• Paul Craig Roberts: "Washington Is Impotent To Prevent Armageddon"

  Submitted by Paul Craig Roberts,

  Paul Craig Roberts’ address to the Conference on the European/Russian Crisis, Delphi, Greece, June 20-21, 2015

  ?Paul Craig Roberts, formerly Assistant Secretary of the US Treasury for Economic Policy, Associate Editor, Wall Street Journal, Senior Research Fellow, Stanford University, William E. Simon Chair in Political Economy, Center for Strategic and International Studies, Georgetown University, Washington, D.C.

  The United States has pursued empire since early in its history, but it was the Soviet collapse in 1991 that enabled Washington to see the entire world as its oyster.

  The collapse of the Soviet Union resulted in the rise of the neoconservatives to power and influence in the US government. The neoconservatives have interpreted the Soviet collapse as History’s choice of “American democratic capitalism” as the New World Order.

  Chosen by History as the exceptional and indispensable country, Washington claims the right and the responsibility to impose its hegemony on the world. Neoconservatives regard their agenda to be too important to be constrained by domestic and international law or by the interests of other countries. Indeed, as the Unipower, Washington is required by the neoconservative doctrine to prevent the rise of other countries that could constrain American power.

  Paul Wolfowitz, a leading neoconservative, penned the Wolfowitz Doctrine shortly after the Soviet collapse. This doctrine is the basis of US foreign and military policy.

  The doctrine states:

  “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.”

  Notice that Washington’s “first objective” is not peace, not prosperity, not human rights, not democracy, not justice. Washington’s “first objective” is world hegemony. Only the very confident so blatantly reveal their agenda.

  As a former member of the Cold War Committee on the Present Danger, I can explain what Wolfowitz’s words mean. The “threat posed formerly by the Soviet Union” was the ability of the Soviet Union to block unilateral US action in some parts of the world. The Soviet Union was a constraint on US unilateral action, not everywhere but in some places. Any constraint on Washington is regarded as a threat.

  A “hostile power” is a country with an independent foreign policy, such as the BRICS (Brazil, Russia, India, China, and South Africa) have proclaimed. Iran, Bolivia, Ecuador, Venezuela, Argentina, Cuba, and North Korea also proclaim an independent foreign policy.

  This is too much independence for Washington to stomach. As Russian President Vladimir Putin recently stated, “Washington doesn’t want partners. Washington wants vassals.”

  The Wolfowitz doctrine requires Washington to dispense with or overthrow governments that do not acquiesce to Washington’s will. It is the “first objective.”

  The collapse of the Soviet Union resulted in Boris Yeltsin becoming president of a dismembered Russia. Washington became accustomed to Yeltsin’s compliance and absorbed itself in its Middle Eastern wars, expecting Vladimir Putin to continue Russia’s vassalage.

  However at the 43rd Munich Conference on Security Policy, Putin said: “I consider that the unipolar model is not only unacceptable but also impossible in today’s world.”

  Putin went on to say:

  “We are seeing a greater and greater disdain for the basic principles of international law, and independent legal norms are, as a matter of fact, coming increasingly closer to one state’s legal system. One state and, of course, first and foremost the United States, has overstepped its national borders in every way. This is visible in the economic, political, cultural and educational policies it imposes on other nations. Well, who likes this? Who is happy about this?”

  When Putin issued this fundamental challenge to US unipower, Washington was preoccupied with its lack of success with its invasions of Afghanistan and Iraq. Mission was not accomplished.

  By 2014 it had come to Washington’s attention that while Washington was blowing up weddings, funerals, village elders, and children’s soccer games in the Middle East, Russia had achieved independence from Washington’s control and presented itself as a formidable challenge to Washington’s uni-power. Putin blocked Obama’s planned invasion of Syria and bombing of Iran.

  The unmistakable rise of Russia refocused Washington from the Middle East to Russia’s vulnerabilities.

  Ukraine, long a constituent part of Russia and subsequently the Soviet Union, was split off from Russia in the wake of the Soviet collapse by Washington’s maneuvering. In 2004 Washington had tried to capture Ukraine in the Orange Revolution, which failed to deliver Ukraine into Washington’s hands. Consequently, according to neocon Assistant Secretary of State Victoria Nuland, Washington spent $5 billion over the following decade developing Ukrainian non-governmental organizations (NGOs) that could be called into the streets of Kiev and in developing Ukrainian political leaders willing to represent Washington’s interests.

  Washington launched its coup in February 2014 with orchestrated demonstrations that, with the addition of violence, resulted in the overthrow and flight of the elected democratic government of Victor Yanukovych. In other words, Washington destroyed democracy in a new country with a coup before democracy could take root.

  Ukrainian democracy meant nothing to Washington. Washington was intent on seizing Ukraine in order to present Russia with a security problem and also to justify sanctions against “Russian aggression” in order to break up Russia’s growing economic and political relationships with Europe. Washington feared that these relationships could undermine Washington’s hold on Europe.

  Sanctions are contrary to Europe’s interests. Nevertheless European governments accommodated Washington’s agenda. The reason was explained to me several decades ago by my Ph.D. dissertation committee chairman who became Assistant Secretary of Defense for International Security Affairs. I had the opportunity to ask him how Washington managed to have foreign governments act in Washington’s interest rather than in the interest of their own countries. He said, “money.” I said, “you mean foreign aide?” He said, “no, we give the politicians bags full of money. They belong to us. They answer to us.”

  Recently, the German journalist Udo Ulfkotte wrote a book, Bought Journalists, in which he reported that every significant European journalist functions as a CIA asset.

  This does not surprise me. The same is the situation in the US.

  As Europe is an appendage of Washington, a collection of vassal states, Europe enables Washington’s pursuit of hegemony even to the extent of being driven into conflict with Russia over a “crisis” that is entirely a propaganda creation of Washington’s.

  The media disguises the reality. During the Clinton regime, six mega-media companies were permitted to acquire 90% of the US print, TV, radio, and entertainment media, a concentration that destroyed diversity and independence. Today the media throughout the Western world serves as a Propaganda Ministry for Washington. The Western media is Washington’s Ministry of Truth. Gerald Celente, the trends forecaster, calls the Western media “presstitutes,” a combination of press prostitutes.

  In the US Putin and Russia are demonized around the clock. Every broadcast alerts us to “the Russian threat.” Even Putin’s facial expressions are psychologically analyzed. Putin is the New Hitler. Putin has ambitions to recreate the Soviet empire. Putin invaded Ukraine. Putin is going to invade the Baltic states and Poland. Putin is a threat on the level of ebola and the Islamist State. US Russian experts, such as Stephen Cohen, who state the facts are dismissed as “Putin apologists.” Any and every one who takes exception to the anti-Putin, anti-Russian propaganda is branded a “Putin apologist,” just as 9/11 skeptics are dismissed as “conspiracy theorists.” In the Western world, the few truth-tellers are demonized along with Putin and Russia.

  The world should take note that today, right now, Truth is the most unwelcome presence in the Western world. No one wants to hear it in Washington, London, Tokyo, or in any of the political capitals of Washington’s empire.

  The majority of the American population has fallen for the anti-Russian propaganda, just as they fell for “Saddam Hussein’s weapons of mass destruction,” “Assad’s use of chemical weapons against his own people,” Iranian nukes,” the endless lies about Gaddafi, 9/11, shoe bombers, underwear bombers, shampoo and bottled water bombers. There is always a new lie to keep the fear factor working for Washington’s endless wars and police state measures that enrich the rich and impoverish the poor.
  The gullibility of the public has enabled Washington to establish the foundation for a new Cold War or for a preemptive nuclear strike on Russia. Some neoconservatives prefer the latter. They believe nuclear war can be won, and they ask, “What is the purpose of nuclear weapons if they cannot be used?”

  China is the other rising power that the Wolfowitz Doctrine requires to be constrained. Washington’s “pivot to Asia” creates new naval and air bases to control China and perpetuate Washington’s hegemony in the South China Sea.

  We come to the bottom line. Washington’s position is not negotiable. Washington has no interest in compromising with Russia or China. Washington has no interest in any facts. Washington’s deal is this: “You can be part of our world order as our vassals, but not otherwise.”
  European governments and, of course, the lapdog UK government, are complicit in this implicit declaration of war against Russia and China. If it comes to war, Europeans will pay the ultimate price for the treason of their leaders, such as Merkel, Cameron, and Hollande, as Europe will cease to exist.

  War with Russia and China is beyond Washington’s capability. However, if the demonized “enemy” does not succumb to the pressure and accept Washington’s leadership, war can be inevitable. Washington has launched an attack. How does Washington back off? Don’t expect any American regime to say, “we made a mistake. Let’s work this out.” Every one of the announced candidates for the American presidency is committed to American hegemony and war.

  Washington believes Russia can be isolated from the West and that this isolation will motivate those secularized and westernized elements in Russia, who desire to be part of the West, into more active opposition against Putin. The Saker calls these Russians “Atlanticist integrationists.”

  After two decades of Russia being infiltrated by Washington’s NGO Fifth Columns, the Russian government has finally taken action to regulate the hundreds of Western-financed NGOs inside Russia that comprise Washington’ subversion of the Russian government. However, Washington still hopes to use sanctions to cause enough disruption of economic life within Russia to be able to send protesters into the streets. Regime change, as in Ukraine, is one of Washington’s tools. In China the US organized the Hong Kong “student” riots, which Washington hopes will spread into China, and Washington supports the independence of the Muslim population in the Chinese province that borders Kazakhstan.

  The problem with a government in the control of an ideology is that ideology and not reason drives the action of the government. As the majority of Western populations lack the interest to search for independent explanations, the populations impose no constraint on governments.

  To understand Washington, go online and read the neoconservative documents and position papers. You will see an agenda unconstrained by law, by morality, by compassion, by common sense. You will see an agenda of evil.

  Who is Obama’s Assistant Secretary of State for the Ukrainian part of the world? It is the neoconservative Victoria Nuland who organized the Ukrainian coup, who put in office the new puppet government, who is married to the even more extreme neoconservative, Robert Kagan.

  Who is Obama’s National Security advisor? It is Susan Rice, a neoconservative.

  Who is Obama’s Ambassador to the UN? It is Samantha Power, a neoconservative.

  Now we turn to material interests. The neoconservative agenda of world hegemony serves the powerful military/security complex whose one trillion dollar annual budget depends on war, hot or cold.

  The agenda of American hegemony serves the interests of Wall Street and the mega-banks. As Washington’s power and influence spreads, so does American financial imperialism. So does the reach of American oil companies and American agribusiness corporations such as Monsanto.

  Washington’s hegemony means that US corporations get to loot the rest of the world.

  The danger of the neoconservative ideology is that it is in perfect harmony with powerful economic interests. In the US the left-wing has made itself impotent. It believes all the foundational government lies that have given America a police/warfare state incapable of producing alternative leadership. The American left, what little remains, for emotional reasons believes the government’s 9/11 story. The anti-religious left-wing believes the threat posed to free thought by a Christian Russia. The left-wing, convinced that Americans are racists, believes the government’s account of the assassinations of Martin Luther King.

  The left-wing accepts the government’s transparent 9/11 fable, because it is emotionally important to the American left that oppressed peoples strike back. For the American left, it is emotionally satisfying that the Middle East, long oppressed and exploited by the French, British and Americans, struck back and humiliated the Unipower in the 9/11 attack.

  This emotional need is so powerful for the left that it blinds the left-wing to the improbability of a few Saudi Arabians, who could not fly airplanes, outwitting not merely the FBI, CIA, and NSA, which spies on the entire world, but as well all 16 US intelligence agencies and the intelligence agencies of Washington’s NATO vassal states and Israel’s Mossad, which has infiltrated every terrorist organization, including those created by Washington itself.

  Somehow these Saudis were able to also outwit NORAD, airport security, causing security to fail four times in one hour on the same day. They were able to prevent for the first time ever the US Air Force from intercepting the hijacked airliners. Air traffic control somehow lost the hijacked airliners on radar. Two airliners crashed, one into the Pennsylvania country side and one into the Pentagon without leaving any debris. The passport of the leader of the attack, Mohammed Atta was reported to be found as the only undamaged element in the debris of the World Trade Center towers. The story of the passport was so preposterous that it had to be changed.

  This implausible account did not raise any eyebrows in the tame Western print and TV media.

  The right-wing is obsessed with immigration of darker-skinned peoples, and 9/11 has become an argument against immigration. The left-wing awaits the oppressed to strike back against their oppressors. The 9/11 fable survives as it serves the interests of both left and right.

  I can tell you for a fact that if American national security had so totally failed as it is represented to have failed by the official explanation of 9/11, the White House, the Congress, the media would have been screaming for an investigation. Heads would have rolled in agencies that permitted such massive failure of the national security state. The embarrassment of a Superpower being so easily attacked and humiliated by a handful of Arabs acting independently of any intelligence agency would have created an uproar demanding accountability.

  Instead, the White House resisted any investigation for one year. Under pressure from the 9/11 families who lost family members in the World Trade Center Towers, the White House created a political commission consisting of politicians managed by the White House. The commission sat and listened to the government’s account and wrote it down. This is not an investigation.

  In the United States the left-wing is focused on demonizing Ronald Reagan, who had nothing whatsoever to do with any of this. The left-wing hates Reagan because he had to use anti-communist rhetoric in order to keep his electoral basis while he strove to end the Cold War in the face of the powerful opposition of the military/security complex.

  Is the left-wing more effective in Europe? Not that I can see. Look at Greece for example. The Greek people are driven into the ground by the EU, the IMF, the German and Dutch banks and the New York hedge funds. Yet, when presented with candidates who promise to resist the looting of Greece, the Greek voters give the candidates a mere 36% of the vote, enough to form a government, but not enough to have any clout with creditors.

  Having hamstrung their government with such low electoral support, the Greek people further impose impotence on their government by demanding to remain in the EU. If leaving the EU is not a realistic threat, the Greek government has no negotiating power.

  Obviously, the Greek population is so throughly brainwashed about the necessity of being part of the EU that the population is willing to be economically dispossessed rather than to leave the EU. Thus Greeks have forfeited their sovereignty and independence. A country without its own money is not, and cannot be, an independent country.

  Once European intellectuals signed off on the EU, they committed nations to vassalage, both to the EU bureaucrats and to Washington. Consequently, European nations are not independent and cannot exercise an independent foreign policy.

  Their impotence means that Washington can drive them to war. To fully understand the impotence of Europe look at France. The only leader in Europe worthy of the name is Marine Le Pen. Having said this, I am immediately denounced by the European left as a fascist, a racist, and so forth. This only shows the knee-jerk response of the European left.

  It is not I who shares Le Pen’s views on immigration. It is the French people. Le Pen’s party won the recent EU elections. What Le Pen stands for is French independence from the EU. The majority of French see themselves as French and want to remain French with their own laws and customs. Only Le Pen among European politicians has stated the obvious: “The Americans are taking us to war!”

  Despite the French desire for independence, the French will elect Le Pen’s party to the EU but will not give it the vote to be the government of France. The French deny themselves their independence, because they are heavily conditioned by brainwashing, much coming from the left, and are ashamed to be racists, fascists, and whatever epithets have been assigned to Le Pen’s political party, a party that stands for the independence of France.

  The European left-wing, once a progressive force, even a revolutionary one, has become a reactionary force. It is the same in the US. I say this as one of CounterPunch’s popular contributors.

  The inability even of intellectuals to recognize and accept reality means that restraints on neoconservatives are nowhere present except within Russia and China. The West is impotent to prevent Armageddon.

  It is up to Russia and China, and as Washington has framed the dilemma, Armageddon can only be prevented by Russia and China accepting vassal status.

  I don’t believe this is going to happen. Why would any self-respecting people submit to the corrupt West?

  The hope is that Washington will cause its European vassals to rebel by pushing them too hard into conflict with Russia. The hope that European countries will be forced into an independent foreign policy also seems to be the basis of the Russian government’s strategy.

  Perhaps intellectuals can help to bring this hope to fruition. If European politicians were to break from Washington’s hegemony and instead represent European interests, Washington would be deprived of cover for its war crimes. Washington’s aggressions would be constrained by an independent European foreign policy. The breakdown of the neoconservative unipower model would be apparent even to Washington, and the world would become a safer and better place.

  

  

  
  
  

  

• Visualizing The World's Ten Biggest Oil And Gas Companies

  From 2005 to 2015, global oil usage has only increased from 83 million to 93 million bpd (1.13% CAGR). However, the overall rate at which the Top 10 has grown production has been at a 1.29% CAGR pace, and their production now makes up about 58% of all global production. 

  The biggest oil and gas companies with the most impressive increases in production are all state-owned. Saudi Aramco, the world's largest producer, increased production from 10.8 million bpd (2004) to 12 million bpd (2014). NK Rosneft' OAO, National Iranian Oil, Petrochina, and Kuwait Petrol Corp all saw sizeable increases. The only company to see a big decrease, however, was also state-owned (Gazprom).

   

  

  Courtesy of: Visual Capitalist

   

  Oil and gas continues to make up the majority of the global energy mix with 33% and natural gas at 24%. That said, based on the CAGRs above, it does seem that we are making progress in tapering the growth of production. Human population and the economy are growing at rates higher than 1.13%, so that means oil is giving up ground to other energy sources.

  

  
  
  

  

• The Lesson In China: Don't Go Bubble In the First Place

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  There can be no mistaking that Chinese stocks are in a bubble. Since November 21, the Shanghai SSE Composite index has risen more than 100%. Going back to July 22, the gain is nearly 145%. Those dates are not random coincidence, as they mark specific points of PBOC activity. The stock bubble in China is certainly a monetary affair, but in ways that aren’t necessarily comparable to our own stock bubble experience (twice).

  There is, of course, great similarities starting with leverage; in China at the moment there is no shortage, which is precisely the problem. It is quite precarious, though, in that the PBOC has at times shown far more open contempt for Chinese stock margin than the Federal Reserve or Bank of Japan ever did.

  Stock forecasters in search of an early-warning system for the next Chinese bear market are zeroing in on the country’s record $358 billion pile of margin debt.

   

  When that three-year build-up of leveraged positions starts to unwind, regulators will struggle to limit the selloff, according to Bocom International Holdings Co. and Rabobank International. Almost all of this year’s biggest declines in the Shanghai Composite Index, including a 6.5 percent slump on May 28, were sparked by investor concerns over margin-trading restrictions. The securities regulator announced plans Friday to limit the amount brokerages can lend for stock trading.

  Unlike central banks here and elsewhere, the PBOC has a vastly different understanding and appreciation for asset bubbles, at least to the point that in 2014 and 2015 under reform it is not shirking responsibility for them. The Federal Reserve, in particular, had long been against any linkage between monetarism and asset bubbles, believing instead that they were fully contained under “market” irregularities (that has evolved, somewhat, under the relatively new Yellen Doctrine). I’m not sure the PBOC ever went so far as to completely delink its own activities from asset bubbles, but it at one point was clearly embracing of them even if reluctantly part of a greater government mandate.

  In trying to dig China out of the Great Recession mess, which is and remains a global affair, the PBOC did what all other central banks did, perhaps to an even greater degree. The distaste for the effort did not, at that time, undermine the scope, which simply became immense once the global economy failed to reach its first “benchmark” expectations. All central banks were expecting only to have to fill some time between the Great Recession and a robust recovery, but by 2012 certainly it became clear that the task was much broader and deeply embedded. Most central banks acted again, including the PBOC, but were again rebuffed by a lack of recovery; and indeed worse, an actual and sustained global slowdown from even the tepid pace of expansion from the trough.

  

  By that time, the Chinese bubbles were immense and located mostly in various credit pockets – expressed through real estate and overdevelopment of many industries (oversupply). The stock market didn’t much figure. The reform agenda, born in late 2013, prioritizes managing the greater financial imbalances even above economic expansion, reversing the 2009-12 paradigm, placing the Chinese experience in the past few years very much in reverse of almost everywhere else in monetarism (which is why the PBOC right now so confuses economists and commentary).

  To gain some ability in managing the credit bubbles, which had grown through Wealth Management Products but also Local Government Financing Vehicles, the PBOC in early 2014 experimented with a few limited credit defaults. The results right away were not encouraging, which seems to have forced the PBOC to alter its intended reform path. Seeing the negative reaction in liquidity, especially “dollars”, new efforts were implemented to simultaneously tighten and loosen – tighten the wasteful speculations that were inducing credit bubbles, while targeting liquidity for parts of the financial system deemed vital to the real economy.

  Among the latter was the China Development Bank, which received on July 22 RMB1 trillion in funding support through the new Pledged Lending Facility (PLF). Some have likened this to a Chinese QE, but in reality it is far more of redirecting liquidity than any kind of broad and more familiar expansion. The rise in Shanghai stocks, however, began precipitously with that event.

  

  While that might suggest stock “investors” reacting to “stimulus” as any others have around the world, in the context of reform I think it amounts to what always happens when you start to squeeze a bubble – it breaks out in other places. In other words, as it became clear what reform aimed to accomplish, mostly getting a handle on the credit creation and debt-driven expressions, some financial agents saw the writing on the wall and moved to the “next” open door, stocks, in a very conscious effort to get out of credit while still positively positioned.

  That alternate view was aided on November 21 when the PBOC again made a targeted adjustment to deposit rates, and then further on December 8 when China Securities Deposit and Clearing Corp (CSDC) restricted repo collateral, largely of corporate bonds and notes, to AA or above. That cut repo eligibility in half, signaling that credit, especially low-rated junk, was no longer an open bubble door.

  “The regulation will damp investor demand for lower-rated corporate bonds,” said Yang Feng, a Beijing-based bond analyst at Citic Securities Co., the nation’s biggest brokerage. “That may result in higher borrowing costs for LGFVs.”

  Borrowing costs rose, but “investors” did not disappear – they simply traded junk debt for Chinese stocks. Banks have followed, somewhat, that trend by being rather eager to supply margin, a slighter swap than it might at first appear.

  Analysts say the regulators’ exclusion of lower grade bonds from being used in bond repurchase contracts, a key source of secondary liquidity in trade, increases the risk of trading such bonds, depressing demand and putting upward pressure on yields…

   

  “This is bound to have a major impact on the bond market,” said a dealer at a Chinese commercial bank in Shanghai.

   

  “The Shanghai Stock Exchange’s bond market will be hit the most as China’s corporate bonds are concentrated in the stock exchanges, although the move is likely to spill over to the main interbank bond market as well to a lesser extent,” he said.

  With traders already aligned to the Shanghai exchange, shifting from bonds to stocks as the PBOC cracks down was not a large leap. The banks were there, too, having been the great supplier of repo funds for traded debt issues; now piling up $358 billion in margin debt in short order instead of repo assets (the chart accompanying the article quoted at the outset shows the close relationship, as you would expect, between margin debt and the stock index price, receiving a major boost in late November 2014 after the first great ascension in late July; margin in Shanghai stocks has more than quadrupled since the PLF was first employed).

  If the PBOC was committed to a broad-based monetaristic regime consistent with 2009 views, I seriously doubt stocks would have started to rise as they did since a widespread liquidity program would simply have fed back into the same credit mess as twice before. The very open and public change in monetary policy character is responsible for the change in asset bubble focus, especially as another round of defaults was “allowed” to occur late in 2014.

  There is nothing in the latest re-adjustment that will impact especially the beleaguered housing sector, nor its backing in the Wealth Management Products. Instead, it seems to me the PBOC was intentionally careful to not give the “bubbles” much of anything, relying and focusing solely on actual businesses (and smaller versions at that) rather than the broad-based elements that marked all prior (futile) attempts at “stimulus.” That is the message that should have been received, that in other words this was a far different approach of the PBOC toward a slowing economy.

  What the stock bubble shows is the unthinkable degree of difficulty in trying to actually manage letting air out of any bubble in an orderly fashion; they target for decline credit-funded junk WMP’s and it breaks out in stocks instead. It may already be too late, as growth declines still further month by month, but stock prices go even more insane, drawing in more and more “retail” accounts and regular Chinese. In other words, the reform idea may have been impossible from the start; that the PBOC went ahead anyway, and still continues despite all that has happened, more than suggests that they now recognize the most dangerous existence is asset bubbles, far and away more important than even “necessary” growth.

  

  

  
  
  

  

• The Coming US Recession Charted

  Submitted by Eugen von Bohm-Bawerk,

  The idea of an imminent US recession may seem moot as all the self-proclaimed experts and talking heads still acts as we are well into a recovery and patiently waiting for the forthcoming escape velocity which will take care of all ills plaguing today’s over-indebted society. Never do they stop to think about why things looks as dismal as they do. Not once have it ever occurred to them that unprecedented accumulation of unproductive, or even counter-productive and destructive, debt in itself might be the very cause for low growth. No, these people have the audacity to claim low growth is the reason for high debt ratios, and only through even higher leverage against household and public income can economic growth rates be re-established on previous healthy levels to once again render out-of-control politicians lust for spending sustainable.

  The sheer scale of the backwardness shown in such gross economic illiteracy suggest to us there is ulterior motives behind so-called Keynesian economic theories. No grown-ups would take this seriously if our monetary masters didn’t need to look out for their buddies running fractional reserve warehouse scams across the planet.

  Perfectly in line with our thinking presented in Goebbelnomics a key aspect of communication from our money masters is to put current economic conditions up on a pedestal. Take the latest GDP forecast from the Federal Reserve as a perfect example. Despite the fact that first quarter GDP fell at an annualised rate of 0.7 per cent and higher frequency data going into the second quarter have underperformed there are people within the Federal Reserve System who still believe the US will grow by 2.3 per cent this year.  For that to happen, assuming quite generously a 2 per cent annualised growth rate in the second quarter, the third and fourth quarter must each grow by 4 per cent for the math to add up.

  For 2016 it is even worse. Once again we are told to expect escape velocity, but as the two charts below show, the FOMC have consistently predicted higher growth than what turned out to be the case after the fact. The exact same is true for IMF, World Bank and ECB forecasts. We do not blame them for being wrong, GDP forecasting is a fools guessing game after all, but if they were truly guessing there should not be any consistency in their error. Always too optimistic. Or always trying to condition the great masses into creating their own wealth effect and presto escape velocity.

  

  Source: Federal Reserve, Bureau of Economic Analysis, Bawerk.net

  What our two simple charts goes a long way of proving is that Goebbelnomics has very much become bread and butter of institutionalised mass-manipulation.

  However, asking the very same people where they think interest rates will be at the end of 2015 they all agree that the US economy will remain on life support.

  

  Source: Federal Reserve, Bawerk.net (note, red dots indicate the median projection)

  There are only two persons in the FOMC that have the interest rate expectation right; and they believe rates will be kept at current level even after the December meeting. Perfectly in line with continuous postponement of so-called lift-off. It will as usual turn out to be a dud.

  What we know already is that the US “expansion” is among the longest on record and if history rhymes, as it often does, it is soon time for a new recession – and that with both fiscal and monetary policy stretched beyond recognition.

  

  Source: Bureau of Labor Statistics (BLS), Bureau of Economic Analysis (BEA), National Bureau of Economic Research (NBER), Bawerk.net

  In GDP accounting personal consumption expenditure account for just under 70 per cent; which tells you just how lopsided the whole concept of GDP really is. The best monthly proxy for consumption expenditure is retail and wholesale sales. As the next chart shows, US retail sales has been struggling for quite some time. On a month on month comparison retail sales fell in December, January and February, had a good month in March before coming to a standstill in April.

  

  Source: US Census Bureau, National Bureau of Economic Research (NBER), Bawerk.net

  The May number was unexpectedly strong, but the seasonal adjustment factor suggest that number will eventually be revised down. Non-seasonally adjusted “core” retail sales fell compared to last year suggesting the underlying trend is weakening, not strengthening.

  

  Source: US Census Bureau, Bawerk.net – Hat tip to ZeroHedge for adjustment factor

  What is more worrisome though, from a retail sales perspective, is the build-up in inventories. The inventory to sales ratio has been on a downtrend for the last three decades due to improved demand management, but relative to trend retail inventories are pushing a two standard deviation difference. We didn’t even see this after the dot-com crash. Bloated inventories are highly indicative of a coming inventory liquidation cycle, in other words a “normal” post WWII recession.

  

  Source: US Census Bureau, Bawerk.net

  Activity in the wholesale market may be a leading indicator for what to expect in the retail business over the coming months. Wholesale trade has been falling while inventories has been building. The inventory to sales ratio is clearly in recessionary territory.

  

  Source: US Census Bureau, Bawerk.net

  The manufacturing sector is obviously not doing any better as the weak retail and wholesale trades reverberates throughout the supply chain.

  

  Source: US Federal Reserve, Bawerk.net

  And we know for a fact that the oil and gas extraction part of the IP complex, which contributed almost 50 per cent to overall IP over the last 12 months, will not fare well in the near future as the shale industry contracts on back of falling CAPEX. When the HY energy investor wakes up, maybe due to a quarter from Yellen, the carnage will be that much worse.

  

  Source: US Federal Reserve, Bawerk.net

  Judging by the level of factory orders, we should not expect a positive contribution from industrial production regardless of the whimsical allocation from the HY investor.

  

  Source: US Census Bureau, Bawerk.net

  While some may claim the latest hiring spree suggest things are not as bad we contend that without a spurt in labour productivity this development will soon turn for the worse. US productivity has been lacklustre over the last fifteen years, and while both employment and hours grew over the last five quarters, the marginal labour added came at a severe cost. Labour productivity actually fell suggesting hiring has been nothing more than “labour inventory accumulation” and will have to be liquidated along with the rest of capital misallocations witnessed in the US economy if interest rates were ever to increase.

  

  Source: Bureau of Labor Statistics (BLS), Bawerk.net. Hat tip to Alhambra Investment for second chart

  It is also worth noting that most of the new hires is in the less productive service sector which provide low paying jobs without benefits.

  Summing it all up, the last chart of US GDP together with cumulative goods sale and inventory accumulation since 2000 should tell you everything you need to know. The US economy is now on the verge of a new recession.

  

  Source: Bureau of Economic Analysis (BEA), Bawerk.net

  Our prediction, which should always be taken with a grain of salt, is that the FOMC will maintain ZIRP (we consider a 25, or even 50bp hike within the range of ZIRP) well into 2016, the US will soon experience two consecutive quarters of GDP contraction and the strong dollar will change on the prospects of another round of QE.

  

  

  
  
  

  

• The World According To Americans

  Presented with no comment…

  The World According to Middle-Aged Americans…

  

  Source: Richmond.edu

   

  The World According to Young Americans…

  

  Source: HappyPlace

  

  

  
  
  

  

• Signs Of Financial Turmoil Are Brewing In Europe, China And The United States

  Submitted by Michael Snyder via The Economic Collapse blog,

  As we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe.  In Greece, a full blown bank run is happening right now.  Approximately 2 billion euros were pulled out of Greek banks in just the past three days, Barclays says that capital controls are “imminent” unless a debt deal is struck, and there are reports that preparations are being made for a “bank holiday” in Greece.  Meanwhile, Chinese stocks are absolutely crashing.  The Shanghai Composite Index was down more than 13 percent this week alone.  That was the largest one week decline since the collapse of Lehman Brothers.  In the U.S., stocks aren’t crashing yet, but we just witnessed one of the largest one week outflows of capital from the bond markets that we have ever witnessed.  Slowly but surely, we are starting to see the smart money head for the exits.  As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.

  I don’t think that most people understand how serious things have gotten already.  In Greece, so much money has been pulled out of the banks that the European Central Bank admits that Greek banks may not be able to open on Monday…

  The European Central Bank told a meeting of euro zone finance ministers on Thursday that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday, officials with knowledge of the talks said.

   

  Greek savers have withdrawn about 2 billion euros from banks over the past three days, with outflows accelerating rapidly since talks between the government and its creditors collapsed at the weekend, banking sources told Reuters.

  All over social media, people are sharing photos of long lines at Greek ATMs as ordinary citizens rush to get their cash out of the troubled banks.  Here is one example…

  Long queues at ATM's all around Athens center. #Greece pic.twitter.com/k4wgerQ7gP

  — Elly Vintiadis (@EllyVintiadis) June 19, 2015

  And if there is no debt deal by the end of this month, the Greek debt crisis is going to totally spin out of control and financial chaos will begin to erupt all over Europe.  But instead of trying to be reasonable, EU president Donald Tusk “has delivered an ultimatum to Greece”, and it almost appears as if EU officials are more concerned about winning a power struggle than they are about averting financial catastrophe…

  EU president Donald Tusk has delivered an ultimatum to Greece, claiming the country must ‘accept an offer or default’ at an emergency summit set for Monday – in a last-ditch effort to stop the debt-stricken nation crashing out of the euro.

   

  ‘We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default,’ Mr Tusk said today.

   

  His comments come as Greek Prime Minister Alexis Tsipras warned that his country’s exit from the eurozone would trigger the collapse of the single currency.

   

  ‘The famous Grexit cannot be an option either for the Greeks or the European Union,’ he said in an Austrian newspaper interview.

  ‘This would be an irreversible step, it would be the beginning of the end of the eurozone.’

  While all of this has been going on, the obscene stock market bubble in China has started to implode.  Just check out the following numbers from Zero Hedge…

  As the carnage began last night in China we noted the extreme levels of volatility the major indices had experienced in recent weeks. By the close, things were ugly with the broad Shanghai Composite down a stunning 13.3% on the week – the most since Lehman in 2008 (with Shenzhen slightly better at down 12.8% and CHINEXT down a record-breaking 14.99%).

  Under normal circumstances, numbers like these would be reason for a full-blown financial panic over in Asia.  But these are not normal times.  Even with these losses, stock prices in China are still massively overinflated.  For example, USA Today is reporting that the median stock over in China is “trading at 95 times earnings”…

  Margin debt in China has soared to a record $363 billion, according to Bloomberg, and the median stock in mainland China is now trading at 95 times earnings, which even tops the price-to-earnings multiple of 68 back at the 2007 peak.

  That is absolutely ridiculous.  When a stock is trading at 25 or 30 times earnings it is overpriced.  So these numbers that are coming out of China are beyond crazy, and what this means is that Chinese stocks have much, much farther to fall before they get back to any semblance of reality.

  Meanwhile, in the U.S. money is flowing out of bonds at a staggering pace.  The following quote originally comes from Bank of America…

  “High grade credit funds suffered their biggest outflow this year, and double the previous week (and also the biggest since June 2013). High yield outflows also jumped to $1.1bn, the biggest since the start of the year. However, government bond funds suffered the most amid the recent spike in volatility, with outflows surging to the highest weekly number on record ($2.7bn). This brings the total outflow from fixed income funds to almost $6bn over the last week, the highest since the Taper Tantrum and the third highest outflow ever.”

  What this means is that big trouble is brewing in the bond markets.  This is something that I warned about in my previous article entitled “Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode“.

  For the moment, U.S. stocks are doing fine.  But just about everyone can see that we in a massive financial bubble that could burst at any time.  Presidential candidate Donald Trump says that what we are witnessing is a “big fat economic and financial bubble like you’ve never seen before”…

  Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.“

  Ron Paul also believes that this financial bubble is going to end very badly.  Just check out what he told CNBC earlier this week…

  Despite record highs in the market, former Rep. Ron Paul says the Fed’s easy money policies have left stocks and bonds are on the verge of a massive collapse.

   

  “I am utterly amazed at how the Federal Reserve can play havoc with the market,” Paul said on CNBC’s “Futures Now” referring to Thursday’s surge in stocks. The S&P 500 closed less than 1 percent off its all-time high. “I look at it as being very unstable.”

   

  In Paul’s eyes, “the fallacy of economic planning” has created such a “horrendous bubble” in the bond market that it’s only a matter of time before the bottom falls out. And when it does, it will lead to “stock market chaos.”

  Yes, this financial bubble has persisted far longer than many believed possible, but all irrational bubbles eventually burst.

  And you know what they say – the bigger they come the harder they fall.

  When this gigantic financial bubble finally implodes, it is going to be absolutely horrifying, and the entire planet is going to be shocked by the carnage.

  

  

  
  
  

  

• How The Saudi Foreign Ministry Controls Arab Media

  From Wikileaks, as part of its latest release of confidential government information, The Saudi Cables

  Buying Silence: How the Saudi Foreign Ministry controls Arab media

  
  

  On Monday, Saudi Arabia celebrated the beheading of its 100th prisoner this year. The story was nowhere to be seen on Arab media despite the story’s circulation on wire services. Even international media was relatively mute about this milestone compared to what it might have been if it had concerned a different country. How does a story like this go unnoticed?

  Today’s release of the WikiLeaks “Saudi Cables” from the Saudi Ministry of Foreign Affairs show how it’s done.

  The oil-rich Kingdom of Saudi Arabia and its ruling family take a systematic approach to maintaining the country’s positive image on the international stage. Most world governments engage in PR campaigns to fend off criticism and build relations in influential places. Saudi Arabia controls its image by monitoring media and buying loyalties from Australia to Canada and everywhere in between.

  Documents reveal the extensive efforts to monitor and co-opt Arab media, making sure to correct any deviations in regional coverage of Saudi Arabia and Saudi-related matters. Saudi Arabia’s strategy for co-opting Arab media takes two forms, corresponding to the “carrot and stick” approach, referred to in the documents as “neutralisation” and “containment”. The approach is customised depending on the market and the media in question.

  “Contain” and “Neutralise”

  The initial reaction to any negative coverage in the regional media is to “neutralise” it. The term is used frequently in the cables and it pertains to individual journalists and media institutions whose silence and co-operation has been bought. “Neutralised” journalists and media institutions are not expected to praise and defend the Kingdom, only to refrain from publishing news that reflects negatively on the Kingdom, or any criticism of its policies. The “containment” approach is used when a more active propaganda effort is required. Journalists and media institutions relied upon for “containment” are expected not only to sing the Kingdom’s praises, but to lead attacks on any party that dares to air criticisms of the powerful Gulf state.

  One of the ways “neutralisation” and “containment” are ensured is by purchasing hundreds or thousands of subscriptions in targeted publications. These publications are then expected to return the favour by becoming an “asset” in the Kingdom’s propaganda strategy. A document listing the subscriptions that needed renewal by 1 January 2010 details a series of contributory sums meant for two dozen publications in Damascus, Abu Dhabi, Beirut, Kuwait, Amman and Nouakchott. The sums range from $500 to 9,750 Kuwaiti Dinars ($33,000). The Kingdom effectively buys reverse “shares” in the media outlets, where the cash “dividends” flow the opposite way, from the shareholder to the media outlet. In return Saudi Arabia gets political “dividends” – an obliging press.

  An example of these co-optive practices in action can be seen in an exchange between the Saudi Foreign Ministry and its Embassy in Cairo. On 24 November 2011 Egypt’s Arabic-language broadcast station ONTV hosted the Saudi opposition figure Saad al-Faqih, which prompted the Foreign Ministry to task the embassy with inquiring into the channel. The Ministry asked the embassy to find out how “to co-opt it or else we must consider it standing in the line opposed to the Kingdom’s policies“.

  The document reports that the billionaire owner of the station, Naguib Sawiris, did not want to be “opposed to the Kingdom’s policies” and that he scolded the channel director, asking him “never to host al-Faqih again”. He also asked the Ambassador if he’d like to be “a guest on the show”.

  The Saudi Cables are rife with similar examples, some detailing the figures and the methods of payment. These range from small but vital sums of around $2000/year to developing country media outlets – a figure the Guinean News Agency “urgently needs” as “it would solve many problems that the agency is facing” – to millions of dollars, as in the case of Lebanese right-wing television station MTV.

  Confrontation

  The “neutralisation” and “containment” approaches are not the only techniques the Saudi Ministry is willing to employ. In cases where “containment” fails to produce the desired effect, the Kingdom moves on to confrontation. In one example, the Foreign Minister was following a Royal Decree dated 20 January 2010 to remove Iran’s new Arabic-language news network, Al-Alam, from the main Riyadh-based regional communications satellite operator, Arabsat. After the plan failed, Saud Al Faisal sought to “weaken its broadcast signal“.

  The documents show concerns within the Saudi administration over the social upheavals of 2011, which became known in the international media as the “Arab Spring”. The cables note with concern that after the fall of Mubarak, coverage of the upheavals in Egyptian media was “being driven by public opinion instead of driving public opinion”. The Ministry resolved “to give financial support to influential media institutions in Tunisia“, the birthplace of the “Arab Spring”.

  The cables reveal that the government employs a different approach for its own domestic media. There, a wave of the Royal hand is all that is required to adjust the output of state-controlled media. A complaint from former Lebanese Prime Minister and Saudi citizen Saad Hariri concerning articles critical of him in the Saudi-owned Al-Hayat and Asharq Al-Awsat newspapers prompted a directive to “stop these type of articles” from the Foreign Ministry.

  This is a general overview of the Saudi Foreign Ministry’s strategy in dealing with the media. WikiLeaks’ Saudi Cables contain numerous other examples that form an indictment of both the Kingdom and the state of the media globally.

  * * *

  Saudi Arabia’s only official response to the Wikileaks release came from the Twitter account of the foreign ministry:

   

   

  ????? #???????_?????? : ?? ???? ?? ????? ?? ???? ????? ????? ????? ????? ?? ????? ???????.

  — ????? ???????? (@KSAMOFA) June 19, 2015

  ????? #???????_?????? : ???? ?????? ??? ?? ???? ???? ?????? ??? ????? ?? ??????? ????? ?? ???? ??? ?????? ???? ??????? ???? ?????.

  — ????? ???????? (@KSAMOFA) June 19, 2015

  Translation:

  Avoid accessing any website for leaked documents or information which may be incorrect, with the intent of harming national security….  the documents may be rigged to help the enemies of the homeland in achieving their goals.

  “Enemies of the homeland”, such as Edward Snowden, revealing just how the corrupt deep state operates.

  It was not clear just what the punishment for “accessing” websites which contain the leaked files may be, although treason may be a fair assumption. After all, to quote George Orwell, “In a time of universal deceit, telling the truth is a revolutionary act.”

  The leaked Saudi files, of which the first batch has been released, can be found here.

  

  

  
  
  

  

• The Russian Pipeline Waltz

  Submitted by Simone Tagliapietra and Georg Zachmann via Bruegel.org,

  This is an eventful period for EU-Russia gas relations. Six months ago Russian President Vladimir Putin surprised the energy world by dismissing the long-prepared South Stream project in favour of Turkish Stream. Like South Stream, Turkish Stream is intended to deliver 63 billion cubic metres (bcm) of gas per year through the Black Sea to Turkey and Europe by completely bypassing Ukraine from 2019.

  Yesterday, during the St. Petersburg International Economic Forum 2015, Gazprom unexpectedly signed a set of Memorandums of Intent with the European gas companies E.ON, Shell and OMV. These plan for the construction of two additional gas pipeline strings along the Nord Stream pipeline system that connects Russia and Germany through the Baltic Sea. This project would double the current capacity of Nord Stream from 55 bcm per year to 110 bcm per year.

  Both Turkish Stream and an expanded Nord Stream indicate that Russia does not intend to abandon its position in the European market (by for example shifting attention to Asia).

  As illustrated in the figure below, current EU-Russia gas trade is based on three key axes: the Nord Stream pipeline, the Yamal-Europe pipeline through Belarus and the pipeline system crossing Ukraine. Of these three routes, only the Ukrainian gas transportation system is not controlled by Gazprom.

  EU-Russia existing gas connections

  

  Source: Bruegel based on BP Statistical Review of World Energy 2015, IEA Gas Trade Flows in Europe, Nord Stream website.

  Gazprom has asserted several times that it will cut off gas transits through Ukraine by the end of the decade. The current alternative routes (Nord Stream + Belarus), however, only present a capacity of 86.5 bcm per year. To maintain the current level of Russia’s exports (119 bcm in 2014) at least 35 bcm of additional pipeline capacity would be needed.

