• Meanwhile, In "Success Story" Portugal

  Somehow, with over 33% of young people unemployed, Portugal is held up to be a ‘success story’ for Merkel’s Europe’s grand plan. With their stock market tumbling and bond yields (and spreads) soaring…

   

  

   

  Perhaps it’s time to realize nothing is fixed at all… as this image exposes all too clearly…

  

  Source: @sturdyAlex

  No, this is not a line at an Athens ATM; it is a soup kitchen in Porto, Portugal.

  

  

  

  

  

• Moron Madness

  Submitted by Jim Quinn via The Burning Platform blog,

  

  We’re back from our vacation in Wildwood. I hoped for more relaxation, but it wasn’t to be. I rode my bike most mornings. I walked miles on the boardwalk with my wife and kids. We played the Cape May par 3 golf course. I went deep sea fishing with my youngest son. I made it to the beach twice. We made it to the Shamrock a few times, but we had more fun on the outdoor deck at Westy’s Pub. Watching an 85 year old couple who were barely 4 feet tall dancing like they did in the 1950’s to current pop hits was worth the price of admission. The scene brought a smile to the faces of anyone in the vicinity.

  

  I ate more pieces of white pizza from Mack’s than I can remember.

  

  How I resisted getting more than one cup of peanut butter ice cream with chocolate jimmies at Kohr’s, I’ll never know.

  

  We saw two outstanding displays of fireworks while we were there. The weekly fireworks are launched on the beach at my street, so we just need to go to the top deck or stand in the street to see the colorful display. The wind was blowing from the ocean, so the debris and ash floated onto our deck.

   

  

  

  

  I always have mixed feelings about Wildwood. I love sitting on the deck early in the morning drinking my coffee and listening to the seagulls squawking. It is peaceful and relaxing sometimes. The weekends tend to be loud, with obnoxious day trippers invading. The paintball game on the boardwalk a block from my house perfectly describes the sights on the Wildwood boardwalk. Moron Madness (you shoot at a guy dressed up as Osama bin Laden) is an apt description for the Wildwood boardwalk.

  

  It is tough to generalize about the thousands upon thousands of people walking/waddling on the Wildwood boardwalk. In the early morning hours, before 9:00 am, you see joggers, bikers, and mostly in-shape people on the boardwalk. This is the time when I find the boardwalk to be enjoyable. It’s quiet. The sun is coming up over the ocean. The dozens of tattoo parlors haven’t opened for business yet, and the freaks are at a minimum.

  

  By 11:00 am the obese, tattooed, pierced, XXXL bathing suit wearing land whales have disconnected from their CPAP machines to hunt for donuts, soda and breakfast sandwiches.

  

  No one is safe as the thundering herd shuffles along, blocking bikers and joggers, as they grapple for position in front of the Dunkin Donuts on the boardwalk at my block. As they breathlessly anticipate the enjoyment of inhaling a dozen chocolate donuts with sprinkles, the incessant Mr. Softee music from next door is whispering to them – come buy a triple fudge sundae for lunch. It’s only $3.49. How can you pass up that deal?

  

  This is just the beginning of temptation for the thousands of morbidly obese blobs straining the wooden structure known as the Wildwood boardwalk. The boardwalk is a veritable smorgasbord of funnel cake, fried oreos, fried cheesecake, tornado fries, lemonade, curly fries, corn dogs, zeppolis, fudge, cotton candy, salt water taffy, ice cream waffles, churros, pizza topped with cheese fries, triple fudge sundaes, and of course a large diet coke. How can 300 pound women in bikinis pass up the opportunity to do some carbohydrate binging?

  

  

  The funniest “upscale” purveyor of toxic junk food is Wildwood’s only French establishment – La Bakerie. Where else could you find a Nutella Crepe, S’mores Crepe, Fried Snickers, Fried Twix, or Fried Nutter Butter? It’s like you’re actually in Paris.

  

  

  I can’t help it that I’m an observer. I observe businesses, vehicles, street signs, clothing choices, and the people wandering the vast swaths of ‘Murrica. Liberals, progressives, Obama lovers, and control freaks have a problem with my observations because they don’t believe any behavior, clothing choice, or life choice should be judged, scorned or ridiculed. What we have here is a failure to communicate. I see ignorant, stupid, obese people who make bad life choices every day. They reveal themselves by their actions and their appearance. They stand out like a sore obese thumb in Wildwood. As I’ve noted earlier, there are many normal people in Wildwood, but it appears abnormalcy is winning. The dichotomy is most apparent on the weekends and holidays.

  The reason for this is quite simple. It costs $1,500 to $2,500 to rent a condo for a week in Wildwood. Only families with one or two working parents can afford to spend a week in Wildwood. This virtually eliminates black people. First off, there are few black two parent families. Secondly, there are even fewer black families with parents that work for a living. Therefore, you only see middle aged white parents and their kids strolling the streets and boardwalk during the week. When the weekend arrives Wildwood is inundated by day tripper white and black trash. Wildwood is the only free beach below Atlantic City. Stone Harbor, Sea Isle, Avalon, and Ocean City charge $5 or $6 per day per person to access their beaches. The Free Shit Army doesn’t like to pay, so they gravitate to Wildwood. Luckily, SNAP cards are not accepted at the food joints on the boardwalk, or Wildwood would look like West Philly.

  I actually enjoy taking a jaunt on the boards during the weekend to make note of the freaks, land whales, rapper wannabes, and the ignorant unemployable tattooed masses. I don’t have to exaggerate one iota regarding the sights that threatened to burn my corneas. My wife and kids can confirm all of my observations. Why do 250 pound girls think they can pull off wearing a bikini? Is there no shame? You shouldn’t be banned from the beach because you’ve eaten yourself to the size of a hippo, but for christ sake wear a one piece bathing suit and a moo moo. Why are so many poor people so fat? The number of waddling morbidly obese  unmarried women and their uncontrollable horde of bastard children is mind boggling. And why do these people find it amusing to feed seagulls on the boardwalk creating havoc and a bird shit attack on innocent bystanders? Do they have no sense of decorum or civility? Anyone who feeds a seagull on the boardwalk is an outright idiot.

  

  Idiots abound during the weekends in Wildwood. Moron madness sums it up nicely. The proliferation of tattoos amongst the ignorant is astounding. I certainly can understand soldiers getting a tattoo on their arm representing their unit or service as a form of comradeship. I understand motorcycle club members identifying themselves by a distinct common tattoo. But young girls with multiple tattoos on their legs, arms, necks, and backs is revolting and stupid. We saw an attractive young girl at the Shamrock bar with a full leg tattoo. When my wife saw it close up while in the restroom, she noticed it was faces of ghouls and vampires. What happened in her childhood to lead her to deform herself in such a manner? It reminds me of cattle being branded by farmers, except the cattle are human beings being herded and corralled by their government keepers and they brand themselves.

  I’m baffled as to why so many people feel the need to mutilate their bodies. These are lower class people with limited financial resources. Some of them have thousands of dollars worth of ink deforming their bodies. The combination of ignorance, illiteracy, mathematical incompetence, and no self respect is a toxic mixture destined to keep these people trapped in poverty and unemployable. I have a theory about why the poor feel the need to tattoo themselves. We live in an egocentric facebook culture where everyone is competing to be noticed. People are desperate for attention. The rich don’t get tattoos. They drive BMWs. They wear Rolex watches. They wear Armani suits. They live in McMansions. The poor can’t afford bling, real estate, or luxury cars. But they can finance tattoos with their credit card. The easily led, ignorant, lemming like masses are just following the lead of the other ignorant masses. You can’t teach stupid.

  The funniest aspect of the boardwalk is the tramcar – I hear “watch the tramcar please” in my sleep. After wolfing down a few fried oreos, washed down by a 32 oz lemonade, the tattooed masses hail down the tramcar to drive them the ten blocks to their motel rooms. They are too ignorant to understand the irony of being transported on something called the Boardwalk. 

  

  There is nothing particularly wrong with the people enjoying themselves on the Wildwood boardwalk. They aren’t bad people. They aren’t committing crimes. They are spending money and keeping the economy going. But, I can pretty much guarantee you that not one of these people has ever visited The Burning Platform or would even understand the issues we debate every day. They are willfully ignorant. They don’t want to think about hard stuff. They have been dumbed down by our public education system. They have become obese by eating the toxic frankenfood peddled by mega-corporations. I noticed one heifer with one of those ugly Apple iWatches on her immense wrist. Where do these supposedly poor people find $500 to waste on an egocentric useless bauble. Ignorant Americans are addicted to status symbols because their lives are so shallow and their intellects are deficient. True self worth comes from within, not from what you wear, drive, or paint on your body.

  They have been brainwashed by their government with decades worth of propaganda that has sedated them, made them fearful of phantom terrorists, and supportive of blowing up people in foreign countries without a declaration of war. They actually believe the armed police forces roaming our streets kept us safe from a terrorist attack on the 4th of July. Their pea sized brains are unable to process the fact that more people have died in bathtub accidents since 9/11 then have died at the hands of terrorists. They don’t question, think or care about future generations. They don’t understand the long term financial implications of a country with $200 trillion of unfunded liabilities. They don’t even understand the term liability. It’s almost enough to make a man go to the Boardwalk Chapel and pray for the souls of the ignorant masses.

  

  At least the merchants on the boardwalk are creative and retain a sense of humor. I’m sure some progressive politician from Washington D.C. would be offended by being told to grab a wiener. Or maybe in our new gay America, this joint would be celebrated by the LGBT community.

  

  Coincidence or not? You decide.

  

  Some boardwalk stores actually provide some hope. Teaching the masses on the boardwalk to disobey might take more than a shirt. I would estimate that 75% of the people strolling along the Wildwood boardwalk have never heard of Edward Snowden, let alone what he did. And of those who have heard of him, most buy the government storyline that he is a traitor. But 99.9% of these morons know the courageous story of Bruce Jenner’s transformation into a freak called Caitlyn. They are oblivious to the military industrial surveillance state they occupy. The militarization of local police forces doesn’t reach their radar screens. Miley Cyrus twerking videos are more important.

  They have no worries about the fact that Obama and the captured corrupt politician snakes slithering around the halls of Congress have added $7.6 trillion to the national debt since 2009, a 75% increase in six years. They care not that their president uses drones to murder people in foreign countries. They think having troops in Afghanistan, Iraq, Syria, Libya, and dozens of other countries around the world is keeping them safe. They are happily unaware that the American empire overthrows governments on a regular basis if they don’t do what we tell them to do.

  It seems that everyone on the Wildwood boardwalk embraces the surveillance state. They all have tracking devices attached to their hands. Vacation used to mean leaving the office, disconnecting, relaxing, and recharging your batteries. With the proliferation of iGadgets, the masses have been trained by the Bernaysian propagandists to have the attention span of gnats. Rather than enjoying themselves on vacation, they have to prove to the world they are having fun. They “need” to check-in on Facebook. They must post selfies from the bar. They have to take a picture of their meal and tweet it to the world. The vacuous multitude are gloriously distracted from reality by their technological chains. The State is ecstatic, as the plebs wallow in bread and circuses (funnel cake & roller-coaster rides), and provide an electronic tracking signal for the NSA to exploit when necessary. The willfully ignorant masses will not disobey en-mass until they are no longer getting monthly government transfers, ATM machines stop spitting out $20 bills, and their credit cards come back declined.

  

  After observing for too long, I needed a break. We had one particularly enjoyable walk that we captured in a few pictures. As you walk down the boardwalk towards North Wildwood the rides and games fade into the distance. It gets quieter and less congested. When we reached the end of the boardwalk we decided to keep going for another 15 blocks to The Rocks at 2nd & JFK Boulevard. There was no one on the path with us. It became quiet and peaceful. The moon was full and reflecting on the rippling waves of the Atlantic Ocean.

  

  The sun was setting in the West providing an orange glow over the lighthouse and the bay in the distance.

  

  The scene couldn’t have been more breathtaking. No people. No technological distractions. No noise pollution. Just the sea, the wildlife, the sand dunes, and a shining orb in the sky.

  

  But then we had to walk back to reality. That is the dichotomy you experience in Wildwood. There is much to enjoy and savor, but it is overwhelmed by moron madness. I’ve come to believe that Aldous Huxley’s fears have been manifested on the boardwalk of Wildwood and across our entire nation. The masses don’t read books. We are inundated with so much useless information, we have been reduced to passivity and egotism. The truth is buried in a sea of irrelevance and our culture is based upon triviality. Our almost infinite desire for distractions and pleasure have produced a profoundly abnormal society. The ignorant masses are acting normally only in the context of living in a sick, demented, abnormal society.

  “The real hopeless victims of mental illness are to be found among those who appear to be most normal. “Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives, that they do not even struggle or suffer or develop symptoms as the neurotic does.” They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.” ? Aldous Huxley, Brave New World Revisited

  

  

  

  

  

• The Obama Jobs Recovery Spin (Explained In 1 Cartoon)

  We explained this in words (here and here), but here are the pictures…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Europe's Spiralling Game Of Chicken – Politics Always Trumps Economics

  Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

  There are decades where nothing happens; and there are weeks where decades happen.
  – Vladimir Lenin (1870 – 1924)

  In 1914, Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future.
  – Sir Edward Grey (1862 – 1933)

  Last week’s email, “1914 is the New Black”, was the most widely read Epsilon Theory note to date, and given the weekend ’s events it bears repeating, as the echoes of 1914 are growing louder and louder. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of 1914. The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike.

  I’m often asked how to get a better take on a historical event like the lead-up to World War I, and the answer is that there’s no substitute for immersing yourself in what people were actually saying and writing at the time the events transpired. If you’re lucky, perhaps you’ll pick a period that also attracted the attention of a gifted historian like a Robert Caro or a David McCullough. Second best, I’ve found, is to find a gifted editor or anthologist to smooth the path a bit. One such anthologist is Peter Vansittart, who collected a wide range of original texts in his classic books, “Voices: 1870 – 1914” and “Voices from the Great War”. I’ve taken some of those texts and appended them below. They speak for themselves, I hope, to illustrate the defining characteristic of a spiraling game of Chicken – all sides begin to speak in terms of “having no choice” but to take aggressive actions to defend their own interests.

  Before the quotes, though, three other historical observations:

  1. The Austrian ultimatum to Serbia – long seen as the proximate cause of World War I – was accepted by the Serbian government almost in its entirety. Unfortunately, that “almost” part made all the difference. An important anecdote to remember the next time someone calls your attention to Tsipras’s acceptance of 90% of the Eurogroup reform ultimatum.
  2. Anti-establishment voters are always underrepresented in establishment polls. Noted segregationist and Alabama governor George Wallace won the 1972 Democratic Party primary in Michigan despite showing third in polls. Daniel Ortega and his Sandinista regime lost the 1990 Nicaraguan election by 10 percentage points to Violeta Chamorro despite leading by more than 10 points in every pre-election poll. The Syriza NO landslide was no surprise here, and this is an important phenomenon to keep in mind when you start to see opinion polls from Italy and France published over the next few days.
  3. Politics always trumps economics. My favorite 1914 quote in this regard is from Lord Cunliffe, governor of the Bank of England from 1913 – 1918, who famously declared that war was impossible because “The Germans haven’t the credits.” So what if Greek banks run out of euros? The Greek government will make their own, or maybe issue California-style IOUs and dare the Eurogroup to boot them out of the currency. If you think that an ECB squeeze can put this political genie back in the bottle, you’re making the same classic error as Walter Cunliffe did.

  And now the quotes.

  I held a council at 10:45 to declare war with Germany. It is a terrible catastrophe but it is not our fault. An enormous crowd collected outside the palace; we went on the balcony both before and after dinner. When they learned that war had been declared, the excitement increased and May and I with David went on to the balcony; the cheering was terrific.
  – King George V (1865 – 1936)

  England alone carries the responsibility for peace or war, no longer us.
  – Kaiser Wilhelm II (1859 – 1941)

  In this most serious moment I appeal to you to help me. An ignoble war has been declared to a weak country. The indignation in Russia shared fully by me is enormous. I foresee that very soon I shall be overwhelmed by the pressure brought upon me and be forced to take extreme measures which will lead to war. To try and avoid such a calamity as a European war, I beg you in the name of our old friendship to do what you can to stop your allies from going too far. — Nicky
  – Tsar “Nicky” Nicholas II (1868 – 1918) in a letter to his cousin, Kaiser “Willy” Wilhelm II

  Now Tsarism has attacked Germany, now we have no choice, now there is no looking back.
  – Kurt Eisner (1867 – 1919)

  Necessity knows no law; we must hack our way through.
  – Theobald von Bethmann-Hollweg (1856 – 1921) in a speech to German Reichstag

  The few neutral states are not sympathetic toward us. Germany has not a friend in the world, she stands utterly alone and has only herself to depend on. … How different it all was a few weeks ago, when we launched so brilliant a campaign – now a bitter disillusionment is setting in. And how much we shall have to pay for all that is being destroyed!
  – Helmuth von Moltke the Younger (1848 – 1916) in a letter to his wife

  In this war it is a question … of German civilization against barbarous Slavdom.
  – Helmuth von Moltke the Younger (1848 – 1916)

  The year 1914 in America seemed the crest of a wave of passionate idealism among young people, and of passionate selfishness among middle-aged people.
  – John Cowper Powys (1872 – 1963)

  July 25: Unbelievably large crowds are waiting outside the newspaper offices. News arrives in the evening that Serbia is rejecting the ultimatum. General excitement and enthusiasm, and all eyes turn towards Russia – is she going to support Serbia? The days pass from 25 to 31 July. Incredibly exciting; the whole world is agog to see whether Germany is now going to mobilize.

  July 31: Try as I may I simply can’t convey the splendid spirit and wild enthusiasm that has come over us all. We feel we’ve been attacked, and the idea that we have to defend ourselves gives us unbelievable strength … You still can’t imagine what it’s going to be like. Is it all real, or just a dream?
  – diary of Herbert Sulzbach, “With the German Guns” (1935)

   

  

  

  

  

  

• China Crashes Most Since 2007 Amid "Panic Sentiment"; Over Half Stocks Suspended, PBOC Promises "Liquidity Support"

  Some context…

  China has lost 15 Greeces in market cap in three weeks

  — zerohedge (@zerohedge) July 8, 2015

  For a record 12th day in a row, Chinese margin debt balances have dropped with today's 8.5% collapse the largest in history. As of last night, there were around 570/1694 Shenzhen stocks halted/suspended and hundreds more on the Shanghai bourse leaving more than 54% of all Chinese stocks frozen ($2.6 trillion or 40% of value). China continues to try to manage leverage down (raising margin requirements on stock futures) while encouraging speculation (easing rules for insurers to buy blue chips and financing the purchase of smaller company shares directly) and CYNK'ing the entire market – if it's not open, you can't sell it and the price cannot fall! It's not working as CSI-300 futures are now down 7.9% in the preopen.

  • *CHINA TRADING HALTS FREEZE $2.6 TRILLION, 40% OF TOTAL VALUE

  

  China appears to be trying to manage leverage…

  • *CHINA RAISES MARGIN REQUIREMENT FOR CSI 500 INDEX FUTURES
  • *SHANGHAI MARGIN DEBT FALLS 8.5%, BIGGEST ONE-DAY DROP ON RECORD

  

   

  The problem is the collateral value is falling faster than the margin debt leaving "leverage" still at record highs…

  

  While encouraging speculation…

  • *CHINA EASES RULES FOR INSURERS TO INVEST IN BLUE CHIPS: XINHUA
  • *CHINA SECURITIES FINANCE TO BUY MORE SMALLER COS. SHRS: CSRC

  China news is domninated by dozens of pages of this…

  

  • *CHINA TRADING HALTS LEAVE 43% OF ENTIRE STOCK MARKET FROZEN
  • *1,249 CHINESE COMPANIES HAVE HALTED TRADING IN SHARES
  • UPDATE: Trading halts have left 1544 companies, equivalent of 54.7% of the Shanghai Composite and Shenzhen Composite, suspended today. (@GregorHunter)

  With what we estimate is around 850-900 Shenzhen Composite stocks suspended (over half of the 1694 stocks in the index) and almost 25% of Shanghai Composite stocks, it appears China has resorted to the endgame in managing a collapse…

  if it's not open, you can't sell it and the price cannot fall!

  In other words – the whole Chinese market just got CYNK'd

  Time to CYNK the entire Chinese stock market

  — zerohedge (@zerohedge) July 3, 2015

  * * *

  It's not working…

  • *CSI 300 JULY FUTURES PLUNGE 7.9% IN SHANGHAI
  • *CHINA'S SHANGHAI COMPOSITE INDEX SET TO OPEN 7% LOWER

  

   

  It looks like today could see China go red for the year…

  

  *  *  *

  China weakness and European rhetoric wearing S&P futures lower (down 11 points from cash close)…

  

  *  *  *

  Another day another attemnpt to stabilize…

  

   

  Just add this to the list of interventions…

  

  Perhaps if you just stare at it long enough, it will rise…

  

   

  Just remember this crash is telling us somethinmg about China…

  The stock market knows more than any individual investor, and China's is no exception.

  As NYU Professors Jennfier Carpenter and Robert Whitelaw told CNBC in January…

  This optimism should be taken seriously. This run-up is not a bubble, and so investors should not fear another crash.

   

  Our research shows that after a rocky first decade, which earned China's stock market a reputation as a casino, stock prices in China predict future profits as well as they do in the U.S. Moreover, this predictive power is highly correlated with China's corporate investment efficiency, suggesting that stock prices are teaching corporate managers important lessons as well. However, capital in China is still allocated almost entirely by its massive banking sector. It is time to untie the hand of the stock market, reform listing standards, streamline the IPO approval process now holding up over 600 firms seeking equity capital, and let the stock market allocate capital, too.

  Shut Up!!!

  As we detailed earlier – none of this was real or indicative of any real economic growth – it was all speculative ponzi and will not end well…

  Exhibit 1 – Based on 'fundamentals', The Shanghai Composite has a long way to go…

  

   

  Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won't find support until it has fallen another 60%…

  

   

  Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before 'value' is once again seen…

  

   

  Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably).

  

  

  

  

  

• China Now Risks "Financial Crisis"; Loses Could Be "In The Trillions" BofA Says

  “Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside. We suspect because it didn’t know the true extent of shadow margin financing activities.” 

  That’s BofAML’s take on why Beijing is now throwing the kitchen sink at a Chinese equity market that’s sold off to the tune of 30% in the space of just three weeks, vaporizing $3 trillion in market value in the process.

  Zero Hedge readers are by now well versed in the relatively brief history of unofficial, backdoor Chinese margin lending. This shadowy world, which includes umbrella trusts, structured funds, and P2P lending, has served to funnel somewhere in the neighborhood of CNY1 trillion into Chinese equities.

  Apparently, the powers that be in China — who are quite adept at monitoring “threats” to the Party line and are quick to remove all traces of “objectionable” material from the internet — completely missed the giant margin bubble that was allowed to inflate outside of brokers’ books. A far more realistic explanation of course is that Beijing was well aware of what was going on but let it continue due to the fact that China’s world-beating equity rally was the only thing distracting the country from flatlining economic growth and a bursting real estate bubble.

  Whatever the case may be, the margin mania unwind is upon us and as noted earlier today, nothing seems to be able to stop it. Not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, and not even a ban on selling by the Social Security Council (we’ll see when the SHCOMP opens on Wednesday morning if banning bearish language has any effect). 

  As Chinese stocks climbed ever higher earlier this year, some commentators began to ask if a stock market collapse would have implications for the broader Chinese economy. In short, just about the last thing the country needs amid slumping global (not to mention domestic) demand is for a crisis of confidence in local equity markets to spill over into the real economy and derail consumer spending just as Beijing attempts to transition the country away from a smokestack model and towards an economic future characterized by services and consumption.

  Generally speaking, the consensus was that any fallout from the bursting of the equity bubble would largely be confined to the financial markets. Now, analysts are very quietly starting to suggest that if the sell-off doesn’t end soon, it could metastasize and spread “far beyond the stock market.”

  *  *  *

  From BofAML:

  The A-share correction: The damage could spread far beyond the stock market

  A dent to market’s faith in government role

  We believe that the biggest damage caused by the A-share market’s roller-coaster ride since the middle of last year has been to investors’ faith in the government’s ability to manage asset prices (stock, RMB, debt and even property) reasonably smoothly. The difficulty the government has faced to stabilize the stock market has demonstrated the downside of that faith. As a result, we expect many of these assets to be re-priced lower going forward. Also,the ripple effect from the market correction has yet to show up – we expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.

  Many assets in China may get re-priced lower

  We question the implementation of government policy in urging people to buy stocks. Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside (we suspect because it didn’t know the true extent of shadow margin financing activities) and it resorted to administrative control when the market turned down. So far, government measures have appeared to us to be behind the curve. As a result, we expect investors to assign less value to various perceived government “puts” going forward. The fall in the stock market could also make the government even more cautious towards QE and potentially using the property market or debt market to hold up growth, in our view – a burst of any of these bubbles, if fully developed, will be far more difficult to deal with than what’s happening in the stock market.

  Real economy & corporate earnings will suffer

  The net result of this volatile market is a transfer of wealth from the people on the street to the wealthy, including many major shareholders, who cashed out. We expect this will likely hurt consumption down the road. More critical is a potential distortion to credit flows due to the impairment to financial institutions’ balance sheets – as experience with Japanese banks shows, even if they don’t have to mark to market and book losses, their lending attitude may turn more cautious. Of course, the impact of a full-blown financial crisis in China, if it materializes, on the economy would likely be severe. On corporate earnings, other than the drag from slower growth, many companies may have to book stock-market related losses over the next few quarters by our assessment.

  A possible trigger for a financial crisis in China

  If the market continues to fall sharply, stock lending related losses could run into Rmb trillions, of which, banks and brokers may have to bear a meaningful share. These potential losses can be especially dangerous to brokers whose capital base is less than Rmb1tr. Even more important, the opaqueness of China’s financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the subprime crisis. We had always considered the risk of a financial crisis in China as high. What has happened in the stock market has likely increased the risks considerably and also brought forward the timeline by our assessment – the leverage is much higher now and economic growth rate, potentially lower.

  *  *  *

  We’ll leave you with following chart from Morgan Stanley which should be enough to dispel the notion that the deleveraging in China might have run its course:

  

  

  

  

  

  

• Merkel Mocks Greece And The Referendum: There Is Money, But The Deal Is Much Harsher Now (And No Debt Haircut)

  Another day came and went with no breakthrough in negotiations between Athens and Brussels as new Greek FinMin Euclid Tsakalotos reportedly showed up to Tuesday’s Eurogroup with nothing to discuss. 

  With the ECB tightening the screws on Greek banks and the German finance ministry as well as German lawmakers tightening the screws on Angela Merkel, the Chancellor is drawing a hard line toward the Greeks in the face of calls for debt writedowns from the IMF, Greek PM Alexis Tsipras and the Greek people. 

  • MERKEL SAYS IF GREEK REFORM PROPOSALS ARE SATISFACTORY AND PRIOR  ACTIONS TAKEN, SHORT-TERM FINANCE CAN BE PROVIDED: RTRS
  • MERKEL SAYS SHORT-TERM GREEK FIX HINGES ON LONG-TERM PROPOSALS
  • MERKEL SAYS GREECE NEEDS MULTI-YEAR PROGRAM 
  • MERKEL: GREEK PROPOSALS HAVE TO GO BEYOND WHAT BAILOUT INSTITUTIONS DEMANDED BEFORE REFERENDUM
  • MERKEL SAYS GREECE WILL NEED STRONGER MEASURES TO PLUG FINANCING GAP BECAUSE OF ECONOMIC DETERIORATION
  • MERKEL: EU TO DEAL WITH GREEK DEBT BURDEN AT END OF PROCESS
  • MERKEL SAYS EURO LEADERS DIDN’T DISCUSS AID PACKAGE SIZE
  • MERKEL SAYS SHE ISN’T ‘ESPECIALLY OPTIMISTIC’ ABOUT GREECE
  • MERKEL RULES OUT DEBT ‘HAIRCUT’
  • MERKEL SAYS ECB BRIEFING SIGNALED GREECE NEEDS SUNDAY DECISION

  More from Reuters: 

  German Chancellor Angela Merkel said on Tuesday she hoped to have sufficient reform proposals from Greece this week to be able to ask the German parliament to approve negotiations on a new long-term aid programme for Athens.

   

  She said all 28 European Union leaders would meet next Sunday to discuss support for Greece provided Prime Minister Alexis Tsipras put forward detailed reform proposals along with a loan request by Thursday that were considered satisfactory.

   

  If the reform list was adequate and Greece took some prior actions to enact first measures, Merkel said she was sure that short-term finance could be provided to help Athens over its immediate funding needs.

  In other words, Merkel just told the Greeks yes, there is some money, but forget debt haircut, and the new deal is far harsher than what was on the table because the Greek economy is now imploding. Also, the deal will be 2-3 years at least to start, so even more austerity is on the table. So to all those who voted “Oxi”, if you want your deposits unlocked well… tough.

  The headlines keep coming hot and heavy, in which we find that Europe now thinks it is Greece’s god:

  • MALTA’S MUSCAT SAYS `SUNDAY IS JUDGMENT DAY’

  As Bloomberg reports, “Sunday now looms as the climax of a five-year battle to contain Greece’s debts, potentially splintering a currency that was meant to be irreversible and throwing more than a half-century of economic and political integration into reverse. “We have a Grexit scenario prepared in detail,” European Commission President Jean-Claude Juncker said, using the shorthand for expulsion from the now 19-nation currency area.

  And just so it is clear who is calling the shots, here is Juncker explaining:

  • JUNCKER: LAST MOMENT FOR GREEK GOVT WILL BE MONDAY MORNING

  What happens then?

  “Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” European Union President Donald Tusk said. “If someone has any illusions that it will not be so, they are naive.”

  And just in case Greece decides to disobey, Europe is ready to treat Greece as an African nation:

  • JUNCKER: EU COMMISSION HAS HUMANITARIAN PLAN FOR GREECE IF NEED

  The only good news for Greece, which was just clearly reduced to a vassal nation state of Europe, is that Merkel did not demand Tsipras’ head on a silver platter. Then again, if he does indeed fold, it may be the Greek people themselves who ask for it instead…

  

  

  

  

  

• Cronyism Pays: Eric Holder Triumphantly Returns To Law Firm That Lobbies For Banks

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Trying to determine Barack Obama’s most corrupt, crony appointee presents a virtually impossible task. Every single person he’s appointed to a position of power over the course of his unfathomably shady, violent and unconstitutional presidency, has been little more than a gatekeeper for powerful vested interests. Obama’s job was to talk like a marxist, but act like a robber baron. In this regard, his reign has been an unprecedented success.

  All that said, if anyone is a top contender for the worst of the worst of the Obama Administration, it’s Eric Holder. As head of the Department of Justice, he was the one man who could’ve played an enormously positive role in American society, by punishing those responsible for creating the financial crisis that destroyed tens of millions of lives globally. Instead, he chose to actively protect the financial oligarchs and ushered in a tragic new era for these United States. One in which the world suddenly realized that the U.S. is little more than a glorified oligarchy. Essentially an aggressive Banana Republic armed with nuclear weapons and the swagger of a third world dictator.

  Holder’s list of failures and evidence shameless cronyism are virtually endless. I’ve covered many of them on this site. Here are just a few:

  The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

  Eric Holder Announces Task Force to Focus on “Domestic Terrorists”

  Eric Holder and the DOJ Have Spent Millions of Taxpayer Dollars on Unreported Personal Travel

  Elizabeth Warren Confronts Eric Holder, Ben Bernanke and Mary Jo White on Bankster Immunity

  Even Washington D.C. Insiders Admit Eric Holder is a Bankster Puppet

  Eric Holder Claims Emails Using Words ‘Fast and Furious’ Don’t Refer to Operation Fast and Furious

  For all his hard work protecting and coddling criminal financial oligarchs, Eric Holder was always going to be paid handsomely once he left office. That time has come. From the Intercept:

  After failing to criminally prosecute any of the financial firms responsible for the market collapse in 2008, former Attorney General Eric Holder is returning to Covington & Burling, a corporate law firm known for serving Wall Street clients.

   

  The move completes one of the more troubling trips through the revolving door for a cabinet secretary. Holder worked at Covington from 2001 right up to being sworn in as attorney general in Feburary 2009. And Covington literally kept an office empty for him, awaiting his return.

   

  The Covington & Burling client list has included four of the largest banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo.

   

  Covington was also deeply involved with a company known as MERS, which was later responsible for falsifying mortgage documents on an industrial scale. “Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JPMorgan Chase and several other large banks,” according to an investigation by Reuters.

   

  The Department of Justice under Holder not only failed to pursue criminal prosecutions of the banks responsible for the mortage meltdown, but in fact de-prioritized investigations of mortgage fraud, making it the “lowest-ranked criminal threat,” according to an inspector general report.

   

  When the firm moved to a new building last year, it kept an 11th-story corner office reserved for Holder.

  For all intents and purposes, he never really left Covington. He just took a sabbatical to protect the banksters for a few years.

  Holder is set to become among the highest-earning partners at the firm, with compensation in the seven or eight figures.

  Of course, Mr. Holder is not the only shameless crony to join Covington. It seems the firm almost makes a point to hire the most compromised, Washington D.C. parasites they can find. As the New York Times noted:

  Covington already employs a number of former Justice Department officials, including Lanny Breuer, the former assistant attorney general for the department’s criminal division under Mr. Holder; Mr. Breuer’s successor, Mythili Raman; and Michael Chertoff, a former assistant attorney general and secretary of Homeland Security.

   

  History shows that Breuer wouldn’t challenge bankers if they threw his own mother out on the street. Meanwhile, Chertoff is famous for trying to make a fortune by scaremongering the American taxpayer into buying his worthless Rapiscan naked body scanners.

  Moving along, let’s try to look on the bright side. With Holder gone, his replacement couldn’t possibly be worse, right? Wrong.

  Recall: Meet Loretta Lynch – Obama’s Attorney General Nominee Who Might be Even Worse than Eric Holder

  Now I’d like to say farewell to Eric Holder the only way I know how…

  

  

  

  

  

• Presenting China's Plunge Protection Playbook

  Earlier today we were amused (but not at all surprised) to learn that Beijing’s latest strategy in the fight to rescue collapsing Chinese stock prices involves forbidding local media from using terms like “rescue the market” and “equity disaster”. Here’s a concise recap of the situation: 

  Officials in Beijing are in the throes of Politburo panic after watching some $3 trillion in market value disappear into thin (and probably polluted) air over the last three weeks. Amid the turmoil, China has resorted to an eye-watering array of policy maneuvers, pronouncements, and plunge protection schemes aimed at arresting the slide. 

   

  Nothing has worked; not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, not even a ban on selling by the Social Security Council. And when banning selling doesn’t work, you have to ban talking about selling.

   

  
  

  Indeed, it’s truly amazing to consider the lengths China has gone to over such a short period of time in a futile attempt to resurrect the margin-fueled equity bubble that has served as a convenient distraction for a country that might otherwise be focused on decelerating economic growth and a collapsing real estate bubble. 

  Because there’s still a long way to go before the panicked deleveraging in backdoor margin lending channels runs its course, we expect to see Beijing resort to still more desperate measures to arrest the slide. Meanwhile, Morgan Stanley — whose “don’t buy this dip” call might well have been the straw that broke the dragon’s back so to speak — is out with a detailed history of China’s plunge protection playbook. Below is a visual representation followed by the detailed breakdown.

  

  From Morgan Stanley:

  Taking action to stabilize the A-share market

  June 27: RRR cut and rate cut

  The People’s Bank of China (PBOC) announced cuts in the benchmark 1-year lending rate of 25bps to 4.85% and the 1-year deposit rate of 25bps to 2.00%, effective June 28, 2015. Meanwhile, the central bank also cut the RRR applied on qualified financial institutions with a focus on rural and/or SMEs loans by 50bps, and that on finance companies by 300bps. This is the first combined interest rate and RRR cut taken during this round of policy easing. Morgan Stanley expects the move to release around Rmb230bn of liquidity into the system.

  June 29: Up to 30% of US$570bn pension fund likely to be invested in stock market

  “Basic Rules of Pension Insurance Fund Investment Management ” has started to solicit feedback from the public. According to the preliminary draft, up to 30% of the fund could be invested in equities and equity-related investment products.

  June 30: 13 major private fund managers jointly voiced bullish views on A shares

  Thirteen major China private fund managers jointly announced that the core foundation for the A-share rally has not changed – stable monetary policy, structural reform, asset reallocation by Chinese households. The risk-return profile has improved after the recent correction and provided good investment opportunities for mature, rational investors. The joint announcement was organized by China Asset Management Association.

  June 30: Easing of regulations/rules on margin financing

  1. On existing margin financing through unofficial channels: CSRC announced that total underground margin financing is estimated to be Rmb500bn. The total amount of mandatory position closing during the previous two weeks was only Rmb15bn.

  2. On regulations/rules regarding margin financing through unofficial channels: CSRC announced that brokerage firms are allowed to provide data feed connection to web-based securities services operated by qualified third parties.

  Service providers that have been involved in rule-violating activities will need to go through reforms and rectifications. During this period, the service provider can continue providing service for the existing margin balance, but not grow any new business.

  3. On regulations/rules regarding margin financing through brokers: One major Chinese broker, Guo Tai Jun An, announced on its website that it had decided to adjust up the collateral conversion ratio for selective CSI 300 Index constituent companies (equity holdings that could be used as collateral for margin financing) and adjust down margin maintenance requirement, effective starting from July 1.

  July 1: Easing of regulations and rules on margin financing

  1. CSRC announced new rules on margin financing through a new version of “Brokerage Firm Margin Financing Business Management Rules”.

  a) Removes the requirement of margin calls with two business days when investor’s collateral market value falls below 130%, and that total value of collateral (existing + additional) needs to be above 150% of the financing amount.

  b) Allows brokerage firms and their clients to decide between themselves the requirement for the deadline and amount for margin calls.

  c) Allows more flexibility for brokers to treat investors’ collateral – forced liquidation is not mandatory any more.

  d) Brokerage firms are allowed to roll over existing margin financing contracts that are not longer than six months.

  2. The Shanghai Stock Exchange announced that real estate and equity ownership can be used as additional collateral if margin calls get triggered.

  July 1: Increase of shareholding by listed companies

  1. Increase of shareholding by major shareholders: Between June 15 and July 4, major shareholders of 182 A-share listed companies have increased their shareholding through secondary market purchase. There were more 20 listed companies announcing shareholding increases on July 3.

  2. Shares repurchase by A-share listed companies: China Vanke A (000002.SZ), TCL Corporation (000100.SH), Media Group (000333.SZ), BOE Technology (000725.SH), Bright Oceans Inter-Telecom Co Ltd (600289.SH)

  July 2: Reduction of equity trading transaction fee

  The Shanghai Stock Exchange, Shenzhen Stock Exchange, and China Securities Depository and Clearing Corporation Ltd announced reductions to A-share trading transaction fees: from 0.03% of transaction face value to 0.002% for Shanghai Stock Exchange, from 0.00255% to 0.002% for Shenzhen Stock Exchange, effective from August 1.

  July 3: China Securities Finance Corp Ltd (CSFC) capital increase and share expansion

  CSRC announced that CSFC will expand its registered capital from Rmb24bn to Rmb100bn. CSFC will raise funding from multiple channels in addition to stabilize capital market.

  * CSFC was founded in 2011 under the context of beginning of margin financing business in China. It is the only investment business entity in China that has been approved to practice margin refinancing. Its business is mainly focuses on: 1) raise financing to lend to brokers for their margin financing business; 2) provide a platform for insurance companies, mutual funds, strategic shareholders of listed companies to lend out their equity holdings.

  CSFC’s major shareholders include: Shanghai and Shenzhen stock exchanges, China clearing, CFFEX, Dalian Commodity Exchange and Zhengzhou Commodity Exchange. Besides the refinancing business, it also tracks and monitors the overall margin financing business in China, analyzes market and credit risks, etc.

  July 3: Reduction of IPOs in terms of both numbers and the amount of capital raised

  CSRC announced at its press conference that the number of IPOs and the amount of capital to be raised through IPOs will be significantly reduced subsequently.

  July 4: 28 approved IPOs got suspended

  Twenty-eight approved IPOs that have been scheduled for subscription in July will be suspended. Subscription fund is returned to investors’ investment accounts on July 6.

  July 4: 21 major Chinese brokerage firms to invest Rmb120bn in blue chip ETFs

  Twenty-one major brokers announced that they will jointly offer minimum Rmb120bn to buy blue chip ETFs. These companies promised not to sell their positions as long as the SH Composite Index is below 4500.

  July 4: 25 major Chinese mutual funds to invest in equity funds managed by themselves

  Twenty-five mutual funds jointly announced:

  1) Chairmen and general managers of these funds promised to actively purchase equity funds managed by their own companies and hold shares for at least one year.

  2) Re-open funds whose subscription has been closed to offer investors more investment options

  3) Expedite equity funds’ application and distribution, and build positions with newly raised funds according to the funds’ mandates.

  * China Asset Management Association announced that by July 6 2015 57 mutual funds are reported to have committed Rmb2.2bn to equity funds managed by themselves. in total 62 mutual funds (including the 25 ones mentioned above) have made public announcements supporting the 25 mutual funds’ proposal.

  July 5: China HUIJIN’s investment in A-share ETFs

  China Central HUIJIN Investment Company announced on its website that it has been purchasing open-end A-share ETF index funds on the secondary market, and that it will continue relevant market operations.

  July 5th : CSRC announcement of tighter measures against market manipulation and rumor distribution activities

  CSRC announced at its press conference that:

  1. Plans for upcoming IPOs: There will be no new IPOs in the near term after the 28 approval IPOs got postponed. Processing of new IPOs will not stop; however, the number of new IPOs and the capital to be raised through these IPOs will be reduced significantly.

  2. Actions against shorting index future: CFFEX (China Financial Futures Exchange Inc) has restricted opening positions on CSI500 Index future contracts for some investment accounts. CSRC has required CFFEX to strengthen its inspection actions and coverage to collaborate with CSRC on illegal transactions and market manipulating trading activities.

  3. Actions against rumors: CSRC has initiated securities law targeted law enforcement actions against creating and distributing stock market rumors.

  July 5: China Securities Finance Corp Ltd (CSFC) to stabilize the market with liquidity support from PBOC

  CSRC announced that China Securities Finance Corp Ltd (CSFC) will raise funding through multiple channels and play an active role trying to stabilizing the market. PBOC will provide liquidity support for this purpose.

  * There is no specific limit attached to the liquidity support mentioned in CSRC’s announcement.

  July 6: CSI500 Index Future to have trading limit of 1200 lots

  China Financial Futures Exchange (CFFEX) announced a daily trading limit for CSI 500 index future (IC500), effective on July 7 2015. Investors can only buy up to 1,200 lots of CSI 500 index future contract for either long or short positions.

  

  

  

  

  

• Financial Nonsense Overload

  Submitted by Dmitry Orlov via Club Orlov blog,

  “Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

  As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece's potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

  However, Greece's creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

  Add to this a double-helping of double standards. The IMF won't lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren't Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

  The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe's politics, with the political center cratering and being replaced with radical left-right coalitions. Note how quickly France's right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece's left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.

  In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it's called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that's exactly what must happen.

  But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let's look for ways to not help them do this.

  

  

  

  

  

• Just One Chart

  Brace yourselves…

   

  

   

  Chart: Bloomberg

  

  

  

  

  

• VaRouFaKiS vs THe SQuiD…

  

  

  

  

• Surprise! CEOs Are Getting Rich By Buying Back Stock

  By now, there should be no doubt about who to thank for the record highs US stocks have put in this year. Investors should direct their appreciation first to the FOMC and second to corporate management teams, who stepped in to provide the all important “flow” once the Fed began to scale back its asset purchases. 

  Of course the Fed has been a powerful enabler when it comes to corporate buybacks. Ultra low rates have sent investors searching far and wide for yield, which in turn makes corporate credit an attractive option in a world where risk free assets often yield an inflation-adjusted zero or worse, have a negative carry. The strong demand for corporate issuance coupled with investors’ Fed-induced “beggars can’t be choosers” mentality means companies have been able to issue debt at rock-bottom rates.

  

  The proceeds from debt sales have been funneled into buybacks and dividends as myopic (not to mention price insensitive) corporate management teams have focused squarely on artificially boosting the bottom line and of course, on boosting their own equity-linked compensation. 

  

  We’ve recounted this narrative ad nauseam this year and we’ve also gone to great lengths to explain how this dynamic serves to undermine top line growth by curtailing capex and thus ensures that if a real, demand-driven recovery ever does actually materialize, companies will be ill-prepared to capitalize on it. 

  

  But again, that’s just fine for corporate management teams because it’s all about instant gratification these days and if you needed further proof that US equity markets have become the preferred channel for transferring debt sale proceeds directly into the pockets of top management, Bloomberg has all the evidence you need. Here’s more:

  Buybacks and dividends are rising to records in the U.S., and for many chief executives, that means a fatter pay check — even if sales aren’t growing.

   

  Eleven of the 15 non-financial U.S. companies that spent the most on buybacks last year base part of CEO pay on earnings per share or total shareholder return, or both, according to data compiled by Bloomberg. These metrics get a boost when businesses return cash to investors, giving companies like International Business Machines Corp. and Cisco Systems Inc. added incentive to dole out cash to stockholders.

   

  

   

  Linking compensation to buybacks and dividends can encourage managers to sacrifice funds that could be used for long-term investments, economist William Lazonick said. It also raises the prospect that executives are being paid for short-term returns rather than running a business well.

   

  Tying pay to performance has long been considered a shareholder-friendly move that gives executives an incentive to ensure that the company is on solid footing. Investors such as Warren Buffett have applauded payouts when they consider shares to be undervalued. Large pension funds have welcomed pay incentives, like when Walt Disney Co. in 2013 changed the way it calculates CEO Bob Iger’s stock awards.

   

  Yet dividends and buybacks can prop up per-share earnings and total shareholder return — lifting CEO pay as a result — even in cases where sales are falling.

   

  The focus on shareholder value has “led to this really corrosive feedback loop between executive compensation and corporate behavior,” said Nick Hanauer, co-founder of venture capital firm Second Avenue Partners LLC. “When everyone around a board room can justify essentially any behavior to generate a higher stock price, no stone shall go unturned.”

   

  
  

   

  Average CEO compensation for the top 350 U.S. firms by revenue has climbed to $16.3 million last year, according to data from the Economic Policy Institute. That’s up from $15.7 million in 2013.

   

  Overall in 2014, non-financial companies returned almost $1 trillion in share repurchases and dividends. As a percentage of gross domestic product, that’s among the largest payouts on record.

   

  Not all investors are applauding the bonanza.

   

  Amid a bull market, shareholders may not be as concerned as they should about the potential boost that buybacks and dividends can give to CEO pay, said Robert Barbetti, head of compensation advisory for J.P. Morgan Private Bank in New York.

  
  

  “Boards and compensation committees should be thinking very carefully about the incentive plans and objectives that work long term.” 

  Yes, maybe they should, but when the Elio Leonis of the world are setting the standard by raking in $1.8 million without ever having to work a day (or an hour for that matter), expecting executives to think beyond next week may be asking far too much.

  

  

  

  

  

• The Greferendum Shocker: Tsipras "Intended To Lose" And Is Now "Trapped By His Success"

  Call it game theory gone horribly chaos theory.

  It all started with a report by the Telegraph’s Ambrose Evans-Pritchard, whose release of on the record comments by Yanis Varoufakis (which we noted was rather surprising) that Greece was contemplating a parallel currency and potentially nationalizing Greek banks over the weekend, was supposedly the catalyst that got the Greek finmin fired. As a reminder, this is what Varoufakis told AEP on Sunday night: “If necessary… issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.” And this is what the WSJ said on Monday morning:

  … the premier decided to act after Mr. Varoufakis told a U.K. newspaper late Sunday that Greece might introduce a parallel currency and electronic IOUs similar to those issued previously in California. Mr. Varoufakis quickly backtracked on his comments to the Daily Telegraph, but his prime minister had had enough, the people familiar with the matter say.

  That was the first indication that the wheels had officially come off the Greek wagon.

  Moments ago, we got confirmation of just that, when in another surprising twist it was again the Telegraph’s Evans-Pritchard who reported that the Greek prime minister who decisively and unexpectedly pushed for a referendum on the last weekend of June, “never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.”

  He got just that, and in a landslide vote at that even though “he called the snap vote with the expectation – and intention – of losing it.”

  Also according to the Telegraph, “the plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25th “ultimatum” and suffer the opprobrium.”

  He had good reason: according to another Varoufakis quote provided by AEP, “[the Troika] just didn’t want us to sign. They had already decided to push us out.”  In other words, as we speculated in mid-June, the only question was who gets stuck with the blame, and when Tsipras called the referendum, he made it quite easy for Europe; it was even easier when Greece collectively voted “Oxi” to a referendum spun in Europe as one whether or not to remain in the Eurozone.

  There is more: with Tsipras having already checked out it was a case of “after me, the flood”

  This ultimatum came as shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

  But it is what happened next that took everyone by surprise: “Syriza called the referendum. To their consternation, they won, igniting the great Greek revolt of 2015, the moment when the people finally issued a primal scream, daubed their war paint, and formed the hoplite phalanx.”

  Suddenly the stakes are even higher for Tsipras, who is “now trapped by his success.” According to Costas Lapavitsas, a Syriza MP, “the referendum has its own dynamic. People will revolt if he comes back from Brussels with a shoddy compromise.”

  Ironically, that is precisely why the market soared today after it tumbled early in the morning, because it appeared that the Greek finmin was doing just: accepting a shoddy compromise. Of course, it wouldn’t be the first time: the Greeks had come home with “compromise” deals on many previous occasions only to have Syriza tear them apart. And this time the stakes are higher not only for Tsipras but the entire party, which realizes it faces a mutiny by the people, mostly the young ones, those with little to lose, if some 60% of them voted against a deal “at any cost” just to see the government fall back to just such an outcome.

  The Syriza MP Lapavitsas is correct when he says that  “Tsipras doesn’t want to take the path of Grexit, but I think he realizes that this is now what lies straight ahead of him.”

  In some ways Tsipras tried to backtrack: “The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands – and give up the volatile Mr Varoufakis in the process as a token of good faith.”

  What would happen if Tsipras did decide to stick it to Europe, launch a parallel currency, sack the legacy central banker and nationalize the insolvent banks? We already laid out the key points previously but here it is again:

  They would “requisition” the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

   

  They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece’s full legal rights as a member of the eurozone. If the creditors forced Grexit, they – not Greece – would be acting illegally, with implications for tort contracts in London, New York, and even Frankfurt.

   

  They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed ‘odious debt’ by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have have happened.

  None of that happened, instead Greece is now in full chaos mode.

  Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

   

  Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

  However, it is not just Greece which is sliding into total chaos – so is Europe itself, where the splits are becoming so obvious none other than the head of the German Institute for Economic Research said “What Is Happening Now Is A Defeat For Germany.”

  The entire leadership of the eurozone warned before the referendum that a ‘No’ vote would lead to ejection from the euro, never supposing that they might have to face exactly this. Jean-Claude Juncker, the European Commission’s chief, had the wit to make light of his retreat. “We have to put our little egos, in my case a very large ego, away, and deal with situation we face,” he said.

