• Central Banks Are About To Leave Fiat Addicted Stock Markets In Agony

  Submitted by Brandon Smith via Alt-Market.com,

  Many investors today are not very familiar with market history and tend to live only in the day-to-day mainstream narrative while watching little red and green graphs move up and down. This is not so much an issue in a relatively stable economic environment. The problem is, today we live in the most unstable economic conditions possible.

  These investors and analysts are simply not aware that some of the most exciting stock rallies occur during the most volatile crises, and so they interpret every rally of a few days to a few weeks as a signal for recovery.  However, in this kind of fiscal environment, all the gains made in a few weeks can be lost in moments.

  After the Great Depression began to take hold in U.S. markets, massive rallies unfolded over the span of weeks and sometimes months, only to end in a collapse to even lower depths. For example, in 1930 the Dow Jones enjoyed historic rallies twice, gaining 48% only to lose it all, then gaining more than 16% and crashing down to a 50% loss for the year. Each consecutive year there were multiple rallies of more than 25% and each time they disintegrated. By 1932 stocks were only worth approximately 20% of what they were worth in 1929. Bear market rallies continued to give false hope to investors and the public throughout the crisis, and mainstream banks and economists continued to exploit such rallies to capitalize on those false hopes.

  I mention this to put our markets today in perspective. Mainstream analysts and some banking moguls are already declaring a reversion of the instability that was launched at the beginning of this year due to the spike in stocks over the past three weeks. I explained the reason behind this comparatively short term rally in my article “Markets Ignore Fundamentals And Chase Headlines Because They Are Dying.” In desperation, the investment world has placed all its hopes on renewed stimulus measures this March by China and the European Central Bank. They have also made bets that the Fed will not raise rates again until the end of this year, if they raise rates again at all.

  I believe the next two weeks will be very telling in terms of how the rest of the year in markets will progress. If mainstream analysts and investors are placing faith in further central bank intervention, they may be greatly disappointed.

  Every action of the central bankers this year has indicated a shift away from open intervention. The taper of quantitative easing (QE) has run its course and no new QE has been announced since. The rate hikes were launched in December despite all traditional logic to the contrary and now, Fed officials appear to be staying on track for more hikes in the near term. Kansas City Fed President Esther George told Bloomberg that a fed rate hike in March should “absolutely remain on the table.”

  San Francisco Fed President John Williams said there has been “no substantial change” in his view of the economy or the rate hikes and that said rate hikes will likely continue as planned.

  Goldman Sachs argues that there will only be “three” more rate hikes this year, rather than four, although, this is three more rate hikes than the investment world was asking for.

  Fed statements have given little clue as to the timing of the rate hikes, but all fed statements have so far presented an attitude that they plan to “stay the course.” For now, stock markets do not want to accept this reality.

  I believe that the Fed will be raising rates again in the near term. I believe there is a possibility for the fed to surprise with a rate hike at their meeting this March 15^th and 16^th. If this does not occur, the Fed will likely hint of a hike in June in their press statements. Another hike so soon (or even the threat of an assured hike) will absolutely strangle any market gains made in the past few weeks.

  Another date to watch out for will be tomorrow's meeting of the European Central Bank. All eyes are on renewed ECB stimulus; not only renewed stimulus, but stimulus measures vastly beyond what the ECB has initiated in the past. I am not sure why investors’ expectations are so high for the ECB to save the day. The last time this kind of exuberance hit stock markets over a European stimulus package was in December of last year, and the ECB dashed all those hopes into the dirt with a mediocre response. This aided directly in the stock market volatility that came in January and February.

  So, the markets are praying for the ECB to “do it right this time.” I highly doubt the ECB's eventual decision will satisfy the unrealistic expectations of the investment community. In fact, I believe the central bank will offer little or nothing, and stocks will come crashing down just as they did after the December meeting.

  It wasn’t long ago that the entire financial universe was focused on whether China would intervene in their own markets, either with more stimulus or by arresting more investors that were betting against their stocks. The days of outright Chinese stimulus appear to be over as reports come in that the National People’s Congress concluded without any mention of large scale action to artificially support the Chinese economy. This should not be a surprise to anyone who was paying attention; China’s president warned in January that more economic stimulus is “not the answer to the nation’s challenges.”

  So, what does this mean?

  Well, first and foremost, it shows that the attitude of central bankers is moving away from intervention. As I have stated many times in the past, actions like the Fed taper of QE3 and the rate hikes only make sense if central banks are planning to ALLOW the markets to decline. The rate hike meetings, stimulus meetings, and the fact that they allow investor conjecture on stimulus to continue without much official contradiction, helps international financiers to control the speed at which this crash occurs. But the fact remains that they are not acting to stop the crash, nor will they act.

  There are no fundamental economic indicators that are positive enough to support a market recovery or an economic recovery. All moves in stocks are based on nothing but the delusions of fiat addicted stock players waiting for more printing to feed their habit of “buying the dip” without having to think strategically and educate themselves on sound investments. That is to say, investors have become addicted to central bank manipulation of markets, but now the central banks are cutting off their supply of smack.

  Where is this all going?

  I have mentioned in past articles the tendency of elitists to warn the public of coming economic collapse, but these warnings are always far too late for anyone to do much to prepare. They do this because they KNOW that a crisis is coming. They know a crisis is coming because THEY created the circumstances which are causing it. The money elites inject warnings into the media not to help the public, or to encourage positive solutions. Rather, they offer these warnings so that after the crash they can present themselves to the public as “good Samaritans,” or fortune tellers who “tried to save us.” They are, of course, neither of these things.

  The Bank for International Settlements, the central bank of central banks, has released yet another dire warning into the mainstream, stating that “official” global debt is now 200 percent of GDP and that this debt is unsustainable. They have also warned of a “gathering storm” and the “loss of faith in central banks” as 2016 moves forward.

  On top of this, none other than Lord Jacob Rothschild has released his own cautionary letter on the global economy, stating that we are now “in the eye of the storm.”

  Why are central banks allowing a controlled demolition of our economy to take place instead of propping up and manipulating markets as they have for the past few years? You can read my many articles on the globalist endgame for a detailed explanation, but to summarize – problem, reaction, solution.

  International financiers want a completely centralized global economic structure, including a single currency system, the eventual removal of physical currency to be replaced with more easily controlled digital currency, and ultimately a central authority for global economic governance. In the pursuit of a “New World Order,” they must destroy the structure of the “old world.” Covertly engineer an economic problem, get the masses to beg you to save them from that problem, then offer them the solution you always intended to give them.

  Our current crisis, what the International Monetary Fund calls the “global economic reset,” has only just begun. Though sometimes we must read between the lines or connect a few dots, in most cases the banking elites tell us exactly what they are going to do before they do it. It’s time we start listening, stop buying into the day-to-day hype and hopes of false recovery, and prepare accordingly.

  

  

  

  

  

• This Is Jeff Gundlach's Favorite (& Scariest) Chart

  According to DoubleLine’s Jeff Gundlach, this is his favorite chart – backing his persepctive that equity markets have “2% upside and 20% downside) from here.

  In his words: “These lines will converge…”

  

  Chart: Bloomberg

  It should be pretty clear what drove the divergence, and unless (and maybe if) The Fed unleashes another round of money-printing (or worse), one can’t help but agree with Gundlach’s ominous call.

  

  

  

  

  

• China's Gamblers Ditch The Burst Stock Bubble, Return To Macau's Casinos

  China’s plunge protection team may be scrambling to prop up the Shanghai Composite for the duration of the People’s Congress, but the moment the NPC is over, the stock “market” goes with it, and the people know it. But now that China has its favorite bubble back – housing – few care: after all the stock bubble was meant purely as a placeholder until houseflipping mania returns.

  However, the bursting of the stock bubble is hardly bad news, and certainly not for Macau, because now that China’s habitual gamblers no longer have a market where to bet it all, they can finally go back to their original stomping grounds.

  Here is Bloomberg’s take with “Macau Casinos Bounce Back as Gamblers Ditch China Stocks“

  The wheel of fortune is favoring Macau casino operators over brokerages as gambling revenue stabilizes and turbulence in the equity market weighs on turnover. Shares of Galaxy Entertainment Group Ltd. and Sands China Ltd. are among the biggest gainers in Hong Kong in 2016, after being the two worst performers over the previous two years, while Citic Securities Co. and Haitong Securities Co. are down more than 10 percent. The two-year slump in gambling revenue that was sparked by an anti-corruption campaign coincided with China’s biggest-ever bull market in equities.

  As the SHCOMP slides lower, expect the green line to resume its trend higher, which ironically may mean that China casino stocks may be one of the better buys in the local market for the foreseeable future.

  

  

  

  

  

  

• Missing Clinton E-Mail Claims Saudis Financed Benghazi Attacks

  Submitted by William Reynolds via Medium.com,

  Something that has gone unnoticed in all the talk about the investigation into Hillary Clinton’s e-mails is the content of the original leak that started the entire investigation to begin with. In March of 2013, a Romanian hacker calling himself Guccifer hacked into the AOL account of Sidney Blumenthal and leaked to Russia Today four e-mails containing intelligence on Libya that Blumenthal sent to Hillary Clinton.

  For those who haven’t been following this story, Sidney Blumenthal is a long time friend and adviser of the Clinton family who in an unofficial capacity sent many “intelligence memos” to Hillary Clinton during her tenure as Secretary of State. Originally displayed on RT.com in Comic Sans font on a pink background with the letter “G” clumsily drawn as a watermark, no one took these leaked e-mails particularly seriously when they came out in 2013. Now, however, we can cross reference this leak with the e-mails the State Department released to the public.

  The first three e-mails in the Russia Today leak from Blumenthal to Clinton all appear word for word in the State Department release. The first e-mail Clinton asks to have printed and she also forwards it to her deputy chief of staff, Jake Sullivan. The second e-mail Clinton describes as “useful insight” and forwards it to Jake Sullivan asking him to circulate it. The third e-mail is also forwarded to Jake Sullivan. The fourth e-mail is missing from the State Department record completely.

  This missing e-mail from February 16, 2013 only exists in the original leak and states that French and Libyan intelligence agencies had evidence that the In Amenas and Benghazi attacks were funded by “Sunni Islamists in Saudi Arabia.” This seems like a rather outlandish claim on the surface, and as such was only reported by conspiracy types and fringe media outlets. Now, however, we have proof that the other three e-mails in the leak were real correspondence from Blumenthal to Clinton that she not only read, but thought highly enough of to send around to others in the State Department. Guccifer speaks English as a second language and most of his writing consists of rambling conspiracies, it’s unlikely he would be able to craft such a convincing fake intelligence briefing. This means we have an e-mail from a trusted Clinton adviser that claims the Saudis funded the Benghazi attack, and not only was this not followed up on, but there is not any record of this e-mail ever existing except for the Russia Today leak.

  Why is this e-mail missing? At first I assumed it must be due to some sort of cover up, but it’s much simpler than that. The e-mail in question was sent after February 1st, 2013, when John Kerry took over as Secretary of State, so it was not part of the time period being investigated. No one is trying to find a copy of this e-mail. Since Clinton wasn’t Secretary of State on February 16th, it wasn’t her job to follow up on it.

  So let’s forget for a minute about the larger legal implications of the e-mail investigation. How can it be that such a revelation about Saudi Arabia was made public in a leak that turned out to be real and no one looked into it? Clearly Sidney Blumenthal was someone that Hillary Clinton trusted. Two months earlier, Secretary Clinton found his insights valuable enough to share with the entire State Department. But two weeks after her job as Secretary of State ends, she receives an e-mail from him claiming Saudi Arabia financed the assassination of an American ambassador and apparently did nothing with this information. Even if she didn’t have to turn over this e-mail to the commission investigating the Benghazi attacks, wouldn’t it be relevant? Shouldn’t this be information she volunteers? And why didn’t the Republicans who were supposedly so concerned about the Benghazi attacks ask any questions about Saudi involvement?

  Did Secretary Clinton not tell anyone what she knew about alleged Saudi involvement in the attacks because she didn’t want to endanger the millions of dollars of Saudi donations coming in to the Clinton Foundation? These are exactly the kind of conflicts that ethical standards are designed to prevent.

  Another E-Mail Turns Up Missing

  Guccifer uncovered something else in his hack that could not be verified until the last of the e-mails were released by the State Department last week. In addition to the four full e-mails he released, he also leaked a screenshot of Sidney Blumenthal’s AOL inbox. If we cross reference this screenshot with the Blumenthal e-mails in the State Department release, we can see that the e-mail with the subject “H: Libya security latest. Sid” is missing from the State Department e-mails.

   

  

   

  

   

  This missing e-mail is certainly something that would have been requested as part of the investigation as it was sent before February 1st and clearly relates to Libya. The fact that it is missing suggests one of two possibilities:

  1. The State Department does have a copy of this e-mail but deemed it top secret and too sensitive to release, even in redacted form. This would indicate that Sidney Blumenthal was sending highly classified information from his AOL account to Secretary Clinton’s private e-mail server despite the fact that he never even had a security clearance to deal with such sensitive information in the first place. If this scenario explains why the e-mail is missing, classified materials were mishandled.
  2. The State Department does not have a copy, and this e-mail was deleted by both Clinton and Blumenthal before turning over their subpoenaed e-mails to investigators, which would be considered destruction of evidence and lying to federal officials. This also speaks to the reason why the private clintonemail.com server may have been established in the first place. If Blumenthal were to regularly send highly sensitive yet technically “unclassified” information from his AOL account to Clinton’s official government e-mail account, it could have been revealed with a FOIA request. It has already been established that Hillary Clinton deleted 15 of Sidney Blumenthal’s e-mails to her, this discrepancy was discovered when Blumenthal’s e-mails were subpoenaed, although a State Department official claims that none of these 15 e-mails have any information about the Benghazi attack. It would seem from the subject line that this e-mail does. And it is missing from the public record.

  In either of these scenarios, Clinton and her close associates are in violation of federal law. In the most generous interpretation where this e-mail is simply a collection of rumors that Blumenthal heard and forwarded unsolicited to Clinton, it would make no sense for it to be missing. It would not be classified if it was a bunch of hot air, and it certainly wouldn’t be deleted by both Blumenthal and Clinton at the risk of committing a felony. In the least generous interpretation of these facts, Sidney Blumenthal and Hillary Clinton conspired to cover up an ally of the United States funding the assassination of one of our diplomats in Libya.

  Why A Grand Jury Is Likely Already Convened

  After the final e-mails were released by the State Department on February 29th, it has been reported in the last week that:

  • Clinton’s IT staff member who managed the e-mail server, Bryan Pagliano, has been given immunity by a federal judge which suggests that he will be giving testimony to a grand jury about evidence that relates to this investigation and implicates himself in a crime. Until now, Pagliano has been pleading the fifth and refusing to cooperate with the investigation.
  • The hacker Guccifer (Marcel Lazar Lehel) just had an 18-month temporary extradition order to the United States granted by a Romanian court, despite being indicted by the US back in 2014. Is Guccifer being extradited now in order to testify to the grand jury that the screengrab with the missing e-mail is real?
  • Attorney General Loretta Lynch was interviewed by Bret Baier and she would not answer whether or not a grand jury has been convened in this case. If there was no grand jury she could have said so, but if a grand jury is meeting to discuss evidence she would not legally be allowed to comment on it.

  This scandal has the potential to completely derail the Clinton campaign in the general election. If Hillary Clinton really cares about the future of this country and the Democratic party, she will step down now while there is still time to nominate another candidate. This is not a right wing conspiracy, it is a failure by one of our highest government officials to uphold the laws that preserve government transparency and national security. It’s time for us to ask Secretary Clinton to tell us the truth and do the right thing. If the United States government is really preparing a case against Hillary Clinton, we can’t wait until it’s too late.

  

  

  

  

  

• How To Trade Tomorrow's ECB Meeting

  The European Central Bank promised in January to "review and reconsider" its monetary stance this week. The question, as BloombergBriefs notes, is not if policy makers will ease but how. Haruhiko Kuroda's humbling in FX markets shows what Mario Draghi is up against tomorrow: namely, that even the most forceful policy decisions can be overwhelmed by events, positioning, or sentiment. Draghi has a number of options (some more and some less priced in) but most crucially there two large gaps to be filled in European Stock indices – the question is which is filled first?

  As BloombergBriefs adds, ECB members have been relatively shy about communicating their intentions for this meeting. That’s because — as the minutes of the last one revealed — they decided that "it had to be avoided, by means of appropriate communication, that markets developed undue or excessive expectations about future policy action, bearing in mind the market volatility experienced around the December 2015 monetary policy meeting." In other words, this time they have been cautious not to set the rhetorical bar too high to avoid another market disappointment.

  So, as The Wall Street Journal explains, Draghi has a few options:

  The ECB could move interest rates.

   

  They are the ECB’s primary, and least controversial, stimulus tool. Analysts expect the ECB to cut its deposit rate — charged to banks for storing their funds with the central bank — by at least a 0.1 percentage point, to minus 0.4%.

   

  A cut steeper than this would likely weaken the euro against other major currencies, and reduce short term lending rates, both things that are positive from the ECB’s perspective. On the other hand, rate cuts have also squeezed income streams for banks, cutting the amount they can make by lending.

   

  [Though we note the market is already pricing in far more rate cuts…]

  

   

   

  To offset some of the pain for banks, the ECB might impose the most punitive rate on only a portion of banks’ reserves. Japan, Switzerland and Sweden already have such multi-tier systems. Another way to ease the pressure on banks could be to cut the ECB’s main interest rate to zero from 0.05%.

   

  They could also expand quantitative easing.

   

  The ECB is currently buying about €60 billion a month of mainly eurozone government bonds, as well as asset-backed securities and covered bonds. Economists expect the ECB to accelerate its purchases by at least €10 billion per month, to €70 billion, and perhaps extend their duration by six months, to September 2017.

   

  Taken together, those two measures would boost the program by €540 billion to €2 trillion, or around 20% of eurozone gross domestic product, said Ken Wattret, an economist at BNP Paribas in London.

   

  When the ECB first announced its bond buying program, European stocks rallied, and bond yields tumbled. A bigger than expected expansion could have this effect again, as the purchases raise the price of bonds and shift investors into other markets.

   

  Part of any expansion could be a loosening the restrictions on QE.

   

  There are five major constraints right now.

  1. Bonds are purchased in proportion to a country’s capital key, a measure of the size of each economy and population.
  2. The ECB won’t buy more than 33% of any individual bond issue.
  3. It won’t buy more than 33% from any individual issuer.
  4. The bonds purchased must mature in no less than two years, and no more than 30 years.
  5. And it won’t buy bonds that yield less than its deposit rate.

  Dropping the latter requirement would be the least contentious tweak, economists say, and would greatly expand the pool of eligible assets, particularly of German bonds.

   

  Cutting the deposit rate as expected would, of course, make more bonds with negative yields eligible for the bond buying program. However, yields are likely to fall in reaction to any rate cut too, making some bonds ineligible again.

   

  The ECB could also buy other stuff.

   

  The ECB could buy corporate or senior bank bonds. That would be a “highly effective signal” with powerful effects, but would likely encounter serious resistance from some council members, said Holger Schmieding, chief economist at Berenberg Bank in London. More radically, the ECB could start buying stocks or even real estate, as Japan’s central bank has done.

  And BofA's Stephen Suttmeier details what to look for in the charts:

  EUR/USD – weakness into resistance leans bearish

   

  

   

  The last few major technical observations show EUR/USD's trend leans lower. Price made lower highs over the past year, two trend exhaustion signals suggested an end to the rally in February, and now price is failing to break above a short-term trend line that was once support. Price action failed at the 200d moving average and resulted in two doji candlesthis week, showing that neither bulls nor bears took control.

   

  EUR/GBP: Watch for a short-term head-and-shoulders top

   

  

   

  A close below the neckline of .77100 would form a short-term head-and-shoulders top that targets a move down to about .75000. Downside levels to know include the 50d average at .76586, .75440 and .74530. A close above yesterday's high, at .77928, and this top pattern is canceled.

   

  Bund and Gilt 10yr yield lean higher after 'exhaustion'

   

  

   

  Bund yields have confirmed the exhaustion suggested by the TD Sequential indicator on the daily and weekly charts by breaking above a short-term resistance line.

   

  

   

  Yield is also confirming the rising momentum divergence on the daily chart. A break above the less steep daily trend line creates additional upside targets to .298%, .36% and .42%.

   

  Brent may start to outpace WTI

   

  

   

  Front-month continuous Brent oil prices are breaking above a resistance line, although WTI is lagging behind and has yet to break a similar line. This may be an early sign that the WTI-Brent spread begins to decline toward support provided by a five-year trend line that is aligned with the 200wk moving average.

   

  Tactical bottoms in equities a vote of confidence in ECB

   

  The developing tactical bottoms on the EURO STOXX 50 (SX5E), STOXX Europe 600 (SXXP) and EURO STOXX Banks (SX7E) are a technical guide to how confident Europe's equity market is regarding the ECB and monetary policy. Near-term bottom breakouts would provide a vote of confidence in the ECB, unless indices fail to breakout. Either way,we view bounces as bear-market rallies.

   

  EuroStoxx bounce reminiscent of bear-market behaviour

   

  

   

  The tactical bottom or base may not be big enough to usher in a stronger rally for these indices. A decisive breakout above 3055.38-3056.22 on the SX5E would project to 3430, but the falling 200-day MA and downtrend line from last April provide resistance near 3282-3385. In addition, the SX5E was not able to meet its late October tactical bottom breakout target of 3660. This is bear-market bounce behavior and the risk remains for a limited tactical rebound. Important first supports come in at 2932 to 3855-3800.

   

  EuroStoxx Banks (SX7E)

   

  

   

  The SX7E did not breakout with the SX5E and SXXP in late October. Banks make up 14% of the SX5E and 10% of the SXXP, so it is important for the SX7E to confirm any upside breakouts in the SX5E and SXXP. A positive sign for the SX7E would be a decisive move above 109.59-110.68 (with additional confirmation from a move above the daily Ichimoku cloud), which would project to 132. However, the larger downtrend from July remains intact and prior support, at 122-126, could limit upside. Support at 103-100. This is bear-market bounce behavior and the risk remains for a limited tactical rebound. Important first supports come in at 332 to 320-318.

  Perhaps even more prescient are the two huge gaps that will inevitably be filled (via Geneve Swisss Bank)

  

  And finally, don't forget that THIS is not fixed yet…

  

   

  *  *  *

  In summary – Bunds are pricing in a 30bps rate cut, economist expect 10bps… Draghi will disappoint; and if he raises QE, markets will instanly front-run it forcing yields lower and making even more of them ineligible… Good Luck Mario!

  

  

  

  

  

• China Food Inflation Explodes To 4 Year Highs As Producer Prices Slump For 47th Straight Month

  For the 47th month in a row, China's Producer Prices have fallen year-over-year – a record deflationary streak. CPI rose 2.3% YoY – the fastest pace since May 2014 (against expectations of a 1.8% rise in consumer prices, and at the upper end of the +1.5% to +2.4% range). PPI printed as expected with a  4.9% YoY plunge in producer prices (-4.5% to -5.5% range). However, what is most disturbing – from both a social unrest and economic-stimulus-hope basis, is that Food prices exploded 7.3% YoY – the most in 4 years.

  CPI accelerating and PPI slumping..

  

   

  "The uptick in consumer prices is certainly striking," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. "But with virtually the entirety of the increase coming from food prices, it’s not an increase that’s likely to be sustained for long. Food prices are subject to supply shocks and seasonal blips."

  But, it looks like Food-flation is here to stay… China Pork prices were up 18.8% YoY in January (we can't wait to see the Feb data now)

  

  As Bloomberg noted recently,

  "It’s really a problem of lack of domestic growth and domestic demand," John Zhu, an economist at HSBC Holdings Plc in Hong Kong, said in a Bloomberg Television interview. "The longer you get negative PPI, the more the risk that inflation expectations get dragged lower."

   

  Factory-gate deflation will probably moderate to about 5 percent in the first quarter, according to Niu Li, an economist at the State Information Center, a research arm of the National Development and Reform Commission, the nation’s chief planning agency.

   

  "The producer-price index is still much lower than what we thought, indicating severe difficulties in the industrial sector," Niu said in an interview. "The PBOC is unlikely to impose any major change in its monetary policies because of the reading."

  And so with PPI tumbling and CPI surging – expectations for some yuuge stimulus package are wishful thinking.

  Yuan is tumbling on the data…

  

   

  And if anyone needed a lesson in market "efficiency", Dow Futures spiked 70 points on this decidedly bearish (i.e. no stimulus) data – note that the momentum started early and then snapped it higher on the data… only to fade back…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Why This Sucker Is Going Down – The Case Of Japan's Busted Bond Market

  Submitted by David Stockman via Contra Corner blog,

  The world financial system is booby-trapped with unprecedented anomalies, deformations and contradictions. It’s not remotely stable or safe at any speed, and most certainly not at the rate at which today’s robo-machines and fast money traders pivot, whirl, reverse and retrace.

  Indeed, every day there are new ructions in the casino that warn investors to get out of harm’s way with all deliberate speed. And last night’s eruption in the Japanese bond market was a doozy.

  The government of what can only be described as an old age colony sinking into certain bankruptcy sold 30-year bonds at an all-time low of 47 basis points. Let me clear here that we are talking about a record low not just for Japan but for the history of mankind.

  To be sure, loaning any government 30-year money at 47 basis points is inherently a foolhardy proposition, but its just plain bonkers when it comes to Japan.

  Here is its 30-year fiscal record in nutshell. Not withstanding years of chronic red ink and its recent 2014 consumption tax increase from 5% to 8%, Japan is still heading straight for fiscal oblivion. Last year (2015) it spent just under 100 trillion yen, but took in hardly 50 trillion yen of revenue, stacking the difference on its already debilitating mountain of public debt, which has now reached 240% of GDP.

  

  That’s right. A government which is borrowing nearly 50 cents on every dollar of outlays should be paying a huge risk premium to even access the bond market. But a government with a 240% debt-to-GDP ratio peering into a demographic sinkhole would be hard pressed to borrow at any price at all on an honest free market.

  The graphs below show what lies 30 years down its demographic sinkhole. To wit, Japan’s population will have declined by 30% to 90 million, while its working age population will have plummeted from 78 million to about 52 million or by 33%. Moreover, its labor force participation rate has been declining for years, but even if it were to stabilize at the current 60% level, it would still mean just 31 million workers.

  

  The trouble is, Japan already has 31 million retirees, and that number is projected to hit 36 million by 2060. In short, at the maturity date of the bonds the Japanese government sold last night, Japan will have more retirees than workers; it will be at a fiscal and demographic dead end.

  

   

  

   

  

  So how did Japan sell billions of 30-year bonds given these catastrophic fiscal and demographic trends?  The short answer is that it didn’t sell anything to investors. Instead, it rented what amounts to a put option to fast money traders. The latter operate from the assumption that they can cop a capital gain in the next while and then sell the paper back to the BOJ.

  And why wouldn’t they make that bet. The lunatics who run the BOJ have essentially guaranteed that they are the buyer of first and only resort for any Japanese government debt that remains outside of their vaults.

  Indeed, central bank announcements of negative yield are a form of code in the canyons of Wall Street and other financial markets. It means moar central bank bond-buying ahead, and therefore rising prices on the trading bait infused with the financial Viagra of NIRP.

  

  This is another way of saying that the BOJ has essentially destroyed the government bond market. Indeed, during Q4 2015 monthly volume in the JGB market fell to the lowest level since 2004.  As one bond market observer explained,

  “Yields will continue to fall and the curve will continue to flatten under pressure from negative rates and quantitative easing,” said Shuichi Ohsaki, the chief rates strategist at Bank of America Merrill Lynch in Tokyo. “Trading volumes will become even thinner. A typical bond investor probably wouldn’t want to touch this market.”

  As of last night’s auction, the entire JGB yield curve is now negative out to 13 years. That means that $5 trillion of bonds issued by the most fiscally impaired major government on the planet have been pushed into the netherworld of subzero returns.

  

  Needless to say, the government of Japan and the BOJ are not in the midst of some exotic experiment that is off the grid relative to the rest of the global financial system. To the contrary, they are implementing Keynesian central banking and fiscal policies on a state of the art basis. They are doing what Bernanke, Krugman, the IMF and heavyweight (on all counts) Keynesian blowhards like Adam Posen have recommended for years.

  Indeed, rather than blow the whistle on the obvious lunacy being practiced in Tokyo, the recent G-20 meeting gave Japan a pass on its currency trashing efforts and implied that its
  “stimulus” policies were just what the economic doctors and policy apparatchiks assembled in Shanghai ordered.

  Tomorrow, in fact, Draghi will make another plunge in the same direction. Already, more than $2 trillion of European government bonds are trading at negative yields, and for the same reason.

  To wit, the central bankers of the world have created a front-runners paradise. Yet so doing they have stood the very concept of a government bond in its head. Whereas the legendary British consol traded for nearly 200 years (outside of war interruptions) at par and to a rock solid 3% yield, today’s sovereign debt is being turned into a gambling vehicle where financial gunslingers and hedge funds play for short-run capital gains on 95:1 repo leverage.

  In a word, the central banks have nearly destroyed the government bond markets. In the process, they have flushed trillions of capital into corporate debt and equity in search of yield and momentary trading gains with scant regard for the incremental risks involved.

  So, yes, the casino is implanted with FEDs (financial explosive devices) everywhere, including upwards of $60 trillion of sovereign debt that is radically mispriced; and which must eventually implode when the gamblers finally stampede out of the casino.

  Perhaps last night’s Japanese bond auction was an omen, after all. The JGB 30Y yield is now below the UST 2Y for the first time since, well, the Lehman event of September 2008.

  

   

  Shortly thereafter, of course, our befuddled President at the time, George W. Bush explained the macroeconomic situation in a way that even the Congressional leadership assembled at the White House could understand.

  “This sucker is going down”, he told them. He got that right. It was just a matter of time.

  

  

  

  

  

• Deutsche Bank Goes "Searching For Liquidity;" Can't Find Any

  Liquidity worries are so 2015.

  In the new year, there are much more pressing concerns.

  Like a possibly imminent, overnight yuan float, which would quite simply torpedo every risk asset on the planet even as it would probably be just the thing Beijing’s economy needs to secure long-term stability.

  And then there’s crude prices which, when you strip out the volatility and near daily OPEC headline hockey, are poised to remain suppressed in perpetuity (don’t get lost in the daily melee, this is a story about fundamentals, and from a fundamental perspective, the outlook is bearish – just look at storage overflow and Iranian supply). That means the global deflationary impulse is likely to persist and that, in turn, translates to more central bank meddling and less liquidity.

  The funny thing is, although the punditry has apparently forgotten about liquidity, the issue now looms larger than ever because the junk bond liquidation is upon us, and that’s just the start of what’s ultimately going to be a bursting of the entire financial asset bubble central banks have inflated since 2009. HY is just ground zero for liquidity issues, and make no mistake, you’re going to see this take center stage in the months ahead. 

  Apparently, all of the above isn’t lost on Deutsche Bank’s research team (bless their hearts, because they’ll all be fired in the space of 12 months as their employer crashes and burns in what will end up being the largest banking disaster in Europe’s history) who are out with a rather insightful presentation on market liquidity. 

  We present, below, several slides which help to underscore the fact that “liquidity” is a lot like health insurance. You don’t need it until you do. But if you get sick and don’t have it… well… you may well end up sleeping in a cardboard box.

  And to carry that analogy further, markets are headed for Skid Row.

  

  

  

  

  

  

  

  

  

  

  

  

• Guest Post: A Message To The Voting Cattle

  Via The Burning Platform blog,

  The following video explains as well as we’ve ever heard, why we should all vote for Candidate Nobody.

  

   

  Here is the video:

   

  Of course, not 1 in 20 will listen to a twenty-minute video, even here. So, I transcribed it. And, added some pictures for your viewing pleasure. You should be able to read it in under ten minutes…

  *  *  *

  You cannot begin to imagine in how many ways the world is the opposite of what you have been taught to believe.

  

  You see the guy who sells drugs to willing customers so he can feed his family as the scum of the earth, while you see the hypocrite who gives away stolen money in the name of government, as a saint.

  

  You see the guy who tries to avoid been robbed by the federal thugs as a crook and a tax cheat, but see as virtuous the politician who gives away the same stolen loot to people whom it does not belong.

  

  You see the cop as a good guy when he drags a man away from his friends and family and throws him in prison for ten years for smoking a leaf  [every 51 seconds in Amerika]. And you see anyone who defends himself from such barbaric fascism as the lowest form of life … a cop-killer. In reality, most drug dealers are more virtuous than any government social worker, and prostitutes have far less to be ashamed of than political whores, because they trade only with what’s rightfully theirs, and only with those who want to trade with them.

  The upstanding church-going law-abiding tax-paying citizen who votes democrat or republican, is far more despicable, and a bigger threat to humanity, than the most promiscuous lazy drug snorting hippie. Why? Because the hippie is willing to let others be free, and the voter is NOT. The damage done to society by bad habits and loose morality is nothing compared to the damage done to society by the self-righteous violence committed in the name of the State.

  

   

  You imagine yourselves to be charitable and tolerant when you are nothing of the sort. Even the Nazis’ had table manners and proper etiquette when they weren’t killing people. You think you’re good people because you say ‘please’ and ‘thank you’? You think sitting in that big building on Sunday makes you noble and righteous?
  

  The difference between you and a common thief is that the thief has the honesty to commit the crime himself …. while you whine for government to do you’re stealing for you. The difference between you and the street thug is that the thug is open about the violence he commits, while you let others forcibly control your neighbors on your behalf. You advocate theft, harassment, assault and even murder, but accept no responsibility for doing so.

  

  You old folks want the government to steal from your kids so you get your monthly check. You parents want all your neighbors to be robbed, to pay for your kids schooling. You all vote for which ever crook promises to steal money from other people to pay for what you want.

  You demand that those people who engage in behaviors you don’t approve of, be dragged off and locked up but feel no guilt for the countless lives your whims have destroyed. You even call the government thugs ‘your representatives’ and yet you never take responsibility for the evil they commit.

  

   

  You proudly support the troops as they kill whomever the liars in DC tell them to kill and you feel GOOD about it.

  

  You call yourselves Christians or Jews or some other religion but the truth is, what you call your religion is empty window dressing. What you truly worship, the God you truly bow to, what you really believe in, is the State.

  Thou shall not steal, though shall not murder, unless you can do it by way of government then it’s just fine isn’t it? If you call it ‘taxation’ and ‘war’ it stops being a sin right? After all, it was only your God that said you shouldn’t steal and murder, but the State said it was OK. It’s pretty obvious which outranks the other in your minds. Despite all the church’s, synagogues’ and mosques we see around us, this nation has one God and only one God and that God is called Government.

  

  Jesus taught non-violence and told you to love your neighbor but the State encourages you to vote for people who will use the violence of government to butt into every aspect of everyone else’s life. Which do you believe?? To those about to stone a woman who had committed adultery, Jesus said ‘let him who is without sin cast the first stone’ but the State says it’s perfectly fine to lock someone up if they do something which you find distasteful, such as prostitution. Which do you believe?

  

  The Christian God says ‘Thou shall not covet’  …. but coveting is the life-blood of the beast that is the State. You were taught to resent, despise, and hate anyone who has what you don’t have, you clamor for the State to tear other people down, steal their property and give it to you, and you call that fairness, the Bible calls it coveting and stealing.

  

  You are not Christians. You are not Jews. You are not Muslims. And you certainly aren’t Atheists. You all have the same God and its name is … Government. You’re all members of the most evil insane destructive cult in history; if there ever was a devil the State is it, and you worship it with all your heart and soul. You pray to it to solve every problem, to satisfy all your needs, to smite your enemies and to shower its blessings upon you. You worship what Nietzsche called ‘the coldest of all cold monsters’ and you hate those of us who don’t. To you the greatest sin is disobeying your God, ‘breaking the law’ you call it. As if anyone could possibly have any moral obligation to obey the arbitrary commands and demands of the corrupt lying delusional megalomaniacs who infest this despicable town.

  

  Even your Ministers, Priests and Rabbi’s, most often than not, are traitors to their own religions, teaching that the commands of human authority should supersede adherents to the laws of the Gods they say they believe in.

  Several years ago I heard one pompous evangelical jack-ass in particular, pontificating on the radio that anyone who disobeys the civil authority be it a King or any other government, is ‘engaging in rebellion against God’. Those were the exact words he used. What if the government is doing something wrong? Well this salesman for Satan opined ‘that is the business of those in government and you are still obligated to obey’.

  

  Everywhere you turn be it the State or the church, the media or the schools, you are taught one thing above all else, the virtue of subjugating yourselves to mortals who claim to have the right to rule you. It is sickening the reverence in which you speak of the liars and thieves whose feet are so firmly planted on your necks. You call the congressmen and the judges ‘Honorable’ and you swoon at the magnificence of the grandiose halls they inhabit, the temples they built to celebrate the domination of mankind.

  You feel pride at being able to say you once shook a Senators hand, or saw the President in person. Ah, yes! The grand deity himself, his royal highness … the President of the United States of America! You speak the title as if you’re referring to God Almighty. The vocabulary has changed a bit but your mindset is no different from that of the groveling peasants of old, who bowed low faces in the dirt with a feeling of unworthiness and humility when in the presence of whatever narcissist had declared himself to be their rightful lord and master.

  The truth of the matter back then and today, is that these parasites who call themselves leaders are not superior beings. They’re not great men and women. They’re not honorable. They’re not even average.

  

  The people who earn an honest living — from sophisticated millionaire entrepreneurs to illiterate day laborers doing the most menial tasks you can imagine — those people deserve your respect. Those are people you should treat with courtesy and civility. But, the frauds who claim the right to rule you and demand your subservience and obedience, they deserve only your scorn and contempt.

  

   

  Those who seek so-called high office are the lowest of the low. They may dress better have larger vocabularies and do a better job of planning out and executing their schemes, but they are no better than pickpockets, muggers and car-jackers. In fact they are worse, because they don’t want to rob of just your possessions, they want to rob you of your very humanity, deprive you of your free will by slowly leeching away your ability to think, to judge, to act, reducing you to slaves in both body and mind. And still you persist in calling them leaders. Leaders?? Where is it that you think you are going exactly that would require you to have a leader?

  If you just live your own life and mind your own damn business, exercising your own talents, pursuing your own dreams striving to be what you believe you should be, what possible use would you have for a leader? Do you ever actually think about the words that you hear, the words that you repeat? You parrot oxymoronic terms such as ‘leader of the free world’.

  

  Even pretending for a moment that there’s some huge journey or some giant battle, that everyone in the entire nation is undertaking together that would require a leader … why would you ever think even for a moment, that the crooks that infest this town are the sort of people you should listen to or emulate or follow anywhere? Somewhere within your mostly dormant brains you know full well that politicians are all corrupt liars and thieves, opportunistic con-men, exploiters and fear-mongers. You know all this, and yet you still speak as though you are the ones who are the stupid vicious animals, while the politicians are the great wise role models, teachers and leaders, without whom civilization could not exist.

  You think these crooks are the ones that make civilization possible? What belief could be more absurd, yet when they do their pseudo-religion rituals, deciding how to control you this week, you still call it law, and continue to treat their arbitrary demands as if they were moral decrees from the Gods, that no decent person would ever consider disobeying. You have become so thoroughly indoctrinated into the cult of State worship that you are truly shocked when the occasional sane person states the bleeding obvious.

  

  The mere fact that the political crooks wrote something down and declared their threats to be law, does not mean that any human being anywhere has the slightest moral obligation to obey. Every moment of every day in every location and every situation, you have a moral obligation to do what YOU deem to be right, not what some delusional bloated windbag says is legal … and that requires you to first determine right and wrong for yourself, a responsibility you spend much time and effort trying to dodge.

  You proclaim how proud you are to be law-abiding citizens and express your utter contempt for anyone who considers themselves ‘above’ your so-called ‘laws’ … laws that are nothing more than the selfish whims of tyrants and thieves.

  

  The word crime once meant ‘an act harmful to another person’, now it means ‘disobedience to anyone of the myriad of arbitrary commands coming from a parasitical criminal class’. To you the word ‘crime’ is merely synonymous with the word ‘sin’; implying that the ones whose commands are being disobeyed must be something akin to Gods, when in truth they are more akin to leeches.

  The very phrase ‘taking the law into your hands’ perfectly expresses what a sacrilege it is in your eyes for a mere human being to take upon himself the responsibility to judge right from wrong and to act accordingly, instead of doing what you do, unthinkingly obeying whatever capricious commands this cesspool of maggots spews forth.

  You glorify this criminal class as law-makers, and believe that no one is lower than a law-breaker, someone who would dare disobey the politicians, likewise you speak with pious reverence of law-enforcers, those who forcibly impose the politicians every whim on the rest of us. When the State uses violence you imagine it to be inherently righteous and just, and if anyone resists, they are in your eyes, contemptible low lives, lawless terrorist criminals.

  Like the lawless terrorist criminals who helped slaves escape the plantation. Like the lawless terrorist criminals who helped Jews escape the killing machine of the Third Reich. Like the lawless terrorist criminals who were crushed to death under the tanks of the Red Chinese government in Tienanmen Square. Like all the lawless terrorist criminals in history who had the courage to disobey the never ending stream of tyrants and oppressors who have called their violence ‘authority’ and ‘law’.

  

  Everything you think you know is backwards, upside down and inside out, but what takes the cake, the height of your insanity, is that fact that you view as violent terrorists, the only people on the planet who oppose the initiation of violence against their fellow man, Anarchists, Voluntaryists and Libertarians. We use violence only to defend ourselves against someone who initiates violence against us. We use it for nothing else.

  

  Meanwhile your belief system is completely schizophrenic and self-contradictory. One the one hand you teach the young slaves that violence is never the answer, yet out of the other side of your mouths you advocate that everyone and everything everywhere and at all times be controlled, monitored, taxed and regulated through the force of government. In short, you are teaching your children that the masters may use violence whenever they please, but the slaves should never resist. You indoctrinate your children into a life of unthinking helpless subservience. You are putting the chains around their little necks and fastening the lock tight, and worst of all, you feel good about it.

  Out of one side of your mouths you condemn the evils of fascism and socialism, and lament the injustices of the regimes of Hitler, Stalin and Mao, while out of the other side of your mouths you preach exactly what they did —- the worship of the collective, the subjugation of every individual to that evil insanity that wears the deceptive label ‘the common good’.

  

  You babble on and on about diversity and open-mindedness then beg your masters to regulate and control every aspect of everyone’s lives, creating a giant herd of unthinking conformist drones. You wear different clothes and have different hairstyles and you think that makes you different, yet all your minds are enslaved to the same club of masters and controllers. You think what they tell you to think and you do what they tell you to do while imagining yourselves to be progressive, thinking and enlightened.

  

  From your position of relative comfort and safety you now condemn the evils of other lands and other times, while turning a blind eye to the injustices happening right in front of you. You tell yourself that had you lived in those other places, in those other times, you would have been among those who stood up against oppression and defended the down-trodden. But, that is a lie. You would have been right there with the rest of the flock of well-trained sheep, loudly demanding that the slaves be beaten, that the witches be burned, that the non-conformists and rebels be destroyed.

  How do I know this? Because that is exactly what you are doing today, today’s injustices and oppressions are fashionable and popular, and those who resist them, you tell yourselves, are just malcontents and freaks, people whose rights don’t matter, people who deserve to be crushed under the boot of authority, isn’t that right? You bunch of spineless unthinking hypocrites! Look in the mirror!

  

  Take a look at what you imagine to be righteous and kind – you are the devil’s plaything.The crowds of thousands wildly applauding the speeches of Adolf Hitler – that was YOU. The mob demanding that Jesus Christ be nailed to the cross – that was YOU. The white invaders who celebrated the whole-sale slaughter of those ‘Godless Redskins’ – that was YOU. The throngs filling the Coliseum applauding as Christians were fed to the lions – that was YOU.

  Throughout history the perpetual suffering and injustice occurring on an incomprehensible scale, it was all because of people JUST LIKE YOU – the well-trained thoroughly indoctrinated conformists, the people who do as they’re told, who proudly bow to their masters, who follow the crowd believing what everyone else believes and thinking whatever authority tells them to think, that is YOU.

  

  And your ignorance is not because the truth is not available to you, there’s been radicals preaching it for thousands of years. No, you are ignorant because you shun the truth with all your heart and soul. You close your eyes and run away when a hint of reality lands in front of you. You condemn as extremists and fringe cooks those who try to show you the chains you wear, because you don’t want to be free, you don’t even want to be human.

  Responsibility and reality scare the hell out of you so you cling tightly to your own enslavement and lash out at any who seeks to free you from it, when someone opens the door to your cage you cower back in the corner and yell “Close it! Close it!!”.

  

  Well some of us are finished with trying to save you, we’ve wasted enough effort trying to convince you that you should be free, all you ever do is spout back what your masters have taught you, that being free only leads to chaos and destruction, while being obedient and subservient leads to peace and prosperity.

  There are none so blind as those who will not see, and you, you nation of sheep, would rather die than see the truth.

  

  

  

  

  

• Presenting The Interactive Map Of European Refugee Assaults

  Everyone assumed it would be the threat (or the reality) of international terrorism that would ultimately break Europe’s resolve when it came to goodwill towards Mid-East refugees.

  Indeed, we remember vividly when the first reports of a “Kalashnikov assault” on cafes in the French capital hit social media on that fateful Friday in November.

  “That’s it,” we assumed, for Europe’s experiment with an open-door migrant policy.

  In spite of the violence and in spite of the chaos that ensued (manhunts across France, lockdowns in Molenbeek, a shootout in Saint-Deni) Europe largely kept its arms open to refugees from Syria, Afghanistan, and Iraq. The Paris attacks, Europeans seemed to reason, were more indicative of why people were fleeing to Europe, than they were a precursor of what refugees would ultimately import to the bloc.

  But sentiment soured in January.

  A wave of sexual assaults allegedly perpetrated by men of “Arab and North African origin” caused Europe to cast aspersions. No longer were these “victims” fleeing the type of carnage that tragically befell Paris in November, they were suddenly transplants from a barbarous culture whose attitude towards women was outdated by hundreds of years.  

  Is that reputation justified?

  Who knows.

  Frankly that would require an academic study of rapes and sexual assaults across the bloc before and after the mass migration, and control variables would need to be introduced for the nationality (or at least the likely suspected race) of the attackers. We’re reasonably sure someone is working on just that type of analysis at this very moment, but until robust, objective, quantitative results are available, the following interactive map will have to do. Explore it for yourself using Google’s legend and tools.

  h/t Garrett

  

  

  

  

  

• Keith Olbermann Unleashes On Donald Trump: "I Am Moving Out Of Your Building"

  We had a hard time deciding if the following rant written by the twice disgraced Keith Olbermann about, of all things, punishing Donald Trump by moving out of a Trump building (he is “getting out because of the degree to which the very name “Trump” has degraded the public discourse and the nation itself. I can’t hear, or see, or say that name any longer without spitting”) after dutifully making Trump richer for 9 years by paying his rent on time every month, was the product of some grotesqsue ghost writing by a 5-year-old, or a legitimate grievance, but ultimately we realized it was the latter.

