• Janet Yellen Fights the Tide of Falling Interest

  by Keith Weiner

   

  On Wednesday Dec 16, Federal Reserve Chair Janet Yellen announced that the Fed was raising the federal funds rate by 25 basis points.

  Let’s get one thing out of the way. This is not a move towards free markets. Whether the Fed sets interest lower, or whether it sets interest higher, we still have central planning. We still have price fixing of interest rates.

  Interest rates may be set too low. However, forcing interest up is no cure. We need to eliminate central planning, and move to a free market in interest. This is impossible in our present monetary regime.

  Anyway, given the system as it is, the Fed is going to have to take back this interest rate hike. Here is Exhibit A of our case: a graph of the 10-year US Treasury bond yield.

  
  Source: Yahoo Finance

  At least the US dollar still has interest. Switzerland, and several countries in the European Union, don’t. Their currencies are drowning under the zero line. For example, the Swiss government 10-year bond takes 0.16% per year from lenders. That’s right, if you fork over your francs to buy that bond, you get back less at the end. Germany is little better, with their five-year bond charging investors 0.1%.

  The global trend for over three decades has been falling interest. The yield on the 10 year Treasury even fell after the Fed’s announcement. Yellen thinks to fight this megatrend, but that’s absurd. Let’s look at why.

  The process that sets the interest rate is complex. I have written many words on its terminal decline. However, there are two simple reasons why the trend remains downward.

  One, banks today have a business model called maturity transformation. They borrow short term to lend long term.

  To understand this, consider the simple example of buying a house. Only, you don’t get a normal mortgage. You get a balloon loan due tomorrow morning. Every day, you have to borrow anew. This would be crazy for an individual homeowner to attempt.

  However, it’s what banks do. They risk an increase in their cost of funding. That would be a problem, because the interest they receive on their bonds is fixed.

  The problem isn’t just reduced cash flows. When the cost of funding goes up, some bondholders are obliged to sell bonds. That causes a drop in the price of bonds, and all bondholders take capital losses. With reduced capital, banks have to cut back on lending. Funding to business is reduced, and there can be a recession.

  Two, falling interest has driven down the yields of stocks and real estate. This has been a process of borrowing ever more, of going deeper into debt. What else should we expect people to do, with ever cheaper cost to borrow? They borrow, to increase their leverage, to own more assets. At least, there are more assets in dollar terms. But remember, prices are rising in this process, so there aren’t necessarily more assets in reality.

  Picture both assets and liabilities rising together. It is a ratchet, that cannot go backwards. Any significant interest hike causes the prices of all assets to drop. That turns many balance sheets upside down. For some, liabilities exceed assets. Their bankruptcies lead to liquidations, which causes further asset declines. Assets must be sold, but no one can get funding to buy them, and everyone’s balance sheet is under stress.

  Janet Yellen will want to avoid this catastrophe. She won’t want to be remembered as the Fed Chair who caused a repeat of 2008. She will find that it’s easier to take another hit of financial heroin. Interest rates will go down.

   

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

  

  

  

  

• USS ISIS STRaTeGY…

  

  

  

  

  

• The New World Disorder – How Empires Die

  Submitted Jeff Thomas via InternationalMan.com,

  The state-owned Bank of China has been ordered by an American court to hand over customer information to the US. The bank has refused to comply, as to do so would violate China’s privacy law. The US court has subsequently ordered the Bank of China to pay a fine of $50,000 per day.

  Any guess as to how this is likely to turn out?

  China is a sovereign nation, halfway around the globe from the US, yet the US seems to feel that it’s somehow entitled to set the rules for China (as well as the other nations in the world). When China sees fit to develop islands in the South China Sea that it has laid claim to for centuries, it begins to hear threatening noises from the US military. A candidate for US president declares that he would buzz the islands with Air Force One, the Presidential jet, saying, "They'll know we mean business."

  All over the world, those who live outside the US are increasingly observing that the US has become so drunk with power that they’re threatening both friend and foe with fines, trade restrictions, monetary sanctions, warfare, and invasions.

  And in so-observing, those of us who have studied the history of empires note that history is once again repeating itself. Time and time again, great empires build themselves up through industriousness and sound economic management only to subsequently decline into debt, complacency, and an entitlement mind-set.

  Over the millennia, empires as disparate as Persia, Rome, Spain, and Great Britain rose to dominate the world. Of course, we know how those empires turned out and, by extension, we might hazard an educated guess as to how the present American Empire will end.

  In the final throes of empire-decline, we invariably observe the more sociopathic trends of a failing power, such as we’re seeing today from the US.

  First and foremost, any empire declines as a result of economic mismanagement. Decline from within (pandering to the populace with “bread and circuses”) and without (endless conquest and/or maintenance of dominance over far-flung geography) drain even the wealthiest government. Even eighteenth-century Spain, with all its billions in stolen New World gold, could not pay its ever-increasing bills and warfare-driven debt.

  Typically, the empire of the day enjoys the world’s greatest fighting force/armada/weapons build-up yet, when the money runs out, the war machine simply stops. Soldiers think more about their empty bellies than how much ammunition they have left. Generals continue to issue orders, but they cease to be followed after the supply lines begin to dry up.

  And the leaders of a collapsing empire invariably make a fatal mistake: they assume that all the goodwill the empire gained when it was on its rise is permanent – that it will continue, even if the empire behaves like the world’s foremost bully.

  This is never the outcome. Invariably, as the decline nears its end, allies, without ever saying so, begin to withdraw their support. We see this today, as European leaders (America’s most essential allies) realise that the empire is becoming an arrogant liability and they begin cutting deals with the other side, as European leaders are now doing with Russia and others.

  For a century or more, there’s been much talk amongst highly placed government and industry leaders of a New World Order, and there can be no doubt that this has been a long-term objective for Western leaders. They see themselves as being at the head of this order, with the rest of the powers coming along for the ride and the non-powers being forced to comply.

  The US, with its ever-expanding draconian legislation, clearly intends to bring this Orwellian ideal to fruition in the relatively near future as they speed up the process of dominance over all. With some countries, such as the traditional allies, it’s intended to be implemented through coercion and a promise of inclusiveness. For those who the US does not hold close, but needs as trading partners, this is intended to be achieved through fines, trade restrictions, and sanctions (if possible) and force (if necessary). The lesser countries will be overcome through bullying or, if necessary, invasion.

  But, again, empires decline principally through loss of economic power. And the US is attempting the greatest world-control in history at the same time as the money is running out.

  Many people (conspiracy theory advocates and otherwise) acknowledge that an effort exists to create a New World Order, with the US at its head and the EU as its little brother and co-conspirator. Many of these theorists believe that Russia and China only pretend to oppose the order but secretly only seek to have a place at the table.

  I think not.

  Political leaders, more often than not, tend to have sociopathic tendencies. Above all their other goals, the desire to be omnipotent reigns supreme. Most leaders will do extraordinarily stupid things to maintain or expand their own personal power. Countless leaders have destroyed their own country rather than relinquish power over it.

  To think that leaders of other great powers, such as China and Russia, will willingly comply just to get to break bread with the US in the same room is a faulty assumption.

  Of course, as we’re observing, the US is now obsessively demonstrating its perceived power over all, bulling its allies, invading one small nation after another, and threatening its trading partners. They fail, as do all sociopaths, to even consider that it can all come crashing down and, for that reason, are failing to see the warning signs as they occur.

  Of course, it’s important to remember that those leaders of other nations, who are holding the cards, will not wish to utterly destroy the US. They will not seek a Treaty of Versailles. They will hope to re-invent America as a consumer, but without its fangs.

  To whatever level the US falls in the coming years, their leaders won’t see it coming. They’ll understand that there’ll be pushback from trading partners, but they’ll believe it can be overcome with a combination of cajoling and force. What they will thoroughly fail to see coming is that when the knives are drawn by the other major nations, America’s allies, too, will have had enough. They’ll see a better future with those nations that are still behaving in a reasonable fashion than to continue to side with the fearful US Goliath.

  As Doug Casey has stated, “Countries fall from grace with amazing speed.” Quite so. Just as the Roman senators that had previously supported Caesar joined in with those that openly opposed him and took part in his assassination, so America’s formerly staunch allies will join in when the other major powers make their move. There’s been an unstated deterioration in the loyalty of US allies in recent years and, when they turn, I believe they will do so decisively. The Caesar that was bowed to only yesterday will find himself alone in his fate tomorrow when the knives are drawn against him.

  So, what do we take away from this? An interesting little history lesson? Well, hopefully more. Hopefully, we’ll recognise that, as threatening as the US Goliath is at present, there will, at some point in the coming years, be dramatic and rather sudden change. When this occurs, our lives, liberty, and wealth will not be unaffected.

  In my opinion, we shall see a “New World Disorder” – a dramatic decline in US hegemony, coupled with a scramble by other nations to fill the void. Those who fare best within it will be those who made the necessary preparations ahead of time.

  *  *  *

  Unfortunately, there’s little any individual can practically do to change the trajectory of this trend in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation.

  We think everyone should own some physical gold. Gold is the ultimate form of wealth insurance. It’s preserved wealth through every kind of crisis imaginable. It will preserve wealth during the next crisis, too.

  But, if you want to be truly “crisis-proof”, there is more to do…

  Most people have no idea what really happens when a currency collapses, let alone how to prepare…

  How will you protect your savings in the event of a currency crisis? This just-released video will show you exactly how. Click here to watch it now.

  

  

  

  

  

• Caught On Tape: U.S. Senator Issues Dire Warning On Unchecked Executive Power

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The deliberations of the Constitutional Convention of 1787 were held in strict secrecy. Consequently, anxious citizens gathered outside Independence Hall when the proceedings ended in order to learn what had been produced behind closed doors. The answer was provided immediately. A Mrs. Powel of Philadelphia asked Benjamin Franklin, “Well, Doctor, what have we got, a republic or a monarchy?”

   

  With no hesitation whatsoever, Franklin responded, “A republic, if you can keep it.”

  I actually can’t believe I’m writing this, but the following speech from freshman U.S. Senator Ben Sasse (R, Neb) is so thoughtful and inspiring, it should be required viewing for all American citizens.

  To hear a U.S. Senator sound more like a statesman than a corrupt hack politician for sale to the highest bidder, is such a breath of fresh air I almost can’t believe it’s real. Rather than talking down to voters, he challenges them to become more enlightened, nonpartisan-thinkers with a sense of history. He challenges all of us to shake ourselves from an ignorant, fear-based stupor and reclaim the true genius and beauty at the heart of the American experiment.

  Take the time to watch this. The entire thing, and then share it with everyone you know.

  "The problem of a weak Congress and executive growth should be bad news to all of us and, more importantly, to every constituent who cast their votes for us under the impression that Congress made decisions – not suggestions. I think the weakness of the Congress is not just undesirable, but is actually a dangerous thing for America."

  Thank you Ben Sasse, for proving that there remains a remnant of wise, honorable, decent people in U.S. government.

   

  Finally, while we’re on the topic of executive overreach, here’s what Obama has planned for gun control in the new year…

  From Roll Call:

  Senior congressional aides and sources in the gun-control community expect the White House to use its executive powers to tighten federal gun laws shortly after President Barack Obama returns from a Hawaiian vacation in early January.

   

  White House Press Secretary Josh Earnest said Thursday he anticipates a legal review to continue through the holidays.

   

  Since the deadly shooting in San Bernardino, Calif., White House officials have been, as Earnest has put it, “scrubbing through the law” to determine whether and how Obama can use his constitutional authorities to make it harder for terrorists and other potential mass shooters to legally obtain firearms.

   

  On both sides of the Capitol, sources involved in the guns debate say, as one senior House GOP leadership aide put it, “something is brewing on guns.”

   

  The hot-button issue returned to the front burner of American politics following the lethal Islamic State-inspired California shooting.

  Since, however, Republican lawmakers have blocked Democratic measures on stiffening gun laws; and Democrats have kept a mental health bill the GOP has tied to mass shootings from passing, saying they would rather close loopholes in gun laws first.

   

  A recent CNN/ORC poll suggests the American public is siding with GOP arguments. The survey found a majority (52 percent) of those polled oppose tighter gun laws. And a Washington Post/ABC News poll found 53 percent are against the assault weapons ban the White House has endorsed.

   

  “So part of our solution is to consider the range of authorities that are vested in the executive branch to try to advance some of those common-sense policies,” Earnest said. “And we certainly do want to make sure that any sort of steps that the president would take have a strong legal basis in the law.”

  So there you have it. A majority of Americans do not want tighter gun laws. Nevertheless, King Obama thinks he know best, and will simply do as he pleases.

  This is not what freedom looks like.

  

  

  

  

  

• China "Suspends" Another Unofficial PMI Data Release To Make "Major Adjustment"

  For the second time in two months, an economic data series that indicate drastically weak performance in China has been "suspended." Having seen Markit/Caixin's flash gauge of China's manufacturing discontinued in October (having plunged notably divergently from the government's official data), Bloomberg reports that the publishers of the alternative China Minxin PMI will stop updating the series to make a "major adjustment."

   

  Guess which time series was just "suspended"…

  

   

  As Bloomberg details,

  Release of the unofficial purchasing managers index jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics will be suspended starting this month, the Beijing-based academy said in an e-mailed statement Monday, about six hours before the latest monthly data were scheduled for release.

   

  Minxin’s suspension is the second in recent months as policy makers in the world’s second-largest economy struggle to arrest a deceleration in growth. Another early estimate of China’s manufacturing sector, a flash gauge of a purchasing managers index compiled by Markit Economics and sponsored by Caixin Media, was discontinued Oct. 1.

  Minxin’s PMI readings are based on a monthly survey covering more than 4,000 companies, about 70 percent of which are smaller enterprises. The private gauges have shown a more volatile picture than the official PMIs in the past year.

  The manufacturing PMI declined to 42.4 in November from 43.3 in October, while the non-manufacturing reading fell to 42.9 from 44.2, according the the latest release. The factory gauge fell to a record low of 41.9 in August. China’s official PMI from the National Bureau of Statistics fell to a three-year low of 49.6 in November.

  For September, the now-discontinued flash Markit/Caixin PMI fell to a six-year low, while the official PMI reading showed a modest improvement.

  *  *  *

  Because nothing inspires confidence like removing transparency of just the worst data series. We assume the "major adjustment" needed is akin to America's "double-seasonal adjustment" because how could it be possible that official figures remain so 'healthy' when every private survey (pre-discontinuation) has shown utter collapse…?

  

  

  

  

  

• Presenting The Stunning Difference In How Blacks And Whites Are Killed By Guns

  If one were asked to name the top five issues on America’s collective mind as we head into 2016, gun violence would almost certainly make the list. 

  A string of incidents that culminated in the massacre in San Bernardino earlier this month has put gun control back in the limelight as the nation debates the best way to prevent mass shootings. 

  Some suggest gun violence should be a designated as a public health issue. “Supporters, including doctors and medical associations, say that designating gun violence – which they define to include homicides, suicides and injuries – as a public health issue will save lives,” US News & World Report wrote over the summer. “Doctors already counsel patients about a range of safety issues, including avoiding lead paint, wearing seatbelts, getting vaccinated and dealing with the dangers of backyard pools. If the designation were to change, they could more often ask patients about whether they keep a gun in the home and, if so, how it is secured.”

  That rather surreal sounding idea is in many ways reflective of how frustrated America has become with the issue. The right to keep and bear arms is not only enshrined in the Constitution, it’s also part of the country’s consciousness and identity – even most gun control advocates would likely be loath to see citizens’ gun rights curtailed wholesale. Even so, the perception that gun violence is on the rise and the nation is powerless to stop it has led some to question whether it may be time to consider taking a more drastic approach when it comes to limiting access to firearms. 

  What gets lost in the debate is the fact that when it comes to gun violence, mass shootings really aren’t the problem. That is, as horrific as they are and as often as they seem to be occurring, “less than 2 percent of more than 33,000 gun deaths in [America] are due to mass shootings,” Trace wrote, earlier this month. 

  “The gun control debate often plays out in monolithic fashion in this country,” WaPo writes, adding that “the traditional understanding is that there’s one overarching problem — gun violence — that can be addressed by a more or less uniform set of solutions: better background checks, improved technology, etc.” 

  However, “one shortcoming of this approach is that it elides over the sometimes drastic differences in how different populations experience gun violence and gun ownership in their lives.” WaPo goes on to present the following rather stunning chart from The Brookings Institute. As you can see, there’s a marked difference between how African Americans and whites are killed by firearms. More specifically, “among whites, 77 percent of gun deaths are suicides. But among black Americans, 82 percent of gun deaths are homicides.”

  

  Consider that, then consider the following chart which depicts parents’ perceptions of the risks their children face. We present it below and leave the issue for readers to discuss:

  

  

  

  

  

  

• Liberty Imperiled – Welcome To Cop-Land

  Submitted by Matthew Harwood via TomDispatch.com,

  If you’ve been listening to various police agencies and their supporters, then you know what the future holds: anarchy is coming — and it’s all the fault of activists.

  In May, a Wall Street Journal op-ed warned of a “new nationwide crime wave” thanks to “intense agitation against American police departments” over the previous year. New Jersey Governor Chris Christie went further. Talking recently with the host of CBS’s Face the Nation, the Republican presidential hopeful asserted that the Black Lives Matter movement wasn’t about reform but something far more sinister. “They’ve been chanting in the streets for the murder of police officers,” he insisted. Even the nation’s top cop, FBI Director James Comey, weighed in at the University of Chicago Law School, speaking of “a chill wind that has blown through American law enforcement over the last year.”

  According to these figures and others like them, lawlessness has been sweeping the nation as the so-called Ferguson effect spreads. Criminals have been emboldened as police officers are forced to think twice about doing their jobs for fear of the infamy of starring in the next viral video. The police have supposedly become the targets of assassins intoxicated by “anti-cop rhetoric,” just as departments are being stripped of the kind of high-powered equipment they need to protect officers and communities.  Even their funding streams have, it’s claimed, come under attack as anti-cop bias has infected Washington, D.C.  Senator Ted Cruz caught the spirit of that critique by convening a Senate subcommittee hearing to which he gave the title, “The War on Police: How the Federal Government Undermines State and Local Law Enforcement.” According to him, the federal government, including the president and attorney general, has been vilifying the police, who are now being treated as if they, not the criminals, were the enemy.

  Beyond the storm of commentary and criticism, however, quite a different reality presents itself. In the simplest terms, there is no war on the police. Violent attacks against police officers remain at historic lows, even though approximately 1,000 people have been killed by the police this year nationwide. In just the past few weeks, videos have been released of problematic fatal police shootings in San Francisco and Chicago.