   

  France’s prime minister Manuel Valls said Grexit and the rupture of monetary union must be prevented as the highest strategic imperative. “We cannot let Greece leave the eurozone. Nobody can say today what the political consequences would be, what would be the reaction of the Greek people,” he said.

   

  French leaders are working in concert with the White House. Washington is bringing its immense diplomatic power to bear, calling openly on the EU to put “Greece on a path toward debt sustainability” and sort out the festering problem once and for all.

   

  The Franco-American push is backed by Italy’s Matteo Renzi, who said the eurozone has to go back to the drawing board and rethink its whole austerity doctrine after the democratic revolt in Greece. He too now backs debt relief for Greece.

  However, as if oblivious to these terminal developments within her own union, Merkel is already pushing onward and discussing plans for humanitarian aide and balance of payments support for the drachma: if there was any clearer indication that the Eurozone has been an abject failure, it would be the treatment of one of its member states as a 3rd world African banana republic even before it formally withdrew from its quasi-prison.

  Some within Syriza realize that it is all coming to an end, no matter if the can is kicked one more time (which it increasingly looks like it may be despite the referendum’s landslide vote):

  Mr Lapavitsas said Europe’s own survival as civilisational force in the world is what is really at stake. “Europe has not show much wisdom over the last century. It launched two world wars and had to be saved by the Americans,” he said

   

  “Now with the creation of monetary union it has acted with such foolishness, and created such a disaster, that it is putting the very union in doubt, and this time there will be no saviour. It is the last throw of the dice for Europe,” he said.

  … and yet, in the very end, the Greek prime minister who bluffed and unexpectedly won, now appears willing to concede just about everything to Merkel. Because even if the Telegraph’s entire article is based purely on speculation, it doesn’t explain the easy with which Tsipras seems to have folded not only on implementing reform as part of the harsher deal proposed by Merkel, but his admission that further debt relief now appears unlikely:

  • TSIPRAS PLEDGES GREEK REFORMS AS PART OF ANY AID DEAL
  • TSIPRAS SAYS GREECE SUBMITTED PROPOSALS TODAY
  • TSIPRAS SAID MORE RESTRAINED IN REQUESTING DEBT RELIEF

  And from the president of the European Council:

  .@atsipras committed to present a new request for a programme within the framework set by the ESM Treaty, incl. strict policy conditionality

  — Donald Tusk (@eucopresident) July 7, 2015

  Because in the end money talks, in this case €120 billion in hijacked unsecured liabilities known “deposits” and politicians walk. As for those millions of Greeks who gave Europe the symbolic middle finger on Sunday, their reaction when they just find out they were sold down the river once again will be all that matters.

  Yet in the end, Varoufakis’ line may again be the most important one: “they had already decided to push us out.” If true, then as Juncker threatened earlier not only will the last day for the Greek government be Monday, but so will the last day for Greece in the Eurozone.

  

  

  

  

  

• Why GM Is Back Below Its IPO Price – Pictures From GM's China "Parking Lot"

  Despite broad and deep price cuts introduced earlier in the year, GM's sales in China were roughly flat in June continuing the streak of weakness since March (when GM changed its reporting to retail sales from wholesale delivery). This is the weakest start to a year for China auto sales since 2012 and GM's share price is now back notably below its 2012 IPO price. Judging by the massive volume of cars 'parked' in GM's Shenyang Liaoning lots, it is clear that automakers learned nothing from the last "if we build it, they will come" channel-stuffing inventory surging dysphoria that, among other things, led to their last bankruptcy… if only Chinese buyers would take up the credit terms like Americans.

  GM's stock is back below its IPO price…

  

   

  As sales in China slump… (as Reuters reports)

  General Motors Co vehicle sales in China were roughly flat for June as broad price cuts introduced earlier in the year failed to boost demand.

   

  GM and its Chinese joint-venture partners sold 246,066 cars in June, virtually unchanged from the same month a year ago, the U.S. automaker said in a statement on Monday.

   

  That compares with a 4 percent year-on-year drop in May sales and a 0.4 percent dip in April, when the automaker switched to reporting retail sales rather than wholesale data for China.

   

  GM has largely failed to counteract sluggish auto sales so far despite slashing prices on 40 models in May by up to 20 percent, as China's economy grows at its slowest rate in 25 years. The automaker also faces rapidly shifting tastes among Chinese consumers, now showing a pronounced preference for small, affordable sport-utility vehicles.

  As it appears there just is no more room to stuff inventories in its Shenyang, Lianing province parking lots  (as China has become the new car graveyard over the last 3 years)

  

  

  

  

  

  

  

  

  

  *  *  *

  And with allthis inventory, sales are a problem…

  For the market overall, sales for January to May rose only 2.1 percent from a year earlier, giving 2015 the slowest start since 2012, according to the most recent statistics available from the China Association of Automobile Manufacturers (CAAM).

  And finally, there is an even bigger probelm…

  • *CHINA PASSENGER CAR SALES HIT BY STOCK-MARKET ROUT, CUI SAYS
  • *CHINESE CANCELLING CAR PURCHASES ON STOCKS ROUT, PCA'S CUI SAYS

  

  

  

  

  

• Disorderly Collapse – The Endgame Of The Fed's Artificial Suppression Of Defaults

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The Federal Reserve under Alan Greenspan and then Ben Bernanke has escaped, largely, responsibility for the panic in 2008 mostly because there is no direct link between monetary policy and the housing bubble. The most stinging criticism that comes out of the era is Greenspan’s “ultra-low” interest rate setting for federal funds, but there is no smoking gun in the form of the “printing press” or bank “reserves.” In fact, bank reserves remain, somehow, the central focus of monetary policy even today when they should be taken for how big a mess the Fed created of the prior bubbles.

  There is no printing press in the basement of the Marriner Eccles building or even at the Open Market Desk of FRBNY in NYC. That does not mean, however, that monetary policy is absolved from the center of the biblical expansion of “dollar” reach and debasement (in both definition and scale). When you look at bank reserves, the immediate reaction, often more visceral than cerebral, is that there should be an enormous bout of inflation by now; that was, in fact, the first public and expressed criticisms of the QE’s.

  That view of “reserves” conflates what they actually represent. In the operational format alone, reserves are only what the Open Market Desk is doing of monetary policy at that time. In terms of the serial asset bubbles, they represent the onboarding of immense “money dealing” that took place in the latter 1990’s and early and middle 2000’s under the implicit but never-tested promises of monetary policy. In other words, the rise in reserves now was only to make explicit, in arrears, what was expected from bank balance sheets during the bubbles themselves.

  

  In that respect, the increase in reserves post-crisis was not to unleash new inflation, consumer or asset, but rather to enumerate, and only partially, what it took to get past inflation going and maintaining. The Fed was only, through the QE’s, taking belated ownership of that which it implicitly aided of past “dollar” existence. Linking monetary policy to that inflation was not just the federal funds rate, but how that “communication” (as Janet Yellen tells it) was used in actual “money supply” circumstances.

  In March 2007, Richard Claiden, CFO of Primus Guaranty, delivered a presentation at the Richmond Fed’s Credit Markets Symposium that showed this monetary linkage in unequivocal detail. Credit spreads on the Dow Jones OTR 5-year CDX had fallen from near 80 bps in early 2003, at the bottom of the dot-com “cycle”, to almost 30 bps by early 2007.

  

  The reason for that massive compression was what is familiar to any financial observer of the post-QE3 environment. Not only did Mr. Claiden refer to a “reach for yield” in March 2007 he also quantified what is perhaps the least appreciated aspect of wholesale monetary influence: clustering defaults.

  

  In the attempt to diminish the influence of the business cycle, the Fed uses monetary policy to influence bank and bond investors with regard to liquidity and risk. One of the major expressions of that is to artificially induce default clusters; there was a massive default wave in the nascent wholesale finance industry out of the dot-coms but then a serious absence of persisting defaults despite a relatively weak recovery thereafter. That disparity is covered by monetary policy influence which, in addition to “reach for yield” via rate repression, keeps many weaker businesses afloat long past the point at which they “should” fail. That isn’t, however, a permanent reduction of what orthodox economics perceives of a negative factor (when in fact it might rather be recognized, rightfully, as necessary creative destruction) only a temporary assuagement of defaults that instead cluster into the next cycle – which happened to be, not by coincidence, much, much bigger.

  Mr. Claiden and Primus were no outside observers to this problem, and his firm was expecting an uptick in spreads as mortgage problems grew somewhat more acute. The founder of Primus was the man who practically invented the swap, or at least the standardized version of it that became the bedrock of the entire derivatives industry. In May 2007, Tom Jasper, the CEO who in 1985 launched and became the first co-chairman of ISDA, was “toasting” to wider credit spreads and a much fatter return for Primus. The mortgage problems, he figured, would be grand for Primus’ main business which was writing credit protection.

  Because spreads were so thin and had grown thinner throughout Greenspan’s “conundrum”, Primus was forced (in their profit models) to lever up significantly. At the end of 2005, the company, which was a publicly-traded and listed stock, reported a total swaps portfolio of single name entities of $13.4 billion, a 28% increase over the end of 2004. That $13.4 billion came upon a base of just $69 million in cash and $560 million in available-for-sale securities. That was 21x leverage.

  By the time Bear Stearns had failed, Primus had $24.3 billion in swaps and just $774 million in cash and assets; or 31x leverage. Since Primus only sold protection on “high quality” companies, in other words those with the highest ratings, there was little perceived risk even with spreads thought to be rising in 2007. In fact, a good proportion of the protection was written against financial firms, meaning the largest banks including Lehman. As you would expect, the firm nearly went bankrupt by October 2008 and the panic, but survived long enough to be finally and fully unwound last year (again, models and math that were no match for reality). Mr. Jasper left the firm in 2010.

  While the current state of Primus’ liquidation gives us another anecdote about the eurodollar decay post-crisis, it was its buildup that turned monetary policy into actual money supply as it is/was understood and used in the eurodollar/wholesale model. Those credit default swaps that Primus was supplying at dirt cheap spreads allowed, artificially and mistakenly, other financial firms and banks to reduce risk in their credit portfolios – at least that was the way it was calculated in their models which translated directly into real financial power or what passes for money these days. That meant those firms, through the “supply” of risk absorption provided by Primus and others, could invest, warehouse and hold much more in terms of par and notional credit for a given “capital” base – the math became the means by which credit expanded so precipitously, traded as exchanged liabilities often in the form of derivative contracts.

  

  Without that supply, including and especially during the panic, the Fed has been forced to take over money dealing more directly, turning out numerical bank reserves in place of what was before just unspecified and held off-balance sheet, but very real, balance sheet capacity. The more the Fed suppressed via its interest rate measure, the more leverage firms like Primus had to supply to be profitable (or as profitable as their models demanded) – at the end of 2005, that 28% increase in the swap portfolio was how the firm increased ROE to 15%. If spreads had been more in line with actual economic reality, Primus may not have “needed” to use as much leverage and the “supply” of risk absorption capacity may have instead been itself reduced, halting even somewhat the massive expansion of subprime and others (since Primus was offering a great deal of swaps on financial firms, especially the bigger banks, those CDS were likely used as hedges against credit structures, including subprime, that were offered/sponsored by those very same firms; in other words, there is a great likelihood that Primus risk capacity was directly related to the subprime mortgage blowout, both up and then down).

  Nobody apparently learned much from the whole bubble-bust affair as banks and financial firms are at it again, this time in corporate debt. The artificial suppression of default, in no small part to perceptions of those bank reserves under QE (just like perceptions of balance sheet capacity pre-crisis), has turned junk debt into the vehicle of choice for yet another cycle of “reach for yield.” The supply, this time, is far less of the eurodollar variety and more through mutual funds – less banking, more personal sector. That may sound somewhat more comforting except that it is the weakened, perhaps fatally, eurodollar state that is, in the end, expected to support the whole corporate morass when the default cycle inevitably runs its course and the artificial cluster reappears. As retail investors might likely flee against expectations they never apparently conceived but should have given recent history, there won’t be much, if any, balance sheet capacity to boost appetites toward an orderly transition.

  In the past two bubble cycles, we see how monetary policy creates the conditions for them but also in parallel for their disorderly closure. It isn’t money that the FOMC directs but rather unrealistic, to the extreme, expectations and extrapolations. Once those become encoded in financial equations, the illusion becomes real supply. In that way, it appears as if central banks hold great power but little responsibility. The pathology, however, is there and apparent to any and all inquiry. All that is required is a contemporary frame of reference, including what and where the printing press is and resides.

  

  

  

  

  

• When Does The Chinese Carnage Stop? (In 3 Charts)

  Chinese investor psychology has shifted. Period. The more the government intervenes to lift stock prices explicitly, the more local and professsional leveraged investors will use any strength to unwind their positions (profitably or unprofitably). The question is – when does this carnage stop?

   

  Exhibit 1 – Based on ‘fundamentals’, The Shanghai Composite has a long way to go…

  

   

  Exhibit 2 – If Dr. Copper is right about the state of the world, The Shanghai Composite won’t find support until it has fallen another 60%…

  

   

  Exhibit 3 – Judging by historical analogs, The Shanghai Composite will need to destroy all gains in the last 2 years before ‘value’ is once again seen…

  

   

  But apart from that, this must be a buying opportunity, right?

  

   

  Because if you don’t buy the dip, you’re a f##king idiot…

  

  

  

  

  

• Thoughts On Greece … From Zimbabwe

  Late last month, after Greek PM Alexis Tsipras’ announcement that a referendum would be held on the terms of the country’s bailout, we noted that sadly, the supermarkets in Greece were beginning to resemble those of Venezuela as Greeks, anticipating an impending shortage of imported goods, stocked up on food staples:

  Many of the visuals and stories that emanate from Venezuela are to be expected, and are generally in line with the transformation of any normal nation to a socialist utopia. None however, are more poignant than the images of supermarkets and grocery stores that have been ransacked empty as a result of the collapsing currency, devastated supply chains and soaring inflation (supermarkets which have since imposed fingerprint scanners in what is no longer capital but food controls). We are sad to announce that what was once a Venezuela trademark has now transitioned to a country that until recently was among the most developed nations in the west: Greece. In clear rejection of Tsipras’ plea for calm, the Greek population stormed (now empty) ATMs, grocery stores and gas stations as they scrambled to obtain, or convert, paper currency into tangible products. 

   

  
  

  Now, with a depositor bail-in looking more likely by the day, and with redenomination risk rising materially, Greece is drawing unflattering comparisons to another country which knows the depths of economic despair all too well: Zimbabwe. 

  Presented below is a letter from writer, blogger, and Zimbabwean Cathy Buckle.

  *  *  *

  Dear Family and Friends,

  Seeing pictures of hundreds of people crowded around banks in Greece desperate to withdraw their own money from the banks has sent cold but sympathetic shivers down our spines here in Zimbabwe. Greek banks closed for a week, cash withdrawals from ATM’s restricted to a limited amount per person per day is all too familiar to Zimbabweans. We know exactly how this feels: the fear, anger, despair and disbelief that goes with watching your life savings evaporating and knowing there’s nothing you can do to save it.  How well we remember standing for hours at the banks and then only being able to draw out enough money to buy a single bar of soap.

  Zimbabwe has the dubious honour of being able to say “been there, done that” to almost every bad governance and economic crisis you can think of.  It’s been six years since Zimbabwe discontinued using the Zim dollar and began trading in the US dollar  and a few other international currencies but for the last few weeks we’ve been doing all the sums again, counting the zeroes and seeing if there’s anything we can salvage from our lost life savings.  

  When an announcement came in June that the old Zimbabwe dollar was to be demonetized there was a frenzy of rumours that this meant a new Zimbabwe dollar was going to be introduced. A return to the Zim dollar, old or new, is still probably the biggest fear of all Zimbabweans. As bad as things are for people now, at least we have an internationally accepted currency in our pockets and not a worthless currency which isn’t backed by gold reserves, which can be printed at will by an unaccountable government. 

  People outside of Zimbabwe have never really understood how we woke up one morning in February 2009 and found that all our bank balances had been reduced to zero. Regardless of whether we had millions, billions, trillions,  septillions or even octillions of Zim dollars in our accounts, it had all gone. Suddenly our bank balance was just ZERO and we were told to reactivate our accounts by depositing US dollars. Exactly the same thing applied to the huge piles of Zim dollars we had in boxes and bags in our homes : it had all become valueless paper, eroded to almost nothing by super-hyper-inflation and then suddenly worth ZERO.

  It’s taken six years for the government of Zimbabwe to put a value on the money that turned to ZERO in 2009 and frankly for most people, who had become paupers through hyperinflation anyway, it’s a pointless exercise. The Central bank announced that bank accounts with balances up to 175 quadrillion Zimbabwe dollars will be paid a flat amount of five US dollars; yes, just five US dollars. Bank balances of over 175 quadrillion will be paid at what we are told is the UN exchange rate of US$1 for every 35 quadrillion Zim dollars. (That’s US$1 ; Z$1,000,000,000,000,000 ) Cash customers can apparently walk into banks with their old Zim dollar notes and will, with “no questions asked,”  get US$1 for Zim$250 trillion.  For most of us the cost of the taking old notes to the bank will be more than the US cents we get back in our pockets.

  There is a “demonetization window” from the 15th June to the 30th September to exchange every 35 quadrillion Zim dollars we have into one US dollar and after that the Zim dollar will be officially dead, no longer legal tender.

  The Central Bank announcement says : “Demonitization is not compensation for the loss of value of the Zim $ due to hyper inflation, it is an exchange process.”  Compensation is a dirty word in Zimbabwe’s governance system  and it doesn’t apply at any level from farm seizures to compulsory 51% indigenization shareholdings to loss of life savings and pensions in hyper inflation.

  Looking at the conversion chart and seeing that I can get 0.04 US cents for every 10 trillion dollar note that I have, leaves my head swirling as lines of zeroes mount up on the page.  Is that a trillion, quadrillion or octillion I ask myself? I decide I’d rather keep the old bank notes in the cupboard so that I never forget what my government reduced me to after they’d stolen my farm and declared my Title Deeds null and void. So that I’d never forget what bad governance could do to a nation of  ten million people or how many thousands died needlessly while trying to survive Zimbabwe’s collapse.

  Until next time, thanks for reading, love cathy. 

  

  

  

  

  

• Dow Swings 670 Points In V-Shaped-Hope-Recovery Despite Commodity Carnage

  Dude….

  *  *  *

  This happened… Remember Greece doesn't matter…

  

   

  The Dow dropped 350 points from its overnight highs to stop almost perfectly at the close of Europe (1130ET) and then abruptly rallied a stunning 320 points back…

  

   

  The S&P tested Sunday night's lows and the 200DMA before exploding higher…

  

   

  Who could have seen that coming?

  "Greek deal" rumors upcoming, rejections imminent

  — zerohedge (@zerohedge) July 7, 2015

   

  On the day, cash indices reversed perfectly on Europe's close…

  

   

  Leaving stocks mixed on the week, with Nasdaq underperforming…

  

   

  It appears that Oil was the momo igniter for stocks…

  

   

  And VIX briefly hit a 15 handle – well below Thursday's closing levels…

  

   

  Bear in mind that Greek stocks did not partake in the idiocy… but once US stocks astrted to roll, Greece caught up (so now we are seeing US equities lead Greek stocks fundamentally higher!!!)

  

   

  As US Stocks ramp was all EURJPY-driven once again (just like yesterday)

  

   

  Note that post-Tsipras' "Greferendum" announcement, Bonds remain the big winners…

  

   

  Treasury yields plunged early as shorts squeezed and safety was bid but once Europe closed… sell sell sell…

  

   

  The US Dollar collapsed into the close as EURUSD surged (for now good reason) and as we noted above EURJPY was running stocks today…

  

   

  It's pretty clear what (or who) was helping things along…

  

   

  Commodity prices plunged early on (led by crude and silver)

  

  Oil prices carnaged early on, then bounced after EIA data suggested higher demand and chatter that the Irtan deal talks were falling apart (and Europe's close)…

  

   

  As a reminder, shale stocks have been collapsing since Einhorn tried to bury PXD… (but they all v-shape recovered today)

  

   

   

  Charts: Bloomberg

  

  

  

  

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• THERE’S Your Hyperinflation!

  by Keith Weiner

   

  Hyperinflation is commonly defined as rapidly rising prices which get out of control. For example, the Wikipedia entry begins, “In economics, hyperinflation occurs when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency…” Let’s restate this in terms of purchasing power. In hyperinflation, the purchasing power of the currency collapses. Before the
  onset, suppose one collapsar buys ten loaves of bread. Soon, it buys only one loaf. Shortly thereafter, it buys only one slice. Next, it can only purchase a saltine cracker. Pretty soon the collapsar won’t buy any bread at all. Stick a fork in it, it’s done.

  

  For example, the price of crude oil was cut almost in half (so far). There’s little to see if one looks at the purchasing power of the dollar, euro, Swiss franc, etc. Purchasing power, as conventionally understood, is doing just fine.

  Fed apologists are happily cooing about this. Last month, Nobel Prize winning economist Paul Krugman said, “This is actually wonderful.” Last year, he was gloating, comparing people who predict runaway inflation to “true believers whose faith in a predicted apocalypse persists even after it fails to materialize.”

  And yet, all is not well in the realm of the central banks. Krugman may be right about prices, but nothing is wonderful. The economic downturn, which began in 2008, has been so bad that central banks persist in their unprecedented monetary policies. So if purchasing power isn’t collapsing, where can one find evidence of the problem?

  Yield Purchasing Power (YPP) shows how much you can buy, not with a dollar of cash, but with the earnings on a dollar of productive capital. No one wants to spend their life savings or inheritance. People are happy to spend their income, but not their savings.

  To come back to the analogy of the family farm, people should think in terms of how much food it can grow, not how much food they can buy by selling the farm. The tractor
  is good for producing food, not to be exchanged for it. Why, then, do people think of the purchasing power of their life savings, in terms of its liquidation value?

  If they want to live long and prosper, they should think of their yield purchasing power. Their hard-earned assets should provide income. And it is here, that hyperinflation has set in.

  Previously, I compared two archetypal retirees. Clarence retired with $100,000 in 1979, and Larry retired with $1,000,000 in 2014. Clarence was able to earn 2/3 of the median income in interest on his savings. Larry was nowhere near that. He would need over $100 million to do the same. In 35 years, the YPP of a 3-month CD fell more than 1,000-fold.

  The collapse in YPP suggests an analogy to hyperinflation. Look at how much capital you need to support a middle class lifestyle. Measured in dollars, the dollar price of this capital is skyrocketing.

  This skyrocketing price of capital has the same effect as hyperinflation: it undermines savings and causes people to eat themselves out of house and home.

  What does this mean for anyone with less than what they need to support themselves—$100M and rising? They must liquidate their capital, and live by consuming their savings. It’s terrifying to anyone in that position—which means anyone in the middle class.

  This problem is not well understood, because it masquerades as rising asset prices. The first tractor to go to the block fetched $1,000. The second went for $2,000. The farmland may fetch a few million. Everyone loves rising asset prices, and so in their greed and euphoria they miss the point.

   

  This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.

  

  

  

  

• Chinese Stocks Plunge Again, "VIX" Hits Record, "Nasdaq" Down 40% From Highs

  Despite all the hopes and prayers of illiterate farmers everywhere, Chinese stocks refuse to hold a bid and down 3-4% at the open amid suspension of around 160 individual securities. In the pre-open to open, Shanghai Composite is down 3.2%, Shenzhen is off 3.5%, and China's Nasdaq – ChiNext is down 3.8%. This leaves ChiNext down over 40% from its highs as the cost of insuring downside in Chinese stocks explodes to record highs. As China goes through the 1929 playbook to save its 'market', it appears "momentum" has shifted.

  • *SHANGHAI MARGIN DEBT BALANCE DECLINES FOR RECORD ELEVENTH DAY
  • *HKEX DROPS AS MUCH AS 4.2%, FALLING FOR 8TH STRAIGHT SESSION

  Not a good start to the day…

  

   

  And the morning session ends NOT OFF THE LOWS…

  

   

  Some context for the moves…

  

   

  As we noted prerviously – psychology has shifted… every government-driven ramp is sold into by as many retail locals and foreign professionals as possible… and remember the local professionals are now stuck with losses as they are not allowed to sell.

  Which explains why downside vol costs explode… (if you're not allowed to sell stocks… what's your next move?)

  

   

  As Blomberg reports,

  The cost of options protecting against a 10 percent drop in the ETF was 11.5 points more than calls betting on a 10 percent increase on Monday, according to three-month data compiled by Bloomberg. The price relationship known as skew climbed to 11.8 points last week, the highest since the ETF started in November 2013.

   

  For Aberdeen Asset Management’s Nicholas Yeo, China needs to let fundamentals govern its stock market, not state directives.

   

  “International investors are skeptical that all the government measures are short-term, cosmetic,” said Yeo, the Hong Kong-based head of Chinese equities at Aberdeen Asset, which oversees about $491 billion worldwide. “If you want it to be a proper market, there should be less interference.”

  1929 Deja vu all over again…

  

   

  “The more resources authorities commit to propping up the stock market, the more they ratchet up the potential fall-out risks should the market continue to collapse,” said Andrew Wood, an analyst at BMI Research. “This could give rise to a crisis of confidence in the authorities’ ability to support both the stock market and the real economy.”

  And with 888 stocks down and only 29 up – PBOC is gonna need a bigger boat fund

  *  *  *

  On the bright side – though we are not sure of that – it seems the twice burned Chinese are greatly rotating their newly lost equity wealth back into real estate…Via ForexLive:

  Preliminary results from the China Household Finance Survey

  • 31.5% of respondents plan to reduce their stock holdings
  • 12.3% said they plan to increase their stock holdings
  • Remaining saying they do not plan to change their holdings
  • For Q2 4.8% of stock investors bought homes, compared with 2.3% recorded in Q1
  • Of those who bought property, 70% came from households that have made money in the stock market.

  The China Household Finance Survey is a quarterly survey carried out by researchers at Southwestern University of Finance and Economics in Chengdu.

  *  *  *

  Will they never learn?

  

  

  

  

  

• Jade Helm, Terrorist Attacks, Surveillance & Other Fairy Tales For A Gullible Nation

  Submitted by John Whitehead via The Rutherford Institute,

  “Strange how paranoia can link up with reality now and then.” – Philip K. Dick, A Scanner Darkly

  Once upon a time, there was a nation of people who believed everything they were told by their government.

  When terrorists attacked the country, and government officials claimed to have been caught by surprise, the people believed them. And when the government passed massive laws aimed at locking down the nation and opening the door to total government surveillance, the people believed it was done merely to keep them safe. The few who disagreed were labeled traitors.

  When the government waged costly preemptive wars on foreign countries, insisting it was necessary to protect the nation, the citizens believed it. And when the government brought the weapons and tactics of war home to use against the populace, claiming it was just a way to recycle old equipment, the people believed that too. The few who disagreed were labeled unpatriotic.

  When the government spied on its own citizens, claiming they were looking for terrorists hiding among them, the people believed it. And when the government began tracking the citizenry’s movements, monitoring their spending, snooping on their social media, and surveying their habits—supposedly in an effort to make their lives more efficient—the people believed that, too. The few who disagreed were labeled paranoid.

  When the government let private companies take over the prison industry and agreed to keep the jails full, justifying it as a cost-saving measure, the people believed them. And when the government started arresting and jailing people for minor infractions, claiming the only way to keep communities safe was to be tough on crime, the people believed that too. The few who disagreed were labeled soft on crime.

  When the government hired crisis actors to take part in disaster drills, never alerting the public to which “disasters” were staged, the people genuinely believed they were under attack. And when the government insisted it needed greater powers to prevent such attacks from happening again, the people believed that too. The few who disagreed were told to shut up or leave the country.

  Finally, the government started carrying out covert military drills around the country, insisting they were necessary to train the troops for foreign combat, and most of the people believed them. The few who disagreed, warning that perhaps all was not what it seemed, were dismissed as conspiracy theorists and quacks.

  By the time the government locked down the nation, using local police and the military to impose martial law, there was no one left in doubt of the government’s true motives—total control and domination—but there was also no one left to fight back.

  Now every fable has a moral, and the moral of this story is to beware of anyone who urges you to ignore your better instincts and trust the government.

  In other words, if it looks like trouble and it smells like trouble, you can bet there’s trouble afoot.

  For instance, while there is certainly no shortage of foul-smelling government activities taking place right now, the one giving off the greatest stench is Jade Helm 15. This covert, multi-agency, multi-state, eight-week military training exercise is set to take place from July 15 through Sept. 15 in states across the American Southwest.

  According to official government sources, “Jade Helm: Mastering the Human Domain” is a planned military exercise that will test and practice unconventional warfare including, but not limited to, guerrilla warfare, subversion, sabotage, intelligence activities, and unconventional assisted recovery. The training exercise will take place in seven different southwestern states: California, New Mexico, Colorado, Arizona, Texas, Utah and Nevada.

  U.S. Army Special Operations Command will primarily lead this interagency training program but the Navy Seals, Air Force Special Operations, Marine Special Operations Command, Marine Expeditionary Units, 82nd Airborne Division, and other interagency partners will also be involved. Approximately 1,200 troops are expected to participate in these exercises.

  The training is known as Realistic Military Training because it will be conducted outside of federal property. The exercises are going to be carried out on both public and private land, with the military reportedly asking permission of local authorities and landowners prior to land usage. The military map listing the locations that will host the exercise shows Texas, Utah, and the southern part of California as “hostile territory.” According to U.S. officials, these three areas are marked as hostile to simulate environments where American troops are viewed as the enemy. The other areas on the map are marked as permissive, uncertain (leaning friendly), or uncertain (leaning hostile).

  Military officials claim that the southwestern states were chosen because this exercise requires large areas of undeveloped land as well as access to towns and population hubs. These states purportedly also provide a climate and terrain that is similar to that of potential areas of combat for the United States, particularly Iraq, Iran and Syria.

  Now the mainstream media has happily regurgitated the government’s official explanation about Jade Helm. However, there is a growing concern among those who are not overly worried about being labeled conspiratorialists or paranoid that the government is using Jade Helm as a cover to institute martial law, bring about total population control, or carry out greater surveillance on the citizenry.

  In the first camp are those who fear that Jade Helm will usher in martial law. These individuals believe that by designating the two traditionally conservative and Republican-dominated states, Utah and Texas, as hostile territory, while more Democratic states like Colorado and California are marked as friendly, the military plans to infiltrate the states with large numbers of gun owners and attempt to disarm them.

  Adding fuel to the fire is the mysterious and sudden temporary closures of five Walmart stores in Texas, California, Oklahoma and Florida, two of which are located near Jade Helm training sites. Those in this camp contend that the military is planning to use the Walmart stores as processing facilities for Americans once martial law is enacted.

  Pointing to the mission’s official title, “Jade Helm: Mastering the Human Domain,” there is a second camp that fears that the military exercises are merely a means to an end—namely total population control—by allowing the military to discern between friendly civilians and hostiles. This concern is reinforced by military documents stating that a major portion of Jade Helm training will be about blending in with civilians, understanding how to work with civilians, using these civilians to find enemy combatants, and then neutralizing the target.

  In this way, the United States military is effectively using psychological warfare to learn how people function and how to control them.

  As a study written by military personnel states, mastering the human domain, also known as identity processes, means “use of enhanced capabilities to identify and classify the human domain; to determine whether they are adversarial, friendly, neutral, or unknown.” The study later states that identity processes can be used to “manage local populations during major combat, stability, and humanitarian assistance and/or disaster relief operations.”

  While the military has promised that the work they are doing is aimed for use overseas, we have seen first-hand how quickly the military’s weapons and tactics used overseas are brought home to be used against the populace. In fact, some of the nation’s evolutionary psychologists, demographers, sociologists, historians and anthropologists have been working with the Department of Defense’s Minerva Initiative to master the human domain. This security research includes “Understanding the Origin, Characteristics, and Implications of Mass Political Movements” at the University of Washington and “Who Does Not Become a Terrorist and Why?” at the Naval Academy Post Graduate School. Both studies focus on Americans and the different movements and patterns that the government can track to ensure “safety and security.”

  The Department of Homeland Security (DHS) is also working to infiltrate churches across the country to establish a Christian Emergency Network, carry out emergency training exercises to prevent and prepare for disasters (active shooter drills and natural disaster preparedness), and foster two-way information sharing, while at the same time instituting a media blackout of their activities. As the DHS continues to establish itself within churches, a growing number of churches are adopting facial recognition systems to survey their congregations, identify and track who attends their events, and target individuals for financial contributions or further monitoring. As the partnership between churches and the DHS grows, their facial recognition databases may be shared with the federal government, if that is not already happening.

  Finally, there is the third camp which fears that Jade Helm is merely the first of many exercises to be incorporated into regular American life so that the government can watch, study, and better understand how to control the masses. Certainly, psychological control techniques could be used in the future to halt protests and ensure that the nation runs “smoothly.”

  It remains to be seen whether Jade Helm 15 proves to be a thinly veiled military plot to take over the country (one lifted straight out of director John Frankenheimer’s 1964 political thriller Seven Days in May), turn the population into automatons and psychological experiments, or is merely a “routine” exercise for troops, albeit a blatantly intimidating flexing of the military’s muscles.

  However, as I point out in my book Battlefield America: The War on the American People, the problem arises when you add Jade Helm to the list of other troubling developments that have taken place over the past 30 years or more: the expansion of the military industrial complex and its influence in Washington DC, the rampant surveillance, the corporate-funded elections and revolving door between lobbyists and elected officials, the militarized police, the loss of our freedoms, the injustice of the courts, the privatized prisons, the school lockdowns, the roadside strip searches, the military drills on domestic soil, the fusion centers and the simultaneous fusing of every branch of law enforcement (federal, state and local), the stockpiling of ammunition by various government agencies, the active shooter drills that are indistinguishable from actual crises, the economy flirting with near collapse, the growing social unrest, the socio-psychological experiments being carried out by government agencies, etc.

  Suddenly, the overall picture seems that much more sinister. Clearly, there’s a larger agenda at work here, and it’s one the American people had better clue into before it’s too late to do anything about it.

  Call me paranoid, but I think we’d better take James Madison’s advice and “take alarm at the first experiment on our liberties."

  

  

  

  

  

• Russia Celebrates Independence Day By Flying Strategic Bombers 200 Miles Off California Coast

  As Americans stared heavenwards at the sound and fury of incendiary devices lighting the dark to celebrate their independence from an over-taxing monarchy, there were other fireworks going off in the skies above Alaska and California. As Fox News reports, two pairs of Russian bombers flew off the coast of California and Alaska – forcing the Air Force to scramble fighter jets to intercept both flights, according to two senior defense officials who did not confirm if the bombers were armed. As Free Beacon adds, it was the second time Moscow dispatched nuclear-capable bombers into the 200-mile zone surrounding U.S. territory in the past two weeks.

   

  Watch the latest video at video.foxnews.com

   

  As Fox News reports,

  While the United States celebrated Independence Day, two pairs of Russian bombers flew off the coast of California and Alaska — forcing the Air Force to scramble fighter jets to intercept both flights, two senior defense officials tell Fox News.

  The first incident occurred at 10:30 a.m. ET on July 4 off the coast of Alaska, Fox News is told. Two U.S. Air Force F-22 jets were scrambled from their base in Alaska to intercept two Tupolev Tu-95 long-range strategic bombers, capable of carrying nuclear weapons.

  The second incident occurred at 11:00 a.m. ET also on July 4, off the central coast of California. Two F-15s from an undisclosed location were scrambled to intercept another pair of Tu-95 Bear bombers.

  A spokesman for NORAD would not confirm if either pair of bombers was armed.

  As FreeBeacon.com further adds,

  A defense official said the Pacific coast intrusion came close to the U.S. coast but did not enter the 12-mile area that the U.S. military considers sovereign airspace.

   

  The bomber flights near the Pacific and earlier flights near Alaska appear to be signs Moscow is practicing the targeting of its long-range air-launched cruise missiles on two strategic missile defense sites, one at Fort Greely, Alaska and a second site at Vandenberg Air Force Base, Calif.

   

  In May, Russian Gen. Nikolai Makarov, the chief of the Russian General Staff, said during a Moscow conference that because missile defense systems are destabilizing, “A decision on pre-emptive use of the attack weapons available will be made when the situation worsens.” The comments highlighted Russian opposition to planned deployments of U.S. missile defense interceptors and sensors in Europe.

   

  The U.S. defense official called the latest Bear H incident near the U.S. West Coast “Putin’s Fourth of July Bear greeting to Obama.”

   

  Retired Air Force Lt. Gen. Thomas McInerney, a former Alaska commander for the North American Aerospace Defense Command, said the latest Bear H intrusion appears to be Russian military testing.

   

  “It’s becoming very obvious that Putin is testing Obama and his national security team,” McInerney told the Free Beacon. “These long-range aviation excursions are duplicating exercises I experienced during the height of the Cold War when I commanded the Alaska NORAD region.

   

  …

   

  “These are not good indications of future U.S. Russian relations.”

   

  Pentagon spokesman Capt. John Kirby said the incident occurred July 4. He said the “out-of-area patrol by two Russian long range bombers … entered the outer [Air Defense Identification Zone]” and the bombers “were visually identified by NORAD fighters.”

   

  Kirby said the bombers did not enter “sovereign airspace.” He declined to identify the specific distance the aircraft flew from the United States due to operational security concerns. He also declined to identify the types of aircraft used to intercept the bombers.

   

  In last month’s intercept of two Russian Tu-95 bombers, U.S. F-15s and Canadian CF-18s were used.

  *  *  *

  As Adm. Bill Gortney, the general at the head of North American Aerospace Defense Command (NORAD), told reporters in April,

  Russia was using its long-range bomber fleet to "message" the US about Moscow's international military capabilities.

   

  "They are messaging us. They are messaging us that they are a global power," Gortney said, while noting that the US does "the same sort of thing" to Russia in Europe.

  

  

  

  

  

• The Biggest Winner From The Greek Tragedy

  Long after Greece has left the Eurozone and Germany is using the Deutsche Mark as its currency, the people of the two nations, antagonized to a level unseen since World War II, will be accusing each other of benefiting more from the brief but tumultuous period of the common currency.

  In reality, nobody had put a gun to Greece’s head and told it to lever up, enriching local oligarchs and corrupt politicians, taking advantage of credit that was artificially cheap only due to the common currency and an implicit monetary, if not fiscal, union.

  Germany, whose exports account for nearly 50% of GDP, on the other hand experienced an unprecedented exporting golden age, made possible only due to an artificial currency, the Euro, that was by definition created to be weaker than the Deutsche Mark and benefitted from any bout of weakness in Europe’s periphery, such as the past 5 years.

  The truth is, when things were good nobody second-guessed any decisions for a second, and since the rising economic tide lifted all boats, nobody cared.

  And then the tide rolled out, displaced by trillions in bad loans and gargantuan mountains of sovereign and financial debt, which ultimately would lead to the first, then second, then third and then an all-out cascade of sovereign defaults.

  Sadly, the losers – regardless of the propaganda and jingoist rhetoric – are the ordinary, common, taxpaying people of Germany and Greece (and every other European nation), who enjoyed a few brief years of artificial prosperity, which in retrospect was entirely due to debt, masked well by the “currency swaps” and other financial engineering concocted by banks such as Goldman Sachs, in clear violation of the Maastricht treaty which is now a long-forgotten memory of the founding ideals behind the Eurozone.

  For every loser there is a winner, and in the case of Greece and its tragedy, just as millions are about to lose everything, a few not only made billions but quietly, under the guise of “sovereign bailouts” transferred their entire risk onto the taxpaying public.

  They are shown in the chart below.

  

   

  It is that transfer of private-to-public risk, which is also the main reason why the public debt of so many European countries, not only Greece, whose debt is record high despite a default to its private creditors in 2012 and where only 10% of bailout proceeds ever made it to the actual economy…

  

   

  … but the entire periphery has soared in the last few years.

  

   

  Inevitably, there will be many angry people, because what is about to come to Europe will be hardship unlike anything seen in generations. Our suggestion: before neighbor takes it out on neighbor, study the following map closely because just like Libor was an impossible conspiracy theory until it was a proven fact, what is happening in Europe was propagated and effectuated by one bank more than any other.

  This one:

  

   

  Or, one can ignore this as merely yet another conspiracy theory. And that’s fine.

  But there is one critical, factual loose end that has to be investigated.

  Back in June 2012, the ECB, whose head was the recently crowned Mario Draghi who had less than a decade ago worked at none other than Goldman Sachs, was sued by Bloomberg’s legendary Mark Pittman under Freedom of Information rules demanding access to two internal papers drafted for the central bank’s six-member Executive Board. They show how Greece used swaps to hide its borrowings, according to a March 3, 2010, note attached to the papers and obtained by Bloomberg News. The first document is entitled “The impact on government deficit and debt from off-market swaps: the Greek case.” The second reviews Titlos Plc, a securitization that allowed National Bank of Greece SA, the country’s biggest lender, to exchange swaps on Greek government debt for funding from the ECB, the Executive Board said in the cover note. From Bloomberg:

  In the largest derivative transaction disclosed so far, Greece borrowed 2.8 billion euros from Goldman Sachs Group Inc. in 2001 through a derivative that swapped dollar- and yen-denominated debt issued by the nation for euros using a historical exchange rate, a move that generated an implied reduction in total borrowings.

   

  “The Greek authorities had never informed Eurostat about this complex issue, and no opinion on the accounting treatment had been requested,” Eurostat, the Luxembourg-based statistics agency, said in a statement. The watchdog had only “general” discussions with financial institutions over its debt and deficit guidelines when the swap was executed in 2001.

   

  “It is possible that Goldman Sachs asked us for general clarifications,” Eurostat said, declining to elaborate further.

  The ECB’s response: “the European Central Bank said it can’t release files showing how Greece may have used derivatives to hide its borrowings because disclosure could still inflame the crisis threatening the future of the single currency.“

  Considering the crisis of the (not so) single currency is very much “inflamed” right now as it is about to be proven it was never “irreversible”, perhaps it is time for at least one aspiring, true journalist, unafraid of disturbing the status quo of wealthy oligarchs and central planners, to at least bring some closure to the Greek people as they are swept out of the Eurozone which has so greatly benefited the very same Goldman Sachs whose former lackey is currently deciding the immediate fate of over €100 billion in Greek savings.

  Because something tells us the reason why Mario Draghi personally blocked Bloomberg’s FOIA into the circumstances surrounding Goldman’s structuring, and hiding, of Greek debt that allowed not only Goldman to receive a substantial fee on the transaction, but permitted Greece to enter the Eurozone when it should never have been allowed there in the first place, is that the person who oversaw and personally endorsed the perpetuation of the Greek lie is none other than Goldman’s Vice Chairman and Managing Director at Goldman Sachs International from 2002 to 2005. The man who is also now in charge of the ECB.

  Mario Draghi.

  

  

  

  

  

  

• What It Really Takes For a US-Iran Deal

  Authored by Pepe Escobar, Op-Ed via RT.com,

  Forget the mad spinning. Here it is, in a nutshell, what it really takes for Iran and the P5+1 to clinch a game-changing nuclear deal before the new July 7 deadline.

  Iran and the P5+1 agreed in Lausanne on a “comprehensive plan of action,” taking into account delicate constitutional considerations in both the US and Iran. A crucial part of the plan is the mechanism to get rid of sanctions. Lausanne – and now Vienna – is not a treaty; it’s an action plan. There will be a declaration when a deal is reached. But there won’t be a signing ceremony.

  The next important step is what happens at the UN Security Council (UNSC). All the concerned parties at the UNSC will endorse a declaration, and a resolution – which is still being negotiated – will render null and void all previous sanctions resolutions.

  As it stands, all the parties – except the US government – want to go to the UNSC as soon as possible. Washington remains, at best, reticent.

  Iranian negotiators have made it very clear at the table that Tehran will start implementing its nuclear restriction commitments – removal of a number of centrifuges, removal of the core of Arak’s reactor, disposal of uranium stock, etc. – immediately. The IAEA will be constantly checking Iran has complied with an extensive list.

  But it has to be a parallel process; the US and the EU must for their part and “take physical action”, tackling the complex mechanism of lifting all economic sanctions. Once again; a UNSC signature instantly erases all previous sanctions.

  And here is something crucial; all of this has been agreed in Lausanne. The work must be simultaneous, as stressed, in tandem, by Iranian Foreign Minister Mohammad Javad Zarif and EU representative Federica Mogherini.

  Those fateful parameters

  Meanwhile, we have the media centrifuges spinning like mad, as I described here. On the negotiating table, there are still skirmishes related to the US desire in trying to “prove a negative” – as in the “possible military dimensions” (PMD) of Iran’s nuclear program.Logically, you don't need to be a neo-Wittgenstein to see that’s impossible.

  The deadline extension from June 30 to July 7 is mostly about finding – rather, finding again – a “reasonable common narrative” inbuilt in the Lausanne framework, and even before.

  This means Washington should make the political decision to tone down repeated attempts to introduce new demands. Iranian officials admit, “we may have had disagreements on how we do simultaneous work,” but that’s part of Lausanne. New demands are not.

  In Lausanne, US Secretary of State John Kerry and Foreign Minister Zarif agreed on a “set of parameters” – after excruciating nine hours of debate.They also agreed, crucially, that both sides would refrain from humiliating one another publicly.

  The recent record shows that’s been the case – as far as negotiators and diplomats are concerned. On the other hand, US corporate media predictably has been wreaking the proverbial havoc.

  Which brings us to the clincher; Iranian negotiators have yet to detect a readiness of the US government to really change the “culture of sanctions” in the UNSC. And here a diplomatic consensus emerges, involving, very significantly, Russia and Germany; this agreement will be made – or broken – on one crucial point; whether the Obama administration wants to lift the sanctions or keep them.

  Watch the BRICS front

  The least one can say about what’s really happening in the Palais Coburg since this past weekend is that the Obama administration’s position is oscillating wildly. There seems to be – finally – some movement on the American side in the sense they feel a strategic interest in changing the situation.

  That will depend, of course, on the Obama administration’s evaluation of all factions operating in the Beltway establishment. Diplomats in Vienna agree Kerry is personally involved in trying to change the equation. So this means the ball is really in the US court.

  But all’s still murky; even oscillating wildly; the Americans continue to entertain what an Iranian official described to me as “buyer’s remorse” regarding what they agreed on Lausanne in the first place.

  Serious, key sticking points remain. The duration of the sanctions; confidentiality issues – as in the US, especially, respecting terms of access to Iranian military installations; and what’s defined as “managed access” under certain conditions.

  Also very crucial is the BRICS front at the P5+1. Neither China nor Russia wants to see any exacerbation of tensions, in Southwest Asia and beyond, because a deal is not clinched. The bottom line; with their eye in the Big Picture – as in Eurasia integration – both are committed to facilitate a deal.

  Until tomorrow, all remains in play. Obama has been spinning he doesn’t want a “bad deal”. That’s not the issue. The issue is Obama himself making the fateful political decision of abandoning the weapon of choice of US foreign policy; sanctions. Has he got what it takes to pull it off?

  

  

  

  

  

• Are You Ready For The e-PATRIOT Act?

  Submitted by Mark Nestmann via nestmann.com,

  Earlier this month, news emerged that the US government had suffered its worst cyberattack ever.

  On June 4, the Office of Personnel Management (OPM) revealed that hackers had penetrated its networks, possibly for many months. The data thieves stole personal information of up to 18 million current and former federal government applicants and employees.

  There’s a good chance the attack is even worse than what you’ve read about. The OPM hack included a database holding security clearance information on hundreds of thousands of federal employees and contractors. This database contains details of applicants’ financial and investment records, family members, and even names of neighbors and close friends.

  Another database that may have been breached includes criminal history, psychological records, and information about past drug use. The hackers might even have acquired detailed personal and sexual profiles obtained through lie detector tests.

  With all the talk of Edward Snowden and the supposed “irreparable” damage he did to US interests, this theft is a lot worse. While OPM doesn’t hold personnel records for the CIA, it does for other US intelligence agencies. The hackers now know the identity of hundreds of thousands of federal employees with security clearances. Not only that, they also have sensitive background information on each of them, which they could easily use for blackmail.

  Oh, and get this – the breach wasn’t actually discovered by the OPM. It was only uncovered during a sales demonstration by a security company named CyTech Services.

  So what does the Obama administration want to do to solve the problem?

  For starters, it’s proposed “economic sanctions” against China, which it holds responsible for the attack. We’ve seen how effective those were against Russia after the US imposed them last year in the wake of its takeover of Crimea. There’s no reason to think that sanctions against China will be any more effective.

  Obama administration officials, led by the FBI, also want to force US companies to insert “back doors” into their encryption products that the government can unlock with the appropriate key. That’s a horrible idea, because strong encryption is really the only certain way to protect sensitive databases from this type of attack. And of course, there’s a very real prospect that hackers might discover the back door. That’s happened on numerous occasions in the past.

  And Obama wants Congress to pass a bill to strengthen federal cybersecurity legislation. In April, the House passed its version of the bill and sent it to the Senate. Only a few days after the OPM hack, Senate leaders tacked on the Cybersecurity Information Sharing Act (CISA) to a defense bill to avoid debate on the measure. It didn’t work – the Senate failed to advance the legislation.

  It’s no wonder they didn’t want a debate. CISA provides liability protection for businesses that voluntarily share “cyberthreat” data with the government. But it also creates a back-door channel for government agencies to retrieve, analyze, and store enormous volumes of personal data. And since information sharing would be voluntary, the government would be able to obtain all of this information without a warrant. Think of it as an “e-PATRIOT Act.”

  Is there a better way? Yes.

  The biggest change needed is that both private companies and the feds should encrypt all data – everything. And they should use strong, peer-reviewed encryption protocols – not the watered-down variety with back doors that the Obama administration wants them to adopt.

  Sure, this will make life more difficult for the likes of the NSA and other spy agencies to carry out domestic surveillance. But investigators can still seize domestic phone records, email header data, and much more, without a warrant. Encrypting everything won’t affect access to this data.

  In the meantime, what can you do to protect your own data from cybersecurity breaches? As is often the case, some of the best solutions are outside the politically charged atmosphere of the US.

  First, subscribe to a robust virtual private network (VPN) to encrypt the data stream on your smartphone and your PC. I use one called “Cryptohippie.” The company’s only US presence is to authenticate connections to Cryptohippie servers in other countries. None of Cryptohippie’s servers are in the United States.

  Second, use an email program that facilitates transmission of encrypted messages. My personal choice is Thunderbird, along with a free plug-in called Enigmail. Once you exchange encryption keys with the people you correspond with, Enigmail automatically encrypts and decrypts your messages.

  Third, if you use webmail services, ditch US providers such as Gmail and the online version of Microsoft Outlook (formerly Hotmail). Use a non-US service that is serious about security and encryption. I use a company called Century Media, which has its servers in Switzerland, for this purpose, but there are many other choices.

  A good time to begin securing your electronic life would be today. The US government certainly isn’t going to do it for you.

  

  

  

  

  

• Can China Keep Miami's Condo Bubble From Bursting?

