• Janet Yellen Falters During Speech, Receives Medical Attention, All-Clear Given

  For those watching Janet Yellen's speech this evening, the fact that she seemed to struggle towards the end of her speech was a surprise. Now we know why…

  • **FED'S YELLEN GETTING MEDICAL ATTENTION AFTER SPEECH -REUTERS

  It is hardly surprising given that she now carries the weight of the world's economic and market strength on her shoulders.

  As MarketWatch's Greg Robb noted, Yellen faltered at end of her speech. Last page was agonizing. I don't think she felt well but she seemed better when she left the stage.

  Bloomberg reports, Federal Reserve Chair Janet Yellen is resuming her planned schedule after feeling unwell toward the end of a speech she was giving Thursday at the University of Massachusetts at Amherst, Fed spokeswoman Michelle Smith said in an e-mailed statement.

  “Chair Yellen felt dehydrated at the end of a long speech under bright lights,” Smith wrote. “As a precaution, she was seen by EMT staff on-site at U-Mass Amherst. She felt fine afterward and has continued with her schedule Thursday evening.”

  But as you can see below, she really did not look well at all…

  The initial reaction was a dive in stocks…

  

   

  Fed Chair Janet Yellen is receiving medical attention after her speech at UMass, Reuters reports, citing an unidentified University of Massachusetts official.

  And she's fine @zerohedge pic.twitter.com/0vSNipWQUh

  — JM (@capitulaton) September 24, 2015

  Then this…

  • *YELLEN IS DEPARTING SPEECH EVENT, RESUMING SCHEDULE: U. MASS
  • *YELLEN IS HEADING TO A SCHEDULED DINNER – U. MASS SPOKESMAN

  Some Twitterati suggested that perhaps she was just sick of her speech…

  *  *  *

  All-Clear given… Buy!

  • *UMASS MEDIC RICE HELPED ATTEND TO YELLEN AFTER SPEECH
  • *YELLEN DIDN’T GO TO HOSPITAL, RICE SAYS
  • *YELLEN IS FINE, UMASS MEDIC SHAUNA RICE SAYS

  

  

  

  

  

  

• Forget The New World Order, Here's Who Really Runs The World

  Submitted by Jake Anderson via TheAntiMedia.org,

  For decades, extreme ideologies on both the left and the right have clashed over the conspiratorial concept of a shadowy secret government pulling the strings on the world’s heads of state and captains of industry.

  The phrase New World Order is largely derided as a sophomoric conspiracy theory entertained by minds that lack the sophistication necessary to understand the nuances of geopolitics. But it turns out the core idea — one of deep and overarching collusion between Wall Street and government with a globalist agenda — is operational in what a number of insiders call the “Deep State.”

  In the past couple of years, the term has gained traction across a wide swath of ideologies. Former Republican congressional aide Mike Lofgren says it is the nexus of Wall Street and the national security state — a relationship where elected and unelected figures join forces to consolidate power and serve vested interests. Calling it “the big story of our time,” Lofgren says the deep state represents the failure of our visible constitutional government and the cross-fertilization of corporatism with the globalist war on terror.

  “It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street,” he explained.

  Even parts of the judiciary, namely the Foreign Intelligence Surveillance Court, belong to the deep state.

  How does the deep state operate?

   A complex web of revolving doors between the military-industrial-complex, Wall Street,  and Silicon Valley consolidates the interests of defense contracts, banksters, military actions, and both foreign and domestic surveillance intelligence.

  According to Mike Lofgren and many other insiders, this is not a conspiracy theory. The deep state hides in plain sight and goes far beyond the military-industrial complex President Dwight D. Eisenhower warned about in his farewell speech over fifty years ago.

   

  While most citizens are at least passively aware of the surveillance state and collusion between the government and the corporate heads of Wall Street, few people are aware of how much the intelligence functions of the government have been outsourced to privatized groups that are not subject to oversight or accountability. According to Lofgren, 70% of our intelligence budget goes to contractors.

  Moreover, while Wall Street and the federal government suck money out of the economy, relegating tens of millions of people to food stamps and incarcerating more people than China — a totalitarian state with four times more people than us — the deep state has, since 9/11, built the equivalent of three Pentagons, a bloated state apparatus that keeps defense contractors, intelligence contractors, and privatized non-accountable citizens marching in stride.

  After years of serving in Congress, Lofgren’s moment of truth regarding this matter came in 2001. He observed the government appropriating an enormous amount of money that was ostensibly meant to go to Afghanistan but instead went to the Persian Gulf region. This, he says, “disenchanted” him from the groupthink, which, he says, keeps all of Washington’s minions in lockstep.

  Groupthink — an unconscious assimilation of the views of your superiors and peers — also works to keep Silicon Valley funneling technology and information into the federal surveillance state. Lofgren believes the NSA and CIA could not do what they do without Silicon Valley. It has developed a de facto partnership with NSA surveillance activities, as facilitated by a FISA court order.

  Now, Lofgren notes, these CEOs want to complain about foreign market share and the damage this collusion has wrought on both the domestic and international reputation of their brands. Under the pretense of pseudo-libertarianism, they helmed a commercial tech sector that is every bit as intrusive as the NSA. Meanwhile, rigging of the DMCA intellectual property laws — so that the government can imprison and fine citizens who jailbreak devices — behooves Wall Street. It’s no surprise that the government has upheld the draconian legislation for the 15 years.

  It is also unsurprising that the growth of the corporatocracy aids the deep state. The revolving door between government and Wall Street money allows top firms to offer premium jobs to senior government officials and military yes-men. This, says Philip Giraldi, a former counter-terrorism specialist and military intelligence officer for the CIA, explains how the Clintons left the White House nearly broke but soon amassed $100 million. It also explains how former general and CIA Director David Petraeus, who has no experience in finance, became a partner at the KKR private equity firm, and how former Acting CIA Director Michael Morell became Senior Counselor at Beacon Global Strategies.

  Wall Street is the ultimate foundation for the deep state because the incredible amount of money it generates can provide these cushy jobs to those in the government after they retire. Nepotism reigns supreme as the revolving door between Wall Street and government facilitates a great deal of our domestic strife:

  “Bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level intelligence operatives who participate find themselves with multi-million dollar homes in which to spend their retirement years, cushioned by a tidy pile of investments,” said Giraldi.

  How did the deep state come to be?

  Some say it is the evolutionary hybrid offspring of the military-industrial complex while others say it came into being with the Federal Reserve Act, even before the First World War. At this time, Woodrow Wilson remarked,

  “We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”

  This quasi-secret cabal pulling the strings in Washington and much of America’s foreign policy is maintained by a corporatist ideology that thrives on deregulation, outsourcing, deindustrialization, and financialization. American exceptionalism, or the great “Washington Consensus,” yields perpetual war and economic imperialism abroad while consolidating the interests of the oligarchy here at home.

  Mike Lofgren says this government within a government operates off tax dollars but is not constrained by the constitution, nor are its machinations derailed by political shifts in the White House. In this world — where the deep state functions with impunity — it doesn’t matter who is president so long as he or she perpetuates the war on terror, which serves this interconnected web of corporate special interests and disingenuous geopolitical objectives.

  “As long as appropriations bills get passed on time, promotion lists get confirmed, black (i.e., secret) budgets get rubber stamped, special tax subsidies for certain corporations are approved without controversy, as long as too many awkward questions are not asked, the gears of the hybrid state will mesh noiselessly,” according to Mike Lofgren in an interview with Bill Moyers.

  Interestingly, according to Philip Giraldi, the ever-militaristic Turkey has its own deep state, which uses overt criminality to keep the money flowing. By comparison, the U.S. deep state relies on a symbiotic relationship between banksters, lobbyists, and defense contractors, a mutant hybrid that also owns the Fourth Estate and Washington think tanks.

  Is there hope for the future?

  Perhaps. At present, discord and unrest continues to build. Various groups, establishments, organizations, and portions of the populace from all corners of the political spectrum, including Silicon Valley, Occupy, the Tea Party, Anonymous, WikiLeaks, anarchists and libertarians from both the left and right, the Electronic Frontier Foundation, and whistleblowers like Edward Snowden and others are beginning to vigorously question and reject the labyrinth of power wielded by the deep state.

  Can these groups — can we, the people — overcome the divide and conquer tactics used to quell dissent? The future of freedom may depend on it.

  

  

  

  

  

• "Hawkish"-er Yellen & Japanese Deflation Spark Uncertainty Across AsiaPac

  The evening started on a high note when Janet Yellen's survival giving a speech warranted a 100 point rip in Dow futures (and USD strength). Then Japan stepped up with its first deflationary CPI print since April 2013 (which of course was met with stock-buying because moar QQE is overdue but that soon faded). EM FX is tumbling further (with Malaysia leading the charge). Chinese credit risk jumps tro a new 2 year high (as SHIBOR remains entirely manipulated flat) as China halts its 4-day devaluation with a tiny nudge stronger in the Yuan fix.

   

  In the words of Flash Gordon, "She's alive…" so BTFYDD because she seemed a tad more hawkish

  

   

  and USD strength…

  

   

  And then Japanese CPI data hit and showed Abenomics imploding as the country dips backinto deflation…

  

   

  Which sparked panic-buying in Japanese stocks (moar QQE?) only to give it al lback as China opened…

  

   

  EM FX not happy at the USD strength and Yellen hawkishness…

  • *RINGGIT HEADS FOR BIGGEST FOUR-DAY DROP SINCE 1998
  • *MALAYSIA'S KEY STOCK INDEX OPENS DOWN 0.6% AT 1,604.15
  • *SINGAPORE'S STRAITS TIMES INDEX FALLS 0.6% TO 2,829.68 AT OPEN
  • *SOUTH KOREA'S KOSPI INDEX FALLS 0.5%

  India is closed for a holiday.

  Asian FX is sliding once again….

  

   

  In China this worries us… It appears the new target for PBOC stability is funding rates (overnight SHIBOR) which has now been dead for 3 weeks amid massive liquidty adjustments, stocks swing, credit risk surges and CNY devaluations…

  

  That is a new 2 year high for Chinese default risk.

  Looks a lot like the tortured manipulation that happened in USDCNY before it imploded a month ago…

  

  Chinese stocks are modestly lower…

  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 0.4% TO 3,130.85
  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 0.4% TO 3,272.67
  • *HONG KONG'S HANG SENG INDEX FALLS 0.1% IN PREMARKET

  As PBOC halts its 4-day devaluation (just)

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3785 AGAINST U.S. DOLLAR

  

   

  Charts: Bloomberg

  

  

  

  

  

• "Doomsday" Arctic Seed Vault Tapped For First Time In History As Syrian Civil War Threatens Biodiversity

  With Russian boots officially on the ground at Latakia and with rumors circulating that the PLA may arrive within weeks, Syria has officially replaced eastern Ukraine as the most likely theatre for the start of World War 3. 

  While we certainly hope that cooler heads will prevail, the determination on the part of Washington, Riyadh, and Doha to oust the Assad regime simply isn’t compatible with Tehran and Moscow’s efforts to preserve the existing global balance of power which means that something will ultimately have to give and if it becomes clear that Iran is set to benefit in any way from whatever the outcome ends up being, expect Benjamin Netanyahu to make another trip to The Kremlin, only next time, he won’t be so cordial. 

  For those who – much like a certain CIA “strategic asset” – are looking for signs that Syria’s four-year old, bloody civil war might mark the beginning of the apocalypse, look no further than the Svalbard Global Seed Vault which was tapped for first time in history in response to the uncertain future of Aleppo. Here’s Reuters:

  Syria’s civil war has prompted the first withdrawal of seeds from a “doomsday” vault built in an Arctic mountainside to safeguard global food supplies, officials said on Monday.

   

  The seeds, including samples of wheat, barley and grasses suited to dry regions, have been requested by researchers elsewhere in the Middle East to replace seeds in a gene bank near the Syrian city of Aleppo that has been damaged by the war.

   

  “Protecting the world’s biodiversity in this manner is precisely the purpose of the Svalbard Global Seed Vault,” said Brian Lainoff, a spokesman for the Crop Trust, which runs the underground storage on a Norwegian island 1,300 km (800 miles) from the North Pole.

   

  The vault, which opened on the Svalbard archipelago in 2008, is designed to protect crop seeds – such as beans, rice and wheat – against the worst cataclysms of nuclear war or disease.

   

  It has more than 860,000 samples, from almost all nations. Even if the power were to fail, the vault would stay frozen and sealed for at least 200 years.

   

  The Aleppo seed bank has kept partly functioning, including a cold storage, despite the conflict. But it was no longer able to maintain its role as a hub to grow seeds and distribute them to other nations, mainly in the Middle East.

  In other words, the violence in and around Aleppo now poses a threat to global food supplies by curtailing the production of seeds for drought-resistant crops.

  As far-fetched as that might sound on the surface, the threat is apparently real enough to have prompted the first withdrawal in history from a seed bank built into the side of a frozen mountain. Here’s more on the Svalbard “doomsday” vault from the official website:

  Worldwide, more than 1,700 genebanks hold collections of food crops for safekeeping, yet many of these are vulnerable, exposed not only to natural catastrophes and war, but also to avoidable disasters, such as lack of funding or poor management. Something as mundane as a poorly functioning freezer can ruin an entire collection. And the loss of a crop variety is as irreversible as the extinction of a dinosaur, animal or any form of life.

   

  Remote by any standards, Svalbard’s airport is in fact the northernmost point in the world to be serviced by scheduled flights – usually one a day. Its remoteness enhances the security of the facility, yet local infrastructure in the nearby small Norwegian settlement of Longyearbyen is excellent. The Vault is thus accessible, and seeds can easily be transported to and retrieved from Svalbard.

   

  The Seed Vault has the capacity to store 4.5 million varieties of crops. Each variety will contain on average 500 seeds, so a maximum of 2.5 billion seeds may be stored in the Vault.

   

  Currently, the Vault holds more than 860,000 samples, originating from almost every country in the world. Ranging from unique varieties of major African and Asian food staples such as maize, rice, wheat, cowpea, and sorghum to European and South American varieties of eggplant, lettuce, barley, and potato. In fact, the Vault already holds the most diverse collection of food crop seeds in the world.

   

  The focus of the Vault is to safeguard as much of the world’s unique crop genetic material as possible, while also avoiding unnecessary duplication. It will take some years to assemble because some genebanks need to multiply stocks of seed first, and other seeds need regenerating before they can be shipped to Svalbard.

   

  A temperature of -18ºC is required for optimal storage of the seeds, which are stored and sealed in custom made three-ply foil packages. The packages are sealed inside boxes and stored on shelves inside the vault. The low temperature and moisture levels inside the Vault ensure low metabolic activity, keeping the seeds viable for long periods of time.

  And here’s a look at the outside and inside of the repository that would be tapped in the event a cataclysm threatens global food supplies:

  

  

  

  

  

  

  

  

  

  

• America's "Lumbering" Economy

  While crude and copper have been christened the great economic forecasters of our time, the data shows that there is another, more highly correlated, commodity to the economic cycle. Lumber prices are the most correlated with ISM and GDP of all industrial commodities and that is a problem…

  First, Lumber prices have collapsed to 4 year lows. The 33% Year-over-year plunge is the biggest since the financial crisis and is flashing a big red recession alarm…

  

   

  Second, Lumber prices have historically led stocks and are pointing to significant downside from here…

  

   

  and finally, Third, it appears lumber's decline points to notable downside for manufacturing…

  

   

  But apart from that, everything is fine… Oh wait…

  

   

  Charts: Bloomberg and @Not_Jim_Cramer

  

  

  

  

  

• China Set To Deploy Nuclear Sub That Can Hit US Mainland Targets, Pentagon Says

  China has made two things absolutely clear this year: 1) if Beijing thinks you may be inclined to sell stocks into a falling market, the consequences for you could be dire, and 2) the PLA navy is quite serious about projecting China’s maritime ambitions to the rest of the world.

  Evidence of the latter point is readily observable in the South China Sea, where dredgers have been busy for months building man-made islands atop reefs in the Spratlys much to the chagrin of Washington and its regional allies.

  Then there was the PLA’s unexpected arrival in Yemen back in March when a naval frigate showed up in Aden and evacuated 225 foreign nationals.

  

  (Chinese soldiers in Yemen)

  And who can forget the five ships that cruised by just 12 miles off the coast of Alaska as Obama toured the state.

  As if all of that wasn’t enough, at least one commander in Bashar al-Assad’s Syrian Arab Army now claims Chinese personnel are on their way to Latakia. 

  All of this comes as Beijing rolls out a new maritime initiative as outlined in the government’s 2015 defense strategy white paper. Here’s an excerpt from the report:

  In line with the strategic requirement of offshore waters defense and open seas protection, the PLA Navy (PLAN) will gradually shift its focus from “offshore waters defense” to the combination of “offshore waters defense” with “open seas protection,” and build a combined, multi-functional and efficient marine combat force structure. The PLAN will enhance its capabilities for strategic deterrence and counterattack, maritime maneuvers, joint operations at sea, comprehensive defense and comprehensive support.

  Now, even as Xi Jinping makes the rounds in the US and attempts to provide the American public with some clarity on a number of issues not the least of which is cyber security, the Pentagon says China is set to deploy a nuclear submarine armed with JL-2 missiles that have the range to hit the US. Here’s Bloomberg with the story:

  A new Chinese nuclear submarine designed to carry missiles that can hit the U.S. will likely deploy before year’s end, the Pentagon said, adding to Obama administration concerns over China’s muscle-flexing in Asia.

   

  China’s navy is expected this year to conduct the first patrol of its Jin-class nuclear-powered submarine armed with JL-2 submarine-launched ballistic missiles, the Pentagon’s Defense Intelligence Agency said in a statement. It declined to give its level of confidence on when the new boat will be deployed or the status of the missile.

   

  “The capability to maintain continuous deterrent patrols is a big milestone for a nuclear power,” Larry Wortzel, a member of the congressionally created U.S.-China Economic and Security Review Commission, said in an e-mail. “I think the Chinese would announce this capability as a show of strength and for prestige.”

   

  Wortzel said his commission’s 2015 report probably will include a comment from PLA Navy Commander Admiral Wu Shengli, who said the submarine-missile combination is “a trump card that makes our motherland proud and our adversaries terrified.”

   

  China’s increased naval might, as well as its assertion to territory in the contested South China Sea and East China Sea, has helped spur the region’s largest military buildup in decades and caused disquiet in the U.S. about its role as the region’s peace keeper.

   

  China currently has at least four Jin-class submarines. Fifty-one years after the country carried out its first nuclear test, patrols by the new submarines will give Xi greater agility to respond to a nuclear attack, according to analysts.

   

  “Of all the PLA strategic deterrence capabilities, the sea-based link is the most closely guarded secret because it is meant to be the most secure of the deterrents for China,” said Koh, who studies China’s naval modernization. 

   

  The JL-2 “has nearly three times the range” of China’s current sea-launched ballistic missile “which was only able to range targets in the immediate vicinity of China,” the U.S. Office of Naval Intelligence said in an April report on China’s Navy. The JL-2 “underwent successful testing in 2012 and is likely ready to enter the force,” it said. “Once deployed it will provide China with a capability to strike targets” in the continental U.S., it said.

  For those curious, here is the JL-2 in action:

  And here’s a bit more color from the Pentagon’s annual report to Congress:

  The PLA Navy places a high priority on the modernization of its submarine force. China continues the production of JIN-class nuclear-powered ballistic missile submarines (SSBNs). Three JIN-class SSBNs (Type 094) are currently operational, and up to five may enter service before China proceeds to its next generation SSBN (Type 096) over the next decade. The JIN-class SSBN will carry the new JL-2 submarine-launched ballistic missile (SLBM) with an estimated range of 7,400 km. The JIN-class and the JL-2 will give the PLA Navy its first credible sea-based nuclear deterrent. China is likely to conduct its first nuclear deterrence patrols with the JIN-class SSBN in 2014.

  Ultimately, the deployment was planned and as indicated above, this doesn’t exactly come as a surprise to anyone in military circles, but what it does do is underscore the idea that the return to bipolarity is more likely to see China as the counterbalance to US hegemony than it is to see a resurrgent Russia retake its place as US spoiler par excellence. Of course Beijing and Moscow seem generally to be on the same page as evidenced by their security council veto coordination on Syria which means that between the two, the balance of power could move against the US especially if Washington’s warnings about the UK’s declining military capabilities prove accurate.

  *  *  *

  Full report on PLA navy from US Office of Naval Intelligence

  2015 Pla Navy Pub Print

  

  

  

  

  

• Half Of Americans Think "Government Is An Immediate Threat To Liberty"

  Submitted by Mac Slavo via SHTFPlan.com,

  Government poses a threat to liberty, that much is clear.

  But what may be surprising is that almost half of Americans clearly identified government as a clear and “immediate” threat, and are obviously outraged about what is going on.

  Oddly, the number of angry Americans has remained consistent in poll number ever since about 2006 during George W. Bush’s second term, maintaining around 46-49% throughout Barack Obama’s entire presidency.

  And yet, things continue to get worse and worse with each political cycle, and each new president.

  Gallup reported that:

  Almost half of Americans, 49%, say the federal government poses “an immediate threat to the rights and freedoms of ordinary citizens,” similar to what was found in previous surveys conducted over the last five years.

   

  The remarkable finding about these attitudes is how much they reflect apparent antipathy toward the party controlling the White House, rather than being a purely fundamental or fixed philosophical attitude about government.

   

  […] during the Republican administration of George W. Bush, Democrats and Democratic-leaning independents were consistently more likely than Republicans and Republican-leaning independents to say the federal government posed an immediate threat.

   

  […] during the Democratic Obama administration, the partisan gap flipped, with Republicans significantly more likely to agree.

   

  […]

   

  Still, the persistent finding in recent years that half of the population views the government as an immediate threat underscores the degree to which the role and power of government remains a key issue of our time… numerous other measures show that the people give their government some of the lowest approval and trust ratings in the measures’ history.

  So why does the situation between the people and government continue to deteriorate?

  The complaints about government’s abuse of powers reaches across the isle, and straddles both parties in the White House, yet people tend to direct their anger only at the current president – thus falling for the ruse of blaming the puppet, and not the system.

  As Americans shift blame about the state of affairs back-and-forth with every election, most miss the point about why these things are happening – someone is writing reports and creating policies that allow these things to happen. All the Congress and President do is approve them, and deflect attention towards who is running the show.

  What are Americans upset about, according to polls?:

  Overall, Americans who agree that the government is an immediate threat tend to respond with very general complaints echoing the theme that the federal government is too big and too powerful, and that it has too many laws. They also cite nonspecific allegations that the government violates freedoms and civil liberties, and that there is too much government in people’s private lives.

   

  [also…]

   

  perceptions that the government is “socialist,” that the government spends too much, that it picks winners and losers such as the wealthy or racial and ethnic minorities, that it is too involved in things it shouldn’t be and that it violates the separation of powers.

   

  [as well as…]

   

  freedom of speech, freedom of religion, the overuse of police and law enforcement, government surveillance of private citizens including emails and phone records, government involvement in gay marriage issues, overregulation of business, overtaxing, the healthcare law and immigration.

  The vast majority of these issues happen under the mis-leadership of both parties, progressing without fail through the years.

  It is time that Americans embrace their anger at government, and focus their attention past the politicians to the real problem.

  Start with the bankers, follow the money, and see where it goes…

  

  

  

  

  

• Presenting The "QE Infinity Paradox", Or "The Emperor Is Naked, Long Live The Emperor"

  Perhaps the most important thing to understand about what was widely billed as the most important FOMC decision in recent history, is that by “removing the fourth wall” (to quote Deutsche Bank), the Fed effectively reinforced the reflexive relationship between its decisions, economic outcomes, and financial market conditions.

  In simpler terms, differentiating between cause and effect is now more difficult than ever as Fed policy affects markets which in turn affect Fed policy and so on. 

  This sets the stage for any number of absurdly self-referential outcomes.

  For instance, the Fed needs to remain on hold to guard against the possibility that a soaring dollar triggers an EM meltdown that would then feed back into developed markets, forcing the FOMC to reverse itself. But delaying liftoff sends a downbeat message about the state of the US economy which triggers the selling of domestic risk assets. Hiking would solve this as it would signal the Fed’s confidence in the outlook for the US economy, but that would be USD-positive which is bad news for EM. 

  A similarly absurd circular dilemma presents itself if we take the view that the Fed missed its window to hike and is now creating more nervousness and uncertainty with each meeting that passes without liftoff. Here’s how former Treasury economist Bryan Carter put it to Bloomberg: “short-end rates move higher as the Fed gets closer to hiking, and that causes the dollar to strengthen, and that causes global funding stresses. They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created.”

  When you tie the reflexivity problem in with the fact that the excessive use of counter-cyclical policy is leading to the creation of ever larger asset bubbles by effectively short circuiting the market’s natural ability to purge speculative excess and correct the misallocation of capital, what you get is a never-ending loop whereby the consequences of unconventional monetary policy serve as the excuse for doubling and tripling down on those same policies. 

  It’s with all of the above in mind that we present the following flow chart from RBS’ Alberto Gallo who illustrates the “QE infinity paradox”:

  

  

  

  

  

  

• Uncomfortably Revisiting Yellen's Bubble Doctrine

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  There is growing turmoil in buybacks that threatens the very fabric of the stock bubble. That was always the primary transmission of the foundation of its current manifestation, corporate debt, into asset prices; especially the huge run following QE3 and QE4. As represented by the S&P 500 Buyback Index, this liquidity propensity has found a durable reverse. After peaking all the way back in late February, the index is now more than 12% below that level after sustaining the August 24 liquidation.

  

  The fact that this reversal is seven months in the making more than suggests a potential major shift. As the NYSE Composite, stocks were not long for continued momentum against the “dollar.” Buybacks seemed to have weathered the first piece of the first “dollar” wave, but as junk debt there was always conjoined a limit.

  Some say expectations around the Federal Reserve have a lot to do with the buyback decline. Even though the central bank elected to keep its benchmark rate near zero Thursday, fears of higher rates are causing companies to rethink their capital return program, posits Boris Schlossberg of BK Asset Management.

   

  “Even though rates have not gone up, we clearly are in a tightening position in terms of monetary policy, and I think they’re looking ahead and saying, ‘Do I really want to finance this thing with no-longer-cheap money that we used to have a couple months ago?'” Schlossberg said Tuesday in a ” Trading Nation ” segment.

  I have little doubt that the causation effect claimed above is slightly misplaced, as “monetary tightening” isn’t the Fed so much as the eurodollar standard; that is just one mainstream method of trying to reconcile what is now seen with the financial plumbing remained misunderstood and largely hidden. As with the junk bond bubble, there is undoubtedly a correlation between re-assessing stock repurchases and the bald reductions of issuance in corporate credit. That hasn’t changed throughout this year, instead having gained further in this second “dollar” wave. Yet again, we see the “dollar” intrude in unwelcome fashion (to the bubbles).

  

  The problem once momentum fades is that investor attention turns toward valuations that were repeatedly ignored before. As long as everything is moving upward and any fundamental downside is completely contained (in perception) as “transitory” then valuations are easily set aside as one form of rationalization. The effect of reversing momentum is for a more honest measurement; particularly by force of change in economic sentiment which is almost always concurrent.

  To that end, valuations remain as they have been for the past several years. Stock prices are out of alignment with any historical trend (except the one weakly conjured by Bernanke to attempt self-justification, which instead actually furthered the score against him). Worse, some forms of valuation are subject the same kind of statistical subjectivity that has plagued main accounts like GDP and the Establishment Survey (trend-cycle).

  In the Tobin’s Q measure of valuation for the stock bubble, the basis (denominator) is Nonfinancial Corporate Net Worth. Revisions in this segment of the Financial Accounts of the United States (formerly Flow of Funds) have followed the pattern of revisions in GDP; upward until the last benchmark which reduced 2012 and 2013 figures while preserving the levels for 2014 and 2015. That had the effect, on GDP, of reducing growth rates in the first period while thus increasing them in the second. Corporate net worth is somewhat derived from that economic view, and its revised results are somewhat reflective of that.

  

  The numerator for Tobin’s Q is corporate equities (the classification now changed with this Q2 update from equity liabilities to market value of corporate equities) which somehow are continually revised downward. The net result is a vision of Tobin’s Q that is less outlier (but still historically high).

  

  Even with these revisions and the decline in valuation intensity, the current calculated Tobin’s Q for Q2 2015 remains at the 90th percentile. The level for my modified Q ratio (which subtracts the market value of real estate from net worth, so as to not “justify” one bubble with another) remains above the 92nd percentile.

  

  Robert Shiller’s CAPE’s current reading, also down from 2014, of 24.3 is also just about the 90th percentile but in a data series that goes back almost a century and a half. And if we exclude the obvious bubble period after 1995, 24.3 would have been in the 99th percentile for the period 1871-1995 (which shows you just how much the past two decades have skewed and screwed valuations).

  

  That truly becomes a serious consideration where the eurodollar, the mother and proginator of all these bubbles, is no longer the assumed basis. In other words, if “investors” have been expecting “dollar” liquidity and eurodollar financial resources as a root for maintaining valuations and that turns out as a false assumption (like 2008) what becomes the true underlying value for stocks? Certainly not something close to the 90th percentile.

  *  *  *

  Without direct momentum, valuation and fundamentals begin to govern which is why, I believe, QE3 pushed the market as much as it did; it promised to provide both with a direct attachment to the corporate bubble to project that perfection. The lack of momentum in 2015 is the stock “market” waking up to the falsification of those assumptions as QE aided the debt-based flow but little else (and that spans the globe). Again, extreme valuations are trouble at any time, even when they are “justified” by economic expectations. That is the Yellen Doctrine whereby a bubble isn’t a problem when it leads to or even just leads recovery and booming growth.

  That theory is, of course, as absurd as it sounds. The problem right now is that even if you buy into it, as so many did literally as well as rationalizing, the booming growth is still, at some point, necessary. That may be why the FOMC is so insistent upon “strong” no matter how much that is demonstrably assaulted. We are clearly at that point where it does not want to remain; if the growth doesn’t show up soon, then by this very count stocks are in a bubble and worse, already on the downslope. It is the raw force of the “dollar” in all forms, to rebuke Yellen by compelling sanity of asset bubbles, stripped of further financial inequality, making investors come to terms with reality rather than continued fantasy.

  

  

  

  

  

• The One Phrase That Actually Matters In Yellen's Speech: "Nominal Interest Rates Cannot Go Much Below Zero"

  While many are focusing on the latest attempt by Yellen to restore some Fed confidence, even if it means confusing the market even more and sound far more hawkish than last week’s FOMC statement, which showed once and for all that the mandate of the Fed is the stock market and global risk pricing stability, and is written by Goldman Sachs, with an emphasis on the circular assumption that inflation is under control because, well, it is under control…

  Wow – Yellen Speech Word Cloud pic.twitter.com/Dxl2SkMWtC

  — Not Jim Cramer (@Not_Jim_Cramer) September 24, 2015

  … which naturally is something to be expected from a speech titled “Inflation Dynamics”, the one phrase in the quite massive speech of 5531 words, had nothing to do with inflation, and everything to do with the Fed’s deflation “reaction function”, i.e., NIRP.

  This is what Yellen said in her speech dissecting the theory, if not practice, of inflation:

  …the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities.

  So just a “little” then? Which is what exactly: -0.25%? -1.0%? -2.5%? Or, as Albert Edwards suggested earlier today: -5%? Yellen explains:

  … the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low.

  Well, no: not less room – more room: negative room! What is the most negative inflation, pardon deflation, can get? Very:

  This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace.

  Just in case it was lost, here it is again, from footnote 9:

  Because of the inconvenience of storing and protecting very large quantities of currency, some firms are willing to pay a premium to hold short-term government securities or bank deposits instead. As a result, several foreign central banks have found it possible to push nominal short-term interest rates somewhat below zero

  And there you have it: while Yellen is desperate to regain some of the Fed’s lost credibility with the September rate indecision, what she is really doing is reciting Bernanke’s Nov 2002 speech: “Deflation: Making Sure “It” Doesn’t Happen Here.” Only, the US already has deflation. Which is why it is better to call Yellen’s version: “Depression: Making Sure “It” Doesn’t Happen Here” and just like Bernanke’s 2002 speech hinted at LSAP, aka QE, so Yellen’s speech, academic in its discussion of theoretical inflation, is really a warning that the Fed is now actively considering negative rates as its primary “reaction function.”

  After all, it’s not like Kocherlakota would come up with negative dots out of the blue.

  * * *

  As for the big picture from Yellen’s speech, Pedro said it best:

  The Fed seems to be losing confidence in its own confidence.

  — Pedro da Costa (@pdacosta) September 24, 2015

  

  

  

  

  

• All The Gold In The World

  For the companies exploring for gold, a deposit that has more than one gram of gold for every tonne of earth is an exciting prospect. In fact, in our 2013 report summarizing the world’s gold deposits, we found that the average grade of gold deposits in the world is around that amount: about 1.01 g/t.

  Think about that for a moment. One gram (0.035 oz) is equal to the mass of a small paper clip. This small amount of gold is usually not even in one place – it is dispersed through a tonne of rock and dirt in smaller amounts, most of the time invisible to the naked eye. For some companies that have the stars align with easy metallurgy, a deposit near surface, and open pit potential, this gram per tonne deposit may even somehow be economic.

  It’s hard to believe that such a small amount of gold could be worth so much, and that is why great visualizations can help us understand the rarity of this yellow metal. Luckily, the folks at Demonocracy.info have done the heavy lifting for us, putting together a series of 3D visualizations of gold bullion bars showcasing the world’s gold that has been mined thus far. Note: these visualizations are a couple of years old and optimistically have the value of gold pegged at US$2,000 per oz, presumably for the ease of calculations.

  For those interested, we have also put together a similar slideshow on the topic, showing how much gold, silver, copper, and other metals are mined each year.

  
  Smaller denominations of gold plates: 1 gram, 5 grams, 10 grams, 20 grams, and 1 troy oz of gold.

  
  Larger denominations of gold plates: 50 grams, 100 grams, 250 grams, 500 grams, and 1 kg of gold.

  
  This 400 oz gold bar, at $2,000 per oz gold, is worth the $800,000 cash beside it. The gold bar is extremely heavy, weighing more than three full milk jugs.

  
  Here’s what one tonne of gold looks like. At $2,000 per oz, it’s worth $64.3 million.

  
  Gold is so heavy that the suspension of an average truck would break if it held anymore than pictured above. Even if the truck’s suspension broke, the load of gold in the back could buy 2,660 brand new trucks at an MSRP of $40,000 per truck.

  
  Here’s 10 tonnes of gold compared to 100 tonnes of the yellow metal.

  
  This semi-truck is carrying the maximum load it can legally carry, which is about about 25 tonnes. Here there are 24.88 tonnes of gold, worth $1.6 billion.

  
  The Northrop Grumman B2 Spirit Bomber program cost $44.75 Billion for a total of 21 units built, which averages to $2,130,952,380 per unit. Shown here is the amount of gold it costs to buy one unit.

  
  Here’s the entire gold reserves of the United States government, which is 8,133.5 tonnes.

  
  Here’s the world’s gold reserves by government circa 2012. This is slightly outdated, with China and Russia both having significant increases since then.

  
  All gold mined in history, stacked in 400 oz bars. The 166,500 tonnes here is actually divided into four levels: the bottom level is jewelry (50.5% of all gold), the 2nd level is private investment (18.7%), the third level is world governments (17.4%), and the highest level is other uses for gold such as industry (13.4%).

  
  Lastly, we finish off with an image of all of the world’s mined gold in one cube with dimensions of 20.5m. If it was all melted, it would fit within the confines of an Olympic Swimming Pool.

  Source: Visual Capitalist

  *  *  *

  Want to learn everything you need to know about gold in about 20 minutes? Our five-part Gold Series covers everything from its rich history, supply and geology, demand drivers, investment properties, and market trends.

  

  

  

  

• Cleaner Than A Volkswagen

  

  

  Meme Created using FinanceLOL

  

  

  

  

• Yellen "Do-Over" Speech – Live Feed

  Highlights

  • YELLEN:STILL SLACK BUT LABOR MARKET MADE CONSIDERABLE PROGRESS
  • YELLEN:RISK INFL EXPCTS GET UNMOORED TO DWNSIDE, WARRANTS EASE
  • YELLEN: BELOW 2% INFL LIKELY DUE TO TRANSITORY FACTORS
  • YELLEN SAYS MOST ON FOMC `INCLUDING MYSELF’ EXPECT 2015 LIFTOFF
  • YELLEN SAYS FOMC VIEWS MAY CHANGE IF ECONOMY `SURPRISES US’
  • YELLEN SAYS ECONOMY ‘NOT FAR AWAY FROM FULL EMPLOYMENT’

  Preview

  When risk sold off last week in the wake of the Fed’s so-called “clean relent,” it signalled at best a policy mistake and at worst the loss of any and all credibility. To be sure, the FOMC was facing a number of Catch-22s. That is, there probably was no “right” answer per se, but because the Fed put itself in that position by not hiking when it had the chance, the fact that they were up against a lose-lose scenario got them no sympathy. 

  

  Tonight, Yellen will get what some are billing as a kind of “do over” opportunity when she delivers a speech (written by Jan Hatzius?) in Amherst, Massachusetts, on “Inflation Dynamics and Monetary Policy. A note to the Fed: the only thing you need to know about “inflation dynamics” is that trillions in global QE hasn’t worked to boost inflation expectations.

  The market will of course hang on every word in an effort to discern how likely liftoff is to occur before the end of the year.

  *YELLEN: SEES INITIAL INCREASE IN FED FUNDS RATE LATER THIS YR

  And Market says “no”!

  

   

  As it appears The Market is indeed ‘macro-data-dependent’ even if The Fed isn’t…

  

  *  *  *

  Full Text

  In my remarks today, I will discuss inflation and its role in the Federal Reserve’s conduct of monetary policy. I will begin by reviewing the history of inflation in the United States since the 1960s, highlighting two key points: that inflation is now much more stable than it used to be, and that it is currently running at a very low level. I will then consider the costs associated with inflation, and why these costs suggest that the Federal Reserve should try to keep inflation close to 2 percent. After briefly reviewing our policy actions since the financial crisis, I will discuss the dynamics of inflation and their implications for the outlook and monetary policy.

  Historical Review of Inflation

   

  A crucial responsibility of any central bank is to control inflation, the average rate of increase in the prices of a broad group of goods and services. Keeping inflation stable at a moderately low level is important because, for reasons I will discuss, inflation that is high, excessively low, or unstable imposes significant costs on households and businesses. As a result, inflation control is one half of the dual mandate that Congress has laid down for the Federal Reserve, which is to pursue maximum employment and stable prices.

   

  The Federal Reserve has not always been successful in fulfilling the price stability element of its mandate. The dashed red line in figure 1 plots the four-quarter percent change in the price index for personal consumption expenditures (PCE)–the measure of inflation that the Fed’s policymaking body, the Federal Open Market Committee, or FOMC, uses to define its longer-run inflation goal.1 Starting in the mid-1960s, inflation began to move higher. Large jumps in food and energy prices played a role in this upward move, but they were not the whole story, for, as illustrated here, inflation was already moving up before the food and energy shocks hit in the 1970s and the early 1980s.2 And if we look at core inflation, the solid black line, which excludes food and energy prices, we see that it too starts to move higher in the mid-1960s and rises to very elevated levels during the 1970s, which strongly suggests that something more than the energy and food price shocks must have been at work.

   

  A second important feature of inflation over this period can be seen if we examine an estimate of its long-term trend, which is plotted as the dotted black line in figure 1. At each point in time, this trend is defined as the prediction from a statistical model of the level to which inflation is projected to return in the long run once the effects of any shocks to the economy have fully played out.3 As can be seen from the figure, this estimated trend drifts higher over the 1960s and 1970s, implying that during this period there was no stable “anchor” to which inflation could be expected to eventually return–a conclusion generally supported by other procedures for estimating trend inflation.

   

  Today many economists believe that these features of inflation in the late 1960s and 1970s–its high level and lack of a stable anchor–reflected a combination of factors, including chronically overheated labor and product markets, the effects of the energy and food price shocks, and the emergence of an “inflationary psychology” whereby a rise in actual inflation led people to revise up their expectations for future inflation. Together, these various factors caused inflation–actual and expected–to ratchet higher over time. Ultimately, however, monetary policy bears responsibility for the broad contour of what happened to actual and expected inflation during this period because the Federal Reserve was insufficiently focused on returning inflation to a predictable, low level following the shocks to food and energy prices and other disturbances.

   

  In late 1979, the Federal Reserve began significantly tightening monetary policy to reduce inflation. In response to this tightening, which precipitated a severe economic downturn in the early 1980s, overall inflation moved persistently lower, averaging less than 4 percent from 1983 to 1990. Inflation came down further following the 1990-91 recession and subsequent slow recovery and then averaged about 2 percent for many years. Since the recession ended in 2009, however, the United States has experienced inflation running appreciably below the FOMC’s 2 percent objective, in part reflecting the gradual pace of the subsequent economic recovery.

   

  Examining the behavior of inflation’s estimated long-term trend reveals another important change in inflation dynamics. With the caveat that these results are based on a specific implementation of a particular statistical model, they imply that since the mid-1990s there have been no persistent movements in this predicted long-run inflation rate, which has remained very close to 2 percent. Remarkably, this stability is estimated to have continued during and after the recent severe recession, which saw the unemployment rate rise to levels comparable to those seen during the 1981-82 downturn, when the trend did shift down markedly.4 As I will discuss, the stability of this trend appears linked to a change in the behavior of long-run inflation expectations–measures of which appear to be much better anchored today than in the past, likely reflecting an improvement in the conduct of monetary policy. In any event, this empirical analysis implies that, over the past 20 years, inflation has been much more predictable over the longer term than it was back in the 1970s because the trend rate to which inflation was predicted to return no longer moved around appreciably. That said, inflation still varied considerably from year to year in response to various shocks.

   

  As figure 2 highlights, the United States has experienced very low inflation on average since the financial crisis, in part reflecting persistent economic weakness that has proven difficult to fully counter with monetary policy. Overall inflation (shown as the dashed red line) has averaged only about 1-1/2 percent per year since 2008 and is currently close to zero. This result is not merely a product of falling energy prices, as core inflation (the solid black line) has also been low on average over this period.

   

  Inflation Costs

  In 2012 the FOMC adopted, for the first time, an explicit longer-run inflation objective of 2 percent as measured by the PCE price index.5 (Other central banks, including the European Central Bank and the Bank of England, also have a 2 percent inflation target.) This decision reflected the FOMC’s judgment that inflation that persistently deviates–up or down–from a fixed low level can be costly in a number of ways. Persistent high inflation induces households and firms to spend time and effort trying to minimize their cash holdings and forces businesses to adjust prices more frequently than would otherwise be necessary. More importantly, high inflation also tends to raise the after-tax cost of capital, thereby discouraging business investment. These adverse effects occur because capital depreciation allowances and other aspects of our tax system are only partially indexed for inflation.6 

   

  Persistently high inflation, if unanticipated, can be especially costly for households that rely on pensions, annuities, and long-term bonds to provide a significant portion of their retirement income. Because the income provided by these assets is typically fixed in nominal terms, its real purchasing power may decline surprisingly quickly if inflation turns out to be consistently higher than originally anticipated, with potentially serious consequences for retirees’ standard of living as they age.7 

   

  An unexpected rise in inflation also tends to reduce the real purchasing power of labor income for a time because nominal wages and salaries are generally slow to adjust to movements in the overall level of prices. Survey data suggest that this effect is probably the number one reason why people dislike inflation so much.8 In the longer run, however, real wages–that is, wages adjusted for inflation–appear to be largely independent of the average rate of inflation and instead are primarily determined by productivity, global competition, and other nonmonetary factors. In support of this view, figure 3 shows that nominal wage growth tends to broadly track price inflation over long periods of time.

   

  Inflation that is persistently very low can also be costly, and it is such costs that have been particularly relevant to monetary policymakers in recent years. The most important cost is that very low inflation constrains a central bank’s ability to combat recessions. Normally, the FOMC fights economic downturns by reducing the nominal federal funds rate, the rate charged by banks to lend to each other overnight. These reductions, current and expected, stimulate spending and hiring by lowering longer-term real interest rates–that is, nominal rates adjusted for inflation–and improving financial conditions more broadly. But the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities.9 Thus, the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low. This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace.10 For this reason, pursuing too low an inflation objective or otherwise tolerating persistently very low inflation would be inconsistent with the other leg of the FOMC’s mandate, to promote maximum employment.11 

   

  An unexpected decline in inflation that is sizable and persistent can also be costly because it increases the debt burdens of borrowers. Consider homeowners who take out a conventional fixed-rate mortgage, with the expectation that inflation will remain close to 2 percent and their nominal incomes will rise about 4 percent per year. If the economy were instead to experience chronic mild deflation accompanied by flat or declining nominal incomes, then after a few years the homeowners might find it noticeably more difficult to cover their monthly mortgage payments than they had originally anticipated. Moreover, if house prices fall in line with consumer prices rather than rising as expected, then the equity in their home will be lower than they had anticipated. This situation, which is sometimes referred to as “debt deflation,” would also confront all households with outstanding student loans, auto loans, or credit card debt, as well as businesses that had taken out bank loans or issued bonds.12 Of course, in this situation, lenders would be receiving more real income. But the net effect on the economy is likely to be negative, in large part because borrowers typically have only a limited ability to absorb losses. And if the increased debt-service burdens and declines in collateral values are severe enough to force borrowers into bankruptcy, then the resultant hardship imposed on families, small business owners, and laid-off workers may be very severe.13 

   

  Monetary Policy Actions since the Financial Crisis

  As I noted earlier, after weighing the costs associated with various rates of inflation, the FOMC decided that 2 percent inflation is an appropriate operational definition of its longer-run price objective.14 In the wake of the 2008 financial crisis, however, achieving both this objective and full employment (the other leg of the Federal Reserve’s dual mandate) has been difficult, as shown in figure 4. Initially, the unemployment rate (the solid black line) soared and inflation (the dashed red line) fell sharply. Moreover, after the recession officially ended in 2009, the subsequent recovery was significantly slowed by a variety of persistent headwinds, including households with underwater mortgages and high debt burdens, reduced access to credit for many potential borrowers, constrained spending by state and local governments, and weakened foreign growth prospects. In an effort to return employment and inflation to levels consistent with the Federal Reserve’s dual mandate, the FOMC took a variety of unprecedented actions to help lower longer-term interest rates, including reducing the federal funds rate (the dotted black line) to near zero, communicating to the public that short-term interest rates would likely stay exceptionally low for some time, and buying large quantities of longer-term Treasury debt and agency-issued mortgage-backed securities.15 

   

  These actions contributed to highly accommodative financial conditions, thereby helping to bring about a considerable improvement in labor market conditions over time. The unemployment rate, which peaked at 10 percent in 2009, is now 5.1 percent, slightly above the median of FOMC participants’ current estimates of its longer-run normal level. Although other indicators suggest that the unemployment rate currently understates how much slack remains in the labor market, on balance the economy is no longer far away from full employment. In contrast, inflation has continued to run below the Committee’s objective over the past several years, and over the past 12 months it has been essentially zero. Nevertheless, the Committee expects that inflation will gradually return to 2 percent over the next two or three years. I will now turn to the determinants of inflation and the factors that underlie this expectation.

   

  Inflation Dynamics

  Models used to describe and predict inflation commonly distinguish between changes in food and energy prices–which enter into total inflation–and movements in the prices of other goods and services–that is, core inflation. This decomposition is useful because food and energy prices can be extremely volatile, with fluctuations that often depend on factors that are beyond the influence of monetary policy, such as technological or political developments (in the case of energy prices) or weather or disease (in the case of food prices). As a result, core inflation usually provides a better indicator than total inflation of where total inflation is headed in the medium term.16 Of course, food and energy account for a significant portion of household budgets, so the Federal Reserve’s inflation objective is defined in terms of the overall change in consumer prices.

   

  What, then, determines core inflation? Recalling figure 1, core inflation tends to fluctuate around a longer-term trend that now is essentially stable. Let me first focus on these fluctuations before turning to the trend. Economic theory suggests, and empirical analysis confirms, that such deviations of inflation from trend depend partly on the intensity of resource utilization in the economy–as approximated, for example, by the gap between the actual unemployment rate and its so-called natural rate, or by the shortfall of actual gross domestic product (GDP) from potential output. This relationship–which likely reflects, among other things, a tendency for firms’ costs to rise as utilization rates increase–represents an important channel through which monetary policy influences inflation over the medium term, although in practice the influence is modest and gradual. Movements in certain types of input costs, particularly changes in the price of imported goods, also can cause core inflation to deviate noticeably from its trend, sometimes by a marked amount from year to year.17 Finally, a nontrivial fraction of the quarter-to-quarter, and even the year-to-year, variability of inflation is attributable to idiosyncratic and often unpredictable shocks.18 

   

  What about the determinants of inflation’s longer-term trend? Here, it is instructive to compare the purely statistical estimate of the trend rate of future inflation shown earlier in figure 1 with survey measures of people’s actual expectations of long-run inflation, as is done in figure 5. Theory suggests that inflation expectations–which presumably are linked to the central bank’s inflation goal–should play an important role in actual price setting.19 Indeed, the contours of these series are strikingly similar, which suggests that the estimated trend in inflation is in fact related to households’ and firms’ long-run inflation expectations.20 

   

  To summarize, this analysis suggests that economic slack, changes in imported goods prices, and idiosyncratic shocks all cause core inflation to deviate from a longer-term trend that is ultimately determined by long-run inflation expectations. As some will recognize, this model of core inflation is a variant of a theoretical model that is commonly referred to as an expectations-augmented Phillips curve.21 Total inflation in turn reflects movements in core inflation, combined with changes in the prices of food and energy.