  While it’s too soon to tell whether there has been an uptick in violent crime in the post-Ferguson period, no evidence connects any possible increase to the phenomenon of police violence being exposed to the nation. What is taking place and what the police and their supporters are largely reacting to is a modest push for sensible law enforcement reforms from groups as diverse as Campaign Zero, Koch Industries, the Cato Institute, The Leadership Conference, and the ACLU (my employer). Unfortunately, as the rhetoric ratchets up, many police agencies and organizations are increasingly resistant to any reforms, forgetting whom they serve and ignoring constitutional limits on what they can do.

  Indeed, a closer look at law enforcement arguments against commonsense reforms like independently investigating police violence, demilitarizing police forces, or ending “for-profit policing” reveals a striking disregard for concerns of just about any sort when it comes to brutality and abuse. What this “debate” has revealed, in fact, is a mainstream policing mindset ready to manufacture fear without evidence and promote the belief that American civil rights and liberties are actually an impediment to public safety. In the end, such law enforcement arguments subvert the very idea that the police are there to serve the community and should be under civilian control.

  And that, when you come right down to it, is the logic of the police state.

  Due Process Plus

  It’s no mystery why so few police officers are investigated and prosecuted for using excessive force and violating someone’s rights. “Local prosecutors rely on local police departments to gather the evidence and testimony they need to successfully prosecute criminals,” according to Campaign Zero . “This makes it hard for them to investigate and prosecute the same police officers in cases of police violence.”

  Since 2005, according to an analysis by the Washington Post and Bowling Green State University, only 54 officers have been prosecuted nationwide, despite the thousands of fatal shootings by police. As Philip M. Stinson, a criminologist at Bowling Green, puts it, “To charge an officer in a fatal shooting, it takes something so egregious, so over the top that it cannot be explained in any rational way. It also has to be a case that prosecutors are willing to hang their reputation on.”

  For many in law enforcement, however, none of this should concern any of us. When New York Governor Andrew Cuomo signed an executive order appointing a special prosecutor to investigate police killings, for instance, Patrick Lynch, president of the Patrolmen’s Benevolent Association, insisted: “Given the many levels of oversight that already exist, both internally in the NYPD [New York Police Department] and externally in many forms, the appointment of a special prosecutor is unnecessary.” Even before Cuomo’s decision, the chairman of New York’s District Attorneys Association called plans to appoint a special prosecutor for police killings “deeply insulting.”

  Such pushback against the very idea of independently investigating police actions has, post-Ferguson, become everyday fare, and some law enforcement leaders have staked out a position significantly beyond that.  The police, they clearly believe, should get special treatment.

  “By virtue of our dangerous vocation, we should expect to receive the benefit of the doubt in controversial incidents,” wrote Ed Mullins, the president of New York City’s Sergeants Benevolent Association, in the organization’s magazine, Frontline. As if to drive home the point, its cover depicts Baltimore State Attorney Marilyn Mosby under the ominous headline “The Wolf That Lurks.” In May, Mosby had announced indictments of six officers in the case of Freddie Gray, who died in Baltimore police custody the previous month. The message being sent to a prosecutor willing to indict cops was hardly subtle: you’re a traitor.

  Mullins put forward a legal standard for officers accused of wrongdoing that he would never support for the average citizen — and in a situation in which cops already get what former federal prosecutor Laurie Levenson calls “a super presumption of innocence."  In addition, police unions in many states have aggressively pushed for their own bills of rights, which make it nearly impossible for police officers to be fired, much less charged with crimes when they violate an individual’s civil rights and liberties.

  In 14 states, versions of a Law Enforcement Officers’ Bill of Rights (LEOBR) have already been passed, while in 11 others they are under consideration.  These provide an “extra layer of due process” in cases of alleged police misconduct, according to Samuel Walker, an expert on police accountability. In many of the states without a LEOBR, the Marshall Project has discovered, police unions have directly negotiated the same rights and privileges with state governments.

  LEOBRs are, in fact, amazingly un-American documents in the protections they afford officers accused of misconduct during internal investigations, rights that those officers are never required to extend to their suspects. Though the specific language of these laws varies from state to state, notes Mike Riggs in Reason, they are remarkably similar in their special considerations for the police.

  “Unlike a member of the public, the officer gets a ‘cooling off’ period before he has to respond to any questions. Unlike a member of the public, the officer under investigation is privy to the names of his complainants and their testimony against him before he is ever interrogated. Unlike a member of the public, the officer under investigation is to be interrogated ‘at a reasonable hour,’ with a union member present. Unlike a member of the public, the officer can only be questioned by one person during his interrogation. Unlike a member of the public, the officer can be interrogated only ‘for reasonable periods,’ which ‘shall be timed to allow for such personal necessities and rest periods as are reasonably necessary.’ Unlike a member of the public, the officer under investigation cannot be ‘threatened with disciplinary action’ at any point during his interrogation. If he is threatened with punishment, whatever he says following the threat cannot be used against him.”

  The Marshall Project refers to these laws as the “Blue Shield” and “the original Bill of Rights with an upgrade.’’ Police associations, naturally, don’t agree. "All this does is provide a very basic level of constitutional protections for our officers, so that they can make statements that will stand up later in court," says Vince Canales, the president of Maryland's Fraternal Order of Police.

  Put another way, there are two kinds of due process in America — one for cops and another for the rest of us. This is the reason why the Black Lives Matter movement and other civil rights and civil liberties organizations regularly call on states to create a special prosecutor’s office to launch independent investigations when police seriously injure or kill someone.

  The Demilitarized Blues

  Since Americans first took in those images from Ferguson of police units outfitted like soldiers, riding in military vehicles, and pointing assault rifles at protesters, the militarization of the police and the way the Pentagon has been supplying them with equipment directly off this country’s distant battlefields have been top concerns for police reformers. In May, the Obama administration suggested modest changes to the Pentagon’s 1033 program, which, since 1990, has been redistributing weaponry and equipment to police departments nationwide — urban, suburban, and rural — in the name of fighting the war on drugs and protecting Americans from terrorism.  

  Even the idea that the police shouldn’t sport the look of an occupying army in local communities has, however, been met with fierce resistance. Read, for example, the online petition started by the National Sheriffs' Association and you could be excused for thinking that the Obama administration was aggressively moving to stop the flow of military-grade equipment to local and state police agencies. (It isn’t.)  The message that tops the petition is as simple as it is misleading: “Don’t strip law enforcement of the gear they need to keep us safe.”

  The Obama administration has done no such thing. In May, the president announced that he was prohibiting certain military-grade equipment from being transferred to state and local law enforcement. “Some equipment made for the battlefield is not appropriate for local police departments,” he said. The list included tracked armored vehicles (essentially tanks), bayonets, grenade launchers, camouflage uniforms, and guns and ammo of .50 caliber or higher. In reality, what use could a local police department have for bayonets, grenade launchers, or the kinds of bullets that resemble small missiles, pierce armor, and can blow people’s limbs off?

  Yet the sheriffs' association has no problem complaining that “the White House announced the government would no longer provide equipment like helicopters and MRAPs [mine-resistant ambush-protected vehicles] to local law enforcement.” And it’s not even true. Police departments can still obtain both helicopters and MRAPs if they establish community policing practices, institute training protocols, and get community approval before the equipment transfer occurs. 

  “Helicopters rescue runaways and natural disaster victims,” the sheriff’s association adds gravely, “and MRAPs are used to respond to shooters who barricade themselves in neighborhoods and are one of the few vehicles able to navigate hurricane, snowstorm, and tornado-strewn areas to save survivors.”

  As with our wars abroad, think mission creep at home. A program started to wage the war on drugs, and strengthened after 9/11, is now being justified on the grounds that certain equipment is useful during disasters or emergencies. In reality, the police have clearly become hooked on a militarized look. Many departments are ever more attached to their weapons of war and evidently don’t mind the appearance of being an occupying force in their communities, which leaves groups like the sheriffs' association fighting fiercely for a militarized future.

  Legal Plunder

   In July, the American Civil Liberties Union and the ACLU of Arizona sued law enforcement in Pinal County, Arizona, on behalf of Rhonda Cox. Two years before, her son had stolen some truck accessories and, without her knowledge, fitted them on her truck. When the county sheriff’s department arrested him, it also seized the truck.

  Arriving on the scene of her son’s arrest, Cox asked a deputy about getting her truck back. No way, he told her. After she protested, explaining that she had nothing to do with her son’s alleged crimes, he responded “too bad.” Under Arizona law, the truck could indeed be taken into custody and kept or sold off by the sheriff’s department even though she was never charged with a crime. It was guilty even if she wasn’t.

  Welcome to America’s civil asset forfeiture laws, another product of law enforcement’s failed war on drugs, updated for the twenty-first century. Originally designed to deprive suspected real-life Scarfaces of the spoils of their illicit trade — houses, cars, boats — it now regularly deprives people unconnected to the war on drugs of their property without due process of law and in violation of the Fifth and Fourteenth Amendments. Not surprisingly, corruption follows.

  Federal and state law enforcement can now often keep property seized or sell it and retain a portion of the revenue generated. Some of this, in turn, can be repurposed and distributed as bonuses in police and other law enforcement departments.  The only way the dispossessed stand a chance of getting such “forfeited” property back is if they are willing to take on the government in a process where the deck is stacked against them.

  In such cases, for instance, property owners have no right to an attorney to defend them, which means that they must either pony up additional cash for a lawyer or contest the seizure themselves in court.  “It is an upside-down world where,” says the libertarian Institute for Justice, “the government holds all the cards and has the financial incentive to play them to the hilt.”

  In this century, civil asset forfeiture has mutated into what’s now called “for-profit policing” in which police departments and state and federal law enforcement agencies indiscriminately seize the property of citizens who aren’t drug kingpins. Sometimes, for instance, distinctly ordinary citizens suspected of driving drunk or soliciting prostitutes get their cars confiscated. Sometimes they simply get cash taken from them on suspicion of low-level drug dealing.

  Like most criminal justice issues, race matters in civil asset forfeiture. This summer, the ACLU of Pennsylvania issued a report, Guilty Property, documenting how the Philadelphia Police Department and district attorney’s office abused state civil asset forfeiture by taking at least $1 million from innocent people within the city limits. Approximately 70% of the time, those people were black, even though the city’s population is almost evenly divided between whites and African-Americans.  

  Currently, only one state, New Mexico, has done away with civil asset forfeiture entirely, while also severely restricting state and local law enforcement from profiting off similar national laws when they work with the feds. (The police in Albuquerque are, however, actively defying the new law, demonstrating yet again the way in which police departments believe the rules don’t apply to them.) That no other state has done so is hardly surprising. Police departments have become so reliant on civil asset forfeiture to pad their budgets and acquire “little goodies” that reforming, much less repealing, such laws are a tough sell.

  As with militarization, when police defend such policies, you sense their urgent desire to maintain what many of them now clearly think of as police rights. In August, for instance, Pinal County Sheriff Paul Babeu sent a fundraising email to his supporters using the imagined peril of the ACLU lawsuit as clickbait. In justifying civil forfeiture, he failed to mention that a huge portion of the money goes to enrich his own department, but praised the program in this fashion:

  "[O]ver the past seven years, the Pinal County Sheriff’s Office has donated $1.2 million of seized criminal money to support youth programs like the Boys & Girls Clubs, Boy Scouts, YMCA, high school graduation night lock-in events, youth sports as well as veterans groups, local food banks, victims assistance programs, and Home of Home in Casa Grande."

  Under this logic, police officers can steal from people who haven’t even been charged with a crime as long as they share the wealth with community organizations — though, in fact, neither in Pinal County or elsewhere is that where most of the confiscated loot appears to go. Think of this as the development of a culture of thievery masquerading as Robin Hood in blue.

  Contempt for Civilian Control 

  Post-Ferguson developments in policing are essentially a struggle over whether the police deserve special treatment and exceptions from the rules the rest of us must follow. For too long, they have avoided accountability for brutal misconduct, while in this century arming themselves for war on America’s streets and misusing laws to profit off the public trust, largely in secret. The events of the past two years have offered graphic evidence that police culture is dysfunctional and in need of a democratic reformation.

  There are, of course, still examples of law enforcement leaders who see the police as part of American society, not exempt from it. But even then, the reformers face stiff resistance from the law enforcement communities they lead. In Minneapolis, for instance, Police Chief Janeé Harteau attempted to have state investigators look into incidents when her officers seriously hurt or killed someone in the line of duty. Police union opposition killed her plan. In Philadelphia, Police Commissioner Charles Ramsey ordered his department to publicly release the names of officers involved in shootings within 72 hours of any incident. The city’s police union promptly challenged his policy, while the Pennsylvania House of Representatives passed a bill in November to stop the release of the names of officers who fire their weapon or use force when on the job unless criminal charges are filed. Not surprisingly, three powerful police unions in the state supported the legislation. 

  In the present atmosphere, many in the law enforcement community see the Harteaus and Ramseys of their profession as figures who don’t speak for them, and groups or individuals wanting even the most modest of police reforms as so many police haters. As former New York Police Department Commissioner Howard Safir told Fox News in May, “Similar to athletes on the playing field, sometimes it's difficult to tune out the boos from the no-talents sipping their drinks, sitting comfortably in their seats. It's demoralizing to read about the misguided anti-cop gibberish spewing from those who take their freedoms for granted.”

  The disdain in such imagery, increasingly common in the world of policing, is striking. It smacks of a police-state, bunker mentality that sees democratic values and just about any limits on the power of law enforcement as threats. In other words, the Safirs want the public — particularly in communities of color and poor neighborhoods — to shut up and do as it’s told when a police officer says so. If the cops give the orders, compliance — so this line of thinking goes — isn’t optional, no matter how egregious the misconduct or how sensible the reforms. Obey or else.

  The post-Ferguson public clamor demanding better policing continues to get louder, and yet too many police departments have this to say in response: Welcome to Cop Land. We make the rules around here.

  

  

  

  

  

• 272 Islamic State Terrorists Are Hiding In Europe, 150 More Are On Their Way, Dagbladet Reports

  It has been over a month since the November 13 Paris terrorist suicide bombings and mass shootings and the subsequent warzone-like shutdown of Brussels, and Europe was just starting to emerge from its terrorized shell.

  However, for a continent which wants to “use global issues as excuses to extend its power”, issues such as terrorism in the words of the infamous 2008 AIG presentation, which serve as an “excuse for greater control over police and judicial issues; increase extent of surveillance” a return to normalcy is unacceptable.

  And since fear of the unknown must constant by stoked in order to justify any government intervention in personal privacy and public affairs, Norwegian newspaper Dagbladet reported that two waves of Islamic State terrorists are said to have been trained for terror attacks in Europe – either for suicide bombings, or for Paris-style handgun attacks.

  According to the paper, the first wave is said to already have travelled to Europe. The cell was trained for attacks in Europe and  originally consisted of 300 fighters. 28 of the 300 have lost their lives in Syria – in bombings, firefights, or from other causes. Dagbladet is told that the remaining 272 fighters have travelled to Europe. The sleeper cell is said to be instructed to lay low. Dagbladet is aware that other sources have another estimate of the number of IS terrorists in Europe. This estimate is below 100.

  The second wave is still with the terror group in Syria – after having received training in a militant camp between Sinjar and Mosul in Iraq. The inbound cell consists of 150 fighters who are still in Syria. They are said to have had training in a militant camp between Sinjar and Mosul in Iraq. 112 of the 150 have completed their training. Approximately two weeks ago several of the 112 travelled from the militant camp, to the IS controlled city of Deir el Zour in Syria. Dagbladet is told the fighters travelled to Syria using a total of 11 cars.

  It is unclear if the cars were Ford F250 trucks or purchased from Texas car auctions by Turkish middlemen.

  From Deir el Zour they travelled on to Raqqa – IS’ most important city in Syria, and the «capital» of the terrorist group?s so-called «caliphate», and the neighbouring city of Tabaqah. A German IS fighter is said to be a leader in this group.

  

  Dagbladet’s source claims that IS fighters trained for
  terror attacks in Europe
  have used this building in the IS «capital» in
  Syria. Picture: Private / Dagbladet

  Dagbladet has obtained the information from a source with deep insight into IS in Syria. The source has previously given information which proved to be correct.

  According to Dagbladet’s source, the first wave of fighters was trained in Raqqa. There they were trained to perform two different types of terror attacks, Dagbladet is told.

  • One group is said to be trained to become martyrs through suicide attacks. Dagbladet?s source describes these fighters as being «completely brainwashed».
  • The second group is said to be trained to plan attacks using handguns and suicide belts.

  Both methods were used during the Paris attacks on November 13.

  The Norwegian Police Security Service (PST) confirmed to Dagbladet that they are familiar with the information.

  “PST is aware that similar information exists. I do not want to go into more detail about the information PST possesses, regarding the information that Dagbladet has obtained” Trond Hugubakken, head of communications at PST, says.

  “Intelligence is, and will always be, uncertain. Intelligence work is for a big part about making uncertain information more certain. The stream of terror related information is vast. Some of this information is correct, lots of it is incorrect. I do not want to go into more detail about the information PST possesses, regarding the information that Dagbladet has obtained: Hugubakken added.

  “The amount of information usually increases considerably related to, and in the aftermath of, terror attacks. This was also the case with the terror attacks in Paris in November. PST is continuously working to verify and analyse the information we receive, in order to supply the Norwegian authorities with the best possible foundation on which to decide how to relate to the threat situation we are facing all the time.”

  And now that Europeans are again solidly worked up with angst and concerns that there is a massive ISIS sleeper cell among them, somewhere, and the it is best to leave all this surveillance stuff to the government (a government which will soon request every last trace of essential Liberty in order to provide a little temporary Safety, Ben Franklin’s warning to the contrary nowithstanding), it is time to ease back just a little:

  Dagbladet has no concrete information about possible attacks on Norwegian soil.

  Surely, if that changes, the Dagbladet “source” will promptly advise.

  

  

  

  

  

• Feudalism: Then & Now

  The complicated financial landscape today has made everyone “slaves to the central bank” while ordinary people have found themselves stuck in debt, and spending all they have just to get by.

   

  

   

  As SHTFPlan.com’s Mac Slavo concludes,

  The few who are able to save at all have lost value by saving during extended periods of ZIRP and have instead been sidelined as hedge funds and Wall Street bankers have used virtually free money to buy up assets – like houses – which force the middle class types to rent rather than buy. 

   

  It is truly a vicious cycle, and it will leave humanity at the bottom again, reversing all the gains of the 1776 revolution – as we are all serfs now.

  

  

  

  

  

• Live Feed Of First SpaceX Rocket Launch Since June Falcon 9 Explosion

  On June 28, everything was normal for about 2 minutes and 18 seconds when Elon Musk’s SpaceX launched its latest unmanned Falcon 9 rocket tasked with delivering cargo to the International Space Station. One second later the rocket exploded.

  Nasa’s unmanned @SpaceX rocket explodes at start of #ISScargo supply mission pic.twitter.com/ZmJ6cNJE2Q

  — BBC Breaking News (@BBCBreaking) June 28, 2015

  Since then there was an orbital hiatus at Elon Musk’s rocket company until tonight, when in a few minutes, a new SpaceX’s Falcon 9 rocket is set to deliver 11 satellites to low-Earth orbit for ORBCOMM, a Machine-to-Machine communication and Internet of Things solutions.

