasing its attacks on ISIS through more ground action and airstrikes, Defense Secretary Ashton Carter said Tuesday.

   

  Carter told the Senate Armed Services Committee that the U.S. “won’t hold back” from supporting partners carrying out such attacks or from “conducting such missions directly, whether by strikes from the air or direct action on the ground.”

   

  The White House, however, has yet to make a decision on the options for upping the campaign against ISIS, according to defense and administration sources. They said that further involvement on the ground was one of the possibilities being presented.

   

  The ground option Carter mentioned to the committee was part of a three-prong effort — which he dubbed the “three Rs” — to adapt the U.S. policy on countering ISIS.

  Meanwhile, a few notable US lawmakers had some colorful remarks for Carter. First there was uber hawk John McCain insisiting that the Russians and the Assad regime are “slaughtering” the moderates:

  Committee Chairman John McCain of Arizona peppered Carter with questions about how the U.S. would protect forces as Russia carries out airstrikes that have been hitting forces opposed to Syrian President Bashar al-Assad.

   

  “Are we going to protect them from being barrel bombed by Bashar Assad and protected from Russia?” McCain asked.

   

  “We have an obligation to do that. We made that clear right from the beginning of the train-and-equip program,” Carter said.

   

  “We haven’t done it. We haven’t done it,” McCain disagreed.

   

  Carter said to date, no forces that have been part of the U.S. training program have come under attack from Russian forces, but McCain once again disagreed.

   

  “I promise you they have,” McCain said. “You will have to correct the record. … These are American-supported and coalition-supported men who are going in and being slaughtered.”

  And here’s Lindsey Graham’s assessment:

   “This is a half-assed strategy at best.”

  On that point will not protest.

  *  *  * 

  Earlier

  In addition to increased ground action and airstrikes, or “raids,” Carter also spoke of the need to increase pressure around the ISIS stronghold of Raqqa in Syria, where “we will support moderate Syrian forces” fighting the terror organization there.

  When analyzing geopolitics it’s important to try and skate ahead of the puck, so to speak. That is, while it’s useful to understand what’s going on now, it’s even more imperative to analyze the situation in an attempt to understand how the situation is likely to evolve going forward. 

  As it relates to the Mid-East, that means looking past Syria and on to Iraq. As we’ve outlined in great detail of late, there’s every reason to suspect that Russia will expand its airstrikes across the Syrian border and indeed, Baghdad has reportedly given Moscow the go-ahead to hit ISIS convoys fleeing Syria into Iraqi territory. This is in direct contradiction to what PM  Haider al-Abadi told Gen. Joseph Dunford last week and suggests that Baghdad is about to pivot East, after becoming frustrated with a lack of results stemming from more than a year of US airstrikes against Islamic State targets. 

  It’s critical to note that Iran (via the IRGC and, more specifically, the Quds Force) controls Iraqi politics and the Iraqi armed forces. This means that Russia will find an extremely receptive environment when it comes to expanding the air campaign beyond Syria. We won’t get into the details here, but we do encourage you to review the whole story as detailed in “Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan” and “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies.” 

  Over the weekend we brought you helmet cam footage which purported to depict a US/Peshmerga raid on an ISIS prison. The operation allegedly freed some 70 hostages whose graves Islamic State had (literally) already dug. For those who missed it, here’s the video:

  And here was our assessment: 

  Now obviously, there’s no telling what actually went on here, nor is there any telling what 30 members of Delta Force were doing running around with the Peshmerga in northern Iraq, but one thing is for sure: the US media seems to be trying to counter the Russian propaganda blitz by holding up the Huwija raid and the death of Master Sgt. Joshua L. Wheeler as proof that Washington is serious about battling ISIS. We are of course not attempting to trivialize the death of Joshua Wheeler by writing this off as some kind of publicity stunt aimed at countering the Russian media blitz. In fact, the opposite is true. If the US is now set to ramp up the frequency with which the Pentagon puts American lives at stake by inserting spec ops in ground operations just so Washington can prove to the world that America is just as serious as Russia is about fighting ISIS, well then that’s a crying shame for US servicemen; especially considering the role the US and its regional allies had in creating the groups that Delta Force and other units are now tasked with countering.

  Sure enough, others are now beginning to ask questions about the timing of the raid and subsequent release of battlefield footage. Here’s Sputnik, citing China’s CCTV: 

  Russian-led counterterrorism efforts are so successful that they are “unnerving” Washington, CCTV reported. As a result, last week US leadership decided to act so as to prevent Iraq from fostering ties with Moscow.

   

  The Chinese media outlet believes that the operation to free hostages in Northern Iraq followed this new logic. Last Thursday, US and Kurdish forces managed to free 70 people from a prison located to the west of Kirkuk. The operation saw the United States lose its first soldier in combat since Obama launched the campaign to degrade and ultimately destroy Islamic State. 

   

  This mission raised questions over Washington’s plans in Iraq. On Friday, US Defense Secretary Ashton Carter tried to dispel fears of the possible  mission creep by saying that the US was not “assuming a combat role” and the operation was “a continuation of our advise-and-assist mission.”

   

  However, Carter stated that similar missions, which redefine assistance if not blur the line between combat and training, could be conducted in the future.

   

  CCTV believes that the US-led hostage rescue operation was a show of force aimed at Iraq’s leadership. The mission was meant to send a clear message to Baghdad, which is rumored to be planning to ask Moscow for greater assistance in its fight against Islamic State.

  Of course we need to consider the sources here (i.e. this is Russian media quoting Chinese media) but nevertheless, this is precisely consistent with the assessment we offered immediately after the helmet cam footage was released. 

  In short, it seems entirely possible that the presence of Delta Force in the ISIS prison raid might well have been premeditated by the Pentagon. The official line is that 30 US commandos where present in an advise and assist role to the Peshmerga and once the Kurds started to take losses, Delta Force decided to intervene.

  But is that the real story, or did Washington deliberately send spec ops into a battle the US knew they would win so that The White House could trot the “successful” operation out to Baghdad as evidence of why Iraq shouldn’t turn to Moscow for help?

  We’ll let readers decide that for themselves and simply close with the following bit from Reuters which pretty clearly indicates that suddenly, the US has had a change of heart about putting boots on the ground in Iraq…

  The top U.S. military officer said on Tuesday he would consider recommending putting U.S. forces with Iraqi troops to fight Islamic State if that would improve the chances of defeating the militants.

   

  “If it had an operational or strategic impact and we could reinforce success, that would be the basic framework within which I’d make a recommendation for additional forces to be co-located with Iraqi units,” Marine General Joseph Dunford told a Senate hearing.

   

  Dunford, the chairman of the Joint Chiefs of Staff, outlined four reasons it might be useful to put U.S. troops with Iraqi forces: increasing the coherence of the military campaign, ensuring logistics effectiveness, boosting intelligence awareness and improving combined arms delivery.

  

  

  

  

  

• Oct 28 – White House, Congress reach tentative U.S. budget deal

  EMOTION MOVING MARKETS NOW: 63/100 GREED

  PREVIOUS CLOSE: 60/100 GREED

  ONE WEEK AGO: 51/100 NEUTRAL 
  ONE MONTH AGO: 18/100 EXTREME FEAR

  ONE YEAR AGO: 13/100 EXTREME FEAR

  Put and Call Options: GREED During the last five trading days, volume in put options has lagged volume in call options by 30.42% as investors make bullish bets in their portfolios. However, this among the lowest levels of put buying seen during the last two years, indicating greed on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 15.43. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME GREED The number of stocks hitting 52-week lows is slightly higher than the number hitting highs but is at the upper end of its range, indicating extreme greed.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T  NOTE | 5 YR T NOTE | 30 YR TREASURY BOND| SOYBEANS | CORN

   

  MEME OF THE DAY – IT’S THE JERKS

   

  UNUSUAL ACTIVITY

  RAD NOV 10 Call Activity on the name

  CHK OCT WEEKLY5 Put Activity 14960 block @$.40 on offer

  BABA 25120 block PUT Activity @$.25 on offer

  TSN JAN 50 CALL ACTIVITY 9K+ @$.65 on offer

  JAKK 10% Owner Oasis Management Co Ltd. P 245,000 @ $ 8.08

  FLWS SC 13D Filed by Matthew McCann 2005 Trust 6.1%

  More Unusual Activity…

  HEADLINES

   

  Atlanta Fed GDPNow Forecast: 0.8% (prev. 0.9%)

  White House, Congress reach tentative U.S. budget deal

  House Speaker Boehner: House To Vote On 2-Yr Budget Deal Tmrw

  BoC’s Lane: Bar for any change to inflation targeting framework is high – BoC

  ECB’s Nowotny: QE To Last At Least Until Inflation Is Close To Target

  US Durable Goods Orders (MoM) Sep: -1.2% (est -1.5%; rev prev -3.0%)

  US Consumer Confidence Index Oct: 97.6 (est 102.9; prev 103, rev 102.6)

  Markit US Services PMI Oct P: 54.4 (est 55.5; prev 55.1)

  Pfizer Tops Expectations, Lifts Outlook

  Ford doubles profits on booming US sales

  Comcast’s Earnings Get Some Help from ‘Minions’

  UPS Reports Surprise Revenue Decrease

  BP shrinks again to weather extended oil slump

   

  GOVERNMENT/CENTRAL BANKS

  Atlanta Fed GDPNow Forecast: 0.8% (prev. 0.9%)

  Fed’s Yellen to appear before congressional committee Nov. 4 –Rtrs

  White House, Congress reach tentative U.S. budget deal –Rtrs

  US House Speaker Boehner: House To Vote On 2-Year Budget Agreement Tomorrow – Yahoo

  BoC’s Lane: Bar for any change to inflation targeting framework is high – BoC

  ECB’s Nowotny: QE To Last At Least Until Inflation Is Close To Target – ForexLive

  EU’s Dombrovskis: Inflation in the Euro area is still significantly below ECB target: BBG

  ECB almost certain to ease in Dec by boosting QE, cutting deposit rate – Rtrs poll

  ECB: FX Reserves Fell To EUR 262.7bln, Down EUR 100mln

  Greek Bank Recapitalisation Law To Be Submitted To Parliament By Friday – Banking Source, Rtrs

  German trade body sees record exports in 2015 despite China, VW –Rtrs

  Portuguese President Agrees To Coelho’s Government Proposal – Diario

  IMF: Japan Needs 2017 Sales Tax Hike For Fiscal Sustainability – RTRS

  FIXED INCOME

  U.S. Government Bonds Climb on Weak Economic Data –WSJ

  Treasury Bill Rates Slide Below Zero After Debt-Ceiling Deal –BBG

  Procter & Gamble Sells Euro-Denominated Bond –WSJ

  Arch Coal Ends Debt Exchange, Restructuring Talks Continue –BBG

  Debt Totaling $345 Billion Says ECB to Cut Deposit Rate to -0.3% –BBG

  FX

  Dollar steady ahead of Wednesday’s Fed statement –Rtrs

  AUD/NZD: Aussie Posts Steep Losses Against Kiwi –WBP

  USD/CAD rises to nearly 1-month highs –Investing

  USD/CHF: Dollar Spikes to 2-Mth High, Seeks Even More –WBP

  Sterling remains lower after UK growth slows –Investing

  EUR/JPY: Euro Plummets Further Against Strengthening Yen –WBP

  COMMODITIES

  Oil falls to multi-week lows on persistent supply glut –Rtrs

  US crude futures settle at $43.20/bbl, down 1.77%

  Brent crude futures settle at $46.81/bbl, down 1.54%

  U.S. natural gas falls below $2 for the first time in three years –BBG

  Iran’s Rouhani: Sees Nuclear Sanctions Lifted By End-2015 – Rtrs

  Gold steadies above $1,160/oz ahead of Fed meeting

  EQUITIES

  INDICES: Wall Street drifts lower as earnings, crude weigh –Rtrs

  INDICES: Europe Stocks Fall for a Second Day as Earnings Miss, Oil Drops –BBG

  M&A: Cisco Announces Intent to Acquire Lancope – Cisco

  M&A: SABMiller Said to Seek More Time for AB InBev’s Formal Bid –BBG

  M&A: DuPont in M&A talks with rivals for farm unit – Rtrs

  EARNINGS: DuPont’s profit nearly halves on strong dollar – CNBC

  EARNINGS: Baxter profit declines, but beats expectations – MktWatch

  EARNINGS: Merck Profit Jumps, Prompting Higher Annual Forecast – WSJ

  EARNINGS: Pfizer Tops Expectations, Lifts Outlook – WSJ

  EARNINGS: Reynolds American meets 3Q profit forecasts – CNBC

  EARNINGS: Ford doubles profits on booming US sales – FT

  EARNINGS: Comcast’s Earnings Get Some Help from ‘Minions’ – WSJ

  EARNINGS: Coach Rises as Profit Tops Estimates, Showing Revival on Track – BBG

  EARNINGS: Gorilla Glass maker Corning’s revenue falls 5 pct – Rtrs

  EARNINGS: Bristol-Myers Tops Estimates on Cancer, Hepatitis C Sales – BBG

  EARNINGS: UPS Reports Surprise Revenue Decrease – WSJ

  EARNINGS: Cummins to cut jobs as weak global economy hurts sales – Rtrs

  ENERGY: BP shrinks again to weather extended oil slump –Rtrs

  FINANCIALS: Netherlands gives go-ahead to ABN Amro flotation, likely by year-end –Rtrs

  FINANCIALS: Deutsche Bank reviews future of Italian business –Rtrs

  TECH: IBM is under S.E.C. investigation over accounting –Fortune

  TECH: IBM announce quarterly cash dividend of $1.30/share and a $4bln stock repurchase plan – ZDNet

  EMERGING MARKETS

  Angry China shadows U.S. warship near man-made islands –Rtrs

  New Brazil rules key for any merger, Telecom Italia CEO says –Rtrs

  Saudi Stocks Tumble as Government Studies Cutting Fuel Subsidies –BBG

  IMF Says Africa Must Enable Weak Currencies to Absorb Shocks –BBG

   

  Israeli Bonds Gain to Five-Month High as Flug Signals Rate Cuts –BBG

  

  

  

  

  

• OECD Chief Economist: It's Time To "Temper The Frothiness" In Markets

  Excerpted from MarketWatch's Greg Robb's interview with Catherine Mann, a former Fed staffer and current chief economist at The Organisation for Economic Co-operation and Development, who is concerned the Fed is "crying wolf," always threatening a rate hike but not moving. Simply put, The Fed’s inaction is fueling unproductive moves in asset markets, Mann said.

  …we argued that September would have been a good idea because it would have put behind us and behind the emerging markets and behind the markets, the timing of the first move.

   

  …

   

  Now going forward, we continue to have uncertainty about global trade, about the magnitude of global trade — it is quite low compared to global GDP— but this is something that the U.S. economy has been dealing with for a while. That is not new. Commodity prices? Again this is not new. We’ve been dealing with this for a while.

   

  …

   

  What is a new dimension between September and October is, that unfortunately, there is a lot of speculative capital that had been repositioning itself all summer for the expectation of a September hike. Now, since that didn’t happen, all that capital starts running back to where it was before, creating some problems in emerging markets with basically the most speculative money going for six weeks more of higher yields. So that is the unfortunate new aspect, I think, of where the global economy is. And that, again, would suggest that the best thing to do is to take the first move off the table by doing it, and then being very clear about the shallow slope of the trajectory of interest rates going forward.

  How can the Fed raise rates when inflation is not on horizon?

  I go back to a paper that Ben Bernanke gave at the Jackson Hole conference in 2012 where he set out in really very clear terms about the pros and cons of quantitative easing, which of course we were still in the process of doing at the time.

  • The pros were you want to lower interest rates, reduce the slope of the yield curve, get the credit channel moving, use the wealth effect to bolster consumption and business investment.
  • The cons were, what would we need to know when it was time to kind of take the foot off the accelerator, and it had to do with disruptions in the Treasury market and it had to do with a change in the nature of asset markets.

  So when I look at the Treasury market functioning, I see some problems there, with liquidity, some spiking. So, some disruptions or malbehavior in the Treasury market, I see as one indicator, that even though the objectives of inflation and unemployment have not been reached.

  The second indicator that was outlined in the Bernanke speech was concerns about what was going on in asset markets – housing markets but also in equity markets.

  But if you look at the equity markets and you look at what is supporting equity prices — how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.

   

  These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness. Is this really a thing you want to be going on in asset markets? Is this really representative of the kind of asset-market activity that is supportive of the foundations for more robust growth in the U.S. economy? The answer has to be no. And so a small change in interest rates would temper some of that activity in the asset markets. So I go back to the Bernanke speech — it was a cost-benefit speech, and I look at those two elements and I say: well, the cost-benefit equation has shifted.

   

  …

   

  You’ve got the market participants with the shortest horizon having the greatest incentive to do what they want to do for six weeks at a time. That is not productive activity, whether it be in emerging markets or in the U.S. marketplace, these are not productive investments.

   

  Eliminating the incentive to engage in that kind of activity seems to me to be a good idea. We know that 25 basis points is not going to do that much, on the margin, to affect business decisions on whether to undertake real investment or not.

   

  …

   

  there is a possibility that you will see some equity market correction, but since I see a fair underpinning of where we are in equity right now is based on some of these not-really conducive to real economic activity anyway — stock buybacks, the mergers and acquisitions – taking a little bit of the top off of that is not something that is going to negatively affect the economy.

   

  There would be a proportion of the population that would have less capital gains — but they’ve been enjoying very big capital gains, and it is a narrow segment of the population. And for firms, for those who are in the equity markets, the bulk of them have a lot of ammunition to work with on their own balance sheets, so 25 basis points is not going to make a difference to them.

  I think it is hard to argue that [the economy] is overheating, but my argument for having the first interest rate rise has very little to do with the inflation target. It has a lot to do with unproductive use of resources in asset markets and so that’s my story, not the one that is the argument for the inflation target.

  Read more here at MarketWatch…

  

  

  

  

  

• Yes, A New Crisis is Coming – And Here's Why

  Submitted by Saxobank's Dembik Christopher via TradingFloor.com,

  • Shortening economic cycle means more frequent crises
  • 'Great Divergence' model saw China assuming the US' leadership role
  • We have likely reached the limits of adjusting monetary policy
  • States have compromised a return to growth due to debt

  

  Occupy Wall Street may been been a popular response to the financial crisis, but Wall Street was never actually occupied and business largely continued as usual. Photo: iStock 

   

  The oracles predicting an impending new global crisis are countless. Over the last two decades, economic cycles have been shortened due to deregulation, the financialisation of the economy, trade globalisation, and the acceleration of innovation cycles. During the last 25 years, the US economy has experienced three recessions: in 1991, 2001 and 2009. The outbreak of a new crisis in the coming years is inevitable. To forecast it amounts to acknowledging that capitalism now moves in cycles shorter than 10 years. There is no glory in that.

   

  Here are four macroeconomic scenarios for 2016: 

   

  

   

   

  Until recently, the consensus assumed a strengthening of the global economy in 2016. Various downward revisions of growth forecasts by major international organisations, however, confirm that this assumption is becoming less and less likely. 

   

  Gross domestic product growth momentum, particularly in the US, is still the main driver of global growth. It is also weaker than it used to be during the previous recoveries, as shown by potential GDP growth which has been reduced to 2% for the 2015-2015 period, compared to 3% for 2000-2007. 

   

  The weakness of this recovery can be seen in the substantial slowdown of international trade growth. The increase of global imports in volume is significantly lower compared to the years from 1992 to 2008. The adverse effects of the subprime crisis still influence global dynamics.

   

  

   

  The prospect of a new crisis brought the Great Divergence theory back to life. However, this circumstance has failed to materialise. In 2008, this model was steadily evoked but didn’t happen because it is based on the illusion that Asia, and particularly China, will prove able to take over from the US. 

   

  Still the bridesmaid

   

  Beijing’s economic influence is clearly on the rise: the yuan is the fourth most exchanged currency in the world – ahead of the Japanese yen – and should overtake the British pound in financial transactions before the end of 2016. 

   

  The “new Silk Road” strategy, which aims to build an economic bridge between Europe and the South China Sea, is an incredible tool for providing leverage to develop the country and take a leadership role in international business. 

   

  Nevertheless, the emerging yuan zone is not able to compete with the large dollar zone's hegemony. Any deterioration of the American economic outlook will have extended consequences on Asia and the whole emerging world.

   

  The possibility of a Chinese monetary bazooka cannot be overlooked in the first half of 2016. Expectations regarding new stimulus are much likely to increase in the coming months as Western central banks’ monetary policy become less clear every day. 

   

  Still, there is no emergency given the stabilisation of the Chinese stock exchange and the macroeconomic evolution of the country, which does not indicate any worrying deterioration even if it is disappointing compared to the years between 1979 and 2012. 

   

  The Chinese central bank could lower its rates and it could also act on banks' required reserve ratio – an oft-favored tool – to revive credit. With its $3.56 trillion in foreign exchange reserves (as of the end of August), China still maintains an unprecedented level of force. 

   

  Along with a dovish monetary policy, China could launch a Keynesian stimulus programme, relying on the already-expected bond issue plan which could raise 1 billion yuan. Even though president Xi Jinping proved reluctant to introduce massive economic stimulus package since coming into office in November 2012, preferring case-by-case adjustments, he won’t be able to avoid this option very long if he wants to meet the country's official macroeconomic targets. 

   

  A Chinese monetary bazooka could temporarily reassure world markets but believing it would save the global economy if developed countries sink into crisis would be a bridge too far.

  

  The Chinese economy may be big, but it is not yet ready 

  to take the reins from the US. Photo: iStock

   

  Everybody thought the global economy was on its way to a sustainable growth but more and more leading indicators (Empire Manufacturing in the US, industrial output and business sentiment in Japan, Canadian GDP, copper prices, etc.) raise concerns about a global recession. 

   

  Emerging countries are the first in line. Brazil opened the way and Turkey could be next. The increasing risk of recession should put further pressure on central bankers to keep providing liquidity. 

   

  The end of policy

   

  The Federal Reserve's possible announcement of negative rates would be seen as a desperate action with major negative consequences as rates below zero would emphasise financial distortions. Such behavior would confirm that it is impossible to get out of accommodating monetary policies. 

   

  This headlong rush will last as long as will central bankers’ credibility. But this credibility has already been damaged, particularly following the Swiss National Bank’s unexpected decision to abandon the Swiss franc’s cap earlier this year, as well as Fed chair Janet Yellen’s hesitation during the press conference held on September 17. 

   

  It is just a question of time before markets realise that the limits of monetary policy have been reached. 

   

  The crisis that never ended

   

  The weakness seen in world economic activity is partly the result of the lack of a real purge of the financial system in 2008. It has become unimaginable to let entire parts of the system collapse, and the titling of some financial institutions as “systemic” is part of this logic. 

   

  Policymakers attempting to keep unhealthy economic and financial institutions alive are making a mistake. The very essence of capitalism lies in the process of creative destruction. If companies prove unable to innovate when confronted to new competitors or if they take disproportionate financial risks, they should bear the consequences . 

   

  In 2008, public authorities refused to take responsibility for the social cost of widespread bankruptcies. Despite their role as "lender of last resort", however, states couldn’t avoid mass unemployment. 

   

  In refusing to reform the system they have compromised the prospects of a sustainable return to growth, and this is due to excess debt. Over the last seven years, private and public debt has increased by $57 billion – a figure near-equivalent of global GDP. 

   

  What we see here is not a way out of the crisis. Instead, we are on the edge of a new financial disaster.

   

  

   

  The world's financial districts are beginning to form a new consensus, and it's a gloomy one.

  

  

  

  

  

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• SmartKnowledgeU: What is the Fair Value of Gold? Ounces Over Dollars

  As I write this article, at about 11:30AM NY time, on 27 October 2015, the probability of another banker raid in the paper gold and silver derivatives markets increases and remains elevated. Yet, every time bankers raid paper prices, if indeed this happens again sometime over the next few trading days, their raids on the fiat currency prices of gold and silver always trigger a lot of frustration on behalf of physical gold and physical silver owners due to an improper equating of fiat currency price with real value and improper equating of “perceived” value with “real” value. To debunk these widely held inaccurate beliefs, how can one truly accept a valuation of sound money (physical gold and physical silver) in an unsound, counterfeit fiat currency? In fact, it astounds me when I witness intelligent people repeatedly make the mistake of pricing a sound money in terms of unsound money and then equating this fake price to physical gold’s (or silver’s) value.

   

  A huge reason we all tend to make these types of sophomoric mistakes is due to the fact that the bankers erased all real knowledge about sound money from textbooks and the collective conscience of society long before any of us living on this planet today had even been born. Therefore, we were raised to believe that valuing gold and silver in terms of fake fiat currencies is acceptable, whereas if you transported a 5-year old child that lived during a period of a real gold standard persisted to the present day, that child would laugh at our foolishness regarding the manner in which we value physical gold and silver. During periods of true gold standards (and not anti-gold standards like the Bretton Woods system, that was still truly a US dollar standard), the only accepted way of valuing gold and silver was by its weight, in grams or in troy ounces. The reasons why the Bretton Woods system was much more of an anti-gold standard as opposed to a true gold standard is beyond the scope of this article, but something we explain in fully and in great detail in our upcoming SmartWealth Academy. Any paper note that simultaneously circulated with gold and silver coins during true gold and silver standards only represented that standard monetary unit of gold and silver weight. And when governments and bankers reneged on their promise to redeem these paper notes into a pre-specified precious metal monetary weight, the paper notes depreciated against the precious metal.

   

   

  Today, bankers have brainwashed us all to believe that the precious metal, when it is falling in fiat currency prices, is dropping in value (our “perceived” value), when in reality, the value of the precious metal always remains constant because its “real” value can only be measured by its weight. In fact, when bankers raid paper gold and silver futures markets and artificially drop its associated gold and silver price, if we were able to distinguish the differences between “perceived” value and “real” value, and the difference between price versus value, we would all be ecstatic instead of depressed. Why? Because we would understand that in manufacturing such events, bankers have increased the value of our paper notes in terms of real gold and real silver. Remember, I just told you that historically, under periods of real silver standards, when the bankers committed fraud, the paper notes depreciated greatly, up to as much as 40%, in terms of the real silver it could then buy (I explain this historical event in much more detail in my vlog below). Today, banker fraud causes our paper notes to appreciate, not depreciate, in terms of the value of gold and value of silver they can buy.

   

   

  This reversal of fortune, from the same committed bank fraud, should blow your mind. To understand these concepts further, please watch our two part series, SmartKnowledgeU_Vlog_002: What is the Fair Value of Gold? Ounces Over Dollars, below. If you watch the two-part series below, then when bankers soon likely raid gold and silver futures markets and force the fiat currency prices down, you will remain much more calm as you realize this has no affect whatsoever on the real value of physical gold and physical silver.

   

   

  

  

  To watch the above vlogs, please click on the photos and then click the text

  “Watch this video on YouTube.”

  
  

  
  

   About the Author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent consulting, research, and education firm that focuses on providing wealth preservation strategies to clients in 30+ different countries around the world. Stay tuned for othe release of our upcoming SmartWealth Academy, an online education academy designed to provide an alternative to business school at a fraction of the price of top business programs, yet with the provision of knowledge completely lacking from MBA and business school programs necessary to survive our ongoing currency wars.
  

  

  

  

  

• Does Red Meat – or FAKE Meat – Cause Cancer?

  The World Health Organization said today that eating even unprocessed red meat “probably” causes cancer.

  But as we reported in 2012, it may not be red meat – but FAKE meat – that’s killing us.

  Specifically, the modern factory farm creates meat that is much higher in saturated fats – and much lower in healthy omega 3s – than traditional grass-fed cows.

  Feedlot cows are also dosed with large quantities of antibiotics and estrogen.

  Worse, the FDA allows a drug banned in 160 nations and responsible for hyperactivity, muscle breakdown and 10 percent mortality in pigs to be added to animal feed shortly before slaughter.

  While the practice of feeding cow parts to other cows – one of the main causes of mad cow disease – has been banned on paper, cow blood “products”, feather meal, pig and fish protein, and chicken manure are all still fed to cows.   Remember – unlike bacteria or viruses – heat does NOT kill the deadly prions which cause mad cow disease. (And cows are fed to  chickens, pigs and fish – which are then fed back to the cows – so cows may end up eating the prions from other cows anyway.)

  And yet the government is so protective of the current model of industrial farming that private citizens such as ranchers and meat packers are prohibited from testing for mad cow disease.

  And genetically-engineered meat isn’t even tested for human safety. (Read this if you think there is a scientific consensus that gm foods are safe.)

  On top of that, there are a slew of meat additives added after butchering.

  So yes … factory-farmed, mass-produced red meat may be bad for us.  But that doesn’t necessarily mean that organic, grass-fed meat is …

  

  

  

  

• Why Is The IRS Spying On Americans' Phone Calls?

  Submitted by Derick Broze via TheAntiMedia.org,

  Following the first ever congressional hearing on “Stingray” cellphone surveillance, new details reveal the Secret Service and the Internal Revenue Service are also using the controversial spying devices.

  At a congressional hearing last Wednesday, officials with the Department of Justice and Department of Homeland Security released new details about the federal government’s use of “Stingray” cellphone surveillance. Stingrays, also known as cell site simulators, constitute another example of military tools finding their way into the hands of federal agencies and local police departments across the United States.

  According to the Electronic Frontier Foundation:

  “The Stingray is a brand name of an IMSI (International Mobile Subscriber Identity) Catcher targeted and sold to law enforcement. A Stingray works by masquerading as a cellphone tower – to which your mobile phone sends signals to every 7 to 15 seconds whether you are on a call or not – and tricks your phone into connecting to it.  As a result, the government can figure out who, when and to where you are calling, the precise location of every device within the range, and with some devices, even capture the content of your conversations.”

  Elana Tyrangiel, a deputy assistant attorney at the Justice Department, told lawmakers the particular cell site simulators employed by the DOJ do not collect the content of calls. The devices do, however, collect location and the number being dialed.

  Much of the discussion at the hearing centered around the use of warrants. In early September, the Justice Department announced rules about how the department will handle the use of Stingrays, including new warrant requirements. After the rules were announced, Senator Patrick Leahy, the ranking member on the Senate’s Judiciary Committee, challenged the warrant exemptions and the overall effectiveness of the rules.  According to the District Sentinel, Leahy stated, “I will press the Department to justify them.”

  As of last week, the Department of Homeland Security is now following similar rules. Officials warned Congress the devices would be used without obtaining warrants in “time-sensitive, emergency situations.”

  California Congressman Ted Lieu, a member of the House Oversight and Government Reform Committee, told CNN he believes “The mass surveillance of peoples’ [sic] cell phone signals requires a warrant.”

  The AP reports that during the hearing, Homeland Security Assistant Secretary Seth M. Stodder revealed a new policy that allows the Secret Service to use cell site simulators without a warrant if they believe there is a “nonspecific threat to the president or another protected person.”

  Stodder stated that under “exceptional circumstances,” exceptions would be made and use of the device would only require approval from “executive-level personnel” at Secret Service headquarters and the U.S. attorney for the relevant jurisdiction. Despite the exemption, Stodder said the Secret Service would not use the devices in routine criminal investigations.

  Just days after the congressional hearing, The Guardian has revealed the Internal Revenue Service (IRS) is also making use of the Stingray devices. The Guardian reports:

  “Invoices obtained following a request under the Freedom of Information Act show purchases made in 2009 and 2012 by the federal tax agency with Harris Corporation, one of a number of companies that manufacture the devices. Privacy advocates said the revelation “shows the wide proliferation of this very invasive surveillance technology.

   

  The 2009 IRS/Harris Corp invoice is mostly redacted under section B(4) of the Freedom of Information Act, which is intended to protect trade secrets and privileged information. However, an invoice from 2012, which is also partially redacted, reports that the agency spent $65,652 on upgrading a Stingray II to a HailStorm, a more powerful version of the same device, as well as $6,000 on training from Harris Corporation.”

  The HailStorm is an upgraded version of the Stingray, which is capable of gathering the actual contents of conversations and images in addition to gathering location and numbers dialed.

  The history of the use of Stingrays is filled with secrecy, lies, and redacted documents. The FBI, the Harris Corporation, and local police departments continue to hide the details of how exactly the devices are being used. Should we trust government officials when they tell us they will get a warrant unless “exceptional circumstances” arise? Who defines what exactly “exceptional” means anyway? It would be wise for all those who value privacy and freedom to begin challenging the official narrative and investing in technologies that can counter the State’s surveillance.

  We should also take a moment to acknowledge all the activists and journalists who have been working to expose this issue for the last several years. As Christopher Soghoian, an ACLU technologist, pointed out, “This is the first ever congressional hearing on Stingrays. This is a device the FBI started using in 1995. It shouldn’t take 20 years to get a hearing on a surveillance technology.”

  It is through the work of the awakened masses that the collective springs into action. Without YOU spreading information through the internet and in the streets, this important topic would not have become part of the national dialogue. However, we must not rest. There is much work to do. For a more in-depth look at the use of Stingrays, please read this investigation.

  

  

  

  

  

• Something Just Snapped – Sudden Yen Strength Sends Crude, Copper & China, US Stocks Sliding

  Catalysts are unclear for now – whether it was stronger than expected industrial profits in China, tensions growing in the South China Sea, or more chatter of no imminent increased easing from BoJ – but broadly speaking, JPY strength (lower USDJPY) is weighing on risk assets across the world as US, Japanese, and Chinese stocks tumbles (US Treasuries bid) and crude and copper prices slump.

   

  USDJPY broke back below 120.50 (erasing its post-PBOC move)…

  

   

  And as goes JPY, so goes US equities… with the S&P giving up all its post-PBOC gains…

  

   

  JPY strength (left) and a sudden safety bid to US Treasuries (right)

  

   

  Sparking derisking in Japanese stocks (left), US equities (middle), and Crude (rightz-0

  

   

  For now paper gold prices have yet to react but Bitcoin jumped notably…

  

   

  Charts: Bloomberg

  

  

  

  

• As China 'Buys Low' To Build SPR, Washington Forced To Sell Strategic Crude To Meet Budget

  The signs of regime change are everywhere. From embarrassment by Russia's success in Syria to China's creation of its own 'World Bank' and SWIFT alternative, the trend of de-empirization are growing, but tonight's news that Washington will sell oil from its strategic reserve in order to meet budget constraints and avoid default (as China takes advantage of low prices to build its own reserves) is simply stunning in its analogy of the shifting world order.

   

  As CNN reports,

  Bipartisan congressional leaders and the White House struck a major fiscal deal in principle Monday that would raise the debt ceiling and lift budget caps on both defense and domestic programs, according to congressional sources familiar with the deal.

   

  …

   

  This deal would avoid a potential debt default on November 3, and it would reduce the chances of a government shutdown on December 11.

   

  …

   

  The deal includes $80 billion in increased defense and domestic spending over two years‎, a senior House source told CNN.

   

  …

   

  That new spending would be offset by sales from the strategic petroleum oil reserve, use of public airwaves for telecommunications companies and changes to the crop insurance program — among other measures. Moreover, the deal would spread out increases in Medicare premiums over time so beneficiaries don't feel them acutely. It would also aim to preserve the Social Security disability trust fund, sources said.

   

  Conservatives sharply panned the deal.

   

  "It's emblematic of five years of failed leadership," said Rep. Justin Amash, R-Michigan.