   

  An important feature of this model of inflation dynamics is that the overall effect that variations in resource utilization, import prices, and other factors will have on inflation depends crucially on whether these influences also affect long-run inflation expectations. Figure 6 illustrates this point with a stylized example of the inflation consequences of a gradual increase in the level of import prices–perhaps occurring in response to stronger real activity abroad or a fall in the exchange value of the dollar–that causes the rate of change of import prices to be elevated for a time.22 First, consider the situation shown in panel A, in which households’ and firms’ expectations of inflation are not solidly anchored, but instead adjust in response to the rates of inflation that are actually observed.23 Such conditions–which arguably prevailed in the United States from the 1970s to the mid-1990s–could plausibly arise if the central bank has, in the past, allowed significant and persistent movements in inflation to occur. In this case, the temporary rise in the rate of change of import prices results in a permanent increase in inflation. This shift occurs because the initial increase in inflation generated by a period of rising import prices leads households and firms to revise up their expectations of future inflation. A permanent rise in inflation would also result from a sustained rise in the level of oil prices or a temporary increase in resource utilization.

   

  By contrast, suppose that inflation expectations are instead well anchored, perhaps because the central bank has been successful over time in keeping inflation near some specified target and has made it clear to the public that it intends to continue to do so. Then the response of inflation to a temporary increase in the rate of change of import prices or any other transitory shock will resemble the pattern shown in panel B. In this case, inflation will deviate from its longer-term level only as long as import prices are rising. But once they level out, inflation will fall back to its previous trend in the absence of other disturbances.24 

   

  A key implication of these two examples is that the presence of well-anchored inflation expectations greatly enhances a central bank’s ability to pursue both of its objectives–namely, price stability and full employment. Because temporary shifts in the rate of change of import prices or other transitory shocks have no permanent influence on expectations, they have only a transitory effect on inflation. As a result, the central bank can “look through” such short-run inflationary disturbances in setting monetary policy, allowing it to focus on returning the economy to full employment without placing price stability at risk. Indeed, the Federal Reserve has done just that in setting monetary policy over the past decade or more. Moreover, as I will discuss shortly, these inflation dynamics are a key reason why the FOMC expects inflation to return to 2 percent over the next few years.

   

  On balance, the evidence suggests that inflation expectations are in fact well anchored at present. Figure 7 plots the two survey measures of longer-term expected inflation I presented earlier, along with a measure of longer-term inflation compensation derived as the difference between yields on nominal Treasury securities and inflation-indexed ones, called TIPS. Since the late 1990s, survey measures of longer-term inflation expectations have been quite stable; this stability has persisted in recent years despite a deep recession and concerns expressed by some observers regarding the potential inflationary effects of unconventional monetary policy. The fact that these survey measures appear to have remained anchored at about the same levels that prevailed prior to the recession suggests that, once the economy has returned to full employment (and absent any other shocks), core inflation should return to its pre-recession average level of about 2 percent.

   

  This conclusion is tempered somewhat by recent movements in longer-run inflation compensation, which in principle could reflect changes in investors’ expectations for long-run inflation. This measure is now noticeably lower than in the years just prior to the financial crisis.25 However, movements in inflation compensation are difficult to interpret because they can be driven by factors that are unique to financial markets–such as movements in liquidity or risk premiums–as well as by changes in expected inflation.26 Indeed, empirical work that attempts to control for these factors suggests that the long-run inflation expectations embedded in asset prices have in fact moved down relatively little over the past decade.27 Nevertheless, the decline in inflation compensation over the past year may indicate that financial market participants now see an increased risk of very low inflation persisting.

   

  Although the evidence, on balance, suggests that inflation expectations are well anchored at present, policymakers would be unwise to take this situation for granted. Anchored inflation expectations were not won easily or quickly: Experience suggests that it takes many years of carefully conducted monetary policy to alter what households and firms perceive to be inflation’s “normal” behavior, and, furthermore, that a persistent failure to keep inflation under control–by letting it drift either too high or too low for too long–could cause expectations to once again become unmoored.28 Given that inflation has been running below the FOMC’s objective for several years now, such concerns reinforce the appropriateness of the Federal Reserve’s current monetary policy, which remains highly accommodative by historical standards and is directed toward helping return inflation to 2 percent over the medium term.29 

   

  Before turning to the implications of this inflation model for the current outlook and monetary policy, a cautionary note is in order. The Phillips-curve approach to forecasting inflation has a long history in economics, and it has usefully informed monetary policy decisionmaking around the globe. But the theoretical underpinnings of the model are still a subject of controversy among economists. Moreover, inflation sometimes moves in ways that empirical versions of the model, which necessarily are a simplified version of a complicated reality, cannot adequately explain. For this reason, significant uncertainty attaches to Phillips curve predictions, and the validity of forecasts from this model must be continuously evaluated in response to incoming data.

   

  Policy Implications

  Assuming that my reading of the data is correct and long-run inflation expectations are in fact anchored near their pre-recession levels, what implications does the preceding description of inflation dynamics have for the inflation outlook and for monetary policy?

   

  This framework suggests, first, that much of the recent shortfall of inflation from our 2 percent objective is attributable to special factors whose effects are likely to prove transitory. As the solid black line in figure 8 indicates, PCE inflation has run noticeably below our 2 percent objective on average since 2008, with the shortfall approaching about 1 percentage point in both 2013 and 2014 and more than 1-1/2 percentage points this year. The stacked bars in the figure give the contributions of various factors to these deviations from 2 percent, computed using an estimated version of the simple inflation model I just discussed.30 As the solid blue portion of the bars shows, falling consumer energy prices explain about half of this year’s shortfall and a sizable portion of the 2013 and 2014 shortfalls as well. Another important source of downward pressure this year has been a decline in import prices, the portion with orange checkerboard pattern, which is largely attributable to the 15 percent appreciation in the dollar’s exchange value over the past year. In contrast, the restraint imposed by economic slack, the green dotted portion, has diminished steadily over time as the economy has recovered and is now estimated to be relatively modest.31 Finally, a similarly small portion of the current shortfall of inflation from 2 percent is explained by other factors (which include changes in food prices); importantly, the effects of these other factors are transitory and often switch sign from year to year.

   

  Although an accounting exercise like this one is always imprecise and will depend on the specific model that is used, I think its basic message–that the current near-zero rate of inflation can mostly be attributed to the temporary effects of falling prices for energy and non-energy imports–is quite plausible. If so, the 12-month change in total PCE prices is likely to rebound to 1-1/2 percent or higher in 2016, barring a further substantial drop in crude oil prices and provided that the dollar does not appreciate noticeably further.

   

  To be reasonably confident that inflation will return to 2 percent over the next few years, we need, in turn, to be reasonably confident that we will see continued solid economic growth and further gains in resource utilization, with longer-term inflation expectations remaining near their pre-recession level. Fortunately, prospects for the U.S. economy generally appear solid. Monthly payroll gains have averaged close to 210,000 since the start of the year and the overall economy has been expanding modestly faster than its productive potential. My colleagues and I, based on our most recent forecasts, anticipate that this pattern will continue and that labor market conditions will improve further as we head into 2016.

   

  The labor market has achieved considerable progress over the past several years. Even so, further improvement in labor market conditions would be welcome because we are probably not yet all the way back to full employment. Although the unemployment rate may now be close to its longer-run normal level–which most FOMC participants now estimate is around 4.9 percent–this traditional metric of resource utilization almost certainly understates the actual amount of slack that currently exists: On a cyclically adjusted basis, the labor force participation rate remains low relative to its underlying trend, and an unusually large number of people are working part time but would prefer full-time employment.32 Consistent with this assessment is the slow pace at which hourly wages and compensation have been rising, which suggests that most firms still find it relatively easy to hire and retain employees.

   

  Reducing slack along these other dimensions may involve a temporary decline in the unemployment rate somewhat below the level that is estimated to be consistent, in the longer run, with inflation stabilizing at 2 percent. For example, attracting discouraged workers back into the labor force may require a period of especially plentiful employment opportunities and strong hiring. Similarly, firms may be unwilling to restructure their operations to use more full-time workers until they encounter greater difficulty filling part-time positions. Beyond these considerations, a modest decline in the unemployment rate below its long-run level for a time would, by increasing resource utilization, also have the benefit of speeding the return to 2 percent inflation. Finally, albeit more speculatively, such an environment might help reverse some of the significant supply-side damage that appears to have occurred in recent years, thereby improving Americans’ standard of living. 33 

   

  Consistent with the inflation framework I have outlined, the medians of the projections provided by FOMC participants at our recent meeting show inflation gradually moving back to 2 percent, accompanied by a temporary decline in unemployment slightly below the median estimate of the rate expected to prevail in the longer run. These projections embody two key judgments regarding the projected relationship between real activity and interest rates. First, the real federal funds rate is currently somewhat below the level that would be consistent with real GDP expanding in line with potential, which implies that the unemployment rate is likely to continue to fall in the absence of some tightening. Second, participants implicitly expect that the various headwinds to economic growth that I mentioned earlier will continue to fade, thereby boosting the economy’s underlying strength. Combined, these two judgments imply that the real interest rate consistent with achieving and then maintaining full employment in the medium run should rise gradually over time. This expectation, coupled with inherent lags in the response of real activity and inflation to changes in monetary policy, are the key reasons that most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2 percent objective.

   

  By itself, the precise timing of the first increase in our target for the federal funds rate should have only minor implications for financial conditions and the general economy. What matters for overall financial conditions is the entire trajectory of short-term interest rates that is anticipated by markets and the public. As I noted, most of my colleagues and I anticipate that economic conditions are likely to warrant raising short-term interest rates at a quite gradual pace over the next few years. It’s important to emphasize, however, that both the timing of the first rate increase and any subsequent adjustments to our federal funds rate target will depend on how developments in the economy influence the Committee’s outlook for progress toward maximum employment and 2 percent inflation.

   

  The economic outlook, of course, is highly uncertain and it is conceivable, for example, that inflation could remain appreciably below our 2 percent target despite the apparent anchoring of inflation expectations. Here, Japan’s recent history may be instructive: As shown in figure 9, survey measures of longer-term expected inflation in that country remained positive and stable even as that country experienced many years of persistent, mild deflation.34 The explanation for the persistent divergence between actual and expected inflation in Japan is not clear, but I believe that it illustrates a problem faced by all central banks: Economists’ understanding of the dynamics of inflation is far from perfect. Reflecting that limited understanding, the predictions of our models often err, sometimes significantly so. Accordingly, inflation may rise more slowly or rapidly than the Committee currently anticipates; should such a development occur, we would need to adjust the stance of policy in response.

   

  Considerable uncertainties also surround the outlook for economic activity. For example, we cannot be certain about the pace at which the headwinds still restraining the domestic economy will continue to fade. Moreover, net exports have served as a significant drag on growth over the past year and recent global economic and financial developments highlight the risk that a slowdown in foreign growth might restrain U.S. economic activity somewhat further. The Committee is monitoring developments abroad, but we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy. That said, in response to surprises affecting the outlook for economic activity, as with those affecting inflation, the FOMC would need to adjust the stance of policy so that our actions remain consistent with inflation returning to our 2 percent objective over the medium term in the context of maximum employment.

   

  Given the highly uncertain nature of the outlook, one might ask: Why not hold off raising the federal funds rate until the economy has reached full employment and inflation is actually back at 2 percent? The difficulty with this strategy is that monetary policy affects real activity and inflation with a substantial lag. If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. In addition, continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability. For these reasons, the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.

   

  Conclusion

  To conclude, let me emphasize that, following the dual mandate established by the Congress, the Federal Reserve is committed to the achievement of maximum employment and price stability. To this end, we have maintained a highly accommodative monetary policy since the financial crisis; that policy has fostered a marked improvement in labor market conditions and helped check undesirable disinflationary pressures. However, we have not yet fully attained our objectives under the dual mandate: Some slack remains in labor markets, and the effects of this slack and the influence of lower energy prices and past dollar appreciation have been significant factors keeping inflation below our goal. But I expect that inflation will return to 2 percent over the next few years as the temporary factors that are currently weighing on inflation wane, provided that economic growth continues to be strong enough to complete the return to maximum employment and long-run inflation expectations remain well anchored. Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change.

  Here’s some (possibly) helpful context from Bloomberg:

  Janet Yellen has a chance this week to do one of two things: emphasize that the Federal Reserve remains on track to raise interest rates in 2015, or validate the view of many investors that liftoff will be delayed until next year.

   

  “The market is really second-guessing them,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. “There doesn’t seem to be an easy way to get from where we are today to a rate hike in 2015 without some additional volatility. The market just isn’t there.”

   

  The communications challenge for Yellen and her colleagues is how to describe two competing forces as they weigh liftoff: downward pressure on inflation coming from slumping prices of imported goods and commodities due to a stronger dollar and slowing growth in China, versus steady U.S. consumer demand that they believe should push domestic prices higher as unemployment falls and the labor market tightens further.

   

  The jobless rate is already low at 5.1 percent and the median forecast of Fed officials last week showed it averaging 5 percent for the final quarter of the year. On the other hand, inflation as measured by their preferred gauge has been under their 2 percent target since April 2012 and was just 0.3 percent in the 12 months through July.

   

  The picture is further clouded by the ongoing instability in financial markets that could serve as a warning that U.S. growth prospects may not be as insulated from a global slowdown as the Fed’s forecasters expect.

   

  

  

  

  

  

• The Oligarch Recovery: 30 Million Americans Have Tapped Retirement Savings Early In Last Year

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The ongoing oligarch theft labeled an “economic recovery” by pundits, politicians and mainstream media alike, is one of the largest frauds I’ve witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

  Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery,” which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here’s an excerpt:

  Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

   

  According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

   

  It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

  Of course, it’s not just “alternative financial services.” Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a “recovery.”

  From Time:

  With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

   

  Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

   

  Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril. 

  So now we know what has kept meager spending afloat during this pitiful “recovery.” A combination of “alternative loans” and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

  Don’t forget to send your thank you card to you know who:

  

  *  *  *

  For related articles, see:

  The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the “Recovery”

  The Oligarch Recovery – Low Income Americans Can’t Afford to Live in Any Metro Area

  The Oligarch Recovery – Renting in America is Most Expensive Ever

  Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You’re Poor

  The Face of the Oligarch Recovery – Luxury Skyscrapers Stay Empty as NYC Homeless Population Hits Record High

  Census Data Proves It – There Was No Economic Recovery Unless You Were Already Rich

  Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the “Recovery”

  

  

  

  

  

• Bank of Spain Responds, Promises It Is Not Confiscating Catalonia's Gold

  On Wednesday, some were curious to know why a line of armored vans was stationed outside the Bank of Spain’s Barcelona branch.

  

  Our interest was piqued when we remembered that on Sunday, Catalans will vote in what might as well be an independence referendum. 

  We’ll spare readers a lengthy discussion of the history behind the independence movement and just note that CDC and ERC need 68 seats for an absolute parliamentary majority. If they hit that threshold, they’ll push quickly for an independent Catalonia. Based on the latest polls, it looks like it’s going to be close:

  

  It doesn’t require a leap of logic to draw a connection between what looked like unusual activity at a central bank branch in the Catalan capital and this Sunday’s vote and so, we took the opportunity to ask the following: “Is the Bank Of Spain quietly pulling its gold from Catalonia ahead of this weekend’s vote?”

  The answer, according to The Bank Of Spain itself who was kind enough to send us a letter this morning, is “no.” We present their response below without further comment:

  Good morning,

   

  Regarding the story posted by Tyler Darden on 09/23/2015 under the headline Is The Bank Of Spain Quietly Pulling Its Gold From Catalonia Ahead Of This Weekend’s Vote?, we want to point out the following:

   

  Nothing extraordinary happened yesterday in the building of Banco de España in Barcelona. A number of armoured vans were stationed for a while in the street because of the increased movement of cash being distributed to the commercial banks prior to the banking holiday in Barcelona today (followed in many cases by another non-working day tomorrow or “Puente” as it is called in Spanish).

   

  We gladly provided this explanation yesterday to the media which happened to ask us about the matter (which was not the case of VilaWeb, that did not contact the Banco de España regarding this –or any other- matter).

   

  And, by the way, there is no gold in this site of Banco de España in Barcelona.

  

  

  

  

  

• Caught On Tape: Anarchy – When Chicken Prices Hit Record Highs

  We have all watched the dramatic and disturbing scenes from Venezuela as 'average joes' fight over the last bar of soap or sheet of toilet paper as prices soar beyond anyone's control… and said "that could never happen here." Well with stealth-flation leaking into everyday prices wherever you look (as long as 'you' are not The Fed), we may have just witnessed the awakening. With prices for chicken having hit record highs, residents of America are brawling over the last winged feast…

  When this occurs…

  

   

  This eventually happens…

   

  "could never happen here"

  Chart: Bloomberg

  

  

  

  

  

• Gold Pops, Dollar Drops, As CATastrophe Slaps Stocks Ahead Of Yellen "Do-Over" Speech

  Despite a lot of effort today…

   

  BMW fears battered European stocs – not helped at all by a 4th day of China devaluation wringing the carry trade out of EUR… CAT crushed hopes early on and weak US data pushed stocks lower but Crude's rampathon lifted stocks (as JPY lost its mojo) and then JPM's quant fell on his sword

  

   

  Cash indices roundtripped but were unable to get green…

  

   

  And since the post-FOMC peak…

  

   

  CAT was the big loser after cutting outlooks and slashing jobs…

  

   

  VIX was higher on the day but those crazy tails were very evident again…

  

   

  And the JPM comment drove the algos wild…

  

   

  The whole day was one of roundtrips…around Europe's close…

  

   

  Credit continues to push lower…

  

   

  As US Financials see credit surge back towards Black Monday wides…

  

   

  Treasury yields tumbled as stocks sold off then began to ramp back higher as Europe closed…

  

   

  The USD Dollar dumped early on as Yuan devaluation sparked more EURCNH unwinds (and EUR strength) but once again as soon as Europe closed a mysterious bid for USDs re-emerged ahead of Asia…

  

   

  Commodities generally rose on the day with gold and silver most notable.

  

   

  Close up on crude's roundtrip

  

   

  But it was gold and silver that stood out…

  

   

  Charts: Bloomberg

  

  

  

  

• One By One the Central Banks Are Losing Control

  Since 2008, the Keynesians running global Central Banks had always suggested that there was no problem too great for them to handle. They’d promised to do “whatever it takes,” to maintain the financial system and print the world back to growth.

   

  Thus far, we’d seen some pretty aggressive moves. The most aggressive was committed by the Bank of Japan, which announced a single QE program equal to 24% of Japanese GDP in April 2013.

   

  However, the SNB was the first Central Bank to actually reach the point at which it had to decide between printing a truly insane amount of money relative to GDP (50%+) or simply giving up.

   

  It chose to give up.

   

  In many ways, the SNB was cornered by the ECB into this situation. I think this is why the SNB decided to make its announcement on a Thursday as opposed to over the weekend (when Central Banks usually announce bad news to minimize the market impact). The SNB wanted to cause mayhem, likely because it was frustrated by the ECB’s upcoming QE program of which the SNB was undoubtedly aware in advance.

   

  This situation has since progressed with an even larger, more important Central Bank buckling to market forces.

   

  That Central Bank is China.

   

  As we’ve noted before, China’s economy is in tatters. At best it is growing around 3.5%. At worst it isn’t growing at all. And with its currency closely linked with the US Dollar (which is in a bull market) Chinese exporters were getting destroyed.

   

  So what did China do? It chose to devalue the Yuan.

   

  In short, a new player is in the global currency war. And it represents the second largest economy in the world. Having said that, we want you to take note of a few lessons from this situation:

   

  1)   There are in fact problems that are too big for Central Banks to manage.

   

  2)   Central Banks are in fact individual entities. True, they try to coordinate their moves, but when push comes to shove, it will be each Central Bank for itself. This trend will be increasing going forward.

   

  3)   Central Banks have no problem lying about the significance of a situation right up until they shock the market (both the SNB and the PBOC’s moves were suddenly announced).

   

  Of these, #1 is the most important. Since the mid-‘80s, the general consensus has been that there is no problem too great that Central Banks cannot fix it. This has been the case because most crisis that have occurred during that period were either isolated to a particular market (Asian Crisis, Latin American Crisis, Russian Ruble Crisis, etc.) or a particular asset class (Tech Bubble, Housing Bubble, etc.).

   

  This situation has resulted in less and less volatility in the financial system, combined with increased risk taking on the part of investors. As a result, the necessary deleveraging has never been permitted to occur and the financial system has become increasing leveraged (meaning more and more debt).

   

  You can see this in the below chart revealing total credit market instruments in the US (this only includes investment grade bonds, junk bonds, and commercial paper). The deleveraging of the 2008 crisis which nearly took down the entire financial system was a mere blip in a mountain of debt (and this doesn’t even include US sovereign debt, emerging market debt, derivatives, etc.).

   

  Today, when you include global debt issuance, we are facing a debt super crisis, the likes of which has never existed before: $100 trillion in global bonds, with an additional $555 trillion in derivatives.

   

  Central Banks, by printing money, began a war of competitive devaluation in 2008. This worked fine when they were coordinating their moves to prop the system up from 2009-2011. We even had some coordinated efforts by the Fed and the ECB to push the markets higher in 2012 in order to benefit President Obama’s re-election campaign.

   

  However, 2012 marked the high water mark for Central Bank intervention without political repercussions. From that point onward, all Central Bank began to lose their political capital rapidly.

   

  1.     In Japan, the Bank of Japan’s policies are demolishing the Middle Class. The number of Japanese living on welfare just hit a record and real earnings and household spending have been in a free fall since the middle of 2014.

   

  2.     In Europe, the ECB’s President Mario Draghi has admitted in parliament that he was concerned about a “deflationary death spiral” and admitted that QE was the last tool left. Half of the ECB’s Board is against his direction.

   

  3.     In the US, the Fed is now being targeted by Congress. Legislation has been introduced to audit the Fed AND force it to abide by the Taylor Rule. Also, the Fed appears to be losing control of the system as it failed to increase interest rates and stocks STILL collapsed.

   

  4.     In China, deflation is spiraling out of control with a stock market crash, housing bubble bursting, and economic downturn that is more serve than most realize.

   

  The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.

   

  Smart investors are preparing now, BEFORE it hits.

   

  If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

   

  We made 1,000 copies available for FREE the general public.

   

  As we write this, there are less than 10 left.

   

  To pick up yours, swing by….

   

  Click Here Now!!!

   

  Best Regards

   

  Phoenix Capital Research

   

  Our FREE e-letter: www.gainspainscapital.com

   

   

  

  

  

  

• Is Goldman Preparing To Sacrifice The Next "Lehman"

  One of the more “unmentionable” conspiracy theories surrounding the demise of Lehman Brothers in 2008 is that this “shocking” event was in fact a well-choreographed and carefully scripted “controlled demolition”, with the Lehman Bankruptcy – the event that officially unleashed the Great Financial Crisis – getting the express prior permission of both Ben Bernanke and Hank Paulson, a former Goldman employee, whose motive was the elimination of the one firm that was then Goldman’s biggest competitor in the FICC space, and whose subsequent bailout of his former employer (Goldman Sachs and all other insolvent banks) would lead to the preservation of trillions in worthless equity courtesy of the biggest taxpayer funded bailout in history, and with billions in excess reserves parked on Goldman’s balance sheet smoothing the bank’s transition through a historic recession.

  Fast forward to this week when as we reported previously, following a surge in its Credit Default Swaps, the “doomsday” scenario for Glencore is now on the table, because the market suddenly realized that Glencore’s most valuable asset, not its mines, or its trading operations, but its investment grade rating, could be stripped away.

  This is what we said, after we noted that GLEN CDS had just hit a multi-year wide of 464bps (precisely as we said it would over a year ago):

  We expect this CDS blowout to continue.

   

  What’s worse, if the company is downgraded from investment grade to junk, watch as the “commodity Lehman” scenario for Glencore, which much more than a simple copper miner just happens to be one of the world’s biggest commodity trading desks, comes full cricle leading to waterfall collateral liquidations and counterparty freeze-outs as suddenly the world is reminded that there is a vast difference between a real and a rehypothecated commodity, and that all collateral rehypothecation chains are only as strong as the weakest counterparty!

  Long story short: if and when Glencore loses its Investment Grade rating, it’s more or less game over, if not for the company’s already mothballed mining operation then certainly for its trading group, where “junking” would lead to numerous collateral shortfalls and margin call waterfalls, reminiscent of the ratings agency downgrade of AIG that culminated with the US bailout of the insurer.

  Therefore we were not surprised earlier today to see Glencore stock crash to a new record low below 100p even as the CDS blow out continued.

  

   

  We were, however, very surprised by the catalyst, because the company that managed to successfully hammer Glencore, which in our view is nothing short of the commodity “Lehman” (or perhaps AIG) was none other than Goldman, which earlier today released a report which is essentially blueprint for not only how to take away Glencore’s precious investment grade rating, but taken a few steps further, how to unleash this cycle’s commodity “Lehman event” (once again, Glencore is first and foremost a trading desk which serves as a counterparty with trillions in derivatives notional exposure to virtually every other commodity using and trading entity in the world) and taken to the extreme, how to “force” the Fed to finally unleash the helicopter money should Glencore’s failure be the catalyst the pushes the entire world into a deflationary recession, if not outright depression.

  This is what Goldman said earlier in a note titled “Much progress made but the song remains the same”

  We update our estimates for Glencore following the completion of its equity placement on September 16, in which it raised its target of $2.5bn. We also update our estimates to incorporate our commodity analysts’ lower thermal coal forecasts ($58/54/52/t for 2015/16/17E) and lower met coal forecasts ($91/85/90/t), which impacts Glencore’s 2016/17/18E EBITDA by c.15-18%… On lower estimates we reduce our 12-month price target to 130p (was 170p).

   

  Implications

   

  Since announcing c.$10bn of debt reduction measures on September 7 and completing a 9.9% equity placing, shares have retreated a further 14%. In our view investors are not yet convinced that Glencore has gone far enough to totally allay fears that the industrial assets can service the new lower debt level. Our scenario analysis suggests that using GS estimates for commodities prices and FX rates, Glencore’s IG rating would be secure in the medium term, but our estimates for zinc, nickel and coal prices are higher than spot prices. When we run the same analysis using spot commodity prices and spot FX rates, most of Glencore’s credit metrics would be at the border of required ranges to maintain its IG rating. Finally, a 5% drop in spot commodity and flat FX would see most of Glencore’s credit rating metrics fall well outside the required range to maintain its IG rating, suggesting concerns would quickly resurface. Glencore has a few levers left – further lowering capex, signing streaming deals and releasing more working capital. Recent underperformance suggests that the measures exercised are insufficient and more is needed. We remain Neutral rated but expect continued volatility in the near term.

  Why is Glencore’s IG rating so critical? As explained above, Glencore is really not so much the Lehman as the AIG of the commodity world: without an investment grade rating, a self-reinforcing collapse will begin that could ultimately terminate Glencore’s trading desk, in the process liquidating one of the world’s biggest commodity trading counterparties.

  From Goldman:

  Glencore’s trading business relies heavily on short-term credit to finance commodity deals and its financing costs would increase if it were to lose its Investment Grade credit rating. In addition, it could even lose some counterparties due to increased counterparty risk.

  That’s putting it mildly: what a junking of Glencore would do, is start a collateral demand waterfall cascade that the cash-strapped company simply would not be able to sustain.

  So having laid out the strawman, Goldman next, very conveniently, explains just what would take for the Investment Grade trap to slam shut:

  it would only take a c.5% fall in spot commodities prices for concerns about its credit rating to resurface

   

  While Glencore’s announced measures have allayed near-term concerns about the potential for its credit rating to be downgraded, its high leverage to commodity prices is demonstrated in our scenario analysis, where we estimate just a c.5% drop in spot commodity prices would see concerns resurface about the potential for its credit rating to be downgraded. In addition, given the latest guidance on capex of c.$4bn in FY17, we believe there is limited flexibility for the company to make any further cuts while maintaining its production targets.

  Wait, high leverage to commodity prices as the biggest risk factor? Where have we seen this before? Oh yes, in our March 2014 post (saying to buy GLEN CDS) which showed the one thing nobody was looking at at the time; Glencore’s, wait for it, high leverage to commodity prices!

  

   

  For those who enjoy playing with numbers, here is Goldman’s real “Doomsday” scenario: the one which sees Glencore’s IG rating stripped. As Goldman admits, all it would take is a small 5% drop in commodity prices from here:

  If commodity prices were to fall 5% from current levels – which we do not consider to be a far-fetched assumption given the downside risk to commodity consumption in China – we believe that concerns about its IG credit rating would quickly resurface. Under this scenario, we estimate that most of Glencore’s credit rating metrics would fall well outside the required ranges to maintain its IG rating, and as early as the next reporting period (FY15).

   

  Although Glencore has a few levers left in the event commodity prices continue their leg down (such as deferring capex and executing streaming deals), the key point to highlight is that executing these options would take time. That said the recent announcement by Silver Wheaton that it is working with Glencore on the streaming deal highlights that management is focused on bolstering its balance sheet.

  Charted:

  

  It goes without saying that courtesy of HFTs and China’s hard landing, a 5% drop in commodities could happen overnight.

  So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:

  1. Commodity prices drop another 5%
  2. The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
  3. Waterfall cascade of margin and collateral calls promptly liquidates Glencore’s trading desk and depletes the company’s cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those “physical” commodities are.
  4. Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
  5. Fed and global central banks are called in to come up with a “more powerful” form of stimulus
  6. The money paradrop scenario proposed by Citigroup yesterday, becomes reality

  Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.

  

  

  

  

  

  

Digest powered by RSS Digest

• Paul Craig Roberts: Democracy Has Departed The West

  Authored by Paul Craig Roberts,

  Before the West spreads democracy abroad maybe it could get some for itself. The US is an oligarchy in which government is answerable to six powerful private interest groups. In Europe governments are answerable to the EU, Washington, and private bankers and not to their peoples. In the UK the military brass has declared its hold on the reins of power.

  Jeremy Corbyn is the first Labourite to lead the Labour Party in a long time. Considering the stupidity and immorality of the Tories, Corbyn could become prime minister of Britain. Should this occur, Corbyn would shift the budget priorities away from supporting Washington’s wars toward refurbishing the social welfare state that made life for ordinary Britishers more secure and less stressful.

  A senior serving general of the British army said that the army would not allow the people to “put a maverick in charge of the country’s security. The Army just wouldn’t stand for it and would use whatever means possible, fair or foul, to prevent that.”

  In other words, a democratic outcome unacceptable to the English military will be overthrown. Just like in Egypt.

  Here we have the incongruity of Washington and London bringing democracy to others through what Vladimir Putin calls “airstrike democracy,” while tolerating a democracy deficit themselves. The safest conclusion is that democracy is a cloak for an aggressive agenda, not a value in itself to the US and UK elites, who rule and who intend to continue to rule these countries for their personal benefit.

  Jonathan Cook reports that the use of “whatever means possible, fair or foul,” against Labour prime ministers who actually stood for the people rather than for the elites is not unique to Corbyn. Labour Prime Minister Harald Wilson faced similar pressure and resigned. 

  As far as I can tell, not only has democracy departed the Western world, but also compassion, empathy for others, morality, integrity, respect for truth, justice, faithfulness, and self-respect. Western civilization has become a hollow shell. There is nothing left but greed and coercion and the threat of coercion. When I read—hopefully incorrect reports—that Russia’s President Putin desires to be a partner of the West, I wonder why such a powerful country, which has emerged into light out of darkness, wants to be Satan’s partner. I assume that the reports are untrue or that Putin is acting in the interest of humankind to defuse the dangerous situation created by Washington and its NATO sock puppets.

  Russia should not forget the courageous speech that Venezuelan President Hugo Chavez gave to the UN on September 20, 2006. Standing at the podium, Chavez said that on the previous day George W. Bush stood here, “Satan himself, speaking as if he owned the world. You can still smell the sulfur.” The purpose of America, Chavez said, is “to preserve the pattern of domination, exploitation and pillage of the peoples of the world.”

  Chavez’s words were too much truth for US politicians. Nancy Pelosi, the multimillionaire Speaker of the US House of Representatives, said that such a speech was to be expected from an “everyday thug.”

  Elsewhere the response was different. Rafael Correa, currently President of Ecuador, said that Chavez had insulted Satan, because although Satan is evil like Washington, he is al least intelligent, and Washington is completely stupid.

  The Western World is on its last legs. Unemployment is horrendous for European and American youth—primarily for the educated. Young American women, driven by student debt, advertise on Internet sites for “sugar daddies” to whom they will supply sex for financial support. The easy answer—“education is the solution”— is a lie. Ph.Ds cannot get jobs, because university budgets are cut in order to save money for wars and bank bailouts and 75% of the remaining budget is used by administrations to pay themselves large salaries and perks. NYU, for example, provides its higher administrative personnel with expensive summer homes. University presidents in America have multimillion dollar incomes, while the students drown in debt.

  The Wall Street Mentality—unlimited Greed—has taken over American life, and this greed has been exported to Europe, which had achieved a sharing relationship between labor and capital. Today Europe, like the US, is an opportunity wasteland for the young. Greece has been sacrificed for the private bankers, and Italy, Spain, and Portugal are waiting in the wings. In the place of independent European countries, a fascist centralized authority is rising.

  As millions of refugees from Washington and its NATO enablers’ wars seek refuge in Europe, budgets for social welfare are further pressed.

  In recent years we have witnessed that private bankers acting through the EU were able to appoint the governments of the allegedly democratic governments of Greece and Italy.

  In the Western World the aristocracy of wealth is being re-established. If Russia and China join this “partnership,” then billions of peoples will be ruled by a handful of mega-rich elites.

  The world is on the knife edge. The West is lost. Russia and China could go down with the West, because both Russia and China suffered tyranny and look to the West for the paths to freedom and liberty. But Western paths lead to “domination, exploitation and pillage of the peoples of the world.”

  Will Russia and China participate in the pillage, or will they resist it, standing firm for humanity?

  

  

  

  

  

• Is Volkswagen About To Unleash The Next Deflationary Wave?

  With the new car bubble peaking, and the world's automakers having ramped up production across the globe after seeing Fed-driven signals that all is well and all is going to get better…

  

   

  …the slowdown in China already has many hitting the panic button (with production plunging, capacity utilization tumbling, and workweeks tumbling).

  

   

  With this week's 'exogenous' diesel-defect 'event', the inventory-problem that US automakers are facing…

  

   

  …is nothing compared to the potentially catacylysmic wave of deflationary pricing (and deflationary lack of demand for raw materials) that VW faces with its record inventory.

   

  Inventories of Finished Goods…

  

  Charts: Bloomberg

  The last time inventories spiked on this scale… right into an 'exogenous' event… it ended very very badly!

  Think we are exaggerating, think again… (via Reuters)

  The Volkswagen emissions scandal has rocked Germany's business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe's largest economy.

   

  Volkswagen is the biggest of Germany's car makers and one of the country's largest employers, with more than 270,000 jobs in its home country and even more working for suppliers.

   

  Volkswagen Chief Executive Martin Winterkorn paid the price for the scandal over rigged emissions tests when he resigned on Wednesday and economists are now assessing its impact on a previously healthy economy.

   

  "All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis," ING chief economist Carsten Brzeski told Reuters.

   

  "If Volkswagen's sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole," he added.

   

  Volkswagen sold nearly 600,000 cars in the United States last year, around 6 percent of its 9.5 million global sales.

   

  …

   

  In 2014, roughly 775,000 people worked in the German automobile sector. This is nearly two percent of the whole workforce.

   

  In addition, automobiles and car parts are Germany's most successful export — the sector sold goods worth more than 200 billion euros ($225 billion) to customers abroad in 2014, accounting for nearly a fifth of total German exports.

   

  "That's why this scandal is not a trifle. The German economy has been hit at its core," said Michael Huether, head of Germany's IW economic institute.

  Some observers also see some irony in the scandal.

  While the German economy defied the euro zone debt crisis and, so far, the economic slowdown in China, it could now be facing the biggest downside risk in a long while from one of its companies.

   

  "The irony of all of this is that the threat could now come from the inside, rather than from the outside," Brzeski said.

  When the largest carmaker in the world faces a sudden (and extremely likely) implosion in sales at the same time as holding a record inventory having ramped at a record pace in the last two quarters, the ripple through into the German economy, European economy, and world economy is extremely deflationary… which leaves only one thing – Moar QE, or QQE, or Q€.

  *  *  *

  And, as we explained before, if you are relying on more easing from The PBOC… it has made absolutely no difference whatsoever in the past 10 years…

  

  Charts: Bloomberg

  And all of this on top of the fact that the subprime auto loan market is set to collapse…

  To sum up…

  • The only way automakers are making sales is by lowering credit standards to truly mind-numbing levels and increasing residuals to make the monthly nut affordable…. that cannot last.
  • China's economic collapse has crushed forecasts for the automakers.
  • Inventories of new cars are already at record highs.
  • Inventories of luxury high-quality used cars are at record highs and prices are tumbling.
  • And July saw a massive surge in producton.
  • What comes next is simple… a production slump

  We're gonna need a German bailout… or more chemical plant explosions…

  

  

  

  

  

• Japanese Stocks Tumble After Holiday, China Default Risk Hits 2 Year Highs As Yuan Weakens For 4th Day

  AsiaPac stocks are broadly lower at the open, folowing US' lead as after being closed for 3 days, Japanese stocks open and catch down to global weakness with Nikkei 225 at 2-week lows. It appears it is time to "get back to work Mr.Kuroda," as stocks are below Black Monday's lows. Following last night's dismal data, China credit risk rose once again to new 2 year highs. Once again, industrial metals are under pressure with iron ore, copper, and aluminum all lower (following "peak steel" comments). After 3 days of weakening (and Xi's comments that China won't weaken), PBOC weakend the Yuan fix again, pushing the offshore-onshore spread to 2-week wides (over 500 pips apart).

   

  After 3 days of holidaying, selling resumes in Japanese stocks… ahead of tonight's Japan PMI.

  

   

   

  The good news to start the day in China, delveraging begins again…

  • *SHANGHAI MARGIN DEBT BALANCE FALLS FIRST TIME IN THREE DAYS

  As it appears the excitement of high beta fraud is back with ChiNext and Shenzhen outperforming this week…

  

   

  But the path remains similar (albeit a little faster)…

  

   

  Once again China injects more liquidity…

  • *PBOC TO INJECT 80B YUAN WITH 14-DAY REVERSE REPOS: TRADER

  And industrial metals are all lower after…

  • *CHINA STEEL OUTPUT TO DROP TO 810 MLN TONS IN `15: CUSTEEL
  • *CHINA STEEL OUTPUT HAS PEAKED, CUSTEEL'S YANG SAYS IN I'VIEW

  But China default risk continues to leak higher…

  

   

  Following Xi's comments that China will not devalue the Yuan (and 3 days of devaluing the Yuan), PBOC weakened the Yuan fix again tonight…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3791 AGAINST U.S. DOLLAR

  

   

   

  Notably the spread between Onshore and Offshore Yuan has pushed to a 2-week high…

  

   

  Charts: Bloomberg

  

  

  

  

  

• The Worst Part Is Central Bankers Know Exactly What They Are Doing

  Submitted by Brandon Smith via Alt-Market.com,

  The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.

  Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.

  There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.

  Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.

  By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.

  That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article 'The Economic Endgame Explained.'

  Many people, including insiders, have written extensively about central banks and their true intentions to centralize and rule the masses through manipulation, if not direct political domination. I think Carroll Quigley, Council on Foreign Relations insider and mentor to Bill Clinton, presents the reality of our situation quite clearly in his book “Tragedy And Hope”:

  "The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank … sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

  This "world system of financial control" that Quigley speaks of has not yet been achieved, but the globalists have been working tirelessly towards such a goal.  The plan for a single global currency system and a single global economic authority is outlined rather blatantly in an article published in the Rothschild owned 'The Economist' entitled 'Get Ready For A Global Currency By 2018'.  This article was written in 1988, and much of the process of globalization it describes is already well underway.  It is a plan that is at least decades in the making.  Again, it is foolhardy to assume central banks and international bankers are a bunch of clumsy Mr. Magoos unwittingly driving our economy off a cliff; they know EXACTLY what they are doing.

  Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. They prefer that you see them as bumbling idiots, as children who found their father’s shotgun or who like to play with matches because in your assumptions and underestimations they find safety. If you cannot identify the agenda, you can do nothing to interfere with the agenda.

  I have found that the false notion of central bank impotence is growing in popularity lately, certainly in light of the recent Fed decision to delay an interest rate hike in September. With that particular event in mind, let’s explore what is really going on and why the central banks are far more dangerous and deliberate than people are giving them credit for.

  The argument that the Federal Reserve is now “between a rock and a hard place” keeps popping up in alternative media circles lately, but I find this depiction to be inaccurate. It presumes that the Federal Reserve "wants"  to save the U.S. economy or at least wants to maintain our status quo as the “golden goose.” This is not the case.  America is not the golden goose.  In truth, the Fed is exactly where it wants to be; and it is the American people who are trapped economically rather than the bankers.

  Take, for instance, the original Fed push for the taper of quantitative easing; why did the Fed pursue this in the first place? QE and zero interest rate policy (ZIRP) are the two pillars holding up U.S. equities markets and U.S. bonds. No one in the mainstream was demanding that the Fed enact taper measures. And when the Fed more publicly introduced the potential for such measures in the fall of 2013, no one believed it would actually follow through. Why? Because removing a primary support pillar from under the “golden goose” seemed incomprehensible to them.

  In September of that year, I argued that the Fed would indeed taper QE. And, in my article “Is The Fed Ready To cut America’s Fiat Life Support?” I gave my reasons why. In short, I felt the Fed was preparing for the final collapse of our economic system and the taper acted as a kind of control valve, making a path for the next leg down without immediate destabilization. I also argued that all stimulus measures have a shelf life, and the shelf life for all QE and ZIRP is quickly coming to an end. They no longer serve a purpose except to marginally slow the collapse of certain sectors, so the Fed is systematically dismantling them.

  I received numerous emails, some civil and some hostile, as to why I was crazy to think the Fed would ever end QE. I knew the taper would be instituted because I was willing to accept the real motivation of central banks, which is to undermine and destroy economies within a particular time frame, not secure economies or kick the can indefinitely. In light of this, the taper made sense. One great pillar is gone, and now only ZIRP remains.

  After a couple of meetings and preplanned delays, the Fed did indeed follow through with the taper in December of that year. In response, energy markets essentially imploded and stocks became steadily more volatile over the course of 2014, leading to a near 10% drop in early fall followed by foreign QE efforts and false hints of QE4 by Fed officials as central banks slowed the crisis to an easier to manage pace while easing the investment world into the idea of reduced stimulus policies and reduced living standards; what some call the "new normal".

  I have held that the Fed is likely following the same exact model with ZIRP, delaying through the fall only to remove the final pillar in December.

  For now, the Fed is being portrayed as incompetent with markets behaving erratically as investors lose faith in their high priests. This is exactly what the bankers that control the Fed prefer. Better to be seen as incompetent than to be seen as deliberately insidious. And who knows, maybe a convenient disaster event in the meantime such as a terrorist attack or war (Syria) could be used to draw attention away from the bankers completely.

  Strangely, Bloomberg seems to agree (at least in part) with my view that the taper model is being copied for use in the rate hike theater and that a hike is coming in December.

  Meanwhile, some Federal Reserve officials once again insinuate that a hike will be implemented by the end of the year while others hint at the opposite.

  Other mainstream sources are stating the contrary, with Pimco arguing that there will be no Fed rate hike until 2016.  Of course, Pimco made a similar claim back in 2013 against any chance of a QE taper.  They were wrong, or, they were deliberately misleading investors.

  Goldman Sachs is also redrafting their predictions and indicating that a Fed rate hike will not come until mid-2016. With evidence indicating that Goldman Sachs holds considerable influence over Fed policy (such as exposed private meetings on policy between Fed officials and banking CEO's), one might argue that whatever they “predict” for the rate hike will ultimately happen. However, I would point out that if Goldman Sachs is indeed on the inside of Fed policy making, then they are often prone to lying about it or hiding it.

  During the taper fiasco in 2013, Goldman Sachs first claimed that the Fed would taper in September. They lost billions of dollars on bad currency bets as the Fed delayed.

  Then, Goldman Sachs argued that there would be no taper in December of that year; and they were proven to be wrong (or disingenuous) once again.

  Today, with the interest rate fiasco, Goldman Sachs claimed a Fed rate hike would likely take place in September. They were wrong. Now, once again, they are claiming no rate hike until next year.

  Are we beginning to see a pattern here?

  How could an elitist-run bank with proven inside connections to the Federal Reserve be so wrong so often about Fed policy changes? Well, losing a billion dollars here and there is not a very big deal to Goldman Sachs. I believe they are far more interested in misleading investors and keeping the public off guard, and are willing to sacrifice some nominal profits in the process. Remember, these are the same guys who conned nations like Greece into buying toxic derivatives that Goldman was simultaneously betting against!

  The relationship between international banks like Goldman Sachs and central banks like the Federal Reserve is best summed up in yet another Carroll Quigley quote from “Tragedy And Hope”:

  "It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks."

  Goldman Sachs and other major banks act in concert with the Fed (or even dictate Fed actions) in conditioning public psychology as much as they manipulate finance. First and foremost, globalists require confusion. Confusion is power.  What better way to confuse and mislead the investment world than to place bad bets on Fed policy changes?

  Heading into the end of 2015, we are only going to be faced with ever mounting mixed messages and confusion from the mainstream media, international banks and central banks. It is important to always remember, though, that this is by design. A common motto of the elite is “order out of chaos,” or “never let a good crisis go to waste.” Think critically about why the Fed has chosen to push forward with earth-shaking policy changes this year that no one asked for. What does it have to gain? And realize that if the real goal of the Fed is instability, then it has much to gain through its recent and seemingly insane actions.

  

  

  

  

  

• The Wind At Our Backs

  On my Tastytrade show recently, I’ve been mentioning how I believe the bears have “the wind at their backs” now. I pondered to myself what precisely what I meant by that phrase, and I wanted to share some thoughts on where my head is at on this topic.

  From March 2009 through December 2014, the bulls had the wind at their backs. Early on, it was a full-on gale-force hurricane, provided by the $18 trillion of freshly-minted, asset-inflating “money” provided by the helpful central banks of (a) China (b) Europe (c) Japan (d) the good old US of A.

  

  During those long, awful years, almost any downtick was bought. It took a few years for the market to get completely and utterly confident of this unseen wind. In 2010 and 2011, the market had some pretty big bouts of weakness, which got bears like me excited, but those drops were swiftly shaken off.  From October 2011 forward, the dips became more and more shallow, and it eventually reached a point that bears were put into the position of the proverbial picking up dimes in front of a steamroller.

  The entire Buy The F*cking Dip meme (BTFD) became well-entrenched and well-known. Every single spate of weakness was a buying opportunity, and the momentum of worldwide markets went into a full-blown whirlygig-spin in China, as uneducated farmers and bumpkins wandered into new brokerage offices and handed over their savings to make easy money in the completely fake Chinese stock market.

  As we sit here now, of course, things have changed quite a bit, but my thesis is that the BTFD psyche is still fairly deeply-ingrained. After all, this psychosis has been with us for seven years – SEVEN YEARS – now, and it’s not just going to disappear overnight. It’s going to take many, many disappointments on the part of the bulls until they finally get the message (just as it took many, many years for dullards like me to finally realize that shorting wasn’t working out so great).

  So, in miniature, we wind up with situations like what I posted about at 5:30 this morning, a time which the bulls were naturally celebrating, since a hard drop on the ES (summoned by dreadful economic data from China) had been reversed into a maybe-there’s-more-easing gain. The image I sloppily put together suggested a reversal at that time, and that was within a single ES point of being the high of the day.

  In other words, in spite of a nearly 30-point reversal in favor of the bulls overnight, the wind was at the back of the bears. Even though the feeling sucked at the time, we frankly had nothing to worry about, because as incredible as it may seem, it’s the bears (all three of us) that are in charge now, as opposed to the government welfare queens known as equity bulls.

  I am aggressively positioned right now. I have 117 – count ’em, 117 – short positions, and although there isn’t a single instance where I don’t hold my breath with fear before I fire up my iPad to see where the market is at, the cold fact of the matter is that anyone who looks at the chart below and thinks we are at the cusp of anything resembling a bull market is clinically insane and should be locked up for the protection of themselves and society at large:

  

  

  

  

  

• Government Shutdown & Debt Limit Questions Answered

  A federal shutdown due to a funding lapse looks no less likely than it did two weeks ago, and Goldman Sachs believes the probability is nearly 50%. The Senate is expected to begin voting later this week on a funding extension, but the House looks unlikely to act until shortly before the September 30 deadline. The following attempts to answer the main questions surrounding the shutdown, debt limit, and ramifications…

  • The current debate does not involve the debt limit. However, Congress looks increasingly likely to set the next expiration of spending authority around the time of the debt limit deadline. This is likely to lead to renewed negotiations to increase the caps on spending for 2016 and 2017, but could also cause greater uncertainty among consumers and market participants than a shutdown alone would.
  • Based on recent daily cash flows at the Treasury, we estimate that the upcoming deadline to raise the debt limit is likely to fall slightly earlier than we previously expected, potentially coming around mid-November.

  Q: Why are we talking about a shutdown again?