  The ORBCOMM launch is targeted for an evening launch from Space Launch Complex 40 at Cape Canaveral Air Force Station. If all goes as planned, the 11 satellites will be deployed approximately 20 minutes after liftoff, completing a 17-satellite, low Earth orbit constellation for ORBCOMM.

  Perhaps just as importantly, this mission also marks SpaceX’s return-to-flight as well as its first attempt to land a first stage on land. The landing of the first stage is a secondary test objective.

   

  Update:

  The Falcon 9 first stage landing is confirmed. Second stage continuing nominally. pic.twitter.com/RX2QKSl0z7

  — SpaceX (@SpaceX) December 22, 2015

  

  

  

  

  

• Germans Scramble To Buy Weapons Amid Nationwide Spike In Migrant-Driven Crime

  Submitted by Soeren Kern via The Gatestone Institute,

  • The scramble to acquire weapons comes amid an indisputable nationwide spike in migrant-driven crime, including rapes of German women and girls on a shocking scale, as well as physical assaults, stabbings, home invasions, robberies and burglaries — in cities and towns throughout the country.

  • German authorities, however, are going to great lengths to argue that the German citizenry's sudden interest in self-defense has nothing whatsoever to do with mass migration into the country, despite ample evidence to the contrary.

  • The spike in violent crimes committed by migrants has been corroborated by a leaked confidential police report, which reveals that a record-breaking 38,000 asylum seekers were accused of committing crimes in the country in 2014. Analysts believe this figure — which works out to more than 100 crimes a day — is only a fragment: many crimes are not reported.

  • "Anyone who asks for the reasons for the surge in weapons purchases encounters silence." — Süddeutsche Zeitung

  Germans, facing an influx of more than one million asylum seekers from Africa, Asia and the Middle East, are rushing to arm themselves.

  All across Germany, a country with some of the most stringent gun-control laws in Europe, demand is skyrocketing for non-lethal self-defense weapons, including pepper sprays, gas pistols, flare guns, electroshock weapons and animal repellants. Germans are also applying for weapons permits in record numbers.

  The scramble to acquire weapons comes amid a migrant-driven surge in violent crimes — including rapes, robberies and aggravated assaults — in cities and towns throughout the country.

  German authorities, however, are going to great lengths to argue that the German citizenry's sudden interest in self-defense has nothing whatsoever to do with mass migration into the country, despite ample evidence to the contrary.

  In recent weeks, German newspapers have published dozens of stories with headlines such as: "Germany is Afraid — And Grabs for the Weapon," "Germans are Arming Themselves: The Demand for Weapons Explodes," "More and More People are Buying a Weapon," "Security: Hands Up!" "The Need for Security Increases," "Boom in Weapons Stores," and "Bavarians are Arming Themselves— Afraid of Refugees?"

  The German daily newspaper Die Welt recently produced a video report about Germany's surge in sales of self-defense weapons, which was titled "The Weapons Business is Profiting from the Refugee Crisis." (Image source: Die Welt video screenshot)

  Since Germany's migration crisis exploded in August 2015, nationwide sales of pepper spray have jumped by 600%, according to the German newsmagazine, Focus. Supplies of the product are now completely sold out in many parts of the country and additional stocks will not become available until 2016. "Manufacturers and distributors say the huge influx of foreigners in recent weeks has apparently frightened many people," Focus reports.

  According to KH Security, a German manufacturer of self-defense products, demand is up by a factor of five, and sales in September 2015 — the month when the implications of German Chancellor Angela Merkel's open-door migration policy began to dawn on many Germans — were the highest since the company was founded 25 years ago. The company says there is an increased demand not only for self-defense weapons, but also for home alarm systems.

  Another manufacturer of self-defense products, the Frankfurt-based company DEF-TEC Defense Technology, has reported a 600% increase in sales this fall. According to CEO Kai Prase:

  "Things took off beginning in September. Since then, our dealers have been totally overrun. We have never experienced anything like this in the 21 years of our corporate history. Fear: This is not rational. The important term is: 'refugee crisis.'"

  The same story is being repeated across Germany. According to the public broadcaster, Mitteldeutscher Rundfunk, citizens in Saxony can regularly be seen queuing up in large numbers waiting for gun shops to open.

  A store owner in the Saxon town of Pirna said he is now selling up to 200 cans of pepper spray each day, compared to five cans a week before the migrant crisis began. He said he is seeing many new customers who are not the typical clientele, including women of all ages and men who are buying weapons for their wives.

  Günter Fritz, the owner of a gun shop in Ebersbach, another town in Saxony, told RTL News, "Since September, all over Germany, also at my shop, sales of self-defense products have exploded." He added that his clients come from all walks of life, ranging "from the professor to the retired lady. All are afraid."

  Andreas Reinhardt, a gun shop owner in the northern German town of Eutin, said he now sells four to five self-defense weapons each day, compared to around two per month before the recent influx of asylum seekers. "The current social upheaval is clearly driving the current rush to self-defense," he said. "I never thought that fear would spread so quickly," he added.

  Eric Thiel, the owner of a gun shop in Flensburg, a city on the Baltic Sea coast, said that pepper spray is no longer available: "Everything is sold out. New supplies will not arrive until March. Everything that has to do with self-defense is booming enormously."

  Wolfgang Mayer, the owner of a gun shop in Nördlingen, a town in Bavaria, said he has an explanation for the surge in gun licenses: "I think with the influx of refugees, the rise in break-ins and the many tricksters, the people are demanding greater protection."

  Mayer added that there is a growing sense within German society that the state cannot adequately protect its citizens and therefore they have to better protect themselves. "Since the summer, sales of pepper spray have increased by 50%," Mayer said, adding that buyers are mainly women, of all ages — from the student in the city up to the widowed grandmother.

  Pepper spray and other types of non-lethal self-defense weapons are legal in Germany, but a permit is required to carry and use some categories of them. Officials in all of Germany's 16 federal states are reporting a spike in applications for such permits, known as the small weapons license (kleinen Waffenschein).

  In the northern German state of Schleswig-Holstein, nearly 10,000 people now hold a small weapons license, an "all-time record level," according to the regional interior ministry. Retailers in the state are also reporting an "unprecedented surge" in sales of self-defense weapons, with supplies of pepper spray sold out until the spring of 2016.

   

  In Saxony, retailers are reporting an unprecedented boom in sales of pepper spray, tear gas, gas pistols and even cross bows. Some stores are now selling more self-defense weapons in one day than they did in an entire month before the migrant crisis began.

   

  Saxon officials are also reporting a jump in the number of people applying for the full-fledged firearms license (großen Waffenschein). The rush to arms can be attributed to a "subjective decline in the people's sense of security," Saxon Interior Minister Markus Ulbig said.

   

  In Berlin, the number of people holding a small weapons license increased by 30% during the first ten months of 2015 compared to the same period in 2014, while the number of those holding the full-fledged firearms license jumped by some 50%, according to local police.

   

  In Bavaria, more than 45,000 people now hold a small weapons license, 3,000 more than in 2014. This represents a "significant increase," according to the regional interior ministry. As in other parts of Germany, Bavarian retailers are also reporting a boom in sales of self-defense weapons, including gas pistols, flare guns and pepper spray.

   

  In Stuttgart, the capital city of Baden-Württemberg, local gun shops are reporting a four-fold increase in sales of self-defense weapons since August. One shop owner said she now sells more weapons in one week than she normally sells in one month. She added that she has never seen such high demand.

   

  In Heilbronn, another city in Baden-Württemberg, local officials report that sales of pepper spray have doubled in 2015. According to one shopkeeper, the demand for pepper spray began surging in August, when many mothers started purchasing the product for their school-aged daughters. "Our clients are extremely afraid," the shopkeeper said. "We are seeing this everywhere."

   

  In Gera, a city in Thuringia, local media reported that at one store, the entire inventory of 120 cans of pepper spray was sold out within three hours. The store, which subsequently sold out of another batch of 144 cans, is now on a waiting list to obtain more because of supplier shortfalls.

  A woman in Gera who bought pepper spray for her 16-year-old daughter said:

  "I think it is fundamentally proper for me to protect my daughter. She is at that age where she is out alone in the evening. If she says she needs this for protection, I think this is not unjustified. Of course, due to the current situation that we now have in Germany. We just do not know who is here. There are quite a lot of people who are not registered."

  The same trend toward self-defense is being repeated in the German states of Brandenburg, Mecklenburg-Vorpommern, Saxony-Anhalt and North Rhine-Westphalia, where spiraling levels of violent crime perpetrated by migrants is turning some neighborhoods into no-go zones.

  Apologists for mass migration are accusing German citizens of overreacting. Some point to recent studies — commissioned by pro-migration groups — which claim, implausibly, that the number of crimes committed by migrants is decreasing, not increasing.

  Others deny that the rush to self-defense has anything to do with migrants at all. They blame a variety of different factors, including the early darkness associated with the end of daylight savings time, the jihadist attacks in Paris (which occurred in November, three months after sales of self-defense weapons began to spike), and the need for protection from wild wolves in parts of northern Germany.

  The Süddeutsche Zeitung described the deception this way:

  "Anyone who asks for the reasons for the surge in weapons purchases encounters silence. Officially, the regulatory agencies say that anyone who applies for the small weapons license does not need to provide a justification and therefore the government offices have no explanation. 'But it is true that sometimes we clearly get the message that they are afraid because of the refugees,' says one, on condition that his name and office will not be mentioned in the newspaper. 'People have already told me: I want to protect my family.' We have reported this to the Ministry…

   

  "The retailers also say nothing officially about the reasons for the increase in sales. Call a small gun shop. Many refugees arrived at the end of August, and since September the numbers are up, can there not be a connection? 'If you do not use my name: Sure, what else?' Says the man on the phone. The people who come to the store are afraid. They believe that among the refugees there are 'black sheep.' Some customers openly admit it."

  Empirical evidence shows an indisputable nationwide spike in migrant-driven crime, including rapes of German women and girls on a shocking scale, as well as sexual and physical assaults, stabbings, home invasions, robberies, burglaries and drug trafficking.

  The spike in violent crimes committed by migrants has been corroborated by a confidential police report leaked to a German newspaper. The document reveals that a record-breaking 38,000 asylum seekers were accused of committing crimes in the country in 2014. Analysts believe this figure — which works out to more than 100 crimes a day — is only a fragment: many crimes are not reported.

  Not surprisingly, a new poll shows that 55% of Germans are pessimistic about the future, up from 31% in 2014 and 28% in 2013. The poll shows that 42% of those between the ages of 14 and 34 believe their future will be bleak; this is more than double the number of those (19%) who felt this way in 2013. At the same time, 64% of those aged 55 and above are fearful about the future.

  The poll also shows that four-fifths (79%) of the German population believe the economy will deteriorate in 2016 due to the financial burdens created by the migration crisis, and 70% believe that member states of the European Union will drift further apart in the coming year. The most predictable finding of all: 87% of Germans believe their politicians will experience a decline in public support during 2016.

  

  

  

  

  

• 2015 – The Year In Money

  Huge mega-mergers. Anemic hedge fund returns. Billion-dollar venture capital deals. Bloomberg breaks down 2015's record highs and lows.

   

  The Stock Market…

  

  

   

  The Bond Market…

  

  

   

  Deals…

  

  

  

  

  

  

   

  Venture Capital…

  

  

   

  Jobs…

  

  

   

  Ups & Downs…

  

  

  

  

   

  Read more here at Bloomberg.com

  

  

  

  

• Dramatic Amateur Video Captures Moment Deadly Chinese Landslide Buries 33 Buildings

  In a year marked by numerous dramatic (and often deadly) infrastructure failures in China’s industrial sector, culminating with several deadly explosions at its port towns, the latest tragedy to strike took place yesterday in China’s southern town of Shenzhen where at least 91 people were missing after a giant mound of mud and construction waste spewed out of an overfull dump site in a southern China boomtown and buried 33 buildings in the country’s latest industrial disaster.

  As Reuters reports, the site should have been closed down in February, but according to local workers, mud and waste had continued to be dumped there, a news portal run by the city government in Shenzhen said. The latest incident takes place over a year after a government-run newspaper warned Shenzhen would run out of space to dump the waste left behind from a building frenzy.

  The mudslide at the business park had covered an area of more than 380,000 square meters (94 acres) and was 10 metres (11 yards) deep in parts, Shenzhen Vice Mayor Liu Qingsheng told reporters, according to Xinhua. Almost 3,000 rescuers were at the scene, Xinhua said, with sniffer dogs and drones. Rescuers were focusing on several areas where sensors had detected signs of life, it added.

  

  Fourteen factories, 13 low-rise buildings and three dormitories were among the buildings flattened. Xinhua said 14 people had been rescued and more than 900 people had been evacuated from the site by Sunday evening. State television said the 91 missing included 59 men and 32 women.

  A nearby section of China’s major West-East natural gas pipeline exploded, state television added, though it was not clear if this had any impact on the landslide. Xinhua said the pipeline was owned by PetroChina, China’s top oil and gas producer, that the 400-meter-long ruptured pipe “has been emptied” and a temporary pipe will be built.

  Premier Li Keqiang ordered an official investigation into Sunday’s landslide in Shenzhen, just across the border from Hong Kong. The mudslide smashed into multi-storey buildings at the Hengtaiyu industrial park in the city’s northwestern Guangming New District, toppling them within seconds in collisions that sent rivers of earth skyward. Villager Peng Jinxin said the mud came like “huge waves”, as residents ran out of the way.

  “At one point the running mud was only ten meters away from me,” Peng told the official Xinhua news agency.

  The frequency of industrial accidents in China has raised questions about safety standards following three decades of breakneck growth in the world’s second-largest economy. Just four months ago, more than 160 people were killed in huge chemical blasts in the northern port city of Tianjin.

  State television showed scenes of devastation in Shenzhen, with crumpled buildings sticking up from heaps of brown mud which stretched out across the industrial park.

  Besides new buildings, a network of subway lines is being built in Shenzhen, and mounds of earth are being excavated and dumped at waste sites. “Shenzhen has 12 waste sites and they can only hold out until next year,” the official Shenzhen Evening Post, published by the city government, said in October, 2014.

  Once a quiet fishing village, Shenzhen was chosen by Beijing three decades ago to help pioneer landmark economic reforms, and it has boomed ever since.

  The Ministry of Land Resources said the accumulation of a large amount of waste meant that mud was stacked too steep, “causing instability and collapse, resulting in the collapse of buildings”.

  * * *

  And in this age of ubiquitous cell phone use, there was an immediate amateur video recording capturing the landslide as it happened:

  

  

  

  

  

• The Fed Never Solved The Mystery Of The "Missing Inflation", And Now It Has A Big Problem

  Back in June, this website first “solved” the “mystery” behind America’s missing inflation, when we showed that a record number of US renters are unable to afford housing, suggesting that record amounts of “disposable income” were being diverted for use as a shelter “tax” instead of being spent on true discretionary goods and services, leading (together with the Obamacare tax) to the broad and distressing decline in not only traditional retail sales and moribund consumer spending, and the “secular” economic slowdown observed over the past several years.

  We followed this in September with another expose titled  “The Mystery Of The “Missing Inflation” Solved, And Why The US Housing Crisis Is About To Get Much Worse” explaining why the Fed is about to make a historic mistake and unleash an even more acute housing crisis if it hikes into an economy where the only core inflationary “impulse” if that from rent inflation, at a time when median real household incomes have tumbled to levels last seen in 1989.

  

  As we explained in July, one major problem is that the Fed’s measures of inflation are wrong, if not with malicious intent, then purely due to definitional purposes. But a bigger problem for the the Fed’s measures of how the overall economy is doing (and/or overheating) is that the Fed telling the vast majority of Americans that inflation is negligible, leads to riotous laughter.

  The reason for this is a simple, if dramatic, one: the U.S. transformation from a homeownership society, to one of renters.

  

   

  In fact, the only age group that has seen an increase in homeownership in the “New Normal” are those aged 65 and over!

  

  Showcasing the plight of renters was the “State of the Nation’s Housing” report from the Center for Housing Studies, according to which for American renters 2013 marked another year with a record-high number of cost burdened households – those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

  As more Americans are forced into a limited number of rental units, prices have exploded at a far greater pace than what is officially reported in the shelter or core CPI metric, for all – but especially for those in the lower income buckets: as seen in the lower right chart, the rental “cost burden” of households making under $30,000 is the higest ever, at well over 70%. 

  

  It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had “severe cost burdens, paying more than half of income for housing.” The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

  But the punchline is that, as noted above, all this was taking place in the years following 2000, when gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind. As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011, and if adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960.

  

   

  As we explained three months ago, the implications for not just the US economy, but for US demographics and society as a result of this “stagflationary” rental environment are profound. They are also the reason why the biggest US generation by number of participants – the Millennials, at 82 million strong – and the one generation that was supposed to be the dynamo that pushes the US out of its post-crisis funk is, simply said, crushed.

  Millennials are also expected to continue experiencing rent burdens as they age. Having entered the labor market during and following the Great Recession, those in the millennial generation have received lower wages and experienced higher rates of unemployment and underemployment than their older counterparts at this point in their lives. As a result, millennials have less wealth accumulated, have delayed forming new households, and are less likely to become owners at the age that older generations had previously. In combination, we are likely to see additional household formation by millennials over the next decade and expect a relatively higher share to remain renters during that period.

  In fact, far from confirming the “bullish thesis” that Millennials will eventually move out of their parents basement and buy (or rent) their own housing while starting new households, just the opposite was found to be taking place:

  In 2015, 15.1 percent of  25 to 34 year olds were living with their parents, a fourth straight annual increase, according to an analysis of new Census Bureau data by the Population Reference Bureau in Washington. The proportion is the highest since at least 1960, according to demographer Mark Mather, associate vice president with PRB. “The phenomenon of young adults, facing their own financial challenges, forced to squeeze in the homes of their parents. And new data show the trend is getting worse, not better.”

  

  As Bloomberg redundantly added, “It takes young people longer these days to find jobs with decent wages. Young adults need to spend more time getting the necessary education and skills before they can become self-sufficient. The recession likely exacerbated this trend.”

  Perhaps the best visual summary of the “mystery of the missing inflation” was the following interactive map showing that in virtually all major seaboard metro areas, including the major cities in California, New York, and Florida, the number of households with a cost burden is 50% or higher.

   

  

   

  This is how we concluded in September:

  All of this could have been avoided if only the Fed has observed the “missing” and soaring rental inflation that was right in front of its nose all the time, and which it did everything in its power to ignore just so the 1% can keep their ZIRP and QE, and become even wealthier on the back of the middle class and the 80 million of 25-34 year old Americans who have found out the hard way that not only is the American Dream of owning a home officially dead, it has been replaced with the American nightmare of completely unffordable renting.