  After Xi Jinping’s anti-corruption campaign emptied the VIP baccarat tables in Macau causing gaming revenue to plunge 40% month after painful month, China’s stock market miracle might well have functioned as a convenient outlet for the gambling propensities of the country’s ultra rich.

  That all came to a rather unceremonious end three weeks ago when the unwind of as much as CNY1 trillion in backdoor margin lending triggered a terrifying 30% collapse in Chinese equities. 

  Fortunately for China’s ultra rich, dollar strength has served to completely eliminate the South American bid from Miami’s once-booming condo market. As a reminder, here is the situation in South Florida:

  

  As you can see, price increases leveled off in H1. The reason (according to Kevin Maloney, founder and principal of Property Markets Group who spoke to Bloomberg last month): “A very strong shift in the last year in the dollar … has literally pushed whole countries out of the marketplace.”

  Yes, whole Latin American countries (and maybe a few Russian oligarchs), but certainly not China, and what better way to shore up a market in which price appreciation has recently flatlined after three consecutive years of 15%+ gains than to lure in Chinese buyers who, having helped send Manhattan condo prices to nosebleed levels and who are perhaps now looking for less volatile places to park their fortunes having watched their domestic stock market take a nosedive, may now be looking for a fourth, fifth, or sixth home away from home. WSJ has more: 

  Wealthy buyers from Brazil, Venezuela and Argentina have fueled a real-estate frenzy in Miami in recent years, sending luxury-condo prices soaring. Now, Miami developers and real-estate agents are setting their sights on a more distant part of the world: China.

   

  In April, representatives for several Miami condo buildings made the 8,000-mile-trip to the Beijing Luxury Property Show, a trade show that attracted more than 5,200 wealthy Chinese to look at international properties. Sales agents for the Fendi Chateau Residences, a luxury development going up near Florida’s Bal Harbour, handed out brochures in Mandarin for condos priced from $5 million to $22 million. Nearby was Lauren Marks, the marketing coordinator for two luxury-condo buildings: Palazzo Del Sol and the forthcoming Palazzo Della Luna, on Miami’s Fisher Island.

   

  “I’m here on a fact-finding mission,” said Ms. Marks. “I’m trying to decide if this is the right place for us to facilitate a meaningful relationship with Chinese buyers.”

   

  Executives of the Miami Association of Realtors, the largest local group of the National Association of Realtors, were there, too, handing out Miami market data and gold palm-tree pins attached to a card with the tagline, written in Chinese, “Enjoy the unique taste of life.”

   

  Part of the reason for their journey: South American buyers, who comprise the largest foreign buying group in Miami, aren’t buying as rapidly anymore. A recent study by the Miami Downtown Development Authority found that sales of new condo units still under construction have slowed, in part because South American investors have less buying power, due to the increase of the U.S. dollar compared with South American currencies.

   

  Meanwhile, Chinese buyers are beginning to take a closer look at the city. “The Chinese are coming along very strong,” said Simon Henry, co-founder of Juwai.com, a China-based website that connects wealthy Chinese with overseas properties. “Miami looks relatively cheap compared with some of the big cities like San Francisco and New York.” Juwai says the average budget for Chinese buyers shopping for overseas properties on its site is $2.3 million.

   

  
  

   

  Currently, only 2% of international buyers in Miami come from China, according to the Miami Association of Realtors. But potential changes in Chinese investment policies, and the relatively strong Chinese yuan, are making the Chinese look like a good bet to Miami developers. The Chinese government is expected to begin raising annual limits on how much an individual can invest overseas from the current $50,000 cap—a rule often skirted.

   

  And Chinese buyers have become an increasingly dominant force in U.S. real estate overall. According to the National Association of Realtors, Chinese buyers recently surpassed Canadians as the top foreign buyers of homes in the U.S., purchasing $28.6 billion of properties in the 12-month period ending in March.

  There it is. The reason why Carlos Rosso, president of Related Group of Florida so confidently told Bloomberg last month that this time is “different” and that the current deceleration in condo price appreciation will not soon turn into a rout.

  In short, Miami condo developers are depending on the China bid to rescue the market from overbuilding much as the entire world depended on China to absorb oversupply in the lead up to the financial crisis. We’ll check back next quarter to see if an influx of Chinese buyers was enough to stop prices from posting their first Y/Y decline in seven years.

  

  

  

  

  

• Russia Is Taking Full Advantage Of Greek Crisis

  Submitted by Nick Cunningham via OilPrice.com,

  With Greece’s debt situation spiraling downwards, the European project is showing some cracks. The July 5 referendum could amount to a vote on whether or not Greece stays in the euro.

  In the meantime, the turmoil offers an opportunity for Russia to advance its interests. Of course, the EU is an absolutely critical trading partner for Russia, so if the bloc starts to fray at the seams, that presents financial risks to an already struggling Russian economy. Russia’s central bank governor Elvira Nabiulllina warned in June of the brewing threat that a Greek default would have on Russia. “We do consider that scenario as one of possible risks which would increase turbulence in the financial markets in the European market, bearing in mind the fact the European Union is one of major trading partners, and we are definitely worried by it,” she said in an interview with CNBC.

  With the economic fallout in mind, Russia does see strategic opportunities in growing discord within Europe. First, Russia is pushing its Turkish Stream Pipeline, a natural gas pipeline that it has proposed that would run from Russia through Turkey and link up in Greece. From there, Russian gas would travel on to the rest of Europe. Russia is vying against a separate pipeline project that would send natural gas from the Caspian Sea through Turkey and on to Europe.

  In mid-June, Alexis Tsipras met with Russian President Vladimir Putin at the St. Petersburg International Economic Forum. Russia and Greece signed a memorandum following the meeting to push the project forward. Russia’s energy minister Alexander Novak emphasized that Gazprom would not own the section of the pipeline on Greek territory, a crucial fact that avoids heavy antitrust scrutiny from EU regulators.

  With an eye on the looming default, Russia agreed to finance the project, and Greek officials portrayed the project as economic assistance amidst its ongoing debt crisis.

  The pipeline remains in limbo. Despite Russian insistence that construction could begin in 2016 and be completed by 2019, the 2 billion euro project does not have firm commitments from Turkey, and it also still faces opposition within Europe, which is trying to wean itself off of Russian gas.

  But with Greece’s debt crisis hitting new lows, there remains the possibility that Russia could come to Greece’s aid if the latter starts to pull away from Europe. And Greece has tried to use a potential turn towards Russia as leverage in talks with Europe.

  To be sure, a Russian bailout for Greece is probably not in the cards, given Russia’s own financial troubles. And both Russian and Greek officials stressed that they did not discuss direct financial assistance when they met in June. Still, there are mutual benefits for both Russia and Greece in highlighting their relationship.

  Another way that Russia may be benefitting from the unravelling of Greece is the fact that the attention of European officials and the media have been diverted away from Gazprom’s latest maneuver in Ukraine. The Russian company cut off gas supplies to Ukraine, citing a pricing dispute. Gazprom slashed the discount that it provided to Ukraine for importing its gas, and without prepayment upfront from Ukraine, the Russian company has stated it will not supply gas.

  That is not the first instance in which Russia has turned off the taps, having done so in 2006 and 2008 as well. Russia cited pricing disputes in those cases as well. But those prior events also took place during a brutally cold winter, leaving parts of Eastern Europe to freeze. The message was clear: fall in line, or we will cut off your energy supplies.

  Of course, that sparked outrage in European capitals, leading to calls for greater European energy security. But after years of little progress, the conflict in Ukraine in 2014 kicked of a new era of icy relations between Russia and Europe, and renewed calls for energy independence from Russia.

  One would think that Russia once again cutting of gas flows to Ukraine would certainly raise howls across Europe, but the Greek crisis is sucking all of the air out of the room and crowding out media attention. The fact that the latest incident took place during summer and not winter helped damp down a European reaction, and Russia was careful to insist that Europe would not be affected. But the incident has passed with much less of a reaction than one might have thought.

  There are huge financial risks to Russia from chaos in the Eurozone, and the longer the crisis drags out the more likely there could be economic fallout for Russia. But Putin no doubt sees a silver lining in collapsing European unity.

  

  

  

  

  

• In China, Hairdresser Bull Call Goes Horribly Wrong, Broker IPO Crashes 31%

  Around two weeks ago, Wang Weidong, who WSJ describes as “one of China’s top fund managers,” drew a crowd so large at the Grand Hyatt in Lujiazui that the building’s air conditioning unit was, much like the SHCOMP’s volume tracking software in April, overwhelmed by the sheer number of aspiring Chinese day traders in attendance.

  The message was clear: buy Chinese stocks.

  “The 4000 level was only the beginning of the bull market,” Wang said, implicitly suggesting that the greater fool theory of investing is the way to go if you’re trading on the SHCOMP or the Shenzhen. Wang even went so far as to suggest that anyone who chose to take a vacation instead of spending their holidays day trading was making a big mistake. “They say the world is too big and I need to go and take a look. I would say, the stock market is hot, so how can I leave it behind?” he asked.

  Anyone who took that advice — and you can bet quite a few of the 600 attendees did — was in for a rude awakening.

  Chinese stocks have suffered a brutal sell-off over the past three weeks as a massive unwind in the shadowy world of backdoor margin lending has overwhelmed official efforts to stop the bleeding and indeed, even a weekend move by the PBoC to pledge central bank support for increased margin lending (and yes, that is as ludicrous as it sounds) wasn’t enough to stabilize the market as evidenced by the SHCOMP’s wild ride on Monday.

  Here’s WSJ with more on why your hairdresser won’t always be right when it comes to identifying attractive entry points.

  On a hot, humid Sunday afternoon in mid-June, around 600 eager stock investors packed the largest ballroom at the Grand Hyatt in Lujiazui, Shanghai’s equivalent of Wall Street.

   

  With Chinese stocks at a seven-year high, the investors had gathered to listen to a talk by one of China’s top fund managers, Wang Weidong, of Adding Investment. The crowd was so large, the air conditioning couldn’t keep up and hotel staffers brought in chairs and bottled water for the sweaty participants.

   

  Today the Shanghai index and smaller, more-volatile indexes in Shenzhen are off more than a quarter from highs reached in June.

   

  Even after the peak, new investors opened millions of brokerage accounts so they could play the rally. Sophie Wang, a 32-year-old college art teacher in Nanjing, said in a recent interview that she opened her first stock trading account two weeks ago and bought some shares on “the advice of my hairdresser.”

   

  
  

   

  Ms. Wang said her holdings are down 32%. “I don’t really follow news on stocks that closely. My hairdresser said it was still a bull market and I needed to get in,” she said. 

   

  She said she didn’t know what to do when the market started falling and she is still holding her shares.

   

  The government has shown increasing concern about the selloff, but its efforts, including an interest-rate cut, have failed to stem the slide. On Saturday, Beijing took its most-decisive action yet, suspending initial public offerings and establishing a market-stabilization fund to spur stock purchases. The Chinese central bank also pledged to provide funding to support brokerages’ margin finance operations that allow investors to borrow cash to buy stocks.

   

  China has suspended IPOs before in hopes of boosting the market by way of cutting supply. This time, the stakes are higher because an estimated four trillion yuan ($645 billion) worth of IPOs was in the works, and Beijing had hoped to use a buoyant stock market to help heavily indebted companies raise cash.

  Speaking of IPOs, it appears as though brokers are just as ineffective at propping up their own shares as they are at providing plunge protection for the broader market, because as the following from Bloomberg makes clear, Guolian Securities’ debut did not go as planned. 

  Chinese brokerage Guolian Securities Co.’s shares tumbled in the worst major Hong Kong trading debut since 2011, even after China rolled out emergency measures to stabilize the nation’s stock market.

   

  Guolian closed 31 percent lower than its offer price at HK$5.51. 

   

  Guolian’s debut was the worst since 2011 for any Hong Kong initial share sale of at least $100 million, Bloomberg-compiled data show. While the securities firm’s shares were in part catching up with market declines since the stock was priced on June 26, investors are concerned that the Chinese slump isn’t over, Castor Pang, head of research at Core Pacific Yamaichi in Hong Kong, said by phone.

  Where we go from here is anyone’s guess because as we noted on Sunday evening, retail investor psychology has now suffered irreparable damage, meaning panicked hairdressers and banana vendors looking to sell the rips will be battling the PBoC for control of an insanely volatile market.

  In short, expect the wild swings investors have seen over the course of the last two months to continue and indeed to become even more exaggerated as the battle between Politburo plunge protection and frantic farmer selling heats up.

  

  

  

  

  

• There is Only One Way Out For Greece

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  Brussels has been dead wrong. The stupid idea that the euro will bring stability and peace, as it was sold from the outset, has migrated to European domination as if this were “Game of Thrones”. Those in power have misread history, almost at every possible level. The assumption that the D-marks’ strength was a good thing that would transfer to the euro has failed because they failed to comprehend the backdrop to the D-mark.

  

  Germany moved opposite of the USA toward extreme austerity and conservative economics because of its experience with hyperinflation. The USA moved toward stimulation because of the austerity policies that created the Great Depression, which led to a shortage of money, and many cities had to issue their own currency just to function. The federal government thought, like Brussels today, that they had to up the confidence in the bond market and that called for raising taxes and cutting spending at the expense of the people. The same thinking process has played out numerous times throughout history. Our problem is that no one ever asks – Hey, did someone try this before? Did it work? This is why history repeats – we do ZERO research when it comes to economics. It is all hype and self-interest.

   

  

   

  Greece should immediately begin to print drachma. By no means has the introduction of a new currency been a walk in the park. There is always a learning curve, as in the case of East Germany’s adoption of the Deutsche mark, the Czech-Slovak divorce of 1993, and the creation of the euro itself . However, the bulk of transactions today are electronic, meaning we are dealing with an accounting issue more than anything. The euro existed electronically BEFORE it became printed money; Greece should do the same right now.

   

  

   

  The difference concerning East Germany and others was the fact that there was no history. This is more akin to the 1933 devaluation of the dollar by FDR whereby an executive order reneged on promises to pay prior debt in gold. This would be similar. The new drachma should be issued at two-per euro, only because the people will think the drachma should be worth less than a euro based on pride. If the new drachma is issued at par, the speculators will sell, assuming it will decline. Issue it at 50% and you will eventually see the opposite trend emerge once people see the contagion begin to spread.

  Brussels already cut off the banks in Greece. All accounts in Greece should be electronically switched to drachmas. Begin to issue printed drachma for small change. The umbilical cord to Brussels must be cut immediately for Greece to stand on its own. You cannot negotiate with people who will not change their view of the world, for their own self-interest will cloud their perspective.

  All EXTERNAL debt should be suspended. Any future resolution of debt should be reduced by 50% to account for the overvaluation of prior debt, thanks to the euro, and any interest previously paid should be deducted from the total loan.

  All income tax should be abolished and the only taxation should be indirect. A close examination of the cost of government should be carried out and as many aspects of government as possible should be privatized and put out for bid. For example, motor vehicle and police agencies can privatize, eliminating pensions paid by the government. The size of government must be addressed, or Greece will risk civil war between government workers and private citizens.

  Eliminating the income tax is critical and desperately needed for job creation. Small business must be profitable to begin to creating jobs and those who had to leave, whom are the nations’ brightest, will return. Bring your best talent home and build an economy.

  

  Eliminating the debt is critical. Some 20 nations forgave all debt for Germany after World War II. The London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany and its creditor nations that concluded August 8, 1953.

  

  The London Debt Agreement covered a number of different types of German debt, both public and private, from before and after World War II. Some of them arose directly out of the efforts to finance the reparations system, while others reflect extensive lending, mostly by U.S. investors to German firms and governments. Those who forgave German debt: Belgium, Canada, Denmark, France, Great Britain, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Pakistan, Spain, Sweden, Switzerland, South Africa, the United States, Yugoslavia, and others. The total amount under negotiation was 16 billion marks of debt, a result of the Treaty of Versailles after World War I, a debt that went unpaid during the 1930s that Germany decided to repay to restore its reputation. This was money owed to government and private banks in the U.S., France, and Britain. Another 16 billion marks represented postwar loans by the USA. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.

  Therefore, what enabled Germany to rise from the ashes is a successful model. Greece too must be debt free. End federal borrowing, suspend all debt, and do not accept any more bailouts from Brussels.

  

  

  

  

  

• This Is How Much It Cost To Keep The Shanghai Composite Green For A Day

  Over the weekend, as China scrambled to put together a coherent plan to combat the vicious equity sell-off that has pruned nearly 30% off the market’s world-beating rally, we remarked that the entire effort looked quite similar to what took place in the wake of Black Thursday some eight and a half decades ago: 

  “The move by the broker consortium is reminiscent of an ill-fated 1929 effort by JP Morgan and others to support the US market after Black Thursday and is, according to some, doomed to fail because i) it is a laughably small effort compared to daily turnover in China, and ii) it targets the wrong kind of stocks.”

  The “consortium” refers to the 21 brokers who came together on Saturday and pledged 15% of their net assets to support the flagging Chinese stock market. The PBoC later (on Sunday) announced it would channel funds to the China Securities Finance Corp which will in turn use the cash to help brokerages expand their businesses and reinvigorate stocks. 

  The message was clear: stocks absolutely could not open red on Monday morning.

  Consider the following from BofAML which shows just how imperative it was for the SHCOMP to open green: “We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC).”

  In other words, the $20 billion or so in committed broker funds needed to be in place the second the market opened and not a minute later and if that meant the central bank had to front the money while the CSFC waited on the broker cash to clear then so be it. Here’s Bloomberg:

  21 Chinese brokerages had transferred at least 128b yuan to China Securities Finance Corp. as of 11am Monday, Shanghai Securities News reports on Weibo, citing Wang Min, deputy head of Securities Association of China.

  That explains the opening 8% ramp on the SHCOMP. Of course by the end of the session, whatever boost stocks received from early buying had almost entirely worn off, supporting the contention that, to quote one Bocom equity strategist who spoke to Bloomberg over the weekend, “that CNY120 billion won’t last for an hour in this market.” 

  
  

  With all of the above in mind, we bring you the following chart which, by way of comparison with the above-mentioned JP Morgan Black Thursday plunge protection team, shows you how effective China’s effort is likely to be.

  

  

  

  

  

  

• Greece Fallout: Italy & Spain Have Funded A Massive Backdoor Bailout Of French Banks

  Submitted by Benn Steil and Dinah Walker via The Council on Foreign Relations,

  In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece.  French banks, as shown in the right-hand figure below, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain.

  

   

  The €110 billion of loans provided to Greece by the IMF and Eurozone in May 2010 enabled Greece to avoid default on its obligations to these banks.  In the absence of such loans, France would have been forced into a massive bailout of its banking system.  Instead, French banks were able virtually to eliminate their exposure to Greece by selling bonds, allowing bonds to mature, and taking partial write-offs in 2012.  The bailout effectively mutualized much of their exposure within the Eurozone.

  The impact of this backdoor bailout of French banks is being felt now, with Greece on the precipice of an historic default.  Whereas in March 2010 about 40% of total European lending to Greece was via French banks, today only 0.6% is.  Governments have filled the breach, but not in proportion to their banks’ exposure in 2010.  Rather, it is in proportion to their paid-up capital at the ECB – which in France’s case is only 20%.

  In consequence, France has actually managed to reduce its total Greek exposure – sovereign and bank – by €8 billion, as seen in the main figure above.  In contrast, Italy, which had virtually no exposure to Greece in 2010 now has a massive one: €39 billion.  Total German exposure is up by a similar amount – €35 billion.  Spain has also seen its exposure rocket from nearly nothing in 2009 to €25 billion today.

  In short, France has managed to use the Greek bailout to offload €8 billion in junk debt onto its neighbors and burden them with tens of billions more in debt they could have avoided had Greece simply been allowed to default in 2010.  The upshot is that Italy and Spain are much closer to financial crisis today than they should be.

  

  

  

  

  

• Obamacare Sticker Shock Arrives: Insurance Premiums To Soar 20-40%

  Two months ago, we outlined why the CPI-boosting Affordable Care Act is on the verge of bankrupting that all important driver of the US economic growth engine — the American consumer.

  Put simply, inflation in medical care services costs hadn’t yet reared its ugly head because many insurers were as yet unable to gauge the full base-effect impact of Obamacare on their P&L. That, we said, was about to change: “After finally digesting the true cost of Obamacare, any recent insurance prime hikes will seem like a walk in the park compared to what is coming.

   

  

  Sure enough, insurers have now taken a close look at exactly how much socialized medicine is costing them.

  Not surprisingly, the picture isn’t pretty.

  In some cases, forecasters grossly underestimated the number of claims they would likely receive, and indeed, even a PhD economist can tell you that when the amount going out for claims is greater than the amount coming in via premiums, there’s a problem with the model and because staunching the outflow is effectively now forbidden, something has to give on the receivables side of the equation which means dramatically higher premiums.

  NY Times has the story:

  Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.

   

  Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

   

  

   

  The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase.

   

  Jesse Ellis O’Brien, a health advocate at the Oregon State Public Interest Research Group, said: “Rate increases will be bigger in 2016 than they have been for years and years and will have a profound effect on consumers here. Some may start wondering if insurance is affordable or if it’s worth the money.”

   

  The rate requests, from some of the more popular health plans, suggest that insurance markets are still adjusting to shock waves set off by the Affordable Care Act.

   

  Blue Cross and Blue Shield of New Mexico has requested rate increases averaging 51 percent for its 33,000 members. The proposal elicited tart online comments from consumers.

  “This rate increase is ridiculous,” one subscriber wrote on the website of the New Mexico insurance superintendent.

   

  In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

   

  “Our enrollees generated 24 percent more claims than we thought they would when we set our 2014 rates,” said Nathan T. Johns, the chief financial officer of Arches Health Plan, which covers about one-fourth of the people who bought insurance through the federal exchange in Utah. As a result, the company said, it collected premiums of $39.7 million and had claims of $56.3 million in 2014. It has requested rate increases averaging 45 percent for 2016.

   

  The rate requests are the first to reflect a full year of experience with the new insurance exchanges and federal standards that require insurers to accept all applicants, without charging higher prices because of a person’s illness or disability.

  There you go. Precisely as we said, the ACA and of course the ballooning cost of new drugs proxied by Janet Yellen’s “stretched” biotech sector mean manidtorily insured Americans will now be charged more. Much more.

  But do not despair because where there’s an Obama there’s always “hope”. And on that note, we’ll leave you with the following, from the President:

  If insurance regulators “do their job, my expectation is that [rates hikes] will come in significantly lower than what’s being requested.”

  

  

  

  

  

• Is It Slowing China Or Grexit That Is Driving Financial Market Price Changes?

  Submitted by Bryce Coward via Gavekal Capital blog,

  While some of the post Greferendum moves in financial markets could have been and were predicted by the financial punditry – lower euro, lower stocks, lower US bond yields, higher gold – the real moves have appeared elsewhere.

  Indeed, as of this writing the euro is only lower against the USD by less than .5%, the MSCI World Index is barely off by 1%, bonds are bid, but not emphatically, and gold is only marginally higher.

  The real moves have been in oil (WTI down 6.3% and Brent down 5%) and copper (down 3.9%).

  While at first glance this may strike one as odd, there could be something larger at work.

  Perhaps the more important catalyst for asset price changes of late is Chinese economic slowing rather than fears of Grexit?

   

  

   

  As the charts above show, Chinese industrial output is closely related to oil and copper prices. Or said differently, oil and copper prices are closely related to Chinese economic activity and the slowing of which is having a direct impact on these growth sensitive commodities.

  

  

  

  

• "Greece Is Coming To Your Neighborhood" Marc Faber Warns

  “Wake up people of the world and investors. Greece will come to your neighborhood very soon, maybe not this year, but next year or whenever it is, because the world is over infected. And defaults will follow, or they will have to create very high inflation rates.”

  That’s Marc Faber’s message to all of those who may still think that Greece doesn’t matter in the grand scheme of things. In an interview with Bloomberg TV, Faber talks Greece, China, and of course the Fed.

  On Greece:

  And everybody knows in the world that Greece cannot pay its debt at the current size. So what will happen, in my view, is either Greece will leave the EU and will suffer very badly for a few months, maybe even longer. There will be a cash shortage. Or the EU, and the ECB and the IMF will have to cut a significant haircut. And Tsipras proposed a haircut of something like 30 percent. I don’t think that’s enough. I think they will need a haircut of at least 50 percent.

   

  I think the likelihood of contagion is very high. And I have to say when you have a borrower, you also have a lender. And it’s actually, in my view, amazing how the EU kept on pumping money into Greece, partly also to bail out their own banks. And suddenly now the debt is no longer manageable.

   

  And I would say, wake up people of the world and investors. Greece will come to your neighborhood very soon, maybe not this year, but next year or whenever it is, because the world is over infected. And defaults will follow, or they will have to create very high inflation rates. 

  On China:

  Well my view was that after this 100 percent increase in Chinese stocks and huge speculation, and huge speculation on margin, margin index in China, the percent of the economy, was almost twice as large as in the U.S. So it was very large. And my view was that the market would fall from the peak by at least 40 percent.

   

  And I still maintain that — that the market will move lower before it starts to move up again. But I don’t think we’ll see a new high in China for some time.

   

  I think the economy is very weak by Chinese growth standards. And we’ve seen that also in industrial commodity prices. I think lots of sectors in China are no longer growing. 

  On ‘liftoff’:

  Well, as you know, the majority of Fed’s governors that are voting are those that always they will use any excuse to essentially delay a rate increase. 

  Full interview:

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• Meanwhile, Back In Obama Legacy-Land

  Problems… “solved”

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Why Greece Matters A Lot: The Case Of Europe's Falling Dominoes

  Over the weekend, we showed why contrary to unfounded speculation that Greece is entirely contained, there are still extensive linkages when it comes to the fallout a Grexit would reap if not directly on private commercial banks which over the years managed to offload their Greek exposure to the Europe’s taxpayers….

  

  … but on the sovereign economies of the Eurozone as well as the ECB, at first via the EFSF, then also via the SMP, the MRO, Target 2 and so on.

  Overnight, Barclays took this analysis and also showed the absolute national euro exposure to Greece broken down by bailout program and also as a % of respective host nation’s GDP. What it found is the following:

  

  And here is what it looks like when we redo our prior chart showing just European Grexit exposure via EFSF, to total sovereign exposure as a % of GDP. The total amount in question: €341 billion, or just about 3.4% of the €10 trillion in notional European GDP.

  

   

  But wait, rules-based Europe has “firewalls” now, all laid out and proper, so there can’t possibly be contagion.

  Only that’s not true: for example, two years after introducing the OMT, the ECB still does not even have a regular term sheet laying out the rules of what the purpose of the OMT is aside to be some massive, amorphous “whatever it takes” bazooka. And as for the ECB’s QE, it is all downhill from here as net issuance in Europe trickle to a halt, and the ECB risks crushing an already illiquid bond market by monetizing even more of it. Of course, it could engage in outright stock monetization but that would be the signal that the end of the current system is truly near.

  As for “rules-based”, we’ll just leave that to the ECB which just hiked Greek bank collateral effectively admitting the banks are insolvent, but not too insolvent, because now the ECB is officially and without doubt a political entity whose only purpose is to further political agenda.

  But that’s just the beginning, and as Barclays cautions investors have largely taken the view that even if the worst case scenario did unfold, the impact on portfolios would be manageable. At this point Barclays warns that it is perfectly plausible that this Sunday’s “no” vote may not follow the benign narrative that markets have largely adopted.

  Below are some of the scenarios where the contagion will be worse than any algo, not to mention central banker, expects:

  The backstops are not entirely infallible

   

  Some of the backstops, if needed, are either untested or incomplete. One example might be the new banking union. At present, the €55bn resolution fund is still 95% unfunded, deposit guarantee schemes are still mostly ex-post funded and there is still no pan-European deposit insurance. More importantly, holdings of peripheral debt on domestic bank balance sheets are rising substantially in recent years. In Italy and Spain, for instance, domestic government bonds as a percent of total bank assets have risen from 1.5% and 2.3% respectively in 2009, to 6.5% and 7.8% at end 2014 and February 2015 respectively. Any period of prolonged, significant peripheral stress would almost surely lead to some, perhaps significant, widening in bank credit spreads.

   

  As for the ECB’s OMT programme, it has never been tested and it is not quite the pure “lender of last resort” backstop many in the market have come to believe it to be. To start, ECB OMT purchases come with significant conditionality. Any country seeking this assistance must apply for a programme, which would almost surely come with fiscal and structural reform prescriptions.

   

  Greek exit and an official sector default would be new precedents

   

  The biggest risk for contagion, in our view, is that the Greek “no” vote would most likely set in motion two precedents – an exit and default of official sector debt – that have never really been stress tested in the euro zone, either technically, or perhaps more importantly, politically.

   

  Greek default would have a non-negligible effect on EA balance sheets… 

   

  As we have said in the past, a default on official sector debt would be large, but technically manageable, at about EUR195bn in bilateral loans and EFSF/ESM loans. In addition, SMP bonds held by the ECB amount to EUR27.7bn and Intra Eurosystem liabilities (mainly Target 2) amount to EUR118bn. Altogether, the official exposure to Greece amounts to about EUR340bn, nearly 3.5% of EA’s GDP, sizeable but probably manageable [ZH: and enough to push the Eurozone into a depression if the entire liability is written off].

   

  … while a default opens up a host of political risks that remain unanswered

   

  A default on the European loans could create considerable political backlash in EA countries against further support for periphery economies. Right-wing parties, such as AfD in Germany, Front National in France, Party of Freedom in the Netherlands, and True Finns in Finland, have repeatedly opposed bail-outs to periphery countries, especially to Greece. But even more moderate parties may question the bail-out mechanisms as the Greek default of 2012 was meant to be a one-off. Smaller countries are also unlikely to take it lightly as; as a percentage of their country GDPs, these countries would bear a larger share of the burden (eg, the Baltic countries).

  All of this puts into perspective today’s ECB decision to raise Greek haircuts, because as Goldman noted two weeks ago, it appears to have ultimately been the ECB’s intention to launch a controlled Grexit contagion, one where Europe will see a steep but not too dramatic drop in its GDP, and perhaps a triple-dip recession can be avoided once more with some new changes in the definition of what GDP is, all so Mario can pull a Kuroda from October 31, 2014 and increase the ECB’s QE just so European stocks rise higher, and just as importantly, the EUR slides even more (some 7 figures according to Goldman) toward parity which make both Europe’s – really Goldman’s – bankers delighted when gettting their year end bonus, and keep Germany’s exporters happy.

  As for the collateral damage, i.e., millions of broke Greeks who just lost everything, you know what they say about making a QE omelette.

  Curiously, the German government hasn’t published estimates of how much it could lose in case of a default, arguing that this scenario could unfold in too many different ways. However, as the WSJ reports, according to the Munich-based Ifo economic institute, total German exposure to Greece, including the loans and a host of other liabilities, at €88 billion while S&P estimates it at €91 billion. This is in line with the estimate shown above.

  According to Jens Boysen-Hogrefe, economist with Kiel-based institute Ifo, the hit “would hardly be noticeable for Germans.” He may be right, but where he is wrong is looking at Greece as an isolated case: since Europe is, or rather was, a union, one has to evaluate the combined impact of a third of a trillion in impaired assets across the Eurozone. For the vast majority of European nations, the effect of a “write-off” of 3-4% of GDP would be sufficient to launch a depression, which would then promptly drag Germany lower as well, adverse impact (and thus quite welcome to Germany) on the EUR notwithstanding.

  We just hope that the ECB has done its math right and what it believes will be the contained demolition of Greece does not spiral out into an out of control tumble of dominoes, because not even a hollow “whatever it takes” threat from Draghi would offset that, especially if and when the deposit run moves from Greece to Italy, Spain and the rest of the Europe.

  

  

  

  

• "Greece Is Contained" Except In Crude, Copper, FX, US & EU Stocks, & Peripheral Bonds

  Seemed appropos…

  "Greece is contained" was the clear message desperately trying to be provided to the masses today as PPTs from all around the world lifted FX (and equities directly in some regions) in an effort to keep the dream alive… It didn't work!

   

  It started in China… and failed…

  

   

  Then Europe… and failed… (in stocks)

  

   

  With Spain, Portugal, and Italy dumped…

  

   

  and bonds…

  

   

  Then US… and failed…

  

  

   

  Don't get too excited about the bounce – we've seen it all before…

  

   

  Broken markets and VIXnado'd…

  

   

  FX markets turmoiled but it appears The ECB and BoJ had an 'understanding'…

  

   

  Here's how EURJPY was used to ingite carry trade-spewed momos into lifting stocks higher…

  

   

  Treasuries well well bid out of the gate as investors sought safety… then sold off into the European close… then yields ripped to the lows of the day…

  

   

  Commodities mixed…

  

   

  Crude clubbed like a baby seal…

  

   

  Some context for Crude today… Carnage!!

  

   

  Copper crashed…

  

   

  And finally – gold and silver! Makes perfect sense as all hell breaks loose for the precious metals to trot along the flatline ignoring all the noise as if some external factor was crushing the life-giving volatility out of the status-quo-meme-destroying prices…

   

  But apart from all that – Greece is priced in, Greece is contained, and Greece doesn't matter

  Charts: Bloomberg

  Bonus Chart: How do you say "Deja Vu All Over Again" in Chinese?

  

  

  

  

  

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• Silver Market Change Report 5 July, 2015

  The prices of the metals drooped further this shortened week (Friday was a holiday in the US, as the Fourth of July, Independence Day, occurred on Saturday). The S&P 500 index also fell this week, as did crude oil.

  Markets all over the world are beginning to feel shocks from Greece. As we write this, on Sunday evening Arizona time, the Greeks voted “No” to the terms of the bailouts offered them. The simple fact is that Greece cannot pay. What they cannot pay, they will not. What they don’t pay, has to be written off by whomever holds it as an asset. Some of these write-offs will obligate European governments to pay in more euros to recapitalize the now-insolvent entities. For example, countries like Spain that need bailouts themselves will have to contribute to the European Central Bank.

  A Greek default is not about the size of its GDP, but about the size of the holes blown out of various balance sheets, where Greek debts used to be marked as their assets. We don’t know precisely how much the Greek government, Greek central bank, Greek commercial banks, and other Greek debtors owe. According to Demonocracy, the total is €360 billion (and they have a very cool infographic to illustrate it). We suspect that, at the end of the day, the number turns out to be greater than that.

  The Greek default is a forcible contraction of credit (Keith’s definition of deflation), and bound to be negative for the prices of ordinary assets. That said, something extraordinary has occurred in the silver market this week.

  Read on, for the only accurate picture of the supply and demand conditions in the gold and silver markets, based on the basis and cobasis.

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

         The Prices of Gold and Silver
  

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

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

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

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

  Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. It ended unchanged this week.

  The Ratio of the Gold Price to the Silver Price
  
  

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

  Here is the gold graph.

         The Gold Basis and Cobasis and the Dollar Price
  
  

  The dollar rose (i.e. the price of gold, measured in dollars, fell). Scarcity (i.e. the cobasis, the red line) rose with the move. This is the pattern that repeats time and again. When speculators buy futures contracts, the price of the dollar falls and the scarcity of gold falls with it. This week, speculators sold gold, driving up the price of the dollar (to 26.67mg) and the scarcity of gold rose as well.

  The fundamental price of gold did not change at all. It’s still 30 bucks over the market price.

  Now let’s look at silver.

  The Silver Basis and Cobasis and the Dollar Price
  
  

  Last week, we said:

  “The fundamental price of silver rose a nickel this week. It’s $17.39. [thanks to a reader who caught the typo—the correct number was $15.39.]”

  And the price this week dipped several times to about $15.46. That is pretty darned close, and closer than it had gotten in years.

  In the big picture, the price did not move much on the week. However, look at that red cobasis line go. It was a mere 7 basis points last Friday. It ended this week at 100 bps. The cobasis of farther-out contracts also rose proportionally.

  Suddenly, the silver market is firm.

  Think like an arbitrager for a minute. It’s possible to earn 1% annualized, on a simple trade with no risk (as conventionally understood). Just sell a bar of silver and buy a contract for
  September delivery—called decarrying the metal. The trade matures in no more than 3 months, and you end where you started (plus the free 1% profit). Show us any other investment that pays so much for so little duration, and it will have “risk” written all over it.

  And yet, that trade is now offered in silver.

  We can name two reasons why the cobasis might skyrocket. One is that there is a risk. If your counterparty defaults, then you don’t get your metal back. You may get dollars. The exchange will insist the dollars are equivalent to the metal, but that’s small consolation.

  We do not believe this is the main problem now, because it’s not occurring in gold. If the banks were in imminent danger, the gold basis would not be quiescent.

  The other possible reason is that there’s a growing shortage of silver. Of course, in order to decarry silver, you have to have the metal. If it’s not available, you can just wistfully watch the rising cobasis.

  So now, for the first time in about two years, the fundamental price of silver is above the market price, about $0.35 over.

  We’re reminded of a dancing bear. It’s not a particular good dancer. What’s interesting is that it’s a bear. And it’s dancing. This is not a particularly big fundamental price premium over market. What’s interesting is that the fundamental price of silver is above the market.

  Unless you really like to trade the bleeding edge of a signal change, you may not want to jump in here. Silver’s newfound scarcity could disappear as rapidly as it appeared. And even if it’s stable, it does not mean that the fundamental price must necessarily skyrocket.

  We would recommend waiting to see what the markets bring us, not to mention the near-term fallout from Greece this week.

   

  Keith is speaking at FreedomFest this week in Las Vegas.

   

  © 2015 Monetary Metals

  

  

  

  

• EuRo ACHiLLeS…

  

  

  

  

• Volatility, Confusion Reign As PBoC Intervenes: Chinese Stocks Surge Then Tumble

  “Rainbows always appear after rains,” China’s state media said over the weekend, in a blatant attempt to create the conditions for a self-fulfilling prophecy when the country’s battered equity markets opened for trading on Monday. 

  China’s brokers and mutual funds each took steps on Saturday to help stabilize the market which has collapsed 30% in just three weeks, thanks in part to a massive unwind in the shadowy world of backdoor margin lending.

  On Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. 

  Now, the trading week is officially underway and the above-cited “rainbow” thesis is being put to the test early and often as panicked housewives and banana vendors looking to sell the rips battle the PBoC for control of an insanely volatile market.

  As we noted earlier, it may now be too late to resurrect the bubble because the psychology has changed irreparably: “I didn’t sell at the peak because people all say the market will rise beyond 6,000 points,” Shao Qinglong, a public service worker who has already lost over a quarter of his capital investing in stocks, told Reuters, adding that all he is waiting for is for the market to recover enough for him to break even. “I’m now waiting for the market to rebound so that I can get out.”

  True to form, the SHCOMP opened sharply higher in a bout of post-PBoC euphoria before diving just seconds later, stabilizing, and then proceeding to crash anew, erasing most of the opening gains in a matter of minutes.

  

  

  One might have expected this. After all, the fact that the central bank was effectively forced to intervene over the weekend is precisely the opposite of something that would inspires confidence: a simple fact that not one central bank has grasped in the past 7 years.

  After all, the more backstops and interventions are required, the more fragile and less “fundamental” any given market is.

  Of course, the fact that throwing the kitchen sink at the problem has so far resulted in only a feeble rebound, one which most are taking as an opportunity to sell into, will hardly help. And keep in mind, even if stocks closed green today, there is a long way to go to recover the recent bubble highs, highs which everyone now knows are well, bubbly.

  

  With millions of shell-shocked, over-leveraged retail investors looking to cut their losses just as the PBoC funnels money to brokers to ramp up margin trading, expect the wild swings investors have seen over the course of the last two months to continue and indeed to become even more exaggerated as the battle between Politburo plunge protection and frantic farmer selling heats up.

  

  

  

  

  

• Greferendum Caption Contest: Two For The Price Of One

  We were conflicted about today’s choice of a caption contest to summarize what was the most surreal day in modern European history: a day in which one nation voluntarily made the choice to take steps toward a severance of its ties with some 18 other nations through what was recently seen as an “irreversible” currency.

  So here are the two choices for today’s caption contest: we leave it up to readers to decide which is more appropriate.

  

   

  And:

  

  

  

  

  

  

• Hillary Ropes Off "Everyday" Reporters, Creates Media Spectacle

  In case anyone forgot, Hillary Clinton — whose demands for a keynote speech appearance include a quarter of a million dollars, a private jet (“a Gulfstream 450 or larger), and $1,000 for a stenographer — is running for “everyday Americans.” 

  Presumably, these are the “folks” who make up the 83% of American workers classified by the BLS as “non supervisory” and probably include those whose job it is to report the news, which is why we were surprised (not really) to see that when it comes to “everyday” reporters, covering a Clinton rally means being herded along like cattle inside a moving rope pen which looks to have been designed to separate the former First Lady from ‘the rest of us’:

  

  

  

  

  *  *  *

  The media has predictably had a field day with the images. It’s not yet clear what impact the debacle will have on Clinton’s ability to “rope in” voters so to speak.

  

  

  

  

• IOUs It Is: Why Greece May Have A Problem Printing "Rogue" Euro Banknotes

  Previously we reported that in a heretofore unknown exchange, Varoufakis told Telegraph’s Evans-Pritchard that “if necessary we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.” Shortly thereafter, SocGen released a note in which it confirmed largely what the Greek finmin may have said, namely that “Greece is likely to issue a form of parallel currency.”

  Here is SocGen’s argument:

  Greece is likely to issue a form of parallel currency:

  • Indeed, the Greek government is already running a primary budget deficit and no other form of funding will be available in the coming weeks. It is worth noting that if the ECB was to decide to reduce or stop allowing Greek banks to roll-over Greek TBills, the issuance of IOUs would become even more crucial for the government.
  • On top of that, we believe that the IOUs may also be used to help alleviate the financial stresses on Greek banks, such as the issuance of promissory notes in IOU terms in return for the redenomination in IOUs of part of banks’ liabilities (including time deposits above a specified amount). In this case, the IOUs would most likely end up as the new Greek currency. Indeed, living with closed banks and frozen deposits cannot last long. The government would eventually offer (with a discount) the chance to convert blocked time-deposits in euros into cash deposits in IOUs. The government would just have to print new banknotes and coins to allow free deposit withdrawals.

  The idea of a parallel currency is not uncommon. In particular, IOUs have been used during periods of financial and economic stress, with extreme examples as some US states and Argentina (the latter eventually ending up with a massive devaluation of the peso).

   

  The academic literature presents several forms of parallel currency, with some creating a new form of securities, backed by the government’s ability to pay back its debt (e.g. California in 2009) and others backed by future taxes (similar to a tax credit).

   

  Unlike the former, the second category would have the advantage of not increasing the amount of debt owed by the Greek government. For example, the Greek government could pay part (let’s say 30%) of civil servant wages, benefits and pensioners in IOUs and part in euros. The IOUs could become a sought after asset if they offered a discount on tax payments (let’s say 5%). The IOU would be used in the Greek territory only. It could be used to trade basic needs (food, health, education, public services). However, the implementation and legal risks implied by the introduction of IOUs are elevated:

  • The logistical organisation needs to be put in place swiftly and smoothly while social order needs to be maintained;
  • As seen in Argentina, introducing IOUs could risk backfiring into full force devaluation. In the case of Greece, creating a parallel currency could be seen as a first step to Grexit (even with a Yes vote) and not as a temporary solution as in California. Conversely, if the IOUs introduced fail to be seen as a credible means of exchange or do not offer attractive characteristics, they would rapidly disappear in the private sector (as was the case in the Canadian province of Alberta in 1936-37).
  • The IOUs would be at risk of breaching the EU Treaty. Indeed, Article 128 states that “the banknotes issues by the ECB and the NCBs shall be the only such notes to have the status of legal tender within the Union”. As long as Greece remains within the EU, the IOUs could be used as a medium of exchange but would not have the privilege of a legal currency (Regulation 974/98).

  In this light, Greek IOUs now seem almost inevitable, especially since the other, “more nuclear” option, going rogue and printing Euro banknotes without the ECB’s approval, appears quite limited even if purely logisically.

  This is what the ECB says on the topic:

  Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations.

  The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.

  And here is the biggest reason why if Greece relied on this plan it may have serious problems: per the ECB, the only dispensation the Greek currency printer has is for €10 bills.

  

  Sadly, filling up holes worth tens of billions with “rogue” €10 bills would be problematic logistically, and we believe, Greece would run out of printing supplies long before it got to printing anywhere close to the required and desired amount, leaving aside all other questions of propriety and legality.

  So IOUs it is. The only question is how these shall be named. Last time we checked (in June 2012), the New Drachma (aka XGD) was briefly taken…

  

  … but after the summer of 2012 when the ECB was doing “whatever it takes” to show that the EUR is “irreversible” (only to prove three years later just how reversible it truly is) the XGD is once again available. Go for it Greece.

  

  

  

  

• China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility"

  Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses. 

  Although Beijing will surely contend that this does not amount to Chinese QE because the central bank isn’t actually adding equities to its balance sheet (or at least as far as we know), it certainly sounds as though the PBoC is now set to directly fund leveraged stock purchases by retail clients and if that doesn’t count as using the central bank’s balance sheet to monetize risk assets then we don’t know what does. 

  The move came after a consortium of brokers agreed on Saturday to commit 15% of their collective net assets to propping up China’s flagging stock market. The amount of support sums to just $19 billion and will be allocated to blue chip stocks, meaning, in no uncertain terms, that the initiative will be woefully inadequate to combat the rapid unwind of hundreds of billions of off-the-books margin trading. 

  And so, the fate of the market now lies squarely in the hands of the PBoC who, as BofAML notes, may have just “crossed the Rubicon.” 

  As we argued before, the A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. We expect the A-share market to rebound somewhat in coming days, especially large cap names. If that happens, we suggest investors sell into the rally, especially brokers. Fundamentally, with SHCOMP ex. banks trading at 31x trailing 12-month earnings, the market appears very expensive to us. We assess that there is still a fairly high chance that market may fall sharply again at certain point over the next few months, unless the PBoC makes an open-ended commitment to support the market. 

   

  What the government did over the weekend 

  Among the many things announced over the weekend to support the market, three are meaningful, in our view: 1) a de facto suspension of IPOs in the A-share market; 2) the set-up of an Rmb120bn market stabilization fund (MSF) by 21 major domestic securities houses, coordinated by the CSRC; and 3) the

  PBoC’s promise to provide liquidity support to China Securities Finance Corporation (CSFC). CSFC is the clearing house for margin financing and stock lending businesses in China and it’s also the sole provider of margin financing loan services to securities houses. Among the three measures, the third is by far the most important in terms of potential impact on market psychology by our assessment – we doubt that the first two alone would be able to stop a potential market rout on Monday. 

   

  Has PBoC crossed the Rubicon? 

  CSRC’s announcement on the liquidity support does not spell out how the liquidity will be used by CSFC, nor does it say anything about the size of the potential support. We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC). Local media reported that CSRC is confident of Rmb1tr inflows into the A-share market in short order. So it’s also possible that PBoC might have committed to provide a few hundreds of billions of Rmb for the time being by our assessment, with the balance of the inflows potentially coming from pension funds, insurers etc. At this stage, it doesn’t appear to us that PBoC is prepared to buy stocks itself or make its commitment to provide support open-ended. 

  While we would certainly agree that the PBoC has indeed “taken the first step in the direction” of becoming the buyer of last resort, we’re not so sure the distinction between the central bank “buying stocks itself” and providing the funds for brokers to facilitate margin trading is very meaningful.

  The central bank is effectively monetizing risk assets — the fact that the buyers are one degree removed from the PBoC is largely just a matter of optics. Also, we’re not at all sure that the central bank will not move very quickly to make its support “open-ended” — as discussed here on any number of occasions, Beijing simply cannot afford a stock market crash and thus will not go down without a fight.

  All of that said, the market’s reaction to what the PBoC probably thought would be a potent one-two punch (the simultaneous cut to both the benchmark lending rate and the RRR rate) was met with still more selling, which is of course just another example of central banks losing control (see Sweden for further evidence). On that note, we’ll close with the following warning from BofAML:

   If PBoC becomes the main source of market-supporting liquidity, we expect the central bank’s credibility to be hurt.

  

  

  

  

  

• More Sellside Reactions To The Greek Referendum

  Today, Greeks sent a resounding message to Brussels, Frankfurt, and Berlin that they are not willing to acquiesce to further humiliation at the hands of creditors and that, even if it means braving the economic abyss in the short-term, the country is determined to salvage a better tomorrow from what, after today’s referendum, are the smoldering ashes of Greece’s second bailout program.

  Now, a stunned sellside — which had, over the past three months, very carefully tweaked their base cases to reflect the growing risk of Grexit — is scrambling to explain to nervous clients what happens next.

  Having heard from JPM earlier, we bring you the latest from Barclays, Deutsche Bank, and RBC.

  * * *

  From Barclays:

  A “no” vote means EMU exit, most likely

  We argue that an EMU exit would become the more likely scenario, even if Greece remaining in the euro area cannot be ruled out. Agreeing on a programme with the current Greek government would be extremely difficult for EA leaders, given the Greek rejection of the last deal offered. EA leaders accepting all Greek proposals would be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections.

  How will the crisis play out? The bank liquidity crisis is likely to turn into a solvency crisis once the ECB shuts down ELA, probably no later than 20 July (when a EUR4.2bn payment to the ECB becomes due). Fiscal problems would become more acute; the government may be forced to issue IOUs, which effectively become a parallel currency to the euro. A new currency by the central bank of Greece is likely to eventually become necessary to inject both liquidity and recapitalise banks. At this stage, we would expect IOUs to be converted into the new Greek drachma (NGD).

  The NGD would likely depreciate significantly and hence many local companies (clearly those in the non-tradable sector) and households would need to default on their foreign currency debt, now including euro-denominated liabilities. Many of the domestic contracts that are now denominated in euros would also become unviable and need to be restructured. Non-performing loans would surge because of: 1) the negative balance sheet effects for firms and households; and 2) the local currency needed to pay euro debts would increase with the devaluation, exceeding the increase in local currency revenue. Likewise, the government would also be forced to default on its euro-denominated liabilities.

  Redenomination away from the euro would also cause massive transfers between agents, adding to the above-mentioned transfers between debtors and creditors. A majority of households with local accounts and savings will suffer substantial losses while cash rich agents with accounts abroad will be the big winners and could take advantage of the chaos to seize capital and production capacities. Given the weak state of the government, these redistributions would likely benefit the already oversized unofficial sector.

  In short, the existing contracting framework and financial infrastructure would be broken and need to be rebuilt. Inflationary finance would likely be used, to some extent at least, to replace the official finance that now supports Greece. Politically difficult fiscal and structural reforms would still be required to make the country more competitive, and promote economic growth.

  * * *

  From RBC:

  In a normal referendum the next steps would be binary––something happens or it doesn’t. But this is no ordinary referendum.

  We argued last week that the next steps for a ‘no’ or a ‘yes’ vote look superficially similar. The government and creditors will have to start negotiations on a third programme (since the second one expired on Tuesday). Both sides indicated they were willing to do so even in the event of a ‘no’.

  What happens on Monday?