  Congressional Republicans lack the votes to pass the spending bill they want, but are hesitant to pass a simple extension instead. Federal spending authority expires September 30, and some conservative lawmakers have announced they will only support an extension that strips the Planned Parenthood Federation of American (PPFA) of federal funding. There is sufficient support in the House to do so, but not in the Senate, and the President would be very likely to veto such a bill. By contrast, it is likely that a “clean” extension of spending authority that does not address the issue could pass both chambers of Congress and become law, albeit with more Democratic support than Republicans. That may be how the issue ultimately gets resolved, but Republican congressional leaders are likely to first try to pass their preferred legislation.

  Q: Is Congress any closer than they were two weeks ago to resolving the funding extension and avoiding a government shutdown?

  Not really. On September 18, the House passed legislation to defund PPFA. The Senate considered similar legislation over the summer, but it won only 53 votes, 7 short of the 60 normally needed to move forward. Neither chamber has voted yet to extend spending authority past the current September 30 expiration, though preparations are being made in the Senate to do so.

  Q: What is the outlook?

  Murky. Two weeks ago we wrote that we thought the probability of a shutdown was nearly 50%, though we leaned slightly against a lapse in funding actually occurring. Since then, the political temperature around the issue has fallen and risen; Republican leaders have offered potential plans to avoid a shutdown, but none have won the support of the group of Republican lawmakers in the House driving the opposition to a clean extension of spending authority. At this point we continue to lean slightly against a shutdown, but it would hardly be surprising if it did ultimately happen, particularly because some Republican leaders might ultimately see a short shutdown as the best way out of the current situation.

  Q: What’s the schedule from here?

  Things may start to move later this week. The Senate is expected to vote on legislation later this week to extend government spending authority past September 30. The initial version is likely to include a provision to block funding to PPFA. Assuming this first attempt fails, Senate Republicans are then likely to bring up a “clean” extension of spending authority. The House, which is in recess until Thursday (September 24), looks unlikely to take up spending legislation this week, and may wait to receive whatever spending extension the Senate passes. The upshot is that, unsurprisingly, it looks like the issue will be resolved no sooner than September 30.

  Q: How does the current situation compare to the 2013 shutdown?

  They look very similar. With only a week to go before the funding deadline, the situation bears close resemblance to the situation in 2013, when congressional Republicans were split over whether to use the extension of spending authority to block implementation of the Affordable Care Act (ACA). At that point, there had been sufficient support in the House to do so, but not in the Democratic-majority Senate; the Senate now has a Republican majority, but they still lack the 60 votes needed to send legislation that Democrats oppose to the President’s desk. The ultimate decision is seen to rest with House Speaker Boehner who, just like in 2013, faces pressure from conservative members of his caucus to reject a clean spending extension, even if doing so results in a shutdown.

  That said, the current situation differs from 2013 in some respects. The PPFA issue has received a fair amount of attention, but it does not appear to be as politically salient as the ACA was in 2013. At that point, around 80 House Republicans signed on to the plan to use spending legislation to block ACA implementation; only about 30 have signed on to the current gambit. Public opinion polls show less unanimity among self-identified Republicans this time around as well; a smaller majority opposes PPFA than opposed the ACA in 2013. In one recent poll, a majority of Republicans, despite supporting the defunding of PPFA in principle, opposed shutting down the government over it, in contrast to 2013 when some polling suggested a narrow majority of Republicans supported shutting the government as a way to block ACA implementation.

  Q: What would the economic effect of a shutdown be?

  Real GDP growth in Q4 would decline by at least -0.2pp for each week the government is shut down. We think about a potential shutdown having four basic effects: (1) the direct effect of furloughing federal workers; (2) the direct effect of reduced federal spending on purchased goods and services; (3) the direct effect on private-sector activities (e.g., halted projects awaiting federal approvals, etc), and (4) the indirect effect of a shock to confidence on employment, investment and consumer spending. The first category has the largest effect, we believe. If a shutdown occurs next week and were handled the same way as prior shutdowns, about 40% of federal workers would be sent home—the rest would be exempted because of their job responsibilities—representing about $2bn in lost compensation for each week that funding lapsed and lowering real GDP growth in Q4 by just under 0.2pp for each week of shutdown. That effect would roughly reverse in Q1 (assuming the shutdown had ended) as federal output returns to a normal level.

  The direct effect on federal procurement of goods and services would be much smaller, particularly at the outset, since delayed orders would likely be made up once the shutdown has ended. We would expect virtually no effect on federal investment and purchases of durable goods, which have long lead times and generally rely on private-sector production that would be unaffected by the shutdown. There are some examples of contracted services that might be affected—for example, janitorial and food services for which there would be no need if federal employees were not at work—but these are relatively small. Anecdotally, federal procurement of services actually declined at a slower sequential rate in Q42013 than it did in any of the four prior quarters.

  The direct and indirect effects on the private sector are harder to quantify. The White House Office of Management and Budget released a report shortly after the 2013 shutdown that detailed some effects of the shutdown on private activity, such as stalled transportation and energy projects and delayed export shipments due to a halt in processing of federal permits and export licenses; and delays in lending due to the inability to verify income via the Internal Revenue Service (IRS), for example. It is difficult to estimate what effect this might have had on output, particularly since much of the postponed activity was probably made up during the same quarter.

  On a monthly basis, our Current Activity Index declined slightly in October 2013, though less than it did around other important fiscal deadlines and well within its typical month to month range (Exhibit 1, left panel). That said, one area where the effect of the shutdown did show up fairly clearly was consumer confidence, where sentiment dropped for three weeks, bottoming around the time the debt limit was finally increased on October 16 of that year (Exhibit 1, right panel). Overall, this sort of effect suggests that there could be a modest negative impact on growth from a shutdown beyond the direct effect from furloughed workers, so we would expect that each week of shutdown should reduce real GDP growth in the quarter by at least 0.2pp. That said, assuming a shutdown is short-lived, the growth effect would reverse the following quarter.

  

   

  Q: What would happen to economic data releases?

  Nearly all government data releases would be postponed. In 2013, virtually all scheduled releases of economic data collected by the federal government were postponed until after the government reopened. There are two notable exceptions: first, jobless claims numbers were released on schedule in 2013, even though other key labor market data, like the monthly employment report, were not. Second, the Fed continued to release data on schedule because, as an independent agency, it does not rely on Congress for funding. Releases from private organizations (e.g., ISM, NFIB, Conference Board and University of Michigan, to name a few) would be unaffected.

  Q: How would financial markets respond?

  We would expect a muted market reaction. The main reason is that the shutdown itself is likely to be seen as a temporary event with little bearing on the medium-term outlook. While it is true that previous shutdowns have been associated with a rise in equity volatility, as shown in Exhibit 2, this was generally the case with shutdowns that overlapped with debt limit deadlines—the 1990 and 2013 shutdowns—rather than other shutdowns where the debt limit deadline was not about to be reached.

  

   

  Q: Does this debate have anything to do with the debt limit?

  Not yet. Unlike the last government shutdown, which happened to overlap with a debt limit deadline two weeks later, raising the debt limit isn’t currently being debated. However, the extension of spending authority that is expected to pass soon may be constructed so that it expires around the time of the next debt limit deadline later this year.

  Q: When will the debt limit be reached?

  Probably in November. The Treasury estimates that the “extraordinary measures” it uses to increase borrowing capacity under the debt limit will not be exhausted before late October. As of the end of August, the Treasury appeared to have exhausted most of its bookkeeping strategies, with only about $60bn remaining (mainly the $23bn of the Exchange Stabilization Fund that is invested in Treasuries and $36bn related to the Civil Service Retirement and Disability Fund). However, it also has a substantial cash balance ($146bn as of September 18), which will provide an additional cushion once the Treasury exhausts its borrowing capacity. In the past, the Treasury has based the projected deadline for raising the debt limit that it announces to Congress assuming that the cash balance will not be allowed to go under $50bn, though on occasion it has allowed it to dip to $30bn preceding a debt limit increase.

  

   

  If the Treasury once again bases the deadline it announces to Congress on a $50bn minimum cash balance, we would expect the deadline to fall sometime in mid-November (Exhibit 3). Absent an increase in the debt limit, Treasury’s cash balance would probably run dry sometime by early December. This is in line with our previous estimate, as well as the Congressional Budget Office’s August estimate, though cash flows over the last few weeks—in particular, revenues were a touch lighter than we expected—suggest the deadline might come closer to the front of the late-November to early-December range we had previously estimated in July.

  

  

  

  

  

• Confession Of An Economist: Writing To Impress Rather Than Inform

  If you have ever felt that in addition to being a quasi cargo cult (which in the case of central planners borders on religious dogma) rather than an actual science, not to mention far more destructive, economics was purposefully obtuse and opaque, meant to sound sophisticated and generally “baffle with bullshit” when in reality it was hollow, often contradictory and sometimes meaningless by design, then the following confession by David Hakes, professor of economics at the University of Northern Iowa is for you.

  In it the economist explains how he was turned down when he wrote articles that could easily be understood by a broad audience. So he made them more difficult to understand and got published immediately.

  Reader can form their own conclusion.

  from Econ Journal Watch

  Confession of an Economist: Writing to Impress Rather than Inform

  Think back to your first years in graduate school. The most mathematically complex papers required a great deal of time and effort to ead. The papers were written as if to a private club, and we felt proud when we successfully entered the club. Although I copied the style of these overly complex and often poorly written papers in my first few research attempts, I grew out of it quite quickly. I didn’t  do so on my own. I was lucky to be surrounded by mature confident researchers at my first academic appointment. They taught me that if you are confident in your research you will write to include, not exclude. You will write to inform, not impress. It is with apologies to my research and writing mentors that I report the following events.

  The preference falsification in which I engaged was to intentionally take a simple clear research paper and make it so complex and obscure that it successfully impressed referees. That is, I wrote a paper to impress rather than inform—a violation of my most closely held beliefs regarding the proper intent of research. I often suspected that many papers I read were intentionally complex and obscure, and now I am part of the conspiracy.

  A colleague presented a fairly complex paper on how firms might use warranties to extract rent from certain users of their products. No one in the audience seemed to follow the argument. Because I found the argument to be perfectly clear, I repeatedly defended the author and I was able to bring the audience to an understanding of the paper. The author was so pleased that I was able to understand his work and explain it to others that he asked me if I was willing to coauthor the paper with him. I said I would be delighted.

  I immersed myself in the literature for a few of months so that I could more precisely fit our contribution into the existing literature. We managed to reduce the equations in the paper to six. At this stage the paper was perfectly clear and was written at a level so that it could reach a broad audience. When we submitted the paper to risk, uncertainty, and insurance journals, the referees responded that the results were self-evident. After some degree of frustration, my coauthor suggested that the problem with the paper might be that we had made the argument too easy to follow, and thus referees and editors were not sufficiently impressed. He said that he could make the paper more impressive by generalizing the model. While making the same point as the original paper, the new paper
  would be more mathematically elegant, and it would become absolutely impenetrable to most readers. The resulting paper had fifteen equations, two propositions and proofs, dozens of additional mathematical expressions, and a mathematical appendix containing nineteen equations and even more mathematical expressions. I personally could no longer understand the paper and I could not possibly present the paper alone.

  The paper was published in the first journal to which we submitted. It took two years to receive one referee report. The journal sent it out to a total of seven referees, but only one was able to write a report on it. Apparently he was sufficiently impressed. While the audience for the original version of the paper was broad, the audience for the published version of the paper has been reduced to a very narrow set of specialists and mathematicians. Even for mathematicians, the paper may no longer pass a cost-benefit test. That is, the time and effort necessary to read the paper may exceed the benefits received from reading it. I am now part of the conspiracy to intentionally make simple ideas obscure and complex.

  The story does not end here. A year later at an economics conference I sat on a panel composed of editors of economics journals. The session was charged with instructing young professors on how to get published. Because I was involved in a number of other sessions, I paid little attention to the names and affiliations of my colleagues on the panel. When it was my turn to speak, along with other advice, I told the story described above. When the next panelist was introduced, I was embarrassed to see that he was the editor of the journal that had published our incomprehensible paper. To reduce the level of embarrassment for both of us, I explained that our paper was handled through the U.S. editorial office of his journal, not the U.K. office which he manages. As an aside, to demonstrate just how small the world has become, we later discovered that my eldest daughter had studied in the editor’s department while in the United Kingdom during the previous semester.

  In conclusion, I wish I could promise that in the future I will always write to inform rather than to impress. But although confession may be good for the soul, it does not inoculate us from future sin. If in the future a referee or an editor suggests that I “generalize the model” or “make the model dynamic” when I feel that the change is an unnecessary complication which will likely cloud the issue rather than illuminate it, I will probably do as they requested rather than fight for clarity. That situation aside, I plan to redouble my efforts to write to inform rather than impress, to advise young researchers to do the same, and to be careful when criticizing referees and editors because they may be sitting next to me.

  h/t zeetubes

  

  

  

  

  

• In Major Humiliation, Government Admits Nearly 6 Million Fingerprints Were Stolen In OPM Hack

  What began with an alleged attempt by Kim Jong-un to sabotage Seth Rogen and James Franco for plotting to assassinate his likeness on film, and what reached peak absurdity when Penn State claimed that Chinese hacker spies had taken control of the university’s engineering department, culminated with what’s been variously described as “the largest theft of US government data ever” and an attack “so vast in scope and ambition that the usual practices for dealing with traditional espionage cases [do] not apply.”

  Those rather dramatic sounding characterizations refer of course to the alleged breach of the Office of Personnel Management by Chinese hackers. 

  That attack compromised some 22 million government employees. For its part, Beijing initially called the accusations that the attack emanated from China “irresponsible” and “groundless.”

  Amusingly, the counter-hacking system that is supposed to prevent things like this from happening is called “Einstein” and by the US government’s own admission, it’s already obsolete. Unfortunately, Congress’ now famous inability to do what they were elected to do (i.e. legislate) has left the US unable to pass a cyber security initiative that would help the US better protect itself against attacks like that which occurred on the OPM. 

  In any event, cyber security was back in the spotlight (actually it never really left) last week when the US decided that slapping Chinese entities with sanctions for their alleged role in hundreds of cyber attacks on the US over the course of the last half decade was probably a bad idea ahead of a visit by Chinese President Xi Jinping, who some analysts predicted simply would not make the trip if Washington was unwilling to do Beijing the courtesy of waiting until Xi was back in China before handing down sanctions. 

  But while the Obama administration did indeed relent on the timing of the cyber sanctions, new revelations regarding the theft of “biometric ID authentication markers” (a.k.a fingerprints) look set to make Xi’s visit a bit more uncomfortable than it otherwise would have been, especially in light of comments he made in a speech in Seattle. Here’s Wired with more:

  When hackers steal your password, you change it. When hackers steal your fingerprints, they’ve got an unchangeable credential that lets them spoof your identity for life. When they steal 5.6 million of those irrevocable biometric identifiers from U.S. federal employees—many with secret clearances—well, that’s very bad.

   

  On Wednesday, the Office of Personnel Management admitted that the number of federal employees’ fingerprints compromised in the massive breach of its servers revealed over the summer has grown from 1.1 million to 5.6 million. OPM, which serves as a sort of human resources department for the federal government, didn’t respond to WIRED’s request for comment on who exactly those fingerprints belong to within the federal government. But OPM had previously confirmed that the data of 21.5 million federal employees was potentially compromised by the hack—which likely originated in China—and that those victims included intelligence and military employees with security clearances.

   

  The revelation comes at a particularly ironic time: During the U.S. visit of Chinese president Xi Jinping, who said at a public appearance in Seattle that the Chinese government doesn’t condone hacking of U.S. targets, and pledged to partner with the U.S. to curb cybercrime.

   

  “As part of the government’s ongoing work to notify individuals affected by the theft of background investigation records, the Office of Personnel Management and the Department of Defense have been analyzing impacted data to verify its quality and completeness,” reads OPM’s statement posted to its website. “During that process, OPM and [the Department of Defense] identified archived records containing additional fingerprint data not previously analyzed. Of the 21.5 million individuals whose Social Security Numbers and other sensitive information were impacted by the breach, the subset of individuals whose fingerprints have been stolen has increased from a total of approximately 1.1 million to approximately 5.6 million.”

  And while the government was of course in full damage control mode, swearing that “as of now, the ability to misuse fingerprint data is limited,” they better be right, because as Wired goes on to note, “the national security implications of having the fingerprints of high-level federal officials in the hands of hackers who are potentially employed by a foreign government” are far from clear. 

  Now all of that assumes that a state actor is indeed behind the attack and frankly, assuming that to be true is to accept the narrative that China, Iran, and Russia have now formed a kind of cyber “Axis of Evil” and that narrative plays right into the hands of policymakers who are desperate to perpetuate the existing juxtaposition of world powers. 

  What comes next we can’t say but one thing seems abundantly clear: regardless of who’s doing the hacking, the US government is completing inept when it comes to stopping it and on that note, we close with the following from Senator Ben Sasse:

  “The American people have no reason to believe that they’ve heard the full story and every reason to believe that Washington assumes they are too stupid or preoccupied to care about cyber security.”

  

  

  

  

  

• The Colossal Failure Of Central Bank 'Trickledown'

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  With global economic perceptions finally creeping toward financial perceptions (not stocks) despite the enormous and mostly ongoing “stimulus” almost everywhere, it is useful to review once more the assumed general mechanisms.

  

   

  Step 1 is really the most basic and traditional element of central banking, as liquidity, broadly speaking here, is currency elasticity in its more modern format. Increasing liquidity is supposed to lead to Step 2, more credit/debt. Step 2 flows to Step 3, which is (hopefully) the bulk of that debt “creating” some real economy “demand.” Step 4 is where spending (demand), even if concentrated in certain parts of the economy (redistribution), leads to more jobs and productive investment which broadens out (“trickle out”) the redistributionary flow to the rest.

  For the most part, central banks (including the Fed) are stuck on Step 1 almost a decade later. There has been some flow to Step 2 (credit) but it’s abundantly clear that an enormous proportion of that debt elevation has yielded very little toward Step 3, intead a great deal in fostering asset price inflation. Even if you argue that Step 3 has been yielded into the real economy to some limited extent, it is beyond dispute that it hasn’t led to Step 4.

  When economists speak of “clogged transmission channels” this is the receiver of that ire; how Step 1 can be so successful yet not transmute into Step 2 and beyond has left economists and monetary policymakers exasperated (and stuck within themselves). The wholesale monetary system, by contrast, isn’t so certain about even liquidity, meaning that there isn’t even any real evidence to suggest that Step 1 has been completed. The most direct evidence offered about liquidity is only that there hasn’t been another panic, but that is an exceedingly low standard to the point of irrelevance. If monetary theory is to do what it proclaims, that is nowhere near enough (especially as even that minimal capacity is highly questionable again this year).

  A great deal of focus in central banking has been trying to go beyond Step 1, to induce some form of bank “reserves” to become the bedrock association of traded flow toward debt creation. The Japanese have been here for a quarter century, with nearly all of this century so far spent within some QE or another with that common intent. The results in the real economy particularly since QQE/QE10 have been disastrous.

  

  Real wages in July (the latest figures) were positive for the first time in more than two years – but only because “inflation”, one of the primary economic factors from Step 1 that is supposed to help transmit economic growth, has done the opposite as expected and intended. But that “inflation” calculation obscures somewhat the damage already done by QQE since June real wages were down 3% year-over-year despite the lower “inflation” number. June is the second most important month for Japanese as it represents one of the two “bonus months” for payouts, and to stumble that badly for June before figuring any price changes is pretty clear evidence of not only nothing beyond Step 1 for QQE, but that it may actually be harmful beside.

  

  So where the Bank of Japan might point to the unemployment rate as some kind of positive economic reflection of their monetary influence, as the Fed and Bernanke so often do, underlying that narrow labor view is all continued decay and rot. Actual labor utilization and output in Japan remains on the decline. At least when the earthquake and tsunami devastated the Japanese economy in 2011 it was a temporary setback; QQE, on the other hand, has clearly been a more or less permanent, depressive influence.

  

  With labor and earned incomes under such strain, it is little wonder “demand” has been continually suppressed. Credit doesn’t even factor. Household spending in July was barely positive (year-over-year) nominally and thus barely negative in real terms (again, “aided” by low “inflation” contrary to stated objectives). That result would be difficult on its own, but when compared to July 2014 it reveals the extent of the ongoing devastation; nominal household spending last July was 2% below July 2013, whereas real household spending was about -6%! To be flat or slightly contracting from last year’s trough is devastating.

  

  Given that it has been almost two and a half years now for QQE and the fact that it isn’t possible any longer to ignore or just dismiss (transitory?) this perpetual decay, the Bank of Japan has forced itself into yet another trap – but only one of its own making (yes, it styles the conditions for this trap and then forces itself into it, which is as absurd as it sounds; but that is monetary reality inside the orthodox bubble).

  Sources say the Bank of Japan has been quietly brainstorming the idea of overhauling its massive monetary stimulus programme over time, casting doubt on officials’ confident assertions that it can keep buying up government bonds for several more years.

   

  Sources familiar with the BOJ’s thinking say stepping up its 80 trillion yen ($665 billion) per year asset buying remains its go-to option if deflationary pressures persist, given a limited arsenal of obvious policy alternatives.

   

  But they say the central bank isn’t ruling out breaking with the money-printing programme over the longer term, as it has had little success in accelerating inflation toward its 2 percent target since it began in April 2013.

   

  “If the medicine isn’t working, you wonder whether it makes sense to keep prescribing more,” one of them said on condition of anonymity.

  Finally, some appeal toward actual science, using simple and basic observation instead of ridiculous models and regressions that have proven time and again to be useless, at best? Have we finally reached the point of central banks waking up to their fallacies? The article quoted above even makes the claim that a former BoJ policymaker actually declared QQE was never meant to “last another five, 10 years.” None of the prior QE’s were, either, so instead “temporary” measures become escalations.

  

  Again, the purpose of all of this has been to try to get beyond Step 1; all to no avail. To now add QQE to that dim view should force some serious reckoning and accountability, stripping monetary and even orthodox economic theory back down to its basic philosophies and reconstructing how they are all wrong. This would include, of course, realizing how “money” itself has evolved under the wholesale framework and how that relates to the serial asset bubbles and massive financial imbalances that might themselves be the pathology of turning this monetary “stimulus” into the very depressant thwarting Step 1 in the first place.

  

  That is what you would expect of any discipline supposedly dedicated to the scientific endeavor. If you do something and it doesn’t work but then do more of it to experiment with the dosage and your target intentions instead make it worse, you not only stop the dosage quantification experiment you halt the entire program altogether. Anyone, however, with even a passing familiarity with mainstream economics as it is and central bank practicing of it can guess what BoJ might be considering (rumored or not):

  If the BOJ bumps into trouble buying JGBs, some analysts say it could abandon the 0.1 percent interest the central bank pays on reserves the financial institutions park in BOJ accounts, or even charge a fee for them. That might particularly hurt regional banks, which are already struggling with thin margins on bond investments.

   

  “The BOJ can combine this step with an increase of risky asset purchases and call it a new version of QQE,” said Ryutaro Kono, chief Japan economist at BNP Paribas, who was once considered a candidate to fill a BOJ board vacancy.

   

  “That would effectively mean shifting the BOJ’s target to interest rates from the volume of money.”

  There are no words. After fourteen and a half years of heavy intervention in Step 1, all producing a much smaller and more fragile economy, the “answer” is to go back to Step 1 of Step 1?

  

  Japan is a useful analog in so many ways, not just about what the US and global economy can (has already?) become if allowed to follow into this same circle of Hell. It pretty much proves the incapacity of orthodoxists toward anything outside of their so very limited understanding and appreciation. In other words, the global economy is left wholly dependent on only populist revolt.

  

  

  

  

• Your Complete Guide To A World In Which The Fed Is No Longer In Control

  Back in December 2013 we pointed out something that virtually nobody had noted or discussed: when it comes to “credit” creation, China’s $15 trillion in freshly-created bank loans since the financial crisis – ostensibly the global credit buffer that allowed China to not get dragged down by the western recession – dwarfed the credit contribution by DM central banks.

  

  This is how we simplified what was happening at the time:

  In order to offset the lack of loan creation by commercial banks, the “Big 4” central banks – Fed, ECB, BOJ and BOE – have had no choice but the open the liquidity spigots to the max. This has resulted in a total developed world “Big 4” central bank balance of just under $10 trillion, of which the bulk of asset additions has taken place since the Lehman collapse.

   

  How does this compare to what China has done? As can be seen on the chart below, in just the past 5 years alone, Chinese bank assets (and by implication liabilities) have grown by an astounding $15 trillion, bringing the total to over $24 trillion, as we showed yesterday. In other words, China has expanded its financial balance sheet by 50% more than the assets of all global central banks combined!

   

  And that is how – in a global centrally-planned regime which is where everyone now is, DM or EM – your flood your economy with liquidity. Perhaps the Fed, ECB or BOJ should hire some PBOC consultants to show them how it’s really done.

  This dramatic divergence in credit creation continued for about a year, then gradually Chinese new loans topped out primarily due to regulation slamming shut debt creation in the shadow banking space, and since credit accumulation resulted in parallel build up in central bank reserves, the current period of debt creation going into reverse has led to not only China’s currency devaluation but what we first warned was Reverse QE, and has since picked up the more conventional moniker “Quantitative Tightening.”

  But while China’s credit topping process was inevitable, a far more sinister development has emerged: as we showed earlier, while DM central banks – excluding the Fed for the time being – have continued to pump liquidity at full blast into the global, fungibly-connected, financial system, there has been virtually no impact on risk assets…

  

  … especially in the US where the S&P is now down not only relative to the end of QE3, but is down 5% Y/Y – the biggest annual drop since 2008.

  This cross-flow dynamic is precisely what David Tepper was trying to explain to CNBC two weeks ago when the famous hedge fund manager declared the “Tepper Top” and went quite bearish on the stock market.

  This dynamic is also the topic of a must-read report by Citi’s Matt King titled quite simply: “Has the world reached its credit limit?” and which seeks to answer a just as important question: “Why EM weakness is having such a large impact”, a question which we hinted at 2 years ago, and which is now the dominant topic within the financial community, one which may explain why development market central bank liquidity “has suddenly stopped working.”

  King’s explanation starts by showing, in practical terms, where the world currently stands in terms of the only two metrics that matter in a Keynesian universe: real growth, and credit creation.

  

  His summary: there has been plenty of credit, just not much growth.

  So the next logical question is where has this credit been created. Our readers will know the answer: the marginal credit creator ever since the financial crisis were not the DM central banks – they were merely trying to offset private sector deleveraging and defaults; all the credit growth came from Emerging Markets in general, and China in particular.

  

   

  So while we now know that EMs were the source of credit creation, why care? Why does it matter if credit was mostly being created in EMs vs DMs, and isn’t credit created anywhere essentially the same? The answer is a resounding no, as King further explains.

  First, looking at credit creation in the post-crisis developed markets reveals something troubling: because credit creation takes places mostly in markets and is locked in central bank “outside” money which does not enter the broad monetary system, as opposed to bank credit creation in which banks issue loans thereby creating both new loans and deposits, i.e., money, the direct impect of DM central bank liquidity injections has been to created asset-price inflation. However, the offset has been far lower broad money creation – as there is far less credit demand in the first place – leading to no incremental investment, and far lower economic multipliers.

  

  Alternatively, it should come as no surprise that credit creation in EMs is the opposite: here money creation took place in the conventional loan-deposit bank-intermediated pathway, with a side effect being the accumulation of foreign reserves boosting the monetary base. Most importantly, new money created in EMs, i.e., China led to new investment, even if that investment ultimately was massively mis-allocted toward ghost cities and unprecedented commodity accumulation. It also led to what many realize is the world’s most dangerous credit bubble as it is held almost entirely on corporate balance sheets where non-performing loans are growing at an exponential pace.

  

  The good news is that at least initially the EM credit multiplier is far higher than in the DM.

  The bad news, is that even the stimulative effect of the EM multiplier is now fading.

  

   

  As a result, instead of going toward economic growth, even EM credit creation has been corrupted by the “western” bug, and is being allocated toward asset-price inflation… such as housing and markets.

  

  * * *

  The above lays out the market dynamic that took place largely uninterrupted from 2008 until the end of 2014.

  And then something changed dramatically.

  That something is what we said started taking place last November when we pointed out the “death of the petrodollar“, when as a result of the collapse in oil prices oil exporters started doing something they have never done before: they dipped into their FX reserves and started selling. This reserve liquidation first among the oil exporting emerging market, is essentially what has since morphed into a full blown capital flight from the entire EM space, and has also resulted in China’s own devaluation-driven reserve (i.e., Treasury) liquidation, which this website also noted first back in May.

  As King simply summarizes this most important kink in the story, after years of reserve accumulation, EMs have now shifted to reserve contraction which, in the simplest possible terms means, “money is being destroyed” which in turn is the source of the huge inflationary wave slowly but surely sweeping over the entire – both EM and DM – world.

  

   

  Ok, EMs are selling. But where is the money going? And won’t dumping of Treasurys push yields higher. Answering the second question first, we remind readers of a note from several weeks ago titled “Why China Liquidations May Not Spike US Treasury Yields” which is precisely what DB also said, and which Citi agrees with: while there may be upward pressure on yields it will likely be temporary, especially if there is an even greater risk-aversion reaction in risk assets. The result to EM TSY selling would be a selloff in stocks, which in turn would push investors into the “safety” of bonds, thus offsetting Chinese selling.

  

   

  But while one can debate what the impact on money destruction would be on equities and treasurys, a far clearer picture emerges when evaluting the impact on the underlying economy. As King, correctly, summarizes without the capex boost from energy (which won’t come as long as oil continues its downward trajectory), and DM investment continues to decline, there is an unprecedented build up in inventory, which in turn is pressuring both capacity utilization, the employment rate, and soon, GDP once the inevitable inventory liquidation takes place.

  

  The take home is highlighted in the chart above, but just in case it is missed on anyone here it is again: the “fundamentals point overwhelmingly downwards.”

  But wait, won’t central banks react this time as they have on all those prior occasions (QE1, QE2, Operation Twist, QE3, BOE QE1, BOJ QQE1, ECB QE1, etc)? Well, they’ll surely try… but even they know that every incremantal attempt to stimulate the private sector will have increasingly less impact. In other words, the CBs are not out of firepower, it is just that their ammo is almost nil. The reason for that: the “multiplier have fallen” because after 7 years of doing the same thing, this time it just may not work…

  

  Furthermore, while we have listed the numerous direct interventions by central banks over the past 7 years, the reality is that an even more powerful central bank weapon has been central bank “signalling”, i.e., speaking, threatening and cajoling. As Citi summarizes “The power of CBs’ actions has stemmed more from the signalling than from the portfolio balance effect.“

  

  So now that the “signalling” pathway is fading, all that’s left are the flows – the same flows which, with very good reason, left David Tepper scratching his head. Flows, which, when one takes into account emerging market reserve liquidation to offset central bank purchases, paints  a very ugly picture: one in which the central banks are for the first time since 2009, finally losing control as their inflows are unable to offset the EM outflows.

  

   

  Where does that leave us? Well, all else equal, the New New Normal, the world in which central banks are no longer in control as a result of EM reserve liquidation, will be world in which slower credit growth translated into, you guessed it, slower overall growth, or as Citi states the conudnrum: “Even a deceleration in credit growth is negative for GDP growth.”

  This is precisely the secular stagnation which we have been warning about since 2009.

  

   

  * * *

  What is the conclusion?

  It’s not a pretty one for either the central bankers, nor the Keynesian economists, nor those who believe asset prices can keep rising in perpetuity, because it means that payment for the free lunch from the past 7 years is finally coming due.

  

  But at least it is a simple conclusion: we are now at the credit plateau, or as Citi puts it: “Credit growth requires willing borrowers as well as lenders; we may be nearing the limits for both.”

  

  

  

  

  

• Endgame: Putin Plans To Strike ISIS With Or Without The U.S.

  On Sunday, we noted that Washington’s strategy in Syria has now officially unravelled.

  John Kerry, speaking from London following talks with British Foreign Secretary Philip Hammond, essentially admitted over the weekend that Russia’s move to bolster the Assad regime at Latakia effectively means that the timing of Assad’s exit is now completely indeterminate. Here’s how we summed up the situation:

  Moscow, realizing that instead of undertaking an earnest effort to fight terror in Syria, the US had simply adopted a containment strategy for ISIS while holding the group up to the public as the boogeyman par excellence, publicly invited Washington to join Russia in a once-and-for-all push to wipe Islamic State from the face of the earth. Of course The Kremlin knew the US wanted no such thing until Assad was gone, but by extending the invitation, Putin had literally called Washington’s bluff, forcing The White House to either admit that this isn’t about ISIS at all, or else join Russia in fighting them. The genius of that move is that if Washington does indeed coordinate its efforts to fight ISIS with Moscow, the US will be fighting to stabilize the very regime it sought to oust. 

  Revelations (which surprised no one but the Pentagon apparently) that Moscow is coordinating its efforts in Syria with Tehran only serve to reinforce the contention that Assad isn’t going anywhere anytime soon, and the US will either be forced to aid in the effort to destroy the very same Sunni extremists that it in some cases worked very hard to support, or else admit that countering Russia and supporting Washington’s regional allies in their efforts to remove Assad takes precedence over eliminating ISIS. Because the latter option is untenable for obvious reasons, Washington has a very real problem on its hands – and Vladimir Putin just made it worse.

  As Bloomberg reports, The Kremlin is prepared to launch unilateral strikes against ISIS targets if the US is unwilling to cooperate. Here’s more: 

  President Vladimir Putin, determined to strengthen Russia’s only military outpost in the Middle East, is preparing to launch unilateral airstrikes against Islamic State from inside Syria if the U.S. rejects his proposal to join forces, two people familiar with the matter said.

   

  Putin’s preferred course of action, though, is for America and its allies to agree to coordinate their campaign against the terrorist group with Russia, Iran and the Syrian army, which the Obama administration has so far resisted, according to a person close to the Kremlin and an adviser to the Defense Ministry in Moscow.

   

  Russian diplomacy has shifted into overdrive as Putin seeks to avoid the collapse of the embattled regime of Bashar al-Assad, a longtime ally who’s fighting both a 4 1/2 year civil war and Sunni extremists under the banner of Islamic State. Israeli Prime Minister Benjamin Netanyahu flew to Moscow for talks with Putin on Monday, followed by Turkish President Recep Tayyip Erdogan on Tuesday.

   

  Putin’s proposal, which Russia has communicated to the U.S., calls for a “parallel track” of joint military action accompanied by a political transition away from Assad, a key U.S. demand, according to a third person. The initiative will be the centerpiece of Putin’s one-day trip to New York for the United Nations General Assembly on Sept. 28, which may include talks with President Barack Obama.

   

  “Russia is hoping common sense will prevail and Obama takes Putin’s outstretched hand,” said Elena Suponina, a senior Middle East analyst at the Institute of Strategic Studies, which advises the Kremlin. “But Putin will act anyway if this doesn’t happen.”

  And that, as they say, it that. Checkmate.

  

  The four-year effort to oust Assad by first supporting and then tolerating the rise of Sunni extremists (presaged in a leaked diplomatic cable) has failed and the Kremlin has officially served a burn notice on a former CIA “strategic asset.”

  There are two things to note here. 

  First, Russia of course is fully aware that the US has never had any intention of eradicating ISIS completely. As recently as last week, Moscow’s allies in Tehran specifically accused Washington of pursuing nothing more than a containment policy as it relates to ISIS, as allowing the group to continue to operate in Syria ensures that the Assad regime remains under pressure. 

  Second, even if Russia does agree to some manner of managed transition away from Assad, you can be absolutely sure that Moscow is not going to risk the lives of its soldiers (not to mention its international reputation) only to have the US dictate what Syria’s new government looks like and indeed, Tehran will have absolutely nothing of a regime that doesn’t perpetuate the existing Mid-East balance of power which depends upon Syria not falling to the West. Additionally – and this is also critical – Russia will of course be keen on ensuring that whoever comes after Assad looks after Russia’s interests at its naval base at Tartus. This means that even if the US, Saudi Arabia, and Qatar are forced to publicly support a managed transition, Washington, Riyadh, and Doha will privately be extremely disappointed with the outcome which begs the following question: what will be the next strategy to oust Assad and will it be accompanied by something even worse than a four-year-old bloody civil war and the creation of a band of black flag-waving militants bent on re-establishing a medieval caliphate?

  

  

  

  

  

• Caption Contest: Pope "Outs" Obama?

  It’s all clear now…

  

  

  Source: @billyoblenis

  

  

  

  

  

• Is The Bank Of Spain Quietly Pulling Its Gold From Catalonia Ahead Of This Weekend's Vote?

  This weekend, Catalonia’s long-running push for independence from Spain could get a boost if separatists manage to secure an absolute parliamentary majority in regional elections. Here’s a brief summary via FT for those unfamiliar: 

  If the independence movement has its way, the Catalan regional election on Sunday will bring [the independence process] to a dramatic climax. Should the pro-secession parties gain an absolute majority in parliament, they will press ahead with a plan to separate the prosperous region from the rest of Spain within 18 months.

   

  Both the pro- and anti-independence sides look to Barcelona as the crucial battleground. Global tourist magnet, former Olympic host city and all-round architectural jewel, the city has traditionally been seen as an uphill climb for the independence campaign. Supporters of the union with Spain expect Barcelona and its densely populated suburbs to act as their main line of defence against the secessionist onslaught.

   

  “What happens to Catalonia on September 27 will not depend on the independentistas. It will depend on the men and women in the metropolitan area of Barcelona who are not independentistas, and who traditionally don’t vote in the regional elections. If they vote this time, no one will be able to break Catalonia away from the rest of Spain,” Xavier García Albiol, the leader of the conservative Popular party in Catalonia, said this week.

  As for how likely it is that CDC and ERC will be able to secure the 68 seats they need to move forward with independence, Citi thinks they’ll ultimately come up short, but as the following graphs show, it’s a close call:

  

  Against that backdrop, we present the following with no further comment other than to ask if perhaps the Bank of Spain knows something everyone else doesn’t and is preparing for every contingency.

  Via VilaWeb (Google translated):

  This afternoon held an unusual movement in the branch of the Bank of Spain, Barcelona, ??Catalonia Square. Over thirty armored vans were entering and leaving the building shortly after an unknown direction. Many people have the photographed. The Bank of Spain has refused to comment on the operation or indicate that it was but people working in the area have said that is not a normal deployment.

   

  Several readers VilaWeb explained that Monday early morning was a similar deployment.

   

  

   

  

   

  
  

  
  

  

  

  

  

• Petrobras Default Looms Under $90B Dollar-Denominated Debt

  There is blood on the streets wherever you look in Brazil today, but probably of most interest to the hundreds of US asset managers (the ones managing your mutual funds) is what happens to Petrobras as it remains so widely held. As we noted below, bond prices are collapsing and default risk is soaring, and with the nation's currency collapsing amid the lower-for-longer oil prices, $90 billion of dollar-denominated debt could soon potentially be too burdensome for the company to repay.

  Default Risk is exploding…

  

  And as New York Shock Exchange details,

  S&P recently lowered Brazil's credit rating to junk status. It later downgraded 60 corporate and infrastructure entities in Brazil, including cutting Petrobras (NYSE:PBR) two notches to "BB." Petrobras has been reeling from a corruption scandal that reportedly involved Petrobras' executives and directors awarding suppliers over-inflated contracts in exchange for kickbacks. The scandal has cost the company billions of dollars, and has been a blow to the reputation of Brazil's President Dilma Rousseff.

  PBR is off about 70% over the past year, versus a 50% decline for the Brazilian ETF (NYSEARCA:EWZ) and flat growth for the S&P 500 (NYSEARCA:SPY). Investors should continue to avoid PBR for the following reasons:

  Stagnant Revenue And Earnings

  When it rains, it pours for Petrobras. In addition to the corruption scandal, a free fall in oil prices has stymied the company's revenue growth. For the first half of 2015, Petrobras' revenue was down 27% Y/Y from $71.4 billion to $52.0 billion, while EBITDA growth was flat. EBITDA margin increased to 26% in the first half of 2015 from 19% in the year-earlier period, as the company slashed cost of sales, SG&A expense and R&D.

  To stem cash burn, Petrobras slashed its five-year capital spending by 40% and has been canceling drilling contracts with suppliers such as Sete Brasil and Vantage Drilling (NYSEMKT:VTG). These are prudent steps given that oil prices are off 60% from their Q2 2014 peak and the global economy is showing signs of slowing. If sub-$60 oil prices are the new normal, stagnant revenue and earnings growth may be in the cards regardless of the company's cost-cutting measures. 

  $90B Dollar-Denominated Debt

  Zero interest rates in the U.S. have prompted investors to look to emerging markets for higher yields. Investors have provided dollar-denominated debt to companies like Petrobras at higher rates than U.S. treasuries, but lower than what companies in emerging markets could get locally. Borrowing in dollars and paying in Brazilian real had previously not been a problem.

  

   

  However, the real has depreciated over 38% against the dollar over the past year, making un-hedged dollar-denominated debt prohibitively expensive.

  In Q2, Petrobras had $134 billion in debt load, which equated to about 4.9x run-rate EBITDA – junk levels. About 70% (over $90 billion) of that was dollar-denominated, which means that it will probably take more real for Petrobras to repay its debt going forward.

  If China continues to devalue the yuan or if the U.S. raises interest rates, it could spur more capital flight out of Brazil and pressure the real further. Either way, I believe Petrobras' dollar-denominated debt will appreciate to levels that could potentially become too burdensome for the company to repay.

   

  

  

  

  

  

• 24 Sep – ECB's Nowotny Says He's Wary of Expanding Bond-Buying Program

  Follow The Market Madness with Voice and Text on FinancialJuice

  EMOTION MOVING MARKETS NOW: 31/100 FEAR

  PREVIOUS CLOSE: 31/100 FEAR

  ONE WEEK AGO: 16/100 EXTREME FEAR

  ONE MONTH AGO: 3/100 EXTREME FEAR

  ONE YEAR AGO: 16/100 EXTREME FEAR 

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 21.89% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 22.44. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating fear.

   

  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 – I JUST LOVE MY NEW SWEATER….

   

  UNUSUAL ACTIVITY

  ACI OCT 2.5 PUT ACTIVITY 9K @$.52 on offer

  AET  … OCT WEEKLY1 118 CALL Activity @$2.40 right by offer 3400+

  GE OCT WEEKLY1 25 CALLS 5k+ @$.29 on offer

  FENX EVP and COO purchase 3k @ 8.03

  MHFI President,SPCIQ/SNL Financial P    5,500  A  $ 92.8484

  More Unusual Activity…

  HEADLINES

   

  ECB’s Nowotny Says He’s Wary of Expanding Bond-Buying Program – BBG

  ECB’s Jazbec: No Discussions On Exiting, Prolonging QE Currently

  ECB Sources: GC May Prefer Econ. Monitoring To Oct Action – MNI Sources

  ECB Said To Replace Deutsche Bank, State Street In ABS Program – BBG

  ECB Announces New Secretary To Its Decision-Making Bodies

  ECB’s Linde Warns Of Increased Downside Risks To Spain’s Econ – RTRS

  Swiss EconMin: SNB Is Working To Weaken Franc Well Above 1.20 – WBP

  Fitch: US Govt Shutdown Would Not Have Direct Ratings Impact

  Japan’s Nishimura: China May Delay Japan 2% Inflation Tgt – ForexLive

  EZ Flash PMI Rounds Off Best Quarter For 4-Years Despite Dip In September

  German Government ‘Knew VW Was Rigging Emissions Test’ – Telegraph

  Deutsche Bank, JPM Downgrade VW On Emissions Scandal – Digital Look

  K+S Investors Urge Management To Reconsider Potash Corp Offer – WSJ

  Santander Hikes Cost Cuts Target To EUR3 Bln By 2018 – RTRS

  Total Cuts Oil Output Target As Low Prices Expected To Persist – BBG

  China Inks Deal To Buy 300 Boeing Jets – AP

   

  GOVERNMENT/ CENTRAL BANK NEWS

  ECB’s Nowotny Says He’s Wary of Expanding Bond-Buying Program – BBG

  ECB’s Jazbec Says Too Early To Discuss Modifying QE – RTRS

  ECB Announces New Secretary To Its Decision-Making Bodies

  Bank Of Spain Warns Of Increased Downside Risks To Spanish Economy – RTRS

  EU Favours Insurers, Private Equity In Capital Markets Plan – Document Via RTRS

  Fitch: US Govt Shutdown Would Not Have Direct Ratings Impact

  Swiss EconMin: SNB Is Working To Weaken Franc Well Above 1.20 – WBP

  Japan’s Nishimura: China Could Cause Delays To Japan 2% Infl. Tgt – ForexLive

  FIXED INCOME NEWS

  Treasurys Eye 5-Year Auction – CNBC

  ECB: Eurosystem Adjusts Purchase Process In ABS Programme

  Germany Sold EUR3.32 Bln In 2017 Bonds (avg yield -0.26%; bid cover 2.4 vs 1.4)

  FX NEWS

  Dollar Index Holds At 1-Month Highs In Risk-Off Trade – Investing.com

  USD/JPY Bearish Below 120.35/80 – Commerzbank Via FXStreet

  EUR/USD: Off Lows Amid Rising Stocks – FXStreet

  GBP/USD: Sterling Launches Its Fourth Session Of Losses – WBP

  China State Banks Intervene To Support Offshore Yuan – RTRS Sources

  ENERGY/ COMMODITIES NEWS

  Gold Price Hit By Rates Anxiety And Stronger Dollar – The Week

  Base Metals Claw Higher But Sentiment Remains Downbeat – Fast Markets

  Oil Nears $50 As US Stock-Draw Balances China Data – Investing.com

  EQUITY NEWS

  US Stock Futures Rise As Investors Digest Global PMIs – MarketWatch

  Asian Stock Mkts Lower After Weak China Factory Data, Europe Up As VW Rebounds – US News

  Energy Stocks Help FTSE Mount Recovery – Citywire

  German Government ‘Knew VW Was Rigging Emissions Test’ – Telegraph

  Deutsche Bank Cuts DAX Forecast On VW Woes – FT

  Deutsche Bank, JPMorgan Downgrade VW On Emissions Scandal – Digital Look

  Several K+S Investors Urge Management To Reconsider Potash Corp Offer – WSJ

  Santander Hikes Cost Cuts Target To EUR3 Bln By 2018 – RTRS

  Swiss Re Pays $2.45 Bln For Guardian Financial Services – WSJ

  Total Cuts Oil Output Target As Low Prices Expected To Persist – BBG

  BBA Aviation To Buy Landmark For $2.07 Bln – MarketWatch

  Diageo Op Profit To Be Hurt By Currency Moves – MarketWatch

  China Inks Deal To Buy 300 Boeing Jets – AP

  Moody’s: Litigation And Conduct Remediation Charges Pose Risks For UK’s Largest Banks

  Former Trader Sues Lloyds For Unfair Dismissal After Libor Probe – CNBC

  EMERGING MARKET NEWS

  Russia Pledges Counter Measures If United States Upgrades Nuclear Arms In Germany – RTRS

   

  Emerging Market Slump Raises Fears Of Capital Controls – Gulf Base

  

  

  

  

  

• Dear Janet: Here Is The Circle Jerk You Have Created Explained In 54 Words

  On Monday in “When Doves Cry: Bedeviled By Dollar ‘Dilemma’, Trapped Fed Faces FX Catch-22,” we described precisely why the Fed’s new reaction function simply can’t work given prevailing market conditions.

  The Fed adopted the so-called “clean relent” precisely because it knew that the strong dollar would, as Goldman put it, “go through the roof” at the slightest sign of hawkishness. Of course a soaring dollar would likely be more than enough to send the EM world careening into crisis as China’s new currency regime and depressed commodity prices have conspired to push commodity currencies to the brink. The resulting outflows and subsequent meltdown would almost invariably feed back into advanced economies forcing the Fed to do an embarrassing about face. Unfortunately however, US investors interpreted the Fed’s move to postpone liftoff as a sign that Yellen was worried about the economy leading directly to the worst possible outcome: risk off sentiment that triggered a post-FOMC selloff. In short: 

  The new reaction function seems to involve sensitivity to both domestic and global financial markets. In the current environment where a positive assessment of the outlook for the US economy is required to keep a bid under risk assets (i.e. in an environment where good news is good news again) but in which EM is one “symbolic” Fed hike away from careening headlong into crisis, the new reaction function can’t possibly work. 

   

  

  What the above should suggest, perhaps more than anything else, is that there’s a certain reflexivity to the entire thing and it’s especially evident when we look at how the Fed got itself into the current predicament. 

  There’s a certain line of argumentation that says the Fed missed its window to hike and ever since, the uncertainty has only grown with each passing FOMC meeting. That uncertainty serves to perpetuate outflows from EM and now, the Fed is set to use those very outflows as an excuse for why it must postpone liftoff.

  With that, we’ll close with the following concise formulation of the reflexivity problem from former Treasury economist Bryan Carter who spoke to Bloomberg:

  ”Short-end rates move higher as the Fed gets closer to hiking, and that causes the dollar to strengthen, and that causes global funding stresses. They are creating the conditions that are causing the external environment to be weak, and then they say they can’t hike because of those same conditions that they have created.” 

   

  
  

  

  

  

  

  

• The Fed's Alice In Wonderland Economy – What Happens Next?

  Submitted by Nick Giambruno via InternationalMan.com,

  After the president of the United States, the most powerful person on the planet is the chairman of the Federal Reserve.

  Ask almost anyone on the street for the name of the U.S. president, and you’ll get a quick answer.

  But if you ask the same person what the Federal Reserve is, you’ll likely get a blank stare.

  They don’t know – partly due to the institution’s deliberately obscure name – that the Fed is really the third iteration of the country’s central bank. Or that the Fed manipulates the nation’s economic destiny by controlling the money supply.

