• Are We Heading Into a "Debt Supernova"?

  Financial luminaries such as Ray Dalio, Kenneth Rogoff, Bill Gross, Kyle Bass, BCA Research,  John Mauldin and Martin Armstrong think that we’re at the end of a debt supercycle.

  Former director of the Office of Management and Budget said we’re facing a “debt supernova“.

  Former Fed chief Alan Greenspan said recently

  Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world.

  The European chief executive of Goldman Sachs Asset Management warns:

  There is too much debt and this represents a risk to economies.

  ***

  The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.

  The world’s most prestigious financial institution, the Bank of International Settlements (BIS) – known as the “Central Banks’ Central Bank” –  writes:

  We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines …

   

  The sum of non-financial private and government debt has not fallen
  since the crisis ….  Total debt in advanced
  economies has continued to expand (by 36 percentage points of GDP since 2007),
  with some exceptions mainly reflecting the recent decline in private sector debt in a
  limited number of countries. Meanwhile, total debt in emerging market economies
  has risen even more (by 50 percentage points).

   

  ***

   

  Aggregate private debt has barely stabilised, let alone started to correct downwards, even in the corporate sector. And government debt continues to rise steadily, in a manner reminiscent of Japan’s trend deterioration in the 1990s.

  BIS notes that this is a recipe for disaster:

  Early warning indicators of banking stress pointed to risks arising from strong credit
  growth …. Credit-to-GDP gaps – the deviation of private sector credit from
  its long-term trend – were well above 10% in Brazil and China. This ratio was also
  above 10% for a number of [other] countries … including Indonesia, Singapore and Thailand …. In the past, two thirds of all readings above this threshold were followed by serious banking strains in the subsequent three years.

  It’s not just conservatives who think that debt is too high.  Liberals think so as well.

  And see this.

  

  

  

  

• USDJPY, Nikkei 225 Tumbles After Disappointing "No Change" From Bank Of Japan

  We noted earlier the premature exuberation in USDJPY and Nikkei 225 – despite most of the sell-side not expecting anything from The BoJ – and it appears the banks were right and the FOMO traders wrong. The Bank of Japan made no change to its monetary policy (no increased buying, no shift in ETF allocations, and no NIRP for now). BoJ members spewed forth their usual mix of “everything is awesome” and “any quarter now” for the recovery but the market wasn’t buying it. That leaves only one thing left to cling to for a “we must buy” crowd – no change today ‘guarantees’ moar QQE in October.

  “No Change”

  • *BANK OF JAPAN LEAVES MONETARY POLICY UNCHANGED AS FORECAST
  • *BOJ RETAINS PLAN FOR 80T YEN ANNUAL RISE IN MONETARY BASE
  • *BOJ: CPI LIKELY TO BE ABOUT 0% FOR TIME BEING
  • *BOJ: TO CONTINUE QQE UNTIL STABLE 2% INFLATION MAINTAINED

  Nikkei plunges…

  

   

  And USDJPY tumbled…

  

   

  Of course – the propaganda attached to the statement was sickening…

  • *BOJ SAYS EASING IS EXERTING INTENDED EFFECTS (a collapse in householding spending and real wages)
  • *BOJ SEES ECONOMY CONTINUING TO RECOVER MODERATELY (heading back into 4th recession in 4 years)

  It’s not our fault…

  • *BOJ: EXPORTS, PRODUCTION AFFECTED BY SLOW DOWN IN EMERGING MKTS

  “More or less” is the new normal…

  • *BOJ: PRODUCTION HAS BEEN MORE OR LESS FLAT
  • *BOJ: EXPORTS HAVE BEEN MORE OR LESS FLAT
  • *YAMAMOTO: JAPANESE ECONOMY IS TREADING WATER

  Better spend some more on ETFs…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Public School Students Are The New Inmates In The American Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “Every day in communities across the United States, children and adolescents spend the majority of their waking hours in schools that have increasingly come to resemble places of detention more than places of learning. From metal detectors to drug tests, from increased policing to all-seeing electronic surveillance, the public schools of the twenty-first century reflect a society that has become fixated on crime, security and violence.”—Investigative journalist Annette Fuentes

  In the American police state, you’re either a prisoner (shackled, controlled, monitored, ordered about, limited in what you can do and say, your life not your own) or a prison bureaucrat (police officer, judge, jailer, spy, profiteer, etc.).

  Indeed, at a time when we are all viewed as suspects, there are so many ways in which a person can be branded a criminal for violating any number of laws, regulations or policies. Even if you haven’t knowingly violated any laws, there is still a myriad of ways in which you can run afoul of the police state and end up on the wrong side of a jail cell.

  Unfortunately, when you’re a child in the American police state, life is that much worse.

  Microcosms of the police state, America’s public schools contain almost every aspect of the militarized, intolerant, senseless, overcriminalized, legalistic, surveillance-riddled, totalitarian landscape that plagues those of us on the “outside.”

  From the moment a child enters one of the nation’s 98,000 public schools to the moment she graduates, she will be exposed to a steady diet of draconian zero tolerance policies that criminalize childish behavior, overreaching anti-bullying statutes that criminalize speech, school resource officers (police) tasked with disciplining and/or arresting so-called “disorderly” students, standardized testing that emphasizes rote answers over critical thinking, politically correct mindsets that teach young people to censor themselves and those around them, and extensive biometric and surveillance systems that, coupled with the rest, acclimate young people to a world in which they have no freedom of thought, speech or movement.

  If your child is fortunate enough to survive his encounter with the public schools, you should count yourself fortunate.

  Most students are not so lucky.

  By the time the average young person in America finishes their public school education, nearly one out of every three of them will have been arrested.

  More than 3 million students are suspended or expelled from schools every year, often for minor misbehavior, such as “disruptive behavior” or “insubordination.” Black students are three times more likely than white students to face suspension and expulsion.

  For instance, a Virginia sixth grader, the son of two school teachers and a member of the school’s gifted program, was suspended for a year after school officials found a leaf (likely a maple leaf) in his backpack that they suspected was marijuana. Despite the fact that the leaf in question was not marijuana (a fact that officials knew almost immediately), the 11-year-old was still kicked out of school, charged with marijuana possession in juvenile court, enrolled in an alternative school away from his friends, subjected to twice-daily searches for drugs, and forced to be evaluated for substance abuse problems.

  As the Washington Post warns: “It doesn’t matter if your son or daughter brings a real pot leaf to school, or if he brings something that looks like a pot leaf—okra, tomato, maple, buckeye, etc. If your kid calls it marijuana as a joke, or if another kid thinks it might be marijuana, that's grounds for expulsion.”

  Many state laws require that schools notify law enforcement whenever a student is found with an “imitation controlled substance,” basically anything that look likes a drug but isn’t actually illegal. As a result, students have been suspended for bringing to school household spices such as oregano, breath mints, birth control pills and powdered sugar.

  It’s not just look-alike drugs that can get a student in trouble under school zero tolerance policies. Look-alike weapons (toy guns—even Lego-sized ones, hand-drawn pictures of guns, pencils twirled in a “threatening” manner, imaginary bows and arrows, even fingers positioned like guns) can also land a student in detention.

  Acts of kindness, concern or basic manners can also result in suspensions. One 13-year-old was given detention for exposing the school to “liability” by sharing his lunch with a hungry friend. A third grader was suspended for shaving her head in sympathy for a friend who had lost her hair to chemotherapy. And then there was the high school senior who was suspended for saying “bless you” after a fellow classmate sneezed.

  Unfortunately, while these may appear to be isolated incidents, they are indicative of a nationwide phenomenon in which children are treated like suspects and criminals, especially within the public schools.

  The schools have become a microcosm of the American police state, right down to the host of surveillance technologies, including video cameras, finger and palm scanners, iris scanners, as well as RFID and GPS tracking devices, employed to keep constant watch over their student bodies.

  Making matters worse are the police.

  Students accused of being disorderly or noncompliant have a difficult enough time navigating the bureaucracy of school boards, but when you bring the police into the picture, after-school detention and visits to the principal’s office are transformed into punishments such as misdemeanor tickets, juvenile court, handcuffs, tasers and even prison terms.

  In the absence of school-appropriate guidelines, police are more and more “stepping in to deal with minor rulebreaking—sagging pants, disrespectful comments, brief physical skirmishes. What previously might have resulted in a detention or a visit to the principal’s office was replaced with excruciating pain and temporary blindness, often followed by a trip to the courthouse.”

  Thanks to a combination of media hype, political pandering and financial incentives, the use of armed police officers to patrol school hallways has risen dramatically in the years since the Columbine school shooting (nearly 20,000 by 2003). Funded by the U.S. Department of Justice, these school resource officers (SROs) have become de facto wardens in the elementary, middle and high schools, doling out their own brand of justice to the so-called “criminals” in their midst with the help of tasers, pepperspray, batons and brute force.

  The horror stories are legion.

  One SRO is accused of punching a 13-year-old student in the face for cutting the cafeteria line. That same cop put another student in a chokehold a week later, allegedly knocking the student unconscious and causing a brain injury. In Pennsylvania, a student was tased after ignoring an order to put his cell phone away.

  Defending the use of handcuffs and pepper spray to subdue students, one Alabama police department reasoned that if they can employ such tactics on young people away from school, they should also be permitted to do so on campus.

  Now advocates for such harsh police tactics and weaponry will tell you that school safety should be our first priority lest we find ourselves with another Sandy Hook. What they will not tell you is that such shootings are rare. As one congressional report found, the schools are, generally speaking, safe places for children.

  In their zeal to crack down on guns and lock down the schools, these cheerleaders for police state tactics in the schools might also fail to mention the lucrative, multi-million dollar deals being cut with military contractors such as Taser International to equip these school cops with tasers, tanks, rifles and $100,000 shooting detection systems.

  Indeed, the transformation of hometown police departments into extensions of the military has been mirrored in the public schools, where school police have been gifted with high-powered M16 rifles, MRAP armored vehicles, grenade launchers, and other military gear. One Texas school district even boasts its own 12-member SWAT team.

  According to one law review article on the school-to-prison pipeline, “Many school districts have formed their own police departments, some so large they rival the forces of major United States cities in size. For example, the safety division in New York City’s public schools is so large that if it were a local police department, it would be the fifth-largest police force in the country.”

  The ramifications are far-reaching.

  The term “school-to-prison pipeline” refers to a phenomenon in which children who are suspended or expelled from school have a greater likelihood of ending up in jail. One study found that “being suspended or expelled made a student nearly three times more likely to come into contact with the juvenile justice system within the next year.”

  Not content to add police to their employee rosters, the schools have also come to resemble prisons, complete with surveillance cameras, metal detectors, drug-sniffing dogs, random locker searches and active shooter drills. The Detroit public schools boast a “‘$5.6 million 23,000-sq ft. state of the art Command Center’ and ‘$41.7 million district-wide security initiative’ including metal detectors and ID system where visitors’ names are checked against the sex offender registry.”

  As if it weren’t bad enough that the nation’s schools have come to resemble prisons, the government is also contracting with private prisons to lock up our young people for behavior that once would have merited a stern lecture. Nearly 40 percent of those young people who are arrested will serve time in a private prison, where the emphasis is on making profits for large megacorporations above all else.

  Private prisons, the largest among them being GEO and the Corrections Corporation of America, profit by taking over a state’s prison population for a fee. Many states, under contract with these private prisons, agree to keep the prisons full, which in turn results in more Americans being arrested, found guilty and jailed for nonviolent “crimes” such as holding Bible studies in their back yard. As the Washington Post points out, “With the growing influence of the prison lobby, the nation is, in effect, commoditizing human bodies for an industry in militant pursuit of profit… The influence of private prisons creates a system that trades money for human freedom, often at the expense of the nation’s most vulnerable populations: children, immigrants and the poor.”

  This profit-driven system of incarceration has also given rise to a growth in juvenile prisons and financial incentives for jailing young people. Indeed, young people have become easy targets for the private prison industry, which profits from criminalizing childish behavior and jailing young people. For instance, two Pennsylvania judges made headlines when it was revealed that they had been conspiring with two businessmen in a $2.6 million “kids for cash” scandal that resulted in more than 2500 children being found guilty and jailed in for-profit private prisons.

  It has been said that America’s schools are the training ground for future generations. Instead of raising up a generation of freedom fighters, however, we seem to be busy churning out newly minted citizens of the American police state who are being taught the hard way what it means to comply, fear and march in lockstep with the government’s dictates.

  As I point out in my book Battlefield America: The War on the American People, with every school police raid and overzealous punishment that is carried out in the name of school safety, the lesson being imparted is that Americans—especially young people—have no rights at all against the state or the police.

  I’ll conclude with one hopeful anecdote about a Philadelphia school dubbed the “Jones Jail” because of its bad reputation for violence among the student body. Situated in a desperately poor and dangerous part of the city, the John Paul Jones Middle School’s student body had grown up among drug users, drug peddlers, prostitutes and gun violence. “By middle school,” reports The Atlantic, most of these students “have witnessed more violence than most Americans who didn't serve in a war ever will.”

  According to investigative reporters Jeff Deeney, “School police officers patrolled the building at John Paul Jones, and children were routinely submitted to scans with metal detecting wands. All the windows were covered in metal grating and one room that held computers even had thick iron prison bars on its exterior… Every day… [police] would set up a perimeter of police officers on the blocks around the school, and those police were there to protect neighbors from the children, not to protect the children from the neighborhood.”

  In other words, John Paul Jones, one of the city’s most dangerous schools, was a perfect example of the school-to-prison, police state apparatus at work among the nation’s youngest and most impressionable citizens.

  When management of John Paul Jones was taken over by a charter school that opted to de-escalate the police state presence, stripping away the metal detectors and barred windows, local police protested. In fact, they showed up wearing Kevlar vests. Nevertheless, school officials remained determined to do away with institutional control and surveillance, as well as aggressive security guards, and focus on noncoercive, nonviolent conflict resolution with an emphasis on student empowerment, relationship building and anger management.

  The result: a 90% drop in serious incidents—drug sales, weapons, assaults, rapes—in one year alone. As one fifth-grader remarked on the changes, “There are no more fights. There are no more police. That's better for the community.”

  The lesson for the rest of us is this: you not only get what you pay for, but you reap what you sow.

  If you want a nation of criminals, treat the citizenry like criminals.

  If you want young people who grow up seeing themselves as prisoners, run the schools like prisons.

  But if you want to raise up a generation of freedom fighters, who will actually operate with justice, fairness, accountability and equality towards each other and their government, then run the schools like freedom forums. Remove the metal detectors and surveillance cameras, re-assign the cops elsewhere, and start treating our nation’s young people like citizens of a republic and not inmates in a police state.

  

  

  

  

  

• USDJPY Surges Ahead Of BoJ Statement, China Strengthens Yuan As Washington Folds On Cybersecurity Sanctions

  It appears someone is betting on Kuroda and his cronies to do something later this evening (just like they did as The Fed stopped QE3 back in October) in some wierd monetray policy quid pro quo of – dump Yen all you like as long as the carry trade is alive and well. USDJPY is up from 119.85 to 120.50 (and NKY up over 400 points from US session lows), as perhaps the fact that The BoJ's ETF-buying kitty is running dry at a crucial time. Chinese equity markets are extending yesterday's losses as margin debt declines to a 9 month low (still +62% YoY), injects another CNY50bn and strengthens the Yuan fix for the 3rd day in a row; but in a somewhat embarrassing move, Washington has decided not to impose sanctions on China ahead of Xi's first state visit next week.

   

  Japan was excited…

  JPY dumping against the USD is some odd anticipation of moar QQE from Kuroda…

  

  Because the last 10 have worked so well.

  This is what the big banks think…

  Goldman Sachs: A key focus point in BOJ Governor Kuroda’s press conference will be the potential influence of the US FOMC rate hike on the BOJ’s decision making on its own monetary policy given that the FOMC will have its policy meeting on Sep 16-17. The other point is the impact of the renewed crude oil price decline and foreign demand risk on the BOJ’s 2% inflation target and the BOJ’s responses to this impact

   

  We can find little in the way of hard data to corroborate the BOJ’s “virtuous circle” between wages and consumption. BOJ governor Haruhiko Kuroda spoke recently in New York about a second virtuous circle which sees rising corporate earnings spurring capex, but this is also looking somewhat tenuous, in our view. The BOJ has tended to focus only on the fall in crude oil prices as a reason for the recent CPI slowdown. That said, we think the BOJ will be eventually acknowledge rising downside risks in the much more fundamental form of the output gap, wages and inflation expectations, all of which the BOJ itself has said will be key to gauging the medium-term price outlook. Accordingly, our base scenario is still premised on the BOJ easing monetary policy further at its end-October monetary policy meeting.

   

  The exhaustion of additional monetary stimulus options is something of a problem. We think it would be difficult for the central bank to accelerate JGB purchases from the current ¥80 tn per year given the gradual reduction in the scope for purchasing.

   

  BoAML: Taking a broader view of Japan’s economic outlook, we identify three check-points for maintaining our (and probably BoJ’s) optimistic view. First, non-financial corporations' profit margins reached an all-time high in 2Q, as shown in Financial Statements Statistics of Corporations by Industry, and conditions for corporate earnings are good. Although margin improvement has started to feed through to capital expenditure and household income / consumption, the current pace is still moderate. Whether or not this benign cycle of earnings translating into expenditure accelerates far enough in 3Q onwards for the government and BoJ to achieve their policy targets will be one key element to watch. Second, trends in the US economy here on. We believe contribution of external demand to 3Q growth will be zero or slightly negative. Japan’s exports to China are expected to remain weak, affected by the slowdown in China. In this context we believe the extent to which a revival in Japan’s exports to the US (via the economic recovery there) can offset the weak exports to China will be a key aspect in external demand outlook. Third, impact of the turmoil in the financial markets since mid-August. Our main scenario is for heightened risk-aversion in the financial markets proving temporary. However, if a 10%-plus rise in the yen and/or a fall in the stock market were to persist (Nikkei 225 drops below 18,000, or yen appreciates and approaches ¥115/$), this will likely have a material impact on Japan’s economy, and hence, merits continued vigilance.

   

  Citi: With renewed weakness in crude oil prices since summer partly reflecting worrisome developments in the Chinese economy, the BoJ’s scenario for the CPI reaching the vicinity of 2% YoY around the first half of FY2016 now looks even less likely to materialize, in our view. However, if inflation does not pick up as policymakers anticipate solely because of declining energy prices, the BoJ may not take additional easing measures unless inflationary expectations are affected negatively. We note, however, there are already early signs for declining inflationary expectations, albeit still tentative at the moment.

   

  Deutsche: The question is whether the BoJ will ease further, but we see little likelihood of this. The BoJ will probably only ease further in response to events that would make the outlook for 2% inflation impossible. Inflation expectations could fall due to a decline in oil prices like last year, but oil prices have not fallen to the extent they did in 2014. In addition, regarding the output gap, BoJ Governor Haruhiko Kuroda at the Upper House Financial Affairs Committee on the 10th said "There is a good chance that GDP will be positive in Jul-Sep", indicating that he does not anticipate a decline in the underlying trend in inflation due to economic deterioration. If the BoJ does ease further we expect it would focus on qualitative measures such as increasing ETF purchases and extending the duration of JGB purchases. In that case, we expect the superlong sector would outperform. Kuroda indicated on the 10th that the Bank was not considering reducing or abolishing the IOER rate. A rate cut, including negative rates, is unlikely. BoJ Board Member Sayuri Shirai's panel discussion remarks on the 8th gave numerous reasons for maintaining the IOER rate, but we see one compelling explanation for why the Bank cannot use negative rates. Excluding the BoJ, the banks' surplus deposits have enabled the smooth absorption of JGBs equaling over 200% of GDP. The probability that negative rates would destabilize the JGB market therefore makes such a policy unlikely from the perspective of managing national risk.

  Which can all be summed up thus – "we do not think The BoJ has any good reason to ease tonight… but then again, you never know!"

  So, of course, where USDJPY goes – so goes Nikkei 225… Up 400 points from US session lows…

  

  *  *  *

  Then China slams open…

  With an immediate ban on anything that doesn't say "everything is awesome"

  • *CHINA TO SHUT STATE CULTURE COS. WITH IMPROPER CONTENT: XINHUA

  More open mouth operations…

  • *CHINA SHOULD STABILIZE YUAN INSTEAD OF LET IT FALL: INFO DAILY
  • *UNCERTAINTY BROUGHT BY YUAN FALL WOULD HURT EXPORTS: INFO DAILY

  China strengthens the Yuan fix for the 3rd day in a row and inject snoather CNY50bn

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3665 AGAINST U.S. DOLLAR
  • *PBOC TO INJECT 50B YUAN WITH 7-DAY REVERSE REPOS: TRADER
  • *HONG KONG DOLLAR QUOTED NEAR UPPER END OF PERMITTED RANGE

  

  After last night's tumble…

  

   

  Chinese equity markets are extending losses at the open…

  • *FTSE CHINA A50 SEPT. FUTURES ADVANCE 0.5%
  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 2.2% TO 3,208.74
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 2.3% TO 3,043.80

  But flows continue to leave…

  • *CHINA END-AUG. EQUITY FUNDS NET VALUE FALLS 44% ON MONTH

  As delveraging continues…

  • *SHANGHAI MARGIN DEBT BALANCE FALLS TO NINE-MONTH LOW

  But bear in mind, margin debt remains +62% YoY…

  

  *  *  *

  And finally, Washington folds ahead of China's visit… (as WaPo reports)

  The United States will not impose economic sanctions on Chinese businesses and individuals before the visit of China President Xi Jinping next week, a senior administration official said Monday.

   

  The decision followed an all-night meeting on Friday in which senior U.S. and Chinese officials reached "substantial agreement" on several cybersecurity issues, said the administration official, who spoke on the condition of anonymity because of the topic's sensitivity.

   

  The potential for sanctions in response to Chinese economic cyberespionage is not off the table and China's behavior in cyberspace is still an issue, the official said. "But there is an agreement, and there are not going to be any sanctions" before Xi arrives on Sept. 24, the official said.

   

  The breakthrough averted what would have raised a new point of tension with the Chinese that could have overshadowed the meeting — and Xi's first state visit.

   

  "They came up with enough of a framework that the visit will proceed and this issue should not disrupt the visit," the official said. "That was clearly [the Chinese] goal." 

  Charts: Bloomberg

  

  

  

  

  

• Fourth Turning: Crisis Of Trust, Part 2

  Submitted by Jim Quinn via The Burning Platform blog,

  In Part 1 of this article I discussed the catalyst spark which ignited this Fourth Turning and the seemingly delayed regeneracy. In Part 2 I will ponder possible Grey Champion prophet generation leaders who could arise during the regeneracy.

  

  The nearly seven year reign of Barack Obama has resulted in furthering wealth inequality, in spite of his socialistic rhetoric. Notwithstanding his Nobel Peace Prize, military spending is at all-time highs and we are engaged in actual and proxy wars across the Middle East and in the Ukraine. Race relations have never been worse. Poverty levels have never been worse. Real median household income is lower than it was in 1989. Real hourly wages are at 50 year lows. Home ownership has plunged to 50 year lows, as middle class workers have been kicked out of their homes and young people are saddled with so much student loan debt and bleak job opportunities they will never have an opportunity to own. The ownership society pushed by Clinton and Bush, with the proliferation of Wall Street created “exotic” subprime mortgages, peddled to people incapable of paying their mortgages, blew up the world in 2008, and the fall out will last for decades.

  

  Meanwhile, Wall Street banks have reaped $700 billion of ill-gotten profits since 2010 as the Federal Reserve has handed them trillions of interest free funds to gamble with, while rigging the financial markets, and paying their executives obscene bonuses. The hubris and arrogance of the Wall Street titans is appalling, as they buy politicians, write toothless financial regulations (Dodd Frank) for their bought off politicians to pass, report fraudulent financial results with the stamp of approval from the FASB, blatantly rig interest rate, currency, stock and commodities markets, and use deception and propaganda to distract and mislead the public through their corporate media mouthpieces – dependent upon Wall Street advertising revenue to thrive.

  And still, Obama has not prosecuted one banker for the largest control fraud in world history, as he assumed the role of useful puppet to the vested financial interests. I’m sure he will be paid handsomely after he leaves office in 2017, just as Bill Clinton, Alan Greenspan, and Ben Bernanke have been richly rewarded by their Deep State benefactors for a job well done.

  

  Illegal immigrants are pouring over our borders with encouragement from the Obama administration. Obamacare has proven to be a giveaway to health insurance conglomerates, hospital corporations, and drug companies, as insurance costs are driven higher, care deteriorates, and deficits soar ever higher. The welfare state has grown to immense proportions, with 46 million Americans remaining on food stamps, proving the reported unemployment rate of 5.1% to be a fraud. The labor participation rate of 62.6% is at levels last seen in 1977 and far below the 67.1% rate achieved from 1997 through 2000. The politicians and corporate media applaud $600 billion deficits as an achievement, while 10,000 Boomers turning 65 per day is guaranteed to drive future deficits back over $1 trillion per year.

  Laurence Kotlikoff, economics professor at Boston University, reveals the truth about our true fiscal mess. Our unfunded liabilities are too damn big and our current deficits are a lie:

  “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. The government is 58% underfinanced. Social Security is 33% underfinanced. So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape. So, how much is America on the hook for in the future?  If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything and take all those expenditures into the future and compare that to all the taxes that are projected to come in, and the difference is $210 trillion.  That’s the fiscal gap.  That’s our true debt.”

  We now know for sure Barack Obama is not the Grey Champion of this Fourth Turning. He has only worsened the three core elements of this Crisis – debt, civic decay, and global disorder. Since his ascension to power, U.S. and global debt has expanded at an astounding rate never seen in world history. Class, race, political and cultural divides have grown to vast proportions. The world is exploding in violence, refugees flooding over borders, civil wars, proxy wars, riots, currency wars and economic depressions caused by U.S. military interventions and monetary policies.

  The world is becoming increasingly chaotic and the American people are seeking a leader who can bring order, make tough decisions, and capture the zeitgeist of this moment in history. They are in search of a prophet generation (Boomer) Grey Champion, whose arrival marks the moment of darkness, adversity and peril as the Fourth Turning careens towards its climax. The Grey Champion doesn’t necessarily have to be a good person, but they must lead and display tremendous confidence in their cause and path. Franklin, Lincoln, and FDR have many detractors, but during their Fourth Turnings, they most certainly led, casting aside obstacles (sometimes illegally) and enduring dark days and bleak prospects for success. Is there someone of that stature ready to lead the American people now?

  Gray Champion?

  

  

  “Americans have always been blind to the next turning until after it fully arrives.

  Most of today’s adult Americans grew up in a society whose citizens dreamed of perpetually improving outcomes: better jobs, fatter wallets, stronger government, finer culture, nicer families, smarter kids, all the usual fruits of progress. Today, deep into the Third Turning, these goals feel like they are slipping away. Many of us wish we could rewind time, but we know we can’t – and we fear for our children and grandchildren.

  Many Americans wish that, somehow, they could bring back a saecular spring now. But seasons don’t work that way. As in nature, a saecular autumn can be warm or cool, long or short, but the leaves will surely fall. The saecular winter can hurry or wait, but history warns that it will surely be upon us.

  We may not wish the Grey Champion to come again – but come he must, and come he will.” – The Fourth Turning – Strauss & Howe – 1997

  When Strauss and Howe wrote these words eighteen years ago, halfway through the Unraveling, the American Dream was already turning into a nightmare. Perpetually improving outcomes have turned into a perpetually declining standard of living for most Americans. Fear for the futures of our children and grandchildren were warranted. Millennials have been lured into and enslaved by $1.3 trillion of student loan debt, left with limited job opportunities and low pay, priced out of the housing market, and handed a $200 trillion bill by their elders. Despite factual data showing that default rates on for-profit student loans were even three times as high as subprime mortgages in the early 2000s, the government took over the student loan market in 2009 and proceeded to dole out $500 billion (taxpayer money) in new debt over the next six years to anyone that could fog a mirror and scribble an X on a loan document.

  The criminal enterprises known as for profit colleges such as: University of Phoenix, Corinthian, ITT Tech, Strayer, and Devry, have absconded with the money, provided dreadful education, graduated about 20% of enrollees, and left millions of suckers with billions of debt. With default rates now exceeding 50%, students are angry, demanding relief from their own stupidity. Hard working taxpayers who have struggled to put themselves and their kids through college are angry they will foot the bill for defaults that anyone with a high school diploma could see would happen. Trust in the government’s decision making process and motives have been rightfully shattered.

  It is clear the Obama administration purposely enslaved young people in debt to artificially lower the unemployment rate for political purposes. The issuance of colossal amounts of subprime auto loan debt (begun by Ally Financial when it was owned by the Federal government) has also been politically motivated to artificially increase GDP figures and pump up the financial results of the US automakers (GM, Chrysler) saved with taxpayer funds in 2009. There are no free markets left. Everything is manipulated for a political reason or to benefit a particular constituent. The average American pays the price, while the connected .1% are further enriched.

  

  When young people protested against the true enemies of the people on Wall Street in 2011, they were maced, beaten, tear gassed, trampled by horses and imprisoned by the enforcers of the surveillance police state. The working middle class has seen their real wages stagnate for the last 50 years, as the dollar was unpegged from gold, politicians were free to run up the national debt with no short term consequences, and citizens were turned into consumers through media propaganda, the peddling of debt by Wall Street, and the complete and utter failure of our educational system.

  While working class Americans have seen no advancement in their real wages in almost a half century, the cost of their food, energy, education, healthcare, housing, and taxes have risen astronomically. It is no coincidence the Wall Street bankers stepped in to offer prodigious levels of consumer debt in the form of credit card, mortgage and auto loans to allow Americans to pretend their standard of living hasn’t fallen. Excessive levels of debt leads to excessive profits for the moneyed interests. The last 35 years have been a grand national delusion.

  

  Trust in the economic system, financial markets, political parties, mainstream media, and generational social contract has been destroyed. Rampant irresponsible fraud, abuse, deception, and deceit by the moneyed interests, lackey politicians, their government apparatchiks, media mouthpieces, and legal system have shattered the illusion the establishment is looking out for your best interests. The revelations by Edward Snowden of illegal mass surveillance, militarization of local police forces, military exercises in US cities, attempts to roll back the 2^nd Amendment, and trying to control the internet has revealed the true nature of the corporate fascist state. The disintegration of trust began slowly after 9/11 but accelerated rapidly over the last three years. Our leaders have done the exact opposite of what needed to be done after 2008. Everything they have implemented has failed. The average American is worse off than they were in 2009 at the depths of the recession.

  The highly educated, white collar, sociopath masters of the universe have captured the levers of power in this country. The world is enthralled and mesmerized by a gray haired academic troll-like figure who will ascend her monetary throne and pronounce whether her and her fellow central bank lackeys will raise an obscure inconsequential interest rate from 0% to .25%. This is nothing but a meaningless diversion as her owners (Wall Street banks), their corporate brethren, captured politicians, pliable judiciary, and media mouthpieces rig the financial markets to enrich themselves while impoverishing the masses and drowning current and future generations in un-payable debt. Harry Markopolos, who uncovered Bernie Madoff’s Ponzi scheme, while the SEC and criminal co-conspirator Wall Street bankers willfully ignored the blatant easily identifiable fraud, captures the essence of why trust in our economic, financial, regulatory, political, judicial and journalistic systems has collapsed:

  “Government has coddled, accepted, and ignored white collar crime for too long. It is time the nation woke up and realized that it’s not the armed robbers or drug dealers who cause the most economic harm, it’s the white collar criminals living in the most expensive homes who have the most impressive resumes who harm us the most. They steal our pensions, bankrupt our companies, and destroy thousands of jobs, ruining countless lives.” – Harry Markopolos, Congressional Testimony

  The men who retain the levers of power are the same men who were in command when the Crisis struck in 2008. They are even more powerful and rich today than prior to the financial collapse provoked by their unbridled greed and avarice. They believed they could engineer a recovery by promoting confidence in the Wall Street banks through the issuance of prodigious amounts of debt to solve a crisis caused by too much debt. Total debt outstanding in the U.S. rose from $52 trillion in 2009 to $59 trillion today, at the behest of the government and their Federal Reserve cohorts.

  While rational thinking Americans have continued to pay down their mortgage debt and reduce credit card usage, the Federal government through their insolvent (if using mark to market accounting) entities Fannie and Freddie, along with their monopoly on student loan issuance, and their massive deficit spending, have accounted for more than 100% of the $7 trillion increase. Total global debt approaches $230 trillion, up approximately $70 trillion since the crisis began.

  

  The mood change in the country is palpable as economic misery besets the middle class; race wars break out in urban ghettos across the land; push back against the police state intensifies; distrust of a rigged financial system keeps people out of the market; young people are priced out of the housing market by Wall Street price manipulation; productive good paying jobs dwindle; government bureaucrats prove themselves inept at everything they attempt; illegal immigrants pour over the southern border overwhelming the social safety net when it is already stretched thin; and faith in both political parties is close to zero. The regeneracy has been delayed, but this has allowed the anger, bitterness, and dismay with the government to grow to staggering proportions. The country is growing desperate for someone to lead. Ignoring the debt, civic decay and global disorder is no longer acceptable. It’s time for someone to step forward and tell the people the truth.

  “Soon after the catalyst, a national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new public demand for decisive action. Republicans, Democrats, or perhaps a new party will decisively win the long partisan tug of war. This new regime will enthrone itself for the duration of the Crisis. Regardless of its ideology, that new leadership will assert public authority and demand private sacrifice. Where leaders had once been inclined to alleviate societal pressures, they will now aggravate them to command the nation’s attention. The regeneracy will be solidly under way.” – The Fourth Turning – Strauss & Howe – 1997

  The Grey Champion is likely to be elevated through an election, but it isn’t a requirement. Ben Franklin and Samuel Adams were the intellectual and firebrand Grey Champions of the American Revolution. They inspired the revolutionaries through writings and oratory. Lincoln and FDR were elected Grey Champions, but Lincoln only won 40% of the popular vote in a four way race, while FDR won in a landslide with 57% of the vote over Hoover. It was clear Lincoln didn’t have a mandate, as Southern states began seceding after his election. No one can argue Franklin, Adams, Lincoln or FDR united everyone in a common cause. They actually aggravated the societal pressures that had been ignored or deferred by their predecessors. Compromise was not an option for these men. They were going to lead based upon their own criteria. You were either with them or against them. And many were against them.

  It is widely believed only 20% of colonial Americans were strong supporters of the American Revolution, with 20% Loyalists, and the rest sitting on the fence. Franklin’s own son remained a Loyalist throughout the fight. Half the country departed the Union upon Lincoln’s election and his support in the North was lukewarm at best. Lincoln captured 55% of the vote in the 1864 election, with only northern states voting. Even though FDR won landslide popular vote victories in 1932 and 1936, his detractors and enemies were many. FDR’s confiscation of gold and antagonism toward big business convinced a number of wealthy businessmen to approach General Smedley Butler to lead a coup against FDR and install a fascist regime to run the country. So, it is clear Grey Champions are not universally loved or supported. They have the ability to ignore the complexity of life and focus on one simple imperative: society must prevail.

  Until three months ago the 2016 presidential election was in control of the establishment. The Party was putting forth their chosen crony capitalist figureheads – Jeb Bush and Hillary Clinton. They are hand-picked known controllable entities who will not upset the existing corrupt system. They are equally acceptable to Goldman Sachs, the Federal Reserve, the military industrial complex, the sickcare industry, mega-corporate America, the moneyed interests, and the never changing government apparatchiks. The one party system is designed to give the appearance of choice, while in reality there is no difference between the policies of the two heads of one party and their candidate products. But now Donald Trump has stormed onto the scene from the reality TV world to tell the establishment – You’re Fired!!!

  As Hillary’s crimes and lies catch up to her and Jeb Bush drowns in a sea of irrelevance, low energy, and passionless rhetoric, Trump and Bernie Sanders have surged ahead in the polls. The country is tired of the Clinton and Bush dynasties. They are tired of the existing ruling authority. My initial reaction to Trump’s entering the presidential race was scorn. He’s a bloviating, egocentric, self-promoting, reality TV parody of himself. After seeing him in action for the last three months it has become apparent the country deserves a president like Trump.

  He represents everything we’ve become as a nation. Sound bites, no substance, self-involved, boastful, and in constant attack mode are the qualities necessary to lead America today. Facebook twitter nation merits a president like Trump. Bill Clinton playing sax on Arsenio and Obama’s weekly guest appearances on the Daily Show or Jimmy Fallon Show has already tainted and made a mockery of the office of the president.

  Trump was born in 1946 putting him in the Boomer Prophet generation, so he fits the mold of Grey Champion from a generational perspective. Hillary and Jeb are also Boomers, with Sanders from the Silent generation. Trump has struck a nerve with a wide swath of middle class America with his anti-illegal immigration rhetoric, disdain for the elitist mainstream media, unflinching assessment of his second string GOP opponents, and exuberant confidence in his own abilities.

  Building a wall on our southern border, going after billionaire hedge fund managers, cutting government spending, and negotiating trade deals that don’t ship American jobs overseas, are resonating with fed up households across America. Some polls show Trump with significant support among blacks and Hispanics. The linear thinking supporters of the status quo are flabbergasted and outraged by Trump’s popularity. The ruling classes never anticipate the mood shift of the peasants as they look down on the masses from their gated estates and penthouse suites. The country is looking for someone who can tear down the entire fetid, corrupt, rotting structure.

  The moneyed interests are still betting on Hillary or Jeb, but they are getting nervous. There is still time for them to pull the old Ross Perot play by threatening Trump or his family with harm or making him an offer he can’t refuse in financial terms. But, with the Middle East awash in blood, refugees flooding into Europe, China experiencing an epic meltdown, oil producing countries suffering depressions, emerging market economic systems collapsing under the weight of unpayable promises, the Federal Reserve panicked as recession approaches with interest rates at zero bound, and stock, bond and real estate bubbles approaching the inescapable pin, the stars are aligning for a 2^nd crisis more perilous and catastrophic than the 2008 catalyst event. The onset of phase two of this Crisis in 2016 will produce a populace more desperate, less trusting of the establishment and likely to turn towards someone like Trump, in despair.

  No matter who is elected in November 2016, there is no turning back. Winter is here and Spring is many years away. Grim times will befall the world. The potential for tragic consequences is growing by the day. The storm clouds are gathering on the horizon. There will certainly be famine, chaos, death, destruction, and war. Let’s pray our Grey Champion can lead us through the valley of death to a new High.

  

  “The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe – The Fourth Turning

  In Part 3 I will try to assess which channels of distress are likely to burst forth with the molten ingredients of this Fourth Turning, and lastly make some educated guesses about potential climaxes.

  

  

  

  

  

• Caught On Tape: Topless Femen Protesters Storm Muslim Debate "Whether Wives Should Be Beaten"

  If Europe was concerned about Christian-Muslim cross religious and cultural differences before, and in light of the recent influx of Syrian refugees into the continent, events over the weekend confirmed such concerns are poignantly valid.

  This Saturday, during a conference at the Muslim Salon in Pontoise near Paris on the role of Muslim women, two Muslim fundamentalist imams were debating the question of “whether wives should be beaten or not”, Telegraph reports that two Femen protester activists, aged 25 and 31, “ripped off their Arab-style cloaks and jumped on to the stage on Saturday evening. One had the slogan “No one subjugates me” inked across her torso. The other bore the words “I am my own prophet.”

  

  Chaos immediately erupted. The imams promptly left the stage but not before taking a long, hard look at the half-nued protesters, who grabbed microphones and shouted feminist slogans in French and Arabic before being roughly bundled off the stage by about 15 men and handed over to police. Video footage of the incident shows a man apparently kicking one of the women.

  Telegraph adds that according to Ms Shevchenko, a spokeswoman for the feminist group, some of the men shouted “dirty whores” and “kill them”. She thanked the police for protecting the two women, who were taken into custody. They were released after being questioned by prosecutors, who said they would continue investigating what happened. Conference organisers said they would press charges against the activists.

  They were not alone in taking exception to the presence of fundamentalist preachers at the event, where shopping and cooking were showcased as appropriate “feminine activities”. One speaker at the conference has reportedly posted calls on social networks for women to veil their faces or risk hellfire and sexual assault in the afterlife.

  The showdown took place after nearly 6,000 people signed an online petition against the event. At the same time, twitter posts called for the protesters to be stoned or collectively raped. On Facebook, the conference organisers urged Muslims to “stand together” and attend the final day of the event on Sunday. They said it was “the victim of an anti-Muslim media frenzy.”

  The chaos that erupted when the women stormed the stage was caught on video.

  

  

  

  

  

• Iraq War Veteran Blows Whistle On Shameless Propaganda Being Taught At Police Academies

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Before getting into the meat of this post, I want to start off by stating a fact: There is no “war on police” happening in America today. What is happening is a growing movement of people who want police accountability, profess a desire to reform the justice system so that we stop incarcerating people for the  oxymoron of “victimless crimes,” and an end to the widespread thieving of the public without due process via a practice known as civil asset forfeiture.

  I’ve covered these topics extensively over the years. Here are just a few examples:

  The United States: 5% of the World’s Population, 25% of its Prisoners

  Don’t Mess with Texas – Police Raid and Shutdown Lemonade Stand Run by 7 and 8-Year-Old Girls

  Chart of the Day – America’s Prison Population Over the Past 100 Years

  Denver Police Arrest “Jury Nullification” Activist for Passing Out Informational Pamphlets

  Land of the Unfree – Police and Prosecutors Fight Aggressively to Retain Barbaric Right of “Civil Asset Forfeiture”

  The DEA Strikes Again – Agents Seize Man’s Life Savings Under Civil Asset Forfeiture Without Charges

  Asset Forfeiture – How Cops Continue to Steal Americans’ Hard Earned Cash with Zero Repercussions

  The public grievances listed earlier are reasonable demands which any civilized culture would insist upon. Nevertheless, many police departments across the country are taking these criticisms as part of some imagined “war on police” which simply doesn’t exist. Rather than showing even a sliver of introspection by looking inward at the mistakes policing has made in recent years, many officers are becoming defensive, combatant and have resorted to lies in order to dismiss the concerns of the public.

  This is precisely what an Iraq war veteran witnessed recently while training at a police academy. He shared his story with the Daily Beast under the pseudonym Clayton Jenkins. Here are some excerpts:

  The War on Cops is a grossly inaccurate response to recent police killings which are on track for another year that will rival the safest on record. Gunfire deaths by police officers are down 27 percent this year, according to the Officer Down memorial page, and police killings in general are at a 20-year low, given current numbers for 2015. Police deaths in Barack Obama’s presidency are lower than the past four administrations, going all the way back to Ronald Reagan’s presidency.

   

  Not a single iota of evidence supports a War on Police, but it has become a battle cry among some in the academy.

   

  Over 80 percent of police departments in the United States are facing issues with low recruitment numbers. As an Iraq War veteran I sought to solidify my chance of employment working in law enforcement by attending a local police academy. I enjoyed serving my country as military police and will do such now as a sworn police officer back home.

   

  What are they telling us in a post-Michael Brown academy? The culture of police brutality is infrequently addressed, but what is continually mentioned is the notion that there is a War on Police.

   

  “The Obama Administration and Eric Holder are undermining the police. We have officers dying left and right and he’s dicking off in Alaska,” says one of my instructors, referring to the president’s trip to Alaska last week.

   

  I understand as a law enforcement professional—and as someone capable of fairly reading mountains of data—that the Drug War has been unfairly used as a tool of oppression against the black community. It is why the American public overall has shown they have less confidence in police in recent times.

   

  But there is no War on Police. This Us vs. Them mentality still prevails even in fresh academy cadets. Perhaps some of these people will become future jackbooted, truncheon wielding oppressors. Or perhaps they will encounter the reality that betrays the fear they are taught.

  Now watch the following recruitment video for the Portsmouth, Virginia police department…

  Meanwhile, a Portsmouth officer was recently indicted after fatally shooting 18-year-old William Chapman after he was caught shoplifting.

  This looks like a scene from Gaza, not the America we imagine.

  

  Please tell me. Who has declared war on who?

   

  

  

  

  

  

• Goldman Warns: VIX Is Not Going Back To Low-Teens, No Matter What Fed Does

  While equities do tend to be lower one-, two-, and three-months after a Fed rate hike, S&P 500 realized volatility and VIX levels have been fairly well contained. However, Goldman Sachs warns not to expect VIX to calm down and settle back into the low teens like it was from 2013 to mid-August 2015. New normal trend VIX levels should now be 4-5 points higher than the average level of 14 experienced in 2013-2014 given the current state of the economy.

  Via Goldman Sachs,

  Question: Where are we now in terms of historical VIX levels and levels of S&P 500 realized market volatility?

  Answer: The VIX is at 23.2, about 3 pts above its 1990-present average and 9 points above its 2013-2014 average.

  The VIX landed at 23.2 last Friday. That is about three points below its median level of 26 over the last three recessions, 3.4 points above its long-run average of 19.8 back to 1990 and nine points above its 2013-2014 average of 14.2. S&P 500 one-month realized volatility currently stands at 31.7, ten-day at 26.7. A VIX trading well below short-term realized market volatility suggests the options market is expecting a moderation in market swings going forward relative to what we experienced in August. That may also mean that option investors are also expecting no hike this week.

  Question: If the Fed doesn’t hike this week will the VIX go down.

  Answer: Yes. 38% of recent SPX options flow has been short-dated and that flow may roll to longer maturities.

  We do think the VIX moves lower if the Fed doesn’t hike this week. Why? Because options have an expiration date. There has been a tremendous amount of uncertainty priced post China’s currency devaluation plus additional uncertainty surrounding the September 17 meeting. Investors have flocked to short-dated weekly S&P 500 options to trade the recent market swings. We estimate that on a typical day since mid-August 38% of options traded on the SPX have had maturities of ten days or less.

   

  

   

  That number has approached 50% over the last five trading days. If the Fed does not hike, hedges may be taken off or rolled out to later meeting dates. That could apply downward pressure on shorter-dated options, leading to a lower VIX. At the same time, that may just push out the duration or timing of the uncertainty; which could mean that the VIX could swing lower only to shift higher prior to the next few meetings.

  Question: Even if the VIX calms down will it settle back into the low teens like it was from 2013 to mid-August 2015?

  Answer: We don’t think so. The U.S. economic landscape & cross asset metrics both suggest a VIX in the high-teens.

  Point 1. The business cycle: In last week’s edition of The Buzz we estimated that baseline VIX levels of 18 would be justified given the current U.S. economic landscape. Our point is not that the VIX will go to 18 tomorrow. It is that trend VIX levels should now be 4-5 points higher than the average level of 14 experienced in 2013-2014 given the current state of the economy. In the same way that we have argued that VIX levels in the high 20’s and above are consistent with recessions (and therefore the VIX should have dropped over the past couple of weeks) we also argue that VIX levels in the high teens are more consistent with the current ISM level in the low 50’s. VIX levels in the low teens are more consistent with ISM levels in the upper 50’s.

   

  Point 2. Cross asset risk levels are higher: Our benchmarking work in the last two editions of The Buzz suggested that VIX levels were around 5 points low relative to EM FX, U.S. HY spreads, oil and rates moving into mid-August. Our point here is that if the VIX was listening to other markets then baseline levels of 18-19 would have been justified in mid-August before the equity decline. While the economic data could improve, at the current time the U.S. economic picture and cross asset analysis both suggest similar baseline VIX numbers of 18-19.

   

  The counterpoint to the thesis that a VIX in the high-teens may be justified would be that with so much short-dated option flow in the system, if the Fed doesn’t hike, the VIX might collapse as investors trade out of shorter-dated options. There are few data releases between the September and October to convince the committee to hike in October, which leaves the VIX with two months to potentially swing lower. Options markets are clearly focused on EM as well therefore a VIX collapse back to the low teens may require a global reduction in risk, which might take a while.

  Question: How have equities and the VIX reacted around past rate hikes?

  Answer: Equities lower on moderate volatility.

  In the remainder of this report we focus on how S&P 500 returns, VIX and SPX realized volatility levels have reacted around past rate hikes. Our analysis shows that while equities do tend to be lower one-, two-, and three-months after a Fed rate hike, S&P 500 realized volatility and VIX levels have been fairly well contained. One argument for why that has happened is that the Fed doesn’t tend to hike into a weak economy. U.S. GDP rates and ISM levels have been strong surrounding the first rate hike. What worries many investors now is that if the Fed does hike this week they would be hiking during a period of high uncertainty surrounding the U.S. and global economic landscape at the same time that financial conditions have been deteriorating. The cushion may simply be lower now than in the past. The implications and potential imbalances around six years of zero interest rates and global central bank adjustments have also worried investors. If the Fed does hike this week equities may take it poorly unless the communication is for a slow normalization path.

  *  *  *

  S&P 500 returns are typically lower once the Fed starts raising rates

  We analyze S&P 500 returns and peak to trough max drawdowns prior to and post the last three rate hike cycles.

  

  S&P 500 returns and max drawdowns prior to the initial rate hikes in 1994, 1999, 2004

  • S&P 500 returns prior to each rate hike were positive: Median S&P 500 returns were +5%, +7%, and +17%, during the 3-, 6-, and 12-months before the initial hike. The S&P 500 was up 3/3 times in the month prior by a median of +2.9%. We take that to mean that good news was good news and the S&P 500 was responding to a stronger economy.
  • Max Drawdown Analysis: While returns three months leading into the first rate hike were positive over each of the three periods, the ride was not always smooth. The maximum peak-to-trough S&P 500 returns in the three months prior to each rate hike were: -1.6%, -6.3% and -5.8% in 1994, 1999 and 2004, respectively.

  S&P 500 returns and max drawdowns post the initial rate hikes in 1994, 1999, 2004

  • S&P 500 Returns on the day the Fed hiked rates were -2.3%, 1.6% and 0.4% with a median return of +0.10% one-week after the Fed started raising rates. S&P 500 returns were negative one-, two-, and three months after each initial rate hike across each period. The median S&P 500 return was -5.9% three-months post rate hike.
  • Max Drawdown Analysis: Peak to trough drawdowns were larger after a hike than before. We estimate that the max drawdowns three-months after a rate hike were -7.2%, -10.6%, -6.8% (1994, 1998, 2004).

  The impact of rate hikes on volatility has historically been muted

  

  S&P 500 realized volatility levels in 1994 and 2004 were low going into and sub-10 coming out of the first rate hike. The maximum level of S&P 500 1m realized volatility in the year prior to the 1994 and 2004 rate hikes was 17.1 with a max VIX level of 22.7 on a rolling daily basis. One-month realized volatility was sub-10 one month after both initial hikes and the maximum VIX level in the one-month surrounding the initial hikes was a modest 17.3. VIX levels three-months after the initial hike were 16.2 and 13.2 in 1994 and 2004, respectively.

  The first rate hike in June of 1999 was sandwiched between the fallout from Long Term Capital Management over the back half of 1998 and the bursting of the tech bubble in the spring of 2000. In short, realized volatility was elevated coming into 1999. That said, realized volatility declined into the June rate hike and was also lower 1m later. One-month realized volatility levels were around 20 one- and three-months prior to the first hike and were lower afterward; at 14, 19 and 18, one-, two- and three-months after the hike. Higher levels of realized volatility meant that VIX levels were also higher in 1999 relative to 1994 and 2004. The VIX landed at 21.1 on the day of the rate hike and was 24.6 and 26.5 one- and three-months after the first hike.

  Bottom line: While S&P 500 returns were lower post the last three rate hikes, S&P 500 realized volatility and VIX levels were moderate, with no volatility spikes.

  

  

  

  

  

• Jeffrey Brown: To Understand The Oil Story, You Need To Understand Exports

  Submitted by Adam Taggart via PeakProsperity.com,

  Despite the attention-grabbing economic volatility that is dominating headlines, it's important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week's podcast guest, petroleum geologist Jeffrey Brown. 

  As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown's forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

  The crucial issue to understand about what has happened after 2005 is that we’ve had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate.

   

  So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production, condensate and natural gas liquids, have continued to increase. So, we ask for the price of oil, we get the price of Brent or WTI; but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they’re bringing on alternative substitutes, but they're only partial substitutes. The actual, physical volume of crude oil production has probably been flat to down since 2005. Over the past ten years, it has taken us trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. What happens going forward?

   

  So, basically, the conventional wisdom is the fact that we’ve seen an increase in liquids production, seems there’s no evidence of the peak in sight. And, I think in regard to crude oil production, that argument is manifestly false. I think that we’ve probably seen a peak in actual crude oil production, 45 and lower API gravities, despite trillions of dollars of upstream capex expenditures.

   

  I started wondering in late 2005 what happens to oil exports from an exporting country, given a production decline and rising consumption. And, so I just started, I just constructed a simple little model. I assumed a production of about two million barrels a day or so at peak, consumption of one, and assumed production falls about 5% per year, basically what the North Sea did, and assumed consumption increases to 2.5% per year. What the model showed was that exports, net exports would go to zero in only nine years, even though a roughly modest production decline. So, the easy way to state it is giving an ongoing, inevitable decline in production, unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that the net export decline rate, what they actually ship out to consumers will exceed the rate of decline in production. And, furthermore, it accelerates. 

  Click the play button below to listen to Chris' interview with Jeffrey Brown (43m:48s)

   

  

  

  

  

  

• Barclays Slashes China GDP Projections After Weak Data

  When looking at forecasts for China’s GDP growth it’s best to ignore the projection itself and focus on the direction of the revision. 

  That is, there’s still a certain degree to which the sellside has to retain some semblance of politeness when it comes to estimating Chinese output and indeed, even if some trailblazing research team were to decide to break decorum and officially cut estimates to between 0% and 4% (which probably represents a more accurate estimation of how the economy is actually performing) it would be largely pointless because there’s exactly zero chance of the NBS admitting anything like that. Given that, it’s not so much about whether the number is 6.8% or 6.7 or 6.6%, it’s about whether analysts see continued downside risks on the horizon.

  With that in mind, and against the backdrop of the worst FAI growth in 15 years, we bring you the following excerpts from Barclays where the EM research team has cut its estimates for Chinese GDP growth in 2015/2016 (note the expectations for monetary policy and the bit about equity and FX turmoil weighing on sentiment).

  *  *  *

  From Barclays

  We lower our 2015 GDP growth forecast to 6.6%y/y (from 6.8%) and to 6.0% for 2016 (from 6.6%). The downward revisions reflect the faster-than-earlier-expected slowdown in both property investment (to 3.5% YTD) and manufacturing investment (to 8.9% YTD) and continued headwinds to investment into 2016. The new (and lower) base following the NBS 2014 GDP revision on 9 September added c.10bp to the 2015 forecast. In detail, the latest manufacturing PMI as well as the August data confirmed a deterioration in sequential momentum in Q3. Despite strong property sales (14.7% y/y in August), developers have focused on inventory rundowns and earnings growth rather than new construction. As a result, the double-digit contraction in housing starts has persisted for 10 months (-16.7%). Meanwhile, falling commodity prices and a widening PPI deflation rate (to -5.9%) are discouraging manufacturers’ inventory restocking amid soft domestic and external demand. The stock market crash and rising CNY depreciation expectations are also hurting investor and consumer confidence, adding downward pressure to growth in the coming quarters. Looking into 2016, we believe the three major headwinds highlighted in the medium term – excess capacity in many industries, oversupply in the housing market and high debt burdens (especially among local governments) – together with anti-corruption and policy uncertainties will continue to weigh on growth.

  We continue to look for more fiscal and monetary easing to support growth but we don’t expect that to change the economy’s structural softening trend. The weakness in recent data confirms that growth is losing momentum despite a fast-growing service sector (rising to 50% of GDP and growing at 8.4% YTD in Q2 2015). This suggests more fiscal support and monetary easing are required to stabilise growth. Indeed, to cushion the growth slowdown, the central government has recently announced a series of measures to support infrastructure investment, such as underground pipes, water and clean energy. These measures include bond issues and PBoC capital injection to policy banks, a third round of local government debt swap (CNY3.2trn in total), and accelerated projects approval by the NDRC. On monetary policy, our base case continues to look for one more interest rate cut in Q4 to lower the real cost of funding and 2 RRR cuts to offset the liquidity drain from capital outflows. Despite the intensifying capital control measures post the 11 August FX regime shift and the PBoC’s heavy intervention in the FX markets, we expect the capital outflows to persist in the coming quarters. That said, to stabilise the USDCNY in the near term, the PBoC will likely continue to be reactive rather than preemptive in monetary easing. And a stronger USDCNY target set by the PBoC will imply more RRR cuts in the near term.