  So, to summarize, 'Murica – the world's reserve currency superpower and "cleanest dirty sheet in a brothel" economy is about to sell its "strategic" petroleum reserves at multi-year low prices in order to meet an ever-expanding welfare state's needs…

  

   

  As China "buys low" adding to its reserves amid the multi-year low prices…

  

  *  *  *

  Of course this move by The US is echoing what many Petrodollar States are being forced to do to (sell 'reserves' to meet social welfare needs); however, in this case, it is not some massively indebted banana republic, but The Unites States of America (oh wait!).

  *  *  *

  As we recently pointed out, there are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives.

  One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively.

   

  The other school suggests that China means to become the most powerful nation in the world – to replace the US in every way as the world’s dominant nation.

  My own appraisal is a combination of the two. China’s behaviour – not only their public stance, but their massive economic infrastructural development efforts indicate to me that they intend to go full-bore with their new economic infrastructure, giving them powers that rival and even overtake the EU and US. At that point, they will be unconcerned as to whether they will be welcomed into the “club” that is presently dominated by the EU and US. They will be an unstoppable freight train passing through town. The western world can either get on board, or fall by the wayside. The Chinese will prefer the former, as it would be more profitable and would avoid conflicts (both military and economic), but they will not be deterred.

  At this moment in time, we’re observing a part of that effort. The old structure is being slowly bulldozed and a new structure is underway. It’s very likely that, in order to assure its success, it will be a better one – one which offers its users greater freedom. We can be certain that, like all governmental constructs, it will eventually become corrupted and be just as oppressive as the one it hopes to replace. However, in its early years (and hopefully beyond that) the people of the world will enjoy a period of increased economic freedom.

  Some time ago, when we first predicted that China would create such a system, it seemed almost a fairy tale – a highly unlikely development. Yet, China has gotten there even faster than I’d expected. Let’s hope that the day when its benefits trickle down to the street level, worldwide, will also arrive more quickly than we had expected.

   

  Charts: Bloomberg

  

  

  

  

  

• Fear Of The Walking Dead: The American Police State Takes Aim

  Submitted by John Whitehead via The Rutherford Institute,

  “Fear is a primitive impulse, brainless as hunger, and because the aim of horror fiction is the production of the deepest kinds of fears, the genre tends to reinforce some remarkably uncivilized ideas about self-protection. In the current crop of zombie stories, the prevailing value for the beleaguered survivors is a sort of siege mentality, a vigilance so constant and unremitting that it’s indistinguishable from the purest paranoia.”— Terrence Rafferty, New York Times

  The zombies are back. They are hungry. And they are lurking around every corner.

  In Kansas, Governor Sam Brownback has declared October “Zombie Preparedness Month” in an effort to help the public prepare for a possible zombie outbreak.

  In New York, researchers at Cornell University have concluded that the best place to hide from the walking dead is the northern Rocky Mountains region.

  And in Washington, DC, the Centers for Disease Control and Prevention have put together a zombie apocalypse preparation kit “that details everything you would need to have on hand in the event the living dead showed up at your front door.”

  The undead are also wreaking havoc at gun shows, battling corsets in forthcoming movie blockbusters such as Pride and Prejudice and Zombies, running for their lives in 5K charity races, and even putting government agents through their paces in mock military drills arranged by the Dept. of Defense (DOD) and the Center for Disease Control (CDC).

  The zombie narrative, popularized by the hit television series The Walking Dead, in which a small group of Americans attempt to survive in a zombie-ridden, post-apocalyptic world where they’re not only fighting off flesh-eating ghouls but cannibalistic humans, plays to our fears and paranoia.

  Yet as journalist Syreeta McFadden points out, while dystopian stories used to reflect our anxieties, now they reflect our reality, mirroring how we as a nation view the world around us, how we as citizens view each other, and most of all how our government views us.

  Fear the Walking Dead—AMC’s new spinoff of its popular Walking Dead series—drives this point home by dialing back the clock to when the zombie outbreak first appears and setting viewers down in the midst of societal unrest not unlike our own experiences of the past year (“a bunch of weird incidents, police protests, riots, and … rapid social entropy”). Then, as Forbes reports, “the military showed up and we fast-forwarded into an ad hoc police state with no glimpse at what was happening in the world around our main cast of hapless survivors.”

  Forbes found Fear’s quick shift into a police state to be far-fetched, but anyone who has been paying attention in recent years knows that the groundwork has already been laid for the government—i.e., the military—to intervene and lock down the nation in the event of a national disaster.

  Recognizing this, the Atlantic notes: “The villains of [Fear the Walking Dead] aren’t the zombies, who rarely appear, but the U.S. military, who sweep into an L.A. suburb to quarantine the survivors. Zombies are, after all, a recognizable threat—but Fear plumbs drama and horror from the betrayal by institutions designed to keep people safe.”

  We’ve been so hounded in recent years with dire warnings about terrorist attacks, Ebola pandemics, economic collapse, environmental disasters, and militarized police that it’s no wonder millions of Americans have turned to zombie fiction as a way to “envision how we and our own would thrive if everything went to hell and we lost all our societal supports.” As Time magazine reporter James Poniewozik phrases it, the “apocalyptic drama lets us face the end of the world once a week and live.”

  Here’s the curious thing, however: while zombies may be the personification of our darkest fears, they embody the government’s paranoia about the citizenry as potential threats that need to be monitored, tracked, surveilled, sequestered, deterred, vanquished and rendered impotent.

  Why else would the government feel the need to monitor our communications, track our movements, criminalize our every action, treat us like suspects, and strip us of any means of defense while equipping its own personnel with an amazing arsenal of weapons?

  For years now, the government has been carrying out military training drills with zombies as the enemy. In 2011, the DOD created a 31-page instruction manual for how to protect America from a terrorist attack carried out by zombie forces. In 2012, the CDC released a guide for surviving a zombie plague. That was followed by training drills for members of the military, police officers and first responders.

  As journalist Andrea Peyser reports:

  Coinciding with Halloween 2012, a five-day national conference was put on by the HALO Corp. in San Diego for more than 1,000 first responders, military personnel and law enforcement types. It included workshops produced by a Hollywood-affiliated firm in…overcoming a zombie invasion. Actors were made up to look like flesh-chomping monsters. The Department of Homeland Security even paid the $1,000 entry fees for an unknown number of participants…

  “Zombie disaster” drills were held in October 2012 and ’13 at California’s Sutter Roseville Medical Center. The exercises allowed medical center staff “to test response to a deadly infectious disease, a mass-casualty event, terrorism event and security procedures”… 

  [In October 2014], REI outdoor-gear stores in Soho and around the country are to hold free classes in zombie preparedness, which the stores have been providing for about three years.

  The zombie exercises appear to be kitschy and fun—government agents running around trying to put down a zombie rebellion—but what if the zombies in the exercises are us, the citizenry, viewed by those in power as mindless, voracious, zombie hordes?

  Consider this: the government started playing around with the idea of using zombies as stand-ins for enemy combatants in its training drills right around the time the Army War College issued its 2008 report, warning that an economic crisis in the U.S. could lead to massive civil unrest that would require the military to intervene and restore order.

  That same year, it was revealed that the government had amassed more than 8 million names of Americans considered a threat to national security, to be used “by the military in the event of a national catastrophe, a suspension of the Constitution or the imposition of martial law.” The program’s name, Main Core, refers to the fact that it contains “copies of the ‘main core’ or essence of each item of intelligence information on Americans produced by the FBI and the other agencies of the U.S. intelligence community.”

  Also in 2008, the Pentagon launched the Minerva Initiative, a $75 million military-driven research project focused on studying social behavior in order to determine how best to cope with mass civil disobedience or uprisings. The Minerva Initiative has funded projects such as “Who Does Not Become a Terrorist, and Why?” which “conflates peaceful activists with ‘supporters of political violence’ who are different from terrorists only in that they do not embark on ‘armed militancy’ themselves.”

  In 2009, the Dept. of Homeland Security issued its reports on Rightwing and Leftwing Extremism, in which the terms “extremist” and “terrorist” were used interchangeably to describe citizens who were disgruntled or anti-government.

  Meanwhile, a government campaign was underway to spy on Americans’ mail, email and cell phone communications. News reports indicate that the U.S. Postal Service has handled more than 150,000 requests by federal and state law enforcement agencies to monitor Americans’ mail, in addition to photographing every piece of mail sent through the postal system.

  Fast forward a few years more and you have local police being transformed into extensions of the military, taught to view members of their community as suspects, trained to shoot first and ask questions later, and equipped with all of the technology and weaponry of a soldier on a battlefield.

  Most recently, the Obama administration hired a domestic terrorism czar whose job is to focus on anti-government American “extremists” who have been designated a greater threat to America than ISIS or al Qaeda. As part of the government’s so-called war on right-wing extremism, the Obama administration has agreed to partner with the United Nations to take part in its Strong Cities Network program, which will train local police agencies across America in how to identify, fight and prevent extremism.

  In other words, those who believe in and exercise their rights under the Constitution (namely, the right to speak freely, worship freely, associate with like-minded individuals who share their political views, criticize the government, own a weapon, demand a warrant before being questioned or searched, or any other activity viewed as potentially anti-government, racist, bigoted, anarchic or sovereign), have just been promoted to the top of the government’s terrorism watch list.

  Noticing a pattern yet?

  “We the people” or, more appropriately, “we the zombies” are the enemy in the eyes of the government.

  So when presented with the Defense Department’s battle plan for defeating an army of the walking dead, you might find yourself tempted to giggle over the fact that a taxpayer-funded government bureaucrat actually took the time to research and write about vegetarian zombies, evil magic zombies, chicken zombies, space zombies, bio-engineered weaponized zombies, radiation zombies, symbiant-induced zombies, and pathogenic zombies.

  However, in an age of extreme government paranoia, this is no laughing matter.

  The DOD’s strategy for dealing with a zombie uprising, outlined in “CONOP 8888,” is for all intents and purposes a training manual for the government in how to put down a citizen uprising or at least an uprising of individuals “infected” with dangerous ideas about freedom.

  Rest assured that the tactics and difficulties outlined in the “fictional training scenario” are all too real, beginning with martial law.

  As the DOD training manual states: “zombies [read: “activists”] are horribly dangerous to all human life and zombie infections have the potential to seriously undermine national security and economic activities that sustain our way of life. Therefore having a population that is not composed of zombies or at risk from their malign influence is vital to U.S. and Allied national interests.”

  So how does the military plan to put down a zombie (a.k.a. disgruntled citizen) uprising?

  The strategy manual outlines five phases necessary for a counter-offensive: shape, deter, seize initiative, dominate, stabilize and restore civil authority. Here are a few details:

  Phase 0 (Shape): Conduct general zombie awareness training. Monitor increased threats (i.e., surveillance). Carry out military drills. Synchronize contingency plans between federal and state agencies. Anticipate and prepare for a breakdown in law and order.

   

  Phase 1 (Deter): Recognize that zombies cannot be deterred or reasoned with. Carry out training drills to discourage other countries from developing or deploying attack zombies and publicly reinforce the government’s ability to combat a zombie threat. Initiate intelligence sharing between federal and state agencies. Assist the Dept. of Homeland Security in identifying or discouraging immigrants from areas where zombie-related diseases originate.

   

  Phase 2 (Seize initiative): Recall all military personal to their duty stations. Fortify all military outposts. Deploy air and ground forces for at least 35 days. Carry out confidence-building measures with nuclear-armed peers such as Russia and China to ensure they do not misinterpret the government’s zombie countermeasures as preparations for war. Establish quarantine zones. Distribute explosion-resistant protective equipment. Place the military on red alert. Begin limited scale military operations to combat zombie threats. Carry out combat operations against zombie populations within the United States that were “previously” U.S. citizens.

   

  Phase 3 (Dominate): Lock down all military bases for 30 days. Shelter all essential government personnel for at least 40 days. Equip all government agents with military protective gear. Issue orders for military to kill all non-human life on sight. Initiate bomber and missile strikes against targeted sources of zombie infection, including the infrastructure. Burn all zombie corpses. Deploy military to lock down the beaches and waterways.

   

  Phase 4 (Stabilize): Send out recon teams to check for remaining threats and survey the status of basic services (water, power, sewage infrastructure, air, and lines of communication). Execute a counter-zombie ISR plan to ID holdout pockets of zombie resistance. Use all military resources to target any remaining regions of zombie holdouts and influence. Continue all actions from the Dominate phase.

   

  Phase 5 (Restore civil authority): Deploy military personnel to assist any surviving civil authorities in disaster zones. Reconstitute combat capabilities at various military bases. Prepare to redeploy military forces to attack surviving zombie holdouts. Restore basic services in disaster areas.

  Notice the similarities?

  Surveillance. Military drills. Awareness training. Militarized police forces. Martial law.

  As I point out in my book, Battlefield America: The War on the American People, if there is any lesson to be learned, it is simply this: whether the threat to national security comes in the form of actual terrorists, imaginary zombies or disgruntled American citizens infected with dangerous ideas about freedom, the government’s response to such threats remains the same: detect, deter and annihilate.

  To return to AMC’s Fear the Walking Dead: it’s the police state “tasked with protecting the vulnerable” that poses some of the gravest threats to the citizenry.

  From the Atlantic:

  When the military arrives, mowing down hostile “walkers” with ease, setting up camp to screen out any further infection, the moment is presented with an ironic note of triumph. The main character, Travis Manawa (Cliff Curtis), tells his group they can rest easy—help has finally arrived… As the soldiers begin hauling anyone spiking a fever away to quarantine zones, Travis insists their intentions are noble while the rest of his family begins to realize the military doesn’t really have a plan except to crush any potential threat. Are you a zombie? They’ll shoot you in the head. Do you look sick? You’re probably about to be a zombie. Do you have a problem with their approach? Then they have a problem with you, too.

  One of the show’s most brilliant touches has been the characterization of the soldiers themselves, not as impassive robots hell-bent on enforcing martial law, but as worryingly recognizable guys around town. Whenever Travis pleads with his local commander to address community fears and complaints, he might as well be talking to an ornery bowling buddy. The soldiers are tetchy and irritable rather than monstrous, clearly overwhelmed by the impossible situation they face, and granted authority through the guns in their hands and little else. In a pivotal scene, one of them tries to cajole Travis into firing a killshot at a distant zombie through a sniper scope, even though he knows Travis believes there might be a cure. The soldiers insist the zombies are dead beyond salvation—an unfortunate truth on the show, but also a sad reflection of just how dehumanized the enemy can become in the midst of war.

  The latest episode, “Cobalt,” revealed the military’s endgame: With the zombie situation deteriorating, they plan to flee and wipe out everyone they leave behind, at this point motivated only by the need to survive, rather than to protect. Countering that is the family unit that has forged new bonds in the crisis. These organically loyal communities, the writers Robert Kirkman and David Erickson argue, are the only kind that can survive in such a world… More than anything, Fear the Walking Dead is a drama about occupation, the breakdown of society, and the ease with which seemingly decent people can decide that might makes right. Like any dystopian fiction, it’s easy to dismiss as fantasy, but remove the zombies and Fear could be taking place in dozens of real-world locations… This is happening here, Kirkman and Erickson are saying, but it could happen anywhere.

   

  

  

  

  

  

• Greek Creditors Refuse To Make Next Loan Payment – German Press

  At first it was cute: when Greece got its first “dramatic” bailout in 2010 sending the global markets and the EUR first plunging then soaring, it was a melodrama of sorts – people still cared.

  Then, by the time the second and third bailouts rolled around, especially in the aftermath of the most ridiculous referendum in modern history, where a majority of Greeks voted for one thing only to get the other, it became a tragicomedy in what everyone hoped would be its final, “German colonial” season.

  It wasn’t.

  Moments ago, Germany’s Suddeutsche Zeitung reported that just two (or is it three, this past summer is one big blur) months after Greece voted through its third bailout, one which will raise its debt/GDP to over 200% on a fleeting promise that someone, somewhere just may grant Greece a debt extension (which will do absolutely nothing about the nominal amount of debt), its creditors have already grown tired with the game and are refusing to pay the next Greek loan tranche of €2 billion.

  Specifically, the payment of the first €2b tranche of €3b is now sait to be delayed because Greek Prime Minister Alexis Tsipras failed to implement reforms on schedule, Sueddeutsche Zeitung reports, citing unidentified senior EU official.

  Wait, you mean the Greeks (over)promised and never delivered? Who could have possibly seen this coming?

  Not the unidentified EU official who blasts Athens as having implemented only a third of the required projects.

  As a result, the tranfer probably will only take place in November, if then, since only 14 of the 48 “milestones” linked to payments have been decided on.

  The report goes on to tell us what we already knew: talks between the government in Athens and the Troika + the ESM (or Quadriga, or whatever it’s called) ended last week without success.

  SZ goes into the unpleasant details, noting that there are inconsistencies in how the banks deal with bad loans, estimated that 320 000 apartment owners have mortgage payments in arrears, threatened with foreclosures, evictions, and so on.

  In other words, the Greek holiday from being held accountable for anything which started in July and lasted until October is over.

  * * *

  Yet, there is still hope: in a separate report, Germany’s Bild tabloid cites Deutsche Bank analysts as anticipating a debt reduction for Greece of €200 billion by year-end, and amount which Bild conveniently calculates corresponds to €700 per inhabitant of the Eurozone.

  It adds that, as noted above, Greek debt would total €340b by year-end, or 200% of Greek GDP, some 140% higher than allowed by European treaties.

  It concludes by citing Lueder Gerken, Chairman of the Centre for European Policy, as saying that a Greek “haircut is economically inevitable, as well as a fourth rescue package.”

  That much is known.

  What is not known is why, out of the blue, the German press decided to remind the public of the Greek disaster story. After all, thanks to the refugee crisis and Volkswagen, Germany has a whole new set of problems to worry about. Or perhaps, it is time to find a diversion from those, and what better antagonist to focus on than the recently annexed Mediterranean colony which is the European ground zero of so many refugee adventures.

  * * *

  That said, the endless Greek default fiasco is no longer funny, or sad, or tragic, or exciting, or anything – the Greek people eagerly voted for their own doom; they only have themselves to blame this time. 

  

  

  

  

  

  

• Caught On Tape: China Commodity Barge Sinks In Seconds

  As those who follow China’s hard landing economic deceleration closely are no doubt aware, Beijing has an excess capacity problem. Recall the following from a report released last month by Daiwa’s Institute of Research:

   The sense of surplus in China’s supply capacity has been indicated previously. This produces the risk of a large-scale capital stock adjustment occurring in the future. Chart 6 shows long-term change in China’s capital coefficient (= real capital stock / real GDP). This chart indicates that China’s policies for handling the aftermath of the financial crisis of 2008 led to the carrying out of large-scale capital investment, and we see that in recent years, the capital coefficient has been on the rise. Recently, the coefficient has moved further upwards on the chart, diverging markedly from the trend of the past twenty years. It appears that the sense of overcapacity is increasing. 

  
  

  

  Fortunately, China is adept at coming up with creative ways to “correct” the issue as we saw in Tianjin when a massive (and tragic) explosion at a chemical warehouse vaporized thousands of brand new cars parked near the blast site. 

  Now, Beijing is apparently working on innovative ways to get rid of unwanted building materials as evidenced by the following video which purports to show a “gravel boat” on a Chinese river…

  

  

  

  

  

• In Latest Obamacare Fiasco, Most Low-Income Workers Can't Afford "Affordable Care Act"

  Just ten days ago we described the latest unintended (we hope) consequence of the Affordable Care Act known as Obamacare, when Colorado’s largest nonprofit co-op health insurer and participant in that state’s insurance exchange, Colorado HealthOP, announcing it was abruptly shutting down ahead of the November 1 start of enrollment for 2016, forcing 80,000 Coloradans to find a new insurer for 2016.

  It wasn’t the first: the Colorado co-op was at least the fifth in the nation to collapse. Similar nonprofit insurers have already failed in Louisiana, Iowa/Nebraska, Nevada and New York. A health insurance cooperative in Tennessee announced this week that it would stop offering new policies.

  The insurer failed because it would fail to be profitable, in the process burning through $23 million in taxpayer-funded loss that would not be repaid.  “Taxpayers are on the hook for millions of dollars in loans given out to the CO-OP, money that will likely never be repaid,” U.S. Sen. Cory Gardner said in a statement after the announcement.

  And while many had anticipated from the beginning that the Obamacare tax was merely a subsidy for the large insurance companies (or rather, their public shareholders), few had expected a far more sinister consequence of the “Affordable” care plan: that the employer mandate would turn out to be unaffordable for a vast majority of low-income workers – the very people who were supposed to benefit from it.

  But before we unveil this latest depressing, if also anticipated, outcome of socialized healthcare, let’s remember that much of the U.S. has press has touted the success of Obamacare. To be sure, nationwide, the Affordable Care Act has significantly reduced the number of Americans without health insurance. Around 10.7% of the country’s under-65 population was uninsured in the first three months of this year, down from 17.5% five years earlier, according to the National Health Interview Survey, a long-running federal study. Some 14 million previously uninsured adults have gained coverage in the last two years, the Obama administration estimates.

  However, what is left unsaid is that most of those gains have come from a vast expansion of Medicaid and from the subsidies that help lower-income people buy insurance through federal and state exchanges. Workers who are offered affordable individual coverage through their employers — a group that the employer mandate was intended to expand — are not eligible for government-subsidized insurance through the exchanges, even if their income would otherwise have qualified them.

  It is the failing of Obamacare to address the needs of America’s struggling lower-middle class, those women and men who work long, hard hours, often at minimum wage, scrambling to make ends meet. It is them, that the NYT writes about in its recent scathing critique of Obamacare (traditionally, it has been the WSJ that gives scathing reports on the disaster that is Obamacare, usually involving soaring monthly premiums for those who were dragged into the Scotus-enabled tax beyond their will).

  Take the case of Billy Sewell who began offering health insurance this year to 600 service workers at the Golden Corral restaurants that he owns. He wondered nervously how many would buy it. Adding hundreds of employees to his plan would cost him more than $1 million — a hit he wasn’t sure his low-margin business could afford. His actual costs, though, turned out to be far smaller than he had feared. So far, only two people have signed up.

  “We offered, and they didn’t take it,” he said.

  But isn’t that against the stated primary objective of Obamacare: to make affordable health insurance more accessible and affordable to everyone? The answer, according to the NYT, is no.

  The Affordable Care Act’s employer mandate, which requires employers with more than 50 full-time workers to offer most of their employees insurance or face financial penalties, was one of the law’s most controversial provisions. Business owners and industry groups fiercely protested the change, and some companies cut workers’ hours to reduce the number of employees who would be eligible.

   

  But 10 months after the first phase of the mandate took effect, covering companies with 100 or more workers, many business owners say they are finding very few employees willing to buy the health insurance that they are now compelled to offer. The trend is especially pronounced among smaller and midsize businesses in fields filled with low-wage hourly workers, like restaurants, retailing and hospitality. (Companies with 50 to 99 workers are not required to comply with the mandate until next year.)

  Hold on, aren’t those some of the “best” performing job categories in the past year? Why yes they are, in fact, with 11.1 million workers, those employed by “food service and drinking places” are the single largest job subcategory tracked by the BLS. It is almost as if the bulk of the jobs growth went to fields that would be mostly disadvantaged by Obamacare.

  Well, there may be millions of waiters and bartenders in the US, but contrary to what Obamacare promised the vast majority are and will remain uninsured:

  “Based on what we’ve seen in the marketplace, we’re advising some of our clients to expect single-digit take rates,” said Michael A. Bodack, an insurance broker in Harrison, N.Y. “One to 2 percent isn’t unusual.”

  The reason? What was supposed to be affordable remains painfully unaffordable for the lowest rung of the employment pyramid.

  Here is the actual math as experienced by both the abovementioned Mr. Sewell of Golden Corral restaurants, and his mostly minimum-wage employees.

  He employs 1,800 people at the 26 Golden Corral franchises he owns in six Southern and Midwestern states, and previously offered insurance only to his salaried management staff. In January, when the employer mandate took effect, he made the same insurance plan, with a bigger employer contribution, available to all employees working an average of 30 or more hours a week.

  Running the math on his plan — a typical one for the restaurant industry — illustrates why a number of low-wage workers are falling through gaps in the Affordable Care Act.

  The annual premium for individual coverage through the Golden Corral Blue Cross Blue Shield plan is $4,800. Mr. Sewell pays 65 percent for service workers, leaving them with a monthly cost of $140.

  The health care law defines affordable employer-sponsored insurance as that priced at 9.5 percent or less of an employee’s annual household income for individual coverage. (Because employers do not know how much money their workers’ relatives make, there are several “safe harbors” they can use for compliance, including basing their calculation on only their own employees’ wages.) Mr. Sewell’s insurance meets the test, but $65 per biweekly paycheck is more than most of his workers are willing — or able — to pay for insurance that still carries steep out-of-pocket costs, including a $2,500 deductible.

  And this is where Obamacare’s employee mandate fails for a vast majority of US workers.

  Clarissa Morris, 47, has been a server at the Golden Corral here for five years, earning $2.13 an hour plus tips. On a typical day, she leaves the restaurant with about $70 in tips. Her husband makes $9 an hour at Walmart but has been offered only a part-time schedule there, without benefits. Their combined paychecks barely cover their rent and daily essentials.

  “It’s either buy insurance or put food in the house,” she said. On the rare occasions that she gets sick, she visits a local clinic with sliding-scale fees. It costs her $25 for a visit, and $4 to fill prescriptions at Walmart.

  Other business owners find the same paradox: 

  Brad Mete, the managing partner of Affinity Resources, a staffing agency in Dania Beach, Fla., began offering insurance this year to most of his workers only because the law required it. He said the alternative, paying a penalty of about $2,000 per full-time employee, was unthinkable, “That would put us out of business, in one swoop.”

   

  Trying to persuade his hourly workers to buy the insurance is “like pulling teeth,” he said. His company’s plan costs $120 a month, but workers making about $300 a week are reluctant to spend $30 of it on insurance.

  That’s ok – if you beleive the Obama administration, wages are about to soar.

  Or maybe not.

  What is truly tragic, however, that just like in the case of “punishing work” when Earned Income Tax benefits for those living around the poverty line, see their after tax pay rise above what comparable workers who make up to $50k per year, Obamacare seems to have been designed only for those making above the median US wage and above:

  A study by ADP, the payroll processing giant, found an income tipping point at which most employees who are eligible for health insurance will buy it: $45,000 a year.

   

  Workers making $15,000 to $20,000 a year buy employer-sponsored individual insurance when it is offered only 37 percent of the time. That rate rises at every income increment ADP studied until $45,000, when it reaches 82 percent and levels off. Further income gains have virtually no effect on the rate, ADP found.

  And so the wheels slowly fall off the socialized healthcare train:

  Low-income, full-time workers like Ms. Morris may prove to be some of the hardest people to bring into the ranks of the insured, said Gary Claxton, a vice president at the Kaiser Family Foundation, which conducts an annual study on employer health benefits.

   

  “This is one of the outcomes of trying to keep employer-based coverage in place,” Mr. Claxton said. “These are folks that didn’t have coverage before, and they’re not being given much help to get coverage now.”

  Then, now that the disastrous law has been observed in practice, the result is nothing short of a bureaucratic nightmare, and everyone is scrambling to find loopholes:

  Mario K. Castillo, a lawyer in Houston who has extensively studied the new law, said it was poorly understood in the industry, and a bureaucratic nightmare.

   

  “They have to issue you a policy, but dropping it after one year is perfectly legal,” he said. “If you’re in this space, you essentially have to shop for insurance every year.”

  But the biggest slap in Obama’s care comes from those who were supposed to be the direct beneficiaries.

  For employees, forgoing coverage can mean facing tax penalties. Ms. Morris said she was surprised by the $95 fee she had to pay this year for being uninsured in 2014. “I had kind of heard about it, but I didn’t think it was going to kick in until later,” she said.

   

  Around 7.5 million taxpayers paid the fine, according to a preliminary report by the Internal Revenue Service. That is significantly more than the three million to six million the government had forecast.

  Actually, considering central planning and government takeover of private industries always leads to disaster, it is more surprising that the number isn’t far, far greater.

  As for those tens of millions of minimum wage workers, who thought they had a right to “hope” for “change”, and instead ended up even worse off – as well as unisnured and paying a penalty –  our apologies, especially since it is all downhill from here. What you should have done is buy the stock of health insurance companies: because their shareholders’ gain (and your loss) is what the “Affordable” Care Act is truly all about.

  

  

  

  

  

• Schadenfreude – How The US Is Helping China Create A New Financial Order

  Submitted by Jeff Thomas via InternationalMan.com,

  

  Here we have an image of a Chinese banknote, featuring Chairman Mao, followed by a seemingly incongruous German word – schadenfreude. Is there an error here?

  Happily, no. We’ll begin with the word, schadenfreude, which means “harm-joy.” It’s used to express an occurrence that’s destructive, yet brings about happiness.

  This would seem to be a conflict in terms, but, looked at a bit more deeply, it could be said that the killing of an enemy may mean that peace will soon prevail – and so the event brings happiness. Or, another analogy: the bulldozing of an old structure may mean that a new one – a better one – will soon be under construction.

  And that’s the case here. The world’s most powerful (and most oppressive) political/economic power structure has begun to go under the bulldozer. Its replacement will hopefully be a better one.

  The Brussels SWIFT system is currently the largest economic settlement system in the world. Almost all financial transfers are made possible through this system. As such, those who control SWIFT have the power to threaten financial institutions and sovereign nations that, if they don’t do as they’re told, can be denied access to the system.

  The controllers of SWIFT have been far from fair in making these judgements. Much of their agenda has been provided by the Organisation for Economic Co-operation and Development (OECD), a cabal made up of many of the world’s most powerful nations, but primarily Europe and the US. The US is the heavy here and they’ve used their power to create FATCA, a means of applying draconian economic pressures on their own citizens. In doing so, they’ve also succeeded in creating a global shakedown racket aimed at financial institutions. If a bank anywhere in the world is found to have a US citizen as a client and the bank fails to regulate that client sufficiently, the bank itself is “held up” – the US imposes a massive fine on the bank.

  Editor’s Note: If you have never heard of FATCA before I can’t blame you. That so few people understand what it is, is perhaps not surprising. Often, otherwise offensive government actions and institutions are given dull and opaque names to obfuscate their true purpose. Obama signed FATCA into law in 2011. To understand what this odious law that is all about, see here.

  Not surprisingly, the banks of the world (other than the central banks, which are not targeted by FATCA) live in dreaded fear of making the slightest error in trying to please the US government. They’ve been learning that although FATCA claims to be aimed primarily at its non-compliant citizens, there have been other targets. The US government has used the opportunity to go after the bigger fish – the banks themselves.

  Again, the reason for this success in creating this shakedown racket has hinged on US control over the levers of the international financial system – the fear in financial institutions that the US could simply end the banks’ ability to do business if they don’t pay the outrageous fines.

  But this scam only works as long as there is no competitor to the US system. Should there be a free market in the transfer of money – should there be even one competitor in the world – one that does not impose economic mafia-tactics, the potency of the US’ threat would collapse. At that point, business and sovereign nations may cease their use of SWIFT and move over to the new competitor.

  Cross-border Interbank Payment System (CIPS)

  And here is where schadenfreude steps in. China has had their own independent settlement system in the works for some time and it has now been introduced.

  But, before opening up a bottle of bubbly, it would be wise to acknowledge that full implementation may take a few years. It will begin as a means by which to settle oil and gas accounts in keeping with agreements that already exist between China and other nations. As CIPS gains strength, its use will spread outward. This is a virtual certainty, as the more it spreads, the greater the Chinese influence over such entities as the IMF.

  And CIPS will not simply replace SWIFT. What will occur will be that it will be presented as a system that can work alongside SWIFT and interface with it. (e.g., if Germany wishes to have enough natural gas to heat its houses in the winter, Russia would require that the payments for Russian gas be settled through the use of CIPS.)

  The final holdout will be the US, as it has so much more to lose. However, once isolated as the only country that avoids the use of CIPS, demands from China that interfacing take place will force the US to either get on board, or be unable to acquire foreign (particularly Chinese) goods.

  At some point along the way, increasing numbers of the world’s banks will cease to query account applicants as to whether they hold a US passport. They will only wish to know if the applicant has access to CIPS. Over time, the FATCA shakedown will die away, as its driving force – intimidation of the world’s banks – will no longer have teeth.

  Other Developments

  In parallel to the creation of CIPS, China has created the Asian Infrastructure Investment Bank (AIIB). This, together with agreements with Russia and other nations (including some EU nations), has made possible the sale of oil to be settled in yuan.

  The yuan has also overtaken the yen as the fourth most-used currency for international settlement. Next target: the pound, then the euro, then the US dollar.

  How Will It All Shake Out?

  There are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives.

  One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively.

   

  The other school suggests that China means to become the most powerful nation in the world – to replace the US in every way as the world’s dominant nation.

  My own appraisal is a combination of the two. China’s behaviour – not only their public stance, but their massive economic infrastructural development efforts indicate to me that they intend to go full-bore with their new economic infrastructure, giving them powers that rival and even overtake the EU and US. At that point, they will be unconcerned as to whether they will be welcomed into the “club” that is presently dominated by the EU and US. They will be an unstoppable freight train passing through town. The western world can either get on board, or fall by the wayside. The Chinese will prefer the former, as it would be more profitable and would avoid conflicts (both military and economic), but they will not be deterred.

  At this moment in time, we’re observing a part of that effort. The old structure is being slowly bulldozed and a new structure is underway. It’s very likely that, in order to assure its success, it will be a better one – one which offers its users greater freedom. We can be certain that, like all governmental constructs, it will eventually become corrupted and be just as oppressive as the one it hopes to replace. However, in its early years (and hopefully beyond that) the people of the world will enjoy a period of increased economic freedom.

  Some time ago, when I first predicted that China would create such a system, it seemed almost a fairy tale – a highly unlikely development. Yet, China has gotten there even faster than I’d expected. Let’s hope that the day when its benefits trickle down to the street level, worldwide, will also arrive more quickly than I had expected.

  *  *  *

  Because this risk and others have made our financial system a house of cards, we’ve published a groundbreaking step-by-step manual on how to survive, and even prosper, during the next financial crisis. New York Times best-selling author Doug Casey and his team describe the three ESSENTIAL steps every American should take right now to protect themselves and their family.

  These steps are easy and straightforward to implement. You can do all of these from home, with very little effort. Click here to learn more.

  

  

  

  

  

• Meet The "Million Dollar Shack": Documentary Lays Bare California's Housing Bubble

  “It’s almost impossible to find a home from San Jose to San Francisco for less than a million dollars.” 

  That’s a quote from a short documentary entitled “Million Dollar Shack: Trapped in Silicon Valley’s Housing Bubble” which comprises 23 minutes of sheer, unadulterated comedy even as it very effectively critiques the extent to which America has learned absolutely nothing from the meltdown in 2008.

  This clip has it all: absurd prices for rundown properties, soaring costs for rentals, even a tent in someone’s backyard that goes for $46 a night (you get an extension cord, one shower a day, and wi-fi) and all courtesy of i) greed, ii) an utter inability to learn from the past, and iii) the meteoric rise of Silicon Valley “unicorns” with stratospheric valuations.

  To say “this won’t end well” would be an understatement…

  

  

  

  

• Is The Yield Curve Still A Dependable Signal?