  And that’s just how the Fed likes it. They’d prefer Boobus americanus not understand the king-like power they wield.

  By simply choosing to utter the right words, the chairman of the Fed can create or extinguish trillions of dollars of wealth both in and outside of the U.S. He holds the economic fate of billions of people in his hands.

  So it’s no shocker that investors carefully parse everything he says. They have to, if they want to be successful. Some even go as far as to analyze the almighty chairman’s body language. Of course, the mainstream financial media revere the Fed.

  You may recall the unhealthy spectacle that occurred in 1996. That’s when Alan Greenspan, the Fed chairman at the time, spoke the now famous phrase “irrational exuberance” in what should have otherwise been a dull and forgettable speech.

  Investors heard Greenspan’s phrase to mean that the Fed would soon raise interest rates to slow the global economy.

  It’s worth mentioning that Greenspan didn’t actually say the Fed would raise rates. Nor did he intend to signal that.

  Nonetheless, the reaction was swift and panicky. U.S. markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the U.S. market the next day, the market opened down 2%.

  Billions of dollars of wealth vanished in a period of 16 hours.

  That’s the absurd power over the global economy that the Federal Reserve gives to one human being.

  The words of the chairman can make or break the fortunes of anyone with a brokerage account.

  The Fed’s Alice in Wonderland Economy

  I almost fell out of my chair when I heard it…

  A journalist recently asked Janet Yellen, the current chair of the Federal Reserve, if the central bank would keep interest rates at 0% forever.

  Her response: “I can’t completely rule it out.”

  I was stunned.

  The deferential financial media hurried to ignore the significance of that statement. Instead, it acted the way big city police might act after making a messy arrest on a busy sidewalk. “Move along folks, nothing to see here!”

  Clearly, there was something to see. Something very important.

  Yellen’s words came amidst one of the most anticipated economic pronouncements in a generation… whether the Fed would finally raise interest rates for the first time in nine years. Short-term rates have been at zero since the 2008 financial crisis.

  Interest rates are simply the price of borrowing money. Setting them at an artificial level is nothing other than price fixing. Not surprisingly, it has led to enormous amounts of malinvestment and other distortions in the economy.

  Malinvestment is the result of faulty decision-making. Any investor or business can make a mistake, but central bank manipulation of interest rates subsidizes bad, wasteful decisions.

  Cheap borrowing costs trick companies. It causes them to plow money into plants, equipment, and other assets that appear profitable because borrowing costs are low. Only later, when the profits don’t show up, do they discover that the capital was wasted.

  Seven years of quantitative easing (QE) and Fed-engineered zero interest rates have drawn the U.S. and much of the world into an unsustainable "Alice in Wonderland" bubble economy riddled with malinvestment.

  The pundits had expected that, at this recent meeting, the Fed would move to raise rates just a little and give the global economy a tiny taste of sobriety.

  Not even that nudge materialized.

  Instead, the Fed sat on its hands. It kept interest rates at zero.

  And Janet Yellen couldn’t even rule out that rates would stay at zero forever.

  If she can’t even do that, how is she going to start a sustained series of rate hikes, as many of those same pundits now expect her to do a few months down the road?

  The truth is, seven years of 0% yields and successive rounds of money printing has so distorted the U.S. economy that it can’t handle even the tiniest increase in interest rates. It would be the pin that pricks the biggest stock and bond market bubble in all of human history. The Fed cannot let that happen.

  What Happens Next

  It’s clear that the Fed can’t raise interest rates in any meaningful way. It would trigger a financial meltdown that would quickly force them to reverse course.

  The Fed might be able to get away with a token increase, but that’s all.

  In other words, the Fed has trapped itself.

  Former Fed chairman Ben Bernanke admitted as much recently when he said he didn’t expect rates to normalize in his lifetime.

  And then, we have the current chair Janet Yellen saying that rates might stay at zero forever!

  Yellen’s belief that she has the power to suppress interest rates until the end of time is a frightening sign.

  As powerful as the Fed is, it isn’t stronger than the markets. A crisis in the markets could force rates higher even if the Fed doesn’t want them to go there. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed.

  And that’s not even considering a collapse of the petrodollar system or China pushing the establishment of a New Silk Road in Eurasia…two catalysts that would likely force interest rates higher.

  So I’ll go ahead and disagree with Yellen and rule out the possibility that rates might stay at zero forever. They won’t, because they can’t.

  At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will again ramp up the easy money. It could be another round of QE. Or the Fed could push interest rates into negative territory. If that fails, the Fed could go for the nuclear option and drop freshly printed money out of helicopters as Bernanke once infamously suggested – or, more likely, into everyone’s bank account. They’ll do whatever it takes, no matter what the eventual damage to the dollar’s value.

  Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.

  What You Can Do About It

  It’s a terrifying thought that the actions of a few people at the Fed so endanger your financial security.

  But the facts are worse than that. There’s more to worry about than just the financial effects. The social and political implications of the Fed’s actions are even more dangerous.

  An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.

  Fortunately, your destiny doesn’t need to be hostage to what’s coming.

  *  *  *

  We’ve published a groundbreaking step-by-step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families.

  

  

  

  

  

• Stocks Slide On Dreary Draghi, Crude Clobbering, & Brazilian Battering

  Who is responsible for all this? Janet – what say you?

  And why she needs to pull an emergency rate hike to calm anxious markets…

   

  Before we start on US markets, a couple of under the surface things that happened… There has been a bloodbath in Greek banks this week that has been underway…

  

   

  The Brazilian Real is collapsing-er…

  

   

  With a total meltdown after the close…

  

   

  The late-day plunge appears to due to impeachment comments:

  • Brazil’s lower house President Eduardo Cunha will address questions on impeachment procedures in response to opposition request, opposition lawmaker Mendonca Filho says.
  • Key to impeachment process is whether Cunha accepts or denies impeachment request: Mendonca Filho
  • Opposition needs to consider its next steps very carefully, should meet on the matter: Mendonca Filho
  • Lawmakers have up to 5 sessions to appeal if he denies impeachment request: Mendonca Filho
  • Congress will kill govt request to re-introduce CPMF tax: Mendonca Filho

   

  The Nasdaq Biotech index broke key support today…

  

   

  Meanwhile, The S&P 500 Put/Call Ratio has surged 12% in the last 5 days – the biggest such surge since 2009… (after which the S&P fell 9%)…

  

   

  Quite a rollercoaster day today, as futures show, a big dump on China PMI disappointment, a ramp on weak EU data and Q€ chatter, and a drop on Draghi dreariness…

  

   

  Cash indices all closed lower as Nasdaq tumbled in th elast few seconds to red…

  

   

  Leaving indices all red on the week…

  

   

  And down hard since The Post-FOMC Peak…

  

   

  Materials are the weakest post-FOMC, Utes the best (thought still red) and Financials down around 4%…

  

   

  And ahead fo Yellens peaking tomorrow, VIX term striucture slid lower…

  

   

  Credit continues to tumble…

  

   

  Treasury yields trod water in a very narrow 2bps range today…

  

   

  But The US Dollar tumbled after Europe closed (having held in steady until then).. JPY strength and AUD weakness (biggest 3-day drop since January) most notable…

  

   

  As is clear AUDJPY was the overnight driver of equity correlation algos, then EURJPY took over to the EU close, then USDJPY was back in charge…

  G182

   

  Commodities generally drifted higher on the day as USD limped lower… apart from crude's collapse…(which oddly retraced perfectly to gold for the week)

  

   

  Crude has been moronically algorithmic this week (once again)…

  

   

  Perhaps this is why…

  Crude inventories fall → oil prices jump → cash-strapped producers ramp production → crude inventories rise → oil prices drop → repeat ?.

  — Mark Constantine (@vexmark) September 16, 2015

  Charts: Bloomberg

   

  

  

  

  

• More Have Died From Selfies Than Shark Attacks Since 2013

  It appears Darwin was on to something after all. In the most stunning statistic of the new narcissistic normal's sharing economy, The Sydney Morning Herald reports that, since 2013, deaths from shark attacks have been outnumbered by deaths while taking a selfie.

  At least 11 people have died this year while trying to take a selfie, according to a Wikipedia page that tracks media reports of selfie-related injuries and deaths. At least 11 people died while trying to photograph themselves in 2014, according to the list.

   

  By comparison, just three people were killed in shark attacks last year, according to statistics from the University of Florida's International Shark Attack File. An average of six people a year have died from shark attacks in the decade to 2014 and Mashable reports that eight people have been killed in shark attacks so far this year.

   

  

   

  The figures say as much about shark fatalities as they do about the dangers of not paying attention to your surroundings – or worse, intentionally putting yourself in harm's way for the sake of a Facebook or Instagram post.

   

  And although the Wikipedia list is by no means comprehensive (at least three deaths, listed below, have not been recorded) it makes for sobering reading.

   

  Falls were the most common cause of death, accounting for eight of the 22 deaths listed over the two years, as well as the death of a 21-year-old Singaporean man, not listed on the Wikipedia page, who fell from a seaside cliff in Bali.

   

  The latest recorded death is of a Japanese tourist who slipped and fell down the stairs at the Taj Mahal on September 18.

  *  *  *
  And while some selfies are "to die for"…

  

  

  

  In Russia, the danger has apparently become so acute that in July police launched a campaign urging people to take care after about 100 people were reportedly injured while taking selfies.

  "A cool selfie could cost you your life," the Interior Ministry warned in a brochure accompanying a video and website listing risky locations to take selfies.

   

  Other tips from the Russian campaign include: "A selfie on the railway tracks is a bad idea if you value your life" and "A selfie with a weapon kills".

  

  

  

  

  

Digest powered by RSS Digest

• The Crisis Of The Now: Distracted & Diverted From The Ever-Encroaching Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “When a population becomes distracted by trivia, when cultural life is redefined as a perpetual round of entertainments, when serious public conversation becomes a form of baby talk, when, in short, a people become an audience and their public business a vaudeville act, then a nation finds itself at risk: culture-death is a clear possibility.”—Author Neil Postman

  Caught up in the spectacle of the forthcoming 2016 presidential elections, Americans (never very good when it comes to long-term memory) have not only largely forgotten last year’s hullabaloo over militarized police, police shootings of unarmed citizens, asset forfeiture schemes, and government surveillance but are also generally foggy about everything that has happened since.

  Then again, so much is happening on a daily basis that it’s understandable if the average American has a hard time keeping up with and remembering all of the “events,” manufactured or otherwise, which occur like clockwork and keep us distracted, deluded, amused, and insulated from reality while the government continues to amass more power and authority over the citizenry.

  In fact, when we’re being bombarded with wall-to-wall news coverage and news cycles that change every few days, it’s difficult to stay focused on one thing—namely, holding the government accountable to abiding by the rule of law—and the powers-that-be understand this. As investigative journalist Mike Adams points out:

  This psychological bombardment is waged primarily via the mainstream media which assaults the viewer by the hour with images of violence, war, emotions and conflict.

   

  Because the human nervous system is hard wired to focus on immediate threats accompanied by depictions of violence, mainstream media viewers have their attention and mental resources funneled into the never-ending ‘crisis of the NOW’ from which they can never have the mental breathing room to apply logic, reason or historical context.

  Consider if you will the regularly scheduled trivia and/or distractions in the past year alone that have kept us tuned into the various breaking news headlines and entertainment spectacles and tuned out to the government’s steady encroachments on our freedoms:

  Americans were riveted when the Republican presidential contenders went head-to-head for the second time in a three-hour debate that put Carly Fiorina in a favored position behind Donald Trump; Hillary Clinton presented the softer side of her campaign image during an appearance on The Tonight Show with Jimmy Fallon; scientists announced the discovery of what they believed to be a new pre-human species, Homo naledi, that existed 2.8 million years ago; an 8.3 magnitude earthquake hit Chile; massive wildfires burned through 73,000 acres in California; a district court judge reversed NFL player Tom Brady’s four-game suspension; tennis superstar Serena Williams lost her chance at a calendar grand slam; and President Obama and Facebook mogul Mark Zuckerberg tweeted their support for a Texas student arrested for bringing a homemade clock to school.

  That was preceded by the first round of the Republican presidential debates; an immigration crisis in Europe; the relaxing of Cuba-U.S. relations; the first two women soldiers graduating from Army Ranger course; and three Americans being hailed as heroes for thwarting a train attack in France. Before that, there was the removal of the Confederate flag from the South Carolina statehouse; shootings at a military recruiting center in Tennessee and a movie theater in Louisiana; the Boy Scouts’ decision to end its ban on gay adult leaders; the first images sent by the New Horizons spacecraft of Pluto; and the victory over Japan of the U.S. in the Women’s World Cup soccer finals.

  No less traumatic and distracting were the preceding months’ newsworthy events, which included a shooting at a Charleston, S.C., church; the trial and sentencing of Boston Marathon bomber suspect Dzhokhar Tsarnaev; the U.S. Supreme Court’s affirmation of same-sex marriage, Obamacare, lethal injection drugs and government censorship of Confederate flag license plates; and an Amtrak train crash in Philadelphia that left more than 200 injured and eight dead.

  Also included in the mix of distressing news coverage was the death of 25-year-old Freddie Gray while in police custody and the subsequent riots in Baltimore and city-wide lockdown; the damning report by the Dept. of Justice into discriminatory and abusive practices by the Ferguson police department; the ongoing saga of Hillary Clinton’s use of a private email account while serving as secretary of state; the apparently deliberate crash by a copilot of a German jetliner in the French Alps, killing all 150 passengers and crew; the New England Patriots’ fourth Super Bowl win; a measles outbreak in Disneyland; the escalating tensions between New York police and Mayor Bill de Blasio over his seeming support for anti-police protesters; and a terror attack at the Paris office of satire magazine Charlie Hebdo.

  Rounding out the year’s worth of headline-worthy new stories were protests over grand jury refusals to charge police for the deaths of Eric Garner and Michael Brown; the disappearance of an AirAsia flight over the Java Sea; an Ebola outbreak that results in several victims being transported to the U.S. for treatment; reports of domestic violence among NFL players; a security breach at the White House in which a man managed to jump the fence, cross the lawn and enter the main residence; and the reported beheading of American journalist Steven Sotloff by ISIS.

  That doesn’t even begin to touch on the spate of entertainment news that tends to win the battle for Americans’ attention: Bruce Jenner’s transgender transformation to Caitlyn Jenner; the death of Whitney Houston’s daughter Bobbi Kristina Brown; Kim Kardashian’s “break the internet” nude derriere photo; sexual assault allegations against Bill Cosby; the suicide of Robin Williams; the cancellation of the comedy The Interview in movie theaters after alleged terror hack threats; the wedding of George Clooney to Amal Alamuddin; the wedding of Angelina Jolie and Brad Pitt; the ALS ice bucket challenge; and the birth of a baby girl to Prince William and Kate.

  As I point out in my book Battlefield America: The War on the American People, these sleight-of-hand distractions, diversions and news spectacles are how the corporate elite controls a population by entrapping them in the “crisis of the NOW,” either inadvertently or intentionally, advancing their agenda without much opposition from the citizenry.

  Professor Jacques Ellul studied this phenomenon of overwhelming news, short memories and the use of propaganda to advance hidden agendas. “One thought drives away another; old facts are chased by new ones,” wrote Ellul.

  “Under these conditions there can be no thought. And, in fact, modern man does not think about current problems; he feels them. He reacts, but he does not understand them any more than he takes responsibility for them. He is even less capable of spotting any inconsistency between successive facts; man’s capacity to forget is unlimited. This is one of the most important and useful points for the propagandists, who can always be sure that a particular propaganda theme, statement, or event will be forgotten within a few weeks.”

  But what exactly has the government (aided and abetted by the mainstream media) been doing while we’ve been so cooperatively fixated on whatever current sensation happens to be monopolizing the so-called “news” shows?

  If properly disclosed, consistently reported on and properly digested by the citizenry, the sheer volume of the government’s activities, which undermine the Constitution and in many instances are outright illegal, would inevitably give rise to a sea change in how business is conducted in our seats of power.

  Surely Americans would be concerned about the Obama administration’s plans to use behavioral science tactics to “nudge” citizens to comply with the government’s public policy and program initiatives? There would be no end to the uproar if Americans understood the ramifications of the government’s plan to train non-medical personnel—teachers, counselors and other lay people—in “mental first aid” in order to train them to screen, identify and report individuals suspected of suffering from mental illness. The problem, of course, arises when these very same mental health screeners misdiagnose opinions or behavior involving lawful First Amendment activities as a mental illness, resulting in involuntary detentions in psychiatric wards for the unfortunate victims.

  Parents would be livid if they had any inkling about the school-to-prison pipeline, namely, how the public schools are being transformed from institutions of learning to prison-like factories, complete with armed police and surveillance cameras, aimed at churning out compliant test-takers rather than independent-minded citizens. And once those same young people reach college, they will be indoctrinated into believing that they have a “right” to be free from acts and expressions of intolerance with which they might disagree.

  Concerned citizens should be up in arms over the government’s end-run tactics to avoid abiding by the rule of law, whether by outsourcing illegal surveillance activities to defense contractors, outsourcing inhumane torture to foreign countries, causing American citizens to disappear into secret interrogation facilities, or establishing policies that would allow the military to indefinitely detain any citizen—including journalists—considered a belligerent or enemy.

  And one would hope American citizens would be incensed about being treated like prisoners in an electronic concentration camp, their every movement monitored, tracked and recorded by a growing government surveillance network that runs the gamut from traffic cameras and police body cameras to facial recognition software. Or outraged that we will be forced to fund a $93 billion drone industry that will be used to spy on our movements and activities, not to mention the fact that private prisons are getting rich (on our taxpayer dollars) by locking up infants, toddlers, children and pregnant women?

  Unfortunately, while 71% of American voters are “dissatisfied” with the way things are going in the United States, that discontent has yet to bring about any significant changes in the government, nor has it caused the citizenry to get any more involved in their government beyond the ritualistic election day vote.

  Professor Morris Berman suggests that the problems plaguing us as a nation—particularly as they relate to the government—have less to do with our inattention to corruption than our sanctioning, tacit or not, of such activities. “It seems to me,” writes Berman, “that the people do get the government they deserve, and even beyond that, the government who they are, so to speak.”

  In other words, if we end up with a militarized police state, it will largely be because we welcomed it with open arms. In fact, according to a recent poll, almost a third of Americans would support a military coup “to take control from a civilian government which is beginning to violate the constitution.”

  So where does that leave us?

  As legendary television journalist Edward R. Murrow warned, “Unless we get up off our fat surpluses and recognize that television in the main is being used to distract, delude, amuse, and insulate us, then television and those who finance it, those who look at it, and those who work at it, may see a totally different picture too late.”

   

  

  

  

  

  

• "Keep Reporting On Bright Economic Future" – China Ministry Of Truth Demands Media "Properly Interpret" Data

  The following censorship instructions, issued to the media by government authorities, have been leaked and distributed online. As China Digital Times reports, propaganda directives issued by the Xinhua News Agency and the Central Propaganda Department show that Chinese media are being instructed to "properly interpret economic data," and "promote discourse on China’s bright economic future."

  As China Digital Time reports, two leaked images of propaganda directives issued by the Xinhua News Agency and the Central Propaganda Department show that Chinese media are being instructed to report positively on the economy. CDT has translated both.

  The first below is the Xinhua notice, which asks its various departments to draft plans for “promoting the discourse on China’s bright economic future.”

  

  Office of the Xinhua News Agency Editor-in-Chief

  Notice

  To the departments of Domestic News (Central Government Procurement Center), International News, Domestic News for Overseas Service, Photography, Reference News, and Audio-Video; the CNC [China Xinhua News Network Corporation], Xinhua Online, the New Media Center; all media reporting platforms; and the Editorial Department:

   

  In keeping with the spirit of notifications from superior authorities and Agency leadership requirements, the focus for the month of September will be strengthening economic propaganda and guiding public opinion (the related notification is in the attachment that follows). This includes taking the next step in promoting the discourse on China’s bright economic future and the superiority of China’s system, as well as stabilizing expectations and inspiring confidence. We request that your departments take immediate action to plan related reporting; identify individuals to take responsibility; and confirm reporting topics, individuals responsible for those topics, and publication dates.

   

  Please plan related reporting. After the responsible parties within the relevant department have signed off on the plan, send it to the Creative Planning Center at the editor-in-chief’s office through 0A prior to 5 p.m. on September 9, and fax the leadership signature page to 63071200.

  The topic formatting should be as follows:

  1. Topic (Responsible Party: Department Name, Individual’s Name; Publication Date: Month, Day)

  Contact: Wang Xiaoshun [Office:] 51366 [Cell:] 13661390548

  Office of the Editor-in-Chief

  September 7, 2015 [Chinese]

  *  *  *

  The second is the first page of a document issued by the Central Propaganda Department, marked as notice number 320 for the year 2015, asking state media and outlets affiliated with the state to “properly interpret economic data.”

  

  Communist Party of China Central Propaganda Department

  Notice 2015 #320

  Notice Regarding Increased Economic Propaganda and Guidance in the Near Term

   

  To the People’s Daily, Xinhua News Agency, Guangming Daily, Economic Daily, China Daily, China National Radio, China Central Television, China Radio International, China News Service, and subordinate emerging media outlets:

   

  According to instructions from central leadership comrades, all news media outlets must continue to deepen their study and transmission of the spirit of Secretary-General Xi Jinping’s series of important speeches, revolving around the strategic positioning of the “Four Comprehensives,” combined with deep concern for public opinion. The focus for the month of September will be strengthening economic propaganda and guiding public opinion, as well as overall planning for domestic- and foreign-facing propaganda and Internet propaganda, in order to take the next step in promoting the discourse on China’s bright economic future and the superiority of China’s system, as well as stabilizing expectations and inspiring confidence.

  1. Properly interpret economic data. In September, the National Bureau of Statistics will successively release for circulation important information on changes in means of production and market prices and the monthly reports on the consumer price index, industry production price index, above-scale industry production, and total value of retail sales for consumer goods. In the near future, listed banks will also successively announce their annual reports for the first half of the year. Every news media outlet must interview representatives and experts from the National Bureau of Statistics of China, the China Banking Regulatory Commission, and other relevant organizations; properly interpret economic data; and correctly report on new changes in economic market conditions and relevant industry management.

  1. Strengthen propaganda related to economic highlights and their effects. Closely follow economic market conditions, and diligently… [Chinese]

  Both state and independent media have been pressured to keep economic reporting upbeat and to downplay the stock market crash last month as well as slumps earlier in the summer.

  Detained Caijing reporter Wang Xiaolu confessed on CCTV to “causing panic and disorder” with a negative story, while almost 200 others have been taken into custody for “spreading rumors” about stories including the stock market turmoil.

  A directive from August 25 requires that Chinese websites delete specific essays about the crash, while in June the State Administration of Press, Publication, Radio, Film, and Television instructed TV and radio stations to “rationally lead market expectations to prevent inappropriate reports from causing the market to spike or crash.”

  

  

  

  

  

• ADB Joins OECD, WTO In Dismal Assessment Of Global Growth

  Exactly a week ago, we highlighted a WSJ piece which quoted WTO chief economist Robert Koopman as saying the following about the outlook for global growth: “We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment. It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.” 

  Explaining further, The Journal noted that “for the third year in a row, the rate of growth in global trade is set to trail the already sluggish expansion of the world economy.” 

  In no uncertain terms: global growth and trade are grinding to a halt, something we’ve been keen to drive home this year using a variety of data points not the least of which are freight rates which, as Goldman noted back in May are likely to remain depressed until 2020, dead cat bounces in the Baltic Dry notwithstanding (for more on this, see here). 

  All of the above was confirmed last Wednesday by the OECD which cut their forecast for global growth to 3% in 2015 and 3.6% in 2016. 

  

  Of course one of the main problems is decreased demand from China, where sharply decelerating economic growth threatens to plunge the entire emerging world into crisis as the country’s previously insatiable appetite for raw materials suddenly disappeared leaving countries like Brazil out in the cold. Also hard hit is emerging Asia, where the turmoil in China combined with the threat of an imminent Fed hike has created conditions that may ultimately usher in the return of the 1997/98 Asian Currency Crisis (indeed, Malaysia’s central bank governor Zeti Akhtar Aziz has been at pains to reassure the market that the country isn’t set to return to capital controls to shore up the plunging ringgit). 

  Against this backdrop it shouldn’t come as a surprise that the ADB slashed its growth outlook for the region on Tuesday citing a laundry list of factors, most of which are outlined above. Here’s more:

  Softer growth prospects for the People’s Republic of China (PRC) and India, and a slow recovery in the major industrial economies, will combine to push growth in developing Asia for 2015 and 2016 below previous projections.

   

  ADB now sees gross domestic product (GDP) growth for the region coming in at 5.8% in 2015 and 6.0% in 2016—below the March forecasts of 6.3% for both years.

   

  
  

   

  “Developing Asia is expected to continue to be the largest contributing region to global growth despite the moderation, but there are a number of headwinds in play such as currency pressures, and worries about capital outflows,” said ADB Chief Economist Shang-Jin Wei. “In order to be resilient to international interest rate fluctuations and other financial shocks, it is important to implement macroprudential regulations that, for some countries, may entail some capital flow management such as limiting reliance on foreign currency borrowing.” 

   

  The PRC—the world’s second largest economy—has seen growth moderate due to a slowdown in investment and weak exports in the first 8 months of 2015. Growth is now seen at 6.8% in 2015, down from 7.2% projected earlier, and below the 7.3% posted in 2014. 

   

  External demand weakness and a slower-than-expected pace of enacting key reforms are holding back India’s growth acceleration, with the pace in 2015 now seen at 7.4%, down from 7.8% forecast earlier. 

  Southeast Asia meanwhile is bearing the brunt of the slowdown in the PRC—one of its key markets—as well as subdued demand from industrial countries, with growth in 2015 now seen at 4.4%, before bouncing back to 4.9% in 2016. 

   

  Soft global commodity prices, including oil and food, are keeping price pressures low with regional inflation projected to decline to 2.3% in 2015, from 3.0% in 2014, although a pickup is expected in 2016. Net capital outflows from developing Asian markets which gained pace in the first part of 2015, exceeding $125 billion in the first quarter, remain a concern as investors anticipated a near term US interest rate hike. As a consequence the region has seen rising risk premiums and weakening exchange rates which could further impede growth momentum, the report said. 

   

  A strengthening US dollar poses a threat to Asian companies with large foreign currency exposure, with data showing that the share of foreign currency debt among firms in Viet Nam, Sri Lanka, and Indonesia exceeds 65%. In addition, a declining appetite by the PRC for energy, metals and other commodities, and soft global prices, is a worry for a number of developing Asian commodity-focused export economies, including Mongolia, Indonesia, Azerbaijan, and Kazakhstan. 

  As that pretty much speaks for itself, we’ll close with what we said last week in the wake of the OECD’s most recent report:  

  The big picture takeaway is that slowly but surely, all of the very “serious” people are coming to the same conclusion. Namely that the outlook for global growth and trade is grim, especially by historical standards, and that – although OECD doesn’t say this – should serve as a damning indictment of the idea that economic outcomes can be engineered from on high by central planners. The sad reality however, is that far from admitting that the coordinated Keynesian response to the crisis has failed and perhaps even exacerbated the slowdown in growth and trade by perpetuating a global deflationary supply glut, slowing growth will instead be trotted out as an excuse to double down on the very same policies that aren’t working.

  

  

  

  

  

• US Equity Futures, Yuan Plunge After China Manufacturing PMI Collapses To March 2009 Lows

  US equity futures plunged (Dow -140)

  

  *  *  *

  Following Xi's earlier speech reassuring Yellen that the "Chinese economy is stable," and the Yuan tumbled 0.25% against the USD ahead of the data. China's Flash Manufacturing PMI printed a disastrous 47.0 (against expectations of a slight rise to 47.5 from August's 47.3). This is the lowest print since March 2009.

  The Yuan was tumbling heading into the data…

  • *OFFSHORE YUAN DROPS 0.25% VS DOLLAR BEFORE CHINA CAIXIN PMI

  

  Then the data hit..

  • *CHINA CAIXIN FLASH MANUFACTURING PMI AT LOWEST SINCE MARCH 2009
  • *CHINA SEPT. CAIXIN FLASH MANUFACTURING PMI AT 47; EST. 47.5

  

   

  With across the board weakness…

  

   

  Commenting on the Flash China General Manufacturing PMI™ data, Dr. He Fan, Chief Economist at Caixin Insight Group said:

  “The Caixin Flash China General Manufacturing PMI for September is 47.0, down from 47.3 in August. The decline indicates the nation’s manufacturing industry has reached a crucial stage in the structural transformation process. Overall, the fundamentals are good. The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices. Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front. Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness.”

   

  Maybe if only the Fed hiked just a little the global economy wouldn't be headed for recession

  — zerohedge (@zerohedge) September 23, 2015

   

  Charts: Bloomberg

  

  

  

  

  

• In New York City, Workers With Full Time Jobs Are Living In Homeless Shelters

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Puleo added he has “never seen” the homeless situation this bad.

   

  Dilcy Benn, president of the union’s Local 1505, said more than 100 of the 1,000 parks workers she represents are living in shelters and at least another four, including Torres, are living on the streets on Staten Island and The Bronx.

   

  – From the Market Watch article: Hundreds of Full-Time New York City Workers are Homeless

  One of the main data points that pundits and politicians who claim there is an “economy recovery” point to is jobs created. Please tell me, what good is a job if it can’t earn you a roof over your head?

  Welcome to the Oligarch Recovery.

  

   

  From Market Watch:

  Angelo Torres punches in to work at 5 a.m. each weekday and spends the next eight hours cleaning up debris on Staten Island’s Midland Beach.

   

  It’s a grueling job, says the veteran Parks Department maintenance worker, but also a welcome escape from the uncertainty of living on the streets as one of the city’s more than 300 full-time workers who are homeless.

  “I cry every night thinking this isn’t really happening, but it is,” Torres, 45, told The Post.

   

  Torres earns $33,662 a year but says it’s not enough to find four walls and a roof to call his own in a city where, according to StreetEasy, the median rent is $2,690 a month. 

   

  So he has spent the past four months living out of his beat-up 2001 Chevy Blazer with tinted windows. He has two small bags of belongings to his name.

   

  “Everyone’s like, ‘Take a shower and wash your clothes!’ They don’t know what is going on. It hurts a lot. I work for the city. I never thought this would happen to me,” he said.

   

  “A city job was always the gateway out of poverty,” said Joseph Puleo, president of Local 983 of District Council 37, which represents 3,000 blue-collar city workers.

   

  “You knew you had a pension, a good job and didn’t have to worry, but those days are gone,” he said.

   

  Puleo added he has “never seen” the homeless situation this bad.

   

  Some full-time workers in DC 37 — whose locals represent a total of 121,000 city workers — earn just $24,000 a year.

   

  Dilcy Benn, president of the union’s Local 1505, said more than 100 of the 1,000 parks workers she represents are living in shelters and at least another four, including Torres, are living on the streets on Staten Island and The Bronx.

   

  It was unclear how many members were homeless before they began working for the city. The city’s Department of Homeless Services refused to comment.

   

  Sokunbi Olufemi, of Communications Workers of America Local 1182, which represents 1,800 city traffic and sanitation enforcement agents, places much of the blame on de Blasio.

   

  “Our mayor is traveling all over the world and most states in America talking about payment equality, but he hasn’t fixed the roof in his own house,” Olufemi said. “His roof is leaking, and he refuses to fix it.”

  That’s how city employees are treated in the one place that benefited more than any other from the taxpayer bailout of Wall Street. At least financial service industry bonuses were saved.

  

  

  

  

  

• Oliver Stone: Forget ISIS, America Is The Real Threat To The World

  Submitted by Jake Anderson via TheAntiMedia.org,

  Many people thought Oliver Stone’s days of rankling the establishment were over. Many people were wrong. His 2012 book and TV series, The Untold History of the United States, suggests the iconic filmmaker is renewing efforts to challenge the mainstream narrative regarding American exceptionalism, economic imperialism, and our government’s “nefarious involvement” in the Middle East.

  To complete the 10-part documentary series and 750 page book, Stone collaborated with World War 2 scholar Peter Kuznick. The controversial filmmaker says that in assessing American history since the 1930s, it’s our involvement in the Middle East that really grabbed his attention.

  “We’ve destabilized the entire region, created chaos. And then we blame ISIS for the chaos we have created,” Stone said.

  According to Stone, the U.S. government’s destabilizing role actually goes back much further than ISIS. His new series pinpoints moments of American intrusion in the region as far back as the 1930s and follows it all the way to the CIA-backed Iranian coup in 1953, support for Afghanistan-based, anti-Soviet Union militants in the 1980s, George H.W. Bush’s Iraq invasion of 1990, and present-day efforts in Iran, Syria, and other countries.

  Stone etched his way into the hearts and minds of the American public in the mid-to-late 1980s with two films depicting powerful experiences from the Vietnam War. Platoon and Born on the 4th of July represent Stone’s confusion over his own service in the war, for which he earned a Bronze Star and a Purple Heart.

  Stone’s JFK famously questioned the mainstream narrative of the assassination of President John F. Kennedy, endearing the filmmaker to conspiracy theory circles for decades with a fictional account of a lawyer bringing the U.S. government to trial for its role in the assassination.

  In recent years, Oliver Stone has received less acclaim for films like World Trade Center, which failed to question the mainstream narrative of 9/11, and W., which gave relatively gentle treatment to George W. Bush’s presidency.

  Stone’s 2012 series, The Untold History of the United States, is a return to the intellectual form of one of his earliest successes, Salvador, which was strongly critical of the U.S.-supported right wing military of the Salvadoran Civil War. The last episode in the series is called Bush & Obama: Age of Terror. It covers the following subjects:

  • The Project For A New American Century, a neoconservative think tank that called for a Pearl Harbor-type event to catalyze military action in the Middle East
  • The tyranny of neoconservatives who pushed us to war with Iraq using faulty intelligence
  • The rushing through of the Patriot Act, which stripped Americans of a wide variety of civil liberties while bestowing legal precedent to the new surveillance state
  • The national brainwashing and fear-mongering of the War on Terror
  • Invading Afghanistan to defeat some of the same terrorists the U.S. armed and trained two decades earlier
  • Unconstitutional torture and interrogation tactics at Guantanamo Bay
  • The mainstream media’s facilitation of war through propaganda and corporate collusion
  • Obama selling out to J.P. Morgan Chase, Goldman Sachs, Citigroup, General Electric, and Big Pharma
  • The $700 billion financial bailout paid for by workers, pensioners, homeowners, small businessmen, and students with loans
  • The rise of CEO compensation amid the collapse of the middle class
  • Obama’s failure to deliver hope, change, or transparency, his prosecution of government whistleblowers, his fortification of Bush’s national security state (though he repudiated the unilateralism of Bush, he doubled down on troops and, according to Stone, “lacked the courage of a John F. Kennedy”)
  • Obama’s targeted drone strikes on Afghanistan, Iraq, Pakistan, Yemen, Libya, and Somalia (includes a breathtaking clip of his remark to troops: “Unlike the old empires, we don’t make these sacrifices for territory or for resources….We do it because it’s right.”

  Stone says his documentary series is an alternative approach to American history, one he hopes will fight the“educational crime” of exposing today’s schoolchildren to the propaganda of standard textbooks and television programs.

  On this note, Stone doesn’t mince words:

  “American exceptionalism has to be driven out of our curriculums. We’re not under threat. We are the threat.”

  

  

  

  

  

• PBOC Devalues Yuan For 3rd Day As President Xi Reminds The Fed "China's Economy Is Stable" – Live Feed

  Following last night's ADB China growth downgrade, and warnings from The IMF's Lagarde that a "China slowdown is a major risk to the global economy," the weakness seen in Europe and US is continuing across AsiaPac tonight ahead of China's much-watched PMI data (though we are not sure why – since no "bad news" excuse is needed to enable super-easy policy). With Xi in the US, one would imagine a 'beat' for PMI will be engineered, although industrial metals are extending their losses. Credit markets area nxious with Malaysia CDS at 2011 highs, Philippines highest since 2014, and China back on the rise. Xi begins his speech tonight reminding The Fed that China "is the biggest developing nation in the world," and its economy "is stable" despite Yellen's fears.

  President Xi live from Seattle…

  • *XI SAYS CHINA DREAM IS THE PEOPLE'S DREAM
  • *XI SAYS CHINA IS BIGGEST DEVELOPING NATION IN THE WORLD
  • *CHINA HAS 200M PEOPLE THAT LIVE IN POVERTY, XI SAYS
  • *XI SAYS CHINA HAS 300M MIDDLE-INCOME EARNERS
  • *XI SAYS MORE THAN 85 MILLION CHINESE LIVE WITH DISABILITIES
  • *DEVELOPMENT IS TOP PRIORITY FOR CHINA, XI SAYS
  • *CHINA ECONOMY WILL MAINTAIN STABLE, RELATIVE FAST GROWTH: XI
  • *CHINA'S ECONOMY IS IN REASONABLE RANGE, XI SAYS
  • *CHINA TO MAINTAIN MEDIUM TO HIGH GROWTH RATE: XI
  • *XI SAYS CHINA TO AVOID PANIC ON STOCK MARKET
  • *XI SAYS CHINA'S STOCK MARKET HAS REACHED PHASE OF SELF-RECOVERY
  • *CHINA OPPOSED TO CURRENCY WARS: XI
  • *YUAN RATE DOESN'T HAVE FOUNDATION FOR CONTINUOUS FALL, XI SAYS
  • *CHINA WON'T DEVALUE TO BOOST EXPORTS: XI
  • *CHINA'S DEVELOPMENT MUST RELY ON REFORM, XI SAYS
  • *XI SAYS CHINA WILL NEVER CLOSE ITS OPEN DOOR TO OUTSIDE WORLD
  • *CHINA WON'T CHANGE POLICY FOR OVERSEAS INVESTMENT, XI SAYS
  • *CHINA WELCOMES COOPERATION WITH MULTINATIONAL COS., XI SAYS
  • *CHINA IS A STAUNCH DEFENDER OF CYBER SECURITY, XI SAYS
  • *XI SAYS CHINA READY TO SET UP CYBERCRIME MECHANISM WITH U.S.
  • *CHINA TO SET UP DIALOGUE WITH U.S. ON FIGHTING CYBER CRIME: XI
  • *CHINA TO CONTINUE FIGHT AGAINST CORRUPTION, XI SAYS
  • *CHINA STICKS TO PEACEFUL DEVELOPMENT PATH, XI JINPING SAYS
  • *CHINA WON'T SEEK POWER EXPANSION, XI SAYS
  • *XI WELCOMES U.S. TO JOIN ASIAN INFRASTRUCTURE INVESTMENT BANK
  • *DISAGREEMENT BETWEEN CHINA, U.S. IS UNAVOIDABLE, XI SAYS

  And then this!!

  • *XI SAYS CHINA WILL TREAT ALL MARKET PLAYERS FAIRLY

  Apart from short-sellers, right?

  *  *  *

  First, for your viewing pleasure, here is USDJPY ripping higher on the Japanese open… despite Japan being closed…

  

   

  Because Kuroda never takes a day off!!!

  And then the propaganda began…

  • *CHINA 7% OF ECONOMIC GROWTH IS CREDIBLE: NDRC

  And so was The Fed to most people until last Thursday.

  *  *  *

  The IMF stuck its beek in again…

  • *LAGARDE SAYS GLOBAL PRODUCTIVITY SLOWDOWN IS TROUBLING
  • *LAGARDE SAYS CHINA SLOWDOWN IS MAJOR RISK FOR GLOBAL ECONOMY

  China also announced new initiatives to ponzi-up the finance system…

  • *CHINA CITY BANKS TO PROVIDE LIQUIDITY TO EACH OTHER: CHINA NEWS

  Or "pass the hot potato collateral chain of counterparty risk" as some in The West might call it.

  Industrial metals continue to tumble…

  Metals extended losses in London ahead of a Chinese factory gauge expected to show the country’s manufacturing sector in contraction for a seventh month. Zinc traded near the lowest level since 2010.

   

  Aluminum fell 0.3 percent, adding to a 1.7 percent decline on Tuesday and continuing a sell-off across metals amid concerns about China’s demand. Copper slid 0.2 percent after posting its biggest loss since July.

   

  

   

  Credit markets are showing some strains…

  • Five-year credit-protection costs for Malaysia rose 19 bps yesterday, most since Jan. 6, to 206.5 bps, highest close since Oct. 2011, according to CMA New York data.

  

  • Philippines 5-year CDS rose 9 bps, most since Dec. 12, to 128.5 bps, highest daily close since Aug. 24
  • China’s 5-year CDS rose 5 bps to 121 bps, highest close since Sept. 1

  Marginb debt rose for the second day in a row…

  • *SHANGHAI MARGIN DEBT BALANCE CLIMBS FOR SECOND DAY

  And China stocks are extending losses…

  • *FTSE CHINA A50 INDEX FUTURES FALL 1.3% IN SINGAPORE
  • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 0.7% TO 3,218.8

  

  And The PBOC devalued the Yuan fix for the 3rd day in a row…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3773 AGAINST U.S. DOLLAR
  • *CHINA SETS YUAN REFERENCE RATE AT WEAKEST LEVEL SINCE AUG. 31

  

   

  We leave it to Jim Chanos to sum it all up – from Xi's speech-of-pure-comedic-genius to devlauing the Yuan most in a month while explainin that they are not…

  Chanos on Shanghai:“It’s just a highly speculative market “It’s like a pig on LSD. You don’t know which way it’s going to run.”

  Charts: Bloomberg

  

  

  

  

  

• The Clock Is Ticking On The U.S. Dollar As World's Reserve Currency

  Submitted by Henry Hewitt via OilPrice.com,

  The View From Hubbert’s Peak

  In 1971, the American President put an end to a 2,500 year trend; the Wall Street Journal called it “Nixon’s Worst Weekend.” Considering the old boy had some really bad ones, this must have been something special. In August of that year (on Friday the 13th) it was decided that the U.S. would no longer pay out gold for its paper dollars. OPEC Ministers took note, and in September they met, deciding it would be necessary to collect more paper dollars, if possible, since gold was no longer on offer and oil was the only asset they had to sell.

  It would take another two years for those decisions to matter (during the October 1973 embargo in the wake of another Arab-Israeli war). The Oil Embargo marked the end of ‘free’ energy, and kicked off a massive rise in the price of oil because the U.S., the world’s swing producer since Colonel Drake’s Pennsylvania strike in 1859, had finally reached peak production at around 10 million barrels per day in 1970. This moment is the original Hubbert’s Peak, the beginning of decline for the U.S. oil industry, at least until recently. The surge in U.S. production since 2010 has stalled out around 9.5 mb/d and, due to the Saudi decision to give the American tight oil producers ‘a good sweating,’ that rate has begun to fall in the last few months.

  It is certainly possible that U.S. production will surpass the 1970 peak, but with low prices it is hard to say when that will be; it is also hard to say how long that will last as tight oil wells have a devilishly high rate of decline. It is worth noting, as Arthur Berman has recently done in his fine article, that even the best producers are losing money now, and lots more are being lost by those who are not the best. Making it up on volume is a dog that does not hunt for $45.

  The Wizard of Oz

  The ultimate irony for this generation of investors is that, despite the occasional obligatory chant about ‘free markets’ and the wonders of capitalism, most of the day is spent obsessing about what the world’s most important central planner will do next. By Supreme Central Planner, I mean, the Fed.

  

  “Pay no attention to that man behind the curtain”

  The ‘Man’ behind the curtain is now a woman, but the power of the Fed is not in doubt; it still illuminates the Emerald City and all who look to it for guidance and more free money, which can be printed instantaneously and in any amount. At some point, the value of ‘free money’ will fall out of the sky, like Dorothy’s house onto the ruby slippers. Are we anywhere near that point?

  On September 17, the mighty Fed decided to do nothing, continuing a 9-year inning without a rate increase. (Did the markets breathe a sigh of relief? On the first full day of trading after the announcement the S&P fell by 1.6 percent and the Dow Industrials fell nearly 300 points; so, no, they didn’t.) This Bloomberg article suggests the Fed kept its powder dry because of China. “China affects the world more than ever before, and its influence over global markets will only increase as it approaches the U.S. economy in size.”

  Gold isn’t doing much to suggest that paper money is on the ropes but you may still be forgiven for thinking gold is a crouching tiger and it is only a matter of time. Oz is the abbreviation for an ounce of gold – “Follow the yellow brick road”; that is the path of hard money. Nobody is on that path anymore, so currency wars, i.e. who can devalue the right amount at the right time to gain a competitive advantage for their nation’s trade, are to be expected.

  The Fed failed its first test in the 1930s, and the question must be asked, now that China is well on its way to becoming the world’s most important financial player, will they make the same mistake? Will they tighten the money supply to the point that disaster follows? Deutsche Bank thinks the tightening has begun, though they do not predict disaster. At this moment in the great game, turbulence in markets is not particularly reassuring. Liquidity is evaporating, in pockets, and that generally ends badly.

  It is important for non-mathematicians to understand a dilemma which is not much discussed, if realized at all. When rates are low, even small increases make a significant difference. Raising rates from 1 to 2 percent, a ‘mere’ one point rise, has the same effect on the cost of the money you borrowed as raising rates from 5 to 10 percent – it is a doubling of the cost. It took a long time to crawl out from under extremely low rates in the 1930s (as it did after the 1893 crash before the Fed came along), which included a world at war. The liquidation process did not end until the rubble bounced in Germany and buildings were vaporized in Japan.

  Central Planners have not yet figured out a way to end the problem without a liquidation event; the problems of 2008 were not allowed to run their course. In other words, there is no precedent for a rate recovery from such an enduring trend without first undergoing a massive deflation. What is different this time is that gold is no longer seen as an official backstop, though central banks still own plenty of it (for some reason). As terrifying as deflation is, hyper-inflation is worse. Consider what happened in France after 1790 and Germany after 1923.

  

  The Next Suez Moment

  1971 was symbolically pivotal in another way. The Royal Navy, symbol of British power from the time of Trafalgar on, pulled up its anchors and sailed away from Singapore (Churchill’s ‘Gibraltar of the East’), having left Aden (in Yemen) a few years before, where it kept watch over the Indian Ocean and its most prized possession, i.e. India itself, for 128 years. The liquidation of the British Empire did not happen overnight. The 30-year running gun battle with Germany leading up to the Bretton Wood’s coronation of the U.S. dollar as the world’s supreme currency was not quite the bitter end. It took another 12 years before the British ruling class learned that the sun had already set upon their power.

  On July 26, 1956, Egyptian President Gamal Abdul Nasser nationalized the Suez Canal. The British and the French, who had financed and built it along with the Egyptians, were outraged. On October 29, Israel invaded the Sinai. On November 5, British and French paratroopers landed and defeated Egyptian troops along the Suez Canal. On the following day, Ike won an overwhelming electoral victory over Adlai Stevenson and, at the height of his (and America’s) powers, he told the British and French leaders to back down. America held their notes. The world held its breath. Prime Minister Anthony Eden resigned during the crisis and events effectively marked the end of heavily indebted Britain’s time as one of the world’s great powers.

  The $64 trillion question now facing the current world’s economic superpowers, by which I mean the U.S. and China, is not whether the Fed will raise rates any time soon, but when will the Yuan replace the Greenback as the world’s reserve currency? Whether or not paper money turns to dust generally is a separate question. The U.S. is now the world’s leading debtor nation, owing something on the order of $18 trillion. This is by far the most money that has ever been owed at any time in history. Does anyone really believe that it will ever be paid back?

  Inflation (printing money) and default are the usual suspects, but the unwinding of American debt will not necessarily happen in an orderly fashion. China’s Yuan becoming the world’s reserve currency would not be a Black Swan event; it may be a Gray Swan, but we have seen this sort of thing play out many times before, and not just to Britain.

   

  

  It has been a constant throughout history that both the Operations & Maintenance (O&M) and capital costs of running an empire at some point exceed the benefits or gains obtained from having that empire. Prestige does not pay the bills. Hadrian’s Wall, a high-water mark of Roman expansion, is in a pretty bad state (like a lot of American bridges that are crumbling on the home front).

  If it were otherwise, this article would be written in Latin; Facilis descensus Averno. (Loosely translated: The descent to hell is easy. Coming back up is the hard part: Hoc opus hic labor est.) The oft-quoted phrase: “Rome wasn’t built in a day,” misses a more important point, i.e. that it took centuries for the place to fall apart. About 150 years before so-called barbarians put the Eternal City out of its misery, Constantine moved the capital to what is now Istanbul. The Bezant, a gold coin, was the western world’s supreme currency for about 800 years after that, until the Venetians ruined the city during one of the Crusades.

  The Venetians (the Ducat), Florence (the Florin), Spain (thanks to American gold and silver), and the Dutch (whose Guilder was garnished with an occasional tulip), all had their turn in the catbird seat – the supreme privilege of minting the reserve currency (and running up debts without anyone calling them in). Britannia ruled the waves and the financial system after finally beating Napoleon in 1815 and their turn did not end until 1944, after decades of war first ignited in 1914 by Victoria’s grandchildren.

  The New Face of Money 

  

  Nobody plans to give way as keeper of the supreme currency, so there is no schedule to follow and no way to know when the torch will be passed from the dollar to the Yuan. Central planners and economists, who all drink from the same cup, may acknowledge that such a thing could happen decades from now (after all, Rome didn’t fall apart in a day), but will vigorously dispute the conclusions in this article. However, history has shown that the shift comes suddenly, usually in the heat or aftermath of war.