  In fact, current capacities are not being fully exploited due to disputes over the access regime to the OPAL pipeline in Germany which connects Nord Stream to European markets. Gazprom would like to make full use of the pipeline, but the European Commission, the German regulator and Gazprom have not yet reached a decision on the conditions for an exception from the EU's Third Energy Package that would allow Gazprom to control more than 50% of the capacities.

  Either Turkish Stream (with its 49 bcm per year devoted to the European market) or an expansion of Nord Stream (55 bcm per year) alone wouldallow Russia to circumvent Ukraine. Both lines together would result in significant over-capacity. So there seems to be a trade-off between Turkish Stream and an expanded Nord Stream.

  So, how should the most recent evolutions of the Russian waltz of pipelines be interpreted? There are three possible scenarios:

  i) Turkish Stream for Turkey only & Nord Stream for the EU. In this scenario Russia would target the construction of the first string of Turkish Stream to divert the 14 bcm per year currently supplied to Turkey via the Trans-Balkan pipeline (crossing Ukraine, Moldova, Romania and Bulgaria) by 2016, as recently agreed in Ankara. This would allow Russia to capitalize on the massive investments already made in the "Russian Southern Corridor" and to make use of the South Stream pipes already delivered at the Varna harbor and of the pipe-laying ships already placed in the Black Sea. Considering the regulatory and financial barriers to the development of new infrastructure to deliver Turkish Stream gas to EU destination markets, Russia would abandon its plan to supply the EU market via Turkish Stream and rather invest in the expansion of Nord Stream to cover this market. 

   

  ii) Nord Stream expansion as a bargaining chip to advance Turkish Stream. In this scenario Russia would propose the expansion of Nord Stream, in order to have another bargaining chip in the negotiations with Turkey (and Greece), and to quickly advance the full Turkish Stream project and ensure better commercial conditions. This would allow Gazprom to avoid further controversies around the OPAL pipeline and to deliver gas directly to southern European markets. This way Gazprom’s ability to sell gas to southern Europe would not depend on additional north-south pipelines under EU rules, and some price-differentiation between the northern and southern market for Gazprom gas could be maintained.

   

  iii) No pipelines, just politics. In this scenario Russia does not intend to develop either the full Turkish Stream (but at most the first string for the Turkish market) or the expansion of Nord Stream. The proposals are thus intended to create political cleavages within the EU, at a moment when the EU is toughening its stance against Russia due to the Ukraine crisis. They create cleavages between northern and southern EU countries (Germany favoured by Nord Stream; Italy and Greece favoured by Turkish Stream); between the EU and Member States (for example Member states’ actions that counteract the Brussels strategy to diversify away fro m Russia); and within EU countries (by causing the interests of governments and energy companies to diverge). In such a scenario, this waltz of pipelines thus represents a new chapter in Russia’s enduring divide and rule strategy vis-à-vis the EU energy market.

  

  

  
  
  

  

• China Must Be Getting Really Nervous To Do This

  One of the most stunning data points of the ponzi bubble called Chinese Stock Markets has been the greater-than-exponential rise in the opening of new retail stock trading accounts in the last few months. If ever there was a better indicator of speculative excess or a government policy out of control, it was the pace of new account openings. So… when we discover that after 8 years of weekly data provision, China Securities Depository & Clearing (CDSC) Corp has decided to discontinue the time series – it is clear China is getting very worried.

  "Discontinued" – in a very McDonalds-monthly-sales-esque manner, China appears to have decided opacity is the better part of valor.

  

   

  The Source of the data is CDSC's Weekly Statistics…

  Week of 5/29 was the last update…

  

   

  Nothing since…

  

   

  And this is a series updated on the Friday US session after China's Friday Session is closed (with no lag)… so there has been 3 weeks with no data since the open accounts spiked to 4.3 million in one week…

  

   

  Just what is China trying to hide?

  

  

  
  
  

  

• Hurricanomics: Keynesian Stimulus Or Captain Facepalm

  Submitted by Jared "The 10th Man" Dillian via Mauldin Economics,

  An old friend from the Coast Guard visited me over the weekend. He is retired and now works as an emergency planner.

  If there’s one thing government folks do, it is plan. But many times I’ve seen plans go out the window when emergency strikes and people start to improvise. Or maybe the planned-for emergency never materializes. Maybe you get a different emergency you didn’t plan for. The anarchist in me says that plans are useless. But I agree that it’s good to think about these things ahead of time.

  So my friend and I got to talking about hurricanes, which is a specialty of his. He told me that no hurricane has ever scored a direct hit on my piece of the South Carolina coast (I live just a few yards away from the beach). Hurricanes have hit north of me and south of me, but in the recorded history of hurricanes, none have ever hit here, at least, not a direct hit by one of the big ones.

  I’m not sure if that makes me feel good or not. If my house did sustain a direct hit, smell you later.

  But it got me thinking about when I was working at Lehman Brothers in 2004, when Hurricane Katrina hit. Were you active in the markets back then? If so, you probably remember that stocks ripped to the upside, particularly energy and construction companies that would have to repair all the damage. Of course, the insurance stocks got killed.

  I was 30 years old back then and not really steeped in economic thought. None of us were. We were traders, not philosophers. But we were all sitting around wondering why the stock market was ripping when the hurricane was clearly going to wipe out a huge city. Made no sense.

  My answer was that the winners from Katrina were probably publicly traded, while the losers weren’t.

  But does anybody win from a hurricane in the first place?

  The Parable of the Broken Window

  You may have heard of the “Broken Window Fallacy,” where a boy throws a rock through a storefront window, breaking it. The shopkeeper must hire the glazier to come fix the window. He pays him 50 bucks, thereby stimulating business in town.

  Everyone sees this and says, “Gee whiz, a kid breaks a window and suddenly there’s 50 bucks in circulation. Hey kid, why don’t you run around town and break the rest of the windows?”

  If this sounds familiar, it’s because you’ve heard it before—from an economist named Frédéric Bastiat.

  Bastiat basically comes up with the ideas of opportunity cost and unintended consequences simultaneously, when he observes that if the shopkeeper did not spend 50 bucks to fix his window, he might have spent it on something else more productive. What, we don’t know. But we can assume that he knows best how to spend the 50 bucks, at least better than the kid who broke his window.

  Bastiat is one of the forefathers of libertarian/Austrian economics, and he often talked about the things that are unseen in finance. A good example is the minimum wage debate, which we talked about briefly in last month’s issue of Bull’s Eye Investor.

  The layman thinks if you raise the price of labor to $15/hour by fiat—yay, people are making $15! But generally what happens is that some people will see their wages drop to $0/hour, because the bossman had $150 to spend on labor to begin with, and he can either hire 20 people at $7.50/hour or 10 people at $15/hour.

  If you think the bossman should somehow operate at a loss to accommodate everyone at the higher wage, then we can have a nice discussion on the role of profit in society.

  Bastiat is the reason I come to work every day, because there are so many people who have believed, and will always believe, that you can fix the price of something at x just because 51% of the voters said so.

  Keynesian Stimulus

  One of the great tragedies of the financial crisis was the $780 billion we shelled out for the giant stimulus package. Wow, was that bad, for a lot of reasons.

  I remember driving around and getting stuck in construction and seeing these stupid signs everywhere:

  

  So back to Bastiat, why was the stimulus bad? We spent $780 billion basically paving the same roads over and over again. It was one step up from digging holes and filling them back in. And just like in the broken window example, sure, some people got rich off it.

  But what would the taxpayers have done with $780 billion, aside from paving roads? Probably some pretty interesting stuff. Possibly they could have thought of better things to do with it than paving roads.  Even if they had saved it, that’s $780 billion less the government would have had to borrow, which would have lowered interest rates and increased credit availability for private borrowers.

  The counterargument is that if you go back to the 1930s when we did all this Keynesian stimulus (the Hoover Dam, etc.), that it worked in getting us out of the Great Depression. Did it? Maybe it made the depression worse. You can’t go back in time and not have the Keynesian stimulus and see what happens.

  In US history classes over the years, FDR has generally gotten credit for ending the depression, but more and more scholars are beginning to challenge that idea.

  Captain Facepalm

  I think these things are pretty obvious. I can’t figure out why people have such a difficult time seeing them. I can’t figure out why Nobel Prize winners can’t see them.

  Any economic intervention, no matter how slight, causes unintended consequences. There are things that you cannot see, that the planner cannot anticipate. There are also easy ones. If you cap the price of a good, there will be a shortage. If you put a floor on it, there will be a surplus.

  If you make it hard for people to trade swaps, you might reduce liquidity and push people into other, potentially more risky products.

  

  

  
  
  

  

• Greek Contagion Abyss Looms – Wealth Preservation Strategies

  Greek Contagion Abyss Looms – Wealth Preservation Strategies

  • Greece, EU and Banks Staring Into Abyss
  • Markets Are “Irrationally Exuberant” – Gods Punish Hubris 
  • “Invisible Hand” Propping Up Sanguine Markets
  • Short Term Considerations
  • Long Term Considerations
  • Best Case Outcomes
  • Worst Case Outcomes
  • Wealth Preservation Strategies

  We are here, staring into the abyss. The greatest monetary experiment of the modern world – the euro, encapsulating the largest middle class market of consumers ever assembled is about to face its greatest test to date.

  To say anxieties are high is an understatement. Normally the broad markets will weigh up downside risk as the markets formulate and assimilate varying views on matters of importance, but not so in this case.

  

   

  The markets are decidedly sanguine, as if an “invisible hand” is propping them up, guiding them, nudging them, buying any dips in stock and bond markets and maintaining calm.

  The VIX measure of U.S. stock volatility, is languishing at 15 – not even whimpering. Gold, that other key barometer of risk, has only seen slight gains and languishes at $1,200 per ounce.

  It is as if the fire alarms have been turned off despite the fire beginning to rage.

  Is the Working Group on Financial Markets or Plunge Protection Team (PPT) working tirelessly through proxy Wall street banks to keep gold depressed and prop up leading benchmarks such as the S&P 500 and thus the wider markets?

  There are many that believe that Wall Street banks and central banks work closely together and coordinate policy and market interventions. They are sometimes dismissed as “conspiracy theorists.” Despite much evidence showing that banks have manipulated and rigged markets frequently.

  Ironically, those that dismiss this as conspiracy theory are the same people who would say that if the central banks and governments are not propping up and intervening in markets, they should be.

  If central banks are not already “market makers of last resort” then it seems likely that they soon will be and indeed overnight the IMF has called for this.

  Such interventions simply paper over the cracks for a period of time – meanwhile the fire is burning, the structure is crumbling and will ultimately collapse.

  

  A Greek exit from the euro would change everything. The greatest change being simply doubt and fear regarding the outlook for other vulnerable EU nations, EU banks and the EU banking and financial system.

  From that day forward every statement from every EU official will have a risk premium attached to it.

  They will say this and that, but the market will here “maybe” this, “maybe” that. As such the costs of participation in every financial transaction will alter, as the accounting for “what if” scenarios slowly gets priced in.

  This change in risk perception and pricing, rather counterintuitively, is in fact a good longer term development. The markets have become increasingly captive by non elected and elected officials within the world monetary apparatus.

  These ‘hidden hands’ have, and are, over anxious and seek to to quell market volatility and market dislocation in what they believe to be in the interest of the  public good. They believe that market volatility is a bad bad thing – when in fact nothing could be further from the truth.

  It was this same hubris and “super man” mentality that created the first global financial crisis and indeed financial crises throughout history.

  The same mistakes are being made over and over again. Market hubris and official hubris is rife. How apt – Greek gods liked to punish those guilty of being overconfident and arrogant.

  We are seeing this misdiagnosis being played out in the current negotiations between the Troika and the Greek government. Ultimately the effect of a Greek exit could manifest in any number of ways, with  far reaching consequences for our interconnected global capital market with all of its regulatory gaps, opaque credit structures and massive $200 trillion and growing debt burden.

  Short term considerations

  • capital controls and extent of
  • bank collapse and bail-ins
  • credit market contagion
  • Greek euro exit
  • rising government bond yields and interest rates
  • geopolitical considerations and Russian influence

  Long term considerations

  • higher interest rates
  • stock market fall
  • “PIIGS” contagion
  • global contagion?
  • effect on Germany (arguably the greatest Euro benefactor)
  • loss of confidence in ECB, monetary union and euro
  • increase in nationalism
  • makes Brexit more likely?

  Best case outcomes

  • Greek default – ECB blinks and continues liquidity support
  • Greek get a deal to peg debt obligations to growth and spread repayments over the very long term
  • stability returns, bailout countries return to more solid economic growth as interest rates begin to slowly normalise
  • Greece and its new currency start recording significant growth in a post debt overhang world

  Worst case outcomes

  • capital controls across Europe until Greek exit is managed
  • Greek exit in a messy way, euro credit seizes up as collateral bombs go off  – “Lehman II”
  • bail-ins imposed on depositors across world – further devastating depositors, small and medium enterprises and our economies
  • banks and hedge funds smell blood and start rounding on the next weakest member, shorting bonds and local markets, forcing an exit
  • likely Italy, Spain, Ireland, Portugal and in time France targeted in terms of interest rate sensitivity
  • Euro becomes a lame duck currency, all countries start to prepare for an exit orderly or otherwise. New euro launched with exclusively northern European industrial economies
  • collapse of western banking system…for a period of time

  Wealth preservation strategies

  • Speculate by going short euro and long drachma and Greek assets
  • Own USD, NOK, HKD, SGD, CHF in safe banks in safe jurisdictions
  • Diversify cash holdings to non European banks and offshore institutions
  • Own physical precious metals  in safe vaults in safe jurisdictions

  Short term considerations

  Greek banks have haemorrhaged over €30 billion since October. Over €2 billion was withdrawn between Monday and Wednesday and likely as much since then as the talks intensified and the situation worsened this week.

  The problem can only have been exacerbated by an ECB official’s suggestion at a closed door meeting on Thursday – in response to a direct question from Dutch Fin Min Jeroen Dijsselbloem – that the Greek banks would not open on Monday as reported by Reuters.

  The ECB later denied that this was the case but clearly capital controls are on the table. That being said Bloomberg reports that “the Governing Council of the European Central Bank plans to hold an unscheduled call on Friday to discuss Emergency Liquidity Assistance available for Greek lenders, according to two people familiar with the plans”.

  Whether the ECB agrees to raise the ceiling on the ELA is not certain. The leak reported by Reuters suggests that certain parties are happy to provoke bank runs in order to force the hand of the Greek government.

  

  We may soon see capital controls imposed in Greece as depositors are bailed-in to try keep the banks afloat.

  At the start of June the European Commission ordered 11 EU countries to enact the Bank Recovery and Resolution Directive (BRRD) within two months or be hauled before the EU Court of Justice.  EU regulators ordered 11 countries to adopt the new EU deposit bail-in rules.

  Were another serious crisis to materialise with regard to European banks and markets in the coming days on the back of a Greek default it seems likely that emergency legislation would be put in place that would allow bail-ins to take place.

  Whether the ECB provides ELA to save all Greek banks, just the strategically important banks or none at all will likely be decided as much by political factors as financial ones.

  A widespread banking crisis would weaken the resolve of the Tsipras government but would present unforeseeable contagion risks to Europe’s interconnected financial system despite Dijsselbloem’s assurances that the EU is prepared for all eventualities.

  In January, JP Morgan highlighted in a report that exposure to Greek debt among banks in France and Germany is relatively low but warned that peripheral nations – particularly Italy – were at risk of contagion.

  It is unclear if core eurozone banks can absorb losses from Greek exposure but in the short term it would likely lead to a tightening in capital markets as distrust among financial institutions cause them to hold their reserves.

  Italian, Spanish and Portuguese bond yields rose in a very jittery market after a eurozone finance ministers’ meeting ended yesterday with no breakthrough in the deadlocked Greek debt talks.
  Italian, Spanish and Portuguese 10-year yields were five to seven basis points higher at 2.35 percent, 2.34 percent and 3.16 percent, respectively this morning.

  In the short term, government bond yields could surprise and yields decline again. However in the medium and long term, government bond yields are only going to go one way and that is higher with attendant consequences for our $200 trillion in debt saturated world.

  Longer term considerations

  Geopolitical considerations are to the fore and yet rarely considered by most analysts.

  Greece may decide that its interest – painful though it may be in the short term – lies outside of the eurozone. Certainly its experience since the launch of the euro in 2001 has been an unmitigated disaster.

  Between 1960 and 2001 Greece enjoyed more or less constantly improving prosperity. Total production increased 600% in that period – more than double that of Germany. Post-euro Greece’s productivity has plummeted 26%.

  Were it to pull out of the single currency, it would not be without powerful friends in the region. Today, Tsipras is visiting St. Petersburg for a meeting with President Putin where they will sign a non-binding agreement on bringing Russian gas into Europe via Greece.

  The “Turkish Stream” project would see a pipeline from Turkey go through Greece and eventually to Austria via Serbia and Hungary. Russia seeks to bypass Ukraine and to bring NATO member Greece into its sphere of influence would greatly undermine NATO.

  While the Greeks have insisted that they have no intention of availing of Russian financial assistance it is a fact that such assistance has been offered and remains an option.

  The BRICS New Development Bank comes into operation next month.

  Faith in the ECB would be greatly undermined and with it faith in the euro currency. For half of it lifetime the euro has been in crisis. With the exit of Greece it will be apparent that the architects of the euro system may not be omniscient and that the euro is by no means guaranteed a permanent existence.

  Were Greece to exit the euro, wilfully or not, it would lead to surge in nationalism in Europe. We have seen hostility towards Greece being whipped up in sections of the German media and vice versa.

  Among peripheral states there are large swathes of the population who now view the EU as a destructive force in their societies. As mentioned above, Greece was economically successful prior to the launch of the euro.

  Both Spain and Italy were also industrial powerhouses pre-2001. But having to compete with their northern neighbours on an equal currency footing has destroyed their export capacity. In these countries many people believe that austerity has has been foisted upon them to protect a project that has not benefited their societies particularly well.

  In the core of the eurozone there is also a surge in nationalism as taxpayers resent what they see as their subsidising of inefficient and unproductive welfare states. However, Germany has derived enormous benefit from the euro project through its ability to export across Europe to countries whose currencies should be much weaker than its own.

  Germany and the other core nations may ultimately decide to go it alone and establish a new joint currency of the costs begin to outweigh the benefits of the current system. Indeed, plans were drawn up to do just that in 2011.

  Alternatively the terrible experience of the single monetary union may out the German people and elites and indeed other Northern Europeans completely off monetary unions and we may see a reversion to national currencies.

  The scepticism towards the EU displayed by many voters in the UK can only be reinforced as the current fiasco continues to unfold. David Cameron’s promised referendum on Britain leaving the EU will likely receive more support as Europe’s unmanageable problems continue to fester.

  Stock markets, currently levitating on the panglossian narrative that we live in the best of all possible worlds – despite dismal PE ratios and stagnation in real economies around the globe – would likely be jolted from their slumber. With rising rates the ability to prop up markets with practically unlimited QE cash would be greatly impaired.

  The contagion would likely spread to peripheral eurozone nations like Italy, Spain, Ireland and Portugal whose banks are still on life support. The ability of the powers that be to contain the cumulative effect of multiple bank crises on the eurozone core is debatable.

  Wealth preservation strategies

  In the short term the dollar is regarded as a “safe-haven”. So long as the prevailing psychology remains the dollar should provide a degree of protection for those seeking to avoid euro contagion.

  U.S. assets are still extremely popular despite increasingly poor fundamentals.

  Allocations to global equities and bonds should be reduced.

  Cash should be diversified and spread around in different non-European banks and institutions. For high net worth seeking wealth preservation in the form of cash, owning a few of the safer currencies remains advisable. These include the Norwegian krone, Singapore dollar, Hong Kong dollar and the Swiss franc.

  The most effective hedging instrument and safe haven asset remains gold bullion. We advise clients to own physical gold and silver in the safest vaults in the safest jurisdictions in the world.

  Must-read guides:
  Protecting Your Savings In The Coming Bail-In Era

  From Bail-Outs To Bail-Ins: Risks and Ramifications – includes 60 safest banks in the world

  

  
  
  

  

• Meanwhile, Greece Is Quietly Printing Billions Of Euros

  Earlier today we showed why Greece is now literally living on borrowed time. The combined €2.9 billion in ELA cap increases ‘generously’ bestowed upon the flailing Greek banking sector by the ECB last week looks to have been barely enough to keep things from “ending very differently” (to quote Kathimerini) at the ATMs on Friday.

  But perhaps more importantly from a big picture perspective, Greece may have already breached the upper limit of its borrowing base. JPM calculates Greek banks’ eligible collateral at €121 billion (€38 billion in EFSF bonds €8 billion in government securities, and €75 billion in “credit claims”). With Friday’s ELA increase, the country’s total borrowings (that’s OMO plus ELA) amount to some €125 bilion. Why would the ECB allow this? Because it knows the breach will be promptly limited or reversed on Monday, or there will be a deal. 

  So, it is literally “deal or no deal” time, because if JPM is correct and eligible collateral was either exhausted two weeks ago or, in the best case scenario, is right at the limit, capital controls will need to be put in place as early as Tuesday at which point the ATMs will officially stop dispensing freshly-minted euros which, incidentally, brings up an important point. As Barclays notes, during the same period over which Greek banks lost nearly €30 billion in deposits, banknotes in circulation jumped by some €13 billion. In short, because Greeks are increasingly prone to stuffing their euros in mattresses, a large proportion of the deposit flight has come in the form of hard currency withdrawals, meaning the Bank of Greece is forced to (literally) print billions in physical banknotes:

  A large part of the deposit outflows is in the form of banknotes, whose usage has increased significantly since the end of last year (+44%). Indeed, out of a deposit outflow of €29bn (from the end of November 2014 to the end of April 2015), banknotes in circulation in Greece have increased by €13bn.

   

  

  But hard currency printed in excess of NCB quotas (set by the ECB) represents a liability to the rest of Eurosystem and so must be added to Greece’s negative TARGET2 balance to determine the EMU’s total exposure to Greece:

  The amount of banknotes in excess of the quota for Greece (about €27bn) represents a liability of the Central Bank of Greece to the Eurosystem in addition to the net liabilities related to transactions with the other Central Banks in the Eurosystem (Target 2 liabilities). As of the end of April, net liabilities related to the allocation of euro banknotes were €16.2bn and the Target 2 balance was negative by about €99bn. Therefore, the total exposure of the Eurosystem to Greece was around €115bn. This corresponds to the amount of borrowing of Eurosystem liquidity (OMOs + ELA), as shown in Figure 4. Taking the increase in the ELA ceiling as an indication of the deposit outflows/usage of banknotes and the increase in Eurosystem funding, such exposure might have increased to about €125bn currently, we calculate. 

   

  
  

  Of course, given Germany’s massive TARGET2 credit with the ECB, a liability to the Eurosystem is, for all intents and purposes, a liability to Germany:

  

  So we can add the quiet printing of some €13 billion in banknotes to the list of reasons why German FinMin Wolfgang Schaeuble, a growing number of German MPs, and, increasingly, the German people have run completely out of patience with Athens. 

  As for all the Athenians who have recently tapped the ATMs, check your euros. If the serial number starts with a “Y” that means it was printed by the Bank of Greece and you should probably hang on to it because you might soon be able to sell it at a premium to a museum. 

  

  

  
  
  

  

• How Hillary "Identifies"

  White? check. Woman? check. “Poor Progressive”? hhmm….

   

  

   

  Source: Townhall

  

  

  
  
  

  

• Liquidity And Manipulated Prices Are Not An Economy And Never Will Be

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The Greek drama seems to have reached somewhat of a boundary, with deadlines and credit assistance drawing toward maximums. If this seems more than a little déjà vu that’s because it is an almost exact replay of 2012; all that is missing at this point is another default (debt swap or however it shall be classified). Greek banks have been beset by billions in withdrawals, in turn sending them to the Bank of Greece, loosely backstopped by the ECB, for “liquidity.”

  In broader terms, it has always been liquidity that answers these difficulties. Central banks have little else to offer, but that doesn’t necessarily violate what they are trying to accomplish. In fact, it is an article of monetary faith, neutrality and all that, where liquidity is the answer to these problems. The operative orthodox theory for all of this is that the economy, of true and robust character, is hidden amidst a mountain of irregularity. In the case of Europe, the ECB has decided that banks are the issue as they fail to restore the immense credit function that central bankers believe consistent with typical economic momentum.

  To gain a robust economy, then, requires, as they believe, robust banking and therefore robust liquidity. Working backwards from the 2008 panic, the ECB has been almost exclusively fixated on the liquidity portion in order to jump-start lending. In terms of Greece’s specific problems, that was accompanied by fiscal refiguring born out of intense monetarism, where the national government was “relieved” of massive burdens through what was called a debt swap but was really a default.

  The highlight of the process, and the formal step with which success was briefly claimed, was last year’s floatation of new Greek government debt. It was just fourteen months ago that Greece was selling its issue at a promised yield of 5.25% to 5.50%, around €3 billion euros total of five-year paper. The underwriters took in more than €20 billion in bids, and the deal eventually priced at a yield of just 4.95%!

  Again, that was by intention as Mario Draghi promised in July 2012 that he would use the ECB in whatever capacity to save the euro, taken to mean that he would no longer allow such high yields to clog monetary channels. Greece selling its bond only two years after the largest sovereign default was the high point in the effort. With all that euphoria over once-disowned and disavowed paper surely meant that monetary policy had reached at least Step 2, liquidity into lending, inching tantalizingly close to Step 3 – real recovery through debt.

  

  The illusion lasted perhaps longer than it should have, as that 5-year bond remained priced at a premium into October 2014 (there’s that month again), despite the ECB’s struggles elsewhere to convince the economy to follow its simple monetary packages. Reality has caught up, as “markets” (a term that in this case deserves the scare quotes) realize that liquidity solved exactly nothing except convincing at least €20 billion worth of “investors” that monetary policy actually holds some specific healing capacity.

  At the time the Greek bond was first taking subscriptions, I wrote quite incredulously:

  That is more than astounding given the risks attached. Greek bond yields have been steadily dropping ever since Draghi’s promise, but it strains reason to see new Greek bonds trade to the same yield as that of Hungary, Dominican Republic or even Sri Lanka. All three of those countries hold higher ratings than Greece (though the “big” news is that Moodys might upgrade Greece to less junk status), but far more importantly none of them have defaulted in the past three years. The Greek government managed to do it twice.

  The way things are going, including bond prices and “emergency” liquidity yet again, Greece may yet find a third default in its future. That would mean the ECB, for all its supposed and assumed economic vigor and attention, only managed to accomplish creating €20 billion in Greater Fools that we know of; small miracle, then, that the Greek government did not dare to float far greater debt, especially as current thinking has the chance at that third default around 75%.

  

  NOTE:  the Emergency Liquidity Assistance program (ELA) is aggregated with other monetary programs, classified within a single line item on the ECB’s aggregated view of all its constituent National Central Banks’ (NCB’s) balance sheet; “Other Claims on Euro Area Credit Institutions Denomimated in Euros” as an asset.

  By every measure of what those bond “investors” were expecting, the Greek government and the economy there failed miserably – which is not actually a change from the period leading up to the default. In fact, despite all the immense interference financially from central planners, Greece has exhibited an extraordinary sense of stability of the exact wrong kind. As the Bank of Greece put it just two days ago,

  In late 2014, there were serious indications that the Greek economy had overcome the recession and was returning to positive growth. At the time, the Bank of Greece, as well as all the international organisations, were projecting positive GDP growth in 2015 and a further pick-up in 2016.

  These projections have since been revised downwards, as the latest GDP data point to a sharp slowdown in annual growth and to quarterly contractions of GDP in two consecutive quarters. The deterioration of economic sentiment indicators and financing conditions in the private sector suggest that the slowdown of the economy is likely to accelerate in the second quarter of 2015, putting the economy at risk for a renewed bout of recession.

  In other words, despite all that was done, nothing (nothing) was moved even slightly in the right direction except a bunch of prices predicated on the same assumptions disproven time and again. Liquidity is effective in only a narrow capacity to send economic estimates and asset prices ever-skyward – prices that now only create more problems.

  It would be fittingly tragic if this was all limited to just Greece, but it is rather universal beyond even Europe. This is a failure of orthodox thinking from its most basic premises, including how an economy actually works. If you view the economic world through the concepts incorporated into Milton Friedman’s plucking model and encounter a great financial “shock” that produces a severe recession, including a huge curtailment in credit supply and lending, then it might seem a plausible solution to address only that shock and expect the economy, through restored lending, to return to its prior and healthy trajectory.

  

  If that doesn’t occur, certainly after the passage of five and now six years, that might suggest rethinking the entire premise. But orthodox monetary economics does not allow such evolution. Instead captured by monetary neutrality and Keynesian hysteresis (which is nothing more than an updated, fancy “pump priming”) the “solution” is never to change course but always bigger. The ECB, as other central banks, do greater and greater “liquidity” convinced only of debt (and future debt at that) as the one true answer.

  The ECB cannot even gain Step 2 aside from some minor turns here and there. Overall, as noted last week, lending in Europe is decidedly unbothered no matter what the ECB does or does not do. Despite tremendous influence in the banking system, consistently and perpetually, real economy lending is about as stable as could possibly be; if there is monetary influence in these lending patterns it is remarkably well-hidden. You would think trillions in euros in “stimulus” would at least offer some minor perturbation, but none still exists exactly where it should be and is expected to be.

  

  The Greek case offers quite a relevant view into the world of 21st century monetary alchemy, because that is what it really amounts to. Consistent with the Yellen Doctrine, the ECB conspired to a bubble (even a mini version this time) in order to create the economy that would eventually justify the bubble on an ex post facto basis – liquidity, to prices, to lending, to recovery and normal economy. That places financial factors upside down or backwards, as asset prices are no longer discounting mechanisms but simple (and ineffectve) tools not to recognize what might happen in the near future but rather to actually make it happen (rational expectations).  What is left, however, is the worst of all cases; no recovery, no lending and now just more financial imbalance piled onto the same negative pressures and imbalances that never really went away. The recessionary “shock” in the first place was itself the “solutions” that central banks continue to offer; thus, what they really offer is the condition to make it all still worse.

  Accountability will likely continue to be narrowed to hysteresis terms yet again, meaning that the “experts” will claim that they didn’t do enough to get Sisyphus’s rock over the economic hill. The problem isn’t really Sisyphus or the rock, it is the fact that the hill, the mountain of debt, remains the primary problem and can never be solved by more of the same. What is amazing is how short the attention of “investors” may be, and how they allow themselves to think monetary complexity passes for proficiency or even expertise despite all and continued observation otherwise. The ECB has innumerable programs, theories and mathematical equations, all of which amount to everything I have shown above; nothing.

  

  

  
  
  

  

• So You Think You Are Rich

  The bigger they are…

  

   

  … the harder they fall

  

   

  China’s bubble is bursting with the weakest (fraud) links hit first as margin-loan pressure builds. After rallying well over 500% year-to-date, these 3 stocks (among many) stand out as the biggest losers:

  • Digital Domain Holdings became the latest Hong Kong stock to tumble after surging more than 500 percent in a matter of months, following declines in Hanergy Thin Film Power Group Ltd. and Goldin Financial Holdings
  • Goldin Financial, a broker that provides short-term corporate financing, fell 43% Thursday, wiping out $12 billion of market value
  • Hanergy share price plunge and subsequent indefinite halt dethroned Li Hejun as China’s richest man

  But there is still hope for even the very biggest of them all – the infamous Beijing Baofeng Technologies IPO (up 4,200% in the 55 days after its IPO) – which “pending the disclosure of an important issue” has been halted for 2 weeks now at its record highs.

  

  Is that the trick to not killing a bubble: Halting geverything? If so that is precisely as we predicted in our observation that the entire market has noe become like CYNK.

  So are you rich, if only on paper… or about to get the biggest margin call of your life?

  Charts: Bloomberg

  

  
  
  

  

• Dumb Or Smart Money? Bullish Bets On VIX Highest Since 2008

  Via Dana Lyons' Tumblr,

  There has been an odd trend of late in stock sentiment readings. Despite major averages that are near all-time highs, sentiment has dropped considerably across many of the measures we track. It is true that many of the readings are moving down from historically bullish readings in the beginning of the year. However, some sentiment surveys are actually registering extreme bearish readings even on an absolute level (see these excellent posts from fellow YahooFinance Contributors Ryan Detrick and Joe Fahmy for more analysis and specific examples on this development).

  We are hard-pressed to come up with a satisfying reason for this trend. One possibility is that, in this age of information awareness and distribution, perhaps folks taking part in the sentiment surveys had themselves become aware of the sky-high sentiment and dialed back their enthusiasm – either out of concern for the skewed bullishness or to avoid becoming part a contrarian “dumb money” market top statistic. While there may be something to this theory, there is one problem. It is not only the sentiment surveys that are showing this trend, but real money indicators as well (which we prefer).

  One such example comes from options trading on the S&P 500 Volatility Index, better know as the VIX. As most observers are aware, the VIX tends to rise as the stock market declines. Thus a rising VIX is associated with bad markets. The interesting thing about present conditions in VIX options is that the Put/Call Ratio (using a 21-day average) is at the lowest level since the summer of 2008. That means that there are more bets on a rising VIX versus bets on a falling VIX than we have seen in 7 years. And again, a rising VIX is associated with bad markets.

  

   

  So, again, here is another example of significant levels of fear, despite indices near their highs. We aren’t sure exactly what all is at play here, particularly as this volatility market is already a derivative of the equity market. Therefore, there may be all sorts of different hedging strategies being deployed in coming up with this mix of put and call options. However, the gist remains – folks would not have so many hedging strategies on if they were not willing to bet on rising volatility, and perhaps by extension, falling equity prices. Therefore, on the surface this would appear to be a contrarian bearish sign for the VIX and a bullish sign for equities.

  That said, an asterisk is appropriate when applying this data series as a contrarian sentiment reading. That’s because, unlike most sentiment measures, the track record of the VIX Put/Call Ratio suggests it is not a cut-and-dry contrarian signal. That is, extreme low readings historically have not always come at market lows. In fact, the strange thing about low readings historically is that they have come both at intermediate-term lows and highs.

  For instance, the current 21-day average of the VIX Put/Call Ratio is 0.28 as of June 18. We have to go back to 2008 to find occasions when the Ratio dropped below 0.3. Since the options didn’t start until 2006 and were fairly thin and whippy for the first year, we really only have 2007-2008 to locate potentially reliable readings below 0.3%. The timing and future returns following such readings were actually quite binary.

  Occurrences in January, March and June 2007 and March and July 2008 led to almost no rise in the VIX over the following month. At the same time, the S&P 500 showed essentially zero drawdown over that period, rising 3-7% each time over the next month. Additionally, in January 2008, a near-miss reading of 0.31 led to an instant 4% rise in the S&P 500 without practically any increase in the VIX.

  On the other hand…

  Occurrences in February and July 2007 and May 2008 led to a minimum rise of 70% in the VIX over the next 6 weeks. At the same time, the S&P 500 suffered 6-week drawdowns of -5%, -9% and -13%.

  So you see the interpretation isn’t that straightforward. And obviously since there haven’t been any readings this low since 2008, we cannot judge more contemporary instances. Lowering the bar, we do find relative extreme low readings in July 2009 and February 2010, concurrent with intermediate-term market lows/VIX highs, i.e., dumb money. Then again, the next lowest readings occurred in April and July 2011 and April and September 2013, near short to intermediate-term market tops/VIX lows, i.e., smart money (note: the VIX Put/Call did bottom in the first week of August 2011 along with the market, but it was already extremely low before the market sold off).

  Again – essentially binary and ambiguous market action in the readings’ aftermath. The most recent examples of extreme low readings may or may not settle the debate. Before this week, the three lowest readings in the VIX Put/Call Ratio since 2009 came in January, July and September 2014. And while you may immediately think “the market has gone straight up during that time”, each reading was followed by short-term weakness in the market and short-term strength in the VIX. The S&P 500 saw a 1-month drawdown of -5%, -3% and -7%, respectively, following the three occurrences. And while that may not sound like much weakness (and it isn’t really), relative to what we’ve seen recently, it would probably seem like a crash. Meanwhile, the VIX saw 1-month jumps of 70%, 60% and 150% following the three readings. That’s nothing to sneeze at, even though those jumps were coming from very low levels.

  And ultimately, that may be the simple answer to the best interpretation of an indicator that measures bets on the VIX rising versus bets on the VIX falling: traders are betting that the VIX will rise. Considering the low level in the VIX, it wouldn’t take much of a rise to bring a pay day for these traders, even if it is not accompanied by a concomitant big drop in equities.

  What it means for equities is unknown. It is possible that the “smart” readings in 2007 and 2011 are most relevant considering their location in the market cycle, i.e., after multi-year rallies. We don’t have a good answer for that. We do typically give the benefit of the doubt to more recent readings with regard to such indicators. In that light, perhaps the reading is somewhat of a concern given the 2014 readings that saw weakness shortly after – at least in the short-term. Whether or not that is the best read on the indicator, we should find out fairly soon.

  

  

  
  
  

  

• Getting Hired Now Takes Longer

  By EconMatters

   

  I came across an interesting research by Glassdoor.  According to this new research paper,  the time required for hiring processes has grown dramatically in recent years, both in the U.S. and internationally.  That means it is taking longer for job seekers to get through the interview process and actually land a job.

   

  The chart below shows the average time for hiring processes by country in 2014, which ranged from 22.1 days in Canada to 31.9 days in France.

   

  

   

  Screening Takes Time

  
  The research found one major contributing factor to the longer wait time to get hired has to do with  job interview “screening” methods used by employers.  Each additional “screen”—such as group panel interviews, background check, skills tests—adds significantly to hiring times.

  
  High-Skill Jobs Harder to Match

   

  The longer hiring process could also be a reflection of a more fundamental shift toward more non-routine, more judgement-oriented jobs (high-skilled) making job-match more difficult.

  
  Bureaucracy Takes Its Time 

   

  Of course bureaucracy is certainly a factor contributing to the current lengthy hiring process.  The chart from Bloomberg (based on the same Glassdoor research data set) shows the number of days in the interview process by major U.S. cities.  So not surprisingly Washington DC bureaucrats lead the U.S. city group with the longest waiting days of 34.4 days.

  

   

   

  The Beveridge Curve Shift

   

  Delays in the hiring process could also mean longer period of unemployment in the economy.  This trend could be partly responsible for “a notable shift in the Beveridge Curve” observed by the Federal Reserve Bank of New York.

   

  Chart Source: Bloomberg.com

  The Beveridge Curve depicts the relationship between unemployment rate and job openings. Historically (from 2000 to 2007) there had been a strong relationship between the two, that is, if job openings climbed, the unemployment rate tended to fall.  But then, during the post-2008-crisis recovery, the job openings began to climb, yet unemployment remained sticky high.  This suggests employers are hesitant (or reluctant) to hire even as more workers/positions are actually needed.  

   

  Youthification in Corporate America 

  
  I personally believe the longer hiring process is also a reflection of the current trend of ‘youthification’ in the corporate world.  Worried about the vacuum left by the much hyped mass baby boomer generational retirement, many corporations have accelerated (shortened) the typical leadership role promotion process experienced by the boomer generation, as well as the boomer’s retirement process and timeline in the name of “Workforce Management” or other similar terms.  As a result, many current “hiring managers” are Gen X or Millennials (i.e. Gen Y), and many of them were put in leadership roles pre-maturely.  

   

  Reliance on Group and Tools in Decision-making Process

   

  The Post-boomer Generation grew up with the luxury of many new technologies and tools unavailable to the Boomer Generation, they tend to rely more on tools (e.g., screening) in the decision-making process.  They also tend to be ruthless and like to band together making ‘team decision’ and act as a ‘Group’ favoring technique such as ‘group panel interview’ in the hiring process.  (On a side note: this tendency of banding together also gives the younger generation more advantage, typically over older boomers, in corporate power struggle).

   

  In contrast, since technology was not as advanced and widely available during the Boomer generation, Boomers tend to be more independent thinkers with sharper instinct and less hesitant in making a judgement call decision (Note: this does not necessarily mean poor decision-making without reviewing supporting facts). 

   

  So that means the decision-making process(e.g. filling a vacant position) now takes longer within the new generation of managers, and partly why it is getting more difficult to match non-routine high skill job vacancies (try finding a tool that can reliably screen a job applicant’s intangibles like ‘judgement call’ capability).  

   

  Gen X and Y have been hyped as having superior computer skills (mostly entertainment-related such as mp3, games, but not the more advanced work-related like data-warehouse, ERP systems) than Boomers and many corporate management training classes in the past decade have preached boomer managers to make consideration for the ‘generational gap’ (well, Obama is a Baby Boomer).  The other side of the coin is this has bred a new middle management with the tendency to ‘group think’ and over-standardize everything killing creativity and ‘big-picture view’ within Corporate America.

   

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• "The Collateral Has Run Out" – JPM Warns ECB Will Use Greek "Nuclear Option" If No Monday Deal

  In Athens on Friday, the ATM lines began to form in earnest.

  

  (via Corriere)

  Although estimates vary, Kathimerini, citing Greek banking officials, puts Friday’s deposit outflow at €1.7 billion. If true, that would mark a serious step up from the estimated €1.2 billion that left the banking system on Thursday and serves to underscore just how critical the ECB’s emergency decision to lift the ELA cap by €1.8 billion truly was. “Banks expressed relief following Frankfurt’s reaction, acknowledging that Friday could have ended very differently without a new cash injection,” the Greek daily said, adding that the ECB’s expectation of “a positive outcome in Monday’s meeting”, suggests ELA could be frozen if the stalemate remains after leaders convene the ad hoc summit. Bloomberg has more on the summit:

  Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other.

   

  She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend.

   

  “I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee.

   

  Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past – – and maybe their future.

   

  

   

  For Greeks, the fear is that Monday will be deja vu, a return to a past not that distant. Before the euro replaced the drachma in 2002, the Greeks were already a European bête noire, their currency mostly trapped inside their nation, where cash was king and checks a novelty.

   

  Everything comes together on Monday. Greek Prime Minister Alexis Tsipras, back from a visit with Vladimir Putin in St. Petersburg, will spend his weekend coming up with a proposal to take to a Monday showdown with euro-area leaders.

   

  A deal there is key. The bailout agreement that’s kept Greece from defaulting expires June 30. That’s the day Greece owes about 1.5 billion euros to the International Monetary Fund.

   

  Without at least an understanding among the political chiefs, Greek banks will reach the limits of their available collateral for more ECB aid. 

  Indeed, JP Morgan suggests that the central bank may have already shown some leniency in terms of how it treats Greek collateral. Further, analyst Nikolaos Panigirtzoglou and team estimate, based on offshore money market flows, that some €6 billion left Greek banks last week.

  If no agreement is struck on Monday evening that paves the way for further ELA hikes, the ECB may do exactly what we warned on Monday. That is, resort to the “nuclear option” which would, as JPM puts it, make capital controls are “almost inevitable.” Here’s more:

  The escalation of the Greek crisis over the past week has caused an acceleration of Greek bank deposit outflows which in turn increased the likelihood of Greece introducing capital controls as soon as next week if Monday’s Eurozone leaders’ summit on Greece brings no deal. Indeed, our proxy of Greek bank deposit outflows, i.e. the purchases of offshore money market funds by Greek citizens is pointing to a material acceleration this week vs. the previous week.

   

  
  

   

  The €147m invested into offshore money market funds during the first four days of this week is equivalent to €5bn of deposit outflows based on the relationship between the two metrics during April (during April, around €155m was invested in offshore money market funds, which was accompanied by deposit outflows of around €5bn). Assuming a similar outflow pace for Friday brings the estimated deposit outflow for the full week to €6bn. In the previous week (i.e. the week commencing June 8th) around €40m was invested into offshore money market funds, which is equivalent to around €1.6bn of deposit outflows. So this week’s deposit outflows almost quadrupled relative to the previous week. Month-to-date €8bn of deposits has likely left the Greek banking system on our estimates, following €5bn in May and €5bn in April. As a result, the level of household and corporate deposits currently stands at just above €120bn. 