  

  

  

  

  

  

• A Panicked Brazil Promises Billions In Austerity, Does 180 On Budget After Downgrade

  Exactly two weeks after conceding that a primary surplus was no longer in the cards after budget data in July came in meaningfully worse than expected, Brazil is scrambling to restore some semblance of confidence in the government’s ability to close a yawning budget gap by implementing austerity even as political turmoil has made embattled FinMin Joaquim Levy’s life a living hell of late. 

  On the heels of a painful S&P downgrade, Brazil now says it plans to enact some BRL26 billion in primary spending cuts for the 2016 budget on the way to achieving in a primary surplus that amounts to 0.7% of GDP.

  In other words, a complete 180 from what the government said prior to the downgrade.

  Needless to say, reconciling tax increases and budget cuts with the party mandate won’t be easy. “Budget cuts and tax increases discussed by govt in response to Brazil’s credit rating downgrade don’t agree with central tenets of Workers’ Party,” Bloomberg notes, citing an unnamed party official. 

  Particularly divisive will be the CPMF revival which isn’t likely to be approved. Here’s Bloomberg with a bit more on the announcement: 

  Finance Minister Joaquim Levy proposed a new round of spending cuts and tax increases that are designed to close the budget gap and protect Brazil from further credit downgrades.

   

  The government will reduce 26 billion reais ($6.8 billion) in expenditures from next year’s budget in large part by capping salaries of civil servants and suspending exams for new entrants, Levy said Monday. Brazil also plans to raise 28 billion reais in revenue by boosting taxes, including a levy on financial transactions.

   

  “We know this effort to cut spending will only take us so far, so as would happen in any country in the world in a moment of reduced economic activity and tax income, you have to seek out other resources,” Levy told reporters. “We’re trying to find that balance.”

   

  Obviously, the market will cast a wary eye towards the effort even as one assumes Brazil is to be applauded for trying, especially given the hugely contentious political environment and the threat of further social upheaval. 

  And here’s Goldman with the full breakdown:

  The authorities announced today a number of spending cuts and expenditure saving measures (worth an estimated R$26.0bn) and tax increases and a reduction of a number of tax breaks/benefits (estimated to yield approximately R$45.8bn). The key objective is to improve the federal government fiscal balance from the -R$30.5bn (-0.5% of GDP) deficit announced on August 29, to a +R$34.4bn (+0.55% GDP) surplus.

   

  Most of the proposed adjustment will come from higher taxes; particularly from the reinstatement of the controversial Financial Transactions Tax at a rate of 0.2% which is expected to yield a substantial R$32bn.

   

  Minister Levy stated that the tax should “not last more than 4 years.” Furthermore, approximately R$10bn will come from the reduction in projected outlays with civil servants which is likely to elicit strong rejection by the main public sector unions.

   

  Many of the measures require Congressional approval of several pieces of legislation which, in our assessment, adds significant implementation risk. Given the administration record low level of popularity and its weak and increasingly fragmented support base in Congress we expect some of these measures to face significant resistance (to be either rejected or watered down during the legislative debate), particularly the approval of the widely rejected CPMF tax.

   

  In all, we expect the 2016 budget discussion to be a drawn-out, jumpy and noisy process with a significant risk that only a subset of the proposed measures will clear Congress and with fiscal yields below the government proposal. Furthermore, we could not fail to notice that in today’s announcement there were no medium- and long-term fiscal measures to arrest the projected upward drift in mandatory spending (e.g., social security reform).

   

  Overall, we remain of the view that a deep, permanent, structural fiscal adjustment remains front-and-center on the policy agenda to restore both domestic and external balance. In our assessment, at the end of the fiscal consolidation process Brazil needs to end up with a primary surplus of 3.0% to 3.5% of GDP (which is still quite distant from today’s fiscal reality). This would be the level of primary surplus that would put gross public debt on a clear declining trajectory; something that is required for Brazil to rebuild fiscal buffers and regain policy room to use fiscal counter-cyclically, whenever needed and appropriate.

   

  Given the very slow pace of fiscal consolidation, and its poor quality geared towards tax hikes and investment cuts), the burden of current account adjustment will likely continue to fall disproportionately on monetary policy and the BRL.

  The question now, is whether this was a good move.

  That is, is it better to simply stick with the projection of a primary deficit and let the market be pleasantly surprised if things miraculously turn a corner, or is it better to try and head off further pressure on the country’s credit rating by rolling out a largely non-credible plan to plug the budget gap and risk surprising on the down side?

  We’ll see, but at least in the short term, Goldman is probably correct to assume that in the absence of a stable political situation, the BRL will remain in focus and if FX pass-through picks up and the Fed hikes, we may need to see a Selic hike. 

  For an indication of how things are going, simply watch the data points on this chart:

  

  

  

  

  

  

• "Ineffective & Reckless" Fed Is An "Engine of Disaster"

  Excerpted from John Hussman's Weekly Market Comment,

  The beauty of truth, and the beast of dogma

  Other “relationships” that are used to justify activist monetary policy have similarly weak support when one actually takes the effort to examine the data. You’ll find a similar shotgun scatter of uncorrelated points if you plot unemployment versus general price inflation, for example. It’s unfortunate that the Federal Reserve is actually allowed and even encouraged to impose massive distortions on the U.S. economy based on relationships that are indistinguishable from someone sneezing on a sheet of graph paper.

  We do know one thing very clearly, and we should have learned it during the housing bubble – suppressed interest rates encourage yield-seeking speculation, enable low-quality creditors access to the capital markets, direct scarce savings toward unproductive malinvestment, subsidize leveraged carry-trades, and unleash a whole host of “structured” products “engineered” by financial institutions to directly or indirectly piggyback on the good faith and credit of Uncle Sam.

  When you examine historical data and estimate actual correlations and effect sizes, the dogmatic belief that the Fed can “fine tune” anything in the economy is utter hogwash. At the same time, the demonstrated ability of the Fed to provoke yield-seeking speculation and malinvestment is as clear as day. An activist Federal Reserve is an engine of disaster and little more. Even with the best intentions, a dogmatic Fed, unrestrained by reasonable rules and constraints, is a reckless and deceptive beast, constantly offering to heal the nation with precisely the same actions that inflicted the wounds in the first place.

  Truth, on the other hand, is beautiful. Economic relationships that are supported in real-world data are a sight to behold. You want to see some relationships you can count on? The chart below shows the relationship between the 3-month Treasury bill and the ratio of the monetary base (currency and bank reserves) to nominal GDP, in data since 1929. Notice something. Without paying banks interest to hold excess reserves idle in the banking system, the Fed could reduce its balance sheet by more than one-third (over $1.4 trillion) without pushing short-term interest rates above zero. That excess base money does nothing to support the real economy.

  Nobody’s desired level of saving, consumption, or real investment changes just because the Fed has chosen to force the economy to hold more base money and fewer Treasury bonds. But somebody has to hold that cash at every point in time – and nobody wants to hold it. So it simply acts as a hot potato, encouraging yield-seeking speculation in the financial markets. In my view, the most urgent action the Federal Reserve should take is to cease reinvestment of principal as the holdings on its balance sheet mature, in order to reduce this massive pool of idle base money, which does nothing but to promote speculation. No increase in interest rates would need to result from that action.

  …

  After years of speculation, we currently estimate a 10-year nominal expected total return for the S&P 500 close to zero – much the same as we projected in real time at the market peak in 2000. The Federal Reserve seems to have no idea what it has done. Poor long-term market returns and severe interim losses are now baked in the cake as a result of obscene valuations. There is no way to undo this outcome – only to manage the consequences.

  

  With regard to a possible quarter-point hike this week in the amount of interest that the Fed pays banks on idle excess reserves, our view – frankly – is that it doesn’t matter. From a longer-term standpoint, poor stock market returns and the likelihood of 40-55% market losses from the recent peak are already baked in the cake.

  Across the pond, our friend Albert Edwards at SocGen strikes the right note, I think:

  “The clamour for the Fed not to enact the long-awaited ¼% rate hike next week is growing by the day. Misgivings come not just from reputable mainstream commentators, but now also the World Bank has repeated the IMF’s recent words of caution in advising delay. What a load of nonsense! My esteemed colleague Kit Juckes characterizes the current consensus thinking as ‘If the Fed hikes, pestilence, plague and never-ending deflation will follow.’ Well even those like me who see a deflationary bust awaiting think the Fed should hike next week – because the longer you leave it, the bigger the financial market excesses become, and the bigger the risk of financial dislocation and global recession ensuing. Have we learned nothing from the 2008 Great Recession? Just get on with it!”

  …

  The real problem isn’t what the Fed may do, but the ultimately unavoidable consequences of what the Fed has already done. The cost of reckless Fed-induced yield seeking will likely be felt first in the financial markets as previous paper gains evaporate, while defaults on excessive low-quality covenant-lite credit will emerge over the course of the economic cycle, and the impact of malinvestment will be to limit productivity and economic growth over the longer run. This is all rather inevitable except in the eyes of those who haven’t watched and memorized a dozen adaptations of the same movie.

  Again, as I noted in The Line Between Rational Speculation and Market Collapse, investors should remember that the Fed did not tighten in 1929, but instead began cutting interest rates on February 11, 1930 – nearly two and a half years before the market bottomed. The Fed cut rates on January 3, 2001 just as a two-year bear market collapse was starting, and kept cutting all the way down. The Fed cut the federal funds rate on September 18, 2007 – several weeks before the top of the market, and kept cutting all the way down.

   

  “What will matter significantly for investors is the condition of market internals, credit spreads, and other risk-sensitive measures in the event that U.S. economic activity begins to further reflect the downturn that is already evident abroad. It is that evidence of investor risk-preferences that will determine the proper response to any change in Fed policy.”

  In short, my view is that activist Fed policy is both ineffective and reckless (and the historical data bears this out), and that the Federal Reserve has pushed the financial markets to a precipice from which no gentle retreat is ultimately likely. Similar precipices, such as 1929 and 2000, and even lesser precipices like 1906, 1937, 1973 and 2007 have always had unfortunate endings (see All Their Eggs in Janet’s Basket for a review). A quarter-point hike will not cause anything. The causes are already baked in the cake. A rate hike may be a trigger with respect to timing, but that’s all. History suggests we should place our attention on valuations and market internals in any event.

  

  

  

  

  

• "The Danger Is That It Bursts Just Like In The US": Sweden Goes Full Krugman, Gets Massive Housing Bubble

  Earlier this year, Riksbank Deputy Governor Per Jansson expressed his displeasure with comments made in April of last year by everyone’s favorite Nobel laureate Paul Krugman. The dispute revolves around Sweden’s decision in 2010 to raise rates, a move Krugman says turned the country into a Japan-style deflationary deathtrap. To wit, from Krugman’s blog: 

  “In 2010 Sweden’s economy was doing much better than those of most other advanced countries. But unemployment was still high, and inflation was low. Nonetheless, the Riksbank — Sweden’s equivalent of the Federal Reserve — decided to start raising interest rates.”

   

  “There was some dissent within the Riksbank over this decision. Lars Svensson, a deputy governor at the time — and a former Princeton colleague of mine — vociferously opposed the rate hikes. Mr. Svensson, one of the world’s leading experts on Japanese-style deflationary traps, warned that raising interest rates in a still-depressed economy put Sweden at risk of a similar outcome. But he found himself isolated, and left the Riksbank in 2013.”

   

  “Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”

  Krugman went on to accuse the Riksbank of being a bunch of job-hating heretics who don’t believe that printing mountains of fiat currency solves economic problems and who are motivated by an overwhelming desire to perpetuate global inequality by enriching creditors at the expense of impoverished debtors. They are, Krugman said, sadomonetarists. 

  For his part, Per Jansson wasn’t particularly pleased with Krugman’s assessment, suggesting that he “write fewer articles and have more of a look at the data and then come back again.”

  “I don’t know why he does that; it’s a mystery and it doesn’t make him come across as a guy who is very well informed,” Jansson added.

  Why did Sweden start raising rates in 2010? Well, as we noted in March, “the bank’s actions were not indicative of an institution suffering from some psychotic desire to drive up unemployment and inflict pain upon the masses, they were in fact based on ‘normal things’ like inflation and a housing bubble and the fact that the rate of household credit expansion was running some 50% ahead of overall economic growth.”

  In any event, Krugman needn’t have been concerned, because as you can see from the following, and as discussed here on Sunday evening, Sweden not only stopped hiking, but in fact plunged headlong into NIRPdom.

  

  So one would think, if Krugman is correct, that cutting rates by 235 bps since 2011 all the way down to -0.35% would have things humming along nicely in terms of “healthy” inflation. Only, that’s not what’s happened. This is:

  

  Meanwhile, the housing bubble and household credit expansion issues the Riksbank was so concerned about have predictably gotten far worse thanks to record low rates. To wit, from Bloomberg: 

  The worsening housing shortage — exacerbated by record immigration — and surging house prices reveal that deeper financial instability risks lie ahead.  The combination of already too-high household debt and negative rates “may ultimately be very costly for the economy,'” the central bank said last week in its monetary policy report.

   

  
  

  And as we saw earlier this month when the Riksbank remained on hold ahead of Mario Draghi, keeping a lid on krona strength (i.e. fighting to ensure that inflation doesn’t crater) may turn out to be increasingly difficult going forward with the ECB widely expected to expand PSPP, meaning that ironically, once everyone goes full Keynes, it makes it ever more difficult for anyone to realize the benefits because one country’s easing simply negates another’s, necessitating still more easing by the first country, and around we go. Case in point, from Riksbank Governor Stefan Ingves: “…any rapid strengthening of krona would pose risk to inflation rise [so] Riksbank won’t be passive if ECB makes big changes in its policy.”

  Worse still, not only is Sweden bumping up against diminishing returns in its easing efforts, but as we discussed at length in July, for a time things had actually begun to move in the wrong direction, as investors fretted about the lack of market depth created by the Riksbank’s QE program. “The financial conditions — the currency and the bond yields — are moving in the wrong direction,” Roger Josefsson, chief economist at Danske Bank A/S told Bloomberg. So in other words, even as risks associated with NIRP (e.g. excessive debt buildup and a worsening housing bubble) have materalized, some of expected benefits (e.g. rising inflation) have not, which certainly begs the question if the risk/reward profile associated with NIRP and expanded QE is still attractive.

  Of course it’s not all bad. Unemployment has fallen dramatically and GDP data from previous quarters was revised up in what Goldman called a “non-neglible way” on Friday.

  

  But the question one has to ask here is this: what, ultimately, has ZIRP and then NIRP and QE actually done for Sweden? The effect on inflation has clearly been muted (the Riksbank’s protestations aside) and the effect on the housing market has been to inflate what looks like a rather formidable bubble. Meanwhile, the global currency wars mean the upward pressure on the krona is likely to persist no matter what the Riksbank does. If we assume that GDP and unemployment would have, at least to some extent, improved on their own, one could quite plausibly make the argument that all Sweden has done with monetary policy since 2010 is embed an enormous amount of risk into the economy without getting much back.

  Of course when that rather inconvenient suggestion is made, central bankers in the new normal almost always blame lawmakers or regulators or someone other than themselves and Sweden is apparently no different. Here, for instance, is what the bank had to say earlier this month:

  “Low interest rates contribute to the trends of rising house prices and increasing indebtedness in the Swedish household sector continuing. Current debt levels already pose a substantial risk to the Swedish economy. It is thus essential that the Riksdag (the Swedish parliament), the Government and other authorities implement measures to reduce this risk. If no measures are taken, this, in combination with the low level of interest rates, will further increase the risks, which may ultimately be very costly for the economy.”

  As for Ingves, well, he’s not optimistic (via FT):

  Sweden’s central bank governor has warned that new crisis-busting tools policymakers are embracing around the world to counter asset bubbles and other financial dangers are susceptible to political inaction and turf wars.

   

  Stefan Ingves, governor of the Riksbank, said so-called macroprudential policies — such as capital requirements and leverage limits — had so far failed in Sweden where house prices and personal debt levels have soared to record levels.

   

  “Macroprudential, particularly if markets are going up, up, up is about saying ‘no’. Apparently that’s hard to do,” Mr Ingves said.

  One could easily say the same thing about the Riksbank although, to be fair, the central bank would also be in control of macroprudential policy making if it had its way, but that doesn’t exonerate NIRP. That is, we might replace one word from the quote above and get this: “sound money, particularly if markets are going up, up, up is about saying ‘no’ but apparently that’s hard for central bankers to do.” At least one banker in Stockholm agrees: 

  “To have such a low interest rate at the same time as Sweden has rather good economic growth and rapid increases in house prices — it seems crazy,” said one senior banker.

  But Ingves has his story and he’s sticking to it: “We deal with inflation, we keep an eye on the exchange rate, we do our best to reach our inflation target. But that means that somebody else has to deal with the problem we have in our housing market.” 

  On that note, we’ll close with the following from Lars Jonung, professor emeritus at Lund University, who told newspaper Dagens Nyheter the following:

  “[The Riksbank] have lowered rates too much, absolutely. It creates meaningful financial risks and increases household debt. The danger is that it bursts just as it did in the US and Iceland.”

   

  *  *  *

  Bonus: As Krugman said last week in the Japanese context, countries “need to reach a point where everyone believes that they have pulled out of deflation. And then if that can be believed, then they may be able to stay out of trouble thereafter”.

  Do you “believe” in “hockeynesian” success stories? The Riksbank apparently does…

  

  

  

  

  

  

• Sep 15 – US Rate Hikes Will Bring Volatility To EMs
  Follow The Market Madness with Voice and Text on FinancialJuice

  EMOTION MOVING MARKETS NOW: 13/100 EXTREME FEAR

  PREVIOUS CLOSE: 14/100 EXTREME FEAR

  ONE WEEK AGO: 10/100 EXTREME FEAR

  ONE MONTH AGO: 11/100 EXTREME FEAR

  ONE YEAR AGO: 43/100 FEAR

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 15.22% 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 24.25. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme 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 – HEY GIRL…

   

  UNUSUAL ACTIVITY

  MYE Director Purchase 5,000 @$12.7959
  DG Chief Executive Officer Purchase 4,300 @$70.7253                      
  NVET Director Purchase 10,000 @$4.786
  HPQ Oct weekly2 28 CALLS active @$.61-.62
  P Sep weekly4 CALL Activity 20 CALLS 700+ @$.39
  YNDX SEP 11 CALL Activity @$.45 1k+

  More Unusual Activity…

  HEADLINES

  Malcolm Turnbull becomes Australian PM after Abbott ousted

  NY Fed: Consumers Expect Lower Short- and Medium-Term Inflation

  Opec raises 2015 global oil demand growth forecast, cuts 2016

  Genscape data shows a potential inventory draw –ForexLive

  ECB PSPP: +13.022bn to EUR314.469bn (prev +11.91bn to 301.447bn)

  ECB CBPP: +3.892bn to EUR116.107bn (prev +1.099bn to 112.215bn)

  ECB ABSPP: +366m to EUR11.86bn (prev +382m to 11.494bn)

  ECB Bonnici: Too early to decide on new stimulus

  ECB Weidmann: Data shows need for steady hand

  ECB Coeure: Euro members need to share more sovereignty on economic policy

  CA Teranet/National Bank HPI (YoY) (Aug): 5.40% (prev 5.10%)

  ESMA raises its market risk indicator to highest level

  BIS Highlights Trouble Spots for Global Economy –WSJ

  S&P: US rate hikes will bring volatility to EMs

   

  GOVERNMENTS/CENTRAL BANKS

  Malcolm Turnbull becomes Australian PM after Abbott ousted –Rtrs

  NY Fed: Consumers Expect Lower Short- and Medium-Term Inflation

  ECB Bonnici: It’s ‘Too Early’ To Decide On New Stimulus –ForexLive

  ECB Coeure: Euro members need to share more sovereignty on economic policy –BBG

  ECB Weidmann: Data Shows The Need For A Steady Hand — ForexLive

  ECB Review Of Greek Banks Under Way, Could Be Done End-October –BBG

  Draghi seen expanding QE by economists fearing shallow recovery –BBG Poll

  Bloomberg survey of economists has the majority seeing the ECB raising QE –ForexLive

  BoE Weale: Rates Will Rise Relatively Soon –Rtrs

  EU Dijsselbloem: Eurozone Must Share More Banking Risks –Rtrs

  Riksbank Gov Ingves Sees Flaws In Crisis-Busting Tools –FT

  Syriza and ND deadlocked in polls –Kathimerini

   

  GEOPOLITICS

  Russian Envoy: Syria seeks peace conference in Moscow –BBG

  French President Hollande: French airstrikes will be necessary in Syria –Rtrs

  MARKETS RISK WARNINGS:

  ESMA raises its market risk indicator to highest level

  BIS Highlights Trouble Spots for Global Economy –WSJ

  FIXED INCOME

  ECB PSPP: +13.022bn to EUR314.469bn (prev +11.91bn to 301.447bn)

  ECB CBPP: +3.892bn to EUR116.107bn (prev +1.099bn to 112.215bn)

  ECB ABSPP: +366m to EUR11.86bn (prev +382m to 11.494bn)

  PBOC allows liquidity injection tools in interbank market –MNI

  Italy Public Debt At E2.199.2 Trillion in July, State Revs Rise –MNI

  UK households are sitting on a £173bn debt time bomb –Mail

  CORPORATES: Sanofi tests waters with chunky offer –IFR

  FX

  EM FX: EM currencies tumble back to 2002 levels –FT

  HKD: HKMA sells $6.59bn to market to bolster HKD within trading band –Rtrs

  JPY and EUR COMMENT: Goldman says QE to weigh on yen and euro as Fed holds this week –BBG

  ENERGY/COMMODITIES

  WTI futures settle -1.4% at $44.00 per barrel

  Brent futures settle -3.7% at $46.37 per barrel

  CRUDE: Opec raises 2015 global oil demand growth forecast, cuts 2016 estimate

  CRUDE: Genscape data shows a potential inventory draw –ForexLive

  CRUDE: Moody’s: Sustained overcapacity, low oil prices will pressure global offshore drillers through 2017

  METALS: Copper Slides, China Data Reinforces Demand Fears –CNBC

  GASOLINE: Gasoline Leads Oil Prices Lower –WSJ

  EQUITIES

  S&P 500 provisionally closes -0.4% at 1,952

  DJIA provisionally closes -0.4% at 16,370

  Nasdaq provisionally closes -0.4% at 4,805

  M&A: Mylan commences offer to acquire Perrigo

  M&A: Oil Search Turns Down Woodside’s $8bn Takeover Plan –Rtrs

  M&A: Solera Agrees To $6.5Bln Acquisition By Vista Equity Affiliate –MW

  M&A: Qualcomm Acquires Capsule, No Terms Disclosed –Forbes

  M&A: Trinity Mirror in talks to buy rival Local World –Rtrs

  RETAIL: Alibaba blasts Barron’s story that warns of 50% stock drop –MW

  TECH: Apple says iPhone pre-orders are looking good –CNBC

  TECH: Nintendo Names Tatsumi Kimishima As President to Succeed Iwata –BBG

  TECH: Facebook Looks to Bring Virtual Reality to Mobile Devices

  BANKS: Bank Of America Officials Worried About Moynihan Vote –WSJ

  BANKS: Credit Suisse Said Nearing $80 Million Settlement Over Dark Pool –BBG

  BANKS: Deutsche Bank to cut workforce by a quarter –Rtrs sources

  BANKS: Deutsche Bank Prepares To Shut Russian Operations –Rtrs source

  AUTOS: Ford Europe Post 12% Increase In Sales For August –BBG

  AUTOS: Porsche and Audi unveil electric cars to take on Tesla –Rtrs

  CRA: Moody’s changes outlook on E.ON’s Baa1 rating to negative

  INDUSTRIALS: Airbus Set to Open Jetliner Production Plant in the US –WSJ

  EMERGING MARKETS

  CHINA: PBOC Ma Jun: Chinese Economy Will Do Better Than Market Expectations –Forexlive

  CHINA: China Banks Sell Massive CNY723.8 Bln In Forex In August –MNI

  CHINA: China seizes up to $157bn of unspent local government budgets –Rtrs

  S&P: US rate hikes will bring volatility to EMs

  CHINA: Bank lending accelerates in China –FT

   

  MALAYSIA: Malaysia central bank keeps rate on hold –MW 

  

  

  

  

  

• Stunning Video Emerges As 1000s Flee California Wildfires After Governor Calls 'State Of Emergency'

  As if the drought was not disheartening enough, wildfires are now raging across many parts of northen and southern California focing Governor Jerry Brown to call a state of emergency. Nowhere is the crisis more evident than in NorCal's Lake County where, as The LA Times reports, the untamed wildfire forced chaotic evacuations, is consuming hundreds of homes and businesses, and has outrun the efforts of a growing army of firefighters to corral it. However, as the following clip shows, one car-driver ran the gauntlet and managed to outrun "the worst tragedy Lake County has ever seen," in a scene right out of a disaster movie.

  The pictures from CA's newest fire are simply apocalyptic. Too hot, too dry, for too long pic.twitter.com/1tEXCbY1L0

  — Bill McKibben (@billmckibben) September 14, 2015

   

  

   

  As Reuters reports,

  A swiftly spreading wildfire destroyed hundreds of homes and forced thousands of residents to flee as it roared unchecked through the northern California village of Middletown and nearby communities, fire officials said on Sunday.

   

  The so-called Valley Fire, now ranked as the most destructive among scores of blazes that have ravaged the drought-stricken Western United States this summer, came amid what California fire officials described as "unheard of fire behavior" this season.

   

  A separate fire raging since Wednesday in the western Sierras has leveled more than 130 buildings and was threatening about 6,400 other structures, with thousands of residents under evacuation orders there, too, the California Department of Forestry and Fire Protection (Cal Fire) reported.

   

  Governor Jerry Brown declared a state of emergency in both areas, and mandatory evacuations were expanded as shifting winds sent flames and ash from the Valley Fire toward a cluster of towns in the hills north of Napa Valley wine country.

  As the following clip shows, locals had no time to prepare as they ran the gauntlet to survival…

  "Middletown is basically gone," said one local evacuee.

  "I saw flames all around … The wind was insane. I have never been so scared," she said.

   

  Mark Donpineo, 54, said he and two friends were trapped by the fire for four hours Saturday evening at a golf course in Hidden Valley Lake, taking cover in a culvert until the flames had passed.

   

  "We got some towels, wetted them down and basically saw the fire coming. You could hear explosions of propane tanks, the ridge was totally on fire, trees were blowing up," he said.

   

  Meanwhile, Cal Fire reported that 81 homes and 51 outbuildings had been lost in the four-day-old Butte Fire, which has charred more than 65,000 acres in the mountains east of Sacramento but was 20 percent contained.

   

  As of Sunday, firefighters were battling nearly three dozen large blazes or clusters of fires in California and six other Western states, according to the National Interagency Fire Center in Boise, Idaho.

  Sheriff Brian Martin described the fire as “the worst tragedy Lake County has ever seen.”

  

  

  

  

  

• A Flock Of Black Swans

  Submitted by Jeff Thomas via InternationalMan.com,

  In 1999, the Federal Reserve, under Alan Greenspan, convinced the US Congress to repeal the Glass-Steagall Act, which had been passed in 1932 to eliminate banks’ abilities to offer loans far beyond the actual level of their deposits.

  When I learned of this development in 1999, I anticipated that it was put through to allow banks to once again recklessly loan money and that the outcome would be essentially the same as what occurred in 1929 – a depression of major proportions.

  Major depressions do not occur overnight. They go in downward waves, interrupted at intervals by false recovery waves. The first major event of what would become the Greater Depression took place in 2007 with the housing crash. A year later, right on cue, came the first of the stock market crashes.

  Since then, the US Federal Reserve and the governments and central banks of much of the world have been involved in Band-Aid solutions to postpone further crashes, in spite of the fact that the economy is, in fact, a “dead economy walking.”

  The Band-Aids have been many and various and, at some point, one of them will fail. The fact that they are all Band-Aids and not true solutions assures that, when the first one lets go, they will all fail in succession. Only at this point will the average person understand that we have been in the early stages of a depression all along.

  What will happen will be a sudden and unseen event – a trigger that suddenly sends the economy downward, followed by another, then another, as the economy tumbles inexorably downward.

  Along the way, emergency measures will be utilised to “save” the economy. They will be drastic, including confiscation of bank deposits, plus massive money creation. There will be dramatic inflation and very possibly, hyperinflation.

  But the collapse will continue, unstoppably. Like any house of cards, once it begins to actually fall, no further Band-Aids will stop the inevitable.

  So, what might that trigger be?

  Well, there is literally no one in the world who might predict that with certainty. The reason is that as so many Band-Aids have been used by so many countries in so many areas of the economy, no one can say which one will fail first: which one will be the actual trigger that causes the chain reaction.

  I believe that we are now closing in on that time. The house of cards is becoming evermore fragile and we will not need to wait much longer before the event occurs. As we get closer, increasing numbers of people are seeing the writing on the wall and, more and more, I’m being asked the same two questions.

  “What Will the Fatal Trigger Be?”

  Here’s a brief list of possible triggers:

  • Creditors dump US debt back into the US market
  • Commodity prices spike
  • A crash occurs in the stock or bond market
  • A backlash occurs from countries sanctioned by the US
  • European countries default on their debt
  • The US dollar ends as the petrocurrency (causing a sale in US treasuries)
  • The US or EU introduce significant tariffs, diminishing world trade
  • Interest rates rise, as they did in 1929
  • The paper gold market crashes, when the shortage of physical gold is revealed
  • Banks freeze or confiscate deposits
  • FATCA accelerates the demise of the US dollar as the default currency
  • A credit collapse occurs (followed by dramatic inflation or hyperinflation)

  Any of the above is capable of triggering a collapse (and, as stated, this is not by any means an exhaustive list). Therefore, it would be wise to keep an eye out for indicators that one of them may occur. Any one of them that appears to be nearing the point of becoming a reality would suggest that the tipping point may occur soon.

  “How Will I Know in Advance?”

  Whatever advance warning you may have will be based on how closely you’re following the indicators that any of the possible triggers may be nearing fruition. Some, like the overbought stock market or the rise in commodity prices could kick in at any time.

  Others, such as a bank freeze on deposits, or the collapse of the ETF market in gold, could happen quite suddenly and without any warning at all.

  In discussing the above condition with investors, they often say, “Well, if it’s inevitable and I can’t time the event, there’s no use thinking about it. We’re all going to go down with the ship, so why bother?”

  Quite frankly, I’m astonished that so many investors are so complacent that they’re prepared to shrug their shoulders and accept their own economic demise, yet this assumption is very common.

  The enemy is not the coming events; the enemy is complacency toward those events.

  The investor therefore has two viable choices: to either get blindsided by events and become an economic casualty, or be prepared (as much as possible) for the crashes, regardless of what the trigger might turn out to be.

  Creating an Escape Plan

  There can be no perfect solution – one which allows you to retain your present life, exactly as it is, within the system, whilst the system around you is in a state of collapse.

  What can be done, however, is to remove your wealth and yourself from the system as much as possible, so that the impact of the collapse is minimised.

  As a basic set of assumptions, you might consider one or more of the following actions:

  • Remove all cash from exposure to bank freezes and confiscations by placing your money (other than three months of expenses) in banks in countries where no confiscation laws exist (i.e., outside of the EU, US and Canada).
  • Convert a major portion of your cash into precious metals, to be stored in a minimum-risk jurisdiction, such as Singapore, Hong Kong or the Cayman Islands.
  • If you’re a citizen and resident of a major country that is likely to be a casualty, create a place of legal domicile in an alternate country.
  • Invest in land and/or built property in that country, or similar jurisdiction (property is the most difficult asset for any government to confiscate). Choose a country that has no annual property tax, if possible.

  This is only the most basic of formats, but it works well, either in its entirety, or in part.

  Many readers may say, “But I’m not wealthy. I can’t do any of those things.”

  Again, this is complacency talking.

  Anyone with $1,000 can create a foreign bank account. Anyone who additionally has the price of an ounce of gold can begin to remove his wealth, no matter how small, from risk.

  Anyone with a skill can secure employment in a country where the damage is likely to be lesser than in his home country.

  The cloud on the horizon is a flock of black swans. No one can predict when they might land. What can be said for certain is that, at some point, they most certainly will.

  *  *  *

  A big part of any strategy to reduce your political risk is to place some of your savings outside the immediate reach of the thieving bureaucrats in your home country. Obtaining an offshore bank account is a convenient way to do just that.

  That way, your savings cannot be easily confiscated, frozen, or devalued at the drop of a hat or with a couple of taps on the keyboard. In the event that capital controls are imposed, an offshore bank account will ensure that you have access to your money when you need it the most.

  In short, your savings in an offshore bank will largely be safe from any madness in your home country.

  Despite what you may hear, offshore banking is completely legal and is not about tax evasion or other illegal activities. It’s simply about legally diversifying your political risk by putting your liquid savings in sound, well-capitalized institutions where they’re treated the best.

  You may want to check out Going Global, our comprehensive publication where we discuss our favorite banks and jurisdictions for offshore banking including, crucially, those that still accept Americans as clients and allow them to open accounts remotely for small minimums.

  Normally, this book retails for $99. But we believe this book is so important, especially right now, that we’ve arranged a way for US residents to get a free copy. Click here to secure your copy.

  

  

  

  

  

• The Tortoise? Or The Hair?

  Maybe it is ‘different’ this time…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• "There's Just No Cash" Oil Price Increase Will Not Come Fast Enough To Save Alberta

  Submitted by David Yager via OilPrice.com,

  “There’s just no cash.” That’s the Coles Notes from a senior banker describing the book of oil service loans he manages for one of Alberta’s leading lenders. There’s simply not enough cash flow to support current levels of debt.

  Bankers and borrowers have kicked the can down the road about as far as they can as more oilfield service (OFS) and exploration and production (E&P) companies default on their loans and seek more relief on lending covenants. While a significant oil price increase to lift all the sinking boats will surely come, it won’t happen soon enough. More of the same won’t work.

  Oil industry debt is everyday news. But the discussion is about the symptoms, not the ailment.

  Companies cannot borrow their way out of debt. Equity capital is only available at distressed valuations. Specialized OFS assets will fetch only a fraction of replacement cost—if somebody actually wants them. Although oil and gas reserve valuations are down by half, borrowers are being forced to sell them anyway to repair balance sheets. The last four months of 2015 will be very difficult for any company with meaningful amounts of debt. Same for their lenders, the other signatories to the loan agreement.

  As the banker said, “There’s just no cash.” Here’s what it means.

  The foundation of global credit markets is based upon the borrower’s capability, obligation and commitment to pay the money back. The amount of money anybody can or should borrow is dependent upon free cash. Not forecast cash flow, not earnings before interest, taxes, depreciation, and amortization (EBITDA), not good intentions. Free cash. How much money is available to service debt after all the other bills are paid. This is the key factor behind every credit application, from a car loan or home mortgage to an operating line of credit or senior secured term debt. The more free cash you generate, the more you can borrow. When free cash drops, the opposite is true.

  But what happens when an entire industry can no longer service previous levels of debt?

  ARC Financial produces a weekly chart calculating revenue, spending and upstream cash flow for the entire Canadian E&P sector for the current and preceding 14 years. Selected data has been reproduced below. MNP added 1998, 1999 and 2000 from prior reports. ARC calculates total revenue from all oil and gas produced, then deducts direct lifting and operating costs, taxes and royalties and the administrative cost of running the business. The result is “after-tax cash flow,” which is the free cash available for exploration, development, dividends and, of course, debt servicing.

  

  Gross revenue from production sales is in blue and after-tax cash flow in red. The green line is 2015’s estimated cash flow compared to prior years. The figures are not corrected for inflation.

  While the 2014 numbers aren’t finalized, ARC estimates total revenue was an all-time record $149.2 billion, generating after-tax cash flow of $67.1 billion, the second-highest in history. Combined with capital inflows from debt and equity and inter-company transfers, E&Ps invested $75 billion on conventional and oilsands capital expenditures (CAPEX, not shown). CAPEX in 2014 was also at an all-time record which created fabulous revenue and earnings for OFS.

  This year is brutal. ARC expects revenue to plunge 33.6 percent to $99 billion, the lowest number since 2009. Except for the recession, you have to go back to 2004 to find total revenue that low. But because today’s production mix is increasingly composed of high-cost oilsands, cash flow is expected to be only $28.9 billion, 43 percent of 2014’s levels. This is the lowest level of after-tax cash flow generated by producers since 2001.

  ARC’s estimated CAPEX this year is only $39.1 billion, 52 percent of last year’s levels. That’s why the active rig count is the lowest in years.

  If the whole industry only has 43 percent of 2014’s cash flow, then in theory it can only carry 43 percent of last year’s debt. Of course, debt is not evenly distributed but the point is clear; the industry’s macro balance sheet is under severe stress. When Canada’s Big Six banks reported their earnings for the third quarter ended July 31, 2015 it was noted these lenders had total exposure to the upstream oil and gas industry of about $44 billion. Including other sources of debt (bonds, other banks, equipment leasing companies), this figure is likely only a fraction of total obligations. It could easily be $60 billion, probably much more. With so many private operators complete figures are impossible to compile.

  At current oil prices, too many producers are not generating enough free cash for their debt levels. For oilsands, some bitumen is undoubtedly produced at a cash loss. Success at current prices is based entirely on geology. Some reservoirs are less price sensitive than others. Some E&Ps have less debt than others. Hedges on future production locked in last year at much higher prices cushioned the problem. As they expire, they cannot be replaced.

  When you see reports that some producers are cutting staff, slashing dividends and selling properties, that’s because they’ve hit the debt-to-free-cash wall. OFS is also in tough shape. E&Ps have demanded suppliers cut prices and vendors have complied. Free cash from operations is either nominal or non-existent. Some are in default, some are in special credit and some are insolvent. Service companies are also slashing or cancelling dividends. Like E&Ps, you pay your shareholders AFTER you have paid your banker.

  So, if too many outfits are seriously over-levered for current prices, now what? How this affects different companies is as diverse as the companies themselves. The quickest way to de-lever balance sheets is to sell things—either shares or assets—to raise cash. But to whom? At what price? What if this can’t be done?

  Lenders are also in this mess up to their nostrils. They’ve been hoping this problem would just go away, a strategy with significant merit considering the alternative. The first quarter of 2015 was mostly shock and awe as prices tumbled. Where’s the bottom? It came on March 17 when benchmark West Texas Intermediate (WTI) crude closed US$43.39. Or so everyone thought. The first quarter average price was US$48.54. Awful, but surely it couldn’t get worse.

  The second quarter looked promising as WTI recovered significantly, reaching US$61.36 on June 10. The average price in Q2 was US$57.85. There was optimism that the worst was over. Borrowers requesting covenant waivers and forbearance letters were, for the most part, accommodated. No need to panic. Rising oil prices saved the day in 2009. Perhaps this would happen again.

  But the summer of 2015 has been brutal and set the tone for the rest of the year. Oil started to slide in July, averaging only US$50.90, and fell further in August until WTI reached a new six year low of US$38.22 on August 24. It closed on Friday September 4 at US$45.77. Futures markets, which showed materially higher forward prices earlier this year, indicate few believe crude will recover soon. The October 2016 WTI price was only US$51.59 on September 4. October 17 was US$55.47. No hedging opportunities now.

  What will lenders do? When Canada’s Big Six banks reported results for the quarter ended July 31, 2015, they declared Gross Impaired Loans of $13.8 billion, about $1.8 billion more than the same period in 2014. They set aside more funds for bad oil and gas loans but also published explanations of how their oilpatch exposure was manageable. But things got much worse in August. This figure will surely rise for year-end reports prepared as of October 31, 2015.

  In the next few months, non-performing loans (offside of covenants) will be split into two categories: salvageable and hopeless. The former could live to fight another day. The latter may end up with new owners, new lenders or completely insolvent with assets auctioned to the highest bidder.

  Salvageable loans will be those where management has demonstrated its understanding of the seriousness of breaching covenants and will have done everything possible to work with the bank, keep the credit in place and preserve shareholders’ equity. This includes cutting costs, slashing or eliminating dividends and raising equity or selling assets to reduce debt and de-leverage. Key elements include lender relationship management, presentation of all relevant data, credible forecasts and respect for who is really driving the bus. Covenants will be amended and stretched. There will be a serious effort by lenders to keep these borrowers and loans solvent to maintain the debt as an asset on their own balance sheets.

  Hopeless loans will be dealt with increasingly expeditiously. These are companies with business models that no longer work or companies which are unable or unwilling to present the information lenders require to further amend credit terms that have already been amended. Impossible demands for cash will be made from asset sales or equity injections. When this can’t be done, the file will be moved to special credit. There, the lender will do whatever it must to recover as much cash as possible. Options include selling the debt or the assets at whatever price can be secured. Shareholders’ equity will be zero, current management will likely be replaced and companies may disappear.

  Back in the last half of the 1980s, things were equally awful. Then, at least one major bank converted its loan to a drilling contractor to equity, in the form of preferred shares, coined “distress prefs.” The covenants were as rigid as the debt, but it worked. Whether lenders and borrowers will become this creative this time is not yet known. The story goes the largest drilling contractor in Canada in the 1980s was the Royal Bank of Canada. It’s safe to say they don’t ever want to get back into this business.

  There are significant pools of capital – equity and debt – waiting patiently to exploit opportunities. Valuations and calling the bottom have been major obstacles. Lenders will take care of that. Owners and equity holders on the wrong side of their debt will no longer be in a position to dictate price or value. Deals will get done.

  There is great remorse on all sides. Companies are realizing when business was good they got greedy and tried to grow faster than cash flow permitted, and used debt instead of equity to lever shareholder returns. Lenders are realizing they loaned money to management teams which talked a good story but in the end didn’t have the business model or know-how to manage the company through a serious and prolonged slump.

  To remain competitive, the Canadian oilpatch must seriously de-lever. Everybody – lenders and borrowers – will be taking a haircut until total debt is in line with free cash. Many companies will become “second owner businesses” as new lenders or owners restructure and reduce debt until it reaches a level the market can support.

  It would be great to be wrong but oil prices will not solve this problem anytime soon.

  

  

  

  

  

• Enough Already! Raise The Rate To 3 Percent

  Submitted by Calibrated Confidence

  Enough Already! Raise The Rate To 3 Percent

  Raise the Federal Funds Rate (FFR). Move the range to 0.25-0.50 percent and do it on a surprise announcement.  We should raise the rate to 3 percent overnight.  TV and all the pundits look at the same headline data and say the economy is strong.

  The analysts have their confidence in their proclamations regarding the impact of raising rates according to the recent flood of equity specific “defensive” notes.  One economist who emailed Benzinga believes any increase in rates will benefit banks through the interest paid on reserves, provided the monetary bases keeps expanding, as the Fed typically sets the IOER paid on reserves to the upper-bound of the FFR.  Let us see how well the money managers have taken advantage of all this time to diversify and prepare for any impacts from a rate increase, whether detrimental to prices or beneficial to regional banks like popular opinion says (risk parity strategies be damned).

  The 10-Year Real Rate has rebounded from negative territory and currently sits at 2.21 percent as of August, below the average of 2.40 percent since Jan 1962. Looks like the economy is saved following the brutal beating unleashed on the savers of this country in order to achieve balance in the universe by making sure GDP maintains 3 percent growth Y/Y, which it didn’t but don’t tell anyone.

  

  Introduce a little anarchy. If the economy is so strong and everyone is so well prepared, then take the rate to 3 percent overnight. Why pretend to walk the FFR up in 25 bps increments for 18-24 months? The weakness in regional Fed District Economic Conditions Index 3-Month Average as reported in the most recent Beige Book does not appear to be impacting the future earnings expectation of the S&P 500 constituents as the index remains elevated since conditions declined beginning around Q4 2010:.

  

  Take FFR to 3 Percent overnight.  Just do it!  What are you waiting for?  Yes you can, just do it!

  Since data isn’t being analyzed in the proper perspective we can just say Net Interest Margins are growing, it’s all awesome, hike those rates and expand the monetary base and keep the QE alive for the banks (although it’ll be more subtle and we know how much the Fed likes to be subtle):

  

   

  Everything is so wonderful that a rate hike would equate to saying the Fed has won. Seven years of ZIRP and a few selling periods when the Fed stopped POMO’s and QE injections, we can easily say with extreme confidence that the Fed won. And by won we mean didn’t ruin the system entirely. Except they did.

  We still have elevated levels of people not working who want a job now and a skewed participation rate thanks to demographics in the US:

  

   

  ….our debt is at an unfathomable, unrepayable and national security threat level.

  

   

  It’s all awesome again!  So much so that we should take the FFR to 3 percent overnight, not just 0.25-0.50 bps. Remember, everything is awesome again! Oh yeah, and everything is priced in according to the TV people so there’s nothing to even worry about right? Right. Wrong.  We’re repeating 2011 and we’ve wasted a year of price discovery now that we’re under 2014 levels for this same time last year.

  

   

  Sector ETFs have broken down but that doesn’t mean the economy isn’t awesome. The only data that appears to be important this time around is Housing/Auto Sales and the Jobless Rate (Unemployment Rate).

  

   

  Consumers who have heard from their evening news channels and regional newspapers that everything is so rosy have gone out and boosted expenditures while maintaining a flat savings rate (savings as a percent of disposable income).

  

  People are consuming, oil is low, and, according to analysts, the recent selloff in equities has provided households with a windfall opportunity to buy companies well-positioned in sectors with strong-growth prospects and historically low EV/EBITDA multiples. Things are so fantastic right now that no one even cares about the Margin Debt levels and the fact that the borrowing of capital is being used to get long the market. For the sake of this piece we will ignore this and never focus here again because a 3 percent overnight hike in the FFR would have no impact here or anywhere else right?  No but let’s get back to the bullish story about sun-drenched fields and Unicorns on Rainbows.

  The Buffett Indicator is a mere 2 Standard Deviations away from its mean and still below the peak in 2008, so clearly we are in a stable and rational economy given the percent of Corporate Earnings to GDP, everything is still awesome until we hit at least three Standard Deviations right?

  

   

  This piece is meant to be tongue in cheek. The current state of global markets is unstable at best. The underlying fundamentals used to place value on assets are skewed and have become severely disconnected from the pricing mechanism. Recently Ray Dalio’s Risk Parity trading has been blamed for the market correction.  The strategy has been around since 2010 and blaming it for the current turmoil is dangerous mostly because it ignores China’s FX actions, the 19+ central bank interest rate cuts in Q1 2015, and the growth of equity-linked OTC Derivatives according to data from the Bank for International Settlements aside from the FX drama, Greece, and Australian “default”.

  The seriousness attached to the speculation of a bounded range increase in FFR to 0.25-0.50 percent from 0.00-.0.25 percent is ridiculous. If the economy is so strong, as has been reiterated daily in newspapers and on TV, then 25bps should be nothing. If things are so great, let us go for 3 percent. The Swiss National Bank removed its 1.20 Euro peg and the Franc has retraced more than 78 percent of that initial move. Why can’t the Fed show some conviction and spike rates? Here’s to 3 percent FFR on amazing US economic strength!

  

   

  If it truly is widely believed things are so awesome then take rates to 3 percent and get some ammo back in the Fed’s pocket because we’re going to need it when one of these unstable and overly indebted sovereign nations begins the next leg of the epic current war. Maybe then the CME can stop incentivizing the US Fed and global central banks to trade S&P 500 e-mini futures:

  

  

  

  

  

  

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• Gold, Silver, and Horse Betting Report 13 Sep, 2015

  Consider the sport of betting on the sport of horse racing. It’s actually similar to the analysis of the gold and silver markets. How’s that?

  First, there is the manic-depressive crowd. Sometimes (as we are told—we don’t hang out at race tracks) the bettors sometimes get overly excited about a horse with slim chances to win, or get totally unexcited about a strong horse. The track responds by lowering or raising the payout for winning, respectively. The more betting on a horse, the lower the payout.

  The track does not care which horse is likely to win or not win. What it wants to do is take its rake from the total bets placed. It does this by making a spread between what it takes in on all the horses, and what it will have to pay out if any given horse wins. We don’t know the precise formula, but if horse X gets ¼ of the total bets then the payout if X wins had better be less than 4:1.

  In keeping with our theme of emphasizing spread rather than price, there is a spread that smart bettors should be paying attention to. A smart horse bettor should have a way of assessing the probability of X winning (and for every other horse in the race). He should bet when the payout is higher than the probability of winning. Suppose in the frenzy of betting on X, almost no one bets on Y. So Y pays 10:1. If a bettor assesses Y’s odds as 5:1, it’s a good bet. Yes, the horse is not probable to win. However, the payout is greater than the odds. Given enough bets with 5:1 odds and 10;1 payouts, a bettor will win in the long run.

  We admit to not knowing much about betting at racetracks. There may be lots of reasons why this scheme is not practical (not least of which is being accurate in assessing odds for each horse). That’s not the point, and we certainly don’t recommend anyone to start betting on horse racing.

  The point is that the “house” focuses on spread. Sophisticated operators focus on spread. You should focus on spread too.

  Mainstream analysis often dismiss gold as having no value, on grounds that they know not how to assess it. Gold bugs often like to divide some measure of the quantity of dollars by some measure of the quantity of gold to get an intrinsic value. This exercise in arithmetic usually shows that gold is massively underpriced.

  Both approaches are equally wrong.

  The fact is that virtually all of the gold mined over the millennia is still in human hands. The proportion for silver is lower, but still orders and orders of magnitude greater than that of any other commodity. This means that the people on this planet do value gold and silver, without much regard to quantity already held. The value they place on the metals can be measured at the margin. How?

  By studying spreads.

  We can theorize that people will value gold and silver more highly (i.e. value the dollar at a much lower level). But that is not a measurement of the current market reality. It is speculation. Perhaps smart speculation. It may even be based on sound economics. But it’s nothing to do with the current market and supply and demand conditions within it.

  …

  Monday was a holiday in the US (Labor Day), so it was a short week.

  The prices of the metals went down, with the gold move slightly larger than the silver. Yes, but what happened to the spreads of the metals this week? Read on…

  First, here is the graph of the metals’ prices.

         The Prices of Gold and Silver 

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

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

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

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

  Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio moved down again this week. Is it bouncing off support, or just correcting before it goes higher? Read on… 

  The Ratio of the Gold Price to the Silver Price 

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

  Here is the gold graph.

         The Gold Basis and Cobasis and the Dollar Price
  
  

  The price of the dollar rose slightly, but the scarcity (i.e. cobasis) of gold backed off slightly. At least for the October contract.

  The fundamental price did not move much. It’s still over $1,270.

  Now let’s look at silver.

  The Silver Basis and Cobasis and the Dollar Price
  
  

  While the price of the dollar went up (i.e. the price of silver, measured in dollars went down) the scarcity rose.

  The silver fundamental price rose, and is now about a dollar over the market price.

  The fundamental ratio moved down slightly, but is still over 80.

   

  Monetary Metals may sponsor an event in London in early October, and another in Sydney in late October, to discuss economics and markets, with a focus on how to approach saving, investing, and speculating. Please let us know if you may be interested in attending either one here.

   

  © 2015 Monetary Metals

  

  

  

  

• A Refugee Crisis Made In America

  Submitted by Philip Giraldi via TheAmericanConservative.com,

  On April 29th, 2008 I had a Saul on the Road to Damascus moment. I had flipped open the Washington Post and there, on the front page, was a color photo of a two year old Iraqi boy named Ali Hussein being pulled from the rubble of a house that had been destroyed by American missiles. The little boy was wearing shorts and a t-shirt and had on his feet flip-flops. His head was hanging back at an angle that told the viewer immediately that he was dead.

  Four days later on May 3rd a letter by a Dunn Loring Virginia woman named Valerie Murphy was printed by the Post. Murphy complained that the Iraqi child victim photo should not have been run in the paper because it would “stir up opposition to the war and feed anti-US sentiment.” I suppose the newspaper thought it was being impartial in printing the woman’s letter, though I couldn’t help but remember that the neocon-dominated Post had generally been unwilling to cover anything antiwar, even ignoring a gathering of 300,000 protesters in Washington in 2005. Rereading the woman’s complaint and also a comment on a website suggesting that the photo of the dead little boy had been staged, I thought to myself, “What kind of monsters have we become.” And in truth we had become monsters. Bipartisan monsters wrapped in the American flag. Bill Clinton’s Secretary of State Madeleine Albright once said that killing 500,000 Iraqi children through sanctions was “worth it.” She is now a respected elder statesman close to the Hillary Clinton campaign.

  I had another epiphany last week when I saw the photo of the little Syrian boy Aylan Kurdi washed up on a Turkish beach like a bit of flotsam. He was wearing a red t-shirt and black sneakers. I thought to myself that many Americans will shake their heads when looking at the photo before moving on, more concerned about Stephen Colbert’s debut on the Late Show and the start of the NFL season.

  The little boy is one of hundreds of thousands of refugees trying to get to Europe. The world media is following the crisis by focusing primarily on the inability of unprepared local governments to deal with the numbers of migrants, asking why someone somewhere can’t just “do something.” This means that somehow, as a result, the vast human tragedy has been reduced to a statistic and, inevitably, a political football.

  Overwhelmed by thousands of would-be travelers, Hungary suspended train service heading towards Western Europe while countries like Serbia and Macedonia deployed their military and police along their borders in a failed attempt to completely block refugees. Italy and Greece have been overwhelmed by migrants arriving by sea. Germany, to its credit, is intending to process up to 800,000 refugee and asylum applications, mostly from Syria, while Austria and Sweden have also indicated their willingness to accept many more. Immediate neighbors of the zone of conflict, notably Turkey, Lebanon and Jordan are hosting more than three million of those who are displaced, but the wealthy Arab Gulf countries and Saudi Arabia have done little or nothing to help.

  Demands for a European unified strategy to deal with the problem are growing, to include sealing borders and declaring the seas off of preferred departure points in North Africa and Asia to be military zones where undocumented ships and travelers will be intercepted and turned back. One also has to suspect that the refugee crisis might be exploited by some European politicians to justify NATO “humanitarian” intervention of some sort in Syria, a move that would have to be supported by Washington. But while the bickering and maneuvering goes on, the death toll mounts. The recent discovery of 71 dead would-be migrants who suffocated in the back of a locked truck found in Austria, to include five children and a toddler, horrified the world. And that was before the dead three year old on the Turkish beach.

  Many of the would-be migrants are young men looking for work in Europe, a traditional enterprise, but most of the new arrivals are families escaping the horrors of war in Syria, Iraq, Afghanistan, and Yemen. Their plight has been described in the media in graphic terms, families arriving with nothing and expecting nothing, fleeing even worse conditions back at home.

  The United States has taken in only a small number of the refugees and a usually voluble White House has been uncharacteristically quiet about the problem, possibly realizing that allowing in a lot of displaced foreigners at a time when there is an increasingly heated debate over immigration policy in general just might not be a good move, politically speaking. But it should perhaps be paying some attention to what caused the problem in the first place, a bit of introspection that is largely lacking both from the mainstream media and from politicians.

  Indeed, I would assign to Washington most of the blame for what is happening right now. Since folks inside the beltway are particularly given to making judgements based on numerical data they might be interested in the toll exacted through America’s global war on terror. By one not unreasonable estimate, as many as four million Muslims have died or been killed as a result of the ongoing conflicts that Washington has either initiated or been party to since 2001.

  There are, in addition, millions of displaced persons who have lost their homes and livelihoods, many of whom are among the human wave currently engulfing Europe. There are currently an estimated 2,590,000 refugees who have fled their homes from Afghanistan, 370,000 from Iraq, 3,880,000 million from Syria, and 1,100,000 from Somalia. The United Nations Refugee Agency is expecting at least 130,000 refugees from Yemen as fighting in that country accelerates. Between 600,000 and one million Libyans are living precariously in neighboring Tunisia.

