• Greece Owes $1.2 Billion To Drugmakers As Government Can No Longer Afford Basic Medical Supplies

  Talks between Greece and its creditors went full-retard on Wednesday when the following soundbite from Canada’s FinMin Joe Oliver hit the wires:

  “No Greek payment to IMF would be default to IMF”

  That seemed self-evident to us, but in a world governed by debt, we suppose everyone occasionally needs to remind themselves that failure to make good on one’s obligations constitutes default.

  In any event, Greece apparently owes quite a bit of money to the world’s drug suppliers because, as we reported earlier this week, Athens is now running short on bed sheets and painkillers in its hospitals as the consequences of being completely beholden to the ”institutions” which control the printing of a fiat currency become increasingly clear.

  Here’s what we said on Sunday:

  The idea that a developed country cannot provide basic emergency medical care because it is in poor standing with the institutions that print a fiat currency is patently absurd and simply isn’t tenable meaning that one way or another, this ‘situation’ will resolve itself in the coming weeks, an event which will put Europe’s broken bond markets to a rather difficult test.

  And now, we get this from Reuters:

  Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than 1.1 billion euros ($1.2 billion), a leading industry official said on Wednesday.

   

  The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines.

   

  Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.

  And in a further sign that, regardless of whatever outcome emerges from fraught talks between Syriza and group of creditors determined to use financial leverage as a means of subverting the democratic process in the EU, contingency plans are being discussed not only amongst ‘the institutions’ but amongst private sector firms as well:

  Drugmakers and EU officials are now discussing options in the event Greece defaults on its debt or leaves the euro zone, disrupting imports of vital goods, including medicines.

   

  “We have started a conversation in Brussels with the European Commission,” Bergstrom said. “We want the Commission to know that our companies are in this for the long run and are committed to Greece.”

   

  There is a precedent for the pharmaceutical industry to agree exceptional supply measures during a financial crisis. It happened in Argentina in 2002, when some firms agreed to continue to supply drugs for a period without payment.

   

  But the situation is complicated in Europe, given EU competition rules. They mean the Commission would need to take the initiative in approving any special scheme.

   

  Drugmakers want any emergency program to include steps to mitigate spillover effects on other markets, including curbs on re-exports of drugs and a block on other governments referencing Greek prices when setting their own drug prices.

   

  Simply turning off the supply is not an option for the industry, as Novo Nordisk discovered at the start of Greek debt crisis five years ago when it faced a storm of protest over plans to halt some insulin deliveries.

  And while leaving Greeks with a shortage of “life-saving” drugs may “not be an option,” Greece has run out of options as well when it comes to coming up with the money to pay for basic medical supplies which means that without a deal, the world’s largest drugmakers could find themselves in the same financial place as the IMF and the ECB — that is, holding what amounts to IOUs from the Greek government. 

  The drugs industry has been here before. Greece also ran up large debts for its medicines in 2010-12, although they have since been repaid, with some companies receiving payment in government bonds that were subsequently written down in value.

  Whether or not this is a precedent the industry will be willing to follow remains to be seen.

  

  

  
  
  

  

• Even If Patriot Act Expires, Government Will Keep Spying On All Americans

  Mass surveillance under the Patriot Act is so awful that even its author says that the NSA has gone far beyond what the Act intended (and that the intelligence chiefs who said Americans aren’t being spied on should be prosecuted for perjury).

  Specifically, the government is using a “secret interpretation” of the Patriot Act which allows the government to commit mass surveillance on every American.

  So it’s a good thing that the Patriot Act may expire, but don’t get too excited …

  Wikileaks’ Julian Assange said today:

  Our sources say that the NSA is not too concerned, that it has secret interpretations of other authorities that give it much the same power that it would have had under the secret interpretation of 215 and other areas of the USA PATRIOT Act.

  ZDNet agrees … and notes that Congress doesn’t even know about many of the government’s spying programs. And see this.

  Indeed, the government now uses secret evidence, secret witnesses, secret interpretations, and even secret laws. See this and this.

  High-level NSA whistleblower Thomas Drake told us:

  It’s not rule of law. This secret law, secret rule, executive authoritarianism has saddled up again.

  EFF notes:

  Under international human rights law, secret “law” doesn’t even qualify as “law” at all.

   

  ***

   

  This includes not just the law itself, but the judicial and executive interpretations of written laws because both of those are necessary to ensure that people have clear notice of what will trigger surveillance.

   

  This is a basic and old legal requirement: it can be found in all of the founding human rights documents. It allows people the fundamental fairness of understanding when they can expect privacy from the government and when they cannot. It avoids the Kafkaesque situations in which people … cannot figure out what they did that resulted in government scrutiny, much less clear their names. And it ensures that government officials have actual limits to their discretion and that when those limits are crossed, redress is possible.

   

  ***

   

  To bring the U.S. in line with international law, it must stop the process of developing secret law and ensure that all Americans, and indeed all people who may be subject to its surveillance have clear notice of when surveillance might occur.

  Remember, the Nazis claimed – just like the NSA – that the truth was too complicated and dangerous to disclose to the public. That was B.S. then … and it's B.S. today.

  Top NSA whistleblower Bill Binney told us that nothing will change unless we fire all of the corrupt officials within the NSA and other government agencies.

  Constitutional and civil rights attorney John Whitehead agrees:

  It doesn’t matter who occupies the White House: the secret government with its secret agencies, secret budgets and secret programs won’t change. It will simply continue to operate in secret until some whistleblower comes along to momentarily pull back the curtain and we dutifully—and fleetingly—play the part of the outraged public, demanding accountability and rattling our cages, all the while bringing about little real reform.

   

  Thus, the lesson of the NSA and its vast network of domestic spy partners is simply this: once you allow the government to start breaking the law, no matter how seemingly justifiable the reason, you relinquish the contract between you and the government which establishes that the government works for and obeys you, the citizen—the employer—the master.

   

  Once the government starts operating outside the law, answerable to no one but itself, there’s no way to rein it back in, short of … doing away with the entire structure, because the corruption and lawlessness have become that pervasive.

  

  
  
  

  

• Julian Assange On The TPP: "Deal Isn't About Trade, It's About Corporate Control"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  It’s mostly not about trade. Only 5 of the 29 chapters are about traditional trade.

   

  – Julian Assange in a recent interview with Democracy Now

  I’ve focused a little bit more of my attention on the Trans-Pacific Partnership lately, as the Obama Administration scrambles to attain “fast-track” authority from Congress.

  The content of this unbelievably dangerous gift to multi-national corporations is being kept secret from the public, and for very good reason.

  *  *  *

  For some background on the TPP and where it stands, see:

  Trade Expert and TPP Whistleblower – “We Should Be Very Concerned about What’s Hidden in This Trade Deal”

  As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP

  *  *  *

  What little we know about the TPP has come from whistleblower site, Wikileaks. This is what Julian Assange thinks of this “trade” treaty in his own words.

   

  

  

  
  
  

  

• "Ms. Wantanabe" Bets On Resurgent Yen As PE Cashes Out

  Make no mistake, we have had our fair share of laughs at the expense of China’s equity mania, with the millions of new trading accounts opened by semi-literate housewives and security guards-turned day traders serving as the anchor for many an amusing post. 

  

  But as it turns out, China isn’t the only place where housewives are keen to express their view on financial markets because as you can see from the below, ‘Ms. Watanabe’ is positioning for a stronger yen even as Mr. Kuroda plunges Japan further into the largest ponzi scheme in the history of mankind in an effort to stoke hyperinflation to ‘rescue’ the country from a decades-long battle with deflation.

  Via Nikkei:

  Japanese day traders, colloquially and collectively known as “Mrs Watanabe”, are buying the yen as it nears eight-year lows, suspecting that policymakers would be reluctant to let the currency fall further as it would provoke criticism at home and abroad.

   

  Last week, net dollar buying positions on the Tokyo Financial Exchange, Japan’s largest margin trading platform, had fallen almost 60 percent from a high hit in January, to stand among the lowest levels seen in the past year.

   

  At Gaitame.com, another platform popular among margin FX traders, traders have even gone long in yen for the first time since late 2012, when Prime Minister Shinzo Abe was voted into power promising to reflate the economy through massive monetary stimulus, said Takuya Kanda, senior researcher at Gaitame.com Research…

  So far at least, it looks like Japanese housewives may be getting squeezed because the JPY just hit an eight-year low against the dollar…

  

  …but ‘Ms. Watanabe’ is a contrarian soul and apparently won’t be deterred…

  Last week, the dollar finally broke out of its long-held, tight range between 119 and 121, edging up near the eight-year high of 122.04 yen touched in March.

   

  Given the breakout, the dollar/yen’s technical outlook is bullish, usually a good time for day traders to buy dollars.

   

  Yet, Japanese day traders are selling the dollar instead.

  Whether that’s a good idea ahead of a widely-anticipated Fed rate hike and expectations that the BoJ will ease further in the event wage growth continues to disappoint and disinflationary pressures persist is certainly debatable but one thing is for sure, private equity has benefited handsomely from stakes in publicy-listed Japanese companies as Kuroda’s multi-trillion yen plunge protection has done wonders to help the Nikkei levitate. Reuters has more:

  U.S. buyout funds Bain Capital and Cerberus Capital Management sold big stakes in two Japanese companies as the stock market surges – taking profits and avoiding an expected bout of volatility if the U.S. Federal Reserve raises rate later in the year, investors said.

   

  The buyout specialists’ sales came as the market capitalization of shares listed on the Tokyo Stock Exchange’s main board hit a record high last week, surpassing the previous peak hit in December 1989, as Prime Minister Shinzo Abe deployed pro-growth economic policies to boost investor sentiment.

   

  U.S. buyout firm Bain Capital is selling down its 70 percent stake in Japanese restaurant chain Skylark Co to less than half.

   

  Skylark shares closed at 1,685 yen on Tuesday, 40 percent above the 1,200 yen at which Bain sold the stock in an initial public offering last year.

   

  U.S. fund Cerberus last week launched the sale of up to $878 million worth of its shares in rail operator Seibu Holdings

   

  “Recent sell downs of shares held by those buyout funds is a reflection of the surge in Japan’s stock market,” said Soichi Takata, head of private equity at Tokio Marine Asset Management Co. “But buyout firms are also probably mindful of the possible increase in market volatility later this year when U.S. interest rates begin to rise.” 

  Incidentally, Paul Singer is also exiting “ripe” positions in Japan:

  Real estate securities also continues to be an area of current deployment of capital in new situations, but the deployment is more than offset by liquidations of ripe positions in certain markets, especially Japan.

  Should ‘lift-off’ in the US stoke volatility in Japanese equities you can certainly expect the BoJ to move in with still more ETF (and perhaps individual stock) purchases because after all, you can’t designate your $100 billion equity book as “held-to-maturity”, meaning Kuroda will be forced to keep up the 35 billion yen daily market interventions for as long as absolutely possible lest a sell-off should blow a massive hole in the central bank’s balance sheet and that means running the printing presses until they begin to smoke and short circuit. What that will mean for all of the ‘Ms. Watanabes’ betting on a resurgent yen remains to be seen, but it will likely be supportive for Japanese equity markets which will help PE giants like Carlye Group take portfolio companies like Tsubaki Nakashima Co public and reap hefty profits in the process:

  While there are not many public company shares held by private equity firms in Japan, U.S. buyout fund Carlyle Group owns almost all the shares in ball bearing maker Tsubaki Nakashima Co and the buyout fund could list the shares in the near future after failing in 2012, calling off an initial public offering of the company citing market conditions.

  For Carlyle in Japan then, it truly is “all ball bearings these days.” 

  

  

  
  
  

  

• In Support of Ubers of the World

  By Chris at www.CapitalistExploits.at

  Recently I read how Uber is blitzing London’s black cabbies. God, it couldn’t have come sooner!

  I spent my 20s living in London and whenever I landed up taking a black cab in London it was usually after I’d had too many drinks and my cognitive powers had gone kaput. I blame the fog of alcohol for that as there is simply no other explanation for being ripped off.

  The shock when looking at my wallet the following morning came not from what had been spent on food and drink, but on what had been spent on a ride in a rattly old wagon of a vehicle that hasn’t had a design upgrade since Henry Ford decided horses were too slow.

  In fact, I’d come to think that there were no homeless people on London’s streets, the “homeless” were merely office workers who’d missed the last tube home and couldn’t bear spending their weeks paycheck on a black cab.

  Competition in the form of Uber is now providing a better, cheaper and more efficient service. It makes my heart leap for joy.

  This is possibly the best thing to happen to the British way of life since the country was invaded by India and Pakistan, causing the widespread displacement of dingy eating houses smelling of grandmas’ curtains, hocking sausages and mash, with an incredible array of ethnic restaurants all selling delicious tasting cuisine.

  

  Now, there was some truth to the value that a London cabbie could bring to the exchange. In order to get a license cab, drivers need to learn the streets of London like the back of their hand. No small task, I assure you. And as a passenger I would find that valuable if it weren’t for this piece of technology that made such knowledge largely obsolete – the GPS that sits on your smart phone.

  Of course Londoners are not the only beneficiaries. The Americans have had it long before and it’s been working magic on their shores.

  Driving a car is something that a teenager can and does do. It doesn’t require any particular level of skill. Recently NY medallions have been selling for over $1M. How on earth do we get to such an absurd situation where it costs over $1M in order to be “allowed” to drive a taxi in New York City?

  Whenever we find absurdities where market forces are not left to solve problems, we find a market skewed by regulations where a tiny elite benefit while the majority suffer.

  To understand why New York medallions sell for what seems to be an absurd price we need only look at the manipulation of the taxi market, namely a mandated limiting of supply of taxis. There are just over 13,000 medallions sold and they are strictly limited in supply.

  This in itself is absurd. It’s the antithesis of a free market but nevertheless, the real reason that they are selling for ever increasing sums is due to the bond market.

  Yup! The income stream from a medallion is pretty steady and as such the medallion is essentially a bond.

  As we detail in our extensive report on global debt markets, interest rates have been butchered by successive central bankers so the hunt for yield has accelerated. If, for example, you can earn just $100,000 annually from your medallion, you’re looking at a 10% return. In today’s environment that looks pretty attractive. Even if you’re paying someone else to drive for you and that amounts to, say, $50,000 you’re still netting a real return of 5%. Again, not too bad in today’s yield starved world.

  

  There are changes afoot in the bond market. Little do most purchasers of New York medallions realise that their actions are a result of central bank meddling.

  I suspect that medallion purchasers are going to get hit from two sides. One from the repricing of risk in the global debt markets and two from disruptive technologies laying waste to archaic industries and practices.

  There will always be those who mourn the loss of London’s black cabs and I say let them mourn. Not that long ago there was an outcry that we’d no longer have these things:

  

  Remember them?

  Now, I ask you to choose…

  

  Yeah, I thought so. Me too!

  I realise that many readers are reading this as it’s largely for financial and investment reasons.

  I don’t have any particular thoughts on the current round of financing on Uber which values the company at $50 billion, other than to say that I’ve not quite figured out in all honesty why Uber is so special. There are no particular barriers to entry in this market, and it looks awfully like Uber is being valued like a monopoly.

  Clearly they’ve shone the brightest thus far but this is a very short timeframe we’re talking about here. On the plus side, they actually have revenues, unlike Groupon who rose like a Phoenix only to collapse post IPO.

  Certainly I think what Uber highlights more than anything is the very real fact that there are markets screaming out for disruption.

  I’m in favour of Uber’s everywhere. I have written about disruptive industries and Uber is a great example of disruption to the taxi world. And it’s coming to the financial world too.

  Some of the markets we’ve got our eye on in the venture capital space which are ripe for disruption are:

  • healthcare;
  • banking;
  • finance;
  • insurance;
  • legal work;
  • accounting;
  • education;
  • insurance;
  • data of all kinds.

  As I contemplate the list of private companies sitting in our due diligence pipeline, I’m terribly excited by the world that awaits. There are some truly enormous problems that the global economy faces, which we’ve detailed repeatedly on the blog.

  One of those is a very real threat of capital moving rapidly out of current “safe” investments. At the same time, there are companies who are moving to take advantage of the current dysfunctional and broken system we have. This is one of the themes we’re actively investing in via Seraph. Sometimes it takes chaos to bring about change…

  – Chris

   

  “A free and open internet is a despot’s worst enemy.” – Jay Samit

  

  
  
  

  

• Crony Capitalism At Work – Boeing Threatens To Leave US If Ex-Im Subsidy Yanked

  Submitted by Veronique De Rugy via The National Review,

  When has crony capitalism really gotten out of control? How about when a major U.S. corporation (a huge defense contractor, no less) is publicly threatening government officials to leave the country if the federal government doesn’t continue to boost their profits through government handouts:

  Boeing is stepping up pressure on opponents of the US Export-Import Bank with threats to shift manufacturing abroad if the agency that finances purchases by foreign customers is killed off next month.

   

  The threats come as a new push is being made in Congress to find ways of wresting reauthorisation of the bank from a committee controlled by one of the agency’s fiercest opponents.

   

  Scott Scherer, Boeing’s head of regulatory strategy at Boeing Capital, said the aerospace and defense group would “not sit idly by” if the ExIm Bank’s mandate was not renewed by the end of June. “Boeing is not going to let itself be hurt by the lack of an ExIm Bank,” he said in an interview with the Financial Times. “If it means sourcing … to other countries who will support us we may have to look at that. Other countries have more aggressive export policies. We will find an alternative.”

  First, let me state the obvious: This basically sounds like blackmail to me, and I don’t think lawmakers should look at this kind of behavior favorably.

  Second, it’s time for Boeing executives to understand that it’s not the role of the federal government to guarantee that they can sell as many planes as possible — they’ve benefited from the U.S.’s relatively free-market system; they should have to live with it.

  And finally, I don’t think Boeing’s threat is very credible. Will Boeing really pick up its factories and move abroad if Ex-Im isn’t reauthorized? Is the possibility other governments might subsidize it really worth the transition costs and the risks of losing billions in defense contracts?

  Thankfully, Jeb Hensarling, chairman of the House committee with jurisdiction over Ex-Im, called Boeing’s bluff:

  The Republican chairman of the House Financial Services Committee rejected reports that Boeing Co. or other companies might move production overseas if Congress doesn’t reauthorize the U.S. Export-Import bank.

   

  “I doubt I believe it,” Representative Jeb Hensarling of Texas said at a Washington press conference Tuesday about whether failing to extend the bank’s charter would drive major corporations out of the U.S. “I think it’s frankly a bit of bluster.”

   

  Boeing, based in Chicago, might move some manufacturing overseas if Congress doesn’t extend the bank’s charter beyond June 30, the Financial Times reported May 17. It cited an interview with Scott Scherer, head of regulatory strategy at Boeing Capital.

   

  Hensarling said he and others who oppose reauthorizing the Export-Import Bank are trying to “lead the party in a new direction” that will give priority to free enterprise over individual business interests.

  Letting the Ex-Im Bank’s charter expire will go a long way to show that Republicans understand the difference between being pro-business and being pro-market — even if Boeing doesn’t.

  

  

  

  
  
  

  

• Artists's Impression Of This Week's US Foreign Policy Meeting

  Presented with no comment…

   

  

   

  Source: Townhall

  

  

  
  
  

  

• Florida Man Arrested After Limping From Pawn Shop With AK-47s Stuffed Down His Pants

  You know it's bad when…

   

  Meet Marlon Paul Alvarez, 19, of Fort Lauderdale, Florida…

  

   

  He faces grand theft charges after he was seen stuffing assault rifles down his pants at a pawn shop in Davie. As The Sun-Sentinel reports, made his first appearance in court Wednesday…

  Broward Judge John Hurley expressed concern about Alvarez's behavior.

   

  "You allegedly went into that pawn shop and removed an AK-47 rifle on display and stuck it down your pants," the judge read from the arrest report. "After a while, [you] pulled it out, put it back, then grabbed another assault rifle off another display [and] put that down your pants."

   

  The owner of Public Pawn and Gun at 6798 Stirling Rd. noticed Alvarez limping out of the store with the assault rifle down his pant leg about 11:30 a.m. Tuesday, police said.

   

  Owner Kevin Hughes confronted Alvarez outside and recovered the brand new $830 weapon before Alvarez ran off, the arrest report stated. Alvarez was seen on security video and the business owner was able to identify him when the suspect was arrested a short time later, police said.

   

  Alvarez said in court he had moved to Florida from New York about one year ago and the judge noted there was a New York injunction ordering Alvarez to stay away from guns.

   

  Assistant state attorney Eric Linder asked the judge to set a high bond. "It's one thing to try to steal a firearm, it's another thing trying to steal an AK47 and potentially trying to put a stolen firearm out on the street," Linder said. Hurley set bond at $25,000 for grand theft and the violation of a domestic violence injunction.

   

  He revoked bond for a May 15 arrest on theft and drug possession charges in Pembroke Pines, Florida Department of Law Enforcement records showed.

   

  "The court was just very concerned about your alleged behavior without even knowing your criminal background," Hurley said.

  *  *  *

  Finally after all that, according to the arrest report, Alvarez confessed to stealing the rifle.

  

  

  
  
  

  

• An Insane Financial World

  Submitted by Gary Christenson via The Deviant Investor,

  We know that most western governments are deficit spending, borrowing heavily, in debt beyond the point of no return and must increase taxes and appropriations from their citizens.

  We know that politicians will take the politically expedient path instead of addressing financial problems.  We know they will “extend and pretend,” delay, and distract the populace.

  We know that war has been a nearly constant distraction since 9-11 and that a crisis is often used as a justification for economic insanity, such as borrowing more to address an excessive debt problem.  It seems likely that weakening economies, deflationary forces, excessive debt, massive unemployment, riots, economic anxiety, consumer price inflation, and so much more, will require more distractions.  We should “rig for stormy weather” and expect another crisis and more wars.

  Bankers, politicians and military contractors will benefit.  IN OUR INSANE WORLD WE MIGHT ASK:

  • What happens to our financial system and the price of gold when western central banks are no longer willing or able to ship gold to Asia in exchange for fiat currencies held by Russia and China?

  • What would happen if the Chinese government announced that it will buy gold at $2,000 per ounce to boost their stockpile? When gold is no longer available at $2,000 per ounce, might they offer $4,000 or $6,000?

  • What would happen if the central banks of the world admitted that Quantitative Easing is primarily beneficial for banks and the wealthy, and that QE has been a failure at stimulating western economies?

  • What would happen to global confidence if central banks admitted that consumer prices will rise substantially due to QE and inflation of the money supply?

  • What would happen if commercial banks announced they will charge you for depositing your currency in their bank? (Oops, that has already happened.)

  • What should we expect if banks penalize savers for depositing (loaning) currency to a bank? We should expect an increasing use of cash – actual paper notes.  But there appears to be a “war on cash” in western countries.  Discourage cash, force deposits into banks, charge for those deposits, squeeze savers as much as possible, increase controls, and boost financial system bonuses.

  • What if bail-ins occur, and the banks take your deposited funds to pay off creditors, such as other banks who bought or sold derivative contracts? (If the bail-in is announced late on a Friday and the banks are closed the next week for “restructuring” you will have no opportunity to remove your currency from the bank.  In Cyprus the insiders and politically connected escaped with their funds while many other individuals and businesses discovered their accounts had been “bailed-in.”)

  • What happens if governments eventually announce that most retirement accounts and pension plans will be required to purchase continually devaluing government issued bonds?

  • What happens if trust and confidence in the financial system are lost, banks no longer trust banks, businesses no longer trust they will be paid, and individuals no longer trust their governments or the pieces of paper we call money?

  • The Fed has reduced interest rates so investors are chasing yield in all the wrong places, such as junk bonds. What happens when many of those junk bonds, which may have been stuffed into your bond mutual funds and pension plans, are priced at their true value – much less than face value?

  What are the consequences?

  A few words come to mind:  anger, anguish, bankruptcy, betrayal, depression, recession, repression, riots, stagflation, and trauma.

  In a saner world, we will depend far less on fiat currencies that are devalued easily and inevitably.  Instead we will trust gold and silver more and paper much less. 

  My advice:  Create your own financial sanity!

  

  

  
  
  

  

• The Global Economy As Seen From "The Man In The Moon"

  Submitted by Paul Brodsky of Macro Allocation, Inc.

  
  

  The Man in the Moon – Part 1 of 5

  Summary: The Man in the Moon studies the pathology of Earth’s global economy and markets from a distance where there’s no gravitational pull towards empiricism or consensus. His findings: 1) the global economy is over-leveraged, fragile, stagnating, and increasingly centrally managed; 2) capital markets and asset performance have been captured by the perception of the ongoing value of money, and so; 3) unconventional investment analysis is prudent.

  In Part 1, TMITM identifies the point of tension driving global output growth lower: ubiquitous leverage. Part 2 discusses “The Great Leveraging.” Part 3 explores the inevitable “Great Reconciliation”. Part 4 projects economy-saving exogenous influences one should expect. Part 5 builds a general investment framework for asset allocation.

  Lunar View

  The moon is about 239 thousand miles (384 thousand km) from Earth, many times more distant than the 30,000 foot level most investors think of as perspective-inducing. If an all-sentient Man in the Moon were to cast his eye upon Earth, interested only in building wealth for himself, where might his investment process begin? (With apogee-down analysis, no doubt.)To begin, he would surely grasp the gravity of disruptive innovations within telecommunications, logistics, robotics, transportation, farming, energy, payment services, and health care sectors. Breathtaking leaps forward have benefitted the global economy through creative destruction, a natural process pushing productivity gains.

  When combined with an expanding global work force, innovation should have naturally driven the global economy to…well, economize, in turn driving consumer prices lower and affordability higher. Alas, deflation that benefits consumers would have been highly disruptive to entities that produce goods and  services and to those that rely on inflation for sustainability, like banking systems.

  Almost Copacetic

  Entering 2015, the global economy seemed poised to expand. According to the World Bank:

  ”Global growth in 2014 was lower than initially expected, continuing a pattern of disappointing outturns over the past several years. Growth picked up only marginally in 2014, to 2.6 percent, from 2.5 percent in 2013. Beneath these headline numbers, increasingly divergent trends are at work in major economies…Overall, global growth is expected to rise moderately, to 3.0 percent in 2015, and average about 3.3 percent through 2017”

  Despite such official optimism, the first quarter of 2015 is not providing hope that output is improving. Real GDP growth in the U.S. – among the growth leaders in developed economies last year – rose only 0.2 percent in the first quarter, significantly below expectations. The Atlanta Fed – the most accurate predictor of Q1 growth – further estimates Q2 output to be only 0.7 percent, implying weakness stretching beyond bad weather and port strikes. 2 And China, the world’s second largest economy and, with India, a reliable leader in output growth among emerging economies, reported Q1 nominal growth of 5.8 percent, a record low, and its Q2 trade figures show further deterioration.

  To investors, future output growth seems to be just another input into asset allocation decisions, and not a very important one at that. Equity prices – corporate and property – are generally firm across domains. Bond prices remain well-bid; official funding and sovereign interest rates remain near record lows – in fact negative in some domains – implying either economic contraction is on the horizon or there’s a relative paucity of bonds (or both). And commodity prices (determined mostly by leveraged financial players trading leveraged derivative instruments rarely taking delivery) have dropped significantly, further implying lethargic global production.

  Meanwhile, multinational businesses, each with an economy it calls home and a government to do its bidding, are aggressively allocating capital to boost short-term share values – abetted, it seems, by monetary authorities actively keeping economies and markets liquid. And although regional wars are taking human lives, confounding politicians, and adding volatility to the cost of energy, trade channels for resources remain mostly open. Lasting peace and prosperity? Hopefully…

  The Dark Side

  …but fundamental factors lie beneath the surface that pose significant threats to economies and investors. Balance sheets across the spectrum remain highly leveraged and continue to expand at a clip well beyond the rate of global output growth.
  For median households, debt levels continue to rise more than wage growth; for governments, obligations are rising more than tax revenues; for publicly-owned businesses, debt is rising faster than revenues; and for investors, debt could easily grow more than income and asset appreciation, suddenly and without warning should markets stall or fall. (If only interest rates were high enough to support another refinancing wave then monetary policy makers would know what to do!)

  Growth and bull markets may come and go, but compounding debt is forever. There is not enough existing currency for debt extinguishment. This is why debt, per se, is not the fundamental problem – leverage is. Debt simply needs to be serviced, not necessarily repaid. Leverage ratios are most troubling however one chooses to calculate them: debt-to-GDP, debt-to-income, debt-to-base money, or, the most technically accurate (and the most telling indicator so far of central bank policy), bank assets-to-base money. (More on this in TMITM Part 3.)

  Leverage reduction is generally discouraged by economic policy makers because it would create major structural problems. Indeed, in the U.S., even as bank balance sheets were de-leveraged from 2009 to 2014 through reserve-creating Quantitative Easing (QE), total credit market liabilities rose 17 percent.

  Most economists today believe economies require constant credit growth for demand and output growth. As we are seeing, however, easy credit conditions do not necessarily lead to increasing production and capital formation, both of which would provide sustainable debt-servicing capabilities.

  Increased savings rates would be just as bad to highly-leveraged economies, as it would decrease economic activity, in turn pressuring governments to invest money they don’t have and central banks to stimulate demand growth through even more credit creation, defeating the original purpose.

  Global monetary authorities are boxed. Is it any wonder they fear deflation and see improving affordability as failing to create sufficient demand through credit growth? So much for economies economizing…

  As it stands

  The marginal buyers of sovereign debt today are:

  1. leveraged liquidity providers, such as private banks and hedge funds, that do not care about ROIs in real terms, preferring to use sovereign debt to fund themselves with zero risk-weighted assets and produce nominally-positive net interest margins;
  2. central banks with infinite, un-scrutinized balance sheets looking to keep their economies liquid and their private banks solvent;
  3. currency reserve holders, like China and Japan, that cannot easily spend their reserves to buy corporate equity, and;
  4. buy-side portfolios with relative return investment mandates forcing them to stay invested in assets guaranteeing losses in absolute terms.

  While this line-up makes it easy to intellectualize low and negative interest rates, perhaps there is another, more fundamental driver: an underlying state of global economic dis-equilibrium in which:

  1. there is too much money and credit per unit of production, and therefore;
  2. real output is turning negative, and so;
  3. Equilibrium Real Interest Rates are also turning negative?

  Are negative real rates implying that credit must contract so that real production, capital formation, and employment might grow? Perhaps nominal (non-inflation adjusted) risk-free rates actually deserve to be negative given such bleak prospects for real output growth? (What would this imply about interest rate “normalization” currently contemplated by the Fed – a rate hike or a rate cut?)

  If this real-contraction premise has merit, then it might explain why interest rates are lowest (or negative) in domains most susceptible to output contraction, and why global equity markets are firm. Where else can one hope to generate risk-adjusted positive real rates of returns, especially given the likely antidote to nominal output contraction: inflation?

  Whether or not fundamentals matter, global monetary authorities must now ensure liquidity remains sufficient so that asset prices – as the collateral for systemic credit – do not fall. This is something on which TMITM can reliably bet.

  Goodnight Boom

  The global economy seems to be suffering from a late-stage paradox in the financial leveraging cycle in which nominal output growth has become counter-cyclical to real output growth. The more commerce and trade rely on credit growth and asset appreciation, the more the ultimate benefit of growing economies is diminished.

  Despite this paradox, the pursuit of demand growth and nominal GDP growth through credit growth has been immortalized into global monetary policy orthodoxy, and growth (not affordability) remains the primary metric scrutinized by most economists and investors. Such is Earth’s epic economic battle presently. In this corner, naturally occurring economic productivity gains and deflation. In that corner, policy-manufactured inflation to maintain asset values and liquidity. Ding! Ding!

  The inescapable conclusion is that real output is quickly withering, whether we deflate nominal output for contemporaneous inflation (i.e., CPI, PCE, PPI), 2% inflation targets policy makers hope to produce (e.g., the Fed, BOJ and BOE), or far more significant future inflation (via currency purchasing power loss), the seeds of which are currently being planted, that would flare suddenly in the next leveraging cycle.

  It seems clear that output growth in the future must be negative in real terms, and, ultimately, that there will have to be some kind of leverage reconciliation.

  If weaker GDP growth currently in the U.S. China, and elsewhere (and deflation in the UK) is foreshadowing a secular global economic contraction, then perhaps the course of this reconciliation will present itself sooner than most think?

  With apologies to Margaret Wise Brown:

  In the great green room
  There was a printing press
  And a television
  And a picture of –
  Global growth in distress.

  And there were three central banks, shooting economic blanks
  And global depositories
  And political suppositories
  Seventy years of coordination
  Forty years of subordination
  Thirty years of financialization

  Goodnight boom
  Goodnight soon
  Hello Man in the Moon

  TMITM – Part 2 will explore “The Great Leveraging”.

  Paul Brodsky
  Macro Allocation Inc.

  pbrodsky@macro-allocation.com
  www.macro-allocation.com

  

  

  
  
  

  

• Guest Post: Cuba – Figuring Out Pieces Of The Puzzle

  Submitted by Gail Tverberg via Our Finite World blog,

  Cuba is an unusual country for quite a few reasons:

  • The United States has had an embargo against Cuba since 1960, but there has recently been an announcement that the US will begin to normalize diplomatic relations.
  • The leader of Cuba between 1959 and 2008 was Fidel Castro. Fidel Castro is a controversial figure, with some viewing him is a dictator who nationalized property of foreign citizens without compensation. Citizens of Cuba seem to view him as more of as a Robin Hood figure, who helped the poor by bringing healthcare and education to all, equalizing wages, and building many concrete block homes for people who had only lived in shacks previously.
  • If we compare Cuba to its nearest neighbors Haiti and Dominican Republic (both of which were also former sugar growing colonies of European countries), we find that Cuba is doing substantially better than the other two. In per capita CPI in Purchasing Power Parity, in 2011, Cuba’s average was $18,796, while Haiti’s was $1,578, and the Dominican Republic was $11,263. In terms of the Human Development Index (which measures such things as life expectancy and literacy), in 2013, Cuba received a rating of .815, which is considered “very high”. Dominican Republic received a rating of .700, which is considered “High.” Haiti received a rating of .471, which is considered “Low.”
  • Cuba is known for its permaculture programs (a form of organic gardening), which helped increase Cuba’s production of fruit and vegetables in the 1990s and early 2000s.
  • In spite of all of these apparently good outcomes of Cuba’s experimentation with equal sharing of wealth, in recent years Cuba seems to be moving away from the planned economy model. Instead, it is moving to more of a “mixed economy,” with more entrepreneurship encouraged.
  • Since 1993, Cuba has had a two currency system. The goods that the common people could buy were in one set of stores, and were traded in one currency. Other goods were internationally traded, or were available to foreigners visiting Cuba. They traded in another currency. This system is being phased out. Goods are now being marked in both currencies and limitations on where Cubans can shop are being removed.

  I don’t have explanations for all of the things that are going on, but I have a few insights on what is happening, based on several sources:

  • My recent visit to Cuba. This was a “people to people” educational program permitted by the US government;
  • My previous work on resource depletion, and the impacts it is happening on economies elsewhere;
  • Other published data about Cuba.

  The following are a few of my observations.

  1. Many island nations, including Cuba, are having financial problems related to dependence on oil. 

  Dependence on oil for electricity is one of the big issues affecting Cuba today. Island nations, including Cuba, very often use oil to produce much of their electricity supply, because it is easy to transport and can be used in relatively small installations. As long as the price of oil was low (under $20 barrel or so), the use of oil for electricity is not a problem.

  

  Figure 1. Cuba’s energy consumption by source, based on EIA data.

  Once the price of oil becomes high, the high cost of electricity makes it difficult to produce goods for export, because goods made with high-priced electricity tend not to be competitive with goods made where the cost of electricity is cheaper. Also, once the cost of oil rises, the price of imported food tends to rise, leading to a need for more foreign exchange fund for imports. In addition, the cost of vacation travel becomes more expensive, driving away potential vacationers. The combination of these effects tends to lead to financial problems for island nations.

  If we look at current Standard and Poor’s credit ratings of island nations, we see a pattern of low credit ratings:

  • Cuba – Caa2
  • Dominican Republic – B1
  • Haiti – Not Rated
  • Jamaica – Caa3
  • Puerto Rico – Caa1

  None of these ratings is investment grade. Cuba’s rating is the same as Greece’s.

  Cuba’s credit problem arises from that there is an imbalance between the goods and services which it is able to sell for export and the goods and services that it needs to import. As with most other island nations, this problem has gotten worse in recent years, because of high oil prices. Even with the recent drop in oil prices, the price of oil still isn’t really low, so there is still a problem.

  

  Figure 2. Cuba balance of trade. (In US $. 000,000s omitted) Chart by Trading Economics.

  2. Cuba has a low-cost arrangement for buying oil from Venezuela, but this can’t be depended on.  

  Venezuela is Cuba’s largest supplier of imported oil. The recent drop in oil prices creates a problem for Venezuela, because Venezuela needs high oil prices to profitably extract its oil and leave enough to fund its government programs. Because of these issues, Venezuela is having serious financial difficulties. Its financial rating is Caa3, which is even lower than Cuba’s rating. Cuba uses its excellent education system to provide physicians for Venezuela, and because of this gets a bargain price for oil. But it can’t count on this arrangement continuing, if Venezuela’s financial situation gets worse.

  3. Neither high nor low oil prices are likely to solve Cuba’s financial problems; the real problem is diminishing returns (that is, rising cost of oil extraction).

  Cuba finds itself in a dilemma similar to that that the rest of the world is experiencing–only worse because it is an island nation. The rising cost of oil extraction is pushing the world economy toward lower economic growth, because the higher cost of oil extraction is in effect making world’s production of goods and services less efficient (the opposite of growing efficiency, needed for economic growth). The extra effort needed to extract oil from deep beneath the sea, or used in fracking, makes it more expensive to produce a barrel of oil, and indirectly, the many things that a barrel of oil goes to produce, such as a bushel of wheat that Cuba must import.

  

  Figure 3. Cuba’s oil consumption, separated between oil produced by Cuba itself and imported oil, based on EIA data.

  If the price of oil is low, Venezuela’s financial problems will become worse, increasing the likelihood that Venezuela will need to cut back on its low-priced oil exports to Cuba.

  Also, if the price of oil remains low, it is unlikely that Cuba will be able to increase its own oil extraction (Figure 3). The recent decline in US oil rigs and production indicates that shale extraction in the US (requiring fracking) is not economic at current prices. Cuba’s onshore resources also seem to be of the type that requires fracking. Thus, the likelihood of extracting Cuba’s onshore oil seems low, unless prices are much higher. Offshore, none of the test wells to date have proven economic at today’s prices.

  Conversely, if the price of oil is high enough to enable profitability of oil extraction in Venezuela and Cuba, say $150 barrel, then airline tickets will be very expensive, cutting back tourism greatly. The cost of imported food is likely to be very high as well.

  4. One way Cuba’s problems are manifesting themselves is in cutbacks to entitlements.

  Back in the early 1960s, Fidel Castro’s plan for the economy was one of perfect communism–the government would own all businesses; every worker would receive the same wages; a large share of what workers receive would come in the form of entitlements. What has been happening recently is that these entitlements are being cut back, without wages being raised.

  Wages for all government workers are extremely low–the equivalent of $20 month in US currency. This was not a problem when workers received essentially everything they needed through a very low-priced ration program and other direct gifts, but they become a problem when entitlements are cut back.

  Each year, each Cuban family receives a ration booklet listing each member of the family, each person’s age, and the quantity of subsidized food of various types that that person is entitled to, based on the person’s age. Other items besides food, such as light bulbs, may be included as well.

  

  Figure 4. Ration booklet being explained by one of tour leaders.

  The store providing the subsidized food keeps a list of foods available and prices on a blackboard.

  

  Figure 5. Ration price list on wall of store we visited.

  One way that the standard of living of Cubans is being reduced because of Cuba’s financial problems is by cutbacks in the types of goods being subsidized. Also the quantities and prices are being affected, but the average wage of $20 month remains unchanged.

  5. Another way Cuba’s financial problems are manifesting themselves is as higher prices charged to Cubans for goods not available through the ration program.

  Since 1993, Cuba has had a two currency program. Cubans were able to purchase goods only in stores intended for Cuban residents using Cuban pesos. (This situation is similar to a company store program, in which a business issues pay in a currency which can only be used on goods available in the company story.) A second currency, Cuban Convertible Pesos (“CUC”), pegged 1:1 with the US dollar, has been used for the tourist trade, and for international purchases. Cubans were not allowed to purchase goods in businesses offering goods in CUCs.

  Now the situation is changing. Goods in stores for Cubans marked in both currencies, and Cubans are permitted to purchase goods in more (or all?) types of businesses.

  The change that seems to be occurring in the process of marking goods to both currencies is that goods as priced in Cuban pesos are becoming much more expensive for Cubans. Cubans are finding that their $20 per month paychecks are going less and less far. This is more or less equivalent to value of the Cuban peso falling relative to the US dollar. This decrease is difficult for international agencies to measure, because the prices Cubans were paying were not previously convertible to the US dollar. The big impact would occur in 2015, so is too recent to be included in most inflation data.

  6. Another way Cuba’s problems are manifesting themselves is through low traffic on roads.

  How much gasoline would you expect a person earning $20 month to buy, if gasoline costs about $5 gallon? Not a lot, I expect. Not surprisingly, we found traffic other than buses and taxis to be very low, especially outside Havana. Figure 6 shows one fairly extreme example. The three-wheeled bicycle in front is a popular form of taxi.

  

  Figure 6. Example of low traffic on road. This road was not far from Havana.

  If a person travels away from the Havana area, transport by horse and buggy is fairly common.

  7. As a workaround for Cuba’s for falling inflation-adjusted wages of government workers, Cuba is permitting more entrepreneurship.

  Certain workers, such as musicians and artists, have always been able to earn more than the average wage, through programs that allowed these workers to sell their wares and keep the vast majority of the sales price.

  Now, individuals are able to form businesses and hire workers. These businesses generally pay wages higher than those offered by the government. Many of these businesses are private restaurants and gift shops, serving the tourist trade.

  In addition, many individual citizens try to figure out small things that they can do (such as sell peanuts, pose for photos, or sing songs) to earn tips from foreigners. The amounts they earn act to supplement the wages they earn working for the government.

  Other new businesses are in the food production sector. We met one farmer who was growing rice, with the help of twenty workers he had hired. The farmer used land that he had leased for $0 per year from the government. He dried his rice on an underutilized two-lane public road. The rice covered one lane for many miles.

  

  Figure 7. Rice laid on road to dry.

  The farmer sold most of his rice to the government, at prices it had set in advance. The farmer was able to pay his workers $80 per month, which is equal to four times the average government wage.

  8. Cuban citizens and its government are concerned about the country’s financial problems and are finding other solutions in addition to entrepreneurship.

  Cuban citizens are concerned, because with only $20 month of spendable income and higher prices on almost everything, they are being “pushed into a corner.” The vast majority of jobs are still government jobs, paying only an average of $20 month. There aren’t very many ways out.

  In order to make ends meet, it is very tempting to steal goods from employers, and resell them at below market prices to others. We were warned to be very careful about changing money, because it is very common to be shortchanged, or to receive Cuban pesos (which are worth about 1/24th of a CUC) in change for goods purchased in CUCs.

  One legitimate way of increasing the wealth of Cuban citizens is to increase remittances from relatives living in the US. Legislation making this possible has already been implemented. Estimates of remittances from the US to Cuba range from $2 billion to $3.5 billion per year, prior to the change.

  Another way of increasing Cuban revenue is to increase tourism. Selling services abroad, such as sending a Cuban choir to perform for US audiences, also acts to increase Cuba’s revenue. Getting rid of the US embargo would help expand both tourism and the sale of Cuban services abroad. This is no doubt part of the reason why Cuba, under the leadership of Raul Castro (Fidel’s brother), is interested in re-establishing relationships with the United States.

  9. Most of Cuba’s accumulated wealth from the past is depleting wealth that requires continuing energy inputs to maintain.

  Cuba has many fine old buildings that are a product past glory days (sugar exporter, tobacco sales, casino operator). These buildings need to be maintained, or they fall apart with age. In other words, they need the addition of new building materials (requiring energy products to create and transport), if they are to continue to be used for their intended purpose.

  Cuba now has a severe problem with old buildings falling apart from decay. I was told that three buildings per day collapse in Havana. With a chronic shortage of energy supplies, Cuba has been able to use these buildings from past days to give themselves a higher standard of living than otherwise would be possible, but this dividend is slowly coming to an end.

  Likewise, fields used for growing sugar or tobacco are assets requiring continued energy investment. If the Cuban government were to stop plowing fields and adding fertilizer to restore lost nutrients,¹ nature would take care of the problem in its own way–acacia (a type of nitrogen-fixing shrub/tree) would overtake the land, making it difficult to replant. The fact that the Cuban government did not keep adding energy products to some of the fields is a major reason the Cuban government is now leasing land for $0 an acre. Quite a bit of the land formerly used for sugar cane needs to be cleared of acacia before crops can be grown on it.

  Even Cuba’s famed 1950s vintage autos are a depleting asset. Replacement parts are needed frequently to keep them operating.

  The illusion that Cuba could afford to pay owners for the value of property appropriated by the Cuban government in 1959 is just that–an illusion. The wealth that was available was temporary wealth that could not be packaged and sent elsewhere. Sugar cane and tobacco had been grown in ways that depleted the soil. Furthermore, most workers had been paid very low wages. The buyers of these products had reaped the benefits of these bad practices in the form of low prices for sugar and tobacco products. It is doubtful whether Cuba could ever have paid the former owners for the land and businesses it appropriated, except with debt payable by future generations. It certainly cannot now.

  10. I wasn’t able to find out much about the permaculture situation in Cuba, but my impression is that the outcome is likely to be determined by financial considerations.

  Subsidies can work reasonably well, as long as the economy as a whole is producing a surplus. Such a surplus tends to occur when the cost of energy production is low, because then it is easy for a growing supply of low-priced energy to boost human productivity.

  Now that Cuba’s economy is not faring as well, the government is finding it necessary to start evaluating whether approaches they are taking are really cost effective. More emphasis is placed on entrepreneurs producing goods at prices that are affordable by customers. Thus, an entrepreneur might operate a permaculture garden. My impression is that permaculture will do well, if it can produce goods at prices that consumers can afford, but not otherwise. Consumers who are starved for money are likely to cut back to the very basics (rice and beans?), making this a difficult requirement to meet.

  11. Cuba has done better on keeping population down than many other countries. 

  If we look at the population growth trends since 1970, Cuba has done better than its nearby neighbors in keeping population down.

  

  Figure 8. Cuba population compared to 1970 estimates, along with those of selected other countries, based on USDA population estimates.

  In fact, Cuba’s 2014 population per square kilometer is low compared to its neighbors, as well.

  

  Figure 8. Population for Cuba and several nearby areas expressed in population per square kilometer.

  One thing that many people would point to in the low population growth statistics is the high education of women in Cuba. This is definitely the result of Fidel Castro’s policies.

  It seems to me that housing issues play a role as well. Cuba has added very little housing stock in recent years, even though the population has grown. This means that either multiple generations must live together, or new homes must be built. Cuba hasn’t provided a way for doing this (financing, etc). Under these circumstances, most families will keep the number of children low. There is simply no more room for another person in state-provided housing. No one would consider building a shack with local materials, without electricity and water supply, as a work around.

  Also, US policies have allowed Cuban citizens who reach the United States to obtain citizenship more easily than say, residents of the Dominican Republic of Haiti. This has offered another work-around for growing population.

  12. In many ways, Cuba is better prepared for a fall in standard of living than most countries, but a change in its standard of living is still likely to be problematic.

  As we traveled through Cuba, we saw a huge amount of land that either was currently planted in crops, or that could fairly easily be planted as crops. We also saw many acres over-run by acacia, but that still could support some feeding by animals. Cuba is not very mountainous, and generally gets a reasonable amount of water for at least part of the year. These are factors that are helpful for supporting a fairly large population, if crops are chosen to match the available rainfall.

  The Cuban population is also well educated and used to working together. Neighbors tend to know each other, and work to support each other through community associations called Committees for the Defense of the Revolution.

  The problem, though, is that the changes needed to live sustainably, without huge annual balance of payment deficits, are likely to be quite large. Sugar production in Cuba began  in the early 1800s. Since that time, Cuba’s economy has been organized as if it were part of a much larger system. Cuba has grown large amounts of certain products (sugar cane and tobacco), and much less of products that its population eats regularly (wheat, rice, beans, corn, and chicken). Residents have gotten used to eating imported foods, rather than foods that grow locally. According to this document, the government of Cuba reported importing 60% to 70% of its “food and agricultural products,” amounting to $2 billion dollars, in 2014. Regardless of whether or not this percentage is calculated correctly, there is at least a $2 billion per year gap in revenue caused by eating non-local foods that needs to be closed.

  In theory, Cuba can produce enough food for all of its current population, even without fossil fuels. Doing so would require changes to what Cubans eat. The diet would need to be revised to include greater proportions of foods that can be grown easily in Cuba (plantain, yucca, bread plant, etc.) and fewer foods that can’t. Many people would likely need to move to locations where they can help in the growing and distribution of these foods. Given the current lack of funding, most of these new homes and businesses would likely need to be built by residents using local materials. Thus, they would likely need to look like the shacks (without electricity or running water) that Fidel Castro was able to do away with as a result of his 1959 Revolution.

  There might also need to be a reduction to the amount of healthcare and education available to all. This would also be a big let down, because people have gotten used to the current plan of free education and free modern medical care for all. Education and health care no doubt account for a big share of Cuba’s high GDP today, but Cuba may also need to bring down these costs down to an affordable level, if it is to have a sustainable economy.

  

  

  
  
  

  

• Do Not Show This Chart To Bank Of Japan Governor Kuroda

  As another example of “has the world gone mad?” – we present the following words of wisdom from BoJ Governor Kuroda-san:

  • *KURODA DOESN’T SEE ANY ASSET BUBBLE OR STOCK MARKET BUBBLE, OR ANY ‘FINANCIAL EXCESS’ IN ECONOMY

  And in the interests of sanity, we highly suggest he not look at the chart below…

   

  

   

  And while on the topic of utter insanity, ask yourself – as you read his statements of perplexing blind ignorance – just what happens to BoJ capital when his $95 billion equity portfolio suffers a 2%, 10%, 50% sell-off?

  

   

  We suspect he wouldn’t be laughing as much had he seen the Bank of Japan’s dreadful underperformance of the market in the last few years…

  

  

  

  
  
  

  

• Apple Co-founder: "Snowden Is A Hero To Me"

  Hot on the heels of the apparent defeat of the extension of The Patriot Act, Apple co-founder Steve Wozniak reaffirmed his support for digital privacy in an interview over the weekend with Arabian Business.com.

  When we start to talk about privacy and I ask him whether he thinks NSA whistleblower Edward Snowden is a hero or a villain his answer is prompt and unabashed. 

   

  "Total hero to me; total hero," he gushes. "Not necessarily [for] what he exposed, but the fact that he internally came from his own heart, his own belief in the United States Constitution, what democracy and freedom was about. And now a federal judge has said that NSA data collection was unconstitutional."

   

  Snowden, who revealed classified NSA documents to reporters in 2013, is a fugitive from US prosecutors, living on a temporary visa in Russia, another nation he has criticised for its approach to privacy. The judgement Wozniak refers to is that of a federal court in New York, which earlier this month found Section 215 of the US Patriot Act, which authorised the mass surveillance programmes exposed by Snowden, to be insufficient grounds for justifying the NSA's collection of domestic communications data.

   

  "So he's a hero to me, because he gave up his own life to do it," says Wozniak. "And he was a young person, to give up his life. But he did it for reasons of trying to help the rest of us and not just mess up a company he didn't like."

   

  As stories emerge worldwide of implanted spyware in commercially available hard disks and in SIM cards sold to international telecoms companies, security specialists have incessantly offered solutions to the general public, as to how to shield private activities and data from prying eyes. Wozniak, however, is pessimistic about the prospects of protection, and believes the root cause of the problem extends back to the early years of OS development.

   

  "It's almost impossible [to protect yourself] because today's operating systems generally get so huge that they can only come from a few sources, like Microsoft, Google and Apple," he says. "And those operating systems have so many millions of lines of code in them, built by tens of thousands of engineers over time, that it's so difficult to go back and detect anything in it that's spying on you. It's like having a house with 50,000 doors and windows and you have no idea where there might be a tiny little camera."

   

  Woz is an ardent privacy advocate and bemoans the lost chances of computing's fledgling years, where he feels it may have been possible to block future attempts at monitoring.

   

  "There is a type of technology that you can fairly securely today run on your computer and someone else's computer, [which allows you to] send them a message and it's private the way it should be," he says. "I believe that I should be allowed to send a message to my wife and nobody can know it unless they know our passwords.