  American troops have now been involved in the Middle East for 25 years (nearly as long as the face-off between British and German troops and navies in the 20th century) and the U.S. Navy’s Fifth Fleet is stationed in Bahrain, having filled the void left when the Royal Navy departed. The U.S. Navy is the world’s single largest consumer of oil and aircraft carriers don't come cheap. Clearly, the ‘price’ of oil is greater than we think it is, and someday this will probably be recognized as the principal cause of the dollar’s fall from grace. The temporary rise in the dollar against most other currencies is partly the result of being the best looking leper in the colony. Furthermore, an expected rise in dollar rates makes the currency seem relatively more attractive, though this is a double-edged sword.

  It should be clear now that the reserve currency status is neither a birthright nor a privilege that stays forever in one place, which means it isn’t a question of if China will replace the U.S. as title holder but when. Imagine that a Republican president in January 2017 decides to act upon a campaign pledge to tear up any agreement between the U.S. and Iran. Imagine further that an air strike is aimed at Tehran. Regardless of Iran, or who is president, what if something happened in Pakistan that brought about a large scale American military response? What would China do?

  That country has an insatiable and rising need for Btus from the Middle East and its development of a port at Gwadar is highly significant. “Beijing says it wants to use Gwadar as the hub of an energy corridor to its western province of Xinjiang. But at the same time, Beijing has secured a string of port facilities in the Indian Ocean that increasingly allow it to project its own naval power westward.”

  With a population four times that of the U.S., and a per capita car ownership rate roughly one-tenth that of the U.S., even an elementary school math student can figure that over the next decade or so, there will be a lot more cars drinking a lot more oil filling Chinese streets (even if most vehicles eventually run on electricity – a switch that will take a long time).

  A military misadventure in that part of the world would be considered a direct threat to Chinese strategic interests. As Ike said ‘no’ in 1956, Xi Jinping may well say ‘no’ this time around. What would happen if China decided, or even threatened, to sell a substantial fraction of its trillion dollar U.S. Treasury horde? This may seem unthinkable, but even if they did not, after 35 years of falling and now zero rates, the direction is only up for the cost of money, as is the cost to service debt, along with the burden to those who are most indebted (i.e. the U.S.).

  What should no longer be unthinkable is that the clock is ticking on America’s status as the holder of the reserve currency. If you still doubt this proposition, consider that China is in the process of setting up a third benchmark for oil, along with Brent and West Texas Intermediate, for trading oil futures contracts. And unlike the existing contracts, these will be traded in Renminbi. Who needs the dollar?

  

  Alexander Hamilton’s face is on the ten dollar bill for a reason; he devised the system that made the U.S. the world’s supreme financial power. (Pretty good work for a penniless orphan from the Caribbean. He was also one of the few founders who did not ever own slaves.) If he goes off the $10 bill it would be a very bad omen. Susan B. Anthony would be a good choice for the $20 bill; she is already on the roster. Andrew Jackson does not deserve to be there anyway, as he was no champion of liberty even before he betrayed the native allies who helped him defeat the British. ( In 1814 we took a little trip, along with Colonel Jackson down the mighty Mississipi . . . )

  

  https://en.wikipedia.org/wiki/Susan_B._Anthony_dollar

  Speaking of Liberty, she graced U.S. silver dollars and gold coins for a long time. In hoc signo vinces.

  

  

  

  

  

• "You're Welcome" – More Unintended Humor From The Economists At The St. Louis Fed

  Back in November 2014, when the Fed had not yet admitted its third and fourth mandates were keeping the stock market as levitated as possible and responding to economic volatility and market turbulence in China (as it did last week) we made what we thought at the time was a sarcastic tweet, yet one which captured the gist of the September FOMC statement, when we said:

  BULLARD: FED TO RAISE RATES IN 2015, TIMING DETERMINED BY DATA. Determined by DJIA he means

  — zerohedge (@zerohedge) November 14, 2014

  While the accuracy of this tweet has since been confirmed by the Fed itself, one person took offense at the contents: the person – St. Louis Fed “vice president” David Andolfatto. This was his reply, before promptly deleting his tweet:

  @zerohedge Ha ha, you are such a dickhead … it’s wonderful!

  — David Andolfatto (@dandolfa) November 14, 2014

  To be sure, Andolfatto promptly apologized after our post led to a bemused public outcry at the Fed’s own dickheadery, which unlike ours, has resulted in a record wealth transfer from the middle class to the uber wealthy, the lack of any wage growth in 7 years, a bond and stock market that flash crashes almost on a monthly basis and an economy which can not even survive a 25 basis point hike.

  We bring it up because the same vice-presidential Economist Ph.D. was the source of some unintentional humor when he sparred with none other than our friend “Rudy von Havenstein“, the patron saint of money-printing central banks (which these days means all of them) everywhere.

  The full twitter exchange, captured in images so it can’t be deleted after the fact, is as follows. It needs to commentary.

  

  

  

  

  

  

  

• China's Man-Made Military Island Outposts, The Dramatic Before And After Photos

  There’s been no shortage of coverage both in these pages and elsewhere of China’s unprecedented land reclamation efforts in the Spratlys. 

  While China isn’t the first country to create new territory in the disputed waters of the South China Sea, the scope of Beijing’s development (some 3,000 acres) sets it apart and the construction of air strips and ports (not to mention the alleged stationing of artillery) has some of Washington’s regional allies especially concerned.

  The prospect of China declaring a no-fly zone over its new islands and the idea that the PLA may attempt to curtail the movement of the US navy in and around the Spratly archipelago has only served to exacerbate the situation and now, Fiery Cross Reef has become something of a symbol for China’s maritime ambitions. 

  While we’ve presented plenty of images depicting China’s progress in turning reefs into sovereign territory, we’ve yet to show the before/after contrast and so, without further ado, here are the images which show the extent to which Beijing is literally redrawing maritime boundaries in disputed waters.

  Subi:

  

  

  Fiery Cross:

  

  

  Mischief: 

  

  

  Gaven:

  

  

  Hughes:

  

  

  Johnson South:

  

  

  Cuarteron:

  

  

  Source

  

  

  

  

• Following Public Fury, Jim Cramer-Trained CEO Who Raised Price Of Drug By 5000%, Agrees To Lower The Price

  It took just a few days, and becoming America’s most hated man in the process, for Turing Pharma CEO Martin Shkreli to fold.

  The 32 year old “hedge fund manager”, who started his career on Wall Street working under Jim Cramer, and who subsequently ended up owing now-defunct Lehman Brothers $2.3 million for a Put option gone bad (only to see Lehman collapse before the now defunct bank could collect), was the object of nationwide scorn, derision and outrage after a NYT profile of his decision to boost the price of a drug by over 5000%. Even Hillary Clinton got involved in the public outrage, first tweeting and then making it a matter of her public policy how as a result of his actions she would implement a $250 price cap on drugs to prevent such price gouging.  Earlier today, the Taiwanese Animators took “Big Pharma Douchebag” Shkreli to task with the following clip:

   

  Not surprisingly, following the biggest plunge in biotech stocks in 2015 – many have speculated that the real goal of Shkreli’s actions was to profit by shorting the biotech sector ahead of the selling which his action would have unleashed – and an epic public outcry against the diminutive “hedge fund” manager (his prior company Retrophin recently filed a federal lawsuit against Shkreli alleging that he created the biotech and took it public solely to provide stock to MSMB investors when his hedge fund became insolvent; the suit seeks $65 million in damages) NBC reported moments ago that “the pharmaceutical company boss under fire for increasing the price of the drug Daraprim by more than 5,000 percent said Tuesday he will lower the cost of the life-saving medication.”

  Martin Shkreli did not say what the new price would be, but expected a determination to be made over the next few weeks.

   

  He told NBC News that the decision to lower the price was a reaction to outrage over the increase in the price of the drug from $13.50 to $750 per pill.

   

  Turing Pharmaceuticals of New York bought the drug from Impax Laboratories in August for $55 million and raised the price. Shkreli said Tuesday the price would be lowered to allow the company to break even or make a smaller profit.

  He added that his action was “absolutely a reaction — there were mistakes made with respect to helping people understand why we took this action, I think that it makes sense to lower the price in response to the anger that was felt by people.” One would not have gotten that impression from reading his tweets over the past 4 days.

  In a phone interview with NBC Shkreli said the money from the increase would be used to develop better treatment for toxoplasmosis that have fewer side effects. “It’s very easy to see a large drug price increase and say ‘Gosh, those people must be gouging.’ But when you find out that the company is not really making any money, what does that mean?”

  Well, it means it is like 90% of “eyeball” and “biotech” companies out there, that’s what it means.

  His conclusion: “I think in the society we live in today it’s easy to want to villainize people, and obviously we’re in an election cycle where this is very, very tough topic for people and it’s very sensitive. And I understand the outrage,” Shkreli said.

  It’s even easier to villainize those who deserve it.

  But now that Shkreli’s 15 minutes of fame are over and his Twitter profile is now in “private” mode (we doubt the SEC will investigate his shorting activity of biotech indices – we are confident the young “hedge funder” will have bigger headaches to deal with soon enough) the attention should shift to the real villains – those truly big pharma companies, who do what Shkreli did but on a far vaster and grander, if less obvious, scale taking advantage of the price cushioning effects that Obamacare provides.

  We also are curious to see how Hillary’s populist outrage at Shkreli will be explained when the public realizes that it is only thanks to the benefits of socialized insurance programs such as Obamacare, of which Hillary is a staunch supporter, that such price gouging was possible in the first place.

  

  

  

  

  

• Guest Post: Is The Pope's Dream Our Totalitarian Nightmare?

  Submitted by Susan Warner via Gatestone Institute,

  • Some high-profile commentators think they smell a Marxist clothed in white papal robes, who dreams of redistributing the world's wealth. Pope Francis insists that he has little interest in Marxism and that his political advocacy against materialism, capitalism, greed and idolatry are largely religious in nature. However, the flavor of some of his statements might suggest otherwise.

  • The Pope also knows that the UN is poised to strong-arm member nations to sign on to an impossible globalist agenda that will require a total shift of the world's wealth, and a restructuring of international politics and economics with a one-world government and a universal religion at the steering wheel.

  • Even to the Pope's admirers, that sounds a less like peace and love and more like a utopian totalitarian nightmare.

  The world press is in high gear for Pope Francis's visit to Cuba and the United States this week. Recently, the Pope has stirred up a stew mixing world poverty, the evils of capitalism and global warming into an elaborate narrative that is likely to keep journalists awake for weeks to come.

  Pope Francis visits former Cuban dictator Fidel Castro at Castro's home in Havana, Cuba, on September 20, 2015. (Image source: BBC video screenshot)

  As the first ever Pope to address a joint session of Congress, he is expected to take some shots at the structural evils of free market capitalism and the unequal distribution of wealth. As early as 2013, when he penned his Apostolic Exhortation, in which he laid out his broad vision for the Catholic Church, Pope Francis has been clarifying his positions on these topics.

  With the subsequent release of his controversial encyclical on global warming in June, he established two pressing themes that will likely monopolize his coming visit.

  Climate change is expected to be the focus of his address to the UN General Assembly on September 25, as he kicks off the 2015 UN Summit on Sustainable Development and its seventeen-point utopian agenda for the entire planet, packaged in a thinly disguised reboot of Agenda 21. According to IPS news:

  "Judging by his recent public pronouncements – including on reproductive health, biodiversity, the creation of a Palestinian state, the political legitimacy of Cuba and now climate change – Pope Francis may upstage more than 150 world leaders when he addresses the United Nations, come September… The Pope will most likely be the headline-grabber, particularly if he continues to be as outspoken as he has been so far."

  Along the way, he has managed to stun even many Catholics with pronouncements about issues that they think should be none of his business.

  When the Pope's recent encyclical on global warming was first leaked to the press in June, it stirred protests that the Pope should confine his expertise to religious matters:

  "Former US senator and Republican presidential hopeful Rick Santorum, for instance, is a devout Catholic who has said he loves the pope, but has also called global warming a "hoax" and the research underlying findings of climate change 'junk science'.

   

  "In a recent interview, Santorum advised Francis to 'leave science to the scientists' and focus instead on theology and morality. The suggestion was that the pontiff, who studied chemistry as a student, has no business pronouncing on something that exceeds his competence."

  As the Pope declared war on global warming, he emphasized his continuing opposition to capitalism, materialism, selfishness and other "human factors," which he asserts are the foundational causes of the imminent destruction of the planet's ecosystem.

  Writing in the Apostolic Exhortation and the Encyclical on Global Warming, the Pope justified his view that the temperature of the planet is economic and political, and it also undergirds religious concerns — especially since the results of global warming are likely to affect the poor disproportionately.

  His public denunciations of free market capitalism started in earnest with the recent papal visit to South America, where, to cheering crowds, he made some passionate statements about poverty and economics.

  Speaking to grassroots organizers, Pope Francis declared his own personal war on capitalism, imperialism, colonialism, greed and materialism. According to CNN:

  Pope Francis delivered a fiery denunciation of modern capitalism on Thursday night, calling the "unfettered pursuit of money" the "dung of the devil" and accusing world leaders of "cowardice" for refusing to defend the earth from exploitation.

   

  Speaking to grassroots organizers in Bolivia, the Pope urged the poor and disenfranchised to rise up against "new colonialism," including corporations, loan agencies, free trade treaties, austerity measures, and "the monopolizing of the communications media.

  Fox News reported that in one of his South American speeches, the Pope admonished business, government and trade union leaders, charging them with "idolatrous" and materialistic ways. CNN quotes him at one gathering saying to a group of business leaders, politicians, labor union leaders and other civil society groups on a Saturday evening: "I ask them not to yield to an economic model which is idolatrous, which needs to sacrifice human lives on the altar of money and profit."

  Some high-profile commentators such as Rush Limbaugh think they smell a Marxist clothed in white papal robes, who dreams of redistributing the world's wealth.

  Pope Francis insists that he has little interest in Marxism and that his political advocacy against materialism, capitalism, greed and idolatry are largely religious in nature. However, the flavor of some of his statements might suggest otherwise.

  To understand how the Pope thinks, it is helpful to glimpse at some of his closest counselors on these topics.

  One advisor on his August global warming encyclical is the controversial professed atheist, Professor John Schnellnhuber, who was appointed to the Pontifical Academy of Science, and has been accused of advocating population control.

  In an interview in June with Breitbart, Lord Christopher Monckton, chief policy advisor to the Science and Public Policy Institute, and a leader in the fight against the science of climate change, questioned Schnellnhuber's role in the encyclical:

  Monckton further explained that Francis is influenced by extremist Professor John Schnellnhuber, founding director of the Potsdam Institute for Climate Impact Research, who said in 2009 at a climate conference in Copenhagen that if we let global warming continue, six billion of the seven billion people on earth will be killed by it.

   

  Monckton said that Schnellnhuber will be standing by the side of Pope Francis when they announce the encyclical next week. "The fact that Schnellnhuber is going to be there is an extremely bad sign," he declared.

   

  The fact that he will be there next to the pope suggests to Monckton that Francis is thanking him for having written the climate portion of the encyclical.

  Another of the Pope's closest advisors is Cardinal Oscar Rodriguez Maradiaga, sometimes considered "the Vice Pope" because of his charisma and influence.

  On April 13, 2013, Pope Francis appointed Maradiaga as a coordinator of the group of cardinals established to advise him in the governance of the universal church and to study a plan for revising the Apostolic Constitution on the Roman Curia. Maradiaga is apparently also considered a leading progressive voice in Catholicism.

  According to a NewsMax report from last year:

  Cardinal Oscar Rodriguez Maradiaga, a close advisor to Pope Francis, criticized the free market as "a new idol" that increases inequality and excludes the poor in a keynote speech in Washington on Tuesday. … This economy kills," he told the gathered crowd. "The hungry or sick child of the poor cannot wait."

  The "elimination of the structural causes of poverty" is another concept taken from the "Apostolic Exhortation" handbook; some suggest it sounds like a call for a revolution.

  Pope Francis undoubtedly knows that some of these ideas are not likely to go over as well in the United States as they did in Latin America. According to the New York Times,

  "As his papal jetliner was returning to Rome (from his recent visit to South America), Francis signaled that he knew his economic message was already facing criticism in the United States and pledged to study it. Some critics blame him for rebuking capitalism with an unduly broad brush. Others say he ignores that globalization has lifted hundreds of millions of people out of poverty."

  The Pope also knows, however, that the UN is poised to strong-arm member nations to sign on to an impossible globalist agenda that will require a total shift of the world's wealth, and a restructuring of international politics and economics with a one-world government and a universal religion at the steering wheel.

  Even to the Pope's admirers, that sounds a less like peace and love and more like a utopian totalitarian nightmare.

  

  

  

  

  

• Exodus 8:2

  We may be through with the past, but the past isn’t through with us.

  I’m a big fan of history, and although I’m not a trained historian, I wrote a book about history through the lens of financial markets called Panic, Prosperity, and Progress (which has 22 reviews on Amazon, averaging 4.9 out of 5 stars………..so it can’t be that terrible). As part of this, I enjoy thinking of the arcs of history, particularly financial history, and anticipating where we might be going. This post is just such an exercise.

  I will say at the outset it is hazardous to get too caught up in narratives. The one offered by our friends in Gainesville in 2009 was along the lines of “the market will fight its way back to about 950 on the S&P 500……..1,000 at the most…….and then begin its final descent to its low of 400.” I don’t have to tell you things didn’t pan out quite that way. However, my musings here aren’t based on Elliott Wave, indicators, or anything except my own vague projections about where we are heading financially and politically.

  

  I think between now and the end of next year, we’re going to see something along these lines:

  Beat the Crash: sometime before the end of October, we’re going to take out the so-called “crash” lows of August 24th. How low this is remains to be seen, although I’ll be satisfied if it’s even modestly lower. I did this post on the 20th of this month projecting what these lows might be, and most folks thought I wasn’t being bearish enough. They may be right. In fact, as I’m sitting here right now looking at that post, it would make a lot more sense to have a serious breach of the August 24 lows, considering the “next step” I’m going to lay out. Let’s just agree that the drop would be serious enough to become persistent headline news and, dare I say it, cause Gartman to declare an all-out bear market.

  Yellen’s Last Hurrah: at this point, Janet “the antichrist” Yellen will have license to do Whatever The Hell She Wants to “fix” things. This will be her last free pass to do so. None of us can know what form this salvation will take (negative interest rates? QE4? the threat of a nude Yellen sex tape unless the market rallies?) but, whatever the form, it will, in fact, cause the markets to rally more strongly and firmly then they did between the August 24 crash and the September 17 FOMC top.

  The Stall: while it will seem that Yellen’s latest gambit has worked (but we know better, right?) the equity markets will cease their ascent. My guess is that this stall will be at the approximate price levels of the August 24 lows. Let me say that again: even after another ridiculous government program, I think the best equity prices are going to muster are going to be not much different than the “panic lows” of August 24th. Once equity prices stop obeying Yellen’s desire for them to go higher, people are going to start to worry. And then……..

  All Holy Hell Breaks Loose (during a big election year, no less): this is where the real fun begins. What’s particularly interesting about this phase is that it will be right in the thick of the U.S. Presidential Election Cycle which should make things, errr, interesting.

  A Surprising Choice: November 8th, 2016 is the big day, and I put it to you that the person elected president is going to be a surprise (at least to those speculating about it right now). The tumult of 2016 is going to compel people to want, yet again, “change”, and that could come in the form of Bernie Sanders (in case the nation’s mood wants to punish the rich) or Donald Trump (in case the nation’s mood instead actually buys the notion he can make the country “great” again). It won’t be boring-as-milquetoast Joe Biden or the-only-thing-special-is-that-she-lacks-a-penis Hillary Clinton. The status quo is going to be very “out” in the world of political fashion.

  So there we have it: my wild-ass guess for the next 14 months. Let’s see how it goes.

  

  

  

  

• Top UK Hedge Fund Manager Admits: "Central Banks Made The Rich Richer"

  With each passing day, the lies and fictions we have been exposing since 2009 – from HFT, to the truth about QE, to the ultimate downfall of central banks through their own actions – are being debunked ever faster, called out and/or confirmed by increasingly more “serious” people, those who have benefited and been protected by the lie itself.

  Case in point, an Op-Ed by Paul Marshall, CIO of Marshall Wace, one of the London’s and Europe’s largest hedge funds, with an AUM of $22 billion (so he probably knows what he is talking about) which is a tour de force of slamming the countless lies shoved down the population’s throat every single day just so the rich can get richer.

  From “Central banks have made the rich richer”, first posted in the FT:

  Labour’s new shadow chancellor has got at least one thing right. Amid the brickbats thrown at John McDonnell, there is a nagging failure to acknowledge the validity of one part of his critique of the money-creation programmes of the four leading central banks. Quantitative easing, as this policy is known, has bailed out bonus-happy banks and made the rich richer. 

   

  It is a surprise that the UK opposition party and other leftwingers have not made more of this. Maybe they thought it was too complicated. It isn’t really, and it might appeal to voters’ sense of justice far more effectively than threats to raise the top rate of income tax or to introduce a financial transactions tax (which Mr McDonnell also supports).

   

  Public pronouncements about the objectives of QE are deliberately shrouded in central bank speak. Depreciation of the yen is quite obviously an indirect effect of large-scale Japanese money printing — but it would not do for Shinzo Abe, the Japanese prime minister, or Haruhiko Kuroda, the Bank of Japan governor, to say so plainly. That would be politically toxic in the American heartlands. Nor would Mario Draghi, president of the European Central Bank, acknowledge that he is artificially distorting the bond markets so that the debt-ridden governments of peripheral Europe can continue to enjoy a low cost of capital (the eurozone’s very own Ponzi scheme). But that is what he is doing.

  Instead, central bankers talk about two main objectives of QE. The first is to maintain the supply of money to the banking system, to prevent a contraction in credit from leading to a seizure of 1930s proportions.

  The second is to stimulate what they call the “portfolio channel” via the purchase of sovereign bonds. Government bonds provide the risk-free rate for financial markets, off which everything else is priced. If you suppress the risk-free rate by buying debt, you boost the price of all other assets, from credit to equities to property.

   

  Banks have been the biggest beneficiaries, with their 20- or 30-times leveraged balance sheets. Asset managers and hedge funds have benefited, too. Owners of property have made out like bandits. In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a debt to QE.

  But wait, it gets better, because the inevitable next step, helicopter money, direct Treasury monetization and absolute currency debasement, is just around the corner once demands for “QE for the masses” become the next big thing (as Macquarie predicted last week).

  It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person’s bank account. In the UK, QE increased the money supply by £375bn, or about £5,800 per person. If this money had been distributed evenly it might have been frittered away on consumption rather than making a few rich people richer and bailing out the banks. But it might have been fairer.

   

  Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. The timing is flawed; the Bank of England deems further QE unnecessary, and any large money creation now would risk stoking inflation. But if the idea were kept as something to implement the next time the country faces a financial crisis, it would carry quite a lot of respectability.

   

  Some object that creating money to spend on infrastructure would undermine the central bank’s independence by forcing it to buy direct from the Treasury. Yet monetary policy has already extended well beyond its technocratic bounds into the realms of wealth distribution. QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.

  Coming to every “New Normal” banana republic near you…

  

  

  

  

  

• TSA Agent Caught Stealing From Passenger's Wallet At NYC Airport Checkpoint

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  TSA agents don’t get enough credit. They aren’t just experts at sexually molesting airport passengers, although they are very good at that. They have also become well known for outright theft.

  Here’s the latest from the New York Post:

  A TSA agent at JFK Airport was busted when he was caught stealing money out of a passenger’s wallet at a security checkpoint, authorities said.

   

  Joe Bangay, 37, was processing passengers at Terminal 1 around 10:30 p.m. Saturday when he swiped $61 in cash out of the passenger’s wallet, according to police.

   

  PAPD officers reviewed security footage and watched as the victim placed the wallet in a basket and laid it on the conveyor belt of the X-ray machine.

   

  The cops then witnessed Bangay allegedly pick up the wallet and pocket the money.

   

  The theft comes on the heels of several other crimes involving TSA agents.

   

  Agent Margo Lauree-Grant was arrested earlier this month for allegedly stealing a Canadian passenger’s diamond-encrusted watch at JFK.

  Don’t worry, they’re just keeping us safe.

  *  *  *

  For related criminality courtesy of the TSA, see:

  TSA Agent Arrested for Sexually Molesting South Korean Woman at NYC’s LaGuardia Airport

  TSA Agents Caught Gaming System so Male Screener Could Grope Attractive Passengers; No Criminal Charges Filed

  TSA Air Marshal Arrested for Taking Photos Up Passengers’ Skirts

  Big Brother Idiocy – TSA Spent $160 Million on Naked Body Scanners that Fail 96% of the Time

  Judicial Watch Obtains Documents Proving Systemic Sexual Abuse by TSA Workers at Airports Nationwide

  

  

  

  

  

• A Currency War That Few Economists And Analysts Notice, Much Less Understand

  Submitted by Jesse via Jesse's Cafe Americain,

  "The enormous gap between what US leaders do in the world and what Americans think their leaders are doing is one of the great propaganda accomplishments of the dominant political mythology."

  Michael Parenti

  Most economists and financial analysts think that 'currency war' merely refers to the competitive devaluations that nations sometimes engage in to help boost their domestic economies, as they had done in the 1930's for example.

   

  

   

  This time the currency war is a much more profound confrontation of differing agendas revolving around the historically unusual role of the US dollar, based on nothing more than the will of the Federal Reserve and the 'full faith and credit' of the US, as the reserve currency for global central banks and international trade.

  When a single nation begins to wield such an 'exorbitant privilege' to underwrite the speculative excesses of a crony capitalist banking system, and perhaps even more importantly, as an instrument in support of their international policy, one ought not be surprised that the rest of the world will begin to resist it.

  A currency must be policy neutral, without regard to any party if it is to be a true medium of exchange.  Can this still be said of the US Dollar as it has been managed, especially since 1990?

  As Alan Greenspan once correctly pointed out, but certainly did not heed when he was at the Fed, if a fiat dollar is managed by monetary policy such that it emulates gold, then it will be perceived as fair, and will certainly be above the particular domestic issues or international policy biases of a single nation that de facto wields the reserve currency status.

  "And so it is an odd situation where all the central bankers — while none of them are advocating a return to the gold standard — nonetheless try to replicate the various types of interest rate policies that the gold standard would have created. And it is an interesting question whether you call that regulation, or basically functioning of a central bank in stabilizing the economy."

   

  Greenspan: Role of Central Bankers Is To Emulate the Gold Standard

  It might help one to understand this if they were to imagine a world in which Russia, for example, in a quirk of history had established the ruble as the benchmark currency for the world.  The ruble was recommended for use by all nations as the means of paying for oil,  and for settling international trade even when Russia is not involved in the transaction.  Each country was thereby compelled to hold a substantial portion of its international reserves in rubles.

  And how would one be likely to react if the Russian Central Bank started using the ruble as an instrument of their international policy and extension of their quest for imperial power?  What if they began creating more rubles to underwrite the domestic bubbles which were created in their own corrupted financial system to bail out their banks and oligarchs?

  And let's be serious and think 'like the other guys' for a moment.  What if some other nation that held the enormous power of the world's reserve currency was exhibiting a crop of candidates for their leader like the current choices for the US Presidency?   I would expect that some of the rhetoric being tossed about in these debates would send a chill to the very bottom of our toes.  Who could place their confident trust in their good and selflessly wise judgement to do the right things for other nations around the world, even if it might not favor the powerful special interests that give them so many millions in campaign donations?

  Would you be content if your own government went quietly along with this abusive sort of monetary system?  Is this not indeed taxation without representation when the money supply is expanded and handed over directly to the hands of a few Bankers?

  The intransigence of the Anglo-American financial establishment to recognize the legitimate issues of the rest of the world with regards to the manner in which they have conducted their control of the IMF, the World Bank, and the international reserve currency has ignited a currency war that is now becoming increasing visible, to just about everyone it seems except for those sequestered in their ivory towers at the heart of the Empire.  Or perhaps they think it too dangerous to even acknowledge that it exists, because then they might be compelled to render an opinion on it.

  This is a 'big event' and it is all the more remarkable because the policy makers in the US act as though it is not even happening, or is not happening for any of the reasons for which it is.  They prefer to view it as a challenge to their authority, and to react uncompromisingly and with force.

  I think that historians will find the start of the currency war in the Asian currency crises and the fall of the Russian ruble in the 1990's, with the roots of it in the closing of the gold window by Nixon in 1971.    But from the following essay it seems that China and a few astute Western observers have marked it as being visible from March 2015.

  But whatever the date of its commencement, this dispute over the international monetary regime is the basis for the ongoing currency war that seeks to rebalance the terms of international trade and finance.

  It is the old story of the very powerful resisting change that benefits the few of them inordinately. And as in so many wars of the past, those few who benefit from it do not include the bottom 90% of their own people at the least.

  Most economists and analysts are ignoring this, or are unaware of it.  When they do finally wake up they will likely get busy finding ways to justify it, or dismiss it as an issue, and 'prove' that there is nothing wrong with it.  And very few will acknowledge the price of it in terms of economic stagnation and human misery.  All is well.

  Here is an excerpt of a recent article that was published in Chinese and then translated into English in the journal of the International Monetary Institute in Beijing.

  Has the US Lost its Role as the Underwriter of the Economic System?
  By Willem Middlekoop

   

  The recent news that Britain aspires to become one of the founding members of the new Asian Infrastructure Investment Bank (AIIB), has shocked many. Larry Summers, who served as a Secretary of the US Treasury between 1999 and 2001, immediately understood the significance of these developments, and wrote in an op-ed for the Washington Post:   'March 2015 may be remembered as the moment the United States lost its role as the underwriter of the global economic system. I can think of no event since Bretton Woods comparable to the combination of China's effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.‘

   

  This British announcement was highly criticized by the US. The Financial Times quoted an unnamed US official:  'We are wary about a trend toward constant accommodation of China, which is not the best way to engage a rising power. This decision was taken after no consultation with the US.‘

   

  Summers was also highly critical of the US‘ strategy toward the newly founded AIIB: 'The U.S. misjudged the situation tremendously, put pressure on allies and developing countries to under no circumstances be part of AIIB. Largely because of resistance from the right (neo-conservatives more precisely), the United States stands alone in the world in failing to approve International Monetary Fund governance reforms that Washington itself pushed for in 2009. By supplementing IMF resources, this change would have bolstered confidence in the global economy. More important, it would come closer to giving countries such as China and India a share of IMF votes commensurate with their increased economic heft.‘

   

  With Britain and many more major European countries signing up as founding members of the AIIB, the US economic hegemony has been dealt an enormous blow. For the first time since the end of the Second World War, the US is not in the driving seat during the foundation of a highly significant global institution. Of course, this will not change the world economic system overnight, but when we look back in five, ten or even fifteen years‘ time, March 2015 may be remembered as a turning point in economic history…

   

  Another criticism is that the US move to more neoliberalism and global capitalism since the 1980‘s, has led to a change in the functions of the IMF. Critics claim allies of the US receive 'bigger loans with fewer conditions‘. Foreign governments who are non-allies have to sacrifice their political autonomy in exchange for IMF-funds and often have to sell assets crucial for their economy to foreign (often US) companies.

   

  The former Tanzanian President Julius Nyerere, who was angered that debt-ridden African states were forced to hand over their sovereignty to the IMF (and World Bank), once asked:  'Who elected the IMF to be the ministry of finance for every country in the world?‘ And now the Chinese have openly asked for a 'new world wide central bank‘.

   

  Joseph Stiglitz, a former chief economist at the World Bank, has also agreed that the IMF 'was reflecting the interests and ideology of the Western financial community‘. The 'helpful hand‘ by the IMF and World Bank towards military dictatorships friendly to the West‘ has been criticized as well.

   

  It might be remembered as the start of an openly Chinese confrontation with the US over the world‘s economic leadership. As Summers points out, all of this has taken place because the Chinese leadership has had to wait a full five years for a change in the IMF-voting structure…

   

  Willem Middlekoop, International Monetary Review, International Monetary Institute, Beijing July 2015, page 32

  

  

  

  

  

• Who's Really In Charge Of Interest Rates? A Graphic Novel

  Inspired by Eugene Fama's paper, "Does the Fed Control Interest Rates?," forthcoming in the Review of Asset Pricing Studies, Chicago Booth's Capital ideas magazine exposes the awful truth of who is in charge… and it's not The Fed.

   

  

  

  

  

   

  Source: Chicago Booth Magazine

  

  

  

  

• Why Volkswagen Is Systematically Important For Germany And Europe

  It is no secret that with the rest of the US economy, and especially housing, sputtering the one bright spot for US production and manufacturing has been the automotive sector. Whether the recent strength has been a function of money-losing leases, extremely generous terms on auto loans including a new rise in subprime debt issuance is up for debate, but whatever the reason carmakers have had a few years of relative stability (with China rolling over this won’t last, but that’s a different topic).

  But if in the US automakers have been the solitary silver lining to an economy that is once again rolling over (as the Fed lack of a rate hike just confirmed), in Europe carmakers are absolutely critical, while for export powerhouse Germany, one can say the local auto industry is nothing short of systemic.

  Here are the latest facts on Germany’s automotive industry from GTAI.de

  • German automobile manufacturers produced almost 13 million vehicles in 2013 – equivalent to more than 17 percent of total global production.  Twenty-one of the world’s 100 top automotive suppliers are German companies.
  • The automotive industry is the largest industry sector in Germany. In 2014, the auto sector listed a turnover of EUR 384 billion, around 20 percent of total German industry revenue. Source: VDA 2015
  • The auto industry is the largest industrial sector in Germany, contributing about 2.7% to gross domestic product.
  • Some 20% of Germany’s exports are made up of vehicles and parts.
  • Germany is Europe’s number one automotive market; accounting for over 30 percent of all passenger cars manufactured (5.6 million) and almost 20 percent of all new car registrations (3.04 million). Source: ACEA 2015
  • Germany is home to 43 automobile assembly and engine production plants with a capacity of over one third of total automobile production in Europe. Source: ACEA 2015
  • One in every five cars worldwide carries a German brand. Source: VDA 2015
  • In 2014, automotive industry R&D expenditure reached EUR 17.6 billion, equivalent to one third of Germany’s total R&D expenditure. Source: VDA 2015
  • 21 of the world’s top 100 automotive suppliers are German companies. Source: PWC 2013
  • Around 77 percent of cars produced in Germany in 2014 were ultimately destined for international markets – a new record. Source: VDA 2015
  • R&D personnel within the German automobile industry reached a level of just over 93,000 in 2014. Around 775,000 are employed in the industry as a whole. Source: VDA 2015

  Then there is the value-chain, i.e., the suppliers and the providers of R&D for Germany’s automotive industry.

  • Germany boasts 21 of the world’s top 100 automotive OEM suppliers. Of these 21 companies, 18 belong to the top 50 automotive suppliers in Europe. Breaking the figures down further still, six belong to the top 25 global suppliers by size.
  • Exports account for almost 37 percent of 2013 revenue generated by German OEM suppliers

  

  As for why Volkswagen is the benchmark? Because not only is the Volkswagen Group the largest automaker in Germany, it is also the largest German company by revenue according to Forbes (Daimler is #3, BMW is #7). Some other facts:

  • The Volkswagen group accounts for roughly one in 10 vehicles sold globally.
  • Most German auto sales came from the Volkswagen group, which reported just over 202 billion euros in revenue in 2014.
  • Roughly 70% of Volkswagen vehicles are sold outside German borders.
  • Volkswagen employs nearly 600,000 people around the world, and more than a third of the 775,000 people who work in the auto industry in Germany.

  In short, while banking may be the most important sector to the hyper-financialized US economy, for the export-driven German economy – whose exports account for over 40% of GDP – it is all about the car companies and their massive supply chains.

  So what happened over the past 48 hours to Volkswagen, which has lost over a third of its market cap, or more than the market cap of Tesla, is nothing short of an earthshattering cataclysm to an economy where all the cogs and gears and running in a smooth, undisturbed ensemble… until everything changed overnight.

  What happens next to Volkswagen is unknown: as noted earlier a Credit Suisse laid out what may be the worst case scenario: “the balance sheet is at significant risk to deteriorate beyond the impact of the €6.5bn provision the company has announced so far. With group free cash flow generation largely dependent on China (we estimate 94% of industrial free cash flow – 78% dividend from JV), there could be increasingly risk to dividend payments.”

  But it is not so much concerns about Volkswagen as fears the entire German auto industry may be at risk.

  The best case scenario: “Even a heavy drop in diesel car production and exports would probably not subtract more than 0.2% from German GDP,” said Berenberg economist Holger Schmieding. “Demand for non-diesel cars may rise and partly offset the drop in demand for diesel-powered cars.”

  The worst? Quote Theo Vermaelen, a finance professor at INSEAD: “If nobody else has done it, the damage would be limited. If it looks like it’s more companies, not just Volkswagen, it would be a major problem for the German car industry, and the German economy overall.”

  And that’s the question German investors are wrestling with: was it just one cockroach. If it was more, the ultimate outcome will (not may) be more QE from the ECB because with Europe tentative recovery also sputtering after 6 months of ECB QE, a steak through the heart of Germany’s most important industry, will be just the black swan that sends Europe into a recession.

  So the question becomes: will Mario Draghi wait to see the fallout of the rapidly escalating Volkwsagen scandal, or will he preempt and ratchet up the bondbuying even more? Find out in the next few weeks.

  * * *

  Finally for those curious to learn more, we present what may be the winner of the “worst named corporate presentation” award for 2015 – Volkswagen’s “Stability in Volatile Times” released earlier today.

  

  

  

  

  

• VIX Spikes As Stocks Suffer Biggest Annual Loss Since 2009 On Passat Purge

  The message from the markets…

   

  Year-over-year, The Dow is down almost 5%, its biggest such decline since 2009… not that once the YoY trend turns negative, it tends to persist… (Dow is unchanged since Dec 2013)

  

   

  Futures show the pain really began when VW hit the tape early in the European session…

  

   

  On a side note, DAX is now down 17% since Draghi began Q€…

  

   

  But then again… maybe it's just EURJPY carry once again running the entire risk-on/risk-off show…

  

   

  Stocks tanked on the day… with some Papal Panic Buying the close…

  

   

  Dragged into the red for the week…

  

   

  Since Yellen lost all The Fed's credibility…

  

   

  And the year… It appeasrs everyone was desperate to keep the Nasdaq green in 2015 dream alive…

  

   

  VIX jumped over 17% today – its biggest move since Black Monday

  

   

  With an epic fat finger at the close…

  

   

  High Yield credit cointinues to flash red.. and stocks are slowly figuring it out…

  

   

  Tressury yields collapsed even more than they spiked yesterday…

  

   

  The Dollar gained ground amid EUR and AUD weakness…biggst 3-day USD Index rise in a month Once again the pattern is clear – USD selling pressure during Asia, USD buying (EUR selling) during Europe…

  

   

  Commodities slipped on dollar strength and china growth fears (after ADB)…

  

   

  But crude's utterly insane melt-up intop NYMEX Close (not unusual) is just becoming farcical…

  

   

  Charts: Bloomberg

  Bonus Chart: Beware The Papal Visit Omen…

  

   

  Bonus Bonus Chart: This one made us think maybe it's Time for Gold/Dow again… perfect roundtrip from Lehman to End QE3…

  

   

  Bonus Bonus Bonus Chart: Thinking out loud – but something broke in "currencies" when China devalued…

  

   

  Bonus Bonus Bonus Bonus Chart: Still climbing?

  I think they got this idea from me pic.twitter.com/1BVfXSpxNR

  — StockCats (@StockCats) September 22, 2015

  

  

  

  

Digest powered by RSS Digest

• The Established Order Will Be Challenged

  Submitted by Raymond Matison via The Market Oracle,

  With its recent miniscule 2% devaluation of the Yuan, media pundits noted that China had now also entered into the global currency war.  What this comment implies is that other countries with the ability to issue or print their own currency, including the U.S., have been participating in a currency war by devaluing their own currency as a hoped for means to increase their country exports and thereby stimulate their economies.  As China’s currency has been pegged to the USD, it had recently grown stronger as a byproduct of dollar’s recent dramatic strength.  Accordingly, the peg that China used to tie-in to the dollar’s value had increased the Chinese yuan to a level that was hurting their exports.  The resulting devaluation was China’s attempt to correct partially this unwelcome currency appreciation.

  With FED’s past QE series of money printing, we have been at the forefront attempting to devalue our own currency as a means to improve our exports, reach the FED’s stated goal of increasing inflation which would produce higher GDP figures, allowing government officials to claim that economic growth or recovery is resuming.  Not to be outdone, the European Central Bank has been purchasing weak credits from their banks, in order to make member bank financial solidity ratios appear stronger – which also requires substantially increasing its money supply.  The largest and most outrageous example of intentional destruction in the value of its currency is Japan, which for nearly two decades has been on a mission to devalue its currency in order to stimulate inflation.

  Currency expansion may seem like an ideal, benign solution to a country trying to stimulate its exports, but it does create a financial assault or loss to their trading partners.  For example, China’s recent holding in excess of $1.3 trillion assets (until some recent sales of under $200 billion) from accumulated annual trade surpluses, would lose great value in its assets by the amount of such U.S. devaluation.  If the U.S. were to expand its currency by 10%, China’s Treasury holdings could be reduced by $100 billion – not an insignificant amount.  That is of course why the well known phrase “race to the bottom” stipulates that once one country starts to print currency, other countries, in order to protect themselves against the action of the initiator, have to follow and also devalue their own currency.  We are currently witnesses to a race to the bottom in a continuing global currency war.

  Definition of Currency War.

  Wikipedia defines a currency war as “competitive devaluation where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a country's currency falls so too does the price of exports. Imports to the country become more expensive. So domestic industry, and thus employment, receives a boost in demand from both domestic and foreign markets. The policy can also trigger retaliatory action by other countries which in turn can lead to a general decline in international trade, harming all countries.”

  It is arguable that currency wars are not only fairly current affairs, but that they last for relatively brief periods of time not extending beyond a few short years – as highlighted by our FED’s recent QE series.  How might our understanding of currency war change if we were to expand slightly the definition of currency war, and by also taking a far longer view – that of going back to the founding of the FED?  How would we appraise the big picture of government and FED policy over the years, and its now fully observable results on the populace?

  Years 1913-1940.

  Some historians have noted that the founding of the FED in 1913, with its ability to create dollars, allowed President Wilson to commit America to participate in what became to be called WWI, which in reality was a European conflict.  Wars are expensive, so having an institution that can “finance“ war makes it economically easier to participate.  In this case, domestic currency accommodation to provide dollars by the FED made it possible for the U.S. to engage in the actual physical war. While currency accommodation for your own government seems detached from a real currency war, the dramatic expansion of money to finance war is a hostile assault on the value of every citizen’s purchasing power and reduction in the value of that currency.

  Some economists posited that it was the FED’s profligacy in expanding currency and credit also during the 1920’s, and their support of low interest rates that created the great stock market rise and consequent conditions for the stock market crash and the Great Depression.  Accordingly, this crash evolved initially from an inability of stock market speculators and other borrowers to repay their loans, thereby requiring sale or liquidation of leveraged stock portfolios.  Thus, the rapid expansion of currency and credit during the 1920’s by the FED was seen as responsible for initiating America’s economic malaise of several decades.  It is a form of a currency war, but one affecting our own citizens.

  Up until the 1930’s citizens were able to convert their gold certificates (paper money) into actual gold coins at any bank – with gold at $20 per ounce.  In 1933, President Roosevelt ordered all gold coins to be turned in for paper currency at their bank, in effect confiscating real money.  After these coins were turned in by trusting citizens of their own government, the price of certificates was devalued such that gold was repriced to $35 per ounce. The necessity for governments to take, confiscate, or steal from one’s own people has a several thousand year old record resulting from a bad habit of governments spending more than they can reasonably take in from taxes.  This is simply a different version of a currency war that one can identify as a short hostile action, one which was directed at the country’s own people. 

  Years 1945-1971.

  After WW2, as U.S. emerged as the world’s greatest military and economic power, at the Bretton Woods Conference in 1945 America established a new currency system which was based on the premise that the U.S. dollar would be backed by gold, become the means of exchange for international trade transactions, and that sovereign nations would be able to exchange their dollars for gold at $35 per ounce at any time.  With many parts of the world in economic and financial shambles after physical war, it is reasonable that a new currency system was desirable.  However, the establishment of this new system could be seen also as a stealth currency battle as it was structured at its outset to be very favorable to America.  For example, the IMF and International Bank for Reconstruction and Development were created, which became instruments of U.S. global financial influence, and some might argue new tools to conduct financial warfare.

  This new currency system worked reasonably well for several decades until President Johnson decided to dispute an old repeatedly proven maxim that a country cannot afford both “butter and guns” for its people.  In the 1960’s President Johnson chose to initiate a war with Vietnam, and felt compelled domestically also to start a “war on poverty”.  Physical wars were becoming increasingly expensive, and required currency printing which the FED readily accommodated.  The War on Poverty cost billions, while the cost of the then new Medicare program also rapidly escalated. The confluence of these expenditures required such a large expansion of our money supply, printing more dollars than its store of gold could support, that foreign nations noticed it and started to convert their dollars increasingly for gold. Eventually America’s store of gold was in a perilous decline such that it lead to the U.S. “defaulting” on its gold exchange policy by closing the gold exchange window to sovereign foreign banks.  The retreat from a promise to redeem paper dollars for gold has all the hallmarks of a hostile currency action, which is easily interpreted as part of a currency war.

  For those who disagree that this latter action was a form of a currency war, let us dwell on the fact that when President Nixon closed the gold window in 1971, he foreclosed the ability of foreign countries to turn their dollars at the promised $35 conversion rate into gold.  As a result, every foreign country that had traded goods with the U.S. and held paper dollars was forced to swallow huge dollar devaluation losses.  The price of gold reached over $150 by 1974 and over $800 by 1980, but since banks tend to hold their gold for long periods of time, it is not unfair to note that the price of gold in 2015 is over $1100 per ounce.  As a result, the long-term loss to foreign dollar holders has been astronomical.  The U.S. won that currency battle, but it has not quite won the war, as more countries became united in finding a means to reduce the influence and dominance of the dollar.

  Abandonment of silver coins and societal change.

  In 1964, our government led a hostile currency action against its people by eliminating silver coins from circulation. As 1965 and subsequent coins did not include silver, the more valuable silver coins quickly disappeared from use with some hoarded by citizens, but most simply were acquired by the Treasury.  The reason this had to be done was due to continued inflation, and the subsequent increase in the price of silver in terms of paper currency.  

  It was a time when gasoline could be purchased for under $0.20 per gallon. While today’s gasoline costs between $2-$3 per gallon, you can still purchase that gasoline at the $0.20 price per gallon – if you convert two silver dimes (coin of the realm at that time) to today’s fiat currency.  Another indication of the loss in the purchasing power of the dollar is shown by the fact that many houses purchased in 1960 for $20,000 could fetch $200,000 before the 2008 real estate meltdown.  In some communities the annual real estate taxes due in 2008 and subsequent years were larger than the actual price of the house paid in 1960.  This also speaks to the issue of citizens owning property free and clear.  Political practice has evolved such that after paying the full market price for real estate, the owner really does not own it.  Rather, after purchase and payment, he gets the privilege to rent it from the government at the current rate of annual taxation. This also speaks volumes about the store of value of fiat currency versus the two hundred fifty year old money as defined in the Constitution.  Indeed there are many economists and financial observers who have calculated that the original dollar issued in 1915 is only now worth only 3 cents.  This result seems to suggest an ongoing, longer currency war being practiced.

  In the 1960’s, a household bread winner was able to provide for his family; however, in the 1970’s and beyond more than one income was often necessary to sustain a household.  The established family pattern was disrupted with notable consequences.  Corporations were happy to have more women join the workforce as their wages generally were lower than those of men, thereby improving corporate profit margins.  Our government was happy to have additional incomes to tax.  Women were happy, because according to the propaganda of the day, they were being liberated from household chores with an ability to “realize their full potential” and pursue a career.  How the tradition for a woman working in the home raising children, and maintaining a job outside the home is liberating, rather than enslavement, has not been explained. The only losers in this evolution were the children – those that form the basis and future of our country.

  It has been established by sociologists that the absence of fathers in many African American homes is the root cause of dysfunctional families manifested through maladjusted and underachieving children in society.  Why should the results be any different in all other families where both the mother and the father are mostly absent?  It is arguable that children’s declining math and reading scores, as well as unsocial behavior and other maladjustments are the result of this destruction of the American family. Such destruction has been accomplished through continued money expansion by the FED, with its consequent loss of purchasing power and loss of real incomes – which rather than giving women the option of working outside the home, required them to do so.  So this currency creation system and policy has dramatically and detrimentally changed the American family, and the country’s future.

  International push-back.

  Later in the 1970’s as money printing, credit creation and inflation were increasing, the U.S. had some difficulty in selling their Treasury securities in global markets, as foreign banks and other financial institutions avoided buying dollar denominated bonds, which forced the Treasury to sell bonds that were denominated in, and had to be repaid in German marks or Swiss francs.  It is clear that foreign institutions had become acutely aware that the U.S. was using its “exorbitant privilege” of a reserve currency in a fashion that shortchanged its international partners and these institutions were expressing their dissatisfaction through market rejection. This action may be seen as growing resistance against a U.S. based currency war.

  As the dollar’s value was falling, the FED was forced by global market pressure to adopt a rigorous program to reduce inflation, thereby increasing the dollar’s value.  Interest rates on U.S. Treasury bonds were raised to unprecedented heights topping out at approximately 15% in 1981, leading countries to invest in these secure high yields, pushing up the dollar’s value.  High interest rates and trade imbalances caused a domestic recession – which was the eventual global market-forced payback to our previous closure of the gold exchange window, and subsequent rapid currency expansion. This episode to improve dollar’s value might be viewed as a temporary “retreat” in terms of our previous currency policy and financial war.
   