  The number of internally displaced within each country is roughly double the number of those who have actually fled and are seeking to resettle outside their homelands. Many of the latter have wound up in temporary camps run by the United Nations while others are paying criminals to transport them into Europe.

  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. The millions of people living rough or in tents, if they are lucky, need help and it is not satisfactory for the White House to continue with its silence, a posture that suggests that the refugees are somehow somebody else’s problem. They are, in fact, our problem. A modicum of honesty from President Barack Obama would be appreciated, perhaps an admission that things have not exactly worked out as planned by his administration and that of his predecessor. And money is needed. Washington throws billions of dollars to fight wars it doesn’t have to fight and to prop up feckless allies worldwide. For a change it might be refreshing to see tax money doing some good, working with the most affected states in the Middle East and Europe to resettle the homeless and making an honest effort to come to negotiated settlements to end the fighting in Syria and Yemen, both of which can only have unspeakably bad outcomes if they continue on their current trajectories.

  Ironically, American hawks are exploiting the photo of the dead Syrian boy to blame the Europeans for the humanitarian crisis while also demanding an all-out effort to depose Bashar al-Assad. Last Friday’s Washington Post had a lead editorial headlined “Europe’s Abdication,” and also featured a Michael Gerson op-ed urging immediate regime change in Syria, blaming the crisis solely on Damascus. The editorial railed against European “racists” regarding the refugee plight. And it is not clear how Gerson, an evangelical neoconservative former speech writer for George W. Bush, can possibly believe that permitting Syria to fall to ISIS would benefit anyone.

  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.

  In writing this piece I looked up Ali Hussein, the little Iraqi boy who was killed by the American bomb. He has been “disappeared” from Google, as well has the photo, presumably because his death did not meet community standards. He has likewise been eliminated from the Washington Post archive. The experience of Winston Smith in George Orwell’s 1984 immediately came to mind.

  

  

  

  

  

• US Futures Jump Unaware Gartman Short Has Been Stopped Out, China Hugs Flatline

  Following a string of weak economic news out of both Japan and the US, it was China’s turn to disappoint which it did over the weekend with the worst fixed-asset investment data – the primary driver of China’s GDP – since 2000, as well as yet another miss in Chinese industrial output, just the latest two indications that China’s economy is grinding to a halt if not slamming into reverse.

  

   

  The result: just like with Japan’s latest dramatic economic deterioration, China’s data was merely taken as yet another indication the PBOC will be forced to ease more in the coming days. As Reuters reported, “the data add to expectations that Beijing will respond with more measures to prop up the economy. “The numbers fit with our view that China will have to roll out more monetary easing,” said Fumio Nakakubo, Japan CIO at UBS’s wealth management division.”

  Because if it hasn’t worked so far, it is only because not enough has been applied right?

  That, however, may not work for Japan where there has been a resurgence in calls for more easing out of the BOJ although as we first noted last year, and as the IMF confirmed last week, the BOJ no longer can boost QE simply because there is nothing incremental it can buy. It also explains why Reuters reported earlier that “Bank of Japan policymakers are in no mood to expand monetary stimulus this week, sources familiar with their thinking say, even as poor data challenges their presumption that economic recovery will boost inflation to its 2 percent target next year.”

  There is still hope for an October rate hike, but just like September, the closer we get to the date, the more unlikely such a hike will “suddenly” become as even the BOJ is now officially out of QQE boosting ammo, and the best it can hope for is to last until 2017 without prematurely tapering.

  And while the Shanghai Composite opened green only to turn red moments ago as doubt starts to creep in that someone, anyone will ease more…

  

   

  … we don’t expect much of a move from China. As the following chart shows, ever since the Chinese government killed trading in Chinese index futures last week, the “market” is anything but – and has literally flatlined as virtually nobody trades anymore. In other words, China has successfully CYNKed its entire stock market.

  

   

  Earlier, the PBOC modestly raised the Yuan, pushing it higher by 0.02% to 6.3709, up from 6.3750, although even that move seems rather unremarkable by recent standards – as if even China is now waiting for the Fed.

  

   

  For now, US equity futures are higher on the day, rising by 9 point after being 14 points higher ealier, driven mostly by USDJPY correlation algos, and perhaps by Goldman’s conviction that the Fed will not hike in September and may delay hiking until 2016 altogether.

  

   

  However, we expect this initial euphoria higher to fade momentarily, once the vacuum tubes realize that the catalyst of Friday’s surge higher, namely Gartman’s latest flipflopping is no longer on the table. As a reminder, this is how we paraphrased Dennis in “A Warning For The Bears: Gartman Goes Short S&P Futures, “Very Worried In Catholic Terms“

  NEW RECOMMENDATION: we wish to sell the S&P futures short this morning, fearing that a major top hss developed and that the recent consolidation in the stock market is precisely that: a consolidation before the next leg downward.

   

  We’ll sell the S&P future short and will buy the December T-note at the same time, with the S&P trading 1933.00 as we write and with the Dec T-note future trading 127 ¼. We’ll risk no more than 1.5% on either position and we look for the consolidation in the S&P to resolve itself sharply lower as discussed at length above.

  Well, as of tonight, just 1 trading day after his latest reco, Gartman has been stopped out as his 1.5% limit was hit when futures rose above 1962 this evening.

  So with Gartman no longer a 100% assured fade, the algos are now flying blind and anything is possible.

  That said, for the real action we will just have to wait until Thursday when the Fed either proceeds with the first rate hike in 9 years or, far more likely, postponed once again… due to “risk management” considerations of course.

  

  

  

  

  

• An Angry China May Cancel Xi Trip To Washington Over US Cyber Sanctions

  A little over a week ago, FT suggested that the US was set to slap China with sanctions in retaliation for what the US claims are a series of cyber attacks. The news came a month after the NSA leaked a “secret” map to the press which purported to show the locations of hundreds of cyber intrusions which NBC said were used “to steal corporate and military secrets and data about America’s critical infrastructure, particularly the electrical power and telecommunications and internet backbone.”

  Furthermore, the report continued, “the prizes that China pilfered during its ‘intrusions’ included everything from specifications for hybrid cars to formulas for pharmaceutical products to details about U.S. military and civilian air traffic control systems.” NBC cited “intelligence officials.”

  The release of the map and subsequent indication that the Obama administration felt it needed to send a message in the wake of the OPM hack described as “the largest theft of US government data ever,” marked the culmination of a long cyber propaganda campaign which began with accusations that North Korea had attempted to sabotage the release of a Seth Rogen film and reached peak absurdity when Bloomberg reported that Chinese hacker spies had taken control of the Penn State engineering department. 

  Ultimately, all of this prompted the administration to “prepare a raft of sanctions to respond to [the] mounting commercial espionage,” FT reported. The problem with applying the sanctions now however, is that Xi Jinping is preparing to visit Washington and as anyone who knows anything about Xi is fully aware, he is not a man who enjoys being embarrassed, a fact that’s led some officials to voice concerns about the wisdom of leveling the sanctions now as opposed to after Xi and Obama have met and the Chinese President is back home in Beijing. The thinking is essentially this: “why risk making things awkward when the US could just wait and apply the sanctions later, allowing Xi to save face?” 

  Well sure enough, it now looks like the very idea that Washington is set to move ahead with the sanctions may be enough to prompt Xi to cancel the trip altogether. The Hill has more:

  Sanctions punishing China for hacking U.S. companies could drive Beijing to cancel President Xi Jinping’s upcoming U.S. visit, according to experts and former administration officials.

   

  The Asian power is increasingly anxious about the potential of economic penalties ahead of what’s seen as an important summit for the future of the U.S.-China relationship.

   

  “The Chinese right now are getting very concerned because they understand this will create embarrassing optics around the visit for them,” said Samm Sacks, China analyst at the Eurasia Group, a political risk consulting firm, who has advised government agencies on Chinese tech policy.

   

  While some experts and former White House cybersecurity officials are wary the administration will aggravate Beijing just days before Xi lands in Washington, current officials have privately indicated sanctions may be imminent.

  Then again, The White House is also concerned that its reputation (or whatever is left of it as it relates to relations with China) will be damaged if the US allows a diplomatic visit to dictate America’s response to what’s been billed as aggressive cyber warfare: 

  “If they don’t announce the sanctions soon,” Sacks said, “it makes the Obama administration look weak.”

   

  But when those penalties hit is a major question.

   

  Many see little upside to timing the sanctions this close to the meetings. After months of anticipation, such a move would eliminate any chance of a worthwhile dialogue on cybersecurity at the summit and compound the inevitable blowback, policy specialists agreed.

   

  “You’re not going to get any better chance to talk to them than right now,” said Jason Healey, a former director of cyber infrastructure protection at the White House. “If I were Obama, I would want some running room.” 

   

  Healey and others believe the rumors are meant simply as a message to the Chinese delegation as it prepares to make the trip stateside.

   

  “My sense was that the leaks were happening to try and create some kind of pressure on the Chinese as they come into the summit, to get some type of traction with them,” said Chinese cyber policy expert Adam Segal, a senior fellow at the Council on Foreign Relations.

   

  Others have heard the leaks were not intentional, and came from hard-liners within the administration who want to press forward with sanctions.

   

  Either way, the U.S. is in a rare position to apply cybersecurity pressure on China. Many believe the White House has less to lose than its counterpart during the upcoming summit.

   

  Within the Obama administration, “there’s a tolerance of having a bad visit,” Sacks said.

  Beijing officials are more concerned about the international community’s perception of the meetings, foreign policy experts agreed.

   

  “They want to send the signal about [Xi’s] arrival on the international stage,” Segal explained.

  In the end, this is just further evidence of worsening relations between the US and China. If the situation is so tenuous that sanctions related to hacking have the potential to derail a meeting between the leaders of the two countries which now preside over a world that’s returned to bipolarity for the first time since the fall of the USSR, then constructive dialogue around issues like China’s military buildup in the Spratlys or, more recently, the presence of the Chinese navy off the coast of Alaska may be all but impossible going forward and as Russian foreign minister Sergei Lavrov reminded the US last week, when dialogue isn’t possible, “unintended incidents” are more likely to occur.

  Of course something tells us Xi wasn’t really looking forward to the trip in the first place so we doubt he’ll be losing sleep…

  

  

  

  

  

  

• Monsanto Stunned – California Confirms 'Roundup' Will Be Labeled "Cancer Causing"

  Submitted by Claire Bernish via TheAntiMedia.org,

  California just dealt Monsanto a blow as the state’s Environmental Protection Agency will now list glyphosate – the toxic main ingredient in the U.S.’ best-selling weedkiller, Roundup – as known to cause cancer.

  Under the Safe Drinking Water and Toxic Enforcement Act of 1986 — usually referred to as Proposition 65, its original name — chemicals that cause cancer, birth defects, or other reproductive harm are required to be listed and published by the state. Chemicals also end up on the list if found to be carcinogenic by the International Agency for Research on Cancer (IARC) — a branch of the World Health Organization.

   

  In March, the IARC released a report that found glyphosate to be a “probable carcinogen.”

  Besides the “convincing evidence” the herbicide can cause cancer in lab animals, the report also found:

  “Case-control studies of occupational exposure in the U.S.A., Canada, and Sweden reported increased risk for non-Hodgkin lymphoma that persisted after adjustments to other pesticides.”

  California’s decision to place glyphosate on the toxic chemicals list is the first of its kind. As Dr. Nathan Donley of the Center for Biological Diversity said in an email to Ecowatch, “As far as I’m aware, this is the first regulatory agency within the U.S. to determine that glyphosate is a carcinogen. So this is a very big deal.”

  Now that California EPA’s Office of Environmental Health Hazard Assessment (OEHHA) has filed its “notice of intent to list” glyphosate as a known cancer agent, the public will have until October 5th to comment. There are no restrictions on sale or use associated with the listing.

  Monsanto was seemingly baffled by the decision to place cancer-causing glyphosate on the state’s list of nearly 800 toxic chemicals. Spokesperson for the massive company, Charla Lord, told Agri-Pulse that

  "Glyphosate is an effective and valuable tool for farmers and other users, including many in the state of California. During the upcoming comment period, we will provide detailed scientific information to OEHHA about the safety of glyphosate and work to ensure that any potential listing will not affect glyphosate use or sales in California.”

  Roundup is sprayed on crops around the world, particularly with Monsanto’s Roundup-Ready varieties — genetically engineered to tolerate large doses of the herbicide to facilitate blanket application without harming crops. Controversy has surrounded this practice for years — especially since it was found farmers increased use of Roundup, rather than lessened it, as Monsanto had claimed.

  Less than a week after the WHO issued its report naming glyphosate carcinogenic, Monsanto called for a retraction — and still maintains that Roundup is safe when used as directed.

  On Thursday, an appeals court in Lyon, France, upheld a 2012 ruling in favor of farmer Paul Francois, who claimed he had been chemically poisoned and suffered neurological damage after inhaling Monsanto’s weedkiller, Lasso. Not surprisingly, the agrichemical giant plans to take its appeal to the highest court in France.

  It’s still too early to tell whether other states will follow California’s lead.

  

  

  

  

  

• Lord Of The Flies: Dystopia Is Arriving

  Submitted by Dave Kranzler via Investment Research Dynamics,

  Paper money eventually returns to its intrinsic value – zero  – Voltaire

  I was driving around Denver yesterday doing my “boots on the ground” due diligence scouting of the local housing market.  I continue to see some “sold” and “under contract” signs but I’m seeing a pile-up forming in new “for sale,” “price reduced,” and “for rent” signs.   The traffic update on the sports radio reported a back-up at an intersection in Denver caused by a fist-fight that had broken out between two drivers.  This country is sliding back into neanderthal times.

  The U.S. economic system is slipping into dystopia and the Government/Fed is doing everything it can to try and prevent the process.  The two most obvious signs of this are the perpetual market interventions by the PPT to prevent a stock market dump and the relentless propaganda flowing through the mainstream media which originates from the policy-implementing elitists (business and political).  Both efforts are insidious attempts to force control over our system

  Overnight this week, the S&P 500 e-mini futures were halted twice.   The SPX mini is the Fed’s choice intervention tool because it can direct the market with minimal capital requirements.  The e-mini is hyper-sensitive to big orders and tends to lead the big SPX directionally because of this.   The emini trading was halted after a sudden plunge in the futures at 5:51 a.m. EST, after which a massive buy order (the PPT) hit the tape and spiked the eminis straight up. The market was halted again after the spike up stalled and the emini was about to plunge again.   You can see the action here:   E-mini Market Halt

  The graphic linked above was provided by Nanex’s Eric Hunsader.  Prior to the market’s first market halt, Hunsader tweeted:  “emini getting tossed around like a rag doll:”

  

  I found Hunsader’s allusion to “Lord of the Flies” to be quite haunting. For me it encapsulates the societal, political and economic direction in which the United States is headed. Rule of Law has been completely eroded by corrupt Presidents and citizen nonchalance. Many beside me have alluded to the fact that the U.S. political system now resembles that of a Central American Banana Republic. That’s no secret to anyone who cares to peek at reality.

  But where this whole process starts to get scary is when that needle heads toward “Lord of the Flies.” That is the point at which we will see and experience the truly dark side of humanity. Too me the outbreak of fistfights at traffic intersections and the herds of panhandlers standing on busy urban and suburban corners reflects the movement of that needle past Banana Republic to the left…

  I’m not an e-wave theory advocate but there’s merit to some of the analysis.  Robert McHugh is probably the most skilled practitioner of it these days and he’s run 5 different “wave” scenarios – all of them suggest a high probability of serious market crash coming soon – he specifically references the August sell-off as “gentle” in comparison.

  If this stock market does what we all know it will do eventually, which is seek a level that reflects its true underlying intrinsic value, all hell will break loose in this country and we’ll start hearing reports of much worse occurrences than fist-fights at traffic intersections.

  What is the “intrinsic value” of the S&P 500?  Based studying the earnings of enough S&P 500 companies using the GAAP accounting standards that were in place 20-30 years ago – vs. non-GAAP, adjusted-GAAP, and new GAAP accounting applications used today – I would suggest that S&P 500 has “fair value” around the 500-600 level.  A large portion of reported net income/EPS is income that is non-cash and is manufactured by new accounting gimmicks.

  The S&P 500 hit 666.79, which is in my “fair value” range, intra-day on March 6, 2009 (no, I don’t read any significance into “666”).  We saw how the Fed and the Treasury responded: they began dumping trillions of printed dollars into the banking system and drastically altered some of the GAAP accounting rules – i.e. they changed the rules of the game.  This was in response to the S&P 500 seeking fair value.

  What is frightening to contemplate, in the context of Eric Hunsader’s haunting Tweet, is what the Government’s response will look like this time around when the PPT loses control – which I believe is occurring now – and the S&P plummets again in an attempt to seek it’s proper level.  Remember:  just like water, the stock market eventually always finds its own level.

  

  

  

  

  

• What Happens When Central Banks Hike Rates In The "New Normal"

  Ten days ago, using Bank of America data, we summarized what it means to live in the New Normal: “In the 110 months [since the last Fed hike] global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.”

  Indeed, what has happened in the past 7 years is nothing short of the greatest attempt ro reflate asset prices (if not so much the economy – that will come when the helicopters start paradropping bags of cash) the world has ever seen, driven entirely by the central banks and China. In fact, it is now so obvious even JPM finally figured it out.

  

  However, while the desperate attempt to monetize a quarter of global GDP in tradable assets just to boost the confidence (and wealth) of the “1%” is no longer lost on anyone, the reality is that some banks did try to tighten monetary conditions and hike rates.

  This is how they fared. According to the WSJ: “In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat.”

  

  So the question then becomes: if the Fed does hike on Thursday as two-thirds of economists predict (we doubt it: Goldman said no rate hike until December, and more likely, not until 2015… in fact Goldman said “the Fed should think about easing” and what Goldman wants Goldman gets), will it be the first bank that avoids having to promptly “unhike”, which is unlikely or far more realistically – how long until the Fed is forced to admit “policy defeat” and go right back to ZIRP, or perhaps even NIRP, ultimately sliding right into QE4.

  Alas, by now the script of hiking just to have an alibi to ease has become so trite even Deutsche Bank last weekend had the temerity to ask “Is The Fed Preparing For A “Controlled Demolition” Of The Market“?

  We’ll know in 4 days.

  

  

  

  

  

• Peter Hambro: "It's Virtually Impossible To Get Physical Gold In London"

  Submitted by Koos Jansen via BullionStar.com,

  Just after my colleague Ronan Manly wrote a very extensive article on how much gold is left in London (not much), Petropavlovsk Chairman and Co-Founder Peter Hambro discusses gold at Bloomberg Television. He, like Manly, concludes there is very little physical gold left in London. From Mr Hambro:

  My baseline is they [the Chinese] have been buying and the Indian have been buying in enormous quantities. It’s virtually impossible to get physical gold in London to ship to those countries. We get permanent requests from Russia, would we please sell our physical gold to India and China. Because there is no physical, only endless promises. And I really worry that the market, that paper market, could be stamped on and people will say “sorry we’ll have a financial close out”, and it’s all over.

  Perhaps this quote explains why UK gold export directly to China in June was not a net outflow from the UK – because there is little gold left in London (Manly, Hambro) and thus the UK had to ramp up import from the US in June to send forward to China.

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  The Financial Times reported on similar gold shortages in London. From the FT (2 September):

  The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants.

   

  “[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

  I’ve also asked BullionStar CEO Torgny Persson in Singapore what he’s currently seeing in the precious metals markets. He replied there are shortages in both the gold and silver market. From Mr Persson:

  I just got off the phone with A-Mark which is one of the world’s largest wholesalers. They are reporting that they have no gold and silver at all live available, that they have stopped taking orders for Silver Maples and Silver Philharmonics altogether and that Silver Eagles are available first in the end of November. For Pamp, there is similarly long delivery times for all minted gold bars.

   

  We still have most products in stock because we stocked up as massively as we could in the last weeks but for many products, we are unable to replenish as of now when we run out.

   

  Big squeeze with shortages starting now both on the wholesale/retail level and at the bulk level… Unless the paper price is reverting up, it may not subside this time around and then the paper fiat mess (including paper prices of gold and silver) is in trouble. If it goes to the point of shortages at the bulk level like 1kg gold bars and 1000 oz silver bars, the emperor will stand without clothes.

  To be continued…

  

  

  

  

  

• 1 In 3 Americans Would Support A Military Coup… In America

  One topic that seems to be of great concern to a relatively large swath of the US public is the militarization of American cities.

  Indeed, with each passing “confrontation” between protesters and police, “protecting and serving” seems to look more and more like “subduing and controlling.” 

  The fear of military and police overreach came to a head this year in the lead up to the US Spec Ops Command’s multi-state “training exercise” dubbed Jade Helm 15. Thanks to a few viral internet campaigns and some badly-timed Wal-Mart closures, some US citizens came to believe that the federal government had devised a plan to institute martial law in Texas. 

  Be that as it may, if there’s anything Americans fear more than overt oppression enacted by force it’s covert oppression enacted by a nefarious combination of crony capitalism and corrupt (not to mention largely incompetent) politicians, which we suppose explains why nearly a third of Americans say they would support a military coup in the US. Here’s more from YouGov:

  The United States military has long embraced the idea of civilian control of national affairs, and apart from certain rare moments the American officer corps has faithfully followed the orders of their civilian superiors.

   

  YouGov’s latest research shows, however, that officers in the military are held in much greater esteem than their civilian superiors, and that they are widely viewed as having the best interests of the country in mind instead of their own selfish concerns. 70% of Americans believe that military officers generally want what is best for the country. When it comes to Congressmen, however, 71% of Americans believe that they want what is best for themselves, along with 59% for local politicians. 

   

  

   

  29% of Americans could imagine a situation in which they would support the military seizing control of the federal government, while 41% could not imagine such a situation. 

   

  Republicans (43%) are more than twice as likely as Democrats (20%) to say that they could conceive of a situation in which they would support a military coup in the United States. Independents tend to say that they could not (38%) rather than could (29%) imagine supporting a coup.

   

  

   

  We present that with no further comment other than to note that Abraham Wyner, director of the undergrad program in statistics at Wharton, suggests you remember that selection bias makes online polling “worse than just about any other way you can put together a poll.”

  

  

  

  

  

• Civil Asset Forfeiture Has Enabled Police To Become The New "Highwaymen"

  Submitted by Jeff Thomas via InternationalMan.com,

  The Highwayman has a romantic image as a bold, 18th-century scallywag who would ride up to a coachload of aristocrats on his horse, shouting, “Stand and deliver!” Having relieved the aristocrats of their purses, he would gallop off.

  Today, the Highwayman is being revived in a big way in the US. But, far from being a scofflaw, he is, in fact, the law. He wears a badge and the law protects him in his roadside robberies.

  The revival is the result, in part, of both the defunding of police departments (creating a demand for law enforcement departments to seek money from other sources) and the encouragement of the federal government for an overall expansion of the police state.

  The legal justification for such highway robbery is the police practice of civil forfeiture, which has been on the books for decades. Civil forfeiture allows law enforcement to seize property (including cash, cars, and even homes) without having to prove the owners are guilty of a crime.

  In many cases, drivers are not charged with any crime at all, not even a traffic citation. In fact, one Florida sheriff has noted that the best targets are those who are obeying the speed law. He knows whereof he speaks, having seized over $6.5 million on the highways of Florida. (Quite an advance on the size of the purses seized by the 18^th-century highwayman.)

  Typically, police stop a car and make the usual request to see license and registration. If the driver asks why he was stopped, a vague explanation may be offered by the officer, or he may simply ignore the question, then demand a search of the car or the driver’s person. The officer then seizes cash and other valuables as potential “evidence” of a crime (suspected drug dealing is a common accusation).

  In some cases, police threaten drivers that, if they are not cooperative, their children may be taken by Child Protective Services.

  The burden of proof is on the driver. In order to regain his possessions, he must prove his innocence in a court. However, in most cases, no charges are made, so there is no court case to try. Whether charges are made or not, law enforcement agencies are entitled to keep 100% of the forfeiture proceeds. Although they are required to keep records on forfeiture, in many cases, police departments avoid or even refuse to provide such information when requested.

  Although police may prey on people anywhere, including in small towns, the most prevalent location is on highways, the further from civilisation the better. In this way, the driver knows that he’s in the middle of nowhere facing a man with both a badge and a gun. He might consider himself lucky to be left with just his car, so that he can drive away from the robbery and not be left on the pavement with no car and no money. For many, this is enough incentive to allow police to take what they want…and not file any complaint.

  Of course, these stops and seizures violate the Fourth Amendment right to freedom from unreasonable search and seizure and at least one state judge in California has described the practice as “an institutional corruption.” Conceptually, a driver can refuse to have his car or his person inspected and can attempt to prosecute the officer, but again, the burden of proof is on the driver. As a result, prosecutions are rare and successful prosecutions rarer still.

  So, the Highwayman has returned, but he now wears a badge. What does this mean for the future? As social and economic conditions deteriorate in the US, will the country’s highways come to resemble a Mad Max scenario, but one in which many of the raiders are people in authority?

  As with so many trends in the US, EU, and similar jurisdictions, this is one of many symptoms of overall social/moral/economic/governmental deterioration, a bellwether of continued decay. Whenever a country is so far along in its decline that its “peacekeepers” make a regular habit of robbing the people they’re paid to protect, and get away with it, we may conclude that further decline is to come and it may be time to exit this particular highway.

  Unfortunately, when such crime exists from coast to coast, as it does with today’s institutionalised highwaymen, the solution is to seek out a better way of life in another country entirely. Fortunately, there are many countries where conditions are considerably better.

  *  *  *

  Editor’s Note: Because of the risk of civil forfeiture, we’ve published a groundbreaking, step-by-step manual on the three ESSENTIAL steps all Americans should take right now to protect themselves and their family.

  These steps are easy and straightforward to implement. New York Times best-selling author Doug Casey and his team describe how you can do it all from home, with very little effort. Normally, this book retails for $99. But we believe this book is so important, especially right now, that I’ve arranged a way for US residents to get a free copy. Click here to secure your copy.

  

  

  

  

  

• Is The Fed Making A Huge "Policy Mistake"? This Market Reaction Will Give The Answer

  As discussed here on Saturday and as should be abundantly clear from the sheer confusion that reigns across markets ahead of this coming week’s all important FOMC meeting where the absurd (and frankly terrifying) fact that the fate of the financial universe hinges on 25bps will be on display for all to see, the Fed is at risk of committing a policy error of epic proportions. 

  To reiterate, the use of the term “epic” here has nothing to do with the magnitude of the hike which, if it occurs at all, will be more symbolic than anything else, and everything to do with the fact that in today’s centrally planned world, which for seven years has been coasting along on an magic carpet made of printing press money even as the entire system becomes ever more unstable, the smallest policy error will reverberate exponentially. 

  To be sure, whether or not Yellen has made a mistake will become all too clear over time. All one need do is observe whether EMs careen further into chaos and/or whether the PBoC becomes even more schizophrenic, but as far as what to watch in the immediate aftermath of the FOMC announcement, we return to what we noted after September’s NFP print when we quoted BofAML. To wit: “If they do hike, watch the long-end.” 

  Why? Because if there’s a flight to safety and the long bond rallies, the Fed will know it has officially erred, or, to quote Deutsche Bank: 

  The market still looks cheap for a September policy error. We see scope for Treasuries to rally significantly from here given the likely risk-off market response to a policy error – we think 10s could rally to 1.75% given the confluence of poor market liquidity and monetary tightening from the Fed and emerging market reserve loss. 

  In this extremely untenable situation, even doing nothing could end up producing the same result if that “nothing” is communicated poorly:

  Even a hawkish hold is likely to keep downward pressure on the slope of the curve and risk asset valuations.

  And as BofA suggests, the places to be in such a scenario will be “cash, volatility, and gold.” At that point, any and all “pet rock” jokes will cease being funny and the only thing humorous will be the sudden disappearance of the transient bid for USTs once everyone who piled in simultaneously realizes that their own actions in the wake of liftoff definitively signal the loss of any credibility the Fed, and by extension, the fiat money regime itself, had left.

  

  

  

  

  

• The End Of Britain? Martin Armstrong On Jeremy Corbyn's Resurrection Of Marx

  Submitted by Martin Armstrong via ArmstrngEconomics.com,

  

  Jeremy Corbyn, the infamous Karl Marx admirer, has been elected UK opposition Labour leader. 

  Here is The Anti Media with a little color on the landslide victory…

   

  People’s favourite Jeremy Corbyn became the new leader of Britain’s Labour Party on Saturday after racing to victory with 59.5% of the vote.

   

  The election results, announced on Saturday morning from the Queen Elizabeth II Conference Centre in London, declared that 422,664 votes were cast and saw Tom Watson elected as deputy leader of the Labour Party.

   

  Corbyn now faces the resignation of up to a dozen shadow cabinet members who claim they will refuse to serve under the MP and cannot publicly support his policies. According to The Telegraph, a group of centrist MPs nicknamed “The Resistance” intends to hold a series of public policy debates about Labour’s future — in open defiance of their new leader.

   

  During the last month, the Labour leadership campaign has seen trade unions double their number of signed-up supporters and 120,000 people pay £3 to register as supporters to be able to vote. The party’s website crashed as surges of people attempted to sign up at the last minute and Labour struggled to cope with almost 400,000 new members and supporters.

   

  Corbyn’s anti-war stance and fierce criticism of regimes that others are falling over themselves to support has resulted in an unprecedented smear campaign against him, painting him as weak on terror. His biggest and best endorsement to date has to be vilification by Tony Blair, who warned the Labour Party would face annihilation if Corbyn were crowned  leader.

   

  In addition to establishment hysteria at anticipation of Saturday’s result, The Times reported that David Cameron plans to claim the new leader poses a clear threat to Britain’s security since he questioned the latest drone strikes in Syria.

  Corbyn is really communist who professes an admiration for Karl Marx. He is the new face of Britain’s opposition Labour party which will help to make a British EU exit more likely. The Marxist sophistry is rob anyone who has more.

  They never understand that we all provide our piece of the economy that creates the whole. Many are starting to realize that this could be the downturn for Britain.

  

  This is actually right on schedule for the other side of 2015.75 will be the battle of all time – Freedom v Authoritarianism.

  People like Corbyn will inspire violent and the overthrow of capitalism for what they think will be the betterment of man. They are idiots and dangerous ones at that for you cannot eradicate human nature. Yet they will try.

  I am routinely asked why to I resistance so persistently?

  What I do, I do for my family and their future. If it were just me alone, I am ready to depart this world for I do not wish to live in the world Corbyn and others like him want to create. They cannot see that they seek to enslave me for their benefit. I am free and that is the true meaning of what Patrick Henry said so eloquently – “Give me freedom, or give me Death!”

  Death to me is preferable to living in their world of subjugation. You do not appreciate what those word so profoundly mean until you are confronted with the true evil of Marxists.

   

  

  

  

  

  

• 10,000 Syrians Are Headed For The Following 180 US "Refugee Processing Centers"

  For the past several weeks it seemed as if Germany had truly become the promised land for Mideast asylum seekers, primarily those seeking to escape the Syrian civil (and global proxy) war, but according to various media reports, also a material number of “ISIS-linked terrorists.” Then it all came crashing down earlier today when Germany’s beloved by all refugees “Mutti” said genug, and with one decision shut down the border with Austria in the process unraveling decades of customs-union progress (following promptly by the Czech Republic doing the same, with Italy expected to follow suit in the hours ahead).

  Ironically, just as Europe is shutting its doors to Syrian refugees, the US is opening its own.

  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.

  How will this take place logistically? As AFP notes, “this would represent a huge increase in the number of families arriving on US soil. In the more that four years since fighting erupted barely 1,800 Syrians have been welcomed here.” Which is why the French wire service did a brief summary of the various steps involved in admitting a record number of Syrians on US soil.

  Here are the key points:

  • How will Obama’s promise be delivered and what hurdles are keeping the refugees from arriving sooner

  More than four million people have fled the fighting in Syria since 2011 and most are living in camps in Jordan, Turkey, Lebanon, Egypt and Iraq, where the UN High Commissioner for Refugees registers them. Some 18,000 of these people — chosen because they are the most vulnerable whether through family circumstances, injury or disability – have been referred to the United States for resettlement. Officers from the Department of Homeland Security fly from Washington to the camps and conduct interviews with candidates, seeking to weed out what a US official called “liars, criminals and terrorists.” Each case file is reviewed by the National Counterterrorism Center, the FBI’s terrorist screening center, the DHS, the Department of Defense and “other agencies” – US intelligence.

  “Refugees are subject to the highest level of security checks of any category of traveler to the United States,” another State Department official told reporters.Meanwhile they receive medical tests and those with communicable diseases, most commonly tuberculosis, are given treatment before they can travel to the United States, often delaying the process.

  Currently the procedure takes between 18 and 24 months from the time UNHCR recommends a refugee for resettlement and that person’s flight to America.

  It is not clear how much the screening process for Syrians costs, but the US government spent $1.1 billion last year resettling 70,000 people from around the world, or almost $16,000 per head.

  • Can the process be sped up?

  Critics note that if the United States takes two years to screen each of the 10,000 refugees Obama has promised to welcome none will have arrived before he leaves office.

  But, according to a US official, thousands of cases are already in the pipeline and will hopefully now be processed faster.

  “We have been resettling Syrian refugees in small numbers since 2011 and it was only in June of 2014 that UNHCR started submitting large numbers of referrals, between 500 and 1,000 per month,” she said.

  “Those referrals have come pretty steadily since last June to the point where we now have a critical mass. We at the State Department have already prepared the cases for more than 10,000 people.”

  * * *

  But the most important question on the minds of most Americans is the following:

  • Where will the “lucky” 10,000 Syrian refugees go?

  Well, once refugees are approved, the State Department pays the International Organization for Migration (IOM) to fly them to the United States.  Refugees sign a promissory note to repay their airfare once they are established, and they are met at the airport by members of one of nine non-government resettlement agencies contracted by the State Department.

  There are around 180 resettlement centers dispersed across the United States, where NGO workers help the new arrivals settle in and find work and accommodation in their first 30 to 90 days.

  Those who have relatives in the United States will sometimes be assigned to live near them, and most go to cities like Atlanta, San Diego or Dallas where rents are more affordable than in New York or San Francisco.

  Others end up in smaller cities like Boise, Idaho or Erie, Pennsylvania, but regardless of where they are taken they are free to move once they find their footing. After 90 days new arrivals are no longer eligible for the State Department-funded support through the resettlement agencies, but some join support programs run by the Department of Health and Human Services.

  * * *

  So where are these 180 resettlement center? They are shown on the map below:

  

   

  The full list can be found in the 35-page document sourced from the Refugee Processing Center.

   

  * * *

  All this, we again remind readers, just so a Qatari gas pipeline can cross Syria and enter Europe, ending Gazprom’s monopoly over European gas demand.

  

  

  

  

  

• Apple's Bruised Presentation: A Warning Sign Rarefied Air Is Becoming Exhaust Fumes

  Via Mark St.Cyr,

  On Wednesday of this past week Apple™ held its much-anticipated annual roll-out of new products and features to the Apple lineup. However, this latest presentation caused more head scratching as well as out right consternation than any in recent memory. There was one other, but I’ll get to that later when there’s more context as to compare.

  Whether it be within the confines of media reviews or tech blogs, it seems almost to a person the reaction to this latest event was anything but celebratory. Rather, the overarching theme revolved around the questioning of: Did they just witness the initial confirmation that many have pondered now these last few years. i.e., Has Apple lost, or, is rapidly losing their soul/spirit of innovation? Or, just the outright feeling of confirmation: without Jobs – Apple is an also ran.

  Like many I too was flummoxed when watching the event. However, unlike some I saw things a little differently. What I saw; and the way I saw it, I’ll illustrate, as well as counter how I believe many of the obvious missteps, as well as outright blunders were made should have been handled and addressed differently.

  Although I’m going to address my assertions through my business eye (for that’s what I do professionally) as if I were called into the board of Apple in a hypothetical sense and asked my opinion. I want to make sure it’s known for the record I could be what one considers an Apple “fan boy.” I use their products near exclusively and have great respect for the company. Yet, much like if I saw a family member doing the obvious wrong things; being openly harsh, critical, or straight forward in that criticism doesn’t mean any lack of respect. Quite the contrary.

  So first things first: For the first time since the inception of these stylized “Event” roll-outs one thing was clear to almost everyone that viewed it. The “presentation” along with its cinematic star quality infused theatrics more often than not didn’t help nor bolster the products or presenters. Again, for the first time that I can remember – it actually seemed to take it away.

  A few things were obvious. One of these is the incessant use of the glorious styled verbiage made famous by Apple when trying to invoke awe inspired anticipation. The problem this time were the products they were introducing. There were obvious trip wires that needed to be addressed that one could see for miles. Yet, it seemed as if Apple was going to pay no attention to them and roll them out because “They’re Apple therefore you’re going love it.”

  The Apple Watch™ fits into this category probably more than any other. The problem? It seems the push is to present the watch as a fully formed device which it clearly is not. Yes there is the nod that more and more applications are forthcoming. However, it is quite obvious the main focus is all too centered on fit and finish. The push about what band one can now choose and the on, and, on aspect of the details of these bands subliminally pushes one to assume – I guess that’s all they have to show right now.

  I believe the watch will be a great product in the future. And it’s easy to understand it’s a work in progress that needs to be out in the public a little before prime time as to see just where the market wants to take it. And there’s nothing wrong with that. That said, the more that Apple makes this almost sycophantic push towards fit and finish currently? It doesn’t hide or subvert its obvious current limitations – it pushes them more into the fore front.

  If you wanted more proof of the “We’re Apple therefore you’re going to love it” attitude that I believe allowed for the lack of self-awareness to see obvious issues or miscues. All one had to do was watch the introduction of the Apple Pencil®. It went something like this…

  Ladies and gentlemen. May I draw you’re attention to the big screen behind me and behold. Never before in the history of mankind has such a device ever been thought of by mere mortal man. Ladies and gentlemen I introduce to you – the pencil!

  And there on the screen stood what at first blush was a representation of the one thing Jobs railed against: a stylus. You could hear either a collective chuckle or, YAYYYYyyyyy….wait a what? The set up for this product buzz-killed its own introduction.

  Another was when the new IPad Pro® was revealed to show it with its newly designed specific keyboard. What seemed at first like thunderous applause drifted quickly to be silenced by the obvious knee-jerked gasp when the big screen showed what everyone instinctively recognized as a product resembling what no one seems to use or want – a Microsoft Surface®.

  These weren’t the only missteps – just the most obvious. A few others? Well, there was the “let’s show you just what you can do on this fantastic, great, super, stupendous, mind altering, supercalafragilous new product. We’ll start by bringing on our next guest speakers from – Microsoft. Even the crowd within the center went speechless. It was a clear awkward moment. Again, all self-inflicted.

  Think about it. Within the span of a few minutes a new product was introduced that for all intents and purposes can really be a game changer with applications for both personal as well as enterprise use never before available to Apple. And within the course of those minutes did nothing but leave the impression this great new product has a stylus, and a keyboard configuration that looks all to close to a Surface; and cemented that impression with introducing none other than a Microsoft representative to demonstrate how Microsoft Office™ will run on it. Again, think about that. And as bad as that progression was – it was enhanced. And not for the better in my view.

  The next guest or representative in the line up? Adobe™. You know that company which right before Jobs passed was still calling them out for shipping lousy software. One silently wondered if Pages® or Keynote® were going to still run on Apple products because other than what seemed as a hat tip to Garageband®; one was left feeling unclear. And remember, this is Apple’s premier event! The missteps as to the attention to detail of presentation flow was nothing less than stunning. I personally can not remember such outright blunders in previous roll-outs. And I was not alone, for what I heard from others who just wanted to see what was new reacted in ways I previously never encountered.

  Here was my first confirmation that it wasn’t just me. All the above overshadowed what has been the usual star of these events: The iPhone®. Nobody that I talked to could even remember what new innovation or updates were made to the newest version. All they seemed to remember was there’s now an “S” version, but other than that, it was all about “What is up with that new iPad?” Or, “A stylus?! Are you kidding me? A freaking stylus?!! WTF is up with that?!!!”

  And that seemed to be the cumulative summation I distilled from both my personal exchanges, as well as what I’ve seen in both tenor and tone reported almost everywhere.

  This is, and should be taken by Apple as a clear warning sign this bruised “Event” could be the one that spoils the “whole bunch” going forward. The event showed to my eyes in stunning clarity that Apple delivered this presentation via the viewpoint and execution of: We’re Apple – and you’re gonna love our new products and upgrades because – we’re Apple, and we’re saying so because – we’re Apple.

  Again, whether intentional or not. Too my eyes, it was a clear illustration of: Rarefied air has become breathing one’s exhaust fumes.

  Now here’s where I take a different tack from everyone else: Personally, I believe the upgrades as well as new products are noteworthy. It’s all about the delivery as well as introduction I take issue with. And this area of difficulty is a first for Apple. How they mange their way around as well as through this obvious debacle will be one of Apple’s greatest challenges post Steve Jobs in my view. For perception is just as big as product to no other company as it is to Apple.

  So that’s my descriptive view. Now let’s delve into the prescriptive.

  Right off the start let’s address the greatest of overhangs that is not, nor will not, go away unless Apple itself stops trying to push it themselves: Tim Cook is not, nor will he ever be seen in the same light as Jobs. Period, end of story. Not by anyone at Apple itself, nor the public at large. So stop trying. Again, period. It’s hurting Apple’s, as well as Mr. Cook’s image, more than it’s helping. So again – stop. Please for the love of humanity – just stop.

  Although I don’t know Mr. Cook personally I’m sure he’s a great guy, and we know he’s a competent executive for he has done some great things since Jobs passing in helping to lead and maintain Apple’s core structure. We also know Jobs had great admiration for his executive qualities. However, no one can replace Jobs. And the more one tries (or desperately hangs on to the idea) to replace rather than move forward is in effect moving backwards. This is why the more one tries – the worse the comparisons fester. And Apple seems to be trying far, far, too hard in this one area alone.

  Let me use an analogy based in music as opposed to strictly business: Van Halen didn’t “replace” David Lee Roth with Sammy Hagar. Sammy Hagar, nor the band, tried to be Van Halen with Sammy acting as a stand in replacement for Roth. Same can be said with AC/DC. Just like with first example, after Bon Scott there truly was no replacement. So they didn’t. They added Brian Johnson and the rest is history. Whether you liked or disliked the new band was exactly the point. Van Halen as well AC/DC were: a new band, and they weren’t afraid of the comparisons. They took them straight on and made no bones about it. This allowed the band to be its own force while still paying reverence to previous milestones without any regards to “What would David or Bon do?” Apple needs to apply the same or they’ll never get out from under “What would Jobs do?”

  I’ll use as proof for my assertions using a current screenshot I took from Apple’s own public webpage:

  

  (Photo Credit: Screenshot taken of Apple’s public home page)

  Why my criticism? First of all: It has nothing to do with Mr. Cook personally. The issue is: it shows or implies just how tone-deaf, blind, or nervous Apple is becoming. Apple seems to be bordering on desperate as to be trying to create a replacement figure, and it’s now far too striking as to evade the inserting for subliminal comparison (whether intended or not) of Cook as Jobs. And far too many have an instinctive gut reaction too it. And it’s not in the affirmative.

  Jobs was, and always will be, the comparison to these events as well as “the face” of Apple. Now and for the foreseeable future. If the solitary person in this type photo is not Jobs, it should only be the closest thing possible to him; and it’s not a person – it’s the product or the logo. Anything (or anyone) else stands right out as “trying too hard” in pushing a narrative. Since the passing of Jobs no person for the immediate future will meet the mark. The only “one” that can is – the product/products themselves. Anything less hurts the image as well as brand of everyone involved by my calculations.

  I believe unlike many (and I’ll wager it’s the Board itself that is the most confused on this subject) the more Mr. Cook removes himself as “the face” of Apple and puts forth the product as “the face” the more Jobs-like Apple remains in the public eye, as well as the lessening of many of the unfair comparisons Cook as well as Apple has to constantly dodge or defend against. This is where Apple is being its own worst enemy. They desperately need (as well as want) to move out from under the Jobs comparisons as time and products march on. Yet, it seems Apple itself is the one unwittingly making that trek all the more harder.

  Then there were the introductions of new or improved products. Here there were far more miscues as well as missteps than I can remember. So I’ll take just the one’s that are in my front-of-mind.

  First there were the transitions from introduction to video presentation. In a word, for someone who understands the importance of theater and seamless transitions: They were horrible. Apple once excelled at these – until recently. At this event? They were clumsy allowing for misconceptions to fester. No, not in the content and production value of the videos themselves. It was in the hand-off from presenter to video. They simply just didn’t flow.

  There was no better example of this than when the Apple Pencil® video was shown. Personally I cringed. The video’s introduction did not match the content. The content was great, but you were trying to get over the idea that this was not a stylus – first. And it felt that way. For anyone paying attention this was an obvious flaw. And it was obvious the one’s who should have been paying attention (i.e., Apple) were not or could not see it.

  The attention to details such as this was always prominent and seemed to never be lost on Jobs. However, at this event it was conspicuously not there.

  And while we’re on it let’s talk about the Pencil. Not only was the roll-out worse than bad. It actually may have set back the whole adoption cycle months if not years just based in ridicule. For nearly everyone remembers one of Jobs’ strongest arguments against anything was – the need for a stylus. And the way the introduction of the Pencil was presented did nothing to alleviate that memory. In fact, it brought it out front-and-center. It’s a shame because the Pencil truly is so much more, but again, the presentation did little to change that initial perception.

  It would not have been hard to take this issue head on and maybe have some fun with it. Make it their own post-Jobs product launch he would be proud of. It could have easily been done in my view if the obvious hurdles would have been addressed right from the get go, rather, than trying to act as if no one would remember the past. The diametric forces of awe-inspiring and ridicule enforcing left it up to the product itself to overcome them. A tough task when everything is running perfectly. Quite another when it’s happening within obvious missteps or miscues.

  An easy way to have overcome many of the obvious would have been to remind people of a few things like: When Steve was around one thing he was not afraid to do was to change his mind if one could prove that he should. (which he did many times, but you had to prove it first to convince him, not just express or think that he should) Steve would tell anyone who asked “As soon as you need a stylus you lose” and we still believe he is right. That’s why we don’t and won’t make one. So today I introduce to you a technological instrument so advanced we gave it the only name that could match it for context, simplicity, and ease of use. Ladies and gentlemen I introduce to you today – the Apple Pencil.

  It took me no longer to think of the above than to type it. It’s not perfect, but it’s far better from what was presented. i.e., act like no one’s first reaction will be: It’s a stylus! Again, this is a detail I believe would have never been allowed circa Jobs. It was far too obvious for initial reactionary ridicule. Yet, that’s exactly how it went off.

  Then there was the other obvious calamity. The gut reaction to the iPad Pro with its new smart cover keyboard. Again, here we saw Apple acting as if it there was no such thing as the Surface. It was breathtakingly tone-deaf for what would be the obvious reaction. You almost could feel the collective gasps worldwide through your monitors. Again, I personally was stunned on such a misstep.

  My argument is this all could have been so easily addressed and possibly as I’ve stated again, and again, been a turning point in the post Jobs era. And in a good way.

  If the new IPad had been presented differently showing its new size and features for general use as associated with the current versions only. They did some of this but it was far too little. What they should have done was introduce and infuse with a little more depth some of the new features and reasoning why a physical keyboard will be necessary for upcoming partnerships with new collaborative partners such as those announced with IBM™ and highlight it with more detail. People get that.

  Say things like: As game changing as the iPad was to the home and business we’ve discovered there more possibilities than ever, and these possibilities demand two new features unparalleled by any other brand today. First, with our larger screen size new enterprise functions and uses are now available that were not conducive to previous iPads. Although the bigger screen allows for a more natural feeling keyboard we know by listening to all of our customers they want an Apple designed and built dedicated IPad removable keyboard. I’m here to tell you, we heard you – and we listened. And so I introduce to you today, what at first may look like another brands however, I respectfully say: It is anything but – and here’s why…”

  Instead the keyboard attached version went up on the big screen and did nothing but put front-of-mind “what the heck is that? A Surface?! That’s the new thing?!!” The following dissertation felt like Apple believed customers had never seen a similar product. No matter how well crafted and design specific for IPad this new keyboard is. The timing and delivery for its introduction, like the Pencil, was a self inflicting buzz-kill for it. I say again, this all was so blatantly self-inflicted it was painful to watch from my view.

  One place that has yet to lose its luster, or fall into the lame, are the informative product videos showcasing Jony Ive. Here is where the Apple of yesterday still shows through today. Even though Ive is not shown there is gravitas in voice and reputation for we all instinctively understand many of these products are associated with his creative vision much like Jobs. However, these unlike the “Event” shake free of the post-Jobs gravitational pull. Why?

  The product is the feature – not a person. It’s not lost on anyone that Ive is still responsible for the products creative attributes. But it does one thing that Apple Inc. itself has not yet learned. It allows Ive and the product to stand on their own in a post-Jobs world of Apple. And I believe not only are these displaying a tenor and tone Jobs would approve of, I believe they are showing the way Apple itself needs to start addressing this issue far more head on than seemingly trying to either avoid it, or push a persona in the fear of they don’t know of any other way. That way is right under their own noses yet, they seem somehow patently blind to the obvious.

  Apple isn’t about Jobs anymore. He’s gone, and he’s not coming back. And the more Apple tries to fill that void, the deeper and wider the chasm becomes to fill by their own hand. Apple is no longer about a person – it’s about the product. And the product is the only thing capable of bridging that gap or hole left with the passing of Jobs. And the sooner Apple realizes it, and takes that to heart. The faster and better both Apple, their products, as well as the management and employees will be. Where they can all get back to doing what Jobs would be the most concerned with as well as probably proud of. i.e., Running a great company steered by smart people creating insanely great and revolutionary products second to none.

  And as for that only other “Event” I mentioned at the beginning? I could think of none other than the one that caused an even more visceral knee jerk reaction than the one hosted by Jobs himself. That event?

  One of the first where he introduced none other than Bill Gates on the big screen as a new partnership between the two rivals. Again, Jobs could have easily tried to hide the fact or, never speak about the collaboration he made with Gates at the time. There possibly was no worse time than then to even discuss such a possibility; never mind an already done deal. Yet Jobs did just that. Jobs instinctively knew – you can’t hide the 800 pound gorilla or act like it’s not there. You have to get past it one way or the other come hell or high-water. And they did just that.

  Again, the lesson for Apple today is right there in the Apple of yesterday. All they have to do is look. For the only thing in my opinion holding Apple back from moving forward and beyond – is Apple itself.

  

  h/t Goodbyeamericainaphoto

  

  

  

  

  

• Germans, Czechs Return To "Border Controls" With Austria, Riot Police Dispatched To Contain Refugee Crisis

  Two weeks ago, in what was the first official shot across the bow to Europe’s long-standing “Schengen” customs union, we reported that the Italian province of Bolzano across from the Austrian border announced it is willing to “temporarily suspend Schengen” and “restore border controls” following a request by the German state of Bavaria.

  Today, none other than Europe’s master state, Germany itself, is about to launch an ICBM at Schengen when, as BBC reports, “Germany is to reintroduce some form of controls on its border with Austria to cope with the influx of migrants, German and Austrian media report.” While the BBC said that it is not clear what measures would be introduced, it is likely that a full return to the pre-Schengen era, with extensive customs checks of every border crosser is imminent.

  BBBC further reports that”more than 13,000 migrants arrived into Munich alone on Saturday. Germany’s vice-chancellor said the country was “at the limit of its capabilities”. Germany’s Bild newspaper and Austria’s Kronen Zeitung said controls would be in place on the Bavaria-Austria border. Germany expects 800,000 migrants to arrive this year.”

  Also, according to Germany’s Spiegel, German Interior Minister, Thomas de Maiziere, would make an announcement in the coming hours. Since last month, Mr de Maiziere said the Schengen agreement, which allows free movement between a large number of European countries, could be suspended, it is quite likely that as of today, Europe’s customs union will officially be halted if only temporarily.

  Kronen Zeitung said that Bavarian police will begin to carry out checks “to determine immediately who is entitled to asylum”, but it is not clear how such checks would be made.

  Earlier on Sunday, Germany’s Vice-Chancellor Sigmar Gabriel, who is also economy minister, warned the country was being stretched to its limits by the new arrivals.

  “Europe’s inability to deal with the migrant crisis has brought even Germany to the limit of its capabilities,” he told Der Tagesspiegel newspaper. “It is not just a question of the number of migrants but also the speed at which they are arriving that makes the situation so difficult to handle.”

  Which is somewhat ironic considering the full-court media propaganda press eager to make Germany seem like the promised land for hundreds of thousands of Syrian refugees: just ealier today CBS had an article on “Angela Merkel: From debt villain to migrant heroine” in which it said “In the space of two months, German Chancellor Angela Merkel has gone from being portrayed as the heartless villain in Europe’s debt crisis to the heroine of those flooding in to find refuge on the continent.”

  Her insistence that Germany and its fellow members in the 28-nation European Union all have a duty to shelter people fleeing civil wars has cemented something similar among hopeful migrants. Some have held aloft pictures of Merkel, and she was greeted with applause and cheers at a Berlin refugee home Thursday.

  

  Oops, may want to rewrite that one quickly, especially following a report from Bild that the German government “will send 2,00 riot police to the Bavarian border, where they will “help the State to secure the border.”

  Not only that but Express reported that the “German Defence Minister has admitted that the country verges on “an emergency” after cracks have begun to emerge in the ‘German generosity’ and that some 4000 German troops have been put on standby.

  

  Germany has been viewed as a leader on Europe’s worst refugee crisis for 70 years, with Chancellor Angela Merkel’s expectation that the country will take in 800,000 this year alone.”

  However, the move appears to have backfired as German towns struggle to process the unprecedented number of arrivals.

   

  Defence Minister Ursula von der Leyen said: “For this weekend alone we have put 4,000 soldiers on standby.” 

   

  He added that the troops would be able “to pitch in in an emergency”.

  Putting Germany’s generosity, which just ended in perspective, “More migrants have arrived at Munich’s train station since the start of September than in the whole of 2014.”

  The good news for Germany is that at least the tens of thousands of Muslims migrants will have a place to pray: just as “generously” Saudi Arabia – in lieu of actually accepting any asylum seekers – offered to help Germany cope by building at least 200 mosques.  The Gulf state said it would build one mosque for every 100 Middle Eastern refugees who entered Germany. It will be busy building a lot of mosques.

  The bad news for Germany is that not only will the migrant situation not improve any time soon, but it is now in a lose-lose situation, with the facade of its former faux generosity crumbling, just as countless more migrants are set to lose their lives on their way to a promised land that no longer is.

  And confirming just that, moments ago Xinhua reported that 28 migrants were killed as a boat capsized off Greece.

  BREAKING: 28 #migrants killed in boat capsize off #Greece: report pic.twitter.com/apLOkms9Xu

  — China Xinhua News (@XHNews) September 13, 2015

  For now, however, one thing is certain: Europe may still have the Euro now that Greece is a permanent German debt colony, but the true heart of Europe, its customs union, is about to go on into indefinite V-fib as nation after nation follows in Germany’s footsteps and closes its doors to all those refugees it so generously welcomed until now.

  * * *

  Update: just minutes after we wrote the following, we got confirmation we may have been on to something. Oh, and goodbye Schengen, only for the “time being” of course. from Czech News:

  Prime Minister Bohuslav Sobotka (Social Democrats, CSSD) is going to make a public statement on the current situation, his spokesman Martin Ayrer told CTK.

   

  The Interior Ministry´s spokeswoman Petra Kucerova confirmed for CTK that the measure is linked to the launch of border checks on the German-Austrian border over the influx of refugees.

   

  Earlier today, German Interior Minister Thomas de Maiziere announced that Germany will temporarily introduce checks on its borders, the EU´s internal ones, beginning with its border with Austria. He said Germany consulted Austria before taking the step.