  So why do we bring up this very critical topic today? One reason: as Deutsche Bank’s Dominic Konstam wrote out over the weekend, not only is it still “all about the rental inflation”, but it is this “mystery” of missing inflation, which we exposed not once but twice over the past 6 months, that has so stumped and confused the Fed, it is now piling policy mistake upon policy mistake.

  As a reminder, in the last CPI print before the Fed’s rate hike announcement, even as headline inflation barely rose from the year ago period pushed lower by the ongoing collapse in energy prices, it was core inflation that printed at 2.0% and give the Fed the green light it had been so eagerly anticipating, to hike.

  Only there is one problem.

  Here is what Konstam said about the prospects for US benign inflation, why the German bank “remains strongly opposed to a view that inflation will shock to the upside”, and how rental inflation is at the core of everything.

  From a theoretical perspective we have a bigger problem with a bearish inflation outlook in that core inflation ex housing remains extremely weak on both a PCE and CPI basis. OER/rental inflation is therefore the main “culprit” for the Fed in achieving its inflation “target”.

  Define irony: the one thing that is crushing millions of Americans and more than a quarter of all US renting households – those who can barely afford to rent even as their real median incomes continue to slide – is what the Fed interpreted as a green light to hike!

  Konstam continues:

  The trouble is that rents are running high not because house prices are booming and/or construction is sawing but because structurally new entrants to the housing market are renters not owners. This is reflected in the very low first time homebuyer rate, less than 30 percent.

  Now, prepare to be amazed: remember how we said above core inflation rose 2.0% in November from a year ago. Well, if you strip out housing, core inflation was just barely above 1%. Worse, on a Core PCE basis, if one excludes housing inflation, one gets the lowest inflationary print since the financial crisis!

  

  And here is absolute punchline which if one ignores everything we have said above, is a must read:

  Rent is however a “tax”. In this instance it is not something that represents real growth or discretionary consumption. If OER was soaring on the back of house prices and housing construction that allowed for wealth extraction, i.e. prior to the crisis, the outlook would be very different. As we have highlighted before, the stagflation concept in housing is a negative for structural demand and therefore pricing power.

  If only every economist would read these 68 short words, there would be no confusion why there is no economic recovery, why retail sales are foundering, why wage growth is non-existent, and why corporate CEOs are the most bearish they have been since 2012. In short: everyone would know why not only the Fed failed with its ZIRP policies, but why it is compounding this failure with another failure by hiking rates.

  So what does all of this mean? Well, the US economy is now one where “taxes” define growth.

  • On the one hand, there is the Supreme Court mandated “tax” that is Obamacare, which quarter after quarter is the biggest source of GDP growth as it forces US consumers to spend billions on (soaring) health insurance, in the process giving the impression of healthy Personal Consumption Expenditures and a growing US economy.  Don’t feel like paying this tax? Sorry – it’s the law.
  • On the other hand, there is the “tax” that is rent: a tax which has soared in recent years, vastly outpacing median incomes (which have been declining) as landlords can hike asking rents to whatever levels they choose: after all owning a new home has become virtually impossible for what little is left of the US middle class. Don’t feel like paying this tax? Fine, just prepare to live under a bridge or in a tent.

  Combined, these two taxes are draining hundreds of billions in disposable income from American households, and leading to the secular stagnation that so many supposedly intelligent economists are observing every day unfold before their very eyes, and yet which so very few can explain even though the reasoning is so simple a 10 year old without a formal economic education can understand that when one pays the bulk of one’s disposable income on the two core essentials, housing and health – whose prices keep soaring with every passing day – there is virtually no money left for everything else.

  No wonder then that the Fed will not grasp any of this before it is far too late.

  And the biggest irony: for the Fed these two largest economic “taxes” which force “spending” and which push up “inflation” are precisely the catalysts that served as the basis for the Fed’s decision to hike rates in a desperate attempt to give the impression that the US economy is recovering, when in reality the Fed has been looking at the economy’s fundamental deterioration in the face, and reached the absolutely wrong conclusion, convincing itself it now has the “green light” to proceed with a rate hike!

  

  

  

  

  

• Why Capitalists Are Repeatedly "Fooled" By Business Cycles

  Submitted by Frank Shostak via The Mises Institute,

  According to the Austrian business cycle theory (ABCT) the artificial lowering of interest rates by the central bank leads to a misallocation of resources because businesses undertake various capital projects that — prior to the lowering of interest rates —weren’t considered as viable. This misallocation of resources is commonly described as an economic boom.

  As a rule, businessmen discover their error once the central bank — which was instrumental in the artificial lowering of interest rates — reverses its stance, which in turn brings to a halt capital expansion and an ensuing economic bust.

  From the ABCT one can infer that the artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.

  Critics of the ABCT maintain that there is no reason why businessmen should fall prey again and again to an artificial lowering of interest rates.

  Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates.

  Correct expectations will undo or neutralize the whole process of the boom-bust cycle that is set in motion by the artificial lowering of interest rates.

  Hence, it is held, the ABCT is not a serious contender in the explanation of modern business cycle phenomena. According to a prominent critic of the ABCT, Gordon Tullock,

  One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.

  Even Mises himself had conceded that it is possible that some time in the future businessmen will stop responding to loose monetary policy thereby preventing the setting in motion of the boom-bust cycle. In his reply to Lachmann (Economica, August 1943) Mises wrote,

  It may be that businessmen will in the future react to credit expansion in another manner than they did in the past. It may be that they will avoid using for an expansion of their operations the easy money available, because they will keep in mind the inevitable end of the boom. Some signs forebode such a change. But it is too early to make a positive statement.

  Do Expectations Matter?

  According to the critics then, if businessmen were to anticipate that the artificial lowering of interest rates is likely to be followed some time in the future by a tighter interest rate stance, their conduct in response to this anticipation will neutralize the occurrence of the boom-bust cycle phenomenon. But is it true that businessmen are likely to act on correct expectations as critics are suggesting?

  Furthermore, the key to business cycles is not just businessmen’s conduct but also the conduct of consumers in response to the artificial lowering of interest rates — after all, businessmen adjust their activities in accordance with expected consumer demand. So on this ground one could generalize and suggest that correct expectations by people in an economy should prevent the boom-bust cycle phenomenon. But would it?

  For instance, if an individual John, as a result of a loose central bank stance, could lower his interest rate payment on his mortgage why would he refuse to do that even if he knows that a lower interest rate leads to boom-bust cycles?

  As an individual the only concern John has is his own well being. By paying less interest on his existent debt John’s means have now expanded. He can now afford various ends that previously he couldn’t undertake.

  As a result of the central bank’s easy stance the demand for John’s goods and services and other mortgage holders has risen. (Again it must be realized that all this couldn’t have taken place without the support from the central bank, which accommodates the lower interest rate stance.)

  Now, the job of a businessman is to cater to consumers’ future requirements. So whenever he observes a lowering in interest rates he knows that this most likely will provide a boost to the demand for various goods and services in the months ahead.

  Hence if he wants to make a profit he would have to make the necessary arrangements to meet the future demand.

  For instance, if a builder refuses to act on the likely increase in the demand for houses because he believes that this is on account of the loose monetary policy of the central bank and cannot be sustainable, then he will be out of business very quickly.

  To be in the building business means that he must be in tune with the demand for housing. Likewise any other businessman in a given field will have to respond to the likely changes in demand in the area of his involvement if he wants to stay in business.

  A businessman has only two options — either to be in a particular business or not to be there at all. Once he has decided to be in a given business this means that the businessman is likely to cater for changes in the demand for goods and services in this particular business irrespective of the underlying causes behind changes in demand.

  Failing to do so will put him out of business very quickly. Now, regardless of expectations once the central bank tightens its stance most businessmen will “get caught.” A tighter stance will undermine demand for goods and services and this will put pressure on various business activities that sprang up while the interest rate stance was loose. An economic bust emerges.

  We can conclude that correct expectations cannot prevent boom-bust cycles once the central bank has eased its interest rate stance. The only way to stop the menace of boom-bust cycles is for the central bank to stop the tampering with financial markets. As a rule however, central banks respond to the bust by again loosening their stance and thereby starting the new boom-bust cycle phase.

  

  

  

  

  

• Traders Panic-Buy Stocks Into The Close Despite Crude And Credit Crumble

  Artist's impression of Fed credibility…

   

  Since The Fed unleashed its rate-hike, things for the confidence-inspiring awesomeness have not gone well…

  

   

  Trannies were worst post-Fed, Small Caps best but they are all red…

  

   

  Stocks and bonds decoupled early in the overnight European session, then recoupled when Europe closed then stocks just went full retard into the close…

  

   

  Here's your day summarized… come on!!!

  

   

  As the machines lifted stocks to the opening ramp highs…

  

   

  But credit just laughed…

  

  As the algos ran the stops to the pre-opex dump… (that was a 140 point rip in The Dow in the last 30 minutes… on absolutely no news whatsoever)

  

   

  FANGs were dumped and then pumped into the close but remain red post-Fed…

  

   

  Stocks continue to leak lower towards credit's inevitable endgame…

  

   

  Meanwhile Waddell & Reed's canary in the coalmine is flashing red… Is WDR the marginal liquidator-at-any-price?

  

  h/t@BeardedMiguel

   

  And The TED Spread is soaring…

  

   

  The USDollar was sold from early in the US session to the end of the EU session, then flatlined…

  

   

  Treasury bonds were well bid in the early session (notably 5Y, 7Y, and 10Y bonds are unchanged on the year now in yield terms)

  

   

  The weaker dollar broadly speaking helped commodities with silver and gold doing well..

  

   

  But crude's January contract expiration seemed to keep volatility under control (despite the surge into NYMEX close across the complex)

  

   

  Charts: Bloomberg

  Bonus Chart: "Fed Says"

  

  

  

  

  

• Whistleblower Exposes Exactly How The Government Spies On Your Cell Phone

  Submitted by Derrick Broze via TheAntiMedia.org,

  The release of a secret U.S. government catalog of cell phone surveillance devices has revealed the names and abilities of dozens of surveillance tools previously unknown to the public. The catalog shines a light on well-known devices like the Stingray and DRT box, as well as new names like Cellbrite, Yellowstone, Blackfin, Maximus, Stargrazer, and Cyberhawk.

  

   

  The Intercept reports:

  “Within the catalogue, the NSA is listed as the vendor of one device, while another was developed for use by the CIA, and another was developed for a special forces requirement. Nearly a third of the entries focus on equipment that seems to have never been described in public before.”

   

  Anti Media has reported extensively on the Stingray, the brand name of a popular cell-site simulator manufactured by the Harris Corporation. The Electronic Frontier Foundation describes Stingrays as “a brand name of an IMSI (International Mobile Subscriber Identity) Catcher targeted and sold to law enforcement. A Stingray works by masquerading as a cell phone tower – to which your mobile phone sends signals to every 7 to 15 seconds whether you are on a call or not – and tricks your phone into connecting to it.”

  As a result, whoever is in possession of the Stingray can figure out who, when, and to where you are calling, the precise location of every device within the range, and with some devices, even capture the content of your conversations.

  Both the Harris Corp. and the Federal Bureau of Investigations (FBI) require police to sign non-disclosure agreements (NDA) related to the use of the devices. Through these NDAs local police departments have become subordinate to Harris, and even in court cases in front of a judge, are not allowed to speak on the details of their arrangements. Due to this secrecy, very little has been known about how exactly the Stingrays work.

  The bit of publicly available information was disclosed through open records requests and lawsuits filed by journalists and researchers. This new catalog provides even more detail about how the devices operate.

  We already knew that Stingrays drain the battery of a targeted device, as well as raise signal strength. We also knew that as long as your phone is on, it could be targeted. Some newer details include the fact that the Stingray I and II will not work if the user is “engaged in a call.” Also, the device can gather data from phones within a 200 meter radius. And the next generation Hailstorm device is even capable of cracking encryption on the newer 4G LTE networks.

  A number of the devices in the catalog are Digital Receiver Technology (DRT) boxes, also known as dirt boxes, which can be installed in planes for aerial surveillance. DRT was recently purchased by Boeing. We first learned of dirt boxes in late 2014, when the Wall Street Journal revealed a cell phone monitoring program operated by the U.S. Marshals Service, using Cessna planes mounted with Stingrays. AntiMedia has also reported on surveillance planes equipped with thermal imaging technology.

  Other devices include:

  • Cellbrite: “a portable, handheld, field proven forensic system for the quick extraction and analysis of 95% cell phones, smart phones and PDA devices,” capable of extracting “information such as phone book, pictures, video, text messages, and call logs.”
  • Kingfish: a Stingray-like device that is “portable enough to be carried around in a backpack.”
  • Stargrazer: “an Army system developed to deny, degrade and/or disrupt a targeted adversary’s command and control (C2) system,” which “can jam a handset and capture its metadata at the same time it pinpoints your target’s location. But watch out — the Stargazer may jam all the other phones in the area too — including your own.”
  • Cyberhawk: which is capable of gathering “phonebook, names, SMS, media files, text, deleted SMS, calendar items and notes” from 79 cell phones.

  Jennifer Lynch, a senior staff attorney at the Electronic Frontier Foundation, told the Intercept that the use of these tools is part of the militarization of the police in the U.S.: “We’ve seen a trend in the years since 9/11 to bring sophisticated surveillance technologies that were originally designed for military use — like Stingrays or drones or biometrics — back home to the United States.”

  The Office of the Director of National Intelligence, the FBI, NSA, and U.S. military declined to leave a comment with the Intercept regarding the catalog. Marc Raimondi, a Justice Department spokesperson, told the Intercept that the Department “uses technology in a manner that is consistent with the requirements and protections of the Constitution, including the Fourth Amendment, and applicable statutory authorities.”

  The Intercept notes that Raimondi worked for Harris Corp. for six years prior to working for the DOJ.

  Secrecy surrounding the use of these devices has been a contentious topic of debate for several years. Truth In Media recently reported that four members of the House Oversight Committee sent letters to 24 federal agencies including the Department of State and the Securities and Exchange Commission, demanding answers regarding policies for using the controversial surveillance technology.

  House Oversight Committee Chairman Jason Chaf­fetz, ranking member Elijah Cummings, and Reps. Will Hurd (R-Texas) and Robin Kelly (D-Ill.), as members of the committee’s IT subcommittee, issued requests for information related to the potential use of stingrays.

  Chaf­fetz also recently introduced the Stingray Privacy Act, which would expand newly established warrant requirements for the Department of Justice and Department of Homeland Security to all federal, state, and local agencies that use the cell-site simulators.

  In September, the DHS joined the DOJ by announcing warrant requirements for the use of Stingray equipment, but those rule changes have come under fire for possible loopholes which may allow the continued use of surveillance equipment without a warrant.

  “Because cell-site simulators can collect so much information from innocent people, a simple warrant for their use is not enough,” Jennifer Lynch told the Intercept. “Police officers should be required to limit their use of the device to a short and defined period of time. Officers also need to be clear in the probable cause affidavit supporting the warrant about the device’s capabilities.”

  At this point, it’s painfully obvious that America is the home of the Police-Surveillance State. Awakened hearts and minds everywhere should continue to educate themselves and their communities about the dangers of these tools. We should also support initiatives to create technology that can defend against the prying eyes and ears of Big Brother. Privacy is a dying notion in a nation of fools determined to be safe rather than liberated. If you give a damn, now is the time to stand up and be heard.

  

  

  

  

  

• Monday Humor? America's "Most Polluted" Nuclear Weapons Site To Become National Park

  On Sunday, we brought you “Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown,” in which we highlighted a piece from Sean Adl-Tabatabai who asks whether government-funded researchers are intentionally downplaying rising levels of radiation in the Pacific Ocean stemming from the 2011 meltdown in Japan.  

  “In March 2011, Japan’s Fukushima Daiichi nuclear power plant suffered multiple meltdowns following a massive earthquake and tsunami. The exploding reactors sprayed massive amounts of radioactive material into the air, most of which settled into the Pacific Ocean,” Adl-Tabatabai writes, adding that “a study presented at the conference of the American Geophysical Union in San Francisco on Dec. 14, shows that radiation levels from Alaska to California have increased since samples were last taken.”

  But while Adl-Tabatabai worries that perhaps Americans are getting a sugar-coated version of story thanks to the fact that the Woods Hole Oceanographic Institution has received millions in government funding, he may be overestimating the public’s interest in the dangers of being exposed to nuclear waste because as AP reports, “thousands of people are expected next year to tour the Hanford Nuclear Reservation, home of the world’s first full-sized nuclear reactor, near Richland, about 200 miles east of Seattle in south-central Washington.” Here’s more: 

  The nation’s most polluted nuclear weapons production site is now its newest national park.

   

  [Visitors] won’t be allowed anywhere near the nation’s largest collection of toxic radioactive waste.

   

  The Manhattan Project National Historic Park, signed into existence in November, also includes sites at Oak Ridge, Tennessee, and Los Alamos, New Mexico. The Manhattan Project is the name for the U.S. effort to build an atomic bomb during World War II.

   

  At Hanford, the main attractions will be B Reactor – the world’s first full-sized reactor – along with the ghost towns of Hanford and White Bluffs, which were evacuated by the government to make room for the Manhattan Project.

   

  The B Reactor was built in about one year and produced plutonium for the Trinity test blast in New Mexico and for the atomic bomb dropped on Nagasaki, Japan, that led to the surrender of the Japanese.

   

  Starting in 1943, more than 50,000 people from across the United States arrived at the top-secret Hanford site to perform work whose purpose few knew, French said.

   

  The 300 residents of Richland were evicted and that town became a bedroom community for the adjacent Hanford site, skyrocketing in population. Workers labored around the clock to build reactors and processing plants to make plutonium, a key ingredient in nuclear weapons.

   

  The park will tell the story of those workers, plus the scientists who performed groundbreaking research and the residents who were displaced, said Chip Jenkins of the National Park Service, which is jointly developing the park with the Energy Department.

  And a bit more color from the government’s Hanford webpage:

  Post World War II tensions between the U.S. and Russia brought about the “Cold War” and drove continued atomic weapons production and Hanford’s plutonium production mission.  Additional reactors were constructed next to the Columbia River as the two nations began to develop and stockpile nuclear weapons.  In 1959, construction began on the last Hanford reactor, dubbed “N.” N Reactor was a dual-purpose facility which produced plutonium for atomic weapons as well as steam for generating electricity. It was the only dual-purpose reactor in the United States and was so advanced that President John F. Kennedy came to Hanford in September of 1963 for its dedication.  Starting in the mid 60’s through 1971, the older reactors were shut down leaving only N Reactor operating on the Site.  N Reactor continued its mission of producing plutonium and electricity until 1987.  Since that time Hanford’s mission has been to clean up the site after decades of weapons production activities.

  Here are a few images from the site:

  

  

  

  

  

  

  

  *  *  *

  For anyone planning a family trip to the country’s most polluted nuclear site, you can rest assured that “everything is clean and perfectly safe,” Colleen French, the U.S. Department of Energy’s program manager for the Hanford park says.