  Various European-level meetings are expected to take place. These include a EuroWorking Group meeting (i.e. top-level officials from euro area finance ministries). This may then be followed by a eurogroup teleconference (i.e. finance ministers-level) to take stock of the situation. At the Leaders’ level, German Chancellor Merkel will meet French President Hollande for a bilateral in Paris, with both calling for a European Council summit to follow on Tuesday. Separate from the political proceedings, the ECB’s Governing Council is also expected to meet to discuss Emergency Liquidity Assistance (ELA) for the Greek banking sector, though this meeting has not yet been confirmed.

  The first thing to watch is how Syriza responds

  On Thursday, Greek Prime Minister Tsipras claimed in the event of a ‘no’ outcome, he would be in Brussels within 48 hours signing a deal. In practice that is almost impossible––any new deal will need a lot of technical work so at best is a few weeks away. But in the first 48 hours there should be some sign of what willingness there is to compromise on both sides. If Tsipras takes a defiant tone (citing the democratic choice of the Greek people) we expect Europeans leaders to respond that they are also democratically elected (as they did after the January election). In that case we would expect the market reaction to worsen.

  The second thing to watch is how the ECB responds

  The Governing Council is expected to meet on Monday to take stock of the situation. A Greek government spokesperson revealed that the Central Bank of Greece would submit a request to the ECB for a further increase to the ELA facility limit, which currently stands at €89.4bn. This follows from various press reports, including Bloomberg, indicating that Greek banks were struggling to cope with deposit withdrawals even with the capital controls already in place. Note that prior to the weekend, the head of Greece’s banking association, Louka Katseli, said that ‘liquidity is assured until Monday, thereafter it will depend on the ECB decision.” She added that the liquidity cushion banks currently had stood at about EUR 1bn.

  We nevertheless consider there to be limited prospect of further extension to ELA at this stage, with the risks instead skewed towards the Governing Council restricting access to the facility, including by increasing collateral requirements further. An increase to the ELA limit was not a ‘given’ even if the referendum had yielded a ‘yes’ outcome, and as such a ‘no’ vote makes that decision even more difficult, in our view. Recall that ELA lending requires banks to post “adequate collateral”, and may only be provided to “illiquid but solvent” institutions. In the current environment, whether such conditions are satisfied is predicated in part on a judgment about the likelihood of a new financial assistance programme being agreed for the Greek sovereign.

  Does this mean euro exit?

  A ‘no’ outcome certainly increases the risk. This is particularly the case if the Greek government believes that it will have substantially more bargaining power with the institutions and brings more ‘red lines’ to the negotiating table. Much will depend on the tenor of discussions when they begin next week.

  *  *  *

  From Deutsche Bank

  There are three near-term implications of the results.

  First, the vote marks a big political victory for PM Tsipras. Today’s vote will allow the PM to maintain the political initiative within Greece, re-enforcing his leadership within the party as well as the government. It will be perceived by the government as a strong backing around its tough negotiating strategy.

  Second, the poll masks a deeply divided electoral body. The win to the “no” vote was decisive. But opinion polls over the last few days have continued to show an overwhelming support for euro membership. How this can be reconciled with the “no” vote and rising economic costs remains to be seen in coming days. Either way, the referendum process itself and the outcome has increased polarization in Greece. Political tension both within parliament and in potential political demonstrations will be ongoing and unpredictable.

  Third, the referendum result now requires Europe to more formally adopt a position on Greece, particularly given the size of the “no”. The European message on whether rejection is equivalent to Eurozone exit has not been consistent, with both Merkel and Schauble in particular not adopting this interpretation. A more clear reaction from Eurozone members should now be expected.

  Next steps

  In coming hours, the focus will shift back to the European response.

  Most imminently, Greek bank ELA liquidity is likely to be fully exhausted over the next few days, leading to an exhaustion of ATM cash reserves as well as an inability to finance imported goods via outgoing payments. The hit to the economy will be big. The Bank of Greece is holding a conference call with the Greek banks this evening to discuss the liquidity situation.

  The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.

  On the political front, focus will now shift to whether the damaged relationship between Greece and Europe’s creditors can be repaired and the immediate prospect of a resumption in negotiations. PM Tsipras last week officially applied for a 3rd ESM program, but the application was rejected pending the outcome of the referendum..

  The risk is that relationships between Europe and Greece have been damaged to such an extent, that additional conditions are set before negotiations around an ESM program can be initiated. The overall ESM process will in any case take time. An ESM program requires prior ECB/IMF assessment of financing needs/debt sustainability as well as Bundestag parliamentary approval before talks around a staff-level agreement can begin.

  In the meantime, political developments within Greece will be just as important. The PM’s commitment to re-start negotiations will be tested tonight and tomorrow morning..

  The opposition, in the meantime, has been weakened. Influential New Democracy party member Bakoyiannis is reported this evening to have asked for former PM Samaras’ resignation to allow the party to re-group. The prospect of ongoing and unpredictable shifts in politics cannot be ruled out over the course of the next few weeks given rising pressure on the economy.

  

  

  

  

  

• Greferendum Results In Landslide "No" Victory

  Update 2: with virtually all polling completed, the final result is 61.3% No, 38.7% Yes – a whopping rejection of Troika hegemony which may also be the final nail in any negotiations between Greece and the Eurogroup.

  

  Update: The Greek interior ministry vendor Singular Logic projects that “No” vote will prevail with over 61% of vote in Greek referendum.

  BREAKING: Greek interior ministry projection says ‘no’ camp will get more than 61 percent of vote.

  — The Associated Press (@AP) July 5, 2015

  It would seem that the Troika’s fearmongering campaign backfired:

  

   

  And:

  Even the dogs in the streets are saying it in Athens: ht @henryjfoy pic.twitter.com/7y5uTdJFzf

  — Gideon Rachman (@gideonrachman) July 5, 2015

  Earlier:

  It seems the early forecasts showing the No vote in the lead were right: according to the Ministry of the Interior, with over 90% of the vote counted, the “No’s” have it with well over 61% of the vote.

  Keep track of the votes as they come in live at the following page:

  

  Source: ekloges

  

  

  

  

  

• S&P Futures Tumble 1.5% At Open: ES Down 33, Brent Under $60

  The number everyone’s been waiting for all afternoon is finally here: moments ago ES opened for trading after the holiday weekend and it’s not pretty, down 1.5% to 2035 in early illiquid trading. Expect many wild gyrations especially if China, which is set to open in three hours, is unable to halt its market crash having now thrown everything and the kitchen sink at the relentless selling.

  

   

  The SNB is already in place, ready to sell CHF and buy every EUR it can get its hands on to avoid another embarrassing incident:

  

   

  And here is Brent, sliding under $60 for the first time since April:

  

  We hope the NY Fed and its less than arms length Citadel ES spoofing relationship, or at least the SNB, will be up to the task of pushing futures higher as the overnight session progresses to preserve the artificial sense that “all is well” in a world that may never be the same again.

  

  

  

  

  

• Eurogroup In Shock: Finance Ministers "Would Not Know What To Discuss" After Greferendum Stunner

  Just out from Reuters:

  • FINANCE MINISTERS “WOULD NOT KNOW WHAT TO DISCUSS” AFTER EMERGING GREEK ‘NO’ VOTE-EURO ZONE OFFICIAL

  More:

  There are no plans for an emergency meeting of euro zone finance ministers on Greece on Monday after Greeks voted overwhelmingly to reject the terms of a bailout deal with international creditors, a euro zone official said on Sunday.

   

  Asked whether a meeting of the Eurogroup was planned for Monday, the official, speaking on condition of anonymity, told Reuters: “No way. (The ministers) would not know what to discuss.”

  May we suggest containing the fallout, whether in capital markets or in the resurgent mood in the other PIIGS, as a primary topic?

  

  And meanwhile, while we symptahize with the Greeks officially telling the Troika to “fuck off”, they may have other liquidity problems of their own.

  Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place, a deputy finance minister told Greek television on Sunday.

   

  Greece’s government shut banks and imposed capital controls a week ago to prevent the country’s banks from collapsing under the weight of mass withdrawals.

   

  Deputy Finance Minister Nadia Valavani told Alpha TV that, as part of those measures, the government and banks had agreed at the time that people would also not be allowed to withdraw cash from safe deposit boxes.

  Surely the Greeks bought enough gold and/or bittcoin ahead of this outcome. Surely

  

  

  

  

  

• Greece Contemplates Nuclear Options: May Print Euros, Launch Parallel Currency, Nationalize Banks

  As we said earlier today, following today’s dramatic referendum result the Greeks may have burned all symbolic bridges with the Eurozone. However, there still is one key link: the insolvent Greek banks’ reliance on the ECB’s goodwill via the ELA. While we have explained countless times that even a modest ELA collateral haircut would lead to prompt depositor bail-ins, here is DB’s George Saravelos with a simplified version of the potential worst case for Greece in the coming days:

  The ECB is scheduled to meet tomorrow morning to decide on ELA policy. An outright suspension would effectively put the banking system into immediate resolution and would be a step closer to Eurozone exit. All outstanding Greek bank ELA liquidity (and hence deposits) would become immediately due and payable to the Bank of Greece. The maintenance of ELA at the existing level is the most likely outcome, at least until the European political reaction has materialized. This will in any case materially increase the pressure on the economy in coming days.

  All of which of course, is meant to suggest that there is no formal way to expel Greece from the Euro and only a slow (or not so slow) economic and financial collapse of Greece is what the Troika and ECB have left as a negotiating card.

  However, this cuts both ways, because while Greece and the ECB may be on the verge of a terminal fall out, Greece still has something of great value: a Euro printing press.

  It may not get to there: according to Telegraph’s Ambrose Evans Pritchard who quotes what appears to be a direct quote to him from Yanis Varoufakis, Greece will, “If necessary… issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago.“

  California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union.

  In other words: part of the Eurozone… but not really using the Euro.

  That’s not all, because depending just how aggressively the ECB escalates events with Athens, Greece may take it two even more “nuclear” steps further, first in the form of nationalizing the banks and second, by engaging in the terminal taboo of “irreversibility” printing the currency of which it is no longer a member!

  Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings – reportedly a ‘bail-in’ above a threshhold of €8,000 – and to prevent any banks being shut down on the orders of the ECB.

   

  Government officials recognize that this would lead to an unprecedented rift with the EU authorities. But Syriza’s attitude at this stage is that their only defence against a hegemonic power is to fight guerrilla warfare.

   

  Hardliners within the party – though not Mr Varoufakis – are demanding the head of governor Stournaras, a holdover appointee from the past conservative government.

   

  They want a new team installed, one that is willing to draw on the central bank’s secret reserves, and to take the provocative step in extremis of creating euros.

   

  “The first thing we must do is take away the keys to his office. We have to restore stability to the system, with or without the help of the ECB. We have the capacity to print €20 notes,” said one.

   

  Such action would require invoking national emergency powers – by decree – and “requisitioning” the Bank of Greece for several months. Officials say these steps would have to be accompanied by an appeal to the European Court: both to assert legality under crisis provisions of the Lisbon Treaty, and to sue the ECB for alleged “dereliction” of its treaty duty to maintain financial stability.

  And who “unwittingly” unleashed all of this?

   Mr Tsakalotos told the Telegraph that the creditors will find themselves be in a morally indefensible position if they refuse to listen to the voice of the Greek people, especially since the International Monetary Fund last week validated Syriza’s core claim that Greece’s debt cannot be repaid.

  Recall last week we asked “Did The IMF Just Open Pandora’s Box?” We just got the answer. Our advice to Mme Lagarde: avoid stays at the Sofitel NYC for the next few weeks.

  As for Europe: welcome to your own personal Lehman weekend. We hope you too enjoy making it all up as you go along, because you have officially entered the heart of monetary darkness.

  

  

  

  

  

  

• The "Nightmare Of The Euro-Architects" Is Coming True: JPM Now Sees Grexit, Eurogroup "Split In Coming Days"

  Perhaps the best summary – or epitaph, some would say – of the shocking events that took place in Greece this afternoon, and the resultant falling dominoes that are about to be unleashed, was given by Slovakia’s finance minister Peter Kazimir, who summarized events as follows:

  The nightmare of the ‘euro-architects’ that a country could leave the club seems like a realistic scenario after #Greece voted No today

  — Peter Kažimír (@KazimirPeter) July 5, 2015

  He followed it up with a Dylan Thomas quote:

  We will not go gently into this good night. We stand united and we need to respond to this situation as soon as possible

  — Peter Kažimír (@KazimirPeter) July 5, 2015

  We assume the next lines goes as follows:

  “Rage, rage against the dying of the “irreversible” currency”

  And while we laid out what Deutsche Bank’s 4 possible scenarios are in the case of the now confirmed “No” vote, here is JPM’s Malcom Barr with the bank’s latest take on Greece which is that at this point, a Grexit is JPM’s “base case”… and it only
  goes downhill from there.

  After the “big no”, euro exit is our base case

  • After the “big no” it is now a race between two forces: political pressure for a deal, versus the impact of banking dysfunction within Greece
  • Although the situation is fluid, at this point Greek exit from the euro appears more likely than not

  Early indications of the official result suggest the result is a “No” by a comfortable margin. What happens next?

  First, it will be important to see the tone of the immediate political responses both within Greece and outside. We would expect the tone to be somewhat more conciliatory on both sides. Hollande and Merkel are to meet tomorrow night to discuss the issue, and as we understand it, the Eurogroup is scheduled to meet on Tuesday. We expect that a split is likely to emerge in the coming days.  The Commission and France (and possibly others) will argue that negotiations should resume immediately with an aim of finding agreement. Others will find it more difficult to return to negotiations with a newly emboldened Tsipras in short order.

  In the German case, for example, the Bundestag has to be consulted before Mr Schauble can enter into discussions about a new program for Greece (as requested on 30th June). However, the Bundestag has just broken for summer recess, so any such vote will require a recall. We have seen reports that talks at a technical level between Greece and the creditors may restart tomorrow (Monday), but we can imagine that the Bundestag will express its displeasure if it feels those discussions are in-progress without their express consent.

  Second, there are reports of an emergency meeting between the ECB, Bank of Greece and Finance Ministry tonight, and at the latest the ECB will likely have to take a decision about ELA support tomorrow (if not tonight). Our base case is that the ELA total will simply be rolled on a day-to-day basis for now. It is extremely difficult for the ECB to justify increasing the region’s exposure to Greece at this point. That effectively means that the Greek banks are likely to run increasingly short of cash, and the acceptability of electronic forms of payments will diminish rapidly.

  The Bank of Greece and Finance Ministry has a joint committee working to prioritize payments out of Greece for essential imports. There are reports, however, that suggest the logistical problems arising from these procedures are biting. Importers are facing delays in seeing their requests to make purchases processed. And Greek exporters are finding it hard to get payment in euros from those they sell to, as their customers do not want to hold any euro balances within the Greek banking system. It is difficult to get a sense of the scale of these issues at this point. But our best guess is that these issues will multiply in the days ahead.

  This suggests that what we see next will be a race between two forces: political pressure to move toward an agreement despite resistance from a number of northern European parliaments, versus the increasingly unpleasant implications of a dysfunctional banking system on the other. This latter force is unpredictable: it may manifest itself in pressure on the government to stand down, or it may generate a more unified “siege mentality” within Greece. The July 20th payment of €3.5bn to the ECB as Greek bonds mature creates one possibly fixed point as we look forward, but our sense is that could be dealt with via a number of mechanisms if political talks are progressing (transfer of SMP profits, short-term ESM loan, for example).

  Our base case is that the pressures coming from a dysfunctional banking system in Greece will shorten the time horizon to negotiate a deal to a handful of weeks. As that pressure builds, there is likely to be a temptation to call a referendum in Greece on euro membership, and for the state to begin issuing I-O-Us or similar and giving these some status as legal tender. To the extent that pensioners and public sector employees find themselves being paid with such instruments, it takes the banks further away from solvency (they have liabilities in euros, but will have loans to individuals being paid or receiving “i-o-u” s which will be worth a lot less). Meanwhile, we expect at least some countries in the rest of the region (not least Germany) will not hurry over the design of a new program, and will find it difficult to get parliamentary assent for any such program.  

  This is a path that suggests to us that there is now a high likelihood of Greek exit from the euro, and possibly under chaotic circumstances. Perhaps the rest of the region will agree to a reasonably quick deal, or the ECB will raise ELA enough to retain minimal viability in the payments system. Perhaps the pressures of dysfunctional banks will force Mr Tsipras to stand down, and a deal is subsequently made. But for now, we would view a Greek exit from the euro as more likely than not.

  

  

  

  

  

• Wall Street's Next Bonanza: Subprime Marriage-Backed Securities

  Submitted by Daniel Drew via Dark-Bid.com,

  
  

  The last crash was caused by reckless investments in subprime mortgage-backed securities, an ingenious way to repackage and redistribute staggering amounts of credit risk to unsuspecting investors. After losing their house and their money, some investors may take comfort in their enduring marital relationships. Unfortunately, marriage is one of the riskiest bets of all, which makes it a prime, or should I say “subprime” target for Wall Street’s masters of innovation.

  After watching oil titan Harold Hamm pay his ex-wife $1 billion, I couldn’t help but wonder where he went wrong in the relationship department. Then again, he’s not exactly a shining example of risk management; he lost $10 billion in the oil price collapse, or the equivalent of 10 ex-wives. Most Americans can’t afford to pay their spouse $1 billion or even $15,000, which is the average cost of a contested divorce. Where there’s risk, Wall Street is not far away.

  One of the remarkable features of modern society is the seemingly endless amount of ways to repackage risk and distribute it to those who have a demand for it. The wacky world of the insurance industry seems to know no bounds. From vanilla products like car insurance to the ultra-weird like Troy Polamalu’s $1 million hair insurance, you never really know what you’re going to see next. While there are certainly notable individual examples of insurance oddities, nothing has the potential to create widespread effects like marriage insurance.

  Provided by Safeguard Guaranty, marriage insurance is sold in units for $15.99 per month, which covers $1,250 in potential divorce costs. That’s $192 per year for one “unit,” which gives the insurance company a break-even point of 6.5 years, not including overhead. They even have a divorce probability calculator that is based on over 20,000 interviews. Supposedly, it has an accuracy rate of 87%. They don’t elaborate on their formula, but you can get an idea of their inputs by answering some of the questions.

  If marriage insurance sales take off, it’s only a matter of time before Wall Street repackages it and sells it to investors via subprime marriage-backed securities. A boom in marriage speculation would ensue. Did you see your neighbor with his mistress last night? Buy some MBS credit default swaps on him and tell his wife what you saw. Is your other neighbor away from home a lot? Buy some MBS insurance on his wife, seduce her, and when they get divorced, you can cash in. Consider it “inside her” trading. Does it sound preposterous? It’s not any crazier than buying credit default swaps on poor people’s mortgages and making $15 billion when they become homeless. Remember, everything is fair in the “free market.”

  

  

  

  

  

• Marine Le Pen, Anti Euro French Presidential Frontrunner, Applauds Greek Victory Over "EU Oligarchy"

  Ten days ago, before Varoufakis even announced his stunning break of negotiations with the Troika and proceeded to engage in a referendum which perhaps more symbolically than anything else just said a resounding “No” to the status quo, we said to Forget Grexit, “Madame Frexit” Says France Is Next: French Presidential Frontrunner Wants Out Of “Failed” Euro.

  Because while the ECB could at least in theory contain the Grexit fallout with a few hundred billion in bond (and stock, since Europe is pretty much fresh out of bonds it can monetize) purchases, it will not be able to halt the contagion once it spreads to Italy, Spain and Portugal. But once it reaches France, and Marine Le Pen engages in the same type of negotiations with the Troika as Greece just did, it’s all over.

  Unfortunately for the ECB, that’s precisely where it is headed because as Reuters just reported, “French far-right leader Marine Le Pen welcomed the early results of the Greek referendum on terms for a bailout from Europe as initial tallies showed the ‘No’ camp leading with results still being counted.”

  Le Pen, the leader of the anti-immigration, anti-euro National Front party, said in a statement that the anticipated result was a victory against “the oligarchy of the European Union”.

  “This ‘No’ from the Greek people must pave the way for a healthy new approach,” said Le Pen.

  “European countries should take advantage of this event to gather around the negotiating table, take stock of the failure of the euro and austerity, and organize the dissolution of the single currency system, which is needed to get back to real growth, employment and debt reduction.”

  Here is why we suggest the ECB panic: Le Pen’s star has been on the rise in France and in Europe in the past year since her National Front party performed well in European parliamentary and French regional elections. Surveys suggest she could make the second-round run-off in the 2017 presidential election, if not win outright.

  She has sought to capitalize on discontent over Socialist President Francois Hollande’s handling of the economy and rising unemployment, and has made Europe’s management of the Greek crisis a particular target for critique.

  As a reminder, a recent Wikileaks NSA data dump showed that the French economy is in “Dire Straits”, and is “Worse Than Anyone Can Imagine” which just happens to be music to Le Pen’s ears.

  Finally, Le Pen’s platform supports the end of the common currency zone and a return to more national-based policies on everything from immigration to the economy.

  Greece just made it that much easier for Le Pen to achieve her goal.

  

  

  

  

  

• Risk Off: FX Carry Trades Tumble, Euro Opens Under 1.10; USDJPY Under 121

  With nearly 60% of the Greek refrendum vote counted, and the No’s leading by a landslide 61%, it is clear that the Troika’s gambit failed, unless as Goldman wrote and we first noted, it was the ECB’s intention to force a Grexit all along, thus permitting the ECB to engage in more QE: QE which would in Goldman’s estimation, push the EURUSD down 7 big figures and further toward parity, sending global stocks soaring in one last central bank-inspired hurrah.

  For now, however, while the carry trades are in risk off mode, the drop is not nearly as dramatic, and the EURUSD is trading under 1.10…

  

   

  … while the USDJPY opened under 122.

  

  Should there be no official statement by the Eurozone fin mins or any support from the ECB, we anticipate the risk off mode will only accelerate overnight, especially if the PBOC fails to support Chinese markets tonight, which – with all due respect to Greece – is the far bigger catalyst to what happens in global stock markets tomorrow, because if the Chinese central banks has lost the market’s confidence all bets are off.

  

  

  

  

  

• Greeks Flood Syntagma Square To Celebrate "No" Vote

  The Greek people have spoken and they said “OXI“! 

  So congratulations Greece: for the first time you had the chance to tell the Troika, the unelected eurocrats, and the entire status quo establishment, not to mention all the banks, how you really felt and based on the most recent results, some 61% of you told it to go fuck itself.

  Now, on the eve of a new era for Europe and what will likely be a turbulent stretch for financial markets across the globe, Greeks are celebrating in the streets of Athens. Here are the visuals:

  Broadcast live streaming video on Ustream

  

  

  

  

  #OX? #Syntagma pic.twitter.com/SVz0hBCwmO

  — Fulya Soyba? I??k (@flysybs) July 5, 2015

  En Syntagma empieza a haber gente #Grefenderum pic.twitter.com/RuBTUTMPTR

  — CarlotaRamirezz (@carlotaeramirez) July 5, 2015

  Esta es la fiesta que se ha formado en Syntagma #Grefenderum pic.twitter.com/05QdPixRcs

  — CarlotaRamirezz (@carlotaeramirez) July 5, 2015

  La boca del metro de Syntagma. Impresionante. La plaza se está llenando. #Greferendum pic.twitter.com/GPVST6ZLEn

  — Mariangela Paone (@mapaone) July 5, 2015

  Party in Syntagma! pic.twitter.com/NL6ZQlS2cL

  — Charles Forelle (@charlesforelle) July 5, 2015

  #OXI #OXIclean ##Greece #Greek #GreekCrisis pic.twitter.com/LAn6LUe4tu

  — Spartaness (@SpartaGrrl) July 5, 2015

  

  

  

  

• Greek PM Calls Emergency Meeting For Bank Liquidity: MNI

  Congratulations Greece: for the first time you had the chance to tell the Troika, the unelected eurocrats, and the entire status quo establishment, not to mention all the banks, how you really felt and based on the most recent results, some 61% of you told it to go fuck itself.

  Now comes the hard part.

  Because at this point, with Greek banks all of them effectively insolvent, it is all up to the ECB: should Mario Draghi now announce an increase in the ELA haircut or pull it altogether as the ECB did with Cyprus, then a Greek deposit haircut bloodbath ensues. And judging by the latest news out of Market News, this is precisely what Tsipras is focusing on.

  According to MNI, Greece’s Prime Minister, Alexis Tsipras has called an emergency meeting for Sunday evening, after the referendum vote result will be announced, to assess the situation in the banking sector and the liquidity shortage, a senior Greek official told MNI Sunday. 

  The source said that so far Tsipras has not had any communication with other EU leaders “but that could change in the coming hours.” Finance Minister Yiannis Varoufakis is currently meeting with the representatives of the Greek banking union to mull whether the banking holiday ,which expires Monday evening, should be prolonged and until when. 

   

  Greece’s government spokesman, Gavriel Sakellarides told Antenna TV that the Central Bank of Greece will submit Sunday evening a request to the European Central Bank for further Emergency Liquidity Assistance saying “there is no reason why we cannot get ELA” adding that “negotiations should start as soon as today with reasonable demands.” 

   

  The Greek source who spoke with MNI said that, according to his estimations, the No vote would be even higher than what the preliminary polls showed earlier. 

   

  The source also said that the EuroWorking Group, the aides of the Eurozone Finance Ministers, are expected to convene Monday and that the Eurogroup might also convene via teleconference to assess the situation. 

   

  A Banking source has told MNI that even when banks reopen capital controls are expected to be readjusted and imposed for a long period of time, until trust is restored and a deal with the creditors is being reached.

  The ball is now in the ECB’s court: will it let Greece keep the Greek ELA (or perhaps even raise it) to prevent an all out banking panic and allow Greek bank to reopen as Varoufakis promised, or will it cut the haircut or yank it altogether, starting the Greek depositor haircut as well as the falling dominoes we described yesterday…

  

   

  … Because as much as the ECB wants to deny it, the Euroarea is on the hook for more than 3% of its gross GDP, and perhaps far more once all the off balance sheet liabilities emerge…

  

  In other words, an uncontrolled Grexit at this point would surely lead to a Eurozone depression, one that not even an increase in the ECB’s massive bond (and perhaps stocks) buying would stem. Which, of course, was Varoufakis’ gamble all along.

  

  

  

  

  

• The Central Bankers Dilemma: The Pendulum’s Back Swing

  Submitted by Mark St. Cyr

  The Central Bankers Dilemma: The Pendulum’s Back Swing

  Today, July 5th, a referendum is to be voted on in Greece as to whether they should vote “Yes” for the austerity measures demanded by the bankers of the Euro Zone (EZ.) Or, vote “No” against such demands. Where a “no” vote will in effect all but ensure an exit from it (whether voluntarily or not.) How this vote will come down no one knows. For when a populace is scared, many times they’ll vote blindly for what they perceive in the present as the lesser of two evils, and let longer term consequences be damned.

  On the other hand, when a populace is both scared and mad – what was at first thought to be implausible (i.e., against what many outsiders may perceive as in their best interest) within the confines and privacy of the voting booth. Anger, as well as a disgust for the present can over-rule. Where it’s the consequences of the moment that will be damned. Where an overwhelming affinity for the possible future suddenly reins supreme. Whether realistic or not.

  It is this latter point that catches most (i.e., outsiders looking in) flat-footed. Especially those that tend to think everything is based only in numbers, models, or rationality, and it’s ultimately controllable. This form of thinking implies: If you control the numbers, and can interpret the models – you can control the rationale, as well as an outcome.

  Not only is line of thinking rampant throughout academia. It is followed with a near religious zeal. However, there’s the inherent problem: Yes you can – till you can’t. And that’s where the most critical issue fails within Ivory Tower thinking. For they don’t ever contemplate, or anticipate the “till you can’t” part. For them it shouldn’t exist. Therefore – it mustn’t.

  Yet, anyone with just a modicum of business acumen knows all too well: More often than not what you’re convinced won’t happen; is exactly what will. Usually – at the most inopportune of times.

  Here is where we find many of the Central Bankers today. Suddenly their implied omnipotence is being turned on its head from “omnipotent” to “oppressive.” From “rescuer” of an economy to “destroyer.” And the distaste as well as grumblings against this Central authority is growing. Why? As I stated before: Central Banks are now perceived as “the body politic.” No-matter how much they rail against the inclusion. And the vitriol (as well as the impending implications) are just getting started in my opinion.

  Over the last week the IMF dropped what was for all intents and purposes a bombshell of a revelation. It stated (I’m paraphrasing) that Greece was indeed in need of a debt reduction (i.e., write-offs) just as much as it was in need of restructuring of those said debts. Otherwise, it would all be for naught because Greece would never be able to surmount them.

  This singular point has been at the heart of all Greece’s arguments. However, what has been argued back to Greece by the Troika has been nothing less than “Tough – deal with it. That’s your problem – not ours.” Well, it seems that’s not so much the case anymore. Regardless of which way the vote goes, it is the Troika itself that may find the problems are just beginning. And those problems are theirs.

  In a previous post I drew an analogy from the Iron Man 2 movie. The premise was: If one can make the gods bleed, no matter how small, people will not only will lose faith, but will turn on them. It seems Greece did in fact strike the first in what might be a mortal blow. Not so much with the degree of the initial cut, but with the ever-growing infectious nature to follow.  Even if Greece votes “yes” this Sunday – the damage has already been done to the EZ as well as the central banks within. While quite possibly to Central Banks everywhere.

  The revelation that the IMF concurred in secret with what Greece was proclaiming all along; while demanding the opposite; siding with the more austerity demands by their fellow members; as not only the people suffered but as the politicians themselves (i.e., ridiculed or voted out) will not be lost on Italy, Spain, Portugal, ____________ (fill in the blank.)

  Yet, as damaging as it is to have one of the three parts (e.g., Troika) acknowledging what Greece has been insisting was needed all along via a leaked document. To now have it leaked that all three were of the same conclusion yet: wouldn’t budge or acknowledge it? This is quite another, and will be used by any and all as an excuse (whether rightly or wrongly) to demand new terms. Or worse, like Greece – just refuse to pay until the bargaining table is reopened.

  Suddenly it’s not the borrowers that have a problem. Rather; it’s the other way around. And it’s only been days since these revelations. Yet, there’s now “blood” in this ever-growing pool. And that’s a problem no “bazooka” or “printing press” may be able to overcome. However, this is just Europe…

  In China the financial markets are tumbling faster than any other time in history since 2007. What many forget (and what the main stream financial media will not speak of) is that right before the financial crisis took hold here in the U.S., It was none other than China’s Shanghai Composite Index that was the harbinger of what lay ahead as it tumbled from that meteoric rise in ’07 to within a year – it would go on to lose some two-thirds of its value.

  Right before the crash the Chinese markets were assumed “unstoppable” (sound familiar?) as they went parabolic to near vertical assent when viewed on a chart. Then: they fell in spectacular fashion entering “bear market” statistical valuations in mere weeks (i.e., losing 20%.) This had never been seen since. That is – until now.

  Suddenly there are reports of extraordinary measures being allocated behind the scenes by China’s central banking authorities. The problem? So far, by all accounts – it ain’t working. The index continues to fall. Many of the components (I would like to say businesses however, there are far too many reports these “businesses” are in name only) that make up these composites are opening up daily to “limit down” selling pressures with no relief in sight.

  So much so it has been reported the only way for this rout to be reeled in is for the PBoC to directly “buy the market” in one form or another. Yet, the rout is so wide-spread, and so fierce (imagine 10’s of millions of first time traders all heading for the one and only exit door – all at the same time) that it is being openly questioned if the PBoC itself has the monetary firepower to overcome it. And just for perspective, China’s market isn’t some backwards market in size or scope those in the “general public” might think of when they first hear. For those not familiar: China’s market is number 2 in the world, right behind the U.S. And last time such a thing happened the contagion effects were here seemingly overnight – and the great financial meltdown of the U.S. markets were upon us.

  Is “this time it’s different?” Who knows, but one thing is for sure: The general public today is still enamored with the main stream media’s push that what ever “bad” happens in the world or markets: “The Fed. has their back,” or “The ECB” or “China’s growth will solve our malaise” or ______________(fill in the blank.)

  Today one thing is more certain than any other time before. With the Federal Reserve’s unwillingness to allow the markets to stand on their own feet, and not be so dependent on their interventionism with QE for years, and Zero interest rates for the same – the tool box may in fact be empty – at the most inopportune time.

  So here we are, once again, waiting or watching for what could possibly be the start of another contagion effect to ripple through the markets that has the potential of resembling 2008, or worse.  And the only thing to stand in its way will be the faith and/or belief in their omnipotence. For it seems – that’s all they have left. All while we watch the same crumble in the eyes of others across the waters as their Central Banks are being perceived daily more as villains or worse – inept.

  I’ve stated many times in what I’ve coined “the pendulum rule.” It’s not the first swing that can ruin you. It’s when you get up thinking you’ve dodged a one time fatal blow and act as if it can’t happen again. You don’t prepare. You don’t harden your resources. You act as if it were a one time only thing. And just when you’re at your most vulnerable – the back swing is what takes you out.

  It would seem the pendulum is indeed still swinging. What transpires from here once again – is anyone’s guess.

  

  

  

  

  

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• They Want To Use "Hate Speech Laws" To Destroy Freedom Of Speech In America

  Submitted by Michael Snyder via The End of The American Dream blog,

  Hate speech laws are going in all around the world, and progressive activists in the United States want to use these kinds of laws to destroy free speech in America.  You see, the truth is that these hate speech laws that are being implemented all over the planet are not just about preventing speech that promotes violence or genocide against a particular group of people.  Instead, these laws are written in such a way that anyone that says something that “offends” or “insults” someone else is guilty of “hate speech”.  Even if you never intended to offend anyone and you had no idea that your words were insulting, in some countries you can be detained without bail and sentenced to years in prison for such speech.  Today, there are highly restrictive hate speech laws in Canada, in Mexico and in virtually every single European nation.  The United States is still an exception, but the truth is that our liberties and freedoms are being eroded every single day, and it is only a matter of time until “hate speech laws” are used to take away our freedom of speech too.

  If you don’t think that this could ever happen in America, you should consider what the American Bar Association has to say on the matter.  This is the national organization that represents all of our lawyers, judges, etc.  So when the ABA speaks on legal matters, it carries a significant amount of weight.  The following is how the American Bar Association defines “hate speech”…

  Hate speech is speech that offends, threatens, or insults groups, based on race, color, religion, national origin, sexual orientation, disability, or other traits.

  Did you catch that?

  If I say something that offends or insults you, there is a very good chance that I have just committed “hate speech” according to the ABA.

  And support for these kinds of laws is growing.  In fact, one survey found that 51 percent of all Democrats now support hate speech laws.  It is only a matter of time before progressives start pushing for them in a big way.

  Sadly, many of these progressives don’t even understand that our Constitution protects free speech.  Just consider what CNN anchor Chris Cuomo recently had to say about this…

  Hate speech is not the same thing as free speech, wrote CNN anchor Chris Cuomo on the ultimate forum for public discourse: Twitter.

   

  Amid debate about free speech after a shooting at an anti-Muslim protest in Texas , a user tweeted at Cuomo: “Too many people are trying to say hate speech (doesn’t equal) free speech.”

   

  In response, Cuomo, who has a law degree, said, “It doesn’t. Hate speech is excluded from protection. Don’t just say you love the Constitution … read it.”

  No, I think that it is Cuomo that needs to read the Constitution.  The fact that he gets to deliver “the news” to millions upon millions of Americans is absolutely frightening.

  But without a doubt, we do need to have a conversation about “hate speech” in the United States.  If I offend or insult you, that does not mean that I “hate” you.  And if I disagree with you, that does not mean that I “hate” you either.

  Some of the things that are considered to be “offensive speech” these days are absolutely ridiculous.  For example, just consider the following excerpt from a recent article by Paul Joseph Watson…

  Here’s an actual list of things that according to the University of Wisconsin are racist:

  – Asking someone where they are from or where they were born.

  – Telling someone they speak good English.

  – Telling someone that you have several black friends.

  – Saying that you’re not a racist.

  – Complimenting an Asian person by telling them they are very articulate.

  – Asking an Asian person for help with science or math.

  – Uttering the phrase “There is only one race, the human race.”

  – Saying that you think America is a melting pot and that when you look at someone you don’t see race.

  – Believing that the most qualified person, regardless of race, should get the job.

  – Thinking that every person, regardless of race, can succeed in society if they work hard enough.

  – Telling a black person who is being too loud to be quiet.

  – Telling an Asian or Latino person who is too quiet to speak up.

  – Mistaking a person of color for a staff member when you’re in a store.

  – Calling something “gay”.

  – Doing an impression of someone’s dialect or accent.

  Could you imagine going to prison for any of those “offenses”?

  But this is where our country is heading if we don’t stand up for our rights.

  Right now, the progressives are on a roll.  In the wake of the recent Supreme Court decision on same sex marriage, some progressives are already talking about going after the tax exemptions of churches that oppose it.  In fact, the New York Times recently published an article entitled “Now’s the Time To End Tax Exemptions for Religious Institutions“.

  But of course the ultimate goal is far more insidious.  In the end, they want to shut down all speech that offends them in any way…

  The American Unity Fund is a heavily funded new super-PAC looking to blanket the country with LGBT anti-discrimination laws. In effect, those laws aim to wipe out any alternative voice to the LGBT agenda. The effort is being spearheaded by billionaire hedge fund manager Paul Singer and another wealthy hedge fund manager, Tim Gill.

   

  Gill’s operations—the Gill Foundation and Gill Action—have been dedicated to “nonpartisan” gains for the LGBT lobby on the legislative and judicial fronts.

  Those that do not believe that this could ever possibly happen in “the land of the free” should consider what has already happened in our neighbor to the north…

  Anyone who is offended by something you have said or written can make a complaint to the Human Rights Commissions and Tribunals. In Canada, these organizations police speech, penalizing citizens for any expression deemed in opposition to particular sexual behaviors or protected groups identified under ‘sexual orientation.’ It takes only one complaint against a person to be brought before the tribunal, costing the defendant tens of thousands of dollars in legal fees. The commissions have the power to enter private residences and remove all items pertinent to their investigations, checking for hate speech.

  Of course the same kind of thing is already happening over in Europe as well.  For instance, one Christian pastor in Northern Ireland is being prosecuted for calling Islam “a doctrine spawned in hell”…

  An evangelical pastor in Northern Ireland is under fire and will be prosecuted after calling Islam “satanic” and claiming that its doctrine was “spawned in hell” during a controversial 2014 sermon that streamed over the Internet.

   

  Pastor James McConnell, 78, of Whitewell Metropolitan Tabernacle in Belfast, Northern Ireland, made his comments — which included calling Islam “heathen” — in a sermon delivered last May, the BBC reported.

   

  “The Muslim religion was created many hundreds of years after Christ. Muhammad, the Islam Prophet, was born around the year A.D. 570, but Muslims believe that Islam is the true religion,” he preached. “Now, people say there are good Muslims in Britain. That may be so, but I don’t trust them.”

   

  McConnell continued, “Islam’s ideas about God, about humanity, about salvation are vastly different from the teaching of the holy scriptures. Islam is heathen. Islam is satanic. Islam is a doctrine spawned in hell.”

  Once such laws are in place in the United States, it won’t be difficult for the government to find you if you are committing “hate speech”.  As I have written about repeatedly, the U.S. government already monitors virtually everything that is said and done on the Internet.  The following is an excerpt from an article that was recently authored by Micah Lee, Glenn Greenwald, and Morgan Marquis-Boire…

  The sheer quantity of communications that XKEYSCORE processes, filters and queries is stunning. Around the world, when a person gets online to do anything — write an email, post to a social network, browse the web or play a video game — there’s a decent chance that the Internet traffic her device sends and receives is getting collected and processed by one of XKEYSCORE’s hundreds of servers scattered across the globe.

   

  In order to make sense of such a massive and steady flow of information, analysts working for the National Security Agency, as well as partner spy agencies, have written thousands of snippets of code to detect different types of traffic and extract useful information from each type, according to documents dating up to 2013. For example, the system automatically detects if a given piece of traffic is an email. If it is, the system tags if it’s from Yahoo or Gmail, if it contains an airline itinerary, if it’s encrypted with PGP, or if the sender’s language is set to Arabic, along with myriad other details.

  And as I wrote about yesterday, western governments are already using paid trolls to identify and combat “extremists” on social media websites such as YouTube, Facebook and Twitter.

  We are rapidly becoming a “Big Brother” society, and if we don’t stand up for our freedoms and liberties now, it is inevitable that we will eventually lose just about all of them.

  Unfortunately, most of the population is absolutely clueless about all of this.  In fact, as Mark Dice demonstrated the other day, many Americans don’t even know what we are celebrating on the 4th of July.  As a society, we have become extremely “dumbed down”, and we have lost connection to the values and principles that this country was founded upon.

  

  

  

  

  

• This Is Why The Euro Is Finished

  Submitted by Raúl Ilargi Meijer of The Automatic Earth

  This Is Why The Euro Is Finished

  The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.

  We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.

  And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.

  That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.

  The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.

  Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months.

  But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.

  The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has seen to it that the Fund has lost an immense amount of trust in the world. And without trust, the IMF is useless.

  And while we’re at it, ECB chief Mario Draghi, who is also a major Troika negotiator, made a huge mistake this week in -all but- shutting down the Greek banking system, a decision that remains hard to believe to this day. The function of a central bank is to make sure banks are liquid, not to consciously and willingly strangle them.

  How Draghi, after this, could stay on as ECB head is as hard to see as it is to do that for Lagarde’s position. And we should also question the actions and motives of people like Jean-Claude Juncker and Jeroen Dijsselbloem.

  They must also have known about the IMF’s assessment, and still have insisted there be no debt relief on the negotiating table, although the analysis says there cannot be a viable deal without it.

  One can only imagine Varoufakis’ frustration at finding the door shut in his face every single time he has brought up the subject. Because you don’t really need an IMF analysis to see what’s obvious.

  Which is exactly why there is a referendum tomorrow: Alexis Tsipras refused to sign a deal that did not include debt restructuring. It would be comedy if it weren’t so tragic, most of all for the people of Greece. Here’s from Reuters yesterday:

  Europeans Tried To Block IMF Debt Report On Greece

   

  Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.

   

  Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

   

  At a meeting on the IMF’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said. There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

  The reason why all Troika negotiators should face very serious scrutiny is that they have willingly kept information behind that should have been crucial in any negotiation with Greece. The reason is obvious: it would have cost Europe’s taxpayers many billions of euros.

  But that should never be a reason to cheat and lie. Because once you do that, you’re tarnished for life. So in an even slightly ideal world, they should all resign. Everybody who’s been at that table for the Troika side.

  And I can’t see how Angela Merkel would escape the hatchet either. She, too, must have known what the IMF analysts knew. And decided to waterboard the Greek population rather than be forced to explain at home that her earlier decisions (2010) failed so dramatically that her voters would now have to pay the price for them. No, Angela likes to be in power. More than she likes for the Greeks to have proper healthcare.

  Understandable, perhaps, but unforgivable as well. Someone should take this entire circus of liars and cheaters and schemers to court. They’re very close to killing the entire EU with their machinations. Not that I mind, the sooner it dies the better, but the people involved should still be held accountable. It’s not even the EU itself which is at fault, or which is a bad idea, it’s these people.

  But fear not, there’s no tragedy that doesn’t also have a humorous side. And I don’t mean that to take anything away from the Greek people’s suffering.

  Brett Arends at MarketWatch wrote a great analysis of his own, and get this, also based on IMF numbers. Turns out, the biggest mistake for Greece and Syriza is to want to stay inside the eurozone. The euro has been such a financial and economic disaster, it’s hard to fathom that nobody has pointed this out before. Stay inside, and there’s no way you can win.

  I find this a hilarious read in face of what I see going on here in Greece. It makes everything even more tragic.

  Stop Lying To The Greeks — Life Without The Euro Is Great

   

  Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.

   

  The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah.

   

  Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course – from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.

   

  

   

  During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result.

   

  They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the IMF itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.

   

  And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow.

   

  Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.

   

  What I find amazing about the euro-fanatics is that they just don’t seem to care about facts at all. They carry on repeating the same claims about the alleged miracle cure of their currency, no matter what happens. You can hit them over the head with the latest IMF World Economic Outlook and they carry on droning, unfazed.

   

  I was in England during the 1990s when those people were warning that if the Brits didn’t give up the pound sterling and join the euro, they were doomed as well. For a laugh, I just went through news archives on Factiva and refreshed my memory.

   

  Britain without the euro would be an “orphan country,” petted, humored but ignored, warned one leading figure. Britain would lose all influence and status. It would become a marginal country outside the mainstream of Europe. It would lose “a million jobs.” Factories would close. The car industry would collapse. Foreign investors would walk away because of Britain’s isolation.

   

  Exports would plummet because of exchange-rate fluctuations. The City of London, Britain’s financial district, would lose out to Frankfurt. The London Stock Exchange would be reduced to a local backwater. Tumbleweeds would blow in the streets. (OK, I made that one up.)

   

  And here we are today. Since 1992, when the single currency project began taxiing for takeoff, the countries on board have seen total economic growth of 40%, says the IMF. Poor old Great Britain, stuck back at the departure lounge with its miserable pound sterling? Just 67%. Bah.

  This currency that Greece is fighting so hard to be part of is in fact strangling it. The reason for this lies in the structure of the EMU. Which makes it impossible for individual countries to adapt to changing circumstances. And circumstances always change. As a country, you need flexibility, you need to be able to adapt to world events.

  You need to be able to devalue, you need a central bank to be your lender of last resort. Mario Draghi has refused to be Greece’s lender of last resort. That can’t be, that’s impossible. there is no valid economic reason for such an action, it’s criminal behavior. But the eurozone structure allows for such behavior.

  In ‘real life’, where a country has its own central bank, the only reason for it to refuse to be lender of last resort would be political. And it is the same thing here. It’s about power. That’s why Greece’s grandmas can’t get to their meagre pensions. There is no economic reason for that.

  In the eurozone, there’s only one nation that counts in the end: Germany. The eurozone has effectively made it possible for Angela Merkel to save her domestic banks from losses by unloading them upon the Greeks. This would not have been possible had Greece not been a member of the eurozone.

  That this took, and still takes, scheming and cheating, is obvious. But that is at the same time the reason why either all Troika negotiators must be replaced, and by people who don’t stoop to these levels, or, and I think that’s the much wiser move, countries should leave the eurozone.

  Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.

  The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.

  The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.

  

  

  

  

  

• "The US Needs War Every 4 Years To Maintain Economic Growth"

  “This is not a secret,” explains Kris Roman, director of geopolitical research center Euro-Rus, “The whole [US] economy is built on the military theme: to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down.” The Belgian expert believes that with the collapse of the USSR, NATO should have stopped existing, but somehow the alliance “has grown to the size of the Universe because the motto ‘The Russians are coming!’ is relevant again.”

  In the 25 years since the collapse of the Soviet Union, NATO has not forgotten even for a moment about the idea of an attack on Russia, Belgian political scientist and director of geopolitical research center Euro-Rus Kris Roman tells Sputnik News…

  “But they had no pretext. Now, due to the chaos in Ukraine, this opportunity appeared and it is actively developed. The older generation, which had been brought up on the propaganda against the Soviet Union, has already accepted the idea of ??an inevitable conflict with Russia,” Roman said.

   

  …

   

  Roman said that when the Belgian defense minister had announced that 1,000 Belgian soldiers would be sent to the Baltic states in the event of a “potential Russian attack.”

  The United States has repeatedly criticized Europe for small contributions to the NATO budget, saying that the EU tries to save money at the expense of its military budget.

  “For America, this is unacceptable, because the whole economy of this country is built on the military theme — to maintain its economic growth, the United States needs a war every 4 years, otherwise the economic growth slows down, it’s not a secret. But the United States cannot fight alone, they need puppet-allies, but NATO members, which are suffering a crisis, cannot increase the budget allocations to the military budget, so Europe is under pressure,” Kris Roman said.

  Russophobia Reminds a Disease

  The Belgian expert noted that Russophobia is like a disease as “once infected, you become incurable.”

   

  The European analyst also commented on the information war aimed against Russia noting that it had been previously used with regard to Iraq and Libya.

   

  “It is no longer possible to lie and not be punished. Our media simply prefers to remain silent in order not to be caught lying. What they can say? That the Russians were right? That the Russian army is not there [fighting in Donbass], while the Ukrainian army is at war with its own people? They cannot say such things. The official motto is to blame Russia.”

   

  “Remember the downed Malaysian Boeing [MH17 that crashed near Donetsk in July 2014]? Our media began screaming that it is Russia’s fault when it was still falling. Now there are facts that the Russians did not do it, and, as a result, we no longer hear about the investigation. Silence says that the truth is not on the side of Belgian and European media. If they ever had something [regarding Russia’s involvement in the crash], they would have shouted it from morning to evening,” he concluded.

  *  *  *
  As Americans rest and celebrate their independence from the actions of an oppressively taxing monarchy, perhaps it is worth reflecting on the current oligarchy’s actions, reactions, and proactions.

  

  

  

  

  

• Greece, China, & Russia – A Plan B For Tsipras

  Via Golem XIV,

  If the Greeks were to vote ‘No’ what would happen next?  Well no one can say. But here is a quick thought on what I hope the Greek government might have been exploring if they are excluded from the euro. It’s just food for thought nothing more.

  They have to be prepared to have a currency that does not depend on Europe supplying Euros. So they will need another currency – hopefully their own.  I think we can be sure no western company has been printing them. There are few such companies and there is, I think, no possibility that they would be able to keep secret a contract from Greece.  But both Russia and China can print notes. So would it not have been prudent to ask Putin to print up plane loads of Drachma and be prepared to fly them in?

  Who would back this currency?  Greece is not Great Britain with a long established reasonably trusted currency backed by a big slice of global financial trade. So I do not think they could launch an orphan currency which the drachma would be if it did not have some relation to a major clearing or reserve currency.

  For all Obama has, apparently, lobbied the EU to be more conciliatory towards Greece I am not sure he would leap at the chance to help Greece with its debt. He might of course. A chance to reenforce US power in that part of the world. But he already has power there so I doubt he would be willing to ‘pay’ much. Russia and China, however would gain much more by having Greece as a beach head in to the EU and, more importantly, into Nato.

  Russia  has already signed a large gas pipeline deal with Greece. The deal will make Greece the European terminal for the  so-called TurkStream which would be a southern counterpart for the NordStream which runs under the Baltic and has its European terminal in Germany. This pipeline would bring Russian gas to Europe cutting out Ukraine. A nice end run around the Western puppet government/influence in Ukraine (you decide which one you prefer).  It will also bring closer Russian ability to pipe gas from further east and from Iran. Which would also be an end run round the southern front of the Great Gas War being fought in Syria.

  Earlier this year Russian also signed a deal with Cyprus to give Russian ships access to Cypriot ports.

  So It would make sense to me that Russia might see advantage in helping Greece in the event of a ‘No’ vote.  But I do not think Russia is in much of a position to help financially. Their help can be practical and trade in gas and their reward is military. Greece and Cyprus together could perhaps get themselves a chip in the big game by being the key to allowing Russia to project military power in to Nato.