   

  The Czech police expected Germany to take this step, Foreigner Police spokeswoman Katerina Rendlova told CTK.

   

  “For the moment, we will react by taking our own measures, which is the reinforcement of the police on duty in the border areas. Our further steps will depend on the number of incoming migrants,” Rendlova said.

   

  She said the measures would concern the South Moravia and South Bohemia Regions, both of which border on Austria.  The police would release information about the reinforcement and further details only later.

  To the refugees (and/or masked ISIS terrorists of course) that successfully made it into Germany/Europe, congratulations. To the rest of them: better luck next time.
  

  

  

  

  

  

• Bringing "Once Great Nations" To Their Knees – Reagan Vs. Obama

  Presented with no comment…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Risk Of “Economic Totalitarianism” From “Cashless Society”

  Cash Withdrawal Limits and “Bank Holidays” Coming
  
  – Concerns that next crisis may be imminent

  – Bail-ins, withdrawal limits and negative interest rates may be imposed

  – FT proposes a ban on “barbarous relic” cash

  – Central banks and banks would have people “completely under their control”

  Collapsing commodities prices, erratic market turmoil and the bursting of Chinese bubbles are leading to a crisis in confidence in the economic system across the globe. The long-expected crisis to which the global financial and systemic crisis in 2008 may have been a mere prelude may be upon us.

  
  
  Governments have no appetite for further bailouts. The EU states have passed legislation which will make the banks or rather unfortunate and unsuspecting depositors liable for the bank’s lending and speculative profligacy.
  
  It is claimed that this is to “protect” the taxpayer. In reality it will likely lead to bail-ins – the confiscation of deposits. It is likely that that in a crisis within the banking system this bail-in mechanism would be imposed on an impromptu “bank holiday”  followed by limits on cash withdrawals as were applied in Cyprus and more recently to depositors in Greece.

  As has been pointed out by many other analysts, the unelected powers-that-be have used all their conventional weaponry to stave off the consequences of their irresponsible ultra loose monetary policies and massive buildup of debt globally – the largest ever seen in the history of the world.
  
  
  
  The typical response to a crisis has been to slash rates from somewhere around 6% – the historic post war norm in the west – to between 0% and 1%. This has stored up an even crisis in the future – the question is not if we have another crisis but when.

  With interest rates now near zero, rates cannot be slashed any further. Unless of course, further “unconventional” weaponry are deployed upon the citizens to encourage them to spend. Further QE and QE$ is likely. Another option is negative rates – where depositors are charged by banks to hold their money. Both constitute weapons of financial and monetary repression in the deepening “war on cash.”

  Bail-ins, withdrawal limits and negative interest rates would provoke a wave of withdrawals, further undermining the banking system – as was seen in Greece.

  Hence, the deep concern when the Financial Times recently proposed abolishing cash altogether.

  In a piece entitled “The Case for Retiring Another ‘Barbarous Relic” the FT laments the existence of cash. In the view of the editorial, cash limits the capacity of omniscient central banks to bully savers into parting with the fruits of their own labour to “stimulate” debt laden economies.

  “The worry is that people will change their deposits for cash if a central bank moves rates into negative territory.”

  
  Armstrong Economics
  
  Bill Bonner from Bonner and Partners has written an excellent piece on what the proposed ban on cash fully implies. He explains how such a move could have Orwellian consequences. The central bank, not to mention individual accounts, he writes, “will have you completely under their control”.

  “You will buy when and what they want you to buy. You will be forced to keep your money in a bank – a bank controlled, of course, by the feds. You will say that you have ‘cash in the bank,’ but it won’t be true. All you will have is a credit against the bank. (Bank deposits are nothing more than IOUs from your bank to you.)”

  He continues

  “You will be completely surrounded. If the feds want to force you to spend… or invest… your money, they will simply impose a ‘negative interest rate.’ They will do this by simply imposing a fee, or tax, on deposits greater than the interest rate you receive on your savings.”

  During a financial crisis following a ban on cash Bonner writes
  
  “You will be locked into a bank account with a bankrupt institution. And the feds and their bank cronies will tell you when and how you can have access to your own money.”

  Bonner also suggests that there may then be an attempt to prevent the sale of gold bullion coins and bars to the public in a desperate attempt at neutralising its qualities as a store of wealth and safe haven money.
  
  One cannot have a free market or a free society if citizens are banned from choosing which form of money and which form of payment they choose to use. Such economic totalitarianism is liable to further erode trust in the financial system and actually contribute to runs on banks. Exactly the opposite effect that the proponents of the cashless society claim to be trying to avoid.  
  
  Fostering dependence on irresponsible banks and a still very vulnerable banking sector will make the entire western financial and economic system even more vulnerable.
  
  Forcing entire nations to use electronic currency also seems imprudent at a time when electronic magnetic pulse warfare may be a key weapon of choice of terrorists and powerful state actors. Electric grids could be disabled for periods of time – rendering all commerce impossible in a cashless society.
  
  Without electricity and computer or internet access, one could not access your current and savings account or make electronic payments.
  
  Fostering absolute dependence and giving banks an even more entrenched and powerful monopoly over the issuance of credit and control of citizens savings and spending is a recipe for economic disaster. This is especially the case in an age of cyber warfare when banks have already been shown to be vulnerable to hacking.  
  
  The current drive towards a cashless society shows the importance of being diversified and not having all your savings and assets within the vulnerable financial and banking system.
  
  It underlines the importance of having direct ownership of some of your wealth – be that cash or gold bullion in a safe deposit box or bullion coins and bars in the safest vaults, in the safest jurisdictions in the world.
  
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• Dependence On Central Banks Is "Unrealistic And Dangerous", BIS Warns

  To be sure, there’s something terribly ironic about the central bank for central banks telling the world that the market is too dependent upon central banks, but then again, the Bank for International Settlements isn’t exactly shy about making scary-sounding declarations and criticizing its board members (listed below) in its “closely-watched” (if only by those who are aware of the institution’s shadowy existence and give any credence to what they say) quarterly reviews. As we put it back in June: 

  The BIS serves to encourage and perpetuate the power and prestige of the world’s central bankers and provides a top secret forum for the monetary policy cabal to meet and commiserate safe at all times from the prying eyes of those to whom the bankers should by all rights be accountable. 

   

  In this context it’s somewhat absurd that the bank’s reports — which, as a reminder, are required reading in treasury departments and monetary policy circles around the globe — contain scathing critiques of the very same policies which were no doubt devised, tweaked, and honed over dinner and fine wine in Basel. Nevertheless, the BIS’ latest tome is replete with criticism for the idea that the very people who make up the bank’s Board of Governors are indeed omnipotent. 

  

  Last year alone for instance, the bank warned of a “puzzling” disconnect between the economy and “euphoric” markets, excessive risk taking and depressed volatility fostered by ultra accommodative monetary policy, and the effect of a strong dollar on the solvency of EM corporates. Earlier this year, the BIS joined the cacophony of analysts, pundits, and commentators suddenly screaming about the absence of liquidity in corporate credit markets. 

  Well, the bank is at it again in their latest quarterly report and although most of what’s discussed in the 187-page document will be no surprise to regular readers, BIS Head of the Monetary & Economic Department, Claudio Borio’s prepared remarks are worth a review as they serve to underscore the fact that some very “serious” people in Basel are apparently quite concerned about the risks facing their board members.

  Borio begins by noting that the defining feature of Q2 was turbulence, first in Greece, and then in China, where a multi-hundred billion yuan unwind in a half dozen backdoor margin lending channels triggered a market meltdown:

  We often look at the world as a set of still frames, rather than as a movie, as we should.

   

  The still frame of the last quarter – the period under review in this issue – has one distinguishing feature: turbulence. Initially – think of it as the left side of the frame – it was Greece that grabbed all the attention and headlines. Market participants had hardly had the time to breathe a sigh of relief when Asia, in particular China, appeared in the centre of the frame. First, the origin of the shock was the Chinese stock market, which on 8 July saw its largest one-day drop ever; then, on 12 August, it was the authorities’, admittedly rather small, devaluation of the currency as they officially shifted towards a more market-oriented exchange rate regime.

   

  The shocks in July and August set off much bigger and far-reaching tremors. Stock markets around the world weakened. More importantly, commodity prices plummeted – accelerating their previous longer-term decline – and volatility spiked. The oil price gyrations were remarkable. The price sunk to a new trough below $40 on 24 August, undoing the whole of the partial recovery in the second quarter of the year, then soared some 30% in only one week before dropping back again.

  The story progresses logically to the predictable and well-documented effect the above has had on EMs, with Borio also noting that the market’s extreme reaction to developments in China may have something to do with the extent to which market participants are hanging on every last movement in the SHCOMP and, more importantly, the yuan:

  The exchange rates of emerging market economies (EMEs), especially commodity exporters, were hit hard, and their credit spreads widened. 

   

  Why such a big difference in the response to the initial sharp drop in Chinese equity prices in June and the subsequent shocks? In part, this may reflect market participants’ selective attention. More fundamentally, though, it mirrors their shifting perceptions of background economic conditions and of the power of policy. 

  And there’s the seemingly obligatory discussion of dollar-denominated EM corporate debt, which is of course a potential landmine in an environment where capital is flowing out of EMs and where the effect of a Fed hike is magnified by the fact that in a world where asset classes have become increasingly correlated, risk-parity funds may be forced into the dollar should everything else begin to sell-off at once:

  The data reveal a certain bifurcation in global liquidity, with credit to China, Russia and, to a lesser extent, Brazil being especially weak. Here, the role of credit denominated in US dollars plays a critical role. As highlighted in a number of BIS publications, the total amount of dollar credit to non-bank borrowers outside the United States had risen by over 50% since early 2009, to 9.6 trillion by end-March 2015, and almost doubled for EMEs, to over 3 trillion. Much of it has found its way to corporates, raising serious questions about the financial vulnerabilities involved and the implications for self-reinforcing movements in exchange rates and credit spreads.

  Finally, Borio warns that increasingly interdependent “policy arrangements” have proven ineffective when it comes to smoothing out the business cycle and have in fact served only to magnify the scale of booms and busts (and argument we and others have made tirelessy for years): 

  Taking an even longer-term perspective, as argued in detail in the latest BIS Annual Report, all this points to weaknesses in domestic and international policy arrangements – arrangements that have so far been unable to constrain sufficiently the build-up and unwinding of hugely damaging financial booms and busts across countries.

  But despite all the evidence (2000, 2008, etc.) which points to the fact that attempting to use monetary policy to micromanage economic outcomes very often ends in tears, the world has nevertheless become more dependent on central banks than ever before:

  Hence a world in which debt levels are too high, productivity growth too weak and financial risks too threatening. This is also a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalisation. It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.

  The cryptic conclusion: “All this is reminiscent of the old joke about the stranded tourist who, having asked for directions, was told: ‘If I were you, I wouldn’t start from here.'”

  We agree – we think.

  

  

  

  

  

• Equity Markets, Credit Creation, & The Central Bank's Ultimate Priority

  Submitted by Alasdair Macleod via GoldMoney.com,

  There is one class of money that is constantly being created and destroyed, and that is bank credit.

  Bank credit is created when a bank lends money to a customer; it becomes money because the customer draws down this credit to deposit in other bank accounts and to pay creditors. It is not money that is created by a central bank; it is money that is created out of thin air by commercial banks to lend. Its contraction comes about when it is repaid, or if a customer defaults.

  The recent sharp fall in equity markets is leading to two levels of contraction of bank credit. Brokers' loans to speculating investors are being unwound from record levels, notably in China and also in the US where in July they hit an all-time record of $487bn. Then there is the secondary effect, likely to kick in if there are further falls in equity prices, when equities held as loan collateral are liquidated. This is when falling stock prices can be so destructive of bank credit, and as the US economist Irving Fisher warned in 1933, a wider cycle of collateral liquidation can ensue leading to economic depression.

  Fear of an escalating debt liquidation cycle is always a major concern for central bankers, so ensuring the secondary effect described above does not occur is their ultimate priority. Macroeconomic policy is centred on ensuring that bank credit grows continually, so since the Lehman crisis any tendency for bank credit to contract has been offset by central banks creating money. The bald fact that equity markets have now lost upside momentum and appear to be at risk of a self-feeding collapse will be viewed by central bankers with increasing alarm.

  For this reason many investors believe that a bear market will never be permitted, and the combined weight of central banks, exchange stabilisation funds and sovereign wealth funds will be investing to support the markets. There is some evidence that this is the direction of travel for state intervention anyway, so state-sponsored buying into equity markets is a logical next step.

  The risk to this line of reasoning is if the authorities are not yet prepared to intervene in this way. When the S&P 500 Index halved in the aftermath of the last financial crisis, the subsequent recovery appeared to occur without significant US government buying of equities. Instead the US government might continue to rely on more conventional monetary remedies: more quantitative easing, reversing current attempts to raise interest rates, and perhaps attempting to enforce negative interest rates as well. If, in the future, state jawboning accompanying these measures does not stop the bear market from running its course, the next round of quantitative easing will have to be far larger than anything seen so far.

  Alternatively, if states by buying equities attempt to kill the bear, it will have to be through massive market intervention, aiming helicopter-distributed money at investors as well as rigging the alternatives to make them relatively less attractive. Either way, the shake-out in equities we have seen so far is a wake-up call for mainstream economists and commentators who believe in the comfort of government statistics, which seem designed to convince us all that economic growth is perpetually on its way.

  Since the Lehman crisis, investors have bought into this bullish argument to the exclusion of any likely risk that a bear market will happen. Consequently, considerable amounts of speculative money are committed to the concept of a perpetual state-guaranteed bull market; so if the destructive forces of reality do intervene, the potential for a severe fall in equity prices will be much greater than before.

  Meanwhile global bank credit looks like it is already contracting in key markets, such as China, in which case global fundamentals are definitely deteriorating. This being the case, it will take increasing amounts of newly-issued money from the central banks to perpetuate the illusion that markets are rising, and that the economy is still growing, with or without state-directed buying of equities.

  This article coms one week before the Fed's September interest rate decision, which might result in a small interest rate rise, but it is time to put the Fed's interest rate dilemma aside and instead think beyond it about the wider economic consequences of the monetary inflation necessary to ensure a perpetual bull market.

  

  

  

  

  

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• "Tick… Tock"

  Via Golem XIV's blog,

  8 years to fix the malfunctioning heart of the world’s financial and legal systems but nothing was actually done … and now the clock is ticking and  there is hardly any time left.

  The number of red lights now blinking at us, largely ignored by those who are supposed to be flying this thing, is growing all the time.  It is not that any one of them is a clear harbinger of the end but taken together they paint a dismal and coherent picture – of a system eating itself.

  What I mean is that every political and financial system, every bureaucracy, public or private is originally set up to do a necessary job. And the duty of those who work in it is to make sure the system doe that job. But when the challenges facing the system change so that the system begins to no longer be able to do its job, those in it have two choices: they can work for the greater good and help change the old system into a new one better fit to the new challenges, or they can ignore the problems, and forget the reason they and the system were created in the first place and instead seek merely to get as much as they can from the failing system before it implodes.

  It seems obvious to me that is where we are today,  both politically and financially. We are living in the End Times not because some angry supernatural being is coming to punish us, but because we are living in a system, a machine, which we built and therfore can change, but we have forgotten this. Some time in the recent past we crawled inside our machine, closed the last hatch to the outside behind us, and then forget there was an outside.  Our leaders are the worst of us. They are the lords of the machine and they are sure outside there is only chaos.  We must all save the machine. Their power and wealth demands it.

  And yet they do not know how.

  “Something Happened”  but “Nothing appears to be breaking” 

  So said JPM’s chief economist Bruce Kasman. He was refering to the recent extreme ‘turbulence’ on the stock markets and the continuing drop in global market values.  All I can say is that only  a person who lives resolutely in a linear world, despite it being over a 100 years since we discovered that our world in not linear but non-linear, could say such a thing. In a linear world effects tend to follow their causes quickly and clearly. When things are  non-linear, however, effects can surface long after and far away from their cause.

  Mr Kasman, I suspect, held his breath, waited for everything to fall down and after a couple of days, when they didn’t he concluded nothing had broken after all. He looked at the on-going trend in events and saw they were much as before the inexplicable ‘turbulence’ and concluded that all was as before and the ‘turbulence’ was just ‘one of those things’.

  He could be right. But I doubt it. Ours is a non-linear world and we should remember that. Think back to August 9th 2007. That was the day when BNP Paribas suddenly closed three large sub-Prime mortgage finds. The world at large had not even heard of sub-prime. To little fanfare the ECB pumped €95 billion in to the markets to steady nerves. It was not enough. The next day, August 10th The ECB pumped in another €156 billion, the FED injected $43 Billion and the BoJ a trillion Yen.

  Five days later Countrywide Financial haemorrhaged 13% of it value. 16 days later Ameriquest the largest specialist sub-prime lender in the US collapsed and on September 14th there was a bank run on Norther Rock. It was a turbulent time.

  And then do you know what happened? Nothing. Something had happened but nothing appeared to be broken.  The linear pundits went about their crooked business. Six whole months later Bear Stearns collapsed. Its a non-linear world.

  And I think we are going to be reminded … again.

   

  ETF’s

  ETF’s – have grown to the point where any prolonged large scale exit will exceed the funds available to those who control the funds and make the markets. I think they know this and some time ago those market makers and fund controllers began to boost the credit they could draw upon.  Problem is the very banks they are agreeing larger credit lines with, are drawn from the same group of financial companies who make the ETF markets.

  I have written about this before – ETFs – A warning  which contains links to the posts in which I explain how ETFs work  and why they are The Next Accident Waiting to Happen. In short the liquidity choke built in to the ETF market is that the ETF market depends very heavily on a very few financial firms who run the funds and make the markets.

  We have already seen in the recent ‘turbulence’ that the ETF market is not so much liquid as fragile. When there is a scare people want out. They withdraw their money  which quickly leads to zero liquidity, which leads on to forced selling and as we have already seen prices will dump to far below what the assets in the underlying market are nominally worth. Leading to an even greater pressure to get out.

  The ETF market with its promise of easy withdrawal means when there is an event which spooks people and they want out it happens in seconds not days or even hours,

  What it means is that this time around I think it very likely the Central Banks will have even less time than they had back in 07-09, to act before the bomb goes off.  Which means in turn I expect no creative thought, only a knee-jerk reaction to do again the only things they know how to do despite the fact they have not worked.

  Today it is not a bank run that will amplify some large local event in to a global wave, but a fund run.

  Where might that trigger be?

  *  *  *

  The world in which and for which our old system was built is now changing around it in fundamental ways.

  

  

  

  

  

• The Impressive Scale Of The U.S. Air Force In 3 Charts

  In the war against the Islamic State, the United States has relied heavily on support from the skies. It’s for this reason that more than two-thirds of the $9 million-per-day of military spending on the war has been allocated to the Air Force.

  Total spending on the war, according to data released by the Department of Defense in June 2015, has been $2.74 billion. Of this, $1.83 billion has gone to the Air Force, with the rest being divided between the Army ($274 million), Navy ($438 million) and Special Ops ($204 million).

  But what is the actual scope of the U.S. Air Force? These three charts tell the story.

  Make sure to click on the below charts to get the full size versions of each.

  Combat and Combat-Support Squadrons

  

  The first graphic shows aircraft involved with combat, either directly or for support purposes. This includes seven squadrons of the world’s most expensive fighter jet, the F-22 Raptor, which ultimately cost taxpayers a hefty $412 million each.

  Bomber and Refueling Squadrons

  

  In the second graphic, bombing and refueling squadrons are covered. There are 11 dedicated bomb squadrons, and 30 aerial-refuel squadrons that help top up other jets in mid-air.

  Airlift Squadrons

  

  Lastly, airlift squadrons include everything from the Presidential Airlift Group (89th Airlift Wing) to squadrons that can carry tanks or Humvees.

  Original graphics by: CI Geography

  

  

  

  

  

• "Psychopaths Are Running The World" Former US Marine Blows Whistle On Syrian False Flag, Exposes Real Agenda

  Submitted by Sophie McAdam via TrueActivist.com,

  "All of these players, these politicians are nothing more than puppets, they don't serve the people there is no real democracy, they serve the rich and powerful who run the world and that would be the bankers who control the money supply. The bankers make huge amounts of money….wars are great for them and ultimately they control the politicians.

   

  Psychopaths are running the world."

  Ken O’ Keefe is a former US Marine turned anti-war campaigner who appeared on a Press TV debate called Syria: War of Deception, and absolutely owned his opponent in such an awesome way that you’ll be cheering at his every comment.

   

  Recorded in August 2013, this interview is now two years old, but in light of the current European refugee crisis it’s more relevant today than ever before. Passionate, articulate and knowledgeable about the subject matter, O’Keefe is the perfect guy to step up and tell these home truths- and boy, does he do a good job. 

  This guy nails so many crucial points about the Syria situation in one interview, he’ll have you jumping around and punching the ceiling.

  “We have tortured and killed and maimed and raped around this planet; who in their right mind would consider the United States or the West in general to be in any position to punish anybody?” the veteran begins angrily, going on to outline the evidence for Syria being a false flag attack (Note: leaked emails showing how Assad was framed by the USA are detailed in this cached Daily Mail report from January 2013, which was published online briefly before being removed).

  He rightly points out that the USA dropped more bombs in Vietnam than during the whole of WW2 combined, that it regularly arms terrorists (but the mainstream press refer to them as ‘freedom fighters’ when it suits them) and the former marine also points out how the so-called ‘War on Terror’ is nothing more than a well-planned strategy to be in a “perpetual state of war to destabilize the region for the Greater Israel plan.”

  “We don’t operate under international law; we have the law of the jungle in which the rich and powerful basically determine what goes and what doesn’t go.” O’Keefe shouts. He correctly points out that Bush and Blair would be “rotting in prison cells” if the law were administered equally to all, or even “executed if their own rules were applied to their own crimes“. He also acknowledges that these men are nothing more than puppets who “serve rich and powerful bankers who control the money supply.”

  O’Keefe rants about the hypocrisy of the West, who are arming terrorist organizations in the name of ‘freedom’ for civilians in geo-politically strategic countries while turning a blind eye to vile human rights abuses in countries like Saudi Arabia. The only people who still fall for all this crap, O’Keefe passionately points out, are “bought-off prostitutes [our politicians] or the dumbest of the dumb.”

  In short, this is a video you should consider sharing with anyone you know who is still under the illusion that the USA and Britain are doing good in the world, anyone who doesn’t believe the ‘conspiracy theory’ that 9/11 (or Syria, or Libya, or Afghanistan or Iraq) were not orchestrated attacks to further a sinister long-term goal of controlling the Middle East, and anyone who believes that the desperate refugees fleeing these countries we have systematically destroyed have no right to seek help from their oppressors in Europe and North America- after all, without Western imperialism, we wouldn’t have any refugees in the first place (more on that here).

  Ken O’Keefe renounced US citizenship in 2001 and now holds Irish, Hawaiian & Palestinian citizenship. He says on his blog: “My ultimate allegiance is to my entire human family and to planet Earth.”

  Well said.

  

  

  

  

  

• Is Yellen About To Shock Everyone: Goldman Says The "Fed Should Think About Easing"

  What a difference a little over a year makes.

  Back in January 2014, just after the Fed announced the tapering of QE (because, you know, the “date-dependent” Fed would never be tapering if the economy wasn’t improving, right?) the propaganda machine went into overdrive, with Wall Street’s pet economist, not to mention the NY Fed’s key “outside advisor”, Goldman Jan Hatzius preaching that the long awaited recovery had finally arrived.

  This is how the tabloid pseudo-finance website Business Insider characterized his call at the time: “Goldman’s top economist, Jan Hatzius, just said the words we’ve been wanting to hear for five years. He believes the economy is now growing at an above-trend pace.”

  What exactly did he say? This:

  Despite the 1% drop in real GDP in the first quarter, we believe that the US economy is now growing at an above-trend pace. The best way to see this is via our current activity indicator (CAI), which grew at an annualized rate of 3.4% in May, similar to the average of the prior two months. Although an estimated ½ percentage point of this sequential growth is due to a bounceback from the weather distortions of the first quarter, even the year-on-year CAI now stands at 2.7%, the fastest pace of the expansion so far and above our estimate of potential growth of 2%-2½%. In our view, the CAI is a far more reliable indicator of economic activity than real GDP because it is more timely, more broadly based, less noisy, and less subject to revision. One key reason why we expect a further pickup in the underlying growth pace to 3%+ is an improvement in the housing sector.

  To be sure, the US economy would have literally cratered just a year later after another first quarter debacle was blamed on cold weather, and only a double seasonal adjustment saved what little was left of “growth” purely on the back of an absolute whopper in record inventory accumulation.

  Back then, Joseph Wisenthal, then with Business Insider, and currently in charge of Bloomberg’s hyperbole division, said “For what it’s worth, we agree with Hatzius.”

  For what it was worth, we disagreed with Hatzius, noting that this would simply be the second time in five years Goldman has jumped the “recovery” shark after its dramatic reversal in December 2010 when as QE 2 was ending, Goldman once again sought to boost wholesale confidence by going fundamentally bullish and saying “This outlook represents a fundamental shift in the thinking that has
  governed our forecast for at least the last five years.”

  Fast forward a little over a year when we learn that Goldman was once again wrong (for what it’s worth, naturally Business Insider was too).

  First it was in April of 2015 – some 16 months after his “bold” prediction – that the same “above trend growth”-forecasting Hatzius said we “do not have much confidence in the inflation outlook and believe that the right policy would be to put hikes on hold for now.”

  But… what happened to above trend growth?

  Then in the first week of June, Hatzius once again hedged saying “Our forecast remains that the Fed policy committee will hike rates at the September meeting, but …this remains a close call. There is a strong risk management case for delaying liftoff.” In other words, the market determines Fed policy, not the economy, despite the reflexive lies to the opposite.

  Then just two weeks later, on June 18, Hatzius having long given up on his “above trend growth” forecast changed his tune again, and now said he expected a December rate hike instead.

  “In large part this reflects the fact that seven FOMC participants are now projecting zero or one rate hike this year, a group that we believe includes Fed Chair Janet Yellen…. We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, because we did not believe that the FOMC would want to surprise markets on the hawkish side when they raise the funds rate.”

  Of course, if the economy had grown at an “above trend pace” since his January 2014 call, the Fed would have to be at 1% or higher by now.

  Just to make sure nobody is surprised next week when Yellen does not hike and unleashes a massive relief rally, Hatzius added that a September rate hike announcement this Thursday “shouldn’t be close”, and as we showed previously, unveiled 7 reasons why. Amazing how Goldman’s narrative changes with every month.

  And then, the humiliation was complete last night when the same Jan Hatzius, having long-forgotten his January 2014 prediction, in a note previewing the US economy in “September and Beyond” had this to say:

  In our view, the recent events have largely sealed the case against a rate hike next week. Fed officials have made clear that “data dependent” policy refers to incoming economic news as well as factors that could impinge on the outlook—including changes in financial conditions…. The news on wage and price inflation, however, has been softer than generally expected a few months ago…. most of the inflation shortfall relative to the Fed’s 2% target is due to more persistent factors, including continued labor market slack.

   

  …

   

  We expect modest downward revisions to GDP growth in 2016 and 2017 in light of tighter financial conditions.

  Hm… maybe Jan meant below-trend growth?

  And here we get to the punchline, because Goldman which originally expected a September rate hike, then pushed it to December in June, is now fairly confident that there may not be a 2015 rate hike at all!

  Perhaps the biggest question for next week’s meeting will be whether Chair Yellen continues to signal rate hikes later this year, or whether she hints at a lengthier delay.

   

  We see two arguments for why the first rate hike may be delayed beyond December. First, the Taylor rules above do not take into account risk management considerations. We have long seen a persuasive case for delaying rate increases until 2016 on risk management grounds, and recent communication suggests this may be weighing more heavily on Fed officials’ thinking.

  That’s that phrase again: just like in June, by “risk management” Hatzius simply means not to crash the market.

  And then, now that a September rate hike has been made painfully clear will not be coming (trade accordingly), Goldman pulls out a whopper of an Easter egg:

  Although the purpose of raising the funds rate is to tighten financial conditions, markets have already done much of the Fed’s “dirty work.” Indeed, our latest analysis suggests that the recent tightening—if maintained going forward—would be equivalent to around three hikes in the funds rate. Similarly, the GSFCI is now much too tight relative to our “FCI Taylor Rule”, which compares the current level of financial conditions with the “appropriate” level based on inflation and job market slack (Exhibit 11). The easiest way to ease financial conditions—and thereby better align the stance of policy with the dual mandate objectives—would be to signal a later liftoff than markets currently expect.

  * * *

  we may hear a bit more about risk management in the press conference, and Chair Yellen may make it clear that financial conditions need to improve for the committee to actually hike this year.

  The punchline comes from Goldman’s Financial Conditions Index which is now screaming for QE4 or NIRP, pick one:

  

  And there you have it: the “above trend growth” is dead and buried – because 24 months after Goldman’s prediction that the economy is now roaring, Goldman admits the Fed can’t hike even 25 bps.

  Which is why one can, and should, ignore all Goldman forecasts about the economy.

  What one should most certainly pay attention to, however, is what Goldman says the Fed will do – you know, for “risk management” purposes – because as we have shown countless times in the past, Goldman runs the Fed. 

  As such, forget a September rate hike. Or perhaps Yellen will listen too carefully to Hatzius and instead of a rate hike, shock absolutely everyone, and instead of a rate hike the Fed will join the ECB, SNB and Riksbank in the twilight zone of negative rates. That, or QE4.

  And why not: after both the Swiss National Bank and the Chinese central bank crushed investors who thought the banks would never surprise them, why should the Fed not complete the 2015 trifecta of central bank turmoil? After all, the money printers are already running on “faith” and credibility fumes. Might as well go out with a bang.

  

  

  

  

  

• A Major Bank Just Made Global Financial "Meltdown" Its Base Case: "The Worst The World Has Ever Seen"

  When it comes to the epic bubble in China’s economy, it really boils down to one – or rather two – things: a vast debt build up (by now everybody should be familiar with McKinsey’s chart showing China’s consolidated debt buildup) leading to a just as vast build up of excess capacity, also known as capital stock accumulation. And/or vice versa.

  It is how China resolves this pernicious, and self-reinforcing feedback loop, that is a far greater threat to the global economy than even what happens to China’s bad debt (China NPLs are currently realistically at a 10-20% level of total financial assets) or whether China successfully devalues its currency without experiencing runaway capital flight and a currency crisis.

  One bank that is now less than optimistic that China can escape a total economic meltdown is the Daiwa Institute of Research, a think tank owned by Daiwa Securities Group, the second largest brokerage in Japan after Nomura.

  Actually, scratch that: Daiwa is downright apocalyptic.

  In a report released on Friday titled “What Will Happen if China’s Economic Bubble Bursts“, Daiwa – among other things – looks at this pernicious relationship between debt (and thus “growth”) and China’s capital stock.  This is what it says:

  The sense of surplus in China’s supply capacity has been indicated previously. This produces the risk of a large-scale capital stock adjustment occurring in the future.

   

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

   

  Using the rate of divergence from past trends in the capital coefficient, we can calculate the amount of surplus in real capital stock. This shows us that as of the year 2013, China held a surplus of 19.4 trillion yuan in capital stock (about 12% of real capital stock).

   

  Since China is a socialist market economy, they could delay having to deal directly with the problem of capital stock surplus for 1-2 years through fiscal and financial policy. However, there is serious risk of a large-scale capital stock adjustment occurring in the mid to long-term (around 3-5 years).

   

  
  

  Daiwa then attempts to calculate what the magnitude of the collapse of China’s economic bubble would be. Its conclusions:

  Even in an optimum scenario China’s economic growth rate would fall to around zero

  We take a quantitative look at the potential magnitude of the collapse of China’s economic bubble to ensure that we can get a good grasp of the future risk scenario. If a surplus capital stock adjustment were to actually occur, what is the risk for China and how far would its economy fall?

   

  Chart 7 shows a factor analysis of China’s potential growth rate. The data here suggests that (1) China’s economy has gradually matured in recent years, and this has slowed progress in technological advancement, (2) Despite this fact, it has continued to depend on the accumulation of capital mainly from public spending to maintain a high economic growth rate, and (3) As a result, this has done more harm than good to technological advancement. Between the years 2012-15 China’s economy declined, yet still was able to maintain a high growth rate of over 7%. However, 5%pt of the growth rate was due to the increase in capital stock. Labor input and total factor productivity contributed only 2%pt.

   

  The major decline in the rate of contribution from total factor productivity is especially noteworthy, as it had maintained an annualized rate of 5% for thirty years straight since the introduction of the reform and opening-up policy and on through the era of rapid globalization.

   

  According to a DIR simulation, if a capital stock adjustment were to occur under such circumstances, China’s potential growth rate would fall to around 4% at best. This adjustment process is shown in the bottom left Chart 7. As far as can be determined from the capital stock circulation diagram, capital spending at the level seen in 2014 should not have been allowable without an expected growth rate of over 10%. Hence if adjustment progresses to the point where the potential growth rate is only 4%, the situation for capital spending will continue to be harsh. If the adjustment process lasts from the year 2016 to 2020, capital spending will likely continue in negative numbers on a y/y basis. If this scenario becomes a reality, the real economic growth rate will hover at around zero as is shown in the  lower right portion of Chart 7.

   

  

  All of this is well-known by most (or at least those who are willing to accept reality at face value instead of goalseeking it away with Keynesian theories that serve to merely perpetuate fallacious groupthink). It does, however, underscore the severity of China’s economic situation and the follow-through linkages to the rest of the world.

  But where the Daiwa stands out from every other report we have read on this topic, and where it truly goes where no other research has dared to go before, is quantifying the probability of China’s worst case scenario. Here is what it says:

  Meltdown scenario: World economy sent into a tailspin

  We have already stressed that the scenario discussed in the previous section is the optimum or bestcase scenario. What is just as likely or possibly more likely to occur is the following. If the expected growth rate declines and the progress of the capital stock adjustment causes the bad debt problem to become even more serious, the economy could spiral out of control, lapsing further into a meltdown situation.

  The stunning punchline:

  “Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario.  The point at which the capital stock adjustment is expected to hit bottom is at a much lower point than in the previously discussed capital stock adjustment scenario (see Chart 8). As shown in the bottom right portion of this chart, the actual economic growth rate will continue to register considerably negative performance. If China’s economy, the second largest in the world, twice the size of Japan’s, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen.”

   

  

  Translated: Daiwa just made a Chinese “meltdown” and global economic “tailspin” its “realistically speaking, the most likely”, base case scenario.

  And here we were thinking our calls (since 2011) that China’s debt and excess capacity bubble would negatively impact global growth, are audacious.

  The question, now that Daiwa has broken the seal on Chinese and global doomsday scenarios, is whether and how soon other banks will follow in Daiwa’s path, and predict an armageddon scenario which sooner or later, becomes a self-fulfilling prophecy even without the help of China’s increasingly clueless micromanagers.

  Source: Daiwa

  

  

  

  

  

• Market Risk, Model Smash

  Submitted by Salil Mehta of Statistical Ideas

  Market Risk, Model Smash

  Seeing the market crash from a few weeks ago, it is clear how quickly the market can ferociously hurdle in front of one’s risk models. Risk models that failed to safeguard against risk when it mattered the most.  Models that left many large hedge funds hemorrhaging – top funds which by definition were supposed to protect their investors in the August tumult.  Instead when markets broke bad, a lot of things “went wrong”; and stayed that way.  

  In this article, we explore a number of the large U.S. market crashes since the mid-20th century, and show how the recent bust compares.  We learn why relying on tail risk models whose approximations presume to work consecutively at all times, can lead to failure.  The key for investors (if they must be active) is to always remain vigilant.  Professor Nassim Taleb recently expressed it nicely:

  The *only* way to survive is to panic & overreact early, particularly [as] those who “don’t panic” end up panicking & overreacting late.

  

  And there were many who wound up in panic in recent weeks.  Expeditiously selling at a loss, under record volume on August 24 (China’s Black Monday).  Let’s first consider what an overall market crash look like.  We quickly show a symmetrical V-shaped illustration here.  This illustration also shows a rise in fear on the way down, with peak panic near the bottom (the orange star), then followed by up-moves that mirror the previous down-moves.  We will need to review this overall shape in a future article.  But for now we discuss simply the left side of the illustration (the solid brown down-arrows).

  In developing upon the numerous ways in which a market crash can occur, we apply a non-parametric probability approach that explores an initial brutal decline.  Then a peak in market fear, and then an “aftermath”.  We’ll also tabulate and focus our attention on 10 largest crashes since 1950.  Each one we measure up against these 3 crash patterns below.

  Of course we can debate to some extent over what the 10 largest crashes are, but that would be losing the forest through the trees.  It’s more important that we simply agree on a respectable overlap of what constitutes a decent sample of market busts, and when the peak jitters were felt by investors and observants.  Now for fun, which of the following 3 patterns do you think generally represents the nature of these large crashes?

  A. a slow collapse into maximum fear, then followed by a torrid fall

  

   

  B. a rapid drop into maximum fear, then subsiding into a slow and chaotic recovery with retests

  

   

  C. a straightforward drop terminating in maximum fear, then a shallow and jerky rebound back (perhaps temporarily) to “stability”

  

   

  Most would erroneously assume (and this is also how it is generally portrayed by business leaders through the media) that market crashes frequently occur in the order shown.  That is, more are of pattern A than of pattern C.  We’ll see however, even if counter-intuitive, that the precise reverse has been true.

   

  We show below, the 10 large market wrecks, in addition to the recent August 24.  We use a probability template as well that shows vertically compounded day of “greater severity” price moves versus the previous day (example follows the 11 graphs here).  If a daily market move is not more severe in direction (lacks acceleration), then we shift the data to the right.  We start each time graph where markets were previously quite stable, and terminate each graph at the first equal period of stability.  And we use the same lightly shaded boxes, similar to those shown above, to show the market price changes in relation to the time of ultimate scare (the performance of which we bold below).

   

  June 23, 1950:

   

  

  September 26, 1955:

  

   

  May 28, 1962:

   

   

  

  October 19, 1987:

   

  

  October 13, 1989:

  

  October 27, 1997:

  

  August 31, 1998:

   

  

  April 14, 2000:

  

  October 15, 2008:

  

  August 8, 2011:

  

  August 24, 2015:

   

  

   

  So in the first case of 1950, the returns prior to August 26 of that year were:

  August 21 +0.9% 
  August 22 +0.8% (positive price move though less severe versus +0.9% so shift up and to the right)
  August 23 -0.1% (negative price move is a directional change so shift to the right)
  August 26 -5.5% (negative price move and more severe versus -0.1% so just show it vertically below the August 23 result)
  Etc.

  Again this is not meant to show (by the visual scale) the actual distances traveled in percentage points.  But it gives us a non-parametric feel for the direction (and the colored bars green and red show the magnitude) of the daily price movements.  Even including the horizontal shifting of the price changes, one can see whether there is extraordinary acceleration or deceleration in price changes.

  Now in the table below we encapsulate the statistics for the daily prices changes and time duration before (first shaded box in the graph), as well as after (everything after the first shaded box in the graph) the time of ultimate panic.  We also state which of the 3 market crash styles noted previously apply.

  1950: crash of -4% over 4 days; then -3% over following 5 days.  Pattern A
  1955: crash of -6% over 2 days; then +1% over following 7 days.  Pattern B
  1962: crash of -14% over 5 days; then +5% over following 7 days.  Pattern C
  1987: crash of -35% over 8 days; then +9% over following 20 days.  Pattern C
  1989: crash of -7% over 2 days; then +2% over following 2 days.  Pattern C
  1997: crash of -10% over 3 days; then +7% over following 6 days.  Pattern C
  1998: crash of -13% over 4 days; then +3% over following 2 days.  Pattern C
  2000: crash of -10% over 3 days; then +6% over following 4 days.  Pattern C
  2008: crash of -27% over 15 days; then -2% over following 46 days.  Pattern B
  2011: crash of -14% over 5 days; then +6% over following 7 days.  Pattern C
  2015: crash of -10% over 4 days; then +5% over following 4 days.  Pattern B

  Notice that the 10 initial crashes account for a total of only 157 trading days (~1% of the days!)  We also witness the frequency of these crashes as roughly once every 6-7 years (about the duration of an economic cycle).  Also note that you can not simply take the ratios of the price changes over time, in order to measure “speed” of changes, since the second box (when applicable) and the balance of the price graph have been combined into one.

  What’s more important for our probability investigation here is that we can visually see that of the 10 initial crashes, only one most fits pattern A.  While 2 fit pattern B, and 7 fit pattern C.  We then created a probability matrix to show the categorical placement of the data above.  For example for the 10 years, up through the day of ultimate fear, we see the following:

                                  less severe   more severe
  daily price increase        15%             0%
  daily price decrease        51%            33%

  And following this day of paramount scare:

                                  less severe   more severe
  daily price increase        46%             8%
  daily price decrease       34%            11%

   

  Now repeating this exercise for the recent August 2015 crash alone, here are the statistics, through the day of ultimate fear:

                                 less severe   more severe
  daily price increase          0%             0%        
  daily price decrease        25%            75%

   

  And following this day of paramount scare:

                                 less severe   more severe
  daily price increase         75%             0%           
  daily price decrease        25%             0%

   

  A ?²-test shows that the recent 2015 crash (so far) looks slightly (<25% probability) similar to the 2 pattern B years of 1955 and 2008.  We state “so far” because we are clearly not yet in a stabile period, similar to what we finally saw from prior crashes, though the likelihood is strong at this point that the pattern B identified is firm.  Again this is the pattern where there is severe market turmoil, then subsiding into a rather mediocre recovery with multiple retests.

  Additionally the ?²-test strongly evidences that the probability matrix results thusfar (>95% probability) are quite different from the 7 crashes that make up pattern C (either before peak fear, after peak fear, or combined).  Noting again that this is the pattern that few people above would a priori feel represents how crashes “normally” occur.  Yet it account for roughly 2/3 of the crashes we’ve discussed here.  Meaning no one type of hedge can cheaply and universally protect from all crashes since they vary in styles.

  Given the large portion of crashes -particularly in the past decade- which do not fit the typical mold for how risk models would anticipate market crashes to occur, relying on them at all times is imprudent.  Understand that market tail risk models can change in this period, subsequent top maximum jitters.  Eventually when it wreaks havoc, it is sometimes too late to appropriately hedge or know how to speculate in order to stay long with leverage in the hopes for spike in rebound days.  We may see this all unfold again, at a later point, but instead with bonds.  Then we’ll again overly exposed funds and investors, in a hysteria once more.

  

  

  

  

  

• Mount(ing) Denial

  “What me?”

   

  

  
  

  Source: Townhall.com

  

  

  

  

  

• Crossing Borders With Gold And Silver Coins – A Glimpse Of Things To Come

  Submitted by Doug Casey via InternationalMan.com,

  It’s well-known that you have to make a declaration if you physically transport $10,000 or more in cash or monetary instruments in or out of the US, or almost any other country; governments collude on these things, often informally.

  Gold has always been in something of a twilight zone in that regard. It’s no longer officially considered money. So it’s usually regarded as just a commodity, like copper, lead, or zinc, for these purposes. The one-ounce Canadian Maple Leaf and US Eagle both say they’re worth $50 of currency.

  But I’ve recently had some disturbing experiences crossing borders with coins. Of course, crossing any national border is potentially disturbing at any time. You might find yourself interrogated, strip searched, or detained for any reason or no reason. But I suspect what happened to me in three of the last four borders I crossed could be a straw in the wind.

  I’ve gradually accumulated about a dozen one-ounce silver rounds in my briefcase, some souvenirs issued by mining companies, plus others from Canada, Australia, China, and the US. But when I left Chile a couple of months ago, the person monitoring the X-ray machine stopped me and insisted I take them out and show them to her. This had never happened before, but I wrote it off to chance. Then, when I was leaving Argentina a few weeks later, the same thing happened. What was really unusual was that the inspector looked at them, took them back to his supervisor, and then asked if I had any gold coins. I didn’t, he smiled, and I went on.

  What really got my attention was a few weeks later when I was leaving Mauritania, one of the world’s more backward countries. Here, I was also questioned about the silver coins. A supervisor was again called over and asked me whether I had any gold coins. Clearly, something was up.

  I haven’t seen any official statements about the movement of gold coins, but it seems probable that governments are spreading word to their minions. After all, $10,000 in $100 bills is a stack about an inch high; it’s hard to hide, and clearly a lot of money. But even at currently depressed prices, $10,000 is only nine Maple Leafs, a much smaller volume. Additionally, the coins are immune to currency-sniffing dogs, are much less likely to be counterfeit, and don’t have serial numbers. And if they’re set aside for a few years, they won’t be damaged by water, fire, insects, currency inflation, or the complete replacement of a currency. Gold coins are in many ways an excellent way to subvert capital controls. And I think they’ll become much more popular in that role.

  That’s because, all over the world, paper cash is disappearing. People are moving away from paper cash. That’s partially because there are fewer and fewer bank branches where you can cash a check, and ATM machines are costly to use. And partially because everybody has a cell phone and they’re starting to use them for even trivial purchases, like a cup of coffee. Governments are encouraging this because if all purchases, sales, and payments are made electronically, they’ll know exactly what you’re doing with your money.

  From their point of view, the elimination of cash will have several major benefits: It decreases the opportunity for tax evasion, it decreases the possibilities of “money laundering,” it eliminates the expense of printing currency, it obviates counterfeiting, and it gives the state instant access to all of any individual’s cash. From an individual’s point of view, however, the safety and freedom offered by a stack of paper cash will disappear.

  Much of the safety and freedom offered by foreign banks and brokerage accounts has already disappeared. Few people seem aware of the fact that not so long ago, there was no limit to the amount of cash you could transfer in or out of the US without reporting. Or that you didn’t have to report the existence of offshore bank or brokerage accounts (although you did have to report taxable income from them).

  That changed in 1970, first with the passage of USC 3156, and then the perversely-named Bank Secrecy Act. The 1986 Tax Reform Act made it highly inconvenient, and largely uneconomic, to invest in passive foreign investment companies (PFICs). In 2010, the Foreign Account Tax Compliance Act (FATCA) required every foreign financial institution in the world to report info on US persons to the US government. The enormous regulatory burdens and potential penalties it imposes now make it very hard to find a foreign institution that will even open an account for an American.

  These are all de facto capital controls. In the US, banks are starting to notify customers that they’re not responsible for the storage of cash, or gold, in their safe deposit boxes. When I was in New Zealand a couple of months ago, I was taken aback to see that the suburban branch of a major bank was closing down its substantial safe deposit box department.

  When I inquired why, the manager only knew that it was a new policy and if I wanted a box, I’d have to go to the main branch. This seems to be another worldwide trend. If there isn’t a safe place to store paper cash or gold, then people will be less likely to possess them.

  But it’s getting worse. Over the last couple of years, there have been efforts to pass a bill that would allow the US to deny issuance, or cancel, the passport of anyone who is simply accused of owing $50,000 or more in taxes. I expect this will become law at some point. After all, it clearly states on your passport that it’s government property and it must be turned in on request. People are actually the most valuable form of capital. Emigration has always been nearly impossible from authoritarian regimes.

  So what’s next? I expect, as the subtle war on both cash and the transfer of capital across borders gains momentum, that gold coins are going to become the next focus of attention. So I suggest you act now to beat the last minute rush.

  Have a meaningful percentage of your net worth in gold coins.

   

  Have a significant number of those coins stored outside the country of your citizenship.

   

  Concentrate your future purchases in small coins that are indistinguishable from loose change. Things like British sovereigns (.23 oz of gold) or their continental equivalents (French, Swiss, German, Danish, Russian, etc., pieces of generally .18 oz of gold). Not only is gold cheap now, but all of these are currently at only a few percent above melt. Happily, they have collectible value, and they resemble common pocket change to an X-ray machine.

  Also, do this: Put a bunch of silver Eagles in your brief case the next time you travel internationally and let us know if your experience resembles our own.

  

  

  

  

  

• A Recipe For The Mother Of All Short Squeezes?

  Positioning across the world's most-levered financial instruments has never been this extreme.

  There has never been a bigger net long VIX futures position.

  

   

  As My401k's Dana Lyons notes, however,

  The behavior of the COT positioning in VIX futures has completely changed in recent years. This is no doubt due to the proliferation and increasing popularity of volatility ETF’s, which access the futures market, either directly or indirectly. A simple glance at the chart will tell you that the volatile post-2012 period bears very little resemblance to the 2004-2011 regime.

   

  The rise in demand for volatility ETF products has necessitated the increased liquidity in the VIX futures. Therefore, we are now seeing extremes in COT positions that are much greater, even multiples, of those seen prior to 2012. Thus, what was once considered extreme is now pedestrian. Now, the current Speculator net long position is still a record, even compared to readings in the post-2012 world. Therefore, we’re not going as far as to say this reading is irrelevant. We think it is relevant and, on the margin, a bearish data point for the VIX and a bullish data point for stocks.

   

  What we are saying is that, in this new derivative-based ETF regime, we still don’t know exactly what the related metrics are capable of. While the current COT reading is a record, it could still get record-er…and by a lot. Consider the extreme positions we’ve pointed out over the past year in Crude Oil futures, Dollar futures, etc., that have gone well beyond prior “normal” bounds. Or simply look at the Speculator net short position in this VIX contract starting in 2012. After a pretty reliable floor in the -20,000 range for nearly a decade, the Speculator net short position exploded in 2012, nearly moving 100,000 contracts beyond that level by 2013.

   

  We just don’t know how this dynamic is ultimately going to play out – and I don’t think we will for many years.

  But piling on, we also see the Put/Call Ratio is at a serious extreme as well, the highest since 2007.

  

   

  And while the aggregate positioning in US equity futures is extremely short the chart below suggests that sometimes the crowd is right.

  

   

  So while it would appear the world is positioned bearishly extreme in stocks; bonds appear no better.  As shown below, the shorter-dated bond net positioning is its shortest since 2007/08 – and we know what happened next.

  

   

  And there has never been a larger short position in the Ultra Long Bond Contract.

  

  Charts: Bloomberg

  Given the weight of all these extremes (and the implicit leverage from the ETF markets), this week's FOMC decision may be more turmoil-er than normal by an order of magnitude.

  With such extreme positioning across the equity, vol, and bond complex, it would seem no matter what The Fed does in September, there will be blood.

   

  

  

  

  

  

• Behind The Media Propaganda: Father Of "Drowned Syrian Boy" Was People Smuggler

  To a certain extent, the old adage “out of sight, out of mind” is unavoidable for anyone, but we don’t think it’s an exaggeration to say that Western society and especially the American public, exhibit a generalized ignorance to events taking place beyond their borders that’s completely out of synch with the degree to which most Westerners have easy access to information. That is, if the US public cared to know what was going on outside of suburbia and beyond the Starbucks drive-throughs and the strip mall Targets they most certainly could find out, but that would likely mean discovering all manner of really inconvenient and often disturbing things and so, at the end of the day, willful ignorance allows everyone to perpetuate the myth that everything is fine. For its part, the media is more than happy to expose harsh realities as long as they’re conducive to ratings so, for instance, “unarmed black teen shot 18 times by angry white police officer” works well, while “Syria’s bloody civil war continues unabated” does not because to the largely ignorant public, Syria might as well be Mars and if for some inexplicable reason, life or death ended up coming down to being able to correctly identify Syria on an unlabeled map, well, it would be time to start praying. 

  Sometimes, however, the media stumbles across or, more likely, is fed an image or a series of images that are so indelible that they’re forced to run them, and the public consciousness is, if but for a fleeting moment, jarred out of its perpetual stupor. That’s what happened in 2013 when YouTube videos appeared to show the victims of a so-called “gas attack” that Bashar al-Assad decided, apparently out of the clear blue sky, to launch on his own people even though were the story true, it would seem to have been a rather peculiar strategy given that the strongman was fully aware that the US was just waiting on an excuse to launch a few cruise missiles. Then, a little more than two years later, we got another example of imagery powerful enough to focus the public’s attention on a far-away civil war when the body of a drowned toddler washed up on a beach in Turkey. 

  

  And even though connecting the proverbial dots isn’t something everyday Westerners are particularly adept at, it wasn’t too difficult for the media to paint the picture: 1) drowned toddler was a refugee, 2) there’s a refugee crisis thanks largely to a war going on in a place called Syria which isn’t on Mars but is in fact in the Middle East, 3) this place called Syria is where ISIS is, 4) the Russians are there too. It would be difficult to come up with a narrative more conducive to rallying public support for an invasion if you were trying. And indeed, maybe someone was trying, because as Reuters reports, the drowned child’s father might not have been a fleeing migrant after all, but rather a people smuggler and Aylan might have been on the boat not because his family intended to save their child from the horrific violence escalating daily in Syria, but rather because profiting off of other people’s misery was his father’s chosen profession and he often brought his family along for the ride. Reuters has the story, excerpts from which are presented below.

  Via Reuters:

  The father of drowned Syrian toddler Aylan Kurdi was working with smugglers and driving the flimsy boat that capsized trying to reach Greece, other passengers on board said, in an account that disputes the version he gave last week.

   

  Ahmed Hadi Jawwad and his wife, Iraqis who lost their 11-year-old daughter and 9-year-old son in the crossing, told Reuters that Abdullah Kurdi panicked and accelerated when a wave hit the boat, raising questions about his claim that somebody else was driving the boat.

   

  A third passenger confirmed their version of events, which Reuters could not independently verify.

   

  “The story that (Aylan’s father) told is untrue. I don’t know what made him lie, maybe fear,” Jawwad said in Baghdad at his in-laws’ house on Friday. “He was the driver from the very beginning until the boat sank.”

   

  He said Kurdi swam to them and begged them to cover up his true role in the incident. His wife confirmed the details.

   

  Jawwad said his point of contact with the smugglers was called Abu Hussein. “Abu Hussein told me that he (Kurdi) was the one who organized this trip,” he said.

   

  Amir Haider, 22, another Iraqi who said he was on the same boat, confirmed Jawwad’s account and identified Kurdi as the driver. He told Reuters by telephone from Istanbul that he initially thought Kurdi was Turkish because he was not speaking, but later heard him talking to his wife in Syrian Arabic.

   

  A photo of Aylan Kurdi’s body in the surf off a popular Turkish holiday resort prompted sympathy and outrage at the perceived inaction of developed nations in helping thousands of refugees using dangerous sea-routes to reach Europe, many of whom have fled Syria’s four-year civil war.

  And more from The Daily Telegraph:

  THE father of the three-year-old boy whose lifeless body washed up on a Turkish beach, rocking the whole world to its core, has been accused of being a people smuggler who captained the fateful voyage.

   

  A woman who lost two of her three children on the vessel made the stunning claims to Network Ten via her cousin, who lives in Sydney, on Friday night.

   

  It was claimed on Friday night that his ­father Abdullah was a people smuggler who captained the dodgy boat for its entire voyage, capsizing in heavy seas and killing at least 12 people.

   

  Iraq-based Zainab Abbas, via her Sydney-based cousin Lara Tahseen, told Ten News she paid $10,000 for the voyage and Aylan’s father was in charge of the boat.

   

  “He was a smuggler, yes, he was the one driving the boat,’’ she said.

   

  She claimed a separate people smuggler to whom they paid the money had told them the captain was taking his own children on the voyage.

   

  “He said ‘don’t worry, the captain of the boat, the driver, is going to bring his two kids and his wife,” she said.

   

  The woman claimed the boat was travelling faster than its capabilities and had too many desperate asylum seekers on board.

   

  The family of five was told there would only be six on the boat but when they got on there were 14.

   

  “He was going crazy, like speed,” she said.

   

  “He was the one driving the boat right from the start. When they set off five minutes in he was looking left and right, worried, then he was speeding. Even his wife was screaming at him to slow down,” she said.

   

  Ms Tahseen said when the family arrived in Istanbul they phoned a number they were told was Mr Kurdi’s but another man answered.

   

  They paid this man the money and he told them when they arrived at the island they were heading for, on which they would move to another boat to go to Greece, to phone him.