   

  As mentioned above this acceleration in the pace of deposit outflows is raising the chance that the Greek government will be forced to impose restrictions on the withdrawal of deposits if no deal is reached at the Eurozone summit on Monday. This is because Greek banks’ borrowing from the ECB has moved above the €121bn maximum we had previously estimated based on available collateral (€38bn using EFSF as collateral, €8bn using government securities as collateral & €75bn using credit claims as collateral). In particular, by assuming that Greek banks operate at c €1-2bn below the ELA limit as a buffer, we estimate that their current borrowing is €125bn. This is based on the ECB raising its ELA limit to €86bn on Friday this week from €84bn on Wednesday.  

  Here is the punchline: when the ECB hiked Greek ELA by €1.8 bilion in its Friday emergency meeting (an amount that was promptly soaked up by the €1,7 billion in Greek bank runs on Friday), it may have done so in breach of the Greek “borrowing base” because, according to JPM, with total ECB borrowings of €125, this means that Greece is now €4 billion above its maximum eligible collateral. The ECB surely knows this, and has breached its own borrowing base calculation for one of two reasons: because it knows the breach will be promptly limited or reversed on Monday, or there will be a deal. In other words, Greece is now officially living on borrowed time:

  This €125bn of borrowing from the ECB is €4bn above our estimated maximum borrowing of €121bn, suggesting that the ECB has already showed flexibility with respect to the collateral constraints Greek banks are facing. We argued before that the ECB has the flexibility to adjust haircuts to allow Greek banks to borrow more from the Bank of Greece for a given amount of collateral. It can also start accepting government guaranteed bank bonds as collateral despite the ECB having rejected these bonds before as a source of acceptable collateral. Greek banks have been rolling over government guaranteed bank paper since March. For example Greek banks rolled over €33bn of government guaranteed bank debt over the past three months. However, we doubt the ECB will ever accept large amounts of government guaranteed bank debt, effectively of what it considers as collateral made “out of thin air”. And if no agreement is reached on Monday, then the ECB will have little reason to show further flexibility and it will likely freeze its ELA limit on Greek banks. As a result capital controls will become almost inevitable after Monday. 

  All of this is now moot: as we explained previously, for the Greek banks it is now game over (really, the culmination of a 5 year process whose outcome was clear to all involved) and the only question is what brings the Greek financial system down: whether it is a liquidity implosion as a result of a bank run which one fails to see how even a “last minute deal”, or capital controls for that matter, can halt, or a slow burning solvency hit as Greek non-performing loans are now greater than those of Cyrpus were at the time when the Cypriot capital controls were imposed. As Bloomberg calculated last week, just the NPL losses are big enough now to wipe out the Big 4 Greek banks tangible capital.

  
  

  JPM, for now, focuses on the liquidity aspect:

  The deposit outflows from Greek banks show how dramatic the reversal of Greece’s liquidity position has been over the past six months. The €8bn that left the Greek banking system month-to-date has brought the cumulative deposit withdrawal to €44bn since last December. This €44bn has more than reversed the €14bn that had entered the Greek banking system between June 2012 and November 2014 (Figure 2). The €117bn of deposits lost cumulatively since the end of 2009 has brought the bank deposit to GDP ratio for Greece to 66%. This is well below the Eurozone average of 94%.

   

  
  

  And with more than three-quarters of the nearly €500 billion in outstanding foreign claims on Greece concentrated among foreign official institutions, any “contagion” will come will come not from the financial impact of Grexit, but from the psychological impact as the ECB’s countless lies of “political capital” and “irreversible union” crash like the European house of cards.

  Would a Greek exit make the Eurozone look “healthier” as problem countries that do not obey rules are ousted? Or would markets rather question the ability of the Eurozone to cope with a bigger problem/country in the future if they cannot deal with a small problem/country such as Greece? Would a Greek exit make the Eurozone more stable by fostering more fiscal integration and debt mutualization over time? Or would the large losses from a Greek exit rather make creditor nations even more reluctant to proceed with much needed debt mutualization and fiscal transfers in the future? Would a Greece exit, and the punishment of Syriza as an unconventional political party, reduce the popularity of euroskeptic and unconventional political forces in Europe, as Greece becomes an example for other populations to avoid? Or would a Greek exit and the punishment of a country that refused to succumb to neverending austerity rather demonstrate the lack of flexibility, solidarity and cooperation giving more ground to euroskeptic parties across Europe?

  Again we see that the entire world is now wise to the game the troika is playing. This isn’t about Greece, it’s about Spain and Italy or any other “bigger” problem countries whose voters elect “euroskeptic” politicians. As a reminder, if and when the Greek problem shifts to other PIIG nations, then it will be truly a time to panic:
  

  

   

  So much as US-Russian relations are, to quote Kremlin spokesman Dmitry Peskov, “sacrificed on the altar of election campaigns”, so too are relations between Greece and its European “partners” sacrificed for political aims. In the end, the entire Greek tragicomedy comes back to the simple fact that a currency union with no fiscal union is no union at all and will likely be nearly impossible to sustain. We’ll leave you with the following quote from Alexandre Lamfalussy, BIS veteran, first President of the EMI (the ECB before the ECB existed), and the “Father of the Euro”:

  “It would seem to me very strange if we did not insist on the need to make appropriate arrangements that would allow for the the gradual emergence and the full operation once the EMU is completed of a community-wide macroeconomic fiscal policy which would be the natural compliment to the common monetary policy of the community.”

  

  

  
  
  

  

• All The World's Investable Assets In Context

  With central bank credibility suddenly on the line once again, following both the Fed’s June rate hike punt (so it doesn’t disturb “data-dependent” stocks), and with a possible imminent Greek default and Grexit, which will crush the ECB’s “political capital” and “irreversible union” propaganda, it is time once again to check what are the safe assets in a world in which nearly one quadrillion in “paper wealth” exists solely due to faith in solvent counterparties, a faith which has been bought by the central banks at a cost of €22 trillion so far, and which is rising exponentially with every passing year.

  For the answer, we go to the latest letter by Elliott’s Paul Singer which lays out the “size of global markets” just to put it all in perspective.

  We decided to do a little research to find out the size of different investable asset classes globally, to try to get some color on the money flows in this extraordinary period. The data is from various dates from 2013 to 2014, but the differences don’t matter much.

   

  Over-the-Counter derivatives, notional amounts: $692 trillion at year-end 2014, per the BIS. For comparison, this figure was $72 trillion in 1998.

   

  Global real estate: $180 trillion, according to global real-estate services provider Savills.

   

  Global debt market, both securities and other forms of debt: $161
  trillion at year-end 2014, per the Institute for International Finance’s
  Capital Markets Monitor. According to the Bank of International
  Settlements (BIS), debt securities make up $95 trillion of this total.

   

  Global equities: $64 trillion, per the World Federation of Exchanges.

   

  Global M1 money supply: $24 trillion at year-end 2013, per the World Bank.

   

  Gold: $6.8 trillion at year-end 2013, according to the Thompson Reuters GFMS Gold Survey.

  Which, of course, is just another way of showing the famous inverted pyramid of John Exter, himself a former Fed official.

  

  

  

  
  
  

  

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• The Last Rebels: 25 Things We Did As Kids That Would Get Someone Arrested Today

  Submitted by Daisy Luther via The Organic Prepper blog,

  With all of the ridiculous new regulations, coddling, and societal mores that seem to be the norm these days, it’s a miracle those of us over 30 survived our childhoods.

  Here’s the problem with all of this babying: it creates a society of weenies.

  There won’t be more more rebels because this generation has been frightened into submission and apathy through a deliberately orchestrated culture of fear. No one will have faced adventure and lived to greatly embroider the story.

  Kids are brainwashed – yes, brainwashed – into believing that the mere thought of a gun means you’re a psychotic killer waiting for a place to rampage.

  They are terrified to do anything when they aren’t wrapped up with helmets, knee pads, wrist guards, and other protective gear.

  Parents can’t let them go out and be independent or they’re charged with neglect and the children are taken away.

  Woe betide any teen who uses a tool like a pocket knife, or heck, even a table knife to cut meat.

  Lighting their own fire? Good grief, those parents must either not care of their child is disfigured by 3rd-degree burns over 90% of his body or they’re purposely nurturing a little arsonist.

  Heaven forbid that a child describe another child as “black” or, for that matter, refer to others as girls or boys. No actual descriptors can be used for the fear of “offending” that person, and “offending” someone is incredibly high on the hierarchy of Things Never To Do.

  “Free range parenting” is all but illegal and childhood is a completely different experience these days.

  All of this babying creates incompetent, fearful adults.

  Our children have been enveloped in this softly padded culture of fear, and it’s creating a society of people who are fearful, out of shape, overly cautious, and painfully politically correct.  They are incredibly incompetent when they go out on their own because they’ve never actually done anything on their own.

  When my oldest daughter came home after her first semester away at college, she told me how grateful she was to be an independent person. She described the scene in the dorm.  “I had to show a bunch of them how to do laundry and they didn’t even know how to make a box of Kraft Macaroni and Cheese,” she said.  Apparently they were in awe of her ability to cook actual food that did not originate in a pouch or box, her skills at changing a tire, her knack for making coffee using a French press instead of a coffee maker, and her ease at operating a washing machine and clothes dryer.  She says that even though she thought I was being mean at the time I began making her do things for herself, she’s now glad that she possesses those skills.  Hers was also the room that had everything needed to solve everyday problems: basic tools, first aid supplies, OTC medicine, and home remedies.

  I was truly surprised when my daughter told me about the lack of life skills her friends have.  I always thought maybe I was secretly lazy and that was the basis on my insistence that my girls be able to fend for themselves, but it honestly prepares them for life far better than if I was a hands-on mom that did absolutely everything for them.  They need to realize that clothing does not get worn and then neatly reappear on a hanger in the closet, ready to be worn again. They need to understand that meals do not magically appear on the table, created by singing appliances a la Beauty and the Beast.

  If the country is populated by a bunch of people who can’t even cook a box of macaroni and cheese when their stoves function at optimum efficiency, how on earth will they sustain themselves when they have to not only acquire their food, but must use off-grid methods to prepare it? How can someone who requires an instruction manual to operate a digital thermostat hope to keep warm when their home environment it controlled by wood they have collected and fires they have lit with it?  How can someone who is afraid of getting dirty plant a garden and shovel manure?

  Did you do any of these things and live to tell the tale?

  While I did make my children wear bicycle helmets and never took them on the highway in the back of a pick-up, many of the things on this list were not just allowed, they were encouraged. Before someone pipes up with outrage (because they’re *cough* offended) I’m not suggesting that you throw caution to the wind and let your kids attempt to hang-glide off the roof with a sheet attached to a kite frame. (I’ve got a scar proving that makeshift hang-gliding is, in fact, a terrible idea). Common sense evolves, and I obviously don’t recommend that you purposely put your children in unsafe situations with a high risk of injury.

  But, let them be kids. Let them explore and take reasonable risks. Let them learn to live life without fear.

  Raise your hand if you survived a childhood in the 60s, 70s, and 80s that included one or more of the following, frowned-upon activities (raise both hands if you bear a scar proving your daredevil participation in these dare-devilish events):

  1. Riding in the back of an open pick-up truck with a bunch of other kids
  2. Leaving the house after breakfast and not returning until the streetlights came on, at which point, you raced home, ASAP so you didn’t get in trouble
  3. Eating peanut butter and jelly sandwiches in the school cafeteria
  4. Riding your bike without a helmet
  5. Riding your bike with a buddy on the handlebars, and neither of you wearing helmets
  6. Drinking water from the hose in the yard
  7. Swimming in creeks, rivers, ponds, and lakes (or what they now call *cough* “wild swimming“)
  8. Climbing trees (One park cut the lower branches from a tree on the playground in case some stalwart child dared to climb them)
  9. Having snowball fights (and accidentally hitting someone you shouldn’t)
  10. Sledding without enough protective equipment to play a game in the NFL
  11. Carrying a pocket knife to school (or having a fishing tackle box with sharp things on school property)
  12. Camping
  13. Throwing rocks at snakes in the river
  14. Playing politically incorrect games like Cowboys and Indians
  15. Playing Cops and Robbers with *gasp* toy guns
  16. Pretending to shoot each other with sticks we imagined were guns
  17. Shooting an actual gun or a bow (with *gasp* sharp arrows) at a can on a log, accompanied by our parents who gave us pointers to improve our aim. Heck, there was even a marksmanship club at my high school
  18. Saying the words “gun” or “bang” or “pow pow” (there actually a freakin’ CODE about “playing with invisible guns”)
  19. Working for your pocket money well before your teen years
  20. Taking that money to the store and buying as much penny candy as you could afford, then eating it in one sitting
  21. Eating pop rocks candy and drinking soda, just to prove we were exempt from that urban legend that said our stomachs would explode
  22. Getting so dirty that your mom washed you off with the hose in the yard before letting you come into the house to have a shower
  23. Writing lines for being a jerk at school, either on the board or on paper
  24. Playing “dangerous” games like dodgeball, kickball, tag, whiffle ball, and red rover (The Health Department of New York issued a warning about the “significant risk of injury” from these games)
  25. Walking to school alone

  Come on, be honest.  Tell us what crazy stuff you did as a child.

  Teach your children to be independent this summer.

  We didn’t get trophies just for showing up. We were forced, yes, forced – to do actual work and no one called protective services. And we gained something from all of this.

  Our independence.

  Do you really think that children who are terrified by someone pointing his finger and saying “bang” are going to lead the revolution against tyranny? No, they will cower in their tiny apartments, hoping that if they behave well enough, they’ll continue to be fed.

  Do you think our ancestors who fought in the revolutionary war were afraid to climb a tree or get dirty?

  Those of us who grew up this way (and who raise our children to be fearless) are the resistance against a coddled, helmeted, non-offending society that aims for a dependant populace. In a country that was built on rugged self-reliance, we are now the minority.

  Nurture the rebellion this summer. Boot them outside. Get your kids away from their TVs, laptops, and video games. Get sweaty and dirty. Do things that makes the wind blow through your hair. Go off in search of the best climbing tree you can find. Shoot guns. Learn to use a bow and arrow. Play outside all day long and catch fireflies after dark. Do things that the coddled world considers too dangerous and watch your children blossom.

  Teach your kids what freedom feels like.

  

  

  
  
  

  

• Cities, States Shun Moody's For Blowing The Whistle On Pension Liabilities

  A little over a month ago, Moody’s downgraded the city of Chicago to junk, triggering over $2 billion in accelerated payment rights for creditors and complicating an effort by Mayor Rahm Emanuel to refinance some $900 million in floating rate debt and borrow another $200 million to pay off the related swaps. 

  The decision by Moody’s came on the heels of an Illinois Supreme Court decision that struck down a pension reform bid. Although not binding on other states, that verdict effectively set a precedent as it relates to ‘implicit contracts’ between employers and employees, meaning state and local officials across the country will need to find creative ways to fill budget gaps.

  When it comes to underfunded pension liabilities one major concern is that in a world characterized by ZIRP and NIRP, it’s not entirely clear that public pension funds are using realistic investment return assumptions. As you can see from the table below, the assumed rates of return for Chicago’s pension funds are nowhere near the risk-free rate, meaning one of two things must be true: 1) fund managers are taking greater risks to hit the targets, or 2) the targets won’t be hit. If the latter is true, then the present value of the funds’ liabilities is likely much larger than reported.

  

  After 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances and as WSJ reports, rather than admit that their return assumptions are indeed unrealistic, local governments have opted to drop Moody’s instead. Here’s more:

  More than a year before Moody’s Investors Service downgraded Chicago’s bonds to junk status, one of its senior analysts asked top city officials to explain why the third-largest U.S. city was healthier than a troubled island commonwealth flirting with insolvency, according to people familiar with the conversation.

   

  “Help me understand why Chicago is different than Puerto Rico?” said the Moody’s analyst, Rachel Cortez, during a February 2014 meeting that Mayor Rahm Emanuel attended, two of these people said. A spokesman for Moody’s and Ms. Cortez said the firm doesn’t discuss “private meetings with issuers or other capital-market participants.”

   

  
  

   

  The exchange inside City Hall came to embody a more aggressive stance by the world’s second-largest ratings firm as Moody’s cut Chicago’s credit rating by seven notches over a two-year period. City officials were taken aback by the Puerto Rico comment and then angered by Moody’s final move to junk in May 2015, a stance that differed from more optimistic conclusions made by other ratings firms. Since last summer, the city has left the Moody’s Corp. unit off four bond deals..

   

  Tim Blake, a Moody’s managing director who heads its public pension task force, said the firm is “rationally applying” its ratings models. “Our job is to make judgments on credit risk as we see it,” said Mr. Blake, noting some issuers with improved pension situations have been upgraded.

   

  Other cities and counties from California to Florida are reconsidering their relationship with Moody’s as it expands its stricter ratings approach around the U.S., threatening a seal of approval that for decades was all but a necessity in the municipal-bond world..

   

  Moody’s metamorphosis began after the 2008 crisis as ratings firms drew criticism in Congress and from regulators for their rosy grades on mortgage bonds that went sour. For local governments, the key change came in 2013 when Moody’s decided it would no longer rely on cities’ and states’ targets for investment returns when it calculates pension liabilities—one of the biggest costs shouldered by local governments. Moody’s own estimates are more conservative, meaning holes in pension funds look bigger.

   

  As Moody’s adopted the stricter ratings methodology, it diverged from rivals Standard & Poor’s Ratings Services and Fitch Ratings in its assessment of problems facing local governments across the U.S. From 2002 to 2007, Moody’s and S&P upgraded issuers at about the same rate. But from 2008 to 2014, S&P had seven upgrades for every one of Moody’s, according to a recent Nuveen Asset Management LLC report.

   

  Santa Clara County, Calif., omitted Moody’s from its past two deals because of the firm’s disagreement over how some property-tax revenues were to be distributed. “We became convinced that Moody’s was not being responsible and so therefore we moved away from them,” said Jeff Smith, who oversees the operations of the county, which includes San Jose. “We don’t think it has had, or will have, any effect on our ability to sell bonds.”

  
  

  The latest government to back away from Moody’s is Miami-Dade County, which last week decided to hire Kroll Bond Rating Agency Inc. instead of Moody’s for its $534 million sale of airport bonds. Kroll’s rating is two notches higher than Moody’s.

  
  

  “We wanted a fresh set of eyes,” said Anne Lee, chief financial officer of the Miami-Dade aviation department, of the decision to not hire Moody’s, which she adds charges “30% to 40%” more than other rivals.

  Yes, a “fresh set of eyes,” and preferably a set that will not take a realistic look at pension fund return assumptions. 

  Perhaps the most unnerving thing about the above is that state and local governments across the country are already facing huge pension funding gaps using their own unrealistically high return assumptions.

  If they were to adopt Moody’s standards, they would likely find that the holes are orders of magnitude larger and rather than face reality, officials have apparently opted to go with the Wall Street approach to dealing with people who try to spoil the fun: namely, when someone blows the whistle, you simply fire them. 

  Pray for the pensioners.

  

  

  
  
  

  

• Debt: War And Empire By Other Means

  Via Jesse's Cafe Americain,

  This video below may help one to understand some of the seemingly obtuse demands from the Troika with regard to Greece.

  The video is a bit dated, but the debt scheme it describes remains largely unchanged. The primary development has been the creation of an experiment called the European Union and the character of the targets.   One might also look to the wars of 'preventative intervention' and 'colour revolutions' that raise up puppet regimes for examples of more contemporary economic spoliation.

  
   
  From largely small and Third World countries, the candidates for debt peonage have become the smaller amongst the developed Western countries, the most vulnerable on the periphery. 
   
  And even the domestic populations of the monetary powers, the US, Germany, and the UK, are now feeling the sting of financialisation, debt imposition through crises, and austerity.   What used to only take place in South America and Africa has now taken place in Jefferson County Alabama.  Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects.

  It would be wrong in these instances to blame the whole country,  the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss.  For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward.  It is an old, old story.
   
  And then there is the mass looting enable by the most recent financial crisis and Bank bailouts.  If the people will not take on the chains of debt willingly, you impose them indirectly, while giving the funds to your cronies who will use them against the very people who are bearing the burdens, while lecturing them on moral values and thrift.  It is an exceptionally diabolical con game.
   
  The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control.  You might ask yourself why the House Republicans, who have fought the current President at every turn, blocking nominees and even stages many mock votes to repeatedly denounce a healthcare plan that originated in their own think tank and first implemented by their own presidential candidate, are suddenly championing that President's highest profile legislation, and against the opposition of his own party?
   
  The next step, after Greece is subdued, will be to extend that model to other, larger countries.  And to redouble the austerity at home under cover of the next financial crisis by eliminating cash as a safe haven, and to begin the steady stream of digital 'bailing-in.'

  This is why these corporatists and statists hate gold and silver, by the way.  And why it is at the focal point of a currency war.  It provides a counterweight to their monetary power.  It speaks unpleasant truths. It is a safe haven and alternative, along with other attempts to supplant the IMF and the World Bank, for the rest of the world.
   
  So when you say, the Philippines deserved it, Iceland deserved it, Ireland deserved it, Africa deserves it, Jefferson County deserved it, Detroit deserved it, and now Greece deserves it, just keep in mind that some day soon they will be saying that you deserve it, because you stood by and did nothing.  Because when they are done with all the others, for whom do you think they come next?   If you wish to see injustice stopped, if you wish to live up to the pledge of 'never again,' then you must stand for your fellows who are vulnerable.
   
  The economic hitmen have honed their skills among the poor and relatively defenseless, and have been coming closer to home in search of new hunting grounds and fatter spoils.  There is nothing 'new' or 'modern' about this.

  You may also find some information about the contemporary applications of these methods in The IMF's 'Tough Choices' On Greece by Jamie Galbraith.

  The International Monetary Fund’s chief economist, Olivier Blanchard, recently asked a simple and important question: “How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?” But that raises two more questions: How much of an adjustment has Greece already made? And have its creditors given anything at all?

   

  In May 2010, the Greek government agreed to a fiscal adjustment equal to 16% of GDP from 2010 to 2013. As a result, Greece moved from a primary budget deficit (which excludes interest payments on debt) of more than 10% of GDP to a primary balance last year – by far the largest such reversal in post-crisis Europe.

   

  The IMF initially projected that Greece’s real (inflation-adjusted) GDP would contract by around 5% over the 2010-2011 period, stabilize in 2012, and grow thereafter. In fact, real GDP fell 25%, and did not recover. And, because nominal GDP fell in 2014 and continues to fall, the debt/GDP ratio, which was supposed to stabilize three years ago, continues to rise.

   

  Blanchard notes that in 2012, Greece agreed “to generate enough of a primary surplus to limit its indebtedness” and to implement “a number of reforms which should lead to higher growth.” Those so-called reforms included sharply lower public spending, minimum-wage reductions, fire-sale privatizations, an end to collective bargaining, and deep pension cuts. Greece followed through, but the depression continued.

   

  The IMF and Greece’s other creditors have assumed that massive fiscal contraction has only a temporary effect on economic activity, employment, and taxes, and that slashing wages, pensions, and public jobs has a magical effect on growth. This has proved false. Indeed, Greece’s post-2010 adjustment led to economic disaster – and the IMF’s worst predictive failure ever.

   

  Blanchard should know better than to persist with this fiasco. Once the link between “reform” and growth is broken – as it has been in Greece – his argument collapses. With no path to growth, the creditors’ demand for an eventual 3.5%-of-GDP primary surplus is actually a call for more contraction, beginning with another deep slump this year.

   

  But, rather than recognizing this reality and adjusting accordingly, Blanchard doubles down on pensions. He writes:

   

  “Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.”

   

  Note first the damning admission: apart from pensions and wages, spending has already been “cut to the bone.” And remember: the effect of this approach on growth was negative. So, in defiance of overwhelming evidence, the IMF now wants to target the remaining sector, pensions, where massive cuts – more than 40% in many cases – have already been made. The new cuts being demanded would hit the poor very hard.

   

  Pension payments now account for 16% of Greek GDP precisely because Greece’s economy is 25% smaller than it was in 2009. Without five years of disastrous austerity, Greek GDP might be 33% higher than it is now, and pensions would be 12% of GDP rather than 16%. The math is straightforward.

   

  Blanchard calls on Greece’s government to offer “truly credible measures.” Shouldn’t the IMF do likewise? To get pensions down by one percentage point of GDP, nominal economic growth of just 4% per year for two years would suffice – with no further cuts. Why not have “credible measures” to achieve that goal?

   

  This brings us to Greek debt. As everyone at the IMF knows, a debt overhang is a vast unfunded tax liability that says to investors: enter at your own risk. At any time, your investments, profits, and hard work may be taxed away to feed the dead hand of past lenders. The overhang is a blockade against growth. That is why every debt crisis, sooner or later, ends in restructuring or default.

   

  Blanchard is a pioneer in the economics of public debt. He knows that Greece’s debt has not been sustainable at any point during the last five years, and that it is not sustainable now. On this point, Greece and the IMF agree.

   

  In fact, Greece has a credible debt proposal. First, let the European Stabilization Mechanism (ESM) lend €27 billion ($30 billion), at long maturities, to retire the Greek bonds that the European Central Bank foolishly bought in 2010. Second, use the profits on those bonds to pay off the IMF. Third, include Greece in the ECB’s program of quantitative easing, which would let it return to the markets.

   

  Greece would agree to fair conditions for the ESM loan. It does not ask for one cent of additional official funding for the Greek state. It is promising to live within its means forever, and rely on internal savings and external investment for growth – far short of what any large country, controlling its own currency, would do when facing a comparable disaster.

   

  Blanchard insists that now is the time for “tough choices, and tough commitments to be made on both sides.” Indeed it is. But the Greeks have already made tough choices. Now it is the IMF’s turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all.

  *  *  *

  This is as old as Babylon, and evil as sin.  It is the power of darkness of the world, and of spiritual wickedness in high places.   The only difference is that it is not happening in the past or in a book, it is happening here and now.

  "Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which becomes the only rule."

  Francis I, Laudato Si

  "Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

   

  Tacitus, Agricola

   

  

  

  
  
  

  

• IMF Humiliates Greece, Repeats It Will Keep Funding Ukraine Even If It Defaults

  One week ago, we were stunned to learn just how low the political organization that is the mostly US-taxpayer funded IMF has stooped when, a day after its negotiators demonstratively stormed out of the Greek negotiations with “creditors”,  Hermes’ ambassador-at-large Christone Lagarde said that the IMF “could lend to Ukraine even if Ukraine determines it cannot service its debt.”

  In other words, as Greece struggles to avoid a default to the IMF on debt which was incurred just so German banks can remain solvent and dump trillions in non-performing loans to US hedge funds and Greek exposure, and which would result in the collapse in the living standards of an entire nation (only for a few years before an Iceland-recovery takes place, one which Greece would already be enjoying had it defaulted in 2010 as we said it should), and as the “criminal” IMF does everything in its power to subjugate an entire nation, or else let it founder, the IMF told Soros’ BFFs over in Kiev, that no matter if they default to its private creditors (in fact please do since Russia is among them), the IMF would keep the debt spigot flowing.

  Courtesy of the US taxpayer of course.

  Fast forward one week when, with Greece one step closer to a full-blown financial collapse, the IMF comes out and tell Ukraine – which already passed a law allowing it to impose a debt moratorium at any moment – not to worry, that even in a default it will keep providing unlimited funds. From Reuters:

  Ukraine’s efforts to strike a debt restructuring deal with its creditors will allow the International Monetary Fund to continue to support the country even if the talks are not successful, the head of the IMF said on Friday.

   

  “I … welcome the government’s continued efforts to reach a collaborative agreement with all creditors,” IMF Managing Director Christine Lagarde said in a statement. “This is important since this means that the Fund will be able to continue to support Ukraine through its Lending-into-Arrears Policy even in the event that a negotiated agreement with creditors in line with the program cannot be reached in a timely manner.“

  We will pass comment on this latest grand IMF hypocrisy and ask if Greece would rather be in Kiev’s place which at the behest of “Western” leaders, it sold, liquidated, and otherwise “lost” all of its gold. Or, like Ukraine, Athens is willing to part with its $4 billion in gold just to appease the Troika as it sells all of its 112.5 tons of official gold to unknown buyers. A transaction which would buy Greece about 3-6 months of can kicking and a few stray smiles from Chrstine Lagarde.

  

  

  

  
  
  

  

• Fearing Capital Controls, Tourists Request Hotel Safes In Greece

  On Friday, Austrian finance minister Hans Schelling said he assumed Austrian tourists vacationing in Greece would still be able to withdraw money from ATMs on Monday, but if not, Schelling indicated he would need to “discuss with leaders what positions have to be taken.” 

  If that doesn’t inspire much confidence or perhaps makes you rethink any plans you might have had to join Yanis Varoufakis for a scenic Aegean sunset on the island of Aegina, you’re not alone. In fact, ATM operator Travelex has the following tip for anyone considering a trip to Greece: “Our advice is to exercise caution.”

  In a sign of the times, Bloomberg reports that contentious negotiations between Greece and the troika combined with talk of looming capital controls have sparked renewed interest in a long-forgotten hotel perk. Here’s more:

  Greek resort manager Kostas Dimitrokalis’s customers have started asking in recent weeks about an amenity often ignored in an age of online and credit card payments: reliable hotel safes to stash their money.

   

  “Clients want to feel secure that if something happens, they’ll have funds,” Dimitrokalis, who heads the KD Hotels chain with six resorts on the island of Santorini, said in a telephone interview. “They’re coming with more cash.”

   

  Helping travelers rest easy is something Dimitrokalis can handle. More troubling for him is what if they simply don’t come at all? While his hotels are full right now, Dimitrokalis says forward bookings are weak given the uncertainty surrounding the country’s financing.

   

  That’s a sentiment echoed by Greece’s tourism industry as a whole. The Association of Greek 

  Tourism Enterprises, which said last month that a strong start to the year had been trailing off, declined this week to discuss the possible impact of the government’s showdown with creditors because “the situation is just too fluid”..

   

  Tourism generates 17 percent of gross domestic product in Greece, meaning any slowdown would hit the economy hard. Before the latest flareup in the funding dispute, the country was heading toward a record year for visitors, with the number of tourists surging 46 percent in the first quarter to 1.73 million, according to the latest data from the Bank of Greece.

   

  TUI AG, Europe’s largest tour operator, said it’s only had sporadic inquiries from travelers about the impact a Greek exit from the euro would have on their holiday, while Thomas Cook Group Plc said it still sees strong demand for travel to the country. Both companies said trips wouldn’t be affected because they are selling package tours to customers.

   

  The advice from experts for travelers heading to the country is to keep abreast of the latest developments and bring along enough cash to last 3-4 days just in case, said David Swann, a spokesman for Travelex.

  This speaks to why a dramatic VAT hike has been a non-starter for Greece in its negotiations with creditors — Athens fears it will kill the “one industry that’s doing well,” to quote the country’s tourism chief. In fact, the VAT issue is so sensitive that Yorgos Hatzimarkos, governor of vacation destinations such as Mykonos and Santorini, has threatened to hold a referendum on the issue. Now, the threat of a bank holiday and restricted access to deposits has given vacationers one more reason to avoid Greece.

  In short, just about the last thing the country’s tourism industry needs is capital controls. If the ATMs go dark next week, the flow of vactioners will likely dry up quickly, safes or no safes. 

  

  

  
  
  

  

• Rand Paul: "Americans See The Rot In The System…And Want It To End!"

  Authored by Rand Paul, originally posted at The Wall Street Journal,

  Some of my fellow Republican candidates for the presidency have proposed plans to fix the tax system. These proposals are a step in the right direction, but the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.

  So, I am announcing an over $2 trillion tax cut that would repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.”

  President Obama talks about “middle-class economics,” but his redistribution policies have led to rising income inequality and negative income gains for families. Here’s what I propose for the middle class: The Fair and Flat Tax eliminates payroll taxes, which are seized by the IRS from a worker’s paychecks before a family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15% over 10 years.

  Here’s why we have to start over with the tax code. From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.

  Polls show that “fairness” is a top goal for Americans in our tax system. I envision a traditionally All-American solution: Everyone plays by the same rules. This means no one of privilege, wealth or with an arsenal of lobbyists can game the system to pay a lower rate than working Americans.

  Most important, a smart tax system must turbocharge the economy and pull America out of the slow-growth rut of the past decade. We are already at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month. Even Mr. Obama’s economic advisers tell him that the U.S. corporate tax code, which has the highest rates in the world (35%), is an economic drag. When an iconic American company like Burger King wants to renounce its citizenship for Canada because that country’s tax rates are so much lower, there’s a fundamental problem.

  Another increasingly obvious danger of our current tax code is the empowerment of a rogue agency, the IRS, to examine the most private financial and lifestyle information of every American citizen. We now know that the IRS, through political hacks like former IRS official Lois Lerner, routinely abused its auditing power to build an enemies list and harass anyone who might be adversarial to President Obama’s policies. A convoluted tax code enables these corrupt tactics.

  My tax plan would blow up the tax code and start over. In consultation with some of the top tax experts in the country, including the Heritage Foundation’s Stephen Moore, former presidential candidate Steve Forbes and Reagan economist Arthur Laffer, I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.

  I would also apply this uniform 14.5% business-activity tax on all companies—down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.

  The immediate question everyone asks is: Won’t this 14.5% tax plan blow a massive hole in the budget deficit? As a senator, I have proposed balanced budgets and I pledge to balance the budget as president.

  Here’s why this plan would balance the budget: We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10%, and create at least 1.4 million new jobs.

  And because the best way to balance the budget and pay down government debt is to put Americans back to work, my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.

  The left will argue that the plan is a tax cut for the wealthy. But most of the loopholes in the tax code were designed by the rich and politically connected. Though the rich will pay a lower rate along with everyone else, they won’t have special provisions to avoid paying lower than 14.5%.

  The challenge to this plan will be to overcome special-interest groups in Washington who will muster all of their political muscle to save corporate welfare. That’s what happened to my friend Steve Forbes when he ran for president in 1996 on the idea of the flat tax. Though the flat tax was surprisingly popular with voters for its simplicity and its capacity to boost the economy, crony capitalists and lobbyists exploded his noble crusade.

  Today, the American people see the rot in the system that is degrading our economy day after day and want it to end. That is exactly what the Fair and Flat Tax will do through a plan that’s the boldest restoration of fairness to American taxpayers in over a century.

  

  

  
  
  

  

• Disgraced, Demoted Pathological Liar To Collect $10 Million At MSNBC

  Brian Williams – the disgraced lying ex-anchor of NBC Nightly News – has been demoted drastically to breaking news on MSNBC. He also took a significant pay cut. But do not feel too bad for the pathological narcissist. As TheWrap reports, the newsman will still earn a stunning $8-10 million. In today’s consequence-less world, it appears it now pays to lie, but do not be disturbed as Williams has allegedly commented that he “identifies as an honest news anchor.”

   

  As TheWrap reports,

  Brian Williams will still make close to $10 million per year despite his demotion to a breaking news role at MSNBC, which has at best just 10 percent the audience of the “NBC Nightly News” broadcast, an individual with knowledge of his compensation told TheWrap.

   

  The insider said that Williams would be making “between $8 and $10 million,” adding that the figure represented what the former anchor considered a big cut in pay.

   

  The disgraced news anchor was making closer to $15 million at the network, not the $10 million that has been previously reported, the insider said.

   

  An NBC News spokesman declined to comment, saying that the network won’t discuss personnel contracts.

   

  But multiple individuals told TheWrap that Williams’ salary cut was not as significant as might be expected, given how much smaller the MSNBC audience is than that of the network he was leaving.

   

  In early June, the half-hour “NBC Nightly News” averaged 7,868,000 viewers per night and 1,928,000 in the 25-54 demographic, according to Nielsen figures. By contrast, on Tuesday, June 16, MSNBC’s highest-rated show was “The Rachel Maddow Show,” an hour-long broadcast with 742,000 viewers and just 166,999 in the 25-54 demo.

  *  *  *

  To summarize – a man who profers to deliver unbiased personal reporting but instead lied through his teeth to enrich his own ego has been demoted to an audience 90% lower but still gets paid $10 million!!!!

  Welcome to the new normal America.

  

  

  

  
  
  

  

• The "Obvious" Question

  What everyone is really thinking…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• Carl Icahn: Donald Trump Is Completely Correct That "We Are In A Bubble Like You've Never Seen Before"

  Yesterday during an interview on MSNBC, presidential candidate Donald Trump said he has some big names in mind for the Treasury secretary if he wins the White House. “I’d like guys like Jack Welch. I like guys like Henry Kravis. I’d love to bring my friend Carl Icahn.” He also opined on the economy and the stock market, admitting that the Fed has benefited people like him but that the economy and is in a “big fat economic and financial bubble like you’ve never seen before.“

   

  Moments ago Carl Icahn decided to use his Shareholders’ Square Table as the venue in which to respond to his quasi-nomination for Treasury Secretary (he politely declines), and also to opine on Trump’s warning that the market is “one big fat bubble” (he agrees).

  My comments re Donald Trump running for President & wanting to nominate me for the Secretary of Treasury

   

  I was extremely surprised to learn that Donald was running for President and even more surprised that he stated he would make me Secretary of Treasury.   I am flattered but do not get up early enough in the morning to accept this opportunity.

   

  There are others much more knowledgeable than I concerning Presidential elections.  I will therefore decline to opine on his chances.  But I am knowledgeable concerning markets and believe Donald is completely correct to be concerned that we have “a big fat bubble coming up.  We have artificially induced low interest rates.”

   

  I personally believe we are sailing in dangerous unchartered waters.  I can only hope we get to shore safely.  Never in the history of the Federal Reserve have interest rates been artificially held down for so long at the extremely low rates existing today.  I applaud Donald for speaking out on this issue – more people should.

  Some of us do. And what about AAPL? Is that still a double (pending some $500 billion in stock buybacks)?

  And now, time to insert the obligatory reminder about music playing and people dancing.

  

  

  
  
  

  

• This Is The Most Profitable "Strategy" Of The World's Biggest Hedge Fund In The Past Decade

  There is a reason why Bridgewater is the world’s biggest hedge fund with $171 billion in assets: it generally, and consistently, tends to generate more alpha than its competitors. Granted, there was the whole “beautiful deleveraging” phase (just ask Greece how that worked out), and the fact is that risk parity is just a ticking time bomb waiting for the worst possible time to explode (usually just when central banks lose control of historical correlations) but on the whole Ray Dalio has proven his investing talent since inception.

  So for those wondering which “strategy” has been the biggest contributor to Bridgewater’s flagship $82 billion Pure Alpha funds over the past decade, the answer is shown in table below. It is not stocks.

  

  

  

  
  
  

  

• Inciting Bank Runs As A Negotiating Tactic

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  The troika of Greek creditors has gone into full-frontal morals-be-damned attack mode, handpicking arms from a weapons arsenal we haven’t seen used before, and that we never should have seen in an environment that insists – and prides – on presenting itself as a union, both in name and in spirit. Now that they are being used, there no longer is such a union other than in name, in empty words.

  This has turned into the kind of economic warfare one would expect to see between sworn and lethal enemies, that the US would gladly use against Russia for instance, but not between partners in a union founded on principles based entirely and exclusively on being mutually beneficial to everyone involved.

  Those principles, and everything that has been based on them, the common currency, the surrender of ever more sovereignty on the part of the nations involved, the relinquishing of national powers to the various supra-national bodies in Brussels, has for everyone involved been based on trust. Nobody would ever have signed up to any of it without that trust. But just look where we are now.

  When spokespeople at the troika side of the table stated on Thursday that they don’t know if Greek banks will be open on Monday, they crossed a line that should never even have been contemplated. This is so far beyond the pale, it should by all accounts, if everyone involved manages to keep a somewhat clear head, blow up the union once and for all. If a party to a negotiation that can’t get its way stoops to these kinds of tactics, there is very little room left for talk.

  And all EU nations should understand by now that this is not about Greece anymore, it’s about all of them. Any member nations that does not fall into -goose- step with Brussels must from here on in be prepared to deal with attempts to crush it economically and politically.

  Whatever trust there once was is now gone. And trust, once blown, is painfully difficult to regain. The negotiations on the Greek debt crisis have become just another dirty business deal, and have nothing to do anymore with conversations between equal partners in a union. Even though that is still what they’re supposed to be. Officially.

  Translation: there are no equal partners in Europe. There only ever were in name. When people thought they signed up for a tide to lift all boats. The Greek crisis has destroyed that lift-all-boats notion once and for all. All that’s left of the union is power politics, of those (s)elected to represent all member nations, working to crush one of them with all weapons at their disposal.

  One of those weapons is utilizing the media to incite a bank-run in Greece, aimed at paralyzing the Greek government into full submission. The run-up to the bank-run has been building up steam ever since Syriza took over 5 months ago, but apparently not fast enough for the troika.

  The threat has always been simmering below the surface; what changed is that the moral constraint which kept the creditors from speaking out loud in public about it, was dropped yesterday. And that changes everything.

  The European Union cannot deliberately aim at a bank-run in an individual eurozone member nation without quashing the very trust that holds the union together. The only remaining question after this is: who’s next in line?

  This is from the Guardian:

  Greece Faces Banking Crisis After Eurozone Meeting Breaks Down

  Greece is facing a full-blown banking crisis after a meeting of eurozone finance ministers broke down in acrimony and recrimination on Thursday evening, bringing the prospect of Greek exit from the eurozone a step nearer. Some €2bn of deposits have been withdrawn from Greek banks so far this week – including a record €1bn yesterday – triggering fears that a breakdown in talks would spark a further flight of funds.

   

  [..] leaders of the eurozone and the IMF aimed bitter criticism at the leftwing Greek government, accusing it of lying to its own people, misrepresenting and misleading other EU leaders, refusing to negotiate seriously, and taking Greece to the brink of catastrophe.

  ‘Not negotiating seriously’ translates as ‘not doing what we tell you to do’. It’s absurd to claim that Syriza, which has tabled an entire range of proposals, one even more detailed than the other, does not attempt to negotiate seriously. It’s a claim the Greek side can make just as well. The underlying tendency is that the troika does not see the talks as taking place between equal partners. And that is lethal for the whole idea behind the European Union. It’s its instant death even if people will be slow to realize it.

  Christine Lagarde, the head of the IMF, said there was an urgent need for dialogue “with adults in the room”. She added: “We can only arrive at a resolution if there is a dialogue. Right now we’re short of a dialogue.”

  This is something only a juvenile mind would come up with. Lagarde is obviously not worried about her reputation, she feels -nigh- omnipotent, but she really should be. She’s causing enormous damage to the IMF, and its future standing in the world. There are many IMF member nations who now know they can and must expect to be treated in the same way should there ever be a conflict involving their nation and the Fund.

  Lagarde has taken a tough line on debt talks with Athens over the past four months, since the radical leftist Syriza government took control and insisted creditors drop proposals for further austerity as the price of releasing the last tranche of bailout funds. At the talks in Luxembourg she reportedly introduced herself to Greek finance minister Yanis Varoufakis as “the criminal in chief”, in reference to Tsipras’s claim earlier this week that the IMF bore “criminal responsibility” for the situation in Greece.

   

  Pierre Moscovici, the European commissioner for economic affairs, who has been more sympathetic to the Greek case, said: “There’s not much time to avoid the worst.” He appealed to the Tsipras government to return to the negotiating table, making it plain that Athens has been treating its creditors and EU partners with contempt.

  Who’s been treating whom with contempt? Have the Syriza team ever been treated as equal partners in the conversation? This is perhaps best expressed by Bob Dylan’s “It’s a restless hungry feeling that don’t mean no-one no good; when everything I’m-a-sayin’, you can say it just as good”.