  Which raises the intriguing possibility that Russia might ask Greece is they could station some military hardware in Greece. Not something Greece would lightly say yes to. BUT if there was a ‘no’ vote and then Europe tried to get really vindictive or even started sabre rattling about ‘radical’ possibly ‘illegitimate’ leftist governments (AKA Syriza) might Syriza gain some advantage by letting it be known they might consider letting Russia dock missile carrying warships in their ports, or allow certain early warning systems on their territory? Or if  the Great Gas War, which is surely the new Cold War, where Ukraine is the new Germany divided East and West (all we need now is a wall somewhere), heats up and the US does deploy missile systems there, would Russia think it advantageous to befriend Greece so they could ask an indebted Greek government to allow Russia to retaliate with missiles right in the heart of Europe?  

  I realise this is pure speculation but it’s fun and I think it’s good to think the unthinkable now and again. Our leaders regularly do the unthinkable. We should at least think it.

  Anyway, I can see reasons why Russia would think it to their advantage to help Greece and have favours to call in.

  Then there is China.  China is too far away for military pretensions in the Med. Better to leave that to Russia. What China has is money. Just yesterday the director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics, Mr Fan Mingtao, said in an interview,

  “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,”

  I don’t know if this is pure kite flying but it’s interesting. The Asian Infrastructure Investment Bank (AIIB) is a China led rival to the US led World Bank. America was very against it and hugely put out when various European and other countries defied America and merrily joined it. Led by Britain which is a founder member. This is a major step in China’s policy of projecting power abroad but also a major step in its campaign to either have the Yuan as a new reserve currency or position a new currency in which China and the Yuan are constituent backers.

  Again this is all speculation. But China is sick of America excluding it from governance of the World Bank and the IMF. Plus China will soon need – not just want – but need the Yuan to be at the very least a much more widely used settlement currency if not a full blown reserve currency. The reason I suggest this, is because of China’s ballooning domestic debt problem.  Back in 2011 I wrote about the way regional governments were largely outside of direct and effective central control particularly their issuance of debt (Making the New Sub Prime – Backdoor to China) and how that debt was going bad (China – 10.7 trillion Yuan of debt going bad).

  That analysis is, I think, now vindicated. That regional debt has now blown up and is on the point of taking many of China’s banks down with it. The central chinese government now has, I think, little choice but to backstop all that regional debt.  The hope is that this will  save their regional governments from defaulting and also bail out all the banks that are holding that debt and would be bankrupted by such a default. Essentially this is a colossal bank bail out much like they were obliged to do back in the 90′s and we did a decade later. I am not alone in thinking this is the dynamic at play. As reported in the Wall Street Journal and ZeroHedge,

  “The debt swap is effectively a debt restructuring for banks,” said Zhu Haibin, J.P. Morgan Chase & Co.’s chief China economist.

  How big might this bail out get?

  Because the central government is ultimately responsible for guaranteeing local government debt, and because yields on the new muni bonds are so close to those on treasurys, the newly issued local government bonds are really just treasury bonds, meaning that, in essence, the supply of Chinese government bonds is set to jump by CNY2 trillion in the coming months. If all of the local government debt ends up being refinanced, the end result will be the equivalent on CNY20 trillion in additional treasury supply.

  What I foresee is that China’s new regional debt and bank bail out is forcing it in to what is essentially QE. The flow of Yuan is going to be vastly increased. A good idea would be to have lots of people ‘need’ these yuan and be keen to soak them up. That is what would happen if the Yuan becomes a new reserve currency or, failing that, if there is at least a greater use of the Yuan as a settlement currency for major international trades.

  Which brings me to my speculation about Greece and the report quoted above about China helping Greece via the new AIIB.  Might it not suit China, with its coming flood of new Yuan, to offer Greece a hand with a few Yuan. Greece might offer to conduct all its foreign trade in Yuan rather than dollars or Euros. Greece would benefit because it would not be beholden to America or Europe for a flow of their currencies. It could look to China instead. Russian would be happy with this because it has a settlement agreement with China. Any gas pipeline work could be financed in Yuan with chinese government backed Yuan loans. The AIIB could help Greece out with a loan to allow it to operate. Such a loan would not be blockable from Europe or America. Greece could default and still have operating money. China could spin it as almost humanitarian aid: The Chinese people reaching out to the desperate, impoverished but brave Greeks when the wicked capitalist Europeans would not.

  Greece would survive, have new powerful friends, have bargaining chips that neither Europe nor America could ignore , China would have projected the use of the Yuan right in to Europe and Russia would have more than a toe-hold for military power right inside NATO.

  If I was Tsipras or Varoufakis I would be on the phone right now.

  

  

  

  

  

• A 21-Year-Old Greek Unloads: "I Am Terrified Of Tomorrow…It Feels Like An End"

  A letter to The FT… Presented with no comment…

  Sir,

  Memory. No memory of life before the financial crisis; politics has dominated it ever since. But now I can hardly remember life before Friday night. Fear. I am terrified of tomorrow, all I now see is black. Uncertainty, leading us through our days, every remainder of hope for a brighter future being destroyed by the minute. I look at my three-year-old niece, I envy her ignorance, I envy her age. I am 21 years old and the past few days I feel tired by life. A referendum that supposedly gives me the right to define my future, seems to have taken it away.

  There are hundreds of people queueing at the ATMs and petrol stations, there is silence in the streets, people’s faces are frozen. This is the reality since Friday night. There are, and have been for a long time, people literally starving. However, it seems that instead of their situation improving, the rest of us will have no different a fate.

  Families and friends divide in Yes and No camps. We are called to exercise our democratic right by voting on a referendum while having no tangible explanation of what will follow each decision. I see everyone I know ready to take this huge responsibility without even being prepared to do so. I notice us, arguing endlessly, everyone supporting their stance fervently, ego dominating minds and words, while having no clue as to what is really at stake.

  We all want the crisis to end, we all crave growth and happiness. I do not remember my parents being free of stress and anxiety in the past years. I do not remember not noticing shops closing every month, or the rapid increase of beggars in the streets. People that, before the financial crisis, never had to beg for anything. However, the past five days have been worse than all that has been so far. They say that all we hear is propaganda; but we have lost our trust in all sides, now everything seems to be lies.

  It feels like an end. The end of our lives as we knew them. Yes, the lives that, before Friday, we already thought could be better; now we realise they were better then. The only thing we truly wish for is that the worst is not yet to come.

  Iliana Magra

  Thessaloniki, Greece

  

  

  

  

  

• Nomi Prins: In A World Of Artificial Liquidity – Cash Is King

  Submitted by Nomi Prins via PeakProsperity.com,

  Global central banks are afraid. Before Greece tried to stand up to the Troika, they were merely worried. Now it’s clear that no matter what they tell themselves and the world about the necessity or even righteousness of their monetary policies, liquidity can still disappear in an instant. Or at least, that’s what they should be thinking.

  The Federal Reserve and US government led policy of injecting liquidity into the US and then into the worldwide financial system has resulted in the issuance of trillions of dollars of debt, recycling it through the largest private banks, and driving rates to 0% — or below. The combined book of debt that the Fed and European Central Bank (ECB) hold is $7 trillion. None of that has gone remotely into fixing the real global economy. Nor have the banks that have ben aided by this cheap money increased lending to the real economy. Instead, they have hoarded their bounty of cash. It’s not so much whether this game can continue for the near future on an international scale. It can. It is. The bigger problem is that central banks have no plan B in the event of a massive liquidity event.  

  Some central bank entity leaders have admitted this. IMF chief, Christine Lagarde for instance, warned Federal Reserve Chair, Janet Yellen that potential US rate hikes implemented too soon, would incite greater systemic calamity. She’s not wrong. That’s what we’ve come to: a financial system reliant on external stimulus to survive.

  These “emergency” measures were supposed to have healed the problems that caused the financial crisis of 2008 — the excessive leverage, the toxic assets wrapped in complex derivatives, the resultant credit and liquidity crunch that occurred when banks lost faith in each other. Meanwhile, the infusion of cheap money and liquidity into banks gave a select few of them more power over a greater pool of capital than ever. Stock and bond markets skyrocketed as a result of this unprecedented central bank support.

  QE-infinity isn’t a solution — it’s a deflection. It’s a form of financial subterfuge that causes extra problems. These range from asset bubbles to the inability of pension and life insurance funds to source longer term less risky long-term assets like government bonds, that pay enough interest for them to meet liabilities. They are thus at risk of rapid future deterioration and more shortfalls precisely because they have nothing to invest in besides more risky stock and lower-rated bond markets.

  Even the latest Bank of International Settlement (BIS) 85^th Annual Report revealed the extent to which global entities supervising the banking system are worried. They harbor growing fears about greater repercussions from this illusion of market health (echoing concerns I and others have been writing about for the past seven years.)

  The BIS, or bank for the central banks was established during the global Great Depression in 1930 in Basel, Switzerland, when bank runs on people’s deposits were the norm. The body no longer buys into zero-interest rate policy as an economic cure-all. In their words, “Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the remarkable symptom of a broader malaise in the global economy.”

  They go on to note the obvious, “The economic expansion is unbalanced, debt burdens and financial risks are still too high, productive growth too low, and the room for maneuvering in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.”

  These are troubling words coming from an organization that would have much preferred to deem central bank policies a success. Yet the BIS also states, “Global financial markets remain dependent on central banks.” Dependent is a strong word. How quickly the idea of free markets has been turned on its head.

  Further, the BIS says, “Central bank balance sheets remain at unprecedented high levels; and they grew even larger in several jurisdictions where the ultra low policy rate environments were reinforced with large purchases of domestic and foreign assets.”

  Central banks are not yet there, but rising volatility is indicative of the accelerating approach to the nowhere left to go mark from a monetary policy perspective. This, after seven years of a reckless Anti-Main Street, inequality and instability inducing, policy.

  Not only have the major banks been the main recipient of manufactured liquidity, they have also received consolidated access to our deposits, which they can use like hostages to negotiate future bailout situations. Elite bankers moan about the extra regulations they have had to endure in the wake of the financial crisis, while scooping up cash dispersed under the guise of stimulating the general economy.

  Central banks seek fresh ways to keep the party going as countries like Greece shut down banks to contain capital flight, and places like Puerto Rico and multiple states and municipalities face economic ruin. But they are clueless as to what to do.

  In this cauldron of instability and lack of leadership, cash is the one remaining financial possession that Main Street can translate into goods, services and security. That’s why private banks want more control over it.

  Banks Want Your Cash For Their Latent Emergencies

  One of the most inane reasons cited for restricting cash withdrawals for normal people is that they all might turn out to be drug dealers or terrorists. Meanwhile, drug-dealing-money-laundering terrorists tend to get away with it anyway, by sheer ability to use a plethora of banks and off shore havens to diffuse cash around the globe.

  Every so often, years after the fact, some bank perpetrators receive money-laundering fines.  For average depositors though, these are excuses for a bureaucracy built upon limiting access to cash whether from an ATM (many have $500 per day limits, some have less) or an account (withdrawals above a certain level get reported to the IRS).

  As Charles Hugh Smith wrote at Peak Prosperity recently, there’s a difference between physical cash (the kind you can touch and use immediately) and the electronic kind, associated with your bank balance or credit card cash advance limit.  If you hold it, you have it – even if keeping it in a bank means it’s probably slammed with various fees.

  Banks, on the other hand, can leverage your deposits or cash, even while complying with various capital reserve requirements. That’s not new. But the expanding debates about how much of your cash you get to withdraw at any given moment, is.

  The notion of a bail-in, or recourse to people’s deposits, is related to the idea of restricting the movement, or existence, of physical cash. Bail-ins, like any cash limitations, imply that if a bank needs emergency liquidity, your deposits are the place to find it, which has negative repercussion on your own solvency. This is exactly what the Glass-Steagall Act of 1933, coupled with the creation of the FDIC sought to avoid – banks confiscating your money at the worst possible times.

  The ‘war on cash’ is thus really a war on the difference between the money you can hold on to and the money the banks can take away from you. The existence of this cash debate underscores the need for a personal policy of cash extraction from the big banks. Do you have one?

  In Part 2: They're Coming For Your Cash we detail out the growing threats to the liquidity that sustains the modern global banking system, and why it's more crucial than ever for people to consider extracting a portion of cash from their bank accounts. As existing liquidity streams dry up (as they are beginning to around the world), increasingly desperate banks will turn to the largest and most convenient source they know of: the collective cash savings we have on deposit with them.

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

   

  

  

  

  

  

• The Greek Bluff In All Its Glory: Presenting The Grexit "Falling Dominoes"

  Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: “Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms.”

  This is merely a recap of what we said 4 years ago when in July of 2011 we explained “How Euro Bailout #2 Could Cost Up To 56% Of German GDP“, recall:

  the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, “its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees.” And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: “As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP.” That’s right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!

  Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count the number of times the ECB has sworn it has the tools and can offset any Greek risk contagion simply by buying bonds.

  Unfortunately, it is not that simple.

  The reason is precisely in the contagion threat inherent in Europe’s alphabet soup of bailout mechanism as we explained four years ago in the post above, and as Carl Weinberg of High-Frequency Economics did hours ago in today’s edition of Barrons. Here is how the Greek contagion would spread, laid out in all its simplicity, should there be a Grexit, an outcome which the ECB could catalyze as soon as Monday in case of a “No” vote by raising ELA collateral haircuts:

  The [Greek] government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public.

   

  This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.

  That, once again, is the Varoufakis all-in gamble, a gamble which assumes the ECB will be rational enough (in a game theory context) to appreciate the fallout of a Grexit on Europe’s creditors. Here is a qualitative determination:

  Consider the ESM, Greece’s biggest creditor. Under its previous name, the European Financial Stability Facility, it loaned Greece €145 billion. If Greece defaults, the ESM, a Luxembourg corporation owned by the 19 European Monetary Union governments, will have to declare loans to Greece as nonperforming within 120 days. Accounting rules and regulators insist that financial institutions write off nonperforming assets in full, charging losses against reserves and hitting capital.

   

  Here’s the rub: The ESM has no loan-loss contingency reserves. Its only assets—other than loans to Greece—are loans to Ireland and Portugal. Its liabilities are triple A-rated bonds sold to the public. How do you get a triple-A rating on a bond backed entirely by loans to junk-rated sovereign borrowers? Well, the governments guarantee the bonds, and because they are unfunded off-balance-sheet liabilities, they aren’t counted in their debt burdens—unless borrowers default.

   

  If Greece defaults hard, governments will be on the hook for €145 billion in guarantees on those loans to the ESM. We expect credit-rating agencies to insist that these unfunded guarantees be funded. After all, unfunded guarantees are worthless guarantees.

  And the punchline:

  The strength of these guarantees is untested. Would the German Bundestag vote tomorrow to raise €35 billion by selling Bunds, the government debt, to cover Germany’s share of ESM losses on Greek bonds? That seems improbable. Bund sales of that scale, if they did occur, would flood the market, raising yields and depressing prices. If, instead, the Bundestag refused to cover its guarantees, then we would see a legal dust-up on a grand scale. With the presumption of valid guarantees, credit raters would have no choice but to downgrade ESM paper. Then losses would be borne by bondholders, and the ESM—the euro zone’s safety net and backstop—couldn’t raise money in the capital markets.

  In other words, Grexit would usher in a pandemonium of unheard proportions because when the ESM, EFSF and countless other bailout mechanism were postulated, none even for a minute evaluated the scenario that is being flouted with ease, and, paradoxically, by the ECB itself most of all: an ECB which stands to lose the most…

  A hard default would produce other losses to be covered. The ECB would have to be recapitalized after it writes off the €89 billion it has loaned the Greek banks to keep them liquid. The ECB would need to call for a capital contribution from its shareholders—the governments.

  … not to mention any last shred of confidence it may have had.

  But wait, there’s more:

  And don’t forget that Greek banks owe the Target2 bank clearinghouse, a key link in the interbank payment system, an estimated €100 billion. The governments are on the hook to make good that shortfall, too. The cash required to cover these contingencies would have to be funded with new bond sales.

  The conclusion is incidentally, identical to what Zero Hedge said back in the summer of 2011: “the ultimate loser in a Greek default would be the euro-zone sovereign-bond market, which is already vulnerable. ” The only difference is that this time, yields are near all-time lows, and durations are high. Ironically, even the smallest fluctuations in yield mean a volatile response in prices, and an immediate crippling of the bond market. Perhaps most ironic is that Europe’s bond market is far less prepared to deal with Greek contagion now than when Italian bonds were blowing out and trading at 7%, just because everyone has double down and gone all-in that the ECB can contain the contagion. If it can’t, it’s very much game over.

  This is what Varoufakis’ likewise all-in gamble on the future of Greece boils down to.

  And just so we have numbers to work with, here courtesy of Bawerk’s fantastic summary, is a way to quantify what a Grexit and the resultant falling dominoes would look like for Europe:

  

   

  Simplistic representation of falling dominos not enough? Then here is the full breakdown of implicit exposure every Euro Area country has toward a Greek exit, because it is not just the EFSF dominoes, it is also SMP, MRO, ELA, Target2, and oh my…

  

  And tying it all together, here is some more from “Eugen von Böhm-Bawerk“:

  The Germans, French and IMF alike reluctantly admit so much, but they cannot give the Greeks any debt relief because as soon as Greece starts to default on their obligations on the off-balance sheet guarantees extended by the euro countries the whole system could fall like dominoes. 

  The problem, however, is that the IMF already did admit that Greece does need at least a 30% haircut, implying that at least one member of the grand status quo, under pressure form the US, already got the tap on the shoulder and has been told to prepare for more falling dominoes. Which leads to even more questions:

  What would happen if Italy suddenly got an extra funding requirement of more than €60bn? Every euro apologist point to Italy’s primary surplus, but what good does that do when your debt is over 130 per cent of GDP and rising? The interest payment on that gargantuan debt load means Italy must cough up more than €75bn a year just to service liabilities already incurred. A primary surplus is a useless concept in a situation like the one Italy finds itself in. Adding another €60bn to Italy’s balance sheet could very well be the straw that breaks the Italian camel.

   

  The French would be on the hook for around €70bn just when they have agreed with the European Commission to “slash” spending to get within the Maastricht goal of 3 per cent, in 2017!

   

  Imagine the German peoples wrath when they learn that Merkel defied their sacrosanct constitution; a constitution that clearly state that the German people, through its Bundestag, is the sole arbiter of any act that have fiscal implications regarding the German people. The Bundestag did not approve the €42bn of ECB programs that have funded the Greek states excessive consumption.

  All this is purely theoretical. For the practical implications of the above “falling domino” chain, we go back to Carl Weinberg:

  What if a downgrade of ESM paper causes a hedge fund to fail, which triggers the demise of the bank that handles its trades? The costs of fixing failed institutions will also, of course, fall on governments. The ultimate cost of Greece’s default is yet to be seen, but it is surely larger than it seems.

  Contained? We think not. And neither does Varoufakis, which is why he is willing to bet the fate of the Greek people on that most critical of assumptions. The only outstanding question is what does Mario Draghi, and thus Goldman Sachs, believe, and even more importantly, whether the Greek people have enough faith in Varoufakis to pull it off…
  

  

  

  

  

• Whole Foods, Half Lies

  Submitted by Salil Mehta via Statistical Ideas blog,

  Whole Foods has just been caught ripping-off customers, above and beyond their typical rip-off prices.  Whenever I shop at Whole Foods, up and down the Northeast, I observe that more than 2/3 of customers pay with bank cards.  Part of the issue with this payment method is that few customers then do what they should be doing.  Being a math guy for example, I always add up the prices of anything I am about to buy, before I get to the payment cashier.  It's not that hard! 

  And every couple of weeks, at all sorts of global merchants (from stores, to restaurants, to service companies), I come across price discrepancies.  I always feel obligated on behalf of all fellow consumers to notify the business staff (whose only incentive at the counter is to pump you for a loyalty discount card in exchange for your valuable personal data), and most of the time the "mistake" is in their favor.  Certainly not in anyone else's.  The "mistake" comes down to corporate heedlessness at best, and an obvious lack of respect for their customer's finances.  Many times I actually get a dirty look (like I am the jerk for catching their own error!), and only some of the time do I notice businesses promptly take the corrective actions so that no one else would be impacted.  If one mindlessly just throws over their bank card and personal data with every purchase, then (as we'll see below) they will often be overcharged.

  This particular news is happening with a company that already has a high-profile and checkered track record of doing good.  Just before the global financial crisis, CEO Mackey thought it was better to ignore his customers and mask his online identity with the alias "Rahodeb".  Squandering his time instead by falsely denigrating Wild Oats, and simultaneously falsely promoting Whole Foods.  In a similar playbook as they have today, this insulting set of affairs only came to an abrupt end when Whole Foods was busted.

  Also this news is happening with a company that is now suffering intense competition from better-priced competitors.  The organic marketplace is well-overdue for price reform.  As even billionaire investor Warren Buffett quipped recently "I don't see smiles on the faces of people at Whole Foods."  Though on a tangent, we don't see smiles on the faces of his Berkshire stockholders in recent years either (here, here).  Particularly if they then shop at Whole Foods afterwards, only to get served a second beat down.

  So what does Whole Foods' leadership finally do about the recent pricing scandal?  Create a feel-good advertisement!  No staff changes nor any attempt at financial regress for the systematic and ongoing misconduct.  They've already double bagged and taken home those ill-gains.  Here we see Walter Robb, and Rahodeb confusingly justify the "rigorous science" surrounding pricing a fruit in the 21th century:

  Straight up, uhhh, we made some mistakes.  We want to own that, and tell you what we are going to do about it … We know they are unintentional because the mistakes are both in the customer's favor and sometimes not in the customer's favor.  It's understandable that sometimes mistakes are made.  They are inadvertent.  They do happen.

  They also fictitiously blurt out to anyone mathematically illiterate, that in a "very, very small percentage" of times that errors occurred.  What's missing is that really in a "very, very, very small percentage" did this ever work in their customer's favor.  That's three "very's" using the thumbed-on Whole Foods scale.  Which is why eventually they were busted.

  This brings us to statistics on our blog, because it would be informative to show people the number of different ways Whole Foods -or similar merchants- can systematically cheat consumers, and still later hole up behind the lawyered company comments above.  We'll go through examples, each time merely using two hypothetical products for illustration.  We expose in each variation, how even the most fair mis-pricing will generally be "straight up" not fair.

  

  

  

  

  

  

• With 6 Hours Until The Greek Vote, This Is Where We Stand

  With just hours to go until Greeks head to the ballot box to decide the country’s fate in the eurozone, the latest polls show a nation divided with only a half percentage point separating the “no” votes from the “yes” votes.

  Underscoring the ‘dead heat’ preliminary poll results, the yes’s and the no’s staged dueling protests in the streets of Athens on Friday night. All told, as many as 50,000 people participated in the competing demonstrations with PM Alexis Tsipras making an appearance at the “No” rally.

  As a reminder, this is the schedule for the referendum:

  WHEN ARE RESULTS DUE

  • Polling stations will be open from 7am to 7pm local time and the result may be known before midnight
  • Pollsters haven’t confirmed if there will be exit polls; if there are any, they will come immediately after the polls close
  • Software distributor SinglularLogic, which has been hired to run the vote counting and data processing, should be able to provide an estimation of the winner a few hours after polls close
  • JPMorgan expects ~90% of votes will have been counted by midnight, based on past general elections in Greece; vote counting could be even faster this time as it’s a yes or no question

  And this is where things stand:

  

  *  *  *

  As noted earlier today, Athenians are restless and we can’t help but wonder what the scene will be in the streets of Athens on Sunday evening once the results are tallied and one of these two dueling groups is forced to acquiesce to the other’s vision of Greece’s future.

  

  

  

  

• 5 Things To Ponder: Independence Day Reading

  Submitted by Lance Roberts via STA Wealth Management,

  This weekend's reading list is a smattering of articles to enjoy between your favorite beverage, grilled meat and really fattening desert. Just remember to go back to the gym on Monday.

  ---

  1) Grantham: Stocks Will Continue Upward Until The Election by Justin Kermond via Advisor Perspectives

  "Jeremy Grantham says equity valuations are heading toward the "two-sigma" level that is the requisite threshold for a true bubble. At some point – which is not imminent – he said a "trigger" will precipitate the reversion back to mean levels. The market will continue to deliver positive returns until the next election, according to Grantham.

   

  Grantham cited two major causes for the looming bubble: post-Bernanke U.S. Federal Reserve policy and a "stock-option culture" that has both elevated corporate margins and stifled normal levels of capital expenditure investment required to grow the economy."

   

  Read Also: The Last Crisis May Cause The Next One by Robert Samuelson via Real Clear Markets

   

  2) Why This Chinese Bubble Is Different by John Authers via FT

  "Whatever else, the incident demonstrated that China's market remains dominated by liquidity. It also showed how badly the authorities want an overextended stock market. So, to adapt an old market saw, perhaps everyone should buy A-shares on the basis of "don't fight the PBoC".

   

  Bulls, led by GaveKal Dragonomics, say for global investors, keeping out of China is "the world's most crowded trade". Ever since metals prices turned down four years ago, suggesting slower Chinese growth, western institutions have been wary. They missed out on last year's boom, explaining their reluctance to see A-shares suddenly appear in their benchmarks."

  Read Also: Putting The China Drop Into Perspective by Malcolm Scott via Bloomberg Business

  Read Also: Maybe It's Not So Different by Streettalklive.com

  

   

  3) Private Equity Is "Cashing Out" by Leslie Picker and Ruth David via Bloomberg

  "When financier Leon Black said his Apollo Global Management LLC was exiting "everything that's not nailed down" amid rising valuations, he made headlines. Two years later, other private-equity firms are following suit — dumping stakes into the markets at a record clip.

   

  Firms including Blackstone Group LP and TPG Capital Management have been capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period, according to data compiled by Bloomberg."

  Read Also: Smart Money Is Cashing Out, What About You? by Tyler Durden via ZeroHedge

  

   

  4) 15 Problems With Real World Portfolios by Ben Carlson via A Wealth Of Common Sense

  "Investment strategies have a tendency to look beautiful on paper and in marketing pitch books. You get to see return numbers, risk-adjusted results and pretty looking graphs that show how great things were in the past. I've yet to come across a strategy that couldn't be dressed up and made to look appealing by a skilled sales team or portfolio manager.

   

  While there's nothing wrong with trying to present your investment process so it stands out from the crowd, investors have to remember that the markets are never quite as easy as they look on paper or with the benefit of hindsight. Here are 15 reasons portfolios are always harder in the real world than what you'll see in a marketing pitch or back-test:"

  Read Also: When Market Returns Are Reliant On A Single Word by Jeff Erber via Real Clear Markets

   

  5) The Roseanne Roseannadanna Market by Dr. John Hussman via Hussman Funds

  "Much of the investment world seems to view present conditions as a "Goldilocks market" where economic growth is positive enough to avoid recession, but not fast enough to provoke the Federal Reserve to hike interest rates. Even if these views on economic growth and Federal Reserve policy are correct, it hardly follows that stock prices will advance. S&P 500 returns are only weakly correlated with year-over-year GDP growth and have near-zero correlation with year-over-year changes in earnings. Likewise, the stance of the Federal Reserve has much less power to distinguish investment outcomes than investors seem to believe, which they might realize even by remembering that the Fed was easing aggressively and persistently throughout the 2000-2002 and 2007-2009 market collapses.

   

  In contrast, we find profound differences in market outcomes across history depending on the combined status of valuations, market internals, and broader measures of market action (which include, for example, overvalued, overbought, overbullish syndromes)."

  

  Read Also:  The Single Most Important Element To Successful Investing by Jesse Felder via The Felder Report

  ---

  Have Another Slice Of Pie

  6 Conditions For A Global Bond Crisis by Bill Gross via Janus Funds

  A Compendium Of Tweeted Research by Meb Faber via Meb Faber Research

  The Current Oil Price Slump Is Far From Over by Arthur Berman via OilPrice.com

  The Whole Story Of Factors + Asset Classes by Jason Hsu via Research Affiliates

  ---

  "Perhaps it's fate that today is the Fourth of July, and you will once again be fighting for our freedom… Not from tyranny, oppression, or persecution…but from annihilation. We are fighting for our right to live. To exist. And should we win the day, the Fourth of July will no longer be known as an American holiday, but as the day the world declared in one voice: 'We will not go quietly into the night!' We will not vanish without a fight! We're going to live on! We're going to survive! Today we celebrate our Independence Day!" – Pres. Thomas Whitmore, Independence Day

  Have a great 4th of July holiday.

  

  

  

  

  

• The Template for the End Game: Lies and Fraud Followed by Bail-Ins

   

  The Cyprus bank bail-in committed of early 2013 may seem like small deal to most US investors.

   

  After all, most Americans probably couldn’t even find Cyprus on a globe. And with the mainstream media spreading the narrative that the Cyprus bail-in was a one-time event that was meant to support the bank while punishing tax-dodging crooks, 99% of folks won’t think twice about the situation.

   

  However, the reality of what happened in Cyprus is a far different matter. And the reason that this reality has not been featured as headline news is because doing so would reveal the following:

   

  1)   European politicians are both corrupt and incompetent.

  2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

  3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.

   

  Let’s assess these issues one by one.

   

  First off, the Cyprus bank “bail-in” was not some sudden event. The country first asked for a bail-out in JUNE 2012. Here’s the timeline.

   

  ·      June 25, 2012: Cyprus formally requests a bailout from the EU.

  ·      November 24, 2012: Cyprus announces it has reached an agreement with the EU the bailout process once Cyprus banks are examined by EU officials (ballpark estimate of capital needed is €17.5 billion).

   

  During the period of late June 2012 until November 2012, Cyprus’s problems were allegedly being assessed and nothing more. Throughout this period, NO ONE in a position of significant political or financial power suggested to Cypriots or anyone else who had money in the Cyprus banks that their money would be STOLEN.

   

  Instead, numerous bureaucrats came out to assure the public that this situation was under control and that the risks to the Cyprus banks would be carefully assessed.

   

  Then, in the span of a single week, a bank holiday was declared, bank accounts were frozen, and deposits were stolen.

   

  Here’s the specific sequence of events:

   

  ·      March 16 2013: Cyprus announces the terms of its bail-in: a 6.75% confiscation of accounts under €100,000 and 9.9% for accounts larger than €100,000… a bank holiday is announced.

  ·      March 17 2013: emergency session of Parliament to vote on bailout/bail-in is postponed.

  ·      March 18 2013: Bank holiday extended until March 21 2013.

  ·      March 19 2013: Cyprus parliament rejects bail-in bill.

  ·      March 20 2013: Bank holiday extended until March 26 2013.

  ·      March 24 2013: Cash limits of €100 in withdrawals begin for largest banks in Cyprus.

  ·      March 25 2013: Bail-in deal agreed upon. Those depositors with over €100,000 either lose 40% of their money (Bank of Cyprus) or lose 60% (Laiki).

   

  The most critical item to note about this timeline is that while the general public was assured that all was well, politically connected insiders were warned to get their money OUT OF THE BANKS

   

  One hundred and thirty-two companies reportedly had inside knowledge of Cyprus’ impending levy tax as they withdrew deposits worth US$916 million in the run-up to the bailout deal.

   

  The companies withdrew their savings in the two week period (between March 1 to March 15) leading up to the rescue deal that enforced heavy losses on wealthy depositors in Cypriot banks, according to Greek newspaper Proto Thema.

   

  Shortly after this the EU ministers and the IMF hammered out a 10-billion-euro (US$13 billion) bailout agreement with Cyprus, which included a one-time tax on deposits held in Cypriot banks.

   

  In the meantime all banks in Cyprus temporarily froze the amounts required to pay the tax on their clients’ deposits and stopped all transactions while the government negotiated the details of the agreement.

   

  The companies on the list withdrew their deposits in euro, USD, GBP and Russian rubles and later transferred to banks outside of Cyprus. The total amount withdrawn comes to US$916 million.

   

  http://rt.com/news/cyprus-companies-withdraw-money-218/

   

  So, nearly $1 billion worth of insider money escaped the Cyprus confiscation scheme. NONE of it was retiree savings. Ordinary individuals got screwed while politically connected insiders were able to get out scot-free.

   

  Now what’s truly amazing is that the Cyprus bank that collapsed was actually AWARDED BEST BANK for Private Banking by EUROMONEY Magazine. What was hailed as the BEST bank for private banking ended up being totally insolvent with 47% of deposits above €100,000 being converted into bank equity.

   

  Bank of Cyprus has been named as the Best Bank for Private Banking in Cyprus, by the internationally acclaimed magazine EUROMONEY

   

  Bank of Cyprus Private Banking ranked first among Cypriot, Greek and other international financial institutions operating in Cyprus in the Private Banking sector. This accolade classifies the Bank among the leading financial institutions offering Private Banking services and is yet another important international distinction for the Bank of Cyprus Group…

   

  This recognition by EUROMONEY is ever more important in today’s macroeconomic environment as it reaffirms the Bank’s ability to safely and successfully respond to its clients’ financial needs and emphasizes its clients’ loyalty and trust.

   

  http://www.bankofcyprus.com.cy/en-GB/Cyprus/News-Archive/Best-Bank-for-Private-Banking/

   

  Now, the political and financial elite in Cyprus and the EU will argue that bank deposits were not STOLEN because they were converted into equity in the bank at a rate of €1 per share. But being forced to change cold hard cash for equity in an insolvent bank is hardly cause for excitement.

   

  Indeed, the market, now well aware that the Bank of Cyprus is insolvent, has been dumping shares. So those depositors whose deposits were converted into equity are watching their savings evaporate as shares dive.

   

  Moreover, it’s not as though they were given the means to get their other deposits out of the bank:

   

  Last year, thousands of customers with money in Bank of Cyprus, including many British and Russians, became unwilling shareholders in the lender when their deposits were turned into equity as part of a controversial €10bn emergency rescue.

   

  Depositors saw 47.5 per cent of their money above a €100,000 threshold turned into equity.

   

  More than a third of their cash was then locked into six, nine and 12-month accounts. Shares in Bank of Cyprus have been suspended on the Athens and Nicosia stock exchanges since early 2013 and only one of the fixed term cash accounts has released all of the money due to customers.

   

  Éxito’s Ben Rosenberger and Michele Del Bo, who have previously arranged the sale of Lehman Brothers and Icelandic bank distressed debt, said that sellers had so far been mostly international clients who wanted to extract their money from the island by selling their deposits and shares to distressed debt funds.

   

  http://www.ft.com/intl/cms/s/0/89351ec8-f223-11e3-9015-00144feabdc0.html#axzz38Iy371O0

   

  So when the bank wants to raise capital, which would dilute the equity holdings for former depositors. What were savings are now not only subject to the whims of the market, but can be actively diluted by capital raises.

   

  Again, we refer to the list we began this article with:

   

  1)   European politicians are both corrupt and incompetent.

  2)   Those meant to assess the risk of any financial institutions don’t know what they’re talking about.

  3)   The average citizen will be screwed while politically connected insiders will be given the means to circumvent the law.

   

  Cyprus matters because while countries may differ in specific cultural components, the monetary system in place is by and large the same around the world. And what happened in Cyprus should be seen as a template for what can happen elsewhere.

   

  Indeed, this is now playing out in Greece today.

   

  Greece’s current leadership was elected back in January. Since that time the country has been in an ongoing negotiation concerning its debt issues. Everyone knew Greece was broke, but again the process was dragged out.

   

  Then in the span of a single weekend, a bank holiday was declared… and now suggestions of a 30% haircut on deposits are being floated. And once again, it’s ordinary citizens who are being screwed.

   

  This process will be spreading throughout the globe going forward. Indeed, the FDIC has proposed precisely the same “bail-in” program if a “systematically important financial institution” were to go belly-up in the US.

   

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

   

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

   

  As we write this, there are less than 50 left.

   

  To pick up yours, swing by….

  http://www.phoenixcapitalmarketing.com/roundtwo.html

   

  Best Regards

   

  Phoenix Capital Research

   

   

   

   

   

   

   

  

  

  

  

• Will Greek Depositors Under €100,000 Be Spared In Case Of A "Bail-In"

  One week ago, we first explained that as the Cyprus bail-in “blueprint” scenario unfolds, the one final, and most important, remaining variable in the ongoing Greek drama, soon to devolve to tragedy, is how big the ECB’s ELA haircuts would be in the case of a No vote, which would be the first catalyst of a depositor haircut.

  

   

  Then, overnight, in a report since denied by both the Greek finance ministry and by the European Banking Authority Plan, the pro-Europe FT did yet another hit piece on Greece desperate to push those Greek voters on the fence ahead of tomorrow’s referendum to vote “Yes” (just think of the lost advertising revenue if say Deutsche Bank were to go under).

  Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.

   

  The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

  Ignoring whether the FT is now merely a venue used by conflicted parties to publish pro-Europe, anti-Syriza hit piecestthat benefit “bankers and businesspeople with knowledge of the measures” and are promptly refuted, the article does bring up a relevant point: if the ECB does escalate the ELA collateral haircuts, something we analyzed in our own piece last week, what kind of haircut scenarios are possible, and will “insured” deposits under €100,000 be indeed made whole, or will the bail-in affect, as the FT suggested, everyone with over €8,000 in savings?

  Regarding the first part of the question, what are the possible scenarios, JPM had this to say yesterday when evaluating the history of bail-ins in Europe in recent years:

  If the deterioration in asset quality means there is no sufficient collateral to cover ELA claims, either the ECB (via its ELA residual claim) or domestic depositors will have to suffer a loss. Our understanding is that there are no clear rules on whether this ELA residual claim will be ranked above depositors or not. In fact EU policymakers adopted different and inconsistent approaches in the past when faced with bank insolvencies:

  1. In the case of Cypriot banks, depositors were hit while senior bond holders were spared, so seniority was not respected. ELA claims were also protected.
  2. Deposits of foreign branches were protected in the case of Cyprus while deposits of domestic branches were hit. This is the opposite of what happened to Iceland.
  3. In the case of Ireland, which also had a big banking system relative to the size of its economy, only sub debt holders, accounting for a very small portion of total creditors, were hit. No depositors were hit, in either domestic or foreign branches.
  4. In the case of SNS, sub debt holders were wiped out and reports suggest that the Dutch government came close to imposing losses on senior bond holders and was only prevented from doing so because of unsecured intergroup loans between SNS bank and Reaal insurance that would be subjected to the same losses as senior bond holders.

  In other words, Europe will do what it always does: make it up as it goes alone. However, one notable difference between Cyprus and Greece is that the former held the deposits of a number of wealthy Russian oligarchs, which skewed the deposit distribution a la the 80/20 rule, and permitted smaller depositors to be saved while the Russians took the bulk of the hits (an outcome which according to some led to the suicide of Russian billionaire in exile, Boris Berezovsky).

  Unlike Cyprus, Greece does not have the luxury of several massive depositors. In fact, according to JPM, the distribution of deposits appears to be relatively flat. JPM continues:

  … under a stress scenario of prolonged impasse, Greek depositors will be likely hit while ELA claims are protected. There is currently €120bn of deposits with Greek banks. A haircut increase on ELA collateral assets from our currently estimated level of 43% to 60%, for example, would require a €26bn deposit haircut or 20% of outstanding bank deposits assuming for simplicity no available buffer from shareholders or bond holders. A bigger increase in the collateral haircut, for example to 75%, would require a €50bn deposit haircut or 40% of outstanding bank deposits.

  Whereas we disagree with JPM’s calculation due to our baseline assumption that the current haircut level is more in the 48% region, we do agree with the directionality.  As a reminder, this was our own math as laid out last week:

  

   

  But what does this mean for ordinary Greeks, those who have negligible amounts still held by Greek banks despite our recurring pleas to withdraw their funds ahead of just this eventuality? Sadly, nothing good. Here is JPM’s conclusion:

  Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared. And the reserves that the Greek state has to back its bank deposit guarantee are miniscule, likely not more than a couple of billions euros.

  Which means that unlike Cyprus, which was mostly a targeted punitive bail-in aimed almost entirely at Russian oligarchs, should the ECB indeed enact ELA haircuts which it may have to do as soon as Monday in the case of a No vote, it will be the ordinary Greeks who will see their already meager savings get haircut even more, anywhere between 30%, potentially up to 100% if the ECB were to announce the entire ELA no longer legal, pulls all funding and locks up Greek bank collateral.

  Will the ECB do that? We don’t know, however Varoufakis’ gambit is simple: should the ECB engage the full Greek haircut it will incite an immediate panic and risks a run on other peripheral banks and the true spread of Greek contagion to Italy, Spain, Portugal and all other economically crushed countries where an anti-austerity politician is a frontrunner for the next leadership position. Such as France.

  

  

  

  

  

• The Surprising Demise of Reddit

  Well, it seems Ellen Pao managed to step in yet another bucket of syrup.

  This is going to require a bit of back-story……….

  Some people on the Internet really go for quantity. On their Twitter account, they follow hundreds of people. On Facebook, they connect with thousands of “friends.” And in their browser, they visit dozens of web sites each day.

  I tend to be a minimalist. I have precisely 100 friends on Facebook. If I decide I really want someone to be a friend, well, someone else is going to get the boot. On Twitter, even though I have over 13,000 followers, I follow only 8. And as for web sites, there are only three sites I visit repeatedly each day: Slope of Hope, ZeroHedge, and Reddit.

  In case you’ve been hiding in a cave somewhere, Reddit is one of the most frequently-visited sites on the web, and it was recently valued at half a billion dollars. It consists of myriad “subreddits” which focus on particular topics of interest, each of which is managed by unpaid (and evidently very dedicated) moderators. Readers can upvote and downvote tidbits of the web, bringing to the front page of reddit itself, or any particular subreddit, the most interesting articles and curiosities.

  There isn’t a day that goes by where I’m not entertained and better-informed thanks to reddit and the millions of people who make it possible. Similar to Wikipedia, it’s one of those delightful free gems on the web which isn’t slathered with advertising and is made possible mostly by the heart and hard work of its community. Slope of Hope, in a miniscule way, is very much like that.

  None of this would be especially interesting were it not for the shitstorm taking place at this very moment in the usually placid world of Reddit. To wit:

  

  As you’ve gathered from the above, a woman named Victoria Taylor was fired for reasons that have not been explained, and Redditors are absolutely freaking out about it.

  Victoria, pictured here, was the director of communications for the past couple of years. It strikes me as odd that the firing of one individual would cause such a revolt, but I don’t consider myself a “deep” Redditor at all. I have a parasitic relationship with the site, similar to “lurkers” on any site (including Slope). I contribute nothing to it. I don’t even upvote/downvote stuff. I just go there to read. So I don’t pretend to “get” the subculture there at all.

  But for some of the folks there, I’m sure this weekend is one they’ll remember on their deathbed. The Reddit community has never been particularly keen on the company’s Interim (and everyone emphasizes Interim) CEO, Ellen Pao, about whom I wrote a number of articles here on Slope regarding her widely-publicized sex discrimination lawsuit. In fact, they really, really, really hate her.

  It would be sort of like if every Sloper really couldn’t stand me, but they tolerated me only because my friend Dutch did such a great job – – – and then I fired Dutch. That’s sort of what’s going on.

  Now keep in mind Reddit isn’t some weird, edgy, nobody-ever-heard-of-it site like Slope. It’s a big, big site (which is why the likes of Time magazine are writing about what’s going on right now). The Reddit community is upvoting anything they can that has to do with (a) other companies that pissed off their customer base and lived to regret it (b) getting rid of Pao (c) general castigation of Pao.

  

  Want to know the real shame of this? A missed opportunity. And as a former Internet entrepreneur myself, I can’t help but shake my head at this one……….

  About a year ago, a couple of guys put together a site that does exactly the same thing as Reddit called Voat. The thing with communities is – – – once a community has a home, it stays there. Reddit is ranked as the 32nd most popular web site in the world. Want to know Voat’s rank? 20,100.

  So there’s no way Voat would have ever amounted to anything, because there’s no reason for anyone to leave reddit and go to Voat…………until this weekend. Suddenly everyone agitated to basically jump ship and make Voat the new Reddit. And while it’s virtually out of the question that this would have happened, Voat had an amazing opportunity to capture a meaningful chunk of those users. Even if it was only 5%, that would have make Voat a real business.

  But what folks are getting instead when they try to go to Voat is this:

  

  Thus, one of the top links on Reddit is this:

   

   

  The sad thing for Voat’s founders is that once they’ve finally got their infrastructure act together and can actually handle the traffic coming their way, this whole Reddit thing will have blown over. So they’ll have invested in a bunch of equipment and bandwidth, only to see themselves vault from 20,100th place to 19,900th. It’s a damned shame, and frankly, they’ve blown the opportunity of a lifetime.

  The most amusing subreddit of all right now is PaoYongYang. (Someone even made a painstaking claymation of Ellen Pao singing “Why Don’t You Go Over to Voat?”) Here’s what it looks like; you, uhhh, can kind of get the idea:

  

  There’s even a petition going around to dump Ellen Pao from Reddit which has garnered 100,000 signatures as of this writing. (“A vast majority of the Reddit community believes that Pao, “a manipulative individual who will sue her way to the top”, has overstepped her boundaries and fears that she will run Reddit into the ground”) Again, the community really, really hates her. Partly because of her sketchy husband. Partly because of the Kleiner lawsuit. But mostly because of the perception of how she treats the community.

  

  And that, frankly, is the principal point of this post (I’m not looking for excuses to put up pictures of Pao’s peculiar countenance). Community matters. Indeed, in this hyper-interconnected world in which we live, it matters more than ever. If you’re involved in any kind of Internet business, the relationship not only with your users but between your users is the glue that holds your enterprise together.

  The thing is, humans are a tribal lot, and they will gladly band together and turn against the people or institutions they feel have wronged them. On this day (I’m writing this on July 4), look no further than these lines from a document you may have heard about:

  ….all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

  Personally, I found Ms. Pao singularly unlikeable, based on everything I’ve read, and just as I hope our friends in Greece throw off the EU shackles with a resounding “Oxi!” vote on Sunday, I hope the Redditors succeed in their quest to kick Pao to the curb and send her back to Buddy Fletcher, where husband and wife can romantically contemplate whom they’d like to sue next.

  

  

  

  

• Fed's Full Normalization Will Crush The Casino

  Submitted by Adam Hamilton via GoldSeek.com,

  The US Federal Reserve has been universally lauded for the apparent success of its extreme monetary policy of recent years.  With key world stock markets near record highs, traders universally love the Fed’s zero-interest-rate and quantitative-easing campaigns.  But this celebration is terribly premature.  The full impact of these wildly-unprecedented policies won’t become apparent until they are fully normalized.

  Back in late 2008, the US stock markets suffered their first full-blown panic in 101 years.  Technically a panic is a 20% stock-market selloff in a couple weeks, far faster than the normal bear-market pace.  In just 10 trading days climaxing in early October 2008, the US’s flagship S&P 500 stock index plummeted a gut-wrenching 25.9%!  It felt apocalyptic, the most extreme stock-market event we’ll witness in our lifetimes.

  This once-in-a-century fear superstorm terrified the Fed’s elite policymakers on its Federal Open Market Committee.  As economists, they are well aware of the stock markets’ powerful wealth effect.  With equities cratering, Americans could dramatically slash their spending in response to that devastating loss of wealth and the crippling fear it spawned.  And that could very well snowball into a full-blown depression.

  Consumer spending drives over two-thirds of all US economic activity, it is far beyond critical.  So the Fed felt compelled to do something.  But like all central banks, it really only has two powers.  It can either print money, or talk about printing money.  The legendary newsletter guru Franklin Sanders humorously labels these “liquidity and blarney”.  With stock markets burning down in late 2008, the Fed panicked too.

  Led by uber-inflationist Ben Bernanke, the Fed embarked on the most extreme money printing of its entire 95-year history to that point.  The FOMC cut its benchmark Federal Funds Rate by 50 basis points at an emergency unscheduled meeting on October 8th.  It lopped off another 50bp a few weeks later on October 29th.  And then on December 16th, it slashed away the remaining 100bp to take the FFR to zero.

  The federal-funds market is where banks trade their own capital held at the Fed overnight.  It’s that supply and demand that determines the actual FFR, so the Fed can’t set it directly by decree.  Instead the Fed defines an FFR target, and then uses open-market operations to boost funds supplies enough to force the FFR down near its target.  The Fed creates new money out of thin air to oversupply that market.

  When central banks force their benchmark rates to zero through money printing, economists call it a zero-interest-rate policy.  Once ZIRP is implemented, a central bank’s conventional monetary-policy tools are exhausted.  Once zero-bound, central banks can’t really manipulate short-term interest rates any lower.  So they continue printing money, but use it to purchase bonds to force long-term interest rates lower as well.

  Historically this was called monetizing debt, and was only seen in small countries that were economic basket cases.  Expanding the money supply so rapidly to buy government bonds naturally led to ruinous inflation.  But today this exact-same practice is euphemistically known as quantitative easing.  QE is truly the last resort of central banks once they succumb to ZIRP, the treacherous final frontier of money printing.

  The Fed formally launched QE for the first time ever on November 25th, 2008.  That was several weeks before ZIRP was born.  Because of intense political opposition to direct monetization of US government debt, the Fed initially started with mortgage-backed bonds.  But what later became known as QE1 was expanded to include US Treasuries in mid-March 2009.  This marked a watershed event in Fed history.

  By conjuring money out of thin air to buy up US Treasuries, the Fed was directly subsidizing the Obama Administration’s record deficit spending.  As it purchased Treasuries and transferred brand-new dollars to Washington, the federal government spent this money almost immediately.  That injected this vast new monetary inflation directly into the underlying US economy, creating tremendous market distortions.

  Nowhere was this more pronounced than in the US stock markets.  As the Fed expanded the money supply to buy bonds, its holdings rapidly accumulated which ballooned its balance sheet dramatically.  Even though this new inflation was flowing into the bond markets, it had a dramatic impact on the stock markets.  Since mid-2009, the S&P 500’s powerful bull market has perfectly mirrored the Fed’s balance sheet!

  Whenever one of the Fed’s three QE campaigns was in full swing, the stock markets rose in lockstep with bond purchases.  But whenever the Fed’s debt monetizations slowed or stopped, the stock markets consolidated or corrected.  This tight relationship between stock-market levels and the Fed’s balance sheet is incredibly important for investors and speculators to understand, as it has serious implications.

  In the coming years, the Fed is going to have to normalize both ZIRP and QE.  If the Fed drags its feet too long, the global bond markets will force it to act.  Normalizing ZIRP means dramatically hiking the Federal Funds Rate, and normalizing QE means selling trillions of dollars of bonds.  And only after both interest rates and the Fed’s balance sheet return to normal levels will ZIRP’s and QE’s impact become apparent.

  Today’s euphoric and complacent stock traders assume that the first measly quarter-point rate hike will end ZIRP, and that QE concluded in late October 2014 when the FOMC ended its QE3 campaign.  But nothing could be farther from the truth!  We are only at half-time for the most extreme experiment in US monetary policy in the Fed’s entire history.  The fat lady won’t have sung until ZIRP and QE are fully unwound.

  This full normalization is epic in scope, and will take the Fed years to accomplish.  Stock traders don’t appreciate how extremely anomalous both interest rates and the Fed’s balance sheet are today.  This chart reveals the scary truth.  It looks at the Federal Funds Rate and yields on 1-year and 10-year US Treasuries over the past 35 years or so.  And the Fed’s balance sheet since it was first published in 1991.