  As the dollar subsequently increased in value compared to other country currencies, U.S. exports became increasingly more expensive and corporations started lobbying for government relief and intervention.  Accordingly, the next offensive in our currency war took place with the Park Plaza Accord in 1985 in New York, when the U.S. prevailed over their formerly physically subdued war opponents, Germany and Japan – and had them agree to accept a 25-50% devaluation of the USD. That devaluation allowed U.S. exports to become cheaper and more competitively priced. That was another important currency battle that the U.S. won – and Japan and the Europeans lost. 

  During the 1960’s and 1970’s many countries throughout the world admired the relative prosperity of the U.S. and sought to emulate its financial policies.  Accordingly, they bought into the sales pitch of the IMF and the World Bank and took on large amounts of debt for infrastructure development.  Almost all of these large infrastructure debt programs defaulted, mostly through the decade of the 1980’s, and were restructured to the common detriment of the borrowing country.  It could be argued that this outwardly attractive program for developing countries was in fact another stealth currency battle which the U.S. won in every country that it was tried.  However, such results could not be hidden from the world, as it soon came to be understood for the nonphysical financial war which had been unleashed on unsuspecting developing countries. The IMF and World Bank became discredited among many developing nations of the world. In effect, the U.S. won all of those currency battles, but it embittered borrowers who have not forgotten their usurpation, and whose resistance to dollar hegemony has been steadily growing.

  Credit Growth and Quality of Life.

  Between 1964 and 2004 total credit in the U.S. had increased from $1 to $57 billion – a historically unprecedented rise.  A shortage of currency and credit would stifle growth and trade; however, an overabundance of it creates business cycles and economic bubbles which leave retrenchment, default, and business failure in its wake.  The overabundance of currency and credit since the 1960’s, due to the nature of our money creation process through the FED also commensurately increases national debt.  This remarkable increase in currency and credit expansion paid for the greatest economic party, financed by debt, which America has enjoyed since its founding.  However, as debt eventually has to be repaid, we now experience shades of our previous 1920’s decade as it drew to a close with approach of the Great Depression.

  During these decades few people would claim that their quality of life has not improved significantly.  It is true that easy availability of credit made it possible for citizens to purchase a home and cars – items that in the view of most people would be seen as improvement in the quality of life.  However, during these decades we have also witnessed tremendous improvement in technology that has also dramatically improved living conditions.  Abundant availability of food products, improved health care, wide choice of manufactured products including furniture, washing machines, refrigerators, television have improved quality of life.  Their abundance and affordability comes mainly from technological advancement.  Developed commercial air travel, smart cell phones, internet are all technological innovations, improving the quality of life.  The question of whether it was credit availability or technological innovation that has improved quality of life begs to be answered.  It is likely that technological development would have taken place whether or not credit had expanded as rapidly or at all through these decades.  After 2008, and the recent mortgage and automobile loan bubble we are reminded that credit has to be repaid whereas technological improvement just keeps improving the quality of life.

  International Currency War.

  The U.S. has waged successful currency wars in the last several years against our perceived enemies such as Russia, Iran, and Syria – just to name a few.  Such currency wars sometimes are signaled from our policymakers as when it is coupled with sanctions, but often FX transactions can take place creating havoc in a targeted currency without public notice.  The trillions of dollars created by the FED and given to our domestic banks supposedly for strengthening balance sheets can be used for speculation, creating large flows of funds that destabilize foreign currencies and economies.  Exchange rates for currencies are determined by markets.  All markets have been manipulated, so foreign currency exchange rates have been manipulated. In addition, such huge financial war chests can also be used to influence commodity prices such as oil, which can have a devastating effect on countries relying on such exports for their budget revenues. Some huge flows of funds into foreign currencies may simply be speculative, but it also can be manipulative as a stealth currency war.

  More recently China has expressed interest having their currency included in IMF’s currency basket.  Given the size of China’s economy, this should have been offered to them – not something that China has to fight for.  But this request has been deferred in part on the basis that China’s currency is not freely convertible.  Of course everyone understands that including the yuan in IMF’s basket of currencies would decrease the importance of the dollar, would reduce its value, and therefore it is something that needs to be deferred for the U.S. to maintain its dollar hegemony.  China is not depending on IMF’s acquiescence to include it in the currency basket but is hedging by setting up its own system.

  Anyone following potential global currency manipulations of the last decades would understand that making the yuan fully convertible would also open it to those gargantuan flows of hot speculative money, visible in the carry trade, which might affect its currency more than China is capable or desirous of offsetting.  So it is establishing the yuan as fully acceptable in trade by many of its trading partners without exposing its currency to attack.  With its ability to make trade payments in currencies other than the USD they will be better protected from speculative market predations and manipulation.  Since China has established a competing equivalent of the IMF bank, and is close to having an international currency clearing facility comparable to our SWIFT system, longer term China may not even need IMF’s acceptance and inclusion. Countries are coming together in order to obviate the need for the use of the dollar. Therefore countries, which have previously been taken advantage of by our financial and currency policies of the last fifty years, are now becoming more willing in its trade to accept yuans and rubles.  A reduction in the use of dollars in trade, together with loss of admiration of America with our previously held moral high ground will have transformed into loss of empire and reduced citizen wellbeing.  This would be recognized as our losing a major currency battle.

  Domestic Currency War.

  Hostile currency actions, battles, and wars have become increasingly devastating.  They are more powerful than nuclear weapons.  A nuclear bomb will kill hundreds of thousands of people, but a financial war can injure almost all citizens of a country or region.  It is best to compare a financial war to that of the use of a neutron bomb – the buildings remain in place, but the population has been financially killed.

  In the United States two such neutron bombs have been detonated already, but no one has sounded the alarm.  The first neutron bomb was the FED’s reduction of interest rates to near zero, and keeping them there for more than six years.  Note that the damage done to the savings and funding of pension plans is applicable to more than 150 million people in this country.  Everyone is financially maimed.  The second neutron bomb is the expansion of national debt from $8 trillion to more than $18 trillion in less than a decade.  Our politicians verbalize reasons why this increase in debt is absolutely necessary for the health of our economy.  However, this debt ultimately becomes the debt of its citizens, not of the politicians or government which created it.  Citizens were just bystanders, as our politicians, FED and government dropped the neutron bomb on us.  These two neutron bombs have already destroyed a large portion of our middle class, the base of a democratic society.

  This debt bomb detonated in the U.S. but reverberated far beyond our own borders.  These newly created trillions of dollars found themselves in the balance sheets of our banks, and became weapons of destabilization, manipulation, mass destruction in other parts of the world.  The volatility of our markets is the result of too much fiat money in the world, which rushes in and out of selected countries, destabilizing their currencies and economies.

  Think about it.  We have experienced a dramatic rise and fall of currencies during 2015 and recent previous years that clearly are not representative of normal markets.  Also, the dramatic rise and fall in the price of oil in a short period of time can only happen when markets are over-stimulated by speculation and manipulation.  Our bond market has been manipulated for years by a FED policy of low interest rates and by its purchase of a large portion of our Treasury bond issues.  That same policy has caused fiat currency and credit expansion and pushed up our stock market valuation.  These trillions of dollars of slush funds at banks have drastically affected the price of foreign currencies versus the dollar.  They have decimated currencies and economies of our alleged enemies. Yet other countries are mimicking what the US is doing with its money supply, trying to protect their currencies, economies, and dollar reserves. The greatest weapon of terror has turned out to be our rapidly and cancerously growing volume of the U.S. dollar with its concomitant growth of national debt, which has been directed against America’s perceived foreign enemies and our own citizens alike.

  Historical Perspective and Future Consequences.

  Could such financial damage inflicted upon the population really have been accidental, or from faulty policy – or was it the result of the FED currency’s systemic design?
  For currency to be created by the FED, Treasury debt has to be issued.  Thus, this system of money creation requires constant currency expansion, reducing purchasing power over decades which has become a systemic, century-long fleecing of the country’s citizens.  Government and our elected representatives have abetted this financial terrorism against its own citizens, and also engaged in a long-term financial war against other sovereign nations they do not like.

  Taking this long view it appears that our government with its financial institutions in tow, though previously lauded for extending democracy and freedom throughout the world have lost their moral high ground in the eyes of many sovereign foreign countries due to our leading a long-term mercantile currency war.  Those sovereign countries are united ever more cohesively to free themselves from financial repression of a previously one-sided currency war with our reserve dollar the weapon of choice.  Formation of BRICS and the New Development Bank, new international payment settlement system, China led AIIB, AFTA the ASEAN Free Trade Area, Shanghai Cooperation Organization, Pan Asia Gold Exchange, is equivalent of aggrieved sovereign nations building their arsenals and massing their troops in what is to become their counter offensive.  The established order will be challenged.

  While the theoretical attributes of a republic or democracy with a Federal Reserve are many, we can get a more precise evaluation of it by looking at the historical actions of our government over the last century, including current policy trends and its actual results on its citizens. Taking into account the never ending expansion of government, persistent long-term loss of purchasing power in our currency, policies of wealth redistribution, the destruction of a traditional family and the middle class, eagerness in instigating or participation in unnecessary foreign kinetic wars, persistent offensives in a global financial war, it is difficult not to conclude that our own government has been increasingly implementing  policies contrary to our Constitution and the will or benefit of its own people as well as people of other sovereign nations. Regardless of which political party is in power, representation of our citizens has been supplanted by the will of a small elite.  Taking into account strategic actions of government or its actual controlling elite over the last century, one is forced to conclude that “they” have waged a long term nonphysical, highly destructive financial war against its own people. 

  What can we expect to happen in our homeland when finally even the generally uninformed population also understands that governments they have elected for decades, and its FED facilitator or controller, jointly have waged a century-long war on its citizens?  The people of America cannot make a counter offensive similar to those of sovereign nations; however people are uniting in resistance to robber baron policies, as evidenced by the popularity of nonpoliticians currently in candidacy for the office of president. These troops will mass also, it just remains to be seen what form their eventual counter offensive will be. The established order will be challenged.

  

  

  

  

  

• Elderly Japanese Population Hits New Record – Demographic Death-Rattle Continues

  With Abenomics seemingly a total failure (aside from managing to collapse the currency and living standards of the population – worst Misery Index in 33 years) the demographic crisis that Japan faces just got more crisis-er. As Japan's population continues to fall (4th year in a row), what makes the situation worse, as NHKWorld reports, is that there are now a record 33.8 million people over the age of 65 (a record 26.7%), more than double the number under the age of 14 (16.2 million). The ministry says the population will likely continue declining for some time as fewer babies are born and society ages… and as America is beginning to see as retirement dream remain elusive, the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.

  Population is forecast to keep falling…

  

   

  And, as NHKWorld reports, will continue to get greyer and greyer…

  The number of Japanese aged 65 or older has risen to a new record of about 33.8 million people, or 26.7 percent of the population.

   

  The Internal Affairs Ministry released the estimate ahead of Monday's national holiday, Respect for the Aged Day.

   

  The ministry says about 33.84 million people aged 65 or over were living in Japan as of last Tuesday. That is an increase of 890,000 from the same period last year. Men account for about 14.62 million of the total, and women, 19.21 million.

   

  People in the elderly age bracket now account for a record 26.7 percent of Japan's population — an increase of 0.8 percentage points from last year.

   

  The number of Japanese aged 80 or older has risen by 380,000 from last year to10.02 million, topping 10 million for the first time.

  And finally, as we are beginning to see in America…

  The ministry says the number of working elderly increased for 11 years in a row to reach a new record figure of 6.81 million in 2014.

   

  10.7 percent of Japan's working population aged 15 and over are in the elderly bracket.

  *  *  *

  As we discussed before, there are now more than one in four Japanese citizens will be over the age of 65, up from one in five in 2006 and one in 10 in 1985. The proportion of the population over 65 is expected to swell to 30 percent by 2022 and to 40 percent by 2050, according to government estimates. This will put the country as a whole in the demographic range of the prefectures that experienced the sharpest declines in growth in the decade ended 2009.

  

  Fewer workers and less labor will reduce the potential output of the Japanese economy, which will increase the country’s reliance on imports as retirees continue to spend, inhibiting GDP growth. The rising number of retirees will strain the government’s welfare programs and the country’s pension funds, which have been major buyers of government bonds. Japan already maintains the world’s second-largest debt load in nominal terms and it's growing.

  The government sees this problem and has passed a bill giving private-sector workers the right to remain at their jobs until the age of 65, rather than the current 60.

  

  Japan’s demographics will also likely have an impact on consumer behavior. Japanese consumers older than 65 are less likely to shop for alcohol, clothing, books and electronics compared with younger consumers, according to a McKinsey survey from 2011. The average senior shops for books and clothing 38 and 35 times per year, respectively, compared with 73 and 58 times for people between the ages of 18 and 34. The only item seniors shop for more frequently than younger consumers is food, McKinsey found.

  

  How Japan faces its demographic challenges over the next several decades may provide important lessons for countries such as China, which has a rapidly increasing senior population due largely to the one-child policy. People over 65 account for nearly 10 percent of the population in China — similar to Japan in 1985 — up from 6 percent 20 years ago.

  China now faces a similar trajectory, as seen in the chart above. Its working-age population—defined as those between ages 15 and 64—is peaking and is set to decline in the years ahead.
   

  

   

  

  

  

  

  

• Ron Paul Rages: Don't Blame America, Blame The Neocon Interventionists For The Syrian Catastrophe

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Is the current refugee crisis gripping the European Union “all America’s fault”? That is how my critique of US foreign policy was characterized in a recent interview on the Fox Business Channel. I do not blame the host for making this claim, but I think it is important to clarify the point.

  It has become common to discount any criticism of US foreign policy as “blaming America first.” It is a convenient way of avoiding a real discussion. If aggressive US policy in the Middle East – for example in Iraq – results in the creation of terrorist organizations like al-Qaeda in Iraq, is pointing out the unintended consequences of bad policy blaming America? Is it “blaming America” to point out that blowback – like we saw on 9/11 – can be the result of unwise US foreign policy actions like stationing US troops in Saudi Arabia?

  In the Fox interview I pointed out that the current refugee crisis is largely caused by bad US foreign policy actions. The US government decides on regime change for a particular country – in this case, Syria – destabilizes the government, causes social chaos, and destroys the economy, and we are supposed to be surprised that so many people are desperate to leave? Is pointing this out blaming America, or is it blaming that part of the US government that makes such foolish policies?

  Accusing those who criticize US foreign policy of “blaming America” is pretty selective, however. Such accusations are never leveled at those who criticize a US pullback. For example, most neocons argue that the current crisis in Iraq is all Obama’s fault for pulling US troops out of the country. Are they “blaming America first” for the mess? No one ever says that. Just like they never explain why the troops were removed from Iraq: the US demanded complete immunity for troops and contractors and the Iraqi government refused.

  Iraq was not a stable country when the US withdrew its troops anyway. As soon as the US stopped paying the Sunnis not to attack the Iraqi government, they started attacking the Iraqi government. Why? Because the US attack on Iraq led to a government that was closely allied to Iran and the Sunnis could not live with that! It was not the US withdrawal from Iraq that created the current instability but the invasion. The same is true with US regime change policy toward Syria. How many Syrians were streaming out of Syria before US support for Islamist rebels there made the country unlivable? Is pointing out this consequence of bad US policy also blaming America first?

  Last year I was asked by another Fox program whether I was not “blaming America” when I criticized the increasingly confrontational US stand toward Russia. Here’s how I put it then:

  I don't blame America. I am America, you are America. I don't blame you. I blame bad policy. I blame the interventionists. I blame the neoconservatives who preach this stuff, who believe in it like a religion — that they have to promote American goodness even if you have to bomb and kill people.

  In short, I don’t blame America; I blame neocons.

  

  

  

  

  

• PBOC Devalues Yuan, Injects More Liquidity As China's Banking Regulator Admits "Bad Loan Situation Is More Severe Than 2008"

  AsiaPac stocks are opening mixed after the US session gains. Perhaps the biggest news of the evening is, as China's bankiong regulator has been meeting with foreign banks to express concerns over lack of risk control around non-performing loans. As CBRC said, rather stunningly honest for a government entity, "the current situation is more severe than the time in 2008 during the financial crisis." With stocks up while commodities (Zinc) limit-down, PBOC injects another CNY50 bn and devalued the Yuan fix for the 2nd day in a row.

  Yesterday was a good day in Chinese stock land… with dozens of ChiNext stocks limit up…

  

   

  While Shanghai Zinc was limit-down, collapsing to 5 year lows…

  

  And Zinc is falling further…

  • *ZINC DROPS 1.5% TO $1,633/MT IN LONDON, LOWEST SINCE 2010

  We wonder what today will bring given that, as Bloomberg reports, China Banking Regulatory Commission has been meeting senior executives at foreign banks since mid-Aug. to express concerns over deteriorating asset quality in China, Hong Kong’s Apple Daily reports, citing unidentified people.

  • CBRC MET FOREIGN BANKS OVER BAD LOANS IN CHINA: APPLY DAILY
  • CBRC said the current situation is more severe than the time in 2008 during the financial crisis: report
  • CBRC urged foreign banks that aren’t managing risk well enough to increase checks: report
  • CBRC officials mentioned in meetings that those banks should control NPL ratio to not more than 2%: report

  

  Margin debt in China rose for the 3rd time in 4 days…

  • *SHANGHAI MARGIN DEBT RISES THIRD TIME OVER PAST FOUR DAYS

  With short-selling levels on the rise.

  China stocks are opening flat…

  • *FTSE CHINA A50 INDEX FUTURES LITTLE CHANGED IN SINGAPORE

  PBOC injected more liquidity…

  • *PBOC TO INJECT 50B YUAN WITH 7-DAY REVERSE REPOS: TRADER

  And weakened the Yuan for the 2nd day in a row…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3721 AGAINST U.S. DOLLAR

  

   

  *  *  *

  Of course, the big news will be Xi Jinping coming to America.

  The Chinese leader will land in Seattle, visit the White House and address the United Nations for the first time. His words will be parsed by economists, activists and politicians seeking answers from the world's second-biggest economy on where it stands on climate change, monetary policy and cyber espionage to name but a few hot-button issues.

  Here is a quick ranking of what Americans are most worried about when it comes to China:

  

  Charts: Bloomberg

  

  

  

  

  

• The Long Con: Democracy & The Illusion Of Consent

  Submitted by Eric Peters via EricPetersAutos.com,

  Democracy is an incredibly successful long con. It works because of the illusion of consent. People actually believe they are “represented.”

  

   

  And so, they accept impositions that would otherwise be intolerable, if imposed on them by a king or a fuhrer or generalissimo.

  But when the “people” have decided… .

  Except of course, they’ve done no such thing. It is all an illusion, a rhetorical sleight-of-hand that deftly hides the reality that it is not the “people” who decide anything but rather a small handful of individuals who wield vast – almost unlimited – power by claiming to act on their behalf.

  Which is a fine-sounding literary device but as a political actuality it is an atrocity.

  Have you ever consented to anything the government does to you? Been offered the free choice to accept – or decline? And not subject to violent repercussions in the event you do decide to decline? What sort of contract is it that you’re never actually been presented with but which you’re presumed to have signed – and which you are bound by whether you’ve signed – or not?

  It is very odd.

  The courts have ruled that by dint of having applied for permission to travel – that is, having applied for a driver’s license – you gave given your implied consent to, well, pretty much anything the state decides to do to you. Even when in flagrant abuse of your alleged rights, as enumerated in the Constitution’s Bill of Rights.

  Yet few, if any of us, have actually consented to this abrogation of our rights.

  We are simply told that we have, since we submitted (under duress) to the necessity of obtaining a driver’s license, so as to be able to travel semi-freely, under certain terms and conditions.

  Like most political language, “consent of the governed” means (in reality) the opposite of its superficial (and generally accepted) meaning. Of a piece with legislation touting “freedom” and “patriotism.” Most of us understand very well what’s coming in that case.

  We need to learn the same about “consent of the governed.”

  That our consent is irrelevant.

  We’ll do as we’re told – or else.

  Essential to the lie of “consent” is the fraud of “representation.” As in “no taxation without representation” (implying that it’s legitimate to take your money since you’ve said it’s ok to do that… except of course you probably never said any such thing). The concept – always left fuzzy, never closely examined – is that we each give proxy power to another person (the “representative”) who then “represents” our interests.

  It’s a preposterous – and pernicious – concept.

  

   

  No one has your proxy power except when explicitly given.

  Have you given it?

  The claim is that by voting, you’ve done exactly that. Which is nonsense, since you have no choice whatsoever to decline to give your proxy. You are presented with a choice of proxies – in the same way that a condemned man in some states is presented with the choice of lethal injection or the electric chair.

  Your feeble right to vote for the candidates of other people’s choosing is the mechanism by which all your sovereign rights as an individual are vitiated.

  “Representation” makes you believe it’s all ok. Makes you accept the unacceptable.

  Your drop of piss vote in the bucket mingles with oceans of other people’s piss-votes. A “representative” is infused with the combined “voices” of all those people and, via some process beyond the ken of mortal man, transmutes their “will” into concrete action. Which action is infused with moral authority because it echoes the vox populi.

  You are “represented.”

  Nonsense.

  The idea that a congressman transmutes the will of thousands of discrete individuals is actually worse than nonsense.

  It is imbecility.

  Well, those who buy into it are imbeciles, at any rate.

  Most people are unaware of the fact that the German Nazis considered themselves the ultimate democrats (little “d”). That Hitler was not a self-aggrandizing tyrant but merely a sort of conduit for the will of the German national community, the volksgemeinschaft. This is not opinion. It is what the Nazis themselves formally touted. “Hitler,” roared Rudolf Hess at one of the infamous Nuremburg partei rallies – “is Germany, just as Germany is Hitler.”

  One and the same.

  Noteworthy also is the verbiage of the Soviet communists, who spoke of the dictatorship of the proletariat. It wasn’t Lenin and Stalin’s dictatorship. Oh no! They were merely doing what the proletariat – the people – desired. Hence also the German Democratic Republic (the former East Germany) and the People’s Republic of China.

  These are examples of democracy in its extreme, distilled form.

  The “proof” of American democracy continues to wax.

  One hundred years ago, we were at what you might call the hard cider, or the beer and wine stage. We are now at the Jack Daniels stage.

  How much longer before we are at the methanol stage?

  It depends on how much longer the long con that we are “represented” – and have given our “consent” – holds up.

  

  

  

  

  

• The Truth About S&P 500 Earnings: No Growth For 7 Quarters, With A Revenue Recession On Top

  With the global economy sliding into recession, the one strawman repeatedly used by straight-to-CNBC pundits to justify some mythical case for US decoupling has been that US corporate profits are “fine.” Here is the truth.

  As the following table from ISI shows, not only is the US now officially in a revenue recession, with every single quarter in 2015 set to post a decline from the previous year, with even the overly optimistic consensus case of a 4% increase in Q1 2016 revenues unable to regain sales last seen in Q3 2014, but S&P500 expected earnings in Q1 2016 of 119, a 6% increase from the previous year, will barely be back to levels seen in Q3 2014. 

  As ISI summarizes: “Expected Earnings for the S&P Show No Growth For 7 Quarters And Revenue Declining.”

  

  And this with nearly $1 trillion in projected stock buybacks for all of 2015 steadily removing S from the EPS calculation.

  All we can add to the above is that if the USD continues its steady ascent, as it did today despite the Fed not hiking, expect ongoing dollar strength and the resulting commodity weakness to depress both revenues and sales even further, until everyone is forced to admit that the S&P500 is already in both a revenue and profit recession.

  

  

  

  

  

• Putin's Plan: Moscow Handles Syria, U.S. Looks After Iraq

  Russia has now confirmed that it is intervening in the Syrian war on the side of the Assad government; and, as Al-Arabiya's Azeem Ibrahim notes, the response of the U.S. betrays its impotent incredulity. Russia is poised to return to the Middle East, from which it was ejected with the collapse of the USSR. The United States seems to be telling Russia to go ahead, because, as Raghida Dergham explains, it is unwilling to engage – though it is not yet ready to fully retreat.

  Authored by Raghida Dergham, originally posted at Al-Arabiya News,

  At the end of this month, New York will be see several initiatives, talks, understandings, and deals come together under two main themes: terrorism and immigration. Both issues in the minds of world leaders are closely linked to Syria and other crises in the Arab world.

  The U.S. President Barack Obama called for a world summit on terrorism, with ISIS first and foremost in his mind.

  And Russian President Vladimir Putin tasked his foreign minister Sergei Lavrov to chair a ministerial session of the U.N. Security Council titled “Maintenance of International Peace and Security: Settlement of Conflicts in the Middle East and North Africa and Countering the Terrorist Threat in the Region.”

  President Putin has effectively declared to the world that Russia intends to fight a war directly against ISIS and similar groups in Syria, while keeping the Syrian regime as a key ally in this war. Russia wants the United States to be a military partner – including of the Syrian regime – in this bid.

  Putin wants to meet with Obama on the sidelines of the 70th session of the General Assembly of the United Nations. Obama is now considering whether the meeting will serve one of the key goals behind the Russian leader’s movements in Syria, namely, diverting attention away from Ukraine. The U.S. president is also considering whether he really wants to be drawn into the Syrian crisis, which he has avoided for years. He might therefore bless Russia’s involvement in the Syrian war against ISIS, as long as Putin does not ask the United States to officially bless the alliance with the Assad regime.

  U.S. ‘doesn’t want Assad to fall’

  It is worth quickly examining what Vitaly Churkin, Russia’s shrewd envoy to the U.N., told the U.S. network CBS about the Russian strategy. He said: “I think this is one thing we share now with the United States, with the U.S. government: They don’t want the Assad government to fall. They don’t want it to fall. They want to fight (ISIS) in a way which is not going to harm the Syrian government.”

  He added: “On the other hand, they don’t want the Syrian government to take advantage of their campaign against [ISIS]. But they don’t want to harm the Syrian government by their action. This is very complex.”

  It is not clear whether what Churkin is saying is based on assumptions or whether it is a fact that the U.S. government does not acknowledge publicly. If this is just a Russian interpretation of U.S. policy, then it is part of its strategy to sell its pitch because it assumes that Washington will not demur. Churkin continues: “To me, it is absolutely clear that… one of the very serious concerns of the American government now is that the Assad regime will fall and [ISIS] will take over Damascus and the United States will be blamed for that.”

  The Russian envoy also said that Russia wants the Assad government to be party in the peace negotiations, and that the United States and all other players “have to work with the government. We are not saying they have to sit at the same table necessarily with Assad, but they are the Syrian government and they need to work with them. They are fighting [ISIS] on the ground.”

  The U.S. ambassador to the United Nations Samantha Power spoke to CNN, criticizing the Russian diplomacy calling for rehabilitating the Assad regime that “gases its people, that barrel bombs its people, that tortures people who it arrests simply for protesting and for claiming their rights – that’s just not going to work.”

  The Syrian president himself may be an obstacle to any U.S.-Russian accords, but an agreement over preserving the regime could be the way out of this impasse. So far, the U.S. position expressed by Barack Obama is that Assad has lost legitimacy and must leave. The U.S. president and his administration omitted this condition many times publicly, but this remains the official position that Obama has not yet explicitly abandoned. On the other hand, and in very clear terms this time, the Russian president has stated that Russian support for the Syrian government will continue politically and increase militarily, being the indispensable ally in the war on terror in Syria.

  Russian diplomacy is going to New York at the end of this month, carrying a comprehensive project for engagement in the Middle East. By contrast, U.S. diplomacy seems reticent and like it is being dragged against its will to discuss crises in the region.

  Common denominator

  This does not mean that the U.S. administration has withdrawn from the Middle East. The results of the visit by Saudi King Salman to Washington is proof of this. However, the distance between engagement and non-withdrawal is important strategically, and Putin’s Russia is resolved to take advantage of the gap to the maximum extent possible.

  The common denominator between the U.S. and Russian priorities today is reducing the Syrian issue to a terrorism issue. Washington has refrained from intervening on Syria through a presidential decision years ago. This non-engagement has practically helped turn the Syrian crisis from a civil uprising to a civil war that has become a magnet for terrorism, with the consent of several players including the Syrian government and Arab, regional, and international governments.

  By contrast, Moscow engaged in Syria directly – together with Iran and Hezbollah – in support of the regime in Damascus. They became parties to the civil war, and helped turn the Syrian issue into an issue of terrorism.

  Today, Moscow and Washington want to defeat ISIS and similar groups in Syria and Iraq. For this reason, they are both carrying the terrorism issue to the United Nations, to mobilize international support.

  The U.S.-led international coalition, which comprises Arab countries, and which has focused on Iraq, does not include Russia and Iran as official members, even though Iran is a secret partner in the war on ISIS in Iraq. This coalition has proven its failure against ISIS, and has failed to factor in the important political elements that are key to success.

  Iran deal

  Washington is responsible for this failure. Indeed, the Obama administration fixated itself on concluding the nuclear deal with Iran, and ignored the requirements for success fearing antagonizing Iran, and even chose to build a secret partnership with Tehran.

  Thus, the Iranian Revolutionary Guards and the commander of the Quds Force Qassem Soleimani were allowed to boast publicly of the secret partnership, losing the United States a lot of credibility that would have helped mobilize the necessary support to defeat ISIS politically and militarily.

  Soleimani has a key link to Russia’s decision to engage on the ground against ISIS and its ilk in Syria. The Russian decision in this direction was made in the wake of Soleimani’s public visit to Moscow, in conjunction with dangerous setbacks for the regime in Damascus that have alarmed Tehran. The Russian-Iranian concern for the fate of the Syrian regime led to a shift in a direction opposite to the one predicted by President Obama, who had claimed Moscow and Tehran were willing to abandon Assad to preserve the regime. Both capitals have instead decided that discussing Assad’s fate is misplaced or premature, and that the developments instead require increasing political and military support for the Assad regime.

  A new phase for Russia

  President Putin’s announcement of this decision and linking it to the war on terrorism ushers in a new phase in the Russian role in Syria. Putin spoke about a regional-international alliance, and is now spoking about an international decision to build a coalition against terrorism. The bottom line is that Russia has decided to fight a war on terrorism in Syria.

  The requirements of the Russian war on terror in Syria, according to the Russian president, include having Moscow in the lead. Putin is practically saying to Obama: You run the war on ISIS in Iraq, and I run the war on ISIS in Syria. This would require Washington to – publicly or tacitly – agree to Russia’s strategy to win that war in partnership with the regime.

  The Russian leadership has decided that Syria is a key guarantor of its interests in the Middle East, and that the Russian-Iranian alliance in Syria is a strategic priority.

  Many considerations are behind this thinking. First, Russia is present on the ground to exercise influence, by turning the port in Tartus to a Russian military base, and the civilian airport in Latakia to a Russian air base.

  Another consideration is the oil and gas reserves off the Syrian coast and its implications for Russian oil and gas interests.

  There is also the consideration related to restoring Russian prestige, after the United States excluded Russia from Iraq and the war on terrorism there, and after NATO “tricked” Russia in Libya.

  Another major consideration for Russia is seeking to prevent Islamists from taking power, as the United States and Britain tried to engineer in Egypt by supporting the Muslim Brotherhood. Russia is seriously worried about Islamist terrorism, and is convinced that its victory in Syria would bring it to Russian soil.

  In order for Russia’s strategy to succeed, Moscow has decided that there should be a political tack focusing on the conflicts of the Middle East, led by Syria. This is what’s behind the diplomatic bid to unify the Syrian opposition, with the real goal being reducing the Syrian National Coalition and preventing it from exclusively representing the Syrian opposition.

  Russia moved to replace the Geneva process with a new one that does away with the fundamental idea in the Geneva I communique, namely, establishing a transitional governing body with executive powers. For this reason, President Putin spoke about Assad’s willingness to share power with the “sound” opposition – as defined by the Russian and Syrian governments.

  Warning Europe against the flow of Syrian refugees, President Putin explicitly linked the issue to terrorism, saying that failure to comply with his proposals, including handing the Syrian issue over to him, would exacerbate the crisis of refugee flocking to the petrified European nations.

  Russia is poised to return to the Middle East, from which it was ejected with the collapse of the USSR. The United States seems to be telling Russia to go ahead, because it is unwilling to engage – though it is not yet ready to fully retreat.

  

  

  

  

  

• "Emerging Markets Are On The Verge Of Liquidation" Top Performing Hedge Fund Manager Warns; "QE4 Is Coming"

  Until recently, John Burbank’s Passport Capital was one of the top 15 performing hedge funds in 2015. Recent events have only led to an even higher YTD P&L making Burbank one of the top performing managers of 2015: the $2.1bn Passport Global fund was up 14.6% at the end of August and the concentrated “special opportunities” fund was up 30.6%. The reason: in recent months Passport placed numerous commodity and emerging market shorts: trades which have generated substantial returns even as the rest of the “hedge” fund peanut gallery blamed either Bridgewater, or – in the case of Bridgewater – blamed the Fed.

  Burbank did not blame anyone, and instead shorted the one company we said in March of 2014 would be the best bet on China’s collapse: Glencore. He has made a killing since, with both GLEN CDS soaring, and its stock price crashing 55% in 2015 alone to all time lows.

  More apropos, having accurately foreseen the current events instead of just levering up on even more beta and praying the BTFDers return and bail out his underwater positions, Burbank’s opinion actually matters as does his outlook on what happens next.

  What he foresees is not pleasant.

  In an interview with the FT,  Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realized.

  “The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets,” he said.

  Thank the Fed for that: it was so obvious that 7 years of ZIRP and QE would lead to epic capital misallocation we have been warning about it year after year, most explicitly in April 2012 when we previewed the surge in buybacks and M&A at the expense of capex spending and actual organic growth. Eventually, when enough capital flooded the entire world, even Saudi Arabia had no choice but to directly engage the US shale sector which, ironically, is the main reason why the US is on the verge of a recession.

  Back to Burbank who warns that “the world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week.” He adds “that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.”

  So with commodity prices dead-cat bouncing in mid 2015 only to tumble anew, alongside the S&P which fell after the Fed decision, are emerging markets, whose MSCI EM index is up 9% since the Black Monday lows, out of the woods?

  Not at all: according to Burbank investors are “not recognising the risks… and Passport was not pulling out of its bearish bets.”

  The dollar rally caused by “asynchronous QE” — the early end of money printing in the US relative to Japan and the eurozone — and the economic fallout from a slowing China guaranteed a financial crisis in emerging markets that would rebound on the US, he said.

  Burbank’s conclusion:

  “All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realise they should be easing and not hiking,” he said. “I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt.“

  But more QE will not only not fix anything, it will only make the EM bubble – currently in its pre-bursting phase – even bigger as it promptly crushes the dollar, which just shows how terrified everyone truly is of just biting the bullet and finally undoing years and decades of central bank-driven capital inefficiencies and the biggest global asset bubble in history. No wonder hedge funders around the globe, both the worthless and the successful ones, are desperate for more Fed generosity.

  Of course, there is what the Fed “should” do, and what it will do. We completely agree that the Fed will ultimately unleash QE4 – we have said it since December 2013 when the Fed first announced the tapering of QE3.

  The only question is with QE4 (and/or NIRP) inevitable, what is the right trade: if the Fed has indeed lost its credibility, more QE4 would be the final nail in the market’s coffin, and lead to a collapse in the dollar and the commencement of helicopter money. To be sure, it may result in a brief spike in stocks, but just like last Thursday, that “briefness” lasted all of 60 minutes. Alternatively, the spike may last, just like in Venezuela – the Caracas stock market has been vertical for years now; sadly the problem is that courtesy of local hyperinflation, there is no economy in which to use the proceeds from selling stocks.

  So with faith in the Fed and fiat about to evaporate, we only wonder: is Burbank buying GLD… or actual gold.

  

  

  

  

  

• The End Of Magical Thinking: Money Cannot Manufacture Resources

  Submitted by Adam Taggart via PeakProsperity.com,

  Author Kurt Cobb writes frequently on energy and the environment and warns that our current economic policy suffers from a fatal degree of magical thinking: sufficient new resources will emerge if the price is high enough.

  As any fourth grader will tell you, a finite system will not yield unlimited resources. But that perspective is not shared by those controlling the printing presses. And so they print and print and print, yet remain flummoxed when supply (and increasingly, demand for that matter) does not increase the way they expect.

  Is this any way to run an economy? Or a finite planet for that matter?

  Of course, a lot of people have been hearing the hype about the growth in production in the United States for crude oil. That has been happening, but it has been happening with very high cost oil. Now the prices are down and the industry is on its back. They are looking for ways to increase the amount of money they can get for that crude oil. One of those would be to sell this light tight oil, which is oversupplied in the United States to foreign refineries. They cannot do it because of the export ban. I am not sure that is going to help them much because the price of oil has gone down so low as compared to what their costs are.

   

  We have already seen a decline in U.S. output. The prognostication that we were going to be energy independent in oil, and that we were going to become the largest provider of oil to the world, I do not think are going to work out. It shows us that high priced oil leads to low priced oil, which also leads to economic slowdown. That is what we are seeing now. That is the equation that you and I wonder how people do not see that these things are connected, and yet they do not.

   

  I think you put your finger on it: people who run our central banks and run our government policy think that money manufactures resources. If we just put enough money out there, it will call forth the resources. There is a little bit of truth to that, because very cheap finance made it possible for us to lift this $100 barrel oil out of the shale formations of North Dakota, Texas, and other places. That is not endless, and the high price puts pressure on the economy. I think this is where we are going to have problems.

   

  We cannot sustain those high prices in the long run. We have structured an economy for cheap energy and that is not what we have. It has resulted in a slowdown that I think is the beginning of that transformation from a high growth economy to a low growth economy. In fact, we probably already began that in 2008. 

  Click the play button below to listen to Chris' interview with Kurt Cobb (47m:42s):

   

  

  

  

  

  

• Secret Cable Reveals US Plan To Overthrow Assad By Exploiting "Extremist Groups"

  Now that Europe’s worsening refugee crisis and Russia’s stepped up support for the regime of Bashar al-Assad have (finally) focused the world’s attention on Syria’s four-year, bloody civil war, inquiring minds want to know: how did it happen that the country, which is now at risk of becoming a failed state, descend into chaos? 

  Of course when we speak of “inquiring minds” we mean those of the general public which, to this point, has remained largely ignorant of the fact that hundreds of thousands of people are dying in a place that shares a border with the country the US supposedly just got done “liberating.” 

  Generally speaking, the line you’ll get from the mainstream media is that Syria is just one more example of a Mid-East country where the populace finally reached its breaking point with the injustices created by the brutal regime of an evil autocrat. The resultant chaos, the narrative continues, created a breeding ground for terror which explains why Raqqa has become the de facto capital for ISIS, the Western media’s boogeyman par excellence. 

  Not to put too fine a point on it – and this won’t surprise anyone who frequents these pages – but that narrative is pure, unadulterated garbage. The real story (again, generally speaking), is that Syria is pivotal for the existing balance of power – and not only the regional balance of power, but the global balance of power as well. The alliance between Bashar al-Assad’s Syria and Moscow, Tehran, and Hezbollah serves as a kind of counterbalance to cooperation among the US, Saudi Arabia, Qatar, and Turkey (among others). Should the Assad regime be allowed to fall and the West allowed to influence the post-regime political outcome, the scales would tip, Russia would lose its naval base at Tartus, and Iran’s access to Hezbollah, not to mention the scope of its regional influence would be severely constrained. Assad’s move to support the Islamic Pipeline while rejecting the Qatar-Turkey pipeline was a manifestation of the situation described above. 

  But even as the world begins gradually to come around to the idea that the US and the West might well have had a role in supporting many of the rebel groups that are currently fighting for control of Syria, the notion that Washington might have intentionally started the Syrian civil war by provoking Sunni extremists (among other tactics) is still seen by many as too horrific a possibility to take seriously. Unfortunately – as a declassified secret US government document obtained by the public interest law firm Judicial Watch (profiled here) suggested earlier this year – it’s highly likely that the US intentionally destabilized the Assad regime in pursuit of Washington’s geopolitical interests. That deliberate destabilization has now led to hundreds of thousands of deaths and untold human suffering. 

  

  As it turns out, there’s still more evidence available to support the notion that Syria’s civil war was engineered by the Pentagon. In his new book, Julian Assange highlights a cable from acting Deputy Chief of Mission in Syria William Roebuck who was stationed in Damascus from 2004-2006. It’s available in full from Wikileaks and below are what we believe to be the most notable excerpts, presented without further comment.

  *  *  *

  Original Classification:SECRET Current Classification:SECRET

  Handling Restrictions– Not Assigned —

  Character Count:14471

  From:Syria Damascus Markings:– Not Assigned —

  To:Department of the Treasury | Israel Tel Aviv | National Security Council | Secretary of State | The League of Arab States | U.S. Mission to European Union (formerly EC) (Brussels) | United Nations (New York) | United States Central Command | White House

  (S) Summary.  The SARG ends 2006 in a much stronger  position domestically and internationally than it did 2005.  While there may be additional bilateral or multilateral  pressure that can impact Syria, the regime is based on a  small clique that is largely immune to such pressure.  However, Bashar Asad’s growing self-confidence )- and  reliance on this small clique — could lead him to make  mistakes and ill-judged policy decisions through trademark  emotional reactions to challenges, providing us with new  opportunities.  For example, Bashar,s reaction to the  prospect of Hariri tribunal and to publicity for Khaddam and  the National Salvation Front borders on the irrational.  Additionally, Bashar,s reported preoccupation with his image  and how he is perceived internationally is a potential liability in his decision making process.  We believe  Bashar,s weaknesses are in how he chooses to react to  looming issues, both perceived and real, such as a the  conflict between economic reform steps (however limited) and entrenched, corrupt forces, the Kurdish question, and the  potential threat to the regime from the increasing presence  of transiting Islamist extremists.  This cable summarizes our  assessment of these vulnerabilities and suggests that there may be actions, statements, and signals that the USG can send  that will improve the likelihood of such opportunities  arising.  These proposals will need to be fleshed out and  converted into real actions and we need to be ready to move  quickly to take advantage of such opportunities.  Many of our  suggestions underline using Public Diplomacy and more  indirect means to send messages that influence the inner circle.   End Summary. 

  (S) The following provides our summary of potential  vulnerabilities and possible means to exploit them: 

  — THE ALLIANCE WITH TEHRAN: Bashar is walking a fine line in his increasingly strong relations with Iran, seeking necessary support while not completely alienating Syria,s  moderate Sunni Arab neighbors by being perceived as aiding Persian and fundamentalist Shia interests.  Bashar’s decision  to not attend the Talabani ) Ahmadinejad summit in Tehran following FM Moallem,s trip to Iraq can be seen as a manifestation of Bashar’s sensitivity to the Arab optic on  his Iranian alliance. 

  — Possible action: 

  — PLAY ON SUNNI FEARS OF IRANIAN INFLUENCE:  There are fears in Syria that the Iranians are active in both Shia proselytizing and conversion of, mostly poor, Sunnis.  Though often exaggerated, such fears reflect an element of the Sunni community in Syria that is increasingly upset by and focused on the spread of Iranian influence in their country through activities ranging from mosque construction to business. Both the local Egyptian and Saudi missions here, (as well as prominent Syrian Sunni religious leaders), are giving increasing attention to the matter and we should coordinate more closely with their governments on ways to better publicize and focus regional attention on the issue. 

  — Vulnerability: 

  — THE INNER CIRCLE:  At the end of the day, the regime is  dominated by the Asad family and to a lesser degree by Bashar Asad,s maternal family, the Makhlufs, with many family  members believe to be increasingly corrupt. The family, and hangers on, as well as the larger Alawite sect, are not immune to feuds and anti-regime conspiracies, as was evident last year when intimates of various regime pillars (including the Makhloufs) approached us about post-Bashar possibilities. Corruption is a great divider and Bashar’s inner circle is subject to the usual feuds and squabbles related to graft and corruption.  For example, it is generally known that Maher Asad is particularly corrupt and incorrigible.  He has no scruples in his feuds with family members or others.  There is also tremendous fear in the Alawite community about retribution if the Sunni majority ever regains power. 

  — Possible Action: 

  — ADDITIONAL DESIGNATIONS: Targeted sanctions against regime members and their intimates are generally welcomed by most elements of Syrian society.  But the way designations are  applied must exploit fissures and render the inner circle weaker rather than drive its members closer together.  The designation of Shawkat caused him some personal irritation and was the subject of considerable discussion in the business community here. While the public reaction to corruption tends to be muted, continued reminders of corruption in the inner circle have resonance.  We should look for ways to remind the public of our previous designations. 

  — Vulnerability: 

  — THE KURDS:  The most organized and daring political  opposition and civil society groups are among the ethnic  minority Kurds, concentrated in Syria,s northeast, as well  as in communities in Damascus and Aleppo.  This group has  been willing to protest violently in its home territory when  others would dare not.  There are few threats that loom  larger in Bashar,s mind than unrest with the Kurds.  In what is a rare occurrence, our DATT was convoked by Syrian Military Intelligence in May of 2006 to protest what the Syrians believed were US efforts to provide military training and equipment to the Kurds in Syria. 

  — Possible Action: 

  — HIGHLIGHT KURDISH COMPLAINTS: Highlighting Kurdish  complaints in public statements, including publicizing human rights abuses will exacerbate regime,s concerns about the Kurdish population.  Focus on economic hardship in Kurdish areas and the SARG,s long-standing refusal to offer citizenship to some 200,000 stateless Kurds.  This issue would need to be handled carefully, since giving the wrong kind of prominence to Kurdish issues in Syria could be a liability for our efforts at uniting the opposition, given  Syrian (mostly Arab) civil society,s skepticism of Kurdish objectives. 

  — Vulnerability: 

  — Extremist elements increasingly use Syria as a base, while  the SARG has taken some actions against groups stating links to Al-Qaeda.  With the killing of the al-Qaida leader on the border with Lebanon in early December and the increasing terrorist attacks inside Syria culminating in the September 12 attack against the US embassy, the SARG,s policies in Iraq and support for terrorists elsewhere as well can be seen to be coming home to roost. 

  — Possible Actions: 

  — Publicize presence of transiting (or externally focused)  extremist groups in Syria, not limited to mention of Hamas and PIJ.  Publicize Syrian efforts against extremist groups in a way that suggests weakness, signs of instability, and uncontrolled blowback.  The SARG,s argument (usually used after terror attacks in Syria) that it too is a victim of terrorism should be used against it to give greater prominence to increasing signs of instability within Syria. 

  ROEBUCK 

  

  

  

  

  

• 22 Sep – Fed's Bullard: I Would Have Dissented On Rate Hold

  EMOTION MOVING MARKETS NOW: 29/100 FEAR

  PREVIOUS CLOSE: 16/100 EXTREME FEAR

  ONE WEEK AGO: 13/100 EXTREME FEAR

  ONE MONTH AGO: 11/100 EXTREME FEAR

  ONE YEAR AGO: 41/100 FEAR

  Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.25% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 20.14. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating fear.

   

  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)

   

  MEME OF THE DAY – I JUST LOVE MY NEW SWEATER….