   

  In 1991, a system named PGP [Pretty Good Privacy] emerged for secure point-to-point data transfer. The data to be sent was encrypted on the machine that sent it and decrypted on the destination machine. Wozniak decries the technology as a lost opportunity for OS vendors.

   

  "At that point in time, if Apple and Microsoft had built [PGP] into their operating system, it would have been a permanent part of email and all email would have been secure," he says. "Now we're talking about making laws that you cannot use encryption. It's almost like you can't have any secrets anymore. And the modern generation just accepts this as the status quo.

   

  "Companies like Google and Facebook are trying to make money off knowing things about you; they're trying to funnel things to you and make money that way. Apple is only making good products that you can choose to buy if you want, so I look at Apple as being more the protector of privacy than anyone else."

  *  *  *

  Finally, Wozniak unleashes some other brutal truths…

  "Everything is first-class [in Dubai]… The United States used to talk, when I was growing up, like that's what we were. The US would look like this if we didn't spend all our money on the military."

  

  

  
  
  

  

• "New Silk Road" Part 2: Cold War Or Competition?

  Submitted by Robert Berke via OilPrice.com,

  Part 2: Cold War or Competition on the New Silk Road.

  Note:
  In Part 1 of “The New Silk Road,” we examined the China’s plan for rebuilding the Silk Road, stretching from Europe to Asia.

  In Part 2, we look at currently proposed projects, and geopolitical rivalries that could stall and hamper progress.

  Silk Road Projects:

  It is important to understand that the new “Road’ is not a formal plan in any sense but merely a broad outline of goals, a work in progress, being filled in, opportunistically, with projects as they are developed, and as negotiations with target countries allow. The Road is also not a 'start-up' from scratch, but builds upon and extends a number of projects that have been ongoing with China's partners.

  The Iran-Pakistan-China project (described in Part 1) is one of the few that provides more details, but it is still very much in the planning stage. The second proposed project, only recently made public, focuses on Russia. China is also proposing a partnership with India for its third project.

  

  The Pakistan program is an important economic development project that ties in with the Road as one of the connecting dots along the way, while the proposed program for Russian could become the nexus for the entire Road project, and the proposed India project could become the crucial piece in tying it all together.

  Russia and China, the Emerging Partnership:

  What makes Russia important enough to include in the plan? A better question might be: how is it possible to leave out Russia, the largest country in Eurasia, from a plan to build across the entire region?

  In a recent meeting in Moscow, celebrating the 70th anniversary of the allied victory in World War II – which saw Indian, Chinese, and Russia troops parading in Red Square – China and Russia signed multiple agreements to tie development of the Chinese sponsored Silk Road to the Russian sponsored Eurasian Economic Union (EAEU).

  The EAEU plan is a Kremlin-sponsored trade union between Russian, Kazakhstan, Kyrgyzstan, Belarus and Armenia, that has been pilloried in the western press as part of Russia’s supposed underlying agenda to re-establish the Soviet Union. With Russia’s inclusion, the plan for the Silk Road will extend from Beijing to the border of Poland. The blossoming cooperation between Russia and China is not something to be ignored, according to former Indian diplomat M.K. Bhadrakumar:

  “Clearly, the cold blast of western propaganda against the EAEU failed to impress China…China’s integration with the EAEU means in effect that a real engine of growth is being hooked to the Russian project. In reality, China is the key to the future of the EAEU. Significantly, Xi has combined his visit to Moscow with a tour of Belarus and Kazakhstan, the two other founder members of the EAEU….This is vital for the implementation of the Silk Routes via Russia and Central Asia.”

  The Chinese/Russian agreements cover eight specific projects, starting with the development of a high speed railway that will connect Moscow and Kazan (Tatarstan Republic), and will be extended to China, connecting the two countries via Kazakhstan. China’s Railway Group has won a contract for $390 million to build the road, with China contributing an initial $5.8 billion toward total estimated costs of $21.4 billion. Eventually, the planners hope to link this project to Russia’s planned high speed railway to Europe.

  Also, China's Jilii province has offered to build a cross-border high speed railway link between the two countries connecting with Russia's major Pacific port city, Vladivostok. In addition, the two nations are expanding their energy partnership through a variety of projects. As Oilprice reported in a May 12 article, “the Russian hydropower company RusHydro and China Three Gorges Corp. have signed a deal to cooperate on a 320-megawatt hydroelectric power project in Russia’s Far East…near the border between China and Russia.” As described, this is the largest dam project in China or Russia, already under construction, and is expected to generate 1.6 trillion watts of electrical energy per year, with an estimated cost of around $400 billion.

  China has also proposed developing an economic corridor between Russia, Mongolia, and China, a plan likely to include the EAEU member states, the initial step in development of one of the major components of the Silk Road, the Eurasia Economic Corridor, a preferential trade zone stretching across the region.

  Several smaller joint project deals were also signed, including establishing a $2 billion agriculture financing fund.

  Geopolitics on the Silk Road:

  Until very recently, it was widely assumed that the US would lead its western allies in a campaign against the Russian/Chinese deal to develop the Silk Road, but events have been reversing with remarkable speed.

  With Obama desperately trying to keep the wars in Yemen, Syria, and Iraq from metastasizing across the region, Obama’s Middle East policy is at a crossroads, with none of the big issues likely to be resolved before his term ends. Clearly, the US President wants to concentrate on Asia and reduce the US presence in the Mid-East, a region that has bedeviled every President for more than a generation.

  The Deal to Get Out:

  In the midst of all this, and after more than a two year absence from Russia, Kerry and his entourage requested an immediate urgent meeting with Putin and Lavrov that was granted by the Kremlin.

  There is widespread speculation over what might have taken place in the Kremlin meeting on May 8th. Yet, the fact that the meeting took place at all may be more important than any agreements reached, because it clearly shows some form of thaw in a relationship that’s in process.

  The rumor out of Russia is that Kerry requested Putin’s help in resolving the ME conflicts and closing the nuclear deal with Iran, with the Russian President agreeing. The quid pro quo for Russia was the US lowering tensions in Ukraine. The issue of Crimea was apparently not even raised, while the visit ended with Kerry’s unprecedented warning to Kiev to abide by the Minsk 2 agreement for a truce in Ukraine’s eastern provinces.

  Much of the news media is speculating that the US is starting to remove the ‘crime scene tape’ around the Kremlin. Whether this is really a US offer of an olive branch to Russia is still pretty much guesswork, and even if it were, how far the US is willing to go in accommodating the Kremlin is largely unknown. Stratfor, the popular internet intelligence newsletter, speculates that the US is willing to start easing sanctions on Russia.

  Israel and the Gulf Kingdoms:

  For the Israelis, any easing of tensions with Iran and Russia is very bad news. In the Middle East, Israel is the canary in the coal mine, and is always among the first to discern the faintest signs of political unrest in its region.

  There's no denying the significance of Israel's reaction to the US/Iran nuclear deal and US coordination with Iran and Russia in Syria and Iraq. Israel placed all of its chips on its ability to stop the deals, and lost badly, while perhaps severely damaging its relationship with it largest ally, the US.

  Now, the howls of protest and betrayal pour out of every media source in the country, and Israel is not the only one. Saudi Arabia also feels left out in the cold with the Iran deal.

  Proposed Partnership with China and India:

  If it were possible to put politics aside, there’s no question that China’s single best partner for the Road would be its giant neighbor India, bringing together the two most important markets for traders on the original ancient Silk Road. As the Associated Press reported on May 14, 2015:

  “Both countries are members of the BRICS grouping of emerging economies, which is now establishing a formal lending arm, the New Development Bank, to be based in China's financial hub of Shanghai and headed by a senior Indian banker. India was also a founding member of the embryonic China-backed Asian Infrastructure Investment Bank.

  The cooperation between China and India is only growing, and their needs appear to be compatible, as the AP goes on to note:

  China is looking to India as a market for its increasingly high-tech goods, from high-speed trains to nuclear power plants, while India is keen to attract Chinese investment in manufacturing and infrastructure. With a slowing economy, excess production capacity and nearly $4 trillion in foreign currency reserves, China is ready to satisfy India's estimated $1 trillion in demand for infrastructure projects such as airports, roads, ports and railways.”

  If India chooses to partner with China in the Silk Road, it could keep China building for the rest of the century, in a project that would combine the world’s most populous nations, with more than 2.6 billion people. With Russia already a partner, and Iran waiting in the wings to join, the project could add almost another quarter of a billion people, with a combined total of over one third the global population. A better fit would be hard to find.

  But there is no shortage of historical baggage between China and India, ranging from a half century of unresolved border disputes; China’s growing relationship with Pakistan, India’s longtime adversary; and India’s close relationship with the US and Japan, both opposed to China’s claims in the South China Sea.

  In a recent meeting in Beijing, China and India signed agreements for $22 billion in development projects, disappointing to many observers when compared to the $47 billion committed to the China/Pakistan deal. A former Indian diplomat, Bhadrakumar, argues, “that strategic distrust cannot be wished away,” and “…that India is not ready to replace the west as its development partner.”

  It seems like the US influence with India has at least slowed prospects of recruiting India as a major Silk Road partner. Yet, the results are not so simple to predict since so many countries involved are dependent upon trade with China to the tune of hundreds of billions of dollars annually, and are also active trading partners with both Russia and Iran.

  Even in the cold war, India became adept in its studied policy of co-existence with the Soviet Union and the US, which allowed India to play both sides. For pragmatic India, the choice of development partners may depend on the simple formula of 'following the money', given the fact that China is one of the few countries in the world with sufficient resources to finance the rebuilding of India's infrastructure.

  The rush of western allies, including India, to join China's sponsored Asian Infrastructure Bank speaks clearly to the fact that western business is eager to take part in the Road projects. There are probably few banks in the world that would hesitate to finance major components of the project. However, whether the recent sea change in the US/Russian dynamic is a prelude for US support of the Silk Road project remains an open question.

  Coming in June, Part 3: Prospects for Success and What it Means for Investors.

  

  

  
  
  

  

• Who Would Win A Conflict In The South China Sea: The Infographic

  As regular readers are no doubt aware, the US and China are racing towards a maritime conflict stemming from Beijing’s construction of what Washington has condescendingly called “sand castles” in the Spratly archipelago. 

  Atop these man-made islands are cement plants, air strips, and soon-to-be lighthouses, as China boldly asserts its territorial claims on what are heavily-contested waters though which trillions in seaborne freight pass each year.

  Now, with Beijing set to enforce what is effectively a no-fly zone over its new sovereign ‘territory’ we bring you the following graphic from WSJ which shows that when it comes to sheer size, China’s air force and Navy are beyond compare.

  

   

  More, from WSJ: 

  China’s promise to beef up its naval capabilities to prevent further “meddling” and “provocative actions” by rivals in the South China Sea is a daunting prospect for most of its neighbors, which already view Beijing’s fast-improving armed forces with trepidation…

   

  As a recent Pentagon review of China’s military modernization drive noted, “China is investing in capabilities designed to defeat adversary power projection and counter third-party—including U.S.—intervention during a crisis or conflict.” In practice, that means hundreds of ballistic and cruise missiles positioned near the coast to deter Japanese or American warships from coming anywhere near Chinese territory. China has a substantial submarine fleet as well, piling on more risk for enemy ships.

  

  

  
  
  

  

• Global Youth Unemployment Hits 35 Million As Recent Grads Lean On Parents

  We’ve documented the pitiable plight of America’s recent college graduates on a number of occasions over the last several months. The Class of 2015 is officially the most heavily-indebted graduating class in the history of US higher education, as each student will leave college with an average debt load of more than $35,000. These proud new graduates will enter a job market where they’ll quickly discover that the idea of a US economic ‘recovery’ is, as Steve Wynn recently put it, “a complete dream”. In fact, high unemployment rates among recent graduates was recently cited by Moody’s as a contributing factor to the ratings agency’s decision to place some $3 billion in student loan-backed ABS on review. This state of affairs is made all the more perilous by the fact that nearly half of college graduates only manage to land a low-wage job which, as the OECD has recently shown, likely won’t pay enough to allow one’s family to subsist above the poverty line. 

  

  

  Now, the same OECD is out with a new report which looks at the world’s youth unemployment problem in an effort to determine why it is that 35 million people between the ages of 16 and 29 are jobless. Spoiler alert: it turns out $35,000 doesn’t buy a very good education.

  From the OECD:

  More than 35 million young people, aged 16-29, across OECD countries are neither employed nor in education or training (NEET). Overall, young people are twice as likely as prime-age workers to be unemployed.  

   

  The OECD Skills Outlook 2015 says that around half of all NEETs in the OECD are out of school and not looking for work and are likely to have dropped off the radar of their country’s education, social, and labour market systems (ZH: recall the case of America’s “vanishing worker”)

   

  The report expands on the findings of the first OECD Survey of Adult Skills (PIAAC), published in 2013, and creates a detailed picture of how young people acquire and use their skills, as well as the potential barriers they face to doing both.

   

  It shows that 10% of new graduates have poor literacy skills and 14% have poor numeracy skills. More than 40% of those who left school before completing their upper secondary education have poor numeracy and literacy skills.

   

  Work and education are also too often separate worlds: less than 50% of students in vocational education and training programmes, and less than 40% of students in academic programmes in the 22 OECD countries and regions covered were participating in some kind of work-based learning at the time of the survey. Even young people with strong skills have trouble finding work. Many firms find it too expensive to hire individuals with no labour market experience.

  All of the above helps to explain why two-thirds of graduates expect to rely on their parents for support after graduation. Parents, it turns out, have similar expectations.

  Via Sallie Mae:

  The survey and related infographic also reveal the expectation of financial support does not end after turning the tassel at college graduation. Approximately 65 percent of parents expect to support their children for up to five years after college graduation. The proportion of parents who think they will need to help out for more than two years jumped to 36 percent, double what a similar Upromise survey in 2014 reported. Sixty-eight percent of students expect financial support from their parents post-graduation. Nearly half of students, however, would be willing to pay rent to live back at home.

  And it’s no wonder, because paying rent to one’s parents is likely to be far cheaper than renting a one-bedroom apartment with the latter option officially out of reach for anyone making minimum wage:

  

  In sum, 35 million people aged 16-29 are unemployed across the globe thanks to a skills gap and weak demand. As discussed last week, this state of affairs has cost the global economy somewhere on the order of $4 trillion in GDP since the crisis. Indeed, the job market for young people is now so abysmal that two-thirds of recent graduates and their parents have come to terms with the fact that parental support will be a necessity for as many as five years post graduation. 

  For all of those recent graduates who aren’t lucky enough to have majored in petroleum engineering and can’t count on years of family support, there’s always this option:

  

  

  

  
  
  

  

• Why Russia Is On A Gold Buying Spree

  Several years ago, Kyle Bass gave the simplest bull case for gold:

  “Buying gold is just buying a put against the idiocy of the political cycle. It’s That Simple”

  And since it is this same political cycle that is doing everything in its power to preserve what little credibility it has, and to avoid its naked idiocy from being revealed for all to see, it has done everything in its power to push the price of gold lower.

  However, several entities refuse to be fooled by such “cheap” tricks. One is China, whose ravenous apetite for gold has been extensively discussed previously. The other is the Bank of Russia.

  According to central bank data, Russia’s gold reserves rose to 40.1 million troy ounces as of May 1 compared with 39.8 million ounces a month earlier. Russia increased its gold holdings for many months in a row last year, as shown by central bank figures and represented in the chart below.

  

  So why is Russia engaging in this gold-buying spree when it likely has more immediately gratifying ways to spend its reserves?

  The answer was given by Dmitry Tulin, who manages monetary policy at the central bank, was as concise, as sensible, and as lucid as that given by Bass. From Reuters:

  “As you know we are increasing our gold holdings, although this comes with market risks,” Tulin told lawmakers in the lower house of parliament.

  “The price of it (gold) swings, but on the other hand it is a 100 percent guarantee from legal and political risks.”

  And with global political risks only set to rise, since under central planning politicans are made obsolete and are thus even more prone to “idiocy”, expect Russian gold buying to continue indefinitely.

  

  

  
  
  

  

• Understanding The Next 10-Years Of Low Returns

  Submitted by Lance Roberts via STA Wealth Management,

  Research Affiliates, in their May newsletter, discussed the importance of "secular stagnation" and a coming decade of low returns. How low you ask? How about 1% kind of low?

  "But Lance, the markets has returned 10% on average over the last century, so RA is probably going to be wrong."

  Before you dismiss RA's comments, it is important to put them into some context. When low rates of return are discussed, it is not meant that each year will be low but that the return for the entire period will be low. The chart below shows 10-year rolling REAL, inflation-adjusted, returns in the markets. (Important note: Many advisors/analysts often pen that the market has never had a 10 or 20-year negative return. That is only on a nominal basis and should be disregarded as inflation must be included in the debate.)

  

  There are two important points to take away from the data. First, is that there are several periods throughout history where market returns were not only low, but negative. Secondly, the periods of low returns follow periods of excessive market valuations. "This time is not different."

  There are two main drivers behind the concept of a "decade of low returns" – secular stagnation and valuations.  

  Secular Stagnation

  While I have written many times in the past about the importance of secular stagnation, RA points a much finer point on the argument.

  "In a world of secular stagnation, the Federal Reserve may not be able to achieve a real rate of interest low enough to match the long-run equilibrium rate of interest. Equally insidious is secular stagnation's feeling of permanence; the trends at fault are slow moving and likely to persist well past the standard business-cycle horizon.

   

  Deleveraging from our debt overhang—a hangover from the housing bubble now infecting many central governments—will take decades. The impact of aging demographics across the developed world is only just beginning to slow both labor force growth and productivity, and this trend will only strengthen in the coming years.

   

  Likely, we have entered a period of secular stagnation heavily impacted by lingering debt overhangs, persistent demographic shifts in savings preferences, and increased efficiency of capital…these longer-run trends, which are powerful and long lasting, and will impact our economic outlook for many years to come. Current deeply negative interest rates will likely shift back toward zero, but within our investment horizon are unlikely to return anywhere close to the historical averages. As Michael Corleone discovered, it is not easy to escape genetic or demographic destiny."

  Despite optimistic views that Central Bank interventions can stimulate economic growth and inflation through monetary policies, the reality is likely quite the opposite given the massive levels of global debt.

  For the markets to generate a higher level of return in the future would require substantially higher levels of real growth. This is unlikely given the aging demographic trends, productivity increases which weigh on employment and wage growth, and debt servicing that diverts dollars from productive investments. This is not just a domestic issue, but a global one.

  It is interesting that even though Central Banks acknowledge that it was the ramp up in debt and leverage that led to our current economic problems, it is somehow believed that it can be resolved by simply shuffling debt from governments to central banks. Eventually, the global debt levels will have to be dealt with. Until then, economic growth, inflationary pressures and interest rates will remain at historically low levels.

  Valuation

  As investors we are supposed to be investing for the "long term." Therefore, we should be viewing valuations as a predictor of returns over the next 10, 15 or 20 years which is the typical investment/savings time frames for individuals. David Leonhardt penned a similar view:

  "The classic 1934 textbook 'Security Analysis' – by Benjamin Graham, a mentor to Warren Buffett, and David Dodd – urged investors to compare stock prices to earnings over 'not less than five years, preferably seven or ten years.' Ten years is enough time for the economy to go in and out of recession. It’s enough time for faddish theories about new paradigms to come and go.”

  The chart below shows the long-term history of Shiller's Cyclically Adjusted P/E Ratio, which is a 10-year rolling average to smooth out short-term earnings volatility.

  

  History shows that valuations above 23x earnings have tended to denote secular bull market peaks. Conversely, valuations at 7x earnings, or less, have tended to denote secular bull market starting points.

  When using a relative comparison, in this case 10-years, what Shiller's data does provide is a key understanding as to what market returns should be. The chart below compares Shiller's 10-year CAPE to 10-year actual forward returns from the S&P 500.

  

  From current levels history suggest that returns to investors over the next 10-years will likely be lower than higher. We can also prove this mathematically as well as shown.

  Capital gains from markets are primarily a function of market capitalization, nominal economic growth plus the dividend yield.  Using John Hussman's formula we can mathematically calculate returns over the next 10-year period as follows:

  (1+nominal GDP growth)*(normal market cap to GDP ratio / actual market cap to GDP ratio)^(1/10)-1

  Therefore, IF we assume that GDP could maintain 4% annualized growth in the future, with no recessions, AND IF current market cap/GDP stays flat at 1.25, AND IF the current dividend yield of roughly 2% remains, we get forward returns of:

  (1.04)*(.8/1.25)^(1/10)-1+.02 = 1.5%

  But there're a "whole lotta ifs" in that assumption. More importantly, if we assume that inflation remains stagnant at 2%, as the Fed hopes, this would mean a real rate of return of -0.5%. This is certainly not what investors are hoping for.

  Lastly, the majority of analysis is based on the belief that individuals "bought and held" indexed based portfolios since the peak of the bull market in 1999. The problem is that in reality this is far from the truth and investors have suffered from harsh levels of capital destruction by "selling low and buying high" and loss of the singular most precious commodity of all – "time."

  Since most investors have on average about 15 years to save for their retirement, the time lost in "getting back to even" is critical. As I have stated many times in the past – getting back to "even" is not an investment strategy.

  The chart below illustrates these previous two points. It is the inflation adjusted return of a $100,000 investment in the S&P 500 from 1990 to present.  The reason that 1990 is important is because that is when roughly 80% of all investors today begin investing.  Roughly 80% of those began after 1995. If you don't believe me, go ask 10 random people when they started investing in the financial markets and you will likely be surprised by what you find.

  

  Unfortunately, most investors rarely do what is "logical" but react "emotionally" to market swings. When stock prices are rising instead of questioning when to "sell," they are lured in near market peaks. The reverse happens as prices fall leading first to "paralysis" and "hope" that losses will soon be recovered. Eventually, near market bottoms the emotional strain is too great and investors "dump" shares at any price to preserve what capital they have left. 

  Despite the media's commentary that "if an investor had 'bought' the bottom of the market…" the reality is that few, if any, actually did.  The biggest drag on investor performance over time is allowing "emotions" to dictate investment decisions. This is shown in the 2014 Dalbar Investor Study, which showed "psychological factors" accounted for roughly 50% of underperformance. In other words, investors consistently bought the "tops" and sold the "bottoms."

  Markets are not cheap by any measure. If earnings growth continues to wane or interest rates rise, the bull market thesis will collapse as "expectations" collide with "reality." This is not a dire prediction of doom and gloom, nor is it a "bearish" forecast.  It is just a function of how markets work over time.

  For investors, understanding potential returns from any given valuation point is crucial when considering putting their "savings" at risk. Risk is an important concept as it is a function of "loss". The more risk that is taken within a portfolio, the greater the destruction of capital will be when reversions occur. 

  This time is "not different." The only difference will be what triggers the next valuation reversion when it occurs. If the last two bear markets haven't taught you this by now, I am not sure what will.  Maybe three times really is a "charm."

   

  

  

  
  
  

  

• Billionaire Hedge Fund Manager Paul Singer Reveals The "Bigger Short"

  First it was Gross, then Gundlach. Now billionaire hedge fund manager Paul Singer of Elliott Management has unveiled what he believes is the trade of this generation: being short “long-term claims on paper money, i.e., bonds.” He calls it the “bigger short.” First hinted at during the Grant’s Spring 2015 conference, he now goes into excruciating detail.

  Select excerpts from Paul Singer’s latest letter.

  The Big Short, of course, refers to short positions in credit in the period 2005-2007, more specifically structured credit. To be even more precise, it refers to subprime residential mortgage securitizations. It is also the name of a best-selling book by Michael Lewis about the housing and credit bubble. It was called the Big Short because many forms of credit were so overpriced that the risk/reward of taking on short positions before the financial crisis was extraordinarily favorable.

  Today, six and a half years after the collapse of Lehman, there is a Bigger Short cooking. That Bigger Short is long-term claims on paper money, i.e., bonds.

  History shows that it is fiendishly difficult to preserve the value of money which is backed by nothing but promises, because it is so tempting for rulers to debase their currency when they think it will help them repay their debts. The long-term preservation of the real value (i.e., the purchasing power) of fiat money and bonds is obviously of little or no importance to today’s creators of money – the major central banks – who currently can’t debase money fast enough for their tastes. Yet, the current prices of bonds are at all-time highs, and thus yields are at record lows, because the central banks are buying bonds with trillions of dollars of newly printed money, despite the facts that 1) the global financial emergency ended over six years ago and 2) the developed world has not suffered a renewed financial collapse or deep recession. The central bank actions are unprecedented under these conditions, and their policies are partially responsible for the sluggishness of the economic recovery in the developed world since the 2008 crash. Below we discuss why that is the case, and we set out a number of elements that  lead us to the conclusion that the risk/reward profile of owning long-term high-quality bonds at today’s prices and yields is uniquely poor.

  …

  Our view is that central bankers have chosen, and doubled down on, a palliative (super-easy money and QE), which is unprecedented and extreme, and whose ultimate effects are unknowable. To be sure, the collapse in interest rates all along the curve, and a bull market in equities, “trophy real estate” and other assets, has had some effect on job creation. However, the effect is indirect, and in our opinion the benefits of complete reliance on monetary extremism are overwhelmed by the negatives and the risks. To begin with, such policies are inefficient in actually creating jobs and growth, and they worsen inequality: Investors prosper and the middle class struggles. The goal of leaders of developed nations and their central bankers should be more or less the same: enhanced growth and financial stability. But somehow the principal policy goal of both has become to generate more inflation. Both extreme deflation (credit collapse) and extreme inflation (which forces citizens to forego normal economic activities and become traders and speculators in a desperate attempt to keep up with the erosion of savings and value) are threats to societal stability, and we don’t actually think there is much to choose from between those  extremes. But central bankers are completely focused on erasing any chance of deflation, and the tool to do so – currency  debasement – is certainly near to hand. Therefore, the likelihood of deflation is highly remote. By contrast, the central bankers’ universal belief that inflation is easy to deal with if it accidentally overheats is arrogant and not supported by the historical record.

  Furthermore, we fail to comprehend how owners of claims on money (that is, bondholders) can continue to ignore the fact that the goal of generating more inflation is aimed precisely at reducing the value of their capital. Central bankers obviously do not understand that the modern financial system is almost impossible to “manage,” and is fundamentally unsound as currently structured and leveraged. Given that reality, why should bondholders believe that central banks are capable of creating just enough inflation, and not a farthing more, in their current quest to rebubble-ize the world? We also question why bondholders believe that if inflation bursts its dictated boundaries despite central bank scolding, that policymakers can indeed, as a former Fed chairman and now immodest citizen blogger and incoming hedge fund advisor (Ben Bernanke) has said, cure it in “10 minutes.” We call to your attention the hand-wringing and agonizing now underway about raising U.S. policy rates by 25, 50 or 75 basis points over the next few months. Imagine the caterwauling in global financial markets if inflation surprises everyone on the upside and the right policy rate should be 2%, 4% or higher. Given the fragility of the financial system and its still-extreme leverage, even a few points of inflation and a few hundred basis points of increase in medium- and long-term interest rates could cause a renewed financial crisis.

  Inflation is more or less a generalized diminution in the value of money. A bond is an instrument by which a promise to return, in the distant future, a fixed-in-currency amount of invested money is supplemented by periodic interest payments in the  meantime. That’s it, and that’s all you get. Such interest payments are meant to compensate the investor for the use of his or her money, taxes (if any) and expected inflation. At currently prevailing interest rates in the developed world, if there is ANY inflation in the next 10 to 30 years, investors who buy or hold bonds at today’s prices and rates will have made a bad deal. And if inflation emerges from the stone-cold dead and walks, trots or (heaven forbid) gallops into the future, they will have made a very, very bad deal.

  Equity values depend to an important degree on confidence that policymakers will continue to allow private enterprise, profits and private ownership of assets. But bonds, in our view, represent a greater leap of confidence. It is so much easier to purloin value from bondholders, and so tempting to rulers; in fact, the current leaders and policymakers have said in so many words that there is not enough debasement (that is, inflation) underway at present. You don’t need a weatherman to know which way the wind blows (according to Bob Dylan), but bondholders nevertheless continue to think, up to basically this moment, that it is perfectly safe to own 30-year German bonds at a yield of 0.6% per year, or a 20-year Japanese bond (issued by the most thoroughly long-term-insolvent of the major countries) at a little over 1% per year, or an American 30-year bond at scarcely above 2% per year.

  Asset prices are skyrocketing because of massive public-sector purchases. The tinkering and experimentation that characterizes each round of novel central bank policy leads to more and more complicated unwanted consequences and convolutions. Central bankers are, in our view, getting “pretzeled” by all this flailing, yet they deliver it with aplomb and serene selfconfidence. Are they really taming volatility with their bond-buying, or just jamming it into a coiled spring?

  * * *

  Sometimes inflection points take a while to actualize, even when they are long overdue. For example, the unsustainable dotcom stock boom went on and on in the late 1990s, with the American stock market PE passing its all-time historical high in 1995, before topping out in March 2000 at a level twice the previous 1929 and 1972 peaks. All it would take at the present time for a collapse in developed-country bond markets to begin is a loss of confidence in paper money, central bankers or political leadership. Any combination of these could occur due to the market’s fear or projection of future increased inflation, which could bring about or accompany a self-reinforcing cycle of securities depreciation and other asset price and or wage/cost appreciation. Or perhaps a bond market collapse could ensue as part of a currency crisis in which one or more of the major currencies suffer an unexpected precipitous decline. Up to now, bond markets have acted more like puppets on a string. It would be a large and unpleasant surprise, shaking a lot of assumptions, if bond markets softened as QE continues to build and  expand globally.

  Current conditions are extraordinary. There has been no global deleveraging since the GFC; in fact, worldwide debt has experienced a further massive increase in the last six years. Long-term entitlement programs have not been pared down to accommodate reality. Derivatives have not lessened in complexity and have actually grown in global size. Moreover, the  financial statements of global financial institutions have not moved from opacity to transparency. The ingredients for a renewed financial crisis are in place, as is a possible “surprising” transformation of money debasement into highly-visible inflation.

  A good or great trade is not created by just the prospect of a big move in a direction. The ability of investors to engage in a superior risk/reward profile, and to finesse the question of when the expected move will occur, is what separates “just-ok” trades from great trades. It is the extreme overpricing of bonds, and the universal confidence (unjustified, in our opinion) of investors in central banks and in the current mix of perceptions about what is safe and what is not, that makes the Bigger Short into possibly a great trade. To be sure, while a great trade is not a guarantee, at current prices the bond markets of Europe, the U.S., the U.K. and Japan present precious little future reward and a great deal of risk. No investor’s actuarial requirements or investment return goals can possibly be met by today’s long-term bond interest rates, but investors are holding them nonetheless because they have been making money on their bond holdings persistently and seemingly inexorably for the last few years. The day when their perceptions are challenged and they change their minds, only to find that the exit door has been blocked by everyone else doing an about-face at the same time, is going to be one heck of a day for those who  have positions in bonds, whether long or short.

  The Big Short was compelling pre-2007 because the pricing aberration in a specific type of debt was so huge that it didn’t cost much to wait for the trade to go right (the precise timing being impossible, as usual). We became interested in The Big Short when we saw data that subprime mortgages were defaulting at high rates even while house prices were rising. Today, the   Bigger Short is in a much larger marketplace, so it can be undertaken in whatever size one can stomach, and the cost of effectuating it during the waiting period is really low. However, the power of the herd on the current upward bond price stampede is beyond anyone’s control, so one can lose money waiting for the trade to work out.

  In terms of directional trades representing extremes of value, the Bigger Short is in a rare category. It is certainly not riskless, because nobody can predict how much staying power policymakers can have when they are unconstrained and have a theory (as unnerving as their theory is), and when citizens are passive and complicit in what we regard as central bankers’ risky policies. Of course, not every trader or investor is in a position to actually short bonds, but our reasoning is equally applicable to the decision of whether or not even to continue owning medium- and long-term bonds at today’s prices and yields.

  This analysis is not just about one of the more interesting asymmetries of risk and reward in market history. Rather, it is about leaders abnegating their responsibilities to their citizens (in the case of presidents, prime ministers and legislators), and other policymakers (central bankers) engaging in risky, extreme and untried policies to the point where they are in way over their heads and violating (by design) the moral compact between governments and citizens that is the basis of paper money. Central bankers like to protect their “independence,” but that is absurd in the current context. In what sense are central bankers independent if their extreme policies just give cover to political leadership to do next to nothing to restore sustainable levels of  growth? Central bank independence is a concept meant to protect the value of fiat money against grasping politicians, not to empower central bankers to pick winners and losers, allocate credit and behave as if they are fiscal authorities. Certainly the Fed’s “dual mandate” to pursue both monetary stability and maximum employment ought to be replaced with a single mandate to focus on financial and price stability. It doesn’t matter that the other major central banks are engaging in similar practices (QE and ZIRP or NIRP) despite lacking a maximum-employment mandate of their own; eliminating the dual mandate would still be an important symbolic act aimed at pushing back against the arrogance of the Fed and forcing the President and Congress to face up to their responsibilities for optimizing growth and sustainable employment.

  The central bankers of the developed world are the architects and enablers of a policy mix whose most powerful result is to further enrich the already well-off, which is clearly posing a challenge to the social fabric of the developed world. It is possible that this situation could worsen if central bankers, frustrated by their economies’ refusal to dance to their incessant piping, step up the pace of their bond-buying and possibly convert it to more direct forms of money-printing, which at some point is certain to ignite the inflation that they have been trying merely to kindle. Don’t fall out of your seats if inflation then burns right through the finely-tuned “target” and keeps on going. If this happens, we all may find out whether they indeed can, or have the courage to, stop inflation in “10 minutes.

   

  ---

  We, as usual, agree with most of what Singer has said, with one exception – the same exception we noted in “So You Want To Fight The Central Banks? Then Short Treasurys.” Here is the key part:

  As central banks have scrambled to push risk assets ever higher in hopes of creating that elusive Keynesian inflationary “trickle down”, they are limited in the security they can buy. In fact, most can only purchase government treasurys, which they have done en masse. This is known as QE.

   

  According to BofA calculations, central banks now own $22 trillion in “assets” – almost entirely in the form of government debt (an amount greater than the GDP of the US and Japan combined) – which they have to buy in order to create the balance sheet liability, reserves, which primary dealers and the world’s commercial banking system use to bid up risky assets.

   

  Furthermore, according to Citigroup, the amount of debt monetizations in 2015 will be the greatest in history: so great is the scramble to reflate that central banks around the globe (most recently the BOJ’s expanded QE and the ECB’s brand new Q€) that the money printing academics have now gone all in.

   

  

   

  As the chart above shows, the global financial situation is so grotesque, central banks will monetize all net debt issuance around the entire world just to push everyone into the riskiest of assets: stocks.

   

  If there is still any question why nobody believes the fallacy of a “recovery”, the chart above should be sufficient to prove to anyone that there is no self-sustaining economy in the world anymore just one massive printing orgy and a doomed attempt to reflate $200 trillion in global debt at all costs.

   

  But back to the topic of QE: as central banks rush to issue reserves, they have no choice but to buy government bonds. Some $22 trillion of them as we noted above. And what happens when epic, epic amounts of government debt are purchased by central banks (just yesterday the BOJ monetized about $10 billion in debt in its daily POMO – and this happens several time per week)? Well, as we have shown since 2012, the bond markets freeze up because central banks soak up all the liquidity, but more to the point, bond prices go up and yields go down.

   

  And this is where traditional economists #Ref! out. Because what is the fundamental prerogative behind QE? It is not to push the S&P to 2100, 3100, or higher. It is to stimulate inflation. The problem however arises when central banks just can’t get enough of government Treasurys and their yields, as witnessed recently, go negative. In fact it was just a month ago when we showed that 53% of all global government bonds are yielding 1% or less!

   

  

   

  And the punchline: what are bond yields? Well, in a normal world, they telegraph the market’s long-term inflation expectations. However, in this parallel banana universe in which everything is planned by a few clueless academics, all they “telegraph” is that central banks are the first, last and increasingly (hi Greece) only buyer of sovereign debt. The irony is that the higher stocks go, not because they should but because central banks push them higher, the lower yields slide as central banks buy more bonds to inject more reserves, to push stocks higher, to blow an ever greater asset bubble across all asset classes: both bonds and stocks.

   

  Even more ironic is that not a day passes without one clueless pundit after another appearing on TV and reading from the teleprompter like a stoned zombie that one must not fight the Fed (and central banks) and buy stocks while shorting bonds. And yet what are central banks buying?

   

  Not stocks (at least not officially in the case of the Fed; only the BOJ and the SNB admit to openly monetizing equities).

   

  The answer: bonds.

  In other words by simple bond math, the more central banks monetize, i.e. buy, bonds in hopes of pushing stocks, and inflation higher, the lower yields go. Along the way you get such monetary abortions as ZIRP, NIRP and so on, but the math is clear: central banks hope to push up risk assets by kicking everyone out of so-called riskless assets. Which is precisely why bonds have performed so well in the past several years: everyone has been frontrunning central banks!

  And the more central banks push, the more bonds they have to monetize. Indeed, as shown in the chart above, in 2015 central banks will inject a record amount of liquidity into the global market, surpassing even the year of the Great Financial Crisis! All this liquidity pushes stocks higher… and drives yields lower. 

  At the same time, and here we fully agree with Singer, the global economy continues to deteriorate as ever more zero-cost, money equivalent debt is piled up, debt which will implode the second yield shoot higher and lead to a global domino-like default wave while the rich get richer courtesy of their risk asset holdings, pushing class inequality to record levels and beyond, and leading other legendary hedge fund managers such as Paul Tudor Jones to hint that it all will end in either war or revolution.

  So what do central bankers do? They have no choice but push harder, and do more of the same, as in the BOJ and the ECB, both of which have either launched or boosted their bond monetization program in the past year. End result: more than half of all global bonds traded under 1% recently. Why? Because bond investors know central banks will be there to buy these bonds.

  And hence the biggest paradox: the more deflation there is, the more QE there will be, the lower the yields, the more deflationary signals, the higher stocks go, and so on, in the most paradoxical circular argument in monetary history. Of course, for the Fed to stimulate inflation, it has to step away from monetization altogether, but that would mean an uncontrollable collapse in bond prices, an epic “taper tantrum” and a surge in yields (see Bunds as of a month ago), and worse, a collapse of faith in central planning.

  Central banks can not have that, which would mean they would promptly re-engage once more and double down on their bond purchases restarting the cycle afresh. And so on, and so on.

  Which brings us to the other definition of Singer’s bigger short: that of “long-term claims on paper money” which this complete sense, because Singer’s real short is not on bonds, but the economic system as we know it: one built on trillions of obligations to the future, also known as debt, also known as paper money.

  As such we are left scratching our heads: if Singer is really advocating shorting the entire closed monetary system, why short bonds? After all, you may be right, but…  in what denomination do you get your profits paid out: Dollars? Worthless. Euros? Just as worthless. Yen? Yeah, funny.

  The point is that for Singer to be right, and he will be right one day, one can’t bet on a collapse of the current monetary system with hopes of being paid out in claims of the current monetary system. 

  It just doesn’t work.

  Which leads us to believe that the real message in Singer’s latest letter is what is unsaid. Yes, bonds will crash, and stocks will explode in a hyperinflationary supernova, but the currency they are denominated in will become worthless the moment the claim is transferred. But one thing will remain: the thing that has stood the test of millennia, and has survived all man-made monetary crises to date. The one thing that will also survive the next market crash. That one item, of course, is what the former Fed Chairman and current blogger, called nothing but “tradition” (which he then admitted he does not really undestand).

  

  

  
  
  

  

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• Iraq Trolls US, Calls Latest Military Operation "We Are At Your Services, Hussein"

  While some have argued that President Obama and his folly-prone foreign policy debacle is the laughing stock of the world, it seems, as DefenseNews reports, that the Iraqi military is directly mocking America. Just a day after Defense Secretary Ash Carter accused them of cowardice, an umbrella group for mostly Shiite militia and volunteer fighters, Hashed al-Shaabi, said it had dubbed a military campaign to cut off the Islamic State group in Anbar province as "Operation Labaik ya Hussein," which roughly translates as "We are at your service, Hussein."

  Defense Secretary Ash Carter offered a withering critique of the will of Iraqi defense forces in the fall of Ramadi to Islamic State.

  “The Iraqi forces just showed no will to fight,” he said. “They were not outnumbered. In fact they vastly outnumbered the opposing force and yet they failed to fight and withdrew from the site…We can give them training, we can give them equipment. We obviously can’t give them the will to fight.”

  For their part, the Iraqis denied Carter’s assessment – which amounted to calling Ramadi’s defenders cowards – blaming poor strategy and, ironically, inadequate air support for the defeat. But, as DefenseNews reports, the Iraqi forces had more to say…

  The Pentagon expressed disappointment on Tuesday over a decision by Iraqi militias to impose an explicitly Shiite name for a military operation in Iraq's Sunni heartland, saying it could aggravate sectarian tensions.

   

  An umbrella group for mostly Shiite militia and volunteer fighters, Hashed al-Shaabi, said it had dubbed a military campaign to cut off the Islamic State group in Anbar province as "Operation Labaik ya Hussein," which roughly translates as "We are at your service, Hussein."

   

  The name refers to one of the most revered imams in Shiite Islam.

   

  "I think it's unhelpful," spokesman Col. Steven Warren said.

   

  "We've long said . . . the key to victory, the key to expelling ISIL from Iraq is a unified Iraq," Warren said, using an alternative acronym for the IS group.

   

  That required "a unified Iraq that separates itself from sectarian divides, coalesces around this common threat and works to expel ISIL from Iraq," he said.

   

  "The solution is a unified Iraqi government," he added.

   

  Iraqi officials said about 4,000 fighters from the militia group were heading to the northern edge of Ramadi as a first step to eventually rolling back the IS jihadists from city, which fell to the extremists on May 17.

  The Iraqi government and its American allies had been reluctant to send in Iran-backed Shiite militia in Anbar — a predominantly Sunni province. But the IS advance in Ramadi — a major blow for both Baghdad and the US-led coalition — prompted Iraq to approve the deployment of the militias.

  Washington is wary of the militias with ties to Iran but has said it would support a role for all forces that remain under the authority of the Iraqi government.

   

  "Many of them (militias in the Anbar area) are under the control of the central government," Warren said.

   

  But he added: "I don't know whether if any that are there are not under the control of the government."

  *  *  *

  Of course, there is always the chance that Iraqi military are refeering to Barack Hussein Obama of course…

  

  

  
  
  

  

• The NSA's Technotyranny: One Nation Under Surveillance

  Submitted by John Whitehead via The Rutherford Institute,

  “The ultimate goal of the NSA is total population control.”—William Binney, NSA whistleblower

  We now have a fourth branch of government.

  As I document in my new book Battlefield America: The War on the American People, this fourth branch came into being without any electoral mandate or constitutional referendum, and yet it possesses superpowers, above and beyond those of any other government agency save the military. It is all-knowing, all-seeing and all-powerful. It operates beyond the reach of the president, Congress and the courts, and it marches in lockstep with the corporate elite who really call the shots in Washington, DC.

  You might know this branch of government as Surveillance, but I prefer “technotyranny,” a term coined by investigative journalist James Bamford to refer to an age of technological tyranny made possible by government secrets, government lies, government spies and their corporate ties.

  Beware of what you say, what you read, what you write, where you go, and with whom you communicate, because it will all be recorded, stored and used against you eventually, at a time and place of the government’s choosing. Privacy, as we have known it, is dead.

  The police state is about to pass off the baton to the surveillance state.

  Having already transformed local police into extensions of the military, the Department of Homeland Security, the Justice Department and the FBI are preparing to turn the nation’s soldier cops into techno-warriors, complete with iris scanners, body scanners, thermal imaging Doppler radar devices, facial recognition programs, license plate readers, cell phone Stingray devices and so much more.

  This is about to be the new face of policing in America.

  The National Security Agency (NSA) has been a perfect red herring, distracting us from the government’s broader, technology-driven campaign to render us helpless in the face of its prying eyes. In fact, long before the NSA became the agency we loved to hate, the Justice Department, the FBI, and the Drug Enforcement Administration were carrying out their own secret mass surveillance on an unsuspecting populace.

  Just about every branch of the government—from the Postal Service to the Treasury Department and every agency in between—now has its own surveillance sector, authorized to spy on the American people. Then there are the fusion and counterterrorism centers that gather all of the data from the smaller government spies—the police, public health officials, transportation, etc.—and make it accessible for all those in power. And of course that doesn’t even begin to touch on the complicity of the corporate sector, which buys and sells us from cradle to grave, until we have no more data left to mine.

  The raging debate over the fate of the NSA’s blatantly unconstitutional, illegal and ongoing domestic surveillance programs is just so much noise, what Shakespeare referred to as “sound and fury, signifying nothing.”

  It means nothing: the legislation, the revelations, the task forces, and the filibusters.

  The government is not giving up, nor is it giving in. It has stopped listening to us. It has long since ceased to take orders from “we the people.”

  If you haven’t figured it out yet, none of it—the military drills, the surveillance, the militarized police, the strip searches, the random pat downs, the stop-and-frisks, even the police-worn body cameras—is about fighting terrorism. It’s about controlling the populace.

  Despite the fact that its data snooping has been shown to be ineffective at detecting, let alone stopping, any actual terror attacks, the NSA continues to operate largely in secret, carrying out warrantless mass surveillance on hundreds of millions of Americans’ phone calls, emails, text messages and the like, beyond the scrutiny of most of Congress and the taxpayers who are forced to fund its multi-billion dollar secret black ops budget.

  Legislation such as the USA Patriot Act serves only to legitimize the actions of a secret agency run by a shadow government. Even the proposed and ultimately defeated USA Freedom Act, which purported to restrict the reach of the NSA’s phone surveillance program—at least on paper—by requiring the agency to secure a warrant before surveillance could be carried out on American citizens and prohibiting the agency from storing any data collected on Americans, amounted to little more than a paper tiger: threatening in appearance, but lacking any real bite.

  The question of how to deal with the NSA—an agency that operates outside of the system of checks and balances established by the Constitution—is a divisive issue that polarizes even those who have opposed the NSA’s warrantless surveillance from the get-go, forcing all of us—cynics, idealists, politicians and realists alike—to grapple with a deeply unsatisfactory and dubious political “solution” to a problem that operates beyond the reach of voters and politicians: how do you trust a government that lies, cheats, steals, sidesteps the law, and then absolves itself of wrongdoing to actually obey the law?

  Since its official start in 1952, when President Harry S. Truman issued a secret executive order establishing the NSA as the hub of the government’s foreign intelligence activities, the agency—nicknamed “No Such Agency”—has operated covertly, unaccountable to Congress all the while using taxpayer dollars to fund its secret operations. It was only when the agency ballooned to 90,000 employees in 1969, making it the largest intelligence agency in the world with a significant footprint outside Washington, DC, that it became more difficult to deny its existence.

  In the aftermath of Watergate in 1975, the Senate held meetings under the Church Committee in order to determine exactly what sorts of illicit activities the American intelligence apparatus was engaged in under the direction of President Nixon, and how future violations of the law could be stopped. It was the first time the NSA was exposed to public scrutiny since its creation.

  The investigation revealed a sophisticated operation whose surveillance programs paid little heed to such things as the Constitution. For instance, under Project SHAMROCK, the NSA spied on telegrams to and from the U.S., as well as the correspondence of American citizens. Moreover, as the Saturday Evening Post reports, “Under Project MINARET, the NSA monitored the communications of civil rights leaders and opponents of the Vietnam War, including targets such as Martin Luther King, Jr., Mohammed Ali, Jane Fonda, and two active U.S. Senators. The NSA had launched this program in 1967 to monitor suspected terrorists and drug traffickers, but successive presidents used it to track all manner of political dissidents.”

  Senator Frank Church (D-Ida.), who served as the chairman of the Select Committee on Intelligence that investigated the NSA, understood only too well the dangers inherent in allowing the government to overstep its authority in the name of national security. Church recognized that such surveillance powers “at any time could be turned around on the American people, and no American would have any privacy left, such is the capability to monitor everything: telephone conversations, telegrams, it doesn’t matter. There would be no place to hide.”

  Noting that the NSA could enable a dictator “to impose total tyranny” upon an utterly defenseless American public, Church declared that he did not “want to see this country ever go across the bridge” of constitutional protection, congressional oversight and popular demand for privacy. He avowed that “we,” implicating both Congress and its constituency in this duty, “must see to it that this agency and all agencies that possess this technology operate within the law and under proper supervision, so that we never cross over that abyss. That is the abyss from which there is no return.”

  The result was the passage of the Foreign Intelligence Surveillance Act (FISA), and the creation of the FISA Court, which was supposed to oversee and correct how intelligence information is collected and collated. The law requires that the NSA get clearance from the FISA Court, a secret surveillance court, before it can carry out surveillance on American citizens. Fast forward to the present day, and the so-called solution to the problem of government entities engaging in unjustified and illegal surveillance—the FISA Court—has unwittingly become the enabler of such activities, rubberstamping almost every warrant request submitted to it.

  The 9/11 attacks served as a watershed moment in our nation’s history, ushering in an era in which immoral and/or illegal government activities such as surveillance, torture, strip searches, SWAT team raids are sanctioned as part of the quest to keep us “safe.”

  In the wake of the 9/11 attacks, George W. Bush secretly authorized the NSA to conduct warrantless surveillance on Americans’ phone calls and emails. That wireless wiretap program was reportedly ended in 2007 after the New York Times reported on it, to mass indignation.

  Nothing changed under Barack Obama. In fact, the violations worsened, with the NSA authorized to secretly collect internet and telephone data on millions of Americans, as well as on foreign governments.

  It was only after whistleblower Edward Snowden’s revelations in 2013 that the American people fully understood the extent to which they had been betrayed once again.

  What this brief history of the NSA makes clear is that you cannot reform the NSA.

  As long as the government is allowed to make a mockery of the law—be it the Constitution, the FISA Act or any other law intended to limit its reach and curtail its activities—and is permitted to operate behind closed doors, relaying on secret courts, secret budgets and secret interpretations of the laws of the land, there will be no reform.

  Presidents, politicians, and court rulings have come and gone over the course of the NSA’s 60-year history, but none of them have done much to put an end to the NSA’s “technotyranny.”

  The beast has outgrown its chains. It will not be restrained.

  The growing tension seen and felt throughout the country is a tension between those who wield power on behalf of the government—the president, Congress, the courts, the military, the militarized police, the technocrats, the faceless unelected bureaucrats who blindly obey and carry out government directives, no matter how immoral or unjust, and the corporations—and those among the populace who are finally waking up to the mounting injustices, seething corruption and endless tyrannies that are transforming our country into a technocrized police state.

  At every turn, we have been handicapped in our quest for transparency, accountability and a representative democracy by an establishment culture of secrecy: secret agencies, secret experiments, secret military bases, secret surveillance, secret budgets, and secret court rulings, all of which exist beyond our reach, operate outside our knowledge, and do not answer to “we the people.”

  What we have failed to truly comprehend is that the NSA is merely one small part of a shadowy permanent government comprised of unelected bureaucrats who march in lockstep with profit-driven corporations that actually runs Washington, DC, and works to keep us under surveillance and, thus, under control. For example, Google openly works with the NSA, Amazon has built a massive $600 million intelligence database for the CIA, and the telecommunications industry is making a fat profit by spying on us for the government.

  In other words, Corporate America is making a hefty profit by aiding and abetting the government in its domestic surveillance efforts. Conveniently, as the Intercept recently revealed, many of the NSA’s loudest defenders have financial ties to NSA contractors.

  Thus, if this secret regime not only exists but thrives, it is because we have allowed it through our ignorance, apathy and naïve trust in politicians who take their orders from Corporate America rather than the Constitution.

  If this shadow government persists, it is because we have yet to get outraged enough to push back against its power grabs and put an end to its high-handed tactics.

  And if this unelected bureaucracy succeeds in trampling underfoot our last vestiges of privacy and freedom, it will be because we let ourselves be fooled into believing that politics matters, that voting makes a difference, that politicians actually represent the citizenry, that the courts care about justice, and that everything that is being done is in our best interests.

  Indeed, as political scientist Michael J. Glennon warns, you can vote all you want, but the people you elect aren’t actually the ones calling the shots. “The American people are deluded … that the institutions that provide the public face actually set American national security policy,” stated Glennon. “They believe that when they vote for a president or member of Congress or succeed in bringing a case before the courts, that policy is going to change. But … policy by and large in the national security realm is made by the concealed institutions.”