  Then we started laughing. We are confident everyne else will too after reading the following.

  By Keith Olbermann, originally posted in the WaPo.

  

  “I can’t stand to live in a Trump building anymore”

  Okay, Donnie, you win.

  I’m moving out.

  Not moving out of the country — not yet anyway. I’m merely moving out of one of New York’s many buildings slathered in equal portions with gratuitous gold and the name “Trump.” Nine largely happy years with an excellent staff and an excellent reputation (until recently, anyway) — but I’m out of here.

  I’m getting out because of the degree to which the very name “Trump” has degraded the public discourse and the nation itself. I can’t hear, or see, or say that name any longer without spitting. Frankly, I’m running out of Trump spit.

  And, yes, I’m fully aware that I’m blaming a guy with the historically unique fashion combination of a cheap baseball cap and Oompa Loompa makeup for coarsening politics even though, out of the two of us, I’m the one who has promulgated a “Worst Persons in the World” list for most of the past decade. That’s how vulgar this has all become. It’s worse even than Worst Persons.

  This is the campaign of a PG-rated cartoon character running for president, interrupting a string of insults the rest of us abandoned in the seventh grade only long enough to resume a concurrent string of half-crazed boasts: We’re gonna start winning again! We’re gonna build an eleventy-billion-foot-high wall! We’re not gonna pay a lot for this muffler!

  All this coarseness is largely masking the truth that the Trump campaign is entirely about coarseness. Take away the unmappable comb-over and the unstoppable mouth and the Freudian-rich debates about genitalia, and there is no Trump campaign. Donald Trump’s few forays into actual issues suggest he is startlingly unaware of how the presidency or even ordinary governance works.

  Of course that doesn’t preclude his election. A December study carried out with the University of Massachusetts at Amherst showed that Trump’s strongest support comes from Republicans with “authoritarian inclinations.” They don’t want policy, nuance or speeches. They want a folding metal chair smashed over the bad guy’s head, like in the kind of televised wrestling show in which Trump used to appear.

  And it isn’t as though the American electorate hasn’t always had a soft spot for exactly the worst possible person for the presidency. Two months before the 1864 vote, some Republicans were so thoroughly convinced that Abraham Lincoln would lose in a landslide that they proposed to hold a second Republican convention and nominate somebody to run in his place. The Democrat they feared, George B. McClellan, was not only probably the worst general in the history of the country, but also his campaign platform was predicated on stopping the Civil War, giving the South whatever it wanted, running the greatest president in history out of town and repudiating the Emancipation Proclamation. Even after the North’s victory at Atlanta turned the tide of the war and thus the election, McClellan — anti-Union, anti-Lincoln, anti-victory and pro-slavery — still got 45 percent of the all-Northern vote.

  There could still be enough idiots to elect Trump this November. Hell, I was stupid enough to move into one of his buildings. But here in those buildings, even as I pack, is the silver lining hidden amid the golden Donald trumpery.

  One day Trump appeared in person and, with what I only later realized was the same kind of sincere concern and respect that Eddie Haskell used to pay “Beaver” Cleaver’s mother, asked me how I liked the place and to let him know personally if anything ever went wrong. About 15 months ago, when the elevators failed and many of the heating-unit motors died and the water shut off, I wrote him. He sent an adjutant over to bluster mightily about the urgency of improvements and who was to blame for the elevators and how there would be consequences, and within weeks Trump’s minions were obediently and diligently installing — a new revolving door at the back of the lobby.

  That three-week project stretched past three months, smothered the lobby in stench and grime, required the repeated removal and reinstallation of a couple of railings, and for a time created a window frosting problem even when it wasn’t cold out.

  So at least there’s this comfort. If there is a President Trump and he decides to build this ludicrous wall to prevent the immigration from Mexico that isn’t happening, and he uses that same contractor, it’ll take them about a thousand years to finish it.

  

  

  

  

  

• The "Terrifying Prospect" Of A Triumph Of Politics Over Economics

  Authored by Paul Brodsky of Macro-Allocation.com,

  The Triumph of Politics

   All of life’s odds aren’t 3:2, but that’s how you’re supposed to bet, or so they say. They are not saying that so much anymore, or saying that history rhymes, or that nothing’s new under the sun. More and more theys seem to be figuring out that past economic and market experiences can’t be extrapolated forward – a terrifying prospect for the social and political order.

   Consider today’s realities:

  Global economies have grown to their current scale thanks to a glorious secular expansion of worldwide credit – credit unreserved with bank assets and deposits; credit extended to brand new capitalists; credit that can never be extinguished without significant debt deflation or hyper monetary inflation

   

  Economies no longer form sufficient capital to sustain their scales or to justify broad asset values in real terms

   

  Markets cannot price assets fairly in real terms without risking significant declines in collateral values supporting them and their underlying economies

   

  Politicians that used to anguish (rhetorically) over the right mix of potential fiscal policies, ostensibly to get things back on track (as if somehow finding the right path would have actually been legislated into existence), have come to realize the limits of their power to have a meaningful impact

   

  Monetary authorities have become the only game in town, assassinating all economic logic so they may juggle public expectations in the hope – so far successfully executed – that neither man nor nature will be the wiser.

  The good news for policy makers is that man remains collectively unaware and vacuous; the bad news is that nature abhors a vacuum. The massive scale of economies relative to necessary production (not to mention already embedded systemic leverage) suggests this time is truly different.

  The net result of these realities is that assets are generally rich over the long term in both stock and flow terms. They are rich in stock terms because there is not enough money and transferable credit to settle accounts at current prices were all assets to be sold. (Although assets would never be sold en masse at once, the dearth of money and transferable credit relative to asset values implies lower future real valuations in societies with aging populations.)

  Stocks, bonds and real estate are rich in flow terms because current revenues and earnings have been pulled forward from the far future and are insufficient to provide investors with positive returns when adjusted for debt service and/or necessary currency devaluation.

  Unlike the credit crisis in 2008, the provenance of today’s spreading economic miasma is not grass roots greed and lather. Institutional idiocy (or corruption) in the form of poor policy responses to the crisis is to blame. Extraordinarily easy monetary policies, that continue today, have reduced economic sustainability and worsened future economic prospects. Like Catholicism without hell, capitalism without failure can’t work.

  It has been a triumph of politics over economics, and still they persist. Taking the old cigarette ad as a guideline, monetary policy makers “would rather fight than switch” to a more laissez faire posture that would let price levels of goods, services and assets find natural clearing prices.

  A Tenuous Thread

  So into the breach we go with negative interest rates. Quickly slowing global output growth and trade, fully-priced equity markets and naturally occurring non-sovereign debt deflation are pushing sovereign debt yields ever lower. Investors are meeting asset allocation requirements and valuing return-of-capital over return-on-capital (at least in nominal terms)

  Meanwhile, gold strength is discounting the eventual policy response to global debt deflation – central bank administered de-leveraging through monetary inflation. (Increasing the total money stock effectively de-leverages balance sheets by decreasing the burden of debt repayment, rather than decreasing the stock of debt, which also reduces nominal output.) To be sure, negative sovereign market yields across the world and gold strength reflect rational economics.

  Central bank policy rates are following market yields through zero percent, not the other way around. Central bankers seem desperate to appear as though the global economy remains in a cyclical growth phase, and that negative market yields are a product of their contrivance, borne from their wisdom and unique cleverness that such a scheme will be economically stimulative. Their institutional stiff upper lips are politically expedient yet alarmingly negligent. It would be better to step aside, let valuations fall where they may, and then, if they must, help pick up the pieces.

  A soothing narrative that ignores real asset values and unsustainably high real economic growth rates is being held together by beta investors structured during the economic scaling phase to allocate capital as though it would persist forever, and by policy makers willing to assume formerly model-able Keynesian economics.

  Banks

  Commercial banks are generally unconcerned with inflation-adjusted returns – theirs or their constituents. Their revenues and earnings can only be increased over time by increasing the nominal scale of their loan books.

  Borrowing short-term and lending long-term requires only a positively sloped yield curve. Absolute rate levels do not matter. It makes little difference to commercial banks whether they borrow at 3% and lend at 5% or borrow at negative 3% and lend at negative 1%. This implies that commercial banks can survive in a negative interest rate environment.

  Commercial bank funding rates are ultimately determined by deposit rates and/or central bank lending rates. Diminished returns elsewhere – like the capital markets – allow commercial banks to borrow from depositors or their central banks at reduced, even negative costs.

  Investment banks are not really banks. Rather than using a spread model like depository institutions, they survive and prosper mostly on a transaction model, which requires healthy and active capital markets. Those that operate alongside commercial banks (e.g., JP Morgan Securities), tend to have trouble when investors withdraw from capital market participation.

  Both investment and commercial banks suffer from declining capital market participation – investment banks due to declining transactional and asset management fees; commercial banks due to declining market liquidity, which leads to declining nominal values of their loan books.

  The primary responsibility of central banks is the health and viability of their commercial banking systems. The secondary responsibility is the health of the economies their constituent banks serve. Importantly, central banks do not directly oversee the viability of non-bank creditors. This is a critical policy identity to understand in times of significant market dislocation and decreasing market liquidity.

  Shadow Banking

  We know a bit about shadow banking, having spent 1986 through 1996 as a mortgage-backed securities trader and 1996 through 2006 as an MBS hedge fund manager. Shadow banking ultimately reduces to non-bank investors that extend credit. It includes a broad swath of investors, including large and small bond buyers, and even private lenders like your uncle Henry.
  There is a fundamental difference between bank loans and shadow bank loans. Banks make loans without having 100% of the capital they lend. Alternatively, shadow bank loans are fully-funded. JP Morgan creates a loan (at once an asset and a liability) from thin air while BlackRock or Uncle Henry must have $1,000 to lend $1,000.

  When we overlay this fundamental identity with the primary responsibility of central banks (to maintain a healthy and viable commercial banking system), we cannot help but conclude that bonds and other loans made outside the banking system are not ultimately protected by central banks’ ability to create bank reserves.

  This suggests extraordinary power lies in the subjective policies of central banks. In a contracting economy in which debt service is stressed, to what degree might monetary authorities decide to let shadow bank loans suffer? Is it possible central banks and other economic policy makers would pick favorites within the non-bank credit markets? Might central banks prefer to protect debt in the public credit markets that is also held as assets by its constituent banks? Was the 2009 experience, in which non-bank lenders and borrowers like General Motors and AIG were bailed out, be repeated? How political might this process be?

  Rational Policy Applications

  There is a lot to consider when it comes to negative interest rates and central bank monetary and credit policies. Negative interest rates means creditors pay to lend to governments, which further means that central banks, acting as monetary agents for sovereign governments, can turn government expenses into revenues. And they can do this while not necessarily impacting the viability of their primary constituent banks.

  If we assume that high and rising global leverage (as measured by debt-to-GDP or debt-to-base money) will eventually crowd-out global consumption and demand growth, then we can also assume that the purveyors of money and credit will be able to selectively apply austerity within their economies.

  Today, for example, sovereign debt and bank balance sheets in Japan and Europe are benefitting greatly from their central banks’ negative interest rate policies. The German government can sell five-year debt and receive forty basis points while Deutsche Bank can buy back its debt at levels that improve its sick balance sheet. Meanwhile European savers must find a place to store their wealth where it is not effectively taxed by negative yields.

  We continue to argue the Fed will hike Fed Funds more this year in an effort to strengthen the Dollar and attract global capital to American banks and capital markets. The US Treasury curve would continue to flatten in response, pushing mortgages rates lower – an effective easing. Such a scenario would help fund the Treasury at lower yields and increase US bank deposits, which would be able to offer global depositors higher rates (even at 0%) than European and Japanese banks.

  As Saudi Arabia is making a play for global market share in crude through its superior position as the low cost producer, so will the US make a play for global capital (and foreign assets) through its dominant reserve currency, asset markets and control over shipping lanes. This would be a perfectly rational response to current economic and market conditions.

  Rational Investment Posture

  Negative sovereign yields and policy rates (NIRP) might be ringing the proverbial bell. After seven years of major exogenous monetary stimulus concluding in negative rates around the world, investors today would be irrational to expect an economic expansion in the coming years or even a mild recession followed by a garden variety expansion, in our view.

  

  

  

  

  

• "You Want A Bloodbath?!" New Video Surfaces Of Police Shooting Oregon Protester In Back

  On January 2, Ammon Bundy had an idea.

  He would use the (re)incarceration of Dwight Hammond and his son Steven as a pretext for the takeover of a remote wildlife refuge. Then, once the facility was “secured,” the occupants would refuse to leave until the Hammonds were released and until Washington made concessions on state’s rights and land usage.

  It would be a grand rekindling of the “Sagebrush Rebellion” and Ammon would make his father Cliven (who became a kind of folk hero after staging a jailbreak for his cows who had been imprisoned by the federal government for bovine trespassing) proud.

  Of course we all know how Ammon’s “coup” turned out.

  He and his compatriots camped out in a snowy shack for a month and Robert “LaVoy” Finicum ended up getting shot by police on the side of the road. Meanwhile America either didn’t understand the cause or else simply didn’t care because when asked to send “supplies” to the aggrieved occupiers the nation sent sex toys and penis-shaped gummy candies. That’s not an editorial comment on the merits of the cause – it’s just a straightforward account of what happened.

  Anyway, there was still some controversy surrounding the death of “LaVoy” despite the fact that authorities released footage which pretty clearly shows Finicum reaching into his pocket, not once, but twice as police closed in. Officials would later say that in that pocket was this loaded 9 mm:

  

  On Tuesday, county prosecutors ruled the shooting “justified and necessary” despite the fact that Finicum was shot three times in the back.

  Here’s the autopsy report showing the three shots in Finicum #OregonStandoff pic.twitter.com/CQn7COKzkL

  — Simone Del Rosario (@SimoneReports) March 8, 2016

  Here is footage from inside Finicum’s truck synced with footage from police. We will leave it to readers to determine whether the shooting was indeed “justified and necessary.” 

  Finally, here are excerpts from The Oregonian’s account of the dramatic events that led to Finicum’s death:

  As Robert “Lavoy” Finicum powered his Dodge pickup over Devine Summit on the state highway north of Burns, he spotted the police van idling on a U.S. Forest Service road.

   

  Finicum glanced over at the state trooper in the driver’s seat as he went past.

   

  He pointed a finger at him, as if to say “I see you” and kept going.

   

  That likely was the moment Finicum realized he and his group wouldn’t make the community meeting planned that evening in John Day.

   

  Less than 30 minutes later, Finicum was dead and four other leaders of the Malheur National Wildlife Refuge takeover were in handcuffs.

   

  Police knew the leaders planned to travel to John Day in Grant County to the north on the only direct highway there – U.S. 395.

   

  They devised a traffic stop by state troopers to allow FBI agents to arrest the group on federal conspiracy charges. By midday, some members of the arresting team positioned themselves on Forest Service Road 2820, which branches east off the state highway toward a snow park near the summit of

  Devine Ridge. Another team set up roughly two miles north on the highway, prepared to act as a roadblock.

   

  “The sheriff is waiting for us,” Finicum yelled out the driver’s window to the officers and agents staged behind his truck.

   

  He puts his hands out the window and invited police to shoot.

   

  “Back down or you kill me now,” he said.

   

  He repeated twice more that he was going to meet the sheriff.

   

  Ryan Bundy, 43, of Mesquite, Nevada, seated behind Finicum with a .38-caliber pistol and two rifles within reach, yelled out the window: “Who are you?”

  Finicum echoed him.

   

  “Yeah, who are you?”

   

  “Oregon State Police” came the reply.

   

  “I’m going over to meet the sheriff in Grant County,” Finicum said.

   

  Police continued demanding Finicum turn off the truck and surrender, according to officer statements to investigators. But they didn’t move against those in the truck as they waited for a trooper posted at McConnell’s Jeep to bring a launcher with multiple pepper spray rounds.

   

  Those in the truck talked about what to do next.

   

  “If we duck and you drive, what are they going to do?” Cox asked Finicum. “Try to knock us out?”

   

  He noted they still had “50 ass miles” to go to reach John Day. He turned up the volume on country music that had been playing on the radio.

   

  “Who can we call?” Bundy asked.

   

  “Sheriff Palmer,” Finicum responded.

   

  As Bundy and Cox tried to get a cell signal, Finicum continued yelling at police.

   

  “You want a blood bath?” he asked. “I’m going to be laying down here on the ground with my blood on the street or I’m going to see the sheriff.”

  

  

  

  

  

• What Happens Next: These Six Catalysts Will Determine If The Market Surges Or Crashes

  As has been widely trumpeted across the financial media, today was the 7 year anniversary of the March 2009 market bottom: whether this “most hated rally” was worth the $60+ trillion in incremental global debt and the $14 trillion in global central bank liquidity, even as the middle class has been decimated – as we forecast would happen roughly around the time Ben Bernanke unveiled QE1- leading to such outcomes as a global rejection of a failed status quo and the rise of Donald Trump we leave to the historians.

  But what everyone wants to know now, is whether this “rally”, both since March 2007 and from the February 11 bottoms, will continue, or whether it will finally fold, and become the most overdue bear market in history.

  To be sure, nobody knows the answer, but here are three bullish and three bearish catalysts, i.e., the “P’s“, which according to BofA’s Michael Hartnett (who is still selling into strength) will determine where the market goes from here.

  Top Trumps, by BofA’s Michael Hartnett

  The big risk rally since Feb 11th has been led by the 4 “C’s” of Commodities, China-plays, Credit & Consumer, all on the back of bearish investor sentiment and the highest cash levels since Nov’01. We are concerned that complacency is creeping back in (both VIX & VDAX back at 200dma), and we do not think policy-makers will beat expectations at the ECB (3/10), BoJ (3/15) and FOMC (3/16) meetings. Therefore we remain sellers into strength; watch the relative performance of HYG/TLT, AUD/JPY & XLE/SPY for signs of buyers’ fatigue and risk-reversal. In March, our new BofAML MVP Model recommends going “long” Japan, Canada & Norway equities, paired with “shorts” in the Netherlands, Italy & US equities.

   

  BofAML’s base case (Table 5) and recent revisions to economic and market forecasts reflect a “reset” of 2016 expectations, rather than the likelihood of “recession” which has once again receded in recent weeks. Our 2016 US growth forecast is now 2.0%, down from 2.3% some weeks ago, and this low forecast of growth is mirrored in other developed economies (Eurozone 1.5% from 1.7%, Japan 0.7% from 1.2%). BofAML now expects two 2016 rate rises by the Fed (down from three earlier in year). Bond yield forecasts have been revised downward, although our assumption is that yields will rise, rather than decline, in coming quarters. And key FX rate and equity market forecasts have been revised to reflect the on-going struggle for sustainable economic growth.

   

  These forecasts certainly hint at a deflationary trading range for major asset classes. So what are the “top trumps” that could send bond, credit and equity markets substantially higher or lower than currently expected:

   

  Bull catalysts

  • Positioning: the brunt of the bear market has already happened and cash levels are mountainous.
  • Policy: Fed sticks to its guns on rate hikes; ECB/BoJ do not cut rates further; meanwhile an EM rate-cutting cycle is ahead of us, and the Doha Accord signals the
    low in oil prices is behind us; heavy hints of G7 fiscal stimulus.
  • Profits: both the US & China PMI’s move back above 50; Asian exports stop contracting (note the Feb contraction in China export growth of -25.4% was worst performance since May’09 – Chart 8); crucially, to sustain gains in equity and credit markets, we need to see a). US productivity growth acceleration and b). G7 consumption growth improvement…both are necessary to cause big, sustained upward moves in EPS forecasts

  

   

  Bear catalysts

  • Positioning: redemptions cause investors to unwind the “last of the long” positions in quality stocks and investment grade corporate bonds.
  • Policy: ECB & BoJ QE is greeted by investor repudiation, i.e. a rise (not a fall) in both European & Japanese bond yields and a stronger euro & yen.
  • Profits: US activity falters through the spring – note the ominous trend in US small business confidence (Chart 9); meanwhile a credit crunch and concerns of GREXIT, BREXIT, and the end of the Schengen Agreement causes European economic activity and profits to surprise to the downside.

  

   

  Hartnett concludes with the following notes to traders:

  • Cash mountain. Cash levels are very high (for some investors >1/3 in cash); QE failure, China, illiquid public markets, fragmenting political & social backdrop, poor risk-reward, most quoted reasons for “long cash, short conviction” position.
  • Sell-into-strength. Majority of investors in “sell into strength” mood; debate swirls around “level” & “timing” with SPX 1950-2030 & mid-March most favored.
  • No US recession. US widely seen as very unlikely to experience recession thanks to US consumer; that said, a Fed hike in the next six months would be big (positive) surprise to investors; bigger problem for investors is that US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated policy response.
  • No US$ bear market: no-one arguing for bout of cyclical US dollar weakness.
  • QE failure: investors increasingly regard policy meetings as a selling catalyst, not a buying catalyst; central banks can no longer turn “water into wine”.
  • Black dragon: first derivative China plays (Brazil, Miners, China) could be right to increase exposure to these on a 3 year view, but the second derivatives (Sydney/ Vancouver Real Estate) are too high; EM more interesting in world of low growth, low yields.
  • Extreme policy solutions mooted. Extreme markets/macro leading investors to countenance more extreme policies going forward: GREXIT in the summer, or a breakup of the Schengen Agreement, as a solution to the migration crisis problem; a summer BREXIT, as British are willing to exchange short-term economic risks/uncertainties for an assertion of sovereignty, control of immigration, and a rebuke to the political and economic elites; the abolition of notes and coins in circulation; debt monetization (starting in Japan); sustained period of negative interest rates 2016-2020.

  With that said, the one biggest catalyst may come as less than 24 hours from now, and it will be what Mario Draghi says at 2:30pm CET tomorrow. If the devastating December past is prologue, all that “smart money” selling in the past 6 weeks will be explained very soon.

  

  

  

  

  

  

• The Sabine Slam: Court Decision Threatens Midstream Sector

  Submitted by Charles Kennedy via OilPrice.com,

  A federal bankruptcy judge ruled that Sabine Oil & Gas could withdraw from its contract obligations with pipeline companies to ship a certain volume of oil and gas through their pipelines.

  The court decision may seem arcane, but it could have major ramifications for both producers and midstream companies. Under the contracts, a company like Sabine Oil & Gas promises to ship a certain volume of hydrocarbons through the pipeline at a set fee. If they fail to do so, they still have to pay the pipeline company for the use of the pipeline capacity.

  Sabine Oil & Gas, a struggling producer, says that it can no longer ship enough volume to meet the contractual agreement and it wanted to be let out of the contract. The company went to a bankruptcy judge in Manhattan, who ruled in Sabine’s favor.

  The pipeline contracts are very attractive to investors in midstream companies, who love the secure and stable revenue streams that such arrangements offer. The ruling could lead to a lot of uncertainty for the midstream sector. The Alerian MLP Index, an index fund that tracks pipeline companies, fell by more than 6 percent on March 8.

  

   

  Still, the judge ruled that Texas law was not clear enough to make the ruling binding. That likely means more litigation will be forthcoming. “One could see this ruling as something favorable for producers, but it’s something that’s going to play out further in the courts,” Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, told The Wall Street Journal. 

  More and more oil and gas producers are falling into bankruptcy, and even for those that avoid such a fate, meeting obligations with pipeline companies is becoming more difficult. The cloudy legality around how to get out of these contracts is creating uncertainty not just for drillers, but also for pipeline companies. The latest decision on Sabine Oil & Gas will do little to remove that uncertainty.

  

  

  

  

  

• "Are You Not Entertained" By This Close: Dow Back At 17K After Last Minute VIX Slam

  Seriously!!!! That Close!!!

   

  Your day in the "market"…

  

   

  The "stable" oil market…

  

   

  Following yesterday's noisy drop, today was the echo with a noisy choppy low volume rally as Oil sparked the momentum in the pre-open, but stocks decoupled lower from both JPY and Oil (smashed lower on weak wholesale trade data and a realization that US crude production rose)…

  

   

  Trannies outperformed as The Dow couldn't get too far away from unch… and then everyone panicced to buy at the close..

  

   

  On the week, The Dow clung to unchanged thanks to the panic close, but Trannies lag…

  

   

  No bounce at all in financials – even as Treasury yields rose – but energy obviously bounced (even though energy credit risk rose 6bps to 1262bps)

  

   

  Today saw two legs down – the first from a delayed reaction to the fact that crude production rose in the US and the second as Carson Block commented on the "dead cat bounce" – all that mattered today was defending the short-squeeeze trendline at 1980… What a total f##king joke that close was…

  

   

  And the ramp was all about getting The Dow above 17000!!!

  

   

  But VIX remains totally decoupled once again from global financial stress…

  

   

  Treasury yields rose all day pushing all but 30Y higher for the week…with Fischer's inflation sightings the catalyst

  

   

  Notably the USD Index tumbled as US Inventories data hit – pointing clearly at recessionary pressures building. But JPY plunged…

  

   

  Crude was the day's big winner for absolutely no good reason, PMs were modestly lower and copper gained back half of yesterday'slosses…

  

   

  Gold was triple-slammed overnight… but bounced back…

  

   

  Charts: Bloomberg

  

  

  

  

• "Some Folks Were Test-Firing Nuclear Missiles…"

  Hillary Clinton is “deeply concerned” about Iran’s missile tests, but President Obama proclaims this act does not violate the treaty? With The White House today saying it will “redouble” its efforts to limit Iran’s nuclear ability and noting that the US wouldn’t be surprised to see more test-fires this week, we wonder just what it takes to “violate” the treaty?

   

  

  Source: Investors.com

  
  

  Of course, test-firing missiles in Iran is totally different from test-firing missiles in North Korea…

  UPDATE: #NorthKorea reportedly launches 2 ballistic missiles into East Sea https://t.co/7AiuQBh0JY pic.twitter.com/7WQ1y9gqKF

  — Sputnik (@SputnikInt) March 9, 2016

  MORE: Missiles fired from #NorthKorean city of #Wosan, site of several similar launches https://t.co/7AiuQBh0JY pic.twitter.com/FXQXd6UHbY

  — Sputnik (@SputnikInt) March 9, 2016

  

  

  

  

  

• EIA Inventory Report and Oil Market Analysis 3 9 2016 (Video)

  By EconMatters

  

  Gasoline demand is driving the oil complex higher, relatively strong gasoline numbers on the refinery input side and the gasoline demand side of the equation. Brent should test $44 a barrel pretty soon, unless something dramatically happens that is unforeseen as of today.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

  

  

  

  

• "Where's Our $100 Million?" – Furious Bangladesh Holds Fed Responsible For Historic Theft

  Someone at the New York Fed messed up.

  On February 5, Bill Dudley was “penetrated” when “hackers” (of supposed Chinese origin) stole $100 million from accounts belonging to the Bangladesh central bank.

  As we reported on Tuesday, the money was apparently channeled to the Philippines where it was sold on the black market and funneled to “local casinos” (to quote AFP). After the casino laundering, it was sent back to the same black market FX broker who promptly moved it to “overseas accounts within days.”

  Obviously, that’s hilarious, not to mention extremely embarrassing for the NY Fed. Here’s what the Fed had to say yesterday about the “mishap”:

  • NEW YORK FED SAYS HAS BEEN WORKING WITH BANGLADESH C.BANK ON ISSUE OF LOST FUNDS
  • NEW YORK FED SAYS PROBLEMATIC BANGLADESH CENTRAL BANK PAYMENT INSTRUCTIONS ‘FULLY AUTHENTICATED’ BY SWIFT MESSAGING SYSTEM

  Right. Someone in the Philippines requested $100 million through SWIFT from Bangladesh’s FX reserves. Nothing suspicious about that.

  “Some 250 central banks, governments, and other institutions have foreign accounts at the New York Fed, which is near the centre of the global financial system,” Reuters notes. “The accounts hold mostly U.S. Treasuries and agency debt, and requests for funds arrive and are authenticated by a so-called SWIFT network that connects banks.”

  Well, as it turns out, Bangladesh doesn’t agree that the Fed isn’t ultimately culpable.

  “We kept money with the Federal Reserve Bank and irregularities must be with the people who handle the funds there,” Finance Minister Abul Maal Abdul Muhith said on Wednesday.

  “It can’t be that they don’t have any responsibility,” he said, incredulous.

  Oh yes it can, Mr. Muhith. Because you are Bangladesh and you are dealing with the NY Fed, a thoroughly corrupt institution which can do and say whatever it wants. If you think anyone at 33 Liberty cares about a lousy $100 million that went missing from the account of a country that most Americans only know exists because they checked the care label on their laundry, you are sorely mistaken. To wit, from Bloomberg:

  A Federal Reserve Bank of New York spokeswoman said on Monday there was no sign its systems had been hacked after Bangladesh Bank reported the missing funds.

   

  There is no evidence that any Fed systems were compromised, the spokeswoman said.

  Well, yes, there is “evidence that Fed systems were compromised” because $100 million was stolen from Bangladesh and the money ended up in Philippine casinos. 

  Muhith plans to seek legal recourse to recover the funds, although it wasn’t immediately clear who he’ll target, the “Chinese” hackers, the Philippine black market FX brokers, or Bill Dudley. 

  In any event, the Fed is sticking with its story. There was no “penetration.” 

  “To date, there is no evidence of any attempt to penetrate Federal Reserve systems.” 

  *  *  *

  From Bangladesh Bank’s statement

  It has been possible to recover a portion of the amount ‘hacked’ from Bangladesh Bank’s reserve account in the United States.

  Bangladesh Financial Intelligence Unit is engaged with the Philippines’ anti-money laundering authority to trace the destination of the remaining amount and recover the same.

  In the meantime, the Philippines’ anti-money-laundering authority filed case in that country and obtained court order to freeze the concerned bank accounts.

  

  

  

  

  

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• The Financial System Is A Larger Threat Than Terrorism

  Authored by Paul Craig Roberts,

  In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added to the taxpayers’ burden and many billions of dollars in profits to the military/security complex in order to combat insignificant foreign “threats,” such as the Taliban, that remain undefeated after 15 years. All this time the financial system, working hand-in-hand with policymakers, has done more damage to Americans than terrorists could possibly inflict.

  The purpose of the Federal Reserve and US Treasury’s policy of zero interest rates is to support the prices of the over-leveraged and fraudulent financial instruments that unregulated financial systems always create. If inflation was properly measured, these zero rates would be negative rates, which means not only that retirees have no income from their retirement savings but also that saving is a losing proposition. Instead of earning interest on your savings, you pay interest that shrinks the real value of your saving.

  Central banks, neoliberal economists, and the presstitute financial media advocate negative interest rates in order to force people to spend instead of save. The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money. The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own report that 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money. 

  Negative interest rates, which have been introduced in some countries such as Switzerland and threatened in other countries, have caused people to avoid the tax on bank deposits by withdrawing their savings from banks in large denomination bills. In Switzerland, for example, demand for the 1,000 franc bill (about $1,000) has increased sharply. These large denomination bills now account for 60% of the Swiss currency in circulation.

  The response of depositors to negative interest rates has resulted in neoliberal economists, such as Larry Summers, calling for the elimination of large denomination bank notes in order to make it difficult for people to keep their cash balances outside of banks.

  Other neoliberal economists, such as Kenneth Rogoff want to eliminate cash altogether and have only electronic money. Electronic money cannot be removed from bank deposits except by spending it. With electronic money as the only money, financial institutions can use negative interest rates in order to steal the savings of their depositors.

  People would attempt to resort to gold, silver, and forms of private money, but other methods of payment and saving would be banned, and government would conduct sting operations in order to suppress evasions of electronic money with stiff penalties.

  What this picture shows is that government, economists, and presstitutes are allied against citizens achieving any financial independence from personal saving. Policymakers have a crackpot economic policy and those with control over your life value their scheme more than they value your welfare.

  This is the fate of people in the so-called democracies. Any remaining control that they have over their lives is being taken away. Governments serve a few powerful interest groups whose agendas result in the destruction of the host economies. The offshoring of middle class jobs transfers income and wealth from the middle class to the executives and owners of the corporation, but it also kills the domestic consumer market for the offshored goods and services. As Michael Hudson writes, it kills the host. The financialization of the economy also kills the host and the owners of corporations as well. When corporate executives borrow from banks in order to boost share prices and their performance bonuses by buying back the publicly held stock of the corporations, future profits are converted into interest payments to banks. The future income streams of the corporations are financialized. If the future income streams fail, the companies can be foreclosed, like homeowners, and the banks become the owners of the corporations.

  Between the offshoring of jobs and the conversion of more and more income streams into payments to banks, less and less is available to be spent on goods and services. Thus, the economy fails to grow and falls into long-term decline. Today many Americans can only pay the minimum payment on their credit card balance. The result is massive growth in a balance that can never be paid off. It is these people who are the least able to service debt who are hit with draconian charges. The way the credit card companies have it now, if you make one late payment or your payment is returned by your bank, you are hit for the next six months with a Penalty Annual Percentage Rate of 29.49%.

  In Europe entire countries are being foreclosed. Greece and Portugal have been forced into liquidation of national assets and the social security systems. So many women have been forced into poverty and prostitution that the hourly price of a prostitute has been driven down to $4.12.

  Throughout the Western world the financial system has become an exploiter of the people and a deadweight loss on economies. There are only two possible solutions. One is to break the large banks up into smaller and local entities such as existed prior to the concentration that deregulation fostered. The other is to nationalize them and operate them solely in the interest of the general welfare of the population.

  The banks are too powerful currently for either solution to occur. But the greed, fraud, and self-serving behavior of Western financial systems, aided and abeted by governments, could be leading to such a breakdown of economic life that the idea of a private financial system will become as abhorent in the future as Nazism is today.

  

  

  

  

  

• Sweden Warns Women Not To Go Out Alone After Dark: "This Is Serious"

  As you might have noticed, Europe is falling apart.

  Some manner of ambiguous “deal” with the Turks notwithstanding, the EU is going to collapse under the weight of the millions of asylum seekers that have inundated the bloc over the past 12 months.

  At this juncture, the so-called Balkan Route has for all intents and purposes been closed (Angela Merkel’s protestations aside). This has left Greece in a terribly precarious situation. Tens of thousands of migrants are stuck now that Macedonia has sealed its borders, and barring some kind of dramatic breakthrough, Alexis Tsipras is going to watch as his country descends into chaos for the second time in 18 months.

  But while multiple countries have now suspended the bloc’s beloved Schengen in an effort to “stop the madness,” as it were, it’s too late to stop the chaos. As we’ve documented extensively, Europe was remarkably resilient in the wake of the Paris attacks, but after New Year’s Eve, when (rightly or wrongly) adult male Mid-East asylum seekers garnered a reputation for sexual assault, sentiment soured. Markedly.

  Since then, the entirety of the EU has been on high alert. Not for terrorists, but for sexual predators of “foreign origin.”

  One particularly divisive issue is the extent to which officials have tended to “blame the victim”, so to speak. For instance, Cologne mayor Henriette Reker drew sharp criticism for suggesting that it was German womens’ duty to prevent assaults by keeping would-be assailants “at arm’s length.”

  Then there was the now infamous case of the 17-year-old Danish girl who faced a fine from police after she allegedly used “illegal” pepper spray to deter an attacker.

  Well, in the latest example of authorities suggesting that Europeans should adapt to threats rather than compelling authorities to protect citizens, police in Östersund advised women not to walk around by themselves at night, during at press conference on Monday.

  “Women in a town in northern Sweden have been warned not to walk alone at night in the wake of a spike in violent assaults and attempted rapes,” The Daily Mail writes. “Police in Östersund made the unusual move to ask women not to go out unaccompanied after dark, after reports of eight brutal attacks, some by ‘men of foreign appearance’, in just over two weeks.” Here’s more:

  It is extremely unusual for Swedish authorities to make such warnings, and it has not been well received in Sweden, a country proud of its progress in gender equality and women’s rights.

   

  All incidents have taken place in Östersund since the 20th of February, and involved outdoor attacks where the perpetrators have been unknown to their female victims.

   

  

  (Östersund)

  
  

  A police spokesperson added that in addition to the increased frequency, the attacks are also conspicuous as – despite being carried out late at night – none of the perpetrators were drunk.

  Yes, sober potential rapists! Now that is alarming. 

  “What stands out is also that none of these perpetrators have been under the influence,” regional police chief Stephen Jerand told Sveriges Television.

  No, Stephen, what “stands out” is that there are gangs of men raping unaccompanied women in the streets of Östersund. Whether they are drunk or not is entirely irrelevant.

  In any event, Swedes weren’t happy with the suggestion that women should stay off the streets at night. Here’s The Local: 

  The force’s recommendation that women should avoid being alone at night swiftly prompted criticism in Sweden, a nation that prides itself on promoting gender equality.

   

  “The solution can never be to not go out because of such a warning. We have very many women who work in home and social care at night for example. What are they supposed to do?” the city’s mayor Ann-Sofie Andersson told Swedish broadcaster SVT.

   

  The politician, who represents the government’s Social Democrat party at a regional level, said she wished police had told her about their intentions before issuing the warning.

   

  “It’s wrong if it calls on women to adapt to the criminals. It risks leading people the wrong way, if the victims must adapt to the perpetrators,” he said.

  Fair enough, but police say their warning was taken out of context. 

  “We are not limiting anyone’s freedom. This is purely factual information,” the police chief told the TT news agency. “This is serious, we care about the protection of women and that is why we are going out and talking about this.”

  Essentially, the police are admitting that they are essentially powerless to stop this. Is it better that they come clean and warn the populace or pretend that they can protect the citizenry when they in fact cannot?

  And who here, ultimately, is at fault? It’s certainly not the Swedes and it’s probably not the Östersund police who can’t possibly be expected to cope, on short notice, with what’s happening to the country. You could fault Angela Merkel for adopting the “open-door” mirgrant policy, but really, if you want to trace the roots, you might want to ask yourself who destabilized Syria in the first place…

  
  

  

  

  

  

  

• Trump Wins Michigan Primary; Hillary In Close Race

  Update: Donald Trump is projected to win the key Michigan primary on top of his triumph in Mississippi. 

  *  *  *

  Frontrunners Donald Trump and Hillary Clinton will both face fresh tests on Tuesday, in their respective quests for their party’s presidential nomination.

  Trump put on a respectable, if less spectacular performance on Saturday, prevailing in Louisiana and Kentucky but falling to Ted Cruz in Kansas and Maine. As Bloomberg writes, “Trump’s victories also were narrower than polling had indicated, suggesting that attacks on his crude language and ill-defined policies from 2012 nominee Mitt Romney and others could be having an impact.”

  Maybe.

  Or it could simply “suggest” polling error or the simple fact that blowing the field away by 20 points in every state simply isn’t realistic – even for a tycoon juggernaut with a groundswell of popular support and a “great head of hair.” Or, as The New York Times puts it, devoid of our trademark humor, “it is not clear whether he struggled to win because he had lost ground or because anti-Trump voters had consolidated around Mr. Cruz. [because] Mr. Trump’s share of the vote on Saturday was roughly in line with what he had won on Super Tuesday.”

  In any event, Trump still holds a commanding lead going into contests to be held today in Michigan, Mississippi, Idaho, and Hawaii. Here’s what the delegate count looks like currently:

  

  As the Democrats head into contests in Mississippi and Michigan, here’s how the delegates shape up:

  

  Make no mistake, Michigan is the biggest prize for both parties today.

  A Monmouth University poll shows Trump with a commanding 36-23% lead over Cruz, who is urging GOP voters to back him as he is now the only candidate capable of derailing The Donald. “It’s easy to talk about making America great again. You can even print that on a baseball cap, but the critical question is, do you understand the principles and values that made America great in the first place?” Cruz asked last night, at a rally.

  But Trump’s support among the white working class who feel left out in the cold by outsourcing and the inexorable decline of the American manufacturing sector will likely carry the day for the billionaire.

  

  (Trump speaks in Michigan last Friday)

  “Trump appeals especially to the blue-collar voters in areas such as Macomb County north of Detroit, home of automotive plants and parts supplies and mostly white, union-member voters,” Stu Sandler, a Republican consultant from Ann Arbor who is not affiliated with any of the candidates, told Bloomberg. “Donald Trump’s campaign has fixed like a laser on working-class voters, and I think it’s really paid off,” he said.

  

  For his part, John Kasich needs to perform well. “He has staked his presidential campaign on winning his home state, and Michigan’s industrial base and working-class roots bear similarities to the Buckeye State,” Bloomberg notes. “Kasich is betting that a strong finish in Michigan, followed by a victory a week later in Ohio with its 66 delegates, will prevent Trump from getting the needed delegates and start a new phase of the campaign.”

  Make no mistake folks, that’s a pipe dream.

  Here’s an aggregated poll from RealClearPolitics:

  

  On the Democratic side of the coin, Hillary is 13 points ahead of “The Bern” in Michigan. “On paper, Michigan should be a good state for Mr. Sanders,” The New York Times notes, explaining that it’s “a white, working-class state that has been ravaged by outsourcing and ought to be receptive to Mr. Sanders’s message on economic issues.”

  “It is also a fairly liberal state, with big college towns like Ann Arbor and Lansing,” The Times adds. But Sanders will need a dramatic come from behind win. Clinton is once again dominate when it comes to the African American vote and the elderly in Michigan clearly aren’t “feeling The Bern” either. Here’s the breakdown from Monmouth:

  Hillary Clinton currently holds a 55% to 42% lead over Bernie Sanders in the Michigan Democratic primary. Clinton enjoys a solid edge among non-white voters (68% to 27%), who make up more than one-fourth of the likely electorate. Clinton (49%) and Sanders (48%) are virtually tied among white voters. Clinton has a 57% to 40% lead among voters who earn less than $50,000 a year, and a 54% to 42% lead among those who earn $50,000 or more. Sanders holds a solid lead (58% to 39%) among voters under the age of 50, but this is offset by Clinton’s more than 2-to-1 advantage among voters age 50 and older (65% to 31%).

  

  As far as Sanders’ attempt to tie Hillary to trade deals that have cost Michigan manufacturing jobs, the former Secretary of State has proven to be teflon. “You would think that it would be a fertile issue in Michigan,” said the publisher of Inside Michigan Politics. “But it seems that Democrats are willing to give Clinton a pass on it.”

  

  (fear the blue pantsuit)

  As an aside, it seems like Clinton “gets a pass” on quite a bit. 

  In any event, Michigan polls close at 8 p.m. local time. Stay tuned here for live coverage and the results, which we suspect will show a thorough “schlogning” on the GOP side and a rather decisive “burn” for “The Bern” on the Democratic ticket.

  

  

  

  

  

• The 'Market State' Prediction Went Terribly Wrong

  Submitted by Richard Fernandez via PJMedia.com,

  Immediately after legal scholar Philip Bobbitt tried to explain the history and future of the State in his book The Shield of Achilles, a brief intellectual storm swept the non-American Anglosphere as intellectuals pored over it as a guide to a world made murky by September 11, 2001. "The Shield of Achilles generated much interest in the diplomatic and political community. Public officials who follow Bobbitt's works include the former Prime Minister of the United Kingdom, Tony Blair; the Archbishop of Canterbury, Rowan Williams, who built his Dimbleby Lecture around Bobbitt's thesis; and the former Prime Minister of Australia, John Howard, who referred to Bobbit's book in a 2004 address to the Australian Strategic Policy Institute."

  September 11, 2001 was a memento mori moment for a civilization which had almost come to believe it was chosen to be the End of History.  In that uncertain time much store was laid on Bobbitt's concept of the "Market State" which he predicted would succeed the Nation State.   For an Anglosphere bewildered by a storm, the idea of a chart proved irresistibly attractive.  Bobbit explained the future evolution of the State as follows:

  "The simple difference between the two is that the nation state derives its power through its promise to improve its citizens' material wellbeing, while the market state is legitimised through its promise to maximise its citizens' opportunities." Or to put it another way, where the nation state – be it fascist, communist or democratic – is highly centralized, the market state is fragmented and is run by outsourcing its powers to transnational, privatized organisations.

  While the Nation State was focused on defending territory and nationality the Market State would be concerned with preserving a portable bundle of opportunities and rights its 'citizens' could use anywhere in a transnational world. In Bobbitt's elegant prose, "the threat to the state lay primarily in the unrealized domain of its ideals … the security of the state depended on the security of the larger system and if the latter were infused with the ideals of the triumphant liberal democracies, the security of the democracies and of the system as a whole was assured."

  The State had to transcend itself to survive.  Australian intelligence analyst Paul Monk correctly characterized the shift as enlarging and at the same time diminishing the role of the traditional state:

  A nation state is a state defined by sovereignty within territorial borders, the defense of those borders by means of deterrence or retaliation for violation of them, and a public policy of large-scale social security for the population within those borders.

  A market state, by comparison, is defined by constitutional, economic and strategic adaptation to a world in which the claims of human rights, the reach of weapons of mass destruction, the proliferation of transnational threats to security and well-being, and the emergence of global capital markets that ignore borders, curtailing the power of states to control their own economies; while the development of telecommunications networks that likewise ignore borders, serves to undermine national languages, customs, cultures and regimes.

  The problem was that in the intervening years the Market State prediction went — or has seemed to go — terribly wrong.  As recent events painfully illustrate, we're not getting warmer.  The search is getting colder. In a recent article in the New Statesman Bobbitt  admitted:

  It wasn’t supposed to be like this. … It was generally expected that [the triumph of liberal democracy] would, in Henry Kissinger’s words, “automatically create a just, peaceful and inclusive world” …

  How far we have come since those words were written. The international order that so confidently expanded the G8 to the G20, that continued the enlargement of the European Union to 28 member states, that brought about the first democratic elections in Iraq and Afghanistan despite harrowing terrorist intimidation, that increased the membership of Nato to include not only former members of the Warsaw Pact but even the Baltic states that had been part of the Soviet Union, and that created the Association of South-East Asian Nations and brought China into the World Trade Organisation is now shuddering and fragmenting. …

  Now, Henry Kissinger has concluded, “The state itself is under threat.”

  What happened to the progression to the Market State?  Most alarmingly the greatest threats appeared to come from obsolete forms given unnatural vitality by modern technology.  The international order is being challenged by "national, ethnocultural groups", even by entities categorized not by "nationality but by religion".   It is as if we had gone backward in time.  An Internet-powered ISIS, a WMD enhanced North Korea, an unpredictably hybridized Russia arose as Frankenstein forces that international system could neither explain nor contain.

  This suggested something was seriously wrong with the paradigm.   A resurgent nationalism rose from the graveyard of history where it had been interred by the globalized, multicultural world. Vladimir Putin reinvented himself as a Russian nationalist, not a born-again Communist in a world where socialism was in vogue only on Western campuses. Like Wrong Way Corrigan Europe was building a borderless Schengen regime all the way until the moment it was collapsed by a tide of refugees.

  With the UK on the verge of leaving the European Union in order to return governance of Britain to Britons, it is the political elites who seem seriously out of touch. In America the surprising ascendancy of Trump so traumatized the political establishment that Anne Applebaum gloomily asked in the Washington Post: "is this the end of the West as we know it?"

  Right now, we are two or three bad elections away from the end of NATO, the end of the European Union and maybe the end of the liberal world order as we know it. …

  In the United States, we are faced with the real possibility of Republican Party presidential nominee Donald Trump … A year from now, France also holds a presidential election. One of the front-runners, Marine Le Pen of the National Front, has promised to leave both NATO and the E.U. , to nationalize French companies and to restrict foreign investors. ….

   

  Britain may also be halfway out the door. In June, the British vote in a referendum to leave the E.U. Right now, the vote is too close to call — and if the “leave” vote prevails, then, as I’ve written, all bets are off. Copycat referendums may follow in other E.U. countries too. Viktor Orban, the Hungarian prime minister, sometimes speaks of leaving the West in favor of a strategic alliance with Istanbul or Moscow.

  "It wasn’t supposed to be like this," Bobbitt wrote.  But if so, why did the State fail to transition into the Market State?  The key fallacy may lie in his belief that the market state would work to "maximize its citizens' opportunities."  This belief rests on the unsupported assumption that such State would continue to act as the faithful agent of its citizens.  Yet once a State has been relieved of what Paul Monk called the duty to maintain "sovereignty within territorial borders … and a public policy of large-scale social security for the population within those borders" it acquires a rival claim to its services: the World.

  "World leaders" no longer work only for their own countries, but for the World.  Politicians like the Prime Minister of Greece suddenly find themselves working for "global capital markets that ignore borders", faceless bureaucrats in Brussels and accountable to a bewildering plethora of G's — G8, G20, etc — not to mention a United Nations and a United Europe.

  In retrospect the idea that an increasingly internationalized political elite would automatically remain faithful agents of their own populations should have rung alarm bells.  Although much has been made of the security violations of Hillary Clinton's private email system, its true value is as a record of how the Clinton's constituency grew beyond the borders of America.  It is not for nothing that the Clinton Foundation is also known as the Clinton Global Initiative.  It has received money from 20 foreign governments.

  A world where Angela Merkel feels compelled to accept millions of migrants for Europe even to the detriment of Germany and where president Obama feels he can sign major international treaties with Iran without reference to Congress is an unstable world locked in a game that is no longer transparent.  Who do politicians work for?  It creates a world of dubious loyalties and unpredictable coalitions.

  If the obvious conflict of interest has been ignored by the politicians, it has not been lost on the voters.  Many plainly sense what economists call an principal-agent problem, which may be the source of the current voter revolt.  Bobbitt comes near to identifying one of the causes of Market State failure when he observes that President Obama saw the ISIS problem from the standpoint of the international system rather than as president of the United States.

  In an interview in 2014, he described his vision of a new geopolitical balance of power in the region. “It would be profoundly in the interest of citizens throughout the region if . . . you could see an equilibrium developing between Sunni, or predominantly Sunni, Gulf states and Iran . . . If you can start unwinding some of [the distrust among the states of the region], that creates a new equilibrium. And so I think each individual piece of the puzzle is meant to paint a picture in which conflicts and competition still exist in the region but that it is contained.”

  What Obama did by putting "the interest of citizens throughout the region" in the forefront was unconsciously subordinate the claims of principal, the American people. Bobbitt notes, "it was only after "the San Bernardino killings in December 2015, [that] Obama acknowledged in a televised address to the nation that the US was at war, a concession he must have made with some reluctance."

  But Bobbitt has not taken his insight to its logical conclusion.  Obama's reluctance to recognize a threat to his country represents an unnatural state of affairs. The efficient cause of the current crisis lay in breaking the former chain of political accountability without replacing it with another.  If there is any truth to Anne Applebaum's belief that "we are two or three bad elections away from the end of NATO, the end of the European Union and maybe the end of the liberal world order as we know it," it must be that the fuse was lit before Trump; perhaps in 2008 or earlier.

  The fate of the State depends as much on principal/agent considerations as much as on Bobbit's duality of strategy and law.

  

  

  

  

  

• Gold ETF Holdings Rise For Record 40 Straight Days

  Yesterday marked the 40th day in a row that total known holdings of Gold in ETFs rose. Not since January 6th has the precious metal seen a reduction in holdings. This is the longest streak of increased holdings since ETFs were born…

  

   

  It seems, despite exuberant equity bounces, reassurance about the awesomeness of the “jobs” recovery, and Fed confidence-inspiring jawboning that more than a handful of ‘goldbugs’ are hoarding the pet rock.

   

  Charts: Bloomberg

  

  

  

  

  

• Bernie vs. Ron Paul: There's No Comparison

  Submitted by Llewellyn Rockwell via The Mises Institute,

  Super Tuesday may have been the beginning of the end for the Bernie Sanders campaign, but the ideas that propelled it are likely to linger for quite some time. With some writers comparing Bernie to Ron Paul (not in terms of economics and philosophy, of course, but as insurgent candidates), now seemed like an opportune moment to examine the Sanders message and legacy, and compare it to Ron’s.

  Like Ron, Bernie surprised all the pundits with his fundraising, polling, and electoral success. In fact, so successful has Sanders been that Hillary Clinton has been reduced to a pathetic and unconvincing “me, too” campaign — I can be just like Bernie, if that’s what you rubes want!

  Bernie has gained a lot of traction from his complaints that Hillary is in the tank for Wall Street and the big banks. He’s likewise pointed to the six-figure honoraria Hillary has earned from speeches given to the big banks.

  The best the now-hapless Bill Clinton could do in reply was to note that Bernie, too, had been paid to give speeches. Technically, Bill was right. Bernie had earned money from public speaking: a whopping $1,800 over the course of a year. The year before that, Bernie had earned $1,300 from public speaking. All of this money was donated to charity, as is the requirement for US senators.

  It’s true that Bernie is better than Hillary on foreign policy, but in keeping with Rothbard’s Law — everyone concentrates in the area in which he is worst — Bernie speaks very little about issues of war and peace. And even there, consistency and principle are elusive: he supported Bill Clinton’s bombing of Serbia over Kosovo, an act of terror based on propaganda that rivaled anything George W. Bush ever peddled. Sanders favors the ongoing drone campaigns, too, and even supported the F-35, one of the biggest boondoggles in the Pentagon’s long and sorry history.

  Bernie’s primary legacy will be to have resuscitated the idea of socialism in the minds of many Americans. It is a very confused socialism, to be sure. The young people who follow Bernie can’t even seem to define socialism, according to recent surveys. And in fact Bernie’s economics is really just a hyper-Keynesianism rather than out-and-out socialism. But by suggesting that the Scandinavian countries constitute a model that the United States should emulate, he has encouraged the idea that only large-scale, systemic change in the direction of vastly increased government power can produce the kind of society Americans want.

  Capitalism ought to be our default position, since it conforms to the basic moral insights we acquired in our youth: keep your word, live up to your agreements, don’t take what doesn’t belong to you, and do not cause anyone physical harm.

  But thanks to years of propaganda to the contrary, socialism has come to appear to many people as not simply a morally plausible position but clearly and obviously desirable and superior to the capitalist alternative. The free market, they are convinced from what they recall from their elementary school textbooks, leads to “monopoly” and oppression.

  Bernie speaks as if the system is rigged against the people because of business influence in government — a fair enough point, as far as it goes — but it’s hard to take this criticism seriously when his proposed solution is to extend the influence of politics over more and more areas of life and increase the powers and scope of the very government he is supposed to be criticizing.

  The Sanders narrative is rooted in two major historical claims, both of them dead wrong.

  First, Sanders believes “capitalism” was to blame for the 2008 crash. But as mises.org readers know, that downturn, like the Great Depression before it, was preceded by years of Federal Reserve credit expansion. According to the Austrian theory of the business cycle, the artificial lowering of interest rates below free-market levels sets in motion an unsustainable economic boom. The economy is set on a path that could be sustained only if real resource availability were greater than it really is. Eventually, when real savings and resources turn out not to exist in the abundance that the Fed’s interventions misled people into expecting, projects have to be abandoned and the phony prosperity becomes real recession.

  Sanders supporters will no doubt point to the great number of bad mortgages originated by private lenders. But would these mortgage loans have been extended in the first place if institutions like Countrywide couldn’t sell them to the government-privileged Fannie Mae and Freddie Mac? Fannie and Freddie enjoyed special tax and regulatory advantages and had a special line of credit from the US Treasury — a line of credit everyone knew would be essentially limitless if push ever came to shove.

  It was the perfect storm: the Fed’s crazed monetary policy injected huge quantities of additional credit circulating throughout the economy, and the federal government’s various mandates and regulations made real estate an artificially attractive outlet for all that new money. When this ramshackle edifice came crashing down, capitalism — which, in the midst of all this money creation and regulatory lunacy, had never been tried — took the blame.

  Indeed, what could be intellectually easier than blaming the “free market” for a phenomenon a critic doesn’t understand? Ron Paul, on the other hand, never tired in his own presidential campaigns of going beyond surface explanations to account for what really happened in the disaster of ’08, and identify who the real culprits were.

  The other part of the Sanders story — Scandinavia — is shallow and misleading, too.

  In fact, Denmark’s own prime minister, Lars Lokke Rasmussen, finally had to correct the Vermont senator’s references to his country as “socialist.” “I would like to make one thing clear,” Rasmussen said. “Denmark is far from a socialist planned economy. Denmark is a market economy.”

  Still, there’s no question Denmark has a large public sector. And it’s starting to suck the life out of the place. Denmark’s various benefits subsidize idleness to an absurd and unmanageable degree. In the country’s 98 municipalities, guess how many have a majority of residents working. If you answered three, you know far more about Denmark than Bernie and his supporters do.

  It’s a similar story in the rest of Scandinavia. For instance, Sweden’s welfare state was able to develop only because of the wealth created by decades and decades of a prosperous market economy. Private-sector job creation was anemic to nonexistent in the decades following the radical expansion of the Swedish welfare state. And as for Norway, there are lots of “free” things there, it’s true — if you’re prepared to pay a 75 percent effective tax rate.

  The comparison of Bernie to Ron goes like this: both launched insurgent, anti-establishment presidential campaigns while in their 70s, shook up their respective party establishments, and attracted large youth followings. But Bernie is no Ron.

  Just on the surface: Bernie is a grump and difficult to work with; Ron is a kindhearted gentleman who always showed his appreciation for the people in his office.

  More importantly, Ron urged his followers to read and learn. Countless high school and college students began reading dense and difficult treatises in economics and political philosophy because Ron encouraged them to. Bernie’s followers receive no such encouragement. And why should they? Bernie’s platform merely regurgitates the fallacies and prejudices his young followers already imbibed in school. What more is there to read?

  Ron’s followers, meanwhile, were curious enough to dig beneath the surface. Is the state really a benign institution that can costlessly provide us whatever we might demand? Or might there be moral, economic, and political factors standing in the way of these utopian dreams?

  Bernie’s supporters demand material things for themselves, to be handed to them at the expense of strangers they have been taught to despise. But like Ron himself — who as an OB/GYN opposed restrictions on midwives even though doing so was not in his material interest — the young Paulians embraced the message of liberty without a thought for material advantage.

  It’s not hard to cultivate a raving band of people demanding other people’s things. Such appeals arouse the basest aspects of our nature, and will always attract a crowd. It’s very hard, on the other hand, to build up an army of young people intellectually curious enough to read serious books and consider ideas that go beyond the conventional wisdom they learned in school about government and market. It’s hard to build up a movement of people whose moral sense is developed enough to recognize that barking demands and enforcing them with the state’s gun is the behavior of a thug, not a civilized person. And it’s hard to persuade people of the counter-intuitive idea that society runs better and individuals are more prosperous when no one is “in charge” at all.

  Yet Ron accomplished all these things. And that is why, when we position the Vermont senator against the Texas congressman, Ron’s achievement is so much greater and more historic.

  

  

  

  

  

• Who Makes What?

  From Bahamian crawfish to Mexican shoes, and from Argentine soybeans to Ethiopian coffee, the world makes (and trades) in far more than just crude oil and petroleum products. However, given the current deflationary world, it is very notable how many countries in the world are dependent on commodities as the primary source of foreign income.

  The following map of the world shows each country’s major export…

  

  Source: BofA

  

  

  

  

  

• Hillary's Scary New Cash Tax

  Submitted by Brian Hunt via InternationalMan.com,

  Have you heard of “negative interest rates”?

  It’s become a phenomenon with economists and the media.

  There’s a good chance you’ve read an article about it. We’ve covered it many times in the Dispatch.

  I’m writing to tell you something about negative interest rates you haven’t heard. You certainly won’t hear about it in the mainstream press.

  What’s coming at you is a historic event. It’s something our grandchildren will hear stories about…much like the Great Depression or the Cold War.

  What’s coming could send the price of gold much higher in the coming years…and hand gold stock owners 500%+ gains.

  If you know what’s coming, it could mean the difference between having lots of free cash in retirement or barely getting by.

  To understand the gravity of this moment, let’s cover one of the most bizarre ideas in the world…

  negative interest rates.

  In a normal world, your bank pays you interest on your savings. It takes your money, pools it with other people’s money and loans it out.

  The bank makes money by paying out less in interest on your deposit than it earns in interest from borrowers.

  For example, it might pay out 3% to depositors while earning 6% from borrowers.

  This is how it has worked for decades.

  Negative interest rates turn your “normal” bank account upside down.

  Negative interest rates could only exist in a crazy world where idiot politicians are in control.

  Unfortunately, that’s just what we’re dealing with right now.

  Politicians all over the world are ordering banks to charge depositors (you) a fee for storing cash.

  It’s a perversion of saving. It’s a perversion of capitalism. It’s a perversion of planning for the future.

  And it’s going to result in disaster.

  Politicians think that by making it unattractive for you to keep money in the bank, you’ll save less money. Instead, you’ll spend more money on things like smartphones and cars. You’ll invest in things like stocks and real estate.

  This would “stimulate” the economy.

  This thinking is very, very wrong. No matter what the government does, it can’t force you to spend money. It can’t force you to make investments if you don’t see good opportunities.

  Forcing people to pay banks to hold their money is a tax. It is wealth confiscation for the digital age.

  The government and the mainstream press won’t dare call it a tax.

  But that’s exactly what it is.

  A negative interest rate policy is a tax.

  Any time you hear a politician, central banker or news anchor say “negative interest rates,” just think “TAX.”

  Think “TAX ON MY CASH.”

  I’ll say it again: negative interest rates are going to result in financial disaster.

  The coming disaster will wipe out many people.

  But you don’t have to be one them.

  I’ll explain how you can sidestep this disaster—and even make a lot of money as a result of it—in a moment.

  But let’s quickly cover one more thing about negative interest rates…

  The Ugly Twin Sister of Negative Interest Rates

  If the government makes it unattractive for you to keep cash in the bank, you can pull cash out of the bank. You can simply store it in a safe or under a mattress.

  Politicians know this.

  That’s why they’ve created another dangerous policy that works hand-in-glove with negative interest rates.

  That policy is banning cash.

  You see, if you pull your money out of the banking system and stuff it under the mattress, you aren’t doing what the government wants you to do.

  You’re not spending money or investing in stocks.

  This is a major reason why governments are banning large cash transactions and large denomination bills.

  They are fighting a War on Cash.

  In just the past few years…

  ***Spain banned cash transactions over 2,500 euros.

  ***Italy banned cash transactions over 1,000 euros.

  ***France banned cash transactions over 1,000 euros, down from the previous limit of 3,000 euros.

  And just a few weeks ago, former U.S. Treasury Secretary Larry Summers called for a ban on the $100 bill!

  Historians aren’t surprised by Summers’ idea. Franklin Delano Roosevelt banned $500 and $1,000 bills in the 1930s.

  You can bet that Big Government types like Hillary Clinton and Donald Trump will do the same thing in a financial emergency.

  By making it so difficult (or illegal) to buy and sell things with cash, the government wants to force people into the banking system. That way, it can monitor us and coerce us into whatever it wants…like paying outrageous new taxes.

  It’s all a dream come true for government central planners.

  The governments say these new currency laws are for fighting terrorism, money laundering and drugs.

  But the ultimate goal is control of society…and to confiscate the wealth of private citizens.

  As former Congressman Ron Paul said, “The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American.”

  Whether you agree with these regulations or not, the conclusion is obvious:

  By driving us more and more toward trackable digital payments, the government has made it much, much easier to confiscate our wealth.

  We’re like sheep that have been “herded” into a corral, ready for shearing.

  And Hillary Clinton and her Big Government cronies are holding the clippers.

  However, you don’t have to be sheared.

  You can avoid the shearing by learning how to navigate what will become the largest underground currency market in history.

  Hillary Doesn’t Want Your Gold. She Wants Your Cash.

  On April 5, 1933, President Franklin Delano Roosevelt issued one of the most controversial orders in U.S. history.

  It went by the name “Executive Order 6102.”

  Not one American in 1,000 knows about this order. But to this day, many experts consider it to be one of the most destructive acts in U.S. history.

  It violated sacred principles held by our founding fathers. It impoverished millions and confiscated the savings of honest, hardworking Americans.

  Executive Order 6102 made it illegal for private citizens to own gold. Citizens were ordered to turn in their gold to the government.

  Why would the government confiscate the wealth of private citizens?

  You can fill a book on the history surrounding Executive Order 6102. But in a nutshell, it was the act of a desperate government in the midst of a financial crisis.

  The government wanted the gold in order to increase the nation’s money supply. It believed an increase in the money supply would revive the struggling economy.

  Please review those last two paragraphs…

  An increase in the money supply…a struggling economy…a desperate government.

  Sound similar to what is happening right now?

  Since the answer to that question is “YES,” we have to ask another question…

  Could such a confiscation happen again?

  As the crisis develops, our deeply indebted government will act like a giant wounded beast, lashing out in all directions. It will grow more desperate for control. It will grow desperate for money.

  And just like FDR did in the 1930s, it will confiscate the wealth of private citizens.

  But Hillary Clinton (or Donald Trump, or whoever wins the election) won’t go after your gold.

  Nowadays, the gold market is very small compared to the overall economy.

  Going after gold would be too much work for the government.

  The government is going to go after YOUR CASH.

  It will regulate your cash. It will tax your cash. It will take your cash.

  This has all kinds of implications for banking and the economy.

  But here’s the most important thing you need to know as an investor:

  Negative interest rates and their partner, the War on Cash, will create a renewed interest in gold. This could cause gold to double or even triple in value.

  Even children know what the government is doing is crazy.

  And people aren’t going to take this lying down.

  Rather than participate in the government’s monetary farce, people will go underground.

  They will pull cash out of banks and hoard it in safe places. And they will seek the safety, anonymity and reliability of gold and silver.

  Gold and silver have served as money for centuries.

  Gold is the ultimate currency because it doesn’t rot or corrode…it is durable…easily divisible…portable…has intrinsic value…is consistent around the world…and it cannot be created from thin air. It cannot be debased by the government.

  By enforcing negative interest rates and fighting a War on Cash, the government will create a huge underground currency market.

  And the ultimate underground currency will be gold and its sister metal, silver.

  Gold is trading for around $1,260 an ounce right now.

  As the government blunders into a negative interest rate disaster, gold will likely rise 50%…100%…possibly even 200% higher.

  There’s an underground currency market coming to your neighborhood.

  If you own enough gold, you’ll be its king.

  If you don’t yet own gold, buy it now.

  If you own a lot of gold, buy more.

  

  

  

  

  

• "War Is A Drug": Images From The Eerie Syrian Ceasefire

  Late last month, John Kerry and Sergei Lavrov celebrated a “temporary cessation of hostilities” in Syria.

  Obviously, the “ceasefire” didn’t include ISIS, but more critically for peace, it didn’t include al-Nusra either.

  Nusra is of course al-Qaeda’s Syrian arm, and what’s important to understand is that unlike ISIS, their positions are difficult to distinguish from those of the FSA and other rebel groups that are a party to the US-Russian agreement. As we noted late last month:

  “While the ISIS presence is concentrated in eastern Syria, al-Nusra has positions in Aleppo City, the Jabal Turkman region of Northeastern Latakia, the Jabal Zawiya region in Southern Idlib Province, and the Quneitra Province along the Golan Heights. Just to name a few. That effectively means Russia can bomb anywhere along the country’s urban backbone in the west and claim to be targeting the group.”

  By all accounts, that fact alone should have made the ceasefire a no-go but relatively speaking (and when it comes to ceasefires, it’s all “relative” in Syria) things actually haven’t gone so badly. Sure, more than 200 people have reportedly been killed, but according to “sources” (and we use that term very loosely because it almost always refers to one guy in London) Sunday was the “calmest” day yet, with “only” 14 people killed.

  While we’re certain (and saddened) that hostilities will resume anew in relatively short order, we found the following images from the ceasefire to be interesting if only for the degree to which some fighters seem bored – almost dejected – at the lack of violence.

  “War”, as Chris Hedges famously wrote, “is a drug.”

  

  

  

  

  

  

  

  

  

  

  

  *  *  * 

  “I learned early on that war forms its own culture. The rush of battle is a potent and often lethal addiction. Many of us, restless and unfulfilled, see no supreme worth in our lives. We want more out of life. And war, at least, gives a sense that we can rise above our smallness and divisiveness.”

  

  

  

  

• API Oil Report Relatively Good for This Time of Year (Video)

  By EconMatters

  

  The API Report Much Better than Expected. The EIA Report will be out tomorrow, focus on the U.S. Production Number – the most important element of the report. How many more EIA Reports until we break the 9 Million Barrel per day threshold in U.S. Oil Production.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle  

  

  

  

  

• India Gold Imports Strong Despite Government's Perpetual Obstruction

  Submitted by Koos Jansen via BullionStar.com,

  While India’s gross gold bullion import in 2015 reached the third highest amount ever at 947 tonnes and gross silver bullion import reached the highest amount ever at 8,504 tonnes, the Indian government is perpetually trying to obstruct the populace from protecting their wealth.

  Last week I was going through gold and silver trade data released by the Indian Directorate General of Commercial Intelligence and Statistics (DGCIS) and observed strong import of precious metals in 2015. At the same time I was reading the documents, news came out that stated the Indian government was to implement extra rules to hinder its people from buying gold. In my view, the situation in India is another perfect example of a government’s nonsensical fight against the economic tide. Central banks do it all time don’t they?

  In an ongoing failure to understand what capitalism is about, the Indian government continues to “disagree” with its citizenry where savings should be placed. Whenever the Indian people increase gold purchases to secure their financial wellbeing, the government is keen to find new tactics to suppress this free market expression. The government aims the country’s wealth to be where it suits them – in the fiat currency they issue and control, but the populace believes fiat currency is inherently vulnerable and chooses physical gold for its long-term wealth preservation. It seems the more the Indian rulers resist private gold demand, the stronger the forces they’re fighting become. As we’ll see below, most undertakings by the government to keep its people from buying gold have been in vain.

  First, let’s have a look at an overview of all the measures undertaken in the past years. At the end of the post I will present the details of the latest gold and silver import data (India mostly relies on import for its precious metals hunger).

  When the price of gold made its famous nosedive in April 2013 Indian physical gold demand skyrocketed off the charts; in May 2013 India imported 165 tonnes of gold, the highest monthly tonnage ever. In reaction, the government decided in June 2013 to raise the import duty on gold from 4 % to 8 % and in August 2013 from 8 % to 10 %. In addition, in July 2013 the “80/20 rule” was implemented, forcing traders to export 20 % of all imported gold. The import duty on silver was raised to 10 % as well, although silver was not subjected to the 80/20 rule. The result was that by September 2013 India’s gold import through official channels had fallen to a mere 16 tonnes, but smuggling in gold had exploded. Gold trade was diverted to the black market with all due consequences – thriving criminality threatens social and economic stability – and India’s established gold industry organizations fiercely objected the government’s policy. Another consequence was that silver import has seen spectacular increases ever since (see further below).

  Although heavily restricted, Indian gold import through official channels bounced of the lows in mid 2014. Eventually, the 80/20 rule was withdrawn in November 2014 while the Indian government was preparing a new trick: the gold monetization scheme, which was to “to mobilize the gold held by households and institutions in the country” and ”be able to reduce reliance on import of gold over time to meet domestic demand”. In my words, the scheme was intended to oversubscribe the people’s gold by exciting them to deposit their metal at commercial banks. The catch is that the gold depositor is technically lending his gold to the bank, whereby he risks losing his metal if the counterparty goes belly up – although these risks were not disclosed in the brochure. Ironically, the essence why people buy gold in the first place is protect their wealth, not to take risks (ie by lending). Not surprisingly, the gold monetization scheme has failed miserably.1– bear in mind, there is an estimated 20,000 tonnes of physical gold owned by the Indian private sector. It does not look like the gold monetization scheme will ever succeed in India.

  Data from the World Gold Council shows Indian consumer gold demand accounted for 848.9 tonnes in 2015. Reasons enough for the Indian rulers to continue their hopeless quest to limit demand. In January 2016 the government introduced a rule that forces jewelry buyers to show a Permanent Account Number (PAN), which the vast majority of rural customers do not have, for any purchase above Rs 200,000. And it proposed the re-imposition of a 1 % excise duty. Remarkably, the excise duty was first introduced in 2012 but rolled back the same year as jewelers went on strike. This time around jewelers are seeking the same relief. Since 2 March they’re on strike indefinitely (speculating; the excise duty will not succeed).

  Let’s head over to the most recent (final) trade data released by India’s customs department, the DGCIS. India’s gross gold bullion import in December 2015 was robust at 111 tonnes, up 9 % from November and up 218 % from December 2014. Total gross gold import for India in 2015 came in at 947 tonnes, up 22 % from 2014, the third highest amount ever.

  India gross exported 11 tonnes of gold bullion in December 2015, down 22 % from November and up 35 % from December 2014. Gross gold export for the year 2015 aggregated to 150 tonnes, the highest ever, up 136 % compared to 2014. Gold bullion export might be elevated due to India’s increased refining capacity.

  Net gold bullion import in December 2015 came in at 100 tonnes. Total net gold import for 2015 accounted for 797 tonnes, up 11 % year on year.

  

  

  

  India’s gross silver bullion import was very strong in December 2015 at 1,042 tonnes, up 71 % from November and up 198 % from December 2014. Total gross silver import in 2015 accounted for a staggering 8,504 tonnes (!), up 20 % from 2014.

  As, silver bullion export from India is neglectable, net import in December 2015 accounted for 1,041 tonnes and total net import for 2015 came in at 8,494 tonnes. The latter being 31 % of world silver mining output!

  

  

  From looking at official precious metals import and demand numbers we can wonder if the many restrictions from the Indian government have accomplished anything to their likes. One thing is for sure; the Indian people did not substantially bought less gold – and did buy substantially more silver.

  Instead of hopelessly resisting and intervening in the Indian economy, the government could also choose to allow free market forces and/or even support the people’s love for gold to bolster India’s gold industry for it to become a global powerhouse. Wouldn’t that be much more effective?

  Kindly note, the cross-border trade tonnages for this post, calculated by myself and Nick Laird from Sharelynx.com, are based on the Rupee values disclosed by the DGCIS and the monthly average metal prices. The gold and silver bullion import and export figures mentioned in this post exclude smuggling and cross-border trade in precious metals jewelry.

  

  

  

  

  

• Deflation Is Coming To The Auto Industry As Used Car Prices Drop, Off-Lease Deluge Looms

  Last week, we learned that vehicle leasing as a percentage of monthly light-vehicle sales hit a record in February at 32.3%.

  In other words, a third of the over 1 million cars and light trucks “sold” during the month were leases, according to J.D. Power.

  This is indicative of what is now a long-term trend. Have a look at the following chart from WSJ, which shows that since 2009, the share of monthly auto leases as a percentage of vehicle sales well more than tripled:

  

  Of course the thing about leased vehicles is that they come back, and as WSJ wrote last week, “about 3.1 million vehicles will return to dealer lots off leases this year, up 20% from 2015 [and] the number will climb to 3.6 million in 2017 and 4 million in 2018.”

  So what does that mean for dealers? Deflation. 

  And what does that mean for the automakers? Hefty losses.

  Nothing about this is hard to understand. You get a supply glut causing pricing assumptions for your existing inventory to prove wildly optimistic and you end up with giant writedowns.

  This has happened before. “The auto industry expanded the use of leasing in the mid-1990s, helping to fuel retail sales of new vehicles,” WSJ recounts. “Eventually, a glut of off-lease cars sent resale values down and auto lenders who had bet residuals would remain high ended up racking up billions of dollars in losses, having to sell the cars for much less than they anticipated.”

  Right. Nothing difficult to grasp about that. But the especially silly thing about the dynamic with auto leases is that it was the dealers and the automaker-affiliated financing companies that made the leases in the first place. In other words, it’s not like this was some supply shock that couldn’t have been forecast ahead of time. In fact, they knew exactly when the off-lease deluge would start, so it’s not entirely clear why they would have set optimistic residual assumptions.

  Anyway, the cracks are already starting to show.

  The Manheim Used Vehicle Value Index posted its largest Y/Y decline in over two years last month, falling -1.4% and -1.5% M/M. We’re now 3.5% below the peak. 

  

  “All else equal, it puts pressure on lease residuals – though we note most fincos had assumed declining used vehicle prices in their lease writing,” Goldman said, earlier today. “Second, while improving inventory acquisition cost for the dealers, it may put downward pressure on the value of existing dealer inventories, which can be negative for used margins.”

  Well yes, declining used vehicle prices “may” be a “negative for used margins” – in fact that’s almost a tautology. 

  

  And of course falling used car prices means pressure on new car prices as well, which would be a shock to America’s booming auto market.

  Obviously, the scariest part about all of the above is that consumers still have the pedal to the metal (pun fully intended) when it comes to leases, which means there’s no end in sight to the off-leases and thus no way to determine, at this juncture, how big the residual writedown wave and deflationary auto industry calamity will ultimately end up being.

  So, you know… “buckle up.”

  *  *  *

  Bonus chart: largest used car price decline for any February since 2008

  

  

  

  

  

  

• The Oil Short Squeeze Explained: Why Banks Are Aggressively Propping Up Energy Stocks

  Last week, during the peak of the commodity short squeeze, we pointed out how this default cycle is shaping up to be vastly different from previous one: recovery rates for both secured and unsecured debts are at record low levels. More importantly, we noted how this notable variance is impacting lender behavior, explaining that banks – aware that the next leg lower in commodities is imminent – are not only forcing the squeeze in the most trashed stocks (by pulling borrow) but are doing everything in their power to “assist” energy companies to sell equity, and “persuade management” to use the proceeds to take out as much of the banks’ balance sheet exposure as possible, so that when the default tsunami finally arrives, banks will be far, far, away from the carnage.

  All of this was predicated on prior lender conversations with the Dallas Fed and the OCC, discussions which the Dallas Fed vocally denied and accused us of lying, yet which the WSJ confirmed, showing that it was the Dallas Fed who was lying.

  This was our punchline:

  [Record low] recovery rate explain what we discussed earlier, namely the desire of banks to force an equity short squeeze in energy stocks, so these distressed names are able to issue equity with which to repay secured loans to banks who are scrambling to get out of the capital structure of distressed E&P names. Or as MatlinPatterson’s Michael Lipsky put it: “we always assume that secured lenders would roll into the bankruptcy become the DIP lenders, emerge from bankruptcy as the new secured debt of the company. But they don’t want to be there, so you are buying the debt behind them and you could find yourself in a situation where you could lose 100% of your money.“

   

  And so, one by one the pieces of the puzzle fall into place: banks, well aware that they are facing paltry recoveries in bankruptcy on their secured exposure (and unsecured creditors looking at 10 cents on the dollar), have engineered an oil short squeeze via oil ETFs…

   

  

   

   

  … to push oil prices higher, to unleash the current record equity follow-on offering spree…

  

  … to take advantage of panicked investors some of whom are desperate to cover their shorts, and others who are just as desperate to buy the new equity issued. Those proceeds, however, will not go to organic growth or even to shore liquidity but straight to the bank to refi loan facilities and let banks, currently on the hook, leave silently by the back door. Meanwhile, the new investors have no security claims and zero liens, are at the very bottom of the capital structure, and  face near certain wipe outs.

   

  In short, once the current short squeeze is over, expect everyone to start paying far more attention to recovery rates and the true value of “fundamentals.”

  Going back to what Lipsky said, “the banks do not want to be there.” So where do they want to be? As far away as possible from the shale carnage when it does hit.

  Today, courtesy of The New York Shock Exchange, we present just the case study demonstrating how this takes place in the real world. Here the story of troubled energy company “Lower oil prices for longer” Weatherford, its secured lender JPM, the incestuous relationship between the two, and how the latter can’t wait to get as far from the former as possible, in…

  “Why Would JP Morgan Raise Equity For An Insolvent Company”

   

  I am on record saying that Weatherford International is so highly-leveraged that it needs equity to stay afloat. With debt/EBITDA at 8x and $1 billion in principal payments coming due over the next year, the oilfield services giant is in dire straits. Weatherford has been in talks with JP Morgan Chase to re-negotiate its revolving credit facility — the only thing keeping the company afloat. However, in a move that shocked the financial markets, JP Morgan led an equity offering that raised $565 million for Weatherford. Based on liquidation value Weatherford is insolvent. The question remains, why would JP Morgan risk its reputation by selling shares in an insolvent company?

   

  According to the prospectus, at Q4 2015 Weatherford had cash of $467 million debt of $7.5 billion. It debt was broken down as follows: [i] revolving credit facility ($967 million), [ii] other short-term loans ($214 million), [iii] current portion of long-term debt of $401 million and [iv] long-term debt of $5.9 billion. JP Morgan is head of a banking syndicate that has the revolving credit facility.

   

  Even in an optimistic scenario I estimate Weatherford’s liquidation value is about $6.7 billion less than its stated book value. The lion’s share of the mark-downs are related to inventory ($1.1B), PP&E ($1.9B), intangibles and non-current assets ($3.5B). The write-offs would reduce Weatherford’s stated book value of $4.4 billion to – $2.2 billion. After the equity offering the liquidation value would rise to -$1.6 billion.

  

   

  JP Morgan and Morgan Stanley also happen to be lead underwriters on the equity offering. The proceeds from the offering are expected to be used to repay the revolving credit facility.

   

  In effect, JP Morgan is raising equity in a company with questionable prospects and using the funds to repay debt the company owes JP Morgan. The arrangement allows JP Morgan to get its money out prior to lenders subordinated to it get their $401 million payment. That’s smart in a way. What’s the point of having a priority position if you can’t use that leverage to get cashed out first before the ship sinks? The rub is that [i] it might represent a conflict of interest and [ii] would JP Morgan think it would be a good idea to hawk shares in an insolvent company if said insolvent company didn’t owe JP Morgan money?

  The answer? JP Morgan doesn’t care how it looks; JP Morgan wants out and is happy to do it while algos and momentum chasing daytraders are bidding up the stock because this time oil has finally bottomed… we promise.

  So here’s the good news: as a result of this coordinated lender collusion to prop up the energy sector long enough for the affected companies to sell equity and repay secured debt, the squeeze may last a while; as for the bad news: the only reason the squeeze is taking place is because banks are looking to get as far from the shale patch and the companies on it, as possible.

  We leave it up to readers to decide which “news” is more relevant to their investing strategy.

  

  

  

  

  

• Millennials Are The Deflation Generation

  Via ConvergEx's Nicholas Colas,

  While the world’s central banks struggle with deflation, millennials (those born between 1980 – 2000) are busy creating a world where persistently lower prices will be an economic cornerstone.  “A feature, not a bug,” as they say in the tech world.

   

  The immediate reason for that is simple: our cohort got stuck with educational hyperinflation, something economists miss when they look at the headline numbers. Education is only 6% of the CPI basket. For millennials, that number can easily exceed 20% because of student loans. We are therefore turning to a new tech-enabled service economy to help us make ends meet, and the majority of these new services are profoundly “Disruptive” to old business models.

   

  “Disruption” is often code for “deflation”, since more taxis (Uber), hotel rooms (Airbnb), food delivery (too many examples to mention) means more price competition. And when the next wave of disruption comes along to put the current crop of “Disruptors” out of business, we’ll switch to them.  Deflation will be permanent, and we’re OK with that.  And when my cohort runs the Fed, or the ECB, or the BoJ, we will be unlikely to care if prices decline. We may even consider it the sign of a successful economy that serves its citizens well.

  Note from Nick: Baby boomers know a lot about inflation.  We came of age in the 1970s, when food and gas prices rose so quickly that it was easy to come up short on cash at the checkout line. I still keep an extra $20 tucked away in my wallet because of those experiences. Jessica’s generation saw none of this, with the notable exception of educational cost inflation. Today she describes just how differently her demographic group thinks about price levels. And it is VERY different from the Boomers…

  It’s no secret we millennials are pro multi-taskers when it comes to technology, and we’re often on our mobile phones and laptops while watching TV all at the same time. There is one device, however, of the three that is far harder for us to give up. No prizes for guessing which one:

  • A recent Harris Poll of 2,193 U.S. adults surveyed in January shows that 61% of millennials name mobile phones as the most difficult device to unplug from, compared to television (21%) and computer/laptop (22%).
  • That contrasts our parents’ generation – the baby boomers – with mobile phones nearing the bottom of the list (28%) and the top two spots going to computer/laptop (37%) and television (44%).

  Dig deeper into the survey and the reasoning becomes clear, as the utility of mobile phones has increased dramatically during our lifetimes. For example, the survey notes that unplugging to the broader population means avoiding: social media (71%), the Internet (64%), email (58%), text messages (55%), mobile or tablet apps (55%), video games on consoles or handheld game devices (51%), computer games (50%), phone calls (48%), television (45%), eBooks (30%), and audio books (21%). People can participate in nearly all of these activities on mobile phones, and we’ve grown up with this benefit. So of course we’d opt for our cell phone over a TV or laptop – we can use it for all three functions.

  The dominance of mobile phones and technology in our lives not only impact how we use our time, but how we spend our money. The Federal Reserve has based its inflation expectations on a relatively static basket of goods for decades, but millennials’ experience with inflation differs from our parents. Services replace physical goods, for example, while convenience gets baked into costs. Here are four variables that shape our inflation expectations:

  #1 – Technology (Deflationary): When I go to the mall with friends, I rarely buy anything. Why? Because I know I can find whatever I like cheaper online. Merchants used to earn a premium for holding products customers couldn’t find elsewhere locally. Technology and the internet erase this premium and put downward pressure on the price of goods because they provide access to products all over the world, increasing competition and acting as an arbitrage.

   

  For example, I’ll browse bookstores, but when a book peaks my interest, I’ll only take note of the title. Same goes for technology gadgets or devices. I know I can buy them from Amazon, for example, for a lower price, either from the site or another merchant the site hosts. I don’t even need to pay for shipping since I have a prime account, and receive my purchase in just two days. Like many other sites, Amazon’s business model hinges on maintaining competitive prices and making the consumer experience more convenient. In short, the internet offers ample price comparisons and serves as an effective platform to highlight promotional sales. Paying full price at the mall is rare except for last minute needs.

   

  #2 – Sharing Economy (Deflationary): During my adolescence, I’d dedicate one category on my Christmas list to CDs. That was until iTunes came along and I could more affordably purchase single songs I particularly enjoyed. Now, music streaming services have totally changed the game. On Spotify, for example, I can make customized song lists and listen to them for a month, all for the price of less than a CD. A premium subscription to Spotify costs $10 per month versus buying a CD at Target for upwards of $15. You can even listen to music streaming services for free, if you’re willing to listen to ads and in shuffle play mode.

   

  Here are some other similar examples. I don’t pay for cable because I can stream numerous shows and movies for only $8.99 a month on Netflix (in this case I don’t even need a TV since I can watch on my laptop or cell phone). I’m also able to travel a little more due to services like Airbnb, as I can find an inexpensive, comfortable place to stay. Lastly, many of my friends who live in the city don’t have a car because they can take an Uber if necessary. It’s like having a personal driver that picks them up where and at what time they want to get them to their intended destination. Bottom line: these examples show services substituting physical goods, enabling the sharing economy to act as a deflationary force in millennials’ lives.

   

  #3 – Social Media (Weirdly Inflationary): I’ll be the first to admit, I often covet a friend’s new handbag or latest trip when I see pictures on Instagram. Has this inspired a few purchases or vacations on my behalf? I think you know the answer. Social media, in this sense, has created what you’ve probably heard of as “lifestyle inflation”.

   

  “Keeping up with the Joneses” is nothing new, but platforms like Facebook have taken it to a new level. Everyone you know or connect with on social media can view your life more intimately than ever before, even if they live halfway around the world. A Facebook or Instagram account, for example, gives people the opportunity to portray a glamorized life. This creates competition, and may spur more expensive purchases than some individuals would have otherwise pursued. This includes everything from clothes to experiences in order to show off on the web. We also value peer reviews on products and restaurants, and will heed these opinions to attain a better quality product or service. All in all, social media is inflationary as millennials try to match or outdo each other’s lifestyle, and is a seamless advertising medium.

   

  # 4 – Convenience (Inflationary, but by choice): I don’t know about you, but I dread going to the supermarket. Having to navigate through crowds and carve a chunk of time out of my busy schedule is less than ideal. That’s why I will gladly pay a grocery store delivery service to do it for me. I know I’m not alone on this front in light of the plethora of startups launching delivery services related to everything from groceries (Instacart)  and laundry (Cleanly) to alcohol (Saucey) and takeout (GrubHub). Some apps only serve certain cities, but larger companies are working to fill the void elsewhere. Amazon, for example, shows this in its effort to deliver by drone or its own trucks. They are also working on making delivery times faster with Prime Now, a same-day delivery app. Bottom line here: we’ll pay extra for convenience (inflationary), but expect this premium to abate overtime as we transition to a more on demand economy.

  In sum, millennials’ inflationary basket isn’t as simple as weighting goods within large standard components like food, housing, transportation, and entertainment. Student loans, obviously not directly in the Consumer Price Index, account for one of our largest monthly payments. We therefore can’t afford a house, and a lot of us live with our parents as rental costs continue to climb. Many also can’t afford a car, in which Uber proves especially helpful. That’s why we depend on services that provide access to goods without requiring ownership. This keeps expenses low and convenience high. We care about what our friends think and have serious FOMO (fear of missing out), so we’re less reluctant to save and more inclined to travel or buy new clothes when we can. Fortunately, however, technology and startups continue to bring costs down as we benefit from each other’s contributions online and in the sharing economy. In this sense, we are more privy to the deflationary impact of technology and services, in contrast to our parents’ experience with inflation of physical goods, such as food and gasoline.

  Now, I realize economists wouldn’t consider the four themes I outlined as actual inflation or deflation. They simply show how my cohort experiences price pressures that inform our thinking on the topic. This is important, however, for policy going forward as it could alter the Fed’s dual mandate on the inflation side. The expectation of deflation is already incorporated in millennial psyche, so it doesn’t necessarily delay spending as seen in Japan. We adopt technologies that force deflation. Therefore, in our world, deflation is the mark of a healthy economy. 

  

  

  

  

  

• The "Outrageous" Reasons Donald Trump Will Never Be President

  So Un-Presidential…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Commodities, Stocks, & Bond Yields Plunge As Super-Short-Squeeze Stalls

  We suspect the following will be heard a little more this week than last…

   

  The squeeze is over… for now thanks To Fed's Fischer…After 10 straight days without dropping, "Most Shorted" tumbled the most in 2 months…

  

   

  And crude oil ETF short-squeeze is over – Oil ETF long/short is back to recent norms…

  

   

  And the major indices were extremely overbought… Trannies are as overbought as they were at the peak in Nov 2014 (after Bullard's QE4 bounce)…

  

   

  And Small Caps are as overbought as they were at their peak in June 2015.

  

   

  Which left stocks sliding after dismal China trade data and Goldman pouring cold water on the crude ramp…

  

   

  Futures show the reactions as Japanese GDP stayed in recession, China Trade Data disappointed, Germany beat… and reality struck in the crude complex…

  

   

  Leaving S&P Futures right at the crucial trendline…

  

   

  As VIX was dumped in the last minute to ensure 1980 was held…

  

   

  VIX surged near 19 again…

  

   

  Energy & Financials went from winners to biggest losers very quick… This was energy sector's 2nd biggest daily drop since August Black Monday

  

   

  We're gonna need another Mclendon death…

  

   

  And Tilson's short LL again..

  

   

  Oil decoupled from stocks…but stocks caught down in the end amid Crude's drop in 2 weeks

  

   

  Bonds decoupled from stocks… but they recoupled into the close…

  

   

  And after this yuuge rally aimed at supporting energy stocks to get secondaries (and banks to unload), credit risk on the junkiest junk has not improved at all…widest since 2009

  

   

  And with everyone chasing HYG (not realizing this is a placeholder for fund manager cash as the primary market is dead for now – but due to pick up), we thought the following chart might help with some rationality…

  

   

  And noting that HYG has stalled at its 100DMA…

  

   

  Treasury yiuelds plunged on the day as repomarkets imploded…(and JGB yields collapsed)…

  

   

  The USD Index rose very modestly on the day as commodity currencies (CAD, AUD) tumbled and JPY strengthened (as carry was unwound en masse)

  

   

  Commodities were all weak, led by crude and copper on the day…

  

   

  Copper's worst day in 2 months…

  

   

  Charts: Bloomberg

  

  

  

  

• Crude Chaos As Cushing Inventories Rise For 6th Straight Week

  Following Genscape's projection that Cushing inventories rose less than expected, various sources on Twitter report that API sees a 4.4mm build (in line with expectations of a 3.9mm build) after EIA's massive build of over 10.3mm barrels last week. Cushing saw a 692k build – the 6th week in a row but gasoline and distillates saw a draw. Crude sold off all day as the short-covering squeeze ended but as the data hit, WTI dipped, ripped, and dipped again… only to rally once more…

   

  API

  • Crude +4.4mm
  • Cushing +692k
  • Gasoline -2.1mm
  • Distillates -128k

  Sixth weekly rise in Cushing Inventories…

  

   

  And the reaction in crude…

  

   

  Charts: Bloomberg

  

  

  

  

  

• This 4,000-Year-Old Financial Indicator Says That A Major Crisis Is Looming

  Submitted by Simon Black via SovereignMan.com,

  Over 4,000 years ago during Sargon the Great’s reign of the Akkadian Empire, it took 8 units of silver to buy one unit of gold.

  This was a time long before coins. It would be thousands of years before the Lydians in modern day Turkey would invent gold coins as a form of money.

  Back in the Akkadian Empire, gold and silver were still used as a medium of exchange.

  But the prices of goods and services were based on the weight of metal, and typically denominated in a unit called a ‘shekel’, about 8.33 grams.

  For example, you could have bought 100 quarts of grain in ancient Mesopotamia for about 2 shekels of silver, a weight close to half an ounce in our modern units.

  Both gold and silver were used in trade. And at the time the ‘exchange rate’ between the two metals was fixed at 8:1.

  Throughout ancient times, the gold/silver ratio kept pretty close to that figure.

  During the time of Hamurabbi in ancient Babylon, the ratio was roughly 6:1.

  In ancient Egypt, it varied wildly, from 13:1 all the way to 2:1.

  In Rome, around 12:1 (though Roman emperors routinely manipulated the ratio to suit their needs).

  In the United States, the ratio between silver and gold was fixed at 15:1 in 1792. And throughout the 20th century it averaged about 50:1.

  But given that gold is still traditionally seen as a safe haven, the ratio tends to rise dramatically in times of crisis, panic, and economic slowdown.

  Just prior to World War II as Hitler rolled into Poland, the gold/silver ratio hit 98:1.

  In January 1991 as the first Gulf War kicked off, the ratio once again reached 100:1, twice its normal level.

  In nearly every single major recession and panic of the last century, there was a sharp rise in the gold/silver ratio.

  The crash of 1987. The Dot-Com bust in the late 1990s. The 2008 financial crisis.

  These panics invariably led to a gold/silver ratio in the 70s or higher.

  In 2008, in fact, the gold/silver ratio surged from below 50 to a high of roughly 84 in just two months.

  We’re seeing another major increase once again. Right now as I write this, the gold/silver ratio is 81.7, nearly as high as the peak of the 2008 financial crisis.

  This isn’t normal.

  In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II.

  

  This suggests that something is seriously wrong. Or at least that people perceive something is seriously wrong.

  There are so many macroeconomic and financial indicators suggesting that a recession is looming, if not an all-out crisis.

  In the US, manufacturing data show that the country is already in recession (more on this soon).

  Default rates are rising; corporate defaults in the US are actually higher now than when Lehman Brothers went bankrupt back in 2008.

  These defaults have put a ton of pressure on banks, whose stock prices are tanking worldwide as they scramble to reinforce their balance sheets against losses.

  I just had a meeting with a commercial banker here in Sydney who told me that Australian regulators are forcing the bank to increase its already plentiful capital reserves by over 40% within the next several months.

  This is an astonishing (and almost impossible) order.

  The regulators wouldn’t be doing that if they weren’t getting ready for a major storm. So even the financial establishment is planning for the worst.

  Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money.

  These tactics destroy a financial system. And the cracks are visibly expanding.

  So while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others.

  Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.

  But it is reasonable to expect that someday the gold/silver ratio will eventually fall to more ‘normal’ levels.

  In other words, today you can trade 1 ounce of gold for 80 ounces of silver.

  But perhaps, say, over the next two years the gold/silver ratio returns to a more historic norm of 55. (Remember, it was as low as 30 in 2011)

  This means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold.

  The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.

  So bottom line, if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.

  

  

  

  

  

• Jeff Gundlach Explains Why "The Rally Is Ending" – Live Webcast

  At 4:15pm ET, DoubleLine’s Jeff Gundlach who continues to do no wrong in the market (even if it means buying stocks at his most doom and gloomish ahead of a record short squeeze), will hold his latest webcast titled “Connect the Dots” and in which he will explain why, as he told Reuters moments ago, “the rally in risk assets is nearing the end”, which in turn explains why when the short covering frenzy had gripped the market last week, Gundlach was cashing out.

  To register for the webcast, click on the image below.

  

   

  More details from Reuters Jennifer Ablan:

  Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said on Tuesday the recent rally in risk assets is nearing an end.

   

  Gundlach, who told Reuters last week that the firm is now considering closing out some of its long positions in the stocks they had purchased in February, said risk assets will struggle in sympathy with oil.

   

  “Oil, like I said, had an easy time rallying from 28 to 38. Now the hard work begins,” Gundlach said. “Oil is the key to everything.”

   

  Gundlach said unless oil rallies another $10 a barrel or more, “a lot of companies are going to go under, which will kill the banking system. The rally off the 200 low (in copper) hasn’t been that impressive, and looks to possibly be over.”

   

  Gundlach said in a webcast later Tuesday that the Standard & Poor’s 500 Index, which he characterized as being in a bear-market rally that is close to being over, has 2 percent upside but 20 percent downside.

  Gundlach’s punchline: “I think we are near the end of a bear market rally with a 10:1 risk/reward ratio.” We agree.

  The full presentation is below:

  

  

  

  

  

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• A Whole Lot of BS Behind Monday`s Oil Move (Video)

  By EconMatters

  

  Reuters News and Genscape Report attributed to today`s Oil Squeeze Move – couldn`t find more BS if you were assigned with cleaning out your horse`s barn stall. Follow the actual Oil Data Metrics and avoid the Rumor Mongering Market Garbage and Hearsay OPEC Gossip marketed as actual “Market Analytics”.

  When OPEC actually gets their collective heads out of the sand and cuts production then this is a newsworthy event, and worth covering from a journalistic standpoint. The big takeaway until proven otherwise is everyone in the Oil Industry is going to make up for lower prices by maximizing volume in any manner possible. There is no such thing as a “fair price” for oil, and OPEC is sure not going to realize this fantasy talk scenario without concrete action, i.e., cutting production from the current daily over-supplied market.

  One is sure not going to achieve a “fair price” for oil from a producer standpoint if one continues to produce over 2 million barrels per day over actual demand. Freezing oil output levels at all-time record levels is just further evidence that OPEC is clueless, myopic and just doesn`t have a handle on the market. Wake me up when OPEC actually cuts production, until then they are the boy that cried wolf far too many times!

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

  

  

  

  

• Helicopter Money Comes To Canada: Ontario Pledges "Basic Income Experiment"

  Earlier today, we explained why so-called “helicopter money” can’t save the world when ZIRP, NIRP, and QE have all failed to revive global demand and boost inflation.

  The reason: QE is helicopter money. That is, we’ve been doing this for 8 years and it hasn’t worked yet.

  Some readers were reluctant to buy this rationale, but the fact is, just because the bank intermediary failed to do its part for Main Street doesn’t thereby mean this entire experiment isn’t still a farce. Think about the mechanics of it: 1) the government prints a liability (a bond), 2) that liability is sold to a primary dealer, 3) the central bank buys that government liability with yet another liability (dollars) that the government also prints.

  That’s a scam. It’s deficit financing with one (very tenuous) degree of separation. The fact that the middlemen (the banks) didn’t pass along the benefits to you doesn’t make the mechanics of it any less ridiculous.

  But if that’s helicopter money “v.1,” Main Street thinks it didn’t work out so well. Banks recovered, Jamie Dimon and Lloyd Blankfein became billionaires, financial assets soared, and everyday people got Gene Wilder’d.

  Well if helicopter money “v.3” entails flying around and raining actual banknotes onto the hapless masses, then we suppose we should at least try “v.2” first, and “v.2” is what many have called a “basic income.”

  The idea is to send everyone a monthly check that would either supplement or replace altogether, complex systems of state benefits thereby making households better off and saving the government money in the process.

  As The Independent notes, Ontario is set to become the latest locale to float the idea: “Ontario has announced it could soon be sending a monthly cheque to its residents as it plans to launch an experiment testing the basic income concept.”

  Here are some excerpts from Ontario’s budget statement:

  “The pilot project will test a growing view at home and abroad that basic income could build on the success of minimum wage policies and increases in child benefits by providing more consistent and predictable support in the context of today’s dynamic labour market.

   

  “The pilot would also test whether a basic income would provide a more efficient way of delivering income support, strengthen the attachment to the labour force, and achieve savings in other areas such as health care and housing supports. The government will work with communities, researchers and other stakeholders in 2016 to determine how best to implement a Basic Income pilot.”

  Right. So basically they have no idea how this is going to work or how to go about implementing it.

  But don’t think Ontario is alone.

  “Finland plans to outline a basic income plan for its citizens later this year, while the Dutch city of Utrecht launched an experiment in January, involving welfare recipients, to see what effect a basic income would have,” Huff Post wrote, late last month. And don’t forget, “the Swiss will vote in a referendum in June to decide whether to implement a basic income of some C$3,200 per month.”

  We profiled the upcoming Swiss vote here, noting that the plan could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not. 

  Amusingly, the Swiss said something similar to the Canadians about the link between the basic income and work. “The initiative’s backers say it aims to break the link between employment and income,” The Daily Mail wrote, of the Swiss plan. Much as Ontario thinks a basic income would “strenghten the attachment to the labor force.” 

  Those statements are so counterintuitive as to be laughable. 

  As long as federal and local governments are running a surplus that can account for these programs while staying in balance we suppose that’s fine, but what happens when people simply stop working and tax revenues fall? Do you then tax the basic income to pay for the basic income? That seems silly. And if not, do you sell bonds to the central bank to fund the program? And wouldn’t those bonds be claims on tax revenues which would only keep falling as the incentive to work decreases?

  Who knows, but we’re sure smarter people than us have thought it through. Or not.

  Or maybe we’re asking too many questions and the government would just say this:

  As an aside, with property prices soaring as they are in Ontario, they’d better start handing out basic incomes or they’ll have a homeless epidemic on their hands.

  

  

  

  

  

• China Trade Balance Plunges To 11-Month Lows As Exports Crash Over 25%

  Worse than expected is an understatement.

  Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline – the longest ever. Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.

   

  

   

  So much for that whole "devalue yourself to export growth" idea…

  

   

  As Bloomberg notes,

  China’s exports in yuan terms fell 20.6% year on year in February, down from a 6.6% drop in January, and missing expectations of an 11.3% fall. Imports were down 8.0%, an improvement from January’s 14.4% drop. The trade surplus came in at 209.5 billion yuan ($32 billion), down from 406.2 billion yuan.

   

  The Chinese New Year holiday, which fell at the start of February in 2016 and in the middle of February in 2015, distorts the data in unpredictable ways. Holiday effects mean the outsize drop in February exports overstates the weakness in China’s factory sector.

   

  Even so, looking at a year-to-date figure for the first two months of the year, the picture is only slightly less gloomy. In the year through February, exports are down 13.1%.

  The policy response has already been announced. The National People’s Congress set a target for 13% growth in money supply in 2016, up from 12% in 2015, and a 3% of GDP fiscal deficit, up from 2.3%. In other words: more lending and more public spending to provide a boost to demand. In the short term, that shores up confidence in the growth outlook. Medium term, of course, there is a price to be paid.

  Stocks are mounting a modest rebound on this terrible data (moar stimulus hopes) but after $1 trillion of new credit in 2 months, is there seriously anyone left who thinks moar will help?

  We leave it to Borat to explain the Chinese authorities take on this data…

   

  

  

  

  

  

• Just Shut Up & Vote: The Futility Of Representative Government In An Age Of Robber Barons

  Submitted by John Whitehead via The Rutherford Institute,

  “That's the way the ruling class operates in any society. They keep the lower and the middle classes fighting with each other… Anything different—that's what they're gonna talk about—race, religion, ethnic and national background, jobs, income, education, social status, sexuality, anything they can do to keep us fighting with each other, so that they can keep going to the bank!”

   

  – Comedian George Carlin

  “We the people” have been utterly and completely betrayed.

  The politicians “we the people” most trusted to look out for our best interests, protect our rights, and ensure that the nation does not slip into tyranny have cheated on us, lied to us, swindled us, deceived us, double-crossed us, and sold us to the highest bidder.

  Time and again, they have shown in word and deed that their priorities lay elsewhere, that they care nothing about our plight, that they owe us no allegiance, that they are motivated by power and money rather than principle, that they are deaf to our entreaties, that they are part of an elite ruling class that views us as mere cattle, that their partisan bickering is part of an elaborate ruse to keep us divided and distracted, and that their oaths of office to uphold the Constitution mean nothing.

  Incredibly, even in the face of their treachery and lies, the great majority of Americans persist in believing that the politicians have the people’s best interests at heart.

  Despite the fact that we’ve been burned before, most Americans continue to allow themselves to be bamboozled into casting their votes for one candidate or another, believing that this time they mean what they say, this time they really care about the citizenry, this time will be different.

  Of course, they rarely ever mean what they say, they care about their constituents only to the extent that it advances their political careers, and it never turns out differently. We are as easily discarded the day after the elections as we were wantonly wooed in the months leading up to the big day. Those same politicians who were once so eager to pose for our pictures, smile at our jokes, and glad-hand us for our votes will, upon being elected, retreat behind a massive, impenetrable wall that ensures we are not seen or heard from again—at least, until the next election.

  The joke is on us.

  As I point out in my book Battlefield America: The War on the American People, all of the caucuses, primaries, nominating conventions, town hall meetings, rallies, meet and greets, delegates and super-delegates are sophisticated schemes aimed at advancing the illusion of participation culminating in the reassurance ritual of voting.

  It’s not about Red Republicans or Blue Democrats. It’s about Green Donors—i.e, those with money who can afford to pay for access.

  Votes might elect politicians, but as a 2014 field experiment by political scientists at Yale University and the University of California, Berkeley, makes clear, it’s money that talks.

  The experiment went something like this: members of Congress were contacted by constituents requesting meetings about pending public policy issues. As the Washington Post reports, “When the attendees were revealed to be ‘local campaign donors,’ they often gained access to Members of Congress, Legislative Directors, and Chiefs of Staff. But when the attendees were described as only ‘local constituents,’ they almost never gained this level of access.”

  Conclusion: money buys access to politicians who are otherwise deaf, dumb and blind to the entreaties of their constituents.

  It works the same with every politician and every party.

  Indeed, the First Amendment’s assurance of a right to petition the government for a redress of grievances has become predicated on how much money you’re willing to shell out in order to gain access to your elected and appointed officials.

  Then again, money has always played a starring role in American politics.

  The spoils system reared its greedy head under Andrew Jackson, who traded jobs in his administration in exchange for campaign contributions. For $1 million, donors could take part in Warren Harding’s poker parties and enjoy a sleepover at the White House. Lyndon Johnson had a President’s Club that cost donors $1000 a year. Nixon was prepared to sell ambassadorships for $250,000. And Bill Clinton famously allowed top-dollar donors to spend a night in the Lincoln Bedroom at the White House in exchange for roughly $5.4 million in donations to the Democratic National Committee.

  Fast forward to the present day, and a $500,000 donation might get you invited to a quarterly meeting with Barack Obama. For a mere $5,000 donation, lobbyists are being given exclusive invitations to join Congressmen and senators for weekend getaways that include wine tastings, fly fishing, skiing, golfing, hunting, spas, seaside cocktail parties and more.

  If you’re just a lowly citizen with limited cash, however, you’re out of luck.

  Try contacting your so-called representatives without paying for the privilege, and see how far that gets you. I can assure you that you won’t be given the kinds of access that lobbyists, special interest groups and top donors enjoy.

  Having been saddled with a pay-to-play system that provides access only to those with enough cash to grease the wheels of the political machine, average Americans have little to no say in the workings of their government and even less access to their so-called representatives.

  Donald Trump, as he has boasted, might be able to buy and sell politicians of all stripes (including Hillary Clinton), but the average American would be hard-pressed to get the kind of access enjoyed by corporate executives, lobbyists and other members of the moneyed elite.

  Indeed, members of Congress have to work hard to keep their constituents at a distance—minimizing town-hall meetings, making minimal public appearances while at home in their districts, only appearing at events in controlled settings where they’re the only ones talking, and if they must interact with constituents, doing so via telephone town meetings or impromptu visits to local businesses where the chances of being accosted by angry voters are greatly minimized.

  And under the Trespass Bill, passed by Congress in 2012 and signed into law by President Obama, if you dare to exercise your First Amendment right to speak freely to a politician, assemble in public near a politician, or petition a government official for a redress of grievances, you risk a fine or a lengthy stay in prison.

  Talk about self-serving.

  Under the guise of protecting government officials from physical attacks, the Trespass Bill, a.k.a. “the Federal Restricted Buildings and Grounds Improvement Act,” criminalizes First Amendment activity by making it a federal offense, punishable by up to 10 years in prison, to protest anywhere the Secret Service might be guarding someone.

  Mind you, the Secret Service not only protects the president but all past sitting presidents, members of Congress, foreign dignitaries, presidential candidates, and anyone whom the president determines needs protection, but is also in charge of securing National Special Security Events, which include events such as the G8 and NATO summits, the National Conventions of both major parties, and even the Super Bowl.

  The law essentially creates a roving bubble zone where the First Amendment is effectively off-limits, thereby putting an end to free speech, political protest and the right to peaceably assemble in all areas where government officials happen to be present. Thus, simply walking by one of these events could make you subject to arrest.

  “What that means in practice,” as The Intercept rightly points out, “is that campaign rallies for Donald Trump, who was granted Secret Service protection in November, and Hillary Clinton, who will be guarded for life as a former first lady, are the very opposite of free speech zones under federal law. (The restrictions also apply to all appearances by former presidents and first ladies, as well as those of two other candidates, Bernie Sanders and Ben Carson, who are currently protected by the service.)”

  Consider yourself warned: If you do dare to show up to a Trump or Clinton rally and even appear to be the kind of person who might engage in any kind of protest, lawful or otherwise, you could find yourself quickly dispatched to a “free speech zone” out of sight and sound of the candidates. (“Free speech zones” are government-sanctioned areas located far away from government officials, into which activists and citizens are herded at political rallies and events.) In fact, that’s exactly what happened to a group of black students at a recent Trump rally in Georgia. They were escorted by police to “‘free speech zones’ in a field shielded from the venue by a set of tennis courts, or outside a church about a quarter of a mile away.”

  The message is clear: in an age of robber barons, “we the people” are expected to just shut up and vote.

  The powers-that-be want us to be censored, silenced, muzzled, gagged, zoned out, caged in and shut down. They want our speech and activities monitored for any sign of “extremist” activity. They want us to be estranged from each other and kept at a distance from those who are supposed to represent us. They want taxation without representation. They want a government without the consent of the governed.

  They want the police state.

  The system has been so corrupted and compromised that there are few left in the halls of government who hear or speak for us.

  Congress does not represent us. The courts do not advocate for us. The president does not listen to us. And the First Amendment’s assurance of the right to speak freely and petition our government for a redress of grievance no longer applies to us.

  So if representative government has become an exercise in futility, where does that leave us?

  One of the key ingredients in maintaining democratic government is the right of citizens to freely speak their minds to those who represent them. In fact, it is one of the few effective tools we have left to combat government corruption and demand accountability.

  If there is to be any hope of righting the wrongs that are being perpetrated against the American people, we must make them—our elected officials—hear us.

  But where to begin?

  Start by opening up a dialogue within your own community about what’s wrong with this country. Stop focusing on the issues that divide, and find common ground with your fellow citizens about issues on which you can agree. Focus less on politics and more on principles. Stop buying into the false and divisive narratives that are being promulgated by political windbags and start thinking and speaking for yourselves.

  Once you’ve found that common ground, whatever it might be, make enough noise at the local level—at your city council meetings, in your local paper, at your school board meetings, in front of your courthouses and police stations—and the message will trickle up. Those in power may not like what they hear, but they will hear you.

  Remember, there is power in numbers.

  There are 319 million of us in this country. Imagine what we could accomplish if we actually worked together, presented a united front, and spoke with one voice?

  The police state wouldn’t stand a chance.

  

  

  

  

  

• AsiaPac Stocks Tumble After Japan GDP As China Trade Data Looms

  Following a modest revision to Japanese GDP (still -1.1% and recession-y) and with all eyes glued to China’s trade data, Chinese and Japanese stocks are not folowing the panic-buying short-squeeze-driven lead of US equities. Both are down hard in the early AsiaPac trading (with China down for the first time in six days post-G-20).

  It’s not working Mr Kuroda…

  

   

  And the markets are starting to realize it…

  

  

   

  This is China’s first losing day in 6 since the G-20 meeting ended such a dud…(and the world rallied on ECB hope)

  

   

  Charts: Bloomberg

  

  

  

  

  

• The Danger Of Media Blackout

  Submitted by Jeff Thomas via InternationalMan.com,

  Recently, Russian Foreign Minister Sergey Lavrov held a press conference with about 150 journalists from around the world, including representatives of the western media.

  Mister Lavrov was brief and concise; however, the question period lasted for some two hours. A breadth of topics was discussed, including the re-convening of the Syrian peace talks in Geneva, diplomatic relations in Georgia and, tellingly, the increasingly fragile relations with the US. This has not been reported on in Western media.

  This followed close on the heels of reports (again, not to be found in Western media) that the US has quadrupled its budget for the re-armament of NATO in Europe (from $750 million to $3 billion), most of which is to be applied along the Russian border. The decision was explained as being necessary “to combat and prevent Russian aggression.”

  It should be mentioned that this decision, no matter how rash it may be, is not a random incident. It’s a component of the US’ decidedly imperialist Wolfowitz Doctrine of 1992. This doctrine, never intended for public release, outlined a policy of military aggression to assure that the US would reign as the world’s sole superpower and, in so-doing, establish the US as the leader within a new world order. In part, its stated goal is,

  “[That] the U.S. must show the leadership necessary to establish and protect a new order that holds the promise of convincing potential competitors that they need not aspire to a greater role or pursue a more aggressive posture to protect their legitimate interests.”

  Of particular importance here is the term, “legitimate interests.” With this term, the doctrine reveals that its goal is the suppression of other nations, regardless of whether their ambitions are reasonable or not. All that matters is US hegemony over the world.

  Clearly, relations are reaching a dangerous level. The Russian message has repeatedly been, “Stop, before it’s too late,” yet Washington has reacted by stepping up its threat of hegemony. If the major powers do not call “time out”, world war could easily be on the horizon. Yet, incredibly, it appears that the Russian press conference has received zero coverage in the West. No British, French, German, or US television network has made a single comment. As eager as the Russians have been to get the word out as to their concerns, there has been a complete blackout of reporting it in the West.

  Russia Insider has published an article on the internet, but little else appears to be available.

  Today, the internet allows us to tap into information from every country in the world. Both official and non-official versions of the reports are available, if we know where to find them. And for those who have the time to do so, and take the time to do so, it’s possible to stay abreast of The Big Picture, although, admittedly, it’s a major undertaking to do so.

  Separating the wheat from the chaff is the greatest difficulty in this pursuit; however, as events unfold, a trend is being revealed – that the world is becoming divided with regard to information. In most of the world, there’s an expanse of available information, but, increasingly, the US, EU, and their allies are revealing a pattern of information removal. Whatever does not fit the US/EU position on events never reaches the public.

  A half-century ago, this was the case in the USSR, China, and several smaller countries where tyranny had so taken hold that all news was filtered. The people of these countries had a limited understanding as to what was truly occurring in the world, particularly with regard to their own leaders’ actions on the world stage.

  However, in recent decades, that tyranny has dissipated to a great degree and those countries that had been isolationist with regard to public information are now opening up more and more. Certainly, their governments still prefer that their press provide reporting that’s favourable to the government, but the general direction has been toward greater openness.

  Conversely, the West – that group of countries that was formerly called “the Free World” – has increasingly been going in the opposite direction. The media have been fed an ever-narrower version of what their governments have been up to internationally.

  The overall message that’s received by the Western public is essentially that there are good countries (the US, EU, and allies) and bad countries whose governments and peoples seek to destroy democracy. Western propaganda has it that these bad countries will not stop until they’ve reached your home and robbed you of all your freedoms.

  The view from outside this cabal is a very different one. The remainder of the world view the attacks by US-led forces (Afghanistan, Iraq, Yemen, Libya, Somalia, Syria, etc.) as a bid for world dominance. In examining the Wolfowitz Doctrine, this would seem to be exactly correct.

  This is not to say, however, that the people of the NATO countries are entirely on-board with this aggression. In fact, if they were allowed to know the ultimate objective of the NATO aggression, it’s entirely likely that they would oppose it.

  And, of course, that’s exactly the point of the blackout. A country, or group of countries, that seeks peace and fair competition, with equal opportunity for all, need not resort to a media blackout. The average citizen, wherever he may live, generally seeks only to be allowed to live in freedom and to get on with his life. Whilst every country has its Generals Patton, its Napoleons, its Wolfowitzes, who are sociopathically obsessive over world domination, the average individual does not share this pathology.

  Therefore, whenever we observe a nation (or nations) creating a media blackout, we can be assured of two things.

  First, the nation has, at some point, been taken over (either through election, appointment, or a combination of the two) by leaders who are a danger to the citizenry and are now so entrenched that they have little opposition from those remaining few higher-ups who would prefer sanity.

   

  Second, the sociopathic goals of those in power are a clear and present danger to the peace and well-being of the population.

  In almost all such cases, the blackout causes the population to go willingly along each time their leaders make another advance toward warfare. They may understand that they will be directly impacted and worry about the possible outcome but, historically, they tend to put on the uniform and pick up the weapon when the time comes to “serve the country.”

  Trouble is, this by no means “serves the country.” It serves leaders who have become a danger to the country. The people themselves are the country. It is they, not their leaders, who will go off to battle and it is they who will pay the price of their leaders’ zeal for domination.

  

  

  

  

  

• China Goes Full "Minority Report", Creates "Pre-Crime" Program

  By now, the world is largely familiar with Chinese President Xi Jinping’s fabled “Tigers and Flies” campaign.

  Since taking office in 2013, Xi has embarked on an ambitious effort to root out party corruption and ensure that the directives passed down from on high in the Politburo are executed faithfully among the sprawling rank and file. As The Atlantic wrote last year, the discipline “problem” is “made more urgent by a slowing economy,” an economy which desperately needs to be reformed.

  “Reform, however, requires the ability to enact policy,” The Atlantic flatly adds. “That in turn necessitates bureaucrats who follow the central government’s orders.”

  Publicly there have been more than 1,500 announced cases against party officials. But that’s just “publicly.” Knowing the Party’s reputation for “disappearing” those who “disappoint” or otherwise act in morally objectionable ways, the real number is impossible to know but is likely orders of magnitude higher.

  When China’s stock market began to crash last summer as the country’s margin “miracle” finally buckled under the weight of the millions of illiterate daytrading housewives who poured their life savings into everything from umbrella manufacturers to industrial companies-turned P2P outfits, Beijing extended the corruption probe to those “responsible” for the equity meltdown.

  Soon, the quest for stock market “manipulators” and those (like journalists) who would otherwise seek to harm the national interest by, well, by reporting the facts became part and parcel of a kind of mini Tigers and Flies campaign focused specifically on China’s financial markets. That campaign eventually ensnared quite a few officials, prominent money managers, and eminent businessmen, including Guo Guangchang, a self-styled “Chinese Warren Buffett.”

  But all of this wasn’t good enough for China. No, a “true” police state must be able to monitor all things at all times and prevent transgressions against the prevailing order before they happen. So more “Minority Report” than NSA.

  This is especially true now that Beijing’s quest to rein in “zombie companies” and curb overcapacity is likely to mean hundreds of thousands of industrial job losses and thus quite a bit of grumbling among the downtrodden (and recently jobless) masses.

  Well don’t look now, but China is attempting to use big data, a military contractor, and a camera network known as “Skynet” to predict crimes before they happen.

  “China’s effort to flush out threats to stability is expanding into an area that used to exist only in dystopian sci-fi: pre-crime,” Bloomberg reports. “The Communist Party has directed one of the country’s largest state-run defense contractors, China Electronics Technology Group, to develop software to collate data on jobs, hobbies, consumption habits, and other behavior of ordinary citizens to predict terrorist acts before they occur.”

  

  (“Big Uncle” Xi is watching)

  Make no mistake, China is a fertile testing ground for such an experiment because, well, because the public has no rights.

  “The program is unprecedented because there are no safeguards from privacy protection laws and minimal pushback from civil liberty advocates and companies,” Lokman Tsui, an assistant professor at the School of Journalism and Communication at the Chinese University of Hong Kong, who has advised Google on freedom of expression and the Internet tells Bloomberg.

  Here’s a bit more:

  China was a surveillance state long before Edward Snowden clued Americans in to the extent of domestic spying. Since the Mao era, the government has kept a secret file, called a dang’an, on almost everyone. Dang’an contain school reports, health records, work permits, personality assessments, and other information that might be considered confidential and private in other countries. The contents of the dang’an can determine whether a citizen is eligible for a promotion or can secure a coveted urban residency permit. The government revealed last year that it was also building a nationwide database that would score citizens on their trustworthiness.

   

  New antiterror laws that went into effect on Jan. 1 allow authorities to gain access to bank accounts, telecommunications, and a national network of surveillance cameras called Skynet.

   

  Much of the project is shrouded in secrecy. The Ministry of State Security, which oversees counterintelligence and political security, doesn’t even have its own website, let alone answer phone calls. Only Wu, the engineer at China Electronics Technology, would speak on the record. He hinted at the scope of the data collection effort when he said the software would be able to draw portraits of suspects by cross-referencing information from bank accounts, jobs, hobbies, consumption patterns, and footage from surveillance cameras.

   

  The program would flag unusual behavior, such as a resident of a poor village who suddenly has a lot of money in her bank account or someone with no overseas relatives who makes frequent calls to foreigners.

  But don’t worry, this isn’t a “big data platform” designed to incriminate people before they’ve actually committed a crime (because that would be unequivocally bad, not to mention incredibly frightening).

  This, China Electronics Technology will tell you, is merely “a united information environment.” Where the Politburo knows everything about you. And is watching you. All the time. And while the old system in China would happily scapegoat you for something you haven’t done and make you confess to it in a televised address, the new “united information environment” will convince you that unless you are buried under the jail now, you will do something wrong in the future. 

  Come to think of it, we’re not sure which is worse…

  *  *  *

  

  

  

  

  

• The Birthing Of Trump's America: The Swindlers Vs. The Swindled

  Submitted by Howard Kunstler via Kunstler.com,

  Beyond the Kubler-Ross maelstrom of denial, anger, depression, etc., besetting this spavined republic, lies the actual grief provoking it all — especially the shocking loss of national purpose embodied by the muppets and puppets onstage nightly vying to bring out the worst in us in an election season far from just silly. Judging from their demeanor in the so-called debates, the candidates seem not only sick of their opponents but of themselves, a fitting outcome perhaps in a nation that hates what it has become.

  The moment that got me in Sunday night’s Democratic boasting contest, hosted by CNN, was Hillary crowing about the great achievement of Obamacare — getting thirty million uninsured Americans on some kind of health plan! The part she left out, of course, is that most of those plans have deductible ceilings in the multiple thousands of dollars, guaranteeing that the policy holder goes bankrupt if he/she seeks medical help. Who does she think she’s fooling, anyway? This sort of arrant lying is what drives millions into the camp of Trump.

  Even valiant old Bernie muffs every opportunity to explain the death-grip that Wall Street crony politics has on this land: the US Department of Justice did nothing under six-plus years of Attorney General Eric Holder to prosecute criminal misconduct in banking. And then President Obama, who is ultimately responsible, did absolutely nothing to prompt that Attorney General into action or replace him with somebody who would act. Obama’s lame excuse back in the days when informed people were still wondering about this, was that the bankers had done nothing patently illegal enough to warrant investigation — a claim that was absurd on its face.

  Obama didn’t do any better with the regulating agencies that are supposed to make criminal referrals to the Department of Justice, especially the Securities and Exchange Commission (SEC) charged with keeping financial markets honest. There was nothing that difficult about those criminal matters now fading in the nation’s memory: for instance, the bundled bonds (CDOs) of “non-performing” mortgages designed to pay off the issuers handsomely when they failed. A child of ten could have unpacked the Goldman Sachs Timberwolf bond caper. Eventually Goldman and others were slapped with mere fines that could be (and were) written off as the cost of doing business. What a difference it would have made if Lloyd Blankfein and a few hundred other bank executives were personally held accountable and sent to cool their heels in federal prison.

  As the politicians are fond of saying, make no mistake: this was Barack Obama’s failure to act. Likewise, regarding the Citizens United Supreme Court’s decision that equated arrant corporate bribery of public officials with “free speech;” Mr. Obama (a constitutional lawyer by training) had a range of remedies at his disposal, foremostly working with the then-majority Democratic congressional leadership to legislate a new and clearer definition of so-far-alleged corporate “personhood,” its duties, obligations, and responsibilities to the public interest — and its limits! Not only did Mr. Obama fail to act then, but nobody in his own party even coughed into his-or-her sleeve when he so failed. And now, of course, nobody remembers any of that.

  The effects of all this fundamental dishonesty have thundered through our national life to the degree that American society is now divided into the swindlers and the swindled, loosing the monster of collective Id known as Trump on the public. This is what comes of attempting to divorce truth from reality, which has been the principal business of American life for several decades now. When truth and reality become de-linked, a society literally doesn’t know what it is doing. With that goes the collective sense of purpose, replaced with bromides and platitudes such as Trump’s “make America great again,” and Hillary’s “In America, every family should feel like they belong.”

  Unbeknownst to the cable news hustlers, events are in the driver’s seat, not the personalities of the puppets and muppets in the spotlight. Come July, there may not be anything that could be called the Republican Party. And Hillary is the first leading contender for the highest office with a possible indictment looming over her. Yes, it’s really there percolating on the FBI’s front burner. Even if the machinery of justice trips over itself again on that, imagine how the questions behind it will color the final battle for the general election. We also fail to appreciate how, if there is just a little more trouble in banking and financial markets before November 8, we can’t even be certain of holding the general election.

  

  

  

  

  

• "They Blew It All On Hookers, Blow And Fancy Toys" – Hedgie Sees Lower Oil, Soaring Gold, & QE For The People

  Submitted by Mac Slavo via SHTFPlan.com,

  In 2011, as gold prices rocketed to $1900 and oil was trading above $120 a barrel, there were few analysts who saw anything but further gains. But Marin Katusa of Katusa Research had a different opinion. At a major commodity conference Katusa, to boos and jeers from the audience, held strong to his analysis that an imminent deflationary collapse in commodity prices was on the horizon. And collapse they did.

  According to Katusa, who is closely involved in the Canadian resource sector, most people simply assumed the good times would go on forever… because it was different this time. But like any uninhibited party fueled by unlimited cash, the hangover was sure to follow.

  There’s no doubt you had massive high paying jobs. In Canada, the province that benefited the most is Alberta… In the last twelve months they’ve had 70,000 layoffs of jobs paying over a hundred grand a year.

   

  …when I’d go to these oil towns you’d sit down at the casinos with them and these guys were all about the hookers and blow… they were all about their toys… big fancy trucks… snow mobiles… and they’re in the field for two weeks and they make $20,000 and blow it all at the casinos.

   

  You knew it couldn’t last. 

  As Katusa notes in his latest interview with Future Money Trends, though the crash has been brutal for the sector, it’s not over yet and it’s going lower for longer.

   

  They [OPEC] can survive at $20 oil…

   

  For two years everyone’s been saying, “OPEC’s going to cut back.”

   

  The reality here is, why would OPEC cut production? That would only prop up the Russians and the shale sector.

  And while most will argue that low oil prices will wipe out most of America’s shale industry, Katusa has a contrarian view, suggesting that shale sector debt, while significant, is not necessarily going to cause these companies to go under in the immediate future.

  Why?

   

  Because what banker in their right mind wants to get dirty and actually operate an oil field?

   

  So the debt will be amended, extended and then they’ll pretend.

   

  … Because you can’t just shut down an oil field. You have to reclaim those wells, which means you have to shut them down and environmentally reclaim them… and it costs more to do that today than what the actual value is.

   

  The bankers know that.

   

  … With innovation, in the Western world, costs will decrease and the bankers have no choice but to amend, extend and pretend the debt.

   

  So they’re going to go lower for longer.

  In short, going forward we should expect widespread manipulation from the producers and the banks themselves to keep the bankruptcies at bay.

  But recession still looms, and Katusa says that there are two things we can count on in the near future and why people need to rethink their investments:

  The economy is changing… In a zero-interest rate policy world people have to rethink their investments… You’re looking at higher volatility, lower returns, but much higher risk.

   

  With all this going on in the world there are only two things that can happen.

   

  We continue with negative interest rates, which I see the trend globally… 35% of Eurozone countries already have negative interest policies…

   

  And there’s going to be quantitative easing for the people… QE4-P… and that’s the reality here.

   

  Negative interest rates are a tax on wealth… a tax on savers.

  And if you haven’t already guessed, amid all the volatility and debasement of currencies, one asset class, according to Katusa, will survive and counter the coming helicopter drop of freshly printed dollars:

  There’s a great way to make money on this if you get ahead of QE4P… the quantitative easing for the people… and gold is one of the ways to do that.

  In his must-see interview, Katusa expands on this forecast by noting that, on top of all the bailouts, trade tariffs, and quantitative easing to follow, China, in an effort to maintain the perception of stability in their economy and financial markets, will soon begin flooding the global economy with commodities like aluminum, steel, iron ore and coal, which will continue to have a deflationary impact on broader commodity markets.

  But the one sector they can’t flood – precious metals – is the very sector investors should be looking at as a way to not only preserve wealth going forward, but to grow it exponentially as crisis continues to hammer the global marketplace. That’s why Katusa has disclosed he is writing million dollar checks to one specific gold acquisition company, in similar fashion to other noteworthy insiders who are moving heavily into gold including Doug Casey, Eric Sprott, George Soros, Stanley Druckenmiller and Carl Icahn.

  

  

  

  

  

• Why The Fed Will Never Normalize Rates (In 4 Simple Charts)

  It's not the economy, it's the debt, stupid…

   

  

  h/t @NorthmanTrader

  

  

  

  

  

• Goldman Gives Draghi An Ultimatum, But The ECB May Be Finally Ready To Snap

  The G-20 Shanghai summit was a dud; China’s People’s Congress fizzled (even if it unleashed the biggest iron ore rally in history, however brief); and so – in a month full of expectations for major policy stimulus (which have so far been vastly disappointing), we approach the one event that is most actionable: the ECB’s March 10 meeting and press conference, where expectations are, just like back on December 3, so great – some expect up to a 20 bps rate cut to -0.5%, others expect QE to be increased from €60BN to €70BN per month, yet others believe that Draghi will either extend the TLTRO, expand the pool of eligible collateral or introduce tiering in the negative rates schedule like Japan; Credit Suisse believes the ECB will start buying corporate bonds – that the market’s pent up hope for stimulatory relief can only lead to disappointment, especially after a bear market rally as furious as this. 

  Indeed, some such as SocGen, admit as much: as Michala Marcussen says, “our view remains that monetary policy is near the limits of what it can achieve in isolation; structural reform and fiscal stimulus is required next.” 

  Bloomberg’s Richard Breslow was particularly poetic this morning when he wrote that “meddling with the monetary system had its day. The ECB, and the BOJ, among others, are increasingly looking like one trick ponies. Even if you agree it was a really good trick, at some point it losses all impact on the audience. And that is a real danger as the QE transmission mechanism can’t work if it fails to impress. From Davos to Shanghai we have been treated (tortured) with hearing central bankers talk longingly about fiscal policy. And then go off and ramp up monetary policy. The tact they employ in criticizing their governments is utterly the wrong tack.“

  We wholeheartedly agree with this searing observation, because Breslow is 100% correct: even as they blame the fiscal authorities for not doing their job (and the Fed has been particularly vocal in bashing Congress), central bankers do everything in their power to prevent the “risk off” market selloff that could finally force the required fiscal change and awake governments from their stupor. We highlighted this paradox 5 years ago when the Fed was launching QE2 and nothing has changed since even though now both the BIS (whose directors ironically are the same central bankers its economists love to criticize each quarter), and the Davos billionaire set, both agree that central planning has not only gone on for too long, but has lead to unprecedented and adverse consequences.

  And while there appears to be a disturbing, and 7 years late, break out of common sense among even the tenured “intellectual oligarchy”, one bank refuses to hand over control, and instead has released a note telling Mario Draghi in no uncertain terms, that it is “Time for the ECB to step it up.”

  In the note by Robin Brooks, whose abysmal FX recommendations in past few months, and whose epic, and just as overoptimistic misread of the December ECB meeting left Goldman clients with billions in losses, have made many ask if he is the next incarnation of the inimitable Tom Stolper, he admits that “one year since the start of ECB QE, the program is in trouble.” What he means is that his recommendation for EURUSD parity, and even as low as 0.90 by the end of 2017, is in just as big trouble.

  So, in order to avoid disappointing his former employer – recall that Draghi himself worked as Goldman when he was selling Greece those infamous currency swaps – once again, this is what Goldman’s FX strategist recommends the ECB should do.

  But first, this is how Goldman suggests Draghi pitch his case to his ECB peers:

  On perhaps the most important metric – inflation – we are almost back to where we started, with core near last year’s low of 0.6 percent. Looking through the lens of the inflation mandate, sequential (month-over-month) inflation needs to triple from its pace over the past year for the ECB to meet its already low forecast for core of 1.3 percent in 2016 (Exhibit 1). Put another way, our European economics team forecasts core at just 0.9 percent this year. There is therefore little doubt in our minds that the ECB is missing its mandate and – given the miss on core – that this is not just a story about lower oil prices. Instead, the Phillips curve in the Euro zone may have shifted down, which would explain why core has failed to pick up even as the unemployment gap has closed (Exhibit 2). The fact that this downshift originates in southern Europe, as we have shown, suggests that structural reforms are pushing wages and prices lower, giving a deflationary bias to the periphery, such that Euro zone inflation is now lower ceteris paribus. If this is true, low inflation is a more serious problem than the ECB believes and requires forceful action. In this FX Views, we lay out scenarios for EUR/$ for different outcomes on Thursday. Above all, after a year of mixed messages, the ECB needs to signal that it is serious about pursuing its inflation mandate, including via a stepped up pace of monthly QE purchases.

   

  

   

  Or else? And here is where it gets good, because Goldman basically lays out, point for point, what Draghi should do on Thursday if he wants to remain in his cephalopod master’s good graces:

  There is little doubt in our minds that the ECB wants to surprise this week, not just because of the inflation picture, but also because it disappointed in December, inadvertently tightening financial conditions materially. The question is whether it will choose to do that on the deposit rate and/or sovereign bond buying. From the perspective of EUR/$, we think it is helpful to go back to first principles. The main goal of any QE program is to encourage a portfolio shift from the safe haven asset – Bunds in the Euro zone – to risky assets, including foreign currencies. The sharp Bund sell-off a year ago, not to mention the volatility since then (Exhibit 3), have impaired the functioning of ECB QE, as can be seen from the pull-back in residents’ portfolio outflows following President Draghi’s comment that “markets should get used to periods of higher volatility” at the June press conference (Exhibit 4). Our first preference is therefore for the ECB to simply stabilize Bund yields at a relatively low level, similar to what the BoJ has done since the start of QQE. This is the most powerful option for Euro down and would require the Bundesbank to adjust the maturity of its Bund purchases to market conditions. A shift from Bunds to more periphery debt, for example by relaxing the capital key, is next up in our list of preferred measures, where our rule of thumb is that an EUR 100 bn surprise is worth one big figure downside in EUR/$. Another cut in the deposit rate is our least preferred option, because we see the effect from negative interest rates as relatively limited. We think a 10 bps surprise is worth two big figures downside in EUR/$. Given how much is priced and the negative perception of tiering, this is the least powerful option.

   

  

  Goldman has spoken and it demands more QE. NIRP is its least favorite option.

  In the next paragraph, the vocal “urges” of what the ECB should do continue, and here we find that according to Goldman, that major Bund selloff of last April, was precisely at the behest of the ECB as we suggested, and as many accused us of the usual tinfoilhattery. We were right.

  Any QE program has distributional consequences, by penalizing savers at the expense of debtors. At the ECB, the interests of savers (and the financial sector that serves them) are represented by the Bundesbank, perhaps the single most important constituency within the central bank. As we showed last year, the Bund sell-off in April/May coincided with the Bundesbank reducing the maturity of its purchases (when to anchor yields it should have done the opposite), so that – in our minds – the sell-off was partly a policy decision. We see this as a form of “financial dominance,” with savers impeding forceful QE, a concept our European team discussed in early 2014. Meanwhile, shifting purchases towards periphery debt is less powerful for Euro downside, especially if it coincides with a steeper and more volatile Bund curve, because it more closely resembles a quasi-fiscal operation, helping the periphery sustain large debt burdens, aka “fiscal dominance.” Finally, the debate over tiering, which aims to shield banks from the adverse fall-out of negative interest rates, is just another example of “financial dominance.” The fact that monetary policy is subject to lobbying from different vested interests is of course nothing new. But in the case of the ECB, this is coming at the expense of “monetary dominance,” meaning that policy is not quick and forceful enough to boost inflation back to the mandate (Exhibit 5). Ultimately, we think monetary dominance will reassert itself, given that the ECB has only inflation as its target. That is the underlying reason why we continue to hold to our 0.95 forecast for EUR/$ in 12 months.

   

  

   

  Goldman’s conclusion is that “the ECB needs to surprise this week, not because of markets, but because – given the trend in core inflation – the existing policy mix is behind the curve.” Translation: the ECB has to surprise because of markets.  Brooks continues:

  Given the political economy within the ECB and what is now priced in money markets, we think the biggest margin for surprise will be to step up monthly purchases and signal that “scarcity” is not a constraint [ZH: even though it clearly is]  including via shifting away from the capital key. Our rule of thumb is that an EUR 100 bn surprise on sovereign bond buying translates into one big figure down in EUR/$. Most important, beyond specific measures, we believe it is time for the ECB to step it up and reassert “monetary dominance” over all other interests.

  Which is how Goldman lays down its ultimatum to a central banker whom it itself spawned.  Then again, Draghi already defied Goldman once in December. Would he dare to do it twice? For one thing, Robin Brooks career at Goldman would certainly be over if he were to once again lead Goldman’s muppets into the ECB slaughter. Another 3-4 big figure search in the EURUSD, and Goldman wouldn’t have to fire Brooks: his former clients may just take matters into their own vigilante hands.

  And therein lies the rub, because implied threats or not, according to MarketNews, the possibility of an ECB disappointment is all too real. This is what MNI reported last week:

  The European Central Bank is likely to add a further deposit rate cut to its fight against low inflation and tepid growth in the currency area next week, but multiple conversations with a variety of Eurosystem sources indicate little or no consensus yet for action beyond a ‘plain vanilla’ rate move. While market expectations of a comprehensive easing package from the Governing Council are on the rise, policymakers from the world’s biggest economies warned last week at the G20 meeting in Shanghai that monetary efforts alone cannot address the issues of confidence and demand that are currently stifling growth.

  Oops. If true, and going back to Breslow’s point, that would mean that Draghi will disappoint on purpose, precisely to stimulate a fiscal intervention and to keep the monetary toolkit at bay. If so, Goldman is in for a huge disappointment.

  Against that backdrop, conversations with several senior Eurosystem sources indicate that while most are open to moves that can ignite growth and inflation without creating further risks to the region’s financial stability, there remains a great deal of uncertainty with respect to the viability of specific policy options and much will depend on both the Executive Board’s proposals and the new staff macroeconomic forecasts to be presented at the meeting.

  The quotes confirm as much:

  “I don’t think that monetary policy has reached its limits, but it’s a question of whether it marginally adds to the efficiency of what we’re doing with the instruments we have,” said one senior Eurosystem source. “There is a pretty much unlimited arsenal of instruments we can use. But the question I see and always ask myself is whether we are hitting the right buttons.”

  To be sure, nobody doubts the ECB can do more, the question is whether it should do more:

  Multiple conversations with Eurosystem sources revealed some concern with respect to the limits of monetary policy, although a large majority agreed there were still plenty of options for the Governing Council, even as they lamented the lack of fiscal support from Eurozone governments.

   

  “Monetary policy isn’t paralyzed, but it’s not the only game in town,” said a second senior Eurosystem source. “Within our limits and competencies, I think we do have influence, and we have proven efficient in terms of reducing long-term interest rates, improving credit conditions and stabilizing inflation expectations.”

   

  “The huge handicap I’m seeing now is the European political environment; Europe is going through one of its major crises, I’m afraid, with even Schengen on the table.” The first source agreed.

  And herein lies the rub: even the ECB realizes that the time for passing the buck to Frankfurt is over.

  “I had hoped the ‘Juncker Plan’ would be there already, but it’s not yet,” the source said, referring to the E315 billion European Fund for Strategic Investments championed by Commission President Jean-Claude Juncker. “And every month that the Plan is not there, we are missing opportunities to have an impact from it. I have no idea what the European Commission is doing about that.”

   

  The same source also indicated a certain degree of remorse with respect to market expectations and the burden being placed on central bankers – largely as a result of the Bank’s previous activism.

   

  “There is a refugee crisis; what could the ECB do? There is climate change; oh, the ECB needs to do something. I have the hiccups; oh, the ECB should do something … it’s crazy,” the source said. “I find this completely ridiculous and irresponsible. But we got ourselves into this.“

  Yes, an ECB source said that, and he or she is right: you got yourselves into this, and there is only one way to get out – by demonstrating that you will no longer operate at the markets’ every whim and allow Brussels to punt at a time when they have to make decisions. To do that you will have to disappoint not only the market, but the banks that is confident it owns your boss.

  Will the ECB finally have the guts to say no to Goldman? We doubt it, but just in case, we are going long the EURUSD if only for symbolic support value…

  

  

  

  

  

• EU, Turkey Agree To Keep Talking On Refugee Crisis, Will Reconvene Next Week

  Update: Monday came and went, and here, courtesy of Bloomberg’s bullets, is what we got in terms of what amounts to a “draft of a draft”:

  • Draft doesn’t refer to additional 3 billion euros for Turkey as had been requested
  • EU leaders warmly welcomed additional proposals made by Turkey today to address migration issue
  • Draft refers to agreement to work on basis of following principles:
    • to return all new irregular migrants crossing from Turkey to Greek islands with EU covering costs
    • to resettle, for every Syrian readmitted by Turkey from Greek islands, another Syrian from Turkey to EU
    • accelerate visa liberalization roadmap with view to lifting visa requirements for Turkish citizens by end June at latest
    • speed up disbursement of EU 3bln to ensure first projects funded before end March, and decide on additional funding for Refugee Facility for Syrians

  Next pretend “D-Day”: March 18, the last day of the European Summit. Martin Selmayr, chief-of-staff to European Commission President Jean-Claude Juncker, tweeted: “Deal. Breakthrough with Turkey.” 

  Yeah, sure.

  *  *  *

  On Monday, officials from the EU and Turkey are gathered in Brussels to do some talking about the refugee crisis that threatens to tear Europe apart at the seams. And make no mistake, “talk” is probably all they’ll do.

  Last year, Europe and Turkey agreed on a so-called “joint action plan” which essentially amounted to Turkish President Recep Tayyip Erdogan extorting €3 billion from Brussels in exchange for a promise to curb people smuggling and stem the flow of migrants into Western Europe. As The Guardian notes, “several months on, the pact remains little more than a piece of paper.”

  Although the check has been cut, it’s not entirely clear where the money went (surprise) and now that the effective closure of the Balkan route has created a severe bottleneck of refugees in Greece, Athens is very near to losing its mind.

  As of Sunday, as many as 14,000 men, women, and children were stranded on Macedonia’s border which has been sealed and which migrant men have at various times tried to breach with homemade battering rams.

  

  Now, Macedonia wants to extend the 19-mile, Orban-style razor wire fence to a 200-mile barrier complete with guards armed with tasers, a plan unveiled in Brussels over the weekend detailed.

  

  Needless to say, Alexis Tsipras is at wit’s end.

  First Brussels forced Athens to accept a third sovereign bailout that carried draconian terms and all but guaranteed the country will remain a debt serf of Berlin for the next five decades. Now, Austria has effectively conspired with the Balkan countries to close the route north to Germany leaving Greece on its own to handle the influx. “Europe is in the midst of a nervous crisis, primarily for reasons of political weakness,” said he said on Sunday.

  

  (A man looks at the Greek island of Lesbos from the Turkish coastline)

  “About 13,000-14,000 people are trapped in Idomeni, while another 6,000-7,000 are being housed in refugee camps around the region,” Al Jazeera reports, citing Apostolos Tzitzikostas, governor of Central Macedonia province.

  “It’s a huge humanitarian crisis. I have asked the government to declare the area in a state of emergency,” he said during a visit to Idomeni on Saturday to distribute aid to the Red Cross and other non-governmental organisations.

  

  For her part, the Iron Chancellor claims “rumors” that the Balkan route has been closed “do not conform to the facts” (to quote China’s NBS):

  #BREAKING Closure of Balkans refugee route ‘speculation’: Merkel spokeswoman

  — AFP news agency (@AFP) March 7, 2016

  Coming back to Monday’s summit, “the crucial point is to know if Turkey is a player on our side, because up to now they declare they are on our side, but they don’t do anything to prove that,” Miltiadis Kyrkos, a Greek MEP who is the vice-chair of the European parliament’s joint committee with Turkey, said.

  As for Turkey, you can say what you will about Erdogan’s belligerence, but the country is not only on the frontlines of the refugee crisis, but on the frontlines of the war itself. The pressure is palpable to say the absolute least.

  Take the tiny town of Kilis for instance, which has more than doubled in size from the refugee influx. Incidentally, the town (which WSJ notes was previously “best known as a place for truckers to pick up pistachio-encrusted pastries before crossing the nearby Syrian border”), is up for a Nobel Peace Prize for its efforts.

  

  “To encourage refugees to stay, Ankara is now allowing millions of Syrians to legally work in Turkey, ending a policy in place since the start of the war. But the new regulation comes with restrictions,” WSJ goes on to document. “The restrictions, along with the often-convoluted bureaucratic challenges, make it hard for Syrian families to stay.”

  In other words, some Turkish towns with big hearts are doing their part (and more), but Ankara hasn’t even begun to implement the type of measures that will stop refugees from fleeing to Western Europe and besides, Turkey isn’t that much safer than Syria these days. “Using Turkey as a ‘safe third country’ is absurd,” said Amnesty’s director for Europe and Central Asia, Gauri van Gulik. “Many refugees still live in terrible conditions; some have been deported back to Syria and security forces have even shot at Syrians trying to cross the border.” And that’s if they don’t get blown up by the very same groups blowing them up in Syria, groups that are armed and funded by Erdogan.

  As The Guardian goes on to say, “resettlement was Angela Merkel’s last gambit for solving the refugee crisis. In mid-February, the German government confidently presented a plan in which a “coalition of the willing” – including Austria, Germany, Sweden and the Benelux trio – would take 300,000 refugees from Turkey a year [but] the renegade actions of Austria and the western Balkan states have forced Merkel into a rethink.”

  “It’s our damned duty,” she insisted last week. “And no I don’t have a Plan B.”

  Well, she had better get one, before the German electorate goes with “Plan B” for chancellor.

  As for whether Erdogan will suddenly step up to the plate – don’t hold your “damned” breath. “Turkey’s diplomacy [is like] an eastern bazaar,” the aforementioned Miltiadis Kyrkos said. And it’s not just money Ankara wants. Turkish PM Ahmet Davutoglu is looking to trade concessions on migrants for fast-track membership to the EU. “I am sure these challenges will be solved through our cooperation and Turkey is ready to work with the EU,” Davutoglu said. “Turkey is ready to be a member of the EU as well. Today I hope this summit will not just focus on irregular migration but also the Turkish accession process to the EU.”

  But Europeans aren’t exactly thrilled about Ankara’s latest move away from democratic norms. “Media freedom is a non-negotiable element of our European identity,” European Parliament President Martin Schulz said he had told the Turkish Premier, referring to Erdogan’s move to seize control of The Daily Zaman.

  And sure enough, as FT reports, Turkey is asking for more concessions: “Ahead of crunch summit between EU leaders and the Turkish prime minister on Monday, Ankara has called for an increase on the €3bn in aid previously promised by the EU, faster access to Schengen visas for Turkish citizens and accelerated progress in its EU membership bid.” One imagines a long list of eleventh hour demands could well cause the whole thing to collapse.

  Although for another EUR3 Billion in EU cash we’ll try hard https://t.co/wRyTeED6gW

  — zerohedge (@zerohedge) March 6, 2016

  Perhaps Dutch prime minister, Mark Rutte put it best: “[This] is not the summit that will change anything.”

  

  

  

  

  

• 12 Ways Your Tax Dollars Were Squandered In Afghanistan

  Everyone knows America’s campaign in Afghanistan has been an enormous foreign policy success.

  The Taliban harbored al-Qaeda before and after 9/11 so naturally, the US had to oust Mullah Omar and company on the way to chasing Osama bin Laden through the mountains whilst laying waste to whatever civilization existed prior to the American invasion.

  But the $133.1 billion spent on the war was well worth it. Bin Laden was captured in a matter of months, the Taliban was driven into relative obscurity, a stable government was elected by the people for the people in Kabul, and today, Afghanistan stands as a democratic oasis in an otherwise strife-ridden wasteland.

  Oh, wait.

  Actually it took a decade to find Bin Laden, the country is still mired in violence, Mullah Omar finally died with his one eye but it wasn’t part of some dramatic US raid, the Taliban is resurgent and now controls more territory than it has since before 9/11, and in October, Obama had to backtrack on his pledge to pull American troops out of the country.

  

  Accoring to Afghan government sources there was a “secret” meeting in Doha in February between the Taliban and officials from Kabul where, according to the government, “they [the Taliban] wouldn’t simply reject that they’re going to meet [us] face to face [for the talks in March].” If that doesn’t sound promising to you, you’re a pragmatist and should be praised for it.

  So that of course means more taxpayer dollars will continue to be plowed into this misadventure and before you know it, American boots will have been on Afghan ground for longer than some of the soldiers fighting there will have been alive.

  For those who enjoy seeing how their tax dollars are wasted on Washington’s perpetually wrong-footed Mid-East foreign policy, NBC has the following hilarious (and remarkably candid, considering the source) tribute to utter military frivolity.

  *  *  *

  From NBC

  NBC News spoke to SIGAR’s Special Inspector General John F. Sopko about 12 of the most bizarre and baffling cases highlighted by his team’s investigations.

  

  1. $486 million for ‘deathtrap’ aircraft that were later sold for $32,000

  “These planes were the wrong planes for Afghanistan,” Sopko told NBC News. “The U.S. had difficulty getting the Afghans to fly them, and our pilots called them deathtraps. One pilot said parts started falling off while he was coming into land.” Sopko called the planes “one of the biggest single programs in Afghanistan that was a total failure.”

  

  2. $335 million on a power plant that used just 1 percent of its capacity

  The “modern” diesel plant exported just 8,846 megawatt hours of power between February 2014 and April 2015, SIGAR said in a letter to USAID last August. This output was less than 1 percent of the plant’s capacity and provided just 0.35 percent of power to Kabul, a city of 4.6 million people.

  

  3. Almost $500,000 on buildings that ‘melted’ in the rain

  U.S. officials directed and oversaw the construction of an Afghan police training facility in 2012 that was so poorly built that its walls actually fell apart in the rain. The $456,669 dry-fire range in Wardak province was “not only an embarrassment, but, more significantly, a waste of U.S. taxpayers’ money,” SIGAR’s report said in January 2015.

  

  4. $34.4 million on a soybean program for a country that doesn’t eat soybeans

  “They didn’t grow them, they didn’t eat them, there was no market for them, and yet we thought it was a good idea,” Sopko told NBC News.

  

  5. One general’s explanation why 1,600 fire-prone buildings weren’t a problem

  The U.S. Army Corps of Engineers built some 2,000 buildings to be used as barracks, medical clinics and fire stations by the Afghan National Army as part of a $1.57-billion program. When two fires in October and December 2012 revealed that around 80 percent of these structures did not meet international building regulations for fire safety, Sopko said he was “troubled” by the “arrogant” response from a senior USACE chief.

  

  6. A $600,000 hospital where infants were washed in dirty river water

  “Because there was no clean water, staff at the hospital were washing newborns with untreated river water,” SIGAR’s report said in January 2014. It added that the “poorly constructed” building was also at increased “risk of structural collapse during an earthquake.”

  

  7. $36 million on a military facility that several generals didn’t want

  The so-called “64K” command-and-control facility at Afghanistan’s Camp Leatherneck cost $36 million and was “a total waste of U.S. taxpayer funds,” SIGAR’s report said in May 2015.

  8. $39.6 million that created an awkward conversation for the U.S. ambassador

  A now-defunct Pentagon task force spent almost $40 million on Afghanistan’s oil, mining and gas industry — but no one remembered to tell America’s diplomats in Kabul, according to SIGAR, citing a senior official at the U.S. embassy in the city.

  In fact, the first the U.S. ambassador knew about the multi-billion-dollar spend was when Afghan government officials thanked him for his country’s support, SIGAR said.

  

  9. $3 million for the purchase — and then mystery cancellation — of eight boats

  SIGAR said the U.S. military has been unable to provide records answering “the most basic questions” surrounding the mystery purchase and cancellation of eight patrol boats for landlocked Afghanistan.

  

  10. $7.8 billion fighting drugs — while Afghans grow more opium than ever

  Despite the U.S. plowing some $7.8 billion into stopping Afghanistan’s drug trade,” Afghan farmers are growing more opium than ever before,” SIGAR reported in December 2014.

  

  11. $7.8 million on a nearly-empty business park

  After the military withdrew in mid-2014, the investigators were told that at least four Afghan businesses had moved into the industrial park. However, SIGAR said that it could not complete a thorough inspection because USAID’s contract files were “missing important documentation.”

  12. $81.9 million on incinerators that either weren’t used or harmed troops

  The DOD spent nearly $82 million on nine incineration facilities in Afghanistan — yet four of them never fired their furnaces, SIGAR said in February 2015. These four dormant facilities had eight incinerators between them and the wastage cost $20.1 million.

  Read the full NBC report here

  *  *  *

  The good news is, now that Obama is set to keep all 9,800 troops that are currently in the country deployed through this year and 5,500 troops through 2017, they’ll be plenty more opportunities to waste money. 

  Maybe Kabul will mercifully pass the baton to the Russians who – if Syria is any indication – seem to have learned something from their experience fighting the Mujahideen in the 80s.

   

  

  

  

  

• Thanks To The Republican Civil War, Every Scenario Ends With Hillary Winning The Election

  Submitted by Michael Snyder via The Economic Collapse blog,

  What is the worst possible outcome for the presidential election of 2016?  Assuming that an election will actually take place, that is an easy question to answer – Hillary Rodham Clinton as the next president of the United States.  She is truly evil in every sense of the word, and the implications of what four (or eight) years of Hillary would mean for our nation are almost too terrible to imagine.  That is why it is so depressing watching what is happening to the Republican Party right now.  The civil war in the Republican Party is ripping it to shreds, and as a result of all this warfare every plausible scenario for what will happen the rest of the way ends with Hillary Clinton winning the 2016 election.

  According to the Associated Press, here is how the Republican delegate count stands as of right now…

  • Donald Trump: 384
  • Ted Cruz: 300
  • Marco Rubio: 151
  • John Kasich: 37

  Ted Cruz looks like he is within shooting distance of Trump, but that is an illusion.  The early part of the schedule was full of states where Cruz was expected to do well, but now the map is going to work very much against him.

  At this point, the only candidate that looks like he may be able to accumulate 1,237 delegates before the convention is Trump, and that is far from guaranteed.  So far, Trump has won approximately 44 percent of the delegates during the caucuses and primaries.  By the time it is all said and done, he will need to have slightly more than 60 percent of all the delegates awarded during the caucuses and primaries to guarantee himself the nomination before the Republican convention.  That is because there are hundreds of delegates that are not awarded during the caucuses and the primaries, and almost all of those delegates are members of the Republican establishment.

  Trump can still get there by racking up large delegate totals in winner-take-all states such as California, but it will be a challenge.  The entire Republican Party establishment, Fox News, Glenn Beck and a significant number of other prominent conservative voices have all declared war on Trump.  In fact, there are super PACs that are going to spend tens of millions of dollars doing nothing but trying to destroy Trump.

  If the Republican Party actually wanted to beat Hillary Clinton in November, they should be rallying around Trump and trying to help him, because he would definitely need a lot of help to win the general election.

  According to Real Clear Politics, the latest three polls all have Trump losing to Clinton by at least 5 points.  In key states such as Michigan, the numbers are quite a bit more dismal.  Over the next few months, those numbers are likely to get even worse as Trump is savagely assaulted by the Republican establishment and relentlessly bombarded by tens of millions of dollars of negative attack ads.  Meanwhile, Clinton is cruising along virtually unscathed.

  Of course in a just world Hillary Clinton would have already been arrested and put in prison.  There is no possible way that she should be running for president of the United States.  Unfortunately, we live in a deeply corrupt society, and this is the way that things work.

  If by some miracle he does survive to become the nominee, a significantly weakened Trump would then have to face the full power of the Clinton political machine.  It is estimated that a billion dollars could be spent on the Democratic side this time around, and Trump does not have the resources to match that.  Normally big Republican donors rally around the nominee, but in this case the big money is fighting like crazy to defeat Trump.  In a general election matchup, it really would be David vs. Goliath, and Trump would not be Goliath.

  If Donald Trump does not accumulate 1,237 delegates before the convention, then we would be headed for what is known as a “brokered convention“.  The rules are very complicated, but the key thing to remember is that the delegates are only bound for the first vote.  After that, they can vote for whoever they want.

  And it is very important to note that the campaigns don’t pick their delegates.  Becoming a delegate is a long and tedious process in most states, and most of them are party loyalists.

  In the end, a “brokered convention” would almost certainly result in an establishment candidate being chosen as the nominee.  Needless to say, the names “Trump” and “Cruz” would not be on that list.

  Have you noticed that Mitt Romney has started to put himself out there lately?  His verbal attacks on Trump have been absolutely scathing, and he told Fox News that he would not say no if he was “drafted” to become the nominee at the Republican convention…

  Romney, a former Massachusetts governor and the Republicans’ 2012 presidential nominee, repeated remarks from last week, telling “Fox News Sunday” that he wouldn’t launch an eleventh-hour campaign for president. But he declined to reject being “drafted” at the GOP convention in July to be the party’s general election candidate.

   

  “It would be absurd to say that if I were drafted I’d say no,” Romney said.

  Behind the scenes, much more is going on.  In fact, CNN is reporting that Romney’s team is actively working on a plan to steal the nomination from Trump at the convention…

  Mitt Romney has instructed his closest advisers to explore the possibility of stopping Donald Trump at the Republican National Convention, a source close to Romney’s inner circle says.

   

  The 2012 GOP nominee’s advisers are examining what a fight at the convention might look like and what rules might need revising.

   

  “It sounds like the plan is to lock the convention,” said the source.

  If Romney does emerge as the nominee, does anyone actually believe that he will defeat Clinton?

  Of course not.  Trump’s millions of supporters will be absolutely infuriated, and many of them would absolutely refuse to cast a vote for Romney in the general election.

  In the end, it would be the same result – a victory for Hillary Clinton.

  The next few weeks are going to be very interesting.  If Trump wins Florida and Ohio, there is going to be a lot of pressure on Marco Rubio and John Kasich to get out of the race, and the path to 1,237 delegates would appear to be clear.

  However, Mitt Romney could attempt to derail the Trump bandwagon by jumping in the race after March 15th.  Romney’s goal would be to capture enough delegates in winner-take-all states such as California to keep Trump from getting to the magic number of 1,237.  If Romney could do that, he knows that he would likely come out of a brokered convention as the nominee.

  But no matter what happens on the Republican side from this point forward, it is going to take a miracle of epic proportions to keep Hillary Clinton from winning the presidency.  Every plausible scenario ends with her in the White House, and that is a truly horrible thing to imagine.

  

  

  

  

  

• Iran Billionaire Who Pioneered "PetroGold" Sentenced To Death

  Two months back, in a series of lengthy exposes (see here and here), we profiled the ins and outs of the “petrogold” trade that allowed Iran to skirt international sanctions that froze Tehran out of the banking system by way of conduits and shady go-betweens in Turkey and Dubai.

  The tale is long and winding and should probably be adapted for the silver screen, but really, the mechanics were pretty simple. Couriers simply carried briefcases full of bullion through Istanbul’s Ataturk Airport and flew to Dubai where the gold was then carted off to Iran.

  The Dubai intermediary became necessary because gold exports to then-pariah state Iran were becoming too suspicious. Here’s a bit from Reuters ca. 2012 that details the switch: “Turkey exported a total $2.3 billion worth of gold in August, of which $2.1 billion was gold bullion. Just over $1.9 billion, about 36 metric tons, was sent to the UAE, latest available data from Turkey’s Statistics Office shows. In July Turkey exported only $7 million of gold to the UAE. At the same time Turkey’s direct gold exports to Iran, which had been fluctuating between $1.2 billion and about $1.8 billion each month since April, slumped to just $180 million in August.”

  Eventually the world came to know who the people on the Turkish side of the deal were and unsurprisingly the connections went all the way to the top including Turkey’s then-economy minister, Zafer Caglayan and Erdogan himself (wouldn’t you know it). Finally, in July of 2013, the U.S. added precious metals to the list of items that couldn’t be sold to Iran as part of an effort to curtail the country’s nuclear enrichment program.

  Party over.

  We went on to identify the Dubai middleman involved in the trade and looked into his company Gold AE where, ultimately, all of the gold held on behalf of clients simply disappeared. You’re encouraged to read the entire series linked above, but what’s notable today is that the Iranian side of the business, billionaire Babak Zanjani was just sentenced to death in Iran.

  You may remember Mr. Zanjani from 2013, when he was arrested for corruption.

  In better times:

  

  Now:

  

  As PressTV reported at the time, “after sanctions were imposed against the National Iranian Oil Company, Iran had to export oil and they gave Babak Zanjani the task of exporting some of this oil worth around USD 3.0003 billion. The problem is that they were supposed to get collateral from him by law and this was not done.”

  We asked: “So, Zanjani was tasked to circumvent oil sanctions which he did for over a year, but now, for some inexplicable reason, he is arrested for not ‘getting collateral’?

  We suggested at the time that perhaps the US put pressure on Iran to arrest Zanjani in exchange for some manner of sanctions relief and we’ll probably (scratch that, “definitely”) never know the whole story, but the official line now is that he embezzled $2.7 billion from the state-run National Iranian Oil Co. 

  “The court found enough evidence to convict Zanjani and two other people, who were also sentenced to death,” Bloomberg reports, adding that “Zanjani, who has denied all wrongdoing, was accused of embezzling $2.7 billion from the state-run National Iranian Oil Co. during transactions intended to circumvent international sanctions on crude exports.”

  

  (Zanjani arrives for court in November)

  As you can imagine, being tasked with helping a country evade international sanctions might tempt one to skim a little off the top which is exactly what Zanjani is accused of doing via the Tajikistan branch of his own bank, First Islamic Investment Bank.

  But here’s the (politically) interesting part: “The embezzlement occurred under the presidency of Mahmoud Ahmadinejad [but Zanjani] was arrested in December 2013 after the election of President Hassan Rouhani.“

  Bloomberg continues: “Zanjani was known to have good contacts with Iran’s Revolutionary Guards, and the decision marks a political and economic “confrontation” within Iran’s political establishment between the legacy of Ahmadinejad and the new era of Rouhani.”

  So it would appear that we may have been right three years ago. Is it possible that Rouhani made a deal with the US as part of the sanctions relief to rid the world of this petrogold peddler on the excuse he embezzled money from his own country? 

  In other words, was Zanjani simply a casualty of the Nuclear Accord and was he summarily abandoned by the Ayatollah and the IRGC for reasons of geopolitical expediency? 

  We’ll leave it to readers to decide.

  

  

  

  

  

• Egypt: The Pound Plunges

  Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

  The Egyptian pound is plummeting, again, losing 6.1% of its value against the greenback over the past week.  As shown in the accompanying chart, the black market premium has soared to 25.2%.

  

  The plunging pound has dramatically pushed up Egypt’s implied annual inflation rate.  It now stands at 28.9%.  The Egyptian pound might just be General Sisi’s Achilles’ heel.

  

  

  

  

  

• Chinese Hackers Break Into NY Fed, Steal $100 Million From Bangladesh Central Bank

  Reports indicate that some of the stolen funds were traced to the Philippines, but given what we know about the “Cyber Axis of Evil,” we can only suspect it was Iranians, Chinese, or the criminal/military mastermind Kim Jong-Un who was behind the scam, but whatever the case, someone, somewhere, hacked into Bangladesh’s central bank on February 5.

  According to Reuters, “some of the funds” have been recovered, but the bank didn’t initially say how much or how much was initially stolen. We suppose that theoretically it could have been a rather large sum, as the country has around $26 billion in FX reserves on hand:

  

  But just moments ago we learned from the AFP that the amount lost was around $100 million. “Some of the money was then illegally transferred online to the Philippines and Sri Lanka, a central bank official told AFP on condition of anonymity.” 

  “The bank reported that the USD 100 million was leaked into the Philippine banking system, sold to a black market foreign exchange broker and then transferred to at least three local casinos,” AFP continues, adding that “the amount was later sold back to the money broker and moved out to overseas accounts within days.”

  And here’s the punchline: According to AFP, Chinese hackers have been blamed and the money was stolen from accounts held at the New York Fed…

  

  (“They stole about this much, I’d say”)

  This afternoon, the Fed was out with the official denial, saying only this to Reuters: “To date, there is no evidence of any attempt to penetrate Federal Reserve systems in connection with the payments in question, and there is no evidence that any Fed systems were compromised.”

  Was Dudley penetrated then, or not? We’ll have to wait on the official investigation.

  

  

  

  

  

• Mike Bloomberg Won't Run For President: "I Won't Risk Helping Trump"

  Authored by Michael Bloomberg, originally posted at BloombergView.com,

  Americans today face a profound challenge to preserve our common values and national promise.

  Wage stagnation at home and our declining influence abroad have left Americans angry and frustrated. And yet Washington, D.C., offers nothing but gridlock and partisan finger-pointing.

  Worse, the current presidential candidates are offering scapegoats instead of solutions, and they are promising results that they can’t possibly deliver. Rather than explaining how they will break the fever of partisanship that is crippling Washington, they are doubling down on dysfunction.

  Over the course of American history, both parties have tended to nominate presidential candidates who stay close to and build from the center. But that tradition may be breaking down. Extremism is on the march, and unless we stop it, our problems at home and abroad will grow worse.

  Many Americans are understandably dismayed by this, and I share their concerns. The leading Democratic candidates have attacked policies that spurred growth and opportunity under President Bill Clinton — support for trade, charter schools, deficit reduction and the financial sector. Meanwhile, the leading Republican candidates have attacked policies that spurred growth and opportunity under President Ronald Reagan, including immigration reform, compromise on taxes and entitlement reform, and support for bipartisan budgets. Both presidents were problem-solvers, not ideological purists. And both moved the country forward in important ways.

  Over the last several months, many Americans have urged me to run for president as an independent, and some who don’t like the current candidates have said it is my patriotic duty to do so. I appreciate their appeals, and I have given the question serious consideration. The deadline to answer it is now, because of ballot access requirements.

  My parents taught me about the importance of giving back, and public service has been an important part of my life. After 12 years as mayor of New York City, I know the personal sacrifices that campaigns and elected office require, and I would gladly make them again in order to help the country I love.

  I’ve always been drawn to impossible challenges, and none today is greater or more important than ending the partisan war in Washington and making government work for the American people — not lobbyists and campaign donors. Bringing about this change will require electing leaders who are more focused on getting results than winning re-election, who have experience building small businesses and creating jobs, who know how to balance budgets and manage large organizations, who aren’t beholden to special interests — and who are honest with the public at every turn. I’m flattered that some think I could provide this kind of leadership.

  But when I look at the data, it’s clear to me that if I entered the race, I could not win. I believe I could win a number of diverse states — but not enough to win the 270 Electoral College votes necessary to win the presidency.

  In a three-way race, it’s unlikely any candidate would win a majority of electoral votes, and then the power to choose the president would be taken out of the hands of the American people and thrown to Congress. The fact is, even if I were to receive the most popular votes and the most electoral votes, victory would be highly unlikely, because most members of Congress would vote for their party’s nominee. Party loyalists in Congress — not the American people or the Electoral College — would determine the next president.

  As the race stands now, with Republicans in charge of both Houses, there is a good chance that my candidacy could lead to the election of Donald Trump or Senator Ted Cruz. That is not a risk I can take in good conscience.

  I have known Mr. Trump casually for many years, and we have always been on friendly terms. I even agreed to appear on “The Apprentice” — twice. But he has run the most divisive and demagogic presidential campaign I can remember, preying on people’s prejudices and fears. Abraham Lincoln, the father of the Republican Party, appealed to our “better angels.” Trump appeals to our worst impulses.

  Threatening to bar foreign Muslims from entering the country is a direct assault on two of the core values that gave rise to our nation: religious tolerance and the separation of church and state. Attacking and promising to deport millions of Mexicans, feigning ignorance of white supremacists, and threatening China and Japan with a trade war are all dangerously wrong, too. These moves would divide us at home and compromise our moral leadership around the world. The end result would be to embolden our enemies, threaten the security of our allies, and put our own men and women in uniform at greater risk.

  Senator Cruz’s pandering on immigration may lack Trump’s rhetorical excess, but it is no less extreme. His refusal to oppose banning foreigners based on their religion may be less bombastic than Trump’s position, but it is no less divisive.

  We cannot “make America great again” by turning our backs on the values that made us the world’s greatest nation in the first place. I love our country too much to play a role in electing a candidate who would weaken our unity and darken our future — and so I will not enter the race for president of the United States.

  However, nor will I stay silent about the threat that partisan extremism poses to our nation. I am not ready to endorse any candidate, but I will continue urging all voters to reject divisive appeals and demanding that candidates offer intelligent, specific and realistic ideas for bridging divides, solving problems, and giving us the honest and capable government we deserve.

  For most Americans, citizenship requires little more than paying taxes. But many have given their lives to defend our nation — and all of us have an obligation as voters to stand up on behalf of ideas and principles that, as Lincoln said, represent “the last best hope of Earth.” I hope and pray I’m doing that.

  *  *  *

  Or maybe he saw the polls… and the odds…

  

   

  And as if Bill Ackman's stock market forecasts were not bad enough, he said this in October:

  "I’m not supporting any other candidate. I’m all in for Mike Bloomberg."
   

  

  

  

  

  

• Average Wall Street Bonus Drops 9%; Lowest Since 2012

  When it comes to concerns about their professional future, few things faze Wall Streeters: mass layoffs – no big deal, someone else will hire; empty steakhouses – that’s ok, Hustler Club is packed (and expense accounts are accepted just fine). But lower compensation and all hell breaks loose. Which is why quite a few hearts must have been pounding today when New York state Comptroller Thomas DiNapoli released his annual Wall Street compensation report in which we revealed that average Wall Street bonuses for 2015 will drop by a quite substantial 9% to “only” $146,200, the second consecutive year of declines, and the lowest since 2012 when average bonuses were $142,860.

  According to DiNapoli, “Wall Street bonuses and profits fell in 2015, reflecting a challenging year in the financial markets. While the cost of legal settlements appears to be easing, ongoing weaknesses in the global economy and market volatility may dampen profits in 2016.” This is bad news for New York because “both the state and city budgets depend heavily on the securities industry and lower profits could mean fewer industry jobs and less tax revenue.

  The total bonus pool for securities industry employees declined by 6 percent to $25 billion in 2015 during the traditional December-March bonus season. The Comptroller’s estimate includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in.

  Curiously, DiNapoli said that while profits in the securities industry declined for the third straight year, reaching their lowest level since 2011, industrywide employment increased 2.7% in 2015, averaging 172,400 jobs for the year.  As a result, the average bonus declined by 9 percent in New York City to $146,200 in 2015 and the decline in the average bonus was larger than the decline in the total bonus pool because the pool was shared among a larger number of employees than last year.  As a result, the average bonus in 2015 was slightly larger than the average of the seven prior years (adjusted for inflation).

  However, anyone seeking a big pick up in wages will have to look elsewhere: ideally minimum wage waiters, bartenders and retail workers who now make up the bulk of Obama’s “recovery.”

  One also wonders how long before Wall Street switches from bonus cuts to even more wholesale terminations. Indeed, as DiNapoli notes, “it remains to be seen whether the recent job gains can be sustained in 2016 given the weakness in the global economy and financial markets, and increased provisions for bad loans related to the energy sector. A number of large financial firms have already announced plans to reduce costs to improve profitability, which could lead to fewer employees in New York City and smaller bonuses next year.”

  And that is what the recovery has to look forward to: not only fewer of the best paid employees in the US, but another year of smaller bonuses. At least the price of oil has soared enough to where that quarter of a million of laid off O&G workers will be promptly rehired, or else very soon the US will run out of waiters.

  Finally, don’t cry for Wall Street: like every other utility, increasingly more of the comp is paid in the form of base pay and less in the bonus: according to DiNapoli the average salary (including bonuses) for securities industry employees in New York City rose 14% in 2014 to $404,800, setting a new record (data are not yet available for 2015). This was nearly six times higher than salaries in the rest of the City’s private sector ($72,300).

  Some other observations from the report:

  • Although the securities industry is smaller, it is still one of New York City’s most powerful economic engines. The industry accounted for 22 percent of all private sector wages paid in New York City in 2014 even though it accounted for less than 5 percent of the City’s private sector jobs. An estimated 1 in 9 jobs in the city are either directly or indirectly associated with the securities industry;
  • Unlike in prior economic recoveries, the securities industry has not been a driving force in the current jobs recovery in New York City. So far, the industry has accounted for less than 1 percent of the private sector jobs added, compared with 10 percent during the two prior recoveries;
  • Securities-related activities are a large contributor to state and city tax revenues. DiNapoli estimates that securities-related activities accounted for 7.5 percent ($3.8 billion) of all city tax revenue in city fiscal year 2015 and 17.5 percent ($12.5 billion) of state tax collections in State Fiscal Year (SFY) 2014-15. The state also expects to receive more than $8.5 billion in settlement payments from financial firms during SFY 2014-15 and SFY 2015-16; and

  Finally, this is the history of average Wall Street bonuses over the years:

  

  

  

  

  

  

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• THe EYe OF A CePHaLoPoD…

  

   

  We may well be in the eye of a cephalopod–WB7

  

  

  

  

• "We're In The Eye Of The Storm" Rothschild Fears "Daunting Litany" Of Problems Ahead

  As central bank policy-makers' forecasts have become more pessimistic (i.e. more realistic), Lord Rothschild is unsurprised at the current malaise: "not surprisingly, market conditions have deteriorated further…So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm." On this basis, Rothschild highlights a "daunting litany of problems," warning those who are optimistically sanguine about the US economy that "2016 is likely to turn out to be more difficult than the second half of 2015."

  Lord Rothschild Letter to Investors (via RIT Capital):

  In my half-yearly statement I sounded a note of caution, ending up by writing that “the climate is one where the wind may well not be behind us”; indeed we became increasingly concerned about global equity markets during the last quarter of 2015, reducing our exposure to equities as the economic outlook darkened and many companies reported disappointing earnings. Meanwhile central banks’ policy makers became more pessimistic in their economic forecasts for, despite unprecedented monetary stimulus, growth remained anaemic.

   

  Not surprisingly, market conditions have deteriorated further. So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm.

   

  The litany of problems which confronts investors is daunting:

  • The QE tap is in the course of being turned off and in any event its impact in stimulating asset prices is coming to an end.
  • There’s the slowing down to an unknown extent in China.
  • The situation in the Middle East is likely to be unresolvable at least for some time ahead.
  • Progress of the US and European economies is disappointing.
  • The Greek situation remains fraught with the country now having to cope with the challenge of unprecedented immigration.
  • Over the last few years we have witnessed an explosion in debt, much of it repayable in revalued dollars by emerging market countries at the time of a collapse in commodity prices. Countries like Brazil, Russia, Nigeria, Ukraine and Kazakhstan are, as a result, deeply troubled.
  • In the UK we have an unsettled political situation as we attempt to deal with the possibility of Brexit in the coming months.

  The risks that confront investors are clearly considerable at a time when stock market valuations remain relatively high.

   

  There are, however, some influential and thoughtful investment managers who remain sanguine about markets in 2016 on the grounds that the US economy is in decent shape – outside of manufacturing – while they feel that economic conditions may be improving. To them, the decline in these markets may have more to do with sentiment than substance. Others are less optimistic but feel that the odds remain against these potential difficulties materialising in a form which would undermine global equity markets. However our view is that 2016 is likely to turn out to be more difficult than the second half of 2015. Our policy will be towards a greater emphasis on seeking absolute returns. We will remain highly selective when considering public and private investment opportunities. Reflecting this policy, our quoted equity exposure has been reduced to 43% of net asset value.

   

  There’s an old saying that in difficult times the return of capital takes precedence over the return on capital. Our principle will therefore be to exercise caution in all things in the current year, while remaining agile where opportunities present themselves. Problems have a habit of creating opportunities and I remain confident of our ability to identify and profit from them during 2016.

  Perhaps Lord Rothschild is on to something…

  Fundamentally…

  

  Source: @DonDraperClone

  Of course, even The Fed is forced to admit that recession probabilities are rising fast…  

  

   

  And technically, we are indeed in the "eye of the storm"

  

   

  However, we have seen this pattern on a bigger scale before… and it did not end well.

  What happens next?

  

   

  Eye of the Storm? Or Storm In A Teacup?

  

  

  

  

  

• Paul Craig Roberts: Murder Is Washington's Foreign Policy

  Authored by Paul Craig Roberts,

  Washington has a long history of massacring people, for example, the destruction of the Plains Indians by the Union war criminals Sherman and Sheridan and the atomic bombs dropped on Japanese civilian populations, but Washington has progressed from periodic massacres to fulltime massacring. From the Clinton regime forward, massacre of civilians has become a defining characteristic of the United States of America.

  Washington is responsible for the destruction of Yugoslavia and Serbia, Afghanistan, Iraq, Libya, Somalia, and part of Syria. Washington has enabled Saudi Arabia’s attack on Yemen, Ukraine’s attack on its former Russian provinces, and Israel’s destruction of Palestine and the Palestinian people.

  The American state’s murderous rampage through the Middle East and North Africa was enabled by the Europeans who provided diplomatic and military cover for Washington’s crimes. Today the Europeans are suffering the consequences as they are over-run by millions of refugees from Washington’s wars. The German women who are raped by the refugees can blame their chancellor, a Washington puppet, for enabling the carnage from which refugees flee to Europe.

  In the article below Mattea Kramer points out that Washington has added to its crimes the mass murder of civilians with drones and missile strikes on weddings, funerals, children’s soccer games, medical centers and people’s homes. Nothing can better illustrate the absence of moral integrity and moral conscience of the American state and the population that tolerates it than the cavalier disregard of the thousands of murdered innocents as “collateral damage.” 

  If there is any outcry from Washington’s European, Canadian, Australian, and Japanese vassals, it is too muted to be heard in the US.

  As Kramer points out, American presidential hopefuls are competing on the basis of who will commit the worst war crimes. A leading candidate has endorsed torture, despite its prohibition under US and international law. The candidate proclaims that “torture works” — as if that is a justification — despite the fact that experts know that it does not work. Almost everyone being tortured will say anything in order to stop the torture. Most of those tortured in the “war on terror” have proven to have been innocents. They don’t know the answers to the questions even if they were prepared to give truthful answers. Aleksandr Solzhenitsyn relates that Soviet dissidents likely to be picked up and tortured by the Soviet secret police would memorize names on gravestones in order to comply with demands for the names of their accomplices. In this way, torture victims could comply with demands without endangering innocents.

  Washington’s use of invasion, bombings, and murder by drone as its principle weapon against terrorists is mindless. It shows a government devoid of all intelligence, focused on killing alone. Even a fool understands that violence creates terrorists. Washington hasn’t even the intelligence of fools.

  The American state now subjects US citizens to execution without due process of law despite the strict prohibition by the US Constitution. Washington’s lawlessness toward others now extends to the American people themselves.

  The only possible conclusion is that under Clinton, George W. Bush, and Obama the US government has become an unaccountable, lawless, criminal organization and is a danger to the entire world and its own citizens.

  

  

  

  

  

• The Divided States Of An Armed America

  Few issues spilt America as conclusively as the Second Amendment to the US Constitution, which protects the right of the people to keep and bear arms.

  In July 2015, 50% of Americans said it is important to control gun ownership, and 47% said it is more important to protect the right of Americans to own guns (Pew).

  

  Source: BofAML

  The map above shows the divide in public opinion on expanding gun control, favored greatly by the metropolitan coasts, opposed with determination by the rural middle.

  

  

  

  

  

• John Perkins: The Shadow World Of The Economic Hitman

  Submitted by Adam Taggart via PeakProsperity.com,

  If you're hoping to have a 'feel good' day today, we're about to owe you an apology.

  John Perkins, author of The New Confessions of an Economic Hit Man, is someone we've been trying to get on the program for some time. He tells a dark story of an elite cabal working in the shadows to subjugate governments as it pursues ever-greater control of the planet's resources.

  What's most frightening about this story is how credible it is. Anybody paying attention to world developments will have a hard time dismissing Perkins' claims out-of-hand; and a harder time not being sickened at how on the mark his claims may likely prove to be:

  Economic hitmen – I'm a former one, actually – created the world's first truly global empire. It's really a corporate empire, not an American empire although the U.S. government certainly supports it.

   

  We work many different ways, but perhaps the most common is that we will identify a country that has resources that corporations want, like oil. We arrange huge loans of that country from the World Bank or one of its sisters. Yet, the money never actually goes to the country. It is primarily there to make the our companies — that build the infrastructure projects like the power plants, and the industrial parks, highways, and ports — very rich.

  In addition, a few wealthy families make a lot of money off of these programs. They own the industries and commercial centers.

   

  But the majority of the people do not benefit at all. They do not have enough money to buy much electricity. They cannot get jobs in industrial parks because the industrial parks do not hire many people. They lose out because a lot of money is diverted from healthcare, education, and other social services to try to pay the interest on the debt.

   

  In the end, the principal is never paid down. We go back and say Since you cannot pay your debts, sell your resource real cheap to our corporations without any environmental restrictions or social regulations. Or privatize, and sell off your electric utilities;,your water and sewage systems, and your schools, your jails — all of your public sector businesses — to our corporations.

   

  These leaders are very aware that if they do not accept these deals; if we economic hitmen fail to bring them around, the jackals are likely to show up. These are people that will either assassinate those leaders or overthrow their governments. 

  Click the play button below to listen to Chris' interview with John Perkins (41m:54s)

  

  

  

  

  

• "There's An Insurrection Coming… The American People Are Sick & Tired Of Crony Capitalism"

  In a stunningly honest and frank rant, FOX News' Judge Jeanine unleashes anchor hell upon Mitt Romney and the GOP establishment hordes.

  She begins:

  "There’s an insurrection coming. Mitt Romney just confirmed it. We’ve watched governors, the National Review, conservative leaders, establishment and party operatives trash Donald Trump. But Mitt Romney will always be remembered as the one who put us over the edge and awoke a sleeping giant, the Silent Majority, the American people.

   

  Fact. The establishment is panicked. Mitt essentially called for a brokered convention where the Republican nominee will be decided by party activists and delegates irrespective of their state’s choice… You want a brokered convention? A primer Mitt. Whenever we have a brokered convention we lose.

   

  Dewey and Ford emerged from a brokered convention to lose the general election. So why? Because the party elites and elders want to protect us and stop of from falling into the abyss?… Most of us working two or three jobs think we’re already in the abyss. The Obama abyss…

   

  We are sick and tired of legislators of modest means who leave Congress multimillionaires, whose spouses and families get all the contracts from selling the post offices to accessing insider information so they can buy property and flip it. You’re so entrenched that you’re willing to give Hillary Clinton a win. It doesn’t matter to you which party, crony capitalism and its paradigm will not change for the elite."

  And that is just the introduction… Grab a coffee (or something stronger) and watch…

  

  

  

  

  

• Are Greek Banks About To Charge For The Privilege Of Banning €500 Bills?

  Officials would have you believe that all of this talk about banning cash is nonsense – a myth likely perpetuated by fringe bloggers or else by Austrian economists in the early stages of dementia.

  The problem, however, is that we get more signs that cash is on the way out each and every day.

  Take Larry Summers, who reckons it might be time to get rid of the $100 note in order to “make the world a better place” (the idea being that only criminals transact in high denomination notes). There’s also Citi’s Willem Buiter, and the German Council of “Experts” Peter Bofinger, and Harvard’s Kenneth Rogoff, and the list goes on. In fact, just yesterday we learned that Sweden will likely be completely cashless in the short space of 5 years.

  As mentioned above, there’s always this amorphous notion of fighting crime built in there somehow as if the world’s central banks recently adopted a Batman mandate to go along with price stability, but the real reason is, and always will be, simple: controlling citizens’ economic decisions. Or, put a little more harshly: stripping depositors of their economic autonomy.

  Do away with cash and you can set rates as low as you want them. People not spending enough to get the economy moving? Well to hell with those people – set interest rates at -30%. You can bet they’ll start spending then. Economy overheating? No problem, jack interest rates on savings up to +20% and watch the personal savings rate rise.

  One of the most high profile cases of a looming cash ban is the ECB’s call for the elimination of the €500 note. Draghi, of course, says it’s “not about reducing cash.” Which is proof positive that it is. Here’s what we said last month: 

  Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

  

  Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

  

  In other words, if overnight the €307 billion worth of €500 bills were eliminated, the notional value of the entire amount of European physical currency in circulation would decline by 30% to €700 billion!

  Well on Sunday we got an interesting tip from a reader with the following attachment:

  

  That’s from Piraeus Bank and it can be found here under this table:

  

  Note that 5.9 (where this appears) is apparently a new line item – or at least it wasn’t there last month:

  

  While we’re not entirely sure what this means in the context of the elimination of the €500 note, we wonder if it’s possible that the ECB is going to try and charge citizens for turning in their high denomination bills, thereby making a profit off the €500’s “retirement”? 

  As a reminder, Greeks who stored €500 notes at home “rushed to deposit the money in their accounts” once the ECB made it clear it was considering doing away with the big bills.

  Just look at it as a repo for everyday depositors: post your €500 notes as collateral, take the haircut, get smaller bills in return. 

  

  

  

  

  

• Peak Oil Squeeze? Hedgies Capitulate On Bearish Oil Bets

  Hedge Funds covered their short oil bets by the most in 11 months last week. CFTC data shows managed-money short positions dropped 25,639 contracts last week, sustaining a 26% rally off February lows. In April 2015, WTI rallied over 20% off its lows amid the same short-covering squeeze, only to collapse 40% in the next 3 months (despite OPEC hope and calls for stability). Oil ETF shorts have also capitulated back to “normal” long-short ratios suggesting oil has seen “peak” short-covering.

  Futures shorts covering in size…

  

   

  And Oil ETF Shorts have collapsed back to “norms”…

  

   

  And while this degree of short-covering may be significant, we leave it to Tim Evans, an energy analyst at Citi Futures Perspective in New York, to remind traders of the ‘reality’ of the supply-demand imbalances…

  “We might be starting to chip away at the surplus but have a long way to go before the market moves back into balance.”

  

  

  

  

  

• Images From The Death Of China's Rustbelt

  As you might have noticed, China’s economic miracle has turned into a nightmare – and it’s dragging the entire world into one big, bad dream characterized by a deeply entrenched disinflationary impulse occasioned by the country’s acute overcapacity problem.

  That’s not as complicated as it sounds. Put simply: China levered up massively (in part through the country’s sprawling shadow banking complex) following the crash and used that leverage to invest not only in industry, but even in urban monuments for the sake of urban monuments (the now famous Chinese “ghost cities”).

  But that’s all changed now. The global economy never recovered from the crisis. Global demand slumped and never truly recovered to pre crisis levels. In a related, but even more disturbing fact for China, global trade growth has advanced more slowly than global output for three years running. Before this recent stretch, the last time that was the case was 1985.

  This has had a devastating effect on Chinese industry. In short: it’s dying. Take the commodities space for instance, where Macquarie recently reminded us that “more than half of cumulative debt was EBIT-uncovered in 2014.”

  

  The problem, of course, is that China has to figure out a way to transition away from an economic model tethered to investment and industry and towards a model that thrives off consumption and services. That’s going to mean shutting down uneconomic producers and allowing for defaults, an outcome which not only threatens banks’ make-believe NPL figures, but social stability as well. Take what we said about the steel industry in January, for instance:

  Xinhua reports that as part of China’s proposed excess capacity production curtailments the country’s steel production slash will translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. According to some estimates just like every banker job in New York “feeds” up to three downstream jobs, so in China every worker  in the steel industry helps support between 2 to 3 additional job.s Which means, 400,000 primary layoffs would mean a total job loss number anywhere between 1.2 and 1.6 million jobs!

   

  As a reminder, previously China had announced that it would cut steel production capacity by 100 to 150 million tonnes, while coal production will be reduced by “a relatively large amount,” according to a statement released Sunday by the State Council. We have yet to get an estimate of how many coal jobs will be lost.

   

  The reason we were, and remain, skeptical about China ever following through on this production curtailment is precisely the massive layoffs that will result: layoffs which would enflame an already tenuous employment situation because as we showed recently, the number of worker strikes in China has gone parabolic in the past year, soaring to a record high over 2,700 in 2015, more than double the previous year’s total.

   

  

  Through it all, the Politburo has tried to put on a brave face.

  Early last month for instance, National Development and Reform Commission Chairman Xu Shaoshi said China is readying steps to eliminate excess industrial capacity and shutter unprofitable “zombie companies.”

  He admitted that will mean rising joblessness. “Beijing’s attempts to curb overcapacity will increase unemployment in provinces with high output of steel and coal,” Reuters wrote, recounting Xu’s comments at a briefing. “Job losses in provinces such as Shanxi, Heilongjiang and Hebei will rise.”

  Xu didn’t say what the government planned to do to ameliorate the coming wave of job losses, but did say Beijing would not let joblessness plunge the country into social unrest. “Now the problems are worse than they were two years ago but the government has the ability to cope,” he insisted.

  Bloomberg is out with a new photo essay that would seem to throw that contention into question. Below, find stark images and excerpts from “Death and Despair in China’s Rustbelt,” which you’re encouraged to read in its entirety.

  *  *  *

  From Bloomberg

  

  In a snow-covered valley in northeast China, an hour from the North Korean border, a street with brightly-painted apartment blocks hides a story of fear and anger as dangerous to the country as its rollercoaster stock market or sliding currency.

  The frozen alluvial river plain that was once at the forefront of the Communist Party’s first attempt to build a modern economy, has now fallen behind, leaving a valley of brutal murder, protests, anger, suicide and regret.  

  

  This is the city of Tonghua in China’s rustbelt, where a desperate handful of steelworkers has gathered each week outside the management office of their mill in freezing temperatures to demand months of wages they say they’re owed. The answer, according to interviews with workers and residents, is always the same: there is no money.

  This is the last vestige of protests that once drew thousands, and which, one fateful day nearly seven years ago, ended with a manager being beaten to death.

  

  Typically overstaffed, inefficient and heavily indebted, they offer President Xi Jinping a stark warning of what the country could face if the millions of workers who depend on these lumbering corporations should get thrown out of work with nothing to fall back on.

  

  The country’s leaders have vowed to reduce excess industrial capacity and labor in state enterprises even as they battle the slowest economic growth in a quarter of a century. China will eliminate up to 150 million metric tons of steel-making capacity in the next five years, the State Council said after a Jan. 22 meeting.

  Eliminating that amount of steel capacity could lead to 400,000-500,000 job cuts and may fuel social instability, Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, said in an Internet message.

  

  “The steel mill during its heyday was hellish and streets were stifled by thick fumes,” said Zhang Dongwei, who runs a transport and logistics business in the city. “There was a flotilla of trains constantly coming in with coal and iron ore and going out with steel wire and bars.”

  Lines of those trains sat rusting in the sun under a glittering white coat of the winter’s first snowfall in November, idled by the shift in China’s economy.

  

  But China’s decade-long building boom was about to stall as the world slid into an economic crisis. From a peak in June 2008, prices of Chinese steel fell by about half within five months. 

  

  *  *  *

  There’s much, more more in the full Bloomberg article including the dramatic story of “Wang the Audacious” and Chen Guojun. Because they clearly put quite a bit of time into crafting the narrative, we’ll leave it to Bloomberg to recount the tale and simply note that more of what befell Chen is likely in the cards once China begins executing the “zombies” (so to speak) and laying off more workers. 

  We will close with one last excerpt just to leave you enticed: 

  Chen Guojun, a Jianlong executive, went to the coking plant to encourage people to return to work. It was a fatal miscalculation. Blocked by protesters, police and paramedics were unable to reach him in time, the people said. By the time they found Chen, he had been beaten to death. 

  
  

  Full story from Bloomberg here

  

  

  

  

• How 3D Printing Is Changing Life As We Know It

  By Chris at www.CapitalistExploits.at

  “Watch out buddy. I’ll print another one of you.”

  My son was being a little snot. The thing with your own kids is that they’re like your wife: they absolutely know how to push your buttons and make your blood boil. Between you and me, there are times when I could whop him with a frying pan on the head. I’ll not be doing that of course as the frying pan will be dented and I’d have to explain that to my wife.

  In all seriousness, while I was joking, the truth is I was only half joking.

  Do you remember the scene in The Empire Strikes Back where Luke Skywalker has a team of robots working on repairing his severed hand?

  

  There were robots involved and while there wasn’t visible 3D printing shown, there was synthetic skin produced.

  Today printing tissue and bones is with us.

  A 3D bio-printer can now produce full sized bone and muscle tissues.

  

  Bioprinting is one of the fastest growing areas of 3D printing:

  “Researchers from the Wake Forest Institute for Regenerative Medicine detailed how they managed to create a 3D bio-printer that is precise enough to actually manufacture replacement tissue capable of being used in transplant surgery.

   

  Body parts printed thus far include a jaw bone, muscle tissue, and cartilage structures, and perhaps most impressive of all, an incredibly accurate human ear.”

  Every day takes us one step closer to the day when we will be able to print customized body parts when we break down.

  And it’s not only in healthcare that 3D printing is rapidly accelerating:

  

  Source: PricewaterhouseCoopers

  3D printing has been around since the 80’s but it was 2009 which was a critical year for this technology.

  A key patent expired then and this allowed numerous industry players to enter the market. Obviously, by 2009 the internet had become the norm; computing power had increased by orders of magnitude and collapsed to a fraction of the cost, and the consumer had become more technology-aware than ever before.

  Since then, the 3D printing industry has enjoyed tremendous growth as a wide range of users have been adopting the technology.

  Initially this technology has largely been used for prototyping due to the relative high cost of the machines. The declining price of the systems means that we will be seeing a paradigm shift in product development cycles.

  Think about the ability to print single order runs of any product, to market test the product, redesign, reshape and reprint without the need for massive enterprise scale production.

  When you think through what that world looks like you’ll see that the entire design cycle changes.

  A recent McKinsey report explains this well:

  “As of 2011, only about 25 percent of the additive-manufacturing market involved the direct manufacture of end products. With a 60 percent annual growth rate, however, that is the industry’s fastest-growing segment.

   

  As costs continue to fall and the capabilities of 3D printers increase, the range of parts that can be economically manufactured using additive techniques will broaden dramatically.”

  1. Everything Becomes Customized

  Greater value can be built into each product with far less additional cost attributed. This means that print on demand, customizable products will begin to be more prevalent and ultimately become the norm. This is already taking place and expect it to accelerate as costs continue to fall.

  2. Makers Become Manufacturers

  This distinction seems inevitable to me. Those who designed designed, and those who manufactured manufactured. The industrial revolution allowed for (and encouraged) specialization since automation of standardized products was where the scale existed.

  That barrier is falling fast. Today an architect or design engineer can both design and manufacture. And as I just mentioned, the manufacturing of product and design can be a more iterative feedback process resulting in superior end products.

  3. Cost Cutting and Waste Reduction

  3D printing allows for much less wastage – due to the ability to print on demand rather than the usual industrial scale production, the costs are significantly lower and the wastage close to zero.

  From the Technology Review:

  “GE chose the additive process for manufacturing the nozzles because it uses less material than conventional techniques. That reduces GE’s production costs and, because it makes the parts lighter, yields significant fuel savings for airlines. Conventional techniques would require welding about 20 small pieces together, a labor-intensive process in which a high percentage of the material ends up being scrapped. Instead, the part will be built from a bed of cobalt-chromium powder.

  A computer-controlled laser shoots pinpoint beams onto the bed to melt the metal alloy in the desired areas, creating 20-micrometer-­thick layers one by one. The process is a faster way to make complex shapes because the machines can run around the clock. And additive manufacturing in general conserves material because the printer can handle shapes that eliminate unnecessary bulk and create them without the typical waste.”

  As with any useful technology the economic forces propel it forward in a self reinforcing process whereby, with each additional participant using the technology the cost of the technology falls due to simple laws of economics, and this process brings about ever more applications which can be built out of the original technology.

  The world of our future will be one where manufacturing will be completely customized, on demand and at the retail level.

  As much as I may on occasion wish to print another version of my son, it is my kids that’ll be printing body parts for me in my old age. I look forward to it. Certainly it beats the current alternatives.

  I’ll dive deeper into 3D printing in my future articles. If you’re interested in learning more about 3D printing and other disruptive technologies then make sure not to miss those articles by receiving them straight into your inbox.

  – Chris

  “Forewarned, forearmed; to be prepared is half the victory.” – Miguel de Cervantes

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• The Unintended Consequences Of Greenspan's "Frankenstein" Markets

  Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

  It is common knowledge by now that Federal Reserve Chairman Alan Greenspan oversaw, enabled and approved of, a major transition in the US economy. His infamous “Greenspan-put” in which his actions at the central bank would be driven, if not dictated, by the whims of financial markets, clearly led to higher asset prices. Investors obviously picked up on the strong bias in the Greenspan-Fed’s conduct of monetary policy as they slashed rates at the tiniest hiccup in financial markets, and kept them at low levels for much longer than what would be considered prudent by former administrations. Following markets on the escalator up and taking the elevator down together set a precedent that created a Frankenstein monster, which socialised losses through the printing press while privatizing profits. Such a system was and still is unsustainable as it more or less ensures valuations decouple from underlying fundamentals.

  The monetary system in place since the gold-exchange standard that emerged from the rubble of WWI clearly favours inflation over deflation, so we should expect values expressed in money to have an upward trend imbedded in them. However, a stable system would see nominal valuations rise more or less in tandem. In other words, we would expect a balanced sustainable system to see the price of apples, S&P500, cars, commodities and GDP grow more or less at the same pace.

  Note, we are not saying certain markets will never experience idiosyncratic price movements due to their own peculiarities as driven by shifts in supply or demand. On the contrary, shifts in relative prices are the one thing that make a capitalistic system stable over the long run. What we are saying though is that the upward trend in prices is due to a diminution of the value of money per se ,driven by the inherent inflationary bias in monetary policy execution. With stable money, relative prices would change, but not the overall price level. This is important, as any comparative analysis of the pre-Greenspan era versus recent past must take into account the fact that prices do rise, relentlessly. We must thus examine financial asset valuations in relation to other markets to understand what the Greenspan put mean.

  One way to do that is to look at equity values relative to GDP. As the chart clearly shows, right after Greenspan takes charge of the Federal Reserve equity valuations move to a completely new paradigm. Monetary policy implementation completely changed under Greenspan’s watch.

  Removing uncertainty about the future course of interest rates obviously created a herd mentality among investors. Why would anyone take a contrarian position when the central bank more or less told the public what the Fed would do? Do not fight the Fed emerged as the most profitable market mantra. What used to be extreme overvaluations in the pre-Greenspan era became the exact opposite under his watch. It is almost as Fischer’s unfortunate 1929 “stocks have reached a permanently high plateau“-prediction finally came true. Reversion to mean though, require a 50 per cent drop in equity values. A staggering 90 per cent drop is necessary to compensate for the current extreme over-valuation through an undershoot from the pre-Greenspan mean.

  

  A better way at looking at equity valuations, which does not entail a flawed GDP concept, is to compare it with other asset classes. Our next chart depict US farmland and residential real estate compared to the S&P 500. The idea is that these all reflect somewhat the productive capacity of society and should therefore yield more or less the same. And throughout history they did. While they clearly diverged now and then, such as the equity boom of the 1960s, farmland bubble in the 1970s and housing in the 2000s, the massive divergence in equity valuations starting with Greenspan’s reigns stands out.

  And this is not because farmand productivity suddenly fell. On the contrary, from the 1940s output per acre has steadily risen. This is central bankers herding investors into stocks by altering the risk/reward balance.   

  As a side note, with the latest bout of monetary madness farmland prices has indeed reached a new bubble; a bubble so severe that it makes the folly of the 1970s look like good old fashioned mid-western prudence. Turns out there were some unintended consequences of printing trillions of currency units after all.

  As we have shown here before, the S&P500 is extremely dependent on what happens around FOMC days.

  

  Excluding trading on the day of and after an FOMC decision shaves more than 40 per cent off the index.

  

  

  

  

  

• "The European Project Was Always Bound To Fail" – Europe Without The Union

  By Mark Fleming-Williams of Stratfor

  Europe Without the Union

  The European project was always bound to fail. Europe is a continent riven by geographic barriers. It has spent two millennia not only indulging in massive and constant internal wars, but also keeping written records of them, informing each generation of all the times their forebears were wronged. Over the centuries, great empires have risen and fallen, leaving behind distinct groups of people with different histories, languages and cultures. Any project attempting to fuse these disparate cultures into one monolithic state over the course of just 70 years was by its very nature doomed. It would inevitably encounter insurmountable levels of nationalistic resistance, and eventually the project would stall. That is the point at which we now find ourselves.

  

  Crises abound, and though they all have different facades, each stems from the same underlying issue: Citizens ultimately prize their national and regional identities over the supranational dream. The sovereign debt crisis and repeating Grexit scares, born of the introduction of the euro in 1999, have exposed Northern Europe's unwillingness to subsidize the south. TheBrexit referendum, scheduled for June, can trace its roots to the 2004 enlargement of the European Union, and the ensuing wave of Polish migration to the United Kingdom. Meanwhile, amid the ongoing immigration crisis, national leaders are appeasing their populations by bypassing European rules and re-erecting border controls to stem the flow of refugees across their territory. In all of these situations, the same factors are at work: The driving forces within Europe are national in nature, and countries will ultimately put their own interests first.

  Today's problems were both predictable and predicted. The next step, however, is harder to foresee. Having identified a system's inherent flaw, one can very well state that it is unsustainable, but unfortunately the flaw provides no guide as to the exact circumstances of the system's end. There are still many different ways that the demise of the European Union's current form could come about. For example, the project could unravel via market forces, as it nearly did in 2012 when investors tested the commitment of the core to save the periphery and found it to be (barely) willing to do so. Or a disaffected populace could elect a nationalist party such as France's National Front, which could either lead the country out of the European Union or make the bloc so unmanageable that it ceases to function. Perhaps the most likely scenario at this point would be for the European Union to survive as a ghost of its former self, with its laws ignored and stripped back to the extent that it holds only a loose grip on its members.

  Where Integration Will Persist

  The exact circumstances of the European project's end are not yet clear, but there are certain fixed, underlying truths that are sure to outlast the European Union's current form. With them, a forecast can still be made of the shape of things to come. These fundamental realities stem from deeper, unchanging forces that will bring countries together according to their most basic goals; they are the same forces that limited the European project's lifespan in the first place. By looking at these underlying factors, one can predict which countries will emerge from a weakened or collapsed European Union with close ties, and which are likely to drift apart in pursuit of their own interests once they are freed from the binding force of the European Union and its integrationist ideals.

  The best place to start is the Benelux region. Belgium, the Netherlands and Luxembourg have long played a key role in European geopolitics, situated as they are on the flat and traversable land between Europe's two great Continental powers, France and Germany. Indeed, it was in the Benelux region that the European project began. Belgium and Luxembourg formed an economic union in 1921, and talks began for a customs union with the Netherlands in 1944, before the end of World War II. But it was World War II itself that really gave birth to the European Union as the Benelux countries combined with their two flanking giants and Italy to create a bloc that would prevent a reoccurrence of such destructive conflict. In the 70 years that had elapsed since German unification, France had endured three invasions, and all the members of the fledgling union suffered greatly as a result. Today, 70 years later and without a reoccurrence of catastrophic conflict, their strategy appears to have worked.

  Thus the Benelux, France and Germany will be motivated to continue their integration efforts. Caught between two economic powers, the Benelux will want to secure their friendship. Meanwhile, France and Germany's rivalry will also draw them together. However, the fateful fact here is that the Franco-German relationship has been one of the major fault lines in the current European Union, meaning that a smaller version of the bloc will be similarly flawed.

  Italy, for its part, will not be invited to the party this time around. For one, it lacks the same geopolitical circumstances, safely shielded as it is behind an Alpine wall. Moreover, the eurozone's third-largest economy has been at the center of both the sovereign debt and the immigration crises, and Germany in particular will be as reluctant to stay attached to the indebted Italy as it is to remain tied to Spain. The Franco-German-Benelux bloc is the likely heir to the euro, if the currency continues to exist, and it will maintain the European Union's integrationist ethos. It will adopt a more positive stance toward free trade than its predecessor, with the Netherlands and Germany outweighing the protectionist urges of Belgium and a France shorn of its traditional Mediterranean allies. This "core" bloc will be the Continent's center of gravity in the future. In the times that it has been whole since its unification in 1871, Germany has dominated the Continent, and it appears set to keep doing so for at least the next decade or two.

  

  Germany's influence in Europe is not purely geopolitical. A large part of it is based on trade. The past two decades in particular have seen Germany assemble a powerful international goods factory. It takes unfinished products from its neighbors (eight of whom send Germany more than 20 percent of their exports) and transforms them into sophisticated mechanical goods before shipping them onward. In 2014, Germany was the number one export destination for 14 of its 27 EU peers, and the top source of imports for 15 of them. Access to this machine has especially benefited former communist states in Central and Eastern Europe, which have capitalized on high levels of investment from Germany (as well as the Netherlands and Austria) and capital inflows to achieve impressive GDP growth. European Union or no, the players in this network will all be highly motivated to keep it running.

  Eastern and Western Interests Diverge

  Still, there are two catches. The first is immigration. The subject has hung over these relationships since at least the 2004 enlargement, when Germany was one of several countries to impose restrictions on the freedom of movement for new eastern members. The influx of refugees into Europe has recently rekindled this friction, with the Visegrad Group (Hungary, Slovakia, the Czech Republic and Poland) bonding over a mutual aversion to Germany's attempts to dole out quotas of newly arrived migrants. The relationship emerging to Germany's east and southeast is one in which the free movement of goods and capital is encouraged, but the free movement of people is restricted.

  The second catch is Russia. Over the next decade, Russia will experience some significant changes in both its external relationships and its internal systems. The first half of this forecast has already come to pass, and Russia has grown increasingly belligerent in its periphery. Stratfor believes this will become more pronounced until the system designed by Russian President Vladimir Putin either adapts or collapses. This will clearly have a considerable effect on Russia's European neighbors, albeit to varying degrees. And so, geography will come into play once more. We have already seen the Russian military used to powerful effect in Ukraine, but its ability to push farther into Romania is somewhat tempered by the Carpathian Mountains, a natural barrier that snakes north and west, also providing protection to Hungary and Slovakia. Poland, by contrast, stands starkly exposed to Belarus, a close Russian ally, with no mountain range to shield it. Farther north, the similarly unprotected Baltic states lack Poland's bulk and thus have even less protection; a larger country like Poland could at least buy time to organize a defense.

  This geographic divergence will divide Central and Eastern Europe into two groups, one focused on trade and the other on security. The Central Europeans (the Czechs, Hungarians, Romanians, Bulgarians and Slovaks) will be wary of antagonizing Russia. The Carpathians, though a barrier, are not insuperable. And yet these countries, sheltered by the mountains, will also be free to focus much of their energy toward pursuing continued prosperity through trade with the core. A shared interest in maintaining trade with Germany is not the foundation for a defined bloc, but more the makings of a loose grouping that becomes weaker with both distance from Germany and time, as Germany's strength begins to wane. Poland and the Baltics, by contrast, will not have the luxury of focusing primarily on their own enrichment. With Russia's presence looming, these countries will be bound closely together, focusing their energies on defense pacts and alliances — and especially on cultivating strong relationships with the United States. Trade will continue, of course, but the identity of this bloc will center on resisting the Russian threat. If and when internal challenges force Russia to turn its attention inward, Poland will have an opportunity, the likes of which it has not seen for several hundred years, to spread its influence east and south into the former territories of the old Polish-Lithuanian Commonwealth in Belarus and Ukraine.

  

  In the north, Scandinavia will form its own bloc. Its members have a history of shared empires, free trade, freedom of movement agreements and a (failed) currency union; they are natural bedfellows. Indeed, an institution that has been somewhat dormant since the rise of the European Union — the Nordic Council — already exists to aid their international governance. This bloc is likely to be almost or equally as integrated as the French- and German-led core, with which it will have close trade and diplomatic relations.

  Winners and Losers in a New Order

  One of the countries most pleased with the new arrangements will be the United Kingdom, assuming it can hold itself together long enough to enjoy them. Having dedicated much of the last millennium to keeping the Continent divided and playing one side off another, the United Kingdom was forced to join the European Union once the organization's unity was truly unquestionable. With a Continent divided once more, the United Kingdom will be able to return to its preferred long-term strategy, maintaining a balance of power while at the same time attempting to develop a trade network that mixes regional with global. By contrast, Spain and Italy are likely to be left behind. Both will be struggling to stay whole, with Spain in particular danger of coming apart at the seams because of the internal conflicts raging among its constituent parts. Both will attempt to remain as close as possible to the core, though protectionist tendencies in the southern countries may inhibit these trading relationships. Spain and Italy are also likely to enjoy the newly regained freedom of being able to devalue their own currencies to regain competitiveness. From the core bloc's perspective, the two countries are likely to represent a continuing point of tension, with France pushing for their inclusion as Germany and the Netherlands resist. But time will work in France's favor here, since its advantageous demographics compared with those of Germany point to it gaining increasing influence over the bloc as the years pass.

  The picture that has been laid out here is not meant to be an exact representation of Europe at a specific date in the future. Even if the European Union does unravel suddenly, as it nearly did in 2012, it is unlikely that countries would move on and settle into their new roles as seamlessly as described. Events will move at different speeds, and there may be considerable strife involved in the transition. With countries such as Italy and Spain battling to avoid isolation, France will be put in the difficult position of having to choose between either remaining close to Germany or standing with its Mediterranean allies. Elements of the current system may persist, and links will continue to exist across the blocs. For example, if the euro does survive in the core bloc, it may also continue to be used in some of today's other eurozone countries that are deemed to be fiscally responsible, such as Finland, for want of a compelling reason to make a change. There are still many unknowns. However, the intention is to show the picture that exists beneath the tracing paper. The image that actually emerges will depend on where and how pressure is applied in the years ahead.

  

  

  

  

  

• Which States Rely Most On Federal Spending?

  Submitted by Ryan McMaken via The Mises Institute,

  Last month, we looked at military spending by state, and how some states — South Carolina and Virginia, for example — have military spending as a major component of their local economies. Proposing cuts to government spending via military spending would likely be political suicide in any of these places.

  But of course military spending is just one type of government spending, and some states are heavily dependent on government spending whether the spending be on civilian federal employees, the military, or transfer payments such as Social Security and Medicare.

  Federal Spending as a Percentage of State GDP

  If we look at federal spending as a proportion of each state's overall GDP, we find that the recipients are not exactly evenly distributed:

  

  Source: Pew Charitable Trusts  (based on data from 2004–2013)

  This is all federal spending, so these totals are a combination of military spending, social welfare programs such as Medicare, and ordinary civilian federal spending, including civilian research facilities and other programs funded by federal grants.

  These are proportional numbers, so they are a function of both the amount of federal spending as well as the overall size of GDP. So, in California, for example, which receives immense amounts of government spending, is nevertheless a state where federal spending is offset by a very large private sector. In a more rural state with few major private industries, such as New Mexico, the state shows up as being highly reliant on federal spending.

  By this measure, the state most reliant on federal spending is Mississippi where federal spending is equal to 32 percent of the state's GDP. The state least reliant on federal spending is Wyoming where federal spending is equal to 11 percent of the state's GDP:

  

  Source: Pew Charitable Trusts  (based on data from 2004–2013)

  The above measure gives us a sense of how much federal spending is taking place relative to overall economic activity. But, it tells us little about how much the feds are spending in each state relative to the tax revenue being produced in each state.

  To discover that, we need to compare federal spending to tax collections from each state. So, I took gross tax collection by state, and then subtracted refund totals. I then compared the "net" collections to Pew's total federal spending data in each state. (The tax data used was 2013 data.) We can then measure the result in terms of dollars spend in each state per dollar in tax revenue collected. States that have a value of less than a dollar in the map below receive less than a dollar in federal spending for every dollar in taxes paid from that state. So, for example, Ohio receives 91 cents in federal spending for every dollar collected in taxes from Ohio:

  

  I've divided this graph up into "net tax payer states," "break-even states" and "net tax receiver" states. The lightest shade of blue are states that, by far, pay in more than they receive back, such as New Jersey and Minnesota. The next lightest shade of blue are states that are more or less "break even" in the sense that spending and tax collections hover somewhat around a 1-for-1 relationship. The darker blue states are states that receive considerably more in federal spending than they pay in taxes.

  Here are all states, including values:

  

  Naturally, these values aren't spread evenly within the states themselves, either. Areas that are more rural and reliant on agriculture will tend to be net tax receiver areas both because farmers and ranchers receive a lot of government subsidies, and also because agricultural work tends to have lower productivity than urban work.

  Urban areas, in contrast, produce most of the tax revenue, so highly urbanized states will tend to more often be "break even" or "net tax payer" states.

  Other Considerations

  One thing that must not be ignored is the fact that the US government spends more than it takes in nationwide. During 2013, for example, the federal government spent a dollar for every 80 cents it took in via taxes.

  Nationwide, the tax-spending ratio is not one dollar, but it about $1.20. So, states that are getting around $1.20 back for every dollar extracted in taxes are really just at the national average.

  This is being made possible by old-fashioned deficit spending and also by monetization of the debt which the Federal Reserve facilitates by expanding the money supply. Once interest rates rise or the international value of the dollar begins to fall significantly, this sort of overspending will no longer be possible, and many states will find themselves in dire straits. (States that are "net tax payer" or "break even" states will adjust the best to any significant disruptions in federal spending.)

  On the other hand, the realities of the central bank tend to favor the richer, more urban states at the expense of the poorer tax-receiver states.

  For example, the Fed's war on interest rates tends to more heavily impact communities that have a relatively large number of modest savers and risk-averse investors. By driving down interest rates so far, the Fed is favoring wealthy investors with access to high-yield investments at the expense of ordinary Main-Street households who rely on more conservative, easily-accessed forms of saving and investment, such as savings accounts and CDs. As a result, capital accumulation is negatively impacted most in parts of the country that produce the least tax revenue and have less productive workers.

  In other words, the central banking regime perpetuates the current imbalance between net tax payer states and net tax receiver states by making it more difficult for poorer parts of the country to accumulate wealth and increase productivity.

  Simultaneously, the money creation process tends to favor the financial sectors in large urban areas at the expense of less urban and poorer areas. Thanks to the way the central bank creates money, it is the urban investor classes that get to spend the new money first — before prices adjust to the new, larger money supply — while more rural, less urban, and less productive parts of  the country receive this money only after prices have risen. This further perpetuates the tax-spending imbalance.

  So while it is true that urban, coastal taxpayers are often paying more in taxes and financing government spending in other parts of the country, those same taxpayers do indeed benefit from national policy that favors the investor class (and those who work with them) over others. They're paying more taxes because they have higher incomes, but these higher incomes come, to a certain extent, at the expense of Americans outside these corridors of financial power.

  Beyond the monetary angle, of course, is the fact that states also are restrained in their ability to fully utilize resources in their own states by federal regulations.

  Western states, especially, are not able to access resources on federal lands except in a manner consistent with federal laws written primarily by politicians from outside the state. Such policies are unresponsive to local needs and economic realities. 

  And, of course, trade regulations, when implemented at the national level, may have significant negative impacts on certain states that are not free to negotiate their own trade arrangements with foreign economies.

  The Jones Act and trade barriers on sugar are just two examples.

  While we can see that the net tax receiver states do indeed benefit from large amounts of federal spending, we must also take into account the fact that federal policy may also be hobbling those local economies while favoring and redirecting wealth toward the net tax payer states.

  That is, the tax-and-spend wealth transfers from net taxpayer states to net tax receiver states could be viewed as something that merely helps to diminish the effects of impoverishment that are the result of national policy. Were it not for these policies, it is entirely possible that these net tax receiver areas would not have become so reliant on federal spending in the first place.

   

  

  

  

  

  

• While China Disappointed Stimulus Expectations, Here Is a Summary Of The Main NPC Announcements

  As we wrote early yesterday when we summarized the outcome of the first day of China’s National People’s Congress (NPC), China failed to deliver any of the major stimulus programs the market was expecting.

  As a reminder, this is what Goldman was expecting as late as this past Friday: upon rhetorically asking itself “at what level do we expect the government would set the official deficit target given that many market participants expect a level above 3% or even as high as 4%” to which Goldman said “given our expectation that local governments will be allowed to issue more bonds within the budget (RMB500 bn in 2015) and recent statements from senior policy makers, including the Minister of Finance Lou Jiwei, that a 3% “red line” for the deficit might not be applicable to China, we expect the official deficit ratio target will be modestly above 3%.“

  It was not and China revealed a 2016 budget deficit of 3.0% – the absolute minimum, and well below the whisper 4%. Worse, as Goldman notes, “after adjusting for fiscal stabilization fund and cross-year deposits/withdrawal from the general public budget account, the actual expenditure-revenue difference was already 3.5%.”

  So did China actually trim its deficit expectations? If so, expect a major risk off move in the commodity sector.
  

  Furthermore, Goldman also said that “if the government intends to achieve a higher growth rate (it has been widely reported that the government may target a range of 6.5-7.0% yoy real GDP growth this year), more fiscal stimulus would also be needed, which we think would primarily be through more infrastructure investment.” Sure enough, Premier Li announced a targeted growth rate of 6.5% to 7.0%, however he was very vague, on purpose, in the details of how China would achieve this growth aside from noting something about even more roads to nowhere, to wit: “we should also expand major infrastructure projects, with the aim of increasing the length of high-speed railways in service to 30,000 kilometres and linking more than 80 percent of big cities in China with high-speed railways, building or upgrading around 30,000 kilometres of expressways, and achieving full coverage of access to broadband networks in both urban and rural areas.”

  Will this tepid infrastructure play be enough to boost commodity prices, which have soared in recent weeks heading into the congress on hopes of a massive stimulus, only to see another water pistol, we will find out in a few short hours.

  In the meantime, here is Goldman’s Yu Song with a post-mortem of what actually happened in China over this much anticipated weekend.

  NPC comment 1: Government Work Report sets 2016 economic targets

  The annual National People’s Congress (NPC) started yesterday (March 5) and will last until the 16th. Premier Li Keqiang announced 2016 economic targets in yesterday’s morning session. The China People’s Political Consultative Conference (CPPCC) started on March 3 and will run in parallel with the NPC but will conclude on the 13th.

  These two conferences are not the venues for the government to make new policies. If anything, there is a tendency to refrain from any significant policy moves (such as exchange rate adjustment) which could potentially lead to market instability. However, these conferences are highly important for the market since more information on policy decisions already made will be released.

  The Government Work Report is the report of the State Council to the congress. 

  It reviewed changes over the past year and set a number of economic targets for 2016:

  GDP growth target to be in a range of 6.5%-7.0%. Last year, the target was around 7.0%. This year, we note the absence of the word ‘around’ in front of the range, suggesting the government’s determination to maintain at least 6.5% growth. Put differently, with an around 7.0% target, getting a 6.9% growth – which was the actual growth last year – is totally consistent with the target. With a 6.5%-7.0% range, if growth falls to 6.4%, it will be viewed as technically out of range. This determination is mostly related to the commitment to double 2010 income level by 2020 and concerns about employment. Doubling income level by 2020 implies an annual growth target at 6.5% till 2020, which is above our estimate of potential growth under the assumption of modest reforms. Some skeptics may say this simply means there will be more data ‘smoothing’, but we believe there could be at least some modest additional policy easing which will impact real growth. We have already seen some signs of this change since the start of the year, even though some observers may have gone too far to expect an aggressive loosening with money and credit continuously on the upside significantly as it did in January. Having said that, although the government has many controls over the economy, it may not always reach the targets it set. In 1998 for example, after significant efforts to reach an 8% or above growth, actual growth fell modestly below the target to 7.8% and even this number led to controversies (because the government failed to deliver its growth target). Overall, we see modest upside risks to our reported GDP growth forecast and less so in terms of the alternative measures of growth. Should activity growth rebound after a period of weakness, we believe loosening will likely become less aggressive as it typically did in the past.

  The CPI target was set at 3% as usual and hence contains no new information. As CPI has in fact been running at significantly below that level for an extended period of time, it is not normally a binding target. There will be some temporary acceleration in CPI inflation recently – we expect February CPI to exceed 2% and surprise the market on the upside. But even if it does come in at 2.4% (our February CPI forecast) which can be viewed as closer to the upper bound/target of 3%, we believe it is mostly driven by temporarily adverse weather conditions and hence will start to normalize from March. The only risk of a continuous rise in CPI inflation is if broad money and credit supply were to be maintained at January which we see as unlikely unless external demand falls as much as it did during the GFC. Even if it does, we believe chances of that kind of loosening on an going basis is very low. We see largely balanced risks to our 1.5% forecast for the whole year though 1Q data is likely to surprise on the upside.

  The M2 target of 13% is higher than last year’s 12%. But last year’s target statement had an additional line that, when implementing policy actual growth rate can be modestly higher. As recent M2 growth has been running at around 13%, this target itself does not necessarily represent a looser monetary policy stance but more a continuation of the existing policy stance. This is also consistent with the recent RRR cut which sent a clear signal of loosening bias but not to the degree seen at this time last year (when RRR cuts were as large as 100bp).The government also set a total social financing (TSF) target (13%) for the first time, reflecting the rising perceived importance of this measure. In the past, the target on credit supply had been on the much narrower RMB loan metric. (Note that TSF is not exactly ‘total’ in the sense local bonds and some other new products are not included. If we adjust for the local government bond swap program, the growth rate will be higher at 15.3%.) As TSF has been running at slightly below 13% recently and M2 growth modestly above, these two targets together represent a broadly stable monetary policy. This will likely raise concerns about the continued wide gap between money/credit growth and GDP growth, but in the absence of faster domestic financial reform and/or capacity cuts, we believe it will help keep the economy closer to the growth target and reduce deflationary pressures in the short term.

  Fiscal deficit: The 3% on-budget deficit is reported as a looser policy stance as it is up from the 2.3% budget deficit last year. However, after adjusting for fiscal stabilization fund and cross-year deposits/withdrawal from the general public budget account, the actual expenditure-revenue difference was already 3.5%. There is no detailed information on how this 3% target was derived in terms of fiscal stabilization fund or cross-year deposits/withdrawal, so we cannot be sure that this represents a net loosening of the on-budget deficit (until we receive more information on the full budget). Assuming those adjustments are the same as last year, this will imply a modestly larger fiscal deficit. The main fiscal loosening will likely still be mainly via quasi fiscal loosening done by policy banks.

  What’s also important is the strong emphasis on tax cuts as the main reason behind the larger deficit. We see this as a clear positive step which is a key component of the supply side reform. Achieving the goal of a significant net tax reduction is not something easy, as much of the expenditure side is inelastic. There is a risk that while some tax cuts, such as cuts to import duties of some consumer goods, are partially offset by the rise in effective tax burden in other areas, there could be more stringent tax collection at the local level. Nevertheless, we view the clear policy direction as a positive move.

  The employment and unemployment targets (urban job creations more than 10 million and registered unemployment rate not higher than 4.5%, same as last year) had generally not been of much relevance in recent years despite slowing growth, mainly because the targets were set leniently in our view and the measures such as unemployment are not sensitive to economic fluctuations. Even back during the GFC, urban registered unemployment never exceeded 4.3%. Hence, we believe the unchanged targets will face limited challenges despite likely restructuring in the overcapacity industries which we estimate will lead to meaningful but not very large impacts on employment, especially over the slightly longer run.

  There were no targets on trade for the first time in recent years (China customs also suggested the abandoning of trade growth target earlier in the year). Instead, there was only a statement on the desire to achieve faster growth than last year which was very low (-2.9% and -14.2% for exports and imports respectively). We believe this is a positive development as it suggests the government has formally recognized that foreign trade growth rate is not something the government can and should control. Unrealistic targets in the past sometimes led to adverse effects such as reported trade data distortion. We see this move as part of a process of de-targeting economic growth and there are likely to be more similar moves in the future, but the pace of change is likely to be slow.

  The Government Work Report also stated the need to reduce overcapacity, reform SOEs, eliminate barriers to entry for monopolized industries, continue infrastructure construction, step up international cooperation, control pollution, reduce poverty, among others. The statement on exchange rate was a short standard party line. There was also no mentioning of the registration based stock listing and property prices.

  * * *

  Finally, as we summarized yesterday, here is a full breakdown of all the empty and hollow promises China made yesterday, of which we are absolutely confident it will deliver on none at all:

  • To target 2016 GDP growth of between 6.5 percent and 7 pct.
  • To target 2016 CPI around 3 pct.
  • To target 2016 M2 growth target around 13 pct.
  • Sees 2016 budget deficit at 3 pct of GDP.
  • To use various monetary policy tools to maintain reasonable liquidity.
  • To continue to implement prudent monetary policy.
  • To continue to implement proactive fiscal policy.
  • Will keep renminbi exchange rate basically stable in 2016.
  • Will continue to improve yuan exchange rate regime in 2016.
  • To deepen reform of financial sector.
  • To further liberalise interest rates.
  • To deepen reform of state owned commercial banks.
  • To reform stock and bond markets.
  • To promote sound development of multi-level capital market.
  • To crack down on unlawful activities in the securities and future markets.
  • To ensure no systemic or regional financial risks arise.
  • To strengthen unified macroprudential management of foreign debt.
  • To launch Shenzhen-Hong Kong stock connect pilot at appropriate time.
  • To establish catastrophe insurance system.
  • To develop internet finance.
  • To develop inclusive and green finance.
  • To insure proportion of direct financing is increased.
  • To develop private banks.
  • Sees growth in outstanding social financing of around 13 pct in 2016.
  • To launch trial allowing commercial banks to participate in debt equity investment for small businesses.
  • To establish standard financing mechanisms for local governments to issue debt.
  • Says China to issue 400 billion yuan of special local government debt in 2016.
  • To keep urban registered jobless rate below 4.5 pct in 2016.
  • Will create 10 million new jobs in 2016.
  • Will quicken supply-side structural reform.
  • Will appropriately deal with zombie firms in 2016.
  • To address issue of zombie firms using mergers, reorganizations, bankruptcies and debt restructurings.
  • Will push ahead with reform of state-owned firms.
  • Says will resolve overcapacity in industry, focus on steel and coal.
  • Says 100 billion yuan in subsidies will be used primarily to resettle laid off employees.
  • Says convinced Hong Kong, Macao will maintain long-term prosperity and stability.
  • Says will oppose Taiwan independence separatist activities.
  • Says will safeguard peace and stability in Taiwan Strait.

  

  

  

  

  

• Is This The End Of CNBC As We Know It?

  One of the core aspects of mainstream financial media in general, and outlets like CNBC in particular, more so even than their chronic permabullish bias, is the seemingly endless gallery of “experts”, “pundits”, and other talking heads whose only requirement is wearing a business suit (in some very notable exemptions) who show up on TV, offer trade advice and recommendations – while either pitching their own trading services or hoping to offload their own existing positions  – and if (or rather when) said advice leads to material losses are not heard from again until a certain period of time passes, and those who suffered listening to said “experts” have moved on, at which point the farce repeats itself.

  The legendary example of this is none than Jim Cramer declaring loudly that “Bear Stearns is fine, don’t be silly” when asked by a viewer in early March 2008 if they should pull their money out of the bank. The stock was trading at $63; six days later JPM “bought” Bear for $2/share to prevent it from liquidating.

   

  Why is Cramer still on the air? Because he was never held accountable to any standard of fiduciary responsibility. In short: he acted as an entertainer.

  Furthermore, some have speculated that all financial media outlets like CNBC are ultimately nothing but an infomercial sounding board for bullish pundits to pitch their ideas (while at the same time doing the opposite of what they recommend as David Tepper and Jeff Gundlach recently demonstrated), or sell their services while giving outlets like CNBC 5 minutes content slots (for which CNBC pays a few hundred dollars per appearance) which in turn may explain CNBC’s collapsing ratings which as we reported a year ago, stopped using Nielsen out of embarrassment.

  This all may be coming to an end thanks to the recently issued “fiduciary rule.”

  Courtesy of Forbes, here is some background on what this rule is:

  In April, the Department of Labor issued a fiduciary rule proposing that a “best interest standard” be applied across a broader range of investing advice such that any advisor getting paid to provide personalized investment advice — on things like what assets to buy or whether or not to roll a 401k into an IRA — be considered a fiduciary and have to put their clients’ interests first. Currently, brokers and advisors must only comply with a “suitability standard,” which means that they must make recommendations that are suitable to an individual’s investment needs, but they can also consider their own and their firms’ interests.

  In the months since the DOL put forth this fiduciary rule, Republicans and financial firms have excoriated the proposal as being bad for America and placing an undue burden on firms’ business. It turns out that putting your clients’ interests ahead of your own is practically impossible, and here is, according to Wall Street, why:

  “It will be very difficult, if not impossible, for financial professionals and firms to comply with the requirements,” Jackson National Life Insurance president James Sopha wrote in a letter to the DOL in July. In an 83-page letter sent to the DOL the same day, Lincoln CEO Dennis Glass called the fiduciary proposal “immensely burdensome” and “extremely intrusive,” while also noting that “it would be a mistake to assume that fee-based compensation models are always better for retirement savers than commission-based models.”

  This surreal defense of frontrunning and abusing one’s clients went on: Kent Callahan, the president and CEO of Transamerica’s investment and retirement division, told the DOL that “the re-proposal would substantially change our ability to provide the range of retirement services and products from which investors can choose to meet their own specific needs.” And Susan Blount, executive vice president at Prudential, noted that the proposed fiduciary requirements posed a “significant challenge” that could lead to “increased compliance costs” and will “significantly” increase firms’ servicing expenses.

  One person who recently called out advisors hypocrisy quite vocally, was Elizabeth Warren, who in a letter sent to the Department of Labor and the Office of Management and Budget called the firms’ claims baloney. Why? Because, in her view, each company made completely contrasting comments about the fiduciary rule in public comments to their investors.

  “Publicly traded companies are rarely held accountable for assertions they make when lobbying in Washington, even if these assertions are untrue,” Warren writes. “But when communicating with investors, publicly traded companies are required by law to provide full and accurate information about any material matters that may affect their business models or stock valuations.”

  This wasn’t Warren’s first attempt at supporting the DOL’s proposal for less conflict-laden investment advice. In an October report titled “Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry,” Warren blasted firms for giving kickbacks and Caribbean vacations to agents who sell annuities to consumers.

  Meanwhile, as the government’s intention to pursue the “fiduciary rule” is only picking up steam and supporters, the financial pundits who have finally read the small print are starting to panic because they realize that if the pending regulation passes, they may be locked out of the financial infomercial circuit for good.

  Case in point, popular financial radio show host Dave Ramsey, who as Forbes writes, “caused a firestorm on Twitter last week when he weighed in against the “fiduciary rule.” Ramsey Tweeted, “this Obama rule will kill the Middle Class and below ability to access personal advice” – actually it will merely kill the ability of a vast majority of charlatans to pretend they can forecast the financial future. A war of Tweets then broke out between opponents of the rule, and supporters, the latter of which includes fee-based investment advisers expected to benefit from the new costs the rule will shower on their broker competitors.

  Fittingly, even before Ramsey came out against the rule, one of his critics called for using the rule against Ramsey, supposedly for providing advice said critic deemed harmful to savers. In an October article in LifeHealthPro, an online trade journal for insurance agents and financial advisers, Michael Markey, an insurance agent and owner of Legacy Financial Network, called for Ramsey to “be regulated and to be held accountable” by the government for the opinions he gives to listeners. Markey hailed the Labor Department rule as ushering a new era in which “entertainers like Dave Ramsey can no longer evade the pursuit of regulatory oversight.”

  What a novel concept: holding financial “advisors” accountable for their advice. No wonder the industry is panicking. And ironically, nobody should be more panicked than CNBC and its head entertainer, Jim Cramer. As Forbes John Berlau writes, “experts both for and against the rule I have talked to agree its broad reach could extend to financial media personalities who offer tips to individual audience members, a group that includes not just Ramsey but TV hosts like Suze Orman and Jim Cramer, as well as many other broadcasters who opine on business and investment matters. They would be ensnared by the rule’s broad redefinition of a vast swath of financial professionals as “fiduciaries” and its mandate that these “fiduciaries” only serve the “best interest” of IRA and 401(k) holders.”

  The aftermath of the fiduciary rule is aleady facing a backlash among the financial advisory lobby and its lawyers among whom is Kent Mason, a partner at the law firm Davis & Harman, who said that  “under the proposed regulation, investment advice from a radio host to a caller regarding the caller’s own investment issues would appear to be fiduciary advice if the advice addresses specific investments,” Mason said in an email. It doesn’t matter that Ramsey and other hosts aren’t compensated by listeners, he adds, as the DOL rule explicitly covers those who give investment advice and receive compensation “from any source.” Mason agrees with Markey that the compensation Ramsey receives from radio stations that carry his show and from book sales are enough to define Ramsey as a “fiduciary” under the rule.

  To be sure not every financial visionary would be immediately taken off the air: just those who get too specific: the rule containa an exemption for “recommendations made to the general public,” this wouldn’t protect Ramsey and other radio and television personalities if they gave specific answers to callers or audience members, argue both Mason and Markey. Similarly, Mason adds, while the main part of investment seminars would be exempt, “if during the seminar, someone from the audience asks a question about his or her situation and the speaker answers the question with respect to specific investments, that answer would be fiduciary advice.”

  It would however, make the CNBC career of such entertainers as Jim Cramer virtually impossible, and would lead to a dramatic overhaul of the way financial outlets like CNBC, Fox Business and 24/7 Bloomberg Terminal infomercials as Bloomberg TV run their business.

  Worst of all, though, it would mean that all those frontrunning mutual fund orderflow and fund managers will actually have to go back to doing research and trading instead of going on TV for many hours every day, in some cases as much as 5x a week on 4 different stations. And that is clearly unacceptable.

  And while we are confident that the “fuduciary rule” will ultimately be watered down to lead to no real actionable changes, perhaps it will prompt some thinking among the general population who see their own personal advisor on CNBC every other day, and ask: “if my professional finance advisor is in such dire need of marketing that he spends most of his or her waking hours on TV, or writing columns, or tweeting, maybe I should get a different financial advisor.”

  

  

  

  

  

• JPM's Head Quant Explains Who Unleashed The S&P Rally, And What May Happen Next

  Yesterday, when reading the latest note by JPM’s “Gandalf” head quant Marko Kolanovic, we noted something strange: for the first time we observed a JPM quant not only commenting on such sensitive topics as social fairness, but daring to challenge the oligarch orthodoxy implying that Buffett is wrong that “the babies being born in America today are the luckiest crop in history.”

  This is what he said:

  While we do not take either a glass half-full or glass half-empty view on the current state of US economy, there are good reasons to believe that ‘the luckiest generation in history’ statement is overly optimistic. US primary results show a very strong lead for D. Trump in the Republican Party, and a surprisingly good showing for B. Sanders. We believe this indicates that a significant part of the electorate disapproves of the current political establishment and feels left behind by the new economy (e.g. voters may not agree with W. Buffet that an average upper-middle class American today has a better living standard as compared to John D. Rockefeller Sr.).

  Since the opinion of Kolanovic’s boss Jamie Dimon – if only that for public purposes – is largely a carbon copy of Buffett’s, we hope this rare statement of truth from a banker does not cost Kolanovic his job, especially since his uncanny insight and abilities to time market inflection points have made him almost as invaluable to stock pickers as Gartman (the latter, by batting a solid 0.000, is arguably the most irreplaceable voice on Wall Street today).

  Insight such as this, on who is buying and selling this bear market rally:

  Since mid-February, the S&P 500 has staged a meaningful rebound. Similar to the market rally in October 2015, systematic strategies had an important role in both the January selloff (here) and February rally (Figure 1).  

  

   

  Short term equity momentum (1-month) turned positive around the 1930 level and 6m momentum turned positive a few days ago. This would have resulted in CTAs covering most of their short equity exposure and inflows in $50-70bn (also confirmed by the equity beta of CTA benchmarks). The market moving higher also changed the index option (gamma) imbalance and resulted in daily hedging flow that suppressed realized volatility. Lower realized volatility in turn led to some (albeit smaller) equity inflows into Volatility Targeting strategies (~$10bn) and Risk Parity strategies ~$10-$20 bn. All In all, over the past 2 weeks, equity inflows from systematic strategies totaled around $80-$100bn. Taking into account the low liquidity (S&P 500 futures market depth) and assuming that total equity market depth is ~4 times that of futures (including stocks, ETFs, and options), we estimate that more than half of the market rally in the second half of February was driven by these systematic inflows. Another likely significant driver is the rally in oil prices over the past 2 weeks.

  … and that, as we showed, and as UBS confirmed last Thursday, has been entirely a function of an epic short covering squeeze.

  So now that we know who drove the rally, here – according to Kolanovic – is what happens next:

  What is the fate of this market rally? In terms of technical flows, more inflows would come if 3M and 12M momentum turn positive, which would happen at ~2025 and ~2075, respectively (the precise level depends on the timing of potential moves). If volatility stays subdued, volatility-managed strategies could also increase equity exposure. However, equity momentum is also vulnerable to the downside and a move lower could be accelerated by 6M and 1M momentum unraveling at ~1950 and ~1900, respectively. From the perspective of systematic strategies, downside and upside risks are balanced. However, equity fundamentals remain a headwind. In our recent strategy note, we showed that historically, periods of consecutive quarterly EPS contractions are often followed by (or coincide with) economic recessions (~80% of the time over the past ~120 years). EPS recoveries that follow 2 consecutive EPS contractions (~20% of times) were typically triggered by some form of stimulus (fiscal, monetary or exogenous). We expect market volatility to stay elevated and investors to remain focused on macro developments such as the Fed’s rates path, developments in China, and releases of US Macro data. Elevated volatility and EPS downside revisions will provide a headwind for the S&P 500 to move significantly higher (via multiple expansion). While investors need to have equity exposure, we think there are better opportunities in Value stocks, International and EM equities (as compared to broad S&P 500 exposure)

  Which probably also explains why late last week JPM’s head strategists went underweight stocks last week “for the first time this cycle“, while urging clients to buy gold.

  

  

  

  

  

• Currency Analysis – U.S. Dollar versus Canadian Dollar (Video)

  By EconMatters

  

  It has been a bad 4 years for the Canadian Dollar versus the Greenback. It is trying to make a recovery as of late as the price of Oil is off the bottom, but if Oil takes another leg lower, this could spell more pain for the currency.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

  

  

  

  

• Lawmakers Just Passed A Proposal To Ban Donald Trump From Entering Mexico

  Submitted by Claire Bernish via TheAntiMedia.org,

  Legislators in Mexico City passed a proposal on Thursday to bar presidential candidate Donald Trump from entering the country.

  Though the proposal amounts to a tellingly symbolic gesture, the lawmakers hope the measure will pressure Mexican President Enrique Peña Nieto to take a more adamant stand against Trump’s xenophobic rhetoric — including his blanket characterization of Mexican immigrants as ‘rapists and criminals.’

  “What we’re saying is that if he wants to build a wall so that Mexicans can’t enter his country, then he is not welcome in our country,” Manuel Delgadillo explained to WorldPost.“What we need now is for President Peña Nieto to make a strong statement condemning Mr. Trump’s anti-Mexican comments.”

  Delgadillo also said the Mexico City legislators were concerned with the billionaire’s “hyper-nationalist” dialogue, which has stoked anti-Mexican sentiment throughout the United States.

  Deputy Víctor Hugo Romo of the Revolutionary Democratic Party — the politically left political party responsible for the proposal — compared Trump to Hitler, calling him “primeval, egocentric, and primitive.”

  “Hitler was very popular,” Romo said, reported MSV Noticias. “He generated a lot of sympathy by adopting nationalist politics that vindicated the Germans’ sense of self-worth. [Trump] is practically a copy. I consider Donald Trump a chauvinist, a misogynist who fosters and leans toward repression … He doesn’t respect diversity.”

  Trump’s demagoguery has also been recently condemned by two of Mexico’s former presidents.

  Felipe Calderón denigrated Trump’s anti-immigrant policy for its transparency in not being aimed at immigration, per se, instead saying “he is talking about migrants that have a different color than him — and that is frankly racist.” He sharply cautioned that Trump “is turning the United States into a neighbor that we’re all going to end up rejecting and hating.”

  In interviews, Vicente Fox called Trump “crazy” and a “false prophet.” He also repeatedly stated, referring to the candidate’s proposal that Mexico must fund the building of a wall along the U.S.-Mexico border, “I’m not going to pay for that fucking wall … He should pay [for] it … He’s got the money.”

  He added that “Democracy cannot pick crazy people” who don’t “know what’s going on in the world.”

  However, the remarkably tabloid-esque field of presidential hopefuls for the 2016 election would appear to evidence exactly that.

  

  

  

  

  

• Saudis Awarded France's "Highest National Honor" For "Fight" Against Terrorism

  There is perhaps no more perverse relationship in the world than that which exists between the West and Saudi Arabia – or, “the ISIS that made it,” as Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” calls the kingdom.

  We’ve been over and over the glaring absurdity inherent in the fact that the US and its partners consider the kingdom to be an “ally” in the fight against terrorism and you can read more in the article linked above, but the problem is quite simply this: the Saudis promote and export an ultra orthodox, ultra puritanical brand of Sunni Islam that is virtually indistinguishable from that espoused by ISIS, al-Qaeda, and many of the other militant groups the world generally identifies with “terrorism.”

  Wahhabism – championed by the Saudis – is poisonous, backward, and fuels sectarian strife as well as international terrorism. That’s not our opinion. It’s a fact.

  But hey, Riyadh has all of the oil, so no harm, no foul right?

  Even as the very same ideals exported by Riyadh inspire the ISIS jihad, the kingdom is so sure it has the political world in its pocket that it sought a seat on the UN Human Rights Council, even as the country continues to carry out record numbers of executions.

  They even had the nerve to establish what they called a 34-state Islamic military alliance against terrorism in December. Of course the members don’t include Shiite Iran (the Saudis’ mortal enemy) or Shiite Iraq, both of which are actually fighting terror rather than bombing civilians in Yemen and engaging in Wahhabist proselytizing.

  But while everyone in the world is well aware of just how silly the “alliance” is, the farce will apparently continue as French President Francois Hollande on Friday awarded Crown Prince Mohammed bin Naif France’s highest national honor, the Legion of Honor for “for his efforts in the region and around the world to combat extremism and terrorism.”

  

  This is the same Francois Hollande whose country was attacked not four months ago by fighters inspired by the very brand of Islam the Saudis teach. 

  This would be like pinning a Blue Ribbon on Kim Jong-Un for his efforts to promote sanity and maturity in international relations.

  There are no words.

  

  

  

  

  

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• Trump Supporters – In Their Own Words

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  I don’t find conversations about how morally repugnant Trump is to be interesting when the rest of the candidates seem to also support imperialistic and fascist policies concerning drone strikes, torture and mass surveillance.

   

  Do I like Trump’s platform? No, I think most of it is silly and misguided, but at least it is not the same bullshit casserole that has been on the menu in Washington DC for as long as I have been alive.

   

  His candidacy is a happy accident that is currently ripping the soul of America apart, which is something that I think we desperately need (and deserve) at this time in our history, for better or for worse. 

  – From the Guardian article: ‘Not Even My Wife Knows’: Secret Donald Trump Voters Speak Out

  The Guardian recently asked Trump supporters to explain in detail the rationale behind their support. What emerged is one of the most fascinating articles I’ve read all year. Not only are the demographics not what you’d expect, but their reasons for support were much more varied, complex and nuanced than you might imagine.

  One surprisingly common response consisted of people who supported Trump despite the recognition that his presidency could be an unmitigated disaster. Many of them believed the American populace was in need of such a disaster in order to shed its apathy and become politically active.

  Interestingly, I’ve harbored similar thoughts on various occasions. For example, perhaps it will take someone as in your face authoritarian and shameless as Trump to wake certain millennials to the fact there are bigger problems in this world than micro aggressions. It’s a major gamble, but we as a country definitely need to get off our asses and change the direction we’re headed in. It’s possible that Trump could serve as that wake up call, but it’s also a huge risk.

  Also noteworthy was the fact that many Trump supporters expressed admiration for Sanders as well, but would never vote for Hillary. These types could very easily make up a new “silent majority” in American politics.

  Now without further ado, here are some of the more interesting responses. You can read the entire article at The Guardian:

  The Hispanic attorney (29, Florida)
  ‘He has demonstrated that he is, at heart, a caring person’

  On paper, I probably look like a guaranteed Cruz or Rubio vote. I’m a millennial woman, my parents immigrated from Castro’s Cuba, I work as a trial attorney in Miami and I’m a born-again Christian. But I’m voting for Donald Trump, and I’ve convinced all my friends and family to do so as well.

   

  My sister worked for him and has spoken glowingly of him for years, just like everyone else who actually knows the man. I trust her judgment more than any random pundit’s. Actions speak louder than words, and he has demonstrated that he is, at heart, a caring person through his many random acts of kindness. His peers say there are “two Trumps” – the brash character he portrays himself as, and the decent man they know behind closed doors. It’s clearly a strategy; his proclamations have kept him on the front pages for a sustained eight months.

   

  Political correctness is the birthplace of disastrous, un-American policies that will destroy the country in a death by a thousand cuts. But here comes Trump, the first person who didn’t even blink when the machine turns its sights on him.

   

  He didn’t just fight back. He chewed it up and spit it out.

  The scientist who likes both Bernie and Donald (48, California)
  ‘I’m very concerned about radical Muslims’

  I moved to San Francisco from the UK in 2000. I’m a citizen now and I voted for Obama. I am a closet Trump supporter and I haven’t told any of my friends or co-workers. They would think of me as a meat-head if they knew.

  The funny thing is that I like Trump and Sanders, and there’s no party or politician for me.

  There’s that “I like both Trump and Sanders” sentiment. I’ve been writing about this repeatedly in recent days. See:

  Democratic Presidential Candidate Jim Webb Says He Won’t Vote for Clinton, Might Vote Trump

  “Bernie or Bust” – Over 50,000 Sanders Supporters Pledge to Never Vote for Hillary

  Why Hillary Clinton Cannot Beat Donald Trump

  I’m a patriotic socialist, but my strong-borders patriotism wins over my socialism if I have to choose. As Donald says, we either have a country or we don’t.

  This next one is probably my favorite…

  The Occupy protester turned Trump supporter (24, New York)
  ‘His candidacy is ripping the soul of America apart – we deserve it’

  I work in a liberal arts department. I’ve read the works of Karl Marx, Herbert Marcuse, John Stuart Mill, Friedrich Nietzsche, Plato, Judith Butler, Simone de Beauvoir, Michel Foucault and so on. I am more inclined to listen to what Slavoj Žižek or Noam Chomsky have to say about current affairs than Rachel Maddow or Bill O’Reilly. If one were to take account of my demographics, the smart money would be to peg me for a Bernie Sanders supporter.

   

  My interest in politics did not truly develop into an intellectually mature form until 2011, when Occupy Wall Street broke out as a populist leftist grass roots movement to combat the evils of unrestricted robber baron capitalism.

  Early in 2014 I began concealing my political opinions from people, and it was shortly after this time that I began plotting to vote Republican in hopes that the party would send the country so far in the direction of complete unrestricted neoliberalism and libertarian free market superstition that Americans would come to recognize the dangers of these ideologies and eventually reject them.

   

  I don’t find conversations about how morally repugnant Trump is to be interesting when the rest of the candidates seem to also support imperialistic and fascist policies concerning drone strikes, torture and mass surveillance.

   

  I don’t agree with discussions of how Trump is making the national dialogue more base and vulgar when Obama has instated common core standards to gear humanities education in public schooling to be teaching children how to read memos, rather than cultivating critical thinking skills that would allow them to understand subtle arguments.

   

  Do I like Trump’s platform? No, I think most of it is silly and misguided, but at least it is not the same bullshit casserole that has been on the menu in Washington DC for as long as I have been alive.

   

  His candidacy is a happy accident that is currently ripping the soul of America apart, which is something that I think we desperately need (and deserve) at this time in our history, for better or for worse. I support whatever strange gods happen to be behind his candidacy, for, as Martin Heidegger proclaimed in his famous Der Speigel interview, although for slightly different reasons, “Only a God can save us.”

  The casino supervisor (56, Oklahoma)
  ‘We are completely tired of government’

  I am a Democrat but will vote for Trump, because he is not bought and paid for by anyone. We the American people are tired of politicians owing favors to rich businessmen, bankers, oil companies and stock markets. It should be against the law to have lobbyists involved with government.

   

  The middle class and lower class – which I am part of – are completely tired of our government, which treats our veterans like they don’t even exist. These are men and women who have gone to fight for what they think was the right reason, only to see that it was for money or some arms sale that is done behind closed doors. We are also sick and tired of working and paying taxes and then seeing our government send it to other countries to benefit someone else when we have homeless people and vets that need it just as much.

  The yoga teacher (29, Tennessee)
  ‘Don’t publish my name. It would ruin my progressive image’

  Barack Obama talked about hope and change, but I believe he failed to deliver on his promises. His record with drone strikes and prosecutions of whistleblowers are especially troubling (not to mention he didn’t follow-through with prosecutions of those who caused the financial crisis).

   

  As far as Obamacare goes, I’m not buying it, because it seems ignorant to throw money at a problem and hope it will get better. I’m glad more people are covered, but the plans aren’t worth shit, as many of them don’t kick in until you spend thousands on a co-pay. No thanks.

   

  Bernie is a breath of fresh air, but I’m not sure he can beat Hillary. In a match between Bernie and Donald, I’d vote for the former. In a match between Hillary and Donald, I’d vote for the latter. It isn’t a vote for Trump, but rather a vote against the political establishment (which must be removed from office at any cost – even if it means electing a reality TV star for president). The stakes are too high. Hillary cannot win or the oligarchy will continue unabated.

  There’s another “I prefer Bernie to Trump, but I’d take Trump over Clinton” voter. There are more of these than most people recognize.

  And please don’t publish my name, it would ruin the whole “progressive” image (and my girlfriend might kill me).

  I bet a lot of pragmatic sorts are in the same boat …

  The retired biomedical engineer (56, Hawaii)
  ‘It’s too late for a cure’

  Given a chance, I would vote for Bernie. But the only choices will probably be Trump and Clinton. In that case, I will vote for Trump.

  It’s almost getting to be a broken record at this point.

  I believe that Clinton will continue the Wall Street-style march to oligarchy. With her, the eventual demise of democracy will lead to a fascist plutocracy. It is going on right now, and it will continue to be slow, painful and inevitable.

   

  I believe that it is too late for a conventional cure. So, there is Trump. He is indeed a buffoon and a recipe for disaster. If he were to do half of the horrific things he says he would, he would be a catastrophe. He could be a blend of Hitler and Hirohito.

   

  That’s why I would vote for him. The last time we crossed paths with a Hitler and/or Hirohito, the country woke up and fought. And won! He might supply us with the shock we need in order to wake up and fight.

  While risky, you can’t argue with the logic.

  The gay Arab Muslim student (20, Missouri)
  ‘My parents are horrified’

  As a gay muslim, the Republican Party has not been kind to me, to say the least. However the Democrats almost arrogantly expect me to hand my vote to them because of who I am, which insults me.

   

  I am a son of immigrants but we have always followed the law to the letter. Donald Trump’s discussion on immigration is extremely relevant. I even support the temporary ban on Muslims, even though I still have many law abiding family members in Syria who deserve the opportunity to come to the US and escape the horrors of the war. We don’t vet these people properly. To let them in willy nilly is ludicrous.

   

  Trump will break the poisonous bonds that hold America and the cult state of Saudi Arabia. Clinton would never do that; she would continue supporting Saudi Arabia while bombing Islamic countries left and right.

  The anti-PC college professor (50, California)
  ‘I’m angry at forced diversity’

  I’m a liberal-left college professor in the social sciences. I’m going to vote for Trump but I won’t tell hardly anybody.

   

  My main reason is anger at the two-party system and the horrible presidencies of Obama and Bush. But I’m also furious at political correctness on campus and in the media.

   

  I’m angry at forced diversity and constant, frequently unjustified complaints about racism/sexism/homophobia/lack of trans rights. I’m particularly angry at social justice warriors and my main reason to vote Trump is to see the looks on your faces when he wins.

   

  It’s not that I like Trump. It’s that I hate those who can’t stand him.

  The white male early retiree (62, Delaware)
  ‘Trump is a wake up call’

  Trump is a wake up call. A president Trump could be as bad as Hitler, but if he shocks some good people in both the Republican and Democratic parties into realizing that they are ignoring legitimate concerns of a seizable minority, then let him have his four years.

  There’s that same logic again. Get Trump in there as a shock to the system, even if the shock is a dangerous one.

  The manager (52, South Carolina) 
  ‘People would realize democracy is messy’

  Not even my wife knows.

   

  I voted for Trump with the faint hope that his election would actually be good for the country. If he were elected, it would perhaps teach more to the country than all the high school civics lessons in the our nation’s brief history.

   

  If elected, Trump would accomplish very little to none of his vacuous agenda. His congressional agenda would be as dead on arrival as that of Bernie Sanders’s. So what good could result? Perhaps more people would begin to realize that members of Congress, governors, mayors, and members of the state houses have the real power. That the framers of the Constitution created this wonderfully balanced system in which no one person holds the kind of power that Trump claims he could wield. That democracy is messy and frustrating. That change involves more hard work than just voting for somebody who says the right things.

  This article results in only one obvious conclusion as pertains to the 2016 election. Sanders could put up a very strong fight against Trump and possibly win. In contrast, Hillary is an extraordinarily weak and vulnerable candidate, and could get demolished in a head to head matchup with Trump.

  

  

  

  

• Voices Of Reason In An Unreasonable World – Meet The Free-Market Economist That Stood Up To Hitler

  In the current time of unprecedented central-planner-focused monetary-policy experimentation and a growing bias towards collectivist and socialist attitudes, the similarities to what Wilhelm Ropke – the European economist who stood up to Hitler – had some seemingly ominous and prescient persepctives in 1933 before everything collapsed:

  The loss of traditional human connections, the dehumanization of man in mass society, and the corruption of the political and economic marketplaces, Röpke argued, had created the sociological and psychological conditions for the emergence of and receptivity to the collectivist idea and its promise of a new community of man, a transformation of the human condition, and a better society designed according to a central plan.

   

  All these were false promises and hopes. Collectivism, whether of the fascist or communist sort, meant the end of a rational economic order, threatened the loss of freedom and the end to human dignity, and required the reduction of man to the status of an insect in what Röpke often referred to as the socialist “termite state.”

  Any of that ring any bells? Social media? Inequality? SuperPACs? Rigged Markets? … Bernie Sanders' Socialism? Collectivist resignation to central planner authority?

  It did not end well then and will not end well this time.

  Submitted by Richard Ebeling via EpicTimes.com,

  Sometimes there are men of principle who live their values and not merely speak or write about them. People who stand up to political evil at their own risk, and then go on to say and do things that help to remake their country in the aftermath of war and destruction. One such individual was the German, free-market economist, Wilhelm Röpke.

  Born on October 10, 1899, Wilhelm Röpke died half a century ago on February 12, 1966. It seems appropriate to mark the fifty-year passing of one of the great European economists and advocates of freedom during the last one hundreds years.

  In the dark days immediately following the rise to power of Adolf Hitler and his Nazi movement in Germany in January 1933, Röpke refused to remain silent. He proceeded to deliver a public address in which warned his audience that Germany was in the grip of a “revolt against reason, freedom and humanity.”

  Nazism as the Destruction of Decent Society

  Nazism was the culmination of Germany’s sinking into ”illiberal barbarism, Röpke said, the elements of which were based on: (l) “servilism,” a “longing for state slavery,” with the state becoming the “subject of unparalleled idolatry”; (2) “irrationalism,” in which ”voices” in the air called for the German people to be guided by “blood,” “soil,” and a “storm of destructive and unruly emotions”; and (3) “brutalism,” in which “The beast of prey in man is extolled with unexampled cynicism, and with equal cynicism every immoral and brutal act is justified by the sanctity of the political end.” Röpke warned that, “a nation that yields to brutalism thereby excludes itself from the community of Western civilization.” He hoped Germany would step back from this abyss before its people had to learn their mistake in the fire of war.

  Röpke also spoke out against the Nazi dismissal of Jewish professors and students from German universities, which began in April 1933. The Nazis denounced him as an “enemy of the people” and removed him from his professorship at the University of Marburg. After an angry exchange with two SS men sent to “reason” with him, Röpke decided to leave Germany with his family, and accept exile rather than live under National Socialism.

  A Man of Courage and Principle

  Wilhelm Röpke was a leading intellectual figure of twentieth-century Europe. He combined conservatism with classical liberalism to develop a political philosophy he called a market-oriented “middle way” between nineteenth-century capitalism and twentieth-century totalitarian collectivism. He also became a spiritual guide and political-economic architect of Germany’s “social market economy” in the post-World War II era. As the famous Austrian economist, Ludwig von Mises, wrote when Röpke died in 1966 at the age of 66,

  “For most of what is reasonable and beneficial in present-day Germany’s monetary and commercial policy credit is to be attributed to Röpke’s influence. He [is] rightly thought of as [one] the intellectual authors of Germany’s economic resurrection . . . The future historians of our age will have to say that he was not only a great scholar, a successful teacher and a faithful friend, but first of all a fearless man who was never afraid to profess what he considered to be true and right. In the midst of moral and intellectual decay, he was an inflexible harbinger of the return to reason, honesty and sound political practice.”

  Röpke grew up in a rural community of independent farmers and cottage industry craftsmen. His father was a country doctor. That upbringing can be seen in his later belief that a healthy, balanced, small community is most fit for human life.

  The event, however, that shaped his chosen purpose in life was his experience in the German army in the First World War. War was “the expression of a brutal and stupid national pride that fostered the craving for domination and set its approval on collective immorality,” Röpke explained. The experience of war made him decide to become an economist and a sociologist when the cannons fell silent. He entered the University of Marburg, from which he earned his doctoral degree in 1921. In 1929 he was appointed professor of economics at the University of Marburg, a position he held until his expulsion by the Nazi regime in 1933.

  After leaving Germany in 1933 he accepted a position at the University of Istanbul, Turkey, In 1937 he was invited to become a professor of international economic relations at the Graduate Institute of International Studies in Geneva, Switzerland, a position he retained until his untimely death on February 12, 1966.

  After the German occupation of France, Röpke was three times offered a teaching position at the New School for Social Research in New York (in 1940, 1941, and 1943) as a means of escape from Nazi-occupied Europe. But each time he turned down the invitation to leave neutral Switzerland, having decided to continue to be a voice for freedom and reason in a totalitarian-dominated Europe.

  In the 1950s, after the war, he was an economic adviser to the government of West Germany. He also was one of the leading figures of a group of market-oriented German economists who in the postwar period became known as the Ordo-liberals; their purpose and goal was the construction of a “social market economy” that assured both an open, competitive order and minimal social guarantees.

  Monetary Mismanagement and the Great Depression

  In the 1920s and for part of the 1930s, a primary focus of Röpke’s writings was business-cycle theory and policy. His most significant work in this field was his 1936 volume Crises and Cycles. Röpke argued that a complex division of labor with a developed structure of roundabout methods of production, held together by the delicate network of market prices for finished goods and the factors of production, had the potential to occasionally suffer from the cyclical waves of booms and depressions.

  The cause of such cycles was periodic imbalances between savings and investment in the economy. While not completely following the “Austrian” theory of the business cycle, Röpke’s approach moved along similar lines, arguing that a monetary expansion that kept the market rate of interest below the level that could maintain a balance between savings and investment would feed investment projects and cause misdirections of labor and resources into production processes in excess of the savings available to sustain them in the long run.

  Röpke’s particular contribution to the analysis of the business cycle was his theory of what he called the “secondary depression.” When the boom ended, an economic downturn was inevitable, with the investment excesses of the upturn having to contract and be readjusted to the realities of available savings and the market-based patterns of supply and demand. But while serving on the German National Commission on Unemployment in 1930–1931, he came to the conclusion that there were negative forces at work at that time far beyond any normal type of post-boom adjustment.

  The failure of cost prices to promptly adjust downward with the decline of finished-goods prices was causing a dramatic collapse of production and employment. Rising unemployment resulted in declining incomes that then created a new round of falling demands for goods in the economy, which in turn brought about another decrease in production and employment. At the same time, growing unprofitability of industry made businessmen reluctant to undertake new investments, resulting in the accumulation of idle savings in the financial markets. Such a sequence of events generated a cumulative contraction in the economy that kept feeding on itself.

  Röpke concluded that this secondary depression served no healthy purpose, and the downward spiral of a cumulative contraction in production and employment could only be broken by government-induced credit expansion and public works projects. Once the government introduced a spending floor below which the economy would no longer go, the market would naturally begin a normal and healthy upturn that would bring the economy back toward a proper balance.

  In 1933, when Röpke published in English an article explaining the findings of the German Commission on Unemployment, John Maynard Keynes expressed to Röpke his “great satisfaction” that German economists were reaching the same conclusions as he had, namely, that government needed to take an active role in steering the economy.

  But Röpke had no sympathy for Keynes’s belief that the market was inherently unstable and permanently in need of government management of “aggregate demand.” In Röpke’s view the Great Depression represented a “rare occurrence” of an “exceptional combination of circumstances” that required “a deliberate policy of additional ‘effective demand’ into the economic system.”

  But, Röpke continued, Keynes’s construction of a “general theory of employment” based on the exceptional circumstances of the early 1930s was a “counsel of despair” and an extremely dangerous one, because it created a rationale for continuous government tinkering and a strong inflationary bias harmful to the stability of the market economy in the long run. Indeed, Röpke became a leading critic of Keynesian economics after World War II.

  The Crisis of Western Civilization

  But the central issue that absorbed almost all of Röpke’s intellectual and literary efforts in the 1930s and 1940s was what he considered the crisis of Western civilization, the most stark and terrible symptom of which was the rise of totalitarian collectivism as represented by Soviet communism, Italian fascism, and German National Socialism.

  But the heart of Röpke’s critique of the decay of Western civilization and the path for its renewal was in a trilogy published during the war: The Social Crisis of Our Time 1942), Civitas Humana (1944), and International Order (1945). This was followed at the end of the war by The Solution of the German Problem (1945). And a further reformulation of his conception of a properly ordered and balanced society was offered in A Humane Economy: The Social Framework of the Free Market (1958).

  The achievements of the eighteenth century, in Röpke’s view, were the use of reason for a balanced understanding of both the natural and social world; the awakening of an insight into the possibilities of a free, spontaneous order of market relationships; a conception of man that looked at him in proportionate human terms; and a sense of humanity in appreciating and wanting to improve the human condition. One of these insights was that a free-market order that both liberated man from the status and caste society of the past and dramatically improved his standard of living; and the liberal, democratic ideal in which the individual possessed rights to life, liberty, and property, and in which peace and tolerant political pluralism replaced imperial violence and political absolutism.

  But as Röpke saw it, many of these achievements and successes had been twisted in the nineteenth century. The use of reason had become “unreasonable,” as there emerged a hyper-rationalism that claimed to have the power to discover the secrets for social engineering. The triumphs of the natural sciences in mastering the physical world had fostered a “cult of the colossal,” in which there was a worship of the things of the material world and the desire for the creation of objects bigger than human life. This cut man loose from all the societal moorings of family, community, and the harmonies of local life, And the ideal of democratic pluralism had been undermined and reduced, increasingly, into an arena of special-interest political plunder.

  Collectivism and the Termite State

  The loss of traditional human connections, the dehumanization of man in mass society, and the corruption of the political and economic marketplaces, Röpke argued, had created the sociological and psychological conditions for the emergence of and receptivity to the collectivist idea and its promise of a new community of man, a transformation of the human condition, and a better society designed according to a central plan. All these were false promises and hopes. Collectivism, whether of the fascist or communist sort, meant the end of a rational economic order, threatened the loss of freedom and the end to human dignity, and required the reduction of man to the status of an insect in what Röpke often referred to as the socialist “termite state.”

  Röpke was uncompromising in his insistence that only the market economy was consistent with both freedom and prosperity. Only the market, with its system of private property rights, provided the framework to harness individual incentives and creativeness for the benefit of society. Only the market could generate the competitive process necessary for the formation of prices that could successfully coordinate supply and demand. Only the market gave each individual the freedom to be an end in himself while also serving as a voluntary means to the ends of others through the mechanism of exchange.

  Yet in Röpke’s view the market by itself was not enough. The humane society required going “beyond supply and demand,” to the construction of an institutional order that incorporated the market in a wider social setting. The market economy needed strong ethical moorings to give a sound moral foundation to market order. Röpke held views concerning the role of government in a free society that were wider than many free market advocates today might consider necessary and appropriate.

  But beginning in the 1950s, Röpke argued that the growing politicization of economic and social life through an expanding interventionist-welfare state undermined the possibility for a successful international order based on peace, mutual prosperity, and a rational allocation and use of the resources of the world. International order required countries to practice sound policies at home: respect for private property, enforcement of contracts, protection for foreign investments, limited government intervention, and non-inflationary monetary policies.

  Networks of international trade and investment would then naturally and spontaneously connect the world through private market relationships. For this reason, Röpke was doubtful that European economic and monetary integration could be successfully imposed as long as the member states were unwilling to follow the necessary domestic policies of limited government and open, competitive market capitalism. Tensions and conflicts were inevitable in an age dominated by collectivist and interventionist ideas.

  A Voice of Reason in an Unreasonable World

  Wilhelm Röpke was more than just an economist. During some of the darkest decades of the twentieth century, he sounded more like an Old Testament prophet warning of the dangers from a loss of our moral compass. Collectivism had few opponents in our century with as much of a sense of ethical purpose.

  Precisely because he was an economist by training, Röpke understood the indivisibility of personal, political, and economic freedom in a way that many other critics of socialism in its various forms could never articulate. The appreciation of history and the historical context in his analyses only enriched the persuasiveness of his message. The rebirth of the market economy in Germany and in other parts of Europe after 1945 owes a great deal to his intellectual efforts and legacy.

  

  

  

  

  

• "Lesbians" vs "Step Sisters" – Most Popular Porn Searches Reveal A Surprising Pattern

  In a nation as ‘distracted‘ as America where virtual relationships seem more popular than real ones, it appears different states ‘attention‘ is drawn to very different methods of entertainment.

  In 30 states in the West, Midwest and East, “lesbian” was on top as the most commonly searched term. And the term was most popular in California where there were 187,000 searches for the word in January.

   

  Looking north, “step sister” took the crown in states such as Wyoming, Montana, Minnesota and Ohio, while “step mom” was a winner in Alaska, Washington, Kentucky and New Hampshire.

   

  In states with the highest proportion of African American residents—Mississippi, Louisiana and Georgia—”ebony” was preferred.

   

  One state with unique taste was Rhode Island where people were searching for “MILF” videos.

  

  Source: Pornhub

   

  Which might explain this…

  

   

  And this…

  

  

  

  

  

  

• Visualising America's "Irrelevant" Exports & Imports

  The U.S. Census Bureau recently released its data on U.S. trade in goods by selected countries and world region for 2015. HowMuch.net built three maps to provide a proportional visualization of the trade that occurs between the U.S. and other countries.

  Exports are represented in green, imports are represented in red, and the balance (exports – imports) is represented by red or green depending on whether the U.S. has exported more or less goods than it has imported. For instance, if a country’s imports exceeds its exports, the country will experience a trade deficit, which represents an outflow of domestic currency to foreign markets.

  Based on the data, the U.S. exported over $1.5 trillion and imported over $2.2 trillion in goods throughout 2015. This leaves leaves the U.S. with a negative balance of $735 billion!

  Largest Balances by Country

  

  Take a look at the top 5 countries with the largest balances (positive and negative):

  Top 5 Positive Balances

  • Hong Kong: $30.5 billion

  • Netherlands: $24.0 billion

  • Belgium: $14.6 billion

  • Australia: $14.2 billion

  • Singapore: $10.4 billion

  Top 5 Negative Balances

  • China: $365.7 billion

  • Germany: $74.2 billion

  • Japan: $68.6 billion

  • Mexico: $58.4 billion

  • Ireland: $30.4 billion

  Top 5 Countries for Exports

  

   

  Take a look at the top 5 countries that the U.S. has exported goods to:

  • Canada: $280.3 billion

  • Mexico: $236.4 billion

  • China: $116.2 billion

  • Japan: $62.5 billion

  • United Kingdom: $56.4 billion

  Together the top 5 countries make up about 50% of all U.S. exports.

   

  Top 5 Countries for Imports

  

  Take a look at the top 5 countries that the U.S. has imported goods from:

  • China: $481.9 billion

  • Canada: $295.2 billion

  • Mexico: $294.7 billion

  • Japan: $131.1 billion

  • Germany: $124.1 billion

  Together the top 5 countries make up about 59% of all U.S. imports.

  Maintaining a Balance in Trade

  Looking at the data by area shows that South/Central America, OPEC and Africa are the only regions with positive balances, whereas North America, Europe, and Pacific Rim areas show a negative balance. Interestingly, China, which as a negative balance of $365.7 billion represents ~80% of the negative balance attributed to the Pacific Rim countries and ~50% of the overall negative balance! To put this into perspective, the continent of Europe represents only ~23% of the overall negative balance for selected countries.

  *  *  *

  So the next time someone comes on TV and proclaims that the collapse in world trade volumes is irrelevant to the US equity market and US economy… perhaps point them in this direction.

  

  

  

  

  

• Legalizing Weed Has Done What 1 Trillion Dollars And A 40 Year War Couldn't

  Submitted by Nick Bernabe via TheAntiMedia.org,

  The Mexican drug cartels are finally meeting their match as a wave of cannabis legalization efforts drastically reshapes the drug trafficking landscape in the United States. It turns out that as states legalize cannabis use and cultivation, the volume of weed brought across the border by Mexican drug cartels dramatically decreases — and is putting a dent in their cash flow.

  A newly-released statistical report from the U.S. Border Patrol shows a sharp drop-off in cannabis captured at the border between the United States and Mexico. The reduction in weed trafficking coincides with dozens of states embracing cannabis use for both medical and recreational purposes.

  In fact, as the Washington Post reports, cannabis confiscations at the southern border have stumbled to the lowest point in over a decade — to only 1.5 million pounds. That’s down from a peak of four million pounds in 2009.

  Speaking to Anti-Media, Amir Zendehnam, host of the popular cannabis show, “In the Clear with Amir” on Z420.tv, told us what he thinks of these new statistics:

  “The economics of the cannabis industry show us that with healthy competition in the market, prices drop, quality rises, violence diminishes, and peaceful transactions increase. As constant new research emerges detailing the plant’s benefits, the negative stigma of using cannabis, both medicinally and recreationally, is diminishing, raising the demand for high quality product.

   

  “Colorado, for example, is experiencing an economic boom that has never been seen in the state. The biggest issue in Colorado today is what to do with the huge amounts of revenue and economic success the state is gaining as a result of legalization. The Colorado model has proven that legalization reduces crime rates, cuts prices, pushes unfavorable competition out of the market, provides cleaner products with heightened transparency, and increases the standard of living for society as a whole.

   

  “The only people hurt by continued societal acceptance and legalization of cannabis are the cartels and their friends, who have flourished for decades as a result of drug prohibition.

   

  “As legalization spreads across the U.S. and the rest of the world like wildfire, I predict the industry will soon become one of the most dominant and beneficial industries humanity has ever seen.”

  And the new competition from legal states has taken a big bite out of the entire illicit Mexican marijuana food chain. “Two or three years ago, a kilogram [2.2 pounds] of marijuana was worth $60 to $90,” a cannabis farmer in Mexico said in an interview with NPR. “But now they’re paying us $30 to $40 a kilo. It’s a big difference. If the U.S. continues to legalize pot, they’ll run us into the ground.”

  Consumers are also starting to see the difference. Cheap low quality Mexican cannabis has become almost impossible to find in states that have legalized, while prices for high quality home-grown have steadily decreased.

  This is good news for Mexico. A decreasing flow of cannabis trafficking throughout the country will likely lead to less cartel violence as revenues used to buy weapons dry up. Drug war-related violence in Mexico was responsible for an estimated 27,000 deaths in 2011 alone — outpacing the entire civilian death toll of the United States’ 15-year war in Afghanistan.

  These developments reinforce criticism of the War on Drugs as a failed policy. Making substances like cannabis illegal simply drove the industry underground, helping make America the largest incarcerator in the world.

  Legalizing cannabis will also save the United States a great deal of money. As Mint Press News reported:

  “Since Richard Nixon declared a war on drugs in June 1971, the cost of that “war” had soared to over $1 trillion by 2010. Over $51 billion is spent annually to fight the drug war in the United States, according to Drug Policy Alliance, a nonprofit dedicated to promoting more humane drug policies.”

  Early reports from Colorado’s cannabis tax scheme show that revenues that will ostensibly help schools and rehabilitation efforts by flooding the state with cash. In fact, Colorado became the first state to generate more tax revenue from cannabis than alcohol in one year — $70 million.

  But why stop with cannabis legalization? As more and more drug propaganda is debunked thanks to the legal weed movement, it’s time to also advocate for drug legalization across the board. The drug war’s criminalization of substances has done nothing to stem their use, and has simply turned addicts into criminals, even though plenty of experts agree that addiction is a health issue, not a criminal one.

   

  Maybe it’s time for the U.S., Mexico, and other countries to embrace the Portuguese and Irish model of treating addiction to drugs like an addiction to alcohol or cigarettes, using rehabilitation — rather than incarceration — to confront the problem.

  

  

  

  

  

• Former-PM Admits "Future Existence Of Japan Was At Stake" As Mutations Appear In Fukushima Forest

  "The future existence of Japan as a whole was at stake," admits Japan's prime minister at the time of the 2011 quake and tsunami, revealing that the country came within a "paper-thin margin" of a nuclear disaster requiring the evacuation of 50 million people. Naoto Kan expressed satisfaction at the three TEPCO executives facing charges over negligence, but this shocking admission comes as AFP reports, conservation group Greenpeace warned that "signs of mutations in trees and DNA-damaged worms beginning to appear," while "vast stocks of radiation" mean that forests cannot be decontaminated.

  In an interview with The Telegraph to mark the fifth anniversary of the tragedy, Naoto Kan described the panic and disarray at the highest levels of the Japanese government as it fought to control multiple meltdowns at the crippled Fukushima Daiichi nuclear power station.

  He said he considered evacuating the capital, Tokyo, along with all other areas within 160 miles of the plant, and declaring martial law. “The future existence of Japan as a whole was at stake,” he said. “Something on that scale, an evacuation of 50 million, it would have been like a losing a huge war.”

   

  Mr Kan admitted he was frightened and said he got “no clear information” out of Tepco, the plant’s operator. He was “very shocked” by the performance of Nobuaki Terasaka, his own government’s key nuclear safety adviser. “We questioned him and he was unable to give clear responses,” he said.

   

  “We asked him – do you know anything about nuclear issues? And he said no, I majored in economics.”

   

  “When we got the report that power had been cut and the coolant had stopped working, that sent a shiver down my spine,” Mr Kan said. “From March 11, when the incident happened, until the 15th, the effects [of radioactive contamination] were expanding geographically.

   

  "From the 16th to the 20th we were able to halt the spread of radiation but the margin left for us was paper-thin. If the [fuel rods] had burnt through [in] all six reactors, that would definitely have affected Tokyo.

   

  “From a very early stage I had a very high concern for Tokyo. I was forming ideas for a Tokyo evacuation plan in my head. In the 1923 earthquake the government ordered martial law – I did think of the possibility of having to set up such emergency law if it really came down to it.

   

  “We were only able to avert a 250-kilometre (160-mile) evacuation zone [around the plant] by a wafer-thin margin, thanks to the efforts of people who risked their lives."

  Mr Kan said he had to retreat to an inner room after the atmosphere in the government’s crisis management centre became “very noisy”.

  He said: “There was so little precise information coming in. It was very difficult to make clear judgments. I don’t consider myself a nuclear expert, but I did study physics at university.

   

  "I knew that even based on what little we were hearing, there was a real possibility this could be bigger than Chernobyl. That was a terrible disaster, but there was only one reactor there. There were six here.”

  All of these admissions of the monstrous reality are hitting just as onservation group Greenpeace warned on Friday that the environmental impact of the Fukushima nuclear crisis five years ago on nearby forests is just beginning to be seen and will remain a source of contamination for years to come.

  As the fifth anniversary of the disaster approaches, Greenpeace said signs of mutations in trees and DNA-damaged worms were beginning to appear, while "vast stocks of radiation" mean that forests cannot be decontaminated. As AFP reports,

  In a report, Greenpeace cited "apparent increases in growth mutations of fir trees… heritable mutations in pale blue grass butterfly populations" as well as "DNA-damaged worms in highly contaminated areas", it said.

   

  The report came as the government intends to lift many evacuation orders in villages around the Fukushima plant by March 2017, if its massive decontamination effort progresses as it hopes.

   

  For now, only residential areas are being cleaned in the short-term, and the worst-hit parts of the countryside are being omitted, a recommendation made by the International Atomic Energy Agency.

  Finally, we leave it to Kan to conclude:

  "Next time, we might not be so lucky.”

  

  

  

  

  

• The Most Painful Part Of The Short Squeeze May Be Yet To Come, JPM Warns

  Two weeks ago, we reported that NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months).

  

   

  We said that this dynamic means one of two things:

  • Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or
  • Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner.

  So far not a single central bank or major policy-making institution has intervened with a major (or for that matter, any) stimulus, but the expectation that one will – be it the G-20 last weekend, China this weekend, the ECB next week or the BOJ the week after – has led to precisely one of the two postulated outcomes: as we reported yesterday, the “mother of all short squeezes” was indeed unleashed, and last week the “most shorted” stocks were up a near record 8.7%, the highest since the furious November 2008 bear market rally.

  

   

  So does this mean the short squeeze – whether ordinary course of business or engineered by banks to push the price of both the S&P and oil higher so that energy companies can sell equity and repay secured bank loans (as we speculated last week) – is over? According to JPM, not just yet, even though by now the weakest hands have clearly tapped out. In fact, since there has been virtually no rotation into ETFs, the most brutal part of the squeeze may be just ahead. Here’s why:

  The covering of short equity positions continued over the past week. The short interest in US equity futures declined over the past week as seen in Figure 1.

   

  

   

  But its level remains very negative suggesting there is room for further short covering. The short interest on SPY, the biggest equity ETF, at 4.75% stands below its recent peak of 5.43% but it remains elevated vs. its level of 3.54% at the start of the year. Equity ETFs have not yet seen any significant inflows, suggesting that ETF investors have done little in actively reversing the almost $30bn of equity ETFs sold over the previous two months. CTAs, which have been partly responsible for this year’s selloff, are still short equities and they have only covered a third of the short position they opened in January. In contrast, Discretionary Macro hedge funds, Equity L/S, risk parity funds and balanced mutual funds, appear to be modestly long equities, so they are currently benefitting from the equity rally.

   

  

  Is it possible that the short squeeze can take the S&P another 100 points higher, reaching Goldman’s 2016 year-end target even as GAAP EPS have crashed to just over 90, and which would mean that the market when valued on a GAAP basis would be at 22x earnings and the most expensive it has ever been? Of course it is, even if that will make the S&P500 the most overbought, and overvalued in history, and just ripe for the next wave of short selling.

  So for all those eager to short the S&P but unsure when to do it, keep an eye on the SPY short interest and CTA net exposure. Breakout failures would mean this week’s roundhouse punch to the face of market shorts may be as bad as it gets.  On the other hand, if the covering momentum is only just starting, and now it is the ETFers and CTA’s turn to pick up the baton, the next move higher in this bear market squeeze could easily take the S&P500 to new all time highs.

  

  

  

  

  

• The Afghan War Explained In Two Headlines

  How often do you notice during an average market day that the mainstream financial news media very often seem to run headlines that not only contradict one another entirely but sometimes emanate from the very same news wire?

  Well trust us, it happens all the time. In fact, this type of epic confusion is one of the many “gifts that keeps on giving for us.” For one classic example, see here.

  Well, in case you weren’t aware, this is also the case in war and geopolitics, because if there are two areas where things are more fluid and move faster than a vacuum tube or any microwave, it’s war and backdoor diplomacy.

  In the true spirit of the above, we bring you the following two headlines, the first from Reuters, and the second from WSJ, each of which purport to explain what’s happening in Afghanistan: 

  Reuters

  

  WSJ

  

  And of course, these headlines are both from the same day. 

  

  

  

  

• Alan Greenspan's Pickled Economy

  Submitted by EconomicPrism's MN Gordon, via Acting-Man.com,

  Winter of Discontent

  Former Federal Reserve Chairman Alan Greenspan resurfaced this week.  We couldn’t recall the last time we’d heard from him.  But, alas, the old fellow’s in desolate despair.

   

  

  Unexpectedly rising from the crypt: Alan Greenspan

   

  On Tuesday, for instance, he told Bloomberg he hasn’t been optimistic for “quite a while.”  Obviously, this is in contrast to the perennial Goldilocks attitude he had during the 1990s.  So what is it that has the Maestro playing a low dirge?

  China, the dollar, Dodd-Frank, and associated unknowns are all part of his negative outlook.  But the long winter of his discontent is something else.  Greenspan said he “won’t be [optimistic] until we can resolve entitlement programs.”

  “Nobody wants to touch [entitlements].  But it is gradually crowding out capital investment and that is crowding out productivity and that is crowding out the standards of living,” said Greenspan.

  Indeed, funding entitlement programs is becoming more burdensome by the year.  As a greater percentage of the economy’s GDP goes toward entitlement programs, a lesser percentage goes towards capital investment.  The effect of this negative feedback loop, as Greenspan infers, is quite simple.

   

  

  An enticing lure….

  Less capital investment leads to lower productivity.  Lower productivity leads to slower GDP growth.  Slower GDP growth leads to an economy that can’t keep pace with entitlement programs.  Thus, an even smaller percentage of GDP is, in turn, available for capital investment…to propel future growth.  And so on, and so forth.

   

  

  A 2012 forecast of entitlement spending by the Heritage Foundation. This seems not exactly sustainable – click to enlarge.

   

  What Drives Economic Growth?

  Certainly, this is a basic insight.  But perhaps Greenspan is on to something much larger than just the issue of entitlement programs.  From what we can tell he’s getting at the question of economic growth.  Namely, what drives it?

  Based on Greenspan’s example of entitlement programs, and their effect of crowding out capital investment, productivity, and standards of living, it seems he’s asserting that savings and production drive economic growth.

  This, no doubt, is an important distinction.  For it goes contrary to the mainstream Keynesian economic thought of the day which asserts spending and consumption drive economic growth. Hence, the main purpose of today’s economic policies is to increase spending and consumption to the detriment of savings and production.

   

  

  How the economy grows. Lower left corner: an outline of the economy’s structure of production in the form of a “Hayekian triangle”; clockwise from the upper left corner: the process of widening and lengthening of the production structure and the growth in output it creates over time, as savings and investment increase (for a more detailed explanation of the concepts involved see our previous brief article “The Production Structure”) – click to enlarge.

   

  To be clear, this was also the approach to monetary policy that Greenspan executed when he was Fed Chairman.  Between 1987 and 2006, while at the command of the nation’s monetary levers, Greenspan implemented these policies of promoting mass consumption.

  Moreover, Greenspan’s dirty fingerprints are all over today’s global economic problems.  For it were Greenspan’s policies of mass consumption that accelerated globalization and a lopsided trade imbalance with China and others.  Practically all the malinvestments, bubbles and busts across the planet that are presently in various stages of reckoning can be traced back to the man.

  We doubt Greenspan will ever take responsibility for the effects of his actions. But we do know that he has full knowledge of his errors.  For while Bernanke and Yellen are true believers in their craft, Greenspan knows central banking is filthy hogwash.  In particular, long before he became the Maestro, there was a time when Greenspan was openly opposed to state intervention.

   

  

  The publication of this book was like the ringing of a bell. It heralded the end of the great boom and it was the last time Greenspan was put on a pedestal by a book author.

   

  Alan Greenspan’s Pickled Economy

  Greenspan, if you didn’t know, once stood firmly behind the gold standard.  He even wrote one of its better defenses.  In his essay Gold and Economic Freedom, published in 1966, Greenspan came to the following conclusion.

  “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.  There is no safe store of value.  If there were, the government would have to make its holding illegal, as was done in the case of gold.  If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods.  The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

   

  “This is the shabby secret of the welfare statists’ tirades against gold.  Deficit spending is simply a scheme for the confiscation of wealth.  Gold stands in the way of this insidious process.  It stands as a protector of property rights.  If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” 

   

  

  Gold: the money of the free market, and guarantor of economic freedom – and consequently hated by etatistes far and wide. Alan Greenspan was well aware of the importance of sound money.

   

  Years later Greenspan put his vanity above his ideals.  During his 18-plus years as Fed chairman he went on to provide the elastic currency that allowed for the national debt to stretch from $2.3 trillion to $8.5 trillion.  That amounts to a 269 percent increase.  Such a dramatic increase would never have been possible under the gold standard.

  Greenspan’s elastic currency also allowed for the nation’s ballooning entitlements, funded via deficits.  Maybe his present despair stems from the full knowledge and remorse of his dirty deeds now coming home to roost.  For in Greenspan’s words, “deficit spending is simply a scheme for the confiscation of wealth.”

   

  

  Total federal public debt: the next update will show a more than $1 trillion jump to a new high above $19 trillion. The current administration has finally succeeded in more than doubling the public debt in just eight years – unsurprisingly, with nothing to show for it – click to enlarge.

   

  Just ask David Stockman.  Greenspan, bar none, perpetuated this wealth confiscation scheme with great proficiency.  Any remorse he now has is too little too late.  Like a pickled cucumber, his actions, and the actions of his predecessors, can never be undone.

  Look around.  Today we’re all living with the exacting consequences of Alan Greenspan’s pickled economy.  Quite frankly, it bites.

  

  

  

  

  

• Why JPMorgan Disagrees With Buffett That "Babies Born Today Are The Luckiest In History"

  JPM’s head quant Marko Kolanovic is best known for timing the market’s inflection points and quantifying – in plain English – the marginal buying and selling technicals at any given moment. In his latest overnight note he does not disappoint, explaining in simple terms “what the fate of the market rally is.” We will give readers his answer… tomorrow.

  For now we wanted to focus on something we have never seen from Kolanovic before: an outright foray into both social commentary and politics with his demolition of Buffett’s insipid, hackneyed, and, according to some, downright idiotic, assessment that “the babies being born in America today are the luckiest crop in history.“

  Here’s why:

  Babies born in America today – the luckiest crop in history?

  This statement has been used recently in the context of the outlook for the US economy (W. Buffet’s annual letter) and upcoming US presidential elections (M. Romney). The statement encapsulates a positive view on the US economy and downplays prospects of significant political changes in the US (it also assumes a link between an individual’s luck and US GDP growth).

   

  While we do not take either a glass half-full or glass half-empty view on the current state of US economy, there are good reasons to believe that ‘the luckiest generation in history’ statement is overly optimistic. US primary results show a very strong lead for D. Trump in the Republican Party, and a surprisingly good showing for B. Sanders. We believe this indicates that a significant part of the electorate disapproves of the current political establishment and feels left behind by the new economy (e.g. voters may not agree with W. Buffet that an average upper-middle class American today has a better living standard as compared to John D. Rockefeller Sr.).

   

  Over the coming months, uncertainty about the US election outcome may result in increased risk aversion and volatility in certain segments of the US Equity market.

  Needless to say, we fully agree with Kolanovic.

  

  

  

  

  

  

• The Nine Horsemen Of The US Recession Apocalypse

  “There are no signs of a US recession anytime soon”… apart from these nine charts that is..

   

  

  Source: @DonDraperClone

  Of course, even The Fed is forced to admit that recession probabilities are rising fast…  

  

  The latest reading
  from last November is higher than all but 3 months (in the last 50
  years) when a recession did not immediately proceed.

  

  

  

  

• Guest Post: What Trumpism Means For Democracy

  Submitted by Andrew Bacevich via TomDispatch.com,

  Whether or not Donald Trump ultimately succeeds in winning the White House, historians are likely to rank him as the most consequential presidential candidate of at least the past half-century. He has already transformed the tone and temper of American political life. If he becomes the Republican nominee, he will demolish its structural underpinnings as well. Should he prevail in November, his election will alter its very fabric in ways likely to prove irreversible. Whether Trump ever delivers on his promise to "Make America Great Again," he is already transforming American democratic practice.

  Trump takes obvious delight in thumbing his nose at the political establishment and flouting its norms. Yet to classify him as an anti-establishment figure is to miss his true significance. He is to American politics what Martin Shkreli is to Big Pharma. Each represents in exaggerated form the distilled essence of a much larger and more disturbing reality. Each embodies the smirking cynicism that has become one of the defining characteristics of our age. Each in his own way is a sign of the times.

  In contrast to the universally reviled Shkreli, however, Trump has cultivated a mass following that appears impervious to his missteps, miscues, and misstatements. What Trump actually believes — whether he believes in anything apart from big, splashy self-display — is largely unknown and probably beside the point. Trumpism is not a program or an ideology. It is an attitude or pose that feeds off of, and then reinforces, widespread anger and alienation.

  The pose works because the anger — always present in certain quarters of the American electorate but especially acute today — is genuine. By acting the part of impish bad boy and consciously trampling on the canons of political correctness, Trump validates that anger. The more outrageous his behavior, the more secure his position at the very center of the political circus. Wondering what he will do next, we can’t take our eyes off him. And to quote Marco Rubio in a different context, Trump “knows exactly what he is doing.”

  Targeting Obama's Presidency

  There is a form of genius at work here. To an extent unmatched by any other figure in American public life, Trump understands that previous distinctions between the ostensibly serious and the self-evidently frivolous have collapsed. Back in 1968, then running for president, Richard Nixon, of all people, got things rolling when he appeared on Laugh-In and uttered the immortal words, “Sock it to me?” But no one has come close to Trump in grasping the implications of all this: in contemporary America, celebrity confers authority. Mere credentials or qualifications have become an afterthought. How else to explain the host of a "reality" TV show instantly qualifying as a serious contender for high office?

  For further evidence of Trump’s genius, consider the skill with which he plays the media, especially celebrity journalists who themselves specialize in smirking cynicism. Rather than pretending to take them seriously, he unmasks their preening narcissism, which mirrors his own. He refuses to acknowledge their self-assigned role as gatekeepers empowered to police the boundaries of permissible discourse. As the embodiment of “breaking news,” he continues to stretch those boundaries beyond recognition.

  In that regard, the spectacle of televised “debates” has offered Trump an ideal platform for promoting his cult of personality. Once a solemn, almost soporific forum for civic education — remember Kennedy and Nixon in 1960? — presidential debates now provide occasions for trading insults, provoking gaffes, engaging in verbal food fights, and marketing magical solutions to problems ranging from war to border security that are immune to magic. For all of that we have Trump chiefly to thank.

  Trump’s success as a campaigner schools his opponents, of course. In a shrinking Republican field, survival requires mimicking his antics. In that regard, Ted Cruz rates as Trump’s star pupil. Cruz is to Trump what Lady Gaga was to Amy Winehouse — a less freewheeling, more scripted, and arguably more calculating version of the original.

  Yet if not a clone, Cruz taps into the same vein of pissed-off, give-me-my-country-back rage that Trump himself has so adeptly exploited. Like the master himself, Cruz has demonstrated a notable aptitude for expressing disagreement through denigration and for extravagant, crackpot promises. For his part, Marco Rubio, the only other Republican still seriously in the running, lags not far behind. When it comes to swagger and grandiosity, nothing beats a vow to create a “New American Century,” thereby resurrecting a mythic past when all was ostensibly right with the world.

  On two points alone do these several Republicans see eye-to-eye. The first relates to domestic policy, the second to America’s role in the world.

  On point one: with absolute unanimity, Trump, Cruz, and Rubio ascribe to Barack Obama any and all problems besetting the nation. To take their critique at face value, the country was doing swimmingly well back in 2009 when Obama took office. Today, it’s FUBAR, due entirely to Obama’s malign actions.

  Wielding comparable authority, however, a Republican president can, they claim, dismantle Obama’s poisonous legacy and restore all that he has destroyed. From “day one,” on issues ranging from health care to immigration to the environment, the Republican candidates vow to do exactly this. With the stroke of a pen and the wave of a hand, it will be a breeze.

  On point two: ditto. Aided and abetted by Hillary Clinton, Obama has made a complete hash of things abroad. Here the list of Republican grievances is especially long. Thanks to Obama, Russia threatens Europe; North Korea is misbehaving; China is flexing its military muscles; ISIS is on the march; Iran has a clear path to acquiring nuclear weapons; and perhaps most distressingly of all, Benjamin Netanyahu, the prime minister of Israel, is unhappy with U.S. policy.

  Here, too, the Republican candidates see eye-to-eye and have solutions readily at hand. In one way or another, all of those solutions relate to military power. Trump, Cruz, and Rubio are unabashed militarists. (So, too, is Hillary Clinton, but that’s an issue deserving an essay of its own). Their gripe with Obama is that he never put American military might fully to work, a defect they vow to amend. A Republican commander-in-chief, be it Trump, Cruz, or Rubio, won’t take any guff from Moscow or Pyongyang or Beijing or Tehran. He will eradicate "radical Islamic terrorism," put the mullahs back in their box, torture a bunch of terrorists in the bargain, and give Bibi whatever he wants.

  In addition to offering Obama a sort of backhanded tribute — so much damage wrought by just one man in so little time — the Republican critique reinforces reigning theories of presidential omnipotence. Just as an incompetent or ill-motivated chief executive can screw everything up, so, too, can a bold and skillful one set things right.

  Juan and Evita in Washington?

  The ratio between promises made and promises fulfilled by every president in recent memory — Obama included — should have demolished such theories long ago. But no such luck. Fantasies of a great president saving the day still persist, something that Trump, Cruz, and Rubio have all made the centerpiece of their campaigns. Elect me, each asserts. I alone can save the Republic.

  Here, however, Trump may enjoy an edge over his competitors, including Hillary Clinton and Bernie Sanders. With Americans assigning to their presidents the attributes of demigods — each and every one memorialized before death with a library-shrine — who better to fill the role than an egomaniacal tycoon who already acts the part? The times call for strong leadership. Who better to provide it than a wheeler-dealer unbothered by the rules that constrain mere mortals?

  What then lies ahead?

  If Trump secures the Republican nomination, now an increasingly imaginable prospect, the party is likely to implode. Whatever rump organization survives will have forfeited any remaining claim to represent principled conservatism.

  None of this will matter to Trump, however. He is no conservative and Trumpism requires no party. Even if some new institutional alternative to conventional liberalism eventually emerges, the two-party system that has long defined the landscape of American politics will be gone for good.

  Should Trump or a Trump mini-me ultimately succeed in capturing the presidency, a possibility that can no longer be dismissed out of hand, the effects will be even more profound. In all but name, the United States will cease to be a constitutional republic. Once President Trump inevitably declares that he alone expresses the popular will, Americans will find that they have traded the rule of law for a version of caudillismo. Trump’s Washington could come to resemble Buenos Aires in the days of Juan Perón, with Melania a suitably glamorous stand-in for Evita, and plebiscites suitably glamorous stand-ins for elections.

  That a considerable number of Americans appear to welcome this prospect may seem inexplicable. Yet reason enough exists for their disenchantment. American democracy has been decaying for decades. The people know that they are no longer truly sovereign. They know that the apparatus of power, both public and private, does not promote the common good, itself a concept that has become obsolete. They have had their fill of irresponsibility, lack of accountability, incompetence, and the bad times that increasingly seem to go with them.

  So in disturbingly large numbers they have turned to Trump to strip bare the body politic, willing to take a chance that he will come up with something that, if not better, will at least be more entertaining. As Argentines and others who have trusted their fate to demagogues have discovered, such expectations are doomed to disappointment.

  In the meantime, just imagine how the Donald J. Trump Presidential Library, no doubt taller than all the others put together, might one day glitter and glisten — perhaps with casino attached.

  

  

  

  

  

• EU Bombshell: The Balkan Route To Germany Is Closed

  Late last month, Norwegian PM Erna Solberg proclaimed that if she became convinced that Sweden’s refugee crisis was set to spiral out of control or “break down” (as she called it), she may be prepared to close her country’s borders altogether in what would quite possibly amount to a contravention of Norway’s duties under the Geneva Convention and a move that would almost surely trigger a rash of human rights violations. 

  

  (Solberg)

  It underscored how desperate some Europeans had become and indeed, it was just days later when EU migration commissioner Dimitris Avramopoulos warned that the bloc has just 10 days to implement a plan that will bring about “tangible and clear results on the ground” or else “the whole system will completely collapse.”

  The 10-day “countdown” is a reference to the leadup to an EU/Turkey Summit where Erdogan, as usual, stands in the way of progress.

  He’s determined to extract money and political concessions from Brussels in exchange for his country’s help in stemming the flow of Asylum Seekers from neighboring Syria. A transcript from a leaked discussion between himself and European Commissioner Jean Claude Juncker and President of the European Council Donald Tusk on 16th November 2015 during the G20 Summit in Antalya suggests that Erdogan told Juncker that Turkey can simply: :put them [the migrants] on buses.” That’s a rather thinly-veiled  threat to simply pass the migrants straight through to the gates (and we mean “gates” both that figuratively and literally at this juncture) of the Balkan rout noth.

  

   

  The Summit begins on Monday and we don’t have much in the way of hope. After all, in order to guard the bloc’s external border you need buy in from Erdogan (when he’s actually looking for buy out quite literally), and somehow poor Alexis Tsipras is expected to control the bottleneck after having been left for broke by the very same Brussels Eurocrats who now want (no, demand) his help.

  As KeepTalkingGreece puts in thousands of refugees and migrants wandering from Athens to Idomeni without knowing where to sleep and what to eat, where to lay their kids and elderly to sleep. What happens when they get to Idomeni, you ask? Well they try to beat down border gates with homemade bettering rams. Like so: 

   

  If they can’t break through and make a run for it north, the end up simply stranded in Greece.

  Victoria square #athens #greece #refugeesGr #RefugeesCrisis #refugees pic.twitter.com/wYD6x9KM4K

  — prezatv (@prezatv) February 28, 2016

  This has infuriated Athens, who last month recalled their Ambassador to Austria after the country held a series of meetings with Balkan countries without inviting the Greeks.

  So don’t hold your breath for a solution (or for a harrowing raft ride across the Mediterranean) to the “safe shores” of Europe. The is one crisis that is simply going to fester until it boils over. The Barbarians (and no, not in the pejorative sense, in the classic literary sense) are the gates – and they’re coming “home” Frau Merkel, whether you like it or not.

  But in any event, below is a draft document obtained by Der Standard.at (Googel translated) which suggests EU officials are now set to mark a turning point: “The Closure of The Balkan Route.”

  *  *  * 

  Thomas Mayer. At the EU summit on Monday the immediate termination of the illegal flow of migrants and by Wave of Greece should be explained to Germany as a top priority of EU policy. This goes forth from one to the STANDARD present draft. Athens must immediately 50,000 places for potential asylum realize Greece gets “any help” the Union. Migrants with no chance of asylum should also be deported immediately to Turkey.

  The EU summit with Turkey on Monday in Brussels and subsequent meetings of the 28 heads of state without the Turkish Premier Ahmed Davutoglu is expected to bring a dramatic change in the current policy and in dealing with refugees and migrants. This is at least the result of a yet secret declaration that Saturday evening was coordinated between the government headquarters in the capital cities. In the paper, which is pending before STANDARD, it literally means: “The irregular flow of migrants along the West Balkan route comes to an end this route is closed from now..”

  Fine tuning still needed

  The final declaration of the EU-28 will be voted on today in Brussels in the group of EU ambassadors still fine. At the core of the decisions will, however, change anything, according to diplomatic sources. Many of the measures that will be implemented immediately after the meeting train to train, based on agreements to be concluded with the Turkish side. Despite the excitement about the actions of the Turkish government against an opposition newspaper on Friday, the storm of the editorial by police, you go in Brussels expect that Davutoglu will appear on Monday and negotiated in recent days Agreements are then confirmed.

  Repatriation agreements planned with Turkey

  Nuclear case will be that Turkey immediately constructively participates in controlling the EU’s external borders in the Aegean and those migrants who can not hope to seek asylum in Europe, will resume in the course of recycling. The plan is a private repatriation EU-Turkey agreement, which should be in force from 1 June. Before that you will operate on the basis of the bilateral agreement of Greece. As reported, also the EU-Turkey action plan be promoted. The EU member states undertake the special summit to the Resettlement – to start – the direct settlement of Syrian refugees from Turkey in EU countries.

  With regard to the measures in the area of ??Union, in forceful language describes the explanation of the Government a package of measures to be set in the coming weeks. To the consequences of closing the Balkan route, catch the jam thousands incoming refugees, the EU agreed to “do the maximum to assist Greece in this difficult moment.” If it were “a collective responsibility of the community, which requires fast and efficient mobilization of all available resources”, but “also the contributions of the Member States”.

  A billion for refugee assistance

  The Arenberg by the European Commission last week “emergency plan” for humanitarian aid is unconditional support of the government. For 700 million euros have been earmarked, 300 million in 2016. The Council of Ministers should decide the plan before the next EU summit on March 18 and take shape, according to the statement. Together with all previously agreed measures so could be invested in aid to refugees in the coming months about one billion euros from the EU.

  strengthen Frontex

  The second major issue is security. The EU will send over their border protection agency Frontex once more officials to Greece, which will be based on the borders with Macedonia and Albania. They should also ensure that the reception centers (hotspots) function in Greece, where the refugees are first recorded and prepared for the allocation of EU countries where they are to get proper asylum procedure. Until later than 1 April, the EU countries should make more, going beyond existing commitments officials for Frontex available. Europol is to strengthen the fight against smuggling. In March summit in ten days, the progress will be evaluated.

  divide refugees in EU countries

  Until then, the Government hope under its declaration to the fact that the hitherto has come in transition “Distribution Program” of refugees operates in the Member States. It is apparently planned with regard to states not in Eastern Europe, that not all countries have the same time by starting with the “relocation”. For in the secret document is also talk that some states are encouraged to voluntarily offer higher rates of refugees as provided. In any case, the burden on Greece would be alleviated if more immigrants coming into the country.

  Finally, the EU summit will ensure that by the end to “a Back to Schengen” is coming. Until then, no later than intended in accordance with the recent proposals of the European Commission which checks at internal borders, as they are currently conducted in eight states, again belonging to the past. (Thomas Mayer from Brussels, 03/05/2016) 

  

  

  

  

  

• "The Bounce Has Run Its Course" Bob 'The Bear' Janjuah Warns S&P Heading To 1700s

  Nomura's Bob Janjuah warend in January that "the bubble implosion can't be fixed this time," and, as he explains in his latest note, he is pleased with all six of his key forecasts for 2016…

  In particular on Commodities, with his expectation that crude would trade below $30 (the price per barrel fell from $37 in early January to a low so far of $26 in February).

   

  And on Rates, the 30yr UST yield fell from 2.95% in early January to a low so far of 2.49% in February, below his 2.5% target for 2016, and the 10yr UST yield fell from 2.2% in early January to a low so far of 1.66% in February, in line with his expectation over 2016 of a move in yields down from 2% towards 1.5%.

  The reasons for his latest note are:

  1.     To reiterate my bearish views on risk assets for H1 2016 – I continue to see much lower equity prices, lower core bond yields, wider credit spreads, and weakness in EM and commodities over the next four months (at least). In January I said that the S&P500 would fall from 2000/2050 to the 1500s as my target over 2016. I reaffirm this view. I note with interest that at the global equity market ”lows” so far in 2016, seen earlier in February, virtually all major global stock markets were in official bear market territory. For example, the Eurostoxx 50 fell over 30% from its 2015 high to its (so far) 2016 low. The MSCI World fell 20% from its 2015 high to its (so far) 2016 low. The key exception to this move into official bear market territory has been the major US indices, but I expect this to correct itself over the next four months or so.

   

  2.     To highlight that, in my view, stocks’ countertrend bounce off the February lows has now run its course and I believe we are – in early March – likely to see the onset of the next leg weaker in risk, vs stronger in core duration. I expect this next leg of weakness to last three to five weeks and to result in new lows so far in this cycle in stocks (S&P500 into the 1700s) and new lows in core government bond yields (target 1.5% in 10yr USTs). It is important to remember that in bear markets the strength is to the downside, the violence is to the upside, with countertrend rallies in bear markets often being the most painful. Markets simply do not go down (or up) in straight lines. But if I am right that this bounce is over, we should continue to see a series of lower lows and lower highs in stocks around the globe.

   

  

   

  To protect against being wrong, particularly with respect to timing, it is prudent to put in place a stop loss, triggered if/when we see a consecutive weekly close in the cash S&P500 index above 2040.

   

  3.     To admit that even I am a little surprised by the desperation already evident among central bankers. As per my January note, I expected the BOJ to ease in Q1, but going straight to negative rates has seriously harmed the BOJ’s credibility and the credibility of Abenomics. ECB QQE has clearly failed to create the inflation Mario Draghi promised us, but I have no doubt the ECB will ease again this month. And even the Fed is now “drip-feeding” negative rates into the market through its usual channels. The Fed has made a major policy error already, and I remain convinced that the Fed will be easing by the end of the year. But I would not be surprised if Fed hubris “forces” it to tighten once more before end-June. Focusing so much on an extremely lagging and “technically created” number like the unemployment rate is at the root of this policy error. The Fed is simply not focusing enough on important issues like weak earnings, poor quality jobs, imported deflation, weakness in investment spending, weakness in corporate revenue and profit (not EPS) growth, and deeply scarred consumer behaviour. I could go on, but suffice it to say that I think the Fed has backed itself into a corner, and will only be able to free itself to get ahead of the curve (rather than as it is now, way behind the curve) once the data and markets truly hit some form of capitulation bottom. As I have written in the past, I don’t see a “Fed put” until the S&P500 trades down into the 1500s.

   

  4.     To stress that central bank credibility is draining fast and, assuming that the BOJ and ECB go again this month, I now see a risk of a breakdown in markets and outcomes that are the opposite of what central bankers are trying – and have been failing for over seven years now – to achieve, i.e. nominal GDP at 5%, EVEN IF THIS 5% CONSISTS OF 0% REAL AND ALL 5% FROM INFLATION. We are entering an extremely worrying time and we have got here even faster that I had feared – a place where monetary policy and central banks become the problem and not the cure. As discussed above, the Fed is in a hole of its own making by using self-serving metrics to fix a debt and asset bubble crisis with a policy that relies on more debt and even bigger asset bubbles. But in the short term – this next month – I am concerned that markets will react badly and contrary to policymaker expectations when both the BOJ and the ECB attempt to ease further this month. I suspect the ECB and the BOJ are – as far as markets are concerned – “damned if they do, and damned if they don’t” with any residual credibility likely to decay away this month. But both institutions should realise this is down to their own mistakes, whereby (like the Fed) they have sought to fix the ills of excessive debt, asset bubbles and a lack of competitiveness thorough policies which merely result in a zero-sum outcomes (FX wars) and/or which rely on the “greater fool” theory requiring “someone” to take on more debt to continually speculate on an un-burstable asset price bubble. Sadly, of course, mankind has so far failed to create un-burstable bubbles, especially where the underlying foundations are so flimsy. This competitiveness issue is global and critical. Since the global financial crisis (GFC) very little production capacity reduction has been allowed to occur in the DMs (courtesy of QE and ZIRP, which together facilitate the avoidance of default cycles, which are central to reducing capacity). At the same time, globally, particularly in places like China and in industries like Energy and Shipping, we have seen significant production capacity added since the GFC. Again, in part due to QE and ZIRP policies in DMs. Of course, this would be less of a problem if global aggregate demand growth had increased strongly over the last seven years, but this has clearly not happened. In particular, the debt-driven consumption frenzy of the years leading up to the GFC in the DMs has barely come back, while at the same time demand growth in the EM sphere has been much slower than hoped for (and needed), and latterly severe economic downturns in places like Russia, China, the Middle East and Brazil have hampered this handover even more. So the response to all of this has been the zero-sum game referred to above, FX wars, which merely operate to allow temporary and transitory relative shifts in competitiveness but with severe (unintended?) consequences.

   

  5.     To stress that, in a world of NIRP and QE, and where the bid for liquidity in markets is many multiples of the levels of liquidity the sell-side can offer, I find it extremely difficult to get any visibility in FX markets. FX markets are the most exposed to central bank credibility and are also where significant flows can drive markets most immediately, more so than in other markets like Rates or Equities. My bias is to believe that the USD is the least worst “long” until the Fed flips on its current policy path. But as with the BOJ's recent easing and the market’s response (the opposite of what was trying to be achieved), the credibility issue of central banks in general, and of some central banks more than others at any given time, has now become a major uncertainty factor. As such, I feel that this is an extremely difficult market to call on anything other than a very medium-term basis. I am not alone here – the 20% rally in gold since December testifies to this. My key message for 2016 remains unchanged in terms of FX markets (strong USD until the Fed reverses course), but I am increasingly inclined to look at gold again as a safe haven for 2016, and am increasingly inclined to avoid tactical calls on FX markets.

  Janjuah concludes by noting that his inclination when thinking about this note was to consider even more bearish targets for risk assets/even more bullish targets for core bond yields.

  For now, I have decided to stick with what I published in January, but now I think we are facing an even more difficult 2016 than I had anticipated at the outset of this year.

   

  The over-reach of central bankers and their failed policies is not news to me. What is news to me, especially after the BOJ's easing in January, is that markets are now either at or very close to losing all confidence in the post-GFC policy response crafted by the Fed/ECB/BOJ et al much earlier in 2016 than even I had expected.

  

  

  

  

  

• Currency Analysis – British Pound versus USD Cross (Video)

  By EconMatters

  

  The British Pound has a Brexit Referendum on Thursday the 23rd of June which is putting downward pressure on the currency. The ideal trading scenario would be the United Kingdom votes to leave the European Union, the Pound gets hammered in the short term after this event, and this represents a long term value going forward, a strong buy in my book.

  © EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle    

  

  

  

  

• Hey St. Louis Fed, See How The Bank Of Japan's Assets Are Growing?

  Moments ago, for some unexplained reason, the St.Louis Fed – which recently issued a research report which “discovered” that “Consumers Across The Country Are Borrowing More To Buy Cars And Go To School” – on its twitter account asked a simple question: “See how the ECB’s assets are growing?”

  See how the European Central Bank’s assets are growing https://t.co/cjQBj8y2VP pic.twitter.com/ozbnMU7Kh0

  — St. Louis Fed (@stlouisfed) March 5, 2016

  The answer, clearly, is yes of course, we do: after all the ECB has been doing QE for over a year now, monetizing €60BN per month (a number which may grow to €70BN next week), and the result has been a massive growth in its balance sheet, even if European inflation expectations have recently hit record lows.

  Regardless of the ECB’s asset growth, whether visible or not, we retorted to the St. Louis Fed (whose president James Bullard flip flops from hawk to dove and back to hawk depending on what side of 2000 the S&P is at any given moment) as follows:

  You should show the assets of that central bank success story, the Bank of Japan https://t.co/V3dBdJLTxR

  — zerohedge (@zerohedge) March 5, 2016

  Then again, even the St. Louis Fed would have a problem asking anyone “if they see” how the BOJ’s assets are rising, because that question would be trolling at best, and proof of idiocy at worst. So, to avoid the St. Louis Fed that particular embarrassment, we take upon ourselves to ask: “See How The Bank Of Japan’s Assets Are Growing.”

  The answer is shown in the chart below.

  

   

  Which incidentally brings us to a point which Evercore ISI brought up in their Daily Economic Report in a slide titled, simply enough, “Scary.” This is what it said:

  What’s scary about this huge balance sheet expansion, is that it’s not having a bigger impact (although we don’t have a counterfactual). Indeed, the Nikkei is down -11% ytd and the yen has strengthened +6%.

  

  And then, of course, this:

  

  Well, if it didn’t work when the BOJ’s balance sheet rose by 250%, then it surely will work when the BOJ’s balance sheet rises by another 2.5x, at which point it will be just shy of 1 quadrillion yen.

  At that point we doubt we would even have to ask the St. Louis Fed “if it sees” how the BOJ’s assets are growing…

  

  

  

  

  

• "It's A Depression" – The Disturbing Email A Houston CEO Sent His Soon To Be Laid Off Employees

  This is the email that David Little, Chairman and CEO of Houston-based DXP Enterprises sent to his employees to explain why, “due to bank obligations and to continue a positive cash flow profile” the company has to freeze 401(k), why it is cutting pay in some cases as much as 60% and  why many employees are about to lose their jobs in the middle of what is an “oil and gas depression.” It is a disturbing read.

  Dear DXPeople,

   

  As you well know, these are very challenging times for everyone in the oil & gas industry and other industrial markets. We are working hard to navigate both the challenges in oil & gas and an industrial recession plus what appears to be continuing softening. Normally, when upstream oil and gas is down the rest of the industrial market is booming, not this time!

  This past Friday, we announced our fourth quarter and year-end results. Our revenues were down 17% from a year ago and 27% from the fourth quarter of 2015 versus the fourth quarter of 2014. Fiscal year 2016 has started off even weaker than we anticipated with January sales down an additional 12% from December. Oil and gas related companies across the country have reported sales declines as high as 50% – 60%. All of this in the midst of declining industrial confidence and performance. Furthermore, the forecast by experts suggests the oil & gas economy will get worse before it gets better. We are currently 20 months into this oil & gas down cycle which is also unusually long for a correction.

   

  It goes without saying but over the past twelve months, we have all made efforts to contain costs and improve operations where possible. All, while focusing on growth. For this, we thank all of you for the sacrifices, discipline and effort you are making each and every day. But I am sorry to say that because of bank obligations and to continue our positive cash flow profile, we have to do more. The leadership team and I have been reviewing line-by-line every location, budget and expense, on how we can reduce costs while considering every decision through the prism of our values, culture and priorities. While we fulfilled a $2.9 million company match to our U.S. 401 (K) savings plan for 2015, we have determined it should be frozen immediately for the remainder of 2016. The Board of Directors, senior management and leaders in management positions will participate in a 10% reduction in base pay effective March 14th. Additionally, DXP as a whole company will require that we right size the company for our expected sales volume. This is in an effort to reduce labor costs while preserving as many DXPeople as possible in this uncertain economic environment.

   

  We have all taken pay reductions over the last year with some of us taking reductions as high as 50% – 60% (via commission or bonus declines) including senior management. It is unfortunate, but the prolonged oil and gas depression and industrial recession has left us with no other choice but to make these difficult and unwanted moves and decisions.

   

  The fastest and biggest cure to the health of DXP is more sales. Your expectations and mine are that the sales management, sales professionals and everyone else that touches our customers is working smart and diligently as we are all counting on you! DXP has given you some great weapons to be successful with and we are supporting and counting on your efforts to win each order. I am not going to list all the tools you have to win with, you should know what they are and understand how to use them already, but to use the “Hunter” and “Farmer” label you have to do both. “Farm” existing accounts to capture more of each customer wallet/spend and “Hunt” for new customers. We have the customer value propositions to sell and you have the selling skills to succeed.

   

  Over the last several months, we have seen countless companies announce layoffs and in isolated incidents even bankruptcies. I point this out to try and put in context that the oil and gas depression is affecting more than DXP and is further reaching than many would have initially thought when this started over 2 years ago. The decisions we make are about preserving the future of DXP. DXP is a great company that is accustom to winning and we will win again. I can promise you that the leadership team will do all that we can to put us in a position to emerge stronger on the other side while staying true to our values and culture. Thank you for your understanding.

   

  Respectfully,

   

  David Little
  Chairman & CEO
  DXP Enterprises, Inc

  And here is some more context, courtesy of the WSJ:

  

  

  

  

  

  

• CBOE Signals VIX "Death Cross"

  While it may not be the traditional (50/200DMA) signal, CBOE's Russell Rhoads points out that the so-called 'fear index' VIX has just signalled the first Death Cross since its apocalyptic warning in November 2007.

  Yesterday (3/4) was the first time the 1 year average closing price for VIX crossed over the 5 year average since November 16, 2007.

  

   

  With VIX having plunged to 2016 lows…

  

   

  VIX Term Structure near its steeps..

  

   

  VIX volatility at post-QE3 lows…

   

  

   

  And VIX remaining decoupled from credit risk…

  

   

  Complacency seems extreme by any measure.. The 'death cross' may be worth paying attention to once again as the ides of March strike.

  

  

  

  

  

• "Everything's Interconnected"

  Everything happening today is in some ways interconnected: popularity of ‘non-establishment’ political candidates; ineffectiveness of central bank policy in lifting inflation; economic pessimism; weak capital spending (from handcuffed capitalism); and angst due to perceptions of inequality.

  Scotiabank's Guy Haselmann explains…

  Business investment and capitalism are being held back by a lack of visibility on what a future return might generate from an investment in a capital project. Not only are future economic forecasts cloudy and highly-uncertain, but the rules governing business engagement are changing too frequently. Capitalism and entrepreneurship are simply being hand-cuffed by unclear and overly-burdensome regulation.  Small businesses in particular do not have the economies of scale necessary to keep up under these conditions.

  Domestic and global uncertainties always exist, but most would agree that they are unusually elevated. The strange and unpredictable political environment – and uncertainties over who will be the next President and what his/her policies will be – further restrains capital investment.  Understandably, determining the present value of a future cash flow is impossible when the tax code and health care costs are in flux.

  Stimulative monetary policies cannot offset these powerful forces. In the past, I have referred to this dynamic as “Great Aunt Addy Policy” in honor of my aunt who drove with one foot on the accelerator and a heavy foot on the brake. Restrictive regulatory and fiscal policies are one reason why massive amounts of global central bank stimuli have underwhelmed. In addition, artificially low official interest rates distort financial asset valuations, which further harm the ability to properly assess the value of a future stream of cash flows.

  Fed officials often cite Japan’s economic malaise as the basis for their own concerns and the basis for providing and maintaining highly accommodative policy. In my opinion, Japan’s quagmire should absolutely not be used as the prototype for Fed policy justifications. The reasons are beyond the scope of this note.  However, Japan has had sustained 0% rates since 1999 (and conducted various QE programs). Yet, it has had more success over that period raising debt than lifting inflation. Why then do other central banks follow their lead?

  If there is a lesson from Japan, it is that low inflation is a function of high rates of savings, caused by low interest rates, rising VAT taxes, harmful economic and regulatory policies, poor demographics, and a falling population. Comparisons to Japan and associated deflationary fears are unfitting. By mis-diagnosing the reasons for subpar nominal GDP, and by taking the lead to offset its weakness, central banks have veered too far from their true capabilities without proper regard for the long run consequences and risks to financial stability.

  Profitability has become ever more challenged in a ‘new normal’ world of slow growth and tepid pricing power. In such an environment, worker anger cultivates as a ‘labor vs capital’ battle ignites. Worker resentment and blame targets both employers and government officials.

  Hence, the Fed is right to be concerned about stagnating wage growth, high levels of under-employed and rising inequality. Unfortunately, Fed officials have failed to fully comprehend that fixing those issues is beyond the scope of their policy tools.  More importantly, they have not realized how their well-intentioned policies have actually contributed to those problems, helping to fuel the anger witnessed in voting polls.

  I will elaborate on this point in more detail, but first it would be helpful to review the past to see where we are now and where we might be headed.  For several decades, economic prosperity was powered-forward by credit-based initiatives. The lower stair-stepping of official interest rates has allowed consumption, economic activity and debt to grow sufficiently to drive economic advancement and prosperity. 

  I believe this cycle has reached a tipping point; basically, an end of the road.  Due to fiscal and regulatory constraints and general indebtedness, economies may no longer be able to generate the growth rate necessary to sustain improvements in prosperity; or even to adequately service existing high debt levels.

  The proceeds from the massive amount of debt issuance during the last six years have gone mostly into financial market speculation, rather than into capital projects meant to generate future cash flows. Yield seeking is widely known, but is now ending. Debt has truly borrowed from the future mainly for today’s benefit.

  The ‘portfolio effect’ – or purposeful encouragement of risk-seeking behavior – was supposed to create a wealth effect that spilled into the broader economy. A main reason for the Fed’s ‘gradual’ retreat from stimulus is to try to prevent the reversal of this effect from occurring too quickly (after all, there is no free lunch).

  However, as central bank officials drop rates into negative territory, is it possible that the easing move actually has the actual net impact of a tightening through a negative wealth effect?  After all, a bond with a negative yield has a guaranteed loss for the buyer who holds it to maturity.

  Some people ask why someone would buy a bond with a negative yield.  Speculators buy them when they believe they can be sold back to the market or to the central bank (via QE) at a higher price.  An investor might make money from a negative yielding bond if financing can be locked up for the life of the bond at a rate lower than the negative coupon.  Lastly, some benchmark asset managers are forced to buy them by law.

  The intention of the negative rate move by the Bank of Japan was to influence banking behavior away from deposits and toward lending. Everyone should question why the markets had such an extreme and unexpected market reaction following the modest BoJ move. (Nikkei fell by 14%, and $/Y by 6% in the span of two weeks).

  Without fixing the root causes of economic ailments, risk-seeking behavior today is playing an ever more dangerous ‘game of chicken’.  Investor behavior has shifted from ‘FOMU’ to ‘TINA’: from Fear Of Missing the Upside to There Is No Alternative.

  Multi-asset portfolio managers (and others) prefer an equity investment (with perceived upside) and with, say, a 5% or greater dividend, over a bond with minimal yield, or a ‘sticker-shock yield’ near zero (or negative).  In other words, investors continue to chase the riskiest part of the capital structure; and do so, at potentially the worst possible time.

  Voter outrage has not risen simply because most feel they are not participating in higher financial asset prices. A great article explaining voter frustrations can be found here. In this note, author Peggy Noonan writes about the “unprotected American” who has “limited resources and negligible access to power”. I will let her article speak for itself, but will transition her same argument into how the effects of Fed policies are felt by voters.

  QE, money printing, and low (or negative) rates work against the “unprotected American” in a similar manner to something called “The Cantillon Effect”.  Just like inflation is a tax on money, and negative rates are a tax to the lender, money printing and QE are a stealth tax on those who get the money last.

  If the government mailed a large tax bill to each household, there would be immediate outrage. By stealthily doing it through QE, money printing and inflationary policies, the government is doing that same thing in a different and more subtle manner.  However, the average voter may not clearly see it, or be able to express their outrage in economic terms.  Yet, it is quite obvious by watching the news that they are feeling it.

  In summary, monetary policy and credit-fueled growth may have reached the end of their practical limits. Evidence of such is percolating. Providing monetary accommodation is the easy part, but taking it away has historically been problematic.  Not enough focus has been given to central bank exit strategies.

  When and if banks in countries with negative yields begin to pass negative rates onto their depositors, then a whole new Pandora’s box will open. I will save that for another note.  In the meantime, watch Gold, buy long Treasuries, raise cash and move to capital preservation strategies.

  The best thing the Fed can do is to raise rates in March.  You heard that right. To wait risks even bigger problems down the road.  A Fed hike in March would help pull other central banks away from the abyss of negative rates.  It should start with the Fed; the country behind the world’s reserve currency.  If the FOMC were truly ‘data dependent’, then they would hike.

  “If you do not change direction, you may end up where you are heading” – Lao Tzu

  For some weekend reading, we have attached a note that Haselmann wrote in January 2014 called, “2014 and Beyond”, which still has many themes relevant today.