  “Any radioactive materials are miles away.”

  

  

  

  

  

• Chasing Unicorns – 5 Investing Myths That Will Hurt You

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  In the summer of 1885 William R. Travers, prominent NYC businessman and builder of Saratoga Race Track, was vacationing in Newport, Rhode Island. He pointed out a long line of beautiful yachts tied up in the harbor. When he was informed that they all belonged to Wall Street brokers he simply asked,

  “Where are their clients’ yachts?”.

  When it comes to investing, there is nothing more dangerous to an individual’s future outcomes than falling prey to the many myths perpetrated on them by Wall Street. The investment business is, after all, just that – a business.

  What Wall Street has learned, as the days of commission-based trading have been relegated to computerized trading, is that fee based management is a very profitable annuitized business model. The only trick is keeping individuals fully invested at all times so fees can be collected. This need has generated some of the biggest “myths” in the investment world to keep investors piling money into mutual funds, hedge funds and advisory accounts. Here are 5-myths worth thinking about.

  1) Stay Invested – The Market Always Returns 10%

  You have heard this one plenty. “Over the long-term” the stock market has generated a 10% annualized total return. So, just plunk your money down and you will be wealthy.

  

  The statement is not entirely false. Since 1900, stock market appreciation plus dividends has provided investors with an AVERAGE return of 10% per year. Historically, 4%, or 40% of the total return, came from dividends alone. The other 60% came from capital appreciation that averaged 6% and equated to the long-term growth rate of the economy.

  However, there are several fallacies with the notion that the markets long-term will compound 10% annually.

  1) The market does not return 10% every year. There are many years where market returns have been sharply higher and significantly lower.

  2) The analysis does not include the real world effects of inflation, taxes, fees, and other expenses that subtract from total returns over the long-term.

  3) You don’t have 144 years to invest and save.

  The chart below shows what happens to a $1000 investment from 1871 to present including the effects of inflation, taxes, and fees. (Assumptions: I have used a 15% tax rate on years the portfolio advanced in value, CPI as the benchmark for inflation and a 1% annual expense ratio. In reality, all of these assumptions are quite likely on the low side.)

  

  As you can see, there is a dramatic difference in outcomes over the long-term.

  From 1871 to present the total nominal return was 9.07% versus just 6.86% on a “real” basis. While the percentages may not seem like much, over such a long period the ending value of the original $1000 investment was lower by an astounding $260 million dollars.

  Importantly, as stated previously, and as I will discuss more in a moment, the return that investors receive from the financial markets is more dependent on the “WHEN” you begin investing.

  2) I Can Beat/Outperform The Stock Market

  No, you can’t and the data proves it.

  Dalbar recently released their 21st annual Quantitative Analysis Of Investor Behavior study which continues to show just how poorly investors perform relative to market benchmarks over time and the reasons for that under performance.

  It is important to note that it is impossible for an investor to consistently “beat” an index over long periods of time due to the impact of taxes, trading costs, and fees. Furthermore, there are internal dynamics of an index that affect long term performance which do not apply to an actual portfolio such as share repurchases, substitution, and replacement effects.

  However, even the issues shown above do not fully account for the underperformance of investors over time. The key findings of the study show that:

  • In 2014, the average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%.The broader market return was more than double the average equity mutual fund investor’s return. (13.69% vs. 5.50%).
  • In 2014, the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 4.81%. The broader bond market returned over five times that of the average fixed income mutual fund investor. (5.97% vs. 1.16%).
  • Retention rates are
    • slightly higher than the previous year for equity funds and
    • increased by almost 6-months for fixed income funds after dropping by almost a year in 2013.
  • In 2014, the 20-year annualized S&P return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%.
  • In 8 out of 12 months, investors guessed right about the market direction the following month. Despite “guessing right” 67% of the time in 2014, the average mutual fund investor was not able to come close to beating the market based on the actual volume of buying and selling at the right times.

  

  Most importantly, despite what Wall Street and advisors want you to believe, 50% of the shortfall was directly attributable to psychology – both theirs and yours. The other 50% came down to lack of capital to invest.

  So, the next time you hear the mainstream media chastise investors for not beating some random benchmark index, just realize they didn’t either. 

  3) Your Financial Plan Says You Will Be Just Fine

  One the biggest mistakes that investors make are in the planning assumptions for their retirement. As I discussed previously:

  “There is a massive difference between compounded returns and real returns as shown. The assumption is that an investment is made in 1965 at the age of 20. In 2000, the individual is now 55 and just 10 years from retirement. The S&P index is actual through 2014 and then projected through age 100 using historical volatility and market cycles as a precedent for future returns.”

  

  “While the historical AVERAGE return is 7% for both series, the shortfall between ‘compounded’  returns and ‘actual’  returns is significant. That deficit is compounded further when you begin to add in the impact of fees, taxes and inflation over the given time frame.

  The single biggest mistake made in financial planning is NOT to include variable rates of return in your planning process.”

  So, look at your financial plan projections. If they are a smooth curve upwards, you are going to be very disappointed.  

  4) If You’re Not In, You’re Missing Out

  It is often stated that you should remain invested in the markets at all times because there has NEVER been a 10-year period that has produced negative returns for investors. That is simply not true.

  

  Okay, but over 20-years investors have never lost money, right? Not really.

  

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

  In other words, it is vital to understand the “WHEN” you begin investing that affects your eventual outcome.

  The chart below compares Shiller’s 10-year CAPE to 20-year actual forward returns from the S&P 500.

  From current levels history suggests returns to investors over the next 20-years will likely be lower than higher. We can also prove this mathematically as well as shown.

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

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

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

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

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

  5) You Can’t Time The Market – Just Buy And Hold

  There are no great investors of our time that “buy and hold” investments. Even the great Warren Buffett occasionally sells investments. Real investors buy when they see value, and sell when value no longer exists. 

  While there are many sophisticated methods of handling risk within a portfolio, even using a basic method of price analysis, such as a moving average crossover, can be a valuable tool over the long term holding periods. Will such a method ALWAYS be right? Absolutely not. However, will such a method keep you from losing large amounts of capital? Absolutely.

  The chart below shows a simple moving average crossover study. The actual moving averages used are not relevant, but what is clear is that using a basic form of price movement analysis can provide a useful identification of periods when portfolio risk should be REDUCED. 

  Importantly, I did not say risk should be eliminated; just reduced.

  

  Again, I am not implying, suggesting or stating that such signals mean going 100% to cash. What I am suggesting is that when “sell signals” are given that is the time when individuals should perform some basic portfolio risk management such as:

  • Trim back winning positions to original portfolio weights: Investment Rule: Let Winners Run
  • Sell positions that simply are not working (if the position was not working in a rising market, it likely won’t in a declining market.) Investment Rule: Cut Losers Short
  • Hold the cash raised from these activities until the next buying opportunity occurs. Investment Rule: Buy Low

  The reason that portfolio risk management is so crucial is that it is not “missing the 10-best days” that is important; it is “missing the 10-worst days.” The chart below shows the comparison of $100,000 invested in the S&P 500 Index (log scale base 2) and the return when adjusted for missing the 10 best and worst days.

  

  Clearly, avoiding major drawdowns in the market is key to long-term investment success. If I am not spending the bulk of my time making up previous losses in my portfolio, I spend more time growing my invested dollars towards my long term goals.

  Chasing A Unicorn

  There are many half-truths perpetrated on individuals by Wall Street to sell product, gain assets, etc. However, if individuals took a moment to think about it, the illogic of many of these arguments are readily apparent.

  Chasing an arbitrary index that is 100% invested in the equity market requires you to take on far more risk that you realize. Two massive bear markets over the last decade have left many individuals further away from retirement than they ever imagined. Furthermore, all investors lost something far more valuable than money – the TIME needed to achieve their goal.

  To win the long-term investing game, your portfolio should be built around the things that matter most to you.

  • Capital preservation
  • A rate of return sufficient to keep pace with the rate of inflation.
  • Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4% every year, losses matter)
  • Higher rates of return require an exponential increase in the underlying risk profile. This tends to not work out well.
  • You can replace lost capital – but you can’t replace lost time. Time is a precious commodity that you cannot afford to waste.
  • Portfolios are time-frame specific. If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

  The index is a mythical creature, like the Unicorn, and chasing it has historically led to disappointment. Investing is not a competition, and there are horrid consequences for treating it as such.

  So, the next time a financial professional encourages you to just “buy and hold” for the long-term, maybe you should question just whose “yacht” are you buying?

  

  

  

  

  

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• "America's Ship Is Sinking" Former Bush Official Exposes The Unfixable Corruption Inside The Establishment

  “This ship is sinking,” retired U.S. Army Colonel Lawrence Wilkerson tells Abby Martin, adding that “today the purpose of US foreign policy is to support the complex that we have created in the national security state that is fueled, funded, and powered by interminable war.”

  The former national security advisor to the Reagan administration, who spent years as an assistant to Secretary of State Colin Powell during both Bush administrations reflects on the sad but honest reflection on what America has become as he exposes the unfixable corruption inside the establishment and the corporate interests driving foreign policy.

  “It’s never been about altruism, it’s about sheer power.”

  

  

  

  

  

• A Decade Of 'Tech'tonic Shifts

  How times have changed for the top 20 biggest companies in the world by market capitalization…

   

  

   

  The question now is, will ‘old’ become ‘new’ again?

   

  Source: Goldman Sachs

  

  

  

  

• "This Is Not Normalizing… And No, We Don't Have Any Precedent"

  Submitted by Adam Taggart via PeakProsperity.com,

  Financial repression authority Daniel Amerman returns this week to discuss the ramifications of the Federal Reserve's first interest rate hike in nearly a decade:

  The key to understand the situation here is that this is not normalizing, and we don’t have a precedent. We really don’t. We’re kind of all being soothed and reassured by the Wall Street Journal and Bloomberg and the financial authorities that we’ve been down this path before, we’ve been down it many times, more often than not we’ve had rising markets as a result and, really, there’s nothing to worry about. The issue with that is there are many things this time that are entirely different, and what is presented as 'normalizing', for instance, is going back to say a projected interest rate cycle like we saw in the 2000’s or the 1990’s. What’s completely different, among many other things, is that we’ve never had rates forced so low before, and they’ve never been so low for so long. So, if you look, say at a long-term graph since 1954, what’s been going on with the Fed funds rates, we’ve had plenty of reversals in interest rate direction, but they’ve been these brief little dips that look nothing whatsoever like this.

   

  The other big issue, and this goes back to our prior conversation on financial repression, is that I don’t think you can take any interest rate increases from the 2000’s, 1990’s, 1980’s, 1970’s as being comparable. Because, we have the greatest degree of national debt outstanding that we’ve had since the 1940’s and the 1950’s. So, you have to go much further back in time to see how a rate increase works when you have a country that’s just absolutely massively in debt. And, it’s a very different process than these recent historicals they’re talking about.

   

  I just read the statement from the Federal Reserve and what they clearly showed was this was not normal. And, one of the clear ways that they showed it is that they made crystal clear that they would be keeping their current holdings of U.S. government and agency debt in roughly the 2.4 to 2.5 trillion dollar range, until this is fully confirmed and they’re sure they’re going forward with the interest cycle and so forth. Now, that by itself tells you this isn’t normal. Typically, if you’re talking about driving interest rates down, you want liquidity in the system, and you provide liquidity through asset purchases. If you want to drive interest rates up, you want to tighten the system and you might remove money from the system let’s say by selling many of those assets. And, they’ve made clear on the front end that they’re not doing that.

   

  And, I think this, again, ties very closely into what we’ve talked about before, with the size of the national debt, with financial repression and so forth. For financial repression to work, for the government to keep a lid on and control of interest rates, they need a large captive audience. One of the largest components of captive audience is the federal funds currently holding such a large portion of the U.S. national debt. So, if they were to follow a true normalizing cycle, they should be selling those and they’re not.

   

  Our national debt is a fantastic sum that most of can’t really understand. How could we possibly be that badly in debt? How can we make the payments on that debt in terms of principle and interest and so forth? And, people are right that if we were in a normal market situation, we would be in a huge degree of difficulty with the national debt. But, again, this is something that’s happened many times over the centuries. And, what governments typically do, their most popular choice when they get deeply into debt is they increase their control over the markets so they knock out the interest rate risk for themselves, they push rates way down as they’ve done to historical lows. There’s more to it than that (we'd need another full hour more to talk about financial repression), but basically, they transfer wealth from savers to the government in the process of paying down the debt, in a process that most people don’t understand. 

  Click the play button below to listen to Chris' interview with Daniel Amerman (60m:03s)

  

  

  

  

  

• Caught On Tape: The Ssssurprising Way Indians 'Deal' With Government Corruption

  Unhappy with the demands for bribes from local officials, a disgruntled snake-charmer in the Uttar Pradesh region of Northern India took anti-corruption matters into his own hands…

   

   

  Act of Terror? Or patriot?

  

  

  

  

  

• After Record 10-Day Devaluation Streak China Fixes Yuan Stronger

  Since The IMF ‘blessed’ the Yuan with the same ambivalence-to-currency-manipulation as the rest of the world’s competitive devaluers, China weakened the currency for 10 straight days (a record streak). But the streak is over as tonight PBOC has decided to strengthen the Yuan fix (although admittedly by a small amount) to 6.4753 (barely off the 4 year lows).

   

  It appears a pattern is developing…

  

   

  10 days down and 1 day up… is the new “stability’

   

  Chart: Bloomberg

  

  

  

  

  

• The Great Disconnect Is Palpable

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The Fed’s industrial production series also includes estimates on total motor vehicle assemblies. Auto sales in general have been one of the only bright spots in the economy, especially since the 2012 slowdown (even though it has been boosted artificially via credit far, far more than income gains). Given that trend, it is still difficult to assess whether activity in recent months is meaningful. After surging in July, auto activity in terms of industrial production has slumped – now pushed into a fourth month.

  Auto production is quite volatile, even where the Fed has attempted to “smooth out” that tendency via its seasonal adjustment factors, so more analysis is needed to establish some confidence about interpretation. Still, at the very least, it raises concerns expressed in the growing (surging) inventory of autos counted in manufacturer’s numbers but stuffed (unsold to end users) on dealer lots and in wholesale limbo.

  

  Furthering those concerns, economic reports out of Canada today showed not just broad-based wholesale sales declines but also a four-month slide also in auto sales at that wholesale level. Canada being a primary exporter of autos to the US, the coincidence of further weakening is not likely to be random and yet another negative commentary on the state of US “demand.”

  The agency also released October data for wholesale trade, which fell 0.6 per cent to $54.7 billion — its fourth-straight monthly drop.

  It said lower trade figures were recorded in four areas that, when combined, represent 64 per cent of all sales.

  Sales fell by three per cent to $10.5 billion in the food, beverage and tobacco category — its third decrease in four months. The category of motor vehicle and parts registered a 2.1 per cent drop to $9.5 billion, its fourth-straight tumble. [emphasis added]

  Taken together with the rather steep drop in US industrial production, the risks of a full-blown and perhaps severe recession have undoubtedly grown. Unlike what the FOMC is trying to project via the federal funds rate, a rate that isn’t being fully complemented, either, at this point, visible economic risk is not just rising it is exploding. Nowhere is that more evident than in junk bonds and high yield. The collapse in those markets and tiers has been produced not through actual defaults, which, though slightly rising, remain historically low, but rather through greatly shifting perceptions of defaults that increasingly look likely and in bulk.

  That is as much economic commentary as anything that the FOMC might produce. The credit cycle in that respect is not so much monetary policy as a direct component of the foundation of the economy. In other words, if the Fed were truly correct in its economic assessments, that the economy isn’t now overheating but is about to, junk bonds would trade more so with that theme given that it would more than imply continued historically low default rates. There would be no such explosion, as there is now, in the perception of that animating risk factor.

  

  Even so, estimates for default rates next year are conspicuously nowhere near keeping up with price behavior, almost assuredly because the models ratings agencies and selling firms use to project such things depend upon the same economic expectations and modeled forecasts as those which Janet Yellen uses to assure herself there is nothing to fear, economically and financially speaking. So the great disconnect is palpable even here:

  So far in the month of December, three companies in the energy sector have combined to add $1.8 billion in default volume to the year-to-date total in institutional leveraged loan defaults. The three defaults will push the default rate even higher than the current 11-month rate of 1.7%.

  The data come from the latest report on leveraged loan defaults from Fitch Ratings. The firm also forecasts that the leveraged loan default rate in 2016 will rise to 2.5%, or $24 billion.

  The incongruity is obvious; the default rate in just leveraged loans is only to rise to 2.5% (from 1.7% the 11 months so far cataloged of 2015) yet leveraged loan prices, and only those of the most liquid and highly traded names, have sunk in the past week to levels last seen (on the way down) in the days just prior to Lehman Brother’s collapse!

  

  That complements the price behavior from CCC’s which have already bled above the Lehman threshold for comparison. There is some great disconnect where junk bond prices are collapsing so far, with no end in sight, but the mainline estimates for defaults and the economy that is supposed to keep them low has hardly budged. Something is greatly out of line and increasingly it looks like that complacency is hugely misplaced.

  Default rate estimates and mainstream commentary about the economy that conditions them continue to mark the favored track but that is nothing like what these junk bond prices are saying – same market, different worlds. The economic risks have heavily shifted and just in the past few months, a recession perception that is gaining a much wider audience. The industrial production figure was, in that respect, a major indication that that is the right insight.

  Even the NBER will consider IP as a recession marker on its own if it is blatant enough, which it certainly was, given more mixed signals in other economy-wide indications (such as unstable GDP and the BLS’s unemployment rate and Establishment Survey that never seem to produce spending or even wage growth?).

  The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

  Those last three are already in the recession category, as wholesale sales have persistently contracted this year while retail sales continue to underperform the dot-com recession experience.

  The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve’s index of industrial production (IP). The Committee’s use of these indicators in conjunction with the broad measures recognizes the issue of double-counting of sectors included in both those indicators and the broad measures. Still, a well-defined peak or trough in real sales or IP might help to determine the overall peak or trough dates, particularly if the economy-wide indicators are in conflict or do not have well-defined peaks or troughs.

  I have no idea whether IP is enough for the NBER to consider a recession already (probably not), nor is it at all clear that such “official” determinations actually matter (they likely don’t). What is important and relevant is that even the NBER, the same economists who didn’t declare the Great Recession until December 1, 2008, long after the full panic and devastation had begun, considers IP a major factor. In other words, as you can plainly see from junk debt, we have been handed a major point of escalation in a startlingly broad fashion (maybe including Canada); that junk bonds are on to something that the “rest” of markets (outside the “dollar”, of course) will not yet consider.