  In other words, it doesn’t matter who occupies the White House: the secret government with its secret agencies, secret budgets and secret programs won’t change. It will simply continue to operate in secret until some whistleblower comes along to momentarily pull back the curtain and we dutifully—and fleetingly—play the part of the outraged public, demanding accountability and rattling our cages, all the while bringing about little real reform.

  Thus, the lesson of the NSA and its vast network of domestic spy partners is simply this: once you allow the government to start breaking the law, no matter how seemingly justifiable the reason, you relinquish the contract between you and the government which establishes that the government works for and obeys you, the citizen—the employer—the master.

  Once the government starts operating outside the law, answerable to no one but itself, there’s no way to rein it back in, short of revolution. And by revolution, I mean doing away with the entire structure, because the corruption and lawlessness have become that pervasive.

  

  

  
  
  

  

• Caught On Tape: Self-Driving Car Ploughs Into Journalists

  While there is much debate whether the latest and greatest Apple fad is a dud…

  

  or a hit…

  Son of Wang Jianlin, China’s richest man and chairman of Dalian Wanda, buys his dog two gold Apple Watches $AAPL https://t.co/Kg0Gowws3E

  — Haidi Lun ??? (@HaidiLun) May 27, 2015

  … Apple has, in case the fading wearables mania is the former, a Plan C: a self-driving car. 

  Or maybe not, because for a company built on the successful creation, execution and marketing of gadgets with a two year average lifespan, the worst thing that can happen is for the world to glimpse the unpleasant reality behind the glitzy, futuristic facade for sale every day (usually with a 4-6 weeks delivery delay) in Cupertino.

  Such as this video, taken in the Dominican Republic, showing a self-parking Volvo XC60 reversing itself, waiting, and then slamming into journalists who were gawking at the “fascinating” if somewhat homicidal creation, at full speed.

  As the Independent reports, the horrifying pictures went viral and were presumed to have resulted from a malfunction with the car.

  Only it wasn’t a malfunction.

  Instead, in what is perhaps the most epic “option” in the history of automotive history, Volvo decided to make the special feature known as “pedestrian detection functionality” cost extra money.

  It gets better: the cars do have auto-braking features as standard, but only for avoiding other cars — if they are to avoid crashing into pedestrians, too, then owners must pay extra.

  “It appears as if the car in this video is not equipped with Pedestrian detection,” Volvo spokesperson Johan Larsson told Fusion. “This is sold as a separate package.”

   

  The feature uses a radar and camera to see pedestrians.

   

  “The pedestrian detection would likely have been inactivated due to the driver inactivating it by intentionally and actively accelerating,” Larsson said. “Hence, the auto braking function is overrided by the driver and deactivated.”

   

  The blog that uploaded the video said that the two men “were bruised but are ok”. They said that “sources” had told them that “the drivers forgot to turn on ‘City-Safe’ mode”.

  Indeed: a “self-driving” parking car which conveniently has an optional extra that stops the car from smashing into people.

  In other words, unless you can fork over the extra couple thousand bucks, the future “self-driving” car becomes a war truck right out of Mad Max, filled with an insatiable desire to mangle and crush any carbon-based life forms that have the misfortune of crossing its path.

  Just like in the video below. Presenting: the future.

  

  

  
  
  

  

• China's Third Bond Default Imminent: Coke Supplier To Miss Payment

  A little over a month ago, China witnessed its first default by a state-owned enterprise when Baoding Tianwei Group, a subsidiary of state-run China South Industries Group, defaulted on a $14 million coupon payment. That event raised two important issues. First, it suggested that Beijing will not necessarily step in to rescue state-affiliated companies who find themselves in financial trouble and second, it underscored the degree to which China’s $14 trillion corporate debt pile presents a very real risk especially considering the rapidly increasing number of non-performing loans on the books of the country’s banking sector.

  Today, we get still more evidence that China may be headed for a debt disaster as a third company has now defaulted on its onshore bonds. 

  This time it’s soft drink bottle maker Zhuhai Zhongfu Enterprise Co which, as Bloomberg reports, will come up nearly 450 million yuan short when a principal payment for paper issued in 2012 comes due on Thursday. Here’s more:

  Zhuhai Zhongfu Enterprise Co., which supplies bottles for Coca-Cola Co. and PepsiCo Inc. in China, can only repay 148 million yuan ($23.9 million) of the 590 million yuan principal, according to a statement to the Shenzhen Stock Exchange Monday. It plans to pay all the 31.152 million yuan of interest. The manufacturer, which isn’t state-owned, sold the 5.28 percent securities in 2012…

   

  Han Huiming, board secretary at Zhuhai Zhongfu, said when reached by phone Tuesday that the company will try to raise funds for the bond payment until the last moment.

   

  The manufacturer, which is based in the southern city of Zhuhai and employees about 4,000 people, said in a May 21 statement that a bank consortium rejected its application for 500 million yuan of loans in May. 

   

  The Zhuhai branches of China Everbright Bank Co. and Bank of China Ltd. have limited its freedom to spend the 61 million yuan of capital on its accounts, it said.

   

  Because Zhuhai Zhongfu is having a “liquidity crisis,” the company can’t collect enough money for the payment through its own business operations, according to the statement Monday.

   

  Zhuhai Zhongfu’s orders have declined significantly since 2012 as its biggest clients increased their own production of bottles, according to a report from China International Capital Corp. on May 11. The company’s business with its three largest clients Coca-Cola, PepsiCo and Uni-President China Holdings Ltd. generated only 33 percent of revenue last year, down from 49 percent in 2011, according to CICC. Coca-Cola remains the manufacturer’s biggest customer, according to board secretary Han.

   

  The shift comes as Coca-Cola and PepsiCo are increasingly focusing on cost-cutting to help support operating margins amid waning soft-drink demand, according to Bloomberg Intelligence.

  All of the above notwithstanding, the company’s Shenzhen-listed shares had risen more than 120% YTD before they were halted last month with equity ‘investors’ completely ignoring the fundamental story as they have with virtually everything else that changes hands on the exchange which is now trading at a mind-bending 71 times earnings after at least 250 individual names traded limit-up on Tuesday.

  

  Indeed, you didn’t even have to look at an income statement to know how risky of a bet this was because the debt was yielding near 20% before it was delisted last year.

  The company’s notes yielded 19.33 percent in the secondary market on June 27 last year before being delisted from the exchange, according to exchange data.

  Still, investors remain confident that Beijing, despite rhetoric to the contrary, will be loath to allow onshore defaults as $17 billion in principal payments come due in 2015, a figure that is set to rise exponentially over the next six years. Here’s Bloomberg again:

  The People’s Bank of China may coordinate loan support for Baoding Tianwei Group Co. after it became the first state-owned entity to default on a coupon payment in April, OCBC said, citing local media. Restaurant-turned-Internet firm Cloud Live Technology was the first onshore issuer to miss a principal payment in April and has raised funds from “unclear” sources to partly repay noteholders, OCBC said.

   

  Zhuhai Zhongfu, based in the southern city of Zhuhai, is still short 442 million yuan for a bond payment due Thursday, the company said in a statement to the Shenzhen stock exchange Monday. It will try to raise more money by May 26, it said.

   

  Narrowing spreads on onshore bonds suggest investors are still counting on state guarantees, said OCBC, which compared Baoding’s situation with bailouts last year for Shanghai Chaori Solar Energy Science & Technology Co. and a trust product known as China Credit Equals Gold No. 1. The difference between AAA and BBB+ rated yields has fallen to 933 basis points from 942 at the start of the year, while the gap between AAA and AA notes shrank to 114 from 129, according to the report.

   

  Chinese companies must repay an equivalent $16.9 billion of maturing onshore notes in 2015, Koh estimated in the report. That increases every year and will peak at $192.3 billion in 2021. Some 65 percent of institutions expect at least one more onshore default this quarter, according to a Bloomberg survey of 20 banks, brokerages and money managers published on May 18.

  Clearly, this is a rather large problem, but as we outlined in “How China’s Banks Hide Trillions In Credit Risk,” the government will often force banks to roll over maturing debt in order to paper over (literally) what is almost certainly a deteriorating situation and in fact, the PBoC recently did a complete 180 on regulations around local government financing via LGFVs in an effort to jumpstart the shadow banking credit creation machine, a move which Fitch calls “an explicit form of regulatory forbearance.” 

  Whatever the case, it’s becoming increasingly clear that the combination of slumping economic growth and $28 trillion in debt has the potential to trigger a wave of defaults from both state-run and private borrowers, a state of affairs which will test Beijing’s resolve when it comes to projecting stability in the country’s credit markets.

  

  

  
  
  

  

• This Is How Much Of Your Life The US Has Spent At War

  With the US spiraling quickly towards a maritime conflict with China over the latter’s “construction projects” in the disputed South China Sea and with NATO doing its best to match Moscow’s Eastern European sabre-rattling on the way to facilitating the most serious confrontation between Russia and the West in decades, we thought it as good a time as any to bring you the following graphic which shows the percentage of your life that the US has been at war.

  Simply put, if you were born in 1992 or later, America has been at war for at least two-thirds of your life and if you were born after 2001, well… you have never known life in the US without war.

  

  More from The Washington Post:

  Using somewhat subjective definitions of “at war” — Korea counts but Kosovo doesn’t in our analysis, for example — we endeavored to figure out how much of each person’s life has been spent with America at war. We used whole years for both the age and the war, so the brief Gulf War is given a full year, and World War II includes 1941. These are estimates.

  But the beginning of the conflict in Afghanistan in (late) 2001 means that anyone born in the past 13 years has never known an America that isn’t at war. Anyone born after 1984 has likely seen America at war for at least half of his or her life. And that’s a lot of Americans.

  Given recent events in Iraq and Syria, this isn’t likely to change anytime soon.

  

  

  
  
  

  

• Gold Price Moves Since QE3 Have Been A Warning To Mainstream Economists, Not Cause For Celebrations

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  A little over two years ago, in the middle of April 2013, there was a gold crash that came seemingly out of nowhere. Worse, for gold investors anyway, that crash was repeated just a few months later. Where gold had stood just shy of $1,800 an ounce at the start of QE3, those cascades had brought the metal price down to just $1,200. For many, especially 'so-called' orthodox economists, it heralded the end of the “fear trade” and meant, unambiguously, that the recovery had finally at long last arrived.

  As Felix Salmon wrote at Reuters in an article titled, The Fear Bubble Bursts:

  As a result, the falling price of gold is more important than simply being an opportunity for schadenfreude around the likes of Glenn Beck or John Paulson or Zero Hedge…

   

  The biggest problem in the markets right now is that they’re still far too risk-averse. Fear-based assets like gold, Treasury bonds, and cash are in high demand, while there isn’t enough money flowing through greed-based assets like stocks and bank loans and into the economy as a whole. Even if the stock market is expensive, the number of primary and secondary offerings remains low; similarly, banks are not expanding their loan books nearly fast enough…

   

  My hope is that the price of gold will continue to fall, that goldbugs will look increasingly silly, and that as a result Americans with savings will conclude that the best thing to do with those savings is to put them to work in a productive manner, rather than self-defeatingly trying to protect what they have.

  Gold has not continued that wished-for collapse, but hasn’t risen much either. In fact, the price of gold remained above $1,300 for only short periods and hasn’t been near that level outside of the January 2015 “Swiss problem.” Most gold analysis views it in terms of not just the “fear bubble” but also a proxy for interest rates and monetary policy. There is already a problem with that latter interpretation, as the price of gold began to its decline almost the moment QE3 started. Economists think of gold investors in only these terms, as emotional and irrational Fed-haters.

  

  In the broader economic context, then, the fact that gold was falling at the same time QE’s had commenced provided that hoped-for economic confirmation. Gold adherents were getting their “debasement” but that gold prices were sharply reacting in the “wrong” direction which could only mean, to the mainline economic view, that QE wasn’t just debasing the dollar it was actually working while doing so.

  Writing just prior to the second gold “slam” in June 2013, Nouriel Roubini took his best shots at framing gold’s descent as a victory for Ben Bernanke:

  Third, unlike other assets, gold does not provide any income. Whereas equities have dividends, bonds have coupons, and homes provide rents, gold is solely a play on capital appreciation. Now that the global economy is recovering, other assets—equities or even revived real estate—thus provide higher returns. Indeed, U.S. and global equities have vastly outperformed gold since the sharp rise in gold prices in early 2009.

   

  Fourth, gold prices rose sharply when real (inflation-adjusted) interest rates became increasingly negative after successive rounds of quantitative easing. The time to buy gold is when the real returns on cash and bonds are negative and falling. But the more positive outlook about the U.S. and the global economy implies that over time the Federal Reserve and other central banks will exit from quantitative easing and zero policy rates, which means that real rates will rise, rather than fall. [emphasis added]

  Roubini’s fourth point may be the most important, as it implies that there is a relationship between the Fed’s policies, especially QE’s, and the rate of inflation. However, recent history, especially in the two years since gold crashed, has proven that totally and fully incorrect. There has been no “inflation” much at all, and even to the point that the Fed’s preferred inflation target, the PCE deflator, has come in under the policy target of 2% for 35 straight months dating back to just before QE3 was rumored.

  

  If QE3 and QE4 had any impact on “inflation” or recovery in the US it is not apparent. For a time in 2013, Roubini’s “rising real rate” scenario seemed to be somewhat plausible as the entire UST complex and yield curve shifted upward. While the PCE deflator did not much move, that temporary rise in nominal yields brought real rates up and appeared at first as if it might reflect at least the near-future possibility of the recovery and recovery financial dynamics.

  But that all turned around in October and November 2013. In other words, anything resembling the recovery in these financial terms had a very short life. By November 2013, nominal yields had slowed their ascent and the overall UST yield curve turned durably bearish. Though real rates fell once more in the middle of 2014 as “inflation” ticked up slightly, since October 2014 “inflation” has declined far faster than nominal yields. So real interest rates have been rising, but not for the reasons outlined by Roubini and his orthodox notions of recovery.

  

  Clearly, there is “something” missing here beyond just the recovery economists were so sure that gold’s crash was foretelling. Normalizing both economic and financial conditions would mean interest rates rising back toward where they were pre-crisis just as “inflation” picks up and remains at or slightly above 2%. Neither of those factors is evident anywhere at all in the two years since gold prices crashed.

  The idea of gold prices behaving like a zero-coupon bond is in some ways relevant to this problem. Economists only think of the asset side of that paradigm while never moving beyond that into liabilities. A government bond is an asset, sure enough, but it can also be part of the liability structure in repo. Just as government bonds act as collateral, so too does gold. That has led to strict and lasting misinterpretation about the behavior of gold in 2008, which Roubini tried to incorporate within his anti-gold stance.

  But, even in that dire scenario, gold might be a poor investment. Indeed, at the peak of the global financial crisis in 2008 and 2009, gold prices fell sharply a few times. In an extreme credit crunch, leveraged purchases of gold cause forced sales, because any price correction triggers margin calls.

  That isn’t what happened to gold, at all. You can disprove that theory rather easily, as I wrote contemporarily in April 2013 about the gold slam as it was occurring.

  

  Gold prices crashed on three separate occasions in 2008, all of which were tied to problems in collateral chains and interbank financial irregularities. In the first episode, the price decline started when Bear Stearns failed and ended on May 2, 2008. That date stands out because that was the first time the Fed had expanded its list of acceptable and eligible collateral in its TSLF Schedule 2 to include non-GSE MBS paper as well as strictly non-mortgage ABS. In other words, the collateral implosion started by Bear Stearns “cold fusion” ended the moment the Fed debased not the currency or bank reserves but the list of “appropriate” interbank collateral.

  As I described it in April 2013:

  That means in times of extreme stress, gold acts like a universal liquidity stopgap – when all else fails, repo gold. The operational reality of a gold repo is a gold lease, charged at the forward rate (GOFO). In terms of market mechanics, a dramatic increase in gold leasing is seen as a massive increase in supply on the paper markets.

   

  For various reasons in the past five years, collateral chains and the available collateral pool has dwindled dramatically. That has left banks to scramble for operational bypasses, but it also has led to periods of very acute stress. [emphasis in original]

  As a representation of the “dollar”, then, gold prices act as a partial proxy of actual “dollar” availability balanced against that or any desperate bid for safety – and having very little to do with interest rate differentials.

  That makes the trend in gold since QE3 started all the more interesting if we take in the “correct” context of the global “dollar.” Clearly, we cannot take falling gold as indicating a recovery because one never came and it surely looks to be further away now than then, an interpretation consistent with financial measures, yields and prices. But we can look at gold over the past three years since QE3 and link its behavior to that of the “dollar.”

  While economists might still see QE as contributing to global “liquidity”, which it seems like it should what with all those trillions in bank “reserves” created, there has been persistent criticism of it as nurturing instead the opposite condition. The major part of creating all those bank “reserves” is to remove collateral in the process – transforming a repo-based system back toward a more-traditional idea of how banking used to work. But the wholesale system since August 2007 has been moving away from unsecured lending interbank and otherwise to almost purely repo.

  The Fed has been very aware of this problem especially when it nearly destroyed repo in April 2011 (and then a desperate “dollar” problem only two months later?) by stripping the system of almost all t-bills toward the end of QE2 (which was the reason for Operation Twist). When planning and extrapolating for QE3, those operational constraints were at best secondary to the psychological effects that were supposed to accompany Bernanke’s massive and “open ended” monetary program. Getting everyone to “feel” better that the Fed was doing something big was meant as a far greater economic stimulant than the negative liquidity of depriving usable collateral in terrible quantities. The recovery from the defeat of pessimism, in Felix Salmon’s terms, was thought to be so much more powerful than the status of actual “dollar” circulation ability.

  

  So much happy emotion was never really much of a “stimulant”, of course, but the negative factors on “dollar” circulation were very real. In many ways, the collapse in gold presaged this latest stage or leg in the collapse of the global “dollar”, eurodollars in particular, which starts to account for the economic behavior these past few years as well. Gold, then, since early 2008 has been telling us a lot about the tendency of the eurodollar standard toward outright imbalance and dysfunction. That is a condition that is not in any way conducive for a global recovery, which is one big reason why, despite orthodox giddiness over gold prices, it never came.

  It also suggests that QE has acted as a depressant upon the global economy, net, depriving significant circulation ability in eurodollar channels and beyond. This would include not just reduced levels of collateral flow, but also bank balance sheet capacity overall in the full 2013 aftermath of QE3 and QE4. It would have been nice if gold’s price collapse was a signal of actual success, but instead it appears to be just another form of structural financial decay and the economic malaise (at best) that attends it. In that view, it is somewhat amazing that gold prices haven’t suffered further lower lows, which suggests that there may actually have been a significant safety bid all along. The “fear” bubble did not end; it was overwhelmed by QE’s depressive constant and the related countdown to the end of the eurodollar standard.

  

   

  Gold price activity since QE3 has been a warning, and a big one, not cause for victory celebrations.

  

  

  
  
  

  

• Hillary Clinton's State Department Approved $165 Billion In Arms Deals To Clinton Foundation Donors

  Late last month we outlined an IBTimes report which showed that Goldman Sachs paid nearly a quarter of a million dollars to Bill Clinton for a speech before lobbying the State Department (then run by Hillary Clinton) on legislation tied to the Export-Import Bank which would eventually approved a loan to a Chinese company that subsequently placed a $75 million purchase order with a Goldman-owned aircraft manufacturer. The implication, of course, was that the speaking engagement fee ultimately influenced the State Department’s decision making, a suggestion Goldman called “preposterous.” 

  The Clintons have also come under scrutiny for possible conflicts of interest arising from contributions to Clinton Foundation charities while Hillary Clinton served as the nation’s top diplomat. More specifically, a Reuters investigation revealed that the Foundation failed to report “tens of millions” of donations from foreign governments on three years’ worth of 990s, prompting the organization’s acting CEO Maura Pally to pen a lengthy blog post explaining the “mistake.” Shortly thereafter, Reuters found inaccuracies in Pally’s explanation, noting that in fact, Clinton broke transparency promises made to the Obama administration. 

  Now, the IBTimes is out with a new investigative piece that looks at the relationship between foreign government and corporate donors to Clinton charities and weapons deals negotiated under Hillary Clinton’s State Department which, as it turns out, approved $165 billion in arms deals to nations who had previously given money to the Clinton Foundation. 

  Via IBTimes:

  In the years before Hillary Clinton became secretary of state, the Kingdom of Saudi Arabia contributed at least $10 million to the Clinton Foundation, the philanthropic enterprise she has overseen with her husband, former president Bill Clinton. Just two months before the deal was finalized, Boeing — the defense contractor that manufactures one of the fighter jets the Saudis were especially keen to acquire, the F-15 — contributed $900,000 to the Clinton Foundation, according to a company press release.

   

  The Saudi deal was one of dozens of arms sales approved by Hillary Clinton’s State Department that placed weapons in the hands of governments that had also donated money to the Clinton family philanthropic empire, an International Business Times investigation has found.

   

  Under Clinton’s leadership, the State Department approved $165 billion worth of commercial arms sales to 20 nations whose governments have given money to the Clinton Foundation, according to an IBTimes analysis of State Department and foundation data. That figure — derived from the three full fiscal years of Clinton’s term as Secretary of State (from October 2010 to September 2012) — represented nearly double the value of American arms sales made to the those countries and approved by the State Department during the same period of President George W. Bush’s second term…

   

  The Clinton-led State Department also authorized $151 billion of separate Pentagon-brokered deals for 16 of the countries that donated to the Clinton Foundation, resulting in a 143 percent increase in completed sales to those nations over the same time frame during the Bush administration. These extra sales were part of a broad increase in American military exports that accompanied Obama’s arrival in the White House.

  These deals benefited the usual Middle East suspects with whom the Obama administration is now coordinating for the ouster of Assad…

  The State Department formally approved these arms sales even as many of the deals enhanced the military power of countries ruled by authoritarian regimes whose human rights abuses had been criticized by the department. Algeria, Saudi Arabia, Kuwait, the United Arab Emirates, Oman and Qatar all donated to the Clinton Foundation and also gained State Department clearance to buy caches of American-made weapons even as the department singled them out for a range of alleged ills, from corruption to restrictions on civil liberties to violent crackdowns against political opponents.  

  …and were consummated even as Clinton herself acknowledged an explicit link between some beneficiaries and funding for the very same terrorists who are now set to become a scapegoat for the very same Assad ouster…

  As secretary of state, Hillary Clinton also accused some of these countries of failing to marshal a serious and sustained campaign to confront terrorism. In a December 2009 State Department cable published by Wikileaks, Clinton complained of “an ongoing challenge to persuade Saudi officials to treat terrorist financing emanating from Saudi Arabia as a strategic priority.” She declared that “Qatar’s overall level of CT cooperation with the U.S. is considered the worst in the region.” 

  … and in case there was any doubt about Clinton’s ability to influence weapons sales to foreign governments…

  Questions about the nexus of arms sales and Clinton Foundation donors stem from the State Department’s role in reviewing the export of American-made weapons. The agency is charged with both licensing direct commercial sales by U.S. defense contractors to foreign governments and alsoapproving Pentagon-brokered sales to those governments. Those powers are enshrined in a federal law that specifically designates the secretary of state as “responsible for the continuous supervision and general direction of sales” of arms, military hardware and services to foreign countries. In that role, Hillary Clinton was empowered to approve or reject deals for a broad range of reasons, from national security considerations to human rights concerns.

  The report doesn’t stop there. There are also links between the Clintons and the military-industrial complex with the likes of Boeing, Lockheed Martin, and United Technologies all donating money to the Foundation before being listed as contractors on more than 100 arms deals. 

  That group of arms manufacturers — along with Clinton Foundation donors Boeing, Honeywell, Hawker Beechcraft and their affiliates — were together listed as contractors in 114 such deals while Clinton was secretary of state…

   

  Boeing was one of three companies that helped deliver money personally to Bill Clinton while benefiting from weapons authorizations issued by Hillary Clinton’s State Department. The others were Lockheed and the financial giant Goldman Sachs.

  In the end, this serves as further evidence that the person who is viewed, at least for the time being, as the likely next US Commander in Chief, has in the past been susceptible to the influence of foreign governments whose cash contributions to Clinton charities may have served to shape US weapons deals with Washington’s Middle Eastern allies. We’ll close with the following from Harvard professor Stephen Walt:

  American foreign policy is better served if people responsible for it are not even remotely suspected of having these conflicts of interest.

  We wish you the best of luck with that Mr. Walt.

  

  

  
  
  

  

• Key Iraq War Architect: “Our Objective Should Be a New Sunni State Out of the Western Part Of Iraq, the Eastern Part of Syria”

  We’ve previously noted that the powers-that-be have been planning for MANY DECADES to break up Iraq into several countries.

  And the same has been true for Syria.

  One of the key architects of the Iraq war – John Bolton – previously said that the Iraq war was about oil, not protecting the United States from weapons of mass destruction. And see this.

  Last weekend, Bolton said:

  The Arabs divided between Sunnis and Shias – I think the Sunni Arabs are never going to agree to be in a state where the Shia outnumber them 3-1. That’s what ISIS has been able to take advantage of.

   

  I think our objective should be a new Sunni state out of the western part of Iraq, the eastern part of Syria run by moderates or at least authoritarians who are not radical Islamists. What’s left of the state of Iraq, as of right now, is simply a satellite of the ayatollahs in Tehran. It’s not anything we should try to aid.

  In other words, one of the key architects of the Iraq war has openly called for partition of Iraq and Syria into a number of different countries … as the Neocons have been planning for over 20 years.

  Postscript: The hawks are not exactly sad about the rise of ISIS.

  

  
  
  

  

• "My Love Is Real" Kenyan Lawyer Offers Cows, Sheep, & Goats For Obama's Daughter

  “I got interested in her in 2008,” Kenyan Felix Kiprono tells The Nairobian newspaper, and now, in an official marriage request, the lawyer has offered US president Barack Obama 50 cows, 70 sheep, and 30 goats in exchange for his 16-year old daughter Malia’s hand in marriage. As AFP reports, Kiprono dismissed the notion he might be a gold-digger, adding that he and the young Obama would lead “a simple life,” and he will teach Malia how to milk a cow. This is not the first time a Kenyan has offered livestock in exchange for a President’s daughter…

   

  A Kenyan lawyer has offered US president Barack Obama 50 cows and other assorted livestock in exchange for his 16-year old daughter Malia’s hand in marriage, a report said Tuesday. As AFP reports,

  Felix Kiprono said he was willing to pay 50 cows, 70 sheep and 30 goats in order to fulfil his dream of marrying the first daughter.

   

  “I got interested in her in 2008,” Kiprono said, in an interview with The Nairobian newspaper.

   

  At that time President Obama was running for office for the first time and Malia was a 10-year-old.

   

  “As a matter of fact, I haven’t dated anyone since and promise to be faithful to her. I have shared this with my family and they are willing to help me raise the bride price,” he said.

   

  Kiprono said he intended to put his offer of marriage to Obama and hopes the president will bring his daughter with him when he makes his first presidential visit to Kenya, the country where his father was born, in July.

   

  Obama’s Kenyan grandmother, who is in her early 90s, still lives in Kogelo, in western Kenya, home to a number of the president’s relatives.

   

  “I am currently drafting a letter to Obama asking him to please have Malia accompany him for this trip. I hope the embassy will pass the letter to him,” he said.

  Kiprono dismissed the notion he might be a gold-digger.

  “People might say I am after the family’s money, which is not the case. My love is real,” he insisted.

   

  The young lawyer, whose age was not revealed, said he had already planned his proposal, which would be made on a hill near his rural village, and the wedding at which champagne would be shunned in favour of a traditional sour milk called “mursik”.

   

  Kiprono said that as a couple he and the young Obama would lead “a simple life”.

   

  “I will teach Malia how to milk a cow, cook ugali (maize porridge) and prepare mursik like any other Kalenjin woman,” he said.

  And while the gesture seems very generous, we would note that this is not the first time a Kenyan has offered livestock in exchange for a President’s daughter. In 2009, as CNN reports, Kenyan Godwin Kipkemoi Chepkurgor offered 40 goats and 20 cows for Chelsea Clinton’s love…

  The Kenyan man first offered the dowry nine years ago to then-President Bill Clinton in asking for the hand of his only child. He renewed it Thursday after Secretary of State Hillary Clinton was asked about the proposal at a Nairobi town hall session.

  CNN’s Fareed Zakaria, the session’s moderator, commented that given the economic crisis at hand, Chepkurgor’s dowry was “not a bad offer.”

  However, Clinton said her daughter was her own person.

  “She’s very independent,” she said. “So I will convey this very kind offer.”

  *  *  *
  So what have we learned: Malia Obama is worth dramatically more than Chelsea Clinton (even adjusting for inflation).

  

  

  
  
  

  

• Asia Scholar Lays Out "Three Ways China And The US Could Go To War"

  Yesterday, in a troubling oped posted in China’s Global Times, a paper owned by the ruling Communist Party, China issued its loudest warning yet to the US to keep out of its affairs, in this case the various disputed territories in the South China Sea among them but not limited to China’s artificial islands in the Spratly chain which have become a topic of contention between China and various US allies in the region, when it said that war was “inevitable” between China and the United States unless Washington stopped demanding Beijing halt the building of artificial islands in the disputed waterway.

  “We do not want a military conflict with the United States, but if it were to come, we have to accept it,” said The Global Times, which is among China’s most nationalist newspapers.

  But is a military conflict, let alone an actual war, realistic in a world in which all political and diplomatic disagreements are solved either in the back room or using the capital markets?

  According to Michael Auslin, a resident scholar and the director of Japan Studies at the American Enterprise Institute (AEI), where he specializes in Asian regional security and political issues, the answer is yes. Auslin proposes that with Beijing and Washington both laying down “red lines” in the South China Sea, the two superpowers are maneuvering themselves into a potential conflict since neither would be willing to back down over fears of losing face or realpolitik clout.

  Beijing has not yet declared a formal air defense identification zone (ADIZ) over the South China Sea, unlike the one it established over part of the East China Sea in 2013, nor could it today enforce such a zone effectively with its current fighters.

   

  However, with its reclamation activities continuing, and the Obama Administration apparently having decided to challenge China’s claims, the US and China are now potentially closer to an armed encounter than at any time in the past 20 years.

  In an article in The Commentator, he lays out the three real-world scenarios under which it could happen.

  1) Accident: The US Navy is reportedly considering sending ships within 12 miles of the manmade islands, thereby entering into what China claims is now sovereign territory. With Chinese naval and maritime patrol vessels in the waters, intimidation or harassment of US ships could lead to a collision, with each side responding in turn.

  This is what China has done to ships of other nations, and an accident could lead to a stand-off. In the air, the Spratlys lie about 800 miles from China’s shores, already within the combat radius of China’s most advanced fighter jet (though Beijing has yet to show that it can effectively oppose US air patrols).

  More worrisome, China is building airstrips on its islands, and may soon be able to launch planes from them to patrol the skies. Similarly, once its aircraft carrier is operational with an air wing, it can easily patrol the area. Any of those developments would dramatically increase the chances of a mid-air collision, such as happened in 2001 between a Chinese fighter and a US Navy surveillance plane.

  2) Premeditation: Beijing has staked its geopolitical reputation in Southeast Asia on its claims to the South China Sea and now the building of the islands, which already cover more than 2,000 acres. As I wrote in National Review last week, unless they decide to back down, and risk losing influence in Asia, China’s leaders may decide that stopping American incursion into their newly claimed waters early on is the best opportunity to make the risks to Washington seem too high.

  Once Chinese airplanes are on the islands, then they may decide to shadow US planes and prevent them from flying in “restricted” skies, for the same reason, leaving the US to decide how far to respond. Thus, they may force a confrontation, to try and get the Obama Administration to back down from getting involved in another military situation while it is dealing with the Middle East and Ukraine.

  3) Indirect Conflict: China may well judge that it is too risky to directly challenge US ships and planes, but that it can make the same point by intercepting those of other countries. Already, the Philippines has claimed that China warned off its surveillance planes, and China has had regular maritime run-ins with the Philippines and Vietnam.

  It may decide to stop foreign ships from passing by its new islands, or it may soon try to escort less advanced foreign planes out the skies above its islands. A direct conflict between China and any of its neighbors would, at this point, have a good chance of bringing in the US, in order to credibly claim that it is upholding international law (and, in the case of the Philippines, coming to the aid of a treaty ally).

  His conclusion:

  Beijing and Washington are each laying down redlines in the South China Sea, making the upholding of their claims a priority. In this, they are maneuvering themselves into a potential conflict.

   

  With no de-escalation mechanisms, and deep distrust on both sides, the more capable China becomes in defending its claimed territory, the more risks the US will face in challenging those claims.

   

  That is why each is trying to define the boundaries and set the pattern of behavior before the other does. That may not ensure that there will be a military encounter, but it steadily raises the chances of one.

  What Auslin ignored to note is that with the entire world gripped in secular stagnation, a “controlled” war may be just what the sputtering economic engines of the world’s two largest economies need. The only question is how to assure any incipient conflict will remain “controlled.”

   

  

  

  
  
  

  

• The Only Question That Matters In Today's Markets

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

  Neurosis is the inability to tolerate ambiguity.
  – Sigmund Freud (1886 – 1939)

  To learn which questions are unanswerable, and not to answer them: this skill is most useful in times of stress and darkness.
  – Ursula K. Le Guin, “The Left Hand of Darkness” (1969)

  Is everything connected, so that events create resonances like ripples across a net? Or do things merely co-occur and we give meaning to these co-occurrences based on our belief system? Lieh-tzu’s answer: it’s all in how you think.
  – “The Liezi”, ancient Taoist text attributed to Lie Yukou (c. 400 BC)

   

  Deckard:	She’s a replicant, isn’t she?
  Tyrell:	I’m impressed. How many questions does it usually take to spot them?
  Deckard:	I don’t get it, Tyrell.
  Tyrell:	How many questions?
  Deckard:	Twenty, thirty, cross-referenced.
  Tyrell:	It took more than a hundred for Rachael, didn’t it?
  Deckard:	[realizing Rachael believes she’s human] She doesn’t know.
  Tyrell:	She’s beginning to suspect, I think.
  Deckard:	Suspect? How can it not know what it is?

   

  – "Bladerunner" (1982)

  

  I remember when I was a very little girl, our house caught on fire.
  I'll never forget the look on my father's face as he gathered me up
  In his arms and raced through the burning building out to the pavement.
  I stood there shivering in my pajamas and watched the whole world go up in flames.
  And when it was all over I said to myself.
  "Is that all there is to a fire?"
  – Jerry Lieber and Mike Stoller, "Is That All There Is?", as recorded by Peggy Lee (1969)

  I call our world Flatland, not because we call it so, but to make its nature clearer to you, my happy readers, who are privileged to live in Space.
  – Edwin A. Abbott, “Flatland: A Romance of Many Dimensions” (1884)

  Homey don't play that game.
  – Damon Wayans, “In Living Color” (1992)

   

  There’s only one question that matters today in markets: why is the government bond market going up and down like a yo-yo? How is it possible that the deepest and most important securities in the world are currently displaying all the trading stability of a biotech stock?

  As with all market questions of singular importance and vast attention, these are questions of meaning. We seek the why and we seek the cause because we are desperate to understand what it means. We are – all of us – convinced that this market behavior must mean something profound. Surely this insane quivering within the bond market means that we are on the cusp of a quantum shift in the market landscape. Surely this is the rumbling of a deep tectonic plate that presages a massive earthquake. Surely, as more than one Master of the Universe proclaimed at SALT the other week, the long-awaited bear market in government debt is nigh.

  Maybe. Or maybe all those Masters of the Universe are just talking their book. I know … shocking.

  We are all market neurotics today, in the Freudian sense of the word, incapable of handling ambiguity in Narrative after 5+ years of global coordination and cooperation among The Monetary Powers That Be, 5+ years of being told by a monolithic Voice of Command how we should think about every single data point that crosses our Bloomberg screen. This is the most hated bull market in history, precisely because we all believe that it is a creature of policy and Narrative, and when the Voices are silent or they say conflicting things, we start to freak out. We run from pillar to post, getting whipsawed at every turn. Importantly, the whipsawing is occurring in the securities that are most closely linked to policy and Narrative – government bonds – and that’s why I believe that what we’re experiencing is more akin to neurosis than some shift in market fundamentals.

  Here’s my point: volatility ≠ instability. Or more precisely, a system can be volatile or unstable in a local sense but highly stable in a global sense.

  Unfortunately, however, because we live in the local rather than the global … because every bit of our modern financial services system, particularly financial media, is by business necessity focused on the local rather than the global … we are as unaware of our true positioning in the world as Rachael in “Bladerunner”. Or Deckard, who sure seems like a replicant to me. From a local perspective these bond market gyrations make it seem as if we are totally unmoored and markets are on the brink of some life-altering change. From a global perspective, however, this is a tempest in a teacup. Or to paraphrase the late, great Peggy Lee, is that all there is to a bond market fire?

  Okay, Ben, that’s quite a mouthful: “unstable in a local sense but highly stable in a global sense”. Translation, please?

  The Rosetta Stone here is Information Theory, and to introduce that it’s probably easiest if I quote directly and extensively from one of my very earliest Epsilon Theory notes, “Through the Looking Glass”. I wrote this almost exactly 2 years ago, back when I only had a few hundred readers, so it should be fresh for 99% of the audience. It’s a lot to digest, but I promise that you won’t see markets in the same way once you finish. Information Theory is, in fact, the beating heart of Epsilon Theory. That said, one of the beautiful things about releasing content into the wild is that readers can do with it what they will. For the TLDR / Short Attention Span Theatre crowd, click here to skip to the chase on page 10.

  ***
   

  Defining the strength of a signal as the degree to which it changes assessments of future states of the world dates back to Claude Shannon’s seminal work in 1948, and in a fundamental way back to the work of Thomas Bayes in the 1700’s.  Here’s the central insight of this work: information is measured by how much it changes your mind. In fact, if a signal doesn’t make you see the world differently, then it has zero information. As a corollary, the more confident you are in a certain view of the world, the more new information is required to make you have the opposite view of the world and the less information is required to confirm your initial view. There’s no inherent “truth” to any signal, no need to make a distinction between (or even think of) this signal as having true information and that signal as having false information. Information is neither true nor false. It is only more or less useful in our decision-making, and that’s a function of how much it makes us see the world differently. As a result, the informational strength of any signal is relative. The same signal may make a big difference in my assessment of the future but a tiny difference in yours. In that case, we are hearing the same message, but it has a lot of information to me and very little to you.

  Let’s say that you are thinking about Apple stock but you are totally up in the air about whether the stock is going up or down over whatever your investment horizon might be, say 1 year. Your initial estimation of the future price of Apple stock is a coin toss … 50% likelihood to be higher a year from now, 50% likelihood to be lower a year from now. So you do nothing. But you start reading analyst reports about Apple or you build a cash-flow model … whatever it is that you typically do to gather information about a potential investment decision.

  The graph below shows how Information Theory would represent the amount of signal information (generically represented as bits) required to change your initial assessment of a 50% likelihood of Apple stock going up over the next year to a post-signaling assessment of some new percentage likelihood. These are logarithmic curves, so even relatively small amounts of information (a small fraction of a generic bit) will change your mind about Apple pretty significantly, but more and more information is required to move your assessment closer and closer to certainty (either a 0% or a 100% perceived likelihood of the stock going up).

  
   

  Of course, your assessment of Apple is not a single event and does not take place at a single point in time. As an investor you are constantly updating your opinion about every potential investment decision, and you are constantly taking in new signals. Each new update becomes the starting point for the next, ad infinitum, and as a result all of your prior assessments become part of the current assessment and influence the informational impact of any new signal.

  Let’s say that your initial signals regarding Apple were mildly positive, enough to give you a new view that the likelihood of Apple stock going up in the next year is 60%. The graph below shows how Information Theory represents the amount of information required to change your mind from here. The curves are still logarithmic, but because your starting point is different it now only requires 80% of the information as before to get you to 100% certainty that Apple stock will go up in the next year (0.8 generic bits versus 1.0 generic bits with a 50% starting estimation). Conversely, it requires almost 140% of the same negative information as before to move you to certainty that Apple stock is going down.

  

  What these graphs are showing is the information surface of your non-strategic (i.e., without consideration of others) decision-making regarding Apple stock at any given point in time.  Your current assessment is the lowest point on the curve, the bottom of the informational “trough”, and the height of each trough “wall” is proportional to the information required to move you to a new assessment of the future probabilities. The higher the wall, the more information required in any given signal to get you to change your mind in a big way about Apple.

  Now let’s marry Information Theory with Game Theory. What does an information surface look like for strategic decision-making, where your estimations of the future state of the world are contingent on the decisions you think others will make, and where everyone knows that everyone is being strategic?

  I’m assuming we’re all familiar with the basic play of the Prisoner’s Dilemma, and if you’re not just watch any episode of Law and Order. Two criminals are placed in separate rooms for questioning by the police, and while they are both better off if they both keep silent, each is individually much better off if he rats his partner out while the partner remains silent. Unfortunately, in this scenario the silent partner takes the fall all by himself, resulting in what is called the “sucker pay-off”. Because both players know that this pay-off structure exists (and are always told that it exists by the police), the logical behavior for each player is to rat out his buddy for fear of being the sucker.

  Below on the left is a classic two-player Prisoner’s Dilemma game with cardinal expected utility pay-offs as per a customary 2×2 matrix representation. Both the Row player and the Column player have only two decision choices – Rat and Silence – with the joint pay-off structures shown as (Row , Column) and the equilibrium outcome (Rat , Rat) shaded in light blue.

  The same equilibrium outcome is shown below on the right as an informational surface, where both the Row and the Column player face an expected utility hurdle of 5 units to move from a decision of Rat to a decision of Silence. For a move to occur, new information must change the current Rat pay-off and/or the potential Silence pay-off for either the Row or the Column player in order to eliminate or overcome the hurdle. The shape of the informational surface indicates the relative stability of the equilibrium as the depth of the equilibrium trough, or conversely the height of the informational walls that comprise the trough, is a direct representation of the informational content required to change the conditional pay-offs of the game and allow the ball (the initial decision point) to “roll” to a new equilibrium position. In this case we have a deep informational trough, reflecting the stability of the (Rat , Rat) equilibrium in a Prisoner’s Dilemma game.
     

  

  Now let’s imagine that new information is presented to the Row player such that it improves the expected utility pay-off of a future (Silence, Rat) position from -10 to -6. Maybe he hears that prison isn’t all that bad so long as he’s not a Rat. As a result the informational hurdle required by the Row player to change decisions from Rat to Silence is reduced from +5 to +1.

  

  The (Rat , Rat) outcome is still an equilibrium outcome because neither player believes that there is a higher pay-off associated with changing his mind, but this is a much less stable equilibrium from the Row player’s perspective (and thus for the overall game) than the original equilibrium.

  With this less stable equilibrium framework, even relatively weak new information that changes the Row player’s assessment of the current position utility may be enough to move the decision outcome to a new equilibrium. Below, new information of 2 units changes the perceived utility of the current Rat decision for the Row player from -5 to -7. Maybe he hears from his lawyer that the Mob intends to break his legs if he stays a Rat. This is the equivalent of “pushing” the decision outcome over the +1 informational hurdle on the Row player’s side of the (Rat , Rat) trough, and it is reflected in both representations as a new equilibrium outcome of (Silence , Rat).

     

  

  This new (Silence , Rat) outcome is an equilibrium because neither the Row player nor the Column player perceives a higher expected utility outcome by changing decisions. It is still a weak equilibrium because the informational hurdle to return to (Rat , Rat) is only 1 informational unit, but all the same it generates a new behavior by the Row player: instead of ratting out his partner, he now keeps his mouth shut.

  The Column player never changed decisions, but moving from a (Rat , Rat) equilibrium to a (Silence , Rat) equilibrium in this two time-period example resulted in an increase of utility from -5 to +10 (and for the Row Player a decrease from -5 to -6). This change in utility pay-offs over time can be mapped as:

  

  Replace the words “Column Utility” with “AAPL stock price” and you’ll see what I’m going for. The Column player bought the police interrogation at -5 and sold it at +10. By mapping horizontal movement on a game’s informational surface to utility outcomes over time we can link game theoretic market behavior to market price level changes.

  Below are two generic examples of a symmetric informational structure for the S&P 500 and a new positive signal hitting the market. New signals will “push” any decision outcome in the direction of the new information. But only if the new signal is sufficiently large (whatever that means in the context of a specific game) will the decision outcome move to a new equilibrium and result in stable behavioral change. 

  

  In the first structure, there is enough informational strength to the signal to overcome the upside informational wall and push the market to a higher and stable price equilibrium. In the second structure, while the signal moves the market price higher briefly, there is not enough strength to the signal to change the minds of market participants to a degree that a new stable equilibrium behavior emerges.

  All market behaviors – from “Risk-On/Risk-Off” to “climbing a wall of worry” to “buying the effin’ dip” to “going up on bad news” – can be described with this informational structure methodology.

  For example, here’s how “going up on bad news” works. First, the market receives a negative Event signal – a poor Manufacturing ISM report, for example – that is bad enough to move the market down but not so terrible as to change everyone’s mind about what everyone knows that everyone knows about the health of the US economy and thus move the market index to a new, lower equilibrium level.

  

  Following this negative event, however, the market then receives a set of public media signals – a Narrative – asserting that in response to this bad ISM number the Fed is more likely to launch additional easing measures. This Narrative signal is repeated widely enough and credibly enough that it changes Common Knowledge about future Fed policy and moves the market to a new, higher, and stable level.

  

  So what is the current informational structure for the S&P500? Well, it looks something like this:

  

  The market equilibrium today is like a marble sitting on a glass table. It is an extremely unstable equilibrium because the informational barriers that keep the marble from rolling a long way in either direction are as low as they have been in the past five years. Even a very weak signal is enough to push the marble a long way in one direction, only to have another weak signal push it right back. This is how you get big price movements “for no apparent reason”.

  Why are the informational barriers to equilibrium shifts so low today? Because levels of Common Knowledge regarding future central bank policy decisions are so low today. The Narratives on both sides of the collective decision to buy or sell this market are extremely weak. What does everyone know that everyone knows about Abenomics? Very little. What does everyone know that everyone knows about Fed tapering? Very little. What does everyone know that everyone knows about the current state of global growth? Very little. I’m not saying that there’s a lack of communication on these subjects or that there’s a lack of opinion about these subjects or that there’s a lack of knowledge about these subjects. I’m saying that there’s a lack of Common Knowledge on these subjects, and that’s what determines the informational structure of a market.

  ***
   

  I wrote all that right before the Fed’s Taper Tantrum in the summer of 2013, which can be understood using this Information Theory framework as a massive public relations effort by Bernanke et al to create a new Common Knowledge structure that would shape the informational contours of the market. The immediate signal of this initial effort at “communication policy” was a big red arrow pointing left, and almost all asset classes everywhere around the world took a dive as the strong signal sent the equilibrium marble skittering to the downside across the largely flat informational surface. But the longer term effect of communication policy was just as Bernanke hoped (and as he spoke about extensively in his farewell address as Fed Chair): it built an enormous Common Knowledge “wall” off to the downside left of the market informational surface – a Fed put based not on continued asset purchases, but on continued words of Narrative influence.

  Those words form the Narrative of Central Bank Omnipotence, the overwhelming belief by market participants that central bankers in general, and the Fed in particular, determine market outcomes, and for the past two years this has been the only thing that matters in markets. I’ve been tracking and studying political Narratives for my entire professional career, close to 30 years now, and I’ve never seen anything like this. It’s a heck of a trick that Bernanke started and Draghi perfected and Yellen continues, and it’s the key, I think, to seeing recent bond market turbulence in the most useful perspective.

  Everything I wrote about the informational surface of the equity market in early summer 2013 is exactly applicable to the informational surface of the bond market in early summer 2015. The bond market today is like a marble sitting on a glass table. There are very few informational structures or barriers to keep the price of US bonds from skittering this way or that, within a price range as expressed in yield terms of, say, 2.25% and 1.85% on the 10-year bond. This is what always happens when the Fed comes out and says that it's increasingly "data dependent" …our local equilibria become much less stable when the Fed says that it hasn't made up its collective mind about the pace or scale of monetary policy shifts.

  
   

  With an informational structure like this, the 10-year bond could trade anywhere on this segment of the price line. Moreover, it takes a signal with precious little information to change people’s minds about whether the US 10-year should yield 1.90% today or 2.20% tomorrow. Precious little information means just that – precious little information – and it’s a classic mistake to infer grand theories or reach sweeping conclusions on the basis of precious little information. Don’t do that.  

  Because here’s the thing: the informational surface is only flat in this immediate vicinity of current bond prices. There are enormous Common Knowledge walls just off to the left and just off to the right of the price line segment shown above, Common Knowledge structures created by the entirely successful efforts by central bankers to mold investor behaviors and by the entirely unsuccessful efforts by central bankers to fix the real economy.

  
   

  I really can’t emphasize this point too strongly – monetary policy since March 2009 has created a phenomenally stable global equilibrium in both markets and the real economy, an equilibrium that since the summer of 2013 no longer depends on massive asset purchases by the Fed.

  Does the stability of the global equilibrium require someone to be making asset purchases, if not the Fed then the ECB or BOJ? To some degree I’m sure it does. But then I remember that Draghi’s mere words and an OMT program constructed out of whole cloth were sufficient to save the Euro in the summer of 2012. My strong sense is that the launching of central bank asset purchase programs may move the entire informational structure farther along to the right of the price line (higher prices, lower yields), and vice versa leftwards along the price line if the programs stop, but they don’t diminish the Common Knowledge structures themselves. Maybe the locally unstable price range of the US 10-year as expressed in yield terms goes to 2.75% – 2.35% if the ECB were to summarily stop its asset purchase program, but I still think you have an extremely stable global informational structure on either side of that new range, whatever it is. Among market participants today there is almost unanimity of belief that central bankers Will. Not. Allow. a global recession to occur, much less a deflationary equilibrium. But at the same time there is also almost unanimity of belief that central bankers Can. Not. Create. a global recovery, much less an inflationary equilibrium. That unanimity of belief establishes a global informational equilibrium of unparalleled strength and stability, or at least unparalleled in my experience.

  And that leads me to my other main point: a highly stable equilibrium cuts both ways, for good and for bad. Another way of saying that you’re in a highly stable equilibrium is to say that you’re well and truly stuck. Yes, there are HUGE informational barriers to prevent economic behaviors that would create a recession in the US or horribly crush any major market or asset class. But by the same token, there are also HUGE informational barriers to prevent economic behaviors that would spark robust growth in the US or wildly elevate any major market or asset class. I’m not saying that the doomsday or heavenly scenarios are impossible. I’m saying that it would take an almost unimaginably large amount of new information to change people’s minds about what everyone knows that everyone knows about markets today, for either scenario to occur. Could happen. But I really don’t think that’s how you want to place your bets. My money is on the long grey slog of the Entropic Ending.

  I know it sounds weird for me to say that we’re living in a deep, deep valley with giant mountains on both sides of us when it feels like we’re a marble sitting on a glass table, but that’s exactly the mixed metaphor that I think accurately describes our lives as investors here in the Golden Age of the Central Banker.  I know it sounds weird to think that we could be living in that deep, deep valley and yet be completely oblivious to its existence, completely convinced that the narrow field of view foisted on us day in and day out by the business imperatives of the financial services industry, especially financial media, is the only possible field of view. But myopically focused on what we are told to focus on is exactly how we humans (and replicants, too, I suppose) tend to live out our lives. Shifting our perspective to take a more global view, whether that’s on the dimension of time or emotion or, yes, asset price levels, is probably the most difficult thing any of us can hope to achieve, and it will always be an imperfect shift at best. Yet it’s never been more important to make that effort, else we allow our innate search for meaning to be subverted by mass-mediated, faux-authentic signalers that profit from making us look over here rather than over there. And I’m not just talking about market signals. It’s EVERY expression of power in the modern age – financial, political, legal, medical, etc. – that suffers from this mass-mediated form of social control, this manipulation of the Common Knowledge game. The human animal is a social animal. We are biologically evolved over millions of years to infer meaning from social signals. We swim in a sea of socially constructed signals, and we can no more ignore the words of Yellen or CNBC or a Master of the Universe than an ant can ignore the pheromones of her queen. We can’t ignore the words. But we can recognize them for what they are. We can ask ourselves “Is that all there is?” and take a more global view.

  Sometimes there’s significance in signs and portents. Sometimes there’s real meaning to be gleaned from careful study of localized phenomena, from the interpretation of immediate events to generate far-reaching conclusions. Then again, sometimes a cigar is just a cigar, and that’s how I’m thinking about recent gyrations in the bond market.