  Authored by Michael Lebowitz via 720Global.com,

  Over the last 30 years, there has been a widely held belief, supported by data, in the predictive powers of the “slope” of the yield curve. The slope of the yield curve is a simple calculation comparing interest rates of various maturity terms. Traditionally, the slope of the yield curve is measured by the difference between interest rates of shorter term government debt, such as the 3-month Treasury Bills or 2-year Treasury Notes, and long-term government debt such as 10-year Treasury Notes and 30-year Treasury Bonds. A steep yield curve, where long term government yields are significantly higher than short ones, implies economic expansion in months and quarters ahead. A flat or inverted yield curve, where long term government yields are not much higher or are even lower than short term ones, implies economic weakness and heightened recession risks ahead.

  The past is not always prologue for the future so we ask the following question: Do the normal rules apply when the Federal Reserve (Fed) has lowered the Federal Funds rate to unprecedented levels for over 7 years and quadrupled the money supply? Questioning the value of traditional analysis is not only appropriate, it is necessary, if one is to effectively perform economic analysis given the unique nature of central bank actions.

  Traditional Yield Curve Analysis

  Below we graphically represent the slope of the yield curve and recessionary periods to demonstrate the predictive relationship. The first chart plots the yield on 2-year Treasury notes and the yield on 10-year Treasury notes. The subsequent chart shows the difference between 2-year Treasury Note yields and 10-year Treasury Note yields, otherwise known as the “2’s-10’s curve”. To highlight the predictive nature of the yield curve, periods where the curve was inverted are plotted in red and recessions are highlighted with yellow bars.

  

  

  The simple deduction from the second chart is that when the yield curve, as measured by the 2’s-10’s curve, has inverted the U.S. economy entered a recession within a relatively short period of time.

  Based solely upon the precedent of the last 30-years and the slope of the curve today (1.42%), one might conclude that there is relatively little reason to worry about a pending U.S. recession. In fact, current levels are similar to those when recession typically ended and prolonged periods of economic growth began.

  As proposed in the introduction, Fed monetary policy is far from normal. Investors therefore need to understand that the unprecedented nature of Fed policy and the fact that the Fed Funds rate has been pegged at zero since December 2008 likely plays a larger part in influencing the shape of the curve than in times past. This unprecedented posture by the Fed is distorting not only the price of money through interest rates but also economic activity. Shorter maturity instruments such as the 2-year Treasury note are heavily swayed by the monetary policy stance established by the Fed while longer maturity instruments such as the 10-year Treasury tend to be largely driven by the rate of inflation and economic activity. By keeping short rates artificially low through a zero Fed Funds target rate policy, the Fed is heavily influencing short-term interest rates and causing the yield curve to be artificially steep. One way to test this theory is to use the Taylor Rule as an alternative Fed Funds target guide.

  The Taylor Rule

  The Taylor Rule, proposed by Stanford economist John Taylor in 1993, sets forth a prescriptive policy benchmark for the Fed Funds target rate based upon the state of the economy using the rate of inflation and actual economic growth relative to potential growth. This formula not only suggests what Fed interest rate policy should be but also serves as a useful measure of the aggressiveness of prior Fed policy.

  Currently, the Taylor rule suggests that the Fed Funds target rate should be approximately 2.85%. With current 2-year Treasury yields at 0.60% and 10-year Treasury yields at 2.02%, the 2’s-10’s curve is 1.42%. If the Fed were to follow the Taylor Rule and the Fed Funds rate were reset accordingly, the yield curve would become significantly inverted, with the assumption that 2-year yields rise pro-rata with Fed Funds as is typical. In fact, the yield curve would be more inverted than at any time in the last 30 years and signaling an imminent recession. The chart below compares the current 2’s-10’s curve versus a Taylor Rule-inspired curve.

  

   

   

  Net Interest Margin

  Another yield curve derived tool used to assess the economic outlook is the state of financial institutions’, predominately banks, net interest margins (NIM). Banks generate a substantial portion of their income from the difference between the yield at which they borrow and the yield at which they lend. The inputs to NIM from a financial statement perspective are interest income minus interest expense. Historically, when the yield curve flattens, the ability of banks to generate income is challenged because the rate at which banks borrow converges towards the yield earned on loans and investments (NIM declines). When NIMs contract, banks tend to engage in less lending activity, constricting economic growth and adding further pressure on the slope of the yield curve to flatten. This self-reinforcing cycle is usually broken when the Fed lowers the Fed Funds rate, which tends to steepen the yield curve and increase NIMs. The chart below compares the relationship of the traditional 2’s-10’s curve and NIM. The red circles emphasize periods where the yield curve was inverted, which ultimately led to recessions.

  Clearly a strong correlation exists between the slope of the yield curve and NIM. The chart also reflects that although the 2’s-10’s curve remains steep today, banks NIMs have declined to their lowest levels in over 30 years and are below those associated with an inverted yield curve preceding U.S. recessions.

  

  In the world of a zero interest rate policy, NIM may be a more valid indicator of future economic activity. In other words, economic forecasts based on the shape of the traditional curve may not be as relevant given the unprecedented monetary policy actions of the Fed. Very low levels of interest rates are squeezing bank profits which is one of the key drivers of lending activity and a primary determinant of economic activity. Growth of the U.S. economy, even at today’s below trend pace, is more dependent than ever on a continuation of credit growth. If bank lending activity is challenged as a result of declining NIM, it would stand to reason that NIM may serve as a useful indicator of potential economic weakness. The graph below serves as a reminder of what happened the only time credit growth declined in the last 65 years – the U.S. experienced the largest financial crisis since the Great Depression.

  

   

  Conclusion – Debt Drives Growth

  Economic growth for the last 30 years has been increasingly funded by debt. For this scheme to continue, there must be increased incentives for the private sector to lend money. Since 1985 the incentive to lend, measured by NIM, has never been worse.

  The Fed is currently contemplating raising short-term interest rates. If they follow through, the effect on NIM could slow economic growth. Historical periods of rate increases generally correspond with a flattening of the yield curve. The chart below highlights periods when the Fed initiated rate increases (red circles) and the corresponding reaction of the yield curve flatter (red arrows). Raising short-term rates, all else equal, would increase bank borrowing rates which would further reduce NIM.

  

  The bottom line is that NIM and the Taylor Rule-adjusted curve are both flashing warning signs of economic recession, while the traditional yield curve signal is waving the all clear flag. Given the Fed actions of the last several years – sustained crisis policy of zero short term rates and multiple rounds of quantitative easing – it seems prudent to consider potential distortions to traditional indicators. Using the shape of the yield curve as an indicator for the economic outlook requires more supporting evidence for validation. In this case, NIM and the Taylor Rule-adjusted curve contradict the traditional curve’s signal for the economic outlook.

  To the extent the Federal Reserve decides to increase interest rates, it should be apparent that such a move would be inconsistent with their prior actions. In fact, it may likely be a desperate effort to re-load the monetary policy gun as opposed to a signal of domestic economic strength. Not only is this a departure from the past, this would lead many to question the Fed’s motives. It is worth keeping in mind that blind trust and confidence in the Fed has propelled many markets much higher than fundamentals justify.

   

  See full PDF below.Curve Ball 10.26.2015

  

  

  

  

  

• What Recovery? Record Number Of Americans Become Blood Plasma "Sellers" To Make Ends Meet

  Having previously explained President Obama's recovery in charts, we thought words and pictures would be a better indicator of the dire situation facing so many Americans that get missed by the business media's spotlight. With 9.4 million more Americans below the poverty line than before the crisis, as The LA Times reports, it's disturbing to see so many people so destitute – even if they're working – that they've resorted to selling body fluids to make ends meet. The going rate for plasma donation, which can take a couple of hours, is about $25 or $30. But Octapharma is offering $50 for the first five visits, "when you get that $50, you feel good," one plasma 'seller' said, "I paid my gas bill."

  Despite the Fed continuing to kick this down the road, they continue to claim that we are in the middle of an ongoing recovery. There’s just one problem with that: things are getting worse than pre-crisis levels for millions of the poorest Americans.

  

   

  Obamanomics illustrated…

  

   

  But it gets worse, as 1000s of unemployed (and under-employed) Americans resort to selling their blood plasma to make ends meet (as The LA Times reports)

  "The line was too long," a middle-aged woman named Joyce Rogers said as she got into her car outside Octapharma Plasma in Van Nuys.

   

  Rogers, a certified nurse assistant, told me she was going to a job interview and would return later to see if the line had thinned. But it seldom seems to. I've seen dozens of people reclined on lounges, fat 17-gauge needles in their arms, while dozens more wait in the packed lobby and the parking lot, some of them with children in tow.

   

  The going rate for plasma donation, which can take a couple of hours, is about $25 or $30. But Octapharma is offering $50 for the first five visits, and a poster in the lobby says: "Donate 10X by the end of October for a chance to win a TV!!!"

   

  "When you get that $50, you feel good," Rogers said. "I paid my gas bill."

   

  At the same center, three veterans sat in a skunky-smelling car in the parking lot and told me they pay a different kind of bill with their plasma money.

   

  "Medical marijuana," said one of the three. "It helps with my anxiety."

  Whatever the motive of the sellers, the plasma business is a booming, $20-billion-dollar international enterprise, according to Patrick Robert, an industry analyst. Demand for plasma is growing worldwide, he said, because the body fluid is used to manufacture drugs that treat immune disorders, protein disorders, shock, severe burns and other maladies, with business expanding into developing countries.

  Octapharma and Biomat USA are each a division of a European-based pharmaceutical company, but the vast majority of the world's plasma providers are in the United States, where screening and handling regulations are considered safe, and selling fluids is more culturally acceptable.

  "We have all kinds of donors, under-employed or unemployed," said Vlasta Hakes, spokeswoman for Grifols, the Spanish company that owns Biomat USA.

   

  She said Grifols has 150 plasma centers in the U.S., with five in California including huge, sleek facilities in Bellflower and Lake Balboa. On average, 1,000 people sell plasma weekly at each center.

   

  Like other industry reps, Hakes refers to plasma "donors" rather than plasma sellers, which may sound a little better from a marketing perspective. She emphasizes the great benefit of plasma-based drugs.

   

  But it's disturbing to see so many people so destitute — even if they're working — that they've resorted to selling body fluids. For their trouble, they make something akin to minimum wage while billions of dollars flow into corporate bank accounts.

  Dr. Roger Kobayashi, a Nebraska physician who teaches immunology at UCLA, takes it a step further. He raises moral and ethical questions about the commodification of a body fluid by international businesses that sometimes behave in ways that hurt patients.

  "Prices keep going up, and it's becoming harder to get the drugs to patients because they can't afford it," Kobayashi said. "The people who are making a lot of money are the investors and the corporations."

   

  And they are well aware that for many people living on the edge, personal economics is all that matters.

   

  "This is my first time," a middle-aged woman named Elizabeth told me at the Lake Balboa Biomat USA. She said she took time off from a job to care for her ailing mother, and now she can't find work.

   

  "If you would have told me five years ago that I'd end up in here, I wouldn't have believed it. It's reality, and it's humbled me for sure."

   

  At the Orange Biomat, Navy veteran Tim Edwards told me he makes about $13.50 an hour setting up alcohol displays in stores, and he was waiting to hear if he got a better job he'd applied for.

   

  "I can't pay my debts," he said. "I have mixed feelings because I don't want to have to do this. At the same time, it feels good to be doing something positive for other people."

  However in The Land Of The Free, there are numerous other bodily fluids one can produce and exchange for cash… (as wisebread.com reports)

  1. Sperm

  For a young guy who lacks money, sperm donation can seem like the ultimate gig. It pays well, and the process involved is, um, pretty familiar. (The vast majority of donors are college students.)

   

  What It Involves

   

  Sperm donation kind of seems like getting cash for something you may (or may not, no judgments…) be doing anyway, but it's a lot more complicated than that. You have to be tall (at least 5'10" or taller, depending on the sperm bank.) You have to be smart… or at least be enrolled in college. You have to be between the ages of 18 and 35. In terms of of your chances, most donors are caucasian (most recipients are white couples), of a healthy weight, and not redheads.

   

  If you fit the bill, you'll still have to sit through a job-interview-style round of questions about you, your life, and your future goals. This will be followed by a battery of health questions, including ultra-personal ones about your health status, your sex life, and your sexual partners. Even if you make it through this gauntlet of challenges, you'll have to hand over your first two donations free of charge, so that your little swimmers can be tested.

   

  The Payout

   

  Sperm banks set their own rates, but payouts range from $30 to $200 per, um, donation. However, if you're accepted as a donor, you'll often have to sign a contract to donate weekly over a long period of time — like six months to a year — during which time your checks may be held in escrow until your term is up. The money might be good, but it isn't fast and it isn't as easy as it sounds.

  2. Eggs

  I really don't know if eggs are a liquid or not. What I do know is that they are donated to people who are unable to conceive, and they provide a very high payout compared to most other fluids. So, let's just assume they come in liquid form and roll with it, okay?

  What It Involves

  Donating eggs is no picnic. In fact, just getting to the actual egg donation (and payment) stage takes time, energy, and some degree of physical discomfort. First, donors have to fill out a questionnaire. If that's accepted, they will be asked to come in for a physical exam, psychological testing, blood tests, and a genetic screening. If you're approved as a donor, you'll have to wait at least a month to donate.

   

  Next comes the donation cycle, and that's no picnic either. You will be injected with fertility drugs to stimulate the development of a number of eggs. Over the next two weeks, you'll have to continue to inject yourself with hormones and make daily morning visits to the clinic so that they can adjust your dosage and check on your progress. After seven to 12 days of this carnival ride, you'll be ready to have your eggs retrieved. You'll be anesthetized, and the eggs will be removed with a syringe. The procedure isn't painful, but the hormonal changes make it physically demanding, and mild side effects like moodiness and fluid retention can last up to two weeks. There are also some very serious side effects (although they're rare) to consider with this procedure.

   

  The Payout

  Well, it's big — $6,000 to $10,000 per donation depending on the market, the desirability of your particular donation, and the donation center you choose. If you work full time, that'll be offset by some lost time at work and some serious hassles, not to mention potential health consequences. There are no firm rules on how many times women can donate, but most clinics ask that they only do so a few times because the long-term health risks of the procedure are unknown.

  3. Breast Milk

  If you're a new mother, you may be carrying the equivalent of liquid gold: breast milk. And because some moms have way too much, while others have very little (or none at all), a group of moms got the idea to share the love by donating or selling breast milk to those who can't produce their own.

  What It Involves

  Pumping your breast milk and shipping it, on ice, to people who need it. There are online services to facilitate this process, most prominently onlythebreast.com, the Craigslist of breast milk exchange. You could probably even post your own ad in your community.

  The Payout

  On breast milk exchanges, milk tends to sell for $1.50 to $3.00 per ounce. To put that in perspective, a baby needs between 13 and 42 ounces of milk per day, depending on his or her weight — at $3 an ounce, that's $39 to $126 a day. Yowza!

  4. Urine

  Why would someone want to buy your pee? Because those who are subject to drug tests — whether for work or sports or parole — may not be able to pass those tests with their own urine. And, where there's demand, there will be supply.

  What It Involves

  Producing, packaging, and shipping your pee to other people. If you're really enterprising, you could even make a business out of it. In the late 1990s, a South Carolina man produced 50 urine samples a day, selling more than 15,000 samples per year before the state shut him down. Several other states have since passed similar laws.

  The Payout

  The going rate appears to be about $20 per ounce — and possibly jail time.

  Whether it's a tiny condo in a bad part of town or a bag of someone else's urine, if there's enough demand for something, it will become valuable. Why do people sell bodily fluids for money? Simple answer: Because they can. That's just the way economies work.

  *  *  *

  And finally, if this is the 'recovery' just what will the next recession look like?

  

   

  Charts: Bloomberg

  

  

  

  

  

• Everyone Is Asking: "If Chinese Consumption Is Rising, Why Are Its Malls Empty?" – Here Is The Answer

  With China’s official headline GDP number printing at decade lows, the positive spin on the increasingly negative data out of China has been that this is all a part of China’s transition from an export-oriented to a consumption economy. However, there is a problem with this narrative: malls and shopping centers in China have been, and remain, increasingly empty suggesting that the narrative of the  resurgent Chinese consumer – especially in the aftermath of the biggest stock market bubble burst since 2008 – is greatly exaggerated.

  Case in point: Reuters asks this morning “why are malls closing if consumption is rising?”

  

  Specifically, it looks at the Di Mei shopping center in downtown Shanghai which it finds “a surprisingly depressing place to shop.”

  The underground mall is located in one of the most shopping-mad cities in China, and yet it is run down and starved of customers.“

   

  “Sometimes I cannot sell even one dress in a day,” said dress shop owner Ms Xu, who rents a space in Di Mei.

   

  Rising vacancy rates and plummeting rents are increasingly common in Chinese malls and department stores, despite official data showing a sharp rebound in retail sales that helped the world’s second-largest economy beat expectations in the third quarter.

  It sure makes one wonder just how credible China’s retail sales “data” are, especially since the government is far less willing to provide official commercial vacancy rates: “As growth in retail sales slows because of the country’s lower GDP growth, and in cities where mall space is abundant, vacancy rates have risen substantially,” said Moody’s analyst Marie Lam in a research note.

  One possible answer to this seeming conundrum is a well-known one: the transition to online shopping which however does not explain all the recent bearish commentary from China’s premier online vendor Ali Baba, which recently tumbled below its IPO price after announcing the slowest revenue growth in three years.

  There is another twist: the government is goosing retail sales by acting as a direct end-purchaser:

  The answer to that apparent contradiction lies in the rising competition from online shopping and government purchases possibly boosting retail statistics. Add poorly managed properties into the equation and the empty malls aren’t much of a surprise.

   

  More importantly, the struggles of Chinese brick-and-mortar retailers amplify a policy conundrum; these malls, built to reap gains from rising consumption, are instead adding to China’s corporate debt problem, currently at 160 percent of GDP – twice as high as the United States.

   

  Less foot traffic means cash flow of mall owners and developers are getting squeezed – a potential hazard for an economy growing at its slowest pace in decades.

   

  Di Mei’s owners are trying to refurbish, but it’s unclear whether it will pay off, and others are just closing down. The Sunlight Store in Beijing, for example, is located in another prime pedestrian hub, but it closed its blinds this month, with manager Ni Guifang telling Reuters they are seeking greener pastures online.

   

  “The sales were just OK, but the overall sales were on the downward trend,” Ni said.

   

  * * *

  On the other hand, e-commerce sites continue to post double-digit growth rates, even as some moderation is evident. E-commerce leader Alibaba (BABA.N) is expected to report that sales growth slowed sharply in the second quarter – albeit to around 27 percent on-year, still a ripping pace.

  There is another, potentially benign explanation: overcapacity – after all China’s “ghost shopping malls” have been well-known for years.

  China is currently the site of more than half the world’s shopping mall construction, according to CBRE, a real estate firm, even though it appears that many of these malls will not produce good returns for their investors.  A joint report by the China Chain Store Association and Deloitte showed that by the end of this year, the total number of China’s new malls is projected to reach 4,000, a jump of over 40 percent from 2011.

  This brings up two follow up problems: one is that this overcapacity will remain in place for years, leading to much less construction and expansion in the coming years: “Real estate analysts note that much of the surge in retail space construction came at the behest of local governments, who were rushing to push real estate development as part of attempts to stimulate the economy. The result has been malls built in haste and managed poorly.”

  An even bigger problem is that sooner or later, all these bad debt that was used to fund this construction scramble and which currently generates no cash flow, will have to be reclassified as non-performing sooner or later: “If you build it and they’re not coming, that’s a non-performing loan,” said Tim Condon of ING.

  As a reminder, China’s non-performing debt is the one elephant in the room which nobody dares to touch, yet which CLSA briefly touched upon two weeks ago when it calculated that the real bad debt ratio in China is not 1.5% as per official “data” but really 8.1%. Needless to say, on $30 trillion in bank assets, this is a big problem.

  But the one explanation that had not been provided, also happens to be the simplest one: Chinese consumers are simply not consuming! Luckily, we have insight into that as well, courtesy of the FT’s Martin Sandbu:

  As if on cue, the programmed slowdown in manufacturing, investment, and export growth is perfectly matched by a rise in domestic consumption, retail and services that leaves the total economy growth number just where the government said it would be. For example, industrial output is now reported to increase at 5.8 per cent, while the growth of the services share of GDP remains stable at 8.4 per cent.

   

  The real sceptics go much further — and they have good arguments on their side which the optimists do not convincingly address. As the FT’s new EM Squared service pointed out last week, there are important holes in the shift-to-services story. One is that too much of the services growth is accounted for by finance, which is tricky to measure at the best of times, and whose reported robustness after the third-quarter market mayhem is outright unbelievable. Another is that income and wage growth, which presumably should be powering the supposed consumption and services boom, is slowing.

  And the chart which hammers China’s hard landing home:

  

   

  There is simply no way to spin the above data in a favorable light, which we hope also answers Reuters’ original question on China’s empty malls. 

  In fact, the only question after reading the above should be: “how long before China’s consumption dysfunction leads to empty malls in the middle of the United States itself?”

  

  

  

  

• If This Really Is "1998 All Over Again", Oil Is About To Soar

  Last night, when laying out Bank of America’s case on how much higher this “one final meltup” can push Wall Street, we observed a topic that has gained particular prevalence in recent weeks: following the latest snapback from its September lows, instead of comparisons to 2007, the latest fad is to compare equity index chart to those in late 1998, early 1999 in the aftermath of the LTCM bailout, and just before the dot com bubble took off in earnest.

  As a reminder, this is what BofA said:

  It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality.

   

  Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between July-Oct 1998, when LTCM went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.

  The most vivid example of why the blow-off top of 1998/1999 is now being cited as the potential scenario, is the following Nasdaq chart: “The 1998-2015 analogy, for what it’s worth, is working for the Nasdaq, which is currently bouncing hard, and leading the rally, after an 18% plunge. (Although it is not yet working for biotech which is consolidating after a 35% crash”

  

   

  Yet one place where the 1998/1999 analogy has so far failed to materialize, is crude oil. As BofA notes “despite the strong ECB & China policy action is conspicuously not rallying yet…in 1998-99 oil acted on the “first-in, last-out” principle, but eventually EM/global growth pushed oil much higher in 1999.”

  Here is how the 1998/1999 overlay would look like for oil if it were indeed a “deja vu, all over again” situation.

  

  The chart above needs no explanation: if this is indeed a rerun of the post-LTCM/pre first tech bubble days, then oil is about to soar by 150%.

  But is it? BofA was skeptical.

  New highs thus require:

  • The Fed to hike, without…
  • The dollar rallying significantly because…
  • European/Japanese/Chinese domestic demand surprise on the upside.

  That’s a tough ask.

  Tough, but not impossible when your adversaries are entities that print money for a living.

  BofA’s logic is contingent on no incremental news out of central banks; but recall that for China the biggest concern right now is neither reflating the housing bubble, nor boosting its stocks, but pushing the price of commodities higher since more than half of its levered commodity companies are unable to cover interest at current commodity prices, and will sooner or later force a default cascade.

  Which is why anyone logically skeptical that oil and commodities can soar from here, for the simple reason that the latest gusher of central bank liquidity will merely result in more cheap funding and will lead to a production boost, leading to further price declines, should be careful: after all there is nothing in the (lack of) central banker rule book that says commodities are off limits for central banks to buy.

  

  

  

  

  

• Worst News Ever? World Health Organization Says Steak "Probably" Causes Cancer

  Back in June, we highlighted the sobering and yet totally unsurprising fact that Americans are, at the risk of being crass, getting fatter all the time.

  Researchers had just released a new report based on data from the National Health and Nutrition Examination Survey and the conclusions were not encouraging. Around 35 percent of men and 37 percent of women are obese, the researchers said, adding that another 40 percent of men and 30 percent of women are overweight. In all then, some 74% of men are at risk, a rather precipitous increase over the past several decades:

  

  And while none of that is particularly surprising given the proliferation of processed food and ready availability of 84 ounce Big Gulps at the local 7 Eleven, what was shocking about the report is the following: “This generation of Americans is the first that will have a shorter life expectancy than the previous generation, and obesity is one of the biggest contributors to this shortened life expectancy because it is driving a lot of chronic health conditions.”

  Of course Americans are used to their sedentary lifestyle and have become accustomed to gorging themselves at meal time and if persisting in such creature comforts means shaving a few years off their lifespans well, for most people that’s probably a reasonable trade off. 

  But while Americans may not be frightened of heart attacks, they’re still generally scared of cancer and so one way to get everyone to stop blowing themselves up like balloons might be to make people scared to eat. Cue the World Health Organisation (via Reuters):

  Eating processed meat can lead to bowel cancer in humans while red meat is a likely cause of the disease, World Health Organisation (WHO) experts said on Monday in findings that could sharpen debate over the merits of a meat-based diet.

   

  The France-based International Agency for Research on Cancer (IARC), part of the WHO, put processed meat such as hot dogs and ham in its group 1 list, which already includes tobacco, asbestos and diesel fumes, for which there is “sufficient evidence” of cancer links.

   

  “For an individual, the risk of developing colorectal (bowel) cancer because of their consumption of processed meat remains small, but this risk increases with the amount of meat consumed,” Dr Kurt Straif of the IARC said in a statement.

   

  Red meat, under which the IARC includes beef, lamb and pork, was classified as a “probable” carcinogen in its group 2A list that also contains glyphosate, the active ingredient in many weedkillers.

   

  The lower classification for red meat reflected “limited evidence” that it causes cancer. The IARC found links mainly with bowel cancer, as was the case for processed meat, but it also observed associations with pancreatic and prostate cancer.

  Got that? Steak is now in the same category as weedkiller (Monsanto execs are laughing somewhere).

  
  

  Here’s more color from Bloomberg: 

  The red meat study is just the latest of many that WHO has conducted since the 1970s, when it set out to identify and catalogue suspected carcinogens. The organization’s International Agency for Research on Cancer has evaluated 984 agents, from chemicals to careers, that can be linked to cancer.

   

  They fall into one of five classifications, according to the strength of the evidence: agents or activities that definitely, probably, or possibly cause cancer in humans; those that probably don’t cause cancer; and those for which the evidence is inconclusive.

   

  It’s important to note that the agents at the top aren’t necessarily the most dangerous. They’re the ones with the clearest evidence of hazard. WHO seeks to identify carcinogens “even when risks are very low at the current exposure levels, because new uses or unforeseen exposures could engender risks that are significantly higher,” the agency says. In other words, even though WHO has determined that red meat is a carcinogen, the report doesn’t quantify how much meat it would take to cross into the danger zone.

   

  

  Full infographic here

  The question now, we suppose, is whether this will be used as an excuse for government to begin ever so gradually enacting a set of paternalistic regulations on red meat and Lunchables in an all too familiar attempt by lawmakers to save us from ourselves.

  

  Guard your steaks.

  

  

  

  

  

• Complacency Reigns At Epic Levels: "Few Are Ready For What Is Coming"

  Submitted by Howard Kunstler via Kunstler.com,

  Ben Bernanke’s memoir is out and the chatter about it inevitably turns to the sickening moments in September 2008 when “the world economy came very close to collapse.” Easy to say, but how many people know what that means? It’s every bit as opaque as the operations of the Federal Reserve itself.

  There were many ugly facets to the problem but they all boiled down to global insolvency — too many promises to pay that could not be met. The promises, of course, were quite hollow. They accumulated over the decades-long process, largely self-organized and emergent, of the so-called global economy arranging itself. All the financial arrangements depended on trust and good faith, especially of the authorities who managed the world’s “reserve currency,” the US dollar.

  By the fall of 2008, it was clear that these authorities, in particular the US Federal Reserve, had failed spectacularly in regulating the operations of capital markets. With events such as the collapse of Lehman and the rescue of Fannie Mae and Freddie Mac, it also became clear that much of the collateral ostensibly backing up the US banking system was worthless, especially instruments based on mortgages. Hence, the trust and good faith vested in the issuer of the world’s reserve currency was revealed as worthless.

  The great triumph of Ben Bernanke was to engineer a fix that rendered trust and good faith irrelevant. That was largely accomplished, in concert with the executive branch of the government, by failing to prosecute banking crime, in particular the issuance of fraudulent securities built out of worthless mortgages. In effect, Mr. Bernanke (and Barack Obama’s Department of Justice), decided that the rule of law was no longer needed for the system to operate. In fact, the rule of law only hampered it.

  Mr. Bernanke now says he “regrets” that nobody went to jail. That’s interesting. More to the point perhaps he might explain why the Federal Reserve and the Securities and Exchange Commission did not make any criminal referrals to the US Attorney General in such cases as, for instance, Goldman Sachs (and others) peddling bonds deliberately constructed to fail, on which they had placed bets favoring that very failure.

  There were a great many such cases, explicated in full by people and organizations outside the regulating community. For instance, the Pro Publica news organization did enough investigative reporting on the racket of collateralized debt obligations to send many banking executives to jail. But the authorities turned a blind eye to it, and to the reporting of others, mostly on the web, since the legacy news media just didn’t want to press too hard.

  In effect, the rule of law was replaced with a patch of official accounting fraud, starting with the April 2009 move by the Financial Accounting Standards Board involving their Rule 157, which had required banks to report the verifiable mark-to-market value of the collateral they held. It was essentially nullified, allowing the banks to value their collateral at whatever they felt like saying.

  Accounting fraud remains at the heart of the fix instituted by Ben Bernanke and the ploy has been copied by authorities throughout the global financial system, including the central banks of China, Japan, and the European Community. That it seemed to work for the past seven years in propping up global finance has given too many people the dangerous conviction that reality is optional in economic relations. The recovery of equity markets from the disturbances of August has apparently convinced the market players that stocks are invincible. Complacency reigns at epic levels. Few are ready for what is coming.

  

  

  

  

  

• Oct 27th – ECB to ease in December but deposit rate cut unlikely

  EMOTION MOVING MARKETS NOW: 60/100 GREED

  PREVIOUS CLOSE: 58/100 GREED

  ONE WEEK AGO: 48/100 NEUTRAL 
  ONE MONTH AGO: 18/100 EXTREME FEAR

  ONE YEAR AGO: 14/100 EXTREME FEAR

  Put and Call Options: NEUTRAL During the last five trading days, volume in put options has lagged volume in call options by 28.99% as investors make bullish bets in their portfolios. This is a lower level of put buying than has been the norm during the last two years and is a neutral indication.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 15.29. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME GREED The number of stocks hitting 52-week lows is slightly higher than the number hitting highs but is at the upper end of its range, indicating extreme greed.

   

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T  NOTE | 5 YR T NOTE | 30 YR TREASURY BOND| SOYBEANS | CORN

   

  MEME OF THE DAY – IT’S THE JERKS

   

  UNUSUAL ACTIVITY

  AET NOV 99 PUT Activity 2500 block @$2.45

  T JAN 31 PUT Activity 20k @$.35 on offer

  VALE OCT WEEKLY4 4.5 CALL Activity 9766 block @$.18

  MU Oct WEEKLY4 Call Activity 17.5 4900 @$.16 on offer

  WGBS SC 13G Filed by Empery Asset Management, LP 5.19%

  RIT 10% Owner P    10,115  A  $ 13.166   P    1,300  A  $ 13.19

  More Unusual Activity…

  HEADLINES

   

  Congress, White House make progress on budget deal –Politico

  BoC Deputy Governor Cote To Retire At End-January 2016 – BoC

  First Bank of England hike now not expected until second quarter 2016: Reuters poll

  ECB to ease in December but deposit rate cut unlikely: Reuters Poll

  PBOC’s Yi: Rate Liberalisation Is Not A One-Off Move – WSJ

  US New Home Sales Sep: 468K (est 550K; rev prev 529K)

  ICE To Buy Interactive Data For $5.2bln In Cash & Stock – CNBC

  Duke Energy To Acquire Piedmont Natural Gas For $4.9bln – NYT

  Bridgestone to buy US auto parts retailer Pep Boys – Rtrs

   

  GOVERNMENTS/CENTRAL BANKS

  Congress, White House make progress on budget deal –Politico

  Moody’s: Failure to lift debt ceiling, although unlikely, would not mean impending US Debt Default

  BoC Deputy Governor Cote To Retire At End-January 2016 – BoC

  Bundesbank Monthly Report: Despite Slower Q3, German Economic Growth Is Quite Strong

  First Bank of England hike now not expected until second quarter 2016: Reuters poll

  ECB to ease in December but deposit rate cut unlikely: Reuters Poll

  PBOC’s Yi: Rate Liberalisation Is Not A One-Off Move – WSJ

  FIXED INCOME

  U.S. Government Bonds Rise Before Fed’s Policy Meeting –WSJ

  ECB: Buys EUR 12.254bln in PSPP (Total EUR 383.07bln)

  ECB: Buys EUR 200mln in ABSPP (Total EUR 14.665bln)

  ECB: Buys EUR 2.032bn in CBPP (Total EUR 128.133bln)

  U.K.-German Bond Yield Spread Touches Widest Mark Since June –BBG

  Municipal Bond Sales Poised to Decelerate as Redemptions Rise –BBG

  FX

  Dollar falls on lower U.S. yields, home sales data –Rtrs

  AUD/USD: Aussie Advances on Data & Technical Support –WBP

  USD/CAD slips lower after U.S. housing data –Investing

  EUR/USD: Euro Continues Recovery After US Data Disappoint –WBP

  GBP/USD: Sterling Snaps Bearish Streak, Enhanced After US Data –WBP

  COMMODITIES

  Crude oil down, extending two-week slide on product glut worry ?Rtrs

  WTI crude futures settle lower by $0.62 (-1.39%) at $43.98

  Brent crude futures settle at $47.54/bbl, down 0.94%

  Natural gas pounded by supply, warm weather –CNBC

  Gold regains recent loss as weak housing data pressures dollar –MktWatch

  Gold rally brings out options bulls –Rtrs

  EQUITIES

  INDICES: Stocks struggle for gains; Apple weighs on Dow –CNBC

  INDICES: EZ Equity markets dip after weeks of gains; Fed meeting ahead –Rtrs

  M&A: ICE To Buy Interactive Data For $5.2bln In Cash & Stock – CNBC

  M&A: Duke Energy To Acquire Piedmont Natural Gas For $4.9bln – NYT

  M&A: Bridgestone to buy US auto parts retailer Pep Boys – Rtrs

  M&A: China online travel firm Ctrip in tie-up with rival Qunar – Rtrs

  M&A: Starwood Capital to buy apartment units worth $5.37bln – Rtrs

  EARNINGS: LabCorp’s sales soar after Covance acquisition – MktWatch

  EARNINGS: Xerox Stumbles to Loss, Looks Into New Strategies – WSJ

  EARNINGS: Roper Technologies to Buy CliniSys Group; Profit Edges Higher – WSJ

  SERVICES: FedEx sees record holiday shipments on rising retail, e-commerce – Rtrs

  PHARMA: Valeant Forms Board Committee to Review Philidor Arrangement – WSJ

  EMERGING MARKETS

  China’s rate liberalization won’t trigger deposit war –BBG

  India hosts biggest Africa summit; plays catch up with China

   

  Brazilian Minister of Trade Visits Iran to Expand Cooperation

  

  

  

  

  

• New Drone Footage Captures Scope Of EU's Migrant Crisis As Brussels Plans Refugee "Holding Camps"

  Europe took another stab at tackling the bloc’s worsening migrant crisis on Sunday as Jean-Claude Juncker called a mini-summit of 11 regional leaders in Brussels. The immediate concern, Juncker contends, is providing shelter for the hundreds of thousands of asylum seekers who have inundated the Balkans en route to what they hope will be a better life in Germany. 

