• The Fall Of The Unipower: Russia Is Defeating More Than ISIS In Syria

  Submitted by Paul Craig Roberts,

  The distinguished and knowledgeable international commentator William Engdahl, in a superb statement, has expressed the view I gave you that Russian President Vladimir Putin’s speech on September 28 at the 70th anniversary of the United Nations changed the balance of power in the world. Until Putin’s speech the world was intimidated by the Washington Bully. Resistance to Washington brought swift retribution. In the Middle East and Africa it brought economic sanctions and military invasions that destroyed entire countries. In France and other US vassal states it brought multi-billion dollar confiscations of bank net worth as the price of not following Washington’s policies toward other countries.

  Other countries felt powerless in the face of the arrogant hegemonic Unipower, which from time to time replied to noncompliance with threats, such as US Deputy Secretary of State Richard Armitage delivered to Pakistan, to bomb noncompliant countries “back to the stone age.”

  President Putin of Russia brought all that to end on September 28. He stood up before the world in the presence of the overflowing hubris of the hegemon and belled the cat.

  Putin denounced Washington’s threat to the sovereignty, and therefy the freedom, of peoples and countries. He denounced the heartless criminality of Washington’s destruction of the lives of millions of peoples on the basis of nothing other than Washington’s own arrogance. He denouced the illegality of Washington’s assauts on the sovereignty of other peoples, and declared that Russia can no longer tolerate this state of affairs in the world.

  Two days later he took over the war in Syria and began exterminating the Washington financed and equiped Islamic State. Cruise missiles launched from the Caspian Sea hit ISIL targets with pinpoint accuracy and showed Washington’s EU vassals that Washington’s ABM system could not protect them if Europe permitted Washington to force Europe into conflict with Russia.

  Washington’s response was more lies: “the missiles hit Iran,” said the idiots in Washington. The entire world laughed at the lie. Washington, some said, is whistling past its empire’s own graveyard.

  Putin’s declaration of multi-polarity was seconded by the President of China, who said in his understated mild way that every country must participate in shaping the future and not just follow the leadership of one.

  The hegemonic Unipower ceased to exist on September 28.

  This is a sea change. It will affect the behavior of every government. Even some of the craven vassals states, whose “leaders” are bought-and-paid-for, will move toward a more independent foreign policy.

  The remaining danger is the crazed American neoconservatives. I know many of them. They are completely insane ideologues. This inhuman filth has controlled the foreign policy of every US government since Clinton’s second term. They are a danger to all life on earth. Look at the destruction they have wreaked in the former Yugoslavia, in Ukraine, in Georgia and South Ossetia, in Africa, in Afghanistan and the Middle East. The American people were too brainwashed by lies and by political impotence to do anything about it, and Washington’s vassals in Europe, UK, Canada, Australia, and Japan had to pretend that this policy of international murder was “bringing freedom and democracy.”

  The crazed filth that controls US foreign policy is capable of defending US hegemony with nuclear weapons. The neoconsevatives must be removed from power, arrested, and put on international trial for their horrendous war crimes before they defend their hegemony with Armageddon.

  Neoconservatives and their allies in the military/security complex make audacious use of false flag attacks. These evil people are capable of orchestrating a false flag attack that propells the US and Russia to war.

  The neocons are also capable of plotting Putin’s assassination. The crazed John McCain, whom idiotic Arizonians keep returning to the US Senate, has publicly called for Putin’s death, as have other former federal officials, such as former CIA official Herbert E. Meyer, who publicly called for Putin’s removal “wih a bullet hole in the back of his head.” I am confident that the neoconservatives are plotting Putin’s assassination with their Chechen terrorist friends. Unlike the US president, Putin often presents himself in open situations.

  *  *  *

  Here is William Engdahl’s superb statement from the New Eastern Outlook, October 15, 2015.  It is clear that the neoconservatives are not sufficiently realistic to accept this change in the power balance and will resist it to the point of war.

  Putin is Defeating More than ISIS in Syria — William Engdahl

  Russia and its President, Vladimir Putin, a little more than a year ago, in July 2014 were the focus of attention in Europe and North America, accused, without a shred of forensic evidence, of shooting down an unarmed civilian Malaysian airliner over eastern Ukraine. The Russians were deemed out to restore the Soviet Union with their agreement to the popular referendum of Crimean citizens to annex into the Russian Federation and not Ukraine. Western sanctions were being thrown at Russia by both Washington and the EU. People spoke of a new Cold War. Today the picture is changing, and profoundly. It is Washington that is on the defensive, exposed for the criminal actions it has been doing in Syria and across the Middle East, including creating the recent asylum crisis in Germany and large parts of the EU.

   

  As a student of international politics and economics for most of my adult life, I must say the emotional restraint that Vladimir Putin and the Russian government have shown against tasteless ad hominem attacks, from people such as Hillary Clinton who likened Putin to Adolf Hitler, is remarkable. But more than restraint is required to bring our world from the brink or some might say, the onset of a World War III. Brilliant and directed action is essential. Here something extraordinary has taken place in the very few days since President Vladimir Putin’s September 28, UNGA speech in New York.

   

  What he said . . .

   

  What Putin said to the UN General Assembly must be noted to put what he and Russia did in the days immediately following into clear focus. First of all he made clear what the international law behind the UN Charter means and that Russia is scrupulously abiding by the Charter in actions in Syria. Russia, unlike the US, has been formally asked by the legitimate Syrian government to aid its war against terror.

   

  To the UN delegates and heads of state Putin stated, “The decisions debated within the UN are either taken in the form of resolutions or not. As diplomats say, they either pass or they don’t. Any action taken by circumventing this procedure is illegitimate and constitutes a violation of the UN Charter and contemporary international law.”

   

  He continued, “We all know that after the end of the Cold War the world was left with one center of dominance, and those who found themselves at the top of the pyramid were tempted to think that, since they are so powerful and exceptional, they know best what needs to be done and thus they don’t need to reckon with the UN, which, instead of rubber-stamping the decisions they need, often stands in their way.”

   

  Putin followed this with a clear message to Washington and NATO governments on the subject of national sovereignty, something anathema to many who embrace the Nirvana supposed to come from globalization, homogenization of all to one level: “What is the meaning of state sovereignty, the term which has been mentioned by our colleagues here?” Putin rhetorically asked. “It basically means freedom, every person and every state being free to choose their future. By the way, this brings us to the issue of the so-called legitimacy of state authorities. You shouldn’t play with words and manipulate them. In international law, international affairs, every term has to be clearly defined, transparent and interpreted the same way by one and all.”

   

  Putin added, “We are all different, and we should respect that. Nations shouldn’t be forced to all conform to the same development model that somebody has declared the only appropriate one. We should all remember the lessons of the past. For example, we remember examples from our Soviet past, when the Soviet Union exported social experiments, pushing for changes in other countries for ideological reasons, and this often led to tragic consequences and caused degradation instead of progress.”

   

  Those few words succinctly point to what is fundamentally wrong in the international order today. Nations, above all the one proclaiming herself Sole Superpower, Infallible Hegemon, the USA, have arrogantly moved after the collapse of the main adversary, the Soviet Union in 1990, to create what can only be called a global totalitarian empire, what G.H.W. Bush in his September 11, 1991 address to Congress called a New World Order. I believe with conviction that borders do matter, that respect for different cultures, different historical experiences is essential in a world of peace. That is as much true with nations as with individual human beings. We seem to have forgotten that simple notion amid all the wars of the past decades. Vladimir Putin reminds us.

   

  Then the Russian president goes to the heart of the matter. He lays bare the true activities of the Obama Administration in Syria and the Middle East in arming and training “moderate” Islamist terrorists to attack Washington’s bête noire, Syria’s duly-elected and recently re-elected President, Bashar al Assad.

   

  Putin states, “instead of learning from other people’s mistakes, some prefer to repeat them and continue to export revolutions, only now these are “democratic” revolutions. Just look at the situation in the Middle East and Northern Africa…problems have been piling up for a long time in this region, and people there wanted change. But what was the actual outcome? Instead of bringing about reforms, aggressive intervention rashly destroyed government institutions and the local way of life. Instead of democracy and progress, there is now violence, poverty, social disasters and total disregard for human rights, including even the right to life.”

   

  Then in a remark addressed to Washington and their NGO Color Revolutions known as the Arab Spring, Putin pointedly asks, “I’m urged to ask those who created this situation: do you at least realize now what you’ve done?“

   

  Putin, without naming it, addresses the US and NATO role in creating ISIS, noting with precision the curious anomaly that the sophisticated new US Treasury unit to conduct financial sanctions against terrorist organizations, has utterly ignored the funding sources of ISIS, their oil sales facilitated by the Turkish President’s own family to name just one. The Russian President stated, “…the Islamic State itself did not come out of nowhere. It was initially developed as a weapon against undesirable secular regimes. Having established control over parts of Syria and Iraq, Islamic State now aggressively expands into other regions. It seeks dominance in the Muslim world and beyond…The situation is extremely dangerous. In these circumstances, it is hypocritical and irresponsible to make declarations about the threat of terrorism and at the same time turn a blind eye to the channels used to finance and support terrorists, including revenues from drug trafficking, the illegal oil trade and the arms trade.

   

  And what Putin is doing . . .

   

  Russia in the last weeks has completely out-maneuvered the diabolical, and they are diabolical, agenda of the Obama Administration not only in Syria but also in the entire Middle East and now in the EU with unleashing the flood of refugees. He openly reached out to invite Obama in their New York September 30 meeting to cooperate together in defeating ISIS. Obama stubbornly insisted that first Assad must go, despite the fact that Christine Wormuth, the Pentagon Undersecretary responsible for the Syrian war, confirmed Russian statements about Assad’s essential role today in any defeat of ISIS. She told the US Senate that Assad’s military “still has considerable strength,” adding, “it’s still the most powerful military force on the ground. The assessment right now is the regime is not in imminent danger of falling.”

   

  Now come the howls of protest from neo-con warhawks, like the ever-ready-for-war Senator John McCain, chairman of the NGO International Republican Institute of the democratic revolution exporting US-backed NGO, National Endowment for Democracy. Or we hear flaccid protests from President Obama. This is because Washington finds itself deeply exposed to the light of world scrutiny for backing terrorists in Syria against a duly-elected state leader and government. The US warhawks accuse Russia of hitting “the moderate opposition” or civilians.

   

  Emperor’s New Clothes . . .

   

  Russia’s Putin is playing the role ever so elegantly, even gracefully, of the small boy in the Hans Christian Anderson classic fairy tale from 1837, The Emperor’s New Clothes. The boy stands with his mother amid thousands of other villagers in the crowd outside the vain Emperor’s palace balcony, where the disassociated king struts around the balcony naked, thinking he is wearing a magnificent new suit of clothes. The boy shouts, to the embarrassment of all servile citizens who pretend his clothes are magnificent, “Mother, look the Emperor has no clothes!”

   

  What do I mean? In the first four days of precision bombing of select sites in Syria Russian advanced fighter jets firing Kh-29L air-to-surface laser-guided missiles that strike targets with a precision less than two meters, managed to destroy key ISIS command centers, munitions depots and vital infrastructure. According to the Russian Defense Ministry official reports, with photos, Su-34 bombers attacked an ISIS special training camp and munition depot near Al-Tabqa, Ar-Raqqah province,” a critical ISIS outpost captured in August, 2014 after bitter battles. “As a result of explosion of the munition depot, the terrorist training camp was completely destroyed,” the Russian Defense Ministry spokesman stated. Russian Su-25 jets have also attacked training camp of the Islamic State in the Syrian Idlib, destroying a workshop for explosive belt production.

   

  Moscow states its air force has “engaged 3 munition, fuel and armament depots of the illegal armed groups. KAB-500 aviation bombs detonated the munition and armament,” and they used BETAB-500 concrete-piercing bombs to destroy four command posts of the ISIS armed groups. The facilities with terrorists are completely destroyed,” the Moscow spokesman added. Russia’s aviation conducted 20 flights and carried out 10 airstrikes against facilities of the Islamic State (ISIL) terrorist group in the past 24 hours. Then Moscow announced they had also hit key outposts of other terror groups such as the Al Qaeda-franchise, Al Nusra Front.

   

  These are the so-called “moderates” that McCain and the Washington warhawks are weeping over. Washington has been creating what it calls the “New” Syrian Forces (NSF), which they claim is composed of “moderate” terrorists, euphemistically referred to as “rebels.” Imagine how recruitment talks go: CIA recruiter, “Mohammed, are you a moderate Islamist? Why yes, my dear CIA trainer. Please take me, train me and arm me in the fight against the ruthless dictator Assad and against ISIS. I’m on your side. You can trust me…”

   

  In late September it was reported that Major Anas Obaid a.k.a. Abu Zayd, on completing his CIA training in Turkey, defected from the train-and-equip program to join Jabhat al-Nusra (Al Qaeda in Syria) immediately on entering Syria. Incredibly, US officials admit that Washington does not track or exercise command-and-control of its Jihadist proxies once they enter Syria. Abu Zayd’s defection after being trained in advanced warfare techniques by the US, is typical. Other elements of the New Syrian Forces directly handed all their weapons to Nusra upon entering Syrian territory at the town of Atareb at the end of September.

   

  These latest “moderate” defections to join Al Qaeda’s Al-Nusra Front affiliate in Syria come less than two weeks after Gen. Lloyd Austin III, head of the US “war against ISIS,” during a Senate Armed Services Committee hearing on Syria, admitted that the US military program that intended produce 5,400 trained fighters a year has so far only resulted in “four or five” who still remain on the ground and active in combat. The rest have all joined ISIS or Al Nusra Front of Al Qaeda, the US-backed “moderate opposition” to ISIL.

   

  What the successful Russian precision airstrikes have done is expose in all its ugly nakedness the Emperor’s New Clothes. For more than one year, the Obama Administration claims it has committed the most awesome airpower on the planet allegedly to destroy ISIS, which has been described as a “ragtag band of militants running around the desert in basketball shoes.”

   

  Curiously, until last week, ISIS has only expanded its web of power in Syria and Iraq under US bombings. Now, within 72 hours, the Russian military, launching only 60 bombing runs in 72 hours, hitting more than 50 ISIS targets, has brought the ISIS combatants into what the Russian Defense Ministry spokesman described as a state of “panic” where more than 600 have deserted. And, according to Moscow, the fight is only beginning, expected, they say to last three to four months.

   

  The Obama Administration has been training terrorists of Al Qaeda/Al Nusra, allegedly to fight ISIS, much like the disgraced General David Petraeus did in Iraq and Afghanistan along with Obama’s special ISIS coordinator, the just-resigned General John Allen. The US-trained “moderate” terrorists were being readied, it’s now clear to all the world, in reality, to battle Assad and open the way for a Muslim Brotherhood takeover of Syria and a real plunge into darkness for the world if that were to succeed.

   

  Now, with the truth in the open, exposed by the remarkable successes of a handful of Russian fighter jets in four days against ISIS, accomplishing more than the US “anti-ISIS coalition” in more than one year, it is clear to the world Washington has been playing a dirty double game.

   

  Now that hypocritical Obama Administration mask has been blown off with the precision hit of a Russian laser-guided Kh-29L missile. As German and other EU governments have admitted, much to the strong objection of Washington, Putin has demonstrated that Russia is the essential part of any peaceful resolution of the Syria war. That in turn has a huge bearing on the current asylum-seeker crisis in Germany and other parts of the EU. It also has a huge bearing on prospects for world peace. The Norwegian Parliament’s Nobel Peace Prize Committee, rather than consider John Kerry, might consider Vladimir Putin and Russian Defense Minister, Sergey Shoygu, for the prize.

  

  

  

  

  

• China Vs. United States: A Visual Tale Of Two Economies

  The United States has had the world’s largest economy for about 140 years, and it roughly accounts for 22% of global GDP. However, in recent times China has overtaken the US by at least one measure of total economic strength, which is GDP based on purchasing power parity (PPP).

  Either way you slice it, the economies are the two strongest globally in absolute terms.

  That’s where the similarities end. While comparable in total size, the makeup of each economy is totally different. United States is a sophisticated and highly diversified economy that is based on services, finance, and consumption from the middle class. China has similar aspirations in the future, but right now it is resource-intensive growth engine making the transition from a manufacturing hub to a consumer-driven economy.

  Today’s infographic looks at the economic differences between each country: total reserves, foreign direct investment, demographics, imports, exports, GDP per capita, energy, education, and much more.

   

  

  For a larger version of this infographic, click here.

  Original graphic by: SCMP

  

  

  

  

  

• Dollar Moves Shake The World: "Federal Reserve Could Start A Currency War"

  Submitted by Mac Slavo via SHTFPlan.com,

  There is a war, a currency war, and the war is, ultimately, on us.

  In many respects, Americans have fallen far, and hard, from the liberty they once had.

  Rather than living under a sound currency, modern Americans live under an economic despotism. There are monopoly men who tightly control the money, and are all the more insidious in their subtlety, and quietness in the shadows.

  Today, things are so bad that they face economic enslavement and a rapid theft of their wealth through the debasement of the dollar’s value. Not only is the destruction of the dollar systematic and planned, but it is designed to leave Americans holding the bag. The money passes round and round, but it trickles down from the big banks, who are loaned the money free at zero percent interest by the Federal Reserve under its QE program, created to “fix” the 2008 economic crisis that nearly brought the world to its knees.

  Now, literally any action at all – especially including no action – by the Federal Reserve has a direct impact on the value of the U.S. dollar, and greatly determines the course of world events, and especially whether or not average people can pay the bills.

  According to The Street, it is an all out currency war that will have direct impact on budgets large and small:

  The stock market stays high because the Fed is not going to raise short-term interest rates. The Fed is not going to raise short-term interest rates because the U.S. inflation rate remains low. The inflation rate remains low because the value of the U.S. dollar is high. The dollar is strong because world commodity prices have fallen and have “driven up the dollar and held down U.S. import prices.”

   

  According to the Financial Times, the last three items mentioned are interrelated. Furthermore, it now seems as if momentum is picking up within the Federal Reserve to postpone any increases in it policy rate for an extended period of time. That inaction may not be the best decision in terms of the relative strength of currencies.

   

  […]

   

  According to this argument, the stock market should begin to fall because the Fed is raising interest rates

  The key connector here seems to be the relationship between the value of the U.S. dollar and any action that the Federal Reserve might take on raising short-term interest rates.

  The Fed is the only thing propping the stock market up – when, or if, it moves, there will be a crash, that will call bad debtors and impoverish entire social security systems. But things aren’t much better if they stay still, either. According to The Street:

  [I]f the Fed does not raise its target policy rate, other countries will have to take further action to ease up further on their economic policies. The European Central Bank will extend its quantitative easing. The Bank of England will not raise its policy rates.

   

  The Peoples Bank of China will attempt to achieve further ease so that the renminbi will fall against the U.S. dollar.

   

  In effect, this looks like a currency war, and the world cannot afford a currency war at this time.

   

  The Federal Reserve needs to take these things into consideration in making their policy decisions. They are, after all, the global reserve currency and they cannot avoid the responsibilities that go along with this position.

   

  […]

   

  If the Federal Reserve does not raise interest rates, the value of the US dollar will fall and this will have an impact on the commodity prices of emerging nations, causing import prices and U.S. inflation to rise.

  How did the Federal Reserve get so much power over the American economy – and that of the world’s? There have been many stages of the theft which are too numerous to list, but which are generally well known to those familiar with its odious origins as a design by the banking cartel.

  Started under conspiratorial circumstances back in 1913, the Federal Reserve has established itself as a private central bank for the country, though it is not part of the U.S. government. Since its inception, the Fed has driven the dollar down to just a fraction of its original value.

  

  Since the U.S. went off the gold standard under the shadow presidency of Henry Kissinger in 1971, the dollar has plummeted in status to a worthless piece of paper. Meanwhile, however, the dollar was the world reserve currency, and was the currency that traded for oil during a time of supply crisis, it has retained an accepted – and therefore valued – status so long as America dominated foreign policy (in part by managing more and more wars) and maintained its status.

  The banksters operated the monetary and financial system that led the world by trading in petrodollars, and in turn, forced oil rich nations like Saudi Arabia to invest on Wall Street, as well as reluctant powers like Japan, who were forced to open up their markets to foreign investment during the oil crisis.

  But now world power is shifting. The dollar is dying, and the Federal Reserve has become a leviathon that is too big to die, and too bloated to be effective. In its enormous capacity, it is facilitating the theft of TRILLIONS and TRILLIONS of dollars from the American people:

   

  Americans face a further decline in their standard of living in all cases, market-wide conditions that the Fed alone can determine. Their wealth is rapidly evaporating.

  If the Fed raises rates, the market will crash. On the otherhand, if it doesn’t raise rates, and continues indefinitely on its course of quantative easing, investors, middle class and working families, businesses, as well as pensions, benefit programs and insurance policies will also die a slow painful economic death.

  Already things are hovering dangerously on edge, and squeezing in tightly.

  

  

  

  

  

• Mapping And Cataloguing The History Of ISIS-Inspired Attacks Across The Globe

  While there’s no doubt that the endless stream of propaganda emanating from The Kremlin is to a certain extent just Moscow basking in the glory of Russia’s triumphant return to the world stage in the name of eradicating terrorism and thus should be taken with a grain of salt, the near daily videos released by the Russian Defense Ministry clearly demonstrate that Russian warplanes are destroying something in Syria. 

  If even a portion of the bombing raids Moscow is broadcasting to the world on YouTube in fact depict successful strikes on ISIS positions, then it’s likely just a matter of time before the group fades into the annals of history. 

  On Friday alone, Russia claims to have destroyed 11 ISIS “command centers”. Here’s Sputnik:

  The Russian Aerospace Force has conducted 36 sorties over the past 24 hours, hitting 49 ISIL targets in the Syrian provinces of Hama, Idlib, Latakia, Damascus, Aleppo, the Russian Defense Ministry said on Saturday. As a result, 11 ISIL command and operation centers have been destroyed.

   

  According to the Russian Defense Ministry’s spokesman, on October 16 the Russian aviation launched strikes on underground hideouts, operation centers, home-made weapon production plants, firing positions, artillery, munition warehouses, ammunition and material supplies of the Islamic State jihadist group.

  
  

  And while it might be too early to write the ISIS obituary, the end seems to be nigh which is why we thought it a good time to offer the following “career” retrospective on the violence (false flag or no) the group has either caused or inspired across the globe. 

  Bear in mind, this is not a glorification of the group’s “achievements.”

  In fact, it’s the opposite. This is what happens when the West and its regional allies in the Mid-East attempt to destabilize governments by supporting extremists.

  Via The New York Times:

  

  

   

  Aug 20, 2015

  Egypt An ISIS affiliate claimed responsibility for bombing a branch of the Egyptian security agency.

  Aug 12

  Egypt An ISIS affiliate said it had beheaded a Croatian expatriate worker because of Croatia’s “participation in the war against the Islamic State.”

  Aug 10

  New Jersey A New Jersey man was arrested for allegedly trying to organize support for ISIS. 

  Aug 8

  Mississippi A newlywed Mississippi couple were arrested on charges that they tried to travel abroad to join ISIS.

  Aug 7

  Saudi Arabia ISIS claimed responsibility for a suicide bombing at a mosque that killed at least 15 people, including 12 members of a Saudi police force.

  July 29

  New York A man from Buffalo was arrested and charged with trying to join ISIS.

  July 28

  Florida A Florida man was charged with planning to bomb a public beach in Key West to show his support for ISIS.

  July 22

  Italy The Italian police arrested two men accused of plotting attacks on national landmarks in Italy and of posting threatening messages online in support of the Islamic State. 

  July 21

  United Kingdom A man who was allegedly planning on traveling to Syria to join ISIS was charged with plotting to run over an American serviceman stationed in Britain and then killing him with a knife. 

  July 20

  Turkey A Turkish citizen believed to have had ties to ISIS killed at least 32 people at a cultural center. 

  July 19

  Saudi Arabia The Saudi Interior Ministry announced that security forces had arrested more than 400 people believed to be connected to ISIS over the past few months. 

  July 16

  Egypt In what appeared to be the first attack on a naval vessel claimed by Sinai Province, the ISIS affiliate said it destroyed an Egyptian naval vessel and posted photographs on social media of a missile exploding in a ball of fire as it slammed into the vessel. 

  July 12

  Kosovo Following exhortations by ISIS to poison Kosovo’s food and water supplies, five people were in custody, suspected of a plot to contaminate the water supply in the capital, Pristina.

  July 11

  Egypt ISIS claimed responsibility for an explosion outside the Italian Consulate’s compound in downtown Cairo that killed one person. 

  July 10

  Turkey In early-morning raids in Istanbul and Sanliurfa Province, Turkish police seized automatic rifles, large ammunition packs and military uniforms and arrested 21 suspected ISIS members. 

  July 4

  Boston The son of a Boston police captain, described as mentally ill and devoted to the Islamic State, was arrested for allegedly plotting a series of deadly attacks. 

  July 1

  Egypt Militants affiliated with the Islamic State killed dozens of soldiers in simultaneous attacks on Egyptian Army checkpoints and other security installations in Egypt’s northern Sinai Peninsula. 

  June 26

  Tunisia At least one gunman disguised as a vacationer attacked a Mediterranean resort, killing at least 38 people at a beachfront hotel — most of them British tourists — before he was shot to death by the security forces. 

  June 26

  Kuwait A suicide bomber detonated explosives at one of the largest Shiite mosques in Kuwait City during Friday Prayer. 

  June 17

  Yemen An ISIS branch claimed responsibilty for a series of car bombings in Sana, the capital, that killed at least 30 people. 

  June 13

  New York A college student in Queens was charged with conspiring to support a foreign terrorist organization after an investigation found he was planning to attack various New York City landmarks on behalf of ISIS.

  June 11

  Massachusetts Two men were charged in Boston with conspiring to help ISIS. A third man was fatally shot the previous week by law enforcement officials who said he had threatened them with a large knife. 

  June 9

  Egypt ISIS’s Sinai province claimed responsibility for firing rockets toward an air base used by an international peacekeeping force.

  June 3

  Afghanistan ISIS is suspected of beheading 10 members of the Taliban.

  Full report from New York Times 

  

  

  

  

• Who Will Be Blamed?

  It was one week ago, when we read with great curiosity (and commented on) a research report drafted by none other than the NY Fed called “The Liquidity Mirage“, which was not only a confirmation of our article from July explaining “How High Frequency Traders Broke, And Manipulated, The Treasury Market On October 15, 2014“, but a validation of all our work since we first wrote our inaugural post on the dangers from HFT on that long ago April 10, 2009: “The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans” (for those who have not read it, it may be an interesting read: over 6 years ago, when virtually nobody had head of HFT, it predicted just how the market would break under the weight of the fake liquidity provided by these very “liquidity provider” as it did for the first, and certainly not last, time on August 24).

  None of the authors’ conclusions were surprising: we have been repeating for years that what HFTs do is create a broken market topology at the micro level, where the noise of an infinite of HFTs algos becomes the signal in itself, and whenever a major countertrend move happens, the market simply shuts down as these “New Normal” liquidity providers are simply finely-tuned momentum creation and frontrunning machines, and most certainly not market makers.

  What was curious is that the NY Fed went one step further than the Joint Staff Report released in July of this year, which stopped just short of blaming HFTs for the October 2014 Treasury flash crash. The NY Fed report did not have such qualms and openly accused HFTs of generating the conditions that were necessary and sufficient for the October 15 2014 flash crash (and every other one both before and since following the implementation of Reg NMS). From the report:

  This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market.”

  Our take:

  Goodbye to “fat fingers” being blamed for flash crashes, and welcome to the Heisenberg uncertainty market: you can have your 1 millicent bid/ask spreads… but you can’t have any real market depth at the same time.

  Which then leads to the logical and final question: why do this? Why admit (not only that we have been right all along), but that HFTs – far from a benign influence on the market – are a latent threat one which may lead at any given moment, to a market crash so profound the only recourse is “circuit breaking” the entire market?

  Our conclusion from a week ago is what we have said for the past 6 years: HFTs have become the perfectly willing and eager scapegoat, one which will be blamed for everything that is wrong when the next crash finally comes.

  In other words, from market predator HFTs are now one millisecond – and market crash – away from become regulatory prey. Why? Simple: so these culprit which have broken the market at the micro level deflect all attention from those responsible for breaking the market at the macro level: the central banks. This was our conclusion:

  In the aftermath of this report, one can be sure that the days of current market structure are numbered, and that the scene is now set to throw the book at the HFTs. The only thing that is missing is the appropriate catalyst. And what is better than an orchestrated, or ad hoc, market crash, one which exonerates the real culprit for the stock market bubble – the Federal Reserve – and unleashes populist anger by millions of investors who lose their net worth in an HFT instant, aimed squarely at the HFTs, and the 20-year-old math PhDs behind them?

  A few days ago, in his latest article “Invisible Threads: Matrix Edition“, Epsilon Theory’s Ben Hunt confirmed just that. To wit:

  … you can bet that whenever an earthquake like this happens, especially when it’s triggered by two invisible tectonic plates like put gamma and call gamma and then cascades through arcane geologies like options expiration dates and ETF pricing software, both the media and self-interested parties will begin a mad rush to find someone or something a tad bit more obvious to blame. This has to be presented in soundbite fashion, and there’s no need for a rifle when a shotgun will make more noise and scatters over more potential villains. So you end up getting every investment process that uses a computer – from high frequency trading to risk parity allocations to derivative hedges – all lumped together in one big shotgun blast.…you use computers and math, so you must be part of the problem.

  Hunt may disagree with this blunt assessment, and he may revolt at the “prejudice” against the algos, but what he is missing is the far bigger question: why? Why is the “computer trading” crowd is being primed for the biggest fall ever. The answer is simple – someone has to be held accountable.

  Whether it is a scapegoat why Leon Cooperman crashed in August and blamed Ray Dalio’s “risk parity” trade, or why Ray Dalio indirectly blamed the Fed when “smart beta” suddenly became very dumb, or why the Fed, which will have seen trillions in fake paper wealth evaporate overnight, will need to deflect the anger of a few billion furious investors worldwide out for blood, someone will need to take the fall.

  That someone will be those who use “computers and math” to trade, or – as we have shown it repeatedly in the past for “soundbite” reasons – look like this:

  

  And best of all, you can’t arrest a vacuum tube, or lynch an algo: the market can wipe itself out… and nobody will go to prison.

  Which means that the only question is when will this scapegoating kangaroo court of diversion begin; answering that question will also answer when the next, and most epic yet, market crash will take place.

  

  

  

  

  

• The Humiliation Is Complete: ISIS Fighters Cut Off Beards And Run Away As Russia, Iran Close In

  The thing about ragtag groups of militants that display a penchant for extreme violence is that in the absence of serious opposition, they can rack up gains at an alarming pace. 

  Of course there are plenty of (possibly credible) theories out there, which suggest that some of what you see in the videos released by ISIS is for show and we won’t endeavor to assess the degree to which the group’s brutality is real versus staged, but one thing is clear: regardless of who is funding, training, and/or supporting them, there are obviously fighters on the ground in the Mid-East waving the ISIS flag and committing atrocities in its name. 

  That works well when it comes to destabilizing fragile states that are already beset with sectarian bickering on the way to claiming large swaths of territory from a defenseless citizenry.

  But you can’t intimidate a modern fighter jet by waving around a sword and if you’re a newbie on the Mid-East militant scene, you can’t scare a three decade veteran by beheading a couple of people, which is why if you’re ISIS, the combination of the Russian Air Force and Hezbollah ground troops is absolutely terrifying.

  As we documented earlier today, Hezbollah and Iranian troops are advancing on Aleppo and Moscow is backing the offensive from the sky which means that the hodgepodge of anti-regime forces that control Syria’s largest city will almost (and we say “almost” because there are no sure things in war) certainly be routed in a matter of weeks if not days, which would effectively serve to restore the Assad regime in Syria.

  After that, the Russian bear and Qasem Soleimani will turn their eyes to the East of the country and at that point, it is game over for ISIS. 

  Apparently all of the above isn’t completely lost on al-Nusra and Islamic State fighters because if you believe the Russian media (and we’re not saying you should), Sunni extremists are now shaving off their beards and running for their lives. Here’s Sputnik:

  Hundreds of ISIL fighters are fleeing Syria for Turkey, as Russia’s Defense Ministry previously said, and reports are popping up that they are leaving their beards behind.

  .2/ More Jihadi beards, shaved off in Reef #Aleppo, as they flee clean shaven 2 #Turkey, these Via @leithfadel pic.twitter.com/xOmMkhH8oY

  — Hala Jaber (@HalaJaber) October 12, 2015

  Now obviously, these are just pictures of hair on the ground with razors, so that shouldn’t be interpreted as anything that even approximates definitive evidence of a full-on ISIS retreat but put yourself in the following situation for a moment. You’re a Sunni extremist and your regional and Western backers have just abandoned you. You are now under siege by the Russian Air Force. If you survive the air strikes you will soon have to come face to face with the fiercest, most experienced Shiite militia on the planet and if you somehow manage to survive that, well then you have to fight the Quds Force (“how do you shoot the devil in the back“?).

  What would you do? 

  *  *  *

  We close with the perfect video clip analogy. The US is in the blue shirt, ISIS is in the red, star-spangled jumpsuit, and Russia, well… Russia is the bear.

  US to ISIS: “No, no, you can’t quit now, we just started. You got to give these people a show man“…

  

  

  

  

  

• Mainstream Media Finally Admits Syrian Conflict Is US-Russia Proxy War

  Submitted by Nick Bernabe via TheAntiMedia.org,

  The Syrian civil war rages on, displacing as many as 11 million people and killing nearly 300,000 as the conflict reaches into its fifth year. Syria, a longtime ally of Russia, has been receiving material support from the Eastern giant since the 1940s. As Anti-Media reported last month,

  “Russia’s support for Syria dates back to 1946, when Russia helped consolidate Syria’s independence. The two countries mutually came to a diplomatic and military agreement in the form of a non-aggression pact, which was enacted on April 20, 1950. In this pact, Russia promised support to the newly-created Syria by helping to develop its military and by providing tactical support. Essentially, Russia and Syria have been cooperating for decades both militarily and economically, with Russia maintaining a naval base on the Syrian Mediterranean.”

  Meanwhile, the United States also has its own designs on the region. In 2013, President Obama, along with John Kerry, attempted to stir up enough public support for a direct regime change in Syria, tugging at the American public’s freedom-spreading, democracy-loving heart strings. This attempt at a public overthrow of the Syrian government failed, with Americans responding with the massive #NoWarWithSyria protest movement. However, the drive for regime change didn’t end just because the government stopped talking about it. The CIA continued to arm basically any group willing to fight against the Assad government. The Pentagon also tried (but failed), to manufacture an American-allied army out of so-called moderate Syrian rebels at the cost of $500 million — who, on paper would oppose ISIS, but in reality work to oust Assad.

  Russia, who has been a Syrian ally for decades, has remained steadfast in its support of the Assad regime — openly supplying weapons, aircraft, tanks, intelligence, and human resources in the form of military advisers. Russia also operates a naval base on Syria’s Mediterranean shores.

  By any measure, this is a textbook proxy war between military powers vying to maintain their own economic interests in the Middle East. However, five years later, it seems the corporate media is finally “realizing” this shadow war for what it is. Over the weekend, The Washington Post ran an article titled, “Did U.S. weapons supplied to Syrian rebels draw Russia into the conflict?” The article goes on to state:

  “American antitank missiles supplied to Syrian rebels are playing an unexpectedly prominent role in shaping the Syrian battlefield, giving the conflict the semblance of a proxy war between the United States and Russia, despite President Obama’s express desire to avoid one.”

  Then, on Monday, The New York Times published a piece titled “U.S. Weaponry Is Turning Syria Into a Proxy War With Russia.” The article admits that Syrian rebels are receiving abundant amounts of arms from the CIA, which are being used to fight the Russian-backed advance of Assad’s troops as he tries to take back Syria from the various rebel, Islamist, and terror groups that have overtaken much of countryside.

  Understanding that the U.S. public has been war-weary since the Iraq War debacle, Obama was forced to change his rhetoric from regime change in Syria to fighting terrorism in the form of ISIS. The ample fear-mongering provided by ISIS brutes gave Obama the public support he needed to renew America’s seemingly permanent war in Iraq while giving him a back-door into Syria. The U.S. is currently bombing both countries, joined by a coalition of 62 partners, with Russia now officially throwing its hat into the bombing bonanza ring.

  What should be clear is that the Unites States’ priority in the region is not to defeat ISIS, but instead to overthrow Assad. Clever rhetoric disguises America’s covert intentions, but the actions — and subsequent paper trail — paint a very clear picture of what is truly happening in Syria. WikiLeaks gives us some insight into the West’s designs on Syria, providing a window into the longtime campaign to oust Syrian president, Bashar al-Assad. A new book that analyzes diplomatic cables leaked by Chelsea Manning, The WikiLeaks Files: The World According to U.S. Empire, reveals the U.S. had a longstanding regime change policy in Syria that dates back long before the 2011 Arab Spring uprising that rocked the Middle East.

  “A December 13, 2006 cable, ‘Influencing the SARG [Syrian government] in the End of 2006,’ indicates that, as far back as 2006 – five years before Arab Spring protests in Syria – destabilizing the Syrian government was a central motivation of U.S. policy. The author of the cable was William Roebuck, at the time chargé d’affaires at the U.S. embassy in Damascus. The cable outlines strategies for destabilizing the Syrian government. In his summary of the cable, Roebuck wrote:

   

  ‘We believe Bashar’s weaknesses are in how he chooses to react to looming issues, both perceived and real, such as the conflict between economic reform steps (however limited) and entrenched, corrupt forces, the Kurdish question, and the potential threat to the regime from the increasing presence of transiting Islamist extremists. This cable summarizes our assessment of these vulnerabilities and suggests that there may be actions, statements, and signals that the USG can send that will improve the likelihood of such opportunities arising.’”

  These cables reflect an even older plan, which was detailed by Dan Sanchez at AntiWar.com:

  “A veritable ‘carpe chaos’ manifesto was written in 1996 for a Washington think tank by David Wurmser, an Israel-first neocon (but I repeat myself) who would later play a key role in the Bush administration’s drive to the Iraq War: advising Dick Cheney in the Vice President’s Office, assisting John Bolton at the State Department, and fabricating fanciful ‘connections’ between Iraq and Al Qaeda at the Department of Defense.

   

  In ‘Coping with Crumbling States: A Western and Israeli Balance of Power Strategy for the Levant,’ Wurmser made a case for ‘limiting and expediting the chaotic collapse’ of the Baathist governments in Iraq and Syria.”

  Declassified documents from the U.S. Defense Intelligence Agency (DIA) suggest that ISIS is simply a convenient  — and dare we say welcome — side effect of the West’s destabilization agenda in Syria and Iraq.

  

  View the entire DIA document on Syria and ISIS on Judicial Watch.

  Sanchez continued to describe this plan:

  “Then, after the 2011 ‘Arab Spring’ of popular uprisings reached Syria, ‘The Redirection’ went into overdrive. The US-led regional coalition (Turkey, Jordan, Saudi Arabia, Qatar, etc.) has been strenuously trying to overthrow the Syrian regime of Bashar al-Assad since at least 2012 by heavily sponsoring an insurgency led by jihadists including Al Qaeda and ISIS.”

  The Wurmser plan seems to be materializing before our eyes in Syria.

   

  What is hidden beneath all of this information is why the United States wants Assad ousted from power so badly. The most obvious excuse was his open abuse of human rights. And while this was the exact story-line given to the U.S. public from our “friends” in the media, the rhetoric comes off as empty at best, considering the U.S. actively supported Saudi Arabia’s brutal crackdown of Arab Spring protesters. We learned during the Arab Spring that our Gulf State allies were allowed to kill as many pro-democracy protesters as they wanted (hell, we even supplied them with the weapons to do it), while any non-allies were not. Muammar Gaddafi learned this the hard way. Meanwhile, Ali Mohammed al-Nimr, a Saudi national, is awaiting execution by crucifixion for the crime of protesting the Saudi government during the Arab Spring. But crucifying a guy for protesting is fine with the United States because Saudi Arabia is one of our closest allies in the region. Repression is alright as long as it’s our guys doing it, right?

  With the mythical human rights argument out of the way, the following question emerges: What is the true agenda causing the U.S.-Russia proxy war in Syria? In short, it is resources, power, and hegemony.

  While nearly every war the U.S. involves itself in is sold as a humanitarian effort to either stop terrorism or spread democracy, studies show that countries with resources such as fossil fuels are over 100 times more likely to see foreign involvement in their internal conflicts. America is often the foreign force that arms and finances different sides of these conflicts. Coincidentally, in Syria, so is Russia.

  While this geopolitical scenario is rather complex, it makes perfect sense. The U.S. has been trying to contain Russia since World War II, and those policies of containment are still in effect today. America enjoys its role as the only remaining superpower and has an interest in maintaining that hegemony. To make things perfectly clear, this is the main driver behind the Syrian Civil War.

  Russia has somewhat of a monopoly over the gas supplies needed for Europe’s economy to operate. This gives Russia a semi-permanent economic base to fund its foreign policy agenda and maintain its own geopolitical strategy. The U.S. and its NATO allies want to end that monopoly, but in order to accomplish that, a pipeline must be built from the Sunni Gulf states, starting in Qatar, going through Jordan and Syria, and making its way into Turkey. From Turkey, the gas supplies will be distributed into Europe, effectively undermining Russia’s current arrangement with the European Union and placing its economy in a state of uncertainty. This would eventually lead to a flight of investment away from Russia and subsequently permanently damage what’s left of Russia’s resource-dependent economy. This explains Russia’s steadfast support for the Assad government. As The Guardian documented back in 2013:

  “Assad refused to sign a proposed agreement with Qatar and Turkey that run a pipeline from the latter’s North field, contiguous with Iran’s South Pars field, through Saudi Arabia, Jordan, Syria and on to Turkey, with a view to supply European markets – albeit crucially bypassing Russia. Assad’s rationale was ‘to protect the interests of [his] Russian ally, which is Europe’s top supplier of natural gas.’”

   

  

  Note the purple line which traces the proposed Qatar-Turkey natural gas pipeline and note that all of the countries highlighted in red are part of a new coalition hastily put together after Turkey finally (in exchange for NATO’s acquiescence on Erdogan’s politically-motivated war with the PKK) agreed to allow the US to fly combat missions against ISIS targets from Incirlik. Now note which country along the purple line is not highlighted in red. That’s because Bashar al-Assad didn’t support the pipeline and now we’re seeing what happens when you’re a Mid-East strongman and you decide not to support something the US and Saudi Arabia want to get done. (Map: ZeroHedge.com)

  Mnar Muhawesh of Mint Press News describes these pipeline plays in her article, “Migrant Crisis & Syria War Fueled By Competing Gas Pipelines”:

  “Knowing Syria was a critical piece in its energy strategy, Turkey attempted to persuade Syrian President Bashar Assad to reform this Iranian pipeline and to work with the proposed Qatar-Turkey pipeline, which would ultimately satisfy Turkey and the Gulf Arab nations’ quest for dominance over gas supplies, who are the United State’s allies. But after Assad refused Turkey’s proposal, Turkey and its allies became the major architects of Syria’s civil war.”

  It’s unfortunate that it took the corporate media all these years to “discover” that the United States and Russia are fighting a geopolitical proxy war in Syria. It remains to be seen how many more years and lost lives it will take for them to also “discover” that this proxy war is being fought over resources and power. It’s a sad state of affairs when the Western media provides humanitarian cover for the U.S. and NATO to fuel a brutal civil war – which has taken the lives of nearly 300,000 people – simply to create economic advantages for NATO states and allies while undermining stability in the Middle East – creating the greatest humanitarian catastrophe since World War II. And as millions of refugees continue to pour out of Syria into Europe and abroad, the NATO-dominated public of the E.U. and U.S. remain largely ignorant to the fact their own governments helped create the refugee crisis they so abhor.

  

  

  

  

  

• European Vacation "2050"

  …with your hosts: ISIS
  

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• The Model Minority

  Submitted by Roger Barris via Acting-Man.com,

  Ivy League: Perfect Scores not Good Enough for the “Wrong Race”

  The Economist has run a lengthy article about Asian-Americans.  It begins with a description of Michael Wang, who had a perfect score in his college entrance (ACT) exams, who was ranked second academically out of 1,002 students at his high school, who was part of a chorus that performed at Barack Obama’s inauguration, who came in third place in a national piano championship, who was in the top 150 in a national mathematics competition, and who was in several national debating-competition finals.  Michael was rejected by six out of the seven Ivy League schools to which he applied.  Like many other members of this “model minority,” he is no longer willing to take this quietly.

   

  

  Michael Wang: too Asian and too perfect for the Ivy League schools. This is a typical example of modern-day socialism’s drive to allegedly “equalize opportunity”, a heading under which the incentive to make an effort to actually accomplish something in life is slowly but surely deadened among those showing the best abilities. Over time, it leads to decay in the population’s morals and intelligence, until you end up with a nation best compared to a ship of fools.

   

  Asian-Americans have suffered systematic discrimination, including as recently as World War II when 120,000 Japanese Americans were interned in camps as potential “fifth columnists” while no similar actions were taken against Americans of German or Italian ancestry.

  The article points out that the worst single incident of lynching in American history was actually directed against Chinese immigrants, when 17 were murdered in 1871.  Yet, as anyone who has walked the campuses of MIT, Caltech, Harvard or Stanford, or any other top-flight university, can attest, Asian-Americans are massively represented (44% of the recent incoming class at Caltech, which is routinely rated the number one school in the world).

  This is despite explicit discrimination which means that, as estimated by two Princeton academics, Asian-Americans need a Scholastic Aptitude Test (“SAT”) score about 140 points higher than a white candidate in order to be admitted to a private university, whereas African-Americans can have a result that is 310 points lower in order gain the same result.

   

  

  Americans of Japanese ancestry are loaded on a train on their way to a concentr… sorry, internment camp in WW2.

   

  And two University of Michigan researchers have produced a study which shows the difference is down to nothing more than hard work: they followed 6,000 white and Asian children from toddler through school.  They found small differences in initial cognitive abilities and the socioeconomic status of parents, but sizable gaps in effort that eventually produce large differences in academic results.

  After years of avoiding the issue, the Supreme Court has agreed to hear the case of Abigail Fisher versus the University of Texas in its next session.  Ms Fisher, who is white, is suing UT over its affirmative action policies which she claims unfairly denied her a position.  Her suit is backed by an amicus curiae brief submitted on behalf of 117 Asian-American organizations.  This follows a lawsuit by a group of Asian students against Harvard and the University of North Carolina.  Here is the gist of Harvard’s defense in this suit:

  “…a class that is diverse on multiple dimensions, including on race, transforms the educational experience of students from every background and prepares our graduates for an increasingly pluralistic world…”

  I suppose that this argument could be used to support the admission of almost anyone, including a few utter imbeciles since they too are part of our “pluralistic world,” although I think that Harvard restricts this policy to its professorial staff.