  One final point, perhaps the most important one I’ve got, and it’s addressed to everyone who asks questions like “so, Ben, when do you think the Fed is going to raise rates?” or “so, Ben, where do you think the price of oil goes from here?” The answer: I don’t know and I don’t really care. Seriously. These are unanswerable, entirely over-determined-in-retrospect questions, and the worst possible thing you can do with an unanswerable, entirely over-determined-in-retrospect question is to try to answer it in deterministic fashion! The popular fetish with demanding an Answer with a capital A to this sort of question is a crystallization of the market neurosis that afflicts us in the Golden Age of the Central Banker, and it’s the quickest path I know to poor investing.

  What I DO care about is Adaptive Investing. What I DO care about is understanding the informational structures of the market that determine the likely market price reaction to some new signal, whether that’s a Yellen speech, an earnings report, or technical trading data. Trying to predict what that signal is going to be or when that signal is going to come is a losing proposition. Sorry, but I don’t play that game. And neither should you. My god, we need more pundit predictions about the Fed or oil prices like we need an asteroid to crash into the Earth. What we need is an investment and allocation STRATEGY for whatever comes down the pike, whenever it occurs. That’s exactly what an Information Theory perspective on markets can provide. Take another look at this informational surface.

  

  This graph says nothing about when and what the Fed will do. It says everything about how to THINK about the bond market in a dynamic, non-myopic way, about how to prepare for probabilistic waves of new signals and how to react once they hit. There’s an entire investment and asset allocation strategy embedded in this graph, and I think it’s the most useful contribution I can make with Epsilon Theory, far more than adding one more voice to the cacophony of Fed “predictions” that drive our collective market neurosis. We are slowly being driven nuts by the paradoxes and ambiguities of the Golden Age of the Central Banker, a maddening time in the truest sense of the word, and I don’t begrudge anyone’s coping mechanisms or business models for dealing with this clinically insane market environment. I submit, however, that our mental health and financial health are best served by taking a strategic view of markets, a view that engages with the game without succumbing blindly to it. That and a regular dose of Epsilon Theory.

   

  

  

  
  
  

  

• NATO General Warns, Putin Is A "Dangerous Gambler… Willing To Use Nuclear Weapons"

  Hot on the heels of George Soros' warnings that we stand on the verge of World War 3, demanding Washington back off its anti-Yuan pressure, it appears "the good guys" are fighting back with their own good-cop, bad-cop propaganda. As Sputnik News reports, General hans-Lothar Domrose, NATO Commander of the Brunssum Allied Joint Force Command, said in an interview with German magazine Focus Online that Russian President Vladimir Putin is a tough-minded, forward-thinking politician who is capable of foreseeing situations, but also regards him as a dangerous "gambler," who "is willing to use nuclear weapons against NATO troops."

   

  

   

  Soros previously noted,

  …unless the U.S. makes 'major concessions' and allows China's currency to join the IMF's basket of currencies, "there is a real danger China will align itself with Russia politically and militarily, and then the threat of world war becomes real."

  And so NATO has decided to make it clear just who the bad gyuys are in any equation of global thermonuclear war (as Sputnik News reports),

  General Hans-Lothar Domröse, Commander of Allied Joint Force Command Brunssum (The Netherlands) has revealed what NATO thinks of Russian President Putin.

   

  In his interview with the German magazine Focus Online, Domröse called the Russian leader a tough-minded, forward-thinking politician who is capable of foreseeing the situation.

   

  The general, however, added that Putin is a “gambler”, which might be dangerous. Unfortunately the general did not elaborate any further.

   

  General Domröse also emphasized that neither NATO nor he personally consider Russia an enemy; at the worse, the country is seen as a potential threat. He stressed that no one in the alliance is interested in waging war; their purpose, rather, is to defend. He said that President Putin is aware of that, and that allows the general to sleep well.

   

  The general is however concerned that President Putin might be willing to use nuclear weapons against NATO troops.

  *  *  *

  The full interview (via Focus Online – Google Translate) – NATO General Hans-Lothar Domröse on the new rapid reaction force, and the threat of Russia

  General, we are not already at war with Russia – in a propaganda war?

  The Russian propaganda machine is running and acts. We will reply to the west on the truth quickly, and we gloss over anything. It may there be exceptions, but it is the principle. However, it is an old Russian tradition, matters only not admit it then to comment in a different light, and finally to make a U-turn. Let's take the example of the Crimea. It was said at the beginning: We are not. Then it was: Yes, there are also Russian soldiers. But they're on vacation . Soldier on vacation with equipment so. The summit was then entering into argument of President Putin: I had to intervene there.

  Should the West respond with counter-propaganda?

  He must not be primarily be lulled. I can understand the concern of our Baltic friends who warn repeatedly: Warning, not fall for the Russian scam. We have to be straight and honest go our way. Let the differences quietly made: We stick to the truth.

  How is the Russian military presence in and around the Ukrainian troubled region?

  The Russian armed forces are permanently very active since the beginning of Ukraine crisis in the air. We have over 300 airspace violations or fast-injury. On Russian territory at a location nearby Ukraine regiments, classic combat units. We also have time with Special Forces dealing with jeans and sunglasses, the seep.

  They currently rely on a highly mobile task force, which is to make the eastern flank of NATO safer. How far are you with it?

  We are nearing the realization of our plans, including the necessary infrastructure. We know from the Russian military exercises that Russia can move 100 000. soldiers very quickly. We have responded and the NATO Response Force, so to speak, our firefighters, reinforced, 13 000 to 30 000 men. NATO has also decided to make these forces available more quickly, thus reducing the alarms. And we need a spearhead, a sort of scouts who can start immediately. This is on the order of a brigade, good 5,000 men, supported by ships and aircraft, which can be moved within a week to counter a possible attack. First, they should put off, in the hope that there will be no further.

  How credible deterrence may in such outnumbered ever be?

  That's a relatively small troupe 5000-7000 man, so much is true. But its essential value is that it represents more than half of all NATO members. So there are around 20 different countries always on site. And just in case, each nation would be affected. But let me emphasize that: No one in NATO wants to wage a war. But we will protect the population. I believe that President Putin knows it. That's why I still sleep well.

  NATO has Putin challenged by being moved up to close to the Russian borders?

  That, sir, is nonsense. NATO is a values-based defense alliance. It is in principle open to like-minded people. Nations seek its own initiative to take charge. The Alliance itself will not do so on fishing expeditions to get more members into the basket.

  Former members of the Warsaw Pact now belong to NATO and are still equipped with Russian military technique. Delivering the Russians still spare parts?

  Currently, they do not. I hear you supplied on the open market.

  Putin would be willing to use nuclear weapons against NATO troops?

  We consider this issue with great concern. The Russians maintain the tactical use of nuclear weapons in the battle for a possible form of warfare.

  I think President Putin is a forward-thinker. But also a gambler. That can also be dangerous. You have to make the cost of the use of [nuclear weapons] so high that it seems too expensive to him for him. Since we are on track. But I want to emphasize that neither NATO nor Domröse consider Russia as an enemy. Very well, but as a threat.

  *  *  *

  

  

  
  
  

  

• Why China Is So Desperate To Blow The Most Epic Stock Bubble

  Over one and a half years ago we put in perspective the amount of money creation by China compared to the the liquidity injection by the Big 3 “developed world” central banks. The result was stunning.

  

  This was as of November 2013.

  Since then both the Chinese money machine, as well as those of the central banks has kept on pumping in injecting liquidity (in the process withdrawing liquidity from markets as Citi’s Matt King pointed out three weeks ago). A quick update comparing just China with the US shows that as of the most recent period, Chinese banks now have just shy of $30 trillion in assets, compared to almost 50% less for US banks.

   

  

   

  To be sure, China’s gargantuan, unprecedented debt-issuance spree is nothing new: we have covered it extensively over the years…

  

  ….noting all the way back in 2012 that “If one takes the chart above showing the absolute level in Corporate debt, and assumes this is a valid proxy for total leverage growth across all other sectors, one can say, with a straight face, that if all Chinese debt on and off the books, including shadow leverage, were to be pooled, it would make America’s grand consolidated debt (excluding the $100 trillion in entitlements) of 345% appears quite modest.”

  Three years later, McKinsey agreed:

  

  And here also, three years later, is Goldman admitting that China’s “Credit-led growth has created one of the biggest debt build-ups in recent years.” This is how Goldman explains what happened in China to launch this massive debt-funded growth:

  … after the onset of the global financial crisis and the collapse in world demand, exports collapsed. The Chinese government’s response involved large infrastructure outlays via bank financing. This led to a notable increase in China’s credit intensity, as investment growth is a more credit-intensive than exports and consumption, with heavy borrowing requirements and long payback periods.

   

  This can be seen from the growth in China’s nominal GDP and in total social financing (TSF), which is an aggregation of credit in both the banking and non-banking sectors. As shown in Exhibit 1, nominal GDP fell sharply in 2008, but rebounded strongly in 2009 following the sizeable increase in TSF. We then saw TSF growth slowing in 2010/11, although nominal growth held up as exports rebounded sharply. As export growth fell in 2012 and TSF growth slowed, nominal GDP dipped in 2011/12. We then saw TSF growth reaccelerate in 2012H2 to support growth. Since early 2013, TSF growth has decelerated again, as has nominal growth. This deceleration has continued in 2015, accompanied by additional loosening measures.

   

  

  Then something changed: China realized that alongside record debt comes record bad debt.

  

   

  We noted as much in the summer of 2013 when we reported that as China scrambled to intercept the relentless surge in non-performling loans, it would moderate its hollow, debt-funded growth. This was part of the new Politburo’s stated directive of reorienting the Chinese economy away from being entirely reliant on debt issuance to depend on more conventional growth catalysts; it also explains why China’s growth rate has plunged in the past 2 years and has officially dropped to a level just around 7% … 

  

  … and unofficially to just above 1%.

  China did this almost entirely by choking off the growth of its most opaque funding sector residing within China’s “shadow banking” system: trust issuance, non-discounted bills and local government debt. These are the highlights we noted in November in “China’s Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade“

  [W]hat is the main culprit for the contraction in China’s all important credit formation? In two words: shadow banking…  as China finally reveals little by little the true extent of its gargantuan bad debt problem, it is also slamming the breaks on the shadow banking system that for years what the sector where marginal credit creation, and thus growth as well as bad debt formation, was rampant.

   

  If the shadow banking collapse virus has finally jumped to China, there is no saying just how far Chinese GDP can drop if it is now constrained on the top side by surge in bad debt. One thing is certain: Japan’s paltry, in the grand scheme of things, expansion in its own QE will barely be felt if the record Chinese credit creation dynamo is indeed slamming shut.

  Six months later, others caught on: first it was RBS, whose Andrew Roberts recently said China accounted for 85% of all global growth in 2012, 54% in 2013, and 30% in 2014. This is likely to fall to 24% this year. “If there is only one statistic that you need to know in the world right now, this is it.”

  

  In other words, without China’s rampant credit creation, without an out of control shadow banking sector, not only is China’s growth doomed to a long period “secular stagnation”, to use a popular term these days, but so is the entire world.

  Goldman agrees:

  China’s policy response to the global financial crisis created one of the largest debt buildups as a share of GDP seen anywhere in the world over the past 50 years. Cognizant of the risks of such a large credit buildup, since early 2013 (when the current Chinese leadership took over), we have seen a notable shift by policymakers to make credit provision more transparent and productive. As discussed above, there was a notable rebound in TSF in 2012/2013 as GDP slowed. That TSF growth was, to a large extent, driven by the growth in trust financings, an area we have highlighted as one of the riskiest segments within China’s credit market. To control risks, policymakers made several attempts at curbing the growth in trust financings. In June 2013, 7-day repo rates spiked to as high as 28% intraday, as interbank rates were pushed up in an attempt to reduce the funding to the trust sector; and in mid-2014, the Chinese banking regulator adopted a number of measures, including restrictions on the informal securitisation of certain credit products and reiterating prudent risk management requirements. These measures successfully reduced the growth in trust financings, with net new trust financings (i.e., new issuance less redemptions) hovering around zero over the past ten months (Exhibit 2).

   

  

  China succeeded in crushing its shadow banking sector, but at the expense of growth:

  The administrative measures discussed above have been successful in controlling the riskiest elements within China’s credit markets, as both trust financing and LGFV financings have been contained. However, they have also had the effect of reducing the overall growth of TSF. In our view, these risk control measures have had the impact of not only controlling credit supply, but have also compounded the effect of weak growth in dampening credit demand.

  We are confused why Goldman is confused by this: if rampant, out of control credit creation led to a burst of economic growth (built on hollow, non-performing loan foundations), it is only logical that as the flow from the shadow banking conduit is eliminated, so is a major portion of China’s GDP.

  Sure enough:

  Risk control measures and weak credit demand have dampened credit growth since the beginning of 2013, leading to a slowdown in GDP growth. To revive GDP growth, policymakers have undertaken a broad range of monetary easing measures, including lower interest rates, a reduction in the RRR, and other types of liquidity injections into the banking system, such as open market operations.

  Here, however, China encounters a unique problem: unlike other central banks who will gladly crush their currency to boost exports and to stimulate corporate profits of multinationals, in China outright currency devaluation has been largely taboo for one main reason: the PBOC is terrified of capital outflows. In fact, as we showed recently when charting the combined Treasury holdings of China and “Belgium”, China appears to have been selling USD-denominated paper to fund the tens of billions in recent reserve outflows.

  

  Note: the above capital flight has taken place even as the PBOC has kept the value of the Renminbi roughly flat, and in fact the CNY has appreciated drastically in recent months after declining in the early part of the year. One wonders how this chart would look like, and what would happen to US bond yields, if Chinese outflows accelerated in earnest, and China’s selling of US paper followed suit.

  And since China is also contemplating whether to join the IMF’s Special Drawing Rights basket, which would require a stable currency, China has found it is next to impossible to devalue its way to growth: unlike the BOJ, the PBOC and the Fed in the past 7 years where currency debasement has been the only source of “growth”, albeit fading judging by the accelerating plunge in global trade volume (we ultimately believe that China will find it has no other option than to engage in Western-style QE before too late).

  But while in addition to currency devaluation QE far more importantly also leads to soaring stock markets, also known as the “wealth effect” transmission channel, China can bypass all the unpleasantness of capital flight and currency devaluation and skip straight to the desert: a massive stock market surge, built on absolutely nothing but hopes of even more central bank interventions: a surge so big in fact China’s Shenzhen market is up 100% in 2015. Which is precisely what happened overnight.

  But wait, that would mean that for China reflating the stock market bubble, which is far more shallow and penetrated by the domestic population than its comparable in the US or any other western nation, has become a policy mandate, same as in the US and every other western nation.

  Bingo.

  Goldman explains:

  The equity market now plays an important role in terms of both the short-term policy objective (i.e., delivering this year’s growth target) and structural reform ambitions. Policy makers appear to have taken a largely benign view of the equity market rally, which, if sustained, can boost GDP by 0.5pp on our estimates through trading-related financial activities, and could add another 0.2pp or so through a rise in consumption from market wealth generation. We also see further potential benefits from  ‘equitisation’ as it helps to replace debt with equity financing.

  Wait a minute: isn’t it rising GDP that boosts stocks, not the other way around? Or did Goldman just invent the world’s first financial perpetual engine? Does that also mean that should the S&P crash back to its ex-$22 trillion in central bank liquidity fair value of ~400 that US GDP will be some 20, 30 or more percentage points lower (on any seasonally adjusted basis)?

  Rational thought aside, what Goldman just confirmed is the following:

  1. China’s credit growth in the Lehman aftermath was the dynamo that kept the world afloat from 2009 until 2012/13
  2. Starting in 2013 China realized it has a big problem due to its nearly 300% in debt/GDP, and a soaring bad debt problem which threatens to metastasize into a default domino wave.
  3. In mid-2014, Chinese shadow banking effectively ground to a halt, leading to a sharp contraction in both Chinese and global GDP (this explains the collapse in US Q1 GDP, just don’t tell anyone at the Fed which is too busy fabricating seasonal adjustment factor to account for all of the above).
  4. Also in mid-2014 the Chinese relentless stock market rally started, which rose by 50% in 2014 and is up another 50% since then.

  In other words, as China’s shadow banking bubble burst, China’s stock market bubble was given the Politburo’s official blessing.

  This explains why despite what is quite clearly the world’s biggest and most visible asset price bubble since Nasdaq in the year 2000, China will do everything in its power to keep the bubble growing, massive – and pervasive – stock frauds such as Hanergy notwithstanding.

  Which is fine, however now the fate of not only millions of Chinese habitual gamblers… 

  

  … but suddenly the fate of China’s economic prosperity, and that of the entire world, is in the hands of the Shanghai Composite, which needs to keep growing at about 2-3% each and every day just to keep the illusion of China’s growth, and preserve the illusion of global economic expansion.

  It also means that now the credibility of each and every single banks will depend on maintaining the world’s biggest coordinated stock market blow off top: should the pace of expansion slow down, it would mean loss of faith and confidence in central planning, and thus in the very foundation on which the “recovery” of the past 7 years, both in capital markets and the underlying (or is that overlying) economy rests.

  Said otherwise, when the Chinese stock bubble bursts, the shockwave will be heard around the globe, but at least it will unleash even more comedy from America’s weathermen-cum-economists, such as triple- and quadruple-seasonally adjusted data. Because even though the answer for the global slowdown is staring everyone in the face…

  

  … one must always fabricate stories to “explain” why the world’s biggest experiment in central planning, where now even China is all in, is failing one limit up stock at a time.

  

  

  
  
  

  

• Fukushima May Be At Risk Of Imminent "Hydrogen Explosion"

  Containers holding contaminated water at the crippled Fukushima nuclear power plant are at risk of hydrogen explosions, The Telegraph reports, with 10% of them found to be leaking. The discovery was reported to the Nuclear Regulation Authority (NRA), which raised concerns surrounding the potential hazards of accumulated hydrogen building up in the containers warning that "a spark caused by static electricity could cause a container to explode." TEPCO officials reassuringly note that they "think the possibility of an occurrence of hydrogen explosion from these storage facilities is extremely low, since there is no fire origin, or anything that generates static electricity nearby," but this is the same company that a recent IAEA report blasted for "failing to implement adequate safeguards at Fukushima – despite being aware of the tsunami risk."

   

  

   

  Leaking containers at Japan’s embattled Fukushima nuclear power plant are at risk of possible hydrogen explosions, experts have claimed. As The Telegraph reports,

  Almost 10 per cent of recently inspected containers holding contaminated water at the nuclear plant in northeast Japan were found to be leaking radioactive water.

   

  The leakages, discovered during inspections by Tokyo Electric Power Co (Tepco), the operators of the plant, were thought to be caused by a build-up of hydrogen and other gases due to radiation contamination.

   

  The discovery was reported to the Nuclear Regulation Authority (NRA), which raised concerns surrounding the potential hazards of accumulated hydrogen building up in the containers.

   

  “If the concentration level is high, a spark caused by static electricity could cause a container to explode,” one NRA official told the Asahi Shimbun.

   

  Tepco officials made the discovery while inspecting 278 of the plant’s 1,307 containers and found that 26 – close to ten per cent – had a leakage or overspill from their lids.

   

  It is believed that gases had accumulated in the sediment at the base of the containers, prompting the volume of the liquid to expand and resulting in the overflow.

  However, officials at Tepco stated that the risk of an explosion was believed to be minimal, with a series of measures being undertaken as a matter of urgency to resolve the faulty storage containers.

  The operators also emphasised that there was no sign of radioactive water escaping beyond the confines of the concrete structures that encase the leaking containers.

   

  “We think the possibility of an occurrence of hydrogen explosion from these storage facilities is extremely low, since there is no fire origin, or anything that generates static electricity nearby,” Mayumi Yoshida, a spokeswoman for Tepco, told the Telegraph.

   

  Outlining measures to fix the problem, she added: “For temporary measures, we have been removing the leaked water, installing absorption materials, monitoring by patrol, keeping water level inside those facilities lower than set and keeping equipment which may generate fire away.

   

  “In the long term, we’re going to lower the water level of current facilities so as to prevent further leakages.”

  But this reassurance rings a little hollow given the recent report finding TEPCO at fault (as RT reports)…

  The International Atomic Energy Agency (IAEA) said in a report that TEPCO failed to implement adequate safeguards at Fukushima – despite being aware of the tsunami risk. The document was obtained by Kyodo news agency on Monday.

   

  According to the 240-page report, several analyses carried out between 2007 and 2009 predicted the possibility of an 8.3-magnitude earthquake on the coast of Fukushima, which could result in the plant being hit by a tsunami of around 15 meters.

   

  However, TEPCO and Japanese authorities delayed responding to the predictions, feeling that "further studies and investigations were needed.”

   

  "TEPCO did not take interim compensatory measures in response to these increased estimates of tsunami height, nor did NISA require TEPCO to act promptly on these results," reads the text.

   

  The report, prepared by 180 experts from 42 countries, will be presented at the annual IAEA meeting in September, if approved by its board of directors in June.

  *  *  *

  Will the truth ever get out?

  

  

  
  
  

  

• Why "Average Joe" Will Never Do Well In The Stock Market

  Because “normal people” just do not think like this…

   

  

   

  And bad news is good news…

  

   

  h/t @RudyHavenstein

  

  

  
  
  

  

• The Coming Capital Controls Are Designed To Protect The Banks From You

  Submitted by Simon Black via Sovereign Man blog,

  Of all the peculiarities about human nature, one of the most interesting in my opinion is that we’re so resistant to change.

  Humans simply don’t deal with it well. We tend to root. We find comfort in familiarity.

  And, even when the familiar becomes unpleasant, we still put up with it. We prefer to suffer through something that we know rather than change things and risk the unknown.

  This is why people stay in bad relationships. Or why they continue working for bosses they dislike at jobs they despise. It’s the fear of change.

  But everyone… absolutely everyone… has a breaking point. It’s a point where the status quo becomes so uncomfortable, so painful, that we snap. And walk away.

  It’s the same in finance. People stick with what they know, even if they have to endure a little pain and suffering.

  Today’s current banking environment is the perfect example. In the US, interest rates for most bank accounts are so low that they fail to keep up with inflation.

  You are doing very well if you can generate a whopping 0.5% interest. In Canada rates can be a bit higher.

  But when you compare these rates to even the official rates of inflation, it’s clear that savers are guaranteed to lose money.

  In Europe it’s even worse. Interest rates at many banks are negative… so savers are actually paying the banks.

  In theory there’s nothing wrong with paying your banker, presuming that they’re providing a real service.

  Traditionally, banks were no different than a secure storage facility: depositors would pay a fee in exchange for the bank safeguarding their savings.

  These days a lot of people might pay 50 bucks a month at a U-Store-It place to store $10,000 worth of junk. So why not pay a small fee for a banker to store $10,000 worth of cash?

  The reason is that banks don’t operate like a storage facility.

  It’s not like the proprietor of the U-Store-It is loaning out your sofa to make a few bucks on the side. If he were, it would be called fraud, and he’d go to jail for it.

  Banks, on the other hand, are actually ENCOURAGED to take your hard earned savings and make a few extra bucks on the side.

  In fact they have a history of making often absurd loans and wild, overleveraged bets using your money. Not theirs.

  So just consider how insulting this is to actually to pay them interest; paying for the privilege of them gambling with your savings. It’s obscene.

  But like I said, we all have a breaking point. And there will reach a level where rates get so low (or negative) that no rational person would continue holding money at a bank.

  Why bother? You could just withdraw most of your balance, then pay a small fee for a safety deposit box that you stuff full of cash. Cheaper. Easier. Better.

  Cash in your hand might pay 0% interest… but at least it doesn’t cost you.

  But there’s a huge problem with this approach: there’s very little physical cash in the system.

  According to the Federal Reserve, the amount of physical US currency in circulation is about $1.3 trillion. Yet the amount of “M2” money supply is nearly ten times that amount.

  So just imagine if even 10% of people hit their breaking points and withdrew their money in cash– there wouldn’t be enough cash in the system to support this demand. And the banks would subsequently collapse.

  If governments have proven anything to us over the last seven years, it is that they will do anything to keep the banks from going down.

  This is a major reason why they’re trying to get rid of cash, and in some cases even criminalize it under the ridiculous auspices of the war on terror.

  In the US, some of the more prevalent names in finance have started calling for an outright ban of cash, including a prominent economist from Citigroup.

  (This is a rather convenient position for Citigroup.)

  Greece is another great example– they’ve already implemented a tax on cash withdrawals and wire transfers. And further restrictions will inevitably follow.

  These measures are all different forms of capital controls, designed to prevent you from taking your money away from such a destructive system.

  In fact, I expect the next round of capital controls will be designed to protect the banks… from you.

  When a government is bankrupt, the central bank is nearly insolvent, the banking system is illiquid, and an entire population suffers from interest rates that are either negative or below the rate of inflation, capital controls are a foregone conclusion.

  They’ll hit just as soon as enough people reach their breaking points… when they say ‘enough is enough’ and they take their money out of the banking system.

  Governments have done it before: they’ll declare a ‘bank holiday’ and then impose some sort of freeze on withdrawals. Just like we saw in Cyprus in 2013. Or the US in 1933.

  The data and history are very clear on what will likely happen. We just can’t pinpoint the date.

  Very few people will guess correctly and withdraw their cash the day before capital controls are imposed.

  That’s why it makes sense to take certain steps now.

  Consider holding some physical cash, including some healthier currencies like the Swiss franc or Singapore dollar, as well as precious metals.

  More importantly, consider moving a portion of your savings to a rainy day fund at a well-capitalized bank overseas in a jurisdiction that isn’t bankrupt.

  After all, it’s hard to imagine that you’ll be worse off for having some savings at a strong, healthy bank that actually pays a reasonable rate of return.

  

  

  
  
  

  

• Primer For Indebted Students: Here Are Your Options

  Last week we brought you the US government’s official message to heavily-indebted students.

  In short, the Department of Education is promoting so-called “Income Based Repayment” which allows borrowers to make monthly payments based on their disposable income. In the event a borrower cannot afford to service his or her debt — which is exceedingly likely in an economy characterized by what Moody’s calls “high unemployment rates for recent graduates” — some debtors will be allowed to count payments of $0 towards the 300 “eligible payments” necessary to have the balance of their debt forgiven. In other words, if you don’t make enough money and are willing to wait 25 years, your student loans will be written off at the expense of the US taxpayer. 

  So that’s one option available to 2015’s graduating college seniors who, as we reported earlier this month, are the most indebted college class in the history of US higher education. There are other options available as well including (gasp), repaying your loan in full and on time, but as the following graphic from the government shows, offloading some of the burden is always a possibility:

  Do you have student loans? Calculate what your monthly payments will be: http://t.co/5y2HRfqkfl pic.twitter.com/3AMLzjzmy9

  — Federal Student Aid (@FAFSA) May 24, 2015

  See the fine print on the graphic shown above. This repayment schedule assumes a “family of 1” in Alabama and a loan balance of $26,900.

  The first thing to note about those assumptions is that when it comes to rentals, Alabama ranks fairly low on the list in terms of how expensive it is to pay rent and as we’ve seen, America is increasingly a nation of renters.

  

  Second, the average amount of student debt for a senior graduating in 2015 is more than $35,000, some 30% above the amount factored into the government’s equation shown above. 

  

  So if you happen to live in a state where housing is far more affordable than it is in most other states and if your loan balance happens to be 30% below the national average, you can pay off your student debt under an IBR plan in only 240 months with a cost to the US taxpayer of only $2,355. 

  Now let’s look at what the cost to the US taxpayer under IBR would be if you lived in say, Illinois (which is by no means the most expensive place to rent in America) and had a family of three including two parents, each of which carrying the average loan balance of $35,000 and whose combined earnings match the national median household income of $51,000 (in other words, a far more realistic scenario than the hypothetical single guy in Alabama):

  

  Suddenly the cost to taxpayers over the life of the loans jumps by 650% when the assumptions are adjusted to reflect the ‘American dream’ of a nuclear family, a more realistic figure for the cost of housing, and the actual national average for graduate debt. 

  Consider that, and consider that if the unemployment rate edges up over the coming years, the US will be looking at some $3.3 trillion in student loans.

  Draw your own conclusions.

  

  

  
  
  

  

• Martin Armstrong Warns "Kiss Your Pension Fund Goodbye"

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  

  I have been warning for some time that government was eyeing up pensions.The amount in private pension funds is about $19.4 trillion. The question that has been debated in secret behind the curtain is how to justify to the people taking that over. I have been warning that if this is seized by government, it will come after 2015.75. Just how that is to be accomplished was finally settled by the Supreme Court without any justification constitutionally.

  The US Supreme Court ruled last week in the unanimous, 8-page decision in Tibble v. Edison holding that employers have a duty to protect workers in their 401(k) plans from mutual funds that are too expensive or perform poorly. That is simply astonishing since there is no constitutional requirement for even government to provide social benefits. The Supreme court held in HARRIS v. McRAE, 448 U.S. 297 (1980) it was explained that the constitution is negative not positive. There is no duty imposed upon the state to provide a program for that would convert the constitution from a negative restrain upon government to a positive obligation to provide for everyone.

  If we take the fact that the constitution is NEGATIVE and was a restrain upon government, then this latest ruling is completely unfounded. Monday’s unanimous ruling sends a warning to employers that they now must improve their plans and it is now an obligation to project employees. This comes just in time for then the next step is government to seize private funds and prosecute employers who choose badly a fund manager. This fits perfectly just in time for the Obama administration’s next assault as they prepare a landmark change of its own by issuing rules requiring that financial advisers put the interest of customers ahead of their own. This creates a very gray area wide enough to justify public seizure of pension funds under management.

  This ruling will have a dramatic impact upon investment management and we have already received calls asking about using our model for management purposes since it has one of the longest track records that can be verified in the industry. What this ruling imposes is a tremendous duty upon the plan fiduciary who must now back up his decision with proof. This may also have the impact of foreclosing new fund managers from entering the business since they will lack the track record.

  Yet this decision is even deeper. It sets the stage to JUSTIFY government seizure of private pension funds to protect pensioners. When the economy turns down and things get messy, they are placing measures in place to eliminate money in and physical dimension, closing all tax loopholes, shutting down the world economy with FATCA, and preparing for the final straw of Economic Totalitarianism with the Supreme Court reversing its entire construction of the Constitution to impose a duty upon employers to ensure the 401K plans perform in a world where interest rates are going negative. You really cannot make up this level of insanity.

  The message here is not that all 401(k)s are bad or too expensive. In fact, costs have fallen 30 percent over the past decade as more plan sponsors turn to low-cost passive investing options. But this can be highly dangerous for to lower costs they turn to government debt where there is no need for fund management decisions. Yes, when I did hedge fund management, the cost was 5% annually plus 20% performance. That cost went to staff around the world that had to monitor positions and the world economy on a 24 hours basis. You paid also NOT to trade for most losses took place when traders were bored are would trade to try to make money when there was nothing to be done. Our track record was the best ever in the industry with the lowest drawn down perhaps in fund management. But that risk reduction cost money.

  Today, costs vary widely. Plans with more than $100 million in assets usually have total annual costs below 1% whereas the biggest plans usually are below 0.50%. In small plans, the costs can be as high as 2% today. The focus is now on cost – not performance.

  Financial service companies can charge a range of management, administrative, marketing, distribution and record-keeping fees for 401(k) plans. Plan sponsors can assume the costs, but employees are paying at least 85% of all fees typically. It is true that most workers do not know they pay the bulk of the share of costs. A 2011 AARP survey found that 71% of retirement savers do not think they pay any investment fees at all. It is true that the fees make a huge difference in returns over time. However, this drive to lower costs has also lowered the quality of funds management.

  The U.S. Department of Labor estimates that a 1% point difference on a current account balance of $25,000 will reduce total accumulations by 28% over 35 years, assuming average returns of 7% and no further contributions. The focus is all on these management fees without any consideration of the problem. Trying to manage money varies according to the size of the fund. The more you gather, often the lower the performance because the markets are not unlimited. You can pick up the phone and say “sell at the market” when you have a $100 million fund, you cannot do that with a $100 billion fund. So the management fee was also a means to reduce the number of clients and it was never a question of unlimited capacity to trade. The numbers on performance would decline with greater amounts of money under management for the manager lost flexibility.

  The Supreme Court case clearly shows that lack of understanding of the industry yet the battle centered on the 401(k) plan’s use of retail-class mutual funds when less-expensive institutional shares were available. The difference between those classes typically is 25 basis points. This will now  put pressure on large plans to cut costs further but will not have much impact on smaller plans. That is because big plans have the buying power to negotiate better deals but at the same time they are the easy target for lawyers making them much more attractive targets for litigation.

  Cutting management fees to the bone may in fact set the stage for massive losses for many of the older better traders are now just resigning. The quality of the funds management is more likely than not going to decline noticeably.

  Between the court ruling and the Obama administration’s push for stronger fiduciary rules send a strong message that government can much easier seize the pension fund management industry of course to “protect the consumer”.

  

  

  
  
  

  

• IRS Hacked: Government Admits 100,000 Taxpayers' Data Stolen

  In an unprecedented move against a government agency, which we are just waiting to hear blamed on Russia, The IRS has admitted that its data has ben compromised…

  • *IRS SAYS THIEVES ACCESSED TAX INFORMATION ON 100,000 PAYERS: AP
  • *IRS’S KOSKINEN SAYS THERE WAS UNAUTHORIZED ACCESS FEB-MAY

   

  As AP reports,

  Thieves used an online service provided by the IRS to gain access to information from more than 100,000 taxpayers, the agency said Tuesday.

   

  The information included tax returns and other tax information on file with the IRS.

   

  The IRS said the thieves accessed a system called “Get Transcript.” In order to access the information, the thieves cleared a security screen that required knowledge about the taxpayer, including Social Security number, date of birth, tax filing status and street address.

   

  “The IRS notes this issue does not involve its main computer system that handles tax filing submission; that system remains secure,” the agency said in a statement.

   

  The IRS said thieves targeted the system from February to mid-May. The service has been temporarily shut down.

   

  “In all, about 200,000 attempts were made from questionable email domains, with more than 100,000 of those attempts successfully clearing authentication hurdles,” the agency said. “During this filing season, taxpayers successfully and safely downloaded a total of approximately 23 million transcripts.”

   

  Tax returns can include a host of personal information that can help someone steal an identity, including Social Security numbers and birthdates of dependents and spouses. However, the IRS said the thieves appeared to already have a lot of personal information about the victims.

   

  The IRS said it is notifying taxpayers whose information was accessed.

  * * *
  One wonders if they found Lois Lerner’s emails while they were in there?

  

  

  
  
  

  

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• Chinese Stocks Are Now Up Over 100% Year-To-Date

  Another day, another dip to be bought aggressively in China. The only catalyst for moar – aside from “well it was up yesterday” – is the news that the Shanghai-HK Stock Exchange aggregate quota will be abolished, leaving room for more speculative excess to flood into 500%-gainers.  CSI-300 is now up almost 6% since Friday’s close and Shenzhen and CHINEXT are soaring back from underperformance yesterday. To round things out on a superlative note, the Shenzhen Composite – which contains all the ponzi-based self-collateralized idiot-makers, is now up over 100% year-to-date. Simply put, you can’t keep a bad market down…

   

  

   

  Which has sent the Shenzhen Composite above the 100% return mark for 2015…

  

   

  Charts: Bloomberg

  

  

  
  
  

  

• Global Trade Dives Most since the Financial Crisis

  Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

  How great was the global economy in the first quarter?

  We know the US economy was crummy. The revised GDP estimate will likely sink into red mire. Hence the heated proposals these days, including at the Fed, to apply “a second round of seasonal adjustment” that would “correct” the first-quarter GDP estimate, no matter how bad, into positive territory. An elegant way of covering up an unsightly sore.

  So was it just a crummy quarter in the US, or was it a global thing, in which case we might have to apply a “second round of” whatever to adjust the global downturn out of the picture?

  Because here is the thing: in the first quarter, one of the crucial measures of the global economy – global trade – slumped the most since the Financial Crisis. But ironically, it wasn’t because of the USA.

  The CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its latest Merchandise World Trade Monitor, which covers global import volumes as well as global export volumes. The index dropped 0.1% in March to 136.5, after having already dropped 0.7% in February, and 1.7% in January. The index, which was set at 100 in 2005, is now down 2.5% from the peak of 140.0 in December. That 3.5-point decline was the sharpest since the Financial Crisis.

  This chart, going back to January 2012, doesn’t exactly inspire confidence in the current state of the global economy:

  

  To mitigate the volatility of these kinds of monthly numbers, the CPB offers a measure of trade volume “momentum,” which it defines as “the change in the three months average up to the report month relative to the average of the preceding three months.”

  That trade momentum measure slumped 1.5% in March, the largest monthly decline since April 2011, after having edged down 0.4% in February. It now amounts to the most negative “momentum” since the Financial Crisis.

  This chart, going back to 2010, looks even worse than the prior chart. This sort of thing isn’t supposed to happen in an expanding, or even a stagnating, global economy:

  

  Both of the measures above involve import and export volumes. With volumes now actually declining and with new shipping capacity coming on line throughout the period, pricing per unit, in dollars, has plunged 15% since June 2014, and nearly 20% since the peak in March 2011. It’s now at the lowest level since May 2009:

  

  But the trade debacle wasn’t spread evenly. For March, the CPB reported:

  A positive turnaround occurred in both import and export growth in advanced economies. Imports bounced back strongly in the United States. They contracted deeply in Japan however. In emerging economies, import growth accelerated, but export growth became heavily negative on account of a deep fall in emerging Asia’s exports.

  And that would be mostly China.

  Hard-landing gurus have been predicting an imminent end of the China bubble for years. But there was no hard landing, or a soft landing, or any landing for that matter. China just kept on flying, fueled by an enormous credit bubble and monetary propellants. But now it’s running out of air. Read…  China Momentum Indicator Plunges to “Hard Landing” Level

  

  
  
  

  

• How The Saudis Wag The Washington Dog

  Submitted by Andrew Levine via Counterpunch.org,

  American diplomacy favors (majority) white, English-speaking countries (the UK, Canada, Australia and New Zealand) and non-Hispanic European settler states (Canada, Australia and New Zealand again, but also Apartheid South Africa and, of course, Israel).

  South Africa eventually fell out of favor, thanks in part to boycott, divestment and sanctions efforts in Western countries.

  Similar efforts now underway directed towards Israel are beginning to change public opinion too; though elite opinion, in the United States and the other settler states especially, has, so far, hardly budged.

  Thanks to its lobby and its strategic location, Israel is still, for America, the most favored nation of all.

  Western European countries are also favored, though to a lesser extent – thanks, again, to cultural affinities and historical ties. Those that sent large numbers of emigrants to North America generally have a leg up. France didn’t send many emigrants, but it is also favored, at least some of the time, for philosophical and historical affinities dating back to the American and French Revolutions.

  With Saudi Arabia and the other Gulf monarchies, there are no deep or longstanding cultural and historical ties; quite the contrary. Nevertheless, those nations, Saudi Arabia especially, receive favored treatment too.

  The events surrounding the death of Osama bin Laden provide a window into this strange and revealing state of affairs.

  *  *  *

  When Barack Obama lied about how Navy Seals murdered bin Laden, he blew apart a carefully constructed cover story concocted in Washington and Islamabad intended to conceal the role of Pakistani intelligence and the Pakistani military.

  According to Seymour Hersh’s account in The London Review of Books, bin Laden had been in Pakistani custody at least since 2006. American intelligence learned of this some four years later, when a “walk-in” gave them information that checked out.

  The raid itself took place a year after that, in time for the 2012 Presidential election in the United States.

  The Pakistanis had reasons for keeping bin Laden in custody and out of American hands. It gave them leverage with the Taliban and with the remnants of Al Qaeda, as well as with other radical Islamist groups.

  The Saudis wanted bin Laden kept in Pakistan too; away from the Americans. According to Hersh, they paid Pakistan generously for their trouble.

  Hersh’s article does not dwell on their motives, but, in interviews he has given after his article went on line, he is less reticent.

  The Saudis didn’t want the United States to get its hands on bin Laden because they didn’t want him to talk about Saudi involvement in 9/11 and other operations directed against Western interests.

  This is only a conjecture, but it makes eminently good sense. It isn’t even news. Like the fact that the Israeli arsenal includes nuclear weapons, everybody knows about the Saudis’ role, but nobody in official circles or in the media that toes its line talks about it.

  Since his article appeared, official Washington and mainstream media line have gone after Hersh with a degree of vehemence reminiscent of their attack on Edward Snowden.

  They hate it when their bumbling is revealed, almost as much as when the hypocrisy of their claims to respect human rights and the rule of law is exposed.

  But, for all the sound and fury, they have not effectively rebutted a single one of Hersh’s contentions – nor, for that matter, any of Snowden’s.

  If Hersh is right, as he surely is, then two of America’s closest allies were, to say the least, not acting the way that allies should.

  Capturing bin Laden was officially – and probably also really – a high priority for the United States.   Pakistan and Saudi Arabia kept him from being captured.

  However, none of this appears to have harmed U.S.-Pakistani or U.S.-Saudi relations.

  The rulers of both countries depend on American support to survive.   And yet, when they choose, they defy their protector with impunity. Israel isn’t the only country that wags the dog.

  Pakistan gets carte blanche because, like Israel, it has the Bomb. Keeping the Bomb out of the hands of anyone who might use it – especially, against the United States or its interests abroad — is, understandably and legitimately, a goal of American diplomacy.

  And so, the United States will do what it must to keep the Pakistani military and intelligence communities happy and on board.

  This is not easy: the Pakistanis have been involved with radical Islamists from Day One. By all accounts, contacts survive to this day.

  The United States encouraged these connections, especially when the prospect of getting the Soviet Union bogged down in Afghanistan clouded the thinking of diplomats in the Carter and Reagan administrations.

  But, since even before the Americans became involved, the Pakistanis have been going their own way in Afghanistan – partly for cultural and historical reasons of their own, and partly to keep India at bay.

  For all these reasons, the Americans have found it expedient to buy off the leaders of the Pakistani military and intelligence communities.   Therefore, whenever possible, in light of the totality of their concerns, they give them what they want. What the Pakistanis wanted with the bin Laden killing was plausible deniability.

  This was the point of the story that Obama blew. Therefore when he, or his political operatives, decided that, with the 2012 election looming, the moment was opportune to announce bin Laden’s death, they had to concoct a different story that would also keep the Pakistani role secret.

  The one they made up had the added benefit of reinforcing the swashbuckling image that the Navy Seals, Obama’s Murder Incorporated, try to project. Hollywood got the message, and made the most of it.   So did the Obama campaign.

  But, for reasons Hersh explains, the fable they concocted was transparently implausible; a point not lost on observers at the time.

  To point this out, back in the day, was to risk being taken for a “conspiracy theorist” – or, worse, a Romney supporter.

  Now that a definitive account of what happened has appeared, it is plain who the real conspirators were.

  And so, by now, only the willfully blind – and the Washington press corps — believe the tale Obama told.

  Needless to say, it is not exactly news when Obama lies; in the “man bites dog” sense, it would be news if he didn’t.

  And neither is the duplicity of Pakistan’s military and intelligence leadership surprising.   Politics in the Indian sub-continent is as devious and convoluted as anywhere in the world.

  In Pakistan, as in Iraq and Syria, the stewards of the American empire – the ones who worked for Bush and Cheney, and the ones who have worked for Obama and his hapless Secretaries of State — are in way over their heads. They are like the proverbial bull in the china shop; powerful and therefore destructive, but ultimately clueless.

  American obeisance to the wishes of the Saudi royal family is not unusual either.  The United States has been toadying up to them since the days of Franklin Roosevelt. They have oil, and we want to control what they do with it.

  However, the fact that the American public, and its counterparts in other Western countries, goes along, almost without dissent, is puzzling in the extreme.

  The American way, after all, is to villainize first, and ask questions later.

  The Saudi royals, and the ruling potentates in the other Gulf kingdoms, are prime candidates for villainization. They are characters out of central casting.

  One would think that a public that loathes, or has been made to loathe, Vladimir Putin and Bashar al-Assad – and that still goes livid at the very thought of the Iranian Ayatollahs and Saddam Hussein — would be out with pitchforks demanding the heads of each and every member of the Saudi ruling class.

  They were, after all, if not the perpetrators, at least the protectors of the perpetrators, of 9/11, a “day of infamy,” our propaganda system tells us, equal only to the day the Japanese bombed Pearl Harbor.

  And yet the public’s ire seldom turns the Saudis’ way.

  This is all the more remarkable because they have neither a Bomb nor a domestic lobby that the entire American political class fears.

  All they have is a massive public relations operation. Evidently, the flacks they hire know their trade. No matter how much money they are paid, they earn every cent.

  * * *

  Ironically, the Saudis’ hold over America’s political and economic elites is an unintended consequence of American diplomacy in the days when the United States was, or seemed to be, on the side of the angels.

  When Britain or France wanted Middle Eastern oil – in Iraq or Iran, for example, — they took it. They were colonial powers; this is what colonial powers do.

  Before World War II, American diplomats cultivated a different image. Washington’s cupidity may have been no less than London’s or Paris’; but, in the White House and at Foggy Bottom, the idea was to present the United States as, of all things, an anti-colonial power.

  Never mind Puerto Rico or the Philippines or, for that matter, Hawaii and the several other Pacific islands that the U.S. Navy coveted; and never mind America’s obvious collusion – before, during, and after World War II — with the British and French empires.

  It is true, though, that in the Middle East, American domination took a different form. When American oil companies wanted Middle Eastern oil, they didn’t seize it; they bought it from the rulers of the peoples who live on top of it.

  And, if there weren’t rulers willing or able to sell, the Americans created them.

  The House of Saud made out like bandits. For the oil companies, it was a small price to pay.

  The U.S. got control of the oil without having to administer rebellious colonies. Meanwhile, local elites got rich.   All they had to do for the money was give the Americans free rein and enforce the order that made American domination possible – with American help, of course, and with arms purchased from American corporations.

  And so, until reality made the pretense unsustainable, the U.S. could present itself, throughout the Middle East, as a defender of anti-colonial, independence movements.

  As other Gulf states broke free from British rule, the U.S. took over, applying the same model. This worked well — for a while.

  Before long, though, the Saudi regime, and he others, became too big to fail.

  This is why, even as the Clinton State Department floundered about cluelessly when the Arab Spring erupted, the prospect of allowing those regimes to fall was never seriously considered.   For official Washington, this was as unthinkable as allowing nuclear Pakistan to “go rogue,” or not kowtowing to the Israel lobby.

  When there is a disconnect between public and elite opinion, elites generally win, but not always: not when too many people care too much. American elites, eager to maintain the status quo, like the PR people the Saudis hire to keep public opinion from getting out of control, therefore have their work cut out for them.

  Some of the reasons for this reflect poorly on the moral probity of public opinion in the West.

  In their appearance, manner and demeanor, the Saudi ruling class epitomizes the Western idea of the Arab.

  Even before Europeans inserted themselves into the Arab world, Arabs have occupied a special place in the imaginations of Western peoples.

  Like many of the other peoples of the East, they were deemed mysterious and exotic, highly sexualized, and vaguely dangerous.

  But, unlike Turks and Persians or the peoples of South Asia and the Far East, and like Africans and the indigenous peoples of the Americas and Australasia, Arabs were never quite regarded as fully human.

  The Saudi PR machine therefore has deeply racialized attitudes to counter. The Saudis epitomize “the other”; this makes them a hard sell.

  They also epitomize the retrograde, which makes them a hard sell for reasons that have nothing to do with racial or cultural stereotypes — and everything to do with modern political morality.

  There is hardly a reactionary trend in the Muslim world that the Saudis haven’t supported financially; and there are few that they did not actually instigate or help shape.

  Also, there are few places on earth where human rights and gender equality are less respected, or where liberal and democratic norms hold less sway, than in Saudi Arabia.

  Elites in that country and in the other Gulf monarchies are rich and idle because they are sitting on top of vast oil reserves, and because they have accumulated so much wealth that they can exploit “guest workers” in the ways that masters exploit slaves. No one holds them to account for this or anything else untoward that they do.

  In a world that permits, indeed encourages, private ownership of natural resources and the limitless accumulation of wealth — and that is largely indifferent to the harm petroleum extraction does — they won the lottery.

  This could make them objects of envy, of course; and envy tinged with racial animosity is a lethal brew. Yet, for all practical purposes, the Saudis get a pass – not just in Western elite circles and within the political class of Western countries, but in Western public opinion too.

  It has been this way ever since the phasing out of the short-lived Arab oil embargo brought on by American support for Israel in its 1973 war against Egypt.

  The Saudis’ immunity from public rancor is all the more amazing because it would be easy to rationalize – indeed, to justify – turning them into objects of scorn.

  Inasmuch as our moral intuitions took shape over many centuries, under conditions in which nearly everything everyone wanted was in short supply, we are inclined to think that, where the distribution of income and wealth are concerned, principles of fair play apply; and therefore that “free riding” on the contributions of others is morally reprehensible.

  In existing capitalism – and, indeed, in all class divided societies – plenty of free riding nevertheless occurs. It is so commonplace that people often don’t notice it or don’t care. Sometimes, though, when people get something for nothing, it can be enough over the top to cause consternation. When the free riders stand out conspicuously, the level of consternation is typically enhanced.

  Saudi Arabia’s feudal rulers, and their counterparts in other Gulf states, are about as over the top as it gets.

  Other than maintaining the profoundly oppressive order that makes the status quo possible in the territories they control, it is hard to think of any contributions, productive or otherwise, that they make to justify the riches they receive.

  But, as finance has superseded industry as the driving force behind the world’s overripe capitalist system, Western publics have become more accustomed than they used to be to rewarding unproductive people.

  The robber barons of old, and the “industrialists” who succeeded them, at least played a role in increasing society’s wealth. The enterprises from which their riches derived made things. The money people at the cutting edge of capitalism today make money out of money, an activity even more useless than collecting rents for drilling rights.

  Yet, hostility is seldom directed towards them. Quite the contrary: the richer they are, the more they are esteemed.

  Could the sort of confused and obsequious thinking that has made hedge fund managers the heroes of our age account, in part, for how Saudi elites escape vilification? Is this yet another situation where, if you are rich enough, everything is forgiven?

  No doubt, this is part of the explanation. But a government intent on keeping public and elite opinion on the same page is a more important factor.   Add on a lavishly funded PR campaign and an entire category of miscreants gets off scot-free.

  That there is no group of people on earth today to whom the epithet “malefactors of great wealth” more justly applies hardly matters. The Western public may not like them much or respect them; but, so long as they don’t flaunt their wealth too blatantly, hardly anyone complains when Western politicians let them call the shots.

  Meanwhile, Islamophobia rages and a gullible public lives in mortal fear of terrorist bogeymen.   And yet the Saudi elite gets a pass, notwithstanding the fact that nearly all the perpetrators of 9/11 — of the event that, more than any other, boosted Islamophobia and got the so-called war on terror going — were Saudi nationals. It is an amazing phenomenon.

  * * *

  In real democracies, governments would do what the citizens who put them in office want them to do. The United States and other Western democracies make a mockery of that ideal. But, even so, there are limits; governments cannot defy public opinion on matters of great moment indefinitely.

  It is also the case, at least in the United States, that public opinion is affected significantly by the very government that is supposed to do what the people want – and therefore, ultimately, by the demands of the corporate and financial forces that corrupt democracy.

  This is why propaganda matters. Keeping public opinion in line is a function, perhaps the main one, of propaganda systems. In America in the Age of Obama, that is one of the few things that works well.

  We underestimate its effectiveness at our peril.

  Enabling the Saudi ruling class, and the rulers of the other Gulf states, to direct American foreign policy to the extent that they do, and to get away with whatever they please, is hardly the least of it; but neither is it the only cause for concern.

   

  

  

  
  
  

  

• Now Hiring In China: Porn Identification Officers

  

   

  Source: Global Times

  

  
  
  

  

• ISIS Planning US Nuclear Attack In Next 12 Months: Report

  Three weeks after the first supposed attack by Islamic State supporters in the US, in which two ISIS “soldiers” wounded a security guard before they were killed in Garland, Texas, the time has come to raise the fear stakes.

  In an article posted in the terrorist group’s English-language online magazine Dabiq (which as can be see below seems to have gotten its design cues straight from Madison Avenue and is just missing glossy pages filled with ‘scratch and sniff’ perfume ads ) ISIS claimed that it has enough money to buy a nuclear weapon from Pakistan and “carry out an attack inside the United States next year.”

  

  In the article, the ISIS columnist said the weapon could be smuggled into the United States via its southern border with Mexico.

  Curiously, the author of the piece is John Cantlie, a British photojournalist who was abducted by ISIS in 2012 and has been held hostage by the organization ever since; he has appeared in several videos since his kidnapping and criticized Western powers.

  

  John Cantlie

  As the Telegraph notes, “Mr Cantlie, whose fellow journalist hostages have all either been released or beheaded, has appeared in the group’s propaganda videos and written previous pieces. In his latest work, presumed to be written under pressure but in his hall-mark style combining hyperbole, metaphor and sarcasm, he says that President Obama’s policies for containing Isil have demonstrably failed and increased the risk to America.”

  Cantlie describes the following “hypothetical” scenario in Dabiq :

  Let me throw a hypothetical operation onto the table. The Islamic State has billions of dollars in the bank, so they call on their wil?yah in Pakistan to purchase a nuclear device through weapons dealers with links to corrupt officials in the region.

   

  The weapon is then transported overland until it makes it to Libya, where the muj?hid?n move it south to Nigeria. Drug shipments from Columbia bound for Europe pass through West Africa, so moving other types of contraband from East to West is just as possible.

   

  The nuke and accompanying muj?hid?n arrive on the shorelines of South America and are transported through the  porous borders of Central America before arriving in Mexico and up to the border with the United States.

   

  From there it’s just a quick hop through a smuggling tunnel and hey presto, they’re mingling with another 12 million “illegal” aliens in America with a nuclear bomb in the trunk of their car.

  Cantlie continues:

  Perhaps such a scenario is far-fetched but it’s the sum of all fears for Western intelligence agencies and it’s infinitely more possible today than it was just one year ago. And if not a nuke, what about a few thousand tons of ammonium nitrate explosive?

   

  That’s easy enough to make. The Islamic State make no secret of the fact they have every intention of attacking America on its home soil and they’re not going to mince about with two muj?hid?n taking down a dozen casualties if it originates from the Caliphate. They’ll be looking to do something big, something that would make any past operation look like a squirrel shoot, and the more groups that pledge allegiance the more possible it becomes to pull off something truly epic.

   

  Remember, all of this has happened in less than a year. How more dangerous will be the lines of communication and supply a year on from today? If the West completely failed to spot the emergence of the Islamic State and then the allies who so quickly pledged allegiance to it from around the world, what else of massive significance are they going to miss next?

  One can, of course, debate just how much the West “failed to spot the emergence of ISIS” considering it was not only the CIA which initially trained the terrorist organization in Jordan in 2012, but according to recently declassified Pentagon documents, the US was well aware the outcome its attempt to overthrow Syria’s Assad would have on the region, in the process “creating” ISIS, aka al Qaeda 2.0.

  In other words, even the “hypothetical operation” involving a nuclear attack on US soil would implicitly have the blessing of the US government. Which, considering the way the stock market surges every time the US economy deteriorates further on its way towards recession, probably means that a mushroom cloud appearing in some major US metropolitan area is just what the E-mini algos would need to send the S&P500 limit up.

  Finally, we leave it up to our readers to decide for themselves just who is behind the production of the Islamic State’s magazine Dabiq, whose latest issue, #9, is shown below. One thing is clear: unlike the Greek finance minister and the European Commission, ISIS knows all about purging metadata after posting a pdf to avoid identification of the original author.

  

  

  
  
  

  

• Chinese State Paper Warns "War Will Be Inevitable" Unless U.S. Stops Meddling In Territorial Dispute

  Whereas over the past year, ever since the outbreak of the hostilities over the fate of Ukraine following the Victoria Nuland orchestrated presidential coup, relations between Russia and NATO have devolved to a Cold War 2.0 state as manifested by countless interceptions of Russian warplanes by NATO jets and vice versa as depicted in the following infographic…

  

  … at least China was mercifully allowed to stay out of the fray between the Cold War enemies.

  This all changed this month when first the Pentagon’s annual report to Congress this month cast China as a threat to regional and international peace and stability, followed several weeks ago when, with China aggressively encroaching into territories in the South China Sea claimed by US allies in the region such as Philippines, Vietnam and Japan, the US decided to get involved in yet another regional spat that does not directly involve it, and started making loud noises about China’s territorial expansion over the commodity-reach area.

  China promptly relatiated by threatening a US spy plane during a routine overflight, while immediately thereafter the US retaliated at China’s escalation, and warned that building sea “sandcastles” could “lead to conflict.”

  Far from shutting China up, earlier today China said it had lodged a complaint with the United States over a U.S. spy plane that flew over parts of the disputed South China Sea in a diplomatic row that has fuelled tension between the world’s two largest economies.

  Quoted by Reuters, Chinese Foreign Ministry spokeswoman Hua Chunying said on Monday China had lodged a complaint and that it opposed “provocative behaviour” by the United States.

  “We urge the U.S. to correct its error, remain rational and stop all irresponsible words and deeds,” she said. “Freedom of navigation and overflight by no means mean that foreign countries’ warships and military aircraft can ignore the legitimate rights of other countries as well as the safety of aviation and navigation.”

  China had noted “ear-piercing voices” from many in the U.S. about China’s construction on the islands and reefs.

  In other words, China just imposed an effective “no fly zone” for US spy planes, a dramatic shift from its recent posture when it tolerated and turned a blind eye to US spy plane overflights. Going forward, the US has been explicitly warned not to fly over China or risk the consequences.

  

  This handout photo taken on March 16, 2015 by satellite imagery provider Digital Globe shows a satellite image of vessels purportedly dredging sand at Mischief Reef in the Spratly Islands in the disputed South China Sea

  And just to confirm that if the US had hoped it could threaten Beijing into submission and force the Politburo into curbing its expanionist appetit, it was dead wrong, the nationalist Global Times, a paper owned by the ruling Communist Party’s official newspaper, the People’s Daily, said in a Monday editorial that war was “inevitable” between China and the United States unless Washington stopped demanding Beijing halt the building of artificial islands in the disputed waterway.

  PressTV has more details:

  A war between the United States and China is “inevitable” unless Washington stops demanding Beijing halt its construction projects in the South China Sea, a Chinese state-owned newspaper warns.

   

  “If the United States’ bottom line is that China has to halt its activities, then a US-China war is inevitable in the South China Sea,” The Global Times, an influential newspaper owned by the ruling Communist Party’s official newspaper the People’s Daily, said in an editorial Monday.

   

  “We do not want a military conflict with the United States, but if it were to come, we have to accept it,” said The Global Times, which is among China’s most nationalist newspapers.

   

  Beijing last week said it was “strongly dissatisfied” after a US spy plane defied multiple warnings by the Chinese navy and flew over the Fiery Cross Reef, where China is reportedly building an airfield and other installations.

   

  “The intensity of the conflict will be higher than what people usually think of as ‘friction’,” it warned.

   

  The paper also asserted that China was determined to finish its construction work in the South China Sea, calling it Beijing’s “most important bottom line.”

  Such commentaries are not official policy statements, but are sometimes read as a reflection of government thinking.

  More importantly, they serve as populism-timestamped warnings that US demands for a Chinese retreat over what the world’s most populous nation considers’ its own national interest, will backfire dramatically and the next time a US spy plane flies over the Spratly Islands, or Beijing’s smog for that matter, a very serious diplomatic incident may ensue.

  

  

  
  
  

  

• Guest Post: Gray Skies And Memorial Day Reflections

  Submitted by Scott Spangler via JetWhine.com,

  Most Americans today have but two connections with those who serve and have served in the military, and especially those who have perished in that service. The first is the hollow seconds it takes to utter “Thank you for your service,” an seemingly autonomic reflex when seeing someone in uniform. The other occurs should they see a film about any of our many conflicts. Since America’s last declared war, which ended 70 years ago, Memorial Day has become an annual celebration of patriotic hypocrisy, when people might notice that the American flag they ran up their front yard pole last year is faded and frayed and, maybe, add a new one to their celebration’s shopping list.

  True appreciation is measured by our depth of experience and understanding.

  Today, less than 1 percent of the population reaps the benefits resulting from the service and sacrifice of the less than 1 percent of the population who serve the politicians elected by the majority of people who separate, and have no direct involvement with, these two segments of society. And this disconnection and separation is no accident.

  During the war Congress declared the day after the attack on Pearl Harbor, citizens didn’t thank members of the military for their service because everyone, one way or the other, was involved and contributed to a successful outcome. For many, Korea is a forgotten conflict, but it set the stage for all the undeclared conflicts that followed. War, as Eisenhower warned, is big business, and public protest is a political challenge that complicates their promotion and prosecution. Vietnam proved this, and people protested because the draft could send any one of them into harms way. And on the nightly news they would watch their loved ones suffer for a cloudy cause.

  The politicians, most of whom have never served and faced the possibility of a sudden end to life, solved this problem by replacing the draft with the all volunteer force. And never again would the news media work with the unrestricted access it had in Vietnam. Nor could they show the return of flag-draped transfer cases. “Privacy,” the politicians said, but certainly a planeload of flags bedecked boxes says something more—something different—than a missing-man flyover and the single triangle-folded flag presented to the family to conclude a funeral’s full military honors.

  Understanding is the antidote for hypocrisy, and films that promote and criticize America’s endless series of conflicts can contribute to it. Watching requires more involvement than saying “Thanks” to a uniformed stranger. Put yourself in the protagonist’s place and wonder how you—and your family—would feel and deal with the consequences projected on the screen. Build on this understanding, test its veracity with questions and settle for nothing less than a direct answer to it, make it a resource that guides your daily decisions.

  In so doing you can honestly honor those for whom this holiday was created after the nation’s most catastrophic conflict, the U.S. Civil War, which took the lives of roughly 620,000 individuals in military service.

  

  

  
  
  

  

• Greece Was 20 Votes Away From Defaulting This Weekend

  Up until this moment, Greece may not have had the financial wherewithal to pay its creditors, forced instead to use circular math gimmicks in which the IMF paid the IMF for the country’s most recent €750 million due on May 12 when it effectively pre-defaulted and used SDR reserves as “payment”, but at least it had a united facade when facing Europe and political cohesion when dealing with the Troika.

  That too may have just evaporated over the weekend, when in a surprisingly close vote showing just how deeply the ruling Greek Syriza party has splintered, the hard line “Left Platform” a faction within Syriza, proposed that Greece stop paying its creditors if they continue with “blackmailing tactics” and instead seek “an alternative plan” for the debt-racked country. Its motion called for the government to default on the IMF loans rather than compromise to creditor demands, among which a change to value-added tax rates, further liberalization of the labor market and changes to the pension system, including further cuts to pensions and wages.

  According to the NYT, which first reported the vote outcome, the proposal was narrowly rejected with 95 people voting against and 75 in favor.

  The WSJ adds:

  The Left Platform’s leader, Energy Minister Panagiotis Lafazanis, told the meeting default was preferable to surrender, even if it meant Greece tumbling out of the euro.

   

  “Who says that an exit from the euro and a return to the national currency is a catastrophe?” Mr. Lafazanis said at the meeting.

  Who? Well, all those – mostly bankers – who for the past 5 years bailed out European banks at the expense of preserving Greek participation in a doomed monetary union and avoiding the collapse of the Eurozone, an outcome which would lead to massive losses for the oligarchic status quo.

  But back to Greece where with a vote as close as that, the genie of the full-blown dissent within Syriza, which has a tiny majority of just 12 seats in Greece’s 300 seat partliament, is out of the bottle which could mean that the Troika’s long sought after goal of pushing Greece into a political crisis, may be just around the corner.

  As the WSJ reports, “Tsipras’s difficulty in selling a painful compromise to Syriza’s hard left, as well as to other parts of his ideologically diverse party, has become the largest obstacle to a deal. European officials and analysts—and privately even Greek government officials—say they don’t know whether the roughly 30 lawmakers who make up Left Platform will vote as defiantly as they talk if creditors’ terms are put before the Athens Parliament.”

  That may be a moot point, since Greece needs a deal yesterday: as a reminder, Greece has about 10 days of cash left, and this time there is no kicking the can – if there is no deal by June 5, Greece will be in default first to the IMF, and soon to everyone else.

  

   

  Worse, while Greece may not have decided to formally prioritize pensions and wages over IMF repayments, at least not yet, it has absolutely no working proposal to present to the Eurogroup ahead of this week’s latest meeting.

  The Central Committee agreed on a text saying any deal with creditors must involve no pension cuts, a small budget surplus before interest, increased public investment and a restructuring of Greece’s debt—terms that lenders are unlikely to accept. The text isn’t binding on Mr. Tsipras’s government but indicates how hard it will be to sell a deal to Syriza.

  But while some may have harbored hope that the Troika may agree to at least the smallest of concessions, after Sunday’s municipal vote in Spain which showed a dramatic plunge in popularity of the ruling PP, a harbinger of even even more “anti-austerity” platforms coming to power, Merkel will do everything in her power to make an example of Greece that nobody can dictate terms to the Troika and in the end it is a very simple choice: the German way or the autbahn.

  And just like that Greece is suddenly caught between the devil and the deep red lines: an intransigent Troika and potential rebels within the party itself.

  “The biggest threat may not end up being Mr. Lafazanis, but other parliamentary members who lack party discipline, who are newly elected and are completely unpredictable,” said Dimitris Keridis, an associate professor of international politics at Panteion University in Athens.

   

  Parliamentarian Ioanna Gaitani, a self-described Trotskyite in the Left Platform, said Greece can survive a debt default and lenders aren’t respecting Syriza’s mandate.

   

  “When faced with the pseudo-dilemma of ‘euro or national currency,’ the answer is a unilateral write-off of most of the debt, the taxation of large wealth, and the implementation of Syriza’s program,” she said. “For the Left, the needs of the people are above profits and debts.”

  The best news perhaps for Greece and everyone else who has been following this ultra slow motion trainwreck for the past 5 years, is that it is nearly over (one can hope), and that when it comes to defaulting, Greece has a truly exceptional range of choices how to make sure its last Euro-denominated check bounces in the most dramatic fashion possible.

  

  

  

  
  
  

  

• Meet The Veteran Who’s Been Reduced To Peddling For Change Online To Buy A New Leg

  By Simon Black of Sovereign Man

  Meet the veteran who’s been reduced to peddling for change online to buy a new leg

  Historian Will Durant once wrote “in the last 3421 years of recorded history only 268 have seen no war.”

  This is astounding. Warfare is constantly with us, often for the most absurd reasons.

  These days we’re told that the War on Terror makes us more free.

  We’re programed on days like Memorial Day to sing songs about our freedom and to thank the people in uniform for making us more free.

  The question I would respectfully submit is, do you feel more free today than you did 5, 10, 20 years ago?

  We now live in an era of unprecedented government intrusion.

  Senior citizens are thrown in jail for failing to file disclosure forms.

  Spy agencies arrogantly engage in illegal surveillance on their own citizens.

  And excessive force is so commonplace it barely registers as newsworthy any more.

  Curiously a number of polls from 2013 and 2014, including Gallup and the Washington Post, actually show that more people are afraid of the government than of terrorism itself.

  This isn’t freedom. And it’s a complete myth that soldiers fight and die in the name of freedom anymore.

  Warfare today means that a few people at the top of the military industrial complex, banking, and oil services companies become extremely rich. And everyone else pays the price.

  The price for everyday citizens is having less freedom than before.

  The price for future generations is inheriting a tremendous war debt.

  And the price for soldiers themselves is coming home wounded, limbless, or not at all.

  In today’s podcast, I introduce you to Joe, one of those recent veterans who lost his right leg.

  I recently met him while in the US, and he has an unbelievable story.

  Despite losing a limb in combat, Joe can’t get a new leg because the FDA won’t approve the procedure that he needs.

  It’s called osseointegration. And the FDA thinks that it might be too risky for Joe.

  Risky. Kind of like being in a combat zone in a country that never should have been invaded to begin with for reasons that were all lies, all to support a war that only makes the country less free.

  So since the government doesn’t think that Joe is responsible enough to make his own decisions, he now has to go overseas and pay tens of thousands of dollars out of his own pocket.

  Joe doesn’t have the money; so a family member set up a donation page on the Internet trying to get help. (I’m not publishing the link here because I’m going to take care of it myself.)

  It’s amazing when you think about it– a combat veteran who lost a leg supposedly fighting for ‘freedom’ can’t have the medical procedure he needs because a destructive government bureaucracy.

  That’s what freedom means today in America. And nobody’s fighting for it.

  Soldiers are off risking life and limb for oil companies, banks, and defense contractors. And citizens are distracted with bread and circuses.

  All the while, government power continues to expand at the expense of the individual.

  So today as we’re told to remember the fallen, we might also take a moment to remember the freedom we once had.

  And to think through the options for winning it back once again.

  Learn more about Joe’s unbelievable story, here:

  

  

  

  
  
  

  

• Police Takedown 101: U.S. Vs UK

  Early last month we highlighted a ThinkProgress report which suggested that more people were killed in encounters with police in the US in the month of March than were killed in encounters with UK authorities in 100 years. 

  From the report:

  A new report by ThinkProgress.com unearthed disturbing figures when it came to the number of police-related deaths that occurred in America in the month of March alone.

   

  Just last month, in the 31 days of March, police in the United States killed more people than the UK did in the entire 20th century. In fact, it was twice as many; police in the UK only killed 52 people during that 100 year period.

   

  According to the report by ThinkProgess, in March alone, 111 people died during police encounters — 36 more than the previous month. As in the past, numerous incidents were spurred by violent threats from suspects, and two officers were shot in Ferguson during a peaceful protest. However, the deaths follow a national pattern: suspects were mostly people of color, mentally ill, or both.

  In that context we bring you the following compare and contrast visual exercise.

  The UK…

  ….versus the US…

  Note: the suspect who was shot in the latter video clip was unarmed and died as a result of his injuries.

  The officer responsible killed another suspect in 2013 — he was cleared of wrongdoing in both cases.

  

  
  
  

  

• What Exactly Is Going On At Lake Mead?

  Following our exposure of the plunge in Lake Mead water levels post Friday's earthquake, officials were quick to point out that the drop was "due to erroneous meter readings" – which in itself is odd given we have not seen such an aberration before in the measurements. The data today shows a super surge in the Lake Mead water level – which, even more mysteriously, indicates from pre-earthquake to now, the Lake has risen by the most in a 3-day-period in years (as long as we have found history). How was this level 'manufactured' you ask? Simple – discharge flows from the Hoover Dam were curtailed dramatically. We are sure there is a simple explanation for all this…

   

  Yesterday we noted the plunge in Lake Mead water levels…

  

   

  Officials said – do not worry, the readings are faulty…

  Lake Mead's elevation has NOT dropped to 1,068 feet. Some inaccurate data was posted online. We are at 1,077 feet. http://t.co/a0YUo9iD0P

  — Lake Mead (@LakeMeadNRA) May 24, 2015

  Which resulted in this miracle…

  

   

  The biggest 3-day net surge in water levels (0.7 feet from Thursday to Sunday) on recent record…

  

   

  How was this miracle achieved (given the general lack of precipitation)? Were discharge levels curtailed drastically?

  

   

  Nope – nothing odd here at all…

  

   

  So what exactly is going at Lake Mead?

   

  Charts: Zero Hedge, LakeMead.water-data.com

  

  

  
  
  

  

• The Happiness Industry: How Government And Big Business Manipulate Your Moods For Profit

  The following is an excerpt from William Davies' new book The Happiness Industry: How the Government and Big Business Sold Us Well-Being (Verso Books, 2015):

  Since the 1960s, Western economies have been afflicted by an acute problem in which they depend more and more on our psychological and emotional engagement (be it with work, with brands, with our own health and well-being) while finding it increasingly hard to sustain this. Forms of private disengagement, often manifest as depression and psychosomatic illnesses, do not only register in the suffering experienced by the individual; they are increasingly problematic for policy-makers and managers, becoming accounted for economically.

  Yet evidence from social epidemiology paints a worrying picture of how unhappiness and depression are concentrated in highly unequal societies, with strongly materialist, competitive values. Workplaces put a growing emphasis on community and psychological commitment, but against longer-term economic trends towards atomization and insecurity. We have an economic model which mitigates against precisely the psychological attributes it depends upon.

  In this more general and historical sense, then, governments and businesses ‘created the problems that they are now trying to solve.’ Happiness science has achieved the influence it has because it promises to provide the longed-for solution. First of all, happiness economists are able to put a monetary price on the problem of misery and alienation. The opinion-polling company Gallup, for example, has estimated that unhappiness of employees costs the US economy $500 billion a year in lost productivity, lost tax receipts and health-care costs. This allows our emotions and well-being to be brought within broader calculations of economic efficiency.Positive psychology and associated techniques then play a key role in helping to restore people’s energy and drive. The hope is that a fundamental flaw in our current political economy may be surmounted, without confronting any serious political–economic questions.

  Psychology is very often how societies avoid looking in the mirror. The second structural reason for the surging interest in happiness is somewhat more disturbing, and concerns technology. Until relatively recently, most scientific attempts to know or manipulate how someone else was feeling occurred within formally identifiable institutions, such as psychology laboratories, hospitals, workplaces, focus groups, or some such. This is no longer the case. In July 2014, Facebook published an academic paper containing details of how it had successfully altered hundreds of thousands of its users’ moods, by manipulating their news feeds. There was an outcry that this had been done in a clandestine fashion. But as the dust settled, the anger turned to anxiety: would Facebook bother to publish such a paper in future, or just get on with the experiment anyway and keep the results to themselves?

  Monitoring our mood and feelings is becoming a function of our physical environment. In 2014, British Airways trialled a ‘happiness blanket’, which represents passenger contentment through neural monitoring. As the passenger becomes more relaxed, the blanket turns from red to blue, indicating to the airline staff that they are being well looked after. A range of consumer technologies are now on the market for measuring and analyzing well-being, from wristwatches, to smartphones, to Vessyl, a ‘smart’ cup which monitors your liquid intake in terms of its health effects. One of the foundational neoliberal arguments in favor of the market was that it served as a vast sensory device, capturing millions of individual desires, opinions and values, and converting these into prices. It is possible that we are on the cusp of a new post-neoliberal era in which the market is no longer the primary tool for this capture of mass sentiment. Once happiness monitoring tools flood our everyday lives, other ways of quantifying feelings in real time are emerging that can extend even further into our lives than markets. 

  Concerns about privacy have traditionally seen it as something which needs to be balanced against security. But today, we have to confront the fact that a considerable amount of surveillance occurs to increase our health, happiness, satisfaction or sensory pleasures. Regardless of the motives behind this, if we believe that there are limits to how much of our lives should be expertly administered, then there must also be limits to how much psychological and physical positivity we should aim for. Any critique of ubiquitous surveillance must now include a critique of the maximization of well-being, even at the risk of being less healthy, happy and wealthy.

  To understand these trends as historical and sociological does not in itself indicate how they might be resisted or averted. But it does have one great liberating benefit of diverting our critical attention outward upon the world, and not inward upon our feelings, brains or behavior. It is often said that depression is ‘anger turned inwards.’ In many ways, happiness science is ‘critique turned inwards’, despite all of the appeals by positive psychologists to ‘notice’ the world around us. The relentless fascination with quantities of subjective feeling can only possibly divert critical attention away from broader political and economic problems. Rather than seek to alter our feelings, now would be a good time to take what we’ve turned inwards, and attempt to direct it back out again. One way to start would be by turning a skeptical eye upon the history of happiness measurement itself.

  

  

  
  
  

  

• Obama "Remembers" Ramadi

  Never forget…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• OPEC's Next Meeting Is Nearly Upon Us…

  OPEC’s Next Meeting Is A mere 11 days away…

  
  

  On June 5, all eyes will be on OPEC as the group convenes in Vienna to discuss its course for the second half of 2015.

  It will probably be straightforward with no change to the status quo but it could be dramatic.

  The most bullish scenario that could occur would be for OPEC to reverse strategy and re-introduce production quotas. 

  The most bearish would be for OPEC to continue with no constraint at the same time as a nuclear agreement is reached allowing an unsanctioned Iran to re-enter the market at full throttle. 

   

  Not everyone is happy?

  Remember that prior to the November meeting, Iran, Venezuela and (non-OPEC) Russia engaged in frenetic efforts to convince the group’s Gulf leaders to cut output which went unheeded. 

  The facts are very clear.  No OPEC country can meet its budgetary requirements at this price level without digging deep into reserves. OPEC members face a financial crisis. They are collectively $1.6 bn poorer at this point in the year compared to last year. 

  To put this in perspective, data shows that prices are south of what 10 out of OPEC’s 12 members require for their annual budgets to break even. Qatar and Kuwait are exceptions, and Saudi Arabia holds $708 billion of reserves assets on which it can lean on for now. 

  So not suprisingly, from November to the present, officials from some of OPEC’s non-Gulf member countries have voiced concerns over OPEC’s Saudi-led market share strategy, as their economies feel the full brunt of lower prices which ironically may cause them to increase supply.

  Saudi’s oil exports accounted for 89% of the country’s total revenue last year. The fall in oil prices is decreasing the value of these exports, leading to a potential budget shortfall. In its 2015 budget, Saudi plans to spend about $230 billion but expects to accrue in $190.7 billion in revenue, yielding an overall deficit of $38.6 billion. While the oil price assumption was not specified in the budget, it was calculated in December, when oil prices were between $55 and $70/bbl.

   

  To maintain spending they will have no choice but to tap its $708 billion Sovereign Wealth Fund, which while enough for the short term it will not last forever when $50 billion is required to be drawn annually.

  Is the strategy working??

  However Saudi’s market share defense strategy seems to be working. As Saudi Arabia’s production rose to a record high US production growth has started to slow showing that the plan may have worked?

   

  Saudi Vs US Rig Count

  To judge success, its helpful to remember what the strategy coming out of the last meeting was exactly:

  • Maintain production. This will continue to drive down prices. (Saudi has done just that, in fact saying it achieved record production of 10.3m barrels a day in April.)

  • These lower prices will exert economic pressure on US producers who need higher prices to break even. (1Q earnings calls were replete with references to this reality as company management teams sought to explain their rationale for curtailing Capex, projects, and implementing headcount reductions.)

  • If prices are driven down to $60/barrel, a fair portion of shale production becomes uneconomical. (WTI hit its low this cycle on March 17, at $43.46. Brent previously hit its low on January 13, at $45.59. These levels were well below the breakeven prices that analysts had assessed wherein unconventional drilling would be uneconomic. More importantly, however, the falling prices presaged a curtailment of existing activities, and the cash flow derived therefrom. Less cash flow = less investment = scaleback of activity.)

  • With diminishing US shale production, OPEC will in the longer-term regain its clout in the global oil market. (Though the US is losing the market share battle, this does not immediately translate to a definitive “win” for OPEC.)

   

  

  US Production Starting To Slow, But Companies Preparing To Ramp Up

  The price of WTI increased over 40% from the low on the assumption that the glut is easing. As noted above, OPEC’s May report said this response began at the end of the third week of March. Further, the IEA’s monthly report projected US shale-oil output growth to slow by 80,000 bpd in May.

  A recent Wall Street Journal report claiming that a paper has been prepared by the OPEC Secretariat which sees oil prices depressed for a decade and recommending the re-introduction of quotas vigorously denied. It is rare if not unprecedented to see such a strong denial from OPEC and it demonstrates the sensitivities that surround the next meeting. It is reasonable to assume that it is indicative of divided opinion as to how OPEC should respond to the price collapse. 

  Summing up there is nothing in the latest monthly reports from either OPEC or the EIA to suggest that the price fall has had a dramatic effect on global demand or non-OPEC supply. The crude supply excess was huge in 1Q and will continue to be huge in this quarter. Perhaps bulls can take some solace from the possibility that a lot of this excess has disappeared into Chinese strategic storage, never to re-appear. There is no way of being sure. Suffice it to say that last year global stocks built by an average of 900,000 bpd. This year they will grow by of the order of 1.5 mbpd. 

   

  The Meeting Before The Meeting

  It is very important to note that the days leading up to the June 5 gathering have already been marked by busy travel schedules by both OPEC and non-OPEC representatives. 

  Russia’s Energy Minister Alexander Novak said he and other Russian officials will meet with OPEC to discuss whether to adjust production on June 2-3, according to Bloomberg. Novak met with officials from Venezuela, Mexico and Saudi Arabia prior to the November meeting.

   

  So What next?

  Bullish fears of the risk of a cut combined with a retracement of the dollar has given the bulls the upper hand against facts and forecasts of oversupply. These factors supporting the upward momentum cannot be underestimated and could drive prices even higher in the immediate future. 

  The current situation feels very similar to the first half of last year when the numbers were overwhelmingly bearish yet prices defied gravity and kept rising. A big surplus in the physical markets and very high levels of speculative length are a toxic combination. The big difference to last year is that the price level is 40% lower. 

  Looking at the broader fundamental picture, however, I cannot help but compare the current price strength to the myth of Sisyphus, the king of Corinth. He was condemned by gods to ceaselessly rolling a rock to the top of a mountain only to see it roll back down to repeat this action forever. The top of the current bull mountain might not be close but unless there is a fundamental change in the physical supply/demand balance, the rock might start rolling back down shortly again just like it did in the second half of 2008 and 2014 only for the bulls to start the arduous uphill battle all over again.

   

  www.maunaki.com 

   

   

   

   

   

  

  
  
  

  

• The Birds & The Bees: Suicide By Pesticide

  Submitted by Chris Martenson via PeakProsperity.com,

  As you are aware, honey bees have been suffering from something called Colony Collapse Disorder. In practice, what this means is that the bees simply vanish from their hives, leaving behind their most precious worldly possessions: honey and larvae.

  What causes these mysterious vanishing acts has been something of a mystery. But because the phenomenon began really ramping up in 2006, we can focus in on some suspects.

  While it’s always possible that the bees are suffering ‘death from a thousand cuts’ — where it’s no one specific thing but rather a wide range of minor insults, ranging from loss of forage to herbicides to fungicides to pesticides — there’s actually quite strong evidence pointing to a specific class of pesticides called neonicotinoids.

  This class of pesticides is massively and indiscriminately toxic. More specific to our investigation here, it was only introduced into widespread use shortly before the massive bee die-offs began.

  Biocide = Suicide

  Actually, it’s not really proper to call neonicotinoids ‘pesticides’ because they don't solely target pests. They should more accurately be called ‘biocides’ because they kill all insects equally and indiscriminately.

  How toxic are they?

  The neonics are so toxic that it's sufficient to simply lightly coat a seed with it before planting. When the seed grows to maturity, the plant will still have enough absorbed toxin circulating within its system to kill any insect that munches on it or sucks on its sap.

  Think about that for a minute. Coat a kernel of corn with a neonic, sow it, and the mature plant will still be lethal to a corn borer when the corn ears develop several months later.

  But not just to insects:

  "A single corn kernel coated with a neonicotinoid can kill a song bird." As a long time environmental lawyer and campaigner, I should not have been stunned by that fact but I was. Shaking my head in dismay, I read on, "Even a tiny grain of wheat or canola treated with the …neonicotinoid… can fatally poison a bird."

  (Source)

  Ugh. Boy, that depresses me — thinking of the mentality in play that allows one to conceive of and then use such powerful poisons simply because one wants to engage in lazy farming. Hard farming requires knowing how to rotate crops, use beneficial natural relationships, and work intimately with the land on which you farm so as to minimize pest losses while maximizing the abundance of both your crops and the local ecosystem.

  Sadly, the indiscriminate neonic killers are being used very widely. The mentality at play might as well be kill them all and let god sort them out.  And therefore we are literally taking out whole swaths of life; both observed as in the case of the honey bee, and unobserved in the case of the many, many organisms not commercially or recreationally important enough to us to notice and track.

  Killing off organisms in an ecosystem using indiscriminate biocides is quite literally a slow form of suicide for us humans. As within, so without.  You cannot poison and kill of the world around you without poisoning and killing yourself.

  Simply put: We are killing ourselves. And the data is literally horrifying.

  The Birds and the Bees

  If the thesis that neonics are harmful to both pests and other life forms alike is correct, then we should be able to detect those effects both with direct studies and indirect measurements.

  Here’s where the horrifying part comes in. All of the data agrees: neonics are stone cold killers.

  Insecticides Linked To Farmland Bird Population Declines

  July 10, 2014

   

  A new study in the journal Nature has found that use of neonicotinoids is linked to a decline in the populations of farmland birds across Europe.

   

  For the study, scientists from Radboud University in the Netherlands and the Dutch Centre for Field Ornithology and Birdlife Netherlands (SOVON) analyzed long-term data for both farmland bird populations and chemical amounts in surface water. They discovered that in locations where water held high amounts of imidacloprid, a standard neonicotinoid, bird populations were known to decrease by an average of 3.5 percent on a yearly basis.

   

  “In ten years it’s a 35 percent reduction in the local population, it’s really huge,” study author Hans de Kroon from Radboud University told Matt McGrath of BBC News. “It means the alarm bells are on straight away.”

   

  The study team said the insecticide is probably coating seeds that the birds like to eat – as well as leaching into both water and soil around the sprayed areas. They added that neonicotinoids can persist in the environment for up to three years.

  (Source)

  Here we have a study that shows huge and dramatic negative impacts on bird life. A massive culling of more than a third of the bird populations in ten years is a really disturbing figure. In places where the water held high concentrations of neonics, bird populations were hit hardest.

  The other interesting finding in the above the study was that the neonics were found in the water supply.  They are not supposed to end up there, but they do, as we now know:

  Bee-Killing Pesticides Found in Midwest Rivers

  Aug 4, 2014

   

  PESTICIDES LINKED TO declining bee and bird populations have been found in streams across the upper Midwest, raising yet more concerns about these chemicals’ environmental effects.

  Researchers from the United States Geological Survey tested waters at nine sites in Iowa and Nebraska. They found neonicotinoids in each, frequently at levels that may harm insects and the life that depends on them.

   

  “This wasn’t a toxicity study, but there’s research out there indicating that these concentrations could be of concern,” said USGS chemist Michelle Hladik, lead author of the paper describing the survey in the journal Environmental Pollution.

  (Source)

  Given just how toxic the neonics are, I have to wonder what the effect of them are on all the insect life that has water in its life stage: the mayflies, stoneflies and caddis flies. If these insects are killed, then you will find big declines in the bird populations that depend on those same insects for their food supply.

  And/or if the insects are carrying sub-lethal levels of the neonic biocides in them, then the birds may be bio-concentrating the toxin to detrimental if not lethal levels in their own bodies.

  I have to ask: What sort of a so-called ‘civilized’ nation, in this day and age, allows toxic levels of pesticides (or biocides as the case may be) to build up at hazardous levels in surface water in the first place?

  What’s so important about selling a few bucks more to enable giant chemical firms and certain farmers to practice lazy farming that we’re willing to sacrifice the complete loss of critical elements of key ecosystems?

  We may not tend to appreciate insects, but they are utterly and fabulously essential to everything we hold dear.  You cannot just kill them all without upsetting the myriad finely-tuned systems of which both they and we are components.

  While we have a lot of data on honey bees because they are commercially kept and tracked, the wild bees are not really tracked all that carefully. But we know enough to conclude that they, too, are suffering:

  Neonicotinoid pesticides dramatically harm wild bees, study finds

  APR 22, 2015

   

  A common type of pesticide is dramatically harming wild bees, according to a new in-the-field study that outside experts say may help shift the way the U.S. government looks at a controversial class of chemicals.

   

  But in the study published by the journal Nature on Wednesday, honeybees — which get trucked from place to place to pollinate major crops like almonds— didn't show the significant ill effects that wild cousins like bumblebees did. This is a finding some experts found surprising. A second study published in the same journal showed that in lab tests bees are not repelled by the pesticides and in fact may even prefer pesticide coated crops, making the problem worse.

   

  Scientists in Sweden were able to conduct a study that was in the wild, but still had the in-the-lab qualities of having control groups that researchers covet. They used 16 patches of landscape, eight where canola seeds were coated with the pesticide and eight where they weren't, and compared the two areas.

   

  When the first results came in, "I was quite, 'Oh my God,'" said study lead author Maj Rundlof of Lund University. She said the reduction in bee health was "much more dramatic than I ever expected."

   

  In areas treated with the pesticide, there were half as many wild bees per square meter than there were in areas not treated, Rundlof said. In the pesticide patches, bumblebee colonies had "almost no weight gain" compared to the normal colonies that gained about a pound, she said.

  (Source)

  The bumblebees are essential to the overall state of the ecosystems of the world because they pollinate things that honeybees don’t. There is some overlap, but the bumblebees are able to reach deeper into certain flowers and have different platn preferences than honeybees, so they are not replaceable.  They are unique contributors. If they go away, so will the many plants that depend on them for their life cycle.

  And it gets worse:

  Beyond Honeybees: Now Wild Bees and Butterflies May Be in Trouble

  MAY 6, 2014

   

  Among other pollinators, iconic monarch butterfly declines are well documented: Their numbers are now at a small fraction of historical levels. And entomologist Art Shapiro of the University of California, Davis spent most of the last four decades counting butterflies across central California, and found declines in every region.

   

  These declines don’t just involve butterflies that require very specific habitats or food sources, and might be expected to be fragile, but so-called generalist species thought to be highly adaptable. Many other entomologists have told Black the same thing.

   

  “Species that used to be in all our yards are dropping out, but nobody’s monitoring them,” Black said.

  (Source)

  It’s the butterflies, too. Certainly in my own personal experience, I’ve noticed a lot fewer butterflies in my backyard over the past several years. We plant flowers specifically for bees and butterflies, so I'm something of a casual tracker of their types and numbers.

  Even more recently, we have solid data showing a dose-response where the heaviest neonic use correlates with the heaviest honeybee die-offs:

  Bee Die-Offs Are Worst Where Pesticide Use Is Heaviest

  May 14, 2015

   

  The nation’s honeybee crisis has deepened, with colony die-offs rising sharply over last year’s levels, the latest survey from the US Department of Agriculture-funded Bee Informed Partnership shows. A decade or so ago, a mysterious winter-season phenomenon known as colony-collapse disorder emerged, in which bee populations would abandon their hives en masse. These heavy winter-season losses have tapered off somewhat, but now researchers are finding substantial summer-season losses, too.

   

  And here’s a map a map depicting where losses are heaviest:

  

  (Source)

  The article goes on to cite much of the direct as well as circumstantial evidence we have that these biocides are the culprits for much of the damage cited above.  Take a look at both where the usage of the neonics is heaviest and when they began to be used in earnest (charts below) and then recall that the bee, butterfly, and bird declines all began around 2006 and have gotten measurably and drastically worse in the last few years.

  

  

  

  Hmmmm….seems to me that in any court of law, and in the mind of any reasonable person, there’s enough evidence here to say that there’s a very big problem and the neonics are the likely culprits.

  One bird that I’ve always loved in the Sparrow Hawk, or American Kestrel as it is now more properly called.  The smallest of the hawks it is brightly colored and was a very prominent bird of my childhood. They used to be everywhere.

  Now they are quite scarce in my area. And because nobody makes any money off of them, only a few ‘birders’ seem to notice or care.

  But these mainly insect-eating birds are in serious decline:

  American Kestrel Population Drops Dramatically, And Without Fanfare

  Jul 29, 2014

   

  On a national level, the American kestrel (Falco sparverius) population has been plummeting. Records from the North American Breeding Bird Survey, a massive annual data collection effort for more than 400 bird species overseen by the U.S. Geological Survey (USGS) and the Canadian Wildlife Service, show the kestrels have declined by an estimated one and a half percent each year between 1966 and 2010. The long-term loss is almost 50 percent of the population. That’s a big drop for a bird considered abundant in North America.

   

  A handful of things could be causing the lower kestrel numbers, bird biologists say, including increased predation by Cooper’s hawks, continued exposure to pesticides, and competition at nesting sites by European starlings.

  (Source)

  Every biologist struggles to explain the massive losses in their chosen area of study due to ‘natural causes.’  But the easier and more obvious choice is ‘humans are doing something, and it’s killing off this thing I am studying.’ 

  So when we put all of the above together, it's obvious that Rachel Carson’s Silent Spring has taught the US EPA and businesses nothing at all.

  You would think that in the wake of the DDT disaster that we’d be more careful. But that’s just not the case.  The exact same mistakes are being made here again. And it is beyond a tragedy because this time it’s being done with our full awareness.

  Obviously, the sorts of environmental impact and toxicity studies that were supposed to be done were either forgone, or done fraudulently.

  The Response

  After a lot of hue and cry, and years and years of solid studies and accumulating evidence, the EPA finally took a stand and issued new firm rules for the neonics.

  However, don't just scan the headlines because you’ll end up with the wrong impression.

  Read more carefully:

  EPA Restricts Use of Pesticides Suspected of Killing Bees

  Apr 2, 2015

   

  The EPA has issued a moratorium on use of a type of pesticide theorized to be responsible for plummeting bee populations. Neonicotinoids are a class of common pesticides that recent research has pointed to as being harmful to birds, bees and other animals.

   

  The EPA previously approved their use, but outcry over the damage being done has caused the agency to reverse course while more studies are done. On Thursday, the EPA sent letters to people and companies that have applied for outdoor use of the pesticide, saying that new use permits won’t be issued.

   

  New uses of neonicotinoids will no long be approved “until the data on pollinator health have been received and appropriate risk assessments completed,” the EPA letter reads. Existing permits to use them, however, will not be rescinded — something wildlife and environmental advocacy groups are unhappy with.

  (Source)

  The headline implies that the EPA is now limiting the amount of neonic being used but that's not the case at all.  As a result of their 'ruling' even more could be used in the near future, or maybe less, but the ruling itself does nothing to restrict how neonics are currently being used because it only applies to 'new' uses. 

  Are you kidding me? This represents the ‘middle ground’ the EPA sought?

  Every single current use of neonics will continue.  By the way, one “use” is using neonics to treat corn.  Or wheat, or any other already approved “use.”  Those use maps above will continue unabated while the EPA 'studies' the issue, a process that could take a decade or more.

  The ruling means that farmers newly considering using these biocides will not be blocked in any way shape or form as long as they are going to use them in a way that's already approved.

  So, the exceptional and mounting damage will continue.

  This is pathetic, and it is an outrage. It represents everything that is wrong with America today.

  There is both economic damage being done to beekeepers and everybody who depends on their services, and there is massive environmental and ecosystem damage being done. The EPA has ruled that a few hundred million dollars of sales for major chemical companies outweigh every other right in this story, including the basic right of all life to simply live.

  [Note for subscribers, this is a new set of paragraphs inserted to keep up with recent developments]

  More recently, the Obama administration has unveiled the results of a task force meant to study the plight of the pollinators and make recommendations on how to support them.

  How the White House plans to help the humble bee maintain its buzz

  May 9, 2015

   

  On Tuesday, the Obama administration will announce the first National Strategy to Promote the Health of Honey Bees and Other Pollinators, a bureaucratic title for a plan to save the bee, other small winged animals and their breeding grounds.

   

  The strategy, a copy of which was obtained by The Washington Post, will seek to manage the way forests burned by wildfire are replanted, the way offices are landscaped and the way roadside habitats where bees feed are preserved.

   

  “What are we doing on bees?” Obama asked Holdren as they prepared to wrap up an Oval Office meeting in the summer of 2013. “Are we doing enough?”

   

  That discussion led to the launch of the White House Pollinator Health Task Force, whose recommendations are being unveiled Tuesday.

   

  CropLife America chief executive Jay Vroom, whose group represents pesticide manufacturers and participated in the task force, said that while his members might disagree with the EPA at times, they’ve “continued to be science-based and balanced” at the agency.

  Not at all surprisingly, given the fact that we have 8 years of increasing and highly obvious evidence of neonicotinoid inflicted damage, the Obama task force came out with recommendations to study pesticides for a few more years and then devote a couple of nickels and a lot of lip service to increasing ‘habitat.’

  I know that the task force came up with diddly squat because the main pesticide promoting trade association representing the manufacturers of pesticides and other agricultural chemicals, the ill-named CropLife America, loved the resulting recommendations.

  That’s all I need to know that this task force was a joke, came up with nothing useful, and ended up protecting narrow economic interests as opposed to protecting broad life supportive aims.

  The very idea that it’s habitat that’s at fault here, rather than the chemicals is just another insult to everyone of reasonable intelligence.

  The American Way

  I find it increasingly difficult to believe in the things the country in which I live stands for.

  In Germany, where the various interests are more carefully balanced, and where people and beekeepers actually have some say, things are very different.

  From 2008:

  Germany bans chemicals linked to honeybee devastation

   

  Germany has banned a family of pesticides that are blamed for the deaths of millions of honeybees. The German Federal Office of Consumer Protection and Food Safety (BVL) has suspended the registration for eight pesticide seed treatment products used in rapeseed oil and sweetcorn.

   

  The move follows reports from German beekeepers in the Baden-Württemberg region that two thirds of their bees died earlier this month following the application of a pesticide called clothianidin.

   

  "It's a real bee emergency," said Manfred Hederer, president of the German Professional Beekeepers' Association. "50-60% of the bees have died on average and some beekeepers have lost all their hives."

   

  Tests on dead bees showed that 99% of those examined had a build-up of clothianidin. The chemical, produced by Bayer CropScience, a subsidiary of the German chemical giant Bayer, is sold in Europe under the trade name Poncho.

  (Source)

  Several things are fascinating here.  First, the neonic clothianidin is actually manufactured by a German company, and it’s the same company that sells the stuff in the US. You’d think that, if anything, the German government would work harder to protect the economic interests of its own companies more than the US EPA. But you’d be wrong.

  Second, this was way back in 2008. German beekeepers had one very bad incident with the chemical, the appropriate tests were run, the risk was deemed unacceptable and the pesticide was yanked from the market.

  That’s how these things are supposed to work.

  Yet in the US, it is now seven years after that and the EPA has only gotten around to nixing new uses for the compounds that are now widely used and destroying insects and birds across a huge swath of the country.

  Even if it would cost somebody a whole lot of money, and maybe even make farming a touch less lazy and require more effort, I would personally favor banning every and any pesticide and herbicide and fungicide until all of the appropriate long-term toxicological studies had been carried out.  They are not that difficult to run, they just cost money and take time.

  No ‘grandfathered’ uses. No exceptions. Prove the stuff is safe or else it cannot be sold or used.

  But that’s because I would choose life over money. And that’s apparently where I part ways with my country, at least as far as the US government is concerned.

  Unintended consequences

  The prediction here is easy enough to make. The law of unintended consequences is going to rear up and bite us. Again.

  One cannot simply wipe out entire swaths of insect and bird populations without causing eventual and massive difficulties.

  One day we’ll wake up and wonder why some pest has gotten totally and uncontrollably out of hand. And if we chase it down, we’ll discover some beautifully complex natural cycle that involved a host species, a predator, a plant and animal and a few other creatures that used to dance to a song that had been written and perfected over a hundred million years of evolution.

  Break the dance, and you break the web of life. 

  Mark my words, ‘insects’ is going to become a very hot topic over the next few years. And my sincere hope is that we do not destroy too much and that we figure this out before it’s too late.

  For now, all I can say is: Shame on you, EPA.  Deep, and lasting shame on all of you.

  Conclusion

  All of this leads me here: We desperately need a new narrative.

  The old one not only allows but encourages the neonic story, and a hundred others just like it, to take root and flourish.

  We cannot begin to fight each battle — neonics and fracking waste water disposal and leaking Gulf of Mexico wells and money in politics – and hope for anything more than a slight delay of the arrival of our miserable end.

  Instead we have to have a new narrative where it is emotionally impossible for an EPA staffer to approve neonics because they would be too horrified to do so.  I could not use them, but that's because I have an internal narrative that values all life.

  While I certainly think people should fight these battles, those skirmishes are for naught if another crew (that’s us) is not paving the way for that new narrative at the same time.

  If we were to have a new Declaration of Independence, it might start with these words (from our group effort):

  "We hold these truths to be self-evident, that all people are created equal and that all life is sacred.  That all people are endowed by their Creator with certain unalienable Rights and Responsibilities.  That among these Rights are Life, Liberty and the pursuit of Happiness, and among these Responsibilities are to live in Harmony with Nature, to be Stewards for the Natural World, and to leave a World Worth Inheriting to our Posterity."

  I am sickened by the damage being done by the neonics and I am dismayed by the pathetic and weak response by the so-called regulators at the EPA.

  In a healthy culture these people would be packed off to new jobs, and they would be shunned by thoughtful people until they had atoned for their ridiculous actions.

  But that is not yet the world in which we live.

  A more subtle point to be made here is that each of us needs to prepare for the fact that the people in authority, even when confronted with compelling and obvious data, will choose to put profits over life and favor doing nothing over something.

  In short, stories like this one cement my view that we face a future that will be shaped more by disaster than design, and that we each need to prepare for that as best we can.

  

  

  
  
  

  

• There Is No Longer A Market: Citigroup Confirms What Zero Hedge Has Said Since 2009

  “Zero Hedge long ago gave up discussing corporate fundamentals due to our long-held tenet that currently the only relevant pieces of financial information are contained in the Fed’s H.4.1, H.3 statements… macro economic data now is essentially one big joke.”

        – Zero Hedge, January 2010

   

  “we have been saying since day one […] that when it comes to securities price formation in a centrally-planned regime, it is flow not stock that matters.”

       – Zero Hedge, June 2012

   

  Those were the rantings of a “tinfoil hat-wearing”, “conspiracy theory-heavy” website, which dared to speak up time and again against widely-accepted economic and financial dogma, which has been the foundation of the Fed’s flawed experiment now in its 8th year.

  And they were right.

  Here is what the global head of credit strategy at Citigroup just said this last Friday.

  If there were any lingering doubt, this week’s gyrations demonstrate neatly that it is central bank liquidity, not  fundamentals, driving markets. It is the flow, not the anticipated stock, of QE which counts.

   

  … Central bank policy pronouncements are almost the exclusive driver of market movements at the moment, not fundamentals. Almost all the fixed income investors we meet bought into this idea some time ago – perhaps unsurprising, given the extent to which credit spreads have been diverging from corporate leverage, and seem likely to continue to do so even as leverage rises further (Figure 4). In equities, there are still a few holdouts – but the longer that downward revisions to earnings revisions are met with record highs in markets (Figure 5), the more widely accepted the idea becomes.

   

  
  

   

  … In govies, it has been slightly harder to fathom what is going on – but what remains clear is that it doesn’t have much to do with fundamentals. No wonder the backup in US yields is now fading when it occurs against the most protracted period of negative economic surprises since 2011 (Figure 6). Each successive month’s disappointment on retail sales adds to the likelihood that consumers’ appetite for spending vs saving has fundamentally altered – not just that the benefits from the oil price drop are a little slow to feed through (Figure 7).

   

  

   

  … with central bank liquidity the ultimate source of all market movements, investors [are] forced to shun fundamentals and instead hang on the central banks’ every word. At some point, of course, the risk is that the taps are turned off: recent speeches from Yellen, Draghi and others do demonstrate an increasing unease with market behaviour, and an increased emphasis on financial stability and the need for structural reforms. But with the underlying economy still weak, and vulnerable to a sharp sell-off in markets, we fear they will find that mangling, once started, is hard to stop. Particularly when they remain at least partly in denial as to the extent of it.

  And since the market no longer exists, and soon, courtesy of double seasonally adjusted “data” economic reporting and analysis will be just as meaningless, soon the Fed, having destroyed trading as we know it not to mention the US middle class, will also succeed in ending financial reporting once and for all.

  

  
  
  

  

• Inflation Watch: Prices To "The Happiest Place On Earth" Are Up 2900% Since 1971

  Having previously shown that money can buy happiness, it appears, as Bloomberg reports, that the cost of buying that happiness is soaring. With well-managed government-provided statistics on inflation, why would one look elsewhere for clues as to the declining standards of living across much of America… but look we did and with wages stagnant, the 2900% surge in prices to Disneyland since 1971 makes ‘the happeist place on earth’ a place only the wealthy can afford to visit.

   

  

   

  //

  

  

  
  
  

  

• The Case For Nationalizing Monsanto

  Submitted by Charles Hugh-Smith of OfTwoMinds blog,

  Ridding the world of Monsanto via a state buy-out would be a boon to humanity. 

  Capitalism fails in two situations: monopoly and state-capital cronyism. Monopoly extinguishes competition and that effectively extinguishes capitalism.
   

  When the elites of the state and private capital collude, i.e. crony capitalism, the few gain power and wealth at the expense of the many.
   

  The state (broadly speaking, government) fails when it serves the few at the expense of the many, while claiming to serve the interests of the many. The state only fulfills its purpose when it serves the interests of the many at the expense of the few who control the majority of the political power and private wealth.

   

  Monsanto is the epitome of monopoly and crony-state collusion. But Monsanto's grip is not only on the throat of the nation– through its monopoly on seeds that it enforces globally, its grip is strangling the entire world.
   

  Monopolies on food, energy and water (what I term the FEW resources) are not like monopolies on discretionary goods and services. People have to pay whatever the monopoly charges, as substitutes are either unavailable, very expensive or under the control of the same cartel/quasi-monopoly.
   

  Before Monsanto extended its grip as the state-enforced seed monopoly, state universities and extension services developed seed strains and provided the seeds for a nominal cost.Over time, this publicly owned and managed system of providing low-cost seeds has eroded under pressure from for-profit private firms such as Monsanto and the benign neglect of a government that has been captured by private interests and self-serving elites.
   

  The supposed benefits of costly monopoly-developed GMO seeds is increasingly being questioned: Plant Breeding vs. GMOs: Conventional Methods Lead the Way in Responding to Climate Change.
   

  The rapid advance of gene sequencing is opening new doors for much quicker development of conventional plant breeding techniques that require no genetic modification (GMO).
   

  If the American people wanted to bestow a gift to the world that would be valued by billions of people yet would cost the American citizenry a ridiculously modest sum, it would be to nationalize Monsanto and provide its seed products for free. To do this requires letting go of all the self-serving neoliberal fantasies that crony-capitalists propagandize to protect their monopolies: for example, only the profit motive drives innovation, so only private companies can supply the world with advanced seeds.
   

  All this propaganda boils down to defending monopoly and cronyism as capitalism–The Big Lie of all monopolists and crony-capitalists. This was the reason given for privatizing publicly owned utilities that are then transformed into highly profitable monopolies–the precise opposite of capitalism's primary engine of innovation.
   

  Monsanto is worth around $57 billion. Compare this to the Federal debt of $18 trillion, or the full lifecycle cost of the bloated F-35 fighter aircraft program, which weighs in at $1 trillion. We should also compare $60 billion with the $16.8 trillion that the Federal Reserve loaned the world's too big to jail banks.
   

  

  Ridding the world of Monsanto via a state buy-out would be a boon to humanity, and doing so for a mere $57 billion would be a bargain–especially when you consider the $3 trillion the state has squandered on endless wars of choice and the trillions of dollars the Federal Reserve and the government have squandered propping up the self-serving, parasitic cartel of too big to jail banks.

  

  

  
  
  

  

• Greece's Problem

  Everything is better (and fixed) once you can print…

   

  

   

  h/t @RudyHavenstein

  

  

  
  
  

  

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• MeMORiaL DaY 2015: THe LaND OF THE FRee

  .

   

  Once alienated,

  an “unalienable right” is apt to be forever lost, in which case we are no longer

  even remotely the last best hope of earth but merely a seedy imperial state

  whose citizens are kept in line by SWAT teams and whose way of death, not life,

  is universally imitated.

  Gore Vidal

   

  

  
  
  

  

• Bernanke Says "No Large Mispricings In US Securities"; These 5 Charts Say Otherwise

  Retired central banker, blogger, bond guru and hedge fund consultant Ben Bernanke just uttered the following total rubbish…

  • *BERNANKE: NO LARGE MISPRICINGS IN U.S. SECURITIES, ASSET PRICES

  In an effort to save whoever it is that will pay him $250,000 next for these wise words, we offer five charts.

   

  One of these things is not like the others…

  

   

  nope, no mispricing there at all…

  

   

  Almost imperceptible amount of mispricing here…

  

   

  So now "relative" mispriings at all..

  How about "absolute" mispricings?

  Cyclically, even Yellen thinks stocks are expensive…

  

   

  and the median stock has never been more expensive…

  

   

  But apart from that – nope – no mispricing whatsoever.

  *  *  *

  Which is why it seems odd that Bernanke would conclude his speech with this statement:

  • *BERNANKE: HOW TO MANAGE ASSET PRICE DROP SCENARIO MORE CRUCIAL

  Why would asset prices drop if they are not mispriced?

  

  

  
  
  

  

• Another Decapitator-in-Chief Of America's Working Class

  Submitted by Ben Tanosborn,

  It is not Senators Elizabeth Warren and Bernie Sanders who don’t get it.  It is our near-sighted Globalist-in-Chief who really doesn’t get it, following in the footsteps of that other Republican-lite president, William Jefferson Clinton.  But what can one expect, given the advice he’s getting from a cadre of Wall-Streeters working with, or influencing, the White House?  Or, from a president who has confessed to being a “great admirer” of celebrated JP Morgan Chase chief, Jamie Dimon?

  A few days ago President Obama honored our Portland (Oregon) area with a visit to promote the Trans-Pacific Trade Partnership (TPP) agreement; which for all intents and purposes is but another addition to the gallery of NAFTA, CAFTA, and PNTR ugly siblings.  Perhaps an even uglier sibling in this period of expanding economic inequality!

  It seems comical, yet ill-omened, how Barack Obama is herding the already decimated middle class along a path sure to reach economic oblivion, while maintaining support from much of the old guard of school-government-trade unionists which has kept the Democratic Party afloat during the last five decades in a conservative sea dominated by currents of old-time religion and misguided patriotism.

  Common sense and humanity, and not just blind acceptance of global economics, tell us that eventually most barriers to competition should be coming down; and that there will be a significant trend towards greater homogenization in both productivity and personal income throughout much of world.  But we might still be two or three generations away from such happening, assuming changes take place in an orderly and least painful fashion… without allowing our politicians, Democrats or Republicans alike, to follow the will of the elite that place them in power… and, correspondingly, expect a payback.

  And that’s where we are today in Congress, ominously on the eve of passing this terrible TPP legislation sure to reach a smiling Obama, pen in hand ready to sign, instead of rejecting it with a forceful and merited veto.

  Could it be that Obama is suffering from the same illusionary political disease as Bill Clinton, after the latter’s receipt of unmerited kudos for all the low-paying jobs created during his two terms in office?  Is it so difficult to understand that job numbers can have a profoundly different significance in economic, social and political terms than labor income?

  Regardless of the POTUS’ misleading sermonizing on “what’s good for the United States,” the reality is acrimoniously different.  The anticipated net outsource of labor income sure to come from the TPP agreement is likely to be similar in results as past global renditions initiated with NAFTA.  The economic capillary effect of this agreement (TPP) will affect labor significantly, not just in the manufacturing sector (possibly losing half as many jobs as the number lost to China and the American hemisphere in the past two decades), but also in the service sector – and here, we are not referring to jobs in low remuneration call centers, but jobs with high technical skills in both medicine and engineering, which could result in the loss of half of the  now existing – and anticipated increases – programmer jobs; and a reduction in overall pay of the remaining half by a third or more.

  Other areas in Americans’ lives will also be affected or threatened, from food safety standards, to the environment, to increases in the already stratospheric cost of drugs, to the protection of rights and sovereignty that we’ve inherited from the sacrifice of past generations.

  So who’s to gain from this TPP agreement that Barack Obama is pushing with greater fervor than that exhibited in critical domestic issues such as immigration reform and the (dirty secret) racial divide?  As it’s always the case in our predatory society, Corporate America and its circle of influential friends are the culprit… and it’s beginning to look as if the villains will get their way: Wall Street, Big Pharma, and a long list of multinationals displaying their corporate flags at the top of the pole, knowing that their safety is in the good hands of the Pentagon; all international policing costs defrayed by the American taxpayer… in its incredible masochistic docility.

  

  ISIS’ literal style of decapitation is repugnant and shocking. US’ self-imposed economic decapitation may not appear at first as shocking, but the end result will be as gruesome to America’s working class: not the proletariat of old, but most everyone holding both blue and white collar jobs.

  

  

  
  
  

  

• Hanergy Contagion Sparks Chinese Investor Rotation From Shenzhen "Ponzi" To Shanghai "Safety"

  It appears the reality that we exposed in all its unbelievable ponzi-ness has filtered into the psyche of Chinese investors.. though ever so gently for now. Hanergy’s self-dealing self-referential loans collateralized by stock and Goldin financial’s farcical flop, along with 500% return year-to-date stocks by the dozen, has sparked some selling with CHINEXT down around 4%, Shenzhen down 1-2% (both heavily dominated by these high-flying idiot-maker stocks) while Shanghai Composite and CSI-300 (China A-Share proxy) is bid…

  

   

  because why wouldn’t you greatly rotate to the index that is only up 47% YTD and not 92%?

  

   

  Charts: Bloomberg

  

  

  
  
  

  

• From the Very Creation of the Internet, U.S. Spy Agencies Fought to Block Encryption

  American spy agencies have intentionally weakened digital security for many decades. This breaks the functionality of our computers and of the Internet. It reduces functionality and reduces security by – for example – creating backdoors that malicious hackers can get through.

  The spy agencies have treated patriotic Americans who want to use encryption to protect their privacy as extremists … or even terrorists.

  As Gizmodo’s Matt Novak points out, this attack started at the very birth of the internet:

  In the 1970s, civilian researchers at places like IBM, Stanford and MIT were developing encryption to ensure that digital data sent between businesses, academics and private citizens couldn’t be intercepted and understood by a third party. This concerned folks in the U.S. intelligence community who didn’t want to get locked out of potentially eavesdropping on anyone, regardless of their preferred communications method. Despite their most valiant efforts, agencies like the NSA ultimately lost out to commercial interests. But it wasn’t for lack of trying.

   

  ***

   

  When the NSA got wind of the research developments at IBM, Stanford and MIT in the 1970s they scrambled to block publication of their early studies. When that didn’t work, the NSA sought to work with the civilian research community to develop the encryption. As Stowsky writes, “the agency struck a deal with IBM to develop a data encryption standard (DES) for commercial applications in return for full pre-publication review and right to regulate the length, and therefore the strength of the crypto algorithm.”

   

  Naturally, in the Watergate era, many researchers assumed that if the U.S. government was helping to develop the locks that they would surely give themselves the keys, effectively negating the purpose of the encryption. Unlike IBM, the researchers at Stanford and MIT didn’t go along with the standard and developed their own encryption algorithms. Their findings were published (again, against the wishes of the NSA) in the late 1970s after courts found that researchers have the right to publish on the topic of cryptography even if it makes the government uncomfortable. According to Stowsky, the NSA retaliated by trying to block further research funding that Stanford and MIT were receiving through the National Science Foundation.

  Novak also notes that – right from the start – people realized the potential of the internet as a tool for conducting mass surveillance on the public. And see this, this and this.

  

  
  
  

  

• How iTunes Destroyed The Music Business In 1 Simple Chart

  The music industry was the first entertainment business to confront the digital transition, although it was not exactly a willing pioneer. Rather, it was thrust into this role as a matter of survival, as it grappled with the rapid rise of online piracy in the early 2000s.

  The music industry was incredibly slow to respond to the digital transition. Napster, the original music piracy site, burst onto the scene in 1999, but it wasn’t until 2004 when Apple iTunes debuted that consumers grew more and more primed to free music.

  This was a serious error and haunted the music industry for years thereafter, costing the industry multi-billions in annual sales. The rest of the entertainment industry has taken note and, as a result, all other entertainment sectors, including video, have been comparatively quick to embrace digital distribution.

  The music industry, rather than focusing on a legal digital download service, initially focused all its effort on shutting down Napster by way of a copyright infringement lawsuit. Ultimately, the industry prevailed and the courts shut down Napster in mid-2001; however, this was a pyrrhic victory. By the time Napster was shut down, the pirates had moved on to the next new thing: decentralized peer-to-peer file sharing, led by Gnutella. Unlike Napster, these piracy sites were virtually impossible to shut down because there was no central server storing the files. Shutting down Gnutella would have been tantamount to shutting down the entire internet.

  In addition to the failure to launch a legal alternative to the pirate sites, the music industry was, understandably, paralysed by its fear of album unbundling. Piracy had given consumers a taste for singles and there was no going back to albums.

  Against this backdrop of piracy and absent a legal digital alternative, music sales plummeted. From a peak of nearly US$15 bn in 1999, US music sales declined cumulatively by 15% to US$12 bn in 2003 (previous exhibit). The decline in song units (assuming 10 songs per album) was even more dramatic, declining by 29% cumulatively to 7.7 bn over the same time. Little did the industry know that this was only the beginning of the decline. By 2004, the music industry was in dire straits. Physical sales were in free fall and its own efforts to launch a digital download service were failing.

  

   

  Apple, with the dominant digital music player and superior software engineering skills, was a perfect partner (nay, savior) for the music industry, with Steve Jobs Achieving a very consumer-friendly retail price of US$0.99 per song and a wholesale price of US$0.70. This wholesale price was, in effect, a 30% price reduction from the implicit price per song on a physical album (i.e., US$10 album wholesale price, 10 songs per album).

  After a small bump in sales in 2004 from the launch of iTunes, the declines resumed as the double whammy of album unbundling and a 30% wholesale price cut took its toll. From 2004 to 2014, US music unit and dollar sales declined cumulatively by another 50%, erasing US$5 bn in annual sales.

  

  There is no rest for the weary, and the music industry is already confronting another digital transition, call it digital transition 2.0, in the form of online streaming. Song sales stabilised from 2010 to 2012, but have since resumed declining as music demand is now shifting from digital downloads (ownership) to online streaming (rentals), such as Pandora.

  Source: Goldman Sachs

  

  

  
  
  

  

• Ron Paul: The Case For Truly 'Free' Trade

  Submitted by Ron Paul via The Misess Institute,

  With recent DC politicking on both the Export-Import Bank and the Trans-Pacific Partnership, we revisit Ron Paul's 1981 essay "The Case for Free Trade" which explains the basics of truly free trade: 

  Although we think of ourselves as a free-trading nation, it takes more than 700 pages just to list all the tariffs on imported goods, and another 400 to inventory all the non-tariff restraints, such as quotas and "orderly marketing agreements."

   

  A tariff is a tax levied on a foreign good, to help a special interest at the expense of American consumers.

   

  A trade restraint or marketing agreement—on the number of inexpensive Taiwanese sneakers that Americans can buy, for example—achieves the same goal, at the same cost, in a less forthright manner.

   

  And all the trends are towards more subsidies for U.S. exporters, and more prohibitions and taxes on imports.

   

  Trade is to be subsidized or restrained, not left to the voluntary actions of consumers and producers.

   

  In 1930, Congress passed the Smoot-Hawley tariff bill, imposing heavy tariffs on imports, with the avowed motive of "protecting" U.S. companies and jobs. Within one year, our 25 major trading partners had retaliated with their own tariffs on American goods. World trade declined sharply, and the depression was made world-wide and longer-lasting.

   

  Today the policy of protectionism is again gaining favor in Congress, and in other countries. But it must be fought with all our strength.

   

  Not only does protectionism make everyone poorer—except certain special interests—but it also increases international tensions, and can lead to war.

   

  "If a foreign country can supply us with a commodity cheaper than we ourselves can make it," wrote Adam Smith in 1776, "better buy it of them with some part of the pro duce of our own industry, employed in a way in which we have some advantage. The general industry of the country will not therefore be diminished… but only left to find out the way in which it can be employed to the greater advantage."

   

  An important economic principle is called the division of labor. It states that economic efficiency, and therefore growth, is enhanced by everyone doing what he does best.

   

  If I had to grow my own food, make my own clothes, build my own house, and teach my own children, our family's living standard would plummet to a subsistence, or below-subsistence, level.

   

  …

   

  Every economic intervention in trade, domestic or foreign, should be abolished, for practical and moral reasons.

   

  Even if other countries maintain tariffs or subsidies, we would be helped, not hurt, by unilaterally ending ours.

   

  We would improve our productivity, shift resources to those areas where we 'have an advantage, grow more pros-perous, and make a greater variety of less-expensive goods available to our people.

   

  And we would serve the cause of peace and set a good example for the world to emulate.

   

  "When people and goods cross borders," Ludwig von Mises used to quote, "armies do not." Free and extensive trade, unsubsidized, between the peoples of the Earth lowers tensions and makes us all better off It is, morally and economically, the only proper policy.

  Read the full article here. 

  

  

  
  
  

  

• McDonalds Responds To Minimum Wage Protests

  But all they wanted was $15 per hour?

   

  

   

  h/t @Stalingrad_Poor

  

  

  
  
  

  

• Lake Mead Water Level Mysteriously Plunges After Nevada Quake

  A 4.8 magnitude earthquake (originally reported 5.4) shook Las Vegas and surrounding areas Friday morning causing roads and bridges to be closed. The quake went little-reported outside of local news (since there was at first glance minimum damage caused) but, since the quake’s occurrence, something considerably more worrisome has occurred.

  In the 36 hours since the quake’s occurrence, water levels at Lake Mead have plunged precipitously. While we know correlation is not causation, the ‘coincidence’ of an extreme loss in water levels occurring in the aftermath of one of the largest quakes in recent Vegas history does raise a suspicious eyebrow – especially when there has been no official word on the precipitous decline.

  The earthquake hit mid-morning on Friday:

  A 4.8 magnitude earthquake shook Las Vegas and surrounding areas Friday morning, forcing loose a rubber casing on a bridge and leading state officials to close Spaghetti Bowl interchanges for several hours.

   

  After the Nevada Department of Transportation inspected bridges for possible structural damage, they deemed the roads safe for travel and reopened them just before 5 p.m. Traffic had backed up for miles during the closures, which came at the start of the Memorial Day weekend.

   

  The quake, which hit at 11:47 a.m., was centered about 23 miles south-southwest of Caliente, the U.S. Geological Survey said. The magnitude was originally reported as 5.4, but the official number was lowered twice Friday.

   

  The ramp from southbound U.S. Highway 95 to southbound Interstate 15 was closed about 12:20 p.m. Friday, officials said.

   

  “The joint damage was pre-existing. The tremblor simply dislodged the protective rubber encasing the bridge seam making it look much worse than it was in reality” and prompting an immediate shutdown of the ramps, NDOT engineer Mary Martini said in a news release about 3:45 p.m.

  Since then, official water level data shows an incredible 8 foot plunge in water levels since the earthquake.

  

  considering the (average drop in the last 10 years is 1 inch, this is a troubling outlier.

  

  Source: Lake Mead Water Database,  h/t Professor Doom and Quasar

  There is , of course, a possibility that the drop is the result of broken sensors and we will be following up during the week to see if levels normalize.

  This is crucial since, as we noted previously,

  If the water level drops below 1,075 feet elevation by January 1, 2016, it will trigger a federal water emergency. And water rationing.

   

  Las Vegas Review Journal reported that forecasters expect the level to drop to 1073 feet by June, before Lake Powell would begin to release more water. Assuming “average or better snow accumulations in the mountains that feed the Colorado River – something that’s happened only three times in the past 15 years,” the water level on January 1 is expected to be barely above the federal shortage level.

   

  Even with these somewhat rosy assumptions of “average or better than average snow accumulations,” the water level would begin set new lows next April. But if the next winter is anything like the last few, all bets are off.

   

  If the level drops below 1050 feet, one of the two intake pipes for the Las Vegas Valley, which gets 90% of its water that way, will run dry.

  As Roman Catholic Imperialist notes, this is quite unprecedented… For a sense of just how bad things are gettiing, the following images will help…

   

  

   Lake Mead, July 2007 to July 2014

   

  

   Lake Mead, July 2007 to July 2014

   

  

  Lake Mead, July 2007 to July 2014

   

  Update: moments ago the Lake Mead National Recreation Area officially denied that the online reading was accurate blaming the water level collapse on inaccurate water levels as of this morning.
  

  Lake Mead’s elevation has NOT dropped to 1,068 feet. Some inaccurate data was posted online. We are at 1,077 feet. http://t.co/a0YUo9iD0P

  — Lake Mead (@LakeMeadNRA) May 24, 2015

  @jeffreyneillong This information is not accurate. The website had incorrect data this morning. It has been updated http://t.co/0ls3f4yoC5

  — Lake Mead (@LakeMeadNRA) May 24, 2015

  Dare we say it: double seasonally-adjusted water levels?

  

  

  
  
  

  

• Grexit "Disaster" Looms As Greek Hospitals Run Out Of Sheets, Painkillers

  The default countdown is about to go under 10 days and it is becoming increasingly apparent that both Greece and its creditors have had enough.

  Months of tense negotiations have gone nowhere and yielded exactly nothing and it now looks like PM Alexis Tsipras and FinMin Yanis Varoufakis may be willing to miss a June 5 payment to the IMF if it means proving they are serious about keeping their campaign promises and forcing the troika to the bargaining table. The implications of a missed payment aren’t entirely clear but Athens is keen to predict the worst as it tries to squeeze concessions from creditors. Bloomberg has more:

  A day after Prime Minister Alexis Tsipras said Greek society can’t absorb any more austerity measures, Finance Minister Yanis Varoufakis said his government has met the euro area and IMF three-quarters of the way, and that it’s up to creditors to cover the remainder.

   

  “Greece has made enormous strides reaching a deal, it is now up to the institutions to do their bit,” Varoufakis said Sunday on BBC’s Andrew Marr Show. “It is not in their interests as our creditors that the cow that produces the milk should be beaten into submission to the extent that the milk will not be enough for them to get their money back”…

   

  German Finance Minister Wolfgang Schaeuble, meanwhile, signaled there isn’t much wiggle room after Tsipras’s government committed to policy changes in return for aid in a euro-area accord on Feb. 20.

   

  “That is the condition for completing the current program,” Schaeuble said in a Deutschlandfunk radio interview aired Sunday. “The problems are rooted in Greece. And now Greece does have to fulfill its commitments.”

   

  Some members of Tsipras’s Syriza party advocate defaulting on loans rather than backing down from the anti-austerity policies that swept it to power in January even if that leads the country out of the euro.

   

  Greece doesn’t have the money, and won’t pay what it owes the IMF in June, Interior Minister Nikos Voutsis said in a Mega TV interview on Sunday. Spiegel Online on April 1 cited Voutsis as saying Greece should delay an April 9 payment to the fund, which was made.

   

  “We’ve done remarkably well for an economy that doesn’t have access to the money markets to meet our obligations,” Varoufakis said. “At some point we will not be able to do it.”

   

  “Once you are in a monetary union, getting out of it is catastrophic,” Varoufakis said. “It would be a disaster for everyone involved. It would be a disaster primarily for the Greek social economy but it would also be the beginning of the end of the common currency project in Europe, whatever some analysts might be saying.”

  And “whatever some analysts might be saying”, Greeks are now suffering mightily, as the €22 million per day hit to the economy has now bankrupted the country’s hospitals which have reportedly run out of painkillers and sheets. Here’s The Independent:

  Greek hospitals have run out of supplies such as painkillers, scissors and sheets as budget cuts have left the health service unable to provide even basic provisions for operations and medical procedures…

  Huge cuts to the healthcare budget, amid the economic turmoil which made millions unemployed, have left than 2.5m Greeks uninsured, up from 500,000 in 2008..

  healthcare spending has fallen by 25 per cent since 2009, creating shortages of the most basic surgical equipment and leaving too little money to pay nurses’ salaries.

  Reports have surfaced of patients being turned away from hospital because there was no meter to measure their high blood pressure, while others have had to do without painkillers during medical procedures. One patient was even asked to bring their own sheets to hospital.

  A trainee surgeon at KAT, a respected state hospital in Athens, said the situation was at “breaking point”.

  “There is no money to repair medical equipment, no money for ambulances to use for petrol, no money to hire nurses and no money to buy modern surgical supplies.”

  Meanwhile, Tsipras is steadfastly refusing to compromise on the now ubiquitous “red lines” and the most outspoken austerity advocates look to be entrenching themselves even further as the following quote from German FinMin Wolfgang Schaeuble makes clear:

  Greece committed itself to the fulfillment of this program on Feb. 20 and therefore we don’t need to talk about alternatives.

  Clearly, the end game is approaching although it’s till unclear what form it will take. The idea that a developed country cannot provide basic emergency medical care because it is in poor standing with the institutions that print a fiat currency is patently absurd and simply isn’t tenable meaning that one way or another, this ‘situation’ will resolve itself in the coming weeks, an event which will put Europe’s broken bond markets to a rather difficult test.

  

  

  
  
  

  

• The "New Era" Is An Old Story

  Excerpted from John Hussman's Weekly Market Comment,

  Among the recurring features of speculative episodes across history is the appearance of “new era” arguments to justify the elevated prices, coupled with arguments that historically reliable measures no longer apply. In our view, the problem is not that investors search for new, more reliable tools of market analysis – that should always be an objective. The problem is when investors adopt theories and models that embed the most optimistic assumptions possible, run contrary to historical evidence, or embed subtle peculiarities that actually drive the results (see, for example, the “novel valuation measures” section of The Diva is Already Singing). Eventually, the final refuge of speculation is to abandon historically reliable measures wholesale, resting faith instead on the advent of some new era in which the old rules simply don’t apply.

  John Kenneth Galbraith noted this phenomenon decades ago in his book The Great Crash 1929: “It was still necessary to reassure those who required some tie, however tenuous, to reality. This process of reassurance eventually achieved the status of a profession. However, the time had come, as in all periods of speculation, when men sought not to be persuaded by the reality of things but to find excuses for escaping into the new world of fantasy.”

  In late-1929, Business Week observed: “This is the longest period of practically uninterrupted rise in security prices in our history… The psychological illusion upon which it is based, though not essentially new, has been stronger and more widespread than has ever been the case in this country in the past. This illusion is summed up in the phrase ‘the new era.’ The phrase itself is not new. Every period of speculation rediscovers it… During every preceding period of stock speculation and subsequent collapse business conditions have been discussed in the same unrealistic fashion as in recent years. There has been the same widespread idea that in some miraculous way, endlessly elaborated but never actually defined, the fundamental conditions and requirements of progress and prosperity have changed, that old economic principles have been abrogated… that business profits are destined to grow faster and without limit, and that the expansion of credit can have no end.”

  “This time” is not different. There’s no question that investors have come to believe that somehow quantitative easing has durably changed the world – that central banks have (or even can) put a floor under the markets as far as the eye can see. But if you examine the persistent and aggressive easing by the Fed during the 2000-2002 and 2007-2009 plunges, it’s clear that monetary easing has little effect once investor preferences shift toward risk aversion –which we infer from the behavior of observable market internals and credit spreads. Monetary easing only provokes yield-seeking speculation when low-interest money is viewed as an inferior asset.

  It’s not monetary easing, but the attitude of investors toward risk that distinguishes an overvalued market that continues higher from an overvalued market that is vulnerable to vertical losses. That window of vulnerability has been open for several months now, and the immediacy of our downside concerns would ease (despite obscene valuations) only if market internals and credit spreads were to shift back toward evidence of investor risk-seeking.

  Zero interest rate policy has two effects on the financial markets. One is legitimate – every year in which short-term interest rates are expected to be zero instead of say, a typical 4%, should reasonably warrant a 4% valuation premium in stocks and bonds, over and above run-of-the-mill historical norms (one can demonstrate this using any discounted cash flow approach). So if investors expect short-term rates to be zero for another 4 years, it would be reasonable for stocks and bonds to be about 16% higher than historical valuation norms. At present, the most historically reliable measures we identify suggest that S&P 500 valuations are more than twice their pre-bubble norms.

  The other effect of zero interest rate policy is pure delusion. It is to convince investors that there is some miraculous support, "endlessly elaborated but never actually defined," that places a floor under the financial markets. By creating that delusion, investors become prone to “carry trade” speculation – buying any risky security that offers a yield better than zero. That carry trade mentality can only survive in a world where the possibility of capital loss is quietly assumed away.

  Our view is simple. The U.S. stock market is in the third valuation bubble of the past 15 years, which is likely to be resolved by losses similar to the outcomes we observed in the first two. In the face of constant cheerleading in 2000 based on theories and valuation measures that were historically unfounded, I wrote in February of that year:

  “If you turn off CNBC and think about the market independently for even a few minutes, it is clear that this market displays none of the conditions which have historically been followed by sustained market advances, and all of the conditions which have historically been followed by market crashes. The aphorism ‘Buy low, sell high’ has long been discarded. The replacement ‘Buy high, sell higher’ has also been abandoned. The rallying cries of investors are now just ‘Buy’ and ‘Get me in!’

   

  “Are we the only sane people on the planet? While investors are conditioned to think that ‘extreme risk’ means 15-20% downside, let’s not be shy… we expect a 50% plunge in the S&P 500 by the time this cycle is over. Fortunately, investors who decide to buy on a 15% drop will only lose about 41%, and investors who hold out for a 20% drop before buying will only lose about 38% by the bottom. That’s how the math works… So that’s the good news. The bad news is that the more speculative sectors of the market are likely to be hit harder… The difficult part of all of this is the short term. I have no answer for that, except that in each prior instance, every scrap of short-term gain was wiped out in the eventual downturn."

  As it happened, yes, we were evidently among the only sane people on the planet. The S&P 500 went on to lose half of its value by October 2002, while the Nasdaq 100 lost 83% of its value. We expressed similar concerns (and projections of potential loss for the S&P 500) in 2007, which were validated in the financial crisis that followed.

  I can write this a thousand times, but we’re still regularly asked questions that implicitly assume that we’ve neither learned anything, nor addressed anything as a result our challenge in the recent half-cycle since 2009. I’ll say this again: our central challenge was not the result of our valuation methods, which didn’t miss a beat (see Why Warren Buffett is Right and Why Nobody Cares). Rather, the challenge was the inadvertent result of my 2009 insistence on stress testing our methods of classifying return/risk profiles against Depression-era data. The ensemble methods that came out of that effort, while performing even better than our pre-2009 methods in full cycles across history, also subtly reduced the impact of various components we use to infer investor risk preferences. The one thing that QE did to make things legitimately “different this time" was to reduce the overlap between overvalued, overbought, overbullish syndromes and corresponding deterioration in market internals. Because those syndromes were historically a reliable warning of subsequent deterioration in market action, we responded too strongly when they emerged. Put simply, QE made that overlap unreliable. We imposed overlays in mid-2014 that essentially rule out a hard-negative outlook until that deterioration in market internals or credit spreads becomes evident (as it has at present).

  Don’t imagine that our stumble in this half-cycle makes current market valuations any less breathtaking. An advancing stock market is not evidence that stocks are not obscenely overvalued. If overvalued markets always crashed immediately, extreme overvaluation could never emerge in the first place. Instead, we have to ask a different question: what distinguishes an overvalued market that continues higher from an overvalued market that crashes? History repeatedly provides the same answer (which, like most discoveries, only seems “obvious” after you’ve figured it out). What distinguished the late-1990’s valuation bubble from the crash that followed that bubble? A shift in investor risk-preferences, as revealed by a subtle (and eventually profound) deterioration of observable market internals and risk measures. What distinguished the advance to the 2007 peak from the collapse that followed? A shift in investor risk-preferences, as revealed by a subtle (and eventually profound) deterioration of observable market internals and risk measures. The same is likely to be the case in the present instance, and on historically reliable measures, that shift has already occurred. Our concerns about market risk will become less immediate if they were to improve. At present, the market remains vulnerable to losses similar to those we observed in 2000 and 2007.

  

  

  
  
  

  

• The Best-Selling 'Monetary-Policy' Books Are All Anti-Fed

  Interestingly, Amazon's list of best sellers in the "monetary policy" category is a veritable parade of anti-Fed and anti-central bank books.

  

   

  Having not read all of them, I certainly can't endorse all of them, and many of them surely contain questionable economics and fanciful claims about central banks. (Jim Grant's great new book is in there, though.)

  On the other hand, the fact that such books dominate the book sales in this category tells us a thing or two about how the near consensus of approval once enjoyed by the Fed (and other Western central banks) is long gone — thanks largely to Ron Paul's 2008 campaign.

  Had we a list like this from 10 or 15 years ago, it probably would have been dominated by books like Bob Woodward's Maestro, which basically made the case that Alan Greenspan was an inimitable genius.

  (You can pick up a hardback copy of Maestro for one cent, by the way.)

  

   

  Perhaps perfectly combining the two phrases "A penny for your thoughts" and "You get what you pay for"

  Source: The Mises Institute

  *  *  *

  And Ben Bernanke's not-released-yet Memoir is already discounted by 29%…

  

  

  

  
  
  

  

• The Fed's Perilous "Fake It Till You Make It" Strategy May Be Coming Home To Roost

  Submitted by Mark St.Cyr,

  We all know the difference between reality and wishful thinking. Many of us know just how quickly the jaws of reality can crush the life out of unicorn and fairytale stories when fiction is used to cover the facts. Where the businesses and happy customers that are supposedly represented on an income statement turn out to be little more than the Non-GAAP application of a fairy’s wand and pixie dust.

  However, this doesn’t stop people from buying in (literally) to the illusion. And what has far more onerous consequences is when the story tellers themselves begin to believe their own works of fiction.

  Since the financial meltdown of ’08 one thing has changed in ways never before seen in its voracity, let alone the sheer breath of complacency and acceptance to it. That “change” is what used to be reported or used as benchmarks of statistical data (whether it be of the government supplied sourced or other venue) and the outright publicly displayed willingness to adulterate them.

  Some will ask, “Is it really such a big deal? It’s not like reports haven’t been adjusted for decades, what’s the big deal now?”

  Part of that question is correct. Yes, we’ve always tried to “smooth” out data to get a more accurate read of what is actually transpiring within an economy and more. As a matter of fact whole companies as well as individuals have built well deserved reputations for doing just that and supplying that advice to businesses and others. However, what is taking place currently (in my opinion) is the practice of “goal-seeking” as in the manipulation of that data; and moving it closer in a perilous pursuit of another methodology that may have far more disastrous consequences e.g., “Fake it till you make it.”

  Personally I am all too well versed on this latter dictum. It is used extensively throughout the motivational speaking realm. The problem is not with the idea per se, it’s in the where, why, and how application that causes all the problems. Let me give you a quick example for clarity…

  Want to break a habit such as smoking and more? “Fake it till you make it” works perfect here and is absolutely a useful and beneficial frame of mind to accomplish that goal. For as soon as you decide to quit you can begin living and adapting your life to that as a person who doesn’t. Want to begin and start acting like a person of success? You can do the same.

  Where the dangerous version of using this example comes into play and is shouted from stages, and books too many to mention here, is when you’re advised to buy or spend (as well as kid yourself into believing this is how the rich do it) money you maybe can’t afford or, get into onerous long-term contracts and financing deals such as a high-end or exotic cars, or homes well above your current income as to “grow” into it. i.e., Fake it till you make it.

  Here is where “faking it” only works for so long because someone else comes along and “takes it back” with a Sheriff’s notice for non-payment. The landscape is littered with those who bought in (again literally) to this type of advice. And yet – this is exactly what is taking place in kind at the most powerful monetary body in the world e.g., The Federal Reserve.

  Just this past week the “data dependent” Fed. was supplied with the fantastic news that the Dept. of Commerce will now “double seasonally adjust” GDP data. i.e., if at first you don’t succeed – try, try again. This coincides with other reports now that have become outright jokes to anyone with a modicum of business acumen. e.g., The jobs reports, consumer spending, et al. Yet, all this data is exactly what the Fed. points to as confirmation why they should or should not alter or adjust monetary policy. I’m sorry, but this is no longer delirious or delusional economic policy and theories in action. This is out right dangerous.

  For how does one now solve the dilemma when investing or anything else market related when data has been flipped from adulterated, to inverted, to an inverted adulteration? (e.g., data was at first adjusted, then it took on the caveat of “bad is now good.” to now where it’s adjusted and can literally imply both good and bad)

  As much as that may seem like a play on words, I assure you it’s not. For in today’s markets all that matters is what the Fed. does and when. There is no longer anything approaching what was once known as “fundamental investing” in these markets. “Fundamental” is now nothing more – than front-running. Pure and simple.

  And with that now comes another dilemma in this duopoly: Who does the Fed. now want to believe? Their own numbers? (e.g., like those of the Atlanta Fed.) Or: the double seasonally adjusted, goal-seeked versions?

  One heralds: “Bad news is good, and worse is fantastic!” implying the Fed. is hamstrung to the zero bound along with keeping the narrative alive for the possibility of a resurgence of QE. And the other portends: “Bad news is now going to be adjusted to show good, and better news will be seen as “mission accomplished” releasing the Fed. to both raise rates sooner, and possibly faster, than the market anticipates. Welcome to your new version of “clarity” as portrayed by current Fed. speak.

  The argument can be made (in which I’m trying to do just that) as of this week: all “clarity” as to what any relevant data point used and professed by the so-called “smart crowd” as to infer what the Fed. may, or may not do, in the coming months – has been completely and outright nullified. The Fed. by virtue of their own clarifying distinctions when they moved from “patient” to “data dependent” means one will lose their minds (as well as money) let alone patience as they now try to extrapolate what data point the Fed. now views as determinant.

  Let’s use a very possible (if not plausible) example to express the above today, in real-time…

  You are a fund manager with a considerable amount of money at risk within the markets whether private or customer funded. As of last Monday you were of the mindset along with the group think based upon confirmation expressed by “clarity” statements emanating from the Fed. that “data” is what will determine their policy adjustments. And so, with the narrative of “bad news is good news for stocks” you are fully exposed to equities. That has been the bread and butter trade of “insight” for nearly 6 years.

  However, just days ago (going into a long holiday weekend) you just learned: the remaining “data points” that helped buttress those assumptions (i.e., deteriorating macro data points) are now going to be “double seasonally adjusted” as to show that maybe in the eyes of those discerning those numbers – they just aren’t as bad as they first portended to be. Now what?

  Are you so sure the Fed. won’t raise rates in June? Maybe they won’t, maybe they won’t this year, or in our lifetime. Who knows. However, exactly who is this “data” being adjusted for to show more “clarity?” The public at large? Or – The Fed? And if it’s the latter; then all previous assumptions of what, why, when, and how are now moot. Welcome to where double speak aligns with goal-seeked expressed via Fed. speak. Good luck with any clarity in that equation. Let alone what the headline reading, algorithmic front-running arsenal of HFT vacuum tubes will now interpret it.

  The Fed. embarked on the greatest experiment in the history of monetary policy based on the ultimate “fake it till you make it” strategy. They have openly stated the underlying premise (or illusion) why it was pursuing this path was for: The wealth effect. However, as with most that ever followed this type of strategy without fully comprehending the dangers – trouble is now lurking around every corner.

  What was once implied as “good” can now mean just that, which in turn means bad for stocks. What was said as being “transitory” can now mean to have lasting repercussions to stock values. What was earlier programmed and algo fueled to mean “buy, buy. buy” could this Tuesday be flipped with a switch in code to mean “sell everything!” No one knows because “clarity” just took on a whole new meaning with “double seasonally adjusted.”

  The only one’s that may be more surprised with the coming ramifications to a “fake it till you make it” world of monetary policy are those that still believe it’s been their investing prowess over the last 6 years that’s been the force behind their performance. For one thing will be certain.

  Will JBTFD (just buy the dip) work in the markets any longer when monetary policy has more in common with trying to figure out what the definition of “is” is? And if you’re confused going forward don’t feel bad. Just take solace in how confused the HFT headline reading algo’s will be going forward. Because as the volumes as well as market data shows:

  They’re the only one’s still in this market.

  

  

  
  
  

  

• Arab Spring 2.0: Wahhabis Go Nuclear

  This won't end well…

   

  

  Source: Townhall via Sunday Funnies

  * * *

  Pepe Escobar explains (via Global Research)…

  The serious possibility of a nuclear deal between Iran and the P5+1 is only a few weeks away – on June 30.

  So guess what the terminally paranoid House of Saud is up to: Lay their hands on a nuclear bomb to counteract the non-existent “Iranian bomb”, which Tehran, via Supreme Leader Ayatollah Khamenei, has consistently abhorred as un-Islamic, and wouldn’t have it anyway because of stringent inspections bound to be part of the final nuclear deal.

  The proverbial “former Pentagon official” has leaked to a Rupert Murdoch paper that the House of Saud is bound to buy a ready-made nuclear bomb from Pakistan. The choice of media already offers a clue; Prince Alwaleed bin Talal is one of News Corporation’s leading shareholders.

  The “why now?” concerning the leak is pretty obvious. Yet the whodunit is hazier territory.

  Meanwhile, adding fuel to the jihadi fire, as the Wahhabis in Riyadh dream of going — literally — nuclear their faith brothers across “Syraq” are going figuratively nuclear, adding victory after victory on the ground; from the assault on Palmyra, the Silk Road-era jewel of the desert in Syria, to the fall of Ramadi in the former “triangle of death” in Iraq.

  The “Iranian bomb” was never really an issue for successive U.S. administrations; only a convenient pretext to box in, harass, sanction and “isolate” the Islamic Republic, the former “gendarme” of the Gulf in the Shah era. The U.S. government always knew nuclear bombs can be bought on the black market; so whether Tehran could develop a nuclear weapon was irrelevant.

  The House of Saud, for its part, may — and the operative concept is “may” — already have a bomb, for a long time now, to offset Israel. And they “may” have paid Islamabad for it. There is no conclusive proof.

  What’s certain is that the — non-existent — “Iranian bomb” is where the House of Saud, other GCC minions and, crucially, Bibi Netanyahu’s extremist, fundamentalist Israeli government converge; they all consider it an “existential threat” to their survival.

  The problem is we can’t just dismiss outbursts of the type as mere instances of geopolitical surrealism. A running myth — very popular in the Beltway — goes that Riyadh’s got some credit with Islamabad as the House of Saud invested billions of dollars in the 1970s to develop the Pakistani nuclear program, which was a counterpunch against the Indian nuclear program.

  Already on December 2011, the House of Saud announced publicly that it was pursuing a nuclear bomb. But only as the possibility of an Iranian nuclear deal advanced they started to embark in a wag the dog attempt to control U.S. foreign policy.

  Israel got into the game as early as November 2013, when the BBC reported on an alleged nuclear deal between Riyadh and Islamabad. A key quote was from a former head of Israeli military intel, Amos Yadlin; if Iran had a bomb, “the Saudis will not wait one month. They already paid for the bomb, they will go to Pakistan and bring what they need to bring.”

  Compare this with wily Prince Turki, former Saudi intelligence chief and close pal of one Osama bin Laden, who has always waved the possibility of a nuclear House of Saud. The last time was in fact in April, at the South Korean Asan Plenum; “Whatever the Iranians have, we will have, too.”

  The new Godfather of the Riyadh mob, King Salman, wanted Islamabad to provide troops for his ongoing war on Yemen. Islamabad said thanks but no, thanks. Instead, a nuclear deal might – and the operative word, once again, is “might” — have been struck. Naturally no high-ranking official in Riyadh or Islamabad will confirm any of this.

  Watch the Pakistani angle 

  King Salman is pretty much aware that in the event of ISIS/ISIL/Daesh achieving regime change in Syria – still a pretty remote possibility – the next in line would be the House of Saud.

  And then there’s the fact of Washington keeping those infamous 28 redacted pages of the 9/11 secret under wraps after all these years. So possessing a nuclear bomb might be as much an insurance policy against Washington as against the non-existent “Iranian bomb.”

  Beyond propaganda, the fact remains that several Masters of the Universe VIPs are positively fed up with the House of Saud on a number of key issues, most of all the Saudi oil price war decimating the U.S. shale oil industry.

  Still, the House of Saud would never be allowed to go — literally — nuclear — without a green light from Washington.

  The view from Pakistan helps to clear the haze. Pakistani nuclear project chief A.Q. Khan — with some support or at least acquiescence by Islamabad — did sell nuclear weapons technology to North Korea, Iran and Libya. Yet the whole Pakistani nuclear program cost less than $450 million. Scores of Pakistani analysts stress it was that cheap because Islamabad received help from China, not the House of Saud.

  Both Iran and Saudi Arabia are key Chinese energy suppliers. Both Iran and Pakistan will be key players in the emerging, Chinese-led New Silk Road(s) project. Islamabad would be extremely foolish to jeopardize its relationship with Beijing by providing a nuclear weapon which would be used to threaten a non-nuclear neighbor — Iran — that not only is a Chinese strategic ally but will play a key role into easing Pakistan’s energy problems, via the Iran-Pakistan (IP) pipeline, partly financed by — who else — Beijing.

  Watch the Battle of Ramadi – remixed

  Wahhabism as practiced in beheading-friendly Saudi Arabia is and will continue to be the ideological matrix of all forms of Salafi-jihadism let loose in the Middle East and beyond. That especially applies to its latest social media-friendly spectacular, ISIS/ISIL/Daesh.

  ISIS/ISIL/Daesh – to the “civilized world” consternation – has seized Ancient Silk Road pearl Palymra. UNESCO is “concerned.” The White House is “worried.” Palmyra is a strategic crossroads in the center of Syria which will allows the fake Caliphate to launch attacks in all directions and harass the Syrian government’s vital axis, from Damascus to Aleppo. They have already taken over the crucial Syria-Iraq border control point of al-Walid, in Syrian territory.

  Moreover, over a third of Palmyra’s 200,000 residents have already been turned into refugees. Hundreds have been made hostages. The macabre beheading show is on. Is the Empire of Chaos — which, in thesis, is at war with the fake Caliphate — doing anything to save Palmyra’s priceless Roman ruins from possible, imminent destruction by Wahhabi-drenched barbarians? Of course not.

  And the same applies to Ramadi, capital of Anbar province, roughly 110 km west of Bahgdad, which the U.S. did not “lose” because it never had. While ISIS/ISIL/Daesh gloated about their victory with megaphones at all the major mosques, the Pentagon was spinning this “is a fluid and contested battlefield”, and insisted on “supporting (the Iraqis) with air power.”

  Cue to gleaming Toyota convoys of Caliphate goons laughing their Kalashnikovs off while they make their mark on the “fluid and contested battlefield.” The Pentagon may “support” anything they want with “air power,” but bombing won’t disrupt the fluidity. The Pentagon has run out of targets. ISIS/ISIL/Daesh are not sitting ducks; they are an asymmetrical guerrilla very apt at redeploying in a flash.

  ISIS/ISIL/Daesh invested in a lot of strategic planning to take Ramadi. The symbolism is far-reaching; a major defeat not only for Baghdad but also for the “leading from behind” Empire of Chaos, even though a clueless Barack Obama insists “we are not losing” the fight against the Caliphate.

  Iraqi Prime Minister Haydar al-Abadi is finally starting to get the picture. He met with leaders of key Shi’ite militias — who will have to do the heavy lifting crossing the Euphrates and trying to retake Ramadi before the Caliphate goons decide to advance towards holy Karbala, which holds the tomb of Imam Hussein, the martyred grandson of Prophet Muhammad. It’s a race against time because ISIS/ISIL/Daesh may also try to control nearby Iraqi military bases and weapons depots.

  As for Sunni tribal sheikhs around Ramadi willing to fight the Caliphate, they were — and remain — fuming because they never received promised weaponry from Baghdad. Besides, no one knows why the Iraqi Army on site did not get air support; helicopter gunships would have turned scores of Caliphate goons into minced meat.

  Al-Abadi finally acted by removing his early ban for the Shi’ite militias to operate in hardcore Sunni Anbar province; they did that in the first place obeying a command by revered Ayatollah Sistani.

  Meanwhile, the head of the Badr Corps and overall commander of the Shi’ite militas, Hadi al-Ameri, is sure that taking back Ramadi is easier than campaigning north of Baghdad in Salahuddin province — where the militias, alongside the Iraqi Army, recaptured Tikrit and Beiji from ISIS/ISIL/Daesh. In both cases, Empire of Chaos bombing played a minimal role.

  Al-Abadi also met with Iranian defense minister, Brig. Gen. Husain Dehqan, in Baghdad; he stressed both Iran and Iraq are fighting (Sunni) terrorist extremism; and crucially, he said, “we do not support the war on Yemen,” which puts Baghdad in direct conflict with Riyadh.

  It gets even better; al-Abadi has gone to Moscow, where he hopes to get plenty of support — and weapons. After all, ISIS/ISIL/Daesh is crammed with Chechens. Moscow wants the Caliphate smashed; as it thrives, there is a direct threat of a jihadi renewal in Chechnya.

  So now the stage is set for the Battle of Ramadi — remixed; Shi’ite militias plus Sunni tribals, the odd American adviser, and discreet help from Iran and Russia, against Caliphate goons, many of them mercenaries, lavishly supported by assorted wealthy Wahhabis in Saudi Arabia and across the Gulf. As far as the Empire of Chaos goes, Divide and Rule remains the sweetest game in town.

  

  

  
  
  

  

• Greece Is On The Ragged Edge: Bloodied Idealogues Vs. Bloodthirsty Technocrats

  Submitted by Bruno de Landevoisin via StealthFlation.org,

  

  On the grave Greek question, it appears that the moment of truth is finally upon us. After nearly four months of frenetic, fruitless and often feckless high level deliberations and negotiations, both sides remain essentially at an impasse, right where they started.  The technocrats in Brussels want to see their austerity driven reform program carried forward and implemented unconditionally.  As for the idealogues in Athens, they have pledged to put forth their own enlightened approach to rescue their sinking society.

  The Technocrats hold the purse strings, but the Ideologues hold the heart strings.  For what it’s worth, that is typically a highly combustible combination, tick tock.  With their recent cocksure bravado, are the Technocrats entirely misreading the desperate determination of the Idealogues?  Get ready for yet another Euro Summer swoon………

  Everyone agrees that Greece, under a corrupt political oligarchy, grossly abused its privileges as a Eurozone member.  In fact, with the help of a few sleazy sophisticated Goldman Sachs financiers, they actually cheated on their application forms in order to join the exclusive club to begin with. The illegitimate Ionian books were cooked from the get go, and it only got worse and worse over time. The self serving political elites and their self-seeking sponsors at multinational banks and corporations ran up a massive tab, while their ill-fated nation did not have the wherewithal to pay the astronomical bills.

  That is essentially what happened here.  Oh, and the parties specifically involved all happened to personally get rather wealthy themselves along the way.

  Check out the mess they left:

  

  Along with the privilege of leadership comes responsibility.  That clearly seems to have gone out the window here.

  There can be little doubt that the predatory international banking institutions was clearly complicit, along with the disgracefully corrupt Greek politicians and high ranking government officials, as well as most of the Ionian elites at the highest levels of society in the near total abrogation of their financial responsibilities to their country. They completely failed the common man in this regard, who naturally assumed their leaders knew what the hell they were doing, and quite understandably counted on them for proper sustainable fiscal governance.

  So, I have a simple question.  Why should the brunt of the demanded reforms fall on those least responsible for the mess, and most vulnerable?  Surely, the provincial woman on the streets of Athens pushing her Gyro cart up the steep hills of Kolonaki is far less responsible for the lamentable state of affairs her beloved country finds itself in, then those in the positions of leadership whom should have clearly known better.  Yet, today she is the one being asked to bear the burden of the terribly onerous predicament her Nation is suffering through.  Meanwhile, the bankers want more Euros, and no one is buying her Gyros.

  Seems to me the wealthy Greek political class, the int’l financial establishment and the EU political leadership bear the lion share of the responsibility here.  Yet, instead of facing up to the mess they presided over and largely created, by putting forth workable resolutions to the debt death spiral effectively consuming Greece, what I have mostly witnessed over the past four months is that same establishment circling the wagons, doing everything in their power to delegitimize the SYRIZA leadership and further cripple their already stressed banking system.  I guess the best defense is a flat out offensive.  Is this what passes for inspired leadership in this day and age?

  Moreover, do we really need to hear these “free market” frauds opine from the peanut gallery on the difficult matter at hand:

  A Greek exit from the euro is just a matter of time and wouldn’t lead to the breakup of monetary union, former Federal Reserve Chairman Alan Greenspan told Het Financieele Dagblad in an interview published Saturday. An exit could make the euro stronger, billionaire investor Warren Buffett said in an interview in the Euro-am-Sonntag newspaper.

  I’m certainly no socialist, but if this is what today’s crony capitalism continues to spawn, I’m definitely no longer taking part.  A romantic quote from Jimi Hendrix’s comes to mind…….

  “When the power of love overcomes the love for power, only then will the world change.”

  When are we going to wake up?  It’s high time for honest enlightened free market capitalism! Enough of this crony capitalism crap already!   The entire financialized abominNation is a national disgrace.

  As for me, I would be more than happy to see the cradle of democracy put the imperial autocrats and financial kleptocrats in their place, teaching them a thing or two about enlightened self governance.  Perhaps the ascent of Alexis Tsipras simply reflects the frustration of the everyday Greek citizen, completely fed up with their notoriously corrupt self serving political class oligarchy, the self seeking autocrats in Brussels and self interested banking elites that keep offering up the same poison pill to cure a lethal debt epidemic that they themselves were central to spreading around the globe in the first place.

  

  
  
  

  

• WaRReN BuFFeT EXPLaiNS NaSH EQuiLiBRiuM

  

  
  
  

  

• We Have Entered The Mania Phase: Market Complacency Has Never Been Higher

  More than merely a subjective, psychological state, the complacency of market participants can be effectively quantified, which is precisely what Deutsche Bank’s David Bianco has done by looking at the ratio of the market’s P/E to implied vol or VIX.