   

  He and Mr Kurdi would then split the money, Ms Tahseen claimed. The trip was only supposed to take 15 minutes.

  Now obviously, what happened to Aylan (and to an untold number of other refugees fleeing the Mid-East) is a tragedy and whether or not his father was the man driving the boat and profiting from the refugee crisis or was in fact a victim fleeing war like everyone else doesn’t change that (and in many ways, if the above account is true, Aylan’s fate is actually even more tragic), but what is does change is the narrative being fed to the public.

  It also seems – again, assuming the story outlined above is accurate – that it’s possible Kurdi brought his family on the trip in order to make those paying him for the ride more confident in his ability to get them from Turkey to Greece safely. “If I was a people smuggler, why would I put my family in the same boat as the other people?” Kurdi asked MailOnline. That’s a good question, but one (admittedly macabre) explanation is that it was a kind of people smuggling marketing ploy, something along the lines of this: “you know you can trust me because I have my own family on board.” A less conspiratorial take on that theory would be that he did intend to get his family out of the Mid-East and so he simply overloaded the boat because the collective safety of the passangers was secondary to getting his family out of harm’s way, but even if that’s the case, the exact opposite ended up happening because by putting too many people on the boat, he inadvertently doomed Aylan, and besides, anyway you look at it, he was looking to make $5,000 off of the other passengers’ desperation.

  Coming full circle, the greatest tragedy here is that the entire episode will be used as an excuse to drop still more bombs on Syria and eventually to justify a ground invasion and because the public can’t see past the various smokescreens being employed here, Americans and Europeans will end up tacitly accepting the patently ridiculous idea that the best way to stem the flow of refugees is to bomb the place from which the refugees are fleeing. 

  Of course the entire thing is made even more absurd by the verifiable fact that it was the West which destabilized Syria in the first place meaning Washington along with its European allies are now set to use a massive refugee crisis of their own making to create a still more massive refugee crisis by effectively doubling down on efforts to destabilize the country on the way to ousting Assad. And with that bolded passage in mind, we bring you what is quite possibly the most ironic statement to ever come from the mouth of a sitting US president:

  Obama on Friday: “We are going to be engaging Russia to let them know that you can’t continue to double down on a strategy that’s doomed to failure in Syria.”

  

  

  

  

  

• The 20-Year Stock Bubble – Its Origin In Wholesale Money

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  As doubts surrounding QE have grown, there has been a somewhat detectable if still small trend in central banker repentance. Alan Greenspan to an extent has embraced a more decentralized and market framework in his public comments even though he has yet, to my knowledge, actually repudiate his own work more directly. As noted a few days ago, former BoE governor Mervyn King has been far more open and alarming. While that may seem to indicate that monetarists only find free market “religion” once out of the drudgery of their professional office, I think Zhou Xiaochuan, head of the PBOC, performs the exception.

  The direction the Chinese central bank has taken since late 2013 seems to confirm that idea more and more. Viewed as a repudiation of textbook monetary tactics and even basic justifications, the PBOC has become if not more “market” oriented at least drastically shifting priorities from the conventional, QE definitions of “growth at all costs” to something like managing that past mistake (as the PBOC took orthodox monetarism to new levels of insanity from 2009 through 2012). Last April, really at the outset of what China was about to do, Zhou issued a warning that looks to have been quite appropriate:

  “If the central bank is not a part of the government, it is not efficient in coordinating policies to push forward reforms,” [Zhou] said.

  “Our choice has its own rational reasons behind it. But this choice also has its costs. For example, whether we can efficiently cope with asset bubbles and inflation is questionable.”

  That certainly seems to be a damning repudiation of the monetary illusion. Faith in the QE world is waning everywhere and with very good reason; it just doesn’t work in anything outside of dangerous financial imbalance and asset price inflation. Even Krugman appears to have wavered:

  “I’m still really, really worried,” Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

  Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target, hampered by falling oil prices. The economy is struggling to rebound after a contraction last quarter, while the central bank’s main gauge of inflation fell to zero for a third time this year in July.

  One former central banker and academic economist (redundant) who is not contrite in the slightest degree is Ben Bernanke. Bernanke has been writing consistently about how he not only believes QE’s work, they did work (to some qualified extend) and further that there aren’t any bubbles – not even a stock bubble. In dealing with the leftward sting of “income inequality”, the former Fed chair wrote on June 1:

  Stock prices have risen rapidly over the past six years or so, but they were also severely depressed during and just after the financial crisis. Arguably, the Fed’s actions have not led to permanent increases in stock prices, but instead have returned them to trend. To illustrate: From the end of the 2001 recession (2001:q4) through the pre-crisis business cycle peak (2007:q4), the S&P500 stock price index grew by about 1.2 percent a quarter. If the index had grown at that same rate from the fourth quarter of 2007 on, it would have averaged about 2123 in the first quarter of this year; its actual value was 2063, a little below that. There are of course many ways to calculate the “normal” level of stock prices, but most would lead to a similar conclusion.

  From this view, the Fed acted quite appropriately with regard to stock prices in order to get them back to their own established trend; therefore no bubble. It isn’t surprising that his math works out, as you can plot his figures on a chart of the S&P 500 and see his reasoning painted forth.

  

  Starting at the end of the dot-com recession sometime in the last quarter of 2001, a 1.2% per quarter trend nicks the top of the market in 2007. Ignoring the implications of panic and crash through March 2009, as he does, filling out the rest of the chart puts the current (before August 24) stock index directly within the path of his trend.

  

  It is a ridiculously weak argument for obvious reasons, not at all unlike his defense of QE in the real economy via the unemployment rate without mentioning the denominator. It isn’t clarified in his post, but it seems equally evident that he picked the end of the dot-com recession as a start date because that is when Greenspan’s Fed brought forth “ultra-low” interest rates (see below). So if you believe that “ultra-low” interest rates are responsible for the current stock bubble, there you go.

  

  Of course there is already something missing from this intentionally narrow review, namely that the dot-com bubble had already occurred; it was that process that seems to have led to “permanent increases in stock prices”, but only intermittently. Thus ultra-low interest rates were not at all its source but rather the FOMC’s belated attempt to minimize the damage from the inevitable. Many people have instead extrapolated interest rates into just the housing bubble (which that was certainly a factor, but clearly not the true bubble source) but without explanation for the dot-coms. Bernanke is trying to be clever here by using that vagueness on the first part to his advantage.

  In fact, the housing bubble did not begin in 2003 when Greenspan got the FOMC down to 1% on the EFF, it had already been under way for nearly a decade by then. His efforts, such that there might have been any effect, was only to partially aid unleashing the true mania (though I would argue that even here the federal funds rate is given an overstated role as I have little doubt the housing bubble was going where it was going no matter what Greenspan did or did not do; the evidence for that is how rising interest rates in 2004 had so very little impact, as dark leverage in especially CDS just exploded at that very moment). Put together, the stock bubble (or repeated stock bubble) dates to around the same time as the housing bubble, which should not in any way be unexpected.

   

  

  

  We don’t even have to search very hard for the commonality of 1995, either. It was at that time, developed throughout the late 1980’s and early 1990’s, the JP Morgan “sold” its RiskMetrics platform widely to Wall Street and London. The torrent of dark leverage and wholesale “banking” that would be unleashed through the mathematical effects on balance sheet leverage, extended and received, was simply obvious. That counted, too, for the global effects upon the eurodollar stage, as the surge of the “dollar” coincided with the end stage of pure economic financialization. Greenspan believed, as did almost everyone else, he was controlling the economy through minute fine-tuning of the federal funds rate, a quarter point here, quarter point there, as if those made any true difference. Instead, the “dollar” was surging everywhere but especially Europe (this is Bernanke/Greenspan’s mysterious “global savings glut”; not “savings” at all but balance sheet expansion across multiple dimensions).

  

  If the eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that point rather than the irrelevant and overstated federal funds monkeying. So where Bernanke’s stock trend aligns the peaks as if that were “fair” and of the real market, the troughs instead just as easily conform traced back to the plainly obvious eurodollar deviation.

  

  In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it. The failure of the eurodollar standard to heal or rebuild to its prior upswing (ended on August 9, 2007) was seen more so in the real economy (the 2012 slowdown) but also in the stock market in 2010 and again in 2011; both those outbreaks appeared to revert back to that “dollar baseline.”

  The fact that asset inflation can continue on its own apart from any financial contribution of the wholesale “dollar” is due to partially separate liquidity and funding sources. Liquidity isn’t everything always, but when it is failing it takes over for the dominant marginal direction. In other words, corporate repurchases and retail flows might be sufficient for stock prices to rise and rise rapidly where the “dollar” isn’t as supportive, but those are easily overwhelmed where the “dollar” is acutely retreating (as August 24).

  When we plot Bernanke’s 1.2% per quarter benchmark at a start date of January 1995, that compounding growth works out to a “target” S&P 500 level of 1236.09 for Q3 2015.

  

  Where his 1.2% per quarter within the bubble mechanics calculates to 2123 (as of June) for the S&P 500, applying the same idea to starting outside the serial bubbles is vastly different (-42%).

  I’m not making any claims about whether 1236.09 is “fair value” for the S&P 500, only realizing the true nature of the stock bubble makes a huge difference. He isn’t quite taking the full weight of the Yellen Doctrine here (I define that as her notion that a bubble isn’t really a bubble unless it doesn’t “work” in the real economy) but you can see how he is, by the construction of his trend narrative, thinking in at least that direction. Both are attempts to justify asset inflation by moving the perspective to within the bubble period so as not to have to explain how it all arrived in the first place (inferring from Bernanke’s intent: since the dot-com bubble predates “ultra-low” interest rates it can’t possibly be the Fed’s fault, and therefore the Fed has been successful in simply re-establishing what the “market” did on its own beforehand).

  I think that is true but only in the narrow view that interest rate targeting didn’t actually do much of anything – which was and remains the whole problem. If interest rate targeting didn’t directly cause the asset bubbles, it didn’t restrain them either. This is not a small or trivial reflection, as the whole point of controlling the liquidity rate was to not just “stimulate” but also to restrict where “necessary.” To say that there was no limitation upon the eurodollar advance is an understatement since banks simply wrote their own, to the point that they even manufactured their own currency (collateral) far outside of what these economists considered to be well-aligned financial behavior.

  

   

  The relevant point to consider for stocks is which trend is closer to the “truth” of asset inflation. That is, of course, amplified in 2015 by the revisiting of eurodollar decay in much more strained and openly chaotic fashion. If the “dollar” is again to fail, what might that do to stocks? While that isn’t knowable we do have some methods of gaining insight, for which only certain central bankers will provide useful perspective.

  

  

  

  

  

  

• Bank Caught Using Fake Gold As Reserve Capital In Russia

  Over the past several years, incidents involving fake gold (usually in the form of gold-plated tungsten) have emerged every so often, usually involving Manhattan’s jewerly district, some of Europe’s bigger gold foundries, or the occasional billion dealer. But never was fake gold actually discovered in the form monetary gold, held by a bank as reserve capital and designed to fool bank regulators of a bank’s true financial state. This changed on Friday when Russia’s “Admiralty” Bank, which had its banking license revoked last week by Russia’s central bank, was reportedly using gold-plated metal as part of its “gold reserves.“

  According to Russia’s Banki.ru, as part of a probe in the Admiralty bank, the central bank regulator questioned the existence of the bank’s reported quantity of precious metals held in reserve. Citing a source, Banki.ru notes that as part of its probe, instead of gold, the “regulator found gold-plated metal.”

  

  The Russian website further adds that according to “Admiralty” bank’s financial statements, as of August 1 the bank had declared as part of its highly liquid assets precious metals amounting to 400 million roubles. The last regulatory probe of the bank was concluded in the second half of August, said one of the Banki.ru sources. Another source claims that as part of the probe, the auditor questioned the actual availability of the bank’s precious metals and found gold-painted metal.

  The website notes that shortly before the bank’s license was revoked, the bank had offered its corporate clients to withdraw funds after paying a commission of 30%. This is shortly before Russia’s central bank disabled Admiralty’s electronic payment systems on September 7.

  Admiralty Bank was a relatively small, ranked in 289th place among Russian banks in terms of assets. On August 1 the bank’s total assets were just above 8 billion roubles, while the monthly turnover was in the order of 40-55 billion rubles. The balance of the bank’s assets was poorly diversified: two-thirds of the bank’s assets (4.9 billion rubles) were invested in loans. The rest of the assets, about 30%, were invested in highly liquid assets.

  Or at least highly liquid on paper: according to Banki.ru the key reason for the bank’s license revocation was the central bank’s insistence that the bank had insufficient reserves against possible loan losses.

  The Russian central bank has not yet made an official statement.

  The first question, obviously, is if a small-to-mid level Russian bank was using gold-plated metal to fool the central bank about the quality of its “gold-backed” reserves, how many other Russian banks are engaged in comparable fraud. The second question, and perhaps more relevant, is how many global banks – especially among emerging markets, where gold reserves remain a prevalent form of physical reserve accumulation – are engaging in comparable fraud.

  Finally, what does this mean for gold itself, whose price on one hand is sliding with every passing day (thanks in part to what is now a record 228 ounces of paper claims on every ounce of physical gold as reported before), even as it increasingly appears there is a major global physical shortage. If the Admiralty bank’s fraud is found to be pervasive, what will happen to physical gold demand as more banks are forced to buy the yellow metal in the open market to avoid being shuttered and/or prison time for the executives?

  

  

  

  

  

• Chronicling History's Greatest Financial Bubble

  Submitted by Doug Noland via Credit Bubble Bulletin,

  Let’s this week begin with a cursory glance at the world through the eyes of the bulls. First, the global backdrop provides the Fed convenient cover to delay “liftoff” at next week’s widely anticipated FOMC meeting. Even if they do move, it’s likely “one and done.” While on a downward trajectory, China’s $3.5 TN international reserve hoard is ample to stabilize the renminbi. Chinese officials clearly subscribe to their own commanding version of do “whatever it takes” to control finance and the economy. One way or another, they will sufficiently stabilize growth – for now. The U.S. economy enjoys general isolation from China and EM travails. Investment grade bond issuance – the lifeblood of share buybacks and M&A – has already bounced back robustly. The U.S. currency, economy and securities markets remain the envy of the world. “Money” fleeing faltering EM will continue to support U.S. asset markets along with the real economy.

  September 10 – Financial Times (Netty Idayu Ismail): “The European Central Bank will ensure its policy stance remains as accommodative as needed amid financial-market turbulence, according to Executive Board member Peter Praet. ‘The Governing Council will remain vigilant that recent volatility does not materially affect the broad array of financial conditions and therefore lead to an unwarranted tightening of the monetary-policy stance,’ Praet said… ‘It has emphasized its willingness and ability to act, if warranted, by using all the instruments available within its mandate.’”

  The ECB’s “unwarranted tightening of the monetary-policy stance” comes from the same playbook as Bernanke’s (the Fed’s) “push back against a tightening of financial conditions.” In a world where financial markets dictate general Credit Availability as never before, central bankers have essentially signaled open-ended commitment to liquidity injections as necessary to counteract risk aversion. Such extraordinary market exploitation underpins the fundamental bullish view that global policymakers have things under control.

  On a near-term basis, policymakers retain tools to stabilize markets, though officials at the troubled Periphery are rapidly running short of policy flexibility. September’s “triple-witch” expiration of options and futures is now only a week away. Between the passing of time and the pull back in put premiums (“implied volatility”), bearish hedges and directional bets have lost tremendous value over the past two weeks.

  The apparent stabilization in China has been integral to calmer global markets. Clearly, Chinese officials are in full-fledged crisis management mode. A series of measures and determined official support have stabilized the wobbly Chinese currency. Wednesday from Reuters:

  “Chinese Premier Li Keqiang said… that the recent adjustment in the yuan was ‘very small’ and that there is no basis for continued devaluation in the currency.”

  And Thursday from the Financial Times (Jamil Anderlini):

  “Chinese Premier Li Keqiang… sought to reassure investors over the health of China’s economy… ‘China is not a source of risk but a source of growth for the world,’ Mr Li said in a speech to the World Economic Forum… ‘Despite some moderation in speed, the performance of the Chinese economy is stable and it is moving in a positive direction.’ …In a meeting with global business leaders at the forum, Mr Li dismissed the suggestion that China had been the trigger for instability in global markets in recent months. ‘The fluctuations in global financial markets recently are a continuation of the 2008 global financial crisis… Relevant Chinese authorities took steps to stabilise the market to prevent any spread of risks. Now we can say we have successfully forestalled potential systemic financial risks … what we did is common international practice and is in keeping with China’s national conditions.’”

  “Steps to stabilize the market” have included arresting journalists and other rumor mongers accused by the central government of “destabilizing the market.” There has been a hard crackdown on hedge funds and other “manipulators”. Beijing has imposed a series of onerous measures against currency and securities markets derivatives trading. The Chinese government has also put in place controls to help impede financial outflows. Meanwhile, the state-directed “national team” has spent over $200bn buying stocks. The central bank has cut rates, slashed reserve requirements and injected enormous amounts of liquidity.

  The bullish viewpoint holds that economies dictate market performance. As such, draconian measures from Chinese officials support the perception that Chinese policymakers have regained control over their markets and economy – in the process removing a major potential catalyst for global systemic dislocation. Though appalling, most take quiet comfort that Chinese-style “whatever it takes” works in the best interest of U.S. markets and the economy. The long-term rather long ago lost much of its relevance within the bull camp.

  For me, it boils down to fundamental disagreement with the bulls on how the world actually works.

  For starters, finance is king. Credit and the financial markets drive economic activity – and not vice versa. My bursting global government finance Bubble thesis rests on the premise that global finance has by now suffered irreparable harm. Confidence is being broken and faith is being shattered. A difficult new era has begun, and it will be a long time before confidence returns to EM. De-risking/de-leveraging has taken hold, with contagion gaining momentum. And China can use all the duct tape in the world – including strips to silent the mouths of naysayers – to try to holds its stock market and Credit system together. The damage is done.

  For a while now, global investors and speculators have been willing to ignore China’s shortcomings. In general, a world of over-liquefied markets tends to disregard risk while allowing a sanguine imagination to run absolutely wild. And the more finance that flooded into China and EM the more the optimists reveled in the “developing” world’s pursuit of the fruits of Capitalism. The Chinese talked a good commitment to steady free-market reform. Their aspirations for global financial and economic power seemed to ensure that they would adhere to the rules of Western finance.

  In the past I gave Chinese officials too much Credit. They devoted a lot of resources to the endeavor, and at one time I believed the Chinese had gleaned valuable insight from the study of the Japanese Bubble experience. But Bubbles are both seductive and incredibly powerful, especially at the hands of authoritarian communist regimes. Massive post-2008 stimulus stoked runaway Bubble excess. Later, Chinese markets scoffed at timid little central bank measures meant to tenderly rein in excess. And the longer the Bubble inflated the greater the financial, economic, social and political risks.

  In the end, the major lesson drawn from Japan’s experience was the wrong one. It was much belated, but the Japanese actually moved to pierce their Bubble. Chinese officials not only let their Credit Bubble run, they adopted the Fed’s approach to using the stock market as an expedient for system-wide inflation. That policy blunder was the Chinese Bubble’s proverbial nail in the coffin.

  I’ll assume that after priority number one – stabilizing its currency – the Chinese will implement even more aggressive fiscal and monetary stimulus. EM policymakers notoriously lose flexibility at the hands of faltering currencies and attendant financial outflows (“capital flight”). Contemporary finance also ensures that deflating Bubbles entice bearish hedges and speculations that can so swiftly overwhelm already liquidity-challenged markets. The Chinese were confronting just such a scenario, before abruptly changing the course of policymaking. The adoption of onerous derivative market regulations and other measures are akin to loose capital controls – punishing measures to take pressure off the Chinese currency. After initially seeking benefits associated with greater currency market flexibility, market tumult instead forced the Chinese into a rigid yuan peg to the dollar.

  So long as the peg to the dollar holds, China retains significant control over state-directed finance. It will run big fiscal deficits, print “money” and dictate lending and spending by the huge banks, financial institutions, local governments and industrial conglomerates. But can it at the same time somehow harness all this finance and keep it from fleeing the faltering Bubble? Only through capital controls.

  The Shanghai Composite rallied 6.1% this week. There were some spectacular short-squeezes as well, certainly including the Nikkei’s 7.7% Wednesday surge, “The Biggest Gain Since 2008.” Copper jumped 6.3% this week. U.S. tech and biotech bounced hard. In the currencies, the Australian dollar jumped 2.7%, the South African rand 2.2%, and the euro 1.7%.

  It was not, however, an encouraging week for EM’s troubled economies. Brazil’s real slipped further after last week’s 7% plunge. The Indonesia rupiah declined another 1.1%, and the Malaysian ringgit fell 1.3%. The Turkish lira dropped 1.2%. On the back of weak crude prices, the Goldman Sachs Commodities Index slipped 0.4% this week.

  The crisis is taking a decisive turn for the worse in Brazil. On the back of S&P downgrading Brazilian debt to junk, the country’s CDS surged to multi-year highs. The Brazilian banking and corporate sectors have been in a six-year debt fueled borrowing binge. It’s all coming home to roost.

  September 10 – Bloomberg (Michael J Moore): “Banco Bradesco SA and state-owned Banco do Brasil SA were among 13 financial-services firms in Brazil that had their global scale ratings lowered by Standard & Poor’s after the nation’s credit grade was cut to junk. The two banks were reduced to speculative grade with a negative outlook, S&P said… Itau Unibanco SA and Banco BTG Pactual also were among lenders that faced downgrades.”

   

  September 10 – Bloomberg (Denyse Godoy): “A plunge in Petroleo Brasileiro SA, the world’s most-indebted oil producer, to a 12-year low put the Ibovespa on pace for a second week of losses. The state-controlled company extended a three-day slide to 11% after Standard & Poor’s cut its credit rating to junk, adding to speculation it will struggle to shore up its balance sheet.”

  Many question how an EM crisis could possibly have a significant impact on U.S. markets. Well, for starters, Brazil has big financial institutions. The Brazilian financial sector has issued large amounts of dollar-denominated debt, while borrowing significantly from international banks. Enticing Brazilian yields have been a magnet for “hot money” flows. Now, Brazil faces the terrible prospect of a disorderly run from its currency, its securities market and its banking system. Market dislocation would have global ramifications for investors, derivative counterparties, multinational banks and the leveraged speculating community.

  The degree of market complacency remains alarming. The bullish view holds that Brazil, China and others retain sufficient international reserves to defend against crisis dynamics. But with EM currencies in virtual free-fall and debt market liquidity disappearing, it sure looks and acts like an expanding crisis.

  So far, it’s a different type of crisis – market tumult in the face of global QE, in the face of ultra-low interest rates and the perception of a concerted global central bank liquidity backstop. It’s the kind of crisis that’s so far been able to achieve a decent head of steam without causing much angst. And it’s difficult to interpret this bullishly. If Brazil goes into a tailspin, it will likely pull down Latin American neighbors, along with vulnerable Indonesia, Malaysia, Turkey and others. And then a full-fledged “risk off” de-risking/de-leveraging would have far-reaching ramifications, perhaps even dislocation and a collapse of the currency peg in China. China does have a number of major trading partners in trouble. Hard for me to believe the sophisticated players aren’t planning on slashing risk.

  

  

  

  

  

• Dollar Outlook Ahead of the FOMC Meeting

  There is much data that will be reported in the week ahead.  The US reports consumer prices, retail sales and industrial output figures. The eurozone reports industrial production and the final August CPI.  Germany’s ZEW will be released.  The UK reports consumer prices, the latest labor market readings and retail sales. Japan reports industrial production and trade figures.  

   

  However, the data is pales in comparison to the central bank meetings.  The focus is of course on the Federal Reserve, but the Bank of Japan and the Swiss National Bank also meet.   The general view in the market is that none of the central banks act.   Yet the risks abound.  

   

  The Swiss National Bank is the least likely to surprise.  Without much fanfare, the euro has steadily risen against the Swiss franc, and before the weekend reached its highest level (~CHF1.1050) since the franc’s cap was lifted back in January.  The SNB will say it is ready to act if needed but there is not sense of urgency at the moment.  Moreover, the record paper losses the SNB reported in H1 14 is being pared this quarter.  The Swiss franc has depreciated about 3.5% against the dollar since the end of June and 5.2% against the euro.  

   

  There is only a slightly greater chance that the BOJ moves.  Most who expect additional monetary stimulus see it coming next month rather than now.  With deflationary forces not convincingly defeated, inflation far from the goal, and economic growth patchy, many think the BOJ has to step up its unorthodox monetary easing.    If boosting the monetary base by JPY80 trillion a year is not sufficient, will growing it by JPY90 trillion really do the trick, as member of parliament and an adviser to Abe suggested last week?  

   

  BOJ Governor Kuroda is still sounding relatively upbeat.  He seems to be playing down the official core measure of CPI (which excludes fresh food), and seems to be placing more emphasis on the measure that excludes food and energy.   After spending the last few months on his controversial political agenda, Abe appears to returning to economic issues, and fiscal support for the economy, which could include a supplemental budget as early as next month.  Pending fiscal stimulus also argues against more monetary easing.  

   

  The Federal Reserve is really center stage.  The issues have been debated ad nauseum.  The Fed had seemed to be edging toward a hike next week before the recent Chinese developments, and the jump in capital market volatility.   Indeed the subsequent tightening of financial market conditions, and the slide in the US stock market, has been more associated with easing monetary policy, not tightening it.  

   

  What interests us here is the dollar’s technical condition ahead of the FOMC meeting. Simply stated, that technical condition is soft.  After losing against all the major currencies but the Japanese yen last week, the dollar’s heavy tone looks set to carry over into the week ahead. 

   

  The US Dollar Index retraced 38.2% of the rally from the August 24 low (~92.62) to the September 3 high (~96.62) at the end of last week.  The RSI and MACDs are pointing lower and the five-day moving average is poised to fall below the 20-day average.   A break of 95.00 now warns of a move to 94.60 and possibly 94.15.  

   

  This is similar to the euro, which has the largest weight in the Dollar Index.  The euro actually finished last week above a similar retracement (38.2%) , which came in a little above $1.1325.  The five-day average will likely cross above the 20-day average at the start of the new week.  The next immediate target is $1.1400, and then $1.1475.  A loss of the $1.1220-$1.1250 area signal a loss of the upside momentum.  

   

  The dollar is more clearly in a trading range against the yen.  Of note, the dollar has not closed above its 20-day moving average since August 18.  It is found now near JPY120.95. A move above there needs to overcome the JPY121.30 area to be important.   A minor shelf has been carved near JPY120, but better support may be found near JPY119.60. 

   

  Sterling snapped a nine-day losing streak and rallied 1.7% last week.  It tested the 20-day moving average (~$1.5465).  It too has retraced a little more than 38.2% o the losses from the last August spike (~$1.5420) and the early September low (~$1.5165).  The next objective (50% retracement) is just above $1.5492.  The 50- and 100-day moving averages around found in the $1.5515-$1.5525 range.   Soft inflation and retail sales data next week may be mitigated by an uptick in average weekly earnings and a generally healthy labor market report.  However, if the $1.5340 level goes, sterling may retest its recent lows.  

   

  The Australian dollar was the strongest of the major currencies last week.  It rose about 2.65% against the US dollar, and resurfaced above the monthly trend line that had been convincingly violated (~$0.7030 before slipped a little through $0.6900 at the start of last week).  It closed firmly and the technical indicators are favorable.  The 20-day moving average is near $0.7135, but there is potential toward $0.7170-$0.7200.  

   

  The Canadian dollar is not particularly interesting from a technical point of view.  The US dollar reached a multi-year high in late August (~CAD1.3555) and has moved sideways near is peak over the last couple of weeks.  This has neutralized the technical tools on which we rely.   The two current exogenous drivers are oil prices, which were net-net heavier last week, and the two-year interest rate differential, which saw the US premium narrow a couple basis points last week.  While this does not seem like much, according to Bloomberg it closed at its lowest level since late July (a little the than 24 bp).  Only a break of CAD1.3550 or CAD1.3120 would be noteworthy,  

   

  We would not expect 10-year US Treasuries to move much ahead of the outcome of the FOMC meeting.  Last week’s range of roughly 2.12%-2.25% will likely remain intact, barring a significant data surprise or a sharp increase in stock market volatility.  

   

  The November light sweet crude oil futures contract retraced 50% of its late-August through early-September run-up.  A break of the $44 are could spur another quick dollar drop to the 61.8% retracement that is found just below $43.   The November contract has not closed below its 20-day moving average (~$44.25) since August 27.   On the upside offers will likely come in around $47 the upper end of the recent range.  

   

  The technical condition of the S&P 500 looks encouraging.  The pre-weekend close was on the highs and the MACDs have turned higher.   However, it has failed to close above its 20-day moving average (~1979) since August 18.  Above there, re-establishing a foothold above 1985-2000 would encourage ideas that the correction is complete.   Initial support is seen near 1937.  

  

  

  

  

  

• Why Risk Parity Funds Are Unprepared For A Rate HIke

  Next week, Janet Yellen has a tough decision to make. 

  If the “diminutive” chairwoman dares to raise rates by a “massive” 25bps, she risks tightening into a tightening, so to speak. China’s bungled attempt to find an elusive middle ground between a free floating currency and a centrally managed currency has created a veritable nightmare scenario where market expectations for further devaluation are forcing the PBoC to stabilize the yuan by burning through FX reserves which, all things equal, should be generally expected to tighten global liquidity and put upward pressure on UST yields. Meanwhile, slumping commodity prices held down by a global economy that’s careening headlong into the deflationary doldrums have served to put enormous pressure on commodity currencies and that, combined with depressed Chinese demand and (ironically) long-running speculation about an imminent Fed hike, have emerging markets on the precipice of a meltdown, a decisively undesirable eventuality that will be virtually assured if the Fed hikes. 

  On the other hand, if the Fed doesn’t hike, it loses any last shred of credibility it had, and indeed, to the extent the conundrum described above was in part created by the Fed missing its window to normalize policy, failing to hike next week will only make the situation more acute as emerging markets will be even more confused as to when or even if the Fed will ever actually rip the band-aid off, and that confusion and uncertainty could make the situation worse even if the initial knee-jerk reaction to a hold would be a relief rally. 

  And then there’s the ever-present issue of just what the market will read into the decision. That is, a hold risks conveying the Fed’s concerns about the nascent “recovery” which, as we’ve seen, certainly isn’t up to par from an inflation expectations perspective even if fabricated BLS and BEA data paint a pretty picture from a jobs and output perspective, respectively. 

  So what – and this of course is all anyone will care about next week – is a Fed chair to do, you ask? According to Deutsche Bank, the most likely scenario is a “hawkish hold”, in which Yellen will telegraph the FOMC’s readiness to start the normalization process while admitting (if only tacitly) that circumstances have recently conspired to take September off the table. Here’s more: 

  The most likely alternative is the dirty relent or hawkish hold, whereby the Fed passes in September but October or December remain on the table. One potential signal of a hawkish hold is an announcement that the Fed will hold press conferences at all off-cycle meetings – this would significantly raise risks for an October hike. Additionally, a hawkish hold is less likely to generate dissents than a clean relent because the former leaves October and December as “live” meetings The dirty relent should keep flattening pressure on the curve with risk off dynamics – lower equities and commodities. 

  Then there’s the “clean relent” or, as we would characterize it, the “admission of being screwed” scenario in which Yellen holds, at which point nervous, erratic markets will be forced to determine whether Yellen is i) worried about the economy, which could trigger curve-flattening risk-off behavior or ii) confident in the data but just waiting on inflation expectations to stop doing the exact opposite of what they’re supposed to be doing, in which case everyone cheers more can-kicking and an equity rally ensues:

  The Fed [could adopt] a clean relent or dovish hold, in which the [FOMC] makes an explicit commitment to when they will hike, presumably in 2016, and presumably because of increased focus on inflation ex-shelter and international conditions. Even a clean relent will require careful communication – a clean relent could communicate concerns over the health of the expansion, or it could indicate a Fed that is reasonably confident on the data but is waiting for inflation dynamics to improve. The former would put equities at risk and would likely produce bullish flattening. The latter case is clearly a steepener, and would be bullish for equities. The Fed will be trying to fall somewhere in between such that rates remain stable and equities are stable to higher. A clean relent is likely to produce dissents. Lacker is a likely candidate for a dissent, but if, for example, Lockhart were to dissent as well the implication would be that Yellen and the doves are dominating – and dividing – the committee.

  Of course the Fed could also say to hell with it, throw caution to the wind, hike, and see what happens although, as Deutsche points out, expecting the market to take solace in the fact that any hike would likely be accompanied by a dovish bias is wishful thinking at best:

  Finally the Fed could raise rates. We remain skeptical that the market would quickly digest a “dovish hike”, whereby the FOMC raises rates but changes the dots to illustrate a lower rate trajectory, and would argue the market is more, not less, likely to increase pricing for December given a September hike. This would remove the anchor to short rates and opens scope for a rapid move to 1.25% 2s with the 2s5s curve flattening, equities lower, and short-dated implied volatility much higher and feeding back into cheaper risk. 

  And then there’s China, whose adjustment the Fed could, theoretically try to wait out in an effort to avoid exacerbating the dynamics associated with managing the new currency regime. That, Deustche Bank says, isn’t likely a good idea because as we’ve been at pains to explain since the yuan deval and actually since the petrodollar began to die, this is all just a global linked liquidity regime meaning it’s all inextricably connected:

  We have our doubts that the Fed can “wait out” China and hike once the currency and equity markets stabilize. This is because China’s currency adjustment and equity performance are in part functions of the Fed – a hike would put further upward pressure on the dollar and could cause an intensification of capital flight, additional intervention, and as a result a more rapid reduction in global liquidity.

  So ultimately, the punchline is that in reality, the Fed can really never hike. That is, at this point, hiking will always end up being a “policy error” where “error” means making a move that reverberates exponentially through centrally planned and increasingly interdependent and correlated markets. But while no time is a “good” time to make a mistake, some times are worse than others and as Deutsche Bank concludes, a September hike would be an example of really, really bad timing:

  There might never be a good time to hike, but there are definitely bad times, and this is one. September month-end marks not only quarter end, but the last reference date in determining capital charges for global systemically important banks from wholesale funding exposures. Liquidity is poor and unlikely to improve until the beginning of Q4. Liquidity is an important additional impediment to a hike, particularly because markets settled last week with the implied probability of a September move at just under 30%. We think that the taper tantrum of 2013 is a reasonable point of reference for how financial conditions might tighten given a hawkish surprise – they could get much worse. Our simulations of risk-parity strategies suggest rebalancing away from equities and commodities, due to both increased volatility in these asset classes and elevated correlation between them. The implication is that risk- parity strategies could amplify underperformance of these assets given a shock from the Fed, China, or both.

  Finally, if you read all of the above carefully and came away suspecting that if the Fed does hike, everything might sell off at once, you’d be correct, which brings us to Deutsche Bank’s rather disquieting conclusion, namely that there will be nowhere to hide in a market where everything has become correlated and thanks to the growing role of risk-parity in perpetuating selloffs, that correlation could send funds fleeing to the only thing not moving in the “wrong” direction, namely the dollar and that, in turn, would only serve to exacerbate the deleterious effects of Yellen’s “error”:

  A “policy error” rate hike might well result in positive correlations among equities, commodities and bonds, due to a combination of risk off and higher rates. In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar, which could be the only game in town. Of course, this would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike via additional traded goods price deflation (including commodities), weakness in net exports, and exacerbating pressure on dollar peggers.

  

  

  

  

  

• Ex-NYSE Chief Admits "It's Not A Fair Market… It's Bad For The Country"

  When a digital dickweed exposes the reality "the equity markets are broken," it can be shrugged off as the rantings of a kid in his mom's basement. When an experienced investigative writer claims "the markets are rigged," it is drowned out with mainstream media propaganda forcing words like liquidity and cost-effective-ness to hide the truth. But when Dick Grasso, the former head of the NYSE says Black Monday's flash-crash exposes the reality that "it's not a fair market," it is going to be hard to regain the collapsed confidence of an investor-class multiple-times-burned by an ever more arrogant group of 'operators' on Wall Street.

   

  Here is what we have been saying for years (and most recently here)…

  If HFTs did anything, it was merely to frontrun the buy orders once the selling wave – halted thanks to limit downs being hit – had exhausted itself, and the buying scramble was unleashed around 9:35am leading to a 5% move in less than 10 minutes! It was here that Virtu made its colossal profits, however not from taking the least amount of risk, but merely from frontrunning order flow into a stil chaotic market with gargantuan bid-ask spreads, which incidentally not only does not provide liquidity, but reduces it as it competes with other buy offers for any market offers, also known as "providers" of liquidity, only to immediately flip the transaction to those buyers which Virtu knew with 100% certainty were just behind it. In any other market this would be illegal, except for one in which Reg NMS has made such frontrunning perfectly legal (courtesy of billions spent by the same HFTs who now benefit from it).

  And, as The Wall Street Journal reports, former NYSE head Dick Grasso agrees…

  Regulation NMS, which stands for national market system and was designed to link all the U.S. markets, was a “sad, sad experiment.”

   

  The regulation, which was passed by the Securities and Exchange Commission in 2005 and implemented in 2007, was designed to ensure investors got the best price available on any public U.S. market. It knitted together all the exchanges and trading venues across the country to create a single, though disparate, market. It required transactions be conducted at the “national best bid or offer,” meaning each venue had to continuously check the prices available at competitors to verify a transaction was compliant. It also meant the NYSE no longer had a monopoly on trading in its own listed stocks, helping spur a host of competitors.

   

  The rules contributed to market hiccups like last month’s swings because they allowed for a major expansion in the number of places where stocks could trade, he said.

   

  “No one anticipated 60 different venues where an IBM or a Microsoft trades,” he said during the television interview.

  Mr. Grasso told the Journal that he recommends a broad-based review of the markets as a first step toward addressing the problems he sees…

  “A fast market is not necessarily a fair market, as evidenced by that Monday open,” he said in a clip of the interview viewed by The Wall Street Journal, referring to the tumultuous early trading on Aug. 24.

   

  The action that day has drawn scrutiny from regulators, exchanges, institutions and everyday investors—and sparked discussions about how to tweak the market to prevent similar problems. There were nearly 1,300 trading halts, most of them in the first part of the day, and some stocks dropped rapidly before recouping losses in a matter of minutes.

   

  “Frankly, some of the things that went on that day need very close scrutiny,” Mr. Grasso said in an interview Friday with the Journal. “A day like that, where Facebook’s shares go from $86 to $72 to $84 in a matter of minutes will cause the public to lose confidence in the markets.”

  We leave it to Mr. Grasso to conclude, rather more honestly and ominously than we are used to for anyone 'in' the club…

  “Creating an advantage to an institutional user or a particular type of trader that disadvantages the retail investor is bad for the country, bad for the markets and bad for your business."

  

  

  

  

  

• Forget The Greek Crisis, Immigration Will Divide Europe Against Itself

  Submitted by Ryan McMaken via The Mises Institute,

  Europe has complex immigration rules. As the EU web site shows, there are multiple layers of immigration regulations encompassing both the local national level and the EU level.

  But, as the recent influx of refugees and economic migrants has shown, the EU government is able to flex its  muscle in an ad hoc fashion in the service of compelling member states to accept the migrants and refugees. The "quota plan" being forwarded by the EU government would divide up migrants and refugees among the EU member states, and, of course, over time, these migrants would qualify for those member states' taxpayer funded public benefits. In Germany, for example, officials "estimate that as many as 460,000 more people could be entitled [next year] to social benefits."

  Big Countries vs. Little Ones 

  The proposal could become a mandate if approved by a "qualified majority" of EU member governments, a type of majority that is weighed in favor of the larger members. Most of those larger members are in favor. If adopted, however, one doesn't need to be exceptionally perceptive to see how mandates apposed on dissenting member states could be a source of significant division among member states, and especially, their populations.

  Writing in the UK independent yesterday, John Lichfield avers:

  North vs south; east vs west; Britain vs the rest; German leadership or German dominance. The refugee crisis is like a diabolical stress test devised to expose simultaneously all the moral and political fault lines of the European Union.

  Germany leads to way in calling for more migrants. While part of it is no doubt Germany's ongoing attempt to rehabilitate itself from its fascist past,  there may be other considerations as well. Claire Groden in Fortune notes:

  Germany has one of the world’s most rapidly aging and shrinking populations. With one of the world’s lowest birthrates, the country relies on immigration to plug a growing workforce hole. According to one expert quoted in Deutsche Welle last year, the German economy needs to attract 1.5 million skilled migrants to stabilize the state pension system as more Germans retire…According to current official estimates, every third German could be over 65 by 2060, leaving two workers to support each retiree.

  Indeed, demographic issues such as these are surely part of the calculus for member states.The German government has likely weighted the benefits of new young workers against the possibility against the cost of those 460,000 new residents. But for other countries less desperate to save an overextended public pension system,  they see mostly costs when it comes to more migrants and refugees.There is a real divide here between Western Europe (especially Germany and Italy) and Eastern Europe (especially Poland and Slovakia) in terms of the percentage of the population that is over 65.

  But the divide between different member states, as described by Lichfield, surely goes well beyond this. There are issues of relative wealth to deal with as well. The Germans are rich compared to the Poles, for example, who have already announced they will take refugees but no economic migrants.

  The British, who have never gone all-in on the EU seek to maintain control over their own immigrant policy.

  But in all these cases, those who are less powerful within the EU are likely to resent taking orders from politicians in Brussels who assert they can direct local policy more effectively than the locals. Yes, the Germans, French, and Italians, who from the largest voting blocs, feel they can reach an agreement that will be good for "everyone." The smaller, less powerful countries — with good reason — aren't so sure. And were each country free to set its own policy, conflict among the member states would be minimized, but problems arise when Germany, which sees benefits (whether intangible or otherwise) can impose obligations on other member states.

  Local vs. Supranational

  This isn't to say that national/local policy will always be superior to EU policy. However, there is also no reason to assume national/local policy will be worse.
   
  From a laissez-faire perspective, there are good practical reasons to guess that locally based policy will most reflect local realities. Yes, ideally, only private owners will have say over how property is used. That is, refugees and migrants would only have places to go if private owners, including churches and civic organizations, provided a place for them to live and work. This is what the "blue card" option is designed to maximize.

  The private-sector situation is complicated by the presence of a state, but government policy tends to become most untenable the farther it gets from the the most localized level possible. An immigration policy decided at the municipal level, for example, is more likely to reflect the local needs and economic realities of the population. As we move upward, however, policy becomes ever more un-moored from the local economic, geographic, and demographic realities. Once you've reached the supra-national level of an organization like the EU, you're now dealing almost solely in the abstract and dealing with only a tiny number of representatives standing in for an immense population that will be affected by policy decisions. In other words, you've massively centralized and aggregated the knowledge necessary to assess the situation. Thus, good assessments become unlikely.

  As I (and many others) have noted before, countries with waiting migrants should try the "blue card" experiment.  Make the border open to anyone who agrees to never be eligible for social benefits. If he (or she) agrees, he may forever work or live anywhere the private sector will accept him. Then we'll see how long the line remains.  Of course, I won't be holding my breath until the EU endorses that one. Rather than turn to the private sector, the EU will simply insist on racheting up centralized control and top-down regulation of the workforce and population.

  In this situation, then, some member states may decide they are being bullied by Germany and other large states, which have not considered the true reality on the ground in the member states are are subject to the whims of policymakers in Brussels.  And the perception will arise that costs (in the form of new migrants) are being imposed on other member states. Economists will argue over the true tangible or intangible cost or benefit of new migrants, but what will be important here will be the perception of powerlessness among the smaller member states and their populations.

  The locals then become likely to push back. As Lichfield notes:

  And yet this crisis seems more profound, more acute, more tangled, more poisonous, than any that has gone before. It is not about currencies or net contributions or farm subsidies but about the core issues of common humanity and solidarity that the EU claims to epitomise…

  As it struggles with its greatest ever humanitarian test, the EU is in danger of being wrenched apart. Outright break-up is improbable. More likely there will be an acrimonious acceleration of the existing trend towards scission into a “core” and “periphery” – with Britain and Eastern Europe left in an outer or second division.

  Ultimately, the imposed "solutions" to the migrant and refugee crisis may be a signal to many members that the EU isn't quite what they thought it was.

  

  

  

  

  

• Shale Oil's "Dirty Little Secret" Has Been Exposed

  On Friday, on the way to diving into Goldman’s $20 crude call, we recapped our characterization of low crude prices as a battle between the Fed and the Saudis, a battle which is now manifesting itself in budget troubles in Riyadh and a concurrent FX reserve burn. Here’s what we said:

  When Saudi Arabia killed the petrodollar late last year in a bid to bankrupt the US shale space and secure a bit of leverage over the Russians, the kingdom may or may not have fully understood the power of ZIRP and the implications that power had for struggling US producers. Thanks to the fact that ultra accommodative Fed policy has left capital markets wide open, the US shale space has managed to stay in business far longer than would otherwise have been possible in the face of slumping crude. That’s bad news for the Saudis who, after burning through tens of billions in FX reserves to help plug a yawning budget gap, have now resorted to tapping the very same accommodative debt markets that are keeping their competition in business as a fiscal deficit on the order of 20% of GDP looms large.

  Still, as we went on to point out, it looks like the Saudis have dug in for the long haul here and the strain on non-OPEC production is starting to show as the IEA now says “the latest tumble in the price of oil is expected to cut non-OPEC supply in 2016 by nearly 0.5 million barrels per day (mb/d) – the biggest decline in more than two decades, as lower output in the United States, Russia and North Sea is expected to drop overall non-OPEC production to 57.7 mb/d.” 

  “US light tight oil, the driver of US growth, is forecast to shrink by 0.4 mb/d next year,” the agency adds.

  Still, the Saudis know that the war is still far from won, which again is why the kingdom is now borrowing to supplement the use of their petrodollar reserves. But as we’ve documented in great detail, the Saudis face a unique set of challenges when it comes to managing fiscal spending. The cost of maintaining the average Saudi’s lifestyle as well as the cost of financing one (and soon two) proxy wars translates to a tremendous amount of budget pressure. Add in defending the riyal peg and you have yourself a problem. So even as the Saudis have ample room to borrow (debt-to-GDP is negligible at present), Riyadh would rather US production fold sooner rather than later and with the next round of revolver raids coming up in October, and with the bond market set to cast a wary eye towards HY going forward, the kingdom just might get its wish. Citi has more on shale’s “dirty little secret”:

  Easy access to capital was the essential “fuel” of the shale revolution. But too much capital led to too much oil production, and prices crashed. The growth of North American shale a critical underlying factor in the oil market “regime change” from a $100/bbl world until 2014 to a sub-$50/bbl world today (see Oil and Trouble Ahead in 2015 ). Saudi Arabia’s shift to defending market share rather than price decisively confirmed this new reality. Above $100/bbl, returns to shale investment are so attractive that the kingdom realized it could not sustain its historical strategy of propping up prices or shale would simply erode its market share. As a result, the oil markets returned to competitive economics not seen for decades. And the economics of shale in particular are now set to be a decisive factor in balancing global oil markets and setting global prices.

   

  The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow. In the aggregate North American crude producers do not generate positive free cash flow (Figure 1), although some stronger producers do.

   

  Capex has consistently exceeded cash flow, causing some prominent critics to argue the business model of shale production is fundamentally unsustainable.

   

  

   

  Capital markets plugged shale’s “funding gap” from 2009 through the first half of 2015, but they are now tightening, reducing access to liquidity for some producers and shaping their ability to drill. With eight bankruptcies already announced this year, weaker producers may live or die by the whims of capital providers. The sector is by no means homogenous, but those producers with poor asset quality, high leverage, little hedging protection, and/or dwindling free cash flow look most exposed.

   

  

   

  If OPEC traditionally set the marginal supply and served as a coordinated price setting mechanism, capital markets are becoming a new balancing mechanism: a set of highly dynamic, diffuse investment decisions that shape shale production and a large portion of the global marginal supply. Shale oil financing and production is different from what the oil market had become accustomed to over the past few decades. In particular, shale 1) is produced by many smaller, innovative producers who depend on capital markets for financing; 2) is a faster drilling process with smaller, more discrete investment decisions that respond more quickly to market conditions. These factors accelerate the classic commodity cycle of high prices leading to over-investment, which crashes prices, then leading to underinvestment, which raises prices, starting the cycle again. 

   

  

  So what’s the endgame, you ask? According to Citi, “two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” 

  Got it. So essentially, with HY all but closed, banks re-evaluating credit lines, and the cost of funding set to rise, there are essentially only three options: liquidation of assets, tap the dumbest of the dumb money by selling more shares, or else throw in the towel. 

  Of course there’s another possibility: oil prices rise sharply. And while everyone seems to think that’s highly unlikely, the irony of ironies here is that if Saudi Arabia continues to beat the war drums in Yemen and Syria, Riyadh could end up being shale’s savior.

  

  

  

  

  

• Two Clear Signs That the Political/ Financial Elite Know Another Crisis is Coming

  The Powers That Be know another Crisis is coming.

   

  Behind the veneer of “all is well” being promoted by both world Governments and the Mainstream Media, the political and financial elite have begun implementing moves to prepare for the next Crisis.

   

  One of the clearest is the decision to accept physical Gold bullion as collateral for “paper trades.”

   

  The vast majority of “wealth” in the financial system is digital in nature. Because of this, when the next Crisis hits, there will be a scramble for actual “money” because the fact of the matter is a lot of the derivatives and other digital forms of currency are in fact worthless.

   

  Consider that the large clearing houses (ICE, CEM and LCH which oversee the trading of the $700+ trillion derivatives market) ALL began accepting Gold as collateral back in 2012.

   

  From 28 August 2012 unallocated Gold (Loco London) will be accepted by LCH.Clearnet Limited (LCH.Clearnet) as collateral for margin cover purposes.

   

  This addition to acceptable margin collateral will be subject to the following criteria;

   

  Available for members clearing OTC precious metals forwards (LCH EnClear Precious Metals division) or precious metals contracts on the Hong Kong Mercantile Exchange. Acceptable to cover margin requirements for all markets cleared on both House and ‘Segregated’ omnibus Client accounts.

   

    Source: LCH Clearnet.

   

  CME Clearing Europe will accept physical gold as collateral, extending the list of assets it’s prepared to receive as regulators globally push more derivatives trading through clearing houses.

   

  CME Group Inc. (CME)’s European clearing house, based in London, appointed Deutsche Bank AG (DBK), HSBC Holdings Plc and JPMorgan Chase & Co. as gold depositaries. There will be a 15 percent charge on the market value of gold deposits and a limit of $200 million or 20 percent of the overall initial margin requirement per clearing member based on whichever is lower, Andrew Lamb, chief executive officer of CME Clearing Europe, said today.

   

  “We started with a narrow range of government securities and are now extending that,” Lamb said in an interview today. “We recognize there will be a massive demand for collateral as a result of the clearing mandate. This is part of our attempt to maintain the risk management standard and to offer greater flexibility to clearing members and end clients.”

   

  Source: Bloomberg.

   

  China just joined this strategy last week:

   

  China's Shanghai Gold Exchange said it will allow physical gold to be used as collateral on futures contracts from Sept. 29, according to a statement posted on its website on Thursday.

   

  Physical gold will be permitted to be used for up to 80 percent of margin value, according to the statement. (Reporting by Meng Meng and Aizhu Chen; Editing by Subhranshu Sahu)

   

              Source: Reuters

   

  These are clear signals that the large financial firms are aware that most derivtiuves (futures, options etc) will be worthless during the next Crisis.

   

  Another sign that the Powers That Be know something nasty is approaching comes from recent legislation being implemented to make it much harder to move money into physical cash.

   

  If you find difficulty in taking my word for this, consider the recent regulations implemented by SEC to stop withdrawals from happening should another crisis occur.

   

  The regulation is called Rules Provide Structural and Operational Reform to Address Run Risks in Money Market Funds. It sounds relatively innocuous until you get to the below quote:

   

  Redemption Gates – Under the rules, if a money market fund’s level of weekly liquid assets falls below 30 percent, a money market fund’s board could in its discretion temporarily suspend redemptions (gate).  To impose a gate, the board of directors would find that imposing a gate is in the money market fund’s best interests.  A money market fund that imposes a gate would be required to lift that gate within 10 business days, although the board of directors could determine to lift the gate earlier.  Money market funds would not be able to impose a gate for more than 10 business days in any 90-day period…

   

  Also see…

   

  Government Money Market Funds – Government money market funds would not be subject to the new fees and gates provisions.  However, under the proposed rules, these funds could voluntarily opt into them, if previously disclosed to investors.

   

  Source: Sec.gov

   

  In simple terms, if the system is ever under duress again, Money market funds can lock in capital (meaning you can’t get your money out) for up to 10 days. If the financial system was healthy and stable, there is no reason the regulators would be implementing this kind of reform.

   

  This is just the start of a much larger strategy of declaring War on Cash.

   

  Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

   

  We detail this paper and outline three investment strategies you can implement

  right now to protect your capital from the Fed's sinister plan in our Special Report

  Survive the Fed's War on Cash.

   

  We are making 100 copies available for FREE the general public.

   

  To lock in one of the few remaining copies…

  Click Here Now!!!

   

  Best Regards

  Phoenix Capital Research

   

   

   

   

   

   

  

  

  

  

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• Paul Craig Roberts: 9/11 Fourteen Years Later

  Authored by Paul Craig Roberts,

  Millions of refugees from Washington’s wars are currently over-running Europe. Washington’s 14-year and ongoing slaughter of Muslims and destruction of their countries are war crimes for which the US government’s official 9/11 conspiracy theory was the catalyst. Factual evidence and science do not support Washington’s conspiracy theory. The 9/11 Commission did not conduct an investigation. It was not permitted to investigate. The Commission sat and listened to the government’s story and wrote it down. Afterwards, the chairman and co-chairman of the Commission said that the Commission “was set up to fail.” For a factual explanation of 9/11, watch this film:

   

  Here is a presentation by Pilots For 9/11 Truth:

  And here is an extensive examination of many of the aspects of 9/11.

  Phil Restino of the Central Florida chapter of Veterans For Peace wants to know why national antiwar organizations buy into the official 9/11 story when the official story is the basis for the wars that antiwar organizations oppose. Some are beginning to wonder if ineffectual peace groups are really Homeland Security or CIA fronts?

  The account below of the government’s 9/11 conspiracy theory reads like a parody, but in fact is an accurate summary of the official 9/11 conspiracy theory. It was posted as a comment in the online UK Telegraph on September 12, 2009, in response to Charlie Sheen’s request to President Obama to conduct a real investigation into what happened on September 11, 2001.

  *  *  *

  The Official Version of 9/11 goes something like this:

  ??Directed by a beardy-guy from a cave in Afghanistan, nineteen hard-drinking, coke-snorting, devout Muslims enjoy lap dances before their mission to meet Allah. ??Using nothing more than craft knifes, they overpower cabin crew, passengers and pilots on four planes.

  ??And hangover or not, they manage to give the world’s most sophisticated air defence system the slip. ??

  Unfazed by leaving their “How to Fly a Passenger Jet” guide in the car at the airport, they master the controls in no-time and score direct hits on two towers, causing THREE to collapse completely. ??

  The laws of physics fail, and the world watches in awe as asymmetrical damage and scattered low temperature fires cause steel-framed buildings to collapse symmetrically through their own mass at free-fall speed, for the first time in history.

  ??Despite their dastardly cunning and superb planning, they give their identity away by using explosion-proof passports, which survive the destruction of steel and concrete and fall to the ground where they are quickly discovered lying on top of the mass of debris.

  Meanwhile in Washington

  ??Hani Hanjour, having previously flunked Cessna flying school, gets carried away with all the success of the day and suddenly finds incredible abilities behind the controls of a jet airliner. ??Instead of flying straight down into the large roof area of the Pentagon, he decides to show off a little. ??Executing an incredible 270 degree downward spiral, he levels off to hit the low facade of the Pentagon. ?Without ruining the nicely mowed lawn and at a speed just too fast to capture on video.