   

  UNUSUAL ACTIVITY

  PYPL SEP WEEKLY4 33 CALLS @$1.10

  AMD JAN 3 CALL Activity by offer .. 28754 @$.10 block

  TEVA NOV 67.5 CALL Activity 4500+ @$1.25-1.30

  MHFI President,SPCIQ/SNL Financial P    11,000  A  $ 94.7807

  JGW  .. sc 13d fILED BY TRISHIELD CAPITAL .. 17.4% STAKE

  HOS .. SC13G .. Anchor Bolt Capital .. 6.4%

  More Unusual Activity…

  HEADLINES

   

  Fed’s Lockhart favours 2015 US rate rise

  Fed’s Bullard: I Would Have Dissented On Rate Hold

  US Existing Home Sales Aug: 5.31m (Est 5.50m; Rev Prev 5.58m)

  ECB’s Nowotny: Interest rates to stay low as long as growth is low

  ECB’s Praet: Environment difficult, not out of the woods yet

  ECB’s Linde: QE will continue until inflation targets have been achieved

  EU expects Greek review to happen this Autumn Following Tsipras’ Victory

  BoE’s Cunliffe: Interest Rates Likely To Rise

  Volkswagen Shares Tumble Following Emissions Allegations

  Zurich Insurance Ends Takeover Talks With RSA

  Apple to finalize engineering on first electric car by 2019: sources

  Lennar Tops Expectations as Housing Market Continues to Improve

  Mexico Keeps Rate at Record Low 3% After Fed Waits to Increase

   

  GOVERNMENTS/CENTRAL BANKS

  Fed Lockhart favours 2015 US rate rise –FT

  Fed Bullard: I Would Have Dissented On Rate Hold –CNBC

  ECB Nowotny: Interest rates to stay low as long as growth is low –RTRS

  ECB Praet: Environment difficult, not out of the woods yet –ForexLive

  ECB Linde: ECB programme will continue until inflation targets have been achieved –RTRS

  BoE Cunliffe: Interest Rates Likely To Rise –Chronicle

  Bundesbank: Economic Momentum In Germany Continued Over The Summer –RTRS

  BoC’s Poloz: Lower CAD is cushioning the damage from oil price declines –Globe & Mail

  Tsipras win tests Greece bailout monitors –FT

  EU expects Greek review to happen this Autumn –ForexLive

  Syriza Party Source: Greek Debt Relief Talks At Top Of Tsipras Agenda

  Fitch: Greek Election Broadly Credit Neutral, Risks Still High

  Spanish main parties hold lead ahead of Podemos: Poll –RTRS

  FIXED INCOME

  US bond prices fall on stock gains, Fed officials’ remarks –RTRS

  Greek yields fall after Syriza win; Spain, Portugal underperform –Rtrs

  ECB PSPP: EUR 326.718bln, +EUR 12.249bln (Prev +EUR 13.022bln To EUR 314.469bln)

  ECB CBPP: EUR 118.262bln, +EUR 2.155blnn (Prev +EUR 3.892bln to EUR 116.107bln)

  ECB ABSPP: EUR 12.006bln +EUR 146mln (Prev +EUR 366mln to EUR 11.86bln)

  FX

  USD: Dollar climbs as Fed still seen as first central bank to hike rates –MktWatch

  EUR: EUR/USD hovers below 1.1200 –FXStreet

  MXN: USD/MXN rises to 6-day high as Banxico leaves rates unchanged –FXStreet

  HKMA back in selling HKD 2.3bln to maintain trading band –ForexLive

  ENERGY/COMMODITIES

  US crude futures surge 4%, amid signals of reduced drilling activity –Investing.com

  Oil Speculators Most Bullish on U.S. Crude Price in Two Months –BBG

  Gold retreats from 3-week high as dollar, equities rise –RTRS

  Copper recovers from two-week low, but China doubts persist –RTRS

  EQUITIES

  US Stocks gain, led by financial shares; drugmakers drop –Yahoo

  Biotech selloff dents Wall Street rally –MktWatch

  FTSE 100 ends flat as miners weigh –Proactive Investors

  VW, RSA hammered as Europe ends mostly higher –CNBC

  EARNINGS: Lennar Tops Expectations as Housing Market Continues to Improve –WSJ

  M&A: Zurich Insurance Ends Takeover Talks With RSA –WSJ

  M&A: Dialog Semiconductor to buy US peer Atmel for $4.6bln –RTRS

  M&A: Deutsche Wohnen offers to buy peer LEG Immobilien in $5.2bln deal –RTRS

  AUTOS: Volkswagen Shares Tumble Following Emissions Allegations –WSJ

  AUTOS: Fitch Says Deepening Emission Test Crisis Could Pressure VW Ratings

  TECH: Apple to finalize engineering on its first electric car by 2019, sources say –WSJ

  TECH: Apple cleaning up iOS App Store after first major attack –RTRS

  INDUSTRIALS: Caterpillar Rolling 3-Month Sales To Aug -11% Globally –247 Wall St

  ENERGY: Denbury Resources Suspends Dividend –WSJ

  ENERGY: UK competition watchdog extends energy market probe by six months –RTRS

  CONS GOODS: Tesco Close To Pulling GBP 700mln Data Unit Sale –Sky News

  EMERGING MARKETS

  China Premier Li Says There Is No Basis For More CNY Depreciation –ForexLive

  Britain, China eye stock connect, nuclear and rail deals –RTRS

   

  Mexico Keeps Rate at Record Low 3% After Fed Waits to Increase –BBG

  

  

  

  

  

• Soros, Icahn And Major New Players Rushing Into Gold: "Things Are In The Works As We Speak"

  Submitted by Mac Slavo via SHTFPlan.com,

  The price of gold and silver is set to explode according to one of the most well known CEO’s in the precious metals mining space.

  Keith Neumeyer, the CEO of one of the world’s lowest-cost primary silver producers, says that the negative headlines surrounding history’s most trusted monetary instruments will soon give way and the smart money, including the likes of George Soros and Carl Icahn, is taking massive positions ahead of the breakout.

  Neumeyer, who has created two billion-dollar companies and recently founded the mineral bank investment firm First Mining Finance, argues that the fundamentals are simply too great to ignore.

  It’s really what you pay for stuff that creates value. If you’re buying stuff at the top of the market you’re destroying value. You never really know when the exact top of the market is and you never really know when the bottom of the market is. But, I know we’re around the bottom or are close to the bottom… But I don’t really care because I’m a long-term fundamental investor and I know that we can make a lot of money buying assets at these prices that we’re paying today.

   

  …

   

  I do believe that markets ultimately prevail. I do believe that supply and demand will ultimately prevail. I’m confident that we will see that occur…

   

  The fact there are some very substantial new players coming into the sector and taking positions in gold and silver… I think that’s showing that things will change and I think things are in the works as we speak.

  Neumeyer recently sent an open letter to the Commodity Futures Trading Commission slamming the rampant manipulation of precious metals paper markets, going so far as to call on global producers to withhold silver deliveries in an effort to bring balance to markets.

  As he notes in his interview, that prices of silver are currently trading at around $15 per ounce is counter-intuitive given that demand today is significantly more than it was at the height of silver’s rise to nearly $50 in recent years. Moreover, the price at which mining companies are able to acquire precious metals assets in the ground has collapsed significantly from just a few years ago:

  Generally speaking the average price that a mining company would pay for gold ounces that are drilled in the ground is about $50 an ounce. That number did go over $100 and there were some transactions that went through in the 2011 time frame that were much higher.

   

  But I am just using generally speaking over the last thirty years… $50 is the normal one that we use as mining companies in the industry… so if we’re buying ounces today at $10 an ounce… and it’s actually lower that that… we’re paying $7 to $9 an ounce… that’s five times less than a normal market.

   

  …

   

  The silver market is extremely tight. Unfortunately you don’t see it in the price.

   

  When silver was $45-$50 per ounce the demand was a little bit less than it is today. That’s a surprising statement. The demand today at $15 silver is greater than it was at that $45-$50 silver.

   

  It goes to my earlier point about headline news and the hate on the mining sector, the hate on resources, the hate on metals… That’s what is causing prices to be where they are today.

   

  I do believe that the street will wise up to that supply and demand fundamentals story and see that silver is actually a strategic metal.

  The question, of course, is when? When will prices of silver and gold finally respond to widespread global demand?

  While we can’t time the markets, if we take Neumeyer’s advice it doesn’t really matter. The long-term fundamentals are strong and the manipulation is clearly evident.

  I think the supply/demand fundamentals for silver are the best of any metal. Of course gold is interesting because of the money printing that’s going on by governments. That’s why I am very much focused with First Mining on buying gold assets.

   

  I think gold is going to start moving in the next six to eighteen months and I think gold will be driving the rest of the metals much higher.

   

  I do believe that silver will outperform gold. The ratio currently is 75-to-1. I wouldn’t be at all surprised to see the ratio go down to 20-to-1.

   

  …It’s not that inconceivable and that’s going to put silver in triple-digit categories.

  The reality is that silver paper markets trade about one billion ounces daily. The entire yearly production of silver is about 800 million ounces. At some point that disconnect will be revealed for the sham it really is.

  When that day comes we can expect gold and silver to rise precipitously as mainstream financial pundits look on with bewilderment.

  

  

  

  

  

• British General Threatens Military Coup If Corbyn Elected

  Late last week we brought you a collection of vivid images from a military coup in the West African nation of Burkina Faso where forces aligned with former President Blaise Compaoré arrested the acting President and Prime Minister ahead of democratic elections planned for October. 

  To be sure, most observers would argue that the idea of military coups like the one described above occurring with any sort of regularity in the context of the developed world is far-fetched at best, but a growing disaffection with what many see as endemic corruption and ineptitude has not only served to catapult two dark horse presidential candidates to the top of the polls in the US but apparently has some Americans convinced that a military takeover might be preferable to the current system of governance as the following poll (which admittedly suffers from selection bias) from YouGov shows:

  

  Well, don’t look now but the ascension of Jeremy Corbyn to the head of Britain’s Labour party has led at least one senior serving general to predict that a Corbyn government would face the very real possibility of a military “mutiny”. Here’s more from The Independent:

  The unnamed general said members of the armed forces would begin directly and publicly challenging the labour leader if he tried to scrap Trident, pull out of Nato or announce “any plans to emasculate and shrink the size of the armed forces.”

   

  He told the Sunday Times: “The Army just wouldn’t stand for it. The general staff would not allow a prime minister to jeopardise the security of this country and I think people would use whatever means possible, fair or foul to prevent that. You can’t put a maverick in charge of a country’s security.

   

  “There would be mass resignations at all levels and you would face the very real prospect of an event which would effectively be a mutiny.”

   

  The general, who served in Northern Ireland during the Troubles, said he and many soldiers were sickened by Mr Corbyn’s refusal to condemn the IRA, which killed 730 troops and injured 7,000 more during the conflict.

   

  His shadow chancellor, John McDonnell, was forced to apologise when it was revealed he had called for IRA members, including hunger striker Bobby Sands, to be honoured by the British government.

   

  The general said: “Many soldiers are disgusted by the comments of Corbyn and John McDonnell [about] the IRA — men who have not only murdered British soldiers but also hundreds of members of their own community.”

  Meanwhile, the Ministry of Defense is not happy, and neither, apparently, are Corbyn’s political opponents who seemingly would prefer to live with a Corbyn government than see Britain relegated to the status of a mid-20th century South American banana republic. Here’s The Independent again:

  “You can’t have serving officers effectively threatening a coup against an elected government,” they said. “This general seems to have forgotten that we live in a democracy.” A Ministry of Defence source said it was unacceptable for a serving officer to make political comments about a potential “future government”.

   

  Even some Conservatives expressed disquiet. The right-wing Tory MEP Daniel Hannan described the general as an “idiot”. “We’re not Bolivia for God’s sake,” he said. 

  Of course the thing about military coups is that they don’t, by definition, depend upon whether politicians think they are “idiotic”, which is why, in a world where polls in developed markets seem to suggest that voters’ sentiments are beginning to shift towards the far ends of the political spectrum (see Greece, Spain, the US, Britain, and Portugal for instance), one certainly wonders what might happen if, in a desperate attempt to bring about real “change”, voters make a “mistake” that the army decides needs be corrected outside of the ballot box…

  

  

  

  

  

• Bonds Baumgartner'd As Bullard Bounce Bruised By Hillary Bursting Biotech Bubble

  Stocks love the smell of Bullard in the morning…

   

  And then Hillary struck… the pretty Biotechs

   

  China opened weaker but was rescued…

  

   

  But US Futures show the moves better than cash today… As Bullard's chatter (because FF futures didn't budge) talked stocks up before Hillary spoiled the party…

  

   

  Which left cash indices swinging around…Small Caps closed red on the day as Nasdaq was rescued from red…

  

   

  NOTE – S&P 500 closed exactly where it opened… (and only Dow and Trannies closed higher from the open)

  

   

  Post-FOMC, Gold and The Long Bond remain bid, stocks lower…

  

   

  Some context within Dow Futures suggests this dip may not be over…

  

   

  As Hillary crushed Biotech hopes and dreams…

  

   

  This was The Biotech ETF's biggest plunge since April 2014 (testing the 200DMA – $74.47)…

  

   

  The other stock story was AAPL (and TSLA) as iCar chatter picked up (for 2019)…

  

   

  Late in the day, VIX was smashed to the lows of the day… but just look at the lack of excitment in stocks…

  

   

  Treasury yields were smashed higher… as volatility remains extreme

  

   

  Credit markets did not get the message…

  

   

  And remain in deep red warning territory…

  

   

  Bonds & Stocks decoupled with USDJPY running the show…

  

   

  The US Dollar was well bid today from the open in Europe to the close in Europe (sold during Asia and flat after Europe closed)…

  

   

  Gold slipped modestly on the day (notably less than the USD would imply) with Silver and Copper flat…

  

   

  As Crude erupted again (supposedly on OPEC comments of $80 oil by 2020)…

  

   

  And Texas' other famous produce is tumbling…

  

   

  Charts: Bloomberg

  Bonus Chart: Is Hillary just following Bill's lead?

  HillaryCare 2.0? There is family history w/ biotech/pharma industry $XBI $IBB $BTK $DRG $XPH $PJP $SPY pic.twitter.com/BNsGZipVlh

  — Dana Lyons (@JLyonsFundMgmt) September 21, 2015

  

  

  

  

• Destroying Dimon's Delusionary View Of Economic Realities

  Submitted by Lance Roberts via STA Wealth Management,

  Over the weekend, I read an interesting article by Lucinda Shen at Business Insider discussing a recent interview between JPMorgan's CEO, Jamie Dimon, and NBC's Chuck Todd. According to Dimon:

  "Amerca has the best hand ever dealt right now."

  That is a pretty bold statement overall, but he does back it up with some statements of fact. However, for those "facts" to support such a sweeping statement of "greatness," they must be put into some context of previous economic cycles. Therefore, let's take a look at his points in a bit more depth.

  "The U.S. economy has been growing at 2-2.5% for six or seven years, while that's not great, it's quite good."

  The problem is, as shown in the long-term chart of economic growth below, it is the lowest average rate of economic growth in history. 

  

  Importantly, notice that since 1980, when the primary shift from a manufacturing to a service-based economy began, economic growth rates have been on the decline. 

  While Mr. Dimon may suggest that such a low economic growth rate is "good enough," it is not strong enough to foster higher rates or wage growth or economic prosperity for roughly 80% of American's. This was shown in the most recent Federal Reserve study on consumer finances. 

  Since 2007, the media value of financial assets for families with holdings has DECLINED with the exception of those in the top decile that includes "some folks" like Jamie Dimon.

  

  Median before-tax incomes have also fallen from nearly $52,000 annually to roughly $47,000 currently.

  

  And, most importantly, families that own equity in a business (small businesses generate the bulk of all job creation) has plunged.

  

  This last point is the most critical as it relates to Jamie Dimon's comments regarding employment:

  "We've added 10 million jobs since the 'Great Recession.'"

  While that statement is true, it is worth noting that there is a huge difference between "quantity" and "quality." There is no arguing that employment in the U.S. has grown since the end of the "financial crisis," however the jobs created have been primarily located at the lower end of the wage scale. We know this simply by looking at average wage growth for the 80% of population that are not "Supervisors."

  

  Furthermore, while "creating 10-million jobs" since the end of the recession sounds like a strong accomplishment it was not sufficient enough to absorb the increase in the population. In other words, for every job created there are more individuals actually "needing" a job.

  

  With roughly 94-million individuals not counted as part of the "official labor force," the downward pressure on wage growth due to the increasing demand for available jobs remains a pervasive force. Of course, since individuals must produce first in order to consume, the expectations for stronger future growth rates are likely to be disappointed in an economy which is almost 70% based on consumption.  

  America Has Been Better

  Jamie Dimon then goes on to support his thesis of "American exceptionalism" by stating:

  "Make a list of everything important, rule of law, low corruption, unbelievable innovation, entrepreneurship … the deepest capital markets — I'm not talking about banks. I'm talking about venture capital, private equity, companies, individuals, the best science, technology, engineering, math the world has. In fact, we train 40% of them [to] go back overseas."

  As I have stated many times on daily radio broadcast, the "rule of law" and "low corruption" are two of the most important determinants of a country's economic prosperity. If businesses do not have faith in a fair and equitable backdrop in which to conduct business, they conduct business elsewhere. This is why 3rd world countries that are rife with corruption and ruled by dictators fail to succeed economically.

  The problem is that America has slipped in these crucial ranks in recent years as noted by the most recently available data America ranks:

  • 19th in National Satisfaction
  • 14th in Education
  • 3rd in Global Competitiveness
  • 46th in Freedom of the Press
  • 26th in Child Well-being
  • 24th in Literacy
  • 19th in Perceived Honesty
  • 24th in Freedom from Corruption
  • 10th in Economic Freedom
  • 125th for GDP Growth per Capita
  • 12th in Entrepreneurship

  But for Jamie Dimon the U.S. does rank #1 in the number of "super-rich," an elite club of which he is a member.

  Of course, for the banks, Wall Street, private equity funds and all variations of capital markets, it has been an "economic nirvana." The massive infusions of capital by the Federal Reserve have flooded the financial system driving asset prices higher and forcing a misallocation of capital into increasingly risky assets. While the U.S. may indeed be "number one" for financial engineering in all forms, it is rooted in a deeply artificial foundation that will eventually disintegrate into the next financial crisis.

  But while financial engineering and venture capital may be juicing the profitability and wealth of a vastly small number of the total population, it is not driving the entrepreneurship needed to spark real economic growth. As noted by Gallup:

  "The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.…and this is our single most serious economic problem…for the first time in 35 years, American business deaths now outnumber business births.

   

  Let's run some numbers. You will often hear from otherwise credible sources that there are 26 million businesses in America. This is misleading; 20 million of these reported 'businesses' are inactive companies that have no sales, profits, customers or workers. The only number that is useful and instructive is the number of current operating businesses with one or more employees.

   

  There are only 6 million businesses in the United States with one or more employees. Of those, 3.8 million have four or fewer employees.

   

  Next, there are about a million companies with five to nine employees, 600,000 businesses with 10 to 19 employees, and 500,000 companies with 20 to 99 employees. There are 90,000 businesses with 100 to 499 employees. And there are just 18,000 with 500 employees or more, and that figure includes about a thousand companies with 10,000 employees or more. Altogether, that is America, Inc."

  As you can see, almost 80% of all businesses have fewer than 10-employees. This is why economic growth has failed to spark as financial engineering, and monetary interventions, have had little or no impact on the vast majority of American businesses. However, tighter lending standards, increased healthcare costs, increased regulations and higher taxes DO HAVE a large impact on the profitability and sustainability of America, Inc. Therefore, it is not surprising that entrepreneurship and business equity ownership remain on the decline.

  

  Furthermore, if this is indeed the case, then the BLS is likely overstating the very job growth that Mr. Dimon is pointing to as evidence of American exceptionalism. 

  Do not misunderstand me. I believe that America is the greatest country in the world. I have lived and worked in numerous countries during my life. and I will always call America my home.

  For the top 20% of the population that have money actually invested, or directly benefit from surging asset prices like Mr. Dimon, life is great. However, for the vast majority of American's, the job competition is high, wages growth is stagnant and making "ends meet" is a daily challenge. 

  While Mr. Dimon's view of America is certainly uplifting, it is a bit delusional. But of course, give any person a billion dollars and they will likely become just as detached from economic realities. 

  As Jim Clifton, CEO of Gallup, sums up:

  "The more we execute on our leadership's erroneous belief in innovation, the more our engine stalls out — and the more people rightly worry about economic issues.

   

  Because we have misdiagnosed the cause and effect of economic growth, we have misdiagnosed the cause and effect of job creation. To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on the almighty entrepreneurs and business builders."

  Does America have "greatest hand ever dealt." The data certainly doesn't suggest such. However, that can change. We just have to stop hoping that we can magically cure a debt problem by adding more debt and then shuffling it between Central Banks.

   

  

  

  

  

  

• The "Economissed" Track Record Revisited: Last Month, 82% Of "Experts" Expected A September Fed Hike

  Last month, when economists were still banging their heads against the wall trying to determine if the turmoil unfolding in China’s equity markets would play a role in the Fed’s decision making come September 16/17, we took a look at how forecasters have fared when it comes to accurately predicting the timing of “liftoff.” 

  By way of introduction, we said the following: 

  Economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course. The economist’s job description looks something like this: make predictions that are almost never right and then make up any reason you want to explain away the fact that you were wrong. These explanations run the gamut from intentional obfuscation via opaque statistical tinkering (“residual seasonality”) to comically absurd attempts to turn common sense into an excuse for poor outcomes (“snow in the winter”). 

  Economists’ collective inability to accurately forecast economic outcomes is exacerbated when they try to predict what other economists think about said economic outcomes or, as we put it previously, “when ‘forecasters’ are surveyed on the timing of a Fed hike (or cut) what you get is one group of economists trying to guess at what another group of economists mistakenly thinks about the direction of the economy. We might call this ‘stupidity squared.’”

  Now that the Fed has officially admitted that “data dependency” is at least to some extent a myth, meaning the market is, as Deutsche Bank amusingly put it over the weekend, “now observing itself from another angle as an observer of the observer of the observers,” it’s worth taking another look at the following graph from WSJ:

  

  Note that in the August survey (so just one month out) around 82% of economists were sure that “liftoff” would come at the September meeting. 

  We close with the following chart from The New York Times which largely speaks for itself:

  

  

  

  

  

  

• What The Charts Say: BofA's Three Most Bullish And Bearish Stock Charts

  Earlier today, BofA chief technician Stephen Suttmeier (who has so far done a far more admirable job of reading the chartist tea leaves than his predecessors, Stolper 2.0 MacNeil Curry who quietly left the bank) pounded the table for the second day in a row why all rallies should be sold.

  Looking at the S&P chart, Suttmeier said “the daily NYSE McClellan Oscillator got more overbought last week than it was at the highs in July. In our view, this suggests “dislocation” rather than “capitulation” and we continue to see the risk of retest/undercut of the lows.”

  

   

  Perhaps he is right (the last thing we need is another contra-fade indicator to replace Stolper 2.0: we already have Gartman) but what about those who avoid indices and would rather trade single names?

  BofA has some ideas there too.

  Looking entirely at the charts (so no fundamentals at all here, but in a market where the only things that matter is what Goldman tells the Fed to say, and when Virtu’s HFT algos launch a momentum ignition program that is probably not that bad) Suttmeier highlights the charts of three stocks “that have improved and show potential for upside breakouts in an uncertain market: NLSN, PCLN, and CRM.”

  Nielson Holdings PLC (NLSN)

  NLSN builds a bullish triangle base from July 2014 and with recent relative breakouts vs. the S&P 500, the stock has begun to show leadership. The relative breakouts are a potential leading indicator for NLSN. A sustained move above the $49 area is the technical catalyst that completes the base and favor upside to $58. The chart structure remains bullish while above $44.00-42.80.

  

  Priceline (PCLN)

  PCLN is building a bullish head and shoulders continuation pattern and has begun to emerge as leadership vs. the S&P 500. A sustained push above $1375-1395 is the technical catalyst that completes the head and shoulders and favors a stronger rally toward $1750-1775. Holding above 1174-1103 maintains the bullish setup for PCLN.

  

  Salesforce.com (CRM)

  CRM is breaking out relative to the S&P 500 to show leadership in an uncertain market. The absolute price pattern is a consolidation within an uptrend and we think that CRM is set up for a breakout and upside into the $80-85 area. Holding $70-66 keeps the potential in place for an upside breakout above $73.00-74.50 that would confirm the bullish pattern and upside potential into the low $80s.

  

  * * *

  Not feeling the bullish vibe? Then here are three stocks which BofA believes have bearish setups:

  “Below we highlight the charts of three BofAML Underperform-rated stocks that have bearish setups with deeper downside risk: GPS, SNDK, and URI. The Gap (GPS)”

  The GAP(GPS)

  GPS shows absolute and relative weakness. The 2-year top remains in place with risk below nearby support at $30 toward the $25-23 area. The pattern remains firmly bearish with the top breakdown intact while below the $33-36 area.

  

  SanDisk (SNDK)

  SNDK stalled at the falling 50-day moving average and downtrend line from late May. While below the $54-57 area, the downtrend remains intact and the risk for SNDK is lower with the August low at $44.28 and projected channel support near $40-38.

  

  United Rentals (URI)

  URI is breaking down within an absolute and relative downtrend vs. the S&P 500. The stock stalled near the falling 50-day moving average and is completing a potential bear flag that favors a deeper decline with the August low/falling near $57-55 and the pattern projection near $44-43. Holding below the $74.92-76.84 downside gap and the big breakdown point near $81 is keeping the bears in control on URI.

  

  * * *

  It goes without saying that all of the above trades are the functional equivalent of playing roulette in a rigged casino (a casino where the HFTs win 100% of the time). Which is why the best “strategy” may be a test: a pair trade going long the “longs” and short the “shorts” – if it is profitable, great. If not, then we may have a potential Stolper 3.0 on our horizon.

  

  

  

  

• Mandatory Breathalyzers Could Soon Be In Every Car If Feds Have Their Way

  Submitted by John Vibes via TheAntiMedia.org,

  The National Highway Traffic Safety Administration (NHTSA) and the Alliance of Automobile Manufacturers is currently working on a plan to put alcohol detection systems in every vehicle. The plan, called Driver Alcohol Detection System for Safety (DADSS), is still in its early stages, and they have not yet decided exactly how it will be implemented.

  Some have suggested a system similar to Interlock, the breath system that people are required to install in their cars after they get a DUI. The device prevents the vehicle from starting unless the driver is able to breathe into the device to prove  they are not under the influence of alcohol. However, less complicated equipment is being devised, like sensors that test the alcohol level in the breath of the driver as they sit in the driver’s seat or a touch system that would detect alcohol levels through the skin.

  This technology will not just be used for DUI cases, though. The NHTSA is actually hoping to implement this in every vehicle on the road. As it wrote in one of its recent reports:

  “While government regulations play an important role in ensuring vehicle safety, voluntary approaches to the design and implementation of vehicle safety systems are increasing in importance as vehicle manufacturers deploy safety systems well in advance of, and even in the absence of, government regulations requiring them. This paper provides an overview of regulatory and non-regulatory approaches to vehicle technology development and deployment, and will describe a new, innovative public/private partnership underway to develop an in-vehicle alcohol detection system.”

  The report went on to indicate that these devices would be mandatory:

  “In recognition that many alcohol-impaired drivers have not been convicted of DWI, an effort is underway to develop advanced invehicle technologies that could be fitted in vehicles of all drivers to measure driver blood alcohol concentration non-invasively. The Automotive Coalition for Traffic Safety (ACTS, a group funded by vehicle manufacturers) and the National Highway Traffic Safety Administration (NHTSA) have commenced a 5- year cooperative agreement entitled Driver Alcohol Detection System for Safety (DADSS) to explore the feasibility of, and the public policy challenges associated with, widespread use of invehicle alcohol detection technology to prevent alcohol-impaired driving.”

  They are calling this technology “non-invasive” but it tests the content of your blood every time you get into your vehicle, which by its very nature is extremely invasive.

  As it stands right now, the way  the state deals with drunk driving is tyrannical and infringes upon everyone’s rights – even people like myself, who hardly ever drink. Economist Jeffrey Tucker wrote an article on this subject and discussed the problems with the status quo while offering some solutions, as well. In his article, he said:

  “Laws against drunk driving have vastly expanded police power and done nothing to stop the practice. The best prevention against unsafe driving from drinking has been provided privately: friends, services offered by bars and restaurants, community interest groups, etc. This is the humane and rational way societies deal with social risks. The police have only messed up this process by adding a coercive element that targets liberty rather than crime.

   

  And we can see where this is heading. Texting is now illegal in most places. So is talking on the phone. Maybe talking itself should be illegal. Some communities are talking about banning eating. All of this is a distraction from the real issue.”

  As Radley Balko has said:

  “If our ultimate goals are to reduce driver impairment and maximize highway safety, we should be punishing reckless driving. It shouldn’t matter if it’s caused by alcohol, sleep deprivation, prescription medication, text messaging, or road rage. If lawmakers want to stick it to dangerous drivers who threaten everyone else on the road, they can dial up the civil and criminal liability for reckless driving, especially in cases that result in injury or property damage.

   

  Doing away with the specific charge of drunk driving sounds radical at first blush, but it would put the focus back on impairment, where it belongs. It might repair some of the civil-liberties damage done by the invasive powers the government says it needs to catch and convict drunk drivers. If the offense were reckless driving rather than drunk driving, for example, repeated swerving over the median line would be enough to justify the charge. There would be no need for a cop to jam a needle in your arm alongside a busy highway.

   

  Scrapping the DWI offense in favor of better enforcement of reckless driving laws would also bring some logical consistency to our laws, which treat a driver with a BAC of 0.08 much more harshly than, say, a driver distracted by his kids or a cell phone call, despite similar levels of impairment. The punishable act should be violating road rules or causing an accident, not the factors that led to those offenses. Singling out alcohol impairment for extra punishment isn’t about making the roads safer. It’s about a lingering hostility toward demon rum.”

  There is no doubt that drunk driving should be discouraged and that solutions to prevent people from driving drunk should be explored. However, it is entirely possible to do this without violating anyone’s rights in the process.

  

  

  

  

  

• Kremlin Calls For "Action" After Russian Embassy In Syria Hit By Mortar Fire

  On Sunday we highlighted comments from Secretary of State John Kerry which seemed to indicate that Washington’s strategy is Syria may have officially unraveled. Speaking in London on Saturday, Kerry said the following: 

  “For the last year and a half we have said Assad has to go, but how long and what the modality is …that’s a decision that has to be made in the context of the Geneva process and negotiation. It doesn’t have to be on day one or month one … there is a process by which all the parties have to come together and reach an understanding of how this can best be achieved.” 

  That, we said, “might fairly be described as the most conciliatory language yet,” as it relates to Washington’s vision for Syria’s political future.

  We also noted that it now appears as though Russia and Iran will end up determining Assad’s fate which, if you know anything about Tehran’s relationship with Assad and about regional powerbrokers, should not come as a surprise. Indeed, the surprise is that the US, Saudi Arabia, and Qatar ever thought the effort to oust Assad had any chance of going smoothly in the first place. 

  On Monday, the Syria news flow continues unabated.

  Israeli Prime Minister Benjamin Netanyahu made his planned trip to Moscow to discuss how Russian and Israeli forces can avoid an “accidental” confrontation in the skies above Syria. That’s the headline anyway. Of course Netanyahu’s primary concern here is that sophisticated Russian weaponry will find its way into the hands of Hezbollah. Here’s Reuters: 

  A rapid Russian build-up in Syria, which regional sources have said includes warplanes and anti-aircraft systems, worries Israel, whose jets have on occasion bombed the neighboring Arab country to foil suspected handovers of advanced arms to Assad’s Lebanese guerrilla allies Hezbollah.

   

  
  

   

  Israel is also concerned that top-of-the-line Russian military hardware now being deployed could benefit Hezbollah and one day be turned against the Jewish state.

   

  “Our policy is to do everything to stop weapons from being sent to Hezbollah,” Netanyahu said.

  Note that this is not some far-fetched scenario. In fact, it’s more likely than not that arms will ultimately be funneled to Hezbollah if not directly by the Russians or Assad, then almost certainly by the Quds Force whose presence in Syria is seen as a “rumor” in the mainstream media even as it’s so well known in regional intelligence circles as to be considered par for the proverbial course. And make no mistake, Netanyahu is also well aware of the fact that Tehran is effectively angling to make Russia a de facto member of its existing axis of power that includes Syria and Lebanon and will ultimately include Iraq given Iran’s control of the Shiite militias and heavy influence in Baghdad political circles:

  The Netanyahu ex-adviser said Israel worried that Russia’s reinforcement of Assad in the conflict, now in its fifth year, could effectively create an axis between its long-standing enemies, Hezbollah and Iran, and Moscow.

  And speaking of Russian arms, here’s what US officials have confirmed is in Syria as of now: 28 combat aircraft including 12 Su-25s, 12 Su-24s & 4 Flankers (Su-27s or Su-30s), up to 20 helicopters split of Mi-24 Hind attack & Mi-15 Hip transport copters, and up to 9 tanks.

  Meanwhile, the Pentagon also says Russia has begun drone flights (via Reuters):

  Russia has started flying drone aircraft on surveillance missions in Syria, two U.S. officials said on Monday, in what appeared to be Moscow’s first military air operations inside the country since staging a rapid buildup at a Syrian air base.

  Finally, with all of the above in mind, we close with the following rather ominous bit from Tass and a tweet from AFP which seems to portend imminent escalation:

  The Russian embassy in Damascus has come under mortar fire, the Russian Foreign Ministry said Monday.

  The ministry said Moscow condemns the “criminal attack” on the Russian diplomatic mission.

   

  “At 09:00 a.m. on September 20, a mortar shell hit the territory of the Russian embassy in Damascus. The shell was driven deep into the earth and made no damage,” the ministry said. “We condemn the criminal attack on the Russian diplomatic representation in Damascus.”

  #BREAKING Russia calls for ‘action’ after shell hits Damascus embassy compound

  — Agence France-Presse (@AFP) September 21, 2015

  

  

  

  

  

Digest powered by RSS Digest

• Going Back To What Works: Gold Is Money Again (Thanks To Utah)

  As of today you really can pay your taxes, your credit cards, your mortgage, shop at Costco, and buy your groceries without so much as a bank account while using sound money.

  As PopularLiberty.com explains,

  The fact that Texas announced that it withdrawing its gold from Manhattan and is creating a state gold depository generated a good deal of interest because there would also be a way to transfer gold to others via said depository. So much interest that Texas received calls from all over the United States from folks that wanted to be part of such a system. The articles covering the future Texas depository cumulatively received millions of views. What was missed in all of this coverage is that a functional, and legal depository that allows anyone in the country to pay and save in gold dollars already exists. In Utah.

   

  The United Precious Metals Association in Utah has gold and now separate silver accounts that act as checking accounts do at any bank or credit union. The way it works is that members deposit Federal Reserve Notes (or paper dollars) into their UPMA account which in turn translates them 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. So if I were to deposit $1,200 FRNs then I would have $50 golden dollars.

   

  UPMA is the only institution in the country that I know of that doesn't have a buy/sell spread on their Golden Eagles or Silver Eagles. This means that all my $1,200 FRNs once converted to gold could be spent the next day without losing anything to any sort of premium. The price of a Gold Eagle is 5.8% above spot but when you 'cash out' you do so at 5.8% above gold spot. This effectively removes that barrier from sound money.

   

  This year the UPMA released a gold backed debit card via American Express. The way it works is that a member may spend up to half of their gold or silver dollars in any given month period using the card. When I interviewed the founder of UPMA today, Larry Hilton, I learned that the way the card works is that they have made a contract with American Express so that UPMA members can use what are technically credit cards as a debit card anywhere American Express is accepted. The members are added on as 'employees'. Right now there are already hundreds of people around the country using this method of payment. They are literally spending gold on groceries without losing anything to premiums or in transaction fees to UPMA. In fact they get 1% cash back in gold.

   

  This service is available to anyone in the United States and requires no credit check whatsoever. Using the billpay service online one can pay for what American Express can't such as credit card bills, property taxes, or your mortgage. The golden dollars are simply converted right back into FRNs and paid out. When asked Mr. Hilton affirmed that there are many people that don't store anything in the banks anymore thanks to this service. They are obsolete if you want to use sound money. There are no fees associated with the use of the card. Members that store more than $50 in golden dollars do pay a small storage/membership fee of 10 golden cents or $2.50 FRNs and an additional 0.25 FRNs for every additional $50. These $50 Golden Eagles can also be withdrawn and sent to you directly.

   

  The United Precious Metals Association has the full backing of Utah Attorney General Sean Reyes who also uses the service. The legal foundation was set up in 2010 and 2012 here in Utah where the vault is located. Many members of the board including General Counsel Larry Hilton are lawyers that specialize in law regarding the use of legal tender.

   

  An elected board of members makes regular audits to assure that all of the gold and silver is there and reports to the general membership every year at the monetary summit. This year it will be held on October 17 in Salt Lake City. The vault is insured from theft and fraud via the Llyods of London. They hold a 100% reserve ratio.

  And as UPMA summarizes, this is nothing new and it is not different this time...In fact we are going back to what works…

  All very unmodern? The gold standard is not up-to-date only if we have a yen for running away from economic success in the form of stable prices and major growth. After Nixon went off gold in 1971, abrogating the conversion agreement with the foreign nations, and keeping gold-holding illegal in the United States, inflation did things that were unheard of. The price level leapt by 200% from the late 1960s to the early 1980s, a period also bedeviled by the economic sluggishness known as “stagflation,” where double-dip recessions came every few years and the long term growth rate sunk below 2%. In the 1980s and 1990s, the Fed returned to conducting monetary policy in view of the gold price, and sure enough the consumer price index stabilized at one-third the stagflation level and growth rebounded past 3.5% per year. The verification just kept on coming: key on gold stability – effectively making the dollar convertible on demand to gold at a fixed price – and watch prices stay the same and growth shoot the moon.

   

  In the 2000s, we are witness to a Fed that has disdained the gold price now for a decade. The result has been the loss of that decade to economic growth, as well as stirrings in key commodities such as oil and food, if not the brutal comprehensive arrival of inflation. If the Fed decided today to target the price of gold as the pole star in its monetary operations, there is no historically conversant reason to believe that we would have unfold before us anything but yet another era of price stability and maximal economic growth. For this is the only thing that has ever resulted from gold standards and their approximations throughout our history.

   

  The arc of time has revealed connections that we have the opportunity to re-forge today. The United States became the largest economy in the world in the 1870s, was two-and-a-half times larger than the second-place nation in 1913, boomed along with everyone else in the Bretton Woods era, and in the 1980s and 1990s did not succumb to the “Eurosclerosis” or any “Japan disease” that afflicted its major economic partners. In every episode of fantastic economic performance – in terms of both price stability and major growth – there was a commitment to gold.

  Choice in currency is being recognized as a basic human right around the world. Utah was the first State to make gold and silver coins legal tender alongside the U.S. dollar on March 25th, 2011.

  

  

  

  

  

• Summing It All Up (In 1 Sad Cartoon)

  “It is true that income inequality has kind of gotten worse, but you can take the compensation of every CEO in America and make it zero and it wouldn’t put a dent into it. What really matters is growth. It’s not right to say we’re worse off … If you go back 20 years ago, cars were worse, the air was worse. People didn’t have iPhones.”

   

  – Jamie Dimon

  A reminder…

   

  

   

  Main Street "doing God's work" for Wall Street…

  

  h/t The Burning Platform

  

  

  

  

  

• Guest Post: Safe Assets In A World Gone Mad

  Submitted by Ton Chatham via Project Chesapeake,

  Gold and silver are good assets to hold to insure the preservation of EXCESS wealth but there are other assets that are even more valuable longterm. Those things that can be used to produce a product are the elements that can be used to leverage your time, resources and talents to produce wealth. The ability to produce excess is the basis of the need for wealth preservation.

  Physical goods in the form of equipment that can be used to create or produce goods needed by society are the basis of prosperity and wealth in the world. Gold and silver only become necessary when society begins to produce more products than the producer can use. This excess production is then traded for those things that can preserve the value of this excess production until it is needed by individuals.

  Machines to build or repair such as saws and hammers, sewing machines, metal fabricating machines such as lathes and mills and machines to convert raw materials to value added products such as steel to I beams or pots and pans, wheat to flour or pasta, lumber to finished furniture and cotton to cloth are the assets that define how prosperous you are as a nation. A nation derives its wealth from having a product to sell. That will never change. It is true for nations as well as for individuals.

  Individuals need to have the ability to produce something in excess of their needs to advance to the need to store that excess. This requires tools and equipment in most cases. You do not necessarily need to process your own resources to generate this excess. A miller can provide the equipment to grind grain for the community taking part of the production for his time and effort. This gives rise to the service economy where individual specialization is traded for other services and resources rendered. In most cases this service will require specialized equipment not possessed by the general population. This specialized equipment is an asset more valuable than gold and silver in many cases.

  The goods need to exist before gold and silver can be traded for them and gold and silver need to exist to preserve this excess production for future use. Storing some of your excess production today in equipment that you can use to start a cottage industry will insure gold and silver will have useful value in the future. You cannot have one without the other.

  When a person uses their wealth in such a way that allows them to employ several others, it will not only increase their wealth but insure prosperity for others. The ability to earn payment in return for their time and energy allows these employees to utilize these funds to provide income for the butcher, baker and woodsman. This is the basis for the economy small or large. The economy is what ultimately determines the value of any asset.

  The ability of individuals to insure a functioning economy will determine the wealth and standard of living of everyone. A safe asset is one that contributes something to the ability of the economy to function properly. Without that, wealth is determined by what each individual can produce themselves for themselves insuring wealth will be limited for many and unequal as ability will determine what that wealth will be. Restricted access to resources and goods eventually leads to war. In war, no asset is completely safe.

  When it comes to the next generation, the options are going to be very limited. If parents expect to pass on any of their hard earned wealth it must be done in a way that prevents government from devaluing or stealing it outright. The use of gold, silver, diamonds and some types of land will likely be the best options. If the government cannot find it or get their hands on it, it will make keeping it that much easier. Given the current situation even guns, ammo and reloading equipment might be seen as a good asset to hold for future use. Along these lines, tools and specialized equipment that can be used to produce some type of income will also be an advantage for youngsters that would otherwise have difficulty finding employment in the future. The greatest thing you could do for your children is to develop some type of business that can be handed down to them to give them the chance to make it in the future where government intervention has destroyed the economy and future job prospects.

  Add to this a few small cottages that can be rented out for a modest price and maybe even a small industrial plant to process fibers such as cotton, wool or flax. Mini mills are now available that makes this a possibility today. A small store on site that can sell locally produced items such as soap, candles, food, clothing or medicinal herbs will all add to income opportunities to insure a decent standard of living. The number of products that can be locally made and sold are numerous and allows for many such farms in an area without fear of duplication.

  To get by in the future people are going to have to learn to be creative once again in order to take care of themselves and their families. The west line has moved meaning Americans will be forced to live in a smaller economy with a lower standard of living than in the past. If you do not adjust to that now you will be forced to later under much more difficult circumstances. The assets you preserve during the coming years will determine how well you will live and how well your children will live. Nothing is guaranteed at this point so the future is entirely on you.

  

  

  

  

  

• Global Stocks, EM FX Extend Losses Despite China Saying "No Collapse Is Nigh"

  US equity futures have retraced the late-day ramp from Friday with Dow down around 65pts. Asia is opening weaker (NKY -900 from Thursday highs) with EM FX appearing not to get the "but we didn't hike" message from The Fed with MYR the worst hit for now (after a few days of strength). EM outflows accelerated according to Morgan Stanley, down 6% AUM in 12 weeks. PBOC devalued the Yuan fix by 0.11% (the most in 2 weeks). While Fed uncertainty and fears about China have caused global derisking, PBOC chief Fan says "the economy is stable," and China's Beige Book suggests 'everything is awesome', as the survey summarizes, "perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy." If that's the case, then why is Janet in panic mode?

   

  Dow futures have retraced Friday's late-day ramp…

  

   

  And Nikkei 225 is down 900 points from Thursday's peak BoJ manipulation highs…

  

   

  EM FX continues to weaken..

  • *MALAYSIA RINGGIT EXTENDS DROP, NOW DOWN 0.8% TO 4.2397/DOLLAR

  

  • Baht declines 0.2% to 35.710 per dollar, set to snap two-day rally

  EM equity fund outflows of $2.2b for week ended Sept. 16 mainly driven by Asia funds ($1.8b), compares with avg $6.5b outflow in last 4 weeks, Morgan Stanley analysts Jonathan Garner and Pankaj Mataney write in Sept. 18 note.

  • Cumulative 12-week outflow reaches US$40.2b, or 5.6% of assets under management
  • Taiwan, India, Korea had largest inflows
  • Philippines had biggest weekly outflow since Oct. 2013

  New Zealand Consumer Confidence tumbled to 3 year lows…

  

  *  *  *

  With China open, the propaganda ramps up.. It appears it is time for some central banker credibility to be lost…

  China’s economy isn’t as weak as it may look, according to a private survey that says it’s a myth that the nation’s slowdown is intensifying.

   

  “No collapse is nigh” in the aftermath of the stock market plunge and currency devaluation, according to the third-quarter China Beige Book, published by New York-based CBB International and modeled on the survey compiled by the Federal Reserve on the U.S. economy. Capital expenditure rebounded slightly in the period and the services sector showed strength, the report said.

   

  “Perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy,” CBB President Leland Miller wrote in the report.

  And then The PBOC put everyone straight…

  • *PBOC DEPUTY GOVERNOR SAYS CHINA ECONOMY IS STABLE: NEWS

  Chinese central bank Deputy Governor Fan Yifei said the country’s economic structure continues to improve and trade surplus remains, providing solid foundation for stable yuan and financial market, Financial News reports, citing Fan’s comments at a forum Sept. 19.

  • Fan called for strengthening currency swaps with Asean countries and pushing forward currency trade with these countries, including direct trading

  So why did Janet blink then?

  Margin debt declined…

  • *SHANGHAI MARGIN DEBT BALANCE FALLS FIRST TIME IN THREE DAYS

  And Chinese stocks open lower…

  • *FTSE CHINA A50 INDEX FUTURES FALL 0.7% IN SINGAPORE
  • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 1% TO 3,107.4
  • *SHANGHAI COMPOSITE INDEX FALLS 1.1% AT OPEN
  • *HANG SENG CHINA ENTERPRISES INDEX FALLS 2.06%

  

  The PBOC weakened the fix by the most in 2 weeks

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3676 AGAINST U.S. DOLLAR
  • *CHINA WEAKENS ONSHORE YUAN FIXING BY 0.11% TO 6.3676/USD

  

  Finally, on a sidenote, China Mobile reported its additional subscriber base grew at the slowest in 2015…

  • *CHINA MOBILE ADDS 1.37MLN CUSTOMERS IN AUG.

  

   

  But but but Tim Cook told Cramer everything was awesome?

   

  Charts: Bloomberg

  

  

  

  

  

• Middle-East Migration – The Problem/Opportunity Dilemma

  Authored by Ben Tanosborn,

  Pictures of migrant-exiles from the Middle East, not just Syrians but Iraqis and Afghanis as well, are currently being transmitted by CNN, Aljazeera English and other news giants to homes all over the world in customary repetition which most of us would agree exceeds the canons of proper news reporting. 

  Fodder news portraying human pain and misery are being presented to viewing masses, too often depicting unwarranted blame and/or lack of humanity from/by Europeans who are trying to cope with an inherited humanitarian crisis not entirely of their making.  Rich sister Germany is somehow expected to offer leadership, and problem-solving direction, in managing this new crisis for Europe.  Greece, Serbia, Hungary and Austria are becoming transit stations for this migrant humanity in the yellow-brick which extends from Turkey to the promised Oz: Germany.

  Amid this crisis-in-progress, Viktor Orban’s racially-charged comments announcing a lack of desire by Hungary to increase its foreign-born population acquires the same timbre and tone as those of America’s presidential candidate, Donald Trump.  But aren’t these self-exiles supposedly “political” migrants, not the economic migrants entering the US overwhelmingly from Mexico and elsewhere in Latin America?  These migrant waves are branded, inaccurately perhaps, with the same umbrella term… whether their odyssey is motivated by economic, social or political reasons.  And, truth be said, the economic reason does weigh heavily or you wouldn’t have Germany and the United States as the two major preferred destination points.

  There is ample reason to believe that this recent flood of migrants is economically, not politically-rooted.  Recent rumors in refugee camps heralded the strong probability that much of Europe was contemplating more restrictive policies for admittance.  Thus the onrush to reach the promised land of opportunity: Germany; with any other EU nation as a second, third, or nth choice.

  As for who or what is at fault for this current situation, pointing to Bashar al-Assad and his autocratic regime may seem as the politically correct answer to most Americans, and thus justify US’ role in the world as a “benign and orderly empire.”  Except that this empire the US inherited from the Brits, and have transformed to its capitalist image and likeness, has proven to be neither benign nor orderly when it comes to Middle East matters as we evaluate historical American foreign policy towards each of the nations, or entities, in the region; but principally Palestine, Iraq, Syria and Iran during the past seven decades.             

  This long period of turmoil throughout the Middle East dates back to US’ ascendancy to the Anglo-American throne being vacated by post-Edwardian Britain in favor of its crown-princess daughter: young and prosperous America.  Thus the UK surrendered its leading meddling role to the US in a region extending from the environs of Palestine to Persian lands and the northern Arabian Sea.  But let’s back up to the “migrant issue”… whether resulting from political meddling, social, religious, or economic reasons.

  Pope Francis is calling to the world’s attention this close to home crisis, asking for every parish to adopt a refugee family.  Maybe we shouldn’t question Francis’ charitable and humane intentions of caring for those who are suffering, those who are reaching for help with a supplicant hand.  The Vatican, however, as a trustworthy postulant to peace and social justice in the world, needs to voice not just a current remedy to the problem, a band-aid of sorts.  It must, if to be credible, also point to blame so that likelihood of repetition is at least lessened; however, the Church has often found compelling reasons to remain silent, thus accommodating her survival.

  Today’s migrant problem, if labeled as a problem, is of a secular nature, and it should be tackled in economic, secular ways.  Angela Merkel appears to be an enlightened leader when she tries to calm the German citizenry in gladly receiving the current human avalanche from the Middle East.  Being at the tail end of the world’s birthrate statistics (842 annual births per 100,000 population), Germany must be rejuvenated from without to cope with upcoming economic requirements (pensions, etc.).  One could hardly find a better source for this rejuvenation than vibrant, educated Middle Easterners… from Syria (2,276 annual births per 100,000 population) or Iraq, with a similar birthrate, 2,695 per 100,000 – a more congruous and assimilable choice than trying to accommodate migrants from Sub-Saharan Africa. 

  Perhaps both Donald Trump and Viktor Orban should take notice.  Hungary, with a low birthrate of 926 per 100,000 could harmoniously absorb a few thousands Muslims; and so could Italy, with a birthrate of 884 per 100,000.  As for the United States, its rate of 1,342 per 100,000 is achieved in great part to the “propensity to have children” of a large, undocumented Hispanic population from Mexico and Central America.

  A problem can turn into an opportunity if tackled with a clear mind and a kind heart; seldom can it be solved with fear; and never, ever with hate.

  

  Source: The Cagle Post

  

  

  

  

  

• Martin Armstrong Warns "Hell Is About To Break Loose"

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  Yellen has inherited a complete nightmare. 

  

   

  Thursday’s decision to delay yet again the long-awaited liftoff from zero interest rates is illustrating that the world economy is totally screwed.

  There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. There are of course the typical domestic issues that there is low inflation, weak wage gains in the face of strong job growth, a hike will increase the Federal deficit and then there is the argument that corporations that now have $12.5 trillion in debt. All that is nice, but with corporate debt, our clients are locking in long-term at these levels, not funding anything short-term. Those clients who have listened are preparing for what is to come unlike government which has been forced to shorten the average duration of their debts blind to what happens when rates rise, which will be set in motion by the markets – not Yellen.