  So far, Europe has struggled mightily under the weight of the people flows and a plan to place 120,000 asylum seekers based on a quota system met with hostility from some Eastern European nations including Hungary, where PM Viktor Orban has closed the border with both Serbia and Croatia in an effort to, in his words, “preserve the Christian heritage.” Germany’s approach has been to adopt what amounts to an open door policy to migrants and that, in turn, has set off border battles in the Balkans as Serbia, Croatia, and Slovenia bicker about the best way to divert the refugees north. 

  The new “plan” proposed by Merkel and Juncker aims to set up so-called “holding camps” along the Balkan route. The sites will be able to accommodate some 100,000 refugees. 

  “It cannot be that in the Europe of 2015 people are left to fend for themselves, sleeping in fields,” Juncker said.

  Here’s more from The NY Times:

  The leaders of Greece and other countries along the main migrant trail to affluent parts of Europe agreed late Sunday to set up holding camps for 100,000 asylum seekers, a move that Chancellor Angela Merkel of Germany said would help slow a chaotic flow of tens of thousands of people seeking shelter from war or simply better lives.

   

  Amid warnings that the European Unionrisked falling apart if it cannot forge a common response to a largely uncontrolled influx of Syrians, Afghans and others, Ms. Merkel said early Monday in Brussels that Europe “faced one of the greatest litmus tests” in its history and was now moving slowly to ease the crisis.

   

  All the same, she told reporters after an emergency meeting with Eastern and Central European leaders in Brussels that Europe still had a long way to go before it got a grip on its biggest refugee crisis since the end of World War II.

   

  Jean-Claude Juncker, the European Union’s top executive, who convened Sunday’s meeting at the behest of Ms. Merkel, said reception centers would be established along the so-called “Balkan route” taken by most migrants that could hold and process 50,000 people, with facilities for 50,000 more to be set up in Greece. He said leaders had also agreed to stop “waving through” migrants who cross their countries as they rush north toward Germany and Scandinavia.

   

  “The only way to restore order is to slow down the uncontrolled flows of people,” Mr. Juncker told reporters.

   

  Commenting on pledges of coordinated action made by the leaders at the meeting, she said, “Of course this does not solve the problem,” but it does provide “a building stone in the edifice” of a more coherent policy.

  Count us skeptical. 

  In all likelihood, these way stations will swiftly become overcrowded, unsafe refugee internment camps and they’ll likely be easy targets for vociferous anti-migrant protests or worse. 

  With that in mind, we present the following drone footage and still shots which should give you an idea about why we contend that Europe’s “holding camps” will swiftly be overrun. 

  

  

  

  

  

  

  

  

  

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• The Death Of Europe

  Submitted by Daniel Greenfield via FrontPageMag.com,

  How The Mohammed Reitrement Plan Will Kill Europe

  European leaders talk about two things these days; preserving European values by taking in Muslim migrants and integrating Muslim migrants into Europe by getting them to adopt European values.

  It does not occur to them that their plan to save European values depends on killing European values.

  The same European values that require Sweden, a country of less than 10 million, to take in 180,000 Muslim migrants in one year also expects the new “Swedes” to celebrate tolerance, feminism and gay marriage. Instead European values have filled the cities of Europe with Shariah patrols, unemployed angry men waving ISIS flags and the occasional public act of terror.

  European countries that refuse to invest money in border security instead find themselves forced to invest money into counterterrorism forces. And those are bad for European values too.

  But, as Central European countries are discovering, European values don’t have much to do with the preservation of viable functioning European states. Instead they are about the sort of static Socialism that Bernie Sanders admires from abroad. But even a Socialist welfare state requires people to work for a living. Maine’s generous welfare policies began collapsing once Somali Muslims swarmed in to take advantage of them. Denmark and the Dutch, among other of Bernie Sanders’ role models, have been sounding more like Reagan and less like Bernie Sanders or Elizabeth Warren.

  Two years ago, the Dutch King declared that, “The classic welfare state of the second half of the 20th century in these areas in particular brought forth arrangements that are unsustainable in their current form.” That same year, the Danish Finance Minister called for the “modernization of the welfare state.”

  But the problem isn’t one of modernization, it’s medievalization.

  27% of Moroccans and 21% of Turks in the Netherlands are unemployed. It’s 27% in Denmark for Iraqis. And even when employed, their average income is well below the European average.

  Critics pointed out in the past that a multicultural America can’t afford the welfare states that European countries have. Now that those same countries are turning multicultural, they can’t afford them either.

  Europe invested in the values of its welfare state. The Muslim world invested in large families. Europe expects the Muslim world to bail out its shrinking birth rate by working and paying into the system so that its aging population can retire. The Muslim migrants however expect Europe to subsidize their large families with its welfare state while they deal some drugs and chop off some heads on the side.

  Once again, European values are in conflict with European survival.

  The European values that require Europe to commit suicide are about ideology, not language, culture or nationhood. But the incoming migrants don’t share that ideology. They have their own Islamic values.

  Why should 23-year-old Mohammed work for four decades so that Hans or Fritz across the way can retire at 61 and lie on a beach in Mallorca? The idea that Mohammed would ever want to do such a thing out of love for Europe was a silly fantasy that European governments fed their worried citizens.

  Mohammed doesn’t share European values. Nor are they likely to take hold of him no matter how often the aging teachers, who hope he gets a job and subsidizes their retirement, try to drill them into his head. Europeans expect Mohammed to become a Swede or a German as if he were some child they had adopted from an exotic country and raised as their own, and work to subsidize their European values.

  The Muslim migrants are meant to be the retirement plan for an aging Europe. They’re supposed to keep its ramshackle collection of economic policies, its welfare states and social programs rolling along.

  But they’re more like a final solution.

  Mohammed is Fritz’s retirement plan. But Mohammed has a very different type of plan. Fritz is counting on Mohammed to work while he relaxes. Mohammed relaxes and expects Fritz to work.  Fritz is not related to him and therefore Mohammed sees no reason why he should work to support him.

  European social democracy reduces society to a giant insurance plan in which money is pooled together.  But insurance is forbidden in Islam which considers it to be gambling. European social democracy expects him to bail it out, but to Mohammed, European values are a crime against Islam.

  Mohammed’s Imam will tell him to work off the books because paying into the system is gambling. However taking money out of the system is just Jizya; the money non-Muslims are obligated to pay to Muslims. Under Islamic law, it’s better for Mohammed to sell drugs than to pay taxes.

  That’s why drug dealing and petty crime are such popular occupations for Salafis in Europe. It’s preferable to steal from infidels than to participate in the great gamble of the European welfare state.

  Mohammed isn’t staking his future on the shaky pensions of European socialism. He invests in what social scientists call social capital. He plans his retirement by having a dozen kids. If this lifestyle is subsidized by infidel social services, so much the better. And when social services collapse, those of his kids who aren’t in prison or in ISIS will be there to look after him in his golden years.

   As retirement plans go, it’s older and better than the European model.

  Mohammed doesn’t worry much about the future. Even if he doesn’t make it past six kids, by the time he’s ready to retire the European country he’s living in will probably be an Islamic State. And he is confident that whatever its arrangements are, they will be better and more just than the infidel system.

  Sweden will take in 180,000 migrants this year. Germany may take in 1.5 million. Most of them will be young men following the Mohammed retirement plan.

  Europeans are being assured that the Mohammeds will balance out the demographic disparity of an aging population with too many retirees and too few younger workers. But instead the Mohammeds will put even more pressure on the younger workers who not only have to subsidize their elders, but millions of Mohammeds, their multiple brides and their fourteen child Islamic retirement plans.

  Retirement ages will go further up and social services for the elderly will be cut. The welfare state will collapse, but it will have to be kept running because the alternative will be major social unrest.

  Among the triggers of the Arab Spring were rising wheat prices and cuts to food subsidies. Prices went up and governments fell as street riots turned into civil wars. Imagine a Sweden where 50 percent of the young male population is Muslim, mostly unemployed, turning into Syria when the economy collapses and the bill comes due. Imagine European Muslim street riots where the gangs have heavy artillery and each ghetto Caliph has his own Imams and Fatwas to back up his claims.

  Europe is slowly killing itself in the name of European values. It’s trying to protect its economic setup by bankrupting it. European values have become a suicide pact. Its politicians deliver speeches explaining why European values require mass Muslim migration that make as little sense as a lunatic’s suicide note.

  Islamic values are not compatible with European values. Not only free speech and religious freedom, but even the European welfare state is un-Islamic. Muslims have a high birth rate because their approach to the future is fundamentally different than the European one. Europeans have chosen to have few children and many government agencies to take care of them. Muslims choose to have many children and few government agencies. The European values so admired by American leftists have no future.

  Europe is drinking rat poison to cure a cold. Instead of changing its values, it’s trying to maintain them by killing itself. The Mohammed retirement plan won’t save European Socialism. It will bury it.

  

  

  

  

  

• The Mechanics Of The Fed As Seen Ny The Eurodollar Curve

  For a while, in that brief period between the August flash crash and the terrible September jobs report, it seemed that things may revert back to normal: bad news are bad news, good news are good news, and the economic cycle – as in the recession – is allowed to make a long-overdue repeat appearance from under the suffocating pressure of central banks.

  Alas, it was not meant to be.

  This is how DB’s Alekandar Kocic explained it:

  Last week’s developments in Europe (more QE, negative rates) and Asia (China cutting interest rates) are further reducing the probability of Fed liftoff. In all likelihood, we are one weak number away from a full relent and the market is already on the way to pricing it. But, to fully embrace this scenario, the market will likely wait for an explicit statement from the Fed. We continue to believe that repricing of the curve will follow a two step procedure with initial bull steepening followed by a bull flattening. This rates and macro view is roughly consistent with the curve approaching its shape of the late 2011, post low-for-long and operation twist, environment.

  And while many – mostly those with no money on the table – debate daily what, how and when the Fed should move, for a specific subset of massively levered traders, even more so than the HFT algos who frontrun the equity market, every hiccup, stutter and vomit by Janet Yellen can mean the difference between early retirement and suicide (we hope this is a joke).

  We are talking of course about Eurodollars, and it is Eurodollar traders who have been carted out feet first, year after year, having positioned (year after year), for a Fed rate hike that just doesn’t come, and doesn’t come, and doesn’t come, etc in perpetuity.

  In this case, the Eurodollar curve is also a useful barometer of what the market’s consensus take is on what the Fed will do (at least until proven wrong by the Fed). And so, courtesy of DB, here is a quick primer on…

  The mechanics of the Fed as seen by the Eurodollar curve

  Eurodollar curve captures the mechanics of Fed expectations in a simple way. Away from the very front end, the curve dynamics is displays a rather rigid structure where a single risk premium parameter explains bulk of the spreads movement in different sectors of the curve. Typically, in anticipation of Fed hikes or cuts, the market makes up its mind about the terminal Fed funds (Greens) and begins to price in the rates path around that. The more aggressive the initial hikes are, the less they will have to do later. So, Red/Green spreads are highly coordinated with Green/Blue. The two spreads are roughly a mirror image of each other, Fig 1. This is in effect synonymous to summarizing dominant curve modes in terms of bull steepeners and bear flatteners.

  

  As market anticipates rate cuts, the spreads begin to widen and continue throughout the easing cycle. They begin to tighten before the hikes. Towards the end of tightening the two spreads begin to pinch the x-axis. This is pre mechanics of the ED curve.

  In that context, 2011-12 is a departure from the traditional pattern as low-for-long led to compression of risk premia in low rates environment. Taper tantrum is a snap out from that mode: Fed exit is announced and “normal” mechanics of the Eurodollar curve is set in place – the speads widen and they are beginning to tighten as expected rate hikes is approaching. This was in place roughly, with some additional wrinkles, until the last summer.

  The dynamics in the H2 is consistent with the market anticipating another episode of squeezing of the toothpaste. Reds have already rallied. Greens should follow, while in the near term blues are likely to hesitate before we have more clarity about the Fed in 2016 and beyond. Figs 2 & 3 illustrate departures of the current dynamics from historical pattern post-2008 as seen by both spreads and individual forward rates.

  

  Fig 3 illustrates the timeline of the last two years. It addresses the corresponding dislocation in spreads as seen on Fig 2. The compression of the spreads has been a result of two distinct dynamics. 2014 has been by and large a result of repricing the terminal rates lower. It was dominated by the Green/Blue flatteners, while Reds traded sideways for the most part – short term rate hikes remained on the table.H1:2015 was a finessed version of the same mode with Reds pushing higher as consensus was shaping around Sep- 2015 hikes, thus, a more aggressive Red/Green tightening.

  This appears to be a true structural break of the mechanics of Fed expectations, as captured by the curve, Red/Green vs. Green/Blue interaction (two mirror images) has changed. This is highlighted in Fig 4 across the two samples: (2011-2013 blue and 2014-15 red).

  

  The last leg of curve repricing corresponds to pricing Fed relent – taking the near (and possible intermediate) term hikes out. This is a Red/Green flattener with roughly a parallel shift in Green/ Blue sector. So the first installment of Fed repricing, red/green steepening has already been taking place. The next step is the red/green flattening or green/blue steepening. Given the vol pricing and carry consideration, we are buyers of conditional bull steepeners in terms of mid-curve receivers.

  

  

  

  

  

• Chinese Stocks Rise To 2 Month High Following PBOC's Rate, RRR Cut But Copper, Crude Struggle

  As largely expected, following Friday’s unexpected rate cut by the PBOC (which may have been mostly driven by 5th CCP Plenum considerations), and today’s drop in the onshore Yuan which traded down 0.13% vs the Dollar to 6.3554, China’s stocks opened solidly in the green, led by construction names, with recently troubled Vanke shares jumping 7.4% in early trading, the most since July 10, to their highest level since Aug. 11. Peers such as Longfor, CR Land and China Overseas Land, also jumped by 6.9%, 1.9% and 1.4%, respectively.

  China’s indices were solidly green in early trading, with the Shanghai Composite +0.9%, Shenzhen Comp +0.8%, and CSI 300 +1.3%.

  Hong Kong was likewise euphoric, with several key names standing out:

  • Tencent +1.3%; biggest contribution to HSI’s gains
  • Banks such as Agricultural Bank +0.6%, ICBC +0.8%, and Bank of China +0.8% were all stronger after China removed the deposit rate ceiling
  • Citic Securities +2.3%; seeks bond payment from Baoding Tianwei
  • China Reinsurance +2.2% on its debut

  Elsewhere in the Asian region, early sentiment was also a broad, if somewhat tame, bullishness.

  • MSCI AP Index +0.7% to 136.71; health care, consumer discretionary rise most
  • Nikkei 225 +1.2%; Topix +1.1%; yen +0.3% to 121.17/USD
  • Hang Seng Index +0.7%, HSCI +0.7%, HSCEI +1.1%
  • Shanghai Composite +0.9%,
  • ASX 200 +0.2%
  • Kospi +0.3%
  • Straits Times Index +1.0%
  • KLCI -0.2%
  • TWSE +0.7%
  • Philippines Composite +1.6%
  • Australian dollar +0.4% to $0.7242
  • NZ dollar +0.1% to $0.6760
  • Dollar Index -0.1% to 96.98
  • Asia dollar index +0.1% to 108.57

  As for China’s key index, the Shanghai Composite, it is up over 1%, or 40 points in early trading, to 3,450 – the highest level in 2 months, a gain which however is well below Friday’s pre-rate cut gain…

  

   

  … and if prior rate cut history is any indication, not to mention the weak reaction by commodities on Friday (continuing into today, where WTI turned green by the smallest of margins just seconds ago…

  

   

  … not to mention copper which is down for the second day in a row…

  

  …  we would not be surprised to see China’s stocks sliding back into the red very shortly as “sell the news” concerns return, and as the increasingly more addicted “markets” demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs.

  

  

  

  

  

• Paul Craig Roberts Slams Western Press-titution

  Authored by Paul Craig Roberts,

  The Western media has only two tools.

  One is the outrageous lie. This overused tool no longer works, except on dumbshit Americans.

  The pinpoint accuracy of the Russian cruise missiles and air attacks has the Pentagon shaking in its boots. But according to the Western presstitutes the Russian missiles fell out of the sky over Iran and never made it to their ISIS targets.

  According to the presstitute reports, the Russia air attacks have only killed civilians and blew up a hospital.

  The presstitutes fool only themselves and dumbshit Americans.

  The other tool used by presstitutes is to discuss a problem with no reference to its causes. Yesterday I heard a long discussion on NPR, a corporate and Israeli owned propaganda organ, about the migrant problem in Europe. Yes, migrants, not refugees.

  These migrants have appeared out of nowhere. They have decided to seek a better life in Europe, where capitalism, which provides jobs, freedom, democracy, and women’s rights guarantee a fulfilling life. Only the West provides a fulfilling life, because it doesn’t yet bomb itself.

  The hordes overrunning Europe just suddenly decided to go there. It has nothing to do with Washington’s 14 years of destruction of seven countries, enabled by the dumbshit Europeans themselves, who provided cover for the war crimes under such monikers as the “coalition of the willing,” a “NATO operation,” “bringing freedom and democracy.”

  From the Western presstitute media you would never know that the millions fleeing into Europe are fleeing American and European bombs that have indiscriminately slaughtered and dislocated millions of Muslim peoples.

  Not even the tiny remnant of conservative magazines, the ones that the neocon nazis have not taken over or exterminated, can find the courage to connect the refugees with US policy in the Middle East.

  For example, Srdja Trifkovic writing in the October issue of Chronicles: A Magazine of American Culture, sees the refugees as “the third Muslim invasion of Europe.” For Trifkovic, the refugees are invaders who will bring about the collapse of the remnant of Western Christian Civilization.

  Trifkovic never mentions that the Europeans brought the millions of Muslim refugees upon themselves, because their corrupt political bosses are Washington’s well-paid vassals and enabled Washington’s wars for hegemony that displaced millions of Muslims. For Trifkovic and every other conservative, only Muslims can do wrong. As Trifkovic understands it, the wrong that the West does is not defending itself against Muslims.

  Trifkovic believes that Europe will soon live under Sharia law. He wonders if America will “have the wherewithal to carry the torch.”

  A majority of Americans live in a fake world created by propaganda. They are disconnected from reality. I have in front of me a local North Georgia newspaper dated October that reports that “a Patriot Day Memorial Service was held at the Dawson County Fire Headquarters on September 11 to remember the terrorist attacks that shook America 14 years ago.” Various local dignitaries called on the attendees to remember “all of those who have died not only on that day, but since that day in the fight to keep America free.”

  The dignitaries did not say how murdering and dislocating millions of Muslims in seven counries keeps us free. No doubt, the question has never occurred to them. America runs on rote platitudes.

  The presidents of Russia and China watch with amazement the immoral stupidity that has become America’s defining characteristic. At some point the Russians and Chinese will realize that no matter how patient they are, the West is lost and cannot be redeemed.

  When the West collapses from its own evil, peace will return to the world.

  

  

  

  

  

• "How Would One Position For One Final Melt-Up On Wall Street"? – Here Is BofA's Answer

  In the past month, now that stocks have stabilized on the hope, and at least one confirmation of easing by the ECB, BOJ, and PBOC and even the Fed, we have seen quite a few comparisons of the current market to that encountered during the post-LTCM bailout halcyon days of late 1998/early 1999. From Ice Farm Capital, to BofA, now that the early-2008 chart comparisons have taken an indefinite hiatus (at least temporarily), suddenly analogs to pre dot-com bubble mania are all the rage.

  And sure enough, for the technicians out there all else equal, the following chart overlay screams Nasdaq at 6000 in 4-6 months.

  

  This is how BofA summarizes it:

  It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality.

   

  Back then, as could be the case today, a bull market & a US-led economic recovery was rudely interrupted by a crisis in Emerging Markets. The crisis threatened to hurt Main Street via Wall Street (the Nasdaq fell 33% between July-Oct 1998, when LTCM went under). Policy makers panicked and monetary policy was eased (with hindsight unnecessarily). Fresh liquidity combined with apocalyptic investor sentiment very quickly morphed into a violent but narrow equity bull market/bubble in 1998/99, one which ultimately took valuations & interest rates sharply higher to levels that eventually caused a “pop”.

   

  The 1998-2015 analogy, for what it’s worth, is working for the Nasdaq (see chart above), which is currently bouncing hard, and leading the rally, after an 18% plunge. (Although it is not yet working for biotech which is consolidating after a 35% crash).

  So if this is merely a rerun of the well-known pre-dot com bubble episode, what should one be positioned? This is how BofA would trade the “final melt-up on Wall Street.“

  What worked back then? What rose from the rubble of 1998? How would one position for one final melt-up on Wall Street? Table 1 illustrates it was an “überbarbell” of über-growth stocks (e.g. internet) and über-value (e.g. EM/Russia) that significantly outperformed in 1998-99. Why? Because 1999 started as a year of “max liquidity, scarce growth & distressed value” and ended with an internet bubble causing a significant rise in interest rates, growth & inflation.

   

  

  So far has certainly been so good, if not for the near record NYSE shorts: “The October “pain trade” has thus been a big rally in risk assets, as predicted (albeit too early) by all our contrarian trading rules flashing “buy” signals in early-Sept. The ECB, the PBoC, US tech EPS and the fact that too many were positioned for the “event”, the recession, the default, the plunge below the 50 boom-bust line in the world’s PMI, all have caused a big squeeze in risk assets in particular S&P 500 back through its key resistance level of 2060.”

  And yet, while suggesting the appropriate trade if this were indeed 1998/1999, BofA’ Michael Hartnett isn’t buying it, for two reasons.

  The 1998/99 redux risk aside, we believe the Big Macro Picture remains one of “Deflationary Expansion”, and the Big Market Picture is the “End of Excess Liquidity” & the “End of Excess Profits” over the past 12-months. That’s why we would recommend investors sell into new upside in risk assets in Q4.

   

  Ironically, while “liquidity” was the bull driver of risk appetite in recent years, in 2015 it is the perception of “illiquidity” in fixed income & equity markets that has become a driver of risk aversion. This perception has been abetted by a non-stop period of “pain trades.”

  Here is the three part answer to “what prevents us BofA from getting more bullish now that risk has rallied”:

  First, positioning is not bearish enough to generate new highs in risk assets and sustain new highs. Cash levels jumped in recent months but clients never went UW equities (although there were significant outflows from High Yield funds, in excess of 5% of AUM in recent weeks). And the consensus never made recession the base case. In addition, as noted in our latest Flow Show (link), a number of our Trading Rules are flipping from “buy” to “neutral”. The Global Breadth Rule, the EM Flow Trading Rule & the Global Flow Trading Rule have turned neutral in the past week, and while the FMS Cash Rule & the Bull & Bear Index reveal high cash and bearish cross-asset sentiment, both have turned in a less bearish direction (see page 8).

   

  Second, policy. The Quantitative Failure narrative failed this week. The ECB’s promise of QE2 in December was met by a lower Euro, lower bond yields and higher bank stocks. Quantitative Failure requires a lower currency, lower bond yields and lower bank stocks, thus signaling investor revolt against the ability of central banks to raise growth expectations. (Note true QE-apocalypse would be higher bond yields and lower bank stocks).

   

  However, the old script of “I’m so Bearish, I’m Bullish”, a script that worked like a charm between QE1 and the end of QE3, no longer cuts it. Investors will no longer be satisfied simply by Quantitative Easing. They require “Quantitative Success”, and a success that is visible in corporate profits. This risk rally cannot be sustained if Fed hikes and/or ECB/BoJ/PBoC easing causes the US dollar to rally strongly, thus setting off another “death spiral” in EM/commodities/energy/HY and fresh round of EPS downgrades.

   

  Third, profits. The growth of global EPS is currently negative. And the level of global EPS is down 4.2% from its February 2015 highs. The classic strong “year-end” rally in stocks & credit requires EPS expectations to rise. Without EPS upside, Q4 risk gains will prove transitory.

  BofA’s conclusion, and why new all time highs are problematic here:

  As explained above, new highs thus require:

  1. The Fed to hike, without…
  2. The dollar rallying significantly because…
  3. European/Japanese/Chinese domestic demand surprise on the upside.

  That’s a tough ask.

  Yes… but… all that would take to cover the “ask” is for some central bank to unexpectedly announce that it will proceed to buy an unlimited amount of stock. Because not even Bank of America seems to realize that a market crash, now that every.single.central.bank has gone all in on the asset reflation trade, failure is not an option, and money will fall out of helicopters before central banks admit defeat and allow a repeat of the 2008, with the S&P falling to its fair value, somehere just south of 500 (yes, that $60 trillion in newly created debt in the past 7 years rising to $200 trillion, means that without central bank support, the global equity tranche is now non-existent).

  

  

  

  

  

• KiM JoNG JuaN…

  

  

  

  

  

• Crisis Alpha & Why Volatility Is The 'Only' Asset Class

  Excerpted from Artemis Capital Management letter to investors,

  There is a tiresome debate as to whether or not volatility is an asset class. Let me end that debate… Volatility is the ONLY asset class. We are all volatility traders and the only question is whether we realize it or not.  If you disagree do me a favor and imagine you are an alien that just landed on earth and you know nothing about investing. Stocks, bonds, what are those? All you have to look at are numbers.

  Most investments will show upward growth in a steady and seductive line until they experience horrific drawdowns: classic value investing, credit, real estate, and carry trades all fit this profile and are akin to shorting volatility, correlation, and dispersion. Other investments exhibit negative to flat returns with huge profit jumps that occur infrequently. Examples include global macro funds, trend-following CTAs, and tail-risk funds.

  Most of what we think of as alpha is actually short volatility in sheep’s clothing. To prove this point we took a cross section of popular hedge fund strategies and compared their returns against selling naked put options on the S&P 500 index. The results speak for themselves and the average hedge fund strongly resembles a simple short volatility position.

  

  I find it puzzling why institutions focus on superficial asset buckets but fail to categorize investments by what really matters… return profile. This is akin to categorizing a blue and green parakeet as two entirely different species of animal, but putting an alligator and the green parakeet in the same bucket. Diversification is futile if you do not categorize by return style.

  Many investors assemble a varied portfolio of asset classes and hedge funds thinking there is safety in diversification… but all that is achieved is concentrated short convexity exposure. In a crisis the portfolio is revealed for what it really is – majority short volatility with no diversification at all.

  

  Very few investments maintain a dedicated long convexity return profile. It can be hard to hang out with the designated driver when everyone else is getting drunk from the global monetary punchbowl. Many great investors understand that having a convex asset in their portfolio allows them to buy when everyone else is selling, stick with their investment plan in times of duress, or even apply a bit of leverage onto their beta to pay for any negative carry in the low turbulence years.

  It takes a very special breed of investor to allocate to a long volatility fund and be able to tolerate years of neutral performance to small losses when everything else is going up in value… only to achieve remarkable gains when everything else crashes and burns. The key is to view a portfolio holistically, understanding that long volatility exposure provides tremendous flexibility and better risk adjusted returns over the entire business cycle. The two classifications of positive convexity hedge funds are long volatility funds and tail risk funds. While long volatility and tail risk both provide exposure to crisis, they represent very different vintages.

   

  

  CBOE/Eurekahedge publishes indices that track the respective performance of each style.

  CHART

  They say that being short volatility is like picking up pennies in front of a steamroller. If I had a penny every time somebody mischaracterized Artemis as a tail risk fund I could probably buy a steamroller.

  Long volatility hedge funds are in search of crisis alpha defined as an uncorrelated return stream whereby the balance of risk and reward is skewed toward systemic crisis in markets without the constant negative carry associated with traditional hedging. This vintage of convexity should have a positive risk-to-reward ratio overall but with the best gains reserved for market crashes. To achieve this end such funds may balance long volatility exposure with strategic shorts or use tactical exposure to gain convexity. These funds are better at capturing regime shifts in volatility associated with bear markets as opposed to one off volatility spikes that mean revert in a bull market. That nuance is lost on many investors. Long volatility funds are designed to capture market endogenous forms of crisis (e.g. 2008 financial crash, 2011 debt ceiling crash) but may or may not capture market exogenous crises (e.g. market sell-off from 9/11 terror attack).

  Tail risk hedge funds are effectively a form of financial asset insurance that provides constant exposure to long convexity, with strong reactivity to crisis, but constant negative bleed.  The tail risk fund has a negative expected return (absent a combination with equity beta) and is more of a pure hedge, as opposed to the long volatility fund, which is an alpha strategy that behaves like a hedge. Tail risk funds are positively exposed to both market endogenous and exogenous events, and do a better job capturing one-off volatility spikes. The CBOE tail risk index brings much needed transparency to tail risk funds, some of whom prefer to remain opaque to the disadvantage of investors. For example, one provider that is not a member of the index, reported recent returns to the financial media on a margin basis (effectively doubling or quadrupling returns) while reportedly excluding the fact that a portion of that performance was generated by buying equity futures the morning of a volatility spike. In actuality, this fund’s performance was in line or likely below the CBOE tail risk hedge fund index on an equal comparison basis (non-margined). All the funds in the tail risk and long volatility indices have agreed to a level of performance transparency and fairness to the benefit of investors.  

  

  Long volatility and tail risk funds can be combined with basic equity exposure to create fantastic returns. A 50/50 combination of the CBOE long volatility hedge fund index and the S&P 500 index has significantly outperformed the market and the HFRX global hedge fund index since 2008 (see above).

  In many cases, institutions can layer the convex derivatives exposure directly on the equity beta so there is no lost opportunity cost. The difference is that investors are only paying for ‘crisis alpha’ and not generic beta or short convexity exposure.

  The best long volatility funds are like guerilla freedom fighters as opposed to a standing army. Small is better than large for long volatility because convexity does not scale as easily as fragility. Long volatility is a tough business model which is why it is so rare to find funds that offer true exposure. It is simple human nature to lose interest in an asset that has flat returns for years at a time with huge payouts only occasionally. Plain vanilla short convexity funds that make steady returns are a much easier sell and accrue incentive fees faster until they blow up.

  Somebody once said that he thought there would be a $10+ billion volatility fund one day… that may be true… but at that point, it may cease to be a true volatility fund and risks becoming just an average hedge fund. Small is beautiful. Hedgehogs outlasted dinosaurs.

  *  *  *

  The complete Artemis Capital letter to investors is below:

  <iframe frameborder="0" height="600" scrolling="no" src="https://www.scribd.com/embeds/284766417/content?

  start_page=1&view_mode=scroll&show_recommendations=true” width=”100%”>

  

  

  

  

  

• "If We Don't Find A Solution Today, It's The End Of The European Union" – Refugee Crisis Hits Tipping Point

  After escalating for months, Europe’s refugee crisis hit its most serious tipping point yet, when when earlier today European Union leaders held a mini-summit on Sunday debating whether to send hundreds of guards to its borders with the western Balkans, as well as deploying more ships off Greece, as the bloc seeks to balance Germany’s welcome for refugees with tougher security measures.

  So far, over 680,000 migrants and refugees have crossed to Europe by sea so far this year, fleeing war and poverty in the Middle East, Africa and Asia, according to the International Organization for Migration. Their goal has been Germany, which has promised sanctuary, however as a result of a populist backlash and concerns over the economy, Merkel’s popularity has taken a major hit, sliding to the lowest level in four years.

  

   

  Taking place just two weeks after a full EU summit, the meeting was sought by German Chancellor Angela Merkel. According to Reuters, “many see it as an attempt by Juncker and Merkel to raise pressure on central and southeast European states to coordinate among themselves in managing the migration flow in a more humane way and end a series of unilateral actions.“

  Central and eastern European leaders meeting in Brussels may agree to send 400 border guards and set up new checkpoints if the EU’s frontier states drop their policy of giving arrivals passage to other countries, according to a draft statement seen by Reuters that must still be agreed.

  According to Reuters, the draft said that “we commit to immediately increase our efforts to manage our borders,” which, if formalized, would be a 16-point plan and the latest step in drawing up a common approach to dealing with the thousands of migrants streaming into the EU every day from the Middle East, North Africa and Afghanistan.

  Jean-Claude Juncker, the EU’s chief executive, has called leaders of Austria, Bulgaria, Croatia, Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia, plus refugee organizations involved, to attend the meeting in Brussels.

  Europe has been forced to tread lightly as Bulgaria, Serbia and Romania said they would close their borders if Germany or other countries shut the door on refugees, warning they would not let the Balkan region become a “buffer zone” for stranded migrants.

  In recent week, the fate of the European “Schengen” Customs Union has been in doubt following Hungary’s decision to close its border with Serbia and Croatia which prompted others to follow, stranding tens of thousands in dire conditions as temperatures drop.

  The traditional European response to another systemic risk has been the usual fallback: chaos, as the European Union has been so far unable to implement a coherent, credible response.

  Rights group Amnesty International said the 28-country bloc could not afford to end another meeting without an agreed plan. “As winter looms, the sight of thousands of refugees sleeping rough as they make their way through Europe represents a damning indictment of the European Union’s failure to offer a coordinated response to the refugee crisis,” said John Dalhuisen, Amnesty’s director for Europe and Central Asia.

  And while Europe dithers, the lack of a common policy is straining ties between European leaders, raising questions about the EU’s future.

  It was just a few days ago that Hungary warned that Europe’s future is at stake, when it announced it would seal its border with Croatia.  “This is the second-best option,” Hungarian foreign minister Szijjarto told reporters. “The best option, setting up an EU force to defend Greece’s external borders, was rejected in Brussels yesterday.”

  Now others are joining in.

  Yesterday, it was the turn of Austrian Chancellor Werner Faymann who told the Austrian Kronen Zeitung that “now the speech is about either a common Europe or about a quiet collapse of the European Union. One path is burdensome, difficult and supposedly long and the other one would lead to the chaos.”

  Then moments ago, Slovenia Prime Minister was quoted by Reuters during his arrival at the latest mini-summit, as saying “if European leaders fail to agree a plan to counter the sudden inflows of refugees, it could mean the end of the European Union.”

  “If we don’t find a solution today, if we don’t do everything we can today, then it is the end of the European Union as such,” Prime Minister Miro Cerar said. “If we don’t deliver concrete action, I believe Europe will start falling apart,” he told reporters.

  Considering this is the same Europe, which five years after the first Greek default has been unable to find any solution to its economic troubles – or at least a solution that does not benefit only the top 1% –  aside from kicking the can time and again and covering up record amounts of debt with even more debt, we are skeptical Europe will “deliver concrete action” today, or at any one point in the near and not so near future.

  Which means more crises, more summits, more confusion, more human suffering and tragedy.

  Which may be just what Europe wants.

  Tecall the prophetic 2008 AIG report on “Empire Europe” which explained in 4 simple bullet points just what Europe wants:

  AIG’s explanation: “To use global issues as excuses to extend its power”

  • environmental issues: increase control over member countries; advance idea of global governance
  • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
  • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
  • EMU: create a crisis to force introduction of “European economic government”

  And there it is: in four simple bullet points laid out in a 7 year old presentation, a prediction which has come true time and again: from the endless Greek bailouts, to the austerity paradox, to European youth unemployment stubbornly flat at 50% for years in many “southern” European nations, to Europe’s QE creating the deflationary impulse it is said to be fighting against, and now – to the “refugee crisis”, it is all playing out as if according to some unseen script.