  If certain high yield segments, especially leveraged loans, are already priced to the collapse point of 2008, then that suggests something potentially awful about the future course. Industrial production already at -1.2% without any inventory correction yet tells the same worry. It is nowhere near what Janet Yellen had in mind when in her first press conference hinted at March 2015, the six-month point after QE’s end, as the first rate hike. It is, however, the same fears that kept her at bay for three-quarters of the year thereafter. Unfortunately for her, as these prices and data points increasingly survey, it is that progression that should have mattered most rather than blindly depending upon an economic trend that is forced more and more remote, a truly nasty downside gaining increasing visibility instead.

  

  

  

  

  

• Obama Abruptly Waives 1980 Foreign Investment in Real Property Tax Act

  Submitted by Gordon T. Long of the Financial Repression Authority

  Obama Abruptly Waives 1980 Foreign Investment in Real Property Tax Act

  The Financial Repression Authority has consistently shown that Regulatory changes which “Ring Fence” US investors choices is a cornerstone of the Macro-Prudential Policy of “Financial Repression”. Through stealth programs like FATCA and PFIC the US government has steadily and quietly limited Americans ability to take cash out of the country and to invest abroad, other than through profitable public exchange traded products sold by the financial industry.  However, it is one thing to shut the doors to American investing abroad but it is quite another to fully open the doors to foreigners! It begs the question why, why now and why the change needed to happen so urgently?

  This week, as the BOJ, ECB and PBOC all continued to aggressively expand credit  the Federal Reserve was “full ahead” in the process of withdrawing approximately $1 Trillion of liquidity to achieve its December FOMC decision to increase the Fed Funds rate by 0.25%. To counteract this policy initiative and the alarming collapse in the HY & IG bond market, the US government immediately opened the floodgates to easy foreign credit in a major policy reversal. A policy decision which was rushed through congress with almost no time for congressional debate. Obviously what was not lost on the White House was the fact that the now troubled $2.2 Trillion of High Yield bonds peddled to yield starved investors since the financial crisis matches 2/3’s of the $3.5 Trillion increase in the Federal Reserves balance sheet during the same period.

  FIRPTA was implemented during a better era for Americans in response to international investors in the late 1980s and early 1990s buying U.S. farmland, as well as the more publicly visible buying of trophy U.S. property by the Japanese.  The US government has now expediently waived FIRPTA.

  Bloomberg reports:

  President Barack Obama signed into law a measure easing a 35-year-old tax on foreign investment in U.S. real estate, potentially opening the door to greater purchases by overseas investors, a major source of capital since the financial crisis.

   

  Contained in the $1.1 trillion spending measure that was passed to avoid a government shutdown is a provision that treats foreign pension funds the same as their U.S. counterparts for real estate investments. The provision waives the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA.

   

  “FIRPTA has historically made direct investment in U.S. property a non-starter for trillions of dollars worth of foreign pensions,” said James Corl, a managing director at private equity firm Siguler Guff & Co. “This tax-law modification is a game changer” that could result in hundreds of billions of new capital flows into U.S. real estate.

   

  Foreign investors have flocked to U.S. real estate since the global economic meltdown, drawn by the relative yields and perceived safety of assets from office towers and shopping centers to apartments and warehouses. The demand has helped drive commercial real estate prices to record highs. Many foreign investors structured their purchases to make themselves minority investors and bypass FIRPTA.

   

  REIT Purchases

   

  The new law also allows foreign pensions to buy as much as 10 percent of a U.S. publicly traded real estate investment trust without triggering FIRPTA liability, up from 5 percent previously.

   

  “By breaking down outdated tax barriers to inbound investment, the FIRPTA relief will help mobilize private capital for real estate and infrastructure projects,” Jeffrey DeBoer, president and chief executive officer of the Real Estate Roundtable, an industry lobbying group, said in a statement.

   

  Cross-border investment in U.S. real estate has totaled about $78.4 billion this year, or 16 percent of the total $483 billion investment in U.S. property, according to Real Capital Analytics Inc. Pension funds accounted for about $7.5 billion, or almost 10 percent, of the foreign total, according to the New York-based property research firm.

   

  “Foreign pensions are such a low percentage of foreign investment in U.S. real estate because of FIRPTA,” Corl said.

   

  Investment Surges

   

  Foreign investment has surged from just $4.7 billion in 2009, according to Real Capital. Foreign buying this year as a percentage of total investment in U.S. real estate is about double the 8.1 percent average in the 10 years through 2012.

   

  Despite a perception that FIRPTA was a response to the wave of Japanese buying of trophy U.S. property in the late 1980s and early 1990s, including Rockefeller Center and Pebble Beach, the act was actually passed in 1980 in response to international investors buying U.S. farmland. Under old rules, foreign majority sellers had to pay 10 percent of gross proceeds from the sale of U.S. real estate as well as additional federal, state and local levies that could increase the total tax burden to as much as 60 percent, according to the National Association of Real Estate Investment Trusts.

   

  The change “is a huge deal,” said Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate. “There’s no question” it will increase the amount of foreign investment in U.S. property, he said.

  Warning

  The FRA predicts that Americans will face significant increases in US property taxes over the next five years starting in 2016. With the change in FIRPTA Americans should additionally expect property values to increase in 2016-2017.

  Clearly, foreigners, the “1%” and property owners will all gain from this, but most Americans will simply face significantly increasing property taxes on elevated asset values to fund the ever increasing government debt burden.

  Americans owning a house can be expected to initially focus on their net worth being higher, and not that they once again will have even less disposable income. Some will learn painfully why the number one killer of small business is cash flow, not profits..

  

  

  

  

  

• Star Wars Smashes Opening Weekend Box Office Record, But Will It Be Enough?

  This weekend the force was strong with thirty (and forty, and fifty) year-olds, wishing to awaken memories of their youthful days with an admirable redo of the first Star Wars movie, first released nearly 40 years ago. But the force has never been stronger with Disney which is expected to rake in a record-breaking $238 million in opening weekend box office sales in the US and Canada, and a near-record $279 million overseas, a grand total of well over half a billion around the globe.

  That is just the beginning of an epic annuity created by Disney under director J.J. Abrams. As the WSJ notes, “Star Wars: The Force Awakens” isn’t just a hit, but the spark Disney needs for years of sequels, toys, videogames, television series, theme-park attractions and more that it is planning or already producing.”

  Although it has been a decade since the last “Star Wars” movie, Disney and Mr. Abrams’ has to revive a franchise that has been largely dormant since the release of “Return of the Jedi” in 1983. A trio of prequels—produced by then-independent Lucasfilm between 1999 and 2005 and directed by George Lucas—performed well financially but were largely scorned by fans, who considered them inferior to the original trilogy. However, with the new Star Wars, Disney has a sure hit on its hands, and the only question is just how far will it go?

  The “Star Wars” sequel easily routed the prior record for a domestic movie opening of $209 million set by “Jurassic World” in June, and caps the Top 5 of biggest weekend box-offices, all attained in recent years by fantasy-fiction films ranging from Iron Man 3, to the original Avengers and its “Age of Ultron” sequel:

  

   

  The movie also set new opening weekend records in the U.K., Germany, Australia, Russia, and 14 other countries. It wasn’t a smash hit everywhere, though, and produced less than “sensational” ticket sales in countries such as Brazil, Japan and Mexico, while it underperformed in South Korea, where a more popular local film also was released at the same time.

  Still, the only reason the Star Wars sequel may have failed to achieve the biggest international opening of all time, is because it has yet to open in China: the Chinese release is delayed to January next year as all quota slots for imported movies are taken for this year.

  How did the watching public react to the movie? According to Dow Jones, there was little disappointment with U.S. moviegoers giving it an average grade of A, according to market research firm CinemaScore, mirroring its very strong reviews and boding well for word-of mouth.

  On Friday, 63% of the audience was male, but by Saturday that percentage dropped to 58% as the fanboy-driven early crowds started to broaden, said Dave Hollis, executive vice president of distribution at Disney’s movie studio. “Seeing the way younger audiences and women are responding bodes really well for the future of the franchise,” Mr. Hollis said.

  “The Force Awakens” was designed to emulate the original in style and substance. It returned stars Harrison Ford, Carrie Fisher and Mark Hamill to their original roles and introduced a new cast of Jedi Knights, storm troopers and imperial officers led by Daisy Ridley and John Boyega.

   

  Coming out of a screening at the TCL Chinese Theater in Los Angeles, stay-at-home mother Jessica Sisoer, who had waited in line 12 days with other hard-core fans, said the new movie “felt like going home” because it reminded her so much of the original trilogy.

  Among the factors that will determine if it rivals the all-time global box-office record of $2.79 billion held by “Avatar” is whether strong word-of-mouth draws infrequent moviegoers, how many times fans return to theaters to watch again. The biggest question mark, however, is how the movie will perform in China, the world’s second biggest movie market, where “Star Wars” isn’t well known because the original trilogy was never released there.

  As DJN adds, the film, which cost a little over $200 million to produce, is now poised to gross well over $1 billion, and could go much higher, particularly with people expected to take time off from work during the holidays.

  And yet, despite the movie euphoria, Disney stock tumbled on Friday, closing down 4% at the days lows, following a surprising downgrade by BTIG’s Rich Greenfield, who downgraded DIS stock from Neutral to Sell on Friday, lobbing a $90 price target, with the thesis that “Disney management made a fundamental mistake by overpaying for sports rights based on overly aggressive multichannel video subscriber projections. Not only did Disney overpay for individual sports rights packages, they also acquired too many sports rights in an effort to prevent new competitors such as Fox Sports 1 and NBC Sports from growing stronger. As a result, we believe Disney’s cable network profitability will meaningfully underperform investor expectations – with cable networks representing 44% of Disney’s segment operating income. We are now estimating that Disney’s FY2017 cable network operating income will be DOWN year-over-year, with total Disney FY2017 operating income flat.”

  Not even expectations of record global box office receipts by Star Wars were enough to appears Greenfield:

  While we believe the strength of Star Wars Episode VII: The Force Awakens (estimated at $2.6 bn in global box office) will lead to Disney modestly exceeding consensus expectations for fiscal (Sept) 2016 earnings, we now believe consensus earnings are too high for FY2017 and far too high for FY2018. We believe if Star Wars Episode VII does not exceed $2.0 billion in worldwide box office revenue, Disney will miss our FY2016 and consensus earnings estimates as well.

   

  Given that we now expect Disney EPS growth to slow dramatically and miss current Street consensus EPS expectations in both FY2017 and FY2018, we believe its current multiple is unwarranted. We are now forecasting EPS growth of just 3%-4% in FY2017 and 6% in FY2018. In turn, we are reducing our rating on Disney to SELL from Neutral with a $90 one-year price target. Our $90 one-year price target is based on a P/E of 15x FY2017, which also equates to 14x FY2018. Disney is currently trading at 20x FY2016, 19x FY2017 and 18x FY2018 based on our estimates.

  • In March 2015, with Disney shares at $106, we downgraded the stock from Buy to Neutral (link), nearly five years after we put a Buy on the stock. Our downgrade was based on the view that even though consensus EPS expectations still needed to move higher, Disney shares were approaching full value.
  • Despite a temporary correction in August 2015, Disney shares have continued to climb higher since our March downgrade, having notably outperformed their media industry peers over the past year and currently sitting just 7% below their all-time peak of $122. We believe Disney’s outperformance has been driven by film slate excitement, most notably Star Wars Episode VII: The Force Awakens (which opened last night), despite increasing concerns facing Disney’s cable network franchise.

  The conclusion: “#FadetheForce: Downgrade to SELL with $90 Price Target.”

  In other words, not even world records may be enough for a stock priced beyond record perfection, and a very forlorn looking Luke Skywalker better have something big up his sleeves for 2017 when the next sequel, Episode VIII, is due.

  

  

  

  

  

• False Premises: The Biggest Myths About The Fed's Rate Hike

  Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

  False Premise

  The Fed did as expected. It announced it would raise its key rate by a quarter of a percentage point to 0.5% and gradually raise it up over the next three years.

  Reports the Financial Times: “Historic gamble for Yellen, as Fed makes quarter-point rise.” If all goes well, we’ll be back to “normal” in 2019 – 10 years after the long emergency began!

   

  

  Esmeralda, one of the many forecasters known to be superior to the Fed (a lot cheaper too).

  But wait …

   

  

  The daily effective federal funds rate, a volume-weighted average of trades arranged by major brokers. It is now at its highest point since late 2008, ending seven years of “ZIRP” – click to enlarge.

   

  How does the Fed know what a normal rate will be in 2019? Won’t conditions change? Besides, there are sidewalk astrologers and mall palm readers with a better record of market forecasting than the Fed.

  To borrow a phrase from George Soros, our mission at the Diary is to “find the trend whose premise is false and bet against it.” Is it true that the Fed is really going to follow through with its promise to return interest rates back to normal?

  Is it true that terrorists are out to get us? Is it true that Donald Trump is a fool? Of course, we are all fools… but some more than others. The wise man is the one who knows he is a fool. For our part, we deny it. And we resent readers who remind us.

  But we admit to being wrong, from time to time. (Any man who has been married for as long as we have must be accustomed to this kind of admission.) And since investors so heartily endorsed the Fed’s move, we will reexamine our position.

  The premises of the rate increase are several:

  …that the Fed knows best what interest rate is good for the economy…

  …that a recovery is sufficiently established to permit an end to the emergency micro rates of the last seven years…

  …and that otherwise everything is more or less hunky-dory.

   

  The “Dollar Recession”

  And they are all false? We dismiss the first one as poppycock. No serious economist – if there are any left – would believe that the Fed can do a better job of setting the price of credit than willing buyers and sellers.

  As to the second premise – that the recovery is solid – we present evidence to the contrary practically every day. Today, we submit to the jury some additional facts:

  • Last month, U.S. industrial production fell more than any time in the last three and a half years. This marks the eighth monthly decline in 10 months. This slowdown is shadowed overseas by what Deutsche Bank describes as “a huge global dollar nominal GDP recession – the worst since the 1960s.”
  • According to the Fed, there are now 61 million people of working age in the U.S. who don’t have jobs. That’s out of 204 million people between 15 and 64 years old. So, if you pass five people on the street, the odds are that one and a half of them is jobless.
  • The “labor participation rate” – the amount of people in the working-age population either employed or looking for work – is at its lowest level since 1977. For men, it has never been lower.

  If it were true that the economy was in good health, how is it possible that men would have a harder time finding a job than ever before?

   

  

  Everything is awesome, unless it isn’t. In terms of a lagging indicator the construction of which obfuscates more than it reveals, everything is fine. Most other indicators (especially the leading kind) say it just isn’t so.

  Cartoon by Ben Garrison

   

  When the Going Gets Tough

  Now, we turn to the third premise – that everything else is more or less hunky-dory. Supposedly, in this wide world of everything that is not directly under the Fed’s control, or included in its inventory of conceits and fantasies, there is nothing that poses a serious obstacle on the road to normalcy.

  If this were true, we are wrong. Because our guess is that the Fed is trapped and that it cannot continue down this road for long. It is only a matter of time until it runs into trouble. What kind of trouble?

  You can get any kind of “facts” you want. But on the road to normalcy, the Fed is bound to encounter a normal stock market sell-off or a normal recession. Ms. Yellen has dismissed worries of a recession. But unless the Fed has triumphed over the business cycle – which we doubt – a recession will appear sooner or later.

   

  

  A long term chart of “real GDP growth” – as useless a statistic as GDP is, this chart does reveal two important facts: 1. the Fed has no control over the business cycle, and 2. its influence on the economy is thoroughly negative, as even in terms of this massaged and in many ways phony aggregate (inter alia it is designed to make things look better than they actually are), growth is in a persistent downtrend – click to enlarge.

   

  In the face of such adversity, how likely is it that the Fed will persevere? The Fed’s future actions are “data dependent,” says Yellen. But imagine if Christopher Columbus had taken a “fact-dependent” voyage across the Atlantic.

  Fact No.1: He ran out of food.

  Fact No.2: His men were sick and dying of scurvy, malnutrition, and other diseases.

  Fact No.3: India was not where he thought it was.

  Any one of these facts, presented to him forcefully by his crew, would have been enough to cause him to turn around. When the going gets tough, “fact-dependent” travelers go home.

   

  

  1492: Christopher Columbus and what’s left of his malnourished and scurvy-mangled crew arrives in “India”

  

  

  

  

  

• Superheroes Of The GOP Debate

  With Hillary Clinton cast as their arch-nemesis, the new ‘avenging superheroes’ – some the same as the old avengers – of the GOP presidential nominee race each have their own unique skills…

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• Paul Craig Roberts Warns "Everything Is Disintegrating"

  The American people are asleep at the wheel. The blame is not totally their’s, but they do bare the brunt of the blame. The mainstream media does not report what is happening within our economy or the geopolitical arena, unless they can spew on and on about the endless rainbows, unicorns and how “America is the greatest and Putin is the devil." As Paul Craig Roberts warns, we are facing a world in change and the pace is quickening.

  Via The Daily Coin,

  Below is a conversation that is unlike any that I have heard before. When preparing for interviews Dave Kranzler and I usually go over what we are going to discuss, how to get the show started and how we will hand off the conversation. It’s a good formula that has served us well. We are very, very grateful Dr. Roberts had other ideas.

  Our world, as many of you know, is experiencing massive, unprecedented change at an ever increasing pace. Dr. Paul Craig Roberts, is not only one of the foremost economist in the world, but he also has one of the world’s most respected voices covering the geopolitical landscape.

  The American people are asleep at the wheel. The blame is not totally their’s, but they do bare the brunt of the blame. The mainstream media does not report what is happening within our economy or the geopolitical arena, unless they can spew on and on about the endless rainbows, unicorns and how “America is the greatest and Putin is the devil.” No depth of coverage, nothing of real value reported, so the American people are left ignorant and wanting for truth. When you work 2 or more part time jobs, are struggling with keeping a roof over your head and the kids need new shoes, it becomes a challenge to seek the truth even though you know the “report” Brian Williams just delivered is a fabricated piece of fantasy. There is almost no truth to be found in the American mainstream media.

  One of the best ways to understand what is happening today in places like Syria, Ukraine and the Middle East is to take a step back and see what history has shown. Most all situations in the human experience have roots in the past. As Mark Twain said, “History does not repeat itself, but it does rhyme.” that certainly applies to the ever encroaching American police state, the unfolding war in Syria, Ukraine, and the Middle East. Does that sound like world war or is it just me?

  What has happened over the past several years in places like Iraq, Libya and Syria have roots in the late 1990’s. The Project for a New American Century, a “think-tank”, founded by Dick Cheney, one of the most die-hard neocons the world has ever seen, developed a plan to invade – that’s right, invade – 7 countries in 5 years. Their plan is taking longer than originally thought, but I am not sure if Russian and Chinese resistance was part of the calculation. The development of al-Queada, that has now morphed into ISIS, has not gone as planned either. ISIS appears to be morphing into their own entity that the CIA is having a hard time controlling. The rogue band of mercenaries are going rogue in a way that was not foreseen.

  Dr. Roberts describes the evolution of the “deep state” and how the neocons have a strangle hold on the American political process that is hard to shake. These psychopathic warmongers are not concerned with anything except power, blood-lust and their own sense of “destiny”. The tapestry that Dr. Roberts weaves begins with Nixon, the Vietnam War and winds it’s way through the latest meeting between President Putin and Secretary of State, John Kerry. The picture is clear and details how we have arrived at the brink of nuclear annihilation. The three part series is not to be missed. To get the whole picture you need to listen all the way through. It was intentionally broken into smaller pieces to allow the info to sink in. As I said we are facing a world in change and the pace is quickening. Give this a good listen and let us know what you think.

  Dr. Paul Craig Roberts: The Law Only Applies to the Helpless Pt 1

   

  Dr. Paul Craig Roberts: NeoCons Run America Pt 2

   

   

  Dr. Paul Craig Roberts: Everything is Disintegrating

   

  

  

  

  

  

• California's Worst Gas Leak In 40 Years (And Crews Can't Stop It)

  While world leaders signed the 'historic' agreement signed in Paris to fix the world's "greatest threat," a natural gas storage site in southern California is belching 145,000 pounds per hour of Methane – a greenhouse gas 70 times more potent than carbon dioxide. What is worse, while official proclaim this a "top priority" a fix won't arrive until spring as emergency crews recognize "the leak was far from routine, and the problem was deeper underground."

  

  As Wired reports, in just the first month, that’s added up to 80,000 tons, or about a quarter of the state’s ordinary methane emissions over the same period.

  The Federal Aviation Administration recently banned low-flying planes from flying over the site, since engines plus combustible gas equals kaboom.

   

  Steve Bohlen, who until recently was state oil and gas supervisor, can’t remember the last time California had to deal with a gas leak this big. “I asked this question of our staff of 30 years,” says Bohlen. “This is unique in the last three or four decades. This is an unusual event, period.”

   

  Families living downwind of the site have also noticed the leak—boy, have they noticed. Methane itself is odorless, but the mercaptan added to natural gas gives it a characteristic sulfurous smell. Over 700 households have at least temporarily relocated, and one family has filed a lawsuit against the Southern California Gas Company alleging health problems from the gas. The gas levels are too low for long-term health effects, according to health officials, but the odor is hard to ignore.

   

  Given both the local and global effects of the gas leak, why is it taking so long to stop? The answer has to do with the site at Aliso Canyon, an abandoned oil field. Yes, that’s right, natural gas is stored underground in old oil fields. It’s common practice in the US, but largely unique to this country. The idea goes that geological sites that were good at keeping in oil for millions of years would also be good at keeping in gas.

   

  Across the US, over 300 depleted oil fields, of which a dozen are in California, are now natural gas storage sites. “We have the largest natural gas storage system in the world,” says Chris McGill, a vice president of the American Gas Association. And the site at Aliso Canyon is one of the largest in the country, with a capacity of 86 billion cubic feet. Aliso became a natural gas storage site in the 1970s. Each summer, SoCalGas pumps natural gas into the field, and each winter, it pumps it out. The sites are basically giant underground reserves for winter heating.

   

  On October 23, workers noticed the leak at a 40-year-old well in Aliso Canyon. Small leaks are routine, says Bohlen, and SoCalGas did what it routinely does: put fluid down the well to stop the leak and tinker with the well head. It didn’t work. The company tried it five more times, and the gas kept leaking. At this point, it was clear the leak was far from routine, and the problem was deeper underground.

  Here’s the new plan:

  SoCalGas began drilling a relief well on December 4.  The relief well will intercept the steel pipe of the original well—all of seven inches in diameter—thousands of feet below ground. Then crews will pour in cement to seal the wells off permanently. “Relief wells are a proven approach to shutting down oil and gas wells,” said SoCalGas in a statement.

  As if finding a skinny pipe hundreds of feet below ground weren’t hard enough, the presence of all that explosive natural gas adds an extra layer of complication. A tiny spark and everything can go boom. So at the leaking well site, work is restricted to daylight, says Bohlen, as lighting equipment could produce stray sparks. (The relief well is far enough away that drilling there can proceed 24/7.) Back in 1975, a well at Aliso Canyon caught fire because of sparks from sand flying up the well.

  And crews can’t set a deliberate fire, also known as flaring, which they often do at other remote areas with excess gas. The leak is so big and the flare would be so hot that it could make the mess even harder to contain.

  “There is no stone being left unturned to get this well closed. It’s our top priority,” says Bohlen. But even that is slow, with months of drilling to come as methane continues to billow into the air.

  

  

  

  

  

• Either Martin Shkreli's Twitter Was Hacked Or He Has Gone Totally Insane

  This just happened…

  

   

  As it appears Martin Shkreli has taken on the persona of a gangsta rapper…

  

   

  So, either the world’s “most hated” man has been hacked, or he has gone totally insane: both appear equally likely at this point

  

  

  

  

• The Fed Has Delivered Far More Than Just A Lump Of Coal This Time

  Authored by Mark St.Cyr,

  If one meme has been constant these subsequent years since the great financial melt down of 2008 it’s been: BTFD (buy the dip) Not just some dips – but every dip. And why not? The Federal Reserve had all but assured Wall Street that since its first intervention into the markets and the resulting “risk on” behavior it produced resembling a Pavlovian experiment, it would indeed reincarnate the procedure every-time there seemed to be even the slightest hiccup in the markets. “Emergency monetary policy measures” would indeed be left in place for “an extended period.”

  Wall Street didn’t need any secret decoder ring to read the hidden message that laid within. i.e., “The Fed’s got your back so buy, buy, buy!” And they did horns-over-hooves tripling the values of many of the major indexes sending them to never before seen in the history of mankind highs. Even the dot-com era highs were taken out. And all of it, and I do mean – all of it – on fairy-tale reporting of economic measurements. Need an example? 5% unemployment rate signals people are getting jobs. However, don’t pay any attention to the 94 million (and growing) that can’t and – are out of the workforce. All while the food stamp program and other government assistance program roles have swelled to historic levels. Because, other than that: “Everything is awesome!”

  The problem with all of this is that it’s now becoming apparent to everyone. The amount of mal-investment along with just how intertwined all the subsequent carry trades and more is becoming frightfully obvious and can no longer be hidden from view. The real problem now facing the Fed. which I believe they themselves did not fully comprehend was the extent in which all of this was: so blatantly obvious. Again: to anyone who truly wanted to look.

  Without the Fed’s interventionism – there is (and was) no market. And now with the raising of rates; no one will be able to miss or avoid that fact any longer. No matter how hard they try.

  Another of the problems for the Fed. began to express itself when they seemingly became comfortable with this new paradigm and even appeared to relish this new-found fame and power as they took to any (and just about every) media source whenever needed and delivered either sedative policies or, soothing tones with near immediacy as to help quell any and all market fears. Over these ensuing years the frequency of appearance by Fed. speakers across the media has only been rivaled by the grueling tour of some where-are-they-now rock-band. I have a feeling they’re not going to relish this new limelight as they did the old.

  This past Wednesday they unwittingly threw back their own curtain and implied, “See, we fixed it. Nothing to see here. The economy is just fine. So – we’re raising rates” to what appeared to be thunderous applause. However, what that motion truly revealed was not some blank or empty space. No, what they unknowingly revealed was a caged monster whose door just came unhinged. The resulting consequences began to bear its teeth Thursday and Friday. Yet, figuratively, that monster is still within the theater. The ensuing days is probably when this beast actually hits the streets, as in Wall Street. Then, all bets are off on exactly what mayhem we’ll see as a result. However, what we do know is this: It ain’t gonna be a present anyone wanted under their tree.

  Suddenly we’re finding out (much like cockroaches) when you see one nasty issue – there’s many more just hidden from view. No where is this analogy more fitting then what is currently taking place in the High Yield space. e.g., junk bonds. First there were signs of stress just weeks ago. Then almost overnight (literally) many woke to the news that their “investments” were suddenly gated. Gated as in: Want your money? Sorry, maybe later, if not much later along with maybe not worth that much at all. Thanks for investing!

  These are only the first warning shots being fired as to just how precarious, as well as onerous, this debt monster that the Fed. has unleashed might be along with the resulting chaos. For the tentacles of this beast combined with its destructive power is going to give the Kracken a run for its money in my estimation. What we’re not talking about is some monetary policy that can now be moved around with the frequency of some elf on a shelf. That’s fantasy land. This bane tale is currently becoming all too real.

  I am now quite convinced that all of this was not only absolutely lost within the halls of the Eccles building rather, what might be even worse is that it seems it may have not even had been contemplated or, thought to be unfathomable by its very creators. I feel I can say this soundly by what I observed during the subsequent press conference given by the Fed. Chair Ms. Yellen on Wednesday.

  What absolutely left me slack-jawed was her tone, tenor, and facial expressions during her opening remarks. Usually when one is delivering statements about monetary policy and other matters they tend to take on a tone of mundane, somber, expressionless, drawn out reading from prepared texts. It’s not like you’re going to see entertainment (well, maybe comedy come to think of it but I digress.) These are more or less information dispensing venues. Read the text. Answer any questions. Thanks, see you in a few months. This one was far, far different in what it revealed to my eye.

  Ms. Yellen seemed to be almost giddy in her demeanor when delivering the news that the Fed. would indeed raise rates. It appeared as if the act of raising rates was some type of banner announcement where “Mission Accomplished” should be brought up in bright lights and champagne bottles uncorked. I implore anyone who thinks I’m exaggerating to find that conference in any search engine and watch for themselves with a more discerning eye. It truly was uncharacteristic by any Fed. Chair that I can recall. Yes these indications are subtle. Yet, to a trained or informed eye – they are there nonetheless. Noticing subtle variations such as these are required if one is serious about understanding Negotiations 101.

  It may sound like something inconsequential however, what I would argue is it shows just how clueless the Fed. truly might have been. The only thing worse is it may show that they truly did believe their own press. e.g., That the economy really was as good as they said (or thought) it was. If that’s the case – then we really are in trouble. Big time!

  This act of raising rates was not some seminal event as to mark the economy’s return to health. If one is truthful (although most continue to kid themselves) the Fed. raising rates on Wednesday was more or less an act of desperation as to “get off of zero.” Hopefully, without causing too much stress so that if and when the economy does show signs of stuttering (which it clearly is) the Fed. would then have some dry powder in reserve as to cut once again. Hopefully (once again) instilling the same Pavlovian reaction they’ve come to expect. That’s a far, far, far (did I say far?) cry from doing it because the economy is getting a clean bill of health. Or, “Mission Accomplished” sign off from extreme monetary measures.

  Again, I must implore anyone: watch her opening remarks again and you’ll see it clearly. But you shouldn’t just stop there. What you should do is also watch the Q&A. For this too was also quite revealing.

  When asked about the possible effects upcoming on bond yields and more some of the questions seemed to just confound the Fed. Chair appearing to catch her off guard like a deer in the headlights. So striking were some of the moments of silence even Tom Keene of Bloomberg™ commented during his show how he was taken aback. I believe the word he used was “stunning.” I have to agree with him. However, I myself was even more stunned on the non-answering answering composition of Fed. speak Ms. Yellen retorted at length. I mean, just how many ways can one use “transitory?” After a while I wished hearing transitory itself had been more transitory.

  If we are in fact witnessing the first stages of a blatant, as well as avoidable policy error by the Fed. the resulting mayhem will be far worse than anyone ever expected. And I use the word “avoidable” precisely for that reason. For it has been clear to anyone without a Ph.D in economics; who has just a modicum of common sense; and acquired their education at the school of hard knocks; that this economy was not only far worse off than any of the reporting stated but – was being made that way with the consistent heavy hand of intervention being carried out by the Fed. itself. And this fact is coming to light brighter, and more plainly visible with each passing day. All to what I feel will be the Fed’s horror. Yet, it will be us that has to navigate the real life nightmare filled with debt leviathans and carry trade tentacles rivaling the Kracken for tenacity as well as fury.

  This will probably go down as the first time Wall Street will have ever wished the Fed. had indeed left only a lump of coal in their bonus stockings rather, than the surprise they might wake to this holiday year-end. If you want to see a clue about just how much of a bloodbath is still possible in the once highly touted arena of fixed income – just look at Jefferies™.

  It’s now self-evident: Winter is not coming… It’s all ready here.

  And the Fed. is expecting you to be happy with their latest present. For by all indications expressed they thought long, hard, and decided this was exactly the right gift, at the right time. Just don’t look for any gift return receipt. The exchange window for returns to BTFD once again are currently closed. That’s an option I’m confident they also did not contemplate fully. For I’m sure they felt they knew exactly what they were doing – and the “markets” would be thrilled.

  Ho, Ho, Ho?

  

  

  

  

  

• Peak "Office Space"

  With the unprecedented surge in unicorns and incessant faith in the ever-increasing productivity of a globalization-crushed American worker, it is perhaps a surprise that the “office space” provided to the intellectual capital-providing, wage-stagnating middle-American, has never been smaller…

   

  

  It seems since The Fed unleahes its ‘temporary emergency policy’, the need for “office space” has collapsed… because, in the new normal, all that matters for shareholder wealth creation is ‘buybacks’ not productivity.

   

  Source: Goldman Sachs

  

  

  

  

  

• CISA: “Just Another Example Of Corruption”

  Last week, Congress passed CISA by hiding it in the middle of a sure-to-pass spending bill, and Obama signed it into law … even though the Department of Homeland Security had previously said that the bill will HURT national security and destroy privacy (numerous experts agreed).

  And – just like with previous spying laws – the government has a secret interpretation of CISA which will make it even worse.

  So why was the bill passed?

  As the American public is starting to learn  – and politicians from both side of the aisle admit – corruption has thoroughly destroyed America.

  The highest-level NSA whistleblower in history – William Binney – the high-level NSA executive who created the agency’s mass surveillance program for digital information, 36-year NSA veteran widely regarded as a “legend” within the agency, who served as the senior technical director within the agency, and managed thousands of NSA employees –  explains that corruption is what’s motivating mass surveillance against the American people … and it’s what’s making us vulnerable to terrorism.

  Washington’s Blog asked Binney what he thought of CISA, and he said:

  This is just another example of the White House, leadership (if you want to call it that) in Congress, the intelligence committees, and the intelligence agencies manipulating the system to get what they want (more money and more knowledge to control).
   

   

  Clearly, CISA would not stand on it’s own; so, they had to sneak it through buried inside a massive funding bill at the end of the year.

   

  Again, we see just another example of corruption in our government in Washington DC. They don’t have the courage or backbone to stand for what they want out in the open where there can be an honest debate like we are suppose to have in a democracy.

   

  The established political parties should not be confused as to why citizens are sick of them. Our only solution is to fire them all in the next election and try to get honest citizens in these jobs.

  Binney points out:

  It would be good if most people in DC read the [articles of impeachment against Richard Nixon].  Nixon did only a miniscule amount of what the last two presidents and their co-conspirators have done and continue to do.

  He’s right …

  And it’s not just the politicos … Binney says we also have to fire the bums running the intelligence agencies. And see this.

  

  

  

  

• Putin Blasts Interventionist US Foreign Policy, Calls Forcible Regime Change "Intolerable"

  “Let’s remember why we became part of a coalition to stop [Libyan dictator Muammar] Gaddafi from committing atrocities against his people.” 

  That’s from Hillary Clinton who defended here foreign policy credentials in Saturday night’s third Democratic presidential debate. Hitting back at Bernie Sanders, who accused her of being “too much into regime change and a little bit too aggressive without knowing what the unintended consequences might be,” the former Secretary of State said the US “will not get the support on the ground in Syria to dislodge ISIS if the fighters there – who are not associated with ISIS, but whose principal goal is getting rid of Assad – don’t believe there is a political diplomatic channel that is ongoing.”

  “I am not giving up on Libya and no one should,” she added. 

  Unfortunately, we probably should “give up” on Libya, because the power vacuum created by Gaddafi’s fall has turned the country into a lawless wasteland and a breeding ground for ISIS. For those who might have forgotten what “democratic regime changed” looked like in Libya, allow us to refresh your memory: 

  Ah, yes, a peaceful transition in the true spirit of democracy.

  For his part, Putin asked the following: “Who gave the West the right to carry out regime change?” Here’s the clip from 2011: 

  Well, in the wake of Hillary’s comments during the debate, Putin is out with a bit of fresh criticism with regard to what Russia calls illegitimate attempts to bring about the downfall of governments deemed “undesirable” by Western powers. 

  “Outsiders forcing change of legitimate powers in other countries is intolerable,” Putin told Rossiya TV. 

  While geopolitical disagreements are “inevitable and “all right”, foreign policy needs to be conducted “by civilized rules”, he continued. We assume that “civilized rules” do not include arming and funding Sunni extremists especially ones who The Pentagon knows are likely to establish Salafist principalities within the borders of sovereign states.

  Putin went on to say that by becoming a puppet of the US, “Europe has given up [an] independent foreign policy” thereby surrendering part of its sovereignty to US.”

  When it comes to intervening in order to keep the geoplotical scales in balance, “Russia isn’t afraid” to step in, and will always act with “maximum caution,” (we’re not entirely sure one can classify the rather rapid and aggressive deployment in Syria as being conducted with “maximum caution”, but it’s certainly a more cautious approach than arming any and all anti-government elements in hopes that one of them will turn out not to be extremists).

  In the end though, Putin concedes that Russia has no catch-all solution for color revolutions. The “only recipe for how to deal with them is to strengthen international law,” he concludes.

  Exactly. Which means that at some point, the international community needs to insist that the US and its allies both in the Mid-East and Europe cease the ubiquitous practice of fomenting discord within sovereign states. It never works where “works” means a stable deomcracy takes root in the ashes of a dictatorship. Between Libya, Iraq, and Syria, the US truly has “become Death, the destroyer of worlds.”

  

  

  

  

  

• Market Figures Out Fed No Longer Has Its Back

  Submitted by John Rubino via DollarCollapse.com,

  US stocks soared while the Fed was meeting to raise interest rates this week – though it’s not clear why that should be so since monetary tightening isn’t generally a good thing for stock prices.

  In any event, it didn’t last. Over the past 48 hours the Dow is down more than 3%, with many, many individual stocks down far more.

  Why the quick reversal? For one thing, that’s pretty much how it always goes. The Fed tends to aim its statements directly at traders, who are so desperate for adult supervision that they can’t help responding positively. But when the Fed goes quiet, reality once again bites, and the general trend turns negative.

  That it’s happening so quickly is a sign of how different things are this time around.

  The Fed is now – for the first time in adult memory for half the world’s traders and money managers – tightening rather than loosening monetary conditions. A quick look at financial history is all it takes to lead anyone with leveraged money at risk to lighten up.

  Equally important — and vastly more strange when you think about it — this tightening comes at a time when major parts of the global economy are either grinding to a halt or imploding. See Torrent Of Bad News Greets Fed As It Prepares to Raise Rates for some of the disturbing events reported while the Fed was meeting.