  

  The inflection points in interest rates and money supplies driven by the advent of ZIRP and QE are just massive beyond belief.  Short rates totally collapsed near zero, and the Fed’s balance sheet skyrocketed into the stratosphere.  The most extreme monetary policies in US history aren’t going to normalize easily.  And this process is going to cause great financial pain as stock and bond markets are forced to mean revert lower.

  Through its overnight Federal Funds Rate, the Fed utterly dominates the short end of the yield curve.  Note above how yields on 1-year US Treasuries track the FFR nearly flawlessly.  So just like during past Fed rate-hike cycles, the rising FFR is going to push up the entire spectrum of short-term interest rates.  And this normalization process will require a long series of rate hikes, not just today’s popular “one and done” fantasy.

  The very word normalization denotes something manipulated away from norms returning back to those very norms.  So defining “normal” FFR levels is important to get an idea of how high the Fed is going to have to hike.  Since late 2008’s stock panic scared the Fed into going full-on ZIRP for the first time ever, everything since is definitely not normal.  Nor were the super-high rates of the early 1980s, the opposite extreme.

  But between those two FFR anomalies was a 25-year window running from 1983 to 2007.  This quarter-century span is the best measure of normal we can get in modern history.  It encompasses all kinds of economic and stock-market conditions, including multiple severe crises.  Throughout all of it, the Federal Funds Rate averaged 5.5% on a weekly basis.  That is normal, where the Fed will eventually have to return.

  While today’s hyper-complacent stock traders are fixated on the Fed’s first rate hike in 9 years, that’s only 25 basis points.  The Fed needs to do a full 550bp of hikes!  At a mere quarter-point at a time, a full normalization would take 22 hikes!  And that’s probably how it will play out, as the Fed is too scared of roiling stock traders to hike faster.  The last Fed rate hike exceeding 25bp happened way back in May 2000.

  The Fed’s policy-deciding Federal Open Market Committee meets 8 times a year, and only raises rates at those scheduled meetings to minimize the risk of shocking the markets.  So the 22 quarter-point rate hikes required for full normalization would take nearly 3 years without any interruptions!  That’s an awfully-long time for higher rates and the resulting bearish psychology to weigh heavily on lofty stock markets.

  Despite the one-and-done hopes of stock traders today, it’s really risky for the Fed to start and stop rate hikes in an erratic fashion.  The more unpredictable any tightening cycle is, the more damage it will do to stock-market sentiment.  So this coming rate-hike cycle is likely to play out like the last one between June 2004 to June 2006.  Over that 2-year span the Fed hiked 17 times more than quintupling the FFR to 5.25%!

  While slashing the FFR to zero manipulated the short end of the yield curve, the Fed’s utterly-monstrous purchases of US Treasuries actively manipulated the long end.  The FOMC was very open about this mission, including a sentence about QE in its meeting statements that read “these actions should maintain downward pressure on longer-term interest rates”.  Excess bond demand forces long rates lower.

  Since the dawn of the ZIRP and QE era in early 2009, the yield on benchmark US 10-year Treasuries has averaged just 2.6%.  This rate is exceedingly important to US economic activity, as it determines the pricing of mortgages.  Artificially-low long rates have led to artificially-low mortgage rates, which fueled a boom in housing-related activity just as the Fed intended.  A full normalization will totally wipe this out.

  In that quarter-century span between the early 1980s rate spikes and the 2008 stock panic’s introduction of ZIRP, yields on 10-year Treasuries averaged 6.9%.  That is fully 2.6x higher than today’s manipulated levels!  As the Fed normalizes its balance sheet by letting its QE-purchased bonds mature and roll off, long rates will absolutely return to normal levels.  And the market and economic impacts will be adverse and vast.

  In mid-June, 30-year fixed-rate mortgage pricing climbed back over 4.0% as 10-year Treasury yields regained 2.4%.  That’s a 1.6% premium over what the US government can borrow for.  So when 10-year Treasury yields are fully normalized in the coming years, 30-year mortgage rates will likely soar to at least 8.5%!  That’s certainly not unprecedented, these rates averaged 8.1% throughout the entire 1990s.

  That wealth effect the Fed fears slowing consumer spending applies to housing prices even more so than stock-market levels, since far more Americans have most of their wealth in houses than in stocks.  Mortgage prices more than doubling would have a drastic impact on house prices, since people could only afford to borrow much less.  So the debt-fueled real-estate boom is going to collapse as rates normalize.

  Bond prices will crater too.  Regardless of the yields bonds were originally issued at, they’re bought and sold in the marketplace until their coupon yields equal prevailing rate levels.  So traders will dump bonds aggressively as rates mean revert higher, leading to steep losses in principal for the great majority of bonds that are not held to maturity.  And the Fed’s selling as it normalizes its balance sheet will exacerbate this.

  As the chart above shows, the Fed’s balance sheet naturally rises over time as this central bank inflates the supply of US dollars.  But its pre-QE trajectory was well-defined and relatively mild.  Once the Fed reached ZIRP and could cut no more, it launched QE which led to a balance-sheet explosion.  This too will have to mean revert dramatically lower in the Fed’s full normalization, with terrifying bond-market implications.

  In the first 8 months of 2008 before that once-in-a-century stock panic, the Fed’s balance sheet was averaging $849b.  At its recent peak level in mid-February 2015, all those years of QE bond buying had mushroomed it to $4474b!  That’s a 5.3x increase in just 6.5 years.  The great majority of that has to be unwound, or that vast deluge of new dollars will eventually lead to massive and devastating inflation.

  If the normal trajectory of the Fed’s balance sheet before the stock panic is extended to today, it suggests a normal balance-sheet level of around $1100b.  To return to there from today’s incredibly-high QE-bloated levels would require a staggering $3329b of bond selling from the Fed!  Even though it will take years for this to unfold, $3.3t of central-bank bond selling will force bond prices much lower.  And thus rates higher!

  Higher rates won’t just decimate the bond markets, but also wreak havoc in today’s super-overvalued and radically-overextended stock markets.  Higher rates hit stocks on multiple fronts.  They make shifting capital out of stocks into higher-yielding bonds more attractive, leading to capital outflows from the stock markets.  The higher debt-servicing expenses also directly erode corporate profits, leaving stocks more overvalued.

  But today’s main stock-market threat from rising rates is their impact on corporate buybacks.  These are the primary reason why the S&P 500 level so perfectly mirrored the ballooning Fed balance sheet of recent years.  American companies took advantage of the artificially-low interest rates to borrow vast sums of money not to invest in growing their businesses, but to use to buy back and manipulate their stock prices.

  Last year for example, stock repurchases by the elite S&P 500 companies ran a staggering $553b!  That was their highest level since the last cyclical bull market was peaking in 2007.  Since these buybacks are largely financed by cheap money courtesy of ZIRP and QE, the Fed’s normalization is going to just garrote buybacks.  And they are the overwhelmingly-dominant source of capital chasing these lofty stock markets.

  So the massive coming normalization of interest rates and the Fed’s bond holdings are very bearish for stocks as well as bonds.  That’s one reason why traders are so pathologically fixated on the next rate-hike cycle.  The smart ones know full well that it will end this Fed-conjured market fiction and lead to enormous mean reversions lower in both stock and bond prices.  Full normalization will spawn a bear market.

  Ironically the asset class that will benefit most from rate hikes is the one traders least expect, gold.  The conventional wisdom today believes gold is going to get wrecked by rising rates since it has no yield.  But just the opposite has proven true historically!  Gold is an alternative asset, and demand for these critical portfolio diversifiers soars when conventional stocks and bonds are struggling.  Like during rate hikes.

  During the Fed’s last rate-hike cycle between June 2004 and June 2006 where the Federal Funds Rate was more than quintupled to 5.25%, gold actually soared 50% higher!  And in the 1970s when the Fed catapulted its FFR from 3.5% in early 1971 to a crazy 20.0% by early 1980, gold skyrocketed an astounding 24.3x higher!  Higher rates really hurt stocks and bonds, rekindling investment demand for alternatives.

  The Fed’s inevitable coming full normalization of ZIRP and QE is going to be vastly more impactful than traders today appreciate.  When interest rates rise and the Fed’s bond holdings fall, there’s no way that stock and bond prices are going to remain anywhere near today’s lofty artificial central-bank-goosed levels.  The full normalization is going to greatly alter the global investing landscape, creating a minefield.

  The bottom line is the Fed’s post-stock-panic policies have been extreme beyond belief.  They have led to epic distortions in the global markets.  These markets are going to force the Fed to fully normalize the wildly-anomalous conditions it created with ZIRP and QE.  And with interest rates and the Fed’s balance sheet at such extreme levels today, the coming normalization will be very treacherous and take years to unfold.

  Today’s euphoric stock traders believe ZIRP and QE have been huge successes, but the jury is still out until they’ve run their courses and been fully unwound.  The most-extreme monetary experiment by far in US history is just at half-time now, the fat lady hasn’t even taken the stage.  The full normalization of ZIRP and QE is likely to be as negative for stock and bond prices as its ramping up proved positive for them.

  

  

  

  

  

• A Pledge Of Allegiance For The New Normal America

  For the new normal America…

  I pledge allegiance to no flag, but to truth and morality…

   

  …which doesn’t seem to exist in the Divided States of America.

   

  And to no republic, for it stands for nothing; One nation, under surveillance,

   

  completely divided

   

  with Liberty and Justice destroyed

   

  and inalienable rights taken from us all.

  Source: ArmstrongEconomics.com

  *  *  *

  However, there should be hope… As STA Wealth Management's Lance Roberts notes, as you celebrate the 4th of July with your family and friends, it is vitally important to remember exactly what we are supposed to celebrating. The following excerpts are from the Independence Day speech given by John Fitzgerald Kennedy (then just a candidate for Congress) on July 4, 1946. I encourage you to read the speech in its entirety.

  On The Religious Element

  "The informing spirit of the American character has always been a deep religious sense.

  Our government was founded on the essential religious idea of integrity of the individual. It was this religious sense which inspired the authors of the Declaration of Independence: 'We hold these truths to be self-evident: that all men are created equal; that they are endowed by their Creator with certain inalienable rights.'

  Our earliest legislation was inspired by this deep religious sense: 'Congress shall make no law prohibiting the free exercise of religion.'

  Today these basic religious ideas are challenged by atheism and materialism: at home in the cynical philosophy of many of our intellectuals, abroad in the doctrine of collectivism, which sets up the twin pillars of atheism and materialism as the official philosophical establishment of the State.

  Inspired by a deeply religious sense, this country, which has ever been devoted to the dignity of man, which has ever fostered the growth of the human spirit, has always met and hurled back the challenge of those deathly philosophies of hate and despair. We have defeated them in the past; we will always defeat them.

  On The Idealistic Element

  "In recent years, the existence of this element in the American character has been challenged by those who seek to give an economic interpretation to American history. They seek to destroy our faith in our past so that they may guide our future. These cynics are wrong, for, while there may be some truth in their interpretation, it does remain a fact, and a most important one, that the motivating force of the American people has been their belief that they have always stood at the barricades by the side of God.

  It is now in the postwar world that this idealism–this devotion to principle–this belief in the natural law–this deep religious conviction that this is truly God's country and we are truly God's people–will meet its greatest trial.

  Our American idealism finds itself faced by the old-world doctrine of power politics. It is meeting with successive rebuffs, and all this may result in a new and even more bitter disillusionment, in another ignominious retreat from our world destiny.

  But, if we remain faithful to the American tradition, our idealism will be a steadfast thing, a constant flame, a torch held aloft for the guidance of other nations.

  It will take great faith."

  On The Patriotic Element

  "From the birth of the nation to the present day, from the Heights of Dorchester to the broad meadows of Virginia, from Bunker Hill to the batteries of Saratoga, from Bergen's Neck, where Wayne and Maylan's troops achieved such martial wonders, to Yorktown, where Britain's troops surrendered, Americans have heroically embraced the soldier's alternative of victory or the grave. American patriotism was shown at the Halls of Montezuma. It was shown with Meade at Gettysburg, with Sheridan at Winchester, with Phil Carney at Fair Oaks, with Longstreet in the Wilderness, and it was shown by the flower of the Virginia Army when Pickett charged at Gettysburg. It was shown by Captain Rowan, who plunged into the jungles of Cuba and delivered the famous message to Garcia, symbol now of tenacity and determination. It was shown by the Fifth and Sixth Marines at Belleau Wood, by the Yankee Division at Verdun, by Captain Leahy, whose last order as he lay dying was "The command is forward." And in recent years it was shown by those who stood at Bataan with Wainwright, by those who fought at Wake Island with Devereaux, who flew in the air with Don Gentile. It was shown by those who jumped with Gavin, by those who stormed the bloody beaches at Salerno with Commando Kelly; it was shown by the First Division at Omaha Beach, by the Second Ranger Battalion as it crossed the Purple Heart Valley, by the 101st as it stood at Bastogne; it was shown at the Bulge, at the Rhine, and at victory.

  Wherever freedom has been in danger, Americans with a deep sense of patriotism have ever been willing to stand at Armageddon and strike a blow for liberty and the Lord."

  On The Individualistic Element

  "The American Constitution has set down for all men to see the essentially Christian and American principle that there are certain rights held by every man which no government and no majority, however powerful, can deny.

  Conceived in Grecian thought, strengthened by Christian morality, and stamped indelibly into American political philosophy, the right of the individual against the State is the keystone of our Constitution. Each man is free.

  • He is free in thought.
  • He is free in expression.
  • He is free in worship.

  To us, who have been reared in the American tradition, these rights have become part of our very being. They have become so much a part of our being that most of us are prone to feel that they are rights universally recognized and universally exercised. But the sad fact is that this is not true. They were dearly won for us only a few short centuries ago and they were dearly preserved for us in the days just past. And there are large sections of the world today where these rights are denied as a matter of philosophy and as a matter of government.

  We cannot assume that the struggle is ended. It is never-ending.

  Eternal vigilance is the price of liberty. It was the price yesterday. It is the price today, and it will ever be the price.

  May God grant that, at some distant date, on this day, and on this platform, the orator may be able to say that these are still the great qualities of the American character and that they have prevailed."

  May you have a happy, safe and blessed "Independence Day."

  

  

  

  

  

• Athenian Democracy vs. Neoliberal Gods

  Authored by Pepe Escobar, originally posted at SputnikNews.com,

  Prime Minister Alexis Tsipras allows the Greek people to decide their own fate via a democratic referendum. That’s enough to send the troika – the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) – into a paroxysm of rage. Here, in a nutshell, is everything one needs to know about the EU “dream”.

  Tsipras is, of course, right; he had to call a referendum because the troika had delivered “an ultimatum towards Greek democracy and the Greek people.” Indeed, “an ultimatum at odds with the founding principles and values of Europe.”

  But why? Because the apparently so sophisticated politico-economic web of European “institutions” – the EC, the Eurogroup, the ECB – had to come up with a serious political decision; and due, essentially, to their nasty mix of greed and incompetence, they were incapable of making it. At least EU citizens now start to get the picture on who their enemy is: the non-transparent “institutions” who supposedly represent them.  

  The – so far — 240 billion euro bailout of Greece (which featured Greece being used to launder bailouts of French and German banks) has yielded a whole national economy shrinking by over 25%; widespread unemployment; and poverty soaring to unprecedented levels. And for the EU “institutions” – plus the IMF – there was never any Plan B; it was the euro-austerity way – a sort of economic Shock and Awe — or the (desperation) highway. The pretext was to “save the euro”. What makes it even more absurd is that Germany simply couldn’t care less if Greece defaults and a Grexit is inevitable.

  And even though the EU operates in practice as a clumsy, reactionary behemoth, the puzzling spectacle remains of otherwise reputable intellectuals, such as Jurgen Habermas, denouncing the Syriza party as “nationalistic” and praising former Goldman Sachs golden boy, ECB president Mario Draghi.

  Waiting for Diogenes

  The July 5 referendum goes way beyond Greeks responding whether they accept or reject more humongous tax hikes and pension cuts (affecting many that are already below the official poverty line); that’s the sine qua non by the troika — qualified as “barbaric measures” by many a Greek minister — to unblock yet another bailout.

  A case can be made that a more pertinent referendum on July 5 would be posing this question: “What is the red line for Greece to remain part of the euro?” 

  Prime Minister Tsipras and Finance Minister Varoufakis turned upside down insistent rumors that they would accept any humiliation to remain in the eurozone. That only served to radicalize even more the German politico-economic elite – from Iron Lady Merkel to Finance Minister Schauble. Their not so hidden “secret” is that they want Greece out of the euro now.

  And that is leading quite a few Greeks — who still believed in the benefits of a supposedly common financial house – to slowly start accepting a Grexit. With their heads held high.

  The ECB has not gone totally nuclear – yet, crashing the whole Greek banking sector. But by de facto capping the Emergency Liquidity Assistance (ELA) this past weekend, all hell will break loose if millions of Greeks decide to withdraw all their savings early this week, ahead of the referendum.

  The Bank of Greece, “as a member of the Eurosystem”, as a communiqué stressed, “will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.” This implies serious limits on bank withdrawals – thus allowing Greece to survive until referendum day.

  Still, no one knows what happens after July 5. Grexit remains a distinct possibility. Projecting further, and taking a leaf from Wagner’s Ring, it also seems clear that the euro “institutions” themselves have been adding fuel to the fire that may eventually consume the eurozone – a direct consequence of their zeal to immolate the Greeks just like Brunnhilde.

  What Greece – the cradle of Western civilization — has already shown the world should make their citizens proud; nothing like a shot of democracy to make the Gods of Neoliberalism go berserk.

  One may be tempted to invoke a post-modern Diogenes, the first homeless philosopher, with a lantern, looking for an honest man (in Brussels? Berlin? Frankfurt?) and never finding one. But instead of meeting the greatest celebrity of the day – Alexander the Great — let’s imagine another encounter as our post-mod Diogenes suns himself in an outdoor court in Athens.

  “I am Wolfgang Schauble, the Lord of German finance.”

   

  “I am Diogenes the Cynic.”

   

  “Is there any favor that I may bestow upon you?”

   

  “Yes. Stand out of my light.” 

  

  

  

  

  

• Citigroup Just Cornered The "Precious Metals" Derivatives Market

  One week ago, when we scoured through the latest OCC quarterly derivative report (in which we find that the top FDIC insured 4 US banks continue to account for over 90%, or $185.5 trillion of all outstanding derivatives which as of March 31 amounted to $203 trillion; nothing new here), we found something fascinating: based on the OCC’s derivative update, JPM had literally cornered the commodity derivatives complex, when from “just” $226 billion in total Commodity exposure, JPM’s notional soared by 1,690% in one quarter to $4 trillion, or about 96% of total.

  

   

  Some, without even bothering to read the article, did what they always do when reacting to Zero Hedge articles: accused it of writing a “wrong” post first and asking questions later and coming up with some utterly incorrect response to show just how wrong Zero Hedge was because, guess what, the Office of the US Currency Comptroller had clearly “fat fingered” trillions in critical data which is far more logical.

  As usually happens in these situations, Zero Hedge was right (there was some tongue in cheek apology but hey, at least someone got to boost their traffic briefly by namedropping this web site; incidentally apology accepted), which could have been checked simply just by looking at bank call reports, in this case the quarterly Regulatory Capital report, schedule RC-R, which made it very clear that indeed JPM’s OTC commodity derivatives had exploded to $4 trillion.

  For those too lazy to check before tweeting, here is the number of OTC cleared “Other” commodity derivatives for JPM before, as of December 31:

  

   

  And after, as of March 31:

  

   

  Furthermore, while we await the OCC to respond to our inquiry (we aren’t holding our breath), nobody has disputed our claim (because it is purely factual) that as of Q1 the OCC decided to exclude Gold as a separate commodity category (see call reports above) and lump it in with Foreign Exchange for some still unexplained reason. It would appear that gold is money after all…

  So to summarize: as we reported first (and we would be delighted if other so called financial experts dedicated as much effort to digging through the primary data as they have to desperately try to disprove our article), JPM has indeed cornered the OTC commodity market, with its $4 trillion in “Other” commodity derivatives which amount to 96% of total. We don’t expect anyone to ask Jamie Dimon about this on the quarterly earnings call because this is one of those things one doesn’t want an answer to if one wishes to be invited to the next conference call.

  However, another big question remains: just what is Citigroup – not, not JPMorgan – with the Precious Metals category.

  Here is the chart showing Citigroup’s Precious Metals (mostly silver now that gold is lumped in with FX), exposure over the past 4 years. Of note: the 1260% increase in Precious Metals derivative holdings in the past quarter, from just $3.9 billion to $53 billion!

  

   

  For those of a skeptical bent the proof can be found in Citi’s own call report, which can be seen here as of March 31, 2015 vs December 31, 2014.

  Another way of showing what Citi just did with the “Precious Metals” derivative category, is the following chart which shows Citi’s total PM derivative exposure as a percentage of total.

  

   

  Soaring from just 17.4% to over 70%, there is just one word for what Citigroup has done to what the Precious Metals ex Gold (i.e., almost exclusively silver) derivatives market.

  Cornering.

  So, the question then is: just what is Citigroup doing with its soaring Precious Metals (excluding gold) exposure, and why is such a dramatic place taking place at precisely the time when not only JPM is cornering the entire “Other” Commodity derivatives market in the form of a whopping $4 trillion in derivatives notional, but in the quarter after none other than Citigroup itself was responsible for drafting the swaps push-out language in the Omnibus bill.

  

  And also: how is it legal that JPM is solely accountable for 96% of all commodity derivatives while Citigroup is singlehandedly responsible for over 70% of all “precious metals” derivatives? Surely even by the most lax standards this is illegal, but what makes the farce even greater is that all of this taking place out of FDIC-insured entities!

  The final question, which we are absolutely certain will remain unanswered, is whether any of these dramatic surges have anything to do with the recent move in precious metals prices, or rather the complete lack thereof, even as Europe is on the verge of its first member officially exiting the Eurozone, and China’s stock market is suffering its worst market crash since 2008. Oh, and we almost forgot: with both JPM and Citi now well over 50% of the derivatives market in two critical categories, who is the counterparty!?

  We have inquired with the OCC about both the derivative moves of both JPM’s “commodity” and Citi “precious metals” surges, both rising by over 1000% in the past quarter. We will promptly inform readers if we hear back, which we won’t.

  

  

  

  

  

• Happy Independence Day, Brought To You By The Chinese

  Home of the sugar babies and the land of free trade, happy Independence Day America…brought to you by the Chinese.

  

  

   

  Source: Daniel Drew’s Dark-Bid.com

  

  

  

  

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• The Superpower Conundrum – The Rise and Fall of Just About Everything

  Submitted by Tom Engelhardt via TomDispatch.com,

  The rise and fall of great powers and their imperial domains has been a central fact of history for centuries.  It’s been a sensible, repeatedly validated framework for thinking about the fate of the planet.  So it’s hardly surprising, when faced with a country once regularly labeled the “sole superpower,” “the last superpower,” or even the global “hyperpower” and now, curiously, called nothing whatsoever, that the “decline” question should come up.  Is the U.S. or isn’t it?  Might it or might it not now be on the downhill side of imperial greatness?

  Take a slow train — that is, any train — anywhere in America, as I did recently in the northeast, and then take a high-speed train anywhere else on Earth, as I also did recently, and it’s not hard to imagine the U.S. in decline.  The greatest power in history, the “unipolar power,” can’t build a single mile of high-speed rail?  Really?  And its Congress is now mired in an argument about whether funds can even be raised to keep America’s highways more or less pothole-free.

  Sometimes, I imagine myself talking to my long-dead parents because I know how such things would have astonished two people who lived through the Great Depression, World War II, and a can-do post-war era in which the staggering wealth and power of this country were indisputable.  What if I could tell them how the crucial infrastructure of such a still-wealthy nation — bridges, pipelines, roads, and the like — is now grossly underfunded, in an increasing state of disrepair, and beginning to crumble?  That would definitely shock them.

  And what would they think upon learning that, with the Soviet Union a quarter-century in the trash bin of history, the U.S., alone in triumph, has been incapable of applying its overwhelming military and economic power effectively?  I’m sure they would be dumbstruck to discover that, since the moment the Soviet Union imploded, the U.S. has been at war continuously with another country (three conflicts and endless strife); that I was talking about, of all places, Iraq; and that the mission there was never faintly accomplished.  How improbable is that?  And what would they think if I mentioned that the other great conflicts of the post-Cold-War era were with Afghanistan (two wars with a decade off in-between) and the relatively small groups of non-state actors we now call terrorists?  And how would they react on discovering that the results were: failure in Iraq, failure in Afghanistan, and the proliferation of terror groups across much of the Greater Middle East (including the establishment of an actual terror caliphate) and increasing parts of Africa?

  They would, I think, conclude that the U.S. was over the hill and set on the sort of decline that, sooner or later, has been the fate of every great power. And what if I told them that, in this new century, not a single action of the military that U.S. presidents now call “the finest fighting force the world has ever known” has, in the end, been anything but a dismal failure?  Or that presidents, presidential candidates, and politicians in Washington are required to insist on something no one would have had to say in their day: that the United States is both an “exceptional” and an “indispensible” nation? Or that they would also have to endlessly thank our troops (as would the citizenry) for… well… never success, but just being there and getting maimed, physically or mentally, or dying while we went about our lives? Or that those soldiers must always be referred to as “heroes.”

  In their day, when the obligation to serve in a citizens' army was a given, none of this would have made much sense, while the endless defensive insistence on American greatness would have stood out like a sore thumb. Today, its repetitive presence marks the moment of doubt. Are we really so “exceptional”? Is this country truly “indispensible” to the rest of the planet and if so, in what way exactly? Are those troops genuinely our heroes and if so, just what was it they did that we’re so darn proud of?

  Return my amazed parents to their graves, put all of this together, and you have the beginnings of a description of a uniquely great power in decline. It’s a classic vision, but one with a problem.

  A God-Like Power to Destroy

  Who today recalls the ads from my 1950s childhood for, if I remember correctly, drawing lessons, which always had a tagline that went something like: What’s wrong with this picture?  (You were supposed to notice the five-legged cows floating through the clouds.)  So what’s wrong with this picture of the obvious signs of decline: the greatest power in history, with hundreds of garrisons scattered across the planet, can’t seem to apply its power effectively no matter where it sends its military or bring countries like Iran or a weakened post-Soviet Russia to heel by a full range of threats, sanctions, and the like, or suppress a modestly armed terror-movement-cum-state in the Middle East?

  For one thing, look around and tell me that the United States doesn’t still seem like a unipolar power.  I mean, where exactly are its rivals?  Since the fifteenth or sixteenth centuries, when the first wooden ships mounted with cannons broke out of their European backwater and began to gobble up the globe, there have always been rival great powers — three, four, five, or more.  And what of today?  The other three candidates of the moment would assumedly be the European Union (EU), Russia, and China.

  Economically, the EU is indeed a powerhouse, but in any other way it’s a second-rate conglomeration of states that still slavishly follow the U.S. and an entity threatening to come apart at the seams.  Russia looms ever larger in Washington these days, but remains a rickety power in search of greatness in its former imperial borderlands.  It’s a country almost as dependent on its energy industry as Saudi Arabia and nothing like a potential future superpower.  As for China, it’s obviously the rising power of the moment and now officially has the number one economy on Planet Earth.  Still, it remains in many ways a poor country whose leaders fear any kind of future economic implosion (which could happen).  Like the Russians, like any aspiring great power, it wants to make its weight felt in its neighborhood — at the moment the East and South China Seas.  And like Vladimir Putin’s Russia, the Chinese leadership is indeed upgrading its military.  But the urge in both cases is to emerge as a regional power to contend with, not a superpower or a genuine rival of the U.S.

  Whatever may be happening to American power, there really are no potential rivals to shoulder the blame.  Yet, uniquely unrivaled, the U.S. has proven curiously incapable of translating its unipolar power and a military that, on paper, trumps every other one on the planet into its desires.  This was not the normal experience of past reigning great powers.  Or put another way, whether or not the U.S. is in decline, the rise-and-fall narrative seems, half-a-millennium later, to have reached some kind of largely uncommented upon and unexamined dead end.

  In looking for an explanation, consider a related narrative involving military power.  Why, in this new century, does the U.S. seem so incapable of achieving victory or transforming crucial regions into places that can at least be controlled?  Military power is by definition destructive, but in the past such force often cleared the ground for the building of local, regional, or even global structures, however grim or oppressive they might have been.  If force always was meant to break things, it sometimes achieved other ends as well.  Now, it seems as if breaking is all it can do, or how to explain the fact that, in this century, the planet’s sole superpower has specialized — see Iraq, Yemen, Libya, Afghanistan, and elsewhere — in fracturing, not building nations.

  Empires may have risen and fallen in those 500 years, but weaponry only rose. Over those centuries in which so many rivals engaged each other, carved out their imperial domains, fought their wars, and sooner or later fell, the destructive power of the weaponry they were wielding only ratcheted up exponentially: from the crossbow to the musket, the cannon, the Colt revolver, the repeating rifle, the Gatling gun, the machine gun, the dreadnaught, modern artillery, the tank, poison gas, the zeppelin, the plane, the bomb, the aircraft carrier, the missile, and at the end of the line, the “victory weapon” of World War II, the nuclear bomb that would turn the rulers of the greatest powers, and later even lesser powers, into the equivalent of gods.

  For the first time, representatives of humanity had in their hands the power to destroy anything on the planet in a fashion once imagined possible only by some deity or set of deities.  It was now possible to create our own end times.  And yet here was the odd thing: the weaponry that brought the power of the gods down to Earth somehow offered no practical power at all to national leaders.  In the post-Hiroshima-Nagasaki world, those nuclear weapons would prove unusable.  Once they were loosed on the planet, there would be no more rises, no more falls.  (Today, we know that even a limited nuclear exchange among lesser powers could, thanks to the nuclear-winter effect, devastate the planet.)

  Weapons Development in an Era of Limited War

  In a sense, World War II could be considered the ultimate moment for both the narratives of empire and the weapon.  It would be the last “great” war in which major powers could bring all the weaponry available to them to bear in search of ultimate victory and the ultimate shaping of the globe.  It resulted in unprecedented destruction across vast swathes of the planet, the killing of tens of millions, the turning of great cities into rubble and of countless people into refugees, the creation of an industrial structure for genocide, and finally the building of those weapons of ultimate destruction and of the first missiles that would someday be their crucial delivery systems.  And out of that war came the final rivals of the modern age — and then there were two — the “superpowers.”

  That very word, superpower, had much of the end of the story embedded in it.  Think of it as a marker for a new age, for the fact that the world of the “great powers” had been left for something almost inexpressible.  Everyone sensed it.  We were now in the realm of “great” squared or force raised in some exponential fashion, of “super” (as in, say, “superhuman”) power.  What made those powers truly super was obvious enough: the nuclear arsenals of the United States and the Soviet Union — their potential ability, that is, to destroy in a fashion that had no precedent and from which there might be no coming back.  It wasn’t a happenstance that the scientists creating the H-bomb sometimes referred to it in awestruck terms as a “super bomb,” or simply “the super.”

  The unimaginable had happened.  It turned out that there was such a thing as too much power.  What in World War II came to be called “total war,” the full application of the power of a great state to the destruction of others, was no longer conceivable.  The Cold War gained its name for a reason.  A hot war between the U.S. and the USSR could not be fought, nor could another global war, a reality driven home by the Cuban missile crisis.  Their power could only be expressed “in the shadows” or in localized conflicts on the “peripheries.”  Power now found itself unexpectedly bound hand and foot.

  This would soon be reflected in the terminology of American warfare.  In the wake of the frustrating stalemate that was Korea (1950-1953), a war in which the U.S. found itself unable to use its greatest weapon, Washington took a new language into Vietnam. The conflict there was to be a “limited war.”  And that meant one thing: nuclear power would be taken off the table.

  For the first time, it seemed, the world was facing some kind of power glut.  It’s at least reasonable to assume that, in the years after the Cold War standoff ended, that reality somehow seeped from the nuclear arena into the rest of warfare.  In the process, great power war would be limited in new ways, while somehow being reduced only to its destructive aspect and nothing more.  It suddenly seemed to hold no other possibilities within it — or so the evidence of the sole superpower in these years suggests.

  War and conflict are hardly at an end in the twenty-first century, but something has removed war's normal efficacy.  Weapons development has hardly ceased either, but the newest highest-tech weapons of our age are proving strangely ineffective as well.  In this context, the urge in our time to produce “precision weaponry” — no longer the carpet-bombing of the B-52, but the “surgical” strike capacity of a joint direct attack munition, or JDAM — should be thought of as the arrival of “limited war” in the world of weapons development.

  The drone, one of those precision weapons, is a striking example.  Despite its penchant for producing “collateral damage,” it is not a World War II-style weapon of indiscriminate slaughter.  It has, in fact, been used relatively effectively to play whack-a-mole with the leadership of terrorist groups, killing off one leader or lieutenant after another.  And yet all of the movements it has been directed against have only proliferated, gaining strength (and brutality) in these same years.  It has, in other words, proven an effective weapon of bloodlust and revenge, but not of policy.  If war is, in fact, politics by other means (as Carl von Clausewitz claimed), revenge is not.  No one should then be surprised that the drone has produced not an effective war on terror, but a war that seems to promote terror.

  One other factor should be added in here: that global power glut has grown exponentially in another fashion as well.  In these years, the destructive power of the gods has descended on humanity a second time as well — via the seemingly most peaceable of activities, the burning of fossil fuels.  Climate change now promises a slow-motion version of nuclear Armageddon, increasing both the pressure on and the fragmentation of societies, while introducing a new form of destruction to our lives.

  Can I make sense of all this?  Hardly.  I’m just doing my best to report on the obvious: that military power no longer seems to act as it once did on Planet Earth.  Under distinctly apocalyptic pressures, something seems to be breaking down, something seems to be fragmenting, and with that the familiar stories, familiar frameworks, for thinking about how our world works are losing their efficacy.

  Decline may be in the American future, but on a planet pushed to extremes, don’t count on it taking place within the usual tale of the rise and fall of great powers or even superpowers. Something else is happening on Planet Earth. Be prepared.

  

  

  

  

  

• Greeks Turn To Bitcoin To Dodge Capital Controls

  There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. As Reuters reports, although absolute figures are hard to come by, Greek interest has surged in the online "cryptocurrency", as new customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400% between May and June.

  As Reuters reports,

  Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country.

   

  "When people are trying to move money out of the country and the state is stopping that from taking place, bitcoin is the only way to move any value," said Adam Vaziri, a board member of the UK Digital Currency Association.

   

  "There aren't any other options unless you buy diamonds, and that's very difficult to move."

   

  But Marinos said the bitcoin buyers' main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency. If voters reject the demands of international creditors in a referendum on Sunday, this becomes much more likely.

   

  "A lot of people are keeping all the bitcoins they buy on our platform, until they understand what to do with them," Marinos said. "In their eyes, now they have bitcoins, they're safe."

  *  *   *

  With Bitcoin having surged from $238 to $268 in the last few days since Greek PM Tsipras announced Greferendum, it is clear it's not just the Greeks that are losing faith in faith-based fiat currencies.

  

   

  Ironically, on June 20, Greece got its first bitcoin "ATM", in a family-run bookstore in Acharnes on the outskirts of Athens.

  

  

  

  

  

  

• FBI Admits 11 Attacks Against Internet, Power Grid Lines In California This Year

  Submitted by Joshua Krause via SHTFPlan.com,

  On Tuesday, someone broke into an underground vault in Sacramento, and cut several high-capacity internet cables. Nobody knows who this person is or why they did it, but since that time the FBI has revealed that it was not an isolated incident. They’ve been investigating 10 other recent attacks on the internet infrastructure of California, and they seem to be deeply troubled by the vulnerability of these cables.

  The FBI is investigating at least 11 physical attacks on high-capacity Internet cables in California’s San Francisco Bay Area dating back a year, including one early Tuesday morning.

   

  Agents confirm the latest attack disrupted Internet service for businesses and residential customers in and around Sacramento, the state’s capital.

   

  FBI agents declined to specify how significantly the attack affected customers, citing the ongoing investigation. In Tuesday’s attack, someone broke into an underground vault and cut three fiber-optic cables belonging to Colorado-based service providers Level 3 and Zayo.

   

  The attacks date back to at least July 6, 2014, said FBI Special Agent Greg Wuthrich.

   

  “When it affects multiple companies and cities, it does become disturbing,” Wuthrich said. “We definitely need the public’s assistance.”

  A security professional who was interviewed for that article, also suggested something that should perk the ears of any American that hears it.

  “When it’s situations that are scattered all in one geography, that raises the possibility that they are testing out capabilities, response times and impact,” Thompson said. “That is a security person’s nightmare.”

  The article goes on to compare these incidents to similar attacks that happened in Arizona last year, as well as California in 2009. However, they may be missing the bigger picture. This whole situation reminds me of an article I wrote just over a year ago about several attacks that were carried out against the power grid, which again, occurred in California and Arizona (weird right?). This included the very unsettling attack against a power station in San Jose, which wasn’t revealed until 10 months after the fact, and to date, there has been no explanation for the incident.

  Rather than a bomb, the San Jose attack turned out to be a frighteningly coordinated shooting. It’s estimated that 6 individuals approached the facility late at night armed with AK-47’s, and opened fire, but not before sneaking onto the property and disabling the alarm system. The attackers managed to disrupt a total of 10 transformers, and escaped just before police arrived. Investigators would later find more evidence of just how professional the attack was:

   

  “After walking the site with PG&E officials and FBI agents, Mr. Wellinghoff said, the military experts told him it looked like a professional job. In addition to fingerprint-free shell casings, they pointed out small piles of rocks, which they said could have been left by an advance scout to tell the attackers where to get the best shots.”

  It should be abundantly clear now that some organization out there is quietly coordinating small-scale attacks against America’s power grid and internet lines. In my previous article, I suggested that they’re probing our infrastructure for weaknesses, and gauging reaction times and security. I still think that may be the case.

  It’s possible that these attacks are all unrelated, but it sure doesn’t look like it to me. I won’t suggest who may be doing it since it’s impossible to know for sure, but it definitely looks like there is an organized effort of some kind to disable the electricity and communications of Arizona and California. We probably won’t know who it is until they get around to a full-scale attack, which given the vulnerability of America’s power grid, may be absolutely devastating.

  

  

  

  

  

• The $100 Trillion Bond Bubble Just Burst

  The big story in the world is the bond bubble.

   

  For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.

   

  The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.

   

  The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’s money, they play along.

   

  When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from.

   

  When actual bills came due to fund this stuff, Governments quickly discovered that current tax revenues couldn’t cover it… so they issued sovereign debt to make up the difference.

   

  And so the bond bubble was created.

   

  The large banks, that have a monopoly on managing sovereign debt auctions, were only too happy to play along with this. The reasons are as follows:

   

  1)   They can use these alleged “risk-free” assets as collateral to backstop tens of trillions worth of derivatives trades. A $1 million investment in your typical US Treasury can backstop over $15 million worth of derivatives if not more. The profits from the derivatives markets remains a primary source of revenue for the banks.

   

  2)   Sovereign Governments are only too happy to bail out the big banks if the stuff ever hits the fan on the trades that are backstopped by the sovereign debt (see 2006 onwards). Since the banks are the ones holding the sovereign debt, they can always threaten to dump bonds, which would render the whole social welfare Ponzi bankrupt (see what happened in Europe when sovereign bonds collapsed in 2011-2012).

   

  3)   In a debt-based financial system such as the current one, sovereign bonds are the senior most assets in the system. Those who own these in bulk are at the top of the financial food chain in terms of financial, economic, and political clout.

   

  Since it was rarely if ever a problem to issue sovereign debt, Governments kept promising future payments that they didn’t have until we reach today: the point at which most Western nations are sporting Debt to GDP ratios well north of 300% when you consider unfunded liabilities (the social spending programs mentioned earlier).

   

  Now, cutting social spending is usually considered political suicide (after all, the voters put you in office in the first place based on you promising to pay them welfare payments down the road). So rather than default on the social contract made with voters, the political class will simply push to issue MORE debt to finance old debt that is coming due.

   

  The US did precisely this in the fourth quarter of 2014, issuing over $1 trillion in new debt simply to pay back old debt that was coming due.

   

  This is how the bond market becomes a bubble. Between 2000 and today, the global bond market has nearly TRIPLED in size. Today, it’s north of $100 trillion in size. And it’s backstopping over $555 trillion in derivatives trades.

   

  There is literally no easy fix to any of this. The pain will be severe. And so everyone in charge of the important decisions (the political elite, the big banks, and the Central Banks) will push this as far as it can possibly go before taking the inevitable hit.

   

  Greece just took a hit… and once again it’s depositors that will take it on the chin. But this process is only just begun. Similar Crises will be spreading throughout the globe in  the coming months.

   

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

   

  You can pick up a FREE copy at:

   

  http://www.phoenixcapitalmarketing.com/roundtwo.html

   

   

  Best Regards

   

  Phoenix Capital Research

   

   

   

   

  

  

  

  

• BofA's Dire Prediction: Only Direct Government Buying Can Save China Stocks Now

  Even after this somewhat catastrophic drop, BofAML warns the Chinese market looks expensive. Deleveraging is likely far from over, they add, concluding that the market is a “falling knife” and only direct buying by the government will mark the bottom.

   

   

  

   

  Via BofAML,

  Bottom likely when govt becomes buyer of last resort

   

  After reaching a peak of 5,166 on Jun 12, SHCOMP declined sharply by almost 30% to 3,687 within three weeks. The ferociousness of the sell-off even took us by surprise – although we have a 3,600 target for the index, we thought it would take another six months to get there. Given the momentum, the market bottom is highly unpredictable. As a result, we suggest investors stay on the sidelines for the time being. A few points worth highlighting:

   

  The market is now a “falling knife”: even after all the government directed marketsupporting measures since last Saturday, including comb rate/RRR cuts, CSRC’s loosening of margin lending control & its cracking down on shorting activities, and organized commentaries from high profile local fund managers, the market still dropped sharply on four of the last five trading days and fell decisively through the psychologically important 4,000 level for SHCOMP. The market has clearly lost its nerve and many investors appear to be rushing to exit.

   

  Drastic times calls for drastic measures: the government still has a few policies up its sleeve: it may get affiliated funds such as Huijin and the pension fund to buy, CSRC may suspend IPOs, insurance companies may be encouraged to enter into the market, MoF may cut stamp duty on stock transactions, and PBoC may announce more easing measures, among other possibilities. However, whether or when these policies can stabilize market sentiment is highly uncertain in our view – margin call pressure from unauthorized margin facilities appears enormous; even for those investors not under any immediate margin call pressure, they need to be convinced that the market will go up meaningfully for their leveraged positions to break even (due to high funding costs).

   

  Deleveraging in the market is likely far from over: margin outstanding only declined moderately from the peak of Rmb2.3tr on June 18 to Rmb2.1tr by July 2. Deleveraging from unregulated margin channels is likely to be more substantial. Nevertheless, looking at the relatively subdued turnover in recent days, we doubt a significant portion of the positions had been unwound. The 10% limit-down rule is delaying a market clearance.

   

  The government to become the buyer of the last resort? All the potential measures mentioned above will largely work on sentiment as direct inflows from these government affiliated entities will likely be moderate by our estimate. If the government fails to turn around sentiment quickly, it may have no choice but to become the buyer of the last resort in the market, similar to what HKMA did in 1998. Even then, things can be complicated: much of the unauthorized margins were used to buy small cap stocks. So the authority, with or without PBoC’s direct involvement, may have to buy stocks on a very large & very broad scale. If and when this happens, it will mark the true market bottom in the short term, in our view.

   

  Even after the fall, the market looks expensive: some short term technical bounces aside after things stabilize, we suspect that the A-share market may enter into a multiyear bear market. The large losses could hurt current investors’ psychology severely and it may be years before the pain fades and/or a new generation of investors with no such bad memory emerges. Meanwhile, SHCOMP is still trading at 17x trailing 12M PER (31x ex. banks), with economic growth stalling and market earnings rapidly decelerating.

  *  *  *

  As Deutsche adds,

  “so large are the losses for the 20 million accounts
  opened from mid-April to mid-June that in aggregate no money has been
  made for 2 years.”

  Now who could have seen that coming?

   

  

  Now it makes all the sense in the world that China stopped publishing data as we were the only ones who noticed.

  

  

  

  

  

• Sugar Daddies Are Paying Their Share Of The $1.3 Trillion Student Loan Balance

  Submitted by Daniel Drew via Dark-Bid.com,

  As noted previously, we are in a new dark age where college does not pay. At $1.3 trillion, the student debt balance is not getting any smaller. Facing a lifetime of debt slavery, the millennial generation is doing whatever they can to avoid homelessness. Whether it's stripping or working at Rent A Gent, all options are on the table. Now, they are flocking to Seeking Arrangement to prostitute themselves so they can pay for school. Since 2009, the number of student sugar babies has increased by 1,200%!

  The labor force participation rate for college graduates has been on a relentless downtrend.

  

  It is getting even more expensive to go to school. Even after adjusting for inflation, college costs have gone up more than 400% in the last 30 years.

  

  The student loan balance has nearly tripled in the last decade.

  

  Many young people don't see any good alternatives to going to school, so they jump in head first. Facing enormous bills, they turn to sites like Seeking Arrangement for help. These aren't just women either. 15% of student sugar babies are men, and plenty of sugar mommas are on the site too.

  Here are the numbers.

  

  And here are the sugar babies by major.

  

  The abundance of nurses on Seeking Arrangement shouldn't be surprising for regular readers. Personal care aides and nurses are the fastest growing jobs in America.

  

  Here are the perks of Seeking Arrangement.

  

  And here are the sugar babies.

  

  Previously, it was common for students to take food and service jobs, but soon, you will hear college students casually sharing their day with their sugar daddy. Welcome to the modern hooker economy.

  

  

  

  

• Artist's Impression Of A Greek ATM

  It’s what goes unsaid that matters…

   

  

  
  

  Source: Cagle.com

  

  

  

  

  

• Arctic Drilling Future Now Rests On One Well

  Submitted by Charles Kennedy via OilPrice.com,

  Royal Dutch Shell is nearing a start to drilling in the Arctic, but has run into some hiccups.

  The U.S. government decided that Shell cannot actually drill both of its wells in the Chukchi Sea as planned. The Interior Department said that doing so would run afoul of its rules that protect marine life. According to those regulations, which were issued in 2013, exploration companies cannot drill two wells within 15 miles of each other. Shell had planned to drill two wells in the Burger prospect within a 9 mile range.

  Environmental groups hoped that the Interior Department would throw out Shell’s drilling plan altogether, owing to the fact that the environmental assessment the agency conducted was based on the two-well drilling plan, according to Jennifer Dlouhy of Fuel Fix. Environmental groups argued that since the Interior Department didn’t actually conduct an assessment of a drilling plan consisting of just one well, the entire drilling program should be scrapped.

  Interior didn’t buy these arguments, but still ruled that Shell can only drill one well this summer. Shell reiterated that it would move forward with drilling the lone well in the Arctic this year, having committed around $1 billion for the program.

  Shell announced that it expects to be able to begin drilling by the third week in July after sea ice has melted sufficiently. Shell is still awaiting one last federal permit before it can begin drilling, and it is also awaiting the arrival of its second drilling rig in Alaska.

  Separately, several oil companies recently announced that they were putting their Arctic plans on ice. A joint venture between Imperial Oil, ExxonMobil, and BP decided to shelve plans for exploration in the Canadian Arctic. They had permits that will expire in 2019 and 2020, and the group says that they will not be able to drill before then. More research is needed and since the companies are running out of time, they have decided to suspend work and lobby the Canadian government for an extension.

  Last year Chevron decided to suspend its plans to drill in the Beaufort Sea after the collapse in oil prices made doing so unattractive. The move by Imperial and its partners likely puts any significant drilling in the Canadian Arctic on hold indefinitely.

  As such, Arctic drilling in North America will come down to Shell’s one well in the Chukchi Sea.

  

  

  

  

  

• Gold Bullion Dealer Unexpectedly "Suspends Operations" Due To "Significant Transactional Delays"

  What makes the current sovereign default episode different from previous ones is the uncanny stability and lack of buying of “fiat remote” assets such as gold and silver, and to a lesser extent, digital currency such as bitcoin. Indeed, all throughout the Greek pre-default escalation and ultimately, sovereign bankruptcy to the IMF, it seemed as if there was an absolute aversion to the peak of Exter’s inverted pyramid.

  What is even more surprising about the lack of any gold price upside is that it is not due to lack of demand. Quite the contrary, because as Bloomberg wrote last week, “European investors are increasing purchases of gold as Greece’s turmoil boosts the appeal for an alternative to the euro.”

  Demand from Greek customers for Sovereign gold coins was double the five-month average in June, the U.K. Royal Mint said in an e-mailed statement. CoinInvest.com, an online retailer, said sales on Saturday and Sunday were the highest since Cyprus limited cash withdrawals in 2013, driven by a jump in German, French and Greek buyers.

   

  Investors are searching for a safe haven after Greece imposed capital controls, closed banks and stopped selling gold coins to the public until at least July 6. Chancellor Angela Merkel on Monday said Germany is still open to negotiations if Greece wants.

   

  “Most of our common gold coins are sold out,” Daniel Marburger, a director of Frankfurt-based CoinInvest.com, said by phone. “When people learned that the Greek banks will be closed, they started to think that it may not be such a bad idea to have some money in gold.”

  The bullion dealers themselves are enjoying a jump in sales to retail customers:

  GoldCore Ltd., which buys and sells bullion, reported coin and bar demand rose “significantly” on Monday. Sales to U.K. and Ireland today are about three times the average for the past three Mondays, the Dublin-based firm said in an e-mailed statement.

   

  The U.S. Mint has sold 61,500 ounces of American Eagle gold coins this month, the most since January.

   

  BullionVault, which says it operates the largest online physical gold trading platform, reported a jump in sales during the first half of this year, a sign of a broader increase.

  However, it is the “paper” gold market where things were most perplexing in recent months. Recall that, as Zero Hedge broke and first reported, in the first quarter of the year, or the same time the Syriza government took power, something very dramatic took place in the US derivatives market, where first JPM saw an absolute explosion of its commodity derivative holdings (a broad umbrella which is not broken down further):

  

   

  … coupled wih Citi’s surge in “precious metals” derivatives which soared from $3.9 billion to $42 billion.

  

  

   

  But what is most confusing is how even as physical metal demand clearly rose across Europe in the past few months and the price of paper gold actually declined, perhaps facilitated by some “hedged” derivative positions on the short side of precious metals, some bullion dealers have actually found it impossible to survive, and in the last few days at least one major gold bullion dealer, Bullion Direct, greeted customers with the following notice on its website:

  Bullion Direct has experienced significant transactional delays. To avoid further inconvenience or other adverse consequences to our customers, Bullion Direct is suspending its operations as it attempts to resolve those issues. We intend to keep you informed at this website. Thank you for your patience.

  

   

  Just what are “significant transactional delays” and how bad is the physical gold supply-chain if it can put at least one dealer out of business. Another question: is this a solitary failure by gold vendor due to a one-off problem with working capital, or is something more systemic about to be revealed in the gold bullion sales industry?