  As Bianco notes, “our PE/VIX market emotion indicator climbed to 1.3 on S&P trailing PE of 18 and 3m avg VIX of 14. A level between 1.2-1.5 signals complacency. There was similar complacency going into summer last year, with S&P trailing PE at 17.5 and a calm market kept VIX at 10-14. The complacency persisted to July but then faded as the risk of higher yields came on falling unemployment, but yields ultimately stayed subdued preventing any major summer sell-off. Yet a selloff began in late Sept as oil prices started cracking and the dollar climbing.”

  And while the 3M trailing average may be at “only” at 1.30 suggesting prevailing complacency, the chart below shows that on a daily basis, the PE/VIX ratio just hit 1.49x – it has never been higher, and again based on DB’s estimation, market sentiment has now crossed from the complacency zone into outright Mania.

  The last time this ratio was at the current level: late 2007/early 2008, just before the Fed had to launch a multi-trillion bailout to save capitalism as we know it.
  

  

  So is a correction imminent? Depends on one’s definition: Deutsche sees the probability of a 5% correction as “high”, although the question is whether the S&P will slide by 10% or more in the coming months. One look a the chart below shows that it has been over three calendar years or 916 trading days since the last 10% market drop, the third longest period in history without a 10% drop, so yes: one could say we are indeed overdue.

  

  From DB:

  We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven’t had a 5%+ dip this year. Historically 5%+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed expressing firm intentions to hike in Sept.

  Of course, the time since a 10% correction would have been far, far shorter had Bullard not popped up in October when the market had plunged 9.8% in the matter of days, only for the Fed “hawk” to suggest that should the market selloff continue, the Fed can always do QE4.

  Which is why even a token 10% market correction here could be catastrophic: since the BTFD and BTFATH “mentality” is now purely driven by faith that the Fed will never let the market drop again, anything suggesting a loss of control by the market could become a self-fulfilling prophecy, and all those who suggest that a 10% drop is just what the market needs, is cathartic and so on, may find that suddenly there is not a single BTFDer left once stocks do drop by 10.1% or more…

  

  

  
  
  

  

• On Memorial Day, Who Is America's True Superhero

  On such a ‘patriotic’ weekend, we thought it appropriate to consider who is the ‘MVP’ superhero of our time. Captain America? No. How about Ironman? No. What about Superman? Nope… The most valuable superhero of our time is a dark, deranged masked-human dressed in black…

   

  Batman.

  

   

  Source: Goldman Sachs

  

  

  
  
  

  

• China Establishes World's Largest Physical Gold Fund

  While many eagerly await the day when China will finally reveal its latest official gold holdings, a number which when made public will be orders of magnitude higher than its last 2009 disclosure of just over 1,000 tons, or less even than Russia, China continues to plough ahead with agreements and arrangements to obtain even more gold in the coming years.

  Exhibit A: two weeks ago, Xinhua reported that China National Gold Group Corporation announced it has signed an agreement with Russian gold miner Polyus Gold to deepen ties in gold exploration. The companies will cooperate in mineral resource exploration, technical exchanges and materials supply, the largest gold producer of China said.

  Polyus Gold is the largest gold producer in Russia and one of the world’s top 10 gold miners.

   

  The agreement between the two gold miners is one of many deals signed between China and Russia in energy, transportation, space, finance and media exchanges during President Xi Jinping’s visit to Russia from May 8 to May 10.

   

  “China’s Belt and Road Initiative brings unprecedented opportunities for the gold industry. There is ample room for cooperation with neighboring countries, and we have advantages in technique, facilities, cash, and talents,” said Song Xin, general manager of China National Gold Group Corporation.

  In light of such developments, it is little wonder there has been increasing chatter in recent months that Russia and China are setting the stage for a gold-backed currency, in preparation for the day the Dollar reserve hegemony finally ends (a hegemony whose demise is accelerating with every incremental physical gold repatriation such as those of Germany, the  Netherlands, and now Austria).

  And now, Exhibit B: overnight Xinhua also reported that a gold sector fund involving countries along the ancient Silk Road has been set up in northwest China’s Xi’an City during an ongoing forum on investment and trade this weekend. (read more about the “New Silk Road” which could change global economics forever here). The fund, led by Shanghai Gold Exchange (SGE), is expected to raise an estimated 100 billion yuan (16.1 billion U.S. Dollars) in three phases. The amount of capital allocated to nothing but physical gold purchases (without plans for financial paper intermediation a la western ETFs) will be the largest in the world.

  The billions of dollars in allocated funding will come from roughly 60 countries that have invested in the fund, which will in turn facilitate gold purchase for the central banks of member states to increase their holdings of the precious metal, according to the SGE.

  As Xinhua notes, China is the world’s largest gold producer, and also a major importer and consumer of gold. Among the 65 countries along the routes of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, there are numerous Asian countries identified as important reserve bases and consumers of gold.

  “China does not have a big say in gold pricing because it accounts for a small share of international gold trade,” said Tang Xisheng of the Industrial Fund Management Co. “Therefore, the Chinese government seeks to increase the influence of RMB in gold pricing by opening the domestic gold market to international investors.”

  As a reminder, the reason why China has been aggressively building out and expanding its Shanghai Gold Exchange is precisely that: to shift the global gold trading center away from London (and certainly the US where only paper gold is relevant these days) and to its own native soil: China’s ambition is nothing short of becoming the world’s new gold trading hub.

  In other to do that, it is already setting up the regional infrastructure to facilitate such a goal: according to Tang, the fund will invest in gold mining in countries along the Silk Road, which will increase exploration in countries such as Afghanistan and Kazakhstan.

  The good news for China is that with the BIS and virtually all “developed” central banks in desperate need of keeping the price of gold as low as possible while they debase their own paper currencies to unprecedented levels over fears of faith in fiat evaporating, China’s gold fund will be able to procure gold for its members at a very reasonable price until such time as the lack of physical gold supply can no longer be swept away by mere paper shorting of the yellow metal.

  

  

  
  
  

  

Digest powered by RSS Digest

• WoRLD TuRTLe DaY 2015

  

  
  
  

  

• Never Forget The Price Of Freedom

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  
  
  

  

• The Original Chechnya Bombers – The CIA, The Saudis And Bin Laden

  Authored by F. William Engdahl via New Eastern Outlook,

  What if Putin is Telling The Truth?

  On April 26 Russia’s main national TV station, Rossiya 1, featured President Vladimir Putin in a documentary to the Russian people on the events of the recent period including the annexation of Crimea, the US coup d’etat in Ukraine, and the general state of relations with the United States and the EU. His words were frank. And in the middle of his remarks the Russian former KGB chief dropped a political bombshell that was known by Russian intelligence two decades ago.

  Putin stated bluntly that in his view the West would only be content in having a Russia weak, suffering and begging from the West, something clearly the Russian character is not disposed to. Then a short way into his remarks, the Russian President stated for the first time publicly something that Russian intelligence has known for almost two decades but kept silent until now, most probably in hopes of an era of better normalized Russia-US relations.

  Putin stated that the terror in Chechnya and in the Russian Caucasus in the early 1990’s was actively backed by the CIA and western Intelligence services to deliberately weaken Russia. He noted that the Russian FSB foreign intelligence had documentation of the US covert role without giving details.

  What Putin, an intelligence professional of the highest order, only hinted at in his remarks, I have documented in detail from non-Russian sources. The report has enormous implications to reveal to the world the long-standing hidden agenda of influential circles in Washington to destroy Russia as a functioning sovereign state, an agenda which includes the neo-nazi coup d’etat in Ukraine and severe financial sanction warfare against Moscow. The following is drawn on my book, “The Lost Hegemon” to be published soon…

  CIA’s Chechen Wars

  Not long after the CIA and Saudi Intelligence-financed Mujahideen had devastated Afghanistan at the end of the 1980’s, forcing the exit of the Soviet Army in 1989, and the dissolution of the Soviet Union itself some months later, the CIA began to look at possible places in the collapsing Soviet Union where their trained “Afghan Arabs” could be redeployed to further destabilize Russian influence over the post-Soviet Eurasian space.

  They were called Afghan Arabs because they had been recruited from ultraconservative Wahhabite Sunni Muslims from Saudi Arabia, the Arab Emirates, Kuwait, and elsewhere in the Arab world where the ultra-strict Wahhabite Islam was practiced. They were brought to Afghanistan in the early 1980’s by a Saudi CIA recruit who had been sent to Afghanistan named Osama bin Laden.

  With the former Soviet Union in total chaos and disarray, George H.W. Bush’s Administration decided to “kick ‘em when they’re down,” a sad error. Washington redeployed their Afghan veteran terrorists to bring chaos and destabilize all of Central Asia, even into the Russian Federation itself, then in a deep and traumatic crisis during the economic collapse of the Yeltsin era.

  In the early 1990s, Dick Cheney’s company, Halliburton, had surveyed the offshore oil potentials of Azerbaijan, Kazakhstan, and the entire Caspian Sea Basin. They estimated the region to be “another Saudi Arabia” worth several trillion dollars on today’s market. The US and UK were determined to keep that oil bonanza from Russian control by all means. The first target of Washington was to stage a coup in Azerbaijan against elected president Abulfaz Elchibey to install a President more friendly to a US-controlled Baku–Tbilisi–Ceyhan (BTC) oil pipeline, “the world’s most political pipeline,” bringing Baku oil from Azerbaijan through Georgia to Turkey and the Mediterranean.

  At that time, the only existing oil pipeline from Baku was a Soviet era Russian pipeline that ran through the Chechen capital, Grozny, taking Baku oil north via Russia’s Dagestan province, and across Chechenya to the Black Sea Russian port of Novorossiysk. The pipeline was the only competition and major obstacle to the very costly alternative route of Washington and the British and US oil majors.

  President Bush Sr. gave his old friends at CIA the mandate to destroy that Russian Chechen pipeline and create such chaos in the Caucasus that no Western or Russian company would consider using the Grozny Russian oil pipeline.

  Graham E. Fuller, an old colleague of Bush and former Deputy Director of the CIA National Council on Intelligence had been a key architect of the CIA Mujahideen strategy. Fuller described the CIA strategy in the Caucasus in the early 1990s: “The policy of guiding the evolution of Islam and of helping them against our adversaries worked marvelously well in Afghanistan against the Red Army. The same doctrines can still be used to destabilize what remains of Russian power.”6

  The CIA used a dirty tricks veteran, General Richard Secord, for the operation. Secord created a CIA front company, MEGA Oil. Secord had been convicted in the 1980s for his central role in the CIA’s Iran-Contra illegal arms and drugs operations.

  In 1991 Secord, former Deputy Assistant Secretary of Defense, landed in Baku and set up the CIA front company, MEGA Oil. He was a veteran of the CIA covert opium operations in Laos during the Vietnam War. In Azerbaijan, he setup an airline to secretly fly hundreds of bin Laden’s al-Qaeda Mujahideen from Afghanistan into Azerbaijan. By 1993, MEGA Oil had recruited and armed 2,000 Mujahideen, converting Baku into a base for Caucasus-wide Mujahideen terrorist operations.

  General Secord’s covert Mujahideen operation in the Caucasus initiated the military coup that toppled elected president Abulfaz Elchibey that year and installed Heydar Aliyev, a more pliable US puppet. A secret Turkish intelligence report leaked to the Sunday Times of London confirmed that “two petrol giants, BP and Amoco, British and American respectively, which together form the AIOC (Azerbaijan International Oil Consortium), are behind the coup d’état.”

  Saudi Intelligence head, Turki al-Faisal, arranged that his agent, Osama bin Laden, whom he had sent to Afghanistan at the start of the Afghan war in the early 1980s, would use his Afghan organization Maktab al-Khidamat (MAK) to recruit “Afghan Arabs” for what was rapidly becoming a global Jihad. Bin Laden’s mercenaries were used as shock troops by the Pentagon and CIA to coordinate and support Muslim offensives not only Azerbaijan but also in Chechnya and, later, Bosnia.

  Bin Laden brought in another Saudi, Ibn al-Khattab, to become Commander, or Emir of Jihadist Mujahideen in Chechnya (sic!) together with Chechen warlord Shamil Basayev. No matter that Ibn al-Khattab was a Saudi Arab who spoke barely a word of Chechen, let alone, Russian. He knew what Russian soldiers looked like and how to kill them.

  Chechnya then was traditionally a predominantly Sufi society, a mild apolitical branch of Islam. Yet the increasing infiltration of the well-financed and well-trained US-sponsored Mujahideen terrorists preaching Jihad or Holy War against Russians transformed the initially reformist Chechen resistance movement. They spread al-Qaeda’s hardline Islamist ideology across the Caucasus. Under Secord’s guidance, Mujahideen terrorist operations had also quickly extended into neighboring Dagestan and Chechnya, turning Baku into a shipping point for Afghan heroin to the Chechen mafia.

  From the mid-1990s, bin Laden paid Chechen guerrilla leaders Shamil Basayev and Omar ibn al-Khattab the handsome sum of several million dollars per month, a King’s fortune in economically desolate Chechnya in the 1990s, enabling them to sideline the moderate Chechen majority.21 US intelligence remained deeply involved in the Chechen conflict until the end of the 1990s. According to Yossef Bodansky, then Director of the US Congressional Task Force on Terrorism and Unconventional Warfare, Washington was actively involved in “yet another anti-Russian jihad, seeking to support and empower the most virulent anti-Western Islamist forces.”

  Bodansky revealed the entire CIA Caucasus strategy in detail in his report, stating that US Government officials participated in,

  “a formal meeting in Azerbaijan in December 1999 in which specific programs for the training and equipping of Mujahideen from the Caucasus, Central/South Asia and the Arab world were discussed and agreed upon, culminating in Washington’s tacit encouragement of both Muslim allies (mainly Turkey, Jordan and Saudi Arabia) and US ‘private security companies’. . . to assist the Chechens and their Islamist allies to surge in the spring of 2000 and sustain the ensuing Jihad for a long time…Islamist Jihad in the Caucasus as a way to deprive Russia of a viable pipeline route through spiraling violence and terrorism.”

  The most intense phase of the Chechen wars wound down in 2000 only after heavy Russian military action defeated the Islamists. It was a pyrrhic victory, costing a massive toll in human life and destruction of entire cities. The exact death toll from the CIA-instigated Chechen conflict is unknown. Unofficial estimates ranged from 25,000 to 50,000 dead or missing, mostly civilians. Russian casualties were near 11,000 according to the Committee of Soldiers’ Mothers.

  The Anglo-American oil majors and the CIA’s operatives were happy. They had what they wanted: their Baku–Tbilisi–Ceyhan oil pipeline, bypassing Russia’s Grozny pipeline.

  The Chechen Jihadists, under the Islamic command of Shamil Basayev, continued guerrilla attacks in and outside Chechnya. The CIA had refocused into the Caucasus.

  Basayev’s Saudi Connection

  Basayev was a key part of the CIA’s Global Jihad. In 1992, he met Saudi terrorist Ibn al-Khattag in Azerbaijan. From Azerbaijan, Ibn al-Khattab brought Basayev to Afghanistan to meet al-Khattab’s ally, fellow-Saudi Osama bin Laden. Ibn al-Khattab’s role was to recruit Chechen Muslims willing to wage Jihad against Russian forces in Chechnya on behalf of the covert CIA strategy of destabilizing post-Soviet Russia and securing British-US control over Caspian energy.

  Once back in Chechnya, Basayev and al-Khattab created the International Islamic Brigade (IIB) with Saudi Intelligence money, approved by the CIA and coordinated through the liaison of Saudi Washington Ambassador and Bush family intimate Prince Bandar bin Sultan. Bandar, Saudi Washington Ambassador for more than two decades, was so intimate with the Bush family that George W. Bush referred to the playboy Saudi Ambassador as “Bandar Bush,” a kind of honorary family member.

  Basayev and al-Khattab imported fighters from the Saudi fanatical Wahhabite strain of Sunni Islam into Chechnya. Ibn al-Khattab commanded what were called the “Arab Mujahideen in Chechnya,” his own private army of Arabs, Turks, and other foreign fighters. He was also commissioned to set up paramilitary training camps in the Caucasus Mountains of Chechnya that trained Chechens and Muslims from the North Caucasian Russian republics and from Central Asia.

  The Saudi and CIA-financed Islamic International Brigade was responsible not only for terror in Chechnya. They carried out the October 2002 Moscow Dubrovka Theatre hostage seizure and the gruesome September 2004 Beslan school massacre. In 2010, the UN Security Council published the following report on al-Khattab and Basayev’s International Islamic Brigade:

  Islamic International Brigade (IIB) was listed on 4 March 2003. . . as being associated with Al-Qaida, Usama bin Laden or the Taliban for “participating in the financing, planning, facilitating, preparing or perpetrating of acts or activities by, in conjunction with, under the name of, on behalf or in support of” Al-Qaida. . . The Islamic International Brigade (IIB) was founded and led by Shamil Salmanovich Basayev (deceased) and is linked to the Riyadus-Salikhin Reconnaissance and Sabotage Battalion of Chechen Martyrs (RSRSBCM). . . and the Special Purpose Islamic Regiment (SPIR). . .

   

  On the evening of 23 October 2002, members of IIB, RSRSBCM and SPIR operated jointly to seize over 800 hostages at Moscow’s Podshipnikov Zavod (Dubrovka) Theater.

   

  In October 1999, emissaries of Basayev and Al-Khattab traveled to Usama bin Laden’s home base in the Afghan province of Kandahar, where Bin Laden agreed to provide substantial military assistance and financial aid, including by making arrangements to send to Chechnya several hundred fighters to fight against Russian troops and perpetrate acts of terrorism. Later that year, Bin Laden sent substantial amounts of money to Basayev, Movsar Barayev (leader of SPIR) and Al-Khattab, which was to be used exclusively for training gunmen, recruiting mercenaries and buying ammunition.

  The Afghan-Caucasus Al Qaeda “terrorist railway,” financed by Saudi intelligence, had two goals. One was a Saudi goal to spread fanatical Wahhabite Jihad into the Central Asian region of the former Soviet Union. The second was the CIA’s agenda of destabilizing a then-collapsing post-Soviet Russian Federation.

  Beslan

  On September 1, 2004, armed terrorists from Basayev and al-Khattab’s IIB took more than 1,100 people as hostages in a siege that included 777 children, and forced them into School Number One (SNO) in Beslan in North Ossetia, the autonomous republic in the North Caucasus of the Russian Federation near to the Georgia border.

  On the third day of the hostage crisis, as explosions were heard inside the school, FSB and other elite Russian troops stormed the building. In the end, at least 334 hostages were killed, including 186 children, with a significant number of people injured and reported missing. It became clear afterward that the Russian forces had handled the intervention poorly.

  The Washington propaganda machine, from Radio Free Europe to The New York Times and CNN, wasted no time demonizing Putin and Russia for their bad handling of the Beslan crisis rather than focus on the links of Basayev to Al Qaeda and Saudi intelligence. That would have brought the world’s attention to the intimate relations between the family of then US President George W. Bush and the Saudi billionaire bin Laden family.

  On September 1, 2001, just ten days before the day of the World Trade Center and Pentagon attacks, Saudi Intelligence head US-educated Prince Turki bin Faisal Al Saud, who had directed Saudi Intelligence since 1977, including through the entire Osama bin Laden Mujahideen operation in Afghanistan and into the Caucasus, abruptly and inexplicably resigned, just days after having accepted a new term as intelligence head from his King. He gave no explanation. He was quickly reposted to London, away from Washington.

  The record of the bin Laden-Bush family intimate ties was buried, in fact entirely deleted on “national security” (sic!) grounds in the official US Commission Report on 911. The Saudi background of fourteen of the nineteen alleged 911 terrorists in New York and Washington was also deleted from the US Government’s final 911 Commission report, released only in July 2004 by the Bush Administration, almost three years after the events.

  Basayev claimed credit for having sent the terrorists to Beslan. His demands had included the complete independence of Chechnya from Russia, something that would have given Washington and the Pentagon an enormous strategic dagger in the southern underbelly of the Russian Federation.

  By late 2004, in the aftermath of the tragic Beslan drama, President Vladimir Putin reportedly ordered a secret search and destroy mission by Russian intelligence to hunt and kill key leaders of the Caucasus Mujahideen of Basayev. Al-Khattab had been killed in 2002. The Russian security forces soon discovered that most of the Chechen Afghan Arab terrorists had fled. They had gotten safe haven in Turkey, a NATO member; in Azerbaijan, by then almost a NATO Member; or in Germany, a NATO Member; or in Dubai–one of the closest US Allies in the Arab States, and Qatar-another very close US ally. In other words, the Chechen terrorists were given NATO safe haven.

  

  

  
  
  

  

• Mongolia – Finding its Feet Again

  By Chris at www.CapitalistExploits.at

  Frontier markets and volatility go together like bacon and eggs. Bursting with energy, chaotic and often smelly they lurch about like a young calf finding its legs.

  Mongolia could quite aptly be seen to be such a calf. Sometimes the calf lurches about and remains standing. Sometimes it falls over. Two years ago Mongolia fell over.

  

  To understand what originally drove Mongolia’s economy to post a blistering 17.3% growth rate in 2011 we need only look at the $6.6 billion investment into stage one of the enormous Oyu Tolgoi copper-gold project. OT, as it’s known, is owned 34% by the Mongolian Government with Turquoise Hill (TRQ) owning 66% of the project. Rio Tinto in turn controls TRQ by way of their 51% stake in TRQ.

  In February of 2011 Turquoise Hill Resources hit $21.75, valuing the company at $43.8 billion.

  What happens to Oyu Tolgoi has such a dramatic effect on the country as when in full operation the mine is expected to account for a third of the country’s GDP. This is truly unique. I don’t know of any other country in the world where a single project has such a dramatic impact on the economy.

  To understand why TRQ came to be valued like Uber we need to understand that the Oyu Tolgoi mine is expected to produce as much as 195,000 tons of copper and up to 700,000 ounces of gold in concentrates next year. At current prices this equates to $846M of gold and $1.2B of copper.

  In 2011, however, gold was trading at $1,800 and copper as high as $9,555 per tonne while today gold trades at $1,200 an ounce and copper $6,200 per tonne, so we can see that with those numbers another $1B would have been added back in 2011. You can see the graphical representation of TRQ’s share price together with the price of copper during this time frame.

  

  Now, anyone paying even a modicum of attention will see that TRQ has been oversold based only on the metrics of the copper and gold price. To understand why today TRQ is valued at just $9B and why the Mongolian economy has suffered while such riches sit on their doorstep we need only turn to – you guessed it – the government.

  The Government of Mongolia managed to grind the project to a halt for 2 years as disputes raged. I won’t go into all the details, as there is ample commentary on the internet about the dispute. Suffice to say that government by their very nature are parasitic entities, most of whom are about as practical as a curly ruler. In this respect the Mongolian government did not disappoint, holding dear to some of the central tenets of the state everywhere, namely economic ignorance and plain stupidity.

  What followed was a deafening roar as you could literally hear the money packing up and leaving on flights out of Chinggis Khaan airport. FDI collapsed to just $400 million last year, down from $4.5 billion in 2012, and the local currency, the tugrik, got body-slammed, falling from 1,200 to 1,900 against the dollar.

  Fast forward to present day and the new president has just signed a landmark deal finally resolving all issues with Rio Tinto.

  We have deep connections in the country and have a constant feed of information, and just over a month ago we received advance notification that things were turning around in Mongolia. I also hopped on the phone with our friend Harris Kupperman, the CEO of Mongolia Growth Group, to get his take on things. I recorded the call which you can listen to here.

  When I wrote my last post on the topic I mentioned that we were picking up some TRQ which was then trading at $3.73. Today at $4.50 a few weeks later we have to ask ourselves the obvious question: Are we on the brink of another run? While I’m not going to scoff at over 20% in just over a month the truth is we don’t invest in frontier markets for 20% gains. We invest for thousands of percent gains.

  Even though Mongolia fell over, like most calves, it is likely it will get back up again. Right now the odds seem to be decent that it is indeed doing so. It may be time to take a deeper look.

  Assets are dirt cheap, the currency has been crushed and it looks like we’re about to have the $5.4 billion underground expansion of the OT project finally proceed.

  We’re currently holding onto a small illiquid but traded company which has been growing 40% YoY in a really tough market for the last 2 years. They’ve been hit by the foreign exchange collapse but when, or indeed if capital begins coming back into the country then it’s companies such as this one which have the potential to really fly.

  We’ll have more on this topic and what we’re looking at there in the future.

  – Chris

   

  “In value investing, money is made after the crash, not before.” – Mark Mobius

  

  
  
  

  

• Guest Post: Unprecedented 'Mass Die Offs' As Pacific Ocean "Turning Into a Desert" Off California Coast

  Submiutted by Mac Slavo via SHTFPlan.com,

  

  “Ocean’s dying, plankton’s dying… it’s people. Soylent Green is made out of people. They’re making our food out of people. Next thing they’ll be breeding us like cattle for food. You’ve gotta tell them. You’ve gotta tell them!”

  It was the dying cry of Charlton Heston in the creepy 1973 film Soylent Green… and it could resemble our desperate near future.

  The ocean is dying, by all accounts – and if so, the food supply along with it. The causes are numerous, and overlapping. And massive numbers of wild animal populations are dying as a result of it.

  Natural causes in the environment are partly to blame; so too are the corporations of man; the effects of Fukushima, unleashing untold levels of radiation into the ocean and onto Pacific shores; the cumulative effect of modern chemicals and agricultural waste tainting the water and disrupting reproduction.

  A startling new report says in no uncertain terms that the Pacific Ocean off the California coast is turning into a desert. Once full of life, it is now becoming barren, and marine mammals, seabirds and fish are starving as a result. According to Ocean Health:

  The waters of the Pacific off the coast of California are a clear, shimmering blue today, so transparent it’s possible to see the sandy bottom below […] clear water is a sign that the ocean is turning into a desert, and the chain reaction that causes that bitter clarity is perhaps most obvious on the beaches of the Golden State, where thousands of emaciated sea lion pups are stranded.

   

  […]

   

  Over the last three years, the National Oceanic and Atmospheric Administration (NOAA) has noticed a growing number of strandings on the beaches of California and up into the Pacific north-west. In 2013, 1,171 sea lions were stranded, and 2,700 have already stranded in 2015 – a sign that something is seriously wrong, as pups don’t normally wind up on their own until later in the spring and early summer.

   

  “[An unusually large number of sea lions stranding in 2013 was a red flag] there was a food availability problem even before the ocean got warm.” Johnson: This has never happened before… It’s incredible. It’s so unusual, and there’s no really good explanation for it. There’s also a good chance that the problem will continue, said a NOAA research scientist in climatology, Nate Mantua.

   

  Experts blame a lack of food due to unusually warm ocean waters. NOAA declared an El Nino, the weather pattern that warms the Pacific, a few weeks ago. The water is three and a half to six degrees warmer than the average, according to Mantua, because of a lack of north wind on the West Coast. Ordinarily, the north wind drives the current, creating upwelling that brings forth the nutrients that feed the sardines, anchovies and other fish that adult sea lions feed on.

  Fox News added:

  The warm water is likely pushing prime sea lion foods — market squid, sardines and anchovies — further north, forcing the mothers to abandon their pups for up to eight days at a time in search of sustenance.

   

  The pups, scientists believe, are weaning themselves early out of desperation and setting out on their own despite being underweight and ill-prepared to hunt.

   

  […]

   

  “These animals are coming in really desperate. They’re at the end of life. They’re in a crisis … and not all animals are going to make it,” said Keith A. Matassa, executive director at the Pacific Marine Mammal Center, which is currently rehabilitating 115 sea lion pups.

  The same is true of seabirds on the Washington State coast:

  In the storm debris littering a Washington State shoreline, Bonnie Wood saw something grisly: the mangled bodies of dozens of scraggly young seabirds. Walking half a mile along the beach at Twin Harbors State Park on Wednesday, Wood spotted more than 130 carcasses of juvenile Cassin’s auklets—the blue-footed, palm-size victims of what is becoming one of the largest mass die-offs of seabirds ever recorded. “It was so distressing,” recalled Wood, a volunteer who patrols Pacific Northwest beaches looking for dead or stranded birds. “They were just everywhere. Every ten yards we’d find another ten bodies of these sweet little things.”

   

  “This is just massive, massive, unprecedented,” said Julia Parrish, a University of Washington seabird ecologist who oversees the Coastal Observation and Seabird Survey Team (COASST), a program that has tracked West Coast seabird deaths for almost 20 years. “We may be talking about 50,000 to 100,000 deaths. So far.” (source)

  100,000 doesn’t necessarily sound large, statistically speaking, but precedent in the history of recorded animal deaths suggests that it is, in fact massive. Even National Geographic is noting that these die off events are “unprecedented.” Warmer water is indicated for much of the starvation faced by many of the dead animals.

  Last year, scientists sounded the alarm over the death of millions of star fish, blamed on warmer waters and ‘mystery virus':

  Starfish are dying by the millions up and down the West Coast, leading scientists to warn of the possibility of localized extinction of some species. As the disease spreads, researchers may be zeroing in on a link between warming waters and the rising starfish body count. (source)

   

  […]

   

   

  The epidemic, which threatens to reshape the coastal food web and change the makeup of tide pools for years to come, appears to be driven by a previously unidentified virus, a team of more than a dozen researchers from Cornell University, UC Santa Cruz, the Monterey Bay Aquarium and other institutions reported Monday. (source)

  Changing temperatures in the Pacific Ocean, driven by the natural cycle of gyres over decades, shifts wildlife populations, decimating the populations of species throughout the food chain, proving how fragile the balance of life in the ocean really is.

  Recently, the collapse of the sardine population has created a crisis for fisheries and marine wildlife alike on the West Coast:

  Commercial fishing for sardines off of Canada’s West Coast is worth an estimated $32 million – but now they are suddenly gone. Back in October, fisherman reported that they came back empty-handed without a single fish after 12 hours of trolling and some $1000 spent on fuel.

   

  Sandy Mazza, for the Daily Breeze, reported a similar phenomenon in central California: “[T]he fickle sardines have been so abundant for so many years – sometimes holding court as the most plentiful fish in coastal waters – that it was a shock when he couldn’t find one of the shiny silver-blue coastal fish all summer, even though this isn’t the first time they’ve vanished.” [emphasis added]

   

  […]

   

  “Is it El Nino? Pacific Decadal Oscillation? [La] Nina? Long-term climate change? More marine mammals eating sardines? Did they all go to Mexico or farther offshore? We don’t know. We’re pretty sure the overall population has declined. We manage them pretty conservatively because we don’t want to end up with another Cannery Row so, as the population declines, we curb fishing.” said National Oceanic and Atmospheric Administration (NOAA) official Kerry Griffin. (source)

  According to a report in the Daily Mail, the worst events have wiped out 90% of animal populations, falling short of extinction, but creating a rupture in food chains and ecosystems.

  And environmental factors are known to be a factor, with pollution from chemicals dumped by factories clearly tied to at least 20% of the mass die off events of wildlife populations that have been investigated, and many die offs implicated by a number of overlapping factors. The Daily Mail reported:

  Mass die-offs of certain animals has increased in frequency every year for seven decades, according to a new study.

   

  Researchers found that such events, which can kill more than 90 per cent of a population, are increasing among birds, fish and marine invertebrates.

   

  The reasons for the die-offs are diverse, with effects tied to humans such as environmental contamination accounting for about a fifth of them.

  Farm runoff from Big Agra introduces high levels of fertilizers and pesticides which create oxygen-starved dead zones which fish and aquatic live is killed off. Also preset in agriculture waste are gender bending chemicals like those found in Atrazine, used in staple crop production, and antibiotics and hormones, used in livestock production, which creates hazardous runoff for fish populations:

  Livestock excrete natural hormones – estrogens and testosterones – as well as synthetic ones used to bolster their growth. Depending on concentrations and fish sensitivity, these hormones and hormone mimics might impair wild fish reproduction or skew their sex ratios. (source)

  Pharmaceutical contaminants are also to blame for changing the sex of fish and disrupting population numbers, while a study found that the chemicals in Prozac changed the behavior of marine life, and made shrimp many times more likely to “commit suicide” and swim towards the light where they became easy prey.

  Fish farms also introduce a large volume of antibiotic and chemical pollution into oceans and waterways:

  The close quarters where farmed fish are raised (combined with their unnatural diets) means disease occurs often and can spread quickly. On fish farms, which are basically “CAFOs of the sea,” antibiotics are dispersed into the water, and sometimes injected directly into the fish.

   

  Unfortunately, farmed fish are often raised in pens in the ocean, which means not only that pathogens can spread like wildfire and contaminate any wild fish swimming past – but the antibiotics can also spread to wild fish (via aquaculture and wastewater runoff) – and that’s exactly what recent research revealed. (source)

  Mass die offs of fish on the Brazilian coastline have linked to pollution from the dumping of raw sewage and garbage.

  In the last few days it was reported that a massive die off of bottlenose dolphins in the Gulf of Mexico was connected by researchers to BP’s Deep Water Horizon oil spill. Evidence was found in a third of the cases of lesions in the adrenal gland, an otherwise rare condition linked with petroleum exposure. More than a fifth of the dolphins also suffered bacterial pneumonia, causing deadly lung infection that is likewise rarely seen in dolphin populations.

  

  

  
  
  

  

• Secret Pentagon Report Reveals US "Created" ISIS As A "Tool" To Overthrow Syria's President Assad

  From the first sudden, and quite dramatic, appearance of the fanatical Islamic group known as ISIS which was largely unheard of until a year ago, on the world’s stage and which promptly replaced the worn out and tired al Qaeda as the world’s terrorist bogeyman, we suggested that the “straight to beheading YouTube clip” purpose behind the Saudi Arabia-funded Islamic State was a simple one: use the Jihadists as the vehicle of choice to achieve a political goal: depose of Syria’s president Assad, who for years has stood in the way of a critical Qatari natural gas pipeline, one which could dethrone Russia as Europe’s dominant – and belligerent – source of energy, reaching an interim climax with the unsuccessful Mediterranean Sea military build up of 2013, which nearly resulted in quasi-world war.

  The narrative and the plotline were so transparent, even Russia saw right through them. Recall from September of last year:

  If the West bombs Islamic State militants in Syria without consulting Damascus, LiveLeak reports that the anti-ISIS alliance may use the occasion to launch airstrikes against President Bashar Assad’s forces, according to Russian Foreign Minister Sergey Lavrov. Clearly comprehending that Obama’s new strategy against ISIS in Syria is all about pushing the Qatar pipeline through (as was the impetus behind the 2013 intervention push), Russia is pushing back noting that the it is using ISIS as a pretext for bombing Syrian government forces and warning that “such a development would lead to a huge escalation of conflict in the Middle East and North Africa.”

  But it’s one thing to speculate; it’s something entirely different to have hard proof.

  And while speculation was rife that just like the CIA-funded al Qaeda had been used as a facade by the US to achieve its own geopolitical and national interests over the past two decades, so ISIS was nothing more than al Qaeda 2.0, there was no actual evidence of just this.

  That may all have changed now when a declassified secret US government document obtained by the public interest law firm, Judicial Watch, shows that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad.

  According to investigative reporter Nafeez Ahmed in Medium, the “leaked document reveals that in coordination with the Gulf states and Turkey, the West intentionally sponsored violent Islamist groups to destabilize Assad, despite anticipating that doing so could lead to the emergence of an ‘Islamic State’ in Iraq and Syria (ISIS).

  According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of the strategy, but described this outcome as a strategic opportunity to “isolate the Syrian regime.” 

  And not just that: as we reported last week, now that ISIS is running around the middle east, cutting people’s heads of in 1080p quality and Hollywood-quality (perhaps literally) video, the US has a credible justification to sell billions worth of modern, sophisticated weapons in the region in order to “modernize” and “replenish” the weapons of such US allies as Saudi Arabia, Israel and Iraq.

  But that the US military-industrial complex is a winner every time war breaks out anywhere in the world (usually with the assistance of the CIA) is clear to everyone by now. What wasn’t clear is just how the US predetermined the current course of events in the middle east.

  Now, thanks to the following declassified report, we have a far better understanding of not only how current events in the middle east came to be, but what America’s puppermaster role leading up to it all, was. 

  From Nafeez Ahmed: Secret Pentagon report reveals West saw ISIS as strategic asset Anti-ISIS coalition knowingly sponsored violent extremists to ‘isolate’ Assad, rollback ‘Shia expansion’, originally posted in Medium.

  

  Hypocrisy

   

  The revelations contradict the official line of Western government on their policies in Syria, and raise disturbing questions about secret Western support for violent extremists abroad, while using the burgeoning threat of terror to justify excessive mass surveillance and crackdowns on civil liberties at home.

  Among the batch of documents obtained by Judicial Watch through a federal lawsuit, released earlier this week, is a US Defense Intelligence Agency (DIA) document then classified as “secret,” dated 12th August 2012.

  The DIA provides military intelligence in support of planners, policymakers and operations for the US Department of Defense and intelligence community.

  So far, media reporting has focused on the evidence that the Obama administration knew of arms supplies from a Libyan terrorist stronghold to rebels in Syria.

  Some outlets have reported the US intelligence community’s internal prediction of the rise of ISIS. Yet none have accurately acknowledged the disturbing details exposing how the West knowingly fostered a sectarian, al-Qaeda-driven rebellion in Syria.

  Charles Shoebridge, a former British Army and Metropolitan Police counter-terrorism intelligence officer, said:

  “Given the political leanings of the organisation that obtained these documents, it’s unsurprising that the main emphasis given to them thus far has been an attempt to embarrass Hilary Clinton regarding what was known about the attack on the US consulate in Benghazi in 2012. However, the documents also contain far less publicized revelations that raise vitally important questions of the West’s governments and media in their support of Syria’s rebellion.”

  The West’s Islamists

  The newly declassified DIA document from 2012 confirms that the main component of the anti-Assad rebel forces by this time comprised Islamist insurgents affiliated to groups that would lead to the emergence of ISIS. Despite this, these groups were to continue receiving support from Western militaries and their regional allies.

  Noting that “the Salafist [sic], the Muslim Brotherhood, and AQI [al-Qaeda in Iraq] are the major forces driving the insurgency in Syria,” the document states that “the West, Gulf countries, and Turkey support the opposition,” while Russia, China and Iran “support the [Assad] regime.”

  The 7-page DIA document states that al-Qaeda in Iraq (AQI), the precursor to the ‘Islamic State in Iraq,’ (ISI) which became the ‘Islamic State in Iraq and Syria,’ “supported the Syrian opposition from the beginning, both ideologically and through the media.”

  The formerly secret Pentagon report notes that the “rise of the insurgency in Syria” has increasingly taken a “sectarian direction,” attracting diverse support from Sunni “religious and tribal powers” across the region.

  In a section titled ‘The Future Assumptions of the Crisis,’ the DIA report predicts that while Assad’s regime will survive, retaining control over Syrian territory, the crisis will continue to escalate “into proxy war.”

  The document also recommends the creation of “safe havens under international sheltering, similar to what transpired in Libya when Benghazi was chosen as the command centre for the temporary government.”

  In Libya, anti-Gaddafi rebels, most of whom were al-Qaeda affiliated militias, were protected by NATO ‘safe havens’ (aka ‘no fly zones’).

  ‘Supporting powers want’ ISIS entity

  In a strikingly prescient prediction, the Pentagon document explicitly forecasts the probable declaration of “an Islamic State through its union with other terrorist organizations in Iraq and Syria.”

  Nevertheless, “Western countries, the Gulf states and Turkey are supporting these efforts” by Syrian “opposition forces” fighting to “control the eastern areas (Hasaka and Der Zor), adjacent to Western Iraqi provinces (Mosul and Anbar)”:

  “… there is the possibility of establishing a declared or undeclared Salafist Principality in eastern Syria (Hasaka and Der Zor), and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran).”

  The secret Pentagon document thus provides extraordinary confirmation that the US-led coalition currently fighting ISIS, had three years ago welcomed the emergence of an extremist “Salafist Principality” in the region as a way to undermine Assad, and block off the strategic expansion of Iran. Crucially, Iraq is labeled as an integral part of this “Shia expansion.”

  The establishment of such a “Salafist Principality” in eastern Syria, the DIA document asserts, is “exactly” what the “supporting powers to the [Syrian] opposition want.” Earlier on, the document repeatedly describes those “supporting powers” as “the West, Gulf countries, and Turkey.”

  Further on, the document reveals that Pentagon analysts were acutely aware of the dire risks of this strategy, yet ploughed ahead anyway.

  The establishment of such a “Salafist Principality” in eastern Syria, it says, would create “the ideal atmosphere for AQI to return to its old pockets in Mosul and Ramadi.” Last summer, ISIS conquered Mosul in Iraq, and just this month has also taken control of Ramadi.

  Such a quasi-state entity will provide:

  “… a renewed momentum under the presumption of unifying the jihad among Sunni Iraq and Syria, and the rest of the Sunnis in the Arab world against what it considers one enemy. ISI could also declare an Islamic State through its union with other terrorist organizations in Iraq and Syria, which will create grave danger in regards to unifying Iraq and the protection of territory.”

  The 2012 DIA document is an Intelligence Information Report (IIR), not a “finally evaluated intelligence” assessment, but its contents are vetted before distribution. The report was circulated throughout the US intelligence community, including to the State Department, Central Command, the Department of Homeland Security, the CIA, FBI, among other agencies.

  In response to my questions about the strategy, the British government simply denied the Pentagon report’s startling revelations of deliberate Western sponsorship of violent extremists in Syria. A British Foreign Office spokesperson said:

  “AQ and ISIL are proscribed terrorist organisations. The UK opposes all forms of terrorism. AQ, ISIL, and their affiliates pose a direct threat to the UK’s national security. We are part of a military and political coalition to defeat ISIL in Iraq and Syria, and are working with international partners to counter the threat from AQ and other terrorist groups in that region. In Syria we have always supported those moderate opposition groups who oppose the tyranny of Assad and the brutality of the extremists.”

  The DIA did not respond to request for comment.

  Strategic asset for regime-change

  Security analyst Shoebridge, however, who has tracked Western support for Islamist terrorists in Syria since the beginning of the war, pointed out that the secret Pentagon intelligence report exposes fatal contradictions at the heart of official pronunciations:

  “Throughout the early years of the Syria crisis, the US and UK governments, and almost universally the West’s mainstream media, promoted Syria’s rebels as moderate, liberal, secular, democratic, and therefore deserving of the West’s support. Given that these documents wholly undermine this assessment, it’s significant that the West’s media has now, despite their immense significance, almost entirely ignored them.”

  According to Brad Hoff, a former US Marine who served during the early years of the Iraq War and as a 9/11 first responder at the Marine Corps Headquarters in Battalion Quantico from 2000 to 2004, the just released Pentagon report for the first time provides stunning affirmation that:

  “US intelligence predicted the rise of the Islamic State in Iraq and the Levant (ISIL or ISIS), but instead of clearly delineating the group as an enemy, the report envisions the terror group as a US strategic asset.”

  Hoff, who is managing editor of Levant Report — ?an online publication run by Texas-based educators who have direct experience of the Middle East?—?points out that the DIA document “matter-of-factly” states that the rise of such an extremist Salafist political entity in the region offers a “tool for regime change in Syria.”

  The DIA intelligence report shows, he said, that the rise of ISIS only became possible in the context of the Syrian insurgency?—?“there is no mention of US troop withdrawal from Iraq as a catalyst for Islamic State’s rise, which is the contention of innumerable politicians and pundits.” The report demonstrates that:

  “The establishment of a ‘Salafist Principality’ in Eastern Syria is ‘exactly’ what the external powers supporting the opposition want (identified as ‘the West, Gulf Countries, and Turkey’) in order to weaken the Assad government.”

  The rise of a Salafist quasi-state entity that might expand into Iraq, and fracture that country, was therefore clearly foreseen by US intelligence as likely?—?but nevertheless strategically useful?—?blowback from the West’s commitment to “isolating Syria.”

  Complicity

  Critics of the US-led strategy in the region have repeatedly raised questions about the role of coalition allies in intentionally providing extensive support to Islamist terrorist groups in the drive to destabilize the Assad regime in Syria.

  The conventional wisdom is that the US government did not retain sufficient oversight on the funding to anti-Assad rebel groups, which was supposed to be monitored and vetted to ensure that only ‘moderate’ groups were supported.

  However, the newly declassified Pentagon report proves unambiguously that years before ISIS launched its concerted offensive against Iraq, the US intelligence community was fully aware that Islamist militants constituted the core of Syria’s sectarian insurgency.

  Despite that, the Pentagon continued to support the Islamist insurgency, even while anticipating the probability that doing so would establish an extremist Salafi stronghold in Syria and Iraq.

  As Shoebridge told me, “The documents show that not only did the US government at the latest by August 2012 know the true extremist nature and likely outcome of Syria’s rebellion”?—?namely, the emergence of ISIS?—?“but that this was considered an advantage for US foreign policy. This also suggests a decision to spend years in an effort to deliberately mislead the West’s public, via a compliant media, into believing that Syria’s rebellion was overwhelmingly ‘moderate.’”

  Annie Machon, a former MI5 intelligence officer who blew the whistle in the 1990s on MI6 funding of al-Qaeda to assassinate Libya’s former leader Colonel Gaddafi, similarly said of the revelations:

  “This is no surprise to me. Within individual countries there are always multiple intelligence agencies with competing agendas.”

  She explained that MI6’s Libya operation in 1996, which resulted in the deaths of innocent people, “happened at precisely the time when MI5 was setting up a new section to investigate al-Qaeda.”

  This strategy was repeated on a grand scale in the 2011 NATO intervention in Libya, said Machon, where the CIA and MI6 were:

  “… supporting the very same Libyan groups, resulting in a failed state, mass murder, displacement and anarchy. So the idea that elements of the American military-security complex have enabled the development of ISIS after their failed attempt to get NATO to once again ‘intervene’ is part of an established pattern. And they remain indifferent to the sheer scale of human suffering that is unleashed as a result of such game-playing.”

  Divide and rule

  Several US government officials have conceded that their closest allies in the anti-ISIS coalition were funding violent extremist Islamist groups that became integral to ISIS.

  US Vice President Joe Biden, for instance, admitted last year that Saudi Arabia, the UAE, Qatar and Turkey had funneled hundreds of millions of dollars to Islamist rebels in Syria that metamorphosed into ISIS.

  But he did not admit what this internal Pentagon document demonstrates?—?that the entire covert strategy was sanctioned and supervised by the US, Britain, France, Israel and other Western powers.

  The strategy appears to fit a policy scenario identified by a recent US Army-commissioned RAND Corp report.

  The report, published four years before the DIA document, called for the US “to capitalise on the Shia-Sunni conflict by taking the side of the conservative Sunni regimes in a decisive fashion and working with them against all Shiite empowerment movements in the Muslim world.”

  The US would need to contain “Iranian power and influence” in the Gulf by “shoring up the traditional Sunni regimes in Saudi Arabia, Egypt, and Pakistan.” Simultaneously, the US must maintain “a strong strategic relationship with the Iraqi Shiite government” despite its Iran alliance.

  The RAND report confirmed that the “divide and rule” strategy was already being deployed “to create divisions in the jihadist camp. Today in Iraq such a strategy is being used at the tactical level.”

  The report observed that the US was forming “temporary alliances” with al-Qaeda affiliated “nationalist insurgent groups” that have fought the US for four years in the form of “weapons and cash.” Although these nationalists “have cooperated with al-Qaeda against US forces,” they are now being supported to exploit “the common threat that al-Qaeda now poses to both parties.”

  The 2012 DIA document, however, further shows that while sponsoring purportedly former al-Qaeda insurgents in Iraq to counter al-Qaeda, Western governments were simultaneously arming al-Qaeda insurgents in Syria.

  The revelation from an internal US intelligence document that the very US-led coalition supposedly fighting ‘Islamic State’ today, knowingly created ISIS in the first place, raises troubling questions about recent government efforts to justify the expansion of state anti-terror powers.

  In the wake of the rise of ISIS, intrusive new measures to combat extremism including mass surveillance, the Orwellian ‘prevent duty’ and even plans to enable government censorship of broadcasters, are being pursued on both sides of the Atlantic, much of which disproportionately targets activists, journalists and ethnic minorities, especially Muslims.

  Yet the new Pentagon report reveals that, contrary to Western government claims, the primary cause of the threat comes from their own deeply misguided policies of secretly sponsoring Islamist terrorism for dubious geopolitical purposes.

   

  ---

  Dr Nafeez Ahmed is an investigative journalist, bestselling author and international security scholar. A former Guardian writer, he writes the ‘System Shift’ column for VICE’s Motherboard, and is also a columnist for Middle East Eye. He is the winner of a 2015 Project Censored Award, known as the ‘Alternative Pulitzer Prize’, for Outstanding Investigative Journalism for his Guardian work, and was selected in the Evening Standard’s ‘Power 1,000’ most globally influential Londoners.

  Nafeez has also written for The Independent, Sydney Morning Herald, The Age, The Scotsman, Foreign Policy, The Atlantic, Quartz, Prospect, New Statesman, Le Monde diplomatique, New Internationalist, Counterpunch, Truthout, among others. He is the author of A User’s Guide to the Crisis of Civilization: And How to Save It (2010), and the scifi thriller novel ZERO POINT, among other books. His work on the root causes and covert operations linked to international terrorism officially contributed to the 9/11 Commission and the 7/7 Coroner’s Inquest.

  

  

  
  
  

  

• Hillary Clinton's Speech Requirements: Private Jets, Presidential Suites And Lots Of Cash

  Late last month we highlighted an IB Times report which showed that Goldman Sachs paid Bill Clinton some $200,000 for a speech ahead of an effort to lobby The State Department (then led by Hillary Clinton) on Export-Import Bank legislation tied to a $75 million purchase order from a Chinese company to a Goldman-owned aircraft manufacturer. 

  The idea that the paid speech and the authorization of an Export-Import Bank loan to the Chinese firm were related was of course dismissed as “preposterous” by Goldman (draw your own conclusions) but what certainly isn’t preposterous is the fact that the Clintons reap millions for speaking engagements and as you can see from the following, if you want a Clinton, a quarter-million in cash isn’t all you’ll need to budget for.

  Here is the rest:
  

  

   

  As a reminder, Hillary is running for “everyday Americans.” Full requirement list:

   

  

  

  
  
  

  

• FBI Confirms No Major Terrorism Cases Cracked Via Unconstitutional Patriot Act Phone Spying

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  FBI agents can’t point to any major terrorism cases they’ve cracked thanks to the key snooping powers in the Patriot Act, the Justice Department’s inspector general said in a report Thursday that could complicate efforts to keep key parts of the law operating.

   

  Inspector General Michael E. Horowitz said that between 2004 and 2009, the FBI tripled its use of bulk collection under Section 215 of the Patriot Act, which allows government agents to compel businesses to turn over records and documents, and increasingly scooped up records of Americans who had no ties to official terrorism investigations.

   

  – From the Washington Times article: FBI Admits No Major Cases Cracked with Patriot Act Snooping Powers

  Back in 2013, as debate about the Snowden revelations was at its zenith, I published a post titled NSA Chief Admits “Only One or Perhaps Two” Terror Plots Stopped by Spy Program. Here’s an excerpt:

  The Obama administration’s credibility on intelligence suffered another blow Wednesday as the chief of the National Security Agency admitted that officials put out numbers that vastly overstated the counterterrorism successes of the government’s warrantless bulk collection of all Americans’ phone records.

   

  Pressed by the Democratic chairman of the Senate Judiciary Committee at an oversight hearing, Gen. Keith B. Alexander admitted that the number of terrorist plots foiled by the NSA’s huge database of every phone call made in or to America was only one or perhaps two — far smaller than the 54 originally claimed by the administration.

   

  “One or perhaps two.” Or perhaps zero. The guy has the nerve to say “perhaps.” How do you not know? What a bunch of lying assholes. How the heck does 54 turn into “one or two,” and I’ll tell you something else, I don’t believe the one or two figure for a minute. I mean there’s no way he would say “zero” when he is fighting to keep his petty little Stasi state intact. Furthermore, how about some details here. What was the one plot the NSA foiled? Some teenager throwing firecrackers on the White House lawn? These guys need to get lost already. From the Washington Times:

  As time has passed and the years have gone by, it has become increasingly clear that the phone records collection program hasn’t stopped a single terror attack. In fact, a recently published report by the Justice Department’s inspector general admitted as much. This takes on increased significance with parts of the Patriot Act set to automatically sunset on June 1st.

  The Washington Times reports:

  FBI agents can’t point to any major terrorism cases they’ve cracked thanks to the key snooping powers in the Patriot Act, the Justice Department’s inspector general said in a report Thursday that could complicate efforts to keep key parts of the law operating.

   

  Inspector General Michael E. Horowitz said that between 2004 and 2009, the FBI tripled its use of bulk collection under Section 215 of the Patriot Act, which allows government agents to compel businesses to turn over records and documents, and increasingly scooped up records of Americans who had no ties to official terrorism investigations.