  ??In the skies above Pennsylvania ??

  Desperate to talk to loved ones before their death, some passengers use sheer willpower to connect mobile calls that would not be possible until several years later.

  ??And following a heroic attempt by some to retake control of Flight 93, the airliner crashes into a Pennsylvania field leaving no trace of engines, fuselage or occupants except for the standard issue Muslim terrorist bandana.

  ??During these events

  ??President Bush continues to read “My Pet Goat” to a class of primary school children.?

  In New York

  ??World Trade Center leaseholder Larry Silverstein blesses his own foresight in insuring the buildings against terrorist attack only six weeks previously. ?

  In Washington

  The Neoconservatives are overjoyed by the arrival of the “New Pearl Harbor,” the necessary catalyst for launching their pre-planned wars.

  

  

  

  

  

• Visualizing China's Mind-Boggling Consumption Of The World's Raw Materials

  Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.

   

  

  Courtesy of: Visual Capitalist

   

  The country consumes a big proportion of the world’s materials used in infrastructure. It consumes 54% of aluminum, 48% of copper, 50% of nickel, 45% of all steel, and 60% of concrete. In fact, the country has consumed more concrete in the last three years than the United States did in all of the 20th century.

   

  China is also prolific in accumulating precious metals – the country buys or mines 23% of gold and 15% of the world’s silver supply.

   

  With many mouths to feed, China also needs large amounts of food. About 30% of rice, 22% of corn, and 17% of wheat gets eaten by the Chinese.

   

  Lastly, the country is no hack in terms of burning fuel either. Notably, China uses 49% of coal for power generation as well as metallurgical processes in making steel. It also uses 13% of the world’s uranium and 12% of all oil.

  These facts really hit home to show how important China is to the global consumption of raw materials. If China is unable to navigate its tricky transition to a consumer-driven economy and has a “hard landing”, it will be unlikely to see any growth in commodity prices triggered from the demand side. That said, supply is equally as important and it tells a different story: with companies like Glencore cutting copper production by 400,000 tons to better service its massive debt, the floor for commodities could be in.

  

  

  

  

  

• The Human Cost Of Socialism In Power

  Submitted by Richard Ebeling via EpicTimes.com,

  The attempt to establish a comprehensive socialist system in many parts of the world over the last one hundred years has been one of the cruelest and most brutal episodes in human history.

  Some historians have estimated that as many as 200 million people may have died as part of the dream of creating a collectivist “Paradise on Earth.” Making a better “new world” was taken to mean the extermination, the liquidation, the mass murder of all those that the socialist revolutionary leaders declared to be “class enemies,” including the families, the children of “enemies of the people.”

  The Bloody Road to Making a New Socialist Man

  We will soon be marking the hundredth anniversary of the Bolshevik Revolution in Russia (November 1917) under the Marxist revolutionary leader, Vladimir Lenin. In Soviet Russia, alone, it has been calculated by Russian and Western historians who had limited access to the secret archives of the Communist Party of the Soviet Union and the KGB (the Soviet secret police) in the 1990s, that around 68 million innocent, unarmed men, women and children were killed over the nearly 75 years of communist rule in the Soviet Union.

  The communist revolutionaries in Russia proudly declared their goal to be destruction and death to everything that existed before the revolution, so as to have a clean slate upon which to mold the new socialist man.

  The evil of the Soviet system is that it was not cruelty for cruelty’s sake. Rather it was cruelty for a purpose – to make a new Soviet man and a new Soviet society. This required the destruction of everything that had gone before; and it also entailed the forced creation of a new civilization, as conjured up in the minds of those who had appointed themselves the creators of this brave new world.

  In the minds of those like Felix Dzerzhinsky, Lenin’s close associate and founder of the Soviet secret police, violence was an act of love. So much did they love the vision of a blissful communist future to come that they were willing to sacrifice all of the traditional conceptions of humanity and morality to bring the utopia to fruition.

  Thus, in a publication issued in 1919 by the newly formed Soviet secret police, the Cheka (later the NKVD and then the KGB), it was proclaimed:

  “We reject the old systems of morality and ‘humanity’ invented by the bourgeoisie to oppress and exploit the ‘lower classes.’ Our morality has no precedent, and our humanity is absolute because it rests on a new ideal. Our aim is to destroy all forms of oppression and violence. To so, everything is permitted, for we are the first to raise the sword not to oppress races and reduce them to slavery, but to liberate humanity from its shackles . . .

   

  “Blood? Let blood flow like water! Let bloodstain forever the black pirate’s flag flown by the bourgeoisie, and let our flag be blood-red forever! For only through the death of the old world can we liberate ourselves from the return of those jackals.”

   

  

  Death and Torture as Tools of Winning Socialism

  The famous sociologist, Pitirim A. Sorokin was a young professor in Petrograd (later Leningrad, and now St Petersburg) in 1920 as the Russian Civil War that firmly established communist rule in Russia was coming to its end. He kept an account of daily life during those years, which he published many years later under the title, Leaves from a Russian Diary – and Thirty Years After (1950).

  Here is one of his entries from 1920:

  “The machine of the Red Terror works incessantly. Every day and every night, in Petrograd, Moscow, and all over the country the mountain of the dead grows higher . . . Everywhere people are shot, mutilated, wiped out of existence . . .

   

  “Every night we hear the rattle of trucks bearing new victims. Every night we hear the rifle fire of executions, and often some of us hear from the ditches, where the bodies are flung, faint groans and cries of those who did not die at once under the guns. People living near these places begin to move away. They cannot sleep . . .

   

  “Getting up in the morning, no man or woman knows whether he will be free that night. Leaving one’s home, one never knows whether he will return. Sometime a neighborhood is surrounded and everyone caught out of his house without a certificate is arrested . . . Life these days depends entirely on luck.”

  This murderous madness never ended. In the 1930s, during the time of the Great Purges instituted by Soviet dictator Josef Stalin to wipe out all “enemies of the revolution” through mass executions, there were also sent millions to the GULAG prisons that stretched across all of the Soviet Union to be worked to death as slave labor to “build socialism.”

  Before being sent to their death or to the forced labor camps, tens of thousands would be interrogated and cruelly tortured to get confessions out of people about non-existent crimes, imaginary anti-Soviet conspiracies, and false accusations against others.

  Stalin personally sent instructions to the Soviet secret police that stated that in obtaining confessions from the accused, “the NKVD was given permission by the Central Committee [of the Communist Party] to use physical influence … as a completely correct and expedient method” of interrogation.

  When Stalin was told that this method was bringing forth the desired results, he told the NKVD interrogators, “Give them the works until they come crawling to you on their bellies with confessions in their teeth.” Then, in another purge, this one after World War II, Stalin simplified the instructions even more: “Beat, beat and, once again, beat.”

  Thousands of the victims wrote letters to Stalin from their exile and hardships in the labor camps, all of them persuaded that it had all been a terrible mistake. If only Comrade Stalin knew, he would set it all right and they would be freed and restored as good, loyal Soviet citizens ready to once again work to “build socialism.”

  

  Stalin’s Personal Hand in Building Socialism Through Blood

  But Stalin knew. He personally signed off on tens of thousands of death warrants and orders for tens of thousands more to be sent to their horrifying fate in the GULAG camps.

  Domitri Volkogonov, a Soviet general-turned-historian, gained access to many of the closed Soviet archives in the 1980s, and wrote a biography of Stalin, entitled, Triumph and Tragedy (1991), meaning Stalin’s “triumph” to power and the resulting “tragedy” for the Soviet people. Volkogonov told a Western correspondent at the time:

  “I would come home from working in Stalin’s archives, and I would be deeply shaken. I remember coming home after reading through the day of December 12, 1938. He signed thirty lists of death sentences that day, altogether about five thousand people, including many he personally knew, his friends . . .

   

  “This is not what shook me. It turned out that, having signed these documents, he went to his personal theater very late that night and watched two movies, including “Happy Guys,” a popular comedy of the time. I simply could not understand how, after deciding the fate of several thousand lives, he could watch such a movie.

   

  “But I was beginning to realize that morality plays no role for dictators. That’s when I understood why my father was shot, why my mother died in exile, why millions of people died.”

  Soviet central planning even had quotas for the number of such enemies of the people to be killed in each region of the Soviet Union as well as the required numbers to be rounded up to be sent to work in the labor camps in the frigid waste lands of the Siberia and the Arctic Circle or the scorching deserts of Soviet Central Asia.

  A Russian lawyer who had access to some of the formerly closed Soviet archives of the Central Committee of the Communist Party of the Soviet Union in the 1990s told at the time:

  “Recently I read a Central Committee document from 1937 that said the Voronezh secret police, according to the ‘regional plan,’ repressed in the ‘first category,’ nine thousand people – which means these people were executed. And for no reason, of course.

   

  “Twenty-nine thousand were repressed in the ‘second category – meaning they were sent to labor camps. The local first secretary [of the Communist Party], however, writes that there are still more Trotskyites and kulaks who remain ‘unrepressed.’

   

  “He is saying that the plan was fulfilled but the plan was not enough! And so he asked that it be increased by eight thousand. Stalin writes back, ‘No increase to nine thousand!’ The sickness of it. Its’ as if they were playing poking [and upping the ante in tragic human lives].”

   

  

  The Victims of Socialism Literally Reduced to Burnt Ash

  In the last years of the Soviet Union, a Russian historian took The New York Times correspondent, David Remnick, to the Donskoi Monastery in Moscow, which in the 1930s was used as a burial ground for the thousands regularly killed on Stalin’s orders in the capital of the Red Empire. In his book, Lenin’s Tomb: The Last Days of the Soviet Empire (1993), Remnick told what the Russian historian explained:

  “See this gate? . . . Well, every night trucks stacked with bodies came back here and dumped them in a heap. They’d already been shot in the back of the head – you bleed less that way . . . They stacked the bodies in old wooden ammunition crates.

   

  “The workers stoked up the underground ovens – right in through the doors – to about twelve thousand degrees centigrade. To make things nice and official they even had professional witnesses who counter-signed the various documents.

   

  “When the bodies were burned they were reduced to ash and some chips of bone, maybe some teeth. They then buried the ashes in a pit . . . When the purges [of the 1930s] were at their peak . . . the furnaces worked all night and the domes of the churches were covered with ash. There was a fine dust of ash on the snow.”

  The Kalitnikovsky Cemetery in Moscow also served as dumping ground for thousands of tortured and executed bodies in the 1930s. That same Russian historian told David Remnick:

  “In the purges, every dog in town came to this place. That smell you smell now was three times as bad; blood was in the air. People would lean out of their windows and puke all night and the dogs howled until dawn. Sometimes they’d find a dog with an arm or a leg walking through the graveyard.”

   

  

  Enemies of Socialism Sent to Torture in the Mental Ward

  The nightmare of the socialist experiment, however, did not end with Stalin’s death in 1953. Its form merely changed in later decades. As head of the KGB in the 1970s, Yuri Andropov (who later was General Secretary of the Communist Party of the Soviet Union after Leonid Brezhnev’s death in 1982), accepted a new theory in Soviet psychiatry that said that opposition to the socialist regime was a sign of mental illness.

  Why? Because only the mentally disturbed would resist the logic and the truth of Marxian dialectical determinism and its “proof” that socialism and communism were the highest and most humane stage of social development. Those who criticized the system, or who wanted to reform or overthrow the Soviet socialist regime were mentally sick and required psychiatric treatment.

  In his book, Russia and the Russians (1984), former Moscow correspondent for the Washington Post, Kevin Klose, told the story of Alexei Nikitin, a coal mine worker who complained to the Soviet government about the safety and health environment in the mines of the Soviet Union. He was arrested, tried, and found guilty of subversion and committed to a Soviet mental institution.

  Various drugs were proscribed as treatment to bring him to his proper socialist senses. Explained Kevin Klose:

  “Of all the drugs administered [at the mental institution] to impose discipline, sulfazine stood at the pinnacle of pain . . . ‘People injected with sulfazine were groaning, sighing with pain, cursing the psychiatrists and Soviet power, cursing with everything in their hearts,’ Alexei told us. ‘The people go into horrible convulsions and get completely disoriented. The body temperature rises to 40 degrees centigrade [104 degrees Fahrenheit] almost instantly, and the pain is so intense they cannot move from their beds for three days. Sulfazine is simply a way to destroy a man completely. If they torture you and break your arms, there is a certain specific pain and you somehow can stand it. But sulfazine is like a drill boring into your body that gets worse and worse until it’s more than you can stand. It’s impossible to endure. It is worse than torture, because, sometimes, torture may end. But this kind of torture man continue for years.’

   

  “Sulfazine normally was ‘prescribed’ in a ‘course’ of injections of increasing strength over a period that might last up to two months . . . The doctors had many other drugs with which to control and punish. Most of them eventually were used on Alexei . . . At the end of two months, Nikitin was taken off sulfazine but regular doses of . . . other disorienting drugs continued the entire time he was imprisoned.”

  The significance of these accounts is not their uniqueness but, rather, their monotonous repetition in every country in which socialism was imposed upon a society. In country after country, death, destruction, and privation followed in the wake of socialism’s triumph. Socialism’s history is an unending story of crushing tyranny and oceans of blood.

  

  Socialism as the Ideology of Death and Destruction

  As the Soviet mathematician and dissident, Igor Shafarevich, who spent many years in the GULAG slave labor camps for his opposition to the communist regime, said in his book, The Socialist Phenomenon (1980):

  “Most socialist doctrines and movements are literally saturated with the mood of death, catastrophe, and destruction . . . One could regard the death of mankind as the final result to which the development of socialism leads.”

  That twentieth century socialism would lead to nothing but this outcome was understood at the time of the Bolshevik victory in Russia. It was clearly expressed by the greatest intellectual opponent of socialism during the last one hundred years, the Austrian economist, Ludwig von Mises.

  Near the end of his famous 1922 treatise, Socialism: An Economic and Sociological Analysis, Mises warned that:

  “Socialism is not in the least what is pretends to be. It is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build, it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created . . . Each step leading towards Socialism must exhaust itself in the destruction of what already exists.”

  When voices are raised today calling for socialism in America, including by those attempting to win a major party candidacy to run for the presidency of the United States, it is important – no, it is crucial – that the history and reality of socialism-in-practice in those parts of the world in which it was most thoroughly imposed and implemented be remembered and fully understood. If we do not, well, history has its own ways of repeating itself.

  

  

  

  

  

• The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

  Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner?

  This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable.

  

  Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it’s moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters:

  China’s push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable.

   

  A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI).

   

  And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.

   

  “The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity.

   

  “China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”

  To be sure, some people do not and China’s recent adventures in propping up both the stock market and the yuan have, in the minds of many, served to reinforce the notion that when things aren’t going Beijing’s way, it will simply force the issue. Some fear the same thing could well happen with RMB crude futures:

  “The market doesn’t like the idea of a benchmark dominated by the world’s biggest consumer, where the regulator is suspected of having the goal of lowering prices,” said an executive with a non-Chinese exchange in Asia, speaking at the same event.

  But skeptics may have to choose between the lesser of two (perceived) evils because as we saw last month in Singapore, pricing off Dubai leaves everyone subject to perplexing anomalies like what happens when mysterious trading between two Chinese SOEs ends up throwing the market into backwardation at a time when common sense dictates that everyone should be doing the contango tango.

  The current benchmark for pricing oil in Asia in the absence of a derivatives contract is the Dubai crude assessment, run by Platts, part of McGraw Hill Financial, where trading in a specified time-frame is used to assess a daily price.

   

  Yet traders have been concerned at heavy trading by China’s state-owned Chinaoil and Unipec, which pushed up Middle East grades even as other grades were being pressued lower, and left other companies struggling to take part.

  Essentially, it looks like Chinaoil and Unipec may be gaming the Platts Dubai MoC (although no one knows exactly why) and that has implications for all kinds of people including (obviously) Saudi Arabia, Iran, and Iraq, as well as refiners and traders like Mercuria and Glencore. The hope is that a RMB contract will help solve the “problem.”

  In any event, it makes no more sense to exclude the world’s largest oil buyer from crude benchmarking than it does to keep the world’s largest producer and consumer of gold out of the gold price-setting process, which is why, in short order, China will be heavily involved in both. And as for widespread adoption of the new contract, that, like the internationalization of the yuan and the demise of the petrodollar, is only a matter of time:

  “One-by-one, the oil-majors will start to participate, then others will follow,” said an executive with a Western oil major. “While it might take some time to establish itself due to choppy markets and regulatory hurdles as well as the fact that it would introduce a foreign exchange element to crude futures, it is overdue for a Chinese contract to established.”

  

  

  

  

  

• Fourth Turning: Crisis Of Trust

  Submitted by Jim Quinn via The Burning Platform blog,

  “Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:

  • Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation)
  • Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities
  • Cultural distress, with the media plunging into a dizzying decay, and a decency backlash in favor of state censorship
  • Technological distress, with cryptoanarchy, high-tech oligarchy, and biogenetic chaos
  • Ecological distress, with atmospheric damage, energy or water shortages, and new diseases
  • Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders
  • Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction” 

   The Fourth Turning – Strauss & Howe – 1997

  September 2015 marks the seventh anniversary of this Fourth Turning Crisis. The economic, social, cultural, ecological, political, and military distress propagates by the minute as the globe is besieged by economic turmoil, increased human suffering, and endemic corruption of the political and ruling classes. The Federal Reserve/Wall Street created global economic implosion was the spark which catalyzed this fourth Crisis period in U.S. history in September 2008. Neil Howe in a 2012 essay assessed the beginning of this Fourth Turning and why 9/11 was not the catalyst:

  “Pending stunning new developments, I believe the catalyst occurred in 2008.  It’s a date that is looking better and better as time goes by.  The year 2008 marked the onset of the most serious U.S. economic crisis since the Great Depression.  It also marked the election of Barack Obama, which could yet turn out to be a pivotal realignment date in U.S. political history. In fact, if I had to give the catalyst a month, I would say September of 2008.  The global Dow was in free fall.  Banks were failing.  Money markets froze shut.  Business owners held their breath.

  9/11 will go down as one of the more famous crisis precursors in American history.  A crisis precursor is an event that foreshadows a crisis without being an integral part of it.  Other such precursors in American history include the Stamp Act Rebellion (1765), or Bleeding Kansas (1856), or perhaps the Red Scare (1919).”

  The initial spark has triggered a chain reaction of unyielding responses by those in power, including: handing $700 billion of taxpayer funds to the Wall Street bankers whose reckless pervasive greed and fraudulent derivative products caused the worldwide conflagration, 0% interest rates for the last seven years, a quadrupling of the Federal Reserve balance sheet to $4 trillion through QE to infinity, government stimulus spending which increased the national debt from $10 trillion to $18 trillion in seven years, ongoing $600 billion annual deficits, using fraudulent accounting to disguise the insolvency of the Too Big To Fail Wall Street banks, and a conscious choice by corrupt politicians and captured government regulators to not prosecute one criminal banker.

  None of these initial responses have solved any of our pervasive problems or averted further emergencies. Not only haven’t these responses resolved the intractable economic conundrums facing the world, but they have exacerbated the next round of monetary disasters rapidly approaching. Strauss and Howe predicted the initial catalyst event would not worsen into a full-fledged catastrophe because the powers that be would find a way to avert the initial danger and stabilize the situation “for a while”. The key point was those benefiting from the existing corrupt world order would do whatever it took to temporarily forestall a calamity which would result in their downfall, loss of power, and ultimate imprisonment. They have successfully delayed the regeneracy phase of this Fourth Turning by turning on the monetary debt spigot full throttle.

  

  It is highly unlikely we will have a resolution to this Crisis period for at least another ten years, so if you think the worst is over you are badly mistaken. If the climax is somehow accelerated like the Civil War, it will likely result in bloody wars, with a horrific death toll. The five year lull can be viewed as the world passing through the eye of an immense hurricane. There will always be ebbs, flows and lulls within a 20 year long Crisis, as seen in previous Fourth Turnings.

  The Boston Tea Party catalyst spark occurred in December 1773, but the fireworks didn’t get going until 1775 and the regeneracy Declaration of Independence event in 1776. The Civil War Fourth Turning had no lulls. The catalyst election of Abraham Lincoln to the regeneracy event of the First Battle of Bull Run was only nine months. The acceleration did not allow for cooler heads to prevail. The result was ghastly death and destruction. The 1929 Stock Market Crash catalyst was followed by a three year lull until FDR’s election and New Deal programs marked the regeneracy.

  

  In my previous four part article Fourth Turning – The Shadow of Crisis Has Not Passed written early in 2015 I attempted to explain generational theory, provided evidence we are still early in this Crisis, pondered the potential clash between the citizens and our debased, dysfunctional, captured government, and contemplated the kind of war which will thrust the world through the gate of history towards an uncertain future. The misconceptions regarding generational theory and the Fourth Turning keep a vast swath of otherwise lucid thinkers from understanding the implications of generational mood changes which drive the cyclical nature of history. The cognitive dissonance and normalcy bias of most Americans blinds them to the lessons of history and leaves them vulnerable to the winter that has beset the nation.

  The Fourth Turning is not a prophecy or some Nostradamus like predictions. It’s a logical theory based upon the average time span of a long human life and the four phases of that life: childhood, young adulthood, mid-life, and old age. The interaction of generations during their phases of life is what produces the profound mood changes throughout history. The dramatic events during the course of antiquity are less important than how society responds to them. The reaction is substantially determined by the season of the saeculum and the generational mood that aligns with that season. We’ve entered the Winter season, with bitterly cold days ahead and intense blizzard-like conditions forecast for the next decade.

  

  The ignorance of linear thinking advocates regarding the cyclical nature of history is either due to their “progressive” public educational brainwashing or their intellectual inability to grasp the obvious. Our daily existence is cyclical with 24 hours in a day, 365 days in year based upon earth’s orbiting the sun, 12 months divided into four seasons, and the circle of life – birth through death is the ultimate cycle perpetuating life on this planet. There are dozens of astronomical, mathematical, religious, sleep, agricultural, social, economic and war cycles known to man. Martin Armstrong has a cycle theory predicting the collapse of government between 2016 and 2020. The Kondratiev Wave theory and Elliott Wave Theory are preached by “experts” and followed by millions. Of course, many of these “experts” are busy selling their predictions in newsletters to make a buck.

  The thought leaders in academia, politics, business, and mass media perpetuate the myth of never ending linear progress created by technological advances and the ever increasing intellectual evolution of mankind. The hubris of these people is incomprehensible when viewing history. The myopic delusions of these arrogant egotists are easily shattered by the horrific regressions of history. Were the Great Depression and the 65 million people killed during World War II progress for mankind? Was Stalin’s murder of 20 million Russian peasants a linear progression? Was Mao’s Great Leap Forward murder of 45 million Chinese peasants really a leap forward? Was the death of 5% of the U.S. male population in the space of four years during the Civil War really progress?

  Mankind and civilization do not advance in a straight line. Progression and regression alternate in a cyclical fashion. As generations die out, memories of the previous cycle are forgotten, and the mistakes are repeated again. Human nature does not change. Good, evil, greed, fear, bravery, honesty, arrogance, sacrifice, and truth intermingle to drive humans through the cycles of history.

  

  Strauss & Howe were economists and historians who attempted to make some sense out of the seemingly convoluted twists of history. They deciphered a pattern which could be traced back for centuries based upon the age and alignment of generations throughout history. They never attempted to capitalize on their work by selling newsletters or peddling their predictions about the future. When they published their work in 1997 they couldn’t predict the exact events which would drive the next Fourth Turning, but they could estimate the general timing and the core elements which would drive the crisis: debt, civic decay, and global disorder. These areas were neglected, denied, and unaddressed during the Unraveling period from 1984 through 2008. To read their words now, eighteen years after they were written and eleven years before this Fourth Turning struck, is haunting, as they describe precisely where we stand today:

  “As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

  “But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

  The Fourth Turning – Strauss & Howe – 1997

  

  Regeneracy – Where Art Thou?

  The regeneracy during a Fourth Turning is when a sense of urgency about institutional dysfunction and civic vulnerabilities coalesce the nation or large blocs of the homeland behind a strong leader to tear down the existing social, economic and cultural order and replace it with something different. The different can be better or far worse. The Declaration of Independence, First Battle of Bull Run, and election of FDR marked the regeneracy in prior American Fourth Turnings. They all occurred within four years of the initial catalyst. It is now seven years into this Fourth Turning and a clear regeneracy event has not materialized. This has been a frustrating development for those who are impatient to get this Fourth Turning moving at a quicker pace. But, each Fourth Turning will proceed at its own pace dependent upon events, the country’s reaction to those events, and the leaders we choose during the Crisis.

  Neil Howe, in his 2012 essay pondered the regeneracy issue and described it more as an era than an event. It requires something dramatic that unifies the country or causes the people to break into separate unified factions.

  “I think it’s pretty obvious that the regeneracy has not yet started.  So how long do we need to wait for it?  And how will we know when it starts?  Those are good questions.  I recently went back over The Fourth Turning to recall how we dated the stages of the each of the historical 4Ts.  And I found that we were very explicit about dating the other three stages (catalyst, climax, and resolution) for each 4T.  But we were always a bit vague about dating the regeneracy, treating it more like an era than a date.  There is a reason for this.  We may like to imagine that there is a definable day and hour when America, faced by growing danger and adversity, explicitly decides to patch over its differences, band together, and build something new.  But maybe what really happens is that everyone feels so numb that they let somebody in charge just go ahead and do whatever he’s got to do.  I’m thinking of how America felt during the bleak years of FDR’s first term, or during Lincoln’s assumption of vast war powers after his repeated initial defeats on the battlefield.

  The regeneracy cannot always be identified with a single news event.  But it does have to mark the beginning of a growth in centralized authority and decisive leadership at a time of great peril and urgency.  Typically, the catalyst itself doesn’t lead directly to a regeneracy.  There has to be a second or third blow, something that seems a lot more perilous than just the election of third-party candidate (Civil War catalyst) or a very bad month in the stock market (Great Power catalyst).

  We are still due for such a moment.  We have not yet reached our regeneracy.  When it happens, I strongly suspect it will be in response to an adverse financial event.  It may also happen in response to a geopolitical event.  It may well happen over the next year or two.  Given the pattern of historical 4Ts, it is very likely to happen before the end of the next presidential term (2016).”

  As previously stated, The Fourth Turning does not predict what series of events will trigger a regeneracy. It lays out a generational framework regarding how generations will react to the events. As Howe points out, the regeneracy requires a 2^nd or 3^rd blow which seems even more perilous than the initial shock. His suspicion that it will be in response to an even worse financial debacle than 2008 and very likely to happen before the next election in 2016 appears to be dead on. The oblivious trusting masses will again be shocked and bewildered when the second devastating shock wave of this Crisis strikes in the next twelve months. The next global financial meltdown, caused by the Federal Reserve, along with central bankers in Europe, Japan and China, will create a fearful panic and an intense urgency for a strong self-assured leader who promises to rescue the nation from peril. The panic will coincide with the presidential election in November 2016.

  The “Great Divider” Barack Obama squandered his chance to be the leader who united the nation when he proved to be nothing more than a captured political hack, bowing down to the corporate fascist establishment, while stirring wide spread resentment with his culture war rhetoric and inability to inspire confidence with his toothless hope and change sloganeering. His failure to reign in or prosecute the greedy sociopathic Wall Street criminals, his acquiescence to the military industrial complex by expanding our war mongering and sowing chaos in the Middle East, and his total disregard for fiscal restraint as the country’s long term financial picture rapidly deteriorates, proved that he would not be the Fourth Turning Grey Champion leader.

  In retrospect, neither McCain nor Romney would have united the country, as they are both crony capitalist establishment figures. The mood of the country has darkened substantially in the last year as people are fed up with their deteriorating economic circumstances, sick of both political parties, and angry at the unrestrained illegal immigrant invasion on our southern border.

  I’m beginning to believe the nation will not be unified behind a common cause when the coming financial eruption unleashes molten lava of chaos, punishing economic distress, civil strife, class warfare, race wars, and ultimately global war. As Strauss and Howe foretold, the establishment (aka corporate fascist military industrial surveillance state) has seen a sequential loss of popular trust as their blatant corruption, sociopathic stranglehold on the levers of power, and unrelenting greed have angered the critical thinking aware citizens of this country. The next leg down in this Greater Depression will sever the remaining trust, disintegrating any remaining support for the existing civic order. What comes next will be heavily dependent upon whether the 5% to 10% of liberty minded believers in the Constitution are able to gain the trust of the masses. The odds will be long, but no longer than they were during that bitter winter at Valley Forge in 1777-1778.

  

  “It could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. Before long, America’s old civic order will seem ruined beyond repair.” – The Fourth Turning – Strauss & Howe – 1997

  In Part 2 of this article I will ponder possible Grey Champion, prophet generation leaders who could arise during the regeneracy, try to assess which channels of distress are likely to burst forth with the molten ingredients of this Fourth Turning, and lastly make some guesses about potential climaxes.

  

  

  

  

  

• Bank Of Japan Buying Power Runs Dry: "If They Don't Increase Now, It's Going To Be A Shock!"

  Since 2010, The Bank of Japan has 'openly' – no conspiracy theory here – been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFs taking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks.

  Having stepped in a stunning 76% of days to ensure the market closed green, it appears, as Bloomberg reports, time (or money) is running out for Kuroda and the BoJ having spent 78 percent of its allotment as of Sept. 7. "They've only got a little bit left in their quota," notes one trader, "The BOJ had a big role in supporting the market," he implored, "if they don’t increase purchases now, it’s going to be a shock."

   

   

  

   

  As Bloomberg reports,

  On Sept. 8, as the stock market slumped, investors were surprised to find the Bank of Japan, normally a buyer of exchange-traded funds on the Tokyo bourse, absent.

   

  What happened? The central bank, which is authorized to purchase about 3 trillion yen ($25 billion) in equity ETFs a year, is running out of ammunition, having spent 78 percent of its total as of Sept. 7. Because the BOJ usually buys on days the market falls, it sped up amid a rout in the Topix index.

   

  Now it must slow down for the rest of 2015 or increase its allotment, according to Mitsubishi UFJ Morgan Stanley Securities Co.

   

  …

   

  “They’ve only got a little bit left in their quota,” said Seiji Arai, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “I think they’ll vow to increase yearly purchases by 1 or 2 trillion yen in October.”

   

  With just 670 billion yen to go until its limit, the central bank has shrunk the amount it buys each time by 15 percent from its first purchase of the year to 31.7 billion yen in September. It stuck to that amount with a purchase on Thursday.

   

  As the Topix recorded its worst monthly loss since 2012, the central bank purchased 302 billion yen in ETFs. Without that, the rout would have been much worse, according to Arai.

  As he concludes – so perfectly summing up the farce that so many call "markets"…

  “The BOJ had a big role in supporting the market,” he said. “If they don’t increase purchases now, it’s going to be a shock.”

  

  

  

  

  

• It's Official: The Next Recession Will Definitely Not Happen In 2018

  Last month we remarked on PhD economists’ uncanny ability to make bad predictions.

  As a rule, the only people worse at their jobs than weathermen are economists and the only real difference between the two professions is that when the weatherman gets it wrong, you get caught in the rain without an umbrella, but when an economist that someone installed in the Eccles Building gets it wrong, there’s the very real potential for the financial universe to collapse. Here’s how we summed up the profession: 

  If PhD economists were serious about getting things right, they would have a tough job. That goes double for PhD economists charged with making policy decisions based on their conclusions. 

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

   

  Of course PhD economists aren’t really serious about getting things right, which means that in reality, their jobs are remarkably easy. Here’s the job description: 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”). 

  We delivered that stinging indictment of the pseudoscience that is economics on the way to noting that back in January, some 75% of experts said the Fed would have hiked by now. Considering that rather abysmal track record, we encourage you to take the following with a grain of salt (or two grains, or a whole shaker full). 

  Via Bloomberg:

  Some advice for President Barack Obama’s successor: bring a plan to fight the next recession.

   

  That’s one conclusion drawn from a survey of economists Sept. 4-9, where the median forecast of 31 respondents has the next downturn occurring in 2018.

   

  

   

  Assuming the collective wisdom of economists is right—which is a generous assumption given that predicting business cycles isn’t exactly a cakewalk (ZH: manipulating business cycles isn’t a “cakewalk” either and economists try that too) —it puts the current expansion on track to have a lifespan of about nine years. That’s a pretty good run, though the honor of the longest expansion on record would still belong to the decade that ended in March 2001.

   

  The survey suggests that the next U.S. president will have just one calendar year to get settled before a downturn occurs. They may want to solicit some advice from Obama, who took office in January 2009, during the deepest recession in the post-World War II era.

  So there you have it, rock solid proof that there will be no recession in 2018. However things are looking pretty scary for 2021 and 2022 because as you can see from the graph shown above, only 1 economist is betting on a downturn in either of those years, meaning a recession is a virtual certainty. 

  As Bloomberg goes on to note, the economists surveyed “said there’s a 10 percent chance of a U.S. recession within the next 12 months,” which is particularly amusing because if anyone was being honest at the BEA (i.e. if someone hadn’t brought out “residual seasonality” to explain why GDP data needs to be double-adjusted), the US would have been one quarter of bad “weather” away from a recession earlier this year.

  It’s also worth noting that the experts polled don’t seem to think much of the myriad risk factors staring them squarely in the face; risk factors like a rapidly decelerating China, slumping global demand, chronically depressed global trade, a worldwide deflationary supply glut, and a veritable meltdown in emerging markets. Indeed some of those factors were recently cited by Citi’s pet rock-hating chief economist Willem Buiter who, as Bloomberg also points out, this week “assigned a 55 percent chance to some form of global recession in the next couple years.” Which brings us to the punchline. The fourth sentence from the top in the Buiter’s note predicting better than even odds for a global recession reads as follows: 

  Economics isn’t rocket science, and even rockets frequently land in the wrong place or explode in mid-air.

  

  

  

  

  

• Inside Ground Zero Of Canada's Recession

  In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

  • “Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years”
  • “Canada’s Biggest Oil Casualty To Date: Calgary’s Nexen Shutters Oil Trading Desk”
  • “The Canadian Housing Bubble Has Begun To Burst”
  • “Canada’s Oil Patch Confidence Crashes“
  • “Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk“
  • “The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch“

  Since then it has gotten far, far worse for Canada. In fact, as of September 1 it culminated with the first official recession in 7 years.

  

  And it’s only downhill from there. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch. To wit:

  The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton. In a report released Tuesday, the real-estate brokerage’s chief economist Andrew Nelson said, “the fall in oil prices has had a negative impact on the energy-reliant markets (in Western Canada),” which has contributed to rising vacancy rates and falling rental prices in Alberta’s two largest cities.

   

  Vacancy rates jumped over the course of the second quarter. In Calgary’s case, Colliers reported the downtown vacancy rate rose to 13 per cent from 10 per cent, while Edmonton’s vacancy rate increased to 11.2 per cent from 10.6 per cent.

   

  A glut of new buildings under construction in both cities could push those numbers up even higher. “Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption in (the second quarter),” the report noted.

   

  There are 5.2 million square feet of office space under construction in Calgary right now, which is the largest amount of new commercial space being built in any city in Canada and could further push up vacancy rates.

   

  Edmonton, a city with a current total of 17 million square feet of office space, is in the middle of its own building boom with over 2 million square feet of space under construction.

  There is a silver lining:

  Some observers see at least a partial silver lining in the numbers. In recent years, Calgary Chamber of Commerce director of policy and research Justin Smith said, commercial real estate costs downtown Calgary were “going through the roof” and “accelerating at a pace far beyond the Canadian average.”

   

  He said those escalating costs made it difficult for some companies to stay in downtown Calgary and noted that even large companies like Imperial Oil Ltd. and CP Rail Ltd. moved their head offices to the suburbs.

   

  The uptick in vacancy rates, he said, could provide some relief to smaller companies looking to do business downtown, as rental rates are projected to fall as vacancies rise.

   

  * * *

   

  Weakening demand for office space in both Calgary and Edmonton has resulted in large quantities of commercial real estate coming back on the market this year.

   

  The report showed that 1.7 million square feet of office space has become available in Calgary’s downtown core, thanks in part to thousands of layoffs in the oil patch and a decline in the need for commercial space.

   

  That is the largest quantity of newly empty space in any downtown in North America, including Houston, an oil and gas town where 1.6 million square feet have become available this year.

  Who said deflation is a bad thing? Well, all the rich people for one, whose liabilities are denominated in fixed value debt, yet whose equity value and whose cash flow has just crashed through the floor, forcing them liquidate assets.

  Which means that for all the pain in the oil sector, one industry is booming: pawn shops.  As CBC reports, “some of the newly rich and long time wealthy in Calgary’s once hot economy are now looking for fast cash because of the economic downturn, and they’re turning to pawn shops.”

  ?”Right now we have one, two…10 Rolexes for sale, two Panerais, a few Tag Heuers,” said John Sanford, one of the owners of Rocky Mountain Pawn on Macleod Trail, as he counts the luxury watches in a glass case.

   

  He has 100 more in a back room. He will have many more because “the economy has changed his clientele too, as formerly well-paid people are telling him they’ve been laid off or plan to leave town.”

  “People have come in and they’ve said, ‘That’s it, I’m heading back to Ottawa, Montreal,'” he said.

  About six months ago, high-end items started rolling in to his shop, such as a 5.1-carat diamond — a $200,000 stone — and designer hand bags “whether it be Louis Vuitton, Chanel or Gucci.”

  

  Some of the items Calgarians are pawning to weather the recession.
  (Kate Adach/CBC)

  For some the current recession, Canada’s second since the great financial crisis, is already worse than the last one: “in the 2008 recession, some pawn shops had to close because they were giving out more money than they were able to make up in sales, Sanford says.” Not this time, though: this time, Sanford is being careful about the items he takes in because fewer people are buying.

  “And whether it be Louis Vuitton, Chanel or, you know, Gucci, it’s special and sometimes the person is pawning it, getting that $400 or $500, and they truly are going to be back for it.”

  

  Gucci and Louis Vuitton goods are just some of the designer items at
  Calgary pawn shops. (Kate Adach/CBC)

  And this is what it looks like when recent millionaires are scrambling for any source of cash: there has been a steady stream of customers, including a woman pawning Vera Wang earrings for about $3,000, or a man who can’t find steady work as a truck driver so he’s putting some art work on loan for short-term cash.

  “That’s a good grocery bill for a month, so — yeah — it’s very important to get that $200,” said Robert Huntington, who has used the pawn shop for the third time this year. He intends to pay back the money he borrowed from the pawn shop, plus rent, and eventually get his art work back — one of the many customers hoping to reclaim their items when things turn around, says Sanford.

  Good luck to him, and in retrospect perhaps deflation isn’t good for everyone: certainly not those whose cash outflows are greater than their current inflows, and have debt. They may not survive.

  For everyone else in Canada’s recessionary ground zero, strap in because it is only going to get worse. And if Goldman’s $20 oil price target is correct (unlike its $200 price target 7 years ago) it will get a lot worse.

  

  

  

  

  

• $20 Oil? Goldman Says It's Possible

  We’ve long framed collapsing crude prices as a battle between the Saudis and the Fed. 

  When Saudi Arabia killed the petrodollar late last year in a bid to bankrupt the US shale space and secure a bit of leverage over the Russians, the kingdom may or may not have fully understood the power of ZIRP and the implications that power had for struggling US producers. Thanks to the fact that ultra accommodative Fed policy has left capital markets wide open, the US shale space has managed to stay in business far longer than would otherwise have been possible in the face of slumping crude. That’s bad news for the Saudis who, after burning through tens of billions in FX reserves to help plug a yawning budget gap, have now resorted to tapping the very same accommodative debt markets that are keeping their competition in business as a fiscal deficit on the order of 20% of GDP looms large.

  But even with a gaping hole in the budget and an expensive proxy war raging in Yemen, it’s not all bad news for Saudi Arabia as evidenced by King Salman’s lavish Mercedes procession upon arrival in DC last week and as evidenced by the fact that, as The Telegraph reports, non-cartel output is beginning to fold under the pressure of low prices. Here’s more: 

  Oil produced outside the Orgainsation of the Petroleum Exporting Countries (Opec) is slowing at its fastest rate in 20 years as lower prices hit higher cost producers such as the North Sea and US shale drillers, a leading energy think tank has warned.

   

  The Paris-based International Energy Agency (IEA) has said that lower production in the US, Russia and the North Sea would result in output outside Opec dropping to 57.7m barrels per day (bpd) in 2016. The majority of the declines would come from US light crude, which is expected to decline by 400,000 bpd.

   

  “The steep declines in US crude oil production seen since the end of June has created some optimism that we are now finally seeing that start of a steep decline,” said Bjarne Schieldrop, chief commodities analyst at SEB.

   

  Oil prices have plunged 50pc this year with Brent crude trading well below $50 per barrel, a level which makes it uneconomical for many producers. Opec, under pressure from Saudi Arabia, has allowed oil prices to fall in an effort to protect its shrinking market share especially from the rise of shale oil drillers in the US.

  So mission (partially) accomplished we suppose, and with banks set to reevaluate credit lines to US producers next month (i.e. the revolver raids are coming), it likely won’t be long before the competition starts to dry up. The only remaining question then, is how low will oil go in the near- and medium-term and on that point we go to Goldman for more:

  Oil prices have declined sharply over the past month to our $45/bbl WTI Fall forecast. While this decline was precipitated by macro concerns, it was warranted in our view by weak fundamentals. In fact, the oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop. 

   

  
  

  So a persistent global deflationary supply glut driven by lackluster demand. Nothing new there, and in fact, that exact confluence of factors was tipped to send oil to $25 in these very pages more than nine months ago. Now back to Goldman:

  Given our updated forecast for a more oversupplied oil market in 2016, we are lowering our oil price forecast once again. Our new 1-, 3-, 6- and 12-mo WTI oil price forecast are $38/bbl, $42/bbl, $40/bbl and $45/bbl. Our 2016 forecast is $45/bbl vs. $57/bbl previously and forwards at $51/bbl. As we continue to view US shale as the likely near-term source of supply adjustment given the short cycle nature of shale production, we forecast that US Lower 48 crude & NGL production will decline by 585 kb/d in 2016 with other non-OPEC supply down 220 kb/d to end the oversupply by 4Q16.

   

  
  

  Got it. And just how low, in a worst case scenario, could crude go? 

  This creates the risk that a slowdown in US production takes place too late or not at all, forcing oil markets to balance elsewhere or as they have historically cleared, through a collapse to production costs once the surplus breaches logistical and storage capacity. Net, while we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around $20/bbl Brent prices, on our estimates. While such a drop would prove transient and help to immediately rebalance the supply and demand for barrels, it would likely do little for the longer-term capital imbalance in the market with only lower prices for longer rebalancing the capital markets for energy. 

  So there you have it, a collapse to $20 Brent, but while the Saudis may have won the battle, the war is not yet over:

  The levers to force HY producers into lower production, such as borrowing basis redeterminations, debt maturities and hedge coverage, are significantly less binding for IG E&Ps. It is instead management’s focus on balancing capex and cash flow and investors’ willingness to finance funding gaps that are the levers of adjustments for this cohort of companies. And while HY debt markets may be once again shutting, tentative signs of greater discipline by US IG E&Ps have so far only translated in stabilizing production guidance rather than pointing to the decline that our global oil balance requires.

   

  As a result, the sharp intensification in producer financial stress observed recently – with forward oil prices and energy equity share prices at multi-year lows (and credit spreads at highs) – is unlikely to yield sufficient financial stress in the short-term. So while this deterioration in financial conditions is finally reflecting the markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than previously expected, we now believe that such stress needs to remain in place well into 2016 and up until evidence emerges that US shale production growth is actually required.

   

  

  And speaking of war, the obvious risk to any forecast that calls for sharply lower crude is that some mid-air “accident” in Syria takes the “proxy” out of “proxy war”, in which case crude soars as Russia and Iran square off against a US coalition that would swiftly include Saudi Arabia in what would very likely be the precursor to a wider conflict the scope of which we haven’t seen since 1939. 

  Oh, and for all the muppets out there, Goldman has upgraded European oil producers:

  Dividends may be cut, but with over coverage now yielding 6% on average this is becoming priced in. We expect returns and FCF to trough in 2016, and improve in 2017/18 driven by higher oil prices and falling costs. Even with this, valuations do not yet look compelling, but we move to a Neutral Coverage View from Cautious.

  

  

  

  

  

• It Begins: Europe Flooded With Reports Of "ISIS Terrorists" Posing As Refugees

  While the US is looking back at the 14 year anniversary of what is widely accepted as the biggest terrorist event in modern US history, in Europe it is time to look forward to what may be the advent of domestic “terrorism” in the coming months, whether real or false flagged.

  Earlier this week, one of our contributors Erico Tavares pointed out something disturbing, namely that in Europe’s perpetual search for “crises” on which to capitalize in its relentless encroachment to a European superstate, the current migrant crisis may be a blessing in disguise (assuming, of course, it wasn’t premeditated from day one as others have suggested).

  Why blessing? Because just like the US Patriot Act which allowed a massive expansion of the US government apparatus while obliterating civil and privacy rights (highlighted earlier today), confirmed a decade later by Edward Snowden, was a regulation in search of a terrorist event, so Europe’s next superstate expansion will require a comparable anti-terrorism “rush” in which the population voluntarily hands Europe’s supra-government even more rights to centrally-plan as it sees fit.

  Which means that as part of the refugee crisis in which tens of thousands of innocent Syrians have been displaced and seeking European asylum, it was only a matter of time before one or more was “found” to be ISIS terrorists in order to perpetuate the fear and crisis narrative. A crisis which Brussels would never go to waste.

  That time has arrived following a report by German RTL and carried by NewObserver that “an ISIS terrorist posing as an “asylum seeker” has been arrested by German police in a “refugee” center in Stuttgart, and German customs officers have seized boxes containing Syrian passports being smuggled into Europe.”

  So it begins.

  According to RTL, the terrorist is a 21-year-old Moroccan using a “false identity” who had registered as an asylum seeker in the district of Ludwigsburg. He was identified after police linked him to a European arrest warrant issued by the Spanish authorities. He is accused of recruiting fighters for ISIS, where he acted as a contact person for fighters who wanted to travel to Syria or Iraq.

  This arrest of the alleged bogus “asylum seeker” comes at the same time that a German finance ministry spokesman said that
  “boxes” of fake Syrian passports, destined for sale and distribution to the hordes of nonwhite invaders seeking to settle in Europe as bogus “war refugees,” had been seized.”

  That news, carried in a report by the German Tagespiegel newspaper, also revealed that 10,000 fake Syrian passports were seized by police in Bulgaria, on their way to Germany.

  The finance ministry official said both genuine and forged passports were in the packets intercepted in the post. Possession of these passports is a vital part of claiming “asylum” as “war refugees.”

   

  The Tagespiegel also revealed that the fake Syrian passports are being sold for about $1,500 each—and the fact that many of the “refugees” can afford to buy multiple passports is yet another indication of the bogus nature of their claims to be “asylum seekers.”

   

  Significantly, the Tagespiegel article continued, “It is not only Syrians who are interested in Syrian passports. Refugees from Iraq, Afghanistan, and Pakistan want to become Syrian in order to secure their recognition as asylum seekers in Western Europe. According to press reports, nine out of ten refugees who came from Macedonia to Serbia claimed they were Syrians.”

  Setting the expectations was the head of the EU frontier police, Fabrice Leggeri, who in a recent interview with the Europe 1 TV station said that the trade in fake Syrian passports originated in Turkey. “There are people who are now in Turkey, buying false Syrian passports because they have obviously realized that it is a windfall since Syrians get asylum in all Member States in the European Union,” he said. “People who use false Syrian passports often speak in Arabic. They may originate in North Africa or the Middle East, but have the profile of economic migrants.”

  And then just to ratchet the fear factor, earlier this week Hungary’s most watched national TV channel, M1, reported Tuesday that at least two “terrorists” were uncovered via photographs on social media after entering Europe as refugees.

  RT has more:

  “Islamist terrorists, disguised as refugees, have showed up in Europe. [The] pictures were uploaded on various social networks to show that terrorists are now present in most European cities. Many, who are now illegal immigrants, fought alongside Islamic State before,” the report said.

  The Hungarian channel broadcasted collections of photographs of the two men from social media. The first set depicted two individuals with weapons and the second set showed them smiling as they arrived in Europe.

  A breach in the “terrorism has arrived” narrative emerged it was revealed that the man claimed to be an Islamic State militant had previously given an interview to AP, saying that he was a former Syrian rebel commander. “The AP reported that his name was Laith Al Saleh, 30, and he “led a 700-strong rebel unit in Syria’s civil war.” The news agency’s photos taken on August 15 showed Al Saleh among other refugees waiting to board an Athens-bound ferry on the Greek island of Kos.”

  And then it gets awkward: AP reported that he was a member of the Free Syrian Army, which is fighting against the Syrian government forces of President Bashar Assad, as well as against terrorist groups in the region.

  Actually, the US-funded and supported FSA’s only purpose was the same as that of ISIS – to crush the Syrian army and overthrow the elected president so Qatar can break Gazprom’s monopoly on European gas imports.

  But now the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.

  But ignore the facts, and focus on the propaganda, which as RT further adds is in full crisis mode: A recent article in the UK Express Daily claimed that IS “smuggled thousands of covert jihadists into Europe.” It cited a January BuzzFeed interview with an IS operative who said the militants have already sent some 4,000 fighters into Europe under guise of refugees.

  These speculations have not been confirmed by Western security officials, although that’s only temporary: as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions throw in for good effect.

  Certainly expect a version of Europe’a Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.

  And since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.

  

  

  

  

  

• "They're Making Idiots Of Us!": Eastern Europe Furious At West For Doing Gas Deals With Russian Devils

  Back in June, when Greece was still predisposed to waving around an MOU for participation in the Turkish Stream natural gas pipeline in a desperate attempt to play the Russian pivot card and force Brussels to blink, we remarked that the Turkish Stream MOU with Greece wasn’t the only preliminary energy deal Gazprom inked at the St Petersburg International Economic Forum. 

  The company also signed a memorandum of intent with Shell, E.On and OMV to double the capacity of the Nord Stream pipeline — the shortest route from Russian gas fields to Europe — to 110bcm/year.

  That, we said, proves Russia is making progress in efforts to facilitate the unimpeded flow of gas to Europe even as the crisis in Ukraine escalates.

  Nearly three months later and Ukraine isn’t happy. Neither is Slovakia. Here’s Bloomberg:

  Eastern European nations set to lose billions of dollars in natural gas transit fees are lambasting western Europe for striking another pipeline deal with Russia that will circumvent Ukraine.

   

  The prime ministers of Slovakia and Ukraine criticized an agreement between western European companies from Germany’s EON AG to Paris-based Engie with Russian pipeline gas export monopoly Gazprom PJSC to expand a Baltic Sea link. Western European leaders and companies are “betraying” their eastern neighbors, Slovakia’s

   

  Robert Fico said after meeting Ukraine’s Arseniy Yatsenyuk in the Slovak capital of Bratislava on Thursday.

   

  Gazprom and EON, Engie, Royal Dutch Shell Plc, OMV AG and BASF SE signed an agreement last week to expand Nord Stream by 55 billion cubic meters a year, or almost 15 percent of current EU demand. Ukraine, already struggling to avoid a default amid a conflict with Moscow-backed separatists in its east, is set to lose $2 billion a year in transit fees while Slovakia would lose hundreds of millions of euros, the leaders said.

   

  Russia is trying to cut how much gas it ships via Ukraine’s Soviet-era pipelines as international courts arbitrate in pricing disputes between the nations, echoing spats that caused supplies to Europe to halt several times during the past decade. Russia currently ships about a third of its Europe-bound gas via Ukraine, down from about two-thirds in 2011, when the Nord Stream pipeline under the Baltic Sea started supplying Germany directly.

   

  
  

   

  Nord Stream-2, set to start supplying Europe in 2019, completely neglects Polish interests and hurts the EU’s unity in the face of Russian President Vladimir Putin’s “aggression” in Ukraine, Polish President Andrzej Duda said on Wednesday. Ukraine’s Yatsenyuk called the project “anti-Ukrainian and anti-European” on Thursday.

   

  “They are making idiots of us,” Fico said. “You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation.”

  Well, sure you can.

  In fact, when it comes to making grand public declarations about “stabilizing” unstable geopolitical situations and then turning around and doing something completely destabilizing, the West (and especially the US) are without equal, as evidenced by all manner of historical precedent including Washington’s efforts to help sack Viktor Yanukovych whose ouster precipitated the conflict in Ukraine in the first place. And make no mistake, to the extent there’s energy and money involved, that’s all the more true which is why it isn’t at all surprising that Western Europe would facilitate a deal that lets Gazprom bypass a war zone if it means getting natural gas to countries that “matter” in a more efficient way.

  Now that doesn’t mean the EU won’t cover its tracks by filing anti-trust charges against Gazprom or by publicly decrying the Kremlin’s alleged role in fueling Ukraine’s civil war, but what it does mean is that the interests of war-torn nations and their beleaguered masses simply don’t matter when there’s natural gas involved.

  Just ask a Syrian refugee.

  

  

  

  

  

• More American Cronyism: US Government Selling Visas To Fund Luxury Apartment Buildings

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  – From the Wall Street Journal article: How a U.S. Visa-for-Cash Plan Funds Luxury Apartment Buildings

  Another day, another story highlighting just how completely corrupt and sleazy the U.S. economy has become.

  I’ve covered the issue of EB-5 visas before, and how a program that was initially supposed to help high unemployment neighborhoods attract investment, has become another scheme to further enrich America’s crony capitalist class.

  Before we get into the meat of this post, here are a few excerpts from last year’s piece, How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese:

  Developer Related Cos. says it has raised roughly $600 million from the families to build the foundation for three skyscrapers at the West Side project, a 17-million-square-foot colossus of office, retail and residential space set to open over the next decade.

   

  To finance the concrete-steel platform, Related tapped a little-known and at times controversial federal visa program known as EB-5, which offers green cards to foreign families who invest at least $500,000 in U.S. projects that create at least 10 jobs per investor.

   

  At times the program has invited scrutiny. The U.S. Securities and Exchange Commission last year warned of “fraudulent securities offerings” related to the EB-5 program, in which investors put money into nonexistent projects. The program also has come under fire because it can be difficult for investors overseas to discern safe investments from risky ones, and if the investment fails to create the required jobs, they don’t get a green card. In addition, claims of jobs created are difficult to verify and the program administrator has been criticized for not having an effective system for doing so.

   

  Developers are embracing the program largely because it provides low-cost capital. Money borrowed through the EB-5 program carries much lower interest rates, sometimes half of what companies typically pay, executives said. That is because investors are primarily seeking green cards, not a profit, and generally are willing to accept low returns, EB-5 advisers said.

  While that article explained the recent explosion in EB-5 visa popularity, it failed to highlight the fact that this money was supposed to disproportionately help struggling areas. In reality, it’s all being funneled to luxury construction. Here’s how.

  Also from the Wall Street Journal:

  NEW YORK—The cluster of luxury apartment buildings and office towers rising in a development west of midtown called Hudson Yards seems a world apart from the low-income housing projects of upper Manhattan.

   

  But for purposes of an immigration program that helps finance Hudson Yards, it and Harlem’s Manhattanville public-housing towers are in the same district: a stringy one connected by three Census tracts that run along the Hudson River.

   

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  A primary concern is that the use of EB-5 financing for high-price condo and office towers sops up the program’s capacity and leaves poorer communities out in the cold. No more than 10,000 visas that lead to permanent-resident status can be given out each year under the program. It hit the limit in the fiscal year ended Sept. 30, 2014.

   

  Though statistics aren’t made public on individual projects, a recent paper by two New York University professors tracked 25 large business startups that have turned to the EB-5 program to raise a total of more than $4.5 billion in financing. Twenty-two were urban real-estate projects, including 14 in prime Manhattan neighborhoods and others in Seattle and on the Las Vegas Strip.