  Dijsselbloem demanded that the Greek government act quickly to restore trust and stem the haemorrhaging of deposits. “It’s a sign of great concern for the future,” he said. “It can be dealt with, but it requires quick action.”

  It’s Greece that caused the deposit flight? The only sense in which that could be true is that is has refused to bend over and let the troika have its way with its democratically elected government.

  Top officials from the ECB told the meeting that Greece might need to impose capital controls within days. They said the banks would be open on Friday. “On Monday, I don’t know,” Benoit Coeure from the ECB board was said to have told the ministers.

  There is no longer even any semblance of equality among partners either in the eurozone or at the negotiating table. It’s important to see this not just in the light of the current talks, but in that of future of the European Union as a whole, and in that of future talks about debts that EU member nations have incurred with any of the troika parties.

  What the antagonism is about is really quite simple. Though the fact that the troika is split doesn’t make it any simpler. The IMF won’t budge on imposing additional austerity measures, but wants Europe to execute debt relief. Europe is more flexible on austerity but refuses debt relief.

  Or, actually, it says debt relief can be discussed, but only after Greece has signed on for a list of demanded ‘reforms’. For the Greeks, that’s the wrong way around. Not in the least because the EU floated debt relief back in 2012 but has never delivered.

  Politicians and media in countries like Germany and Holland have engaged in so much rhetoric about Greeks living lavishly off other nations’ taxpayers’ money that they fear for their political careers if they were to offer an overt restructuring and tell the truth about wat actually happened in the bailouts.

  The IMF’s Olivier Blanchard this week held out some vague idea of even longer maturities and even lower interest rates as the definition of debt relied for Greece, but what is needed is a much more comprehensive restructuring. Along the lines of a 50% or so reduction of the debt.

  The problem is that Germany, France and Holland used the money that Greece now supposedly owes, to bail out their own banks. And never presented it domestically this way. But that is not Greece’s fault, or its responsibility.

  The second main issue, austerity measures, comes in the shape of ‘reforms’ to the Greek pension system. Which badly needs a revamp, and Syriza is the first to acknowledge that. What it doesn’t want, though, is for the system to be cut first, and changed only later. Because that would mean that many Greeks who are already in dire need would from one day to the next be made even poorer.

  And since any comprehensive change to the pension system would be laborious and time consuming even under advantageous circumstances, and there is little faith that Europe wouldn’t stretch it out even further, cutting now and talking about it later is not acceptable for Varoufakis and his people.

  To add to the vicious irony of the situation, as Paul De Grauwe noted, Greece is illiquid -it has no access to capital markets-, but it’s not insolvent.

  Greece Is Solvent But Illiquid. What Should The ECB Do?

  [Greece's] headline debt burden of 175% of GDP in 2015 vastly overstates the effective debt burden. The latter can be defined as the net present value of the expected future interest disbursements and debt repayments by the Greek government [..] Various estimates suggest that this effective debt burden of the Greek government is less than half of the headline debt burden of 175%.

   

  [..] the effective debt burden of the Greek government is lower than the debt burden faced by not only the other periphery countries of the Eurozone but also by countries like Belgium and France. This leads to the conclusion that the Greek government debt is most probably sustainable provided Greece can start growing again[..]. Put differently, provided Greece can grow, its government is solvent. [..]

   

  Today Greece has no access to the capital markets except if it is willing to pay prohibitive interest rates that would call into question its solvency. As a result, it cannot rollover its debt despite the fact that the debt is sustainable. There is something circular here. If Greece is unable to find the liquidity to roll over its debt it will be forced to default. [..] The expectation that the Greek government will be faced with a liquidity problem is self-fulfilling.

  If the ECB would simply include Greece in its €60 billion a month QE bond-buying scheme, and buy Greek bonds as well as allow Athens to access international capital markets through one of Mario Draghi‘s whatever-it-takes statements, the crisis would be lifted in very substantial ways, in a heartbeat.

  Instead, the troika part of the ‘negotiations’ does not involve trying to find such a solution, what they want is for Greece to give in, give up, bend over, and take it up the @$$

  The powers that be are so full of hubris and of themselves that they ignore the fact that their actions today sow the seeds for the demise of all three of their constituencies, IMF, ECB and EU.

  None of these institutions has any raison d’être or any claim to fame unless there is explicit trust in what they represent. That trust is now gone, and it’s hard to see how it can ever be recovered.

  Whatever happens to Greece going forward, that is perhaps the biggest gain its dramatic crisis will gift to the rest of Europe, and indeed the world. Which therefore owe it a debt of gratitude, and of solidarity.

  

  

  
  
  

  

• "The Fed Has Wreaked Havoc" Ron Paul Warns Markets' "Day Of Reckoning" Looms

  "I am utterly amazed at how the Federal Reserve can play havoc with the market," Ron Paul exclaimed on CNBC's "Futures Now" referring to Thursday's surge in stocks, warnings that he sees it as "being very unstable." As Paul rages, "the fallacy of economic planning" has created such a "horrendous bubble" in the bond market that it's only a matter of time before the bottom falls out. And when it does, it will lead to "stock market chaos."

   

   

  While pinpointing a time for the inevitable endgame is impossible, Paul warns "after 35 years of a gigantic bull market in bonds, [the Fed] cannot reverse history and they cannot print money forever," and there "will be a day of reckoning" that will lead to a collapse in both the fixed income and equity markets.

  

  

  
  
  

  

• The Glorious Imbecility of War

  Submitted by Bill Bonner via Bonner & Partners,

  Napoleon Returns

  Today, on the eve of the bicentennial of the Battle of Waterloo, we do not celebrate war. Only a fool would celebrate something so horrible. But we pay our respects to the glorious imbecility of it.

  War may be dreadful, little more than a racket in many ways, but it is also a magnificent undertaking. It engages the heart and the brain at once and exposes both the genius of our race and its incredible stupidity.

  But we are talking about real war. Not phony wars against enemies who pose no real threat. Phony wars earn real profits for the war industry, but only an ersatz glory for the warriors. Real soldiers take no pride in them. Instead, to a real hero, they are a source of shame and embarrassment.

  Wars are not conducted to “Free the Holy Land.” Or “Make the World Safe for Democracy.” Or “Rid the World of Tyrants.” Or “Fight Terrorism.” Those are only the cover stories used by the jingoists to get the public to surrender its treasure… and its sons. Wars are fought to release the fighting spirit – that ghost of many millennia – in the scrap for survival.

  And so it was that, 200 years ago tomorrow, one of the greatest military geniuses of all time, Napoleon Bonaparte, faced the armies of the Seventh Coalition – principally, the British, under the Duke of Wellington, and the Prussians, under Gebhard von Blücher.

   

  

  Napoleon Bonaparte, born in Ajaccio, Corsica, later emperor of France and famous (and usually victorious) general, and later still, pensioner on the island of St. Helena

   

  Napoleon had been run out of France, but he had come back. The veterans of the Napoleonic Wars rallied to his cause, and he soon had an army of 73,000 seasoned soldiers. Moving fast, he put his forces in his favored “central position” between Wellington and Blücher.

  On June 16, he attacked the Prussians at the Battle of Ligny and drove them back. Then he turned to Wellington, who had formed his army on a low ridge, south of the Belgian village of Waterloo.

   

  

  Arthur Wellesley, the first Duke of Wellington, here seen trying to imitate Napoleon

   

  Napoleon knew how to plan and execute a campaign. He was where he wanted to be, with two of his best commanders on either side of him, Marshal Grouchy on his right and Marshal Ney on his left.

  But two things conspired against Napoleon. The Prussians had been beaten, but not destroyed. They quickly regrouped and then marched on Waterloo. And it rained. Soft ground always favors the defender. The attacker wears himself out in the mud. Wellington only had to hold his position. Napoleon had to break the British line before the Prussians arrived at his back…

   

  

  Prince Gebhard Leberecht von Blücher, who upset Napoleon’s plans at Waterloo by arriving a lot earlier than expected, shortly after having been defeated already at Ligny two days earlier.

   

  “Wellington Is a Bad General”

  And so, the stage was set, on June 18, for one of the most extravagant showdowns in military history. Napoleon was having breakfast on the morning of the battle when one of his generals suggested a reorganization that might strengthen the French position. Bonaparte replied:

  “Just because you have all been beaten by Wellington, you think he’s a good general. I tell you Wellington is a bad general, the English are bad troops, and this affair is nothing more than eating breakfast.”

  Wellington shared Napoleon’s opinion of his troops. He thought they were bad, too. They were a collection of soldiers drawn from many different units. They had not seen action in almost 20 years. Many were poorly trained. Of his cavalry he wrote:

  “I didn’t like to see four British opposed to four French. And as the numbers increased and order, of course, became more necessary, I was the more unwilling to risk our men without having a superiority in numbers.”

  The battle began in the late morning. No one knows exactly when. Quickly, the “fog of war” descended on the battlefield, with no one sure what was going on. Crucially, Napoleon missed the rapid approach of the Prussians. He had expected them to need two days to get back in fighting order after their defeat at Ligny.

   

  

  The Battle of Waterloo

   

  An Englishman describes the scene once the battle was under way:

  “I stood near them for about a minute to contemplate the scene: It was grand beyond description. Hougoumont [the escarpment where British and other allied forces faced off against the French] and its wood sent up a broad flame through the dark masses of smoke that overhung the field; beneath this cloud the French were indistinctly visible.

   

  Here a waving mass of long red feathers could be seen; there, gleams as from a sheet of steel showed that the cuirassiers [armored French cavalry] were moving; 400 cannon were belching forth fire and death on every side; the roaring and shouting were indistinguishably commixed – together they gave me an idea of a laboring volcano.

   

  Bodies of infantry and cavalry were pouring down on us, and it was time to leave contemplation, so I moved towards our columns, which were standing up in square.”

   

  

  A map of the battle: Napoleon’s troops in blue, Wellington’s in red, and Blücher’s in gray, by Ipankonin – click to enlarge.

   

  To win the battle, the French had to dislodge Wellington from his ridge at Hougoumont. Again and again, they attacked. And again and again, they failed. The Englishmen – along with a large number of Irishmen, Scots, and Germans – held their ground.

  The Royal Scots Greys, the Gordon Highlanders, the Irish Royal Inniskilling Fusiliers – all fought better than Bonaparte or Wellington had expected. But the “bravest of the brave” was on the French side – Marshal Ney, whose statue we encountered on Sunday.

   

  

  Good old Marechal Michel Ney, who was responsible for tactics on the battlefield. He had one horse after another shot out from under him. Not a quitter, that’s for sure.

   

  A Hero’s Hero

  When we saw the statue, we wondered: What sort of people are these who execute a man for treason and then honor his memory with a statue of him in their capital city?

  Ney was a hero’s hero – a man whose military career was such a long shot… that so defied the odds… it was hard to believe he ever existed. He was everything our modern military lard-butts are not. He was the fighting spirit in the flesh.

  The French launched as many as 12 separate attacks against Wellington’s lines. Ney, leading the charges personally, had five horses shot from under him.

  A British infantryman remembers what it was like to see him coming:

  “About 4 p.m., the enemy’s artillery in front of us ceased firing all of a sudden, and we saw large masses of cavalry advance: Not a man present who survived could have forgotten in after life the awful grandeur of that charge.

   

  You discovered at a distance what appeared to be an overwhelming, long moving line, which, ever advancing, glittered like a stormy wave of the sea when it catches the sunlight.

   

  On they came until they got near enough, whilst the very earth seemed to vibrate beneath the thundering tramp of the mounted host. One might suppose that nothing could have resisted the shock of this terrible moving mass.

   

  They were the famous cuirassiers, almost all old soldiers, who had distinguished themselves on most of the battlefields of Europe.

   

  In an almost incredibly short period they were within twenty yards of us, shouting “Vive l’Empereur!”

   

  The word of command, “Prepare to receive cavalry,” had been given, every man in the front ranks knelt, and a wall bristling with steel, held together by steady hands, presented itself to the infuriated cuirassiers.”

   

  

  Marshal Ney leading the charge of the French cavalry.

   Marshal Ney’s cavalry overran the British cannons. But without infantry and artillery support, he could not break the cavalry-proof defensive squares Wellington’s infantrymen formed.

  And then Blücher arrived … and Napoleon was beaten. His “central position became a trap.” The Prussians hammered the French against the British anvil. At the end of the battle, Ney led one of the last infantry charges, shouting to his men, “Come see how a marshal of France dies!”

   

  

  Prince Blücher’s Prussian troops, in form of the remainder of the IV. corps led by Friedrich Wilhelm Freiherr von Bülow, attack Plancenoit, at the right flank of Napoleon’s troops.

   

  Four days after the battle, Major W.E. Frye described what he saw:

  “22 June – This morning I went to visit the field of battle, which is a little beyond the village of Waterloo, on the plateau of Mont-Saint-Jean; but on arrival there the sight was too horrible to behold. I felt sick in the stomach and was obliged to return.

   

  The multitude of carcasses, the heaps of wounded men with mangled limbs unable to move, and perishing from not having their wounds dressed or from hunger, as the Allies were, of course, obliged to take their surgeons and wagons with them, formed a spectacle I shall never forget. The wounded, both of the Allies and the French, remain in an equally deplorable state.”

  More to come … on what happened to brave Marshall Ney.

   

  

  This house served as Napoleon’s headquarters during the battle of Waterloo

  Photo credit: Kelisi

   

  

  The battle between 5:30 to 8:00 pm: Bülow’s attack on Plancenoit begins at 5:30 pm. Ney and his cavalry take La Haye Sainte around 6:00 pm and the Old Guard launches an attack on the British center at 7:00 pm. Map by Gregory Fremont-Barnes.

   

  

  The storming of La Haye – Marshal Ney can be spotted to the right, sword pointing to the sky.

  Painting by Richard Knötel

  *  *  *

  Addendum: Lord Uxbridge’s Leg

  Lord Uxbridge led countless charges of British light cavalry, and similar to Marshal Ney, had numerous horses shot from out under him in the process. One of the last cannonballs fired in the battle shattered one of his legs (Uxbridge to Wellington: “By God, sir, I’ve lost my leg!” Wellington pauses, takes a look. “By God sir, so you have”). The leg, as well as its replacement, subsequently attained considerable, if somewhat morbid, fame.

   

  

  Lord Uxbridge’s famous wooden leg. His real leg was hit by a cannonball during the battle and had to be amputated without antiseptic or anesthetics. Lord Uxbridge reportedly remarked during the procedure that “the knives appear somewhat blunt”.

  Photo credit: Andreas von Einsiedel

   

  Uxbridge’s real leg got its own burial place, while his wooden prosthetic leg is these days exhibited in a museum. The inscription on the tombstone of his leg reads:

  “Here lies the Leg of the illustrious and valiant Earl Uxbridge, Lieutenant-General of His Britannic Majesty, Commander in Chief of the English, Belgian and Dutch cavalry, wounded on the 18 June 1815 at the memorable battle of Waterloo, who, by his heroism, assisted in the triumph of the cause of mankind, gloriously decided by the resounding victory of the said day.”

  The leg’s burial site soon began to attract tourists from all over Europe, which proves that one definitely shouldn’t let a shattered leg go to waste.

  George Canning was even moved to write a poem about Uxbridge’s leg:

  “Here rests, and let no saucy knave

  Presume to sneer and laugh,

  To learn that mouldering in the grave

  Is laid a British calf.

   

  For he who writes these lines is sure

  That those who read the whole

  Will find such laugh were premature,

  For here, too, lies a sole.

   

  And here five little ones repose,

  Twin-born with other five;

  Unheeded by their brother toes,

  Who now are all alive.

   

  A leg and foot to speak more plain

  Lie here, of one commanding;

  Who, though his wits he might retain,

  Lost half his understanding.

   

  And when the guns, with thunder fraught,

  Pour’d bullets thick as hail,

  Could only in this way be taught

  To give his foe leg-bail.

   

  And now in England, just as gay –

  As in the battle brave –

  Goes to the rout, review, or play,

  With one foot in the grave.

   

  Fortune in vain here showed her spite,

  For he will still be found,

  Should England’s sons engage in fight,

  Resolved to stand his ground.

   

  But fortune’s pardon I must beg,

  She meant not to disarm;

  And when she lopped the hero’s leg

  By no means sought his harm,

   

  And but indulged a harmless whim,

  Since he could walk with one,

  She saw two legs were lost on him

  Who never meant to run.

  *  *  *

  Image captions and addendum by Acting-Man.com's Pater Tenebrarum

  

  

  
  
  

  

• Bonds & Bullion Beat Stocks As Fed Frenzy Fades

  Do not worry… "it's contained"

   

  From The FOMC Statement, Gold is 1st, Bonds 2nd, and Stocks 3rd…

  

   

  and on the week the same picture…

  

   

  WEAK CLOSE…

  

  Trannies remain the big squeeze post-FOMC winner but Dow is the laggard…

  

   

  On the week, however, Trannies lagged and ended the week red (down 4 of the last 5 weeks) as Small Caps (dominated by Biotech 'no brainers') led the pop…

  

   

  Biotechs were up over 5% this week – the best week since Oct 2014 (up 7.25% from the lows of the week)

  

   

  VIX ended the week unch…

  

   

  Treasury yields ripped lower today and on the week the entire curve is lower led by a 17bps collapsd in 5y (among the biggest this year)…

  

   

  The USDollar roundtripped on the day as late-day buying pressure for Swissy pushed it lower (but ended down 1.2% for the 3rd week in a row

  

   

  Copper and Crude monkey-hammered on the day leaving gold and silver higher on the week…

  

   

  Remember it's OPEX (Quad Witching)

  

  h/t@NorthmanTrader

  *  *  *

  While stocks leaked today, the real Grexit fears are evident in Swissy…

  

   

  European VIX…

  

   

  and Bitcoin… (biggest week since January)

  

   

  With that in mind, we leave you with this thought for the weekend and Monday's bank opening in Greece…

   

  Charts: Bloomberg

  Bonus Chart: Moar Flash Crashery…

  List of stocks that suddenly jumped at 15:50:00 pic.twitter.com/AAnorFj2tM

  — Eric Scott Hunsader (@nanexllc) June 19, 2015

  

  
  
  

  

• Black People Are 12 Times More Likely To Die In America Than In Other Developed Countries

  The tragic events that unfolded Wednesday evening at the historic Emanuel AME church in Charleston, South Carolina served as yet another reminder that race relations in America are rapidly deteriorating.

  Although it might be fair to say that this week’s church massacre is a separate and distinct event that can be better understood as an act of domestic terrorism or as a hate crime than as another example of the marginalization of African Americans, we would be remiss if we didn’t mention it in the context of Baltimore, Ferguson, and the death of Eric Garner and Walter Scott. 

  Indeed, Wednesday’s shooting and the subsequent arrest of a white male suspect who appears to have sympathized with White Supremacist ideologies will likely lead to still more scrutiny on what certainly appears to be a widening racial divide in America. 

  In this context, we bring you the following graphic which shows that, among countries with relatively high Human Development Index scores (which measure social welfare and standard of living), the number of African Americans killed per 100,000 people in the US each year is around 12 times the average for all people in developed countries.

  

  More from FiveThirtyEight:

  Extending on an analysis by the academic Kieran Healy, I calculated the rate of U.S. homicide deaths by racial group, based on the CDC WONDER data.3 From 2010 through 2012, the annual rate of homicide deaths among non-Hispanic white Americans was 2.5 per 100,000 persons, meaning that about one in every 40,000 white Americans is a homicide victim each year. By comparison, the rate of homicide deaths among non-Hispanic black Americans is 19.4 per 100,000 persons, or about 1 in 5,000 people per year.

   

  Black Americans are almost eight times as likely as white ones to be homicide victims, in other words.

   

  So for white Americans, the homicide death rate is not so much of an outlier. It’s only modestly higher than in Finland, Belgium or Greece, for instance, and lower than in Chile or Latvia.

   

  But there’s no other highly industrialized country with a homicide death rate similar to the one black Americans experience. Their homicide death rate, 19.4 per 100,000 persons, is about 12 times higher than the average rate among all people4 in other developed countries.

   

  Instead, you’d have to look toward developing countries such as Mexico (22.0), Brazil (23.6), Nigeria (20.0), Rwanda (23.1) or Myanmar (15.2) to find a comparable rate. 

  

  

  
  
  

  

• 5 Things To Ponder: Shades Or Umbrella

  Submitted by Lance Roberts via STA Wealth Management,

  Since the beginning of this year the markets have primarily treaded water. The primary support for the bulls has been continued acknowledgement by the Fed on an inability to remove accommodative policy by raising interest rates. (Which should make you question what happens the first time they do.) The bears have been feasting on weak economic data and deteriorating fundamentals.

  As I discussed with one of my favorite reporters on Friday:

  "While the rally this week was nice, it failed to break back above resistance which it needs to do to reestablish the bullish trend. Currently, the markets have held the long-term bullish trend line that has remained intact since December of 2012 with two successful tests over the past month. That is bullish for now and indicates buyers are still in the market. However, there is a BATTLE being waged between the bulls and the bears as prices have continued to deteriorate from early-year highs. That battle should be resolved soon, and for now the bears have the advantage."

  

  Earlier this week, I posted an analysis of various charts to allow investors to answer the question of "bullish or bearish" for themselves.

  I also suggested that:

  "In a recent study of forecasting, it was determined that 'weathermen' were the most accurate forecasters three days into the future. The reason to watch weather forecasts is to gauge the possibility of needing an umbrella. However, it is interesting that financial media/analysts never forecasts rain even though 'showers'happen on a fairly consistent basis.

   

  Investors, like weather forecasters, should pay close attention to the weather. The technical deterioration, like a storm front approaching, suggests that it is currently 'cloudy with a strong chance of rain.' As an investor, action should be taken to be prepared to REACT if it does rain. In other words, if we think it MIGHT rain we take an umbrella with us, it doesn't mean that we walk around with it open."

  This weekend's reading list covers the predictions and forecasts for investors. Is the forecast for a future "so bright I gotta wear shades," or should we be grabbing an umbrella?

  ---

  1) Don't Let Hypoxia Crash Your Retirement by Dennis Miller via MarketWatch

  "The hot air created some turbulence so I headed toward 12,000 feet, higher than I had ever flown before. I was euphoric, I could see all the way across Lake Michigan. This was really cool!

   

  All of a sudden a mental alarm bell went off, I am euphoric, a major warning sign. Every private pilot learns about hypoxia in ground school. Hypoxia is a pathological condition in which the body or a region of the body is deprived of an adequate oxygen supply.

   

  Just a year ago, there were many articles, such this one from USA Today, telling investors the stock market had surpassed 1,000 days without so much as a 10% correction. A correction normally occurs every 18 months on average. A year later we continue to see the market soar even higher, 1,300 days and counting. Rarefied air? Check!"

  

  Read Also: Don't Look Now, The Great Rotation Is Here by Alex Rosenberg via CNBC

  Read Also: The Sad State Of The Financial Web by Jimmy Atkinson via Fund Reference

   

  2) If The Economy Is Better, Why Aren't Stocks by IronMan via Political Calculations

  "The single best measure of the relative state of the U.S. economy when it is experiencing some degree distress is perhaps the number of publicly-traded U.S. companies that announce they are cutting their dividends each month. Through 12 June 2015, that indicator suggests that the U.S. economy has taken a positive turn beginning in May 2015, which we can confirm because the cumulative number of dividend-cutting firms in the U.S. in the second quarter of 2015 is now coming in quite a bit lower than the pace that was established in the first quarter, which experienced negative GDP growth:"

  

  Read Also: Varieties Of Valuation by Dr. Ed Yardeni via Dr. Ed's Blog

   

  3) Who Gives A #*&$@%^?! by Wade Slome via Investing Caffeine

  "Seemingly, on a daily basis, some economist, strategist, analyst, or talking head pundit on TV articulately explains how the financial markets can fall off the face of the earth. Unfortunately, there is a problem with this type of analysis, if your evaluation is solely based upon listening to media outlets. Bottom line is you can always find a reason to sell your investments if you listen to the so-called experts. I made this precise point a few years ago when I highlighted the near tripling in stock prices despite the barrage of bad news."

  Read Also: Spectacular Extremes Telegraph An Ugly End by Dr. John Hussman via Hussman Funds

   

  4) In Search Of A Stock Market Bubble by The Brooklyn Investos Blog

  "Anyway, as usual, there is a lot of talk of the market being insanely overvalued, median P/E's at post war records and all the usual.

   

  I look at the charts and some are scary, but I still don't get the sense of a bubble. I've seen the Japan bubble in 1989, the 2000 internet bubble and some others.

   

  I see the Chinese bubble going on right now. But I still don't really get the sense that the U.S. stock market is in a bubble. Yes, there is a pocket of bubbliness, like in some parts of the tech sector (social networks, biotech etc.), but overall I just really don't see it."

  

  Read Also: CAPE Fear Of Lower Returns by Ben Carlson via Wealth Of Common Sense

   

  5) Why The Ghost Of 1937 Is Haunting The Fed & Market by Barbara Kollmeyer via MarketWatch

  "In 1937, the Hindenburg exploded and swing cats were doing The Big Apple.

  That year also marks the last time the Federal Reserve hiked interest rates from zero, and what followed wasn't pretty: a severe recession and a 49% collapse for the Dow industrials. Bank of America Merrill Lynch was among those chattering about 1937 parallels in a recent note, with a not-so-easy-on-the-eyes chart of that stock fallout way back when."

  

  Read Also:  BofA Begins 66-Day Countdown To Ghost Of '37 by Tyler Durden Via ZeroHedge

  ---

  BONUS READS & STUFF

  7 Years Of Zero Rates Have Created A New Twilight Zone by Lee Jackson via 24/7 Wall Street

  The Market For "Lemons," A Lesson For Dividend Investors by Chris Brightman via Research Affiliates

  One More Time, The Economy Is Not The Market by Joe Calhoun via Alhambra Investments

  CHART OF THE DAY

  via The Short Side Of Long

  

  ---

  "Psychology is the most important factor in the market, and one that is least understood" – David Dreman

  Have a great weekend.

  

  

  
  
  

  

• Caption Contest: Merkel's Red Herring?

  Michelle Bachmann had her corndog…

  

   

  but Angela Merkel has something much fishier…

  

  h/t @ewatterbjork

  For those seeking analogies – Greece is the pickled herring…

  Or perhaps this is a clearer picture…. as the weekend looms.

  

   

   

  

  

  
  
  

  

• The Truth About Greece… and What It Means For Larger Problem Countries

  The situation in Greece has very little to do with politics or economics. Instead it is entirely focused on just one thing.

  That issue is collateral.

  What is collateral?

  Collateral is an underlying asset that is pledged when a party enters into a financial arrangement.  It is essentially a promise that should things go awry, you have some “thing” that is of value, which the other party can get access to in order to compensate them for their losses.

  For large European banks, EU nation soveregin debt (such as Greece) is the collateral backstopping hundreds of trillions of Euros worth of derivative trades.

  This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the Greek bailouts.

  Remember:

  1)   Before the second Greek bailout, the ECB swapped out all of its Greek sovereign bonds for new bonds that would not take a haircut.

  2)   Some 80% of the bailout money went to EU banks that were Greek bondholders, not the Greek economy.

  Regarding #1, going into the second Greek bailout, the ECB had been allowing European nations and banks to dump sovereign bonds onto its balance sheet in exchange for cash. This occurred via two schemes called LTRO 1 and LTRO 2 which happened in December 2011 and February 2012 respectively. Collectively, these moves resulted in EU financial entities and nations dumping over €1 trillion in sovereign bonds onto the ECB’s balance sheet.

  Quite a bit of this was Greek debt as everyone in Europe knew that Greece was totally bankrupt.

   

  So, when the ECB swapped out its Greek bonds for new bonds that would not take a haircut during the second Greek bailout, the ECB was making sure that the Greek bonds on its balance sheet remained untouchable and as a result could still stand as high grade collateral for the banks that had lent them to the ECB.

  So the ECB effectively allowed those banks that had dumped Greek sovereign bonds onto its balance sheet to avoid taking a loss… and not have to put up new collateral on their trade portfolios.

  Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy.

  Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand.

  Which brings us to the other issue surrounding the second Greek bailout: the fact that 80% of the money went to EU banks that were Greek bondholders instead of the Greek economy.

  Here again, the issue was about giving money to the banks that were using Greek bonds as collateral, to insure that they had enough capital on hand.

  Piecing this together, it’s clear that the Greek situation actually had nothing to do with helping Greece. Forget about Greece’s debt issues, or protests, or even the political decisions… the real story was that the bailouts were all about insuring that the EU banks that were using Greek bonds as collateral were kept whole by any means possible.

  So here we are today and Greece I sback in the headlines. Once again the country is out of money and the ECB and IMF are trying to punish it without hurting the larger EU banks.

  Why are they making such a big deal about Greece… a country whose GDP is just 2% of the EU?

  Because whatever happens in Greece will be used as a template for much larger problems AKA Spain and Italy.

  Spain and Italy, by comparison, have €1.78 trillion and €1.87 trillion in external debt respectively.

  That is a heck of a lot of collateral that would be in BIG trouble in the event of a bond crash for either country.

  And both countries have bond yields that are spiking…

  

  Here’s Italy:

  

   

  Smart investors should take note of this now. It is a MAJOR red flag to be watched closely.

  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

   

   

   

   

   

   

  

  
  
  

  

• Girls, Gardening, Puppies, And Pigs: Life On China's Disputed Man-Made Islands

  On April 17, we introduced readers to Fiery Cross Reef, one of China’s man-made islands in the disputed waters of the South China Sea. Since then, Beijing’s land reclamation efforts have sparked an international firestorm, complete with war games, threats, a confrontation between a US spy plane carrying a CNN crew and the PLA Navy, World War 3 chatter, and, of course, references to Nazi Germany.

  Amid the rhetoric, China has maintained it has every right to protect its “legitimate” territorial claims by constructing thousands of acres of sovereign land and, if necessary, enforcing a no-fly zone above the new islands.

  But while Beijing admits its Spratly sand castles will indeed be used for military purposes, it also says the primary goal of the entire dredging effort is to assist China in carrying out the country’s “various civilian demands and international obligations and responsibilities in the area such as maritime search and rescue, disaster prevention and mitigation, marine scientific research, meteorological observation, ecological environment conservation, navigation safety as well as fishery production service.”

  Now, Beijing has embarked on what looks like a propaganda campaign to show that despite attempts by the US and its regional allies to cast aspersions, island life in the Spratlys is all about girls, gardening, puppies, and pigs. 

  Behold: life on Fiery Cross Reef:

  

  

  

  

  

  

  

  

  

  

  

  
  
  

  

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• California Has Never Experienced A Water Crisis Of This Magnitude – And The Worst Is Yet To Come

  Submitted by Michael Snyder via The Economic Collapse blog,

  Things have never been this dry for this long in the recorded history of the state of California, and this has created an unprecedented water crisis.  At this point, 1,900 wells have already gone completely dry in California, and some communities are not receiving any more water at all.  As you read this article, 100 percent of the state is in some stage of drought, and there has been so little precipitation this year that some young children have never actually seen rain.

  

  This is already the worst multi-year drought in the history of the state of California, but this may only be just the beginning.  Scientists tell us that the amount of rain that California received during the 20th century was highly unusual.  In fact, they tell us that it was the wettest century for the state in at least 1000 years.

  Now that things are returning to “normal”, the state is completely and total unprepared for it.  California has never experienced a water crisis of this magnitude, and other states in the western half of the nation are starting to really suffer as well.  In the end, we could very well be headed for the worst water crisis this country has ever seen.

  When I said that some communities in California are not receiving any more water, I was not exaggerating.  Just consider the following excerpt from one recent news report…

  The community of Mountain House is days away from having no water at all after the state cut off its only water source.

   

  Anthony Gordon saves drinking water just in case, even though he never thought it would come to this.

   

  “My wife thinks I’m nuts. I have like 500 gallons of drinking water stored in my home,” he said.

   

  The upscale community of Mountain House, west of Tracy, is days away from having no water. It’s not just about lawns—there may not be a drop for the 15,000 residents to drink.

  So what are those people going to do?

  And what is this going to do to the property values in that area?

  Who in the world is going to want to buy a home that does not have running water coming to it?

  Other communities throughout the state are pumping groundwater like crazy in a desperate attempt to continue with business as usual.  In fact, it is being projected that groundwater will account for almost all water used in the entire state by the end of this year…

  Underground aquifers supply 35 percent of the water used by humans worldwide. Demand is even greater in times of drought. Rain-starved California is currently tapping aquifers for 60 percent of its water use as its rivers and above-ground reservoirs dry up, a steep increase from the usual 40 percent. Some expect water from aquifers will account for virtually every drop of the state’s fresh water supply by year end.

  But of course this creates a huge problem.  When the groundwater is gone, it is gone for good.  Those aquifers took centuries to fill up, and now they are being drained at a staggering rate.  In some parts of the state, aquifers are being drained so fast that it is causing thousands of square miles of land to sink…

  Californians have been draining water so rapidly from underground aquifers that tens of thousands of square miles of land reportedly are sinking — so drastically that the shifting surface is starting to destroy bridges and crack highways across the state, according to a recent report by the Center for Investigative Reporting.

  So what is the solution?

  Some of my readers have suggested that desalination is the answer.  But the truth is that desalination is very expensive and it is really bad for the environment.  The following comes from a recent Natural News article…

  For those who are saying, “There’s no water problem in California! It has the entire Pacific Ocean right next door!”, you need to look into the catastrophic environmental destruction tied to ocean water desalination.

   

  Not only does desalination use fossil fuels which emit the very same carbon emissions that the California government insists caused the drought in the first place, the desalination process itself pollutes the ocean with high concentration salt brine that kills marine ecosystems and destroys ocean life along the California coastline.

   

  And that’s on top of all the Fukushima radiation that’s already causing a marine ecosystem collapse in many areas of the coast. Add more salt brine to the mix and you get a state where rich, self-entitled Hollywood celebrities demand their lush, green lawns at the expense of ocean life, climate change and the global ecosystem. If that happens, California will lose all credibility as a “green” state, and its wealthiest residents will be living an ecological lie.

  Others have suggested that California can solve their water problems using “toilet to tap” technology…

  Potable water reuse – or converting sewage effluent to heavily-treated, purified drinking water – is receiving renewed attention in California in the midst of the state’s four-year drought.

   

  According to a report by the Los Angeles Times, “California water managers and environmentalists” are pushing the idea of recycled sewage water. Yet past efforts in the state to employ similar systems have stalled, as opponents have dubbed the concept “toilet to tap.”

  How would you feel about that?

  Would you be willing to have your family drink water that came from the toilets of your neighbors?

  I don’t think that I could do that.

  But something has to be done.  It is not just the state of California that is experiencing a major water crisis.  All over the world, underground aquifers are being drained rapidly.  In fact, according to the Washington Post, 21 out of the 37 largest aquifers in the world “have passed their sustainability tipping points”…

  The world’s largest underground aquifers – a source of fresh water for hundreds of millions of people — are being depleted at alarming rates, according to new NASA satellite data that provides the most detailed picture yet of vital water reserves hidden under the Earth’s surface.

   

  Twenty-one of the world’s 37 largest aquifers — in locations from India and China to the United States and France — have passed their sustainability tipping points, meaning more water was removed than replaced during the decade-long study period, researchers announced Tuesday. Thirteen aquifers declined at rates that put them into the most troubled category. The researchers said this indicated a long-term problem that’s likely to worsen as reliance on aquifers grows.

  Sadly, this is just the beginning.  There is a reason why experts refer to fresh water as “the new oil”.  Without fresh water, none of us can survive.  But we are very quickly getting to the point where there simply won’t be enough of it for everyone on the planet.

  As for the state of California, it was once a desert and now it is turning back into a desert.  As I mentioned earlier, the 20th century was the wettest century that part of North America had seen in at least 1000 years.  During that time, we built enormous cities all over the Southwest that currently support millions upon millions of people.  But now we are learning that those cities are not sustainable.

  

  

  
  
  

  

• China Is Turmoiling

  For the 2nd time in a month, China’s Shanghai Composite entered a correction, plunging 10% from local highs as headlines of delayed IPOs and large-scale steel ‘dumping’ at a loss combined with global monetary policy fireworks and European event risks. The rest of the more highly sensitive and manic Chinese equity markets are also plunging with CHINEXT and CSI-300 down over 7% in the last month (and 17% from the highs in the case of the former).

   

  Chinese stocks have gone nowhere in a month…

  

   

  Before you read on – STOP and look at the volatility we are talking about here… multiple 10 to 15% swings in major stock indices in the last month. Compare that to the US market’s idiocy where we have seen no vol whatsoever in the last six months.

   

  Of course – as US equities roared to record highs today in the face of the most serious Grexit fears yet and a Fed that just admitted the economy is FUBAR – Chinese stocks are for once derisking responsibly (for now).

  But there are more troubles in big China as Reuters reports China steel exporters are dumping inventories at a a loss…

  Some Chinese steelmakers are selling their output abroad at a loss, according to traders and a producer, as a group of global industry bodies urged governments to take action over rising shipments from China.

   

  Chinese mills had sold steel overseas at a loss of up to 200 yuan ($32) a tonne and cut the export price of hot-rolled coil by 5 percent to $340-$350 a tonne, free-on-board basis, this week compared to last week, according to traders and a producer in Hebei, China’s top steel producing province.

   

  These mills were also selling at a loss to the domestic market, they said.

   

  “The domestic market is too weak to consume high output and our prices are competitive, so some mills are still keen to step up exports, hoping to ease high inventories and maintain market share,” said a senior official at a privately owned mill in Hebei.

   

  China exports around 10 percent of its annual steel output from hundreds of steelmakers and it was unclear the quantity of steel the traders and official were referring to.

   

  China’s steel exports rose 28 percent to 43.5 million tonnes in January-May, even as domestic crude steel output fell nearly 2 percent. In 2014, exports jumped 51 percent to a record 93.78 million tonnes.

   

  Eight steel associations from Asia, the Americas and Europe said in a joint statement this week all regions were “suffering from a dramatic increase in unfair steel imports that is fueled by massive global overcapacity.”

   

  “Looming over it all is China, whose massive and increasing overcapacity in an era of slowing growth has already destabilized the global steel market and trade flows,” the statement said.

  Two words – malinvestment and over-capacity – sum up the entire farcical surge in China, and as George Soros warned, if the reforms Xi is pushing fail, his best last solution will be war to keep a nation united and working for a common ‘good’.

  *  *  *

  Another IPO delayed:

  • *BANK OF JINZHOU IPO DELAY AS REGULATOR ASKS FOR INFORMATION
  • *BANK OF JINZHOU HOPES TO RESCHEDULE H.K. IPO HEARING TO JULY
  • *BANK OF JINZHOU SAID TO DELAY IPO ON LINKS TO HANERGY: REUTERS

  And a bond sales canceled:

  • *DRAGON CITY TOURISM CANCELS BOND SALE DUE TO MKT VOLATILITY

  *  *  *

  Which just adds to the IPO pain we noted earlier…

   

  

   

  But it’s a “no brainer” remember…

  

  

  
  
  

  

• "The System Is Broken": Americans No Longer Believe In Its Institutions

  Submitted by Mac Slavo via SHTFPlan.com,

  It’s not difficult to see that the foundation is crumbling…

  A new Gallup poll has found that already low “confidence” in our system of government, our economy, the media, banking, big business, religious institutions and watchdogs is further eroding.

  “Americans’ confidence in most major U.S. institutions remains below the historical average for each one,” a Gallup spokesman said in a news release.

  […]

   

  All in all, it’s a picture of a nation discouraged about its present and worried about its future, and highly doubtful that its institutions can pull America out of its trough.

  There is plenty of good reason, with evidence uncovered daily, weekly and consistently throughout the years of the hypocrisy and failures of government, the failed promises of politicians, the lies and spin of the mainstream media and newspapers, the greed and exploitation of the financial sector and the “just us” mentality of above-the-law enforcers who are supposed to uphold justice.

  Just check out how little faith remains in the structure of, well, just about any institution in America, by the numbers:

  Only 8 percent have confidence in Congress, down by 16 points from a long-term average of 24 percent – the lowest of all institutions rated.

   

  33 percent have confidence in the presidency, a drop from a historical average of 43 percent.

   

  32 percent have confidence in the Supreme Court, down from 44.

   

  28 percent have confidence in banks, down from 40 percent.

   

  21 percent have confidence in big business, down from 24 percent.

   

  24 percent have confidence in organized labor, down from 26.

   

  24 percent have confidence in newspapers, down from 32 percent.

   

  21 percent have confidence in television news, down from 30 percent.

   

  52 percent of Americans […] are confident in the police [57 percent historically]

  What else can be said, but that the system is broken?

  Obviously it bears little resemblance to the one envisioned by the founding fathers and their emphasis on separation of powers and limited government.

  None of the three branches of government are trusted by even close to a majority of the American populace… maybe that’s to be expected, with frequent media criticisms of political figures in a polarizing two party system.

  But other pillars of society have lost their backing of the public, too – in astonishing numbers that show not only that the American dream is dead, but that private institutions are widely perceived as being just as corrupt as public ones (or worse).

  To top it off – this perception is entirely deserved. The aftermath of the 2008 financial crisis consolidated the power and wealth of the big banks, and gave the Federal Reserve ultimate power over the economy, while average Americans suffered greatly.

  Scandal after scandal revealed that corruption for what it is.

  Media scandals – such as Brian Williams’ fabricated war zone stories and George Stephanopoulos’ attempt to conceal his conflicts of interest with the Clinton Foundation – have left a bad taste in the mouth of media consumers already facing fake news indigestion.

  The factors are piling up beyond our capacity to excuse them away: fatigue from endless wars and threats of terrorism; cynically-false promises of hope and change; the repeated, brazen trampling of civil rights; a sharp decline of opportunity at the hands of economic recession; trade deals written in secret to enrich corporations; the rise of job-crushing technology and more have all sapped at the American spirit.

  Whether most Americans follow these developments or not, they instinctually sense them. No one trustworthy is steering this ship – worse, no one may be at the wheel at all.

  Who or what can turn things around?

  That remains to be seen, but few will be willing to buy into the system if it remains on course.

  The loss of confidence in the system ultimately relates to the loss of confidence in the freedom of the individual.

  It is strong-willed and determined people who have always made this country, and any other, strong and vibrant.

  The constant detriment of individual rights and the endless calls to transfer power to the collective – whether inside or outside of government – is the real source of the problem that this Gallup poll reflects.

  Our best hope at a better world should start there. Is it still possible?

  

  

  
  
  

  

• Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex

  In a time of constant handwaving, hair-tearing and op-eds discussing the perils of the collapse in market liquidity due to central planning even as investing experts double down every single time there is a 1-2% “plunge” in the markets because, well, if you don’t BTFD your HFT competitor will, one firm has decided to put its money where everyone else’s mouth is. Actually, “pull.”

  According to Bloomberg, Sweden’s largest fund manager, Swedbank Robur which oversees $138 billion in assets, has slashed its equity exposure in half at some funds “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued.“

  In the funds with the broadest equity mandates, Sweden’s biggest fund manager reduced its equity exposure to about 30 percent in April from 80 to 85 percent in the second half of last year, Head of Multi Asset Per Storfaelt said in a June 11 interview in Stockholm, as reported originally by Bloomberg.

  The reason for the stealthy liquidation: a diametrically opposing view to the prevailing conventional wisdom, according to which a “Grexit is contained”, and certainly in complete disagreement with what Norway’s Finance Minister Sigbjoern Johnsen who said in 2010 the reason why Norway’s SWF invests in Greek debt is because it is “investing for infinity” namely that there is massive future risk threatening to drive losses in Europe as a result of the ongoing Greek drama, according to Robur.

  “In April, the majority of the market participants assumed that the drama in Greece was going to be solved in the end,” Storfaelt said. “How did we play it? We took down risk more than we would otherwise have done. We still judge it will play out worse than the market expects.”

  It’s not just the underpriced risks from a Greek contagion: according to Storfaelt the current environment has a far bigger inherent risk: a dumb “herd” of complacent bulls, who will one day realize just how massive the disconnect between fundamentals and valuations is, and run in the opposite direction. However, with zero liquidity on the other side of the market, there will be no escape.

  Storfaelt says going with the flow is starting to look risky. “There are clear advantages to going against the herd at the moment,” he said.“You get more return taking less risk by not joining a herd that goes for an asset without fundamental backing.” Ultimately, investors are aware of the disconnect between fundamentals and valuations, so they’re “trigger-happy.” That means they’re ready to “reverse as soon as things shake a little,” he said.

  Storfaelt says central bank stimulus in Europe has propped up markets and encouraged investors to expect a helping hand even though stocks are over-valued. But the question is whether the disbelief that ought to be kicking in can continue to be suspended.

  The punchline, and a conclusion we absolutely agree with since it is something we have said since 2009: “he says the shortage of liquidity is a sign people are starting to doubt the sustainability of the current price environment.“

  Well, people have been doubting it for about 5 years, but with central banks always on the other side of the trade, and with Fear Of Missing Out, or FOMO, equivalent to career risk, nobody had a choice. The problem is that if one takes out the central banks from the backstop equation, the market has never been more one-sided and once the selling begins, there will be nobody to step in with the bid of first or last resort (the natural buyers in liquidations, the shorts, have long since been eviscerated). In fact, the only option will be to simply halt the market indefinitely. Just see Hanergy or CYNK as a case study of what is coming.

  But back to Robur, which has made money on its contrarian stance in the past. In mid-2011, the fund bought up European equities, even though “everyone believed Europe was finished,” Storfaelt said. We “took a clear stance and aggressively increased the equity weight.” The deal ultimately paid off. Since the end of June 2011, the Stoxx Europe 600 index has gained more than 40 percent. “It is kind of the same situation now, but the reverse,” he said.

  Storfaelt said Swedbank Robur sees a higher probability of a Greek default than the rest of the market. The risk “that it ends badly is higher than 50 percent,” he said. Pressure on Greece grew on Thursday as International Monetary Fund chief Christine Lagarde said the country won’t be given a grace period if it fails to make a payment at the end of the month.

  “Market participants often make the mistake of assuming that everybody else — for instance when it comes to Greece — is driven by economic considerations,” Storfaelt said.“In Greece, the end-game will be much more driven by ideological beliefs and the question is where this will lead.”

  Events today showed he was absolutely correct. For the sake of the bulls who looked at the market – which was being pushed up solely due to central bank intervention from the first moment of trading to crush any Greek negotiating leverage a red close may bring – and assumed that there is nothing at all that can dent the artificial, illiquid “bull market” now in its 6th year, let’s hope that that is all Storfaelt is correct about, because otherwise the countdown to the next massive market crash, not to mention the next, and probably final global QE involving all central banks, has already begun.

  

  

  

  
  
  

  

• Tell This To The Next Idiot Who Thinks You're "Unpatriotic"

  Submitted by Simon Black via Sovereign Man blog,

  I’ll never forget the Oath of Office I took when I was commissioned as an Army Intelligence Officer all those years ago.

  The most important part is where you swear to “support and defend the Constitution of the United States against ALL enemies, foreign and domestic.”

  That was the part that kept ringing in my head as George W. Bush went on TV in the run-up to the Iraq war talking about weapons of mass destruction.

  We had been on the ground in Kuwait since late 2002, months before the invasion of Iraq kicked off. And every time Bush told that lie, I thought about my oath.

  I’m disappointed to admit that, back then, I didn’t have the courage to go up against the big Army machine… to march into my Battalion Commander’s office and say, “Sir, we must defend the Constitution against the President of the United States.”

  I knew I would get crushed.

  When I left the military, I started noticing all the other ways in which the government turned the Constitution into a punchline. And that practice has only accelerated.

  I came up with a different solution. Instead of fighting some faceless machine, I voted with my feet and left the country.

  That, coupled with my drastically reduced tax bill thanks to being an overseas expat, has prompted a lot of use of the word ‘unpatriotic’ since I started writing this letter six years ago.

  I find this appallingly ignorant.

  The American Revolution itself was predicated on the inequity of taxation without representation.

  Are your interests represented when they buy bombs and body scanners? Mine certainly aren’t.

  Yet people who define patriotism by the frequency and rapidity of their flag-waving think that we all have some collective duty to ignorantly believe whatever we’re told by the government.

  I disagree. So does the New Oxford American Dictionary, which defines ‘patriot’ as

  “a person who vigorously supports their country and is prepared to defend it against enemies or detractors.”

  There’s that phrase again– ‘defending against enemies.’

  Who exactly are these ‘enemies’, by the way? Are they men in caves who hate us for our freedom? Arab teenagers with intense sexual angst and a collection of firearms?

  No. The real enemies are not foreign… but domestic. It is the apparatus of government itself that has collapsed upon the founding document of the nation.

  It’s not unpatriotic to lament how far a government’s practices have diverged from its Constitution.

  It’s not unpatriotic to want to be free.

  And it’s not unpatriotic to take steps to make that happen.

  In fact, people who think it’s everyone’s patriotic duty to pay taxes are only feeding the beast that makes them less free.

  And it’s entirely delusional to think that all of this can change by going to a voting booth.

  There’s no politician that’s going to change this.

  Nobody is going to stand on stage and say, “My plan is to eliminate entire departments of government, fire half of all government workers, terminate social security, and default on the debt.”

  Elections are pointless charades. But rather than vote for new people, we can simply vote to restrict the resources they have available.

  Yes, there are legal obligations to pay tax. And everyone should abide those obligations or risk pointless imprisonment.

  But with proper planning, tax obligations can be minimized.

  In my case, I left the country.

  This provides up to $100,800 in tax-free income based on the Foreign Earned Income Exclusion, and that’s before taking into account additional deductions, allowances, and exclusions.

  Recently I used my tax savings to finance a new prosthetic leg for an amputee war veteran that had been abandoned by the US government, and to buy food for earthquake victims here in Nepal.

  Had I not taken steps to reduce my tax bill, a big chunk of my income would have paid for more soldiers to get their legs blown off, and more bombs to be dropped by remote control on brown people.

  Instead, now I get to decide how my income and savings can best have an impact on the interests that I believe in.

  Let’s call it “representation without taxation”. And it’s completely legal as long as you follow the rules.

  Sure, not everyone has the ability to leave the country. But there are options to fit any lifestyle and circumstance.

  In addition to taxes, for example, it’s important to consider moving a portion of your savings abroad where it can’t be confiscated or frozen by capital controls.

  Safeguarding your wealth is a huge part of this strategy, in fact.

  The larger point is that taking steps to preserve your wealth and freedom is not unpatriotic.

  And for anyone who truly cares to defend your country from its domestic enemies, starving the beast is one of the most powerful tools you have available.

  

  

  
  
  

  

• RenTech Uses "Amazing" Legal Trick To Help Employees Dodge Retirement Taxes

  Jim Simons’ Renaissance Technologies and its internal HFT fund Medallion are no strangers to questions about tax avoidance. Last July, a Senate subcommittee report alleged that Renaissance, with the help of Deutsche Bank (of course) and Barclays, skirted leverage limits and avoided paying ordinary income tax on billions in trading profits by using basket options. Here, from the Senate report, is how the scheme worked:

  The basket option contracts examined by the Subcommittee investigation were used by at least 13 hedge funds to conduct over $100 billion in securities trades, most of which were short-term transactions and some of which lasted only seconds. Yet the resulting short-term profits were frequently cast as long-term capital gains subject to a 20% tax rate (previously 15%) rather than the ordinary income tax rate (currently as high as 39%) that would otherwise apply to investors in hedge funds engaged in daily trading. While the banks styled the trading arrangement as an “option” under which profits from short-term trades would be treated as long term capital gains, in essence, the banks loaned the hedge funds money to finance their trading and allowed them to trade for themselves in highly leveraged positions in the banks’ proprietary accounts and reap the resulting profits. The banks offering the “options” benefited from the financing, trading, and other fees charged to the hedge funds initiating the trades. In the end, the trading conducted by the hedge funds using the basket option accounts was virtually indistinguishable from the trading conducted by hedge funds using their own brokerage accounts, and provided no justification for treating the resulting short-term trading profits as long-term capital gains.

   

  

  There you go. And while it sounds (and looks) complicated, it was all, as we explained at the time, motivated by a very simple desire to reclassify short-term capital gains into long-term profits, in the process saving about 25% of the absolute profit from any transaction.

  How much did this 17X leveraged, “fictional derivatives” scheme cost taxpayers, you ask? Around $6 billion apparently, and as it turns out, Renaissance wasn’t done coming up with creative and technically legal ways to avoid paying the Treasury because as Bloomberg reports, the firm’s employees will now get to invest their retirement in Medallion (the firm’s internal HFT high-flyer) tax free:

  It’s one of the sweetest employee perks in the hedge-fund world: a chance to invest in Medallion, the wildly profitable fund created by market legend James Simons.

   

  Now, with deft legal maneuvers and a blessing from Washington, the firm Simons started is giving its employees an even richer opportunity — a tax-advantaged, fee-free ticket to one of the world’s top-performing hedge funds.

   

  In a series of unusual moves, Renaissance Technologies abolished its 401(k) plan and won the government’s permission to put pieces of Medallion fund inside Roth IRAs. That means no taxes — ever — on the future earnings of a fund that averaged a 71.8 percent annual return, before fees, from 1994 through mid-2014.

  How is this possible? Well, the first step was to eliminate 401(k)s and move everyone into IRAs, which Renaissance did in 2010. Next, Renaissance’s lawyers told the Labor Department that in their view, it wasn’t entirely fair that the firm’s employees were stuck investing their retirement savings in traditional funds offered through the likes of Fidelity because after all, carbon-based portfolio managers have a tough time replicating HFT-like returns. Two years, and a lot of paperwork later, Renaissance was granted a waiver which allowed for the inclusion of Medallion fund in employees’ IRAs. Renaissance has since set up another 401(k) which, thanks to a second government waiver, also includes Medallion. More from Bloomberg:

  After questioning that yielded a foot-high stack of public records, the Labor Department granted the exemption in 2012.

   

  As of the end of 2013, Renaissance was running an employer IRA plan that attracted $86.6 million in initial investments and had 259 active participants.

   

  Assets in the plan jumped 49 percent to $153 million during its first full year of existence in 2013, and almost all of that came because of growth in the funds, rather than new contributions or rollovers. The fee-free version of Medallion returned about 47 percent that year, compared with about 25.5 percent for the fee-paying version.

   

  While seeking the IRA exemption, Renaissance also set up a new 401(k). (Such plans permit greater annual contributions than IRAs.)

   

  Renaissance then returned to the Labor Department to ask for permission for the new 401(k) to invest in Medallion, too. In November 2014, the Labor Department said yes..

   

  For Renaissance employees, the results of the firm’s maneuvers are fee-free, tax-advantaged investments and the prospect of ballooning balances in their Roth IRAs.

  For those wondering exactly what all of this means in real money terms, consider this:

  From 2001 through 2013, the fund’s worst year was a 21 percent gain, after subtracting fees. Medallion reaped a 98.2 percent gain in 2008, the year the Standard & Poor’s 500 Index lost 38.5 percent.

   

  If Medallion repeats that 13-year performance, a $300,000 taxable investment would turn into $4.7 million. A Roth IRA funded with $300,000 would be worth $26.3 million — and a no-fee version would be even bigger.

  So, while America’s policemen, firemen, and school teachers are subjected to daily headlines trumpeting billions in underfunded pension liabilities, hedge fund employees (especially those who work for HFTs) are going to do just fine.

  Who loses as a result of all of the above? Well frankly, you do…

  “This is an issue of fairness, and taxpayers end up paying the price” — Senator Ron Wyden

  

  

  
  
  

  

• Pope Francis Calls For A New Global Political Authority To Save Humanity

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

  Pope Francis says that global warming is a fact and that a new global political authority is necessary in order to save humanity from utter disaster.  The new encyclical that was scheduled to be released on Thursday has been leaked, and it is being reported that this new global political authority that Pope Francis envisions would be in charge of “the reduction of pollution and the development of poor countries and regions”.

  The funny thing is that this sounds very much in line with the new sustainable development agenda that is going to be launched at the United Nations in September. 

  This radical new agenda is already being called “Agenda 21 on steroids” because it goes so much farther than Agenda 21 ever did.  The new UN agenda does not just address the environment – it also addresses issues such as poverty, agriculture, education and gender equality.  It is essentially a blueprint for governing the entire planet, and that sounds very much like what Pope Francis also wants.  In fact, Pope Francis is going to give the speech that kicks off the UN conference in September where this new sustainable agenda will be launched.  For some reason, this Pope has decided to make the fight against climate change the central pillar of his papacy, and he is working very hard to unite as much of humanity as possible to get behind that effort.

  It is not an accident that this new encyclical is coming out now.  An article from the Guardian even states that the release was intended “to have maximum public impact” prior to the Pope’s major speech at the UN in September…

  The rare encyclical, called “Laudato Sii”, or “Praised Be”, has been timed to have maximum public impact ahead of the pope’s meeting with Barack Obama and his address to the US Congress and the UN general assembly in September.

   

  It is also intended to improve the prospect of a strong new UN global agreement to cut climate emissions. By adding a moral dimension to the well-rehearsed scientific arguments, Francis hopes to raise the ambition of countries above their own self-interest to secure a strong deal in a crucial climate summit in Paris in November.

  Much of the encyclical is not that surprising.  But what is raising eyebrows is the Pope’s call for a new global political authority.  Here is more from the Guardian…

  Pope Francis will this week call for changes in lifestyles and energy consumption to avert the “unprecedented destruction of the ecosystem” before the end of this century, according to a leaked draft of a papal encyclical. In a document released by an Italian magazine on Monday, the pontiff will warn that failure to act would have “grave consequences for all of us”.

   

  Francis also called for a new global political authority tasked with “tackling … the reduction of pollution and the development of poor countries and regions”. His appeal echoed that of his predecessor, pope Benedict XVI, who in a 2009 encyclical proposed a kind of super-UN to deal with the world’s economic problems and injustices.

  What is even more alarming is who will be on the stage with the Pope when this encyclical is formally released.    John Schellnhuber is a German professor that has some very radical views on climate change.  For instance, he believes that our planet is overpopulated by at least six billion people…

  Professor John Schellnhuber has been chosen as a speaker for the Vatican’s rolling out of a Papal document on climate change. He’s the professor who previously said the planet is overpopulated by at least six billion people. Now, the Vatican is giving him a platform which many expect will result in an official Church declaration in support of radical depopulation in the name of “climate science.”

  And Schellnhuber also happens to believe that we need a new global political authority.  If he had his way, there would be an “Earth Constitution”, a “Global Council” directly elected by the people of the planet, and a “Planetary Court” that would be above all other courts on the globe.  The following is an excerpt from a very disturbing piece that he authored…

  Let me conclude this short contribution with a daydream about those key institutions that could bring about a sophisticated – and therefore more appropriate – version of the conventional “world government” notion. Global democracy might be organized around three core activities, namely (i) an Earth Constitution; (ii) a Global Council; and (iii) a Planetary Court. I cannot discuss these institutions in any detail here, but I would like to indicate at least that:

   

  – the Earth Constitution would transcend the UN Charter and identify those first principles guiding humanity in its quest for freedom, dignity, security and sustainability;

   

  – the Global Council would be an assembly of individuals elected directly by all people on Earth, where eligibility should be not constrained by geographical, religious, or cultural quotas; and

   

  – the Planetary Court would be a transnational legal body open to appeals from everybody, especially with respect to violations of the Earth Constitution.

  Does the Pope want something similar?

  It is quite telling that Schellnhuber was invited to stand with the Pope as this major encyclical is released to the world.  Did Schellnhuber play a role in drafting it?  Has he been advising the Pope on these matters?  Does the Pope share his vision of the future?

  And does the Pope share Schellnhuber’s belief that our planet is currently overpopulated by six billion people?  If so, how would the Pope solve that “problem”?

  Without a doubt, most of those that make up the “global elite” would love to see the number of people on earth decline precipitously.  This is something that I covered in my previous article entitled “46 Population Control Quotes That Show How Badly The Elite Want To Wipe Us All Out“.  Of course the Pope is not going to publicly advocate for getting rid of six billion people, but clearly he is extremely concerned about the impact that all of us are having on this planet.

  The funny thing is that the earth is not even warming.  In fact, there has been no sign of global warming at all for the past ten years…

  Over the years the government and the scientific community have largely stood their ground when it comes to climate change. They’ve been adamant in their assertion that the planet is gradually warming due to human activity, and that we all need to do our part to stop climate change. However, the data provided by the scientific community doesn’t always jibe with their claims.

   

  At least, that seems to be the case with the data coming out of NOAA’s climate monitoring stations. They have a series of 114 stations across all 50 states, which is known as the US Climate Reference Network. For the past 10 years they’ve shown no sign of global warming. In fact, there’s been a very slight cooling in temperatures across the US.

  But at this point, most of the world has bought into the propaganda.  In most industrialized nations, a solid majority of the population actually believes that climate change is the greatest threat that humanity currently faces.

  And since just about all forms of human activity produce “carbon emissions” or affect the environment in some way, it gives control freaks that dream of global government a good excuse to grab more power.  They will always say that it is about “saving humanity” or “saving the planet”, but ultimately everything that they are trying to accomplish would mean more power in their hands.

  

  

  
  
  

  

• Is This What The New $10 Bill Will Look Like?

  Treaaury Secretary Jack Lew revealed last night that Alexander Hamilton – he of The Federalist Papers and first central bank of America – will be ousted from the $10 Bill in favor of a woman (as yet unnamed).

  "We are going to be open to many ideas as we go forward consistent with theme of democracy," Lew said. "Our thinking is to select a woman who has played a major role in our history who represents the theme of democracy."

   

  The bills with Hamilton in it, which were first introduced in 1929, will continue to be used for as long as those bill last, Lew said.

  This of course, is not a populist move as Jack lew explains…

   

  One wonders just who they will choose?

  Given Lew's comment s that:

  "America’s currency is a way for our nation to make a statement about who we are and what we stand for," Lew said. "Our paper bills — and the images of great American leaders and symbols they depict — have long been a way for us to honor our past and express our values."

  We suspect the new tran, pardon ten dollar bill will look as follows:

  

   

  One final question – did anyone think to ask Alexander Hamilton if he "identifies as a woman" or "a black woman"?

  

  
  
  

  

• Middle Class Incomes Yet To Recover From Crisis As Wealth Gap Widens

  “First, widening inequality is a very long-term trend, one that has been decades in the making. The degree of inequality we see today is primarily the result of deep structural changes in our economy that have taken place over many years, including globalization, technological progress, demographic trends, and institutional change in the labor market and elsewhere. By comparison to the influence of these long-term factors, the effects of monetary policy on inequality are almost certainly modest and transient.” 

   

  That’s what Blogger Ben Bernanke (who is of course distinct from PIMCO advisor Ben and Citadel co-conspirator Ben) had to say earlier this month about the idea that the Fed’s post-crisis policies have contributed to income inequality in America. 

  The above-cited Bernankespeak can be translated as follows: poor people have been getting poorer for a long, long time, so sure, maybe the Fed contributed a little bit, but probably not a whole lot.

  A common sense appraisal of QE tells a different story.

  Deliberately inflating the assets most likely to be concentrated in the hands of the rich quite clearly increases the wealth divide and indeed, even the St. Louis Fed acknowledges that the American Middle Class is effectively dying a slow death in the post-crisis world.

  For proof, look no further than the latest data on US household income which shows that while the 0.001%, the 0.01%, the 0.1%, and the 1% have all nearly recovered their pre-crisis share of the national income, the bottom 50% of US filers’ share is not only lower than it was in 2007, but is in fact lower than it was in the depths of the crisis:

  

   

  

  More color from Bloomberg:

  The IRS recently released its latest income data on U.S. households. The numbers, which go through 2012, show that the top sliver of taxpayers recovered quickly from the recession. That’s not what happened for everyone else.

   

  U.S. household income is getting increasingly concentrated at the top. That was especially true in 2012, when there was a race to sell valuable assets before the top capital gains tax rate jumped to 23.8 percent from 15 percent.

  *  *  *

  Perhaps Blogger Ben will help to explain the above — which seems to contradict his assessment — in a forthcoming Brookings post. 

  

  
  
  

  

• The Logic Of Interventionism (Or How To Wake Up In A Prison)

  Submitted by Pater Tenebrarum via Acting-Man.com,

  Archaic Financial Freedom

  The mainstream press is still full of articles about the alleged evils of cash, which we regard as a typical “trial balloon” launched by the powers-that-be. The way this works is that they get a repressive measure they indent to implement out there, not only to propagandize in its favor, but also to gauge the reaction of the serfs. Is there an outcry? Does anyone care? If not, they quietly go forward with putting the measure into practice. If there is a great deal of pushback, they will simply wait for a better opportunity. A useful emergency always comes along after all. The Charlie Hebdo attack in France is a pertinent recent example: Under the false pretext that this is needed to “fight terrorism”, all cash transaction exceeding €1,000 have been banned in France.

   

  

   

  German daily Frankfurter Allgemeine Zeitung, has recently published an article about the “hoarding of cash” by citizens of Switzerland and the euro zone. With interest rates either at zero or negative, the cash currency component of the money supply has increased significantly, as more and more citizens prefer to hoard money under the proverbial mattress. The new European “bail-in” regime, so vividly demonstrated in Cyprus, is a major motive as well. Most recently, Greek citizens have resorted to withdrawing their deposits, with mainly small savers withdrawing cash (large depositors are more likely to simply transfer money to other parts of the euro area that seem safer).

  While the article is written in a fairly value-neutral tone, it does mention that the negative interest rate policy of the SNB is hampered by people withdrawing their money from banks. And of course, “hoarding” is always regarded as an unmitigated evil, so the use of this term alone indicates that one should disapprove of this attempt by the citizenry to escape wanton confiscation (we have posted an article a while back in which we explain why contrary to the current Keynesian economic orthodoxy, “hoarding” is not a problem for the economy at all. See “Are US Consumers Evil Hoarders?” for details). So there is a subtle propaganda undertone pervading even this seemingly sober report.

  We recently reminisced about the 1980s, when we once opened an account with a German bank. We queued at the cashier’s desk, and when it was our turn, we offered to show our passport to the cashier. He asked: “What do you want to show me your passport for?” “Well”, we replied, “we want to open an account with you.” The cashier remarked to this: “We are not the customs office. There is no need to show us your passport, just fill in the form.” The form was about half a page long and asked for the most rudimentary information. It turned out that it wouldn’t even have been necessary to show up at a bank branch office in person – we could have opened the account by mail as well. Today such a degree of financial freedom appears positively archaic. One almost feels like a criminal just reminiscing about how things once worked.

  One Intervention Never comes Alone

  Thinking about the ever-growing burden of government intervention in the economy and the increasing regimentation of the citizenry with ever more draconian laws to allegedly ensure its “safety”, we were reminded of Ludwig von Mises’ book Omnipotent Government, published in the mid 1940s. In it, Mises inter alia explains how price controls – unless the government abandons them upon realizing that they don’t work as intended – will inevitably lead to socialism:

  “Under a market not manipulated by government interference there prevails a tendency to expand the production of each article to the point at which a further expansion would not pay because the price realized would not exceed costs. If the government fixes a maximum price for certain commodities below the level which the unhampered market would have determined for them and makes it illegal to sell at the potential market price, production involves a loss for the marginal producers. Those producing with the highest costs go out of the business and employ their production facilities for the production of other commodities, not affected by price ceilings. The government’s interference with the price of a commodity restricts the supply available for consumption.

   

  This outcome is contrary to the intentions which motivated the price ceiling. The government wanted to make it easier for people to obtain the article concerned. But its intervention results in shrinking of the supply produced and offered for sale.

   

  If this unpleasant experience does not teach the authorities that price control is futile and that the best policy would be to refrain from any endeavors to control prices, it becomes necessary to add to the first measure, restricting merely the price of one or of several consumers’ goods, further measures. It becomes necessary to fix the prices of the factors of production required for the production of the consumers’ goods concerned. Then the same story repeats itself on a remoter plane. The supply of those factors of production whose prices have been limited shrinks. Then again the government must expand the sphere of its price ceilings. It must fix the prices of the secondary factors of production required for the production of those primary factors.

   

  Thus the government must go farther and farther. It must fix the prices of all consumers’ goods and of all factors of production, both material factors and labor, and it must force every entrepreneur and every worker to continue production at these prices and wage rates. No branch of production must be omitted from this all-around fixing of prices and wages and this general order to continue production. If some branches were to be left free, the result would be a shifting of capital and labor to them and a corresponding fall in the supply of the goods whose prices the government has fixed. However, it is precisely these goods which the government considers as especially important for the satisfaction of the needs of the masses.

   

  But when such a state of all-around control of business is achieved, the market economy has been replaced by a system of centralized planning, by socialism. It is no longer the consumers, but the government who decides what should be produced and in what quantity and quality.”

  (emphasis added)

  In short, the interconnectedness of the economy’s structure of production means that an intervention in the price system can never remain isolated. Its inevitable failure must lead to further consequences. Ideally, the intervention is abandoned. However, government rarely works that way. Thus, if price controls are introduced for a consumer product, price controls must also be introduced for the products made in the stages of production preceding this consumer product. But even if the entire chain of production involved in the making of a specific consumer product is thereby put under government control, the problem is still not solved from the interventionist perspective.

  If prices in one sector are administered by the bureaucracy, more and more capital will leave this sector and seek out opportunities elsewhere. In the end, the bureaucrats will administer an empty shell, and shortages of the good that was the initial target of price controls will be worse than ever. The only logical next step is once again to either abandon the price controls, or expand government controls over industry even further. In the end, there will no longer be a market economy: government will control everything and full-scale socialism will have been imposed – if not in name, then certainly in practice.

  Waking Up in a Fascist Prison

  Today we can observe this “logic of interventionism” at work in practically every sphere of life. Think about the NSA and its ubiquitous spying. Once upon a time, intelligence agencies tried to obtain specific information by specific means largely in line with legal, above all constitutional, constraints (violations of these constraints undoubtedly occurred, but at least it was clear that they were violations). Today these agencies have arrived in their on version of full-scale socialism.

   

  

  The STASI – buttonhole camera – a little inconvenient in situations when you had to take off your coat …

  Photo credit: W.D.Roth

   

  Not unlike the Stasi of Eastern Germany, they assert that they need to know everything about everybody. Hence, they must put the whole world under constant surveillance in order to “keep us safe”, and in an example of an Orwellian perversion of language, to allegedly “preserve our freedom”. Somehow they have neglected to mention who will keep us safe from them.

  Every year, a veritable avalanche of laws and regulations is enacted in the countries of the so-called “free world”. Much of this legislation comes in the form of so-called administrative law. First parliaments vote in favor of a new law – with legislators usually not even finding the time to read the contents of the bills they are voting for – and then the State’s bureaucracies are tasked with formulating the detailed regulations, which of course have the force of law as well. There is no democratic oversight of these processes, because that is physically impossible. How does one “democratically oversee” the creation of tens of thousands of pages of new regulations? Consider e.g. the telephone directory-sized Dodd-Frank Act, which we have previously discussed in these pages. At the time the detailed regulations were about 40% finished, they comprised nearly 14,000 pages. By the time this thing is “ready for action”, it will amount to an entire library of telephone directories. Will it make the financial markets safer? It will likely do the exact opposite, by creating an unwarranted sense of complacency.

   

  

  Cartoon by Nate Beeler

  The constant avalanche of regulations has seeped into every nook and cranny of our lives. Whether it is the amount of water that is allowed to pass through a shower-head every minute, or the emasculation of toasters and vacuum cleaners – we are in the middle of a process of bureaucratic de-civilization. There are now so many laws and regulations on the books, that not even highly specialized experts are able to interpret them anymore, even within their own field of expertise (one can easily test this by asking ten different experts about the same topic. Chances are one will end up with ten different opinions). This obviously opens the door wide for abuse, since not even knowledge of the law can ensure that one will be able to obey its intent – and ignorance of the law is in any event not accepted as a defense. As Bill Bonner recently pointed out, these days “everybody is a criminal”.

  The most pernicious trend has been set into motion in the context of allegedly keeping us safe from terrorists, who in terms of the actual danger they represent might as well not exist. It is of course terrible when a terror attack occurs and there are a handful of cases when the toll has been high, but as a rule, our perceptions are skewed by the fact that these events are getting enormous media attention. By contrast, the far higher death toll from e.g. simply crossing the street, drowning in one’s own bathtub, or falling over a misplaced piece of furniture is getting no attention whatsoever. In most cases, terrorism is of course only a pretext anyway, especially in the context of the ever more comprehensive loss of financial privacy.

  How did we progress to the point at which even the banning of cash currency is discussed? As Robert Prechter correctly remarked in his assessment of Willem Buiters screed (in which the latter argued that cash should be banned to make it easier for central banks to steal the funds of savers by imposing negative interest rates):

  “He says libertarians–people who champion the far-out-of-fashion value of liberty–should “take one for the team.” But central bankers and governments are not some team. They are grasping, corrupt, dissolute, self-interested rulers. This is like slave-owners telling their newest acquisitions to turn in all their production to the slave-master for the good of the team. Go, Slaves! America’s Team!”

  (emphasis added)

  The very same principle holds true for all other efforts that end up curtailing liberty under the pretext of making society safer or improving it by assorted social engineering measures. Those enacting such laws represent the State, and “we” are definitely not the State. As Prechter says, it consists of “grasping, corrupt, dissolute, self-interested rulers”. Their main interest these days is apparently in creating all-encompassing Orwellian control over the serfs, all the while pretending that this is in the latter’s “best interest”.

  The imposition of all the these laws and regulations hasn’t happened all at once. Similar to Mises’ example of how price controls, if pursued to their logical conclusion, must lead to the adoption of socialism, one or two new laws intended to improve our safety can never be enough. There will always be some things that remain out of control, spheres of freedom that criminals might abuse to their advantage. One could always make life easier for the executive if one were to restrict those as well.

   

  

  Photo credit: Igor Normann

   

  A salami tactic is therefore employed, not least because this ensures that there will be little protest. A new law or regulation may not be seen as overly onerous in isolation. The average citizen may well think – if he or she is even aware of the adoption of a new law: “Oh well, it is a bit creepy” or “it does make life a bit more difficult”, but “if it helps to keep us safer/more prosperous/more free/saves the planet, I can put up with it”. And so one freedom after another is taken away. If pursued to its logical conclusion, no freedom will be left in the end.

  Conclusion:

  Eventually it won’t even be necessary anymore to put anyone in prison for having violated this or that law; instead, one can simply build a wall around the whole country and put a roof atop, and let the newly militarized police patrol it. At least we will be perfectly safe at that point.

   

  

  

  
  
  

  

• Moscow Furious After Both Belgium And France Freeze Russian State Assets

  Russia has summoned the Belgian ambassador to Moscow and threatened to “respond in kind” after bailiffs instructed nearly 50 Belgian companies to disclose Russian state assets, a move which reportedly sets the stage for the seizure of Russian property in connection with the disputed $50 billion Yukos verdict. Essentially, Russia was required to submit a plan for a €1.6 billion payment pursuant to the ECHR decision by June 15, and because Moscow did not do so, Belgium will attempt to extract the payment on its own.

  As a refresher, here’s what we said last year regarding the arbitration:

  The Hague is not Vladimir Putin’s favorite place today. Following the “war crime” comments earlier, the arbitration court’s decision to rule in favor of Yukos shareholders (and thus against the allegedly “politically motivated” confiscation of the firm’s assets by the Russian government) with a $50 billion settlement (half what was sought) has prompted a quick and angry response from the Russian government. Blasting the “one-sided use of evidence,” and re-iterating the massive tax evasion that the leadership were involved in, Russia slams “the puzzling unprecedented amount of damages” awarded, claiming the process is “becoming increasingly politicized.”

  Here’s RT on Belgium’s move to freeze Russian assets:

  The bailiffs were reportedly acting at the behest of the Isle of Man-based Yukos Universal Limited, a subsidiary of the Russian energy giant, dismantled in 2007. They have given the target companies a fortnight to comply..

   

  Russia will appeal the court’s arrest of Russian property, Russian presidential aide Andrey Belousov said. According to the official, “the situation with the arrest of the property is politicized, [and] Moscow hopes to avoid a new escalation in relations.”

   

  A letter accompanying the notice, reportedly drafted by the law firm Marc Sacré, Stefan Sacré & Piet De Smet, accused Moscow of a “systematic failure to voluntarily follow”international legal judgments.

  The addressees included not just local offices of Russian companies, but international banks, a local branch of the Russian Orthodox Church, and even Eurocontrol, the European air traffic agency headquartered in Brussels. Only diplomatic assets, such as embassies, were exempt.

   

  The situation was not unexpected, and Russia is considering a number of measures to deal with possible asset seizures both in Belgium and in other countries, said Andrey Belousov, an aide to Russian President Vladimir Putin.

   

  Yukos Universal Limited was awarded $1.8 billion in damages by the Permanent Court of Arbitration in The Hague in July 2014, as part of a total settlement for approximately $50 billion, owed to its former shareholders and management. The court concluded that the corporation, once headed by Mikhail Khodorkovsky, who spent more than a decade in prison for embezzlement and tax evasion from 2003 to 2013, “was the object of a series of politically motivated attacks.”

   

  Russia has not accepted the ruling, saying it disregards widespread tax fraud committed by Yukos, and constitutes a form of indirect retribution for Russia’s standoff with the West over Ukraine. 

  And more, from Interfax (Google translated):

  Russian institutions in Belgium, except for diplomatic missions, received on Wednesday by bailiffs arrest warrants in their possession of the State Property of the Russian Federation.

   

  The document stated that the arrest is made on the basis of the decision of the Belgian Court of Arbitration of 18 July 2014 to the claim of “Yukos Universal Limited.”

  The specified amount of the claim in it – 1.6 billion euros.

   

  Bailiffs indicate that the plaintiff has demanded such a measure, “because it has serious concerns about the possibility to receive the sum due, in particular, due to a systematic failure of the Russian Federation to fulfill handed down judgments against it and considering the attitude of the Russian Federation to the decision.”

   

  As explained by “Interfax” the representative offices of bailiffs’ Marc Sacre – Stefan Sacré – Piet De Smet “listed in the organizations are obliged to declare within two weeks at their disposal cash, property of the Russian Federation and the debt to the Russian Federation.

   

  The list covers almost all the major banks, registered in Belgium, and even organizations such as “Eurocontrol”, which regulates air traffic over Europe. In it – all Russian representative, except for the protected diplomatic immunity until the Archbishopric of Brussels and Belgium ROC, including the representation of non-governmental organizations and the media.

  But it’s not just Belgium. France also froze the accounts of Russian companies on Thursday, targeting Russian firms run by a French subsidiary of the country’s second largest lender, VTB. Here’s RT again:

  French law enforcement has frozen the accounts of Russian companies operated by the French subsidiary of VTB, Russia’s second-largest bank, CEO Andrey Kostin told RBC. Diplomatic accounts were briefly frozen as well, but have since been unlocked. “As of this morning [diplomatic accounts] were unfrozen… The sums are small, some dozens of thousands of euros, [but] Russian companies’ accounts are still frozen,” the bank chief was cited as saying. “We are working on the problem with our lawyers now.”

  And the response from the Kremlin:

  • RUSSIA SUMMONS BELGIAN AMBASSADOR OVER FREEZES OF RUSSIA ASSETS
  • RUSSIA: FREEZES OF ASSETS IN BELGIUM `UNFRIENDLY ACT’
  • RUSSIA MAY RESPOND IN KIND TARGETING BELGIAN ASSETS IN RUSSIA

  “[Remove the violations], otherwise, the Russian side will be forced to consider taking adequate response measures against properties of the Kingdom of Belgium, including properties of the Belgian embassy in Moscow, as well as of its legal entities”

  We imagine this will only serve to further inflame tensions between Russia and Europe amid escalating violence in Ukraine and an increasingly aggressive stance towards the Kremlin on the part of Washington and NATO. 

  

  

  
  
  

  

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• Artist's Impression Of GOP Presidential Nominee Race

  That platform is starting to get full… of something…

   

  

   

  Source: Townhall.com

  

  

  
  
  

  

• "Goldbug" Analysts Capitulation

  Submitted by Leonard Sartoni via GoldBroker.com,

  The gold market has been in a profound lethargy (at least in dollar terms) for over a year. This is as frustrating for the bulls as it is for the bears. These days we are witnessing an avalanche of bearish commentaries on the price of gold for the coming 6 to 12 months. The psychological $1,000 threshold is attracting analysts like a magnet attracts iron dust, just because an almost four-year old trend ends up drawing everybody in it!

  Harry Dent (the one predicting gold at $700) is now being joined by many long-time bugs who are seeing gold plummet toward $1,000-$900… before it takes off to $5,000! I call this the final capitulation of the analysts. They are throwing the towel on this frustrating sector and their short- and mid-term predictions end up being dictated by their negative emotions.

  We can see in the next three following charts that a bear market is defined by constant higher highs and lower lows. When this process ends, the bear market has stopped and a new trend can take place, as is the case actually with the gold price in terms of euros. With this currency, we’ve had to wait until 2005 for the gold bull market to be validated. Since then, the gold bull market has been validated in all currencies.

  The actual lull won’t last the same time for all the currencies. As long as gold doesn’t rise above $1,310, technical analysts will remain bearish on the gold price in terms of dollars. The euro being actually much weaker than the dollar, it helped start the gold bull market sooner. But, ultimately, we will see the gold price rise again in all currencies.

   

  

   

  

   

  

   

  I feel the same negative emotions as all the analysts and all gold investors, because we are all following this war between gold and the dollar day after day and we’d all like to see gold coming out the winner in the final battle. At this moment, one has to admit that gold is not doing too well in terms of dollars. If I were to give any advice based on my emotions, I’d say that I’m not satisfied with the gold price in this currency, with the pathetic performance of the gold miners, and that I’m not optimistic on the short term. But when everyone is starting to bet on gold and gold mining companies to go down, including the pro-gold analysts, I tell myself that we’re once again very close to a major turning point in this market. And this would only confirm the restart of the gold bull market in euros and yens!

  In 2011, everyone was bullish and was seeing gold reaching $2,000, even $2,500 before the next major correction. In 2015, everyone is bearish and is seeing gold plunging to $1,000, $900 or even $700 before it can really rebound. Fear is palpable in this market. Analysts, instead of advising to fill the truck at these overly depressed levels, are recommending hopping on the selling wagon to surf on the “final devastation” of this market. Is this sound advice?

  Have you ever wondered why so few commentators and analysts shout “buy” when a sector is totally depressed and on the verge of starting a spectacular bull market? And why so few shout “sell” when a sector is hyper optimistic and just about to reach its decade-long peak (just like stocks at this moment)?

  It is because the price evolution during the years preceding this event keeps them from doing it! Because time has played against them. The preceding bull or bear market ended up winning over most analysts who were predicting a trend reversal. They can’t continue to fight this market, because they’ve lost all their credibility, some capital, and are about to lose all of their clients! They capitulate. They are forced to side with the trend even if fundamentals are screaming to the contrary. It is said that a financial bubble first brings ruin to those who bet against it, and then to those who feed it. This change of attitude among long-time pro-gold commentators and analysts is an important sign of capitulation, the kind of sign that is expected before a definitive trend reversal.

  

   

  For the moment, if we refer to the “power of prediction” of the junior miners (GDXJ) for the future trend for gold in terms of dollars, we are again testing the 50-day moving average, and the result of this test should give us the short- and mid-term trend for the metal (6-month horizon). For the last few months, the junior miners have resisted astonishingly well to the metal’s weakness, and this is a very encouraging sign for things to come.

   

  

  

  
  
  

  

• Did The Classic Car Bubble Just Quietly Burst?

  In May, Pablo Picasso’s De Women of Algiers (Version O) sold for a record $180 million at auction prompting us to remark that if the Fed’s bubble busting team led by Stanley Fischer was looking for runaway inflation, it could have easily found it without any particular effort at Christie’s. 

  We went on to compare what may eventually be go down in history as “peak Picasso” with what looks like a bubble in $100 million homes: The nearly $200 million price tag for the “riot of colors focused on scantily dressed women” is, according to WSJ, reflective of the work’s “trophy” status which it earned as a result of its “ownership pedigree”. Translated from high-end art world parlance to plain English: for billionaires who have seen their obscene fortunes balloon under monetary policies designed to inflate financial assets at the expense of everything else (including market stability), purchasing art affords the buyer an even greater opportunity to “boast” than hoarding $100 million homes because after all, there a lot of mega mansions, but there’s only one vibrant, multi-hued Picasso riff on a Delacroix, so really, $180 million is a bargain, especially when most of the purchase price will be recouped by S&P 2,500, or SHCOMP 6,000 (depending on the nationality of the unnamed buyer).

  But it’s not just rare art and obscene homes that appear to be reaching peak insanity, it’s collector cars as well which, incidentally, speaks to the same dynamic that’s driving the art and mega mansions markets: namely, the relentless, central bank-fueled run up in financial assets has given the ultra rich more money than they know how to spend, leading directly to hyperinflation in the types of things billionaires buy when they get bored. Take the 1955 Mercedes 300SL Gullwing, which has outpaced the six-year US equity rally:

  

  Here’s some color from Jalopnik:

  What you’re seeing here, courtesy of the collector car market wizards over at Hagerty, is the price of a 1955 Mercedes 300SL Gullwing as compared to three major stock market indices and the price of gold. While the economy has been soaring for some, it’s been a rocket ship to the greater reaches of the Universe for the world’s obscenely wealthy.

   

  And perhaps nowhere is that reflected greater than the price of one little old German car. For reference, one sold last August for $2,530,000.

   

  

  (1955 Mercedes 300SL Gullwing)

   

  So we’re left to wonder the reasoning reasoning behind all the massive jump in valuations, and with much of economics, it’s complex. First, and perhaps most apparent, there looks to be some sort of bubble economics at play. As Hagerty analyst Dave Kinney points out:

   

  There continues to be some speculation that prices simply cannot continue this arc for much longer, though the “if” of this question is less insightful than the “when.” That million-dollar answer is yet to have consensus.

   

  [One big factor] .. is the .. rise in income inequality. As the wealthiest get even richer, they can afford to bid higher and higher prices on the highest-end of collector items. 

  As for broader market trends, here’s a look at how well German collector cars have fared in the now ubiquitous Keynesian trickle down ‘wealth effect’ monetary regime…

  

  …and 1950s American “classics” have done even better…

  

  But the bubble may now be showing signs of fatigue as Hagerty’s “market rating” (a weighted algorithm to calculate the strength of the North American collector car market), just suffered its largest one month decline in 14 months.

  Via Hargerty:

  • Following May’s record high, the Hagerty Market Rating recorded its biggest decline of the last 14 months, falling a third of a point.
  • May saw a 1/3 reduction in the number of cars offered at auction compared to May 2014, primarily due to single-collection sales tapering off.
  • Following a strong year, private sales recorded the smallest gain this past month of the past 12 months.
  • Insured values again set record highs, but month-over-month changes in both the broad and high-end markets slowed for the second consecutive month.

  And some specifics from Jalopnik:

  Hagerty uses its own proprietary market rating system which takes into account the difference between the value cars are insured for and how much they actually sell for, and according to the insurance company, the dip is fueled mostly by a drop in single-collection big sales. But it’s also fueled by big drops in sale prices of specific, popular cars as well:

   

  1967-1973 Mercury Cougar – average sale price dropped 21% year-over-year and percent selling above insured value fell from 36% to 23%

   

  Jaguar XJ-S – average sale price dropped 15% year-over-year and percent selling above insured value fell from 40% to 4% 

  Still, as you can see below, the bubble looks to be largely intact, and why shouldn’t it be? After all, there was no surprise ‘liftoff’ today and based on the record $141 billion in buybacks US corporates announced in April (that’s up 141% Y/Y in case you were wondering), stocks may trend even higher on the way to their date with 1937.