   

  Backers say the Patriot Act powers are critical and must be kept intact, particularly with the spread of the threat from terrorists. But opponents have doubted the efficacy of Section 215, particularly when it’s used to justify bulk data collection such as in the case of the National Security Agency’s phone metadata program, revealed in leaks from former government contractor Edward Snowden.

   

  “The agents we interviewed did not identify any major case developments that resulted from use of the records obtained in response to Section 215 orders,” the inspector general concluded — though he said agents did view the material they gathered as “valuable” in developing other leads or corroborating information.

   

  The report was heavily redacted, and key details were deleted. The entire chart showing the number of Section 215 requests made from 2007 through 2009 was blacked out, as was the breakdown of what types of investigations they stemmed from: counterintelligence, counterterrorism, cyber or foreign intelligence investigations.

  Redacted indeed. This is what pages 16-20 look like, and the pages immediately after these are just as bad.

  

  

  

  

  

  Most transparent administration ever.

  Moving along, the conclusion that Section 215 of the Patriot Act hasn’t stopped any terror attacks naturally won’t stop FBI director James Comey (and others) from fear-mongering. A favorite pastime of government officials and their lapdogs. As Politico reports:

  Speaking at an American Law Institute event this week, FBI Director James Comey warned that a PATRIOT Act sunset would “severely” affect his agency. The FBI relies heavily on the soon-to-expire provisions of the law to obtain specific business records — from library records to gun ownership data — and wiretaps for multiple devices, he said.

   

  “If I lose these tools, it’s a huge, huge problem,” Comey said. “We use [Section 215 to obtain specific records] fewer than 200 times per year, but when we use it, it matters tremendously.”

  But not for terrorism, and the Patriot Act was specifically passed to deal with terrorism.

  “ISIS is singing a siren song, calling people to their death to crash on the rocks — and it’s the rocks that ISIS will take credit for,” said Ron Hosko, president of Law Enforcement Legal Defense Fund and former assistant director of the FBI. “They’re looking for those who are disaffected, disconnected and willing to commit murder. So if we’re willing to take away tools, OK, congressman, stand behind it [and] take the credit for putting the FBI in the dark.”

  Can you believe people like this exist, and that their insane rhetoric actually speaks to some people? Scary.

  While the current debate about Section 215 of the Patriot Act is encouraging and necessary, it is extremely important to understand that this is just a tiny, potentially meaningless tip of the iceberg when it comes to unconstitutional government surveillance. As The ACLU’s Chris Soghoian explains courtesy of Schneier.com:

  There were 180 orders authorized last year by the FISA Court under Section 215 — 180 orders issued by this court. Only five of those orders relate to the telephony metadata program. There are 175 orders about completely separate things. In six weeks, Congress will either reauthorize this statute or let it expire, and we’re having a debate — to the extent we’re even having a debate — but the debate that’s taking place is focused on five of the 180, and there’s no debate at all about the other 175 orders.

   

  Now, Senator Wyden has said there are other bulk collection programs targeted at Americans that the public would be shocked to learn about. We don’t know, for example, how the government collects records from Internet providers. We don’t know how they get bulk metadata from tech companies about Americans. We don’t know how the American government gets calling card records.

   

  So the 215 program that has been disclosed publicly, the 215 program that is being debated publicly, is about records to major carriers like AT&T and Verizon. We have not had a debate about surveillance requests, bulk orders to calling card companies, to Skype, to voice over Internet protocol companies. Now, if NSA isn’t collecting those records, they’re not doing their job. I actually think that that’s where the most useful data is. But why are we having this debate about these records that don’t contain a lot of calls to Somalia when we should be having a debate about the records that do contain calls to Somalia and do contain records of e-mails and instant messages and searches and people posting inflammatory videos to YouTube?

   

  Certainly the government is collecting that data, but we don’t know how they’re doing it, we don’t know at what scale they’re doing it, and we don’t know with which authority they’re doing it. And I think it is a farce to say that we’re having a debate about the surveillance authority when really, we’re just debating this very narrow usage of the statute.

  The battle to push back the American Stasi is just beginning.

  

  

  

  
  
  

  

• The Bloodied Idealogues vs. The Bloodthirsty Technocrats

  

  

  StealthFlation.org

  On the grave Greek question, it appears that the moment of truth is finally upon us.  After nearly four months of frenetic, fruitless and often feckless high level deliberations and negotiations, both sides remain essentially at an impasse, right where they started.  The technocrats in Brussels want to see their austerity driven reform program carried forward and implemented unconditionally.  As for the idealogues in Athens, they have pledged to put forth there own enlightened approach to rescue their sinking society.

  The Technocrats hold the purse strings, but the Ideologues hold the heart strings.  For what it’s worth, that is typically a highly combustible combination, tick tock.  With their recent cocksure bravado are the Technocrats entirely misreading the desperate determination of the Idealogues?   Get ready for yet another Euro Summer swoon………..

  Everyone agrees that Greece, under a corrupt political oligarchy, grossly abused its privileges as a Eurozone member.  In fact, with the help of a few sleazy sophisticated Goldman Sachs financiers, they actually cheated on their application forms in order to join the exclusive club to begin with.  The illegitimate Ionian books were cooked from the get go, and it only got worse and worse over time.  The crafty self serving political elites and their self-seeking sponsors at multinational banks and corporations ran up a massive tab, while their ill-fated nation never had the fiscal wherewithal to pay the astronomical bills.   

  That is essentially what happened here.  Oh, and the parties specifically involved all happened to get personally rather wealthy themselves along the way.

  Check out the mess they left:

  

  Along with the privilege of leadership comes responsibility.  That clearly seems to have gone out the window here.

  There can be little doubt that the predatory international banking institutions was clearly complicit, along with the disgracefully corrupt Greek politicians and high ranking government officials, as well as most of the Ionian elites at the highest levels of society in the near total abrogation of their financial responsibilities to their country.  They completely failed the common man in this regard, who naturally assumed their leaders knew what the hell they were doing, and quite understandably counted on them for proper sustainable fiscal governance.

  So, I have a simple question.  Why should the brunt of the demanded reforms fall on those least responsible for the mess, and most vulnerable?  Surely, the provincial woman on the streets of Athens pushing her Gyro cart up the steep hills of Kolonaki is far less at fault for the lamentable state of affairs her beloved country finds itself in, then those in the positions of leadership whom should have clearly known better.  Yet, today she is the one being asked to bear the burden of the terribly onerous predicament her Nation is suffering through.  Meanwhile, the bankers want more Euros, and no one is buying her Gyros.

  Seems to me the wealthy Greek political class, the int’l financial establishment and the EU political leadership bear the lion share of the responsibility here.  Yet, instead of facing up to the mess they presided over and largely created, by putting forth workable resolutions to the debt death spiral effectively consuming Greece, what I have mostly witnessed over the past four months is that same establishment circling the wagons, doing everything in their power to delegitimize the SYRIZA leadership and further cripple their already stressed banking system.  I guess the best defense is a flat out offensive.  Is this what passes for inspired leadership in this day and age?

  Moreover, do we really need to hear these fabulous “free market” frauds opine from the peanut gallery on the difficult matter: 

  A Greek exit from the euro is just a matter of time and wouldn’t lead to the breakup of monetary union, former Federal Reserve Chairman Alan Greenspan told Het Financieele Dagblad in an interview published Saturday. An exit could make the euro stronger, billionaire investor Warren Buffett said in an interview in the Euro-am-Sonntag newspaper.

  I’m certainly no socialist, but if this is what today’s crony capitalism continues to spawn, I’m definitely no longer taking part.   A romantic quote from Jimi Hendrix’s comes to mind…….

  “When the power of love overcomes the love for power, only then will the world change.”

  When are we going to wake up?  It’s high time for honest enlightened free market capitalism!  Enough of this crony capitalism crap already!   The entire financialized abominNation is a national disgrace.

  As for me, I would be more than happy to see the cradle of democracy put the imperial autocrats and financial kleptocrats in their place, teaching them a thing or two about enlightened self governance.  Perhaps the ascent of Alexis Tsipras simply reflects the frustration of the everyday Greek citizen, completely fed up with their notoriously corrupt self serving political class oligarchy, the self seeking autocrats in Brussels and self interested banking elites that keep offering up the same poison pill to cure a lethal debt epidemic that they themselves were central to spreading around the globe in the first place. 

  

  

  
  
  

  

• Traders Are Buying Gold & Silver At Fastest Pace In Over A Decade

  The last time large speculators were as aggressively buying silver as last week was September 1997. The net long non-commercial positioning in Silver futures, according to the CFTC rose almost 22,000 contracts last week to a 3-month high (which is closing in on the 'longest' since 2005). Gold, not be out-precious'd also saw major buying. Net speculative longs in gold added over 45,000 contracts – the most since July 2005 – lifting net long positions to their highest in 3 months. Perhaps, just perhaps, as Alhambra's Jeffrey Snider notes, this is due to Yellen putting the 'dollar' back on suicide watch.

   

  Large speculators increased Silver net long position to $4.4bn from $2.4bn notional.

  

   

  Large speculators increased their net long gold exposure to $14.8bn from $9.2bn notional.

  

  Charts: Bloomberg

  Contrarian or not, perhaps Alhambra's Jeffrey Snider's view that Janet Yellen's contortions have put the dollar back on suicide watch are creeping into the market…

  Volatility in UST trading declined a bit in the past few days, as treasury yields became far more settled intraday. While that breaks the exact duplication Monday and Tuesday this week traced from Monday and Tuesday last week, the past two weeks overall remain remarkably similar. And for all the noise, the ups and downs along the way, treasury yields haven’t much changed. That observation applies as far back as May 6, which means that for all the mess there isn’t any more clarity.

  

  Far be it for UST’s to be trading sideways alone, it seems as if oil prices (front end) have fallen into the same. Adding oil to the discussion immediately frames this as relating to the state of the “dollar” in more recent weeks, which looks to be in sharp contrast to the period between March 18 (FOMC) and May 6. Nominal rates were rising rather steadily in those nearly two months right alongside oil prices.

  

  The eurodollar curve has also gone limp, as eurodollar futures trading has found an extremely narrow range also since May 6. This, too, marks a defined shift from the March 18 to May 6 period, meaning that UST credit, oil prices and eurodollar futures all likely share the same inflection.

  

  We can also add “inflation” breakevens, at least as far as a potential change dating to May 6. Breakevens had been rising rather steadily since January 15, which I still think was an indication of hedging for (against?) the next QE.

  

  These rates and prices are a broad enough survey, especially as unified by May 6, to at least entertain the suggestion about whether the “dollar” pause that began on March 18 has ended. That may be taking it too far at this moment, since there aren’t any actual and sustained moves in a countertrend, so it may be more reasonable to instead assume a at the very least a pause to the pause.

  I think that notion is given further credibility by UST trading Wednesday in response to the FOMC statement; there really wasn’t any response. The same goes for eurodollars which seemed unperturbed by the almost dispirited desperation that the FOMC was trying to forward as a reasoned basis for whatever they might do. That, then, places far more emphasis on what might have occurred on May 6 to make such a unified impact in global money and credit markets.

  That was the day that Janet Yellen made her belated wish that stock prices weren’t so winsome. She referred specifically to “potential dangers” due to “quite high” equity valuations, as well as reminding everyone of 2013’s “reach for yield” critique; i.e., asset bubbles. In terms of the idea that the FOMC may have changed its mind about ending ZIRP this is another factor that may have been missing to that point. I believe it was taken on March 18 that the FOMC then was projecting a change of heart based on “shocking” and “unexpected” economic weakness. Therefore, it was some initial hope that the economy alone would dispel the nervous urgency of Yellen et al to just get it over with.

  However, Yellen’s curiously rather direct focus on the asset bubbles alters that dynamic, maybe significantly. There was always background noise in Bernanke’s last year (reach for yield) that the largest dangers were getting to be financial imbalances. The worry was that at some point it may not matter so much the economy as the Fed might find itself in the Chinese position where bubbles became the larger priority (by far) regardless of economic weakness. So Yellen’s May 6 monkey wrench might have brought that possibility back to the forefront, at least as far as some initial consideration.

  Obviously, it hasn’t been taken as fixed income gospel yet, thus the sideways action lasting now a little over two weeks. This week’s FOMC statement did nothing at all to clear up any perceivable favor one way or the other. The utter mess of rationalizations could actually be taken as supporting both versions, hawkish and dovish; the continued allusion and even “official” recognition of some stark economic weakness and very little of organic trends to offset it, but also that the Fed may be excusing all that as still consistent in their view with the ending of ZIRP.

  

  It isn’t completely clear either from other “dollar” proxies as to where bank balance sheets globally might be progressing. Again, there isn’t any sustained trend here to offer a more compelling interpretation, but enough of a muddle in which to accommodate the possibility of resumption toward tightening. Gold, for example, has been trading mostly sideways dating all the way back to late March. The Brazilian real devalued starting on April 28, and the Swiss franc at least stopped its ascendant run on May 6.

  So these “dollar” and credit markets may not yet know what to do regarding Yellen’s version of “conundrum”, but it seems as if her introduction of complications has led to at least contemplation about it, tipping the scales, ever so slightly, back toward financial suicide.

  

  

  
  
  

  

• In Unprecedented Move, California Farmers With Guaranteed Rights Cut Water Use By 25%

  In an attempt to frontrun even more draconian measures resulting from California’s record drought, farmers in the state’s Sacramento-San Joaquin River Delta who have California’s oldest water rights proposed to voluntarily cut their water use by 25% to avoid the risk of even harsher restrictions by the state later this summer should the water situation deteriorate further. State officials promptly accepted the offer, even if it is ultimately moot since there is no way to enforce it.

  California had not restricted water use for growers with the oldest, most established water rights since the 1970s, and the first in memory for the San Joaquin, which runs from the Sierra Nevada to San Francisco Bay. For many farmers, a fear that the worst is yet to come convinced them that they would be better off giving up water before they began planting for the season.

  

  The Sacramento-San Joaquin River Delta

  

  Gino Celli took a water sample to check the salinity in an irrigation canal that runs through his fields near Stockton, Calif., this week. Mr. Celli has senior water rights and draws his irrigation water from the Sacramento-San Joaquin River Delta.

  The proposal was made by the so-called riparian water rights holders, who have the oldest and most secure access to California rivers. They proposed the unprecedented voluntary curtailment for one simple reason: “There is a threat that the state might try the unthinkable and tell us that we cannot use any of the water,” said Dennis Gardemeyer, a delta farmer who helped spur the deal. “I and almost everyone in the delta think that will result in all manner of lawsuits and they will not prevail, but there’s always that threat.”

  As AP reports, this is the latest water emergency conservation step undertaken by the state: previously Governor Jerry Brown has ordered communities throughout the state to reduce water use by 25 percent. State water officials have encouraged water users to propose conservation measures, drawing the proposal from farmers.

  California’s governor has been criticized for leaving farmers out of tightening regulations that force communities throughout the state to cut back on their water use. But this is the second consecutive year that junior water-rights holders have received orders to stop pumping river water to irrigate their crops.

  The escalation is likely to have a substantial impact on US food prices over the summer: farmers would either take less river water for irrigation or leave a quarter of their crops unplanted. If the state accepts the deal, Delta water managers say it may become a model for farmers throughout California, who also are facing curtailments.

  And since it is unclear where local farmers can find substitute water, it is likely that suddenly the supply of California plantings is about to decline by at least a quarter, leading to a dramatic spike in foor prices heading into the second half of the year.

  One concern is that it is impossible to predict how many farmers will participate, said attorney Jennifer Spaletta, who represents several Delta growers, but those who do would be able to plan their crops earlier in the season with more certainty.

  In any event, on Friday state officials accepted the offer. Cited by the NYT, Felicia Marcus, the chairwoman of the State Water Resources Control Board, said: “We’re in an unprecedented drought, and we have to exercise the state’s water rights in an unprecedented way. This is a breakthrough in what has long been a rhetorical battle. It’s a significant turning point to have people say, ‘We know this is complicated. We want to do something early in good faith that is a pragmatic solution for everyone.’”

   

  The biggest problem is that just like European reforms where everyone promises much and delivers nothing, so there is absolutely no way to enforce the California proposal: regulators lack enough sensors, meters and other technology to make sure water isn’t illegally diverted. Water rights curtailments are instead enforced by an honor system, complaints and field investigations.

  And since to many farmers a drop in production may well mean a fast track into insolvency, one can anticipate just how efficient a system based on self-regulation will be. For a quick answer look at the recidivist criminal banks on Wall Street which are also “self regulated.”

  In other words, this “historic” announcement is very much moot, especially when one considers that less than 30% of the junior rights farmers, those who have already been ordered to cut water use for the second year in a row, have told the board they are complying.

  A brief Q&A on how this historic move came about courtesy of AP:

  WHY IS THIS HAPPENING?

  California is in its driest four-year stretch on record. Winter provided little rain and snow to replenish rivers and streams, meaning there is not enough water to meet the demands of farms, communities and wildlife. The State Water Resources Control Board is monitoring conditions in rivers and streams across the parched state and deciding who gets to divert water. Even those with long-standing legal rights to water are under scrutiny.

  WHAT ARE WATER RIGHTS?

  The rights allow holders such as cities, irrigation districts serving farms, and corporations to take water directly from rivers and streams. The first to claim the water are the last to have supplies curtailed. Users who obtained rights to divert water after 1914 are the first to be cut off to ensure there is water for senior water rights holders with claims dating to the Gold Rush. Landowners with property that touches waterways have riparian rights — the strongest of the senior water rights.

  WHAT’S ALREADY HAPPENED?

  Thousands of farmers and others with more recent, junior water rights in the Sacramento and San Joaquin River watersheds have been ordered to stop diverting water for the second consecutive year. Less than 30 percent have told the board they are complying.

  WHAT’S NEXT?

  The board in the coming weeks plans to order those with claims to water in the San Joaquin River watershed dating before 1914 to stop pumping from rivers and streams. Riparian rights holders were scheduled to be curtailed by mid-June. Friday’s order would be the first restriction on senior water rights holders since severe drought the late 1970s, and the first in memory for the San Joaquin, which runs from the Sierra Nevada to San Francisco Bay.

  HOW IS THIS ENFORCED?

  That’s the challenge. Regulators lack enough sensors, meters and other technology to make sure water isn’t illegally diverted. Water rights curtailments are instead enforced by an honor system, complaints and field investigations. Some curtailment orders are easily followed because there’s no water to take from streams.

  WHAT ARE RIGHTS HOLDERS DOING ABOUT THIS?

  Senior water rights holders see their claims to water as ironclad after they paid top price for land with nearly guaranteed water in dry California. Some of their attorneys have threatened litigation, saying the water board has no authority over them. Other farmers with water rights in the Sacramento-San Joaquin River Delta are offering to voluntarily conserve 25 percent of their water in exchange for assurances that they won’t face additional cuts in the middle of their growing season.

  HOW IS THE STATE RESPONDING?

  Thomas Howard, executive director of the State Water Board, says he’ll announce by Friday whether to let riparian water rights holders take voluntary cuts to avoid curtailments. He says his decision hinges on whether the voluntary conservation would save enough water to reduce the strain on rivers and streams that are drying up. His decision would extend to waterfront property owners in the entire basin of the Sacramento River.

  

  

  
  
  

  

• Is Greece Still A Country If Someone Else Owns Its Assets?

  Submitted by John Rubino via DollarCollapse.com,

  This story isn’t actually about Greece, but it begins there.

  After the country went functionally bankrupt a few years ago, the solutions proposed by its creditors (mostly European banks and governments) included the impoverishment of its current citizens through cutbacks in wages and pensions, the impoverishment of its future citizens through the borrowing of even more money from the IMF and European Central Bank, and the sale of major state-owned assets to foreign companies to raise cash with which to make upcoming loan payments.

  Greek voters, not surprisingly, responded by electing socialists who promised not to do any of those things. But apparently this didn’t work. Newsweek reports that the privatization program, after a brief pause, is back in high gear:

  German, Russian and Chinese companies race to buy up Greek infrastructure

  Foreign corporations from countries including Germany, China and Russia are lining up to buy Greek state assets as the country struggles to pay its European creditors.

   

  The sell-off includes major parts of Greece’s infrastructure such as airports, ports, motorways and utilities., The website of the agency leading the government’s privatisation drive details a host of real estate ready to be sold off, with deals listed as either ‘in progress’, ‘rolling ahead’ or ‘completed’.

   

  The move marks a U-turn from the ruling Left-wing Syriza party, who had previously resisted the privatisation programme imposed as part of the conditions attached to Greece’s €245bn bailout from the so-called troika of the IMF, European Central Bank (ECB) and European Commission.

   

  Notable deals on the table as part of the privatisation drive include the purchase of 51% of Greece’s largest port to the China Ocean Shipping Company (COSCO) and a slew of airports popular with tourists to German transport company Fraport AG.

   

  Other assets listed include the 670km Egnatia Motorway which crosses over Northern Greece, million dollar properties in New York, Washington and Belgrade, thermal springs, and and a former US Air Force base in Heraklion, Crete.

   

  Another major sale which is pushing ahead is that 14 of Greece’s 37 regional airports which include those on popular holiday islands Kos, Mykonos and Corfu. Fraport AG, a German transport company have offered €1.2 billion for the airports’ lease and a sale is expected to go through by the end of this month. Fraport made the offer with Greek energy firm Copelouzos owned by entrepreneur Christos Copelouzos.

   

  Another German company, Deutsche Invest Equity Partners, is in the final eight companies who have qualified for the next phase of the tender process for the acquisition of a 67% stake of Thessaloniki Port, the second largest in Greece. Taiped says that Germany, who are currently leading discussions with Greece for a new deal, are key investors. “With the airports, the most important thing after the price was having experience and Fraport had it,” she said.

   

  Among the other seven companies also bidding for the Thessaloniki Port is the billion-dollar British P&O Steam Navigation Company, Russian train operator Russian Railways, and International Container Terminal Services, a port management company established by Filipino businessman Enrique K Razon who has a personal wealth of $5.2 billion.

  Foreign investment is of course common around the world and is generally seen as a good thing. Americans mostly like it, for instance, when Japanese investors bid up shares of US companies or Chinese expats pay above asking price for Manhattan apartments. With only a few exceptions we take the money and don’t look back.

  But there must be a limit, a point where foreign interests own so much of a country that they call the shots and the locals become in effect their serfs. Greece might be the test case that shows us where that point is, while helping to answer three other questions:

  • How much of what’s happening today is part of a larger process in which less-developed countries are in effect tricked into borrowing unmanageable amounts of money and then looted by their creditors?
  • Will Italy, Spain and Portugal suffer the same fate after Greece is fully looted?
  • Are middle-class US families becoming Greece in microcosm, tricked into borrowing for college tuition, cars and houses and then forever obligated to send huge chunks of future earnings to their creditors? That the same dynamic is operating on both national and individual scales — and that the beneficiaries in each case are the same big banks — is curious indeed.

  

  

  
  
  

  

• Behind The Scenes In FX Trading: What Is Really Going On

  Earlier this month we got confirmation of something we postulated back in April: that the primary source of revenue for Virtu (which, as a reminder, has had only one losing trading day in six years) is no longer equities but FX. Here’s what we said:

  Today, Virtu released its first public financials since going public, and our speculation has been proven correct: FX is now the largest revenue generator for VIRT, amounting to 28.4% of revenues in the quarter ended March 31, at $42.2 million, well above the $29.1 million generated from trading  America Equities and the $34.7 million from global commodities.

   

  In fact, as the chart below shows, on an LTM basis, FX is now not only the biggest revenue item for the world’s dominant HFT firm at $131.1 million, but is also the fastest growing source of profit, rising 103% on a year over year basis!

   

  
  

   

  Why the shift? Simple:

  …with retail now forever done with rigged, manipulated capital markets (at least they get a free drink losing money in a casino) and even banks scrambling to find any volume be it in flow or prop, there is just one remaining “whale” source of dumb money to be front run: central banks. And as everyone knows, central banks trade mostly in the FX arena.

  What are the implications? Again, simple:

  …with Virtu, whose business model is geared to frontrunning whale orders in any market, irrelevant of their nature, now solely focused on clipping pennies ahead of central bank FX orders, it means that there is no longer any space for retail investors in yet one more market, where market wide stop hunts, squeezes and momentum ignition have become the norm, as the only “traders” left are a few central banks and every single algo that hasn’t cannibalized itself yet.

  And so, with the machines having firmly entrenched themselves in FX, and with the world’s central banks engaged in an epic global currency war in an increasingly futile and self-defeating attempt to create demand by printing fiat money, we can expect a wild ride in currency markets going forward or, as we put it more than a year ago, “the next time you feel like the USDJPY is trading as if it is in need of a software update, you will be right.”

  Sure enough, we’re now seeing the same dearth of liquidity in FX that we would expect from a market that’s been cornered by central banks and manipulating algos, as liquidity dries up, bid-asks blow out, and volatility spikes. Here’s JP Morgan with more:

  What about FX market liquidity? We can also construct a HH ratio for FX markets using FX futures. With the caveat that much of the volume in FX markets goes through OTC spot and forward markets, where volumes and turnover are less transparent, we construct a HH ratio for DM markets as a DXY-weighted ratio of FX futures for the euro, yen, sterling, Canadian dollar, Swiss franc and Swedish krona vs. US dollar, shown in Figure 10.

  By “HH”, JP Morgan means a Hui and Heubel Liquidity ratio which, put simply, tries to measure how much trading is going on behind observable price moves. Unsurprisingly given everything we’ve said above, liquidity as measured by JPM’s FX HH ratio is declining fast:

  

  And as for bid-asks… you guessed it:

  This ratio has been declining from the second half of last year, driven mainly by EURUSD and GBPUSD futures which have the highest weights, and also to a lesser extent SEK which has seen more recent declines in the HH liquidity ratio. Do other measures of FX liquidity confirm this trend? We look at the 3-month moving average of the bid-ask spread for these currency crosses, also weighted by their weights in the DXY index (Figure 11). Indeed, the rise in the average bidask spreads appear to coincide with the decline in the HH ratio for DM FX in Figure 11. In addition, FX volatility, proxied in Figure 11 by the JPM VXY index of 3-month implied volatility on basket of G7 currencies, rose over the same period.

  

  Rising volatility, wider bid-asks, and no liquidity.

  Sounds a lot like the JGB, UST, and Bund markets to us and indeed every other ‘market’, which is why you can expect things like last October’s algo-driven, Fed-assisted Treasury flash crash to become par for the course in FX markets as well, with harrowing USD, EUR, JPY, [fill in the blank] ramps and flash crashs becoming the norm and leaving panicked central bankers desperately trying to figure out what happened after the fact. 

  And remember, the is all perfectly legal which is why when enough gut-wrenching examples of what happens when the markets are completely broken have unfolded for all to see, some inept regulatory agency will trot out a carbon-based fall guy or, as we put it three weeks ago, “oh, and when the USD flash crashes again, expect some trader in Thailand operating out of his parents’ basement to once again be scapegoated for disrupting yet another market that now has zero liquidity thanks to HFTs.”

  

  

  
  
  

  

• "New Silk Road" Could Change Global Economics Forever, Part 1

  Submitted by Robert Berke via OilPrice.com,

  Part 1: The New Silk Road

  Beginning with the marvelous tales of Marco Polo’s travels across Eurasia to China, the Silk Road has never ceased to entrance the world. Now, the ancient cities of Samarkand, Baku, Tashkent, and Bukhara are once again firing the world’s imagination.

  China is building the world’s greatest economic development and construction project ever undertaken: The New Silk Road. The project aims at no less than a revolutionary change in the economic map of the world. It is also seen by many as the first shot in a battle between east and west for dominance in Eurasia.

  The ambitious vision is to resurrect the ancient Silk Road as a modern transit, trade, and economic corridor that runs from Shanghai to Berlin. The 'Road' will traverse China, Mongolia, Russia, Belarus, Poland, and Germany, extending more than 8,000 miles, creating an economic zone that extends over one third the circumference of the earth.

  The plan envisions building high-speed railroads, roads and highways, energy transmission and distributions networks, and fiber optic networks. Cities and ports along the route will be targeted for economic development.

  An equally essential part of the plan is a sea-based “Maritime Silk Road” (MSR) component, as ambitious as its land-based project, linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and the Indian Ocean.

  When completed, like the ancient Silk Road, it will connect three continents: Asia, Europe, and Africa. The chain of infrastructure projects will create the world's largest economic corridor, covering a population of 4.4 billion and an economic output of $21 trillion.

  Politics and Finance:

  The idea for reviving the New Silk Road was first announced in 2013 by the Chinese President, Xi Jinping. As part of the financing of the plan, in 2014, the Chinese leader also announced the launch of an Asian International Infrastructure Bank (AIIB), providing seed funding for the project, with an initial Chinese contribution of $47 billion.

  China has invited the international community of nations to take a major role as bank charter members and partners in the project. Members will be expected to contribute, with additional funding by international funds, including the World Bank, investments from private and public companies, and local governments.

  Some 58 nations have signed on to become charter bank members, including most of Western Europe, along with many Silk Road and Asian countries. There are 12 NATO countries among AIIB´s founding member states (UK, France, Netherlands, Germany, Italy, Luxembourg, Denmark, Iceland, Spain, Portugal, Poland and Norway), along with three of the main US military allies in Asia (Australia, S. Korea and New Zealand).

  After failed attempts by the US to persuade allies against joining the bank, the US reversed course, and now says that it has always supported the project, a disingenuous position considering the fact that US opposition was hardly a secret. The Wall Street Journal reported in November 2014 that “the U.S. has also lobbied hard against Chinese plans for a new infrastructure development bank…including during teleconferences of the Group of Seven major industrial powers.

  The Huffington Post’s Alastair Crooke had this to say on the matter: “For very different motives, the key pillars of the region (Iran, Turkey, Egypt and Pakistan) are re-orienting eastwards. It is not fully appreciated in the West how important China's "Belt and Road" initiative is to this move (and Russia, of course is fully integrated into the project). Regional states can see that China is very serious indeed about creating huge infrastructure projects from Asia to Europe. They can also see what occurred with the Asia Infrastructure Investment Bank (AIIB), as the world piled in (to America's very evident dismay). These states intend to be a part of it.”

  Buttressing this effort, China plans on injecting at least $62 billion into three banks to support the New Silk Road. The China Development Bank (CDB) will receive $32 billion, the Export Import Bank of China (EXIM) will take on $30 billion, and the Chinese government will also pump additional capital into the Agricultural Development Bank of China (ADBC).

  The US: Unlikely Partner on the Silk Road:

  Will the US join the effort? If the new Trans-Pacific Partnership (that pointedly leaves out both Russia and China, two Pacific powers) is any indication, US participation seems unlikely and opposition all but certain.

  But there's no good reason that America should sacrifice its own leadership role in the region to China. A project as vast and complicated as the Silk Road will need US technology, experience, and resources to lower risk, removing political barriers for other allied countries like Japan to join in, while maintaining US influence in Eurasia. The Silk Road could enhance US objectives, and US support could improve the outcome of the project.

  An editorial in the Wall St. Journal argues that the US proposed trade agreement and China's sponsored Silk Road project are complimentary, with the trade agreement aimed at writing rules for international trade, while the Chinese aim at developing infrastructure is necessary for increased trade.

  Initial Project:

  A look at the first project, currently under development, provides a good example of how China plans to proceed.

  

  The first major economic development project will take place in Pakistan, where the Chinese have been working for years, building and financing a strategic deepwater port at Gwadar, on the Arabian Sea, that will be managed by China as the long-term leaseholder.

  Gwadar will become the launching point for the much delayed Iran-Pakistan natural gas pipeline, which will ultimately be extended to China, with the Persian section already built and the Pakistan-Chinese section largely financed and constructed by the Chinese.

  The pipeline is also set to traverse the country, following the Karakoram Mountain Highway towards Tibet, and cross the Chinese western border to Xinjang. The highway will also be widened and modernized, and a railroad built, connecting the highway to Gwadar.

  Originally, the plan was to extend the pipeline to India, with Qatar joining Iran as natural gas suppliers, forging what some considered a “peace pipeline” between India and Pakistan, but India withdrew, under pressure from the US along with its own concerns over having its energy supplies dependent upon its adversary, Pakistan.

  India's Counter:

  Not surprisingly, India, a US ally, countered China's initiative with one of its own, announcing a new agreement to build a port in Iran on the Arabian Sea, only a few hundred miles from Gwadar, bringing Iranian energy to India via Afghanistan, bypassing Pakistan.

  Although it would offer an alternative to the Chinese-backed Gwadar initiative, the US warned India not to move ahead with the port project before a final nuclear agreement between Iran and the West is actually signed.

  Both the Chinese and Indian projects are clearly in defiance of international sanctions on Iran, but both countries appear unconcerned. The Chinese could also be accused of a ‘double dip’ sanctions violation, given the immense and continuing trade deals it negotiated with Russia.

  The rest of the business world is sure to follow, or risk losing out in what is certain to be a new “gold rush” towards Asia in a world still struggling with the lingering effects of the great recession. And New Delhi pointed out the harsh truth: American energy companies are also trying to negotiate deals with Iran. Following on the heels of the US visit, the German mission is due in Tehran soon, with the French beating everyone to the punch in an earlier visit.

  What then of sanctions? Sanctions only work in a world united behind them. If a large part of the world chooses to ignore sanctions, they become unenforceable.

  Conclusions:

  China and much of the world is intent on developing the largest economic development project in history, one that could have dramatic ripple effects throughout the world economy.

  The project is expected to take decades, with costs running into the hundreds of billions of dollars, if not trillions. What that will mean for the world economy and trade is almost inconceivable. Is it any wonder then, that the world’s largest hedge funds, like Goldman Sachs and Blackstone, are rushing to market new multi-billion dollar international infrastructure investment funds?

  No doubt a project as large and complex as this is likely to have failures, and is certain to face many western geopolitical obstructions. Assuredly, the “great game” will continue. Look no further than US President Barack Obama, who also senses the urgency. “If we don’t write the rules, China will write the rules out in that region,” he said in defense of the Trans-Pacific Partnership.

  In a world where economic growth is tepid, with Europe still struggling with the aftermath of the global recession, along with China's growth slowdown, where else could a project that promises so much opportunity be found?

  It's a good bet that giant iron mining companies like Vale, that have seen their business fall to a thirteen-year low, are currently busy figuring how much steel goes into construction of a new, high speed 8,000 mile railroad. If the project is successful, it could very well spark a boom across the entire depressed international mining, commodities, and construction sectors.

  Consider how many jobs could be created in a decades-long construction project that spans a huge region of the world. In practically every sector, the prospects are enormous for a revival of trade and commerce.

  The ancient Silk Road increased trade across the known world, but the Road also offered far more than trade. One of its least anticipated benefits was the widespread exchange of knowledge, learning, discovery, and culture.

  Beyond the riches of silks, spices, and jewelry, it could be argued that the most important thing that Marco Polo brought back from China was a famous nautical and world map that was the basis for one of the most famous maps published in Europe, one that helped spark the Age of Discovery. Christopher Columbus was guided by that map and was known to have a well-annotated copy of Marco Polo's travel tales with him on his voyage of discovery of a new route to India.

  For the world at large, its decisions about the Road are nothing less than momentous. The massive project holds the potential for a new renaissance in commerce, industry, discovery, thought, invention, and culture that could well rival the original Silk Road. It is also becoming clearer by the day that geopolitical conflicts over the project could lead to a new cold war between East and West for dominance in Eurasia.

  The outcome is far from certain.

  Coming soon, Part 2: Cold War or Competition on the New Silk Road.

  

  

  
  
  

  

• These Are The 50 Top Hedge Fund Long And Short Positions

  Nobody has “suffered” more under central planning than billionaire hedge fund managers.

  As we have shown year after year, the centrally-planned “New Paranormal” has been a total disaster for traditional alpha generation, since with all traditional fundamental relationships flipped upside down thanks to the Fed, the only way to generate outsized returns for one’s investors (and one’s offshore bank account) is to be massively levered beta, or merely wrong (for a great example of how the bigger the fraud, the higher the stock price goes before it crashes one last time read the case study of Hanergy).

  Recall that it was in 2012 when we first showed that the best strategy in this so-called market is to be long the most hated/shorted stocks in hopes of generating a short squeeze among the hedge funds who still expect rationality and fundamentals to eventually prevail over zero-cost money. That “strategy” has outperformed materially since 2012.

  To be sure, some hedge fund managers such as Icahn and Ackman have become experts at black (or green) mailing management teams to issue massive amounts of debt and using the proceeds to buy back stock or engage in long-term value destroying roll ups, an extortion strategy known in polite circles as “activism.” But the vast majority of hedge fund managers continue to underperform.

  And, with over a third of 2015 already in the history books, Goldman reports that “the low dispersion market continues to challenge stock-pickers as the average hedge fund lags the S&P 500 for the seventh straight year (2% vs. 4% YTD).” Cue countless insulted paper traders screaming how the S&P is never the benchmark for any one hedge fund. Which in theory is correct. In practice, however, any hedge fund which has underperformed the S&P for 7 years even if beating some arbitrarily chosen benchmark has likely been redeemed into oblivion long ago.

  There is some good news for hedgies: their Sharpe ratio is better than the S&P500, which however is hardly a consideration for anyone who would rather avoid paying 2 and 20 and just buy the SPY: after all in this rigged market, any time even a hint of a correction appears, some Fed president jawbones stocks right up. From Goldman:

  The average hedge fund returned 2% YTD through mid-May. The average equity long/short hedge fund has returned 2.8%, lagging the S&P 500 (+3.9%) modestly in absolute return, but with a much higher Sharpe ratio (1.2 vs. 0.5) due to volatility of fund portfolios less than half that of the broad market index. Global macro funds are the exception, posting a poor -0.5% YTD return as the cross-asset trend reversal in interest rates, FX, and equity markets that began in mid-April unwound what had been a strong start to the year for fund performance.

   

  

  Ironically, in 2015 even barbaric relics are generating a better return than the smartest money in the room.. with a higher Sharpe.

  

   

  And yet, despite their now chronic underperformance, for some increasingly inexplicable reason, everyone still obssesses with hedge fund holdings, even though on average the universe of smart money has shown beyond a doubt it is unable to outperform the market, or rather “market.”

  So for all those who still care what hedge funds are buying, here from Goldman, is a list of the 50 most widely held hedge fund stocks. No surprise, for the 4th year in a row, AAPL is on top. And yes, despite what pundits say, with 191 holders, there is little “smart money on the sidelines” that isn’t already fully allocated to AAPL. Which is also why the Carl Icahns of the world are desperate for AAPL management to buy back as much (and as fast) of these hedge funds’ shares as possible. Because without management backstopping the market bid, the Hanergy sub-second collapse case study may quickly come to the US.

  

   

  As usual the most valuable information comes not form the most popular stocks, but the most shorted. Because it is here that as is now usual under the New Paranormal – which won’t change as long as the Fed and its money distorting peers are around – that the biggest outperformance will come from: by being long the most shorted stocks, stocks which will be squeezed until the max pain threshold for most is reached and breached, sending the underlying stock soaring. In fact, the more worthless, fraudulent or corrupt the stock, the higher its price will likely shoot up (once again, see Hanergy).

  So without further ado, here is Goldman’s list of the 50 stocks that represent the largest hedge fund short positions.

  

  

  

  
  
  

  

• Constitution 1 – 0 Government: NSA Starts Winding Down Bulk Data Collection

  As we detailed earlier, in a chaotic scene during the wee hours of Saturday, Senate Republicans blocked a bill known as the USA Freedom Act – backed by President Barack Obama, House Republicans and the nation's top law enforcement and intelligence officials – which would have preserved the government's ability to search phone company records for suspected spies and terrorists. As AP reports, the failure to act means the NSA will immediately begin curtailing its previously-secret bulk data collection progreams with The DoJ noting that while it will take time to taper off the collection process, that process began Friday (according to an administration official). Sen. Rand Paul called the Senate's failure to allow an extension of the surveillance programs a victory for privacy rights, adding "we should never give up our rights for a false sense of security."

  We explained Rand Paul's refusal to play by the Washington script earlier and how the Senate failure to extend the Patriot Act leaves the future of America's "war against terrorists" – but really against "enemies domestic", i.e., anyone who uses email, has a cell phone or in any other electronic way communicates with others – in limbo.

  Now, it appears, as AP reports, the de-esclation of The NSA is escalating rather faster than many had dared to hope for…

  The National Security Agency has begun winding down its collection and storage of American phone records after the Senate failed to agree on a path forward to change or extend the once-secret program ahead of its expiration at the end of the month.

   

  Barring an 11th hour compromise when the Senate returns to session May 31, a much-debated provision of the Patriot Act – and some other lesser known surveillance tools – will sunset at midnight that day. The change also would have a major impact on the FBI, which uses the Patriot Act and the other provisions to gather records in investigations of suspected spies and terrorists.

   

  In a chaotic scene during the wee hours of Saturday, Senate Republicans blocked a bill known as the USA Freedom Act, which would have ended the NSA's bulk collection but preserved its ability to search the records held by the phone companies on a case-by-case basis. The bill was backed by President Barack Obama, House Republicans and the nation's top law enforcement and intelligence officials.

   

  …

   

  The failure to act means the NSA will immediately begin curtailing its searches of domestic phone records for connections to international terrorists. The Justice Department said in a statement that it will take time to taper off the collection process from the phone companies. That process began Friday, said an administration official who would not be identified because he was not authorized to discuss the matter publicly.

  As a reminder, Section 215 of the Patriot Act is used by the government to justify collecting the "to and from" information about nearly every American landline telephone call.

  When former NSA contractor Edward Snowden revealed the program in 2013, many Americans were outraged that NSA had their calling records. Obama ultimately announced a plan similar to the USA Freedom Act and asked Congress to pass it. He said the plan would preserve the NSA's ability to hunt for domestic connections to international plots without having an intelligence agency hold millions of Americans' private records.

   

  Since it gave the government extraordinary powers, Section 215 of the Patriot Act was designed to expire at midnight on May 31 unless Congress renews it. An appeals court has ruled that the phone collection does not comply with the law, but stayed the ruling while Congress debated.

  And so it's end is not just legally 'correct' but ethically so too…

  Sen. Rand Paul, Kentucky's other senator and a Republican presidential candidate, called the Senate's failure to allow an extension of the surveillance programs a victory for privacy rights.

   

  "We should never give up our rights for a false sense of security," Paul said in a statement.

   

  Some civil liberties groups joined Paul in praising the result, saying they would rather see the Patriot Act provision authorizing NSA phone collection expire altogether.

   

  "For the first time, a majority of senators took a stand against simply rubber-stamping provisions of the Patriot Act that have been used to spy on Americans," said Michael Macleod-Ball, acting director of the ACLU Washington Legislative Office.

  …and here are 10 reasons, thanks to Rand Paul, why this should never have happened in the first place…

  10 Great Points From Rand Paul's Personal Patriot Act Attack

  (via Matt Welch of Reason.com)

  1) Warrants need to be "individualized," because collective law enforcement is the root of much evil.

  Paul's root opposition to the Patriot Act is that it is being used as the legal justification for the collection of bulk data against unsuspecting U.S. citizens who no one believes have committed a crime. His opposition to the reforming USA Freedom Act is that it still allows the government to compel third-party companies like Verizon to cough up 100 percent of its customer metadata.

  Either way, Paul has stressed all day, this is antithetical to both the Fourth Amendment and the American tradition of individual rights. Collective guilt is what underpinned the segregationist horrors of the Jim Crow south, and of the indefensible internment of Japanese-Americans during World War II. The people who really need the Bill of Rights, he has said, are not the prom queens and homecoming kings, but people who are in a disfavored minority, whether ideological, religious, or racial.

  2) Internet/telephone/data companies should put up "unified resistance" to federal compulsion to turn over user data.

  It’s not every day that you see a sitting U.S. senator calling for straight-up civil disobedience. But in an era where the Supreme Court has yet to definitively rule on the third-party doctrine governing what intermediaries have to do when requested by the government to cough up all user data, building up a bigger cultural expectation of privacy is crucial if our credit-card data and cloud storage is going to be proferred traditional 4^th Amendment protection.

  3) "We're using the Patriot Act to put [drug offenders] in prison."

  One of the least remembered scandals in the Summer of Snowden is that the Drug Enforcement Agency has been collecting bulk metadata with all the same gusto as the National Security Agency, even though the DEA is supposed to enforce the law on U.S. citizens who are afforded protections from the Constitution. In fact, the DEA has been using the NSA's data. Patriot Act mission creep might not be news to Reason readers, but that makes it no less indefensible.

  4) "Government by cliff is a recipe for disaster."

  That's a quote from Sen. Mike Lee (R-Utah), not Rand Paul, though the two have long agreed about this principle. The Patriot Act expires at the end of May. "It's been three years since we've known this date is coming," Paul said. Why in hell hasn’t there been a debate, with amendments, in the Senate? Why does Capitol Hill lurch from cliff to cliff, instead of actually do the job of governing? I suppose this bad habit of mind is good for certain opportunistic politicians with a sense of theater, but it's just lousy for the country. The Republicans run the joint; the dysfunction is now squarely on them.

  5) "It was done by executive decree, it can be undone by executive decree."

  Paul has continuously bemoaned President Barack Obama's civil-liberties switcheroo when in office, a topic he talked with me about in a September 2013 (bottom of the post). As he rightly points out, most of the actions civil libertarians are complaining about are pure inventions and executions by the executive branch. If the president cares about this stuff as much as he occasionally pretends to be, he can actually stop collecting the metadata. 

  6) The government is "using records to gain entrance to people, and then tak[ing] their stuff without conviction."

  The connection between civil asset forfeiture and NSA surveillance might not be immediately obvious, but Paul has done a bravura job in making the link. A government that can take your money—even if you are never charged with a crime—because it doesn't like the way you deposit it in your bank, is a government that should not be trusted with holding all your seemingly innocuous third-party information.

  7) "The Constitution is an end to itself."

  That's another one from Mike Lee (who, it should be stressed, is wholly in favor of the USA Freedom Act, which Paul opposes on grounds that it still allows for bulk collection of metadata). Too often people try to locate their defense of the founding document on utilitarian grounds; actually, it's a noble blueprint all on its own.

  8) We shoulda listened to William Binney.

  William Binney was a crucial, pre-Snowden NSA whistleblower. Don't know who he is, what he saw, how he was threatened, and why he's worried about America’s "totalitarian" turn? Read this Nick Gillespie interview with the guy.

  9) "The director of national intelligence…wasn't telling the truth."

  Director of National Intelligence James Clapper famously lied to Congress under oath about the collection of bulk metadata on millions of Americans. All afternoon, Rand Paul has used the word "lied" to describe what Clapper did. It is bracing to watch government misbehavior called by its proper name.

  10) "The presumption of innocence is an incredibly important doctrine that we shouldn't so casually dismiss."

  The fact that this has to be said on the floor of the U.S. Senate is appalling. The fact that it is being said at least offers a little hope.

  *  *  *

  It appears he – and the many others fighting for liberty and privacy and the constitution – may have actually won one here… or is bulk data collection about to go deep, very deep under cover.

  

  

  
  
  

  

• ‘Titanic’ Global Economy May “Collapse” Warn HSBC – Gold Is Lifeboat

  ‘Titanic’ Global Economy May “Collapse” Warn HSBC – Gold Is Lifeboat

  -“The world economy is like an ocean liner without lifeboats …” – HSBC
  – Four areas of high risk identified by HSBC
  – Risk of stock market crash
  – Pension funds and insurers may not meet obligations
  – Chinese recession may drag U.S. into recession or depression
  – Premature rate rise would expose very fragile global economy
  – “There aren’t enough lifeboats to go round”
  – Gold vital lifeboat when global ship strikes iceberg  

   

  
  The chief economist of the world’s third largest bank, HSBC’s Stephen King, has compared the global economy to the Titanic.

  In a note to clients on Wednesday he wrote “We may not know what will cause the next downswing but, at this stage, we can categorically state that, in the event we hit an iceberg, there aren’t enough lifeboats to go round.”

  “The world economy is like an ocean liner without lifeboats.” As we have been warning in recent months, when another recession arrives, governments do not have the ability or the reserves to prop up the economy like they did in 2008.

  Global debt has soared by 40 percent since the Great Recession. We now have a staggering $200 trillion of debt globally, or almost three times the size of the global economy. It would be a “truly titanic struggle” for policymakers to right the economy, King said.

  He believes that we are now nearer to the next global recession than we are to the last one which ended six years ago. In that time, however, the world has amassed mountains of new unpayable debt – expanding 25% in the last six years – and the U.S. economy has been sluggish despite an unprecedented wave of money printing which was intended to boost the economy. Indeed, post recession growth has never been so anaemic in recent history.

  

  This weakness has left policy makers ill-equipped to deal with the next crisis,

  “Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery – both in the US and elsewhere – has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.”

  Elsewhere in the note he describes the problem facing policy makers as “titanic”. He identifies four areas as being of particularly high risk,

  – The equity bubble may burst as increasing wages impair corporate profits. This would lead consumers to lose confidence triggering another an economic contraction.

  – Pension funds and insurers may not have cash to meet future obligations causing them liquidate assets. This may cause a scramble for liquid assets and mass panic-selling in an environment of low demand causing a collapse in asset prices.

  – A recession in China would likely force the PBOC to weaken the Yuan. This would cause a consequent rise in the dollar further undermining the ability of the U.S. to export. In such an environment the Fed has typically dropped rates by around 5%.  As the Fed’s base rate is currently at 0.25% it has absolutely no policy tools left to deal with such an event. King concludes “The U.S. is eventually dragged into a recession through forces beyond its control.”

  
  – If the Fed were to raise rates too soon it could expose the very fragile nature of the “recovery”. Neither governments, nor corporations nor households would have the strength to absorb the costs of servicing their debts should the Fed begin raising rates.

  King is extremely doubtful that policy makers will be able to cope with the next crisis:
  “The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers.” Reports do not indicate if King speculates on what the next crisis would look like in the absence of adequate policy tools.

  We do not know how it will unfold either. But we suspect that after more that twenty years of Fed intervention to protect too-big-to-fails and a gargantuan build up of debt a monumental day of reckoning may then be at hand. In such an environment we would once again understand the true value of gold as a currency which is finite and which has no counter-party risk.

  HSBC’s chief economist does not mention gold as a potential life boat to protect from a titanic economic collapse. However, HSBC’s precious metals team are currently very constructive on the long term outlook for gold prices.

  In reaction to their chief economist’s warning, their precious metals analysts said, that any of the scenarios outlined by Stephen King would be positive for gold bullion.

  
  Given the significant and growing economic risks of today, it is prudent to have an allocation to physical bullion stored in reliable vaults in the safest jurisdictions around the world.

  Have you got your lifeboat ready?

  Must-read bullion guides below:

  Essential Guide to Bullion Storage in Switzerland

  Essential Guide to Bullion Storage in Singapore

  

  
  
  

  

• Cold War 2.0: Visualizing All Recent "Close Encounters" Between Russian And NATO Warplanes

  Lately, not a day seems to pass without news of NATO jets being scrambled to intercept/reroute a Russian warplane or reconnaisance jet. As a result, David Cenciotti’s The Aviationist blog has compiled the recent history of all the “close encounters” between Russian and NATO warplanes since 2013. In a 69-page e-book he has summarized “all the most significant close encounters” to show “how routine interceptions have become recurrent, tenser and more dangerous; the proof that we live in a new Cold War, or a “Cold War 2.0?, as we dubbed it.”

  The full e-book can be found below (link), while a quick summary showing just how provocative the two sides have become toward one another, can be seen on the infographic below.

  

   

  Presenting David Cenciotti’s, COLD WAR 2.0: All the most significant close encounters between NATO and Russian warplanes since 2013

  

  

  
  
  

  

• ISIS: Mapping A Militant Expansion

  To let the media tell it, ISIS has launched a successful “offensive” of late, taking control of Palmyra, a Syrian city that’s home to ‘treasures of antiquity’, as well as Ramadi, which gives the group control of  “strategic highway linking Iraq and Syria.”

  ISIS has also claimed responsibility for a mosque bombing that claimed the lives of 21 Saudis on Friday. 

  As the US moves closer to putting boots on the ground, The New York Times is out with a series of graphics which document the group’s spread. 

  

  

  

  

  Note that the last graphic — which depicts a giant globe with highlights on “countries with groups that have pledged allegiance to ISIS” — makes it look like ISIS has launched a Naziesque blitzkrieg on the way to invading multiple countries. This, of course, is completely absurd. There are a lot of groups who can claim membership in a lot of countries meaning that we could produce a lot of these maps if we wanted to, but it wouldn’t mean that any of said groups were on the verge of a Napoleonic global conquest.

  But reality never got in the way of a good story.