   

  Related is the single largest user of EB-5 financing. By its own measure, it accounts for about 20% of the dollars being raised through the program today. The closely held company used the program to raise $600 million for a first phase of Hudson Yards last year and is in the process of raising another $600 million for a new office tower and a retail hub.

   

  The coming debate in Congress stands to bring the program its greatest scrutiny since it was created in 1990.

   

  Things began to change in 2009, amid two shifts. The agency overseeing the program—the U.S. Citizenship and Immigration Services unit of the Department of Homeland Security—let the job-creation tally count more construction jobs if they last at least two years. And banks all but shut off credit for construction projects amid the economic slump.

   

  Real-estate developers discovered EB-5. Money from foreign investors, primarily Chinese, began to pour into major developments around the U.S., typically supplementing more-senior debt. A hotel and apartment project in Washington raised more than $40 million through the program. A W hotel in Hollywood raised $20 million. A planned 16-tower apartment project connected to Brooklyn’s Barclays Center basketball arena took in $229 million.

   

  Lenders have since returned to real estate, but developers are attracted by another aspect of EB-5 financing: low cost. Because the foreign investors are after a green card, they have been willing to accept very low interest rates on money they lend, typically for four or five years. Developers save even though they face other costs to use the program.

   

  Many of such projects could easily have been financed on the private market, according to Gary Friedland, who wrote the NYU paper with fellow professor Jeanne Calderon. “It’s a profit enhancement,” he said. “The original argument was more of a ‘but for’ argument,” in which EB-5 was meant to spur projects that wouldn’t otherwise have happened. “That focus has been lost.”

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  Meanwhile, some wanting to raise money for projects in rural areas and low-income parts of cities say they find it increasingly hard to compete. Evan Daniels has been trying for four years to raise about $40 million through the EB-5 program for a door-manufacturing plant in the rural southwestern Missouri town of Lamar.

   

  “The harder we worked on this, the more we found the money was going to L.A. and New York,” he said.

   

  In China, one pitch is speed in obtaining green-card approvals from U.S. Citizenship and Immigration Services. Related’s main broker has advertised that EB-5 investors receive initial approvals 11 months faster than the standard wait. That would mark a big advantage, because the average wait is about 14 months. It is unclear how its applications would be processed so quickly. USCIS declined to comment on Related’s applications.

  So the U.S. government is subsidizing the wealthiest developers to build projects for the wealthiest Americans. Someone must have taken a class taught by the Federal Reserve.

  Recall the post from earlier this year: Number of NYC Apartments for Rent Above $50k/Month Triples Since ’08; 82% of U.S. Construction = Luxury Units. Now we know why.

  

  Just another day in the imperial Banana Republic.

  

  

  

  

  

• To Hike Or Not To Hike (Fed, Economists, & Market Divided)

  No matter what, it's going to be a close-call…

  Fed members notably split

  

   

  And investors’ conviction of rate hikes in 2015 has been drifting…

  

   

  Market pricing of the timing of lift-off has fluctuated in a wide range this year:

  • Market has priced 20-100% hike odds by Sept.
  • Odds of 2015 hike fluctuated between 50-100%

  Key data releases have led to big shifts in market pricing as Fed emphasised data dependence

  • Strong January employment data led markets to fully price hike by September
  • Dovish March and June FOMC meetings led to lower odds of a hike this year

  Current market pricing suggests 30% odds of a hike in September and 75% chance of lift-off this year

  Low market pricing likely lowers chances of a hike in September

  • Fed would like to avoid surprising the market
  • Hiking against market expectations in September means greater volatility and more tightening of financial conditions than desired

  Economisseds remain split…

  

   

  But then again – they have been clueless…

  

   

  And as Ransquawk notes, the various banks are also split down the middle on whether The fed should hike or not next week…

  NO HIKE: BarCap, BNP, Credit Ag, Credit Suisse, HSBC, GS

   

  HIKE: BoFA, Deutsche Bank, JPM, RBS, Wells Fargo

  Here's why Deutsche Bank thinks they should raise rates in September…

  

  *  *  *

  Finally, this is the most important chart for the next few days…

  

  h/t @Not_Jim_Cramer

   

  Simply put – The more you buy stocks, the higher the probability of a turmoil-creating rate-hike next week – that's the Dow-Data-Dependent Fed at work folks!!

  

  

  

  

• Wal-Mart Wage Hike Debacle Continues As Suppliers Forced To Layoff Employees Amid New Fees

  Earlier this year, in “What Happens After A Mega Corporation Raises Its Workers’ Wages,” we detailed the plight of Wal-Mart’s supply chain in the wake of the retailer’s decision to raise the pay floor for its lowest-paid employees. Here’s a recap: 

  When mega-corporations such as WalMart and McDonalds, whose specialties are commoditized products and services and who have razor thin margins, yet which try to give an appearance of doing the right thing, by raising minimum wages, they start flexing their muscles, and in the process trample all over the companies that comprise their own cost overhead: their suppliers and vendors. Take the case of WalMart: the world’s biggest retailer “is increasing the pressure on suppliers to cut the cost of their products, in an effort to regain the mantle of low-price leader and turn around its sluggish U.S. sales.” 

   

  What WalMart is doing is borderline illegal: it is explicitly telling its vendors “this is what you will do with your excess cash.” Of course, we say borderline because WMT’s action is perfectly legal in the confines of the pure law. However, in the context of an economy that is sputtering, WMT’s vendors have no choice but to comply or risk losing what is certainly their largest revenue stream and risk bankruptcy. 

   

  The irony is that while WMT (or MCD or GAP or Target) boosts the living standards of its employees by the smallest of fractions, it cripples the cost and wage structure of the entire ecosystem of vendors that feed into it, and what takes place is a veritable avalanche effect where a few cent increase for the lowest paid megacorp employees results in a tidal wave of layoffs for said megacorp’s vendors.

  As those who frequent these pages are no doubt aware, quite a bit has happened in Wal-Mart world since we penned those words. First there were “plumbing” problems which, for at least five locations, were so intractable as to necessitate store closures. Then came the mid-level management rumblings as the rest of Wal-Mart’s employees suddenly realized that an across-the-board wage hike for the lowest-paid workers meant the wage hierarchy was suddenly and irreversibly distorted. Shortly thereafter, a memo circulated at an Arkansas recruiting firm indicated a raft of layoffs could be in store for the Bentonville home office. Finally, unable to make up the $1 billion cost of the wage hikes and unable to pass that cost on to customers without surrendering the “low price leader” crown, Wal-Mart began cutting hours. 

  Now, we get still more evidence that the world’s largest physical retailer is attempting to make up for the cost of hiking wages by pressuring its suppliers only this time, the supply chain is pushing back. Here’s Bloomberg with more:

  After years of meeting demands for ever cheaper prices, many Wal-Mart Stores Inc. suppliers are saying no to new margin-squeezing storage fees and a payment schedule that could delay for months how quickly some are paid.

   

  The world’s largest retailer says the changes, laid out for vendors starting in June, reflect a push to simplify its relationships with suppliers, put them all on the same footing and reduce costs so it can offer customers the lowest prices. But some vendors see the new policy as an attempt by Wal-Mart to fatten its margins and offset wage hikes for store workers earlier this year.

  And whereas before, Wal-Mart was “merely” asking suppliers to do everything possible to lower prices (i.e. dictating how vendors will use FCF), this time, Wal-Mart is actually adding new fees:

  Vendors were already feeling added pressure from Wal-Mart to cut costs after the retailer told them earlier this year to dial back on marketing and promotions and use the savings to lower their prices, he said.

   

  Traditionally Wal-Mart has largely avoided the extra fees some other retailers charge, so the policy change was a surprise, said Leon Nicholas, a senior vice president at Kantar Retail, which advises dozens of Wal-Mart suppliers.

   

  “What is so shocking this round is that they are being aggressive not in asking suppliers to take costs out of the system so the supplier can lower prices, but instead adding cost into the system,” Nicholas said. “It looks as though they are trying to have it both ways and trying to pad their own margins where they are facing cost pressure.”

  As for suppliers who don’t comply, well, they’ll be “punished”:

  Wal-Mart could punish suppliers that don’t agree to all or some of the new terms by cutting back shelf space for a product, giving it less favorable placement in the store or dropping a supplier all together.

  Just as we predicted back in April, the end result of Wal-Mart’s push to score public opinion points by making the meager wages of its lowest paid workers look a little less meager will be the elimination of jobs along the supply chain:

  A smaller supplier, notified of the fees late last month and given two weeks to accept, said it won’t be able to make a profit on its Wal-Mart business under those terms unless it fires workers or cuts wages and benefits.

  So there, once again, is economics 101 at work and as we noted late last month, it should have been abundantly clear from the start that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart, because after all, they’re the “low price leader”, and you don’t hold on to that title by passing labor costs on to customers. 

  In the end, suppliers may be trying to push back, but they’re unlikely to cut their noses of to spite their faces by creating a contentious relationship with the company that’s responsible for their largest revenue stream which is why ultimately, it’s vendors’ employees who will suffer so that Wal-Mart’s cashiers can make $9/hour instead of $8. We’ll close with the following lament from Leon Nicholas (quoted above): 

  “You can push and push, but at the end of the day you know where the power lies.”

  

  

  

  

  

• Weekend Reading: Rooting For The Bull?

  Submitted by Lance Roberts via STA Wealth Management,

  This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.

  However, as I addressed yesterday:

  “Since the ‘debt ceiling debt default’ crisis in 2011, the markets have traded within a much defined bullish trend.

   

  That trend was decisively broken this summer, and the market has yet to regain its footing. While the market ‘bulls’ expect the markets to recover and move back to all-time highs, there is also a possibility of failure that should not be ignored."

  

  "If the market rallies back to the bullish trend channel, and fails, it will likely lead to a continuation of the current correction.

   

  Could the market re-establish a new bullish trend channel at a lower level? Yes. However, as discussed in Tuesday’s missive, the internal deterioration in the market is more consistent with the development of more major bull market peaks rather than just a correction within a bullish trend. 

   

  In every market cycle throughout history, there have been times where it was vastly more beneficial to “err to the side of caution.

   

  This is very likely one of those times.”

  This weekend’s reading list is dedicated to the views on the issues surrounding the current market environment and the Fed. While it is always more fun to root for a continuation of the bull market, it is a far different matter to bet on it and be wrong. 

  ---

  THE LIST

  1) Monetary Policy Lags – Fed Must Act Soon by Richard Fisher via The Financial Times

  “Policymakers should focus on the direction of price changes over the medium term. This is easier said than done; you cannot be certain whether the latest inflation numbers reflect a long-running trend or a passing storm. The Fed tries to get around this by focusing on “core” inflation measures that leave out food and energy prices, which are volatile in the short term. The idea is to silence the noise in the inflation numbers, while leaving the signal.

   

  But the Fed’s favored measure does not do as good a job as it could; while less noisy than the headline inflation rate, it has also been persistently low. Over the past 10 years, looking only at data that would have been available to policymakers in real time, conventional core PCE inflation has averaged 1.65 per cent, nearly 30 basis points below headline inflation’s 1.94 per cent average. Setting policy using this measure is like navigating using a compass: it has a systematic bias and is influenced by local anomalies in the earth’s magnetic field.”

  Read Also: What Jackson Hole Missed On Inflation by Bob Eisenbeis via Cumberland Advisors

   

  2) The Fed Is About To Unleash Deflation by Deutsche Bank via ZeroHedge

  “Breaking down the breakeven and real yield components verifies that central bank liquidity has been more associated with real yields then breakevens, however the relationship is perverse! Real yields have tended to fall when balance sheet expansion is slowing while breakevens have generally been stickier. This suggests that risk assets drive (real) yields and that breakevens anticipate a (delayed) liquidity injection.

   

  Right now the decline in Central Bank liquidity suggests 5y5y should be closer to 2 percent or below not 3 percent or above. And this is before the Fed has tightened and China has potentially ‘finished’ its adjustment.”

  

  VIDEO: David Stockman: Why Fed Reserve Actions Will Have Disastrous Long-Term Consequences.

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  3) The Stock Market’s Wake Up Call by Eric Nelson via Servo Wealth Management

  “Until recently we had gone several years without a double-digit decline in US stocks.  For long-term investors, that length of time can lead to a false sense of security and entitlement—believing that stocks should always go up and they have a right to consistently-positive returns.  But that has never been the case; if it were, long-term historical and future returns wouldn’t be as high as they have been or are expected to be.  The chart below looks at the periodic returns of stocks, bonds and balanced portfolios from 1928-2014, net of inflation.”

  

  Read Also: 5 Reasons The Markets Are Going Haywire by Matt Turner via Business Insider

   

  4) The Stock Market Is In All-Or-Nothing Mode by Matt Egan via CNN Money

  “Investors have been taken on a wild ride this summer that's been nearly unprecedented.

   

  The craziness was punctuated by the Dow's 1,000-point nosedive on August 24, its largest intraday point decline on record.

   

  But here's an even more telling sign of the swings: Bespoke Investment Group tracks "all or nothing days," which occur when at least 80% of the S&P 500 advances or declines. In other words, herd mentality drags nearly the entire market in one direction or the other.

   

  During the 12 trading sessions between August 20 and September 4, there were eight all or nothing days, according to Bespoke. There have only been two other times since 1990 that there were as many all or nothing days in that short of a period. These events have been extremely rare.”

  Read Also: Use The Coming Stock Market Rally To Sell by Ken Goldberg via TheStreet.com

   

  5) Baby, It’s Cold Outside by Doug Kass via Kass’ Korner

  “As for Wall Street, baby it’s really cold outside these days – and the market appears to me to have pneumonia. But it’s not as if this brutal season came upon us without warning, as there were clear indications of a blizzard ahead… 

  • Market leadership was narrowing and breadth was deteriorating.
  • Transports, cyclical and industrials had already entered a bear market.
  • The price of numerous forward-economic-looking commodities (i.e.. copper and oil had plunged.
  • Volatility had exploded in many asset classes (stocks, bonds, currencies and commodities).
  • Signposts of slowing global economic growth were numerous, led by moderating growth in China, the current engine of worldwide growth.
  • Corporate profit-growth expectations were steadily eroding.
  • Credit spreads were widening.
  • Easy U.S. monetary policy was losing its impact, and inertia on our leaders’ part was the mainstay of fiscal policy.
  • Malinvestment and overvaluations were sprouting up in many different asset classes.
  • Despite all of these fundamental and technical faults, sentiment was unaffected and the “bull market in complacency” continued as valuations rose ever higher.
  • The chasm between financial asset prices and the real economy widened. “

  Read Also: Where Is The S&P 500 Heading Now?by J C Parets via All-Star Charts

  ---

  Other Reading

  • What You Witnessed Wasn’t A Crash by John Hussman via Hussman Funds
  • Rates Sadly Reflect The Fed, Not The Economy by Joseph Calhoun via Alhambra Partners
  • The Corporate Revenue Recession Spreads by Wolf Richter via Naked Capitalism
  • The Best Investment For The Next 12-Months by Jesse Livermore via Philosophical Economics
  • If It Looks Like A Bear… by Jesse Felder via The Felder Report
  • Definitions Every Investor Should Know (Funny)by Ben Carson via A Wealth Of Common Sense

  ---

  “Perhaps the foremost lesson which I have learned is that emotions rule the world, rather than statistics, information, or anything else.” – Roger Babson

  Have a great weekend.

  

  

  

  

  

• Stocks & Bond Yields Surge'n'Purge Thanks To "Asian Intervention Week"

  In case you were unaware of what happened this week… this should explain it… The 3 Storms of Li, Zhou, and Kuroda stepped in!!

   

  Before we get started – let's get this off our chest:

  Asia Intervention Week anyone?

  • ChiNext (+11.1%) – best week in 4 months
  • Shenzhen Composite (+6.4%) – best week in 2 months

  It looks like they finally killed it…

  

   

  Yes – Yes you did!

  

  • Nikkei 225 (+2.7%) – best week in 2 months
  • Copper (+6%) – best week in 4 months
  • Offshore Yuan (+0.9%) – best week in 6 months
  • USDJPY (+1.3%) – biggest jump (JPY's biggest weakening) in 4 months
  • USD Index down 6 days straight – longest streak in 5 months

  That bled over into some US markets:

  • VIX (-11.6%) – biggest weekly drop in 2 months
  • Dow Transports (+3.1%) – biggest week since last week of July
  • S&P Tech Sector (+2.75%) – best week in 2 months
  • S&P Biotechs (+5.5%) – best week in 2 months

  *  *  *

  Equity futures markets provide perhaps the most clarity on the week's swings (since most of the action takes place before and after the US sessions)…

  

   

  An afternoon ramp dragged everything green for the day… Of course – we warned the bears!!!

  

   

  And so from Friday, cash equity indices all closed green for the week… Trannies and Small Caps soared over 3 weeks – the easiest to short squeeze!!

  

   

  Energy was the week's loser while Tech and homebuilders surged…

  

   

  Once again VIX was plugged into the close to ensure a green close…

  

   

  Once again though, The VIX Slam has lost its momo mojo…

  

   

  Put-Call ratios (average over the last 2 weeks) are at their hghest since March 2007

  

   

  Treasusry yields massively round-tripped on the week… 2Y yields ended very modestly lower with 30Y up just 7bps (well off its 3.037% highjs on 9/9)

  

   

  The USD Index has fallen for 6 straight days – its longest streak since April… as EUR (and AUD) strength handily beat JPY weakness…

  

   

  With a 'Death Cross' looming amid a coiling USD Index making lower highs…

  

   

  Despite the week's USD weakness, commodities (in general) were lower (with WTI worst)… Gold down 3rd week in a row.

  

   

  Oil and Vol remains notably decoupled post-Andy-Hall's month-end malarkey…

  

   

  The exception being copper… Which lifted thanks to China intervention early in the week…notice anything odd?

  

   

  Copper had its best week (up almost 6%) in 4 months… the last time it had a rip-fest week like this marked the early May highs and led to a serious decline…

  

   

  Charts: Bloomberg

  Bonus Chart: Brazil Banged Back To 2005…

  

  

  

  

  

• Friday Humor: Instructions To Traders In The Event Of A Cyber Attack

  Presented with no comment…

   

  

   

  h/t @Erdal_Ozkaya

  via ModernTrader.com

  

  

  

  

• Interbank Credit Risk Is Rising Ominously Again In America

  We have been anxiously reminding investors of the drip-drip-drip increases in market-perceived credit risk for US financials for much of 2015. Having risen to almost 90bps amid the chaos of 2 weeks ago (almost double the lowest levels post-Lehman hit in June of last year), it appears systemic counterparty risk is very much on the rise. What is more concerning however, as Alhambra's Jeffrey Snider notes, the TED spread has exploded higher (since China's devaluation) indicating, as convention has it, a marked increase in perceptions of interbank credit risk.

  "Credit" risk perceptions have risen rapidly…

  

   

  And now the ominous TED Spread is flashing warning signals about the US Financial system…

  

   

  As Alhambra's Jeffrey Snider notes:

  With t-bills settled down again (another clue as to how disruptive the “dollar” run became at its worst), the TED spread has exploded higher indicating, as convention, a marked increase in at least perceptions of interbank credit risk.

   

  The TED spread now is where it was in the weeks just following the flash crash (Greece/euro) in later May 2010, and equal to October 2011 after the SNB pegged to the euro and the Fed reproduced dollar swaps globally.

   

  This is significant and seems to be underappreciated everywhere but places like VIX (and especially longer VIX futures).

  *  *  *

  Despite some modest amelioration in the last week – after massive seemingly coordinated intervention, perhaps, investors will start paying attention now.

  

  

  

  

  

• The Iran Deal (In Perspective)

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  

  

  

Digest powered by RSS Digest

• US Military Admits It "Misplaced" Black Plague Samples

  Back in May, the US military was forced to admit that it had done something really stupid and what’s great about the story is that it requires very little in the way of explanation and/or added color to explain why what happened can be fairly classified as an example of sheer governmental incompetence. Put differently: this story speaks for itself. Here’s a recap: 

  According to CNN, “four lab workers in the United States and up to 22 overseas have been put in post-exposure treatment, a defense official said, following the revelation the U.S. military inadvertently shipped live anthrax samples in the past several days.” The army apparently thought they were shipping samples rendered inactive by gamma radiation last year, but that clearly was not the case because when a Maryland lab received their sample last Friday they were able to grow live Bacillus anthracis. The lab reported their concerns to the CDC. By Saturday afternoon, labs in Maryland, Texas, Wisconsin, Delaware, New Jersey, Tennessee, New York, California and Virginia were notified that the US military had accidentally mailed them the deadly bacteria. A sample sent to a US base in South Korea was destroyed on Wednesday.

  That came just a few months after the CDC admitted to mishandling an Ebola sample, potentially exposing a dozen people to the deadliest virus known to mankind.

  Needless to say, the story grabbed headlines across the country as Americans struggled to understand how it’s possible that the US army could possible have managed to unknowingly jeopardize dozens of lives by FedEx-ing live anthrax to nine states and one foreign country. 

  Well don’t look now, but the DoD is out warning that the army might have also mishandled samples of the black plague which isn’t known to be dangerous unless you count the time it wiped out 60% of Europe’s entire population. Here’s more from CNN:

  The U.S. Department of Defense is looking into possible mishandling of bubonic plague and equine encephalitis samples at its laboratories, a Pentagon spokesman said Thursday.

   

  The new inquiry is part of an investigation into the mishandling of anthrax at Department of Defense labs, Pentagon spokesman Peter Cook said.

   

  The department hasn’t determined whether samples containing plague bacteria and specimens of the deadly virus were shipped from its labs, Cook said.

   

  The latest investigation started after CDC inspectors found a sample of the plague in a freezer outside of a containment area on August 17 at the Edgewood Chemical Biological Center in Maryland, Cook said.

   

  Investigators are working to determine whether the sample posed an “infectious threat,” Cook said. Army tests found it was not infectious.

   

  “That’s the scientific work that’s being done at this particular time, determining exactly what happened there, and whether or not … there was mislabeling,” he said.

   

  Yersinia pestis, the same type of bacterium that was responsible for the plague pandemic that wiped out 60% of the European population between the 14th and 17th centuries, maintains a foothold in the United States and around the globe in rodents and the fleas that live on them.

   

  Today, the infections are treatable with antibiotics if they’re caught early enough. Since 1970, there have been anywhere from a few to a few dozen cases of plague every year in the United States, most of them occurring in Western states, according to the Centers for Disease Control and Prevention.

  Yes, only “a few to a few dozen cases of plague” per year, but that bubonic dearth is nothing the US military can’t fix with a few “mislabed” samples and a FedEx account.

  For their part, Fred Upton (chairman of the House Energy and Commerce Committee) and Frank Pallone (ranking Democrat) are incredulous: “Anthrax being mishandled is disconcerting enough, but now the mishandling also includes [the] plague.” Here’s a bit more from USA Today:

  The Pentagon’s most secure laboratories may have mislabeled, improperly stored and shipped samples of potentially infectious plague bacteria, which can cause several deadly forms of disease, USA TODAY has learned.

   

  The Centers for Disease Control and Prevention flagged the practices after inspections last month at an Army lab in Maryland, one of the Pentagon’s most secure labs. That helped prompt an emergency ban on research on all bioterror pathogens at nine laboratories run by the Pentagon, which was already reeling from revelations that another Army lab in Utah had mishandled anthrax samples for 10 years.

   

  Army Secretary John McHugh ordered the research moratorium on Sept. 2, Pentagon officials say, out of an abundance of caution.

   

  The suspect specimens, which may be live despite being labeled as killed or weakened, indicate a wider range of dangerous bioterror pathogens being handled using sloppy safety practices at laboratories operated by the U.S. military. They also further illustrate the risks faced by other scientists who rely on pathogen “death certificates” to know whether or not a provided sample is still infectious and can be worked with safely without special protective equipment. An ongoing USA TODAY Media Network investigation has revealed numerous mishaps at government, university and private labs that operate in the secretive world of biodefense research prompting growing concern in Congress and among biosafety experts.

  And while all of the above may look, on the surface, like cause for concern, you shouldn’t worry because ignorance is bliss and the US government is doing its best to make sure that you remain in the dark about anything that might actually be important: 

  Pentagon spokesman Peter Cook: “We’re trying to be as forthcoming as we can be right now without alarming the public.”

  

  

  

  

  

• A Libertarian Stand On Immigration: Refugees and Migrants In A World Of Government Meddling

  Submitted by Per Bylund via The Mises Institute,

  [Updated Author’s Note: The issue of immigration has only become more pressing over the ten years that have passed since this article’s original publication. And, unfortunately, the libertarian movement has not reached a consensus on this issue.

   

  But it should be easy, considering how government is at both ends of the problem: government is the number one reason people choose to escape their countries, whether because of governments’ war or devastating poverty due to the lack of opportunities in regulated markets; and government is the reason ordinary people, in a desperate state because their lives have been forcefully uprooted, have a hard time choosing where to lead their lives in peace. The desperation is due to the so-called “failings” of their own governments, and augmented by ours.

   

  I too have fled my country, though not because I’m fearing for my life but because I sought a better life and greater opportunities. While the immigration issue generally focuses on people from poor countries with little skill or education, it is hardly the case that governments welcome people at the other end of the spectrum: the highly productive, highly educated, and hard-working. On the contrary, government is the least forgiving, least reasonable, and most costly when it deals with non-citizens — those who cannot hold government officials accountable in any sense and do not have a voice. This should make immigration a prime target for the libertarian argument for freedom, peace, and property.

  Immigration Controls and the State

   The pre-1914 world saw no immigration issues or policies, and no real border controls. Instead, there was free movement in the real sense; there were no questions asked, people were treated respectfully and one did not even need official documents to enter or leave a country. This all changed with the First World War, after which states seem to compete with having the least humane view on foreigners seeking refuge within its territory.

  The “immigration policies” of modern states is yet another licensing scheme of the twentieth century: the state has enforced licensing of movement. It is virtually impossible to move across the artificial boundaries of the state’s territory in the search for opportunity, love, or work; one needs a state-issued license to move one’s body, be it across a river, over a mountain, or through a forest. The Berlin Wall may be gone, but the basic principle of it lives and thrives.

  Immigration controls are not different from other kinds of licensing even though it has been awarded a special name. Licensing has the same result regardless of what is licensed: licensing of physicians causes poor health care at higher cost just as licensing taxi businesses causes poor and untimely service at high cost — licensing on movement means restricted freedom and higher taxes for people (whether “citizens” or “foreigners”). From a libertarian point of view it should be clear that all licensing needs to be done away with, including licensing for immigrants.

  Yet the immigration issue seems to be somewhat of a divide within libertarianism, with two seemingly conflicting views on how to deal with population growth through immigration. On the one hand, it is not possible as a libertarian to support a regulated immigration policy, since government itself is never legitimate. This is the somewhat classical libertarian standpoint on immigration: open borders.

  On the other hand, the theory of natural rights and, especially, private property rights tells us anyone could move anywhere — but they need first to purchase their own piece of land on which to live or obtain necessary permission from the owner. Otherwise immigration becomes a violation of property rights, a trespass. This is an interpretation of a libertarian-principled immigration policy presented by Hans-Hermann Hoppe a few years ago, which since then has gained increasing recognition and support.

  To a non-libertarian bystander, the discussion of the two alternatives must seem quite absurd. What is the use of this libertarian idea of liberty, if people cannot agree on a simple issue such as immigration? I intend to show that the libertarian idea is as powerful as we claim, and that there is no reason we should not be able to reach consensus on the immigration issue. Both sides in this debate, the anti-government-policy as well as the pro-private-property, somehow fail to realize there is no real contradiction in their views.

  The Open Borders Argument

  The people advocating “open borders” in the immigration issue argue state borders are artificial, they are creations based on the coercive powers of the state, and therefore nothing about them can be legitimate. As things are, we should not (or, rather: cannot) regulate immigration. Everyone has a right to settle down and live wherever they wish. This is a matter of natural right; no one enjoys the right to force his decision upon me unless it is an act of self-defense when I am violating his rights.

  In a world order based on natural rights, this would be true. It is a golden rule, a universal rule of thumb proscribing that I’ll leave you alone if you leave me alone; if you attack me or try to force something or someone on me, I have a right to use force to defend myself and what is mine.

  The problem with this idea is that it has too much of a macro perspective. While arguing there should be no states and therefore no state borders, it presents arguments with an intellectual point of departure in the division of mankind into territorial nationalities and ethnicity. It is simply not possible to make conclusions on immigration to, say, the United States, if we start our argument from the libertarian idea. What is “immigration” in a world with no states?

  The Pro-Property Argument

  A less macro view on immigration is taken for granted in the pro-property argument. Here, the individual’s natural right to make his own choices and his right to personal property is the point of departure. Since we all have in our power to create value through putting our minds and bodies to work, we also enjoy a natural right to do as we please with that which we have created and place ourselves wherever we have property owners or guests. Or, as Hoppe puts it, “[i]n a natural order, immigration is a person's migration from one neighborhood-community into a different one.”

  Consequently, the immigration issue is in real terms solved through the many choices made by sovereign individuals; how they act and interact in order to achieve their goals. There can simply be no immigration policy, since there is no government — only individuals, their actions and their rights (to property). The “open borders” argument is therefore not only irrelevant, since it has a macro point of view; it also fails to realize property rights as a natural regulation of movement. Since all property must be owned and created by the individual, government cannot own property. Furthermore, the property currently in government control was once stolen from individuals — and should be returned the second the state is abolished since property rights are absolute. There is consequently no unowned land to be homesteaded in the Western world, and so “open borders” is in essence a meaningless concept.

  Libertarian Utopia

  Immigration will thus be naturally restricted in a free society, since all landed property (at least in the Western world) is rightfully owned by self-owning individuals. Just like Nozick argues in his magnum opus Anarchy, State, and Utopia, a society based on natural rights should honor property rights in absolute terms, and therefore the rightful owners of each piece of property should be identified despite the fact that humankind has been plundered by a parasitic class for centuries.

  What is to be considered just property when the welfare-warfare state is eventually abolished is not at all clear. Can one take for granted that the subjects (citizens) of a certain state have the right to an equal share of what is currently controlled by the government? Are they, at all, the rightful owners to what they currently control with the state’s legal protection? If we intend to seek the just origin of property, we need to roll back all transactions until the times before the modern state, before monarchies and feudalism, and probably to a time before the city states of ancient Greece. If we do, how should we consider the produced values of the generations we’ve effectively dismissed?

  There is probably no way to sort out this unbelievable mess along the lines of absolute property rights. It should be dealt with this way, but I dare say it will be a practical issue when we get to that point, rather than a philosophical one.

  A State Immigration Problem

  Another problem of immigration and property arises from the social welfare system financed by money extorted from citizens. With the open borders argument, private property rights might be undermined even further if immigrants are entitled to special rights such as housing, social security, minority status and rights, etc. Also, immigrants will automatically become part of the parasitic masses through enjoying the common right to use public roads, public schooling, and public health care — while not paying for it (yet).

  The concept of private property rights seems to offer a solution to this, but it is not really a way out: it is not as simple as “private property rights — yes or no?” Private property rights is a philosophical position offering a morally superior fundamental framework for how to structure society, but it does not offer guidance in what to do with non-property such as that currently controlled by government.

  It is deceivingly simple to claim all of the state’s subjects have just claims to “state property” since they are entitled to retribution for years of rights violations. This is, however, only part of the truth. It is also a matter of fact that all private production to some degree is part of the rights violation process, with direct state support through subsidies, tax breaks, patent laws, police protection, etc., or indirectly through state meddling with currency exchange rates, “protective” state legislation, through using publicly-owned and maintained property and services for transportation, and so on. There is simply no such thing as just private property anymore in the philosophical sense.

  Therefore, it is impossible to say immigrants would be parasites to a greater degree than, e.g., Bill Gates: the Microsoft Corporation has benefited greatly thanks to state regulation of the market, but has also been severely punished in a number of ways. We are all both victims and beneficiaries. Of course, one might argue that forced benefits are not really benefits, but only one aspect of oppression. Well, in that case it would also be true for immigrants, who too are or will be victims of the state (but perhaps not for as long as you and I).

  A Libertarian Stand on Immigration

  We must not forget libertarianism is not a teleological dogma striving for a certain end; it rather sees individual freedom and rights as the natural point of departure for a just society. When people are truly free, whatever will be will be. Hence, the question is not what the effects of a certain immigration policy would be, but whether there should be one at all.

  From a libertarian point of view, it is not relevant to discuss whether to support immigration policy A, B, or C. The answer is not open borders but no borders; the libertarian case is not whether private property rights restrict immigration or not, but that a free society is based on private property. Both of these views are equally libertarian — but they apply the libertarian idea from different points of view. The open borders argument provides the libertarian stand on immigration from a macro view, and therefore stresses the libertarian values of tolerance and openness. The private property argument assumes the micro view and therefore stresses the individual and natural rights.

  There is no conflict between these views, except when each perspective is presented as a policy to be enforced by the state. With the state as it is today, should we as libertarians champion open borders or enforced property rights (with citizens’ claims on “state property”)? Both views are equally troublesome when applied within the framework of the state, but they do not contradict each other; they are not opposites.

   

  

  

  

  

  

• China Fixes Yuan Stronger After Premier Li Says "No QE" Amid Record High, Surging Pork Prices

  Despite the biggest intervention surge in offshore Yuan on record ("predatoring" any excess speculative fervor on PBOC actions in the spot market), a 'PBOC Advisor' noted that "long-term FX intervention was not their target." The Hong Kong Dollar is pressuring the strong-end of its range against the USD, trapped between the USD peg and weak economy (like so many others). Chinese stocks continue to tread water as China's Premier Li rules out QE (perhaps because pork prices are already at record high prices and are rising at a record pace), exclaiming that there "well be no hard landing," but BofAML expected 50-100bps more RRR cuts this year. PBOC strengthened the Yuan Fix tonight (just modestly).

  Despite this…

  • *PBOC ADVISER SAYS LONG-TERM FOREX INTERVENTION NOT TARGET: NEWS

  Offshore Yuan surged by the most on record overnight (removing all the devaluation premium)…

  

   

  After last night's major devaluation, PBOC strengthens Yuan:

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3719 AGAINST U.S. DOLLAR

  

   

  And officials proudly crowed that…

  • *AT LEAST 47 FOREIGN CENTRAL BANKS HAVE YUAN RESERVES: FIN. NEWS

  And in other FX news:

  • *HONG KONG DOLLAR TOUCHES STRONG END OF PERMITED RANGE TO USD

  China's Premier ruled out Quantitative Easing since he implored thare will no hard landing.

  He said during a speech at the World Economic Forum in Dalian on Thursday that quantitative easing alone could not solve structural problems in economic growth and that it would lead to negative and spillover effects.

   

  *CHINA'S INDUSTRIAL SLOWDOWN MAY BOTTOM OUT SOON: ECO INFO DAILY

  Perhaps this is why…

  

  But BofAML says forget Pork.. we need moar… (via ForexLive)

  • There is still room for one to two interest rate cuts (25bp each) in the rest of the year
  • But we believe the chance for aggressive rate cuts is very small, given rising CPI inflation and capital outflow pressures
  • Domestic liquidity has become tighter partly due to capital outflows and PBoC ' s FX intervention
  • We expect at least 50 – 100bp in RRR cuts in coming months to offset the liquidity drain
  • The PBoC will also likely use multiple tools … to flexibly manage domestic liquidity
  • Targeted credit support to key infrast ructure projects and SMEs are likely to expand

  Two words – "Social Unrest"

  *  *  *

  Chinese stocks trod water overnight amid close-to-zero volume…

  

   

  and are flat so far today:

  • *FTSE CHINA A50 INDEX FUTURES FALL 0.2% IN SINGAPORE
  • *CHINA'S CSI 300 STOCK-INDEX FUTURES RISE 0.3% TO 3,310

   

  Charts: Bloomberg

  

  

  

  

  

• In Major Humiliation For Obama, Iran Sends Soldiers To Support Russian Troops In Syria

  When Zero Hedge first reported ten days ago that Russian troops, in their bid to support the Assad regime in its ongoing confrontation with various ISIS, Al Nusra, and other US-supported groups in what has become the proxy war of 2015 (one which even comes with thousands of refugees for dramatic media impact) had been quietly massing in Syria and have set up a forward operating base near Damascus, there were those who were openly skeptical.

  Then, just a few hours ago, Bloomberg finally confirmed that “top officials were scheduled to meet at the National Security Council Deputies Committee level to discuss how to respond to the growing buildup of Russian military equipment and personnel in Latakia” and that Russia is “set to start flying combat missions from a new air base inside Syria.”

  So yes, for whatever reason (and the reason as we explained is clear: natural gas pipelines) Russia is making not only its increasing support for Assad known, but also that it is in Syria and that any further US-funded and supported incursions by ISIS or whatever is the media scapegoat terrorist organization du jour, will not be tolerated.

  To be sure, none of this is in any way a surprise to the US – just as the US is using ISIS as a pretext to invade or pressure any mid-east nation it desires “in order to hold the jihadist terrorist scourge”, so Russia is now using ISIS as a comparable excuse to intervene. After all, if ISIS is the friend of humanity, then surely Russian aid will be welcome. That it is not, had made it abundantly clear that not only is ISIS just a convenient diversion, but the reasons for a Syrian invasion and deposition of Assad, are purely political and entirely in the realm of real-politik. Also, Russia’s return to Syria in greater numbers is no surprise to anyone in the Pentagon – this was merely the long-awaited escalation of the foreplay that started when ISIS mysteriously emerged on the scene just over a year ago.

  But in the latest twist in what we have been warning for months has the makings of the biggest proxy shooting war in years, one that will come as a major humiliation to the Obama administration, today we find out that none other than America’s most recent diplomatic sweetheart in the Gulf region, Iran, has deployed ground soldiers into Syria in the past few days in cooperation with Russia’s President Vladimir Putin.

  This answers our question from earlier this week:

  So as the coalition drives towards Sana’a – which the Saudi-owned al-Hayat newspaper says will be “liberated” after a “decisive battle” in Marib – and as Turkey, the US, Saudi Arabia, Jordan, and Qatar mull options for the final push to oust Assad in Syria, the only remaining question is whether Iran will remain on the sidelines and allow the Houthis to be routed and Assad deposed, or whether, like Moscow, Tehran finally decides that the time for rheotric has come to an end.

   

  And on that note, we’ll close with the following from AP: “Iran’s foreign minister on Monday criticized demands for the resignation of Syrian President Bashar Assad, saying such calls have prolonged the Arab country’s civil war. Mohammad Javad Zarif went so far as to say that those who have in the past years demanded Assad’s ouster “are responsible for the bloodshed in Syria.”

  And so, Iran appears to have picked its side, and knowing that it has Obama wrapped around its finger as part of Obama’s huge “diplomatic coup” of restoring relations with Iran as part of the Nuclear Deal (since any backtracking would further embarrass the US president) and can pivot in any direction in the Syrian conflict, it has decided to side with Russia and Syria.

  According to Ynet, a further said that the increased military involvement in Syria was “due to Assad’s crisis and under Russian-Iranian cooperation as a result of a meeting between Soleimani with Russian President Vladimir Putin.”

  Where things get even more complicated, is that while Israel would do everything it can to turn public opinion against Iran, especially if it is now involved in the Syrian debacle, Israel still has cordial relations with Russia: “We have dialogue with Russia and we aren’t in the  middle of the Cold War,” said the source. “We have open channels with the Russians.”

  So what does Iran joining the conflict really mean?  “It’s hard to forecast whether Russia’s presence will decide the fate of Syria, but it will lengthen the fighting and bloodletting for at least another year because ISIS won’t give up,” said the source.

  In other words, unless even more foreign powers intervene, you know “to stop ISIS” by focusing all their firepower on attacking or defending Assad, the Syria conflict will drag on indefinitely with an unknown outcome. Which in turn begs the question: how long will Israel keep out of the war, and if it decides to join whether it be using one of the more traditional, false flag methods to enflame public opinion against Iran. Who will be collateral damage then.

  One thing is certain: with the GOP unable to block the Iran nuclear deal in the Senate, should it emerge and be confirmed, that Iran is indeed present, then Obama will be faced with the biggest diplomatic headache in his administration’s history, namely the explanation of why he is scrambling to restore diplomatic connections with a regime that couldn’t even wait for the Iran deal to be formally passed before it turned its back on its newest “best friend” in the Oval Cabinet, and promptly side with the KGB agent who over the past two years has emerged as the biggest US enemy in three decades.

  Furthermore, it also means that now Russia suddenly has the media leverage in its hands: a few “leaked” photos of Iran troops to the press and the phones in the US Department of State will explode.

  But the most important news is that, as we warned previously, with every incremental party entering the Syria conflict, the probability of a non-violent outcome becomes increasingly negligible. And now that Iran is involved, it means that both Israel and Saudi Arabia will be dragged in, whether they like it or not.

  

  

  

  

  

• Anyone Who Believes The COMEX Numbers Is Very Naive (They Are Much Worse!)

  Via Investment Research Dynamics,

  “The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.”

  – disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013 – Investment Research Dynamics – June 4, 2013

  Yesterday we published an article detailing the Comex gold futures to deliverable physical gold ratio that is now north of 200:1.  But an erudite colleague of mine, John Titus of “Best Evidence,” correctly pointed out that:  “They are probably bluffing.  In other words, the real number is significantly higher than 200:1.”

   

  

  For the record, John does more thorough research on the economic numbers and reports that he studies than anyone I’ve ever come across.  And he does it with the trained analytic eye of a seasoned patent litigation attorney.

  Let’s put everything in perspective.  The numerical reports from which fancy graphs and and dry detailed data presentations are created originate from the Too Big To Fail Banks. I’ve said for quite some time that IF the bullion banks who control the Comex and the LBMA are submitting honest data reports for the Comex and LBMA, it would be the only business line in which they do not hide the truth and report fraudulent numbers.  What is the probability of that?

  JP Morgan was recently caught stuffing proprietary Comex futures short-sell trades into the “Managed Money” account category of the COT report.  The CFTC scolded JPM and slapped them with a whopping $650,000 – LINK.    Does anyone really believe that the CFTC wrist-slapping corrected any fraudulent data reporting by the likes of JP Morgan?  Really?

  Put your “think like a criminal hat” on for a moment.  You know that the people who care about this sort of thing already know that the there’s a paper vs. physical problem in the market.  So just show them a number that they’ll buy into and that will be “the number.” Most analysts will accept that number at face value and use that in their articles and blog posts.  That number then becomes accepted in goldbug circles as the “real” number.

  But the truth of the matter is that they are more than likely reporting numbers they want us to see, not the real numbers.  For instance, the silver market is now seizing up from lack of supply.  Please see this report from Greg Hunter and David Morgan if you are still skeptical:   Retail Silver Has Seized Up.

  Yet, the Comex bank custodians are reporting over 51 million ounces of silver available fore delivery – LINK.  In fact, CNT – an official supplier to the U.S. mint – is showing 13.3 million ounces of deliverable silver.   So why is there’s a shortage of silver at the U.S. mint? IF that silver were actually in the vault, the U.S. mint could buy a spot contract – September has a silver contract open – and take immediate delivery.  

  Also, why did the CME, unannounced, start slipping that little accuracy disclaimer into its daily gold and silver inventory reports in 2013?   I’ll let you draw your own conclusion about the truth.

  The silver market is seizing up which means that there’s a severe shortage of silver available.  It is also showing up in the LBMA wholesale market based on the backwardation in gold and silver forward contracts that have been observed for several weeks.  It means that any visible inventories reports from ETFs and Comex/LBMA banks custodial vaults are fraudulent.  That includes SLV reports.

  It also means that the recent discovery that the LBMA altered its gold refining flow statistics, revising what was originally reported to be 6,601 tonnes of gold cleared by the LBMA in 2013 down by 2,000 tonnes to 4600 tonnes, are likely off the mark.  That’s a big miss, given that the total global mine production annually is around 2500 tonnes.

  The significance of this is that it’s easier to explain how 4600 tonnes of gold was refined into bars and sent to Asia than 6600 tonnes, given that the total global supply of gold from mine production + scrap production was reported to be slightly more than 3000 tonnes.

  From where did that extra 1600 tonnes come?  The REAL question is, from where did the extra 2600 tonnes come if we use the original number?  And is the 6600 tonne number a good number?  Was the real number even higher?

  The obvious conclusion is that the supply deficits in gold and silver are being remedied by hypothecating gold and silver bars from allocated accounts held at bullion banks, including the accounts held in behalf of the gold/silver ETFs,  like GLD and SLV.  This is why ABN Amro and Rabobank stopped allowing their physical gold account investors to take physical delivery of the gold they thought they have invested in – the gold was not there to deliver.  This also occurred in 2013.

  Now for the final blow to any skeptics.  You’ll note that the LBMA revised down the amount of gold it cleared from refineries in 2013.   But you’ll also note that the Comex inventory report disclaimer at the top of this post was first inserted into the daily Comex inventory reports in June 2013.  See any coincidences?  Bueller…

  Bill Murphy and GATA have maintained for years that the fraud and corruption in the precious metals market would eventually be revealed as the biggest financial fraud scheme in history.  It would seem that the cracks in the wall of this scheme are growing wider and it’s becoming easier to see rays of truth.

  History tells us that all Ponzi schemes and market interventions fail.   I believe we are on the cusp of a massive failure in the scheme to cover up the truth about the precious metals market.

  

  

  

  

  

• We Now Know What Happened At 6:12 AM This Morning

  In a day in which the total breakdown of the market and the sheer dominance of various HFT algos was painfully obvious for any remaining carbon-based trader forms to see, we started off with not one but two E-mini trading halts following ridiculous buying slams.

  

  This is what we asked first thing this morning:

  Anyone waking this morning will glance at US equity futures and happily note its unchanged-ness relative to weakness in Asia overnight. But behind the scenes of the last 12 hours was a total and utter farce of price discovery failure. S&P 500 e-mini futures have been halted twice (0551ET anbd 0612ET) in what one market observer exclaimed “looks like manipulation to me.” So what exactly happened at 6:12am?

  We now know.

  As Nanex shows, what happened at 5:51 am and at 6:12 am, the ES breaks were nothing more than an aggravated case of HFT spoofing – the same infringement which will likely send Navinder Sarao behind bars for years – which first sent the E-mini soaring higher so fast, it broke the velocity logic circuit, and then it smashed the E-mini lower.

  Here is the first spoofing instance, which prompted Eric Hunsader to declare the manipulator “busted.” Indicatively, the entire move amounted to just about 20 S&P points on the way up, or about 0.4%.

  

   

  And the second one: what goes up must come down.

  

   

  In summary: what we do know: a nearly 1% move up and down in the S&P due to blatan – and illegal – spoofing manipulation; what we don’t know: the identity of the spoofer.

  What is certain: if the culprit is a central bank or one of its trading agents like Citadel, the CFTC will never follow up. If it is some Indian living in his parents’ basement in a London suburb, you can run but you can’t hide.

  

  

  

  

  

• Goldman Fears "Government Shutdown" Is Looming As Lew Urges Congress "Raise Debt Limit ASAP"

  With Treasury Secretary Jack Lew sending a letter to Congress this evening demanding they raise the debt limit as soon as possible, warning that cash balances have dropped below the "minimum target," it is perhaps less than surprising that Goldman Sachs is warning that a government shutdown at the end of the month has become much more likely over the last several weeks. While out-months in VIX (beyond the prospective shutdown) remain elevated, Goldman finds a silver-lining claiming that the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. We shall see…

   

  As Goldman explains…

  • While it is a close call, we still think it is slightly more likely that Congress will avoid a shutdown and pass spending legislation just before the current funding expires on September 30.
  • More importantly, while the risk of a shutdown is real and the outcome of the political debate is hard to predict, the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. Unlike 2013, a shutdown in October would be unrelated to raising the debt limit, and it would probably also be shorter in duration. If so, it would probably have little effect on output or personal income, though it could dent confidence.

  A government shutdown at the end of the month has become much more likely over the last several weeks, in our view. Federal spending authority expires on September 30, and with little hope of resolving differences on full-year spending bills by then, Congress will need to pass a “continuing resolution” to avoid a lapse in funding that would result in a partial government shutdown.

  While the parties have disagreed on 2016 spending levels for some time, a shutdown only recently emerged as a risk, mainly because the controversy surrounding whether to block funds to the Planned Parenthood organization has created the sort of binary issue that has caused or threatened to cause shutdowns in the past. Some Republicans want to use the upcoming spending bill to block the organization from receiving federal funds, while Democrats generally oppose such a move. Unlike budget disagreements, which can be settled by meeting halfway, these issues are harder to resolve because one side basically needs to give up on their position.

  More generally, the political environment at the moment seems ripe for fiscal conflict. We are still closer to the last election than the next one, and it is not a coincidence that recent major fiscal disruptions occurred in 2011 and 2013—odd years—when upcoming elections were still more than a year off. In the 2013 experience, public sentiment toward Republicans dropped sharply during and after the shutdown (Gallup’s Republican favorability measure hit a 20-year low), but a year later Republicans won the majorities in the House and Senate. Some lawmakers may conclude from this that voters’ memories are short and the political price for a shutdown more than a year before the next election is low. Anti-establishment political sentiment is also running high; “outsider” candidates are performing surprisingly well in the contest for the Republican and, to a lesser extent, Democratic nomination, and efforts to remove House Speaker Boehner (R-OH) from his position as Speaker have resurfaced.

  Ultimately, the outlook hinges on House Republican leaders. In the next week or two, the House looks likely to pass a continuing resolution that defunds Planned Parenthood. The Senate already considered legislation dealing with that topic and failed to muster 60 votes, suggesting that only a “clean” funding bill can pass there. As has been the case several times before, this will put House leaders in the position of accepting a “clean” bill that the Senate will eventually pass, thereby averting a shutdown, or insisting on their version, which the President would surely veto in any case.

  There is more than one way that Congress could still avoid a shutdown at the end of the month. The most obvious option would be for House Republican leaders to bring “clean” spending legislation to a vote, with the expectation that it would pass with substantial Democratic support. To satisfy conservatives, the House could also vote on separate legislation to enact the specific policy changes some lawmakers are demanding, potentially via the reconciliation process, which requires only 51 votes in the Senate and therefore would allow congressional Republicans to send such a bill to the President’s desk (it would nevertheless be vetoed, but the effort might be enough to satisfy House conservatives). A second option would be to split off the controversial issues from the funding for other agencies, limiting the scope of any potential shutdown, similar to the strategy used in late 2014 to extend spending authority in the face of Republican opposition to the President’s executive action on immigration. However, it seems unlikely that congressional Democrats would support such a move this time around.

  So will a shutdown occur? With a few weeks to go until the deadline, the outlook is very murky but our best guess is that Congress will narrowly avoid it. While there are several considerations that make a shutdown possible, as noted above, support for the current effort is still fairly limited. Prior to the 2013 shutdown, for example, 80 House Republicans signed on to the effort to oppose spending legislation unless it blocked funding for the Affordable Care Act (ACA, or Obamacare). By contrast, only around 30 have signed on to the current effort, though that number may rise.

  More importantly, while the probability of a shutdown of some kind seems to us to be approaching 50%, we think the probability of a shutdown that has a significant effect on the financial markets or real economy is much lower, for two reasons.

  First, unlike the 2013 shutdown, which coincided with the deadline to raise the debt limit, the next deadline to raise the debt limit is unlikely to be reached until at least mid-November. As shown in Exhibit 1, shutdowns that overlapped with debt limit deadlines—the 1990 and 2013 shutdowns—have tended to result in a stronger reaction in financial markets than other shutdowns where the debt limit deadline was not about to be reached.

  Exhibit 1: Shutdowns create volatility mainly when they overlap with a debt limit deadline

  

  Source: Bloomberg, Congressional Research Service, Goldman Sachs Global Investment Research

  Second, a potential shutdown would probably be very short. In 2013, the shutdown ended up lasting longer than initially expected, in large part because the only natural deadline was the debt limit deadline, which was 2.5 weeks after funding lapsed. While one might argue that the lack of any deadline could lead to an even longer potential shutdown this year, it is more likely in our view that it would simply result in a decision to end the shutdown soon after it began, as has been the case with nearly every other government shutdown. In the 12 instances since 1980 that the federal government has shut down due to a funding lapse, the shutdown has lasted more than a week only twice. In 2013, we estimated that each week that all agencies were shut down would reduce real GDP growth in the quarter by around 0.2pp, though most of this effect would be reversed in the following quarter (after the first week, most civilian defense employees returned to work, reducing the economic effect of the final two weeks of what turned out to be a three-week shutdown).

  It is too early to predict with any certainty whether a shutdown will occur, let alone how long it might last, but as the situation stands today, it seems likely to us that if a shutdown does occur it would have a smaller effect than the one in 2013.

  

  

  

  

  

• Nomi Prins: Mexico, The Fed, & Counterparty Risk Concerns

  Submitted by Nomi Prins via NomiPrins.com,

  On August 27th, I had the opportunity to address the Aspen Institute, UNIFIMEX and PWC in Mexico City during a Q&A with Patricia Armendariz. Subsequenty, on August 28th, I gave the opening talk at the annual IMEF conference. The main issues of concern to local Mexican banks, as well as to Mexico's central bank, are:

  1) How the Federal Reserve's (and to a lesser extent ECB's and People's Bank of China) policies and actions have, and wlil continue to impact their currency and interest rate levels, and

   

  2) The risks posed by the structural, and ongoing problems of too-big-to-fail banks, which remain as much a US as a Mexican problem as manifested by heightened economic, market and financial stress.

  I posted the slides from my talk here, including the ten main risks that Mexico (and really all countries) are facing today, as well as the four factors of volatility that I have spoke about many times before. Much uncertainly emanates from central bank policy and the associated artificial stimulation of mega banking institutions and capital markets throughout the world. There is no foreseeable remedy to the long-term damage already caused, and that will continue to grow in the future.

  What follows is a related piece that I co-authored with researcher, Craig Wilson that first appeared in Peak Prosperity:

  Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid. Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales.  

  The World Bank and IMF award brownie points to the nations offering the most ‘financial liberalization’ or open market, privatization and foreign acquisition opportunities. Yet, protections against the inevitable capital outflows that follow are woefully inadequate, particularly for emerging markets.

  The financial world has been focused largely on the volatility of countries like China and Greece recently. But Mexico, the third largest US trading partner (after Canada and China), has tremendous exposure to big foreign banks, and the largest concentration of foreign bank ownership of any country in the world (mostly thanks to NAFTA stipulations.)

  In addition, the latitude Mexico has provided to the operations of these foreign financial firms means the nation is more exposed to the fallout of another acute financial crisis (not that we’ve escaped the last one).

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

  Mexico has benefited to an extent from its proximity to the temporary facade of US financial health buoyed by Fed policy, but as such, it faces grave dangers should any artificial bubble pop, or should the value of the US dollar or US interest rates rise.

  There are other clouds forming on Mexico’s horizon. In the past month, the Mexican stock market has fallen 6 percent. Its highs were last seen in September, 2014. Shares in the nation’s largest builder, Empresas ICA SAB, just fell to a 12-year low as lower growth expectations.

  

  (Source)

  Because of currency misalignments based on central bank machinations, the Mexican Peso sits near all time lows vs. the US dollar. The Central Bank of Mexico just announced a currency boosting round of $8.6 billion of Pesos over the next two months, with likely more to come. This impinges upon its reserves. (Source)

  Mid-level Mexican financial firms will struggle with access to credit should the air in the tires of this global liquidity boosting exercise continue to leak out. Other problems loom on Mexico’s horizon based on a host of interrelated factors.

  These include the potential of capital flight, liquidity loss, over-reliance on external debt and investors, oil price declines (oil revenues account for about one-third of Mexico’s federal government budget), economic downturn in the US or Mexico, and rising volatility due to central bank policy shifts impacting interest rates and currency relationships, geo-politics, credit defaults, or additional big bank crimes.

  The high concentration of large banks in Mexico and in the US presents extra systemic risk. Local Mexican firms and individuals, as well as foreign investors should consider these co-mingled factors and hedge against them for protection.