  

  (Hagerty Market Index)

  *  *  *

  We’ll leave you with what we said last month about greater fool-driven, billionaire trophy hunting: Neither art nor cars pay any dividends, so any purchase is merely a gamble on further price appreciation driven by even greater asset bubbles in the future.

  Rest assured DM central banks will do their very best to ensure that these gambles pay off.

  

  

  
  
  

  

• California Labor Commission Pops The Uber Bubble, Says Workers Are Employees

  Submitted by Daniel Drew of Dark Bid

  California Labor Commission Pops The Uber Bubble, Says Workers Are Employees

  

  The California Labor Commission ruled that Uber is “involved in every aspect of the operation,” which means drivers are employees and not independent contractors. Uber says it’s “nothing more than a neutral technology platform.” The shift to employee status for California drivers threatens Uber’s obscene $50 billion valuation in the private market as they face increased labor costs. The ruling could also spark an avalanche of similar lawsuits across the country.

  Uber is just one example of the exploitation business model. From Washio to Airbnb, companies in the so called “sharing economy” seek to avoid licensing, regulation, insurance, standard labor costs, and basic business responsibility. This trend threatens the average worker and fosters the development of a peasant class.

  The misclassification of employees as independent contractors is one of the most widespread employer abuses. The Department of Labor published a report to summarize the employment relationship under the Fair Labor Standards Act. Here are the parts that Uber clearly violated:

  The extent to which the work performed is an integral part of the employer’s business. If the work performed by a worker is integral to the employer’s business, it is more likely that the worker is economically dependent on the employer and less likely that the worker is in business for himself or herself. For example, work is integral to the employer’s business if it is a part of its production process or if it is a service that the employer is in business to provide.

  The nature and degree of control by the employer. Analysis of this factor includes who sets pay amounts and work hours and who determines how the work is performed, as well as whether the worker is free to work for others and hire helpers. An independent contractor generally works free from control by the employer (or anyone else, including the employer’s clients).

  Without its drivers, Uber wouldn’t have a business. The drivers are the backbone of the enterprise. Uber, with its “God view” monitoring system and volatile, sky-high surge pricing, definitely controls pricing and how the work is performed. Once Uber starts acting like a real business and faces normal business costs, we’ll see how profitable they actually are. Until then, they are just a millennial sweatshop.

  * * *

  PS this clearly bad news for Uber is bullish for NYC taxi medallions, which have seen their prices tumble in recent years as a result of the Uber threat.

  

  This might just be the second coming of the good, old, unsocial, unnetworked Yellow Cab. Interested readers can look at recent Medallion prices at the following website.

  

  

  
  
  

  

• Texas Gold Repatriation Bill Has One Message To Feds: "Come And Take It"

  As the mainstream media begins to come to terms with just what Texas' decision to repatriate its gold from the Federal Government in its own Gold Depository, the details of Republican State Rep. Giovanni Capriglione's bill protecting gold from confiscation become clear…

   

  In an interview with The Epoch Times, Caprigilione explains why he pushed the bill and its far-reaching implications…

  Epoch Times: What did you do to make the bill pass?

  Giovanni Capriglione: I grabbed the banner last session. I was a freshman and it was difficult. Part of the problem was that it has a lot of verbiage that had nothing to do with law. Things like the case of an economic meltdown.

  This is a principle part of why the bill was created, but it made it a distraction trying to pass the bill. Because then you get into: Do you think the economy is going to collapse, blaming the president, blaming the banks. What I did in this version of it, I stripped all kinds of stuff out other than the bill itself.

  Epoch Times: Why did you go for it?

  Mr. Capriglione: I have a vision, I would like for Texas to compete with Manhattan or the exchanges in Chicago. Here in Texas we have oil, we have natural gas, we have our own electric grid. To me having a bunch of metal commodities in the mix is something else that helps Texas to be able to become a marketplace for a lot of different items. Part of the idea of the depository is just another Texas thing. I’m still a little stunned that it happened.

  I wrapped all of it together and I love to do economic development. I just want Texas to really be able to grow economically.

  Former Texas Gov. Rick Perry previously said, “We are telling the whole entire world that Texas has a billion dollars worth of gold.” Gov. Abbott too, wants to attract businesses to our state.

  Epoch Times: What were some of the difficulties?

  Mr. Capriglione: My initial goal was to create a state everything, to have that completely run by the state. The issue with that was that it became a budget item. They were not keen on developing a completely new piece of [transaction] software. If the state had done it from scratch it would have just been too large.

  The state would have developed the infrastructure to do [gold] deposits. We wanted the state to build the depository. We wanted the state to provide the security. It’s just very expensive. One of the things in Texas, because we are so conservative, if you have a bill that costs money its chances go way down.

  I worked to do this without a fiscal note or a budget expense. We were able to do that by privatizing a significant portion of the depository. So we don’t have to build one, someone can go and say: we want to run it. We don’t have to run our own electronic software, someone else smarter than the state within the business can and will—and probably already has—developed the software to run [this operation].

  This time I got put on the investment and financial services committee where this bill went through. It made it a lot easier to get it through the system. I was pretty shocked it passed the house with 137 to 1.

  Now our office is getting calls and people are offering their services. I got some very interesting high network individuals who are thinking about putting their gold in Texas now. The response has been really, really good.

  Epoch Times: What do you say about the anti-seizure clause, do you think the federal government will interfere with the gold and silver stored in the depository?

  Mr. Capriglione: I think that what we have done is completely constitutional, we’ve looked at precedents, I have looked at Article 1, Section 10 of the Constitution so I think we are in good standing.

  If the federal government were to try and do something like that, the reality is: There is a motto in the office of almost every state legislator in Texas, and it’s a flag that we have [from the Texas Revolution], it’s below a cannon and what the motto says is, “Come and Take it.”

  

  That would be my response. We are on good solid legal footing to be able to not only have this depository, but to be able to do the transactions that are stated in the bill.

  It was written with the idea that the federal government is a construct of the states. As long as we are following the Constitution as this law does, we won’t have any issues. The federal government can sue all they want, and I hope they don’t, because I think they will lose.

  We created this in the state to provide depositors the protection I just spoke of. That’s a critical part of why this was created. Can a private depository do this? A private depository cannot do what we were able to do because the Constitution is pretty clear in terms of the rights states have.

  Epoch Times: What do you think about using gold and silver as money?

  Mr. Capriglione: It’s something that’s allowed. Back in 2008 when you go and look at the crisis, it may have been rooted in subprime, but at its core what it is there is a lack of business confidence. People get scared and worried and that kind of cycle feeds on itself. [The idea is to] have something that is stable and that you can touch as opposed to being ephemeral like paper or bank money.

  One of the issues in 2008 was that people would start withdrawing their deposits, which to some extent happened. And there just isn’t enough actual backing of that. What we have in this is something that people can rely on. The way we structured the bill is there are no forwards, future derivatives, lending contracts on the bullion that’s placed inside the depository. What you see is what you have. Nothing will be created, nor destroyed.

  That stability helps confidence and it also provides a flight to sound money, this is going to be it.

  Epoch Times: Is Texas going to have its own money?

  Mr. Capriglione: Article 1 Section 10 [of the Constitution] states that this will be prohibited and we would never coin our own money. I think that’s unconstitutional.

  I have bitcoins and I use it as an alternative as well. Every individual should have as many options as possible to be able to transact business. The more options individuals have the more liquidity there is, the more comfort there is, and the more stability. We don’t—and I have no intention to create our own currency, we don’t have to.

  By creating this depository what we are able to do is people are able to make their transactions through our depository, completely in conformance with the Constitution.

  Epoch Times: How would this work?

  Mr. Capriglione: It’s done electronically, we won’t actually move a block [of gold in the depository] because we want to have the fractional equivalents to be able to move it over. But it’s essentially being moved over. Individuals, corporations, and government entities will do their transactions through the use of gold.

  I’ve looked at [having our own currency] and we would be into a lot more trouble. This accomplishes what the point is. In this world, there is so much stuff that happens electronically and you are not really sure what’s in your account. With this you can take possession of what is in your account at any time, within five days it will be subject to delivery.

  Epoch Times: What did the governor think of the bill?

  The governor is great to work with, he only has had 12 bill signings, and the gold was one of them. He came in and I was waiting for him to do the press signing thing and he said, “We are about to make national news, aren’t we?” and I said: “Yes, we are.” I’m thankful that he did it.

  Epoch Times: In fact, it was he who also set forth the motion to repatriate the gold of Texan institutions such as the $1 billion the University of Texas endowment fund owns and currently stores with HSBC in New York.

  Mr. Capriglione: Technically we have all these different agencies, but the governor has a lot of sway in the matter.

  *  *  *

  Times are changing for sure.

  

  

  
  
  

  

• Destroying The Data-Dependent Dot-Plots, Here's Janet Yellen's Real "Surprises" In 2 Simple Charts

  But don’t worry Steve Liesman is certain it’s all good in the ‘dots’…

   

  Surprise!!! (Soft data – surveys and business cycle indicators have collapsed)

  

   

  Surprise-erer!!! (Hard data – all economic data has plunged with a very modest bounce from depression lows)

  

   

  So exactly which data is the Fed dependent on?

   

  Charts: Bloomberg

  Source: Thad Beversdorf via FirstRebuttal.com

  

  
  
  

  

• Greek Citizens Threaten To "Take The Heads" Of "Grave Digging" Creditors

  Why there’s quite a bit of ambiguity surrounding Greece’s protracted (and increasingly absurd) negotiations with creditors, one thing is clear: the Greek populace faces a lose-lose scenario. 

  Striking a deal with creditors means accepting more austerity including pension cuts and a VAT hike. Failure to reach a deal means redenomination and, in all likelihood, an outright economic collapse as Greece is digitally bombed back to a barter system. 

  The combination of austerity and economic depression has hit the country’s pensioners especially hard, and times would get even tougher should PM Alexis Tsipras choose to concede to the troika’s so-called “red lines.” In April, pension payments were delayed by some 8 hours in what Athens claimed was a “technical glitch” and the Greek government’s move to borrow from pension funds in order to pay the bills not only represents yet another in a series of ridiculously circular funding schemes, but also demonstrates the extent to which pensioners are imperiled by Greece’s increasingly desperate situation. 

  Their backs against the wall, some Greeks have had enough and say further cuts to pensions and/or an increase in the VAT would lead some citizens to revolt (and that’s putting it mildly). WSJ has more:

  As Greece lurches toward climb-down or collision with its creditors, an exhausted population is bracing for more economic pain—either way.

   

  Panagiotis Koupalidis, a 68-year-old retiree, is supporting his wife as well as their three grown children, who lost their jobs in Greece’s depression, on a pension of €700 ($790) a month. That is just over half what it was before the austerity measures imposed by creditors as the condition for bailout loans..

   

  “The creditors are acting like grave diggers,” he says. “They want to send us pensioners to an early grave.” Pension cuts and sales-tax increases—which would inflict the most pain on low-income families already living hand to mouth—are the most politically explosive demands from Greece’s creditors, who see them as essential to restoring Greece’s long-term financial stability.

   

  

  (Communist-affiliated union members at the finance ministry last week)

   

  Mr. Tsipras told lawmakers from his left-wing Syriza party that Greece can’t accept the terms on offer, but tried to sound optimistic. “I believe that we are now in the final stretch. The real negotiations are starting now,” he said on Tuesday.

   

  Failure to reach a deal could lead to even-more pain through capital controls, further economic meltdown and a turbulent exit from the euro.

   

  The prospect of sharp hikes in value-added tax, a form of sales tax, are threatening to hurt Greece’s battered business sector further. Lenders want to simplify Greece’s exemption-ridden VAT system and raise some rates to boost revenues by 1% of GDP a year.

   

  The IMF is insisting on the measure through even though it thinks Greece’s economy is already overtaxed, because it sees extra revenues as essential for paying down Greek debt if Europe—which holds the bulk of it—won’t write it down.

   

  “How can a deal that raises VAT even more be a good deal?” said Christos Lousis, a 53-year-old entrepreneur whose window-installation business had 26 employees before the crisis.

   

  Years of recession have forced him to lay them all off, while his sales have fallen by nearly 90%. Now struggling to service his mortgage and the loans on his shrunken business, the father of two also fears that Greece will strip away homeowners’ protection from repossession by banks—which Greece’s creditors have pushed for to protect the banking system.

   

  “They are going to turn us into murderers,” Mr. Lousis says. “If they come to seize my house I’m ready to take the head of whoever is standing there—and I’m not the only one thinking this way.”

  And, in what is perhaps the best explanation of why talks between Athens and Brussels have hit a wall, Kathimerini reports that despite the fact that pensions account for some 18% of spending (the most in the EU), pensioners still find themselves struggling to stay above the poverty line.

  The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent – but still she’s broke.

   

  Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. “I am always in debt,” she said. “I can’t even imagine going to the cinema or the theatre like I did in the past.”

   

  Five years of austerity policies imposed at the creditors’ behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits.

   

  

  (‘high stakes’ pensioner poker)

   

  As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as “absurd” or designed to pummel Greeks’ morale.

   

  To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.

   

  With existing cuts, this figure has since fallen to 16 percent.

   

  The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.

   

  The average Greek pension is 833 euros a month. That’s down from 1,350 euros in 2009, according INE-GSEE, the institute of the country’s largest labour union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.

   

  “They can take our money, but they cannot take our hearts and souls. We live for our dignity,” Razi said.

  Considering the above, we don’t think it’s unreasonable to suggest that social unrest could be just around the corner in Greece, especially if Tsipras manages to somehow convince Syriza hardliners that compromising on pension cuts and the VAT is preferable to a Grexit.

  Then again, saving face with voters means standing firm in the face a redenomination-fueled economic collapse which, as mentioned above, would effectively impoverish the entire country, an eventuality that could very well also lead to social upheaval. 

  The question then, would appear to be this: with Greece caught in an economic Catch 22, is a popular revolt now assured?

  *  *  *

  

  

  
  
  

  

• America, You're Fired!

  Submitted by Simon Black via Sovereign Man blog,

  

   

  Before leaving the house early one morning in 63 BC, an anxious Julius Caesar told his mother, “Today thou shalt see thy son either pontifex maximus… or an exile.”

  Caesar was running for his first BIG elected office- pontifex maximus, the high priest of Rome. And he was a young upstart at the time.

  His opponents were all older, more reputable men. And his chances were low.

  But Caesar had an ace up his toga. Since he couldn’t win on merit, he planned to buy the election, blowing ridiculous sums of money to butter up the voters.

  He spent lavishly on games, gifts, and feasts. And he borrowed nearly all of the funds to do it.

  This was an enormous risk for him; if Caesar lost the election, he wouldn’t have been able to repay his financiers, and likely would have fled the city.

  Caesar had borrowed so much money, in fact, that he single-handedly depleted cash reserves among Rome’s major lenders, causing a significant bump in interest rates.

  Cicero remarks on this in a letter to a friend, writing: “Bribery’s thriving… the interest rate has doubled.”

  Of course, it wasn’t technically ‘bribery’.

  Ancient Rome had a very fine line between bribing voters (known as ‘ambitus’), and simply being a generous guy (‘benignitas’). Caesar insisted he was the latter.

  When the votes were finally counted (or not counted), Caesar was declared the winner, thus continuing the long-standing tradition of buying your way into office and rewarding your benefactors with political favor.

  *  *  *

  He wasn’t the first to do this. And he certainly wouldn’t be the last.

  In the Land of the Free today, the modern scion of the Republic, very little has changed from Ancient Rome.

  One primary difference is that rather than spending campaign money on gifts and games to entertain voters, the election itself has become the entertainment.

  Presidential races today are nothing more than a two-year, multi-billion dollar circus performance.

  Mainstream election coverage already ranks among the most banal reality television, focusing on scandal, conflict, one-liner zingers, and hairstyle choices.

  And now that Donald Trump has entered the race, the 2016 Presidential election will assuredly become the Greatest Show on Earth.

  I can just imagine the media eating up his witty use of the phrase “You’re Fired” in campaign speeches that refer to his opponents.

  But perhaps it’s America that’s fired.

  Sure, you get to engage in the most demeaning exercise of casting a ballot so that one of these people can steal half of your money and use it to make you less free.

  They call that ‘voting,’ and we’re told it’s our civic duty. But it’s just an illusion.

  Just like in Caesar’s time, the election will go to the people who spend the most money.

  But I’m not talking about the candidates. They’re just puppets. Entertainers.

  I’m talking about the people who bankroll them.

  These financiers have learned some valuable lessons since 63 BC: you never back just one horse.

  Instead, they hedge their bets by heavily funding multiple candidates and buying influence over all of them.

  One only need look at Hillary Clinton’s top donors to get a sense of who they are: Citigroup, Goldman Sachs, JP Morgan, etc.

  Anyone who strays from their interests has his/her funding cut and is pronounced ‘unelectable’ and ‘unpresidential’ early in the circus by the media ringmasters.

  This makes voting nothing more than a pointless, demeaning illusion of choice between candidates who have already been preselected by their financial backers.

  It reminds me of what it used to be like wandering down the grocery store’s cereal aisle when I was a kid.

  Sure it seemed like there were a ton of options.

  But when you really looked closely, you could see that all the products were all packed full of the same unhealthy chemical ingredients and GMO grains.

  And only about three companies produced all of them– Kellogg’s, Post, and General Mills. Not much of a choice after all.

  Yet people fall for this scam every single election cycle. They think that their vote matters, and then they go to the polls and ‘choose’ whoever has the best jump shot, or whoever promises them the most free stuff.

  (Remember, it’s not bribery if a candidate is just being generous!)

  Curiously the country always ends up worse than before– less free, and more broke.

  If you really want to vote in a way that counts, you have two far more powerful ballots you can cast.

  They’re called your feet.

  

  

  
  
  

  

• Greek Central Bank: "Greece will leave the European Union"

  

  Everybody loves a good drama or tragedy, but it very rarely evolves into a comedy like the Greek situation seems to be unfolding. On June 18^th, there’s another meeting of the Eurogroup, the last one before Greece has to make a 1.5B EUR payment to the IMF. As we explained in a previous article, a solution would have had to be reached before the start of the Eurogroup meeting, as every deal would have to be ratified by the parliaments of the member states.

  Even though Tsipras ‘had a plan’ last weekend and seemed to be willing to make sacrifices – especially as the most recent polls indicated a small majority of the Greek population was agreeing with the requests made by the IMF, ECB and European Union, but he seems to be pulling the plug once again.

  Despite a move by the ECB to charm the Greeks – the ECB said that if Greece would accept the proposed bailout package it would make more money available and it would start to purchase Greek government bonds – both parties seem to be further away from each other than ever before in this crisis. Tsipras already said he wouldn’t hesitate to reject the final deal offered by the Eurogroup and now even the central bank in Athens has released a remarkable statement.

  

  It says that it’s unthinkable Greece will stay in the European Union if no new agreement can be reached. That’s an obvious conclusion, but it’s surprising to see an official institution of Greece openly talk about a Grexit.

  Athens can now see the bottom of its treasury as for instance the tax collection turns out to be 1.7B EUR lower than anticipated as the economy is turning sour (well, even more sour than before would be a better description here). The problem goes even further than that. Back in the fall of last year, DEI, Greece’s largest provider of electricity, said it had 1.7B EUR of bills that were due.

  
  

  Right now, that amount has increased to 2B EUR, signalling the economy is doing much worse than anticipated. This could already be seen in the increase in the unemployment rate which now stands at in excess of 26% again.

  Even Dijsselbloem, the president of the Eurogroup, has lost hope and thinks an agreement is ‘highly unlikely’, and if indeed no solution will be agreed upon, the European Union and the Eurozone will enter uncharted territory. If Greece goes, who will be next? Why would Spain or Italy accept to be controlled by the European Union if it’s much easier to just abandon the block and re-gain their financial sovereignty which is now in the hands of the European Central Bank.

  >>> Care For Your SAVINGS? Check Out Our Latest Gold Report!

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• Meanwhile, In Greece, The Protests Return

  With capital controls set to be implemented as soon as this weekend, and with EU officials planning to convene an emergency meeting on either Saturday or Sunday, Greeks are understandably restless at the prospect of being ‘Cyprus’d‘ while they wait to hear if they will be subject to further austerity or worse, a redenomination-fueled economic collapse.  

  On the eve of a critical Eurogroup meeting in Luxembourg where FinMin Yanis Varoufakis says no new proposal will be tabled, Greeks are taking to the streets ahead of an anti-austerity protest planned for Wednesday evening. 

  Here are the visuals:

  

  

  

  

  

  

  Anti austerity protestors gathering in Athens. Plenty of music, carnival atmosphere so far pic.twitter.com/15V45Grusl

  — Mehreen (@MehreenKhn) June 17, 2015

  Schaueble’s a popular bloke pic.twitter.com/HE1jJyEH4v

  — Mehreen (@MehreenKhn) June 17, 2015

  Have found the key players. Merkel, Lagarde and Schauble adorn one mans suitcase: “Stop criminals” pic.twitter.com/wOtm3gdrmi

  — Mehreen (@MehreenKhn) June 17, 2015

  

  

  
  
  

  

• Flummoxed Fed Sparks Insta-Buying Binge In Bonds & Bullion, Stocks Hit By Hindenburg

  Economic expectations tumbled but rate hike expectations surged… labor market hopes rose but economic growth is expected to weaken… so buy stocks you retard! Artist's impression of the last 2 days in The Eccles Building…

   

  And furthemore… *YELLEN SAYS FED STRONGLY BELIEVES 2008 AIG ACTIONS WERE LEGAL

   

  The result of all this confusion… A 3rd Hindenburg Omen in the last 5 days…

  

   

  Futures show the full day's vol…

  

   

  Futures eneded up dumped back perfectly to VWAP…

  

   

  Cash Indices on the day

  

   

  Since Friday, Trannies remain ugly…

  

   

  While stocks are back in the green from Friday, VIX remains higher

  

   

  And Credit remains thoroughly unimpressed…

  

   

  Bonds bought with both hands and feet…

  

   

  The Dollar was monkey-hammered…

  

   

  Gold and Silver stacked… (and crude and copper playing catch up)

  

  *  *  *

  Post FOMC performances…

  Stocks…

  

  Bonds…

  

   

  Commodities…

  

   

  Charts: Bloomberg

  Bonus Chart: Still Confused after today's FOMC?

  Someone found THE perfect gift for FOMC days. Especially when Yellen speaks -> http://t.co/h8YoYWyMoO $SPY $TLT pic.twitter.com/VeaTxqDqM6

  — StockTwits (@StockTwits) June 17, 2015

  

  
  
  

  

• Greek Debt Committee Just Declared All Debt To The Troika "Illegal, Illegitimate, And Odious"

  It was in April when we got a stark reminder of a post we first penned in April of 2011, describing Odious Debt, and why we thought sooner or later this legal term would become applicable for Greece, because two months ago Greek Zoi Konstantopoulou, speaker of the Greek parliament and a SYRIZA member, said she had established a new “Truth Committee on Public Debt” whose purposes was to “investigate how much of the debt is “illegal” with a view to writing it off.”

  Moments ago, this committee released its preliminary findings, and here is the conclusion from the full report presented below:

  All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.

  As we predicted over four years ago, Greece has effectively just declared that it will no longer have to default on its IMF (or any other debt – note that the dreaded “Troika” word finally makes an appearance after it was officially banned) simply because that debt was not legal to begin with, i.e. it was “odious.”

  If so, this has just thrown a very unique wrench in the spokes of not only the Greek debt negotiations, but all other peripheral European nations’ Greek negotiations, who will promptly demand that their debt be, likewise, declared odious, and made null and void, thus washing their hands of servicing it again.

  And another question: when Greece says the debt was illegal and it no longer has to make the June 30 payment, what will be the Troika’s response: confiscate Greek assets a la Argentina, declare involutnary default, sue it in the Hague?

  Good luck.

  From the full just released report by the Hellenic Parliament commission:

  Hellenic Parliament’s Debt Truth Committee Preliminary Findings – Executive Summary of the report

  In June 2015 Greece stands at a crossroad of choosing between furthering the failed macroeconomic adjustment programmes imposed by the creditors or making a real change to break the chains of debt. Five years since the economic adjustment programmes began, the country remains deeply cemented in an economic, social, democratic and ecological crisis. The black box of debt has remained closed, and until now no authority, Greek or international, has sought to bring to light the truth about how and why Greece was subjected to the Troika regime. The debt, in whose name nothing has been spared, remains the rule through which neoliberal adjustment is imposed, and the deepest and longest recession experienced in Europe during peacetime.

  There is an immediate need and social responsibility to address a range of legal, social and economic issues that demand proper consideration. In response, the Hellenic Parliament established the Truth Committee on Public Debt in April 2015, mandating the investigation into the creation and growth of public debt, the way and reasons for which debt was contracted, and the impact that the conditionalities attached to the loans have had on the economy and the population. The Truth Committee has a mandate to raise awareness of issues pertaining to the Greek debt, both domestically and internationally, and to formulate arguments and options concerning the cancellation of the debt.

  The research of the Committee presented in this preliminary report sheds light on the fact that the entire adjustment programme, to which Greece has been subjugated, was and remains a politically orientated programme. The technical exercise surrounding macroeconomic variables and debt projections, figures directly relating to people’s lives and livelihoods, has enabled discussions around the debt to remain at a technical level mainly revolving around the argument that the policies imposed on Greece will improve its capacity to pay the debt back. The facts presented in this report challenge this argument.

  All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.

  It has also come to the understanding of the Committee that the unsustainability of the Greek public debt was evident from the outset to the international creditors, the Greek authorities, and the corporate media. Yet, the Greek authorities, together with some other governments in the EU, conspired against the restructuring of public debt in 2010 in order to protect financial institutions. The corporate media hid the truth from the public by depicting a situation in which the bailout was argued to benefit Greece, whilst spinning a narrative intended to portray the population as deservers of their own wrongdoings.

  Bailout funds provided in both programmes of 2010 and 2012 have been externally managed through complicated schemes, preventing any fiscal autonomy. The use of the bailout money is strictly dictated by the creditors, and so, it is revealing that less than 10% of these funds have been destined to the government’s current expenditure.

  This preliminary report presents a primary mapping out of the key problems and issues associated with the public debt, and notes key legal violations associated with the contracting of the debt; it also traces out the legal foundations, on which unilateral suspension of the debt payments can be based. The findings are presented in nine chapters structured as follows:

  Chapter 1, Debt before the Troika, analyses the growth of the Greek public debt since the 1980s. It concludes that the increase in debt was not due to excessive public spending, which in fact remained lower than the public spending of other Eurozone countries, but rather due to the payment of extremely high rates of interest to creditors, excessive and unjustified military spending, loss of tax revenues due to illicit capital outflows, state recapitalization of private banks, and the international imbalances created via the flaws in the design of the Monetary Union itself.

  Adopting the euro led to a drastic increase of private debt in Greece to which major European private banks as well as the Greek banks were exposed. A growing banking crisis contributed to the Greek sovereign debt crisis. George Papandreou’s government helped to present the elements of a banking crisis as a sovereign debt crisis in 2009 by emphasizing and boosting the public deficit and debt. 

  Chapter 2, Evolution of Greek public debt during 2010-2015, concludes that the first loan agreement of 2010, aimed primarily to rescue the Greek and other European private banks, and to allow the banks to reduce their exposure to Greek government bonds.

  Chapter 3, Greek public debt by creditor in 2015, presents the contentious nature of Greece’s current debt, delineating the loans’ key characteristics, which are further analysed in Chapter 8.

  Chapter 4, Debt System Mechanism in Greece reveals the mechanisms devised by the agreements that were implemented since May 2010. They created a substantial amount of new debt to bilateral creditors and the European Financial Stability Fund (EFSF), whilst generating abusive costs thus deepening the crisis further. The mechanisms disclose how the majority of borrowed funds were transferred directly to financial institutions. Rather than benefitting Greece, they have accelerated the privatization process, through the use of financial instruments.

  Chapter 5, Conditionalities against sustainability, presents how the creditors imposed intrusive conditionalities attached to the loan agreements, which led directly to the economic unviability and unsustainability of debt. These conditionalities, on which the creditors still insist, have not only contributed to lower GDP as well as higher public borrowing, hence a higher public debt/GDP making Greece’s debt more unsustainable, but also engineered dramatic changes in the society, and caused a humanitarian crisis. The Greek public debt can be considered as totally unsustainable at present.

  Chapter 6, Impact of the “bailout programmes” on human rights, concludes that the measures implemented under the “bailout programmes” have directly affected living conditions of the people and violated human rights, which Greece and its partners are obliged to respect, protect and promote under domestic, regional and international law. The drastic adjustments, imposed on the Greek economy and society as a whole, have brought about a rapid deterioration of living standards, and remain incompatible with social justice, social cohesion, democracy and human rights.

  Chapter 7, Legal issues surrounding the MOU and Loan Agreements, argues there has been a breach of human rights obligations on the part of Greece itself and the lenders, that is the Euro Area (Lender) Member States, the European Commission, the European Central Bank, and theInternational Monetary Fund, who imposed these measures on Greece. All these actors failed to assess the human rights violations as an outcome of the policies they obliged Greece to pursue, and also directly violated the Greek constitution by effectively stripping Greece of most of its sovereign rights. The agreements contain abusive clauses, effectively coercing Greece to surrender significant aspects of its sovereignty. This is imprinted in the choice of the English law as governing law for those agreements, which facilitated the circumvention of the Greek Constitution and international human rights obligations. Conflicts with human rights and customary obligations, several indications of contracting parties acting in bad faith, which together with the unconscionable character of the agreements, render these agreements invalid.

  Chapter 8, Assessment of the Debts as regards illegtimacy, odiousness, illegality, and unsustainability, provides an assessment of the Greek public debt according to the definitions regarding illegitimate, odious, illegal, and unsustainable debt adopted by the Committee.

  Chapter 8 concludes that the Greek public debt as of June 2015 is unsustainable, since Greece is currently unable to service its debt without seriously impairing its capacity to fulfill its basic human rights obligations. Furthermore, for each creditor, the report provides evidence of indicative cases of illegal, illegitimate and odious debts.

  Debt to the IMF should be considered illegal since its concession breached the IMF’s own statutes, and its conditions breached the Greek Constitution, international customary law, and treaties to which Greece is a party. It is also illegitimate, since conditions included policy prescriptions that infringed human rights obligations. Finally, it is odious since the IMF knew that the imposed measures were undemocratic, ineffective, and would lead to serious violations of socio-economic rights.

  Debts to the ECB should be considered illegal since the ECB over-stepped its mandate by imposing the application of macroeconomic adjustment programs (e.g. labour market deregulation) via its participation in the Troïka. Debts to the ECB are also illegitimate and odious, since the principal raison d’etre of the Securities Market Programme (SMP) was to serve the interests of the financial institutions, allowing the major European and Greek private banks to dispose of their Greek bonds.

  The EFSF engages in cash-less loans which should be considered illegal because Article 122(2) of the Treaty on the Functioning of the European Union (TFEU) was violated, and further they breach several socio-economic rights and civil liberties. Moreover, the EFSF Framework Agreement 2010 and the Master Financial Assistance Agreement of 2012 contain several abusive clauses revealing clear misconduct on the part of the lender. The EFSF also acts against democratic principles, rendering these particular debts illegitimate and odious.

  The bilateral loans should be considered illegal since they violate the procedure provided by the Greek constitution. The loans involved clear misconduct by the lenders, and had conditions that contravened law or public policy. Both EU law and international law were breached in order to sideline human rights in the design of the macroeconomic programmes. The bilateral loans are furthermore illegitimate, since they were not used for the benefit of the population, but merely enabled the private creditors of Greece to be bailed out. Finally, the bilateral loans are odious since the lender states and the European Commission knew of potential violations, but in 2010 and 2012 avoided to assess the human rights impacts of the macroeconomic adjustment and fiscal consolidation that were the conditions for the loans.

  The debt to private creditors should be considered illegal because private banks conducted themselves irresponsibly before the Troika came into being, failing to observe due diligence, while some private creditors such as hedge funds also acted in bad faith. Parts of the debts to private banks and hedge funds are illegitimate for the same reasons that they are illegal; furthermore, Greek banks were illegitimately recapitalized by tax-payers. Debts to private banks and hedge funds are odious, since major private creditors were aware that these debts were not incurred in the best interests of the population but rather for their own benefit.

  The report comes to a close with some practical considerations. Chapter 9, Legal foundations for repudiation and suspension of the Greek sovereign debt, presents the options concerning the cancellation of debt, and especially the conditions under which a sovereign state can exercise the right to unilateral act of repudiation or suspension of the payment of debt under international law.

  Several legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors , which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights. As far as unsustainable debt is concerned, every state is legally entitled to invoke necessity in exceptional situations in order to safeguard those essential interests threatened by a grave and imminent peril. In such a situation, the State may be dispensed from the fulfilment of those international obligations that augment the peril, as is the case with outstanding loan contracts. Finally, states have the right to declare themselves unilaterally insolvent where the servicing of their debt is unsustainable, in which case they commit no wrongful act and hence bear no liability.

  People’s dignity is worth more than illegal, illegitimate, odious and unsustainable debt

  Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.
  Making this preliminary report available to the Greek authorities and the Greek people, the Committee considers to have fulfilled the first part of its mission as defined in the decision of the President of Parliament of 4 April 2015. The Committee hopes that the report will be a useful tool for those who want to exit the destructive logic of austerity and stand up for what is endangered today: human rights, democracy, peoples’ dignity, and the future of generations to come.

  In response to those who impose unjust measures, the Greek people might invoke what Thucydides mentioned about the constitution of the Athenian people: “As for the name, it is called a democracy, for the administration is run with a view to the interests of the many, not of the few” (Pericles’ Funeral Oration, in the speech from Thucydides’ History of the Peloponnesian War).
   

  

  

  
  
  

  

• PetroYuan Proliferation: Russia, China To Settle "Holy Grail" Pipeline Sales In Renminbi

  Last week, in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi,” we discussed the intersection of two critically important themes which have far-reaching geopolitical and economic consequences. The first is the death of petrodollar mercantilism, the USD recycling system that has helped to buttress decades of dollar dominance and the second is the idea of yuan hegemony, a new, post-Bretton Woods world economic order characterized by the ascendancy of China-led supranational institutions. 

  These themes came together recently when it became apparent that Gazprom has begun settling all crude sales to China in yuan. Here’s a summary of the prevailing dynamics: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman’s projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

  Now, it appears Russia and China will de-dollarize natural gas settlements as well.

  First, a bit of history is in order.

  Last month, Chinese President Xi Jinping visited Moscow, where Gazprom Chief Executive Alexei Miller and China National Petroleum Corp Vice President Wang Dongjin signed a gas export deal which paves the way for 30 bcm/y to China via a new “Western Route.”

  

  (the Altai line)

  As a reminder, the two countries ratified a “Holy Grail” gas deal last May for the delivery of up to 38 bcm/y over 30 years via an “Eastern Route.” Also known as the “Power of Siberia” pipeline, the Eastern route was billed as the largest fuel network in the world with a total contract value of around $400 billion. 

  

  (mapping the Western and Eastern routes)

  

  (Putin autographs a pipe at the groundbreaking ceremony for the Power of Siberia line)

  Once the two pipelines are operational, China will become the largest consumer of Russian natural gas.

  Last year, when the countries were still hammering out the details of the Eastern line, we said the following about the implications of Western sanctions on Moscow: 

  If it was the intent of the West to bring Russia and China together – one a natural resource (if “somewhat” corrupt) superpower and the other a fixed capital / labor output (if “somewhat” capital misallocating and credit bubbleicious) powerhouse – in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely “going according to plan.”

  If the recent move by Gazprom to settle crude exports to China in yuan wasn’t enough to prove how prescient the above cited passage truly was, then consider the following quote from Gazprom yesterday:

  “As a sales contract is not signed, then, of course, the currency of payment has not yet been determined. However, the Chinese side and the Russian side are discussing today and are in intricate negotiations on the possibility of paying in yuan and rubles.”

  In other words, once both routes are up and running, some 68 bcm/y in natural gas exports from Russia to China will be settled in yuan amounting to hundreds of billions in renminbi settled trade over the life of the deals.

  Now recall what we said last year about the “new normal” flow of funds…

  1. Gazprom delivers gas to China.
  2. China pays Gazprom in Yuan (convertible into Rubles)
  3. Gazprom funds itself increasingly in Yuan.
  4. Russia buys Chinese goods and services in Yuan (convertible into Rubles)

  …and connect the dots to what Barclays recently said about the long-term benfits to Beijing of funding infrastructure projects (like the Moscow-Kazan High Speed Railway, in which China will invest nearly $6 billion) via China’s new Silk Road Fund…

  China could benefit in the short, medium and long term from achieving various levels of the targets outlined in YDYL. Medium-term: Raise demand for Chinese capital goods and Chinese products in general, effectively helping China transition to a consumption-driven economy. 

   

  
  

  Putting this all together, China, via both the settlement of energy exports from Russia in renminbi, and yuan-donminated loans from The Silk Road fund, can effectively create its own, closed-loop yuan recycling system with Russia which should, over time, serve to facilitate China’s transition away from a smokestack economy, while helping to relieve industrial overcapacity (note that earlier this month, China Railway Group won a $390 million contract for work on the Moscow-Kazan rail). 

  This is not conjecture. Rather, all of the above is part of a carefully crafted plan to embed the yuan in global trade and investment just as dollar dominance dies a slow death in the face of declining US hegemony and the resurgence of a multipolar economic and political order. 

  

  

  
  
  

  

• Did Yellen Just Throw Greenspan/Bernanke Under The Bubble-Blowing Bus?

  Reflecting on the rate hikes undertaken in the 2004-2006 period (ensuring the world not think that The Fed would repeat that) Janet Yellen appears to have thrown Greenspan and Bernanke under the bubble-blowing bus with an off the cuff comment that “with hindsight, The Fed should have hiked rates faster,” during that period…

   

  Which is odd since we assumed it was The Fed’s job to inflate financial assets to prove the real economy was doing great?

  

  

  
  
  

  

• How to Enhance Your Circle of Competence

  By Chris at www.CapitalistExploits.at

  A conversation with an investment promoter, let’s call him Mr Y, from many years ago came to my mind today when reading the news. It went something like this:

  Mr Y: “You HAVE to take a closer look at this.”

   

  Me: “No, thanks. Not for me.”

   

  Mr Y: “No, really, you have no idea what you’re missing.”

   

  Me: That’s probably the case.

   

  Mr Y: “This is a huge dollar payoff right here. I know the guys behind this and they’ve got incredible resumes. The thing is literally “in the bag”. You do realize that I’m offering this to you especially so as to build a long term relationship with you? I could have it oversubscribed very quickly but I’m offering you an opportunity to get an early seat at the table.

   

  Me: It sounds very exciting. You should put some money in.

   

  Mr Y: “F*@k man, you have to be THE most stubborn person in the world! I can’t believe you won’t even take a look at this opportunity. You’ll immediately see the potential here. I was introduced to you by X and led to believe you’re a smart investor with a keen eye for good deals but you’re being a complete ass about this.”

   

  Me: I know. Sometimes I just don’t get it. I blame my upbringing…

  I was being pitched a movie deal. I don’t do movie deals. Period. I don’t even watch movies unless on a plane. I know of exactly zero people who have ever made money on movie deals. What edge do I have in that market? Nada!

  This particular gent’s critical error was that he’d not done his homework on me. Anyone who knows me knows I have no interest in movie deals and I am definitely not THE most stubborn person in the world.

  There are at least 3 others more stubborn in the world. I did some research and there is a guy in Dublin who is at risk of turning in to a mule because he’s so stubborn. Then there is an old lady in Shropshire who, even under hypnosis, is unmovable in her stubbornness. And then there is a 5-year old kid in Beverly Hills who is easily more stubborn than I am.

  In truth, I should never have spent more than a few seconds of time on that pitch. I should have insisted on him sending me a dropsheet before taking a call. This was a self inflicted wound. I’ve learnt a few things since then.

  I was reminded of that conversation this morning when I read that rapper Snoop Dogg is looking to raise $25M for his cannabis focused VC fund aptly called Casa Verde Capital. For non-Spanish speakers amongst us, “casa verde” in Spanish means “green house”.

  Entertainer and investor Snoop Dogg is looking to raise $25 million for his new venture fund, Casa Verde Capital, shows an SEC filing first flagged by Fortune’s Dan Primack.

   

  Among the outfit’s most recent investments: Eaze, a medical marijuana delivery service in California that raised $10 million in April led by DCM Ventures.

  This brings up a core tenet of successful investing: to operate within one’s core set of competencies. Snoop Dogg probably has a better chance of making money in the “pot” space than I do in the movie space.

  By focusing on marijuana, Snoop Dogg is at least operating within his “circle of competence”.

  

  Of course, investing in a dope operation, and smoking the product are far from the same thing so we’ll have to see how this all pans out.

  The legendary Berkshire Hathaway’s Warren Buffett and Charlie Munger are vocal ambassadors of “the circle of competence”.

  In his 1996 Shareholder Letter, Warren Buffett said:

  What an investor needs is the ability to correctly evaluate selected businesses.

   

  Note that word “selected”. You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence.

   

  The size of that circle is not very important; knowing its boundaries, however, is vital.

  One method of tackling the vast and somewhat difficult world we live in is by partnering with competent partners, colleagues and associates.

  I know of few successful businesses, which are one-man bands. It’s why we tend to dislike single founder businesses.

  We’re well aware of our chances being slimmer by going into it alone. We seek out people in various sectors, or countries, who are operating within their own circle of competence. This provides leverage for us since it’s not possible to be the fountain of knowledge for all things everywhere all the time.

  

  Photo by Farnam Street

  By sticking to your area of expertise, you have an information edge over other investors. And by seeking out those who are competent in their own fields of expertise, it’s possible to grow one’s knowledge base as well as leverage others skills and talents.

  When I think of all the most successful people I know, from hedge fund managers to company executives, they all share the common trait of sharing knowledge and seeking out others more knowledgeable than themselves in order to share and gain knowledge.

  The core premise of capitalism, true capitalism, not this half-breed mongrel of a creature that people mistakenly term capitalism, is based on sharing of knowledge where participants can interact value for value. Knowledge transfer allows for one’s circle of competence to grow and become more robust.

  In sharing of knowledge, we are bound to make fewer mistakes and our chances of investment success – or any other success, for that matter – are significantly higher.

  It is probably the number one reason I write and I can’t thank you enough for all the feedback provided. If I don’t reply to you it’s because I’ve not cloned myself yet, but I do read all emails.

  – Chris

   

  “I’m no genius. I’m smart in spots – but I stay around those spots.” – Tom Watson Sr., Founder of IBM

  

  
  
  

  

• Did Janet Yellen Just Ban A Reporter From The Fed Press Conference For Asking "Difficult" Questions

  Ripped from the pages of “House Of Cards,” it appears that the asking of difficult questions of she-that-shall-be-obeyed is entirely unacceptable to Janet Yellen and her Fed.

  In March – the last Q&A session post-FOMC statement, Dow Jones reporter Pedro da Costa dared to ask about The Fed’s leaking of crucial details about FOMC decisions to a newsletter and its subsequent refusal to comply with Congressional demands for those details.

  The difficult question starts at around 45:30 – look at Yellen’s face when asked the question for a clue as to her next move.

   

  Yellen displeased:

  

   

  Full Transcript

  PEDRO DA COSTA. Pedro da Costa with Dow Jones Newswires. I guess I have two follow-ups, one with regard to Craig’s question. So, before the IG’s investigation, according to Republican Congressman Hensarling’s letter to your office, he says that, “It is my understanding that although the Federal Reserve’s General Counsel was initially involved in this investigation, the inquiry was dropped at the request of several members of the FOMC.” Now, that predates the IG. I want to know if you could tell us who are these members of the FOMC who struck down this investigation? And doesn’t not revealing these facts kind of go directly against the sort of transparency and accountability that you’re trying to bring to the central bank?