  We look forward to finding out, but in the meantime our advice to buyers of physical precious metals is the same as always: if you purchased it and you can’t hold it in your hand, it isn’t yours.

  

  

  

  

• While the World Watches Greece THIS is Happening

  By Chris at www.CapitalistExploits.at

  Watching the ongoing Greek saga unfold is enough to make a blind man grimace. Capital controls which could be seen coming down the track like a freight train are but one more notch on the disaster stick called European Monetary Union.

  Why talk of Greek debt negotiations is even taking place at all is the height of absurdity. It’s akin to discussing how large an area of the desert should be dedicated to growing lettuces. The answer which no Eurocrat is prepared to acknowledge is, “Who cares? Nobody should be so daft as to grow lettuces in the desert”.

  Let’s all be honest, shall we. What we’re talking about here is foreign aid. It’s not about debt repayments. Nobody is getting repaid. Anyone still clinging to that hope is simultaneously still waiting for Santa to come down the chimney, the Easter bunny to show up and for “liberating” forces to find weapons of mass destruction in Iraq.

  Let’s just table debt talks, call them what they are, which is foreign aid, and move this thing along. The problem with acknowledging the ugly truth is that German banks would then have to write down those “assets” on their balance sheets: “Jeez, it’d just be so much easier if we could keep them at par value and ensure we pick up that bonus at year end. And so we must endure more saga and carry on this game of pretense”.

  While I could spend time on Greece, what I’m more interested in is what few are paying attention to while this Greek saga unfolds.

  That is what is going on with the Chinese yuan.

  We’ve recently made the argument for a weakening yuan. My friend Brad and I both went up against the yuan late last year and Brad detailed his thinking in October of last year, then again in December, where he delved into the Chinese banking system, and once again in March of this year.

  That, ladies and gentlemen, is our current bias. We’re currently short. It’s important to establish one’s bias early on in order to attempt to understand any argument, so now you have ours. Often fund managers are selling a product which leads them into making decisions which have more to do with an agenda than with sufficient critical thought.

  Let me say therefore that we have an opinion right now. But since we are not selling any product, hopefully we can keep our minds open.

  Let’s see where we get to and then I’m going to show you why we have a decent crack at making money without having an opinion either way.

  By many accounts the yuan is one of (if not THE) most overvalued currencies in the world right now. But there are just as many well thought arguments arguing the opposite saying that it is indeed undervalued.

  Both sides have credible and well thought out ideas so let me attempt to summarise the most credible I’ve found.

  Why the Yuan will Rise

  Chinese policy makers are unlikely to let anything take place which rocks the yuan exchange rate boat.

  The yuan fell to 6.28 in early March of this year before the PBOC stepped in and threw $33 billion at the “problem”, reversing the decline and sending it back up to where it trades today around 6.21. They have around $4 trillion in reserves so if, like us, you’re a speculator looking at firepower this is well worth looking at. Clearly the monetary authority is prepared to dip into their vast currency reserves to offset capital outflows and stabilize the yuan.

  The IMF discussions around including the yuan into the SDR basket of reserve currencies (currently the dollar, euro, yen and pound) is something which China has long been courting. Right now, the yuan has posted it’s biggest monthly advance since December 2011, on the heels of or in anticipation of inclusion in the SDR basket by the IMF.

  Amongst other things, what is required is for the yuan to be “fairly valued”. Wild swings in the yuan –  whether up or down – would kill their chances of joining the hallowed ground of the other terrible units of payment.

  In order to meet their criteria it’s essential that the yuan remain stable. Another IMF criteria is that the currency is “freely usable”. In other words, free floating. I’ll come back to this in a minute as I think it’s something overlooked by many observers.

  Why the Yuan will Fall

  On the other side of this argument is the fact that China’s economy is slowing and is facing increased competition from regional players, such as Japan, who are playing the currency card, devaluing their currencies and sucking up export market share.

  A weaker exchange rate would help boost exports and while China is certainly moving towards a domestic consumer supported economy, they are not there yet and manufacturing and exporting to the developed world is still their “bread and butter”.

  Remember I mentioned that part of the IMF criteria is that the currency float freely?

  Well, many believe – and perhaps correctly – that when (or if) the yuan is added and floats freely there will be an almighty rush INTO the yuan. I’ve seen few who believe that this wouldn’t at least in the short-term allow the opposite to happen.

  Consider for a moment that most Chinese have been going to great lengths to get OUT of the yuan. Does it not make sense that when they are allowed to do so there will not be a decent amount of them quite excited with the prospect of moving out of yuan?

  In the simplest of terms the question boils down to the following…

  Upon inclusion into the IMF and a subsequent floating of the yuan, does capital flow into the yuan or out of it?

  The problem with China is that nobody knows the real numbers. Nobody!

  What are the insiders doing? They’re shoveling their money out of the country so fast it’s going to catch fire from the friction. This is what the insiders are doing. That doesn’t mean that suckers won’t come in the other way and we get a strong yuan rally. It’s certainly possible and maybe it’s even probable.

  Fortunately, the market is gifting us an opportunity right now and we don’t have to make that decision.

  I just got off the phone with Brad who told me about me the below pricing of an at the money call option on the yuan (or the offshore yuan, to be more specific). Currently, you’re paying 2.5% premium for a 12-month call option.

  

  Now, take a look at the below chart. You’ll see that buying a 12-month at the money put we’re paying just 0.3%. You can buy 100,000 USD/CNH puts for 12 months at the money and it’ll cost you a mere $300!

  

  To break even on the first trade we need the currency pair to move by 2.5% in our favour within 12 months and on the second trade we need the pair to move by just 0.3% to break even. Pardon me for saying so but that is almost as insane as the Eurocrats discussing Greek debt.

  Buying both is what traders term a “straddle” but don’t get hung up on terminology. The point is that for a 2.8% premium (2.5% + 0.3%) we can hold both positions. We don’t much care which way it moves but simply that it MOVES!

  What could make it move? Well, inclusion at the hallowed table of disreputable currencies currently making up SDRs or of course non-inclusion.

  Either of these events have the potential to create capital flows one way or the other causing the USD/CNH pair to move substantially more than a mere 2.8%.

  Or any of the reasons we delved into in our USD Bull Market report where we detailed why we are short the yuan.

  I’d suggest we’re likely to see MORE not LESS volatility over the next 12 months and the current lack of volatility being priced into the market is just the sort of golden gift which Brad looks for.

  – Chris

   

  “Eppur si muove (And yet it moves).” – Galielo Galilei

  

  

  

  

• Egypt Is On The Edge Of Full Blown Civil War

  Via GEFIRA,

  In the last few days there were dozens of separate attacks in Egypt from the Sinai up to Cairo. Probably more than 60 people died while the Egyptian army used F16 attack plains to protect itself against it disgruntled population. It is clear that the Egyptian rulers will not be able to contain the current situation, today could be marked as the start of Egypt’s civil war.

  Democratic elected governments were violently overthrown, in Algeria, Egypt and  Palestinian territories. In Algeria the FIS  had won the first held elections with a convincing majority in 1990 and 1992. It has been removed from power in 1992 by a coup d’etat that was highly approved by the West. Probably 150.000 people died in the civil war that followed these events up.

  HAMAS winning the 2006 elections in the Palestinian territories resulted in a war among Palestinians and ended up with a split of Gaza and the West Bank

  In 2011 Morsi, leader of the Muslim Brotherhood won the first free elections in Egypt.

  In 2013 the first elected president of Egypt was removed by the army. There are clear signs that anti-democratic forces were deliberately destabilizing Egypt before the coup d’etat in 2013. In the running up of the July 3th coup by General Sisi an artificial oil shortages was created that contributed to the mass protest against the elected president of Egypt.

  The new army coup was financially supported by the Saudi rulers while the West was mute, the only vocalized opposition came from Turkey’s ruler MrErdo?an.

  Washington was silent about Egypt’s coup and even resumed the delivery of military hardware to the Egyptian rulers, at the same moment Morsi received the dead penalty during a mock process.  The situation in Egypt will be much worse than the situation that we saw in Algeria in 1992.

  Libya has been split in 3 parts, the by the West installed and recognized government in Tobruk could be seen as a supporter of the rulers in Cairo. The government in Tripoli is allied with the Muslim Brotherhood party and sees the government in Cairo as a threat to its existence. Both Governments do not rule Libya completely, big parts of Libya are under control of ISIS and other unregulated Islamist groups.

  The war that is coming to Egypt will not be limited to Egypt and will be an extend to Libya’s war, for the sole reason that a lot of fighters and weapons will come over from Lybia.

  The substantial amount of impoverished Egyptians are lacking any perspective and have nothing to lose. It is their party that has been removed from power in 2013.

  The Egyptian army is heavenly weaponized by the USA, there will not be any doubt that those weapons will end up in the hands of Islamist groups. The Egyptian conscript army will be a huge risk for the country’s leaders as army units might switch loyalty.

  Experienced fighters from Syria and Iraq will actively support their brothers in Egypt.

  The new generation of Islamist’s will utilize the internet in their advantage. They will use it to mobilize their supporters and build their case against the Egyptian army and their backers in Riyadh and Washington.

  The Internet will also be used for advanced communications and “crowd reconnaissance”. In Ukraine we have already seen how YouTube and mobile phones were used to pass on enemy’s positions. Modern professional armies are not prepared for new agile tactics that will be utilized by a new Islamic internet generation.

  As the Muslim Brotherhood is enjoying massive amounts of support we are expecting that the situation in Egypt will deteriorate at the same pace as we have seen in Syria.

  The Egyptian rulers will not be able to contain the current situation, today could easily be recorded as the start of Egypt’s big civil war.

  *  *  *

  Sources:

  Algerian Civil War Source Wikipedia
  Bouteflika said in 1999 that 100,000 people had died by that time and in a speech on 25 February 2005, spoke of a round figure of 150,000 people killed in the war.[5] Fouad Ajami argues the toll could be as high as 200,000, and that it is in the government’s interest to minimize casualties

  Egypt’s Gas Shortage Fuels June 30 Protests Al Monitor June 2013
  The latest gas crisis falls prior to the highly anticipated June 30 protests called by the Tamarrud movement demanding that Morsi step down for his failure to achieve any of the revolution’s goals

  Libya supreme court rules anti-Islamist parliament unlawful Source The Guardian 6 November 2014
  In a blow to anti-Islamist factions, Libya’s highest court has ruled that general elections held in June were unconstitutional and that the parliament and government which resulted from that vote should be dissolved.

  Mohammed Morsi death sentence upheld by Egypt court Source BBC 16 June 2015
  The sentence was initially passed in May, but was confirmed after consultation with Egypt’s highest religious figure, the Grand Mufti. The death sentences of five other leading members of the Muslim Brotherhood, including its supreme guide Mohammed Badie, were also upheld.

  Egypt Officially Announces ‘State Of War’ Source Egyptian Streets 1 July 2013
  In an official statement released by the Egyptian Armed Forces, 17 Egyptian soldiers were reported killed, in addition to 13 more who were injured. The statement added that 100 militants have been killed, in addition to destroying 20 of the militants’ vehicles.

  Sheikh Zuweid Death Toll: Egyptian Police Kill 9 In Cairo Suburb Raid As Assault On Sinai Town Comes To An End Source International Business Times 1 July 2015
  Egyptian police raided a home in a western suburb of Cairo on Wednesday, killing nine men who they said were armed and plotting a terrorist attack. The killings happened the same day an ISIS-affiliated group launched a major assault on Sheikh Zuweid, an Egyptian city in the Sinai Peninsula, resulting in at least 100 casualties. The assault ended Wednesday evening.

  Two Bomb Explosions Resonate Through Cairo Source Egyptian Streets 30 June 2015
  In an official statement, the Director of Civil Protection in Cairo, Magdy al-Shalaqany has confirmed that two bombs have detonated in Cairo’s 6th of October city, with a five minutes gap between the two explosions, reported AMAY.

  Islamist Blitz in Sinai Kills 64 as Egypt Sends Fighter Jets. Source Bloomberg 1 July 2015
  Egypt’s army struck at militants with fighter jets and attack helicopters after 64 security personnel were killed in Sinai on the bloodiest day of the country’s escalating war with Islamist insurgents.

  

  

  

  

  

• Greece Has Spent A Half-Century In Default Or Restructuring

  On Thursday, we highlighted the pitiable plight of Greek businesses which, facing an acute cash crunch and suppliers unwilling to provide credit ahead of the country’s weekend referendum, are being forced to close the doors.

  The country’s banks are set to run out of physical banknotes “in a matter of days” according to a “person familiar with the situation” who spoke to WSJ and Constantine Michalos, the president of the Athens Chamber of Commerce, fears the country’s stock of imported goods will only last for two or three more weeks. 

  Meanwhile, Greeks have resorted to scavenging for food and picking through dustbins for scrap metal and as we noted on Wednesday, this is hardly a recent development in Greece. High unemployment has plagued the country for years , becoming endemic and relegating many Greeks to a life of perpetual and severe economic hardship.

  Indeed, as BofAML notes, a look back at the country’s history shows that Athens has been in default or some manner of debt rescheduling for nearly a quarter of the past two centuries. 

  

  The bank goes on to make a rather unflattering comparison between the implied market cap of Greek stocks on Monday and a certain US-based bath towel supplier: “The announcement of a bank holiday & capital controls caused a 20% drop in the local equity market (as implied by ETFs), putting the market cap of MSCI Greece on a par with that of Bed, Bath & Beyond.” 

  But Athenians are in no mood for backhanded humor, because as one 83-year old told WSJ this week, “Tsipras has turned this country into North Korea.” 

  

  

  

  

• Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT

  Last week in “For Greeks, The Nightmare Is Just Beginning: Here Come The Depositor Haircuts,” we warned that a Cyprus-style bail-in of Greek depositors may be imminent given the acute cash crunch that has brought the Greek banking sector to its knees and forced the Greek government to implement capital controls in a futile attempt to stem the flow.

  The depositor “haircut” would be a function of the staggered ELA haircut that the ECB could impose to escalate the rhetoric between the two sides, and could take place with as little as a 10% increase in the ELA collateral haircut from its current 50% level.

  

  Unfortunately for Greeks, the ECB has frozen the ELA cap, meaning that as of last Sunday, Greek banks were no longer able to meet deposit outflows by tapping emergency liquidity from the Bank of Greece. 

  Now, with ATM liquidity expected to run out by Monday and with the country’s future in the Eurozone still undecided, it appears as though Alexis Tsipras’ promise that “deposits are safe” may be proven wrong.

  According to FT, Greek banks are considering a depositor bail-in that could see deposits above €8,000 haircut by “at least” 30%. 

  Via FT: 

  Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears

   

  The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

   

  A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000.

   

  It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

   

  “It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

   

  Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3bn, which would not be enough to cover demand in case of a bank collapse.

   

  With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.

   

  

  Earlier, via Bloomberg:

  Liquidity for Greek bank ATMs after Monday will depend on the ECB decision, National Bank of Greece Chair Louka Katseli tells reporters in Athens.

  Meanwhile, Yanis Varoufakis swears this is nothing but a “malicious rumor”:

  FT report of a Gk Bank Bail In is a malicious rumour that the Head of the Greek Banks Association denied this morning http://t.co/3xtnQvpS7R

  — Yanis Varoufakis (@yanisvaroufakis) July 3, 2015

  And moments ago Bloomberg reported that according to an emailed statement by the Greek finance ministry, the “FT report on deposits bail in is outright lie, provocative, and targets undermining July 5 referendum” and as a resultt the “finance ministry demands Financial Tines to retract report.“

  

  

  

  

  

• Barack Obama Tells Another Whopper – He Did Not Create 12.8 Million Jobs

  Submitted by David Stockman via Contra Corner blog,

  America is better off when President Obama is out on the stump bloviating and boasting rather than in Washington actively doing harm. But the whoppers he just told the students at the University of Wisconsin are beyond the pale. Said our spinmeister-in-chief:

   And the unemployment rate is now down to 5.3 percent. (Applause.) Keep in mind, when I came into office it was hovering around 10 percent. All told, we’ve now seen 64 straight months of private sector job growth, which is a new record — (applause) — new record — 12.8 million new jobs all told.

  That’s a pack of context-free factoids. There is still such a thing as the business cycle, and only economically illiterate hacks—-like those who work on the White House speech writing staff—-would measure anything from the deep V-shaped but momentary bottom that happened to occur during Obama’s second year in office. What counts is not that we’ve had a bounce after a terrible bust, but where we are now on a trend basis.

  The answer is absolutely nowhere!

  We are now 29 quarters from the pre-crisis peak and total non-farm labor hours utilized by the US economy are no higher than they were in Q4 2007. In other words, if you use a common unit of measure—–labor hours rather than job slots which treat coal-miners and part-time pizza delivery boys alike—–there have been no new units of employment at all. Our teleprompter reading President is actually tooting his own horn about recycled hours and “born again”  jobs and doesn’t even know it.

  

  And, no, he can’t take credit for digging us out of the hole created by the Great Recession, either. The long, slow climb back to square one shown in the chart above was due to the natural resilience of our capitalist economy—notwithstanding the tax, regulatory and massive debt hurdles that Washington policies have thrown at it.

  The truth of the matter is that America’s employment machine has been failing for this entire century. As shown below, the number of non-farm labor hours utilized during the most recent quarter was only 1% higher than in the spring of 2000—-way back when Bill Clinton still had his hands on things in the Oval Office.

  In short, we have gone through two business cycles and have essentially added zero new employment inputs to the US economy.  And that marks a sharp and devastating reversal of previous trends. In fact, the BLS’ own data convey an out-and-out crisis that the President should have been lamenting, not a cherry-picked simulacrum of growth based on born-again, apples-and-oranges jobs slots.

  Thus, during the comparable 29 quarters after the 1990 business cycle peak (Q2 1990 to Q3 1997) non-farm labor hours had increased by 12% and during the same period of time after the 1981 peak (Q3 1981 to Q4 1988) labor hours expanded by 17 percent.  That’s what employment growth used to look like, and absolutely nothing like that has happened on Obama’s watch.

  

  When you get right down to it, however, even labor hours do not fully capture the actual jobs disaster happening in America. That’s because we keep shedding high productivity hours in the full-time  jobs sector in favor of low-skill, low-pay gigs in bars, restaurants, Wal-Marts and temp agencies.

  So notwithstanding another month of 200,000 plus headline job gains, here’s where we actually are. The number of breadwinner jobs—–full-time positions in energy and mining, construction, manufacturing, the white collar professions, business management and services, information technology, transportation/distribution and finance, insurance and real estate—-is still 1.7 million below the level of December 2007; in fact, it is still lower than it was at the turn of the century.

  

  Breadwinner Jobs- Click to enlarge

  There is no mystery as to how the White House and Wall Street celebrate year after year of “jobs growth” when the long-term trend of full-time, family-supporting employment levels is heading south. Its called “trickle-down economics”, and not of the good kind, either.

  What is happening is that the Keynesian money printers at the Fed are fueling serial financial bubbles. This generates a temporary lift in the discretionary incomes of the top 10% of households, which own 85% of the financial assets, and the next 10-20% which feed off the their winnings. Accordingly, the leisure and hospitality sectors boom, creating a lot of job slots for bar tenders, waiters, bellhops, etc.

  I call this the “bread and circuses economy”, but it has two problems. Most of these slots generate only about 26 hours per week and $14 per hour. That’s about $19,000 on an annual basis, and means these slots constitute 40% jobs compared to the breadwinner category at about $50,000 per year. Besides that, a soon as the financial bubble goes bust, these jobs quickly disappear.

  

  Bread and Circuses Jobs – Click to enlarge

  This is reason enough for Obama to pipe down on the boasting, but he actually went in the opposite direction claiming a big recovery in manufacturing jobs.

  And after a decade of decline, thanks to some of the steps we took…….we’ve added nearly 900,000 new manufacturing jobs. Manufacturing is actually growing faster than the rest of the economy. (Applause.)

  But that one is not even a whopper; its a bald-faced lie. There has not been one “new” manufacturing job created during Obama’s term in office; and, in fact, the 12.3 million manufacturing jobs reported for June was still 10% below the level of December 2007, and nearly 30% lower than the 17.3 million manufacturing jobs reported in January 2000.

  So the actual facts are not evidence of a trend reversal; they’re an exercise in political hogwash.

  Indeed, if you take the entire high-productivity, high-pay goods production sector—-energy, mining, manufacturing and construction—the trend is even worse. As shown below, the 19.6 million goods producing jobs in June was 5 million lower than in January 2000. Is there any wonder that the median real household income has declined by 7% over the last 15 years?

  

  Goods Producing Jobs – Click to enlarge

  Here’s the real truth beneath the bloviation issuing from stumping politicians and Wall Street stock touts alike. The June BLS report showed that the HES Complex (health, education and social services) generated another 48,000 jobs in June. This figure is nearly dead on the 42,000 monthly average for this sector since the turn of the century.

  The minor problem with that trend is these jobs pay on average only $35,000 per year—–a level that does not remotely support a middle class standard of living, especially after payroll and income taxes are extracted from this gross pay figure.

  The much bigger skunk in the woodpile, however, is that these jobs are almost entirely “fiscally dependent”. Yet the public sector in America is broke, and the total public debt just keeps on climbing higher.

  To wit, the 32.2 million jobs in the HES Complex are funded by $1.5 trillion annually of Medicare, Medicaid and other health and social services entitlements. On top of that there is also about $1 trillion of public sector education funding, $200 billion per year of government guaranteed student loans and $250 billion annually in tax subsidies for employer provided and individual health insurance plans and Obamacare tax credits.

  

  HES Complex Jobs – Click to enlarge

  In effect, the public sector borrows and taxes to create low productivity jobs within the nation’s highly inefficient, wasteful and monopolistic health and education cartels—- but in the process squeezes everything else. In fact, there have been virtually no new jobs—even on a headcount basis—–outside of the HES Complex during the entirety of the 21st Century to date!

  

  Nonfarm Payrolls Less HES Complex Jobs – Click to enlarge

  One of these days the public sector is going to exhaust its capacity to tax and borrow, and to thereby finance job growth even in the HES Complex. Needless to say, Washington and Wall Street will be as clueless then as they are now.

  Meanwhile, the White House whoppers will keep on coming.

  

  

  

  

  

• Fearing Spillover, ECB Moves To Shield Neighboring Banks From Greek Meltdown

  On Monday, in “Beggar Thy Neighbor? Greece’s Battered Banks Beget Balkan Jitters,” we took an in depth look at the potential for the Greek banking crisis to infect Bulgaria, Romania, and Serbia, where Greek banks control a substantial percentage of total banking assets. 

  We noted that yields on the country’s bonds had spiked in the wake of capital controls in Greece and the ensuing ATM run, a reflection of souring investor sentiment despite assurances from local banking officials that there was no risk of similar measures being implemented outside of Greece.  

  “Any action by the Greek government and the central bank to impose measures in the Greek financial system have no legal force in Bulgaria and can in no way affect the smooth functioning and stability of the Bulgarian banking system,” Bulgaria’s central bank said, in a statement. 

  Still, as Morgan Stanley pointed out nearly two months ago, “the risk is that depositors who have their money in Greek subsidiaries in Bulgaria, Romania and Serbia could suffer a confidence crisis and seek to withdraw their deposits. Although well capitalised and liquid, Greek subsidiaries in the SEE region may see difficulties providing enough cash if withdrawals are intense and become problematic. In case of a liquidity shortage, Greek subsidiaries in Bulgaria, Romania and Serbia would probably create the need for local authorities to step in. Local central banks and governments would most probably provide additional liquidity, but if panic behaviour develops it would mean that certain banks would either have to find a buyer or be nationalised. In this case, the national deposit guarantee schemes will have to repay guaranteed deposits and, in case of insufficient funds, the government will have to provide them.”

  Now, with Greece’s future in the EMU hanging in the balance, Bloomberg says the ECB has stepped up its efforts to shield Bulgaria from any fallout. Here’s more:

  The European Central Bank is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation.

   

  The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential. The ECB and the Bulgarian central bank declined to comment.

   

  Eastern Europe is at risk of tremors from Greece via ties ranging from trade to finance, with lenders from the debt-ridden country owning almost a third of banking assets in Bulgaria. The possibility of Greece abandoning the euro after shutting banks and imposing capital controls has left eastern European currencies among this week’s worst emerging-market performers.

   

  “The threat of ‘Grexit’ has understandably cast a dark cloud over the outlook,” for the region, London-based Capital Economics said last week in a note. “Ties with Greece are sizable in a few places, including Bulgaria and Romania.”

   

  Bulgaria and its banks have been a main focus of concern for European Union officials looking at potential fallout from the Greek crisis in the region, according to people familiar with their thinking. The yield on euro-denominated Bulgarian government debt due 2024 has jumped 25 basis points this week to 2.61 percent.

  It certainly appears as though the whole “Greece is contained” line is yet another example of a vacuous attempt to calm a panicked public by issuing hollow assurances from on high and compelling the media to parrot them to the masses in order to obscure the real risks — a strategy which works until the soup line photos start showing up on social media.

  

  

  

  

  

• What It All Comes Down To On Sunday

  As expected (and as tipped here on Thursday immediately after news broke that an IMF study conducted prior to the imposition of capital controls in Greece suggests debt relief for Athens is necessary if anyone hopes to create some semblance of sustainability), Greek PM Alexis Tsipras is now leaning hard on voters to carefully consider the fact that one-third of the troika has effectively validated the Greek government’s position on creditor writedowns. 

  “This position was never proposed to the Greek government over the five months of negotiations, wasn’t included in final offer tabled by creditor institutions, on which people are going to vote on July 5,” Tsipras said in a televised address, making it clear to Greeks that the proposals they are voting on effectively do not reflect the views of the institution that is perhaps the country’s most influential creditor. 

  “This IMF report justifies our choice not to accept an agreement which ignores the fundamental issue of debt,” he added, driving the point home. 

  Clearly, this puts Europe, and especially Germany, in a rather unpalatable position. Many EU officials have for months insisted that IMF participation is critical if the Greeks hope to secure a third bailout. The IMF meanwhile, has stuck to a position first adopted years ago (something we’ve noted in these pages multiple times of late); namely that official sector writedowns will ultimately be necessary if Brussels hopes to finally put the Greek tragicomedy to bed. This means Brussels (and Berlin) will now be forced to choose between IMF involvement (which the EU says is a precondition for a deal) and haircuts (which the EU says aren’t possible).

  Here’s Barclays – a major investment bank – with its own confirmation that the IMF may have assured a No vote over the weekend.

  The document basically argues that OSI is a necessary condition in order to secure sovereign solvency with a high probability. This means that before the IMF re-engages in any lending activities with Greece, OSI will be required in the form of NPV debt relief.

   

  The timing of the publication of this report it is very important. Debt relief is something that the Greek authorities have repeatedly demanded; therefore, in a way this report can be interpreted as the IMF backing the Greek government’s demands. By extension, it could also be interpreted as supportive of a ‘No’ vote, which is what the Greek government is campaigning for. 

   

  We agree broadly with the analytical content of the report and the need for further OSI. This is in fact hardly new news. Europe has recognized since November 2012 that Greece needs further OSI to make debt dynamics sustainable with high probability. The IMF advice of an NPV haircut via a debt maturity extension (to 40 years) is in line with expectations.

   

  However, the critical point is that the IMF now requires debt-relief before it engages in a new programme, which confronts Europeans with a tough political decision. Many in Europe, including Germany, considered OSI as a future carrot in exchange for reforms today following good programme execution. Debt relief was conceived as a part of a third programme to be negotiated possibly with a new Greek government.

   

  At the same time, Germany has been adamant about the importance of IMF involvement in any financial support programme for Greece. Thus, Germany will now be confronted with a tough choice: to deliver on the IMF’s demand, ie to engage in OSI negotiations in the form of NPV debt relief, or give up on IMF involvement. We believe that there is mounting support across other member states for the OSI discussion, therefore, we believe that Germany may not be able to resist such discussions any longer.

  “I am guessing that this is a negotiating tactic ahead of the negotiations for a new programme for Greece. The IMF very well knows that a debt write-off is out of the question,” one unnamed EU official told MNI. 

  “The numbers are quite high, not in line with our assessment and our baseline scenario. We are examining different scenarios for the day after the referendum and provided the vote is Yes, we are ready to come up with solutions. But it is not going to be easy to agree. Certainly this report does not make it any easier,” another source said.

  It’s easy to see why Europe is reluctant to accept the IMF’s assessment. As discussed at length on Thursday, were Europe to go down the OMI road, Brussels would be opening Pandora’s Box. Here’s why:

  By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

   

  The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

   

  
  

  As for the IMF’s position, Barclays notes that a permanent default by Greece would not be a trivial event, thus providing further incentive for the Fund to push for EU writedowns:

  With the IMF’s total resources being roughly USD760bn – USD420bn of which are considered the ‘forward commitment capacity’ – the IMF has the firepower to ‘survive’ a permanent default of Greece while maintaining sufficient resources to be able to lend out fresh credit for countries in need. However, it would make a significant dent in the ongoing IMF finances – eg, the interest paid on IMF loans is used to cover IMF’s operational cost – and would very likely create intense debate about Europe’s relationship with the IMF and the balance of power between DM and EM members. One question could also be whether or not the euro area IMF members should not in some way be liable for the outstanding Greek debts. In turn, this would also intensify a debate about the sharing of liabilities/solidarity within the euro area and the EU.

   

  

   

  So, thanks to a well-timed IMF report, Tsipras can now frame Sunday’s plebiscite as a simple Yes/No vote on Greece’s debt pile, which makes it far easier to vote “no.” 

  “Do you think Europe should forgive your debt, check box ‘Yes’ or ‘No’.” 

  That should be an easy choice, although it depends upon the Greek public understanding the significance of the IMF’s position which, as indicated above, Tsipras is doing his very best to facilitate. The bottom line: Sunday’s vote is about whether Greece will agree to remain a debt colony of Germany, pardon Europe, even as the IMF (and, paradoxically, Germany) agrees with Athens that the country’s debt is unsustainable.

  “No” means a lot of pain now and recovery later.

  “Yes” means less pain now but no hope of recovery ever. 

  *  *  *

  Choose wisely…

  

  

  

  

  

• US Pushed For IMF Greek Haircut Study Release After Euro 'Allies' Tried To Block

  The timing of the release of The IMF’s ‘Greece needs a debt haircut no matter what’ report this week was odd to say the least. Being as it confirmed everything the Greek government has been saying and provided the perfect ammunition for Tsipras to spin Sunday’s Greferendum as a Yes/No to debt haircuts – something everyone can understand (and get behind). It is understandable then that, as Reuters reports, Greece’s eurozone allies tried to block the release of the damning report this week but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, sources said. While The IMF concluded, “Facts are stubborn. You can’t hide the facts because they may be exploited,” one wonders if this move merely reinforces Goldman’s concpiracy theory.

  Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. As Reuters reports, publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the Washington-based global lender that has been simmering behind closed doors for months.

  At a meeting on the International Monetary Fund’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said.

   

  There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

   

  The Europeans were also concerned that the report could distract attention from a view they share with the IMF that the Tsipras government, in the five months since it was elected, has wrecked a fragile economy that was just starting to recover.

   

  “It wasn’t an easy decision,” an IMF source involved in the debate over publication said. “We are not living in an ivory tower here. But the EU has to understand that not everything can be decided based on their own imperatives.”

   

  The board had considered all arguments, including the risk that the document would be politicized, but the prevailing view was that all the evidence and figures should be laid out transparently before the referendum.

   

  “Facts are stubborn. You can’t hide the facts because they may be exploited,” the IMF source said.

  *  *  *

  Quite simply this should be horrifying to not just The Greeks (who just discovered their supposed ‘allies’ tried to hide the truth from them and in fact negotiated in bad faith) but to all Europeans who by now must realize the union is not for them, it is for the few ruling elite and their corporate and banking overlords.

  Isn’t it time to Just Say No, if not to anything else than to being controlled by an unelected cabal of oligarchs whose only interest is making sure the wealthy get wealthier?

  Of course, taking a step back from the table, it is clear that a forced decision by Washington against the interests of its European allies – that is likely to engender more chaos and strengthen Greece’s ability to destabilize Europe – must have been done for ‘another reason’. Perhaps after all is said and done, the powers that be need chaos, need instability, need panic in order to ensure the public gratefully accept the all-in QE-fest that they want.

  

  

  

  

  

• Do Share Buybacks Create Value? (Spoiler Alert: No)

  Submitted by Omid Malekan via OmidMalekan.com,

  Stock buybacks have been in the news lately, as their growing size has lead to criticism, especially from politicians who believe they contribute to economic inequality. But the simplest critique of the practice of buybacks can be made on economic grounds, in terms of value created or destroyed.

  If you ask a seasoned investor to boil success down to one sentence, they’ll probably say “buy low and sell high.” Ask them to simplify even more, and they’ll say “buy value” – which usually correlates with buying something when its cheap. If we flip these maxims around then the worst kind of investing is to buy high. Expensive things do occasionally become more expensive –  but with greater risk.

  I have always been weary of buybacks, going all the way back to the last buyback boom before the financial crisis. My concern then was that by purchasing shares management was making a declaration, that this is a good time to buy our stock, as opposed to the past or the future. But if management knows that then it knows how to time the market, and if management knows how to time the market, then it’s better off running a hedge fund. Since management is instead running a company, it should focus on what it was hired to do and leave the stock market alone.

  Taking the practice to a more extreme measure, many large companies today are tapping the debt markets, borrowing money at record low rates and using the proceeds for buybacks. The practice is popular among blue chip companies like Apple and Microsoft, who despite their cash heavy balance sheets prefer the tax efficiency of financing buybacks with debt. The old me would find such a practice even more unwise, as it entails timing two markets at once, a feat even a seasoned hedge fund manager would have trouble pulling off. But the old me didn’t understand how buybacks really work.

  To call an action market timing is to imply participants care about price. They are buying today because today offers a good price whereas tomorrow might not. But executives doing buybacks don’t care about price. We know this because new buybacks are not announced with any limitations on share price. We are going to buy back $2 Billion worth of shares in the next quarter. What happens if share prices rises drastically beforehand? Management doesn’t care.

  We also know this because currently, with the stock market at all time highs, new buyback announcements have gone parabolic to amounts never seen before. The current level of buying recently surpassed that of 2007, at the previous peak of the market.

  

   

  But the buying has not been continuous, as companies took an extended break during the financial crisis while stock prices fell drastically. If you chart buybacks versus the overall stock market in the past 10 years you’ll find a neat correlation.

  For over a decade now corporate management has been doing the exact opposite of what constitutes good investing. If you include the fact that some of the companies buying back shares before the crisis were selling shares to raise capital during the crisis, and are now buyers again, then management has been buying high to sell low to buy high again.

  If you acted similarly in any other walk of life you would be the subject of ridicule and featured in finance books on what not to do. Imagine walking into a dealership and saying “I am going to buy this car, regardless of what price you quote me.” Then imagine selling that car at half the price, only to eventually buy it back at a premium.

  On Wall Street however such behavior is now the norm. Take the example of Royal Dutch Shell, which recently announced the acquisition of BG Group. The deal is mostly financed by Shell issuing new shares. It’s said to be accretive next year, as in increasing the company’s earnings and presumably its stock value. It also comes with a plan by Shell to buy back millions of its own shares in 2 years. So the company has promised to sell something today, drive up its value tomorrow and then buy it back next week.

  All of this would be laughable if not for the consequences. The net amount of buybacks executed in recent years has now surpassed $2 trillion. That’s $2 trillion in capital spent on an activity that at best creates no value and historically has destroyed it. As our business leaders continue to speculate on why the current recovery refuses to kick into high gear, they should look at wasteful buybacks as one possible impediment.

  

  

  

  

  

• Massive "No" Demonstration Floods Athens' Syntagma Square As Tsipras Speaks – Live Webcast

  Shortly before Greek PM Tsipras spoke at today’s huge “No” rally on Syntagma square, scuffles in the crowds of protesters broke out and police have resorted to stun grenades and tear gas.

  As Reuters reported, “Greek police threw stun grenades and scuffled with protesters in central Athens on Friday, as a rally got under way in support of a ‘No’ vote in a Sunday referendum on whether to endorse an aid deal with creditors. The scuffles involved a few dozen people, many dressed in black and wearing helmets but quickly appeared to calm.”

  Luckily, the violence was scattered and promptly dissipated.

  

   

  Instead it has been replaced with one of the biggest people gatherings on Syntagma square in history:

  I’ve stood on this roof a few times over the years – and this is as big a crowd as I can remember. #oxi #greece pic.twitter.com/1vzUlEd2FH

  — Mark Lowen (@marklowen) July 3, 2015

  Live Feed:

  

  

  

  

  

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• The German Press Does It Again: "Give Me The Money Or I Shoot"

  When a message needs to be sent by the powers that be, the German press can always be relied upon to send it, no matter how divisive (as they did here, here, and here). So it is no surprise that with the stakes appearing to have never been higher, Handelsblatt unleashes the following…

  Translated: “Give Me The Money Or I’ll Shoot”

  

   

  And this is how the Greeks promptly responded on Twitter…

  Greeks reply to @handelsblatt cover with this picture https://t.co/nlJvRjvjRw

  — Keep Talking Greece (@keeptalkingGR) July 2, 2015

  @RolfTheGreek @nickdim7 @keeptalkingGR ???????? ???? ??? ?????? ? ?????? .>>>>>>>> pic.twitter.com/UeOenCYILY

  — rocco ( st. rokkos ) (@srokkos) July 2, 2015

  *  *  *

  Thank goodness they are all ‘partners’ in the ‘union’ of Europe…

  

  

  

  

  

• Why Is the American Dream Dead In The South?

  Authored by Matthew O’Brien, originally posted at The Atlantic,

  The top 1 percent aren’t killing the American Dream. Something else is—if you live in the wrong place.

  Here’s what we know. The rich are getting richer, but according to a blockbuster new study that hasn’t made it harder for the poor to become rich. The good news is that people at the bottom are just as likely to move up the income ladder today as they were 50 years ago. But the bad news is that people at the bottom are just as likely to move up the income ladder today as they were 50 years ago.

  We like to tell ourselves that America is the land of opportunity, but the reality doesn’t match the rhetoric—and hasn’t for awhile. We actually have less social mobility than countries like Denmark. And that’s more of a problem the more inequality there is. Think about it like this: Moving up matters more when there’s a bigger gap between the rich and poor. So even though mobility hasn’t gotten worse lately, it has worse consequences today because inequality is worse.

  But it’s a little deceiving to talk about “our” mobility rate. There isn’t one or two or even three Americas. There are hundreds. The research team of Raj Chetty, Nathaniel Herndon, Patrick Kline, and Emmanuel Saez looked at each “commuting zone” (CZ) within the U.S., and found that the American Dream is still alive in some parts of the country. Kids born into the bottom 20 percent of households, for example, have a 12.9 percent chance of reaching the top 20 percent if they live in San Jose. That’s about as high as it is in the highest mobility countries. But kids born in Charlotte only have a 4.4 percent chance of moving from the bottom to the top 20 percent. That’s worse than any developed country we have numbers for.

  You can see what my colleague Derek Thompson calls the geography of the American Dream in the map below. It shows where kids have the best and worst chances of moving up from the bottom to the top quintile—and that the South looks more like a banana republic. (Note: darker colors mean there is less mobility, and lighter colors mean that there’s more).

  

  So what makes northern California different from North Carolina? Well, we don’t know for sure, but we do know what doesn’t. The researchers found that local tax and spending decisions explain some, but not too much, of this regional mobility gap. Neither does local school quality, at least judged by class size. Local area colleges and tuition were also non-factors. And so were local labor markets, including their share of manufacturing jobs and those facing cheap, foreign competition. But here’s what we know does matter. Just how much isn’t clear.

  1. Race. The researchers found that the larger the black population, the lower the upward mobility. But this isn’t actually a black-white issue. It’s a rich-poor one. Low-income whites who live in areas with more black people also have a harder time moving up the income ladder. In other words, it’s something about the places that black people live that hurts mobility.

  2. Segregation. Something like the poor being isolated—isolated from good jobs and good schools. See, the more black people a place has, the more divided it tends to be along racial and economic lines. The more divided it is, the more sprawl there is. And the more sprawl there is, the less higher-income people are willing to invest in things like public transit. 

  That leaves the poor in the ghetto, with no way out for their American Dreams. They’re stuck with bad schools, bad jobs, and bad commutes if they do manage to find better work. So it should be no surprise that the researchers found that racial segregation, income segregation, and sprawl are all strongly negatively correlated with upward mobility. But what might surprise is that it doesn’t matter whether the rich cut themselves off from everybody else. What matters is whether the middle class cut themselves off from the poor.

  3. Social Capital. Living around the middle class doesn’t just bring better jobs and schools (which help, but probably aren’t enough). It brings better institutions too. Things like religious groups, civic groups, and any other kind of group that keeps people from bowling alone. All of these are strongly correlated with more mobility—which is why Utah, with its vast Mormon safety net and services, is one of the best places to be born poor.

  4. Inequality. The 1 percent are different from you and me—they have so much more money that they live in a different world. It’s a world of $40,000 a year preschool, “nanny consultants,” and an endless supply of private tutors. It keeps the children of the super-rich from falling too far, but it doesn’t keep the poor from rising (at least into the top quintile). There just wasn’t any correlation between the rise and rise of the 1 percent and upward mobility. In other words, it doesn’t hurt your chances of making it into the top 80 to 99 percent if the super-rich get even richer.

  But inequality does matter within the bottom 99 percent. The bigger the gap between the poor and the merely rich (as opposed to the super-rich), the less mobility there is. It makes intuitive sense: it’s easier to jump from the bottom near the top if you don’t have to jump as far. The top 1 percent are just so high now that it doesn’t matter how much higher they go; almost nobody can reach them.

  5. Family Structure. Forget race, forget jobs, forget schools, forget churches, forget neighborhoods, and forget the top 1—or maybe 10—percent. Nothing matters more for moving up than who raises you. Or, in econospeak, nothing correlates with upward mobility more than the number of single parents, divorcees, and married couples. The cliché is true: Kids do best in stable, two-parent homes.

  It’s not clear what, if any, policy lessons we should take from this truism. As my colleague Jordan Weissmann points out, we don’t really have any idea how to promote marriage. We can try telling people how great it is to get hitched. We can even get rid of the marriage penalties some low-income couples face. But these won’t, and haven’t, been making more people exchange till-death-do-us-parts. And should we even want to? Steve Waldman points out that poor women know better than upper-middle-class people yelling at them to get married whether they should or not. They know whether their boyfriend would make a good husband, a good father, a good teacher. And they know that marriage is important. That they’re not getting married tells us something. Sometimes no match is better than a bad match.

  ***

  Flat mobility is the defining Rorschach test of our time. Conservatives look at it, and say, see, we shouldn’t worry about the top 1 percent, because they’re not making the American Dream any harder to achieve. But liberals look at it, and say see, we should care about inequality, because it can make the American Dream harder to achieve—and it raises the stakes if you don’t. But both want to increase upward mobility. It’s not enough to keep it where it was 50 years ago. We need to actually become the land of opportunity. 

  The American Dream is alive in Denmark and Finland and Sweden. And in San Jose and Salt Lake City and Pittsburgh. But it’s dead in Atlanta and Raleigh and Charlotte. And in Indianapolis and Detroit and Jacksonville. Fixing that isn’t just about redistribution. It’s about building denser cities, so the poor aren’t so segregated. About good schools that you don’t have to live in the right (and expensive) neighborhood to attend. And about ending a destructive drug war that imprisons and blights the job prospects of far too many non-violent offenders—further shrinking the pool of “marriageable” men.

  Because the American Dream is dead in too much of America.

  

  

  

  

  

• Chinese Government "Losing Control": Stocks Are Collapsing, Hitting New Bear Market Lows

  As one local reporter put it, despite being told not to say anything negative, “the government appeared to have lost its ability to manage the market.” Chinese stocks are down 4-5% at the open, pressing new cycle lows with Shenzhen and CHINEXT now down 25% from last week.

  As The South China Morning Post reports, many investors said the government was at least partly to blame for the collapse because it encouraged them to go into the market – for months, state-owned media have issued daily commentaries to encourage people to load up on shares.

  And now the payback: even more utter carnage:

  

   

  The longer-term perspective:

  

  Leading to the local version of “brokers with hands on their faces”:

  

  As The South China Morning Post explains, a series of lifelines from Beijing failed to stop the slide in the mainland’s stock market on Thursday, with the key Shanghai Composite Index closing below the critical 4,000 mark for the first time in almost three months.

  Analysts warned that the nation’s leadership would pay dearly if it failed to stabilise the market and prevent millions of small investors from losing their life savings.

   

  “The government’s response to the fall confirms that it will use all the resources at its disposal to influence the market when things do not go the way it wants and potentially puts its legitimacy at risk,” said Steve Tsang, chair of the School of Contemporary Chinese Studies at the University of Nottingham.

   

  The China Securities Regulatory Commission said last night that the stock market had recorded a significant drop, and the commission would launch an investigation into suspected market manipulation. Those suspected of committing an offence would be handed over to public security agencies.

   

  …

   

  Since falling off a seven-year peak of 5,166.35 on June 12, the Shanghai index has lost about a quarter of its value, with the mainland equity markets heading into bear territory after fears of a tightening of margin lending induced a sharp correction.

   

  Turnover in Shanghai dropped to 732 billion yuan (HK$926 billion) on Thursday, down from 1.015 trillion yuan on Wednesday. More than 1,400 mainland stocks finished down, with large state-owned banks and oil majors the big exceptions. Shanghai-traded PetroChina rose 8.8 per cent to 11.68 yuan, while Sinopec gained 6 per cent to 7.18 yuan.

   

  All four big state-owned banks posted major gains as investors looked for safe havens.

   

  “The deleveraging process in the stock markets and the over-the-counter platforms trading shares and futures is ongoing, leading to a big price movement regardless of Beijing’s proactive monetary policies,” said Ben Kwong Man-bun, the head of research at brokerage KGI Asia.

   

  Those proactive policies included a fourth round of interest-rate cuts last weekend and the reduction in reserve requirements for some banks.

   

  Many investors said the government was at least partly to blame for the collapse because it encouraged them to go into the market. For months, state-owned media have issued daily commentaries to encourage people to load up on shares.

   

  Tsang said the government appeared to have lost its ability to manage the market.

   

  “Will the government be able to change market sentiment if its initial interventions prove ineffective? Time will tell,” he said.

   

  The central bank said it would pursue a prudent monetary policy and keep the economy growing at a “healthy” rate.

  And considering the HSBC Service PMI just plunged from 53.5 to 51.8, the lowest print of the year, that may be complicated especially if the government is truly helpless to halt the crashing stock market,

  

  

  

  

  

• China Completes Airstrip On Reef, Builds Military Facility On Second Island

  China has reportedly completed an airstrip on Fiery Cross Reef, one of the islands Beijing has constructed in the South China Sea.

  Back in April, satellite images which appeared to show that construction had commenced on the runway set off alarm bells in the US and among Washington’s regional allies in the South Pacific. 

  Since then, China’s land reclamation efforts in the disputed waters around the Spratlys have sparked an international furor and touched off a war of words between Washington and Beijing, with the Pentagon assuring China that the US Navy will continue to operate as before in the region and the PLA claiming it will enforce a no-fly zone over the islands “if threatened.” 

  Although China recently claimed to have largely finished the dredging effort, construction atop the islands is moving forward and as Reuters reports, the airstrip on Fiery Cross, first spotted some three months ago, looks to be complete. Here’s more:

  China has almost finished building a 3,000-meter-long (10,000-foot) airstrip on one of its artificial islands in the disputed Spratly archipelago of the South China Sea, new satellite photographs of the area show.

   

  A U.S. military commander had told Reuters in May that the airstrip on Fiery Cross Reef could be operational by year-end, although the June 28 images suggest that could now be sooner.

   

  The airstrip will be long enough to accommodate most Chinese military aircraft, security experts have said, giving Beijing greater reach into the heart of maritime Southeast Asia.

   

  The latest photographs were taken by satellite imagery firm DigitalGlobe and published by the Asia Maritime Transparency Initiative (AMTI) at the Center for Strategic and International Studies in Washington. (amti.csis.org/)

   

  AMTI said the airstrip was being paved and marked, while an apron and taxiway had been added adjacent to the runway.

   

  Two helipads, up to 10 satellite communications antennas and one possible radar tower were visible on Fiery Cross Reef, it said. The images also showed a Chinese naval vessel moored in a port.

  Here’s the latest image and commentary on Fiery Cross from AMTI…

  As of June 28, 2015, China is expanding the construction of its island facilities on Fiery Cross Reef. The construction of a 3,000 meter airstrip is nearly complete. China continues to pave and mark the airstrip and an apron and taxiway have been added adjacent to the runway. Prior photos showed that a small lake existed in the middle of the island; this has since been filled in. Personnel are now visible walking around the island.A sensor array has also been constructed and additional support facilities are being built. Meanwhile, a naval vessel is moored in the port. The size of the island is estimated at 2,740,000 square meters. The island has a partially-developed port with nine temporary loading piers. The harbor area is approximately 630,000 square meters. Two helipads, up to 10 satellite communications antennas, and one possible radar tower are also visible. Also visible are two lighthouses and one cement plant.

   

  
  

   

  …and here’s more on Johnson South Reef

  South Johnson Reef was one of the first facilities to finish principal land reclamation. Since the seawalls have gone up, China has added a small port with limited berth space and two loading stations. The harbor area is approximately 3,000 square meters with an entrance 125 meters wide. There are two helipads on the reef and up to three satellite communications antennas. A large multi-level military facility is in the center of the reef with two possible radar towers under construction. Up to six security and surveillance towers are being built with four possible weapons towers also under construction. Agricultural facilities, a lighthouse, and a possible solar farm with 44 panels, in addition to two wind turbines, have been sighted.

   

  
  

  As for the Chinese foreign ministry’s contention that Beijing’s construction efforts are nearly complete, that remains to be seen and indeed, Reuters notes that construction is continuing on two nearby islets. Their names: “Subi” and “Mischief“.

  

  (Photo taken from Philippine military plane appears to show mischief at Mischief)

  

  

  

  

• Government Trolls Are Using "Psychology-Based Influence Techniques" On YouTube, Facebook And Twitter

  Submitted by Michael Snyder via The End of The American Dream blog,

  Have you ever come across someone on the Internet that you suspected was a paid government troll?  Well, there is a very good chance that you were not imagining things.  Thanks to Edward Snowden, we now have solid proof that paid government trolls are using “psychology-based influence techniques” on social media websites such as YouTube, Facebook and Twitter.  Documents leaked by Snowden also reveal that government agents have been conducting denial-of-service attacks, flooding social media websites with thinly veiled propaganda and have been purposely attempting to warp public discourse online.  If we do not stand up and object to this kind of Orwellian behavior, it is only going to get worse and worse.

  In the UK, the Joint Threat Research Intelligence Group (JTRIG) is a specialized unit within the Government Communications Headquarters (GCHQ).  If it wasn’t for Edward Snowden, we probably still would never have heard of them.  This particular specialized unit is engaged in some very “questionable” online activities.  The following is an excerpt from a recent piece by Glenn Greenwald and Andrew Fishman…

  Though its existence was secret until last year, JTRIG quickly developed a distinctive profile in the public understanding, after documents from NSA whistleblower Edward Snowden revealed that the unit had engaged in “dirty tricks” like deploying sexual “honey traps” designed to discredit targets, launching denial-of-service attacks to shut down Internet chat rooms, pushing veiled propaganda onto social networks and generally warping discourse online.