  The Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money.

   

  The Fed is also caught between domestic policy objectives that dictate they MUST raise rates of they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

   

  By avoiding the normalization of interest rates (hikes), the Fed has encouraged government to spend far more than they realize because money is cheap. This will eventually light the fire under the economy helping to fuel the Sovereign Debt Crisis. There appears to be no hope for the Fed and they will be forced to raise rates only when they see asset inflation in equities. Then they will have no choice.

   

  This is the worst possible mess and the longer they have waited to normalize interest rates, the worst the total crisis is becoming for they will have zero control over the economy and once that is seen, holy Hell will break loose.

  

  

  

  

  

• How The World Spends

  Have you ever wondered how much money Russians spend on alcohol and tobacco compared to the rest of the world? Or how much households in Saudi Arabia allocate to recreation?

  Today’s data visualization from The Economist shows how much people in households around the world allocate to different expenses such as food, housing, recreation, transportation, and education.

  The first thing to note is that this looks at private spending only, and does not include any public spending that could be allocated to each household. As a result, in places like Canada or the EU, spending on healthcare is much smaller than in comparison to the United States, where households spend 20.9% of their money.

   

  

  Source: VisualCapitalist

   

  Here’s a few interesting stats:

  In Russia, where housing is subsidized, people spend way less on housing, fuel, and utilities with only 10.3% of money allocated. At the same time, they are the biggest relative spenders on food, alcohol and tobacco, and clothing.

   

  Developed countries are more or less the opposite of Russia in this regard. In places like the United States, Canada, Japan, or the EU, about 20-25% of money is spend on housing, fuel, and utilities. Meanwhile, consumption of food, alcohol and tobacco, and clothing are on the lower ends of the spectrum. In fact, its actually the United States that spends the smallest portion on food altogether, at only 6.8%.

   

  Contrast that to India, where GDP per capita is by far the lowest at only US$1498.87. With little disposable income, Indians spend a much higher proportion of money on necessities such as food (about 30%), while using much less income on things like recreation (1.5%) or restaurants and hotels (2.6%).

  

  

  

  

  

• Game Over

  Via NorthmanTrader.com,

  When the Fed embarked on its mission to rescue the economy in 2009 it did so on the following premise: Save the banks by re-inflating the housing and stock markets via easy money and, as a result, companies would hire and the eventual scarcity of labor would produce wage growth with the end result that the resulting inflation would permit for a tightening cycle to normalize rates.

  The problem: After 7 years and trillions of dollars in debt and balance sheet expansion there is no inflation nor is there any wage growth. And the reason for this is a structural one that central banks have been refusing to acknowledge and admit: The massive underlying shift in technology that is radically changing the global labor market. Not for the better, but for the worse.

  And this shift has enormous implications for investors, the economy, society at large and the stock market. And these implications have the potential to signal Game Over for this bull market.

  Before we get into this let’s briefly address the recent history in the stock market:

  For years investing was easy. You just threw money at a market that never stopped going up. And when it occasionally fell, it was because the Federal Reserve had just ended a QE program. But not to worry, the next one was just around the corner. And sure enough every Federal Reserve press release or press conference produced an orgasmic buying feast every time the word “accommodative” was mentioned. Easy money, we have your back, the Bernanke put. You know the gig. Then we had the taper tantrum when Ben Bernanke merely mentioned the possibility of QE ending. Oh, but not to worry, we will stay at ZIRP. Free money for a long time to come and don’t worry we will let you know way in advance when we will raise rates. And even better: QE will be everywhere. In Japan, in Europe. And if things were to get really bad (i.e. the Ebola scare) we will bring QE4 back (Bullard, October 2014). But not to worry any issues are just transitory. Inflation is just around the corner don’t you know?

  And for years the narrative worked. Markets went on to make ever new highs, even in 2015 after QE3 ended, spurred on by an unprecedented move of global QE and dozens of interest rate cuts. The ECB launched QE and the DAX even got to over 12K, the Nasdaq went over 5,000 and new highs and the news media and bloggers were giddily writing articles how it was different this time. But there was something odd about these new highs. Most stocks were not participating, in fact, most stocks started correcting while markets made new highs despite this negative divergence. It was a rally of the few, the big cap stocks, while the majority was left behind and we could see it in the charts:

  

  

  But then something happened. Something symbolic at first. A young woman threw glitter at Mario Draghi in April and the DAX lost 12K and never saw it again. Then there was anxiety about Greece. The math didn’t work, but as we expected they found a way to kick the can. Then China numbers didn’t add up and its growth story began to implode.

  In July we outlined the Big Bad Bear Case and pointed toward this structurally weakening $NYSE price chart:

  

  Since then the August flash crash has reconnected price with the moving averages highlighted in the chart:

  

  Price discovery took place in the course of only a couple of days and was stopped by circuit breakers during that flash crash day in August.

  From a trading perspective it was a good time to pursue a “buy weakness” strategy as we had been outlining ( i.e. Navigating the next rally), but the next move was in Janet Yellen’s hands. Would she exude confidence and give markets certainty by raising rates finally or would she blink again and extend the uncertainty that markets had been struggling with.

  We made our continued “buy weakness” stance very much contingent on this outcome. In “Biding Time Remix” we outlined:

  If Janet Yellen doesn’t raise rates and chickens out it’s the same nonsense all over again as it indicates weakness and a worried Fed. So ironically not raising rates may be bearish.

  We know the answer now and we promptly flipped bearish into the ramp toward 2020 $SPX  as we discussed in Technical Charts on September 17.

  So why didn’t the Fed raise rates and why has the reaction been so bearish this time around?

  To start with the Fed propagated complete uncertainty again and markets don’t like uncertainty. The “when will they hike game” immediately restarted with predicable results:

  Well done Janet, well done. pic.twitter.com/1ef9oLtxAo

  — Northy (@NorthmanTrader) September 18, 2015

   

  But this is the side show. The real issue, in my mind, is a global recognition that the next downturn may have already begun which brings us to the real meat of the issue here and one that the Fed is very well aware of, and indeed is reacting to: The destruction of middle class jobs.

  In this context note that the most important news flashes this past week or so did not come from Janet Yellen, but rather came in the form of large scale mass layoff announcements:

  HP -30,000, Deutsche Bank – 23,000, Johnson Controls -3,000, Qualcomm -1,300

  My take is that these large layoffs are just the beginning. And in this new economy of little to no wage earnings power by employees coupled with ongoing technological advancements these trends will continue to erode the structural economic base as all these high wage workers will not be absorbed into other high paying jobs.

  Read closely what HP’s CEO Meg Whitman stated justifying the layoffs:

  It’s remarkable what’s happening to our services business. As new technologies come in, we’ve got to restructure that labor force to low-cost locations, to much more automation than we have today.

  It’s all right there. Low cost and automation. Throw out people. So they save $2.7 billion a year and immediately spend another $1 billion on buybacks and of course won’t stop there:

  

  Jim Cramer had an on point segment on this issue this week. He gets it and also understands that this is the primary reason the Fed did not raise rates. Money quote: “Hiring lower numbers of lower wage workers to do the remaining jobs that are not wiped out by automation”:

  

  What an insult to these employees who now have to figure out how to make a living elsewhere. No, jobs are being destroyed globally through automation and fewer people are needed. The trend has been in place for years and is only accelerating:

  35% of jobs to be taken by robots

  So fewer people needed due to technological innovation. But it gets worse. While fewer people are needed rapid population growth is increasing the supply equation: Recent projections have been upped again and the latest stats have to make one wonder how there will be enough infrastructure, resources and jobs to sustain the ever increasing masses of people:

  It’s no coincidence that global headlines are dominated these days by immigration and mass migration toward American and Europe. More and more people looking for better jobs and lives and wealthy societies looking for ways on how to deal with the influx of people.

  This is the structural firewall all the central banks have been and continue to be up against and it’s rapidly coming to a head. For years and decades central bankers have sought to manage any bad news. Recessions, crashes, wars, economic cycles, etc. In the process of attempting to ward off any bad news they also created or helped foment one bubble after another. The tech bubble, the housing bubble and now the debt bubble.

  The reality is all these bubbles and subsequent economic disasters have been managed by one primary tool: Long term reduction in interest rates:

  

  But what has it produced with the Fed all in?

  Here’s the brutal reality:

  

  

  

  Bullish? I don’t think so, and this is before the next downturn has officially begun and with central banks all in.

  So with this backdrop the Fed claims it wants to raise rates. Good luck.

  Which brings me to the here and now. What I continue to see is a binary set-up. In order to avoid a massive bear market bulls need new highs. Full stop. That $COMPQ chart in my double top tweet the other day makes this perfectly clear:

  The biggest double top ever? $COMPQ pic.twitter.com/YEg8XkCPqU

  — Northy (@NorthmanTrader) September 16, 2015

   

  The plainly observable fact remains that stock markets have not been able to sustain new highs without central bank intervention:

  

  In lieu of any evidence to suggest that markets can make new highs on their own, one has to surmise that the Fed will, at some point, have to bring back QE. The trigger? Lower stock market prices. And this what it’s all about at the end of the day. In Europe an expansion of QE is already on the table:

  • ECB’S COEURE SAYS GLOBAL GROWTH PROSPECTS HAVE DARKENED, HAVE WORSENED MARKEDLY IN EMERGING MARKET ECONOMIES
  • ECB’S COEURE SAYS ECB CAN ADAPT QE ASSET PURCHASE PROGRAMME IF DOWNWARD RISKS TO INFLATION ENTRENCH

  And in the UK there’s now talk of a rate CUT amidst signs of a signs that the third phase of global financial crisis is looming:

  In a wide-ranging speech that called on central bankers to think more radically to fend off the next downturn – including the notion of abolishing cash – Haldane warned the UK was not ready for higher borrowing costs.

   

  “In my view, the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside,” he said. “Against that backdrop, the case for raising UK rates in the current environment is, for me, some way from being made.”

   

  Given the range of risks facing the economy, there is every chance the next rate move could be a cut instead of an increase.

   

  “Were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target”.

  So central bankers know what’s up and so does Janet Yellen and hence they are staying all in and are ready to do more.

  And hence the rest of 2015 and into 2016 is very much a binary battle for control with very different potential outcomes.

  Technically markets are facing massive potential heads and shoulders patterns and broken trend lines with bearish price implications on confirmation on the one hand:

  

  

  Yet on the other hand central banks are eager to right it all yet again by the time positive seasonality takes over by the end of the year paving the way for a 1998 like save and push to new all time highs:

  

  In principle the stage is now set for a retest of lows and potential break of price into October. Remember the Fed is not data dependent as it claims, it is market dependent. And, for now, the market has sent a clear message with its price rejection at the monthly 5EMA this week:

  

  The message: The game is over. The trend has changed. And the Fed knows it. The question is: What will it do about it? Roll-over or fight? But will it matter much if it fights? Janet Yellen clearly lost the crowd this week as “accommodative” was met with a resounding SELL as confidence has been shaken. Her job is now to win back confidence. Whether she can or not is now largely determined how the binary set-up we face here plays out. Bottom line: Bulls need a 1998 like repeat to save this year.

  How did the Fed manage the big correction in the Fall of 1998: It cut rates of course:

  

  Well, good luck with that this year.

   

  

  

  

  

  

• Dear America…

  Presented with no comment..

   

  

   

  h/t @noalpha_allbeta

  

  

  

  

• If You Live In These States You'll Soon Need A Passport For Domestic Flights

  Submitted by John Vibes via TheAntiMedia.org,

  To comply with the 2005 Real ID Act, which the U.S. government has been slowly implementing for the past decade, citizens in a number of different U.S. states will now be forced to obtain a passport if they want to board an airplane – even for domestic flights.

  The Department of Homeland Security and representatives with the U.S. Customs and Border Protection have declined to comment on why certain states have been singled out, but starting in 2016, residents of New York, Wisconsin, Louisiana, Minnesota, New Hampshire, and American Samoa will need a passport to fly domestically. All other states will still be able to use their state-issued driver’s licenses and IDs — for now, at least.

  According to the Department of Homeland Security’s guidelines on enforcement of the Real ID Act,

  “The Department of Homeland Security (DHS) announced on December 20, 2013 a phased enforcement plan for the REAL ID Act (the Act), as passed by Congress, that will implement the Act in a measured, fair, and responsible way.

   

  Secure driver’s licenses and identification documents are a vital component of our national security framework. The REAL ID Act, passed by Congress in 2005, enacted the 9/11 Commission’s recommendation that the Federal Government ‘set standards for the issuance of sources of identification, such as driver’s licenses.’ The Act established minimum security standards for license issuance and production and prohibits Federal agencies from accepting for certain purposes driver’s licenses and identification cards from states not meeting the Act’s minimum standards.  The purposes covered by the Act are: accessing Federal facilities, entering nuclear power plants, and, no sooner than 2016, boarding federally regulated commercial aircraft.

   

  States and other jurisdictions have made significant progress in enhancing the security of their licenses over the last number of years. As a result, approximately 70-80% of all U.S. drivers hold licenses from jurisdictions: (1) determined to meet the Act’s standards; or (2) that have received extensions. Individuals holding driver’s licenses or identification cards from these jurisdiction may continue to use them as before.

   

  Individuals holding licenses from noncompliant jurisdictions will need to follow alternative access control procedures for purposes covered by the Act.  As described below, enforcement for boarding aircraft will occur no sooner than 2016.”

  According to the fine print, not all 50 states have driver’s licences that meet the Real ID requirements, which could possibly explain why the aforementioned regions will not qualify in 2016. However, there is no specific mention of what the requirements actually are.

  The Real ID act has been controversial since its initial proposal over ten years ago and is seen by many as a massive violation of privacy. One of the primary reasons it has taken the government so long to roll this program out is that the program is wildly unpopular and creates heavy backlash every time it appears in the news.

  The tightening of the Real ID restrictions are seemingly intended to push people towards attaining the newly issued “enhanced ID,” which adds more unnecessary paperwork and bureaucracy to the already tedious process involved in identification applications.

  

  

  

  

  

• For Hedge Funds, The Real Pain Is Only Just Starting

  In the aftermath of the August hedge fund slaughter in which the most widely held by “smart money” stocks got pummeled leading to the marquee hedge fund names reporting their worst month in years, and leading others – such as us – to once again mock the concept of “hedging” (only a handful of funds actually were hedged against “black Monday” such as Mark Spitznagel, who had a billion dollar payday on August 24 and who has since warned that if investors thought August was scary “They Ain’t Seen Nothin’ Yet“), the consensus opinion was that the pain for the hedge fund “Hotel California” is over, and that the worst of the pain is behind us.

  Once again consensus is dead wrong.

  Presenting Exhibit A: Goldman’s latest YTD performance breakdown by strategy basket.

  It reveals is that far from suffering even the most modest correction, the “Hedge Fund Hotel” strategy (aka the most concentrated holdings), is massively outperforming not only the broader market, but has returned double the second most profitable strategy – investing in companies with high revenue growth.

  

   

  Exhibit B: for all the talk that names with high hedge fund concentration have been crushed, the reality is far different as the “smartest money” realizes that once the selling of the “hotel” names begins, it is every billionaire for himself.

  

   

  Intuitively this makes sense: being some of the most ration market participants, the hedge funds who are among the holders of the most widely held stocks, realize that a strategy of selling the most concentrated names, will promptly waterfall into an all out liquidation of the benchmark market names (such as the FANGs and Apples) that have kept the S&P from a bear market YTD, even as the average stock is now approaching at 20% correction. As such nobody wants to “defect” from a game theoretical equilibrium in which nobody wants to be the first to sell, as nobody knows how profound the resulting tumble would be.

  However, now that the Fed crushed its own confidence by not hiking by even a meager 25 bps, unless the Fed or other central banks step in and buy more E-Minis in the coming days to prop up both the market but general confidence (recall that the best paid hedge funder of the past few years, David “Balls to the Wall” Tepper himself is no longer bullish on stocks, instead predicting a 16x P/E multiple may be generous) the same hedge funds which have diligently kept the secret of the “hedge fund hotel prisoner’s dilemma”, will just as quickly remember that he who sells first sells best.

  In fact, the tipping point of the next bear market will come precisely when the best performing strategy of 2015, buying companies just because other hedge funds bought them, stops working at which point the market will suffer far more dramatic losses than what was observed during the Black Monday week of August, when “only” risk parity strategies got forcibly margined out.

  Source: Goldman Sachs US Weekly Kickstart

  

  

  

  

  

• "Dude, You're Getting A Degree"

  Because it’s fair…

   

  

  Source: Townhall.com

  “I think College is good, therefore the state should subsidize it.” – People who want to help.

  Why there’s a student loan bubble and how it will end.

  

  

  

  

  

• "What Does The Fed Know That We Don't" – Bridgewater's Ray Dalio Answers

  In the aftermath of last week’s FOMC “dovish hold” disappointment, it is not only the Fed that has seen its credibility crushed; so have plain-vanilla tenured economists and Wall Street strategists. Recall that it was on August 13, one month before last week’s FOMC meeting, when 82% of economists said the Fed would hike in September.

  

  Oops.

  Post-mortem: more than four out of five economisseds were, as always, wrong. Hardly surprising: after all, when voodoo art pretends to be science, this is precisely the outcome one gets.

  But while there is no surprise in everyone being wrong (because quite simply nobody realized that the only thing is what Goldman wants), one question remains: “what does the Fed know that we don’t.”

  Of course, one has to clarify what “we” means, because Zero Hedge readers know precisely what the Fed knows – it knows that a recession is coming if not already here, as we won’t tire of showing week after week.

  Here are some examples of what the Fed (if less than 20% of economists) “knows“:

  1) Business Inventories-to-Sales are at recesssion-inducing levels…

  

   

  1a) Sidenote 1 – Wholesale Inventories relative to sales have NEVER been higher

  

   

  1b) Sidenote 2 – here is why that is a problem

  

  2) Industrial Production is rolling over into recession territory

  

   

  2a) Sidenote – as Empire Fed confirmed this morning for August – inventories are collapsing (and along with that Q3 GDP)

  

   

  3) Retail Sales is not supportive of anything but a looming recession…

  

   

  And finally,

  4) The last 6 times Auto Assemblies collapsed at this rate, the US was in recession…

  

   

  * * *

  But for those who are unable to form an independent though and would rather ignore reality unwinding before their eyes, instead demanding an “authoritative” voice to crush their cognitive bias, here is Ray Dalio, head of the world’s biggest hedge fund Bridgewater, who explains what the recent 4% drop of his All Weather risk-parity fund means.

  This is what he said: “different risk parity managers structure their portfolios somewhat differently to achieve balance, so we can’t comment on them all. But we can show you how this wealth effect has worked by showing you how our diversified portfolio mix (which simply represents a well-diversified portfolio of assets) would have led economic growth, which is shown in the below two charts, one of which goes back to 1950 and the other which goes back to 1915. These charts show how the excess returns (the returns of the portfolio over the return of the cash interest rate) led economic growth relative to potential (i.e., estimated economic capacity)… If a well-diversified mix of assets underperforms cash, there will be a negative wealth effect and negative incentives to invest in economic activity, which will be bad for the economy. The Federal Reserve and other central banks would be well-served to pay attention to this relationship to make sure that this doesn’t happen for long and/or happen too severely. The chart speaks for itself.

  The chart in question:

  

  And just in case it “does not speak for itself“, here is Ice Farm Capital’s Michael Green explaining what is says: “The recent weak performance of All Weather would suggest global growth six months from now will be running nearly 2% below its already reduced potential.“

  In other words, while the rest of the levered-beta 2 and 20 chasers formerly known as “hedge funds” recently accused risk parity of blowing up their August returns (September is not shaping up much better) the biggest risk-parity fund in the world also found a scapegoat: the global economy, which according to Dalio, is the reason for All Weather’s dramatic August slump.

  But while blaming the amorphous economy is a rather weak argument, Dalio already has a far more tangible scapegoat ready: the Fed itself, who as the Bridgewater letter cautions “would be well-served to pay attention” to the hedge fund’s sudden P&L drop. Because as Dalio goes, so goes the economy.

  For now, however, the message is far simpler: absent far more easing, what the charts above signal is that the US economy is about to slam head-on into an economic recession… or rather depression, one which some would add, is only inevitable due to some 40 years of Fed easing starting with Greenspan’s great moderation, and continuing through three sequential credit-fuelled bubbles which merely delayed the inevitable “mean reversion” moment

  

  

  

  

  

• The Fed's A "Joke," Saxobank CIO Prefers Gold Amid Increased Uncertainty

  “A joke” and “far from impressive”, both descriptions give you a sense of the frustration being felt by Saxo Bank’s Chief Economist Steen Jakobsen who analyses the decision not to raise rates in this brief clip. The Fed “missed opportunity to raise rates for first time since 2006” according to Steen who has been consistently arguing against what he calls the Fed’s  “pretend-and-extend” culture. Volatility and uncertainty will remain high and there’s now little chance of a rate rise this year suggests Steen (expecting a big rally in gold), given that EM economies and China are unlikely to emerge from the doldrums in the near-term.

   

  The last minute gets dark…

  “…as always with The Fed is clearly shying away from taking any hard decisions, from actually taking any accountability ort responsibility for resetting the clock on this extremely easy monetary policy… they are just as likely to cut as to hike.”

   

  

  

  

  

  

• FBI Opens Investigation Into Malaysian PM's Goldman-Financed Slush Fund

  On Friday, Malaysian authorities arrested Khairuddin Abu Hassan. According to WSJ, the charges were “attempting to undermine democracy.” 

  What Khairuddin – a former member of Malaysia’s ruling party – was actually “attempting” to do, was travel to New York and urge US authorities to investigate 1MDB, the infamous Goldman-backed development bank turned slush fund that’s become the subject of intense scrutiny after allegations that some $700 million was diverted to Prime Minister Najib Razak’s personal account surfaced earlier this year. Those allegations, along with the perception that Najib’s government has sought to stimy attempts to investigate the bank, have led to calls for the premier’s ouster and were the catalyst for street protests that swept through Kuala Lumpur last month. 

  For those who need a refresher on the backstory, here’s how we explained it last month: 

  1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman, whose Southeast Asia chairman Tim Leissner is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

  
  

  

  
  

  You really cannot make this stuff up.

   

  What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit (more here from FT). Somewhere in all of this, $700 million allegedly landed in Najib’s bank account and the going theory is that 1MDB is simply a slush fund. 

  The plot only thickens from there, and as we detailed in “Abu Dhabi Can’t Find $1.4 Billion It Supposedly Received From Malaysia PM’s Slush Fund,” when UAE went looking for a $1.4 billion payment Abu Dhabi’s International Petroleum Investment Co. supposedly received in exchange for guaranteeing some $3.5 billion in 1MDB bonds, the money was nowhere to be found, casting considerable doubt on IPIC’s manager who was fired earlier this year. Incidentally, IPIC was also involved in a rather nefarious looking deal in which one of its subsidiaries guaranteed $2.3 billion in 1MDB mystery money that may or may not be parked in the Cayman Islands in order to secure a sign-off from Deloitte after KPMG was dismissed as 1MDB’s auditor for asking too many questions. 

  Since then, another $993 million has turned up missing at IPIC and it’s certainly starting to look like the rabbit hole goes pretty deep on this one. Ultimately, the future of Najib’s political career will likely depend on how it all shakes out. 

  Unfortunately for the Prime Minister, it looks as though arresting Khairuddin Abu Hassan on his way to New York was too little too late because now, WSJ is reporting that the FBI has opened an investigation into the development fund. Here’s more:

  The FBI has opened an investigation into allegations of money-laundering related to a Malaysian state investment fund, a person familiar with the matter said.

   

  The scope of the investigation wasn’t known. It is the latest in a series of international investigations related to the fund that have been revealed in the past several weeks.

   

  The international investigations center on entities related to 1Malaysia Development Bhd., which was set up by Prime Minister Najib Razak in 2009 to help drive the economy. The fund is having difficulty repaying more than $11 billion of debt and is at the center of investigations that are destabilizing the government.

   

  Late Friday, a former member of Malaysia’s ruling party who had raised questions about money transfers to the Malaysian prime minister was arrested on charges of attempting to undermine democracy, his lawyer Matthias Chang said.

   

  
  

   

  The arrest of Khairuddin Abu Hassan, who remained in custody on Saturday, prevented him from traveling to New York where he planned to urge U.S. authorities to investigate the transfers, Mr. Chang said.

   

  A spokeswoman for the FBI’s New York office said that no agent in the office had arranged to speak with Mr. Khairuddin or had any previous contact with him.

   

  Two of the transfers were made through the Singapore branch of a Swiss private bank and routed via Wells Fargo & Co. Wells Fargo declined to comment.

  We’ll close with our assessment from earlier this month as it’s still the best way to sum up the situation as it stands today: The more information the public gets about corruption at 1MDB, the louder will be the calls for Najib’s head (figuratively speaking we hope), and the larger will be the street protests. Throw in the fact that the loudest calls for Najib’s exit come from former Prime Minister Mahathir Mohamad and it seems like a very good bet that the political (not to mention social) upheaval in Malaysia is just getting started and that is precisely what the country does not need as it desperately tries to hang on to its stash of hard fought FX reserves in the face of a plunging currency and looming financial crisis.  

  

  

  

  

  

• This Is What Needs To Happen For Oil Prices To Stabilize

  Submitted by Dan Doyle via OilPrice.com,

  On September 10th the EIA reported a production decline in the Lower 48 – essentially shale production – of 208,000 BOPD. That is a staggeringly enormous number, approximately 10 percent of the estimated global over-supply. Additionally, it was a week-over-week number which makes it all the more impressive. Yet it received little attention through the week. Rather, Goldman Sachs was grabbing all the headlines with its $20 call on oil.

  This week, I was looking for a possible correction in that number with a zero decline or possibly even a gain (remember, the EIA numbers are estimates). But instead we got another decline of 35,000 BOPD.

  Back in June I wrote about the coming decline. Shale oil wells lose a lot of production up front, maybe 70 percent in the first year before tapering off at a 5 to 10 percent annual decline over the next few years until leveling off for the life of the well – maybe 20 years or so out. You can think of it as a slope. Once you crest it, the drop is precipitous and picks up speed before finding a bottom. We are undoubtedly now racing down that slope.

  

   

  To date, we have lost about 500,000 BOPD in the Lower 48. We will lose that again before the year is out. Pundits will claim otherwise, suggesting that oil in the 50’s or 60‘s will spur activity. But if that activity is in drilling, we won’t see any effect for a half a year or so. If it is in fracking drilled but uncompleted wells (“DUC’s”), that won’t mean much either over time. DUC’s have been the story of 2015 though they have had little effect on stopping the declines being put in.

  Back when the onslaught began, which I mark as Thanksgiving Day 2014—when OPEC declined to cut—Wall Street began talking of shale as being a switch; as in you can turn it on and off. Well, in the perspective of a remote offshore project and the 10 years that it takes to bear fruit, then the answer is yes. But shale is not a switch when it comes to controlling commodity prices, which are much more impatient. It took a full 6 to 7 months for the falling rig count to cast a shadow over production declines. And even then the initial declines were shallow, more of a cresting action really. So, going forward, we may have a new metric. That is, a sudden decline in rigs will take 6 to 9 months to show up in production in any meaningful way.

  We also still have a somewhat uneducated media that continues to shrug off its homework. We’re about a year into this bear market and oil has been covered to death on the financial news but it is still being misreported. As I mentioned above, the thought that $60 causes a switch to be thrown is wrong.

  Operators are battered and bruised. Sensible ones like EOG are holding onto their money. Others like Pioneer are thumping their chests claiming they can drill anywhere any time on their better prospects (but what company is going to claim holding mediocre acreage?). Full disclosure: I own stock in both, but should I stumble upon a few bucks (I run a frack company so these days I’m not counting on it) it would go to EOG.

  But, for the most part, very few operators are going to run headlong into a drilling program on a modest recovery. There is also the matter of their banks. They won’t let them. The shine is officially off shale in the debt markets. There are the private equity folks and other bottom feeders that are finding their way into the market but for the most part they are spending money on distressed assets, not new oil and gas wells.

  Then there are the service companies. If you imagine your worst enemy, someone that you wanted to see suffer some punishment, then let them run a service company right now.

  When the work stops so does the income. All of it. That puts you in the position of watching receivables, which you begin staring at very, very closely, waiting for the cracks to develop. Back in the good old days—2012 or so—a single stage on a shale job was being priced at $125,000 or more. The money being made was giddy. In 2014, that same stage was running around $75,000+ because of heightened competition. As of September 2015, that same stage is now down into the $30,000’s. That’s underwater. Smaller pressure pumper’s are quietly accusing the goliaths of dumping. Wall Street pundits would have you believe that there are new efficiencies being uncovered, but the fact is that those who can are jostling for (a) market share and (b) are using their weight to crush and snuff out the newbies that have come on in recent years with all that private equity money.

  When prices come back and operators are chomping at the bit to get back to work, idled service equipment will have to be brought back on-line, which is costly and time consuming. You can’t just turn a key to restart a mothballed blender or frac pump. Idled time always translates into repairs. This is when all the weak points in your equipment are suddenly and unexpectedly exposed. New crews will have to be hired and retrained because the old crews have either moved onto other industries under mass layoffs or will move on once their 6 months of unemployment benefits run out. It is time consuming to hire and re-train. And these are only some of the challenges, the biggest being the cost of ramping up without cash flow to rely on.

  Consolidations in service providers are now well underway. We’ve seen Halliburton and Baker Hughes but that was pre-downturn. There’s a few other M&A deals but for the most part it has been a story of closings and consolidations. North American frack camps are being closed at an alarming rate. Equipment that could only be bought new last year is now plentiful at Richie Brother’s auctions. Frack sand trailers are parked in front yards and lots all across American’s oil and gas plays. Service yards that are normally empty in good times are stuffed right up to the chain link fence with trucks, trailers, pickups and assorted equipment.

  So much has been made of new efficiencies in the media but there really aren’t any “new” efficiencies other than changes in frack designs, which continue to call for more sand per stage, closer spacing’s between stages (meaning more fracks per well), and some changes in additive chemistry. Sand pricing has come way down as have chemicals, but labor remains where it was. You still need the same number of crew on a well site. No one has come up with robotics to set trucks and hammer in the iron and hoses that connect them. Health insurance is going up. Vehicle, inland marine and general liability insurance are range-bound to up. Taxes don’t go away and then there’s debt. And that’s plentiful and likely increasing. There are some economies these days but the efficiency story should be ignored for the most part.

  That’s just the United States. Then there’s the rest of the world. Truthfully, I don’t know what the hell is going on in the Saudi oilfields, but I’m assuming Ed Morse at Citibank does. Morse was the analyst who called the top. A few weeks ago he stated that Saudi production could go no higher. That was big and in my mind it likely also marked the bottom. The Saudis chose not to cut last November, restated their 30mm BOPD OPEC objective, then began pumping like hell. They did announce that a 200,000 BOPD increase would be coming and maybe it has, but if they can go no higher, then global production has plateaued. Factor in the States, and other areas in decline, and I can’t see many traders and speculators lining up on the short side when the IEA is seeing oil demand going above 96 MBPD next year and the EIA is throwing out staggering week-over-week declines.

  But I’ve been wrong on this count before. I didn’t see the second leg down this summer and Goldman did. But this $20 bearish position is over-baked. It’s also too reliant on inventory numbers.

  Inventories will remain high in some parts of the world and will be drawn down in others. But overall, rising global demand and shrinking U.S. production (and other areas as well) will begin to eat away at inventory. It just requires some patience. And markets won’t wait to adjust pricing until we hit a balance. There will be some foreshadowing in oil prices here.

  Each of the 3 stages needed to move to a sustainable price have to be given time to play out. The rig count story has been told with a brutally fast 60 percent drop. Meaningful production declines are on. Next will be inventory draw downs; in that order. As to the latter, we’re just beginning to see the effects of the rig count. Cushing was down 2 million bbls this week, so no tank topping there. And non-strategic U.S. storage is off 30 million bbls from its high. That’s not even 10 percent but just wait. Large drawdowns will be here sooner than predicted.

  

  

  

  

  

• Carson Says "No Muslim Should Be In Charge Of America" As Fiorina Surges Into Second Place

  Going into last Wednesday’s second GOP primary debate hosted by CNN at the Reagan Library, all eyes were again on frontrunner Donald Trump, but this time around, he was forced to share the spotlight with former Hewlett-Packard chief Carly Fiorina, whose polished responses and straightforward demeanor during the second tier debate last month won her a spot on the main stage this time around.

  Perhaps sensing that Fiorina was set to go from also-ran to contender, Trump let the following slip in the presence of Rolling Stone’s Paul Solotaroff: “Look at that face! Would anyone vote for that? Can you imagine that, the face of our next president. I mean, she’s a woman, and I’m not s’posedta say bad things, but really, folks, come on. Are we serious?”

  Well, say what you will about Fiorina but if there’s anything she is it’s serious, and when asked point blank about Trump’s comment at the debate, she turned The Teflon Don’s own attack on Jeb Bush against him: 

  Sadly (in terms of what this says about the state of American politics), that was just about the only notable thing to come out of what ultimately turned out to be a painful, hours-long circus but as you might have surmised from the post-debate punditry parroting, Fiorina managed to steal the show and now, according to the latest CNN/ORC poll released on Sunday, she’s rocketed from 3% all the way into second place as Trump slides hard, polling at 24% from 32% (via Reuters):

  Billionaire Donald Trump remains in first place in the race to win the Republican presidential nomination for 2016, but his support has fallen to 24 percent from 32 percent previously, a CNN/ORC poll released on Sunday shows.

   

  Former Hewlett-Packard chief executive Carly Fiorina, considered to have performed well in a CNN-sponsored debate of Republican candidates on Wednesday, shot up to second place with 15 percent from only 3 percent in early September, the poll showed.

   

  The poll was conducted among 1,006 Americans from Sept. 17 to 19, and had a margin of error of plus or minus 3 percentage points.

  

  As for the man who used to be in second place, neurosurgeon Ben Carson, well, he spoke to NBC’s “Meet the Press” on Sunday and offered his take on Muslims in American politics. We present Carson’s comments with no further comment.

  Via WSJ:

  The question was in the context of Donald Trump on Thursday not correcting a New Hampshire town hall questioner who asserted President Barack Obama is Muslim and proposed “getting rid” of purported Muslim “training camps” in the U.S.

   

  “It depends on what that faith is,” replied Mr. Carson, a retired neurosurgeon who is a practicing Seventh-Day Adventist. “If it’s inconsistent with the values and principles of America, then of course it should matter. But if it fits within the realm of America and consistent with the Constitution, no problem.”

   

  Mr. Todd asked if Mr. Carson believes Islam is “consistent with the Constitution.”

   

  “No, I do not,” Mr. Carson answered. He then added: “I would not advocate that we put a Muslim in charge of this nation.  I absolutely would not agree with that.”

   

  
  

   

  Mr. Carson did allow that he could envision backing a Muslim candidate for Congress.

   

  “Congress is a different story,” he said. “But it depends on who that Muslim is and what their policies are, just as it depends on what anybody else says, you know. And, you know, if there’s somebody who’s of any faith, but they say things, and their life has been consistent with things that will elevate this nation and make it possible for everybody to succeed, and bring peace and harmony, then I’m with them.”

  

  

  

  

  

• "We're All Dr.Evil Now"

  Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

  

  DIY’s newest frontier is algorithmic trading. Spurred on by their own curiosity and coached by hobbyist groups and online courses, thousands of day-trading tinkerers are writing up their own trading software and turning it loose on the markets.

  Interactive Brokers Group actively solicits at-home algorithmic traders with services to support their transactions. YouTube videos from traders and companies explaining the basics have tens of thousands of views. More than 170,000 people enrolled in a popular online course, “Computational Investing,” taught by Georgia Institute of Technology professor Tucker Balch. Only about 5% completed it.
  – Wall Street Journal, "Algorithmic Trading: The Play at Home Version" August 9, 2015

  London day trader Navinder Sarao has been formally indicted by a U.S. federal grand jury on charges of market manipulation that prosecutors say helped contribute to the 2010 "flash crash," according to a Sept. 2 court filing made public on Thursday.

  The Justice Department first announced criminal charges against Sarao in April and is seeking to have him extradited to the United States to stand trial.

  Sarao is accused of using an automated trading program to "spoof" markets by generating large sell orders that pushed down prices. He then canceled those trades and bought contracts at lower prices, prosecutors say.
  – CNBC, "US Federal Grand Jury Indicts 'Flash Crash' Trader" September 3, 2015

  Anxiety in the industry surged last week after Li Yifei, the prominent China chief of the world’s largest publicly traded hedge fund, disappeared and Bloomberg News reported that she had been taken into custody to assist a police inquiry into market volatility. Her employer, the London-based Man Group, did little to dispel fears, declining to comment on her whereabouts.

  Ms. Li resurfaced on Sunday and denied that she had been detained, saying that she had been in “an industry meeting” and “meditating” at a Taoist retreat. But many in the finance sector are unconvinced.
  – New York Times, "China's Response to Stock Plunge Rattles Traders" September 9, 2015

  I’ve written several Epsilon Theory notes about modern market structure (“Season of the Glitch”, “Fear and Loathing on the Marketing Trail, 2014”, “The Adaptive Genius of Rigged Markets”, “Hollow Men, Hollow Markets, Hollow World”), all of which have been very well received. I’ve also written several Epsilon Theory notes about Big Data and non-human intelligences (“Troy Will Burn – the Big Deal about Big Data”, “First Known When Lost”, “Rise of the Machines”), all of which have generated a yawn. This divergence in reader reaction has puzzled me, because it seems so obvious to me that the issues are two sides of the same coin. So why can’t I communicate that?

  It’s only over the last few days, after listening to old-school luminaries like Leon Cooperman and Dick Grasso rail against systematic investment strategies, index derivative hedging, and algorithmic market making as if they were the same thing (!) … it’s only after reading press stories that praise the US indictment of Navinder Sarao, the London trader who supposedly triggered the “Flash Crash” from his home computer, but condemn the Chinese detention of Man Group’s Li Yifei as if they were different things (!) … it’s only after seeing 500 commercials for “DIY trading platforms” on TV today as if this were a thing at all (!) … that I think I’ve finally figured this out.

  We’re all Dr. Evil today, thinking that one million dollars is a lot of money, or that one second is a short period of time, or that we are individually smart or capable in a systemically interesting way. We use our small-number brains to make sense of an increasingly large-number investment world, and as a result both our market fears and our market dreams are increasingly out of touch with reality.

  There are a million examples of this phenomenon I could use (including the phrase “a million examples” which, if true, would take me a lifetime to write and you a lifetime to read, even though neither you nor I considered the phrase in that literal context), but here’s a good one. A few months ago I wrote an Epsilon Theory note on the blurry distinction between luck and skill, titled “The Talented Mr. Ripley”, where I pointed out that it was now quite feasible with a few million dollars and a few months to build a perfect putting machine, one that would put every professional human golfer to shame. Judging from the reader emails I received on this, you might have thought I had just said that the world was flat and the sun was a big candle in the sky. “Preposterous!” was the gist of these emails – sometimes said nicely and sometimes (actually, most of the time) not so nicely – as apparently I know nothing about golf nor about the various failed efforts in the past to build a mechanical putting device.

  Actually, I know a lot about these mechanical putting devices, and to compare them to the non-human putting intelligences that are constructible today is like comparing Lascaux cave art to HD television. It’s relatively child’s play to build a machine today that can identify and measure the impedance of every single blade of grass between a golf ball and the cup, one that measures elevation shifts of less than the width of an eyelash, one that applies force within an erg tolerance that human skin would interpret as the faintest breeze. That’s what I’m talking about. Do you know how the most advanced surreptitious listening devices, i.e. bugs, operate today? By measuring the vibrations in the glass window of the room where the conversation is taking place and translating those vibrations back into the sound waves that produced them. That’s what I’m talking about. Now replace “blades of grass” with “individual stock trades”. Now replace “conversation” with “investment strategy”. Arthur C. Clarke famously said that any sufficiently advanced technology is indistinguishable from magic. Do you really think we bring to bear less powerful magic in markets with trillions of dollars at stake than we do in spycraft and sports?

  And let’s be clear, the machines are here to stay. They’re better at this than we are. The magic is in place because the magic works for the people and institutions that wield the magic, and no amount of rending of garments and gnashing of teeth by the old guard is going to change that. Sure, I can understand why Dick Grasso would suggest that we should go back to a pre-Reg NMS system of human specialists and cozy market making guilds, where trading spreads were measured in eighths and it made sense to pay the CEO of a non-profit exchange $140 million in “retirement benefits.” And I almost sympathize with the nostalgic remembrances of a long list of Hero Investors recently appearing on CNBC, pining for a pre-Reg FD system of entrenched management whispering in the ear of entrenched money managers, where upstart quants knew their place and the high priests of stock picking held undisputed sway. But it ain’t happening.

  And let’s also be clear, the gulf between humans and machines is getting wider, not narrower. Even today, one of the popular myths associated with computer science is that non-human intelligences are brute force machines and inferior to humans at tasks like pattern recognition. In truth, a massively parallel processor cluster with in-line memory – something you can access today for less money than a junior analyst’s salary – is far better at pattern recognition than any human. And I mean “far better” in the same way that the sun is far better at electromagnetic radiation than a light bulb. Much has been made about how robot technologies are replacing low-end industrial and service jobs. Okay. Sure … I guess I’d be worried about that if I were working in a Foxconn factory or a Bay Area toll booth. But far more important for anyone reading this note is how non-human intelligences are replacing high-end pattern recognition jobs. Like trading. Or investing. Or asset allocation. Or advising.

  The question is not how we “fix” markets by stuffing the technology genie back into the bottle and we somehow return to the halcyon days of yore where, in Lake Wobegon fashion, all of us were above average stock pickers and financial advisors. No, the question we need to ask ourselves is both a lot less heroic and far more realistic. How do we ADAPT to a market jungle where human intelligences are no longer the apex predator?

  I’ve got two sets of suggestions, depending on whether you see yourself as a trader or an investor. It’s a lot to digest, so let’s look at traders in the balance of this week’s note and at investors next week.
   

  
   

  Every trader who ever lived believes that, like the Bradley Cooper character in “Limitless”, he or she has a recipe for grandeur. It doesn’t matter whether they find that recipe in prices or volumes or volatility or spreads or any other aspect of a security, all traders have an internalized pattern recognition system that they believe gives them a persistent edge. Most of them are wrong.

  In modern large-number markets, any trading strategy based on naïve inference is certain to have zero edge, zero alpha. By naïve inference I mean selecting a strategy based solely on the econometric fit of a time series data matrix to some market outcome like price change. It’s a trading strategy that works because … it works. There’s no “why?” answered here, and as a result the strategy is certain to be derivative, non-robust, and quickly arbitraged. Or to put it in slightly different terms, whatever purely inductive trading strategy you think gives you an edge is already being used by thousands of non-human intelligences, and they’re using the strategy far more effectively than you are. To the degree a naïve inference strategy works at all, you’re just tagging along behind the non-human intelligences, picking up their crumbs.

  What trading strategies have even a theoretical possibility of edge or alpha? Here are two.

  Possibility 1: Find a market niche where your counterparties are non-economic or differently-economic market participants – like an oil futures market where a giant, lumbering integrated oilco seeks to hedge production, or where a sovereign wealth fund looks for inflation protection (Remember those happy days when giant allocators addressed inflation concerns in commodity markets? Me, neither.) – and scalp a few dimes by taking advantage of their very different preference functions. Traders who pursue this type of strategy have a name in biological systems. They’re called parasites. I call them beautiful parasites (see the Epsilon Theory note “Parasite Rex”), because they capture more pure alpha than any strategy I know.

   

  Possibility 2: Find a market niche where you understand the impact of exogenous signals like news reports or policy statements on the behavioral tendencies of other human market participants, in exactly the same way that a good poker player “plays the player” as much as he plays the cards. These market niches tend to be sectors or assets that are driven less by fundamentals than they are by stories – think technology stocks rather than industrials – although here in the Golden Age of the Central Banker it’s hard to find any corner of the capital markets that’s not driven by policy and narrative. The game that these traders have internalized isn’t poker, of course, but is almost always some variant of what modern game theorists call “The Common Knowledge Game”, and what old-school game theorists like John Maynard Keynes called “The Newspaper Beauty Contest”.

  What do these two examples of potentially alpha-generating trading strategies have in common? They operate in a world that a non-human intelligence – which is effectively a super-human inference machine – can’t figure out. Today’s effective alpha-generating trading strategies are based on a game (in the technical sense of the word, meaning a strategic interaction between humans where my decisions depend on your decisions, and vice versa) where you can have very different outcomes from one trade to another even if the external/measurable characteristics of the trades are identical. This is the hallmark of games with more than one equilibrium solution, which simply means that there are multiple stable outcomes of the game that can arise from a single matrix of descriptive data. It means that you can’t predict the outcome of a multi-equilibrium game just by knowing the externally visible attributes of the players. It means that the pattern of outcomes can’t be recognized with naïve (or sophisticated) inference techniques. It means that traders who successfully internalize the pattern recognition of strategic behaviors rather than the pattern recognition of time series data have a chance of not just surviving, but thriving in a market jungle niche.
   

  Sigh. Look … I know that this note is going to fall on a lot of deaf ears. It’s an utterly un-heroic vision of what makes for a successful trader in a market dominated by non-human intelligences, as I’m basically saying that you should find some small tidal pool to crawl into rather than roam free like some majestic jungle cat. As such it flies in the face of every bit of heroic advertising that the industry spews forth ad nauseam every day, my personal fave being the “Type-E” commercials with Kevin Spacey shilling for E*Trade.

   

  

   

  Generalist traders are some of my favorite people in the world. They’re really smart. But they’re not smart enough. None of us are. After all, we’re only human.
   

   

   

  

  

  

  

  

• Obama Will "Accept" 100,000 Refugees In The US Starting 2017

  In a move 'spun' by John Kerry as "keeping with America’s best tradition as a land of second chances and a beacon of hope," NYTimes reports the Obama administration is willing to accept to 100,000 annually in 2017, a significant increase over the current worldwide cap of 70,000. Kerry further added that the US would explore ways to increase the limit beyond 100,000 in future years while carrying out background checks to ensure that the refugees have not been infiltrated by terrorists.

  Ironically, just as Europe is shutting its doors to Syrian refugees, the US is opening its own.

  As we wrote a week ago…

  Significantly, the countries that have generated most of the refugees are all places where the United States has invaded, overthrown governments, supported insurgencies, or intervened in a civil war. The invasion of Iraq created a power vacuum that has empowered terrorism in the Arab heartland. Supporting rebels in Syria has piled Pelion on Ossa. Afghanistan continues to bleed 14 years after the United States arrived and decided to create a democracy. Libya, which was relatively stable when the U.S. and its allies intervened, is now in chaos, with its disorder spilling over into sub-Saharan Africa.

   

  Everywhere people are fleeing the violence, which, among other benefits, has virtually obliterated the ancient Christian presence in the Middle East. Though I recognize that the refugee problem cannot be completely blamed on only one party, many of those millions would be alive and the refugees would for the most part be in their homes if it had not been for the catastrophic interventionist policies pursued by both Democratic and Republican administrations in the United States.

   

  It is perhaps past time for Washington to begin to become accountable for what it does.

  On Friday, Obama said that the United States will admit 10,000 Syrian refugees for resettlement over the next 12 months, following criticism that America is not doing enough with Europe's migrant crisis. It now appears, as The NY Times reports, Washington is taking on more responsibility…

  The Obama administration will increase the number of refugees the United States is willing to accept to 100,000 annually in 2017, a significant increase over the current worldwide cap of 70,000, Secretary of State John Kerry said on Sunday.

   

  The announcement came as Mr. Kerry conferred here with German officials on the wave of migrants that has swamped Europe and met with Syrian refugees who are seeking asylum in Europe.

   

  Under the new plan, the American limit on refugee visas would be increased to 85,000 in the fiscal year 2016. The cap would then rise to 100,000 the following year.

   

  Mr. Kerry said that the United States would explore ways to increase the limit beyond 100,000 in future years while carrying out background checks to ensure that the refugees have not been infiltrated by terrorists.

   

  “This step is in keeping with America’s best tradition as a land of second chances and a beacon of hope,” Mr. Kerry said in his prepared remarks. “And it will be accompanied by continued financial contributions to the humanitarian effort — not only from the U.S. government, but from the American people. The need is enormous, but we are determined to answer the call.”

  Finally, as a reminder, The United States has taken in about 1,500 Syrian refugees since the conflict began more than four years ago, while Europe has been absorbing hundreds of thousands.

  As we noted previously, here is where the current 10s of thousands of refugees will be placed…  These 180 resettlement center? They are shown on the map below:

  

  Perhaps this will wake Americans from their Snapchat and Caitlyn-inspired state of ignorance at what the blowback from 'the endless wars' really is…

  We Americans are in something approaching complete denial about how truly horrible our nation’s recent impact on the rest of the world has been. We are universally hated, even by those who have their hands out to receive their Danegeld, and the world is undoubtedly shaking its head as it listens to the bile coming out of the mouths of our presidential candidates. Shakespeare observed that the “evil that men do lives after them,” but he had no experience of the United States. We choose to dissimulate regarding the bad choices we make followed up with lies to justify and mitigate our crimes. And still later the evil we do disappears down the memory hole. Literally.

  Mr. Obama has the authority to increase the refugee cap, but Congress will need to approve additional funding. State Department officials have said that it would cost $1.1 billion to accept and resettle 70,000 refugees in 2015.
  *  *  *

  One cannot help but wonder whether US "allies" threw down some ultimata as the Washington-created refugee crisis swamps resources from Germany to Saudi Arabia…