   

  

  

  

  

  

• "The Distress Is Showing Up" Credit Managers Index Plunges To Recessionary Levels

  While even the mainstream media is now aware of the 'turn' in the credit cycle and the decoupling of high-yield credit markets from equity (and equity protection) markets, there is a lot going on under the surface of the broad lending (and borrowing) markets that warrants serious concern.

   

  As The National Association of Credit Managers notes,

  So much for that hoped for pattern of one bad month followed by a good one. This month’s CMI is as low as it has been in more than a year and this time the problem is in the non-favorable categories—a bigger concern than if the favorable had been the issue. When the unfavorable factors are showing stress, it is an indication that companies are feeling the pinch and may be starting a long downward trend.

   

  There was considerable distress noted in the unfavorable factors as well. These are the factors that usually suggest that creditors are getting in trouble. For the last several months, the good news has been that current credit was in decent shape, that the economic issues of the day had yet to really impact, but this no longer seems to be the case. The distress is showing up.

   

  

   

  Now we have a month when almost all the categories have weakened.

   

  This is signaling an abundance of caution going into what is supposed to be strong selling season and this is worrying.

   

  It would seem that many of the triggers that usually promote growth are not working out – unemployment is relatively low, there is no inflation in the energy sector and there has been improvement in the housing data – nothing seems to be able to shake the lethargy and concern.

  More problematic still is the resurgence in the bankrutpcy index..

  

   

  In addition, the 'amount of credit extended' index has tumbled to its lowest since October 2010, the same level it had dropped to before the collapse began in 2008.

  Comparing September 2015 to September 2014, thus far, the trend is far from a happy one. Nearly all the readings are down from where they were a month ago and significantly down from a year ago. There will have to be a big rebound just to get back to where the readings were in October and November of 2014.

  *  *  *

  And finally, it is not just high-yield credit markets that are decoupled, the investment-grade bond market's cost of hedging is now seriously decoupled from the equity market's costs of hedging…

  

   

  With leverage at or near recod highs and downgrades-to-upgrade ratios at 2009 peaks, even with the help of additional QE around the world, the rise in default rates will force credit to contract and disable the only leg holding stocks up – the non-economic stock repurchaser.

  

   

  Charts: Bloomberg

  

  

  

  

  

• Caught On Helmet Cam: US Releases Video Footage From SpecOps ISIS Prison Raid

  It would have been bad enough for Washington if Moscow had simply intervened in Syria and left it to the media to speculate and report on the progress made by Iranian ground troops operating under the cover of Russian airstrikes. But subtlety isn’t really Putin’s style and besides, the conflict in Syria represents a once in a lifetime opportunity to lay bare the West’s deplorable strategy of funding and arming extremists on the way to destabilizing recalcitrant regimes. 

  And so, not wanting to miss a chance at thoroughly embarrassing the West, The Kremlin has unleashed a veritable avalanche of videos, foreign policy critiques, and pronouncements aimed at i) unmasking the role Washington and its regional allies have played in facilitating the rise of Sunni extremism and ii) highlighting the extent to which Russia is the only country that’s actually gotten results in the campaign to eradicate terrorism in Syria. The media blitz encompasses near daily videos from the Russian Defense Ministry, characteristically deadpan (not to mention hilarious) soundbites from Sergei Lavrov, stinging criticism from Moscow’s Western foreign policy critic extraordinaire Maria Zakharova, and of course, plenty of Putin admonishments. 

  Not to put too fine a point on it, but the West has been left dumbfounded. There’s just no way to explain this to the public. There’s no way to rationalize Washington’s insistence on not cooperating with the Russians because the US has spent a year holding up ISIS as the scourge of humanity. There’s also no way to go about apologizing for the fact that Russian airstrikes have achieved more in four weeks than US airstrikes have achieved in 13 months. 

  Of course the above isn’t entirely accurate. The situation is very easily explainable. Washington could just say this: “look, Russia and Iran are the real enemies here and ISIS is just a bunch of guys we and our Mid-East allies supported initially because we thought they would help oust Assad and break up the Shiite crescent.” But saying that would be to shatter the illusion and because the public must forever be left in the dark, the US has been left to scramble around for ways to salvage the narrative. 

  Well, in what might reasonably be described as a bizarre story, the Western media has now released what looks like GoPro helmet cam footage from what Washington is trying to call a dramatic rescue effort that freed dozens of hostages from an ISIS prison in the northern Iraqi town of Huwija. 

  Apparently, the Peshmerga were attempting to free what they thought were Kurdish prisoners whose graves ISIS had (literally) already dug when Delta Force (who were on the scene acting as “advisers”) decided to step in and assist.

  The ensuing firefight led to the first American casualty in Iraq since 2011.

  Here’s Reuters:

  One member of a U.S. special operations force was killed during an overnight mission to rescue hostages held by Islamic State militants in northern Iraq, the first American to die in ground combat with the militant group, U.S. officials said on Thursday.

   

  Sixty-nine hostages were rescued in the action, which targeted an Islamic State prison around 7 kilometers north of the town of Hawija, according to the security council of the Kurdistan region, whose counterterrorism forces took part.

   

  The U.S. rescue mission unfolded amid mounting concerns in Washington over increasing Russian intervention in the Middle East.

   

  The hostages rescued in the raid were all Arabs, including local residents and Islamic State fighters held as suspected spies, a U.S. official said on Thursday.

   

  The official told Reuters that around 20 of the hostages were members of Iraqi security forces.

   

  “Some of the remainder were Daesh (Islamic State) … fighters that Daesh thought were spies,” the official said. “The rest of them were citizens of the local town”.

   

  More than 20 Islamic State militants were killed and six detained, the security council said.

   

  Islamic State called the operation “unsuccessful” but acknowledged casualties among its fighters.

   

  In a statement distributed online on Thursday by supporters, it said U.S. gunships had shelled areas around the prison to prevent the arrival of reinforcements, then clashed with militants for two hours.

   

  The statement confirmed U.S. claims that some guards had been killed and others detained in the operation.

   

  “Dozens” of U.S. troops were involved in the mission, a U.S. defense official said, declining to be more specific about the number.

   

  “It was a deliberately planned operation, but it was also done with the knowledge that imminent action was needed to save the lives of these people,” the U.S. defense official said.

  Now obviously, there’s no telling what actually went on here, nor is there any telling what 30 members of Delta Force were doing running around with the Peshmerga in northern Iraq, but one thing is for sure: the US media seems to be trying to counter the Russian propaganda blitz by holding up the Huwija raid and the death of Master Sgt. Joshua L. Wheeler as proof that Washington is serious about battling ISIS.

  Here’s AP:

  The U.S. soldier fatally wounded in a hostage rescue mission in Iraq heroically inserted himself into a firefight to defend Kurdish soldiers, even though the plan called for the Kurds to do the fighting, Defense Secretary Ash Carter said Friday.

   

  “This is someone who saw the team that he was advising and assisting coming under attack, and he rushed to help them and made it possible for them to be effective, and in doing that lost his own life,” Carter told a Pentagon news conference.

  Carter applauded Army Master Sgt. Joshua L. Wheeler, 39, of Roland, Oklahoma, who died of his wounds Thursday.

   

  The defense chief gave the most extensive public description yet of what transpired during the pre-dawn raid on an Islamic State prison compound near the town of Hawija. About 70 people, including at least 20 members of the Iraqi security forces, were freed. It was the first time U.S. troops had become involved in direct ground combat in Iraq since the war against the Islamic State was launched in August 2014, and Wheeler was the first U.S. combat death.

   

  “As the compound was being stormed, the plan was not for the U.S. … forces to enter the compound or be involved in the firefight,” Carter said. “However, when a firefight ensued, this American did what I’m very proud that Americans do in that situation, and he ran to the sound of the guns and he stood up. All the indications are that it was his actions and that of one of his teammates that protected those who were involved in breaching the compound and made the mission a success.”

   

  “That is an inherent risk that we ask people to assume,” Carter added. “Again, it wasn’t part of the plan, but it was something that he did, and I’m immensely proud that he did that.”

  Carter went on to suggest that “missions” like these are set to become more commonplace going forward:

  Carter said he expects U.S. forces to be involved in more such raids against Islamic State targets, describing it as part and parcel of what the Pentagon calls a “train, advise and assist” mission in support of Iraqi forces. At one point he said, “It doesn’t represent assuming a combat role” — but later, in noting that it is difficult to see the full picture of what happened during the Hawija raid, he said: “This is combat. It’s complex.”

  We are of course not attempting to trivialize the death of Joshua Wheeler by writing this off as some kind of publicity stunt aimed at countering the Russian media blitz. In fact, the opposite is true. If the US is now set to ramp up the frequency with which the Pentagon puts American lives at stake by inserting spec ops in ground operations just so Washington can prove to the world that America is just as serious as Russia is about fighting ISIS, well then that’s a crying shame for US servicemen; especially considering the role the US and its regional allies had in creating the groups that Delta Force and other units are now tasked with countering.

  In any event, here’s the helmet cam footage which we’ll leave it to readers to analyze and critique.

  

  

  

  

• Caption Contest: "Damn It Feels Good To Be A North Korean Dictator"

  Presented without comment because, well… what else could we say? 

  

  

  

  

  

  

• Europe "Crosses Rubicon" As Portugal Usurps Democracy, Bans Leftist Government

  On Thursday evening, we took a close look at how the political landscape has changed in Portugal following inconclusive elections held earlier this month. 

  For those unaware, the worry in Brussels has always been that either Spain, Portugal or, in a less likely scenario, Italy, would go the way of Greece by electing politicians that would seek to roll back austerity, shun fiscal rectitude, and demand debt relief. 

  As we’ve noted on any number of occasions over the past nine months, that’s why Berlin adopted such a hardline approach to negotiations with Alexis Tsipras and Yanis Varoufakis. There was never any hope of setting Athens on a “sustainable path.” It was always about deterring more “meaningful” states from going the Syriza route. 

  Well as it turns out, the troika’s efforts to subvert the democratic process in Greece by using the purse string to overthrow the government apparently did not deter the Portuguese leftists. Put differently, the ATM lines, empty shelves, and gas station queues Greece witnessed over the summer have not had their intended psychological effect in Portugal as Socialist leader Antonio Costa announced earlier in the week that he’s prepared to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition. The Left alliance would have an absolute majority in parliament and would likely adopt an anti-austerity, and perhaps even an anti-euro, platform.

  In an effort to head off this eventuality, President Anibal Cavaco Silva appointed Pedro Passos Coelho to serve another term as PM on Thursday. That was a slap in the face for Costa, and as we noted just moments after the announcement, Silva’s decision is likely to leave Portugal mired in an intractable political stalemate which is just about the last thing Europe needs as Brussels attempts to put the Greek debacle in the rearview while confronting the worsening refugee crisis. 

  Sure enough, Costa is now threatening to topple the government on the heels of what is widely viewed as an usurpation of democracy. Here’s Reuters: 

  Portugal’s opposition Socialists pledged on Friday to topple the centre-right minority government with a no-confidence motion, saying the president had created “an unnecessary political crisis” by nominating Pedro Passos Coelho as prime minister.

   

  The move could wreck Passos Coelho’s efforts to get his centre-right government’s programme passed in parliament in 10 days’ time, extending the political uncertainty hanging over the country since an inconclusive Oct. 4 election.

   

  This set up a confrontation with the main opposition Socialists, who have been trying to form their own coalition government with the hard left Communists and Left Bloc, who all want to end the centre-right’s austerity policies.

   

  “The president has created an unnecessary political crisis” by naming Passos Coelho as prime minister,” Socialist leader Antonio Costa said.

   

  The Socialists and two leftist parties quickly showed that they control the most votes when parliament reopened on Friday, electing a Socialist speaker of the house and rejecting the centre-right candidate.

   

  “This is the first institutional expression of the election results,” Costa said. “In this election of speaker, parliament showed unequivocally the majority will of the Portuguese for a change in our democracy.”

   

  Antonio Barroso, senior vice president of the Teneo Intelligence consultancy in London, said Costa was likely to threaten any Socialist lawmaker with expulsion if they vote for the centre-right government’s programme.

   

  “Therefore, the government is likely to fall, which will put the ball back on the president’s court,” Barroso said in a note.

  And here’s more from The Telegraph on the effort to undercut the democratic process:

  Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest.

   

  Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika.

   

  He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets.

  Democracy must take second place to the higher imperative of euro rules and membership.

   

  “In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva.

   

  “This is the worst moment for a radical change to the foundations of our democracy.

   

  “After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said.

   

  Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.

   

  This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia.

   

  The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm.

   

  “It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said.

   

  Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence.

  Note what’s happened here. The will of the people is now being characterized as a “false signal” to “financial institutions, investors, and markets.”

  In other words, what voters want means nothing. This is about what “markets” and “financial instiutions” want. What the electorate wants is nothing more than a “false signal.” 

  This is precisely what we predicted would happen should the political situation in Portugal not unfold in a way that pleases Berlin and Brussels. Germany and, to a lesser extent, the IMF are now in complete control of the European political process. There’s no “democracy” left. It’s either get with the austerity program and stick with it, or face the consequences which, as we saw with Greece, could entail the closure of banks and the willful destruction of the economy. 

  We can however, take solace in the fact that Cavaco Silva’s attempts to appease financial markets will invariably backfire, because if there’s anything investors hate, it’s uncertainty and the move to reappoint Passos Coelho will only serve to bring about a protracted political conflict with the Left. Watch Portuguese bond yields next week for hints as to whether the President’s decision has achieved the stated goal of calming “investors” and “markets.”

  We’ll close with the following quote from The Telegraph’s Ambrose Evans-Pritchard:

  Mr Cavaco Silva is effectively using his office to impose a reactionary ideological agenda, in the interests of creditors and the EMU establishment, and dressing it up with remarkable Chutzpah as a defence of democracy.

   

  The Portuguese Socialists and Communists have buried the hatchet on their bitter divisions for the first time since the Carnation Revolution and the overthrow of the Salazar dictatorship in the 1970s, yet they are being denied their parliamentary prerogative to form a majority government.

   

  This is a dangerous demarche. The Portuguese conservatives and their media allies behave as if the Left has no legitimate right to take power, and must be held in check by any means.

   

  These reflexes are familiar – and chilling – to anybody familiar with 20th century Iberian history, or indeed Latin America. That it is being done in the name of the euro is entirely to be expected.

  

  

  

  

  

• The Drone Debate: Do US Drone Strikes Create More Terrorists Than They Kill?

  In the wake of the war in Iraq and the ground incursion the US launched in Afghanistan after 9/11, the phrase “boots on the ground’ has become something of an obscenity among the American public. 

  Putting American lives at stake by sending soldiers into battle against extremist groups operating in the Mid-East is now viewed by many as the ultimate foreign policy blunder, which helps to explain why Washington has resorted increasingly to i) training and supplying proxy armies, and ii) executing “targets” from the stratosphere via drone strikes. 

  We’ve spent more than enough time of late analyzing the flaws inherent in a strategy that involves providing covert support to those fighting regimes the US deems unfriendly and recalcitrant, but it’s important to remember that the CIA habitually uses unmanned drones to target suspected “terrorists” with virtually no regard for the “collateral damage” that can and does occur when Washington relies on shaky “intelligence” to spot “targets” in Iraq, Afghanistan, Somalia, Pakistan, and Yemen. 

  A few weeks back, The Intercept was provided with what it calls “a cache of secret slides that provides a window into the inner workings of the U.S. military’s kill/capture operations at a key time in the evolution of the drone wars — between 2011 and 2013.”

  We profiled The Intercept’s report earlier this month (see here) and for anyone who missed it we’ve provided some notable excerpts, but the point in raising the issue again is to highlight a debate between Glenn Greenwald, co-founder of The Intercept, and Georgetown University Associate Professor Christine Fair. The video clip is linked below.

  *  *  *

  Via The Intercept

  The documents, which also outline the internal views of special operations forces on the shortcomings and flaws of the drone program, were provided by a source within the intelligence community who worked on the types of operations and programs described in the slides.

  The source said he decided to provide these documents to The Intercept because he believes the public has a right to understand the process by which people are placed on kill lists and ultimately assassinated on orders from the highest echelons of the U.S. government. “This outrageous explosion of watchlisting — of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield — it was, from the very first instance, wrong,” the source said.

  Documents on high-value kill/capture operations in Afghanistan buttress previous accounts of how the Obama administration masks the true number of civilians killed in drone strikes by categorizing unidentified people killed in a strike as enemies, even if they were not the intended targets. The slides also paint a picture of a campaign in Afghanistan aimed not only at eliminating al Qaeda and Taliban operatives, but also at taking out members of other local armed groups.

  Taken together, the secret documents lead to the conclusion that Washington’s 14-year high-value targeting campaign suffers from an overreliance on signals intelligence, an apparently incalculable civilian toll, and — due to a preference for assassination rather than capture — an inability to extract potentially valuable intelligence from terror suspects. They also highlight the futility of the war in Afghanistan by showing how the U.S. has poured vast resources into killing local insurgents, in the process exacerbating the very threat the U.S. is seeking to confront.

  These secret slides help provide historical context to Washington’s ongoing wars, and are especially relevant today as the U.S. military intensifies its drone strikes and covert actions against ISIS in Syria and Iraq. Those campaigns, like the ones detailed in these documents, are unconventional wars that employ special operations forces at the tip of the spear.

  The “find, fix, finish” doctrine that has fueled America’s post-9/11 borderless war is being refined and institutionalized. Whether through the use of drones, night raids, or new platforms yet to be unleashed, these documents lay bare the normalization of assassination as a central component of U.S. counterterrorism policy.

  U.S. intelligence personnel collect information on potential targets, as The Intercept has previously reported, drawn from government watchlists and the work of intelligence, military, and law enforcement agencies. At the time of the study, when someone was destined for the kill list, intelligence analysts created a portrait of a suspect and the threat that person posed, pulling it together “in a condensed format known as a ‘baseball card.’” That information was then bundled with operational information and packaged in a “target information folder” to be “staffed up to higher echelons” for action. On average, it took 58 days for the president to sign off on a target,one slide indicates. At that point, U.S. forces had 60 days to carry out the strike. The documents include two case studies that are partially based on information detailed on baseball cards.

  The system for creating baseball cards and targeting packages, according to the source, depends largely on intelligence intercepts and a multi-layered system of fallible, human interpretation. “It isn’t a surefire method,” he said. “You’re relying on the fact that you do have all these very powerful machines, capable of collecting extraordinary amounts of data and information,” which can lead personnel involved in targeted killings to believe they have “godlike powers.”

  The White House and Pentagon boast that the targeted killing program is precise and that civilian deaths are minimal. However, documents detailing a special operations campaign in northeastern Afghanistan, Operation Haymaker, show that between January 2012 and February 2013, U.S. special operations airstrikes killed more than 200 people. Of those, only 35 were the intended targets.

  During one five-month period of the operation, according to the documents, nearly 90 percent of the people killed in airstrikes were not the intended targets. In Yemen and Somalia, where the U.S. has far more limited intelligence capabilities to confirm the people killed are the intended targets, the equivalent ratios may well be much worse.

  “Anyone caught in the vicinity is guilty by association,” the source said. When “a drone strike kills more than one person, there is no guarantee that those persons deserved their fate. … So it’s a phenomenal gamble.”

   The documents show that the military designated people it killed in targeted strikes as EKIA — “enemy killed in action” — even if they were not the intended targets of the strike. Unless evidence posthumously emerged to prove the males killed were not terrorists or “unlawful enemy combatants,” EKIA remained their designation, according to the source. That process, he said, “is insane. But we’ve made ourselves comfortable with that. The intelligence community, JSOC, the CIA, and everybody that helps support and prop up these programs, they’re comfortable with that idea.”

  *  *  * 

  And there’s much, much more available at “The Drone Papers.”

  While what you’ll read there is deplorable and on a certain level, shocking, those who follow US foreign policy will not be surprised. Essentially, Washington relies on faulty intelligence on the way to bombing targets from the stratosphere and almost everyone who ends up dead isn’t a “terrorist.” In order to conceal that fact, the CIA and the Pentagon classify anyone who was killed as an “enemy”, and this egregious practice has become so commonplace as to be embedded in the drone workflow. 

  Make no mistake, this is nothing short of a travesty and only serves to underscore the notion that Washington’s Mid-East policy is beset by a toxic combination of corruption, buffoonery, and, if The Intercept is correct, murder. 

  Click on the image below, watch the debate, and draw your own conclusions.

  

  

  

  

  

  

• Just When You Thought Wall Street's Heist Couldn't Get Any Crazier…

  Submitted by Pam Martens & Russ Martens via WallStreetOnParade.com,

  Just when you thought Wall Street’s heist of the U.S. financial system couldn’t get any crazier, along comes a regulator’s report on FDIC-insured banks exposure to derivatives. According to the Office of the Comptroller of the Currency (OCC), one of the regulators of national banks, as of June 30 of this year, Goldman Sachs Bank USA had $78 billion in deposits, and – wait for it – $45.7 trillion in notional amount of derivatives. (Notional means face amount of derivatives.) According to the OCC report, Goldman Sachs Bank USA’s notional derivatives are an eye-popping 563 percent of its risk-based capital. You and every other little guy in America is backstopping this bank because it’s, amazingly, FDIC insured.

  

  Compared to its Wall Street peers, Goldman Sachs Bank USA is a midget. JPMorgan Chase Bank NA has just shy of $2 trillion in assets; Citibank NA (part of Citigroup) has $1.3 trillion; Bank of America NA $1.6 trillion. That compares with Goldman Sachs Bank USA, which just became an FDIC insured bank at the height of the financial crisis on November 28, 2008, which has a puny $122.68 billion in assets. But it wants to play with the big boys anyway when it comes to derivatives, as the chart above shows.

  Based on the data, it looks like the average taxpayer is backstopping a ton of risk at this FDIC insured bank and getting very little in return. According to financial data from the FFIEC for the second quarter, the bank had $25.1 billion in trading assets and according to the company’s web site, it’s those high net worth clients of its Private Bank that it’s working with “to manage their cash flow needs, finance private asset purchases, and facilitate strategic investments.”

  According to the New York Times, Goldman Sachs private wealth management services require a minimum of $10 million to get in the front door. The same Times article says Goldman was even kicking out its own employees’ accounts if they fell short of $1 million.

  Quite a few things come to mind in reading these various regulatory reports.

  First, almost none of the promises that were made to the public about what was going to happen under Dodd-Frank financial reform is actually happening. The push-out rule was supposed to push these trillions of dollars of risky derivatives out of the insured banking unit to prevent another epic taxpayer bailout. Citigroup, in a sleight of hand in December, simply legislated that investor protection out of existence.

  Then there was the promise that these trillions of opaque derivative contracts were going to come into the sunshine by being forced onto regulated exchanges. That hasn’t happened either – seven years and counting after derivatives blew up the U.S. economy, leaving millions unemployed and a nation still struggling to find a pulse in its growth rate. According to the FFIEC report, “centrally cleared derivatives” at Goldman Sachs Bank USA represent only a small portion of its total derivatives.

  And then there is the matter of allowing the public to assess counterparty risks building up at our insured banks after AIG sold credit protection derivatives (credit default swaps) across Wall Street that it could not pay in the crisis, forcing another massive government bailout. On the FFIEC report, the lines that would show Goldman Sachs Bank USA’s greatest single counterparty risk and its top 20 greatest counterparty risks, are both marked “Confidential.”

  Welcome to another day at the casino where the model continues to be — heads they win, tails you lose.

  

  

  

  

  

• US Economic Data Has Never Been This Weak For This Long

  Despite the ongoing propaganda reinforcing America's "cleanest sheets in a brothel" economic growth, the fact is, there is a reason why The Fed folded, why Draghi doubled-down, why China cut, and why Kuroda will likely unleash moar QQE this week. It appears the 'trap' that central planners have set for themselves – by enabling massive financial asset inflation in the face of what is now the longest streak of economic weakness and data disappointment on record – now looks set to prove their impotence and/or Enisteinian insanity.

   

  As Ice Farm Capital notes,

  a year ago were looking at 5yr inflation breakevens around 1.5%.  They have since deteriorated to 1.15% (by way of 1%) and this week we are expecting a Q3 GDP print more like 1.5% — a deceleration of a full 240bps.

   

   

  

   

   

  Corporate profit margins have taken a sharp hit and corporate profits for the S&P are now down 3% yoy despite continued share buybacks.

   

  Through this entire period, markets have continually expected happy days to be just around the corner.

  As a result, we have seen economic surprises for the US negative for the longest stretch in the history of the data series:

  

  2015 has been weak from the start

   

  To make it a little clearer, this period of economic weakness and disappointment is not just the longest on record, but it is entirely unprecedented…

  

   

  Hike rates into that!! (Is it any wonder, the market's odds of a Dec rate hike remain at 34%, despite all the talk from The Sell-Side and The Fed that it is a live meeting)

   

  Charts: Bloomberg and Ice Farm Capital

  

  

  

  

  

• The Fatal Fallacy Of Faith In The Fed's Assumed Powers

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  There is always some chicken and egg to any financial irregularity; as in does a crisis cause a panic or is it the panic that causes the crisis? Though the evidence of the past eight years is decidedly on the side of the irregularity, central banks continue to press as if that were not so. In no uncertain terms, central bankers persist in expressing their own confidence and, if you read or listen closely enough, great disdain for free markets they deem unworthy as if nothing more than unchained emotion. In the context of 2008, as the current FOMC tells it, the markets got all worked up over nothing much and should have instead simply enjoyed the blind faith in the Fed to have fixed it all without the fuss and bother.

  As offensive as that sounds, that is exactly what is being preached. Janet Yellen in April 2014:

  Fundamental to modern thinking on central banking is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions. Specifically, it is important for the central bank to make clear how it will adjust its policy stance in response to unforeseen economic developments in a manner that reduces or blunts potentially harmful consequences. If the public understands and expects policymakers to behave in this systematically stabilizing manner, it will tend to respond less to such developments.

  There is a fatal fallacy at the heart of this philosophy, one in which has blinded these economists as they marvel at their own assumed powers. Yellen suggests that markets should stop worrying so much about liquidity and other perhaps tangential, but no less meaningful, factors and instead only ignore them in the comfort that Yellen has those all under control. It is no less destructive conceit, one which was revealed to all amply this past decade – starting with the housing bubble itself.

  In reality, investors and market agents have good reason to concern about both markets and central banks. Yellen says that they are in perfect position to handle whatever may come, but that clearly hasn’t been the case. Instead, central banks all over the world have been forced into one ad hoc program after another, which by itself refutes Yellen’s assertiveness. Rather than instill great confidence to do as the Fed Chair demands, central banks have only proved themselves far too in love with themselves. In order for this end of the Yellen Doctrine to work, central bankers need to stop thinking that everything they do is magic and saying so.

  We can see that problem in ways both great and small, as “managing” Bear Stearns’ collapse in March 2008 didn’t round out the bottom but rather only instilled unearned confidence in the Fed that, again, their efforts would work. Bear was a great warning to be prepared about truly dire consequences, but somehow the FOMC was wholly unprepared for Lehman, AIG and the rest (including the GSE’s), leaving them scrambling and again pulling together various spontaneous programs from nowhere – and to no avail. Bernanke says that central banks can mitigate recession, so how come the Great Recession? This scenario was repeated (repeatedly) in 2011 and in smaller ways since.

  I believe, in large part, that August 2015 represents just the latest in that gap between how markets do and should work and the ideal utopian scenario central banks plan for. The PBOC, far more so than the Fed, has enjoyed a reputation for control and management that seems to closely align with Yellen’s doctrine (totalitarian envy, the true financial law of central planning hard and soft). The events of August showed once again that there is no true control, only the illusion. The PBOC had clearly “engineered” a RMB/US$ cross without any volatility or variation whatsoever. Rather than view that as Yellen wishes, it was another ad hoc attempt to control and manage a far greater force – a force that none of the central banks wish to appreciate.

  

  In order to contain yuan trading meant any number of growing intrusiveness, none of which we will ever likely know for sure. We can infer from various market components and then make reasonable judgments and extrapolations, but what is hidden and opaque will remain so until revealed by time. The PBOC and Chinese government have, in the past, used that to their advantage, cultivating the legend of near-omniscience for the PBOC, but since August what seemed to be beneficial in screening the true nature of market conditions might now turn in the other direction.

  The narrative about China’s “dollar” efforts has been entirely focused on “selling UST’s” when that is only the gloss. As I noted a few weeks ago, the record of US t-bills more than suggests a deeper financial invective against “dollar” irregularity. It would be preposterous to think that the PBOC would be limiting itself to such an unsuitable arrangement; that the Chinese central bank would not be undertaking much deeper and intentionally muddy measures to at least run down and transform the immediate problem.

  That would mean “reserve” mobilization would have been much more comprehensive and far deeper and multi-dimensional than simply “selling UST” of whatever class. In other words, if the PBOC was altering its bill strategy and engaging outright selling of UST securities, it was surely engaging repos and likely swaps of all flavors. After all, collateral in any of the derivative “reserve” activities is usually UST’s anyway.

   

  It would also suggest transactions in forward contracts, a type of instrument the PBOC is intimately familiar with through its yuan management methodology. Thus, looking at the China’s “dollar” problem through the lens of wholesale finance opens up greater possibilities as far as what China has done (and is doing) about it.

  To this point, it has worked on two fronts. Liquidity volatility has been somewhat improved (though, it has to be pointed out, the boot of PBOC yuan measures remains on SHIBOR which while providing immediate cover only increases the cost down the road) and, more importantly from the Yellen Doctrine standpoint, the “capital” flow numbers for September fooled any number of economists and commentators into issuing their verdict of an end to the emergency. That, of course, was nonsense as any deeper, wholesale appreciation for the PBOC’s tools and likelihoods suggests the opposite; namely that China has indeed followed Brazil. This was no end to the problem, but merely the end of Chapter 1 (if you wish to start the ordinal order at August rather than related prior “dollar” issues).

  

  As Brazil, the PBOC is proving far against any omniscience, instead it, too, is Fed-like mortal in being forced to inefficient and belatedly improvised emergency stirring. The use of forwards as a liquidity tool against a “dollar” run is as dangerous as the run itself because it moves the strain only in maturity (from immediate to more intermediate) but with a geometrically progressing “cost” and potential disorder for doing so.

  Which brings us all back to the question about what, exactly, is an “outflow.” If a flood of PBOC-generated swaps and forwards sets up only a maturity transformation moving the “dollar” pressure from August or September to October and November, then being effective means being able to either deliver “dollars” then (instead of September) without an October disruption, or going deeper into maturity transformations (a form of, as noted above, high cost future indebtedness) in order to continue fooling “markets” into thinking there is nothing going on at all by maintaining this same outward appearance of resumed stability. That latter is surely the motivation behind O/N SHIBOR’s sudden meaninglessness.

   

  In my view, and this is speculative on my part but I don’t think unreasonably so, the October 15 reserve mandate seems to be a hedge on the PBOC’s “dollar” intentions as far as taking the first option so as to keep the process to as much of a minimum as possible. The second option, which is what Brazil opted for (as does every other central bank when forced by sustained “dollar” turmoil), is too asymmetric – you gain more maturity transformation, kicking the can further, but the cost to do so increases more geometrically than linear.

  The Brazil case is not exactly analogous given its unique financial connection to the eurodollar system and how its central bank attempts to manage it, but the situations are in general terms identical. Brazil found itself in “dollar” trouble in the middle of 2013, instituted swaps and forwards and “bought” only a few months peace and the appearance of calm. Once the maturity transformation took its place, starting September 2014, the real has been obliterated an order of magnitude worse than imaginable at the start of the program in 2013.

  

  In my analysis, Brazil had no plausible escape from the “dollar” and thus the central bank’s efforts only amplified greatly the inevitable. From what I have seen of China, especially the first crack at the “dollar” run through July and August, I can’t fathom why they would find themselves any different. That point is bolstered by the belated recognition, in the mainstream no less, the wholesale inner workings that have, to this point, masked the continued difficulties:

  The People’s Bank of China and local lenders increased their holdings in onshore forwards to $67.9 billion in August, positions that would boost China’s currency against the dollar. The amount is five times more than the average in the first seven months, PBOC data show. The positions are part of a three-stage process to support the currency without immediately draining reserves, according to China Merchants Bank Co. and Goldman Sachs Group Inc.

   

  Standard central-bank intervention to support a currency generally involves selling dollars and buying the home tender. In this case, China’s large state banks borrowed dollars in the swap market, sold the U.S. currency in the cash spot market and used forward contracts with the central bank to hedge those positions.

  In the parlance of what I have used to describe for Brazil, the PBOC like Banco do Brasil enticed Chinese banks already short (synthetically) the “dollar” to become more so – all because they are coaxed into believing, as Yellen, that the central bank will have it covered on the other end. The PBOC’s motivation is only immediate, just hoping that the unwind into the future can be more manageable. What Brazilian banks found was quite the opposite, and Brazil is now suffering greatly for it.

  That last is the central issue here, namely that doing as Yellen and her counterparts demand is the biggest risk of all. The Yellen Doctrine requires that central banks be both correct and able, abilities that have been (and can only be) in utter short supply. Her view would show more proactive and effective central bank management where only reactive and impromptu, last minute white-knuckling has abounded. Central banks have been in the past year only holding on for dear life, which is where obscurity has been their benefit. In the end, however, I think it their own downfall as it only serves to make matters worse. Yellen wants the central bank to be viewed as almost godlike, but they continually reveal themselves weak, deceptive and ineffectual; eschewing all long run sustainability in order to just make it through one day at a time.

  They really don’t know what they are doing and China’s forwards put yet another exclamation on that point. That is why I have claimed these past few months that the central bank’s worst nightmare will be when wholesale exposure is revealed and appreciated as exactly the problem rather than the solution. Making Chinese banks “more short” the “dollar” is like giving a morphine addict keys to the medical locker and expecting the printed warning labels as enough to deter overdose.

  

  

  

  

  

• When Is A Ceiling Not A Ceiling?

  When, as Jim Quinn exclaims, corrupt politicians do as they are told by their keepers on Wall Street and in the boardrooms of S&P 500 mega-corps…

   

  

   

  House Republican leaders were slated to propose a bill this week linking a debt ceiling increase to conservative issues. Under the new proposal, the debt ceiling would be increased from $18.1 trillion to $19.6 trillion, and would likely extend through 2018.

  However, new reports out of Washington suggest that internal support for the bill from Republican lawmakers is divided, and it is unlikely to go to the floor. Where things go from here are unclear. If it gets down to the wire, Republicans willing to play ball may have to seek Democrat support, but this would likely void any concessions to spending as originally proposed.

  Congress is likely on the brink of another deadlock, similar to 2011 or 2013, in which debate will rage on even past the Treasury’s deadline of November 3. The end result is obvious: the limit will be increased. However, in the meantime, there is likely to be no shortage of brinkmanship as both parties do their song and dance.

  The chart above shows the parabolic increase to the statutory debt limit from 1970 until today. The chart also includes the potential $19.6 trillion ceiling as described in the most recent proposal, as well as the lawmakers in control during each time period.

  What is clear from this data is that over the past, the debt limit will increase no matter who is in control. While there may be minor differences, the ceiling as well as federal debt have reached unprecedented levels as a result of both parties. That is why the United States now has 29% of total sovereign debt and also the2nd highest national debt when measured in terms of debt-to-revenue.