  But more importantly, what is the message that this sends for both over- and under-achieving students?  What does it teach our young about the relative merits of individual hard work versus political machinations?  And, from a strictly economic perspective, what are the implications of this for American success when we deliberately hinder investment in our most promising human capital?

  I have previously quoted Supreme Court Chief Justice Roberts on this subject: “The way to stop discrimination on the basis of race is to stop discrimination on the basis of race.”  Let’s hope that he follows through in the Abigail Fisher case and that Justice Kennedy joins him, since we can reliable expect that the “Gang of Four” (Justices Ginsburg, Breyer, Sotomayer and Kagan) will march in lock step to whatever nonsense Obama’s Department of Justice puts forth in defense of this indefensible practice.

   

  

  The four Supreme Court justices most likely to support socialist policies

  

  

  

  

  

• NIRP Goes To Nippon: Japan Auctions 1 Year Paper At Most Negative Yield On Record

  Two weeks ago, on October 5 the financial punditry was dumbounded when – for the first time ever – the US Treasury sold $21 billion in 3-Month Treasury Bills at a yield of nothing, or 0.000%. And while the US had sold 1 month bills at zero yields before, this was the first time that investors were willing to fund Uncle Sam and give Jack Lew the privilege of holding their money not for 1 but 3 months without expecting anything in return.

  The subsequent weekly 3M auction this Tuesday also priced at a yield of 0.000%, leading many to ask if this is just a preview of negative interest rates coming to the US, something the Fed has been ever louder hinting at ever since the infamous negative dots on the dot plot (for our own take on whether NIRP is coming, read “Fed Opens Negative Interest Rate Pandora’s Box: What Happens Next“).

  Yet once again, when it comes to the dark hole of the zero lower bound (and beyond), Japan remains the harbinger of what is coming. “Dark hole”, because there is simply no escaping it, as Japan so vividly demonstrated back in August 2000 when, just like the US, after years of ZIRP, it tried to “telegraph” normalcy and hiked rates to a modest 25 bps, only to go right back down seven months later.

  

   

  What is surprising about Japan is that unlike most of Europe, which has opted to adopt a Negative Interest Rate Policy, or NIRP,  because unlike Japan or the US, it can’t push rates synthetically as negative via QE because Europe simply does not have enough sovereign paper to monetize, is that Japan whose monetary policy became a basket case years ago – for those keeping count Japan is currently on QE10…

  

   

  … it still hasn’t thrown in the “all-in” towel and announced negative rates.

  This may have officially changed yesterday, when in an auction that flew deep under the radar, Japan sold 1 Year (not 3 Month) Bills at the most negative yield in history, or -0.0418%, nearly doubly more negative the -0.0252% yield on the September 16 auction.

  To be sure, this may be more than just a simple bet that Japan is about to join Europe (and soon, the Fed) in unleashing negative rates. According to Tadashi Matsukawa, Tokyo-based head of fixed-income investment at PineBridge, “there appear to be inflows from overseas in Japan’s short- term securities because rates are negative in Europe and an early Fed liftoff looks unlikely in the U.S.”

  It’s not just the liftoff that is looking unlikely: another imminent catalyst that may be causing this scramble for Japanese Bills is the upcoming debt ceiling fight. As a reminder, absent a debt ceiling hike or another extension, the US will run out of “emergency” funds in the second week of November, and so it is imperative that a deal be concluded by November 3. With this looking increasingly uncertain, US bills that mature after the debt ceiling D-Day, some time around November 10, are starting to get sold off. WSJ has more:

  Concerns that the U.S. could run out of money next month rippled through the bond market Friday, marking a return to the worries of previous debt-ceiling standoffs. The yield on the U.S. Treasury bill maturing on Nov. 12 rose to 0.036% Friday, the highest since Aug. 19 and up from 0.005% Thursday. Prices fall as their yields rise.

   

  While yields remain ultralow, the trading is a reversal for a security whose yield for the past few weeks has often been below zero, reflecting outsize demand from money-market funds and other investors and a decline in bill issuance by the U.S. government.

   

  Congressional leaders appear increasingly unlikely to reach any kind of budget deal in time to ease passage of an increase in the federal borrowing limit needed by Nov. 3. Failure to reach a budget agreement by early next month would put pressure on Republican leaders and President Barack Obama over the terms of a debt-limit increase.

  To be sure, we have all seen this play out many times before, and “Friday’s trading marked a repeat of debt-ceiling showdowns in 2011 and 2013. Both times, yields on bills maturing around the debt-ceiling deadline spiked before falling once legislators agreed to increase the national borrowing limit.”

  In other words, just as we said one week ago, “Keep an eye on T-Bill yields for the turning point when the market decides this situation is becoming serious.”

  According to the market (if only just the bond market for now, stocks continue to do their HFT momentum ignition-cum-short squeeze thing), it just started to get serious.

  And yet the irony is that it will have to get even more serious for the market to whip the GOP into action, and to come up with a debt ceiling solution. For now, the complacency among everyone that nothing can possibly go wrong is unprecedented which means the market itself may have to do the heavy lifting once again as it did in August 2011 when a debt ceiling deal seemed impossible until the S&P500 promptly tumbled 20% in no time.

  For now, however, any market tumult is reverberating very quietly and only in the Bill market – not only that of the US, but also the abovementioned Japanese record negative 1Y Bill yield. As can be seen in comparing the yield on the November 12 T-Bill with the auction yield on the Japanese 1 Year Bill, what may be pushing Japan further into NIRP is not so much concerns about Kuroda going “Full QEtard“, as much as the US defaulting on its debt.

  

   

  There is a third option: the BOJ is expected to make a critical announcement on October 30, which many believe will be increasing its QE10 (aka QQE) beyond the already expanded parameters (recall it was almost precisely one year ago, on October 31 when the BOJ increased its QQE for the first time, announcing it would monetize JPY 80 trillion monthly, up from JPY60-70 trillion).

  However, since even Japan has run out of willing sellers from whom it can buy Treasury paper, there is a possibility that Japan will merely go where Jordan, Draghi and Ingves have boldly gone before and announce negative interest rates.

  So to summarize what may be going on is the following, here are the three possible scenarios

  • Fears over a US debt default are forcing holders of short-term US debt to rush out of US Bills and go into Japanese short term paper
  • A US debt default, while unlikely, will require a market event “shock” to stir the complacent GOP out of its hypnotic trance that “Ms. Chairwoman will get to work”, and from stonewalling the passage of a debt ceiling extension, or even just the election of a speaker.
  • Japan may itself be approaching the limits of ZIRP and be on the verge of NIRP.

  And all this is happening while equities ignore absolutely everything taking place in the world and trade purely on technicals and “hope” for even more future liquidity flow out of central banks, because a global depression would be just what is needed to send the S&P to all time highs.

  The biggest irony is that it is no longer clear how the S&P500 would react to a US default: once upon a time, this would be the event that not only ends the dollar’s reserve status but wipes out trillions in market cap in an instant. This time, it just may send the market limit up…

  

  

  

  

  

• UCLA Unleashes Absurd, Anti-Intellectual & Dangerous Attack On Campus Free Speech

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  One of the most dangerous trends in America today is occurring on college campuses. These are the places I grew up viewing as laboratories for free speech, youthful energy and resistance to the status quo.

  Unfortunately, what they’re turning into are anti-intellectual wastelands in which America’s supposedly “best and brightest” are being transformed into unthinking, mentally shackled, emotionally stunted automatons. The only thing being produced on college campuses these days seem to be frightened, thoughtless worker-bees, conditioned to shut-up and instinctively worship authority. Rather than teaching kids to think critically, administrators have created an environment where kids aren’t encouraged to think at all.

  For those of you who may have missed it, I’ve covered this topic before. See:

  Rutgers University Warns Students – “There is No Such Thing as Free Speech”

  A Professor Speaks Out – How Coddled, Hyper Sensitive Undergrads are Ruining College Learning

  Moving along, today’s piece relates to a recent incident on the University of California Los Angeles (UCLA) campus. A fraternity-sorority party was held under the theme “Kanye Western,” in which partygoers wore costumes parodying Kanye West and his wife Kim Kardashian. Naturally, this was simply too much to handle for a vocal group of censorship-inclined students. As such, the accusations began to fly that the greek students wore blackface, and school administrators immediately moved to suspend the social activities of the fraternity and sorority before completing an investigation. 

  Interestingly enough, in the days that followed, it became clear that the students weren’t actually wearing blackface at all (not that it would have mattered from a free speech perspective). Conor Friedersdorf did an incredible job for making the case for free speech in his excellent Atlantic article. Here are a few excerpts:

  A half-century ago, student activists at the University of California clashed with administrators during the Berkeley Free Speech Movement, a series of events that would greatly expand free-speech rights of people at public colleges and universities.

  Today, activists at UCLA are demanding that administrators punish some of their fellow students for expressive behavior that is clearly protected by the First Amendment.

   

  What did UCLA students find so outrageous as to warrant the violation of the fundamental right to free expression? A “Kanye Western” theme party where students wore costumes that parodied rap superstar Kanye West and his celebrity wife, Kim Kardashian. For this, UC student activists would squander their inheritance.

   

  Perhaps 18-to-22-year-olds can be forgiven for failing to appreciate what’s at stake in their activism. But UCLA administrators cannot be forgiven for complying with student demands to punish this free expression—a glaring illustration of their low-regard for the First Amendment, California law, and liberal ideals.

  This is precisely the point. Young kids going to college are precisely that: Young kids going to college. Administrators are the ones who are supposed to be responsible for protecting free speech and upholding the U.S. Constitution within their spheres of influence, not pandering to hypersensitive students accustomed to always getting their way by merely shouting “racist” at whoever they happen to disagree with that week. Where are the adults in the room?

  Meanwhile, critics of the critics insist that West is a famous celebrity, not a stand-in for black culture; that stuffed butts were a reference to Kim Kardashian, who is white and of Armenian descent, not black; that there is nothing wrong with appropriating the dress of hip-hop culture, which is not the same as black culture; that it’s myopic for privileged student activists to focus on a frat theme party while living in a city plagued by police killings, homelessness, housing discrimination, and other injustices; that activists are giving Greek organizations too much power to set their agenda; and that college kids these days are oversensitive to the point of self-parody.

   

  It is salutary for collegians to contest such matters in the student newspaper, on campus, and on social media. Evidently, public discourse has changed some minds. Said the frat, “we sincerely apologize for the offense and hurt we caused to our fellow Bruins, especially those in the African American community … We are grateful for the dialogue we have had so far, and we intend to continue communicating with our fellow Bruins about how SigEp and Alpha Phi can make this a learning opportunity.”

   

  What’s unhealthy is the movement to suppress free speech at UCLA.

  This is another key point, and the issue that presents the greatest danger. By coddling students from opinions they may find offensive or hurtful, you are doing them a tremendous disservice. It would be far better to allow the student body to engage in debate and rational argument about such topics. This will teach kids to become critical thinkers and strong advocates for causes they believe in. Creating a sterile environment in which various opinions aren’t given the freedom to be expressed does a incalculable harm to these students, and fails to prepare them in any way for the real world.

  University administrators bear the most culpability. After hearing objections to the theme party, but before finishing an investigation into it, UCLA officials suspended the social activities of the fraternity and sorority, effectively punishing them without due process even as these same officials publicly acknowledged that they didn’t have all the facts. Moreover, university officials are abusing their authority merely by investigating protected speech in the first place. And the student newspaper is cheering them on, demanding in an editorial that the office of UCLA Fraternity and Sorority Relations take a more active role in preemptively clearing all party themes.

  Think about what sort of example this teaches the student body about due process and the rule of law. This is a total disaster and administrators should be fired for this.

  UCLA law professor Eugene Volokh, one of America’s foremost First Amendment scholars, has published several Washington Post items explaining why these reactions are legally dubious. “The suspension of the fraternity and sorority is likely unconstitutional,” he wrote. “Costumes that convey a message are treated as speech for First Amendment purposes (see, e.g., Schacht v. United States (1970)and Cohen v. California (1971)). And a university may not punish speech based on its allegedly racist content; see, e.g., Rosenberger v. Rector (1995), which holds that a university may not discriminate against student speech based on its viewpoint.”

   

  He adds that “interim speech restrictions imposed before a full investigation and adjudication have historically been seen as more constitutionally suspect (as so-called ‘prior restraints’), see, e.g., Vance v. Universal Amusement, Inc. (1980); and the prior restraint doctrine is applicable to restrictions imposed by universities, see Healy v. James (1972). But in any event, even setting aside the prior restraint doctrine, suspending an organization’s social activities because of the offensive message conveyed by the organization’s past speech violates the First Amendment.”

   

  In a followup post, he notes that the Supreme Court has unanimously held that student organizations have the right to express “the thought that we hate,” a far more offensive message than anything conveyed by the Greek organizations at UCLA.

   

  Students who value fundamental human rights, protecting unpopular activism, or safeguarding the political liberties of the least powerful among us ought to be lobbying for the most stringent free-speech protections possible, not undermining core human rights that have benefitted generations of marginalized people as a salve for outrage at a frat party. As the ACLU once explained in answer to the question of why it sometimes mounts defenses of speech that is racist or promotes intolerance.

   

  Restricting the speech of one group or individual jeopardizes everyone’s rights because the same laws or regulations used to silence bigots can be used to silence you. Conversely, laws that defend free speech for bigots can be used to defend the rights of civil rights workers, anti-war protesters, lesbian and gay activists and others fighting for justice. For example, in the 1949 case of Terminiello v. Chicago, the ACLU successfully defended an ex-Catholic priest who had delivered a racist and anti-semitic speech. The precedent set in that case became the basis for the ACLU’s successful defense of civil rights demonstrators in the 1960s and ’70s.

   

  The college students fighting to limit free speech or to punish free expression are courting tremendous harms that would ultimately fall disproportionately on the least powerful, most marginalized groups of the present and future––and as UCLA graduates, they are highly unlikely to be in either group, which may help explain their lack of concern for how their behavior could affect the less privileged. It is nevertheless incoherent for activists who say that they live in a system of white supremacy to empower state administrators to police speech at their discretion!

   

  But there is no “black point of view,” a prejudicial notion that is so easily refuted that it’s a wonder anyone invokes it. There are plenty of black people––a majority, I would wager––who understand better than many other Americans the importance of the First Amendment to the history of the civil-rights movement and the future of other civil-rights causes. As if to underscore that point, the Los Angeles Times highlighted an open letter sent to UCLA by Michael Meyers, president of the New York Civil Rights Coalition. He said that “as an African American civil rights leader” he had to speak out. “We are increasingly alarmed—and distressed—by the failure of public university officials to support free speech and diversity of opinion on campus,” he wrote in the letter to UCLA’s chancellor. “Diversity of opinion surely includes the right of students to contest orthodoxy and to poke fun at popular culture and celebrities.”That is exactly right, and UCLA administrators should publicly apologize for acting to the contrary rather than caving to the illegal demands of student activists.

  In case you missed it above, Connor brought up another key observation in this whole preposterous charade. He notes:

  “It is nevertheless incoherent for activists who say that they live in a system of white supremacy to empower state administrators to police speech at their discretion!

  Indeed, I didn’t think I was the one to see the absurdity in the fact that students at UCLA who portray themselves as some sort of victim, are the same ones who wield such tremendous power at the university. So much so, that administrators suspended due process and violated free speech rights merely to massage their thin skins and empower their self-rightious behavior.

  How about the fact that it was America, a country with a sordid history of slavey and virtually no limits on free speech, which elected a black man President. Twice. Similarly, why is anti-Semitism so much more entrenched in parts of Europe than in the United States, despite all the “hate speech” laws across the pond. I’ll tell you why, because free speech works and censorship doesn’t.

  Indeed, the real victims in the saga are clear. The suspended fraternity and sorority, free speech, logic, and of course the UCLA student body as a whole.

  I’m speechless.

  

  

  

  

  

• US Shocked To Find Russian Machine Gun With Iranian Ammo Attached To Abrams Tank

  Needless to say, what’s happening in Syria is a nightmare for those who have been forced by circumstance to bear witness to the intractable violence. The plight of the hundreds of thousands of refugees fleeing the country is unfathomable and the situation facing those who remain is even worse.

  For military and political strategists in Washington, Syria’s civil war represents a different kind of nightmare. The Russia-Iran nexus is just about the worst possible outcome for the US, whose status as global hegemon was already fading in the face of an ascendant China. 

  Put simply, the partnership between Washington’s two worst geopolitical enemies represents a kind of “sum of all fears” scenario and to make matters worse, the alliance between Tehran and Moscow looks as though it will apply to Iraq as well, raising the spectre of the US being kicked out of the country it “liberated” after 9/11. 

  And while there’s nothing funny about the plight of the Syrian people, there’s quite a bit to laugh at when it comes to this latest (and perhaps greatest) US foreign policy blunder which is why we found the following bit from Defense News particularly amusing. Apparently, the Iran-backed (and US supported) Shiite militias battling ISIS in Iraq aren’t getting the kind of logistical support they need from Washington and so they have begun attaching Russian guns to Abrams tanks and firing Iran-stamped ammo. Here’s more:

  Earlier this month, Shia militiamen in Iraq dropped off an American-supplied Abrams tank at a US-supported repair facility where workers were surprised to find an attached Russian machine gun plus Iranian ammo, Defense News has learned.

   

  The MIA1 main battle tank — one of 146 frontline tanks the US sold to Baghdad — was transported through the Green Zone to a US-supported Iraqi service facility at al-Muthanna that was established as part of the Pentagon’s Foreign Military Sales (FMS) program.

   

  The tank was equipped with a Russian .50-caliber machine gun and Iranian-stamped 12.75-mm ammunition, according to a source at the facility.

   

  “Once all the ammo was removed, as per procedure, by Iraqi personnel, we noticed Iranian markings on the back of the shell casings. Seems they put a Russian machine gun with Iranian ammunition on an Abrams tank.”

   

  As Washington scrambles to adapt to the myriad, Iranian-backed Shiite militias fighting alongside its US-trained and -supplied partners in Iraq, new manifestations of shifting alliances may threaten the relevance of US end-use monitoring in that war-torn country.

   

  The US-Russian tank hybrid could constitute twin violations of Iraq’s FMS agreements with Washington, due to unauthorized use by Shiite militias and the unsanctioned addition of the Russian gun and Iranian ammo, Pentagon officials say.

   

  “Any time you do a foreign military sale, there’s a requirement that you do end-use monitoring, and it’s a violation if you do alterations,” Vice Adm. Joseph Rixey, director of the Pentagon’s Defense Security Cooperation Agency (DSCA) told Defense News.

   

  Interviewed in Washington this week at the annual Association of the US Army conference, neither Rixey, the Pentagon’s FMS chief, nor Maj. Gen. Mark McDonald, chief of the US Army Security Assistance Command, had knowledge of the event recounted to Defense News. However, both men suggested that their Iraqi customers had an obligation to report such occurrences in a timely and accurate manner.

   

  “If they brought it into the maintenance facility, then that should be reported to our US folks there, and then we can have a discussion about how, ‘This is not what we’re going to do,’” McDonald said.

   

  McDonald was deputy commander at the time the Iraqi tank deal was concluded, and noted that the FMS contract includes a maintenance package that covers the facility in question. “We eventually got them to buy the maintenance and training package, so I do know there is an ongoing maintenance effort going on over there under our FMS contract, with a US company doing the maintenance.”

   

  The in-country source noted that it was the first time he had encountered the hybridization of the Abrams to accommodate the Russian gun and Iranian ammo.

   

  “It could be an isolated event or it could mark the beginning of something worrisome. It’s too early to tell … but given the strange bedfellows over there in the Amber Zone, you never know.”

  Yes, “you never know”, but what appears to have happened here is that because the Iran-backed Shiite militias are more adept than the Iraqi army on the battlefield, they’re the ones driving the tanks.

  As a reminder, here’s their assessment of America’s role in providing support for the ground campaign against ISIS in Iraq (via Reuters):

  Allied Iranian-backed Shi’ite militias who are leading the fight against Islamic State in Iraq, say the United States lacks the decisiveness and the readiness to supply weapons needed to eliminate militancy in the region.

  And so, because of this “lack of decisiveness and readiness”, the militiamen improvised and slapped a Russian machine gun on a US-supplied tank and loaded it up with Iranian ammo. 

  As noted above, these soldiers aren’t really supposed to be driving these things which makes the following description of what unfolded when they dropped it off for service down right hilarious: 

  “They brought it in through Iraqi checkpoints, back-rolled it off the trailer and then drove away.”

   

  
  

  

  

  

  

  

• Silicon Valley's Ultimate Insider Warns Of "Subprime Unicorns… Managements Are Deluded"

  Authored by Michael Moritz, Chairman of Sequoia Capital, originally published Op-Ed via The Financial Times,

  The private and public worlds of technology collided this week with a set of stories about two very different companies: one a large business in its fourth decade, seeking to adjust to a new world; the other a much touted Silicon Valley start-up whose ambitious scientific claims were questioned in a devastating newspaper article. The former, Dell, and the latter, Theranos, illustrate the benefits and perils of life as a private company.

  Michael Dell had experienced many years as the head of a publicly traded company, which included some close encounters of the worst kind and a bruising battle with some dissident shareholders, before delisting in a leveraged buyout in 2013.

  Since then, relieved from the merciless roasting of the quarterly earnings call, he has had the freedom to undertake a long-term restructuring of his business. Mr Dell emerged from the shadows this week to announce his intention to purchase EMC, the large storage provider, in what would be the biggest technology takeover in history.

  If Mr Dell illustrated the benefits of privacy, Elizabeth Holmes, the chief executive and founder of Theranos, has just learnt that even for the head of a high-profile, secretive Silicon Valley company valued at $9bn, a light will eventually illuminate dark places.

  Ms Holmes formed Theranos in 2003 to provide health tests from a few drops of blood rather than what gushes out of several tubes. Ms Holmes ingeniously convinced some very accomplished people (including Oracle’s Larry Ellison) to furnish her company with about $400m and has persuaded two former US secretaries of state, a former US defence secretary and the former chairman of the Senate Armed Services Committee to join her board of directors.

  That feat of persuasion may have been even more impressive than it seemed. The Wall Street Journal this week reported claims that the company’s proprietary technology — whose co-inventor committed suicide two years ago after telling his wife that it was not effective — is used only in a small fraction of the company’s tests, with others performed using standard laboratory equipment in a way that might produce inaccurate results. Former employees of Theranos told the newspaper they had been instructed to deal with regulatory checks on its test results in a way that might amount to cheating.

  Theranos contests these suggestions of scientific trickery and legerdemain. However, if they turn out to be true, the company could be mortally wounded — a development that might make technology investors sit up straight and be less credulous as they scrutinise investments.

  Life in the shadows of the private market has many benefits for emerging companies. It allows them to experiment, work out kinks in a product, lure talented people with attractively priced stock options, shield themselves from the scrutiny of predatory competitors and stutter in private until they can speak fluently in public. It is also a refuge to which people such as Mr Dell can retreat once their companies no longer offer public investors either the growth or predictably for which they yearn.

  But there is also a false sense of security provided by the private markets at a time when interest rates are negligible and many investors, particularly those who are either new to technology or have short memories, are all too willing to back start-ups whose premises house several baristas and where a dozen blends of tea (not to mention the sea-salt flavoured chocolate bars and bio-dynamically raised Anjou pears) are de rigueur. It is easier to conceal weaknesses, present an aura of invincibility and confound investors as a private company that can escape by making few disclosures than as a publicly traded one.

  One glance at the list of so-called unicorns — those private technology companies valued at more than $1bn — illustrates this point. A handful of these businesses will become the great, enduring companies of tomorrow. But a good number seem the flimsiest of edifices. Forget the fact that some of these valuations are illusory because the most recent investors have structured their investments as debt in all but name, meaning that they will stand to profit even if the company is worth far less.

  The more salient point is that for the past three or four years private investors have just been more forgiving than their public market counterparts, who, had they been presented with the most recent financial reports of a good number of these companies, would have decimated the stocks. In the past few quarters, the founders of several technology companies have discovered a far chillier reception as they tramped around on initial public offering roadshows than they were accorded in the private shadows.

  Most of the leaders of the subprime unicorns who continue to enjoy the fruits of the private market delude themselves about the difference between control and discipline. Some say that if their companies become public they will lose control. Google, Facebook and a raft of other companies with dual-class stocks put paid to that argument. What the heads of the subprime unicorns really mean is that the sort of disclosure required of a public company is the picture they do not want to view. But as Ms Holmes of Theranos discovered this week, eventually there is no place to hide.

  

  

  

  

  

• Images From The Iraqi Frontlines: Iran-Backed Fighters Battle ISIS For Control Of Key Refinery

  One event that flew under the radar last month as Russia revved up its long dormant military juggernaut, was the intelligence sharing alliance struck between Moscow, Baghdad, Tehran, and Damascus. The deal called for the establishment of an intel command base in Baghdad and a rotating presidency. As Sputnik reported on September 28:

  “This shared intelligence base will be formed by the representatives of the chiefs of joint military staff of each of these four countries. … The first goal of the base is to gather intelligence regarding the region in the framework of fighting against this terrorist group. After the data is collected, it will be analyzed and will eventually be forwarded to the related organizations in the armed forces of each of these countries. The command of this base will rotate every three months between the member states and the first rotating president will be Iraq.”

  This initiative was purportedly behind the strike on an ISIS convoy that some initially believed had killed Bakr al-Baghdadi. Apparently, Baghdadi was not actually present, but nevertheless, the Iraqis are clearly excited about the joint intelligence initiative, presumably because the US hasn’t proven to be too “intelligent” an ally thus far. Consider the following from Reuters:

  Iraq has begun bombing Islamic State insurgents with help from a new intelligence center with staff from Russia, Iran and Syria, a senior parliamentary figure said on Tuesday about cooperation seen as a threat to U.S. interests in the region.

   

  The center has been operational for about a week, and it provided intelligence for air strikes on a gathering of middle-level Islamic State figures, Hakim al Zamili, the head of parliament’s defense and security committee, told Reuters.

   

  The new security apparatus based in Baghdad suggests the United States is losing clout in a strategic oil-producing Middle East, where it has been heavily invested for years.

   

  Iraqi officials, frustrated with the pace and depth of the U.S. military campaign against Islamic State, have said they will lean heavily on Washington’s former Cold War rival Russia in the battle against the Sunni Muslim jihadists.

   

  “We find it extremely useful,” the Iraqi official said. “The idea is to formalize the relationship with Iran, Russia and Syria. We wanted a full-blown military alliance.”

   

  Iran, a longtime Middle East adversary of the United States, already boasts deep influence in Iraq. Iranian military advisers help direct Baghdad’s campaign against Islamic State, which aims to expand its self-proclaimed caliphate in the Middle East.

   

  Washington, with a history of close security links with Baghdad, now worries the intelligence center may foster closer Russian-Iraqi ties, particularly with respect to operations against Islamist militants, a U.S. security official said.

   

  The Baghdad government, and allied Iranian-backed Shi’ite militias who are leading the fight against Islamic State in Iraq, say the United States lacks the decisiveness and the readiness to supply weapons needed to eliminate militancy in the region.

  Yes, “Iran boasts deep influence in Iraq, [its] military advisers help direct Baghdad’s campaign against Islamic State, [and] the Baghdad government and allied Iranian-backed Shi’ite militias say the United States lacks the decisiveness and the readiness to supply weapons needed to eliminate militancy in the region.” As we’ve documented extensively, this is all orchestrated and overseen by the Quds Force and the plan from day one appears to have been this: Tehran agrees to allow Russia to become the new Mid-East puppet master once the US packs up and leaves if Russia agrees to provide the military might needed for Iran to secure Syria and cement the IRGC’s stranglehold on Iraqi politics and military affairs. 

  So in short, what seems likely to happen here is that once Syria is secure, the Shiite militias under Iran’s control (including Hezbollah) will simply move on to Iraq to reinforce the Iran-backed militias operating there.

  As we demonstrated on Thursday, Russia now has the capability to strike targets in Iraq thanks to the new base at Latakia, so air cover shouldn’t be a problem.

  Given all of the above, we imagine we’ll be hearing a lot more about Iraq in the coming months and so, in an effort to begin taking a closer look at the activities of the Shiite militias operating in the country alongside the Iraqi army, we bring you the following from The New York Times who reports that the groups achieved a major strategic victory on Thursday when ISIS was driven from the Baiji refinery:

  Iraqi forces and the Shiite militias fighting alongside them announced Friday that they had retaken the oil refinery at Baiji from Islamic State militants, in some of the first significant progress against the extremist group after months of stalled efforts.

   

  “Baiji refinery has been completely liberated from Daesh,” a spokesman for Iraq’s counterterrorism service said.

   

  Iraqi officials insist that its recapture is a strategically important step, and a vital lift to morale, in the broader campaign against the Islamic State, which controls much of northern and western Iraq.

   

  Baiji and the nearby town of Siniya, which Iraqi forces said they had also taken, are on a major north-south route to Mosul, Iraq’s second-largest city, which was seized by the Islamic State in June 2014.

   

  “This battle is crucial,” Prime Minister Haider al-Abadi said Monday during a visit to Salahuddin, the province north of Baghdad that includes Baiji.

   

  The Iraqis appeared to have had more going for them this time. The push to retake Baiji came as Iraqi forces were mounting a parallel offensive to retake Ramadi, the capital of Anbar Province in western Iraq.

   

  The Iraqi military said it had encircled Ramadi, which United States military officials say is defended by an estimated 600 to 1,000 Islamic State fighters.

   

  The Shiite militias — formally known as the Popular Mobilization Forces — have not been given a role in the Ramadi operation for fear that their presence might antagonize the mostly Sunni population there. But the militias, some of which are backed and trained by Iran, played a major role in the Baiji operation.

   

  A spokesman for Shiite militias said that several thousand Shiite militiamen were fighting in and near Baiji, which is more than the estimated number of Iraqi soldiers also fighting there. 

   

  Shiite militia leaders have advertised their presence on the battlefield. Qais al-Khazali, the head of the Asaib Ahl al-Haq, a militia long supported by Iran, was filmed inside the captured refinery. Hadi al-Ameri, the leader of the Badr Organization, another Iranian-backed group, also played a visible role in the operation.

  And here are the images of the Shiite fighters who battled to retake Baiji (via Reuters):

  

  

  

  

  

  

  

  

  

  

• After 6 Years Of Austerity, 36% Of Greeks In Poverty

  Via KeepTalkingGreece.com,

  Thousands of austerity measures, dramatic cuts in incomes, incredible hikes in taxes. Five and a half years in deep recession. Three bailout agreements. And where do Greeks stand now?

  On top of the Eurozone when it comes to poverty. More than one out of three Greeks, that is “36% of the Greek population is at risk of poverty and social exclusion,” the EUROSTAT found out – the highest rate within the Euro Zone.

  The EUROSTAT data were released on the occasion of International Day for the Eradication of Poverty which is ‘celebrated’ yearly on October 17th.

  What means poverty? Not enough food on the table, no adequate warm home in winter, difficulties to cover basic needs and pay utilities and health care, just to name a few.

  Oh and here is the Statistics we love: also the inability to afford to pay for one week annual holiday away from home.

  According to European union “directives’ poor is an individual or a family with available income of less than 500 euro per month. It can be 480 euro or Zero Euro.

  

  The detailed EUROSTAT poverty data for the entire EU is here.

  The rate of Greeks at risk of poverty and social exclusion was at 30% and 33% in the last two years. No surprise, it increased.

  *  *  *

  Still with the economic "boom" we are told to expedct from the flood of refugees (and Germany's pressure  on the Greeks to take more refugees), we are sure this will all end well…

  

  

  

  

  

• China Officially Sold A Quarter Trillion Treasurys In The Past Year (Unofficially Much More) And What This Means

  Back in May, this website was the first to explain the “mystery” behind Belgium’s ravenous Treasury buying which in early 2015 had turned into sudden selling, and which we demonstrated was merely China transacting using offshore Euroclear-based accounts to preserve anonymity. Since then theme of Belgium as a Chinese proxy has become so popular, even CNBC gets it.

  Consequently, we were also the first to correctly warn that China had begun liquidating its Treasury holdings (a finding which left none other than Goldman “speechless”), which also helped us predict that China is about to announce its currency devaluation three days before it happened as the conversion of Chinese reserves from inert paper to active dollars hinted at a massive effort to stabilize the currency, and thus unprecedented capital outflows.

  As a result, the only data point which mattered in yesterday’s Treasury International Capital data release was not China’s holdings, which actually “rose” $1.7 billion in the month when China actively devalued its currency and then spent hundreds of billions to prevent the devaluation from becoming an all out FX rout, but the ongoing decline in Belgium holdings. As the chart below shows, Belgium, pardon Euroclear – which is a clearing house not only for China but many other EM nations who park their reserves in Belgium – sold another $45 billion in Treasurys last month, bringing the total to a dangerously low $111 billion, down from $355 billion at the start of the year.

  

   

  Lumping Belgium and China holdings into one, as we have done since May, shows that as expected, Chinese selling continued in August, and the result was another drop of $43 billion in TSY holdings in the month of August, which incidentally mirrors perfectly the previously announced decline in September Chinese FX reserves, which according to official data declined from $3.557 trillion to $3.514 trillion.

  

   

  According to the chart above, while to many Quantitative Tightening is a novel concept, the reality is that China (+ Euroclear) have been dumping Treasurys and liquidating reserves since January when total holdings peaked at $1.6 trillion last summer, and have since declined to $1.38 trillion. It means that China has sold a quarter trillion dollars worth of Treasurys in the past year, in the process offsetting what would have been about 25% of the Fed’s QE3.

  However, the real number is likely far greater.

  While China’s official (declining) FX reserve data (a real-time mirror of the TIC data from China’s perspective) is a useful guide to what is happening with China’s reserves (primarily US Treasurys, as well as European sovereigns and various other unclassified assets), it is also manipulated by the politburo which does not want to give an overly pessimistic picture of what is happening in China. As a result, a far more accurate representation of FX flows comes from the data showing FX purchases for the whole banking system (PBOC plus banks), as this number is far more difficult to rig.

  As we previously reported, in September FX purchases decreased by US$120 billion in September (vs. a decrease of $115bn in August). This is a troublin discrepancy with both official Chinese reserve data and US TIC data as the scale of decline in this data is significantly larger than that in PBOC’s FX reserves (-$43bn) and its foreign assets (-$42bn), suggesting that banks have resorted to their own spot FX positions to help absorb outflow pressure.

  More from Goldman:

  Given possible PBOC balance sheet management (e.g., short-term transactions and agreements between with banks, e.g., forward transactions, FX entrusted loan drawdown or repayment), we interpret the FX reserves data with caution, as it might not give a complete picture of the FX flow situation. The large gap between today’s data and the other PBOC data for September suggests that banks might have used their own spot FX positions to help meet some of the outflow demand, although banks’ overall FX positions might still have been squared with the PBOC via forward agreements. This also partly explains why new RMB loans exceeded RMB deposit generation by a large margin (of over RMB 1tn) in September, as shown in yesterday’s money and credit data–apparently corporates and households converted a large amount of their RMB deposits into FX. Overall, today’s data indicates that the outflow situation might have improved only modestly from August. Note that today’s data do not include information on possible forward transactions between the PBOC and onshore or offshore banks.

  The problem with China’s data – and incrasingly the US – is that it is completely unreliable. So to get a full picture of what really hapepned, we will have to wait for SAFE data on banks’ FX settlements on behalf of their onshore clients (due on October 22nd) to have a more complete view on the FX-RMB conversion trend among onshore non-banks. That report captures banks’ FX transactions vis-à-vis non-banks through both spot and forward transactions (for August this data showed an overall FX outflow of $178bn).

  But even with the incomplete picture we have, we can draw two conclusions:

  • Chinese FX outflows are actually accelerating, not slowing down, despite the PBOC’s (and TIC’s) best efforts to show that China has sold “only” $250 billion in Treasurys in the past year
  • Chinese TSY selling has so far not impacted price of 10Ys adversely because it took place in a time of “great unrotation” from stocks into safety assets, and a surge in global deflation fears provoked by… China. Now that the Politburo appears to have fooled markets that China is “fine” once again, and inflationary fears reemerge, preserving the bid for 10Y paper may not be quite so easy especially as China continues to fight capital outflows by selling reserves.
  • The recent data on rising Chinese credit creation had nothing to do with an improvement in the economy, and everything to do with covering the discrepancy between official (declining) capital outflows, and unofficial (increasing) capital outflows.

  Bottom line: China’s capital outflow is getting worse, not better, and continued to drag not only its economy lower, but accelerate China’s disposition of Treasury paper. Anyone hoping for a quick rebound in China’s economy will be severely disappointed.

  

  

  

  

  

• The Smoking Gun: Silver & Gold Manipulation Exposed

  Submitted by Dave Fairfax via PeakProsperity.com,

  Gold price suppression!

  The amount of ink spilled on this topic could fill a supertanker.  Goldbugs the world over believe in the suppression story as an article of faith, and indeed, the evidence that “something is happening” appears incontrovertible.

  Given how important the subject is to the bullion-owning community, and the volume of energy we expend talking (and talking, and talking, and talking) about it, how much information do we really have about what is actually going on?  Has anyone quantified suppression?  Do we know how, when, and how frequently it occurs?  Once a month?  Once a day?  What does it even look like?  For many of us it might be like that old Supreme Court Justice's definition of obscenity: I can't define it, but I know it when I see it.

  So, I'll take my best shot at defining suppression. Then armed with a definition, I should be able to discover how and when it takes place. To see how frequently it happens, and what the immediately observable effects are – as well as the apparent longer term effects of such events.  Does the fact that a suppression attack occurs means the price trend changes?  Is an attack prima facie evidence of successful control of prices over the long term?  And is anything else being suppressed, too?  Perhaps everything is being suppressed by our banking lords and masters!

  The visible attacks that we have all seen involve “someone” dumping (or buying) large numbers of futures contracts in the market when activity is relatively lighter than usual, with the intent of deliberately moving price.  Most goldbugs like to say that gold and silver suppression attacks occur in the “wee hours of the morning.”  Loosely translated, I take this to mean during non-US and non-London trading hours.  So that's the time range I will use: 4pm-3am Eastern; from just after US market close through to the London market open.

  So how do we define a deliberate act of suppression – or let me state it more neutrally – a “volatility event”?  The ones we have all seen involve a large spike down (or up) in a small increment of time.  I'll define this more specifically as at least a 0.5% move within a one-minute period.  So, at current prices, that's a $6 move in gold or a $0.08 move in silver that happens within one minute.  That's just the minimum amount – often the moves are much larger than that.

  Goldbugs tend to believe they are a heavily persecuted lot, with their favorite metal singled out for routine beatings.  Is there a factual basis for this feeling?  Or do volatility events occur for other futures contracts also?

  Others (including me!) have pointed out that volatility events happen to the upside as well as to the downside.  I have personally seen these spikes higher squeeze the shorts, thus driving prices even higher during non-US non-London trading hours.  Some goldbugs never seem to want to acknowledge these events; some have even claimed that “they don't happen!”  So do they happen?  That should be easy enough to prove or refute by looking at the trading records. And if such evidence indeed exists, how often do these volatility events take place compared to the downside moves?

  To answer all these questions, I wrote some software — as I'm a programmer by training. The program sorted through intraday price data for 9 different futures markets, with the data starting in late 2009 through today, and counted all the 0.5% 1-minute price spikes (either up or down) that happened during non-US non-London trading times.  Then, I entered them into a spreadsheet for analysis.  Let's take a look:

  

  Legend:

  total events: the total number of 0.5% 1-minute moves during the time period for that contract.

  # ev down/up: # of moves that ended lower, or higher than the starting price.

  chg down/up: aggregate dollar change for all up and down events for that contract.

  total change: aggregate chg up – chg down, in either dollars or points.

  So first of all, are there up events as well as down events?  The # ev up column says yes, definitely.  Silver had 402 up events, and 467 down events.  So it's not just a one way street down.  Those scoffing analysts are correct: the up-events really do happen.  And not just occasionally either!  That said, evidence also clearly shows there are more down events than up events for gold and silver (and also for Natgas, and the e-minis).

  Next, are gold and silver the only contracts that suffer volatility events during the wee hours of the morning?  No.  Many contracts received hundreds of similar-sized volatility events during the time period.   While it is true that silver received the most total events at 869, Natgas, Wheat, and Crude have all received more total events than gold, with Natgas coming in at #2 with 489.

  Could there be an active Natgas, Wheat, and Crude oil suppression campaign going on too?

  No.  There is one last critical part: the aggregated total change column.   If you sum the price changes for all events: chg down + chg up, you get to see the net price impact of all the events.   So for silver, the total change over the period is $53 up – $71 down = –$18.  Compare this with crude oil, which had $43 up – $41 down = +$2.

  What does this mean?  Even though silver had $53 in support from the 402 up events it received, it was also hit for $71 from the 467 down events it got: net effect -$18.  That's significant for something with a current price of $15.  In fact, when viewed as a percentage of silver's current price (the % change column), silver was far and away the hardest hit of all 9 contracts I investigated.  Gold's price impact was #2, at $379.  Crude actually had a positive effect, while Natgas was dead flat.  Even though Natgas had a large number of volatility events, the net effect on price was a wash.  The same is largely true for wheat, treasury bonds, and the e-mini futures.  Some experienced a mild positive effect, others a mild negative effect, but the effects were quite small relative to the current price of the underlying item.

  So goldbugs, take a victory lap!  Even though the scoffers were right – there are a large number of up events – the down events dominate for PM contracts and especially for silver.  You have been singled out for beatings!  Of course you already knew that, didn't you?  🙂

  So now that we've looked at the last 6 years in aggregate, and we've established that precious metals have definitely been singled out for “negative attention” compared to other contracts, its time to look at these events across time, to see if we can get answers to the other questions, such as: When do these events take place? What effect do they have on the price chart? Are they still happening? And if so – how often?

  First, let's look at the big picture.  Here are a pair of price charts for silver and gold over the five year time period, with the volatility events (red = down, blue = up, measured in dollars, weekly) overlaid.

  For silver, we can see four main events: a huge spike right near the 2011 peak, another spike that seems to coincide with the low in 2011, and a couple more in early-2013 that happened during the great gold smash of 2013.  We can also see that the red (the down spikes) usually is larger than the blue (the up spikes).

  Gold's picture is a bit different: a few smaller spikes appear during the uptrend, a couple appear right near the peak, and a massive spike appears right after the peak.  The largest spike in gold happens during the 2013 gold smash.  One last big spike occurs in 2015, about the time of the low at 1075.  As a general impression, gold has far more red than blue; this is borne out by the spreadsheet, which shows a 2:1 red:blue ratio.

  

  Anatomy of a Top

  The next goal is to dig deeper, and see how a volatility event storm affected price.  Does a volatility event line up with a big move down?  And what happens after?  Does price keep falling, or does it bounce right back up?  Do volatility events change trend?  If so – are there conditions?

  Silver has received the biggest total number of volatility events, and has received the largest negative impact as a percentage of price.  Let's look at the biggest spike, the infamous 2011 peak at $50 through the lens of volatility events, and try to see what might have gone on.  Did suppression cause the top?  It seems like it should have – but did it?

  

  On Sunday/Monday, April 25^th , 2011, “someone” hit the market with 12 different volatility events totaling $3.15, which was at that time the largest single set of volatility events in the timeseries, the same day that silver ticked $50/oz.  As a result, silver printed a doji on the day.  Price fell the following day, but then a funny thing happened.  Price started moving higher again.  Three days after the big Sunday-evening silver smash, price was once again testing $50 – and in fact it had two shots at $50 without any volatility events appearing at all on days #4 and #5.  But those two shots at $50 failed, and on day #6 as price began to fade, “someone” came in with a truly absurd 51 events totaling $15.45 in impact that started the collapse in price down from the high.  Buyers still tried to buy the dip that day, and price only fell $2 – a minor miracle given the pounding – but the rock had started to roll down hill, and it didn't stop until price dropped a total of $15 over 5 days.

  Was the top “caused” by these volatility events?  Its hard to say.  Had the bulls been strong enough to push price over $50 in days #4 & 5, its likely the volatility event on day #6 would not have worked.  They don't seem to work too well during an uptrend.  The silver bulls had two free shots to move price above $50,  completely unopposed by any volatility events at all, and they failed.  Once they failed, that's when “someone” launched the second volatility event storm.

  Looking at the price chart alongside the volatility event chart, it does not look like a straightforward case of “someone successfully causing the top” through direct application of force.  First they used a stall to stop the upward momentum in a very extended market which resulted in the doji print, and then the buyers were unable to muster enough power to push prices higher, and then “someone” unloaded with maximum force once the buyer fatigue became apparent.  That's how I read the chart anyway.

  What would have happened had someone not unleashed the volatility storm on day #6?  We will never know.  The market would have eventually corrected at some point – no tree grows to the sky – but its hard to know how much higher it might have gone.

  

   

  *  *  *

  In Part 2: How To Protect Yourself & Profit From This Manipulation, we look further into the recent data to determine whether or not the downward manipulation of precious metals can continue as it has over the past few years. Bullion investors will be heartened to learn of the signs we're seeing that $1,05/oz gold may have been the bottom, and that brighter days may indeed lie ahead.

  True or not, though, the manipulation attempts are likely to continue for some time. We look at how bullion investors can position themselves to defend against the most predictable elements of these raids, and how brave souls interested in speculating may profit from them.

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

  

  

  

  

  

• With US Warships En Route To Islands, China Asks: "What On Earth Makes Them Think We Will Tolerate This?"

  The US is in a tough spot militarily. 

  In Syria, Russia and Iran have taken advantage of the fact that the plan hatched by the West and its regional allies to destabilize the Assad regime took far too long to develop. The idea was to foment discord and provide covert support for the various armed militias fighting to overthrow the government. But the effort is entering its fifth year and Assad is still there. Not only that, there have been a series of unintended (well, at least we hope they’re unintended) consequences. First, one of the rebel groups the West and its allies supported morphed into an insane band of white basketball shoe-wearing, black flag-waving, sword-wielding desert bandits. Second, the fighting created a horrific refugee crisis that now threatens to destabilize the whole of Europe. Sensing a historic geopolitical opportunity, Moscow and Tehran simply stepped in and outmaneuvered Washington. Now, the US basically has to decide whether it wants to go to war with Russia, because paradropping ammo into the middle of the desert isn’t going to be a viable strategy.

  Meanwhile, the US faces another superpower confrontation in the South China Sea.

  When Beijing began its land reclamation efforts in the Spratlys, we’re reasonably sure the Pentagon didn’t anticipate the extent to which the effort would quickly become a giant headache for Washington. 

  As a reminder, it’s not so much the dredging that has Washington’s regional allies in the South Pacific upset. Island building has been done before in the area. Rather, it’s the scope of the project that has everyone unnerved as Beijing has so far constructed over 3,000 acres of new sovereign territory atop which China has built everything from cement factories, to greenhouses, to runways. 

  Whether or not the US really cares about this is debatable although these shipping lanes are indeed critical for world trade. But with The Philippines and others crying foul, Washington is left with little choice but to put on a brave face lest the world should get the idea that China can just redraw maritime boundaries at will and establish a Sino-Monroe Doctrine in the process. 