  We are told that JTRIG only uses these techniques to go after the “bad guys”.

  But precisely who are the “bad guys”?

  It turns out that their definition of who the “bad guys” are is quite broad.  Here is more from Glenn Greenwald and Andrew Fishman…

  JTRIG’s domestic and law enforcement operations are made clear. The report states that the controversial unit “currently collaborates with other agencies” including the Metropolitan police, Security Service (MI5), Serious Organised Crime Agency (SOCA), Border Agency, Revenue and Customs (HMRC), and National Public Order and Intelligence Unit (NPOIU). The document highlights that key JTRIG objectives include “providing intelligence for judicial outcomes”; monitoring “domestic extremist groups such as the English Defence League by conducting online HUMINT”; “denying, deterring or dissuading” criminals and “hacktivists”; and “deterring, disrupting or degrading online consumerism of stolen data or child porn.”

  Particularly disturbing to me is the phrase “domestic extremist groups”.  What does someone have to say or do to be considered an “extremist”?  For example, the English Defence League is a non-violent street protest movement in the UK that is strongly against the spread of radical Islam and sharia law in the UK.  So if they are “extremists”, how many millions upon millions of ordinary citizens in the United States would fit that definition?

  When conducting operations against “extremists”, psychology-based influence techniques are among the tools that JTRIG uses to combat them online.  The following comes from one of the documents that was posted by Greenwald and Fishman…

  

  In other words, these government trolls try to mess with people’s minds.

  And here is another document that was posted by Greenwald and Fishman that talks about how JTRIG uses YouTube, Facebook and Twitter to accomplish their goals…

  

  It is very disturbing to think that some of the people that we may be interacting with on YouTube, Facebook and Twitter are actually paid government agents that are purposely trying to feed us propaganda and misinformation.

  And of course this kind of thing does not just happen in the United Kingdom.  In Canada, it has been publicly admitted that the government uses paid trolls to warp Internet discourse.  The following comes from Natural News…

  You’ve probably run into them before — those seemingly random antagonizers who always end up diverting the conversation in an online chat room or article comment section away from the issue at hand, and towards a much different agenda. Hot-button issues like illegal immigration, the two-party political system, the “war on terror” and even alternative medicine are among the most common targets of such attackers, known as internet “trolls” or “shills,” who in many cases are nothing more than paid lackeys hired by the federal government and other international organizations to sway and ultimately control public opinion.

   

  Several years ago, Canada’s CTV News aired a short segment about how its own government had been exposed for hiring secret agents to monitor social media and track online conversations, as well as the activities of certain dissenting individuals. This report, which in obvious whitewashing language referred to such activities as the government simply “weighing in and correcting” allegedly false information posted online, basically admitted that the Canadian government had assumed the role of secret online police.

  You can actually watch a video news report about what is happening up in Canada right here.

  Needless to say, the U.S. government is also engaged in this kind of activity as well.  For instance, the U.S. government has actually been caught manipulating discourse on Reddit and editing Wikipedia.  When it comes to spying, there is nobody that is off limits for our spooks.  It just came out recently that we even spied on three French presidents, and they are supposed to be our “friends”.

  And just like the UK, the U.S. government has a very broad definition of “extremists”.  This has especially been true since Barack Obama has been in the White House.  If you doubt this, please see my previous article entitled “72 Types Of Americans That Are Considered ‘Potential Terrorists’ In Official Government Documents“.

  All of this is very disturbing.  Why can’t they just leave us alone and let us talk to one another?  Why do they have to spy on everything that we do and purposely try to manipulate public discourse?  Why do they have to be such control freaks?

  

  

  

  

  

• NSA Leak Reveals Both Merkel And Schauble Saw Greek Debt As Unsustainable Even After Haircut

  Several days ago, we posted a NSA cable leaked by Wikileaks, in which then French finance minister Moscovici (currently a European commissioner) was admitted that the French economic situation was “worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years.” It has not improved since then.   

  Overnight, in another perhaps even more relevant to the current quagmire in Greece leak, Wikileaks has released another intercepted NSA communication between German Chancellor Angela Merkel and her personal assistant reveals that not only Merkel, but Schauble, were well aware that even with a debt haircut (which took place in 2012 but only for private creditors and whose impact was promptly countered with the debt from the second bailout) Greek debt would be unsustainable. Technically, she did not use that word: she said that “Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt.”

  She was right. And yet here she is, telling Tsipras and the Greek people that all Greece needs is to comply with the existing program when she knows well by her own admission that Greece is insolvent in its current state – precisely what Syriza is arguing and demanding be part of any deal.

  Because why bother making a deal if Greece will once again be in default a few months down the line, just as Varoufakis said earlier today.

  But where it gets really humorous is where the cable notes that even “Finance Minister Wolfgang Schaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in… with IMF Managing Director Christine Lagarde described as undecided on the issue.”

  Fast forward to today and now Lagarde is decided, and the IMF admits a 30% Greek haircut is necessary. So, one wonders, why is Syriza getting hell for pushing what both Germany in 2011 and the IMF now admit has to happen in order to have a viable Greek nation. Unless, of course, they don’t want a viable Greek nation, and instead want a vassal state that is constantly on the brink of collapse and thus creating enough systemic risk to constantly push the EUR lower.

  Becuase, just in case anyone has forgotten, the real issue here is not the fate of Greece or even the rest of the PIIGS, but how can Germany continue enjoying a currency that is substantially weaker than what a far stronger, and export-crushing Deutsche Mark would be at this very moment.

  From Wikileaks:

  Eurozone Crisis: Merkel Uncertain on Solution to Greek Problems, Would Press U.S. and UK (TS//SI-G//OC/REL TO USA, FVEY)

   

  (TS//SI-G//OC/REL TO USA, FVEY) Discussing the Greek financial crisis with her personal assistant on 11 October, German Chancellor Angela Merkel professed to be at a loss as to which option–another haircut or a transfer union–would be best for addressing the situation. (The term “haircut” refers to the losses that private investors would incur on the current net value of their Greek bond holdings.) Merkel’s fear was that Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt. Furthermore, she doubted that sending financial experts to Greece would be of much help in bringing the financial system there under control. Within the German cabinet, Finance Minister Wolfgang Schnaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in, while France and European Commission President Jose Manuel Barroso were seen to be in favor of a gentler approach. European Central Bank President Jean-Claude Trichet was solidly opposed, with IMF Managing Director Christine Lagarde described as undecided on the issue. Finally, Merkel believed that action must be taken to enact a Financial Transaction Tax (FTT); doing so next year, she assessed, would be a major step toward achieving some balance in relief for banks. In that regard, the Germans thought that pressure could be brought to bear on the U.S. and British governments to help bring about an FTT.

   

  Unconventional

  Full pdf

  

  

  

  

  

• Shale Drillers About To Be "Zero Hedged" As Loss Protection Expires

  In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous.

  As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King’s words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up. 

  This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop.

  Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don’t bother to read the 10K fine print to believe that the businesses are healthier than they actually are.

  Furthermore, the next round of revolver raids for the industry isn’t due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does. As a reminder:

  

  As if all of the above weren’t enough, there’s yet another reason why the shale default cascade has thus far been forestalled, giving many the impression that perhaps a “crude” awakening (pardon the terrible pun) has been averted: hedges.

  Here’s Bloomberg with more on why some US shale drillers may soon be zero hedged (ahem):

  The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

   

  Now the safety net is going away.

   

  The insurance that producers bought before the collapse in oil — much of which guaranteed minimum prices of $90 a barrel or more — is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

   

  “A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.”

   

  The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies.

   

  Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

   

  For SandRidge and other drillers, the hedges, required by some lenders, gave them enough time to cut spending. Costs in shale fields have fallen by 20 to 30 percent and productivity has increased as producers moved rigs to the most prolific regions. Producers were able to raise about $44 billion in equity and debt in the first quarter, according to UBS AG.

   

  “That postponed the day of reckoning,” said Carl Tricoli, co-founder of private-equity firm Denham Capital Management.

   

  At Goodrich Petroleum Corp., hedges accounted for 35 percent of revenue in the first three months of 2015. Most of its insurance runs out at the end of the year, company records show.

  In short, the last line of defense against terminal cash burn for the beleagured US shale complex is about to fall and when it does, it’s going to take bank credit lines down with it.

  This means October is the expiration date for heavily indebted US drillers and perhaps for HY credit as well, because once the defaults begin in earnest and HY spreads start to blow out, the BTFD-ing retail crowd will head for the exits, triggering a very non-diversifiable, unidirectional flow for bond fund managers who will then be forced to hold their noses and dive into the ever-thinner secondary corporate credit market.

  It is precisely at that point when everyone’s worst nightmares about shrinking dealer inventories and illiquid credit markets will suddenly be realized.

  

  

  

  

  

• Trading Stocks – It's Easier Than Farmwork… And Porn

  While the Chinese recently found out that making money from trading is, in fact, not “easier than farmwork,” it appears in America, trading stocks is back en vogue… Meet 2014 Playmate of the Year, Kennedy Summers, who has given it all up to become a day trader…

   

  Brings to mind the terms “all in” and “tight stops”…

  

  

  

  

  

• JPMorgan Banker: "We Can't Make Money Anymore…"

  Submitted by Simon Black via Sovereign Man blog,

  Yesterday over coffee, a friend of mine leaked the news that JP Morgan’s private banking division here in Singapore is going to start charging negative interest rates.

  I almost fell out of my chair.

  He’s a successful hedge fund manager and one of their best customers. So when he received the notice, he rang up his private banker and demanded to know why.

  Between ridiculously low interest rates (banks are closing loans here for 0.9% or lower) and the increasing costs of compliance, “we can’t make money anymore…” was the response.

  It certainly paints a clear picture of how screwed up the entire financial system is.

  Compliance is a major component in this. Bankers around the world are buried up to their eyeballs in paperwork and regulations now.

  They can’t make a move or approve a single transaction without first doing anti-money laundering, terrorist financing, and tax evasion due diligence.

  Imagine it like this: your banker rings you up tomorrow and says,

  “The government of China requires us to have all of our depositors fill out this paperwork. So I need you to send this form back to me ASAP…”

  You’d probably think it was a joke.

  Or at a minimum think, “Wait, what? I’m not Chinese. You’re not a Chinese bank. Who cares about some stupid Chinese regulation?”

  And you’d be right.

  Except that’s precisely what the United States is doing right now.

  All over the world, bankers are contacting their customers and forcing them to fill out paperwork to comply with idiotic US government regulations. Even when there’s no connection to the US.

  Here in Singapore, the bankers are completely miserable about it.

  They’re so angry for having to call customers and say, “Yes I know you’re in India, and I know we’re in Singapore, and I know you’ve been a customer for 10 years. But you still have to fill out this US government form or else we’ll close your account.”

  It’s ridiculous– all of this because the US government is bankrupt.

  A few years ago they passed the Foreign Account Tax Compliance Act (FATCA)– a major part of their crusade to stamp out tax evasion and bring in more tax revenue.

  FATCA is now in full force. Banks all over the world have been forced to enter into information sharing agreements with the IRS, meaning that they have to report on all of their customers and force them to fill out meaningless forms.

  Needless to say, this costs a lot of money.

  If you own a business, you can just imagine how frustrating and expensive it would be to have your employees toil away on senseless paperwork instead of… you know, doing real business.

  The US government tells us that all of these disclosure programs have brought in about $6.5 billion in tax revenue.

  Yet the costs of compliance are estimated to cost at least $8 billion, with some estimates over 10x higher.

  Now that’s a neat trick. Uncle Sam gets the money and passes off the costs to everyone else.

  And those who don’t comply with America’s rules are destroyed.

  The most blatant example of this was last year, when a French bank was fined $9 billion for doing business with countries that Uncle Sam didn’t like.

  Bear in mind, this was a French bank, not an American bank.

  They violated no French laws. Yet they had to pay the US government $9 billion for doing business with places like Cuba.

  (Ironically, Cuba is now BFFs with the United States, but it’s not like the bank is going to get a refund.)

  More recently, the US government destroyed an Andorran bank that was accused of weak anti-money laundering controls.

  And a few years ago they took down the oldest private bank in Switzerland.

  Every bank in the world has seen these incidents, and they’re scared. They could be next.

  And that’s why you can’t get a single financial transaction done anymore without first submitting a mountain of paperwork to prove that you’re not a terrorist. Or financing terrorists. Or laundering money. Or doing business with the Axis of Evil.

  Even outside of banking it has become utterly ridiculous.

  A friend of mine here runs one of the largest bullion depositories in Singapore; he wanted to buy some raw gold and have it made into bars, so he contacted a refiner.

   

  The refiner said, “Sure no problem. I just need you to send us some compliance documentation before we get started.”

   

  Then he sent a list of no fewer than 22 items that he needed to submit– copies of licenses, passports, certificates, etc.

   

  22 items. Just to have a refiner make some gold bars. Ridiculous.

  So obviously they’re not going to waste their time. Which means there’s some business that could have been done, but won’t, simply because of the compliance costs.

  The US government has really screwed the world on this. Paperwork is the priority. Not business.

  And all because America is bankrupt.

  This trip to Singapore has been very eye-opening for me as I’m just now starting to understand how much people within the financial system despise the US government.

  They feel like they’re being forced at gunpoint to be volunteer spies and tax collectors, simply because US politicians have been financially irresponsible.

  And to me, it’s the biggest sign yet that America’s financial dominance is coming to an end. They’ve essentially engineered it themselves by alienating the whole world.

  The transition isn’t going to be smooth. And it won’t happen overnight. But there will come a time, and likely soon, when the United States gets displaced.

  And the rest of the world can hardly wait.

  

  

  

  

  

• 17 Year Federal Judge Savages 'War On Drugs': "This Is A War I Saw Destroy Lives… Makes No Sense"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The “war on drugs” is one of the most irrational, idiotic and destructive public policy failures in American history, and that’s saying a lot. I’ve covered this topic many times at Liberty Blitzkrieg, but nothing spells it out like the repentant words of a former federal judge, who admittedly ruined countless lives for no reason.

  From the Atlantic:

  ASPEN, Colo.—Former Federal Judge Nancy Gertner was appointed to the federal bench by Bill Clinton in 1994. She presided over trials for 17 years. And Sunday, she stood before a crowd at The Aspen Ideas Festival to denounce most punishments that she imposed.

   

  Among 500 sanctions that she handed down, “80 percent I believe were unfair and disproportionate,” she said. “I left the bench in 2011 to join the Harvard faculty to write about those stories––to write about how it came to pass that I was obliged to sentence people to terms that, frankly, made no sense under any philosophy.”

   

  She went on to savage the War on Drugs at greater length. “This is a war that I saw destroy lives,” she said. “It eliminated a generation of African American men, covered our racism in ostensibly neutral guidelines and mandatory minimums… and created an intergenerational problem––although I wasn’t on the bench long enough to see this, we know that the sons and daughters of the people we sentenced are in trouble, and are in trouble with the criminal justice system.”

   

  She added that the War on Drugs eliminated the political participation of its casualties. “We were not leveling cities as we did in WWII with bombs, but with prosecution, prison, and punishment,” she said, explaining that her life’s work is now focused on trying to reconstruct the lives that she undermined––as a general matter, by advocating for reform, and as a specific project: she is trying to go through the list of all the people she sentenced to see who deserves executive clemency.

  Enough is enough. Let’s end this stupidity once and for all.

  *  *  *

  

  

  

  

  

  

• Greek Banks To Run Out Of Physical Cash "In A Matter Of Days"

  Over the past several weeks we’ve documented the acute cash crunch that’s crippled the Greek banking sector and ultimately brought the country to its knees. 

  Since March, Greek banks have subsisted on a slow liquidity drip administered by the ECB through the Bank of Greece. Once Syriza swept to power on an anti-austerity platform in January, it quickly became clear to Mario Draghi that accepting collateral backed by the full faith and credit of the new Greek government in exchange for cash loans wasn’t a safe bet and so, the ECB shifted the burden to the Bank of Greece, making it more expensive for the Greek banking sector to obtain emergency funding. 

  As the crisis unfolded and Athens’ negotiations with creditors became increasingly contentious, Greek banks began to bleed cash. Eventually it became clear that the banks were relying entirely on the Eurosystem to meet outflows.

  Meanwhile, banknotes in circulation surged, as cash usage jumped 44%, prompting Barclays to note that “the amount of banknotes in excess of the quota for Greece represents a liability of the BoG to the Eurosystem.” Essentially, we said, Greece was quietly printing billions of euros.

  Now, with the ECB holding steady on the ELA cap and the banking system still hemorrhaging deposits despite the imposition of capital controls, Greek banks are running out of cash — literally.

  WSJ has more:

  How long the remaining cash lasts and how unsettled Greeks become will be big factors in Sunday’s referendum on creditors’ demands for more austerity in exchange for more bailout funds. The tighter the squeeze, the more Greeks might vote “yes” to reconcile with creditors, analysts say.

   

  As of Wednesday, Greece’s banking system had about €1 billion in cash left, according to a person familiar with the situation. Even with the €60-a-day limit on ATM withdrawals from Greek’s closed banks, “it’s a matter of a few days” until the money runs out, this person said.

   

  By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.

   

  Greece’s cash crunch hit small merchants first. They are less able to get credit from their suppliers, especially those dealing in perishable products that are continually imported. Christos Georgiopoulos owns a gourmet supermarket in Plaka, a picturesque Athens neighborhood frequented by tourists. He sells Champagne and Russian crab legs.

   

  Nobody is buying. “I haven’t had a single customer in two days,” he said Wednesday. He is shutting down his shop and says he doesn’t know when he will reopen. He gave some crab legs to his workers and is taking some home. “I haven’t paid my staff and don’t know if and when I will,” he added.

   

  Cash is king. “Now you have almost every cardholder going to the ATM every day,” said Stefanos Kotronakis of payment-processing provider ACI Worldwide in Athens, which operates systems that drive ATMs. “Cash has a higher value now.”

   

  Ellie Tzortzi, a partner at a Vienna-based digital-design and market research firm, is flying to Athens this weekend to pay her employees here in cash. “The last time I traveled with a wad of cash to pay someone’s salary was 10 years ago in Kosovo,” she said.

  And AFP has more color on the crisis facing Greek businesses:

  Greece’s dive into financial uncertainty is forcing struggling businesses to take unusual steps to survive, including hoarding euros in cash.

   

  The government’s announcement it was closing banks this week to stem a panicked rush to withdraw money, left many ordinary Greeks high and dry.

   

  “I put aside as much cash as possible” in advance, said an Athens baker Taso Paraskevopoulos, who had expected the controls to be imposed as the country staggered towards a default on a debt repayment to the International Monetary Fund.

   

  “I sometimes need hundreds of euros a day to pay suppliers and expenses, I can’t allow myself to be caught short,” he said, making it quite clear he blames the radical left ruling party SYRIZA for the crisis.

   

  The capital controls forbid money transfers abroad, except by express permission from the Finance Ministry.

   

  Businesses which import their raw materials have been the hardest hit, says Vassilis Korkidis, head of the National Confederation of Hellenic Commerce (ESEE).

   

  As unease spreads, getting ones hands on cash has become a sort of national sport, with businesses from restaurants to car mechanics telling customers paying by card is no longer an option.

   

  And what if the crisis drags on? asked Sotiris Papantonopoulos, head of online insurance broker Insurancemarket, which employs 70 people.

   

  Launched in 2011 despite the financial crisis, the company was in expansion and had intended to take on other 60 people in the coming months, “but now everything is on hold,” said Papantonopoulos, visibly upset after having to ask some of his employees not to come to work this week.

   

  “If the measures remain in place for two months, well close, it’s over.”

  So there you have it. The unthinkable — which we have of course been warning about for months — is unfolding before Europe’s very eyes. 

  The crisis has officially moved beyond the negotiating table and has now manifested itself in a shortage of physical banknotes and the inability of Greek businesses to stock the shelves, leaving all of those who accused the tin foil hat crowd of fearmongering to look on in horror as the ATMs go dark, imports grind to a halt, and Greece rapidly descends into the Third World.

  This is no longer speculation, it is a stark reality, and as Constantine Michalos, the president of the Athens Chamber of Commerce and Industry told WSJ, “in one week, two weeks, three weeks, it will be finished.”

  

  

  

  

  

• Church Elder Defrauds Investors With "Holy Spirit" Day Trading System

  Submitted by Daniel Drew via Dark-Bid.com,

  

  While it remains unclear if the Holy Spirit was behind these trades, one thing is for sure: When Charles Erickson's investors opened their recent statements, they said, "Holy Shit!"

  As reported by Ponzi Tracker, Charles Erickson of Uxbridge, Massachusetts was looking for a way to supplement his retirement income. Despite having no day trading experience, Erickson jumped head first into the E-Mini Russell 2000 futures contract. In testimony provided to the Massachusetts Securities Division, he said,

  It's going to sound a little strange to you, but … I believe the Holy Spirit showed me this system.

  Apparently, the machinations of the Holy Spirit are proprietary. When asked for further disclosure, he said, "I don't want to give my system away." However, he certainly had no reservations about letting his investors give their money away. He promised them monthly returns of 4%. It seems like a small number, but annually, that's about 50%. The 25 "investors" were convinced, and they gave him $3.5 million.

  The plan started unraveling in 2013 when Erickson sustained significant trading losses. He eventually halted payments in September 2014, and in December, he told investors he had "zero capital and almost zero assets." Erickson later disclosed that the "system" did not generate returns every month and that he would use reserves to pay other investors during those situations, which is the definition of a Ponzi scheme.

  Optimistic investors should consider this as a bump in the road. Eventually, we will see a "Holy Spirit ETF" that will work out the kinks in Erickson's system, and we'll all be on the road to riches.

  

  

  

  

  

• "There Are Obvious Signs Of Distress" In The Manufacturing Industry

  In April, we noted the NACM's comments that "there are big, big problems" underlying the economy as a surge in unfavorable factors suggested credit conditions were tightening dramatically (only to see that data revised away suddenly). June's data has confirmed this weakness with credit rejections soaring to their highest since 2009 with the biggest spike in 9 years, with NACM CEO Kuehl exclaiming, "There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest… companies that have been awaiting it are getting in trouble with their creditors."

  As NACM reports,

  “This has been a tale of two directions,” Kuehl noted. “On the one hand, there is some hope for better numbers in the future as the favorables look better than in a long while. However, the present is not so positive, as the unfavorables are worsening, which signals that many companies are not in the shape they would like to be and are falling behind in their obligations.”

  5 of the 6 unfavorable factors for Credit Managers weakened dramatically…

  

   

  Among the unfavorable factors in NACM's credit index, "Rejections" have soared…

  

   

  The bad news came with the index of unfavorable factors…

  The overall reading dove from 51.4 to 49.2, a point not seen in more than a year and a dubious trip into contraction territory for the first time since September’s 49.9.

   

  The sub-readings illustrate the problem. The category of “rejections of credit applications” slid into the contraction at 49.5. That is a dramatic and alarming trend that suggests some in the new applicants pool are far from creditworthy. The category of “accounts placed for collection” traveled a similar path, from 51.6 to 48.3—it’s the first time in the contraction zone in more than three years for the category. “There are some obvious signs of distress in the manufacturing community, as the expected wave of consumer demand has yet to manifest,” Kuehl said. “As such, companies that have been awaiting it are getting in trouble with their creditors.”

  And for those who still believe 2015 is on its way to escape velocity (because why else would The Fed think about raising rates)… it's not!

  “The year-over-year trend is not encouraging,” Kuehl said. “There has been a distinct downward slide, and it is apparent that conditions were far better in mid-2014 than they are now. That was neither expected nor wanted at this stage of a recovery.”

  As Kuehl concludes, rather ominously,

   “The overall sense is that the long-delayed recovery has been taking its toll, as businesses are finding it harder and harder to struggle on."

  As we noted previously, despite all the IPO fanfare and claims of liquidity styill flowing, the big news is access to credit. It is suddenly very hard to get and this looks like the situation that existed at the start of the recession in 2008. The overall economy didn’t look all that bad in late 2008, except that there was a dearth of credit and that soon led to business failures and struggles.

  The pattern is the same whether one is discussing the manufacturing or service side—too many seeking credit that are not going to get what they are seeking—either because there are doubts as to their credit status or because those issuing credit are in a very cautious mood.

  

  

  

  

  

• How Greece Has Fallen Victim To "Economic Hit Men"

  "Greece is being 'hit', there's no doubt about it," exclaims John Perkins, author of Confessions of an Economic Hit Man, noting that "[Indebted countries] become servants to what I call the corporatocracy … today we have a global empire, and it's not an American empire. It's not a national empire… It's a corporate empire, and the big corporations rule."

   

  Via Truth-Out.org,

  John Perkins, author of Confessions of an Economic Hit Man, discusses how Greece and other eurozone countries have become the new victims of "economic hit men."

  John Perkins is no stranger to making confessions. His well-known book, Confessions of an Economic Hit Man, revealed how international organizations such as the International Monetary Fund (IMF) and the World Bank, while publicly professing to "save" suffering countries and economies, instead pull a bait-and-switch on their governments: promising startling growth, gleaming new infrastructure projects and a future of economic prosperity – all of which would occur if those countries borrow huge loans from those organizations. Far from achieving runaway economic growth and success, however, these countries instead fall victim to a crippling and unsustainable debt burden.

  That's where the "economic hit men" come in: seemingly ordinary men, with ordinary backgrounds, who travel to these countries and impose the harsh austerity policies prescribed by the IMF and World Bank as "solutions" to the economic hardship they are now experiencing. Men like Perkins were trained to squeeze every last drop of wealth and resources from these sputtering economies, and continue to do so to this day. In this interview, which aired on Dialogos Radio, Perkins talks about how Greece and the eurozone have become the new victims of such "economic hit men."

  Michael Nevradakis: In your book, you write about how you were, for many years, a so-called "economic hit man." Who are these economic hit men, and what do they do?

  John Perkins: Essentially, my job was to identify countries that had resources that our corporations want, and that could be things like oil – or it could be markets – it could be transportation systems. There're so many different things. Once we identified these countries, we arranged huge loans to them, but the money would never actually go to the countries; instead it would go to our own corporations to build infrastructure projects in those countries, things like power plants and highways that benefitted a few wealthy people as well as our own corporations, but not the majority of people who couldn't afford to buy into these things, and yet they were left holding a huge debt, very much like what Greece has today, a phenomenal debt.

  "[Indebted countries] become servants to what I call the corporatocracy … today we have a global empire, and it's not an American empire. It's not a national empire … It's a corporate empire, and the big corporations rule."

  And once [they were] bound by that debt, we would go back, usually in the form of the IMF – and in the case of Greece today, it's the IMF and the EU [European Union] – and make tremendous demands on the country: increase taxes, cut back on spending, sell public sector utilities to private companies, things like power companies and water systems, transportation systems, privatize those, and basically become a slave to us, to the corporations, to the IMF, in your case to the EU, and basically, organizations like the World Bank, the IMF, the EU, are tools of the big corporations, what I call the "corporatocracy."

  And before turning specifically to the case of Greece, let's talk a little bit more about the manner in which these economic hit men and these organizations like the IMF operate. You mentioned, of course, how they go in and they work to get these countries into massive debt, that money goes in and then goes straight back out. You also mentioned in your book these overly optimistic growth forecasts that are sold to the politicians of these countries but which really have no resemblance to reality.

  Exactly, we'd show that if these investments were made in things like electric energy systems that the economy would grow at phenomenally high rates. The fact of the matter is, when you invest in these big infrastructure projects, you do see economic growth, however, most of that growth reflects the wealthy getting wealthier and wealthier; it doesn't reflect the majority of the people, and we're seeing that in the United States today.

  "In the case of Greece, my reaction was that 'Greece is being hit.' There's no question about it."

  For example, where we can show economic growth, growth in the GDP, but at the same time unemployment may be going up or staying level, and foreclosures on houses may be going up or staying stable. These numbers tend to reflect the very wealthy, since they have a huge percentage of the economy, statistically speaking. Nevertheless, we would show that when you invest in these infrastructure projects, your economy does grow, and yet, we would even show it growing much faster than it ever conceivably would, and that was only used to justify these horrendous, incredibly debilitating loans.

  Is there a common theme with respect to the countries typically targeted? Are they, for instance, rich in resources or do they typically possess some other strategic importance to the powers that be?

  Yes, all of those. Resources can take many different forms: One is the material resources like minerals or oil; another resource is strategic location; another resource is a big marketplace or cheap labor. So, different countries make different requirements. I think what we're seeing in Europe today isn't any different, and that includes Greece.

  What happens once these countries that are targeted are indebted? How do these major powers, these economic hit men, these international organizations come back and get their "pound of flesh," if you will, from the countries that are heavily in debt?

  By insisting that the countries adopt policies that will sell their publicly owned utility companies, water and sewage systems, maybe schools, transportation systems, even jails, to the big corporations. Privatize, privatize. Allow us to build military bases on their soil. Many things can be done, but basically, they become servants to what I call the corporatocracy. You have to remember that today we have a global empire, and it's not an American empire. It's not a national empire. It doesn't help the American people very much. It's a corporate empire, and the big corporations rule. They control the politics of the United States, and to a large degree they control a great deal of the policies of countries like China, around the world.

  John, looking specifically now at the case of Greece, of course you mentioned your belief that the country has become the victim of economic hit men and these international organizations . . . what was your reaction when you first heard about the crisis in Greece and the measures that were to be implemented in the country?

  I've been following Greece for a long time. I was on Greek television. A Greek film company did a documentary called "Apology of an Economic Hit Man," and I also spent a lot of time in Iceland and in Ireland. I was invited to Iceland to help encourage the people there to vote on a referendum not to repay their debts, and I did that and encouraged them not to, and they did vote no, and as a result, Iceland is doing quite well now economically compared to the rest of Europe. Ireland, on the other hand: I tried to do the same thing there, but the Irish people apparently voted against the referendum, though there's been many reports that there was a lot of corruption.

  "That's part of the game: convince people that they're wrong, that they're inferior. The corporatocracy is incredibly good at that."

  In the case of Greece, my reaction was that "Greece is being hit." There's no question about it. Sure, Greece made mistakes, your leaders made some mistakes, but the people didn't really make the mistakes, and now the people are being asked to pay for the mistakes made by their leaders, often in cahoots with the big banks. So, people make tremendous amounts of money off of these so-called "mistakes," and now, the people who didn't make the mistakes are being asked to pay the price. That's consistent around the world: We've seen it in Latin America. We've seen it in Asia. We've seen it in so many places around the world.

  This leads directly to the next question I had: From my observation, at least in Greece, the crisis has been accompanied by an increase in self-blame or self-loathing; there's this sentiment in Greece that many people have that the country failed, that the people failed . . . there's hardly even protest in Greece anymore, and of course there's a huge "brain drain" – there's a lot of people that are leaving the country. Does this all seem familiar to you when comparing to other countries in which you've had personal experience?

  Sure, that's part of the game: convince people that they're wrong, that they're inferior. The corporatocracy is incredibly good at that, whether it is back during the Vietnam War, convincing the world that the North Vietnamese were evil; today it's the Muslims. It's a policy of them versus us: We are good. We are right. We do everything right. You're wrong. And in this case, all of this energy has been directed at the Greek people to say "you're lazy; you didn't do the right thing; you didn't follow the right policies," when in actuality, an awful lot of the blame needs to be laid on the financial community that encouraged Greece to go down this route. And I would say that we have something very similar going on in the United States, where people here are being led to believe that because their house is being foreclosed that they were stupid, that they bought the wrong houses; they overspent themselves.

  "We know that austerity does not work in these situations."

  The fact of the matter is their bankers told them to do this, and around the world, we've come to trust bankers – or we used to. In the United States, we never believed that a banker would tell us to buy a $500,000 house if in fact we could really only afford a $300,000 house. We thought it was in the bank's interest not to foreclose. But that changed a few years ago, and bankers told people who they knew could only afford a $300,000 house to buy a $500,000 house.

  "Tighten your belt, in a few years that house will be worth a million dollars; you'll make a lot of money" . . . in fact, the value of the house went down; the market dropped out; the banks foreclosed on these houses, repackaged them, and sold them again. Double whammy. The people were told, "you were stupid; you were greedy; why did you buy such an expensive house?" But in actuality, the bankers told them to do this, and we've grown up to believe that we can trust our bankers. Something very similar on a larger scale happened in so many countries around the world, including Greece.

  In Greece, the traditional major political parties are, of course, overwhelmingly in favor of the harsh austerity measures that have been imposed, but also we see that the major business and media interests are also overwhelmingly in support. Does this surprise you in the slightest?

  No, it doesn't surprise me and yet it's ridiculous because austerity does not work. We've proven that time and time again, and perhaps the greatest proof was the opposite, in the United States during the Great Depression, when President Roosevelt initiated all these policies to put people back to work, to pump money into the economy. That's what works. We know that austerity does not work in these situations.

  "What I didn't realize during any of this period was how much corporatocracy does not want a united Europe."

  We also have to understand that, in the United States for example, over the past 40 years, the middle class has been on the decline on a real dollar basis, while the economy has been increasing. In fact, that's pretty much happened around the world. Globally, the middle class has been in decline. Big business needs to recognize – it hasn't yet, but it needs to recognize – that that serves nobody's long-term interest, that the middle class is the market. And if the middle class continues to be in decline, whether it's in Greece or the United States or globally, ultimately businesses will pay the price; they won't have customers. Henry Ford once said: "I want to pay all my workers enough money so they can go out and buy Ford cars." That's a very good policy. That's wise. This austerity program moves in the opposite direction and it's a foolish policy.

  In your book, which was written in 2004, you expressed hope that the euro would serve as a counterweight to American global hegemony, to the hegemony of the US dollar. Did you ever expect that we would see in the European Union what we are seeing today, with austerity that is not just in Greece but also in Spain, Portugal, Ireland, Italy, and also several other countries as well?

  What I didn't realize during any of this period was how much corporatocracy does not want a united Europe. We need to understand this. They may be happy enough with the euro, with one currency – they are happy to a certain degree by having it united enough that markets are open – but they do not want standardized rules and regulations. Let's face it, big corporations, the corporatocracy, take advantage of the fact that some countries in Europe have much more lenient tax laws, some have much more lenient environmental and social laws, and they can pit them against each other.

  "[Rafael Correa] … has to be aware that if you stand up too strongly against the system, if the economic hit men are not happy, if they don't get their way, then the jackals will come in and assassinate you or overthrow you in a coup."

  What would it be like for big corporations if they didn't have their tax havens in places like Malta or other places? I think we need to recognize that what the corporatocracy saw at first, the solid euro, a European union seemed like a very good thing, but as it moved forward, they could see that what was going to happen was that social and environmental laws and regulations were going to be standardized. They didn't want that, so to a certain degree what's been going on in Europe has been because the corporatocracy wants Europe to fail, at least on a certain level.

  You wrote about the examples of Ecuador and other countries, which after the collapse of oil prices in the late '80s found themselves with huge debts and this, of course, led to massive austerity measures . . . sounds all very similar to what we are now seeing in Greece. How did the people of Ecuador and other countries that found themselves in similar situations eventually resist?

  Ecuador elected a pretty remarkable president, Rafael Correa, who has a PhD in economics from a United States university. He understands the system, and he understood that Ecuador took on these debts back when I was an economic hit man and the country was ruled by a military junta that was under the control of the CIA and the US. That junta took on these huge debts, put Ecuador in deep debt; the people didn't agree to that. When Rafael Correa was democratically elected, he immediately said, "We're not paying these debts; the people did not take on these debts; maybe the IMF should pay the debts and maybe the junta, which of course was long gone – moved to Miami or someplace – should pay the debts, maybe John Perkins and the other economic hit men should pay the debts, but the people shouldn't."

  And since then, he's been renegotiating and bringing the debts way down and saying, "We might be willing to pay some of them." That was a very smart move; it reflected similar things that had been done at different times in places like Brazil and Argentina, and more recently, following that model, Iceland, with great success. I have to say that Correa has had some real setbacks since then . . . he, like so many presidents, has to be aware that if you stand up too strongly against the system, if the economic hit men are not happy, if they don't get their way, then the jackals will come in and assassinate you or overthrow you in a coup. There was an attempted coup against him; there was a successful coup in a country not too far away from him, Honduras, because these presidents stood up.

  We have to realize that these presidents are in very, very vulnerable positions, and ultimately we the people have to stand up, because leaders can only do a certain amount. Today, in many places, leaders are not just vulnerable; it doesn't take a bullet to bring down a leader anymore. A scandal – a sex scandal, a drug scandal – can bring down a leader. We saw that happen to Bill Clinton, to Strauss-Kahn of the IMF; we've seen it happen a number of times. These leaders are very aware that they are in very vulnerable positions: If they stand up or go against the status quo too strongly, they're going to be taken out, one way or another. They're aware of that, and it behooves we the people to really stand up for our own rights.

  You mentioned the recent example of Iceland . . . other than the referendum that was held, what other measures did the country adopt to get out of this spiral of austerity and to return to growth and to a much more positive outlook for the country?

  It's been investing money in programs that put people back to work and it's also been putting on trial some of the bankers that caused the problems, which has been a big uplift in terms of morale for the people. So Iceland has launched some programs that say "No, we're not going to go into austerity; we're not going to pay back these loans; we're going to put the money into putting people back to work," and ultimately that's what drives an economy, people working. If you've got high unemployment, like you do in Greece today, extremely high unemployment, the country's always going to be in trouble. You've got to bring down that unemployment, you've got to hire people. It's so important to put people back to work. Your unemployment is about 28 percent; it's staggering, and disposable income has dropped 40 percent and it's going to continue to drop if you have high unemployment. So, the important thing for an economy is to get the employment up and get disposable income back up, so that people will invest in their country and in goods and services.

  In closing, what message would you like to share with the people of Greece, as they continue to experience and to live through the very harsh results of the austerity policies that have been implemented in the country for the past three years?

  I want to draw upon Greece's history. You're a proud, strong country, a country of warriors. The mythology of the warrior to some degree comes out of Greece, and so does democracy! And to realize that the marketplace is a democracy today, and how we spend our money is casting our ballot. Most political democracies are corrupt, including that of the United States. Democracy is not really working on a governmental basis because the corporations are in charge. But it is working on a market basis. I would encourage the people of Greece to stand up: Don't pay off those debts; have your own referendums; refuse to pay them off; go to the streets and strike.

  And so, I would encourage the Greek people to continue to do this. Don't accept this criticism that it's your fault, you're to blame, you've got to suffer austerity, austerity, austerity. That only works for the rich people; it does not work for the average person or the middle class. Build up that middle class; bring employment back; bring disposable income back to the average citizen of Greece. Fight for that; make it happen; stand up for your rights; respect your history as fighters and leaders in democracy, and show the world!

  

  

  

  

  

• Jobs Jolt Sparks Bond Bid; Stocks Skid As "Day Of Greckoning" Looms

  A little premature but…

   

  Deja Vu all over again…

  

   

  Greece still doesn't matter…

  

   

  Stocks limped higher into the payroll print – running stops above yesterday's highs… then dropped to yesterday's lows before trying to melt up into the last illiqui hour…

  

   

  Small Caps were weak out of the gate today…

  

   

  On the week, Small Caps are worst…

  

   

  But since the peak of "Greece is rescued" last weekend, Trannies are the biggest loser…

  

   

  Bonds rallied on the weaker than expected payrolls data, stocks slowly caught down, accelerated by the comments by The IMF…

  

   

  European risk is now double that of American stocks – the highest spread in 13 years…

  

   

  Social media darlings continue to take it on the chin (not Yelp's big dump today)…

  

   

  Bond yields ripped lower on the jobs data, stabilized then squeezed into the close… NOTE that 30Y tagged unchanged perfectly before payrolls snapped yields lower…

  

   

  The US Dollar drifted sideways to lower with a jolt lower on the jobs data…

  

   

  Commodities were mixed but had some precious metal turmoil aroun dthe jobs data…

  

   

  Gold & Silver ended the week lower after a number of crazy moves…

  

   

  Crude was whipsawed as rig count increases and Iran Deal rumors dominated any BTFD hopes… on target for the worst week in 4 months – lowest weekly close sicnce April 17th

  

   

  The 'Day of Grekoning' is almost upon us… hopefully there's something left by time our US friends return on Monday! pic.twitter.com/SZ0lgoCNxj

  — RANsquawk (@RANsquawk) July 2, 2015

   

  Charts: Bloomberg

  Bonus Chart: Feeling spooked?

   

  @Stalingrad_Poor mañana pic.twitter.com/SWGmBvAEH3

  — Not Jim Cramer (@Not_Jim_Cramer) July 1, 2015

  

  

  

  

• "It Could Never Happen Here" – America Is Not Greece

  Tick, tock… "it could never happen here?"

   

  

  Source: Townhall.com

  But as Jared "The 10th Man" Dillian writes on MauldinEconomics, a financial crisis of similar magnitude will happen in the US someday… it's just a matter of when…

  I was watching the 6 o’clock news and saw images of closed banks in Greece and people lined up at ATMs. I’m sure you did, too.

  This must seem surreal to most people because it seems so remote. But put yourself in these people’s shoes for a second. You have money in the bank. Suddenly you can’t get to it. After standing in long lines, you can only get 60 euros at a time, which isn’t going to last you very long.

  What if you didn’t plan adequately and haven’t stashed away any cash? The banks will be closed for a while. What happens?

  How do you pay for rent? Or food?

  How does your employer pay you?

  Do you go homeless? Or hungry?

  Do you get really angry, take to the streets, blame someone or something (probably the wrong thing), break stuff, set things on fire?

  Will Greece descend into anarchy?

  It might.

  Doomsday Preppers

  Of course, not everyone in Greece is hurting. Many people saw this coming and took action. They took all their money out of the banks, put it under the mattress, or maybe stored it in a safe. Maybe they bought gold, or diamonds, or something else. These people aren’t standing in lines at ATMs. They aren’t going to go homeless or hungry.

  But these people get a pretty bad rap—at least here in the US, where we call them “doomsday preppers.” Or “bunker monkeys.” Or “conspiracy theorists.” Or “gold bugs.” They take a beating.

  Jim Rickards tweeted the other day, “I’ll bet there a lot of Greeks saying, ‘I wish I had bought some gold.’” Truer words have never been spoken.

  This week’s issue of The 10^th Man is not a gold promotion, but rather a broader discussion about how you can prepare for financial catastrophe. People keep fire extinguishers and first aid kits in their cars. They test their smoke alarms twice a year. They purchase flood insurance or, in my neighborhood, hurricane shutters.

  Why would you do all these things but just leave your money in the bank and hope for the best?

  I have studied all kinds of financial crises in all parts of the world, from depressions to hyperinflations. The thing they all have in common is that people who do not prepare get crushed. People who are not appropriately paranoid get crushed.

  There is such a thing as being too paranoid (if everything you own is in gold and hard assets, you can miss out on some meaty returns in financial assets), but a little paranoia is healthy. For a few years, I had a pretty concrete escape plan, with assets, just in case.

  In case of what?

  In case of anything.

  No Sympathy Whatsoever

  I don’t feel sorry for Greece. I don’t feel sorry for the people in the ATM lines. They have had years to prepare for this day. Most people in similar situations don’t have so much time. I’m shocked that the banks had any deposits left at all.

  Probably what will happen is that the banks will require a Cyprus-like bail-in and the depositors will take a massive haircut, getting only a fraction of what they once owned. There are no wealthy Russians to go after. The burden will fall on ordinary Greeks.

  It’s also hard to feel badly for a nation of people who have chosen to pursue this ruinous political path—people who cast 52% of their votes for communists or neo-Nazis, and who have proven completely unable to take any responsibility for what has transpired.

  Greece will probably respond to the failure of extreme-left Syriza by electing even more extreme politicians. It seems likely that they will choose a strongman to “get things done.” I think people fail to understand how totalitarianism can happen in the 21^st century. Think of this as a YouTube tutorial video on the subject.

  Full Faith and Credit

  A financial crisis of similar magnitude will happen in the US someday. The only question is whether it will happen in 20 years or 50 or 100 or 200. But it is a virtual certainty. My only hope is that I won’t live long enough to see it.

  Still, I know how to prepare for it. You know, in the old days before deposit insurance, people used to keep their money in five to ten different banks to diversify their counterparty risk. If a bank was perceived to be less creditworthy, the banknotes would trade at a discount.

  I think that in the days of FDIC and various investor protections, we are lulled to sleep, believing that things really are safe when in reality, they are not. We were hours away from a complete and total financial collapse when the Reserve Primary fund broke the buck and there was a run on the money market mutual funds. We were that close.

  After those dark days in 2008, I vowed that I’d never be in that position again.

  You do sacrifice investment returns when you do this kind of stuff. Cash or gold or diamonds doesn’t yield anything. But then again, nowadays, neither do bonds. Don’t let the financial media shame you into thinking that taking basic emergency precautions to protect yourself financially is somehow “crazy.”

  You can overdo it, though. You don’t need that many cans of pork and beans.

  

  

  

  

  

• Did The IMF Just Open Pandora's Box?

  By now it should be clear to all that the only reason why Germany has been so steadfast in its negotiating stance with Greece is because it knows very well that if it concedes to a public debt reduction (as opposed to haircut on debt held mostly by private entities such as hedge funds which already happened in 2012), then the rest of the PIIGS will come pouring in: first Italy, then Spain, then Portugal, then Ireland.

  The problem is that while it took Europe some 5 years to transfer a little over €200 billion in Greek private debt exposure to the public balance sheet (by way of the ECB, EFSF, ESM and countless other ad hoc acronyms) at a cost of countless summits and endless negotiations, which may or may not result with the first casualty of the common currency which may prove to be reversible as soon as next week, nobody in Europe harbors any doubt that the same exercise can be repeated with Italy, or Spain, or even Portugal. They are just too big (and their nonperforming loans are in the hundreds of billions).

  And yet, today, in a stunning display of the schism within the Troika, it was the IMF itself which explicitly stated that Greece is no longer viable unless there is both additional funding provided to the country, which can only happen if there is another massive debt haircut.

  This is what the IMF said:

  Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks. Assuming official (concessional) financing through end–2018, the debt-to-GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2022 (see Figure 4ii). Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets. With debt remaining very high, any further deterioration in growth rates or in the mediumterm primary surplus relative to the revised baseline scenario discussed here would result in significant increases in debt and gross financing needs (see robustness tests in the next section below). This points to the high vulnerability of the debt dynamics.

  And the kicker:

  • “these new financing needs render the debt dynamics unsustainable.”

  Bingo, because that is, in a nutshell, precisely what Tsipras and Varoufakis have been claiming since day one. As expected, a Greek government spokesman promptly said that the IMF report is in line with the Greek government’s view on debt.

  What makes the IMF report even more odd, is not so much its content and position which have been largely known for quite some time now, but its timing: just three days before the Sunday referendum, Tsipras now has prima facie evidence to wave in front of the Greek people and say “see, we were right all along.”

  It is exactly the case that only a “No” vote at this point would allow Greece to continue a negotiation which has already seen one of the three Troika members side with the Greek position. Should Greece vote “Yes”, it will make any future negotiation with the Troika impossible, and while the country will get a few months respite the resultant bank run after the bank reopen with the ECB’s blessing will mean that all Greece will do is buy itself a few months time. Only this time all the debt will still be due.

  And, should hey vote “Yes”, this time the Greeks will only have themselves to blame for all the future pain, pain which will continue well after the mid-point of this century.

  But ignoring Greece for a minute, what the IMF’s “debt sustainability analysis” has just done is open the door for every single other comparably insolvent peripheral European nation to knock on Christine Lagarde’s door and politely ask: “Mme Lagarde, if Greece is unsustainable, then why aren’t we?“

  Because as the chart below shows, the debt situations of all the other peripheral European nations is just as “unsustainable.”

  

   

  In this way, while the outcome of the Greek situation is currently unknown, it has also become moot, because at this very moment, politicians from Spain’s Podemos to Italy’s Five Star movement are drafting memos demanding that the IMF evaluate their own debt sustainability. Or rather unsustainability.

  Perhaps more importantly, these same politicians will now dangle the prospect of an IMF admission that they, too, deserve a haircut as the catalyst to be elected into power. After all who can refuse that their life would be made so much better if only the country was permitted to selectively “default” on €50, €100, €200 billion or more in debt? Just elect this politician, or that, and watch your living standard soar…

  And since the IMF has no choice but to agree that just like Greece all these nations are accordingly drowning in debt, Syriza’s sacrifice (assuming Tsipras fails to outnegotiate Merkel) will not have been in vain. In fact, it may very well end up that today the IMF opened up the Pandora’s box, one which, more than a Grexit, will destroy Merkel’s “united Europe” legacy.

  

  

  

  

  

• Friday Humor: How To Use A Fax Machine

  Hillary Clinton figuring out how to work a fax machine… and this is who may become America’s next President?

   

  

  

  

  

  

  

• China State Official Hints Beijing May Bailout Greece

  On Monday, after Greek PM Alexis Tsipras’ dramatic referendum call sparked a run on Greek ATMs, grocery stores, and gas stations, we did our part to help ameliorate the situation by sending a subtle message to Athens:

  Dear Greece, if you want to apply for a loan from the Asian Infrastructure Investment Bank, send an email to: information@aiibank.org

  — zerohedge (@zerohedge) June 28, 2015

  Indeed, now may be an opportune time to tap Beijing for a few billion given that China officially launched the AIIB this week. As a reminder, the success of China’s AIIB membership drive was a political disaster for The White House, which expended considerable effort to discourage US allies from supporting the new China-led venture.

  As such, it would be difficult to imagine a more fitting pilot program for the world’s newest supranational lender than a rescue package for the birthplace of Western democracy which has been brought to its knees by that most Western of all multilateral institutions, the IMF. 

  And while any funding to Greece from China would likely be channeled through the Silk Road fund (at least for now, given that the AIIB is just a few days old, officially), any aid from Xi Jingping’s deep pockets to Athens would represent a spectacular coup on both an economic and political level.

  While the world is by now likely incredulous about the prospects for a Greek “Eastern” pivot (around a half dozen Russian headfakes have made us somewhat numb to the idea), Chinese assistance might be more likely than Europe cares to admit. Sputnik News has more:

  China may help Greece directly through its new financial instruments, director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics told Sputnik China.

   

  Goldman Sachs predicted in a report published on Wednesday that in a worst-case scenaria China’s exports would decline 2.2 percent as a result of Greece’s economic crisis. Other than exports to Greece itself, the crisis could also hurt the economies of nearby countries, where Chinese businessmen have also made considerable investments.

   

  “The Greek crisis has an undoubtedly seriously influence on China’s trade with Greece and investment into the country. But I think that European countries together with China can help Greece overcome the problems that arose,” Fan Mingtao said.

   

  “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,” Fan added.

  And while it’s impossible to overstate how hilariously ironic it is that Communist China could be the world’s best hope for preventing the birthplace of Western civilization from careening into the Third World, there’s a more subtle joke here as well. We’ll let readers discern what that joke is with the help of the following graphic: