Jan 09

Today’s News 9th January 2016

  • Taiwan Election: How a DPP Win Would Tick Off China

     

    By EconMatters

    Taiwan will elect a new president and parliament on January 16. The current President Ma Ying-jeou, from the Nationalist party (Kuomintang, KMT, led by Chiang kai-shek before his demise in 1975), will complete his second term in May. During the eight years President Ma has been in power, he has focused on improving relations with China, and achieved the most cordial terms since the end of the Chinese civil war in 1949. But since Ma cannot run again after serving the maximum of two terms, there are three fresh presidential candidates ducking it out in Taiwan.

    Candidate #1: Tsai Ing-wen, the Chairperson of the Democratic Progressive Party (DPP)

     

    Tsai has a master’s degree from Cornell Law, and a PhD in Law from the London School of Economics. So far, she was top of the last opinion poll at 45.2% last Tuesday before a polling blackout begins ahead of the Jan. 16 elections. Tsai previously served as DPP chair from 2008 to 2012 and is no stranger to a presidential campaign. She was the DPP’s presidential candidate in 2012 before losing to Ma Ying-jeou.

     

    Candidate #2: Eric Chu from the Nationalist party (KMT)

     

     

    Chu is the chairman of KMT and the current mayor of New Taipei with a master’s degree in Fiance and a PhD in Accounting from New York University. Chu declared his candidacy very late (in October, about 3 month before the election) to replace Hung Hsiu-chu at the last minute.

    This unusual debacle came as the KMT party miscalculated thinking it would be better off with a female candidate to run against the more popular female candidate Tsai Ing-wen from the Democratic Progressive Party (DPP). Unfortunately, Hung Hsiu-chu does not have the support base like Tsai and had been unpopular with voters, trailing badly in opinion polls. This last minute switch of candidate looks bad for the KMT party but also increases the odds of a complete loss in the presidential and general election.

     

    Candidate #3: James Soong from the People’s First Party (PFP)

     

     

    Soong has a Phd in political science from Georgetown University and is the founder and chairman of the PFP, part of the the KMT-led Pan-Blue Coalition. Soong was a KMT senior official before he left the party to run as an independent in the 2000 presidential election. Many has blamed Soong’s departure splitting the votes supporting KMT which resulted in KMT’s defeat in the 2000 election. He ran again in 2004 as Vice President to Lien Chan. The pair lost narrowly to the Chen Shui-bian from DPP seeking a second term. Now 73, Soong is at it again dividing the KMT’s support and sympathetic base. Not that it makes much of a difference as both KMT candidates fell miserably in the poll behind the DPP’s Tsai.

     

     

    DPP’s Scandalous Legacy 

    The liberal DPP had its shot at running Taiwan. Chen Shui-bian, the party’s former Chairman, won both the 2000 and 2004 presidential elections. During his two terms, the popularity of Chen and DPP sharply dropped due to alleged corruption within his administration. Chen was later convicted, along with his wife, on two bribery charges and was sentenced to 19 years in Taipei Prison. Tsai Ing-wen, the DPP current presidential candidate, is one of the very few highly educated DPP members and has been credited with picking up the pieces restoring DPP’s credibility and image after Chen’s scandal.

    DPP & Taiwan’s Legislative Violence

    DPP has a tendency of resorting to violence and many times exhibited traits of a mob group. Taiwan has mostly DPP to thank for the headlines and Youtube gone viral on “legislative violence” over the past decade. Below is the infamous picture back in 2006 when the then ruling party DPP deputy Wang Shu-hui chewed up a proposal to halt voting on opening direct transport links with Mainland China. Here is how Reuters describes the aftermath:

    Wang later spat out the document and tore it up after opposition lawmakers failed to get her to cough it up by pulling her hair. During the melee, another DPP woman legislator, Chuang Ho-tzu, spat at an opposition colleague.

    Taiwan rulling party DPP deputy chews up a porposal to halt voting in Parliarment in 2006

     

     

     

    “Violence Is Normal in a Democratic Society”

    Tsai Ing-wen was dubbed by Time magazine cover as the one that could “lead the Only Chinese democracy”. However, during a lecture at Harvard University in 2011, when asked about why DPP seems to use violence as a tool to gain political power, Tsai’s reply won a round of applause and laughter when she said “Your definition of violence in a democratic society, that seems to be normal when you speak louder.” (Youtube here, English starts at 0:49).

    I don’t think I need to waste more writing on how DPP has gone above and beyond simply “speaking louder”, and Tsai of all people knows it, which I think is why she dodged and made light of the question. That actually makes me queasy as she seems to endorse handling conflicts in a country bumpking style.

    DPP’s liberal view has gained a grassroot massive support base in the youth, farming and working class, which is evidenced by Tsai’s overwhelming lead in the poll. Nevertheless, political views aside, judging from DPP’s conflict resolution skill, I personally has much reservation about how DPP could bring more progress and achieve true democracy as many seem to believe.

     

     

    Status Quo with China?

    DPP has long held the position of pro-independence regarding Taiwan’s status and wanted to sever all ties (historic, cultural, economic, etc.) with Mainland China. But this time around, DPP and Tsai is signaling a more pragmatic approach. “We want to maintain the status quo. We want to maintain the current democratic way of life,” says Joseph Wu, Tsai’s No. 2 and the DPP secretary.

    Based on DPP’s history, I have serious doubt DPP would be contend with “status quo” regarding the cross-Taiwan-Strait relationship with China achieved by the KMT and Ma Ying-jeou.

    Will DPP Cross China’s Bottom Line?

    Even though Taiwan has its own military, foreign diplomacy and government services, Mainland China sees it as nothing more than a renegade province, and has threatened many times to overtake the island by force. China’s stance has softened quite a bit in recent years partly due to President Ma’s effort; however, an independent Taiwan remains the final “bottom line” not to be trifled with.  

     

    Taiwan president Ma Ying-jeou (left) and China’s president Xi Jinping (right) shaking hands on Nov. 7, 2015 in Singapore

     

    Between the KMT and DPP, China would rather deal with the KMT. Leaders in China actually have as much to lose as the KMT with an unprecedented win by the liberal DPP. To show support to the KMT and also send a message to DPP, president Xi Jinping of China met with president Ma Ying-jeou of Taiwan in Singapore in November, 2015 (aka 2015 Xi-Ma Meeting, although Taiwan calls it Ma-Xi Meeting). This is the first time the leaders of China and Taiwan met in more than six decades, and Singapore was chosen as a neutral ground.

     

    Bad Economy Keeps Idle Hands Busy

    China has its own economic problems and authorities recently had to make a move to stablize currency, buy share, suspend circuit-breaker. Meanwhile, Taiwan’s export-oriented economy is currently in recession sharing the pain from China marred by near-zero growth, stagnant wages and rising prices. There’s also the looming threat of an energy shortage, low domestic investment and overdependence on China, according to a new report by the the US-China Economic and Security Review Commission.

    Tsai is now regarded as a virtual shoe-in to win in the 2016 presidential election while DPP is expected to sweep the majority in the parliarment as well. This suggests Taiwan could revert back to a one-party political system with its own social and economic implications.

    Needless to say, things will also get ever more complicated and tricky between China and Taiwan. The sucess of both administrations depends on how their economic policies could turn things around for the Chinese people in Mainland China and Taiwan. So perhaps neither would have much time and energy to make good on their previous political rhetoric.

  • Chinese Immigrant Turned Citizen Defies Obama Gun Grab: "I Will Never Be A Slave Again"

    Submitted by Mac Slavo via SHTFPlan.com,

     

    President Obama knows that the American people have not embraced his radical, leftist gun control agenda.

    That’s why he took to the stage at a town hall spectacle hosted by CNN’s Anderson Cooper in attempt to defend his unconstitutional executive actions for stealth gun control, and try to convince Americans once and for all that he is not enacting some kind of gun grabbing conspiracy.

    But his “common sense” policies – made law under the force of executive order – and his crocodile tears for exploited victims of gun violence are not going to shift pubic opinion.

    There is clearly a line in the sand, and a bold Chinese immigrant, who became an American citizen by choice, is the latest to remind the government what it shall not infringe.

    Lily Tang Williams happens to be the state chair of the Colorado Libertarian Party and has made a splash with her January 5th Facebook post, which has now received thousands of comments and shares. Williams vows to defy all government attempts at disarmament, citing the authoritarian abuses of China, her native country.

    She declares, “I will always stand with my AR, no matter what my President signs with his pen.”

    Lily Tang Williams posted this on her Facebook account with the above picture of her holding a rifle against the backdrop of an American flag:

    If you believe more gun control by your government is going to save lives, you are being naïve. The champion of all the mass killings in this world is always a tyrannical government.

     

    Where I came from, China had killed thousands of the students by its own government during the massacre of Tian An Men square in 1989. I surely wish my fellow Chinese citizens back then had guns like this one I am holding in the picture.

     

    I am a Chinese immigrant and an American citizen by choice. I once was a slave before and I will never be one again.

     

    I will always stand with my AR, no matter what my President signs with his pen.

     

    #stopguncontrol #tyranny #tiananmenmassacre #lily4liberty

    Posted by Lily4Liberty on Tuesday, January 5, 2016

     

    Live free, or die standing on your feet.

    Lily Tang Williams has actually lived as a slave under an oppressive government, and like other immigrants who came to the U.S. fleeing such conditions, she is appalled at seeing the same pattern come home to America.

    But it isn’t over yet.

    By the look of determination in this freedom fighters’ eyes, the resistance won’t soon die, and government will still face an intense fight if it intends to completely eradicate freedom.

    Despite decades of indoctrination and mass media propaganda, millions and millions of Americans are still aware of what this country was founded upon, and what principles it stands for.

    And. They. Will. Never. Give. Up. Their. Guns. Period.

  • The Death Of The Canadian Oil Dream, A Firsthand Account

    We’ve spent quite a bit of time over the past 12 months documenting the trainwreck that is Alberta’s economy.

    Most recently, we brought you “This Is Canada’s Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks” and “For Canadian Repo Men, Business Has Never Been Better“, but you can review the story in its entirety by revisiting the following posts:

    In short, Alberta is at the center of Canada’s oil patch and has suffered mightily in the wake of crude’s seemingly inexorable decline.

    Going into last year, Alberta expected its economy to grow at a nearly 3% clip. That forecast was reduced to 0.6% in March and further to -0.6% in the latest fiscal update. Oil and gas investment has fallen by a third while rig activity has been cut in half.

    The fallout is dramatic. Food bank usage in Alberta is up sharply and so, unfortunately, is property crime in places like Calgary where vacancy rates in the downtown area are at their highest levels since 2010. Suicide rates are on the rise as well while the outlook for unemployment continues to darken with each passing month of “lower for longer” oil prices.

    Below, find excerpts from an excellent account of the malaise penned by Jason ‎Markusoff who writes about Alberta, lives in Calgary, and has spent 12 years reporting for the city’s largest newspapers.

    *  *  *

    From “The Death Of The Alberta Dream,” by Jason Markusoff as originally published at Macleans

    Late last year, Brandon MacKay listed his Kawasaki dirt bike for sale on Kijiji, the online classifieds site. It was the only treat the 25-year-old had given himself in three years living in Fort McMurray. The rest he’d spent on supporting and visiting his wife and kids in Pictou County, N.S. But in crafting the ad for the bike—$4,400 or best offer—MacKay did what any sales agent would advise against: he revealed his desperation to sell. “I lost my job and am in need of money for my wife and kids for Christmas.”

    Energy companies are preparing for a grim 2016. Analysts predict budgets will get slashed further, and that more energy firms may have to cut staff, having already laid off thousands. Ongoing oil sands construction projects will continue to wind down with little to replace them, hitting both the residential and commercial real estate sectors hard. For instance, in nearly one-sixth of all the office space in downtown Calgary, the fluorescent lights now shine on empty cubicles, and it’s forecast to get worse. Reports of the symptoms pop up almost daily: more insolvencies, more business for moving trucks and repo crews, even a noticeable uptick in suicides. The Calgary Stampede itself has been forced to lay off staff, as its offseason event bookings dried up. In November, the Alberta unemployment rate came within one-tenth of a percentage point of the national average, the closest it’s been since 1989. Those trend lines are expected to cross over next year, making it more clear to Canadian job-seekers that the Alberta dream is in decline.

    The rest of the country isn’t immune from those ominous grinding sounds coming from Canada’s longtime economic engine. Canadian GDP dipped into recession territory in the first half of 2015 on the oil shock, and though the country managed a rebound in the third quarter, Alberta’s troubles—as well as slumps in other oil-rich provinces like Saskatchewan and Newfoundland—have left a gaping wound. The energy sector had long driven Canada’s trade surplus, papering over weakness elsewhere while soaking up large numbers of unemployed and underemployed people from regions like the Maritimes and hard-hit southwestern Ontario.

    But even average growth seems a ways off, as troubles keep filtering through the province. In Alberta’s southeast, Medicine Hat drew international acclaim in the spring of 2015 after it became the first city in Canada to eliminate homelessness, having pursued an ambitious five-year agenda to put people into subsidized housing within 10 days of them landing in emergency shelters. After so much progress, Medicine Hat’s Salvation Army shelter is back to averaging 17 clients a night, up about one-third since 2014—too many to promptly find them all affordable housing. Local demand for donated clothing and household items also rose by more than a quarter over the last year, says manager Murray Jaster. But donations slumped too, and he had to reduce staff.

    To Jaster’s point, there is much his province used to have that now seems gone. Most noticeable is Alberta’s eroding status as the Promised Land for so many Canadians from other parts of the country. Over the last decade, net interprovincial migration by 18- to 44-year-olds, the key working demographic, swelled Alberta’s population by 200,000, according to a report by a rather envious Business Council of British Columbia. (That province netted fewer than 40,000 over that stretch, while all other provinces were net losers.) The momentum has shifted. While 1,200 more Canadians still moved to the province than left it during the third quarter of 2015, that was the smallest gain since 2010—when the province was recovering from the 2009 oil price collapse—and less than half the average of the last 50 years.

    “Seeing that there’s no real light at the end of the tunnel right now, more [companies] are turning to job cuts,” says Wendy Giuffre, the president of Wendy Ellen, a human resources consultancy. “It seems that there’s another wave right now. I think people were kind of hopeful things were going to pick up sooner, but it’s not looking too promising.”

    Statistics Canada’s payroll survey shows Alberta shed 63,500 jobs over the year leading up to October. That doesn’t account for lost potential—the Canadian Association of Petroleum Producers estimates 40,000 jobs that were expected to be created never materialized.

    It’s no secret that Alberta’s economy is closely linked to the peaks and craters of oil prices—nominal GDP (not adjusted for inflation) swings in tandem with crude prices. It’s why Fort McMurray is like a wounded beast these days. MacKay’s neighbour got laid off this fall. “I watched the bank come and take his truck,” he recalls—it was that or not feed the kids. Home prices in November were 20 per cent below last year’s average, with even townhouses and duplexes losing $100,000 in value. According to reports, a number of people who used to regularly donate to the city’s food bank have become clients.

    What happens in the oil fields directly affects one of Canada’s largest business cores. Elevator trips to Beaver’s small ninth-floor Calgary office have gotten lonelier. Nearly one-third of the office space in the 32-storey highrise is listed for lease or sublease. The asking rate to rent downtown Calgary’s “Class A” office space is down nearly 42 per cent from last year, the result of “a complete lack of demand,” according to a report by real estate advisers Jones Lang Lasalle. 

    The hollowing out of Calgary offices has decimated the corporate lunch crowd. Regulars who would come to Jalapeno’s Mexican Grill three times a week now visit once, or not at all, owner Doug Hernandez says. “We’re not making any money; we’re just floating right now,” he says. “The problem would be when I’m not wearing my lifejacket anymore. Then I’d drown.” 

    Much more in the full article here

  • Raoul Pal Explains What Indicators He Looks At To Decide If The Next Crisis Has Arrived

    Two months ago, RealVision’s Raoul Pal brought our readers an interview excerpt with “The Fourth Turning” author Neil Howe in which the author and current head of Saeculum Research explained “what keeps him up at night.”

    Today, we bring our readers another RealVision excerpt of a reflexive “interview” in which Pal himself is in the hot seat, and is challenged by Ken Monahan to lay out the market shifts he expects in 2016. In the full interview Raoul goes into detail on the indicators he will be watching throughout 2016 that will suggest that a liquidity crisis is imminent. He emphasizes that if this scenario occurs, most people are in investments that “they should absolutely not be in.”

    One such metric closely followed by Pal is the ISM. This is what he says:

    The ISM to me is the global guide to the business cycle. I think that [with the ISM below 50] we have a 65% chance or probability of a recession. We’ve seen that the cycle peaked back in 2011. It troughs at some point. The cycle always does this. We look back at the probabilities. We have a reasonable chance of a recession. Again, I don’t deal in certainties. It’s not like it’s definitely going to happen.

     

    … the probability is now that we crossed 50, that over due course, the business cycle will continue lower, and therefore we should see the ISM coming through 47 which is the recession level – maybe much lower than that depending on the severity of the recession. So that would mean that the year on year rate of change of the S&P would be negative.

     

    … if I’m right and the ISM, for example, gets down to 47, 45 then you’d start to see the year on year rate of change on the S&P at -10%

    A way of visualizing Pal’s point comes courtesy of BofA, which shows that once the ISM drops below 45, it virtually always results in a recession, with just two false positives: in 1951 and 1968.

    And then there is another indicator which Pal watches, one which we have been warning about since early 2014 when it first started to slide because it is the most important leading indicator into any global recession, namely trade – for the simple reason that while central banks can print  asset prices, “they can’t print trade.”

    The ISM is my basic framework, you then need to further increase the probability of success of what you’re trying to do. So what you look at, for example, is all the other economic indicators around what’s happening in the global economy. For example, if I look at exports – global exports. Global exports around the world are the second lowest levels since 1958. There’s something going on that the world is slowing down. Some of it is dollar translation effect. And the other is volume loss. So there’s something going on that wasn’t going on in 2012.

    Yes, something is indeed going on, and after years of ignoring it because it was masked by the “wealth effect” of central bank manipulation, the markets are starting to realize it. Pal then touches on all the other deteriorating economic data points we have covered over the past year.

    Then we look at other things like freight shipments. We look at retail sales. We look at industrial production. Once you start putting all the data series together many of them are at levels – durable goods – that are only seen in recessions.

    Correct, and yet the question is: why does Janet Yellen ignore it and continue to push on with the “recovery” narrative, because ultimately is all about the “narrative” to boost confidence:

    Its the Fed’s job to say things are good because it’s about expectations management. Whether we like it or not it’s a behavioral economics world and I’m realizing that more and more that you need to look at how behavior and incentive schemes are done. Soshe has to say that. She’s not going to say, “Oh, my God, the economy is looking terrible” until she has to because then you flip around the expectations.

    Of course, with every passing day, the moment when Yellen will say the “economic is looking terrible” draws closer, and with it brings not only a return to ZIRP, and then NIRP, but also presents the question: will the Fed do another round of QE, or will it finally proceed to what Bernane said back in 2002 was the endgame all along: helicopter money. Or non-helicopter money is on the latter.

    There is more in the Raoul Pal interview excerpt can be watched below, and much more in the full hour-long interview. Furthermore, Raoul Pal has again given Zero Hedge readers an exclusive weekly trial so both the full Howe, and all the other fascinating interviews in RealVision’s database can be watched in their entirety. To do so, please click here and use the “zerohedge” trial code.

  • "Death To Saudi Arabia": Thousands Of Iranians Pour Into The Streets In Anti-Saudi Protests

    It’s now been nearly a week since Saudi Arabia set the Muslim world on fire (both figuratively and literally) by executing prominent Shiite cleric Nimr al-Nimr.

    The Sheikh was a leading figure in the 2011 anti-government protests staged in the kingdom’s Eastern Province and when the House of Saud moved to silence a dissident voice once in for all last Saturday, demonstrators poured into the streets from Bahrain to Pakistan to decry the execution.

    For the Saudis, Nimr is a “terrorist,” but for the Shiite community he has now become a symbol of the oppression embodied by the Sunni Gulf monarchies. For those interested in a bit of background, here are some excerpts from The Atlantic:

    The State Department cable added Nimr was gaining popularity among young people. His stature grew in spring 2009, after Shia pilgrims clashed with security forces in Medina over access to holy sites; Nimr denounced the security forces, but then was forced to go into hiding to avoid arrest. By January 2010, the State Department reported in another cable that Nimr had returned home and was living under something like house arrest. The diplomat, who wrote that cable, judged that Nimr had overestimated his sway, gone too big, and as a result had lost his influence. A neighbor said that the government “chose not to pursue him further out of concern they would elevate his status.”

     

    The government changed its ignore-them-and-they’ll-go-away stance on Shia rabble-rousers once the Arab Spring began. In Bahrain, Shia protests threatened the stability of the regime, and the Sunni regimes of Saudi Arabia and the United Arab Emirates sent troops to help quell uprisings. But protests also spread from Bahrain into the kingdom. Nimr preached forcefully against the regime, and was rare in speaking up both in favor of the domestic protests and those in Bahrain.

     

    In another 2011 speech, Nimr said, “From the day I was born and to this day, I’ve never felt safe or secure in this country. We are not loyal to other countries or authorities, nor are we loyal to this country. What is this country? The regime that oppresses me? The regime that steals my money, sheds my blood, and violates my honor?”

     

    That was all too much for the regime, and in 2012 it moved to arrest him. But during his apprehension, police claimed they came under fire. Nimr was shot in the leg. He was charged with sedition and various terrorism-related crimes.

    In the six days since his death, Saudi Arabia and its allies have been busy cutting all ties (both diplomatic and commercial) with Iran. “Enough is enough”, was the message from Riyadh after protesters firebombed the Saudi embassy in Tehran last Saturday.

    Now, with tensions running higher than ever, the feud threatens to derail a fragile peace “process” in Syria on the way to plunging the region into an all-out sectarian shooting war.

    Each side accuses the other of being a state sponsor of terror and each side blames the other for fomenting sectarian discord. Needless to say, it’s difficult to look past the fact that Saudi Arabia’s promotion of Wahhabism is almost unquestionably to blame for the rise of extremist elements throughout the Islamic World. At the very least, Riyadh’s contention that Iran promotes sectarian strife is an egregious case of the pot calling the kettle black.

    In any event, Iranians are in no mood to forgive and forget. “Iranians held mass protests on Friday across the Islamic Republic, angered by Saudi Arabia’s execution of a Shiite cleric that has enflamed regional tensions between the Mideast rivals,” AP reports, adding that “after Friday prayers in Tehran, thousands of worshippers joined the rally, carrying pictures of al-Nimr and chanting “Death to Al Saud,” referencing the kingdom’s royal family.” They also chanted “down with the US” and “death to Israel.”

    Below, find the visuals which underscore the fact that the sense of outrage is palpable – to say the least.

  • Why Is North Korea Our Problem?

    Submitted by Patrick Buchanan via Buchanan.org,

    For Xi Jinping, it has been a rough week.

    Panicked flight from China’s currency twice caused a plunge of 7 percent in her stock market, forcing a suspension of trading.

    Kim Jong Un, the megalomaniac who runs North Korea, ignored Xi’s warning and set off a fourth nuclear bomb. While probably not a hydrogen bomb as claimed, it was the largest blast ever in Korea.

    And if Pyongyang continues building and testing nuclear bombs, Beijing is going to wake up one day and find that its neighbors, South Korea and Japan, have also acquired nuclear weapons as deterrents to North Korea.

    And should Japan and South Korea do so, Taiwan, Vietnam and Manila, all bullied by Beijing, may also be in the market for nukes.

    Hence, if Beijing refuses to cooperate to de-nuclearize North Korea, she could find herself, a decade hence, surrounded by nuclear weapons states, from Russia to India and from Pakistan to Japan.

    Still, this testing of a bomb by North Korea, coupled with the bellicosity of Kim Jong Un, should cause us to take a hard look at our own war guarantees to Asia that date back to John Foster Dulles.

    At the end of the Korean War in July 1953, South Korea was devastated, unable to defend herself without the U.S. Navy and Air Force and scores of thousands of U.S. troops.

    So, America negotiated a mutual security treaty.

    But today, South Korea has 50 million people, twice that of the North, the world’s 13th largest economy, 40 times the size of North Korea’s, and access to the most modern U.S. weapons.

    In 2015, Seoul ran a trade surplus of almost $30 billion with the United States, a sum almost equal to North Korea’s entire GDP.

    Why, then, are 25,000 U.S. troops still in South Korea?

    Why are they in the DMZ, ensuring that Americans are among the first to die in any Second Korean War?

    Given the proximity of the huge North Korean Army, with its thousands of missiles and artillery pieces, only 35 miles from Seoul, any invasion would have to be met almost immediately with U.S.-fired atomic weapons.

    But with North Korea possessing a nuclear arsenal estimated at 8 to 12 weapons and growing, a question arises: Why should the U.S. engage in a nuclear exchange with North Korea, over South Korea?

    Why should a treaty that dates back 60 years commit us, in perpetuity, to back South Korea in a war from the first shot with Pyongyang, when that war could swiftly escalate to nuclear?

    How does this comport with U.S. national interests?

    In 1877, Lord Salisbury, commenting on Great Britain’s stance on the Eastern Question, noted that “the commonest error in politics is sticking to the carcass of dead policies.”

    Is this not true today of America’s Asian alliances?

    North Korea’s tests of atomic weapons and development of land-based and submarine-launched missiles should cause us to reconsider strategic commitments that date back to the 1950s.

    President Nixon, ahead of his time, understood this.

    As he began the drawdown of U.S. forces in Vietnam in 1969, he declared in Guam that while America would meet her treaty obligations, henceforth, Asian nations should provide the ground troops to defend themselves. Gen. MacArthur had told President Kennedy, before Vietnam, not to put U.S. foot soldiers onto the Asian mainland.

    Now that we have entered a post-post Cold War era, where many Asian nations possess the actual or potential military power to defend themselves, something like a new Nixon Doctrine is worth considering.

    Take all of the major territorial quarrels between China and its neighbors — the dispute with India over Aksai Chin and Arunachal Pradesh, the dispute with Japan over the Senkaku Islands, with Vietnam over the Paracels, with the Philippines over the Spratlys.

    In none of these quarrels and conflicts does there seem to be any vital U.S. national interest so imperiled that we should risk a clash with a nuclear power like Beijing.

    Once, there was a time when Hitler, Stalin, Mussolini and Tojo ruled almost all of Eurasia. And another time when a monolithic Sino-Soviet Communist bloc ruled from the Elbe to the Pacific.

    As those times are long gone, is it not time for an exhaustive review of the alliances we have entered into and the war guarantees we have issued, to fight for nations and interests other than our own?

    Under NATO, we are committed to go to war against a nuclear-armed Russia on behalf of 27 nations, including tiny Estonia.

    One understood the necessity to defend West Germany and keep the Red Army on the other side of the Elbe, but when did Estonia’s independence become so critical to U.S. security that we would fight a nuclear-armed Russia rather than lose it?

    Indeed, how many of the dozens of U.S. war guarantees we have outstanding would we honor by going to war if they were called?

  • China's Largest Bank Is Mystery Buyer Of Massive 1,500 Ton Gold Vault In London

    Back in June 2013, when Deutsche Bank opened a gold vault in Singapore which could hold up to 200 metric tons, the German bank was euphoric about the prospects for storing physical gold: “Gold has traditionally been stored in London, Zurich and New York, but there is a serious shift in dynamics going on as the global financial crisis continues to evolve,” Mark Smallwood, Deutsche Asset & Wealth Management’s head of wealth planning in the Asia-Pacific region, told The Wall Street Journal.

    This is what the outside, and inside, of the state of the art Singapore vault looked like:

     

    Mark was correct and thanks to the ongoing decline in gold prices, Chinese and Indian demand for the metal, the physical metal that is, not its various paper manifestations, has risen to record levels. Alas, one thing Mark did not know is that in early 2014, a German regulator would reveal that “precious metals manipulation was worse than the Libor scandal” and as a result the largest German bank (and largest bank in the world by notional derivative exposure) – which has been probed and found guilty for rigging virtually every market, including gold – would quietly liquidate its entire physical precious metals trading group.

    Which meant that Deutsche Bank’s Singapore gold vaul, was about to be sold.

    But while the sale of DB’s Singapore gold vault was to be expected with China’s ravenous apetite for warehousing physical gold around the Pacific Rim, what may have escape popular attention is that Deutsche Bank’s even more massive, and even newer, gold vault in London was also “on the block” as of December 2014 when we reported that Deutsche Bank is “open to offers for its London-based gold vault following the closure of its physical precious metals business.” As Reuters noted: “If the right offer came along, then the bank would sell the London vault,” one source close to the situation said. 

    Most curiously, the bank’s London gold vault only became operational in June of 2014, more than two years after launching the project. It can store some 1,500 tonnes of gold and was built and managed by British security services company G4S.

    As Reuters further noted, with other banks withdrawing from the commodities business to cut costs and reduce their regulatory burden, it might be difficult for Deutsche Bank to find buyers amongst its nearest peers. However, one possible buyer is general LBMA-member, Chinese bank ICBC, which we said at the end of 2014, was trying to build a presence in London.

    In any case, the list of potential buyers for DB’s brand new vault lease remained a mystery, and perhaps our revelation of the exact location of this vault, something potential buyers tend not to appreciate especially when said vault will house up to 1,500 tons of gold, or over $50 billion worth of “inventory”, may have dissuaded some. As a reminder, the “secret” location of the Deutsche Bank vault, which as revealed in the G4S building application, is located in the Park Royal complex, and specifically at the 291 Abbey Road, London NW10 7SA location.

    As it turns out, one persistent buyer failed to be dissuaded.

    According to Reuters, as was rumored one year ago, China’s largest bank – and in fact the world’s largest bank – by assets, ICBC Standard Bank, is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market, four industry sources close to the companies told Reuters.

    China’s ICBC, which took a controlling stake in Standard Bank’s London-based Global Markets business last year, has also applied to become a clearing member of the London gold and silver over-the-counter business.

    From Reuters:

    The Chinese and South African lender is aiming to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden. “They (ICBC Standard Bank) have taken on the lease for the vault,” the first source said.

     

    Currently, five banks – JP Morgan, HSBC, Bank of Nova Scotia, Barclays and UBS – settle daily bullion transactions between dealers, amounting to more than $5 trillion worth of metal each year in the London over-the-counter market.

     

    These banks are shareholders of the London Precious Metals Clearing (LPMCL) company. They will decide whether to accept or reject ICBC Standard Bank’s application within the next few months. The LPMCL declined to comment.

     

    “They are applying for clearing membership at the moment, but that’s still subject to a vote, which has not taken place yet,” the source said.

    Should the vote go in its favor, ICBC will be ready with what may be one of the largest gold vaults in London, if not the world, to park local gold which will then be promptly shipped over to the mainland to be dealt with as seen fit. Unless, of course, the vault is there for the reverse migration: to house quietly escaping Chinese gold as part of the local oligarchy’s attempts to circumvent China’s capital controls, a task so far accomplished relatively painless with bitcoin.

    Only time will tell.

    What is perhaps most surprising is how cheaply ICBC acquired the massive gold vault: “The figure that was initially talked about may have been around $4 million, but it’s way lower now,” a second source said, without disclosing the figure paid for the vault.

    So what does “way less” than $4 million buy you nowadays? Here is the answer, courtesy of Google Maps:

     

    Finally, for those curious, here is precisely where the brand new gold vault of the world’s biggest bank will be located.

  • Americans Can't Wait To Get Out Of These Five States

    A low cost of living, no sales tax, and beautiful scenery (oh, naked bike rides, more strip clubs per capita than any other US city, and legalized weed) means Oregon is the "top moving destination" for Americans for the third year running, according to United Van Lines, with 69% of moves inbound. But, which states are Americans leaving in droves?

    Americans continue to pack up and head West and South, according to new data from United Van Lines.

    Oregon is the most popular moving destination of 2015 with 69 percent of moves to and from the state being inbound. The state has continued to climb the ranks, increasing inbound migration by 10 percent over the past six years. New to the 2015 top inbound list is another Pacific West state, Washington, which came in at No. 10 with 56 percent inbound moves.

    Moving In – The top inbound states of 2015 were:

    1. Oregon
    2. South Carolina
    3. Vermont
    4. Idaho
    5. North Carolina
    6. Florida
    7. Nevada
    8. District of Columbia
    9. Texas
    10. Washington

    The Northeast continues to experience a moving deficit with New Jersey (67 percent outbound) and New York (65 percent) making the list of top outbound states for the fourth consecutive year. Two other states in the region — Connecticut (63 percent) and Massachusetts (57 percent) — also joined the top outbound list this year. The exception to this trend is Vermont (62 percent inbound), which moved up two spots on the list of top inbound states to No. 3.

    Moving Out – The top outbound states for 2015 were:

    1. New Jersey
    2. New York
    3. Illinois
    4. Connecticut
    5. Ohio
    6. Kansas
    7. Massachusetts
    8. West Virginia
    9. Mississippi
    10. Maryland

    Simply put, Americans are moving from heavily-regulated, bureaucratic, high cost-of-living states to more affordable states.

    This year's data from United Van Lines…

     

    And the interactive version from the last 39 years…

     

    Finally, as The Daily Signal concludes,

    Moving patterns show how important cost of living is to American families.

     

    With perfect weather and a booming, high-tech economy, California ought to be the #1 destination. Instead, more moving trucks are leaving the state than entering.

  • Market Massacre: Worst Ever First Week Of Trading

    What better analogy than this…

     

    This was the worst first week of the year for US equities… ever!

    Dow… (even worse than 2008)

     

    S&P…

     

    Europe was a disaster…

     

    And epic for China…

     

    And while only Trannies are in a bear market (down 20%) in the US, these 7 developed world markets are already there…(h/t SocGen's Andrew Laphthorne)

     

    *  *  *

    So let's look at the week in stocks…

    It was all looking so awesome last night…

     

    Futures show the swings better (with China weakness as an early week driver and US as late-week driver)…

     

    Small Caps and Trannies are down around 7% this week, S&P best but still down over 5% (and down 6 of the last 7 days)

    • S&P down 5.3% – worst week since Black Monday
    • Dow Industrials down 5.6% – worst week since Black Monday
    • Small Caps down 6.9% – worst week since Nov 2011 – Russell 2000 lowest close since since Oct 2014
    • Dow Transports down 7.1% – worst week since Sept 2011 – lowest close since Nov 2013

    The Dow is down 1400 points in a week (from 17,660 to 16,250)

     

    Utes managed to end the week unchanged but Homebuilders collapsed… Financials and Materials were next worst…

    • Financials down 6.6% – worst week since May 2012
    • Materials down 7.4% – worst week since Sept 2011
    • Homebuilders down 8.6% – worst since Aug 2011

    VIX broke back above 25… (VIX up 60% in 2 weeks – biggest jump since Black Monday)

     

    What did Janet do? Post Fed rate-hike – S&P down 6.5%, Gold up 3%, 30Y Bonds up 1.6%

     

     

    Stocks are about half-way there…

     

    Since the end of QE3, Trannies are down 20% and only Nasdaq is holding any gains…

     

    The FANTAsy stocks are all red since the end of 2015 (with TSLA and AMZN worst)…

     

    Energy Stocks finally woke up to reality in the credit underlying commodity…

     

    US financials have started to plunge back to credit/yield curve reality…

     

    With MS and GS back below Tangible Book Value for first time in 2 years…

     

     

     

    Away from stocks…

     

    Treasury Yields tumbled, closing at their low yields of the year with the belly of the curve outperforming… 10Y yields dropped 14bps this week – the biggest drop in 3 months.

     

    FX markets were volatile but by the end The Dollar Index closed unchanged (against the majors)…

     

    But the USDollar surged 1.5% against Asian FX – its best week in 5 months… (Asian FX is its weakest since April 2009 against the USD)

     

    But AUDJPY – probably the world's most-levered carry trades – collapsed 6.7% this week!! It's worst week since May 2010…

     

    Commodities were very mixed this week…

     

    Gold rallied 4% this week – its best 'first week of the year' since 2008… (best week in 5 months) – breaking 2 key technical levels…

     

    Crude down 5 days in a row touching a $32 handle at the lows… biggest weekly drop since Nov 2014

    In Summary – Sell The Dips!

    See you all Sunday night!

    Charts: Bloomberg

    Bonus Chart: Investors seeking safety are greatly rotating from Triple AAA stocks to Gold stocks (h/t SocGen's Andrew Laphthorne)

     

  • Islamic Radicalism: A Consequence Of Petro-Imperialism

    Submitted by Nauman Sadiq

    Islamic radicalism, a consequence of Petro-imperialism:

    In its July 2013 report [1] the European Parliament identified the Wahhabi-Salafi roots of global terrorism, but the report conveniently absolved the Western powers of their culpability and chose to overlook the role played by the Western powers in nurturing Islamic extremism and jihadism during the Cold War against the erstwhile Soviet Union. The pivotal role played by the Wahhabi-Salafi ideology in radicalizing Muslims all over the world is an established fact as mentioned in the EU report; this Wahhabi-Salafi ideology is generously sponsored by Saudi Arabia and the Gulf-based Arab petro-monarchies since the 1973 oil embargo when the price of oil quadrupled and the contribution of the Arab sheikhs towards the “spiritual well-being” of the Muslims all over the world magnified proportionally; however, the Arab despots are in turn propped up by the Western powers since the Cold War; thus syllogistically speaking, the root cause of Islamic radicalism is the neocolonial powers’ manipulation of the socio-political life of the Arabs specifically and the Muslims generally in order to appropriate their energy resources in the context of an energy-starved industrialized world. This is the principal thesis of this write-up which I will discuss in detail in the following paragraphs.

    Prologue:

    Peaceful or not, Islam is only a religion just like any other cosmopolitan religion whether it’s Christianity, Buddhism or Hinduism. Instead of taking an ‘essentialist’ approach, which lays emphasis on ‘essences,’ we need to look at the evolution of social phenomena in its proper historical context. For instance: to assert that human beings are evil by ‘nature’ is an essentialist approach; it overlooks the role played by ‘nurture’ in grooming human beings. Human beings are only ‘intelligent’ by nature, but they are neither good nor evil by nature; whatever they are, whether good or evil, is the outcome of their nurture or upbringing. Similarly, to pronounce that Islam is a retrogressive or violent religion is an ‘essentialist’ approach; it overlooks how Islam and the Quranic verses are interpreted by its followers depending on the subject’s socio-cultural context. For example: the Western expat Muslims who are brought up in the West and who have imbibed the Western values would interpret a Quranic verse in a liberal fashion; an urban middle class Muslim of the Muslim-majority countries would interpret the same verse rather conservatively; and a rural-tribal Muslim who has been indoctrinated by the radical clerics would find meanings in it which could be extreme. It is all about culture rather than religion or scriptures per se.

    Moreover, I said that Islam is only a religion just like any other religion. But certain reductive neo-liberals blame the religion, as an institution and ideology for all that is wrong with the world. I have not read much history since I am only a humble student of international politics; that’s why I don’t know what the Crusades and the Spanish Inquisition were all about? Although, I have a gut feeling that those were also political conflicts which are presented to us in a religious garb. However, I am certain that all the conflicts of the 20th and 21st centuries were either nationalist (tribal) conflicts; or they had economics and power as their goals. Examples: First and Second World Wars; Korea and Vietnam wars; Afghanistan and Iraq wars; and Libya and Syria wars.

    When the neo-liberals commit the fallacy of blaming religion as a root factor in the contemporary national and international politics, I am not sure which ancient global order they conjure up in their minds, the Holy Roman Empire perhaps? Religion may have been a paramount factor in the ancient times, if at all, but the contemporary politics is all about economics and power: the Western corporations rule the world and politics and diplomacy is all about protecting the trade and energy interests of the Corporate Empire. Thus, the root of all evil in the contemporary politics is capitalism, not religion, which has been reduced to a secondary role and at times to complete irrelevance especially in the liberal and secular Western societies.

    More to the point, when the neo-liberals blame religion for all that is wrong with the world, they are actually engaging in a peculiar kind of juvenile thinking: a child mistakenly assumes that the world can only be seen from his eyes; and that all the people think exactly like he does. He does not understands that the outlooks and worldviews and the preferences and priorities of the people could be very different depending on their upbringing, circumstances and stations in life. You are not supposed to put yourself in another person’s shoes because sizes vary; you are supposed to put that other person in his own shoes, keeping in view his upbringing and mindset and then prescribe a viable future course of action for his individual and social well-being.

    As we know that politics is a collective exercise for creating an ideal social matrix in which individuals and their families can live peacefully and happily, and in which they can maximally actualize their innate potentials. The first priority of the liberals, especially the privileged liberal elite of the developing countries, seems to be to create a liberal society in the developing countries in which they and their families can feel at home. I don’t have anything against a liberal society, especially if looked at from a feminist, inclusive and egalitarian angle, but the ground reality of the developing world is very different from the reality of the developed world. The first and foremost preference of the developing world isn’t social liberalization; it is reducing poverty, ensuring equitable distribution of wealth and economic growth. Liberal ethos and values, important as they are, can wait; our first preference ought to be to create a fair and egalitarian social and economic order on a national and international level, only then can our interests and priorities converge on a single and common goal.

    If the liberals are willing to compromise on the foremost goal of equitable distribution of wealth, then the heavens won’t fall if they could show a little flexibility and maturity on the subject of the enforcement of liberal values too, which affects them on a personal level, more than anything. The socialist liberals of ‘60s and ‘70s at least made sense when they promoted liberalism along with the promise of radical redistribution of wealth. But the neo-liberals of 21st century are a breed apart who shrug off abject poverty and gross inequality of wealth in the developing nations as a secondary preference and espouse liberal values as their first and foremost priority.

    The mainspring of Islamic extremism:

    If we look at the evolution of Islamic religion and culture throughout the 20th and 21st centuries, it hasn’t been natural. Some deleterious mutations have occurred somewhere which have negatively impacted the Islamic societies all over the world. Social selection (or social conditioning) plays the same role in the social sciences which the natural selection plays in the biological sciences: it selects the traits, norms and values which are most beneficial to the host culture. Seen from this angle, social diversity is a desirable quality for social progress; because when diverse customs and value-systems compete with each other, the culture retains the beneficial customs and values and discards the deleterious traditions and habits. A decentralized and unorganized religion, like Sufi Islam, engenders diverse strains of beliefs and thoughts which compete with one another in gaining social acceptance and currency. A heavily centralized and tightly organized religion, on the other hand, depends more on authority and dogma than value and utility. A centralized religion is also more ossified and less adaptive to change compared to a decentralized religion.

    The Shia Muslims have their Imams and Marjahs (religious authorities) but it is generally assumed about the Sunni Islam that it discourages the authority of the clergy. In this sense, Sunni Islam is closer to Protestantism theoretically, because it promotes an individual and personal interpretation of scriptures and religion. It might be true about the educated Sunni Muslims but on a popular level of the masses of the Third World Islamic countries, the House of Saud plays the same role in Islam that the Pope plays in Catholicism. By virtue of their physical possession of the holy places of Islam – Mecca and Medina – they are the de facto Caliphs of Islam. The title of the Saudi King, Khadim-ul-Haramain-al-Shareefain (Servant of the House of God), makes him the vice-regent of God on Earth. And the title of the Caliph of Islam is not limited to a nation-state, he wields enormous influence throughout the Commonwealth of Islam: that is, the Muslim Ummah.

    Islam is regarded as the fastest growing religion of the 20th and 21st centuries. There are two factors responsible for this atavistic phenomena of Islamic resurgence: firstly, unlike Christianity which is more idealistic, Islam is a more practical religion, it does not demands from its followers to give up worldly pleasures but only to regulate them; and secondly, Islam as a religion and ideology has the world’s richest financiers. After the 1973 collective Arab oil embargo against the West, the price of oil quadrupled; the Arabs petro-sheikhs now have so much money that they don’t know where to spend it? This is the reason why we see an exponential growth in Islamic charities and madrassahs all over the world and especially in the Islamic world. Although the Arab sheikhs of the oil-rich Saudi Arabia, Qatar, Kuwait and some emirates of UAE generally sponsor the Wahhabi-Salafi brand of Islam but the difference between the numerous sects of Sunni Islam is more nominal than substantive. The charities and madrassahs belonging to all the Sunni sects get generous funding from the Gulf states as well as the private Gulf-based donors.

    After sufficiently bringing home the fact that Islam as a religion isn’t different from other cosmopolitan religions in regard to any intrinsic feature and that the only factor which differentiates Islam from other mainstream religions is the abundant energy resources in the Muslim-majority countries of the Persian Gulf and the Middle East and North Africa (MENA) region; and the effect of those resources and the global players’ manipulation of the socio-political life of the inhabitants of those regions to exploit their resources culminated in the emergence of the phenomena of Petro-Islamic extremism and violent Takfiri-Jihadism, our next task is to examine the symbiotic relationship between the illegitimate Gulf rulers and the neo-colonial powers.

    The global neocolonial political and economic order:

    Before we get to the crux of the matter, however, let us first cursorily discuss that why is it impossible to bring about a major fundamental change: political, social or economic, on a national level under the existing international political and economic dispensation? As we know that the Western so-called liberal-democracies could be liberal, however, they are anything but democracies; in fact, the right term for the Western system of government is plutocratic oligarchies. They are ruled by the super-rich corporations whose wealth is measured in hundreds of billions of dollars, far more than the total GDPs of many developing nations; and the status of those multinational corporations as dominant players in their national and international politics gets an official imprimatur when the Western governments endorse the Congressional lobbying practice of the so-called ‘special interest’ groups, which is a euphemism for ‘business interests.’

    Moreover, since the Western governments are nothing but the mouthpieces of their business interests on the international political and economic forums, therefore, any national or international entity which hinders or opposes the agenda of the aforesaid business interests is either coerced into accepting their demands or gets sidelined. In 2013 the Manmohan Singh’s government of India had certain objections to further opening up to the Western businesses; the Business Roundtable which is an informal congregation of major US businesses and which together holds a net wealth of $6 trillion (6000 billion) held a meeting with the representatives of the Indian government and made them an offer which they couldn’t refuse. The developing economies, like India, are always hungry for the Foreign Direct Investment (FDI) to grow further, and that investment comes mostly from the Western corporations.

    When the Business Roundtables or the Paris-based International Chamber of Commerce (ICC) form pressure groups and engage in ‘collective bargaining’ activities, the nascent and fragile developing economies don’t have a choice but to toe their line. State ‘sovereignty’ that the sovereign nation-states are at liberty to pursue an independent policy, especially an economic and trade policy, is a myth. Just like the ruling elites of the developing countries who have a stranglehold and a monopoly over domestic politics; similarly the neo-colonial powers and their multinational corporations control the international politics and the global economic order. Any state who dares to transgress becomes an international pariah like Castro’s Cuba, Mugabe’s Zimbabwe or North Korea; and more recently Iran, which had been cut off from the global economic system, because of its supposed nuclear aspirations. Good for Iran that it has one of the largest oil and gas resources, otherwise it would have been insolvent by now; such is the power of global financial system especially the banking sector, and the significance of petro-dollar because the global oil transactions are pegged in the US dollars all over the world, and all the major oil bourses are also located in the Western world.

    There is an essential precondition in the European Union’s charter of union according to which the under-developed countries of Europe who joined the EU allowed free movement of goods (free trade) only on the reciprocal precondition that the developed countries would allow the free movement of labor. What’s obvious in this condition is the fact that the free trade only benefits the countries which have a strong manufacturing base, and the free movement of workers only favors the under-developed countries where labor is cheap. Now when the international financial institutions, like the IMF and WTO, promote free trade by exhorting the developing countries all over the world to reduce tariffs and subsidies without the reciprocal free movement of labor, whose interests do such institutions try to protect? Obviously, such global financial institutions espouse the interests of their biggest donors by shares, i.e. the developed countries.
     
    Some market fundamentalists who irrationally believe in the laissez-faire capitalism try to justify this unfair practice by positing Schumpeter’s theory of ‘creative destruction’ that the free trade between unequal trade partners leads to the destruction of the host country’s existing economic order and a subsequent reconfiguration gives birth to a better economic order. Whenever one comes up with gross absurdities such as these, they should always make it contingent on the principle of reciprocity: that is, if free trade is beneficial for the nascent industrial base of the underdeveloped countries, then the free movement of labor is equally beneficial for the labor force of the developed countries. The policy-makers of the developing countries must not fall prey to such deceptive reasoning, instead they must devise a policy which suits their national interest. But the trouble is that the governments of the Third world are dependent on the global loan sharks, such as IMF and World Bank, that’s why they cannot adopt an independent economic and trade policy.
     
    From the end of the Second World War to the beginning of the 21st century the neo-colonial powers have brazenly exploited the Third world’s resources and labor, but after China’s accession to the World Trade Organization in 2001 things changed a little. Behind the “Iron Curtain” of international isolation, China successfully built its manufacturing base by imparting vocational and technical education to its disciplined workforce and by building an industrial and transport infrastructure. It didn’t allow any imports until 2001, but after entering the WTO it opened up its import-export policy on a reciprocal basis; and since the labor in China is much cheaper than its Western counterparts, therefore, it now has a comparative advantage over Western bloc which China has exploited in its national interest.
     
    Asking the neo-colonial powers to act in the interests of the developing world is incredibly naïve. It’s like asking the factory-owners to act in the interest of their factory-workers on altruistic grounds. This is not the way forward, the factory-workers must strengthen their own labor unions and claim what’s rightfully theirs. The developing countries must form regional blocs and settle things among themselves. If a country takes interest in the affairs of its regional neighbor; like if India takes interest in the affairs of Pakistan, or if Pakistan is wary of the happenings in Afghanistan and Iran, their concerns are understandable. But what “vital strategic interests” does the US has in the Middle East where 35,000 of its troops are currently stationed, ten thousand kilometers away from its geographical borders? ‘Humanitarian imperialism’ is merely a charade, it’s the trade and energy-interests of the corporate empire which are ‘vitally’ important to the neo-colonial powers.

    Cold War and the birth of Islamic Jihad:

    The Western powers’ collusion and conflicted relationship with the Islamic jihadists (aka moderate rebels) in Syria isn’t the only instance of its kind. The Western powers always leave such pernicious relationships deliberately ambiguous in order to fill the gaps in their self-serving diplomacy and also for the sake of “plausible deniability.” Throughout the late ‘70s and ‘80s during the Cold War, they used the jihadists as proxies in their war against the Soviets. The Cold War was a war between the Global Capitalist bloc and the Global Communist bloc for global domination. The Communists used their proxies the Viet Congs to liberate Vietnam from the imperialist hegemony. The Global Capitalist bloc had no answer to the cleverly executed asymmetric warfare.

    Moreover, the Communist bloc had a moral advantage over the Capitalist bloc: that is, the mass appeal of the egalitarian and revolutionary Marxist and Maoist ideologies. Using their: “Working men and women of all the countries, unite!” rhetoric, the Communists could have instigated an uprising anywhere in the world; but how could the Capitalists retaliate, through “the trickle-down economics” and “the American way of life” rhetoric? The Western policy-makers faced quite a dilemma, but then their Machiavellian strategists, capitalizing on the regional grassroots religious sentiment, came up with an equally robust antidote: that is, the Islamic Jihad.

    During the Soviet-Afghan conflict from 1979 to 1988 between the Global Capitalist bloc and the Global Communist alliance, Saudi Arabia and the Gulf Arab petro-monarchies took the side of the former; because the USSR and the Central Asian states produce more energy and consume less of it; thus they are net exporters of energy; while the Global Capitalist bloc is a net importer of energy. It suits the economic interests of the Gulf Cooperation Council (GCC) countries to maintain and strengthen a supplier-consumer relationship with the Capitalist bloc. Now the BRICS are equally hungry for the Middle Eastern energy but it’s a recent development; during the Cold War an alliance with the Western countries suited the economic interests of the Gulf Arab petro-monarchies. Hence, the Communists were pronounced as Kafirs (infidels) and the Western capitalist bloc as Ahl-e-Kitaab (People of the Book) by the Salafi preachers of the Gulf Arab states.

    All the celebrity terrorists, whose names we now hear in the mainstream media every day, were the products of the Soviet-Afghan war: like Osama bin Laden, Ayman al Zawahiri, the Haqqanis, the Taliban, the Hekmatyars etc. But that war wasn’t limited only to Afghanistan; the NATO-GCC alliance of the Cold War had funded, trained and armed the Islamic Jihadists all over the Middle East region; we hear the names of Jihadists operating in the regions as far afield as Uzbekistan and North Caucasus. In his 1998 interview [2], the National Security Adviser to President Carter, Zbigniew Brzezinski, had confessed that the President signed the directive for secret aid to the Afghan Mujahideen in July 1979 while the Soviet Army invaded Afghanistan in December 1979. Here is a poignant excerpt from his interview:

    Question: “And neither do you regret having supported the Islamic Jihadis, having given arms and advice to future terrorists?”

    Brzezinski: “What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?”

    Despite the crass insensitivity, you got to give credit to Zbigniew Brzezinski that at least he had the guts to speak the unembellished truth. The hypocritical Western policy makers of today, on the other hand, say one thing in public and do the opposite on the ground. However, keep in mind that the aforementioned interview was recorded in 1998. After the WTC tragedy in 2001, no Western policy-maker can now dare to be as blunt and honest as Brzezinski.

    The Anglo-Wahhabi alliance:

    All the recent wars and conflicts aside, the unholy alliance between the Anglo-Americans and the Wahhabi-Salafis of the Gulf petro-monarchies, which I call “the Anglo-Wahhabi alliance,” is much older. The British stirred up uprising in Arabia by instigating the Sharifs of Mecca to rebel against the Ottoman rule during the First World War. After the Ottoman Empire collapsed, the British Empire backed King Abdul Aziz (Ibn-e-Saud) in his struggle against the Sharifs of Mecca; because the latter were demanding too much of a price for their loyalty: that is, the unification of the whole of Arabia under their suzerainty. King Abdul Aziz defeated the Sharifs and united his dominions into the Kingdom of Saudi Arabia in 1932 with the support of the British. However, by then the tide of British Imperialism was subsiding and the Americans inherited the former possessions and the rights and liabilities of the British Empire.

    At the end of the Second World War on 14 February 1945, President Franklin D. Roosevelt held a historic meeting with King Abdul Aziz at Great Bitter Lake in the Suez canal onboard USS Quincy, and laid the foundations of an enduring Anglo-Wahhabi friendship which persists to this day; despite many ebbs and flows and some testing times especially in the wake of 9/11 tragedy when 15 out of 19 hijackers of the 9/11 plot turned out to be Saudi citizens. During the course of that momentous Great Bitter Lake meeting, among other things, it was decided to set up the United States Military Training Mission (USMTM) to Saudi Arabia to “train, advise and assist” the Saudi Arabian Armed Forces.

    Aside from USMTM, the US-based Vinnell Corporation, which is a private military company based in the US and a subsidiary of the Northrop Grumman, used over a thousand Vietnam war veterans to train and equip the 125,000 strong Saudi Arabian National Guards (SANG) which is not under the authority of the Saudi Ministry of Defense and which acts as the Praetorian Guards of the House of Saud. The relationship which existed between the Arab American Oil Company (ARAMCO) and the House of Saud is no secret. Moreover, the Critical Infrastructure Protection Force, whose strength is numbered in tens of thousands, is also being trained and equipped by the US to guard the critical Saudi oil infrastructure along its eastern Persian Gulf coast where 90% Saudi oil reserves are located. Furthermore, the US has numerous air bases and missile defense systems currently operating in the Persian Gulf states and also a naval base in Bahrain where the Fifth Fleet of the US Navy is based.

    The point that I am trying to make is that left to their own resources, the Persian Gulf’s petro-monarchies lack the manpower, the military technology and the moral authority to rule over the forcefully suppressed and disenfranchised Arab masses, not only the Arab masses but also the South Asian and African immigrants of the Gulf Arab states. One-third of Saudi Arabian population is comprised of immigrants; similarly, more than 75% of UAE’s population is also comprised of immigrants from Pakistan, Bangladesh, India and Sri Lanka; and all the other Gulf monarchies also have a similar proportion of the immigrants from the developing countries; moreover, unlike the immigrants in the Western countries who hold the citizenship status, the Gulf’s immigrants have lived there for decades and sometimes for generations, and they are still regarded as unentitled foreigners.

    Petroimperialism and the Western energy interests:

    A legitimate question arises in the mind of a curious reader , however, that why do the Western powers support the Gulf’s petro-monarchies, knowing fully well that they are the ones responsible for nurturing the Takfiri-Jihadi ideology all over the Islamic world; does that not runs counter to their professed goal of eliminating Islamic extremism and terrorism? When you ask this question, you get two very different and contradictory responses depending on who you are talking to. If you ask this question from a Western policy-maker or a diplomat that why do you support the Gulf’s despots? He replies that it’s because we have vital strategic interests in the Middle East and North Africa region; by which he means abundant oil and natural gas reserves and also the fact that the Arab Sheikhs have made substantial investments in the Western economies at a time of global recession and the outsourcing of most of manufacturing to China. Thus, the Western policy-makers’ defense is predicated on self-interest, i.e. the Western national interests.

    When you ask the same question, however, from the constituents of the Western liberalism that what is the Western policy in the Middle East region? The constituents’ response is quite the opposite, they don’t think that the Western powers control the Middle East, or the global politics and economics in general, for their trade and energy interests; they believe that the motives of the Western powers are more altruistic than selfish. The constituents of the Western liberalism mistakenly believe in the counterfactual concepts of humanitarian and liberal interventionism and the responsibility to protect.

    Coming back to the question, why do the Western powers prop up the Middle Eastern dictators knowing fully well that they are the ones responsible for nurturing Islamic jihadism and is it possible that in some future point in time they will withdraw their support? It is highly unlikely at least in the foreseeable future. The Western powers have become so dependent on the Arab petro-dollars that they would rather fight the Arab tyrants’ wars for them against their regional rivals. Presently, there are two regional powers vying for dominance in the Middle East: Saudi Arabia and Iran. The Syrian civil war is basically a Sunni Jihad against the Shi’a Resistance axis. The Shi’a alliance is comprised of Iran and Syria, the latter is ruled by an Alawi (Shi’a) regime, even though the majority of Syria’s population is Sunni Muslims and the Alawites constitute only 12% of the population. Lebanon-based Hezbollah (which is also Shi’a) is an integral part of the Shi’a Resistance axis. And recently the Nouri al Maliki and Haider al Abadi administrations in Iraq, which also has a Shi’a majority, have formed a tenuous alliance with Iran.

    Moreover, Saudi Arabia has long-standing grievances against Iran’s meddling in the Middle Eastern affairs, especially the latter’s support to the Palestinian cause, the Houthis in Yemen, the Bahraini Shi’as and more importantly the significant and restive Shi’a minority in the Eastern Province of Saudi Arabia where 90% of Saudi oil reserves are located along the Persian Gulf’s coast. On top of that Saudi Arabia also has grievances against the US for toppling the Sunni Saddam regime in Iraq in 2003 which had formed a bulwark against the Khomeini influence in the Middle East because of Saddam’s military prowess. Furthermore, in the wake of political movements for enfranchisement during the Arab Spring of 2011, Saudi Arabia took advantage of the opportunity and militarized the peaceful and democratic protests in Syria with the help of its Sunni allies: the Gulf monarchies of Qatar, UAE, Kuwait and Jordan and Turkey (all Sunnis) against the Shi’a regime of Bashar al Assad.

    However, why did the Western powers preferred to join this Sunni alliance against the Shi’a Resistance axis? It’s because the Assad regime has a history of hostility towards the West; it had also formed a close working relationship with the erstwhile Soviet Union and it still hosts a Russian naval facility at Tartus; and its proxy in Lebanon, Hezbollah, has emerged over the years as the single biggest threat to the Israel’s regional security. On the other hand, all the aforementioned Sunni states have always been the steadfast allies of the Western powers along with Israel; don’t get misled by the public posturing, all the aforementioned Sunni states along with the Western support are in the same boat in the Syrian civil war as Israel.

    Hypothetically speaking, had the Western powers not joined the ignoble Syrian Jihad which has claimed 250,000 lives so far and made millions of Syrians refugees, what could have been an appropriate course of action to force the Gulf monarchies, Turkey and Jordan, not to engage in fomenting trouble in Syria? This is a question of will, if there is will there are always numerous ways to deal with the problem. However, after what has happened in Afghanistan, Iraq, Libya and Syria only a naïve neoliberal will prescribe a Western military intervention anywhere in the world. But if military intervention is off the table, is there a viable alternative to enforce justice and to force the states to follow moral principles in international politics? Yes there is.

    The crippling “third party” economic sanctions on Iran in the last few years may not have accomplished much, but those sanctions have brought to the fore the enormous power which the Western financial institutions and the petro-dollar as a global reserve currency wields over the global financial system. We must bear in mind that the Iranian nuclear negotiations were as much about Iran’s nuclear program as they were about its ballistic missile program, which is a much bigger “conventional threat” to the Gulf’s petro-monarchies just across the Persian Gulf. Despite the sanctions being unfair, Iran felt the heat so much that it remained engaged in the negotiations throughout the last few years, and finally the issue was amicably settled in the form of the Iran nuclear deal in April 2015. However, such was the crippling effect of those “third party” sanctions on the Iranian economy that had it not been for Iran’s enormous oil and gas reserves, and some Russian, Chinese and Turkish help in illicitly buying Iranian oil, it could have defaulted due to those sanctions.

    All I am trying to suggest is, that there are ways to arm-twist the Gulf’s petro-monarchies to implement democratic reforms and to refrain from sponsoring the Takfiri-Jihadist terror groups all over the Islamic world, provided that we have just and upright international arbiters. However, there is a caveat: Iran is only a single oil-rich state which has 160 billion barrels of proven crude oil reserves and around 4 million barrels per day (mbpd) production. On the other hand, the Persian Gulf’s petro-monarchies are actually three oil-rich states: Saudi Arabia with its 265 billion barrels of proven reserves and 10 mbpd of daily crude oil production; and UAE and Kuwait with 200 billion barrels (100 billion barrels each) of proven reserves and 6 mbpd of daily crude oil production; together their share amounts to 465 billion barrels, almost one-third of the world’s 1477 billion barrels of total proven crude oil reserves; and if we add Qatar to the equation, which isn’t oil-rich, as such, but has substantial natural gas reserves, it must take a morally very very upright arbiter to sanction all of them.

    Therefore, though sanctioning the Gulf petro-monarchies sounds like a good idea on paper, but bear in mind that the relationship between the Gulf’s petro-monarchies and the industrialized world is that of a consumer-supplier relationship: the Gulf Arab states are the suppliers of energy and the industrialized world is its consumer, therefore, the Western powers cannot sanction their energy-suppliers and largest investors, if anything, the Gulf’s petro-monarchies have in the past “sanctioned” the Western powers by imposing an oil embargo in 1973 after the Arab-Israel war. The 1973 Arab oil embargo against the West had lasted only for a short span of six months but it had such a profound effect on the psyche and the subsequent strategy of the Western powers that after the embargo the price of crude oil in the international market quadrupled; the US imposed a ban on the export of indigenously produced crude oil outside the US’ borders which is still in place; and the US started keeping a strategic oil reserve amounting to two months of fuel supply for its total energy needs for the military purposes that includes jet fuel for its aircrafts and petrol and diesel for the armored personnel carriers, battle tanks and naval vessels.

    Recently, some very upbeat rumors about “the Shale Revolution” [3] have been circulating the mainstream media. However, the Shale revolution is primarily a natural gas revolution: it has increased the ‘probable-recoverable’ resources of natural gas by 30%. The ‘shale oil’ on the other hand, refers to two very different kinds of energy resource: one, the solid kerogen, though substantial resources of kerogen have been found in the US’ Green River formations, but the cost of extracting liquid crude from solid kerogen is so high that it is economically unviable for at least another 100 years; two, the tight oil which is blocked by the shale, it is a viable energy resource, but the reserves are so limited, around 4 billion barrels in Texas and North Dakota, that it will run out in a few years.

    Although, the Canadian oil sands and the Venezuelan heavy crude are environmentally polluting energy resources but economically they are viable sources of crude oil. More than the size of the oil reserves, however, it is also about the per barrel extraction cost, which determines the profits for the multinational oil companies and in that regard the Persian Gulf’s crude oil is the most profitable. Moreover, regarding the US’ supposed energy independence after the so-called “Shale Revolution,” the US produced 11 million barrels per day (bpd) of crude oil in the first quarter of 2014; that is, more than Saudi Arabia and Russia’s output, each of which produces around 10 million bpd, but the US still imported 7.5 million bpd during the same period of time; that is, more than the oil imports of France and Britain put together. More than the total volume of oil production, the volume which an oil-producing country exports determines its place in the “hierarchy of petroleum” and the Gulf’s petro-monarchies constitute the top tier of that pyramid.

    Conclusion:

    It is generally believed that political Islam is the precursor of Islamic extremism and Jihadism, however, there are two distinct and separate types of political Islam: the despotic political Islam of the Gulf variety and the democratic political Islam of the Turkish and the Muslim Brotherhood variety. The latter Islamist organization never ruled over Egypt except for a brief year long stint, it would be unwise to draw any conclusions from such a brief period of time in history. The Turkish variety of political Islam, the oft-quoted ‘Turkish model,’ however, is worth emulating all over the Islamic world. I do understand that political Islam in all its forms and manifestations is an anathema to the liberals, but it is the ground reality of the Islamic world. The liberal dictatorships no matter how benevolent they may be, had never worked in the past, and they will meet the same fate in the future.

    The mainspring of Islamic extremism and militancy isn’t the moderate and democratic political Islam, because why would people turn to violence when they can exercise their right to choose their rulers? The mainspring of Islamic militancy is the despotic and militant political Islam of the Gulf variety. The Western powers are fully aware of this fact, then why do they choose to support the same forces that have nurtured jihadism and terrorism when their ostensible and professed goal is to eliminate Islamic extremism and militancy? It is because it has been a firm policy-principle of the Western powers to promote ‘stability’ in the Middle East rather than representative democracy. They are fully cognizant of the ground reality that the mainstream Muslim sentiment is firmly against any Western military presence and interference in the Middle East region. Additionally, the Western policy-makers also prefer to deal with small groups of Middle Eastern ‘strongmen’ rather than cultivating a complex and uncertain relationship on a popular level, certainly a myopic approach which is the hallmark of the so-called ‘pragmatic’ politicians and strategists.

    Sources and links:

    [1] European parliament identifies Wahhabi and Salafi roots of global terrorism:
    http://www.dawn.com/news/1029713

    [2] How Jimmy Carter and I started the Mujahideen? Zbigniew Brzezinski:
    http://www.counterpunch.org/1998/01/15/how-jimmy-carter-and-i-started-the-mujahideen/

    [3] Difference between shale oil and tight oil:
    http://www.theoildrum.com/node/9753

    About the author:

    Nauman Sadiq is an Islamabad-based attorney, blogger and geopolitical analyst who has a particular interest in the politics of Af-Pak and MENA regions, energy wars and Petro-imperialism.

  • Cultural Marxism Explained In 7 Minutes

    Submitted by Joseph Salerno via The Mises Institute,

    This is an excellent short video explaining the source and nature of Cultural Marxist movements like political correctness, modern feminism, pansexualism, multiculturalism, "whiteness studies," etc. 

     

    For an in-depth critique of the thinkers whose writings shaped Cultural Marxism, see Fools, Frauds and Firebrands:  Thinkers of the New Left by the eminent British philosopher Roger Scruton.  Scruton brilliantly exposes the pretensions, obscurities, and inanities of Sartre, Foucault, Galbraith, Marcuse, Lukacs, Habermas, Adorno, Rawls, Dworkin and others of their ilk.

    The book is not just a philosophical tract but a work in critical political economy and contains one of the most penetrating discussions of the Marxist labor theory of value that I have ever read.

  • Stunning Photos From China's Creepiest Modern Ghost Town

    Welcome to the most ironically-named city in China. A would-be utopia, rapidly constructed for a population of one million (that failed to materialize), the futuristic city of Ordos, which takes its name from ordo, the Mongolian word for crowd and the root for the English word 'horde', has been almost totally abandoned. The stunning landscape left behind in the following images is both disturbing and confirming of China's epic mal-investment boom…

    Via Artnet News

    The images, taken by Shanghai-based photographer Raphael Olivier and shared at Creative Boom, depict a strange modern ghost town. The city, in the Inner Mongolia region, was constructed under the old "if you build it, they will come" motto, but the teeming masses have never made their way to Ordos.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    The city includes dormant schools, sports complexes, hospitals, convention centers, and other major facilities, all completed between 2005 and 2010. The Chinese building boom has seen many new cities become overnight metropolises, but Ordos City failed to replicate that success.

    "The city is now a surreal landscape of empty streets, decaying monuments, abandoned buildings and half-finished housing projects," writes Olivier. "It is more than anywhere the symbol of the Chinese Dream with all its challenges and contradictions, an Orwellian vision of a bright future caught up by a less flamboyant reality."

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos Museum.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos Museum.
    Photo: Raphael Olivier.

    The city's most fantastical structures include the Ordos Museum, designed by China's MAD Archictects, which resembles a tiled metal blob overlooking the Gobi Desert.

    Like the rest of the city, the museum was apparently built without much forethought: "As for the gallery spaces, we didn't know what kind of exhibitions they would hold, so they are designed to be flexible," the architecture firm told ArchDaily.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    "This plaza is now a favorite amongst the locals who gather their families and friends to explore, play or lounge in the pleasant landscape," wrote de zeen magazine upon Ordos's completion in 2011, in a rather premature judgment.

    Based on reports from intrepid photojournalists and travelers, including the Bohemian Blog, the city's residents (reportedly just 20,000 souls, or two percent of the total capacity) largely consist of construction crews, maintenance workers, and random employees.

    See more of Olivier's photos of Ordos below:

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia.
    Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos mosque.<br> Photo: Raphael Olivier.

    Raphael Olivier, Ordos, Inner Mongolia, the Ordos mosque.
    Photo: Raphael Olivier.

     

    We have nothing to add… except one chart…

     

     

    This is what happens when the central planners get drunk on their own hopium-laced Kool-Aid.

     

    Images: Artnet News

  • 2016 Theme #5: The Systemic Failure of High Finance

    Submitted by Charles Hugh-Smith of OfTwoMinds blog,

    This week I am addressing themes I see playing out in 2016.

    A number of systemic, structural forces are intersecting in 2016. One is the failure of high finance to fix the global economy's systemic problems.

    The operative conceit of the past 7 years has been that high finance can fix whatever's broken in the world's economies. According to this narrative, all the world needed to boost "growth," employment and profits was lower interest rates, more liquidity, reverse repos and some other fancy financial footwork.

    Once all this high finance generated more borrowing by debt-serfs, property developers, students, corporations buying back their shares and financiers skimming billions from asset bubbles, systemic problems would be dissolved or mitigated.

    Cheap credit, asset bubbles and immense profiteering by financiers would heal all wounds and make everything better for everyone, even those at the bottom layer of the economy.

    Unfortunately, this isn't true. High finance and cheap credit have intensified structural problems such as rising inequality, not resolved them.

    The implicit promise of the neoliberal project is that liberalizing private-sector markets and credit will magically grease the processes of growth and widespread prosperity.

    When economies have the right systems in place–decentralized, somewhat free markets, an entrepreneurial spirit, many unmet needs, idle productive capacity and a credit-starved real economy–freeing up static markets and credit can unleash the productive capacity of the bottom level of the economy.

    But in economies dominated by state/private monopolies and cartels, neoliberalism simply funnels the profits of financialization to the few at the expense of the many, and at the cost of heightened instability and insecurity.

    Making more credit available for student loans didn't fix America's broken higher education system–it only tightened the grip of the higher education cartel and turned another generation of students into debt-serfs.

    Loosening mortgage standards and lowering interest rates didn't turn America into an "ownership society"–it turned it into a boom-and-bust speculative society with many more losers than winners in the neoliberal/high finance speculative casino.

    The essence of neoliberal high finance is the vast majority of gamers in the casino lose security and wealth, while the House (the state and the banks) skim the resulting profits. Main Street has found its security stripped away (sorry, Bucko, no yield on savings now; you have to belly up and place a high-risk bet at a gaming table to keep what you had before) in exchange for the potential of outsized profits.

    But alas, the games are rigged; the financiers have first access to the Federal Reserve's nearly free money, and insiders profit from stock buybacks and other financial gaming that generates monumental profits but zero goods and services.

    If debt had grown in parallel with GDP and inflation, total credit market debt in the U.S. would be around $20+ trillion rather than $59 trillion. The difference is speculative excess, manifested in asset bubbles and staggering amounts of debt.

    The casino's losers get the debt, the winners skim the profits.

    The only possible output of this system is rising income and wealth inequality:

    Cheap credit doesn't reverse the elimination of jobs via automation–it accelerates that process by making capital machinery and software cheaper than labor and labor overhead.

    Cheap credit and high finance don't fix what's broken in our democracy–they have greased the skids to what we have now–"democracy" for the highest bidder by giving financiers and corporations the means to stripmine productive assets and use the gargantuan profits to buy political favors.

    High finance isn't the cure–it's the disease.

    *  *  *

    My book on the emerging economy is now available as a audiobook: Get a Job, Build a Real Career and Defy a Bewildering Economy (Audible.com).

    My new book is #7 in Amazon's Kindle ebooks > Business & Money > International Economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $$9.95 and the print edition is currently discounted to $21.60.

     

  • This Is The $3.5 Trillion "Neutron Bomb" That Keeps Kyle Bass Up At Night

    Earlier today, CNBC invited Kyle Bass, the man who correctly predicted and profited from the subprime collapse, to discuss what he thought was the biggest threat to the global financial system.

    Here is the highlight of what he said:

    What I think the narrative will swing to by the end of this year if not sooner, is the real issue in China is not simply that profits have peaked. The real issue is the size of their banking system. Do you remember the reason the European countries ended up falling like dominoes during the European crisis was their banking systems became many multiples of their GDP and therefore many, many multiples of their central government revenue. In China, in dollar terms their banking system is almost $35 trillion against a GDP of $10 and their banking system has grown 400% in 8 years with non-performing loans being nonexistent. So what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China’s banking system loses 10%, you are going to see them lose $3.5 trillion. 

    He then puts this number in the context of China’s “massive” foreign reserves:

    What’s the magic number in their FX reserve pile today? When you look at banking system assets divided by their foreign exchange reserves, China is 7x, it’s one of the worst in the world. I think people are mypoically focused on a giant number of reserves, of $3 trillion or thereabouts, and no one is really paying attention to the size of the system and what’s about to happen.

    Actually that’s not true: we first pointed this out more than 2 years ago, when we showed “How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water.”

     

    A few weeks later we followed up with another stunning chart showing “How In Five Short Years, China Humiliated The World’s Central Banks.” However, we do agree fully with Bass that virtually nobody else is paying attention to this epic question of scale, especially as it relates to another topic we have been covering for the past two years: China’s soaring, and dramatically underreported non-performing loans.

    More on that in a second, but first a quick reminder that as we also reported over the weekend, for Kyle Bass, “The Greatest Investment Opportunity Right Now” is to short the Chinese currency: a trade which just in the past week has generated tremendous returns (using the embedded FX leverage), and which we are confident will continue to be very profitable, especially since as we first said in August, days before China’s devaluation, the only thing that could save China’s economy from an even harder landing, is to rapidly devalue their currency. China did just that, and has been doing that ever since.

    Earlier today, even Goldman – with a huge delay – finally came to see things correctly, when it said that:

    “We are adjusting our USDCNY forecast weaker, to 7.00 on a 12-month horizon (our twelve-month forecast was 6.60 previously) and 7.30 by end-2017 (from 6.80 previously). Though markets have been moving quickly, and today’s lower USDCNY fixing suggests the possibility that policymakers may want to stabilize expectations for the CNY, this puts us back on the weak side of market pricing over a twelve-month horizon, consistent with our view that 2016 will be a year of continued “bumpy deceleration” and significant policy easing in the Chinese economy, and that the potential for greater CNY depreciation remains a large source of uncertainty.”

    So going back to Kyle Bass’ thesis, it a relatively simple one: China has been avoiding a credit, or non-performing loan cycle, and fabricating the data, but the time has run out.

    “China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it’s killing them… China’s effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle.”

    So what exactly is this non-performing loan cycle that Kyle Bass is referring to, and where does he get a $3 trillion potential loan loss – a quantum step in admission of economic failure which we first dubbed China’s neutron bomb” in October 2015 – number?

    Luckily, we explained all of this two months ago when we showed how “China’s Banking Sector Is Sitting On A $3 Trillion Neutron Bomb.” For those who missed it, here is the explanation behind what could be the best trade of the next 12-18 months (the best trade of 2015 incidentally was to be long Glencore CDS, as we suggested in 2014) according to Kyle Bass:

    * * *

    We’ve long contended that official data on bad loans at Chinese banks is even less reliable than NBS GDP prints. Indeed, the lengths Beijing goes to in order to obscure the extent to which banks’ balance sheets are in peril is truly something to behold and much like the deficient deflator math which may be causing the country to habitually overstate GDP growth, it’s not even clear that China could report the real numbers if it wanted to. 

    We took an in-depth look at the problem in “How China’s Banks Hide Trillions In Credit Risk: Full Frontal”, and we’ve revisited the issue on a number of occasions noting in August that according to a transcript of an internal meeting of the China Banking Regulatory Commission, bad loans jumped CNY322.2 billion in H1 to CNY1.8 trillion, a 36% increase. Of course that’s just the tip of the iceberg. In other words, that comes from a government agency and although the scope of the increase sounds serious, it still translates into an NPL ratio of just 1.82%. Here’s a look at the “official” numbers (note that when one includes doubtful accounts, the ratio jumps to somewhere in the neighborhood of 3-4%):

    Source: Fitch

    There are any number of reasons why those figures don’t even come close to approximating reality. For instance, there’s Beijing’s habit of compelling banks to roll over bad loans, and then there’s China’s massive (and by “massive” we mean CNY17 trillion) wealth management product industry which, when coupled with some creative accounting, allows Chinese banks to hold some 40% of credit risk off balance sheet.

    Well as time goes on, and as market participants scrutinize the data coming out of the world’s second most important economy, quite a few analysts are beginning to take a closer look at the NPL data for Chinese banks. Indeed, if Beijing continues to move toward “allowing” defaults to occur (even at SOEs) and if China’s transition from smokestack economy to a consumption and services-driven model continues to put pressure on borrowers from the manufacturing sector, the situation is likely to deteriorate quickly. If you needed evidence of just how precarious things truly are, look no further than a recent report from Macquarie which showed that a quarter of Chinese firms with debt are currently unable to cover their annual interest expense (as you might imagine, it’s even worse for commodities firms). 

    Just two weeks after we highighted the Macquarie report, we took a look at research conducted by Hong-Kong based CLSA. Unsurprisingly, it turns out that Chinese banks’ bad debts ratio could be as high 8.1%, a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator. 

    We called that revelation China’s “neutron bomb” but it turns out we may have jumped the gun. According to Hong Kong-based “Autonomous Research”, the real figure may be closer to 21% when one takes into account the aforementioned shadow banking sector. Here’s more from Bloomberg:

    Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks.

    Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered.

     

    The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. Bank of China Ltd. reported on Thursday its biggest quarterly bad-loan provisions since going public in 2006.

     

    Charlene Chu, who made her name at Fitch Ratings making bearish assessments of the risks from China’s credit explosion since 2008, is among those crunching the numbers.

     

    While corporate investigator Ho relies on her observations from hitting the road, Chu and her colleagues at

    Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions.

     

    While traditional bank loans are not Chu’s prime focus — she looks at the wider picture, including shadow banking — she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.

     

     

    “A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”

    As a reminder, here’s a look at the scope of the “problem” Chu is describing:

     

    And here’s a bit more on special mention loans and the ubiquitous practice of “evergreening”:

    Slicing and dicing the official loan numbers, Christine Kuo, a senior vice president of Moody’s Investors Service in Hong Kong, focuses on trends in debts overdue for 90 days, rather than those classified as “nonperforming.” Another tactic some analysts use is to add nonperforming debt to “special mention” loans, those that are overdue but not yet classified as impaired, yielding a rate of 5.1 percent.

     

    Banks’ bad-loan numbers are capped by “evergreening,” the practise of rolling over debt that isn’t repaid on time, according to experts including Keith Pogson, a Hong Kong-based senior partner at Ernst & Young LLP. Pogson was involved in restructuring debt at Chinese banks in 1998, when their NPL ratios were as high as 25 percent.

    So let’s just be clear: if 8% is a “neutron bomb”, a 21% NPL ratio in China is the asteroid that killed the dinosaurs. Here’s why: 

     

    If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 20% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $3 trillion. 

    That, as we suggested three weeks ago, may help to explain why round after round of liquidity injections (via RRR cuts, LTROs, and various short- and medium-term financing ops) haven’t done much to boost the credit impulse. In short, banks may be quietly soaking up the funds not to lend them out, but to plug a giant, $3 trillion, solvency shortfall. 

    In the end, we would actually venture to suggest that the real figure is probably far higher than 20%. There’s no way to get a read on how the country’s vast shadow banking complex plays into this but when you look at the numbers, it’s almost inconceivable to imagine that banks aren’t staring down sour loans at least on the order of a couple of trillion. 

    To the PBoC we say, “good luck plugging that gap” and to the rest of the world we say “beware, the engine of global growth and trade may be facing a pile of bad loans the size of Germany’s GDP.”

    We close with the following from Kroll’s senior managing director in Hong Kong Violet Ho (quoted above):

    “A credit report for a Chinese company is not worth the paper it’s written on.”

  • Doctors Urge California Residents "Leave Now…While You Can" As Gas Leak Fears Grow

    Submitted by Claire Bernish via TheAntiMedia.org,

    California Governor Jerry Brown finally declared a state of emergency on Wednesday, concerning the ongoing, currently unstoppable methane gas leak spewing from Aliso Canyon that has created a nightmare for residents of Porter Ranch.

    “I will tell you, this goes well beyond Porter Ranch. We’ve had complaints from as far as Chatsworth, Northridge, and Granada Hills,” emphasized Los Angeles City Councilman Mitchell Englander during a Porter Ranch town hall meeting on December 28. “Apparently this plume of toxic chemicals and whatever it might be, doesn’t know zip codes […] This is the equivalent of the BP oil spill on land, in a populated community.”

    Aliso Canyon sits less than two and a half miles from Porter Ranch and less than 30 miles from the city of Los Angeles — the second most populous city in the United States — whose outlying total statistical area includes nearly 18 million residents, as of 2013.

    Brown has been widely criticized for lack of decisive action on the leak, which is erupting from its underground storage area with all the force “of a volcano.” Under Wednesday’s declaration, “all state agencies will utilize state personnel, equipment, and facilities to ensure a continuous and thorough state response to this incident.”

    Porter Ranch residents have been evacuating the area for some time, though SoCalGas’ rather maladroit handling of the relocation procedure has been a nightmare — and the cause for a mounting number of lawsuits, including one from the L.A. city attorney’s office.

    Los Angeles City Attorney Mike Feuer filed a civil lawsuit last month concerning the massive methane leak’s impact on area residents’ health and damage to the environment — which alleged failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing acute odor and health problems faced by the community to persist for more than a month, to say nothing about the indefinite time it will persist into the future.”

    Pediatrician Dr. Richard Kang gave an ominous warning during the Porter Ranch meeting, saying, “Unfortunately, the only real way to get away from the symptoms is… you have to relocate — you have to get away from the environment.” Health complaints include severe headaches, nosebleeds, respiratory issues including increasing cases of asthma, and a number of other issues.

    SoCalGas, in the meantime, stated they were “providing air filters for people’s homes,” but though “the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk.”

    But, as the Los Angeles Daily News reported on December 25, “Los Angeles County health officials said prolonged exposure to trace chemicals, some of which are known carcinogens, can cause long-term health effects.” Nevertheless, they also “cautioned that levels examined so far here are not believed to be associated with long-term health problems.”

    “The gas company says, ‘This is just the smell you’re reacting to, it’s just temporary, it’s not a problem, it’s not serious’ — these people aren’t stupid,” said attorney Rex Paris. “How could somebody possibly say that? We have children whose noses are bleeding every day, we have people who suffer from chronic headaches [and] are nauseous every, single day. How does that not become a serious issue? Why are they saying something nobody here believes? […] They’re trying to convince everybody that it’s all in our heads. It’s a trick.”

    In fact, as Erin Brockovich pointed out, “no one really knows the long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas.”

    Additionally, area house pets seem particularly vulnerable — possibly acting the part of unwitting canaries — as veterinarian Dr. David Smith described in the town hall meeting. Noting he has seen dozens of sickened animals, Smith said, “I’ve seen dogs, cats, birds, pocket pets… the primary symptoms I’ve seen are gastrointestinal vomiting […]These are not things you should be inhaling.” He added, “We have seen dermatological issues as well, some very unusual bacterial infections in dogs,” including one case in which a dog had such an infection on its face, and “the client developed almost the exact same kind of symptoms soon after that […] their physician thinks it’s related [to exposure from the gas leak] and so I tend to think these correlations are real.”

    Though the declaration of emergency states “the Division of Oil, Gas, and Geothermal Resources shall continue its prohibition against Southern California Gas Company injecting any gas into the Aliso Canyon Storage Facility,” it does not make that moratorium dependent on stoppage of the leak; rather, only “until a comprehensive review, utilizing independent experts […] is completed.”

    Physician Dr. Brooks Michaels, addressing the town hall meeting, gave the sternest advice to those still in the area surrounding the unprecedented leak:

    “If you have a chance to leave, if you’re able to leave… if you have a chance to relocate, do it now. I’m telling you, it’s really critical.”

    Understandably, Brown’s state of emergency seems almost too little, too late for many.

    You can watch the Porter Ranch town hall meeting here:

  • Weekend Reading: Breaking Markets

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    AAA-Weekend-Reading-Breaking-Markets

    This week has certainly been interesting with the Dow Jones Industrial Average having the worst start to a year…well…ever. Even more interesting is the culprit was primarily the collapse of financial markets in China.

    Why is that interesting? Because it is exactly the issue that I wrote about during the summer of 2015:

    “And this last week, we saw what happens when things go ‘inevitably wrong.’

     

    The perils of margin debt should not be readily dismissed. For a real time example of financial market leverage and consequences, one needs to look no further than the Shangai Index in China. That market is in a complete collapse as plunging prices are forcing investors to sell shares. While the Chinese government has injected liquidity, suspended trading in almost half of the listed equities and encouraged pension funds to buy securities, these actions have done little to stem the decline as investors ‘panic sell’ in a rush to safety. That collapse, if history is any guide, is likely not done as shown in the chart below.”

    China-SP500-010706

    “Also, notice the correlation between peaks in the Shanghai Index and the S&P 500.

     

    While no single indicator should be relied upon as a measure to manage a portfolio, it should be well understood by now that leverage is a ‘double-edged sword.’ While rising leverage provides the additional liquidity to drive stock prices higher on the way up, it also cuts deeply as prices fall.”

    This weekend’s reading list is a collection of analysis as to the potential impact of China. Is history set to repeat itself? And, most importantly as discussed in yesterday’s post, investors may have witnessed the “ringing of the bell” for the end of the bull market that begin in 2009. While it is too early to know for certain, things are getting much more interesting. It is time to start paying attention to the risks.

    1) Debt Signals Problems For Markets by Lisa Abramowicz via Bloomberg

    “Thanks in large part to a circuit-breaking selloff in China, stocks are already digging a hole at the start of the new year. Savvy traders know to avoid making big decisions based on a day or two of equity market histrionics, lest they look like chickens with their heads chopped off rather than skilled prognosticators. They rely on more dependable barometers to determine the longer-term direction, and what they see right now could be a big cause for concern.

     

    One of the best current indicators is dollar-denominated investment-grade debt, which has been tracking U.S. stocks much more closely than high-yield bonds. High-grade bonds remained fairly steady throughout 2015’s market roller coaster, even as stocks bounced around in a rather fruitless attempt to find direction and riskier corporate debt suffered some of its biggest declines on record.”

    But Also Read: China’s Market Won’t Be Halted Anymore by Myles Udland via Business Insider

     

    2) Markets Aren’t Cooperating With Fed Rate Hike by Jeffrey Snider via Alhambra Partners

    “When the FOMC voted on December 16 to raise rates, they did so with reservations, some expressed publicly, that maybe they didn’t really have the ability to do it. There is a reason that we refer to money markets in the plural, since there are, as the “s” at the end indicates, more than one. At one point in financial history, they all worked very well together, though the manner in which that harmony developed appears entirely lost on policymakers. They just assumed and continued to do so; they still do today, though with much less certainty attached.

     

    In the little more than two weeks since the FOMC’s move, money markets have not behaved.”

    But Also Read: Federal Reserve Is Giant Weapon With No Ammo Left by Myles Udland via Business Insider

    Opposing View: Fed’s Lacker Suggest 4-More Hikes In 2016 by Jason Lange via Reuters

     

    3) 5 Facts About The Market Sell-Off by Mohamed El-Erian via Bloomberg

    “Here are the five things to know about the implications of the sell-off for 2016 and beyond:

    1. Geopolitics

    2. Risk Taking

    3. Liquidity – Fed vs. Everyone Else

    4. Global Economy

    5. Future Policy Decisions”

    But Also Read: Brace For A Rare Recession In Profits by Matt Egan via CNN Money

    VIEWS & OPINIONS ON THE CORRECTION

    MUST READS

    “Some people are never too old to find new ways to lose money.” – Anon

  • 2016's "How To Make A Fortune" Cookie

    Anyone for Chinese?

     

     

    Source: Townhall.com

  • "The Entire Risk Paradigm Is Shifting" – Stocks Join Global 'Reality' Adjustments

    Submitted by Jeffrey Snider via Alhambra Investment Partners,

    The focus on China as if their problems were only Chinese is highly misplaced, though you can understand the appeal of the excuse. This sentiment was expressed over and over today (just as it was in August):

    Do we all live in China now? Investors could be excused for thinking that, given that arcane indicators such as a Chinese manufacturing index and the value of the Chinese yuan are inducing nauseating drops in the U.S. stock market. And the surprise halt to trading in the latest Chinese session, a mere 30 minutes after markets opened, has thrown U.S. and European markets into a tailspin.

     

    Last we checked, however, the Dow Jones and S&P 500 indexes were composed of U.S. companies that might do some business in China, but still earn the vast majority of their revenue elsewhere. And elsewhere, economic fundamentals are looking way better than the gloomy start to this year’s trading would suggest.

    This is one of those forest and trees moments that get caught up on the surface of anachronistic thinking. Even if all that were true, the fact that China is an export economy having trouble finding any sustained and sufficient demand for its industrial capacity is a direct reflection upon global “demand”; which still includes the same business climate that US companies derive their revenue and earnings from.

    But it never really is so much about business today as it is risks for business tomorrow. In raw terms, if Chinese firms and its economy can so struggle in this environment it stands to reason to at least contemplate why that might be – and how that might directly reflect on domestic considerations. Further, as noted earlier, risk perceptions have changed as the FOMC is no longer given blanket faith to declare whatever sky color they wish. Stocks really haven’t had much success, overall, in a year and a half; a pause that itself should register as complimentary to the Chinese struggles.

    The S&P 500 is down just over 7 percent from its May high, but the average stock in the larger S&P 1500 was down 24 percent from its high as of yesterday’s close, according to new research from Bespoke Investment Group. A bear market is defined as a decline of 20 percent or more, meaning the average stock has already reached that threshold.

    As Bespoke points out, the pain in stocks is not just energy-related shares. Small caps are among the hardest hit (the S&P 600 small cap is down an astounding 28% from its high!) as well as consumer discretionary stocks; the very sorts of economically-sensitive issues that should be leading the market if this was just China as China. Instead, they suggest China is, again, finding difficulty in no small part because of intensifying US struggles. That much has been obvious from trade figures which declare in no uncertain terms the great and ongoing lack of US “demand.”

    From that visible contradiction, the entire risk paradigm is shifting more so than it already has. Commodities and “money” more broadly are winning the argument, so to speak, having declared long ago greater downside risks. Now that those are becoming rapidly the actual baseline, even for stocks, what is taking place in China is the connected realignment of monetary condition in that frightening direction. Stocks are finding more downside volatility because stock investors are being forced to recognize in truly comprehensive fashion that there is an actual and sizable downside.

    ABOOK Jan 2016 Dollar HYG GSG SP500

    This is increasingly taking on the proportions of a global reset. As such, the “dollar” stands right in the middle of it as both messenger and agent. You cannot separate China from the whole as China isn’t really the problem but rather the most visible symptom of it. If there were a full recovery as the FOMC claims in moving against the possibility of overheating, financial firms would be at the front of that greedily taking up the mantle of raw financial opportunity. They did so in times past, usually in direct relation to the QE’s – and were only burned for their trouble. There is no recovery opportunity, which is why they have been retreating in “money” in really precipitous fashion.

    It is the very mechanism of discounting. The fact that stocks may also be participating is a very important indication of how much that has penetrated into broad and systemic perceptions. China matters, but not so much just for China. The US may look lackluster (to some, a narrowing minority) by comparison to the direction of China’s economy, but that really doesn’t tell us as much about tomorrow as is repeatedly claimed. A chronically ill economy is highly susceptible not to catching fire and taking off, but rather to converging with all the very real disasters already spreading globally – the risk that money markets are increasingly discounting and carrying out. Financial markets are obviously more and more worried that memories of lackluster will be all that there was of the QE-driven cycle.

  • Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years

    Moments ago, the Fed released the latest, November, consumer credit data: it was not good. Rising by just $13.95 trillion, it was a big miss to the $18.5 trillion expected, and below the $15.6 billion downward revised increase in October. In fact, three months after the historic surge in September to the highest print in the revised series, total consumer credit has tumbled to the lowest since January.

     

    But the big problem was not in the total data, but in one of the two key component data sets.

    Recall that a few days ago we noted something very disturbing for US auto makers: for all the hoopla around the auto sales number, US domestic car sales had actually dropped to a 6 month low, missing estimates by the most since 2008.

     

    What was just as disturbing was that “plans to buy an auto” had tumbled the most since January of 2013.

     

    Lacking the most recent credit data, we did not know what may have caused this dramatic slowdown in auto purchasing, and intentions. Now that we have the data, we also have the answer, because while revolving consumer credit rose at a respectable pace of $5.7 billion in November, it was that all important “other” series, non-revolving credit – the source of funds for student and auto loans – where there was a dramatic slowdown.

    As the chart below shows, after rising by $15.5 billion in the month before, and a near-record $22 billion in September, the November increase in nonrevolving credit was a paltry $8.3 billion – this was the smallest monthly increase in this most important for US car makers data, since February of 2012!

     

    Suddenly both the slowdown in December car sales, and the collapse in buying intentions makes all the sense in the world: US consumer may have just had their fill of auto-related loans, and without these to fund future purchases, even on the most relaxed terms in auto loan history, the pace of current and future purchases will collapse.

    And, as we showed earlier today, this collapse in auto loan issuance could not have come at a worse possible time: the chart below shows that the motor vehicle inventory-to-sale ratio is now the highest since August 2008:

     

    As we said this morning, “the channel-stuffed “see how well we are doing” smoke and mirrors of credit-fueled malinvestment has hit a wall and yet the automakers – afraid to signal any chink in that armor – kept producing.”

    And now we know why nobody was buying: suddenly the car loan issuance pipeline has been shut half way.

    The conclusion: unless there is a surge in non-revolving debt in December and the coming months, the cheap debt-funded US auto renaissance is officially over. As for the follow up question, whether this was caused by a revulsion toward more debt, then the rate hike in 2015 which was immediate passed through to borrowers, will make sure that what is currently a half-shut credit pipeline, will slam shut in the coming months and choke the only sector in the US manufacturing economy that was still relatively vibrant.

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Jan 08

Today’s News 8th January 2016

  • Internal War Is Now On The Horizon For America

    Submitted by Brandon Smith via Alt-Market.com,

    If internationalists were to get their way fully with the world and future historians write their analysis from a globalist perspective of the defunct American nation, they will probably say simply that our collapse was brought about by our own incompetence – that we were our own worst enemy. Yes, they would treat America as a cliché. They will of course leave out the destructive influences and engineered disasters of elitists, that would just complicate the narrative.

    My hope is that we do not prove these future historians correct, and that they won’t have an opportunity to exist. My work has always been designed to help ensure that resistance thrives, but also that it is pursued in the most intelligent manner possible.

    As I write this, China’s stock market has crashed 7% and was shut down by Chinese authorities who are once again initiating outright intervention to stem the tide. U.S. markets are quickly tracking lower. Oil is plummeting.

    Relations between Saudi Arabia and Iran have turned ugly, with Iranian protesters overtaking the Saudi embassy and both sides vowing vengeance. Many Americans won’t care much about this because they think it has nothing to do with them. They don’t realize that Saudi Arabia has already publicly suggested a depeg from the U.S. dollar, effectively ending the decades-long relationship between the greenback and oil. The Iranian event and U.S. ties to both nations only make the fall of the dollar’s petro-status more likely in the near term.  With the U.S. in the middle, "taking a side" will be a demand.  I believe the U.S. government will NOT take a side, and this will elicit a furious response from Saudi Arabia (a currency depeg).

    The Obama Administration has just made introductory announcements on new gun control measures through executive order.  These announcements were rather light on details and heavy on crocodile tears.  Their vagueness is clearly deliberate.  Psychological evaluations, redefining who is a lawful firearms dealer, "expanding" background checks; all of these measures could be interpreted broadly to mean almost anything.  We will probably know more in the coming weeks.

    And in Oregon over the weekend, Ammon Bundy and friends lured hundreds of protesters under false pretenses using the Hammond family tragedy as a vehicle to then initiate a takeover of federal buildings that have no strategic or symbolic value, boxing themselves into a static position and proclaiming themselves to be the “tip of the spear” in the fight against corrupt government. In the meantime, anyone who questions the validity of this idea or the logic behind the “plan” is immediately labeled a coward and “keyboard warrior” by their supporters.  Emotionally manipulative arguments abound because there are no tactically rational arguments to be made, which tells me that the plan was doomed before it was implemented.

    As I wrote in my article “Oregon standoff a terrible plan that we might be stuck with,” some people (not many but some) in the liberty movement are desperately clamoring for a fight; and they don’t care if the circumstances are intelligently executed or idiotically executed. They only care if it kicks off.

    I openly supported and aided the efforts at Bundy Ranch because the ranchers were defending their home from clear federal aggression. The Feds were direct invaders in that scenario. In Oregon, protesters are being perceived as the invaders, not the defenders — and all launched in the name of the Hammond family, who asked them NOT to artificially create a standoff. The two scenarios are polar opposites, and Oregon will end in a very different fashion.

    I would just like to note that the Founding Fathers were smart enough to avoid deliberately trapping themselves in static positions on land that had no strategic or symbolic importance while inviting the British to "come and get them".  Again, there are right ways and wrong ways to fight tyranny.  Simply being willing to fight is not enough.

    Now, if Americans are going to create standoff situations that could result in civil war they should do it over draconian gun control measures such as the use of classified government watch lists as grounds for denial of 2nd Amendment rights, rather than using a family who did not want armed support to begin with as a means to an end.

    Keep in mind that watch lists are entirely arbitrary. There is no due process involved whatsoever, meaning you or I could walk into a gun store one day only to have our 4473 form denied because some bureaucrat in an office in D.C. decided we said something he doesn’t like and belong on a naughty list.  The changing of gun dealer laws could be used to erase gun shows and private sales of firearms as well.

    A standoff scenario based on these issues would be a much more practical concept than what is taking place in Oregon.

    As our situation in this country becomes more precarious, there are going to be far more flashpoints than anyone will be able to keep track of. It is inevitable that a fight between corrupt elements of the U.S. government and regular people will erupt. I and other analysts have been warning people about this for years. I have been educating people on their preparedness options and tactical resources. I have been promoting community preparedness teams in my work with Oath Keepers and helping to organize such teams in my own part of the country. I even designed the first working thermal evasion suit available to civilians to give people half a chance against advanced weaponry.  I have no illusions that a peaceful solution exists.  I know that there is no such solution at this point in the game.  But when the fighting starts, I also know that those who navigate the storm intelligently rather than allowing their emotions to get the best of them are more likely to survive and succeed.

    I cannot say how quickly a crisis will develop. But, I can outline some of the many pitfalls you are going to come across as this storm rises.

    False Leadership And Irrational Leadership

    You are going to stumble across numerous gung ho activists and even politicians who will claim they have the one and only solution, that they are the real “tip of the spear.” First, if you feel compelled to seek out leaders on the mere basis that they have offered to lead you, then you need to do some soul searching. Become your own leader first. And then, if you meet someone with an excellent plan and a principled motive, give him the time of day, but don’t jump blindly into any situation.

    If his plan seems poorly thought out, don’t follow him. If his agenda revolves around his own ego and a desire for personal glory, don’t follow him. If he focuses completely on the Obama administration and ignores the complicity of Republican leadership, don’t follow him. If all he talks about are the evils of the federal government but he ignores the puppet strings that lead to international banks and globalist organizations, don’t follow him. If he refuses to allow his initiatives to be questioned or discussed in a reasonable way, do not follow him. If he acts as if his ideas are sacrosanct and questions your “patriotism” when you do not immediately jump on the bandwagon, do not follow him.  Remember, it is the job of this leadership to CONVINCE YOU of the legitimacy of their plan if they are seeking your support.  The burden of evidence is on them.  It is not your job to support them blindly just because you want to avoid being called a "sunshine patriot".

    To summarize, if you are going to follow someone, know him well first, and make sure his planning is solid.

    Hotheads And Imbeciles

    I’ve found that there are two very frustrating extremes within the liberty movement: the people who embrace pacifism and who refuse to even consider the possibility of a violent conflict and self-defense, and the people who have delusions of being the next George Washington and are ready to dive headlong into any violent confrontation without thinking because they want to cement their own legacy. Neither of these groups seems to be able to treat each event as unique: some events requiring a diplomatic approach and some of them requiring the violence of action.

    The pacifists are annoying, but they mostly hurt themselves in their lack of preparedness and a warrior’s mindset. The hotheads are the real problem. If you are only looking for a fight, then one will certainly find you; but any moron can trigger a standoff with the Feds. The point is to be able to make a move that matters in the long run. Hotheads cannot think beyond themselves and their immediate needs. They are like mosquitoes mindlessly hunting for blood. Strategic planning is impossible for them and they will destroy allies in the process of their pursuits.

    I hate to say it, but there is a distinct possibility that our current generation of freedom advocates and freedom fighters may not live to see the future we are working toward. That better world built on liberty, individualism and voluntary community is something our children will thrive in, not us. If you are not fighting with a long term strategy in mind, then you have missed the entire point.

    Factions And Tribes

    Humans in crisis events tend to become more tribal in their associations in order to survive, and this is not necessarily a bad thing. I would rather live in a tribal world than under centralized corrupt government or global government any day. That said, if a “tribe” or faction does not respect the rights of the individual or uses unprovoked violence to achieve its goals, then it is no better than any other tyranny. Never trade safety for tyranny, regardless of the difficulties ahead.

    The upside is tyrants of small tribes are easier to deal with than tyrants of large nations. They are no more bulletproof than anyone else, and they don’t have the resources to prevent reprisal if they hurt the wrong people.

    Expect that families, neighborhoods, towns, churches, gangs and activist groups will rally around each other as a way to provide security. If you do not already have friends and family on board with your way of thinking, you will be isolated, making survival far more difficult if a breakdown does occur.

    Governments Will Not Disappear

    I can think of very few scenarios in history in which a crisis or collapse immediately facilitated the fall of the government in power. Rather, the government usually morphs into something else, something more dangerous. In fact, crisis is often the prime excuse used by corrupt officials to rationalize greater controls on the population. This in turn acts as a catalyst for more rebellion, which in turn acts as a vindication of the government’s tyranny.

    Does this mean people should not rebel against tyranny? No, it means that we have to fight smart and retain the moral high ground at all times. We must act in a way that exposes the true nature of corrupt government, rather than giving them more ammunition to shoot us down with in the public eye. Above all, if we fight we must fight TO WIN.  This means not deliberately searching for an Alamo.  Martyrs are ultimately useless in this kind of war because if we lose, no one will remember them anyway. Glory seekers and self-proclaimed prophets will only lead people to disaster.

    Develop a tactical mindset because the future will require tactical minds. Maintain your principles no matter the threats ahead. Retain your humanity. But also, when the fight begins, fight with the intention of victory. Choose your ground wisely.

  • Martin Shkreli Secures Bail With $45 Million E*Trade Account, Demands Respect From Wu-Tang Clan

    “I bought the most expensive album in the history of mankind and fucking RZA is talking shit behind my back and online in plain sight. If I hand you $2 million, fucking show me some respect.”

    That’s a quote from the incomparable Martin Shkreli who is upset with the Wu-Tang Clan from whom he purchased a one-of-a-kind double disc for $2 million last year.

    RZA, the group’s frontman if not its most famous member, found himself in a bit of an awkward scenario when news of the sale hit the wires.

    When the deal was done, Shkreli had not yet become a household name. In other words, it wasn’t apparent to RZA that the soon-to-be proud owner of the one and only copy of “Once Upon A Time In Shaolin” would soon become public enemy number one in America on the way to being arrested for fraud.

    “I met him, we had a brief lunch, and he did mention his love of hip-hop,” RZA said in the interview with Bloomberg. “I didn’t get a chance to read him.”

    In the wake of the Daraprim fiasco which saw Shkreli raise the price of a drug he acquired from $13.50 to $750 a pill, Wu-Tang decided to donate “a significant portion” of the proceeds to charity. 

    Even as RZA isn’t particularly enamored with Shkreli’s drug pricing practices, the producer says he doesn’t regret doing the deal. “He bought it, he can do what he wants,” RZA told Bloomberg TV’s John Heilemann.”The beautiful thing about art, from my standpoint, is that it has no discrimination. What we’ve done is historical, and you can’t remove that.”

    No, you can’t, and neither can you “remove” the bad taste Shkreli’s Daraprim price hike left in America’s mouth which is why when it came time to set bail, no one was in a forgiving mood. The price of (temporary) freedom for America’s “most hated man”: $5 million.

    Unfortunately, the bail bondsman didn’t accept Wu-Tang albums as collateral and so, Shkreli put up his E*Trade account instead. The account’s value is said to be $45 million. 

    “Martin Shkreli put up his $45 million E*Trade account to secure $5 million bail after federal authorities arrested him on fraud charges last month,” Bloomberg reports. “Shkreli was ordered to disclose how that bond is secured and prosecutors filed papers Thursday stating Shkreli has a brokerage account worth eight figures,” NY Daily News adds. “E*Trade has been ordered to notify prosecutors if the balance of the brokerage account dips below $5 million — which would jeopardize the bail bond and Shkreli’s freedom.”

    We wonder if Martin, like the E*Trade-ing Joe Campbell whose short position in KBIO blew up when Shkreli acquired more than half of the float back in November, will start a GoFundMe page in the event his collapsing holdings leave him a few million short on the bail bond.

    *  *  *

    RZA talks Shkreli and Trump with Bloomberg Business

  • 2016: Oil Limits & The End Of The Debt Supercycle

    Submitted by Gail Tverberg via Our Finite World blog,

    What is ahead for 2016? Most people don’t realize how tightly the following are linked:

    1. Growth in debt
    2. Growth in the economy
    3. Growth in cheap-to-extract energy supplies
    4. Inflation in the cost of producing commodities
    5. Growth in asset prices, such as the price of shares of stock and of farmland
    6. Growth in wages of non-elite workers
    7. Population growth

    It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world.

    There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels.

    The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults. These problems are the opposite of what many expect, namely oil shortages and high prices. This strange situation exists because the economy is a networked system. Feedback loops in a networked system don’t necessarily work in the way people expect.

    I expect that the particular problem we are likely to reach in 2016 is limits to oil storage. This may happen at different times for crude oil and the various types of refined products. As storage fills, prices can be expected to drop to a very low level–less than $10 per barrel for crude oil, and correspondingly low prices for the various types of oil products, such as gasoline, diesel, and asphalt. We can then expect to face a problem with debt defaults, failing banks, and failing governments (especially of oil exporters).

    The idea of a bounce back to new higher oil prices seems exceedingly unlikely, in part because of the huge overhang of supply in storage, which owners will want to sell, keeping supply high for a long time. Furthermore, the underlying cause of the problem is the failure of wages of non-elite workers to rise rapidly enough to keep up with the rising cost of commodity production, particularly oil production. Because of falling inflation-adjusted wages, non-elite workers are becoming increasingly unable to afford the output of the economic system. As non-elite workers cut back on their purchases of goods, the economy tends to contract rather than expand. Efficiencies of scale are lost, and debt becomes increasingly difficult to repay with interest.  The whole system tends to collapse.

    How the Economic Growth Supercycle Works, in an Ideal Situation

    In an ideal situation, growth in debt tends to stimulate the economy. The availability of debt makes the purchase of high-priced goods such as factories, homes, cars, and trucks more affordable. All of these high-priced goods require the use of commodities, including energy products and metals. Thus, growing debt tends to add to the demand for commodities, and helps keep their prices higher than the cost of production, making it profitable to produce these commodities. The availability of profits encourages the extraction of an ever-greater quantity of energy supplies and other commodities.

    The growing quantity of energy supplies made possible by this profitability can be used to leverage human labor to an ever-greater extent, so that workers become increasingly productive. For example, energy supplies help build roads, trucks, and machines used in factories, making workers more productive. As a result, wages tend to rise, reflecting the greater productivity of workers in the context of these new investments. Businesses find that demand for their goods and services grows because of the growing wages of workers, and governments find that they can collect increasing tax revenue. The arrangement of repaying debt with interest tends to work well in this situation. GDP grows sufficiently rapidly that the ratio of debt to GDP stays relatively flat.

    Over time, the cost of commodity production tends to rise for several reasons:

    1. Population tends to grow over time, so the quantity of agricultural land available per person tends to fall. Higher-priced techniques (such as irrigation, better seeds, fertilizer, pesticides, herbicides) are required to increase production per acre. Similarly, rising population gives rise to a need to produce fresh water using increasingly high-priced techniques, such as desalination.
    2. Businesses tend to extract the least expensive fuels such as oil, coal, natural gas, and uranium first. They later move on to more expensive to extract fuels, when the less-expensive fuels are depleted. For example, Figure 1 shows the sharp increase in the cost of oil extraction that took place about 1999.
      Figure 1. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is "Compound Annual Growth Rate."

      Figure 1. Figure by Steve Kopits of Westwood Douglas showing the trend in per-barrel capital expenditures for oil exploration and production. CAGR is “Compound Annual Growth Rate.”

    3. Pollution tends to become an increasing problem because the least polluting commodity sources are used first. When mitigations such as substituting renewables for fossil fuels are used, they tend to be more expensive than the products they are replacing. The leads to the higher cost of final products.
    4. Overuse of resources other than fuels becomes a problem, leading to problems such as the higher cost of producing metals, deforestation, depleted fish stocks, and eroded topsoil. Some workarounds are available, but these tend to add costs as well.

    As long as the cost of commodity production is rising only slowly, its increasing cost is benevolent. This increase in cost adds to inflation in the price of goods and helps inflate away prior debt, so that debt is easier to pay. It also leads to asset inflation, making the use of debt seem to be a worthwhile approach to finance future economic growth, including the growth of energy supplies. The whole system seems to work as an economic growth pump, with the rising wages of non-elite workers pushing the growth pump along.

    The Big “Oops” Comes when the Price of Commodities Starts Rising Faster than Wages of Non-Elite Workers

    Clearly the wages of non-elite workers need to be rising faster than commodity prices in order to push the economic growth pump along. The economic pump effect is lost when the wages of non-elite workers start falling, relative to the price of commodities. This tends to happen when the cost of commodity production begins rising rapidly, as it did for oil after 1999 (Figure 1).

    The loss of the economic pump effect occurs because the rising cost of oil (or electricity, or food, or other energy products) forces workers to cut back on discretionary expenditures. This is what happened in the 2003 to 2008 period as oil prices spiked and other energy prices rose sharply. (See my article Oil Supply Limits and the Continuing Financial Crisis.) Non-elite workers found it increasingly difficult to afford expensive products such as homes, cars, and washing machines. Housing prices dropped. Debt growth slowed, leading to a sharp drop in oil prices and other commodity prices.

    Figure 2. World oil supply and prices based on EIA data.

    Figure 2. World oil supply and prices based on EIA data.

    It was somewhat possible to “fix” low oil prices through the use of Quantitative Easing (QE) and the growth of debt at very low interest rates, after 2008. In fact, these very low interest rates are what encouraged the very rapid growth in the production of US crude oil, natural gas liquids, and biofuels.

    Now, debt is reaching limits. Both the US and China have (in a sense) “taken their foot off the economic debt accelerator.” It doesn’t seem to make sense to encourage more use of debt, because recent very low interest rates have encouraged unwise investments. In China, more factories and homes have been built than the market can absorb. In the US, oil “liquids” production rose faster than it could be absorbed by the world market when prices were over $100 per barrel. This led to the big price drop. If it were possible to produce the additional oil for a very low price, say $20 per barrel, the world economy could probably absorb it. Such a low selling price doesn’t really “work” because of the high cost of production.

    Debt is important because it can help an economy grow, as long as the total amount of debt does not become unmanageable. Thus, for a time, growing debt can offset the adverse impact of the rising cost of energy products. We know that oil prices began to rise sharply in the 1970s, and in fact other energy prices rose as well.

    Figure 4. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.

    Figure 3. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.

    Looking at debt growth, we find that it rose rapidly, starting about the time oil prices started spiking. Former Director of the Office of Management and Budget, David Stockman, talks about “The Distastrous 40-Year Debt Supercycle,” which he believes is now ending.

    Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.

    Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.

    In recent years, we have been reaching a situation where commodity prices have been rising faster than the wages of non-elite workers. Jobs that are available tend to be low-paid service jobs. Young people find it necessary to stay in school longer. They also find it necessary to delay marriage and postpone buying a car and home. All of these issues contribute to the falling wages of non-elite workers. Some of these individuals are, in fact, getting zero wages, because they are in school longer. Individuals who retire or voluntarily leave the work force further add to the problem of wages no longer rising sufficiently to afford the output of the system.

    The US government has recently decided to raise interest rates. This further reduces the buying power of non-elite workers. We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur.

    China has acted as a major growth pump for the world for the last 15 years, since it joined the World Trade Organization in 2001. China’s growth is now slowing, and can be expected to slow further. Its growth was financed by a huge increase in debt. Paying back this debt is likely to be a problem.

    Figure 5. Author's illustration of problem we are now encountering.

    Figure 5. Author’s illustration of problem we are now encountering.

    Thus, we seem to be coming to the contraction portion of the debt supercycle. This is frightening, because if debt is contracting, asset prices (such as stock prices and the price of land) are likely to fall. Banks are likely to fail, unless they can transfer their problems to others–owners of the bank or even those with bank deposits. Governments will be affected as well, because it will become more expensive to borrow money, and because it becomes more difficult to obtain revenue through taxation. Many governments may fail as well for that reason.

    The U. S. Oil Storage Problem

    Oil prices began falling in the middle of 2014, so we might expect oil storage problems to start about that time, but this is not exactly the case. Supplies of US crude oil in storage didn’t start rising until about the end of 2014.

    Figure 6. US crude oil in storage, excluding SPR, based on EIA data.

    Figure 6. US crude oil in storage, excluding Strategic Petroleum Reserve, based on EIA data.

    Once crude oil supplies started rising rapidly, they increased by about 90 million barrels between December 2014 and April 2015. After April 2015, supplies dipped again, suggesting that there is some seasonality to the growing crude oil supply. The most “dangerous” time for rapidly rising amounts added to storage would seem to be between December 31 and April 30. According to the EIA, maximum crude oil storage is 551 million barrels of crude oil (considering all storage facilities). Adding another 90 million barrels of oil (similar to the run-up between Dec. 2014 and April 2015) would put the total over the 551 million barrel crude oil capacity.

    Cushing, Oklahoma, is the largest storage area for crude oil. According to the EIA, maximum working storage for the facility is 73 million barrels. Oil storage at Cushing since oil prices started declining is shown in Figure 7.

    Figure 7. Crude oil stored at Cushing between June 27, 2014, and June 1, 2016. based on EIA data.

    Figure 7. Quantity of crude oil stored at Cushing between June 27, 2014, and June 1, 2016, based on EIA data.

    Clearly the same kind of run up in oil storage that occurred between December and April one year ago cannot all be stored at Cushing, if maximum working capacity is only 73 million barrels, and the amount currently in storage is 64 million barrels.

    Another way of storing oil is as finished products. Here, the run-up in storage began earlier (starting in mid-2014) and stabilized at about 65 million barrels per day above the prior year, by January 2015.  Clearly, if companies can do some pre-planning, they would prefer not to refine products for which there is little market. They would rather store unneeded oil as crude, rather than as refined products.

    Figure 7. Total Oil Products in Storage, based on EIA data.

    Figure 8. Total Oil Products in Storage, based on EIA data.

    EIA indicates that the total capacity for oil products is 1,549 million barrels. Thus, in theory, the amount of oil products stored can be increased by as much as 700 million barrels, assuming that the products needing to be stored and the locations where storage are available match up exactly. In practice, the amount of additional storage available is probably quite a bit less than 700 million barrels because of mismatch problems.

    In theory, if companies can be persuaded to refine more products than they can sell, the amount of products that can be stored can rise significantly. Even in this case, the amount of storage is not unlimited. Even if the full 700 million barrels of storage for crude oil products is available, this corresponds to less than one million barrels a day for two years, or two million barrels a day for one year. Thus, products storage could easily be filled as well, if demand remains low.

    At this point, we don’t have the mismatch between oil production and consumption fixed. In fact, both Iraq and Iran would like to increase their production, adding to the production/consumption mismatch. China’s economy seems to be stalling, keeping its oil consumption from rising as quickly as in the past, and further adding to the supply/demand mismatch problem. Figure 9 shows an approximation to our mismatch problem. As far as I can tell, the problem is still getting worse, not better.

    Figure 1. Total liquids oil production and consumption, based on a combination of BP and EIA data.

    Figure 9. Total liquids oil production and consumption, based on a combination of BP and EIA data.

    There has been a lot of talk about the United States reducing its production, but the impact so far has been small, based on data from EIA’s International Energy Statistics and its December 2015 Monthly Energy Review.

    Figure 10. US quarterly oil liquids production data, based on EIA data.

    Figure 10. US quarterly oil liquids production data, based on EIA’s International Energy Statistics and Monthly Energy Review.

    Based on information through November from EIA’s Monthly Energy Review, total liquids production for the US for the year 2015 will be over 800,000 barrels per day higher than it was for 2014. This increase is likely greater than the increase in production by either Saudi Arabia or Iraq. Perhaps in 2016, oil production of the US will start decreasing, but so far, increases in biofuels and natural gas liquids are partly offsetting recent reductions in crude oil production. Also, even when companies are forced into bankruptcy, oil production does not necessarily stop because of the potential value of the oil to new owners.

    Figure 11 shows that very high stocks of oil were a problem, way back in the 1920s. There were other similarities to today’s problems as well, including a deflating debt bubble and low commodity prices. Thus, we should not be too surprised by high oil stocks now, when oil prices are low.

    Figure 2. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure produced by EIA. Figure by EIA.

    Figure 11. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure by EIA.

    Many people overlook the problems today because the US economy tends to be doing better than that of the rest of the world. The oil storage problem is really a world problem, however, reflecting a combination of low demand growth (caused by low wage growth and lack of debt growth, as the world economy hits limits) continuing supply growth (related to very low interest rates making all kinds of investment appear profitable and new production from Iraq and, in the near future, Iran). Storage on ships is increasingly being filled up and storage in Western Europe is 97% filled. Thus, the US is quite likely to see a growing need for oil storage in the year ahead, partly because there are few other places to put the oil, and partly because the gap between supply and demand has not yet been fixed.

    What is Ahead for 2016?

    1. Problems with a slowing world economy are likely to become more pronounced, as China’s growth problems continue, and as other commodity-producing countries such as Brazil, South Africa, and Australia experience recession. There may be rapid shifts in currencies, as countries attempt to devalue their currencies, to try to gain an advantage in world markets. Saudi Arabia may decide to devalue its currency, to get more benefit from the oil it sells.
    2. Oil storage seems likely to become a problem sometime in 2016. In fact, if the run-up in oil supply is heavily front-ended to the December to April period, similar to what happened a year ago, lack of crude oil storage space could become a problem within the next three months. Oil prices could fall to $10 or below. We know that for natural gas and electricity, prices often fall below zero when the ability of the system to absorb more supply disappears. It is not clear the oil prices can fall below zero, but they can certainly fall very low. Even if we can somehow manage to escape the problem of running out of crude oil storage capacity in 2016, we could encounter storage problems of some type in 2017 or 2018.
    3. Falling oil prices are likely to cause numerous problems. One is debt defaults, both for oil companies and for companies making products used by the oil industry. Another is layoffs in the oil industry. Another problem is negative inflation rates, making debt harder to repay. Still another issue is falling asset prices, such as stock prices and prices of land used to produce commodities. Part of the reason for the fall in price has to do with the falling price of the commodities produced. Also, sovereign wealth funds will need to sell securities, to have money to keep their economies going. The sale of these securities will put downward pressure on stock and bond prices.
    4. Debt defaults are likely to cause major problems in 2016. As noted in the introduction, we seem to be approaching the unwinding of a debt supercycle. We can expect one company after another to fail because of low commodity prices. The problems of these failing companies can be expected to spread to the economy as a whole. Failing companies will lay off workers, reducing the quantity of wages available to buy goods made with commodities. Debt will not be fully repaid, causing problems for banks, insurance companies, and pension funds. Even electricity companies may be affected, if their suppliers go bankrupt and their customers become less able to pay their bills.
    5. Governments of some oil exporters may collapse or be overthrown, if prices fall to a low level. The resulting disruption of oil exports may be welcomed, if storage is becoming an increased problem.
    6. It is not clear that the complete unwind will take place in 2016, but a major piece of this unwind could take place in 2016, especially if crude oil storage fills up, pushing oil prices to less than $10 per barrel.
    7. Whether or not oil storage fills up, oil prices are likely to remain very low, as the result of rising supply, barely rising demand, and no one willing to take steps to try to fix the problem. Everyone seems to think that someone else (Saudi Arabia?) can or should fix the problem. In fact, the problem is too large for Saudi Arabia to fix. The United States could in theory fix the current oil supply problem by taxing its own oil production at a confiscatory tax rate, but this seems exceedingly unlikely. Closing existing oil production before it is forced to close would guarantee future dependency on oil imports. A more likely approach would be to tax imported oil, to keep the amount imported down to a manageable level. This approach would likely cause the ire of oil exporters.
    8. The many problems of 2016 (including rapid moves in currencies, falling commodity prices, and loan defaults) are likely to cause large payouts of derivatives, potentially leading to the bankruptcies of financial institutions, as they did in 2008. To prevent such bankruptcies, most governments plan to move as much of the losses related to derivatives and debt defaults to private parties as possible. It is possible that this approach will lead to depositors losing what appear to be insured bank deposits. At first, any such losses will likely be limited to amounts in excess of FDIC insurance limits. As the crisis spreads, losses could spread to other deposits. Deposits of employers may be affected as well, leading to difficulty in paying employees.
    9. All in all, 2016 looks likely to be a much worse year than 2008 from a financial perspective. The problems will look similar to those that might have happened in 2008, but didn’t thanks to government intervention. This time, governments appear to be mostly out of approaches to fix the problems.
    10. Two years ago, I put together the chart shown as Figure 12. It shows the production of all energy products declining rapidly after 2015. I see no reason why this forecast should be changed. Once the debt supercycle starts its contraction phase, we can expect a major reduction in both the demand and supply of all kinds of energy products.
    Figure 4. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

    Figure 12. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

    Conclusion

    We are certainly entering a worrying period. We have not really understood how the economy works, so we have tended to assume we could fix one or another part of the problem. The underlying problem seems to be a problem of physics. The economy is a dissipative structure, a type of self-organizing system that forms in thermodynamically open systems. As such, it requires energy to grow. Ultimately, diminishing returns with respect to human labor–what some of us would call falling inflation-adjusted wages of non-elite workers–tends to bring economies down. Thus all economies have finite lifetimes, just as humans, animals, plants, and hurricanes do. We are in the unfortunate position of observing the end of our economy’s lifetime.

    Most energy research to date has focused on the Second Law of Thermodynamics. While this is a contributing problem, this is really not the proximate cause of the impending collapse. The Second Law of Thermodynamics operates in thermodynamically closed systems, which is not precisely the issue here.

    We know that historically collapses have tended to take many years. This collapse may take place more rapidly because today’s economy is dependent on international supply chains, electricity, and liquid fuels–things that previous economies were not dependent on.

  • "The Jihadists Will Attack Europe": Leaked Phone Call Shows Gaddafi Warned Tony Blair Of Terror Attacks

    On Wednesday, we took a close look at the battle for Libya’s oil.

    Libya, much like Syria, is a case study in why the West would be better off not intervening in the affairs of sovereign states on the way to bringing about regime change. “Toppling dictators” sounds good in principle, but at the end of the day, it’s nearly impossible to predict what will emerge from the power vacuums the US creates when Washington destabilizes governments.

    Post-Baathist Iraq is rife with sectarian discord, a post-Assad Syria would likely be an even bloodier free-for-all than it already is, and post-Gaddafi Libya is a failed state with two governments each claiming legitimacy. These types of environments are exploitable by extremists eager to capitalize on the chaos by seizing resources and, ultimately, power.

    Just today for instance, nearly 50 people were killed in Libya when a truck bomb hit a police training center where recruits were holding a morning meeting. “Mayor Miftah Hamadi said the truck bomb detonated as around 400 recruits were gathering in the early morning at the police center in Zliten, a coastal town between the capital Tripoli and the port of Misrata,” Reuters reports, adding that “the Zliten blast was the worst since an attack in February last year when three car bombs hit the eastern city of Qubbah, killing 40 people in what officials described as a revenge attack for Egyptian air strikes on Islamist militant targets.”

    “It was horrific, the explosion was so loud it was heard from miles away,” Hamadi told Reuters by phone. “All the victims were young, and all about to start their lives.”

    The blast was the deadliest since Gaddafi’s ouster and comes as militants loyal to Ibrahim Jadhran battle ISIS for control of key oil fields and ports. Islamic State’s presence in Libya has grown and the group may be looking to supplement oil income lost to Russian airstrikes in Syria with sales of Libyan crude.

    Who could have seen all of this – including the Paris attacks – coming, you ask? Well, Muammar Gaddafi for one.

    According to The Telegraph, Gaddafi warned Tony Blair that jihadists would one day attack Europe in the event his government fell. “Gaddafi’s dire prediction was made in two desperate telephone calls with Mr Blair on February 25, 2011 – as civil war was engulfing Libya,” The Telegraph writes. “In the first call at 11:15am, Gaddafi said: “They [jihadists] want to control the Mediterranean and then they will attack Europe.” Here’s more:

    In a second call made a little over four hours later, Gaddafi told Mr Blair: “I will have to arm the people and get ready for a fight. Libyan people will die, damage will be on the Med, Europe and the whole world. These armed groups are using the situation [in Libya] as a justification – and we shall fight them.”

     

     

    Mr Blair had made two calls to Gaddafi to try to negotiate the dictator’s departure from Tripoli as civil war engulfed the nation. Three weeks later, a Nato-led coaltion that included Britain, began bombing raids that led to the overthrow of Gaddafi. The dictator was finally deposed in August and murdered by a mob in October.

     

     

    This is what Gaddafi got for his trouble:

    So much for this:

    You’ll recall that Bashar al-Assad also warned Europe that destabilizing governments was a recipe for disaster. “We said, don’t take what is happening in Syria lightly,” Assad said, in the wake of the Paris attacks.

    “Unfortunately, European officials did not listen,” he added.

  • Russell Napier Explains How The Decline Of The Yuan Destroys Belief In Central Banking

    From Russell Napier of ERI-C

    It’s Not a Pet, It’s a Falcon: How the decline of the RMB destroys belief in central banking and a successful reflation

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;

          – The Second Coming- W.B. Yeats

    First catch your falcon, as the formidable Mrs Beeton might have said if she was in need of a method of catching her main course (see Mrs Beeton’s Book of Household Management 1861- ‘Recipe for Jugged Hare’).

    Having caught your wild falcon, you can now begin the training process. You are attempting to impose your will upon a creature that, in its wild state, catches, kills and devours other birds. This is creative destruction in its rawest form as those acts of savagery provide the fuel to keep our falcon flying. Taming such wild forces is not easy, whether they be birds of prey or the desires, wishes, greed and fear of millions of people determining prices through their supply and also their demand.

    Let’s get some advice from the field of falconry for our central bankers, and the other handmaidens of state control, as they seek to impose their wishes on the will and acts of millions-

    ‘Falconry is a great sport, but there is a lot of time involved. You will want to have enough time to train your bird. If you don’t have the time, or the willingness, then you might as well not do it at all. If you are one of those people who is not patient, falconry may not be for you. You should not take up falconry if you want the falcon as a pet, or something to show off. Falcons can’t just be put in the closet when you are done with them. It takes time and commitment, but the reward in the end is worth it.’

    (Source: WikiHow- How to Train Your Falcon)

    A ‘great sport’ indeed, given the alternative sports open to government officials! Well, they have demonstrated that they have the time and they seem to have been born with the willingness, or at least picked it up pretty early in life. Patience just comes with the territory when you work for the government— there really isn’t much of an alternative. However, they do seem to have a problem when it comes to realizing that there is not much point in turning this wild thing, that exists to efficiently convert its kill into energy and life, into a pet ‘in the closet’.

    The attempt to train the wild forces of supply and demand by the authorities has really ramped up since 2009. Just four trading days into 2016 the widening of the gyre makes it very obvious that they have failed to create a pet to do their bidding. The wild forces of supply and demand have sought to deliver deflation, at least since 2008, but the falconer has demanded the lift-off of inflation. In the first four trading days of January 2016 it has become even clearer that gravity wins and this bird will not fly.

    Throughout 2015, in four quarterly reports for subscribers, this analyst explained that, no matter where you and might stand, this lever of nominal interest rates is simply insufficient to pivot the world into inflation. Those reports focused on what you should buy given that failure. The rest of this Fortnightly looks at the investment consequences of this failure and what investors should do when ‘the centre cannot hold’.

    The key failure of control is in China because that failure will overwhelm other seeming successes. In 2012 this analyst labelled one chart “the most important chart in the world”. It was a chart of China’s foreign exchange reserves. It showed how they were declining and The Solid Ground postulated that this would produce a decline in real economic activity in China and higher real interest rates in the developed world. The result of these two forces would be deflation, despite the amount of wind puffed below the wings of the global economy in the form of QE.

    Of course, no sooner had this report been issued than China’s grand falconer got to work by borrowing hundreds of billions of USD through its so-called commercial banking system! The alchemical process through which this mandated capital inflow supported the exchange rate while permitting money creation in China stabilized the global economy- for a while.

    However, by 2014 it was ever more difficult to borrow more money than the people of China were desperate to export and the market began to win. Since then foreign reserves have been falling and the grand falconer has tried to support the exchange rate while simultaneously easing monetary policy to boost economic growth. I’m no falconer but isn’t this akin to trying to get a bird to fly while tying back its wings?

    Some investors, well paid to believe six impossible things before breakfast, did not question the ability of the grand Chinese falconer to fly a falcon with tethered wings.

    They changed their minds briefly as the bird plummeted earthwards in August 2015 but still the belief in the ability to reflate the economy and simultaneously support an overvalued exchange rate continued. In January 2016 this particular falcon, let’s call it the people’s falcon, was more ‘falling with attitude’ than flying.

    This bird does not fly and if this bird does not fly the centre does not hold. A major devaluation of the RMB is just beginning and the faith in all the falconers will wane as deflation comes to the world almost seven years after the falconers first fanned the winds of QE supposed to levitate everything.

    The failure to inflate is the failure to destroy debts to the benefit of equity. Investors should be underweight equity. Of course, the decline in corporate cash-flows, associated with deflation, is bad for interest cover and the price of corporate bonds. Some emerging markets (subscribers see Why Deflation Means Default 1Q 2015) will fail to repay their heavy foreign currency debt burdens. This is dreadful news for those running open-ended funds crammed full of illiquid credit instruments- some have closed and more will follow. The Solid Ground pointed out in 4Q last year that the US$34trn open-ended fund business is simply unfit for purpose in a world of waning liquidity. While this dreadful combination leads to a credit crunch that starts in the bond market it must inevitably also impact negatively upon banking systems. Banks, already de facto utilities for the financing of government, are very vulnerable to attack from thousands of bright kids in the fintech industry. Add to their structural demise the risk of credit quality issues and the growing fear of bail-ins by their bond holders (as subscribers know BRRD will be a huge Eurozone story in 2016) and this could get very messy.

    If doctors swear each year to ‘first do no harm’, investors should begin 2016 by reciting ‘first own no banks’.

    Investors who buy the bonds of governments that ultimately control the money-creation process should have an almost zero risk of not receiving their payments of principal and interest. These certain and fixed payments will grow in purchasing power during a deflation and thus their price will be bid up. This analyst remains sceptical as to whether this description of a fiat currency system applies to all those countries currently in the Eurozone.

    ‘Whatever it takes’ may ultimately be constitutionally impossible and the ECB may not be prepared to print sufficient Euros to ensure that every government of the Eurozone makes all payment of principal and interest. If that reality dawns then yield spreads widen in the Eurozone and ultimately your interest and principal may not be repaid in Euros.

    For those investors who have to be in equities, North Asia is the only game in town. They, in the form of China, Japan and probably also South Korea, will win the currency wars. Their success in winning this game triggers the scale of deflation that generates the global credit crunch that is virtually inevitable as deflation takes hold. These jurisdictions may be somewhat alien to sound capital allocation, but they keep that capital humming at high rates of capacity, via devaluations, while more market-orientated systems see their assets under-utilized. This analyst prefers Japan (subscribers see Caught in a Trap 2Q 2015) where some shift to more efficient capital allocation is under way, but even the structurally anaemic corporate capital of China is likely to be bid up as the RMB declines in response to further and further economic stimulus- increasingly possible as the exchange rate is allowed to find its own level. This analyst has never invested in a Chinese equity as he is not sure that Chinese management know what equity is but bright stockpickers can find management in China that does. Hedging all North Asian currency exposure is essential.

    If you had not noticed, 2016 has begun with gold and the USD rising simultaneously. This is different and important. This is very positive for gold and very bad for the world.

    The rise of both together may signal that we have just entered that period when this inert non-yielding substance is preferred to those assets that promise a yield but where the scale of future payments is subject to considerable doubt. Also positive for gold, the advent of deflation, following the failure of the easy reflationary solutions promised by non-elected central bankers, will enfranchise aggressive acts of reflation by our elected representatives. When the tough get going then the going will really get tough- at least if you’re an owner of capital.

    Any political fiat, when monetary fiat fails, will be tantamount, in some way or other, to an attempt to directly control the allocation of capital/savings. History shows that this commences a giant game of hide-and-seek, and while gold may shine brightly it is also moved freely in briefcases and is easily hidden. Paper assets are easily tracked, discovered, conscripted and ultimately denuded in value. For gold to rise while the USD also rises signals that investors are beginning to see through the terrible burden on the price of the shiny stuff from ever-rising real rates of interest extant since 2011. Real rates have further to rise but a few more days of a strong USD and a strong gold price means gold has probably entered a bull market that should last for decades rather than years; its value boosted initially by its ability to avoid conscription, but underpinned by the authorities’ mass mobilization of resources to ultimately generate inflation.

    From 2009-2015 investors were well paid, at least in the developed world, to believe the most impossible of the six things before breakfast: that central bankers can subvert the desires, wishes, greed and fear of millions of people who set prices every day through their actions.

    You now have two choices: keep believing the most impossible thing, or accept that the wild force that establishes market prices has not been tamed. It’s not a pet, it’s a falcon and ‘The falcon cannot hear the falconer’. The ‘people’s falcon’ may be the first to enter ‘a widening gyre’ but it won’t be the only wild force that refuses to be tamed in 2016.

  • Here We Go Again: Chinese Stocks Plunge, Give Up Early Gains Despite Yuan Fix Unchanged

    Update: *SHANGHAI COMPOSITE INDEX FALLS 2.04%(AFTER BEING UP 3.2%)

     

    And CSI Futures are tumbling…

     

    Not a pretty week…

     

    Shifting notavkly from the opening color that we detailed earlier..

    With all eyes on Chinese FX and equity markets, following the worst start to a year for US (and Chinese) stocks in history, PBOC decided (after 7 straight days of devaluation and 7% devaluation since August) to halt the run and increase Yuan fix by a paltry 0.01% to 6.5636 (notably below yesterday's 6.5939 CNY close). Offshore Yuan is strengthening and US equity markets are jumping. Chinese equity markets (now theoretically unhampered by their circuit-breaker panic switch) are far less impressed.

     

    PBOC fixes the Yuan a tiny bit stronger…

     

    Offshore Yuan roller-coastered through the US session as Reuters headlines sparked selling pressure after some Treasury-selling/Yuan-tervention…but is rallying on the not bad news…

     

    Onshore-Offshore spread has tumbled to 900pips from over 1500…

     

    Asian stocks are set for their worst week since 2011 with some notable names in big trouble:

    • *NOBLE GROUP TUMBLES 10%, EXTENDING LOSS, AFTER S&P DOWNGRADE

    While China ETFs trading in US markets signal notable weakness to come for an-"limited" Chinese stock market…

     

    Chinese stocks look set for a positive open:

    • *CHINA SHANGHAI COMPOSITE SET TO OPEN UP 2.2% TO 3,194.63
    • *CHINA'S CSI 300 INDEX SET TO OPEN UP 2.4% TO 3,371.87
    • *FTSE CHINA A50 INDEX RISES 2.17%

    And Dow Futures love it… for now…

     

    Some context:

     

    So no news is good news for now…

    Charts: Bloomberg

  • Natural Gas Prices Signaling Oil Bottom for Investors

    By EconMatters

      
    Natural Gas Prices Bottomed

     

    Everyone is trying to figure when the oil markets will bottom. Well lost in all the crazy action in markets globally is the nice resurgence off the bottom for natural gas prices. Natural Gas prices have essentially gone from $1.68 per MMBtu to $2.40 per MMBtu rather rapidly in the midst of a mild winter so far. The reason is that all those rig reductions are starting to affect the production of the commodity, less natural gas is coming to market relative to expectations.
     

     

      
    The Lag Effect

     

     

    The lag effect in all those rig declines is starting to show up in the natural gas production numbers, and although the cut in oil rigs hasn`t shown up yet in oil production in a meaningful way, it is just around the corner over the next three months by my calculation. We should start to experience some meaningful U.S. Oil Production cuts by late March and early April which will solidify the fact that the oil market had long sense bottomed in January of this year.

     

    Rigs
    		    
     
    Fri, January 01, 2016
    Change from
     
    last week
    last year
    Oil rigs
    536
    -0.37%
    -63.83%
    Natural gas rigs
    162
    0.00%
    -50.61%
    Miscellaneous
    0
    0.00%
    -100.00%

     

     

     

    Rig numbers by type
    		    
     
    Fri, January 01, 2016
    Change from
     
    last week
    last year
    Vertical
    89
    3.49%
    -70.33%
    Horizontal
    549
    -0.90%
    -58.91%
    Directional
    60
    0.00%
    -65.71%
    Source: Baker Hughes Inc.

     

     

     

    Working gas in underground storage
     
    Stocks
    billion cubic feet (bcf)
    		  
    Region
    2016-01-01
    2015-12-25
    change
    		  
    East
    857
    876
    -19
    		  
    Midwest
    983
    1,025
    -42
    		  
    Mountain
    185
    195
    -10
    		  
    Pacific
    381
    382
    -1
    		  
    South Central
    1,347
    1,340
    7
    		  
    Total
    3,643
    3,756
    -113
    		  
    Source: U.S. Energy Information Administration

     

     

     

    Market Investment

     

     

    By the time everyone realizes that the oil market has bottomed it is too late to make the real good, easy money off the bottom, just like in natural gas prices. You have to be willing to step in and take the risk that prices haven`t bottomed. You basically are getting paid to buy when everyone else is selling the market, in essence, blood in the streets is the market analogy. We accurately called the bottom in natural gas prices, we will see how close we are in the oil markets. But we know that any investment right now in the oil market where one can stay in the trade, and not be liquidated for any reason, i.e., bankruptcy risk in insolvent company – is going to make money over a two year time frame. Moreover, the reward will far and above exceed the risk involved, and the performance of said trade will greatly outperform the overall market returns of most other asset alternatives.

    © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

  • It's Official: Bitcoin Was The Top Performing Currency Of 2015

    For most investors, the major story of 2015 was the expectation and eventual fulfillment of a rate hike, signalling the start of tightening monetary policy in the United States. This policy is divergent to those of other major central banks, and this has translated into considerable strength and momentum for the U.S. dollar.

    Using the benchmark of the U.S. Dollar Index, a comparison against a basket of major currencies, the dollar gained 8.3% throughout the year.

    Despite this strength, the best performing currency in 2015 was not the dollar. In fact, the top currency of 2015 is likely to be considered the furthest thing from the greenback.

    Bitcoin, a digital and decentralized cryptocurrency, staged a late comeback in 2015 to overtake the dollar by a whopping 35% by the end of the year.

    Courtesy of: The Money Project

     

    Bitcoin is no stranger to extremes. During the year it came into the mainstream in 2013, Bitcoin gained 5,429% to easily surpass all other currencies in gains. However, the following year it would become a dog, losing -56% of its value to become the world’s worst performing currency in 2014.

    The second best performing major currency, relative to the USD, was the Israeli shekel. It gained 0.3% throughout the year, and the Japanese yen (0%) and Swiss franc (0%) were close behind, finishing on par with how they started the year.

    The world’s worst performing currencies are from countries that were battered by commodities or geopolitical strife.

    Ukraine’s hryvnia fell -33.8% in the aftermath of Crimea. Brazil’s real (-30.5%), the Canadian dollar (-15.9%), Russian ruble (-20.8%), and South African rand (-26.7%) all lost significant value in the purging of global commodities. Gold finished the year down -10%, and silver at -11%.

    And as China devaluation accelerates, Bitcoin has been surging since the start of the year…

  • What China Has To Look Forward To When It Opens In A Few Hours

    It’s all up to China tonight, and if early ETF indications are correct, today’s US equity bloodbath is about to spill over right back into Chinese markets again, only this time without the benefit of circuit breakers making it an early close for local traders if they manage to push the market down 7% in 29 minutes.

    Moments ago, on Bloomberg TV, Bill Gross said China’s stock markets are likely to drop 5-6% on Friday: “Based upon the ETF in the United States, China is predicted to be down 5 percent or 6 percent…but China is an artificial market.  All global markets are artificially based and to the extent that we have a catharsis, I think, depends upon central banks basically giving up in terms of what they do.  I don’t think that’s going to happen.”

    Gross is referring to the following ETF:

     

    Indeed, it appears that the US is far more bearish on what will happen in China tonight relative to the local futures market:

    Incidentally, when asked whether the market turmoil will cause Chair Yellen to say the rate hike is done, Gross said: “I don’t think she’ll say that. They’ve been on this track of raising interest rates for so long that she’s not going to come out with one or done. She may come out there — someone may come out – Fischer perhaps – will come out and acknowledge the fact that global markets and that global financial conditions are an important consideration in terms of future policy. But I don’t think they’re going to divulge that they are not raising interest rates for times as Stan Fischer said a few days ago.”

    In other words, central banks to the rescue. Meanwhile…

    Angry clients besiege Chinese brokerages

    Back in China, which has had non-functioning markets on two of the past four days, should the market rout persist, the already angry local “traders”, most of whom are undereducated and margined to the hilt, will likely snap.

    According to Bloomberg, after yesterday’s farce, angry clients besieged a brokerage as China’s market crashed and was halted.

    “We cannot go home. We are dealing with a flood of angry phone calls from clients complaining about the market plunge and the circuit-breaker system,” says Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. Wei added that “we are also feeling at a loss and confused today as we didn’t quite figure out what was going on.”

    Wei also says that Huaxi management “has asked us to placate clients and guide them to cut holdings rationally if they do margin trading.”

    Sorry, but when clients have not only lost a year’s worth of income in minutes but on top of that can’t liquidate the remainder, no amount of placating will work.

    Wei then explained what even the Chinese regulator realized after the first few days of experimenting with the new circuit breaker: “the circuit-breaker mechanism actually fuels declines and that goes against the regulator’s goal of stabilizing the market.” It remains to be seen if removing the circuit breaker, a device by definition meant to stabilize markets, will lead to calmer markets. Maybe for the first few minutes, but then all bets are off.

    “The new rule on major shareholders’ stock sales isn’t going to work to prevent the market from falling. It’s restricting sales and the CSRC cannot do things like banning them from selling forever. It’ll be a tough day again tomorrow.“

    The circuit breaker has been removed, but we feel it will be just as tough tomorrow, or rather, when China opens in a few hours.

    In the US, traders are “too old for this”

    It’s not just Chinese traders. According to another Bloomberg report, US traders “can’t afford to sleep” during what is becoming a nightly rout, starting just around 8:30pm Eastern. 

    With China’s stock market in disarray, American investors are finding out just how long their day can last — before they even get to work.

    “This morning when I rolled over in my bed at 4 a.m. to check the markets and saw what happened in China and in U.S. futures I thought, ‘Oh, here we go,’” said Howard Ward, who oversees $42.7 billion as the chief investment officer of growth equities at Gamco Investors Inc. “I’m getting too old for this.”

    It’s a cowboy market

    “If it’s somebody who really doesn’t know a lot about China, this is kind of scary. They say, ‘Oh my god, their market can drop 7 percent,’” said Nick Sargen, who helps manage $46.2 billion as chief economist and senior investment adviser for Fort Washington Investment Advisors Inc. “The reason I can be more calm about it is that I follow that market, I can say, listen it’s a cowboy market.”

    Bloomberg concludes by saying that “night owls have been rewarded for at least a year as China’s influence moved action in U.S. stocks to hours when exchanges were closed. In 2015, shares in the S&P 500 swung more during off hours than their small-cap brethren for the first time in at least 15 years.” 

    So far this year, the only privilege night owls have had is to watch as China loses control of its market on half the trading days so far.

    * * *

    So what happens tonight? Keep an eye on the Yuan fixing around 8 pm: if the USDCNY sees another substantial jump (i.e., Yuan decline) from last night’s 5 year low rate of 6.5646, this could suggest further turbulence and as all self-fulfilling prophecies go, unleash another pukefest which not even the circuit breaker adjustment will fix. It will also mean that unless the Chinese plunge protection team aka the “National Team” throws everything it has at the stock market, the Shanghai Composite could fall first 5%, then 7%, and then not stop but simply keep falling until someone finally does step in.

    In short: it will all be about a central bank rescue again.

    But for now either go load up on coffee, or take a nap. It will be a long night.

  • "We Came, We Saw, He Died" – Revisiting The Incredible Disaster That Is Libya

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    In retrospect, Obama’s intervention in Libya was an abject failure, judged even by its own standards. Libya has not only failed to evolve into a democracy; it has devolved into a failed state. Violent deaths and other human rights abuses have increased severalfold. Rather than helping the United States combat terrorism, as Qaddafi did during his last decade in power, Libya now serves as a safe haven for militias affiliated with both al Qaeda and the Islamic State of Iraq and al-Sham (ISIS). The Libya intervention has harmed other U.S. interests as well: undermining nuclear nonproliferation, chilling Russian cooperation at the UN, and fueling Syria’s civil war.?

     

    As bad as Libya’s human rights situation was under Qaddafi, it has gotten worse since NATO ousted him. Immediately after taking power, the rebels perpetrated scores of reprisal killings, in addition to torturing, beating, and arbitrarily detaining thousands of suspected Qaddafi supporters. The rebels also expelled 30,000 mostly black residents from the town of Tawergha and burned or looted their homes and shops, on the grounds that some of them supposedly had been mercenaries. Six months after the war, Human Rights Watch declared that the abuses “appear to be so widespread and systematic that they may amount to crimes against humanity.”?

     

    As a consequence of such pervasive violence, the UN estimates that roughly 400,000 Libyans have fled their homes, a quarter of whom have left the country altogether. ?

     

    – From the post: The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

    Shortly after the NATO-led war which ousted Libyan leader Muammar el-Qaddafi, then Secretary of State Hillary Clinton ebulliently boasted with a characteristic sociopathic giddiness, the following on network television:

    Indeed, from Iraq to Libya, and indeed across the entire planet, the U.S. government has an uncanny ability to take an already bad geopolitical situation and turn it into a complete and total chaotic humanitarian disaster. It’d be one thing if the woman in the above video clip had been disgraced and forced into exile in Chappaqua, but the disturbing reality is she will most likely be promoted to the next President of these United States.

    In order to fully appreciate what a clueless homicidal maniac she is, let’s reexamine the unmitigated nightmare that is Libya. A nightmare that Clinton and her interviewer laughed uncontrollably about creating.

    From Reuters:

    At least 47 people were killed on Thursday when Libya’s worst bomb attack since the fall of Muammar Gaddafi hit a police training center as hundreds of recruits gathered for a morning meeting.

     

    No group immediately claimed the attack in the town of Zliten, but suicide blasts and car bombings have increased in Libya as Islamist militants have taken advantage of the North African country’s chaos to expand their presence.

     

    Since a NATO-backed revolt ousted Gaddafi, Libya has slipped deeper into turmoil with two rival governments and a range of armed factions locked in a struggle for control of the OPEC state and its oil wealth.

     

    In the chaos, Islamic State militants have grown in strength, taking over the city of Sirte and launching attacks on oilfields. Islamic State fighters this week attacked two major oil export terminals.

     

    Western powers are pushing Libya’s factions to back a U.N.-brokered national unity government to join forces against Islamic State militants, but the agreement faces major resistance from several factions on the ground.

     

    For more than a year, an armed faction called Libya Dawn has controlled Tripoli, setting up its own self-declared government, reinstating the former parliament and forcing the recognized government to operate in the east of the country.

     

    Western officials say forming a united government would be the first step in Libya seeking international help to fight against Islamic State, including training for a new army and possible air strikes against militant targets.

    But hey…

    Screen Shot 2015-04-09 at 12.09.13 PM

    Finally, if you want to understand just how long the war against Syria has been in the works (before ISIS became a huge problem), let’s revisit the following 2011 tweet by “Crazy” John McCain:

    And you wonder why the world is in the state it’s in…

    For related articles, see:

    The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

    Tunisian Terror Attack Suspects Trained in U.S. “Liberated” Libya

    Incredible Tweets from John McCain on Libya and Syria from 2009 and 2011

    How the Clinton Foundation Paid Sidney Blumenthal $10K per Month as He Gave Horrible Libya Advice to the State Dept.

  • Bloodbath

    You know it's bad when…

    But, but, but… Fed… FANGs… Decoupled… Services… Netflix… Unicorns… Cramer…

     

    The day started badly (as China devaluation stress crushed carry trades and sucked liquidity out of the world, slamming USDJPY, US stocks, bond yields, credit, crude, and copper lower)…no late-day rally today!

     

    *CANADA STOCKS ENTER BEAR MARKET AFTER 20% DROP FROM SEPT. 2014

     

    All that hope as China lifted its circuit-breaker rule and crude briefly rallied… but stocks carnaged back to overnight lows late in the day… Another bounce into the European close then SELL MORTIMER SELL into NYMEX close

     

    Since the start of December, it's ugly…

     

    The NASDAQ is rapidly losing its post-QE3-End gains…

     

    "Policy Error" Much?

     

    "No Brainer" is down 28% from its highs…*APPLE CLOSES AT $96.45; FIRST CLOSE BELOW $100 SINCE OCT. 2014

     

    FANTAsy stocks tumbled deep into the red for the year (yes even NFLX!!) Facebook, Amazon, Netflix, Tesla, and Alphabet… all red…

     

    Financials caught down to credit…But just keep talking up NIM and their "no brainer"-ness

     

    VIX pushed above 25…

     

    VIX term structure inverted…

     

    Credit suggests more to come..

     

    Stocks are "getting there"…

     

    Catching down to breadth…

     

    Away from the excitement of stocks…

    Treasury yields tumbled further (some selling pressure as CNH defense suggested China selling)…

     

    The USD Index tumbled back into the red for the week as JPY strength continued…

     

    USDJPY closes at 11 month lows…

     

    Commodities split between growth and safety as PMs rallied and crude, copper crumbled…

     

    as Gold and Silver Surged…

     

    Charts: Bloomberg

    Bonus Chart: What did you think would happen?

  • Slovak PM Closes The Door To Refugees: "We Don't Want What Happened In Germany To Happen Here"

    Earlier today, Slovak Prime Minister Robert Fico formally stood up to the Brussels supergovernment juggernaut and said his government will not allow Muslims to create “a compact community,” adding that integrating refugees is impossible.

    Slovakia has a tiny Muslim community of several thousand.

    Fico’s government filed a legal challenge last month to a mandatory plan by the European Union to distribute migrants among members of the bloc.

    Fico said Thursday his government sees what he calls a “clear link” between the waves of refugees and the Paris attacks and the sexual assaults and robberies during the New Year’s Eve festivities in Germany.

    He says: “We don’t want what happened in Germany to happen here.”

    Fico says “the idea of multicultural Europe has failed” and that “the migrants cannot be integrated, it’s simply impossible.”

    * * *

    After the past week’s events in Cologne, we wonder if there is anyone left in Germany who disagrees.

  • Why The U.S. Can't Be Called A "Swing Producer"

    Submitted by Arthur Berman via OilPrice.com,

    Daniel Yergin and other experts say that U.S. tight oil is the swing oil producer of the world.

    They are wrong. It is preposterous to say that the world’s largest oil importer is also its swing producer.

    There are two types of oil producers in the world: those who have the will and the means to affect market prices, and those who react to them. In other words, the swing producer and everyone else.

    A swing producer must meet the following criteria:

    • A swing producer must be a net exporter of oil.
    • A swing producer must have enough daily production, spare capacity and reserves to influence market prices by balancing supply and demand through increasing or decreasing output.
    • A swing producer must be able to act authoritatively and quickly to increase or decrease output.
    • In the real world, a swing producer is a euphemism for a cartel. No single producer has enough oil leverage to balance the market and influence prices by itself. That includes Saudi Arabia, Russia, and the United States, the top 3 producers in the world. Obviously, it also includes U.S. tight oil.
    • A swing producer must have low production costs and have the financial reserves to withstand reduced cash flow when restricting or increasing supply is necessary to balance the market.

    So, let’s go down the list for OPEC and U.S. tight oil.

    OPEC’s net exports for 2014 were 23 million barrels per day (mmbpd) (Figure 1). U.S. net exports were -7 mmbpd. In other words, the U.S. is a net importer of crude oil. A net importer of oil cannot be a swing producer.

    Figure 1. OPEC and U.S. 2014 net crude oil exports.
    Source: OPEC & Labyrinth Consulting Services, Inc.

    (Click image to enlarge)

    This will not be substantially changed by the repeal of the crude oil export ban because U.S. consumption of crude oil (16.3mmbpd) exceeds domestic production (9.2 mmbpd) by 7.1 mmbpd. If exports of tight oil increase, imports will have to increase by an equal amount to meet demand.

    That should be enough to end the discussion about whether U.S. tight oil is a swing producer but I will finish going through the list.

    OPEC exists because none of its members alone meet the criteria needed to balance the market and affect prices. OPEC produces 31.4 mmbpd of the crude oil + condensate (47 percent of world production). It has approximately 1.5 million barrels per day (mmbpd) of spare capacity, and it has 72 percent (1220 billion barrels of oil) of the world’s proven reserves (Figure 2). The members of the cartel represent countries whose leaders have the authority to cut or increase oil production at will. Saudi Arabia alone has about $660 billion in cash reserves. Its production costs are less than $10 per barrel.

    Figure 2. Comparison of OPEC and U.S. tight oil production, spare capacity and reserves.

    Source: EIA, Drilling Info & Labyrinth Consulting Services, Inc.

    (Click image to enlarge)

    U.S. tight oil accounts for less than 5 percent of the world’s production of crude oil + condensate (3.7 mmbpd). It has approximately 0.23 mmbpd of spare capacity and less than 1 percent of the world’s proven reserves (13 billion barrels of oil). U.S. tight oil producers do not and cannot act together. Tight oil producers spend twice as much money as they make, and have up to 5 times more debt than annual revenue. Its production costs are $65-$70 per barrel.

    U.S. tight oil is on life-support at $35 per barrel oil prices.

    OPEC is a swing producer. U.S. tight oil is not.

    Truth vs. Confirmation Bias

    In April 2015, Yergin told CNBC, “What does it mean when you say the U.S. is the new swing producer? It’s much easier to swing down than swing up.”

    What he meant was that over-production of U.S. tight oil helped cause the global price of oil to collapse in 2014, to swing down. It had nothing to do with really being the swing producer.

    That was a few days before CERA Week, the pricey annual love-fest that Yergin’s company IHS throws in Houston for the oil and gas industry to feel good about itself. It was a clever-sounding trailer to publicize the $7,000-per-ticket event.

    Later, in June 2015, Yergin told the Wall Street Journal that “now the U.S. is a swing producer, albeit an inadvertent swing producer as it didn’t set out to take that role.”

    A swing producer cannot be inadvertent. A swing producer deliberately increases or decreases its production to balance the market, whether for short-term price advantage, or for demand stimulation and long-term price advantage and market-share.

    Either Yergin doesn’t understand what a swing producer is or his swing-producer comments were manipulative and meant to support some agenda.

    Many Americans want to believe that the U.S. is nearly energy independent and a major geopolitical force in the world because of oil and gas production from shale. They would like to stick America’s thumb in OPEC’s eye.

    Yergin said the U.S. was the new swing producer. What was heard was that America had made OPEC impotent. It was repeated enough by the press and other supposed experts that its truth was confirmed because people want to believe it–even though it is untrue.

    Confirmation bias is the tendency to find support for our preconceptions. It may make us feel good but it is a poor basis for decisions. Investors beware.

  • For Commodities, This Is The Next Great Depression

    While the “sell in 1973, and go away” plan had worked out for some in the commodity space, the destruction of the last decade has only one historical comparison… the middle of The Great Depression.

    The 10-year rolling annualized return for commodities is -5.1% – the lowest since 1938…

     

    During the same period Stocks are up 7.3% annualized, Bonds 6.6%, and Cash unchanged. Dip-buying opportunity? Maybe.

    UBS thinks so: Tactically we can see a bounce in Q1 before the capitulation starts

    Tactically, in September 2015, we actually expected a more significant oversold bounce in commodities from last year’s late September risk bottom into ideally early Q2 2016 before we anticipated more weakness into later 2016. So far, the bounce failed since particularly in the energy complex we saw further weakness into December and the metals have been actually just trading sideways. Nonetheless, according to our Q1 US dollar pullback call, we still see the chance for another rebound attempt in commodities into later Q1, and if so the move can be significant (short covering). Such a rebound would however not change our underlying cyclical roadmap for commodities, and this means that any rebound in Q1 should be limited in price and time before we expect another and potential final capitulation wave to start into H2 2016, where we expect the CCI index to minimum test its 2008 low at 350 to worst case 320.

    Commodities… on the way into a multi-year buying opportunity

    All in all we are sticking to our last year’s projection and strategy call that commodities are on the way into an important H2 2016/early2017 cyclical bottom. What is missing in our view is the final act in this first bear market. With our expectation to see a final US dollar overshooting into H2 2016, we obviously also see the risk of a final undershooting and capitulation in commodities and related themes into later 2016. Crude oil, and as long as we do not see a break of the 2014 bear trend, we see minimum a test of its 2008 low at around $32 to worst case undershoot to $28 before starting a significant recovery cycle into 2017. For copper we are still more cautious since so far the bear cycle was still relatively mild versus other commodities. In this context, and after a Q1 rebound, we see copper as one of the candidates where we could see a bigger undershooting towards 1.70 to worst case see a test of the 2008 bottom at around 1.20.

     

    On the macro side, another breakdown in commodity prices in later 2016 would very likely trigger a significant spike in cross-asset volatility. It would suggest minimum the speculation about selective defaults in the commodity area and a potential meltdown scenario in high yields, which would very likely filter through into Emerging Market debt. So on the one hand such a scenario would suggest another deflationary impulse on the macro side.

     

    However, with expecting crude oil and other commodities moving into a major cycle bottom (even if a basing process would take a longer time into 2017), and taking into account the historically low basis of commodity prices as well as the base effect in inflation, a 2016/2017 deflationary impulse could be the final deflationary impulse before starting a bigger comeback of inflation towards the end of the decade.

     

    So although tactically, we cannot rule out a volatile basing process in commodities into 2017, at the end of the day we see commodities from a late 2016/early 2017 bottom starting a multi-year bear market rally into the end of the decade before resuming its underlying secular bear into the first half of the next decade. For investors, this would open a time window of 2 to 3 years, where we can see a very significant and sharp bull cycle in commodity prices, and this scenario would obviously also have far reaching consequences for Emerging Markets, where we should see a big comeback starting.

    But stocks and bonds are not exactly doing great either…

  • Perth Mint Silver Coins Sales Surge 56%, Gold Sales Drop 16% In 2015

    Perth Mint Silver Coins Sales Surge 56%, Gold Sales Drop 16% In 2015

    The Perth Mint’s annual silver coins sales surged 56%, while gold sales fell 16% in 2015, as silver stackers continued to accumulate silver coins and bars and the new silver nugget or kangaroo coin (1 oz and 5 oz) saw very high levels of demand.

    Silver_Kangaroo

    The Perth Mint’s gold sales rose in December from the prior month, but annual sales slid by nearly a fifth in 2015. Gold sales in December rose to 40,096 ounces from 31,664 ounces in November, the mint said on its website on Wednesday as reported by Reuters.

    While gold sales  rose in December from the prior month, but annual gold sales slid by nearly a fifth in 2015. Sales slid 16 percent for the year, after dropping by a third in 2014.

     

    perth_mint
    Note: Sales figures in ounces. Gold sales include coins and minted bars. Silver figures include only coins as the mint does not issue silver minted bars.

    The Perth Mint’s silver sales in December eased to 1.08 million ounces from 1.15 million ounces in the previous month.

    For the year, they surged about 56 percent to 11.8 million ounces. The mint sold a record 3.5 million ounces of silver in September alone on strong demand after the launch of the new silver coins and as prices fell to multi-year lows.

    Bullion buyers continue to accumulate and see silver at $14 per ounce as great value vis a vis gold ($1,100 per ounce), stocks and many other investments.

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  • Perfect Storm!?

    Submitted by John Rubino via DollarCollapse.com,

    One of the (many) fascinating things about this latest global financial crisis is that there’s no single catalyst. Unlike 2008 when the carnage could be traced back to US subprime housing, or 2000 when tech stocks crashed and pulled down everything else, this time around a whole bunch of seemingly-unrelated things are unraveling all at once.

    China’s mal-investment binge is crashing global commodities, an overvalued dollar is crushing emerging markets (most recently forcing China to devalue), the pan-Islamic war has suddenly gone from simmer to boil, grossly-overvalued equities pretty much everywhere are getting a long-overdue correction, developed-world political systems are being upended as voters lose faith in mainstream parties to deal with inequality, corporate power, entitlements, immigration, really pretty much everything. For one amusing/amazing example of the latter problem, consider Germany’s response to the mobs of men that suddenly materialized and began molesting women: Cologne mayor slammed after telling German women to keep would-be rapists at arm’s length.

    Why do causes matter at times like this? Because where previous crises were “solved” with a relatively simple dose of hyper-easy money, it’s not clear that today’s diverse array of emerging threats can be addressed in the same way. Interest rates, for instance, were high by current standards at the beginning of past crises, which gave central banks plenty of leeway to comfort the afflicted with big rate cut announcements. Today rates are near zero in most places and negative in many. Cutting from here would be an experiment to put it mildly, with myriad possible unintended consequences including a flight to cash that empties banks of deposits and a destabilizing spike in wealth inequality as negative interest rates support asset prices for the already-rich while driving down incomes for savers and retirees.

    And with debt now $57 trillion higher worldwide than in 2008, it’s not at all clear that another borrowing binge will be greeted with enthusiasm by the world’s bond markets, currency traders or entrepreneurs. Here’s that now-famous chart from McKinsey:

    Global debt McKinsey

    Easier money will have no effect on the supply/demand imbalance in the oil market, which is still growing. The likely result: Sharply lower prices in the year ahead, leading to a wave of defaults for trillions of dollars of energy-related junk bonds and derivatives.

    As for stock prices, in the previous two crises equities plunged almost overnight to levels that made buying reasonable for the remaining smart money. Today, virtually every major equity index remains high by historical standards, so the necessary crash is still to come — and will add to global turmoil as it unfolds.

    The upshot? It really is different this time, in a very bad way. And this fact is just now dawning on millions of leveraged speculators, mutual fund and pension fund managers, individual investors and central bank managers. Right this minute virtually all of them are staring at screens, scrolling over to the sell button, hesitating, pulling up Bloomberg screens showing how much they’ve lost in the past few days, calling analysts who last year convinced them to load up on Apple and Facebook, getting no answer, going back to Bloomberg and then fondling the sell button some more. Think of it as financial collapse OCD.

    What happens next? At some point — today or next week or next month, but probably pretty soon — the dam will break. Everyone will hit “sell” at the same time and find out that those liquid markets they’d come to see as normal have disappeared and yesterday’s prices are meaningless fantasy. The exits will slam shut and — as in China last night where the markets closed a quarter-hour into the trading session — the whole world will be stuck with the positions they created back when markets were liquid and central banks were omnipotent and government bonds were risk-free and Amazon was going to $2,000.

    And one thought will appear in all those minds: Why didn’t I load up on gold when I had the chance?

  • Pizza And Assault Rifles: Inside The Occupied Oregon Wildlife Refuge

    When last we checked in on Ammon Bundy and his band of “patriots”, Harney County Sheriff David Ward was getting fed up with the group’s occupation of the Malheur National Wildlife Refuge.

    “It is time for you to leave our community, go home to your families, and end this peacefully,” Ward said on Tuesday.

    But Ammon Bundy and the handful of armed militiamen holed up at the remote, snowy federal outpost have no such plans. The “Citizens for Constitutional Freedom” (as they now call themselves) are in it for the long haul and have pledged, at various times since “seizing” the office last Saturday, to remain in the building “for years.”

    While it’s not entirely clear what Bundy wants, the group’s professed goal is to “”restore the rights to people so they can use the land and resources.” Here’s a bit of helpful color from Terry Andersen, the William A. Dunn Distinguished Senior Fellow at the Property and Environment Research Center and the John and Jean DeNault Senior Fellow at the Hoover Institution (from a New York Times op-ed):

    Their goal harkens back the “Sagebrush Rebellion” of the 1970s, though their tactics are more draconian. Then the rebels called for more local control of federal lands, if not outright transfer of title to those lands to the states, and such solutions are still worth considering.

     

    The impetus for the Oregon occupation is the imprisonment of a father and son for setting fire to federal lands to control invasive species moving to private lands and to help prevent wildfires, a huge land management problem in the West.

     

    Living in the mountains south of Bozeman, Mont., I feel their pain because every summer I fight spotted knapweed, an invasive plant spread from my national forest neighbors, and I fear that wildfire will spread from the unmanaged federal land.

     

    The second cause is “multiple conflicts over multiple uses.” At the time of the Sagebrush Rebellion the list of multiple uses that federal land agencies were to manage was huge. It is growing exponentially.

     

    Western ranchers, loggers, farmers and, yes, even government bureaucrats with their feet on the ground could provide the stewardship sought by the rebels in Oregon. Now that armed confrontation has brought attention to their cause, we need to consider policies that will devolve management to lower levels of government and get the incentives right for encouraging environmental and fiscal responsibility

    And here’s a bit more from Salon:

    The Bundys have been up in arms about where their cattle can and can’t roam, and their father, Cliven, owes more than $1 million in grazing fees. And the Hammonds are being punished for setting fire to public land. If you live in some other part of the country—in, say, a bustling East Coast city—what do ranching restrictions and arson have to do with you? The short answer: The land use regulations that the occupiers of the Malheur Refuge are fighting go far beyond where cattle can roam. How we use our land determines what comes out of it in the form of extracted resources, which then affects so much else, from what kind of air we breathe to how many earthquakes we experience–not to mention our changing climate. It would not be a stretch to say that caring about land use means caring about the fate of our planet.

     

    In his “Wilderness Letter,” Wallace Stegner wrote that we need to preserve wilderness “even if we never once in ten years set foot in it.” Wild lands, according to Stegner, are important “simply as an idea.” But land use is about much more than what land we preserve as wilderness, or even what land we set aside for recreation and enjoyment. While wilderness is indeed valuable, there is plenty of non-wilderness public land whose fate matters just as much.

     

    The Sagebrush Rebels argue that this federal land should’ve belonged to the states to begin with, according to a clause under the Doctrine of the Equality of States, which says new states enter the union “on an equal footing with the original States in all respects whatever.” Several Western states were required to disclaim their sovereignty over unappropriated lands when they became states, and the Sagebrush Rebels have never gotten over it. This is why they continue to demand the “return” of federal land to the states—though that would necessitate the land once having belonged to the states, and it never really did.

    Ok, so Bundy, like his father, has become something of a folk hero among states’ rights advocates and he’s essentially hijacked the Hammond brush fire case and transformed it into a justification for the armed occupation of a federal building. 

    Of course it’s probably occurred to Bundy – if not to every member of the Citizens for Constitutional Freedom – that the US government couldn’t legislate its way out of a wet paper bag let alone fruitfully revisit a grand debate on land use and state’s rights. That is, Washington is mired in partisan bickering that’s created the worst Congressional gridlock in recent memory which means that even if someone cared to address Bundy’s concerns, they couldn’t. 

    But Bundy is apparently ready to wait around in the woods until something happens. “There is a time to go home. We recognize that. We don’t feel it’s quite time yet,” he said on Wednesday. “We feel like we need to make sure that the Hammonds are out of prison, or well on their way. We need to make sure that there is some teeth in these land transfers, and also that those who have committed crimes … those are exposed as well.”

    In the meantime, Reuters got an inside look at life inside occupied bird sanctuary. Here are some excerpts from their account:

    The doorknob rattled. Two of the men occupying a federal biologist’s office in a stand-off over land rights hopped from their chairs and swung rifles toward the locked door.

     

    There was no knock – the established procedure for gaining entry to the nerve center of the siege mounted by brothers Ammon and Ryan Bundy at this eastern Oregon nature center.

     

    The Bundys’ body guard stood in silent alert but heard no voices from the snowy darkness outside.

     

    “Should we approach the door or not?” Ryan asked, creeping toward a window.

     

    On Tuesday, for the first time, they allowed two reporters to join them inside their refuge for a night marked by long discussions and moments of hair-trigger tension.

     

    As the two Reuters’ reporters arrived just after nightfall, the occupiers were moving into a state of high alert. The groups’ head of security, a man known as Buddha, had been out of touch since driving off-site hours earlier. Amid efforts to locate him, the Bundys talked at length about what had brought them into this wilderness–and what it would take for them to leave.

     

    “When we can say, ‘OK, now we can go home,’ would be when the people of Harney County are secure enough and confident enough that they can continue to manage their own land and their own rights and resources without our aid, ” Ryan Bundy said. “And we intend to turn this facility into a facility that will aid that process.”

     

    The brothers have taken over the cozy and cluttered office of Linda Sue Beck, a biologist and civil servant they have come to view as a symbol the federal government. They said they would allow Beck to come to gather her personal belongings. But they don’t want her to return to work.

     

    “She’s not here working for the people,” declared Ryan Bundy, the more outspoken of the brothers. “She’s not benefitting America. She’s part of what’s destroying America.”

    Yes, Linda is “part of what’s destroying America.” Behold, the face of government oppression:

    And while we doubt that Linda will be stopping by to “gather her personal belongings,” Bundy says the group is expecting visitors soon. On Tuesday Bundy said that based on information he received from an unnamed source, the FBI has obtained five arrest warrants, and is “gathering their equipment and their goons” at a local high school. “They were planning on coming in and raiding the refuge,” he added. 

    As Reuters goes on to note, there are times when the group questions themselves. “When is it enough to put yourself and other people’s lives on the line? Is it justified? Maybe in the end we’ll look at each other and say, ‘What are we doing?’” 

    Yes, “maybe.” But until then, many of the men suggest that if push comes to shove, they’re prepared to die for Bundy and his cause. On that note, we’ll close with a quote from Wes Kjar, a 31-year-old oil rig worker who’s convinced the FBI is set to storm the building:

    “I’m not saying I want to die. I want to surrender. But I want to surrender on the right terms.”

     

     

     

    The full clip is below:

  • Aliso Canyon's Historic Gas Leak Puts Sempra Energy In "Uncharted Regulatory Territory"

    Sempra Energy may be entering uncharted regulatory and technical territory with the massive and uncontained Aliso Canyon gas leak, according to Bloomberg Intelligence, as the company and its regulators simply cannot find historical leaks of this magnitude. Sempra’s Southern California Gas Co. is drilling a relief well but has warned that capping the well could take two months which has prompted massive evacuations in the area, the instigation of a no-fly zone, and now Governor Brown's declaration of a state of emergency to protect residents.

    Governor Brown's statement (excerpted here):

    Given the prolonged and continuing duration of the Aliso Canyon gas leak and at the request of residents and local officials, Governor Edmund G. Brown Jr. today issued a proclamation that declares the situation an emergency and details the administration's ongoing efforts to help stop the leak. The order also directs further action to protect public health and safety, ensure accountability and strengthen oversight of gas storage facilities.

     

    Earlier this week, Governor Brown met with Porter Ranch residents and toured the Aliso Canyon Natural Gas Storage Facility, including the site of the leak and one of the relief wells.

     

    Today's proclamation builds on months of regulatory and oversight actions from seven state agencies mobilized to protect public health, oversee Southern California Gas Company's actions to stop the leak, track methane emissions, ensure worker safety, safeguard energy reliability and address any other problems stemming from the leak.

    Sempra’s Southern California Gas Co. is drilling a relief well that it expects will stop the gas from escaping from the well located in the Aliso Canyon storage facility, the fourth-largest underground field in the U.S. The utility has said capping the well could take two months.

    Through Dec. 31, Sempra has spent about $50 million on addressing the leak and environmental and community impacts, including the temporary relocation of residents, according to a regulatory filing Thursday. Sempra also said it has made seven unsuccessful attempts to plug the leak by pumping fluids down the well shaft and that it may face fines and penalties as a result of the incident.

    However, as TheAntiMedia.org's Dave Smith reports, scientists and engineers are finding it difficult to contain the largest natural gas leak ever recorded – since late October, an estimated 73,000 tons of methane, a highly flammable gas 25 times more potent as a greenhouse gas than carbon dioxide, has escaped from an energy facility in Aliso Canyon, California; and there is no immediate end in sight.

    According to Anne Silva, spokesperson for the Southern California Gas Company or SoCalGas the company that owns the facility, since the base of the well sits 8,000 feet underground, efforts to stop the flow of gas by pumping fluids directly down the well have not yet been successful. Therefore, the company is now constructing a relief well that will connect to the leaking well.

     

    In a letter to the community affected by the leak, which came after Governor Brown directed DOGGR and CPUC to launch investigations into the cause of the leak and whether any violations have taken place, CEO Dennis Arriola said:

    “We are making good progress on drilling a relief well to stop the leak and are on schedule to complete it by late-February to late-March. The relief well will intercept the leaking well at more than 8,000 feet below ground and the operation is continuing around the clock, 24 hours, 7 days a week. As of December 19, we have drilled about 3,300 feet and are in our second of five phases of the drilling process. Once the relief well intercepts the leaking well, we will pump fluids and cement into the bottom of the well to stop the flow of gas and permanently seal it.”

    The Environmental Defense Fund recently released footage of the leak that shows climate-damaging methane gases escaping from a massive natural gas leak at a storage facility in California’s Aliso Canyon, with the San Fernando Valley pictured in the background. The giant methane plumes were made visible by a specialized infrared camera operated by an Earthworks ITC-certified thermographer.

    “What you can’t see is easy to ignore. That’s why communities that suffer from pollution from oil and gas development are often dismissed by industry and regulators. Making invisible pollution visible shows the world what people in Porter Ranch have been living with every day for months,”conservation organization Earthworks spokesman Alan Septoff said.

    California officials have confirmed the rupture is venting gas at a rate of up to 110,000 pounds per hour – more than 150 million pounds of methane has been poured into the atmosphere so far; officials fear pollutants released in the accident could have long-term consequences far beyond the region. The counter below estimates in real time just how much pollution is being emitted from the environmental disaster.

    The 20-year warming impact is said to exceed that of all the state’s oil refineries combined, or of burning 300 million gallons of gasoline. The EDF states:

    Methane – the main component of natural gas – is a powerful short-term climate forcer, with over 80 times the warming power of carbon dioxide in the first 20 years after it is released. Methane is estimated to be leaking out of the Aliso Canyon site at a rate of about 62 million standard cubic feet, per day. That’s the same short-term greenhouse gas impact as the emissions from 7 million cars.

    Tim O’Connor, the California climate director for the Environment Defense Fund, told Mashable the leak is dumping the equivalent of eight or nine coal plants worth of methane into the atmosphere. He told The Washington Post, “It’s one of the biggest leaks we’ve ever seen reported. It is coming out with force, in incredible volumes. And it is absolutely uncontained.”

     

     

    The Los Angeles Unified School District has agreed to relocate nearly 1,900 students from schools near the leak, citing disruption from absenteeism and several visits to the health office. SoCalGas has placed 2,258 families in temporary housing, while 111 others staying with family or friends are being compensated. More than 3,000 others are in the process of being relocated.

    *  *  *

    So far, 25 complaints, many of which seek class action status, compensatory and punitive damages and attorneys’ fees, have been filed, Sempra said. State and local authorities are investigating.

    “Our focus remains on quickly and safely stopping the leak and minimizing the impact to our neighbors in Porter Ranch,” Dennis Arriola, president and chief executive officer of Southern California Gas, said in an e-mailed statement.

    This week Brown met with Porter Ranch residents and toured the Aliso Canyon facility on the north rim of the San Fernando Valley. His office said the emergency regulations would include daily inspections of gas storage well heads and regular testing of safety equipment.

    Brown’s emergency order "will bring the additional resources and focus we need — to get people back into their homes, restore confidence in the safety of this community, and begin rebuilding quality of life in the neighborhoods affected by the gas leak,” Los Angeles Mayor Eric Garcetti said in a statement. Garcetti said he asked Brown to make the declaration.

    Brown also directed the California Public Utilities Commission, which regulates Sempra’s Southern California Gas, to ensure that the company covers costs related to the leak while protecting customers. The utility is paying to temporarily relocate residents.

  • This Is The Dow's Worst Start To The Year… Ever

    What did the Fed do?!

     

     

    Worst. Ever! Sounds like a great buying opportunity, right?

Digest powered by RSS Digest

Jan 07

Today’s News 7th January 2016

  • "Markets In Turmoil" As Europe Opens

    With Chinese trading halted mere minutes into its day-session on the back "insane" moves as one Asian manager exclaimed, the rest of the world's markets have borne the brunt of hedging, unwind, selling pressure.

     

    Dow Futures are down 300 points from After-Hours highs…

     

    Crude has crashed back to a $32 handle…

     

    The dollar is weaker as JPY and EUR surge…

    And Gold has jumped back above $1100…

     

    Time for some jawboning Mr. Draghi.. and what about you Kuroda-san? Get back to work!! Unless the rest of the world is 'ganging up' on The Fed, pressuring the US stock market until Yellen folds and unleashes QE4?

  • TransCanada Sues Obama Administration; Says Keystone Pipeline Rejection Was Unconstitutional

    On November 6, Obama was delighted to take his place in the pantheon of progressive, liberal Warren Buffett apparatchiks when he proudly announced that the Keystone XL pipeline, which had been delayed for years, had finally been rejected.

     

    Exactly two months later, Obama’s “mission accomplished” banner has just led to a big slap on the face of the former constitutional expert, and could carry a multi-billion dollar chage after late this afternoon, TransCanada filed a lawsuit in Federal court in Houston, suing the U.S. government and claiming the Obama acted unconstitutionally when he rejected the Keystone XL, while also seeking $15 billion alleging the pipeline denial was “arbitrary and unjustified.”

    The company’s lawsuit in federal court in Houston does not seek legal damages but wants the permit denial invalidated and seeks a ruling that no future president can block construction.

    According to Reuters, in filing the NAFTA claim, TransCanada said it “had every reason to expect its application would be granted” as it had met the same criteria the U.S. State Department used when approving other similar cross-border pipelines.

    “Presumably they have a case that there are damages, as they were led to believe that if they did these things they’d get it across the line, but they weren’t able to,” said portfolio manager Ryan Bushell at Leon Frazer & Associates in Toronto, whose firm owns more than a million shares in TransCanada.

     

    “I’d imagine that this is more than a PR move and they believe they have a real case.”

    If so that would be big trouble for not only Obama, who will have to find a lot of NSA dirt on a Texas federal judge, but also for Warren Buffett, whose intervention in Obama’s “decision-making process” on halting TransCanada will surely be divulged during the discovery process, revealing the crony capitalist who stood to benefit the most.

    The White House referred requests for comment to the U.S. State Department. The State Department did not immediately respond to requests for comment. 

    Not surprisingly, Canada is staying far away from this one, In Ottawa, a spokesman for the Canadian foreign ministry said the government “has no role in this dispute.” Since October, Canada has been run by Justin Trudeau’s Liberals, who backed the pipeline but not as vociferously as the former ruling Conservatives.

    TransCanada said it will also take an after-tax write down of C$2.5 billion ($1.78 billion) to C$2.9 billion in the fourth quarter after the permit denial.

    The environmentalists, despite winning the first round, are suddenly concerned:

    “The suit is a reminder that we shouldn’t be signing new trade agreements like the Trans Pacific Partnership that allow corporations to sue governments that try and keep fossil fuels in the ground,” said Jason Kowalski, policy director of environmental group 350.org which opposed the pipeline.

    TransCanada called the rejection “a symbolic gesture” aimed at burnishing the Obama administration’s leadership on climate change in the eyes of the international community.

    It was, of course, right. But more importantly, the rejection was a means to promote Warren Buffett’s “alternative” oil pipelines, the railways, which in 2015 had their worst safety year on record, with countless flaming BNSF derailments, which, oddly enough, the White House had little to say about.

  • Paul Craig Roberts: The Rule Of Law No Longer Exists In Western Civilization

    Authored by Paul Craig Roberts,

    My work documenting how the law was lost began about a quarter of a century ago. A close friend and distinguished attorney, Dean Booth, first brought to my attention the erosion of the legal principles on which rests the rule of law in the United States. My columns on the subject got the attention of an educational institution that invited me to give a lecture on the subject. Subsequently, I was invited to give a lecture on “How The Law Was Lost” at the Benjamin Cardozo School of Law in New York City.

    The work coalesced into a book, The Tyranny Of Good Intentions, coauthored with my research associate, Lawrence M. Stratton, published in 2000, with an expanded edition published in 2008. We were able to demonstrate that Sir Thomas More’s warning about prosecutors and courts disregarding law in order to more easily convict undesirables and criminals has had the result of turning law away from being a shield of the people and making it into a weapon in the hands of government. That is what we witness in the saga of the Hammonds, long-time ranchers in the Harney Basin of Oregon.

    With the intervention of Ammon Bundy, another rancher who suffered illegal persecution by the Bureau of Land Management but stood them off with help from armed militia, and his supporters, the BLM’s decades long persecution of the innocent Hammonds might have come to a crisis before you read this.

    Bundy and militiamen, whose count varies from 15 to 150 in the presstitute media, have seized an Oregon office of the BLM as American liberty’s protest against the frame-up of the Hammonds on false charges. As I write the Oregon National Guard and FBI are on the way.

    The militiamen have said that they are prepared to die for principles, and the rule of law is one of them. Of course, the presstitute media is making the militiamen into the lawbreakers—and even calling them terrorists—and not the federal government’s illegal prosecution of the Hammonds, whose crime was their refusal to sell their ranch to the government to be included in the Masher National Wildlife Refuge.

    If there are only 15 militiamen, there is a good chance that they will all be killed, but if there are 150 armed militiamen prepared for a shootout, the outcome could be different.

    I cannot attest to the accuracy of this report of the situation (the resources required to verify the information in this account of how the government escalated a “crisis” out of the refusal of a family to bend is beyond the resources of this website) – However, the story fits perfectly with everything Lawrence Stratton and I learned over the years that we prepared our book on how the law was lost. This account of the persecution of the Hammonds is the way government behaves when government has broken free of the rule of law.

    I can attest with full confidence that the United States no longer has a rule of law. The USA is a lawless country. By that I do not mean what conservative Republicans mean, which is, if I understand them, that racial minorities violate law with something close to impunity.

    What I mean is that only the mega-banks and the One Percent have legal protection, and that is because these people control the government. For everyone else law is a weapon in the hands of the government to be used against the American people.

    The fact that the shield of law no longer exists for American citizens is why, according to US Department of Justice statistics, only 4 percent of federal felonies ever go to trial. Almost the entirety of federal felonies are settled by coerced plea bargains that force defendants to admit to crimes that they did not commit in order to avoid “expanded indictments” that, if presented to the typical stupid, trusting, gullible American “jury of their peers,” would lock them away for hundreds of years.

    American justice is a joke. It does not exist. You can see this in the American prison population. “Freedom and Democracy” America not only has the largest percentage of its population in prison than any country on the planet, but also the largest number of prisoners.

    If you consider that “authoritarian” China has four times the population of the United States but fewer prisoners, you understand that “authoritarian” China has a more protective rule of law than the United States.

    Compared to “freedom and democracy America,” Russia has hardly anyone in prison. Yet, Washington and its media whores have defined the President of Russia as “the new Hitler.”

    The only thing we can conclude from the facts is that the United States Government and those ignorant fools who worship it are evil incarnate.

    Out of evil comes dictatorship. The White House Fool, at best a two-bit punk, has decided that he doesn’t like the Second Amendment to the US Constitution any more than he likes any of the other constitutional protections of US citizens. He is looking for dictatorial methods, that is, unlegislated executive orders, to overturn the Second Amendment. He has the corrupt US Department of Justice, a criminal organization, looking for ways for the dictator to overturn both Congressional legislation and Supreme Court rulings.

    The media whores have fallen in line with the would-be dictator. All we hear is “gun violence.” If only Karl Marx were still with us. He would ridicule those who turn inanimate objects into purposeful actors. It is extraordinary that the American left-wing thinks that guns, not people, kill people.

    The position of the “progressive left-wing” in the United States is perplexing. Here are Americans, immersed into a police state, as are the Hammonds, and the progressive left-wing wants to disarm the population.

    Whatever this “progressive left-wing opposition” is, it has nothing in common with revolutionaries. The American left-wing is totally irrevelant, a defeated force that sold out and no longer represents the people or the truth.

    Even more astonishing, judging by comments on RT’s report on the situation and the readers comments, all RT and American blacks want to know is where is the National Guard in Oregon? Why isn’t it called out against the White militia protests as it was called out against the Black Ferguson protests?

    If protesting the murder of a young black American by Ferguson police is not legitimate and the protesters are “terrorists,” why aren’t the Oregon protestors terrorists for trying to protect jailbirds from their “lawful sentence”? This is the wrong question.

    It really is discouraging that the American black community is unable to understand that if any American can be dispossessed, all Americans can be dispossessed.

    It is also discouraging that RT decided to play the race card instead of comprehending that law is no longer a shield of the American people but is a weapon in the hands of Washington.

    Why doesn’t RT at least listen to the President of Russia, who states repeatedly that America and the West are lawless.

    Putin is correct. America and its vassals are lawless. No one is safe from the government.

  • Cologne Mayor Slammed For Telling German Women It Is Their Responsibility To Keep Rapists At "Arm's Length"

    Earlier today, we brought you an eyewitness account of the melee that unfolded in Cologne, Germany on New Year’s Eve.

    Allegedly, hundreds of 18-35 year-old males “of Arab and North African origin” robbed and sexually assaulted women gathered in the city center. Assaults were also reported in Hamburg and Stuttgart. Authorities are attempting to discern if there’s a connection.

    Ivan Jurcevic, a hotel club bouncer who was on the job (literally) in Cologne when the trouble started, had the following to say in a video posted to social media: “These people that we welcomed just three months ago with teddy bears and water bottles … started shooting at the cathedral dome and started shooting at police. Well seasoned police officers then confessed to me that they never saw something like this in their entire lives. They called it a ‘civil war like situation.'”

    Here’s an account from a woman who claims to have been a victim of an assualt:

    “The men surrounded us and started to grab our behinds and touch our crotches. They touched us everywhere. I wanted to take my friend and leave. I turned around, and in that moment, someone grabbed my bag.”

    That is of course the last thing Angela Merkel wants to hear. The Chancellor is struggling to convince Germans that Berlin’s open-door policy for Mid-East asylum seekers isn’t set to tear the country’s social fabric apart at the seams.

    For some, the events that unfolded on New Year’s Eve validate concerns about the risk Germany is running by bringing 1.1 million migrants into a country with a population of just 82 million. “Mrs Merkel, is Germany ‘colorful and cosmopolitan’ enough for you after the wave of crimes and sexual attacks?,” AfD party leader Frauke Petry tweeted.

    “Ms Merkel where are you? What do you say? This scares us!,” read a sign held by one of hundreds of protesters who gathered in the city center in Cologne on Tuesday.

    For her part, Cologne mayor Henriette Reker called the attacks “unbelievable and intolerable” but then suggested that the victims should have acted different to avoid getting themselves into trouble. She also seemed to suggest that perhaps those responsible for the attacks were simply unaware of Germany’s cultural norms.

    Now, Reker is drawing sharp criticism for her contention that women in Germany should adopt a “code of conduct” as a kind of rapist repellent.

    “In her first public appearance since the incident, Reker instructed women on how they could protect themselves,” Huffington Post writes “The proposed code of conduct included telling women to stay in groups, not be separated, always try and keep their distance and always stay an arms length away from strangers.”

    “There’s always the possibility of keeping a certain distance of more than an arm’s length – that is to say to make sure yourself you don’t look to be too close to people who are not known to you, and to whom you don’t have a trusting relationship,” she said. “Women would also be smart not to go and embrace everyone that you meet and who seems to be nice. Such offers could be misunderstood, and that is something every woman and every girl should protect herself from,” Reker continued, digging herself an even deeper hole.”

    She also advised women to not be in a celebratory mood.

    Needless to say, the comments created a veritable firestorm on social media. 

    German Justice Minister Heiko Maas was note amused: “I don’t think much of the how-to-behave tips for women such as #anarm’slength. It is not women who are responsible, but the perpetrators,” he wrote, in a tweet.

    Later, Reker would say that the media made it appear as though she was confining her prevention suggestions to women when in fact, she also had advice for would-be assailants. To wit: “We need to explain to people from other cultures that the jolly and frisky attitude during our Carnival is not a sign of sexual openness.”

    You’d be forgiven for suggesting that perhaps some German politicians are going out of their way to avoid applying negative stereotypes to migrants. 

    In any event, Germany’s “jolly and frisky” attitude toward refugees is disappearing quicker than a handbag in Cologne on New Year’s Eve and one wonders how long it will ultimately be before the public simply revolts against a government they feel is powerless to protect their property, person, and borders.

  • Enough Already! It's Time To Send The Despicable House Of Saud To The Dustbin Of History

    Submitted by David Stockman via Contra Corner,

    The recent column by Pat Buchanan could not be more spot on. It slices through the misbegotten assumption that Saudi Arabia is our ally and that the safety and security of the citizens of Lincoln NE, Spokane WA and Springfield MA have anything to do with the religious and political machinations of Riyadh and its conflicts with Iran and the rest of the Shiite world.

    Nor is this only a recent development. In fact, for more than four decades Washington’s middle eastern policy has been dead wrong and increasingly counter-productive and destructive. The crisis provoked this past weekend by the 30-year old hot-headed Saudi prince, who is son of the King and heir to the throne, only clarified what has long been true.

    That is, Washington’s Mideast policy is predicated on the assumption that the answer to high oil prices and energy security is deployment of the Fifth Fleet to the Persian Gulf. And that an associated alliance with one of the most corrupt, despotic, avaricious and benighted tyrannies in the modern world is the lynch pin to regional stability and US national security.

    Nothing could be further from the truth. The House of Saud is a scourge on mankind that would have been eliminated decades ago, save for Imperial Washington’s deplorable coddling and massive transfer of arms and political support.

    At the same time, the answer to high oil prices is high oil prices. Could anything not be more obvious than today when crude oil is hovering around $35 per barrel notwithstanding a near state of war in the Persian Gulf?

    Here’s the thing. The planet was endowed by the geologic ages with a massive trove of stored energy in the form of buried hydrocarbons; and it is showered daily by even more energy in the form of the solar, tidal and wind systems which shroud the earth.

    The only issue is price, the shape and slope of the supply curve and the rate at which technological progress and human ingenuity drives down the real cost of extraction and conversion.

    On top of that, the vast resilient forces of the free market have silently, steadily and dramatically improved the energy efficiency of the US economy.

    As shown in the long term chart below, energy consumption per dollar of GDP is only about 40% of the level which obtained when Washington’s politicians first started running around like Chicken Little, claiming that the energy sky was falling at the time of the so-called 1973 oil crisis.

    U.S. Energy Intensity, Thousand BTU per Dollar of GDP*

    Driven by the supply and demand curves of the ordinary processes of economic markets over the last four decades, therefore, the constant dollar price of oil has gone absolutely nowhere. The threat of high oil prices has been a giant myth all along.

    The red line in the chart below expresses the world crude oil price in March 2015 dollars of purchasing power. At today’s $35 per barrel it is only marginally higher than it was in 1971 before Nixon slammed shut the gold window and inaugurated four decades of central bank fueled monetary inflation.

    Inflation Adjusted Oil Price Chart

    The truth is, the long era of the so-called oil crisis never happened. It was only a convenient Washington invention that was used to justify statist regulation and subsidization of energy domestically and interventionist political and military policies abroad.

    Back in the late 1970s as a member of the House Energy Committee I argued that the solution to high oil prices was the free market; and that if politicians really wanted to cushion the purely short-term economic blow of a Persian Gulf supply interruption the easy and efficient answer was not aircraft carriers, price controls and alternative energy subsidies, but the Texas and Louisiana salt domes that could be easily filled as a strategic petroleum reserve (called SPRO).

    During the Reagan era we unleashed the energy pricing mechanisms from the bipartisan regime of price and allocation controls which had arisen in the 1970s and began a determined campaign to fill the SPRO. Thirty-five years later we have a full SPRO and a domestic and world economy that is chock-a-block with cheap energy because the pricing mechanism has done its job.

    In fact, OPEC is dead as a doornail, and the real truth has now come out. Namely, there never was a real oil cartel. It was just the House of Saud playing rope-a-dope with Washington, and its national oil company trying to do exactly what every other global oil major does.

    That is, invest and produce at rates which are calculated to maximize the present value of its underground reserves.  And that includes producing upwards of 10 million barrels per day at present, even as the real price of oil has relapsed to 50 year ago levels.

    What this also means is that Imperial Washington’s pro-Saudi foreign policy is a vestigial relic of the supreme economic ignorance that Henry Kissinger and his successors at the State Department and in the national security apparatus brought to the table decade after decade.

    Had they understood the energy pricing mechanism and  the logic of SPRO, the Fifth Fleet would never have been deployed to the Persian Gulf. There also never would have been any Washington intervention in the petty 1990 squabble between Saddam Hussein and the Emir of Kuwait over directional drilling in the Rumaila oilfield that straddled their historically artificial borders.

    Nor would there have been any “crusader” boots trampling the allegedly sacred lands of Arabia or subsequent conversion of Bin-Laden’s fanatical Sunni mujahedeen, which the CIA had trained and armed in Afghanistan, to the al-Qaeda terrorists who perpetrated 9/11.

    Needless to say, the massive US “shock and awe” invasion thereafter which destroyed the tenuous Sunni-Shiite-Kurd coexistence under the Baathist secularism of Saddam Hussein would not have happened, either. Nor would the neocon war mongers have ever become such a dominant force in Imperial Washington and led it to the supreme insanity of regime change in Libya, Syria, Yemen and beyond.

    In short, the massive blowback and episodic eruptions of jihadist terrorism in Europe and even America that plague the world today would not have occurred save for the foolish policy of Fifth Fleet based energy policy.

    Still, there is an even more deleterious consequence of the Kissinger Error. Namely, it has allowed the House of Saud, along with Bibi Netanyahu’s political machine, to egregiously mis-define the sectarian and tribal conflicts which rage in today’s middle-east.

    The fact is, there is no such thing as generic Islamic terrorism. The overwhelming share of the world’s 1.3 billion or so Sunni Muslims are not remotely interested in Jihaddism.

    Likewise, the 200 million adherents of the Shiite Muslim confession are not terrorists in any religious or ideological sense. There are about 60 million Shiite in India and Pakistan and their quarrel, if any, is rooted in antagonisms with Hindu-India, not the West or the US.

    Similarly, the 80 million Shiite domiciled in Iran, southern Iraq, southern Lebanon and the Alawite communities of Syria have been host to sporadic terrorist tactics. But these occurred overwhelmingly in response to efforts by outside powers to occupy Shiite communities and lands.

    That is certainly the case with the 20-year Israeli occupation of southern Lebanon, which gave rise to Hezbollah defense forces. It is also true of the Shiite uprisings in Baghdad and southern Iraq, which gave rise to the various militias that opposed the US occupation.

    Moreover, post-1979 Iran has never invaded anyone, nor have the Shiite communities of northern Yemen, who are now being bombarded by Saudi pilots driving US supplied war planes and drones.

    In short, there has never been a Shiite-based ideological or religious attack on the West. The anti-Americanism of the Iranian theocracy is simply a form of crude patriotism that arose out of Washington’s support for the brutal and larcenous regime of the Shah—–and which was reinforced during Iraq’s US aided invasion of Iran during the 1980s.

    By contrast, the real jihadi terrorism in the contemporary world arose almost exclusively from the barbaric fundamentalism of the Sunni-Wahhabi branch of Islam, which is home-based in Saudi Arabia.

    Yet this benighted form of medieval religious fanaticism survives only because the Saudi regime enforces it by the sword of its legal system; showers its domestic clergy with the bounty of its oil earnings; and exports hundreds of millions to jihadists in Syria, Iraq, Libya, Turkey, Iran, Egypt  and numerous other hot spots in the greater middle east.

    At the end of the day, the House of Saud is also the ultimate inspiration and financial benefactor of the Islamic State, as well. Had it not provided billions in weapons and aid to the Syrian rebels over the last five years, there would be no civil war in Syria today, nor would ISIS have been able to occupy the dusty, impoverished towns and villages of the Upper Euphrates Valley where it has established its blood-thirsty caliphate.

    So this weekend’s execution of a Saudi Shiite cleric who never owned a gun or incited anything other than peaceful protest among the downtrodden Shiite communities of eastern Arabia is truly the final straw. It was a deliberate provocation by a reprehensible regime that has so thoroughly corrupted the War Party that it even managed to have Washington shill for its preposterous appointment to head of the UN Commission on Human Rights!

    During the last several decades Washington has financed more than $100 billion of arms sales to the House of Saud. Accordingly, there is one simple way to clean the slate in the middle east and put an eventual end to Wahhabi Jihaddism.

    That is, cut off arms sales entirely to the Saudi military, which would be grounded within months due to lack of spare parts and support services. Indeed, the mere announcement would send several thousand Saudi princes and their families scurrying for their 747s and escape to Switzerland, London, New York and other fleshpots of the West.

    After an abdication by the House of Saud, the Wahhabi clerics would not long survive, and Iran and its Shiite Crescent allies, including Russia, would make short work of the ISIS caliphate.

    And whatever government emerged on the Arabian peninsula, one thing is certain. It would need to produce all the oil it can, but at least the proceeds at even today’s $35 per barrel price would have a decent chance of benefiting the nation’s 30 million citizens rather than the unspeakable opulence and decadence of a few thousand princes.

    That actually happened in Iran when the mullahs – as religiously rigid and backwards as they might be – overthrew the megalomaniacal tyrant who sat on the Peacock Throne.

    It’s time that the House of Saud found its way into the dustbin of history, as well.

  • Options Traders See Yuan Collapse Continuing In "Dangerous Situation For Policy-Makers"

    Surely, The PBOC will step in at some point and save the collapsing currency? Nope – not if options traders (and Kyle Bass) are to be believed. The odds of the yuan breaking beyond 7 to the greenback by the end of March more than doubled to 12% (from 5.8% at the start of December). Ironically, Bloomberg reports only 1 of 39 analyst predicts Yuan to trade beyond 7 by the end of 2016. The market's extremely strong conviction, and apparent PBOC loss of control is "a dangerous situation for policy-makers" according to one Asian economist.

    As Kyle Bass noted,

    "Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

    And as Bloomberg reports, the options market agrees – signaling that the yuan’s slide to a five-year low has plenty of room to run.

    Contract prices indicate a 79 percent probability that the currency will weaken this year and 33 percent odds that it will drop beyond 7 per dollar, a level last seen in 2008, according to Bloomberg calculations. That’s up from 15 percent at the start of December and comes as the central bank shows signs of reining in its support for the exchange rate in the face of rising intervention costs and sliding exports.

     

    “We’ve seen explosive growth in demand for options betting the yuan will weaken as clients seek protection against further depreciation," said Frank Zhang, Shanghai-based head of foreign-exchange trading at China Merchants Bank Co., which trades yuan options. "The situation won’t get better until market sentiment stabilizes in the spot market, which isn’t going to happen in the next few months."

    The odds of the yuan breaking beyond 7 to the greenback by the end of March jumped to 11 percent from 5.8 percent.

    The notional value of outstanding put options carrying the right to sell the yuan at exchange rates of 7 or higher has climbed to $142 billion from $120 billion, Depository Trust & Clearing Corp. data show.

    Despite the market's sentiment, economists remain less convinced…

    Only one out of 39 analysts in a Bloomberg survey predicted a slide to 7 per dollar in 2016.

     

     

    The median estimate is for a 0.6 percent retreat to 6.6. Goldman Sachs Group Inc. said this week that it sees “limited” room for further depreciation as slumping energy prices will help boost China’s current-account surplus and offset capital outflows.

    The People’s Bank of China has been burning through its foreign-exchange reserves to prop up the yuan, with the stockpile recording its first-ever annual decline last year, as the central bank sold dollars both in the onshore and offshore markets. But since The IMF 'enabled' Chinese currency wars, support has been less obvious and the yuan has become a “one-way bet, and the market has figured out that it’s a one-way bet,” Richard Jerram, chief economist at Bank of Singapore, said at a press briefing in Hong Kong on Wednesday.

     

     

    He concludes:

    “It’s a dangerous situation for policy makers.”

    China is due to report foreign-currency reserves on Thursday, with the median estimate in a Bloomberg survey predicting a $23 billion decline in December.

  • Here We Go Again: China Halts Trading For The Entire Day After Another 7% Crash
    *CHINA STOCKS HALTED FOR REST OF DAY AFTER CSI 300 TUMBLES 7%

     

     

     

     

    Happy New Year…

     

    Crude crashes to a $32 Handle…

     

    Gold just surged to $1100…

     

    The entire Chinese stock market has been halted on half the trading days in 2016

     

    The punishment will continue until The Fed unleashes QE4!!

    *  *  *

    *CHINA STOCK SLUMP TRIGGERS TRADING HALT AS CSI 300 FALLS 5%

     

    US Equity markets are tumbling…

     

    And USDJPY is in free-fall…

     

    Someone just stepped into support the Offshore Yuan…

     

    As we detailed earlier:

    Following the collapse of offshore Yuan to 5 year lows and decompression to record spreads to onshore Yuan, The PBOC has stepped in and dramatically devalued the Yuan fix by 0.5% to 6.5646. This is the biggest devaluation since the August collapse. Offshore Yuan has erased what modest bounce gains it achieved intraday and is heading significantly lower once again. Dow futures are down 100 points on the news.

    PBOC fixes Yuan at its weakest since March 2011… with the biggest devaluation since August

     

    And Offshore Yuan collapses…

     

    This all has a worrisome sense of deja vu all over again… We have seen this pattern of money flow chaos before… Outflows surge from China, send liquidity needs spiking, which bleeds over into Saudi stress (petrodollar?), causing unwinds in major equity markets (thanks to deleveraging of carry trades) in China and then US stocks…

    Chinese stocks are opening down hard:

    • *SHANGHAI COMPOSITE INDEX FALLS 4.01%
    • *SHANGHAI COMPOSITE EXTENDS DROP TO 10% BELOW DECEMBER HIGH
    • *HANG SENG CHINA ENTERPRISES INDEX FALLS 3.03%
    • *CHINA CSI 300 INDEX FALLS 4.05%

     

     

    Hold your breath. Dow futures plunged 100 points on the news…

  • 2016 Theme #3: The Rise Of Independent (Non-State) Crypto-Currencies

    Submitted by Charles Hugh-Smith of OfTwoMinds blog,

    This week I am addressing themes I see playing out in 2016.

    A number of systemic, structural forces are intersecting in 2016. One is the rise of non-state, non-central-bank-issued crypto-currencies.

    We all know money is created and distributed by governments and central banks. The reason is simple: control the money and you control everything.

    The invention of the blockchain and crypto-currencies such as Bitcoin have opened the door to non-state, non-central-bank currencies–money that is global and independent of any state or central bank, or indeed, any bank, as crypto-currencies are structurally peer-to-peer, meaning they don't require a bank to function: people can exchange crypto-currencies to pay for goods and services without a bank acting as a clearinghouse for all these transactions.

    This doesn't just open the possibility of escaping the debt-serfdom of central and private banks–it opens the door to an entire global economy that's free of the inequality and concentration of wealth and power that is the only possible output of central bank created and distributed money.

    Max Keiser and Stacy Herbert and I discuss these possibilities in The Keiser Report: Radically Beneficial World (25:43)…

     

    Recall that central bank money is borrowed into existence, which means interest must be paid until the money is extinguished by the payment of debt.

    In effect, today's wars, bread and circuses, etc. will be paid for in perpetuity by our kids, grandkids and their kids. This is debt-serfdom. The only possible output of borrowing money into existence is debt-serfdom.

    Debt jubilees, no matter how well-intended, simply maintain the system of bank-issued money and debt-serfdom: dialing back the debt load from impossible to bearable does nothing but continue financial feudalism.

    Just printing money and distributing it to the unemployed and working poor (known as QE for the people) also doesn't change anything structurally: printing money without increasing the production of goods and services just means the flood of new money will chase the existing pool of goods and services, generating runaway inflation (see Zimbabwe, Venezuela, et al.)

    The Keynesian Cargo Cult's fetish is "demand"–meaning the "demand" created by having money in your pocket. The Keynesian Cargo Cult wrongly assumes that this "demand" will magically generate more goods and services.

    If this were true, then there would be no inflation when governments such as Zimbabwe print money with abandon: this new "demand" would magically generate more goods and services.

    But this Keynesian assumption is flat-out wrong. In reality, printing and distributing money does not guarantee a corresponding expansion of productive goods and services. The "magic" is misleading fantasy; the actual mechanism is much more complex than mere "demand."

    The second fatal flaw in the Keynesian Cargo Cult's "solution" of printing and distributing "free money" is the money ends up funding worthless or even destructive uses: bridges to nowhere, ghost cities, needless MRI tests, worthless college degrees, and so on, in essentially limitless mal-investment and waste.

    I propose instead that new crypto-currency money only be created when goods and services that are scarce in real-world communities are produced. I call this CLIME: the Community Labor Integrated Money Economy, and I describe how it works in my book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.

    This is the unsustainable world of bank/state issued money: crushing debt loads across the globe. This is debt-serfdom on a planetary scale.

    Debt serfdom is no longer the only option – A Radically Beneficial World beckons.

     

  • Gallup Explains Trump: "A Staggering 75% Of Americans Believe In Widespread Government Corruption"

    Back in July, when the HuffPo was covering Donald Trump’s campaign in its “Entertainment Section” (they are not laughing now), and when not a single political pundit thought Trump had any chance of winning the GOP primary (now most of them do), we said that “Donald Trump’s Soaring Popularity “Is The Country’s Collective Middle Finger To Washington.”

    Here is what we said:

    Donald Trump’s ascendance as the early GOP front-runner is symbolic of a greater global trend: growing pushback against institutional political and economic power.

     

    To many centrist politicians and mainstream political observers, Donald Trump is a boastful, insensitive egomaniac spouting populist rhetoric. Whether such a characterization is true is not worthy of debate, which may explain why the rantings of enraged career political pundits have no impact on Mr. Trump’s popularity among Republican voters in Iowa, New Hampshire, and across America. It seems no amount of ink or air time spent tarring and feathering Trump’s reputation sticks; in fact it seems to help Teflon Don in the polls, where he leads a crowded field of career politicians.

     

    Donald Trump is a threat not only to the nattering nabobs in the press corps and the Republican Party. His day in the sun may be symbolic of a broader dynamic: the declining power held by historically powerful institutions. Ask yourself if Trump’s campaign is making a mockery of the political process or exposing the mockery that the political process has become. A not-insignificant percentage of Americans away from the coasts, are looking past his utter lack of decorum and political savvy to hitch their wagons to his outrage.

    Six months later, virtually everyone recognizes and admits that this is the case: a vote for Trump is not “a vote for Trump”, it is a vote against the broken, corrupt, crony-capitalist model.

    Which explains why increasingly more are terrified he just may win.

    But what explains America’s revulsion with the existing system? The answer comes from the latest Gallup article: “Explaining Trump: Widespread Government Corruption” in which it finds that once the silent majority of the population can identify the object of their distrust and anger – in this case Congress and the political status quo – and once they can subsequently identify an object that represents its opposite, the latter object’s distance to the Oval Office becomes considerably shorter.

    From Gallup:

    Explaining Trump: Widespread Government Corruption

    It’s been fashionable to make jokes about Congress’ historically low approval ratings, unbelievable incompetence in the government and now, unfortunately, the perception of widespread government corruption. Pundits and talk-radio hosts have a field day with this. So do late-night comics.

    It’s not funny anymore.

    A staggering 75% of the American public believe corruption is “widespread” in the U.S. government. Not incompetence, but corruption. This alarming figure has held steady since 2010, up from 66% in 2009.

    This sense of corruption probably contributes to much of the extreme anxiety and unrest we see today – including protests, lower voter turnout and increased interest in guns.

    Guns — a symbol of freedom from government tyranny to many people — are now a key voting issue. A quarter of U.S. voters say the presidential candidate they vote for must share their view on guns.

    Protests are growing in cities and campuses all around the country. Students and citizens generally have lost faith in their national institutions — the biggest and most powerful of which is, of course, the federal government.

    The last presidential election had an estimated 5 million fewer voters than turned out in 2008, and the 2014 midterm elections saw the lowest turnout in 72 years (36.3%). At alarming levels, citizens — when invited to participate directly in their own democracy — are taking a pass and staying home. Or taking their frustrations to the streets.

    The perception that there’s widespread corruption in the national government could be a symptom of citizen disengagement and anger. Or it could be a cause — we don’t know. But it’s very possible this is a big, dark cloud that hangs over this country’s progress. And it might be fueling the rise of an unlikely, non-traditional leading Republican candidate for the presidency, Donald Trump.

    To make matters worse, that dark cloud appears to be hanging over the growth of small business, which is where virtually all new GDP growth and good jobs originate. Simply put, startups and shootups (small businesses that grow larger) have been in a death spiral. The U.S. Census Bureau reported that the total number of business startups and business closures per year crossed for the first time in 2008.

    And the economy isn’t growing nearly fast enough — it’s been running at an average rate of 2% since the 2008 financial collapse and the Great Recession. Just to compare, following the recession of 1981-1982, GDP grew for six years at 4.5% — one of our greatest economic eras in history.

    Jobs haven’t come back. According to the U.S. Bureau of Labor Statistics, the percentage of the total adult population that has a full-time job has been hovering around 48% since 2010 — the lowest full-time employment level since 1983. This is why the middle class has been dangerously shrinking.

    You don’t have to connect too many dots to conclude that if a government has an alarmingly high appearance of widespread corruption — and that same government creates regulations that businesses cite as a leading barrier to growth — then entrepreneurs might be reluctant to stick their necks out to start a business. Or to boom the businesses they already have.

    Why would they start or boom a business if they think a corrupt government is creating rules and regulations that don’t serve their interests — but rather rules that serve the interests of corrupt officials, corrupt politicians, corrupt insiders and corrupt special interest groups?

    Any wonder why so many Americans want a candidate who’s outside of that system?

  • Macy's Massacre: Thousands Fired; Guidance Slashed (Again); Weather Blamed

    It was less than two months ago when we brought to you the “Macy’s Massacre“: on November 11, the stock of the iconic retailer crashed 13% and its CDS soared after Macy’s announced a trifecta of weak data, reporting a miss on Q3 sales which came at $5.87 billion below the $6.1 billion expected, down from the $6.2 billion, as well as a plunge in comparable store sales which tumbled by 3.9%, far worse than the expected drop of -0.4%, and nearly three times as bad as the 1.4% drop a year ago.

    Cash flow plunged: cash provided by operating activities was $278 million in the first three quarters of 2015, compared with $841 million in the first three quarters of 2014.

    Finally, M also slashed its full year same store guidance down from flat to -1.8% to -2.2% with sales projected to drop -2.7% to -3.1%, compared to a previous guidance of -1%, as contrary to the propaganda, the discretionary spending of the US consumer is bad and getting worse by the day.

    Fast forward to today when the massacre is back with a vengeance, after the company not only reported yet another cut in its guidance, but also announced it would be laying off another boatload of retailers, demonstrating just how strong the “service” economy truly is.

    First, Macy’s said that its comparable sales on an owned plus licensed basis declined by 4.7% percent in the months of November and December 2015 combined, compared with the same period last year. This compares to previous, already poor guidance, of -2% to -3%. The weather was, of course, blamed.

    “The holiday selling season was challenging, as experienced throughout 2015 by much of the retailing industry. In the November/December period, we were particularly disadvantaged by the historically warm weather in northern climate zones where both Macy’s and Bloomingdale’s are especially well-represented. About 80 percent of our company’s year-over-year declines in comparable sales can be attributed to shortfalls in cold-weather goods such as coats, sweaters, boots, hats, gloves and scarves. We also continued to feel the impact of lower spending by international tourists as the value of the dollar remained strong,” said Terry J. Lundgren, Macy’s, Inc. chairman and chief executive officer.

    Compare this to Macy’s 8-K from precisely two years ago, and try not to laugh too hard:

    “poor January sales were due to the unusually harsh winter weather across much of the country. Once warm spring weather arrives and our full assortment of fresh spring merchandise is in place, we believe customers will return to a more normalized pattern of shopping.”

    So much for the comedy, now back to the tragedy for shareholders, as the company admits not even “harsh cold weather” can save it as it slashes earnings guidance…

    Macy’s, Inc. is not expecting a major change in sales trend in January and expects a comparable sales decline on an owned plus licensed basis in the fourth quarter of 2015 to approximate the 4.7 percent decline in November/December (from previous guidance of down between 2 percent and 3 percent for the fourth quarter). This calculates to guidance for comparable sales on an owned plus licensed basis in the full-year 2015 to decline by approximately 2.7 percent (from previous guidance of down 1.8 percent to 2.2 percent).

     

    Earnings per diluted share for the full-year 2015 now are expected in the range of $3.85 to $3.90, excluding expenses related to cost efficiencies announced today and asset impairment charges associated primarily with spring 2016 store closings. This compares with previous guidance in the range of $4.20 to $4.30. Updated annual guidance calculates to guidance for fourth quarter earnings of $2.18 to $2.23 per diluted share, excluding charges associated with cost efficiencies and store closings. This compares with previous guidance for earnings per diluted share of $2.54 to $2.64 in the fourth quarter. Earnings guidance for 2015 includes an expected $250 million gain on the sale of real estate in downtown Brooklyn.

    … and a tragedy for its employees, many of whom are about to be fired.

    Macy’s, Inc. today announced a series of cost-efficiency and process improvement measures to be implemented beginning in early 2016 that will reduce SG&A expense by approximately $400 million while still investing in growth strategies, particularly in omnichannel capabilities at Macy’s and Bloomingdale’s. The actions represent progress toward the company’s previously stated goal of re-attaining over time an EBITDA rate as a percent of sales of 14 percent.

    To address the need for greater efficiency and productivity, among the changes being implemented by Macy’s, Inc. in early 2016 are:

    • Adjusting staffing levels at each Macy’s and Bloomingdale’s store in line with current sales volume to increase productivity and improve efficiency. An average of three to four positions will be affected in each of Macy’s and Bloomingdale’s approximately 770 going-forward stores (out of an average workforce of approximately 150 associates in each store), for a total of about 3,000 affected associates nationwide. Roughly 50 percent of affected store associates are expected to be placed in other positions.
    • Implementing a voluntary separation opportunity for about 165 senior executives in Macy’s and Bloomingdale’s central stores, office and support functions who meet certain age and service requirements and chose to leave the company beginning in spring 2016. Approximately 35 percent of these executive positions will not be replaced.
    • Reducing an additional 600 positions in back-office organizations by eliminating tasks, simplifying processes and combining positions, with about 150 of these associates reassigned to other positions.

    Luckily, the US service economy is so very strong as Macy’s results confirm, or otherwise someone might get the idea that the “manufacturing recession is not contained.”

  • Brazil's Olympic Stadium Goes Dark Over Unpaid $250,000 Electric Bill

    Three weeks ago, in “‘Dark’” Days Ahead: Main Power Supplier For Brazil Olympic Games Pulls Out”, we brought you the latest humiliation out of Latin America’s EM darling gone bust.

    To be sure, there were already a number of concerns about the upcoming Olympic games in Rio. For instance, last summer we learned that thanks to a lack of sanitation infrastructure, Olympic athletes are almost certain to come into contact with disease-causing viruses in the water. As AP reported, these viruses in some tests “measured up to 1.7 million times the level of what would be considered hazardous on a Southern California beach.”

    Meanwhile, Brazil’s worsening budget crisis means the government is no longer willing (or able) to foot the bill for costs in excess of the Rio organizers’ budget. In other words: organizers can only spend what they estimate they’ll take in from sponsorships, ticket sales, and a grant from the International Olympic Committee.

    Unfortunately, the games are already some $520 million over budget, which means cutbacks will be necessary.

    First on the list: amenities in Olympic Village where athletes will be forced to pay for their own air conditioning and where televisions will not come standard in rooms.

    As if all of the above weren’t embarrassing enough, a major supplier of power reportedly backed out of the event last month, suggesting that in addition to unsanitary conditions and no air conditioning, athletes could well run out of energy – literally.

    As Reuters reported, “longtime Olympic power provider Aggreko has pulled out of a tender to supply generators for the games in Rio de Janeiro next year, dealing a major blow to organizers rushing to secure an energy source for the world’s largest sporting event.” Here’s what we said:

    More worrisome is that “the temporary power contract guarantees a stable and secure energy supply for international broadcasters.”

     

    Interruptions in coverage mean lost ad impressions and if advertisers and sponsors become concerned that Brazil will ultimately be unable to deliver, they could begin to rethink their commitment.

     

    Additionally, one has to wonder how long it will be before fans begin to rethink their plans to attend.

     

    After all, no one wants to go to an opening ceremony where the only light is the Olympic torch.

    Well believe it or not, the track and field stadium for this year’s games went dark on Monday due to unpaid utility bills. “In a statement, the city hall said Botafogo soccer club has been responsible for the utility bills since May 2015,” AP reports. “But the club told the AP in a statement that the city government owed it money to pay water and electricity bills.”

    “We have to find out who is responsible for the debt,” the club said.

    Yes, “we have to find out,” because the bill is a quarter of a million dollars. “The Brazilian website Globo Esporte, which is connected to the newspaper O Globo, said the unpaid bills totalled 1 million reals ($250,000),” AP continues, noting that apparently, the lights have been out since last week while the water was cut off last month. 

    “[The stadium] is the home ground of Botafogo football, which was previously responsible for the costs of running the stadium,” Sky News says. “But this month the club returned management of the arena to Brazil’s government while preparations got under way for the Olympics.”

    AP goes on to document the pitiable plight of the games’ organizers, many of whom are now unpaid volunteers who, in addition to not receiving a wage for their efforts, are actually forced to pay for their own accommodations while in Rio. 

    So not only has the provider of auxiliary power pulled out of a tender for the games, the host city is now refusing to pay the light bill for a key facility. We wonder how long it will be before Brazil “pulls the plug” (so to speak), on the whole thing.

  • ISIS – The Case For Non-Intervention

    Submitted by Roger Barris via Acting-Man.com,

    Happy Armchair Warriors

    The recent terrorist attacks in Paris and San Bernardino, California, have thrown the debate about ISIS into overdrive, particularly among the presidential candidates.  Several strands have emerged from these discussions, but I think that their taxonomy is not often clearly laid out.  I would therefore like to try to do this.

     

    This undated image posted by the Raqqa Media Center, a Syrian opposition group, on Monday, June 30, 2014, which has been verified and is consistent with other AP reporting, shows fighters from the al-Qaida linked Islamic State of Iraq and the Levant (ISIL) during a parade in Raqqa, Syria. Militants from an al-Qaida splinter group held a military parade in their stronghold in northeastern Syria, displaying U.S.-made Humvees, heavy machine guns, and missiles captured from the Iraqi army for the first time since taking over large parts of the Iraq-Syria border. (AP Photo/Raqqa Media Center)

    IS military parade in Mosul

    I think that there are three inter-related strands to the discussion, which I summarize below:

    • Military action against ISIS in Syria and Iraq
    • Protecting the border (including the related issue of profiling)
    • Data privacy

    Today, I would like to discuss the case for military action against ISIS.

    The argument here is that, in order for the world to defend itself against terrorism, ISIS must be defeated in its homeland.  ISIS must be denied territory.  This position is supported by, among the major Republican candidates, Jeb Bush, Marco Rubio and Chris Christie.

    Less clear are the positions of Donald Trump and Ted Cruz, who are both reluctant to engage in further foreign interventions, but who also make belligerent noises about ISIS.  The only candidate who is consistently and unambiguously against military escalation is Rand Paul.

    The undercard of the Republican debates, however, features the most aggressive proponent of escalation, Senator Lindsey Graham.  Graham is the only candidate in either party proposing “boots on the ground.”  He has recently reiterated this stand in an editorial in The Wall Street Journal entitled “How to Defeat ISIS Now – Not ‘Ultimately.’”

     

    john-mccain-lindsey-graham

    John McCain and Lindsay Graham: the happy warriors

    He wrote the article with his Senate colleague, and fellow happy warrior, John McCain.  Since they are such vocal advocates of escalation, let’s use their article as the standard bearer for the position. As the title implies, Senators McCain and Graham presume that defeating ISIS should be a goal of American foreign policy, a goal that they clearly link to the fight against terrorism:

    In his address on national television Sunday night, President Obama insisted that he has a strategy to destroy…ISIS.  But what Americans see instead is an incremental, reactionary, indirect approach that assumes that time is on our side.  It is not.  The danger is growing nearer: from attacks in Paris and Beirut, to the bombing of a Russian airliner, to the Islamic State-inspired shooting in San Bernardino, Calif.

    The Senators implicitly claim that only by defeating ISIS in its heartland can we protect ourselves in San Bernardino.  They apparently don’t feel that this linkage requires justification, just treating it as a self-evident truth.  But it is far from obvious that ISIS’ control of territory materially increases its willingness and ability to commit the type of attacks that we have recently seen in Paris and San Bernardino.

     

    IS

    Territory controlled by the Islamic State in Syria and Iraq as of late 2015 – click to enlarge.

     

    Interventionist Arguments

    I have seen three arguments put forth by the proponents of attacks on ISIS:

    • ISIS’ prestige is enormously enhanced by its occupation of territory and its declaration of a caliphate.  Among other things, it is a demonstration to the devout that God is on their side.  This is an essential recruiting tool for the movement.
    • ISIS uses its controlled territory to plot assaults – “Apocalyptic terrorists cannot be allowed to have sanctuary in ungoverned spaces, from which to plan attacks against the West,” to use the wording of the Senators – and train attackers.
    • ISIS uses the financial resources arising from its territory – taxes and natural resources, such as oil – to further its terrorist activities.

    These are the arguments for why ISIS must be defeated militarily in order to weaken its ability to commit acts of terror.  But there is a forth element required to make the argument complete, as  even the Senators admit.  The fourth element is that ISIS must be replaced with stable regimes that can and will permanently repress the group or any of its successors.

    Let’s examine each of these four elements in turn.

    To my mind, the validity of the first step comes down to the following question: Which is the more effective recruiting tool for ISIS, (a) the prestige of declaring and holding a caliphate or (b) the ability to point to bombs falling on Muslim brothers?  Although I cannot, fortunately, put myself in the mind of an Islamic terrorist, I don’t think that there is any doubt that (b) wins.

    It is obvious that the terrorist attacks are “blowback” against military action against ISIS.  This is clearly seen in the bombing of the Russian plane, which was only targeted after Russia commenced military action in Syria.  The terrorists in Paris were reported to have shouted references to Syria and Iraq during their spree.

     

    syria-in-ruins-16

    Syria lies in ruins – nearly every bomb dropped in the region drives more recruits into the arms of extremist groups like IS

    A recent terrorist knifing in London also involved the attacker shouting references to Syria.  I think that only the deliberately obtuse could deny that blowback anger makes a better recruiting poster than territorial occupation.

    I am equally unconvinced of the validity of the second element.  The San Bernardino terrorists, for example, were “inspired” by ISIS, but never trained nor plotted from this area.   Certain of the Paris terrorists had trained or fought in Syria, but I can’t see that this was essential to the attacks they committed.

    The reality is that these are low-tech assaults upon soft targets.  The idea that the attackers require an ungoverned sanctuary to carry out their plotting or training is nonsense.  Almost any suburban living room would serve.

     

    San Bern

    San Bernardino attackers Syed Farook and Tashfeen Malik – quite possibly inspired by ISIS, but they certainly didn’t need the self-anointed Caliphate to commit the attack. Islamist fundamentalist ideology cannot be eradicated militarily.

     

    The third argument – the financial one – is probably the strongest, but even this one fails to compel.  I repeat, these attacks are low tech assaults upon soft targets which do not require a great deal of financial support.  The San Bernardino attackers, for example, were able to fund themselves, with a little help from an online “P2P” lender .

    The attacks in France were more expensive, but even they would not have required anywhere near the financial resources of an ISIS.   Although ISIS requires state-like revenues to support its military actions, this is not true of its terrorism.

     

    The Failure of Nation-Building

    But it is with the last element that the proponents of military action against ISIS really fail to make their case.  Our experience in Afghanistan and Iraq – both places where we defeated our enemies militarily, as the proponents of military action against ISIS somehow forget – shows that we cannot win the war against ISIS unless we can also win the peace.

    Otherwise, our enemies will simply melt away, waiting for the inevitable slackening of our resolve to re-emerge, just as the Taliban have done in Afghanistan and just as the Sunni supporters of Saddam Hussein did in Iraq (before becoming, among other things, ISIS).

    Senators McCain and Graham acknowledge this in their article, which contains quotes such as:

    Iraqis must win the peace, but Americans have a major stake in their success, and a unique role to play in helping them.  The only way to do so is to be present.

    And:

    At the same time, Islamic State’s ability to spread is directly related to the collapse of political order.  Unless America does more to help these countries make the transition to just and inclusive governments, Islamic State will find havens to pursue its evil ends.

    And finally:

    So the U.S. should lead an effort to assemble a multinational force…[to] destroy Islamic State in Syria.  Such a force could also help to keep the peace in a post-Assad Syria, as was done in Bosnia and Kosovo.  Here, too, if the West wins the war and leaves, it should not be surprised if violence and extremism return.

    In other words, what the happy warriors have to offer is the same old “nation building” mantra that the neoconservatives have been chanting forever, combined with an apparent willingness to garrison these regions in perpetuity.

    And right on cue they have defaulted to Bosnia and Kosovo as the lone alleged success story for this strategy, which is in fact no success at all and where we have recently been treated to Kosovan parliamentary debates featuring tear gas attacks from the opposition, as proof of the vibrant democracy we have fostered.

    Kosovo

    Parliamentary debate, Kosovo-style: tear-gassed by the opposition.

     

    But probably the most amazing thing about the article is the total lack of proportionality.  Although tragic, the 14 deaths and 22 injuries in San Bernardino would have been, in the Detroit of my youth, about an average tally for a hot summer weekend.  Yet in response to this, Senators McCain and Graham want us to embark on a Pax Americana which has been shown to work exactly nowhere.

    Looking at this, it is hard to resist the notion that they are spoiling for a fight and since they can’t claim that ISIS is developing weapons of mass destruction, San Bernardino will have to do.

     

    Dubious Logic

    Although Senators McCain and Graham would lead us into a massive overreaction, this should not be interpreted as an endorsement of the current policy of the Obama administration (and, by extension, the proposed policy of Hillary Clinton, which is basically the same with a “no-fly zone” added to show that she is more butch than her former boss).

    Obama’s policy uses enough military action to expose us to “blowback” attacks and keep the ISIS recruiters busy, yet is insufficient to actually achieve military victory.  From the standpoint of the America’s interests, this is not as barmy as the proposals from the happy warriors, but it isn’t much better.

    It should be noted that American politicians are not the only ones pursuing this dubious logic.  Russia’s Vladimir Putin and the UK’s David Cameron have also decided that the best way to fight terrorism is to put their countries in harm’s way for more of it.

    Even Francois Hollande, on behalf of a country not known for its martial appetite, has joined in.  It is hard to see this as anything but the deplorable universal tendency for politicians to need to do something, no matter how misguided.

     

    bomb something

    The UK government’s reaction to the Paris Attacks

     

    Conclusion – We Have no Dog in this Fight

    I continue to believe, as I stated way back in September 2013, that we don’t have a dog in this fight.  San Bernardino doesn’t change the calculation.  ISIS will eventually collapse under its own homicidal and parasitical weight, probably with the help of one or more of its neighbors, whose inactivity and divisiveness we currently underwrite.

    Then ISIS will be replaced by something better…or worse…it is impossible to know in this region.  In the interim, we and our European friends should focus our efforts on isolating ourselves from the madness.  And we certainly should not go out of our way to draw further fire.

  • Sell In 1973, And Go Away

    Returns from being long the commodity super-cycle have evaporated in the last 18 months… to 42 year lows…

     

     

    h/t Sean Corrigan (@TrueSinews)

  • Guns Don't Cause Suicide

    Submitted by Ryan McMaken via The Mises Institute,

    Homicide rates in the United States have been declining for 20 years as the number of privately-held guns in the US has increased substantially.

    In some states, such as New Hampshire and Oregon, which have very weak gun laws, homicide rates are remarkably low, and these states are among the safest places on earth.

    As homicide rates have declined, however, and gun-related homicides with them, gun-control advocates have attempted to create a new category of "gun violence" by blaming suicides on access to guns.

    Most "Gun Violence" Is Suicide 

    Note this recent article from The Washington Post which casts suicide as indistinguishable from homicide, and goes on to point out that there were as many firearm related deaths in 2014 as there were deaths that resulted from automobile accidents.

    The article rightly notes that thanks to medical science and safety features on automobiles, deaths from car accidents have gone into steep decline in recent years. The article then notes that suicides have been increasing over the same period, but then attempts to connect this rise with access to firearms.

    The article never explicitly says that suicides are indistinguishable from homicides, of course — since any rational person can see a large and obvious distinction —  but it does imply the two are more  or less the same by classifying both firearm-related suicides and firearm-related homicides as "gun violence."

    Employing the usual lazy methods of mainstream journalists, The Post fails to provide hard numbers or to direct links to sources, so I'll do it for you:

    To come up with this new category of "gun violence" The Post combines the CDC's statistics of firearm suicides (a total of 21,175 in 2013) to the total of gun homicides (a total of 11,201 in 2013). Then it compares this total to the number of accidental automobile deaths, which was 33,804 in 2014. (The article claims there is new 2014 data from the CDC showing more gun deaths than automobile deaths, but the CDC web site has not been updated to reflect this.)

     

    So, overall, as of 2013, there were 32,376 gun deaths and 33,804 automobile deaths. (During that same period, about one-third of automobile deaths were alcohol-related.)

     

    So, yes, according to the CDC, the number of gun-related deaths and the number of automobile deaths are similar — but only if suicides are included.

    Contained in all of this, however, is the implied conclusion that were it not for such easy access to guns, the suicide rate in the US would be lower. This is of course pure speculation, and rather baseless speculation at that.

    More Guns, Less Suicide Than Much of Europe

    Certainly, if we compare the US to other countries, we have no reason to believe that suicides in the US are unusually common. Indeed, the US is very unremarkable in terms of suicide rates. Deborah Azrael at the Harvard Youth Violence Prevention Center has said "cut it however you want: in places where exposure to guns is higher, more people die of suicide." But, for anyone who can do arithmetic and make simple comparisons, this claim is easily shown to be bunk: 

    Source. (OECD Data.)

    The US comes in between gun-restrictive countries Sweden and Austria, and, of course, has a suicide rates far below that of Japan which is often held up as a paradise of gun-free non-violence. Korea, where privately-owned guns are nearly non-existent, has one of the worst suicide rates in the world. The US also has a suicide rate about equal to Switzerland, which in spite of its reputation as being a country of gun-toters, is estimated to have less than half as many guns per capita as the United States.

    Nevertheless, lumping suicides in with homicides is a key component of anti-gun propaganda. The Brady campaign, for example, does not employ homicide rates in its state-by-state analysis. If it did, it would find that the states with the least amount of gun control often have the lowest homicide rates. Instead, Brady relies on "gun violence" rates, which allows it to count states with rock-bottom homicide rates, like Idaho and Vermont, as states with lots of "gun violence." (In the US, altitude appears to correlate more with suicide than gun ownership.)

    This is a tricky sleight of hand maneuver, of course, since, when we're talking public policy, what people fear are homicides, not suicides.  Even Noah Smith, the Austrian-economics-hating, left-of-center finance blogger admits that classifying suicides as "gun violence" is stretching things a bit:

    With accidental gun deaths steady at around 500-600 per year, the bulk of those 32,000 "gun deaths" are suicides…In fact, murder by gun has been falling steadily since the early 1990s. Some of that is due to improvements in emergency medicine, but most is a result of the overall decline in violent crime that America has enjoyed over the last two decades. The fact that overall gun deaths has risen since 2000, despite the fall in murders, suggests that increased gun suicide has accounted for more than 100% of the increase in gun deaths. Obviously, suicide is a tragedy, and I don't want to minimize it. But people aren't panicking over suicide, they're panicking over murder, and gun-related murder is on the way down.

    (By the way, in 2013, accidental deaths by firearms was 505 (according to the CDC). That's out of a total of over 130,000 accidental deaths in a country of 300 million people. In other words, the accidental gun-deaths total is extremely small.)
     
    Won't Somebody Think of the Children? 

    But what about little Johnny? Maybe he won't commit suicide if there are fewer guns around.

    First of all, in regards to teenage suicide, we know that the United States is unremarkable in this measure as well.  In the 15-19 age group, suicides are less common in the US than in 14 OECD countries (plus Russia):

    Moreover, according to the CDC, intentional self harm (suicide) using a firearms is less likely in the lower age groups than suicide by some other means. In the 15-24 age group, for example, more suicides happen by means of something other than a firearm (6.1 per 100,000) than by firearm (5 per 100,000). This is true for all the younger age groups, and we only find that firearms suicides become more common than non-firearm suicides in the 55-64 age group or above.

    And yet, we never hear of "rope violence" or "carbon monoxide violence" or "prescription drug violence" when other methods are used for suicide.

    More alarming for parents should be the fact that deaths by prescription painkillers alone (whether suicide or accidental) totaled 16,000 in 2013.  If we include drug overdoses in general, the total balloons to 46,000 deaths (suicide and accidental) which means that government-controlled or prohibited substances account for more than twice as many deaths as gun suicides, and more than four times as many compared to gun homicides.

    Moreover, it is hotly debated as to whether or not anti-depressants might actually increase the likelihood of suicide. There are only a handful of studies on the matter, and they tend to contradict each other.

    Given the lack of knowledge over the causes of suicide, perhaps it might make more sense to take a look at why people commit suicide than to fixate on the methods people might use. This appears to be especially obvious given that lack of access to a gun clearly does not prevent the very high suicide rates in Japan and Korea.

    But, when it comes to preventing fatalities, only gun ownership is to be a topic of a "national debate."

    When a driver recently mowed down diners with her car on the Las Vegas strip, there was no call for a "national debate" over licensing of drivers. And certainly, there is no call for a "national debate" over the prevalence of deadly prescription painkillers in millions of American homes.

    Pro-Suicide, Anti-Gun

    Even more illogical is the fact that many advocates of gun control who pretend to be greatly concerned over suicide, actually applaud suicide in other contexts, and in some cases, those who claim to be advocating for fewer suicides via their opposition to guns, simultaneously will advocate for more suicide in the form of "assisted suicide" and euthanasia laws.

    When Brittany Maynard opted to kill herself rather than suffer from brain cancer, she was treated as a hero by many on the left, and "assisted suicide" has long been a project of the left, which seeks to make suicide easier. We also often hear about how "progressive" Belgium is, where the elderly and children are encouraged to embrace euthanasia.

    So, for the pro-suicide, anti-gun party, they should stop pretending to be concerned about suicide, but should instead admit that they merely object to the means of attaining it. They simply want people to die by some other method. That's fair enough, and if adults wish to contract with someone else to poison themselves, that's not the state's business. Indeed, if there are people who would prefer suicide using a third party instead of a gun, it is not legitimate for the state to prevent that. At the same time, let's stop pretending that people who applaud Brittany Maynard while decrying suicide as "gun violence" are interested in suicide prevention. They're not.

     

  • "We The People Are Pissed": New Poll Finds Whites And Republicans Are Angriest Americans

    If Donald Trump’s poll numbers tell us anything, it’s that Americans are angry.

    Angry with what they perceive to be government ineptitude, angry with the economy, angry with US foreign policy, angry with just about everything.

    The palpable sense of rage has manifested itself in support for dark horse presidential candidates like Donald Trump and Bernie Sanders and is also apparent in “incidents” like that which occurred on Saturday when armed militiamen seized a remote government building in Oregon.

    Just how mad are Americans? Very, according to a new poll conducted by Esquire, SurveyMonkey, and NBC News. Here’s the preface from Esquire:

    WE THE PEOPLE ARE PISSED. THE BODY POLITIC IS BURNING UP. AND THE ANGER THAT COURSES THROUGH OUR HEADLINES AND NEWS FEEDS—ABOUT INJUSTICE AND INEQUALITY, ABOUT MARGINALIZATION AND DISENFRANCHISEMENT, ABOUT WHAT THEY ARE DOING TO US—SHOWS NO SIGN OF ABATING. ESQUIRE TEAMED UP WITH NBC NEWS TO SURVEY 3,000 AMERICANS ABOUT WHO’S ANGRIEST, WHAT’S MAKING THEM ANGRY, AND WHO’S TO BLAME.

     


    LET’S BEGIN WITH THE BIG REVEALS: Half of all Americans are angrier today than they were a year ago. White Americans are the angriest of all. And black Americans are more optimistic about the future of the country and the existence of the American dream. There are depths and dimensions, dark corners and subtle contours to our national mood, and setting aside the issue of who actually has a right to be angry and about what—these pages are neutral territory; everyone is allowed their beef—we found three main factors shaping American rage: expectations, empathy, and experience.

    Below, find some of the highlights which include the fact that when it comes to being “pissed”, no one is angrier than white people and Republicans. “Overall, 49 percent of Americans said they find themselves feeling angrier now about current events than they were one year ago,” NBC writes. “Whites are the angriest, with 54 percent saying they have grown more outraged over the past year [while] sixty-one percent of Republicans say current events irk them more today than a year ago, compared to 42 percent of Democrats.”

    Full poll

  • Spot The Most Manipulated Market In The World

    One of these bubbles is not like the others, one of these bubbles just doesn’t belong… and yet still “officials” and talking-heads proclaim it cheap…

     

     

    Still think that China’s stock market is “stable” at these levels?

     

    Source: Bloomberg

  • That`s the Bottom in the Oil Market

    By EconMatters
     

     

      
    Clear Out Weak Hands in the Market

     

    On Wednesday the oil market sold off to $33.77 on large product`s builds, China`s devaluation of its currency, and a substantial selloff in equities. Sure Oil can go a dollar below this low, but for all intents and purposes this is the bottom in the oil selloff that was predicted for the start of the year. This move down was as predictable a move as there is in financial markets, and we called this down move to start the year with a piece we issued in December.

     

      
    500k Futures Contracts Traded on Wednesday

     

    It took over 500k in futures contracts just to push oil futures below $34 a barrel on Wednesday, and trust me it wasn`t an easy task for those involved in the pushdown. They now are stuck with being far too short the market at a level they don`t even like being stuck short. At a time when US Production is about to drop off a cliff, and the Middle East is a ticking time bomb that is about to blow up any day now. Look for a major short squeeze in the oil market over the next month as the ramifications of $34 oil play out in the market.

     

      
    Earning`s Season

     

    This entire move in equities and oil was already preplanned at the beginning of the year. Read our the market is a game piece as this was just about cleaning out the weak hands before the start of the earning`s season to make a whole bunch more money for the first quarter. Shoot the Shanghai Composite Index was up over 2% on the devaluation of the currency, yeah they took it really bad! Please this is the same old crap the players played in August, and at the end of the third quarter, and voila the market was suddenly fixed right in October just in time for Earning`s season. It’s all a game, learn how the game is played and the profits will follow my friends!

     

      
    Market Call on Record

    This is a short piece just to get our market calling for an essential bottom in the oil market in for the record. You may now go long the oil market in your preferred instrument. Just stay away from companies that are going to go bankrupt, but in buying something like the USO oil futures ETF, you will definitely have a positive expected return over the next six months to a year going forward.

    © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

  • Read The Powerful Saudi Terrorism Article Censored By Al-Jazeera

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    On December 3rd, a month before Saudi Arabia carried out it largest mass execution since 1980 — subsequently setting the region on fire — Arjun Sethi wrote an article for Al-Jazeera titled: Saudi Arabia Uses Terrorism As An Excuse for Human Rights Abuses. According to Cora Currier at the Intercept:

    Al Jazeera’s headquarters in Qatar appear to have blocked the article outside of the United States because it is critical of an ally of Qatar.

    Naturally, this makes you want to drop everything and read it. So here are some excerpts courtesy of the Intercept:

    Reports emerged last week that Saudi Arabia intends to imminently execute more than 50 people on a single day for alleged terrorist crimes. 

     

    All the convictions were obtained through unfair trials marred by human and civil rights violations, including in some cases torture, forced confessions and lack of access to counsel. Each defendant was tried before the Specialized Criminal Court, a counterterrorism tribunal controlled by the Ministry of Interior that has few procedural safeguards and is often used to persecute political dissidents. Lawyers are generally prohibited from counseling their clients during interrogation and have limited participatory rights at trial. Prosecutors aren’t even required to disclose the charges and relevant evidence to defendants. 

     

    The problems aren’t just procedural. Saudi law criminalizes dissent and the expression of fundamental civil rights. Under an anti-terrorism law passed in 2014, for example, individuals may be executed for vague acts such as participating in or inciting protests, “contact or correspondence with any groups … or individuals hostile to the kingdom” or “calling for atheist thought.” 

     

    One of the defendants, Ali al-Nimr, was convicted of crimes such as “breaking allegiance with the ruler” and “going out to a number of marches, demonstrations and gathering against the state and repeating some chants against the state.” For these offenses, he has been sentenced to beheading and crucifixion, with his beheaded body to be put on public display as a warning to others. 

     

    Because of these procedural and legal abominations, the planned executions for these Shia activists must not proceed. They should be retried in public proceedings and afforded due process protections consistent with international law, which includes a ban on the death penalty for anyone under the age of 18. 

     

    This deafening silence is not lost on Saudi Arabia and has emboldened its impunity. In the wake of the Arab uprisings, the kingdom’s brutal campaign against its Shia minority and political opposition has deepened. Shias have limited access to government employment and public education, few rights under the criminal justice system and diminished religious rights. Those who protest this discrimination face arbitrary trial and the prospect of execution for terrorism. Consider that Saudi Arabia has not carried out a mass execution for terrorism-related offenses since 1980, a year after an armed group occupied the Grand Mosque of Mecca. 

     

    Despite its appalling human rights record, Saudi Arabia was awarded a seat on the U.N. Human Rights Council last year and this summer was selected to oversee an influential committee within the council that appoints officials to report on country-specific and thematic human rights challenges. Unsurprisingly, Saudi Arabia has used its newfound power to thwart an international inquiry into allegations that it committed war crimes in Yemen.

     

    So that’s a great example of how Saudi Arabia blocks the truth within the region. Now let’s look at how it mobilizes its U.S. mercenaries to spew propaganda across mainstream media. From the Intercept:

    Saudi Arabia’s well-funded public relations apparatus moved quickly after Saturday’s explosive execution of Shiite political dissident Nimr Al-Nimr to shape how the news is covered in the United States.

    The Saudi side of the story is getting a particularly effective boost in the American media through pundits who are quoted justifying the execution, in many cases without a mention of their funding or close affiliation with the Saudi Arabian government.

     

    A Politico article about the rising tensions between Saudi Arabia and Iran by Nahal Toosi, for instance, quoted only three sources: the State Department, which provided a muted response to the executions; the Saudi government; and Fahad Nazer, identified as a “political analyst with JTG Inc.” Nazer defended the executions, saying that they served as a “message … aimed at Saudi Arabia’s own militants regardless of their sect.”

     

    What Politico did not reveal was that Nazer is himself a former political analyst at the Saudi Embassy in Washington. He is currently a non-resident fellow at the Arab Gulf States Institute in Washington, a think tank formed last year that discloses that it is fully funded by the Saudi Embassy and the United Arab Emirates.

     

    The Washington Post quoted consultant Theodore Karasik of Gulf State Analytics as saying that the executions were a “powerful message that Saudi Arabia is intent on standing up to its regional rival.” Karasik is a columnist at Al Arabiya, an English-language news organization based in the UAE and owned by Middle East Broadcasting Center, a private news conglomerate that has long been financially backed by members of the Saudi royal family. Its current chairman is Sheikh Waleed bin Ibrahim, a billionaire Saudi businessman whose brother in law was the late King Fahd. (Al Arabiya‘s coverage of the crisis is almost comically pro-Saudi, featuring headlines like “Storming embassies.. Iranian speciality.”)

     

    The U.S. government is obviously not  eager to alienate a government that President Obama has wooed with warm words and over $90 billion in arms sales. The diplomatic offensive by Saudi-financed flacks and media has provided some space for it to provide a muted response to the execution.

    Yes, you read that right. $90 billion. Make sense considering Saudi Arabia is now the world’s biggest arms importer.

  • Stocks Plunge To 3-Month Lows Amid Crude Carnage, Chinese Currency Collapse

    Ok to summarize – China has lost control of its currency (whether intentionally or not) and that is forcing carry unwinds en masse; North Korea tests a nuke; European inflation disappoints; US services economy collapses (follows manufacturing's lead and another pillar of hope is destroyed); Crude crashes to fresh decade plus lows; The Fed offers nothing in the way of hope for growth (or puts); Bernanke says not to expect Fed to save stocks; World Bank cuts global growth outlook… But apart from that, everything is awesome!!!

     

    Before we start, this happened!! Bloodbath in Yuan (offshore Yuan near record lows)…

     

    On the day, a wild ride… with the ubiquitous closing ramp

     

    Deja Deja Vu all over again…

     

    On the week – year-to-date – it appears bad news is bad news – let's just hope China doesn't open tonight eh?

     

    Note that evwerything but Nasdaq is red since the end of QE3…

     

    Post-FOMC, everything was chaotic… Gold flat, bonds up and stocks rescued…

     

    We do note the VIX-manipulation to move stocks around…

     

    Stocks are catching down to their breadth-based reality…

     

    And it's looking a lot like August again…

     

    Energy stocks plunged back to reality… who could have seen that coming?

     

    Financials are catchiung down to credit again…

     

    FANTAsy stocks were mostly lower but NFLX was ripped higher as CEO Reid Hadtings spewed some more bullshit… #netflixeverywhere – seriously!!

     

    AAPL had a mysterious massive buyer as it broke $100…

     

    Treaaury yields plunged with 7Y back under 2% and 30Y back under 3%… on the week 2s30s is now 6bps flatter

     

    The USD slipped lower after FOMC Minutes but is brioadly flat for 2 days (and up on the week)…as AUD collapses and JPY surges…

     

    Crude was clubbed, copper limped lower but PMS rallied further…

     

    Carnage…

     

    WTI Crude crashes to its lowest level since Dec 08's lows at $32.40…

     

    Charts: Bloomberg

    Bonus Chart: We have seen this pattern of money flow chaos before… Outflows surge from China, send liquidity needs spiking, which bleeds over into Saudi stress (petrodollar?), causing unwinds in major equity markets (thanks to deleveraging of carry trades) in China and then US stocks…

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Jan 06

Today’s News 6th January 2016

  • KiM JoNG BooM!

    KIM JONG BOOM

  • How Corrupt Is the American Government?

    Government corruption has become rampant:

    • Senior SEC employees spent up to 8 hours a day surfing porn sites instead of cracking down on financial crimes
    • NSA spies pass around homemade sexual videos and pictures they’ve collected from spying on the American people
    • Investigators from the Treasury’s Office of the Inspector General found that some of the regulator’s employees surfed erotic websites, hired prostitutes and accepted gifts from bank executives … instead of actually working to help the economy
    • The Minerals Management Service – the regulator charged with overseeing BP and other oil companies to ensure that oil spills don’t occur – was riddled with “a culture of substance abuse and promiscuity”, which included “sex with industry contacts”
    • Agents for the Drug Enforcement Agency had dozens of sex parties with prostitutes hired by the drug cartels they were supposed to stop (they also received money, gifts and weapons from drug cartel members)
    • The former chief accountant for the SEC says that Bernanke and Paulson broke the law and should be prosecuted
    • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud (a whistleblower also “gift-wrapped and delivered” the Madoff scandal to the SEC, but they refused to take action). Indeed, Alan Greenspan took the position that fraud could never happen
    • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy when they were not. The Treasury Secretary also falsely told Congress that the bailouts would be used to dispose of toxic assets … but then used the money for something else entirely
    • The American government’s top official in charge of the bank bailouts wrote, “Americans should lose faith in their government. They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable. The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.”
    • Congress has exempted itself from the healthcare rules it insists everyone else follow
    • Law enforcement also grabs massive amounts of people’s cash, cars and property … even when people aren’t CHARGED with – let alone convicted of – any crime
    • Private prisons are huge profit-making centers for giant companies, and private prison corporations obtain quotas from the government, where the government guarantees a certain number of prisoners at any given time
    • The government covered up the health risks to New Orleans residents associated with polluted water from hurricane Katrina, and FEMA covered up the cancer risk from the toxic trailers which it provided to refugees of the hurricane. The Centers for Disease Control – the lead agency tasked with addressing disease in America – covered up lead poisoning in children in the Washington, D.C. area (the Centers for Disease Control has also been outed as receiving industry funding)
    • In response to new studies showing the substantial dangers of genetically modified foods, the government passed legislation more or less PUSHING IT onto our plates
    • Government scientists originally pushed fluoridation of water as “safe and effective” because fluoride is a major byproduct of making nuclear weapons … and the government ordered them to downplay the risks of fluoride exposure in order to prevent massive lawsuits by those suffering injury from poisoning
    • The Bush White House worked hard to smear CIA officers, bloggers and anyone else who criticized the Iraq war
    • The FBI smeared top scientists who pointed out the numerous holes in its anthrax case. Indeed, the head of the FBI’s investigation agrees that corruption was rampant
    • Warmongers in the U.S. government knowingly and intentionally lied us into a war of aggression in Iraq. The former head of the Joint Chiefs of Staff – the highest ranking military officer in the United States – said that the Iraq war was “based on a series of lies”. The same is true in Libya, Syria and other wars. Indeed, the U.S. has often launched or proposed launching wars based upon FALSE PREMISES
    • When the American government got caught assassinating innocent civilians, it changed its definition of “enemy combatants” to include all young men – between the ages of say 15 and 35 – who happen to be in battle zones. When it got busted killing kids with drones, it changed the definition again to include kids as “enemy combatants”
    • The government treats journalists who report on government corruption as CRIMINALS OR TERRORISTS. And it goes to great lengths to smear them. For example, when USA Today reporters busted the Pentagon for illegally targeting Americans with propaganda, the Pentagon launched a SMEAR CAMPAIGN against the reporters. But  journalists who act as mere cheerleaders for the government who never criticize are protected and rewarded

    The biggest companies own the D.C. politicians. Indeed, the head of the economics department at George Mason University has pointed out that it is unfair to call politicians “prostitutes”. They are in fact pimps … selling out the American people for a price.

    Government regulators have become so corrupted and “captured” by those they regulate that Americans know that the cop is on the take. Institutional corruption is killing people’s trust in our government and our institutions.

    Neither the Democratic or Republican parties represent the interests of the American people. Elections have become nothing but scripted beauty contests, with both parties ignoring the desires of their own bases.

    Indeed, America is no longer a democracy or republic … it’s officially an oligarchy. And the allowance of unlimited campaign spending allows the oligarchs to purchase politicians more directly than ever.

    No wonder polls show that the American people say that the system is so thoroughly corrupt that government corruption is now Americans’ number one fear.

    And politicians from both sides of the aisle say that corruption has destroyed America. And see this.

    Moreover, there are two systems of justice in America … one for the big banks and other fatcats … and one for everyone else. Indeed, Americans have .

    Big Corporations Are Also Thoroughly Corrupt

    But the private sector is no better … for example, the big banks have literally turned into criminal syndicates engaged in systemic fraud.

    Wall Street and giant corporations are literally manipulating every single market.

    And the big corporations are cutting corners to make an extra penny … wreaking havoc with their carelessness. For example:

    • U.S. military contractors have pocketed huge sums of money earmarked for humanitarian and reconstruction aid. And see this (whistleblowers alerted the government about the looting of Iraq reconstruction funds, but nothing was done)
    • There is systemic corruption among drug companies, scientific journals, university medical departments, and medical groups which set the criteria for diagnosis and treatment

    (Further examples here, here, here, here and here.)

    We’ve Forgotten the Lessons of History

    The real problem is that we need to learn a little history:

    • We’ve known for thousands of years that – when criminals are not punished – crime spreads
    • We’ve known for centuries that powerful people – unless held to account – will get together and steal from everyone else

    Beyond Partisan Politics

    Conservatives and liberals tend to blame our country’s problems on different factors … but they are all connected.

    The real problem is the malignant, symbiotic relationship between big corporations and big government.

  • Global Corporate Debt is Coming Unglued

    Standard & Poor’s slashed the credit ratings of 112 corporations around the globe to default (D) or selective default (SD) in 2015, according to S&P Capital IQ Global Credit. The highest number of global defaults since nightmare-year 2009, when a previously unthinkable 268 companies defaulted, and not far behind the second highest default tally of 125, in 2008.

    The oil & gas sector led with 29 defaulters (26% of the total). Metals, mining, and steel followed with 17 defaulters (15% of the total). The consumer products sector and the bank sectors tied for the third place, each with 13 defaulters (12% of the total).

    So where are the defaulters? In Russia and Brazil? The economies of both countries have been ravaged by deep recessions and other problems. They rank high on the list but the country with most of the defaulters is… the US.

    In total, 66 defaulters were US issuers, up 100% from 33 in 2014, and the highest since 2009. US defaulters accounted for 59% of the global total. Some of this dominant share of defaulters can be attributed to the size of the US economy and the enormous size of its credit market. But the US is also the epicenter of oil & gas defaults, with contagion now spreading to other sectors.

    An indication of what’s coming in 2016 is the Standard & Poor’s Distress Ratio. It’s the proportion of junk-rated bonds with yields that exceed Treasury yields by at least 10% (option-adjusted spread). And this Distress Ratio soared in December to 24.5%, up from around 5% in 2014. There are now 437 bond issues tangled up in the ratio:

    US-SP-Distress-ratio-2013-2015

    Of those 437 bond issues in the Distress Ratio, 127 have been issued by oil & gas companies. The metals, mining, and steel sector has 71 bond issues in the ratio. The remaining 239 issues are spread over other sectors. And a number of these distressed issuers will default down the line. So defaults in the US are likely to get even uglier in 2016.

    Emerging Markets were in second place with 25 defaulters, up from 15 in 2014 and the highest since 2009, according to S&P Capital IQ Global Credit, “owing largely to a credit spillover effect of the increasingly unfavorable geopolitical climate in Brazil and Russia.” Brazil sported eight defaulters, and Russia seven, thus occupying the second and third country-rank behind the US.

    In Europe, where QE and negative yields are raging, S&P downgraded 16 issuers to default, up 167% from 2014, despite the current monetary policies that should make defaults virtually impossible. The remaining 5 defaulters were spread over other developed nations (Australia, Canada, Japan, and New Zealand):

    Global-corporate-defaults-2004-2015

    There are different reasons companies can be downgraded to D or SD. Of the 112 defaulters, 36 (or 32% of the total) undertook “distressed debt exchanges,” a favorite extortion method in the US oil & gas sector, whereby the company tells investors to swap existing bonds for new bonds with a huge haircut, or risk an even worse fate in bankruptcy court. This tool is becoming increasingly popular: in 2015, 32% of defaults were distressed debt exchanges, up from 23% in 2014.

    Another 32 defaulters failed to make interest or principal payments, while 22 filed for bankruptcy. Among the remaining defaulters, 11 were the result of regulatory interventions.

    Standard & Poor’s global “weakest links” – companies on the lower end of the junk-bond spectrum most in danger of defaulting – reached 195 in December, the highest since March 2010 (when there were 203), representing $234 billion in rated debt, with oil & gas in first place and financial institutions (!) in second place:

    Drops in oil prices affected the profitability of oil and gas companies, where spreads have widened considerably. This spread expansion has had a spillover effect upon the broader range of speculative-grade rated firms, where spreads have widened considerably leading to increased default risk.

    What’s next in the US? Standard & Poor’s upgraded 18 companies with total debt of $49 billion, but downgraded 60 companies with a breath-taking total debt of $1.3 trillion (with a T).

    So 2015 ended on an ugly note. But there is still no crisis of any kind. Yes, the price of commodities has collapsed, but money is still nearly free for high-grade borrowers. Numerous governments and corporations can borrow at negative yields, thus getting paid to borrow, a central-bank engineered absurdity. And many more can borrow below the rate of inflation – i.e. for free. And yet, defaults are surging.

    And it’s just the beginning.

    The non-dollar world has piled on nearly $10 trillion in dollar-denominated debt, betting that the dollar would never rise, and that US interest rates would stay low. But the dollar has soared and US interest rates are rising. The last time this happened was 1997. It triggered massive currency outflows from those countries and all kinds of crises, including the big one at the time, the Asian Financial Crisis, according to the economists at National Bank of Canada, who added, “It would be foolish to rule out a similar if not a more devastating outcome.” Read… What Will Knock the Dollar off its Perch?

  • "Presidentialism" Not Serving American Politics Well

    Authored by Ben Tanosborn,

    Here we are heralding the entrance of a new year with myriad problems confronting us; some problems appearing as daily spoken realities – those principally dealing with the economy, war and terrorism; others, subliminally present, silenced by national choice – such as bigotry, an ever-expanding income-wealth inequality and the prospect of a world without US economic and military hegemony.  The subliminal topics appearing as taboo, where neither government nor most of us dare go or openly discuss.  We are ushering 2016 as yet another presidential election year where once again our once reliable presidential system is demonstrating its incapacity to reach political consensus in a diverse nation where the preponderance of voters is no longer centrist “across the board” as in generations past.  

    Results from Spain’s December 20 general election brought both reality and questions which had been accosting me from my early days of inquiry about politics to my current cynicism which defines the idea of democracy, and self-governance, as just a placebo prescribed by those elites who alternatively rule over us in this United States.

    I go back to my teen years when I first questioned which system of government, within the context of democracy, would probably be best: Parliamentarism or Presidentialism. And I recall choosing one over the other depending on my political feelings at that time.  Now, after years of swinging back and forth, I am about to reach the conclusion, this time permanently, without the residue of reservations that I had in the past, that at least in this 21st Century America, Presidentialism is not serving us well; and that, braiding it with our insufferable two-party, money-lubricated, political machine has placed us among the worst governed major nations on earth – something which our false pride and concomitant ignorance refuse to acknowledge time and again.  Pride and ignorance which have nurtured cancerous instincts in conflict with world peace and brotherhood through militarism, bigotry, jingoism, and a shameful enjoyment of our “empire-feel”; perhaps a great outcome for the ruling elites of the nation but a sorry aftermath for a commoner citizenry which has been profoundly deceived.

    A most interesting new approach to American politics has resulted for me from Spain’s recent elections, something which can only happen, or be invited to happen, under Parliamentarism.  Instead of the customary two major political forces that usually vie for absolute power, the People’s Party or Partido Popular (PP) – most often tagged as center-right in the right-left political spectrum, and the Socialist Workers’ Party or Partido Socialista Obrero Español (PSOE) – center-left deceivingly misnamed by appropriating the terms workers and socialist, there were two other major political parties of new vintage sculpted from recent popular movements sprouting from both the left and a “modified center”: We Can (Podemos) and Citizens-Party (Ciudadanos).

    In the past, much in the fashion of Republicans and Democrats in the US, PSOE and PP alternated holding the reins of power – notwithstanding the required coalitions in two nationalistic (separatist) regions: the autonomous communities of Catalonia and the Basque Country.  In a political patronage-prone culture such as Spain, this system of spoils under the two-party yoke has always kept the level of economic corruption high; but as austerity measures were imposed to cope with the most recent world recession, citizen-democracy became invigorated, thus the advent of two new political formations, Podemos and Ciudadanos, for the most part carved from the membership in the two “now-is-my-turn” ruling parties.

    Now, after the vote of the 73 percent turnout has been counted, there are not just two but four political forces vying for power, where coalition-consensus will win the day for a new government to emerge: PP with 29 percent of the popular vote and 123 (35%) seats in the Cortes; PSOE, tallying 22 percent and 90 (26%) seats; Podemos gathering 21 and 69 (20%) seats; Ciudadanos with 14 percent and 40(11%) seats; and multiple other parties together garnering the other 14 percent of the popular vote and the remaining 28 seats in the 350-member Cortes.  Under a parliamentary system where no winner takes it all, Spain will have to reach political compromise and stability in a democratic consensus government.  Something expected to happen, accommodating the sound of all major voices.

    These four political forces in Spain bring to mind that our presidential system of winner-take-all will be trying to squeeze in perhaps more than half dozen socio-political forces in the United States, all without coalition or compromise, under the umbrellas held by our “faithful and reliable” Tweedledee and Tweedledum political parties.

    Evangelicals, Tea-partiers, Progressives, Libertarians, Ghettofied Blacks, Unionized Labor, and other groups will be tapped and lured by the career politicians in the two parties to receive their financial support and vote, in most instances without political voice… only the prospect that their vote will bring about a government that will provide “the lesser of two evils,” a proposition that the American electorate has, erroneously, accepted as a political act of faith.

    Our system of Presidentialism may have served us well in the past but its rigidity in the political process denies the multiple voices that need to be heard in a democracy, nor offers the required tools for political compromise.  Sadly… here we are, stepping into 2016 with the possible political prospect of having to elect as chief executive of this nation either a lady with questionable trust-credentials or a boisterous charlatan.

    May the Almighty have mercy on us in 2016!

  • North Korea Confirms It Conducted "Successful Hydrogen Bomb Test" As "Act Of Self-Defense" Against US

    North Korea has confirmed that it has "successfully tested a hydrogen bomb." The test was "an act of self-defense" against threats like the US.

     

    This is the 3rd test during Obama's administration…

     

     

    As we detailed earlier…

    A 5.1-magnitude earthquake detected near North Korea’s nuclear test site appears to have been artificial, according to South Korea’s meteorological service, raising the prospect the isolated regime tested a nuclear device. As Bloomberg reports, the "earthquake" follows North Korea’s threat in September that it is ready to use atomic weapons against the U.S. at any time and that its main nuclear facility was fully operational. The Pentagon is reportedly "looking into" the quake reports.

    Coincidence?

    As AP reports,

    South Korean officials detected an "artificial earthquake" near North Korea's main nuclear test site Wednesday, a strong indication that nuclear-armed Pyongyang had conducted its fourth atomic test. North Korea said it planned an "important announcement" later Wednesday.

     

    A confirmed test would mark another big step toward Pyongyang's goal of building a warhead that can be mounted on a missile capable of reaching the U.S. mainland.

     

    The U.S. Geological Survey measured the magnitude of the seismic activity at 5.1 on its website. An official from the Korea Metrological Administration, South Korea's weather agency, said it believed the earthquake was caused artificially based on their analysis of the seismic waves and that it originated 49 kilometers (30 miles) north of Kilju, the northeastern area where North Korea's main nuclear test site is located. The country conducted all three previous atomic detonations there.

     

    South Korean government officials couldn't immediately confirm whether a nuclear blast or natural earthquake had taken place.

     

    North Korea conducted its third nuclear test in February 2013.

     

    Another test would further North Korea's international isolation by prompting a push for new, tougher sanctions at the United Nations and worsening Pyongyang's already bad ties with Washington and its neighbors.

     

    Pyongyang is thought to have a handful of crude nuclear weapons. The United States and its allies worry about North Korean nuclear tests because each new blast brings the country closer to perfecting its nuclear arsenal.

     

    Since the elevation of young leader Kim Jong Un in 2011, North Korea has ramped up angry rhetoric against the leaders of allies Washington and Seoul and the U.S.-South Korean annual military drills it considers invasion preparation.

    *  *  *

    South Korea is responding:

    “We are checking whether this is indeed a nuclear test or something else,” said a spokesman of the South’s Defense Ministry, who spoke on customary condition of anonymity.

    • *S. KOREA TO CONVENE NATIONAL SECURITY MEETING AT 12PM: YONHAP
    • *BOK TO HOLD MEETING AT 2 P.M. LOCAL TIME TO DISCUSS N. KOREA

    *  *  *

    It appears Kim has had enough playing second geopolitical pain-in-the-ass fiddle to Syria so decided to get back in the headlines.

    Ironic really after Kim Jong-Un's "fabulous" year.

     

    Various twitter sources report that North Korea is due to make an "important announcement" at 2230ET.

  • Visualizing How The Global Economy Played Out In 2015

    Many people start a new year with renewed optimism. However, "New Year, Same Problems" is the meme of 2016… and recent trading has dashed some of that optimistic 'This time it's different' hope.

     

     

    Courtesy of: Visual Capitalist

     

    NEW YEAR, SAME PROBLEMS

    Most investors and central bankers find themselves between a rock and a hard place to start 2016.

    The Federal Reserve finally raised rates in December, but mainly in the interest of preserving credibility.

    While unemployment itself has looked good enough and there has been some wage growth, the labor force participation is at 62.5%, which is essentially its lowest mark since 1977. Meanwhile, the stock market has been volatile, junk bonds have been hammered, and manufacturing contracted in December at the fastest pace in the U.S. in more than six years.

    Most major central banks still have rates close to zero, which gives little policy ammunition for any additional stimulus. The flipside of these record-low rates has been soaring (or extremely bubbly) asset prices that have failed to trickle down to Main Street.

    A slowing China and general oversupply has led to slumping commodity prices.

    Oil has been hammered down to its lowest price since 2003. Copper is trading at $2/lb, which is comparable to its price during the Financial Crisis. These low input prices, in theory, are great for consumers and manufacturers. In reality, however, they usually mean that economic growth is grinding to a halt.

    It’s hard to say where markets will turn in 2016, but for now it will continue to be much of the same volatility until the picture becomes clearer.

    Original graphic by: The Straits Times

  • Central Bank Money Printing – The Rotten Philosophy That Lies Beneath

    Submitted by Richard Ebeling via The Future of Freedom Foundation,

    If advocates of freedom were to make up a list of New Year’s resolutions for 2016, one of the most important items should be ending government’s monopoly control over money. In a free society, people in the marketplace should decide what they wish to use as money, not the government.

    For more than two hundred years, practically all of even the most free market advocates have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation.

    This belief has been taken to the extreme over the last one hundred years, during which governments have claimed virtually absolute and unlimited authority over national monetary systems through the institution of paper money.

    At least before the First World War (1914-1918) the general consensus among economists, many political leaders, and the vast majority of the citizenry was that governments could not be completely trusted with management of the monetary system. Abuse of the monetary printing press would always be too tempting for demagogues, special interest groups, and shortsighted politicians looking for easy ways to fund their way to power, privilege, and political advantage.

    The Gold Standard and the Monetary “Rules of the Game”

    Thus, before 1914 the national currencies of practically all the major countries of what used to be called the “civilized world” were anchored to market-based commodities, either gold or silver. This was meant to place money outside the immediate and arbitrary manipulation of governments. Any increase in gold or silver money required private individuals to find it profitable to prospect for it in various parts of the world; mine it out of the ground and transport it to where it might be refined into usable forms; and then mint part of any new supplies into coins and bullion, with the rest made into various commercial and industrial products demanded on the market.

    The paper currencies controlled by governments and their central banks were supposed to be issued only as claims to – as money substitutes for – quantities of the real gold or silver money deposited by members of the society in banks for safekeeping and the convenience of everyday business in the marketplace.

    Government central banks were meant to see that the society’s medium of exchange was properly assayed and minted, and to monitor and police private banks and itself to make sure that the “rules” of the gold (or silver) standard were properly followed.

    Bank notes were to be issued or deposit accounts increased in the banking system as a whole only when there had been net additions to the quantity of the commodity money within the economy. Any withdrawals of the commodity money from the banking system was to be matched by a decrease in the total quantity of bank notes in circulation and in deposit accounts payable in money.

    Did government’s always play by these “rules”? Unfortunately, the answer is, “No.” But, by and large, in the half-century or so before the beginning of the First World War, governments and their central banks managed their national currencies with surprising restraint.

    If we look for a reason for this restraint, a leading one was that for a good part of this earlier era the predominant set of ideas was that of political and economic liberalism. But we need to remember that at that time “liberalism” meant an advocacy and defense of individual liberty, secure private property rights, free markets, free trade, and limited government constitutional under impartial rule of law.

    But, nonetheless, these national currencies were government-managed paper monies linked to gold or silver by history and tradition, and more or less left fairly free of direct and abusive political manipulation, due to the prevailing political philosophy of the time that considered governments as protectors of individuals’ rights to their lives, liberty and honestly acquired property.

    Political Paternalism and Monetary Central Planning

    However, in the decades leading up to the First World War the political trends began to change. New ideals and ideologies started to appear and gained increasing hold over people’s minds. The core conception was a growing belief in the necessity for and the good that could come from political paternalism. Government’s were not simply to be impartial “umpires” who enforced the rule of law and protected people and their property from violence and fraud. No, government was to intervene into the social and economic affairs of men, to regulate markets, redistribute wealth, and pursue visions of national greatness and collective welfare.

    This meant a change in the political philosophy behind the government’s control of the monetary system, as well. In the decades after the First World War, in the 1920s, 1930s, and 1940s, the government monetary managers increasingly became monetary central planners. The central bankers were to manipulate the supply of money and credit in the economy to achieve various goals: stabilize the price level; maintain full employment; peg or change foreign exchange rates; lower or raise interest rates to influence the amount and the types of investments undertaken by private borrowers and investors; and, whenever and however necessary, increase the quantity of money to fund government deficits needed by politicians and interest groups to feed their insatiable appetite for power, privilege and political plunder.

    The triumph of Keynesian Economics in the post-World War II period resulted in a near monopoly of academic and public policy advocates who argued that private enterprise was inherently unstable and frequently unfair, and could only be allowed to exist and function in a wider environment of dominating government control. The consequence was a government constantly increasing in size, scope, and pervasive supervision and intrusion into every corner of personal, social, and economic life.

    Big Government, Big Spending and the Monetary Printing Press

    But big governments cost big sums of money. About a hundred years ago in America, in 1913, all levels of government combined – Federal, state, and local – absorbed only around eight percent of the nation’s income and output. Today, all levels of government seize nearly fifty percent of all that is earned and produced in the United States. That cost of government is even more if we add the financial burdens imposed on private enterprise to comply with the strangling spider’s web of regulations and controls imposed on businessmen going about their business.

    During the seven years of the Obama Administration, the Federal government has accumulated over eight trillion dollars in additional debt. About at the same time, the Federal Reserve – America’s central bank – had created around four trillion dollars of new money in the banking system. In other words, the Federal Reserve has, in fact, produced out of thin air a sum of new money equal to fifty percent of all the Federal government has borrowed during this period.

    The economics textbooks usually sanitize this type of process with a sterile terminology that calls it, “monetizing the debt.” An earlier generation of economists and critics of political paternalism used to call this process paper money inflation and debauchery of the currency: the diluting of the value of the money in people’s pockets through monetary depreciation and currency devaluation.

    Political Demagogy, Fiscal Burdens and the Danger of Inflation

    As a result of the growth of the modern welfare state, America and the other major Western countries of the world have become, in the words of the late Nobel Prize-winning economist, James Buchanan, perpetual democracies in deficit, funded in total or in good part by, now, trillions of dollars created by government monetary monopolies – the central banks.

    Today, we are reaping the whirlwind of decades of political paternalism and monetary central planning. Nations like Greece have been at the edge of financial bankruptcy and debt default. And countries like the United States, which are woven tightly with networks of special interest groups living off the redistributed plunder of other more productive members of society, seem to regularly lurch from one fiscal crisis to another. The current politics of redistributive paternalism seems to offer little way to stop the worsening avalanche of massive annual deficits and mounting national debt.

    The demagogues and political tricksters harangue about “soaking the rich” to fund the unfunded “entitlements” of social security and Medicare through the rest of the 21st century. They demand that “big business” pay for the government’s misguided economic policies and to cover the costs of other parts of the welfare state.

    The politicians of plunder have also taken recourse to that last refuge of every political scoundrel: a call to “patriotism.” It is your duty as a “good citizen” to pay an increasingly higher and higher “fair share” in taxes; to cooperatively be subservient and obedient to the demands and needs of government; and to sacrifice your freedom and the fruits of your own hard-earned honest labor for “the national interest” and “the common good.”

    It is worth remembering that those in the political arena who claim to know what is in “the national interest” and for “the common good” are the same ones who also assert the right to compel you to conform to their vision of a “just” and “fair” America, regardless of much you may honestly disagree or desire to peacefully go your own way.

    A central tool for governments to maintain their authority in society and their control over people’s lives is the ability to make the citizenry accept and use their monopoly medium of exchange. This is a lynchpin in the government’s ability to transfer the people’s wealth and privately produced output to satisfy the “needs” of government spending.

    It makes each and every citizen an existing and potential victim of government abuse of the monetary printing press, since paper currencies are no longer in anyway linked to or limited by a market-based supply of a real commodity such as gold or silver. We should not presume that runaway hyperinflations and the accompanying destruction of a society’s medium of exchange only occur in places like 1920s Germany or contemporary African nations like Zimbabwe. That, “it can’t happen here.” It can happen anywhere.

    The Bankruptcy of the Welfare State and Redistributive Dependency

    The fact is, the modern welfare state is bankrupt. It is bankrupt ideologically; no one really any longer believes that the Interventionist- Redistributive State will bring mankind material happiness or social harmony. Everyone knows that it is nothing more than a vast and corrupt political machine through which, as Frederic Bastiat said long ago, everyone tries to live at everyone else’s expense.

    In the process, the productive capacity of the society slowly grinds to a halt, as more and more people turn from productive self-responsibility to redistributive dependency. It also generates a mental attitude and a political presumption of legitimacy to that redistributive dependence that pervades each and every income group and social category throughout the nation.

    Most opinion polls show that a fairly sizable majority of the American people think that government is too big, spends too much, and taxes far too excessively. But once the questions turn to “specifics” of cutting particular government programs, it is soon seen how the tentacles of the welfare state reach into virtually everyone’s pocket.

    It is not only that government taxes people in varying amounts to feed the redistributive process. It is also the case that there are few people in the land who do not have some type of money, program, or benefit put into their pockets by government. Most people cannot imagine living without their government redistributive “fix.” And, admittedly, breaking people’s addiction to their government benefits, subsidies, protections, and special favors would and will involve serious withdrawal pains.

    This also means that the welfare state is rapidly reaching financial bankruptcy, as well. Neither taxation nor borrowing of private savings can or will be able to cover all the costs of current and future government spending under existing interventionist and redistributive legislation and regulation.

    The government may very well, therefore, use its most important financial resource to keep moving the wheels of political spending. They may more and more turn the handle of the monetary printing press, and they may turn it faster and faster.

    Hyperinflations and Opting Out of Government Monopoly Money

    Time after time, history has demonstrated that when serious price inflations move into disastrous hyperinflations, people first discount and then abandon the government’s monopoly money. They shift into alternative currencies of choice that they consider more stable, more predictable, and more wealth and income preserving that the increasingly worthless pieces of paper money that their own government spews out in increasing quantities.

    Now such a monetary disaster is not preordained. It is not written in some “big book” in the sky. Governments and societies have in the past pulled back and stopped short of following a path leading to social and economic ruin. America, too, may yet slow down or bring to a halt the political course it is currently traveling. The future is unpredictable and trends have changed many times in the past.

    But . . . forewarned is forearmed. So how might any of us be able to shelter ourselves from the possible coming fiscal and monetary storms? Central to such precautionary actions is to hedge against the possible radical depreciation and or even destruction of the government’s currency.

    To the extent that one sees such a danger and has the financial wherewithal to “plan ahead,” individuals should be legally allowed to opt-out of the government’s monopoly money. In other words, every American should be free from the government’s power to compel its citizens to use and accept in trade and in settlement of debts its own monopoly money.

    We should not be lulled into a false sense of currency security due to the low rate of price inflation as measured by the Consumer’s Price Index, or the declared fears of “price deflation” mostly resulting from the steep declines in some important commodity prices such as the cost of a barrel of crude oil. These things, in the right circumstances, can turn around faster than is often imagined.

    F. A. Hayek and Choice in Currency

    Everyone should be free to choose the currency or commodity they wish to hold and use as a medium of exchange without legal restriction, penalty, or political prejudice.

    Monetary freedom would not only give every citizen a legal right to protect and secure his income, wealth and market transactions from abusive mismanagement of the government’s monopoly monetary printing press. It could also serve as a check on the degree of such government abuse.

    A little more than forty years ago, in September 1975, Austrian economist and Nobel Laureate, Friedrich A. Hayek, delivered a lecture on, Choice in Currency: A Way to Stop Inflation, in Lausanne, Switzerland, and said:

    There could be no more effective check against the abuse of money by the government than if people were free to refuse any money they distrusted and to prefer money in which they had confidence. Nor could there be a stronger inducement to governments to ensure the stability of their money than the knowledge that, so long as they kept the supply below the demand for it, that demand would tend to grow. Therefore, let us deprive governments (or their monetary authorities) of all power to protect their money against competition: if they can no longer conceal that their money is becoming bad, they will have to restrict the issue.

     

    Make it merely legal and people will be very quick indeed to refuse to use the national currency once it depreciates noticeably, and they will make their dealings in a currency they trust.

     

    The upshot would probably be that the currencies of those countries trusted to pursue a responsible monetary policy would tend to displace gradually those of a less reliable character. The reputation of financial righteousness would become a jealously guarded asset of all issuers of money, since they would know that even the slightest deviation from the path of honesty would reduce the demand for their product.

    Taking away from the government its power of compelling the citizenry to accept money that it monopolistically controls and abuses may serve as an important legal and economic change to force the government and those who live at its spending trough to face the reality of the welfare state’s ideological and fiscal bankruptcy before it is too late to avert a complete collapse of the society.

    Choice in currency may be a valuable avenue for helping to restore the American tradition and practice of individual rights, free markets, and limited government under the rule of law. And it can be an important legacy for our children and grandchildren, so they may, hopefully, live out their lives in more liberty for the remainder of the twenty-first century.

     

  • Dow Futures Plunge 170 Points After Yuan Crashes To 5-Year Lows As PBOC Loses Control

    Dow futures are down over 170 points from the cash close, testing the lows of the day following carnage in the Chinese currency markets. Despite the biggest drop in onshore Yuan since August devaluation, Offshore Yuan has collapsed to its lowest since September 2010. What is more worrisome (or positive for Kyle Bass) is that the spread between onshore and offshore Yuan has blown out to 1250 pips – a record – indicating dramatic outflows and/or expectations of further devaluation to come.

    Yuan is in free-fall… Offshore Yuan is down over 400 pips from intraday highs, testing 6.6800

     

    CNH-CNY spread is now over 1320 pips – as it appears The PBOC is losing control.

    And although Chinese stocks are "stable" thanks to some National Team play…

     

    US equity futures are tumbling off the bounce close, trading back near the day's lows…

     

    It appears Kyle Bass was right:

    "Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."

    And it is – sanctioned by The IMF…

     

    Charts: Bloomberg

  • China Set To Establish No-Fly Zone Over Islands After Successful Test Flight

    When last we checked in on the dispute over Beijing’s land reclamation efforts in the South China Sea, several dozen protesters from the Philippines were camped out on Pagasa island in a demonstration aimed at raising awareness of what they say is an illegal occupation of the Spratlys.

    To let China tell it, it’s the other way around.

    That is, the Filipino troop presence in the archipelago represents an illegal occupation of territory that belongs to Beijing and China would be well within its rights to forcibly expel the occupying army.

    The entire dispute centers around China’s construction of some 3,000 acres of new sovereign territory atop reefs in disputed waters. Although other countries have undertaken similar efforts, Beijing’s project is by far the most ambitious and Washington’s regional allies fear China is attempting to build what amount to a series of forward military operating bases in the Spratlys. The argument over the new islands reached a crescendo in October when the US sent a warship to the region in what Washington called a “freedom of navigation” exercise but what was, in reality, a show of force.

    For those unfamiliar with the history here, the alarm bells didn’t start ringing in earnest until April, when satellite images showed China was building a runway on Fiery Cross reef. The 10,000 foot airstrip is long enough to accommodate fighter jets and surveillance aircraft and has been variously described as “a game changer” and an effort to “vastly expand China’s zone of competition with the US.” Here’s a look at the runway in question when it was one-third complete:

    On Saturday, Beijing tested the runway for the first time, a move which drew sharp criticism from the islands various claimants. Vietnam, for instance, has filed a formal diplomatic complaint. 

    “China’s first landing of a plane on one of its new island runways in the South China Sea shows Beijing’s facilities in the disputed region are being completed on schedule and military flights will inevitably follow,” Reuters writes, adding that “China’s increasing military presence in the disputed sea could effectively lead to a Beijing-controlled air defence zone, ratcheting up tensions with other claimants and with the United States in one of the world’s most volatile areas.” Here’s more:

    Vietnam said the plane landed on Jan 2 and launched a formal diplomatic protest, while Philippines Foreign Ministry spokesman Charles Jose said Manila was planning to do the same. Both have claims to the area that overlap with China.

     

    “That’s the fear, that China will be able take control of the South China Sea and it will affect the freedom of navigation and freedom of overflight,” Jose told reporters.

     

    In Washington, State Department spokesman John Kirby said China’s landing of the plane “raises tensions and threatens regional stability.”

     

    Senator John McCain, the chairman of the influential U.S. Senate Armed Services Committee, criticised the Obama administration for delaying further “freedom of navigation” patrols within 12 nautical miles of the islands built by China.

     

    China has been building runways on the artificial islands for over a year, and the plane’s landing was not a surprise.

     

    The runway at the Fiery Cross Reef is 3,000 metres (10,000 feet) long and is one of three China was constructing on artificial islands built up from seven reefs and atolls in the Spratlys archipelago.

     

    The runways would be long enough to handle long-range bombers and transport craft as well as China’s best jet fighters, giving them a presence deep into the maritime heart of Southeast Asia that they have lacked until now.

     

    The airfield on Fiery Cross Reef will serve to “significantly” cut travel time between the Spratly islands and mainland China, the official Xinhua news agency reported, citing a top engineer from the transport ministry.

     

    Foreign ministry spokeswoman Hua Chunying said at the weekend that the test flight was intended to check whether the runway met civilian aviation standards and fell “completely within China’s sovereignty”.

     

    Asked about McCain’s remarks on Tuesday, she said: “We hope the U.S. can take an objective and fair attitude, and not make statements that confuse the situation and are harmful to regional peace and stability,” she said.

    Right. So once again, both sides are accusing the other of jeopardizing “regional peace and stability.” And while Beijing insists the airstrip is being tested for civilian purposes, analysts say it’s just a matter of time before fighter jets touch down on Fiery Cross. “The next step will be, once they’ve tested it with several flights, they will bring down some of their fighter air power – SU-27s and SU-33’s – and they will station them there permanently,” Leszek Buszynski, a visiting fellow at the Australian National University’s Strategic and Defence Studies Centre says. “That’s what they’re likely to do.”

    After that, China will effectively establish a no-fly zone according to Ian Storey, a South China Sea expert at Singapore’s ISEAS Yusof Ishak Institute. “As these facilities become operational, Chinese warnings to both military and civilian aircraft will become routine,” Storey said. “These events are a precursor to an ADIZ, or an undeclared but de facto ADIZ, and one has to expect tensions to rise,” he says.

    If that’s the case then the ball is now back in Obama and Abe’s court. Pressure will now mount for the US and Japan to take concrete steps to deter China from effectively seizing control of key shipping lanes through which some $5 trillion in global trade passes each year. How far Washington is willing to go to beat back Xi’s ambitious maritime powerplay is as yet unclear, but if the past is any guide, you can expect The White House to err on the side of cowardice caution.

  • Will Mideast Allies Drag Us Into War?

    Submitted by Patrick Buchanan via Buchanan.org,

    The New Year’s execution by Saudi Arabia of the Shiite cleric Sheikh Nimr Baqir al-Nimr was a deliberate provocation.

    Its first purpose: Signal the new ruthlessness and resolve of the Saudi monarchy where the power behind the throne is the octogenarian King Salman’s son, the 30-year-old Defense Minister Mohammed bin Salman.

     

    Second, crystallize, widen and deepen a national-religious divide between Sunni and Shiite, Arab and Persian, Riyadh and Tehran.

     

    Third, rupture the rapprochement between Iran and the United States and abort the Iranian nuclear deal.

    The provocation succeeded in its near-term goal. An Iranian mob gutted and burned the Saudi embassy, causing diplomats to flee, and Riyadh to sever diplomatic ties.

    From Baghdad to Bahrain, Shiites protested the execution of a cleric who, while a severe critic of Saudi despotism and a champion of Shiite rights, was not convicted of inciting revolution or terror.

    In America, the reaction has been divided.

    The Wall Street Journal rushed, sword in hand, to the side of the Saudi royals: “The U.S. should make clear to Iran and Russia that it will defend the Kingdom from Iranian attempts to destabilize or invade.”

     

    The Washington Post was disgusted. In an editorial, “A Reckless Regime,” it called the execution risky, ruthless and unjustified.

    Yet there is a lesson here.

    Like every regime in the Middle East, the Saudis look out for their own national interests first. And their goals here are to first force us to choose between them and Iran, and then to conscript U.S. power on their side in the coming wars of the Middle East.

    Thus the Saudis went AWOL from the battle against ISIS and al-Qaida in Iraq and Syria. Yet they persuaded us to help them crush the Houthi rebels in Yemen, though the Houthis never attacked us and would have exterminated al-Qaida.

    Now that a Saudi coalition has driven the Houthis back toward their northern basecamp, ISIS and al-Qaida have moved into some of the vacated terrain. What kind of victory is that — for us?

    In the economic realm, also, the Saudis are doing us no favors.

    While Riyadh is keeping up oil production and steadily bringing down the world price on which Iranian and Russian prosperity hangs, the Saudis are also crippling the U.S. fracking industry they fear.

    The Turks, too, look out for number one. The Turkish shoot-down of that Russian fighter-bomber, which may have intruded into its airspace for 17 seconds, was both a case in point and a dangerous and provocative act.

    Had Vladimir Putin chosen to respond militarily against Turkey, a NATO ally, his justified retaliation could have produced demands from Ankara for the United States to come to its defense against Russia.

    A military clash with our former Cold War adversary, which half a dozen U.S. presidents skillfully avoided, might well have been at hand.

    These incidents raise some long-dormant but overdue questions.

    What exactly is our vital interest in a permanent military alliance that obligates us to go to war on behalf of an autocratic ally as erratic and rash as Turkey’s Tayyip Recep Erdogan?

    Do U.S.-Turkish interests really coincide today?

    While Turkey’s half-million-man army could easily seal the Syrian border and keep ISIS fighters from entering or leaving, it has failed to do so. Instead, Turkey is using its army to crush the Kurdish PKK and threaten the Syrian Kurds who are helping us battle ISIS.

    In Syria’s civil war — with the army of Bashar Assad battling ISIS and al-Qaida — it is Russia and Iran and even Hezbollah that seem to be more allies of the moment than the Turks, Saudis or Gulf Arabs.

    “We have no permanent allies … no permanent enemies … only permanent interests” is a loose translation of the dictum of the 19th century British Prime Minister Lord Palmerston.

    Turkey’s shoot-down of a Russian jet and the Saudi execution of a revered Shiite cleric, who threatened no one in prison, should cause the United States to undertake a cost-benefit analysis of the alliances and war guarantees we have outstanding, many of them dating back half a century.

    Do all, do any, still serve U.S. vital national interests?

    In the Middle East, where the crucial Western interest is oil, and every nation — Saudi Arabia, Iran, Iraq, Libya — has to sell it to survive — no nation should be able drag us into a war not of our own choosing.

    In cases where we share a common enemy, we should follow the wise counsel of the Founding Fathers and entrust our security, if need be, to “temporary,” but not “permanent” or “entangling alliances.”

    Moreover, given the myriad religious, national and tribal divisions between the nations of the Middle East, and within many of them, we should continue in the footsteps of our fathers, who kept us out of such wars when they bedeviled the European continent of the 19th century.

    This hubristic Saudi blunder should be a wake-up call for us all.

  • Keynesian Economics 101 (In 4 'Simple' Lessons)

    Since Keynesian economics has reined supreme among mainstream economists for decades, you might want to know some of the basics.

     

    Keynesian Economics 101 Lesson 1

     

    Keynesian Economics 101 Lesson 2

     

    Keynesian Economics 101 Lesson 3

     

    Keynesian Economics 101 Lesson 4

     

    If this is confusing to you though, don’t worry about it! There are people in charge who have it all under control.

    Source: The Austrian Insider

  • Is The US Criminalizing Free-Speech?

    Submitted by Judith Bergman via The Gatestone Institute,

    • Is this House Resolution a prelude? Has Attorney General Lynch seen the potential for someone lifting her "mantle of anti-Muslim rhetoric"? And what is "anti-Muslim rhetoric" exactly? Criticizing Islam? Debating Mohammed? Discussing whether ISIS is a true manifestation of Islam? Who decides the definition of "hate speech" against Muslims?

    • Of all 1,149 anti-religious hate crimes reported in the United States in 2014, only 16.1% were directed against Muslims, according to the FBI. By contrast, over half of all anti-religious hate crimes were directed against Jews – 56.8%.

    • Why this lopsided, discriminatory House Resolution in favor of a religious group that statistically needs it the least?

    • Are the Attorney General and the eighty-two House Democrats out to destroy the First Amendment and introduce censorship? A House Resolution could be reintroduced later as binding legislation.

    Eighty-two leading Democrats have cosponsored a House Resolution (H.Res. 569) "Condemning violence, bigotry, and hateful rhetoric towards Muslims in the United States".

    The Resolution was introduced in the House of Representatives by Democrat Donald S. Beyer (Virginia) on December 17, 2015 — a mere 15 days after Tashfeen Malik and Syed Farook gunned down 14 innocent Americans and wounded 23 in an ISIS-inspired terror attack at a Christmas party in San Bernardino, California.

    The House Resolution states, "the victims of anti-Muslim hate crimes and rhetoric have faced physical, verbal, and emotional abuse because they were Muslim or believed to be Muslim," and the House of Representatives "expresses its condolences for the victims of anti-Muslim hate crimes."

    What victims? Of all 1,149 anti-religious hate crimes reported in the United States in 2014, only 16.1% were directed against Muslims, according to the FBI. By contrast, over half of all anti-religious hate crimes were directed against Jews – 56.8%. The fewest, 8.6% of anti-religious hate crimes, were directed against Christians (Protestants and Catholics).

    The Resolution goes on to denounce "…in the strongest terms the increase of hate speech, intimidation, violence, vandalism, arson, and other hate crimes targeted against mosques, Muslims, or those perceived to be Muslim."

    The House Resolution singles out Muslims in the United States as an especially vulnerable religious group that needs special protection to the extent that the Resolution "urges local and Federal law enforcement authorities to work to prevent hate crimes; and to prosecute to the fullest extent of the law those perpetrators of hate crimes."

    The reason for the introduction of this House Resolution at this point in time makes more sense if seen in conjunction with statements made by Attorney General Loretta Lynch on December 3, at a dinner celebrating the 10th anniversary of the Muslim Advocates — an organization that, according to its own website, has "powerful connections in Congress and the White House" and ensures that, "the concerns of American Muslims are heard by leaders at the highest levels of government." Muslim Advocates goes on to say, "As a watchdog of justice, we use the courts to bring to task those who threaten the rights of American Muslims."

    At the dinner, Attorney General Lynch stated that she is concerned about an

    "incredibly disturbing rise of anti-Muslim rhetoric… The fear that you have just mentioned is in fact my greatest fear as a prosecutor, as someone who is sworn to the protection of all of the American people, which is that the rhetoric will be accompanied by acts of violence. Now obviously, this is a country that is based on free speech, but when it edges towards violence, when we see the potential for someone lifting that mantle of anti-Muslim rhetoric — or, as we saw after 9/11, violence directed at individuals who may not even be Muslims but perceived to be Muslims, and they will suffer just as much — when we see that we will take action."

    Is this House Resolution a prelude to the Attorney General taking that action? Has she seen the potential for someone lifting her "mantle of anti-Muslim rhetoric"? And what is "anti-Muslim rhetoric" exactly? Criticizing Islam? Debating Mohammed? Discussing whether ISIS is a true manifestation of Islam? Who decides the definition of what is considered hate speech against Muslims?

    Are the Attorney General and the eighty-two House Democrats out to destroy the First Amendment and introduce censorship?

    U.S. Attorney General Loretta Lynch (left) said on December 3, "[W]hen we see the potential for someone lifting that mantle of anti-Muslim rhetoric… when we see that we will take action."

    A House Resolution could be reintroduced later as binding legislation. Americans should be deeply concerned about this. The part of the House Resolution that should most concern Americans is the urging of "local and Federal law enforcement authorities to work to prevent hate crimes; and to prosecute to the fullest extent of the law those perpetrators of hate crimes."

    What is a hate crime in this context? The law already prohibits violence and threats of violence, and law enforcement authorities are supposed to prosecute those — intimidation, destruction, damage, vandalism, simple and aggravated assault. However, as this resolution includes "bigotry" and "hateful rhetoric" in its title, Americans should worry that it is those that the House Resolution is really alluding to, when it urges law enforcement authorities to prevent and prosecute hate crimes.

    Why would the House of Representatives find it necessary to make such redundant statements, if not in order to redefine the concept of a hate crime?

    Notably, no similar House Resolution has appeared condemning the much higher percentage of hate crimes against Jews — over three times as many as against Muslims. As long as the House is going down the road of condemning hate crimes, why does it not even mention once the much more widespread hate crimes that American Jews are experiencing? Why does it not mention the hate crimes against Christians, which after all are only 7.5% percent fewer than those against Muslims? Why this lopsided, discriminatory House Resolution in favor of a religious group that statistically needs it the least?

    The House Resolution is unsettlingly similar to the UN Human Rights Commission's Resolution 16/18, which is an attempt to establish Islamic "blasphemy laws," making criticism of religion a criminal offense. The UNHRC Resolution would apply internationally (non-binding as of yet, except, presumably, for the countries that want it to be binding), and infractions would be punishable by law. In some Islamic countries, at the moment, the punishment is death — a sentence often handed down in trials that use questionable jurisprudence. Last year alone, a Saudi court sentenced a blogger, Raif Badawi to 1,000 lashes ("lashed very severely," the court order read) and ten years in jail. Outside of any courts, in 2015 alone, in Bangladesh, four secular bloggers on four separate occasions were hacked to death by people who apparently did not agree with what they said.

    The UNHRC Resolution, originally known as "Defamation of Islam," was changed in later versions — it would seem for broader marketability — to "Defamation of Religions."

    Long sought by the 57-member Organization of Islamic Cooperation, UNHRC Resolution 16/18 was co-sponsored by the United States, along with Pakistan. During a series of closed-door meetings over at least three years, it was spearheaded by Secretary of State Hillary Clinton.

    "At the invitation of Secretary of State Hillary Clinton," begins the document of the US Mission in Geneva, "representatives of 26 governments and four international organizations met in Washington, D.C. on December 12-14, 2011 to discuss the implementation of United Nations Human Rights Council Resolution (UNHRC) 16/18 on 'Combating Intolerance, Negative Stereotyping and Stigmatization of, and Discrimination, Incitement to Violence and Violence Against, Persons Based on Religion or Belief.'"

    UNHRC Resolution 16/18, also known as the "Istanbul Process" (where the original meeting on the topic took place), is an Orwellian document that claims to protect freedom of religion, while attempting to criminalize internationally anything that might be considered "incitement to violence." The late PLO Chairman Yasser Arafat used to tell his people, "I don't have to tell you what to do. You know what to do." Each word could be in Pat the Bunny. Would Arafat's statement be considered incitement to violence?

    UNHRC Resolution 16/18 was passed on March 24, 2011, without a vote.

    According to the journalist Abigail Esman, writing in Forbes:

    Resolution 16/18 seeks to limit speech that is viewed as "discriminatory" or which involves the "defamation of religion" – specifically that which can be viewed as "incitement to imminent violence… [T]his latest version, which includes the "incitement to imminent violence" phrase – that is, which criminalizes speech which incites violence against others on the basis of religion, race, or national origin – has succeeded in winning US approval – despite the fact that it (indirectly) places limitations as well on speech considered "blasphemous."

    In answer to a reproof — from the U.S Department of State, no less — Esman wrote, "By agreeing to criminalize 'incitement to violence' and to use all means at its disposal to prevent and to punish such actions, the US has – however unwittingly – enabled the OIC to use the measure against us – and other members of the free world."

    Many extremist Muslims, however, seem to have no problem criticizing other religions, as well as other Muslims. Some "criticize" Christians, as we have witnessed, by slitting their throats, or by burning or drowning them alive. Many extremist Muslims also seem to have no problem criticizing Jews – starting with calling them descendants of apes and pigs (Surah 5. Al-Maida, Ayah 60). Some Muslims write that all Jews should be killed:

    the Islamic Resistance Movement aspires to the realisation of Allah's promise, no matter how long that should take. The Prophet, Allah bless him and grant him salvation, has said: "The Day of Judgement will not come about until Moslems fight the Jews (killing the Jews), when the Jew will hide behind stones and trees. The stones and trees will say O Moslems, O Abdulla, there is a Jew behind me, come and kill him. Only the Gharkad tree, (evidently a certain kind of tree) would not do that because it is one of the trees of the Jews." (related by al-Bukhari and Moslem).

    One therefore cannot help wondering — and one should wonder – to what extent H.Res. 569 is the "nose of the camel under the tent."

    As of now, H.Res. 569 has been referred to the House Committee on the Judiciary. Americans had better hope that the House Committee will see it for what it is: An attempt to destroy the First Amendment, shield Islam from criticism, and bring "Death to Free Speech."

  • Meet The "Trader" Who Earns $30K "On A Bad Month" Working Just One Hour A Day

    On Sunday, July 12, 2015, 21-year old Elijah Oyefeso had a bad morning.

    Somehow, he managed to crash his blue Bentley Continental into his metallic gold Lamborghini Gallardo.

    Before:

    After: 

    But for Oyefeso, the crash was of no consequence. “Life goes on,” he said, laughing off the accident. 

    Why was a wreck involving nearly a half million in luxury cars no big deal for Oyefeso, you ask? Because this college dropout makes between £70,000 £80,000 on a “good month” trading stocks just one hour a day – or so he claims. According to the Daily Mail, Oyefeso “started by using his student loan” which he apparently pyramided into a small fortune. His Instagram profile reads: “MY NAME IS ELIJAH, & BEFORE I TURNED 20 I BOUGHT A LAMBO/BENTLEY WHICH REALLY PISSED ME OFF CUS I WAS TOO BROKE TO BUY A JET,” a riff on a now famous line from the big screen adaptation of Jordan Belfort’s story. 


    In addition to luxury cars, Oyefeso has a thing for fine watches and flashing his wealth on social media. Have a look, for instance, at the following image which depicts a Rolex, some money, and, somewhat inexplicably, a Wing Stop to-go cup:

    With a bit of hard work and dedication, you too can have a $20,000 watch, a roll of 20s, and carryout from Wing Stop: “If you work hard you don’t need to look at the price tag, you just get it,” Oyefeso boasts. Here’s more: 

    Elijah went to the University of Buckingham to study business management but put his student loan to good use. 

     

    He said: ‘I used my student loan during university and I thought “I could actually do this”.

     

    Elijah dropped out of university and started investing in the stock market with the cash sum. Within nine months, he claimed he was making tens of thousands of pounds.

     

    He claims his income on a ‘bad month’ will be between £20,000 and £30,000, while it can be over £40,000 more on a good month. 

     

    Elijah, who featured in Channel 4’s Rich Kids Go Shopping on Channel 4, was filmed as he traded online, making £1,000 in just 15 minutes.

     

    ‘I’ve been trading for three years, I know when to stop,’ he said. 

     

    The most he’s lost in one go is nearly £10,000. ‘When you lose it, you get back up. If you lose 12 times, you get back up 12 times.

     

    ‘You want to leave a name when you’re gone. Think about JP Morgan, the assets are worth 2.6 trillion. So that’s a lot.’

     

    Elijah, who listens to classical music while trading, said: ‘There’s a saying, you are who you chill with. I chill with people who have half a million in the bank.

     

    ‘Earning £20 to £30,000 a month, in my world that’s not good. It motivates you to do more.’

     

    Elijah also has a collection of expensive watches, ranging from a Rolex to a Cartier watch costing £21,000 which he has only worn a couple of times.  

     

    But he loves his watch collection, he said: ‘You’ve got to treat them like princesses.’

     

    He’s even given them names, calling one watch Michelle and another Aaliyah after the singer.

    There you have it. The American dream, only across the pond in the UK. Take out a student loan, invest in stocks, and ride the central bank put on your way to social media fame and fortune. But trading isn’t Oyefeso’s only source of income. As the Mail goes on to document, “he set up DCT Training Group to help others to get into trading, but after a free trial of five days he charges £107 a month for his expertise.”

    Every new member gets a big shout out on Oyefeso’s Twitter account. Here’s a representative tweet:

    What does DCT do you ask? Well, let’s ask them. Here’s a bit of info from the official webpage: 

    The benefits of options trading include low capital investment to get started and no leverage on your investment. Meaning if you invested £10 on a trade you could only lose £10 and your balance could never end up in the negative. It allows high rewards with fast returns. We don’t have to sit around waiting for weeks to see a return on our investment as returns can be made in a matter of minutes. Everything is a controlled risk as you set the investment amount and duration. 

     

    We provide real time signals to new traders who do not necessarily hold the experience or skills to analyse markets for themselves or use technical indicators to predict the movement direction on an asset. These signals are sent out to notify them on when we spot a potentially profitable trade. Signals are calculated indications produced from our own technical analysis of the current markets and will guide you on the start time of the trade, expiry time, and the execution range. 

    • We send around 10 signals throughout the day. Return rates are usually around 70 – 85% profit back on successful trades. We advise spreading your investment by putting a small % of your balance on each trade. 
    • Trading signals simplify everything for you and enables you to place educated trades within a few minutes. You simply set the trade and wait for the expiry time. Hassle free and no waiting around or having to keep an eye on the markets. 
    • We average around 7/8 successful trades out of 10 on a consistent basis.

    Basically, for £107 a month, Oyefeso will send you 10 options tips per day out of which “7-8” will be “successful.” 

    As anyone who’s ever traded options knows, that’s a virtual impossibilty. The idea that DTC bats .800 on 10 options trade ideas each and every trading day is borderline absurd and it’s also worth noting that Oyefeso isn’t exactly being transparent when he tells clients “your balance could never end up in the negative.” An amateur could, for instance, forget to close an in-the-money position at expiry and get assigned. That wouldn’t put someone “in the negative” per se (you’d be “in the positive” by definition), but coming up with the cash to buy 100 share lots of expensive stocks might not be what some of Oyefeso’s clients bargained for. Also, successfully trading options requires the careful and vigilant management of volatile positions. It’s not exactly a job that lends itself to working “one hour” per day.

    In addition to equity options, Oyefeso is apparently an expert in commodities and FX. “We produce signals for all major markets (commodities, indices, stocks and forex) the right asset, predetermined time period and direction for a profitable trade,” DCT’s web site says. We assume he’s 70-80% accurate on those calls as well.

    We imagine there are plenty of “traders” out there who would enjoy living a lifestyle of Cartiers, Bentleys, and Wing Stop, especially if all you have to do is follow Oyefeso’s “alerts”. The question is how he and the legions of CB put-surfing, 17-year old hedge fund managers will fare on days like August 24, when everything falls apart in a harrowing bout of flash crashing madness during which not even the “all weather” Ray Dalios of the world manage to make money. Actually that’s not the question. The question is whether Oyefeso is for real, or whether sometime in the not-so-distant future, we’ll discover that the old adage “if something sounds too good to be true, it probably is,” applies to 21-year old college dropouts driving golden Lamborghinis…

  • The Shale Defaults Begin Here: Banks Quietly Shrink These 25 Companies' Credit Facilities

    Everyone knows that at $35/barrel oil, virtually every US shale company is cash flow negative and is therefore burning through cash and other forms of liquidity such as bank revolvers and term loans, just as everyone knows that should oil remain at these prices, the US shale sector is facing an avalanche of defaults.

    What is less known is who will be the next round of companies to default.

    One good place to get an answer is to find which companies’ bankers are quietly tightening the liquidity noose (because they don’t want to be stuck holding worthless assets in bankruptcy or for whatever other reason), by quietly reducing the borrowing base on existing credit facilities.

    It is these companies which find themselves inside this toxic feedback loop of declining liquidity, which forces them to utilize assets even faster, thus even further shrinking the borrowing base against which their banks have lent them money, that will be at the forefront of the epic bankruptcy wave that is waiting to be unleashed across the US, leading to tens of billions of defaults junk bonds over the next 12-18 months.

    So, without further ado here are 25 deeply distressed companies, whose banks we found have quietly shrunk the borrowing base of their credit facilities anywhere from 6% in the case of Black Ridge Oil and Gas to a whopping 51% for soon to be insolvent New Source Energy Partners.

    Source: Bloomberg

  • Here's The Ultra-Clever Way That The Chinese Are Circumventing Capital Controls

    Submitted by Simon Black via SovereignMan.com,

    Well, it happened again.

    China’s stock market plunged, sending more than half a trillion dollars to money heaven.

    What a surprise, it turns out that a massive credit bubble is actually unsustainable and will eventually burst. Shocker.

    And just like what happened last year when Chinese stocks tanked, the government is stepping in to centrally plan the stock market recovery.

    Last year we saw some of the most extraordinary tactics; China’s government jailed short-sellers (i.e. people who bet on stocks declining), and they even encouraged their citizens to BORROW money against their homes to buy stocks.

    But no centrally planned bailout is complete without the cherry on top– capital controls.

    Capital controls are like a bear trap for your savings. They’re what governments impose when they want to hold your money hostage.

    In Europe, for example, governments have propped up failing banking systems by imposing withdrawal restrictions, preventing people from taking out too much of their own money.

    The ultimate example of this was the Cyprus bank freeze back in 2013, when the government locked an entire nation out of their bank accounts.

    (This is one of the most important reasons why a critical component of any Plan B is to hold some savings offshore at a well-capitalized foreign bank in a jurisdiction with minimal debt.)

    The ongoing war on cash is another form of capital controls.

    Governments and economists around the world are increasingly calling for outright bans on physical cash, claiming that only criminals and terrorists need to use cash.

    In reality, though, banning cash forces people to keep their money inside the banking system.

    And in Europe in particular, the banking system is in pitiful condition—highly illiquid, poorly capitalized, and now starting to pass on negative interest rates to customers.

    (This is a big reason why it makes sense to hold some physical cash—another important part of a Plan B. More on this later in the week.)

    Perhaps most commonly, governments impose capital controls to prop up a failing currency, preventing people from taking money out of the country, or conducting any foreign exchange.

    This has long been one of the dominant forms of capital controls in China.

    Last year amid China’s ongoing financial crisis, the government there tightened some forms of capital controls (curiously while loosening others).

    Chinese citizens now have strict limitations on the amount of money they can withdraw while traveling abroad, plus restrictions on how much money they can transfer overseas.

    But for any Chinese citizen with savings right now, it’s pretty obvious what’s happening. And they want to get their money out of the country.

    Chinese have an inherent distrust of government. They don’t sing pointless songs about their freedom.

    Chinese people know that they’re not free. And they know they need to take steps to do something about it before they get wiped out.

    But it raises a difficult question– how do you get money out of the country when the government has imposed strict capital controls?

    With a little creativity, there’s always a way.

    Bitcoin has been a popular alternative in China because people can easily cross borders with vast sums of money encrypted inside their mobile phones.

    But there’s a new tactic that Chinese are using now: domains.

    Yes, those domains. As in Internet “.com” domains.

    The domain business used to be a thriving industry. No doubt, people made huge sums of money in the great “.com land grab” more than a decade ago.

    But all the good domain names have been gobbled up, which means that domains can now be very expensive.

    Facebook bought FB.com for $8.5 million five years ago. Sex.com sold for $14 million in 2014. 360.com sold for $17 million last year.

    It’s not unusual for a domain to sell for millions… and a five or six figure price tag is nothing.

    (When I started my bank last year, I found that any .com domain with the word “bank” in it cost anywhere from $10,000 to $350,000. Unbelievable.)

    So it’s safe to say that most of the easy money has already been made in buying and selling .com domains.

    But… Chinese aren’t looking to make money. They’re not buying domains as investments– they’re using domains to TRANSPORT money.

    Think about it– if you have $50,000 that you really need to get out of China, you can buy an expensive domain today.

    Naturally there are no restrictions (for now) on buying a .com domain. So the sale goes through without any problems.

    But domains are international. Almost anyone in the world can buy or sell a .com domain.

    So later, you travel overseas, open a foreign bank account, then sell your domain to someone else.

    The proceeds of that sale get paid to your new bank account abroad. And, presto! You’ve just moved a lot of money overseas, completely circumventing capital controls.

    Naturally there are some costs involved, including some brokerage fees for buying/selling the domain.

    But for Chinese citizens whose alternative is to let their savings remain trapped within a failing system, they’ll gladly pay a few percent to move their money abroad.

    I find this an incredibly clever solution. It’s the digital equivalent of moving money using rare coins and collectibles.

    A lot of folks may be surprised to find that many rare coins can cost thousands, tens of thousands, even millions of dollars.

    You can buy a rare coin and transport vast sums of wealth across a border with nothing more than an old nickel in your pocket.

    Domains are an even more elegant solution because it doesn’t even exist in the physical world.

    It just goes to show that no matter how destructive a government gets, no matter how desperate their measures, there are always ways to defeat them.

  • Caption Contest: "Make America Great Again" Edition

    “Making America great again” one convert at a time…

  • Nomi Prins' Financial Road Map For 2016: "The Potential For Chaotic Fluctuations Is Greater Than Ever"

    Authored by Nomi Prins, author of "All The Presidents' Bankers", via NomiPrins.com,

    We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever. 

    The butterfly effect – the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part – is on center stage. There is much information to process. So, I’d like to share with you – not my financial predictions for 2016 exactly – – but some of the items that I will be examining from a geographical, political and financial perspective as the year unfolds.

    1) Central Banks: Artisans of Money

    Since the Fed raised (hiked is too strong a word) rates by 25 basis points on December 16th, the Dow has dropped by about 3.5%. Indicating a mix of fear of decisive movements and a market awareness deficit regarding the impact of its actions, the Federal Reserve hedged its own rate rise announcement, noting that its "stance of monetary policy remains accommodative after this increase.”

    These words seem fairly clear: there won’t be many, if any, hikes to come in 2016 unless economies markedly improve (which they won’t, or the words would be much more definitive.) Still, Janet Yellen did manage to alleviate some stress over the Fed's inaction on rate rises during the past 7 years, by invoking the slighted action possible with respect to rates. 

    Projections are past reactions here. The Fed, to save face more than anything or to “appear” conclusive, raised the Fed Funds rate (the rate US banks charge each other to borrow excess reserves, of which about $2.5 billion are with the Fed anyway), to .25-.50% from 0-.25%. And yet, the effective rate stood within the old Fed target range, or at an average of .20% on December 31 for various reasons, the timing of which was not lost on the Fed. It was at .35% or so on the first day of 2016. The Fed’s rate move was tepid, and it’s possible the Fed moves rates up another 25 or 50 basis points over 2016, but less likely more than that and more likely it engages in heightened currency swap activities with other central banks as a way to “manage” rates and exchange rates regardless.

    Meanwhile, most other central banks (Brazil being an extreme counter example) remain in easing mode or mirror mode to the Fed. It’s likely that more creative QE measures amongst the elite central banks will pop up if liquidity, markets or commodities head southward. Less powerful central banks will attempt to respond to the needs of their local economies while balancing the strains imposed upon them by the elite central banks.

    2) Global Stock Markets

    They say that behavior on the first day of the year is indicative of behavior in the year to come. If so, the first trading day doesn’t bode well for the rest. Turmoil began anew with Asian stock markets crumbling at the start of 2016. In China, the Shanghai Composite hit two circuit breakers and China further weakened the yuan.

    Yes, there’s the prevailing growth-decline story, a relic of 2015 “popular opinion”, being served as a reason for the drop. But also, restrictions on short selling by local Chinese companies are expiring. Just as in last August, China will have to balance imposing fresh sell restrictions with market forces pushing the yuan down.

    The People’s Bank of China will likely inject more liquidity through further reserve requirement reductions and rate cuts to counter balance losses. The demise in stock values is not simply due to slower growth, but to high debt burdens and speculative foreign capital outflows; the story of China as a quick bet is no longer as hot as it was when China opened its markets to more foreign investors in mid-2014, since which volumes and volatility increased. It will be interesting to see if China responds with more capital controls or less, and how its  “long-game” of global investments plays out.

    Blood shed followed Asian into European markets. Subsequently, the Dow dropped by about 1.6% unleashing its worst start to a year since the financial crisis began. Last year's theme to me was volatility rising; this year is about markets falling, even core ones. This is both a reaction to global and local economic weakness, and speculative capital pondering definitive new stomping grounds, hence thinner and more dispersed volumes will be moving markets.

    3) Global Debt and Defaults

    As of November 2015, Standard & Poor’s tallied the number of global companies that defaulted at 99, a figure only exceeded by that of 222 in 2009. Debt loads now present greater dangers. Not only did companies (and governments, of course) pile on debt during this zero interest rate bonanza period; but currency values also declined relative to the dollar, making interest payments more expensive on a local basis.

    If the dollar remains comparatively strong or local economies weaken by an amount equivalent to any dollar weakening, more defaults are likely in 2016. In addition, the proportion of junk bonds relative to investment grade bonds grew from 40% to 50% since the financial crisis, making the likelihood of defaults that much greater. Plus, the increase in foreign, especially dollar, denominated debt in emerging markets will continue to hurt those countries from a sovereign downgrade and a corporate downgrade to default basis.

    I expect sovereign downgrades to increase this year in tandem with corporate downgrades and defaults. Also, as corporate defaults or default probabilities increase, so does corporate fraud discovery. This will be a year of global corporate scandals.

    In the US about 60% of 2015 defaults were in the oil and gas industry, but if oil prices stay low or drop further, more will come. Related industries will also be impacted. In mid-December, Fitch released its leveraged loan default forecast of the TTM (Trailing Twelve Month index) predicting a 2.5% rise in default rates for 2016, or $24 billion in global defaults. That’s an almost 50% increase in default volume over 2015, and more than the total over the 2011-2013 period. Besides higher energy sector defaults, the retail sector could see more defaults, as consumers lose out and curtail spending.

    4) Brazil and Argentina

    Brazil is a basket case on multiple levels with nothing to indicate 2016 will be anything but messier than 2015. Even the upcoming Olympics there have reeked of scandal in the lead up to the summer games.

    Brazilian corporations have already sold $10 billion in assets to scrape together cash in 2015, a drop in the bucket to what’s needed. Brazil’s main company, Petrobras, is mired in scandal, its bond and share prices took massive hits last year as it got downgraded to junk, and a feeding frenzy between US, Europe and China for any of its assets on the cheap won’t be enough to alter the downward trajectory of Brazilian’s economy. In fact, it will just make recovery harder as core resources will be effectively outsourced.

    Fitch downgraded seven Brazilian sub nationals to junk, with more downgrades to come. Brazil itself was downgraded to junk by S&P with no positive outlook from anywhere for 2016. Falling revenues plus higher financial costs due to higher debt burdens will accentuate trouble. In addition, pension funds are going to be increasingly underfunded, which will enhance local population and political unrest, as unemployment increases, too.

    Though Brazil will have the toughest time relative to neighboring countries, Argentina, will not be having a walk in the park under its new government either. The new centrist government removed currency capital controls in a desperate bid to attract capital. This resulted in crushing the Argentinean Peso (a.k.a. “Marci’s devaluation”) and will only invite further speculative and political volatility into the country. It could get ugly.

    5) The Dollar and Gold

    Despite what will be a year of continued pathways to trade and currency arrangements amongst countries trying to distance themselves from the US dollar, the fact that much of the world is careening toward global Depression will keep the dollar higher than it deserves to be. It will remain the comparative currency of choice, as long as central banks continue to fabricate liquidity in place of government revenues from productive growth.

    Outside the US, most central banks (except Brazil which has a massive inflation problem) have maintained policies of rate reduction, lower reserve requirements, and other forms of QE or currency swap activities. As in 2015, the dollar will be a benefactor, despite problems facing the US economy and its general mismanagement of monetary policy. But the US dollar index and the dollar itself might exhibit more volatility to the downside this year, straying from its high levels more frequently than during 2015.

    Last year, given the enhanced volatility in various markets, I expected gold to rise during the summer as a safe haven choice, which it did, but it also ended the year lower in US dollar terms. Because the US dollar preserved its strength, the dollar price of gold fell during the year – yet not by as much as other commodities, like oil.

    I take that as a sign of gold finding some sort of a floor relative to the US dollar, with the possibility of more upside than downside for 2016, though in similar volatility bands to the US dollar. Gold relative to the Euro was just slightly down for 2015, relative to the approximate 10% decline in value relative to the US dollar. Considering the home currency is important when examining gold price behavior.

    Also, it’s important to note that investing in gold requires a longer time horizon – months and years, rather than weeks and months – and should be done through physical gold, coins or allocated bars depending on disposable investment thresholds, not paper gold. 

    In addition, as I mentioned last year, routinely extracting cash from bank accounts and keeping it in safe non-bank locations, remains a smart defensive play for 2016.

    6) The People’s Economies

    As companies default and economies suffer, industries will inevitably shed jobs this year around the world. The Fed’s publicly expressed optimism about employment figures and the headline figure decrease in US unemployment will be met with the realities of companies cutting jobs to pay the debts they took on during the ZIRP years and due to decreased demand.

    Unemployment is already rising in many emerging countries, and it will be important to note what happens in Europe and Japan, as well as the US in that regard.  This Recession 3.0 (or ongoing Depression) could fuel further artisanal money practices that might again be good for the markets and banks, but not for real economies or jobs lost through reactive corporate actions.  

    7) Oil

    With Saudi Arabia and Iran pissed off at each other in a round of tit-for-tat power positioning, it’s unlikely either OPEC heavy weight will reduce oil production, this while tankers worldwide remain laden with their loads and rigs are quiet. Tankers off the coast of Long Beach in California for instance, that used to come in and unload, remain in stalling patterns away from the shoreline, waiting for better prices. This means tankers are making money on storage, but also that extra oil supplies are hovering off shore, and even if prices rise, release of that supply would have a dampening consequence on prices.

    Oil futures have been a generally highly speculated product, so I’ve never believed that simple supply and demand ratios drive the price of spot oil as it relates to the futures price of oil. Only in this case, not only is there oversupply and weakening demand, but speculators are playing to the short side as well. That combination seems destined to keep oil prices low, or push them lower in the near future, but should be closely watched.

    Meanwhile, signs of knock on problems are growing. In China, for instance, shipyards are struggling because global rig customers don’t need their rig model orders fulfilled.  

    8) Europe

    While Greece faces more blood-from-a-stone extortion tactics and none of the Troika get why austerity measures don't actually produce local revenues at high enough levels to pay expensive debts to foreign investors and multinational entities, other parts of Europe aren’t looking much better for 2016. Spain is facing political unrest, Italy, despite exhibiting a tenuous recovery of sorts, still has a major unemployment problem, and the Bank of Portugal lowered its growth estimates – for the next two years.

    Mario Draghi, European Central Bank (ECB) head decided to extend Euro-QE to March 2017 from September 2016, having had the markets punish his less enthusiastic verbiages about QE late last year, because he has no other game. The Euro will thus likely continue to drop in value against the dollar, negative interest rates will prevail, and potential bail ins will appear if this extra dose of QE doesn’t keep the wheels, big banks and core markets of Europe properly greased.

    9) Mexico

    The Mexican Peso closed near record lows vs. the dollar for 2015. Much of the Peso’s weakness was attributed to low oil prices and Mexico’s dependence on its oil sector, but the Peso was already depreciating before oil prices dropped. If the US dollar remains comparatively high OR if oil prices continue to remain low or drop, the Peso is likely to do the same.

    When I was in Mexico a few years ago, addressing the Senate on the dangers of foreign bank concentration, there were protests throughout Mexico City on everything from teachers’ pay to the opening of Pemex, Mexico’s main oil company to foreign players. The government’s promise then was that foreign firms would provide capital to Mexico as well as industry expertise that would translate to revenues. Oil prices were hedged then at 74 dollars per barrel. With oil prices at half of that, many of those hedges are coming off this year and that will cause additional pain to the industry and Pemex.

    That said, though Mexico will feel the global Depression pain this year as a major player, it is still set to have a much better year than Brazil on every level; from a higher stock market to a higher currency valuation relative to the US dollar to lower inflation to lower unemployment to a better balance of trade with the US than Brazil will have with China. Plus, it has far less obvious inbred corporate-government corruption.

    10) Elections and Media Coverage

    It’s been a minute since the last debate or late night show fly-by from any Presidential hopeful, but this is the year of the US election. I look forward to continuing to post my monthly wrap on TomDispatch as the Democratic and Republican nominees emerge. I will be taking stock of the most expensive election in not just US history, but in the history of the World. Look for more on the numbers behind the politics later this month.

    From a financial standpoint, this election has low impact on flows of capital. Given the platforms of everyone in reasonable contention (with the exception of Bernie Sanders’ platform), no one will actually touch excessive speculation, concentration risk in the banking or other critical sectors like healthcare, or meaningfully examine the global role of artisanal central bank policy, particularly as emanating from the Fed. 

    Elsewhere, economic stress throughout the globe and a general sense of exasperation and distrust with politicians is putting new leaders in place that are pushing for more austerity or open capital flow programs rather than foundational growth and restrictions on the kind of flows that cause undue harm to local economies. That is a recipe for further economic disaster that will fall most heavily on populations worldwide. 

  • Islamic State's New "Jihadi John" Was Bouncy Castle Salesman, Nirvana Fan, Aspiring Dentist

    Back in November, The Pentagon claimed to have killed Mohammed Emwazi – better known by his stage name “Jihadi John” – in a drone strike near Raqqa.

    Emwazi was infamous for his role in catapulting ISIS into the public’s collective consciousness. Clad in black and brandishing a Bowie knife, the Brit beheaded hostages dressed in bright orange jumpsuits in some of the first Islamic State propaganda videos to garner widespread Western media coverage.

    Late last week, ISIS released a new video featuring a British executioner who has apparently taken up the mantle in Emwazi’s absence. Dubbed the “the new Jihadi John” by the British press, the masked executioner reads the following message to Prime Minister David Cameron, who recently won parliamentary support for British airstrikes on Raqqa:

    This is a message to David Cameron. Oh slave of the White House, oh mule of the Jews. How strange it is that we find ourselves today hearing an insignificant leader like you challenge the might of the Islamic State. How strange it is that the leader of a small island threatens us with a handful of planes. One would have thought you would have learned the lessons of your pathetic master in Washington and his failed campaign against Islamic State.

     


     

    It seems that you, just like your predecessors Blair and Brown, are just as arrogant and foolish. In fact David, you are more of an imbecile. Only an imbecile would dare to wage war against a land where the law of Allah reigns supreme. And where the people live under the justice and security of the Sharia.

     

    Only an imbecile would dare to anger a people who love death the way that you love your life. Oh British Government. Oh people of Britain. Know that today your citizenship are under our feet. And that the Islamic State, our country, is here to stay. And we will continue to wage jihad, break borders and one day invade your land where we will rule by the sharia.

    So who is the “new and improved” Jihadi John, you ask? Apparently he’s British Indian Siddhartha Dhar. Here’s Reuters: 

    The masked militant in an Islamic State video showing the killing of five men accused by the group of being Western spies is believed to be a Londoner known as Sid who once sold inflatable bouncers.

     

    Siddhartha Dhar, who left Britain for Syria while on police bail after his arrest on suspicion of belonging to a banned group and encouraging terrorism, has been identified by media as the spokesman in the militant organization’s latest film.

     

    Dhar, who is also known as Abu Rumaysah, is one of Britain’s most high-profile Islamists and an associate of Anjem Choudary, Britain’s best-known Islamist preacher who is due to go on trial next week accused of terrorism offences.

     

    A convert from Hinduism who lived in east London, Dhar regularly attended protests staged by the now banned organization al-Muhajiroun and had often spoken to the media in support of radical Islamic causes.

     

    Since leaving Britain he gained further attention through online videos in which he exhorted life under Islamic State.

    That’s right ladies and gentlemen, Islamic State’s newest Western executioner was a bouncy castle salesman.

    But that’s not all. Dhar is also “a former Arsenal and Nirvana fan” who “enjoyed drinking, would take girls to his favourite action movies, and dreamed of being an NHS dentist,” according to the Daily Mail. “Dhar’s family say he was a ‘sensitive boy’ who ‘changed’ as a teenager after the death of his father and converted to Islam, shunning TV and music, sleeping on the floor and even telling his mother he couldn’t love her anymore because she is not a Muslim,” DM wrote on Tuesday. “He stopped studying and rented bouncy castles for children’s parties while supporting banned militant group Al-Muhajiroun and running ‘roadshows’ aimed at attracting troubled youngsters in inner-cities.”

    Apparently, Dhar skipped bail in September 2014 and fled Britain for Syria. He announced his arrival in the “caliphate” by posting the following picture on Twitter which depicts his young son holding a pistol:

    “I was in a state of shock,” Dhar’s sister Konika Dhar told BBC. “I believed the audio to resemble, from what I remember, the voice of my brother but having viewed the short clip in detail, I wasn’t entirely convinced which put me at ease.” Here’s a documentary about Dhar and his family shot by Vice News in 2014: 

    The ISIS video in which Dhar appears also features a toddler dressed in fatigues and donning an ISIS headband. Following the execution of five prisoners, the child proclaims that ISIS will “kill the kaffir (unbelievers) over there”.

    “Sunday Dare, a Londoner of Nigerian origin, identified the child as his four-year-old grandson Isa,” Reuters reports. “Dare told British media his daughter, who grew up a devout Christian named Grace before converting to Islam and changing her name to Khadijah, had taken London-born Isa to Syria with her to join Islamic State.” Here’s Sputnik: 

    The child featured in the video has been identified by his grandfather who told Channel 4 news in Britain that he recognized the boy and condemned the footage. Sunday Dare, said: “It’s propaganda; they are just using a small boy. He doesn’t know anything. They are just using him as a shield.”

    His jihadi bride mother had previously posted a picture of her son carrying an AK47 assault rifle 18 months ago, provoking a debate in the British media over whether the image and subsequent identity of her elder child dressed in camouflage clothing should be revealed by the press.

     

    London Mayor Boris Johnson has said the child whose face is featured in almost every British newspaper and online news website, “should be brought back to the UK and taken into care.” 

    Like us, you’re probably struggling to comprehend all of this.

    Bouncey castle salesmen?

    Mothers taking their children to the caliphate to grow up in the Islamic State? 

    Has the whole world gone crazy?

    Then, we remembered an image from an ISIS propaganda video released last summer and suddenly, all of the above made sense:

  • Hong Kong Publishers Reportedly Being Kidnapped By Chinese Authorities, Taken To Mainland

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    A Hong Kong lawmaker said Sunday he believes Chinese security officers kidnapped five publishing company employees who have gone missing in the city, possibly because of a planned book about the former love life of President Xi Jinping.

     

    The five work for a publishing house known for producing books critical of the Chinese government.

     

    The disappearances add to growing unease that freedoms in the semi-autonomous Chinese city are being eroded.

     

    Under Hong Kong’s mini-constitution, it enjoys freedom of speech and Chinese law enforcers have no right to operate in the city.

     

    It is unclear where the men are or how they went missing.

     

    – From the AFP article: Missing Hong Kong Booksellers “Working on Book on Xi’s Love Life”

    For several years now, I’ve periodically observed that China’s increasingly aggressive crackdown on dissent serves as a harbinger of far more difficult times ahead. The thinking goes that if anyone is privy to the severe fragility of the country’s economic situation, it would be Chinese leadership. As such, desperate moves by Chinese leadership should foretell drastically worse economic and social conditions.

    As an example, here’s an excerpt from this summer’s post, Chinese Authorities Arrest Over 100 Human Rights Activists and Lawyers in Desperate Crackdown on Dissent:

    While China doesn’t have any illusion of democracy to begin with, that doesn’t make the situation any less significant. While media attention has been focused on the popping of China’s stock market bubble, what has been far more interesting is the government’s terrified response. It has simply put, entered full on panic mode. Freezing trading in a large percentage of listed equities, and even threatening to arrest so-called “malicious short sellers.”

     

    I have long stated that the situation in China is much more fragile than anyone cares to recognize or admit. I continue to think revolution/regime change in China presents a real risk in the years ahead, and I think the Communist Party is well aware of it. This is precisely why the heavy hammer of government is coming down upon political (and economic) dissent with increased force.

    The scramble to crack down on dissent has become so intense Chinese authorities seem to be now exerting illegal force against residents of Hong Kong. Of course, this story is long in the making, as the massive protests that broke out a little over a year ago known as the “umbrella revolution,” was in fact a protest against Beijing’s moves to ensure that Hong Kong leadership remain loyal puppets to the authorities on the mainland. As the Guardian explained at the time:

    Hong Kong, a former British colony of 7 million people, has been governed under a “one country, two systems” framework since it was handed back to Chinese control in 1997. The principle is simple in theory — Beijing is responsible for the city’s defence and foreign affairs; Hong Kong enjoys limited self-governance and civil liberties, including an independent judiciary and unrestricted press.

     

    Its top political post – that of chief executive – is chosen by a “nominating committee” of 1,200 people, most of them from pro-Beijing elites. Yet when Beijing regained control over the city, it promised that the region would be able to elect its top leader by universal suffrage by 2017. The group guiding the current protests – set up 18 months ago by two professors and a baptist minister under the banner Occupy Central with Love and Peace — threatened to paralyse the city’s central business district if Beijing broke its word.

     

    Nobody knew when, or if, the protest would occur, but in August Beijing passed a reform framework to stipulate universal suffrage on its own terms – only two or three committee-vetted candidates who “love the country” would be allowed to run. Activists considered this the last straw. Students began a class boycott last Monday and, galvanised by a city-wide surge in support, staged a large-scale protest outside of the city government headquarters on Friday night. Occupy Central mobilised on Sunday. The rest is unfolding as you read.

    So the writing has been on the wall for quite some time. Emboldened, it appears Chinese authorities are now simply kidnapping people in Hong Kong they deem to be subversive.

    Bloomberg reports:

    The disappearance of a Hong Kong-based publisher of books critical of China’s Communist Party is fueling concerns that tactics used to limit dissent on the mainland are being exported to the former British colony.

     

    Lee Bo, part owner of Causeway Bay Books, was reported missing Friday by his wife, who said her last contact with him was from a telephone number from Shenzhen, across the mainland border. Hong Kong police have asked their Chinese counterparts about the 65-year-old bookseller, who disappeared from Hong Kong several months after four others related to the store vanished.

     

    Concerns about encroachment on Hong Kong’s freedoms under President Xi Jinping sparked the student-led democracy protests that paralyzed parts of the city for months in 2014. Since coming to power, Xi has embarked on a campaign on the mainland to tighten the party’s grip on power that has included secret detentions and convictions for spreading information deemed dangerous.

     

    “The possible intrusion into Hong Kong by law enforcement agencies in China would shatter the sense of security that is provided by One Country, Two Systems,” said Albert Ho, a lawmaker and chairman of the Hong Kong Alliance in Support of Patriotic Democratic Movements in China, referring to the blueprint for Hong Kong’s autonomy. “If that sense of security is being shattered, then the underlying confidence in ‘One Country, Two Systems’ would be torn apart.”

     

    Lee’s bookstore was popular among tourists from mainland China as a source of salacious books about the country’s elite banned on the mainland. He was last seen leaving a warehouse on Hong Kong island used by the company.

     

    Lee’s wife approached local police on Monday and withdrew a request for help, the South China Morning Post reported, citing a government official it didn’t identify. Taiwan’s Central News Agency also published a handwritten letter said to be faxed from Lee to a bookstore colleague. In it, he said he took his “own way” to China to assist in an investigation that might take some time.

    Yes, of course. Totally normal to leave a warehouse and then disappear to the Chinese mainland in order to “help with an investigation,” without telling your wife first.

    Lee’s case is resonating among Hong Kong’s pro-democracy activists, who seized city streets for almost three months in 2014 after China unveiled a plan to elect the city’s leader from a pool of candidates vetted by Beijing. A video in which Agnes Chow — a member of the pro-democracy student group Scholarism — described Lee’s disappearance as a “white terror incident” has garnered more than 800,000 views.

     

    Xi has been cracking down on dissent in China since he took over as party chief in November 2012, overseeing a more restrictive ideological environment. In the most recent summer, dozens of members of the so-called rights-defense movement were detained over allegations they attempted to manipulate court cases.

     

    Lee’s disappearance came after four of his colleagues vanished within days of each other. Bookstore manager Lam Wing-kei; general manager of the publishing house Lui Bo; and business manager, Cheung Jiping, went missing in October while visiting the mainland, the South China Morning Post reported. Gui Minhai, a co-owner with Lee of the publisher Mighty Current, disappeared from his apartment in Thailand the same month.

     

    The reach of China’s law enforcement agencies has riled authorities in other countries. Australia’s government last year expressed “deep concerns” after China sent two police officers to Melbourne in late 2014 without permission to question a suspected economic fugitive. The Obama administration has requested that China recall agents pursuing Chinese corruption suspects in the U.S., the New York Times reported in August.

    How do you say panic in Mandarin?

    The AFP adds some additional tidbits to the developing story:

    A Hong Kong lawmaker said Sunday he believes Chinese security officers kidnapped five publishing company employees who have gone missing in the city, possibly because of a planned book about the former love life of President Xi Jinping.

     

    The five work for a publishing house known for producing books critical of the Chinese government.

    The disappearances add to growing unease that freedoms in the semi-autonomous Chinese city are being eroded.

     

    Under Hong Kong’s mini-constitution, it enjoys freedom of speech and Chinese law enforcers have no right to operate in the city.

     

    It is unclear where the men are or how they went missing.

     

    Ho said it was “outrageous” for Lee to have disappeared in the city.

     

    “We have a reason to believe he was politically abducted and illegally transferred to the mainland,” he said.

     

    Lee’s wife said Saturday her husband told her he was “assisting in an investigation” in a phone call after he failed to return home for dinner Wedesday.

     

    She reported him missing to police Friday and said the call he made to her was from a number in the neighbouring Chinese city of Shenzhen.

     

    “He said he wouldn’t be back so soon and he was assisting in an investigation,” she said.

     

    Agnes Chow of leading student campaign group Scholarism appealed to the international community for help.

     

    “I hope everyone in the world who believes in universal values of freedom and human rights could stand up,” she said in a Facebook post.

     

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Jan 05

Today’s News 5th January 2016

  • Playing The Government’s Game: When It Comes To Violence, We All Lose

    Submitted by John Whitehead via The Rutherford Institute,

    “When it gets down to having to use violence, then you are playing the system’s game. The establishment will irritate you – pull your beard, flick your face – to make you fight. Because once they’ve got you violent, then they know how to handle you. The only thing they don’t know how to handle is non-violence and humor.”

    – John Lennon

    Yes, the government is corrupt.

    Yes, the system is broken. By broken, I mean it’s “dysfunctional, gridlocked, and, in general, incapable of doing what needs to be done.”

    Yes, the government is out of control and overreaching on almost every front.

    Yes, the government’s excesses—pork barrel spending, endless wars, etc.—are pushing the nation to a breaking point.

    Yes, many Americans are afraid. Who wouldn’t be afraid of an increasingly violent and oppressive federal government?

    Yes, the citizenry has little protection against standing armies (domestic and military), invasive surveillance, marauding SWAT teams, an overwhelming government arsenal of assault vehicles and firepower, and a barrage of laws that criminalize everything from vegetable gardens to lemonade stands.

    Yes, in the eyes of the American surveillance state, “we the people” are little more than suspects and criminals to be monitored, policed, prosecuted and imprisoned. As former law professor John Baker, who has studied the growing problem of overcriminalization, noted, “There is no one in the United States over the age of 18 who cannot be indicted for some federal crime.”

    Yes, the United States of America is not the democracy that is purports to be, but rather an oligarchy ruled by a wealthy corporate elite.

    Yes, politics is a sham. Average Americans have largely lost all of the conventional markers of influencing government, whether through elections, petition, or protest, have no way to impact their government, no way to be heard, and no assurance that their concerns are truly being represented.

    Yes, the Obama administration’s efforts to identify, target and punish “domestic extremists” through the use of surveillance, corporate spies, global police and the Strong Cities network sends a troubling message to all Americans that any opposition to the government—no matter how benign—will be viewed with suspicion and will likely be treated with hostility.

    Yes, we have reached a tipping point. The freedoms we once enjoyed are increasingly being eroded: speech, assembly, association, privacy, etc.

    Yes, something needs to be done about the government’s long train of abuses, power grabs, erosion of private property, and overt acts of tyranny.

    Yes, many Americans, increasingly dissatisfied with the government and its heavy-handed tactics, are tired of being used and abused and are ready to say “enough is enough.”

    No, violence is not the answer.

    A handful of armed protesters are not going to fix what’s broken in the government by forcing a showdown with government agents. In fact, this kind of scenario plays right into the government’s hands by provoking a violent confrontation that allows government officials to sanctimoniously justify their use of surveillance, military weaponry and tactics, and laws criminalizing guns and hate speech in order to target anyone who even vaguely resembles an “anti-government extremist.”

    Take the latest spectacle in Oregon, for example.

    Armed activists led by brothers Ryan and Ammon Bundy have occupied a federal wildlife refuge. The Bundys (infamous for their 2014 standoff with the Bureau of Land Management over grazing rights on federal land in Nevada) are protesting the government’s prosecution of two ranchers, Dwight and Steven Hammond, who have been sentenced to five years in prison for allegedly setting back fires on government-owned land in Oregon. (Mind you, the government owns more than half the land in Oregon.)

    Few conflicts are ever black and white, and this situation involving the Bundys, the Hammonds and the BLM is no exception. Yet the issue is not whether the Hammonds are arsonists as the government claims, or whether the Bundys are anti-government extremists as the government claims, or even whether ranchers should have their access to government-owned lands regulated as the BLM claims.

    No, as I point out in my book Battlefield America: The War on the American People, the larger question at play here is who owns—or controls—the government: is it “we the people” or private corporations?

    Are American citizens shareholders of the government’s vast repositories, or are we merely serfs and tenant farmers in bondage to corporate overlords? Do we have a say in how the government is run, or are we merely on the receiving end of the government’s dictates? What recourse do we have if we don’t approve of the government’s actions?

    Almost every struggle between the citizenry and the government is, at its core, about whether we are masters or slaves in this constantly evolving relationship with the government.

    • Do parents have a right to allow their children to play outside alone, or must they abide by the government’s dictates about how to raise their families?
    • Do activists have a right to freely associate with one another, assemble in public, and voice their opinions publicly or privately, or must they be constrained by what the government and its corporate partners deem to be appropriate?
    • Do residents of a community have to obey whatever a police officer says, lawful or not, or do Americans have a right to resist an unlawful order without getting shot or arrested?

    It doesn’t matter what the issue is – whether it’s a rancher standing his ground over grazing rights, a minister jailed for holding a Bible study in his own home, or a community outraged over police shootings of unarmed citizens – these are the building blocks of a political powder keg.

    Much like the heated protests that arose after the police shootings in Ferguson and Baltimore, there’s a subtext to the Oregon incident that must not be ignored, and it is simply this: America is a pressure cooker with no steam valve, and things are about to blow.

    This is what happens when a parasitical government muzzles the citizenry, fences them in, herds them, brands them, whips them into submission, forces them to ante up the sweat of their brows while giving them little in return, and then provides them with little to no outlet for voicing their discontent.

    As psychologist Erich Fromm recognized in his insightful book, On Civil Disobedience: “If a man can only obey and not disobey, he is a slave; if he can only disobey and not obey, he is a rebel (not a revolutionary). He acts out of anger, disappointment, resentment, yet not in the name of a conviction or a principle.”

    Let me say it again: an armed occupation of a government property only plays right into the government’s hands and increases its power over the citizenry. Yet it speaks to a growing tension over how to bring about meaningful change when dealing with a government that refuses to listen to its citizens.

    This is what happens when people get desperate, when citizens lose hope, and when lawful, nonviolent alternatives appear pointless.

    Whether the parties involved are blameless or not, whether they’re using the wrong tactics or not, whether their agendas are selfless or not, this is the face of a nation undergoing a nervous breakdown on all fronts.

    Now all that remains is a spark, and it need not be a very big one, to set the whole powder keg aflame.

    The government has been anticipating and preparing for such an explosion for years. For example, in 2008, a U.S. Army War College report warned that the military must be prepared for a “violent, strategic dislocation inside the United States,” which could be provoked by “unforeseen economic collapse,” “purposeful domestic resistance,” “pervasive public health emergencies” or “loss of functioning political and legal order”—all related to dissent and protests over America’s economic and political disarray. Consequently, predicted the report, the “widespread civil violence would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.”

    In 2009, the Department of Homeland Security (DHS) released two reports, one on “Rightwing Extremism,” which broadly defines rightwing extremists as individuals and groups “that are mainly antigovernment, rejecting federal authority in favor of state or local authority, or rejecting government authority entirely,” and one on “Leftwing Extremism,” which labeled environmental and animal rights activist groups as extremists.

    Incredibly, both reports use the words terrorist and extremist interchangeably.

    That same year, the DHS launched Operation Vigilant Eagle, which calls for surveillance of military veterans returning from Iraq and Afghanistan, characterizing them as extremists and potential domestic terrorist threats because they may be “disgruntled, disillusioned or suffering from the psychological effects of war.” These reports indicate that for the government, anyone seen as opposing the government—whether they’re Left, Right or somewhere in between—can be labeled an extremist. Under such a definition, John Lennon, Martin Luther King Jr., Patrick Henry, Thomas Jefferson and Samuel Adams—all of whom protested and passionately spoke out against government practices with which they disagreed—would be prime targets.

    Fast forward a few years, and you have the National Defense Authorization Act (NDAA), which President Obama has continually re-upped, that allows the military to take you out of your home, lock you up with no access to friends, family or the courts if you’re seen as an extremist. Now connect the dots, from the 2009 Extremism reports to the NDAA and the UN’s Strong Cities Network with its globalized police forces, the National Security Agency’s far-reaching surveillance networks, and fusion centers that collect and share surveillance data between local, state and federal police agencies.

    Add in tens of thousands of armed, surveillance drones that will soon blanket American skies, facial recognition technology that will identify and track you wherever you go and whatever you do. And then to complete the circle, toss in the real-time crime centers being deployed in cities across the country, which will be attempting to “predict” crimes and identify criminals before they happen based on widespread surveillance, complex mathematical algorithms and prognostication programs.

    Hopefully you’re getting the picture, which is how easy it is for the government to identify, label and target individuals as “extremist.”

    All that we have been subjected to in recent years—living under the shadow of NSA spying; motorists strip searched and anally probed on the side of the road; innocent Americans spied upon while going about their daily business in schools and stores; homeowners having their doors kicked in by militarized SWAT teams serving routine warrants—illustrates how the government deals with people it views as potential “extremists”: with heavy-handed tactics designed to intimidate the populace into submission and discourage anyone from stepping out of line or challenging the status quo.

    What we’re grappling with is a double standard in what the government metes out to the citizenry, and how the citizenry is supposed to treat the government.

    SWAT teams can crash through our doors without impunity, but if we dare to defend ourselves against unknown government assailants, we’ll be shot or jailed.

    Government agents can confiscate our homes, impound our cars and seize our bank accounts on the slightest suspicion of wrongdoing, but we’ll face jail time and fines for refusing to pay taxes in support of government programs with which we might disagree.

    Government spies can listen in on our phone calls, read our emails and text messages, track our movements, photograph our license plates, and even enter our biometric information into DNA databases, but those who dare to film potential police misconduct will likely get roughed up by the police, arrested, and charged with violating various and sundry crimes.

    This phenomenon is what philosopher Abraham Kaplan referred to as the law of the instrument, which essentially says that to a hammer, everything looks like a nail. In the scenario that has been playing out in recent years, we the citizenry have become the nails to be hammered by the government’s battalion of laws and law enforcers: its police officers, technicians, bureaucrats, spies, snitches, inspectors, accountants, etc.

    This is exactly what those who drafted the U.S. Constitution feared: that laws and law enforcers would be used as tools by a despotic government to wage war against the citizenry.

    That is exactly what we are witnessing today: a war against the American citizenry.

    Is it any wonder then that Americans are starting to resist?

  • "It's Coming To A Head In 2016" – Why Bank of America Thinks The Probability Of A Chinese Crisis Is 100%

    Some sobering words about China’s imminent crisis, not from your friendly neighborhood doom and gloom village drunk, but from BofA’s China strategist David Cui.

    Excerpted from “2016 Year-Ahead: what may trigger financial instability“, a must-read report for anyone interested in learning how China’s epic stock market experiment ends.

    A case for financial instability

    It’s widely accepted that the best leading indicator of financial instability is rapid debt to GDP growth over a period of several years as it’s a strong sign of significant malinvestment. Based on Bank of International Settlement’s (BIS) private debt data and the financial instability episodes identified in “This time is different”, a book by Reinhart & Rogoff, we estimate that once a country grows its private debt to GDP ratio by over 40% within a period of four years, there is a 90% chance that it may run into financial system trouble (Table 1). The disturbance can be in the form of banking sector re-cap (with or without a credit crunch), sharp currency devaluation, high inflation, sovereign debt default or a combination of a few of these (Table 2).

     

    As Chart 1 demonstrates, China’s private debt to GDP ratio rose by 75% between 2009 and 2014 (i.e., since the Rmb4tr stimulus), by far the highest in the world (we suspect a significant portion of the debt growth in HK went to China). At the peak speed, over four years from 2009 to 2012, the ratio in China rose by 49%.

    Other than sovereign debt default, China has experienced all the other forms of financial instability since the open-door reform started in late 1970s, including a sharp currency devaluation in the early 1990s (Chart 3) and hyper-inflation in the late 1980s and early 1990s (Chart 4). China also needed to write-off bad debt and recap its banks every decade or so. Banking sector NPL reached some 40% in the late 1990s and early 2000s and the government had to strip off some 20% of GDP equivalent of bad debt from the banking system between 1999 and 2005.

    When debt problem gets too severe, a country can only solve it by devaluation (via the export channel), inflation (to make local currency debt worth less in real terms), writeoff/re-cap or default. We judge that China’s debt situation has probably passed the point of no-return and it will be difficult to grow out of the problem, particularly if the growth continues to be driven by debt-fueled investment in a weak-demand environment. We consider the most likely forms of financial instability that China may experience will be  a combination of RMB devaluation, debt write-off and banking sector re-cap and possibly high inflation. Given the sizeable and unstable shadow banking sector in China and the potential of capital flight, we also think the risk of a credit crunch developing in China is high.

    In our mind, the only uncertainty is timing and potential triggers of such instabilities.

    Why 2016 can be a dangerous year

    Since 2011, there had been a round of debate about the potential of hard landing and financial instability every year in the market. So far, the financial system has held up reasonably well, notwithstanding some periodic short term volatilities. Many view the absence of any severe disturbance as proof of the government’s ability to tame financial sector volatility and believe that the risk of this happening has diminished over time. We disagree. We believe that the government has maintained a superficial stability largely by debt-funded stimulus and an ever-greening of bad debts. These strengthened various implicit guarantees which have been generating destabilizing forces beneath the surface – a classic case of short term stability breeding long term instability. It’s our assessment that the longer this practice drags on, the higher the risk of financial system instability, and the more painful the ultimate fall-out will be.

    Whether the government intended for it or not, we summarize that investors and other market participants have been counting on five government guarantees over the years: 1) the government will prevent a sharp slowdown in GDP growth by running pro-growth macro policies, including fiscal stimulus; 2) up until about two years ago, the government would always appreciate RMB vs. the USD, at least moderately a year; and since then, the government will not allow a sharp devaluation of RMB; 3) since about 2014, the government will always support the A-share market; 4) the government will not allow major debt default; and 5) the government will always hold up the property market because it’s so essential to the financial system and local government income.

    In our view, so far these implicit guarantees have helped to maintain public confidence in the financial system or prevent investors from realizing the risks. However, as stated earlier, they are also creating powerful destabilizing forces. For example, the GDP growth guarantee means that the best strategy for many businesses over the past few years was to keep borrow and expand during any downturn, anticipating government stimulus; the RMB guarantee means that carry-trades designed to arbitrage interest rates and RMB appreciation became prevalent; the A-share market support prompted many investors to use leverage, counting on the government being the buyer of last resort; the no-default guarantee means many investors turned a blind eye to potential default risks (or simply not aware of them) and fund uneconomic projects; the property guarantee drove a significant portion of national savings into one of the most unproductive areas of the economy and the financial system has increasingly become a hostage to the property market via direct lending or through collaterals.

    The problem with this stability-maintaining strategy is that many of the goals are conflicting so maintaining all of them are logically irreconcilable. For example, the government have tried to hold up growth by pumping money into the system – China’s M2 growth has been among the fastest in the world since the global financial crisis (so in our view, debating about whether China should QE or not is beside the point).

    Moreover, if we properly account for local government borrowing, the government as a whole has probably been running fiscal deficit close to 10% of GDP a year over the past few years. With this type of macro policies, it’s difficult to see how RMB can stay stable and how debt growth can be controlled. Another example is that to hold up the A-share market, the government has borrowed from the PBoC and commercial banks. This may crowd out private lending and hurt growth, or accelerate money growth and hurt the RMB.

    It seems to us that the government’s policy options are rapidly narrowing – one only needs to look at how difficult it has been for the government to hold up GDP growth since mid-2014. A slow-down in economic growth is typically a prelude to financial sector instability. Putting it all together, it seems to us that many of these conflicts may come to a head in 2016.

    * * *

    There is much more in the full report, but here is the reco summary:

    We expect the key market theme in 2016 to be financial system instability as a few destabilizing forces seem to be coming to a head. We forecast HSCEI to decline by about 7% to around 9,000 (range for the year: 7,400-12,800), and SHCOMP, by about 27% to around 2,600 (range: 2,200-4,000), by 2016 YE. Our year-end targets had not factored in a credit crunch scenario because the timing of which is difficult to predict. Should it occur, we expect the indices to end below the low bounds, possibly substantially so.

    Just remember: if the Chinese government catches you selling, arrest, or far worse, awaits.

  • The Tragicomedy Of Self-Defeating Monetary Policy

    Submitted by Michael Lebowitz via 720Global.com,

    “It’s self-defeating to use the wrong monetary policy.”  -Ben Bernanke

    • What is productivity?
    • The Federal Reserve’s flawed growth benchmark
    • Excessive monetary policy is crushing productivity
    • The prescription for sustainable, durable growth – productivity

    "Because it is unclear exactly why productivity growth has slowed recently, it is difficult to be confident about what it will do in the future”.  –Bill Dudley June 2015 

    The recent quote from Federal Reserve Bank of New York President and Vice-chairman of the Federal Open Market Committee, Bill Dudley, inspired us to write this article and explain what Mr. Dudley cannot; why productivity, the key driver of economic growth, is not only slowing but on the verge of declining. 

    Bill Dudley and the Federal Reserve (Fed), in their efforts to influence economic growth may have created a speculative and consumption driven environment that is crushing productivity growth. This article explains what productivity is, how productivity has suffered at the hands of poorly benchmarked Fed policies and why those in charge of monetary policy must change their views if America is to economically thrive once again.

    Productivity

    Productivity is a core economic concept which measures the amount of leverage an economy can generate from its 2 primary inputs, labor and capital. Without productivity, economic growth is purely reliant on the 2 inputs. Given the limited nature of both labor and capital, they cannot be depended upon to produce durable economic growth over long periods of time. Leveraging labor and capital, or becoming more productive, is a function of many factors including innovation, education and financial incentives. In “Innovation – Too much, or too little of a good thing?” we discussed why the plethora of new technologies in the marketplace, are not as productive, especially in the long term, as they may appear. True ground breaking innovation involves time, effort and significant capital and ingenuity. Therefore it is imperative to ask, as we do in this article, is the Fed doing their part and providing pro-innovation incentives?

    Labor

    Labor, or human capital, is largely a function of the demographic makeup of an economy and its employees’ skillset and knowledge base. In the short run, increasing labor productivity is difficult. Changes to skills training and education take time to enact and produce a meaningful effect. Similarly, changes in birth rate patterns require decades to influence an economy. Immigration policies are arguably much easier to amend to foster more immediate growth, but the likelihood of pro-immigration policies these days is not probable.

    Within the labor force, the biggest trend affecting current and future economic activity is the so called “silver tsunami”, or the aging of the baby boomers. This cohort of the population, ages 51 to 69 are beginning to retire. As this occurs, they tend to consume less, rely more on financial support from the rest of the population, and withdraw valuable skills and knowledge from the workforce. The outsized number of people in this demographic cohort makes this occurrence more economically damaging than usual. As an example, the old age dependency ratio, which measures the ratio of people aged greater than 65 to the working population ages 18-64, is expected to nearly double by the year 2035 (Census Bureau).

    While the implications of changes in demographics and the workforce composition are numerous, they only require one vital point of emphasis: the significant economic contributions attributable to the baby boomers from the last 30+ years will diminish from here forward. As they contribute less, they will also require a higher allotment of financial support, becoming more dependent on younger workers.

    Capital

    Capital includes natural, man-made and financial resources. Over the past 30+ years, the U.S. economy benefited from significant capital growth, in particular debt. The growth in debt outstanding, a big component of capital, is shown (black line) in the graph below. The increase is stark when compared to the relatively modest level of economic activity that accompanied it (green line). The red arrows highlight the exponential rise in the ratio of debt to economic growth.

    Total Domestic Outstanding Credit vs. U.S. GDP

     

    This divergence in debt and economic growth is a result of many consecutive years of borrowing funds for consumptive purposes and the misallocation of capital, both of which are largely unproductive endeavors. In hindsight we know these actions were unproductive as highlighted by the steadily rising debt to GDP ratio shown above. The graph below tells the same story in a different manner, plotting the amount of debt required to generate $1 of economic growth. 

    Debt Required for Economic Growth

    Productivity

    Since 1980, the long term average growth rate of productivity has stagnated in a range of 0 to 2% annually, a sharp decline from the 30 years following WWII when productivity growth averaged 4%. The most recent productivity report from the San Francisco Federal Reserve shows an annualized decline of .06% versus the prior year. (http://www.frbsf.org/economic-research/indicators-data/total-factor-prod…)

    The graph below plots 10 year average productivity growth (black line) against the ratio of total U.S. credit outstanding to GDP (green line). 

    Debt to GDP Ratio vs 10yr Average Productivity Growth

    Within the graph, note the comparatively weak rate of productivity growth since 1980 and, more importantly, the trend towards zero productivity growth over the last 10 years. Additionally, productivity stagnation started as the debt to GDP ratio started climbing at a faster pace. This graph reinforces the message from the other debt related graphs – over the last 30 years the economy has relied more upon debt growth and less on productivity to generate economic activity.

    Given the finite ability to service capital and aforementioned demographic challenges, future economic growth, if we are to have it, will need to be based largely on gains in productivity as reliance on debt and demographics has largely run its course.

     

    The Fed’s Questionable Growth Target

    Throughout the last 30 years the Fed has become increasingly proactive in incentivizing economic growth towards their target – the potential economic growth rate. Unfortunately, the Fed’s measure of potential growth rate may be flawed leading to harmful consequences.

    To better explain potential growth we quote from an article entitled What Is Potential GDP and Why Does It Matter? Authored by William T. Gavin, Vice President and Economist at the St. Louis Federal Reserve. In the article, Mr. Gavin addresses how the Fed arrives at the potential growth rate as follows: “Instead, they estimate potential GDP by constructing measures of the trend in actual GDP that smooth out business cycle fluctuations”. This concept of relying on prior trends versus future potential is vital to grasp. From the same, article Mr. Gavin further explains: “But why does potential GDP matter? How do we use it? Potential GDP is important because monetary policymakers use the difference between actual and potential GDP—the output gap—to determine whether the economy needs more or less monetary stimulus”.

    Said differently, the decisions on how to employ monetary policy are based on a comparison of historical and current economic growth. This method ignores potential changes in growth factors that may cause GDP to deviate from the past.

    The graph below shows 7 year averages of the Fed’s potential economic growth vs. actual growth to show the simplicity of the Fed’s potential GDP forecast. Not surprisingly forecasted GDP growth for the next 10 years follows the economic growth trend of the last 10 years.

    Potential GDP vs Actual GDP

    Unfortunately, one must understand that potential GDP, as measured by the Fed, is not fully factoring in the limited ability to continue to increase debt loads, the demographic headwinds and the fact that productivity growth could likely be negative in the years ahead. The Fed’s measure of potential economic growth is solely a function of past activity and the different environment that produced it.

    To better explain the problems of following a faulty trend we compare 2 trends based on baseball legend Barry Bonds career statistics. During Bond’s peak playing years from ages 24 to 35 he posted outstanding statistics which likely would have earned him a seat in Cooperstown. Bonds batting average was consistently .300 or above, as seen below, and he averaged 36 home runs per year during those years. Following his peak years, when most players’ performance drops considerably, Bonds somehow got even better. From ages 36 to 40 his batting average and home run production exploded. During this time frame, Bonds averaged 51 home runs per year. This included his 2001 campaign when he hit 73 home runs, topping Mark McGwire’s then 3 year old record of 70 homeruns and shattering what had been the previous record, Roger Maris’ 61 homeruns in 1961.  

    Barry Bonds Batting Average

    As we now know, this incredible feat was not based entirely on his natural potential but was greatly aided by a new factor, steroids. The red and green lines above show 2 potential trend lines that could be used to summarize his performance. The red line represents Bond’s relative consistency during a typical professional players’ peak years. The green line shows the effect that steroids had on boosting performance and extending his career, or the deviation from typical potential. The gap between the trend lines is significant and could easily lead one, unaware of the new factor, to arrive at vastly different conclusions i.e. that Bonds had found some secret to increasing his productivity at a time when the typical player of similar age was declining or retired.   

    Basis for Monetary Policy

    Fortunately, monetary policy is not based off tainted baseball statistics. However, like in the Bonds example, there are new and changing factors in an economy that alter its potential growth rate. By failing to consider these factors and how such factors could alter their benchmark, the Fed runs the severe risk of conducting inappropriate monetary policy.

    The following graph illustrates how an erroneous potential growth rate would greatly change the Fed’s perception. Assume the true annual potential growth rate since 2000 was 0.50% less than the official Fed potential growth rate. Under this reasonable scenario, economic growth as measured by GDP (red) would have exceeded the hypothetical potential growth rate for 4 consecutive years prior to the financial crisis of 2008/09 and again over the last 3 years. When actual growth is above the “true” potential of an economy, the economy is pulling forward consumption from the future. When the future comes consumption needs have already been met and slower growth is inevitable. 

    Potential GDP, Actual GDP and Proxy Potential GDP

    Let us now consider that economic growth has failed to reach the Fed’s measure of potential GDP (blue line) since 2007. This is despite unprecedented stimulus in the form of a zero interest rate policy and the quadrupling of the money supply. One must question whether or not the target is correct. Maybe the so called “new normal” sluggish economic growth is the economy’s real potential and not the higher growth rate of years past. 

    We believe the potential growth rate is less than that which is targeted by the Fed. To what extent, is unclear. The widely followed Taylor Rule supports our analysis, to some degree, as it currently shows a glaring discrepancy between the current Fed Funds rate (.25-.50%) and that prescribed by the rule (2.92%). If the Taylor Rule and our thesis are correct, the potential growth rate of the U.S. economy may be much lower than the Fed thinks, and therefore monetary policy is not just “accommodative”, as described by Chairwoman Janet Yellen, but egregiously excessive.

    The Fed, by chasing an erroneous GDP growth target may have generated economic growth beyond that which would have otherwise been produced by keeping interest rates too low for too long and performing multiple rounds of quantitative easing. These actions increased the Fed’s measure of potential growth, creating a vicious cycle in which they repeatedly over-stimulate to meet an erroneous target. As this continually occurs, the gap between true potential and the Fed’s measure widen, leading to larger and larger policy errors.

     

    Excessive Stimulus is Crushing Productivity

    Worse yet, Fed monetary policy used to promote economic growth relies upon changes in interest rates and money supply to increase debt and drive consumption. Lower interest rates and QE have also spurred a strong preference for speculative investments, such as stocks, real-estate, and junk bonds, at the cost of productivity generating investments. Recent bubbles in technology, real estate, and stock valuations, to name a few, are signs of the speculative fever the Fed’s actions enabled. Low interest rates have also encouraged corporations to use valuable assets or borrowed funds to buy back stock instead of investing in growth-enhancing innovation. Globally, low rates in the U.S. led many investors to borrow in dollars to fund questionable projects over-seas.  In other words, trillions in capital has been misallocated with little benefit to productivity growth. While such actions may have caused one-time increases to GDP, they are neither producing sustainable economic gains nor has the debt incurred been paid down.

    If we are correct and the Fed is overestimating the potential growth rate, then by default they are also applying excessive stimulus to the economy.

     

    Prescription for Real Growth

    There are many reasons productivity growth has stagnated, and the Fed is certainly not solely responsible. Yet Fed officials, as witnessed by Mr. Dudley’s comments, treat productivity as an uncontrollable residual of capital and labor. They would be well-advised to take a different tack and use their enormous power to have a positive effect on productivity. Without productivity growth, economic growth in the future will be extremely limited as capital and labor cannot contribute nearly as much as they have in the past.

    The Fed, along with government, needs to properly incent productivity. The Fed should start this arduous task by removing excessive stimulus which will take the speculative fervor out of markets and allow asset bubbles to deflate. Although painful in the short term, it will allow capital to flow to more economically, productive uses that have been starved of capital. Congress, for their part, should reconsider current Fed mandates and discuss means in which the Fed can incent productivity growth.

    Ingenuity, not debt, made America an economic powerhouse. If we are to resume down that path we need the Fed to end their “self-defeating” policies and in its place we must demand ingenuity from them.

  • Some Canadians May Eat Themselves To Death Unless Oil Prices Rise, Doctor Warns

    Late last month in “This Is Canada’s Depression: Surging Crime, Soaring Suicides, Overwhelmed Food Banks ‘And The Worst Is Yet To Come,’” we took a sweeping look at what is truly pitiable situation in Alberta, the heart of the Canadian oil patch.

    Roughly a third of provincial revenue is derived from “resources” which means that when oil prices collapsed, the territory plunged into recession. Oil and gas investment fell by more than a third in in 2015 and in its latest fiscal update, the government said it fully expects the weakness to carry into 2016.

    Going into December, Canada was expected to lose as many as 100,000 oil and gas sector jobs in 2015. As the following chart from Bloomberg clearly demonstrates, the pain is especially acute in Calgary:

    Needless to say, that kind of economic malaise has very real societal consequences.

    In Alberta for instance, suicides were up 30% through June while violent crime is soaring. Property crime in Calgary, for example, rose nearly 40% during the first quarter.

    Food bank use in the province jumped more than 23% in March (the last month for which there’s data) and repo men say business is booming as Canadians struggle to make car payments amid the downturn.

    Now, some medical professionals warn that the fallout from crude’s historic plunge may well drive Albertans to eat themselves to death. “Alberta’s oil slump could have heavy, and unanticipated health consequences, experts are warning: a jump in obesity rates,” the National Post writes, adding that “the sudden shock of job loss, debt and unemployment can trigger stress-related physiological responses that cause the body to store fat, slow the rate it burns calories and increase cravings for high-fat, calorie-loaded ‘comfort foods.'”

    “As medical professionals, we need to acknowledge that unemployment and the worries that come with it can make our patients susceptible to weight gain,” warns Dr. Arya Sharma, professor and chair of obesity research and management at the University of Alberta. Here’s more from Sharma’s recent blog post entitled “Will Low Oil Prices Lead To An Obesity Spike In Alberta?”:

    According to the Alberta economic dashboard, in October 2015, Alberta’s seasonally adjusted unemployment rate was 6.6%, up from the 4.4% rate a year earlier and from last month’s 6.5% rate. The youth unemployment rate was 11.6%, up from last year’s 9.0% rate, while male unemployment increased precipitously from 3.6% last October to 7.3% this year.

     

    As no one seems to be expecting a rosier future for this industry, it may well be that many who lost their jobs in the wake of mass oil patch

    layoffs, will find the coming months (not to mention the festive season) both economically and emotionally challenging.

     

    According to this report, suicide rates from January to June in Alberta this year are up 30% compared to the same period in 2014.

    One challenge that may escape notice is the fact that this situation may also lead to significant weight gain in those affected.

     

    Depression, anxiety, food insecurity, insomnia and simply being unable to afford healthy food are all important risk factors for weight gain.

    Indeed it is hard to imagine how going from a high-paying job to being unemployed with little immediate hope of recovery will affect families.

    As The Post goes on to note, ” studies show that during the 2008 global financial meltdown families forced to cut back on food spending switched to cheaper, processed foods high in sugar and saturated fats [with] the hardest hit reducing their consumption of fruits and vegetables by as much as 20 per cent.” To add insult to injury, “many in Alberta are losing their jobs just as healthy food becomes even pricier: The dollar’s plunge and California drought led to a sharp rise in the prices of many fruits and vegetables in 2015, and University of Guelph researchers, in their annual Food Price Report, predict prices will increase in 2016 by up to 4.5 per cent — meaning the average household will spend $345 more than in 2015 for the same food, according to a university release.”

    So in Alberta it’s “feast or famine” in the most literal sense of the phrase as those who can still afford to buy food will drown their sorrows in cheap lunch meat and off-brand ice cream while the most hard hit members of society are forced to tap increasingly overwhelmed food banks. 

    “One Australian study found those hit hard in the last global recession had a 20-per-cent higher risk of becoming obese than those who escaped the worst of the slowdown,” The Post recounts before noting that “already, nearly six out of 10 Albertans are overweight or obese.” Here’s the official data from the Health Quality Council of Alberta:

    So quick Saudi Arabia, stop being so obstinate and cut production.

    You’ve already destroyed Alberta’s economy, do you want it to eat itself to death too?

  • After Tumbling At Open, Chinese Stocks Erase All Losses

    It's a miracle…

     

     

    "Someone" stepped in and bid the entire Chinese market higher off its huge opening gap down…

     

    Despite the biggest liquidity injection (CNY130bn) in 4 months, it appears Kyle Bass' top trade remains well on target as Offshore Yuan plunges, underperforming Onshore Yuan despite the largest Fix devaluation in two months. In a word – it's chaos in Chinese markets. The Shanghai Composite looks to be opening down 3% – extending yesterday's losses (beyond the US session's ADR's move). What a mess.

     

    First: PBOC devalues the Yuan fix by the most in 2 months…

     

    Offshore Yuan continues to collapse and remains over 1000 pips cheap to onshore Yuan…

     

    Despite the biggest liquidity injection in 4 months

    The People’s Bank of China will inject 130b yuan into the banking system using 7-day reverse repurchase agreements today, according to two traders at primary dealers required to bid at the auctions.

     

    Amount injected in operation today is most since Sept. 8

    and all of this has left Chinese stocks plunging….

     

    Charts: Bloomberg

  • With A Straight Face, US Government "Finds" Number Of Retiring 20-24 Year-Olds Has Doubled

    Earlier today we reported that when it comes to one of the most important data series that feed directly into the US GDP calculation, namely construction spending, the US government admitted it had literally made up numbers for the past 10 years. The phrase used was “processing error”:

    In the November 2015 press release, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private residential improvement spending.

    A processing error that lasted for 10 years? And one which, mysteriously, ended up boosting both the construction spending “data” in 2015 and, as a result, the GDP?

    Odd coincidence, that.

    But nothing compares to the latest farce released recently by the Bureau of Labor Statistics, the same guys whom we caught fabricating jobs data back in September 2013.

    As everyone knows, one of the biggest question marks surrounding the US labor market is the 95 million of Americans not in the labor force, resulting in the lowest labor force participation rate since the mid-1970s.

     

    The answer to this question is critical because it would explain why despite “5% unemployment”, wages in the US stubbornly refuse to rise 7 years after the recession “ended” even as a record number of Americans aged 55 and over have jobs (mostly of the low-paying variety).

    Of course, the logical explanation is that due to various generous welfare state support nets, due to “disability” and due to $1.3 trillion in student loans, tens of millions of Americans of all ages have found other options: whether to stay in school for decades, to collect various forms of welfare, or simply because millions have given up trying to find a job since the labor market is not anywhere nearly as strong as the government would like to make it appear (especially after a few hundred thousands US workers lose their jobs after the $5 trillion in global M&A “synergies” hits in 2016), and have dropped out of the labor force entirely.

    But, in these trying times, logic does not make sense. So a few months ago, the Atlanta Fed tried to answer this question. Its answer: the labor force is plunging because people simply “don’t want a job.” No really:

    The decrease in labor force participation among prime-age individuals has been driven mostly by the share who say they currently don’t want a job. As of December 2014, prime-age labor force participation was 2.4 percentage points below its prerecession average. Of that, 0.5 percentage point is accounted for by a higher share who indicate they currently want a job; 2 percentage points can be attributed to a higher share who say they currently don’t want a job.

    That “explanation” did not fly with the goalseeking statisticians manning the Arima-X-12 seasonal adjustment vacuum tubes at the BLS, so, as Bloomberg reports, in a new Bureau of Labor Statistics report, these same career economists tired to provide fresh answers to this critical question.

    And here we cross in the twilight zone, because while fabricating numbers is one thing, engaging in absolute lunacy as a form of scientific inquiry is a bridge we did not think even the BLS would dare cross. we were wrong.

    Here’s Bloomberg’s summary of what the bureau found, broadly: Thirty-five percent of the U.S. population wasn’t in the labor force in 2014, up from 31.3 percent a decade earlier. (You’re considered out of the workforce if you don’t have a job and aren’t looking for one. That’s distinct from the official unemployment rate, which tracks those out of work who are actively job hunting.)

    Drilling down into the numbers reveals more about the shifts in the reasons some people forego a paycheck. In all age groups, for instance, more people cited retirement as the reason for being out of the labor force, and it wasn’t just older people.

    So far so good: who knows if this is true or not, but since it is a “scientific” study it probably can be replicated. Unfortunately, not in this case, because here was the punchline:

    For Americans between the ages of 20 and 24, the share of those sidelined over the past decade because they were in school increased, unsurprisingly, during the decade that included the Great Recession. What’s more unusual is that the share of 20- to 24-year-olds who say they’re retired doubled from 2004 to 2014.

     


    At this point we stopped reading for one simple reason: the fact that a “scientific” study can “find” that the number of 20-24 who have retired has doubled, shows that those conducting said experiment were simply said lunatics who had set up their experiment and null hypothesis incorrectly, had asked all the wrong questions, and worst of all, given themselves a “sanity check” and passed with flying colors despite something as glaring as this “finding.”

    What is most troubling is that these are the same economists in charge of “creating” seasonally adjusted, statistically relevant and completely fabricated job number which drive the market month after month. And then, when the bottom falls out of the economy, these same people will at their data and, like with the construction spending numbers, admit it was all a fraud.

    And sadly, this takes place every cycle: goalseeked, smoothed garbage data on the way up, then once the bullshit overflows and reality can no longer mask the underlying lies, everything falls apart, and back to square one we go.

    We can only hope that we are much closer to the end of this particular cycle, of both business and epic stupidity, one in which waiters, bartenders, and minimum-wage salespeople, or rather figments of a statistician’s imagination, are the forefront of the so-called US “recovery.”

  • "Refuse To Compromise", Ron Paul Implores "Purism Is Practical"

    Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

    Those who advocate ending, instead of reforming, the welfare-warfare state are often accused of being “impractical.” Some of the harshest criticisms come from libertarians who claim that advocates of “purism” forgo opportunities to make real progress toward restoring liberty. These critics fail to grasp the numerous reasons why it is crucial for libertarians to consistently and vigorously advance the purist position.

    First, and most important, those who know the truth have a moral obligation to speak the truth. People who understand the need for drastic changes in foreign, domestic, and, especially, monetary policy should not pretend that a little tinkering will fix our problems. Those who do so are just as guilty of lying to the public as is a promise-breaking politician. Attempting to advance liberty by lying is not just immoral; it is also a flawed strategy that is doomed to fail.

    The inevitable failure of “reforms” that do not eliminate the market distortions caused by government intervention will be used to discredit both the freedom philosophy and its advocates. The result will be increased support for more welfare, more warfare, and more fiat money. Thus, those who avoid discussing the root causes of our problems, not those they smear as impractical purists, are the ones undermining liberty.

    For example, many Obamacare opponents refuse to advocate for true free-market health care. Instead, they propose various forms of “Obamacare lite.” By ceding the premise that government should play a major role in health care, proponents of Obamacare lite strengthen the position of those who say the way to fix Obamacare is by giving government more power. Thus, Obamacare lite supporters are inadvertently advancing the cause of socialized medicine. The only way to ensure that Obamacare is not replaced by something worse is to unapologetically promote true free-market health care.

    This is not to suggest libertarians should reject transitional measures. A gradual transition is the best way to achieve liberty without causing massive social and economic disruptions. However, we must only settle for compromises that actually move us in the right direction. So we should reject a compromise budget that “only” increases spending by 80 percent. In contrast, a budget that actually reduces spending by 20 percent would be a positive step forward.

    Those who advocate a so-called extreme position can often move the center of political debate closer to the pure libertarian position. This can actually increase the likelihood of taking real, if small, steps toward liberty. More importantly, the best way to ensure that we never achieve real liberty is for libertarians to shy away from making the case for the free society.

    Sometimes ideological movements are able to turn yesterday’s “fringe” ideas into today’s “mainstream” position. Just a few years ago it was inconceivable that a significant number of states would legalize medical, and even reactional, marijuana or that a majority of states would have passed laws allowing citizens to openly carry firearms. The success of these issues is not due to sudden changes in public opinion, but to years of hard work by principled advocates and activists.

    The ever-growing number of Americans who are joining the liberty movement are not interested in “reforming” the welfare-warfare state. They also have no interest in “fixing" the Federal Reserve via “rules-based” monetary policy. Instead, this movement is dedicated to auditing, then ending, the Fed and stopping the government from trying to run the economy, run the world, and run our lives. If this movement refuses to compromise its principles, we may succeed in restoring a society of liberty, peace, and prosperity in our lifetimes.

  • Is 2016 The Year Of The Dollar Collapse?

    Submitted by Simon Black via SovereignMan.com,

    On September 4, 1993, President Bill Clinton spoke about the American Dream in a weekly radio address.

    He told his audience that “in America, the idea is that if you work hard and play by the rules, you’ll be rewarded with a good life for yourself and a better chance for your children.”

    That’s what America used to stand for, and indeed much of the Western world. Freedom. Truth. Hard work and fair play. Building a better life.

    But those ideals have all but faded now, displaced by a new normal of war, debt, government surveillance, freedom-killing bureaucracy, and a monetary policy that decimates responsible, hard-working people for the benefit of a tiny elite.

    In his end-of-year commentary in the Washington Post, writer George Will summed up 2015 citing example after example of government overreach and excess–

    • The value of property seized by the US federal government through Civil Asset Forfeiture exceeded the value of property stolen by burglars and thieves
    • Florida police raided a Mahjong game played by four women aged 87 through 95 because they were *gasp* betting with their own money
    • New Jersey police arrested a 72-year old retired schoolteacher for illegally carrying a firearm– a 300-year old flintlock pistol he had purchased from an antique dealer
    • A 9-year old in Florida was threatened with sexual harassment charges for writing love notes to a girl saying that her eyes sparkled like diamonds

    George Will’s list, of course, barely scratched the surface of the tip of the iceberg.

    2015 was the year that the middle class was officially vanquished in the Land of the Free, with its share of the population falling to just 50%.

    US federal debt reached nearly $19 trillion in 2015, an increase of almost $750 billion during the calendar year.

    The US government published over 80,000 pages of new regulations, making it nearly impossible to understand ‘the rules’, let alone play by them.

    2015 also saw the passing of incomprehensibly terrible laws, including the USA Freedom Act, which restored many of the worst parts of the PATRIOT Act that were set to expire.

    Then there was the Cybersecurity Information Sharing Act, passed at the end of the year, which officially turns the Land of the Free into a gigantic information-sharing surveillance state.

    And of course the 2015 spending bill, which as of 3 days ago, allows the US government to strip you of your passport if they believe in their sole discretion that you owe them money.

    These are hardly the actions of a solvent, trustworthy government, or a nation that’s on the right track.

    It doesn’t take a rocket scientist to figure out that this story doesn’t have a happy ending.

    We can pretend that this time is different, that this country is different, that there is some special sauce that allows this government to run massive imbalances forever.

    But deep down we all know the truth… and where this is headed.

    I’ve read no shortage of apocalyptic predictions suggesting that 2016 is the year of the dollar collapse. Or the global economic collapse.

    Or something else that invariably ends in the word ‘collapse.’

    I don’t believe that. First, no one can credibly answer the question “when?”

    Governments have surprised us all with their uncanny ability to kick the can down the road and delay the repercussions of their folly.

    But I don’t really think the question of ‘when’ is relevant.

    Nearly every major western government is insolvent. Entire monetary and financial systems are insolvent.

    Governments have destroyed their own middle classes, giving rise to the greatest wealth gap that has existed since the Great Depression.

    The risks are obvious. And you either stick your head in the sand and ignore them, or you take steps to reduce their impact on your life.

    It’s like anything else – if you live in a wildfire zone, you get fire insurance. And you’ll never be worse off for having good coverage on your home to protect your family.

    Having a Plan B just makes sense, regardless of whether a major disaster occurs in 2016, next year, or never.

    We can’t see the future, we can only see the risks today. Develop a Plan B that addresses those risks, and you’ll never have to worry about the future again.

  • Montel Williams Calls For "Shoot To Kill" In Oregon Showdown; Militiamen Respond They Are "Ready To Fight"

    In the latest development in the ongoing saga of Ammon Bundy’s seizure of a Federal wildlife reuge office in Oregon, the members of the militia said they’re ready to fight, but they won’t say what they would actually do if federal authorities try to remove them by force as reported in the clip below.

     

    However, while we noted the shortcomings in Bundy’s latest standoff last night, what is even more notable is that as Shepard Ambellas of Intellihub points out, Montel Williams he tweeted that the National Guard should be mobilized to “kill” protesters who have currently overtaken the federal building in Burns, Oregon.

    Moreover USA Today has reported that “militia members used the ranchers as a ruse,” in what I and others feel may be the planed catalyst to start a civil war in America.

    Monday, Rick Jervis wrote:

    The Oregon sheriff whose county is at the heart of an anti-government call-to-arms said Sunday the group occupying a national wildlife refuge came to town under false pretenses.

     

    Sheriff David Ward said protesters came to Harney County, in southeastern Oregon, “claiming to be part of militia groups supporting local ranchers.” In reality, he said, “these men had alternative motives to attempt to overthrow the county and federal government in hopes to spark a movement across the United States.”

     

    In a statement issued Sunday afternoon, Ward said he was working with local and federal authorities to resolve the situation as quickly and peacefully as possible.

    Intellihub adds that its staff has identified a few suspicious individuals who claim to stand with the militants which may attempt to provocateur, escalate, the situation further. As we noted last night, this also is a distinct possibility.

    Finally, in an interesting tangent, the WaPo, which admits that there “are gun rights issues, religious overtones, broad strains of anti-government sentiment and even the tactics of the Occupy Wall Street movement” as underlying motives behind the seizure, focuses on “very particular question of how much land the government controls in the state — the same question that animated the dispute with rancher Cliven Bundy in Nevada two years ago — and that helped motivate Bundy’s son Ammon to take a lead role in the Oregon standoff.”

    It then provides several charts, alongside the following analysis, to show this curious aspect of what may be the core motive behind Bundy’s actions. To wit:

    More than half of Oregon is owned by the federal government, with a large percentage of that land owned by the Bureau of Land Management — an agency widely reviled in the West and known by its acronym, BLM. (Ammon Bundy was forced to clarify on Twitter that his use of “BLM” didn’t refer to the Black Lives Matter movement.) Data from the U.S. Geological Survey shows the amount of federal land in the state.

    (This map and the ones below only show areas of 600 or more acres held by the government.)

    The takeover occurred near Malheur Lake, at a building that’s part of the Malheur National Wildlife Refuge. That lake is at the upper center of the BLM’s map of the surrounding area, which shows just how much is controlled by the government. (The original protests over the Hammonds’ sentencing began in Burns, Ore.)

    Part of the issue is that there isn’t much population in the eastern part of the state. Mapping Oregon’s population, you can see Portland and a corridor near the coast, which is about it. The area around the wildlife refuge has almost no population.

    There’s a historic link between population and federal land ownership. In 2012, the Congressional Research Service looked at the history of tensions between the government and the population out West — particularly ranchers and farmers who, like the Hammonds and Bundys, use federal land for grazing and other purposes.

    Early in the history of the country, the government took over land that was then distributed to citizens for farming and economic growth. As the United States expanded westward, the land was increasingly inhospitable, including the Rockies and the deserts of Nevada and Utah. By the end of the 19th century, a new focus was placed on conserving the land, with Yellowstone becoming the first national park in 1872. At that point, very few people lived in the area, as this 1890 Census Bureau map suggests.

    Over the course of the 20th century, the government’s emphasis shifted away from releasing the land to private citizens and toward managing it itself. The passage of 1976’s Federal Land Policy and Management Act made that policy concrete, keeping the land as the property of the government. After the federal government’s shift, there was a push from some in the West, including governors and members of Congress, to shift control from the federal to the state or local government. The Sagebrush Rebellion, as it was known, tapered off during the relative friendly administration of Ronald Reagan.

    The longstanding political and legal dispute was summarized in more depth by the conservative Heritage Foundation, but the Congressional Research Service makes one additional point that’s important to consider.

    “From the earliest days,” the CRS researchers write, “these policy views took on East/West overtones, with easterners more likely to view the lands as national public property, and westerners more likely to view the lands as necessary for local use and development.”

    That’s one reason for the objection from Westerners. The other is that the lock-down on the land came after the East was heavily settled but before the West had been. In the East, land was turned over to farmers. In the West, settled later in the country’s history, there were fewer people to hand it to.

    Compare the Dakotas to Oregon, for example. In 1910, here’s how the population was distributed. Even the Dakotas had pockets of population.

    It’s still sparsely populated.

    But very little of the land is federal.

    On that 1910 map, notice that Nevada has very little population — thanks in part to its landscape being even less hospitable than the Dakotas. Its population is still small, save Reno and Las Vegas.

    The vast majority of the land — including the land around the Bundy ranch — is owned by the government to this day.

    The conclusion: “The fight isn’t new, as the Congressional Research Service report notes. What’s new is the way in which the broader political moment has cross-pollinated with longstanding objections to how the government manages land out West. The takeover in Oregon has its roots in the Sagebrush Rebellion. They way it’s being manifested, though, is as modern as it gets.”

    * * *

    It remains to be seen if the National Guard will take up Montel on his “shoot to kill” advice.

  • Gold: The Unsurance Policy – Love It Or Loathe It

    Grant Williams, Of Things That May You Go Hhhmm, gave the following presentation at Mines & Money in London in early December laying out why he believes the gold price is languishing despite a wealth of what would ordinarily be positive catalysts. Currently, outside those who focus on precious metals, there is an enormous amount of apathy but, we suspect, that apathy will shortly turn to enthusiasm – an enthusiasm which will expose the rift between paper prices set in NY and the structural changes undergone in the physical markets over the last several years. Still, outside of today's small move, for now… Nobody Cares.

     

    Gold: The Unsurance Policy

     

     

    Read more at ttmygh.com

  • This Is A Very Troubling Chart

    The chart below, showing the total number of monthly FBI firearm background checks – a direct proxy for gun purchases in the U.S., needs no commentary.

     

    Here is the same data, on a monthly basis to avoid the seasonal noise. No matter how one looks at it though, the 3.3 million background checks in December was a record high.

     

    Neither of these are the “troubling chart” referenced in the title. This one shown below is, and it comes courtesy of the NYT:

     

    The chart shows that while the soaring gun sales are the effect, the cause is simple: president Obama.

    The same president who tomorrow at 11:40am will finally reveal just what, after many delays, his executive action(s) on gun control will be.

    The concern is that with one more year under Obama’s term, gun sales over the next 12 months are certain to surge to new all time highs as Obama’s crusade to crush the second amendment slowly picks up steam in order to cement his “anti-gun” legacy, and as the population rushes to buy as many as it can before Obama makes such purchases illegal.

    It’s not all bad news though: gun makers could not have asked for a better president, as the following headline just confirmed:

    • SMITH & WESSON SEES 3Q ADJ. EPS 39C-41C, SAW 27C-29C

    As of this moment Smith and Wesson is trading at an all time high.

  • China Day 1: Monumental Destruction

    Submitted by Salil Mehta via Statistical Ideas blog,

    China's Shanghai Composite index was stopped down nearly 7% on the first trading day of the new year.  This is worse than 99.6% of all trading days since the beginning of 2007 (a monstrous era covering the entire market turmoil of the global financial crisis).
     
    To put some risk context behind how poor a ~7% drop is -in relation to the worst losses over different time (not just relative to all daily changes)- we look at a variety of time units.  This is different from the market convolution math discussed previously (here, here).  For example, today’s loss in China is worse than 93% of the worst daily losses per month, since 2007.  We see this in the chart immediately below.  And in the chart further below that, we see today’s loss is worse than 67% of the worst daily losses per year.  Lastly, in that same chart, we show China’s first day loss is worse than even the majority of the worst weekly losses per year!  This conservative measure substantiates that on just a single day, the losses stemming from China has breached most of the worst risk levels that would normally take a complete week to get through. 
     
     
    And we see in the chart above that today's loss in China is worse than the worst daily loss coming out of 100 out of the past 108 months (only the 3 months where the worst daily loss was rounded to 0% have been truncated from the chart above)!  In fact, as shown in the blue portion of the chart, there have only been 4 months since mid-2008, where the worst daily loss that month was worse than today's loss.  Those 2015 months are: January, June, July, and August.
     
     
    We see in the jittery chart above (third column), that today's loss is worse than the worst daily loss coming out of 6 of the past 9 years (hence the 67%).  And in the middle column we see today's loss is worse than the worst weekly loss coming out of 5 of the past 9 years (or the majority)!  This statistic provides a powerful segue with our prequel article on the worst weekly loss distributions.  Finally in the first column we see that today's loss is worse than the worst monthly loss coming out of even 2 of the past 9 years.  
     
    The main takeaways from this article is that market shocks can be quite quick, when they suddenly unravel.  There is no need for markets to follow an observable pattern (therefore casting an omen just for you).  Recall as well that this is just "day 1"!  There are ~20 additional dramatic trading days ahead this month, where anything can precipitously take place.

  • Citigroup Says "It's Too Early To Panic"; Here's Why

    Panic. That is, according to some of the best strategists on Wall Street, the most concise summary of trader sentiment today following a near history rout in the market on the first day of trading of 2016.

    But don’t worry: according to Citi’s Brent Donnelly, “It is too early to panic.”

    Here’s why:

    First is a link from Bloomberg on how the first day of the year does not predict the rest of year.

     

    The chart is mine and shows the 14 times we saw a >1% drop on Day 1 of the year, then what happened on Day 2. Mostly rallies

    And while we are confident that Citi will promptly advise when the right time to panic finally arrives, there is another popular saying: “he who panics first, panics best.”

  • Jailhouse Diary Of A Libor Manipulation Scapegoat

    When last we checked in on Tom Hayes, the “Rain Man” was headed to HM Prison Wandsworth, which Bloomberg describes as “a Victorian fortress south of the Thames known for its poor conditions and violent residents.”

    You’ll recall that Hayes was the unlucky soul who became the scapegoat for the endemic corruption and unbridled greed that transformed the financial world’s most important benchmark into a tool the banks used to generate outsized gains for their own trading books. In other words: Hayes took the fall for the LIBOR scandal, becoming a rare human casualty in a world where white collar, Wall Street criminals almost never pay for their proverbial sins.

    Officially, a jury found Hayes guilty of eight counts of conspiracy. His sentence: 14 years.

    For those wondering what life is like behind bars for the man whose head had to roll so that many more “important” heads would not, we bring you Hayes’ letters from Wandsworth.

    *  *  *

    As originally published by The Daily Mail

    It was over. The guard led me into a room daubed in graffiti, with the faint smell of cigarettes and urine. He allowed me to use the toilet, but it had no door – the days of privacy and dignity were over. A plastic toilet with no seat. I couldn’t really comprehend it.

    I was led to a small holding cell and the door behind me was locked. I could hear banging and shouting from other cells. I curled up on the only thing in the cell, a wooden bench.

    I was then led away by a sympathetic female guard who reassured me. She handcuffed my wrist to hers, and we waited in line for those going to HMP Wandsworth to be searched.

    I figured if I sat with my back against the side of the van, no photographer would be able to get a photo of me. I pushed my back against the wall – they had enough photos; they didn’t need one of me at my lowest ebb. As the van stopped at the junction to turn on to Tooley Street, the cameras flashed through the darkened windows. I scrunched back to keep out of shot.

    The drive through the busy commuter traffic was strange. I looked out of the window at everyone going home, passing familiar places. The guards played Capital Radio; I couldn’t quite comprehend these were sights I wouldn’t see for years. Life outside the van seemed so normal.

    We pulled through the gatehouse at Wandsworth. Vans were stacked up waiting to unload and we sat for about 30 minutes waiting for our turn. Slowly my shock was abating.

    We were ordered off the van. Most on it were on remand and returning for the day. I, on the other hand, was going through induction. A strip-search. My modesty seemed strangely immune. Again it seemed like a dream, followed by an awful grey tracksuit and light blue T-shirt.

    As an entry-level prisoner, I was not allowed my own clothes. Nor was I allowed my prison bag. I was issued with a blue plastic plate, bowl and mug, and a pack of Happy Shopper tea, UHT milk and biscuits.

    It seemed so strange; these were my belongings in a clear plastic HMP bag. I was still wearing my court shoes, which made me look stupid in my tracksuit as we went to E-wing so they could process me. I was given a plate of rice and green beans and an apple. Some induction orderlies [prisoners who work on the induction wing] came to speak to me. They offered advice and some kind words, but I was a fish out of water; all I wanted to do was speak to my wife Sarah, hear her voice, for her to reassure me. I wanted to go home.

    A prison guard in the office let me make a one-minute phone call.

    I struggled not to cry. I told Sarah I was OK; she sounded fine, but we were both staying strong for one another. Then, clutching my cutlery, tea and biscuits and green sheets/pillowcase and orange blanket, I was sent down the hall.

    Because I had been processed I was meant to go to cell E403 (cell No 3 on the fourth floor). I asked a prison officer where I should go and he thought I hadn’t yet been processed. He sent me over the corridor to a holding cell full of Albanians and a heroin addict in withdrawal.

    It was about 7pm and I could hear the Channel 4 News from the TVs along the wing. I sat on the concrete floor knowing my face was on the screens next door. The room was thick with smoke. The addict kicked the steel door repeatedly, demanding attention. Officers ignored him.

    All the sounds of prison that now wash over me as ambient noise seemed so clear. I felt exhausted. A three-month trial, three-and-a-half years of bail. Years of uncertainty, years of fighting were over. At about 10pm, one officer popped his head through the door. Prisoners were coming and going as they were processed and he seemed surprised to see me. ‘Hayes! What are you doing here? You’ve been processed!’

    I clutched my meagre belongings and followed him. I felt like a refugee with my bedding and plastic bags. Then he realised they had paired me with the addict in withdrawal. I waited for 20 minutes while they moved the addict, then they put me and another first-timer in cell E403 together. I took the bottom bunk. The addict had taken the pillow. I made the bed. Fortunately the weather was hot, because the orange blanket was threadbare and offered no insulation at all.

    While my cellmate snored, I stared at the bunk above. My mind was racing and, although I was tired, I couldn’t sleep. During the trial I had taken sleeping tablets, but I didn’t have any now. Not having a watch meant I had no notion of time. Eventually the sun came up and I heard aircraft on the approach to Heathrow. I knew it must be 6am, because nothing lands before then.

    I had been given some milk and oats for breakfast the night before, but we had no kettle or hot water to make porridge. I rang the bell to ask for some hot water.

    The prison officer dismissed me. ‘Wait till we unlock you,’ was the response. We got unlocked at lunch.

    My first exercise time in the austere concrete yard reminded me of the film Midnight Express, as people circled the yard anticlockwise.

    I thought about the lunatic in the film who decided to go the other way and pondered what would happen if I did that. Some guys worked out, others smoked or harassed people for ‘burn’ [tobacco].

    I wandered in circles aimlessly, enjoying the sunshine and natural light.

    I think in my early days I stood out – I probably still do – but certainly some people recognised me from the media coverage. People seemed to labour under the misapprehension that I had made ‘trillions’ for myself. Others didn’t recognise me but, seeing the court shoes, realised I was a recent arrival and inquired whether I had brought a ‘package’ with me.

    Confused and apprehensive, I told them I didn’t have anything with me.

    I later learnt that this refers to drugs inserted in your anus. I was also told that on occasions these will be forcibly removed by other prisoners using a spoon, so I’m lucky that I didn’t have a package.

    As we left the yard, one prisoner covered himself in olive oil and tried to set himself alight – his hydrocarbon knowledge wasn’t the best, I thought.

    During my healthcare visit the nurse offered me a hepatitis B vaccination. I refused on the basis I couldn’t fathom how I could catch a blood-borne virus. Later, after observing various biting incidents, I have now had my three jabs and am vaccinated.

    Just before 5pm, the cell door opened and I was ordered to gather my ‘possessions’ and told I was moving. Although I’m now a veteran mover, at the time I hurriedly gathered the biscuits and UHT milk, my green sheet and orange blanket and, feeling like the refugees from Syria who were all over the TV, I shuffled after the guard, bidding my cellmate a laconic goodbye.

    Looking back now, I feel sorry for my first cellmate. I really chewed his ear off in that first 24 hours; all the hurt and pain poured out as I paced that tiny cell. I barely listened to his problems. Although I can’t recall his name, I’ll be for ever grateful to him for listening and helping me through that first 24 hours.

    Confused, I asked where I was going. ‘To CSU,’ came the response. Me: ‘What’s that?’ Prison officer: ‘Care and segregation unit.’ Me: ‘Why am I going there?’

    At this point, as we made our way down into the basement of E-wing that houses the segregation unit, I felt panicked that I was being taken out of the general population to be held in isolation.

    Prison officer: ‘You are a potential Category A prisoner.’ Me: ‘What? I am the most unlikely Category A prisoner ever!’ Prison officer: ‘You have the means to escape.’ Me: ‘Escape? I’ve been on bail for three years!’ I later discovered I had been put in the CSU for my own protection. Because my case had been so ‘high profile’, it was feared I would be targeted. In fact, I was in the same cell that Max Clifford had been in a few months earlier, E010.

    I couldn’t watch TV. All that sitting and watching TV as a student seemed such a waste of time; now I had all the time, I wanted to do nothing and watch TV, and I couldn’t even turn it on except to try to figure out the time of day (I still had no watch).

    I broke the day into segments. I needed to get from breakfast to lunch, lunch to dinner, dinner to bed, to try to sleep, and I had been prescribed sleeping tablets to get me through the night. Because I was on ACCT [Assessment, Care in Custody and Teamwork, for prisoners considered at risk of suicide or self-harm], the light was turned on every hour to check I was still alive, and would disturb me yet further.

    I don’t blame the prison for that, but I operated in a bizarre dystopia, exhausted in the day, unable to sleep at night.

    I was locked up for roughly 23 hours per day in the segregation unit. Everywhere I went I was accompanied by three officers.

    As I walked on my own round the tiny exercise yard for 30 minutes, three prison officers looked on. I was observing the rank filth of the prison; the yard covered in rubbish thrown from the cells. It was almost as if neither prisoners nor officers really had any respect for the environment in which they lived.

    The cell was covered in graffiti, which I would idly read, trying to imagine all the people who had been in the same cell since 1851 when the prison was built.

    Being let out for any reason was a treat. A shower, collecting “food” from the server, a healthcare appointment – anything for some form of human contact with anyone.

    I knew my mum and Sarah were going to try to visit on Wednesday morning, a reception visit allowed during the first few days. I anxiously watched the clock on the TV, having discovered the radio channel had one. I was becoming anxious. What if they had forgotten me? I was desperate to see them. At 10.15, someone came to fetch me for my visit. I breathed a sigh of relief.

    The hour flew by. I ate chocolate and drank tea from the cafe in the visitor sector and felt a little happier. My wife assessed the centre to see if it would be suitable to bring my year-old son Josh.

    I had never had the chance to say a proper goodbye to him. The morning of the sentence, I had left him as normal at nursery school and had not come home.

    Soon the visit ended. There were tears all round as we said our goodbyes, and Sarah hugged me.

    Even though the August weather was 25C, the basement cells at Wandsworth were freezing. The floor felt like ice. I sat on the bed and wrapped two blankets around me. You can do ten seconds of anything, I thought, so you can do this. Seven years is a lot of ten seconds, though. My fellow occupants of the ‘Seg’ were a noisy collection. Most were there as punishment and spent large amounts of time shouting and kicking the doors. My first cell had been adjacent to one such door-kicker. Now I was in a marginally quieter cell, but I was still woken by kicking at 3am.

    Shouted conversation took place between cells. I stayed quiet and listened. The speakers would be out early next year, I learnt. How I envied them.

    Being in isolation, you become attuned to the slightest sounds as you try to figure out what’s happening on the other side of the door. Footsteps, the clink of keys, the near-constant shouting echoing round the old building.

    Someone from the governing board came to see me on Friday evening. Once again I appealed to him that I wanted some company.

    Governor: ‘OK, but don’t get yourself beaten up.’ Me: ‘We have a mutual interest in that not happening.’ And so my time in CSU ended. I collected my still uneaten biscuits, tea bags and UHT milk (there are no kettles in case inmates throw boiling water at the officers), my bedding and my book and carried them back upstairs.

    I was in cell E432 on the top floor; it was considerably warmer than the basement. My new cellmate arrived on remand for a drug offence. Arrested on Wednesday and unable to shower, he stank. His obesity and the hot weather meant I regretted leaving the CSU. He stripped to his underwear; he was very hairy. He was a big TV fan and knew all the daytime programmes. He watched every soap. I tried to negotiate a slot to watch Channel 4 News between Hollyoaks, EastEnders, Emmerdale, Neighbours and Coronation Street. Instead, we agreed I could watch Newsnight at 10.30. University Challenge was rejected.

    Over the weekend the prison was shortstaffed, so we had no association time [time spent outside the cell] on either Saturday or Sunday. That meant no occasion for my new cellmate to shower. The temperature was high and, at some point, he lay down on my bed. I looked at his huge, sweaty, near-naked body lying on my bedding and felt vaguely sick.

    I was being eaten up inside; those moments of quiet time allowed me to be alone with my thoughts and try to work out how I was going to cope with seven years of incarceration.

    I was learning a bit more about prison life; I witnessed someone getting ‘bent up’ [prison parlance for restrained] by the prison officers. Another officer ordered me back to my cell. When I pointed out that the commotion was taking place directly outside my cell and I had no way of returning to it, he locked me in the shower room with a paedophile killer (who claimed he had written a book that was in the library).

    Because it happened after a weekend with no association time, I needed a shower, but had no toiletries or towel and so was unable to take advantage of this unexpected situation. Instead, I was locked away with a lunatic who engaged me in conversation. The officers forgot about us. After I had banged on the door for 30 minutes, someone passed by and unlocked the door. ‘What are you doing in here?’ they demanded. The irony of being locked in a room by someone else, then asked how we got there, was lost on him.

    The same day saw another prisoner jump on to the netting between the landings. He refused to leave until he had a KFC. It duly arrived and, once he finished it, he came down and was removed to CSU.

    The prison seemed to operate on a reverse incentives system: the worse you behaved, the more you got.

    Monday came and I had now been in prison for one week. As sure as night followed day, it was now time for another cell move. This time over the corridor to E401 – it had a pillow and a kettle! My new cellmate was a nice guy called Tim. We got on well. He had a two-and-a-half-year sentence and was due to be released in February. I felt jealous, but we had plenty to talk about and he was very considerate, listening at length to my frustrations. I had my first communal shower; the facilities were very dirty. I needed to shave. I asked for a razor and some shaving foam and was told, ‘Shaving foam? You’re in prison now. Use soap.’ The prison razor and soap left me with a bad shaving rash.

    I don’t recall much about Tuesday and Wednesday; perhaps my body was coming down from operating on adrenaline. I got to speak to Sarah twice in snatched five-minute conversations. Her visit booking for Thursday hadn’t been dealt with. I felt crushed.

    On Thursday morning, the cell door was unlocked. ‘Hayes, you have three minutes to pack your stuff. You’re going to Nottingham.’ Again I felt crushed. ‘Why Nottingham? So far from my friends and family?’ ‘I don’t know. The decision has been made by the area officer.’ I was on my way out of Wandsworth. I said goodbye to Tim and made my way down to reception. I changed out of the prison tracksuit I had now worn for 11 consecutive days and back into the same clothes I wore to court on August 3. As I left, the reception orderly reassured me. ‘You’ve won the prison lottery,’ he said. ‘People would give their right arm to get there.’

    It gave me some hope, but at that time it just seemed a lot further from Sarah. I got into the prison van alone; I was the only passenger. As we went through the gatehouse at Wandsworth, I contemplated how little time I had spent there. But I was no longer a prison virgin.

    I’m in the Open University room typing this, because my cell is so cold right now. I use my electric toaster to try to heat it up, but I still sit there with about five layers on.

    Last night, some lunatic prisoner in the wing next to mine broke a lot of pipes and flooded everything, so we were locked up with no water, hot or cold, unable to flush the toilet, in the freezing cold. The cell below me engaged in a ‘dirty protest’, smearing faeces everywhere, and smashing up the room, and the cell opposite had someone having a psychotic fit from taking ‘spice’ [synthetic cannabis], banging and shouting.

    I lay on my bed and wondered how I had ended up here.

    I often look at the trees on the other side of the fence from my cell; I’ve become quite the ornithologist. It seems so strange that we live in the same place but they are free, able to come and go from the trees on the ‘free’ side of the fence.

    The wagtails sit on the razor wire and I like to see them choose from all the rubbish thrown from cell windows.

    I’m becoming more immune to prison life now; being strip-searched has lost the embarrassment and indignity I felt at first.

    Drug overdoses and fights are de rigueur, and the monotony of life here takes over.’


  • US Government Discovers 10 Years Of "Processing Errors" In Construction Spending Data Slamming GDP

    Even as increasingly more parts of the economy, especially those with exposure to manufacturing and industrial production, sink into the recessionary quicksand, one sector that was seen as immune from the malaise gripping US manufacturing and was outperforming the overall growth rate of the US economy, was housing, and specifically spending on private and public construction: a direct input into the GDP model.

    That all changed today when the US Census released its latest, November, construction spending data, which not only missed expectations of a 0.6% increase, but tumbled -0.4%, the most since June of 2014, while all the recent changes were mysteriously revised lower.

    And then the source of the mystery was revealed: in the fine print of the release, the government made a rare admission: all the construction spending data for the past 10 years had been “erroneous.”

    In the November 2015 press release, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private residential improvement spending. An Excel file containg all of the revisions can be found here

    The result of the “revision” of the processing error is shown below: every month starting with April and going through October, was “found” to have been a lower increase than according to the previous data. Not only that, but the October print which had been the strongest since May, confounding many data watchers as it did not fit with anecdotal evidence of a dramatic slowdown in energy-related construction, suddenly was barely positive, leading to the November sequential decline, the worst since the -0.7% drop in June of 2014.

     

    And here is the big picture: what it reveals is that while spending data in 2013 was revised substantially higher, it proves what many have known, namely that the economy is now slowing substantially and that what until recently was seen as the strong annual increase in construction spending, namely the 14.3% increase of September 2015, was in fact substantially lower.

    The result is that the October Y/Y% change of 10.5%, and declining, is not only the lowest increase since April, but matches the level first reported in December 2013. In other words, contrary to the previous narrative suggesting construction spending was solid and supporting a growing economy, it has in fact been declining since June!

    And to think of the tons of digital ink spent by “strategists” and experts analyzing construction spending “data” in the past 5 years…

    Sarcasm aside, what this exercise proves – which is clearly meant to lower the goalseeked glideslope of the US economy and make it easier to enter recession – is what many have already said, namely that Yellen clearly missed her window to hike rates with the economy now clearly slowing down, and instead of tightening monetary conditions, Yellen should be easing and preparing to lower rates.

    To be sure, this is not the first time the US government has slashed historical data on a wholesale basis due to “revisions” and “errors” – recall our post from December 2014 “The Housing Recovery Remains Cancelled Due To 6 Months Of Downward Revisions” in which we showed how 6 months of New Home Sales were quietly revised materially and, of course, to the downside.

     

    And since as noted above, this data feeds straight into the GDP “beancounts”, we expect substantial downward revisions of recent historical GDP data, which will once again confirm Yellen’s rate hike error.

    Finally, we now await for even more government data (perhaps payrolls is next) to “unexpectedly” be shown as having substantial historical errors, and be revised, like in the cases above, materially to the downside because it will look silly if the US economy jumps from growth straight into recession with existing “data sets” which reveal that the bulk of what passes for “data” at the US government is simply double and triple-seasonally adjusted GIGO.

  • Late-Day Buying Panic Saves Stocks From Worst Start To January In 84 Years

    Santa Rally…?

     

    An ugly day… just as we predicted

     

    The bloodbath started in China, which was halted early on circuit breakers…

     

    Europe was ugly…

     

    And that dragged US Futures lower, which were not helped by weak manufacturing data, weak construction data, and not helped by overly confident Fed speakers, but shortly before the EU close a hug eblock sucked up all ther liquidity in futures and stalled the selloff. We rallied back to VWAP around 1995 in S&P then faded…

     

    The machines did their best at 1101ET to stall the weakness, which ramped to VWAP before institutional selling started…

     

    Cash indices saw Dow break to a 16,000 handle, S&P under 2,000, and Nasdaq under 5,000…before a late-dat $2-3bn MOC buy order out of nowhere lifted everything…

     

    The moment 330ET hit, VIX was slammed (via rampant buying XIV – inverse VIX ETF) and S&P pumped back above 2000

     

    Financials were worst, Energy best…

     

    FANTAsy stocks all plunged with Tesla and Amazon worst…

     

    But Apple managed to ramp back to green briefly as we supposed its ubiquitous buyback prgram stepped in…

     

    US equities dropped to 3-month lows, catching down to high yield bonds' weakness once again – just as they did in August…

     

    Financials tumbled to 3-month lows, catching down to the yield curve collapse just as they did in August…

     

    Treasury yields dropped all morning but as Europe closed, sellers moved in lifting yields and reducing sme of the early flatness…

     

    The US Dollar index rose on the day against the majors (as European buying beat Asia selling)…

     

    And Asian FX tumbled to fresh 6 year lows against the USD…

     

    Commodities were a mixed bag. Despite USD strengtrh, Gold surged over 1% buit silver was stalled when US growth was questioned and sent crude tumbling…

     

    Crude ended the day lower as record gluts and weak growth trumped any war premium fears…

     

    Charts: Bloomberg

    Bonus Chart:  Just as we warned last week, we have seen this pattern of global pass the illiquidity hot potato contagion before…

     

     

    Bonus Bonus Chart: You know it's a bad day when…

  • Are Governments Running Out of Candy?

    Submitted by Jeff Thomas via InternationalMan.com,

    By now, many readers will have seen the popular American YouTube video by Mark Dice in which he stands on a city sidewalk and offers passers-by a free gift. They may choose between a 10-ounce silver bar or a large Hershey’s candy bar.

    Each taker chooses the candy – most of them with no deliberation. The only taker who seems to hesitate at all soon decides on the candy, as “I don’t have any way to do anything with the silver.” (Behind them is a coin shop. Mister Dice offers to take the silver bar inside if she wishes, but she’s uninterested and takes the candy.)

    A 10-ounce silver bar is presently valued at about $140, the Hershey’s bar at about $2.

    Mister Dice doesn’t comment in the video as to what lesson might be learned from this, but an obvious one would be that Americans (or at least those who reside in his home town of San Diego, California) are prone to prefer instant gratification over something of substantially greater, but delayed value.

    If this is his intent, he’s succeeded well in his light-hearted, but instructive video.

    Since the 1950’s, much of the world has perceived Americans as being on “Easy Street,” and in recent decades, the U.S. government has fuelled American complacency through a consciousness of easy money and entitlement.

    And so, Americans are often perceived by those outside the U.S. as being somewhat insulated, spoiled, naïve, and short-sighted. But, if this is true, Americans certainly aren’t alone. Much the same exists in Europe, Canada, and quite a few other countries that have, over recent decades, followed the American socio-economic model.

    Trouble is, all that easy money and entitlement exists only as long as a source for the “freebies” exists. Unfortunately, the idea that freebies are free is inaccurate. Freebies of any description must be paid for by someone.

    In business, freebies are sometimes provided as “loss-leaders” to attract more business. They therefore become a line item on the monthly balance sheet, a cost-of-doing-business expense. The business hopes to make the loss back through sales generated by the loss-leader.

    But, when governments hand out freebies, no sales will be generated, so the loss will not be recovered. When governments hand out freebies, the cost is paid with tax revenues. And when taxes have been raised to the point that further increases would be difficult without inciting rebellion, governments generally rely on borrowing.

    But, of course, borrowing, too, eventually reaches the point that it has become so great that it cannot be repaid. What then?

    Invariably, economic collapse is the outcome. But, why should this be so? Well, when the tipping point is reached (as in jurisdictions like the EU and U.S., where more than 50% of the public are net recipients and the other 50% must pay for both themselves and the other 50%), there’s no turning back. Those who have been receiving the candy have been told that they’re entitled to it and now they believe it. They will not tolerate the suggestion that the freebies must end, even though no further tax can be reasonably levied; no further funds can be borrowed. Therefore, in every case, the result is systemic collapse, not a gradual tapering off.

    For thousands of years, governments have sought to appease people with freebies. In ancient Rome, a dole of grain and free entertainment (bread and circuses) helped to usher in the decline of the empire. Like all great empires, it collapsed under a weight of debt and mismanagement.

    Much of the world is presently at this tipping point. Governments continue to promise benefits that they know will soon come to an end. If history repeats, they will continue repeating this promise right up until the day when the candy stops being dished out.

    They will then say that no one could have seen this coming.

    Amongst the public who will be the victims, there will be three general groups.

    First will be the Takers, those who have been the recipients who depended upon the freebies the most. They will be the hardest hit, as not only will they lose the freebies, they will have neither the skills nor the imagination to become self-reliant overnight.

     

    The second group will be the Payers, those whose tax dollars paid for the freebies. They will be hard hit, as the system in which they live and operate has broken down, although they will fare better than the Takers. They will have the skills and imagination to rebuild their lives (having previously been productive enough to pay for themselves and others.)

     

    Third will be the Preparers, those who envisioned the inevitability of the collapse of the system. They most certainly will have the skills and imagination to rebuild their lives, but, additionally, they’ll have the means with which to rebuild quickly. They will be the very few who chose the silver bar over the candy and had the wisdom to store the silver in a jurisdiction where it was not likely to be appropriated by a dying empire.

    Much of the world is now running out of candy. The latest version of Bread and Circuses is reaching its inevitable end.

    Replaying the video, we observe Mister Dice offering chocolate or silver. Each Taker looks at him incredulously, then makes the obvious choice, the candy. Each of them gives him a smile. Each is pleased to walk away with the chocolate, but, likely as not, each will have consumed the bar before the day is out and the benefit of the freebie will be short-lived.

    After giving out eight bars, Mister Dice is all out of chocolate and he presumably goes home. He has no candy, but he does have 10 ounces of silver. Perhaps he owns other silver bars as well, stored in a safer jurisdiction.

    Each of us has the opportunity to make a choice as to whether we wish to be Takers, Payers, or Preparers. The choice we make may define our future.

  • For Kyle Bass This Is "The Greatest Investment Opportunity Right Now"

    Over the weekend, when citing from an excerpt of the latest Wall Street Week episode, we revealed what to Kyle Bass was the “best investment for the next 3-5 years”: the energy space. Bass added he was agnostic as to what subsector of energy one should invest in: whether it is infrastructure, pipelines, producers, upstream, downstream, he believes that there are places in the cap structure of each of these where once can put new capital and generate substantial returns. He also added that “the energy rebound, when it happens, will be comparable to the housing rebound post 2009.”

    Coming from the guy who correctly predicted the collapse of housing going into 2009, one should take his prediction seriously, even though as Bass himself admitted, he was early to this trade which led to “one of the worst years in the last ten” for his Hayman Capital. Judging by today’s very modest reaction in the price of oil to a dramatic escalation in the Middle East, the market will need a far more dramatic reduction in supply before it agrees with Bass’ thesis.

    But what about the shorter-term for those who don’t have a 3-5 year investment horizon? Bass discussed that after a question by Gary Kaminsky asking the Texas hedge fund manager “when you look at opportunities as an investor right now, what’s the greatest opportunity?”

    His response:

    “Given our views on credit contraction in Asia, and in China in particular, let’s say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there’s one thing that is going to happen: China is going to have to dramatically devalue its currency.”

    He is quick to note that this is not a trade for everyone: “it’s very tough to invest as a non-professional” very much the way buying CDS on subprme MBS was a trade only for a select few. That said, the trade – which we agree with thoroughly, and have repeatedly said that China has to devalue further, in fact we predicted China’s devaluation just three days before it happened – makes a lot of sense. Bass continues:

    “China many years ago attached its currency to the dollar: they hitched their wagon to our star very smartly because back then our goal was to depreciate our dollar through inflation. So we issued debt to the rest of the world to depreciate the dollar. And so now the real problem is China has hitched their wagon to our star, and their currency has effectively appreciated about 60% versus the rest of the world since 2005 and it’s killing them… China’s effective exchange rate moving up versus the rest of the world made their goods and services a little bit more expensive each year and now that labor arbitrage is gone. And if that labor arbitrage is gone, and the banking system has expanded 400% in 7 years without a nonperforming loan cycle, my view is we are going to see a non-performing loan cycle.”

    We fully agree with this as well: incidentally, China’s NPL time, or “neutron” as we call it, bomb, has been extensively covered on this website in the past for the simple reason that while the official print here is about 1.5% of all bank loans are said to be “bad” or non-performing, the real number is likely around 20%, something which virtually guarantees a financial crisis in China at any given moment (more on that in a latter post). This is our summary on China’s NPL debacle:

    If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 20% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $3 trillion. That, as we suggested three weeks ago, may help to explain why round after round of liquidity injections (via RRR cuts, LTROs, and various short- and medium-term financing ops) haven’t done much to boost the credit impulse. In short, banks may be quietly soaking up the funds not to lend them out, but to plug a giant, $3 trillion, solvency shortfall.

    Incidentally, this is precisely what Bank of America just said overnight:

    When debt problem gets too severe, a country can only solve it by devaluation (via the export channel), inflation (to make local currency debt worth less in real terms), writeoff/re-cap or default. We judge that China’s debt situation has probably passed the point of no-return and it will be difficult to grow out of the problem, particularly if the growth continues to be driven by debt-fueled investment in a weak-demand environment. We consider the most likely forms of financial instability that China may experience will be a combination of RMB devaluation, debt write-off and banking sector re-cap and possibly high inflation. Given the sizeable and unstable shadow banking sector in China and the potential of capital flight, we also think the risk of a credit crunch developing in China is high. In our mind, the only uncertainty is timing and potential triggers of such instabilities.

    But back to Bass and his best trade idea – he conveniently even puts a time horizon:

    “We are not short Chinese equities, but we are very invested in the Chinese currency: we think we are going to see a pretty material devaluation; we think it’s going to be in the next 12-18 months.”

    Finally, judging by the ongoing collapse in the onshore and offshore Yuans overnight, which saw the currency tumble to fresh 5 year lows…

    … it may be far sooner, especially when considering what Macquarie Capital’s strategist Thierry Wizman said earlier today: “the big drop overnight reflects policymakers’ willingness to allow currency to account for weak data.” He expects the USDCNY to rise ~8% this year.

    The full Kyle Bass interview is below, and the part discussing the best investment opportunity begins 10:40 in.

  • This Just Became The Most Important Map In Geopolitics

    Earlier today, in “Mid-East Melee: Sectarian Showdown Looms As Bahrain Cuts Ties With Iran, UAE Recalls Ambassador,” we brought you the latest from the war-torn Mid-East where a worsening spat between Saudi Arabia and Iran threatens to plunge the region into chaos.

    Make no mistake, things were already out of control. The conflict in Syria has mushroomed into a global proxy war, Iraq is struggling to drive Islamic State from key cities, and Yemen remains mired in war nine months after the Saudis entered the fray to drive back the Houthis and restore the Hadi government.

    Against that backdrop, the region could have done without the events that unfolded over the weekend. By executing prominent Shiite cleric Nimr al-Nimr, Riyadh has infuriated the Shiite community which took to the streets in protest, even going so far as to firebomb the Saudi embassy in Tehran.

    In order to understand the upcoming sectarian strife and in order to fully grasp who belongs to Iran’s sphere of influence and who is loyal to the Saudis, one needs to have a working knowledge of what the Sunni-Shiite split looks like across the region. Because this is set to become the key geopolitical issue in the weeks and months ahead, we thought it an opportune time to present the following map from Goldman which does a nice job of delineating the sectarian split. Note the asterisks which indicate the affiliation of a country’s leadership.

    From Goldman

    Where are the main sectarian and ethnic divides in the Middle East today? Saudi Arabia and Iran, with their large respective Sunni and Shiite majorities, are generally viewed as two major opposing forces in the Middle East. They lie on opposite sides of an abstract and somewhat contentious demarcation known as the Shiite crescent, an area of Shiite influence stretching from Iran through southern Iraq and into parts of Syria and Lebanon. 

    The region’s geopolitical, religious, and sectarian relationships are in reality more dynamic and complex. The conflict in Syria continues to pit anti-government insurgents, including Sunni Islamists, against the Alawite (Shiite) government’s forces and Shiite militias supported by Iran. In Iraq, some Sunnis have felt increasingly disenfranchised under the Shiite-majority government in Baghdad (a relatively new development given Iraq’s long history of Sunni rule). The Islamic State (IS) militant group has exploited this sentiment, particularly in the Sunni-majority areas of northern Iraq. 

    How are the different branches of Islam represented in politics? In some countries, such as Saudi Arabia, the rulers adhere to the same branch of Islam as the majority of their citizens. However, this is not always the case. Despite being predominantly Shiite, Iraqis lived under Sunni rulers for much of history, including under the Ottoman Empire and the Ba’thist regime of Saddam Hussein. (Ba’thists are members of the Arab Socialist Ba’th Party, a political party founded in Syria in the 1940s on platforms of Arab nationalism and anti- colonialism. In Iraq, the Ba’thists governed from 1958 until the fall of Saddam Hussein in 2003.) The Iraqi Ba’thist regime was secular in name but reserved political influence for the Sunni elite. In a break from its long history of Sunni political dominance, Iraq is currently ruled by a Shiite-majority government centered in Baghdad. Conversely, in Sunni-majority Syria, members of the Shiite Alawite sect have controlled the government since 1970. 

    What is the composition of Sunnis and Shiites in the Muslim world today? Sunnis make up the majority of Muslims worldwide – an estimated 85-90%. Sunnis comprise 85% or more of the Muslim populations in Saudi Arabia, Qatar, Jordan, Syria, and the United Arab Emirates, and 70-85% in Kuwait, Pakistan, and Afghanistan. Shiites comprise the majority in Bahrain, Iraq, and Azerbaijan (all 60-65% Shiite), as well as in Iran (90-95%), home of the largest Shiite population. Although the Middle East and North Africa region is overwhelmingly Muslim (93%), it is home to only around 20% of Muslims worldwide. The majority – over 60% – lives in the Asia-Pacific region. 

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Jan 04

Today’s News 4th January 2016

  • China Halts Stock Trading For Day After Entire Market Crashes

    Following the initial halt in CSI-300 Futures at the 5% limit down level, the afternoon session opened to more carnage and amid the worst 'first day of the year' in at least 15 years, Chinese stocks collapsed further to a 7% crash. At 1334 local time, stock trading was halted for the rest of the day across all exchanges (at least two hours early).

    As Bloomberg reports,

    Chinese stock trading was halted for the rest of the day after the CSI 300 Index plunged more than 7 percent.

     

    Trading of shares and index futures was halted from about 1:34 p.m. local time, according to data compiled by Bloomberg.

     

    Stocks fell as manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders.

     

    Under the mechanism which only became effective Monday, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent close the market for the rest of the day. The CSI 300 of companies listed in Shanghai and Shenzhen fell as much as 7.02 percent before trading was suspended.

    Not a happy new year…

     

    Dow futures are now down over 150 points from NYE close, Gold and Treasuries are bid, and offshore Yuan has plunged most since the August devaluation.

  • Murphy’s Law of Gold Analysis, Report 3 Jan

    by Keith Weiner

     

    Perhaps it may be lesser known than his other Laws, but Murphy wrote one for the basis analysis. It goes like this. If we observe that the fundamental price of a metal is far removed from the market price, the two won’t likely converge the next week. On the other hand, suppose we say this (as we did last week):

    “The Monetary Metals fundamental price is measuring just that, the fundamentals. As with stocks or any other asset, our centrally banked, government-distorted markets can experience price volatility and even prices that deviate from the fundamentals for a long period of time. Just because we have been calculating a fundamental price for gold that is well over a hundred bucks above the market price, does not mean that the market price has to spike up $100 tomorrow morning. It might—and we certainly would not short gold when the market is in such a state. But as the market has proven since August, it might remain depressed for quite a while.”

    Then something is bound to happen the next week.

    No, the price of gold did not shoot up to approach our published fundamental. The gold-silver ratio promptly moved up +2.3%. As readers will recall, we have been calling for a ratio value over 80 for a while.

    Read on for the only true look at the fundamentals of gold and silver…

    But first, here’s the graph of the metals’ prices.

                  The Prices of Gold and Silver
    Prices

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

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

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

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

    Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio jumped up this week. 

    The Ratio of the Gold Price to the Silver Price
    ratio

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

    Here is the gold graph.

                  The Gold Basis and Cobasis and the Dollar Price
    gold

    The cobasis (i.e. scarcity of gold) rose more than the dollar (which is the inverse of the price of gold). In other words, the gold price fell a few bucks but the metal became more scarce. By the way, the above graph had to be rescaled to make the higher cobasis fit. The move in the cobasis would appear larger on the scale used last week.

    Not only is the Feb contract backwardated, but so is Apr. As long speculators are selling Feb to buy Apr, the latter backwardation is more notable.

    The fundamental price jumped up this week, with most of the action on Wednesday.

    Now let’s look at silver.

    The Silver Basis and Cobasis and the Dollar Price
    silver

    The price of the dollar in silver terms moved up considerably more than the price in gold terms. Conventional analysis would say that silver fell 52 cents, but we reject that view. The dollar is not the economic constant.

    While the scarcity of silver rose a bit in response, it didn’t rise that much. The May silver contract is nowhere near backwardated.

    Unfortunately for silver bugs, the fundamental price for silver fell 25 cents this week. This puts it above the market price, but not by a large margin.

    It also means the fundamental price of the gold-silver ratio went up. We are almost embarrassed to say what it is now. Suffice to say, quite a lot higher than the market ratio of 76.7, as of Thursday…

     

    © 2016 Monetary Metals

  • Dow Futures Dump 300 Points From New Year's Eve Highs As China Crashes

    With China closing the morning session limit down, US equity futures are extending their losses (even though crude futures are holding some of their gains). The initial knee-jerk jump as crude rose on Saudi tensions has been entirely erased and Dow Futures are now down 300 points from New Year’s Eve highs… Happy New Year.

    China closed the morning session “not off the lows” with a bloodbath in ChiNext and Shenzhen…

     

    With Offshore Yuan crashing over 440 pips – the most since the August deval…

     

    And US futures are tumbling…

     

    But bonds and bullion are bid…

  • Puerto Rico Is Greece, & These 5 States Are Next To Go

    As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning… and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.

    Wilbur Ross discusses Puerto Rico's debt struggles and where it goes from here…

     

    But, as JPMorgan details, Muni risk is on the rise for US states, but broad generalizations do not apply (in other words, these five states are 'screwed')…

    The direct indebtedness of US states (excluding revenue bonds) is $500 billion.  However, bonds are just one part of the picture: states have another trillion in future obligations related to pension and retiree healthcare.  In the summer of 2014, we conducted a deep-dive analysis of US states, incorporating bonds, pension obligations and retiree healthcare obligations.  After reviewing over 300 Comprehensive Annual Financial Reports from different states, we pulled together an assessment of each state’s total debt service relative to its tax collections, incorporating the need to pay down underfunded pension and retiree healthcare obligations. 

    While there are five states with significant challenges (Illinois, Connecticut, Hawaii, New Jersey, and Kentucky) , the majority of states have debt service-to-revenue ratios that are more manageable.

    As a brief summary, we computed the ratio of debt, pension and retiree healthcare payments to state revenues.  The blue bars show what states are currently paying.  The orange bars show this ratio assuming that states pay what they owe on a full-accrual basis, assuming a 30-year term for amortizing unfunded pension and retiree healthcare obligations, and assuming a 6% return on pension plan assets.  States below the green bar are spending less than 15% of total revenues on debt, which seems manageable from an economic and political perspective.  When this ratio rises above 15%, harder discussions in the state legislature about difficult choices begin.  

     

     

    It would take a long time for underfunded pension plans (e.g., 60% funded) to run out of cash, given the long duration of plan liabilities.  But as investors learned in Puerto Rico and Greece, bond markets can drift along unconcerned with mounting fundamental problems, only to experience a rapid repricing at times that cannot be predicted.  As a reminder, this analysis applies to states and not to city, county and other in-state issuers.

  • Oregon Standoff: A Terrible Plan That We Might Be Stuck With

    Submitted by Brandon Smith via Alt-Market.com,

    Well, there is whole host of things wrong with this situation, which is why I never supported or endorsed "Operation Hammond Freedom" to begin with.  There is a lot of misinformation out there at this time on the debacle in Oregon, and certain alternative media outlets seem to be conveniently overlooking particular facts.  I suspect that some people in the movement simply want to "kick it off" (a second American revolution), and they don't care if the circumstances of that kick-off are favorable or terrible (I realize "favorable" is relative, but starting this fight from a much stronger position is more than possible).  This attitude was prevalent among some at Bundy Ranch, as certain groups refused to dig in positions for a real fight in the hopes that they would be "martyred" for the cause.  This, in case you were wondering, is idiotic.

    Oath Keepers including founder Stewart Rhodes was the only organization to predict how Ammon Bundy's vague calls for action on the part of the Hammond Family would actually play out.  They received a lot of ignorant attacks in response, and yet, they were absolutely right.

    Ammon, apparently trying to recreate what cannot be recreated, is looking for another Bundy Ranch stand-off.  First, I would point out that such events can't be artificially fabricated.  They have to happen in an organic way.  Whenever a group of people attempt to engineer a revolutionary moment, even if their underlying motivations are righteous, it usually ends up kicking them in the ass (Fort Sumter is a good example).  Ammon's wingmen appear to be Blaine Cooper aka Stanley Blaine Hicks (a convicted felon), and Ryan Payne (who claimed falsely during the Bundy Ranch standoff that he was an Army Ranger and who worked diligently to cause divisions between involved parties on the ground).  This was the first sign that nothing good was going to come from the Hammond protest.

    I have watched extensive video from the event in Oregon and am privy to accounts from participants.  From the information at my disposal, it would appear that Ammon and team did NOT make clear their intentions to occupy the federal wildlife refuge building except to a select few, inviting protesters to "take a hard stand" without revealing what this would entail until they were already in the middle of it all.  OPSEC?  No, I think not.  Obviously the goal was to lure as many protesters to Oregon as possible to the event in the hopes that they would jump on board with the stand-off plan once they were more personally involved.  Numerous protesters were rightly enraged once they discovered the ultimate motives behind the event.

    The plan is basically this – use the Hammond family as a vehicle (yes, this is what is being done) even though they did not want any kind of standoff to result and specifically refused aid.  Occupy federally owned buildings which have little to do with anything of importance and have no symbolic power as did Bundy Ranch.  Elicit federal response.  Wash, rinse, repeat.

    Bundy Ranch had many positive elements going for it, which is why it ended the way it did.  This standoff has none of the same elements.  I suppose one could ask, though, why do I care?

    It's true, these people have every right to make positively naive strategic errors and I don't have to participate directly if I don't like it.  The problem, however, is that Ammon and friends have decided they want to be the "tip of the spear" (his words, not mine).  I do not think they understand what this means, or they don't care.  What it means is, even though I think the entire Oregon plan is ill conceived; literally the WORST possible way to launch a fight against federal corruption, if the federal government moves in a heavy handed manner to kill these people, I and many others will have to fight as well by default when a FAR better tactical and social position could have been achieved.  My conscience simply will not allow the rationalization of the deaths of liberty minded people even if their stupidity brought about the circumstances.  And frankly, that pisses me off.

    As a student of asymmetrics, I understand that choosing the time, place and circumstances is 95% of the battle ahead against an advanced opponent.  More organization is needed.  More preparedness.  More training.  More public awareness.  The Oregon standoff could steal away what little time we had left.

    The Oregon standoff potentially forces the hand of the Liberty Movement, not the hand of corrupt government – the exact reverse of what should be happening.

    Mike Vanderboegh has outlined similar thoughts expertly in this article.  Everything he has written is exactly what was going through my own mind when I heard of the happenings in Oregon.  Ammon Bundy and companions are not the tip of the spear.  Not even close.  What I do fear is that they are cannon fodder beckoning a nationwide government crackdown to which I and others will then be forced to personally respond to with equal f*cking measure.  And all of this on the worst possible terms and at a very inconvenient time (executive actions on gun control mere weeks from now).

    And here's the best part; those of us who remain critical of the clinically retarded maneuver being executed here are going to be called cowards and "keyboard warriors"; it's a given.  We are all ready to fight for the future of this country, we have been training diligently for it and helping many others along the way.  But, because we do not support two dimensional planning there are those that will say – "Now we find out who the real patriots are!"

    Against stupid plan = coward against freedom and action.  Just watch.

    If the Feds use brutality to handle the Oregon conflict, it will indeed "kick-off".  There wont be any way to stop it.  Just don't get too excited, folks.  This is no Lexington or Concord.  I really don't know what to call it…

  • 2016 Off To A Miserable Start: Asian Stocks Drop; Futures Slide After China PMI Tumbles On Dire Commentary

    Earlier in the session, after the surge in oil prices on fears of a spike in belligerence between Saudi Arabia and Iran, bulls were hopeful that after a poor close to 2015, at least the first trading day of 2016 would set a positive mood: after all, if there is one thing war is good for, it is to lift stock markets. And it did… for about 3 hours.

    Then moments ago, Caixin Media and Markit Economics released China’s December manufacturing purchasing managers’ index.  It was a doozy, falling to 48.2 from 48.6 in November, well below the 48.9 consensus estimate and even lower than the 49.6 printed a year ago, its tenth consecutive month in contraction territory and the lowest reading since September 2015.

    The trend is clearly not one's friend, especially if one is part of Beijing's political oligarchy.

    As the report noted, there was a renewed contraction of output, with total new work continuing to fall, while new export work declines for first time in three months; finally, companies continued to shed staff as the greatest threat facing China, a massive labor revolt, continues to slowly simmer.

    The details were quite frankly, stunning, in their negativity: as if Markit wanted to paint China's economy in the worst way possible:

    Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – registered below the neutral 50.0 value at 48.2 in December, down from 48.6 in the previous month. Business conditions have now worsened in each of the past 10 months. That said, the latest deterioration was modest overall.

     

    A renewed contraction of manufacturing output weighed on the headline index reading in December. Although the rate of reduction was modest overall, it was the seventh time in the past eight months that production has fallen, and contrasted with a stabilisation in November. Anecdotal evidence suggested that relatively weak market conditions and reduced client demand had prompted firms to cut output in the latest survey period.

     

    Indeed, total new business declined again in December, and at a similarly modest rate to those seen in the prior two months. Data suggested that softer domestic and international demand led to lower overall new work, with new export business also falling in December. Furthermore, this was the first time that new work from overseas had fallen since September.

     

    Lower output requirements underpinned a further fall in purchasing activity in December. Moreover, the rate of contraction quickened slightly since November and was marked overall. As a result, stocks of inputs also declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.

     

    Manufacturing companies continued to cut their payroll numbers at the end of 2015 and at a moderate rate. According to panellists, lower staff numbers were the result of company down-sizing policies and cost-saving initiatives. Fewer employees contributed to an accumulation of outstanding work in December, with the rate of growth quickening to an eight-month high.

     

    December data signalled a further fall in average cost burdens faced by Chinese manufacturers. Moreover, the rate of reduction eased only slightly since November and remained sharp overall. Panellists that reported decreased input costs widely attributed this to lower raw material prices. Manufacturers generally passed on their cost savings to clients in the form of lower selling prices, while some companies mentioned that greater market competition had led them to cut their tariffs.

    The summary from He Fan, Caixin's Chief Economist was downright dire:

    “The Caixin China General Manufacturing PMI for December is 48.2, down 0.4 points from the reading for November. This shows that  the forces driving an economic recovery have encountered obstacles and the economy is facing a greater risk of weakening. More fluctuations in global markets are expected now that the U.S. Federal Reserve has started raising interest rates. The government needs to pay more attention to external risk factors in the short term and fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff. It needs to simultaneously push forward the supply-side reform to release its potential and reap the benefits.”

    Here, again, is the key part: "The government needs to fine-tune macroeconomic policies accordingly so the economy does not fall off a cliff."

    But… 7% GDP.

    Incidentally, all this is happening as China's set the Yuan's fixing at 6.5032, another multi-year low for the currency as China's devaluation is accelerating with every passing day.

     

    Furthermore, offshore Yuan is collapsing… breaking above 6.6100…

    As a result, algos quickly got the hint that nothing has changed from the deteriorating trends of late 2015, and promptly applied that pattern to the E-mini, which after optimistically rising as high as 2043, has since dropped 11 points and was trading at the lows of the session, well in the red…

     

    … and following its favorite carry trade partner, the USDJPY, which has likewise dumped, below the key 120.00 support, and is currently trading at a 2-month low.

    Which reminds us of what Goldman said just on December 20: "we continue to expect $/JPY higher. We recommend being long $/JPY as part of our 2016 top trade recommendation (along with short EUR/$) and forecast $/JPY at 130 in 12 months."

    It really never fails.

    And speaking of things that are falling, it wasn't just US equity futures and the USDJPY. It was everything, with Asia largely down by 1% or more as of this writing:

    • MSCI AP Index -1.2% to 130.46; telecoms services, IT fall most
    • MXAPJ Index -1.4%; S&P 500 Futures +0.2%
    • Nikkei 225 -1.1%; Topix -0.8%; yen +0.3% to 120.3/USD
    • Hang Seng Index -1.5%, HSCI -1.4%, HSCEI -1.6%; H.K.’s HSI falls most in 3 weeks.
    • ASX 200 -0.1%
    • Kospi -1.2%
    • Straits Times Index -1%
    • KLCI -0.7%
    • TWSE -2%
    • Philippines Composite -0.4%

    Finally, remember when "bad news was good news"? Well, as of this moment the Shanghai Composite is down -4% and sliding fast… and the broader CSI-300 is limit down 5%…

  • Trump Vs Hillary: The ISIS Perspective

    Presented with no comment…

     

     

    Source: Townhall.com

  • Nassim "Black Swan" Taleb On The Real Financial Risks Of 2016

    Authored by Nassim Nicholas Taleb, publish op-ed via The Wall Street Journal,

    Worry less about the banking system, but commodities, epidemics and climate volatility could be trouble

    How should we think about financial risks in 2016? 

    First, worry less about the banking system. Financial institutions today are less fragile than they were a few years ago. This isn’t because they got better at understanding risk (they didn’t) but because, since 2009, banks have been shedding their exposures to extreme events. Hedge funds, which are much more adept at risk-taking, now function as reinsurers of sorts. Because hedge-fund owners have skin in the game, they are less prone to hiding risks than are bankers. 

    This isn’t to say that the financial system has healed: Monetary policy made itself ineffective with low interest rates, which were seen as a cure rather than a transitory painkiller. Zero interest rates turn monetary policy into a massive weapon that has no ammunition. There’s no evidence that “zero” interest rates are better than, say, 2% or 3%, as the Federal Reserve may be realizing. 

    I worry about asset values that have swelled in response to easy money. Low interest rates invite speculation in assets such as junk bonds, real estate and emerging market securities. The effect of tightening in 1994 was disproportionately felt with Italian, Mexican and Thai securities. The rule is: Investments with micro-Ponzi attributes (i.e., a need to borrow to repay) will be hit. 

    Though “another Lehman Brothers” isn’t likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices. Dubai is more threatened by oil prices than Islamic State. Commodity people have been shouting, “We’ve hit bottom,” which leads me to believe that they still have inventory to liquidate. Long-term agricultural commodity prices might be threatened by improvement in the storage of solar energy, which could prompt some governments to cancel ethanol programs as a mandatory use of land for “clean” energy. 

    We also need to focus on risks in the physical world. Terrorism is a problem we’re managing, but epidemics such as Ebola are patently not. The most worrisome fact of 2015 was the reaction to the threat of Ebola, with the media confusing a multiplicative disease with an ordinary one and shaming people for overreacting. Cancer rates cannot quadruple from one month to the next; epidemics can. We are clearly unprepared to deal with such threats. 

    Finally, climate volatility will produce some nonlinear effects, and these will be compounded in our interconnected world, in which disruptions are more acute. The East Coast blackout of August 2003 was nothing compared with what may come.

  • The Movies Are Becoming Just Like The Markets: A Handful Of Blockbusters And Tons Of Losers

    Back in July we first revealed something troubling: leadership breadth was collapsing not just across the Nasdaq…

     

    … but the broader market as well:

     

    As the WSJ had calculated, out of a total of 500 stocks, just Amazon, Google, Apple, Facebook, Gilead and Walt Disney accounted for more than all of the $199 billion in market-capitalization gains in the S&P 500. In fact, as of July, just these six firms were responsible for more than half of the $664 billion in value added to the Nasdaq Composite Index as of July.

     

    Since then, the situation became more acute as the leadership thinned even further and as Goldman updated in November, only five firms – AMZN, GOOGL, MSFT, FB, and GE – totaling 9% of the equity cap of the index have accounted for more than 100% of the S&P 500 YTD return. Without these stocks the index would have posted a 220 bp lower total return or -2.2% YTD.

    Of course, in the end, not even the thinning leadership was enough to offset the market being dragged down to a negative print, its first since 2008.

    While all of the above should be well-known to regular readers, what may come as a surprise is that as go the markets, so go the movies.

    According to the WSJ, Hollywood just had its biggest-ever year at the box office in 2015, collecting $11.1 billion in ticket sales, up 7% from the previous year and surpassing the record of $10.92 billion set in 2013. All of the growth, however, occurred at the top of the heap, or in other words, 2015 was a record year “thanks to a handful of blockbusters that left a whole lot of duds in the dust.”

    ‘Jurassic World,’ left, was one of 2015’s blockbusters, Disney’s
    ‘Tomorrowland’ was among the year’s costly disappointments

    But the runaway success of “Star Wars: The Force Awakens” and “Jurassic World” raises questions about the overall health of the movie business. The problem: More films that don’t have the muscle to be megahits are struggling to attract any audience at all.

    What may be also little known is that for every megahit like Star Wars there were countless just as expensive flops:

    A startling number of big-budget movies bombed in 2015, proving that no amount of marketing can pull audiences into theaters at a time when Netflix queues are long and social media spreads word about a stinker in a heartbeat. The year’s costly disappointments included “Pan” and “Jupiter Ascending” from Time Warner Inc. ’s Warner Bros., “Fantastic Four” from 21st Century Fox ’s Twentieth Century Fox studio, Walt Disney Co. ’s “Tomorrowland,” and “Pixels” from Sony.

    It wasn’t just a question of marketing: in 2015 eight movies failed to gross even $10 million despite full-fledged advertising campaigns, a record in recent years. In the past, spending $20 million or more to promote a film almost always guaranteed a respectable performance, said Chris Aronson, president of domestic distribution for Fox. But “there is no bottom anymore,” he said.

    Another curious parallel: just like the middle class is disappearing in US society, so that staple of solidly profitable, if not blockbuster, 2nd tier movies is also on the extinction list: “worrisome to some in Hollywood is the disappearance of second-tier movies—those that aren’t blockbusters but are solidly profitable. Last year, 22 movies grossed between $100 million and $350 million domestically, down from 31 in 2014 and the fewest since 2006.”

    “Gigantic hits are actually becoming more common and the midsize hits are becoming rarer,” said Adam Goodman, a producer and former film group president of Viacom Inc.’s Paramount Pictures.

    In total, the WSJ calculates that the five most successful movies of 2015 grossed $2.47 billion, accounting for 22% of the year’s total box office. The previous high for the top five was $2.05 billion, or 19% of the overall take, in 2012.

    And here comes the punchline: for the other 129 films released nationally last year, the results were anything but impressive. They brought in a collective $8.65 billion, the lowest total for non-top-five movies since 2008, when ticket prices were 14% lower.

    In other words, just like in the stock market, a record high portion of Hollywood “gains”, or rather box office ticket sales, came from just five movies.

    How to explain this curious schism?

    Audiences have become “very binary” in their moviegoing choices, said Tom Rothman, chairman of Sony Pictures Entertainment’s motion picture business. “Either a film is relevant to them and penetrates the pop-cultural zeitgeist, in which case the upside is enormous, or it doesn’t rise to that level and they’re out altogether.”

     

    “Many younger people no longer feel compelled to go to the movies as an activity in general,” said Sony’s Mr. Rothman. “Instead, they go to see a particular movie.”

    One silver lining: overseas ticket sales, which rose an estimated 5% last year to $27.5 billion according to Rentrak, can help make up for losses at home. “Terminator: Genisys,” for instance, grossed $351 million internationally, compared with $90 million in the U.S. and Canada. But foreign box office more often exacerbates domestic trends. The top five domestic movies were all among the eight highest grossing internationally.

    Consider this the movies’ equivalent of the “least dirty shirt” phenomenon in markets where foreign capital flows enter the US “just because.”

    But what is most troubling for Hollywood is the evaporation of creativity and originality when it comes to box office success.

    As they have for a number of years, sequels and reboots continued to rule the box office last year. The only exceptions that made the top 10 were animated features, such as Pixar Animation Studios’ “Inside Out,” and Fox’s surprise hit adaptation of best-selling book “The Martian.”

     

    The trend toward sequels, reboots, computer-animated films and adaptations of comic books, toys or videogames is likely to accelerate in coming years as the major studios, increasingly focused on big-budget “event” movies they hope will become blockbuster hits, rely on formulas that have worked for them before.

    This trend toward mindless recreation of a successful formula which has worked while undergoing minor tweaks will continue:

    there were about 27 such films last year, and nearly 40 are scheduled for release this year and in 2017. Some of them are new installments of successful movie series like “X-Men” and “Fast and Furious” while others, such as “Wonder Woman” and “Ghostbusters” are attempts to create or refresh big-screen franchises.

    The appropriate market analogy? Since nothing else is working, take the one thing that still does work, namely parasitic frontrunning of order flow by HFTs and make it better, faster, more profitable: in short – change HFTs technology from microwaves to lasers.

    The only good news is that at least unlike the “market”, humans are at least still directly involved in the creation of movies. When algos start typing up movie scripts and participating in the obligatory sex scenes, that’s when Hollywood execs should quietly exit stage left.

  • Spot The Difference: Salafist Edition

    Earlier today, we highlighted comments from the Ayatollah who spoke out yesterday against the execution of prominent Shiite cleric Nimr al-Nimr.

    The Sheikh was killed by the Saudis for his role in anti-government protests during the Arab Spring. His execution sent shockwaves across the Shiite world as protesters took to the streets from Bahrain to Pakistan in a dramatic outpouring of grief and anger.

    On Saturday evening, protests in Tehran turned violent as Iranians firebombed and ransacked the Saudi embassy while police struggled to contain crowds near the consulate in Mashhad where the outcry continued on Sunday. Here’s an excerpt from a statement posted to the Ayatollah’s webpage:

    “Strongly criticizing the silence of the self-proclaimed advocates of freedom, democracy and human rights, and their support for the Saudi regime, who spills the blood of the innocent only for criticism and protest, Ayatollah Khamenei said: “The Muslim world and the entire world must feel responsible towards this issue. Those who honestly care for the future of humanity and the fate of human rights and justice must pursue these issues and should not remain indifferent vis-à-vis this situation.”

    This has become a familiar refrain of late. In short, it’s becoming difficult for the Western world to obscure the fact that the poisonous ideology espoused by the Saudis is virtually identical to that promoted and promulgated by ISIS, al-Qaeda, and many other Sunni extremist groups that the world at large generally identifies with terrorism.

    As Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” put it in an op-ed for The New York Times, Saudi Arabia is simply “an ISIS that made it.” On that note, we present a passage from Daoud’s article followed by an image posted by the Ayatollah on Saturday.

    Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on.

    And for good measure:

  • Unmanageable Money: Hedge Funds Keep Losing (And Closing) – Why It Matters

    Submitted by John Rubino via DollarCollapse.com,

    How do you make money in a world where history is meaningless? The answer, for a growing number of big fund managers, is that you don’t.

    Hedge funds, generally the most aggressive species of money manager, do a lot of “black box” trading in which bets are placed on previously-identified patterns and relationships on the assumption that those patterns will repeat in the future.

    But with governments randomly buying stocks and bonds and bailing out/subsidizing everything is sight, old relationships are distorted and strategies that worked in the past begin to fail, as do the money managers who rely on them. A few recent examples:

    Whitebox Closes Its Mutual Funds Ahead Of January Liquidation

     

    (Value Walk) – Ending its foray into mutual funds, Whitebox Advisors LLC, said it has shuttered all three of its three mutual funds after poor results. According to Amara Kaiyalethe, a spokeswoman, the three mutual funds, which collectively held over $300 million, were closed on December 17th, and will be liquidated January 19th. She said the decision to close the mutual funds was related to performance and the concentration risk investors that remained in the funds faced as redemptions accelerated.

     

    The Whitebox Tactical Opportunities Fund is the biggest among the three mutual funds, which less than two years ago managed over $1 billion, but tumbled by over 21% this year. The fund has suffered a rush of investors heading towards the exits. The fund managed about $240 million at the time it was closed.

     

    Hedge Fund Lutetium Plans to Liquidate, Return Investor Cash

     

    (Bloomberg) – Lutetium Capital LLC, a hedge-fund firm that invests in distressed securities, is liquidating its two credit funds and returning all of the money it was managing to investors by next month, according to co-founder Michael Carley.

     

    The Stamford, Connecticut-based business told investors it would liquidate the funds in a letter last week following redemption requests from some of its clients and losses, Carley said. Investors in Lutetium’s liquid alternatives product had wanted their money back and the firm decided to liquidate its hedge fund holdings as well, he said.

     

    “We returned capital to every one of our investors to treat all investors equally,” said Carley, the former co-head of distressed debt at UBS Group AG. The firm invested money from its liquid-alternatives fund and its hedge fund in the same debt securities, meaning that selling the holdings from one of the funds would likely push down the value of the assets in the other, Carley said.

     

    The firm’s funds lost 4 percent this year, Carley said. Hedge funds that invest in distressed debt globally have lost an average of nearly 6.8 percent this year, according to data compiled by Bloomberg.

     

    Bommer Is Returning Money From Hedge Fund SAB After 17 Years

     

    (Bloomberg) – Scott Bommer, founder of SAB Capital Management LP, is returning all client money from his hedge fund after 17 years so that he can focus on managing his own wealth.

     

    SAB Capital will return most money before mid January, Bommer said in an investor letter Tuesday, a copy of which was obtained by Bloomberg. The firm posted a 10.6 percent loss in the first eight months of the year in its SAB Overseas Fund, according to an investor document. Bommer started New York-based SAB Capital in 1998, and oversaw $1.1 billion as of the end of last year, according to a government filing.

     

    Hirsch to Close Hedge Fund Seneca After Almost 20 Years

     

    (Bloomberg) – Doug Hirsch, one of the founders of the Sohn Investment Conference, is returning money to clients from his hedge fund after almost 20 years.

     

    Seneca Capital Investments, which managed about $500 million, is returning most capital by today, according to a client letter obtained by Bloomberg. Seneca, which made wagers on corporate events such as mergers, spinoffs and restructurings, a strategy called event-driven, said it lost 6 percent this year in its domestic fund.

     

    The Year the Hedge-Fund Model Stalled on Main Street

     

    (Wall Street Journal) – More “liquid alternative” mutual funds closed in 2015 than in any year on record, according to research firm Morningstar Inc., as inflows dwindled and performance weakened.

     

    The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management—funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds.

     

    In all, 31 liquid-alternative funds have been closed this year, up from 22 a year earlier, according to Morningstar.

     

    The host of funds liquidated this year included strategies run by J.P. Morgan Asset Management and Guggenheim Partners LLC. The closed funds were a range of unconstrained bond funds; managed future funds, which bet on futures contracts in a number of markets; and equity funds that bet on stocks rising and falling.

     

    “You had so many funds that were launched in the last couple of years and hadn’t really been tested by market volatility and you’re starting to see the cracks in them,” said Jason Kephart, an analyst at Morningstar.

     

    Fund companies aggressively pitched liquid-alternative products, saying they could help protect investors from volatility and offer better returns.

     

    Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010. But the inflows have slowed as performance faltered this year.

     

    The average liquid-alternative fund was down 1.64% this year through the end of November, compared with losses of 0.38% for the average actively managed stock fund and 0.5% for the average actively managed bond fund. Just $85.1 million has flowed into liquid-alternative funds this year, down from $37.7 billion in 2014, according to Morningstar.

     

    The MainStay Marketfield Fund, managed by Michael Aronstein, exemplifies the sector’s struggles. Started in 2007, MainStay Marketfield rose quickly to become the largest liquid-alternative mutual fund, with $21.5 billion of assets at its peak in February 2014, according to Morningstar. But the fund has been hit by poor performance and heavy withdrawals since then. It had $2.9 billion in assets at the end of November.

    Why should regular people care about the travails of the leveraged speculating community? Because these guys are generally considered to be the finance world’s best and brightest, and if they can’t figure out what’s going on, no one can. And if no one can, then risky assets are no longer worth the attendant stress.

    In response, a system that had previously embraced leverage and “alternative” asset classes will go risk-off in a heartbeat, and all those richly-priced growth stocks and trophy buildings and corporate bonds will find air pockets under their prices. And since pretty much everything else now depends on high asset prices, things will get ugly in the real world.

    A case can be made that such a contagion is already underway but is being hidden from Americans by the recent strength of the dollar. According to Deutsche Bank, when measured in dollars the rest off the world is now deeply in recession and falling fast.

    In other words, Main Street is vulnerable to leveraged trading algorithms and Brazilian bonds because it’s not just exotica that is overleveraged. Virtually all governments have to refinance trillions of short-term debt each year. Corporations have borrowed record amounts of money in this expansion (and wasted much of it on share buy-backs). Pension funds (the last remaining leg of the middle-class stool for millions of Americans) are grossly underfunded and will have to slash benefits if their portfolios decline from here.

    Risk-off, in short, is no longer just a temporary swing of the pendulum, guaranteed to reverse in a year or two. As amazing as this sounds, we’ve borrowed so much money that as hedge funds go, so goes the world.

  • "Now Is The Time To Stand Up": Armed Activists, Militiamen Seize Federal Wildlife Refuge Office In Oregon

    On Saturday, militants seized a remote government outpost following a protest by hundreds of angry citizens. 

    That could very easily be the opening line for a story about a Mid-East country beset by civil war. Instead, it’s a description of what happened in Oregon yesterday. 

    It all started back in 2001 when Dwight Hammond and his son Steven set fire to leased government land in what they said was an effort to beat back invasive plant species and – ironically – prevent wildfires. They set more fires in 2006 and were later convicted of arson. 

    (the elder Hammond)

    Both men served time in prison but a judge eventually determined that their sentences were too light and ordered them back to jail. 

    Some folks were displeased with the ruling and staged a protest that saw some 300 people march through Burns, a city of around 3,000. The procession made a stop by the Hammond residence and proceeded to make an appearance at the local sheriff’s office as well.

    “As marchers reached the courthouse, they tossed hundreds of pennies at the locked door. Their message: civilians were buying back their government,” AP recounts. “A few blocks away, Hammond and his wife, Susan, greeted marchers, who planted flower bouquets in the snow [after which they] sang some songs, Hammond said a few words, and the protesters marched back to their cars.”

    Enter Ammon Bundy.

    Ammon is the son of Nevada rancher Cliven Bundy who famously clashed with the government last year after his cattle were kidnapped by the Feds. Around 400 of Cliven’s cows were busy grazing on land Bundy said he owned when the Bureau of Land Managment began to round them up and ship them off to a bovine internment camp at Bunkerville. 

    The government says the cattle were grazing on public rangeland, which is legal as long as the owner pays a fee. Bundy allegedly racked up some $1 million in such fees and so, the government decided to seize the cows, which the Nevada Bureau of Land Management accused of “trespassing.”

    Evenutally, the cavalry arrived (literally) as cowboys rode in and broke the cows out of jail. No, really.

    Fast forward to November and Bundy’s son Ammon was busy trying to come up with a way to keep Dwight Hammond and his son from going back to jail. “Ammon Bundy met with Dwight Hammond and his wife in November, seeking a way to keep the elderly rancher from having to surrender for prison,” The Oregonian writes, adding that “the Hammonds professed through their attorneys that they had no interest in ignoring the order to report for prison.”

    But while the Hammonds have apparently come to terms with their fate, Bundy hasn’t and in a brazen move, he and an unspecified number of “outside militants” seized control of the Malheur Wildlife Refuge headquarters, which is a short drive from Burns (where the protest took place).

    The federal outpost fell to the militants without a fight presumably because it was deserted for the holidays. Here’s more from the Oregonian:

    “The facility has been the tool to do all the tyranny that has been placed upon the Hammonds,” Ammon Bundy said.

     

    “We’re planning on staying here for years, absolutely,” he added. “This is not a decision we’ve made at the last minute.”

     

    “The best possible outcome is that the ranchers that have been kicked out of the area, then they will come back and reclaim their land, and the wildlife refuge will be shut down forever and the federal government will relinquish such control,” he said. “What we’re doing is not rebellious. What we’re doing is in accordance with the Constitution, which is the supreme law of the land.” 

    “After the peaceful rally was completed today, a group of outside militants drove to the Malheur Wildlife Refuge, where they seized and occupied the refuge headquarters. A collective effort from multiple agencies is currently working on a solution. For the time being please stay away from that area. More information will be provided as it becomes available. Please maintain a peaceful and united front and allow us to work through this situation,” Harney County Sheriff Dave Ward said, in a statement. The elder Bundy weighed in as well, noting that the occuption isn’t “exactly what [he] thought should happen.” “But I didn’t know what to do,” he added. “You know, if the Hammonds wouldn’t stand, if the sheriff didn’t stand, then, you know, the people had to do something. And I guess this is what they did decide to do. I wasn’t in on that.”

    Ammon Bundy explained the rationale for the occupation as follows:

    Got that? This wildlife refuge office will become “a base place where patriots from all over the country will live and be housed.” Although from the looks of it, space is limited so reserve your spots now:

    The Guardian apparently stopped by the refuge for a visit:

    The occupation appears to have begun at about 2pm. Two hours later, the Guardian approached the refuge, which lies about 60 miles south of the town of Burns and is only accessible via a lakeside road slick with ice and banked with snow.

     

    There were no law enforcement agents visible in the area around the refuge. A man with a goatee beard and wraparound sunglasses stood guard, armed with an AR-15-style rifle, and refused entry to the federally owned facility.

     

    He declined to give his name or affiliation, citing “operational security”. He did confirm, however, that the men – several of whom were openly carrying assault weapons – would be camping on the site. “This public land belongs to ‘we the people’,” he said. “We’ll be here enjoying the snow and the scenery.”

    The Guardian was allowed to take a few photographs, and then it was strongly advised to leave the scene. Within hours, police had descended on the remote corner of Harney county, blocking roads and urging members of the public to stay away.

     

    Ammon Bundy, whose father became a folk hero among rightwing constitutionalists after his previous confrontation with federal authorities in Nevada, appeared to be a key figure.

     

    He called for other likeminded US citizens to travel to the refuge in solidarity and to support what he said would be a symbolic showdown between impoverished farmers and overzealous federal authorities.

     

    “We’re out here because the people have been abused long enough,” he said in a video interview posted on his Facebook page on Saturday night.

    It isn’t entirely clear how these “patriots” plan to last “years” in the small building without supplies but that’s probably irrelevant because it’s difficult to imagine the oppressors in Washington will let this go on for very long. On that note, we’ll close with two quotes, one from The Oregonian and one from US Army veteran Ryan Payne who is among the occupiers.

    From The Oregonian: “In phone interviews from inside the occupied building Saturday night, Ammon Bundy and his brother, Ryan Bundy, said they are not looking to hurt anyone. But they would not rule out violence if police tried to remove them, they said.”

     

    From Payne: “When local and federal authorities arrive whatever else is going to happen will happen”.

  • Why Silicon Valley May Be At "DEFCON 1" Status

    Authored by Mark St.Cyr,

    For anyone not familiar with the term “DEFCON 1” it’s a military term used to identify the most sever military condition in the U.S. The degrees of severity range from “5” being the least severe or, at general peaceful conditions, and “1” representing the threat of imminent nuclear war. As I look out and extrapolate many of the warning signs that have been showing their hands over 2015 when it comes to everything “Silicon Valley.” I can’t help but use this military descriptor as an overlay of what’s taking place there currently. For I truly believe as I’ve written and spoken over these last 5 years – things are really about to hit the fan.

    Over the last 5 years in “The Valley” (meaning everything representing tech and disrupting) there has been no other land of opportunity that lived, created, self defined, along with redefined its business metrics than the tech world. Unicorns, Non-GAAP, IPO’s, and more were the terms bandied or used to encapsulate what it was to be a “disrupter.”

    Start a company (or idea) and make the rounds to get funded first – net profits are a trivial after thought. And for some they were an outright theory altogether. Then if you’re successful (i.e., you haven’t burned through all your start-up cash) turn your sagging or profitless business into a “We’re killing it!” fairy tale using Non-GAAP accounting. Once steps one and two are complete – IPO, cash out, and buy an island, yacht, McMansion, and more with the proceeds. Boom – done – next!!!

    Yes the example is over-simplistic – but it’s not far off the mark. This has pretty much been the meme and/or state of business prevalent within the Valley for quite some time. However, as I’ve stated during all of that time; without the intervention of the Fed’s QE (quantitative easing) free money enabling risk taking to supersede business fundamentals to fund and fuel speculative investments in ways that mirror the dot-com days: there would be no “Valley” as it currently stands.

    The amount of wasteful over investment on companies and ideas that should have never seen the light of a ledger book, let alone day, has been astounding. Billions upon Billions upon Billions (I could go on a billion more times) of $Dollars thrown at companies like it were water has been literally breathtaking. Need I remind you of WhatsApp™?

    The only thing that challenged this sensation was the jaw-dropping rationales by nearly everyone involved in how, or why, it all made sense. And I mean everyone from the founders, investors, right down to the financial media et al. To say they’ve all been drinking the Kool-Aid® is being kind. Let me put a few things down for some context.

    Uber™ for all intents and purposes; is an app that let’s you hail a cab. Current valuation? $50+ BILLION dollars looking to finance another round bringing it up to over $60 BILLION. The reaction, analysis and commentary? “Absolutely! Sounds logical and reasonable. After all They’re killing it!” Fair enough. I’ll just ask you this:

    This business model and plan is worth more than 80% of all the companies listed in the S&P?

    I mean maybe its’ me for here I am, myself, a once lowly card-carrying taxi driver. Does this now mean I surpassed all those other kids in school who dreamed of rocket science, and engineering to gain the ability as to then work at a predominant innovator? e.g., Lockheed Martin™ or Dow™ or Merck™. Little did anyone know in 2015 driving a car, not a rocket or science was the way to hang out with the stars. For when it comes to “innovative companies” do the numbers now lie? Or tell half truths? See what I mean.

    This is just one of the myriad of examples currently contained within the “Unicorn” club for there’s still many more such as AirBnB™, Snapchat™, Dropbox™, Pintrest™ and over 100 others. Yet, there is another interesting data point that coincides with this currently heralded club.

    Of the current 130+ that fall into this category (a valuation of $1 Billion or more) 60 of those were created in 2015 alone. To my eyes – that’s a glaring problem. Why? Well, think of it this way:

    Nearly half of all the current unicorns that were/are praying, dreaming, and hoping for their day in the rainbow garden of IPO heaven with some big pay-out that was previously near-a-given when they gained their coveted title of recognition in 2015, are slowly waking up with a hangover from that Kool-Aid induced drunken stupor to a reality not based on the unicorn meme and metrics they were so drunk with. No: 2015 ended with a cold dose of reality with IPO letdowns, valuation markdowns, and a whole lot more putting many of these unicorn ambitions or dreams out to pasture. Some are now mulling around within an area that contains a building that ominously resembles a glue factory yet seem oblivious to the implications.

    Another metric (as in inescapable reality) that is going to work against everything which previously “The Valley” hasn’t needed to contend with is the overarching result or knock-on effect that had yet occurred when the “free money” (QE) spigot was turned off but, as a direct consequence, and in combination with the raising of interest rates, may in fact push a global rush headlong into the $Dollar sending it skyward, causing balance sheets of companies around the globe into a complete an utter tizzy.

    Some might think, “Oh, well that will only pertain if you’re a commodity company and such.” No, I’m sorry, it will influence far more sectors than just that. And the Valley is going to face this in ways just like many of the commodity producers have. A fact that for many have remained absolutely oblivious to.  Or better yet; behave just like many are viewing that building at the edge of the unicorn meadow. Content to mull around under the watchful gaze of another animal friendly face (e.g., that of a bull) that adorns the building’s facade never contemplating for a moment the implications of the business contained within is called Elmer’s™.

    If the $Dollar does indeed grow stronger from here it will add to the ever challenging issue of earnings reporting where revenue will take place front-and-center in a more pronounced way than ever before in the life of not only today’s Unicorn club – but the Valley as a whole.

    User growth, eyeballs for dollars, and all the other metrics that were spun in a vortex of idiotic reasoning’s and rationales will not only not help – they’ll hurt if not outright maim any investor confidence if it’s coupled with the all but inevitable “foreign exchange conversion.” i.e., Had it not been for the $Dollar we would have made money rather than losing it.

    Couple the $Dollar paradigm with another (now even more prevalent) “user growth was X coming in less than our projected Y” and you have a prescription for an investor revolt with a ticking time bomb laced with nuclear styled repercussions on your hands in my estimation. And that countdown clock has already started and is easily view-able as the first earnings season of 2016 is already making its presence known with an ever growing/worsening reporting of retailing metrics.

    However, the $Dollar issues don’t stop there. They will fall even harder on companies that make things and sell them around the world. And, more importantly – buy the ads to sell them with.

    Many advertisers will be hit with $Dollar issues to their own revenue sides of the ledger, and with that, all expenses will become more acute in their reasoning and rationale. And just like a company that needs to cut personnel to help bolster values. (i.e., send the Wall St. signal to buy, buy, buy) So to will ad expenditures fall into this same category. And with the holiday season now in the rear view mirror, just throwing money onto any and all platforms in a “hail Mary” fashion will no longer be expedient or allowed. And this will hit right at the heart of many of not only today’s Unicorns, but rather right at the bell-weathers such as Facebook™ and others.

    If this happens the fallout will not be contained within the Valley itself in my estimation. It will be a global, all out nuclear winter in the ad space. How severe, and long is the only question.

    So what does all this have to do with a comparison to something like a DEFCON 1 you maybe asking. Or, you might be thinking “That’s all a little hyperbolic” when talking about issues concerning Silicon Valley. Well, may be it is, yet, maybe it isn’t so far-fetched if you think about it using the following:

    Back in September of 2014 I penned the following article titled “The Shot Heard Round The Valley World.” At that time my viewpoint on the issues I saw facing Unicorns and IPO’s was anathema to anything emanating not only from the Valley itself, but across all of the financial media. In that article I made the following statements:

    “Problem is for a great many, they have never seen the real Jeckyll and Hyde personality of “investor funding.”

     

    “IPO is not going to have the same term of endearment it now has. I believe it will turn into the last and most dreaded three-letter acronym no one ever imagined in Silicon Valley.”

    There was more but, it was all predicated or inspired by tweet-storm unleashed at that time when Marc Andreessen ended his viewpoint about conditions within the space with the word “WORRY” too which I agreed was spot on. The resulting backlash to his argument took on rebuttals more in line with condescension rather than informed push-back in my opinion. And that viewpoint resumed with an attitude of retrenchment for much of 2015 rather, than viewing the unfolding reality objectively.

    Yet, if I were to classify that period using the headline induced classification we were then at DEFCON 5. Over the subsequent 12 months we have moved progressively up the scale passing 4, and 3 jumping directly to 2 when the IPO’s of Square™ and Match™ showed the undeniable scary truth of the markets ending bewilderment of horns-over-hooves stampede to “get in-front of the IPO bandwagon.” But if that was “2” what causes a call of “1” you’re asking? Fair enough, for that happened just days ago.

    It’s been reported or at least rumored to be that Peter Thiel and/or others are trying to cash out of Palantir™ (a current member in the Unicorn club) without an IPO. They cite many reasons and rationales why this may be good, bad or indifferent and that’s fine. However, I’m just going to throw this in for your own contemplation:

    Do you think this argument, rational, or anything else resembling it would be taking place if we were still in a QE driven market circa mid 2014?

     

    Welcome to DEFCON 1 is how I’m viewing it. For just this change in mindset with all the implications it can unleash within the Valley itself is enough to compound the impending fear of an all out debacle off the horizon – and straight into one’s own back yard.

    And speaking of “back yard.” If anyone remembers, I also said not all that long ago you’ll know everything has changed when “I’m going to live in this shipping container till we IPO and then I’m going to get myself a McMansion!” looks more and more plausible that one might be looking at life as – living in a shipping container! This was in direct response to the current supposed craze of people opting to live out of metal storage containers in San Francisco as they pursued their IPO dreams.

    Now with iconic Silicon Valley impresarios such as Theil or others being reported that they may be looking for ways as to NOT IPO rather that too? Those shipping containers may morph far faster than anyone previously thought straight into indefinite fallout shelters rather, than the start-up kits many view them as. For a nuclear winter pertaining to the world of Unicorns may be as “1” is said to represent: imminent.

  • Meanwhile In Texas: Celebrating The New Open-Carry Gun Law

    As reported previously, in addition to celebrating the new year, starting January 1, Texans also celebrated a new open-carry gun law which took effect in the new year. Handgun license holders in Texas will now be allowed to carry their guns in visible holsters on their hip or shoulder.

    Previously, Texans wanting to carry a handgun had to obtain a concealed handgun license and conceal their weapon. With the new law, the more than 826,000 state license holders will be allowed to openly display their handguns in most public places.

    Proponents of the new open carry law say making guns more visible will deter mass shootings. The bill became law after a spirited debate.

    However, not everyone was in favor of the idea to discourage violence through demonstrating weapons: a majority of the state’s police chiefs opposed it.

    “The question is: Does it make sense and is it good judgment to have a bunch of people running around with guns visible? And I think the answer is: Absolutely not,” said Chief Art Acevedo of Austin.

    Others are for it: Perkins owns Dallas-based The Slow Bone, a barbecue spot, and Maple & Motor, which specializes in burgers. He says his weapon of choice is a Glock 43, and he frequently carries it in his front pocket. He doesn’t object to customers bringing concealed weapons into his restaurants.

    “Carrying a concealed weapon is all about eventualities — things that might happen, and protection in that case,” he says. “There’s a lot of cash in my business. I have employees too. Restaurants get robbed, businesses get robbed, and I have employees that I would like to protect.”

    “Carrying a gun outside, on your person where it’s visible, is at least an implied threat,” he says. “If deadly force is your final threat, you’re making it right away, visibly. … I just really don’t want that kind of threat feeling in either of the restaurants.”

    Even with the new state legislation, the number of people with handgun permits makes up only about 4 percent of Texas’ population of more than 27 million. Out of these, Perkins thinks the number of people who want to openly carry weapons is pretty small.

    Furthermore, private businesses are allowed to ban guns if they choose. In response, chains including Starbucks, Jack In The Box, Chili’s, Sonic and Chipotle have asked customers to leave weapons at home.

    If private businesses want to prevent people from bringing weapons inside, they are required by the law to display a sign with 1-inch block lettering. Separate signs are required for banning open carry and concealed carry. Perkins says he plans to put one up, but he doesn’t foresee it causing any issues. “I don’t think it’s going to be a problem for us,” Perkins says. “I don’t think we’re going to have confrontations.”

    Hopefully he is right and openly displayed weapons will indeed deter violence.

    In the meantime Texans should get accustomed to sights such as this one which over the coming weeks and months will become increasingly recurring.

  • Comcast, We Have a Problem

    By EconMatters

    The bigger news in the cable industry is that the U.S. Justice Department’s threat to block the purchase/merger of Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) did result in Comcast withdrawing its stock-swap proposal to acquire TWC in April, 2015. However, TWC soon afterwards entered into an agreement to be acquired by Charter Communications in May.

    The Charter’s deals totaling $67.1 billion for TWC and Bright House Networks is still under review by Federal Regulators. If approved, that merger would create the country’s second-largest cable operator, with about 24 million customers in 41 states, after Comcast.

    I personally think it is insane that anyone would even entertain the idea that a merger of any cable companies would be a good thing to consumers. On the surface, the cable industry is not entirely “consolidated”. Nonetheless, the fact is that almost all cable companies operate as de facto monopolies in the United States since frequently only one cable company offers cable service in a given community. Things have gotten worse as cable also has become one of the very few choices for residential Internet services.

    For example, in Houston, the fourth most populous city in the nation, Comcast has a virtual monopoly over residential cable services. Leveraging its cable TV monopoly, Comcast is also the more popular choice for Internet service within the city (cable modem is supposed to have better speed than phone lines). With this kind of dominance, would any business strive to “innovate” or “improve the quality of customer service?

    Comcast already had several widely reported customer service related scandals in 2014 and 2015 (there’s a whole section on Wikipedia). Since EconMatters is based in Houston, I will share some of my personal experience.

    Before Comcast, Houston market was served by TWC. Then TWC and Comcast did a swap in 2006 so Comcast is now serving Houston cable TV. Although both have horrible customer service, Comcast is even worse due to the increasing complexity of service tiers and “billable” items requiring much higher skilled employees.

    To sum it up, it seems a common cable industry practice to have a very cumbersome and “labor intensive” billing system coupled with poorly trained employees. EconMatters are made up of market analysts, so believe it when we say cable bills are hard to understand and reconcile. I almost think this is intentional so to kills two birds with one stone:

    1. Customers are less likely to call and dispute if they cannot make sense of a bill.
    2. Poorly trained employees not only serve as good “gatekeepers” to frustrate customers but also less likely to grant ‘disadvantageous” (to Comcast) adjustments regardless of the merit.

    Due to various factors (moving, homeowner association change, etc.) at one time or another within the past 12 months, I had to go through a few rounds with Comcast either to correct billing errors or to properly reflect prices agreed upon over the phone. “Onerous” does not even begin to describe the process.  

    First, Comcast makes you jump through hoops to get to a live person, and Comcast outsources part of the Customer Call Center to places like Jamaica (there’s a serious frustrating communication issue here). This live customer service person serves as a gatekeeper that can only handle routine issues from a script. So discussing non-routine issues over the phone is very time-consuming, repetitive and frustrating exercise. 

    And get this, Comcast does not give email confirmation of what was agreed upon over the phone. I encountered a situation where I was triple assured everything was fully documented in my account (Comcast rep even gave me a “confirmation number”) and nothing to worry about since everything was noted. However, I later found out the so-called “documentation” or note consists of one sentence “Customer called to discussed pay service package”, so with nothing to go back on, I ended up repeating the same process again. 

    It takes about two months for any billing adjustments to appear on your account, so by the time you realize the expected adjustment fails to appear (like I said, most of Comcast employees I’ve encountered are poorly trained), two months would have gone by. Because Comcast does not give email confirmation or document properly what’s agreed on over the phone, you need to repeat the same process of explaining and diligently monitoring your account. At this stage, most of the customers would have given up. 

    EconMatters does not like to give up anything without a fight. In my experience, it took up to six months and very long (up to 1.5 hours) five phone calls escalated to the manager level to resolve one of the more complicated billing issues. And because of several issues taking place one after the other, it has become almost a full-time job to call, reconcile and monitor monthly bills to ensure everything goes as expected. 

    In addition to billing, Comcast has serious technical issues as well.  I have made at least 5 trips to Comcast service centers swapping out cable boxes due to mal-function.  Then, I got charged almost $250 for the technician visit that did not solve any problem.  That ended up taking me 2 long phone calls and 3 months to get the credit back from Comcast.     

    This is where Comcast is penny wise, pound foolish. Yes, I can see how some brainy act at Comcast think they have a virtual monopoly and outsourcing customer service to Jamaica, saving employees training costs could be beneficial to the bottom line. What Comcast fails to see is that providing bad service in a service business means the days of the current business model are numbered. Brick and mortar companies such as Fidelity, Discover Card (NYSE: DFS), CitiCorp (NYSE: C), and TriEagle Energy are able to move with the latest consumer trend without sacrificing customer service. These companies understand customers should be the most important part of their business and a wide spread negative consumer response will be like a tsunami crushing the entire industry. 

    One thing for certain is that the core cable part of Comcast business is facing increasing downward pressure. It is no accident that 2015 is The year Wall Street Discovered Cord-Cutting. There’s a growing number of Americans either migrate to cheaper packages with fewer channel, watch shows via online services like Netflix (Nasdaq: NFLX), or drop cable altogether. This new cord-cutting consumer trend is killing the business model of an entire industry from cable providers to program producers. Disney (NYSE: DIS) sparked a panic sale of media stocks in August after revealing its ESPN sports network had lost subscribers and cutting its cable-TV outlook.

     

     

    For 2015, Comcast stock seems to have held up better than some other media stocks. However, this is mostly due to Comcast’s entertainment properties like Universal Pictures that had a banner year with three films — Minions, Furious 7, and Jurassic World — exceeding $1 billion in global box office. In addition, the company experienced record attendance at its theme parks. That being said, movie and theme park business is quite cyclical, and it’s unrealistic to expect Universal and theme parks to come through for Comcast year after year as they did in 2015. 

    Comcast only acquired Universal NBC in 2006, and most likely retain the legacy operation model and talents. It is likely, or even already happening, that Comcast brings its failing cable operation model into the entertainment part of the business. Bad management believing in bad business model will take down any company regardless how lucrative it is going.  

    I think the only part of Comcast business that may have some customer-retention power is in the Internet Service. But companies like Google already saw that void and started its Google Fiber business. With consumers moving towards cord-cutting, and the line expansion like Google Fiber and other players, it is only a matter of time the entire cable industry could become obsolete real quick.                   

  • Crude Oil Opens Above $38, Takes Out 1-Week Highs

    With hedge fund short positions near record highs and speculators at their least bullish in almost five years, oil prices have spurted higher in the early trading as the diplomatic gloves come off in The Middle East. Despite record levels of crude inventory around the world, WTI Crude is trading above $38, up over 3% from its $37.07 close on New Year's Eve. Algos ran the stops above last week's highs ($38.32) but for now prices are not as excited as many would have expected. Brent, for now, is outperforming and trade 45c rich to WTI.

    WTI tags last week's highs but is holding for now…

     

    Some context – back to the early December inventory build levels…

    '

     

    As expected, Brent is outperforming – now trading 45c above WTI…

     

    Hedge fund shorts near record highs may get hurt…

     

    But don't forget that while a "war premium" makes sense in the marginal production barrel sense, with inventories at their limits amid a record glut, unless this escalates even more, the physical demand/supply divergence remains vast…

    And of course, if oil prices are higher then US equity prices are higher because "lower oil prices are unequivocally good for America"… oh wait.

     

    Source: Bloomberg

  • Gail Tverberg: Something Has Got To Break

    Submitted by Adam Taggart via PeakProsperity.com,

    Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction.

    That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning: 

    The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then — and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.

     

    I think the thing that people don’t realize is how closely the growth in debt is tied to the growth in the economy. Even back many years ago we needed to add more debt as the economy attempted to grow, and what you would see very often back then was some country would add debt to fund a war. And if they were successful, maybe they would get some increment into the economy so that the debt made sense. And if they lost the war then somebody got their bonds written off. But what’s happened is that, as the cost of energy has gone up, especially since about the mid 70’s, the amount of debt required to find GDP growth has gone way, way up. And I think this is because it takes a given quantity of energy in terms of BTU’s or in terms of how far it can make a truck go — if it now costs a whole lot more to do that, we’re going to have to borrow a whole lot more money in order to make the whole system operate. We have a seen a spiraling of debt since the mid 70’s, and I think that’s very much related to the higher cost of energy since then.

     

    That only works for a while. You can dial up your debt growth for a while but then you discover that debt growth has a lot of adverse effects. And one of the big ones is that it tends to funnel money to the wealthier class and take money away from the poor members of society.

     

    I’m afraid what it means is that at some point there’s got to be a discontinuity. Something has got to break. 

    Click the play button below to listen to Chris' interview with Gail Tverberg (61m:03s):

     

  • Saudi Arabia "Doesn't Care" If White House Angered As US Urges 'Ally' To Ease Tensions

    Hours ago, in the latest sign that tensions between Riyadh and Tehran are set to spiral into a full blown diplomatic crisis of historic proportions, Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir announced that the kingdom has cut diplomatic ties with the Iranians. The Iran mission was ordered to leave Saudi Arabia within 48 hours.

    Al-Jubeir went on to accuse Iran of stoking sectarian violence in the region (a contention that represents the worst kind of hypocrisy) and suggested Riyadh may need to do more to counter the expansion of Iranian influence.  

    As we put it, this an exceptionally serious situation that could well mushroom into a direct conflict between the two countries which are already on opposite sides of multiple regional proxy wars.

    Washington is caught in the middle. Saudi Arabia and the US have a “special” relationship that neither side is keen on damaging while the Obama administration has been walking on egg shells vis-a-vis the Iranians in order to ensure that the “historic” nuclear accord doesn’t end up falling apart in Obama’s last year in The White House.

    On Sunday, Washington responded to Saudi Arabia’s decision to cut diplomatic ties with Iran by encouraging diplomatic engagement and calling for leaders throughout the region to take “affirmative steps” to reduce tensions, Reuters reports.

    “We’re aware of reports that the Kingdom of Saudi Arabia has ordered the closure of Iranian diplomatic missions in the Kingdom,” an Obama administration official said.

    “We believe that diplomatic engagement and direct conversations remain essential in working through differences and we will continue to urge leaders across the region to take affirmative steps to calm tensions.”

    Not to put too fine a point on it, but when it comes to sectarian tensions, the Saudis really don’t care what Washington thinks. Here’s the latest out of Riyadh:

    • SAUDI DIPLOMATS EVACUATED FROM IRAN AFTER EMBASSY ATTACK ARRIVE IN DUBAI ON WAY HOME-AL ARABIYA TV
    • SAUDI ARABIA DOES NOT CARE IF IT HAS ANGERED THE WHITE HOUSE, SOURCE FAMILIAR WITH SAUDI GOVERNMENT’S THINKING SAYS: RTRS
    • SAUDI ARABIA’S POSITION TOWARD IRAN IS ‘ENOUGH IS ENOUGH,‘ SOURCE  FAMILIAR WITH SAUDI GOVERNMENT’S THINKING SAYS: RTRS

    Make no mistake, this dispute is going to get far worse before it gets better which means the Obama administration will have to make a choice: stick with the Saudis in order to preserve the prevailing Mid-East order and ensure that the “special” relationship between Washington and Riyadh isn’t damaged, or finally take the plunge and side with the Iranians with whom the administration is desperate to establish a cordial relationship after years of mutual distrust and hostility.

    This also comes at a decidedly inopportune time as the White House weighs whether or not to impose a fresh set of sanctions on Tehran in response to the test-firing of a next generation surface-to-surface missile back in October. Now, any new sanctions will likely be viewed by the Iranians as a kind of underhanded way of supporting the Saudi position.

    Needless to say, all of this has implications for the mutliple regional proxy wars unfolding across the Mid-East.

    Finally, don’t forget that the Saudis are a major buyer of US arms and contributed mightily to a 35% increase in foreign arms sales in 2014.

  • The Looming Environmental Disaster In Missouri That Nobody Is Talking About

    Since we first highlighted the potential for a "catastrophic event" in Missouri three months ago, there has been little mainstream media coverage. However, as Claire Bernish via TheAntiMedia.org notes, residents near the smoldering fill have expressed increasing frustration with the quarreling agencies offering few answers for an increasing number of health issues, like asthma. For now, it’s startlingly apparent no one knows exactly what’s happening with the West Lake and Bridgeton Landfills – though the smoldering below the surface doesn’t cease and floodwaters continue to rise.

    What happens when radioactive byproduct from the Manhattan Project comes into contact with an “underground fire” at a landfill? Surprisingly, no one actually knows for sure; but residents of Bridgeton, Missouri, near the West Lake and Bridgeton Landfills — just northwest of the St. Louis International Airport — may find out sooner than they’d like.

     

    And that conundrum isn’t the only issue for the area. Contradicting reports from both the government and the landfill’s responsible parties, radioactive contamination is actively leaching into the surrounding populated area from the West Lake site — and likely has been for the past 42 years.

     

    In order to grasp this startling confluence of circumstances, it’s important to understand the history of these sites. Pertinent information either hasn’t been forthcoming or is muddied by disputes among the various government agencies and companies that should be held accountable for keeping area residents safe.

    *  *  *

    West Lake Landfill was placed on the National Priorities List in 1990, giving the Environmental Protection Agency regulatory authority through its designation as a Superfund site. However, the area wasn’t a planned radioactive waste storage site. Uranium processing residue leftover from the World War II-era Manhattan Project was originally dumped there, illegally, by a contractor for former uranium processing company and General Atomics affiliate, Cotter Corporation in 1973.

    Cotter, Republic Services subsidiaries Bridgeton Landfill LLC and Rock Road Industries LLC, as well as the U.S. Department of Energy are “potentially responsible parties” for West Lake under Superfund guidelines. Power company Exelon Corporation, which owned Cotter from 1974 until 2000, “agreed to retain certain financial obligations relating to environmental claims arising from past Cotter actions, including those at West Lake,” reported St. Louis Public Radio journalist, Véronique LaCapra, who has extensively covered this mess. Bridgeton Landfill falls under the regulatory control of the Missouri Department of Natural Resources (MDNR) and is owned and managed by Republic Services subsidiary, Bridgeton Landfill LLC.

    Unfortunately, though at least 100,000 tons of nuclear weapons-related residue made their way to West Lake, the exact physical boundaries marking the location of this radioactive waste remain unknown to this day. In fact, because of the ongoing subsurface “fire” at the Bridgeton Landfill, the EPA began conducting tests, which in March 2014 detected the presence of radioactive material further south than it expected — 100 feet inside the bounds of the Bridgeton fill. According to Senior Scholar at the Institute for Policy Studies in Washington, D.C., Robert Alvarez, in a 2013 report investigating the West Lake site:

    “Of significance is the fact that the largest estimated amount of thorium-230, a long-lived, highly radiotoxic element is present at West Lake — more than any other U.S. weapons storage or disposal site. Soil concentrations of radium-226 and thorium-230 are substantially greater than mill tailing waste. The waste residues from the Mallinckrodt [Chemical Works uranium processing] site were found to contain the largest concentration of thorium-230 from any single source in the United States and possibly the world. Thorium-230 concentrations were found to be some 25,000 times greater than its natural isotopic abundance. […]

     

    “Given these circumstances, the West Lake Landfill would violate all federal legal requirements, established over 30 years ago, for licensing of a radioactive waste disposal site.”

    Though the EPA promised results of testing to determine the physical extent of the makeshift nuclear disposal site would be reported by November or December, according to its site, those determinations won’t be available until early spring 2016. In the interim, a small brush fire near West Lake on October 24 prompted the EPA to order the responsible parties to implement a specific prevention work plan on December 9, due to concerns radiologically impacted material (RIM) — present in surrounding trees and vegetation — could catch fire and thus migrate from the area. In the Endangerment Determination section of the report, the EPA stated:

    “The actual release or threatened release of hazardous substances at and from the Site, if not addressed by implementing the [specified steps] in this Action Memorandum, may present an imminent and substantial endangerment to public health, or welfare, and the environment.”

    Later that month, torrential rains brought what is now being described as ongoing historic flooding to the area — and with it, yet another set of problems and controversy to West Lake Landfill and the people of Bridgeton and nearby Coldwater Creek.

    On Dec 30, a peer-reviewed study, published in the Journal for Environmental Radioactivity, disclosed a startling fact about West Lake: radiological contamination has, indeed, seeped outside the already vague boundaries of the site. According to the study:

    “Analysis of 287 soil, sediment, and house dust samples collected in a 200 km2 [77.2 mi2] zone in northern St. Louis County, Missouri, establish that offsite migration of radiological contaminants from Manhattan Project-era uranium processing wastes has occurred in this populated area.”

    In fact, nearly half the samples were found to have concentrations of Lead-210 above the acceptable limits established by the U.S. Department of Energy in managing the uranium plant in Fernald, Ohio, which stored the same Manhattan Project-era wastes. The samples “are consistent with water and radon gas releases” from landfill sites employed for storage of such legacy uranium. Alvarez, who wrote the previously-mentioned report in 2013 and who co-authored this study, stated in an interview Tuesday,

    “The stuff we’re talking about at West Lake is hotter than what you would find in a typical uranium mill tailings operation.”

    As the Nuclear Regulatory Commission has previously explained, West Lake Landfill emits radon gas because of the radium, thorium, uranium, and other radioactive substances in the decay series. This radon gas decays into Lead-210, a solid particulate — which is the substance the study investigated — once it drifts from the site. Because the Lead-210 detected in the samples “showed distinctive secular disequilibrium among uranium and its progeny indicative of uranium ore processing wastes” — in other words, distinguishable from naturally-occurring uranium — “this is strong evidence that the Lead-210 originated by decay of short-lived, fugitive radon gas that escaped the landfill.”

    As journalist Byron DeLear noted in the Examiner, “It’s important to recognize that the radon daughters, Lead-210, Polonium, Bismuth, etc., are what makes radon exposure the second leading cause of lung cancer.”

    Earlier this week, as rain inundated the area, several stills and videos uploaded to the West Lake Landfill Facebook page evidenced spontaneous, active runoff waterfalls flowing directly from areas designated radioactive, collecting in pools, traveling in drainage ditches to streams and creeks — and ultimately, pouring into the now epically-flooded Missouri River. “How could anyone make the argument that RIM is not leaving that site?” State Rep. Bill Otto asked rhetorically after viewing the footage. But EPA spokesperson, Angela Brees, did exactly that, saying — despite strikingly plain evidence to the contrary — the runoff rainwater “came from within the Bridgeton Landfill.”

    There is, of course, yet another aspect to this radioactive tangle: the ongoing subsurface fire at Bridgeton Landfill, West Lake’s all-too-immediate neighbor.

    ???

    Technically, what is occurring isn’t a typical fire with thick, black smoke and flames; rather, “it is a self-sustaining, high-temperature reaction that consumes waste underground, producing rapid ‘settlement’ of the landfill’s surface.”

    Bridgeton Landfill LLC alerted MDNR on Dec. 23, 2010, that it discovered high levels of carbon monoxide and hydrogen, low levels of methane, as well as elevated temperatures from several gas extraction wells in the area of the fill known as the south quarry — all indicators of a chemical reaction known as a “subsurface smoldering event” or “underground fire.”

    Todd Thalhammer, a landfill fire consultant with the state of Missouri, explained there are several characteristics to determine the presence of an ongoing subsurface fire, including underground temperatures in excess of 170°F and substantial settlement of the land in a short time period. At Bridgeton, an event Thalhammer described as both “catastrophic” and “preventable,”  temperatures have been recorded over 300°F, and Republic Services stated the hottest area of the fire is settling at a rate of two to three feet per month. Though it would be impossible to determine the exact cause of this fire, often, such events occur if oxygen manages to permeate below the surface should underground gases be vented too rapidly.

    Residents in Bridgeton and nearby Coldwater Creek noticed unusually strong fumes from the fill beginning in early spring 2012, for which MDNR began more frequent monitoring. Though unsafe levels of certain compounds are occasionally indicated, the Missouri Department of Health and Senior Services (DHSS) recommends “that during periods of objectionable odor, sensitive individuals should stay indoors as much as possible …”

    ???

    Of greater urgency for many, partly due to a number of unknowns, concerns the increasing likelihood the subsurface fire will reach and ignite the nuclear weapons-waste material.

    As of May 2013, Republic estimated the fire to be only 1,200 feet from the radioactive waste, but this contradicted Missouri Attorney General Chris Koster’s determination the same month that the distance measured just 1,000 feet. Of course, until the bounds of the radioactive waste are thoroughly mapped, it’s impossible to determine an accurate distance — but, as mentioned above, the EPA found evidence that waste extended 100 feet into the landfill, which would make that distance a mere 900 feet.

    In September, Koster released nine reports about the West Lake and Bridgeton maelstrom. In one of those reports, landfill fire expert Tony Sperling explained the subsurface fire had “unequivocally” gone beyond two gas interceptor wells designed to halt its progress, and with “the reaction moving closer to the North Quarry there exists only a very limited window to take further action to prevent [the underground fire] from once again escalating out of control and causing additional hardship on the community of Bridgeton.”

    Sperling inexplicably backed down from the emphatic statement in a deposition in October, but his original assertion certainly raised the level of concern. Republic continues to contest claims the fire isn’t contained within the south quarry, and says temperatures have stabilized in the so-called ‘neck’ area running between the landfill and the nuclear waste fill.

    All of this depends on the rate at which the underground reaction is advancing, which, unsurprisingly, is also an open question.

    ???

    In June 2013, the MDNR commissioned a report that found the fire had slowed its advancement from a rate of three feet per day to around one to two feet per day. Then, in March 2014, a spokesperson for Republic said the rate had slowed to a mere six inches per month, though MDNR did not corroborate, except to agree — based on the company’s temperature evaluation along with physical observations by Bridgeton Landfill — the subsurface fire had “slowed substantially.”

    However, Sperling’s report last month claimed drastically accelerated figures, stating the fire had spread north into the neck area of the site, while the reaction in the south quarry sped along at around 150 to 300 feet per month, or five to ten feet per day. If the smoldering reaction were to advance into the north quarry at a similar rate, “high temperatures from the reaction could conceivably reach [the radioactive waste area] in 3 to 6 months.” Sperling’s report came out in September.

    The EPA disputes all the findings in Koster’s reports, saying the agency “completely disagrees” and hasn’t found evidence to support claims the fire is nearing the radioactive fill at all.

    In order to better understand what would happen should the subsurface fire actually reach the radioactive waste, in 2014, Kansas City Region 7 EPA asked officials from the EPA in Cincinnati to review a report prepared by contractor Engineering Management Support, Inc. In March of that year, the Cincinnati EPA published its analysis, which agreed heat from the reaction would not make the waste more or less radioactive, nor would it explode on its own; however, due to possible unknown substances mixed with the radiological materials, the potential for explosion does exist.

    Second, in 2008, the EPA released its Record of Decision, which proposed a “cap” of clay, rock, and soil to constrain the weapons-waste to the West Lake site. Though capping hasn’t begun, it now appears such a cap would be adversely affected by heat generated from the subsurface reaction — thus cracking and releasing radon gas, steam, and radioactive dust.

    Further, the constant heat generation could increase pressure below the surface under the cap and force the release of radon gas — which, if only inspected once a year, could avoid detection for months. Also, should the fire continue consuming radioactive waste long-term, area residents would be exposed to unsafe levels of radon gas. Further still, liquid building up below the surface could evacuate radon gas and other radioactive contaminants into groundwater supply.

    ???

    Residents near the smoldering fill have expressed increasing frustration with the quarreling agencies offering few answers for an increasing number of health issues, like asthma. Meanwhile, a group of residents in Coldwater Creek, nearer the West Lake site, filed a class action lawsuit against Mallinckrodt, the original handler of the nuclear waste material, claiming there have been an astonishing 2,700 cancer cases clustered around the creek — including a number of rare cases of appendix cancer. Even fully testing the creek for radioactive materials will take years to complete.

    By its very nature, this incredibly complex and interwoven morass makes solutions difficult and laboriously slow in coming. Theoretical fixes that could apply to, say, containing radioactive materials to the West Lake site, might have negative consequences should the long-smoldering subsurface reaction come into play. Inaction in containing the subsurface fire, in the hope of definitively locating bounds of radioactive waste, have meant further advancement of that very fire in the meantime. With so many unknowns, St. Louis County issued an emergency plan in 2014 “to save lives in the event of a catastrophic event at the West Lake Landfill” — which, though well-intentioned, did nothing to calm nervous residents in the area.

    For now, it’s startlingly apparent no one knows exactly what’s happening with the West Lake and Bridgeton Landfills — though the smoldering below the surface doesn’t cease and floodwaters continue to rise.

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Jan 03

Today’s News 3rd January 2016

  • ISIS: The 'Enemy' The US Created, Armed, & Funded

    Submitted by Robert Fantina via TheAntiMedia.org,

    Out of nowhere, it seems, Daesh, also commonly referred to as ISIL or ISIS, spontaneously formed, a group that perverts aspects of Islam for its own violent ends, and threatens, we are told, all that the civilized world holds dear.

    The “war on terror,” governments inform their citizens, has a new front. And that front is Daesh.

    Let us not be too hasty. Things are not always what they appear. Daesh is well-financed, and that money must be coming from somewhere other than a ragtag band of malcontents. Daesh soldiers have advanced weaponry and sophisticated communications methods. They have tanks and Humvees. None of these can be obtained without significant funding. Though the source is quite illusive, there is some evidence that will lead to a trail.

    First, we must look at Daesh’s origins, and even that is not easily discernible. Writing for The Guardian in August 2014, Ali Khedery suggests:

    “Principally, Isis is the product of a genocide that continued unabated as the world stood back and watched. It is the illegitimate child born of pure hate and pure fear – the result of 200,000 murdered Syrians and of millions more displaced and divorced from their hopes and dreams. Isis’s rise is also a reminder of how Bashar al-Assad’s Machiavellian embrace of al-Qaida would come back to haunt him.

     

    Facing Assad’s army and intelligence services, Lebanon’s Hezbollah, Iraq’s Shia Islamist militias and their grand patron, Iran’s Revolutionary Guards, Syria’s initially peaceful protesters quickly became disenchanted, disillusioned and disenfranchised – and then radicalised and violently militant.”

    It is interesting that Mr. Khedery says that Assad’s “embrace of al-Qaida” came back to haunt him. It brings to mind a parallel situation in the United States. (Actually, there are many, but we will look at only one.)

    Examining the theories of the origins of Daesh

    In the early 1960s, when the U.S.-supported leadership of Iraq was becoming just a bit too big for its britches — at least in the United States’ view — in wanting to challenge Israel as a major player in the Middle East, the U.S. decided that its leader, Abdel Karim Kassem, had to go. Selecting a virulent anti-communist party to throw its support to, the U.S. worked closely with a young man named Saddam Hussein. We all know how well that ultimately worked out. The source of much, but not all, of the unrest in the Middle East today can be traced back to that U.S. decision.

    Other theories on the formation of Daesh are also worth considering. Yasmina Haifi, a senior employee of the Dutch Justice Ministry’s National Cyber Security Center, asserted that Daesh was created by Zionists seeking to give Islam a bad reputation. “ISIS has nothing to do with Islam. It’s part of a plan by Zionists who are deliberately trying to blacken Islam’s name,” she wrote on Twitter in August 2014.

    And finally, it has been more than suggested that Daesh “is made-in-the-USA, an instrument of terror designed to divide and conquer the oil-rich Middle East and to counter Iran’s growing influence in the region,” as Garikai Chengu, a research scholar at Harvard University, put it in September 2014.

    Yet if the United States’ role wasn’t that blatant, it certainly existed, according to Seumas Milne, a columnist and associate editor at The Guardian. He argued in a June opinion piece:

    “[T]he U.S. and its allies weren’t only supporting and arming an opposition they knew to be dominated by extreme sectarian groups; they were prepared to countenance the creation of some sort of ‘Islamic state’ – despite the ‘grave danger’ to Iraq’s unity – as a Sunni buffer to weaken Syria.”

    No matter how one looks at it, there are many possible causes that spawned Daesh. As we look at its funding sources, it may all become clearer.

    Funding and materiel, courtesy of Uncle Sam and his friends

    In Daesh’s role as opposing Syria (just one of its many roles) the terrorist outfit is believed to have received funding from Saudi Arabia, Kuwait, Qatar and the United Arab Emirates, as part of their opposition to the Assad regime.

    But it also generates its own income, having taken control of local businesses, taxing others, and selling oil. Among its customers, incredibly, is Syria. Since Daesh controls much of the oil-production infrastructure in the country, Syria has little choice but to purchase oil from the very group that seeks to overthrow its government.

    Reports also indicate that Israel is a main buyer of Daesh oil. The sale is not direct; oil is smuggled by Kurdish and Turkish smugglers, and then Turkish and Israeli negotiators determine the price. As a result of these oil sales, Daesh has annual revenues estimated at $500 million, according to data compiled by the U.S. Treasury.

    In November of this year, Russian President Vladimir Putin claimed that Daesh is being financed by at least 40 countries — including G20 members. With such widespread financing, it will be difficult to defeat Deash.

    The U.S., in its misguided and destructive foreign policy toward the Middle East (its misguided and destructive foreign policies toward the rest of the world are topics for a separate discussion), also provided Daesh with a vast arsenal.

    Last year, the Department of Defense, bragging about advances against this new “enemy” in Iraq, issued a press release: “The three strikes destroyed three ISIL armed vehicles, and ISIL vehicle-mounted anti-aircraft artillery gun, an ISIL checkpoint and an IED emplacement.” Commenting on that statement in Alternet, Alex Kane wrote:

    “What went unmentioned by the Pentagon is that those armed vehicles and artillery guns they bombed were likely paid for with American tax dollars. The arms ISIS possesses are another grim form of blowback from the American invasion of the country (Iraq) in 2003. It’s similar to how U.S. intervention in Libya, which overthrew the dictator Muammar Gaddafi but also destabilized the country,  let to a flood of arms to militants in Mali, where France and the U.S. waged war in 2013.”

    The U.S. left untold amounts of weaponry in Iraq, and as that country descended into civil war following the United States’ odd salvation of it, that weaponry was free for the taking.

    So even if, as suggested above, the U.S. didn’t give birth to Daesh, it has certainly nourished it.

    A merry-go-round that never stops spinning

    It is interesting to note that U.S. taxpayers are spending $615,482 every hour to fight a “war” in which the “enemy” is being well-financed by countries with whom the U.S. has full diplomatic relations. Does this not make it appear that “victory” over this enemy is not the goal? With many countries financing and supplying Daesh, might the world’s largest supplier of weaponry, the U.S., not be too interested in losing such a lucrative market? It’s worth noting that the United States’ “foreign military sales rose to a record high of $46.6 billion for fiscal 2015.” With such a healthy cash cow, would the country’s power-brokers really want to end war? Why kill the goose that is laying such pretty golden eggs?

    As the U.S. and its hapless allies continue this “war on terror,” an ill-defined and nebulous “enemy” if ever there was one, Syria and Yemen seem to be bearing the brunt of the violence. As in every modern war at least since World War I, innocent men, women and children are the most frequent victims, suffering unspeakably and dying horrible deaths. And, somehow, the world’s most powerful military machine, owned and operated by the U.S., is unable to defeat Daesh. It must, therefore, continue to arm its allies, which are arming Daesh. So the U.S. provides funding to countries to fight Deash; some of those countries transfer money and armaments to Daesh, who the U.S. is bombing. And it seems that this deadly merry-go-round will continue its endless spinning.

    And why shouldn’t it? The U.S. can, with ever-decreasing credibility, pretend to stand as a beacon of freedom and liberty, arming revolutionaries and destabilizing governments that displease it, while arming allies of the country in revolution, which in turn assist that country. So this “war on terror” never ends, and neither do the abundant profits from war-making.

    And when possession of the moral high ground is just an illusion, when rhetoric spewed from the mouths of hypocritical politicians to get the citizenry to wrap themselves in the flag and shed a tear for apple pie, motherhood and Old Glory, and when the almighty dollar is always the bottom line, nothing is going to change.

  • The Incredible Shrinking Benefits Of Massive Japanese Money Printing

    Excerpted from JPMorgan CIO Michael Cembalest 2016 Outlook,

    Something is wrong with this picture.  In the US and Japan, corporate profits sank during the global financial crisis.  In the US, the profit recovery was accompanied by a recovery in household income.  In Japan, however, corporate profits and household income moved in opposite directions, as dynamics that helped profits recover did not help consumers. 
     

    How can we explain the outcome in Japan? The benefits of a weak Yen are mostly concentrated among large corporations, given translation gains on offshore non-Yen income relative to Yen-denominated costs.  For smaller companies and households, a weaker Yen simply resulted in imported inflation.  While consumer spending has stabilized after a decline caused by the imposition of a Value Added Tax in 2014, there are few signs of a rebound to pre-VAT levels.  Japanese GDP growth has been volatile and averaged 1.5% in 2015; we’re expecting a similar outcome in 2016.  

    In October 2015, the Bank of Japan did not take further steps which markets were anticipating (e.g., an increase in equity ETF purchases from ¥3tn per year, an increase in REIT purchases from ¥90bn per year or an increase in government bond purchases from ¥80tn per year).  Perhaps concerns about the negative domestic impacts from a weaker Yen are affecting BoJ policy.

     

    Our contacts in Japan believe that the BoJ is no longer being pre-emptive, and will wait until November 2016 to act.

    The Japanese experiment.

    There are few precedents for the kind of experiment Japan is conducting.  At the current pace of BoJ purchases, private sector banks might actually run out of JGBs by the end of 2016, at which point the BoJ would have to buy them directly from the non-bank private sector; I think it’s fair to say that no one really knows what would happen then. 

    One thing is certain: like riding a tiger the BoJ can’t stop now, and has little choice but to continue with debt monetization as Japan’s Federal debt grows higher, and as it veers further and further into the economic unknown.

  • Google Is Collecting Information On Public School Students – Here's How

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    As a new parent, the idea of sending my children to public school is a frightening thought. The more you read, the more you realize the importance of extreme vigilance when it comes to what’s happening at whatever place you send your kids to for majority of their day. Quite often, parents are simply left completely in the dark about some very important matters.

    One such example relates to Google’s penetration of the U.S. public school system, and how the company employs a loophole in order to collect data on children. Google achieves this by referring to itself as a “school official” under the law. I truly wish I was making this up.

    From the Washington Post:

    Google is a major player in U.S. education. In fact, in many public schools around the country, it’s technically a “school official.” And that designation means parents may not get a chance to opt out of having information about their children shared with the online advertising giant. 

     

    The combined allure of Google’s free suite of productivity tools and cheap laptops that use the company’s Web-based ChromeOS operating system have made Google’s products a popular choice at schools around the country. And the company’s growing dominance is raising concern from some privacy advocates who allege it is using some student data for its own benefit.

     

    Google’s standard agreement for providing its education suite defines the company as a “school official” for the purpose of that student privacy law. In Google’s case, the company is providing software that districts might otherwise have to develop or support themselves, such as email services or tools that help students digitally collaborate on assignments.

     

    But schools are supposed to have “direct control” of how a company or individual uses and maintains education records to deem them a “school official,” according to the department’s regulation. Khaliah Barnes, an associate director at the Electronic Privacy Information Center or EPIC, argues that isn’t happening with many ed tech providers, including Google.

     

    “The schools don’t have access to Google’s servers or a lot of the way that it uses the information because it is proprietary,” she said. In 2012, EPIC brought a lawsuit against the Education Department in an attempt to stop the government from interpreting the law in ways it argued could allow schools to share more data about students with less explicit consent, but the case was later dismissed on standing grounds.

    Why am I not surprised in the least.

    Today, Google and many other tech companies are increasingly part of students’ daily classroom lives under the “school official” designation. And that leaves parents in the dark about who has access to an increasingly large cache of information about their children and may compromise their privacy down the line, experts say. But as previously reported, Google said it has “always been firmly committed to keeping student information private and secure.”

    Private and secure, ok, but they are still collecting this data aren’t they? They are still essentially tracking the activity of little children without their consent or parental consent, are they not?

    Even 20 years ago, parents really didn’t expect schools to track more than basic information about their children’s school performance — things like attendance and test scores. But the latest generation of educational tech products are cataloging a nearly limitless amount of data on what students do everyday — from emails and chats, to metadata, such as location history, that educators may not even realize is being collected, Barnes said.

     

    “The companies themselves aren’t transparent, and often times schools even aren’t aware of the extent of data collection,” Barnes said.

     

    “School districts are just generally not providing notice to parents,” said Reidenberg.

    You’ve been warned.

  • What Does The Future Hold For Negative Rates In Europe? Goldman Answers

    A week before Mario Draghi disappointed a thoroughly spoiled market by “only” cutting the depo rate by 10 bps, “merely” extending QE by six months, and failing to boost the monthly rate of asset purchases under PSPP, we explained why the ECB is effectively chasing its own tail. 

    The argument goes something like this: as the market continues to price in further rate cuts, extensions of QE, and increases in the pace of PSPP bond buying, yields on core paper will be driven inexorably lower, quickly negating any benefit the ECB would have gotten vis-a-vis the expansion of the purchase-eligible universe of bonds.The only alternative is to do away with the depo rate floor altogether and thus lock in even greater losses for the central bank on its trillion euro, “held to maturity”, pile of EGBs. Absent that, the ECB is effectively forced to delay the expansion of PSPP. In short: Draghi, like Kuroda, is running out of bonds to buy and the ECB’s situation is complicated by the depo rate constraint. Each incremental purchase takes Draghi closer to the QE endgame at which point the bank will either be forced to buy riskier assets (like IG corporates or, gasp, stocks) or else concede defeat on the inflation target.

    While the market might have been disappointed by the ECB’s “underdelivery”, it came as a relief for the Riksbank, the SNB, the Norges Bank, and the Nationalbank who are effectively forced to cut each time the ECB eases or risk seeing upward pressure on their respective currencies. That dynamic has led to a veritable race to the Keynesian bottom with Norway as the last man standing in terms of conducting monetary policy with rates above zero. 

    As we head into 2016, a number of questions remain. Is Draghi done or will sluggish inflation “force” the former Goldmanite – gun to his head – to expand PSPP and/or take the depo rate to -0.40% (or lower)? If the ECB does cut further but doesn’t adopt a two-tiered approach to the application of NIRP, will the SNB be forced to go “nuclear” and apply negative rates to depositors in order to mitigate excess pressure on the EURCHF cross (remember, because the SNB has different rules for the application of NIRP, ECB cuts tend to impact the franc more than other currencies)? Will low inflation force Sweden to cut further despite a frightening housing bubble? Can the Norges Bank afford to keep rates in positive territory given the continued plunge in crude prices? And on and on. 

    For those who enjoy pondering such things, we present the following excerpts and graphics from Goldman’s Allison Nathan who looks at where we stand now, and where we’re going in the year ahead.

    *  *  *

    From Goldman

    Where we stand

    Official interest rates have fallen further in the Euro area and Sweden. The European Central Bank (ECB) lowered its deposit facility rate 10bp to -0.30% on December 3, pushing beyond levels previously described by Mario Draghi as the bank’s lower bound. The latest ECB measures fell short of market expectations, likely reducing the pressure for neighboring central banks to add stimulus; the Swiss National Bank (SNB) and Riksbank have subsequently been on hold. 

    Sweden’s Riksbank has been the only other central bank to push rates further into negative territory since we published in February, with cuts of 15bp in March and 10bp in July motivated by appreciation pressures on the krona. All the while, inflation—the Riksbank’s original reason for introducing negative rates—has been rising.

    Government bond yields remain in negative territory. As of December 14, over 50% of European government bonds maturing in less than five years had a negative yield, roughly the same as in the run-up to the launch of ECB QE in March. Two-year government bond yields were generally lower on the year, despite some rebound after aggressively pricing further ECB easing ahead of the December meeting. (The German two-year yield, for example, bottomed out at -0.44% on December 2.) Looking beyond Europe, roughly half of two-year government bonds in the developed world trades at a negative yield. 

    Sovereigns have issued debt at record-low—or altogether negative—yields. In April, Switzerland became the first country to issue 10-year government bonds at a negative yield; other governments did the same at shorter maturities.

    By contrast, companies with large pension deficits have struggled and continued to underperform, as the present value of their future liabilities continues to rise. Alongside mixed asset returns, pension funding ratios have continued to deteriorate. Similarly, insurance companies have struggled with falling reinvestment yields and solvency ratios.

    Where we’re going

    Risks that could push the ECB’s lower bound. While our base case is for the ECB to stay on hold, low inflation or a stronger euro could open the door for further monetary easing. We see the ECB’s effective lower bound in the ballpark of -0.50%. Should the ECB cut rates further, it would likely pressure neighboring economies in Europe to do the same or to implement other easing measures, particularly in cases where the local currency is pegged to the euro. 

  • 2015 Year In Review: "Terminal Phase" Excess & Peak Cognitive Dissonance

    Excerpted from Doug Noland's Credit Bubble Bulletin,

    The year 2015 was extraordinary. Incredibly, despite powerful confirmation of the bursting global Bubble thesis, market optimism remained deeply entrenched. All leading strategists surveyed in December by Barron’s remained bullish – some were borderline crazy optimistic.

    Optimism withstood a commodity price collapse. Crude, the world’s most important commodity, crashed almost 35% to an eleven-year low, much to the peril of scores of highly leveraged companies and countries. The Bloomberg Commodities Index dropped 25%, its fifth straight year of declines. Copper fell 24%, with platinum and palladium down about 30%. In agriculture commodities, wheat fell 20%, with soybeans and corn down about 10%. Coffee sank 25%.

    Bullishness persevered through deepening EM turmoil and a crisis of confidence. The Brazilian real dropped about a third (worst year since 2002), and Brazil’s sovereign debt suffered major losses. Brazil’s corporate debt market was pummeled (Petrobras, Vale, BTG, Samarco, etc.) while confidence in the nation’s major banks and government waned. Russia and Turkey showed further deterioration. Fragility surfaced in EM linchpin Mexico. Currencies suffered generally throughout EM – Latin America, Asia, the Middle East, Eastern Europe, etc. Collapsing currency peg regimes saw almost 50% devaluations for the Azerbaijani manat and Kazakh tenge. Argentina devalued the peso 30% versus the dollar. Throughout EM, dollar-denominated debt became a market concern.

    Optimism survived the major financial tumult that unfolded in China. Early 2015 stimulus efforts stoked “Terminal Phase” excess in Chinese equities, a Bubble that came crashing down in a 40% summer drubbing. An August yuan devaluation destabilized markets across the globe. Aggressive (invasive) monetary, fiscal and regulatory measures somewhat stabilized equities and the yuan, at the heavy cost of extending “Terminal Phase” excess throughout the Credit system (i.e. corporate debt and “shadow banking”). The yuan posted a 4.5% 2015 decline against the dollar, the worst performance since 1994. The “offshore yuan” trading in Hong Kong dropped 5.3%.

    Bullishness endured despite the August global market “flash crash.” And while the summer market dislocation provided important confirmation of mounting fragilities throughout the markets on a global basis, the bulls interpreted the event as further validating their view of unwavering central bank support and liquidity backstops. The Fed’s September flip-flop emboldened speculative excess, with U.S. equities back within striking distance of record highs by early-November.

    From the perspective of my analytical framework, 2015 was momentous; not necessarily because of the year’s occurrences as much as for the far-reaching dynamics set in motion. The “Core and Periphery” analytical framework is an especially valuable tool in our efforts to decipher an easily perplexing 2015. Instability afflicting the EM “Periphery” in 2014 gravitated to the EM's “Core.” In particular, and central to the “momentous 2015” view, faltering Bubbles in commodities and China were transmitted to the “developed” world’s markets and economies (at least at the “Periphery of the Core”).

    Troubled energy and commodities companies led a surge in U.S. corporate debt troubles, with the U.S. actually accounting for 60% of global defaults (from S&P). U.S. junk bonds posted negative returns for the year. Junk bond sales slowed sharply after the August “flash crash,” with 2015 issuance down about 16% from the previous year (2014 $348bn). Leveraged loan issuance was down about 20% (from S&P Capital IQ). Confidence was further shaken by a public mutual fund (Third Avenue) barring redemptions. ETF outflows became a serious market concern.

    The year ended with heavy outflows from bond funds – junk as well as, notably, investment-grade. Beyond devastating consequences for highly leveraged energy and commodities players, the tightening of financial conditions was transmitted to “Core” equities market. The volume of U.S. IPO deals fell more than 40% in 2015, with money raised sinking 65% to $30 billion (from Renaissance Capital). Global IPO volumes were down 35% from 2014 to $156 billion.

    In the face of a wrenching commodities collapse, a slowing global economy, heightened risk aversion and prospects for Fed rate increases, Wall Street remained undaunted. A December 28 Bloomberg headline: “Wall Street Predicts Corporate America's Bond Binge Will Go on – Wall Street’s biggest dealers are forecasting that blue chip U.S. companies will sell more than $1 trillion of bonds for a fifth straight year in 2016 as corporate America’s borrowing binge endures…” In equities, investors gravitated away from the deteriorating broader market in favor of crowding securely in “FANG” (Facebook, Amazon, Netflix and Google).

    For much of 2015, deterioration at the “Periphery” worked to bolster flows to “Core” markets. Investment-grade issuance jumped to a record $1.31 TN, up about 17% from 2014’s record $1.168 TN. Record low corporate yields and the Fed-induced insatiable demand for investment-grade debt sustained the historic M&A boom. For the year, global M&A reached a record $5.04 TN (from Dealogic), surpassing 2007’s record. U.S. M&A surged 56% to $2.43 TN. Despite rapidly slowing earnings growth, corporate America repurchased stock and paid dividends at record levels.

    The U.S. economy likely grew about 2% in 2015, below earlier expectations and a dismal performance considering the prolonged ultra-loose monetary backdrop. Most notably, the U.S. economy turned only more unbalanced. The bust in energy and commodities gathered momentum, while Bubbles in tech and biotech inflated precariously. In general, housing markets slowed meaningfully into year-end. Yet aggregate data mask downturns in some markets and runaway booms in others. The commercial real estate Bubble inflated further. The unemployment rate dropped to 5%, yet income and wealth inequality had Americans feeling increasingly uneasy with the economic backdrop, the Fed, government and Wall Street.

    Importantly, Credit growth slowed markedly in 2015, with implications for income growth, corporate profits and the asset markets more generally. Through three-quarters of 2015, Non-Financial Credit growth slowed markedly to an annualized pace of about $1.32 TN. Assuming weak Q4 growth, 2015 will see the slowest Credit expansion since 2009 ($1.204 TN). For perspective, Credit expanded $1.843 TN in 2014, $1.608 TN in 2013 and $1.923 TN in 2012. And after three-years of major stock market-induced gains in Household Assets, 2015 will see the smallest rise in Household Net Worth since 2011.

    The year was notable for the increasingly problematic central bank-induced divergence between inflating securities markets and deflating real economy prospects. Bursting commodities and EM Bubbles weighed on global growth, while QE and ultra-dovish monetary policies spurred ongoing speculative excess. As the global economy deflated (in the face of aggressive monetary stimulus), over-abundant liquidity was further enticed into the inflating global financial asset Bubble. And as speculators rushed to exit faltering markets, asset classes and individual stocks, the Crowded Trade phenomenon turned only more destabilizing. The huge bets on central bank policies left markets at high risk for abrupt reversals and trade unwinds – 2015 The Year of the Erratic Crowded Trade.

    The Swiss National Bank’s surprising January decision to break the swissy’s cap with the euro proved a precursor of 2015’s disorderly Crowded Trades – and the general inhospitable backdrop for leveraged speculation. Recall how the swissy moved a massive 30% as the news broke, the type of market discontinuity that blows out both leveraged trades and dynamic-trading hedging strategies. While not as dramatic, currency markets again dislocated during the August “flash crash.” Later, the euro moved an immediate 4% in early-December when Mario Draghi was unable to deliver on his vow to “do what we must to raise inflation as quickly as possible.” The year saw the risk vs. reward calculus deteriorate significantly for leveraged speculation, especially in currency trading.

    January 1 – Wall Street Journal (Rob Copeland): “Hedge funds start the New Year with something to prove—again. The money managers who charge some of the highest fees on Wall Street had a chance in 2015 to outperform a flat stock market and end years of subpar performance. Instead, hedge funds lost more than 3%, on average, according to early estimates from hedge-fund-research firm HFR Inc., while the S&P 500 returned 1.4%, including dividends. Managers stumbled for myriad factors, including bad wagers on energy and currencies and an overreliance on certain stocks. ‘Everything went wrong,’ said Alexander Roepers, founder of $1.5 billion hedge-fund firm Atlantic Investment Management. ‘There were very few places to hide.’”

    Hedge fund travails have been well publicized. The industry overall lost money in 2015, following several unimpressive years. Some major funds suffered their worst year since the financial crisis. Many funds closed and/or returned money to outside investors. Still, investor confidence for the most part held up. The industry overall did not suffer major outflows. Yet it wasn’t only hedge funds that struggled in 2015’s unsettled market backdrop.

    December 31 – Wall Street Journal (Sarah Krouse): “It is getting a lot harder to sell hedge-fund-style investing to the masses. More ‘liquid alternative’ mutual funds closed in 2015 than in any year on record, according to… Morningstar Inc., as inflows dwindled and performance weakened. The results show that enthusiasm is fading for what had emerged in recent years as one of the hottest products in asset management—funds that combine hedge-fund strategies like shorting stock with the daily liquidity of mutual funds. In all, 31 liquid-alternative funds have been closed this year, up from 22 a year earlier… ‘You had so many funds that were launched in the last couple of years and hadn’t really been tested by market volatility and you’re starting to see the cracks in them,’ said Jason Kephart, an analyst at Morningstar… Fund companies aggressively pitched liquid-alternative products, saying they could help protect investors from volatility and offer better returns. Assets in liquid-alternative funds grew to $310.33 billion at the end of 2014 from $124.44 billion at the end of 2010.”

    It was certainly not the year of the “non-correlated” fund or asset class. Overall, most funds and strategies that were expected to perform well in the event of market instability failed to live up to expectations. Symptomatic of the general backdrop, too much “money” has flooded into various “liquid alternative,” “risk parity,” and sophisticated hedging strategies. Instead of providing investor protection, the proliferation of variations of model-directed, trend-following strategies only exacerbated market instability.

    An overarching theme from 2015 was that the market turned increasingly unstable, while the vast majority of strategies used for market risk mitigation performed disappointingly. This is closely related to another critical market development illuminated in 2015: rapidly waning benefits to diversification. The halcyon post-crisis backdrop of holding (leveraging?) a portfolio of U.S. equities, fixed-income and global stocks & bonds – all generating positive returns – ended with a vengeance. Commodities were a disaster and EM was a minefield. Moreover, bonds were no longer providing a reliable hedge against “risk off” market turbulence. Perhaps not obviously, but the game turned much more difficult in 2015. Bloomberg: “The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere”

    I didn’t adopt the terminology, but “quantitative tightening” was used (initially by Deutsche Bank) starting in August to describe the dynamic whereby EM outflows forced EM central bankers to liquidate Treasuries and “developed” sovereign debt securities. A key “virtuous cycle” dynamic from the global government finance Bubble period had been the large flow of finance into EM that was then easily/predictably recycled back into “developed” markets through the purchase of sovereign debt.

    2015 marked a key inflection point for EM international reserved holdings, with important implications for EM and global market stability. The potential for big EM central bank liquidations became a significant market uncertainty. Moreover, the prevailing dynamic where “risk off” instability led predictably (great for hedging!) to aggressive buying of Treasuries (and “developed” sovereigns) was supplanted by fear that global tumult would spur EM outflows, Treasury sales and a destabilizing pop in global yields. Importantly, Treasuries lost the attribute of providing a cheap and reliable hedge against faltering global risk markets. This greatly compromised popular diversification and hedging strategies.

    China’s international reserve position ended November at $3.4 TN, declining from the 2014 high of $4.0 TN. Reserves were down $405bn through November. Estimates had outflows from China surging to $200 billion monthly during the summer, and perhaps remaining near $100 billion per month through year-end  China imposed onerous measures throughout the summer and fall that amounted to capital controls. These, along with the late-summer market crackdown on selling, short-selling and derivatives trading, ensured an international investor crisis of confidence in the course of Chinese policymaking. Crackdowns on the securities firms and what has evolved into "wildcat banking" significantly complicates the already fragile Chinese Credit backdrop.

    Fundamental to “momentous 2015” is the thesis that the year marks a pivotal year in confidence in global policymaking generally. Clearly, the unfolding bust saw a dramatic change in perceptions with respect to the aptitude of Chinese officials. In general, confidence in the effectiveness of QE waned throughout the year. A global commodities collapse in the face of ongoing QE was unnerving.

    As the year progressed, it seemed only central bankers remained confident that QE could reverse the downward trajectory of global CPI. Within individual central banks, skepticism mounted as to both the effectiveness of QE and the associated risks to financial stability. The Bank of Japan hesitated to increase QE, while market darling Draghi couldn’t deliver on what the market had believed was promised more aggressive QE. Market perceptions shifted from “whatever it takes” QE on demand to fears that current QE, while not all that effective, could be as good as it gets.

    2015 developments also support the view that the bursting of the global Bubble portends serious geopolitical risk and instability. Geopolitical tensions were on the rise virtually everywhere. Strongman Putin took his show to the Middle East, a region increasingly a volatile cauldron of mayhem. Strongman Erdogan’s Turkey shot down a Russian fighter jet. Millions of refugees to Europe, further destabilizing the political backdrop. Multiple terrorist attacks. ISIS. The U.S. challenged China in the South China Sea. Strongman Xi Jinping took further measures to centralize authority and solidify power. Japan’s Shinzo Abe pushed forcefully ahead with reform and militarization. 2015 was the year of the authoritative leader – on a seemingly global basis. With pundits and traditional analysts in disbelief, Bernie Sander catches fire with an anti-capitalism and anti-Wall Street message, while the Donald Trump phenomenon takes the Republican primary season by storm. And few see the association to Credit Bubbles, unsound “money” and Credit, inflationism and resulting central bank-induced monetary disorder.

    Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.

  • From $500,000 To $170 Million In A Few Months: The Next "Subprime Trade" Emerges

    Ever since a few far-sighted, contrarian traders made a killing by betting on the collapse of subprime in 2005 and 2006 – and by implication on the implosion of the capital markets – a trade famously resurrected in the latest Wall Street movie The Big Short (whose Michael Burry recently warned that “The Little Guy Will Pay” For The Next Crisis, again) everyone has been dreaming to uncover the next “subprime” – a trade that has a 20-to-1 upside to downside ratio, which can be put on in massive size, and which would lead to a quick and lucrative retirement.

    So far the next “subprime trade” remains elusive, with global capital markets continuing to grind ever higher thanks to constant central bank manipulation, as first called out on this website many years ago, and as admitted recently even by such “serious” legacy institutions banks as Bank of America which in an attempt to explain market instability

    Central bank’s risk manipulation well explains local tails

     

    A good way to explain why we have seen local tail risks arise so frequently since central banks began to heavily manipulate asset prices is with the following analogy, illustrated in Exhibit 1. Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels. Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant.

     

    This then creates a highly unstable (fragile) situation that breaks violently when a sufficient catalyst causes risk to rise – overly crowded positioning meets a market with little conviction.

    The above explanation leads to a critical line of thought: perhaps the next “subprime” trade is not shorting a mispriced asset at all?

    After all, all assets are mispriced as a result of central bank intervention.

    As BofA admits “the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade“, which is logical: after all why should one fight the Fed when any time there is even a 5% drop in the S&P500, the Fed can and will either jawbone and threaten to cut rates or launch QE4 or NIRP, or just do it? In doing so, of course, the Fed merely “kicks the can” and with every failed attempt at reprice risk and bring back some trace of price discovery, guarantees that the next market crash will be the most epic ever, one which will wipe out not only the Fed’s credibility but the bedrock of the modern financial and economic system, a monetarist system based on neo-Keynesian rules. Frankly, the devastation can not come fast enough.

    But first, why not make some money?

    And if one is limited from generating 20-1 returns in a market of suppressed volatility due to a global central bank puts, perhaps the next “subprime” trade has to do with the process of actually putting the trade on.

    A process which involves ETFs.

    To be sure, we – and many others – had issued many warnings about the very nature of ETFs in recent years, especially during 2015. Here is a brief chronology of the countless warnings we have issued on this topic in the past year alone:

    All of these warnings became realized on August 24, the day of the infamous ETFlash Crash which even the SEC remarked on in the last week of December with an 88-page note on “Equity Market Volatility on August 24, 2015.”  What the SEC essentially said is that it is generally concerned with plumbing and exchange regulation, with an emphasis on ETFs.

    To be sure the story of broken markets as a result of the epic proliferation of Exchange Traded Funds continued after August, with stories such as:

    Is it possible that “the next subprime trade” was so obvious that it was staring everyone in the face for the past year?

    A trade which involved betting on the collapse not of the central-bank supported market, but the death of the instrument which allows this unprecedented global central bank “put” to prop up markets, and which like the infamous coiled spring in the Bank of America “revelation” is just waiting for a catalyst to snap: in other words, betting against ETFs?

    Actually the answer is yes, and for some, the “next subprime trade” is already happening.

    Meet David Miller and his Catalyst Macro Strategist Fund (ticker: MCXCX). The introduction, provided by WaPo reads like something straight out of a Michael Lewis book:

    The Michigan-native is betting against one of the most popular investment vehicles for mom-and-pop investors: exchange-traded funds. The bets have paid off, turning Miller’s little known Catalyst Mutual Funds into one of Wall Street’s most successful players in 2015.

    It sure sounds like a story about one of the lucky few who correctly predicted in 2006 what would happen to not just subprime, but the overall market just a few years later… and would retired filthy rich.

    The comparisons between Miller’s story and the “Michael Burry’s” of the subprime era don’t end there, because the young asset manager has not only figured out what to bet against, but how to make a lot of money in the process: ever since it started making complicated bets against some leveraged ETFs, Miller’s Catalyst Macro Strategies Funds has since grown from $500,000 in assets at the start of the year to about $170 million. It achieved a more than 50 percent return this year, placing it far ahead of its competitors.

    In a year in which virtually not one hedge fund generated notable returns, and most were an embarrassment, it is surprising that not all financial media outlets are talking about Catalyst’s performance, which as shown below, is quite impressive. Behold the 2015 performance of the Catalyst Macro Strategy Fund, which according to Morningstar held a total of $169.5 million in assets most recently.

     

    Miller’s initial target in the broken sector: leveraged ETFs: “Our goal is to identify poorly designed financial vehicles,” said Miller, Catalyst’s senior portfolio manager. “The strategy has certainly worked out well for us.”

    While still a tiny part of the market, the growth of leveraged ETFs has been explosive. Nearly nonexistent in 2005, the market has grown to more than $20 billion this year, according to data from Lipper. The market has doubled since 2011.

    The regulators have, as usual, been asleep at the wheel, making such debacles as August 24 a recurring reality, and allowing people like Miller to make outrageous profits by betting against the broken market:

    [A]s the industry has grown, so have concerns around whether investors understand the risks. The Securities and Exchange Commission proposed rules in December to rein in these type of funds. And the Financial Industry Regulatory Authority, also known as FINRA, has cracked down on brokers who have sold complicated ETFs they didn’t understand.

     

    “The SEC and FINRA have been coming down on them, and they still have not gone away,” Miller said. “Money keeps coming into them despite their poor performance.”

    But if leveraged ETFs are the “BBB” CDO tranches in the subprime analogy, then regular, and just as broken ETFs, will be the A, AAs and higher which will be the next to flame out: “Even traditional ETFs aren’t immune from market volatility. Over the summer, the price of some ETFs dropped off a cliff, then bounced back within minutes. Investors who automatically sold as their value plunged, faced heavy losses.”

    Catalyst may have been the first, but many more are coming, looking to profit from problematic ETFs. New York hedge fund Hilltop Park has employed complicated trades to bet against some ETFs, according to The Wall Street Journal.

    Perhaps the final analogy to the subprime crisis is the infamous straw that broke the camel’s back: back then, just like now, the fulcrum security was safe… until enough bets had been made against it (infamously by such as Goldman itself, which via Abacus and others, was selling exposure to CDOs only to short them at the same time), at which point the bubble bursts.

    And while 10 years ago it was the subprime bubble, this time it will be the ETFs that go first as more and more bets against them proliferate, and when they do, it will be all up to the central banks to preserve the last artificial asset prices in “markets” which over the past eight years forgot how to discount reality, and merely reflect the intentions of a few clueless economist hacks.

    To help accelerate this process, we present Catalyst Macro Strategy’s latest prospectus, with hopes more modern “Michael Burrys” emerge and take on what the fulcrum security of today’s broken markets.

  • Earnings Revisions Tumble To Weakest In 9 Months, BofAML Warns "More To Come"

    Until recently healthcare had been the only sector offering any optimism from an earnings perspective but even that has collapsed now. The three-month earnings revision ratio (ERR) fell for the fifth month in a row to 0.53 from 0.55 – its lowest level in nine months, indicating twice as many cuts as increases. As BofAML notes, this is well below the long-term average of 0.84, and given S&P 500 sales revisions have collapsed to April 2009 lows, they forecast more cuts are likely to come… and a muted January effect looms.

    S&P 500 Sales Forecast Revisions are the worst since April 2009…

     

    And Earnings Revisions have re-plunged to nine-month lows (as mid-year hope collapses)

    The ratio suggests nearly twice as many downgrades as upgrades to earnings. The ratio remains below the long-term average of 0.84, suggesting more muted near-term market returns. The more volatile one-month ratio fell to 0.54 from 0.59.

     

    Which implies a drastically weaker January effect…

     

    As all 10 Sectors have seen more downward than upward revisions to earnings over the past three months.

    Previously, Health Care had been the only sector with positive revisions, but the ERR has fallen below one in this sector as well, to its lowest level in 2½ years. Materials continues to have the worst three-month ratio, with 5x as many cuts vs. increases to estimates — but an improvement from the prior month’s post-crisis low. Also of note: Industrials’ 3-month ERR is the lowest in three years (and still falling).

    But, it's not just US corporates, Global earnings revision trends also remain weak…

    Based on our global quantitative strategy team’s last update, the 3-month global earnings revision ratio fell in November to 0.59 from 0.68, as analysts accelerated their pace of downgrades. All regions saw the three-month ERR deteriorate, led by the US and Europe. Japan and the US continue to have the highest ratios, while Asia ex-Japan has the lowest, but all regions are now seeing more downgrades than upgrades.

    The one-month ratio fell to 0.56 from 0.59 – the lowest in nearly four years. Global equity returns tend to be muted when the Global ERR is near current levels.

     

    Source: BofAML

  • "Tread Lightly" – 2016 Technical Outlook

    Via NorthmanTrader.com,

    If there was one key trading lesson to draw from 2015 it is this: Ignore the noise and focus on the technicals. Hence in today’s article I’m outlining what I’m seeing from a technical perspective across multiple time frames and asset classes. Note I’m not trying to convince you of any particular view here, but my aim is to share, what I consider to be, fascinating data sets that hopefully offer some insights worth considering.

    But before I go into the technicals I want to provide some context on the noise factor. What is noise? Well mostly it’s the myriad of opinions, forecasts, predictions and news flashes that come our screens every day and they can be of detriment to traders and investors alike. Now I’m not saying not to seek out information and other perspectives, but I am saying to not take anything as gospel especially when it comes to consensus.

    Consider the following:

    Wall Street forecasts for 2015 were largely wrong across the board. Now I have no problem with anybody being wrong. I’m wrong all the time and my wife is sure to let me know when I am. But what I do take issue with is that Wall Street largely insisted on staying wrong even though the facts were changing in 2015. The main factor changing: Earnings forecasts were coming down. Hard. And yet price targets stayed higher. The only thing that really changed was the narrative, i.e. “well if earnings are down so what then markets go up because fund managers have to chase performance”. And hence you end up with overly optimistic forecasts not based on reality. But Wall Street is in the business of selling supply to the public.

     

    And nothing has changed on this front. For 2016 Wall Street appears to see little risk in markets and the same forecasts for 2015 have been moved into 2016. Not a single analyst sees the $SPX moving below 2000 or even 2,100 for that matter. No downside. None. And none was projected in 2015.

    Yet Hedge funds got hammered in 2015 resulting in hundreds of closings and many well known funds and hedge fund managers are down severely. Heck even Warren Buffet had a lousy year being down 11%.

    Economists also have widely missed the boat on economic growth projections. It’s been a year of slowing growth globally and yet forecasts kept pointing to more optimistic outlooks. For along time markets have been either ignoring or outright celebrating any bad news as it suggested more central bank easing to come. And to be fair this has worked for years. After all central banks have cut rates over 650 times since 2008 and even in the 2015 the ECB and BOJ added $1.2 trillion in assets to their balance sheets. 

    But the scale and scope of forecast misses is eye opening. Just this last week the Chicago PMI figure came in so mismatched in both direction and magnitude versus economists’ forecasts one has to wonder what they are actually looking at: “The index fell to 42.9 from 48.7 in November. Economists had expected it to rise 1.3 points to 50 in the December reading. The index has spent much of the year below the 50 mark that separates expansion from contraction”.

    What’s the standard excuse for the missed forecasts? The weather of course which prompted this sarcastic tweet from me:

     

     

    Which brings me to my beloved Fed. After months and months and months of talking, tinkering, and handwringing they finally hiked rates while insisting it meant nothing. Janet Yellen keeps claiming the Fed is data dependent. Yet their own forecasts continued to be wrong and GDP growth figures continued to be revised downward throughout the year. So why did they hike rates? To maintain credibility?

    Certainly not because of the mentioned PMI figures. In fact, during the last two rate hike cycles (who can even remember those) PMI was leading by expanding not contracting as it does now. So I have to ask: They want to hike rates into a declining PMI trend into the lows 40s?

    FED

    So one has to really wonder if the Fed really knows what they are doing here. I have my well founded doubts.

    And finally: 2015 put to shame statistical folklore. “Stocks go up in December” “Years ending in a 5 are always positive”, etc. All these historical notions were really off base. Yes historical stats can be interesting to look at, but perhaps the breaking of many historical precedents raises a key question:

    If all forecasts and predictions and conventional wisdoms are wrong perhaps nobody really knows what kind of market we are dealing with here?

    After all, never before has the world seen such a combination of massive expansion in debt, central bank intervention and low to negative interest rates for such an extended period of time.

    Do the technicals provide clarity? Let me walk you through the charts and I’ll outline both bearish and bullish considerations. Note my aim is to be as clinical as possible in my review here.

    First off, please note that during this past year the $SPX has moved from a series of higher highs to a series of lower highs. Until proven otherwise this could be regarded as a rounding top:

    SPXD

    The $SPX finished the year just below its 50 and 200 day moving averages. These are still on a so called golden cross and could easily be recaptured unless further selling commences in early January. Also note that since September 2014 we have seen 2 larger corrective events. Both recovered quickly in price and in the process produced a very well defined supporting trend line connecting these lows (see above).

    Yet a very clear message comes across here: Months of price discovery can disappear in an instant. Who can forget this morning in August?

    futures

    Anybody remember what stopped this? Circuit breakers. Trading was stopped and for many it was a travesty. Why? Because many trading platforms only reopened AFTER markets already bounced higher. Many people simply couldn’t enter or re-enter if they had been stopped out on the way down.

    The seeming good news for investors: Every time markets break down a magic hand appears and markets bounce back. I have to admit I do worry about this repetitive market expectation as it breeds a certain level of complacency: Nothing bad can ever happen right? Markets always come back. Buy the dip. And technically one has to respect the results. And we did ourselves as we bought long on the technical signals.

    But the subsequent recovery produced lower highs. And we can’t ignore this. Nor can we ignore that internals have been horrid and this is where the bearish evidence comes in.

    Purely technically speaking we are observing a very similar pattern for previous major tops.

    Consider the equal weight charts:

    XVG

    While the value line geometric index temporarily broke above its 1998 and 2007 highs it has since literally fallen off the cliff and is sporting a potential bear flag similar to the one in 2007/2008.

    This similarity is supported by the Guggenheim equal weight index and it raises the question of a repeat to come:

    RSP

    Equal weight of course is reflective of a harsh reality: Most stocks are underperforming the indices greatly. Here too we see similar behavior to the 2007/2008 top, specifically stocks above their 200 day moving averages are showing a seeming repetitive pattern of lower highs:

    SPX200

    NYA

    If the pattern is to repeat new lows could well be in this market’s future.

    And there are many bearish patterns to support this notion. Consider several large heads and shoulders patterns on indices and key individual stocks:

    RUTW

    AAPL GSW

    MACD patterns are well below the center lines on all of them. And the larger monthly charts highlight the technical bearish picture with negative RSI divergences, negative MACD patterns and broken trend lines in many cases:

    NYSE

    XLF M

    Even the best performing index in 2015 the $NDX is showing negative divergences and the broken trend line is yet to be recaptured:

    NDX

    But, and I need to stress this here as well: Nothing has really broken yet. None of the patterns above really mean anything until they show a confirmed break. In the case of the heads and shoulders patterns they won’t confirm until they break their necklines.

    Will we see a similar corrective move in the months to come? That is the key question isn’t it as it has potentially significant ramifications. Consider the potential target of such a corrective move. If the rounding top indeed plays out and price were to break below the established lower trend line there is an obvious target: The .382 fib off the 2009 lows as it also coincides with the 2007 highs or 1574 on the $SPX:

    SPXM

    This would constitute a 26.2% correction off the highs. After years of a steady uptrend such a price event seems unfathomable for most investors these days.

    What could cause such a break of the various necklines?

    Perhaps the very same reason that has prevented markets from breaking down so far: The winners. Much like society the stock market has morphed into a basket of haves and have nots. And while internals are horrid 2015 has seen incredible market cap expansion in several high cap stocks leading them to historically overbought levels with negative divergences on top of it.

    Some familiar examples:

    AMZNM

    GOOGLM MSFTM

    Note all of them are widely disconnected from their monthly 5 EMAs. If market history teaches us anything it is that these disconnects do not last. A simple reconnect would not be a bearish event in itself, but standard market practice, yet as you can see in many cases a simple reconnect could invite a 7-10% correction in just these stocks. How would the market handle such a correction in its leaders?

    And if you think I’m perhaps overstating the historic nature of some of these disconnects perhaps a little broader perspective may help.

    I won’t mention the names not to cloud your view, but here are the quarterly charts of two major companies with a combined market cap of over $400B. But here’s a hint: One distributes stuff and one sells burgers:

    M A

    See any corrective potential here? Any excess?

    One additional technical perspective: Despite closing slightly down on the year the $SPX is still vastly disconnected from its annual 5 EMA (12.2%) and has not touched it in 2 years now. History suggests it doesn’t like extended disconnects especially on weakening internals:

    SPX A

    So admittedly this is all looking rather gloomy and suggests markets are at major risk of a very sizable correction in 2016.

    One could argue that the combination of these technical facts support Mella’s $VIX chart she posted a couple of weeks ago:

     

     

    Wowser.

    But as Mella also says: “Generally a bull market just doesn’t roll over and die.” And that’s a fair comment. Where’s the euphoria? Where’s the blow off top?

    While one may argue we may see it in some of the individual stocks the vast majority of stocks have corrected and are down. And the very technical issues outlined above may also serve as the foundation for a vastly different technical outlook.

    Consider that for the past year the $SPX has really not gone anywhere. Yes we have lower highs for now, but in terms of price we remain stuck in a range, and as pointed out above nothing has really broken yet. This type of consolidation is not unprecedented. In fact, the notion of an aggressively rising $VIX is also not incompatible with rising prices. See what happened in the mid 90s after a lengthy consolidation with a low $VIX: Both rose.

    SPX

    What could prompt a break higher? Consider some of key culprits for the negative divergences in 2015: Energy and high yield. These divergences have been in place for months now. The obvious question: What happens if these things were to improve?

    SPXW

    Note, one could view the recent weekly price consolidation to be in context of a bull flag. Should price break above the pattern and make a high above recent highs the technical picture could change rather dramatically and quickly so.

    One of the worst performers in 2015: Oil. What does the chart suggest? A descending wedge with a positive RSI, an intrinsically bullish pattern:

    Oil

    A break higher in oil prices may certainly invite a rally in energy stocks and with it an improvement in high yield and junk. In short, internals could improve quickly and what was a bearish scenario could turn bullish:

    SPX200In

    After all markets are generally still oversold:

    NYSI

    And such an improvement would bring back the bullish case we recently discussed. Here are the updated charts:

    Mells1 Mells2

    As regular readers know the above pitchfork has been a key technical indicator we’ve been watching since the summer lows. The middle line is clearly now resistance. If markets can break above it then indeed we may see a blow off top along with a rising $VIX.

    Last but not least: Global central banks remain highly active and despite its difficulties since the spring highs the DAX, for example, as retained its trend line. So far anyways:

    DAX

    Confused yet? It’s actually not confusing. What we are seeing is a market in a consolidation phase and it still is in range and it has to still make its case: To break up or down.

    One could even make a case that new highs could be bearish. What would constitute such a scenario? Simply a move to tag along the rising trend line without recapturing it. This scenario may perhaps be the most deceptive as it could capitulate sellers and turn participants bullish, yet be technically very suspect as it could produce new highs on even greater negative divergences:

    OEX

    So which way will this play? The technicals suggest that a break in either direction will produce an outsized move providing significant swing and day trade opportunities in 2016. The $VIX chart suggests that volatility will likely rise either way.

    But until we know specifically with what kind of market we are really dealing with perhaps traders and investors may want to heed the words of Walter White:

    Tread lightly indeed. Which is exactly what the technicals are telling me until this market reveals its true character.

    Good luck in 2016. It’s shaping up to be a wild one.

  • Protesters Storm, Set Fire To Saudi Embassy In Iran

    Earlier today, Saudi Arabia announced it had staged its largest mass execution in 25 years. 

    43 al-Qaeda conspirators were killed along with 4 Shiites accused of shooting policemen in the anti-government protests which broke out during the Arab Spring. Among the Shiites killed: prominent cleric Nimr al-Nimr.

    His death drew sharp criticism from Iran and Hezbollah with the latter calling the execution a “grave mistake.” Here’s WSJ:

    Lebanese militant group Hezbollah called Mr. al-Nemer’s execution a “stain that would haunt this regime,” while former Iraqi Prime Minister Nouri al-Malki, another ally of Iran, said the execution “will topple the Saudi regime.”

     

    Arab Gulf allies of the kingdom such as Bahrain and the United Arab Emirates said they supported steps taken by Saudi Arabia to “confront terrorism.”

     

    Mr. al-Nemer was sentenced to death in October 2014 and charged with crimes including disobeying the ruler, inciting sectarian strife and bearing arms against security forces.

     

    Mr. al-Nemer wasn’t widely known outside Qatif before 2011, when he emerged as a leading voice behind Shiite protests that rocked the oil-rich eastern part of Saudi Arabia for two years.

     

    He was arrested after a car chase near his family’s farm in their hometown of Awwamiya in July 2012. Authorities said he opened fire at security forces. His family has denied this and said he was unarmed.

    “We condemn a deplore this unjust killing and consider it an example of killing wisdom and moderation,” Mr. al-Nemer’s family said in a statement.

    “The Saudi government supports terrorists and takfiri [heretic] extremists, while executing and suppressing critics inside the country,” Iran’s Foreign Ministry declared. These are “hostile statements,” Riyadh responded, adding that Iran’s comments constitute “a blatant intervention in the kingdom’s affairs.”

    Protests erupted in the Qatif district of Saudi Arabia’s Eastern Province as well as in Bahrain, where hundreds took to the streets, burning tires and braving tear gas fired by police. As we reported earlier today, protesters had also converged on the Saudi embassy in Iran. 

    Now, in what looks like a repeat of the Iran Hostage Crisis, the protesters in Tehran have reportedly broken into the Saudi embassy and set it ablaze with Molotov cocktails. 

    “Images shared on social media early on Sunday morning appeared to show Iranian protesters breaking into Saudi Arabia’s embassy in Tehran and starting fires, after gathering there to denounce the kingdom’s execution of a Shi’ite cleric,” Reuters reports. “One photograph, posted on Twitter, showed protesters outside the embassy building with small fires burning inside, while another showed a room with smashed furniture purportedly inside the building.”

    As a reminder, the Sheikh was a prominent voice in the anti-government movement in Saudi Arabia. Riyadh effectively killed (literally) two birds with one stone with his execution: 1) a dissident voice was forever silenced, 2) a message was sent to Tehran, whose regional influence is expanding in Iraq and Yemen and whose forces have served to shore up the Assad government in its fight against Sunni extremists in Syria.

    Now, the Iranians look set to send a message back to Riyadh as the sectarian divide once again rears its ugly head.

    Meanwhile, Iran’s foreign ministry is calling for “calm.” Here’s Reuters:

    Iran’s Foreign Ministry called for calm in the early hours of Sunday after police dispersed angry protesters who had stormed Saudi Arabia’s embassy in Tehran.

     

    Demonstrators broke into the embassy and started fires before being cleared away by the police, Iran’s ISNA news agency reported, after gathering there to denounce the kingdom for executing a prominent Shi’ite cleric on Saturday.

     

    The ministry issued a statement calling on protesters to respect the diplomatic premises, according to the Entekhab news website.

    If this situation escalates, clearly crude oil will be well bid on Sunday afternoon.

  • Trump Muslim Ban Comments Featured In Al-Qaeda Propaganda Video

    Early last month, Donald Trump shocked the American electorate by “calling for a total and complete shutdown of Muslims entering the United States until [the] country’s representatives can figure out what is going on.”

    While it wasn’t entirely clear what Trump meant by “until lawmakers can figure out what is going on,” the message was unequivocal: the GOP frontrunner was calling for the nation to filter those entering the country based on religion. 

    In the wake of Trump’s declaration, many analysts, commentators, and pundits assumed the brazen billionaire had finally crossed the line. That is, up to that point, Trump had proven to be largely “gaffe proof,” so to speak. Nothing he said – from calling illegal immigrants “rapists” to suggesting Fox anchor Megyn Kelly was “bleeding out of her wherever” – seemed to dent his run for the White House and in fact, his poll numbers seemed to rise with each passing insult. 

    The Muslim ban however, would be another story. Or so many people thought. 

    As it turns out, Trump’s lead over the rest of the field only widened as his message with regard to combating radical Islam resonated with many Americans who are struggling to discern how best to ensure what happened in Paris doesn’t happen in New York or Washington DC. 

    Irrespective of one’s take on Trump’s Muslim diktat, it was fairly obvious from the beginning that extremists around the world would use it to recruit. Here’s what Hillary Clinton said during the third Democratic primary debate: “He is becoming ISIS’s best recruiter. They are going to people, showing videos of Donald Trump insulting Islam and Muslims in order to recruit more radical jihadists.” 

    That’s not so much a politically-motivated attack on Trump from an entrenched member of America’s political aristocracy as it is an objective assessment of reality. That is, if you were a member of an extremist group and you were in charge of recruiting, you’d be remiss not to mention Trump.

    For his part, Trump denies the allegations. Here’s what he said in the wake of Clinton’s comments:

    “Nobody has been able to back that up. It’s nonsense. It’s just another Hillary lie. She lies like crazy about everything, whether it’s trips where she was being gunned down in a helicopter or an airplane. She’s a liar, and everybody knows that. But she just made this up in thin air. No fact-checker has been able to back up her claim on that.”

    Well, no fact checkers are needed now because al-Shabaab (al-Qaeda’s Somali arm) has released the following video featuring Trump:

    Besides Trump, the video stars Anwar al-Awlaki, the top al-Qaeda recruiter who was killed in a US drone strike in 2011. “There are ominous clouds gathering in your horizon,” al-Awlaki says. “Yesterday, America was a land of slavery, segregation, lynching, and Ku Klux Klan. And tomorrow it will be a land of religious discrimination and concentration camps,” he continues.

    Will Trump shake this off with the ease he’s shed each and every controversy surrounding his campaign thus far? Probably. 

    However, it’s worth noting that al-Awlaki gives Muslims living in the West “two choices”: “Either you leave, or you fight,” he says. How would voters respond if this particular video were to serve as the inspiration for an attack on American soil by a US citizen? Would it cause the portion of the electorate who supports the notion of a Muslim ban to reconsier their position or, would such a tragedy only strengthen Trump’s hand by reinforcing the link between Islam and violence? 

    We’ll leave it to readers to decide.

  • On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

    On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring – perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai. 

    What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.

    However, while the broad framework of Turkey’s exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold “trading” company of Gold.A.E. – is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.

    The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company’s “new” management team admitted that after many months of “inquiries”, it had discovered that not only had the “old” management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money – and gold – held at Gold.A.E. which once again was primarily a “trading” front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.

    Here, for those who missed it the first time, is the letter that Gold.A.E.’s stunned clients received in late December:

    Dear Client

     

    A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

     

    Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.

     

    Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

     

    In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.

     

    DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC’s rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.

     

    We trust the forgoing is of assistance.

     

    Sincerely,

     

    On behalf of GOLD AE MANAGEMENT

    Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park‘s infamous episode: “aaaannd it’s gone. The gold is all gone.“

    In a follow up article, “The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens“, we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner – one of the most important people in the United Arab Amirates – and “washing” their hands of any accountability.

    Recall, “the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

    “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

    But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.

    When Arabian Business emailed the public inquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

     

    Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

    In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money – and gold – of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.

    * * *

    So while we continue to dig into the mystery of Dubai’s stolen gold, one which has received absolutely no mention in the western press – in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year’s Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.

    I’m a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM’s. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.

     

    I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM’s were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].

     

    The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my ‘source’ who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!

    And here is the punchline from our source’s letter:

    My source has told me that he now understands that the company knew something was terribly wrong in the March – May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I’ve been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.

    Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings – a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf – waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.

    Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai’s gold.

    According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, “A new integrated Gold and silver investment vehicle”, one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.

    This is what the October 2014 presentation boasted about Gold Holding’s ambitions – nothing short of global gold commerce dominance:

    • To be a premier precious metals investment vehicle, physical.
    • To provide shareholders with high quality, long-term exposure to precious metals.
    • To offer mine owners an attractive alternative to debt or equity.
    • To be a significant and Reliable trader of Gold and Silver

    Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.

     

    The company’s Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in… Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing…

     

    Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk – that of corporate fraud and embezzlement – was at the Trading level, where the risk was supposed to be the lowest. Oops.

     

    The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of… Gold Holding?

     

    Wait, wasn’t Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:

    “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

     

    “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

    It appears “your” knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company’s own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the “old management team”, the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed “substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”

    In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.

    Which brings us to our conclusion from a week ago:

    So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

     

    And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by… the United States!

    Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important – and richest – people in the country, if not the entire middle eastern region.

    But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.

    As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something “out of place”, in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE… which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.

     

    * * *

    And finally, while not directly related to the topic of Gold AE’s massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.

     

    … and not only that, but it was here where we found what may be the most fascinating detail of today’s article, namely Gold Holding’s (aka Dubai’s) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan…. as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!

     

    Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.

    Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?

    Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing… and all with Dubai’s blessings?

  • Saudi Arabia Carries Out Largest Mass Execution In 25 Years After Beheadings Soar In 2015

    While we wouldn’t go so far as to say it’s possible to find a “silver lining” in the San Bernardino massacre, the fact that Tashfeen Malik’s connection to Saudi Arabia has focused the world’s attention on Riyadh’s role in promoting Sunni extremism means the tragedy will at least serve a kind of utilitarian purpose. 

    As we and others have documented extensively, Saudi Arabia’s promotion of Wahhabism makes the kingdom the number one state sponsor of terror almost by default (Erdogan’s support for ISIS notwithstanding). Despite the best efforts of quite a few commentators and analysts who this year have drawn attention to the fact that the ideology espoused and promulgated by the Saudis is really no different than that promoted by ISIS, the Western public is still largely in the dark – we know this because if the US electorate were truly in tune to what’s going on, voters would stage a popular revolt before they’d allow King Salman to parade into Washington in a fleet of Mercedes on the way to commandeering the entire Four Seasons for a two day stay. 

    As Kamel Daoud, a columnist for Quotidien d’Oran, and the author of “The Meursault Investigation” put it in a New York Times op-ed in November, Saudi Arabia is simply “an ISIS that made it.” Here’s an excerpt from that piece:

    Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on.

    Of course the kingdom’s support for radical Islam isn’t confined to the promotion of a poisonous ideology. The Saudis have a history of arming and funding Sunni extremist groups when those groups are thought to be advancing Riyadh’s geopolitical interests. Syria is the latest example but there are others including, for instance, the Saudis’ support for the mujahideen during the Soviet-Afghan war. At the risk of generalizing, those fighters went on to become al-Qaeda.

    We bring that up because today, Saudi Arabia (that bastion of human rights) executed 47 people, many of whom were al-Qaeda members. “Most of the 47 executed in the kingdom’s biggest mass execution for decades were Sunnis convicted of al Qaeda attacks in Saudi Arabia a decade ago,” Reuters reports, adding that “the executions took place in 12 cities in Saudi Arabia, four prisons using firing squads and the others beheading.” Here’s more: 

    The simultaneous execution of 47 people – 45 saudis, one Egytian and a man from Chad – was the biggest mass execution for security offences in Saudi Arabia since the 1980 killing of 63 jihadist rebels who seized Mecca’s Grand Mosque in 1979.

     

    The 43 Sunni jihadists executed on Saturday included several prominent al Qaeda figures, including those convicted for attacks on Western compounds, government buildings and diplomatic missions that killed hundreds from 2003-06.

    Obviously, there’s something terribly absurd about this. The Saudis are executing Sunni extremists with one hand, and promoting Sunni extremism with the other. While they’re busy beheading al-Qaeda members in Saudi Arabia, they’re effectively creating a Hydra by funneling arms and funds to al-Nusra in Syria and promulgating the “dark” (to quote Bashar al-Assad) ideology that inspires the group.

    But that’s not all. Among those executed on Saturday was prominent Shiite cleric Nimr al-Nimra. As BBC notes, “Sheikh Nimr was a vocal supporter of the mass anti-government protests that erupted in Eastern Province in 2011, where a Shia majority have long complained of marginalisation.”

    Here are some fast facts about the Sheikh, again, courtesy of BBC:

    • In his 50s when he was executed, he has been a persistent critic of Saudi Arabia’s Sunni royal family
    • Arrested several times over the past decade, alleging he was beaten by Saudi secret police during one detention
    • Met US officials in 2008, Wikileaks revealed, seeking to distance himself from anti-American and pro-Iranian statements
    • Emerged as a figurehead in the protests that began in 2011 inspired by the Arab Spring
    • Said to have a particularly strong following among Saudi Shia youth

    Ultimately, the Saudis killed (literally) two birds with one stone here: they silenced a dissident political voice and they dealt a slap in the face to Iran by killing a prominent member of the Shiite community.

    The Sheikh’s death sparked protests in the Eastern Province, the site of the 2011 uprising in which Nimr played a key role. “Scores of Shi’ite Muslims marched through the Qatif district of Saudi Arabia’s Eastern Province in protest at the execution of cleric Nimr al-Nimra,” Reuters says, citing an eyewitness. “They chanted ‘down with the Al Saud’, the name of the ruling Saudi royal family.” Here’s more, from al-Jazeera:

    Scores of Shias in Saudi Arabia’s Eastern Province marched through Nimr’s home district of Qatif to protest against the execution. Dozens of protesters also took to the streets in neighbouring Bahrain, where police fired tear gas to disperse them.

     


     

    Nimr had called for the oil-rich Eastern Province, where about two million Shia live, to be separated from the rest of Saudi Arabia.

    He also criticised the government for what he said was the marginalisation of the Shia minority in the country.

     

    Lebanon’s Shia Hezbollah movement condemned the execution, calling it an “assassination”.

     

    The “real reason” for the execution was “that Sheikh Nimr … demanded the squandered rights of an oppressed people,” the group said in a statement. 

    They’re also protesting at the Saudi embassy in Tehran:

    Officially, Nimr’s crime was sedition, disobedience and bearing arms. Oh, and “foreign meddling.” Speaking of “foreigners,” Iran isn’t happy, and neither is Hezbollah. “Saudi Arabia is executing the opponents of terrorism,” Tehran said. Even the Houthis jumped into the fray. Here’s Reuters again:

    Riyadh’s main regional rival Iran and its Shi’ite allies immediately reacted with vigorous condemnation of the execution of Nimr, and Saudi police raised security in a district where the sect is a majority in case of protests, residents said.

     

    But a top Iranian cleric said the kingdom’s Al Saud ruling family would be “wiped from the pages of history”, Yemen’s Houthi group described Nimr as a “holy warrior” and Lebanese militia Hezbollah said Riyadh had made “a grave mistake”.

     

    “The (royal) Al Saud family executed today the holy warrior, the grand cleric Nimr Baqr al-Nimr after a mock trial … a flagrant violation of human rights,” an obituary on the Houthis’ official Al Maseera website said.

    This comes on the heels of a banner year for beheadings in the kingdom. As AP reports, “Saudi Arabia carried out at least 157 executions in 2015, with beheadings reaching their highest level in the kingdom in two decades, according to several advocacy groups that monitor the death penalty worldwide.”

    The Saudis would be wise to exercise caution in 2016. Now that Riyadh has been forced to rollback subsidies and overhaul the welfare state in order to buy itself some budget breathing room, the conditions are ripe for social unrest. Inflaming sectarian tensions by killing prominent Shiite opposition leaders isn’t exactly conducive to the promotion of stability.

    Additionally, it’s not clear that this is an opportune time to poke Iran in the eye. Between Yemen and Iraq, Tehran’s influence is expanding and thanks to Russia, it doesn’t appear likely that Damascus will fall to Saudi-backed rebels. In short, Iran’s Shiite cresent is waxing while the House of Saud is waning. Throw in the fact that Iran is set to shed the “pariah state” label with the lifting of international sanctions and the fact that Islamic State’s meteoric rise has served to increase public awareness of just how dangerous the ideology espoused by the Saudis truly is, and you have a truly precarious situation for Washington’s favorite oil-rich monarchy.

  • Monopoly Much? America's Largest Utility Hikes Rates Most In 9 Years Despite NatGas Price Crash

    Happy New Year Californians – behold the power of monopoly and regulatory capture.

    Submitted by Wolf Richter via WolfStreet.com,

    “We want our customers and their families to know that we are here to help them make smart energy choices and save money whenever possible,” cooed Laurie Giammona, senior VP and chief customer officer of Pacific Gas and Electric, on Wednesday between Christmas and New Year’s, when no one was supposed to pay attention.

    It was the propitious day when the beloved utility that distributes gas and electricity in the northern two-thirds of California announced that on January 1st it would jack up its rates.

    America’s largest electric utility and the second largest gas utility by number of customers, the utility whose 2010 gas-pipeline explosion in San Bruno, just south of San Francisco, killed 8 people, injured another 66, and burned down 38 homes, the utility that is still digging in its heels after five years since the explosion and is now under investigation by the California Public Utilities Commission because it failed to deliver certain documents, the very same PUC that is being probed by a federal grand jury for potential illegal ties between the regulators and the executives of PG&E in this ballooning corruption scandal … well, this beloved utility now has announced a very special New Year’s resolution.

    It will hike natural gas rates for the average residential customer by 4.0% and electricity rates by a stunning 8.5%, for a combined rate increase of 7%, the steepest since 2006.

    The average small business is going to get whacked by a combined rate increase of 5.1%.

    That’s on top of the 6% rate increase it had successfully inflicted on its customers a year ago.

    Rate increases, despite a plunge in the price of natural gas

    That plunge started in 2008 and has hit new lows on December 17, when the price of natural gas hit $1.68 per million Btu at the NYMEX, the lowest since March 23, 1999. When adjusted for inflation, it was below the prices tracked by NYMEX going back to 1990. This historic price collapse has been eviscerating the US natural gas industry and its investors [read…  Carnage in US Natural Gas as Price Falls off the Chart.]

    Much of the power PG&E distributes is generated by natural gas. And all of the natural gas it distributes is, well, the same natural gas whose price has plunged to historic lows.

    In fact, in its third quarter financial statement, PG&E admits as much: its cost of electricity over the first nine months of 2015 dropped 8.8% year-over-year, and its cost of natural gas plunged 36%!

    The thing is, despite the juicy rate increases imposed at the beginning of 2015, operating revenues have fallen about 1% so far in 2015, as Californians use less energy from their beloved utilities. It’s an existential struggle all utilities face.

    However, the company pointed out that the rate increases won’t be used to pay for the fines and penalties associated with the San Bruno pipeline explosion.

    Those will largely be covered by the proceeds from a public offering last August of 6.8 million common shares at $51.90 per share. Wells Fargo, the underwriter for the offering, got a bundle of fees. But money is fungible. It’s like water. It flows wherever gravity pulls it, and no one can separate it.

    So why the rate increase? The SFGate:

    The changes follow a decision by the California Public Utilities Commission in 2014 to let PG&E collect an extra $2.37 billion in revenue from its customers over three years, from the start of 2014 through the end of 2016. The additional money will pay for maintenance and upgrades to PG&E’s sprawling electricity grid and natural gas pipeline network….

    What else is PG&E doing with this moolah?

    It is paying rich quarterly dividends of $0.455 per common share. With 489 million shares outstanding in the third quarter, dividends for a year would amount to $890 million. So for the three-year period in question (2014-2016), this would amount to, give or take, $2.7 billion, more than enough to pay for the maintenance and upgrades of its system.

    If it faced real competition, or a real regulator, PG&E would be forced to pay for maintenance and upgrades with other means than rate increases when its input costs are plunging while it’s paying out a rich dividend.

    And how are its customers supposed to deal with the rate increases? PG&E, according to the SFGate, “urged its customers to contact the utility for ways to save energy.” So, turn down the heater, put on another fleece, buy more efficient appliances, and hunt down subsidies for low-income households.

    As always, it’s just the beginning.

    In September, PG&E asked the Public Utility Commission for another $2.7 billion in revenue increases for the three-year period of 2017-2019. That particular amount of money would be used ostensibly to prepare for natural disasters. Over the same period, it would still pay out $2.7 billion in dividends. The PUC, under federal grand-jury investigation for its cozy ties to PG&E, has not yet voted on this doozie.

    Turns out, for utilities, the party is over, again. Read… Dear Electric Utility CEO: Merry Xmas and Cut the Dividend?

  • 2016's Planet Of The Aches

    Some 'aches and pains' are constraining the global economy, with JPMorgan warning of more severe strains occurring in the emerging world. These aggravating but generally not life-threatening conditions are meant to convey a slow growth world, but, JPM is careful to note, not one on the immediate precipice of collapse or recession. 

     

    (click image for large legible version)

    Source: JPMorgan

    The key issue for 2016 then is whether economic illnesses in emerging markets will result in contagion in the developed world as "dollar altitude sickness" and "earnings anemia" do little to support the domestic 'immune' system.

  • Protesters Set The Streets On Fire In Bahrain After Saudis Kill Top Shiite Cleric

    Earlier today, we documented Saudi Arabia’s largest mass execution in 25 years. 

    In what was billed as an effort to rid the world of 47 “terrorists”, the Saudis killed dozens of al-Qaeda affiliates and four Shiites who stood accused of shooting policemen in the anti-government protests which broke out during the Arab Spring.

    Among the Shiites killed was prominent cleric Nimr al-Nimr. The Sheikh was an outspoken supporter of the anti-government movement and his death drew sharp condemnation from Iran, Hezbollah, and the Houthis on Saturday.

    In the wake of the execution, “scores marched through Nimr’s home district of Qatif shouting ‘down with the Al Saud’ and, in neighboring Bahrain, police fired tear gas at several dozen people who gathered to protest the news,” AP reported.

    “Bahrain’s Saudi-backed Sunni authorities crushed protests led by its majority Shia shortly after they erupted on February 14, 2011, taking their cue from Arab Spring uprisings in the Middle East and North Africa,” al-Jazeera wrote back in February when hundreds took to the streets of Manama to commemorate the anniversary of the Arab Spring uprising. “Tensions are running high in the kingdom where a sectarian divide is deepening and there is a growing gap between the Sunni minority government and the Island’s Shia majority.”

    Below, find the searing (literally) images from Bahrain where police fired tear gas at protesters to disperse the crowds.

    Are the days of the Gulf monarchies numbered?

  • Noble Group’s "Collateral Margin Call"

    By Simon Jacques

    Noble Group’s “Collateral Margin Call”

    The downgrade of Noble Group by Moody’s depicts an aggressive financial risk and a vulnerable business risk profile

    I) the first-order problem is Macro.

    “The downgrade of Noble Group to junk status is worrisome, but the main story is about the evolution of the commodity price downtrend. 1st round effects were felt in macro indicators (lower CapEx & growth for producers and following FX/interest rate adjustments). 2nd round effects will be about commodity exporters’ governments reactions.”

    Those effects will dominate in 2016 said Sacha Duparc, Head trader and structurer at Banque Cantonale Vaudoise.

    II) Collateral margin call.

    The trader has billions of dollars in commodity prepays with NOCs and producer, the value of inventories and receivables collateralized by traders into trade finance arrangements have cratered in the past year.

    This collateral value of Noble Group is being depressed, those loans are been called even Noble Group (buoyed by liquidity in 2015) never missed a payment because the market say this property and assets are worth less they claim it is worth on their books.

    Banks are requiring at least $1.6 Bn more in additional collateral that Noble Group doesn’t have… Noble is being placed into either bankruptcy or they are being placed in a tremendous economic adversity that so far they’ve not seen in 2015.

    “People have been hopeful that Noble might avoid a rating downgrade after the asset sale but it couldn’t,” said a Hong Kong-based credit trader at a Japanese investment bank.

    Noble’s move to raise US$750 million by selling its remaining stake in Noble Agri. I repeat what was said in a previous comment: Noble Agri Sale was strictly a Collateral margin call.

    Noble Group must raise money but their collateral base is new book value of 4,528 million while their Net Positive fair values gains of commodity contracts and derivatives exceeds MTM is over 4,500 million…

    By any model, this MTM represents between 90% and 105% of their book value.

    Banks aren’t provided with the access of the exact breakout of the 4,500 million and PwC has not been able to review the exact assumptions and models behind these Net Positive fair values gains of commodity contracts and derivatives. Perhaps, Antoine Lavoisier, French nobleman of the 18th century and father of modern chemistry must have a great influence on the financial reporting of Asia’s Largest Commodity trader with “Nothing is lost, nothing is created, and everything is transformed”.

    Solvency Problem, not liquidity

    I will make it clear that it is not Liquidity that banks are asking but for more Collateral from Noble starting this year because they also understand that this MTM gain on commodity contracts and derivatives of Noble will unlikely be realized at more than 10% and therefore is not valid collateral for the trader’s working capital borrowing base requirements.

    A close friend hedgie in NY reminded me that at the height of 08′, a IB sale desk lured them into “taking a position into undervalued trading books of the bank temporarily mispriced because of market illiquidity”. At only 66 cents on the Dollar, the deal turned-out to be 0.6 cent sinky.

    Enron-esque memes

    To put Enron in the context of 1999-2001s, it was not only the world’s largest energy trader; it had also the same gleaming and appeal of the Trafiguras or Vitols of today.

    A trading or a mgmt position at Enron meant that you could do a 6 digits salary and touch a 7 digits bonus. Most of it was a management incentive program with the Enron Corp share derivatives used as a currency.

    Many people at other firms were lured into mgmt and trading positions by commodity headhunters hired by Enron Corp providing “an offer that nobody could refuse” just months before the collapse.

    There are some parallels with Noble Group, one I guess is that Noble recently brought new faces people from other firms in Geneva like Kev Brassington into offers that they could not refuse in their career path.

    Enronesques parallels with Trafigura.

    Medias have recently bragged about “$775m bonuses” to 600 of Trafigura employees related to bumper profits from oil trading”. However I note in the disclaimer that’s as an all stock 5 year LOCK buyback type program, again something tied to its future performance and the commodity curve.

    When Enron collapsed, the story that I know is that an average trader and VP have registered 7 digits each (real losses), so it is fair to say that VPs, Management and traders were also conned. More than financial losses, can you think about the moral damages that they still endure because they spent between 12 and 6 months at Enron ?

  • "New Research Suggests [Fluoridating Water] Is Dramatically Misguided"

    Preface: One of our pet peeves is when erroneous groupthink persists even in the face of contradictory evidence.

    As shown below, water fluoridation is based on very shaky science.  And yet – despite the science – the big dental associations in the U.S. and other countries continue to push it as safe and effective.

    The Guardian reported last week:

    Health experts are calling for a moratorium on water fluoridation, claiming that the benefits of such schemes, as opposed to those of topical fluoride (directly applied to the teeth), are unproved.

     

    ***

     

    Stephen Peckham, director and professor of health policy at Kent University’s centre for health service studies, said: “Water fluoridation was implemented before statistics had been compiled on its safety or effectiveness. It was the only cannon shot they had in their armoury. It gets rolled out, becomes – in England – policy and then you look for evidence to support it.

     

    “The fat debate [whereby fat used to be the big enemy in food before that was revised] is an example of evidence getting built up to support a theory. It’s a dental health policy that’s got up a head of steam and people have been reluctant to see it criticised.

     

    “You can’t really confidently say that water fluoridation is either safe or effective.

    Newsweek reported last June:

    You might think, then, that fluoridated water’s efficacy as a cavity preventer would be proven beyond a reasonable doubt. But new research suggests that assumption is dramatically misguided; while using fluoridated toothpaste has been proven to be good for oral health, consuming fluoridated water may have no positive impact.

     

    The Cochrane Collaboration, a group of doctors and researchers known for their comprehensive reviews—which are widely regarded as the gold standard of scientific rigor in assessing effectiveness of public health policies—recently set out to find out if fluoridation reduces cavities. They reviewed every study done on fluoridation that they could find, and then winnowed down the collection to only the most comprehensive, well-designed and reliable papers. Then they analyzed these studies’ results, and published their conclusion in a review earlier this month.

     

    The review identified only three studies since 1975—of sufficient quality to be included—that addressed the effectiveness of fluoridation on tooth decay in the population at large. These papers determined that fluoridation does not reduce cavities to a statistically significant degree in permanent teeth, says study co-author Anne-Marie Glenny, a health science researcher at Manchester University in the United Kingdom. The authors found only seven other studies worthy of inclusion dating prior to 1975.

     

    The authors also found only two studies since 1975 that looked at the effectiveness of reducing cavities in baby teeth, and found fluoridation to have no statistically significant impact here, either.

     

    The scientists also found “insufficient evidence” that fluoridation reduces tooth decay in adults (children excluded).

     

    “From the review, we’re unable to determine whether water fluoridation has an impact on caries levels in adults,” Glenny says. (“Tooth decay,” “cavities” and “caries” all mean the same thing: breakdown of enamel by mouth-dwelling microbes.)

     

    “Frankly, this is pretty shocking,” says Thomas Zoeller, a scientist at UMass-Amherst uninvolved in the work. “This study does not support the use of fluoride in drinking water.” Trevor Sheldon concurred. Sheldon is the dean of the Hull York Medical School in the United Kingdom who led the advisory board that conducted a systematic review of water fluoridation in 2000, that came to similar conclusions as the Cochrane review. The lack of good evidence of effectiveness has shocked him. “I had assumed because of everything I’d heard that water fluoridation reduces cavities but I was completely amazed by the lack of evidence,” he says. “My prior view was completely reversed.”

     

    “There’s really hardly any evidence” the practice works, Sheldon adds. “And if anything there may be some evidence the other way.” One 2001 study covered in the Cochrane review of two neighboring British Columbia communities found that when fluoridation was stopped in one city, cavity prevalence actually went down slightly amongst schoolchildren, while cavity rates in the fluoridated community remained stable.

     

    Overall the review suggests that stopping fluoridation would be unlikely to increase the risk of tooth decay, says Kathleen Thiessen, a senior scientist at the Oak Ridge Center for Risk Analysis, which does human health risk assessments of environmental contaminants.

     

    “The sad story is that very little has been done in recent years to ensure that fluoridation is still needed [or] to ensure that adverse effects do not happen,” says Dr. Philippe Grandjean, an environmental health researcher and physician at Harvard University.

     

    The scientists also couldn’t find enough evidence to support the oft-repeated notion that fluoridation reduces dental health disparities among different socioeconomic groups, which the CDC and others use as a rationale for fluoridating water.

     

    “The fact that there is insufficient information to determine whether fluoridation reduces social inequalities in dental health is troublesome given that this is often cited as a reason for fluoridating water,” say Christine Till and Ashley Malin, researchers at Toronto’s York University.

     

    Studies that attest to the effectiveness of fluoridation were generally done before the widespread usage of fluoride-containing dental products like rinses and toothpastes in the 1970s and later, according to the recent Cochrane study. So while it may have once made sense to add fluoride to water, it no longer appears to be necessary or useful, Thiessen says.

     

    It has also become clear in the last 15 years that fluoride primarily acts topically, according to the CDC. It reacts with the surface of the tooth enamel, making it more resistant to acids excreted by bacteria. Thus, there’s no good reason to swallow fluoride and subject every tissue of your body to it, Thiessen says.

     

    Another 2009 review by the Cochrane group clearly shows that fluoride toothpaste prevents cavities, serving as a useful counterpoint to fluoridation’s uncertain benefits.

     

    ***

     

    “I couldn’t believe the low quality of the research” on fluoridation, Sheldon says.

     

    ***

     

    Cavity rates have declined by similar amounts in countries with and without fluoridation.

     

    ***

     

    Sheldon says that if fluoridation were to be submitted anew for approval today, “nobody would even think about it” due to the shoddy evidence of effectiveness and obvious downside of fluorosis.

     

    ***

     

    The CDC and others “are somehow suspending disbelief,” Sheldon says. They are “all in the mindset that this is a really good thing, and just not accepting that they might be wrong.” Sheldon and others suggest pro-fluoridation beliefs are entrenched and will not easily change, despite the poor data quality and lack of evidence from the past 40 years.

    Indeed, an overwhelming number of scientific studies conclude that cavity levels are falling worldwide … even in countries which don’t fluoridate water.

    World Health Organization Data (2004) –
    Tooth Decay Trends (12 year olds) in Fluoridated vs. Unfluoridated Countries:
    who dmft An Overwhelming Number of Scientific Studies Conclude That Cavity Levels are Falling Worldwide ... Even In Countries Which Dont Fluoridate Water

    And the scientific literature shows that – when fluoridation of water supplies is stopped – cavities do not increase (but may in some cases actually decrease). See this, this, this, this, this and this.

    A couple of weeks ago, the British Medical Journal reported that Americans lose a lot more of their teeth than the Brits … even though the U.S. fluoridates a lot more of its water than the UK.

    Fluoridating may water also cause reduction in IQ, depression and a variety of other illnesses.

    The Guardian notes:

    Critics cite studies claiming to have identified a number of possible negative associations of fluoridation, including bone cancer in boys, bladder cancer, hypothyroidism, hip fractures and lower IQ in children.

    Newsweek reports:

    A growing number of studies have suggested … that the chemical may present a number of health risks, for example interfering with the endocrine system and increasing the risk of impaired brain function; two studies in the last few months, for example, have linked fluoridation to ADHD and underactive thyroid.

    But how did the myth that water fluoridation is effective and safe get started in the first place?

    The government allegedly ordered Manhattan Project scientists to whitewash the toxicity of flouride (flouride is a byproduct in the production of weapons-grade plutonium and uranium). As Project Censored noted in 1999:

    Recently declassified government documents have shed new light on the decades-old debate over the fluoridation of drinking water, and have added to a growing body of scientific evidence concerning the health effects of fluoride. Much of the original evidence about fluoride, which suggested it was safe for human consumption in low doses, was actually generated by “Manhattan Project” scientists in the 1940s. As it turns out, these officials were ordered by government powers to provide information that would be “useful in litigation” and that would obfuscate its improper handling and disposal. The once top-secret documents, say the authors, reveal that vast quantities of fluoride, one of the most toxic substances known, were required for the production of weapons-grade plutonium and uranium. As a result, fluoride soon became the leading health hazard to bomb program workers and surrounding communities.

     

    Studies commissioned after chemical mishaps by the medical division of the “Manhattan Project” document highly controversial findings. For instance, toxic accidents in the vicinity of fluoride-producing facilities like the one near Lower Penns Neck, New Jersey, left crops poisoned or blighted, and humans and livestock sick. Symptoms noted in the findings included extreme joint stiffness, uncontrollable vomiting and diarrhea, severe headaches, and death. These and other facts from the secret documents directly contradict the findings concurrently published in scientific journals which praised the positive effects of fluoride.

     

    Regional environmental fluoride releases in the northeast United States also resulted in several legal suits against the government by farmers after the end of World War II, according to Griffiths and Bryson. Military and public health officials feared legal victories would snowball, opening the door to further suits which might have kept the bomb program from continuing to use fluoride. With the Cold War underway, the New Jersey lawsuits proved to be a roadblock to America’s already full-scale production of atomic weapons. Officials were subsequently ordered to protect the interests of the government.

     

    After the war, … the dissemination of misinformation continued.

    And Edward Bernays – the father of modern propaganda techniques – may have been the mastermind behind the “safe and effective” myth.

    Austrian economist Murray Rothbard wrote in 1993:

    The mobilization, the national clamor for fluoridation, and the stamping of opponents with the right-wing kook image, was all generated by the public relations man hired by Oscar Ewing to direct the drive. [Ewing was the chief counsel for Alcoa aluminum company, and fluoride is a byproduct of aluminum production.] For Ewing hired none other than Edward L. Bernays, the man with the dubious honor of being called the “father of public relations.” Bernays, the nephew of Sigmund Freud, was called “The Original Spin Doctor” in an admiring article in the Washington Post on the occasion of the old manipulator’s 100th birthday in late 1991.

     

    ***

     

    As a retrospective scientific article pointed out about the fluoridation movement, one of its widely distributed dossiers listed opponents of fluoridation “in alphabetical order reputable scientists, convicted felons, food faddists, scientific organizations, and the Ku Klux Klan.” (Bette Hileman, “Fluoridation of Water,” Chemical and Engineering News 66 [August 1, 1988], p. 37; quoted in Griffiths, p. 63) In his 1928 book Propaganda, Bernays laid bare the devices he would use: Speaking of the “mechanism which controls the public mind,” which people like himself could manipulate, Bernays added that “Those who manipulate the unseen mechanism of society constitute an invisible government which is the true ruling power of our country…our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of…” And the process of manipulating leaders of groups, “either with or without their conscious cooperation,” will “automatically influence” the members of such groups.

     

    In describing his practices as PR man for Beech-Nut Bacon, Bernays tells how he would suggest to physicians to say publicly that “it is wholesome to eat bacon.” For, Bernays added, he “knows as a mathematical certainty that large numbers of persons will follow the advice of their doctors because he (the PR man) understands the psychological relationship of dependence of men on their physicians.” (Edward L. Bernays, Propaganda [New York: Liveright, 1928], pp. 9, 18, 49, 53. Quoted in Griffiths, p.63) Add “dentists” to the equation, and substitute “fluoride” for “bacon,” and we have the essence of the Bernays propaganda campaign.

     

    Before the Bernays campaign, fluoride was largely known in the public mind as the chief ingredient of bug and rat poison; after the campaign, it was widely hailed as a safe provider of healthy teeth and gleaming smiles.

    And award-winning BBC producer and investigative journalist Christopher Bryson writes:

    [Bernays] operated from the same office building, One Wall Street, where the Alcoa lawyer Oscar Ewing had also worked. In 1950 Ewing had been the top government official to sign off on the endorsement of water fluoridation, as Federal Security Administrator in charge of the US Public Health Service.

     

    “Do you recall working with Oscar Ewing on fluoridation?” I asked Bernays.

     

    “Yes,” he replied.

     

    ***

     

    Bernays’s personal papers detail his involvement in one of the nation’s earliest and biggest water fluoridation battles ….

    Bryson goes on for pages describing how Bernays master-minded the campaign to convince Americans to accept water fluoridation.

    And watch this brief interview:

    (The whole 25-minute interview is a must-watch.)

    Even Chemical and Engineering News noted in 1999:

    According to Edward Groth III, an associate technical director of Consumers Union who wrote his Ph.D. thesis in biology on the fluoridation controversy in 1973, pro- and antifluoridationists approach the issue from completely different perspectives. “Proponents see it as a simple public health measure, effective and safe, which they need to ‘sell’ to the public, almost like a box of soap.

    In other words, the U.S. government apparently hired the leading propagandist to create the myth that fluoride is safe and effective in order to protect its bomb-making program.

  • Re-Branding Dissent – The Quiet Destruction Of Democracy

    Authored by Golem XIV,

    I am one of those who thinks that democracy is being destroyed.  I know its fashionable to play cynical one-upmanship and say – ‘we’ve never had democracy’, or, ‘it was destroyed long ago’,  but that game aside, I think its worth actually thinking about how, many forms of democratic expression, effective dissent and peaceful self-determination are being buried.

    In “The Next Crisis” I argued that the Global Over-Class have decided that Democracy is a threat to their wealth and power and have more than likely given some thought to how best to neuter it while appearing to do no such thing.  I suggested they would wish to keep the outward form of democracy, so as to keep us reassured and entertained, but remove any substance from it, leaving us with an empty but colourful stage show. 

    In part two  of the series, I offered a list of the various ways this could be done (a sort of manifesto for the Over Class or, as I have called them elsewhere, The Disloyal and noted how many of those things were clearly already underway.

    For example item three of the manifesto said,

    3) professionalized Governance. Democracy can be and must be neutered, and an effective way of doing this is to insist that amateur, elected officials MUST take the advice of professional (read corporate) advisors. Expand current law to enforce this.

     

    If this seems monstrous now, their argument, I suspect,  will be that in an increasingly crowded, interconnected and globalised world we can no longer leave critically important decisions in the hands of the uneducated, in-expert and amateur.  We must, of course, still be free to choose but must, from now on, be helped to choose ‘wisely’. And how can we choose wisely if we aren’t given wise choices to choose from?  Oh, the Orwellian beauty of it! No prizes for guessing who will decide what is and what is not wise. 

    We cannot any longer allow you to choose unwisely! There is so much at stake and so much you and your representatives simply do not fully understand.

    You only need think how much legislation is already written by these ‘advisors’ and how many ‘experts’ are routinely seconded from corporations in order to ‘help’ the government departments regulate those same corporations to appreciate how far towards this we have already come. Two examples of ‘expert advice’ spring readily to mind. Back in May 2014  Citi drafted, word for word, many of the ‘amendments’ to the Frank Dodd financial regulation law.  While professional experts from  J PM Morgan did the same for the new derivatives trading law which puts the US tax payer back on the hook for any really serious losses.

    Choose wisely

    ‘Choose wisely’ is a good first step in neutering democracy. It is easy to sell, appears wise, benevolent even, and who could advocate the opposite?  But being admonished to ‘choose wisely’ is quite different to being forced to do so by having ‘experts’ pre-choose your range of choices for you and having your representatives forced to follow the pre-narrowed ‘wise’ choice or choices handed to them by paid-for lobbyists and seconded experts. However I think the Over Class knows ‘Choose wisely’ and Professionalized Governance are not going to be enough on their own – given the scale of unpleasantness which will have to be imposed and maintained on voters if the current structures of power and privilege are to be maintained.

    ‘Choose wisely’ and Professionalized Governance are an efficient and well camouflaged way to stop radical democratic ideas getting traction in Parliament or Congress or ever making it in to law. But, they leave unaddressed the more urgent task of how to properly neuter the people at source – in their own minds. How much better and stable it would be, for the Over Class, if the people voluntarily shied away from dissenting opinions rather than having  to corral such opinions once they are voiced and people start voting for them.

    I began to look at how this second front in the war on democracy might be fought, in part three.  I  suggested that what you and I might call public engagement would be re-branded as ill-informed ‘populism’. And wouldn’t you know it, Prime Minister David Cameron speaking – or should I say condescending – in the House of Commons on 17.11.15 about opposition to the TTIP trade agreement, said,

    …when you [Members of Parliament] get that barrage of emails – people sometimes have signed up without fully understanding every part of what they’ve been asked to sign – people want to spread some fear about this thing, and we have a role, I think, of trying to explain properly why these things are good for our country.

    Et voila! A wonderful early example. This is the start of the re-branding of political dissent.

    But wait , as the  old advertizing saying goes, there’s more!

    From ‘Professionalize Democracy’ to ‘Demonize Dissent’

    The key problem for the Over Class is that no matter how much they might like to, they cannot just come out and say dissent – AKA radically different opinion – is a bad thing. Being able to hold a dissenting opinion, even a radically dissenting opinion, is, after all, the core of democratic freedom.

    So I think the Over Class’ task is two-fold. First, create conditions which will make people want to stifle dissent; other people’s first then even their own – or at least start to see a dark and threatening side to it – and then give them a whole new vocabulary of catchy new phrases and ideas with which to express their new-found caution about dissent and dissenters. Seen this way it is clear that this re-branding of dissent is a psychological/marketing/propaganda problem.

    Of course it is relatively trivial to get people to accept that while many kinds of dissent are acceptable, some kinds  just aren’t because, for example, they’re felt to be dangerous. We already accept that certain kinds of ‘extremist’ dissent is dangerous and unacceptable. And while some are uneasy, sensing how the term ‘extremist’ could be softened and inflated to accommodate everyone from animal rights activists, to – oh I don’t know…how about ‘militant peace activists’, or those who oppose austerity, people are just about willing to be bullied and frightened into accepting this ‘extremist’ curtailment of democracy.

    ‘Extremists’ and ‘Extremism’ have been the millennial threat-du-jour and have done wonders for justifying any and all actions claimed to be essential for ‘protecting national security’. No one wants to be accused of supporting ‘extremists.’ In America, Extremism is the new Communism. The rhetoric and paranoia around the ‘threat from Extremism’ in America and in Europe looks and sounds, to me at least,  very similar to McCarthyism. In the UK another new Bill will soon give the British security services and police yet more powers to stop travel, cancel passports and even ban people from talking at universities.

    But the “extremist’ narrative is not going to do what needs to be done. The problem is the terms currently used  to label people as dangerous are less than perfect for demonizing the dissent that worries our leaders most: those to do with economics, finance and globalisation and the environment.  ‘Extremism’ and ‘extremist’ are, perversely, just too …well, extreme. Talking about National Security, is very effective in its sphere, but it is just too specifically military to be very useful when it comes to undermining most peaceful, domestic, democratic dissent. What the ‘extremism’ narrative has done, however, is get people used to the idea that there can and should be limits to democratic dissent.

    What I think the Over Class now need is a new label for the  mind-set of dissenters and their dissent which can be applied to those who oppose the ‘necessary welfare and economic reforms’, ‘essential austerity cut backs’,  ‘misunderstood’ trade agreements and environmental problems. They need a label for a mind-set which they will readily admit isn’t ‘extremist’ but which they can argue ‘can lead to extremism’; much as people used to talk about marijuana being the gateway drug leading inevitably to harder drugs.

    What will that label be? Well I think the clue is there in the drive to ‘professionalize’ governance. ‘Professional’ is already a shorthand for the  claim that someone or something is rational, balanced and ‘evidence based’. The term ‘Professional’, all on its own, already implies that those opposed to the ‘professional’ opinion/plan, are probably slightly ‘irrational’ and quite likely to be advocating actions and opinions that are without a firm base in scientific evidence. After all if that were not the case the professionals would have advocated it themselves.

    Of course this brings us wonderfully back to the questions of who claims to have the authority and expertise to say what is and isn’t good solid rational and evidence-based. We are already mired in such arguments.

    The threat from the Irrational

    I suggest the new label will be ‘Irrational’. “He’s irrational!” “You’re being irrational.” “That’s irrational.” Irrational is already a term of abuse. What’s needed is to suggest that being irrational can be much more than a personal intellectual short-coming. That in fact, people who support irrational causes, and have irrational beliefs – who are …irrational, can be a dangerous threat when they organise their irrational beliefs into a political cause. Because, the argument will go, irrational fears can be used by those who have ulterior motives to prey upon the ordinary but unwary citizen, by creating irrational fears and then offering a seductive but irrational solutions.

    And of course what will be held up as acceptable rational beliefs will be generally those which the Over Class, their media outlets, pundits and paid for political lick-spittles say are rational.

    In this new narrative of demonizing dissent,

    “It is not what you chose to believe – you are free to believe what you want – but HOW you believe it.

     

    Believe it rationally, based on evidence and with regard for how your belief affects the well-being and security of those around you and there is no problem.

     

    But choose to believe irrationally and without regard for how your irrational belief may harm others and you are an Irrationalist. “

    This leaves intact your right to believe what you want but adds a subtle but insidious ‘responsibility test.’

    If I’m right then we will soon see a broader new narrative built around the idea that Irrationality and an irresponsible disregard for the well-being of others, together, pose a grave threat to Stability and Safety. These four notions, Irrationality, Irresponsibility, Stability and Safety will form the central mechanism for re-branding dissent.  ‘Safety’  people will recognise from its National Security guise. But by pairing it with ideas of Stability it helps bridge the gap between national security (safety) and national economic security (stability). Security becomes more than simply physical safety and is expanded to include economic stability.

    And the enemy of both, of course, is the Irrational Dissenter. Being irrational is, we will be told, particularly dangerous when it is paired with fervent claims that we are in danger and we should all act now to fend off the danger. Such  people will be likened to idiots who shout ‘fire’ in a crowded theatre.

    A new mental condition could be coined for them – something along the lines of Attention Seeking Disorder – people who get a perverse pleasure simply from dissenting. How easy it would be to cast doubt on someone’s dissent if you suggest it is not about caring for others but actually a disorder of the ego. A desire for notoriety above all else with total disregard for what effect they might have on the stability and safety of those round them.

    Troublesome dissent could be rebranded as a thoughtless and selfish advocating of something knowing it will cause widespread harm to others but not caring.

    Extremism is a problem out there on the fringes of society – Irrationalism – The paranoid fear of imagined dangers and those who promote such fears – is the enemy within.  They are the sinister fringe who constantly look to radicalize the inexpert.

    So let us all recite the liturgy our leaders would have us believe, that in the 21st century –

    1. Democracy is the freedom to choose wisely.
    2. In a globalized, inter-dependant world we cannot afford to choose irrationally or disastrously.
    3. It is not what you believe but how you believe it.
    4. Believe things rationally, based on evidence, with regard to how your beliefs affect those around you.
    5. If you know someone who doesn’t, they may be irrational and suffering from a mental disorder in which the personal notoriety of being contrarian matters more to them than any harm they might do to the safety and stability we all depend upon.

  • EiGHT YeaRS AFTeR…

    EIGHT YEARS AFTER

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Jan 02

The Keynesian Recovery Meme Is About To Get Mugged, Part 2

From David Stockmans Contra Corner

Our point yesterday was that the Fed and its Wall Street fellow travelers are about to get mugged by the oncoming battering rams of global deflation and domestic recession.

When the bust comes, these foolish Keynesian proponents of everything is awesome will be caught like deer in the headlights. That’s because they view the world through a forecasting model that is an obsolete relic—one which essentially assumes a closed US economy and that balance sheets don’t matter.

By contrast, we think balance sheets and the unfolding collapse of the global credit bubble matter above all else. Accordingly, what lies ahead is not history repeating itself in some timeless Keynesian economic cycle, but the last twenty years of madcap central bank money printing repudiatingitself.

Ironically, the gravamen of the indictment against the “all is awesome” case is that this time is  different——radically, irreversibly and dangerously so. High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s, and that has turned the global economy inside out.

Under any kind of sane and sound monetary regime, and based on any semblance of prior history and doctrine, the combined balance sheets of the world’s central banks would total perhaps $5 trillion at present (5% annual growth since 1994). The massive expansion beyond that is what has fueled the mother of all financial and economic bubbles.

Global Central Bank Balance Sheet Explosion

Owing to this giant monetary aberration, the roughly $50 trillion rise of global GDP during that period was not driven by the mobilization of honest capital, profitable investment and production-based gains in income and wealth. It was fueled, instead, by the greatest credit explosion ever imagined——$185 trillion over the course of two decades.

As a consequence, household consumption around the world became bloated by one-time takedowns of higher leverage and inflated incomes from booming production and investment. Likewise, the GDP accounts were drastically ballooned by a spree of malinvestment that was enabled by cheap credit, not the rational probability of sustainable profits.

In short, trillions of reported global GDP—–especially in the Red Ponzi of China and its EM supply chain—–represents false prosperity; the income being spent and recorded in the official accounts is merely the feedback loop of the central bank driven credit machine.

Global Debt and GDP- 1994 and 2014

But now we are at the credit bubble apogee. Nearly every major economy of the world is being freighted down with debilitating levels of debt. By some sober estimates upwards of 20% of China’s monumental $30 trillion debt pile may be non-performing, and that means that the parallel credit mountains among its supplier base are equally imperiled.

Indeed, the credit ponzi at the heart of the global economy has reached the classic breaking point. Last year China generated nearly $2 trillion in additional debt, but nearly all of it went to paying interest on existing obligations. It is only a matter of time before the $30 trillion house of debt cards there comes violently tumbling down.

Nor is this just an EM world disability. The old age colony on the Japanese archipelago has a 400% debt to GDP ratio, and most of the world by McKinsey’s reckoning a year ago is not far behind.

Accordingly, the defining condition in the years ahead will be the inverse of the 20-year credit bubble. At peak debt, the world’s economies will struggle with delinquencies, defaults, write-offs, plunging profits, impaired assets and collapsing valuation multiples.

This means that for the first time in nearly a century global GDP will shrink in nominal terms——even as the debt mountain reaches its final ascent. In fact, dollar denominated global GDP is already contracting, and is projected to be down this year by the stunning sum of $3.8 trillion or 5%.
  Gross Planet Product at current prices (trillions of dollars, 1980 – 2015)

van bergelijk fig1 4 dec

Source: IMF World Economic Outlook Database, October 2015.

Needless to say, the Keynesian narrative denies that the above displayed 5% dip for 2015 is relevant or, more importantly, that it marks the beginning of an unprecedented downward plunge that may last for years to come.

Instead, our learned PhDs assure that the world economy is growing at a swell 3-4% rate on a currency and inflation adjusted basis. Indeed, in terms of purchasing power parity (PPP) most of the world has purportedly never had it better.

Here’s the thing. The world runs on dollars, not on the statistical abstractions like purchasing power parity that are spit out of academic macroeconomic models. In fact, upwards of $4 trillion in currency trades occur daily in futures, options and forward markets, and virtually all of them are in nominal dollar pairs or dollar referenced crosses.

There are no trades in “real” dollars, currency adjusted GDP or units of PPP. And that’s profoundly important because the entire $225 trillion global debt bubble is anchored in dollars.

That is, it is either denominated in dollars directly such as the $60 trillion of domestic credit market debt or the $10 trillion of dollar dominated off-shore bonds; or it is denominated in the “near-dollars” generated by off-shore banking systems and domestic bond markets.

Stated differently, euros, yen, yuan, won, ringgit and even Saudi riyals are near-dollars. The currently outstanding debt denominated in all of these currencies arose in domestic credit markets that were fundamentally shaped by the dollar policies of their respective central central banks.

The short-hand essence of it is that the Fed printed and the PBOC, ECB, BOJ and all the rest printed, too. Overwhelmingly, this was done in the name of export mercantilism under which currencies were pegged to the dollar to keep exchange rates artificially low so that exports would continue to flow.

Needless to say, this relentless exchange rate pegging caused foreign central banks to accumulate massive dollar reserves, and to propagate domestic credit within their own banking and financial system on a reciprocating basis.  In sequestering dollars, for instance, the PBOC created massive amounts of new RMB.

And so the world’s mountain of dollar and near-dollar debt grew like topsy.

Thus, the PBOC did not increase its so-called FX reserves by 80X after 1994 because Mr. Deng and his successors were saving FX for a rainy day; they were bailing-in dollars earned from their export machine and pumping RMB back into their domestic credit market at an historically insane pace.

China Foreign Exchange Reserves

Likewise, Saudi Arabia earned massive amounts of inflated dollars as the global credit and CapEx bubble created an unquenchable thirst for oil and unprecedented windfall rents at $100 per barrel. But the Saudi central bank kept its currency rigidly pegged at 3.8 riyal/dollar, thereby causing an enormous expansion of its balance sheet and domestic credit.

Saudi Arabia Central Bank Balance Sheet

Indeed, domestic Saudi bank lending grew at 20-40% annual rates during the first oil bubble, which peaked at $150 per barrel in 2008, and continued to expand at 10-20% annual rates until the world oil price break in June 2014.

Saudi Arabia Bank Lending Growth

At the end of the day, the Fed led central bank money printing spree of the past two decades resulted in what is functionally a massive dollar short. Once the Fed stopped expanding its balance sheet when QE officially ended in October 2014, it was only a matter of time before all the “near-dollars” of the world would come under enormous downward pressure in the FX markets.

Our Keynesian witch doctors believe that sinking currencies are a wonderful thing, of course. They claim making your country poorer is a good way to stimulate exports and a virtuous cycle of spending and GDP growth.

But there is another thing. It is also a good way to generate capital flight and an eventual need to shrink internal banking and credit markets in order to stop a total FX meltdown. That’s exactly what is happening in China and throughout the EM today.

The case of China is well known. It has experienced upwards of $1 trillion of capital outflows during the past 15 months, and that’s in spite of $350 billion current account surplus during this period.  Accordingly, the PBOC has permitted the exchange rate to drop by about 6% and, on a supplemental basis, has brought out the paddy wagons to arrest people and capital attempting to flee the faltering Red Ponzi.

Still, unless it can impose an absolute financial police state, China’s days of rampant domestic credit expansion are over. It will be selling down its already diminishing trove of FX reserves to prevent the RMB from descending into a total free fall; and, so doing, it will unavoidably shrink credit in its internal banking system, as well.

The Chinese implosion will take some time to unfold because the red suzerains of Beijing are abysmally ignorant about the laws of markets and sound money and credit. So they are content to paint themselves ever deeper into a corner via short-term expedients designed to keep the credit ponzi from collapsing. Yet these increasingly desperate measures are destined to fail, meaning there will be an even more devastating implosion at the end.

By contrast, Brazil is the poster boy, and reflects an already advanced case of dollar deflation. Its socialist governments of the last decade had a special penchant for financial profligacy and corruption, but it did not impose a financial police state as China is now doing.

So capital is fleeing in droves and the huge current accounts surpluses it earned as an epicenter of China’s post-2008 eruption of demand for commodities and raw materials like iron ore are drying up.

Needless to say, this gathering implosion comes on the back of an epic boom. Between 2005 and 2011, Brazil’s dollar denominated GDP grew explosively from $900 billion to $2.6 trillion or at what amounted to a lunatic annual rate of 20%.

In the process, its central bank balance sheet, external dollar borrowings and internal domestic currency based credit grew apace. On a dollar basis, for example, credit extension to the private sector grew at a 27% annual rate during the boom period.

Those kinds of double digit annual gains were typical of Brazil bounding forward on the up-ramp of the global credit spree. While the Brazilian central bank generally tried to peg the exchange rate so as to keep the Brazilian export machine competitive, it was not completely successful and thereby ended up with the worst of both world. Namely, a large influx of hot foreign capital, and an inordinate and unsustainable expansion of its domestic credit levels, too.

Since the bursting of the global commodity bubble in 2012-2013, Brazil’s exchange rate has been in free fall, reflecting its rapidly shrinking current account, intense capital flight and the market’s recognition that its debt bloated economy is a slow motion trainwreck.

Accordingly, the Brazilian real has lost nearly two-thirds of its peak value against the dollar. More importantly, it has forced Brazil’s central bank to push interest rates well into double digits, thereby shrinking domestic credit in real terms, even as the economy continues to contract.

Brazilian Real

In short, the Brazilian boom has ended, and its domestic economy is now sinking into the worst recession since the 1930s. And in dollar terms, the picture is especially stark. Brazil’s dollar GDP by the end of 2014 had already plunged by 11.5% from its 2011 peak.

This year it will be down another 5% and the bottom is nowhere near in sight, as Brazil’s downward economic spiral is being exacerbated by an existential crisis of governance (i.e. multiple corruption probes and impeachment campaigns against the President and legislative leaders).

Brazil GDP

Our Keynesian snake oil salesman will say that the implosion of Brazil’s dollar denominated GDP is all to the good. That foolish proposition is based on the same old FX depreciation error that they have been peddling for decades, and which the IMF has imposed on over-indebted countries with such universally devastating results.

The fact is, Brazil’s real economy is in free fall because its public and private balance sheets are falling apart, and because external demand for products from its inflated export industries continues to sink as the Red Ponzi unwinds.

You could not find any more dramatic case of massive malinvestment than in Brazil’s iron ore industry, which is now stranded high and dry as global prices sink toward $30 per ton compared to the boom time peak of $200. And the distress in iron ore is feeding through the entire Brazilian economy.

Thus, overall industrial production was down nearly 12% on a year-over-year basis in October, and is forecast to continuing sinking in the year ahead.

Brazil Industrial Production

Why this matters is that the credit boom was global. As the implicit dollar short unwinds in China and among its EM suppliers, the petro-states and elsewhere, no financial markets anywhere on the planet will escape the collateral damage.

That is to say, large chunks of the world’s $225 trillion of debt will default and be written down or liquidated as the global recession gathers momentum. That means, in turn, that the vast equity bubbles which have been levitated by the false credit and economic expansion of the past two decades will implode, as well.

There is probably no better illustration than Brazil’s own crumbling national champion, Petrobras.  The combination of $100 per barrel oil, unlimited debt availability and madcap drilling in the deep offshore brought global speculators pouring into its stock. Accordingly, Petrobras’ market cap exploded by 25X, rising from $15 trillion in 2002 to a peak of $375 billion late 2011.

Now, of course, oil is in the $30s, access to new debt is long gone and the drilling program has gone bust in a mess of corruption and failed economics. Consequently, $350 billion of bottled air has vaporized.

PBR Market Cap Chart

PBR Market Cap data by YCharts

In the aftermath of the giant global credit bubble, there is no such thing as a “decoupled” US economy. The implosions of China, Brazil, the rest of the EM, the petro states and the likes of Petrobras will be lapping up on these shores soon.

And that’s when the Keynesian “all is awesome” delusion will get mugged good and hard.

Jan 02

Today’s News 2nd January 2016

  • Why Did The Pentagon Falsify Reports About Military Successes In Fight Against ISIS?

    Via tamarlomidze blog,

    December 11, 2015 Republicans from the House of representatives of the U.S. Congress announced the creation of a special task team that will investigate the facts of distortion of data about the operations of the coalition in Iraq and Syria. The group will be to identify falsification in the reports, as well as figure out whether the problem is systemic in nature. The decision to create special group was adopted in November after more than fifty analysts of CENTCOM complained that their reports on the results of operations of the coalition against ISIS have been reduced in order to present the situation more positively.

    16intel-1-master675

    Despite the fact that the preliminary results of the investigation must b? submitted only in January, Rep Jackie Speier has confirmed that the falsifications which underestimate combat capabilities of ISIS took place indeed. As one of such examples is the May statement of General Thomas Weidle, which said ISIS “loses and remains in the defense”. However, immediately after his speech, terrorists has captured the Central quarter of Ramadi, the administrative center of Anbar province. If American leadership possessed a clear picture of what is happening, it could take emergency measures and even prevent the ingress of arms, military equipment and ammunition to the hands of militants. The value of US arms and military equipment captured by jihadists equals hundreds of million dollars.

    Indeed questions about whether we can trust the CENTCOM generals had to appear in October last year when ISIS captured supplies which US Air Force were supposed to delivered to Kurdish militia in besieged Kobani. According to the military press-release, in order to avoid capturing one of the caches which was blown by the wind from the place of destination, the military container was destroyed by the air strike. The rest of caches were successfully delivered. However, Pentagon spokesman Steve Warren reported that the two containers were lost on the route and only one cache was destroyed.

    Moreover the military representatives thwart one another talking about the diversion of weapons into the hands of terrorists, they are confused about the total number of dropped containers for Kobani defenders (Warren reported about 28 containers, whereas previously said only 6).

    In addition, the soothing assurances that the container captured by ISIS won’t give any advantage to the enemy are not convincing. Pentagon reported that only 80% of water and food which were transported by air for religious minorities in northern Iraq were successfully delivered. And as we see the Kobani example shows that even the use of GPS-guided parachutes can’t be insured. So, how many weapon American taxpayers gave to jihadists?

    “Carefully selected” participants of the CIA program on training “moderate” opposition who easily join the jihadists tell us about the lack of awareness or even falsity of the American military leadership. Thus in September 2015 almost immediately after arriving from training camps to Syria “Division 30” has transferred all their equipment, arms and ammunition to Jabhat al Nusra. Unfortunately that was not the first time. Once again the unit commander told about the shortage of instructors and the lack of supply during the preparation of the CIA program. But it was allocated about $500 million for these purposes! What the money was spent on? To buy weapons for terrorists!

    During the discussion of 2016 budget, almost every article in the mainstream media avoided the issue connected with the effectiveness and practicability of training “moderate” opposition in order to fight ISIS to the issue of what are the results of this opposition efforts against Assad. Are these things of equal value?

    We hope that the special group of the House of Representatives will identify not only the scale of the fraud reports about the results of the coalition activity against terrorism, but also those persons who are responsible for these misconducts, as well as their motives. The international community wants to know who exactly Pentagon supplies with weapons and what installations it bombs.

  • Something Went Wrong In Baltimore

    It has been a bloody year in Baltimore, that much everyone knows, but as The Economist shows, something changed dramatically after Freddie Gray's death in April…

    On November 14th the police department reported the city’s 300th homicide in 2015, a total not seen since 1999.

     

    The surge in killings in the majority-black city of roughly 623,000 began after the death on April 19th of Freddie Gray, a 25-year-old black man who was fatally injured while in police custody. Since Mr Gray’s death the city has recorded 244 homicides, a 78% increase over the same period in 2014, representing more than 100 additional deaths.

    Criminologists and city officials disagree as to the causes:

    • Some say police have deliberately pulled back from poor, black neighbourhoods, a theory that the police disputes.
    • Others blame an influx of drugs from pharmacies looted during the April riots.
    • A third theory is that a decline in trust between the police and the policed has had deadly consequences: fewer residents talk to the police, which leads to fewer murders being solved, which – by lowering the odds of being caught – results in more murders.

    Whatever the reason, the killing continues. Just hours after the 300th murder, police reported a shooting in the city’s Westport neighbourhood, the fourth homicide of the day. The total for the year now stands at 305.

  • Carmen Reinhart Warns "Serious Sovereign Debt Defaults" Are Looming

    Authored by Carmen Reinhart, originally posted at Project Syndicate,

    When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default,” according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”).

    If history is a guide, such conversations may be happening a lot in 2016.

    Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults.

    The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors.

    Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts. But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions.

    And, indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises. As my recent work with Vincent Reinhart and Christoph Trebesch reveals, peaks and troughs in the international capital-flow cycle are especially dangerous, with defaults proliferating at the end of a capital-inflow bonanza.

    As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.

    For some sovereigns, the main problem stems from internal debt dynamics. Ukraine’s situation is certainly precarious, though, given its unique drivers, it is probably best not to draw broader conclusions from its trajectory.

    Greece’s situation, by contrast, is all too familiar. The government continued to accumulate debt until the burden was no longer sustainable. When the evidence of these excesses became overwhelming, new credit stopped flowing, making it impossible to service existing debts. Last July, in highly charged negotiations with its official creditors – the European Commission, the European Central Bank, and the International Monetary Fund – Greece defaulted on its obligations to the IMF. That makes Greece the first – and, so far, the only – advanced economy ever to do so.

    But, as is so often the case, what happened was not a complete default so much as a step toward a new deal. Greece’s European partners eventually agreed to provide additional financial support, in exchange for a pledge from Greek Prime Minister Alexis Tsipras’s government to implement difficult structural reforms and deep budget cuts. Unfortunately, it seems that these measures did not so much resolve the Greek debt crisis as delay it.

    Another economy in serious danger is the Commonwealth of Puerto Rico, which urgently needs a comprehensive restructuring of its $73 billion in sovereign debt. Recent agreements to restructure some debt are just the beginning; in fact, they are not even adequate to rule out an outright default.

    It should be noted, however, that while such a “credit event” would obviously be a big problem, creditors may be overstating its potential external impacts. They like to warn that although Puerto Rico is a commonwealth, not a state, its failure to service its debts would set a bad precedent for US states and municipalities.

    But that precedent was set a long time ago. In the 1840s, nine US states stopped servicing their debts. Some eventually settled at full value; others did so at a discount; and several more repudiated a portion of their debt altogether. In the 1870s, another round of defaults engulfed 11 states. West Virginia’s bout of default and restructuring lasted until 1919.

    Some of the biggest risks lie in the emerging economies, which are suffering primarily from a sea change in the global economic environment. During China’s infrastructure boom, it was importing huge volumes of commodities, pushing up their prices and, in turn, growth in the world’s commodity exporters, including large emerging economies like Brazil. Add to that increased lending from China and huge capital inflows propelled by low US interest rates, and the emerging economies were thriving. The global economic crisis of 2008-2009 disrupted, but did not derail, this rapid growth, and emerging economies enjoyed an unusually crisis-free decade until early 2013.

    But the US Federal Reserve’s move to increase interest rates, together with slowing growth (and, in turn, investment) in China and collapsing oil and commodity prices, has brought the capital inflow bonanza to a halt. Lately, many emerging-market currencies have slid sharply, increasing the cost of servicing external dollar debts. Export and public-sector revenues have declined, giving way to widening current-account and fiscal deficits. Growth and investment have slowed almost across the board.

    From a historical perspective, the emerging economies seem to be headed toward a major crisis. Of course, they may prove more resilient than their predecessors. But we shouldn’t count on it.

     

  • Keynesian vs. Austrian Economics – The Infographic

    There has been an unsettled debate among economists for a century now of whether government intervention is beneficial to an economy. The heart of this debate lies between Keynesian and Austrian economists (though there are other schools as well).

    In order to get a full understanding of the two schools of economic thought, we offer the following via The Austrian Insider…


     

    And some responses to popular criticisms:

    – “Animal Spirits is misrepresented” – I just personally thought explaining that further would be too much text.  If anyone would like to get a full explination of what Keynes meant by this term, read this Wikipedia article on Animal Spirits

    – “This is biased towards the Austrian School” – Well I am obviously an Austrian economist, so there is only so much I can argue with that point.  That said, I HONESTLY tried to represent Keynes properly and would love to hear from any Keynesians what can be changed to help represent them properly.

    – “Malthus was not an economist” – He may be more of a philosopher, but many consider him an influence of Keynes.

    – “Ron Paul is not an economist” – Just because he is a doctor and politician by profession does not mean he is not a well known Austrian Economist.  He has many books on the subject, is a senior fellow of the Mises Institute, and has personally got many individuals to research Austrianism further

    – “It should not be total utils, but marginal utility on that graph” – It is supposed to represent the marginal utility graph, I just didn’t label it.  The graph should show total utility marginally decreases with each dollar increase.  The printable version has the entire chart labeled.

    – “Praxeology is not the right term to describe the whole organizational pattern of the social order. It refers only to the logical implications of human action that can be known through deduction.” – Well put.  Just hard to figure out how to graphically represent that…

  • "Not Transitory" – The Year In Junk Bonds

    Submitted by Jeffrey Snider via Alhambra Investment Partners,

    The most important outbreak or story of 2015 had to have been the junk bond reversal. It combined all the major elements of what investors and economic agents are both fearing and, at one point in the past anyway, hoping. It is the confluence of finance, “dollars”, liquidity and economics with or without recovery and the best scenario. The FOMC raising rates is supposed to confirm the brightest outlook, which would only lead to more extension in the credit cycle, and yet junk bonds traded as if the worst were only just around the corner. It isn’t so much the selloff, though that is obviously important, but rather how increasingly the selloff is being treated as permanent.

    It is the expression of an obvious and apparently durable shift in risk perceptions, and I think it the most significant development. You can see it clearly in the changes this year to last. After the selloffs in October and December 2014, junk was bid in clear bargain hunting patterns of behavior. The rebound after last December lasted months and was quite significant even if it didn’t quite bring prices and yields quite back to the full comfort of prior complacency.

    This year, each discrete selloff was met instead by listlessness and palpable uninterest, including the past week or so after what was undoubtedly the most intense selloff yet. That leaves the waves of selling only pushing the idea of the continuation in the credit cycle further and further remote; bringing instead the sense of doom closer and closer. This alteration in outlook and perception really could not be more unmistakable:

    ABOOK Dec 2015 Junk Year Lev Loans ABOOK Dec 2015 Junk Year CCC ABOOK Dec 2015 Junk Year Master II

    It is not your typical market behavior; not at all the “wall of worry” that represents healthy skepticism and functional fundamental discounting but rather a “get the hell out of Dodge” and stay out.

    ABOOK Nov 2015 Junk Worse Total Issuance

     

    Not transitory at all, then, rather a paradigm shift that isn’t yet even close to a new steady state. Welcome to 2016.

  • On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

    On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring – perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai. 

    What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.

    However, while the broad framework of Turkey’s exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold “trading” company of Gold.A.E. – is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi’s second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.

    The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company’s “new” management team admitted that after many months of “inquiries”, it had discovered that not only had the “old” management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money – and gold – held at Gold.A.E. which once again was primarily a “trading” front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.

    Here, for those who missed it the first time, is the letter that Gold.A.E.’s stunned clients received in late December:

    Dear Client

     

    A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC (“the Company”). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

     

    Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.

     

    Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

     

    In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.

     

    DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC’s rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.

     

    We trust the forgoing is of assistance.

     

    Sincerely,

     

    On behalf of GOLD AE MANAGEMENT

    Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park‘s infamous episode: “aaaannd it’s gone. The gold is all gone.“

    In a follow up article, “The Mystery Of Dubai’s Vaporized Gold: The Plot Thickens“, we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner – one of the most important people in the United Arab Amirates – and “washing” their hands of any accountability.

    Recall, “the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

    “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

    But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.

    When Arabian Business emailed the public inquiries email address for Gold Holding, info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

     

    Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

    In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money – and gold – of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.

    * * *

    So while we continue to dig into the mystery of Dubai’s stolen gold, one which has received absolutely no mention in the western press – in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year’s Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.

    I’m a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM’s. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.

     

    I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM’s were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].

     

    The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my ‘source’ who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!

    And here is the punchline from our source’s letter:

    My source has told me that he now understands that the company knew something was terribly wrong in the March – May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I’ve been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.

    Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings – a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf – waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.

    Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai’s gold.

    According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, “A new integrated Gold and silver investment vehicle”, one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.

    This is what the October 2014 presentation boasted about Gold Holding’s ambitions – nothing short of global gold commerce dominance:

    • To be a premier precious metals investment vehicle, physical.
    • To provide shareholders with high quality, long-term exposure to precious metals.
    • To offer mine owners an attractive alternative to debt or equity.
    • To be a significant and Reliable trader of Gold and Silver

    Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.

     

    The company’s Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in… Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing…

     

    Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk – that of corporate fraud and embezzlement – was at the Trading level, where the risk was supposed to be the lowest. Oops.

     

    The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of… Gold Holding?

     

    Wait, wasn’t Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:

    “We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities.”

     

    “We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority.”

    It appears “your” knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company’s own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the “old management team”, the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed “substantial withdrawals from the company’s account to the personal accounts of some of the management and the majority shareholders.”

    In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.

    Which brings us to our conclusion from a week ago:

    So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE… or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

     

    And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf’s political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world’s biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by… the United States!

    Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important – and richest – people in the country, if not the entire middle eastern region.

    But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.

    As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something “out of place”, in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE… which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.

     

    * * *

    And finally, while not directly related to the topic of Gold AE’s massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.

     

    … and not only that, but it was here where we found what may be the most fascinating detail of today’s article, namely Gold Holding’s (aka Dubai’s) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan…. as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!

     

    Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.

    Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?

    Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing… and all with Dubai’s blessings?

  • Caption Contest: "And Then I Said Obamacare Would Lower Insurance Costs"

    “Comedians” in cars…

     

     

    or driving Miss ‘Crazy’?

  • Mapping China's Hilarious European Stereotypes

    To many in the Western world, China is still something of a mystery. 

    Even as Xi works to liberalize the country’s capital markets, promote the yuan in international trade and investment, and generally open the country’s doors to the world, it’s still a strange, foreboding place in the eyes of the Western public.

    Tales of censorship, “disappearing” journalists, and endemic corruption don’t help, and neither does the ambiguity inherent in attempting to run a communist state with a semi-capitalistic economy.

    Of course this is a two-way street. That is, the West is something of an enigma for many Chinese as well.

    For those wondering what comes to mind for the average Chinese web surfer with regard to nations in Europe, we present the following map from Foreign Policy who “plotted the most common Chinese-language Baidu query for each European nation.” Highlights include “likes to fight” for Russia, “why doesn’t it annex Portugal” for Spain, and “beautiful women” for Ukraine.

    From Foreign Policy:

    This provides a glimpse into how Chinese netizens view the peoples and countries of Europe — a continent whose industrialization once both humiliated China and inspired its admiration, and that has loomed large in the country’s imagination ever since.

     

    The ghosts of the past haunt Chinese queries for many countries. Chinese netizens ask why France and Poland can’t beat Germany — though vague phrasing and the Chinese language’s lack of verb tenses admittedly mean these might just be soccer questions, which also appear frequently in search results about World War II. (Those Belgian red devils? That has been thecolloquial name for Belgian soccer players since 1906.) There is no ambiguity about Italy: Netizens ask why that nation was not subjected to the same postwar criticism as Japan and Germany. Britain’s role in the Opium Wars, the successive 19th-century conflicts that forced China to grant territorial concessions to European nations, comes up. And for Germany, references to killing and hating Jews topped the search suggestions, though another top query, “Why do Germans still hate Hitler?” indicates a modicum of balance.

     

    Quirks of European political divisions and territorial boundaries also arouse Chinese curiosity. There is considerable confusion about who does and does not belong to institutions like the European Union and the eurozone. The political status of parts of the British Isles is an object of intense interest to China’s online community, which asks about the independence (or the lack thereof) of Ireland, Northern Ireland, Scotland, and Wales. Netizens also ask why German-speaking Austria does not unite with Germany, and why Italy and Spain do not respectively annex the Vatican City and Portugal.

  • Will 2016 Be The End Of The Current Skyscraper Boom?

    Submitted by Mark Thornton via The Mises Institute,

    With more financing in place, the world’s tallest skyscraper is moving forward.

    Recent media reports indicate that the final segment of financing has been obtained for the $1.2 billion Jeddah Tower project in Saudi Arabia. This is the financing that would be necessary to bring the project to record heights. Media reports also show that the structure has risen to more than seventy-five meters (246 feet) and construction is proceeding at an uninterrupted pace.

    Above ground construction on the long delayed Jeddah Tower started in September 2014, but there was considerable doubt that the financing of the one kilometer (3,280.84 feet) tower could be obtained, given the shaky financial conditions in Saudi Arabia.

    But the Jeddah Tower is only the latest phase in an enormous boom that began setting new records in 2014. As I reported nearly a year ago:

    Super tall buildings, or skyscrapers, are being built at an astonishing rate. Ninety-seven buildings that exceed 200 meters (656 feet) high were constructed in 2014, setting a new record. The previous record was eighty-one buildings completed in 2011. The total number of skyscrapers in existence now is 935, a whopping 350 percent increase since the year 2000.

    If completed as planned, the Jeddah Tower will be the tallest in the world. The International Business Times reports:

    Saudi Arabia’s Kingdom Tower in Jeddah is slated to become the world’s highest skyscraper when it is erected in 2020, knocking Dubai’s Burj Khalifa tower from its perch as tallest building at 2,716 feet. The new tower will claim the title if it reaches its planned height of 3,280 feet. …The 200-floor Kingdom Tower will be part of a reported $8.4 billion project to construct Jeddah City. Construction of the skyscraper will entail 5.7 million square feet of concrete and 80,000 tons of steel …

    Time for a Skyscraper Alert?

    In other words, the Tower is just part of an even more massive project, and it’s time for a new skyscraper alert.

    A skyscraper alert is a market indicator suggesting a significant economic crisis in the near future. This alert could have been issued earlier because the alert is based on the ground breaking ceremonies of a world record setting skyscraper, not the initial announcement of the project which occurred in August of 2011.

    The completion of record-setting skyscrapers has long seemed to indicate the beginning of economic crises.

    The Singer Building (September 1906) and Metropolitan Life Insurance Building (1907) began construction before the Panic of 1907 and were later completed in 1908 and 1909, respectively.

    Construction began on 40 Wall Street (now the Trump Building), Chrysler Building, and the Empire State Building all prior to the crash on Wall Street which began in the fall of 1929 only to have the record-setting buildings open in the beginning of the Great Depression in 1929, 1930, and 1931, respectively.

    Construction of the World Trade Center towers began in August 1968 and January 1969 and opened in December 1970 and January 1972, respectively. The economy was then in a bad recession and the Bretton Woods Crisis at hand. The Sears Tower (now the Willis Tower) began construction in April of 1971 and opened in May of 1973 during the 1973–1974 stock market crash and the 1973 oil crisis.

    Such alerts indicate looming danger in the economy of significance. However, the danger is not necessarily imminent. The next pivotal date is when the construction project reaches a point where it has broken the record. That date is difficult to estimate given the whims of construction. Media reports indicate that the Jeddah project will possibly be completed in 2020 without indicating whether that date is the record setting date, the completion date, or the opening ceremonies.

    It is significant that the record being broken by the Jeddah Tower is the record set by the Burj Khalifa in Dubai. In some ways, the Burj Khalifa has become something of a symbol of the excesses of the last bubble.

    Set to become the tallest building in the world, the Burj Khalifa in 2009 began to experience financial trouble and had to delay payment on its debt to finance construction. When the Burj Khalifa officially opened in January of 2010, the sovereign fund of the United Arab Emirates, which built the skyscraper, was broke and had to be bailed out by the sheikh of Abu Dhabi for $10 billion.

    So, will this latest frenzy of new construction tip us off to the next bust? The skyscraper index is silent on the issue of timing so the dating of when the skyscraper curse is apparent is just guess work. It seems that the boom-bust cycle reaches its peak around the time the new record is set and is called a Skyscraper Signal, if imminent economic danger is looming. In most episodes, record breaking skyscrapers have their opening ceremonies when the economic crisis is readily apparent.

    The important thing to remember is that skyscrapers do not cause economic crises. Rather they are just a very noticeable example of the distortions taking place throughout the economy when interest rates are keep artificially low by the central bank.

    In addition to record breaking skyscrapers, there are many less perceptible changes taking place. Entrepreneurs are building bigger, longer term projects and production processes. Relative prices, i.e., interest, land, capital, and labor prices, are being distorted. Technology, nearly everywhere, is on the fast track. The economy is booming.

    If the Skyscraper Curse is at work, then these distorted economic activities will soon be revealed to be malinvestments.

  • Obama To Unveil "Multiple Gun Control" Executive Actions Next Week

    A month ago, after the mass San Bernardino shooting, we predicted that “the US will see increasingly more escalating “attacks” until ultimately Obama’s crackdown on gun sales and possession hits its breaking point and the president’s gun confiscation mandate is finally executed.”

    Without a Democratic majority in Congress, and faced with a GOP that is firmly against any form of gun control measures, Obama has repeatedly warned that he would act on his own. Next week he will do just that, and his “gun confiscation” mandate will get a substantial boost on Monday, when according to the WSJ Obama will meet with US Attorney General Loretta Lynch “to consider measures aimed at reducing gun violence, a conversation that comes as he prepares to announce new executive actions in the coming days.”

    The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”

    Once he has Lynch’s “blessing”, the WSJ adds that Obama “could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.“

    White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.

    Why act now?

    “I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Obama said in the address, which was released Friday morning.

    Something tells Obama gets even more letters from supporters of the Second amendment, although their contents may be just slighly more “colorful.”

    “We know that we can’t stop every act of violence. But what if we tried to stop even one?” Obama added. “What if Congress did something—anything—to protect our kids from gun violence?”

    “The president has made clear he’s not satisfied with where we are and expects that work to be completed soon,” the White House spokesman added. In other words, it’s time for the president to micromanage yet another aspect of daily US lives, because Obamacare turned out so well.

    One executive action that will almost certainly be unveiled is the “tightening” of rules for firearms sellers by requiring more of them to be licensed and, as a result, to conduct background checks on buyers.

    Anything Obama does unveil will be met with stiff resistance.

    Many gun-rights groups already have signaled opposition to new rules for private sellers and an expansion of background checks. And they have questioned whether Mr. Obama has the legal authority to act unilaterally.

     

    Research by the National Rifle Association showed that dating back to the 2007 mass murder at Virginia Tech, none of the high-profile mass shootings has been conducted600 with a firearm bought from a private seller. Adam Lanza is believed to have stolen his mother’s gun after killing her then using it in the Sandy Hook Elementary School massacre.

     

    “I don’t think the president has the authority to redefine what a dealer is because that is defined in existing federal statute,” said Dave Workman, senior editor of the Second Amendment Foundation’s The Gun Mag. “He can’t snap his fingers and suddenly say to someone who sells a gun at a gun show is now a dealer. That would take congressional action.”

    Meanwhile, while the US wait to see what executive orders Obama will implement, at the state level numerous gun-related laws just kicked in starting in the new year.

    In Texas, beginning today, adults with the proper permits no longer need to hide the handguns they carry in their shoulder or belt holsters. Proponents of the new open carry law say making guns more visible will deter mass shootings.The bill became law after a spirited debate. A majority of the state’s police chiefs opposed it.

    “The question is: Does it make sense and is it good judgment to have a bunch of people running around with guns visible? And I think the answer is: Absolutely not,” said Chief Art Acevedo of Austin.

    While Texas is easing gun regulations, starting Friday in California it will be illegal for holders of concealed carry permits to bring handguns to school campuses.  Meanwhile, the city of Albany, New York, will now require owners of firearms to store their guns in a secure container or install trigger locks. Repeat violators could face up to a one-year jail term.

    Ironically, instead of implementing executive orders, what Obama should do instead if he wants to make an immediate change, is focus on his home state. According to the Chicago Tribune, Chicago’s first homicide of 2016 occurred barely 2 hours into the new year.

    Two people were shot in the 4600 block of South St. Lawrence Avenue at about 2 a.m., police said. One of them, a 24-year-old man, reportedly had been arguing with someone who pulled out a gun and shot him in the chest. He was declared dead on the scene. 

     

    In the latest homicide, a 36-year-old man was shot in the chest and died at a hospital, said Nicole Trainor, a spokeswoman for the Chicago Police Department. The shooting happened at 6:40 a.m. in the 1900 block of West Garfield Boulevard in the city’s Back of the Yards neighborhood, said Trainor. The victim was driving a sport-utility vehicle westbound on Garfield when he heard shots and realized he’d been wounded, said Officer Janel Sedevic, a spokeswoman for the Chicago Police. The 36-year-old was driven to the Artesian Avenue and 55th Street where an ambulance was called and he was taken to Stroger Hospital where he died, Trainor said.

    In short, eradicating gun violence in Chicago (and D.C.) would likely do miracles for the average gun homicide rate across all of the US. Which is why it will never happen.

    Meanwhile, if Obama wants to truly curb gun ownership at the national level, the solution there is also simple, as the following chart from the NYT reveals:

    He should resign.

  • A Year Of Living Technically: Charting The Markets Of 2015

    Via Dana Lyons' Tumblr,

    As we wrap up 2015, we again pause to reflect on the noteworthy events that took place across the financial markets this year.

    It is a fairly extensive list which really serves as a recap of the entire year. These charts aren’t necessarily our most popular ones (see The 5 Most Viewed Charts Of 2015 for those). Consider these our “editor’s picks”. The charts range from those that had the most impact on the markets in 2015 to those that may have the most impact on 2016 to those whose impact is totally unknown to us. They don’t necessarily include after-shots of the big movers of the year. However, you will see “before” shots of many of the big movers. After all, we are money managers and the objective behind these charts is to identify potentially profitable moves before they happen. Like last year, there are bullish charts but more bearish charts. Finally, there is our chart of the year for 2015.

    2015 Charts Of The Year

    (in chronological order – click on the titles to visit the respective posts):

    Speculators Hold Massive Record Long Position in the U.S. Dollar – January 12

    image

    At the beginning of the year, Speculators held a record net long position in U.S. Dollar futures. While the currency had been on a tear, we surmised that given the position of the Speculators, who are typically on the wrong side of markets at major turning points, the U.S. Dollar rally could be in danger at some point soon thereafter. While the Dollar was able to continue its advance for another 2 months, and extend the Speculators record long position, it has stalled over the past 9 months. During this time, the Speculators’ net long position has dropped considerably, perhaps allowing for another advance to come in the Dollar? This one will obviously be an important development to track going forward.

     

    Bearish Fund Bets Hit All-Time Low – January 15

    image

    While there has been a structural trend away from inverse mutual funds and toward inverse ETF’s, January still marked a milestone all-time low in the amount of assets in Rydex bear funds. This was an indication that investors were ill-equipped to withstand a significant decline and dispelled the still-perpetuated notion of “the most-hated bull market in history”. And while the stock market would not suffer a significant decline for another 7 months, it was unable to make any upside progress either.

     

    Swiss Market Index Goes From 52-Wk High To 52-Wk Low In Same Week! – January 16

    image

    What kinds of things tend to happen when your central bank is heavily involved in currency intervention? How about your stock market going from a 52-week high on Tuesday to a 52-week low on Friday. That happened to the Swiss stock market following the Swiss National Bank’s decision to remove the Swiss Franc’s cap versus the Euro.

     

    European Stocks Set To Blast Higher? – January 20

    image

    One lesson that is reinforced on a daily basis across the globe is that a stock market is not necessarily representative of the economy at any given time. So it was across Europe in January as the broad Dow Jones STOXX 600 broke out of a bullish inverse head-&-shoulder pattern. Based on the pattern, a successful breakout suggested potential upside targets of 9%-18% higher. The breakout was indeed successful and European equities were the stars of the 1st quarter. By April, the 18% rally target was achieved – and the rally hit a brick wall. Stopped by a combination of a 100% extension of the inverse head-&-shoulder pattern as well as the 2000 and 2007 highs, the STOXX 600 has trended downward since.

     

    How Ominous Is The S&P 500 Monthly MACD Sell Signal? – February 2

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    One popular tool in technical analysis for gauging momentum (and change in momentum) is the MACD. Used on a monthly time frame, MACD sell signals have often, though not perfectly, signaled cyclical peaks and downturns. The signals have been especially helpful when the S&P 500 is both overvalued (via CAPE) and extended versus its long-term price trend. This was the case upon the January sell signal in the indicator. So, while the technical signal has not been perfect historically (what has?), the loss of momentum signaled by the MACD, in conjunction with other concerns, was another unwelcomed development for a market as stretched as it was.

     

    Unemployment Hits 6-Year Low; Bad News For Stocks? – March 6

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    No, we do not bemoan the vast improvement in the U3 Unemployment Rate in recent years (though, we have serious doubts as to whether it’s the best measure of the strength of the labor market). This chart provides lessons regarding market cycle proximity as well as psychology. Historically, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. That message is driven home here by the fact that since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.

     

    Volatility Has Not Expanded With Recent Euro Plunge – March 13

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    Typically, when the price of (most) assets drops, their expected volatility, as expressed by a volatility index, rises. This has generally been the case with the Euro as well. Interestingly, however, despite the Euro plunge to new lows in March, its volatility index (EVZ) did not make a higher high above its January peak. This non-confirmation was seen at other significant lows in the currency over the past 7 years. Indeed again, March 13 proved to be the low for the year in the Euro.

     

    Signs of Froth in the Biotech Sector – March 23

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    The hottest sector over the past few years has been biotech. And while there is a debate about whether it is or is not a bubble, there have certainly been signs of froth related to the sector’s recent extraordinary gains. For example, while total assets in Rydex’ “bullish”-oriented index funds have been essentially flat since 2007, the Rydex Biotechnology Fund is a different story. In 8 years as of March 20, assets in the fund increased from around $58 million to $567 million, a nearly ten-fold jump in assets. That struck us as a little bit bubbly. As it happens, March 20 marked the top in the biotech sector for the year, outside of a 2-week span in July.

     

    One-Way Market Due For A U-Turn? – April 28

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    If there is one thing that characterized the stock market’s run from 2012 to 2015, it is the lack of volatility. As it turns out, this period was truly historic in that regard. Since 1950, this was just the 5th time that the S&P 500 had gone 3 years without a single 10% reversal in prices. Well, that streak ended in August. And despite the bounce back thus far in prices, if the current market tracks previous such streak-enders, the market may not be out of the woods just yet.

     

    May Has Become The “Toppiest” Month – April 30

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    As we laid out in this April post, the month of May has recently become the toppiest month for stocks in the short-term, i.e., 3 months. Perhaps it corresponds with the “Sell in May and Go Away” phenomenon. Whatever the reason, since 1996, there had been twice as many 3-month tops in the Dow Jones Industrial Average (DJIA) in May as any other month. Well, you can now add one more to the tally as the DJIA still has not surpassed its peak from this past May.

     

    Despite Historic Compression, Stocks Remain Range-Bound – May 6

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    May was a busy month in terms of important stock market developments and, as such, produced many noteworthy charts. The DJIA entered the month stuck in a month-long trading range. Eventually, the DJIA would last 40 days without making a 1-month high or low, its longest such streak in more than 100 years.

     

    Final Pillar Of Bull Market Showing Cracks? – May 8

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    One of the major themes in 2015 was the extensive deterioration in the market’s underlying internals. It was a trend that started in mid-2014 and really accelerated during this past spring. While that was occurring, however, the prices of the major averages continued to score new highs. One of the first signs of an actual price breakdown occurred in the Value Line Geometric Composite (VLGC). As we’ve mentioned many times, since the VLGC is an unweighted index of some 1700 stocks, it is a favorite of ours as a measure of overall market health. That’s why we considered it a warning sign in early May when the VLGC was unable to sustain its breakout above its tri-decadal triple top.

     

    Stock Indicator Suggests Big Move (Lower?) Coming – May 12

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    Another indication of the stock market’s spring range-bound trade came from the ADX, or Average Directional Index. The ADX is essentially an indicator of the strength (or lack of strength) of the prevailing trend over a specified period, regardless of the trend’s direction. In May, the ADX of the S&P 500 recorded one of the lowest readings of the last 65 years, indicating an extremely “trendless” market. Specifically, on several days in early May, the ADX hit a level of 9, a reading reached on just 42 total days – or ¼ of 1% – since 1950. As periods of compression are followed by periods of expansion, an out-sized move emanating from this condition was expected. And our bet, based on the aforementioned one-way market was that it would be lower.

     

    The Grand-Daddy Of All Divergences Strikes – May 21

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    As the aforementioned breakdown in the market’s internals accelerated, more divergences began to crop up. That is, while the S&P 500 continued to score new highs, other key averages or metrics failed to make concurrent new highs as well. That was the case in mid-May with what we refer to as the “grand-daddy of divergences”. While many divergences can occur and persist without much damage, a failure to confirm new highs by the NYSE Advance-Decline Line is of the utmost gravity in our view. A glance at the chart reveals that a divergence by the NYSE A-D Line has preceded every cyclical market top of the past 50 years. This was one of the most consequential stock market developments in 2015.

     

    Bull Market Dealt Significant Blow?: NYSE A-D Line Breaks Post-2009 Uptrend – May 27

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    As you can see, the breakdown in the market’s internals began to unfold fast and furiously in May. Following the divergence in the NYSE Advance-Decline Line, another red flag was raised when the A-D Line broke its post-2009 Up trendline. One might want to argue that trendlines on indicators are meaningless, but we disagree. Look on the chart at the last two occasions that the A-D Line broke its uptrend line. Each marked the end of cyclical bull markets for stocks.

     

    Household Stock Investment Hits 2007 Levels – June 11

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    While folks still try to foment the “most hated bull market” rhetoric, the data unanimously disputes the notion. Sure, short-term sentiment can shift with the wind, but longer-term “real money” measures like the Fed’s “Equities as a % of Household Financial Assets” paint the true picture. And while some of these types of measures have not reached the 2000 levels, why should they? That period marked the most froth-laden point in U.S. stock market history. Therefore, it should not serve as a reasonable or attainable barometer of investment level. The facts that A) Household investment never got truly “oversold” following that top, and B) in the 1st quarter, it matched the 2nd highest level ever attained, in 2007, are the most pertinent conclusions from the data series, in our view. If you’re interested in reading more on the topic, we took a very balanced approach in the June 11 link above.

     

    Dow Divergences Reaching Historic Levels – June 18

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    On the topic of divergences, one of the oft-mentioned examples refers to the “Dow Theory” whereby the DJIA and the Dow Jones Transportation Average (DJT) diverge from each other. While people too often blindly follow such market platitudes, we prefer to test their veracity. In doing so, we actually found less relevance to DJIA divergences with Transports than we did with Dow Jones Utilities (DJU). And when the DJT and the DJU diverged from the DJIA by as much as they did in June, it has often spelled trouble for the stock market. As shown by the blue markers in the chart, outside of a false alarm in the mid-90’s, such divergences have strictly occurred near cyclical market tops over the past 60 years.

     

    July 20: The Thinnest New High In Stock Market History – July 21

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    The divergence between deteriorating market internals and the resilient stock averages hit a crescendo on July 20. The Nasdaq Composite hit a new all-time high on the date while the S&P 500 came within 2 points of its all-time high. However, those feats were accomplished amid the worst breadth, the worst volume and worst new high-new low differentials of any such day in our recorded history. The 2 charts above are examples of the “thin” nature of the high. And while we did not know for sure if the day would turn out to be the high for the rest of the year (it was), there was no escaping the historically inadequate breadth statistics as we reported in real-time.

     

    Even The Stronger Areas Of The Market Are Starting To Weaken – July 22

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    Another area where we monitored the deteriorating breadth situation over the spring-summer months was in the “equal-weight” averages. Cap-weighted averages weight the largest stocks the most heavily and, thus, a few strong-performing larger stocks can mask softness among the larger group. Conversely, equal-weight averages weight each component equally so you get a truer sense of the health of the entire sector or market. As the chart shows, at the July highs, even the stronger areas of the market like the Nasdaq 100 were beginning to show weakness among their broader ranks.

     

    Add Junk Bonds To The Growing Pile Of Concerns – July 23

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    In addition to the deteriorating breadth situation, other concerns began to pop up as well during the summer. Chief among them was the substantial weakness in the high yield bond market, despite the stock market being near its highs. This combination has historically occurred near stock market tops of some significance, as the chart shows. And as we know now, it was merely the beginning of the carnage that would befall the junk bond market.

     

    The Summation Of All Fears – July 30

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    With more than 170,000 hits, this was the most viewed post on our blog in 2015. It is fitting because, as much as any chart, this one portrays the historically weak state of the breadth and new high-new low situation this summer, even as the S&P 500 remained near its high. Ominously, as the chart indicates, similar conditions have been present on just 58 days since 1970. Each of those days was in close proximity to a cyclical top and each of them showed negative returns over the subsequent 1 and 2 years.

     

    Pfff…The Post-2009 Commodity Gains Are Gone – August 3

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    One theme from 2014 that continued into 2015 is deflation. This year brought multi-year or all-time lows in the 5-Year Breakeven Rate, the Baltic Dry Index, and commodities across the board. Evidence of the latter is seen in this August chart showing that the broad basket of commodities represented by the CRB Index actually wiped out its entire post-2009 gains. Incidentally, the deflation trend has not stopped as the CRB has continued to drop into year-end.

     

    The Junkie Market – Too Many Highs & Lows – August 7

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    Another manifestation of the developing concern over the market’s internals was seen in the proliferation of New Highs AND New Lows with the market near its highs. As the chart demonstrates, this variation of the “Hindenburg Omen” has historically occurred near tops of intermediate-term or cyclical importance, thus the -20% median 2-year return. One did not have to wait too long following this post before a substantial decline unfolded.

     

    “Smart Money” Ready To Bet On Gold? – August 7

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    Given the events of the past 4 years, perhaps the most downtrodden investors right now are the “gold bugs”. With the metal working on its 3rd straight losing year, not to mention gold stocks near all-time lows, the pessimism is understandable. However, that is a good thing. Considering gold rallied for the 12 years prior, there was way too much bullishness built up. That has finally waned, as evidenced by the “smart money” Commercial Hedgers’ largest net long position in gold futures since the beginning of gold’s bull market in 2001. The metal was able to bounce for 3 months following this signal in August before dropping to new lows again. So, it might not quite be time for gold to shine again, but it’s getting there.

     

    Was The Most Important Line In The Equity Market Just Broken? – August 21

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    Following the significant deterioration in the market’s internals that we documented extensively, price eventually began to follow suit. This included a break of what we labeled as the “most important line in the equity market”: the post-2009 Up trendline on the Value Line Geometric Composite. As we’ve indicated, we view the VLG as the most important index as it essentially reflects the median stock across the broad market. Thus, the break below its bull market uptrend in August was a serious development.

     

    August 24 – A True Market Washout – August 25

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    Following a systematic breakdown of key levels on the various indices in July-August, the market’s decline devolved into a near crash-like cascade in late August. The decline culminated on August 24 in what we referred to as a true “wash-out”, or capitulation. While the July 20 top raised numerous alarm bells based on its internal structure, August 24 did the same in the opposite manner. Various metrics related to trading on that day, including this chart showing 40% of all NYSE stocks closing at new 52-week lows, hit levels seen (almost) unanimously at major market lows. These circumstances suggested that a bounce of some magnitude was likely imminent.

     

    Volatility Of Volatility Flies Off The Charts – August 27

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    As testimony to the wild action in the stock market towards the end of August, the VVIX soared well into record territory. This indicator that we have just recently begun to track is literally the Volatility Index OF the S&P 500 Volatility Index, or VIX. As the chart shows, since the inception of the VVIX, it has generally registered its extreme high readings following substantial market declines. However, it has also occurred following lesser weakness that came on the heels of an extremely calm market. This appears to reflect the recent circumstances and does not guarantee that a longer-term bottom has been put in.

     

    What Happens After A Crash? – September 4

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    While the term “crash” is subjective, the circumstances surrounding the August plunge in stocks have been seen on only a limited number of occasions (9) since 1950. We looked at the 9 precedents for guidance on what we might expect in the way of a potential bottoming process in the aftermath of the crash. While each incident was unique, they did follow a similar template along the lines of A) a dead-cat bounce for a few weeks, followed by B) a re-test of the original crash low after roughly a month, followed by C) a more substantial rally. This was a template we monitored as September trading unfolded.

     

    Global Equity Index Hanging On Precipice – September 8

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    Besides the Value Line Geometric Composite, another key index garnering our focus in 2015 was the Global Dow. Despite the fact that not much money is directly tied to the index, it has been very instructive because it tracks 150 of the largest stocks in the world on an equal-weight basis and it has conformed very closely to technical chart analyses. For example, its break of its well-defined post-2012 Up trendline in June preceded the July-August global equity selloff. As it happens, the selloff took the Global Dow down to its post-2009 Up trendline, along with some key Fibonacci Retracement levels. After a brief false breakdown in late September, this level held and prompted a months-long rally. Just recently, the index tested the trendline again, so this will be a situation to monitor into 2016.

     

    Even Biotech Bulls Should Be Watching This Level – September 17

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    While the post-crash bounce progressed, we remained mindful of the strong possibility of a re-test. Thus, were watchful for areas of potential resistance in the various indices and sectors. On September 17, a day which included a Fed meeting, we identified many market segments as reaching such resistance levels. One example was in the highly watched biotech sector. We identified on the Biotech Index (BTK) chart several layers of potential resistance in close proximity to where the index was trading. Sure enough, the BTK topped that very day and proceeded to drop some 20% over the next 8 days. They don’t all work out this well, but the evidence was certainly compelling.

     

    U.S. Stocks Facing Their Biggest Test In 8 Years? – September 29

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    As I said, our “calls” and analysis don’t always work out perfectly, but this post was another one that, looking back, was right on the screws. During the late-September stock market re-test, the Value Line Geometric Composite dropped down to an area of critical consequence, in our mind. As the VLG was hitting the major Fibonacci Retracement lines of the post-2009 bull market era, we labeled this a “pass-fail” test for stocks. It was perhaps as simple as pass=post-2009 bull market could continue and fail=bull market was likely done. Well, stocks did pass this test as they put in a bottom for the year on that very day, launching a strong 4th quarter rally.

     

    Can The 4th Quarter Save 140-Year “Year 5″ Streak In Stocks? – September 30

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    At the beginning of the year, we noted that years ending in “5” have not had a losing year in the stock market since 1875. And while these kinds of statistics are more trivia than useful to us, 140 years is a long time. So at the end of September, with the S&P 500 down over 7%, the streak looked to be in serious jeopardy. On plus side, looking back to 1905, it would merely take an average “year 5” 4th quarter to get the S&P 500 back into positive territory. That’s because all 11 “year 5’s” since 1905 have had positive returns during the 4th quarter, at an average of +10%. As of this writing, the S&P 500 is up 8% for the quarter and back into the green for 2015. So, trivial or not, this is another trend that has continued to play out according to precedent.

     

    Stock Market Reaches Key Post-Crash Milestone – October 2

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    As an update to the post-crash post from September 4, we looked at how the market had traded since the late-August lows in comparison to the similar historical post-crash events. We chose October 2 to update it as it marked the average time (27 days) that it took the previous crashes to complete their re-test. As it turns out, while the re-test had already completed its process 3 days earlier, the basic pattern from the August crash to the late-September re-test held fairly close to historical form. Thus, this study was a useful one in guiding our expectations during the volatile aftermath of the August decline.

     

    Bearish Fund Assets Hit 3-Year High…AFTER Big Rally – October 7

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    Following a 6-day rally off of the late-September lows that took the S&P 500 up over 100 points, or 6%, we took measure of the “quality” of the rally, as we always do. We always want to attempt to discern whether a rally is merely another dead-cat bounce or if it has legs. One clue that more upside was likely came from the behavior of traders in Rydex mutual funds. Interestingly, assets in Rydex’ bearish funds jumped to a 3- year high after the 100-point S&P 500 rally. This was one suggestion that there was considerable skepticism about the rally, a condition that, per contrarian thinking, argued for further extension of the rally.

     

    Relatively Few Big Stocks Bearing Weight Of This Rally – October 28

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    As we continued to take stock of the quality of the post-September stock rally, we began to notice some of the same concerns from earlier in the year related to relatively weak internals and lack of broad participation. Evidence of this was seen in this October chart comparing the relative strength of the Rydex Equal-Weight S&P 500 ETF (RSP) vs. the cap-weighted S&P 500 SPDR (SPY). In late October, as the chart shows, the ratio of the RSP to the SPY actually dropped to a 3-year low. This was an indication that the broad market was lagging badly behind a relatively few mega-cap names. It was also a situation seen only in July 2015 and October 2007.

     

    Corporate Junk-It: When Stocks AND Bonds Sell Off – November 4

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    This was a retrospective post, looking at the carnage that had taken place in the corporate financial markets over the summer. Specifically, we looked back 100 years at similar examples when corporate bonds AND stocks both suffered significant declines as they did during the 6 months into the late summer lows. The point was to try to discern whether there was possibly a larger, longer-term message being sent by the weakness in the 2 asset classes. As it turns out, it has historically been the case that, at least for stocks, more challenges remained in store in the intermediate to longer-term. Thus, despite the 4th quarter rally, stocks may not be out of the woods.

     

    Short-Term Rates Break Out: Another Rising Rates “Set-Up”? – November 6

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    For probably 10 years we’ve been hearing about the impending “rising interest rate” environment. Yet, rates have continued to remain low during this time. Of course, ZIRP has had something to do with this. Yet, every time rates threatened to break higher, it has proven to be a fake-out. In November, when the 2-Year Treasury Yield broke out to its highest level in over 5 years, we had to ask “is this another set-up?” In this case, it was probably in anticipation of the Fed’s rate hike in December and it has held its gains thus far (though longer-term rates have remained subdued). Maybe “this time, it’s different?”

     

    Is It Too Late To Sink Your Teeth Into F.A.N.G. Stocks? – November 25

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    Every year, the stock market provides new themes that a year earlier hadn’t even been considered. This year it was F.A.N.G., an acronym created to extoll the prodigious gains in the stocks of Facebook, Amazon, Netflix and Google (now Alphabet). The F.A.N.G. concept has served to drive home the reality that any gains in the market this year were for the most part concentrated in a limited number of mega-cap stocks – stocks, by the way, that were in position to keep the major large-cap indices near their all-time highs. In this chart, which turned out to be our most popular on Twitter this year, we compared the strikingly similar F.A.N.G. performance of the past 3 years to the performance of Cisco, Intel, Microsoft and Qualcomm (C.I.M.Q.) in the mid-1990’s. While this was not a prediction, the point was to show that, despite the out-sized gains, further upside was possible in F.A.N.G., based on what C.I.M.Q. did in the 2 years following 1998. Of course, then there was the post-2000 period.

     

    A Whole Lot Of New Lows For A “Market” Near Its High – December 9

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    If there has been one persistent theme this year, it’s been the weak internals for a market so close to its all-time highs, at least as judged by the S&P 500. This trend continued into year-end as we saw on December 8 when the number of NYSE New Lows minus New Highs amounted to over 10% of all issues. This was despite the fact that the S&P 500 was within 3.5% of its all-time high. In the past 45 years, this situation has almost exclusively occurred near major, cyclical market tops.

     

    U.S. Stocks Back At The Pass/Fail Line – December 14

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    Following a mid-December swoon, the Value Line Geometric Composite found itself back testing the “pass-fail” we pointed out at the end of September. Once again, the VLG was up to the task and passed the test. However, the more times this line gets tested, the greater the odds are that it will eventually fail. That would open up another 10% downside and, as we noted previously, put the post-2009 uptrend in stocks in jeopardy.

     

    “Smart Money” Options Indicator Has Never Been More Bearish – December 21

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    Most of the sentiment metrics that we monitor are viewed as contrary indicators. That is, once they reach an extreme, investors or traders would be wise to act “contrary” to the extreme. One exception can be found in the traders of S&P 100, or OEX, options. Historically, this group has been on the right side of the market more times than not when their collective options position is at an extreme. And though OEX volume is much lower than it used to be, this market may be something to take note of as OEX traders have never held more put options relative to call options than they do right now.

     

    The 2015 Chart Of The Year:

    S&P 500 Higher In 2015 While Most Stocks Suck Wind – December 31

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    As good an illustration as any this year of the divergence between the major indices and the majority of stocks comes in our final chart of 2015. It shows that, through December 30, the S&P 500 was positive for 2015, albeit barely. Meanwhile, the median stock, as represented by the Value Line Geometric Composite (VLG), was actually down double digits. This is a rare situation over the past 45 years. And, considering the likely location of stocks within the cyclical market cycle, this serious deterioration in the market’s internals is a major warning sign for the stock market.

    Here’s to another interesting and prosperous year in 2016!

    *  *  *

    More from Dana Lyons, JLFMI and My401kPro.

  • 2016

    Faith! Hope? Then Clarity…

     

     

    Source: Cagle.com

  • Poker's 10 Most Valuable Investment Lessons

    Submitted by Lance Roberts via RealInvestmentAdvice.com,

    “Step right up and try your luck…spin the wheel and watch where she lands…everybody’s a winner” – sometimes if you listen hard enough you can almost hear the Carney coaxing unwary investors to “step up and try their luck” in a game that in many ways have become rigged against them. During the last three decades, it has been amazing to watch the transformation of Wall Street from a place where individuals actually invested to a “casino” where institutions controlled the outcomes through high-speed automation, algorithms, and liquidity.

    But nonetheless, individuals continue to stroll through the doors of the “Casino Wall Street” to try their luck by betting “against the house” for a dream of riches. However, just as anyone who has been to Vegas knows, you do indeed win sometimes; but the “house” wins most of the time.

    However, “professional gamblers” can succeed at playing the odds in both Vegas and on Wall Street. Why? Because they understand “risk” in its various forms.

    While most amateurs will bet on most hands, take speculative positions where the odds of success are stacked against them or try to bluff their way through a losing hand; professionals play with a cold, calculated and unemotional discipline. The professional gambler understands the odds of success of every play and measures his “bets” accordingly. He knows when to be “all in” and when to “fold and walk away.” 

    Do they succeed all the time – of course not. However, by understanding how to limit losses they survive long enough to come out a winner over time.

    10 Lessons Learned From Poker

    1) You need an edge

    As Peter Lynch once stated:

    “Investing without research is like playing stud poker and never looking at the cards.”

    He’s absolutely right. There is a clear parallel between how successful poker players operate and those who are generally less sober, more emotional, and less expert. The financial markets are nothing more than a very large poker table where your job is to take advantage of those who allow emotions to drive their decisions and those who “bet recklessly” based on “hope” and “intuition.” 

    2) Develop an expertise in more than one area

    The difference between winning occasionally and winning consistently in the financial markets is to be able to adapt to the changing market environments. There is no one investment style that is in favor every single year – which is why those that chase last years performing mutual funds are generally the least successful investors over a 10 and 20 year period.

    Flexibility is the cornerstone of long-term investing success and investors that are unwilling to adapt and change are doomed to extinction – much like the dinosaur. Having a methodology that adapts to changing market environments will separate you from weak players and allow you to capitalize on their mistakes.

    As the great Wayne Gretzky once said:

    “I skate where the puck is going to be, not where it has been.”

    3) Figure out why people are betting against you.

    “We know nothing for certain.” We know what a company’s business is today, maybe even what they are most likely to do in the coming months. We can determine whether the price of its stock is trending higher or lower. But in the grand scheme of things, we don’t know much. In fact, we are closer to knowing nothing than to knowing everything, so let’s just round down and be done with it.

    All we really know is what “IS,” and all we can really do is create and implement a plan that will deal with what “IS” and protect us from what “Might Be”.

    Managing a portfolio for “what we don’t know” is the hardest part of investing. With stocks, we have to always remember that there is always someone on the other side of the trade. Every time some fund manager on television encourages you to “buy,” someone else has to be willing to sell those shares to you. Why are they selling? What do they know that you don’t?

    In poker, you may hold a couple of “aces” in your hand and believe now is the time to be “all in.” However, the player sitting across from you continues to match your bets. In poker, this is called “checking,” in investing it is called “hedging.” Both are simply forms of managing the “risk” of “not knowing what you do not know.” 

    Don’t assume you are the smartest person at the table. When an investment meets your objectives, be willing to take some profits. When it begins to break down, hedge the risk. When your reasons for buying have changed, be willing call it a day and walk away from the table.

    4) When you have the best of it – make the most of it.

    In a game of “Texas Hold’em” when the right hand comes along you can be “all in” and bet it all. The risk with this, of course, is that if another player “calls” you and you lose – you’re busted.

    In investing when you have the right set of environmental ingredients in your favor such as an extremely oversold market condition, panic and fear from investors, deep discounts in valuations, etc., these are times to invest more heavily into equities as the “risk” of loss is mitigated by the “strong hand” you are holding.  

    The single biggest mistake that investors repeatedly make is continuing to be “all in” on every hand regardless of market conditions. “Risk” is a function of how much money you will lose “when”, not “if”, you are wrong.

    5) It often pays to pass, and 6) Know when to quit and cash in your chips

    Kenny Rogers summed this up best: 

    “If you’re gonna play the game, boy…You gotta learn to play it right – You’ve got to know when to hold ’em. Know when to fold ’em. Know when to walk away.  Know when to run. You never count your money when you’re sittin’ at the table.  There’ll be time enough for countin’ when the dealin’s done.

     

    Now every gambler knows the secret to survivin’ – Is knowin’ what to throw away and knowin’ what to keep.  ‘Cause every hand’s a winner and every hand’s a loser and the best you can hope for is to die in the sleep”.

    This is the hardest thing for individuals to do. Your portfolio is your “hand” and there are times that you have to get rid of bad cards (losing positions) and replace them with hopefully better ones. However, even that may not be enough. There are times that things are just working against you in general and it is time to walk away from the table.

    Using some measure of risk management in your portfolio is critical to long-term success. Due to emotional biases most investors wind up doing the exact opposite of what they should do:

    • They sell when they should buy and vice versa,
    • They hold onto losing positions hoping they will come back,
    • They double down on losing positions,
    • They sell winning positions too soon, and;
    • They refuse to admit they are wrong.

    These mistakes, and many more, are entirely driven by emotion rather than logic. Emotional players ALWAYS lose in gambling and investing.  

    The error that most investors make is that they are playing poker without a hand of cards. Since most investors buy investments, because of what they read in a newspaper, saw on television or heard about on the radio, they have effectively “anted” up for the game. They then basically walk away from the table and begin to hope that the hand they were dealt is the winning hand – this is the basis of the “buy & hold” strategy.

    All great investors develop a risk management philosophy (a sell discipline) and combining that with a set of tools to implement that strategy. This increases the odds of success by removing the emotional biases that interfere with investment decisions. Just as a professional poker player is disciplined with his craft, a disciplined strategy allows for the successful navigation of a fluid investment landscape. A disciplined strategy no only tells you when you to “make a bet,” but also when to “walk away.” 

    7) Know your strengths AND your weaknesses & 8) When you can’t focus 100% on the task at hand – take a break.

    Two-time World Series of Poker winner Doyle Brunson joked a bit about his book with which he had thrown around two alternative ideas for titles before going with “Super/System“. The first was “How I made over $1,000,000 Playing Poker,” and the second equally accurate idea was, “How I lost over $1,000,000 playing Golf.“

    The larger point here is that invariably there will be things in life that you are good at, and there are things you are much better off paying someone else to do.

    Many investors believe they can manage money effectively on their own – and they are likely right as long as they are in a cyclical bull market. Of course, this idea is equivalent to being the only person seated at a poker table and the dealer deals all the cards face up. You might still lose a hand every now and then, but most likely you are going to win.

    I would love to be a graphic artist, but until pie charts and analytical tables come into vogue as contemporary art it is unlikely I will be able to fund my retirement by doing it. However, just because my emotions tell me I want to be an artist doesn’t mean that I will be good at it. So, for the time being, I will leave it to others that have a penchant for paint. (But if you happen to be interested in a pie chart for your living room, let me know…)

    Emotion causes us to attach significance to things that have little influence on whether a trade works out or not. Emotions have a nasty habit of overriding logical thought processes that lead ultimately to poor decision making. 

    Tom Dorsey once wrote;

    “Consider this, if someone offered to flip a coin for you and offers you a better payout on heads than tails, the only logical bet would be on heads. So there is only one decision, logically, but emotion may cause you to remember that the last time you took heads was in the 1958 NFL Championship game at Yankee stadium. You were with the Giants and called for heads in the overtime session, losing not only the coin toss, but also the game, eventually, to Johnny Unitas and the Colts.

     

    That decision may be one you will remember for the rest of your life, but it isn’t one that will have any impact on the bet at hand. Nonetheless, we are all human and all susceptible to these types of thoughts, just some more than others.”

    That is why there are so few successful poker players in the world but so many people willing to fund the Las Vegas strip. Most people are more than willing to take a risk with their money in the hopes of hitting the jackpot, the dream of being rich has been embedded in us since birth, however, very few investors have any idea of the “possibilities” of success versus the overwhelming “probabilities” of failure. Therefore, as in my case, I can’t paint, therefore, I understand that there is a huge probability that I will not be successful as an artist versus the slim hope (possibility) that people will flock to my door wanting 8 ½ X 11 framed pie charts. (Readily available at this website)

    If you are not successful at managing your money over the long term you will wind up losing money, which is why roughly 80% of all investors do. It is better to be honest with yourself and begin an approach to increase your probabilities of success. In a blink of an eye a professional can read the table and make a determination as to whether it’s time to “hold’em” or “fold’em,” can you?

    9) Be patient

    Patience is hard. Most investors want immediate gratification when they make an investment. However, real investments can take years to produce their real results, sometimes, even decades. More importantly, as with playing poker, you are not going to win every hand and there are going to be times that nothing seems to be “going your way”. 

    No investment discipline works ALL of the time. However, it is sticking with your discipline and remaining patient, provided it is a sound discipline to start with, that will ultimately lead to long-term success.

    I remember in the late 1990’s the media equated investing with Warren Buffet to driving “Dad’s old Pontiac” since Warren didn’t embrace new technology. He didn’t embrace new technology because he didn’t understand and valuations on those companies made no sense to him. He stuck with his discipline even though he was lagging the market. Eventually, his discipline paid off because it was sound and he was patient enough to allow it to work for him over time. Oh, and those that chastised him were crushed in the ensuing “bear market.” 

    10) Examine your motivation for playing.

    Why are you trying to manage your own money? Is it that you love doing it? Is it the “thrill of the chase and the agony of defeat” syndrome? Or, did you just think that is what you are supposed to do?

    These are fair questions that you have probably been asked before. However, the real question that you need to ask yourself is “Am I successful at managing the future of my family and my retirement?”

    “To a real player, gambling is only a certain part of what happens at casinos or at the track. Gamblers (or average investors) are people who either don’t know what they are doing, or like to bet against the odds.

     

    Good poker players (and good investment advisors), like good horse players, search for value. They leverage advantage. They look for small truths and they hope other people (competitors) don’t notice. They manage risk, and expect rewards for playing well. They like the sport. They like knowing. Call these people craftsmen. Don’t call them gamblers.”

  • Gun Sales Surge In Switzerland As Army Chief Warns "Arm Yourselves"

    It would appear the people of Switzerland have been listening to their military leaders. Having recently been warned by the Swiss army chief of growing social unrest, SwissInfo reports applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons. But while the army proposes "arm yourselves," Swiss crime prevention officials warn against the false sense of security that guns bring.

    Whereas in 2011 numerous people in Switzerland voluntarily gave up their firearms, today more and more people are purchasing guns.

    Swiss army chief André Blattmann warned, "The threat of terror is rising, hybrid wars are being fought around the globe; the economic outlook is gloomy and the resulting migration flows of displaced persons and refugees have assumed unforeseen dimensions," adding that "Social unrest can not be ruled out."

    He further recalled the situation around the two world wars in the last century and advised the people of Switzerland to arm themselves…

    And, as SwissInfo reports, it appears they have…

    Applications for gun permits in Switzerland increased by 20% between 2014 and 2015, according to a survey conducted in 12 cantons by Swiss public television, SRF.

     

    The survey, published on Wednesday, showed that in the 12 (out of 26) cantons surveyed, the Swiss are increasingly interested in purchasing pistols, rifles and other firearms for private use.

     

    The greatest increase – more than 70% – was measured in canton Vaud, with more than 4,200 applications in 2015, compared with 2,427 in 2014.

     

    There is a general climate of uncertainty and an increased fear of intruders, said Pierre-Olivier Gaudard, head of crime prevention for canton Vaud.

    But Martin Boess, director of Swiss crime prevention, warned against the false sense of security that guns bring.

    “When there are more guns in circulation, there is a greater danger for society,” he said in an interview on the 10 vor 10 news programme. “That’s shown by experience in places like the United States. When there are more guns, there are more accidents with guns.”

     

    In Switzerland, with more than 8 million inhabitants, there are about 2.5 million legal weapons, around half of which are used for Swiss military service.

    *  *  *

    And while the Swiss go about their legal business of arming themselves, President Obama is preparing to unleash another weapon – the executive order – to enact gun-control legislation.

    Facing stiff resistance to gun-control legislation in Congress, Mr. Obama has signaled that he plans to act on his own. The president has directed administration officials to explore any steps he could take on guns without lawmakers’ help, and he said in his weekly address that he would sit down with Ms. Lynch on Monday “to discuss our options.”

     

    “I get too many letters from parents, and teachers, and kids to sit around and do nothing,” Mr. Obama said in the address, which was released Friday morning.

     

    Gun-control advocates who are familiar with the White House’s plans say Mr. Obama could lay out multiple executive actions as soon as next week, and administration officials have confirmed that recommendations for the president are nearing completion.

     

    White House spokesman Eric Schultz said Mr. Obama asked his team to “scrub existing legal authorities” and assess actions that could be taken administratively.

    Free-dom indeed.

  • The Next Big Short

    Submitted by David Stockman via Contra Corner blog,

    If you have forgotten your Gulliver’s Travels, recall that Jonathan Swift described the people of Brobdingnag as being as tall as church steeples and having a ten foot stride. Everything else was in proportion – with rats the size of mastiffs and the latter the size of four elephants, while flies were “as big as a Dunstable lark” and wasps were the size of partridges.

    Hence the word for this fictional land has come to mean colossal, enormous, gigantic, huge, immense or, as the urban dictionary puts it, “really f*cking big”.

    That would also describe the $325 billion bubble which comprises Amazon’s market cap. It is at once brobdangnagian and preposterous – a trick on the casino signifying that the crowd has once again gone stark raving mad.

    When you have arrived at a condition of extreme “irrational exuberance” there is probably no insult to ordinary valuation metrics that can shock. But for want of doubt consider that AMZN earned the grand sum of $79 million last quarter and $328 million for the LTM period ending in September.

    That’s right. Its conventional PE multiple is 985X!

    And, no, its not a biotech start-up in phase 3 FDA trials with a sure fire cancer cure set to be approved any day; its actually been around more than a quarter century, putting it in the oldest quartile of businesses in the US.

    But according to the loony posse of sell-side apologists who cover the company——there are 15 buy recommendations—–Amazon is still furiously investing in “growth” after all of these years. So never mind the PE multiple; earnings are being temporarily sacrificed for growth.

    Well, yes. On its approximate $100 billion in LTM sales Amazon did generate $32.6 billion of gross profit. But the great builder behind the curtain in Seattle choose to “reinvest” $5 billion in sales and marketing, $14 billion in general and administrative expense and $11.6 billion in R&D.

    So there wasn’t much left for the bottom line, and not surprisingly. Amazon’s huge R&D expense alone was actually nearly three times higher than that of pharmaceutical giant Bristol-Myers Squibb. But apparently that’s why Bezos boldly bags the big valuation multiples.

    Not so fast, we think. Is there any evidence that all this madcap “investment” in the upper lines of the P&L for all these years is showing signs of momentum in cash generation? After all, sooner or later valuation has to be about free cash flow, even if you set aside GAAP accounting income.

    In fact, AMZN generated $9.8 billion in operating cash flow during its most recent LTM period and spent $7.0 billion on CapEx and other investments. So its modest $2.8 billion of free cash flow implies a multiple of 117X.

    Needless to say, the sell side chorus insists that one doesn’t matter, either. At the drop of a hat Bezos could purportedly hit the investment “pause” bottom and unleash a surge of free cash flow.

    The cynic might say good luck on that, considering the record. But then again, he might also ask why was Bezos’ pause button massively rerated upward just as this bull market was reaching its fevered peak?

    That is, we are just completing a year in which the Fabulous Four FANG stocks (Facebook, Amazon, Netflix and Google) gained $500 billion of market cap while the remaining 496 companies in the S&P index went down by more than one-half trillion dollars.

    In that context, AMZN’s market cap one year ago was just $145 billion, meaning that it gained a stunning $180 billion or 125 percent during the interim.

    By contrast, its free cash flow for the year ended September 2014 was $2.3 billion, meaning not only that it grew by a modest amount, but that a year ago the so-called “market” was valuing AMZN at just 62X free cash flow. And to complete the picture, during the year ended in December 2011 Amazon generated $2.0 billion of free cash flow, meaning that is was then being valued at just 40X.

    Can you say bubble mania?  Bezos is surely the greatest empire builder since Genghis Kahn, and has never wavered in his determination to spend every dime the company generates in sales. Profits be damned.

    But history will surely record that the 48 months since December 2011 comprised the final stages of the most stupendous financial bubble in recorded history. During that period, the casino re-rated Amazon’s meager free cash flow from 40X to 62X to 117X on virtually no improvement in performance.

    It was just plain old multiple inflation gone wild with respect to the last momo stocks standing.

    We have been here before, and there is no better analogy than Cisco and its fellow shooting stars in early 2000 on the eve of the dotcom crash.

    Indeed, Amazon’s $325 billion valuation is just plain irrational exuberance having one more fling. Spasms like this year $180 billion gain (125%) on the AMZN ticker or the $190 billion gain (55%) on the GOOG account are absolutely reminiscent of the final days before the tech wreck exactly 15 years ago.

    In a recent post I demonstrated how the 12 Big Cap Techs of 2000—-led by Microsoft, Intel, Dell and Cisco——-saw their combined valuation soar from $900 billion to $3.8 trillion in the 48 months leading up to the March 2000 peak; and that they then plunged to just $875 billion a decade later.

    To wit, their bubble era market cap got whacked by $3 trillion in the years ahead, even as their sales and earnings continued to grow. What got purged was irrational exuberance in a casino high on the central bank’s monetary heroin.

    In this regard, Cisco was the poster child last time around for this kind of top-of-the-bubble disconnect.  During the 48 month run to March 2000, its market cap had exploded from $40 billion to $506 billion or by nearly 13X.

    By contrast, it net income had increased from $1.0 to $2.5 billion or by just 2.5X. Accordingly, its PE multiple was rerated during this classic era of irrational exuberance from 40X to 200X.

    Even then, Cisco was not only the provider of all things for the internet, but was actually run by a CEO who had a decent respect for the idea of profits.

    Indeed, during the most recent twelve months in the spring of 2000 CISCO had earned a respectable $2.5 billion of net income on $15 billion of sales. Moreover, this most recent net income posting had grown for eight straight years at a spectacular 50% compound rate from $100 million in 1992.

    So its earnings track record was far more impressive and reliably rising than Amazon’s recent results. In fact, AMZN’s net income peaked at $1.15 billion way back in 2010 and has not come close to that high water mark since.

    Still, Cisco’s problem at the turn of the century was the market’s lunatic valuation at 200X its smartly growing net income.

    But here’s the thing. Cisco was already a mature technology company. There was no growth rate in the known universe that would have permitted it to earn into a $500 billion valuation.

    Even at a standard 20X market multiple on its existing fulsome net margins (17%), it would have needed $25 billion of net income on $150 billion of sales to make valuation ends meet.

    In fact, during the next 15 years Cisco’s performance steadily improved,  but one and one-half decades later it is still at only one-third of the levels implied by its dotcom era market cap. That is, revenues have grown from $15 billion to nearly $50 billion, and its net income has more than tripled to nearly $10 billion per year.

    Needless to say, it’s market cap today at $140 billion is just 25% of its dotcom bubble peak!

    In short, its market cap was driven to the absurd height recorded in March 2000 by the final spasm of a bull market, when the punters jumped on the last momo trains out of the station.
    CSCO Market Cap Chart

    CSCO Market Cap data by YCharts

    At the end of the day, AMZN’s current preposterous $325 billion market cap has nothing to do with the business prospects of Amazon or the considerable entrepreneurial prowess of Jeff Bezos and his army of disrupters.

    It is more in the nature of financial rigor mortis – the final spasm of the robo-traders and the fast money crowd chasing one of the greatest bubbles still standing in the casino.

    And, yes, notwithstanding all the “good things it brings to life” daily, it is not the present day incarnation of  even the mighty General Electric of the 1950s;  and for one blindingly obvious reason. It has never made a profit beyond occasional quarterly chump change.

    Not only has its net income been falling for five years, but what it has generated in the interim is actually a joke. To wit, during the last 23 quarters its has posted cumulative sales of nearly $380 billion but only $2 billion of net income and half of that was in 2010.

    That’s right. The Kool Aid drinkers in the casino are betting $325 billion on a massive e-commerce distributor of books and merchandise that has a steady state profit rate at 0.5% of sales.

    Admittedly, in these waning days of the third great central bank enabled bubble of this century, GAAP net income is a decidedly quaint concept. In the casino it’s all about beanstalks which grow to the sky and sell-side gobbledygook.

    Here’s how one of Silicon Valley’s most unabashed circus barkers, Piper Jaffray’s Gene Munster, explains it:

    Next Steps For AWS… SaaS Applications? We believe AWS has an opportunity to move up the cloud stack to applications and leverage its existing base of AWS IaaS/PaaS 1M + users.

     

    AWS dipped its toes into the SaaS pool earlier this year when it expanded its offerings to include an email management program and we believe it will continue to extend its expertise to other offerings. We do not believe that this optionality is baked into investors’ outlook for AWS.

    Got that?

    Instead, better try this.  As indicated above, AMZN’s operating free cash flow during its most recent LTM period was $2.76 billion compared to $2.26 billion way back in 2009.

    So its six year free cash flow growth rate computes to just 3.35% per annum. And on that going nowhere track record,  AMZN is being valued at, well, like we said, 117X free cash flow!

    The fact is, Amazon is one of the greatest cash burning machines ever invented. Its net revenues of just $8.5 billion in 2005 have since grown by 12X to $101 billion for the LTM period ending in September, meaning that during the last ten and three-fourths years it has booked $455 billion in sales. But its cumulative operating free cash flow over that same period was just $6 billion or 1.3% of its turnover.

    So, no, Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino.

    In an honest free market, real investors would never give a $325 billion valuation to a business that refuses to make a profit, never pays a dividend and is a one-percenter at best in the free cash flow department—–that is, in the very thing that capitalist enterprises are born to produce.

    Indeed, the Wall Street brokers’ explanation for AMZN’s $325 billion of bottled air is actually proof positive that the casino has become unhinged. For more than two decades, Amazon has been promoted as the monster of the E-commerce midway, which it surely is.

    But this year’s $180 billion roll of the dice has absolutely nothing to do with its capacity for same day delivery of healthy treats for your pooch. This most recent rip was all about the purportedly “scorching” performance of its AWS division——-that is, Amazon’s totally unrelated business as a vendor of cloud computing services.

    Indeed, CNBC recently gave air time to one of the most rabid analyst on the block, and this particular stock peddler from UBS left nothing to the imagination. Never mind whether anything emanating from that serial swindler and confessed criminal organization can be taken seriously, here’s what the man said.

    AWS is technology’s second coming and is worth $110 billion. We know that because AMZN has recently been thoughtful enough to break out its financials.

    They show AWS had sales of $2.1 billion in the September quarter and revenues of $7 billion on an LTM basis. So that puts its cloud computing business’ value at 16X sales. No sweat!

    Moreover, this means that the balance of the company—–that is, its core E-commerce business—– is “only” valued at an apparently much more reasonable $215 billion. And by golly, said the UBS man, that’s just 1.4X sales. So what’s not to like?

    Well, hold it right there. Someone forgot to do the math in all the excitement about AWS. Yes, the company’s release did show that AWS posted $1.33 billion of operating income or about 20% of sales in the during the LTM period.

    But consolidated operating income during the quarter was only $1.72 billion, meaning that by the lights of subtraction, Jeff Bezos’ great empire of E-commerce earned the microscopic sum of  $390 million in operating income during its most recent year.

    By the same magic of subtraction we can see that AMZN’s E-commerce business generated $94 billion of sales. This means that its operating margin was exactly 40 basis points.

    That’s right—–after 25 years of crushing it on the E-commerce front, Amazon’s core business operating margin is truly a rounding error.

    And might we also ask why you would value at $215 billion the profitless sales of an E-commerce monster that just can’t stop spending every dime it takes-in on distribution centers, package handlers, hired delivery trucks and drone prototypes; and now, apparently, same hour delivery service by out-of-work actors and bank tellers who happen to own a Vespa!

    Stated differently, AMZN’s $180 billion market cap gain in 2015 was not actually a re-rating; it was a bait-and-switch operation by the high-rollers in the casino.

    Amazon is not the inventor and first-mover of E-commerce, after all. Instead, it’s now suddenly held to be the monster of the midway in the totally unrelated business of cloud computing services.

    By the lights of the UBS man and Wall Street’s amen chorus, AWS is valued at 16X sales now. But it will surely crush any competitor in the stretch ahead, and thereby grow its way into that outsized valuation.

    Except don’t tell Google, Microsoft, Oracle or several others about the beanstalk thing. Indeed, the current nattering about AWS was truly ridiculous. Why would anyone endowed with a modicum of sanity believe that these tech powerhouses are about to cede the cloud to Amazon merely because it comes first in the alphabet?

    There is no other real reason for thinking so. Between them, the big three mentioned above have about $220 billion of cash and deep franchises in the world of computing and the internet.

    Sure, when technology moved from owned boxes, corporate computer centers and software licenses to a rent-a-server model,  Amazon got out of the gate first because it had no installed base of old technology to protect.

    But there are no barriers to entry, no killer patents, no material brand equity, no irreproducible sales and service network etc. that will permit Amazon to ring-fence the cloud. So there will be viscous competition and prices will fall at a rate which will make Moore’s law look tepid.

    Indeed, Larry Ellison has recently promised to cut prices by 90%, and he has rarely failed to follow through on exactly that kind of competitive rampage.

    Likewise, it would appear that the cloud is destined to be the future home of Microsoft’s entire franchise. Surely it is probable that AMZN’s Seattle neighbor can make the transition from selling computer software to renting cloud services.

    In short, AMZN has disclosed almost nothing about AWS’s detailed business model, its fixed and variable cost structure or the investment requirements of its rentable clouds and the rates of return on the massive amounts of capital employed.

    Only the Wall Street boys, girls and robo-traders betting on red could come up with $110 billion valuation of a nascent business that is positioned in the cross-fire of the Big Tech battlefield.

    So Amazon’s total $325 billion valuation is just plain irrational exuberance. It is also surely the short of a lifetime.

  • Norwegian Car-B-Q: Tesla Model S Bursts Into Flames, Burns To A Crisp While Charging

    The Norwegian owner of a Tesla Model S found an unexpected f(i)ringe benefit during a cold Friday afternoon when shortly after he had parked his luxury electric car at a supercharging station in Gjerstad, and left, he realized the car could serve as a very quick and efficient, if quite toxic, source of heating for the cold Scandinavian country, after the Model S spontaneously burst into flames.

    Nobody was injured in the incident in which the Tesla unexpectedly started burning, at which point emergency services were alerted.

    By the time firefighters arrived, the car was completely ablaze.

    As Norway’s FVN reports, the fire department could not use water to extinguish the electric car fire, so it just let Tesla burn out completely while dousing it with foam and watching the luxury paperweight burn to a crisp.

    FVN adds that the only way to extinguish electric car fire is by using water with a copper material. However, it is too costly for the Norwegian fire departments. There were more f(i)ringe benefits: according to firefighter, Steinar Olsen, it is dangerous to breathe the smoke from the fire because it has fluorine gas in it, and when an electric car burns down the toxic gases emitted are far more dangerous than those from a normal car.

    As Jalopnik adds, the Model S has been involved in a handful of documented fires in the past few years, as a result of both crashes and charging, although Tesla has disagreed on the latter cause.

    Photos from the scene of the incident courtesy of FVN:

     

    On various previous occasions when a Model S burned down under similar circumstances, the stock price of TSLA reacted accordingly, although it always rebounded after Elon Musk soothed the market’s nerves about the “one-time” nature of the Car-B-Q.

    However, now that even Consumer Reports yanked its glowing endorsement of the car, the rebound may be delayed especially if the NHTSA finally wakes up and forces Musk to do another recall for a car which unexpectedly combusted just because it was being charged. One thing is certain: a recall “fixing” the battery pack would have a massive price tag attached to it, and it is possible that after years of ignoring the company’s cash burn and liquidity, those two “fundamental” drivers of value will finally come back to haunt the market with a vengeance.

    In other news, Chinese corporate fraudsters just came up with a new and improved excuse for misplacing their financial records: “we left it in the Tesla as it was charging and everything burned down.”

  • Turkey's Erdogan Praises "Hitler's Germany" As Example Of Effective Government

    Back in August, Nationalist opposition leader Devlet Bahceli took to Twitter to call Turkish President Recep Tayyip Erdogan a “locally produced Hitler, Stalin or Qaddafi”:

    That comment came as Erdogan was busy undermining the coalition building process on the way to calling for new elections. “Accept it or not, Turkey’s governmental system has become one of an executive presidency,” Erdogan said, the day before the tweet shown above was published. “What should be done now is to finalize the legal framework of this de facto situation with a new constitution,” Erdogan continued. 

    For anyone in need of a refresher, Erdogan’s plans to make Turkey an executive presidency were derailed in June when the pro-Kurdish HDP put on a better show at the ballot box than expected, robbing AKP of its absolute majority in parliament.

    The President effectively nullified the election results by calling for a November redo ballot.

    “He’s now saying ‘I won’t listen to the laws or constitution.’ This is a very dangerous period,” warned Kemal Kilicdaroglu, leader of the Main Republican People’s Party. “He wants to give a legal foundation to this coup he’s carried out. Those who carry out coups always do this: First they carry out the coup, then they give it a legal foundation.’”

    Fast forward four months and we’ve seen Erdogan shoot down a Russian warplane and intensify a crackdown on the Kurds which many thought would dissipate once AKP reinstated its iron grip on politics in November.

    Now, as Erdogan pushes to officially transform the Turkish presidency from a figurehead role (obviously Erdogan is anything but a figurehead, but this is about enshrining powers he shouldn’t have into law) into a chief executive position, the President is appealing to history. As it turns out, the opposition aren’t the only ones who compare the strongman to Hitler. 

    “There are already examples in the world. You can see it when you look at Hitler’s Germany,” Erdogan said on Thursday, when asked whether it was possible to maintain the unitary structure of the state under an executive presidential system. “There are later examples in various other countries,” he added, in an apparent effort to soften the blow.

    AKP agreed this week to work with CHP on a new constitution. As Reuters notes, “Opposition parties agree on the need to change the constitution, drawn up after a 1980 coup and still bearing the stamp of its military authors, but do not back the presidential system envisaged by Erdogan, fearing it will consolidate too much power in the hands of an authoritarian leader.”

    Of course PM and yes man par excellence Ahmet Davutoglu is on board. “What is right for Turkey is to adopt the presidential system in line with the [democratic] spirit,” he says. “This system will not evolve into dictatorship but if we do not have this spirit, even the parliamentary system can turn into this [dictatorship].” Who knows what that means other than that Erdogan won’t get any argument out of Davutoglu.

     “[Erdogan] wants a presidential system in Turkey. He did not change his mind after the last election. I think he will force that, somehow. And I think this is the last exit before the full dictatorship for Turkey,” Ceyda Karan, an opposition journalist at Cumhuriyet newspaper, told RT. “We’re dealing with the situation here that is close to a kind of civil war, and that is really dangerous – it is dangerous for Turkey domestically, and it is also dangerous for the international scene where Turkey, the US, Russia, Syria – all these countries, the Kurds are all involved in the struggle against ISIS in Syria and in Iraq.” 

    Yes, yes they are – and maybe that’s part of the reason why Erdogan despises them more now than ever.

    If it’s Hitler’s Germany that Erdogan plans to model Turkey after once he manages to rewrite the constitution, we shudder to think what that will mean for the Kurds who are already being persecuted in places like Diyarbakir, Cizre, Silopi and Nusaybin. 

  • George Soros Regrets Supporting Obama, Eagerly Awaits President Hillary

    Several weeks ago, we presented a list of CEOs and corporations who have had the highest number of direct visits to the White House and, by implication, president Obama. As we said, these are the corporations (and CEOs) who own the White House, and the US presidency .

     

    One name oddly missing was that of George Soros: the billionaire liberal donor whose fundraising efforts have been critical for the Democratic party in recent years. Which is surprising considering the substantial backing, mostly financial, Soros provided in 2007 and 2008 to a then largely unknown Senator from Illinois.

    Or perhaps it is not surprising: a 2012 New Yorker profile of the relationship between the US president and one of the left’s most generous donors reveals stormy clouds:

    “although he still supports Obama, Soros has been disappointed by him, both politically and personally. Small slights can loom large with wealthy donors. When Soros wanted to meet with Obama in Washington to discuss global economic problems, Obama’s staff failed to respond. Eventually, they arranged not a White House interview but, rather, a low-profile, private meeting in New York, when the President was in town for other business. Soros found this back-door treatment confounding. “He feels hurt,” a Democratic donor says.”

    Fast forward to December 31, when in the pre-New Year’s lull, the State Department released its latest dump of Hillary Clinton emails, amounting to some 5,500 pages, a move Trump promptly slammed.

    And while it will take the media a few days to parse through all the emails, one already stands out: one revealing not only the relationship between Soros and Obama, but more importantly, Soros and the person who will likely be America’s next president.

    As the following excerpt reveals, the abovementioned George Soros told a close Hillary Clinton ally in 2012 that he regretted supporting Barack Obama over her in the 2008 primaries and praised Clinton for giving him an open door to discuss policy, according to emails released Thursday by the State Department.

    As first reported by Politico, in an email to Clinton, Neera Tanden, head of the Center for American Progress, recounted a conversation she had while seated next to Soros at a dinner sponsored by the liberal major donor club called Democracy Alliance.

    After Tanden informed Soros that she had worked for Clinton during her bitter 2008 campaign for the Democratic nomination against Obama, Tanden wrote that Soros “said he’s been impressed that he can always call/meet with you on an issue of policy and said he hasn’t met with the President ever (though I thought he had). He then said he regretted his decision in the primary – he likes to admit mistakes when he makes them and that was one of them. He then extolled his work with you from your time as First Lady on.”

    The full email below:

     

    Going back to the NY Mag 2012 article, it added that according to a source, although “Soros might have contributed far more money to Obama if the Administration had engaged with him more intently, he said, “Part of me respects Obama for not spending more time with him. This President doesn’t want to spend a lot of time with donors. You have to admire that.””

    Actually he does, as the chart up top shows it. However, for some odd reason Obama simply did not want to spend a lot of time with George Soros.

    The time of snubbing Soros, however, is at an end, as Hillary is well-known for having no qualms about spending “a lot of time with donors”, especially since virtually every entity on Wall Street is a donor either directly or to the Clinton Foundation.

     

     

    Which means that as Obama’s time in the White House runs out, and as Hillary prepares to take over the throne (barring some Republican miracle), Soros is about to rectify his mistake from 8 years ago and make sure that the special interest puppet in charge of the U.S., is precisely the one he wanted all along.

     

    Then again, perhaps it is really just Obama’s fault, and behind the charming facade is a pool of unlikability. According to another email released yeserday , this time citing Germany’s foreign minister circa 2009, Germany’s Angela Merkel despised the “Obama phenomenon:”

    Sydney Blumenthal sent Clinton a memo on Sept. 30, 2009 with background information on John Kornblum, who was at the time taking over as Germany’s foreign minister. “Kornblum strongly suggests you try to develop your personal relationship with Merkel as you can,” Blumenthal writes.

     

    “He says she dislikes the atmospherics surrounding the Obama phenomenon, that it’s contrary to her whole idea of politics and how to conduct oneself in general. She would welcome a more conversational relationship with you.”

    Eight years later, all of America is eager to move on from the “Obama phenomenon.”  The problem is that the “Hillary phenomenon” is on deck.

    * * *

    We conclude with a few lines from Ludwig von Mises who 80 years ago described and previewed this twisted, corrupted and politicized mutant that passes for modern “capitalism” in his essay “The Myth of the Failure Of Capitalism”, which was published shortly before the coming of Adolf Hitler to power:

    “In the interventionist state it is no longer of crucial importance for the success of an enterprise that the business should be managed in a way that it satisfies the demands of consumers in the best and least costly manner.

     

    “It is far more important that one has ‘good relationships’ with the political authorities so that the interventions work to the advantage and not the disadvantage of the enterprise. A few marks’ more tariff protection for the products of the enterprise and a few marks’ less tariff for the raw materials used in the manufacturing process can be of far more benefit to the enterprise than the greatest care in managing the business.

     

    “No matter how well an enterprise may be managed, it will fail if it does not know how to protect its interests in the drawing up of the custom rates, in the negotiations before the arbitration boards, and with the cartel authorities. To have ‘connections’ becomes more important that to produce well and cheaply.

     

    “So the leadership positions within the enterprises are no longer achieved by men who understand how to organize companies and to direct production in the way the market situation demands, but by men who are well thought of ‘above’ and ‘below,’ men who understand how to get along well with the press and all the political parties, especially with the radicals, so that they and their company give no offense. It is that class of general directors that negotiate far more often with state functionaries and party leaders than with those from whom they buy or to whom they sell.

     

    “Since it is a question of obtaining political favors for these enterprises, their directors must repay the politicians with favors. In recent years, there have been relatively few large enterprises that have not had to spend very considerable sums for various undertakings in spite of it being clear from the start that they would yield no profit. But in spite of the expected loss it had to be done for political reasons. Let us not even mention contributions for purposes unrelated to business – for campaign funds, public welfare organizations, and the like.

     

    “Forces are becoming more and more generally accepted that aim at making the direction of large banks, industrial concerns, and stock corporations independent of the shareholders . . . The directors of large enterprises nowadays no longer think they need to give consideration to the interests of the shareholders, since they feel themselves thoroughly supported by the state and that they have interventionist public opinion behind them.

     

    “In those countries in which statism has most fully gained control . . . they manage the affairs of their corporations with about as little concern for the firm’s profitability as do the directors of public enterprises. The result is ruin.

  • Gold's Timeless Truth

    StealthFlation.org


    One should not be concerned about the gold price measured by the currently standing monetary regime. The value placed on Gold in terms of fiat paper currency solely backed by the good faith and credit of bankrupt Governments whose Central Banks are counterfeiting money is only viable should those presiding suspect monetary authorities actually maintain their credibility and veritable supremacy over time. 



    The inevitable collapse of the western world’s monetary system will leave gold as the only trusted store of value still standing after the financial / economic breakdown befalls.  The trust between the nations tied to the previous monetary order will have been decimated.  Gold then emerges as the essential and only long standing common denominator between nations which no longer trust each others’ previously accepted paper obligations, having been entirely discredited, that hitherto had facilitated the exchange of goods and services between themselves, 




    The monetary and geopolitical mayhem that invariably ensues, always follows the collapse of the previous global means of trade, in this case the Dollar. This is the moment when Gold takes center stage.  As, when the dust finally settles, the only remaining trusted store of value / means of exchange still standing is gold.  It always has been for over 4,000 years of civilized monetary history, which is about determinative a probability as they come……. 



    Finally, a new monetary system which is eventually invariably reestablished between the decimated distrusting parties, forced to the negotiating table in order to resolve the ongoing global financial anarchy, can only be based on a universally trusted and acceptable common denominator between themselves, which is always gold.  At the end of the day, it’s quite simply the only store of value still standing and still valued by all concerned parties at that critical perilous juncture in time.. 

     

    It’s really that simple………..the question is, will it always be a Happy New Year for our cocksure monetary mad men?

Digest powered by RSS Digest

Jan 01

Today’s News 1st January 2016

  • HaPPY NeW FeaR 2016

    HAPPY NEW FEAR

     

     

    .
    VILE HITLARY II

  • Slope's Best Posts of 2015

    Slope of Hope celebrated its 10th anniversary last March, and during the course of 2015, thousands of interesting charts and articles were published. Here’s a sampling of the best of them:

    • The Charlie X Solution – my response to the Charlie Hebdo killings. I think this is some of the finest writing I’ve ever done. Sadly, the world has not taken me up on my brilliant plan.
    • Perfect Palo Alto – in which I examine the hiring of guards at the train tracks to try to reduce the number of Palo Alto high school students throwing themselves in front of locomotives.
    • Learning to Learn – some lessons I took away as I tried my hand at binary trading.
    • Relativity – a very interesting success story about how my method of trading was able to prosper in the face of what seemed like very dire circumstances.
    • The Time Warp Again – if I may say so, an really good post about how much the Silicon Valley has changed since when I was in my teens.
    • Ten Years of Hope – celebrating Slope of Hope’s 10th anniversary
    • Negative Interest – in which I despair about my almost total lack of interest in the market at the time. Not surprisingly, this was almost exactly the peak of the entire world of equities.
    • Do You Want to Know a Secret? – wherein I tear apart another idiotic startup.
    • Transports Less than 2% Away From Failure – here I call for the Dow Transports to begin dropping hard. I, umm, was correct.
    • Silicon Shark Jumps the Shark – a snarky overview of the so-called Startup Castle. Out of curiosity, I clicked on the link, and it goes straight to a 404 page. Figures.

    I hope you enjoy some of these! Happy 2016, ZH-ers. Let’s some some reality starts breaking the walls down.

  • We're All Fascists Now

    Submitted by James E. Miller via TakiMag.com,

    After decades of bitterly partisan acrimony, a consensus has been forged. Americans on all sides of the political compass finally agree on something: Donald Trump is a “fascist.”

    And they say our country is too divided politically to see eye to eye on anything.

    Liberals, who are more apt to liken someone they disagree with to Hitler than any other group, get their rocks off pinning the fascist label on Trump. The Week’s Ryan Cooper is the biggest perpetrator of this linguistic stratagem. He’s written numerous articles on why Trump is a fascist threat to the nation. Democratic presidential hopeful Martin O’Malley is also fond of calling the Donald the F-word.

    Fascist-mongering is not exclusive to the left. A national security advisor for illegal-alien-loving Jeb! Bush is guilty of the verbal slander. One of Ohio governor John Kasich’s super PACs is subtly linking Trump to fascism by comparing him to Nazi Germany. Marco Rubio’s war cheerleader Max Boot called Trump a fascist while admitting it’s not a term he “uses loosely or often.” Libertarian writer Jeffrey Tucker says that Trump’s ideology “is best described as fascism.”

    With all this fashy talk, one might get the idea that the two sides of the political establishment are working in cahoots to take down the candidate who best represents all those Middle American Radicals. You might also think that Donald Trump is an anomaly—that his creeping fascistic style is new to American politics.

    But what does “fascism” even mean? The way commentators toss around the word, you’d think it came with a precise definition. And you’d think that Mr. Trump embodies that definition in his unpredictable, fuck-you-style campaign.

    But, of course, you’d be wrong to assume such veracity on the part of the media. The problem with the word “fascism” is that it’s used so much it has lost all meaning. Basically, pundits use “fascism” to describe anything or anyone who goes against their ideology. With Donald Trump rampaging Godzilla-like through all the political establishment’s sacred idols—political correctness, porous borders, the aversion to criticizing any race or religion besides white Christians—it only makes sense that he’s been attacked as an überfascist.

    In the mid–20th century, fascism actually meant something. The Old Right journalist John T. Flynn described the governing philosophy as a capricious, power-mongering dictatorship. “First we must note one important difference between Communism and Fascism which becomes clear here,” he wrote. While socialists and communists had a “definite philosophy,” fascists, on the other hand, “improvised as the movement went along.” Citing Benito Mussolini’s governing style in Italy, Flynn deduced the “essential ingredients of fascism.” They include a government unrestrained by constitutional limits, a dictator who makes it his job to lead the nation to full vitality, an economy that is overseen by a vast bureaucracy, and a society that is highly militaristic and dependent on an imperialist complex.

    Gee, don’t those all sound eerily similar to the federal gargantuan we call Washington today?

    Certainly, Donald Trump is running on a fascist campaign platform. He’s using the sheer power of his celebrity to drown out all opposition. He talks about using the Oval Office as a tool to get the country winning again, and not as a solemn duty. Plus, he boasts recklessly about bombing the shit out of our enemies.

    The critics are right, Donald Trump’s campaign is based upon fascist principles. But here’s the thing: What campaign isn’t?

    Former first lady, senator, and secretary of state Hillary Clinton is running for president based solely on her personality and connections to the country’s elite. She wants the government to play an even larger role in people’s personal lives than it does now. In a recent debate she declared, “The American president has to both keep our families safe and make the economy grow in a way that helps everyone—not just those at the top.” Control freak, much?

    Florida senator Marco Rubio is no different. The boy wonder has based his entire campaign on a muscular foreign policy and his reputation as a great communicator. He has his own plan to create an “economic renaissance in America.” And he speaks glowingly about restoring America’s leadership in the world.

    If Donald Trump is a megalomaniac salivating over taking control of American Weimar, then both Hillary Clinton and Marco Rubio are führers in the making. The same goes for the rest of the field, where each and every candidate aspires to be the Celebrity-in-Chief. Trump only looks worse because he doesn’t have the benefit of a sympathetic media on his side.

    Nobody wants to admit it, but fascism defines modern American government. Washington, D.C., isn’t just a leviathan with its controlling tentacles in, around, and on top of everything. It is the molder and shaper of nearly all public life. Corporations take their cues from the federal government. The president tells us how to behave, what norms are appropriate, and how we should feel after a national catastrophe. The American public looks with reverence to the Oval Office.

    In his book Fascism Versus Capitalism, Lew Rockwell wrote, “The state, for the fascist, is the instrument by which the people’s common destiny is realized, and in which the potential for greatness is to be found.”

    Is that not the platform of every leading presidential aspirant, including Donald Trump?

    The sensationalism of the modern presidency means that we’re all fascists now. All social systems rely on power to keep the citizenry in line. We happen to live in a constitutional republic that has fascist elements. We should thank our lucky stars that it isn’t much worse.

  • How ISIS Broadcasts Its Message To The World: Satellite Dishes Bought In Turkey

    Over the last six or so months, it’s become abundantly clear that Turkey is home to several of the key transit and supply routes utilized by Islamic State. 

    Ankara has long been suspected of turning a blind eye to the legions of foreign fighters that flow across the border into Syria and as Nafeez Ahmed noted last month, there’s voluminous evidence to support the contention that Turkey’s government is complicit in the terror group’s activities. This evidence was available long before the Russian MoD blew the whistle on Erdogan’s ties to the group’s illicit crude trade.

    Here are some key excerpts from Nafeez’s piece “NATO is harbouring the Islamic State: Why France’s brave new war on ISIS is a sick joke,” as originally published in Medium:

    A senior Western official familiar with a large cache of intelligence obtained this summer from a major raid on an ISIS safehouse told the Guardian that “direct dealings between Turkish officials and ranking ISIS members was now ‘undeniable.’”

     

    The same official confirmed that Turkey, a longstanding member of NATO, is not just supporting ISIS, but also other jihadist groups, including Ahrar al-Sham and Jabhat al-Nusra, al-Qaeda’s affiliate in Syria. “The distinctions they draw [with other opposition groups] are thin indeed,” said the official. “There is no doubt at all that they militarily cooperate with both.”

     

    In a rare insight into this brazen state-sponsorship of ISIS, a year ago Newsweek reported the testimony of a former ISIS communications technician, who had travelled to Syria to fight the regime of Bashir al-Assad.

     

    The former ISIS fighter told Newsweek that Turkey was allowing ISIS trucks from Raqqa to cross the “border, through Turkey and then back across the border to attack Syrian Kurds in the city of Serekaniye in northern Syria in February.” ISIS militants would freely travel “through Turkey in a convoy of trucks,” and stop “at safehouses along the way.”

     

    The former ISIS communication technician also admitted that he would routinely “connect ISIS field captains and commanders from Syria with people in Turkey on innumerable occasions,” adding that “the people they talked to were Turkish officials… ISIS commanders told us to fear nothing at all because there was full cooperation with the Turks.”

    Back in May, The New York Times reported that in addition to foreign fighters and weapons, ammonium nitrate also flows across the porous border between Syria and Turkey. “The open transport of ammonium nitrate into Islamic State territory points to lingering questions about Turkey’s commitment to isolating its jihadist neighbors,” The Times wrote on the way to documenting how the fertilizer (which is also used to build bombs) makes its way from Akcakale, which is home to 90,000 Turks to the Syrian town of Tel Abyad. 

    As if all of the above wasn’t enough, testimony from an ISIS fighter captured by the Kurdish YPG points to Turkey as a training ground for new ISIS recruits. “The training took place in Turkey because the Daesh command thought that it was safer there than in Syria. It wasn’t possible to carry out training in Syria because of airstrikes,” the soldier said, adding that “the media wrote that we were training in an FSA military camp, but in fact, all 60 of us were members of Daesh.”

    And then there is of course the infamous illegal crude racket in which ISIS is suspected to work closely with the Turks in trafficking stolen oil from captured fields in Syria and Iraq to the Turkish port of Ceyhan. 

    Now, thanks to an investigative report by Spiegel, we learn that Islamic State also procures satellite dishes in Turkey and before you write that off as immaterial, or inconsequential compared to everything else ISIS gets across the Syrian border, consider that without these dishes, the group could not disemminate its propaganda. “No terror organization uses the Internet as successfully when it comes to marketing itself and recruiting supporters as Islamic State (IS) does,” Spiegel begins, before asking the following: “…how is it able to do so given that the group operates in a region where telecommunications infrastructure has been largely destroyed?“

    Here’s more: 

    If you need to get online in Syria or Iraq, the technology needed to do so can be purchased in the Hatay province — a corner of Turkey located between the Mediterranean Sea and the Syrian border. 

     

    Thousands of dishes have been installed in the region allowing users to access the Internet by satellite. There has been a huge surge in recent years in the satellite Internet business.

     

    In Antakya, the demand for satellite technology on the other side of the border has fueled a boom in business. Two of the numerous dealers based here say independently of each other that they each have about 2,500 users in Syria and that they have monthly revenues of around $100,000. When asked who, specifically, they are selling their equipment and services to, they cautiously answer that they provide them only to commercial partners. They say they don’t know who the end customers are.

     

    Syrian activists claim that satellite dishes are located all over the place — on the rooftops of IS media centers and on top of the private homes of members of the terrorist militia. Without them, IS would be cut off from the outside world.

     

    A number of distribution firms are involved in the sales chain of the technologies required to obtain satellite Internet access. At the beginning of this chain are the major European satellite operators, led by France’s Eutelsat, Great Britain’s Avanti Communications and Luxembourg’s SES. 

     

    Distribution firms then buy facilities and satellite capacity from the big companies and resell it to corporate or private customers. 

     

    Sales in Turkey are fairly slow too, because satellite connections are more expensive than classic DSL access.

     

    According to the most recent data available from Turkey’s telecommunications authority, there were 11,000 registered satellite Internet users in Turkey during the first quarter of 2015, only 500 more than the previous year.

     

    But during 2013 and 2014, alone, Neustadt-based Sat Internet Services exported more than 6,000 dishes to Turkey, customs agency documents obtained by SPIEGEL ONLINE show. It is likely that most of those satellite dishes did not remain in Turkey, and there’s a strong chance a good deal of them ended up in Syria. The Syrian market has a decisive advantage in that there is no alternative Internet access available, meaning prices can be set very high.

    Spiegel then asks why, given how clear it seemingly is that Islamic State is operating dishes purchased in Turkey, the companies involved in providing the service can’t simply cut the militants’ access. After noting that both SES and Eutelsat denied having any knowledge or control of who their end customers ultimately are, Spiegel says that “satellite operators and their distribution partners generally can determine the location of the equipment they are supplying.” Afterall, the German weekly continues, “when they install satellite dishes and configure Internet access, their customers are required to provide their GPS coordinates.” The fact that many of the satellite dishes are located in Raqqa, al-Bab, Deir al-Zor and along the Euphrates River into Iraq and the IS-occupied city of Mosul leads to one rather obvious question: “Why don’t the companies take action to stop it?” 

    That is of course just a reformulation of the question that has been asked over and over again with regard to Islamic State’s operations. For instance, the US knows where ISIS media centers are located but hasn’t bombed them. Similarly, it took Russia exposing the Islamic State oil trade for the whole world to see before the US moved to target the group’s oil convoys despite the fact that Washington was well aware of their locations prior to Moscow’s intervention. The excuse was always fear of “collateral damage.”

    As it relates to the satellite dishes, Spiegel suggests the answer may lie in the profit motive. It’s also suggested that perhaps the companies are passing the data along to authorities. We’ll leave you with two final quotes and leave it to readers to decide for themselves.

    Although most satellite operators do not publish their internal figures, industry analysts say it costs between €300 million and €400 million to build a satellite and to launch it into orbit. Does that explain why satellite operators might be willing to accept the fact that they provide the infrastructure needed by a terrorist group to communicate, disseminate their propaganda and possibly plan attacks? 

     

    Or perhaps the companies have full knowledge of who is using their services and are sharing that information with intelligence services.  

  • Russian Imperialism Meets Illusions Of Ottoman Grandeur

    Submitted by Burak Bekdil via The Gatestone Institute,

    • Earlier in 2015, President Recep Tayyip Erdogan said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria."

    • By that logic, Turkey should not be "doing anything" in the Palestinian territories, Somalia, Egypt, Pakistan, Afghanistan or any of the non-bordering lands into which its neo-Ottoman impulses have pushed it.

    In a 2012 speech, Turkish Prime Minister Ahmet Davutoglu, then foreign minister, predicted that Syrian President Bashar al-Assad's days in power were numbered and that he would depart "within months or weeks." Almost three and a half years have passed, with Assad still in power, and Davutoglu keeps on making one passionate speech after another about the fate of Syria.

    Turkey's failure to devise a credible policy on Syria has made the country's leaders nervous. Both Davutoglu and President Recep Tayyip Erdogan have lately resorted to more aggressive, but less convincing, rhetoric on Syria. The new rhetoric features many aspects of a Sunni Islamist thinking blended with illusions of Ottoman grandeur.

    On December 22, Davutoglu said, "Syrian soil is not, and will not be, part of Russia's imperialistic goals." That was a relief to know! All the same, Davutoglu could have been more direct and honest if he said that: "Syrian soil will not be part of Russia's imperialistic goals because we want it to be part of Turkey's pro-Sunni, neo-Ottoman imperialistic goals."

    It is obvious that Davutoglu's concern is not about a neighboring territory becoming a theater of war before it serves any foreign nation's imperialistic goals. His concern, rather, is that neighboring soil will become a theater of war and serve a pro-Shiite's imperialist goals. Hardly surprising.

    "What," Davutoglu asked Russia, "is the basis of your presence in Syria?" The Russians could unconvincingly reply to this unconvincing question: "Fighting terror, in general, and ISIL in particular."

    But then Davutoglu claims that the Russian military hits more "moderates" (read: merely jihadist killers, not to be mixed with jihadist barbarians who behead people and cheerfully release their videos). Translation: more Islamist targets and fewer ISIL targets.

    A legitimate question to ask the Turkish prime minister might be: What is the basis of "moderate" Islamists' presence in Syria — especially when we know that a clear majority of the "moderate" fighters are not even Syrians. According to Turkish police records, they are mainly Chinese Uighurs, several Europeans and even one from Trinidad and Tobago.

    Could the basis be the religious bond? Could Prime Minister Davutoglu have politely reminded the Russians that the "moderate" fighters are Muslim whereas Russia is not? But then, one should ask, using Davutoglu's logic, "What is the basis of the U.S.-led Western coalition's airstrikes in Syria?" Since when are the Americans, British, Germans and French Muslims?

    In Turkish thinking, there is just one difference between non-Muslim Russia's presence in Syria and non-Muslim allies' presence: The non-Muslim Russians seriously threaten the advancement of our pro-Sunni sectarian war in the Levant, whereas the non-Muslim allies can be instrumental in favor of it. Hence Turkey's selective objection to some of the non-Muslim players in Syria.

    Earlier in 2015, President Recep Tayyip Erdogan said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria." By that logic, Turkey should not be "doing anything" in the Palestinian territories, Somalia, Egypt, Pakistan, Afghanistan or any of the non-bordering lands into which its neo-Ottoman impulses have pushed it over the past several years. By the same logic, also, Turkey should be objecting to any allied (non-Muslim) intervention in Syria, or to any Qatari or Saudi (non-bordering) intervention in the Syrian theater.

    Turkish President Recep Tayyip Erdogan has said that he found it difficult to understand what Russia was doing in Syria, since "it does not even border Syria." Pictured: Russian President Vladimir Putin (left) with then Prime Minister Erdogan, meeting in Istanbul on December 3, 2012. (Image source: kremlin.ru)

    In the unrealistic imperial Turkish psyche, only Turkey and the countries that pursue regional ambitions convergent with Turkey's can have any legitimate right to design or re-design the former Ottoman lands.

    Such self-righteous and assertive thinking can hardly comply with international law. The Turks and their imperial ambitions have already been declared unwelcome in Libya, Tunisia, Egypt, Lebanon, Syria and Iraq. Nor would such ambitions be welcomed in any former Ottoman land to Turkey's west. But if, as Turkey's Islamists are programmed to believe, "historical and geographical bonds" give a foreign nation the right to design a polity in another nation, what better justification could the Russians have had for their post-imperial designs in Crimea?

    When they have a moment of distraction from their wars against Western values, the West, Israel, Jews or infidels, the Sunni and Shiite Islamists in the Middle East fight subtle-looking (but less subtle than they think) and cunning (but less cunning than they think) wars and proxy wars, and accuse each other of pursuing sectarian policies. Turkey's rulers are no exception.

  • 2015 Greatest Hits: Presenting The Most Popular Posts Of The Past Year

    One year ago, when looking at the 20 most popular stories of 2014, we were troubled by a recurring thread: “despite the just concluded 6th consecutive year of a rising S&P 500 – the longest such stretch since 1999 of what otherwise would be deemed optimism – despite what should be a steadily improving economy and improving social and economic conditions, what readers founds most fascinating, and troubling, was the increasing preponderance of social disobedience, of covert, proxy or outright wars, and of civil unrest: all phenomena that accompany a world sliding deeper into distress, not as most central banks and their puppet media would have us believe, a global recovery.”

    We will be the first to admit that while it is more difficult to find a coherent theme unifying the most popular posts on Zero Hedge as determined by you, our readers, in the past year, several major domestic socio-economic tensions all came to a head in 2015: class warfare in the US approached unprecedented levels with antagonism between races, genders, ethnicities, ideologies, age groups and incomes all approaching peak levels, and spilling over, literally, on the street as the US public was inundated with daily reports of mass shootings, of trigger-happy policemen, of petulant students demanding conformity, of a president demanding the population hand over even more constitutional rights, of a nation torn in the most volatile presidential race yet.

    All this took place as the median income across the US continued to decline: the rich got richer, the poor got poorer, and the middle class was officially put on the endangered species list, although in 2015, for the first time since the financial crisis, the market closed red in no small part due to the action of the Fed, which after seven years of ZIRP, hiked rates for the first time in nine years despite all other central banks “giving it all they’ve got.” 

    For those trading, it was a year of rising, and in many cases, brutal intraday volatility, of ever more flash crashes across virtually all asset classes, of pain for anyone who was not invested in the five largest companies, and overall a year of change and losses for those hoping the Fed would “have their back” no matter what.

    Meanwhile, the geopolitical situation outside of the U.S. got decidedly worse, with the Syrian global proxy war resulting in the first instance of a NATO nation attacking and taking down a Russian fighter jet in decades, but more importantly, in a historic refugee crisis that will alter the face of Europe for years to come, as well as unleashing a wave of terrorist events which are likely just beginning, as governments across the globe seek to exploit the crisis for their own selfish reasons.

    Overall, it was a year of flux and of dramatic change: change which was largely amorphous and chaotic in 2015 but which will crystallize over the next 12 months, in unpredictable and, sadly, violent ways. Perhaps this change is why 2015 was a record year for Zero Hedge: for the first time this website clocked in over half a billion page views thanks to record readership.

    We thank all of our readers for making this website – which has never seen one dollar of outside funding and has never spent one dollar on marketing – a small (or not so small) part of your daily routine!

    But before we get into the details of what has now become an annual tradition for the last day of the year, those who wish to jog down memory lane, can refresh our most popular articles for every year during our brief 6-year existence, starting with 2009 and continuing with 2010, 2011, 2012, 2013 and 2014.

    So without further ado, here are the articles that readers found to be the most popular over the past year.

    • In 20th place, with 560,000 page views, was the event that for millions of Greeks was the defining event of the summer, the year, and perhaps, a generation: the complete collapse of the country’s financial system, and the imposition of capital controls: a regime of financial repression that will remain with the insolvent German colony indefinitely, as we first showed in “It’s 2 In The Morning And Greeks Are Lining Up At ATMs; Alpha Limits Online Banking.”
    • In 19th place, with over 571,000 reads was a simple chart post, one which summarized “Obama’s Recovery In Just Nine Charts.” The post was popular because it succinctly captured what everyone knows too well: for the vast majority of the population there has been no recovery, just spin and propaganda. We hope the next update of these 9 charts, due some time in 2016, will show some improvement but we doubt it.
    • In 18th spot, read 604,000 times, was our explanation of a phenomenon that has perplexed none other than the career economists at the Federal Reserve, one which we solved in “The Mystery Of The “Missing Inflation” Solved, And Why The US Housing Crisis Is About To Get Much Worse.” We demonstrated how, despite persistently weak CPI, for a record number of Americans renting is now prohibitively expensive, a finding which together with the adverse effect of Obamacare, explained why despite countless predictions for a surge in consumer spending (due to “plunging gas prices”) consumers did precisely the opposite and not only did personal consumption and expenditures decline, but GDP tumbled, ending last year just under 3% and subsequently sliding to just above 2%: a confounding paradox considering the Fed recently launched a rate hiking cycle just to “demonstrate” how strong the US economy has become.
    • In 17th spot, and deservedly with over 626,000 page views, was the man who has been right all along: Ron Paul explained how “Reality Is Now Setting In For America… It Was All Based On Lies & Ignorance.” Unfortunately, his message has yet to be believed and appreciated by the majority of Americans, many of whom prefer to stick their head in the sand and pretend that all is well, but sooner or later they, and everyone else, will come to grips with the truth, unpleasant as it may be.
    • In 16th place, with an impressive 632,000 reads, we revealed the man who serves as the “ISIS connection” with the western world, and the source of funding for the Islamic State. “Meet The Man Who Funds ISIS: Bilal Erdogan, The Son Of Turkey’s President” caused shockwaves across the globe, leading to a dramatic reappraisal of the ISIS conflict in the past month. We hope that as the influence of NATO member Turkey on the Syrian conflict wanes, that peace may finally return as a handful of corrupt Turkish politicians can no longer make billions in profits from the death and misery of thousands.
    • In 15th spot, with nearly 650,000 page views, was a post touching the barely beating heart of America’s centrally-planned regime, the Fed Chairwoman herself, who entered the history books by being the first Fed head in nearly a decade to raise interest rates. Many wondered why. The answer was provided by her when “Yellen Said Negative Rates On The Table “If Outlook Worsened.” We await the Fed to realize it has committed what many admit was a “policy mistake” and for Yellen to enter the history books for another dubious achievement: lowering rates to negative for the first time in US history.
    • A curious tangent on US social commentary was found in the 14th spot, in which we and 668,000 other readers listened as a professor slammed both the “Thin-Skinned Minority Ruining This Nation”, and damning the “Political Correctness” Wave Sweeping America. Sadly, the willingness of increasingly more “smart, progressive” young men and women to trade their fundamental rights to expression just to avoid any conflict and reside in the “safety” of an emotional cocoon, is one which leads to a dangerous state of uniformity and ultimately to the failure of all individual rights and liberties. We hope this trend is reversed in the coming year.
    • In 13th spot, and reverting back to the core economic and financial malaise eating away at the US, 680,000 found out that “Texas Pulls $1 Billion In Gold From NY Fed, Makes It “Non-Confiscatable.” To be sure, 2015 was another year in which gold suffered, however with central banks around the world continuing their debasement of fiat, it is only a matter of time before the age-old question has to be finally answered: hard or soft money. Perhaps 2016 will be the year.
    • Related to that last question, was the 12th most popular post of the year, in which hedge fund legend “Paul Tudor Jones Warned that “Disastrous Market Mania” Will End In “Revolution, Taxes, Or War.” This is something we have warned since the beginning of this website, and is hardly a profound observation: history is littered with “French Revolutions” which spontaneously happen when the impoverished majority has had enough of the status quo and rebels against the tiny minority which sets the status quo. The outcome is always tragic, and is why since the beginning we have been trying to warn anyone who cares to listen that the path this nation is on will have devastating consequences unless something changes. We hope that as more people agree with us, that some tangible change will finally take place.
    • But we are pessimistic. The reason for that is while the plight of billions of people gets worse despite constant daily distraction, a handful of plutocrats continues to control everything, and does so entirely for their own benefit. We revealed this tiny group and their agents in “Meet The Secretive Group That Runs The World“, the 11th most popular post of the year. With nearly 700,000 views we are happy that the group’s actions and identities are at least a little less secret.
    • Stepping away from the secretive cabals of finance, we shift to what has been perhaps the most important geopolitical event for Germany, if not all of Europe, and judging by the US reaction, for many Americans as well: in 10th spot, 705,000 were quick to read that “10,000 Syrians Are Headed For The Following 180 US “Refugee Processing Centers.” The final number may well be greater, and while we know where many Syrians refugees will end up, what we don’t know is how they will be welcomed and treated in their newly adoptive country.
    • In 9th spot is an article we wrote in September in which we showed that “The IMF Just Confirmed The Nightmare Scenario For Central Banks Is Now In Play.” We were referring to the gradual realization by the tenured economists that both the ECB and the BOJ are increasingly more cornered and are running out of things to monetize, and thus, of ways to boost manipulated market ever higher and surprise with ever bigger bazookas. And yet, even though the post was read by 717,000, countless asset managers were “shocked” when first the ECB and then the BOJ, both expected to reveal the latest and greatest bazooka, sprayed the market with a water pistol. The FX losses for those caught on the wrong side of these trades was astounding.
    • In spot #8, with 763,000 reads was a shocking update by Vladimir Putin, who claimed that “ISIS Is Now On The Ropes As Fighters Desert After 60 Airstrikes In 72 Hours.” To be sure, Russia’s involvement in the ISIS conflict, and its “blitzkrieg”-like success against the Islamic State led to quick and dramatic consequences, chief among which was the US once again folded on its demands to replace Syrian president al Assad: the second time in two years. For a nation for which installing puppet leaders is ordinary course of action, this dramatic derailment of US national policy by Russia has led many to ask if the world is once again truly multipolar.
    • In 7th spot was an article revealing the curious congregation of tankers filled to the brim with oil off the coast of Texas. Indeed, nearly 800,000 were shocked to find that “Something Very Strange Is Taking Place Off The Coast Of Galveston, TX“, that something being that with no storage space to accommodate the millions of barrels of oversupplied crude, the oil would have to float on the ocean until either supply slowed down dramatically, which seems unlikely for the time being, or demand surges, which for a world sliding into recession is also impractical. The result: the price of oil dropped another 30% in 2015, suffering its worst back to back decline in history.
    • In 6th spot was a tragic reminder that every major geopolitical action tends to have deadly consequence, and just weeks after Russia boasted of its military success against ISIS, the Islamic terrorist organization blew up a Russian passanger jet departing Egypt. Nearly 830,000 saw the morbid video clip ISIS made of the exploding airplane. The result was an even more furious military campaign by Putin which ultimately went after what we said should be the goal all along: the Islamic State’s financial lifeline – its crude oil infrastructure and its sales of balck gold to Turkey and other willing buyers.
    • In 5th spot we go back to a prediction we made back in 2014, namely that as a result of plunging oil prices, the death of the Petrodollar had finally arrived. Many ignored our observations of the dramatic liquidation of Chinese Treasurys which started in early 2015, although eventually everyone noticed, even the biggest banks and 872,000 read that “China’s Record Dumping Of US Treasuries Leaves Goldman Speechless.” Since then, the historic liquidation of foreign reserves by petroleum exporters and sovereign wealth funds has been dubbed a “reverse QE”, something which will only accelerate in the future with dramatic results.
    • Related to the above was the 4th most popular post of 2015: over 900,000 were surprised to learn that “China Confirmed It Has Begun Liquidating Treasuries, Warns Washington.”Will China continue to strategically sell US paper, or will it use it tacticaly as a “diplomatic” tool? And will others join? Now that the seal has been broken, expect to see many more “surprises” such as this one, as it is increasingly every player for themselves in a world of currency and trade (and proxy shooting) warfare, and where mixed messages by central banks leave everyone confused.
    • It is no surprise that the third most popular article of 2015 was one which turned the official narrative of the Syrian war on its head, as it revealed just who is stoking the Syrian war. Over 1 million read that a “Secret Pentagon Report Reveals US “Created” ISIS As A “Tool” To Overthrow Syria’s President Assad.” In a world where transparency of motives of governments working on behalf of corporate interests is critical, we hope many more such articles will expose the hypocrisy and duplicity not only of the U.S. but every other regime that openly lies to its people, just so a handful can benefit from death and suffering.
    • The second most popular article of 2015 was one which followed in the aftermath of fears, that a cyber attack had taken down the NYSE. We, as well as 1.1 million others, asked “Is This What The First World Cyber War Looks Like: Global Real Time Cyber Attack Map.” Subsequently we found out that the NYSE suffered a historic outage simply because someone had “updated the software” incorrectly, although in a time when cyber terrorism is increasingly prevalent, we expect to revert to the real time map of  cyber attacks on many more occasions in the future.
    • The top post of 2015 was one in which we – and 1.2 million others – asked “Why Is WalMart Mysteriously Shuttering Stores Nationwide For “Plumbing Issues“?” The answer was revealed a few months later when WalMart shocked the investing world by revealing just how dire the financial situation at this iconic US retailer truly was, a revelation which cut the price of the largest US-based employer by a third and allowed its online competitor Amazon to finally surpass it in market capitalization, a historic moment in the tension between the old and new economies.

    With all that behind us, what is in store for 2016?

    We don’t know: as frequent and not so frequent readers know, we do not pretend to be able to predict the future and we don’t try (despite endless allegations that we constantly predict the collapse of everything): we leave the predicting to the “smartest people in the room” who year after year have been dead wrong. We merely observe and try to find what is entertaining, amusing, surprising or grotesque in an increasingly sad world.

    We do know, however, that after $14 trillion in liquidity has been conjured out of thin air by the world’s central banks, and the tens of trillions of credit money created (and misallocated) by China – a country which was the world’s growth dynamo for the past three decades and which is now rapidly slowing down – the entire world is floating on an ocean of excess money, which for one more year has succeeded in masking just how ugly the truth beneath the calm surface is. Now, with the Fed hiking, as the tide starts to come out, those swimming naked will finally be exposed. How far will the receding tide go?

    We are confident, however, this in the end it will be the very final backstoppers of the status quo regime, the central banking emperors of the New Normal, who will eventually be revealed as fully naked. When that happens and what happens then is anyone’s guess. But, as we have promised – and delivered – every year for the past seven, we will be there to document every aspect of it.

    Finally, and as always, we wish all our readers the best of luck and success in 2016, with lots of trading success, and depart with our now traditional and unwavering year-end promise: Zero Hedge will be there each and every day helping readers expose, unravel and comprehend the fallacy, fiction, fraud and farce that the system is reduced to (ab)using each and every day just to keep the grand tragicomedy going for at least one more day.

  • What's Ahead In 2016 – Key Events Of The Next 12 Months

    Elections, elections, and more elections is the 'change' meme for 2016 but, as Bloomberg details, the key events of the year ahead vary from a California marijuana referendum to Brazil's Olympics, and from Davos to SCOTUS. No matter what, 2016 holds a lot of opportunity for volatility, and without The Fed's safety net, who knows what that means for markets…

    Here's a selected calendar of key events for the year.

    January 

    Construction at Cheniere Energy Inc.'s liquified natural gas (LNG) terminal.
    Construction at Cheniere Energy Inc.'s liquified natural gas (LNG) terminal.
    Source: Cheniere Energy via Bloomberg

     

    Taiwan holds an election and may choose its first female president.

    U.S. begins production of liquefied natural gas for export from Cheniere Energy's terminal in Louisiana, the first since 1969. 

    World leaders gather for the World Economic Forum in Davos, Switzerland. Follow our special report.

    Vietnam's Communist Party Congress convenes to make leadership changes and set policy.

    UN monitors may conclude that Iran has implemented all steps required under July nuclear accord, allowing the U.S. and Europe to lift sanctions.

     

    February

    Donald Trump.
    Donald Trump.
    Photographer: Patrick T. Fallon/Bloomberg

     

    The race to elect America’s 45th president kicks off with the Iowa caucuses and the New Hampshire primary. The caucuses in Nevada and the primary in South Carolina will also be closely watched.

    Pope Francis visits Mexico.

    Academy Awards in Los Angeles.

     

    March

    A paramilitary police officer stands guard in front of red flags at Tiananmen Square in Beijing, China.
    A paramilitary police officer stands guard in front of red flags at Tiananmen Square in Beijing, China.
    Photographer: Tomohiro Ohsumi/Bloomberg

     

    U.S. begins auction of airwaves to make room for faster mobile phone connections.

    China's National People's Congress, the country's top lawmaking body, meets and the government releases details of its new five-year plan.

    Deadline for Colombian government negotiators and FARC rebels to reach a peace deal in Havana, ending a five-decade-old conflict.

    U.S holds so-called Super Tuesday primaries and caucuses in Alabama, Alaska, Arkansas, Colorado, Georgia, Massachusetts, Minnesota, Oklahoma, Tennessee, Texas, Vermont and Virginia and Wyoming.

    Fifth anniversary of the uprising that led to the civil war in Syria.

     

    April

    Cranes stand at a construction site for the expansion of the the Panama Canal, on the Pacific side of the canal near Panama City on April, 24, 2014.
    Cranes stand at a construction site for the expansion of the the Panama Canal, on the Pacific side of the canal near Panama City on April, 24, 2014.
    Photographer: Susana Gonzalez/Bloomberg

     

    The Panama Canal is expected to open a $5.3 billion expansion.

    The United Nations holds a signing ceremony for the Paris climate accord.

    South Korea has parliamentary elections.

    Peru holds the first round of presidential elections. Unless a candidate wins more than 50 percent of the vote, there'll be a runoff in June with parliamentary elections on the same day.

    Bloomberg New Energy Finance holds its annual “Future of Energy” summit in New York.

     

    May

    Photographer: Daniel Acker/Bloomberg

     

    The Philippines elects a legislature and president.

    Scotland votes for members of its parliament.

    A law requiring plain cigarette packaging takes effect in the U.K.

    G-7 leaders meet in Japan's Mie Prefecture, home to the 2,000-year-old Ise Shrine.

    North Korea's Workers Party holds congress. 

     

    June

    The U.S. Supreme Court stands in Washington, D.C., U.S.
    The U.S. Supreme Court stands in Washington, D.C., U.S.
    Photographer: Drew Angerer/Bloomberg

     

    U.S. Federal Reserve releases annual stress tests of the nation’s banks.

    U.S. Supreme Court session ends, with rulings expected on closely watched cases on affirmative action, immigration reform, abortion and voting rights.

    The U.K.'s referendum on leaving the European Union could come as early as mid-2016, though no official date had been set by the end of 2015.

     

    July

    Photographer: Andrew Harrer/Bloomberg

     

    Puerto Rico, in talks with creditors to ease its $70 billion debt burden, faces payments of $1.98 billion on bonds sold by the U.S. territory and its agencies.

    The race for the White House heats up as Republicans and Democrats select their presidential candidates at party conventions.

    Japan expected to hold upper house election. Prime Minister Shinzo Abe could also call a snap poll for the lower house.

    NASA’s Juno spacecraft begins visit to Jupiter.

     

    August

    Construction of the 2016 Olympic Park continues in Rio de Janeiro, Brazil.
    Construction of the 2016 Olympic Park continues in Rio de Janeiro, Brazil.
    Photographer: Dado Galdieri/Bloomberg

     

    Summer Olympics in Rio de Janeiro.

    U.S. Federal Reserve’s Jackson Hole symposium.

     

    September

    People look at portraits of former Chinese leaders Zhou Enlai, left, Mao Zedong, center, and Liu Shaoqi displayed in a shop on Wangfujing Street in Beijing, China, on Tuesday, Sept. 9, 2014.
    People look at portraits of former Chinese leaders Zhou Enlai, left, Mao Zedong, center, and Liu Shaoqi displayed in a shop on Wangfujing Street in Beijing, China, on Tuesday, Sept. 9, 2014.
    Photographer: Brent Lewin/Bloomberg

     

    Russia holds election for lower house of parliament.

    Annual meeting of the U.N. General Assembly in New York.

    G-20 world leaders hold their summit in China for the first time.

    Hong Kong Legislative Council election.

    China marks the 40th anniversary of Mao Zedong's death.

     

    October

     

    Source: The Nobel Prize

     

    Nobel Prizes announced in Stockholm.

    World Bank/IMF meetings held in Washington, D.C.

     

    November

    Source: Gallery Stock

     

    Americans elect a president and determine control of Congress. A referendum on the legalization of marijuana is expected in California.

    The Democratic Republic of Congo holds an election.

    China’s shoppers go online on Single’s Day, while retailers in the U.S. wrestle with Black Friday.

    APEC leaders head to Lima, Peru for their 28th annual gathering.

    Asean/East Asia leaders meet at a summit in Laos. 

     

    December

    Photograph by Jock Fistick/Bloomberg

     

    75th anniversary of the bombing of Pearl Harbor.

    Russian President Vladimir Putin delivers his annual press conference in Moscow, an event that typically lasts about three hours.

    India expects to start operations at the strategic Chabahar port in Iran, which will give it access to Afghanistan and bypass rival Pakistan.

  • Donald Trump's Comprehensive 2015 Insult Highlight Reel

    Submitted by Mike Krieger via Liberty Blitzkrieg blog,

    What better way to end 2015, than with a highlight reel of Donald Trump’s more colorful insults. The Washington Post has done an excellent job of putting together “A Comprehensive Guide to Everyone Donald Trump Insulted in 2015.”

    Here are a few of my favorite clips:

    Screen Shot 2015-12-31 at 10.01.34 AM

    Screen Shot 2015-12-31 at 9.57.04 AM

    Screen Shot 2015-12-31 at 9.56.16 AM

    Screen Shot 2015-12-31 at 9.56.29 AM

    Screen Shot 2015-12-31 at 9.57.24 AM

    Screen Shot 2015-12-31 at 9.58.24 AM

    Screen Shot 2015-12-31 at 10.00.02 AM

    Love him or hate him, this is highly entertaining.

    Watch the entire video below. Enjoy.

     

    Happy New Year.

  • This Is What Stocks Do During Hyperinflation

    One of the classical refrains for buying stocks is that they preserve purchasing power and add value, even under such extreme monetary conditions as hyperinflation, or in other words, on a relative basis, local equities when denominated in a stable currency, will increase in value even as the local currency disintegrates.

    As one example of this phenomenon, historians and equity bulls provide the widely referenced example showing that during the Weimar period, even as the mark lost all of its value, the stock market in USD terms actually rose during the parabolic phase.

     

    But is that widely documented example really true, and even if it is, is it the case that stocks preserve value during hyperinflation in modern days? Luckily, we have an actual, ongoing case of currency destruction and hyperinflation in a country that was supposed to be a “socialist paradise”, but ended up just a little short: Venezuela, whose annual inflation is estimated at just shy of 400% annually according to the Troubled Currencies Project.

    The same Venezuela which as we showed yesterday, Germany’s Handelsblatt, found was the “best investment” in the world in 2015.

     

    Indeed, looking at the performance of the Caracas stock exchange, when denominated in the “official” currency rate, the one which is completely meaningless for virtually everyone, an equity investment in the could not be better: the index clearly soared fourfold in the past year.

     

    There is a problem with this chart, however: as noted above, it uses the official Venezuela exchange rate, one which is completely meaningless to the local population if they actually want to buy USD either locally or in the US.

    To get the real picture, one has to use the actual “black market” rate as calculated daily by DolarToday, which at 833 bid is quite a bit “different” from the 200 official rate.

    Here is a chart of how Venezuela’s real currency has performed in 2015:

     

    What happens when one shows the Caracas exchange in official “currency terms” on one hand, versus “real currency” terms on the other? The answers are shown by the green and blue lines in the chart below, respesctively.

    So to answer the original question: how did Venezuela stocks perform in the past year under the country’s hyperinflation? The answer: using a meaningless exchange rate, they rose 4x and, as Handelsblatt incorrectly concluded, “were the best investment of the year”; on the other hand using an exchange rates that actually reflects the country’s economic implosion, they lost just over 20% of their value in the past year. 

    Which, considering oil plunged by 30% in USD terms in the past year, was not the worst possible return.

    Of course, one asset which Venezuelans could have bought on December 31, 2014 and not lost any purchasing power despite the greater than fourfold plunge in the currency, is a simple one: gold.

  • 15 News Stories From 2015 You Should Have Heard About But Probably Didn't

    Submitted by Carey Wedler via TheAntiMedia.org,
    In 2015, the iron fist of power clamped down on humanity, from warfare to terrorism (I repeat myself) to surveillance, police brutality, and corporate hegemony. The environment was repeatedly decimated, the health of citizens was constantly put at risk, and the justice system and media alike were perverted to serve the interests of the powers that be.

    However, while 2015 was discouraging for more reasons than most of us can count, many of the year’s most underreported stories evidence not only a widespread pattern that explicitly reveals the nature of power, but pushback from human beings worldwide on a path toward a better world.

     1. CISA Pushed Through the Senate, Effectively Clamping Down on Internet Freedom: For years, Congress has attempted to legalize corporate and state control of the internet. In 2011, they attempted to pass PIPA and SOPA, companion bills slammed by internet and tech companies and ultimately defeated after overwhelming public outcry. Then they passed  CISPA — which the president threatened to veto, having caught wind of the public’s opposition to heavy regulation of the internet (earlier this year, Obama reversed his position). However, corporate interests, like Hollywood’s studio monopoly, kept lawmakers’ tenacity afloat.

    In October, Congress passed CISA, the Cybersecurity Information Sharing Act, but as the Electronic Freedom Foundation explained: “CISA is fundamentally flawed. The bill’s broad immunity clauses, vague definitions, and aggressive spying powers combine to make the bill a surveillance bill in disguise. Further, the bill does not address problems from the recent highly publicized computer data breaches that were caused by unencrypted files, poor computer architecture, un-updated servers, and employees (or contractors) clicking malware links.” Just before Christmas, Congress went even further, adding an amendment to the annual omnibus budget bill that strips CISA’s minimal privacy provisions even more. That budget bill was approved, though Representative Justin Amash of Michigan has vowed to introduce legislation to repeal the CISA provisions when Congress reconvenes.

    But CISA wasn’t the only attack on citizens’ privacy this year. Though lawmakers touted the USA Freedom Act as a repeal of the mass surveillance state, in reality, it simply added a bureaucratic step to the process by which government agencies obtain private information. Further, a hack on Italian security firm, aptly called Hacker Tools, revealed that various agencies — including the DEA, NSA, Army, and FBI — possess software that enables them to, as Anti-Media reported, “view suspects’ photos, emails, listen to and record their conversations, and activate the cameras on their computers…” At the same time, the United Kingdom and France moved to tighten their already comprehensive surveillance apparatuses in the wake of multiple terrorist attacks. Though governments claim systematic surveillance is necessary to protect citizens — and Snowden’s leaks endangered that safety — the United States government has been unable to produce sufficient evidence the programs work. Instead, the documents the Department of Defense released this year as proof of the alleged endangerment were entirely redacted.

    2. CIA Whistleblower Sent to Prison for Revealing Damning Information to a Journalist: While the government has no problem invading the privacy of its citizens, it offers swift backlash for those who attempt to violate its own clandestine operations. Jeffrey Sterling, a former CIA agent, had his first altercation with the CIA when he sued for racial discrimination in 2001. He was subsequently fired. Years later, the CIA filed espionage charges against him for speaking with New York Times journalist, James Risen. Sterling had revealed a botched CIA scheme, Operation Merlin, to infiltrate Iranian intelligence that ultimately worsened the situation, gave Iran a nuclear blueprint, and was deemed by some to be espionage, itself. Rather than acknowledge the woeful misstep, the CIA arrested him, charged him, and ultimately sentenced him to 42 months in prison. The trial was reportedly biased, but nevertheless, was severely underreported by the media. Sterling’s conviction reflects the ongoing war on whistleblowers, which Obama has successfully expanded during his presidency. Sterling joins the ranks of Edward Snowden, Chelsea (formerly Bradley) Manning, and others, including a whistleblower who worked for OSHA’s Whistleblower Protection Program and was fired for exposing dysfunction and incompetence within the ranks.

    3. Press Freedom Continued to Deteriorate: An annual report from the World Press Freedom Index saw the United States slip 29 spots from last year, landing 49th out of 180 total. In January, journalist Barrett Brown was sentenced to five years in prison for exposing the findings of hacker Jeremy Hammond. Brown was charged with obstructing justice, aiding and abetting, and separate charges of allegedly threatening the FBI in a rant. Hammond, who exposed severe violations of privacy on the part of Stratfor, a CIA contractor, was sentenced to ten years in prison. Brown’s experience was not an isolated incident. Journalists around the world, like several journalists who were killed while investigating ISIS in Turkey, faced increased danger. One small-town journalist in India was burned alive after exposing a corrupt politician.

    4. Multiple Activists Arrested, Charged with Felonies for Educating Jurors About Their Rights: In an ongoing trend, otherwise peaceful, non-violent individuals were harassed by police and courts — not for exposing secret information, but for providing information to potential jurors about their rights in the courtroom. One Denver jury nullification activist, followed by another, was charged with multiple felonies for handing out pamphlets that explain a juror’s right to vote “not guilty” in a verdict, even if the defendant is clearly guilty. This right was established to allow jurors to vote with their conscience and question the morality of laws, from the 19th century’s Fugitive Slave Act to Prohibition, both of alcohol in the 1920s and of marijuana today. The Denver activists are awaiting trial, while more recently, a former pastor was charged with a felony for the same reason.

    In other unjust convictions and failings of the “justice” system, an African-American man was sentenced to seven years in prison for barking at a police dog, a Kansas mother faces decades in prison for using marijuana to treat her debilitating Crohn’s disease, and a mentally ill man died in jail after being held for stealing five dollars worth of snacks from a convenience store. He had inexplicably been waiting months to be transferred to a medical facility. Ross Ulbricht, founder of the dark web marketplace, the Silk Road, was sentenced to life in prison in spite of the fact that he committed no violent crimes — though the FBI attempted to paint a false picture that he did, albeit without filing formal charges. The prosecution was rife with corruption and scandal; two FBI agents involved in the case were charged with stealing Bitcoin during the investigation. In July, one admitted to stealing $700,000 worth of the digital currency.

    5. Six-Year-Old Autistic Boy Killed by Police: 2015 established not only that the justice system remains broken, but the the enforcement class — police officers — continues to terrorize citizens. In one underreported case, a six-year-old boy was fatally caught in the crossfire of a police shootout against his father, who was unarmed. In another case, an African-American motorist was shot and killed by University of Cincinnati police over a missing front license plate. While high-profile cases of misconduct, including Freddie Gray and Sandra Bland, rightly dominated the news cycle, many more cases of police brutality received little attention. In fact, in 2015, it was revealed not only that the media-propagated “War on Cops” in America was a myth, but that American police kill exponentially more people in weeks than other countries’ police kill in years. On the bright side, many police officers did face charges — and even prosecution — in 2015, including one repeat rapist who recently cried upon being convicted of his crimes. The officers involved in the shooting of the six-year-old boy were also charged with murder.

    6. Earth Enters Sixth Mass Extinction: 2015, like many years before, was disastrous for the environment. Researchers from Stanford University, University of California, Berkeley, and Princeton determined Earth is entering its sixth mass extinction, reporting that species are disappearing at a rate 100 times faster than the normal rate between mass extinctions. Further, thanks, in part, to the widespread use of Monsanto’s glyphosate-based Roundup herbicide, populations of bees and Monarch butterflies dwindled — though, happily, the Monarchs appear to have bounced back. Polar bears also met continued endangerment.

    The much-anticipated Paris Climate Conference yielded what many environmental activists deemed weak, if not fraudulent, solutions. Meanwhile, man-made environmental catastrophes endangered humans. In Flint, Michigan, lead levels in the water led to increased rates of contamination in children’s blood, prompting the mayor to declare a state of emergency. A massive methane gas leak in the San Fernando Valley, located just north of Los Angeles, has sickened residents and forced countless families to relocate. Authorities have been unable to stop the leak.

    Thankfully, some measures to help the environment were taken in 2015, including creative solutions to stop animal poaching, the first flight of a solar-powered plane, the launch of a solar-powered airport in India, and Costa Rica’s successful effort to draw 99% of its energy from renewable sources.

    7. Civilian Casualties in Western Wars Continue: Though ISIS and other terrorist groups were rightly condemned for killing civilians in 2015, the West pointed fingers while committing the same crimes. In fact, one U.N. report released in September found U.S. drone strikes have killed more civilians in Yemen than al-Qaeda. Another analysis released this year concluded Obama’s ongoing drone wars have killed more people than were murdered during the Spanish Inquisition. Though the U.S. military’s bombing of a Doctors Without Borders (MSF) hospital received global attention and outrage, many other incidents went underreported. In May, one U.S. airstrike on Syria killed 52 civilians in one fell swoop. Additionally, U.S.-backed coalitions have bombed civilian populations, like in Yemen, where Saudi Arabia killed at least 500 children, not to mention two thousand more adult civilians. In other egregious misdeeds, it was revealed that the U.S. military sanctions pedophilia in Afghanistan.

    8. Insurrection at the Pentagon’s Defense Intelligence Agency Over Misleading Reports on ISIS: Over the summer, dissent grew within the ranks of the DIA, the Pentagon’s internal intelligence agency. In September, news broke that 50 intelligence analysts filed a report with the Department of Defense’s Inspector General to expose their superiors’ alleged manipulation of intelligence. The intention of the coverup was reportedly to downplay the threat of ISIS and the U.S.’s losing effort to fight it, all to maintain the Obama administration’s narrative the bombing campaigns have been successful.

    Similar mishandlings of foreign affairs plagued 2015. It was revealed that the Pentagon had no idea what it did with $8.5 trillion, lost track of $500 million worth of weapons and equipment, and spent $43 million on a single gas station in Afghanistan. A DIA report released in June intimated the military was aware of the rising threat of ISIS, and not only allowed it, but welcomed it. The program to train moderate rebels in the fight cost half a billion dollars but yielded only four or five fighters. Further, multiple generals spoke out this year about the U.S. military’s role in creating ISIS. Additionally, news broke in 2015 that one ISIS recruiter had previously been trained by infamous Iraq War profiteer, Blackwater.

    9. Activists Inch a Small Step Closer to Exposing the Actors Behind 9/11: Though few Americans heard about it, in August, a New York judge allowed a trial to move forward that could expose a potential government cover-up in the notorious terrorist attack. The ruling was tepid, allowing a 60 to 90 day window for the case to be dismissed or proceed. A later ruling hindered the effort, citing a lack of evidence; but activists have not stopped fighting for the release of 28 redacted pages from the 9/11 commission report that allegedly implicate Saudi Arabia (a majority of the hijackers on 9/11 were of Saudi origin).

    Whatever the truth may be, 2015 witnessed growing doubts about the Saudi government, which beheaded more people than ISIS this year. It also sentenced a poet to beheading for writing poetry about his experience as a refugee from Palestine, sentenced a young man, Ali al-Nimr, to crucifixion for participating in anti-government protests, attempted to issue 350 lashings to a British man in possession of wine (though the U.K. intervened on his behalf, and that of al-Nimr; neither will be punished), and initiated a punishment of 1,000 lashings for a pro-democracy blogger, Raif Badawi.

    10. The FDA Approved OxyContin for Use in Children: Though the approval of the powerful, addictive painkiller for use in 11-year-olds and younger children was unsurprising to those who follow the agency’s track record, the FDA’s justification was shocking. After lawmakers wrote a letter expressing concern to the FDA, the agency’s spokesperson, Eric Pahon, said the news was, in fact, not that serious because it was already standard practice. “It’s important to stress that this approval was not intended to expand or otherwise change the pattern of use of extended-release opioids in pediatric patients,” Pahon said. “Doctors were already prescribing it to children, without the safety and efficacy data in hand with regard to the pediatric population.”

    However disturbing, the FDA’s decision comported with other related events this year: President Obama appointed a pharmaceutical lobbyist Deputy Commissioner of medical and tobacco products, a study found swaths of heroin users graduate from prescription painkillers, and similarly, 75% of high school students who used heroin had previously abused pharmaceuticals.

    In other stories regarding the misconduct of agencies tasked with keeping people safe, the FDA continued to allow meat companies to use a pharmaceutical additive banned in 150 countries, while whistleblowers at the USDA revealed several plants were producing pork products filled with fingernails, hair, bile, and feces.

    11. The Federal Government Admitted Cannabis May Help Fight Brain Cancer: Though the government has long known about the medical benefits of cannabis — it holds patents on several medicinal qualities — the National Institute on Drug Abuse made waves this year when it published a document acknowledging the healing properties of cannabidiol, a non-psychoactive endocannabinoid. In particular, it noted “[e]vidence from one animal study suggests that extracts from whole-plant marijuana can shrink one of the most serious types of brain tumors.” Though more research is needed, the government’s admission was unexpected, albeit welcomed by many cannabis enthusiasts. Other studies this year suggested cannabis may help heal broken bones and is associated with lower rates of obesity.

    Though many Americans still faced criminal prosecution for treating themselves and their children with cannabis, 2015 demonstrated the long-term trend of decriminalization and legalization will not be reversed. Nations around the world, from Ireland to Costa Rica to Canada laid groundwork to legalize marijuana to various degrees, while a majority of Americans now support legalization.

    12. Nestle Paid $524 to Plunder the Public’s Water Resources: This year, Anti-Media reported on the insidious relationship between Nestle and the Forest Service in California. The investigation found not only that Nestle was using an expired permit to turn exponential profit on 27 million gallons of water, but that a former Forest Service official went on to consult for the company.

    While corporate exploitation ran rampant in 2015, many countries around the world fought back. India sued Nestle after finding one of its products contained lead, while nations around the world banned Monsanto and GE products. Scotland, Denmark, and Bulgaria, among others, all moved to ban GE crops, while multiple lawsuits, highlighted the serious potential health consequences of the widespread use of pesticides (though the EPA disputed that glyphosate, the key ingredient in Monsanto’s Roundup, was an endocrine disrupter in June, in November, news broke that the majority of studies the EPA used to make its decision were funded by industry). Though corporate power remains all but monolithic, 2015 saw humans across the world rise up to resist it. Most recently (and comically), a proposed initiative in California is about to enter the next phase — signature gathering — to place it on the 2016 ballot. If placed on the ballot and passed, it will force California legislators to wear the logos of their top ten donors while they participate in legislative activities. The effort has drawn widespread praise and enthusiasm.

    13. Establishment Caught Manipulating News to Fit Narratives: Following the death of Freddie Gray in Baltimore, contentious protests broke out, eventually resulting in limited rioting and looting. However, while the media attempted to paint protesters as aggressive, it failed to report officers’ prolonged prohibition of their physical movement, to say nothing of the riot gear police showed up wearing. After being unable to move, a brick was thrown, but the media failed to report the instigation and discrimination law enforcement imposed that ultimately led the students and protesters to grow unruly.

    In other manipulations, it was revealed that one Fox News contributor lied about his experience as a CIA agent; he had never been employed at the agency, and only obtained later national security jobs by lying about his CIA experience. Further, CBS edited out comments from Muslims, who discussed U.S. foreign policy as a driver of Islamic extremism during a televised focus group.

    A study by fact checker, Politifact, revealed that all the major outlets surveyed — Fox News, CNN, and MSNBC— consistently report half-truths and lies. It is little wonder, then, that another survey found only 7% of Americans still harbor “a great deal of trust” in the mainstream media.

    Still, it wasn’t just the media that lied. On multiple occasions, government employees were caught attempting to distort facts. In March, news emerged that an IP address linked to the NYPD had attempted to edit the Wikipedia page on Eric Garner. Computers inside Britain’s parliament were linked to attempted edits on pages detailing sex scandals, among other transgressions. In a related story, the FBI reported it had foiled yet another terrorist plot, and once again, it was revealed the culprits were provided support from an informant working for the bureau. Further, in August, Wikileaks released cables that showed an American lobbyist for Saudi Arabia organized a $6 million ad campaign against the president’s nuclear deal with Iran, all through a well-funded group called the “American Security Initiative.” The lobbyist, Norm Coleman, is a former Republican senator.

    14. TPP: In one of the most widely-contested pieces of legislation in recent memory, the Trans-Pacific Partnership moved forward, often in secret. The TPP has been condemned as a corporate power grab that ensures profit for pharmaceutical companies, among many other loathed industries. From clamping down on internet freedom to effectively sanctioning sex trafficking, TPP signals an ominous fate for the future of freedom.

    15. Sharp Uptick in Islamophobia: Amid the carnage of the Paris terror attacks, the recent shooting in San Bernardino, and the surge in Syrian refugees seeking asylum in Western nations, attacks against Muslims skyrocketed in 2015. In the United States, Muslims have been attacked for praying in public, wearing traditional head scarves, and for simply being out in public. Sikhs have been caught in the crossfire for the crime of being brown and wearing cloth on their heads — and thus being confused with Muslims — while at least one Christian has been terrorized as a result of the unmitigated hate currently permeating modern society. Many European nations and U.S. states have rejected the influx of refugees from war-torn Syria.

    Amid the increased hate against Muslims, however, has come an outpouring of love and tolerance. Muslim groups across the world have condemned terror attacks, raised money to help the families of victims, and promoted programs to discourage extremism. At the same time, citizens across Europe, Canada, and even parts of the United States have welcomed Syrian refugees with open arms.

    2015 was a year of chaos, violence, hate, and an ongoing struggle of freedom versus oppression. In many ways, it was like the years, decades, and even centuries and millenia that came before. But amid the conflict and often discouraging headlines, humanity has continued to persevere, offering resistance to seemingly all-powerful forces and paving the way for, if nothing else, potential peace, freedom, and respect for human life.

  • 2015 Was First Pre-Election Year to End In the Red Since the Great Depression

    The year before elections is almost always the best year for stocks.

    Investors notes:

    Pre-election years takes the top spot as the best-performing year for stocks.

    UBS reports:

    Ahead of US Presidential Elections  (Pre-Election Year or Year 3 and Election Year or Year 4) politicians often promote an accommodating and pro-business agenda so that the economy is  strong,  stock  market  is  bullish,  and  voters  are  upbeat  heading
    to the polls.

    The Stock Trader’s Almanac notes (via a press release by publisher Wiley):

    Pre-election years are notoriously the best year of the four-year cycle and fifth years of decades are the strongest, so 2015 has some solid history behind it,” says the Almanac’s Editor-in-chief Jeffrey A. Hirsch. “The Dow has not had a loss in a pre-election year since 1939.

    But in 2015, the Dow closed down for the year … 2.2% into the red.

  • German Police Evacuate Munich Train Stations, Warn Of Imminent Terrorist Attack

    Munich police have evacuated two train stations in the Germany city of Munich and issued a statement warning citizens of an imminent terrorist attack.

    As BNO News reports,

    The warning by police in the capital of Bavaria state was issued just before 10:45 p.m. local time, but few details were immediately available. It is unclear if any festivities will be canceled.

     

    "Current information indicates that a terrorist attack has been planned in Munich," police said in a statement. "Please avoid crowds and train stations. We will provide updates on the current situation."

     

     

    Both the main railway station and the Pasing station have been evacuated and police are working to identify possible suspects, the statement added.

     

    *  *  *

    One can only imagine what is going to happen tonight in Times Square…

  • A Year In The Fabulous Life Of Kim Jong-Un, In Pictures

    As the November attacks in Paris and the downing of a Russian passenger jet over the Sinai Peninsula vividly demonstrate, we live in a dangerous world. 

    Indeed, these are trying times for civilized society as countries across the globe struggle to comprehend the phenomenon that is Islamic State whose atrocities have reminded us all that man is capable of committing unspeakable acts of violence. 

    But by focusing squarely on ISIS or on other jihadists inspired by radical Islam, we risk forgetting about the most dangerous man on the planet, whose evil knows no bounds and whose military genius is rivaled only by the likes of Napoleon: 

    To be sure, Kim Jong Un did his best to stay in the spotlight this year in a geopolitical environment dominated by the global proxy conflicts in Syria, Ukraine, Iraq, and Yemen. 

    For instance, the young Supreme Leader nearly restarted the Korean War back in August when the North took a pot shot at a South Korean loudspeaker that was blaring propaganda across the DMZ.

    Kim also threatened to invade the US mainland on at least one occasion and reiterated that the North is prepared to use “weapons unknown to the world.”

    Oh, and he executed defense minister Hyon Yong Chol with an anti-aircraft gun for falling asleep at an official event: 

    And so, because we know everyone is wondering what Kim is up to now that the more “pressing” matters of international security have pushed Pyongyang to the backburner, we present the following 2015 Kim Jong Un photo album courtesy of Reuters:

    North Korean leader Kim Jong Un greets North Korea’s female soccer team as they arrive at Pyongyang International Airport on Monday after winning the 2015 EAFF East Asian Cup, in this photo released August 10, 2015

    Kim Jong Un provides field guidance to the Wonsan Baby Home and Orphanage in the run-up to a ceremony for their completion, in this photo released June 2, 2015.

    Kim Jong Un views the dawn from the summit of Mt Paektu April 18, 2015

    Kim Jong Un attends the 3rd Meeting of Activists in Fisheries under the Korean People’s Army (KPA) in this photo released December 29, 2015.

    Kim Jong Un visits Farm No. 1116, under KPA (Korean People’s Army) Unit 810, in this photo released June 1, 2015.

    Kim Jong Un has a photo session with participants in the second meeting of KPA logistic personnel in this photo 

     

    Kim Jong Un guides artillery fire and landing exercises in this photo released February 21, 2015

    Kim Jong Un visits the January 18 General Machinery Plant in this photo released December 20, 2015

    Kim Jong Un gives field guidance to the Taedonggang Combined Fruit Farm in this photo released August 19, 2015. 

    *  *  *

    Now that’s a renaissance man if we’ve ever seen one. More here.

  • Yellen, You Have A Problem: The "Rate Hike Corridor" Just Broke

    One week before the Fed hiked rates by 25 bps we warned that “nobody knows if the Fed can actually do it“, citing not only our previous post on the topic, explaining the lack of a detailed framework by the Fed on the mechanics of the rate hike, but also a Bloomberg piece in which we noted the broader logistical concern: “with so much cash sloshing around, will Fed officials be able to nudge rates as high as they want? Will the new-fangled tools they’ve created to engineer the move work, or instead sow the kind of confusion that can dent the Fed’s credibility and spur a broader market selloff?”

    The good news, at least initially, was that the Fed’s plumbing worked smoothly, and instead of the Fed draining up to the $1 trillion in excess liquidity some such as Citi had predicted, the very first fixed-rate reverse repo operation saw just $105 billion in liquidity soaked up by the Fed from 49 counterparties.

     

    Was there somehow too little excess liquidity, or was there something more structural at hand. It didn’t matter: after all the Federal Funds rates was solidly inbetween the 0.25% floor and 0.50% ceiling set by the Fed’s Reverse Repo and Interest on Overnight Excess Reserves, and there was no reason to worry that the Fed had made a mistake.

     

    However, this changed today when the Fed Funds rate just tumbled to 0.12%, far below the required 0.25% floor set by the Fed, and down 23 bps from the effective 0.35% Fed Funds rate set yesterday, confirming that indeed the rate hike corridor can and has been breached at least once, and just two weeks into the Fed’s rate hike experiment.

     

    To be sure, while this is clearly a structural failure of the rate hike corridor, it also reflect the quarter and year-end window dressing we discussed first well over a year ago. SMRA confirms as much:  

    the fed funds rate has dropped to 0.12% this morning, down from 0.47% yesterday. The fed funds rate has dropped at month-end for all of 2015, with some of the larger of these moves occurring at quarter end, like today.

     

    It appears that these drops will still occur even after the fed rate hike, and possibly that the will be even more extreme, since today’s drop was about 23 basis points, as opposed to previous declines this year, which were usually between 5 and 10 basis points.

    True, there is always an excuse, and in this case it has to do with banks window dressing their balance sheets for the quarter or year-end.

    However, the fact that there is this kind of major discontinuity in the Fed’s rate hike process, throws a huge wrench in the credibilty of the Fed tightening effort.

    After all, if banks can steamroll with impunity the Reverse Repo 0.25% floor to park hundreds of billions, or trillions, in liquidity, then the Fed’s entire experiment will be worth nothing. Keep in mind, the rate hike process only works if banks don’t get a chance to revert to an old standby liquidity regime on the last day of any quarter, in the process getting all the benefits of ZIRP even as the Fed parades just how tight financial conditions are getting.

    Just imagine what would happen on December 31, 2016 if the Fed Funds rate plunged from 1.25% to 0.12% overnight? That would suggest that while the Fed may have drained liquidity for 99% of the quarter, on the one day it matters – the day when the bank’s balance sheet snapshot is formalized for 10-Q and 10-K purposes, ZIRP regime has returned.

    What all this means is that the Fed’s attempt to allow banks to “voluntarily” return excess liquidity has failed, just as we expected it would courtesy of these kinds of dramatic rate discotninuities, and that if Yellen is indeed serious about soaking up liquidity and “bursting bubbles”, she will have to either force banks to submit far greater amounts of liquidity, or drain liquidity structurally, by unwinding the Fed’s balance sheet instead of pretending financial conditions are tighter by pushing the Fed Funds rate by 25 bps even as the Fed still own trillions in various assets. Because another way of putting all this is that the Fed is tightening bank financial conditions on all days in the quarter… except the one when it actually matters!

    And needless to say, the impact on risk assets as a result of the Fed announcing a real liquidity drain – like trimming its balance sheet by a trillion or more – would be dire.

    For now, we sit back and watch to see just how the Fed will spin this first failure of the rate hike process, because now it is no longer merely a speculation: the market knows that Yellen has a problem.

  • Now Comes The Great Unwind – How Evaporating Commodity Wealth Will Slam The Casino

    Submitted by David Stockman via Contra Corner blog,

    The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

    That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

    But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

    As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

    Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

    Global Debt and GDP- 1994 and 2014

    The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

    One of these was an explosion of CapEx in the oil patch and the mining sector in response to massive price and margin gains and the resulting windfall rents on existing assets. In the case of upstream oil and gas, for example, worldwide investment grew from $250 billion to $700 billion in less than a decade.

    Needless to say, there is now so much excess supply and capacity on the world market that oil has plunged into a collapse that is likely to last for years, as old investment come on-stream while world demand falters in the face of the gathering global recession. Already, investment is estimated to have dropped by 20% in 2015, and that is just the beginning.

    This unfolding collapse of oil and gas investments, of course, will ricochet through the capital goods and heavy construction sectors with gale force. Eventually, annual investment may decline by $250 to $400 billion before balance is restored, meaning that what were windfall profits and surging wages and bonuses in these sectors just a year or two back will evaporate in the years ahead.

    Contrary to the circular logic of our Keynesian central planners and Wall Street stock peddlers, the pending massive loss of value added capital spending in the energy patch is not a part of some grand reallocation game; it won’t be made up by households—-which are already at peak debt—— borrowing even more in order to go to the restaurant or yoga studio.

    Instead, as the credit bubble begins to shrink it means that profits, incomes, balance sheets and credit-worthiness are all shrinking, too. So is the related GDP.

    The same kind of malinvestment occurred in the mining sectors where Australia’s boom in iron ore, coal, bauxite and other industrial materials provides a good proxy.  As shown below, CapEx in mining grew by nearly 6X in less than a decade.

    But given the massive oversupply and plunging prices and margins in these commodities, and the overhang of still more capacity in the pipeline coming to completion, it is fair to say that investment in the global mining industry is sinking into a depression that will last the better part of a decade.

    This is the scariest mining chart you'll see today

     

    Indeed, as shown above, global mining industry CapEx soared by 5X during the seven years through the 2012 peak, but the overwhelming share of that was in greenfield and brownfield investments. Yet given the massive global overcapacity in iron ore, copper, metallurgical coal, bauxite/alumina etc., those kinds of projects are likely to be few and far between in the years ahead.

    Needless to say, that means shrinking profits and the massive loss of high wage jobs and vendor service contracts. Even baristas at Starbucks do not earn a fraction of what had been paid to miners and UAW members on the Caterpillar assembly line.

    Nor was the credit-fueled CapEx boom limited to energy and metals. Bloomberg carried a story today outlining a similar super-cycle in the global rubber industry. As a result of massive rubber plantation expansion in response to soaring prices and windfall profits, the industry is now facing investment and job killing surpluses as far as the eye can see.

    Global demand for natural rubber, used mostly in tires, is slowing as the economy cools in China, the world’s largest buyer of new cars. Supplies are expanding after a decade-long rally in prices to a record in 2011 encouraged top producers like Thailand, Indonesia and Vietnam to plant more trees. Output will exceed use for two more years, with the surplus quadrupling in 2016, according to The Rubber Economist Ltd., a London-based industry researcher.

     

    ……Rubber traded in Tokyo, a global benchmark, has tumbled 70 percent from a record in 2011, touching a six-year low of 153 yen ($1.26) a kilogram on Nov. 6. Futures in Shanghai have slumped 22 percent in 2015. The export price from Thailand, the top producer, is down 23 percent…..

     

    Global production is set to exceed demand by 411,000 metric tons next year and by 430,000 tons in 2017, compared with a surplus of 98,000 tons in 2015, The Rubber Economist predicted on Dec. 9. Output will increase 3.8 percent next year to 13 million tons and will keep expanding through 2018, the researcher said. Consumption won’t grow nearly as fast, which will leave stockpiles by the end of 2017 at a record 3.7 million tons, said Prachaya Jumpasut, managing director of The Rubber Economist.

     

    Excess supplies may keep prices subdued for a decade, said Hidde Smit, an industry adviser who has studied the market for more than 30 years and is the former secretary-general of the International Rubber Study Group. Even with some smaller farms cutting back now, the planted area across 11 Asian countries that are the primary growers has surged 45 percent since 2004, he said.

     

     

    So with producer profits and incomes falling in commodity sectors and capital goods industries all over the world, there is no prospect of a smooth rotation into more services and consumption. Deflation means not just lower oil or steel prices; it also means the evaporation of production and incomes which were falsely inflated by the 20-year credit binge.

    And that’s not the half of it. The massive windfalls on commodities and capital goods earned by producers during the great credit inflation were not entirely reinvested in new capacity and fixed assets. As the Wall Street Journal documented recently, it also enabled a huge increase in the balance sheets of sovereign wealth funds due to state ownership or heavy taxation of oil and mineral production.

    But now the days of heady accumulation of “sovereign wealth” in Saudi Arabia, Norway, Kazakhstan and dozens of commodity producers in between is over and done. What is happening is that these funds are entering a cycle of liquidation which is unprecedented in financial history.

    Indeed, the data for Saudi Arabia, Qatar, Kuwait, the UAE and other members of the Gulf Cooperation Council (GCC) is stunning. During the global credit boom they amassed sovereign wealth funds totaling $2.3 trillion. But with deficits now estimated at 13% of GDP and rising, the level of asset liquidation is soaring.

    Thus, if crude oil prices recover to $56 per barrel next year, the GCC states will need to liquidate $208 billion of investments. Yet if prices fall to $20 per barrel, as Goldman Sachs has warned, they would need to liquidate nearly $500 billion of their booty in a single year.

    But regardless of the exact crude oil path in the years ahead, prices are sure to stay in the sub-basement for an extended period. That means that the GCC states may need to liquidate the entirety of their sovereign wealth funds by early in the next decade.

     

    The same is true on a worldwide basis for all of the energy and mineral based sovereign wealth funds. They will be in a liquidation mode for years to come as the great commodity deflation runs its course.

    In a word, the unnatural Big Fat Bid of the sovereign wealth funds is going All Offers as oil and commodity producers struggle to fund their budgets.

    Stated differently, just as the commodity bubble effects did not stay contained in the energy and metals markets as the global credit bubble expand, the same will be true in the deflation cycle.

    The unfolding correction of the visible excesses of the credit inflation – such as overinvestment and malinvestment – will destroy incomes and profits; the Great Unwind of the less visible effects, such as the sovereign wealth fund liquidations, are a giant pin aimed squarely at the monumental worldwide bubbles in stock, bonds and real estate.

  • Technical Analysis of the Corn Market

    By EconMatters

      
    Corn Market 2015

     

    I have been watching corn prices lately as they are getting low enough to at least pique my interest into looking at a market that usually just gets bypassed with the rest of my agricultural futures prices tab on my trading platform, more out of habit than having anything in particular against the agricultural markets. The March 2016 Futures contract was down about 16% in 2015 along with most of the commodity space on fund outflows, a weak China, and a strong dollar.

     

    Economics of Agricultural Space

     

    This goes against my intuition regarding long-term supply and demand drivers in the global economy. For example, the world population continues to grow, good farming land with proper soil management is a finite resource, and the world is going to need more food in the future. The Corn market looks like a buy over a five year time frame, unless the Midwest lobby loses big in Washington politics and the corn ethanol production market completely goes by the wayside, this probably would result in a drop before another spike as farmers readjust crop sizes to the new economics. But all else being equal I expect the corn market to go on another one of those massive runs higher sometime over the next five years given its recent history from a trading standpoint, and the broader economic drivers for the commodity over time.

     

    Market Timing

     

    But from a trading standpoint what I really want to know is are there any good trading setups because although I try to eat relatively healthy and exercise when I can for practical purposes I could be dead in five years. Maybe Warren Buffet can wait for 5 years for his investments to pay off but most of the street gets paid on an annual and quarterly basis. If a fund has a bad quarter, redemptions go up, and their assets under management go down. This is not good for fund managers as their compensation goes down from a lower management fee base, and obviously if they are having a bad quarter their percentage of profits number is headed in the wrong direction.

     

    The bottom line is that most people have to get the timing right in an investment or trade, at least within the same calendar year. So what do the technical look like in the corn market? The theory is that everything that is going on with the fundamentals of the corn market are reflected in the charts, along with the technical and psychological drivers of the market. The idea is that the technicals will tell me when to get back into the corn market at least for a nice trading setup, they will tell me when something regarding market sentiment is changing at least from a fund flows perspective.

     

    Technicals

     

    Therefore in looking at the two year futures chart I have picked out the 410.00 cents per bushel area where I start to get interested in the corn market. We are currently at the 358.00 cents per bushel area, and I am not looking for a short in this market. However, from a trader`s perspective there is a two year trend line going from the 510.00 cents per bushel area to the current price area of 358.00 cents per bushel area. If price breaks above this trend line around 370.00 cents per bushel, this could be a good buy stop entry with a relatively tight protective stop in the area of 364.00 cents per bushel to 357.00 cents per bushel depending upon your trading style.

     

    Overhead Resistance

     

    The first target on this entry would be a break of the 396.60 cents per bushel high in late October of this year on the six month chart to test overhead resistance at the 410.00 cents per bushel high last hit October 7th of 2015. The Reward to Risk profile is 6.67 Units of Reward to 1 Units of Risk with the tighter stop around 364.00 cents per bushel , and 3 to 1 with the wider protective stop at 357.00 cents per bushel. I would watch price very carefully because what I am in this trade for is a break of the 410.00 cents per bushel overhead resistance area with the next profit target around 464.00 cents per bushel last established in July of 2015.

     

    As long as you have a winning trade, why not let the market tell you when it is done going in your direction? Has the trade broken any key technical levels of support? These markets are a lot bigger than one would think, and once the fund flows start coming into a market, a trader or investor needs to take this into account, as often the results are binary. For example the market is either going to go your direction, and if it does expand your profit target more because it is going to move a good way on changing capital structures. Or alternatively the trade is a non-starter, and a tight stop will tell you pretty early that your timing is just not right on the trade for a relatively cheap price.

     

    The next overhead resistance level in the corn market is around 510.00 cents per bushel last established in late April of 2014. The five year high in the corn market was established on August 6th 2012 at around 845.00 cents per bushel. The 10-Year Corn Futures chart basically has a double top on it around the 800.00 cents per bushel area, which give or take the short squeeze effect, is good enough for a price barometer where the market starts to entertain that it is overvalued, and lots of shorts and hedges enter the market for good.

     

    Long Term Support

     

    The fifteen year chart has the 200.00 to 250.00 cents per bushel area as longer term support for those wanting to look at the trade on the short side. With the 25-Year chart reinforcing the idea that the 200.00 cents per bushel area represents solid long term support for corn futures. The problem is that a lot of this history is before modern electronic markets really took off and became global marketplaces for investors. And when inflation effects are factored into the equation, on an inflation adjusted basis corn is probably at or near a 25 year low right now at the current price.

     

    The Patient Investor

     

    And for those investors with a five year time frame and no pressure from outside investors, given the nice bull moves of the last 10 years in the corn market, it makes sense to try and anticipate the next large move in this agricultural staple. Therefore, if you want to get into the corn market now and wait for the move, one needs an instrument or asset where they can stay in the trade and not be liquidated, depreciated beyond reasonable time decay, and get the best full value of the move if it transpires.

     

    Corn Futures Curve

     

    For example, the December 2019 Corn Futures contract only has 9 contracts of open interest at the close today with a prior close at 417.40 cents per bushel with the last actual trading volume today in the December 2018 futures contract with a price of 410.00 cents per bushel with a lofty 3 contracts trading hands. Most of the open interest in the corn futures market only goes out 2 years to the December 2017 futures contract which is trading around the 400.00 cents per bushel area at the close of this year.

     

    For those who don`t like to roll over futures contracts the December 2017 contract probably isn`t the worst way to play it since most investors may not want to get into the complexities of buying up farm land, and are not going to have access to the swaps market for practical purposes. Thus, we will see if 2016 brings better fortune for the corn market than the past 3 years where corn futures are down nearly 50% over this timeframe.

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  • Stocks End 2015 In The Red, Worst Year With Oil Since 1984

    We end the year with a dump bump and the best analogy for US equity markets we could find all year… (Forward to 2:00)

    Never Gets Old, sorry.

    *  *  *

    WORST SINCE 2008…

    2015 ended with The S&P 500 (oops!), The Dow Industrials (weak), Dow Transports (monkey-hammered), and Small Caps (slammed) in the red, But Nasdaq well in the green…

     

    Thanks to FANGs…

     

    And not thanks to Energy stocks…

     

    As Breadth collapsed…

     

    The 140 year streak is over – a year ending with "5" closed red for the S&P 500!!…

    image

     

    A year of living cognitively dissonant…

     

    Gold, Oil, and The Dow all lower on the year for the first time since 1984…

    1985 saw WTI rally 29%, Gold rally 14%, and Dow surge 30%

     

    This was Apple's worst year since 2008 – down 4% (while Netflix gained 140%). This means the "no brainer" trade has made no money for investors since October 27th 2014…

    Shares have shed about a fifth of their value since touching a high of $134.54 on April 28, and are down 17.5 percent since the inclusion of the stock in the Dow Jones industrial average in March. During its six-year run of gains, the stock has risen by at least 25 percent in five of those years.

    Crude was the worst in 2015. The Dollar Index rose 9.2% and PMs dropped 10-11%. Bonds broadly speaking lost 4.3% as The Dow dropped around 2%…

     

    Crude had its worst 2-year drop on record…

     

    Leveraged Loans tumbled almost 3% YoY – the biggest drop since the financial crisis (and 2nd biggest drop on record). Lev100 is now at its lowest since August 2013…

    *  *  *

    Q4 was a big quarter for stocks… (except Trannies)

     

    As they outperformed bonds (-2.5%), HY (+1.3%), and PMs (-5%)

    *  *  *

    On the day every effort was made to get The S&P 500 above 2058.90 and ensure a green close for the year…

     

    But despite the best effort for a post-EU-close ramp, it failed…

     

    As USDJPY was ramped (fail)

     

    Crude was epically ramped (fail)

     

    and VIX was crushed the moment Europe closed.. but it did not last and towards the end of the day VIX went bananas…

     

    Shorts were instantly squeezed as soon as Europe closed… but that effort stalled once the S&P broke above breakeven for the year… and it was dumped into the close…

     

    *  *  *

    On the week, stocks were red as Santa's rally faded… with a very ugly close…

     

    Futures show the peak right at the cash close on Tuesday…

     

    Since The FOMC, everything is down…

     

    Treasury yields rose on the week but rallied into the close today…

     

    The Dollar Index ended the week around 1% higher driven by weakness in EUR and Swissy…

     

    Commodities mostly dropped this week (though copper clung to short-squeeze gains)…

     

    Charts: Bloomberg

    Bonus Chart: Because Fun-Durr-Mentals…

     

    Bonus Bonus Chart: Bad Breadth Breaking Bad-der…

  • America In 2015 (The Chart)

    2015 – the year when The Fed hiked rates for the first time in a decade to confirm its own narrative that "everything is awesome" and the US economy can handle 'normalization'.

    And/Or

    2015 – the worst collapse in US macro-economic data since 2008 on both an absolute and relative to expectations basis.

     

     

    It was different this time. The 'new normal' pattern has been an optimistic start to the year which then disappoints into mid-year only to resurge and surprise meteoroconomists in the second half of the year as government fiscal year-end spending and some form of stimulus invariably drove surveys back into optimistic territory.

     

    That didn't happen in 2015.

  • Turks Warn "We're One Step Away From Civil War" On Erdogan Crackdown

    “When Justice and Development won by a landslide — a result that Mr. Erdogan interpreted as the public’s demand for stability — many had hoped it would lead to the revival of peace talks.”

    That’s from The New York Times, who is out on Thursday with a look at Turkey’s escalating civil war. 

    To be sure, we haven’t been shy in our assessment of the conflict. We’ve branded the fighting a “civil war” since the summer, when HDP’s strong showing at the ballot box derailed Erdogan’s efforts to transition the country to an executive presidency, a move which would help to strongman consolidate his power.

    A subsequent suicide bombing in Suruc prompted the PKK to kill two Turkish policemen the group says were cooperating with Islamic State (which was blamed for the initial attack). That was more than Ankara needed to justify a crackdown on the PKK in the name of the war on “terror.” From there, it was an all-out war between Erdogan and the Kurds, a conflict which quickly transformed cities like Cizre, into warzones.

    As al-Jazeera wrote in August, government attacks ”have put Cizre, a long-defiant bastion of pro-Kurdish sentiment, back on the front lines of a conflict that has cost more than 30,000 lives since 1984.” Here’s some useful color from Vice: 

    Cizre has spent years on the fringes of war. The unremarkable-looking town of just over 100,000 lies on the Tigris River, around 30 miles from the tripoint where Turkey meets conflict-ravaged Syria and Iraq, and violence regularly strays over the national boundaries. Now, the cycle of airstrikes and renewed PKK attacks on Turkish troops threaten a return to the three-decade-long struggle between the two sides that claimed more than 40,000 lives. And here, residents feel like they’re at the heart of the fight. 

     

     

    “There’s a saying, ‘if there’s peace, it will start from Cizre, and if there’s war, it will start from here as well,'” the town’s co-mayor Leyla Imret, 28, told VICE News recently. “And we can say we have a civil war in Turkey.” 

    Less than a month after those words were written, two Vice journalists were arrest in Southeast Turkey.

    Sadly, Erdogan’s campaign against the Kurds did not end after AKP put on a better showing in November’s manipulated rerun elections. “Instead,” The New York Times notes, “the violence has sharply escalated, stoking fears that it might spread.”

     WSJ ran a piece last week that documented the transformation of Kurdish cities and towns into warzones. “Since the government declared what it called a ‘decisive’ campaign to end five months of limited violence between Kurds and government security forces, young Kurdish militants in the cities of Diyarbakir, Cizre, Silopi and Nusaybin have been targeted by Turkish tanks, helicopters, artillery and snipers,” The Journal wrote. 

    “Things are reaching a critical point, and it’s not clear where things are heading,” one Western official in Turkey warned. Well, according to The Times – whose piece echoes what The Journal wrote last week and what we’ve been keen on documenting for the better part of six months – “things” are headed towards civil war. 

    Earlier this week, Erdogan accused HDP co-head Selahattin Demirtas of treason after the politician suggested over the weekend that the Kurds needed to declare and defend their automony or “live under one man’s tyranny.” 

    “Where do you get the right to talk about establishing a state in east and southeast regions within Turkey’s unitary structure?,” Erdogan fumed, on his way to Saudi Arabi to discuss matters of mutual interest in Riyadh. Demirtas may have his parliamentary immunity revoked on the way to prosecution. 

    But while HDP politicians are prosecuted, PKK sympathizers are persecuted and the world is now beginning to worry that Southeast Turkey could soon end up looking a lot like Syria. Here’s more from The Times:

    For Mr. Erdogan, the Kurdish militants in Turkey are now the most important enemy.

     

    “You will be annihilated in those houses, those buildings, those ditches which you have dug,” he said recently, speaking about the militants to a crowd of his supporters in the central Anatolian city of Konya. “Our security forces will continue this fight until it has been completely cleansed and a peaceful atmosphere established.”

     

    Photographs and video clips from the region distributed by local officials show chaos and destruction, with black smoke rising above shelled buildings and neighborhoods.

     

    The town of Cizre, in the southeastern province of Sirnak, has been under a curfew for more than two weeks, with mounting civilian casualties. Last Friday, a 3-month-old baby and her grandfather were killed in crossfire between security forces and militants, according to local medics, who said the family was unable to reach help after its house had been shelled.

     


     

    Three soldiers were killed by the Kurdistan Workers’ Party in Cizre over the weekend, the Turkish military said in a statement. At least 200 members of Turkey’s security forces have been killed since the conflict resumed.

     

    In the district of Silopi, which borders northern Iraq, residents say they are trapped in a war zone.

     

    “The tanks fire all day and we have nowhere left to hide,” said Nurettin Kurtay, a teacher reached by phone.

     

    “People are dying in their own homes,” he said. “Our schools and our infrastructure has been destroyed. There is no difference between what is going on here and next door in Iraq and Syria.”

    Indeed.

    And yet this week, Erdogan – with a straight face – accused the Assad government of “mercilessly killing” civilians. But what’s going on in Turkey is precisely the same thing that began to unfold in Syria in 2011. That is, certain elements in the country were subjected to a government crackdown when they agitated for change. In both cases, the government (Assad in Syria and Erdogan in Turkey) accused the other side of being “terrorists” and in both cases, civilian casulaties began to pile up. 

    Somehow though, Assad is a “butcher” and Erdogan is a democratically elected leader who is merely fighting to eradicate terrorist elements. 

    Needless to say, this is completely despicable at this point, especially considering the fact that the PKK’s Syrian affiliate (the YPG) are fighting the real “terrorists” (ISIS) across the border. A border which Turkey has made highly porous on purpose in order to allow for the easy flow of Sunni extremists (not to mention Islamic State oil) into and out of Syria.

    Perhaps when NATO looks back four years from now on what may by then be a genocide, someone in Washington will have the decency to admit that a disastrous foreign policy combined with the blatant hypocrisy inherent in how the US characterizes Assad’s fight against rebels and Erdogan’s crackdown on the Kurds ultimately led to the death of half a million people in the Mid-East.

    We close with the following quote from Engin Gur, a father of two who came to Istanbul from the southeastern district of Sur, and who spoke to The Times:

    “What people here in the west do not realize is that we are one step away from a civil war.”

    *  *  *

    More images from Cizre


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