  Capital Flight due to US Rate Hikes, Real or Anticipated

  The possibility of US rate hikes, or even the threat of them, could freeze demand for non-US stocks and bonds – everywhere. If we learned anything from the US financial crisis, economic hardship in Greece and other Southern European countries, and the rout in the Chinese stock market, it’s that capital flight, particularly leveraged capital flight, can crucify an economy, especially high debt burdens accentuate the process.

  Mexico, though somewhat protected from financial upheaval during the first leg of the 2008 financial crisis, may be the next victim of capital’s mercurial tendencies for that very reason. Mexico’s relative stability and liberalized financial markets have invited more foreign capital through these channels, which means more can leave to return to headquarter countries, or seek opportunities elsewhere, in emergencies.

  In addition, heightened “de-risking” (or the reducing of counter-party agreements and cross-border remittances between the US and Mexico) will impact future remittance flows. Though de-risking practices are officially designated to thwart money launderers and drug-dealers – the true effect of the closing of bank branches or reduction of services that enable remittance flows burdens the population and the local banks that rely on them.

  Big Bank Concentration and Counterparty Risk

  Mexico’s domestic bank concentration problems have marginally improved since the financial crisis, but not by much. As of 2014, just five of Mexico’s private sector banks hold 72 percent of all financial assets. The top two, Banamex, a unit of Citigroup Inc., and BBVA Bancomer, a unit of Spain's Banco Bilbao Vizcaya Argentaria SA, hold 38 percent of all assets. (Source) (Source)

  Concentration has accelerated in the US. Since the financial crisis, the Big Six US banks (JPM Chase, Citigroup, Bank of America, Goldman Sachs, Wells Fargo and Morgan Stanley) have grown in terms of assets, deposits, cash, trading assets and derivatives volume.

  In terms of counter-party risk, from a credit and derivative perspective, the fewer banks operating in any sphere, the greater the risk that a collapse in any one of them triggers a domino effect in the others. The main foreign banks in Mexico, and those engaging in business with Mexican banks, can quickly close services and shift capital and credit from the country, or place barriers to retrieve it, in a pinch.

  Ongoing US Bank Bailouts and Mexican Fallout

  The US Federal Reserve buying program, though officially over, has rendered the Fed the largest hedge fund in the world, with a $4.5 trillion book of securities, more than a dozen times the figure of seven years earlier. The mortgage backed securities component remains at about $1.5 trillion, up from zero seven years ago.

  Mexico was fortunate not to have been on the US bank radar screen to receive, or be induced to borrow against, the $14 trillions of dollars of toxic US-bank made assets. US bankers mostly focused on selling these subprime assets into Europe. Thus, Mexico escaped the fallout that countries like Greece and Spain felt.  

  Still, Mexico’s financial conditions are showing increasing signs of weakness, despite comparatively low inflation and, as a result, the ability to keep interest rates around 3 percent (the same as in Chile) below those in Columbia and Peru.

  Aside from business problems, the amount of people living in poverty in Mexico increased from 49 million in 2008 to 53 million in 2012. In addition, Mexico came in last of the 34 countries examined by the Organization for Economic Co-operation and Development OECD for inequality. The combination of poverty and inequality on the ground, plus incoming instability on a business and banking basis could prove a disastrous mix in Mexico (and in the US) in the face of possible rising interest rates, a strengthening dollar in the near-term, or enhanced volatility.

  EM Debt Defaults and Bond-Stock Divergence

  Credit default risk looms as well. The amount of corporate and bank debt issued since the Fed embarked on its zero-interest rate and QE policy and pushed it on the world, has escalated. Thus, rising interest rates or corporate defaults in the US would impact Mexican (and other EM) corporate bond prices and default rates.

  The divergence between credit-risk as reflected by rising high-yield bond spreads (up from seven year lows in mid-2014) and equities is predominantly predicated on the 60 percent drop in oil prices this year, which as of August 20^th, hit a six and a half year low. The energy sector represents 15 percent of the high yield market.

  Energy stocks have dropped nearly thirty percent. If commodity prices continue falling, other sectors and the stock markets would be more effected. Countries reliant on oil revenues, such as Mexico where 30 percent of the federal budget is based upon them, are impacted directly from profit loss and secondarily by defaults. (Source)

  According to a recent report issued by the Institute of International Finance,  “Corporate Debt in Emerging Markets: What should we be worried about?”, emerging market (EM) non-financial corporate debt rose to a record high of 83 percent of GDP, up from 67 percent in 2009.  The total size of the EM non-financial corporate bond market has more than doubled to $2.4 trillion in 2014 vs. 2009.

  Between 2015 and 2017, about $645 billion of that debt is set to mature with US dollar denominated bonds comprising $108 billion of that figure. Meanwhile, the volume of non-performing loans and general debt payment burdens have risen on US dollar strength, meaning EM banks, particularly those exposed to high degrees of foreign-currency lending, are increasingly in trouble.

  

  Figure 1 – Source: BIS, IMF, OECD, McKinsey, IIF; Brazil, China, Czech Rep., Hungary, India,
  Indonesia, Mexico, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey.

  The low or zero interest rate policies from the FED, ECB and even EM central banks have propelled this issuance, particularly in the EM non-financial corporate segment, even in countries where public debt issuance hasn’t also skyrocketed.

  Of the $1.7 trillion EM in non-financial corporate debt raised since 2009 in  the international markets, about 30 percent ($510 billion) was in foreign currency, 80 percent of that ($430 billion) was in US dollars. The more reliant on external borrowing, the less stable a borrowing country’s financial situation becomes, and the more prone its firms are to downgrades or defaults as a result of external or internal weakening.

  The report notes that higher foreign-currency risk exists in countries like Brazil, Mexico and Korea. In addition, a number of EM countries are holding cash reserves in domestic bank accounts from large percentages of proceeds raised offshore. They would be forced to withdraw from these funds to support currency weaknesses to service debt, which could increase the funding risk of EM banks.

  What This All Means

  This level of global inter-connected financial risk is hazardous in Mexico, where it’s peppered by high bank concentration risk. No one wants another major financial crisis. Yet, that’s where we are headed absent major reconstructions of the banking framework and the central bank policies that exude extreme power over global economies and markets, in the US, Mexico, and throughout the world.

  Mexico’s problems could again ripple through Latin America where eroding confidence, volatility, and US dollar strength are already hurting economies and markets.

  The difference is that now, in contrast to the 1980s and 1990s debt crises, loan and bond amounts have not just been extended by private banks, but subsidized by the Fed and the ECB.  The risk platform is elevated. The fall, for both Mexico and its trading partners like the US, likely much harder.

   

  

  

  

  

  

• Sep 11 – David Tepper: Good Time To Take Money Off The Tablev
  Follow The Market Madness with Voice and Text on FinancialJuice

   

  EMOTION MOVING MARKETS NOW: 15/100 EXTREME FEAR

  PREVIOUS CLOSE: 13/100 EXTREME FEAR

  ONE WEEK AGO: 11/100 EXTREME FEAR

  ONE MONTH AGO: 9/100 EXTREME FEAR

  ONE YEAR AGO: 42/100 FEAR 

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 23.39% 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 24.37. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme 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 – HEY GIRL…

   

  UNUSUAL ACTIVITY

  RHT @$.75 .. SEP 72.5 CALL Activity 3300+ Contracts

  IP SEP WEEKLY2 42.5 CALLS @$.62 on offer 1300+ Contracts

  KHC SEP 70 PUT ACTIVITY 2K+ @$.50 on offer

  KRO Director Purchase 967 @$6.905 Purchase 1,033  @$6.909

  TTS SC 13G/A .. Tremblant Capital Group .. 11.69%

  More Unusual Activity…

   

  HEADLINES

   

  US Import Price Index (MoM) (Aug): -1.80% (est -1.60%, prev -0.90%)

  US Import Price Index (YoY) (Aug): -11.40% (est -11.10%,rev prev -10.50%)

  US DOE Crude Inventories (WoW) (Sep 04): 2570K (est 900K, prev 4667K)

  US DOE Cushing Inventories (WoW) (Sep 04): -897K (est 400K, prev -388K)

  US EIA Natural Gas Storage Change (Sep 04): 68 (est 77, prev 94)

  US Wholesale Inventories (MOM) (JUL): -0.1% (EST 0.30%, prev 0.90%)

  US Wholesale Trade Sales (MoM) (Jul): -0.3% (est 0.10%, prev 0.40%)

  US Initial Jobless Claims (Sep 05): 275K (est 275K, rev prev 281K

  US Continuing Claims (Aug 29): 2.26m (est 2.253m, rev prev 2.259m)

  US Kansas City Fed LMCI Index (Aug):-0.12(Prev -0.23)

  CA New Housing Price Index (YoY) (Jul): 1.3% (est 1.30%, prev 1.30%)

  CA Capacity Utilization Rate (Q2): 81.3%% (est 81.70%, rev prev 82.60%)

  BoE leaves rates unchanged, McCafferty dissents again in 8-1 vote

  ECB Liikanen: Bond purchases will be extended if needed

  ECB Praet: Recovery hinges on full implementation of QE

  David Tepper: Good time to take money off the table

   

  GOVERNMENTS/CENTRAL BANKS

  US’s Boehner: Fall Budget Talks To Discuss Disc Spending Hike –MNI

  BoE leaves rates unchanged; McCafferty dissents again in 8-1 vote –Rtrs

  ECB Liikanen: Bond purchases will be extended if needed –ForexLive

  ECB Praet: Cyclical recovery hinges on full implementation of QE –ForexLive

  Riksbank’s Skingsley: Economic activity is improving –Riksbank

  Reuters poll sees RBNZ cutting interest rates again in October –ForexLive

  Greek Interim FinMin: There will be no bail-in of Greek bank deposits –BBG

  GEOPOLITICS

  Putin To address Syria and ISIS in UN speech later this Month –Rtrs

  FIXED INCOME

  US sells 30-year bonds at 2.980% vs 2.990% WI –ForexLive

  Apple and Shell sell over E1bn of debt –FT

  European banks flock to issue dollar bonds –FT

  FX

  USD: USDJPY shows a reluctance above the 200 day MA –ForexLive

  GBP: BoE Minutes see considerable uncertainty over impact of GBP on inflation –ForexLive

  GBP: BoE Minutes see considerable uncertainty over impact of GBP on inflation –ForexLive

  EUR: EUR/JPY onto 136 handle on strong rally –FXstreet

  CNY: PBoC Adviser Huang: Yuan should not be pegged to USD –BBG

  CNY: PBoC Lowers Criteria For Cross Boarder Yuan Pooling –Business News

  CNY: China Premier Li: No basis for persistent yuan depreciation –FXStreet

  ENERGY/COMMODITIES

  WTI futures settle +4% at $45.92 per barrel

  Brent futures settle +2.75% at $48.89 per barrel

  US DOE Crude Oil Inventory Change (WoW) (Sep 04): 2570K (est 900K, prev 4667K)

  US DOE Cushing Crude Inventory Change (WoW) (Sep 04): -897K (est 400K, prev -388K)

  US DOE Gasoline Inventory Change (WoW) (Sep 04): 384K (est -150K, prev -271K)

  US DOE Distillate Inventory Change (WoW) (Sep 04): 952K (est 900K, prev 115K)

  US DOE Refinery Utilization (WoW) (Sep 04): -1.90% (est -0.50 %, prev -1.70%)

  US EIA Natural Gas Storage Change (Sep 04): 68 (est 77, prev 94)

  CRUDE: Saudi Arabian oil output down 100k bpd in August

  CRUDE: Kuwait: OPEC Not Keen To Shoulder Impact Of Price Decision

  AGS: World food prices fall sharply in August, extending slide –Rtrs

  LNG: LNG pipeline project could see more delays –Washington Times

  US shale giants turn to 2016 with somber outlook –RTRS

  EQUITIES

  S&P 500 unofficially closes up 0.5% at 1,952

  DJIA unofficially closes up 0.45% at 16,327

  Nasdaq unofficially closes up 0.8% at 4,795

  David Tepper: Good time to take money off the table –CNBC

  M&A: GE plans to sell asset management arm –FT

  M&A: EU to rule on $16.7bn Intel/Altera deal by 14/Oct –Rtrs

  M&A: Avon shares surge on deal report –FT

  BANKS: EU’s Vestager Confident’ of reaching agreement with Italy on bad bank –Rtrs

  INSURANCE: Lloyd’s of London H1 profit drops as competition bites –Rtrs

  TECH: Google rolls out Android Pay in US –Rtrs

  TECH: Dell says to invest $125 bln in China over five years –CNBC

  INDUSTRIALS: GE to decide on new location for HQ in Q4 –CNBC

  TECH: 3M to could spin off or sell its health information systems business –MW

  CRA: Moody’s affirms Glencore’s Baa2 ratings with negative outlook

  EMERGING MARKETS

  China is a source of global growth, not risk, says Li Keqiang –FT

  Fitch: US Money Market Funds’ Exposure to China Slowing

  Brazil Rousseff Promises New Fiscal Effort; Analysts Skeptical –MNI

   

  Brazil credits resilient after junk rating –Rtrs

  

  

  

  

  

• Presenting 3 Chinese "Endgame Scenarios"

  As we’ve tried to make abundantly clear in the wake of China’s adoption of a new currency regime in August, Beijing’s attempt to strike some kind of illusory compromise between a free floating currency and a currency that’s completely controlled by the PBoC was doomed from the word go. “Whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term,” BNP’s Mole Hau wrote last month, and as we said then, less of a role for the market means more of a role for the PBoC and that, in turn, means burning through FX reserves. 

  Complicating the situation further is the fact that FX reserve drawdowns work at cross purposes with RRR cuts by sucking liquidity from the market meaning each intervention necessitates some manner of short-term liquidity injection (e.g. reverse repos, etc.) or else more RRR cuts.

  Of course policy rate cuts and liquidity injections are seen by the market for what they are: attempts to ease. And unfortunately for China, that’s true whether or not the net effect of the push and pull on money markets is easing or not, and that perception on the part of the market leads to downward pressure on the yuan at which point the entire thing starts over again in a nightmarish, FX reserve-depleting circle.

  Add in stepped up efforts to close the gap between the onshore and offshore spot and you have yourself a rather untenable situation and as with all things untenable, there will, sooner or later, be an endgame. 

  Against this backdrop, we present Daiwa’s list of China’s three possible endgame scenarios (via Bloomberg): 

  China’s balance sheet under serious contractionary pressure as money leaves and Fed decision looms, resulting in three endgame scenarios, Daiwa analysts Kevin Lai and Junjie Tang write in note dated Sept. 9.

  • Scenario 1: PBOC actively intervenes by selling FX reserves to support CNY; a painful credit crunch ensues; companies come under pressure to liquidate assets to pay debts in classic case of “debt deflation”
  • Scenario 2: Govt. stops FX intervention and prints massive amounts of money; interest rates and reserve ratio potentially slashed; moves put significant downward pressure on CNY and implications of a currency crisis would be global 
  • Scenario 3: China muddles through between scenarios 1 and 2, where PBOC tries to manage an “orderly” downward adjustment for CNY; stimulus wouldn’t ultimately be large enough to have any meaningful impact

  So the commentary on Scenario 1 there seems to suggest that ultimately, China will not be able to wholly or effectively offset the liquidity crunch caused by the FX reserve burn, triggering a contractionary nightmare. Scenario 2 looks like a rehash of Citi’s recent suggestion, which for those who missed it (or for anyone in need of some Thursday comic relief), was this: 

  As regards funding the fiscal stimulus, only the central government has the deep pockets to do this on any significant scale. The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.

  Scenario 3 is probably what will end up playing out, but frankly, it’s not entirely clear that 3 is that much different from 1, because as we noted at the outset, the market doesn’t like the whole “orderly downward adjustment” idea, precisely because it telegraphs further devaluation which leads traders to speculate on more yuan weakness and that speculation necessitates more reserve liquidations. 

  In short, the only “scenario” that doesn’t result in an “endgame” is for everything to suddenly be fixed overnight, or, as SocGen recently put it, “for the RMB to appreciate compared to its current value will require a very positive environment for EM coupled with a cessation of capital outflows and a vibrant cyclical growth and an export recovery.” That, obviously, is laughable so all we can say to the PBoC (and also to the Fed, who must consider all of the above when weighing liftoff) is “good luck.”

  

  

  

  

  

• Caught On Tape: Donald Trump Asked About Libertarianism

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  *Note: This post originally maintained Trump was saying “be careful” to Nick Gillespie, when in reality he seems to have been talking to others walking with him in the crowd with equipment. The post has been changed to reflect this realization.

  Reason’s editor in chief Nick Gillespie recently caught up with Donald Trump on the campaign trail and asked him about libertarianism. This is what ensued:

   

  This exchange is troubling from several different angles.

  First off, Trump does his typical dance in which he avoids questions he doesn’t want to answer by giving a simplistic jingoistic response.

   

  He is clearly uncomfortable with the question. Why?

  Overall, the above exchange is kind of unnecessary since it’s abundantly clear Trump is anti-liberty and anti-freedom.

  Let’s recall what he said should be done with Edward Snowden. From a Washington Times story in 2013:

  Edward Snowden, the man at the heart of the NSA information leaks, is nothing but a “traitor” — and America ought to recreate history in dealing with him, real estate mogul Donald Trump said on a “Fox & Friends” interview.

   

  In other words, execute him, Mr. Trump implied.

   

  “I think Snowden is a terrible threat, I think he’s a terrible traitor, and you know what we used to do in the good old days when we were a strong country — you know what we used to do to traitors, right?”

  For more on the “real” Donald Trump, see:

  Rand Paul Op-ed Blasts Donald Trump – Calls Him a “Fake Conservative” and Wannabe “King”

  Will Donald Trump Run as a 3rd Party Candidate?

  Donald Trump the Demagogue

  You’re Fired – Trump Campaign Tweets Photo of Trump’s Head Next to Nazi Soldiers

  Meet the Immigrants Building Trump’s International Hotel in Washington D.C.

  

  

  

  

  

• The UN's "Sustainable Development Agenda" Is Basically A Giant Corporatist Fraud

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  This Agenda is a plan of action for people, planet and prosperity. It also seeks to strengthen universal peace in larger freedom. We recognize that eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development.

   

  All countries and all stakeholders, acting in collaborative partnership, will implement this plan. We are resolved to free the human race from the tyranny of poverty and want and to heal and secure our planet. We are determined to take the bold and transformative steps which are urgently needed to shift the world onto a sustainable and resilient path. As we embark on this collective journey, we pledge that no one will be left behind. The 17 Sustainable Development Goals and 169 targets which we are announcing today demonstrate the scale and ambition of this new universal Agenda. They seek to build on the Millennium Development Goals and complete what these did not achieve. They seek to realize the human rights of all and to achieve gender equality and the empowerment of all women and girls. They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental.

   

  – From the Preamble to the UN’s 2030 Agenda for Sustainable Development

   

  *  *  *

   

  UN records reveal that the intergovernmental body has already marginalised the very groups it claims to be rescuing from poverty, hunger and climate disaster.

   

  Records from the SDG process reveal that insiders at the heart of the UN’s intergovernment engagement negotiations have criticised the international body for pandering to the interests of big business and ignoring recommendations from grassroots stakeholders representing the world’s poor.

   

  Formal statements issued earlier this year as part of the UN’s Post-2015 Intergovernmental Negotiations on the SDGs, and published by the UN Sustainable Development Division, show that UN ‘Major Groups’ representing indigenous people, civil society, workers, young people and women remain deeply concerned by the general direction of the SDG process?—?whereas corporate interests from the rich, industrialised world have viewed the process favourably.

   

  This allegation is borne out by UN records, which show that its own Major Groups representing the very people the global institution professes to be empowering?—?poor people in developing countries?—?are increasingly sceptical of the SDG agenda.

   

  – From Nafeez Ahmed’s recent article: UN Plan to Save Earth is “Fig Leaf” for Big Business

  On September 25th, Pope Francis will address the United Nations General Assembly in New York City. To much fanfare, the Pope will celebrate the unveiling of the UN’s Sustainable Development Agenda 2030.

  A key plank of this agenda relates to the UN’s “Sustainable Development Goals,” or SDGs. While this sounds all warm and fuzzy, several well meaning participants have become horrified by the extent to which multi-national corporations have influenced the entire process. So much so, that insiders are claiming the UN is actually marginalizing the very people it claims to be saving. The poor, the weak, and the voiceless.

  In an invaluable piece of investigative reporting, Nafeez Ahmed writes the following:

  UN records reveal that the intergovernmental body has already marginalized the very groups it claims to be rescuing from poverty, hunger and climate disaster.

   

  At the end of this month, the UN will launch its new 2030 Sustainable Development agenda for “people, planet and prosperity” in New York, where it will be formally adopted by over 150 world leaders.

   

  The culmination of years of consultations between governments, communities and businesses all over the world, there is no doubt that the agenda’s 17 Sustainable Development Goals (SDGs) offer an unprecedented vision of the interdependence of global social, economic and environmental issues.

   

  But records from the SDG process reveal that insiders at the heart of the UN’s intergovernment engagement negotiations have criticised the international body for pandering to the interests of big business and ignoring recommendations from grassroots stakeholders representing the world’s poor.

   

  Formal statements issued earlier this year as part of the UN’s Post-2015 Intergovernmental Negotiations on the SDGs, and published by the UN Sustainable Development Division, show that UN ‘Major Groups’ representing indigenous people, civil society, workers, young people and women remain deeply concerned by the general direction of the SDG process?—?whereas corporate interests from the rich, industrialised world have viewed the process favorably.

   

  Among the ‘Major Groups’ engaged in the UN’s SDG process is ‘Business and Industry.’ Members of this group include fossil fuel companies like Statoil USA and Tullow Oil, multinational auto parts manufacturer Bridgestone Corporation, global power management firm Eaton Corporation, agribusiness conglomerate Monsanto, insurance giant Thamesbank, financial services major Bank of America, and hundreds of others from Coca Cola to Walt Disney to Dow Chemical.

   

  Despite claims that the UN’s previous Millennium Development Goals (MDG) have succeeded in halving global poverty since the 1990s, there is good reason to question this narrative.

   

  Today, 4.3 billion people live on less than $5 a day. Although higher than the World Bank poverty measure at $1.25 a day, the development charity ActionAid showed in a 2013 report that a more realistic poverty measure would be under $10 a day.

   

  Yet far from decreasing, since 1990 the number of people living under $10 a day has increased by 25%. Global poverty has not reduced?—?it’s got worse.

  But all we know what has gotten better…a lot better. Corporate profits.

  I asked Hickel why, despite so much internal criticism from UN stakeholders within the SDG process itself, these concerns had not impacted on the text of the SDG ‘Zero Draft.’ “In an early version of the Zero Draft, there was a commitment to replace GDP with an alternative measure of economic well-being. But somehow that disappeared from the final text,” said Hickel. “I don’t know what happened behind the scenes.” 

   

  This allegation is borne out by UN records, which show that its own Major Groups representing the very people the global institution professes to be empowering?—?poor people in developing countries?—?are increasingly skeptical of the SDG agenda. 

   

  The civil society statement also points to parallel efforts by Western governments to forge new ‘free-trade’ agreements, such as the Transatlantic Trade and Investment Partnership (TTIP) along with proposed Investor-State Dispute Settlement (ISDS) clauses.

  Yep, sounds exactly like the “free trade fraud” being perpetrated on the global populace at the moment. The current status quo strategy is to put a “nice spin” on what are essentially corporatist takeovers. See:

  U.S. State Department Upgrades Serial Human Rights Abuser Malaysia to Include it in the TPP

  Forget the TPP – Wikileaks Releases Documents from the Equally Shady “Trade in Services Agreement,” or TISA

  Julian Assange on the TPP – “Deal Isn’t About Trade, It’s About Corporate Control”

  Trade Expert and TPP Whistleblower – “We Should Be Very Concerned about What’s Hidden in This Trade Deal”

  As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP

  These new trade and investment frameworks are being negotiated by governments in secret without public accountability. The UN’s civil society group notes that the ISDS clauses “empower corporations to sue governments for reducing the value of investments through regulations that promote human rights, the environment, and labor standards.”

   

  Yet the SDGs offer little to protect vulnerable communities in the face of such corporate encroachment.

  Surprised? You shouldn’t be. This whole thing is just corporatist PR.

  On 25th March, the Indigenous Peoples Working Group told a Major Group dialogue hosted by the Trusteeship Council Chamber at UN headquarters that the SDG process “is in jeopardy of excluding Indigenous Peoples from the agenda.”

   

  The SDGs make no clear reference to the human right to water, for example, effectively providing “an open door for turning water into a commodity.”

   

  The UN workers group particularly opposes the emphasis on public-private partnerships, which it describes as “an expensive and inefficient way of financing infrastructure and services, since they conceal public borrowing, while providing long-term state guarantees for profits to private companies.”

  As I have maintained for years, the moment you hear “public-private partnership” run for the hills. You are being screwed over in unimaginable ways. See:

  Meet Cyber P3 – The U.S. Military’s Public-Private Partnership to Create Corporate/Government “Cyber Soldiers”

  Wall Street Teams Up with U.S. Intelligence Cronies in Bid to Form Fascist “Cyber War Council”

  Bread and Circuses – The Shady, Slimy and Corrupt World of Taxpayer Funded Sports Stadiums

  A Deep Look into the Shady World of the Private Prison Industry

  In fact, despite overwhelming support from UN member states for a more robust and transformative approach, the report reveals that “a vocal minority, including the Vatican and Saudi Arabia, has once again blocked consensus.”

   

  The failure of the SDG process to incorporate such criticisms from the UN’s own Major Groups representing marginalized communities, is a direct result of entrenched power disparities within the UN itself.

   

  According to an expert report circulated to UN officials, a detailed analysis of SDG documents reveals that the entire process has been “fundamentally compromised” by corporations with a vested interest in continuing business-as-usual.

   

  In addition to mis-framing the structural origins of poverty, the report shows that the very concept of “development” deployed within the UN’s SDG documents derives from a “specifically neoliberal and corporatist conception of how the world does and should work.”

   

  Despite acknowledging “deep problems and contradictions when relying on GDP growth to tackle poverty”, the SDG agenda still leaves “undifferentiated, perpetual growth” as the prime basis of development.

   

  Hidden between the lines of the SDG vision, then, is a great delusion?—?the unflinching blind faith of the rich industrialised elite in the unquestionable perfection and immortality of neoliberal capitalism as a ‘way of life.’

   

  According to Brewer, by removing all discussions about power from the SDG process, “the increasingly unpopular neoliberal agenda remains fully in place.”

   

  The total omission of corporate and banking power from SDG texts, despite their unprecedented prevalence in the UN process, “is very telling in its own right,” he told me. “We know that multinational corporations are the most powerful political actors, and that they are profoundly concentrated vehicles for wealth consolidation.”

   

  This is why, Alnoor Ladha explained, TheRules.org did not engage in the formal UN civil society SDG process.

   

  “The process is a sham,” he said. “They will co-opt our engagement and say they have consulted us. All of the civil society groups that have tried to reform the SDGs have been co-opted by the UN, including the more critical voices.”

   

  In other words, the SDG stakeholder engagement process draws selectively on the input of civil society groups to promote its public legitimacy, while systematically ignoring the voices that challenge the wider political and economic structures in which the entire process is embedded.

  The above represents only excerpts from Dr. Ahmed’s piece, which can be found in its entirety here.

  

  

  

  

  

• What Bubble? 6 Castles That Are Cheaper To Rent Than An Apartment In NYC Or SF

  As we have noted numerous times in the past, there is a Bull market in serfdom.

  

   

  America's Renter Nation has never spent more of its paycheck on rent and as Zumper notes, with rent prices in San Francisco and New York at the highest in the nation, affordability does not seem to exist in these two metropolitan areas. For some idea of the scale, there are actually castles in France and Italy that can be rented for about the same price as average apartments in these cities…

  All of the castles on this list have at least five bedrooms (one has eleven), while the correspondingly priced apartments in San Francisco or New York range from a studio with a murphy bed to a four bedroom.

  1. Antic Castle, Tuscany, Italy- 11 bed, 11 bath, $4,040/month

  Nestled on a private hill and surrounded by trees and vineyards, this massive eleven bed castle can comfortably house up to twenty five guests. Built in the Middle Ages, this former aristocratic residence has been renovated to include modern day luxuries such as air conditioning, central heating, and satellite television. However, the 17th century stone fireplaces and beautiful terracotta floors still exude a warm, historical charm.

   

  

  

  

  Or you can rent…

  Stuyvesant Town, New York City, NY- 2 bed, 1 bath, $4,000/month

  Newly renovated, this contemporary two bedroom apartment has spacious bedrooms with generous closets, an adorable kitchen with modern appliances, and a stylish bathroom with a sparkling tub. Along with concierge service, this apartment building also comes with a fitness center, residents lounge, and on-site laundry. Having twenty five guests may be a little tight, however.

   

  

  

  

   

   

  2. Chateau Le Mur, Comblessac, France- 8 bed, 5 bath, $2,800/month

  Sitting on 180 acres, this fifteenth century, eight bedroom castle is immense and fit for royalty. You can take in the stunning views of the scenic dairy farms nearby from the balcony or sunbathe in the bountiful garden. Inside, there are multiple, large fireplaces, medieval themed kitchens, and a knight’s armor at the door to greet you.

  

  

  

   

  Or you can rent…

  Upper East Side, New York City, NY – 2 bed, 1 bath, $2,995/month

  Recently renovated, this cozy two bedroom apartment has glossy hardwood floors, new fixtures, and a minimalist kitchen. The bedrooms are compact, but with large windows to let in an abundance of natural light, the rooms feel much bigger than they are.

  

  

  

   

  3. Chateau Arfeuilles, Region Auvergne, France- 6 bed, 3 bath, $6,525/month

  Sophisticated and elegant, this six bed castle has been carefully decorated so each room is unique but the entire interior still exudes a tasteful charm throughout. The kitchen is fully equipped with modern appliances, there are two living rooms, one with a television, and every bedroom has a chandelier hanging from the ceiling. If you want to enjoy the sun, you can bask by the pool or lounge in one of the terraces.

  

  

  

   

  Or you can rent…

  Hell’s Kitchen, New York City, NY- 4 bed, 2 bath, $6,700/month

  In a brand new building, this stylish four bedroom apartment has shiny oak floors throughout, a natural calacatta marble backsplash in the kitchen, and porcelain walls in the shower. There is a large rooftop sun deck, private storage available, and 24/7 security in the lobby.

  

  

  

   

  4. Ringuette, Region Aquitaine, France- 7 bed, 2 bath, $2,925/month

  On a piece of land that covers over 200 acres, this magnificent seven bed castle can accommodate up to twelve people. The spacious kitchen has a wood stove and the living room has a large fireplace. Outside, there is a lush, walled garden covered with vines and flowers, a private swimming pool, and a beautiful courtyard formed by the structures of the castle.

  

  

  

   

  Or you can rent…

  Lower Haight, San Francisco, CA- Studio, 1 bath, $3,000/month

  With just over 400 square feet, this snug studio apartment comes fully furnished with designer fittings. If you wanted to entertain guests, the Becker Murphy bed can be lifted up and hidden away. The kitchen has modern appliances and the bathroom comes with a tub. Some building amenities include a fitness center and a landscaped roof deck.

  

  

  

   

  5. Perrier, Périgord, France- 6 bed, 5 bath, $4,940/month

  Fully restored, this tremendous six bedroom castle has a double fireplace in the living room, a large kitchen, and a game room with a billiard table. Outside, you can take in the stunning views of the countryside in the garden that covers three acres, play football in one of the several lawns, or relax and enjoy the sun in the private pool.

  

  

  

   

  Or you can rent…

  Laurel Heights, San Francisco, CA- 3 bed, 2 bath, $4,995/month

  With plenty of windows, this bright three bedroom apartment lets in plenty of natural light. Dark, hardwood floors run throughout the home and the spacious master bedroom has a large walk-in closet. The kitchen has a breakfast bar that opens up into the dining room area and there is a wood-burning fireplace in the living room.

  

  

   

  6. Manoir de la Motte, La Motte, France – 5 bed, 3.5 bath, $6,064/month

  Tucked in an abundance of trees, this five bed, nineteenth century castle is a hidden, romantic escape from the world. All of the bedrooms are meticulously decorated with embroidered sheets and beautiful draping over the beds. You can take a hike through the lush forest or relax and enjoy the peaceful ambiance in the private garden.

  

  

  

   

  Or you can rent…

  NOPA, San Francisco, CA- 3 bed, 2.5 bath, $6,300/month

  With 1,750 square feet of space, this three bedroom condo feels like a single family home. It has a recently remodeled kitchen with new appliances, a quaint garden with lemon and plum trees, and adorable pastel walls throughout the home. There are glossy hardwood floors in the living room and kitchen and soft beige carpet in the bedrooms.

  

  

  

  Source: Zumper.com

  *  *  *

  With buying out of the question for mnost (hint – Student loans and affordability) and renting becoming increasingly unaffordable, the entire household formation "upside case" is now collapsing on itself, something we've discussed on a number of occasions. Recall the rise in "parental co-residence rates":

  

  

  Note that this situation has the potential to become self-fullfilling. That is, as homeownership becomes increasingly unrealistic, demand for rentals will only increase, driving further increases in the cost of rental housing. The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?

  

  

  

  

  

• "If It Bleeds, We Can Kill It" – Top Performing Hedge Fund Manager Compares China To The Predator

  It is no accident that over the years, and especially in the past few months, we have been profiling what in our opinion is one of the few, truly worthy hedge funds, Horseman Global, which despite (or maybe due to) being net short stocks since the start of 2012 (and long bonds), has outperformed 99% of its peers and has generated tremendous returns during its lifetime.

  Just last month, in “Short For Three And A Half Years And Outperforming 98% Of Traders: This Hedge Fund Did It“, we explained how in July the fund generated a 7% return, just as all the beta-levered, momentum-monkey, hedge fund hotel residents were losing steam.

  One month later, and following a ghastly August in which virtually everyone lost money, the $2.5 billion Horseman was up a whopping 9.4%, and is now up 17.7% for the year.

  

  And no, you can’t allocate the funds you redeemed from Ackman to Horseman at this moment: “Due to a high level of interest in the fund, we are again soft closing the fund. Any investment into the fund will need approval.”

  But it was not easy, as the following story from Russel Clark, Horseman’s CIO, recounts in the fund’s monthly letter.

  Being bearish on China for the last few years has reminded me of the 1987 action classic “Predator”. In the film, a special ops force are ordered on a mission to an unnamed South American jungle.

   

  However, while trying to complete their mission they are slowly hunted down by an alien creature. At each stage, they think they have managed to trap it, but it continually defies anything any of them have seen before. It moves and lives in the trees! It can turn itself invisible! It has infra-red and heat vision! It has a shoulder mounted laser rifle! Needless to say most if not all of the members of the team succumb to its abilities….

   

  For bears, much like the alien in Predator, the Chinese government has continually used special abilities that were previously unknown. The first surprise came in 2008/9 when China embarked on an immense stimulus program, where decade’s worth of infrastructure investment was fast tracked to counteract the global slowdown, a punishing period for anyone short at the time.

   

  Eventually, the infrastructure boom came to an end, and there seemed to be an excess of housing in the market. Many funds were bearish on Chinese property developers in 2011, only to see the government promote housing investment. Many property stocks, went on to rally 300% or more. Your fund had been short property names, but having been caught on the wrong end of policy before, managed to avoid getting caught in this attack on bearishness.

   

  Then in 2014, with the real exchange rate of the Renminbi surging as both Japan and Europe devalued their currencies via Quantitative Easing, it seemed that China was running out of options. If they cut interest rates to promote growth, then they would have to devalue. And yet, somehow the government was able to manufacture a stock market boom. This meant that capital that would usually leave China as interest rates were cut stayed in China to participate in the stock market.

   

  Bearish investors in China had been picked off relentlessly and seemingly effortlessly by the government and the central bank. But then just as suddenly, the stock market started to sell off and the pressure on the currency began to build. This led to the small devaluation we saw in the Renminbi in August.

   

  The People’s Bank of China (‘PBOC’) has fallen into a classic emerging market trap in my view. There was some pressure on the exchange rate, but they were unwilling to raise rates to defend the currency, so chose to devalue. However, as they wished to promote stability they devalued by a relatively small amount, in the hope that this will reduce capital outflows.  

   

  In this they are completely wrong. The small devaluation will do nothing for the export sector, but creates huge amount of fear in the investing public, that has previously assumed the exchange rate was “safe”. Contrary to reducing pressure, the small devaluation will actually increase the capital outflow, and the pressure on the exchange rate. If the PBOC had really wanted to reduce capital outflow, it would have needed to move the exchange rate much more significantly.

   

  In my experience, in the mind of the international investment community, small devaluations tend to encourage even more capital outflow, which in turn leads to even larger devaluations. Or to borrow a line from Predator, “If it bleeds, we can kill it”.

  In the movie, the Predator dies.

  As for the punchline, Clark goes out in style: “Your fund remains long bonds and short equities.”

  

  

  

  

  

• Iran Cuts Crude 'Selling Price' To Asia To 3-Year Low

  In what appears to be a bid to lure Asian buyers to lock in longer-term supplies, Reuters reports that Iran has cut its quarterly selling price (for its flagship 'light' crude) to its lowest (relative to Saudi) since Q4 2012. According to recent tanker loading data, Iran's oil sales in September are set to hit a six-month low, and this price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since U.S. and European sanctions aimed at its nuclear program cut its crude oil exports by more than half.

  Iran has cut its relative prices notably over the past year…

  

  Iran set its official selling price (OSP) for Iranian Light crude for October at a 25 cents a barrel premium to Oman/Dubai, down 35 cents from the month before, two sources with knowledge of the matter said on Thursday.

  This puts Iranian Light OSP at a 15-cent premium to Saudi's Arab Light in the fourth quarter, the lowest quarterly price since the last three months of 2012, according to Reuters data.

  As Reuters reports,

  Asian buyers have called for lower prices amid a supply glut that has made it tougher for Iran to elbow its way to higher sales volumes despite optimism over the deal that eased some of the sanctions in exchange for curbs on Tehran's nuclear work.

   

  An executive at a North Asian oil refiner said it is in talks with the National Iranian Oil Company for next year's term supply, but that Iran's crude prices have been uncompetitive.

   

  …

   

  Iran sets its OSPs every quarter at differentials to Saudi prices, following discussions with key customers.

   

  In the fight for market share, Iran and fellow members of the Organization of the Petroleum Exporting Countries, including Kuwait and Iraq, have dangled carrots in the form of extended credit and free oil deliveries in addition to outright price cuts to increase their sales.

  *  *  *

  Time for another sit down in The White House with The Sauds…

  

  

  

  

  

• Why Apple’s Launch Event Was "Creepy As Hell"

  Submitted by Doug Litowitz

  Apple’s Launch Event Was Creepy As Hell

  Yesterday all eyes were on Apple’s product launch.

  This is because Apple has become a bellwether for the stock market as a whole.

  Legendary short seller Jim Chanos spoke candidly to CNBC, explaining that institutional investors and hedge funds are treating Apple stock as a “hedge fund hotel” where they can buy a single name and ride it upwards as opposed to concocting complex trading systems as they did in the past. Indeed, SEC filings by hedge funds bear this out, and so the product launch attracted a huge audience, generating play-by-play reporting on CNBC and Yahoo Finance.

  By the end of trading, Apple stock declined nearly 2%, indicating that investors were not impressed.

  To paraphrase poet Horace, the mountain shuddered and gave birth to a ridiculous mouse.

  I too watched the entire product launch. The Apple Watch doesn’t do much more than other devices and it looks ugly next to a Rolex; the new iPhone has a few tweaks that don’t amount to much; the new iPad Pro tablet is unwieldy with a humor-inducing stylus; and the Apple TV box is interesting for voice-activation but not that different from what others are already offering in streaming content.

  That would be the end of my story.

  But I am feel obliged to confess that I found the event creepy as hell from a psychological and cultural perspective.

  After two hours of watching their best and brightest, my mind was reeling with associations of cults, lifestyle gurus, and new-age hokum.

  The Man At The Helm

  Let’s start with the venue, which was the first thing CEO Tim Cook mentioned in his opening remarks. It was held in San Francisco at the Bill Graham Civic Center. Stop right there. What makes Apple so “civic” that it needs a public forum, instead of launching products from its own headquarters? 

  

  Apple doesn’t seem particularly “civic” to me, and not to the Senate Subcommittee that has been investigating how they avoid paying taxes while sticking you and me with their tab. They move corporate entities offshore to avoid taxation that would benefit the civic community, and they run sweatshops in China instead of hiring Californians drawn from the, uh, civic community.

  So it’s a cheap trick to hold the launch in a civic center named after a man who launched free health clinics and free festivals to celebrate the counterculture against big corporations like, well, Apple. You cannot squeeze out some kind of imprimatur of good citizenship by holding a product launch in a “civic” center.  I’m not buying it.

  The second problem is that Tim Cook took the stage dressed – or rather underdressed – in blue jeans and an ill-fitting blue shirt with a plain belt.  The outfit looked like it was thrown together at the last minute from the clearance rack at Kohl’s. This man is worth hundreds of millions of dollars and runs the most profitable company in the world. I refuse to believe that he is too busy (or too cheap) to stop at Nordstrom Rack and drop $800 on a pair of Armani slacks, a Zegna dress shirt, a Hugo Boss tie, and Allen Edmonds’ belt and shoes.

  Cook recently came out as gay, which took courage, and I applaud that. But that only makes his choice of outfit more bizarre. Is he playing against type, to make the point that gays can be slobs too? Or is he saying that gays are harmless and will conform seamlessly? Regardless of his sexuality, there is no reason to dress that way except to brainwash us into thinking that he is so laser-focused on product development that ‘clothes be damned.’ Again, I’m not buying it.

  Steve Jobs could get away with wearing a turtleneck sweater because he had a maverick personality to back it up. To put it crudely, when you watched Steve Jobs, you knew that he was an SOB on some level, that he wasn’t there to impress you as much as to impress himself, and he knew that you knew it. He had demons. But sometimes a bad guy is good, so to speak. We all knew that Jobs’ refusal to dress ‘appropriately’ was the flipside of a loner genius with a unique vision who wasn’t going to conform. He was half-crazy but headed to unexplored territory. The first guy who does that is authentic; the second guy is not. CEO Tim Cook is the second guy.

  Cook’s persona is creepy, almost mortician-esque. He has an unconvincing forced jubilance, wedded to a lurking, hunchbacked rigidity. His body seems superfluous, a nuisance. The white hair and nerdy glasses round out a kind of depthless, mealy look that betrays a measure of cruelty. His arms hang useless, as if he has to exert every ounce of willpower to raise them when the script calls for mock exultation.

  I watched him closely for 30 minutes and then it hit me.

  Cook IS a computer.

  Or at least, he’s more like a computer than a human.

  Intelligent, desexualized, emotionless, disembodied, apolitical, steely, gimmicky, and lacking in charisma. He wants us to become cybernetic, to sync our entire lives to Apple so that we become computers like him.  The technology does not have some higher purpose like social justice, or eradication of disease, or ending poverty. The bar is much lower: you can now get the weather and read CNN headlines on your watch – what a great day in Western Civilization! Cook and his ‘team’ (as he refers to the thousands of people who do the actual work under extreme stress) don’t have any appreciation for the downside of technology.  

  Missing Apple’s Man Upstairs

  Steve Jobs understood minimalism.

  Sometimes less is more. And he had a weird belief system that made him something of a Luddite – he would not let his own kids use the iPad, he forced them to talk face-to-face, and he ridiculed college kids who wanted to go to Silicon Valley just to make money.  For all his eccentricities, he knew that there was an outside world and that bigger things were at stake.

  

  Cook is the other extreme – he thinks that technology improves everything, and that every little gimmick is noteworthy. In his world, the Apple Watch and the new iPhone are miraculous contributions because they let you change the channel on the Apple TV without getting off your butt and fetching a remote.

  As an illustration of how the Apple Watch changed people’s lives, he tells us how the watch helped a man keep to an exercise schedule. Does he think we’re so dumb we believe this was never possible until the invention of this watch?  Also he showed how a doctor could tilt the watch forward and check his daily schedule of rounds; ironically, this task was something that my own father could handle with a small notebook and a pencil in the 1960s, as a doctor at San Francisco General Hospital no less.

  The Apple Launch soon became a drone-fest, with Cook introducing another man who was dressed virtually identically to Cook, who introduced another guy dressed the same, and then a woman dressed similarly, then again another guy, like Russian matryorska dolls popping out of each other. They were all in the same uniform, or rather anti-uniform, in some kind of California-forced-conformity/anti-conformity. The last time I saw so many people looking like that, it was the mass suicide at Heaven’s Gate.  

  They were all being ‘authentic’ by wearing the same thing and telling us that we were ‘revolutionary’ by consuming their products. It’s the same line used by the guy at the mall who sells Anarchy T-shirts for $20. Soon, these words lose their meaning: authentic people dressed alike, humans wearing machines to supposedly make them more human, freedom by buying more products. Do they believe this stuff themselves?

  And then there is Siri, who featured prominently in the show.

  “SORRY… I DIDN’T GET THAT…”

  To all the idiots in the audience, let me remind you that Siri is not a human person.

  It is a search engine with a voice. To attribute wisdom to Siri, or to think that Siri is your servant or your friend, is to mistake a THING for a HUMAN. Apple shamelessly encourages this category mistake by having its spokesmen talk to Siri as a person, in the same way that a psychotic ventriloquist converses with his dummy. There is nothing more pathos inducing, more cringe-worthy, than a grown human being asking a machine what is the meaning of life.  

  

  I have saved the most disturbing phenomenon for last. The audience spent most of its time looking at computers and smart phones on their laps, and taking pictures of each other and the event. They were present, and yet they weren’t. What a spectacle. Thousands of people celebrating how the computer will set them free and let them connect to anyone and anything, but each lost in their own computer world, incapable of connecting with anything outside themselves.

  Mercifully, it ended with Cook giving a shout out to the Apple workers in the audience, who responded like cult members fed sugar and gumballs all week. And then, in a fawning introduction, he introduced the band One Republic, who gave a kind of generic performance that would offend nobody, in a hall that hosted revolutionary bands like Jimi Hendrix, Janis Joplin, and the Grateful Dead.

  Lest I be called a killjoy, let it be noted that I am typing this on a MacBook Air. I have an iPhone 6, and an iPad Mini. I am an Apple person, as it were. But just because I buy the products doesn’t mean that I buy the mythology surrounding them.

  I know that for every connection I make online, there is a connection I lose in the real world. For every song I can record playing guitar and singing into my MacBook, there is a place where I could be playing with real people. And I have been to China and seen the factories, so I know that for every machine I buy, there is someone getting rich, someone getting cheated, someone unhappy, a miserable executive, a ruined life in a dirty dormitory. For everything there is a trade off, that’s life. And there are limits to what technology can do. The Apple Watch can show my appointments today, and the Apple TV can find all the movies starring Jason Bateman, but I am not going to stand up and clap for it, for the simple reason that it cannot help us end violence, or reduce poverty, or provide health care, or spark an economic recovery.  I don’t clap for my refrigerator either.

  The Apple Launch is a closed circle of fawning sycophants, thrilled with gimmicks, adapted to computers, programmed, a throng of identical authentic individuals chained to their machines and congratulating themselves on being ‘connected,’ led by a human that resembles a robot.

  Two hours of watching the Apple Launch actually made the Manson Family seem homey.

  

  

  

  

  

• Mapping A Migration: An Infographic Look At Europe's Refugee Crisis Response

  Well, it’s official, Washington can add “out of control refugee crisis” to the list of bad foreign policy outcomes stemming from America’s Mid-East meddling.

  That list also includes things like accidentally arming an Iran-backed militia with a half billion in sophisticated weapons in Yemen, sponsoring the nullification of a democratic election outcome in Turkey, abandoning support for one Egyptian despot only to see the new US-backed despot sentenced to death after being overthrown in a military coup, and training a group of Syrian freedom fighters who later metamorphosed into a black flag-waving band of marauding jihadists bent on establishing a medieval caliphate. 

  And that’s all in the space of, let’s call it five years.

  Of course the US has a habit of dragging its European allies along for the ride and the conflict in Syria is no different only this time around, not only will Western Europe be expected to join (or at the very least verbally sanction) the invasion of a sovereign Middle Eastern country at the possible cost of thousands of soldiers’ lives, it will now also have to cope with an unprecedented flow of asylum seekers fleeing the carnage in Syria. The EU’s first stab at tackling the migrant crisis came on Wednesday in the form of a compulsory quota system that seeks to distribute some 160,000 refugees. Because the “plan” has been the subject of some confusion and a lot of criticism, we thought it useful to provide an overview of the proposal and on that note, we turn it over to The New York Times:

  The president of the European Commission offered a plan on Wednesday to share the burden of resettling 160,000 people in Greece, Hungary and Italy, the three countries where the most migrants have arrived in Europe.

   

  The plan assigns each member state a number of people based on its economic strength, population, unemployment and the number of asylum applications it has approved over the last five years.

   

  Based on the proportions outlined in the proposal, here are countries that have already approved asylum applications at a rate:

   

  

  

  

  

  

  

  

• Paul Krugman Is "Really, Really Worried" That He Might Have Screwed Up Japan

  Late last year, a very important and very “powerful” man took a field trip to Japan to observe Keynesian insanity prowling around in its natural habitat…

  

  That’s right, last November Paul Krugman – the mere mention of whom is enough to strike terror in the hearts and minds of the sane – found himself in a limousine with Japanese economist Etsuro Honda who was intent on securing the Nobel laureate’s help in convincing Prime Minister Shinzo Abe to delay a planned (and prudent) sales tax hike. As a reminder, here’s how Bloomberg described the “historic” series of events:

  When Japanese economist Etsuro Honda heard that Paul Krugman was planning a visit to Tokyo, he saw an opportunity to seize the advantage in Japan’s sales-tax debate.

   

  With a December deadline approaching, Prime Minister Shinzo Abe was considering whether to go ahead with a 2015 boost to the consumption levy. Evidence was mounting that the world’s third-largest economy was struggling to shake off the blow from raising the rate in April, which had triggered Japan’s deepest quarterly contraction since the global credit crisis.

   

  Honda, 59, an academic who’s known Abe, 60, for three decades and serves as an economic adviser to the prime minister, had opposed the April move and was telling him to delay the next one. Enter Krugman, the Nobel laureate who had been writing columns on why a postponement was needed.

   

  It was in a limousine ride from the Imperial Hotel that Honda told Krugman, 61, what was at stake for the meeting. The economist, who’s now heading to the City University of New York from Princeton University, had the chance to help convince the prime minister that he had to put off the 2015 increase.

   

  The concept of outside opinion influencing Japanese decision-making is known as gaiatsu, or foreign pressure, in Japanese, and has historical precedent since at least the arrival of U.S. Commodore Matthew Perry’s squadron in 1853 in Tokyo Bay, which led to an opening in the nation’s trade policies. Gaiatsu also has been used as cover by Japanese officials when they’ve pushed through controversial measures.

   

  Krugman plays down his role, saying the Nov. 6 meeting with Abe “was very straightforward.”

  But Honda tells a different story:

  “That nailed Abe’s decision — Krugman was Krugman, he was so powerful.”

  Yes, “Krugman was Krugman,” which means everyone in attendance was subjected to 40 minutes of crisply-worded nonsense and unlike Deputy Riksbank Governor Per Jansson – who, earlier this year, suggested that Krugman “write fewer articles and have more of a look at the data” after Krugman essentially accused Sweden’s central bank of being an evil cabal of job-hating heretics motivated by an overwhelming (not to mention completely inexplicable) desire to perpetuate global inequality by enriching creditors at the expense of impoverished debtors – no one had the good sense to tell him to shut up. 

  Sure enough, the tax hike was delayed. 

  Just days earlier, Krugman penned the following laughably ridiculous words in a blog post explaining why Japan should avoid doing anything that could be mistaken for a rollback of Abenomics:

  When I see, say, the IMF inserting into its latest Japan survey a section titled “Maintaining focus on fiscal sustainability” my heart sinks (and so, maybe, does Abenomics); [even though] it’s hard to argue against sustainability.

  It sure is, but Krugman will do it and powerful people will unfortunately listen and by the time everyone realizes that efforts to micromanage economic outcomes and smooth out the business cycle by cranking up the printing presses and gluing rates to the zero lower bound have failed it will be far, far too late to normalize which of course is precisely what’s unfolding across the world today. 

  We retold the story presented above because on Thursday a very funny thing happened: Paul Krugman told an audience in Tokyo that he is “really, really worried” that Abenomics might fail. Here’s Bloomberg:

  Nobel laureate Paul Krugman said risks of failure are growing for Prime Minister Shinzo Abe’s “Abenomics” campaign to end Japan’s two-decade slump.

   

  “I’m still really, really worried,” Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

   

  “Japan has spent a long time in this deflationary trouble,” said Krugman, who helped convince Abe to delay another planned increase in the nation’s sales tax after a hike in April last year pushed the world’s third-biggest economy into a recession.

   

  Japan needs to reach a point where everyone believes that it has pulled out of deflation, he said. “And then if that can be believed, then it may be able to stay out of trouble thereafter,” he said.

  Reading that, we’re reminded of BoJ cheif Haruhiko Kuroda, who, back in June, hilariously likened himself and his fellow DM central bankers to Peter Pan when he said the following about what’s needed to perpetuate the central bank omnipotence myth:

  “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.” 

  What Krugman and Pan are both tacitly admitting, is that Abenomics has demonstrably failed and the only thing that can save Japan now is for everyone to suspend disbelief in the face of voluminous evidence that what Kuroda and Abe (at Krugman’s behest) are doing simply isn’t working.

  And because “Krugman is Krugman”, we’re never more than one Google search away from a hilarious soundbite from the New York Times blog archives, and so it’s with great pleasure and with everything said above in mind, that we leave you with the following excerpt from a Krugman classic entitled “Why Keynes Is Slowing Winning” ca. 2014:

  “Why does the tide finally seem to be turning? Partly, I think, it’s just a matter of time; after six years it’s becoming hard not to notice that the anti-Keynesians have been wrong about everything. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous.”

   

  
  

  

  

  

  

  

• Kerry Picks Clinton Donor To Be State Department's "Email Czar"

  Via JudicialWatch.org,

  The new “email czar” appointed by Secretary of State John Kerry to oversee the burgeoning Hillary Clinton email scandal is a Clinton campaign donor who recently made a generous contribution, according to federal records obtained by Judicial Watch.

  Her name is Janice Jacobs, a former career diplomat assigned by Kerry this week to be the State Department’s “Transparency Coordinator,” according to a mainstream news report. Jacobs will be in charge of responding to public-record requests involving the secret email account that Clinton used exclusively to conduct official government business. She will also handle congressional requests “faster and more efficiently,” and will improve the State Department system for keeping records.

  Kerry reportedly assigned an “email czar” in an effort to ensure that the State Department promptly responds to an onslaught of record requests without directly undercutting Clinton and the Democratic Party’s presidential front-runner. Ego also played a role in the appointment because aides cited in the story said Kerry has been annoyed at the distraction the Clinton email controversy has caused for his agency, which has at times “overshadowed his diplomatic efforts.”

  Kerry could not have picked a better team player. Jacobs is a big Clinton fan who contributed $2,700 to the Hillary for America presidential campaign fund, Federal Election Commission records obtained by JW show. Can we really expect her to be fair and objective as the new gatekeeper of Clinton’s records? Besides being an admirer and campaign donor of the former Secretary of State, Jacobs has a long history as a State Department insider serving as Deputy Assistant Secretary for Visa Services and Assistant Secretary for Consular Affairs until retiring last year.

  No cabinet secretary has ever established their own external communication system in an effort to circumvent both the unclassified and classified government systems. Judicial Watch has been a leader in exposing the Clinton email scandal and has a number of lawsuits pending in federal court. JW was also the first to report that Clinton likely also used unauthorized electronic equipment—an iPad and an iPhone—as Secretary of State after being warned not to. A veteran State Department official told JW in March that on at least half a dozen occasions Clinton’s top aides asked the State Department’s Office of Security Technology to approve the use of an iPad and iPhone. Each time the request was rejected for security reasons.