  If a compromise isn’t reached, at some point the United States government would become unable to make payments on spending it has already committed to. The result would be a default on its debt obligations.

  Source: Visual Capitalist

  

  

  

  

  

• America's Top 10 Fears

  While nearly a decade ago, Americans celebrated the arrival of "hope and change", since then "hope" (not to mention "change") has been all but eradicated (if only for the vast majority of the population), and has been replaced with an emotion that is its polar opposite. Fear.

  Fear of government corruption (which we were delighted to find in the top spot), fear of terrorist attacks, fear of the NSA, fear of ID theft, fear of cyberterrorists, and even fear of economic collapse… all the way in 8th place.

  And yes, "fear of clowns" is in there too.

  In an attempt to quantify these fears, the Chapman University Survey of American Fears provides an unprecedented look into the fears of average Americans.

  In April of 2015, a random sample of 1,541 adults from across the United States were asked their level of fear about eighty-eight different fears across a huge variety of topics ranging from crime, the government, disasters, personal anxieties, technology and many others.

  Domains of Fear

  

  There were 10 major “domains” of fear addressed by the survey, including:

  Fear Domain	Types of Questions Included
  Crime	Murder, rape, theft, burglary, fraud, identity theft
  Daily Life	Romantic rejection, ridicule, talking to strangers
  Environment	Global warming, overpopulation, pollution
  Government	Government corruption, Obamacare, drones, gun control, immigration issues
  Judgment of others	Appearance, weight, age, race
  Man-Made Disasters	Bio-warfare, terrorism, nuclear attacks
  Natural Disasters	Earthquakes, droughts, floods, hurricanes
  Personal Anxieties	Tight spaces, public speaking, clowns, vaccines
  Personal Future	Dying, illness, running out of money, unemployment
  Technology	Artificial intelligence, robots, cyber-terrorism

   

  Top Fear Domains, 2015

  Each fear question asks Americans to rate their level of fear on a scale ranging from 1 (not afraid) to 4 (very afraid). The average score for each domain of fear provides insight into what types of fear are of greatest concern to Americans in 2015.

  On average, Americans expressed the highest levels of fear about man-made disasters, such as terrorist attacks, followed by fears about technology, including corporate and government tracing of personal data and fears about the government (such as government corruption and ObamaCare). The complete, ranked list of Domains of Fear follows:

  Domain of Fear	Average Fear Score (out of 4)
  Man-Made Disasters	2.15
  Technology	2.07
  Government	2.06
  Environment	1.97
  Personal Future	1.95
  Natural Disasters	1.95
  Crime	1.72
  Personal Anxieties	1.63
  Daily Life	1.51
  Judgment of Others	1.31

   

  Top 10 Fears of 2015

  

   

  Below is a list of the 10 fears for which the highest percentage of Americans reported being “Afraid,” or “Very Afraid.”

  Fear	Fear Domain	Afraid or Very Afraid
  Corruption of Government Officials	Government	58.0%
  Cyber-terrorism	Technology	44.8%
  Corporate Tracking of Personal Information	Technology	44.6%
  Terrorist Attacks	Man-Made Disasters	44.4%
  Government Tracking of Personal Information	Technology	41.4%
  Bio-Warfare	Man-Made Disasters	40.9%
  Identity Theft	Crime	39.6%
  Economic Collapse	Man-Made Disasters	39.2%
  Running of out Money in the Future	Personal Future	37.4%
  Credit Card Fraud	Crime	36.9%

   

  The Complete List of Fears, 2015

  The following is a complete, list of all of the fears addressed by the Chapman Survey of American Fears, Wave 2 (2015), including the percent of Americans who reported being afraid or very afraid. 

   

  Sorted by Percent Afraid/Very Afraid

  Fear	Fear Domain	% Afraid or Very Afraid
  Corruption	Government	58.0
  Cyber-terrorism	Technology	44.8
  Corporate Tracking of Personal Data	Technology	44.6
  Terrorist Attack	Man-made Disasters	44.4
  Government Tracking of Personal Data	Technology	41.4
  Bio-warfare	Man-made Disasters	40.9
  Identity Theft	Crime	39.6
  Economic Collapse	Man-made Disasters	39.2
  Running out of Money	Personal Future	37.4
  Credit Card Fraud	Crime	36.9
  Gun Control	Government	36.5
  War	Man-made Disasters	35.8
  Obamacare	Government	35.7
  Illness	Personal Future	34.4
  Pandemic	Natural Disasters	34.3
  Nuclear Attack	Man-made Disasters	33.6
  Reptiles	Personal Anxieties	33.0
  Meltdown	Man-made Disasters	32.3
  Civil Unrest	Man-made Disasters	32.0
  Tornado	Natural Disasters	31.4
  Global Warming	Environment	30.7
  Grid attack	Man-made Disasters	29.8
  Illegal Immigration	Government	29.7
  Drought	Natural Disasters	29.4
  Robots Replacing Workforce	Technology	28.9
  Public Speaking	Personal Anxieties	28.4
  Property Damage	Natural Disasters	27.7
  Heights	Personal Anxieties	27.4
  Pollution of rivers and streams	Environment	26.9
  Earthquake	Natural Disasters	26.7
  Drunk Driver	Crime	26.5
  Flood	Natural Disasters	26.5
  Hurricane	Natural Disasters	26.4
  Trusting Artificial Intelligence to do work	Technology	25.8
  Insects	Personal Anxieties	25.5
  Blizzard	Natural Disasters	25.0
  Overpopulation	Environment	24.0
  Robots	Technology	23.9
  Unemployment	Personal Future	23.8
  Artificial Intelligence	Technology	22.2
  Break ins	Crime	22.2
  Loneliness	Personal Future	22.0
  Dying	Personal Future	21.9
  Theft	Crime	21.6
  Water	Personal Anxieties	21.0
  Drones	Government	20.4
  Claustrophobia	Personal Anxieties	19.9
  Volcano	Natural Disasters	19.7
  Aging	Personal Future	19.6
  Ponzi Schemes and other financial crimes	Crime	19.0
  Technology I don’t understand	Technology	19.0
  Needles	Personal Anxieties	18.5
  Whites no longer majority	Government	18.2
  Dying	Daily Life	16.8
  Germs	Personal Anxieties	16.5
  Mass Shooting	Crime	16.4
  Walking Along at Night	Daily Life	16.4
  Murder by a stranger	Crime	16.0
  Mugging	Crime	15.8
  Police Brutality	Crime	15.4
  Flying	Personal Anxieties	15.2
  Rape by a stranger	Crime	14.5
  Gangs	Crime	14.1
  Whooping Cough	Personal Anxieties	13.5
  Kidnapping	Crime	13.0
  Mammals (Dogs, rats or other animals)	Personal Anxieties	12.9
  Measles	Personal Anxieties	12.7
  Stalking	Crime	12.7
  Dismissed by Others	Daily Life	12.5
  Blood	Personal Anxieties	12.2
  Hate Crime	Crime	12.2
  Weight	Judgment of Others	11.4
  Rape by someone you know	Crime	11.3
  Murder by someone you know	Crime	10.9
  Ridicule	Daily Life	10.6
  Romantic Rejection	Daily Life	10.4
  Expressing Opinion	Daily Life	9.7
  Ghosts	Personal Anxieties	9.7
  Talking to Stranger	Daily Life	9.7
  Gossip	Daily Life	9.6
  Dark	Personal Anxieties	9.3
  Appearance	Judgment of Others	8.7
  Zombies	Personal Anxieties	8.5
  Vaccines	Personal Anxieties	8.4
  Clowns	Personal Anxieties	6.8
  Age	Judgment of Others	5.9
  Race	Judgment of Others	5.6
  Gender	Judgment of Others	4.5
  Dress	Judgment of Others	4.2

   

  Sorted Alphabetically 

  Fear	Fear Domain	% Afraid or Very Afraid
  Age	Judgment of Others	5.9
  Aging	Personal Future	19.6
  Appearance	Judgment of Others	8.7
  Artificial Intelligence	Technology	22.2
  Bio-warfare	Man-made Disasters	40.9
  Blizzard	Natural Disasters	25.0
  Blood	Personal Anxieties	12.2
  Break ins	Crime	22.2
  Civil Unrest	Man-made Disasters	32.0
  Claustrophobia	Personal Anxieties	19.9
  Clowns	Personal Anxieties	6.8
  Corporate Tracking of Personal Data	Technology	44.6
  Corruption	Government	58.0
  Credit Card Fraud	Crime	36.9
  Cyber-terrorism	Technology	44.8
  Dark	Personal Anxieties	9.3
  Dismissed by Others	Daily Life	12.5
  Dress	Judgment of Others	4.2
  Drones	Government	20.4
  Drought	Natural Disasters	29.4
  Drunk Driver	Crime	26.5
  Dying	Personal Future	21.9
  Dying	Daily Life	16.8
  Earthquake	Natural Disasters	26.7
  Economic Collapse	Man-made Disasters	39.2
  Expressing Opinion	Daily Life	9.7
  Flood	Natural Disasters	26.5
  Flying	Personal Anxieties	15.2
  Gangs	Crime	14.1
  Gender	Judgment of Others	4.5
  Germs	Personal Anxieties	16.5
  Ghosts	Personal Anxieties	9.7
  Global Warming	Environment	30.7
  Gossip	Daily Life	9.6
  Government Tracking of Personal Data	Technology	41.4
  Grid attack	Man-made Disasters	29.8
  Gun Control	Government	36.5
  Hate Crime	Crime	12.2
  Heights	Personal Anxieties	27.4
  Hurricane	Natural Disasters	26.4
  Identity Theft	Crime	39.6
  Illegal Immigration	Government	29.7
  Illness	Personal Future	34.4
  Insects	Personal Anxieties	25.5
  Kidnapping	Crime	13.0
  Loneliness	Personal Future	22.0
  Mammals (Dogs, rats or other animals)	Personal Anxieties	12.9
  Mass Shooting	Crime	16.4
  Measles	Personal Anxieties	12.7
  Meltdown	Man-made Disasters	32.3
  Mugging	Crime	15.8
  Murder by a stranger	Crime	16.0
  Murder by someone you know	Crime	10.9
  Needles	Personal Anxieties	18.5
  Nuclear Attack	Man-made Disasters	33.6
  Obamacare	Government	35.7
  Overpopulation	Environment	24.0
  Pandemic	Natural Disasters	34.3
  Police Brutality	Crime	15.4
  Pollution of rivers and streams	Environment	26.9
  Ponzi Schemes and other financial crimes	Crime	19.0
  Property Damage	Natural Disasters	27.7
  Public Speaking	Personal Anxieties	28.4
  Race	Judgment of Others	5.6
  Rape by a stranger	Crime	14.5
  Rape by someone you know	Crime	11.3
  Reptiles	Personal Anxieties	33.0
  Ridicule	Daily Life	10.6
  Robots	Technology	23.9
  Robots Replacing Workforce	Technology	28.9
  Romantic Rejection	Daily Life	10.4
  Running out of Money	Personal Future	37.4
  Stalking	Crime	12.7
  Talking to Stranger	Daily Life	9.7
  Technology I don’t understand	Technology	19.0
  Terrorist Attack	Man-made Disasters	44.4
  Theft	Crime	21.6
  Tornado	Natural Disasters	31.4
  Trusting Artificial Intelligence to do work	Technology	25.8
  Unemployment	Personal Future	23.8
  Vaccines	Personal Anxieties	8.4
  Volcano	Natural Disasters	19.7
  Walking Along at Night	Daily Life	16.4
  War	Man-made Disasters	35.8
  Water	Personal Anxieties	21.0
  Weight	Judgment of Others	11.4
  Whites no longer majority	Government	18.2
  Whooping Cough	Personal Anxieties	13.5
  Zombies	Personal Anxieties	8.5

  h/t ValueWalk

  

  

  

  

• Artist's Impression Of This Week's Failed "Syrian Solution" Meetings

  Prussian roulette…

   

  

   

  Source: Cagle Post

  

  

  

  

  

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• 5 Questions For Bernie Sanders Supporters

  Authored by Derrick Broze, originally posted Op-Ed at TheAntiMedia.org,

  I have five simple questions for supporters of Senator Bernie Sanders’ presidential campaign. Before I get to them, I find it necessary to preface this with a plea for logic and respectful communication. I am going to be critical of Bernie, and I need you to listen, remain calm, take in the information, and answer honestly.

  I ask that you refrain from calling me a shill, a Republican agent, or anything of that sort. I also ask that before you write me off as “another corporate media shill,” you take a moment to consider that I have praised Bernie when he was in the right (see here and here). I have also called him out in the areas where he needs work.

  Personally, I am slightly frightened by the online interactions I have witnessed from those who #FeelTheBern. There seems to be a tendency to dismiss anyone who criticizes Bernie as either a Donald Trump supporter or simply an idiot. I can only speak for myself and say that neither of those accusations are true. This hysteria around Sanders is reminiscent of Obama’s supporters, who were quick to attack detractors pointing out that “Hope and Change” was quickly turning into more of the same.

  And now on to the questions. Each of them relates to Sanders’ own comments about his potential presidency. I ask that you respond to each comment individually and think about what exactly you are looking for when you say you want to vote for a president.

  If you are seeking more freedom and prosperity, ask yourself if that is what you will get by voting for any of the current candidates. If you are seeking to reclaim the moral high ground the United States may have once had, ask yourself if these policies will do just that. Please, please stand by your principles and do not allow the Corporate-State powers to pull the wool over your eyes.

  Question 1. Would Bernie’s tax on Wall Street speculation work?

  Bernie Sanders has said that he would tax Wall Street speculation and use the funding to pay for his “free” public college tuition program. A fact check by the Associated Press reported that “Sanders’ plan would cover tuition and fees at public universities – a $70 billion annual expense with the federal government picking up two-thirds of that tab by taxing trading in the financial markets.”

  “Students would still be on the hook for room and board costs that average $9,804, according to the College Board,” the AP added.

  But would this Wall Street speculation tax actually achieve the desired outcome? Donald J. Boudreaux, Professor of Economics at George Mason University, does not believe the plan can work. Boudreaux recently wrote:

  “If such speculation is as economically destructive as Mr. Sanders regularly proclaims it to be, the tax on speculation should be set high enough to drastically reduce it.  But if – as Mr. Sanders presumably wishes – speculation is drastically reduced, very little will remain of it to be taxed and, thus, such a tax will not generate enough revenue to pay for Mr. Sanders’s scheme of making all public colleges and universities ‘tuition-free.’”

  If a speculation tax is a successful deterrent, there will likely be a decrease in speculation and therefore, very little funds to appropriate for a college tuition fund. Can Bernie’s Wall Street speculation tax work?

  Question 2. Do you support an increase in payroll tax for all Americans to fund Bernie’s minimum wage and healthcare plans? Do you believe Bernie’s plans will only tax the 1%?
  Bernie Sanders recently appeared on This Week with George Stephanopoulos to discuss his plans for his presidency. Stephanopoulos asked Sanders about his plans to tax the wealthiest Americans. Here is a segment of the transcript:

  Stephanopoulos: But to pay for all of your programs, you’re going to have to do more than tax the top 1 percent. How far below the top 1 percent are you going to go with tax hikes?

  Sanders: It is not true that we have to go much further.

  Stephanopoulos:  Tax hikes below the top 1 percent? No tax hikes below the top 1 percent?

  Sanders: I didn’t say that. I think if you’re looking about guaranteeing paid family and medical leave, which virtually every other major country has, so that when a mom gives birth, she doesn’t have to go back to work in two weeks, or there’s an illness in a family, dad or mom can stay home with the kids. That will require a small increase in the payroll tax.

  Stephanopoulos: That’s going to hit everybody.

  Sanders: That would hit every — yes, it would.

  Bernie Sanders was also quizzed on his plans on a recent episode of “Real Time with Bill Maher”:

  “So you’re saying we can pay for all of this without raising taxes on anybody but the 1 percent?” Maher asked.
  “We may have to go down a little bit lower than that — but not much lower,” Sanders replied.

  Do you trust Sanders when he says the payroll tax will be “small” and that he will only raise taxes on the 1% (or a little bit lower)?

  Question 3. Do you support Bernie’s comments on Edward Snowden?

  Sanders has openly spoke against the NSA’s massive surveillance programs but stands with the rest of the presidential candidates in his belief  that Snowden should face some type of punishment. At the first Democratic presidential debate, Bernie was asked about his position on Edward Snowden. Sanders said he believes Snowden “played a very important role in educating the American people” — but he broke the law. “I think there should be a penalty to that,” he said. “But I think that education should be taken into consideration before the sentencing.”

  I know some Bernie supporters may feel these comments provide some hope for Snowden to receive a fair trial, but the truth is that Snowden could not possibly face anything resembling a fair trial in the U.S. Simply look at the prosecution (and persecution) of Chelsea Manning, Barrett Brown, Jeffrey Sterling, and John Kiriakou to see the way whistleblowers are treated in the land of the free. Snowden should be welcomed home as a hero and the masterminds of the NSA’s spying programs should be the ones facing penalties.

  Question 4. Do you support Bernie’s stance on Israel and Saudi Arabia? Both of these nations are responsible for atrocious human rights violations (here and here). Saudi Arabia is also accused of funding the 9/11 attacks. Despite this, the majority of politicians — including Bernie — continue to support these nations.

  Last summer, as Israeli soldiers deliberately targeted hospitals in Operative Protective Edge, Sanders joined the rest of the U.S. Senate by unanimously voting to support Israel’s actions and supporting “the State of Israel as it defends itself against unprovoked rocket attacks from the Hamas terrorist organization.”

  Mint Press News recently reported on Sanders’ Israel stance:

  “Yet when it comes to more recent statements, journalists describe Sanders as difficult to pin down on foreign policy issues, including Israel. Josh Nathan-Kazis, writing in June for Forward, noted that ‘a search of the Congressional Record reveals very few statements about Israel by Sanders on the floor of the House or the Senate,’ but ‘in February 2015, Sanders was the first Senator to announce that he would skip Israeli Prime Minister Benjamin Netanyahu’s speech to a joint session of Congress.’”

  Nathan-Kazis reports that Sanders does have limited ties to AIPAC, the pro-Israel lobbying group that’s trying to drive the U.S. to war with Iran:

  “In Vermont, a small group of AIPAC-linked Jewish activists do have Sanders’ ear on Israel-related matters. Yoram Samets, a Burlington businessman and a member of AIPAC’s national council, said that he has been in touch with Sanders for the past decade, but that Sanders does not sign any AIPAC-backed letters. His Vermont colleague Senator Patrick Leahy does not, either.”

  Though it appears Sanders keeps his distance from Israeli radicals like Netanyahu, his silence on the matter and support of Operation Protective Edge reveals his true stance.

  Sanders also recently spoke about Saudi Arabia while taping a PBS show at the University of Virginia. Sanders’ said the nation with untold amounts of blood dripping off its hands should “get their hands dirty” and take a bigger role in the war against ISIS. Why would someone interested in ending the wars demand that a nation known for blatant human rights violations “get their hands dirty” and support more war? Saudi Arabia killed dozens of civilians in a single airstrike over a wedding in Yemen last month, yet Sanders still believes they should lead the assault on the Islamic State.

  Should we expect President Sanders to continue supporting these nations?

  Question 5. Do you support Bernie’s plan to continue the drone program? According to documents released by a new whistleblower, during one five-month period of drone operations, nearly 90 percent of the people killed in airstrikes were not the intended targets.

  Senator Bernie Sanders recently said he would continue Obama’s disastrous drone program, which has resulted in the deaths of innocent people across the Middle East. In late August, Truthdig reported that Bernie Sanders told George Stephanopoulos he would continue the program.

  “I think we have to use drones very, very selectively and effectively. That has not always been the case.” Sanders said. “What you can argue is that there are times and places where drone attacks have been effective. … There are times and places where they have been absolutely countereffective and have caused more problems than they have solved. When you kill innocent people, the end result is that people in the region become anti-American who otherwise would not have been.”

  Sanders is absolutely right that killing innocent people fosters anti-American sentiment around the world (this makes his push for the civilian-killing Saudi military’s involvement in the fight against ISIS all the more puzzling). In 2014, the journal Dynamics of Asymmetric Conflict released two papers discussing the use of drones by the military and found an increasing number of Americans are against the use of drones on suspected terrorists in foreign countries. One paper notes that if drones continue to receive negative publicity within the United States and abroad, they may become “politically impractical.” The second paper asks whether drones are actually increasing the power of anti-U.S. protesters by gaining sympathy with the civilian population.

  According to the Bureau of Investigative Journalism, the CIA carried out 27 drone strikes in Pakistan during 2013, as well as 38 in Yemen — including the now infamous attack on December 12, 2013 that killed 15 people at a wedding. TBIJ estimates there have been over 2,400 deaths since Obama took over the drones. Since official numbers are not recorded, it is difficult to know exactly how many civilians have been killed under the U.S. drone program. However, Senator Lindsey Graham has estimated that 4,700 people have been killed.

  These numbers seem to line up with what the newest whistleblower has stated: “Anyone caught in the vicinity is guilty by association,” the whistleblower told The Intercept. When “a drone strike kills more than one person, there is no guarantee that those persons deserved their fate.”

  The whistleblower also stated that the program uses a phone number or email address to locate targets and is very unreliable. The source told The Intercept that drone bombings are carried out based on these phone numbers or emails and might not result in the death of the intended target.

  Many are quick to say that we are keeping American soldiers safe by using drone warfare, but we are learning that this war is not being fought with accurate intelligence or oversight. With all of this information readily available, how can Bernie Sanders continue to support this drone program?

  *  *  *

  These are my five questions for supporters of Senator Bernie Sanders’ presidential campaign. I hope some of you made it this far and were willing to read and respond with respect and honesty. It is important to recognize that there is a growing number of Americans who no longer buy into the two-party system and do not trust anyone running within those parties. Rather than voting for a new leader every four years, these radicals focus on creating solutions built on voluntary association and mutual aid rather than government force. Remember, not everyone is an idiot, a Republican, or an apathetic sheeple. Some of us simply disagree with Bernie’s economics and solutions.

  Personally, I recommend each of you begin researching agorism and seeking solutions outside of the ballot box.

  

  

  

  

  

• Individualism Vs Sacrificial Collectivism

  Submitted by Richard Ebeling via EpicTimes.com,

  Free, competitive markets have been the engine for both freedom and prosperity. In addition, free market capitalism is morally based on the principle of individual rights to life, liberty and honestly acquired property, in which all social relationships require the voluntary and mutual consent of the participants.

  Private property rights are central to the free society. The most fundamental private property right is the right of each person to own himself – his mind, his body, his peaceful actions, and the fruits of his efforts either on his own or in interaction with others.

  The opposite of owning yourself is slavery. Under a slave system some individuals assert the right to own and control the actions of others under the threat or use of force. The slave lives and works for and obeys the commands of another human being with violence the ultimate instrument of control.

  Slavery in All Forms is the Opposite of Freedom

  For the friend of freedom, it does not matter whether the slave-master is one private individual on his own, or a private group or gang imposing their coercive rule on a number of others in society. Nor does it matter if the group is a political collective that imposes its will on another segment of the society based upon a “democratic” decision-making process.

  Regardless of the institutional circumstance and situation under which one person is made to live and work (completely or partly) for another, it remains a total or partial restraint on the individual’s right to live his own life as he sees fit for the purposes that he considers of value and of importance so he may give meaning and possible happiness to his existence.

  Critics of this “individualistic” understanding of freedom and its opposite often brand such a perspective as “selfish” or “egotistical.” If to say that an individual should be treated and respected as an end in himself and not the compelled pawn or a tool to serve the ends of another is selfish or egotistical, then the very definition of liberty – if liberty is to mean anything – cannot be separated from the person’s right to be self-oriented.

  

  Collectivist Confusions and Misconceptions

  There is no collective mind, or body, or purpose. The fact is, the world is comprised only of individuals. What often causes confusions and misconceptions is that individuals are born into families, grow up in communities, and live their lives in arenas of societal interaction and association.

  And due to this many of the beliefs, values, and purposes we hold as individuals have been taken as our own from the surrounding people, groups, and communities of others with whom we have grown into adulthood.

  We find ourselves holding many of the same beliefs, values and purposes as many of the others around us. They are the commonly shared and taken-for-granted ideas, ideals, attitudes, and presumptions about “the way things work” and how things are or supposed to be.

  Yet, nonetheless, unless and until those beliefs, values and purposes become accepted and motivating for each and every individual influenced by them, they have no effect or power over him.

  These beliefs, values and purposes seem to be outside and independent of ourselves, with a seeming life and reality of their own; an transcendent entity of some sort that defines who and what we are, and outside of which our individual life seems to have neither existence nor meaningful orientation.

  Philosophers have referred to this as the “fallacy of misplaced concreteness.” To assign physical or some other objective reality to an idea or concept that is used to categorize or classify a series of beliefs, attitudes, or other characteristics that a group of individuals are postulated as possessing in common and which are then is used to define who and what those individuals are, and outside of which those people have no real existence.

  Soviet Collectivism and Social Class-Based Sacrifice

  If this seems rather abstract or amorphous, the seeming reality of such a transcendent collective entity into which we are born and live out our lives, and for which we are expected to serve and sacrifice has been used as the basis for some of the most manipulative and brutal ideologies of our times.

  Marxian socialism conjured up the image of everyone in society divided into “social classes” defined by whether they privately owned the means or production or sold their labor services to those private owners. It was insisted that these two “classes” of people were in irreconcilable antagonism and conflict with each other over the control and use of the land, resources and capital equipment without which needed and desired goods and services cannot be produced.

  In this Marxian world, the property-owning capitalists were the exploiters of the workers, who were deprived of part of what they produced. The Marxian socialists portrayed the human condition under capitalism as a great morality play between the exploited and the exploiters.

  By definition, anyone in the other “social class” was an inescapable “enemy” of everyone one in your own social class. The Marxian ideologues leading the socialist revolutions of the twentieth century often viewed themselves as, or at least took on the public mantle of appearing to be, secular prophets bearing sword and fire to cleanse the world of the exploiters denying “social justice” to the greater part of humanity.

  To cleanse the world not only were tens of millions condemned to death through execution, torture, slave labor, or starvation, but also all members of the righteous “workers’ class” had the obligation to live, work and obey the revolutionary leaders claiming to speak for the good of “humanity” as a whole.

  To not do so, to not sacrifice, work, and live for the socialist collective was a sign that one was a “wrecker,” an “enemy of the people,” or an agent of the “class enemies” trying to undermine or destroy the great socialist revolutionary cause. (See my article, “The Human Cost of Socialism in Power.”)

  

  Nazi Collectivism and Race-Based Sacrifice

  The other great and destructive twentieth century manifestation of this fallacy of misplaced concreteness was the racial ideology of the National Socialist (Nazi) movement in Germany. Human identity as a biological and social being was determined by one’s genetic make-up, with the defining characteristic of who and what you were being based on “the blood” that flowed in your veins.

  Nazism was an outgrowth of the eugenics movement that asserted that what a person is, was dictated by their genetic make-up. But this was not only a matter of the physical characteristics that one inherited from one’s ancestors through one’s parents. No, it was claimed that genetics also was a, if not “the,” defining basis of personality and behavioral proclivities.

  Thus, whether one was prone to be a murderer or a malcontent or a moocher on others could be predicted by one’s biological ancestry. Thus, the “sins” of the father and the mother could be predicted to fall upon the children through genetic transmission. The conclusion was that the spreading of the “bad seed” to future generations could be contained through compulsory sterilization and through managed sexual bleeding to create a biologically and socially superior human type. (See my article, “The Nazi Connection.”)

  Hitler and the National Socialists defined “the Germans” as the superior and “master” race in physical, mental and social characteristics; they then proceeded to classify all other “races” in descending order of “purity.” Of course, the “Jews” were placed at the lowest level, as sub-humans portrayed as vermin and rats threatening to biologically and socially undermine and destroy German genetic superiority through interbreeding and social penetration of German society.

  In the name of racial purity and protection, all those that the National Socialists classified as “Jews” had to be eliminated. Both German and Jew was defined and identified by pseudo-biological characteristics – the shape of one’s nose, the slope and size of one’s forehead or earlobes, the religion of one’s ancestors as indication of one’s genetic inheritance, and one’s attitude and allegiance and loyalty to the Nazi ideology.

  Six million Jews, three million Poles, half a million Gypsies, over ten million Russians and Ukrainians and Byelorussians, were sacrificed at the altar of Nazi racial collectivism. Plus hundreds of thousands of others who fell under Nazi control during the war.

  But neither were racially pure Germans exempt from the commanded sacrifice. As the Second World War was reaching its end in Europe in April 1945, Hitler said to Albert Speer, his favorite prewar architect and wartime Minister of Munitions, that if the Germans lost the war they will have failed their “fuhrer,” and had shown their racial inferiority in comparison to the victor to the East (the Russians); the German people will have forfeited their right to exist and should perish in the rubble and ashes of the aftermath of the war.

  If Soviet collectivism is estimated to have required the sacrifice of upwards of 68 million lives to build the “bright future” of Marxian socialism, and if Nazi collectivism imposed the sacrifice of as many as 25 million lives in the name of pursuing a racially pure, German-dominated Europe, we continue to see the effects of the fallacy of misplaced concreteness in our contemporary world today.

  

  Islamic Collectivism and Faith-Based Sacrifice

  The world has been seeing the return of violent religious fanaticism in the form of Islamic extremism. It has been captured in the imagery from the Middle East in the form of the Islamic State, though it is certainly not confined to this one variation of religious collectivism.

  Are you Muslim or are you not? Do you follow the asserted correct reading of the Koran, or not? Are you willing to kill and die in pursuit of the earthly fulfillment of God’s will and purpose?

  All non-believers are to be either converted or threatened with death in a multiple of cruel and brutal forms – thrown off a rooftop, beheaded on social media, burned alive in a cage, or shot in acts of mass execution with the victims thrown into rivers until the water runs red. Or forced into slavery for compulsory labor and/or sexual abuse.

  And if you are a “believer” it has to be the right belief system of ideas, practices, and rituals within the Islamic faith, otherwise one is condemned to the same fate as the infidel, the non-believer.

  The Islamic collectivism of religious sacrifice requires not only the non-believer to forfeit his life if he does not accept, believe and follow the “true” faith, the believer must rigidly limit his life to the practice and performance of all that is expected and demanded from a member of the community of Islam.

  The individual has no right to live, act, or believe other than what the voices who claim to speak for God declare to be the path to righteousness in this life and after. The individual’s mind and body have no existence outside of the prescriptions of Islamic dogma; one is a human cog in the cosmic wheel of God’s purpose as God’s voices on earth dictate your place in the greater and higher cause of the “pure” faith.

  In all of these variations on the collectivist theme, the individual is considered “selfish” or “egotistical” if he refuses to accept and act within the confines of the group identity that others conceptually impose on the world and to which he is demanded and commanded to conform under threat of punishment for refusing to sacrifice for a purpose or cause not of his own making or acceptance.

  Individualism the Enemy of All Forms of Collectivism

  This is why all forms of collectivism – philosophical, religious, political, or economic – reject and condemn all philosophies of political and economic individualism. Philosophical individualism argues that “society” – any formed and continued association of people for shared or mutually advantageous purposes – does not exist and does not have a reality independent of, or separate from, the individual human beings who comprise the participants in these associative relationships.

  Political individualism insists that nations and states do not have an existence independent from or superior to the individuals who may be members of a particular nation-state. The purpose of the political authority is to secure and protect each individual’s right to his life, liberty and honestly acquired property (i.e., property acquired through peaceful production and voluntary exchange).

  Government’s purpose is not to make the individual a slave or a sacrificial animal to some declared “higher cause,” because there are no higher causes separate from the purposes, values and goals that individuals choose for themselves and non-violently pursues through their actions and interactions with others.

  Economic individualism emphasizes that production, work, and creative and innovative entrepreneurial discovery are the results of individual effort and imagination. The “nation,” the “society,” does not produce, work or create. Individual human beings do these things and they do not happen separate from these individual actions and activities.

  Economic individualism explains that order and coordination of the actions of multitudes of tens of millions of people do not required government central command or regulatory dictation or direction. From the time of Adam Smith, economic individualists have shown that a system of individual rights, voluntary exchange, and associative interdependence through division of labor – what Adam Smith called a “system of natural liberty” – brings about self-interested incentives and opportunities for individuals to mutually improve their own lives through a network of trades and transactions that rebounds to the benefit of all, without the imposed and compulsory political hand of governmental control.

  Philosophical, political and economic individualism, rightly understood, is the ethical and practical bulwark against collectivism and its demands for compulsory sacrifice for imaginary “higher goods” or “greater causes” that justify the denial or reduction of human freedom to the limits of what the collectivist controllers permit.

  The philosophy of individualism is the foundation of a free society; it is the basis of a community of men that does not require or demand the sacrifice or enslavement of some for the one-sided benefits of others. Individualism is the premise of a morality for mankind that recognizes and respects the liberty and dignity of every human being. It is the ethical philosophy of freedom.

   

  

  

  

  

  

• Overstock Holds 3 Months Of Food, $10 Million In Gold For Employees In Preparation For The Next Collapse

  Overstock CEO Patrick Byrne’s crusade against naked short sellers in particular, and Wall Street and the Federal Reserve in general, has long been known and thoroughly documented (most recently with his push to use blockchain technology to revolutionize the multi-trillion repo market).

  But little did we know that Overstock’s Chairman Jonathan Johnson is as vocal an opponent of the fiat system, and Wall Street’s tendency to create bubble after bubble, if not more than Byrne himself.  That, and that his company actually puts its money where its gold-backed money is and in preparation for the next upcoming crash, has taken unprecedented steps to prepare for what comes next.

  One week ago Johnson, who is also candidate for Utah governor, spoke at the United Precious Metals Association, or UPMA, which we first profiled a month ago, and which takes advantage of Utah’s special status allowing the it to use gold as legal tender, offering gold and silver-backed accounts. As a reminder, the UPMA takes Federal Reserve Notes (or paper dollars) which it then translates into golden dollars (or silver). The golden dollars are based off the $50 one ounce gold coins produced by the Treasury of The United States. They are legal tender under the law and are protected as such.

  What did Johnson tell the UPMA? Here are some choice quotes:

  We are not big fans of Wall Street and we don’t trust them. We foresaw the financial crisis, we fought against the financial crisis that happened in 2008; we don’t trust the banks still and we foresee that with QE3, and QE4 and QE n that at some point there is going to be another significant financial crisis.

   

  So what do we do as a business so that we would be prepared when that happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don’t know if it will be 2 days, or 2 weeks, or 2 months. We have $10 million in gold and silver in denominations small enough that we can use for payroll. We want to be able to keep our employees paid, safe and our site up and running during a financial crisis.

   

  We also happen to have three months of food supply for every employee that we can live on.

  The contents of the rest of his speech are largely familiar to advocates of sound money: fiat paper has no value, solid gold – as both a currency and an asset – has tremendous value but is difficult to transport (and since a systemic collapse would certainly involve gold confiscation, portability would be an issue); gold-backed money may be the best option, and so on.

  We are confident the echo-chamber of worthless econohacks and macrotourists, the same ones who were absolutely certain the great financial crisis will never happen, will be quick to mock “prepper” Johnson and Wall Street pariah Overstock. And they have every right to do so. We only hope that after the next crash, with central banks all in and when calls for another global bailout hit a fever pitch, that all those pundits who made fun of the Johnsons of the world, will keep their damn mouth shut.

  

  

  

  

  

• Things Fall Apart

  Originally posted at EconomicNoise.com,

  “Things fall apart” is an apt sub-title for historians to apply to the first half of the 21st century. The phrase properly describes the collapse of the domestic and foreign policy of the United States. Further, it also is appropriate to describe the happenings in Europe, the Middle East and Asia.

  

  Things fall apart describes the economy of every developed nation and the balance of power that the world has known since the end of World War II.

  The powers that be have lost control. After almost a century of playing the Wizard of Oz, the curtain is disintegrating. Institutions to ensure control, stability and prosperity are failing. People and markets were not to be trusted and most of these institutions were established to protect against such freedom. Bureaucrats, central planners and big governments were to be the answers for a better world.

  The damage of nearly a century of this nonsense is suddenly becoming evident. Things fall apart is characterized by institutions that no longer are trusted or believed in. Few institutions are seen to work and when they do they are increasingly seen as favoring the elites at the expense of the masses. No institution is under greater scrutiny as the cloak of wisdom is being destroyed by the hard facts of reality is that of central banking, the corner piece of socialism even at the height of the Thatcher–Reagan movement back toward markets. The Daily Bell writes about the US Federal Reserve, although other central banks are incurring similar doubts and distrust:

  Things Fall Apart Around Janet Yellen

  By Daily Bell Staff – October 16, 2015

  

   

  Fed policymakers downplay divisions on U.S. rate hike … Federal Reserve policymakers are not as divided as it may appear and are generally operating under the same framework for determining when to raise interest rates, one Fed official said on Thursday, while another said the differences of opinion reflect the countervailing economic data. Many Fed watchers are exasperated by the mixed messages from the U.S. central bank in recent weeks. Fed Chair Janet Yellen and other officials have said they expect a rate hike will be needed by the end of this year, but two Fed governors this week urged caution. – Reuters

   

  Dominant Social Theme: Everything is OK. Janet Yellen is OK. The Fed is OK. Inflation is OK. The data is OK. It’s OK, man!

   

  Free-Market Analysis: But maybe it’s not … Of course the mainstream media – as represented above by Reuters – is going to emphasize the normalcy of the process. There should be no doubt that the Federal Reserve has weathered worse crises and as soon as the numbers prove out one way or another, Fed officials will figure out the next move.

   

  On the other hand, maybe, just maybe, we are seeing the final days of the Fed as a credible institution. Often in autocratic societies, power centers become dysfunctional long before they are retired or crumble into dust and blow away. This is part of how a society dies – when the people abandon the institutions in which they are supposed to believe.

   

  So the Fed’s quandary is a serious one. Nobody is going to shut the place down, certainly not right away, but once credibility has leaked away what’s left? Big buildings, gilt furniture … and a dying mythology that adherents have abandoned.

   

  This is the Fed’s REAL danger. Its painfully-won credibility – the product of a vast, intergenerational campaign of intimidation, bribery and misinformation – is beginning to crumble in earnest. It is harder and harder to insist with any seriousness that a few good, gray men in expensive surroundings can figure out the direction and value of money for a US$15 trillion economy.

   

  They will keep insisting, of course. Mainstream mouthpieces like Reuters will quote higher-up Fed officials with the seriousness one associates with oracular statements from the Pantheon of the Gods. See here:

   

  New York Fed President William Dudley, who repeated his view that a rate hike was likely by year’s end … downplayed the differences that existed among officials. “At the end of the day people are exaggerating” the divisions, Dudley said in response to a question after a panel presentation in Washington on Thursday. “We are all pretty much on the same page.”

   

  In fact, Dudley can’t seem to keep track of his own statements. CNBC recently featured an article with the headline, “Fed’s Dudley: The economy may be slowing.” The article quoted Dudley as admitting that recent data suggest the economy is slowing – and certainly this conclusion would lead one to surmise that rate hikes are off the table, at least for this year.

   

  The same article mentioned a Fed report claiming that US labor markets were “tightening.” One wonders if the data was collected before or after Walmart announced hundreds of layoffs at its Arkansas headquarters.

   

  Perhaps iconoclastic, libertarian trend-follower Gerald Celente has a more accurate perspective on the Fed. In an article posted at LewRockwell.com and entitled, “Is the Fed Lying, or Not Telling The Truth?” Celente points out that the “expectation on the Street, based on the Fed’s bullish growth, inflation and equity market forecasts, was for the first round of interest rate hikes to begin by mid 2015.”

   

  He then goes on to observe, “The Fed was wrong. The Street was wrong.”

   

  And Celente does us the favor of unwrapping what just happened in mid-September when the Fed blinked once again.

   

  Faced with plunging commodity prices, plummeting currencies, battered equity markets and a global deflationary cycle, the FOMC, concerned that China’s economy was slowing and the global economy risked falling into recession, did not raise interest rates.

   

  But just one week later the story changed. The reason not to raise rates was no longer the reason. Instead, a rate hike was on the near horizon.

   

  Fed Chairwoman Janet Yellen, speaking at the University of Massachusetts, signaled that the Fed may raise rates before year’s end, because inflation was set to rise and the Fed “is monitoring developments abroad, but we do not anticipate the effects of these recent developments to have a significant effect.”

   

  It doesn’t end here. On October 8, FOMC minutes were released and showed clearly that the committee was “deeply concerned” over volatile market indexes. “Over the intermeeting period, the concerns about global economic growth and turbulence in financial markets led to greater uncertainty among market participants about the likely timing of the start of normalization of the stance of U.S. monetary policy,” the minutes stated.

   

  Celente has encapsulated the credibility problem that the Fed faces. Central bank officials were quite certain that rates would be raised in 2015. But the year is almost over and the Fed hasn’t acted. When rates remained static, after the September meeting, Fed officials let it be known that the Chinese market meltdown had stayed their hands.

   

  A week later, Yellen was once more stating that a rate hike loomed. Meanwhile, FOMC minutes explain that the prospect of a rate hike spooked officials who anticipated that even a minuscule hike could lead to considerable market “turbulence.”

   

  After summarizing all this, Gerald Celente writes the following:

   

  Is the Fed afraid to do anything considering the possible implications of raising rates at a time of “concerns about global economic growth and turbulence in financial markets,” thus the mixed messages? Or is this just another round of Fed ineptness?

   

  Celente then answers his questions by suggesting that Fed officials really do not know what to do. And perhaps due to this miasma of doubt, Celente is sticking to his forecast for a “major equity market correction by year’s end.”

   

  Our conclusion would be a bit broader than Gerald Celente’s. Regardless of what the Fed does or doesn’t do, and regardless of the reasons for it, the ineptness that the Fed is showing is incredibly damaging to the institution. Policymakers are giving virtually contradictory statements and as Celente has shown us, even the justifications for Fed actions change from week to week.

   

  Recently we wrote the Fed’s dithering may be purposeful. The idea is to act paralyzed while the market sells off piecemeal, allowing the Fed eventually to raise rates without a market “event.” But even this speculation doesn’t take the Fed off the proverbial hook. People are going to be angry regardless, as this upcoming recession – really a continuation of the 2008-2009 slump – is simply too much to bear.

   

  The dotcom disaster of 2001, the subprime bubble that ate the world’s economy only seven years later and now a further looming “recession” that comes on the heels of a Great Recession that never dissipated is a concatenation of disasters that will undermine the Fed in ways that the enemies of central banks have never been able to do in the modern era.

  People don’t necessarily believe what they read, but they do trust their own eyes, ears and bellies. Whether the Fed hikes or doesn’t hike at this point is almost immaterial. The plot itself has been mislaid and the ramifications will haunt the Fed as its reputation unravels.

   

  This is serious business. Without speculating on the “whys,” one can certainly anticipate that a crisis of confidence in the monetary system will create uncertainty about the dollar and about the sustainability of Western economies generally.

   

  This is not to say that markets will inevitably crack asunder. There may be several more boom years as central banks do everything they can to raise the averages and sustain the appearance of prosperity. But at some point, a creeping crisis of confidence will begin to destroy what’s left of middle-class wealth and prosperity in ways central bankers can’t counteract because they will be seen as primary instigators of the problem.

   

  

  

  

  

  

• The Fed's Inconvenient Truth (In 1 Hope-Crushing Chart)

  Year after year, economic growth collapses from “hope” to “nope.”

  
  

  

   

  The question we are surprised everyone is not asking is, after 6 years of experimental extreme monetary policy that is utterly failing to create anything like escape velocity, isn’t The Fed’s inconvenient truth that they are impotent (as opposed to omnipotent) at anything other than financial asset inflation and the transitory mirage of wealth creation?

   

  Charts: Bloomberg

  

  

  

  

  

• Putting China's "6.9% GDP Growth" In Context

  By Michael Lebowtiz of 720Global

  Mirage

  In our latest article, “China Growth – Miracle or Mirage” published October 20, 2015, we questioned whether China’s perfectly forecasted and uniquely steady economic growth is a mirage. On Friday morning, following Chinese Premiere Li’s comment that growth was still in a “reasonable range”, China’s central bank (PBoC) proceeded to cut interest rates as well as the required deposit reserve ratio for major banks. The language of the Premier and the actions of the PBoC are contradictory. Their actions in conjunction with their words offer even more evidence to believe reported growth is a mirage and the correct answer to the question.

  This postscript offers a series of facts and recent economic data to lend further context toward determining whether China’s growth is, in fact, a miracle or a mirage. Before viewing the statistics below take a moment to consider the following: If China’s economy is in fact
  humming along at a “reasonable” 6.9% pace, then what is the logic and motivation behind aggressively easier monetary policy? Put another way, what don’t we know about the Chinese economy?

  Central Bank Actions

  • 1yr Benchmark Lending Rate: Since November 2014 China has cut their 1 year interest rate 6 times. Over this period the rate has been lowered from 5.60% to 4.35%
  • Required Deposit Reserve Ratio for Major Banks (determines amount of leverage banks can take and therefore the amount of loans they can make): Since February 2015 China has lowered it 4 times from 19.50% to 17.50%.
  • Renminbi: Since August China devalued their currency 2.8%

  Economic Statistics

  • China export trade: -8.8% year to date
  • China import trade: -17.6% year to date
  • China imports from Australia: -27.3% year over year
  • Industrial output crude steel: -3% year to date
  • Cement output: -3.2% year over year
  • Industrial output electricity: -3.1% year over year
  • China Manufacturing Purchasing Managers Index: 49.8 (below 50 is contractionary)
  • China Services Purchasing Managers Index: 50.5 (below 50 is contractionary)
  • Railway freight volume: -17.34% year over year
  • Electricity total energy consumption: -.20% year over year
  • Consumer price index (CPI): +1.6% year over year
  • Producer price index (PPI): -5.9% year over year, 43 consecutive months of declines
  • China hot rolled steel price index: -35.5% year to date
  • Fixed asset investment: +10.3% (averaged +23% 2009-2014)
  • Retail sales: +10.9% the slowest growth in 11 years
  • Shanghai Stock Exchange Composite Index: -30% since June

  Are these actions and statistics consistent with a country thought to be growing at 6.90% annually?

  

  

  

  

• "Colonel" Sanders' Communist Fried Chicken – It's Finger-Flippin' Good

  Free stuff? While Bernie is sincere about "helping people," as Ben Garrison notes, it's the middle class and poor will pay for it. 

   

  

   

  There's no such thing as a free lunch, but real freedom is worth preserving.

   

  Source: Ben Garrison

  

  

  

  

  

• Is America The Greatest Country In The World?

  Submitted by Simon Black via SovereignMan.com,

  I’m in New Haven today to attend the funeral of Irwin Schiff, who unfortunately passed away last weekend.

  If you’ve never heard of Irwin, he was one of the original “tax protestors”.

  He believed not only that paying federal income was unconstitutional, but actually went so far as to stop paying tax altogether.

  And he spent years of his life in prison as a result.

  Now, you may not agree with his philosophy or its legal basis.

  But I hope we can agree that keeping an 87-year old terminally ill cancer patient handcuffed to a hospital bed for failing to file taxes is a disgusting reflection of modern America.

  The fact that failing to file taxes is even a criminal matter at all in the Land of the Free is truly bizarre.

  In civilized countries, tax matters are precisely that– civil. They don’t throw people in prison with violent felons over something so trivial.

  But this has become the way of so many things in the Land of the Free.

  Aside from the most obscure violation of the US federal tax code, which goes on for thousands of pages, you can go to jail for violating any number of federal regulations, the sum of which could fill an entire football stadium.

  And that’s precisely the problem with this place.

  You see, I think the United States really is wonderful… with a huge caveat.

  America has some of the nicest malls in the world. There are so many quality brands and luxurious shops. The restaurants are fantastic with speedy, efficient service.

  You can buy the nicest cars models and live in big McMansions. All the latest technological gadgetry is available for sale at the big box retailer down the street.

  Street corners are dotted with gourmet coffee shops or convenient drug stores. And there are thousands of programs to watch on television at any given moment.

  Yes, the United States is one of the greatest places in the world… to be a consumer.

  If you want to shop, spend, and consume, the US is pretty damn near #1 in the world.

  But if you want to build. If you want to create. If you want to be a producer in the United States… it’s a whole different story.

  Just think about what it takes to start a business these days– there are permits, licenses, and regulations to follow, most of which you have probably never even heard of.

  Every single business day the federal government publishes hundreds of pages of new rules and regulations in what’s called the Federal Register.

  Today’s edition alone is a massive 815 pages.

  On Monday there will be several hundred pages more. And Tuesday. Wednesday. Etc. It never stops.

  Many of these rules come with severe penalties as well.

  Months ago we discovered that the Commerce Department was threatening people with a $25,000 fine and potential litigation simply for not filling out a survey.

  And on top of everything else are all the rules you have to deal with regarding employees, taxes, and now Obamacare.

  Oh, and that’s just at the Federal level. State and local governments add their own burdensome requirements as well.

  No one is immune. They even chase away little girls who dare to operate a lemonade stand without a permit. It’s unbelievable.

  And young people who try to become productive by going to university graduate with $30,000+ in debt that they’ll spend the next fifteen years paying down.

  Then there’s the additional hassle of dealing with the financial system; just getting a bank account open for a new business is now a major challenge.

  Banks force small businesses to jump through all sorts of ridiculous hoops to prove that they’re not money launderers, just for the privilege of depositing their money to earn 0% interest.

  What’s really ironic is that a consumer can walk into a bank and easily obtain a loan to buy a new car, or even a television.

  But you have basically no chance of obtaining a loan to start a new business or invest in a great company.

  These are all symptoms of the same problem. If you want to spend, borrow, and consume, America is fantastic.

  But if you want to save, invest, and produce, America is becoming more challenging every year.

  The Universal Law of Prosperity is very simple: produce MORE than you consume. And it applies equally to people, governments, and entire economies.

  In the US, and most of the West, everything in the system is designed for the exact opposite– rewarding consumption at the expense of production.

  And this is a massive problem that’s causing a major decline.

  Sure, you might have accumulated more ‘stuff’. But every year the West is less wealthy, and less free.

  Here’s the bad news: Your government can’t fix this. They’re a huge part of the reason this problem exists in the first place.

  And you can’t fix this yourself either. There is no grassroots campaign, no ‘get out the vote’ movement to get your nation back on track.

  But what you can do is take care of yourself. Make sure that, if this trend continues, you’re not going to be a victim of other people’s stupidity.

  Produce more than you consume. Safeguard your purchasing power. Protect what you’ve worked for. Diversify abroad. Invest wisely. Have a Plan B.

  In short, you can’t fix your country, or your government. Especially if the system is designed to make you less wealthy and less free.

  Because if you really want to be able to change something for the better, just make sure that no matter what happens, you’re always going to be in a position of strength.

  

  

  

  

  

• Fuku-zilla? Japan's TEPCO Discovers "Living Creature" Inside Nuclear Reactor

  After sending robots into the Fukushima nuclear reactor (and seeing them mysteriously die), perhaps this is the reason why Japanese officials have decided to re-start the building of a huge ice-wall for 'containment'. As Fukushima Diary reports, TEPCO’s camera caught a possible aquatic living creature in retained coolant water of Reactor 3.

   

  The following images are from the inside of PCV 3 (Primary Containment Vessel of Reactor 3). In their previous investigation, 1 Sv/h was detected above the water surface. Yellow-ish sediment was observed accumulating in the water as well.

  The possible living creature is recorded from approx. 0:19 of the video. It looks like aquatic microbe, which is independently swimming unlike other substances.

   

  The following GIF was edited by Fukushima Diary. It contains the zoomed (200% and 300%) parts to capture the creature more closely.
   

  *  *  *

  It may not look like much but with radiation flooding through its seemingly impervious body, who knows what happens next?

  

  

  

  

  

  

• Systemic Fragility & The Fed's "Hobson's Choice"

  Submitted by Doug Noland via The Credit Bubble Bulletin,

  More than two months have passed since the August “flash crash.” Fragilities illuminated during that bout of market turmoil still reverberate. Sure, global markets have rallied back strongly. Bullish news, analysis and sentiment have followed suit, as they do. The poor bears have again been bullied into submission, as the punchy bulls have somehow become further emboldened. The optimists are even more deeply convinced of U.S., Chinese and global resilience (the 2008 crisis “100-year flood” view). Fears of China, EM and global tumult were way overblown, they now contend. As anticipated, global officials remain in full control. All is rosy again, except for the fact that global central bankers behave as if they’re utterly terrified of something.

  The way I see it, underlying system fragility has become so acute that central bankers are convinced that they must now forcefully (“shock and awe,” “beat expectations,” etc.) react to any fledgling market “risk off” dynamic. Risk aversion and de-leveraging must not gather momentum. If fragilities are not thwarted early, they could easily unfold into something difficult to control. Such an outcome would risk a break in market confidence that central banks have everything well under control – faith that is now fully embedded in the pricing and structure for tens of Trillions of securities and hundreds of Trillions of associated derivatives – everywhere. With options at this point limited, the so-called “risk management” approach dictates that central banks err on the side of using their limited armaments forcibly and preemptively.

  With today’s extraordinary global backdrop in mind, I’m this week noting a few definitions of “Hobson’s Choice”:

  “An apparently free choice that actually offers no alternative.” (The American Heritage Dictionary of Idioms)

   

  “A situation in which it seems that you can choose between different things or actions, but there is really only one thing that you can take or do.” (Cambridge Idioms Dictionary)

   

  “No choice at all, take it or leave it.” (Endangered Phrases by Steven D. Price)

  There are subtleties in these definitions, just as there are subtleties in financial Bubbles. Importantly, over time Bubbles embody a degree of risk where they stealthily begin to dictate ongoing monetary accommodation. These days, global market Bubbles have reached the point where their message to central bankers is direct and unmistakable: “No choice at all, take it or leave it.” “Keep expanding monetary stimulus or it all comes crashing down – and that’s you Yellen, Draghi, Kuroda, PBOC – all of you…”

  As Ben Bernanke’s book tour lingers on, there are comments to add to the debate. From an interview with the Financial Times’ Martin Wolf:

  Wolf: “… We have to recognise that neither he nor the Fed expected the meltdown. Does the blame for these mistakes lie in pre-crisis monetary policy, particularly the targeting of inflation, with which he is closely associated? Had interest rates not been kept too low for too long in the early 2000s?”

   

  Bernanke: “The first part of a response is to ask whether monetary policy was, in fact, a major contributor to the housing bubble and all that happened. Serious studies that look at it don’t find that to be the case. People such as Bob Shiller [a Nobel laureate currently serving as a Sterling professor of economics at Yale University], who has a lot of credibility on this topic, says that: it wasn’t monetary policy at all; it came from a mania, a psychological phenomenon, that took off from the tech boom and moved into housing.”

   Mortgage Credit almost doubled in six years. Home prices inflated dramatically throughout much of the country, with prices about doubling in key markets (i.e. California). Egregious lending excess was conspicuous. Speculative excesses throughout ABS, MBS, GSE debt securities and mortgage-related derivates (i.e. CDOs) were only slightly less conspicuous.

  Why did the Fed fail to impose some monetary restraint (recall that Fed funds remained below 2% for several years of double-digit annual mortgage Credit growth)? Because they had (once again) badly missed their timing. A Bernanke-inspired policy course was determined to see reflationary measures gain robust momentum. The Fed believed that the benefits of prolonging aggressive accommodation greatly outweighed minimal risks (CPI and inflation expectations were contained!). Meanwhile, mortgage finance Bubble excess reached a scale where the Fed would not risk the un-reflationary consequences of piercing the Bubble. Financial and economic vulnerability were too acute for our central bank to take such institutional risk.

  Then, one might ask, why exactly had the Fed been so unwilling earlier in the cycle to restrain obviously overheating mortgage and housing marketplaces? This is a critical yet somehow completely neglected issue. Well, it’s because the Federal Reserve had specifically targeted mortgage Credit growth and housing inflation as the reflationary drivers for the post-technology Bubble recovery. Though apparently lost in history, manipulating mortgage Credit and housing markets were the primary (Bernanke’s “helicopter money”) mechanism for the Fed’s war against deflation risk.

  The Bubble was of the Fed’s making, and our central bank lost control. It became a Hobson’s Choice issue in the eyes of the Fed, and they fully accommodated the Bubble. Historical revisionism seeks to portray Bernanke as the hero that saved the world.

  These days, the Fed and global central bankers face a similar yet much more precarious Bubble Dynamic: The Fed specifically targeted higher securities market prices as its prevailing post-mortgage finance Bubble (“helicopter money”) reflationary mechanism. This ensured that the Fed would again be unwilling to impose any monetary restraint before it would then become too risky to remove accommodation (Einstein’s definition of insanity?). In concert, global central bankers now aggressively accommodate financial Bubbles.

  Global markets have the Yellen Fed petrified of even a little 25 bps baby-step nudge up from zero rates. Despite booming bond market Bubbles, a huge rise in stock prices, generally loose financial conditions and expanding economic recovery, the Draghi ECB Thursday signaled additional monetary stimulus would be forthcoming (above the current $60bn monthly QE and near-zero rates). Global markets were overjoyed. In the face of much trumpeted financial and economic stabilization, booming corporate debt markets and significant ongoing Credit growth, Chinese officials moved Friday to again cut lending rates and reserve ratios. Markets were more overjoyed.

  The halcyon days have returned. Powered by strong earnings from heavyweights Amazon, Microsoft and Google, the Nasdaq 100 (NDX) surged 4.2% this week. The NDX has now rallied 22% off August lows to within about a percent of all-time highs. The S&P500 gained 2.1% this week, closing just a couple percent below record highs. Bloomberg headline: “Junk Bond ETFs Break Monthly Flow Record With a Week to Spare.” And to be clear, that’s an inflow record.

  Friday morning from Bloomberg: “$100 Billion Rally Coming in Google, Microsoft, Amazon Shares.” Tech Bubble 2.0 is raging, fueled by the loosest financial conditions imaginable – spurred along by speculative market dynamics and a global industry arms race arguably on a much grander scale than that of the late-nineties. Friday evening from the New York Times: “America’s Heartland Feels a Chill From Collapsing Commodity Prices.” The impact from the faltering global Bubble is spreading. Fed Bubble accommodation ensured incredible wealth has been freely lavished upon Silicon Valley, exacerbating the issue of “the haves and have nots” locally, regionally, nationally and internationally.

  It’s certainly worth noting that market strength continues to narrow. The broader market this week badly lagged tech – especially big tech. In a financial management world desperate for relative performance, Fed-induced market rallies compel market participants to jump aboard the big outperformers. It’s exciting – dangerous late-cycle financial market dynamics.

  There is as well a powerful real economy dynamic at work. For the most part, the bull vs. bear argument has the economy either rather robust or on the cusp of recession. Most importantly, the U.S. economy is badly imbalanced. Segments and sectors are absolutely booming. Monetary policy is recklessly loose, with cheap liquidity apparently to fuel excess until Bubbles have finally run their course. Meanwhile, vast swaths of the economy suffer from structural stagnation, the aftermath of previous boom/bust episodes. Here, monetary accommodation has little impact. And this stagnation plays a major role in seemingly benign aggregate consumer inflation and economic output data.

  Yet when it comes monetary stimulus fueling Bubbles and exacerbating structural imbalances, the U.S. is overshadowed by China. Spurred by a surge in state-directed bank lending, total Credit (“total social financing”) jumped back over $200bn in September. There are also indications that post-stock market Bubble reflationary measures have pushed China’s corporate debt Bubble to only more precarious excess. While many contend that the Chinese economy, markets and currency have stabilized, I see it much more in terms of ongoing unsustainable Credit excess.

  Chinese officials missed their timing for reining in Bubble excess by years. It’s now a Hobson’s Choice of throwing everything at the faltering boom. Brief thoughts: The Chinese will need a couple Trillion (in U.S. dollars) of new Credit over the next year, then the year after and so on. Throwing enormous amounts of new Credit at a terribly maladjusted system will ensure epic maladjustment and a Credit Time Bomb. Normally, such dynamics ensure significant currency debasement. I would think in terms of a Credit and Currency Peg Time Bomb.

  October 18 – Financial Times (Gabriel Wildau): “It seems a long time ago that China was piling up foreign exchange reserves at a record pace as economists fretted about global imbalances from Beijing gobbling up US Treasury bonds. Now investors are wondering how long China’s dwindling forex reserves — down to $3.5tn from a peak of $4tn in June 2014 — can hold out. Capital is flowing out of China at a record pace and the central bank is drawing down reserves to support the renminbi after its recent dramatic fall. A lack of clarity over how China calculates its reserves and how much is readily available to deploy at short notice has intensified these concerns. As growth slows and bad debt rises, investors have viewed China’s massive forex pile… as the ultimate guarantor of financial stability. The prospect that reserves could be quickly exhausted raises doubts about the government’s ability to ward off crisis. It also limits the central bank’s ability to continue foreign exchange intervention, which may have cost as much as $200bn in August alone.”

  Thus far, markets have been incredibly tolerant of erratic Chinese policymaking. “We don’t care how you do it, just stabilize your markets and economy.” But at the end of the day, I see a lack of trust weighing on the Chinese currency. China’s Hobson’s Choice: aggressively inflate Credit or not. And this will put the currency at risk – the currency peg at risk. Currency controls, state-directed currency manipulation and derivatives to mask “capital” flight only increase the risk of financial accidents. Commodities and developed sovereign debt markets seem to confirm that China is not out of the woods.

  FT’s Wolf: “I ask him whether he is confident that the improvement in the resilience of the banks is adequate. ‘It’s a fool’s game to predict that everything is going to be fine, because either it is fine, in which case nobody remembers your prediction, or something happens, and then …’ They remember your prediction, I interject. Bernanke continues: ‘My mentor, Dale Jorgenson [of Harvard], used to say — and Larry Summers used to say this, too — that, ‘If you never miss a plane, you’re spending too much time in airports.’ If you absolutely rule out any possibility of any kind of financial crisis, then probably you’re reducing risk too much, in terms of the growth and innovation in the economy.’”

  Miss your plane and you reschedule a later flight. And the issue is certainly not ruling out “any possibility of any kind of financial crisis.” By now we should recognize that failed experimental monetary management was the leading culprit in the so-called “worst financial crisis since the Great Depression.” So what’s at risk today from much more egregious monetary experimentation? With runaway Bubbles at risk or faltering around the globe, central bankers are left with a choice of pushing ever forward with monetary inflation and market manipulation – or coming clean. Clearly they believe they have no choice at all.

  

  

  

  

  

• Here's What Happens When Central Banks Go Broke

  On Friday, in “Is Mario Draghi About To Go Full-Kuroda? RBS Says ECB Could Buy Stocks,” we took a closer look at what the ECB’s options are when it comes to implementing further easing measures come December. 

  As a reminder, Mario Draghi telegraphed either another depo rate cut, an expansion of PSPP, or both at Thursday’s ECB presser and now the market is keen to analyze the situation and determine not only what Goldman’s man in Europe is most likely to announce, but what the implications of his announcement are likely to be. 

  To be sure, further cuts to the depo rate will simply trigger a chain reaction whereby the Riksbank and the SNB will be forced to respond in kind, lest they should lose ground in the global currency war on the way to seeing their inflation targets threatened. This raises the spectre that NIRP may soon come to household deposits, something which, despite the proliferation of negative rates, hasn’t yet occurred. 

  As for the expansion of PSPP, we looked at a variety of options courtesy of RBS’ Alberto Gallo who notes that Draghi could end up buying corporate bonds, munis, equities, and even individual bank loans before it’s over. Here’s how we summed it up yesterday:

  In the end, all that will happen is the EMU’s neighbors will be forced further into NIRP and the ECB will end up with a nightmarish balance sheet full of stocks, corporate credit, munis, and God only knows what kind of loans purchased from banks, and all of which will have been bought at or near the top. That sets up the possibility that central banks could end up being forced to operate from a negative equity position. In other words: it sets up the possibility that they’ll technically go broke. 

  There’s been no shortage of coverage over the past several years regarding the idea that central banks can effectively go bankrupt.

  There are plenty of commentators who say that’s nonsense because after all, they control the printing press. Of course that argument suffers from the same defect as the argument that providing fiscal stimulus to an economy that isn’t acting the way you want it to is as simple as printing one liability (a government bond) and buying it from yourself with another liability you also print (fiat money). The common thread is this: if it were that simple, then we wouldn’t be having the conversation in the first place.

  If a central bank ends up in a negative equity position because the “assets” it purchased at nosebleed valuations decline in value, there are very real consequences both in terms of the ability to effectively conduct policy and in terms of optics. For more, we go back to RBS’ Alberto Gallo.

  *  *  *

  Via RBS

  What is the endgame of QE? Central bank balance sheets larger than GDP, potential losses or even negative equity capital. Large balance sheets can expose central banks to heavy losses. The SNB, for example, lost CHF52bn or 60% of equity in the first six months of the year, given unfavourable FX movements and price drops in its bond/equity holdings. As we discuss below, there are also other central banks that have accumulated losses and gone into negative equity in the past, including Chile, Czech Republic, Costa Rica and Jamaica. In theory, central banks can take losses and live with negative equity, as suggested by the SNB’s Vice Chairman Thomas Jordan in 2011. The example of the Czech Republic below also shows that central banks can sometimes grow out from negative equity through investment returns, over long periods of time. However, as suggested by the ECB, negative capital can limit central banks’ independence. A BIS paper also argues that significant losses could undermine their credibility, which has already been declining. 

  A history of central bank losses: towards the limits of balance sheet powers Central Banks could operate with negative net worth, but at the risk of affecting “the credibility of […] monetary policy” according to the ECB. The Chilean and Czech Central Bank are examples of central banks which have operated with negative net worth for a prolonged period (almost continuously since 1982, for Chile). However, while the Czech Central Bank has reduced their negative net worth due to good equity investments, Chile’s central bank has received two recapitalisations from the government since 1982. This dependence on the government brings into question the independence of central banks. The ECB have also previously said that negative net worth would “affect the credibility of the Eurosystem’s monetary policy”. 

  Negative capital could hinder central banks’ ability to meet their monetary targets. The central bank of Costa Rica suffered from losses for almost 20 consecutive years, leading it to a negative capital balance at the end of 2000. In fear of its balance sheet sustainability, the central bank chose not to lower their target rate of inflation. Jamaica is another example. Estimates show that in 1991 it had a negative net equity of USD 1.5bn. Large losses limited the policy instruments at the bank’s disposal. As a result, the country entered a stage of hyperinflation where CPI exceeded 80%. 

  Concerns about potential losses could also limit central banks’ policy flexibility. According to an IMF working paper, the market questioned whether Japan’s central bank could continue their purchases of government debt due to the risk of incurring substantial capital losses. According to the paper, because of these concerns, the monetary policy did not have the desired effect and failed to bring interest rates down to the desired levels. In January 2015, the SNB surprised markets by ending its Euro-buying programme because of concerns with Euro devaluation. But this change in monetary policy, which caused the Swiss Franc to strengthen, has also hurt Swiss exports (-3.8% YoY in September). 

  

  *  *  * 

  So, far from being some trivial problem that can be fixed by pressing “print”, central banks operating from a negative equity position face the possibility of i) losing their independence as they have to be recapitalized at the behest of the government, ii) being forced into policy decisions (or, perhaps more appropriately “in”decisions) that they might not otherwise make, and iii) losing the ability to control the narrative, thus heightening market concerns about the loss of omnipotence (or, in Haruhiko Kuroda’s words, a failure to believe in Peter Pan).

  Also bear in mind that the more focus there is on central banks, the more scrutinized their balance sheets will be. Of course one cannot mark an equity portfolio “held to maturity”, which begs the question of what happens when central banks that have bought stocks begin to incur losses. Will they simply print more money to buy more stocks in order to prop up their portfolios in a never-ending loop? 

  In any event, what the above underscores is that in short order we may move beyond the merely theoretical idea that central banks have “lost credibility” with market participants into a world where there is demonstrable, quantitative evidence that the emperors have no clothes.

  

  

  

  

  

• Another Government Ponzi Scheme Starts To Crack – Do You Depend On It?

  Submitted by Nick Giamburino of International Man

  Another Government Ponzi Scheme Starts to Crack – Do You Depend on It?

  Government employees get to do a lot of things that would land an ordinary citizen in prison.

  For example, it’s legal for them to threaten and commit offensive, rather than defensive, violence. They can take property from others without their consent. They spy on anyone’s email and bank accounts whenever they please. They go into trillions of dollars in debt and then stick the unborn with the bill. They counterfeit the currency. They lie with misleading statistics and use accounting wizardry no business could get away. And this just scratches the surface…

  The U.S. government also gets to run a special type of Ponzi scheme.

  According to the Merriam-Webster dictionary a Ponzi scheme is:

  [A]n investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.

  In the private sector, people who run Ponzi schemes are rightly punished for their fraud. But when the government runs a Ponzi scheme, something very different happens.

  It’s no secret that the Social Security system is effectively one giant Ponzi scheme.

  Actually, I think it’s worse. That’s because the government uses force and the threat of force to coerce people into it. People don’t have the option to opt out. They either pay the tax for Social Security or someone with a gun will show up sooner or later. I imagine Bernie Madoff’s firm would have lasted a lot longer had he been able to operate this way.

  This whole practice is particularly egregious for young people. They have no chance at collecting the future benefits the government has promised to them. But they’re hardly the only people that are going to be disappointed in the system, which will eventually break down.

  There are simply too many people cashing out at the top and not enough people paying in… even with the government’s coercion. That’s a function of demographics, but also the economic reality in which there are fewer people with quality jobs for the government to sink its fangs into. I expect both of those trends to increase and strain the system.

  Actually, it’s already starting to happen.

  Recently, the government announced that there would be no Social Security benefit increase next year. That’s only happened twice before in the past 40 years.

  You see, the government links Social Security benefit increases to their own measure of inflation. If the government says “no inflation” then there are no benefit increases. It’s like letting a student grade his own paper.

  So it’s no surprise that the official definition of inflation is not reflective of the real increases in the costs of living most people feel.

  Medical care costs are skyrocketing. Rent and food prices are reaching record highs in many areas. Electricity and utility costs are soaring. Taxes, of course, are going nowhere but up.

  But the government says there’s no shred of inflation. In actuality, it amounts to a stealth decrease in benefits.