  So finally, the US decided that it would sail some warships by the islands just to see if it can do so without getting shot at. 

  No, really. That’s the whole plan. “Let’s see how far we can push them.” 

  This is of course orchestrated under the guise of a freedom of navigation operation which, in a way, makes little sense because China has never threatened global trade. Then again, it’s fairly obvious that Beijing has some military role for the new islands in mind. 

  In any event, China hit back on Thursday, saying the PLA would “stand up and use force” if necessary should the US make a “mistake” with the whole warship plan.

  So in short, Washington is now in a staring contest with both Moscow and Beijing and both Russia and China seem to have gotten the idea that the US has lost its resolve lately and will probably blink first in both standoffs. 

  It’s with all of that in mind that we bring you the following rather amusing op-ed from Beijing out Saturday on Xinhua, presented below with no further comment:

  *  *  *

  Via Xinhua

  The United States’ provocative attempts to infringe on China’s South China Sea sovereignty are sabotaging regional peace and stability and militarizing the waters.

   

  The U.S. Navy is reportedly preparing to conduct “freedom of navigation” operations, sending warships within 12 nautical miles of Chinese islands in the South China Sea. The U.S. operations may take place within days, according to reports.

   

  Last month, in his response to China’s claim of sovereignty over the South China Sea, U.S. Secretary of Defense Ash Carter said the United States “will fly, sail and operate wherever the international law allows, as we do around the world.”

   

  White House Spokesman Josh Earnest said on Oct. 8 that U.S. warships patrolling close to artificial islands built by China in the South China Sea “should not provoke significant reaction from the Chinese.”

   

  Let us not forget that in October 1962, when the Soviet Union was building missile sites in Cuba — not even on U.S. soil — U.S. President Kennedy made it clear in a televised speech that the United States would not “tolerate the existence of the missile sites currently in place.”

   

  What on earth makes the United States think China should and will tolerate it when U.S. surface ships trespass on Chinese territory in the South China Sea?

   

  China will never tolerate any military provocation or infringement on sovereignty from the United States or any other country, just as the United States refused to 53 years ago.

   

  China’s stand on the South China Sea disputes is firm and clear. China’s sovereignty and claims of rights over Nansha Islands and their adjacent waters in the South China Sea have been formed over the long course of history and upheld by successive Chinese governments, and have adequate and solid historical and legal basis.

   

  Just as Article 15 of the United Nations Convention of the Law of the Sea stipulates, delimiting the territorial seas of China and other countries in the South China Sea shall be in accordance with China’s “historic title” to the region.

   

  China has always been, in a constructive and effective manner, a firm upholder of the freedom of navigation as well as peace and stability in the South China Sea. And China has vowed to continue to do so in the future.

   

  China’s construction of civilian and public facilities on the Nansha Islands and reefs, which fall within the scope of China’s sovereignty, serves not only China but also coastal nations in the South China Sea.

   

  For instance, two lighthouses recently built on reefs in the region have helped guide passing vessels from around the world and significantly improved navigation safety.

   

  Contrary to U.S. claims, it will be the United States, as an outsider, that further provokes tensions in the South China Sea by sending soldiers and warships to Chinese territory in the name of “freedom of navigation.”

   

  This is not the first move by the United States to undermine the regional peace and stability that China has worked so hard for.

   

  Over the past several years, the United States has held frequent large-scale drills with its allies in the South China Sea, flexing their military muscles.

   

  According to the website of the U.S. Department of Defense, the country has deployed thousands of civilian and military officials, as well as a huge number of weapons, to the Pacific region.

   

  To destabilize the region and contain China, the United States has deliberately involved non-party nations, such as Japan, in the South China Sea issue and stirred disputes between China and other parties, including the Philippines.

   

  By no means will China let the provocateurs make waves in waters that should be characterized by peace, friendship and cooperation.

   

  Last year, the bilateral trade volume between China and members of the Association of Southeast Asian Nations (ASEAN) exceeded 480 billion U.S. dollars.

   

  Concerned nations have no alternative but to jointly deal with disputes in the South China Sea that pose a threat to the development and prosperity of parties in the region.

   

  On Sept. 18, in response to remarks made by the commander of U.S. forces in the Pacific on patrolling the South China Sea, a Chinese foreign ministry spokesman said China, like the United States, upholds freedom of navigation in the waters.

   

  However, the spokesman stressed, China opposes any country’s challenge, in the name of freedom of navigation, to China’s sovereignty and security in the South China Sea.

   

  During a visit to Europe in March 2014, Chinese president Xi Jinping stressed that his country will “never stir up any trouble, but will resolutely safeguard its legitimate rights” when it comes to sovereignty and territorial integrity.

   

  Even though enhancing mutual trust and managing disputes through high-level visits and talks still remains the first option for China, the country will, without any doubt, adopt countermeasures against the United States if it doesn’t stop military provocations that infringe upon China.

   

  People with vision in Washington should and must see clearly China’s determination in safeguarding national sovereignty and regional security.

   

  

  

  

  

  

• Prominent Veterans Group Just Called On US Public To Say No To War

  Submitted by Nick Bernabe via TheAntiMedia.org,

  A group of former U.S. service members called the Veterans For Peace issued a letter to the American public and President Obama today. In it, they outline reasons for the Unites States to immediately end the war in Afghanistan and elsewhere and call on the public to step in to ensure it happens. The entire letter is included below:

  “President Obama’s decision to prolong the U.S. led war in Afghanistan only ensures U.S. responsibility for more death and destruction. Veterans For Peace condemns the decision and calls on the U.S. public to say no to more war.

   

  Today, President Obama commented, ‘I do not support the idea of endless war, and I have repeatedly argued against marching into open-ended military conflicts that do not serve our core security interests.’ But Veterans For Peace asks, what is this policy but endless war? The U.S. has been fighting in Afghanistan for over fourteen years. What can fewer than 10,000 service members do that more than 100,000 could not? Al-Qaeda is a non-factor in Afghanistan and the Taliban are Afghans. U.S. presence in Afghanistan ensures more Afghan deaths and delay in reduction of violence so that civil society can be rebuilt and peace and justice can begin to take hold. War, Mr. President, has not worked. If you don’t believe in endless wars and you want to be a true Nobel Peace laureate to be looked up to and admired for working for peace in the face of pressure to continue down the road of war, Bring Our Troops Home and put all of the weight and power of the U.S. behind building peace.

   

  In his remarks, the president referred to the Taliban and the people of Afghanistan as if they are two different groups. The truth is that the Taliban represent a portion of the Afghan people. The Taliban are Pashtun tribesmen. Pashtuns are also the majority in Afghanistan. This makes it very difficult to combat the Taliban as they have many sympathizers and supporters who may not actively fight the U.S. backed government, but will not support it.

   

  It is clear that U.S. led efforts in Afghanistan have given more people reason to join the Taliban. A Carnegie Endowment for International Peace 2009 question and answer piece explained, people… ‘join because the Afghan government is unjust, corrupt, or simply not there. They also join because the Americans have bombed their houses or shown disrespect for their values. For young people, joining the Taliban is a way to earn social status.’

   

  That was written six years past, and little has changed. Just two weeks ago on October 3, 2015 the U.S. bombed a Doctors Without Borders Hospital in Kunduz Afghanistan killing twelve medical staff, ten patients and wounding thirty-two others. This type of incident is not uncommon. Amnesty International’s 2014/15 Annual Afghanistan Report says, ‘ISAF and NATO forces continued to launch night raids and aerial and ground attacks, claiming dozens of civilian lives, despite completing the handover of responsibility for security to the Afghan National Security Forces (ANSF) in June 2013.’

   

  The report goes on to say.[sic] ‘There were significant failures of accountability for civilian deaths, including a lack of transparent investigations and a lack of justice for the victims and their families.’ An October 14th New York Times article reports that, ‘Mr. Ghani is not popular among Afghans. And the problems in his government — like corruption and incompetence — run so deep that fixing them will take years, possibly decades.’ Trust of the Afghan government has not increased among the people it claims to represent.

   

  It is true that anti-government forces are responsible for the vast majority of civilian deaths. However, continuing the war does not increase the possibility for reduction of violence to save lives. This makes coalition forces and the opposition complicit in every death. There is little chance of defeating the Taliban because they will not stop fighting until the foreign invaders are gone and there are not enough Afghans willing to possibly die in support of the U.S. backed national government.

   

  There is not a perfect solution to the tragedy of Afghanistan. War has been the norm for the people of Afghanistan for nearly 37 years. The answer to ending the violence there is political, not military. The U.S. must withdraw and give the nation of Afghanistan back to the people of Afghanistan. The people of Afghanistan must form their own union. One we may not like, but is theirs. The international community must pressure the Afghan government, Taliban dominated or not, to follow international law and respect human rights. A real diplomatic effort must be brought to bear to end the violence so that the people of Afghanistan can rebuild civil society and create space for human rights activists to struggle for a just society.

   

  Concerns about the threat of ISIL in Afghanistan must be met with more effective efforts to end the violence and wars in Iraq and Syria. U.S. global policy of endless war is merging into a global response of violence. We need a global response that meets human needs and aspirations. War is not the foundation on which to build peace. U.S. efforts have proven that war is the breeding ground for more violence and hatred. We demand a peace plan, Mr. President. We are not war weary, we simply know it does not work.

   

  Finally, there are U.S. service members and families upon whose shoulders this failed and derived policy of endless war will continue to fall. U.S. military personnel have sacrificed enough in blood on the battlefield; wounded and killed. They are burdened with executing a no win strategy. When they come home they face unemployment, homelessness, recovery from physical and mental wounds and high rates of death by suicide. The Department of Veterans Affairs is already overwhelmed, unable to meet the needs of our brother and sister veterans. This policy ensures more of the same on the home front as well. Mr. President, it is clearly time to end this and all U.S. wars. Bring Them Home and Take Care of Them When They Get Here.”

  Veterans for Peace is a non-profit anti-war group whose members include U.S. military veterans. You can find their website here.

  

  

  

  

  

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• Guest Post: The False East/West Paradigm And The End Of Freedom

  Submitted by Brandon Smith via Alt-Market.com,

  People are desperate for leaders and heroes. This is an undeniable condition of human life and of human civilization. Some historians and social observers, however, seem to think it is enough to simply point out this condition and pretend as if they have made some grand declaration; as if they have come to the root of the problem of mankind. In their laziness, they have mistaken a symptom for the cause.

  Why do people so often demand leaders and heroic figures? What drives the institutionalization of hierarchy, celebrity and geopolitical idolization? I believe this condition is caused by three factors – fear, ignorance, and apathy.

  This is not to say that there are not people throughout history that are worth looking up to, or that looking up to a particular hero figure is wrong. Heroes and sometimes leaders can act as points of reference, helping us to aspire to greater personal accomplishment and extraordinary achievement. The problem is many historical figures labeled heroic are in fact monsters in masks paraded as saviors by history writers with agendas. Real heroes (in the past hundred years in particular) are most often unsung, and remain little known.

  This is why the idolization of puppet leaders is so disturbing to those of us in the Liberty Movement. We witnessed the blind militancy of the so-called “right wing” in the support of George W. Bush after 9/11, only to be led into quagmire, economic despair, and a surveillance state based on numerous lies. We then had to witness the insane cult-like fervor of the so-called “left wing” as Barack Obama took office, only to continue and accelerate the same draconian policies of the Bush Administration while conjuring new methods for the division and destruction of American society and prosperity.

  Yes, the Liberty Movement has examined every detail and is well versed in the horrors of the false Left/Right paradigm. Again, I'll have to quote the ever useful elitist member of the Council on Foreign Relations and mentor to former president Bill Clinton, Carroll Quigley, on this particular issue, from his book 'Tragedy And Hope':

  “…The argument of two parties should represent opposed ideas and policies, one perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinate and academic thinkers. Instead, the two parties should be almost identical, so that the American people can “throw the rascals out” at any election without leading to any profound or extensive shifts in policy. The policies that are vital and necessary for America are no longer subjects of significant disagreement, but are disputable only in details of procedure, priority, or method.”

  What truly disturbs me is that our movement can be so awake and aware of the false left/right paradigm while remaining astonishingly naïve and short sighted when it comes to the false East/West paradigm. And once again, I have to attribute this naivety to a desperation for heroes caused by fear and apathy.

  I have written on the reality that Eastern political interests are just as controlled by globalists as Western political interests for years. Readers can review the considerable amount of data and evidence I have collected on Russia and Vladimir Putin in particular and the ties between the East and international financiers and well known globalists in recent articles such as 'Russia Is Dominated By Global Banks, Too', 'False East/West Paradigm Hides The Rise Of Global Currency', and 'The New World Order And The Rise Of The East'.

  In fact, I predicted almost every aspect of the current Syrian crisis based on the knowledge that the East versus West dynamic was purely an engineered conflict designed to diminish American power and economic influence through the use of planned chaos, and I did this years before events were ever triggered in the region.

  I knew what was about to happen in Syria only because I understood one important fundamental – that there are no “sides” in any modern conflict, only proxies fighting on a global chessboard controlled by the same elitist interests. Syria represented a perfect catalyst for a planetary scale conflict triggered between East and West in a way that could divert attention from internationalists. Modern war, whether through kinetics or economics, is almost always theater designed to distract and terrorize the masses, which are the true target of any conflagration.

  We must set aside childish assumptions on war. Wars are not about resources. They are not about territory. They are not about the hegemony of any particular nation state. If you buy into such notions, you have been duped. No, war is about something much bigger. War first and foremost is a tool for the manipulation and molding of public psychology. As Edward Bernays, the father of modern propaganda said:

  “The great enemy of any attempt to change men's habits is inertia. Civilization is limited by inertia.”

  War is meant to forcefully change the “inertia” of civilization, and thus, forcefully change the direction of civilization in a manner that benefits the engineers of the conflict.

  One great threat to the mechanism of globalism and the elites behind it is the liberty movement, which is slowly but steadily growing in popularity and influence as America edges ever closer to economic and sociopolitical oblivion. As the U.S. is homogenized, harmonized, and brought down to third world status for the benefit of a one-world system, resistance continues to grow.

  You see, one negative side-effect of the rush towards centralization and a single global power (often referred to by the elites as the “New World Order”) is that the harder the globalists push society toward their Utopian ideal, the more individuals (not controlled governments or political puppets) wake up to the threat. Every action has an equal and opposite reaction. The Liberty Movement is the equalizing reaction to forced globalization.

  In order for the elites to neutralize the threat we present, they must either destroy us or co-opt us. I believe the East/West paradigm is being used in part to attempt the co-option of liberty elements.

  Despite the fact that many liberty analysts are beginning to understand the nature of the false East/West paradigm and the truth behind the rise of Russia, the predictable escalation in Syria is energizing a strange brand of Putin-worship once again. Liberty elements WANT to believe that Putin is somehow in opposition to globalization, that he is somehow morally superior to the Obama Administration, and that Russia is on the side of right in the fight against ISIS and the evil Western empire.

  They want to believe this because they are afraid – they are afraid that they are alone in the fight against the NWO. They are afraid that they will have to commit to personal sacrifice and struggle against a vastly technologically superior opponent. They are afraid that they alone will have to take responsibility for America's destiny and that no great leader on a white horse is coming to blaze the path ahead of them.

  Because of this fear, they sometimes commit the crime of cognitive dissonance in order to protect their false belief in a heroic Putin. They will ignore the fact that Putin is a long time friend of Henry Kissinger, the most publicly vocal proponent of the “New World Order, and that Putin describes Kissinger as his “trusted foreign policy adviser”.

  They will ignore the fact that Russia's primary economic adviser is none other than the hitman of the international banking syndicate, Goldman Sachs, and that Goldman Sachs has been deeply involved in Russia's economic affairs since at least 1992, just after the fall of the Soviet Union.

  They will ignore the fact that Putin and Russia have allied closely with the IMF (an institution supposedly dominated by the U.S.). Putin and the IMF are so intertwined that it was Putin who demanded that the IMF take over the management of Ukraine's finances after the regional crisis began, and, it was the IMF that blatantly supported Putin's call for a change in Ukraine's bond status from private to “official”. Russia also demanded that Ukraine's debts be repaid in Special Drawing Rights, the global currency basket which the IMF plans to use to replace the U.S. dollar as the world reserve mechanism.

  They will also surely ignore the fact that Putin and the Kremlin have on multiple occasion called for the IMF to take over global management of the worlds financial systems through the implementation of the SDR as the new world reserve currency.

  And of course, the fact that Russia is a member of the Bank for International Settlements and the BIS is the policy dictator of ALL central banking (do I really need to quote Carroll Quigley on the BIS yet again?) does not bode well for the affiliations and intentions of Russia as a whole, yet we are still bombarded in the liberty movement with platitudes on how Putin is “sticking it to the bankers”. No, I'm afraid not. According to the evidence, Putin is just like Obama: Yet another whore for the internationalists. Post all the pictures you want of the guy holding an uzi or finishing a judo throw, but his public persona does not fit reality.

  The mainstream media in the U.S. has for the most part run on the narrative that Putin is the next Stalin, and if you are going to perpetuate a false East/West paradigm this makes perfect sense. But there is also a separate narrative being presented to the liberty movement and the rest of the world.

  The talking points coming out of outlets like RT (Russia Today), a media machine controlled by the Russian government, has for the past few years stolen brilliant observations by American liberty proponents and repackaged them as video fluff. Most of these observations are negative in their view of U.S. government policy as well as central banking dictatorship, and they are also entirely correct. The problem is, RT does not apply the same standards of journalistic skepticism to the Russian government or its ties to the central banking cabal.

  Time Magazine publishes pro-Putin articles naming him “man of the year” in every other nation where they have distribution, but removes these stories and covers when publishing in America.

  The general American public is being sold on the idea that Putin is a calculating danger to global stability and that Western governments must become more aggressive to counter the threat. The rest of the world and the liberty movement are being sold on the image of a benevolent Putin and a Russia standing firm against the corrupt war machine of the West, but this image simply is not real.

  The danger for the liberty movement in the near future is considerable. Our blind support of the false East/West paradigm makes us vulnerable to easy co-option, for if we as a movement are tricked into closely affiliating with Russia then we lose our identity as a force for American independence and become nothing more than an “Eastern created” faux revolution. Think it can't happen? Mainstream media outlets are ALREADY building the narrative. The Atlantic was the first, with an article directly connecting “right wing” movements and “conspiracy theorists” in the U.S. with Russian influence and propaganda.

  As the false East/West confrontation grows, the real purpose of such a crisis will become apparent. ISIS agents conveniently shipped out of Syria among millions of "refugees" before Russian forces finally decided to strike will wreak havoc in Western nations. Economic chaos will become prevalent.  The U.S. will lose the dollar's petro-status as the East subsumes Eurasia.  Fear of another world war will haunt public perception. The ever uneducated and terrified mass majority will become far less tolerant of intelligent dissent. And, the Fabian Socialists infesting global institutions will suggest a clever solution to the problem they created – the dissolution of all sovereign nations and the complete centralization of governance into the hands of a select few to save humanity from such destructive divisions.

  If you understand that a primary goal of globalists is to fully remove constitutional protections in America and assert a totalitarian framework, then you have to admit that a conflict with Russia is an excellent opportunity for them.  War fever makes men delirious and malleable, and outside threats make internal despotism more tolerable.

  In the meantime, if the liberty movement refuses to treat Russia with the same x-ray vision it has used against western governments (a Russia clearly working with international financiers and globalist institutions) then we make it far easier for the elitist propaganda machine to paint us as Eastern backed traitors rather than freedom fighters down the road, thus crushing our chances at garnering increased support from the public and awakening new voices.

  Mark my words, in the end we will not only be forced to rebel against centralization under our own criminal government; we will also have to rebel against criminal puppet governments everywhere. I have no doubt that when we see the ranks of the globalist enemy, there will be Russian faces standing right alongside Western oligarchs. Maybe then people will finally admit that the East/West crisis was a carefully crafted hoax all along.

  

  

  

  

  

• "Its Not The Economy Stupid, It's The Dollar"

  "It's not the economy… it's the dollar" – That would appear to be the message from the companies of the S&P 500 who have reported in Q3. As FactSet reports, 18 of the 23 companies reporting so far have cited "the strong dollar" as having a negative impact on earnings. Not record domestic inventories (liquidation beginning), the plunge in world trade, not the economic collapse in take your pick of Brazil (depression), China (credit endgame), India (exports/imports crash), and so on…

  

  What is being missed here is that "The Dollar" is the symptom, not the cause of the problems. Capital is flowing for a reason to drive the USD stronger (or printed for a reason)… because the underlying economies are collapsing (yes and interest rate arb hopes).

  So if ever there was a reason for The Fed to NOT raise rates, the pressure from Corporate CEOs (through their various lobbying or newsletter-writing alumni) must be immense… which explains the sudden change of mind…

  

   

  *  *  *

  It appears, for now, financial engineering (buybacks) has kept the dream alive relative to the soaring USD vs Asian/EM countries (US growth opps); and "hopeful" projections have kept Forward estimates of earnings alive – even as The USD soars against the American companies' most favored growth nations…

  

   

  But at some point it's inevitable – unless there is a seismic shift in Fed Policy (QE4?) – that the USD's strength vs Asian/EM nations will crush earnings… and estimates will be unable to rise with even the biggest hockey-stick forecast.

  *  *  *

  Remember. crises often start slowly… then erupt suddenly; and equity markets are always (without exception) the last to figure it out.

  The credit cycle has well and truly rolled over…

  

  Charts: FactSet and Bloomberg

  

  

  

  

  

• US Military Tank "Intrudes" Into Bombed 'Doctors Without Borders' Hospital, Destroys Potential Evidence

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  If you’re the U.S. military and you killed 22 people while intentionally bombing a Doctors Without Border hospital in Afghanistan, what do you do next?

  First, you deny all requests for an independent investigation. Check.

  Second, you go to the scene of the war crime and destroy evidence. Check mate.

  From NBC News:

  A U.S. tank “destroyed potential evidence” by forcing its way onto the ruined site of a hospital bombed by American forces in Afghanistan, the charity said.

   

  Doctors Without Borders, which ran the facility in Kunduz, said the tank’s “unannounced and forced entry” through the gates had also frightened staff and damaged property.

   

  The allegations came almost two weeks after a U.S. AC-130 gunship bombed the compound, killing at least 22 people including 12 members of staff.

   

  After the U.S. gave shifting explanations for the incident — which MSF has called a war crime — President Barack Obama apologized to the charity last week. The U.S. and Afghan governments have launched three separate investigations but MSF is calling for an international inquiry.

   

  The tank forced its way through the closed main gate of the bombed-out compound at 1:30 p.m. on Thursday (5 a.m. ET), according to the charity. MSF has since pulled out of the derelict site, but said one of its teams arrived earlier on Thursday to visit the crumbling building.

   

  It said the tank’s “intrusion” contravened an agreement between MSF and the joint investigation team that the charity would be “given notice before each step of the procedure involving the organization’s personnel and assets.”

   

  It added: “Their unannounced and forced entry damaged property, destroyed potential evidence and caused stress and fear for the MSF team.”

  

   

  So I guess now we know why Obama recently announced that he would be halting a planned troop withdrawal from Afghanistan.

  

  

  

  

  

• How To Survive The "Deep State"

  Submitted by Doug Casey via InternationalMan.com,

  A currency crisis is coming… Are you prepared?

   

  In Part 1, we detailed the powerful force that's ruining the country, what’s known as the "Deep State." In this, Part 2, we explain how to prosper during the "Deep State"… and lay out the actions you should take today…

  Almost everyone looks for a political solution to problems. However, once a Deep State situation has taken over, only a revolution or a dictatorship can turn it around, and probably only in a small country.

  Maybe you’re thinking you should get behind somebody like Ron Paul (I didn’t say Rand Paul), should such a person materialize. That would be futile.

  Here’s what would happen in the totally impossible scenario that this person was elected and tried to act like a Lee Kuan Yew or an Augusto Pinochet against the Deep State:

  First, there would be a “sit-down” with the top dogs of the Praetorian agencies and a bunch of Pentagon officers to explain the way things work.

   

  Then, should he survive, he would be impeached by the running dogs of Congress.

   

  Then, should he survive, whipped dog Americans would revolt at the prospect of having their doggy dishes broken.

  Remember, your fellow Americans not only elected Obama, but re-elected him. Do you expect they’ll be more rational as the Greater Depression deepens? Maybe you think the police and the military will somehow help. Forget it…they’re part of the problem. They’re here to “protect and serve” their colleagues first, then their employer (the State), and only then the public. But the whipped dog likes to parrot: “Thank you for your service.” Which is further proof that there’s no hope.

  Incidentally, an election year is coming up. So I’ll make a prediction, despite the fact that I don’t keep my finger on the pulse of what the Greeks called the hoi polloi and the Romans called the capite censi.

  Because we’ll be immersed in a gigantic financial and economic debacle by this time next year, the natives will be restless and looking for some real hope and change.

  They’ll clamor for an outsider who has all the answers. Therefore, Donald Trump will represent the right wing of the Demopublican Party and either Bernie Sanders or a general (yet to be identified), the left wing. I say a general because Americans both love and trust their military.

  So what should you do, based on all this? For one thing, don’t waste your time and money trying to change the course of history. Trying to stop the little snowball rolling down the mountainside might have worked many decades ago, but now it’s turned into a gigantic avalanche that’s going to smash the village at the bottom of the valley. I suggest you get out of the way.

  What, you may ask, would I do if I were dictator of the U.S. and had absolutely no regard for my personal safety? Here’s a seven-part program, for entertainment purposes only:

  1. Allow the collapse of all zombie corporations – banks, brokers, insurers, and government contractors. The real wealth they supposedly own will still exist.
  2. Abolish all regulatory agencies. Although Boobus americanus believes they exist to protect him, and that may have been an intention when they were created, they, at best, serve the industries they regulate. The U.S. Food and Drug Administration, for instance, kills more Americans every year than does the Department of Defense in a typical decade. The SEC, the Swindlers Encouragement Consortium, lulls the average investor into thinking he’s protected. They, and other agencies, extract scores of billions out of the economy to feed useless mouths in return for throwing sand in the gears of the economy.
  3. Abolish the Fed…you need a strong currency to encourage saving. Actually, you don’t need a currency at all. Gold is vastly better as money.
  4. Cut the size of the military by 90% and abolish the Praetorian agencies. In addition to bankrupting the U.S., the military is now a huge domestic danger, even while it’s mainly an instrument for creating enemies abroad.
  5. Sell essentially all U.S. government assets. Although some actually have value, they are all a drain on the economy. For instance, the U.S. Postal Service loses $5 billion a year, and Amtrak lost a total of $1.1 billion last year. The Interstate Highway System, airports and the air-traffic-control system, the 650 million acres of U.S. government land, and many thousands of other assets should all be distributed in shares or sold. This would liberate an immense amount of dead capital. The proceeds could be used to partially satisfy some government obligations.
  6. Eliminate the income tax, as a start, which will be possible if the other six things are done. The economy would boom.
  7. Default on the national debt and contingent liabilities. That’s somewhere between $18 trillion and $200 trillion. There are at least three reasons for that. First is to avoid turning future generations into serfs. Second is to punish those who have enabled the State by lending it money. Third is to make it impossible for the State to borrow in the future, at least for a while.

  I like this program from a practical point of view, because when a structure is about to collapse, it’s much wiser to conduct a controlled demolition than to just let it fall when no one expects it.

  But I also like it from a philosophical point of view because, as Nietzsche observed, that which is falling deserves to be pushed.

  There are, however, two very important reasons for optimism, science and savings.

  Science: Science and technology are the mainsprings of progress, and there are more scientists and engineers alive today than have lived in all previous history put together. Unfortunately for Western civilization, however, most of them are Asians. Most American PhDs aren’t in Rocket Science but Political Science, or maybe Gender Studies. Nonetheless, the advancement of science offers some reason to believe that not only is all this gloom and doom poppycock, but that the future will not only be better than you imagine, but, hopefully, better than you can imagine.

   

  Savings: Things can recover quickly because technology and skills don’t vanish overnight. Everybody but university economists knows you have to produce more than you consume, and save the difference, if you want to avoid starving to death. The problem is twofold, however. Most Americans have no savings. To the contrary, they have lots of debt. And debt means you’re either consuming someone else’s savings or mortgaging your own future.

  Worse, science today is capital intensive. With no capital, you’ve got no science. Worse yet, if the U.S. actually destroys the dollar, it will wipe out the capital of prudent savers and reward society’s grasshoppers. Until they starve.

  Of course, as Adam Smith said, there’s a lot of ruin in a nation. It took Rome several centuries to collapse. And look at how quickly China recovered from decades of truly criminal mismanagement.

  On the other hand, Americans love their military, and this heavily armed version of the post office seems like the only part of the government that works, kind of. So maybe the U.S. will start something like World War III. Then, the whole world can see a real-life zombie apocalypse. Talk about free entertainment…

  Action

  But let’s return to the real world. What should you do? And how will this all end?

  From a personal standpoint, you should preserve capital by owning significant assets outside your native country, because as severe as market risks are, your political risks are much greater.

  1. I suggest foreign real estate in a country where you’re viewed as an investor to be courted, rather than a milk cow. Or maybe a beef cow.
  2. Gold. It’s no longer at giveaway prices, but remains the only financial asset that’s not someone else’s liability.
  3. Look for depressed speculations. At the moment, my favorites are resource companies, which are down more than 90% as a group. And look to go long on commodities in general. Soybeans, wheat, corn, sugar, coffee, copper, and silver are probably near the bottom.
  4. Short bubbles that are about to burst. Like bonds, in general, and Japanese bonds denominated in yen, in particular. If you have a collectible car from the ‘60s that you hold as a financial asset, hit the bid tomorrow morning. Same if you have expensive property in London, New York, Sydney, Auckland, Hong Kong, or Shanghai, among other places.

  The Second Law to the Rescue

  From a macro standpoint, don’t worry too much. The planet has been here for 4.5 billion years and it has a life of its own. You don’t have to do anything to save the world. Instead, rely on the Second Law of Thermodynamics.

  There are very few laws I believe in, but this is one of them. There are many ways of stating the law, and its corollaries, but this isn’t an essay on physics. In essence, it states that all systems wind down over time. That entropy conquers all. That all systems collapse without constant new inputs of energy. And that the larger and more complex a system becomes, the more energy it requires. The Second Law is why nothing lasts forever.

  In human affairs, you can say stupidity is a corollary to the Second Law, in that it throws sand in the gears of society and accelerates the tendency of things to collapse. But stupidity doesn’t always mean low intelligence…most of the destructive sociopaths acting as top dogs have very high IQs. I want to draw your attention to more useful definitions of stupidity.

  One is an inability to predict not just the immediate and direct consequences of an action, which a typical six-year-old can do, but to predict the indirect and delayed consequences.

  An even more helpful definition is: Stupidity is an unwitting tendency towards self-destruction. It’s why operations run by bad people always go bad. And why, since the Deep State is run by bad people – sociopaths are actively drawn to it – it will necessarily collapse.

  The Second Law not only assures that the Deep State will collapse but, given enough time, that all “End of the World” predictions will eventually be right, up to the heat death of the universe itself. It applies to all things at all levels…including, unfortunately, Western civilization and the idea of America. As for Western civilization, it’s had a fantastic run. Claims of the politically correct and multiculturalists aside, it’s really the only civilization that amounts to a hill of beans.

  Now, it’s even riskier calling a top in a civilization than in a stock or bond market. But I’d say Western civilization peaked just before World War I. In the future, it will be a prestige item for Chinese families to have European maids and houseboys.

  As for America, it was an idea – and a very good one – but it’s already vanished, replaced by the United States, which is just one of 200 other nation-states covering the face of the Earth like a skin disease. That said, the U.S. peaked in the mid ‘50s and has gone down decisively since 1971. It’s living on stored momentum, memories, and borrowed Chinese money.

  Let me bring this gloomy Spenglerian view of the world to a close with some happy thoughts. You want to leave them laughing. Not everybody went down with the Titanic.

  Looking further at the bright side: Just being born in America in the 20th century amounted to winning the cosmic lottery…an accident of birth could have placed us in Guinea or Zimbabwe. On the other hand, if I wanted to make a fortune in today’s world, I’d definitely head to Africa.

  But just as the Second Law dictates that all good things, like America, must come to an end, so must all bad things, like the Deep State, in particular. That’s a cosmic certainty.

  Finally, it occurs to me that, while I hope I’ve explained why the Second Law will vanquish the Deep State, I’ve neglected to explain how whipped dogs can profit from the collapse of Western civilization. Well, it was a trick question. We all love the idea of justice, even if most people neither understand what it is, nor like its reality.

  The answer is that they can’t… parasites can only exist as long as their host. Which is actually the final piece of good news I want to leave you with.

  *  *  *

  Editor’s note: Nobody is better prepared to survive a currency crisis than Doug Casey. In his brand-new book, Going Global, Doug shares his favorite techniques, ideas, tips, and strategies…including the currencies that are in the best position to survive the coming inflationary storm (page 29)…the top U.S. bank for buying foreign currencies (page 131)…which foreign banks will let you safely open an account (page 117)…and much, much more.

  Right now, U.S. residents can get a free hardback copy of Going Global shipped to their homes. International residents will only receive the e-book. Click here to secure your copy now.

  

  

  

  

  

• The Humiliation Is Complete: ISIS Fighters Cut Off Beards And Run Away As Russia, Iran Close In

  The thing about ragtag groups of militants that display a penchant for extreme violence is that in the absence of serious opposition, they can rack up gains at an alarming pace. 

  Of course there are plenty of (possibly credible) theories out there, which suggest that some of what you see in the videos released by ISIS is for show and we won’t endeavor to assess the degree to which the group’s brutality is real versus staged, but one thing is clear: regardless of who is funding, training, and/or supporting them, there are obviously fighters on the ground in the Mid-East waving the ISIS flag and committing atrocities in its name. 

  That works well when it comes to destabilizing fragile states that are already beset with sectarian bickering on the way to claiming large swaths of territory from a defenseless citizenry.

  But you can’t intimidate a modern fighter jet by waving around a sword and if you’re a newbie on the Mid-East militant scene, you can’t scare a three decade veteran by beheading a couple of people, which is why if you’re ISIS, the combination of the Russian Air Force and Hezbollah ground troops is absolutely terrifying.

  As we documented earlier today, Hezbollah and Iranian troops are advancing on Aleppo and Moscow is backing the offensive from the sky which means that the hodgepodge of anti-regime forces that control Syria’s largest city will almost (and we say “almost” because there are no sure things in war) certainly be routed in a matter of weeks if not days, which would effectively serve to restore the Assad regime in Syria.

  After that, the Russian bear and Qasem Soleimani will turn their eyes to the East of the country and at that point, it is game over for ISIS. 

  Apparently all of the above isn’t completely lost on al-Nusra and Islamic State fighters because if you believe the Russian media (and we’re not saying you should), Sunni extremists are now shaving off their beards and running for their lives. Here’s Sputnik:

  Hundreds of ISIL fighters are fleeing Syria for Turkey, as Russia’s Defense Ministry previously said, and reports are popping up that they are leaving their beards behind.

  .2/ More Jihadi beards, shaved off in Reef #Aleppo, as they flee clean shaven 2 #Turkey, these Via @leithfadel pic.twitter.com/xOmMkhH8oY

  — Hala Jaber (@HalaJaber) October 12, 2015

  Now obviously, these are just pictures of hair on the ground with razors, so that shouldn’t be interpreted as anything that even approximates definitive evidence of a full-on ISIS retreat but put yourself in the following situation for a moment. You’re a Sunni extremist and your regional and Western backers have just abandoned you. You are now under siege by the Russian Air Force. If you survive the air strikes you will soon have to come face to face with the fiercest, most experienced Shiite militia on the planet and if you somehow manage to survive that, well then you have to fight the Quds Force (“how do you shoot the devil in the back“?).

  What would you do? 

  *  *  *

  We close with the perfect video clip analogy. The US is in the blue shirt, ISIS is in the red, star-spangled jumpsuit, and Russia, well… Russia is the bear.

  US to ISIS: “No, no, you can’t quit now, we just started. You got to give these people a show man“…

  

  

  

  

  

• American Psycho – Has The United States Lost Its Collective Mind?

  Authored by Roberts Bridges, originaslly posted Op-Ed at RT.com,

  From Ferguson, Missouri to the deserts of Afghanistan the specter of US aggression is fueling the flames of civil strife and military conflict around an increasingly volatile planet. Much of the problem may be connected to the breakdown of the American psyche.

  Before attempting to shed some light on America’s mental condition, let’s open with a pop quiz question: What is the top-selling prescription drug in the US? Nope, it’s not Viagra, not Prozac, forget the Percocet. If you don't know, take a peek in the medicine cabinet because there’s a high chance it’s lurking in there, right behind that purple people eater. Yes, you got it. The top-selling drug in the Land of the Free and Disturbed is an antipsychotic, happily named Abilify.

  Once again: The top-selling drug in America is an antipsychotic. Now some might say that’s mental.

  “To be a top seller, a drug has to be expensive and also widely used,” Steven Reidbord M.D. wrote in Psychology Today. “Abilify is both. It’s the 14th most prescribed brand-name medication, and it retails for about $30 a pill. Annual sales are over $7 billion, nearly a billion more than the next runner-up.”

  Let those numbers seep into your brain for a moment: $7.2 billion dollars. $30 per pill. Although that might make for some laugh-out-loud late-night comedy, these numbers are no laughing matter.

  This on top of the latest statistic that shows prescription drug spending in the US exploded in 2014 to nearly $374 billion, a whopping 13.1 percent increase in growth, according to a new report from IMS Institute for Healthcare Informatics.

  Aside from the fact that Americans are buying antipsychotic medication by the truckload, there’s another disturbing thing about Abilify: Nobody, not even the Food and Drug Administration (FDA), has any idea what makes it effective. According to the USPI label that accompanies each bottle: “The mechanism of action of aripiprazole… is unknown. However, the efficacy of aripiprazole could be mediated through a combination of partial agonist activity at D2 and 5-HT1A receptors and… etc, etc.”

  In other words, millions of Americans are ingesting an antipsychotic drug that not even the scientific community can say exactly what makes it work. Is that not in itself the very definition of insanity?

  So where is the uproar, the protest, the media hype over this battle for the great American brain? Behind the wall of silence, there have been a few courageous experts who have broken rank with their colleagues – not to mention the omnipotent pharmaceutical industry – to blow the whistle on the abuse of psychiatric drugs in America.

  Professional backlash

  Joanna Moncrieff, an academic and practicing psychiatrist, is a long-standing critic of psychiatric drug treatment. Her 2009 book, The Myth of the Chemical Cure, was short-listed for the 'Mind Book of the Year.' In it, Moncrieff “exposes the traditional view that psychiatric drugs correct chemical imbalances as a dangerous fraud.”

  According to Moncrieff’s landmark study, psychiatric drugs 'work' by “creating abnormal brain states, which are often unpleasant and impair normal intellectual and emotional functions along with other harmful consequences.”

  As Jay Michaelson noted in The Daily Beast, administering such a powerful drug like Abilify “makes sense for their primary use: anti-psychotics like aripiprazole are administered to seriously ill people like schizophrenics. Abilify is a close cousin of Thorazine. Yet, now it’s the most profitable drug in America.”

  Indeed, the health risks associated with taking an antipsychotic drug like Abilify can make the cure look worse than the mental disease itself. In fact, the list of possible side-effects associated with America’s top-selling prescription drug makes for some uncomfortable reading.

  Here is a description of one of the 13 serious side-effects connected to this “blockbuster” drug: “Uncontrollable movements of face, tongue, or other parts of body, as these may be signs of a serious condition called tardive dyskinesia (TD). TD may not go away, even if you stop taking ABILIFY. TD may also start after you stop taking ABILIFY.”

  And here’s another potential for a Dr. Jekyll-type transformation into Mr. Hyde: “High fever, stiff muscles, confusion, sweating, changes in pulse, heart rate and blood pressure may be signs of a condition called neuroleptic malignant syndrome (NMS), a rare and serious condition that can lead to death.”

  And they charge $30 dollars per pill for this? 'Yes, the disease has been cured, Mrs. Smith, but too bad Mr. Smith is no longer with us!'

  I was cynically waiting for Psychology Today to come out cheerleading for this exorbitant and potentially deadly antipsychotic drug, but instead Dr. Reidbord came down surprisingly hard not just on the drug, but on our national quest to find calm in a sea of prescription pills, as well as those relentless commercial forces that drive this warped behavior.

  “What does it mean to live in the Age of Abilify,” Reidbord asked. “First, that we’re still looking for happiness and peace in a bottle of pills, costs and risks be damned. Second, that there’s nearly no end to the money the U.S. health care system will spend on problems that can be addressed more economically. And third, it’s a stark reminder that commercial interests seek to expand sales and profits whenever possible.”

   

  Big Pharma makes a killing—literally: http://t.co/qVCSnQrqit #prescriptiondrugs #bigpharma #healthcare pic.twitter.com/UybZkRKZmZ

  — Reid Jenner (@TrueDiagnosis) October 3, 2015

  Ever since the introduction in the 1950s of the world’s first antipsychotic drug, Thorazine, and later with the antidepressant, Prozac, as well as hundreds of other generic knockoffs, the drug industry has been busy supplying the overstressed American consumer with the ‘magic bullet’ to cure whatever ails them.

  Chemical-laced consumerism

  The US pharmaceutical industry enjoys a rare privilege, not to mention advantage over the average, angst-riddled American consumer: With the exception of New Zealand, it is the only country that allows prescription medication ads to be aired on television 24/7.

  Julie Ross of Forcechange.com organized a petition drive to ban prescription drug commercials, and her reason makes clear-headed sense: “Drug companies spend $4 billion a year advertising… In addition to making pill popping seem like a normal necessity, prescription drug ads usually feature newer medications that have not had long term studies performed on them.

  "All too often, a drug is recalled years after it is introduced because it’s caused side effects ranging from hair loss to death.”

  According to the Centers for Disease Controls, every day in America, 44 people die from overdose of prescription painkillers. The CDC blames the overdose surge on a “dramatic increase in the acceptance and use of prescription opioids for the treatment of chronic, non-cancer pain, such as back pain or osteoarthritis (The most common drugs involved in prescription overdose deaths include: Hydrocodone (e.g., Vicodin), Oxycodone (e.g., OxyContin), Oxymorphone (e.g., Opana) and Methadone (especially when prescribed for pain).

  In 2013, nearly two million Americans abused prescription painkillers. Each day, almost 7,000 people are treated in emergency rooms for abusing the medication. Has the unbearable weight of the capitalist, dog-eat-dog system gone to America's head, or is something else at play?

  *Viewer discretion advised: Video contains mild profanity.

   

  People who take painkillers can become addicted with just one prescription, according to the CDC website. And once addicted, start packing your bags for the nearest detox center because getting unhooked can takes months, maybe years, maybe never.

  Although many prescription medications have worked miracles for millions of people, the “conundrum,” as Robert Whitaker, the author of “Anatomy of an Epidemic,” calls it, is that mental illness in American society is not showing any sign of going away. In fact, it is “skyrocketing.”

  “We should expect that the number of disabled mentally ill in the United States, on a per-capita basis, would have declined over the past fifty years… Instead, as the psychopharmacology revolution has unfolded, the number of disabled mentally ill in the United States has skyrocketed.”

  Most disturbing for Whitaker is that this “modern-day plague” of mental illness has “now spread to the nation’s children.”

   

  Ver "The Drugging Of Our Children (Full Length)" en YouTube. #health #children #kids #prescriptiondrugs #drogas https://t.co/T1IszE99WB

  — Leila Andreu (@LeilaMovil) October 1, 2015

  Despite a nationwide call for doctors to stop prescribing antipsychotic drugs for everything from schizophrenia to simple insomnia to attention deficit hyperactivity disorder [ADHD] in children, Americans just continue with their doctor-supported drug binge.

  At some point, one soberminded individual may be tempted to ask: Is turning the American populace – courtesy of the multi-billion-dollar pharmaceutical industry – into walking, talking chemical zombies, the very thing that the Pentagon is now preparing to battle?

  This is no joke or conspiracy theory: As CNN reported, the US Defense Department has devised a coordinated plan “should a zombie apocalypse befall the country.”

  “In an unclassified document titled “CONOP 8888,” officials from U.S. Strategic Command used the specter of a planet-wide attack by the walking dead as a training template for how to plan for real-life, large-scale operations, emergencies and catastrophes.”

  

  

  

  

  

• Enough About Emails?

  Enough about everything else too?

   

  

   

  Source: Investors.com

  

  

  

  

  

• "Shadow" Short Convexity: If You Short 'Fear', Be Prepared For 'Horror'

  Excerpted from Artemis Capital Management letter to investors,

  

  Pre-emptive strikes on financial risk through unconventional monetary policy amplifies ‘shadow’ short convexity leading to tail risks that are near impossible to gauge. Shadow short convexity describes an immeasurable fragility to change introduced when participants are encouraged to behave in a way that contributes to feedback loops in a complex system.

  Shadow convexity reinforces the dominant trend in a hidden non-linear way and effects all participants. The ultimate non-market example of shadow short convexity is the failure of communism and the fall of the Berlin Wall in 1989. Following decades of oppression, the wall literally and psychologically fell when crowds of East Germans gathered at checkpoints and border guards refused to use mass violence to suppress them. The wall collapsed organically and without violence after the suppressed desire for freedom became a self-reinforcing force of change that could no longer be denied.

  The ultimate market example of shadow convexity is the role of portfolio insurance in the 1987 Black Monday crash. The portfolio insurance strategy relied upon selling increasing amounts of financial futures to protect against drawdowns in equity markets. The greater the decline in the market the more financial futures were sold to offset the loss contributing to a non-linear feedback loop and causing a -20% single day decline in the S&P 500 index. 

  

  Modern markets contain many new sources of shadow short convexity stimulated by extraordinary global monetary policy.

  Examples include risk parity, volatility targeting, machine learning, and exchange traded products. All of these structural devices contain a “shadow gamma” or “shadow liquidity” by reacting to market conditions that they themselves influence resulting in self-reflexivity. Volatility targeting and risk parity strategies create feedback loops by increasing and decreasing risk exposure based on volatility observed in the recent past.

  As these strategies dominate markets they can begin to influence the same realized volatility used to make their initial risk decision. Risk parity is an example of a strategy that adds shadow short convexity to the system by leveraging short correlations between stocks and bonds.

  Machine learning technology is a tool utilized by many high frequency and quantitative trading firms, including Artemis, and relies on advanced statistical methods to recognize non-linear patterns in historical price data. There are many advanced algorithms with fancy names like “neural networks” and “random forests” but they all rely on the same limited history of financial data to make decisions.

  Quality data is always more important than the algorithm used. As machine learning gains widespread adoption the models may begin to recognize patterns in data that they themselves influence resulting in feedback loops.

  When a self-driving car uses visual pattern recognition algorithms to react to the road it does not adversely change the fundamental reality it was designed to respond to. Now imagine a fleet of self-driving cars that, upon first sign of any risk, avoid accidents by encouraging other drivers to collide with one another. Now you see the problem.

  Exchange traded products (“ETPs”) introduce self-reflexivity by creating a highly liquid security (listed stock) that tracks a potentially illiquid underlying instrument (e.g. high yield bonds, commodity futures). Exchange traded products with illiquid underlying assets remind me of a classic song from the Eagles because  “you can check out anytime, but you can never leave”. Leveraged ETPs also add to shadow short convexity by requiring non-linear exposure adjustments to linear moves in asset prices.

  When combined with a liquidity mismatch any period of sustained buying and selling becomes self-reinforcing. All of the above structures and systems introduce shadow convexity to markets that reinforce the dominant price direction in a non-linear way. This works very well when central banks are providing ample liquidity and reinforcing the status quo but it can and will cut in the other direction. Lower volatility drives lower volatility… and higher volatility drives higher volatility. Minsky once wrote that stability is the greatest source of instability. Shadow convexity is the reason.

  

  The concept of a ‘Black Swan’, defined as an extreme or rare event, has never been more relevant to markets, but the idea is so frequently abused in financial commentary that it risks becoming a cliché. The absurd meme that central banks have eliminated extreme tail risks through accommodative monetary policy, recently repeated by the head of research at a major bank, is part of the institutionalized narrative of moral hazard. By Taleb’s definition, Black Swan events are unpredictable, so how can a central bank prevent something they can’t even identify in the first place? More to this point the investment community has no consistent definition of what tail risk or high volatility even means. 

  Volatility is about fear… but extreme tail risk is about horror.  The Black Swan, as a negative philosophical construct, is when fear ends and horror begins.

  

  Fear is something that comes from within our scope of thought. True horror is not human fear in a definable world, but fear that comes from outside what is definable. Horror is about the limitations of our thinking.

  In the novella, “The Call of Cthulhu”, the horror author H.P. Lovecraft describes an ancient and malevolent entity hibernating deep within the earth the sight of which can drive a man to madness. The imprisoned Cthulhu will destroy the world upon its awakening and this is a source of subconscious anxiety for all humankind even if we are individually unaware of its existence.

  Cthulhu is a black swan. I’m sorry but the 2007-2008 financial crash was not a black swan. That is a collective lie propagated by policy makers so they don’t cry themselves to sleep at night. Many different people predicted and profited from the 2008 crisis including this author.

  A black swan is when things go from bad to uncontrollably bad, when a linear decline becomes an exponential decline. The black swan resembles what amateur screenwriters call the “all is lost moment”. It is not the first act of the horror movie when people start turning into zombies… it is the end of the second act when the hero realizes he is the only person left who is not a zombie.

  2008 was about the fear of failing banks and crashing markets… but the true horror was the impending collapse of the entire fiat money system that never came to be. That was the true black swan.

  The unpredictable horror of a black swan often occurs following a predictable period of fear. For example, the Black Monday 1987 crash was an unpredictable event that occurred within a predictable crash. In the late summer of 1987 the market was trending lower and financial stress conditions were rising rapidly. Volatility rose even before that fateful Monday increasing from 21.83 at the start of October to 36.37 the day prior to the big crash. By this point, the S&P 500 had already experienced a -14% peak-to-trough drawdown. Many investors ranging from global macro traders to systematic trend followers correctly predicted a crash. Nobody predicted the market would fall -20% in one day or that volatility would peak at 150. 

  Ironically, if the same price movement occurred today most people would short volatility and buy equities the day prior to Black Monday in anticipation of policy support.

  Most crises occur slowly and then suddenly. A devastating earthquake is a tremor that just didn’t stop… and Black Monday 1987 was a crash that just didn’t stop. To this extent sizing long volatility positions into a crisis can yield life changing returns at the right point. Today, due to the actions of central banks, everyone is doing the exact opposite…

  If you short fear you must be prepared for horror… in the Prisoner’s dilemma we are one step closer to HORROR
   

  

  

  

  

  

• Caught On Tape: John McCain "Guarantees Russia Will Not Act" In Syria

  Someone once asked Vladimir Putin what he thought of Senator John McCain’s suggestion that the Russian president would one day go the way of Muammar Gaddafi. Here’s what Putin said:

   “McCain sat in a pit in Vietnam for several years, anyone would go nuts after that.”

  
  

  And while we’re not sure if we would go so far as to call McCain “nuts” – because that would effectively exonerate him and relieve him of any responsibility for what he says – we would certainly put him the category of “uber hawk” and we don’t mean he’s angling for an FOMC hike.

  As you might recall, McCain pushed hard for the ouster of Russian-backed Viktor Yanukovych in Ukraine.

  The good Senator even went so far as to attend a rally at Maidan and proclaim that “America stands with Ukrainians”. 

  We all know how that turned out. 

  Yanukovych fled to Russia, separatists backed by The Kremlin got angry, and the hardliners from Maidan adopted a ruthless brand of nationalism on the way to forming anti-Russian militias that Kiev is completely incapable of controlling and the conflict festers to this very day.

  Oh, and Ukraine descended into economic chaos. 

  Of course McCain doesn’t have the best track record in Syria either. Rather than get into the specifics (because we’ve documented them on any number of occasions) or debate whether or not certain pictures were photoshopped, we’ll simply say that McCain adopted the same approach as he did in Kiev. That is, he openly supported “freedom fighters” without any apparent regard for how much pain and suffering the US causes when it deliberately seeks to destabilize regimes. 

  In Syria, McCain seems to have made another gross miscalculation: he assumed that US hegemony is as universally accepted today as it was two decades ago, which apparently led the Senator to underestimate The Kremlin and on that note, we present the following clip with no further comment:

  

  

  

  

  

• The Mistake Of Only Comparing US Murder Rates To "Developed" Countries

  Submitted by Ryan McMaken via The Mises Institute,

  Much of the political thinking about violence in the United States comes from unfavorable comparisons between the United States and a series of cherry-picked countries with lower murder rates and with fewer guns per capita. We’ve all seen it many times. The United States, with a murder rate of approximately 5 per 100,000 is compared to a variety of Western and Central European countries (also sometimes Japan) with murder rates often below 1 per 100,000. This is, in turn, supposed to fill Americans with a sense of shame and illustrate that the United States should be regarded as some sort of pariah nation because of its murder rate.

  Note, however, that these comparisons always employ a carefully selected list of countries, most of which are very unlike the United States. They are  countries that were settled long ago by the dominant ethnic group, they are ethnically non-diverse today, they are frequently very small countries (such as Norway, with a population of 5 million) with very locally based democracies (again, unlike the US with an immense population and far fewer representatives in government per voter). Politically, historically, and demographically, the US has little in common with Europe or Japan.

  Prejudice about the "Developed World" vs "the Third World"

   

  But these are the only countries the US shall be compared to, we are told, because the US shall only be compared to “developed” countries when analyzing its murder rate and gun ownership. And yet, no reason for this is ever given. What is the criteria for deciding that the United States shall be compared to Luxembourg but not to Mexico, which has far more in common with the US than Luxembourg in terms of size, history, ethnic diversity, and geography?

  Much of this stems from outdated preconceived and evidence-free notions about the "third world." As Hans Rosling has shown, there is this idea of "we" vs. "them." "We" are the special "developed" countries were people are happy healthy, and live long lives. "Them" is the third world where people live in war-torn squalor and lives there are nasty, brutish, and short. In this mode of thinking there is a bright shiny line between the "developed" world and everyone else, who might as well be considered as a different species.

  In truth, there is no dividing line between the alleged "developed" world and everyone else. There is, in fact, only gradual change that takes place as one looks at Belgium, then the US, then Chile, and Turkey, and China, and Mexico. Most countries, as Rosling illustrates here, are in the middle, and this is freely exhibited by a variety of metrics including the UN's human development index.

  Once we understand these facts, and do not cling to bizarre xenophobic views about how everyone outside the "developed" world is too dysfunctional and/or subhuman (although few gun control advocates would ever admit to the thought) to bear comparison to the US, we immediately see that the mantra "worst in the developed world" offers an immensely skewed, unrealistic, and even bigoted view of the world and how countries compare to each other.

  While ignorance about true global poverty, life expectancy, and family planning are no doubt a source of some of these wrong-headed comparisons, one doesn't need to be the world's biggest cynic to recognize that the US is only compared to a selective list of countries because doing so offers a biased view of the United States that makes it looks like an especially crime-ridden place.

  But, we are never allowed to compare the US to middle income countries like Uruguay, Russia, or Mexico because that would show that the US is actually a remarkably safe place in global terms on top of having many more legally owned guns than those countries.

  Nevertheless, we've all heard it too many times to count: gun laws in the United States are "insane" because countries like Sweden and Luxembourg have far more restrictive gun laws and are much safer because of it. The US has the highest murder rate in the "developed world" — presumably because of its lax guns laws —we are told again and again.

  Few people who repeat this mantra have any standard in their heads of what exactly is the "developed" world. They just repeat the phrase because they have learned to do so. They never acknowledge that when factors beyond per capita GDP are considered, it makes little sense to claim Sweden should be compared to the US, but not Argentina.  Such assertions ignore immense differences in culture, size, politics, history, demographics, or ethnic diversity. Comparisons with mono-ethnic Asian countries like Japan and Korea make even less sense.

  But for an illustration of where this sort of thinking leads, let's look at this Washington Post article titled  “The U.S. has far more gun-related killings than any other developed country.”

   

  After mistakenly using the "gun related" killings rate instead of the murder rate (see below) the author, Max Fisher, carefully construct his comparisons so as to emphasize the gun deaths rate (which is implied to be as good as the murder rate) in the US. 

   

  As usual, no reason is given as to why the US should only be compared to “developed” countries, but then Fisher proceeds to add a few non-traditional comparisons to drive home the point as to how violent the US truly is, in his view.

   

  Fisher adds Bulgaria, Turkey, and Chile, which are middle-income countries. And that lets him make this graph: 

   

  

   

  Why Turkey and Chile and Bulgaria? Well, those countries are OECD members, and many who use the "developed country" moniker often use the OECD members countries as a de facto list of the "true" developed countries. Of course, membership in the OECD is highly political and hardly based on any objective economic or cultural criteria.

  But if you're familiar with the OECD, you'll immediately notice a problem with the list Fisher uses. Mexico is an OECD country. So why is Mexico not in this graph? Well, it's pretty apparent that Mexico was left off the list because to do so would interfere with the point Fisher is trying to make. After all, Mexico — in spite of much more restrictive gun laws — has a murder rate many times larger than the US. 

  But Fisher has what he thinks is a good excuse for his manipulation here.  According to Fisher, the omission is because Mexico “has about triple the U.S. rate due in large part to the ongoing drug war.”

  Oh, so every country that has drug war deaths is exempt? Well, then I guess we have to remove the US from the list.

   

  But, of course, the US for some mysterious reason must remain on the list, so, by “developed” country, Fisher really means “ a country that’s on the OECD list minus any country with a higher murder rate than the US.”

   

  At this point, we're reminded that Fisher (and no one else I’ve ever seen) has made a case for what special magic it is that makes the OECD list the one list of countries to which the US shall be compared. 

   

  More Realistic Comparisons Involve a Broader View of the World

   

  Why not use the UN’s human development index instead? That would seem to make at least as much sense if we’re devoted to looking at “developed countries.” 

   

  So, let’s do that. Here we see that the OECD’s list contains Turkey, Bulgaria, Mexico, and Chile. So, if we're honest with ourselves, that must mean that other countries with similar human development rankings are also suitable for comparisons to the US. 

   

  Well, Turkey and Mexico have HDI numbers at .75. So, let’s include other countries with HDI numbers either similar or higher. That means we should include The Bahamas, Argentina, Costa Rica, Cuba, Panama, Uruguay, Venezuela, Russia, Lithuania, Belarus, Estonia, and Latvia. 

   

  You can see where this is going. If we include countries that have HDI numbers similar to — or at least as high as — OECD members Turkey and Mexico, we find that the picture for the United States murder rate looks very different (correctly using murder rates and not gun-deaths rates):

  

  Wow, that US sure has a pretty low murder rate compared to all those countries that are comparable to some OECD members.  In fact, Russia, Costa Rica and Lithuania have all been invited to begin the process of joining the OECD (Russia is on hold for obvious political reasons).  But all those countries have higher murder rates than the US. (I wonder what excuse Fisher will manufacture for leaving off those countries after they join the OECD.)

   

  Things get even more interesting if we add American states with low murder rates.

   

  And why not include data from individual states? It has always been extremely imprecise and lazy to talk about the “US murder rate” The US is an immense country with a lot of variety in laws and demographics. (Mexico deserves the same analysis, by the way.) Many states have murder rates that place them on the short list of low-crime places in the world. Why do we conveniently ignore them? The US murder rate is being driven up by a few high-murder states such as Maryland, Louisiana, South Carolina, Delaware, and Tennessee. In the spirit of selective use of data, let's just leave those states out of it, and look at some of the low-crime ones: 

  

   

   

  We see that OECD members Chile and Turkey have murder rates higher than Colorado. Perhaps they should try adopting Colorado’s laws and allow sale of handguns and semi-automatic rifles to all non-felon adults. That might help them bring their murder rates down a little.

   

  But you know that’s not the conclusion we're supposed to come to.Comparisons can never work in that direction. The comparisons should only be used to compare the US to countries with restrictive gun laws and low murder rates. Comparisons with countries that have restrictive gun laws (and/or few private guns) and murder rates similar to or higher than US rates (i.e., Latin America, the Caribbean and the Baltic States.)

   

  Nevertheless, we have yet to see any objective reason why only OECD countries should be included or why countries similar in the HDI to Turkey and Mexico should be excluded.

   

  But before we wrap up, let’s look at the murder rates in all these countries alongside the number of civilian guns per 100 residents. (The x axis is civilian guns per 100 residents, and the y axis is murder rates in x per 100,000.)

   

  Here’s the scatter plot:

  

   

  Obviously, the US is big outlier in terms of guns per capita. But in terms of murder rate, it’s very much in the middle of these countries. 

   

  Things look even better for some areas of the US. If I include low-crime states, we get this (The x axis is civilian guns per 100 residents and y axis is murder rate in x per 100,000):

  

   

  Of course, if I added countries like Switzerland and Sweden, you’d see many more dots here near Bulgaria with low gun totals and very low murder rates. 

   

  But as no reason has ever been given as to why we should only compare to Western Europe,. Let’s compare the US to the rest of the Americas for a more realistic picture of the world beyond the OECD. When we do that, we get: 

  

   

  By comparison, the US look downright pacific. And why should not this comparison be made?

  Indeed, it makes more sense to compare the US to other states in the  Americas than to Europe or Japan. The US and most Latin American countries were settled in similar time periods. They are frontier countries settled mostly by European immigrants that displaced a native population (to varying degrees), and most of them gained independence from European imperial nations in a similar time period. They tend to have ethnically diverse populations, and many have been impacted by the slave trade that ended in the 19^th century. 

   

  European countries share very few of these qualities in common with the US. 

   

  So, it would seem that the old diktat of “thou shalt only compare US murder rates to the approved 'developed' countries" is based on really no objective standard at all. And we should stop doing it.

   

  If we’re honestly trying to evaluate the nature of crime and violence in a comparative atmosphere, we cannot limit ourselves to a handful of countries that have very little in common with the US beyond a handful of economic indicators.

   

  *  *  *

  A Note on the Data: 

  Gun ownership levels are based on the Small Arms Survey data. This takes into account "registered" vs. "unregistered" civilian gun ownership in the countries surveyed.  Murder rates come from UNODC data.

  State by state data in the US is usually presented as a percentage of residents who are gun owners. worldwide, however, gun ownership is presented as numbers of guns per 100 residents. I attempted to make the two lists compatible by taking the percentage of gun owners and adjusting it to reflect the fact that there are about 2.8 guns per gun owner in the US (using Small Arms Survey Data for the US). Thus, in Wyoming, for example, we end up with a number of more than 130 guns per 100 residents.
   
  Now, let's address the bait-and-switch of using "gun-related killings" versus homicides, that is often used. These numbers include accidents and suicides. But of course, the reason most people are concerned about gun violence is because of homicides. Many people commit suicides with ropes and cars, but we don't talk about banning ropes and cars. Moreover, many people die from accidents involving power tools, ladders, and other items. Again, we don't talk about banning those things. The other statistic often used is "gun-related deaths." This also ignores the fact that the whole point of gun control (in the minds of most of the public) is to bring down the murder rate. It would be irresponsible to bring down gun murders and then ignore the overall murder rate.  After all, if the "gun murder" rate goes down, but the murder rate remains unchanged, then we find that little has been accomplished. It stands to reason that few murdered people think in their last moments "gee, at least I wasn't murdered with a gun."

  

  

  

  

  

• "In Fed We Trust" Is Back: Risk Soars On Hopes Economy Collapses

  After yesterday's epic squeeze ramp into OpEx, and today's hanging-by-a-thread range on no volume, we couldn't help but think of this…

   

  And with this week's rally, valuations for the S&P 500 push back towards highs (P/E >18x once again)…

  

   

  And we warned what happens next…

  

   

  As Gold, Bonds, & Stocks all rise as The Fed rate-hike disappears over the horizon… From "rate-hikes are good for stocks" to "please njo rate hikes, we are not ready"!!!

  

   

  A very mixed bag for stocks this week… Trannies ugly (down 2.4% – worst week in 2 months, after last week's best week in 13 months) but Nasdqq up for the 3rd week in a row (the first 3 week gain since Feb 2015's big squeeze)…

  

   

  On the day,  futures drifted off the late spike highs overnight, spiked into the open (thanks to opex pinning), chopped around in a narrow range on dismal data before liftoff into the close sparked by crude into NYMEX Close then USDJPY lifted futures into p[anic-buying mode..

  

   

  On the day the late-day ramp dragged all but small caps (and Trannies) into the green… on terrible volume.. Today's exuberance blamed on hope for a shitty print from China on Sunday night!!

  

   

  Here's how the ramp was achieved – Crude's ubiquituous trend reversal into NYMEX Close tehn USDJPY hyper-beta into the close…

  

   

  VIX had quite a week (most notably in VXX – the VIX ETF)…

  

   

  This dragged S&P 500 just into the green post-QE3…

  

   

  "Most Shorted" stocks have seen another rampalicious squeeze in the last 24 hours into opex but end the week lower (after last week's record-breaking surge)…

  

   

  Valeant is a great example of today's illiquid insanity in stocks…

  

   

  And TWTR…

  

   

  Treasuries end the week lower in yield (with a notable flattening in 2s10s and 2s30s)…

  

   

  2s30s dropped 3bps on the week – the biggest flattening in 10 weeks...BUT 2s10s is now the flattest since May 2013…

  

   

  The USDollar continued to drift higher against the majors (extending yesterday's gains), faded during US pm session and ended the week lower…

  

   

  The USDollar also fell for the 3rd week in a row against Asian FX, almost fully retracing the China devaluation surge…

  

   

  Commodities were mixed on the week with crude tumbling (though bid today) to its worst week in 2 months and gold and silver rising (with copper limping lower)…

  

   

  Gold had its best week in the last 5 (and is up 4 of the last 5 weeks)… closing baove its 200-day moving average…

  

   

  The biggest mover across the commodity complex was in Coffee…biggest drop in almost 8 months…

  

   

  Charts: Bloomberg

  Bonus Chart: Bad news is officially Good news…

  

   

  Bonus Bonus Chart: Philosophical thought to end the week…

  Having a bad day? At least you're not in a coma with Khloe Kardashian making medical decisions for you.

  — Dawn Kopecki (@Dawn_Kopecki) October 16, 2015

  

  

  

  

• Capital Controls Blowback? Bitcoin Surges Back To Pre-China-Currency Wars Levels

  At $267, Bitcoin has retraced the entire plunge from China's initial devaluation entry into the currency wars and the Black Monday dump. It appears, just as we warned, that China's increasing crackdown on its – until now lax – capital controls has spurred demand for alternate 'currencies' that remain out of the control (for now) of governments – like gold…

  

   

  And Bitcoin…

  

   

  As we concluded previously, while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which – as every Cypriot and Greek knows by now – is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out.

  So what happens then: well, China's propensity for gold is well-known. We would not be surprised to see a surge of gold imports into China, only instead of going to the traditional Commodity Financing Deals we have written extensively about before, where gold is merely a commodity used to fund domestic carry trades, it ends up in domestic households. However, while gold has historically been the best store of value in history and has outlasted every currency known to man, it is problematic when it comes to transferring funds in and out of a nation – it tends to show up quite distinctly on X-rays.

  Which is why we would not be surprised to see another push higher in the value of bitcoin: it was earlier this summer when the digital currency, which can bypass capital controls and national borders with the click of a button, surged on Grexit concerns and fears a Drachma return would crush the savings of an entire nation. Since then, BTC has dropped (in no small part as a result of the previously documented "forking" with Bitcoin XT), however if a few hundred million Chinese decide that the time has come to use bitcoin as the capital controls bypassing currency of choice, and decide to invest even a tiny fraction of the $22 trillion in Chinese deposits… 

  

   

  … in bitcoin (whose total market cap at last check was just over $3 billion), sit back and watch as we witness the second coming of the bitcoin bubble, one which could make the previous all time highs in the digital currency, seems like a low print.

  We bring all this up in case there is any confusion why Bloomberg just carried a huge centerfold piece explaining why CDS-inventor Blythe Masters has suddenly become the digital currency's most vocal pitchman and is betting it all on bitcoin, in "Blythe Masters Tells Banks the Blockchain Changes Everything."

  Yes, bitcoin may be slowly but surely leaving the domain of the libertarian fringe, but in exchange it is about to be embraced as the most lucrative and commercial "blockchained" way to capitalize on what may soon become the largest capital outflow in history, with "pioneers" such as Blythe front and center to capitalize on each and every outflowing Bityuan.

  

  

  

  

  

  

• Weekend Reading: Weighed, Measured And Found Wanting

  Submitted by Lance Roberts via STA Wealth Management,

  One of my favorite movies to watch with my son was "A Knights Tale" starring Heath Ledger. A rag to riches story about a boy given by his father to a Knight as a squire. However, after the Knight dies, the boy takes his place and fights his way to nobility. 

  During his adventure the villain, Adhemar, discovers William's secret identity and has him imprisoned for impersonating a knight. As William awaits his fate, Adhemar visits him in his cell.

  As I discussed yesterday, the "Fed Is Screwed"in their efforts to hike interest rates. With deflationary pressures on the rise, economic growth deteriorating and financial markets in turmoil the ability to tighten monetary policy has now passed. 

  This weekend's reading list is a compilation of views on the economy, the markets, and the Fed. Like William, it is becoming more apparent that they have each been "weighed, measured and found wanting."

  ---

  THE LIST

  1) 5 Reasons Americans Are Unhappy by Quentin Fottrell via MarketWatch

  “One reason for all the unhappiness could be that wages are stagnant, and many people are still struggling to recover from the Great Recession.

   

  'Money is a little like health, you don't want to talk about it with your friends because there's a little bit of shame around it,' says Andrew Meadows, a San Francisco-based producer of 'Broken Eggs,' a documentary about retirement, and vice president of brand and culture at Ubiquity Retirement + Savings.

   

  Two recent studies carried out by independent pollsters say that more than 60% of adults have no emergency savings or less than $1,000 in their savings account. And among those who had savings prior to 2008, 57% said they'd used some or all of it in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Some people think you need to have tens of thousands of dollars to start saving and investing, so rather than save or invest a little, they do nothing, Meadows says. 'They ask if there's going to be another crash.'"

  Read Also: American's Feeling Glum About Economy by Ronald Brownstein via The Atlantic

   

  2) Deflation = Debt + Demographics + Disruption by Tyler Durden via Zero Hedge

  “Disruption: Technological innovation and disruption are driving many goods & service sector prices lower (rent & health care are two important exceptions); extending human life and the propensity to save; fostering wage and job insecurity.

   

  Demographics: The size of the working population of the developed world peaked in 2011 and will fall from 833 million to 799 million by 2025, putting downward pressure on potential growth and inflation (Chart 3). And by 2050, the world's 'Silver Generation' will increase by 885 million people, many of whom will save more in anticipation of old age.

   

  Record Debt: 'Minimal deleveraging since the GFC and a large debt overhang remain impediments to nominal growth; global debt as a % of GDP actually rose from 162% in 2001 to 211% in 2013, an all-time high.'"

  

  Read Also: Brainard Drops A Policy Bomb by Tim Duy via FedWatch

   

  3) The Fed & Government Setting Up Next Crisis by Stephen Moore via Washington Times

  “Here's the latest story line: bailouts, trillions of dollars of government spending and debt, easy money, and re-regulation of Wall Street ended the 2008 Great Recession. The myth took on new life last week when Ben Bernanke took a bow in The Wall Street Journal for in his mind saving the economy with his $3 trillion of quantitative easing and zero interest rate policy. No, actually this is what created the crisis. Don't be surprised if Mr. Bernanke receives a Nobel Peace Prize.

   

  As Peter Wallison of the American Enterprise Institute and other scholars have thoroughly documented, the crash of 2008 was caused by the Federal Reserve's easy money policies for nearly a decade, government housing policies that led to preposterous mortgage loans being issued, and massive overleverage of government, companies, and households.

   

  Why does any of this history matter? Since Washington doesn't understand what went wrong in 2007 and 2008, so the Fed, the White House and Congress are recreating the very same conditions for another financial bubble. If it pops, we could replay the same devastating effects as occurred during the first bubble in 1999 and 2000.”

  Read Also: Bernanke's Incomplete Crisis Theory by Robert Samuelson via Real Clear Markets

  But Also Read: What If The Future Is Better Than We Think? by Ben Carlson via Wealth Of Common Sense

   

  4) Debt Ceiling Fight Could Get Ugly by Gary Halbert via Advisor Perspectives

  "Last week's scare over a possible government shutdown may have been just the warm-up act for a much bigger threat that could cause the Treasury to default on trillions of dollars of debt. The latest shutdown scare was narrowly averted by a last minute deal in Congress that angered its most conservative members, and some believe prompted House Speaker John Boehner (R-OH) to step down. His presumptive replacement, House Majority Leader Kevin McCarthy (R- CA), abruptly announced Thursday that he would not seek the job for reasons that are still uncertain.

   

  Now, amid the House leadership vacuum, Congress remains paralyzed over a long list of contentious issues, from budget battles to a sweeping new trade deal. But unless Congress acts in the next few weeks to raise the government's legal borrowing limit, the Treasury will be forced to stop borrowing and paying its bills – potentially including interest on government bonds that have already been sold to investors."

  

  Read Also: Another Look At The Total Return Rollercoaster by Doug Short via Advisor Perspectives

   

  5) We Are Entering A Recession, But Not Really by Myles Udland via Business Insider

  ""'We are experiencing a profit recession without an economic recession,' Sløk wrote in an email on Thursday.

   

  'Lower energy prices and a higher dollar are hurting certain parts of corporate America at the moment, but with the China shock fading and the dollar and energy prices stabilizing it is becoming clearer that we are not about to enter an economic recession because the service sector — which makes up 85% of the US economy — is doing just fine.

   

  Or put differently, to generate an economic recession we need a much more broad-based slowdown across companies and that is not what we are seeing and hearing in the anecdotes during this earnings season.'"

  

  Read Also: It's Time To Start Talking About A Recession by Bob Byran via Business Insider

  Read Also: Revenue Recession Getting Worse by Stephanie Yang via CNBC

  ---

  Other Reading

  • Bernanke's Balderdash by David Stockman via Stockman's Contra Corner
  • When Market Trends Break by Bill Hester via Hussman Funds
  • The Collected Wisdom Of Seth Klarman via Scribd
  • The Mother Of All Feedback Loops? by Izabella Kaminska via Financial Times
  • Fed Hasn't Printed Money In Decades by Jeffrey Snider via Alhambra Partners
  • The Trouble With Economics by Clive Crook via Bloomberg
  • The Inequality Generation Of QE by David Keohane via Financial Times
  • The Contagion That Caused The Great Recession by Rob Garver via The Fiscal Times

  ---

  “Wall Street is a gambling house peopled with dealers, croupiers and touts on one side, and winners and suckers on the other” – Nicholas Darvas

  Have a great weekend.

  

  

  

  

  

• Obama Withdraws Aircraft Carrier Support From Middle East Just As Russia Unveils Its Syrian Airbase

  One glance at the map below, showing the current distribution of U.S. naval assets, reveals something that has almost never happened at any time in the past decade:

  

   

  As the map shows, US aircraft carrier, CVN 71 Theodore Roosevelt is currently on its way out of the Persian Gulf, leaving just the LHD-2 Essex Amphibious Warfare ship group to defend the Persian Gulf and more importantly, leaving the hotly contested middle east without U.S. carrier-based air support for the first time in years.

  
  

  How did this happen?

  According to USNI News, the Theodore Roosevelt Carrier Strike Group left U.S. 5th Fleet on Tuesday with no public timeline for when its replacement will reach the Middle East to continue U.S. air strikes against Islamic State in Iraq in Syria (ISIS) targets. While the CVN 71 The Harry S. Truman Carrier Strike Group is slated to be the next CSG bound for the Middle East, but the Navy would not specify a deployment time other than later this year, a service official told USNI News on Tuesday.

  “We’re not going to talk to future operations,” the official said.

  That said, the redeployment of the Roosevelt is not a surprise: two months ago the CNN Pentagon correspondent warned that this was coming:

  The U.S. Navy will not be able to keep an aircraft carrier in the Persian Gulf for much of the fall season, according to a Navy official.  The official said that’s because the Navy has to schedule needed maintenance after years of extended deployments and because of reduced spending due to mandatory budget cuts.

   

  While there have been so-called “carrier gaps” in the Persian Gulf before, this one will leave the Navy without the presence of a high-profile aircraft carrier just as a proposed nuclear deal with Iran is at center stage. It also comes as Iranian naval forces have conducted low-level harassment of U.S. and other shipping in the region.

   

  U.S. military officials insisted that there would be no impact on U.S. operations in the gulf because the Air Force can briefly send additional, land-based aircraft to the region if needed. Airstrikes against ISIS targets in Iraq and Syria are also largely undertaken by the Air Force. The Navy accounts for only about 20% of the ISIS strike missions.

  Whatever the reason, the Roosevelt is out of there, and the ship is now said to be bound for its new homeport at Naval Station San Diego, Calif.

  While in 5th Fleet, the Roosevelt CSG was the largest symbol in the U.S.-led anti-ISIS collation responsible for “1,812 combat sorties totaling 10,618 combat flight hours, taking on 14.5 million gallons of jet fuel and expending 1,085 precision-guided munitions,” as part of Operation Inherent Resolve, according to a Tuesday statement from the service.

  Which probably does not explain why in over a year, the US did less damage to ISIS then the Russian airforce has achieved in less than a month.

  As for the reason why suddenly the Persian Gulf has an unprecedented US carrier support gap in the middle east – one which could last for two months or well longer – it is because the Harry S. Truman Carrier Strike Group, which is slated to be the next CSG bound for the Middle East, has been delayed and the Navy would not specify a deployment time other than later this year, a service official told USNI News on Tuesday.

  Earlier this month the Truman CSG completed its Composite Training Unit Exercise (COMPTUEX), the complex training exercise that certifies the strike group for deployment.Previous CSG and three-ship Amphibious Ready Group deployments were often extended to meet the demand of U.S. geographic combatant commanders (COCOMs) at the expense of maintenance setbacks and crew fatigue.

  Furthermore, this may be just the beginning of key US naval “gaps” across critical geographic regions:

  As the Navy continues to implement stricter deployment tenants, more gaps in Middle East carrier presence may emerge, several service leaders told USNI News in September. Last month Rear Adm. Jeffrey Harley, assistant deputy chief of naval operations for operations, plans and strategy (OPNAV N3/5B) told the House Armed Services Committee (HASC) that it would take a directive from the Secretary of Defense to the Navy to extend the deployment of a carrier to longer than seven months.

   

  While extending a carrier is always an option, another option would be “to reduce our global input as to what we can provide [to the combatant commanders] for a designated period of time, and mitigate that presence, that carrier presence, in some other way using our joint partners, using joint aircraft to cover a gap in time in which we may not have a carrier present,” Harley told the panel.

  Whatever the future of US naval “gaps” may be, one thing is clear: the departure of the Roosevelt comes at a particularly awkward time – just as Russia is setting up its own aicraft base in Syria.

  As we reported yesterday, “The start of Russian airstrikes in Syria has given new hope to loyalist forces in their battle against a host of rebel factions, including the Islamic State. Now Russia may expand these operations into Iraq if requested to do so by Baghdad. Indeed, from its position in Latakia, Russia has the range to strike Islamic State targets in Iraq, although further deployment of resources may be required to do so effectively.”

  More importanly, Russia can now also reach the all important global “choke point” of the Suez Canal within minutes, not to mention Tel Aviv, Jerusalem, Baghdad, and – if propertly equppped – Bahrain, the headquarters of the U.S. Fifth fleet.

  

  In conclusion ,we take one final look at the map up top, and ask if on its way back to San Diego the Roosevelt will be the ship that Obama uses to send China a message as he has threatened to do, by sailing around the contested islands in the South China Sea, a move which China has warned twice it will be forced to retaliate against. Recall that yesterday China’s Global Times said that should Obama carry this out, it would be a “breach of China’s bottom line”.

  “If the US encroaches on China’s core interests, the Chinese military will stand up and use force to stop it,” the paper warned.

  In light of this upcoming showdown, one hopes that the USS Rosevelt won’t be known in history as the second coming of the USS Maddox.

  

  

  

  

  

• Germany Faces "National Disaster" Over Refugee Crisis As Hungary Slams Shut Border With Croatia

  “Border control officers are exposed to strong migratory pressures.”

  That’s a quote from Georgi Kostov, the head of the interior ministry for Bulgaria where an Afghan man was shot and killed on Thursday, marking the first fatal shooting in Europe’s worsening migrant crisis. 

  Bulgarian border guards claim a warning shot ricocheted and injured the man. He later died. Draw your own conclusions.

  The official line from Bulgaria was this: “We are deeply shocked and regret the fatal incident. We are convinced that barriers, fences and police forces cannot solve the problems of people who are in a desperate situation.”

  That’s a nice sentiment, but not everyone shares it and one person who is certainly not intent on adopting an open door policy to refugees fleeing the war-torn Middle East is Hungarian PM Viktor Orban who, as we’ve documented extensively, has gone to great lengths to close his country’s borders with razor wire fencing and protect those fences with water cannons, tear gas, and rubber bullets. 

  Here’s a quote from an interview Orban gave today which pretty much sums things up as far as he’s concerned: 

  “Spiritually, Islam was never part of Europe. It’s the rulebook of another world.” 

  Make no mistake, the back and forth Balkan border battles between the states that are on the frontlines of the crisis have been raging for months, as Serbia, Croatia, and Slovenia attempt to negotiate how to cope with Hungary’s hardline approach. Orban’s move to wall-off his country’s border with Serbia triggered an influx of asylum seekers into Croatia (remember, everyone’s trying to get to Germany), but Slovenia’s unwillingness to serve as a kind of migrant superhighway steered refugees right back into Hungary and so now, Orban is closing the border with Croatia. Here’s how we put it late last month: 

  Once it became clear that Hungary was fully prepared to turn its border with Serbia into a warm April night in Baltimore in order to defend Europe’s “Christian heritage” (to quote Orban), refugees simply rerouted through Croatia. Serbia has facilitated this noting that it simply does not have the resources to accommodate the migrants and even if it did, they do not want to settle in Serbia in the first place. Once Slovenia said it wouldn’t be a part of a migrant “corridor” to Germany, the stage was set for migrants to zigzag from Hungary’s border with Serbia into Croatia, and then back into Hungary.

  

  And here’s more from Bloomberg on Orban’s reaction after the EU failed to come to an agreement on closing off Greece to asylum seekers: 

  Hungary will seal its border with Croatia from midnight on Friday, expanding one of the European Union’s toughest set of measures to stem the influx of refugees, Foreign Minister Peter Szijjarto said in Budapest.

   

  “This is the second-best option,” Szijjarto told reporters. “The best option, setting up an EU force to defend Greece’s external borders, was rejected in Brussels yesterday.” 

   

  An EU summit on Thursday failed to reach a final agreement on recruiting Turkey to help control the flow of refugees as Russia’s bombing campaign in Syria threatens to push more people to seek safety. The bloc’s leaders also made little progress on how to redesign the system of distributing immigrants, forming an EU border-guard corps or on ensuring arrivals are properly processed.

   

  Hungary has extended an existing barbed-wire fence on its border with Serbia to cover its frontier with Croatia. Prime Minister Viktor Orban warned this week that his government would complete the barrier if EU leaders fail to agree on closing the Greek border, the main entry point for Syrian and other Middle Eastern refugees into the 28-nation bloc.

   

  

  Meanwhile, in Germany, Angela Merkel is beginning to feel the heat as lawmakers and party loyalists become increasingly impatient with the hundreds of thousands of migrants streaming into the country. More, from AFP:

  Germany’s Angela Merkel is used to owning the room when she speaks to her party faithful, but the mood turned hostile when she defended her open-door refugee policy this week.

  
  

  In a heated atmosphere, some of the 1,000-odd members at the meeting warned of a “national disaster” and demanded shuttering the borders as Germany expects up to one million migrants this year.

  
  

  “Stop the refugee chaos — save German culture + values — dethrone Merkel,” read a banner at the congress late Wednesday in the eastern state of Saxony, the home base for the anti-foreigner PEGIDA movement.

  
  

  Managing the refugee crisis has turned into Merkel’s greatest domestic political challenge since she took power almost 10 years ago, in November 2005.

  
  

  Long valued by the electorate for her level-headed leadership amid the eurozone turmoil, Merkel has scared many with her welcoming stance amid a growing sentiment that the boat is full.

  
  

  “The chancellor is walking on thin ice,” judged the conservative daily Die Welt, pointing to a “growing gap” between Merkel and the base of her centre-right Christian Democrats (CDU) who demand she stem the record influx.

  
  

  “The chancellor believes the nation can manage the crisis, but this belief is rapidly vanishing in the country,” said the newspaper.

  
  

  On Sunday, she jets off to Turkey to discuss with President Recep Tayyip Erdogan how to slow the inflow sparked by war and upheaval across the Middle East and North Africa, with almost 600,000 people arriving in Europe so far this year.

  
  

  On the home front, Merkel has bravely insisted “we can do it”, recalling US President Barack Obama’s campaign rallying cry of “Yes we can”.

  
  

  But many Germans — who in the summer greeted refugees at railway stations — are losing faith as thousands keep coming daily and improvised refugee centres are bursting at the seams, including tent cities exposed to below-zero temperatures as winter approaches.

  And here are two headlines which betray how desperate the situation is becoming:

  • SHOULD GERMANY, SLOVENIA CLOSE BORDERS, CROATIA WILL TOO: PUSIC
  • MERKEL CALLS ON EASTERN EUROPE TO SHOW SOLIDARITY OF REFUGEES

  In short, there is now a very real threat that a cascading series of border closures will completely block the Balkan route (not to mention destroy Schengen forever) leading directly to i) possibly violent confrontations between migrants and border police, and ii) a dramatic shift in the people flow through Libya, which would mark a kind of “out of the frying pan and into the fire” scenario for Syrian refugees. 

  

  As for those who have already made it to Germany and other EU countries where they intend to settle, we reiterate our warning that anti-migrant sentiment could end up creating a dangerous bout of scapegoating xenophobia and on that note, we close with the following excerpt from Bloomberg:

  In another sign of backlash in the region, Czech President Milos Zeman said migrants from Muslim countries won’t respect local laws and will follow sharia, Novinky.cz news website reported.

   

  “Adulterous women will be stoned; thieves will have their hands chopped off,” Zeman said while meeting employees of a butcher shop in eastern Czech Republic, Novinky said.

  

  

  

  

  

• Russia, Iran Begin "Promised" Assault On Syria's Largest City In Final Bid To Restore Assad

  Earlier this week, we noted that Iran had reportedly sent “thousands” of troops to Syria in preparation for an offensive aimed at retaking the city of Aleppo. 

  With a population of more than 2 million, Aleppo was Syria’s largest city prior to the war and it’s now run by a hodgepodge of rebels and militants including al-Qaeda, the Free Syrian Army, and ISIS. 

  To get an idea of the effect the war has had on the city, have a look at the following before and after nighttime light emissions images:

  

  

  The battle is also notable for the scale of Iran’s involvement. Between Hezbollah and Iranian forces, the battle for Aleppo is shaping up to be the largest ground operation orchestrated by Tehran to date. 

  Here’s more, via Reuters: 

  Syrian troops backed by Hezbollah and Iranian fighters launched an offensive south of Aleppo on Friday, expanding their counter-attack against rebels across western Syria with support from Russian air strikes.

  
  

  Aleppo, a commercial and industrial hub near the border with Turkey, was Syria’s largest city before its four-year civil war, which grew out of protests against Assad’s rule.

   

  Control of the city, still home to two million people, is divided between the government and rebels.

   

  “This is the promised battle,” a senior government military source said of the offensive backed by hundreds of Hezbollah and Iranian forces which he said had made some gains on the ground.

   

  It was the first time Iranian fighters had taken part on such a scale in the Syrian conflict, he said, although their numbers were modest compared to the army force. “The main core is the Syrian army,” the source said.

   

  Hezbollah, which has supported Assad in several battles during the civil war, said the army was carrying out a “broad military operation” with support from Russian and Syrian jets. It made no mention of Hezbollah fighters in its brief statement.

   

  Two senior regional sources told Reuters this week that Iran has sent thousands of troops to Syria to bolster an offensive underway in Hama province and ahead of the Aleppo attack.

  And a bit more from AFP:

  Russian air cover is backing offensives by Syria’s army and allied militias in the central provinces of Homs and Hama, as well as Aleppo in the north and Latakia along the coast.

   

  On Friday, the Syrian army pushed south from the provincial capital Aleppo city, where control is divided between regime and rebels forces, as Russian air strikes pounded the villages of Al-Hader and Khan Tuman and nearby localities.

   

  “The Syrian army started a new front on Friday and advanced to take control of the villages of Abteen and Kaddar” about 15 kilometres (12 miles) south of Aleppo city, said Observatory head Rami Abdel Rahman.

   

  He said “dozens” of Russian aerial attacks in the past 24 hours had struck the area, which is controlled by a patchwork of groups including rebels, Islamist fighters and Al-Qaeda’s Syria affiliate, Al-Nusra Front.

  Note also that Aleppo is near the so-called “anti-ISIS” zone that the US and Turkey humorously proposed to create a few months back, which means that Iran, supported by Russian air power, is now conducting an all-out ground assault very near territory Turkey likes to think it effectively patrols (if not controls). 

  But the real key here, is this (again from Reuters): “The assault means the army is now pressing insurgents on several fronts near Syria’s main cities in the west, control of which would secure President Bashar al-Assad’s hold on power even if the east of the country is still held by Islamic State.”

  

  In other words, if Iran and Russia manage to retake Aleppo (and you know they will because remember, thanks to Hezbollah, this isn’t a team that’s going to be confused by the vagaries of urban warfare), Assad’s rule is restored.

  Just like that. 

  From there, the situation would morph and what you would have is a kind of Wild West scenario, only in Syria “West” would mean “East” and Assad, Russia, and Iran, having secured most of the critical cities and territory, would be free to simply mount up and push east on a kind of search and destroy mission. 

  So apparently, the US and its regional allies in Riyadh and Doha have a couple of weeks to figure out what to do here or else this is going to be over and suddenly, Washington will find itself in the awkward position of having to negotiate for a transition away from an Assad government that has been fully restored. 

  

  

  

  

  

• Martin Armstrong Warns: The Loss Of All Liberty Is Coming Faster Than You Imagined

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  UK Prime Minister David Cameron reflects the serious problem we have with politicians. Politicians have zero respect for our human rights for they only think about how they are going to raid our wealth to pay for their families and retirements at our expense. Cameron actually asked, “In our country, do we want to allow a means of communication we [the government] cannot read? My answer to that question is: ‘No, we must not’.”

  These people are highly dangerous. They only see government as the solution and do not grasp that we have rights. Government wants to eliminate all encryption because they are hunting money. You have a 1000 times greater chance of dying in a car crash than by a terrorist. They use terrorism as the great excuse to collect everything we do.

  How did the world function before the internet? Did they intercept every letter in the mail or record every phone call? Why is it that with the internet these people feel they have a right to listen and read everything we communicate? This is EXACTLY the same paranoia displayed by Stalin. Human rights do not simply vanish because we have entered the internet age. We still have rights that governments need to respect, but refuse because they are always desperately in need of more taxes to pay their bankers.

  The OECD has stated, “Co-operation between tax administrations is critical in the fight against tax evasion and a key aspect of that co-operation is exchange of information.” It’s all about money any nothing else.

  In 2010, the U.S. enacted legislation known as FATCA (Foreign Account Tax Compliance Act), which is destroying the world economy and lowering economic growth globally. Effectively, FATCA requires foreign financial institutions around the globe to report account details of their U.S. customers to the U.S. tax administration. However, this requires foreign institutions to file that they do not have any American clients. The legal and cost issues of this approach imposed by the USA are being adopted by five other countries including France, Germany, Italy, Spain, and the United Kingdom. FATCA has become a model for the intergovernmental cooperation in hunting taxes. The postwar economy was built on the free flow of capital. Americans cannot open accounts overseas because the penalties are far too stiff for failure to report any American to the U.S. authorities. They will be giving up everyone to their respective countries, which will be implemented in 2017.

  If we do not eliminate taxes and transform the monetary system into a new era where the cost of government is held to 5% of GDP and money is merely created to fund the cost of government, along with abolishing career politicians, we will lose everything.

  We are heading into the direction of a total loss of all rights simply because of taxes.

  

  

  

  

  

• Obamacare's Latest Casualty: Largest Health Insurer On Colorado Exchange Abruptly Collapses

  This wasn’t supposed to happen.

  With the mainstream media, at least the majority that is left of center, flooded with story after story touting Obamacare’s success, the news coming this morning from Denver that Colorado’s largest nonprofit health insurer and participant in that state’s insurance exchange Colorado HealthOP is abruptly shutting down, forcing 80,000 Coloradans to find a new insurer for 2016, was a slap in the face for the Obama administration’s crowning achievement.

  According to AP, the health insurer announced Friday that the state Division of Insurance has de-certified it as an eligible insurance company. That’s because the cooperative relied on federal support, and federal authorities announced last month they wouldn’t be able to pay most of what they owed in a program designed to help health insurance co-ops get established.

  Wait, wasn’t the whole point behind Obamacare to subsidize health insurance for everyone, and especially the poor? Or was the whole point of the “Affordable” Care Act merely to herd as many Americans into the clutches of the few for-profits, after the non-profit cooperatives finally read the fine print and realized they have no chance of being profitable under the new regime?

  The plot thickens: in a statement announcing its closure Friday, Colorado HealthOP said it was “well on its way” to repaying some $72.3 million it has borrowed from the federal fund. The co-op reported a net loss of $23 million last year. In other words, the company burned through some $23 million in taxpayer funds and it didn’t even get a lousy shirt to show for it.

  Ironically, on the company’s website, we read the following about the Co-Op’s business model:

  if our revenues exceed our costs, the surplus will be reinvested to directly benefit members—through lower premiums, expanded benefits, or quality improvements.

  Well, no risk of that ever happening now. What the insurer failed to point out is that if costs exceed its revenues, it will be promptly liquidated and massive corporations will be the sole beneficiaries.

  Naturally, the CEO was furious: Colorado HealthOP CEO Julia Hutchins called the de-certification “irresponsible and premature.”

  She is not alone – as it turns out HealthOP was just the fifth casualty of a program which with every passing months is being exposed as nothing but a tax-backed piggy bank for the mega insurance corporations. “The Colorado announcement makes the co-op at least the fifth in the nation to collapse. Similar nonprofit insurers have already failed in Louisiana, Iowa/Nebraska, Nevada and New York. A health insurance cooperative in Tennessee announced this week that it would stop offering new policies.

  Expect even more failures ahead of open enrollment for 2016 starts on November 1. The Colorado Division of Insurance must first certify insurers before they’re allowed to sell plans, so the de-certification essentially puts Colorado HealthOP out of business.

  Back to the HealthOP CEO who added that “the Division has let local and national politics hurt Coloradans’ access to low-cost healthcare options and assessed Colorado taxpayers with significant avoidable costs,” Hutchins said in the statement.

  Actually they became unavoidable the moment the deeply compromised and ideologically partisan Supreme Court imposed the Obamacare tax on Americans, with few if any realizing the monetary implications of the new insurance regime.

  While it won’t provide much comfort to Colorado HealthOp, which is now winding down, its board of directors has requesting that the state allow a board-appointed independent consumer protection ombudsman to assist through the shut-down.

  In other words, even more millions in taxpayer funds will now be spent to liquidate the health insurer.

  And while the lame duck president hardly cared as his legacy achievement will soon be some other president’s problem, Republicans quickly took to gloating and pointed to the co-op’s closure as “a sad but predictable outcome.“

  “Taxpayers are on the hook for millions of dollars in loans given out to the CO-OP, money that will likely never be repaid,” U.S. Sen. Cory Gardner said in a statement after the announcement. “The years since Obamacare’s passage have been marked by crisis after crisis in healthcare, and it’s far past time for a new plan.“

  But wait, there’s more. Now that the numbers are being crunched, and hyperbole and propaganda are finally making way for math, someone figured out that Colorado HealthOP’s closure could be bad news for everyone shopping on Colorado’s health insurance exchange.

  A Republican state lawmaker who serves on an oversight committee that has reviewed Colorado HealthOP’s finances, Rep. Lang Sias of Arvada, said “rates for everyone are expected to go up next year. Colorado HealthOP accounted for nearly 40 percent of the exchange’s total customers.”

  “They’re all going to be paying more, on average, I would expect,” Sias said.

  And as more Americans get letters in the mail such as the one below kindly informing them their health insurance premiums are rising by 60% crushing any desire to splurge modest “gas savings” on discretionary purchases…

  

  … expect complaints about soaring health insurance prices, to hit – first in Colorado and then everywhere else.

  

  

  

  

  

• Full Metal Retard: US Launches "Performance-Based" Ammo Paradrop Program For Make-Believe "Syrian Arabs"

  On Monday, the Pentagon proudly announced that it had “successfully” delivered 50 tons (yes, tons) of ammo to rebels fighting the Assad regime in Syria. 

  Before going any further, it’s important to note that the move to publicly deliver ammunition to the groups fighting the Russians set off alarm bells even among the most mainstream of media with CNN running the following headline as though the notion that the conflict is just another proxy war were somehow “news”: “Syria’s ‘proxy war’ rages in towns near Aleppo, Syria.”

  So “all” it took was for Russia to invade and for the US to brag about handing “tons” of ammo to the very groups Moscow is fighting for the clueless public to come to the shocking realization that Washington is effectively at war with Moscow in Syria. 

  Obviously that’s not news, as it’s been clear to anyone who knows anything about geopolitics for years, but what is news is the extent to which the ammo paradrops mark a new low point for Washington in terms of countering Assad. As we put it on Monday: 

  The US has now thrown in the towel on the ill-fated (and that’s putting it lightly) strategy of training Syrian fighters and sending them into battle only to be captured and killed by other Syrian fighters who the US also trained.

   

  The Pentagon’s effort to recruit 5,400 properly “vetted” anti-ISIS rebels by the end of the year ended in tears when word got out that only “four or five” of these fighters were actually still around. The rest are apparently either captured, killed, lost in the desert, or fighting for someone else. 

   

  Because this latest program was such a public embarrassment, the Pentagon had to come up with a new idea to assist Syria’s “freedom fighters” now that they are fleeing under bombardment by the Russian air force only to be cut down by Hezbollah.

   

  The newest plan: helicopter ammo. No, really. The US has now resorted to dropping “tons” of ammo into the middle of nowhere and hoping the “right” people find it. 

  In funnier terms: The US just paradropped 50 tons of ammo on pallets into the most dangerous place on the face of the planet with no way of ensuring that it falls into the “right” hands.

  The absurdity of that wasn’t lost on Putin, who offered the following critique on Tuesday: “U.S. air drops of weapons and ammunition intended for the Syrian Free Army, which is fighting Assad’s regime, could end up in the hands of Islamic State instead.”

  And then on Wednesday, Turkey pitched a fit, with PM Ahmet Davutoglu proclaiming that “Turkey definitely can’t accept weapons aid to groups linked to PKK.” 

  Of course that declaration from Ankara seemed to come out of left field because after all, the US claimed the ammo and weapons were retrieved by the “Syrian Arab Coalition”, not the YPG. 

  Well, as it turns out, the “Syrian Arab Coalition” (which apparently didn’t even exist until last Friday) conveniently merged with the YPG over the weekend.

  Consider the following from Reuters:

  A Kurdish militia in northern Syria has joined forces with Arab rebels, and their new alliance has been promised fresh weapon supplies by the United States for an assault on Islamic State forces in Raqqa, a spokesman said on Monday.

   

  The alliance calling itself the Democratic Forces of Syria includes the Kurdish YPG militia and Syrian Arab groups, some of which fought alongside it in a campaign that drove Islamic State from wide areas of northern Syria earlier this year.

   

  The Arab groups in the new alliance are operating under the name “The Syrian Arab Coalition” – a grouping which U.S. officials have said would receive support under a new U.S. strategy aimed at fighting Islamic State in Syria.

  Got it.

  What happened here is that the US knew it couldn’t directly arm the YPG without infuriating Ankara, so Washington tried to say that the YPG had now aligned itself with various (likely fictional) “Syrian Arab groups” and so therefore, Erdogan shouldn’t mind if the US hands them a few tons of weapons. 

  So yeah, the hits just keep on coming. In July, NATO agreed to allow Erdogan to crack down on the Kurds in exchange for access to Incirlik. But because the Kurdish PKK has ties to YPG, Ankara wouldn’t be happy with the US supporting the Syrian Kurds anymore. Of course some of the sorties the US intended to fly from Incirlik were almost certainly meant to support the YPG, so it’s unclear how anyone ever thought this was going to work from the beginning unless the US intended to fly missions in support of YPG from a Turkish airbase and then lie to Turkey about who those missions were supporting. 

  Once the “train and equip” program crashed and burned, the US wanted to arm the Kurds again. Unfortunately, we’re now two weeks away from elections in Turkey so there was no way Erdogan was going risk 50 tons of weapons and ammo being channeled to a group with ties to the PKK.

  Washington’s solution: create a fictional alliance between YPG and some “Syrian Arabs” who probably don’t even exist, and then use that alliance as a front. It was a make-believe militant merger.

  If you think that sounds too far-fetched, just consider the following out yesterday from Bloomberg: 

  American and Kurdish officials and Syrian Arab opposition leaders told us this week that ammunition said to have been for the Syrian Arab Coalition, a newly announced group of Sunni Arab brigades in northeastern Syria, had largely ended up arming the Kurdish Democratic Union Party and its associated military forces, known as the People’s Protection Units or YPG. That will aid the Kurds in fighting the Islamic State and cementing their control of Kurdish territory.

   

  One senior administration official who works on the issue told us that the White House knew that the coalition was likely to pass on most if not all of the weapons to the Kurds. The official, who called the Syrian Arab Coalition a “ploy” to arm the Kurds, said the White House knew they would receive the shipments because they controlled the area where the weapons were dropped. The U.S. did not ask the Arab coalition for any guarantees the weapons would stay in Arab hands, the official said.

   

  On Thursday,  Mutlu Civiroglu, a Kurdish affairs analyst, published an interview in which the YPG commander, Sipan Hemo, acknowledged his group had received the airdrops, which he said were important to its cause. “With this new support, the cooperation we have had for a year has reached a new level. And we hope to increase our work together even more, we hope to work strategically. So what we received was not big. But it is big for a new start,” Hemo said.

  Technically then, Washington is now paradropping tons of ammo on pallets to make believe “Arabs”.

  And because the US is never content to let sleeping foreign policy mistakes lie, the Pentagon is now set to double down on the helicopter ammo drops. Here’s AFP: 

  The US military is poised to boost its supply runs to rebels fighting Islamic State jihadists in northern Syria, a US official said Thursday, days after an initial air drop of ammunition.

   

  “There will be more deliveries but only if they can demonstrate that they have used it in an effective way against ISIL,” the official said, using an alternate acronym for IS.

   

  “As they demonstrate results, the packages will get heavier and US strikes will occur in places that are advantageous to their operations.”

   

  The official described the rebel-arming program as “performance-based.”

  So let’s attempt to sum all of this up. The US sanctioned a crackdown by Turkey on the Kurds ahead of Turkish elections in exchange for access to an air base. But allying with Turkey means Ankara won’t be pleased if the US helps the Kurdish YPG in Syria because if there’s anyone Erdogan hates more than Assad, it’s the Kurds. Once every other “plan” for countering the regime in Syria demonstrably failed, the US wanted to send weapons to the YPG. To avoid angering Erdogan, the Pentagon created a fictional group of “Syrian Arabs” then pretended that the YPG had formed an alliance with the make believe fighters to give Washington an out in case Ankara got mad. US planes then dropped the weapons into the desert and prayed the Kurds picked them up. 

  Now, the US is set to paradrop many more tons of ammo into the middle of nowhere, provided the “Syrian Arab Coalition” can show “results.” 

  So ultimately, this is a “performance-based” program under which Washington provides hundreds of tons (literally) of weapons and ammo to Arabs who don’t really exist. 

  No further comment.

  

  

  

  

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• How Do You Prepare A Child For Life In The American Police State?

  Submitted by John Whitehead via The Rutherford Institute,

  “Fear isn’t so difficult to understand. After all, weren’t we all frightened as children? Nothing has changed since Little Red Riding Hood faced the big bad wolf. What frightens us today is exactly the same sort of thing that frightened us yesterday. It’s just a different wolf.” ? Alfred Hitchcock

  In an age dominated with news of school shootings, school lockdowns, police shootings of unarmed citizens (including children), SWAT team raids gone awry (leaving children devastated and damaged), reports of school resource officers tasering and shackling unruly students, and public schools undergoing lockdowns and active drills, I find myself wrestling with the question: how do you prepare a child for life in the American police state?

  Every parent lives with a fear of the dangers that prey on young children: the predators who lurk at bus stops and playgrounds, the traffickers who make a living by selling young bodies, the peddlers who push drugs that ensnare and addict, the gangs that deal in violence and bullets, the drunk drivers, the school bullies, the madmen with guns, the diseases that can end a life before it’s truly begun, the cynicism of a modern age that can tarnish innocence, and the greed of a corporate age that makes its living by trading on young consumers.

  It’s difficult enough raising a child in a world ravaged by war, disease, poverty and hate, but when you add the police state into the mix—with its battlefield mindset, weaponry, rigidity, surveillance, fascism, indoctrination, violence, etc.—it becomes near impossible to guard against the toxic stress of police shootings, SWAT team raids, students being tasered and shackled, lockdown drills, and a growing unease that some of the monsters of our age come dressed in government uniforms.

  Children are taught from an early age that there are consequences for their actions. Hurt somebody, lie, steal, cheat, etc., and you will get punished. But how do you explain to a child that a police officer can shoot someone who was doing nothing wrong and get away with it? That a cop can lie, steal, cheat, or kill and still not be punished?

  Kids understand accidents: sometimes drinks get spilled, dishes get broken, people slip and fall and hurt themselves, or you bump into someone without meaning to, and they get hurt. As long as it wasn’t intentional and done with malice, you forgive them and you move on. Police shootings of unarmed people—of children and old people and disabled people—can’t just be shrugged off as accidents, however.

  Tamir Rice was no accident. Cleveland police shot and killed the 12-year-old, who was seen playing on a playground with a pellet gun. Surveillance footage shows police shooting the boy two seconds after getting out of a moving patrol car. Incredibly, the shooting was deemed “reasonable” and “justified” by two law enforcement experts who concluded that the police use of force “did not violate Tamir's constitutional rights.”

  Aiyana Jones was also no accident. The 7-year-old was killed after a Detroit SWAT team launched a flash-bang grenade into her family’s apartment, broke through the door and opened fire, hitting the little girl who was asleep on the living room couch. The cops weren’t even in the right apartment. Ironically, on the same day that President Obama refused to stop equipping police with the very same kinds of military weapons and gear used to raid Aiyana’s home, it was reported that the police officer who shot and killed the little girl would not face involuntary manslaughter charges.

  Obama insists that $263 million to purchase body cameras for police will prevent any further erosions of trust, but a body camera would not have prevented Aiyana from being shot in the head. Indeed, the entire sorry affair was captured on camera: a TV crew was filming the raid for an episode of The First 48, a true-crime reality show in which homicide detectives have 48 hours to crack a case.

  While that $263 million will make Taser International, the manufacturer of the body cameras, a whole lot richer, it’s doubtful it would have prevented a SWAT team from shooting 14-month-old Sincere in the shoulder and hand and killing his mother.

  No body camera could have stopped a Georgia SWAT team from launching a flash-bang grenade into the house in which Baby Bou Bou, his three sisters and his parents were staying. The grenade landed in the 2-year-old’s crib, burning a hole in his chest and leaving him with scarring that a lifetime of surgeries will not be able to easily undo.

  No body camera could have prevented 10-year-old Dakota Corbitt from being shot by a Georgia police officer who tried to shoot an inquisitive dog, missed, and hit the young boy, instead.

  When police shot 4-year-old Ava Ellis in the leg, shattering the bone, it actually was an accident, but it was an accident that could have been prevented. Police reported to Ava’s house after being told that Ava’s mother, who had cut her arm, was in need of a paramedic. Cops claimed that the family pet charged the officer who was approaching the house, causing him to fire his gun and hit the little girl.

  Alberto Sepulveda, 11, died from one “accidental” shotgun round to the back, after a SWAT team raided his parents’ home. Thirteen-year-old Andy Lopez Cruz was shot 7 times in 10 seconds by a California police officer who mistook the boy’s toy gun for an assault rifle. Christopher Roupe, 17, was shot and killed after opening the door to a police officer. The officer, mistaking the Wii remote control in Roupe’s hand for a gun, shot him in the chest.

  These children are more than grim statistics on a police blotter. They are the heartbreaking casualties of the government’s endless, deadly wars on terror, on drugs, and on the American people themselves.

  Not even the children who survive their encounters with police escape unscathed. Increasingly, their lives are daily lessons in compliance and terror, meted out with every SWAT team raid, roadside strip search, and school drill.

  Who is calculating the damage being done to the young people forced to watch as their homes are trashed and their dogs are shot during SWAT team raids? A Minnesota SWAT team actually burst into one family’s house, shot the family’s dog, handcuffed the children and forced them to “sit next to the carcass of their dead and bloody pet for more than an hour.” They later claimed it was the wrong house.

  More than 80% of American communities have their own SWAT teams, with more than 80,000 of these paramilitary raids are carried out every year. That translates to more than 200 SWAT team raids every day in which police crash through doors, damage private property, terrorize adults and children alike, kill family pets, assault or shoot anyone that is perceived as threatening—and all in the pursuit of someone merely suspected of a crime, usually some small amount of drugs.

  What are we to tell our nation’s children about the role of police in their lives? Do you parrot the government line that police officers are community helpers who are to be trusted and obeyed at all times? Do you caution them to steer clear of a police officer, warning them that any interactions could have disastrous consequences? Or is there some happy medium between the two that, while being neither fairy tale nor horror story, can serve as a cautionary tale for young people who will encounter police at virtually every turn?

  No matter what you say, there can be no avoiding the hands-on lessons being taught in the schools about the role of police in our lives, ranging from active shooter drills and school-wide lockdowns to incidents in which children engaging in typically childlike behavior are suspended (for shooting an imaginary “arrow” at a fellow classmate), handcuffed (for being disruptive at school), arrested (for throwing water balloons as part of a school prank), and even tasered (for not obeying instructions).

  For example, a middle school in Washington State went on lockdown after a student brought a toy gun to class. A Boston high school went into lockdown for four hours after a bullet was discovered in a classroom. A North Carolina elementary school locked down and called in police after a fifth grader reported seeing an unfamiliar man in the school (it turned out to be a parent).

  Better safe than sorry is the rationale offered to those who worry that these drills are terrorizing and traumatizing young children. As journalist Dahlia Lithwick points out: “I don’t recall any serious national public dialogue about lockdown protocols or how they became the norm. It seems simply to have begun, modeling itself on the lockdowns that occur during prison riots, and then spread until school lockdowns and lockdown drills are as common for our children as fire drills, and as routine as duck-and-cover drills were in the 1950s.”

  These drills have, indeed, become routine.

  As the New York Times reports: “Most states have passed laws requiring schools to devise safety plans, and several states, including Michigan, Kentucky and North Dakota, specifically require lockdown drills. Some drills are as simple as a principal making an announcement and students sitting quietly in a darkened classroom. At other schools, police officers and school officials playact a shooting, stalking through the halls like gunmen and testing whether doors have been locked.”

  Police officers at a Florida middle school carried out an active shooter drill in an effort to educate students about how to respond in the event of an actual shooting crisis. Two armed officers, guns loaded and drawn, burst into classrooms, terrorizing the students and placing the school into lockdown mode.

  What is particularly chilling is how effective these lessons in compliance are in indoctrinating young people to accept their role in the police state, either as criminals or prison guards. If these exercises are intended to instill fear and compliance into young people, they’re working.

  Sociologist Alice Goffman understands how far-reaching the impact of such “exercises” can be on young people. For six years, Goffman lived in a low-income urban neighborhood, documenting the impact such an environment—a microcosm of the police state—on its residents. Her account of neighborhood children playing cops and robbers speaks volumes about how constant exposure to pat downs, strip searches, surveillance and arrests can result in a populace that meekly allows itself to be prodded, poked and stripped.

  As journalist Malcolm Gladwell writing for the New Yorker reports:

  Goffman sometimes saw young children playing the age-old game of cops and robbers in the street, only the child acting the part of the robber wouldn’t even bother to run away: I saw children give up running and simply stick their hands behind their back, as if in handcuffs; push their body up against a car without being asked; or lie flat on the ground and put their hands over their head. The children yelled, “I’m going to lock you up! I’m going to lock you up, and you ain’t never coming home!” I once saw a six-year-old pull another child’s pants down to do a “cavity search.”

  Clearly, our children are getting the message, but it’s not the message that was intended by those who fomented a revolution and wrote our founding documents. Their philosophy was that the police work for us, and “we the people” are the masters, and they are to be our servants. Now that has been turned on its head, fueled by our fears (some legitimate, some hyped along by the government and its media mouthpieces) about the terrors and terrorists that lurk among us.

  It’s getting harder by the day to tell young people that we live in a nation that values freedom and which is governed by the rule of law without feeling like a teller of tall tales. Yet as I point out in my book Battlefield America: The War on the American People, unless something changes and soon for the young people growing up, there will be nothing left of freedom as we have known it but a fairy tale without a happy ending.

   

  

  

  

  

  

• Visualizing The Demise Of The Once Mighty Euro

  The European Union has always been primarily a political project. The idea of the union was to take peoples that had long and complicated histories, and to place them in a situation where they must work together and shed their differences in order to achieve success.

  From the political angle, it can be argued that this objective has been achieved. War and conflict within Western and Central Europe has mostly been stymied. Considering the continent’s lengthy history in these areas, this is great news.

  However, it’s particularly the countries that adopted the euro as common currency that put themselves into a more precarious economic position. The problem is simple: countries maintain certain political and fiscal responsibilities, but do not control the fate of their common currency.

  The result is that eurozone politicians have very different fiscal policies, but don’t have the flexibility of monetary policy to help accompany them. Some countries are trying to spend their way out of trouble, while others are maintaining strict austerity. Either way, the European Central Bank (ECB) controls the plight of the currency and can make unilateral decisions that have a big impact on every country. For example, in the beginning of June 2015, the ECB announced the minimum of a $1.14 trillion quantitative easing program that will add new currency units that together are larger than the economies of Ireland, Greece, Portugal, Finland, Luxembourg, and Slovenia combined.

  There has been an array of other problems plaguing the eurozone as well. The most notable of these was that Greece was admitted into the monetary union in the first place after fudging numbers on the Greek economy. Even though Greece makes up about 2% of the overall eurozone, the country has been in constant trouble that has threatened to undermine the entire union. (For a primer on this, read The Origin of the Greek Crisis)

  The euro itself has dropped precipitously, particularly in terms of USD but also in terms of GBP and CNY. In the beginning of 2008, a US dollar could buy only €0.65 euros. Today, on average through 2015, one US dollar can buy €0.91 euros.

  With European demographics getting more challenging by the year, and deflation stalking the eurozone, problems don’t seem to be going away for the euro. The crises in Ukraine and Greece continue on without much resolved, and the ECB is continuing on with its QE program. Meanwhile, the Refugee Crisis has created another political distraction that has its own challenges for the people of Europe.

  Will the shrinking euro be able to revert its course, or is Europe doomed to become the next Japan?

  

  Courtesy of: Visual Capitalist

  

  

  

  

  

• Russia And Iran Moving To Corner The Mideast Oil Supply

  Submitted by Steve Chambers via AmericanThinker.com,

  It looks like Vladimir Putin and the ayatollahs are preparing to corner the world’s oil supply – literally.

  Last May I wrote on this site that Iran was in the process of surrounding the Saudi/Wahhabi oil reserves, along with those of the other Sunni Gulf petro-states.  I added that, “Iran’s strategy to strangle Saudi/Wahhabi oil production also dovetails with Putin’s interests.  As the ruler of the second largest exporter of oil, he would be delighted to see the Kingdom’s production eliminated or severely curtailed and global prices soar to unseen levels.  No wonder he is so overtly supporting Iran.”

  We’ve now seen Putin take a major, menacing step in support of the Iranians by introducing combat forces into Syria.  Many analysts argue that he’s doing this both to protect his own naval base at Tartus and as some sort of favor to the Iranians.  Are those really sufficient inducement for him to spend scarce resources and risk Russian lives, or does he have bigger ambitions in mind?  Given the parlous state of Russia’s economy, thanks in very large part to the recent halving of oil prices, he must relish the opportunity now presented to him, in an axis with Iran, to drive those prices back to prior levels.

  The Iranians, for their part, must welcome this opportunity as well, for two huge reasons: first, when sanctions are finally lifted, thanks to their friend in the White House, Iran’s oil production will only aggravate the current global excess oil supply, reducing their cash flow (although they will still repatriate the $150 billion released by the nuclear deal).  They and the Russians must both be desperate to find a way to prevent further oil price declines.  And second, Iran’s mortal sectarian enemies and rivals for leadership of all of Islam are the Saudi/Wahhabi clan, so the prospect of simultaneously hurting them while strengthening themselves must seem tremendously tantalizing.

  To achieve this, the Russian-Iranian axis can pursue the encirclement strategy of the Arabian Peninsula that Iran has already been overtly conducting, as I described in May, and is evident by referring to the map below.

  

  Iran and its allies already control the border across the Saudi/Wahhabi Kingdom’s northern frontier, although the Iranian grip on the Syrian portion is tenuous – hence the Russian intervention.  Now Iran is also fighting a bitter proxy war with the Kingdom in Yemen, where Iran is backing coreligionist Shi’ites.  From Yemen, Iran can also threaten the Bab-al-Mandeb that provides access to the Red Sea, multiplying the pressure it already exerts on the Kingdom by threatening the Strait of Hormuz at the entrance to the Persian Gulf from its own territory.

  Moreover, Iran is widely believed to be supporting the Shi’a who live on top of the Saudi/Wahhabi oil reserves in the Eastern Province.  The natural affinity between the Shi’a of Arabia and Iran has long worried the royal family and led them to discriminate against their Shi’ite subjects, fostering resentment among them.  Attacks on the Shi’a community early this year have increased tensions.  On top of all that, Iran is reportedly behind the recent Shi’a unrest in Bahrain, which Iran considers it lost “14^th province” – much as Saddam viewed Kuwait in the late 1980s.

  With this being the current state of the Mideast chessboard, consider how the game can unfold.  With Russian assistance, Iran can save its Syrian puppet and reinforce its defensive enclave in the Allawite homeland in the northwest of its putative boundaries.  Then the combined forces of the axis can turn on ISIS, all the while boasting of doing the world a favor, and reduce its territorial control if not extirpate it entirely.  Of course, the Saudi/Wahhabis will probably do whatever they can to assist their vicious ideological offspring, but it would be hard to bet against the axis.

  As the axis pacifies Syria, it can then begin pressure the Saudi/Wahhabis and other Sunni petro-states to curtail their oil production enough both to accommodate the increased Iranian flow and to lift prices back to acceptable levels.  $100 a barrel must sound like a nice target.

  The axis’s initial pressure will probably be diplomatic, applied by both principal powers.  However, with Iran’s foothold-by-proxy in Yemen and their influence in the Eastern Province and Bahrain, it could easily foment more general violence against the Saudi/Wahhabis, even within the Kingdom itself.  Iran could likewise twist Bahrain’s arm and thereby rattle the cages of the lesser Sunni petro-states.  Then, by trading a reduction in oil for a reduction in violence, the axis could achieve its objective.

  If not, the Iranians could escalate the violence further.  Perhaps ideally from the Iranian perspective, the Saudi/Wahhabis would overreact and provide Iran with an excuse to strike directly at the geographically highly concentrated Arabian oil fields and support facilities.  Iran might not be willing to risk royal retaliation by attacking on its own, but it could be emboldened with Russian backing by air and sea, and perhaps even a nuclear umbrella.  In that scenario, the proud Arabs would be forced to bow to the will of their ancient Persian foes – particularly since it is obvious that the US under its current president could not be relied upon for support.

  An attack on the Kingdom’s fields would cause a severe and lengthy disruption of Mideast oil supply, which would dreadful for the rest of the world – but certainly not the worst-case scenario.  Such a disruption would precipitate another nasty global recession and could severely weaken the US, Europe, and China, all of whose economies are fragile and probably brittle.  Thus the damage inflicted could far outlast the disruption itself.  This could be yet another highly attractive incentive for Putin and his ayatollah allies.

  So, Putin and the ayatollahs have powerful motives to corner the world’s oil market and therefore the US and the rest of the world are facing an enormous risk.  The horrible pity of this is that the US could easily demonstrate the futility of the Russian-Iranian axis trying to take the world hostage with Mideast oil, simply by opening up our surface deposits of oil shales in the Rockies.  As I showed in this analysis last March, these resources could make Mideast oil irrelevant.

  The US’ surface oil shales are completely different from the deep shales that are accessed through directional drilling and fracking and that grab all the headlines; the deep shales are a mere side show in terms of reserves.  The surface shales hold up to 3 trillion barrels of oil versus about 50 billion barrels of tight oil accessed by fracking.  The total global proven reserves of oil are 1.6 trillion barrels, and the Canadian tar sands have 1.6 to 2.5 trillion barrels (although they're officially listed at 175 billion barrels, which are incorporated in the global total).  So, the US and Canada together essentially can triple the global supply of oil, and at prices in the $60-75/barrel range.  Meanwhile, Mideast reserves are about 800 billion barrels – half of Canada’s oil sands, perhaps less than a third of the US surface shales.  The world no longer needs the Muslim oil.

  Unfortunately, the vast majority of the Rockies surface shales sit on Federal land, and while George W. Bush opened up those lands for development, Obama rescinded that policy.  These reserves now sit almost entirely idle.

  As with any petroleum deposit, these surface shale reserves can’t be turned on with the wave of a wand.  But they can be opened for development with just a pen, and not even a phone.  For the protection of this country, and the good of the world, our current president should immediately open these reserves for development, with great fanfare.  If he will not use our military to protect our interests, he should at least use our economic weapons.

  There is no time to lose.  Russia is on the march, in unison with the emboldened and enriched Iranians, thanks again to our president.  Putin and the ayatollahs know they will enjoy only another 464 days with this president and that none of his likely replacements will be so complacent and flexible, to use his own term.  We should therefore expect that they will want to make as much hay as they can while the sun reflects off of Obama’s insouciant grin.

  

  

  

  

  

• OBoZo DoN'T SuRF!

  

  

  

  

  

• EM FX Party's Over: Dollar Rallies In Early Asia Trading As China's Bond Bubble Gathers Pace

  After two days of relative USD carnage in and across the emerging and asian FX markets, early AsiaPac trading this evening is seeing that trend revert with the Ringgit, Rupee, and Lira sliding. After-hours gains in US equity futures have been erased, despite USDJPY's continued BoJ-aided push higher (though it seems 119.00 is the new ceiling for now). China's government bonds remain extraordinarily bid (outperforming TSYs by almost 60bps in the last few weeks) with yields dropping to 6-year-lows, as corporate bond bubble fears rotate modestly back to govvies. Aussie miners are under pressure with Iluka Resources getting hammered on "excess capacity" warnings.

   

  The USDollar is rallying against Asian FX in the early going…

  

   

  And USDJPY has run stops and rolled over…

  

   

  Despite ongoing strength in Chinese equities (obeying the commands of The National team that "the correction is nearly over")…

  

   

  China 10Y yields have collapsed in the last few weeks (down 50bps outright and 43bps tighter than UST since 8/20 devaluation)

  

   

  The China-UST spread is nearing 100bps – its lowest in 4 years…

  

   

  Offshore Yuan signaled downward pressure on the fix and sure enough, PBOC weakened the Yuan…

  

   

  But it remains an ugly week for Aussia miners (with Iluka Resources gettting "Glencore"'d)…

  

   

  Charts: Bloomberg

  

  

  

  

  

• The Fog Of "Everything": Why America's Eternally Caught Off Guard In The Middle East

  Submitted by Tom Engelhardt via TimDispatch.com,

  1,500.

  That figure stunned me. I found it in the 12th paragraph of a front-page New York Times story about “senior commanders” at U.S. Central Command (CENTCOM) playing fast and loose with intelligence reports to give their air war against ISIS an unjustified sheen of success: “CENTCOM’s mammoth intelligence operation, with some 1,500 civilian, military, and contract analysts, is housed at MacDill Air Force Base in Tampa, in a bay front building that has the look of a sterile government facility posing as a Spanish hacienda.”

  Think about that.  CENTCOM, one of six U.S. military commands that divide the planet up like a pie, has at least 1,500 intelligence analysts (military, civilian, and private contractors) all to itself.  Let me repeat that: 1,500 of them.  CENTCOM is essentially the country’s war command, responsible for most of the Greater Middle East, that expanse of now-chaotic territory filled with strife-torn and failing states that runs from Pakistan’s border to Egypt.  That’s no small task and about it there is much to be known.  Still, that figure should act like a flash of lightning, illuminating for a second an otherwise dark and stormy landscape.

  And mind you, that’s just the analysts, not the full CENTCOM intelligence roster for which we have no figure at all.  In other words, even if that 1,500 represents a full count of the command’s intelligence analysts, not just the ones at its Tampa headquarters but in the field at places like its enormous operation at al-Udeid Air Base in Qatar, CENTCOM still has almost half as many of them as military personnel on the ground in Iraq (3,500 at latest count).  Now, try to imagine what those 1,500 analysts are doing, even for a command deep in a “quagmire” in Syria and Iraq, as President Obama recently dubbed it (though he was admittedly speaking about the Russians), as well as what looks like a failing war, 14 years later, in Afghanistan, and another in Yemen led by the Saudis but backed by Washington.  Even given all of that, what in the world could they possibly be “analyzing”?  Who at CENTCOM, in the Defense Intelligence Agency, or elsewhere has the time to attend to the reports and data flows that must be generated by 1,500 analysts?

  Of course, in the gargantuan beast that is the American military and intelligence universe, streams of raw intelligence beyond compare are undoubtedly flooding into CENTCOM’s headquarters, possibly overwhelming even 1,500 analysts.  There’s “human intelligence,” or HUMINT, from sources and agents on the ground; there’s imagery and satellite intelligence, or GEOINT, by the bushelful.  Given the size and scope of American global surveillance activities, there must be untold tons of signals intelligence, or SIGINT; and with all those drones flying over battlefields and prospective battlefields across the Greater Middle East, there’s undoubtedly a river of full motion video, or FMV, flowing into CENTCOM headquarters and various command posts; and don’t forget the information being shared with the command by allied intelligence services, including those of the “five eyes“ nations, and various Middle Eastern countries; and of course, some of the command’s analysts must be handling humdrum, everyday open-source material, or OSINT, as well — local radio and TV broadcasts, the press, the Internet, scholarly journals, and god knows what else.

  And while you’re thinking about all this, keep in mind that those 1,500 analysts feed into, and assumedly draw on, an intelligence system of a size surely unmatched even by the totalitarian regimes of the twentieth century.  Think of it: the U.S. Intelligence Community has — count ‘em — 17 agencies and outfits, eating close to $70 billion annually, more than $500 billion between 2001 and 2013.  And if that doesn’t stagger you, think about the 500,000 private contractors hooked into the system in one way or another, the 1.4 million people (34% of them private contractors) with access to “top secret” information, and the 5.1 million — larger than Norway’s population — with access to “confidential and secret” information.

  Remember as well that, in these years, a global surveillance state of Orwellian proportions has been ramped up.  It gathers billions of emails and cell phone calls from the backlands of the planet; has kept tabs on at least 35 leaders of other countries and the secretary general of the U.N. by hacking email accounts, tapping cell phones, and so on; keeps a careful eye and ear on its own citizens, including video gamers; and even, it seems, spies on Congress.  (After all, whom can you trust?)

  In other words, if that 1,500 figure bowls you over, keep in mind that it just stands in for a far larger system that puts to shame, in size and yottabytes of information collected, the wildest dreams of past science fiction writers.  In these years, a mammoth, even labyrinthine, bureaucratic “intelligence” structure has been constructed that is drowning in “information” — and on its own, it seems, the military has been ramping up a smaller but similarly scaled set of intelligence structures.

  Surprised, Caught Off Guard, and Left Scrambling

  The question remains: If data almost beyond imagining flows into CENTCOM, what are those 1,500 analysts actually doing?  How are they passing their time?  What exactly do they produce and does it really qualify as “intelligence,” no less prove useful?  Of course, we out here have limited access to the intelligence produced by CENTCOM, unless stories like the one about top commanders fudging assessments on the air war against the Islamic State break into the media.  So you might assume that there’s no way of measuring the effectiveness of the command’s intelligence operations.  But you would be wrong.  It is, in fact, possible to produce a rough gauge of its effectiveness.  Let’s call it the TomDispatch Surprise Measurement System, or TSMS. Think of it as a practical, news-based guide to the questions: What did they know and when did they know it?

  Let me offer a few examples chosen almost at random from recent events in CENTCOM’s domain.  Take the seizure at the end of September by a few hundred Taliban fighters of the northern provincial Afghan capital of Kunduz, the first city the Taliban has controlled, however briefly, since it was ejected from that same town in 2002.  In the process, the Taliban fighters reportedly scattered up to 7,000 members of the Afghan security forces that the U.S. has been training, funding, and arming for years.

  For anyone following news reports closely, the Taliban had for months been tightening its control over rural areas around Kunduz and testing the city’s defenses.  Nonetheless, this May, based assumedly on the best intelligence analyses available from CENTCOM, the top U.S. commander in the country, Army General John Campbell, offered this predictive comment: “If you take a look very closely at some of the things in Kunduz and up in [neighboring] Badakhshan [Province], [the Taliban] will attack some very small checkpoints… They will go out and hit a little bit and then they kind of go to ground… so they’re not gaining territory for the most part.’”

  As late as August 13th, at a press briefing, an ABC News reporter asked Brigadier General Wilson Shoffner, the U.S. deputy chief of staff for communications in Afghanistan: “There has been a significant increase in Taliban activity in northern Afghanistan, particularly around Kunduz.  What is behind that?  Are the Afghan troops in that part of Afghanistan at risk of falling to the Taliban?”

  Shoffner responded, in part, this way: “So, again, I think there's been a lot of generalization when it comes to reports on the north.  Kunduz is — is not now, and has not been in danger of being overrun by the Taliban, and so — with that, it's kind of a general perspective in the north, that's sort of how we see it.”

  That General Cambell at least remained of a similar mindset even as Kunduz fell is obvious enough since, as New York Times reporter Matthew Rosenberg reported, he was out of the country at the time. As Goldstein put it:

  “Mostly, though, American and Afghan officials appeared to be genuinely surprised at the speedy fall of Kunduz, which took place when Gen. John F. Campbell, the commander of coalition forces, was in Germany for a defense conference… Though the Taliban have been making gains in the hinterlands around Kunduz for months, American military planners have for years insisted that Afghan forces were capable of holding onto the country’s major cities.

   

  “‘This wasn’t supposed to happen,’ said a senior American military officer who served in Afghanistan, speaking on the condition of anonymity. ‘The Afghans are fighting, so it’s not like we’re looking at them giving up or collapsing right now. They’re just not fighting very well.’”

  It’s generally agreed that the American high command was “caught off guard” by the capture of Kunduz and particularly shocked by the Afghan military’s inability to fight effectively.  And who would have predicted such a thing of an American-trained army in the region, given that the American-backed, -trained, and -equipped Iraqi Army on the other side of the Greater Middle East had a similar experience in June 2014 in Mosul and other cities of northern Iraq when relatively small numbers of Islamic State militants routed its troops?

  At that time, U.S. military leaders and top administration officials right up to President Obama were, as the Wall Street Journal reported, “caught off guard by the swift collapse of Iraqi security forces” and the successes of the Islamic State in northern Iraq.  Peter Baker and Eric Schmitt of the Times wrote in retrospect, “Intelligence agencies were caught off guard by the speed of the extremists’… advance across northern Iraq.” And don’t forget that, despite that CENTCOM intelligence machine, something similar happened in May 2015 when, as Washington Post columnist David Ignatius put it, U.S. officials and American intelligence were “blindsided again” by a very similar collapse of Iraqi forces in the city of Ramadi in al-Anbar Province.

  Or let’s take another example where those 1,500 analysts must have been hard at work: the failed $500 million Pentagon program to train “moderate” Syrians into a force that could fight the Islamic State.  In the Pentagon version of the elephant that gave birth to a mouse, that vast effort of vetting, training, and arming finally produced Division 30, a single 54-man unit of armed moderates, who were inserted into Syria near the forces of the al-Qaeda-aligned al-Nusra Front.  That group promptly kidnapped two of its leaders and then attacked the unit.  The result was a disaster as the U.S.-trained fighters fled or were killed.  Soon thereafter, the American general overseeing the war against the Islamic State testified before Congress that only “four or five” armed combatants from the U.S. force remained in the field.

  Here again is how the New York Times reported the response to this incident:

  “In Washington, several current and former senior administration officials acknowledged that the attack and the abductions by the Nusra Front took American officials by surprise and amounted to a significant intelligence failure.  While American military trainers had gone to great lengths to protect the initial group of trainees from attacks by Islamic State or Syrian Army forces, they did not anticipate an assault from the Nusra Front. In fact, officials said on Friday, they expected the Nusra Front to welcome Division 30 as an ally in its fight against the Islamic State.

   

  “‘This wasn’t supposed to happen like this,’ said one former senior American official, who was working closely on Syria issues until recently, and who spoke on the condition of anonymity to discuss confidential intelligence assessments.”

  Now, if accurate, this is wild stuff.  After all, how anyone, commander or intelligence analyst, could imagine that the al-Nusra Front, classified as an enemy force in Washington and some of whose militants had been targeted by U.S. air power, would have welcomed U.S.-backed troops with open arms is the mystery of all mysteries.  One small footnote to this: McClatchy News later reported that the al-Nusra Front had been poised to attack the unit because it had tipped off in advance by Turkish intelligence, something CENTCOM’s intelligence operatives evidently knew nothing about.

  In the wake of that little disaster and again, assumedly, with CENTCOM’s full stock of intelligence and analysis on hand, the military inserted the next unit of 74 trained moderates into Syria and was shocked (shocked!) when its members, chastened perhaps by the fate of Division 30, promptly handed over at least a quarter of their U.S.-supplied equipment, including trucks, ammunition, and rifles, to the al-Nusra Front in return for “safe passage.” Al-Nusra militants soon were posting photos of the weapons online and tweeting proudly about them.  CENTCOM officials initially denied that any of this had happened (and were clearly in the dark about it) before reversing course and reluctantly admitting that it was so. (“‘If accurate, the report of NSF [New Syrian Forces] members providing equipment to al-Nusra Front is very concerning and a violation of Syria train-and-equip program guidelines,’ U.S. Central Command spokesman Colonel Patrick Ryder said.”) 

  To turn to even more recent events in CENTCOM’s bailiwick, American officials were reportedly similarly stunned as September ended when Russia reached a surprise agreement with U.S. ally Iraq on an anti-ISIS intelligence-sharing arrangement that would also include Syria and Iran.  Washington was once again “caught off guard” and, in the words of Michael Gordon of the Times, “left… scrambling,” even though its officials had known “that a group of Russian military officers were in Baghdad.”

  Similarly, the Russian build-up of weaponry, planes, and personnel in Syria initially "surprised" and — yes — caught the Obama administration “off guard.” Again, despite those 1,500 CENTCOM analysts and the rest of the vast U.S. intelligence community, American officials, according to every news report available, were "caught flat-footed" and, of course, "by surprise” (again, right up to the president) when the Russians began their full-scale bombing campaign in Syria against various al-Qaeda-allied outfits and CIA-backed opponents of Syrian President Bashar al-Assad.  They were even caught off guard and taken aback by the way the Russians delivered the news that their bombing campaign was about to start: a three-star Russian general arrived at the U.S. Embassy in Baghdad to offer an hour’s notice.  (Congressional lawmakers are now considering “the extent to which the spy community overlooked or misjudged critical warning signs” about the Russian intervention in Syria.)

  The Fog Machine of American Intelligence

  You get the point.  Whatever the efforts of that expansive corps of intelligence analysts (and the vast intelligence edifice behind it), when anything happens in the Greater Middle East, you can essentially assume that the official American reaction, military and political, will be “surprise” and that policymakers will be left “scrambling” in a quagmire of ignorance to rescue American policy from the unexpected.  In other words, somehow, with what passes for the best, or at least most extensive and expensive intelligence operation on the planet, with all those satellites and drones and surveillance sweeps and sources, with crowds of analysts, hordes of private contractors, and tens of billions of dollars, with, in short, “intelligence” galore, American officials in the area of their wars are evidently going to continue to find themselves eternally caught “off guard.”

  The phrase “the fog of war” stands in for the inability of commanders to truly grasp what’s happening in the chaos that is any battlefield.  Perhaps it’s time to introduce a companion phrase: the fog of intelligence.  It hardly matters whether those 1,500 CENTCOM analysts (and all those at other commands or at the 17 major intelligence outfits) produce superlative “intelligence” that then descends into the fog of leadership, or whether any bureaucratic conglomeration of “analysts,” drowning in secret information and the protocols that go with it, is going to add up to a giant fog machine.

  It’s difficult enough, of course, to peer into the future, to imagine what’s coming, especially in distant, alien lands.  Cobble that basic problem together with an overwhelming data stream and groupthink, then fit it all inside the constrained mindsets of Washington and the Pentagon, and you have a formula for producing the fog of intelligence and so for seldom being “on guard” when it comes to much of anything.

  My own suspicion: you could get rid of most of the 17 agencies and outfits in the U.S. Intelligence Community and dump just about all the secret and classified information that is the heart and soul of the national security state.  Then you could let a small group of independently minded analysts and critics loose on open-source material, and you would be far more likely to get intelligent, actionable, inventive analyses of our global situation, our wars, and our beleaguered path into the future.

  The evidence, after all, is largely in.  In these years, for what now must be approaching three-quarters of a trillion dollars, the national security state and the military seem to have created an un-intelligence system.  Welcome to the fog of everything.

  

  

  

  

  

• The Latest Evidence That Global Trade Has Collapsed: India's Exports/Imports Plunge By 25%

  Late last month, India surprised 51 out of 52 economists when the RBI cut rates by 50bps. 

  Although economists have a reputation for being terrible when it comes to making predictions (getting it wrong perpetually is almost a job requirement), it’s difficult to understand how 51 of them failed to see a cut of that magnitude in the cards.

  After all, it was just a little over a month earlier when the Indian government’s chief economic advisor Arvind Subramanian told ET Now television that India may need to “respond” to China’s monetary policy stance. He also hinted at further export weakness to come.

  Here’s what the REER picture and the export picture looked like going into the RBI meeting:

  

  

  And here’s what Deutsche Bank had to say in August: 

  Currency competitiveness is an important factor in influencing exports performance, but global demand is even more important, in our view, to support exports momentum. Global demand remains soft at this stage which continues to be a key hurdle for exports momentum to gain traction. 

  Hence the outsized rate cut.

  So that’s what the picture looked like going into Thursday’s export data and unsurprisingly, the numbers definitively show that global trade is in freefall. Here’s Reuters: 

  India’s exports of goods shrank by nearly a quarter in September from a year ago, falling for a 10th straight month and threatening Prime Minister Narendra Modi’s goal of boosting economic growth through manufacturing.

   

  India’s economy, Asia’s third largest, is mostly driven by domestic demand, but the country has still felt the effects of China’s slowdown. Exports have dropped and consumer and industrial demand for imports has weakened.

   

  Imports fell 25.42 percent in September from a year earlier to $32.32 billion. Exports stood at $21.84 billion, according to data released by the Ministry of Commerce and Industry on Thursday.

   

  “We see no signs of revival in exports in the near future,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “We will be lucky if exports could even touch $265 billion to $270 billion for the whole year.”

  So yeah, both exports and imports fell by a quarter. That’s right, by a quarter.

  

  And so India finds itself in the same position as many other emerging economies in a world where trade is grinding to a halt: hoping that your own domestic demand for imported goods is even more abysmal than other countries’ demand for the goods you export just so the current account doesn’t collapse. Here’s Reuters again: 

  Policy makers were nonetheless relieved, because the trade deficit narrowed to $10.48 billion last month from $12.5 billion in August as gold and oil imports declined. For April-September, the trade deficit shrank to $85.36 billion from 497.17 billion a year earlier, the data showed.

  But as Goldman notes, even this dynamic may be set to disappoint because the expected benefit on the deficit from falling commodity prices is not as large as expected due to the fact that India… exports some commodities:

  Given the sharp decline in exports, we think the benefits of the commodity price decline on India’s trade balance may not be as large as widely perceived due to the significant commodity content within its exports.

  The takeaway is this: if you needed further evidence that global trade is in the doldrums and seemingly getting worse by the month, simply see the above. Of course the hope will be that the RBI’s easing will boost exports and further narrow the deficit, but again, this is just a race to the bottom with the entire world attempting to out-ease one another in a desperate attempt to stay ahead of the pace at which global demand is contracting. 

  There’s nothing positive (let alone sustainable) about that.

  

  

  

  

  

• Russia Responds To French President's Renewed Attempt To Sell Ships To Moscow

  Two months after French president Hollande, under heavy pressure from NATO, decided to scrap a deal to deliver two Mistral helicopter carriers to Russia which were sold to Egypt instead (the same Egypt whose foreign reserves are plummeting, whose fiscal house is in total disarray, which just devalued its currency, and which could only afford the $1.1 billion purchase if the CIA handed its military dictator the cash via envelope), the same French President announced on Wednesday that he “expects to sell new warships to Russia in the near future.”

  Quoted by AP during a visit to the shipyard of Saint-Nazaire in western France, Hollande said that “Things went well with Russia, which has agreed to cancel the contract. And I even think we’ll get partnerships for new ships.” He didn’t specify whether they could be military ships. More from AP:

  Hollande came aboard one of the warships that was originally named the Vladivostok, in reference to the Russian port. The inscription on the hull has been erased and replaced by grey paint.

  The Mistral sale was supposed to be the biggest arms sale ever by a NATO country to Russia, until the deal fell apart because of the Ukraine crisis. France refunded the 950 million euros ($1 billion) already paid by Russia and sold the ships to Egypt, which signed a 950 million-euro contract last week.

   

  “I had to sell them to a country that needed to ensure its own security but didn’t threaten anyone,” Hollande said.

   

  The assault ships can each carry 16 helicopter gunships, 700 troops and up to 50 armored vehicles. They are due to be delivered to Egyptian authorities in March 2016.

   

  The ships are supposed to arrive in Egypt in summer 2016 but first they should be de-equipped of Russian-developed command, control and communication systems.

  Russia promptly responded with the following simple and brief message:

  Paris is looking to sell new ships to Russia, France’s President Francois Hollande said during his visit to the Saint-Nazaire shipyard.  The president, however, neglected to mention whether Russia is actually eager to purchase such hardware from France.

  

  Or, as it summarized all of the above: “Sale away.”

  

  

  

  

  

• China Says Military Will "Stand Up And Use Force" If US Sends Warships To Islands

  Earlier this week, US officials indicated that they are set to go through with a plan to sail warships around China’s man-made islands in the Spratlys.

  “It’s just a matter of time when it happens,” one government source told WSJ.

  

  Over the course of the last six months, we’ve seen China’s land reclamation efforts go from oddity, to spectacle, to alleged “provocation”, to excuse for war as Washington feels compelled to come to the aid of its allies in the South Pacific who cried foul after it became apparent that this was no “normal” dredging effort. 

  In short, China has created some 3,000 acres of new sovereign territory and the US claims Beijing is effectively trying to redraw maritime boundaries on the way to establishing new military outposts. For its part, China denies the allegations and has responded with a peculiar mix of veiled threats (tweaking the wording of its official maritime strategy), not-so-veiled threats (telling a US spy plane with a CNN crew on board to “go now”), and humorous propaganda (a series of pictures from Fiery Cross depicting women, puppies, and gardens). 

  Despite efforts to de-escalate the matter when Xi visited the US this month, Beijing looks set to draw a line in the sand (no pun intended) when it comes to allowing the US to sail warships near the islands. Here’s AFP with more: 

  Chinese media slammed the US Thursday for “ceaseless provocations” in the South China Sea, with Washington expected to soon send warships close to artificial islands Beijing has built in disputed waters.

   

  Following a meeting of American and Australian officials Tuesday, US Defense Secretary Ash Carter warned Beijing that Washington will continue to send its military where international law allows, including the South China Sea.

   

  The remarks were backed by Australian Foreign Minister Julie Bishop, who said the two countries are “on the same page.”

   

  An editorial in The Global Times, which is close to China’s ruling Communist party, condemned Washington’s “ceaseless provocations and coercion”.

   

  
  

   

  “China mustn’t tolerate rampant US violations of China’s adjacent waters and the skies over those expanding islands,” it said, adding that its military should “be ready to launch countermeasures according to Washington’s level of provocation,” it added.

   

  The warship or ships would pass within the 12-mile territorial limit China claims around the structures to demonstrate that US commanders do not recognise it.

   

  Such a move, the Global Times suggested, could be a “breach of China’s bottom line”.

   

  “If the US encroaches on China’s core interests, the Chinese military will stand up and use force to stop it,” the paper warned.

  There you go. It doesn’t get much clearer than that.

  Obviously, there’s little doubt that China will use these islands for some military purpose. Whether that purpose will be extremely limited (as Beijing has suggested without explicitly acknowledging the militarization of the reefs) remains to be seen. 

  One question that one might fairly ask here however, is whether the US really needs to sail by the islands just to see if can do so without getting shot at. It isn’t, after all, as though China is on the verge of using the Spratlys as a staging ground for an invasion of the entire South Pacific so one wonders whether it might not be better to wait until there is some legitimate purpose for a pass-by. That way, Beijing can’t point to a deliberate “provocation.”

  Whatever the case, we suppose we will see in the next week or so who blinks first. 

  *  *  *

  A little background on the latest developments with accompanying visuals…

  Despite the fact that China claimed to have largely completed its dredging efforts in the Spratlys in June, Bonnie Glaser, a senior adviser at the Center for Strategic and International Studies in Washington, tells a different story. Here’s what Glaser has to say about a series of new images shown below and available at the Asia Maritime Transparency Initiative:

  China is still dredging in the South China Sea. Satellite imagery of Subi Reef taken in early September shows dredgers pumping sediment onto areas bordered by recently built sea walls and widening the channel for ships to enter the waters enclosed by the reef. On Mischief Reef, a dredger is also at work expanding the channel to enable easier access for ships, possibly for future use as a naval base.

   

  This activity comes in the wake of assertions by China that its land reclamation has ended in the Spratly Island chain. On August 5, during the ASEAN Regional Forum in Kuala Lumpur, Chinese foreign minister Wang Yi told reporters, “China has already stopped. You look, who is building? Take a plane and look for yourself.” He did not pledge that China would refrain from construction and militarization on the newly-created islands, however.

   

  Wang Yi reiterated that China’s construction on the islands is mainly “to improve the working and living conditions of personnel there” and for “public good purposes.” To date, however, China’s activity appears focused on construction for military uses. Recently built structures on Fiery Cross Reef include a completed and freshly painted 3,000-meter runway, helipads, a radar dome, a surveillance tower, and possible satellite communication facilities.

   

  Apparent Chinese preparations for building lengthy airstrips on Subi and Mischief raise questions about whether China will pose challenges to freedom of navigation in the air and sea surrounding those land features in the future.

   

  The persistence of dredging along with construction and militarization on China’s artificial islands underscore Beijing’s unwillingness to exercise self-restraint and look for diplomatic paths to reduce tensions with its neighbors, the United States, and other nations with an interest in the preservation of peace and stability in the South China Sea. U.S. calls for all claimants in the South China Sea to halt land reclamation, construction, and militarization have been rejected by China, which views the status quo as unfavorable to its interests.

   

  On the eve of President Xi Jinping’s visit to the United States, Beijing appears to be sending a message to President Barack Obama that China is determined to advance its interests in the South China Sea even if doing so results in heightened tensions with the United States.

  And more from Gregory Poling, a fellow with the Sumitro Chair for Southeast Asia Studies and the Pacific Partners Initiative at CSIS and AMTI director.

  Earlier this year, the addition of an airfield on Fiery Cross Reef provided a more southerly runway capable of handling most if not all Chinese military aircraft. And in June, satellite photos indicated that China was preparing to lay down another runway at Subi Reef. New photos taken on September 3 show grading work at Subi, providing further evidence that runway construction there is planned. Meanwhile work at the Fiery Cross airfield is well advanced, with China recently laying down paint.

   

  Satellite photos taken on September 8 contain an unanticipated development, indicating that China may be preparing to construct another airstrip at Mischief Reef. These images show that a retaining wall has been built along the northwest side of the reef, creating a roughly 3,000-meter rectangular area. 

  And the new visuals:

  

  

  

  

  We’ll close with the following from Robert Kaplan, a senior fellow at the Center for a New American Security in Washington who spoke to Bloomberg: 

  “The Chinese have a classic Sun Tzu philosophy of incremental steps. Because it is small steps, the Americans and their allies will not be able to respond in a strong fashion because they will seem to be over reacting. That is what makes China’s approach so infuriating.”

  

  

  

  

  

• There Goes The Final Pillar Of The US "Recovery": The Loan-Growth Paradox Explained

  With the manufacturing side of the economy now openly in recession (based not only on earnings call confessions, regional Fed surveys, but an inventory-to-sales spread that has never been greater and is screaming liquidation, as well as an energy sector that has been in freefall for the past year), and the US consumer – that 70% component of US GDP – slamming into a wall following not only three months of disappointing payrolls, non-existent wage growth, plunging retail sales, a high-end consumer that has stopped spending, and the lowest consumer confidence measured by Gallup in 2015, not to mention GDP itself, there were just two pillars of the so-called recovery that had not yet been crushed: housing and loan growth.

  Then yesterday, courtesy of the largest US mortgage lender, Wells Fargo, we learned that housing (all housing, not the tiny subset that is the all-cash “market” for ultra-luxury duplexes in NYC or San Fran which is only a function of how much laundered money Chinese oligarchs can park into the new “Swiss bank account” that U.S. real estate has become) was also rolling over after the worst quarter for mortgage applications in since the abysmal 2014.

  

  Which left commercial bank loans as the last remaining pillar of any so-called “recovery.”

  It was here, that after posing virtually no growth for over two years, starting in 2012, US bank lending, led by Commercial and Industrial or C&I lending growing at a double-digit pop, started to rise at an impressive pace, asking many to wonder: maybe the biggest driver for a sustainable economic recovery is in fact present, because where there is loan demand, there is velocity of money.

  

  Then a few years later, as the loan growth persisted with virtually no above-trend GDP growth to show for it, some – such as us – wondered: we know there is a “source of funds”, but what about the “use of funds.”

  The first flashing red flag appeared last July, when we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development, comparable to taking out a mortgage on one’s house and using the proceeds to buy deep out of the money calls on the S&P 500.

  This is what the FT said at the time:

  For the top 25 US commercial banks by assets, C & I lending grew by 10.5 per cent in the quarter to June 25 from the previous quarter, according to annualised weekly data from the Federal Reserve.

   

  This type of lending is an important source of business for the largest US banks, representing about a fifth of all loans made by the likes of Bank of America, JPMorgan Chase and Wells Fargo, according to Citigroup research. While low interest rates have made business lending less lucrative, the relationships it forges open doors for the banks to sell other services such as treasury management, hedging and leasing.

   

  A second corporate banking executive at a large regional lender said: “The larger part of the usage in the market right now are loan refinancings where companies are paying dividends back out.” He added: “They’re requesting increased loans or usage under a lien in order to pay a dividend or equity holders of a company. Traditionally banks have been very cautious of that.”

  Incidentally we explained all of this back in April of 2012 when we laid out why there simply can not be capital spending-fueled growth, when corporate shareholders can make far greater and faster profits using funds to splurge on buybacks, dividends and M&A – uses of capital that generate little or zero actual revenue growth.

  After scratching our heads for a few weeks afterward, we let the subject go: after all there is no way banks would be lending companies secured loans to use the proceeds to cash out existing stakeholders, in the process asset-stripping the corporation. This would mean that the loan officers at these banks are either criminally stupid, or corrupt and have been bribed by the borrower to close their eyes when signing the dotted line and wiring the funds.

  We promptly forgot this bizarre tangent into the “use of loan funds”… Until today when we found that it was, indeed, all a lie and that the banks themselves had become complicit in perpetuating not only the worst possible capital misallocation, but being an accessory to the US stagnation, soon to be replaced with full-blown recession.

  This is what CLSA’s Chris Wood found when looking at the several most recent loan officer surveys:

  … from the standpoint of the corporate sector, zero rates tend to encourage financial engineering over capital spending while also allowing non-competitive businesses to survive for longer. The financial engineering incentive provided by such policies has been most evident in America where share buybacks and M&A activity have surged even as capital spending has continued to disappoint. Thus, the latest data shows that S&P500 share buybacks and dividends rose by 6.6% YoY to a record US$923bn in the year to June, while total reported earnings declined by 8.4% YoY to US$841bn over the same period.

   

  

  And here is the punchline:

  Similarly American banks, in terms of the quite impressive pickup seen in commercial and industrial (C&I) loan growth (see Figure 10), have been financing financial engineering, be it M&A or share buybacks, not capex. Thus, C&I loans rose by 10.7% YoY in September. Yet in the Fed’s July Senior Loan Officer Survey, 26% and 18% respectively of US banks reporting stronger C&I loan demand stated that the ‘very important’ reason for stronger loan demand over the past three months were financing needs for M&A and debt refinancing, compared with only 6% for capital investment (see Figure 11). Meanwhile, the lack of healthy creative destruction associated with zero rates has long been associated with the Japanese experience of so-called zombie borrowers.

   

  

  There is the explanation of the paradox of surging C&I (and overall) loan growth, which took place even as overall economic growth and capital spending never followed. The reason? All that secured C&I debt was going not toward growth capital spending, or even maintenance/replacement CapEx, but simply into financial engineering: M&A and debt refis, the first to cash out the CEO of the acquiring or target company (with the generous blessings of the lender bank), the second to lower the cost of debt so more cash could be retained however not to grow the business but simply to fund the equity portion of said M&A.

  Meanwhile the loan demand associated with actual economic growth: a paltry 6% of the total!

  And while we are delighted to close the loop on this last “leg” of the recovery stool, one which stuck our like a sore thumb against a rapidly deteriorating economic landscape, confirming that we are indeed facing a recession and a very ugly one at that since the Fed can no longer cut rates even as the “economic-impact” credibility of QE is gone, what is more important is that this should be a lesson to everyone to remember that when money is transferred or when a loan is made there are always two sides to the equation: a sources of funds, and a use of funds. Because while everyone was focusing on the former, nobody remember to look at the letter.

  It is the latter that has made all the difference to the US recovery, or complete lack thereof.

  

  

  

  

  

• Nevada Shuts Down Fantasy Sports Sites: Apply For A Gaming License Or Face A Decade In Prison

  Earlier this week, the FBI and the Justice Department announced they were investigating whether the business models of daily fantasy-sports sites violate a Congressional exemption around the legality of transfers from financial institutions to online gambling sites.

  Effectively, sites like DraftKings and FanDuel rely on a loophole for “games of skill.” Here’s WSJ with the explanation: 

  The probe is in the preliminary stage, two people said. It is part of an ongoing discussion within the Justice Department about the legality of daily fantasy sites, in which customers pay entry fees to draft virtual sports teams that compete against each other for prize money based on the real-world performances of athletes. Congress in 2006 prohibited financial companies from transferring money to online gambling sites and several were shut down. But so-called games of skill were exempted. Fantasy-sports sites have since operated under that exemption.

  The idea, we suppose, is that betting on the “skills” of others is itself a “skill.” That is, if I know more about how the skills of say, one NFL player stack up against the skills of another NFL player, well then I too have a “skill”, and so therefore, sites which pay me to play my skills against the skills of other fans can exploit the above mentioned exemption.

  Obviously, that’s to a certain extent ridiculous, but whatever the case may be, the game (no pun intended) appears to now be up. Or at least in Nevada where you can gamble, but like the mob bosses who once ran the casinos, the state wants its cut of the action. Here’s AP:

  Nevada regulators have ordered daily fantasy sports sites like DraftKings and FanDuel to shut down, saying they can’t operate in the state without a gambling license.

   

  The decision comes amid growing backlash by investigators and regulators over the sites, which have grown in popularity in the past year.

   

  The sites insist they are skill-based games and not chance-based wagers, and are therefore not subject to gambling regulations.

   

  The state’s Gaming Control Board issued a notice Thursday saying the sites must stop offering their contests to Nevada residents effective immediately. Operators face felony fines and 10 years in prison.

  So there you have it FanDuel and DraftKings. Pay your protection money to run your gambling racket like everyone else. 

  Of course with a federal investigation looming, this is just the start of what, in sports terms, is likely to be a prolonged and deep slump for the industry – you can bet on that.

  Nevada

  

  

  

  

  

• Be Very Afraid: "The 3 EM Debacles" Loom, HSBC Warns

  As the emerging world continues to wrestle with a by now familiar set of problems including falling commodity prices, a decelerating China, the threat of a Fed hike, and, importantly, idiosyncratic political risks, the attendant underperformance might well lead you to wonder if this is perhaps “the time for courage” (to borrow a Gartman-ism). 

  In other words, some might be thinking that now is the time to BTFD in either EM FX, equities, or credit. 

  

  Of course we would note that as bad as the picture is now – and it’s pretty bad – things can always, always get worse especially given the fact that two EM darlings and one key emerging Asia nation all face intractable political crises, a situation which increases the potential for some manner of black swan or tail event to come calling. 

  As a reminder, Brazil needs desperately to find some kind of (lasting) compromise between President Dilma Rousseff and house speaker Eduardo Cunha lest the government’s utter inability to negotiate on budget reforms should end up shattering any last vestige of confidence the market might have in the country. 

  Meanwhile, Turkey is mired in a civil war of its own making and protracted periods of violence, terrorism, and ethnic feuding simply can’t coexist with a strong economy forever. 

  Finally, in Malaysia, PM Najib is at risk of seeing his career and legacy crumble before his very eyes as he struggles to explain how $700 million from the country’s embattled development fund ended up in his personal bank account.

  We mention those examples because the BRL, the TRY, and the MYR have performed miserably, but as you can see from the above, the political risk factors are very real indeed which should give one pause before reaching out to catch the falling knife and which should also underscore the importance of making a concerted effort to understand the intersection between finance and politics before placing bets on a whim. 

  But make no mistake, at its most basic level, this is a story about the fundamentals and the fundamentals for EM are quite simply a disaster:

  • Global growth and trade have entered a new era characterized by structural, endemic sluggishness 
  • Thanks to loose monetary policy that has kept capital markets wide open to otherwise insolvent producers and thanks also to anemic global demand, commodity prices aren’t likely to rebound anytime soon
  • Because the Fed missed its window to hike, both a hawkish and a dovish Fed are likely precipitate capital outflows

  As it turns out, HSBC went looking for opportunities across EM and came to the same conclusions. 

  First, we have the five reasons for EM malaise:

  These are, in brief: collapse in global trade cycle, competitiveness problems (rising manufacturing unit labour costs), faltering domestic demand, downside risks posed by China, and the slump in commodity prices. 

  And this is leading directly to a convergence of DM and EM growth, but not because DM is performing well:

  The growth differential between EM and DM is still narrowing, not necessarily because DM is doing well but because EM is performing miserably. The leading indicators do not suggest any imminent improvement, either.

   

  
  

  That’s not the only place we’re seeing a “convergence” between EM and DM – they are also starting to look alike in terms of leverage:

  The situation becomes even more toxic when the EM leverage cycle is taken into account. Thanks to years of abundant and cheap external liquidity, EM has built up debt very rapidly, while the drivers of economic growth have shifted towards private sector (household and corporate) credit. 

  In many ways, EM is showing similar symptoms to its DM counterparts of weak economic performance and over- reliance on credit. The outcome is what we call the three EM debacles: de-leveraging, depreciation (or devaluation even de-pegging) and downgrades of credit ratings. 

   

  
  

  And now that the Fed has missed its window and, on top of that, changed its reaction function, uncertainty around the FOMC is greater than ever.

  The external environment was already unhelpful with a very weak global trade cycle, erratic capital flows – and recently mostly outflows – and the risks surrounding the Chinese economy. On top, there is now another layer of uncertainty relating to the Fed, which has been telegraphing the message of lift-off in 2015 throughout the year, only to see the markets constantly pricing out the possibility of the first hike, not to mention the loss of momentum recently in the US economy. Fed monetary policy and its communication is becoming increasingly a source of uncertainty. 

  The takeaway: “In sum, this is a precarious environment, and we do not recommend taking risky positions in the EM space.” 

  So coming full circle to our intro, this is, to quote the incomparable Gartman, “not the time for courage”…

  

  

  

  

  

  

• Whistleblower: 90% of Drone Fatalities Are Civilians

  A new US whistleblower reveals that 90% of all deaths caused by US drones are civilians.  And see this, this and this.

  The bigger picture:

  • 90% of all deaths in ALL wars are civilians, on average

  • Obama has killed MORE people with drones than died on 9/11

  • Drone strikes CREATE 10 times as many terrorists than they kill (and see this)

  • The U.S. doesn’t even know the IDENTITY of the people it’s killing (more)

  • The US labels ALL young men in battle zones as “militants”

  • A former high-level intelligence official labels it “UNDISCIPLINED slaughter“

  • One of the main agencies responsible for deciding who gets killed with drones is ALSO largely responsible for spying on Americans

  

  

  

  

• Sanders And His Followers Are Not Outliers

  Submitted by Jeff Deist via The Mises Institute,

  Depending on one’s point of view, Bernie Sanders either held his own or boosted his chances against perceived front-runner Hillary Clinton in Tuesday night’s Democratic presidential primary debate. His message clearly resonated with the live audience, particularly his statements about raising the minimum wage to $15 per hour, global warming, and government-mandated paid childcare leave.

  Progressives are emboldened by Sanders, who reportedly draws upward of 20,000 people at events. He inspires them with his attacks on capitalism, happily calling himself a “Democratic Socialist.” And his economic plans, while a mess, appeal to their radical (and disastrous) notions of egalitarianism.

  Happily, there are murmurs of discontent — progressives like to eat their own. His crowds skew overwhelmingly white and older, leading to allegations that Sanders suffers from a whiteness problem. His home state of Vermont is laughably un-diverse and prosperous, home to woodsy limousine liberals who like the idea of urban living more than the reality. But nobody ever lost a political race purely for hypocrisy — and while Bernie’s brand of socialism might fade with the Birkenstock Boomer crowd, Occupy Wall Street millennials stand waiting.

  Regardless of whether Sanders ultimately secures the nomination, the size and energy of the Bernie phenomenon should not be underestimated. If anything, libertarians consistently misjudge the degree to which socialist thought is deeply rooted in the American psyche.

  Like Sanders, millions of American progressives hold these deeply statist and authoritarian beliefs:

  • changes in climate threaten human extinction;
  • fossil fuels should be banned, and alternative fuels should be mandated;
  • wealth and income should be forcibly redistributed;
  • no individual should earn more than a set amount of money each year;
  • welfare and entitlement programs should be vastly increased;
  • whole industries (healthcare, education) should be nationalized, while others (energy, banking) should be regulated to the point of de facto nationalization;
  • some form of global government should be installed;
  • a global wealth tax should be implemented;
  • private ownership of firearms should be banned;
  • anti-discrimination legislation should be applied to private religious organizations;
  • racial, gender, and sexual orientation quotas should be mandated on both public and private employers;
  • certain types of speech should be criminalized;
  • certain criminals should be subjected to greater penalties if motivated by “hate”;
  • social justice should be pursued by any means necessary; and
  • government should attempt to engineer equality of outcomes.

  These ideas, and the people who hold them, are not outliers in America. There are millions of rank and file progressives, mostly registered Democrats, who believe exactly as Bernie believes. They may prefer to vote for Hillary Clinton purely as a tactical matter because they are unsure the country is “ready” for full socialism, or because they think Hillary has a better chance of beating the hated Republicans in the general election.

  But average progressives and Democrats agree with Bernie Sanders across the board, whether they plan to vote for him or not.

  Do average Republicans and conservatives agree with Ron Paul? Do most registered Republicans really advocate eliminating income taxes, abolishing entire federal agencies, repealing the Federal Reserve Act, ending all foreign interventions, and drastically downsizing the US military? Are most conservatives, in their hearts, radically anti-state? The answer is no. Most conservatives are only nominally less statist, often more corporatist, and almost invariably more militarist than progressives.

  The reason is simple, though we tend to forget it: the twentieth century was a radically progressive century. Income taxes, central banking, social insurance schemes, demand-side Keynesian economics, and Wilsonian internationalism — all radical ideas — have become entrenched articles of faith over the past 100 years. When we talk about politics or economics today, we do so within a thoroughly progressive framework.

  The entire progressive agenda of the last century, which would have sounded outrageous to the libertarian-tinged ear of the average American in 1900, is now merely the baseline from which all government action originates.

  That’s why abolitionist libertarians are on the defensive in modern political discourse, while grandiose progressives are on the attack: the default position in American politics is for government to do something.

  So we shouldn’t downplay or minimize the success of progressives in shifting the landscape dramatically in favor of the state over the past century. Progressives never went away, despite the rhetoric of Ronald Reagan or Milton Friedman or Bill Clinton. The era of big government is still here, and it always was.

  So what should libertarians do, in an absurd progressive world obsessed with supposed global warming, inequality, racism, sexism, homophobia, transphobia, and privilege, ad nauseam?

  The answer could fill a book, but let me suggest we start by freeing ourselves of the burdens of politics. Our battle is for hearts and minds, not votes. While Democrats and Republicans fixate on candidates and their supposed policies, libertarians are free to remain psychologically and emotionally detached from the whole sordid process.

  And with that detachment comes freedom: the freedom to inspire, educate, and influence other people of good will without the divisive cloud of partisan politics creating suspicion and distrust. Once people know you’re not simply making arguments to support “your guy” — or any guy — they tend to view you more impartially and hence more favorably.

  A new era of liberty, peace, and prosperity will not be won at the ballot box. It will be won at ground level, individual by individual, as progressive ideas crumble in the face of unsustainable government debts, unsustainable government wars, and unsustainable government entitlements.
   

  

  

  

  

  

• Tomorrow Is OpEx: What Happens Next?

  Presented with little comment aside to say “Fool me once, shame on you” but fool me eight times…

  Behold The OPEX Rallies…

  

  2015’s OPEX rallies haven’t failed yet to provide a tradabale downswing… is the market capable of withstanding one this time?

   

  Source: NorthmanTrader.com
  

  

  

  

  

  

• Oct 16 – Fed's Dudley: Uncertainty about China creates uncertainty about US outlook

  EMOTION MOVING MARKETS NOW: 41/100 FEAR

  PREVIOUS CLOSE: 35/100 FEAR

  ONE WEEK AGO: 42/100 FEAR 
  ONE MONTH AGO: 16/100 EXTREME FEAR

  ONE YEAR AGO: 1/100 EXTREME FEAR

  Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 25.06% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 16.05. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The CBOE Volatility Index (VIX) is at 18.03. This is a neutral reading and indicates that market risks appear low.

   

  PIVOT POINTS

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

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

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

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

   

  MEME OF THE DAY – IT’S THE JERKS

   

  UNUSUAL ACTIVITY

  VXX OCT WEEKLY4 21.5 CALLS7K+ @$.58

  LOCK NOV 8 PUT Activity on the BID side

  LULU NOV 55 CALL Activity 2500 block @$1.20 on offer

  EDGE SC 13D Filed by NEW LEAF Ventures .. 8.2%

  TROX .. SC 13G Filed by Putnam Investments .. 13.2%

  More Unusual Activity…

  HEADLINES

   

  ECB’s Nowotny says new measures needed to boost inflation

  Fed’s Dudley dismisses -ve rates, says economy slowing

  Fed’s Dudley: Uncertainty about China creates uncertainty about US outlook

  Tsy Sec Lew: Extraordinary measures will be exhausted by 3/Nov

  ECB’s Draghi calls for Greek banks to get aid by 15/Nov

  ECB’s Constancio: Diverging Fed, Global MonPol a CBank Challenge

  BoE’s Vlieghe gets nod, but MPs stress need for BoE review

  US DOE Crude Inventory (WoW) Oct-09: 7562K (est. 2577K, prev. 3073K)

  EIA Natural Gas Storage Change Oct-09: 100 (est. 93, prev. 95)

  PBOC researcher sees yuan gains amid global money shortage

   

  GOVERNMENTS/CENTRAL BANKS

  Fed’s Dudley: Recent news suggests economy is slowing –ForexLive

  Fed’s Dudley: Uncertainty about China creates uncertainty about US outlook –FoerxLive

  US Tsy Sec Lew: Extraordinary measures will be exhausted no later than 3/Nov –ForexLive

  Fed buys $5.7bn MBS in the week, sells $200m

  ECB’s Nowotny says new measures needed to boost inflation –Rtrs

  ECB’s Draghi calls for Greek banks to get aid by 15/Nov –WiWo

  ECB’s Constancio: Diverging Fed, Global MonPol a CBank Challenge –MNI

  BoE’s Vlieghe gets nod, but MPs stress need for BoE review –FT

  Greece Dep FinMin Chouliarakis: Greek govt to ask for lowering annual debt servicing needs –SZ

  FIXED INCOME

  US Mortgage Rates Drop, But Just Barely, On Downbeat Economic News –Bankrate

  Portuguese bonds: Picking up speed (downwards) –FT

  Ireland NTMA Sees Lower 2016 Funding Target –MNI

  Fitch: Irish Budget Consistent with Improving Public Finances

  FX

  USD: Dollar sliding on data and policy split –FT

  EUR: Euro falls vs USD

  NZD: Kiwi dollar leads USD charge –DL

  EM FX: Mexico, Malaysia lead FX reserve falls in emerging markets ex-China –Rtrs

  ENERGY/COMMODITIES

  WTI futures settle 0.6% lower at $46.38 per barrel

  US DOE Crude Inventory (WoW) Oct-09: 7562K (est. 2577K, prev. 3073K)

  US DOE Distillate Inventory (WoW) Oct-09: -1520K (est. -700K, prev. -2458K)

  US DOE Cushing Inventory (WoW) Oct-09: 1125K (est. 200K, prev. 98K)

  US DOE Gasoline Inventory (WoW) Oct-09: -2618K (est. -1250K, prev. 1910K)

  US DOE Refinery Runs (WoW) Oct-09: 01.50% (est. -0.48%, prev. -2.30%)

  EIA Natural Gas Storage Change Oct-09: 100 (est. 93, prev. 95)

  CRUDE: BARC says oil prices will recover quickly –MW

  UK faces worst energy supply crunch in a decade –FT

  COMMENT: How stock and bond indices could signal end of oil rout –FT

  Saudi Oil Minister Naimi: That demand for oil globally is improving –Rtrs

  Gold erases 2015 losses –BBG

  Antofagasta CEO: Copper near bottom as China absorbs supply, no plans to pare back mine production –BBG

  EQUITIES

  EARNINGS: Goldman Sachs Posts Weaker Results –WSJ

  EARNINGS: Citi beats expectations –CNBC

  EARNINGS: Philip Morris beats Q3 estimates –Benzinga

  EARNINGS: Blackstone Misses Q3 EPS By 5c –StreetInsider

  EARNINGS: US Bancorp profit rises in line with forecasts –MST

  EARNINGS: UnitedHealth Revenue Surges, But Bottom Line Flat –WSJ

  EARNINGS: Charles Schwab profit up 17 pct in third quarter –Rtrs

  BANKS: Deutsche Bank Said to Plan Sale of U.S. Private-Client Brokerage –BBG

  BANKS: Deutsche Bank Libor Probe Said to Rise to Former Trading Manager –BBG

  BANKS: UK banks to need 3.3 billion pounds more capital under BoE plan –Rtrs

  ACTIVIST: TeliaSonera Falls After Muddy Waters Questions Transparency –BBG

  LEGAL: EU to rule Starbucks, Fiat benefited from illegal tax deals -?WSJ

  LEGAL: Valeant subpoenaed by US prosecutors over drug pricing –Rtrs

  M&A: Vivendi takes stakes in Ubisoft and Gameloft –FT

  EM: China Construction Bank in talks to buy LME broker Metdist –Rtrs

  C&E: Glencore Plans More Debt Cuts to Help Win Upgrade in Credit Rating –WSJ

  EMERGING MARKETS

  PBOC researcher sees yuan gains amid global money shortage –Shanghai Sec News

  CHINA: Lower rates, slow economy spur China bank lending –FT

  Indonesia central bank holds key rate at 7.50% –BT

   

  Fitch Downgrades Brazil to ‘BBB-‘; Outlook Negative

  

  

  

  

  

• 'New Snowden' Reveals Obama's Secret Drone Assassination Program

  It's been just over two years since Edward Snowden leaked a massive trove of NSA documents, and more than five since Chelsea Manning gave WikiLeaks a megacache of military and diplomatic secrets. Now, as Wired.com explains, there appears to be a new source on that scale of classified leaks—this time with a focus on drones.

  On Thursday the Intercept published a groundbreaking new collection of documents related to America’s use of unmanned aerial vehicles to kill foreign targets in countries ranging from Afghanistan to Yemen.

   

  The revelations about the CIA and Joint Special Operations Command actions include primary source evidence that as many as 90 percent of US drone killings in one five month period weren’t the intended target, that a former British citizen was killed in a drone strike despite repeated opportunities to capture him instead, and details of the grisly process by which the American government chooses who will die, down to the “baseball cards” of profile information created for individual targets, and the chain of authorization that goes up directly to the president.

   

  All of this new information, according to the Intercept, appears to have come from a single anonymous whistleblower. A spokesperson for the investigative news site declined to comment on that source.

   

  But unlike the leaks of Snowden or Manning, the spilled classified materials are accompanied by statements about the whistleblower’s motivation in his or her own words.

   

  “This outrageous explosion of watchlisting—of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield—it was, from the very first instance, wrong,” the source tells the Intercept. “We’re allowing this to happen. And by ‘we,’ I mean every American citizen who has access to this information now, but continues to do nothing about it.”

  Mike Krieger of Liberty Blitzkrieg blog digs into the dreadful details,

  Besides sharing my own personal insight into the goings on in this crazy world we live in, and where I think things are headed, the other primary purpose of Liberty Blitzkrieg is to highlight certain stories that readers may have missed or overlooked while dealing with all the ins and outs of everyday life.

  In a perfect world, every American would read the eight articles that comprise the Intercept’s drone investigation published earlier today; however, the reality is that simply isn’t going to happen. As such, I went ahead and read them myself, and what follows are some particularly juicy excerpts that will hopefully inspire readers to investigate further.

  The reason I think these articles are so important, is not because they are based on intel leaked by an additional whistleblower (i.e., not Snowden), but because you can’t read the information without concluding quite simply that the U.S. empire is completely and totally out of control. That the plethora of American military adventures overseas are not only not making us safer, but are in fact making us far more vulnerable.

  This information will be presented by providing the title of each article with a link, as well as author attribution, followed by relatively brief excepts. I hope you find all of this as interesting and concerning as I did.

  1. The Assassination Complex by Jeremy Scahill

  When the Obama administration has discussed drone strikes publicly, it has offered assurances that such operations are a more precise alternative to boots on the ground and are authorized only when an “imminent” threat is present and there is “near certainty” that the intended target will be eliminated. Those terms, however, appear to have been bluntly redefined to bear almost no resemblance to their commonly understood meanings.

   

  The first drone strike outside of a declared war zone was conducted more than 12 years ago, yet it was not until May 2013 that the White House released a set of standards and procedures for conducting such strikes. Those guidelines offered little specificity, asserting that the U.S. would only conduct a lethal strike outside of an “area of active hostilities” if a target represents a “continuing, imminent threat to U.S. persons,” without providing any sense of the internal process used to determine whether a suspect should be killed without being indicted or tried. The implicit message on drone strikes from the Obama administration has been one of trust, but don’t verify.

   

  The source said he decided to provide these documents to The Intercept because he believes the public has a right to understand the process by which people are placed on kill lists and ultimately assassinated on orders from the highest echelons of the U.S. government. “This outrageous explosion of watchlisting — of monitoring people and racking and stacking them on lists, assigning them numbers, assigning them ‘baseball cards,’ assigning them death sentences without notice, on a worldwide battlefield — it was, from the very first instance, wrong,” the source said.

   

  Additional documents on high-value kill/capture operations in Afghanistan buttress previous accounts of how the Obama administration masks the true number of civilians killed in drone strikes by categorizing unidentified people killed in a strike as enemies, even if they were not the intended targets. The slides also paint a picture of a campaign in Afghanistan aimed not only at eliminating al Qaeda and Taliban operatives, but also at taking out members of other local armed groups.

   

  “The military is easily capable of adapting to change, but they don’t like to stop anything they feel is making their lives easier, or is to their benefit. And this certainly is, in their eyes, a very quick, clean way of doing things. It’s a very slick, efficient way to conduct the war, without having to have the massive ground invasion mistakes of Iraq and Afghanistan,” the source said. “But at this point, they have become so addicted to this machine, to this way of doing business, that it seems like it’s going to become harder and harder to pull them away from it the longer they’re allowed to continue operating in this way.”

  2. A Visual Glossary by Josh Begley

  Over a five-month period, U.S. forces used drones and other aircraft to kill 155 people in northeastern Afghanistan. They achieved 19 jackpots. Along the way, they killed at least 136 other people, all of whom were classified as EKIA, or enemies killed in action.

   

  Note the “%” column. It is the number of jackpots (JPs) divided by the number of operations. A 70 percent success rate. But it ignores well over a hundred other people killed along the way.

   

  This means that almost 9 out of 10 people killed in these strikes were not the intended targets.

   

  Hellfire missiles—the explosives fired from drones—are not always fired at people. In fact, most drone strikes are aimed at phones. The SIM card provides a person’s location—when turned on, a phone can become a deadly proxy for the individual being hunted.

   

  A “blink” happens when a drone has to move and there isn’t another aircraft to continue watching a target. According to classified documents, this is a major challenge facing the military, which always wants to have a “persistent stare.”

   

  The conceptual metaphor of surveillance is seeing. Perfect surveillance would be like having a lidless eye. Much of what is seen by a drone’s camera, however, appears without context on the ground. Some drone operators describe watching targets as “looking through a soda straw.”

   

  As we reported last year, U.S. intelligence agencies hunt people primarily on the basis of their cellphones. Equipped with a simulated cell tower called GILGAMESH, a drone can force a target’s phone to lock onto it, and subsequently use the phone’s signals to triangulate that person’s location.

  3. The Kill Chain by Cora Currier

  The Obama administration has been loath to declassify even the legal rationale for drone strikes — let alone detail the bureaucratic structure revealed in these documents. Both the CIA and JSOC conduct drone strikes in Yemen, and very little has been officially disclosed about either the military’s or the spy agency’s operations.

   

  The May 2013 slide describes a two-part process of approval for an attack: step one, “‘Developing a target’ to ‘Authorization of a target,’” and step two, “‘Authorizing’ to ‘Actioning.’” According to the slide, intelligence personnel from JSOC’s Task Force 48-4, working alongside other intelligence agencies, would build the case for action against an individual, eventually generating a “baseball card” on the target, which was “staffed up to higher echelons — ultimately to the president.”

  Here’s what this “killing chain” of command looked like:

  

  To quote Star Wars:

  “You will never find a more wretched hive of scum and villainy. We must be cautious.”

  In practice, the degree of cooperation with the host nation has varied. Somalia’s minister of national security, Abdirizak Omar Mohamed, told The Intercept that the United States alerted Somalia’s president and foreign minister of strikes “sometimes ahead of time, sometimes during the operation … normally we get advance notice.” He said he was unaware of an instance where Somali officials had objected to a strike, but added that if they did, he assumed the U.S. would respect Somalia’s sovereignty.

  Don’t make me laugh. A more idiotic statement has never been uttered.

  Obama administration officials have said that in addition to being a member of al Qaeda or an associated force, targets must also pose a significant threat to the United States.

   

  The study does not contain an overall count of strikes or deaths, but it does note that “relatively few high-level terrorists meet criteria for targeting” and states that at the end of June 2012, there were 16 authorized targets in Yemen and only four in Somalia.

   

  Despite the small number of people on the kill list, in 2011 and 2012 there were at least 54 U.S. drone strikes and other attacks reported in Yemen, killing a minimum of 293 people, including 55 civilians, according to figures compiled by the Bureau of Investigative Journalism. In Somalia, there were at least three attacks, resulting in the deaths of at minimum six people.

   

  Some of those Yemen strikes were likely carried out by the CIA, which since mid-2011 has flown drones to Yemen from a base in Saudi Arabia and reportedly has its own kill list and rules for strikes.

   

  The large number of reported strikes may also be a reflection of signature strikes in Yemen, where people can be targeted based on patterns of suspect behavior. In 2012, administration officials said that President Obama had approved strikes in Yemen on unknown people, calling them TADS, or “terror attack disruption strikes,” and claiming that they were more constrained than the CIA’s signature strikes in Pakistan.

   

  The study refers to using drones and spy planes to “conduct TADS related network development,” presumably a reference to surveilling behavior patterns and relationships in order to carry out signature strikes. It is unclear what authorities govern such strikes, which undermine the administration’s insistence that the U.S. kills mainly “high-value” targets.

   

  Another factor is timing: If the 60-day authorization expired, analysts would have to start all over in building the intelligence case against the target, said a former senior special operations officer, who asked not to be identified because he was discussing classified materials. That could lead to pressure to take a shot while the window was open.

   

  A September 2012 strike in Yemen, extensively investigated by Human Rights Watch and the Open Society Foundations, killed 12 civilians, including three children and a pregnant woman. No alleged militants died in the strike, and the Yemeni government paid restitution for it, but the United States never offered an explanation.

  4. Find, Fix, Finish by Jeremy Scahill

  The CIA had long dominated the covert war in Pakistan, and in 2009 Obama expanded the agency’s drone resources there and in Afghanistan to regularly pound al Qaeda, the Pakistani Taliban, and other targets. The military, tasked with prosecuting the broader war in Afghanistan, was largely sidelined in the Pakistan theater, save for the occasional cross-border raid and the Air Force personnel who operated the CIA’s drones. But the Pentagon was not content to play a peripheral role in the global drone war, and aggressively positioned itself to lead the developing drone campaigns in Yemen and Somalia.

   

  In September 2009, then-Centcom Commander Gen. David Petraeus issued a Joint Unconventional Warfare Task Force Execute Order that would lay the groundwork for military forces to conduct expanded clandestine actions in Yemen and other countries. It allowed for U.S. special operations forces to enter friendly and unfriendly countries “to build networks that could ‘penetrate, disrupt, defeat or destroy’ al Qaeda and other militant groups, as well as to ‘prepare the environment’ for future attacks by American or local military forces.”

  Ah, our old friend General David Petraeus. Who recently left “public service” to make his riches on Wall Street, and who also recently suggested America ally itself with al-Qaeda to fight ISIS. Just in case you’re still confused as to just how deranged and inept U.S. foreign policy has become.

  In December 2009, the Obama administration signed off on its first covert airstrike in Yemen — a cruise missile attack that killed more than 40 people, most of them women and children. After that strike, as with the CIA’s program in Pakistan, drones would fuel the Joint Special Operations Command’s high-value targeting campaign in the region.

   

  When Obama took office, there had been only one U.S. drone strike in Yemen — in November 2002. By 2012, there was a drone strike reported in Yemen every six days. As of August 2015, more than 490 people had been killed in drone strikes in Yemen alone.

   

  It is the politically advantageous thing to do — low cost, no U.S. casualties, gives the appearance of toughness,” said Adm. Dennis Blair, Obama’s former director of national intelligence, explaining how the administration viewed its policy at the time. “It plays well domestically, and it is unpopular only in other countries. Any damage it does to the national interest only shows up over the long term.”

   

  During the period covered in the ISR study — January 2011 through June 2012 — three U.S. citizens were killed in drone strikes in Yemen. Only one, the radical preacher Anwar al Awlaki, was labeled the intended target of the strike. The U.S. claimed it did not intend to kill Samir Khan, who was traveling with Awlaki when a Hellfire hit their vehicle. The third — and most controversial — killing of a U.S. citizen was that of Awlaki’s son, 16-year-old Abdulrahman Awlaki. He was killed two weeks after his father, while having dinner with his cousin and some friends. Immediately after the strike, anonymous U.S. officials asserted that the younger Awlaki was connected to al Qaeda and was 21 years old. After the family produced his birth certificate, the U.S. changed its position, with an anonymous official calling the killing of the teenager an “outrageous mistake.”

   

  Lt. Gen. Flynn, who since leaving the DIA has become an outspoken critic of the Obama administration, charges that the White House relies heavily on drone strikes for reasons of expediency, rather than effectiveness. “We’ve tended to say, drop another bomb via a drone and put out a headline that ‘we killed Abu Bag of Doughnuts’ and it makes us all feel good for 24 hours,” Flynn said. “And you know what? It doesn’t matter. It just made them a martyr, it just created a new reason to fight us even harder.”

   

  Glenn Carle, a former senior CIA officer, disputes Flynn’s characterization of the Obama administration’s motive in its widespread use of drones. “I would be skeptical the government would ever make that formal decision to act that way,” Carle, who spent more than two decades in the CIA’s clandestine services, told The Intercept. “Obama is always attacked by the right as being soft on defense and not able to make the tough decisions. That’s all garbage. The Obama administration has been quite ruthless in its pursuit of terrorists. If there are people who we, in our best efforts, assess to be trying to kill us, we can make their life as short as possible. And we do it.”

   

  The study, which utilizes corporate language to describe lethal operations as though they were a product in need of refining and upgrading, includes analyses from IBM, which has boasted that its work for the Pentagon “integrates commercial consulting methods with tacit knowledge of the mission, delivering work products and advice that improve operations and creates [sic] new capabilities.”

   

  As the Obama era draws to a close, the internal debate over control of the drone program continues, with some reports suggesting the establishment of a “dual command” structure for the CIA and the military. For now, it seems that the military is getting much of what it agitated for in the ISR study. In August, the Wall Street Journal reported that the military plans to “sharply expand the number of U.S. drone flights over the next four years, giving military commanders access to more intelligence and greater firepower to keep up with a sprouting number of global hot spots.” The paper reported that drone flights would increase by 50 percent by 2019, adding: “While expanding surveillance, the Pentagon plan also grows the capacity for lethal airstrikes.”

  5. Manhunting in the Hindu Kush by Ryan Devereaux

  This piece requires a brief intro. It deals with U.S. covert operations on the Afghan/Pakistani border, a place where America had considerable ground support and intel. Nevertheless, what ended up happening is that the U.S. merely resorting to going after everyday street thugs they didn’t like who had nothing to do with al-Qaeda. All this did was create a vast army of newly created enemies.

  Despite all these advantages, the military’s own analysis demonstrates that the Haymaker campaign was in many respects a failure. The vast majority of those killed in airstrikes were not the direct targets. Nor did the campaign succeed in significantly degrading al Qaeda’s operations in the region. When contacted by The Intercept with a series of questions regarding the Haymaker missions, the United States Special Operations Command in Afghanistan declined to comment on the grounds that the campaign — though now finished — remains classified.

   

  The secret documents obtained by The Intercept include detailed slides pertaining to Haymaker and other operations in the restive border regions of Afghanistan, including images, names, and affiliations of alleged militants killed or captured as a result of the missions; examples of the intelligence submitted to trigger lethal operations; and a “story board” of a completed drone strike. The targets identified in the slides as killed or detained represent a range of militant groups, including alleged members of the Taliban and al Qaeda — but also local forces with no international terrorism ambitions, groups that took up arms against the U.S after American airstrikes brought the war to their doorsteps.

  Brilliant. Just brilliant.

  The frequency which “targeted killing” operations hit unnamed bystanders is among the more striking takeaways from the Haymaker slides. The documents show that during a five-month stretch of the campaign, nearly nine out of 10 people who died in airstrikes were not the Americans’ direct targets. By February 2013, Haymaker airstrikes had resulted in no more than 35 “jackpots,” a term used to signal the neutralization of a specific targeted individual, while more than 200 people were declared EKIA — “enemy killed in action.”

   

  In the complex world of remote killing in remote locations, labeling the dead as “enemies” until proven otherwise is commonplace, said an intelligence community source with experience working on high-value targeting missions in Afghanistan, who provided the documents on the Haymaker campaign. The process often depends on assumptions or best guesses in provinces like Kunar or Nuristan, the source said, particularly if the dead include “military-age males,” or MAMs, in military parlance. “If there is no evidence that proves a person killed in a strike was either not a MAM, or was a MAM but not an unlawful enemy combatant, then there is no question,” he said. “They label them EKIA.” In the case of airstrikes in a campaign like Haymaker, the source added, missiles could be fired from a variety of aircraft. “But nine times out of 10 it’s a drone strike.”

   

  According to the documents, raids performed on the ground during Haymaker were far less lethal than airstrikes and led to the capture of scores of individuals. Research by Larry Lewis, formerly a principal research scientist at the Center for Naval Analyses, supports that conclusion. Lewis spent years studying U.S. operations in Afghanistan, including raids, airstrikes, and jackpots, all with an eye to understanding why civilian casualties happen and how to better prevent them. His contract work for the U.S. military, much of it classified, included a focus on civilian casualties and informed tactical directives issued by the top generals guiding the war. During his years of research, what Lewis uncovered in his examination of U.S. airstrikes, particularly those delivered by machines thought to be the most precise in the Pentagon’s arsenal, was dramatic.

   

  He found that drone strikes in Afghanistan were 10 times more likely to kill civilians than conventional aircraft.

  Recall the following from 2013:

  New Report: Drone Strikes 10x More Deadly to Civilians than Manned Aircraft

  “We assume that they’re surgical but they’re not,” Lewis said in an interview. “Certainly in Afghanistan, in the time frame I looked at, the rate of civilian casualties was significantly higher for unmanned vehicles than it was for manned aircraft airstrikes. And that was a lot higher than raids.”

   

  “When viewed from absolutely the wrong metric, the Americans were very successful at hunting people,” said Matt Trevithick, a researcher who in 2014 made more than a dozen unembedded trips to some of Kunar’s most remote areas in an effort to understand the province, and American actions there, through the eyes of its residents. The problem, he said, is that savvy, opportunistic strongmen maneuvered to draw U.S. forces into local conflicts, a dynamic that played out again and again throughout the war. “We knew nothing about who we were shooting at — specifically in Kunar,” Trevithick said. He understands the frustration of conventional U.S. forces who were dropped in places like Kunar. “I don’t blame them,” he said. “They’re put in an impossible situation themselves. But what happens is everyone starts looking like the enemy. And that means you start shooting. And that means people actually do become the enemy.”

  This is precisely why the Foundering Fathers warned us not to become involved in foreign entanglements. They are easy to start, far harder to get out of.

  After nearly a decade of war, thousands of operations, and thousands of deaths, some within the special operations community began to question the quality of the United States’ targets in Afghanistan. “By 2010, guys were going after street thugs,” a former SEAL Team 6 officer told the New York Timesrecently. “The most highly trained force in the world, chasing after street thugs.” Concerns that the U.S. was devoting tremendous resources to kill off a never-ending stream of nobodies did little to halt the momentum.

   

  Still, the documents’ assessment of Haymaker’s effectiveness was frank. A slide detailing the campaign’s “effects” from January 2012 through February 2013 included an assessment of “Objectives & Measures of Effectiveness.” The results were not good. Disruptions in al Qaeda’s view of northeastern Afghanistan as a safe haven and the loss of “key” al Qaeda members and enablers in the region were deemed “marginal.” Meanwhile, a comparison of Haymaker 1.0 (August 2011) with Haymaker 2.0 (February 2013) noted that al Qaeda faced “little to no local opposition” and enjoyed “relatively free movement” to and from Pakistan. Kinetic strikes, the slide reported, “successfully killed one [al Qaeda] target per year,” allowing the organization to “easily” reconstitute.

   

  Until recently, the ongoing conflict in Afghanistan had largely receded from public conversations in the U.S. This month, an American airstrike on a hospital run by the international organization Médecins Sans Frontières, offered a forceful reminder that the war, despite the Obama administration’s declaration in 2014, is far from over. Unleashed in the early morning hours of October 3, in the province of Kunduz, the U.S. attack killed at least a dozen members of the humanitarian group’s medical staff and 10 patients, including three children. A nurse on the scene recalled seeing six victims in the intensive care unit ablaze in their beds. “There are no words for how terrible it was,” the nurse said. MSF denounced the strike as a war crime and demanded an independent investigation.

  So how does Obama celebrate this war crime? By halting a withdrawal of troops from the country, announced today.

  Apparently, Obama wants to leave no hospital unbombed before retreating.

  The Kunduz attack underscored an ugly reality: After nearly a decade and a half of war, more than 2,300 American lives lost, and an estimated 26,000 Afghan civilians killed, the nature of combat in Afghanistan is entering a new, potentially bloodier, phase. In August, the United Nations reported that civilian casualties in Afghanistan “are projected to equal or exceed the record high numbers documented last year.” While most civilian casualties in the first half of 2015 were attributed to “anti-government” forces, 27 deaths and 22 injuries were attributed to airstrikes “by international military forces,” a 23 percent increase over last year, most of them, unlike the air raid in Kunduz, carried out by drones.

   

  Afghanistan’s northeastern border with Pakistan remains an active area of focus for the remaining U.S. special operations forces in the country. The Pech Valley, once a hotspot during the Haymaker campaign, continues to host a constellation of armed groups. Al Qaeda, the organization used to justify both the invasion of Afghanistan and the Haymaker campaign, reportedly enjoys a more pronounced presence in the valley than ever. “The al Qaeda presence there now,” according to a report by the United States Institute for Peace, “is larger than when U.S. counterterrorism forces arrived in 2002.”

   

  With JSOC and the CIA running a new drone war in Iraq and Syria, much of Haymaker’s strategic legacy lives on. Such campaigns, with their tenuous strategic impacts and significant death tolls, should serve as a reminder of the dangers fallible lethal systems pose, the intelligence community source said. “This isn’t to say that the drone program is a complete wash and it’s never once succeeded in carrying out its stated purpose,” he pointed out. “It certainly has.” But even the operations military commanders would point to as successes, he argued, can have unseen impacts, particularly in the remote communities where U.S. missiles so often rain down. “I would like to think that what we were doing was in some way trying to help Afghans,” the source explained, but the notion “that what we were part of was actually defending the homeland or in any way to the benefit of the American public” evaporated long ago. “There’s no illusion of that that exists in Afghanistan,” he said. “It hasn’t existed for many years.”

  6. Firing Blind by Cora Currier and Peter Maas

  A report last year by retired Gen. John Abizaid and former Defense Department official Rosa Brooks noted that the “enormous uncertainties” of drone warfare are “multiplied further when the United States relies on intelligence and other targeting information provided by a host nation government: How can we be sure we are not being drawn into a civil war or being used to target the domestic political enemies of the host state leadership?”

  Indeed, we know this happens all the time. Again, another reason to not get involved in micromanaging the affairs of other nations.

  In 2011, for example, U.S. officials told the Wall Street Journal that they had killed a local governor because Yemeni officials didn’t tell them he was present at a gathering of al Qaeda figures. “We think we got played,” one official said. (The Yemeni government disputed the report.)

  7. The Life and Death of Objective Peckman by Ryan Gallagher

  This one also needs an intro. It deals with a UK citizen who had his passport revoked before being killed in a drone strike in Somalia.

  Kat Craig, a lawyer with the London-based human rights group Reprieve, told me that she believed there was “mounting evidence” that the British government has used “citizenship-stripping” as a tactic to remove legal obstacles to killing people suspected of becoming affiliated with terrorist groups.

   

  “If the U.K. government had any role in these men’s deaths — including revocation of their citizenship to facilitate extra-judicial killings — then the public has a right to know,” Craig said. “Our government cannot be involved in secret executions. If people are accused of wrongdoing they should be brought before a court and tried. That is what it means to live in a democracy that adheres to the rule of law.”

   

  Since 2006, the British government has reportedly deprived at least 27 people of their U.K. citizenship on national security grounds, deeming their presence “not conducive to the public good.” The power to revoke a person’s citizenship rests solely with a government minister, though the decision can be challenged through a controversial immigration court. When cases are brought on national security grounds, they are routinely based on secret evidence, meaning the accusations against individuals are withheld from them and their lawyers.

   

  “The net effect of the practice,” according to Craig, is “not only to remove judicial oversight from a possible life and death decision, but also to close the doors of the court on anyone who seeks to expose some of the gravest abuses being committed by Western governments.”

   

  There have reportedly been at least 10 British citizens killed in drone attacks as part of a covert campaign that, between 2008 and 2015, has gradually expanded from Pakistan to Somalia and now to Syria. Most recently, in late August, Islamic State computer hacker Junaid Hussain, a former resident of Birmingham, England, was assassinated on the outskirts of Raqqa, Syria, by a U.S. strike. Several days earlier, in another attack near Raqqa, the U.K. government deployed its own drones for the first time to target British citizens, killing Islamic State recruits Ruhul Amin and Reyaad Khan while they were traveling together in a car.

   

  It remains unclear whether, like Berjawi and Sakr, these targets had their British passports revoked before they were killed. Stack, the Home Office spokesperson, would not discuss the citizenship status of Hussain, Amin, Khan, or other Brits killed by drones. “We don’t talk about individual cases and also we don’t comment on matters of national security,” he told me.

  Shouldn’t they have to prove these are matters of “national security” to the public. Otherwise, they can just constantly make shit up. Which seems to be what all governments habitually do. It’s in their DNA.

  8. Target Africa by Nick Turse

  This article details the ever increasing U.S. military presence in Africa.

  Since 9/11, a multitude of other facilities — including staging areas, cooperative security locations and forward operating locations — have also popped up (or been beefed up) in Burkina Faso, Cameroon, Central African Republic, Gabon, Ghana, Kenya, Mali, Senegal, South Sudan, and Uganda. A 2011 report by Lauren Ploch, an analyst in African affairs with the Congressional Research Service, also mentioned U.S. military access to locations in Botswana, Namibia, Sao Tome and Principe, Sierra Leone, Tunisia, and Zambia. According to Sam Cooks, a liaison officer with the Defense Logistics Agency, the U.S. military has struck 29 agreements to use international airports in Africa as refueling centers. These locations are only some of the nodes in a growing network of outposts facilitating an increasing number of missions by the 5,000 to 8,000 U.S. troops and civilians who annually operate on the continent.

   

  Africom and the Pentagon jealously guard information about their outposts in Africa, making it impossible to ascertain even basic facts — like a simple count — let alone just how many are integral to JSOC operations, drone strikes, and other secret activities. “Due to operational security, I won’t be able to give you the exact size and number,” Lt. Cmdr. Anthony Falvo, an Africom spokesperson, told The Intercept by email. “What I can tell you is that our strategic posture and presence are premised on the concept of a tailored, flexible, light footprint that leverages and supports the posture and presence of partners and is supported by expeditionary infrastructure.”

  If you search Africom’s website for news about Camp Lemonnier, you’ll find myriad feel-good stories about green energy initiatives, the drilling of water wells, and a visit by country music star Toby Keith. But that’s far from the whole story. The base is a lynchpin for U.S. military action in Africa.

   

  “Camp Lemonnier is … an essential regional power projection base that enables the operations of multiple combatant commands,” said Gen. Carter Ham in 2012, then the commander of Africom, in a statement to the House Armed Services Committee. “The requirements for Camp Lemonnier as a key location for national security and power projection are enduring.”

   

  Located on the edge of Djibouti-Ambouli International Airport, Camp Lemonnier is also the headquarters for Combined Joint Task Force-Horn of Africa (CJTF-HOA), which includes soldiers, sailors, and airmen, some of them members of special operations forces. The camp — which also supports U.S. Central Command (Centcom) — has seen the number of personnel stationed there jump around 450 percent since 2002. The base has expanded from 88 acres to nearly 600 acres and has seen more than $600 million already allocated or awarded for projects such as aircraft parking aprons, taxiways, and a major special operations compound. In addition, $1.2 billion in construction and improvements has already been planned for the future.

   

  As it grew, Camp Lemonnier became one of the most critical bases not only for America’s drone assassination campaign in Somalia and Yemen but also for U.S. military operations across the region. The camp is so crucial to long-term military plans that last year the U.S. inked a deal securing its lease until 2044, agreeing to hand over $70 million per year in rent — about doublewhat it previously paid to the government of Djibouti.

  All of that money spent in Africa, while the citizens struggle back home and the middle class evaporates. This is the true cost of empire.

  One of the things I learned during my decade on Wall Street was the importance of management skills. Fortunately for me, most of my managers were exceptionally competent and knew how to deal with someone like me. A good manager doesn’t micromanage his or her people. A good manager is someone who viscerally understands people and can get the best out of each individual employee based on what makes them tick. They never employ a one size fits all approach.

  The worst type of manager is a micromanager. Everyone hates a micromanager, and that’s essentially what U.S. leadership does around the world. They are a bunch of middle management, micro-manager types pulling the strings of the strongest military on earth. The results of their incompetence and lack of wisdom are all around you.

  We as American citizens shouldn’t put up with it.

  *  *  *

  For related articles, see:

  Further Details Emerge on the Epic U.S. Foreign Policy Disaster that is Syria

  KKR Employee and Former CIA Head, General David Petraeus, Suggests Supporting al-Qaeda Against ISIS

  Additional Details Emerge on How U.S. Government Policy Created, Armed, Supported and Funded ISIS

  America’s Disastrous Foreign Policy – My Thoughts on Iraq

  Afghan President Hamid Karzai Slams U.S. Foreign Policy in Farewell Speech

  “Stop Thanking Me for My Service” – Former U.S. Army Ranger Blasts American Foreign Policy and The Corporate State

  More Foreign Policy Incompetence – U.S. Humanitarian Aid is Going Directly to ISIS

  Turkey Bombs Kurds Fighting ISIS, Then Hires Same Lobbying Firm Supporting U.S. Presidential Candidates

  How the Policies of U.S. Ally Egyptian Dictator, Abdel Fattah al-Sisi, Have Led to a Surge in ISIS Recruitment

  Accusations Emerge That the U.S. Is Aiding ISIS – The Latest “Conspiracy Theory” Circulating in Iraq

  The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

   

  

  

  

  

  

• Over 5 Million Non-Existent Jobs: How $1.3 Trillion In Student Debt Broke The "Birth/Death Adjustment" Model

  One of the main reasons why the BLS has been massively overestimating job creation ever since great financial crisis, is due to the well-known birth-death adjustment, aka the CES Net Birth/Death Model, which quantitatively is shown on the chart below, has resulted in the “addition” of some 5.3 million jobs, that don’t actually exist, but are merely modeled by the BLS which continues to assume the same new business creation/destruction dynamics that existed before the crisis.

  

   

  The is a big problem with this core assumption, which has follow through effects not only for domestic fiscal policy, but also monetary policy (and explains why despite a 5.1% unemployment, there is zero wage growth, thus keeping the Fed pushing the ZIRP accelerator pedal years later), for the simple reason that as of this moment it is dead wrong.

  Here is what Gallup CEO, Jim Clifton, wrote several months ago looking at the trends in new business creation and destruction in the US.

  We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

   

  The U.S. Census Bureau reports that the total number of new business startups and business closures per year — the birth and death rates of American companies — have crossed for the first time since the measurement began. I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.

  As Clifton adds “you may not have seen this graph before” and for good reason: it destroys the most sacred assumptions held by the BLS’ cubicled actuaries and various tenured economists locked up in their ivory towers: namely that the number of US business startups outnumbers the number of failures. This is no longer true!

  

   

  Here is what the above chart shows: until 2008, startups outpaced business failures by about 100,000 per year. But in the past six years, that number suddenly turned upside down. There has been an underground earthquake. As you read this, we are at minus 70,000 in terms of business survival. The data are very slow coming out of the U.S. Department of Census, via the Small Business Administration, so it lags real time by two years.

  Gallup adds that business startups outpaced business failures by about 100,000 per year until 2008. But in the past six years, that number suddenly reversed, and the net number of U.S. startups versus closures is minus 70,000.

  

   

  So what is causing this historic shift in US business creation.

  The are various answers, the most obvious of which is that the US never actually left the 2007 depression, whose effects continue to be papered over, literally, with some $13 trillion in global central bank liquidity, which have made life for the richest 0.1% better than ever at the expense of the middle class. 

  But the biggest culprit is also the one which over the past 7 years has become America’s latest credit bubble, last check rising to $1.3 trillion in debt: student loans.

  This is what Gallup finds when looking at the future of collapsing U.S. new business formation:

  … the country can’t look to people coming out of college to reverse this trend because too many of them are strapped by student loan debt. Results of the 2015 Gallup-Purdue Index — a study of more than 30,000 college graduates in the U.S. — provide a worrisome picture of the relationship between student loan debt and the likelihood of graduates starting their own businesses.

   

  Among those who graduated between 2006 and 2015, 63% left college with some amount of student loan debt. Of those, 19% say they have delayed starting a business because of their loan debt. That percentage rises to 25% for graduates who left with more than $25,000 in student loan debt. According to the National Center for Education Statistics, nearly 16.9 million bachelor’s degrees were conferred in the U.S. over the past 10 years — a time frame that mirrors Gallup-Purdue Index analysis of recent graduates between 2006 and 2015.

  Putting these sad statistics into numbers, Gallup calculates that over 2 million graduates have said they have delayed starting a business because of their student loan debt. If even a quarter of them had done so, we would quickly recoup our average surplus of 120,000 new businesses annually.

  It would also mean that the BLS’s Birth/Death model would once again be accurate. However, as a result of record student debt, which is increasing at an accelerating pace of over $100 billion per quarter, not only is the birth/death adjustment wrong, but its “contribution” to the total number of jobs should be inverted.

  Which, incidentally, would reflect far more accurately the woeful state of the US labor market.

  Finally, we know we are spot on right with our assessment that student debt has become the primary culprit holding back the jobs (and businesses) recovery, because two days ago none other than Ben Bernanke said Bthat “student debt no threat to U.S. financial system.”

  And that is all you need to know why the biggest threat to the US financial system is none other than student debt (after the Federal Reserve itself, of course).

  

  

  

  

  

• Mapping An Ungoverned World

  For those paying attention, you might have noticed that the world seems to be getting more and more ungovernable of late. 

  There are a variety of reasons for this – not the least of which is that in some states, outside governments are conspiring to destabilize regimes – but the phenomenon is manifesting itself across the globe.

  There is of course Syria, where a hodgepodge of rebels, militant groups, and extremists are battling to wrest control of the country from Bashar al-Assad. To quote Ban Ki-moon, there are parts of the country that one might imagine resemble “the worst circle of hell.” 

  There’s also Yemen, another theatre for the Mid-East proxy war between Iran and Saudi Arabia, where the fight between Shiite militiamen and a Saudi-backed alliance that includes the UAE and Qatar has cost countless innocent lives and destroyed parts of Sana’a, a UNESCO world heritage site. 

  And how about Burkina Faso, the landlocked, West African nation which has seen more than its share of coups and countercoups over the past 12 months. 

  And then Libya, another US foreign policy "success" story.

  It is of course difficult to catalogue all of the cases where, for whatever reason, states become failed states, or where large swaths of territory become ungovernable, but Bloomberg has taken a shot at it.

  We present a few examples of what is truly a sweeping infographic below and encourage you to check out the entire presentation here.

  

  

  

  

  

  

  

  

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• Government Corruption Tops List of Americans’ Fears

  Time reports:

  Corruption of government officials is currently Americans’ number one fear, according to a recent survey by researchers at Chapman University.

   

  The researchers asked a random sample of 1,541 adults to rate the level of fear for 88 different fear options across a variety of domains (like crime and natural disasters). Based on their findings, here were the top 10 fears for 2015:

  • Corruption of government officials (58.0%)
  • Cyber-terrorism (44.8%)
  • Corporate tracking of personal information (44.6%)
  • Terrorist attacks (44.4%)
  • Government tracking of personal information (41.4%)
  • Bio-warfare (40.9%)
  • Identity theft (39.6%)
  • Economic collapse (39.2%)
  • Running out of money in the future (37.4%)
  • Credit card fraud (36.9%)

  Last month, Gallup found that 75% of Americans said they believe corruption is widespread in the government (up from 66% percent in 2009).

  Also last month, Gallup found that a record low 38% of Americans trust the government to handle domestic problems. And half of Americans think that the government is an immediate threat to us.

  We at Washington’s Blog are non-partisan and non-dogmatic. We don’t believe that government is inherently good or inherently bad.  We instead believe that each government has to be analyzed to determine its degree of honesty or corruption.

  Unfortunately, it is T-H-O-R-O-U-G-H-L-Y documented  that systemic corruption has destroyed America … as admitted by politicians on both sides of the political aisle.

  (Sadly, America is not alone … governments worldwide are sliding down into mud pits of corruption.)

  Postscript:  Mainstream politicians and media are trying to browbeat Americans into trusting our government more. For example, Time Magazine tries to make fun of Americans who don’t trust the government … by comparing them to people who believe in  aliens and the paranormal.

  Likewise, Obama frequently chides Americans for distrusting their government.

  But we Americans don’t trust our government because our government has repeatedly demonstrated through its actions that it is corrupt and untrustworthy.

  

  

  

  

• Hilsenrath 'No Rate Hikes In 2015' Hint Sparks Buying Panic In EM FX And Japanese Stocks

  Between the plunging market-implied rate-hike probabilities and Fed-Whsiperer Jon Hilsenrath's WSJ piece this evening strongly hinting at no hikes in 2015, the 'relief' rally in Asian FX (and Japanese stocks) is – in a word – insane. If the world's central banks mandates are "price stability" in whatever format they believe that to manifest, they have well and truly failed. The Won has jumped most since 2011, Ringgit and Rupiah are soaring over 2%, and Nikkei 225 is up over 400 points from the US session close…

  The rate-hike odds are collapsing…

  

   

  And as WSJ's Hilsenrath notes, confirming the market's bias…

  The chances of a Federal Reserve interest-rate increase in 2015 are diminishing amid new signs of anemic economic activity, a disappointing development for central bank officials who have been hoping to move this year after a prolonged period of easy-money policies.

   

  Lackluster readings on consumer spending, inflation and jobs have virtually eliminated the chances of a move this month. Already, two Fed governors expressed doubts this week about whether the timing will be right this year, and the recent trove of data hasn’t reassured top officials about the economic outlook.

  Sparking panic buying in Nikkei 225…

  

   

  But EM FX is soaring against the USD…

  

   

  As the following chaos shows…

  • *KOREAN WON SET FOR BIGGEST GAIN VS DOLLAR SINCE NOV. 2011

  

   

  We would note though that the USD weakness is starting to stall out any BoJ-hope-strewn JPY weakness which supports the world's equity markets…

  

   

  Between the pace of hot money flows and illiquidity, the yo-yo-ing "markets" are as fragile as anything we have seen since Lehman.

   

  Charts: Bloomberg

  

  

  

  

  

• Meet Allen Dulles: The "Psychopath" Who Created America's Modern Shadow Government

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Allen Dulles, the CIA director under presidents Eisenhower and Kennedy, the younger brother of Secretary of State John Foster Dulles, and the architect of a secretive national security apparatus that functioned as essentially an autonomous branch of government. Talbot offers a portrait of a black-and-white Cold War-era world full of spy games and nuclear brinkmanship, in which everyone is either a good guy or a bad guy. Dulles—who deceived American elected leaders and overthrew foreign ones, who backed ex-Nazis and thwarted left-leaning democrats—falls firmly in the latter camp.

   

  But what I was really trying to do was a biography on the American power elite from World War II up to the 60s. That was the key period when the national security state was constructed in this country, and where it begins to overshadow American democracy. It’s almost like Game of Thrones to me, where you have the dynastic struggles between these power groups within the American system for control of the country and the world…

   

  Absolutely. The surveillance state that Snowden and others have exposed is very much a legacy of the Dulles past. I think Dulles would have been delighted by how technology and other developments have allowed the American security state to go much further than he went. He had to build a team of cutthroats and assassins on the ground to go around eliminating the people he wanted to eliminate, who he felt were in the way of American interests. He called them communists. We call them terrorists today. And of course the most controversial part of my book, I’m sure, will be the end, where I say there was blowback from that. Because that killing machine in some way was brought back home.

   

  – From the Mother Jones article: You Think the NSA Is Bad? Meet Former CIA Director Allen Dulles

  Many of you will be intimately familiar with the name Allen Dulles. Younger readers, of my generation or below, will be far less so. It is precisely because the youth of this nation remain so ignorant of the nefarious characters in America’s past, that David Talbot’s recently published book, The Devil’s Chessboard: Allen Dulles, the CIA, and the Rise of America’s Secret Government, is so incredibly important.

  Mr. Talbot has been recently conducting invaluable interviews about the book with various media organizations. One of the best I’ve seen is with Mother Jones. Here’s some of what he had to say about America’s longest serving CIA director:

  But what I was really trying to do was a biography on the American power elite from World War II up to the 60s. That was the key period when the national security state was constructed in this country, and where it begins to overshadow American democracy. It’s almost like Game of Thrones to me, where you have the dynastic struggles between these power groups within the American system for control of the country and the world.

   

  I focused on those elements that I thought were important to understanding him. I thought other books covered that ground fairly well before me. But what they left out was the interesting nuances and shadow aspects of Dulles’s biography. I think that you can make a case, although I didn’t explicitly say this in the book, for Allen Dulles being a psychopath.

   

  They’ve done studies of people in power, and they all have to be, to some extent, on the spectrum. You have to be unfeeling to a certain extent to send people to their death in war and take the kind of actions that men and women in power routinely have to take. But with Dulles, I think he went to the next step. His own wife and mistress called him “the Shark.” His favorite word was whether you were “useful” to him or not. And this went for people he was sleeping with or people he was manipulating in espionage or so on. He was the kind of man that could cold-bloodedly, again and again, send people to their death, including people he was familiar with and supposedly fond of.

   

  There’s a thread there between people like Dulles up through Dick Cheney and [Donald] Rumsfeld—who was sitting at Dulles’s knee at one point. I was fascinated to find that correspondence between a young Congressman Rumsfeld and Allen Dulles, who he was looking to for wisdom and guidance as a young politician.

   

  Absolutely. The surveillance state that Snowden and others have exposed is very much a legacy of the Dulles past. I think Dulles would have been delighted by how technology and other developments have allowed the American security state to go much further than he went. He had to build a team of cutthroats and assassins on the ground to go around eliminating the people he wanted to eliminate, who he felt were in the way of American interests. He called them communists. We call them terrorists today. And of course the most controversial part of my book, I’m sure, will be the end, where I say there was blowback from that. Because that killing machine in some way was brought back home.

  How about Dulles’ role in the assassination of JFK? Talbot pulls no punches here either…

  To me it’s one of the greatest examples of media incompetence and negligence in American history. I even confronted Ben Bradlee about this, who was probably JFK’s closest friend in the Washington press corps and wrote a book all about JFK and their close friendship. “Why didn’t you, with your investigative resources, try to get [to] the bottom of it?” You should read what he says in Brothers, but basically it came down to, “Well, I thought it would ruin my career.”

   

  I think I have studied this about as much as anyone in my generation at this point, and my final conclusion after 50 years was we have to go there, we have to look at the fact that there’s a wealth of circumstantial evidence that says not only was there, at the highest level, CIA involvement. Probably in the assassination cover-up. But beyond the CIA, because the CIA wouldn’t have acted on its own.

  But the CIA are good guys now. Or so the propagandized American public believes…

  Now check out David’s interview with Amy Goodman of Democracy Now:

  

  

  

  

  

• America #1? 36 Facts That Prove That The United States Is An 'Exceptional' Nation

  Submitted by Michael Snyder via The End of The American Dream blog,

  Is the United States an “exceptional” nation?  Well, the facts show that we are, but not for the reasons that you may think.  Now that it is election season, we have all sorts of politicians running around proclaiming that America is the greatest nation on the entire planet.  And just this week, Warren Buffett stated that “America’s great now — it’s never been greater“.  But is it actually true?  Is the United States still a great nation? 

  I would submit that the numbers suggest otherwise.  I love America, and in my opinion there is not much hope for us until we are willing to admit to ourselves just how far we have fallen.  The following are 36 facts that prove that the United States is an “exceptional” nation…

  #1 According to a brand new report that was just released by the Organization for Economic Cooperation and Development, the United States has the fattest population in the entire industrialized world by a wide margin.

  #2 That same report from the OECD also found that we are number one in child obesity.  In fact, at 38 percent our rate of childhood obesity is even higher than our overall rate of obesity.

  #3 According to USA Today, the obesity rate in the United States has more than doubled over the past 25 years.

  #4 The Washington Post has reported that Americans spend an average of 293 minutes a day watching television, which is the most in the world by a wide margin.   And as I have discussed previously, more than 90 percent of the “programming” that we absorb is created by just 6 enormously powerful media corporations.

  #5 One study found that the average American spends more than 10 hours a day using some sort of electronic device.

  #6 By the time an American child reaches the age of 18, that child will have seen approximately 40,000 murders on television.

  #7 The average young American will spend 10,000 hours playing video games before the age of 21.

  #8 Out of 22 countries studied by the Educational Testing Service, Americans were dead last in tech proficiency, dead last in numeracy and only two countries performed worse than us when it came to literacy proficiency.

  #9 In more than half of all U.S. states, the highest paid public employee in the state is a football coach.

  #10 The percentage of wealth owned by middle class adults is lower in North America than it is anywhere else in the world.

  #11 Almost half of all Americans (47 percent) do not put a single penny out of their paychecks into savings.

  #12 It turns out that Americans are very good at locking people away in prison.  At 716 per 100,000 members of the population, the United States has the highest incarceration rate on the entire planet by a very wide margin.

  #13 Approximately one-fourth of the entire global prison population is in the United States.

  #14 In 2014, police in the United States killed 1,100 people.  During that same year, police in Canada killed 14 people, police in China killed 12 people and police in Germany didn’t kill anyone at all.

  #15 One recently published study found that one out of every six young Americans has stolen something during the past year.

  #16 There are more car thefts in the United States than anywhere else in the world by far.

  #17 According to Fox News, approximately 70 percent of married men in the United States admit to having cheated on their wives.

  #18 Americans spend far more on health care than anyone else in the world, and yet we only rank 26th in life expectancy and our entire health care system has been transformed into a giant money making scam.

  #19 According to a study conducted by the Mayo Clinic, nearly 70 percent of all Americans are on at least one prescription drug, and an astounding 20 percent of all Americans are on at least five prescription drugs.

  #20 According to the U.S. Department of Agriculture, 31 percent of all food in the United States gets wasted.  In case you were wondering, that amounts to approximately 133 billion pounds of food a year.

  #21 In 2013, women earned 60 percent of all bachelor’s degrees that were awarded that year in the United States.

  #22 A survey conducted by the Barna Group discovered that 77 percent of Christian men in America in the 18 to 30-year-old age bracket view pornography at least monthly.

  #23 There are more than 4 million adult websites on the Internet, and they get more traffic than Netflix, Amazon and Twitter combined.

  #24 70 percent of Americans do not “feel engaged or inspired at their jobs”.

  #25 When LBJ’s “War on Poverty” began, less than 10 percent of all U.S. children were growing up in single parent households.  Today, that number has skyrocketed to 33 percent.

  #26 In 1950, less than 5 percent of all babies in America were born to unmarried parents.  Today, that number is over 40 percent.

  #27 According to the Centers for Disease Control and Prevention, there are 20 million new cases of sexually-transmitted disease in the United States each year.

  #28 Today, the United States has the highest STD infection rate in the entire industrialized world.

  #29 According to a survey that was just released within the last 30 days, only 29 percent of Americans want to cut off federal funding for Planned Parenthood even after all of the shocking undercover videos that were released this year.

  #30 America has the highest rate of illegal drug use on the entire planet.

  #31 Doctors in the United States write more than 250 million prescriptions for antidepressants each year.

  #32 One survey of 50-year-old men in the U.S. found that only 12 percent of them said that they were “very happy”.

  #33 Every single year, the United States has the largest trade deficit in the entire world by a very wide margin.  But most Americans still don’t seem concerned that thousands of businesses and millions of good jobs have been leaving our country.

  #34 As you read this article, there are 102.6 million working age Americans that do not have a job.

  #35 We are supposed to have a government “of the people, by the people, for the people”, but only 25 percent of all Americans know how long U.S. Senators are elected for (6 years), and only 20 percent of all Americans know how many U.S. senators there are in total.

  #36 On average, we have been stealing more than 100 million dollars from future generations of Americans every single hour of every single day since Barack Obama entered the White House.

  

  

  

  

  

• China's Other Big Problem: 35 Applicants For One White Collar Job

  Over a year ago, the world’s most influential and central-banker spawning FDIC-backed hedge fund, Goldman Sachs, proudly revealed that despite 6 consecutive years of revelations of bank rigging, manipulation, fraud, bailout, crime and so on, there was no other job that the world’s most ambitious young people wanted to do more:

  As an investment bank, our main asset is our people and the advice and solutions that they provide to our clients. Great people build great relationships. And, we are fortunate to have a diverse group of young people from around the world who continue to view Goldman Sachs as a great place to begin and sustain their careers. For our latest analyst class, more than 43,000 candidates applied for 1,900 positions. We accepted about four percent of those applicants and of those receiving offers, more than 80 percent accepted.

  Or, as Lloyd Blankfein would proudly calculate, 23 applicants for every job opening.

  According to that logic, if working at Goldman is about as prestigious as it gets, then we know a job – based on unprecedented demand – that is even more prestigious: your average white-collar job in China, for which there were a record 35 application in the third quarter.

  Indeed, in the world’s most populous communist country where jobs used to be guaranteed – by definition – to anyone, in any walk of life, it has suddenly become next to impossible to progress up the career ladder, something which will result in great social angst and instability in the coming years.

  According to China Daily, competition for white-collar jobs became fiercer in the third quarter, with more than 35 job seekers contending for the same position on average. This is a jump from 26 and 29 in the first and second quarters this year, a Chinese human resources website said on Tuesday.

  The Daily cites Zhaopin.com’s third-quarter jobs report for white-collar workers, which  showed that demand for talent was shrinking with the slowdown of China’s economic growth. At the same time, more such workers were considering changing jobs, leading to more competition among job hunters, especially those in Northeast China and in second-tier cites.

  In Zhaopin’s competition index for major cities, Shenyang and Dalian, both in Liaoning province, and Changchun, Jilin province – all in Northeast China – ranked first, fourth and eighth.

  Zhu Hongyan, chief career consultant for the website, said that “the changing economic structure affects certain traditional careers. The need for professionals in certain fields declined, and some even disappeared.” Hongyan added that “Workers in these industries are forced to seek career opportunities in other ones, increasing competition in the market for job seekers.”

   

  Moreover, second-tier cities such as Chengdu, Sichuan province, Suzhou, Jiangsu province, Xi’an, Shaanxi province, and Tianjin are all among the top 10 cities with the most competitive job market.

   

  Beijing ranked ninth, while Shanghai ranked 18th.

   

  Zhu, the career consultant, said the trend of white collar workers shifting their jobs to fast-developing second-or third-tier cities has become more prominent because of the high pressures of working and living in larger cities, deteriorating environments and restrictions on cars and housing.

   

  “Regional preferential policies have helped second-and third-tier cities attract overflow industries and companies from the overcrowded metropolises, which have their own restrictions such as limited land and other resources,” Zhu said.

  “However, second-and third-tier cities do not have the same mature economic structure and industries as the metropolises,” added Zhu. “So not all job seekers can find satisfactory jobs.”

  And with 35 applicants for any one job, that is precisely what is happening.

  Worse, due to surging labor market competition and the drop of vacant positions for which there is demands – usually at the best paid positions in the labor chain – wages are about to tumble as employers realize they can pay anything they want: after all if someone quits, there are 34 other workers happy to replace him.

  This has two major impllcations:

  • first, with wages set to drop, yet another source of deflation is about to be unveiled;
  • second, as China’s economic collapse leads to increasingly less job opening , it inevitably means that social tensions and violence are set to rise in a country which see the migration of tens of millions of people from the heartland to the coastal cities.

  Finally, all those conflicting forecasts in 2011 that China may or may not hit wage parity with the US some time in 2016, well – we now know the answer: China may have reached its Lewis point, but now that the economy is on its way to a crash landing, it has solidly gone into reverse.

  (for those asking what China’s first problem is, well there are many to choose from, but if given just one option, we would repeat what we said last night when we reported that “CLSA Just Stumbled On The Neutron Bomb In China’s Banking System” – the country’s trillion in non-performing loans which nobody is talking about just yet).

  

  

  

  

  

• Market Cycles And Collisions In A Non-Linear World

  Submitted by Keith Dicker of IceCap Asset Management, October 2015 letter to Clients

  Newsflash

  Newsflash # 1: A few short weeks ago, Canada’s self-proclaimed biggest and best bank told clients: “much of the negative news from Europe is firmly rooted in the past” and that there is “more potential for upside for markets.”

  Result: European Stocks subsequently declined -13.5%

  Newsflash # 2: America’s biggest and best bank bragged: “global developed market equities should remain attractive”.

  Result: Global Stocks subsequently declined -11.3%

  Newsflash # 3: Britain’s biggest and best bank was all squiffy over markets, proclaiming: “Economic growth is gaining momentum” and “overall, we continue to prefer risk assets such as equities, high yield credit and EM debt.”

  Result: Global stocks subsequently declined -11.3%, High Yield Bonds subsequently declined -4.7%, and Emerging Market Debt subsequently declined -3.2%

  By now, most people are once again painfully aware that stocks, high yield bonds and emerging market bonds can actually go down as well as up. For stock investors, it has been a brutal 5 weeks with most markets dropping -10% or more.

  As a reminder, a -10% decline needs a +11.1% rebound to get back to where you started. Or from a more serious perspective, a -50% decline needs a +100% rebound to get back to where you started.

  The reason we share these very simple and obvious mathematical facts is due to the following intelligent investment insight: avoiding and limiting downside losses is a crucial aspect of investment management.

  Yet, as you can see from the market wisdom from the biggest Canadian, American and British banks – they completely ignore this very simple rule of investing.

  Instead, millions of investors are constantly bombarded with the seemingly innocuous market wisdoms:

  1. Buy the dip
  2. Invest for the long term
  3. Know your time horizon
  4. Invest regularly 

  And in our opinion, this is a real shame – a very, real shame. There certainly are times when these are words of wisdom. But, there are also times when they are not.

  By now, clients, non-clients, and peers are all familiar with our big view of the World. Our experience, perspective and research continues to conclude that global financial markets, the global economy and government fiscal balances are all converging to make everyone’s investment experience very different than that painted by the very big banks.

  Yet, the big banks continue to shamefully respond as if all is well. Considering the fact that central banks have kept interest rates at 0% for 7 years and the global economy continues to decline is the clearest of clear messages that the financial World isn’t quite right.

  And if that isn’t clear enough, just know that now many countries have begun to implement NEGATIVE interest rates to help stimulate their economies.

  Yet, we rarely read or hear any of these facts from the big banks. This of course can mean several things – none of which are complimentary:

  1 – the big banks feel the average investor isn’t intelligent enough to understand what is happening

  2 – the big banks cannot articulate the true state of the money World to their millions of clients

  3 – the big banks truly believe all is well, and that the World will always see a few bumps every now and then.

  As we all know, investment managers will ALWAYS make a few wrong decisions – it’s inevitable. Managing other people’s wealth can be a stressful responsibility. The good times are awesome. The bad times, not so much.

  However, if anyone has any aspirations to be an investment manager – this is THE most perfect time to realise your dream.

  Let us explain why.

  As of today, 100,000s of investment professionals around the World are following the age-old adage of buy and hold, buy the dip, stocks always outperform bonds, and never invest in currencies.

  Just steer the course and you’ll be fine, just fine.

  Unless of course, the ship you are in doesn’t have a rudder, a mast, a jib, a boom, a tiller or a keel. In truth, these ships are not really investment managers at all, instead they are asset gatherers.

  The difference being is that real investment managers are very focused on making investment decisions to preserve your capital during volatile times, while growing your capital during the good times.

  Asset gatherers on the other hand, are very focused on winning new clients and receiving new money to manage – after all, investment management IS a business.

  At these firms, the focus is on marketing and sales. They razzle and dazzle you with very nice commercials, brochures and presentations, as well as a splendid array of investment options.

  Yet, if you open your eyes and ears just enough, you’ll notice the difference and it mainly starts with investing for the long-term, buy and hold, and invest regularly – sadly, it ends the same way as well.

  In other words – investors hear the same old story, time and time again. This would be perfectly acceptable IF we lived in a linear World.

  The problem of course is that we DO NOT live in a linear World.

  While it is human nature to think and expect along linear lines, our World just doesn’t work that way. Instead, everything moves in cycles, some short and shallow, while other cycles are long and deep.

  What we are experiencing today is the likely turning point in a very long cycle of borrowing, borrowing and then borrowing some more.

  The capacity to borrow has reached the limit for many, yet our governments and central banks are desperate to keep the party going. Yes, despite foggy heads, tired legs and full bellies; governments and central banks continue to pour more drinks, dish out more food, all while playing even louder music.

  In some ways, the real question to ask your mutual fund sales person is whether the party has ended or is it just getting started?

  The real difference between the investment managers and asset gatherers is in their ability to truly understand market conditions, identify the key driving points, reposition your strategies and then to easily communicate the entire process.

  Let’s be honest here – the calm sailing and the good times ended in March 2000. That was the end of the most beautiful simultaneous bull market in both stocks and bonds ever known to mankind.

  For 18 stunning years prior to March 2000, financial markets everywhere, charmed everyone into believing that life as an investment manager was as difficult as a sail into a gentle, onshore breeze.

  And considering markets produced an average annual return of +15%, how could anyone not be happy?

  This was the way life should be.

  However, since March 2000, stocks plummeted -50%, then soared +100%, then crashed -56%, only to zoom +215%.

  So since March 2000, 16 years of buying the dip, investing for the long-term, knowing your time horizon, diversifying your portfolio, and investing regularly netted you a handsome annual return of +2%.

  This wasn’t the way life should be.

  So which is it? Do you expect stocks to always perform like they did from 1982 to 2000? Or, do you expect stocks to perform like they did from 2000 to 2015?

  Judging by their investment commentary, the big banks obviously believe in the 80-90s era. In reality however, the big banks believe in gathering your assets, and investing for the long-term, buying the dip…

  Collision Time

  Make no doubt about it – our economy and our debt loads have created a very uncomfortable environment for those in governments and central banks.

  Over the years, individuals, companies and governments of all kinds have borrowed to their hearts content. Subsequently, all of this borrowing gushed new money into our economies and swirled around, around and around.

  The good times became so great, they turned awesome.

  Politicians promised a chicken in every pot – yet, by borrowing and borrowing they delivered entire farms to their voters.

  Companies promised steady hours with steady pay – yet they delivered more jobs, more pay and more pensions.

  Not to be outdone, individuals goosed the system too, and enjoyed golden eggs year after year after year.

  It happened during the hippy-days of the 60s, and during the disco-days of the 70s. Of course, bumps also happened during the metal-days of the 80s and then again during the grunge-days of the 90s. Then American Idol took over and all was lost – well, all except the ineffective vision of our leading central bankers and government treasuries.

  While some people began their careers in the 1970s, even more started their investment careers in the 1980s; with more still in the 1990s and 2000s.

  Worse still, many of today’s investment young guns started their careers after the 2008 crisis.

  We share this perspective because every market expert today draws upon their years of wisdom to make very important investment decisions for you, your family and your pension plans.

  This would be great if everyone lived to be 300 years old and shared this much longer, and much richer experience with the World.

  Instead, our minds are trapped within a very narrow place in time which limits our ability to think and see things from a much broader and clearer perspective.

  Today, we have 3 enormously important market drivers steam rolling towards each other and when they collide, the distortions will be leave everyone dazed, confused, asking questions – and demanding answers.

  Sadly, the answers will be completely unsatisfying entirely due to an industry focused on linear thinking and obsessed with gathering assets. Fortunately, the key to understanding why the World has reached a precarious point in time is actually quite easy to achieve – just shed your mind of your tunnel visions and linear thinking, and open it to a World that is crystal clear.

  For starters, knowing and accepting that every market, every economy, and every society is interconnected will allow you to understand the events that are unfolding around us.

  Next, ignore the drivel from the talking heads and asset gathering machines. Then, know that every single time our World has experienced an economic bump, our governments and centrals always responded by:

  1) Borrowing more money to spend on special projects

  2) Cutting interest rates to make it cheaper for individuals and companies to borrow

  The result of 1) and 2) would be more money pumped into our economies which would inevitably help us recover from the little bumps.

  This happened like clock work in the 60s, 70s, 80s, 90s, and 2000s. Unfortunately, this clock has suddenly become broken. Yes, broken clocks are correct twice a day, but right now our global financial World is over 11 figurative hours away from that effusive goal.

  Over 60 years of borrowing and 35 years of cutting interest rates has left us with the mess we have today:

  1) Excessive debt loads for practically EVERY country

  2) ZERO and NEGATIVE interest rates

  Collision Time

  Linear thinkers not only see these as two separate market dynamics, but they also view it as two markets factors within every single, separate country and market.

  To proclaim that Greece doesn’t matter is tunnel vision.

  To believe China is an economic miracle is gullible.

  To conclude that lower interest rates and money printing will create a better World is pretty weak.

  Instead, we’ll show you how to liberate your mind and see the World as one continuous flowing market, where capital, ideas and innovation always seeks safety and avoids excessive risks and losses.

  We cannot stop what is coming, however if you escape the traps caused by linear thinking, the opportunity for your own personal schadenfreude is right around the corner.

  And it all starts with a collision:

  

   

  Here comes the recession

  Recently someone told us that if everyone simply acted with more optimism, then all of this gloom and doom would disappear.

  In one way, this is 100% correct. Positive thinking is great for a positive economy which leads to positive everything – more jobs, more bonuses, more raises, and more spending, and then rinse and repeat.

  Yet, all of this optimism can only carry an economy so far. Eventually mathematics take over, and soon thereafter one realises positive thinking doesn’t automatically give you a new job with more bonus, more raises which creates more spending.

  It’s funny how the loss of a bonus, or worse still, the loss of a job really affects the ole’ optimism gene by affecting it with something very different – pessimism.

  Suddenly, that vacation in Europe becomes a stay-cation. That new dream kitchen remains a distant dream. And the weekly eat-outs, turn into home pizza night (not that there’s anything wrong with home pizza night).

  As you can see, eventually mathematics always trumps optimism and pessimism too for that matter. Unfortunately, today’s market cycle – has the World sliding downwards and not upwards. Eventually the day will come when the opposite is happening, but we have to slump into the financial valley first – that’s just the way it works.

  * * *

  Continue reading in the full letter below:

   

  
  

  

  

  

  

  

• What Has Generated Alpha This Year?

  It only makes sense in this "good news is bad news" market that the best outperformance this year has been achieved by being ultimately contrarian and fading the crowd. As BofAML warns, 2015 is another year of position-driven alpha as selling the 10 most-overweight stocks held by active managers and buying the 10 most-underweight stocks crated a stunning 17 percentage point spread this year…

   

  

   

  BofAML sees risk this positioning trade continues.

  Consultants may be helping to perpetuate it, given they have honed in active share as a key metric for fund managers, which has forced managers into a crowded subset of similar holdings (typically smaller, more idiosyncratic stocks).
   

  

  

  

  

  

• World's Largest Leveraged ETF Halts Orders, Citing "Liquidity Constraints"

  First The Bank of Japan destroyed the Japanese bond market, and then, back in May we warned that The Bank of Japan had 'broken' the stock market. Now, it appears the all too obvious consequences of being the sole provider of buying power in an antirely false market are coming home to roost as Nomura reports the "temporary suspension" of new orders for 3 leveraged ETFs – the largest in the world – citing "liquidity of the underlying Nikkei 225 futures market."

  

  Source: Nomura

  As Bloomberg reported previously on Nomura's funds,

  Money is being shredded at an unprecedented rate in a souped-up exchange-traded fund tied to Japan’s most famous stock index.

   

  Since mid-August, investors have poured a record $4.5 billion into the Next Funds Nikkei 225 Leveraged Index ETF, a security designed to rise or fall twice as fast as its namesake equity gauge. That’s too bad, considering that twice the Nikkei 225 Stock Average’s loss over that period comes out to about 21 percent.

   

  So fast have the country’s individual investors been plowing money into the fund that even as a fifth was lopped off its price, its market value more than doubled. It’s the largest security of its kind in the world, and is now big enough to affect the whole stock market as overseers rush to buy and sell securities to meet its price target, according to BNP Paribas Investment Partners Ltd.

   

  “They are taking up a larger proportion of the market,” said Tony Glover, head of the investment management department at BNP Paribas Investment Partners Japan in Tokyo. “Volatile markets are not great news with increasingly wider intraday swings. The funds are a big factor causing this.”

   

  The ETF has become more popular with traders than even Toyota Motor Corp., Japan’s biggest company. Average turnover for the ETF was about 250 billion yen ($2.1 billion) a day over the past two months, triple that of Toyota.

  *  *  *

  Who could have seen this coming? Well we did… numerous times…and here is the explanation…

  Two months ago, in “ETF Issuers Quietly Prepare For Meltdown With Billions In Emergency Liquidity,” we outlined the rather disconcerting circumstances that have led some large fund managers to quietly line up emergency liquidity facilities that can be tapped in the event of a sudden retail exodus from bond funds.

   

  "The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown. Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show," Reuters reported at the time, in a story we suspect did not get the attention it deserved.

   

  At a base level, these precautionary measures are the result of the interplay between central bank policy and the unintended consequences of the post-crisis regulatory regime. ZIRP creates a hunt a for yield and simultaneously incentivizes companies (especially cash strapped companies) to tap the bond market while borrowing costs remain artificially suppressed. Clearly, this is a self-fulfilling prophecy. The longer rates on risk free assets remain near, at, or even below zero, the more demand there is for new corporate issuance (the rationale being that at least corporate credit offers some semblance of yield). More demand means rates on corporate credit are driven still lower, and once yields on high grade issues get close to the lower limit, yield-starved investors are then herded into HY.

   

  All of this supply in the primary market comes at a time when liquidity in the secondary market for corporate credit is non-existent thanks to the shrinking dealer books that resulted from the government’s (maybe) well-meaning attempt to crack down on prop trading. The result: a crowded theatre with a tiny exit.

   

  This situation has been exacerbated by the proliferation of bond ETFs which have allowed retail investors to pile into corners of the fixed income world where they might not belong.

  All of the above can be summarized as follows.

  "MF assets too large versus dealer inventories" (via Citi)…

  

  … clear evidence of "structural damage in corporate bond trading liquidity" (via JP Morgan)…

  

  … and the rapid growth of bond funds in the post-crisis world (via BIS)…

  

  So given the above, the question is this: if something were to spook the market – a rate hike cycle for instance, or an October revolver raid on HY energy names, or an exogenous geopolitical shock – causing an exodus from these funds, what would happen to prices if fund managers were suddenly forced to transact in size in an illiquid secondary market in order to meet redemptions?

  "Nothing good", is the answer. 

  The solution is to avoid selling the underlying bonds – even when investors are selling their shares in the funds.

  But how is this possible? 

  To a certain extent, outflows in one fund can be offset by inflows to another. These "diversifiable flows" are one happy byproduct of the great ETF proliferation. Here's a refresher on how this works courtesy of Barclays.

  *  *  *

  Portfolio Products Replace Dealer Inventory

  While diversifiable flows limit the risks to portfolio managers in principle, the reality of the high yield market is more complicated. Managers have specific views on tenor, callability, sectors, covenants, and, most importantly, individual credits, such that actually finding buyers for specific bonds can be quite difficult. In the pre-crisis period, dealers ran large inventories that effectively facilitated the netting of flows across funds (Figure 1). A fund with an outflow would sell bonds into the dealer community, and funds with outflows would buy bonds out of the dealer inventory. When inventory is large, the fact that the specific bonds bought and sold did not match was largely irrelevant. Funds with outflows could sell the bonds of their choice, and the funds with inflows could pick investments from the large variety of inventory held by dealers.

  

  The matching problem has become more acute as dealer inventories have declined. Even funds can net flows in principle, dealers are much less willing to warehouse bonds, and are much more likely to buy only when they believe they can quickly offload the risk. Under this scenario, the fact that flows can theoretically be netted is of little practical use to fund managers – actually netting individual bonds is extremely difficult, particularly in the short time frame required by funds offering daily liquidity to end investors.

  This is where portfolio products come in. Investors can use portfolio products to fund outflows/invest inflows immediately and execute the necessary single-name bond trades over time as liquidity in the underlying bond market allows (Figure 2). In this scenario, funds with inflows and outflows simply exchange portfolio products, sidestepping the immediate need to trade single-name corporate bonds.

  

  *  *  *

  Ok great, so ETFs provide a kind of "phantom" liquidity if you will. There are two problems with this:

  • It only works when flows are diversifiable. Once flows become unidirectional, it all goes out the window.
  • It makes the underlying markets even more illiquid.

  Here's how we put it last month in "How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown"

  In other words, if I'm a fund manager, the idea that ETFs provide liquidity rests on the assumption that when I experience outflows, someone else will be experiencing inflows and thus I can sell ETFs and avoid offloading my bonds into an illiquid corporate credit market. Put another way: I am depending on new money coming into the market to fund redemptions from previous investors who are exiting the market, all so that I can avoid liquidating assets that are declining in value and that I believe will be difficult to sell. There's a term for that kind of business. It's called a ponzi scheme and just like all other ponzi schemes, when the new money dries up (so, for example, when HY bond ETF flows are all headed in the wrong direction), the only way to meet redemptions is to get what I can for the assets I have and when the market for those assets is thin (as the secondary market for corporate credit most certainly is), I may incur substantial losses. 

   

  Note also that the more often ETFs are used as a way of avoiding the underlying bond market, the more illiquid that market becomes, making the situation still more precarious in the event of a panic.

  So what is a fund manager to do?

  This is where we come full circle to the emergency liquidity lines mentioned at the outset. In order to avoid tapping the underlying illiquid bond market in a situation where flows are unidirectional, fund managers may instead pay out redemptions in borrowed cash.

   

  This is, to quote Citi's Matt King, "creative destruction destroyed."

   

  Only worse.

   

   

  That is, this represents the willful delay of a long overdue episode of creative destruction layered atop another delay of the much needed Schumpeterian endgame. Stripping out the metaphysics and philosophy references, that can be translated as follows: this strategy is yet another example of delaying the inevitable. If fund managers are forced to tap these liquidity lines it likely means investors have found a reason to sell en masse and if that reason turns out to be something that permanently impairs the value of the underlying bonds (as opposed to a transitory, irrational panic) then all the funds are doing by borrowing to meet redemptions is employing leverage to stave off the recognition of losses, which is ironically the same thing (in principle anyway) that the companies whose bonds they’re holding have done to stay in business. It’s a delay-and-pray scheme designed to avoid selling the debt of companies whose similar delay-and-pray schemes have run their course.

  In closing, it's important to note that no fund manager in the world will be able to line up enough emergency liquidity protection to avoid tapping the corporate credit market in the event of panic selling in the increasingly crowded market for bond funds. 

  In other words, when the exodus comes, the illiquidity that's been chasing markets for the better part of seven years will finally catch up, and at that point, all bets are officially off.

  *  *  *

  At the end of the day, one is reminded of what Howard Marks' recently said about ETFs: 

  "[They] can't be more liquid than the underlying and we know the underlying can be quite illiquid."

  We are about to get the real-life answer to Howard Marks' more critical question: "What happens when ETF Holders all sell at once?"

  

  

  

  

  

• Paul Craig Roberts On The MH-17 Report: "Only An Idiot Would Believe It"

  Submitted by Paul Craig Roberts,

  When I read that the report on the downing of the Malaysian airliner over Ukraine was being
  put in the hands of the Dutch, I knew that there would be no investigation and no attention to the facts.

  And there wasn’t.

  I did not intend to write about the report, because Washington’s propaganda has already succeeded, at least in the Western world, in its purpose of laying the blame on Russia. However, the misrepresentation of the Dutch report by Western media, such as NPR, is so outrageous as to make the media the story and not the report.

  For example, I just heard NPR’s Moscow correspondent, Corey Flintoff, say that the missile that hit the airliner was fired by Ukrainian separatists who lack the technical ability to operate the system. Therefore, the missile had to have been fired by a Russian.

  There is nothing in the Dutch report whatsoever that leads to this conclusion. Flintoff either is incompetent or lying or he is expressing his view and not the report’s conclusion.

  The only conclusion that the report reaches is one that we already knew: if a Buk missile brought down the airliner, it was a Russian-made missile. The Dutch report does not say who fired it.

  Indeed, the report places no blame on Russia, but it does place blame on Ukraine for not closing the airspace over the war area. Attorneys have stated in response to the report that families of those killed and the Malaysian airline itself are likely to file lawsuits against Ukraine for negligence.

  Of course, there was nothing of this in Flintoff’s report.

  As I wrote at the time of the airliner’s destruction, the Western media already had “the-Russians-did-it” story ready the moment the airliner was reported to be shot down. This story was very useful to Washington in hardening its European vassal states into sanctions against Russia, as there was some dissent. What Washington has never explained and the Western media has never asked is: What motive did separatists and Russia have to shoot down a Malaysian airliner?

  None whatsoever. The Russian government would never allow such a thing. Putin would have immediately strung up those responsible.

  Washington’s story makes no sense whatsoever. Only an idiot could believe it.

  What motive did Washington have? Many. The demonization of Russia made it impossible for European governments to resist or abandon the economic sanctions that Washington is using to break economic and political relationships between Europe and Russia.

  The Russian manufacturer of the Buk missile has proven that if a Buk missile was used, it was an old version that exists only in the Ukraine military. For some years the Russian military has been equipped with a replacement version that has a different signature in its destructive impact. The damage to the Malaysian airliner is inconsistent with the destructive force of the Buk missile in Russian service. The reports were given to the Dutch, but no effort was made to replicate and verify the validity of the tests conducted by the manufacturer of the missile. Indeed, the Dutch report does not even consider whether the airliner was downed by Ukrainian fighter jets. The report is as useless as the 9/11 Commission’s report.

  Don’t expect any acknowledgement of this by the Western media, a collection of people who lie for a living.

  The reason that the West has no future is that the West has no media, only propagandists for government and corporate agendas and apologists for their crimes. Every day the bought-and-paid-for-media sustains The Matrix that makes Western peoples politically impotent.

  The Western media has no independence. An editor of a major German newspaper has written a book, a best-seller published in Germany, in which he states that not only he himself served the CIA as a reliable purveyor of Washington’s lies, but that every significant journalist in Europe does so also.

  Obviously, his book has not been translated and published in America.

  NPR, like all of Western media, has lost its integrity. NPR claims to be reader-supported. In fact, it is supported by corporations. Pay attention to the ads: “NPR is supported by xyz corporation working to sell you this or that product or service.”

  The George W. Bush regime destroyed NPR by appointing two Republican female ideologues to oversee NPR’s public function. The two Republicans succeeded in making job security, not reporting integrity, the motive of NPR journalists.

  As a person who worked with President Reagan to end the Cold War and associated nuclear threat, I am dismayed that the Western media has failed life on earth by resurrecting the prospect of nuclear armageddon.

  

  

  

  

  

• OPeRaTioN OaTMeaL…

  

  

  

  

  

• Whose FX Reserves Suffered The Most During The "China Tantrum"? Goldman Has The Answer

  In the four or so weeks after the August 11 China deval, all anyone wanted to talk about was FX reserves. 

  What most didn’t immediately realize was that China’s new FX regime would, in the short-term anyway, end up leaving less of a role for the market in determining the yuan’s exchange rate not more. This is because – and we’re fond of quoting BNP’s Mole Hau on this – “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.” Because the market ultimately expects a much larger devaluation, the persistent pressure on the yuan caused the PBoC to have to intervene in the onshore and eventually, the offshore spot markets. That meant liquidating reserves. The sheer pace of the drawdown caught the world’s attention as suddenly, everyone woke up to what we began discussing last November when it became clear that the Saudi’s move to kill the petrodollar would lead directly to reserve liquidation across EM as commodity currencies and exporters were set to suffer from crude’s collapse. 

  Of course the yuan deval was especially bad news for emerging Asia where economies that were already suffering from slowing Chinese demand and slumping commodities were suddenly forced to grapple with a loss of export competitiveness as well. 

  Before you knew it, it was an all-out Eastern USD reserve liquidation party, leading some to ask what effect the drawdowns would ultimately have on UST yields because all else equal, FX reserve selling is just QE in reverse. As we noted on any number of occasions, this could have the effect of amplifying what would otherwise be a merely “symbolic” 25 bps Fed hike. That is, if the Fed hikes and triggers more EM outflows, well then they’ll be more USD paper selling (i.e. a loss of global liquidity) as FX managers move to support their currencies. 

  Against this backdrop, we bring you the following from Goldman who has endeavored to tally up currency intervention as a percentage of reserve money in Asia during what they’re calling the “China tantrum”. Note the rather scary looking figure for Malaysia, where it’s not just financial and economic conditions that threaten to tip the country into crisis, but a political scandal as well that has quickly mushroomed into a series of investigations across the globe that could ultimately cost PM Najib his career and legacy.

  *  *  *

  From Goldman

  When the mini-devaluation of the RMB surprised us and markets in early August, we argued strongly that this was a one-off adjustment that did not signal the beginning of a devaluation cycle. Markets disagreed and risk assets sold off hard in the weeks that followed. Asian FX was not spared amid the sell-off, with RMB proxies such as the MYR hit especially hard. There is always a challenge in reading price action in the moment, given that many Asian central banks use their official foreign exchange reserves to stabilize exchange rates. These actions are usually not known until months afterwards, when data on spot reserves and forward books become available. In this Global Markets Daily, we compile the full picture for Asian central bank intervention during what we are calling the ‘China tantrum’, the period from June to August when SHCOMP was already selling off. We compare the magnitude of reserve drawdowns to the ‘taper tantrum’, the period from June to August 2013.

  Many Asian central banks intervene not just in spot foreign exchange markets, but also in forward markets. Typically, these transactions consist of a spot/forward foreign exchange swap that results in the central bank having a forward USD asset. This kind of intervention leaves the central bank balance sheet unaffected and thus amounts to sterilized intervention. Many Asian central banks rely heavily on this kind of intervention, so it is important to factor this into the overall intervention picture. We look at the FX-valuation-adjusted decline in spot reserves between end-May and end-August (using the COFER data to adjust for valuation effects) plus the change in forward books over this period. We scale this proxy for official intervention by reserve money at the end of May, which helps control for differences in size across countries. After all, a $1bn drop in reserves is a different story for China compared with Malaysia.

  Relative to reserve money, foreign exchange intervention was most pronounced for Malaysia (43%), followed by Thailand (17%), Singapore (16%), South Korea (15%) and Indonesia (10%). Despite the seemingly large drop in China’s official reserves, this works out to be only 4% of reserve money, underscoring our view that developments there are more benign than meets the eye. Coupled with FX moves, these numbers paint a picture where depreciation pressure was most pronounced for Malaysia. With the exception of Malaysia, these reserve losses are comparable to 2013 when the ‘taper tantrum’ put depreciation pressure on currencies in the region.

  

  

  

  

  

• Moral Hazard, "Supernormal" VIX Swings, And Why August 2015 Was Just An Appetizer

  Excerpted from Artemis Capital Management letter to investors,

  True knowledge is not what you know but certainty in what you do not. Volatility is simply about putting a price on that. Drawing from the famous quote by Donald Rumsfeld, former US Secretary of Defense(20), the trader of volatility must be able to identify “known unknowns” and “unknown unknowns” while simultaneously making a market in both. Modern volatility markets know that the global economy is facing deflation… but they also know that global central banks will be right there to respond to any crisis. The single most important “unknown unknown” today is any random event that may unexpectedly cause global central banks to withdraw their stated support of markets.

  Moral hazard has contributed to a significant build up in short and leveraged volatility creating a shadow ‘volatility gamma’ that reinforces the current trend in volatility direction. Rising volatility is followed by more rising volatility and vice versa. Volatility is crushed whenever a central bank responds to crisis and thereafter leverage is re-applied in even greater amounts in a cycle of moral hazard. The pattern is creating a pro-cyclical monster of short volatility that, if left unchecked will contribute to a repeat of the May 2010 Flash Crash or 1987 Black Monday Crash.  August 2015 was just an appetizer.

  In 2012 Artemis coined the term “Bull Market in Fear” to explain a regime of volatility defined by investor's willingness to pay almost anything to shield their portfolios from the next deflationary crash. Between 2013 and October 2014 we experienced a “Bear Market in Fear” defined by a rising short volatility complex and low risk premiums for selling variance. Ever since last fall, we have entered into one last dangerous phase in the volatility cycle. Forward volatility markets no longer fade volatility out of denial; they fade volatility out of the prospect of central bank support.

  This is a new era of hyper-moral hazard whereby a central bank reaction function is fully priced into option markets. Volatility markets do not believe central banks will let us fail. 

  For evidence, consider that the VIX futures markets faded the August VIX spike by the greatest margin in history.  The graph below shows the ratio of the VIX to the market’s one-month forward expectation of the VIX. The higher the ratio the greater the market’s confidence in volatility mean reversion. August 2015 dwarfed all other crises in mean reversion expectation including October 2008, May 2010, and August 2011. The entire VIX market was essentially one large leveraged bet that central banks would respond to the crisis… and it paid off! What if it didn’t?

  

  The VIX is experiencing epileptic seizures including erratic and violent outbursts up and down at the most frequent pace in history as new sources of structural short convexity interact with interventionist policy responses to crisis. The VIX has registered a quantifiable ‘supernormal’ (five standard deviation +) move up or down every three months over the last two years. 

  In July-August 2015 alone, we experienced the single largest multi-day drawup and drawdown in the history of the VIX index. Artemis ranks consecutive drawups and drawdowns (trough-to-peak or peak-to-trough) in volatility and models them as a power law distribution.  The distributions of a wide variety of physical, biological, and human phenomena closely follow this form. Examples include earthquakes, deaths in war and terrorism, populations of cities, solar flares, word frequencies in language, movie box office receipts, and asset price movements.  When you logarithmically rank the event magnitude of these natural and human phenomena the majority of observations will align linearly along the x-axis as a power-law function (see white line below). Violations of the power-law function are supernormal events because their results contain a degree of reflexivity that exceeds the exponential growth function. Examples of supernormal violations in power laws across other phenomena include death counts in WWII ranked among all wars, box office receipts of the movie Titanic, the Titanic disaster itself, the 9.2 Magnitude 1960 Chilean Earthquake, the population of Tokyo, the 1987 Black Monday Crash, and the 9/11 terror attack in NYC. Three of the top ten supernormal VIX increases and four of the top eight supernormal VIX decreases have occurred in the last year alone! The top eight ranked drawdown collapses in VIX have all occurred during the post-2012 monetary regime. Power-law violations in VIX to the downside and upside are now happening with regularity!

  

  Volatility markets are demonstrating deep uncertainty in the very nature of uncertainty itself. The schizophrenic behavior of volatility is a deep warning sign for policy makers that something is not right. Implied Volatility-of-the VIX (“CBOE VVIX”) reached the highest levels in history on August 24th, 2015. The volatility-of-VIX rose higher than levels achieved even during the 2008 financial crisis, 2010 Flash Crash, and 2011-debt downgrade crisis.

  Many will point to structural considerations as a driver including the proliferation of VIX exchange traded products and the new spot-VIX calculation methodology. While these are important factors, they are only part of the story.

  To understand why the volatility of volatility reached new highs we have to engage in deep meta-thinking about our reaction to change. Volatility provides exposure to our collective insecurity towards an unknowable future. Likewise, to short volatility is to express personal confidence in the status quo of market affairs despite a broader fear of change. To go long volatility is to express fear that change is coming.

  Volatility-of-volatility is simply the war between these two different modes of perception… shifting perceptions in the nature of uncertainty itself. If uncertainty is rising so should the VIX… but there is a very different type of uncertainty to evaluate … the uncertainty that central banks will intervene.  When global central banks seek to defend the status quo and mean reversion it becomes increasingly difficult to accurately gauge the probability of change in markets.  Volatility markets are now gaming central banks in addition to fundamental economic and technical conditions. If we are unclear from one moment to the next whether radical change or the status quo will prevail than volatility-of-volatility should logically rise. 

  

  Volatility mean reversion has been an abnormally profitable bet during the regime of pre-emptive strikes on financial risk. Following each tail event in volatility, we are experiencing another tail event in the magnitude of volatility declines. Central banks refuse to let volatility remain elevated and are quick to react to any crisis.

  Between August and September 2015 the VIX collapsed faster than ever before following a spike to 40 (see red line below) due to another massive stimulus response by central banks.  China cuts rates, devalued the Yuan, and purchased an estimated $263bn of equity (9.2% of freely traded shares) to artificially prop-up their stock market before a nationalistic military parade. Following China, the ECB expanded their QE program.  The graph below demonstrates the historic decline in volatility by showing the average, high, and low trajectory paths of the VIX the ensuing fifteen days following every implied volatility spike to 40.

  

  Likewise, the area chart below graphs the forward probability distribution of S&P 100 implied volatility (VXO) following a breach of the 35 barrier in spot-vol.

  

  As expected, implied volatility exhibits an exceptionally positively skewed distribution following a ‘risk-off’ event, but notice how the current trajectory of VXO lies on the far left of the distribution. Central banks refuse to let volatility remain elevated but this is creating a new set of shadow risks…Global central banking has artificially incentivized bets on mean reversion.

  

  

  

  

  

• Fastenal CEO: "The Industrial Environment Is In A Recession – I Don’t Care What Anybody Says!"

  You know things might not be going particularly well when you’ve had three CEOs in the space of nine months, and that’s exactly what’s happened at nuts and bolts maker Fastenal which named current CFO Daniel Florness to the top spot on Tuesday.

  The move came after the company reported meager top and bottom line results for Q3 this week. 

  It’s not very difficult to understand why the company’s business has come under pressure. The slump in crude prices has put an enormous strain on its energy-related operations. Here’s some color from Credit Suisse who notes that in September, Fastenal saw its first Y/Y sales decline since 2009:

  Not surprising, FAST indicated the industrial outlook has deteriorated in particular during the month of September. In fact, September, was the first month since 2009 in which FAST experienced y/y declines. Along with the stronger dollar, FAST noted continued oil and gas headwinds, and heavy manufacturing. By geography, Texas took a step down and FAST noted slowing growth in Canada. Of FAST’s top 100 customers, 44 saw top line declines. Of the 44, 32 were negative by more than 10% and 17 were negative by more than 25%. FAST does not expect to see any improvement for the next several quarters and believes the industrial environment is in a recession.

  Now hilariously, Credit Suisse somehow managed to take that strikingly bad assessment and turn it into this title: “SteadFAST In the Face of Adversity.” But hey, it’s the sellside so it’s not like they were going to tell you to sell it. 

  Anyway, what struck us was the rhetoric on the call, especially the retort from new CEO Daniel Florness when William Blair analyst Ryan Merkel (no relation to any “pure hearted” German “lion mothers”) made the mistake of calling the current environment “non-recessionary”:

  Merkel: Then just lastly, Fastenal growing zero percent here in September and in a non-recessionary environment, it’s pretty surprising, I think, for a lot of us. But if we just step back and we think about quantifying some of the headwinds, and I don’t want to put words in your mouth but it seems to me, oil and gas customers are probably down, what, 30% this year. It might be a 3% headwind to sales. And then what about exports? I’ve got to think that’s an even bigger impact, but you tell me – and we’ve also got FX as a one-point headwind.

   

  Florness: Yeah, a couple things. First off, the premise of the question, I would argue that anybody selling into the industrial market is not selling into a non-recessionary environment. We are–

   

  Merkel: I agree. I agree with you there.

   

  Florness: The industrial environment is in a recession – I don’t care what anybody says, because nobody knows that market better than we do. You know, we touch 250,000 active customers a month. 

   

  Right now in the third quarter, 44 of our top 100 customers are negative. We have not lost any business with that group. They are negative in their spend. In some cases, they are negative because their business is very negative and they are somewhat negative with us. 

   

  Of that 44 that were negative, 32 of them were negative more than 10%. Of that 44 that’s negative, 17 of them were negative more than 25%. That’s a sign of a recessionary environment.

  So, two very simple, yet very critical takeaways:

  • the industrial sector is in a recession,
  • whatever you do, do not suggest to Dan Florness that Fastenal’s lackluster performance is related to anything other than the pitiable condition of the US economy

  

  

  

  

  

• Russia Sends Its Only Aircraft Carrier To Syria, Signals It Is Just Getting Started

  As should be abundantly clear by now, The Kremlinis adopting a “slightly” different strategy when it comes to combatting terror in the Mid-East than that adopted by the US and its Western and regional allies. 

  The strategy of the US and its allies seems to go something like this: 1) covertly arm and train groups who you know might ultimately become terrorists because arming and training these groups may be a way to destabilize unfriendly regimes, 2) wait for blowback, 3) launch serious effort to combat terror if unfriendly regime has been “successfully” replaced by puppet government, or launch half-hearted effort to combat terror if situation still fluid and regime still clings to power. 

  Obviously, that strategy is prone to all types of problems, and sensing that the US and its allies might have finally met their foreign policy blunder Waterloo in Syria, Russia decided to call everyone’s bluff by launching a real war on terror. Of course, this war conveniently restores the regime of one of Moscow’s allies, but in the end the result is the same: anyone who is a terrorist and who is also fighting Assad in Syria is in for big trouble because Russia is using this is as an opportunity to reassert itself on the world stage and also to fire up a long-dormant military juggernaut. 

  Now, on the heels of hundreds of airstrikes accompanied by dramatic video footage as well as cruise missile attacks launched from Russian warships in the Caspian, The Kremlin is sending its lone heavy aircraft carrier into the fight. This is only the ship’s sixth deployment in history. 

   Here’s more from Flashnord (Google translated):

  Heavy aircraft carrier (heavy aircraft), “Admiral Kuznetsov” is Russia’s only aircraft carrier, the weekend will go from Murmansk to the shores of Syria, said FlashNord source in the Northern Fleet command.

   

  “The cruiser dock repair completed until the end of the week go to the coast of Syria, where he joined the operation to destroy the group” Islamic State “,” – a spokesman said.

   

  According to him, from May to August this year was held aircraft carrier dock repair 82 Shipyard in Roslyakovo (Murmansk region). Then, on a regular docked in Murmansk, he walked up to the restoration of full combat readiness.

   

  Since September 30, Russia carries out air operations in Syria with the aim of destroying the objects of the “Islamic state.”

  Here are some images:

  

  

  

  Here’s a bit of color via Reuters from earlier this year. Notably, the Kuznetsov isn’t known for being in particularly great working order which probably makes the chances of some kind of accident that much greater:

  When the Soviet Union launched Kuznetsov in 1985, it was a major technical accomplishment for the then-superpower. Moscow began assembling Varyag, a sister ship of Kuznetsov, around the same time. It also started work on a true full-size carrier, as big as anything the United States builds.

   

  But the Soviet Union’s collapse in 1991 abruptly halted the carrier program.

   

  Russia was left with Kuznetsov as its sole flattop and, deprived of funds and Ukraine’s assistance, has struggled to keep the vessel in working condition. Since the ship was commissioned into frontline service in the early 1990s, Kuznetsov has deployed just five times. Each deployment, lasting between three and six months, saw the flattop sail from its home port in northern Russia around Europe and into the Mediterranean as a show of force and to demonstrate support for Russia’s allies in the region, including Syria.

  

  

  

  

• "A Generation In Crisis" – The World Needs 5 Million Jobs/Month To Stymie Youth Extremism

  For over 3 years we have pointed out that the surging youth unemployment was Europe's (if not the world's) scariest chart, because the last thing Europe needs is a discontented, disenfranchised, and devoid of hope youth roving the streets with nothing to do, easily susceptible to extremist and xenophobic tendencies: after all, it must be "someone's" fault that there are no job opportunities for anyone. Well, as Bloomberg reports, The World Bank has an unsettling message for young people around the globe: unless we create 5 million jobs a month, the situation is going to get worse.

  As The World Bank notes, Unemployment in any form is a drag on an economy and society.

  It undercuts productivity, spending, and investment, stunting national growth. It contributes to inequality and spurs social tension. Joblessness and inactivity and the failure to tap into the economic aspirations and resources of young people carry an even higher price.

   

  As prospects dwindle, many face social exclusion, or see their emotional, mental, or physical health deteriorate.

   

  …

   

  Young people account for roughly 40 percent of the world’s unemployed and are up to four times more likely to be unemployed than adults.

   

  …

   

  When young people are not fully participating in the labor force or are NEETs, governments forgo tax revenue and incur the cost of social safety nets, unemployment benefits and insurances, and lost  roductivity. Businesses risk losing a generation of consumers. Social costs are ever mounting as well. The Arab Spring and subsequent youth-led uprisings in many countries, along with the rise of economic insurgency and youth extremism, demand that we explore the links between economic participation, inequality, and community security, crime, and national fragility through a lens focused on youth. What we see is a generation in economic crisis.

   

  Over the next decade, a billion more young people will enter the job market—and only 40 percent are expected to be able to enter jobs that currently exist. The global economy will need to create 600 million jobs over the next 10 years: that’s 5 million jobs each month simply to keep employment rates constant.

  In other words, even with that 'growth' we are going nowhere!!

  

   

  As Bloomberg reports,

  The youngest workers have been hit hardest by the financial crisis and the global recession of the last decade because they often held the temporary jobs, which offer less protection. The youth unemployment rate is projected to be 13.1 percent in 2015, compared with 4.5 percent for adults, according to the ILO.

   

  Global employers are looking not only for technical and academic skills, but also such qualities as being open, responsible or organized, …Young workers are often either overqualified or underqualified for their jobs, it said.

   

  "In emerging economies that are progressively more service-based, employers find a workforce population that lacks necessary skills," the report said. "Elsewhere, the problem is that many of the unemployed are highly educated but the market demands different competencies or more technical or vocational skills."

   

  At stake is the well-being of the entire global economy. Without an income, millions of young people slump into poverty. By delaying their entry into the workforce or accepting low-paying jobs, many limit their lifetime earning potential. When young people don't work, governments don't get the tax revenue and businesses fail to gain customers.

   

  "Social costs are ever mounting as well," the report said, citing youth-led uprisings in many Arab countries and the rise of economic insurgency and youth extremism. "What we see is a generation in economic crisis."

  *  *  *

  Full World Bank Report below…

  Toward Solutions for Youth Employment Full

  

  

  

  

  

• A Third Of All Containers Shipped From Long Beach Port Are Empty

  In the past several months, it has been virtually impossible to make any sense of the conflicting trends involving US and global trade. On one hand, there is global trade, which as we have covered since the spring, has been in a state of consistent decline. Some example of this:

  • World Trade Slumps By Most Since Financial Crisis
  • Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week
  • Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks
  • South Korea Exports Crash Most Since 2009

  And of course China’s terrible trade data for the past 5 months, which has seen the longest stretch of import declines since the financial crisis.

  In short: only an economist, either a tenured one or one employed by CNBC, is unable to see that the world is sinking into a global trade recession, with a economic one soon to follow.

  Where things get more complicated, however, is when looking at the US. Here, macro data throughout the summer had suggested more or less smooth sailing in the trade space, and it was only a week ago that the facade started to crack, following the ugly advance trade report, when as we reported there was a “16% Surge In August Trade Deficit; Imports Jump As Exports Drop.”

  But what really confused us, and others, was the “micro” reports from the ground. Take the following article from Bloomberg in September, in which we read that “Record Long Beach Port Traffic Shows Strength in U.S. Demand.” Some more details:

  The Port of Long Beach — which is poised to overtake neighboring Los Angeles next year to become the No. 1 shipping gateway in the country — had a record month in July, with cargo volume up 18 percent from July 2014. Figures being released later this month will show unprecedented traffic again in August, and early signs in September are “very very encouraging,” Jon Slangerup, the Long Beach port’s chief executive officer, said in an interview at Bloomberg’s offices in New York last week.

   

  Overall, the two ports are handling 4 percent more cargo this year than last, Slangerup said. With consumers showing no letup, he predicted a record year for Long Beach in 2015, taking out pre-recession highs set in 2007. West Coast ports are poised to regain share lost earlier in the year, when backlogs led clients to divert cargo to East Coast destinations like Savannah, Georgia, he said.

  The article’s punchline:

  “When you look at the macros, you look at unemployment, consumer confidence, savings, available discretionary spending, all of those numbers suggest that we have more to spend,” Slangerup said. “The economy here is super strong relative to the rest of the world, and the strongest I’ve seen it in a very long time.”

  As it turns out, the economy was neither “super strong”, nor was “unemployment, consumer confidence, savings, or available discretionary spending” suggesting that we have more to spend. In fact just the opposite, because thanks to the WSJ we can now reconcile the seeming discrepancy between slowing macro and booming micro, at least as manifested by “record” west coast port traffic.

  According to the WSJ, “shipments of empty containers out of the U.S. are surging this year, highlighting the impact the economic slowdown in China is having on U.S. exporters. The U.S. imports more from China than it sends back, but certain American industries—including those that supply scrap metal and wastepaper—feed China’s industrial production.”

  The magnitude of the shipping container “contagion” is stunning: in September, the Port of Long Beach handled a near record 197,076 outbound empty boxes. “They accounted for nearly a third of all containers that moved through the port last month. September was the eighth straight month in which empty containers leaving Long Beach outnumbered those loaded with exports.“

  As the chart below shows, the situation at LA and Long Beach is so dire, the amount of empty container has surpassed the 2008 crisis period, and is about to take out the all time highs from the peak of the 2006 credit bubble:

  

   

  And here is the “record” West Coast port traffic in all its unglory: as noted above, empty containers now amount to a third of all West Coast port traffic in the US.

  

   

  What is an empty container? The WSJ explains that after under normal conditions, containers filled with consumer goods are delivered to the U.S. and unloaded, they return to export hubs. There, they typically are stuffed with American agricultural products, certain high-end consumer goods and large volumes of the heavy, bulk refuse that is recycled through China’s factories into products or packaging.

  Not any more:

  Last month, however, Long Beach and the Port of Oakland both reported double-digit gains in exports of empty containers. So far this year, empties at the two ports are up more than 20% from a year earlier.

  A big reason for the collapse in trade is the strong dollar: the empties are shipping out at a faster rate at many U.S. ports, particularly those closely tied to trade with China, while shipments of containers loaded with goods are declining as exporters find it tougher to make foreign sales. That’s at least partly because the strong dollar makes American goods more expensive.

  The problem is spreading:

  Outbound empties have mounted this year at other big gateways, too. In August, the Port of Los Angeles, the country’s largest single container port, handled more than 225,000 empty outbound containers, counted in twenty-foot equivalent units, a standard maritime industry measure. That was 21% more than a year earlier. The Port Authority of New York and New Jersey expanded its empty-container exports nearly 31.5% in the first eight months of this year, and empties outnumbered loaded container exports over that time.

  Suddenly the discrepancy between the ugly macro data and the

  Dollar-based or not, the end result is the same – global trade channels are rapidly slowing down.

  And it is not just empty containers that are being shipped out: overall containerized exports are also tumbling: “Long Beach’s containerized exports were down 8.2% this year through September, while Oakland’s volume of outbound loaded containers fell 12.7% from a year earlier in the January-September period.”

  This data certainly puts that “record” Long Beach port traffic in a different perspective. Others admit the same:

  “This is a thermometer,” said Jock O’Connell, an international-trade economist at Beacon Economics. “The thing to worry about is if the trade imbalance starts to widen.”

  It is starting to widen: the U.S. trade gap has expanded sharply in recent months as exports have slipped, growing 15.6% in August to a seasonally adjusted $48.3 billion, according to the Commerce Department. U.S. exports fell 2% in the month to their lowest level since October 2012.

  And as a reminder, net trade feeds directly into GDP, so the next time an idiot tells you that there are no direct linkages or contagion choke points between China and the US, feel free to take them to the Long Beach and show them the thousands of empty boxes whose contents one can label  simply as “recession”.

  There is, however, a silver lining: if the containers remain empty, and once the US slides back into depression, they can always be used for housing, just like now in San Francisco’s unicorn bubble mania.

  

  

  

  

  

• "China Has No Reason To Rush To The Frontlines": Beijing Denies Syria "Rumors"

  In the weeks since Moscow joined the fight in Syria, in the process lending Iran’s ground troops a rather powerful hand in the form of airstrikes by the Russian air force juggernaut, there have been two questions on everyone’s mind, i) how would Washington respond?, and ii) will China get involved? 

  As for the first question, the US has responded in the only way they could given the situation the West and its allies got themselves into: with a confused message about how the US can’t accept Russia’s invite to coordinate efforts because somehow Moscow’s involvement is going to create more terrorism. 

  With regard to the China, early reports indicated that Beijing was indeed considering some manner of military “support.” For instance, late last month the pro-Assad Al-Masdar news said the following:

  On Tuesday morning, a Chinese naval vessel reportedly traveled through Egypt’s Suez Canal to enter the Mediterranean Sea; its destination was not confirmed.

   

  However, according to a senior officer in the Syrian Arab Army (SAA) that is stationed inside the Syrian coastal city of Latakia, Chinese military personnel and aerial assets are scheduled to arrive in the coming weeks (6 weeks) to the port-city of Tartous – he could not provide any more detail.

  Three days later, Pravda reported that “according to Russian Senator Igor Morozov, Beijing has taken decision to take part in combating IS and sent its vessels to the Syrian coast.”

  “It is known, that China has joined our military operation in Syria, the Chinese cruiser has already entered the Mediterranean, aircraft carrier follows it,” Morozov allegedly said.

  Needless to say, if China were to join Russia and Iran in support of Assad in military operations against anti-regime elements, it would be a further embarrassment for Washington which is keen to pretend that it can counter what’s been pitched as military aggression on Beijing’s part in the South China. That is, were China to go into Syria while the US stood by and watched, it would send a message to Washington’s regional allies in the South Pacific that other than promising to send some ships to sail around the Spratlys, there’s really not much the Pentagon can or at least is willing, to do.

  But China is well aware that a dying hegemon is still a hegemon and while Beijing has made great strides over the past several years in terms of raising its presence on the world stage, simply invading Syria at the drop of a hat is a move that seems a bit too crass for Xi Jinping given his recent trip to the US and desire to promote social stability at home.

  Predictably, the Chinese are now out denying the Syria “rumors”. Here’s Reuters:

  China said on Wednesday it had no plans to send military ships to Syria to fight with Russian forces after reports in overseas media that it was planning to do so.

   

  Chinese media has picked up Russian and Middle Eastern news reports that China would fight alongside Russia in

   

  Syria, and that China’s sole aircraft carrier, the Liaoning, could participate too.

   

  Chinese media has also described these reports as speculative nonsense.

   

  Foreign Ministry spokeswoman Hua Chunying, when asked if China had or would send forces to Syria, told a daily news briefing that she had also noticed the reports.

   

  “I can tell you that as for China’s warships, for example the Liaoning, whether it has gone to join, for this issue, as far as I know, there is no such plan. At this time the Liaoning is in a phase of carrying out technical training and military exercises.”

   

  The Global Times, an influential tabloid run by the ruling Communist Party’s official People’s Daily, said in an editorial on Wednesday it was “unfounded rumour” that China would interfere militarily in Syria.

   

  “It’s not China that brought chaos to Syria, and China has no reason to rush to the frontlines and play a confrontational role,” it said.

  Remember, China has voted with Russia on the Security Council when it comes to Syria and there is no question which side Beijing supports. 

  Also, note that while the Politburo’s mouthpiece may have dismissed the reports as “speculative nonsense”, the other language there isn’t quite as committal and as we saw in Yemen, the PLA occasionally shows up out of the blue in surprising places. Besides Yemen, we’ve seen a plethora of examples this year of the PLA navy actively seeking to showcase China’s maritime prowess including a pass by the Alaska coast, the planned deployment of a nuclear sub, and of course the creation of 3,000 acres of new sovereign territory in the Spratlys. As brazen as it most certainly would be, another great way to make a splash (no pun intended), would be to send an aircraft carrier to Syria. 

  We’ll leave you with the following headline from Interfax:

  • CSTO, Iran, China agree on joint counteraction to ISIL

  *  *  *

  Maybe they’ll just send the girls from Fiery Cross…

  

  

  

  

  

  

• Oct 15 – US 10-year yields fall below 2% amid weak economic data

  EMOTION MOVING MARKETS NOW: 35/100 FEAR

  PREVIOUS CLOSE: 38/100 FEAR

  ONE WEEK AGO: 37/100 FEAR 
  ONE MONTH AGO: 13/100 EXTREME FEAR

  ONE YEAR AGO: 2/100 EXTREME FEAR

  Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 27.55% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 18.03. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: FEAR The CBOE Volatility Index (VIX) is at 18.03. This is a neutral reading and indicates that market risks appear low.

   

  PIVOT POINTS

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

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

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

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

   

  MEME OF THE DAY – WHEN DR. T SPEAKS…

   

  UNUSUAL ACTIVITY

  VXX OCT WEEKLY4 21.5 CALLS7K+ @$.58

  LOCK NOV 8 PUT Activity on the BID side

  LULU NOV 55 CALL Activity 2500 block @$1.20 on offer

  EDGE SC 13D Filed by NEW LEAF Ventures .. 8.2%

  TROX .. SC 13G Filed by Putnam Investments .. 13.2%

  More Unusual Activity…

  HEADLINES

   

  PBOC dismisses talk its engaging in QE –Sec Journal

  Fed’s Beige Book: Economic activity continued to expand modestly

  Atlanta Fed GDPNow Tracker: 0.9% (prev. 1.0%)

  US CBO: Extraordinary measures seen lasting until H1 of Nov

  US House Bill raising debt ceiling possible before Boehner retirement –Rtrs

  US 10-year yields fall below 2% amid weak economic data

  Walmart: Our profits are going to fall next year

  Bank of America Swings to 3rd-Quarter Profit

  Wells Fargo Profit Edges Up for Quarter

   

  GOVERNMENTS/CENTRAL BANKS

  Fed’s Beige Book: Economic activity continued to expand modestly

  Atlanta Fed GDPNow Tracker: 0.9% (prev. 1.0%)

  Fed rake hike bets disappear further into 2016 –FT

  US House Bill raising debt ceiling possible before Boehner retirement –aide cited by Rtrs

  US CBO: Extraordinary measures seen lasting until H1 of Nov, debt limit may need to be increased earlier or later –BBG

  COMMENT: What a vanishing Fed hike means for the ECB, BoJ –FT

  PBOC dismisses talk its engaging in QE

  Germany cuts 2015 GDP forecast to 1.7% vs 1.8% prev –ForexLive

  UK FCA issues warning against unauthorized FX firm SMP Forex –ForexLive

  Japan’s Amari says it’s too soon to be speaking about new stimulus –ForexLive

  FIXED INCOME

  US 10-year yields fall below 2% amid weak economic data –CNBC

  Bonds rally as US consumers have sluggish September –FT

  UBS Sees Sovereign Assets Shrinking by $1.2 Trillion –BBG

  NY Fed Blog: Dealers play important role in the intertemporal intermediation of Treasury supply

  FX

  USD: Pain for dollar bulls as US retail sales underwhelm –FT

  EUR, JPY: EUR, JPY strengthen vs USD after Fed’s beige book –ForexLive

  GBP: Pound boosted by strong jobs data –BBC

  SGD: Singapore Central Bank Eases Policy by Adjusting Currency Band –BBG

  ENERGY/COMMODITIES

  CRUDE: Oil down again; global glut worry offsets US output drop –Rtrs

  METALS: Gold rises to 3 month high –cnbc

  EQUITIES

  EARNINGS: Walmart: Our profits are going to fall next year –BI

  EARNINGS: Bank of America Swings to 3rd-Quarter Profit –NYT

  EARNINGS: Wells Fargo Profit Edges Up for Quarter –NYT

  EARNINGS: BlackRock Reports Lower Profit as Assets, Fees Drop –WSJ

  EARNINGS: Delta Beats Profit Estimates With Boost From Falling Fuel –BBG

  BANKS: US authorities examine Goldman Sachs role in 1MDB transactions –WSJ

  BANKS: Moody’s: 5 US regional banks’ credit pressured by low oil and gas prices; outlook negative

  BANKS: M&A boom still a bright spot for US banks –FT

  BANKS: UK banks may need billions of pounds in added capital –Sky

  TECH: Twitter names ex-Google executive Kordestani chairman –Rtrs

  Acquisitions bring Canon’s 5 trln-yen sales target back into view –Rtrs

  CONS DISC: PriceLine agrees to room-booking deal with TripAdvisor –Rtrs

  M&A: US yearbook maker Jostens sold for $1.5bn –FT

   

  JOBS: France asks Air France to drop job cut plans –BBG

  

  

  

  

  

• The "Other" Shoe About To Drop

  A long way down…

   

  

   

  Source: Investors.com