   

  CHAIR YELLEN. That is an allegation that I don’t believe has any basis in fact. I’m not going to go into the details, but I don’t know where that piece of information could possibly have come from.

   

  PEDRO DA COSTA. If I could follow up on his question. I think when you get asked about financial crimes and the public hears you talk about compliance, you get a sense that there’s not enough enforcement involved in these actions, and that it’s merely a case of kind of trying to achieve settlements after the fact. Is there a sense in the regulatory community that financial crimes need to be punished sort of more forcefully in order for them to be—for there to be an actual deterrent against unethical behavior?

   

  CHAIR YELLEN. So, the—you’re talking about within banking organizations? So, the focus of regulators—the banking regulators—is safety and soundness, and what we want to see is changes made as rapidly as possible that will eliminate practices that are unsafe and unsound.

   

  We can’t—only the Justice Department can bring criminal action, and they have taken up cases where they think that that’s appropriate. In some situations, when we are able to identify individuals who were responsible for misdeeds, we can put in place prohibitions that bar them from participating in banking, and we have done so and will continue to do so.

  True… and the Justice Department can also bring a criminal probe for leaks at the Fed itself as was disclosed shortly after the above exchange, a probe which may very well implicate anyone, including Janet herself hence her eagerness to avoid any “touchy” questions today.

  Social media had already asked whether Mr. da Costa would be allowed back:

  The big FOMC Question today: will Janet take questions from @pdacosta after he was a big meanie recently?

  — Volatility B$ (@nelson3748) June 17, 2015

  And his response:

  @nelson3748 (Too) easy answer: @pdacosta won’t even be there.

  — Pedro da Costa (@pdacosta) June 17, 2015

  As a result of all this, Mr. da Costa – with no apparent reason given – was not ‘invited’ to today’s FOMC Press Conference (but had a request of his fellow press corps):

  Fellow Fed reporters: Not attending today’s press conference but please don’t forget to press Yellen on handling of possibly-criminal leak.

  — Pedro da Costa (@pdacosta) June 17, 2015

  But why would they if merely asking the almighty Yellen what the state of the Fed’s now officially criminal investigation, is enough to get them barred?

  As a reminder, two weeks ago we reported the Committee on Financial Services subpoenaed the Fed for records related to the central bank’s review. The Fed declined to comply in full citing the ongoing criminal investigation. More specifically, Yellen says the OIG has advised the Fed that providing access to the information requested by congress would risk “jeopardizing the investigation.” As in “Yellen refused to comply.”  

  The punchline:

  the Fed says it cannot comply with a Congressional subpoena regarding an alleged leak due to the fact that producing the requested documents could ultimately result in… a leak.
  

  Of course this could all be coincidence, but do we know if any other reporters who have been dis-invited? Is there a room constraint that means a Dow Jones reporter is squeezed out by BuzzFeed or TMZ?

  And now back to praising the freedom of speech and press in the land with the great and almighty First Amendment… which is granted to everyone as long as they remember to never actually use it.

  That, and of course hearing the “questions” of that other WSJ/Dow Jones staffer, Jon Hilsenrath, who will surely be present and maybe ask Yellen for a follow up to his legendary op-ed asking why US consumers are so “stingy” despite 7 years of Fed central planning and “wealth effect.”

  

  
  
  

  

• FOMC Press Conference: Yellen Explains Why Everything Will Be Awesome In The Future – Live Feed

  Upgrades to labor market (despite downgrades to economic growth), upgrades to rate hike expectations (despite IMF warnings and downgrades to economic growth) and upgrades to being beyond the law (despite Congressional lambasting)… But do not be confused, Yellen will explain how it all makes sense (and if she can’t will mumble and curse and move on)…

  • *YELLEN: WAITING TOO LONG TO RAISE RISKS OVERSHOOTING INFLATION (in financial assets?)
  • *YELLEN SAYS POLICY MOVES TO DEPEND ON WIDE RANGE OF DATA (any excuse)
  • *YELLEN: WHAT SHOULD MATTER TO MARKETS IS THE ENTIRE POLICY PATH (Do Not Sell!)
  • *YELLEN SAYS THERE HAS BEEN SOME PROGRESS ON INFLATION (but do not sell)
  • *YELLEN SAYS DOLLAR APPEARS TO HAVE LARGELY STABILIZED (with extreme volatility)
  • *YELLEN SAYS FED DOESN’T EXPECT TO FOLLOW MECHANICAL RATE MOVES (because evereyone knows this will go pear-shaped)
  • *YELLEN SAYS IT MIGHT HAVE BEEN BETTER TO TIGHTEN FASTER 2004-06 (ya think!!!)
  • *YELLEN SAYS FED TRIES TO BE TRANSPARENT, ACCOUNTABLE (apart from when Congress asks)

  We are waiting for The Congressional Leak Probe question…

  

   

  Live Feed begins at 1430ET (with Q&A shortly after)…

  Broadcast live streaming video on Ustream

  Next Question: How awesome are you? A little bit, medium amount, or freakin’ epically awesome? pic.twitter.com/j7Nhte4pO8

  — Rudolf E. Havenstein (@RudyHavenstein) June 17, 2015

  

  

  
  
  

  

• Broad Decline In "Dot Plots" Suggest Fed Rate Hike Confidence Shaky

  While virtually every single word change from the June statement compared to the April document shows a Fed that is increasingly more confident in the economy, the reason why the dollar has encountered a sudden air pocket following the Fed release is not due to the statement but what is in the Fed’s projection materials, where the Fed unambiguously cut its 2015 GDP central tendency forecast from 2.3%-2.7% in March to just 1.8%-2.0%, coupled with a pick up in the unemployment rate from 5.0%-5.2% to 5.2%-5.3%, suggesting quite implicitly that while on one hand the Fed is more optimistic, when it comes to quantitative metrics it just got that much more bearish.

  

   

  But nowhere is the Fed’s ambivalence more evident than in the latest dot, or dart as we call them, plots of where every single FOMC member expects the Fed Funds rate at the end of 2015 and 2016. The wholesale drop in FF expectations, from 1.875% in March to 1.625% currently for 2016, is quite clear and suggests that while 15 people said it was time to hike rates in 2015 (vs 2 in 2016), their conviction is even lower than 3 months ago.

  2015 dot plot:

  

   

  And 2016:

  

   

  And for those asking, here is the 2015 dot plot from June of 2014 compared to the latest one.

  

  

  
  
  

  

• FOMC Reaction: Bonds & Bullion Bid… Dollar Dumped

  Update: Stocks reverting…

  

   

  The kneejerk reactions so far are Dollar down hard and bullion, bonds, and stocks bid… let’s see if Yellen can keep that going…

  

  

  

  
  
  

  

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• Goldman Asks, Is The Bundesbank "Ominously" Trying To Sabotage The ECB's QE?

  When the sell-off in German Bunds first got going, it looked like a temporary squeeze, with the largest position in the market – the ECB QE trade – coming under pressure after much weaker-than-expected Q1 GDP on 4/29.

  

   

  However, as (Draghi mouthpiece) Goldman notes, there is something more than supply dynamics or ECB communications going on, as the Bundesbank (Buba) buying has fallen short of its purchases (in average maturity terms) from the very beginning. Goldman warns, ominously, this kind of signal – from the key hawk in the Eurosystem – has the potential to undercut the credibility of ECB QE, since it weakens the portfolio balance channel.

  *  *  *

  Goldman previously argued that the weak activity reading rattled a market that had been operating on a core thesis of strong US growth. The resulting uncertainty caused Bund yields and EUR/$ to rise, with the DAX also selling off on the day. Since then, something more ominous has come into play…

  One clue has been the communications ping pong from the ECB. On May 18, Executive Board member Coeure said “the rapidity of the reversal in Bund yields is worrisome,” citing it as another example of “extreme volatility in global capital markets.”

   

  ECB President Draghi sent the opposite message on Jun. 3, saying “one lesson is that we should get used to periods of higher volatility,” followed on Jun. 10 by Executive Board member Coeure stating that “the ECB does not intend to counter [Bund] volatility in the short term."

   

  Goldman took a dim view of all this in our last FX Views, even if a charitable interpretation is that President Draghi basically sent a dovish message on Jun.10 and simply didn’t want to signal "activism" in the face of short-term volatility.

   

  After all, one goal of ECB QE ought to be to make Europe’s safe haven asset (Bunds) expensive, so that investors get pushed into risky assets like equities and the Euro periphery.

   

  If there is ambivalence, it sends a harmful message to markets that, after all, are still new to ECB QE. This might be one reason why EUR/$ has held up, even as US data (payrolls, retail sales) have picked up.

   

  

   

  There is something more than supply dynamics or ECB communications going on, something that has the potential to undercut the credibility of ECB QE.

   

  As Goldman explains below, the Bundesbank has reduced the weighted-average maturity of its Bund purchases from 8.1 years in March to 5.7 in May, in contrast to the Eurosystem as a whole where this number has stayed around 8.0 years.

  It's not like the Bundesbank is not spending its money (as we noted previously, in fact May – just as ECB telegraphed to its most valuable clients – saw purchases soar)..

  

   

  but it is what it is spending it on, not how much that matters…

  The ECB publishes monthly data for the outstanding stock of bonds bought under its QE program, together with a weighted average for the corresponding number of years to maturity. We use these data to calculate the average maturity of monthly buying by the Eurosystem (Exhibit 3).

   

  

   

  This shows that the average maturity of ECB bond buying is around 8.0 years, in line with what Executive Board member Coeure said in his May 18 speech. However, while Italy and Spain see purchases that have an average maturity above that of the outstanding debt stock, Bundesbank buying has fallen short from the very beginning.

   

  There are obviously many explanations for what is going on (see below).

   

  But this kind of signal – from the key hawk in the Eurosystem – has the potential to undercut the credibility of ECB QE, since it weakens the portfolio balance channel.

   

  After all, it was supposed to be low yields in core Europe into risk assets. If those yields now rise and become more volatile, such portfolio effects will be lessened.

  *  *  *

  What Goldman is implicitly suggesting is:

  Buba is intentionally focusing on shorter-dated maturities, unwilling to throw away its cash on the high prices that bond holders will demand for high cash coupon debt (when in fact the central bank should be price agnostic if it had truly "got ECB religion")

  So is Buba really sabotaging Draghi?

  Or is this a warning to Weidmann to stop being stingy with the bond buying?

  Remember also, Goldman needs low-ish bond yields and low-ish volatility for its QE-driven weak EUR trade to pay off…

  It remains our view that fundamentals will ultimately take EUR/$ lower in line with our forecast. That said, we see recent Bund volatility and what it means for the credibility of ECB QE as the first material challenge to our view.

  So there's ulterior motives for this 'warning' whereever we look.

  *  *  *

  Perhaps it is also the timing of such a note that implies a louder warning… with Grexit around the corner, those "expensive" long-dated Bunds are going to be even more pricey when Buba needs to step in and buy to prove contagion is not there.

  

  

  
  
  

  

• How To Find What Country A Euro Note Is From

  With Greece once again said to be on the verge of exiting the Eurozone, where it has been on and off for the past five years, a move which would demonstrate that an “irreversible” currency is very much reversible and just what happens when Mario Draghi runs out of other people’s “political capital”, here a reminder that despite Europe’s common currency, some European bank notes are more equal than others, courtesy of a post that was written over three years ago. Because sadly, despite all-time record market highs, nothing has changed in over 1000 days of so-called progress.

  From This is Money:

  How to find out what country a euro note is from
  

  As forecasts hit fever pitch of Greece being bundled out of the euro, there was bound to be plenty of wild speculation – and a snippet doing the rounds is that holidaymakers should be worried about holding Greek euro notes.

  Travel firm DialaFlight even posted a blog, swiftly removed, making some fairly bold claims about whether Greek euro notes would prove worthless if the troubled nation fell out of the currency.

  It asked: ‘Will other members of the Eurozone accept them? If not anyone holding Greek Euros may find themselves out of pocket.’

  ‘Greek euro notes,’ I hear you cry. ‘But surely the whole point – of this euro experiment was that everybody has exactly the same money?’

  And that is true. The euro is a common currency, entirely equal across all nations, and while it is printed in individual member countries, wherever your note comes from the design is exactly the same.

  But while the Eurocrats would have you believe that each of those notes is absolutely equal, there is one tiny crucial difference that lets you see where they come from. That involves a little-known trick I learnt about a few years ago.

  

  Every euro note has a serial number on it. And at the start of that serial number is a prefix (usually a letter) – and this is what tells you where it is from.

  Where do my euros come from? The code breaker

  Star pupil German notes begin with an X, while bottom-of-the class Greek notes start with a Y. (It it ironic these letters correspond with the two determining chromosomes?)

  Spain is V, France U, Ireland T, Portugal M and Italy S. Belgium is Z, Cyprus G, Luxembourg 1, Malta F, Netherlands P, Austria N, Slovenia H, Slovakia E and Finland L.

  But there is a crucial point for anyone considering being swept up by talk of Greek euro notes proving to be duds, if it falls out of the common currency.

  While we don’t know what will happen if a country drops out, as cunningly the euro experiment architects didn’t build in an exit strategy, we can be fairly certain it won’t involve a small army of Eurocrats marching around, checking the letters on your banknotes and taking them off you.

  Beyond the fact that this is completely impractical, that’s because notes from different countries end up all over the place.

  Some quick pocket surveys conducted by This is Money readers when I first wrote about how to work out where your euro note came from revealed the extent.

  One reader on the furthest westerly reaches of the Eurozone in Ireland had the following: 5 German, and one each of Greek, Belgian and Irish.

  Another, in Greece, had four notes out of a Greek cash machine that read like the start of a bad joke: Two Germans, a Belgian and an Italian.

  Meanwhile, we also conducted another test today in the This is Money office. Richard Browning has luckily just bought €130 from our very own Arthur Daley, Ed Monk, on his return from an Italian holiday.

  He has five Dutch notes, a Slovakian, a French note and a German.

  Clearly, there are going to be a lot of Europeans and businesses out there, with assets that have no link with Greece, but a stash of notes with a Y on them.

  If Greece does head back to the drachma, one way to make a bad situation worse would be to start randomly cancelling those notes – that makes it highly unlikely to happen.

  In reality, no one knows what will take place. Mainly because the Eurozone authorities seem to have decided that even admitting the possibility that a ten-year-old currency experiment could fail in some way, would be tantamount to triggering its decline.

  That’s unfortunate for Greece, but fortunate for those who love a bit of spurious speculation.

  The best guess is that euro notes would remain as they are, and in order to iron out any problems with money supply, some would be gradually withdrawn. That would most likely mean any Greek holding euro in cash and able to get them out of the country would still be able to spend them.

  Where they would be hit is in their assets. Savings, investments, property values and all the important things that make up their wealth, would somehow be transferred back into drachma (most probably) and greatly devalued compared to their previous euro status.

  So, those checking their pockets and finding a Greek Y in there should have no need to panic, unless they’re playing euro Top Trumps, of course.
  

  

  

  
  
  

  

• What Happened The Last Time The Fed's Balance Sheet Hit 25% Of GDP

  Ever since the Fed launched its unprecedented, unsterilized debt monetization rampage known as quantitative easing, coupled with seven years zero interest rates, there has been much confusion about how the Fed will achieve two gargantuan tasks: i) hike rates, and ii) reduce the amount of holdings on its balance sheet. The quandary, according to conventional wisdom, is magnified because something like this “has never been done before.”

  Conventional wisdom is wrong: something like this has been done before; the reason why nobody wants to talk about it is because it ended in epic disaster.

  The chart below shows the Fed’s balance sheet expressed as a % of GDP: it has grown from its long-term “normal” 5% to just over 25%.

  

   

  Never before has this happened, right? Wrong.

  As the following chart below shows, the Fed’s response to the first (not to be confused with the current) great depression was, drumroll, identical.

  

  Whereas the Fed’s balance sheet expressed as a % of GDP was humming along nicely largely at just over 5% in the period ever since the Fed was created in 1913, things got promptly out of control when the Great Depression hit in 1929. At that point the Fed’s balance sheet grew from 5% to just shy of 25% at its peak. Maybe there is a reason why some call the current period the second great depression…

  More to the point, last night we showed that the first Great Depression period is comparable to the current time period not only in being a mirror image of the Fed’s balance sheet, but also of interest rates, which by necessity had to be virtually zero in a time when the Fed was monetizing assets to stimulate aggregate demand. And so they were… until 1937, when the Fed hiked rates.

  

  As we showed yesterday, what happened next was that a little over a year after the Fed hiked rates for the first time, the Dow Jones tumbled, plunged by 50% in March 1938 (the S&P500 in its current form would not appear for another 20 years).

  But that was the topic of last night’s post. What we want to emphasize here is what happened after. Because as the market crashed and the economy collapsed yet again in the last such acute episode of the Great Depression, something far more historic than a simple market collapse took place.

  

   

  In other words, from the first rate hike by a Fed whose balance sheet as a % of GDP was nearly identical to the current one, to the start of World War II: less than three years.

  We truly hope this time its different, although judging by today’s dramatic return of the nuclear arms race and the countless war zones across the middle east and Africa, slowly all the increasingly militarized geopolitical events are falling into place.

  

  

  
  
  

  

• Prisons Without Walls: We're All Inmates In The American Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “It is perfectly possible for a man to be out of prison and yet not free—to be under no physical constraint and yet be a psychological captive, compelled to think, feel and act as the representatives of the national state, or of some private interest within the nation wants him to think, feel and act. . . . To him the walls of his prison are invisible and he believes himself to be free.”—Aldous Huxley, A Brave New World Revisited

  “Free worlders” is prison slang for those who are not incarcerated behind prison walls.  Supposedly, those fortunate souls live in the “free world.” However, appearances can be deceiving.

  “As I got closer to retiring from the Federal Bureau of Prisons,” writes former prison employee Marlon Brock, “it began to dawn on me that the security practices we used in the prison system were being implemented outside those walls.” In fact, if Brock is right, then we “free worlders” do live in a prison—albeit, one without visible walls.

  In federal prisons, cameras are everywhere in order to maintain “security” and keep track of the prisoners. Likewise, the “free world” is populated with video surveillance and tracking devices. From surveillance cameras in stores and street corners to license plate readers (with the ability to log some 1,800 license plates per hour) on police cars, our movements are being tracked virtually everywhere. With this increasing use of iris scanners and facial recognition software—which drones are equipped with—there would seem to be nowhere to hide.

  Detection and confiscation of weapons (or whatever the warden deems “dangerous”) in prison is routine. The inmates must be disarmed. Pat downs, checkpoints, and random searches are second nature in ferreting out contraband.

  Sound familiar?

  Metal detectors are now in virtually all government buildings. There are the TSA scanning devices and metal detectors we all have to go through in airports. Police road blocks and checkpoints are used to perform warrantless searches for contraband. Those searched at road blocks can be searched for contraband regardless of their objections—just like in prison. And there are federal road blocks on American roads in the southwestern United States. Many of them are permanent and located up to 100 miles from the border.

  Stop and frisk searches are taking place daily across the country. Some of them even involve anal and/or vaginal searches. In fact, the U.S. Supreme Court has approved strip searches even if you are arrested for a misdemeanor—such as a traffic stop. Just like a prison inmate.

  Prison officials open, search and read every piece of mail sent to inmates. This is true of those who reside outside prison walls, as well. In fact, “the United States Postal Service uses a ‘Mail Isolation Control and Tracking Program’ to create a permanent record of who is corresponding with each other via snail mail.” Believe it or not, each piece of physical mail received by the Postal Service is photographed and stored in a database. Approximately 160 billion pieces of mail sent out by average Americans are recorded each year and the police and other government agents have access to this information.

  Prison officials also monitor outgoing phone calls made by inmates. This is similar to what the NSA, the telecommunication corporation, and various government agencies do continually to American citizens. The NSA also downloads our text messages, emails, Facebook posts, and so on while watching everything we do.

  Then there are the crowd control tactics: helmets, face shields, batons, knee guards, tear gas, wedge formations, half steps, full steps, pinning tactics, armored vehicles, and assault weapons. Most of these phrases are associated with prison crowd control because they were perfected by prisons.

  Finally, when a prison has its daily operations disturbed, often times it results in a lockdown. What we saw with the “free world” lockdowns following the 2013 Boston Marathon bombing and the melees in Ferguson, Missouri and Baltimore, Maryland, mirror a federal prison lockdown.

  These are just some of the similarities between the worlds inhabited by locked-up inmates and those of us who roam about in the so-called “free world.”

  Is there any real difference?

  To those of us who see the prison that’s being erected around us, it’s a bit easier to realize what’s coming up ahead, and it’s not pretty. However, and this must be emphasized, what most Americans perceive as life in the United States of America is a far cry from reality. Real agendas and real power are always hidden.

  As Author Frantz Fanon notes, “Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn’t fit in with the core belief.”

  This state of denial and rejection of reality is the essential plot of John Carpenter’s 1988 film They Live, where a group of down-and-out homeless men discover that people have been, in effect, so hypnotized by media distractions that they do not see their prison environment and the real nature of those who control them—that is, an oligarchic elite.

  Caught up in subliminal messages such as “obey” and “conform,” among others, beamed out of television and various electronic devices, billboards, and the like, people are unaware of the elite controlling their lives. As such, they exist, as media analyst Marshall McLuhan once wrote, in “prisons without walls.” And of course, any resistance is met with police aggression.

  A key moment in the film occurs when John Nada, a homeless drifter, notices something strange about people hanging about a church near the homeless settlement where he lives. Nada decides to investigate. Entering the church, he sees graffiti on a door: They live, We sleep. Nada overhears two men, obviously resisters, talking about “robbing banks” and “manufacturing Hoffman lenses until we’re blue in the face.” Moments later, one of the resisters catches Nada fumbling in the church and tells him “it’s the revolution.” When Nada nervously backs off, the resister assures him, “You’ll be back.”

  Rummaging through a box, Nada discovers a handful of cheap-looking sunglasses, referred to earlier as Hoffman lenses. Grabbing a pair and exiting the church, he starts walking down a busy urban street.

  Sliding the sunglasses on his face, Nada is shocked to see a society bombarded and controlled on every side by subliminal messages beamed at them from every direction. Billboards are transformed into authoritative messages: a bikini-clad woman in one ad is replaced with the words “MARRY AND REPRODUCE.” Magazine racks scream “CONSUME” and “OBEY.” A wad of dollar bills in a vendor’s hand proclaims, “THIS IS YOUR GOD.”

  What’s even more disturbing than the hidden messages, however, are the ghoulish-looking creatures—the elite—who appear human until viewed them through the lens of truth.

  This is the subtle message of They Live, an apt analogy of our own distorted vision of life in the American police state. These things are in plain sight, but from the time we are born until the time we die, we are indoctrinated into believing that those who rule us do it for our good. The truth, far different, is that those who rule us don’t really see us as human beings with dignity and worth. They see us as if “we’re livestock.”

  It’s only once Nada’s eyes have been opened that he is able to see the truth: “Maybe they’ve always been with us,” he says. “Maybe they love it—seeing us hate each other, watching us kill each other, feeding on our own cold f**in’ hearts.” Nada, disillusioned and fed up with the lies and distortions, is finally ready to fight back. “I got news for them. Gonna be hell to pay. Cause I ain’t daddy’s little boy no more.”

  What about you?

  As I point out in my book Battlefield America: The War on the American People, the warning signs have been cautioning us for decades. Oblivious to what lies ahead, most have ignored the obvious. We’ve been manipulated into believing that if we continue to consume, obey, and have faith, things will work out. But that’s never been true of emerging regimes. And by the time we feel the hammer coming down upon us, it will be too late.

  As Rod Serling warned:

  All the Dachaus must remain standing. The Dachaus, the Belsens, the Buchenwalds, the Auschwitzes—all of them. They must remain standing because they are a monument to a moment in time when some men decided to turn the earth into a graveyard, into it they shoveled all of their reason, their logic, their knowledge, but worst of all their conscience. And the moment we forget this, the moment we cease to be haunted by its remembrance. Then we become the grave diggers.

  The message: stay alert.

  Take the warning signs seriously. And take action because the paths to destruction are well disguised by those in control.

  This is the lesson of history.

  

  

  
  
  

  

• Knife Regulation Arrives: This Is The US Government, Hard At Work

  When it comes to the contents of the TPP, the most important law of Obama’s second term, merely leaking its contents to the press can have result in imprisonment or treason charges, which, considering recent revelations that a substantial portion of the bill was drafted by and for the express benefit of pharmaceutical companies, was to be expected:  when the US population learns that their elected legislators not only don’t read the laws they “pass”, but are merely bribed figureheads that don’t even write them, the resultant collapse of the “democratic” process would be unpleasant.

  And yet, other laws such as S.1315, are perfectly transparent and open. So, with nobody in Congress drafting the TPP (and apparently not even able to pass it, despite corporate backers’ demands), here is a vivid example of the US government, hard at work.

  presenting: S. 1315, Knife Owners’ Protection Act of 2015

  S. 1315 would allow people to possess knives in states where they are illegal if the person is travelling to and from states where the knife is legal, if the knife is secured, or if the knife is a safety blade designed for cutting seatbelts. Based on information provided by the Department of Justice and the Federal Trade Commission, CBO estimates that implementing S. 1315 would have no effect on the federal budget. Because enacting S. 1315 would not affect direct spending or revenues, pay-as-you-go procedures do not apply.

   

  S. 1315 would impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA) by preempting some state and local laws related to possessing and transporting knives. Laws regulating knives vary from state to state. The costs for state and local governments to comply with that mandate would include the cost to change protocols and train law enforcement officers. CBO estimates the total costs for state and local governments would be small and would not exceed the threshold established in UMRA ($77 million in 2015, adjusted annually for inflation).

  Yes, it would cost US taxpayers $77 million to “protect” knife owners, and yes if you own a knife, you too may be considered a threat.

  h/t Bruce Krasting

  

  

  
  
  

  

• Chinese Corporations Become Stock Speculators, Joining Housewives, Banana Vendors

  It’s no secret that things are getting tougher for China’s manufacturing sector as the country embarks on a difficult transition from an investment-driven economy to a model led by services and consumption. Domestic demand for metals has fallen as “idle cranes, empty construction sites, and abandoned buildings” (to quote Bloomberg) betray a sharp economic deceleration. Export growth has slowed, rail freight has collapsed to what look like depression levels, and industrial production remains in the doldrums and will need to fall far further if China is serious about getting its pollution problem under control. 

  Meanwhile, Chinese equities have staged one of the most impressive rallies in recent memory as housewives, security guards, banana vendors, and, more recently, farmers, flock to the SHCOMP and the Shenzhen exchange where, using record margin debt, the semi-literate hordes have driven multiples into the stratosphere and created an environment where umbrella manufacturers post 2,000% gains. 

  

  Given the above, and given the fact that credit is increasingly hard to come by for in the manufacturing sector with China’s largest banks reporting rising NPLs thanks in large part to souring loans to the industrial sector, one could hardly blame the industrialists for wanting to get in on the equity mania. And because nothing surprises us when it comes to China’s stock market miracle, we can’t say we were completely shocked to learn that some manufacturers are laying off everyone and trading stocks from the shop floor while they wait for the economy to recover. WSJ has more:

  Chinese companies are turning to an unlikely source for profits in the soft economy: the country’s red-hot stock markets.

   

  Take Dong Jun, who earlier this year shut down his factory making lighting equipment and electrical wiring and let go some 100 workers. The 50-year-old comes to the plant in the eastern city of Yancheng almost daily, but spends his time trading stocks on behalf of his company, Yanwu Keda Electric Co.

   

  “Manufacturing is a very hard business these days,” said Mr. Dong, chairman of the company. “I want to make some money from the stock market and use the profits to restart my manufacturing business later, when the economy turns for the better.”

   

  Chinese companies are finding stock investing an attractive option as the wider economy struggles with tepid demand, excess industrial capacity, persistently high borrowing costs and other troubles. Their interest poses a challenge for policy makers, who want to nurture markets companies can tap for investment capital, rather than creating a venue for speculation.

  You read that correctly, Dong Jun fired everyone and now goes to his lighting equipment plant everyday to trade stocks. And make no mistake, Dong isn’t alone. In fact, according to the Journal, 97% of profit growth in the manufacturing sector is being generated by stock trading:

  According to the latest official data, profits earned by Chinese manufacturers rose 2.6% from a year earlier in April, a turnaround from a drop of 0.4% in the previous month. Yet nearly all of that increase—97%—came from securities investment income, data from the National Bureau of Statistics show. Excluding the investment income, China’s industrial profits were up 0.09%.

   

  Meanwhile, over the course of 2014, the value of stocks, bonds and other tradable securities owned by listed Chinese companies rose by 946 billion yuan ($152.4 billion), a 60% increase, according to an analysis by Mr. Zhu.

  So Chinese corporates are using their balance sheets to fund stock purchases which is something that US companies are also doing at a record pace but in China, companies aren’t just buying their own stocks, they’re buying anything and everything and they’re doing it on margin:

  The trend is starting to worry Chinese regulators, who have been trying to make sure that banks and the stock markets ultimately channel money into parts of the economy that create jobs. Even more problematic, according to some officials, is that the rush by companies to tap the market for easy gains now—sometimes using borrowed money to purchase stocks—could leave some scrambling for capital if the market turns. 

   

  China Railway Construction Corp. is among the companies that have put more of their funds at work in the stock market. According to its regulatory filings, the state-owned contractor since late last year has bought shares in companies including a liquor maker in Shanxi province, in the north, a retailer in central China, and a property developer near Beijing.

  Better still, some companies are buying shares in Chinese banks — the same Chinese banks which, because lending to manufacturers has lower margins and has become more risky in the downturn, are helping brokers expand margin financing. 

  Bank stocks have proved attractive for China State Construction International Holdings Ltd., the listed arm of state-owned China State Construction Engineering Corp. It has increased its stakes in Bank of Communications Co., a large state-controlled firm, and Huaxia Bank Co., a regional lender, whose shares have been on the rise in recent months, according to data provider Wind Info. The company hasn’t released its first-quarter results. Officials at the firm didn’t respond to a request for comment.

   

  Chinese banks, meanwhile, have been funneling funds to brokerages, helping them to expand their margin-financing businesses, a more lucrative practice than making plain corporate loans, according to banking executives and analysts.

   

  China CITIC Bank Corp. is the most aggressive in lending to brokerages to help them finance their margin-financing businesses, according to an analysis by Reorient Group, a Hong Kong-based investment bank. Loans made to brokerages for that purpose totaled nearly 913 billion yuan in the first quarter, up 92% from a year earlier, the firm’s study shows. “Banks are happy to channel liquidity to brokerages as a way to participate in the stock rally,” said Steve Wang, head of China research at Reorient.

  Essentially, banks are funding the purchase of their own stock by lending money via margin financing to the very same manufacturing sector which can’t service its bank debt. 

  So we can add coporations to the list of Chinese stock speculators buying on margin. This means that if (or perhaps more appropriately “when”) China’s equity bubble does finally burst, corporate defaults (which are already on the rise and would likely occur far more often if the PBoC didn’t pressure lenders into rolling over bad debt) will accelerate meaningfully amid cascading margin calls and frantic attempts to raise capital. 

  Bondholders beware. You were warned.

  

  

  
  
  

  

• "Lehman Weekend" Looms For Greece As Europe Readies "Emergency" Sunday Meeting

  Last week, Greek PM Alexis Tsipras submitted two three-page proposals that were ostensibly designed to close the gap with creditors. EU officials were incredulous, calling the drafts “not serious.”

  Tsipras had effectively resubmitted Greece’s previous proposal (i.e. a proposal that did not include concessions on a VAT hike or pension cuts) only this time, he included a second document that outlined how Athens hoped to tap leftover bank recap funds from the EFSF and bailout money from the ESM. Greece took that same proposal to Brussels over the weekend and it didn’t fly there either, leaving Europe to wonder just how far Tsipras was willing to go with the brinksmanship.

  The problem is simple and it’s been outlined in these pages extensively. The game of chicken can theoretically go on at the political level for some time. That’s because the bundled IMF payment isn’t due for another two weeks and even if it were missed, Christine Lagarde has quite a bit of discretion as it relates to sending an official failure to pay notice to the IMF board and triggering cross acceleration rights for Greece’s other creditors. In other words, a formal default is a matter of politics and it can be put off for at least 30 days past the end of this month.

  What cannot be controlled at the political level is what happens on the ground in Greece. That is, the economy is bleeding jobs and businesses and the banking sector is hemorrhaging hundreds of millions of euros every day. If suppliers cut off credit to the Greek economy and deposit flight turns into a panicked bank run, the glacial pace of political logrolling will prove hopelessly inadequate to contain the situation, meaning the country could descend into chaos while both sides watch in horror from the negotiating table in Brussels. Yesterday, Germany’s EU Commissioner Guenther Oettinger warned of exactly this and suggested that Europe plan for a “state of emergency” in Greece. 

  And plan they did. Midway through US trading on Monday the German press reported that Europe was prepared to implement capital controls over the weekend should Greece fail to table a workable proposal at a meeting of EU finance ministers in Luxembourg on Thursday. We’ve outlined what capital controls could look like in Greece on a number of occasions (most notably here and here), but for those needing a quick reference, consider the following flowchart:

  

  Here’s Open Europe summarizing the drama:

  German daily Süddeutsche Zeitung reports that Eurozone countries have agreed on a contingency plan if no deal between Greece and its lenders is struck by this weekend. According to the paper, if this week’s Eurogroup meeting failed to yield an agreement, Eurozone leaders would hold an emergency summit – potentially as early as Friday evening. The contingency plan would involve imposing capital controls on Greek banks over the weekend.

  As for the Eurogroup meeting and the rumored emergency summit, Greece contends it will not be submitting a new proposal and some EU officials are skeptical about the utility of holding a summit if no progress is made in Luxembourg. FT has more:

  Eurozone officials are discussing holding an emergency summit on Sunday for leaders to tackle the crisis in Greece amid mounting fears a deal to break an ongoing impasse between Athens and its bailout creditors will not be reached at a high-stakes finance ministers meeting on Thursday.

   

  According to two senior officials, the idea of holding a summit of eurozone heads of government was mooted in meetings among representatives of Greece’s creditors on Monday, a day after last-ditch negotiations to reach a deal to release €7.2bn in much-needed bailout aid collapsed.

   

  They said that although the idea was discussed, there is considerable resistance to convening the summit among several creditors since technocratic issues like Greek pension reforms and tax rates are not normally the province of EU presidents and prime ministers.

   

  “If there’s nothing to discuss among finance ministers, there wouldn’t be anything to discuss among heads,” said one official from a Greek creditor institution.

   

  Yanis Varoufakis, Greece’s finance minister, said the country has no plans to present new proposals at the finance ministers meeting, signalling the country won’t make further concessions to unlock bailout funds needed to avoid default.

   

  He told Germany’s Bild newspaper: “The eurogroup is not the forum for presenting positions and plans which have not previously been discussed and negotiated at a lower negotiating level.”

   

  “The next and hopefully decisive step is the eurogroup [on] Thursday,” said the spokesman, Preben Aamann. “Any further steps will be decided in light of the eurogroup outcome. There should be no illusions that an agreement becomes easier or more advantageous over time.”

   

  Alexis Tsipras, the Greek prime minister, has publicly insisted that he will not be presenting any new compromise proposals at the Thursday meeting, and officials said the discussion at the eurogroup of finance ministers on Greece could end up being perfunctory as a result.

   

  In addition, some officials believe Athens’ decision to send Mr Varoufakis, the combative finance minister, to the eurogroup session could preclude a deal being worked on Thursday

  Recall that the last time Varoufakis attended a meeting of EU finance ministers, he ended up eating dinner alone in Riga and tweeting out FDR quotes after his antics at the negotiating table prompted EU officials to phone Tsipras and plead with the PM to sideline his FinMin or risk throwing the entire process into disarray. Varoufakis was soon demoted on the negotiating team.

  All signs thus point to the imposition of capital controls, setting up a potential “Lehman Weekend 2.0” unless all sides suddenly realize what they’ve wrought, convene an emergency meeting among heads of state, and strike some manner of hastily construed stopgap agreement. Whether or not that’s feasible remains to be seen and it appears as though Sunday may be the day of reckoning.

  For now, the official line is that Europe will only restart talks if Greece “submits something new”, and if the last several weeks are any indication, “something new” is not forthcoming. 

  Finally, Bild is reporting that Greece will seek to delay its June 30 IMF payment by six months.

  Via Bloomberg, citing Bild:

  The Greek government is seeking to delay a 1.55b euro payment to the IMF by six months. 

   

  Greece has found technical option to delay IMF payment due at the end of June.

  And because this is Europe, the Greek government has promptly denied the above:

  • GREEK GOVT OFFICIAL DENIES REPORTS SEEKING TO DELAY IMF PAYMENT

  

  

  
  
  

  

• JPM's Walk Through What Greek Capital Controls Would Look Like

  Once upon a time, merely suggesting that a Eurozone country may be kicked out, let alone suffer capital controls, was enough to get one sued by the Hague for crimes against humanity, if not outright droned. Now, and as has been the case for the past 4 months, that it is the Troika’s explicit intent to foment a depositor panic and instigate a bank run in Greece with the hope of overthrowing the Tsipras government, everyone is allowed to chime in.

  So, without further ado, here is what the next steps for Greece may be as well as a walk through of its capital controls, courtesy of JPMorgan.

  Capital controls, ECB rules, and bellicose rhetoric

  There are increasing media reports that capital controls are being prepared for implementation possibly as soon as this weekend should the discussions with Greece not generate a deal. This raises a number of questions about how capital controls would work, and how their imposition would effect the negotiation process.
   
  The practicalities…
   
  On some of the practicalities of capital controls, Cyprus provides a template, and we have written up some of the lessons from that experience in the research note linked to below. The table below, reproduced from an IMF program review, summarises the measures that were put in place in Cyprus and their subsequent removal. In this instance, capital controls should be thought of as a set of administrative constraints which seek to prevent deposits leaving the banking system while still attempting to allow “normal” economic activity to continue. Hence limits are imposed on the ability of households and firms to withdraw their deposits in cash, or to move them out of country concerned. Firms who need to transfer funds abroad as part of their normal business (consider, for example, a Greek auto dealer importing German cars) have to provide documentation to show those movements are indeed related to commercial activity rather than a portfolio shift.
   
  And the politics…
   
  The decision to impose capital controls ultimately lies with the Greek authorities, and would generate a need to pass legislation through the Greek parliament to give those controls the full force of legislative backing. A key issue is the extent to which the Greek authorities would cooperate with the rest of the region on imposing capital controls. Although the decision on capital controls is ultimately taken by Greece, decisions on the provision of funding to the banks are taken by the ECB. If the ECB decides to raise haircuts on collateral significantly, or not to raise ELA to meet deposit outflow, then the Greek banks will find themselves in a position where they cannot meet requests for withdrawals. The banks themselves would then either have to come up with a scheme for rationing access to deposits, or (more likely) shut their doors. The imposition of capital controls can be thought of as trying to make that rationing process orderly, with the denial of unlimited liquidity from the ECB the key force acting in the background. If that makes the ECB look like the bad guy, remember that from the point of view of the central bank and the rest of the region, each increase in ELA facilitates an increase in the region’s exposure to Greece via Target 2.
   
  The ECB’s rules…
   
  Against this backdrop, one can understand why yesterday Draghi was keen to state that the ECB is a rules-based institution and that the key decisions would be taken by politicians, not central bankers. On this, we will simply repeat what we have written before. If one thinks of rules in the sense of vaguely specified guidelines with scope for multiple interpretations at differing points in time, then Mr Draghi is correct that the ECB is rules based. The ECB might have hoped that the accumulation of precedent would create conventions about its behaviour through time. But there has been enough variation in how the ECB has handled specific situations for the idea of settled rules and conventions to be challenged. In the ECB’s defense, it has often had to think on its feet during the crisis, and many of the decisions it has taken have appeared reasonable to us in real time. In this particular instance, however, we doubt that the ECB will do anything without their being clear political backing from both the Eurogroup and from Merkel and other European leaders.
   
  An anti-euro Tsipras?
   
  There are reports that the Greek government is threatening action via the European Court of Justice should the region take action which inhibits bank’s access to liquidity and hence force the imposition of capital controls or the closure of its banks. We very much doubt any such legal action would be successful, and it would take a while before that case came to be heard. But more important is the signal that the Greek authorities may depict capital controls or the closure of the Greek banks as unjustly imposed upon them by the rest of the region. And meanwhile, the rhetoric from Tsipras is increasingly bellicose, with references to the “pillaging” of Greece, and of a need to avoid national humiliation.
   
  One particularly ugly scenario would be if the Greek authorities resist the imposition of capital controls, claim that restrictions on bank access to liquidity have been unjustly imposed, and then seek to use the antipathy that creates among the Greek population to begin to argue toward an exit from the euro. This is a scenario we have accorded a low probability to, on the grounds that it is not clear that the Greek population would follow the script and regard the situation as primarily the responsibility of the rest of the region. But the increasingly hot rhetoric has us more concerned about this than we have been hitherto.

  Note on lessons for Greece from Cyprus

  

  

  

  
  
  

  

• We Might As Well Face It – America Is Addicted To Debt

  Submitted by Michael Snyder via The Economic Collapse blog,

  Corporations, individuals and the federal government continue to rack up debt at a rate that is far faster than the overall rate of economic growth.  We are literally drowning in red ink from sea to shining sea, and yet we just can’t help ourselves.  Consumer credit has doubled since the year 2000.  Student loan debt has doubled over the course of the past decade.  Business debt has doubled since 2006.  And of course the debt of the federal government has doubled since 2007.  Anyone that believes that this is “sustainable” in any way, shape or form is crazy.  We have accumulated the greatest mountain of debt that the world has ever seen, and yet despite all of the warnings we just continue to race forward into financial oblivion.  There is no possible way that this is going to end well.

  Just the other day, a financial story that USA Today posted really got my attention.  It contained charts and graphs that showed that business debt in the U.S. had doubled since 2006.  I knew that things were bad, but I didn’t know that they were this bad.  Back in 2006, just prior to the last major economic downturn, U.S. nonfinancial companies had a total of about 2.6 trillion dollars of debt.  Now, that total has skyrocketed to 5.8 trillion…

  Companies are sitting on a record $1.82 trillion in cash. That might sound impressive until you hear companies owe three times more – $5.8 trillion, according to a new report from Standard & Poor’s Ratings Services.

   

  Debt levels are soaring at U.S. non-financial companies so quickly – total debt outstanding rose $650 billion in 2014, which is six times faster than the $100 billion in added cash.

  So are we in better condition to handle an economic crisis than we were the last time, or are we in worse shape?

  Let’s look at another category of debt.  According to new data that just came out, the total amount of student loan debt in the U.S. is up to a staggering 1.2 trillion dollars.  That total has more than doubled over the past decade…

  New data released by The Associated Press shows student loan debt is over $1.2 trillion, which is more than double the amount of a decade ago.

   

  Students are facing an average of $35,000 in debt, that’s the highest of any graduating class in U.S. history. A senior at University of Colorado, Colorado Springs, Jon Cheek, knows the struggle first hand.

   

  “It’s been a pretty big concern, I work while I go to school. I applied for a bunch of scholarships and done everything I can to try and keep it low,” said Cheek.

  And of course it isn’t just student loan debt.  American consumers have had a love affair with debt that stretches back for decades.  As the chart below demonstrates, overall consumer credit has more than doubled since the year 2000…

  

  If our paychecks were increasing at this same pace, that would be one thing.  But they aren’t.  In fact, real median household income is actually lower today than it was just prior to the last economic crisis.

  So American households should actually be cutting back on debt.  But instead, they are just piling on more debt, and the financial predators are becoming even more creative.  In a previous article,  I discussed how many auto loans are now being stretched out for seven years.  At this point, the number of auto loans that exceed 72 months is at an all-time high…

  The average new car loan has reached a record 67 months, reports Experian, the Ireland-based information-services company. The percentage of loans with terms of 73 to 84 months also reached a new high of 29.5% in the first quarter of 2015, up from 24.9% a year earlier.

   

  Long-term used-vehicle loans also broke records with loan terms of 73 to 84 months reaching 16% in the first quarter 2015, up from 12.94% — also the highest on record.

  When will we learn?

  The crash of 2008 should have been a wake up call.

  We should have acknowledged our mistakes and we should have started doing things very differently.

  But instead, we just kept on making the exact same mistakes.  In fact, our long-term financial problems have continued to accelerate since the last recession.  Just look at what has happened to our national debt.  Just prior to the last recession, the U.S. national debt was sitting at approximately 9 trillion dollars.  Today, it is over 18 trillion dollars…

  

  Our debt has grown so large that we will never be able to get out from under it.  This is something that I covered in my recent article entitled “It Is Mathematically Impossible To Pay Off All Of Our Debt“.  Because of our recklessness, our children, our grandchildren and all future generations of Americans are consigned to a lifetime of debt slavery.  What we have done to them is beyond criminal.  If we lived in a just society, a whole bunch of people would be going to prison for the rest of their lives over this.

  During fiscal year 2014, the debt of the federal government increased by more than a trillion dollars.  But in addition to that, the federal government has more than seven trillion dollars of debt that must be “rolled over” every year.  In other words, the government must issue more than seven trillion dollars of new debt just to pay off old debts that are coming due.

  As long as the rest of the world continues to lend us enormous mountains of money at ridiculously low interest rates, we can continue to keep our heads above the water.  But this can change at any time.  And once it does, interest rates will rise.  If the average rate of interest on U.S. government debt was to return to the long-term average, we would very quickly find ourselves spending more than a trillion dollars a year just on interest on the national debt.

  The debt-fueled prosperity that we are enjoying now is not real.  It is a false prosperity that has been purchased by selling future generations into debt slavery.  We have mortgaged the future to make our own lives better.

  We are addicts.  We are addicted to debt, and no matter how many warnings we receive, we just can’t help ourselves.

  Shame on you America.

  

  

  
  
  

  

• Chinese Iron Ore, Steel Prices Collapse Despite Government Stimulus

  A funny thing happened in the last year since China gave up on its hard-line reforms and folded back to stimulate by all means necessary… the financial economy soared and the real economy sunk. Iron Ore prices are near record lows and Rebar prices are at record lows as stocks spike.. and this should be no surprise since we were told by a rural Chinese chap recently that “making money in stocks is a lot easier than farmwork” or construction or real world activity.

   

  

   

  As Reuters reports,

  “Steel prices in China have continued to fall despite the rally in iron ore prices in the last month, limiting the ability for steel mills to pay increasingly higher prices for ore,” Australia and New Zealand Banking Group analysts said in a note.

   

  With Chinese steel demand expected to wane as hotter temperatures over June and July slow construction activity, the ANZ analysts said they expect iron ore to fall back below $60 per tonne over the coming month.

   

  A sustained decline in stockpiles of iron ore across China’s ports has helped fuel a 40 percent rally in the steelmaking commodity from a decade-low of $46.70 in April.

   

  Shanghai rebar prices in contrast rose only around 4 percent from April lows before pulling back again this week.

   

  Iron ore for immediate delivery to China’s Tianjin port .IO62-CNI=SI dropped 0.8 percent to $64.50 a tonne on Monday, according to The Steel Index (TSI), retreating from a near five-month high of $65.40 reached last week.

   

  “The continuing fall in steel prices in China is beginning to weigh on sentiment, with mills looking increasingly squeezed,” TSI said, citing a further decline in prices of spot steel products in China, including billet and rebar.

   

  A slowing Chinese economy has hit industrial demand with steel consumption continuing to shrink in the first quarter of this year after contracting in 2014 for the first time in more than three decades.

  And for an even clearer example of reality – Rebar prices are hitting record lows…

  

   

  Not a sign of turning demand in the economy… not the lagged pickup in construction actvity that so many believe the stock market surge will bring… instead just more of the same as monetary policy transmission mechanisms are all glued up and fundsa flow directly to financial asset inflation.

  

  

  
  
  

  

• There Is One Problem With Europe's So-Called Austerity

  The one most recurring laments coming out of peripheral European countries which boast near record youth unemployment, in most cases around the 50% area, is that the only reason why there is no growth is due to “evil austerity”, imposed upon them by Germany and other frugal Northern Europe overseerers, who do not permit the rampant issuance of debt to fund domestic spending and fiscual stimulus programs.

  There is one problem with that: the peripheral European countries are not only issuing debt at a pace that is well greater than the “pre-austerity” period…

  

  … as Italian ANSA just confirmed:

  Italy’s public debt hit a new record high of 2.1945 trillion euros in April, up 10 billion euros on the previous high set in March, the Bank of Italy said on Monday. The data was used as ammunition by opposition parties against Premier Matteo Renzi’s government. “Even though interest rates are down, the debt keeps going up vertiginously and it is threatening the stability of the public finances and of Italian people’s savings,” said Elvira Savino, an MP for Silvio Berlusconi’s centre-right Forza Italia.

   

  “Renzi has not just abandoned the young, condemning them to unemployment, but he is also jeopardizing the future of the next generations“. Economy Minister Pier Carlo Padoan rubbished the criticism, saying it was normal for the debt to increase while Italy is running a budget deficit. “This thing about the debt record is really boring,” he said.

  Worse, the so-called structural reforms that these countries are implementing so they can escape from the dreaded austerity have resulted in debt to GDP ratios that, drumroll, have never been higher!

  

   

  In the meantime, without any reform and without any actual changes, the bad debt keeps accumulating and as Italy’s Banking Association reported earlier today, bad loans, aka NPLs, in the country’s financial system rose by 15% from a year ago and hit a record high of €191.5 billion in April, up from the €189.5 billion reported in March, and a total of 10% of all Italian bank assets. One can imagine what the real, unadjusted number is if the reported one rose by €25 billion in one year.

  So to summarize Europe’s plight for the past 5 years: PIIGS creditors and the Troika will pretend to impose austerity on them (with the ECB as a guarantor and buyer of first and last resort), while the PIIGS will pretend to reform.

  In the end, nothing has changed and the pre-crash status quo is still here with the only difference that relative and absolute debt levels have never been higher.

  Or, as Italy’s economy minister called it, “boring”… until such time as the Troika decided to yank its guarantees and the next Greece emerges. Only then does it get “exciting.”

  

  

  
  
  

  

• What's The Real Unemployment Rate In The US?

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  By my reckoning, roughly 60% of the civilian work force is fully employed and 40% are marginally employed or unemployed.

  Officially, the unemployment rate in the U.S. is 5.6%, meaning 5.6% of the work force is temporarily out of a job and actively seeking another one. This low number reflects nearly full employment, as 3% to 4% of the work force is typically in the process of quitting/being laid off and finding another job.

  Typically, periods of nearly full employment are economically good times, as household income is bolstered and employers have to pay a bit more to hire workers when the labor market is tight.

  But these do not feel like good times for most households, despite the low unemployment rate. Earnings are stagnant for 90% of the work force, and employers are only paying a competitive premium for workers in very select fields (programmers adept at Python and mobile user interfaces, etc.)

  This creates a cognitive dissonance between the low official unemployment rate and the real economy, which is behaving like an economy with much higher rates of unemployment, i.e. sluggish hiring, stagnant wages, difficulty in finding jobs, and very little pressure on employers to pay more for typical jobs.

  Let's start by trying to calculate the work force–the number of people who could get a job if they wanted to. This isn't quite as straightforward as we might imagine, because the two primary agencies that compile these statistics use slightly different categories.

  The Bureau of Labor Statistics (BLS) calculates the civilian noninstitutional population as everyone 16 and older who is not in active-duty military service or in prison. The BLS reckons this to be about 250 million people, out of a total population of about 317 million residents: Household Data (BLS)

  The BLS subtracts 93 million people who are not in the labor force, leaving about 157 million people in the civilian work force–roughly half the nation's population.

  Of these, 148.8 million have a job of some sort and 8.6 million are unemployed.

  The Census Bureau calculates the civilian noninstitutional population as everyone who is not in active-duty military service or in prison. (You can download various data on the U.S. population on this Census Bureau website: Age and Sex Composition in the United States: 2012. I am using Table 1 data.)

  The Census Bureau places the civilian noninstitutional population at 308.8 million in 2012. Since roughly 4 million people are born and 2.6 million die in the U.S. each year, we can adjust this upward by roughly 3.5 million to bring it up to date (mid-2015) to 312 million.

  About 74 million people are 17 and younger, and 36 million are 68 and older. Given that the full-benefit retirement age for Social Security is pushing 67, I am using 67 as the cut-off for the work force rather than the traditional 65.

  This is of course a squishy calculation, as many people retire at 62 and others work beyond the age of 70. But given the strong employment trends of the over-65 cohort, I think it fair and reasonable to include everyone between 18 and 67 in the work force.

  Subtracting 110 young people and retirees leaves a civilian work force of around 200 million people. Let's then subtract those who can't work or choose not to work for conventional reasons. There are roughly 8 million people on permanent disability and several million more at any one time on temporary disability, so let's subtract 10 million disabled.

  Next, let's subtract stay-at-home parents. Since there are 20 million children under the age of 5, let's reckon 20 million adults will on average choose to leave the work force to care for their children full-time.

  Should this number be 40 million? What about home-schooling? Given the possibilities for part-time, home-based and free-lance work, I am reluctant to conclude everyone caring for or schooling their children cannot possibly earn some income. But let's consider adding another 10 million adults who may be caring for their families (seniors as well as children) at home full-time.

  While it may seem as if every other hipster in town is a trust funder, i.e. a person who draws upon inherited wealth and doesn't need to work, Internal Revenue Service (IRS) data reports less than 2 million people draw substantial incomes from trusts. Since even those with unearned income can still perform work, I include trust funders in the work force.

  If we subtract 10 million disabled and 30 million stay-at-home parents, we have a work force of around 160 million–not far from the BLS number of 157 million. If we use a smaller number of full-time stay-at-home parents, then perhaps the work force is closer to 170 million.

  The BLS calculates what it calls labor force participation rate–63% of the total civilian noninstitutional population is in the labor force.

  The next issue is what we reckon qualifies as a job. In general, the BLS and the Census Bureau count anyone with earned income as employed. The BLS reckons 148.8 million people have jobs, but this includes 23 million people who earn less than $5,000 annually. The Social Security Administration (SSA) states that 155 million people reported taxable income, which includes not just earnings (wages and salaries) but distributions from retirement funds, IRAs, etc. that are taxable. Wage Statistics for 2013.

  The question boils down to this: should we count someone who earns $1,000 a year as employed? How about someone who earns $5,000? At what point does an income enable a person to support himself/herself? Should we place those earning incomes far below a living income in the same category as those with full-time jobs/incomes?

  This is where I part company from the government agencies' classification of any earned income in any amount as qualifying as a job. If I am a consultant earning less than $5,000 annually, clearly I cannot support myself on this income. If I earn $2,500 annually in part-time free-lancing, this is at best 10% of poverty-level income for a household in a low-cost region; in a high-cost region, it is perhaps 5% of poverty-level income.

  The BLS attempts to define a broader definition of under-employment and unemployment in its categoryU-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force: this is 10.8% of the work force.

  Depending on how we calculate the work force, and if we count everyone with any earnings as employed, we get an unemployment rate of somewhere between 5.6% and 12.5%. If we use the BLS's metric for including under-employment, this is in the range of 10% to 15%.

  Common sense suggests that we calculate employment/unemployment based on earnings, not just any income in any amount. If we reckon that only those with earnings of $15,000 or more annually (roughly speaking, full-time work at minimum wage) are fully employed, then the numbers change dramatically.

  The $15,000 annual earnings are also a rough benchmark of self-supporting households: two wage-earners making $15,000 each would have a household income of $30,000–enough to get by in much of the country.

  About 50 million people earn less than $15,000 annually. This includes roughly 10 million self-employed and 40 million with part-time jobs or other sources of earned income. This suggests that only 100 million of the 160 million work force are fully employed in the sense of not just having a job but making enough to be self-supporting.

  There are many caveats resulting from the way that government social welfare is not included in earnings: thus a household might have two part-time wage-earners making very modest sums monthly who are getting by because they qualify for Section 8 housing, SNAP food stamps, Medicaid healthcare, school lunch programs, and so on. These programs enable the working poor to support a household despite low earnings.

  Should we include those depending on social welfare programs as fully employed?

  By my reckoning, roughly 60% of the civilian work force is fully employed and 40% are marginally employed (i.e. earning less than $15,000 annually) or unemployed. Since full-time workers even at minimum wage earn close to $15,000 annually, I think it is fair to use that as the cut-off for fully employed. The BLS counts 121 million people asusually work full-time, but given only 100 million workers earn $15,000 or more, this doesn't add up unless we include self-employed people earning very little who are counted as full-time workers.

  

  Based on income, I set the fully employed rate at 60%, and the marginally employed/unemployed rate at 40%. If we accept the BLS's 121 million full-time jobs (which once again, this doesn't make sense given even minimum wage full-time jobs earn $14,500, and 50 million people report earnings of less than $15,000), we still get a marginally employed/unemployed rate of 25%: work force of 160 million, 121 million fully employed.

  These numbers align much better with the real economy than the official unemployment rate of 5.6%. It's nonsense to count everyone earning a few hundred or few thousand dollars annually as being employed in the same category as full-time workers or those earning $15,000 or more annually.

   

  

  

  
  
  

  

• The Warren Buffett Economy, Part 5: Why Its Days Are Numbered

  Submitted by David Stockman via Contra Corner blog,

  If Warren Buffett and his ilk weren’t so hideously rich, main street America would be far more prosperous. I must hasten to add, of course, that this proposition has nothing to do with the zero-sum anti-capitalism of left-wing ideologues like Professors Piketty and Krugman.

  Far from it. Real capitalism cannot thrive unless inventive and entreprenurial genius is rewarded with outsized fortunes.

  But as I have demonstrated in Parts 1-4 (Part 1, Part 2, Part 3, Part 4), Warren Buffett’s $73 billion net worth, and numerous like and similar financial gambling fortunes that have arisen since 1987, are not due to genius; they are owing to adept surfing on the $50 trillion bubble that has been generated by the central bank Keynesianism of Alan Greenspan and his successors.

  The resulting massive redistribution of wealth to the tiny slice of households which own most of the financial assets is not merely  collateral damage. That is, it is not the unfortunate byproduct of continuous and extraordinary central bank “stimulus” policies that were otherwise necessary to keep the US economy off the shoals and the GDP and jobs on a steadily upward course.

  Just the opposite. The entire regime of monetary central planning is a regrettable historical detour; it did not need to happen because massive central bank intervention is not necessary for capitalism to thrive. Contrary to the prevailing statist presumption, the free market does not have a death wish; it is not perennially slumping toward underperformance and depressionary collapse absent the deft ministrations of the fiscal and monetary authorities.

  In fact, today’s style of heavy-handed monetary central planning destroys capitalist prosperity. It does so in a manner that is hidden at first—– because credit inflation and higher leverage temporarily gooses the reported GDP. But eventually it visibly and relentlessly devours the vital ingredients of growth in an orgy of debt and speculation.

  To appreciate this we need to turn back the clock by 100 years—-to the early days of the Fed and ask a crucial question. Namely, what would have happened if its charter had not been changed by the exigencies of Woodrow Wilson’s foolish crusade to make the world safe for democracy?

  The short answer is that we would have had a banker’s bank designed to provide standby liquidity to the commercial banking system. Moreover, that liquidity would have been generated not from fiat central bank credit conjured by a tiny posse of monetary bureaucrats, but from self-liquidating commercial collateral arising from the decentralized production of inventories and receivables on the main street economy.

  That is to say, the 12 Federal Reserve Banks designed by the great Carter Glass in the 1913 Act were to operate through a discount window where good commercial paper would be discounted for cash at a penalty spread above the free market rate of interest. The job of the reserve banks was to don green eyeshades and assess collateral based on principles of banking safety and soundness——a function that would enable the banking system to remain liquid based on the working capital of private enterprise, not the artificial credit of the state.

  Accordingly, there would have been no central bank macro-economic policy or aggregate targets for unemployment, inflation, GDP growth, housing starts, retail sales or any of the other litany of incoming economic metrics. The level and rate of change in national economic output and wealth would have been entirely the passive outcome of interaction on the free market of millions of producers, consumers, savers, investors, entrepreneurs, inventors and speculators.

  Stated differently, Washington’s monetary authorities would have had no dog in the GDP hunt.  Whether the macro-economy slumped or boomed and whether GDP grew by 4%, 2% or -2% would have been the collective verdict of the people, not the consequence of state action.

  Likewise, honest price discovery would have driven the money and capital markets. That because there would be no FOMC at the Eccles Building pegging the overnight interest rate or manipulating the yield curve by purchasing longer term public debt and other securities. In fact, under the Fed’s original statutory charter it was not even allowed to own government debt or accept it as collateral against advances to its member banks.

  That is a crucial distinction because it means that the Fed would not have ventured near the canyons of Wall Street nor have had any tools whatsoever to falsify financial market prices. Speculators wishing to ply the carry trades and arbitrage the yield curve—–that is, make money the way most of Wall Street does today—-would have done so at their own risk and peril. Indeed, the infamous “panics” of the pre-Fed period usually ended quickly when the call money rate——the overnight money rate of the day—–soared by hundreds of basis points a day and often deep into double digits.

  Free market interest rates cured speculative excesses. The very prospect of a 27-year bubble which took finance (credit market debt outstanding plus the market value of non-financial corporate equities) from $7 trillion to $93 trillion, as occurred between 1987 and 2015, would not have been imaginable or possible. The great speculators of the day like Jay Cooke ended up broke after 10 years, not worth $73 billion after three decades.

  Notwithstanding the inherent self-correcting, anti-bubble nature of the free market, defenders of the Fed argue the US economy would be forever parched for credit and liquidity without the constant injections of the Federal Reserve. But that is a hoary myth. In a healthy and honest free market, credit is supplied by savers who have already produced real goods and services, and have chosen to allocate a portion to future returns.

  In Part 6, the difference between fiat credit and honest savings will be further explored. It is the fundamental dividing line between bubble finance and healthy capitalist prosperity.

  Needless to say, the claim that the economy would be worse off if it was based on real savings rather than central bank credit conjured from thin air is the Big Lie on which the entire regime of monetary central planning is based. It is also the lynchpin of the Warren Buffett economy.

  It is not surprising, therefore, that free market finance is an unknown  concept in today’s world. All of the powers of Wall Street and Washington militate against it.

  

  

  
  
  

  

• "We're Not All Equal When It Comes To Water" – Rich Californians Blast Conservation Efforts

  Facing an epic drought of Dust Bowl proportions, California is, in AP’s words, “sparing fewer and fewer users in the push to cut back on water usage.” Earlier this week we reported that, for the first time in decades, the state is imposing mandatory cuts for senior water rights holders. “The order applies to farmers and others whose rights to water were staked more than a century ago,” AP noted, adding that “many farmers holding those senior-water rights contend the state has no authority to order cuts.”

  This of course comes on the heels of an executive order from Governor Jerry Brown which went into effect on June 1 and calls for cities and municipalities to cut consumption by between 25% and 36%, cuts which, while feasible for the likes of Santa Rosa, which can afford to give away 50,000 low-flow toilets, are unrealistic for other, more fiscally challenged locales. And while some good samaritans are willing to sacrifice their lawns (albeit with the help of taxpayer subsidies) for the good of the state, other, more affluent Californians contend that while money may not be able to buy happiness, it should damn sure be able to buy water. The Washington Post has more: 

  Drought or no drought, Steve Yuhas resents the idea that it is somehow shameful to be a water hog. If you can pay for it, he argues, you should get your water.

   

  People “should not be forced to live on property with brown lawns, golf on brown courses or apologize for wanting their gardens to be beautiful,” Yuhas fumed recently on social media. “We pay significant property taxes based on where we live,” he added in an interview. “And, no, we’re not all equal when it comes to water.”

   

  Yuhas lives in the ultra-wealthy enclave of Rancho Santa Fe, a bucolic Southern California hamlet of ranches, gated communities and country clubs that guzzles five times more water per capita than the statewide average. In April, after Gov. Jerry Brown (D) called for a 25 percent reduction in water use, consumption in Rancho Santa Fe went up by 9 percent.

   

  So far, the community’s 3,100 residents have not felt the wrath of the water police. Authorities have issued only three citations for violations of a first round of rather mild water restrictions announced last fall. In a place where the median income is $189,000, where PGA legend Phil Mickelson once requested a separate water meter for his chipping greens, where financier Ralph Whitworth last month paid the Rolling Stones $2 million to play at a local bar, the fine, at $100, was less than intimidating.

   

  All that is about to change, however. Under the new rules, each household will be assigned an essential allotment for basic indoor needs. Any additional usage — sprinklers, fountains, swimming pools — must be slashed by nearly half for the district to meet state-mandated targets.

   

  Residents who exceed their allotment could see their already sky-high water bills triple. And for ultra-wealthy customers undeterred by financial penalties, the district reserves the right to install flow restrictors — quarter-size disks that make it difficult to, say, shower and do a load of laundry at the same time.

  In extreme cases, the district could shut off the tap altogether.

  That’s right. Soon, residents of Rancho Santa Fe may be forced to stop watering their personal chipping greens or worse still, could find themselves standing in a brown fairway. And while some might argue that asking the community to cut back by 36% is reasonable, especially considering the hamlet uses 400% more water per capita than the state average, others, like resident Gay Butler (who enjoys trail rides on her show horse and whose water bill averages around $800/month according to WaPo) are outraged:

  “What are we supposed to do, just have dirt around our house on four acres?”

   

  

  (Gay Butler)

  Here’s a look at what’s at stake should California decide to apply the same rules to rich people as they do to everyone else:

  

  

  

  Before anyone loses sleep over what those scenic views would look like if everything that’s green were to suddenly turn brown, rest assured that some wealthy Californians are prepared to take the fight to the bitter end to protect their lawns and fairways and on that note, we’ll close with a quote from Yorba City’s Brett Barbre who, when asked about the possibility that the state could compel him to put down his watering hose, said the following:

  “They’ll have to pry it from my cold, dead hands.”

  
  

  

  

  
  
  

  

• Peak Oil: Myth Or Coming Reality?

  Submitted by Gaurav Agnihotri via OilPrice.com,

  In 1956, a geoscientist named M. King Hubbert formulated a theory which suggested that U.S. oil production would eventually reach a point at which the rate of oil production would stop growing. After production hit that peak, it would enter terminal decline. The resulting production profile would resemble a bell curve and the point of maximum production would be identified as Peak Oil, a point of no return.

  

  The original peak oil curve
  Image Source: Cornell University

  Hubbert first predicted that U.S. oil production would peak in 1970 and then start declining rapidly. His prediction turned out to be partly true, as U.S. crude oil production peaked that same year, not to be eclipsed again until the shale boom began.

  

  Annual crude oil production (in thousands of barrels per year) for entire United States, with contributions from individual regions as indicated.

  “The end of the oil age is in sight, if present trends continue production will peak in 1995 — the deadline for alternative forms of energy that must replace petroleum in the sharp drop-off that follows." This is what Hubbert had to say in 1974, based on 628 billion barrels of proven oil reserves. However, his prediction didn’t turn out to be true, as global oil production continues to surge, thanks to new oilfield discoveries and improved exploration and drilling technology.

  

  World oil and other liquids supply, broken out into crude and condensate, natural gas plant liquids, other liquids (mostly ethanol), and processing gain (increase in volume from refining heavy oil), based on EIA data.

  In fact, the below graph shows that even while U.S. production declined between the 1970s and the 2000s, global crude oil production has increased consistently from 1965 to 2015 and there isn’t any bell curve depicting the peak oil phenomenon.

  

  Image created with data gathered from BP Statistical review2015.

  In short, we have yet to see evidence that we are nearing a peak in oil production. On the contrary, agencies like EIA and IEA have predicted a stable increase in crude oil production for the next few years at least.

  But supplies may not be the only, or even the most important factor when analyzing the end of the oil era. The world is making progress at moving beyond oil. So instead of discussing Peak Oil in terms of supply, perhaps it is now more useful to analyze ‘Peak Demand’.

  

  A supply- demand curve showing the conventional law of demand

  If oil prices followed the conventional law of demand, then low oil prices would result in a higher consumption rate. However, 2014 saw something remarkable happen. BP notes in its 2015 Statistical Review that energy consumption grew at just 0.9 percent in 2014, the slowest rate in almost twenty years. That came even as prices declined.

  

  The 2014 Oil Price Shock did not improve the consumption rates in North America, Europe and Eurasia
  Image Source: FT.com

  What if demand growth keeps slowing? Does this trend indicate that global demand for crude oil will eventually hit a ceiling? "Global oil demand will peak within the next two decades”, said energy expert Amy Mayers Jaffe in a recent article for The Wall Street Journal.

  What could make oil demand peak within the next two decades?

  It is interesting to note that almost 50 percent of crude oil is used for producing gasoline which is mostly used in the automobile industry. So what happens when people stop driving cars that run on gasoline?

  

  Image Source: Curious.org

  Electric Vehicle

  Global sales for electric vehicles (EVs) have risen at an amazing rate in the past few years. The market for electric vehicles in China, the U.S., and Japan, which have the highest number of conventional vehicles, are witnessing EV growth rates of 120%, 69% and 45% respectively. Although growing from a small base, EVs are steadily making progress at becoming a mainstream product.

  Although EVs are priced higher than conventional cars, their lower operating costs would offset their initial purchase price in just few years. Ucsusa.org even concludes that EV owners can save as much as $1,200 annually when compared with a conventional vehicle (27mpg) running on gasoline at $3.50 per gallon.

  If and when EVs become mainstream, demand for gasoline and crude oil will start declining.

  Another noteworthy development comes from auto major Audi, which recently created a ‘blue crude’ which can be converted into a carbon neutral ‘e-diesel’ using a simple three step process. This new technology is getting the full support of the German government as it produces lesser CO2 emissions and could be a potential game changer in the near future.

  Whether or not EVs become the most sought after technology in the future, it is clear that scientists and engineers are developing ways of moving beyond oil for transport.

  Renewables

  There are not a lot countries that still generate electricity using oil, but there are a few. Saudi Arabia stands out. But Saudi Arabia is reportedly planning to add around 54 GW of power by 2032 from renewables, out of the total power around 41 GW would be from solar energy. “In Saudi Arabia, we recognize that eventually, one of these days, we’re not going to need fossil fuels. I don’t know when – 2040, 2050 or thereafter. So we have embarked on a program to develop solar energy. Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power,” oil minister Ali Al Naimi of Saudi Arabia said at a conference in May.

  The biggest factor that supports renewables is their growing affordability. As costs of production continue to decline, renewables will continue to edge out fossil fuels in a variety of sectors. For the few countries that still use oil for electricity, renewables will slash oil demand.

  

  China’s huge demand for oil – It can’t last forever

  Bolstered by strong internal demand and robust economic growth rate, China is the world’s second biggest consumer of oil after the U.S.

  

  China imported around 5.5 million barrels per day in month of May, a steep decline from the record 7.4 million barrels per day in April as its refineries were down for their annual maintenance. However, oil markets could be in for a shock from China soon, as the Asian giant is currently busy filling up its strategic petroleum reserves (SPR) thanks to low oil prices.

  China already has more than 12 SPR sites and it plans to further increase its SPR capacity from 250 million barrels to 500 million barrels by 2020. So what happens once this target is achieved? “We need to understand the dilemma of hidden demand in China, where you have two types of demand – normal demand and strategic stockpiling. The latter won't last forever,” this is what Jamie Webster of IHS had to say in a recent interview with Reuters.

  What happens when China’s huge appetite for oil starts reducing in the coming years? It would bring the world economy even closer to peak oil demand.

  

  

  
  
  

  

• China Completes Island Construction, Will Now Build Military Facilities

  “I’m an amateur student of history and I’m reminded of … how Germany was testing the waters and what the response was by various other European powers… But unfortunately, up to the annexation of the Sudetenland, Czechoslovakia, the annexation of the entire country of Czechoslovakia, nobody said stop. If somebody said stop to Hitler at that point in time, or to Germany at that time, would we have avoided World War II.”

  That piece of revisionist history is brought to you by Benigno Aquino and is excerpted from a speech the Philippine President gave to the Japanese parliament earlier this month. 

  Aquino was of course referring to China’s controversial land reclamation efforts in the South China Sea. Beijing’s construction of some 2,000 acres of new sovereign territory atop reefs in the Spratly archipelago has alarmed the country’s neighbors and drawn sharp condemnation from Washington, with President Obama accusing China of “throwing elbows” and using its size and relative to power to “bully” nations with competing South China Sea claims and Defense Secretary Ashton Carter assuring Asia Pac allies that the US will sail and navigate wherever it pleases. 

  For its part, China has ratcheted up the rhetoric, saying its Navy and Air Force will adopt “offensive” strategies if necessary and claiming that, if threatened, it will establish a no-fly zone over its new islands. The US also claims Beijing had at one point positioned artillery in the Spratlys although it has apparently been either moved or hidden since being spotted by a PA-8 Poseidon spy plane. 

  The Philippines, in an effort to counter a series of Chinese documentary films that aired in 2013, ran a video called “Karapatan sa Dagat” or “Maritime Rights” on Independence Day. Reuters has more:

  “Our objective is to inform our people,” Charles Jose, the foreign ministry spokesman, said adding they hoped to “rally support of our people behind our Philippine government’s policy and action”.

  
  

   

  The Philippines has filed an arbitration case against China, which claims almost the entire South China Sea, believed to be rich in energy resources and where $5 trillion ship-borne trade passes every year. Brunei,

   

  Malaysia, Vietnam and Taiwan also have claims on the sea.

   

  In 2013, China’s state-run CCTV network aired an eight-part documentary called “Journey on the South China Sea”, a rare peak into how Beijing was trying to consolidate its claims in the disputed sea.

   

  The “video war” comes as China rapidly expands its footprint in the South China Sea, constructing at least one airstrip and other military facilities on reclaimed land in the Spratly islands.

  Now, the Chinese foreign ministry is out with a statement indicating the country has nearly completed its construction projects. While this could be viewed as a sign that China has effectively backed down, albeit on its own terms and at its discretion (i.e. saying the project is “complete” is something different than saying the project has been halted due to international pressure), that will likely come as no consolation to the US and its allies because even as China signaled an end to its dredging activities, it also implicitly admitted that it will continue to build military facilities on the islands, although this was buried in the fine print.

  “Apart from satisfying the need of necessary military defense, the main purpose of China’s construction activities is to meet various civilian demands and better perform China’s international obligations,” the foreign ministry said, before saying that “after the land reclamation, we will start the building of facilities to meet relevant functional requirements.”

  Since one of the “relevant functional requirements” is “satisfying the need of necessary military defense,” it seems China will continue to construct just the type of facilities on the islands that have become the subject of intense controversy. WSJ has more color:

  China said it is shifting work on disputed South China Sea islets from the dredging of land to the construction of military and other facilities as it pushes forward with a program that has aggravated tensions with the U.S. and neighbors.

   

  
  

   

  Analysts say the imminent end to China’s island-building work could signal a willingness to seek compromise with Washington and rival claimants in the South China Sea, even as it demonstrates Beijing’s ability to unilaterally dictate terms in the long-standing dispute.

   

  “This is a step toward halting land reclamation, which the U.S. has demanded, and at the same time, China can tell its people that it has accomplished what it wanted to do,” said Huang Jing, an expert on Chinese foreign policy at the Lee Kuan Yew School of Public Policy in Singapore.

   

  “China unilaterally started the land reclamation and now China is unilaterally stopping it,” Mr. Huang said. “China is showing that—as a major power—it can control escalation, that it has the initiative, and that it can do what it sees fit for its interests.”

  
  

  The Philippines’ Foreign Ministry said it is awaiting official confirmation from Beijing on its Tuesday statement, while the Vietnamese and Malaysian foreign ministries and the U.S. Embassy in Beijing didn’t immediately respond to requests for comment.

   

  China’s statement came on the final day for Beijing to submit comments to an international arbitration tribunal that is considering the Philippines’ territorial claims in the South China Sea.

  For its part, China wants nothing to do with arbitration proceedings in The Hague, contends The United Nations has no jurisdiction, and says it will not recognize the tribunal’s verdict.

  In other words, expect tensions to rise over the coming months as the supposed “completion” of Beijing’s “sand castle” building simply means China will now move into the next phase of development which is apparently the installation of military facilities.

  *  *  *

  Full statement from Chinese foreign ministry:

  The construction activities on the Nansha islands and reefs fall within the scope of China’s sovereignty, and are lawful, reasonable and justified. They are not targeted at any other country, do not affect the freedom of navigation and overflight enjoyed by all countries in accordance with international law in the South China Sea, nor have they caused or will they cause damage to the marine ecological system and environment in the South China Sea, and are thus beyond reproach.

  It is learned from relevant Chinese competent departments that, as planned, the land reclamation project of China’s construction on some stationed islands and reefs of the Nansha Islands will be completed in the upcoming days.

  Apart from satisfying the need of necessary military defense, the main purpose of China’s construction activities is to meet various civilian demands and better perform China’s international obligations and responsibilities in the areas such as maritime search and rescue, disaster prevention and mitigation, marine scientific research, meteorological observation, ecological environment conservation, navigation safety as well as fishery production service. After the land reclamation, we will start the building of facilities to meet relevant functional requirements.

  China is committed to the path of peaceful development. She follows a foreign policy of forging friendship and partnership with her neighbours, and a defense policy that is defensive in nature. China remains a staunch force for regional peace and stability. While firmly safeguarding her territorial sovereignty and maritime rights and interests, China will continue to dedicate herself to resolving relevant disputes with relevant states directly concerned, in accordance with international law, through negotiation and consultation on the basis of respecting historical facts, pushing forward actively the consultation on a “Code of Conduct in the South China Sea” together with ASEAN member states within the framework of fully and effectively implementing the Declaration on the Conduct of Parties in the South China Sea. China will continue to uphold the freedom of navigation as well as peace and stability in the South China Sea.

  

  

  
  
  

  

• "Free Labor" Or "Slave Labor" – Hillary's Unpaid Intern Hypocrisy

  What difference does it make? In yet another gross exposure of Hillary hypocrisy, The Guardian reports that the great savior of “everyday Americans”, promising to fight for fairness for working Americans; She who proclaims $15 per hour minimum wage is fair for all, is in the midst of a ‘hiring freeze’ of paid organizing positions, forcing experienced grassroots campaign workers to offer their services for free, unpaid internships.

  As The Guardian reports,

  Experienced, adult political operatives who want to do grassroots work for Hillary Clinton’s presidential campaign currently have no choice but to work as unpaid, full-time interns, raising new questions about how the White House frontrunner runs her own labor force as she prepares to double down on young people’s role in the American economy.

   

  The Clinton campaign is currently in the midst of what multiple Democratic sources described as a “hiring freeze” for paid organizing positions in the early campaign states where the former Secretary of State is laying the foundations of a massive national staff, with few if any paying jobs available for field operations.

   

  Clinton’s camp has made headlines about its frugality and a hard sell on its fellowship program, which allows aspiring politicos between the ages of 18 and 24 to spend this summer as full-time campaign volunteers. The result, however, is the human-resources reality of a campaign – one scheduled to hold at least 26 fundraisers this month alone – that isn’t just taking on college students with political science degrees but expecting political veterans to gamble their careers on her without pay.

   

  Clinton, according to her would-be employees, has left full-time organizers with little choice but to criss-cross the country and work as “free help”.

   

  The Guardian has identified at least five “Organizing Fellows” on Clinton’s current field team in Iowa alone who held paid positions on national political campaigns during the 2014 midterm elections.

  As Reuters reports, social media is not enthused by this mindboggling fact…

  

   

  Kevin Geiken, a longtime Democratic operative in Iowa, said he had tried to hire several former campaign staffers for paid political consulting jobs, only to be turned down by operatives who instead chose to work for Clinton gratis.

  “It boggles my mind,” he told the Guardian in an interview. “From their perspective, they’ve got to put in their time in this campaign now to get hired later.”

   

  Geiken said he understood the Clinton team was taking “great advantage in having free help that is already trained” – just that he “can’t understand why any of them would accept it”.

   

  A veteran Democratic strategist unaffiliated with any presidential campaign said he thought Clinton was sending a mixed message by hiring hundreds of advisers to focus on a policy message around income inequality, only “to hire people as interns and treat people as free labor who have already done the job before”.

   

  “It is a really terrible way to treat the most vulnerable people on campaign staff and makes me question their leadership on everything else,” the strategist told the Guardian.

   

  …

   

  “If Secretary Clinton wants to show she’s serious about economic opportunity for young people, that has to start with her campaign,” said Mikey Franklin of the Fair Pay Campaign.

  “It’s wrong that they are not paid because they are giving their labor and labor should be compensated,” he said.

  *  *  *

  Perhaps, a rephrasing of the campaign slogan should be “do as I say, not as I do.”

  

  

  
  
  

  

• The Economic Alamo

  Submitted by Jeff Thomas via Doug Casey's International Man blog,

  “And it came to pass in those days, that there went out a decree from Caesar Augustus, that all the world should be taxed.” – Luke 2:1, New Testament

   

  “Since the beginning of recorded history, the business of government has been wealth confiscation.” – Ron Holland

  It’s a common assumption that governments exist in order to serve the people of a country and that in order to do so, they must be accorded the necessary evils of power and taxation. I believe that the opposite is true, that in the perception of those who rule, power and the ability to exact tax are the very purpose of government, and service to the people is merely a justification for that pursuit.

  This condition is perennial. Throughout history, rulers have maximised their power over their minions and, likewise, have exacted as much taxation as they have been able to get away with. Consequently (and quite understandably), it’s always been the norm for people to try to protect their wealth, however large or small, from confiscatory taxation.

  Taxation is, of course, legalised theft. It is never collected voluntarily, as it might be with a charity or place of worship; it is taken by force. (If you don’t agree, try refusing to pay.)

  Centuries ago, those who had acquired a measure of wealth might have hidden it under the floorboards or buried it in a field. However, over the last century, as long distance travel became increasingly possible, those who have possessed wealth have developed a more reliable method: store it in another country, one where the laws of confiscation are either not so rapacious, or—better still—don’t exist at all.

  The Era of the Tax Haven Blossoms

  Tax havens are not a new idea, but they didn’t come into their own until the 20^th century—a time when they flourished. Deservedly, they’ve become increasingly sophisticated and serve their clients extremely well. So well, in fact, that they’ve become a threat to those countries (mostly much larger countries) that are oppressive in their tax regimes. Eventually, these countries joined together to form the Organisation for Economic Co-operation and Development (OECD), which, despite its euphemistic name, is charged with the dual goals of ending tax havens and creating forced equalisation of taxation in most of the world’s countries, whilst they allow the primary OECD countries to do as they please (to operate independently of the forced taxation equality).

  In recent decades, the OECD have ramped up their campaign. First, they created propaganda describing tax havens as centres of “money laundering,” suggesting that money that had been obtained through criminal means was being transferred to overseas banks to disguise its source. (An excellent treatise on this subject can be found here.)

  At the same time, the OECD made a concerted effort to avoid discussing the volume of tax-haven business that actually was caused by the fact that OECD member-countries operated oppressive tax regimes, and that tax-haven clients were merely seeking freedom from economic oppression.

  The OECD have made great progress in their effort, with much of the world’s taxpaying public now believing that tax havens are merely for criminals and “tax cheats.” (More recently, the OECD have been working to create the belief that tax havens are linked to terrorism, and I predict that we shall see this effort increase dramatically in the future.)

  But now, the OECD have a greater impetus to crush the economic liberty in the world that tax havens provide. Most of the OECD countries have squeezed their populations to the limit and, wanting still more, have turned to massive, unpayable debt as a solution.

  Just like an addiction to heroin, this dependency on a level of money that’s beyond what can be taxed has led these countries to a desperate impasse: the economic system itself is on the verge of collapse and nearing the end of their ability to maintain the cost of their overreach. They are redoubling their efforts to limit the activities of the world’s tax havens.

  The Last Holdout

  In recent years, we’ve seen one law after another passed in the EU, the US and other First World countries, laws that allow for greater capital controls and the confiscation of wealth by banks and governments.

  In addition, governments are passing legislation that increasingly limit the ability for an individual to make currency transactions. Whether spending, receiving payment, depositing or withdrawing, the freedom to transact is attracting greater scrutiny. (The ultimate stage will be the need to request permission to make any transaction.)

  Since the early 2000s, several associates and I have tracked this development and termed it “The Great Race.” The OECD countries hope to gain total control over tax havens before their over-taxation and debt cause their economies to collapse.

  If they fail to gain complete control prior to that time, they may not economically be able to take control after that. Although we’ve watched developments closely over the years, I must confess, we’re no closer to knowing whether they’ll win the race… It will be close.

  On the surface, it would seem that the outcome wouldn’t matter much one way or the other. After all, the collapse of these economies, although possibly not imminent, is nevertheless inevitable. Sometime in the next few years, one trigger or another will bring down the economic house of cards. So, if the tax havens are destroyed in the meantime, why could they not simply reinvigorate themselves post-crash?

  The problem is that if the OECD nations win the Great Race, the last bastion of economic sanctity—the tax havens—would have fallen, and much of the wealth they now contain might already have been transferred to the dying empires.

  Like gold going down in 17^th century Spanish galleons, it would be a long time before that wealth would be likely to resurface in the hands of those who are productive. It would have been squandered by the rulers of the OECD member-nations in their last gasp of world economic domination.

  This does not mean that the world would never recover. After all, wealth is never destroyed; it only changes hands from time to time. But it could very well mean that, as in the aftermath of the collapse of the Roman Empire, sufficient wealth was not in the hands of those who are by nature productive. Therefore, a return to a productive free market would likely be slow in developing.

  Historically, whenever collectivism has become total, recovery in its aftermath has always been slow.

  And so the race is on—in a very big way. The world’s tax havens are, today, the last bastions—the Alamo—for the free ownership of wealth, and no one can say for certain to what degree the OECD nations will succeed in their quest prior to their economic fall.

  To be sure, many low-tax and no-tax jurisdictions have been taking the position that “The OECD have the biggest guns. If we can only placate them for a bit longer and remain in business in some form until they collapse, we’ll be poised for recovery once the dust has cleared.”

  In the meantime, many residents of OECD countries, who are only now figuring out that their governments are closing in on their wealth, are questioning whether there is any point in moving their money to jurisdictions where the laws are less confiscatory. They tend to say, “But if the OECD are going after the tax havens, what good will it do for me to diversify my wealth? They’ll get it all in the end anyhow.”

  There’s certainly logic in that reasoning, but as any long-term investor who is familiar with the benefits of tax havens will say, “There is no guarantee your government won’t strip you of your wealth, but there never was.

  The whole point has always been to not be the low-hanging fruit. Get your wealth as far removed from countries whose objective is to take it from you. In doing so, you raise the odds that you’ll retain your wealth… At the very least, you’ll be the last to be victimised and you might escape altogether.”

  In essence, the world’s tax havens are the economic Alamo—the last holdout against world economic domination. In a few years, we’ll know whether they’ve succeeded in preserving economic freedom for the future.

  

  

  
  
  

  

• Well That Was Not Supposed To Happen

  The bigger they are the harder they will eventually fail… and the more taxpayer funds will be confiscated to fix them!

   

  

   

  h/t @anatadmati