  One reason for this is that they constantly change the way they calculate inflation so as to understate it. Free market analysts have long documented this sham. If you take a global view, it’s easy to see that fudging official inflation statistics is standard operating procedure for most governments.

  Incidentally, governments and the financial media don’t even understand what inflation is in the first place.

  To them, inflation means an increase in prices. But that is not at all how the word was originally used. Inflation initially meant an increase in the supply of money and nothing else. Rising prices were a consequent of inflation, not inflation itself.

  It’s not being overly fussy to insist on the word’s proper usage. It’s actually an important distinction. The perversion of its usage has only helped proponents of big government. To use “inflation” to mean a rise in prices confuses cause and effect. More importantly, it also deflects attention away from the real source of the problem…central bank money printing.

  And that problem shows no signs of abating. In fact, I think the opposite is the case. The money printing is just getting started.

  At least this is what we should prudently expect as long as the U.S. government needs to finance its astronomical spending, fueled by welfare and warfare policies.

  As long as the government spends money, it will find some way to make you pay for it – either through direct taxation, money printing, or debt (which represents deferred taxation/money printing).

  It’s as simple as that.

  

  

  

  

  

• Haunting Drone Footage Captures Syrian Destruction In Stunning High-Def

  There’s one silver lining to Europe’s worsening migrant crisis: it ensures that the human toll from Syria’s protracted civil war doesn’t get lost in the fog of Russian battlefield glory. 

  Regardless of your stance on whether the EU should be receptive to the millions of asylum seekers fleeing the war-torn Mid-East, the simple fact is that if you remain in Syria, you are risking your life on a daily basis, caught in the crossfire between a bewildering array of state actors, rebel groups, and proxy armies, all with competing agendas. 

  Now that Russia and Iran have taken control of the situation (and that’s not an effort to parrot some pro-Kremlin propaganda line, it’s just a realistic assessment of the facts), it’s tempting to focus squarely on the near daily videos of Moscow’s warplanes decimating targets and on the various social media depictions of Iranian generals rallying Shiite fighters ahead of what’s been billed as the “promised” battle for Aleppo.

  In other words, one could be forgiven for being swept up in the glory of the battle while forgetting that the entire debacle (which the US and its regional allies facilitated) has cost the country both its population and its cultural heritage as both have been destroyed by nearly five years of war. 

  With that in mind, we bring you two haunting videos produced by frontline journalists from Rossiya 24 news channel.

  They are at once breathtaking and tragic (they’re set to music, but you can always mute that) and serve to underscore just how devastating this conflict has ultimately been.

  In the same vein, we close with a few searing images from Aleppo ca. 2012:

  

  

  

  

  

  

  

  

• America – In Search Of A Cause?

  Submitted by Patrick Buchanan via Buchanan.org,

  “If the Cold War is over, what’s the point of being an American?” said Rabbit Angstrom, the protagonist of the John Updike novels.

  A haunting remark, since, for 40 years, America was largely united on the proposition that our survival depended upon our victory over communism in the Cold War.

  We had a cause then. By and large, we stood together through the crises in the first decades of that Cold War — the Berlin blockade, Stalin’s atom bomb and the fall of China to Mao, the Korean War, the Hungarian revolution, the Cuban missile crisis, and on into Vietnam.

  We accepted the conscription of our young men. We accepted wars in Asia, and, if need be, in Europe, to check the Soviet Empire.

  Vietnam sundered that unity.

  By 1967, the Gene McCarthy-Robert Kennedy wing of the Democratic Party had broken with the Cold War consensus. “We have gotten over our inordinate fear of communism,” said Jimmy Carter.

  The Reagan Republicans and George H. W. Bush would pick up the torch and lead the nation to victory in the last decade of that Cold War that had been a defining cause of the American nation.

  But when it was over in 1990, America was suddenly at a loss for a new cause to live for, fight for and, if need be, see its sons die for.

  Bush 1, after leading a coalition that drove Saddam Hussein out of Kuwait, declared that America’s cause would be the building of a “New World Order.” But few Americans bought in.

  Sixteen months after his victory parade up Constitution Avenue, after Bush had reached 90 percent approval, 62 percent of his country’s electorate voted to replace him with Bill Clinton or Ross Perot.

  Clinton pursued liberal interventionism in the Balkans, leading to 78 days of bombing Serbia, and he regretted not intervening in Rwanda to halt the genocide.

  George W. Bush promised a “humble” foreign policy. But 9/11 put an end to that. After driving the Taliban from power and Osama Bin Laden out of Afghanistan, he declared that America’s new goal was preventing an “axis of evil” — Iraq, Iran, North Korea — from acquiring nuclear weapons. Then, Bush marched us up to Baghdad.

  The wars in Afghanistan and Iraq lasted years longer and cost far more in blood and treasure than Bush had anticipated.

  At the peak of his prestige, like Pope Urban II, Bush declared a global crusade for democracy.

  This ended like many of the crusades. Democratic elections were won by Hezbollah in Lebanon, Hamas in Gaza and, after the Arab Spring, the Muslim Brotherhood in Egypt.

  Barack Obama promised to end the Bush wars and bring the troops home. And he was rewarded with two terms by a country that has shown minimal enthusiasm for more wars in the Middle East.

  Obama is now openly mocking the McCainiacs.

  “Right now, if I was taking the advice of some of the members of Congress who holler all the time, we’d be in, like, seven wars right now,” he told a group of veterans and Gold Star mothers of slain U.S. soldiers.

  This reluctance to begin wars or intervene in wars — be it in Syria, Iraq, Iran, Ukraine — seems to comport with the wishes of the country. And this new reality raises serious questions.

  What is America’s cause today? What is our mission in the world? For what end, other than defending our citizens, vital interests and crucial allies, would we be willing to send a great army to fight — as we did in Korea, Vietnam, Kuwait, Iraq and Afghanistan?

  Are all the global causes of Bush I, Clinton, Bush II over?

  Where is the coherence, the consistency, of U.S. policy in the Middle East that should cause us to draw red lines, and fight if they are crossed?

  If our belief in democracy demands the ouster of the dictator Assad in Damascus, how can we ally with the theocratic monarchy in Riyadh, the Sunni king sitting atop a Shiite majority in Bahrain, and the Egyptian general on his throne in Cairo, who took power in a military coup against a democratically elected Muslim government?

  Other than supporting Israel, maintaining access to Gulf oil and resisting ISIS and al-Qaida, upon what do Americans agree?

  Henry Kissinger seeks a restoration of the crumbling strategic architecture. Neocons and interventionist liberals want to confront Russia and Iran. Reluctant interventionists like Obama, Donald Trump and Bernie Sanders think we should stay out of other wars there.

  “When a people is divided within itself about the conduct of its foreign relations, it is unable to agree on the determination of its true interests,” wrote Walter Lippmann at the climax of World War II:

  “Thus, its course in foreign policy depends, in Hamilton’s words, not on reflection and choice but on accident and force.”

  America is a nation divided, not only upon the means we should use to attain our ends in the world, but upon the ends themselves.

   

  

  

  

  

  

• The Three Things Goldman's Clients Were Most Worried About This Week

  Following the perfectly expected intervention of not one but two central banks last week, which came at just the right time to crush the last of the “weak hand” shorts (recall three weeks ago we reported that the NYSE Short Interest had hit the highest level since Lehman, when we said that a likely outcome is that “either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs”) the market extended on its best rally since 2011.

  However, the majority of the hedge fund community barely noticed this twofer of central bank generosity.

  The reason for this is that not only is the “smartest money in the room” suffering its worst year since 2011 (more on this later) even as the S&P500 finally went green for the year, but this is the week when public attention finally turned to what until recently had been one of the biggest hedge fund hotel darlings, aggressive pharma rollup Valeant. The attention was not good, and as insinuations of massive fraud spread, the stock cratered.

  The result: according to Goldman’s chief equity strategist, David Kostin (who recently lowered his year end S&P price target to 2000 or 75 below its Friday closing price, and who expects the S&P will trade at 2075 in 12 months time) the fate of Valeant was one of the three biggest concerns on Goldman’s (mostly hedge fund) clients’ minds for the past week.

  The other two: buybacks and Q3 results.

  Here is Kostin explaining why the market surge on the back of more central bank intervention may have been a Pyrrhic victory for those who were supposed to benefit the most from the recent rally: the hedge fund community which “unfortunately” owns roughly 22% of Valeant’s shares.

  From Goldman’s Kostin:

  Reflexivity in action: A case study in specialty pharma; total cash return outperforms

  This week’s 35% plunge in Valeant Pharmaceuticals (VRX) represents a classic example of reflexive behavior in financial markets as
  described by George Soros in The Alchemy of Finance. Eight Health Care stocks including ENDP (-18%) and AGN (-3%) are in our
  Hedge Fund VIP basket (GSTHHVIP) that was flat this week compared with a 2% rise in the S&P 500. Stocks with high cash returns to
  shareholders via dividends and buybacks (GSTHCASH) matched the market, rising by 2%. We welcome 24 new constituents into our
  rebalanced high cash return basket that has a P/E of 14.6x vs. 17.0x for median S&P 500 stock with twice the cash yield (10% vs. 5%).

  Three topics dominated our client discussions this week: (1) Hedge fund performance in the wake of the collapse in Valeant Pharmaceuticals (VRX) during the past five days and bear market in biotechnology stocks during last three months (Nasdaq Biotech Index is 21% below its July peak); (2) cash return to shareholders, especially buyback activity; and (3) 3Q results.

  The recursive relationship that George Soros memorably described in The Alchemy of Finance: Reading the Mind of the Market (1987) was in full evidence this week as VRX shares plunged by 35%. In the case of the equity market, reflexivity comes into play when some mechanism is triggered and participants’ bias shifts. Simply put, the so-called fundamentals that are supposed to determine market prices no longer matter. Instead, “market prices play a different role: They do not merely reflect the so-called fundamentals; they themselves become one of the fundamentals which shape the evolution of prices. This recursive relationship renders the evolution of prices indeterminate and the so-called equilibrium price irrelevant.” The classic example is equity leveraging in an M&A roll-up where the temporary overvaluation of shares is converted into high EPS growth which expands the P/E ratio and allows shares to be issued at inflated multiples to fund more acquisitions.

  

  Reflexivity changes the structure of future events and is significant in cases where the starting point is far from equilibrium. Our Specialty Pharmaceuticals equity research analyst Gary Nachman authored a report this week that looks at the disarray within the sector given new uncertainties and fears that have entered the narrative (see Framing the debate after a challenging day in spec pharma, October 22, 2015).

  Hedge funds are important to VRX and VRX is important to many hedge funds. First, hedge funds own roughly 22% of the firm’s shares, so investor sentiment and perceptions matter. Second, our Hedge Fund Trend Monitor indicates that 7% of fundamental hedge funds own shares in VRX with 5% owning it as a top 10 position. In those cases the average weight is 10% of the portfolio! Netflix (NFLX) and Kraft Heinz (KHC) are the only other stocks in our Hedge Fund VIP basket (GSTHHVIP) where funds owning the shares hold them with a double-digit average long portfolio weight.

  Allergan (AGN) ranks at the top of the list of stocks that “matter most” to long/short hedge fund performance. Shares fell by 3% this week. Fully 14% of all hedge funds own some AGN shares and 10% of funds have it as a top 10 position in which case the average weight is 6% of their long portfolio. Another specialty pharma firm in our basket, Endo International (ENDP), fell by 18% this week. However, a few important hedge fund holdings rallied this week including GM (+8%) AAPL (+7%), and Priceline (+2%) Our hedge fund VIP basket was flat this week versus a 2% rise in S&P 500.

  Companies seeking to return cash to shareholders have two choices: buybacks and dividends. Investors have clearly expressed their  preference in 2015 and the pattern has been consistent for decades: They prefer both! A portfolio of firms with high combined buyback and dividend yields has outperformed baskets of stocks emphasizing either one of the approaches.

  S&P 500 buyback announcements have jumped by 50% vs. last year to $521 billion. Examples include AAPL and GE ($50 billion each), WMT ($20 billion), and GOOGL ($5 billion). Nearly 25% of annual buybacks occur during November and December just after firms report 3Q results. History reveals that high total cash return stocks typically outperform when the buyback window is open. Most firms can repurchase shares starting in November.

  
  

  In an income-starved world, firms are also returning cash via dividends: 249 S&P 500 firms have raised their payouts YTD with a median hike of 10%. Dividends have comprised 70% of the annualized total return for US stocks since 1975 and 55% of the annualized return since 2000.

  Our sector-neutral basket of 50 stocks with the highest trailing 12 month total cash return yield has outperformed the S&P 500 YTD by
  almost 100 bp (3.4% vs. 2.5%). In contrast, firms with the highest buyback yield alone lagged the market by more than 250 bp (-0.3% vs. 2.5%). We continue to recommend our total cash return basket (GSTHCASH).

  We have re-balanced our high total cash return to shareholders basket. With 24 new companies, our 50-stock sector-neutral basket has a trailing 12-month total yield of 10.2% vs. 4.7% for the median S&P 500 stock. But the basket has a median P/E of 14.6x versus 17.0x for the median S&P 500 firm.

  New firms in our basket include LOW, NAVI, ABBV, PFE, CTAS, and LLL. We have also re-balanced our buyback basket composed of stocks with the highest trailing 12-month repurchase yields (GSTHREPO). Our 50-stock sector-neutral basket has 25 new constituents including NAVI, GILD, and MON. The median firm in the basket has a trailing 12-month buyback yield of 8.3% versus 2.5% for the S&P 500. See Exhibits 5-6 for constituents.

  We are 35% through 3Q earnings season and results have been mixed. Energy and Materials firms have generally disappointed while consumerfacing companies have posted better results.

  

  

  

  

  

• Has The Market Trend Shifted From Bull To Bear?

  Submitted by Brian Pretti via PeakProsperity.com,

  Emotions are running high for the investment community in the wake of recent market volatility. Up until August, we had been in the third longest period in market history without a 10% correction. Since then, stock indices sold off hard, only to bounce once again over the past two weeks of trading.

  As you’d guess, the generic punditry has been out in full force.  A good number of very well respected technicians are not mincing words: We've entered a bear market.  No equivocation.

  On the other side of the equation are plenty proclaiming a successful retest of the lows has been made, and now away we go.  Earnings will be better next year. No recession in sight. Just another dip to be bought, right?

  And certainly the truth is….No one knows. Especially in today’s world where global central banks can concoct further QE/monetary schemes at the drop of a hat.  Let’s face it, at this point the global central banks are all in. In fact, beyond all in. Without question, the US Fed knows that if equities fall, they lose the high end consumer. (Wal-Mart shoppers have already long been lost) 

  I thought in this discussion I’d run through a number of indicators I've been watching that will hopefully help answer the key question – was the recent market turbulence a sign of a short-term correction, or something larger?  We know there's no single Holy Grail metric in this wonderful world, but I tend to think of indicators as mosaic pieces.  If we can get enough pieces in the right place, we have a good shot at actually deciphering the “picture” of what is to come.  And for that, we can only really rely on historical experience.  

  At The Margin

  A number of months back, in fact just prior to the recent correction, I wrote a piece about US margin debt.  It had just climbed above $500 billion for the first time in history.  The conclusion of that article was that today’s margin debt acceleration would be tomorrow’s price volatility.  Nothing in that article about timing at all.  But as we stand here today, I believe watching margin debt levels dead ahead will be very helpful.

  The history of margin debt in graphical form is what you see below.

  

  Not surprisingly, historical equity market peaks of significance have been accompanied by cycle peaks in margin debt levels.  The chart above is clear.  What has been most helpful in the past is to watch for divergences between margin debt levels and price.  At the prior two equity market peaks in 2000 and 2007, price actually went to a new high temporarily, while margin debt levels diverged and continued falling.  In hindsight, this was a key tell-tale top of cycle divergence.

  As we stand here today, margin debt levels have begun to decline from their summer-time peak.  Admittedly, the data is only current through August at this point and a contraction in margin debt for August should be no surprise at all.  But here is what I believe will be helpful ahead: if this is simply a correction in an ongoing bull market, then we should expect margin debt levels to again accelerate and move to new highs.  Why?  Because that is the exact fingerprint history of margin debt and equity market cycles.  I do not expect margin debt to contract meaningfully (20%) unless this is truly a new bear trend.  And we will not see a true move downwards in margin debt until after we see a few claw marks.  So watching for new highs that would corroborate further upside becomes one important watch-point of the moment in my book. 

  The chart below is a close up look at the last three years.  For now, margin debt levels in the US peaked in April.  Keep your eyes on these levels in the months ahead.  If margin debt cannot make it back to its highs, we need to consider this a cycle top in the equity market:

  

  Oh Behave!!

  One thing I've been watching for is a change in market behavior in response to central bank commentary.  And we've been finally seeing a bit of that from time to time in recent months (last 2 days not withstanding). 

  As you are fully aware, the Fed again declined to raise interest rates at their meeting last month, making it now 60 Fed meetings in a row since 2009 that the Fed has passed on raising rates.  Over the 2009 to present cycle, the financial markets have responded very positively in post-Fed meeting environments where the Fed has either voted to print money or voted to keep short term interest rates near 0%.  Not this time.  Markets swooned in the immediate aftermath of the decision on the again seemingly-positive news of no rate hikes.  Why?

  Although we are clearly not fully there yet, we need to think about the possibility that investors are now seeing the Fed (and really all global central bankers) as trapped.  Trapped in the web of intended and unintended consequences of their actions.  As I have argued over the past year, the Fed’s greatest single risk is being caught at the zero bound (zero percent interest rates) when the next US/global recession hits.  With declining global growth evident as of late, this is a heightened concern and that specific risk is growing.  Is this what the markets are becoming more sensitive to?

  Behavior does not change overnight.  And certainly the rally back from the end of September lows has been impressive.  But it has also been accompanied by chatter about a potential QE4 or NIRP stateside (neither of which I believe is in the cards any time soon).  Moreover, with the release of the FOMC meeting minutes a few weeks back, the Fed admits in their own words they are scared of “volatility.”  (Translation?  A down equity market.)  So in one sense investors know full well they have the Fed cornered.  Throw a tantrum and they will change intentions/actions on a dime.  And now the Fed even admits it!

  But when will continued zero rates or “threats” (Draghi) of expanded QE simply no longer be good enough?  I think this is one of the key “tipping points” to watch for.  I think we are edging our way toward that right now. But slowly, and not in linear fashion.

  It's clear in recent weeks that for many companies, quarterly revenues and earnings growth is a struggle.  In fact, for a good number, deterioration has been ongoing for years now.  Caterpillar not only missed again (huge surprise, right?), but has now reported 34 consecutive months of declining world sales.  In it's latest report, the company announced 10,000 to be laid off over the next few years. And Caterpillar is not alone.

  IBM reported its lowest revenues in 13 years at $19.3B.  For perspective, literally three years ago in 3Q 2012 that number was in excess of $29B.  The year-over-year decline in revenues (not earnings, revenues) was 13.9%.  In comparison, IBM never even dipped this low on rate-of-change revenue contraction during the “Great Recession”.  Good thing they’ve levered up their balance sheet to buyback shares! (After all, it's the shareholders who “own” the balance sheet and the executives who have the options.) The number of revenue and earnings missing in the current quarter so far, has been more than noticeable.

  Walmart indeed made the gallant gesture of raising wages for their employees.  And the move cost them dearly, as they just announced a 12% reduction in earnings guidance for next year.  Remember, this is one of the largest retailers on planet Earth, accounting for 10% of total retail sales in the US.  Suppliers will be squeezed and squeezed hard.  More fallout will come in quarters ahead, and be certain, Walmart will react with massive cost controls.

  On the bright side of the earnings equation, we’ve also seen a new wrinkle in a number of cases.  Biogen announced very respectable numbers and growth.  But simultaneous with the “good news” is another type of news – they are laying off 11% of the work force globally.  Microsoft “crushed” the numbers….and also crushed another 1,000 employees into the unemployment line.  The issue being: even companies reporting strong numbers are letting folks go during supposedly "good" times.  Why would management teams be doing this?

  I could go on and on about many more examples, but the issue is the revenue and earnings stagnancy to deterioration is increasingly noticeable and the management commentary has backed this up. 

  What seems apparent is that, for a good number of companies, weakness has accelerated during the prior quarter.  Could it be the stumbling of the “symbol” of the economy, the stock market, that has prompted such an immediate response?  I wish I knew the answer, but for a while now I have been of the opinion that central bankers are scared to death that if equities start failing, so will the domestic/global economy.  They know full well that it is the high end of the wealth demographic that is doing the yeoman’s work in holding up the economy broadly.  If they lose the equity market?  They lose the high end consumer.  And, let’s face it, there's no middle class left below to pick up the ball.  Stagnant wage growth, 0% return on savings, and rising costs of living have squeezed it dry..

  So in one sense, it all comes back to equities.  The central bankers are totally beholden and scared.  It’s no wonder Mario Draghi “promises” the ECB will discuss lower rates and perhaps further ease.  I fully expect to see more in the way of similar action from the PBOC and BOJ.  The central banks are all in at this point. There is no turning back. They will continue this course right up to it predictable and inevitable destruction.

  Warning Signals

  So, I believe one of the key signals of the coming cycle change will be not only tracking data point anecdotes such as margin debt levels, but also the behavioral characteristics of the investment community.  Can investors continue to indefinitely “dance” to the words and actions of central bankers, after 7 full years of those same words and actions having produced nothing of substance in terms of reinvigorating the global economy?  Or will the focus shift to the increasingly visible slumping of the global economy and corporate revenues? So far the dancing continues, but the tune is getting old…

  We all remember the words Chuck Prince (former CEO of Citi) wished he’d never uttered in 2007.  “The music is still playing, so we’re still dancing.”  For now, investors are still dancing to the music of central bankers globally.  If this behavioral shift I'm looking for actually takes place, prices should react as Citi’s stock price did the day Mr. Prince found out the music had actually stopped. That is to say, plunge violently.

  Bottom line: equity markets have not priced a meaningful slowdown in global corporate earnings.  They are still pricing in central banker commentary…..for now.  History teaches us that equity turbulence accompanied by meaningful economic softness often marks the turn from a secular bull market in to a bear market.

  In Part 2: Why The Next Market Drop Will Likely Be 30-40% we look further into the alarm bells of caution the underlying economic data and technical analysis are now sounding. The messages of the moment are: 1) pay attention, this is absolutely no time for complacency, 2) if the charts do not revert back to technical health, do not be afraid to look like an idiot and be “too” conservative with capital, 3) market tops usually frustrate both the bulls and the bears…until they don’t. After that point, everyone is running for the same exit. One that few can make it out of in time.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

   

  

  

  

  

  

• Russia Takes Over The Mid-East: Moscow Gets Green Light For Strikes In Iraq, Sets Up Alliance With Jordan

  Once it became clear that Moscow and Tehran had jointly planned the incursion in Syria with Russia promising full air support and Iran pledging ground troops from Hezbollah, its various Shiite militias, and the IRGC, we immediately suggested that Iraq was next on the agenda after the Assad regime is restored. 

  For those unfamiliar with the situation on the ground, we encourage you to read “Who Really Controls Iraq? Inside Iran’s Powerful Proxy Armies,” in which we outline the extent to which Tehran effectively controls both the Iraqi military and the politicians in Baghdad.

  The US allows this because i) there’s really not much Washington can do about it, and ii) even if there was, it would mean first trying to root out Iranian influence on the political process and second attempting to separate the Shiite militias from the Iraqi regulars, which would only serve to weaken the country’s ability to resist Sunni extremists like ISIS. The other important thing to understand about Iran’s proxy armies in Iraq is that they are the very same militias fighting alongside the Russians in Syria (we mean “very same” in the most literal sense possible as they were called over the border by Quds commander Qassem Soleimani himself). This means they are Washington’s allies in Iraq but as soon as they cross the border into Syria, they become the targets of US-supported and supplied rebels battling at Aleppo. Obviously, that makes absolutely no sense and is emblematic of just how schizophrenic Washington’s Mid-East strategy has become. It’s also worth noting that these are the same Shiite militias who, with Tehran’s blessing, attacked US troops in Iraq after George Bush destroyed the US-Iran post-9/11 alliance by putting the country in his infamous “Axis Of Evil” (see here for more). 

  Here’s a picture that should give you an idea about why Iran’s proxy armies have proven particularly effective at bullying the ISIS bully, so to speak:

  

  Meanwhile, flying missions over Iraq is the logical next step for The Kremlin in Russia’s bid to supplant the US as Mid-East superpower puppet master. One would be hard pressed to come up with a more humiliating scenario for Washington than for the US to be effectively kicked out of the country it “liberated” over a decade ago by Vladimir Putin on the excuse that try as they may (or may “not”, depending on how prone you are to conspiracy theories), the Americans are apparently not very good at fighting terror. 

  Just like in Syria, Russian airstrikes would be supported by Iran-backed fighters on the ground, and thanks to the IRGC’s grip over Iraqi politics, Moscow would find Baghdad very receptive to Russia’s presence in the country. 

  The US knows all of this of course and in an effort to get out ahead of the situation, Washington sent Gen. Joseph Dunford (chairman of the Joint Chiefs of Staff) to Iraq this week to issue what can only be described as a petulant, childish ultimatum to PM Haider al-Abadi. “It’s either us, or the Russians,” Abadi was told, although not specifically in those terms. Here’s what Dunford actually said: 

  “I said it would make it very difficult for us to be able to provide the kind of support you need if the Russians were here conducting operations as well. We can’t conduct operations if the Russians were operating in Iraq right now.”

  

  (Iraqi PM Haider al-Abadi)

  Although the PM purportedly pledged not to request Russian assistance, anyone who’s followed the story knows Dunford’s trip was far too little, far too late.

  ISIS has been running amok in Iraq for more than a year and the US appears powerless to stop them. As we noted, there are several theories as to why Washington is so intent on keeping Moscow out. The common sense theory that requires no conspiratorial ruminations says that the US is desperate to avoid ceding Baghdad to Russia and the Pentagon knows that with Iran already effectively in control of the army and the government, Russia would find a very receptive military and political environment. For those inclined to think that in addition to any initial support (i.e. funding and training prior to the official formation of ISIS), the US is still supporting Islamic State, well then the worry for Washington is that Russia simply wipes them out.

  Whatever the case, Iraq has apparently had just about enough of it and indeed, one of the reasons Dunford made the trip was that last week, Abadi said he would “welcome Russian airstrikes.” Throw in the brand new intelligence sharing center in Baghdad jointly staffed by Russia, Iran, and Syria and it’s pretty clear that despite what Abadi might have told Dunford to reassure the Pentagon, the “red” coats (if you will) are indeed coming. 

  Sure enough, according to Turkey’s state run Anadolu Agency, Russia has now received permission from Iraq to target ISIS convoys coming from Syria. Here’s more: 

  The Iraqi government authorized Russia to target Daesh convoys coming from Syria, a senior Iraqi official said.

   

  The authorization for Russia to target Daesh inside Iraq comes amid security coordination between Iraq, Russia, Iran and Syria.

   

  Hakem al-Zamli, chief of the Iraqi parliament’s security and defense committee, told Anadolu Agency on Friday that the measure contributed to weakening Daesh by cutting off its supply routes.

  That will be just the beginning. We assume the whole “convoys from Syria” language is an effort on Baghdad’s part to make it sound like this isn’t a green light for Russia to take over the skies above Iraq but one certainly wonders how Washington intends to respond given that Abadi just told Dunford Iraq wouldn’t allow this to happen. 

  And that’s not all. 

  Russia has now created yet another intelligence sharing cell in the Mid-East, this time in Jordan as Moscow and Amman are set to work together to rout ISIS. Here’s RT:

  Russia and Jordan agreed to create a coordination center in Amman, which will be used by the two countries to share information on the counter-terrorism operations, Russian Foreign Minister Sergey Lavrov said.

   

  Russia is already in touch with Iran, Iraq and Syria through a Baghdad-based center used for the same purpose. 

   

  Lavrov said Jordan would play a positive part in finding a political solution to the Syrian conflict through negotiations between Damascus and opposition forces, an outcome that Russia itself is pursuing. 

   

  “Under an agreement between His Majesty King Abdullah II and Russia’s President Vladimir Putin, the militaries of the two countries have agreed to coordinate their actions, including military aircraft missions over the Syrian territory,”Lavrov said. His Jordanian counterpart Nasser Judeh said the center would serve as an efficient communication tool for the militaries of the two nations.

  As you might recall, Jordan’s King Abdullah wasn’t exactly pleased after ISIS released a video showing a Jordanian pilot being burned alive. Here’s the visual message he sent to the group after the video surfaced:

  

  Once again, it’s important to understand that this is all made possible by the fact that the US, Saudi Arabia, Qatar, and Turkey decided to use extremist groups as their weapon of choice to destabilize Assad. That gives Moscow all the political and PR cover it needs to not only make a pure power play in Syria, but to establish closer diplomatic and political ties in Iraq and now Jordan. Thanks to the fact that the Western media has held up ISIS as the devil incarnate, The Kremlin has a foolproof cover story for what is quite clearly becoming a sweeping attempt to establish Russian influence across the region. 

  Finally, don’t forget that with each move Russia makes towards replacing the US as Mid-East superpower puppet master, Iran gets that much closer to supplanting Saudi Arabia as regional power broker. The Kremlin’s alliance with Jordan plays right into that dynamic as the Moscow-Tehran nexus is literally encircling Riyadh, Doha, and the UAE…

  

  

  

  

  

• The Inflation Lie

  By EconMatters

   

  

   

   

  Inflation Over Estimated?

   

  I was watching a little of the ECB press conference after their policy meeting and a reporter asked why inflation is such a bad thing for Europe and European consumers. Mario Draghi gave a canned response, but the real interesting moment came when an individual sitting to his left on the ECB panel opened his mike up and wanted to speak about inflation. I thought this was a little odd, and it became stranger by the moment. He really went out of his way to point out some obscure economic study that showed that US inflation was overestimated, and that actually US inflation was actually negative according to this recent study.

   

  

  Central Bankers & Research Objectivity

   

  

  The first question is what does US Inflation have to do with the ECB`s decision to add more stimulus to the European economy, and what does it have to do with European inflation?

   

  I guess the inference is that even in the US where the economy is the relative strongest house on the block so to speak, that there is even underlying deflation in the world`s strongest performing economy.

   

  But is sure seemed to point out that Central Bankers are not objective data driven, independent academics seeking the truth regarding economics, but rather have a goal ahead of time, and look for any type of data to support said agenda.

   

  Most of the studies actually show that inflation is underreported and this is the first time I have come across someone citing the opposite conclusion regarding inflation reporting.

   

  

  Gas Savings Eaten Up Fast by Increasing Healthcare, Food & Housing Expenses

   

  

  This is rather intuitive as well, energy and commodities have collapsed due to the oversupply of these markets, but really that is the one area which makes the overall inflation numbers appear lower than most feel in their everyday living experiences.

   

  For example, the cost of renting or home ownership has been rising steadily the past 16 months, and will continue to do so over the projected near term future. Healthcare costs continue to rise each year despite a nationalized healthcare plan. Even those lucky enough to have great company backed healthcare plans are paying higher deductibles and more out of pocket health expenses each year. Education and tuition costs continue to rise above the average rate of inflation. Entertainment expenses from movies, eating out, cable and internet fees, mobile phone plans, gym memberships, and travel accommodations are all experiencing inflationary pressures. Automobile prices sure aren`t deflationary as anyone who has purchased a new car recently realizes. Shoot even HOA fees are rising year after year! And those pesky real estate taxes sure seem to go up well above the stated rate of 2% inflation that is the Fed`s desired target rate. Ironic isn`t it that if inflation could only hit that 2% mark they would be raising interest rates in a heartbeat. Like when it was well over 2% 16 months ago, and the Federal Reserve not only wasn`t raising rates, but was still buying bonds each month via QE 3?

   

  

  Deflation is not a problem anywhere in the world

   

  It is pretty obvious to anyone with a little common sense and operates a household budget that deflation is not a problem here in the United States or anywhere in the world. This is all Central Bank nonsense used to justify an agenda regarding monetary policy. It is also abundantantly clear that the real inflation rate is much higher than that reported by the official governmental data sets. That in fact these reporting tools substantially underrepresent the real level of inflation in the economy. This is what I refer to as part and parcel of the Inflation lie.

   

  

  Government Spending & Debt Monetization

   

  Inflation and all the Central Bank rhetoric is used as a tool to manipulate policy towards an agenda, and all the official government tracking reports have a role in promoting the company line, which at its core is spend beyond your means, and kick the can down the road by monetizing the debt, robbing consumers of purchasing power along the way in a never ending currency devaluation scheme. This is also why the debt ceiling needs to be raised every year, and the US has doubled the national debt over the last 8 years. If you keep a healthy dose of inflation, let us call it the real inflation rate in the economy, the overall debt is less as a percentage of GDP, Tax Revenue, and overall Production Output – thus the debt has been monetized. At least this is the Central Bank and government strategy to dealing with out of control government spending far in excess of tax receipts taken in. Borrow, rack up huge deficits, print more money, devalue the currency, create inflation in the money supply, and make the borrowed money less onerous than it otherwise would appear with a lower rate of inflation. This is why Central Banks are so obsessed with inflation, the entire scheme falls apart and fast if the debt cannot be monetized or lessened as a percent of its original value through currency devaluation via the printing presses.

   

  

  Debt Monetization Scheme a Delicate Juggling Act

   

  

  This is the big Inflation Lie, Inflation doesn`t hurt consumers; it is a needed tool to monetize the debt and keep the whole deficit spending scheme going for as long as possible. The theory is sort of like the expansion of the Universe. If Central Bankers can inflate the money supply without inflation going nuclear on them, and keep diluting the currency without Zimbabwe like repercussions, then the size of the national debt is as manageable as 20 Trillion can be in a relative sense.

   

  

  But it is a dicey game in juggling of account variables and the slightest unbalanced move of any of these account balance variables and the entire deficit financing scheme implodes or blows up on itself. It is terribly unsound financial engineering, and a looming disaster that at best is kicked down the road a little further. My calculations are that the government liabilities hitting around 2018 are just the variable that makes this whole financial engineering scheme face some serious here and now addressing. But it can be any variable in this complex financial engineering equation that can go out of control. Inflation as reported over 4%, interest rates rising significantly, Real Deflation, Economic Recession, Credit Rating Downgrade, Spending at a rate exponentially more than currency devaluation of Monetary Policy, Central Bank Credibility and Confidence, and a full-blown Currency Crisis to name just some of the possible variables that could blow up in the face of this financial engineering experiment.

   

  

  Deflation, Demonizing, Central Bankers & the Power of Language to Manipulate

   

  Now you know why Central Bankers try so hard to demonize deflation, well we have never had real deflation in my lifetime, it is the reason that cars that used to cost $5,000 now cost $50,000. But more specifically Central Bankers know that the official Inflation reporting tools are built to underrepresent inflation in the economy, and anything trending below their fake targets is a problem for them because government spending continues exponently and unabated, and without elevated inflation the debt cannot be monetized and kicked down the road a few more years – which is the agenda. And really the whole purpose for their existence in government service. This is why Central Bankers will look for any semblance of deflationary pressures, albeit some obscure economic study in the United States, any excuse possible to ramp up the old printing presses at full speed ahead come what may! This is the big Inflation Lie purposefully put forward by Central Bankers to continue the charade that is modern financial engineering.

   

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• A RiSiNG FaRCe: SPeRM MaN…

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