  And since then (that is, in just two days), a whole new series of similarly-scary stories have surfaced, including:

  China Beige Book Shows ‘Disturbing’ Economic Deterioration

  (Bloomberg) – China’s economic conditions deteriorated across the board in the fourth quarter, according to a private survey from a New York-based research group that contrasted with recent official indicators that signaled some stabilization in the country’s slowdown.

  National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International. The indicator is modeled on the survey compiled by the Federal Reserve on the U.S. economy, and was first published in 2012.

   

  The world’s second-largest economy lacks the kind of comprehensive data available on developed nations, making it harder for investors to get a clear read — particularly as China transitions from reliance on manufacturing and investment toward services and consumption. Official data on industrial production, retail sales and fixed-asset investment all exceeded forecasts for November, while consumer inflation perked up and a slide in imports moderated.

   

  Earnings Deterioration

   

  The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening.

  The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”

   

  Japan’s November Exports Fell 3.3%

  (Khaleej Times) – Japan’s exports in November fell at the fastest pace in almost three years as shipments to Asia declined in a worrying sign that weakness in overseas demand could curb economic growth.

  Japan’s gross domestic product is likely to avoid a contraction for the time being as domestic demand has performed better than expected, but declining exports highlight the risks that China’s slowdown and turmoil in emerging markets pose to the outlook.

  Ministry of Finance data showed on Thursday that exports fell 3.3 percent in November from a year earlier, more than the median estimate for a 1.5 percent annual decline in a Reuters poll. That was the biggest decline since a 5.8 percent year-on-year fall in December 2012.

   

  Hedge Funds Just Had Their Worst Quarter Since the Crisis

  (Bloomberg) – Hedge fund closures surged in the three months to the end of September as money managers reeled from declines in commodity and equity markets, while high-yield credit spreads widened.

  The number of funds liquidated climbed to 257, up from 200 in the previous three months, according to a report from Hedge Fund Research Inc. on Friday, and taking total closures in the first nine months to 674, compared with 661 during the same period last year. Cargill Inc.’s Black River Asset Management shut four units, while Armajaro Asset Management LLP also closed one of its funds.

  Liquidations rose “as investor risk tolerance fell sharply, and energy commodities and equities posted sharp declines, resulting in net capital outflows, wider performance dispersion and meaningful differentiation between hedge funds,” Kenneth Heinz, president of HFR, said in a statement.

   

   

  Bond funds see record outflows after junk jitters

  (CNBC) – Investor fears about liquidity in junk bonds have leaked into the investment grade sector of the market, with redemptions from corporate bond funds hitting record highs in the week running up to the Federal Reserve meeting.

  Global bond funds saw their largest outflows since June 2013 in the week to Wednesday 16th December, with some $13 billion being pulled from the sector, including, high-yield and investment-grade strategies.

  BofAML said the “carnage in fixed income” was still focused on junk bond funds, which saw $5.3 billion of the outflows. Meanwhile, corporate investment-grade debt funds saw around $4.8 billion in net redemptions, according to separate data from Thomson Reuters Lipper which also showed that the net outflows from bond funds over the period were the largest weekly outflows since Lipper started tracking fund flow data in 1992.

  There’s more, but you get the point. These are the kinds of things that happen in the early stages of recession, not the middle of an expansion. As such, they’re usually signals to a central bank to ease conditions.

  But the Fed has locked itself into tightening for a while, and will need a serious crisis to make a change of course possible. That’s what the markets are figuring out, that they can’t count on free money falling from the sky in the next couple of months, no matter what happens.

  So, for the first time in a long time, they’re responding to fundamentals rather than artificial easy money. And the fundamentals, by any historical or common sense standard, are terrible.

  

  

  

  

  

• Hedge Fund AUM Falls By Most Since Crisis As Desperate Managers Cut Fees To Keep Clients

  Make no mistake, it’s been a tough year for the 2 and 20 crowd. 

  Between an inexorable slump in commodities (which has led directly to a burgeoning HY crisis), the volatility that comes with pervasive monetary policy confusion, a “surprise” China deval, tail risk galore, and a variety of spectacular blow ups (see Ackman and Valeant), it’s become abundantly clear that when it comes to truth in advertising, hedge funds fail miserably as protecting against massive fat tail events apparently isn’t their cup of tea after all (see here for more).

  Even risk parity has suffered in an environment characterized by increasingly interdependent and correlated markets.

  Well, now that pension funds (and everyone else for that matter) have come to the realization that in a market backstopped by the central bank put, it makes a lot more sense to just buy the SPY for a fraction of a percentage point (in terms of expense ratios) than to pay 2 and 20 for someone to ride the beta train with the most leverage possible hoping that the Fed will prevent any events that actually need hedging, and now that HY is finally rolling over just like we said it would, the liquidations are multiplying. 

  “Funds depend on institutional investors such as insurers and pension schemes, who cannot afford to miss minimum return targets and are themselves under pressure from boards that oversee investments,” FT writes.

  “Most [fund] managers prefer to haggle like rug-salesmen at a bazaar; institutional investors would rather shop at Ikea,” says Simon Ruddick, founder of consultant Albourne and that means the trend shown in the following graph is likely to reverse going foward:

  

  In a sign that things are getting progressively worse, “the number of funds liquidated climbed to 257 [in Q3], up from 200 in the previous three months,” Bloomberg notes, citing Hedge Fund Research Inc.

  Total closures in the first nine months of the year hit 674, while AUM fell by $95 billion to $2.87 trillion during the quarter, “the most since the fourth quarter of 2008, when the industry lost $314.4 billion amid the global financial crisis.” 

  “The HFRI Fund Weighted Composite Index declined by more than 4 percent in the three months through September, its biggest quarterly drop in four years, as money managers were caught out by the devaluation of the Chinese yuan in August, which pummeled markets, and as oil and gold prices slumped,” Bloomberg adds.

  Now obviously – as noted above and as we documented extensively in the wake of the flash crashing madness that unfolded on August 24 – hedge funds are supposed to be a safe haven when market turmoil strikes but as it turns out, they aren’t particularly adept at actually “hedging” and so, when the black swans come calling, the losses pile up. 

  So what’s a “poor” hedgie to do? Well, cut fees for one thing. Here’s FT again:

  Many hedge funds are cutting fees and negotiating with investors to trim some of their hefty costs and avert withdrawals after another mediocre year for returns.

   

  The industry has been shifting for several years away from its traditional model of charging 2 per cent of assets and keeping 20 per cent of profit. Some funds are already wooing customers with fees closer to 1 per cent and 15 per cent, people in the industry say.

   

  Management fees declined this year in every strategy except event driven, falling to a mean of 1.61 per cent from 1.69 per cent, according to JPMorgan’s Capital Introduction Group.

   

  Several big-name funds have closed to outside investors or shut entirely this year: Michael Novogratz’s $2bn fund at Fortress Investment Group shut in October after having lost 17.5 per cent in 2015, and this month BlueCrest pushed out external investors, saying 2 and 20 was “no longer a particularly profitable business”.

   

  Carlyle’s Claren Road, facing an exodus of half its clients after losses, delayed giving some money back, and offered reduced fees if investors agreed to stay with the fund for another two years, according to people familiar with the offer.

   

  Glenview Capital manager Larry Robbins, whose fund is down 17 per cent this year, has now offered existing clients a chance to put new money into a healthcare-focused side fund, with no fees of any kind.

  Of course at the end of the day, if you’re losing double-digits, it really doesn’t matter if the fee is 1 and 15 or 2 and 20 – you’re losing money and underperforming benchmarks that can bought via ultra-low cost vehicles and on that note, we’ll close with the following quote from Emma Bewley, Connection Capital’s head of fund investment: 

  “If you’re pushing for lower management fees to save minimal basis points on a fund where you are unhappy with performance, as a fiduciary, you have to decide whether you want to keep that fund at all.”

  

  

  

  

  

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• Obama Finally Commits To Putin's Syrian Policy – Yet Continues Violating It

  Authored by Eric Zuesse,

  The basic policy-difference on Syria has been between U.S. President Barack Obama’s insistence that Syria’s legal President must be ousted before any peace-process starts, versus Russian President Vladimir Putin’s insistence that no foreign power possesses the right to determine whom the leader of Syria or any other country will or won’t be – only the residents there do, via free and fair democratic elections. Putin proposes an internationally monitored and verified election in Syria to determine the identity of Syria’s President; Obama has rejected that proposal – until now.

  The world’s most-reliably honest and accurate news-medium, Deutsche Wirtschafts Nachrichten, or German Economic News, reports, on December 19th, three major articles about the latest stages of Obama’s newfound verbal commitment to Putin’s policy. They are all summarized here, with factual corrections added by me, because no news-source is 100% reliable:

  “UN-Sicherheitsrat verabschiedet Syrien-Resolution einstimmig” or “UN Security Council Adopts Syria-Resolution Unanimously,” reports that the U.N. Security Council has unanimously adopted a resolution that “essentially corresponds to the Russian proposals of the past few weeks”; and, so, "the international community concludes a combined joint action for a cessation of [Syrian] hostilities.” And: "US Secretary of State John Kerry said after the Security Council meeting chaired by him, that the resolution will send 'a clear message to all concerned that it is now time to stop the killing in Syria’.” However, actually, it’s not merely "Russian proposals of the past few weeks,” because as far back as 6 June 2012, Bloomberg News had headlined, “Russia Open to Syria Transition in Shift Away From Assad,” and reported that, "While Russia for the first time sees a change of government in Syria as possible via a series of steps, it remains adamant that the outcome not be imposed from outside, according to a Russian official not authorized to speak publicly on this matter. Russian Deputy Foreign Minister Gennady Gatilov said yesterday that his country has never insisted on Assad staying in power and a decision on his future must be taken by the Syrians themselves, state-run Rossiya 24 television said on its website.” (More recently, the Guardian on September 15th reported that former Finnish President Martti Ahtisaari went public saying that the West’s "failure to consider the Russian [2012] offer had led to a ‘self-made disaster’." So: this has been Russia’s position consistently since that time (not only “the past few weeks”), and it is only now being accepted (at least verbally) by the regime in Washington, and their toadies in other ‘Western’ countries. (I had first reported on Obama’s change of position on this November 15th, and reported further on it December 15th.)

   

  “UN-Friedensplan für Syrien: Das Verdienst der viel geschmähten Russen” or "UN peace plan for Syria: The merit of the much maligned Russians,” opines that “It speaks [favorably] for the US government [i.e., Obama] that it [he, via his subordinate John Kerry] has listened to Vladimir Putin” in this matter. This article summarizes the history by saying that "the Russians have said from the outset that they will not compete against the USA, but want to fight alongside the Western alliance against Islamist terrorism. The plan for an 18-month transitional period, as it has now been decided by the UN, comes from the Russians. They also have, contrary to the Western popular fiction, from the very beginning said that they do not want to hold on to Assad.” However, that slightly misstates Putin’s position, which has instead been: Russia will insist upon the next Syrian President’s being selected only by the Syrian population, regardless of what their choice might happen to be. To say that “they [the Russian government] do not want to hold on to Assad” is to imply that Putin wouldn’t prefer that the outcome of a democratic election in Syria result in the election of Assad or someone like him (i.e., non-sectarian, and especially not pro-Sunni, which would mean anti-Shiite, which would include anti-Iranian, pro-Arabic, meaning here also being pro-U.S.-aristocracy, a pawn of Washington), which is to make a misleading, and even false, statement. (Even the best news-medium isn’t perfect, as these examples clearly show. But at least DWN  tries its best to be truthful, whereas the norm in the Western press is instead to lie whenever necessary in order to keep up the Western — basically America’s — aristocracy’s anti-Russian propaganda-line.)

   

  “Trotz Friedens-Plan: Nato schickt Kriegsschiffe in das Mittelmeer” or "Despite peace plan: NATO sends warships into the Mediterranean Sea,” reports that, "Despite the UN peace plan for Syria, NATO stepped up its military presence in the Mediterranean area. NATO announced that it would support Turkey in the monitoring of the airspace at the border with Syria. Given the uncertain situation, the representatives of the alliance had decided to help, said NATO Secretary General Jens Stoltenberg on Friday. NATO would provide, inter alia, AWACS aircraft. In addition, the monitoring on the Mediterranean Sea will be increased by German and Danish military vessels.” Along with that comes their editorial opinion, which is unwarranted: this article opines that the NATO move somehow "shows that the US government is only partially able to control the alliance. NATO has now opened so many fronts that it is possible for the government in Washington barely to make informed decisions.” The editors’ inference and implication there, that Obama couldn’t have prevented NATO from doing this, is almost certainly false. I therefore shall here engage in my own editorializing, by asserting that progressives throughout the world (such as the owners of DWN seem to be) almost consistently exhibit an unstated underlying assumption that Obama isn’t really set upon the U.S. aristocracy’s decades-long effort and intention to conquer, to take control of, Russia. That assumption flies in the face of Obama’s actual record.

  “Linkspartei: Nach UN-Einigung Bundeswehr-Einsatz in Syrien stoppen” or "Left Party says UN agreement requires Germany’s military mission in Syria to stop,” reports that Germany’s Party of the Left asserts: "New troops would run counter to the peace plan.” Here is the rest of that brief article:

  The chairman of the Left Party, Bernd Riexinger, said:

   

  "I very much welcome that after nearly five years we finally take concrete steps toward peace negotiations in Syria. The federal government must now immediately stop with all its might the Bundeswehr war deployment. Hundreds of millions would be tax money now spent for a German war effort to thwart the peace plan of the United Nations. Federal Foreign Minister Steinmeier also must speak out for an internationally supervised arms embargo.

   

  Apart from peace negotiations and cease-fire agreements in Syria and an internationally monitored arms embargo strengthening nonviolent working organizations, humanitarian assistance to the civilian population and reconstruction assistance by armed groups, free regions and self-government structures are necessary. Everyone knows that there is no quick solution to the existing conflicts in the Middle East. Above all, there is no military solution."

  So: Germany’s right-wing Chancellor, Angela Merkel, is receiving pressure from a marginal leftist Party, to abandon the American anti-Assad war. Both Merkel and her master, Obama, are, in their decisions of action and of inaction, trying to do whatever they can to carry out the U.S. aristocracy’s objectives, even if they can’t say publicly that they still are trying to find some way to defeat Putin, and, in Syria, to block the Syrian election that Putin has been pressing for. Because, as every knowledgeable person knows, but the Western ‘news’ media prefer to ignore when they don’t come right out with lies denying it: any free and fair internationally monitored and verified election in Syria will almost certainly choose Bashar al-Assad by a huge margin, to lead the country. Most Syrians – even many Syrian Sunnis – prefer a non-sectarian leader, not the type that the U.S. and Saudi aristocracies want to impose there to defeat Russia.

  *  *  *

  Investigative historian Eric Zuesse is the author, most recently, of  They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010, and of CHRIST’S VENTRILOQUISTS: The Event that Created Christianity

   

  

  

  

  

  

• $20,000 Gold And The End Of "Pollyanna-ish Do-Goodery"

  "They just won't let the scales balance… it is a rampant narcissistic megalomania that somehow some guy in a air-conditioned office can best repliacte the free market and centrally plan our affairs… Their starry-eyed pollyanna-ish do-goodery never seems to pan out."

   

  In the flux of never before seen economic uncertainty, Stefan Molyneux and Mike Maloney discuss the difference between currency and money, the historical role of gold as money, the dependence of the United States government on Wall Street for tax revenue, the role of the Federal Reserve in the creation of unstable economic bubbles, the possibility of deflation, $20,000 gold and how you can protect yourself in these uncertain economic times.

  

  

  

  

  

• China Now Has So Much Bad Debt, It's Selling Soured Loans On Alibaba

  As those who frequent these pages are no doubt aware, NPLs at Chinese banks are rising.

  Here’s a kind of 30,000 -foot view from RBS’ Alberto Gallo:

  

  As we documented last month after data on new RMB loans showed that the credit impulse in China simply rolled over and died in October, part of the problem is that banks are becoming increasingly concerned about sour loans, as an acute overcapacity problem, a decelerating economy, and sluggish global growth and trade have conspired to create an environment in which borrowers are now taking on more debt just to service the loans they took out in the past.

  As Credit Suisse noted earlier this month, some firms are now borrowing just to pay salaries. Indeed, more than 50% of debt in the commodities space was EBIT-uncovered in 2014. The takeaway: China’s Minksy Moment is nigh.

  

  Still, the official numbers on NPLs (shown above) look surprisingly low for an economy which is supposedly careening towards a debt crisis. There’s a simple explanation for this apparent discrepancy: the numbers, like China’s official GDP prints, are fabricated.

  There are a number of strategies China uses to depress the official NPL figures including compelling banks to roll bad debt, but as Fitch outlined in detail back in May, Asset Management Companies play an important role.

  “China’s four major AMCs were set up in 1999 to absorb CNY1.4trn in bad assets at par value from China Development Bank and the big four banks (Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China) before their restructuring. NPL disposals to AMCs have increased in recent years as more banks have come under pressure to manage their reported NPL levels,” Fitch wrote, adding that “AMCs’ strategic importance [should] increase with China’s economic rebalancing,” 

  Here’s more:

  Bank loan disposals to AMCs also mask underlying NPL increases, and direct asset purchases by AMCs from borrowers mean bad assets may never be formally recognised as NPLs within the banking system.

   

  AMCs have only been granted licences from the CBRC to acquire restructured DAs directly from non-financial enterprises (NFE) since 2011. DAs purchased from these enterprises have since constantly increased as a share of the total. Fitch’s International Public Finance team estimates that 60%-70% of DAs restructured in 2010-2014 relate to the real estate sector. Many of the distressed property assets could be directly offloaded to AMCs without ever being recognised as bad loans through the banking system. This partly explains how reported NPL ratios for property loans are kept so low in China.

  
  

  The primary source of traditional DAs is banks. Upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assets primarily through debt restructuring, litigation and sales. However, most of the DAs acquired by AMCs since 2011 have come from NFEs. AMCs also buy restructured DAs from banks and non-bank financial institutions.

  
  

  When AMCs acquire restructured DAs, they enter into an agreement with the creditor and debtor to confirm the contractual rights and obligations, and then acquire the debt from the creditor. The AMC, the debtor and its related parties also enter into a restructuring agreement that details the repayment amounts, the repayment method, repayment schedule, and any collateral and guarantee agreements. The restructuring returns and payment schedule are fixed at the time the restructuring agreements are made. 

  Yes, “upon completion of debt acquisition, the AMC assumes the pre-existing rights and obligations between the banks and debtors, and realises or enhances the value of the assets primarily through debt restructuring.”

  Unless of course they decide they’d rather just sell them to the highest bidder online. 

  As WSJ reports, China’s AMCs are now so flush with “duds” they’re finding it easier to auction the “assets” on Taobao.

  No, really.

  “These ‘bad banks’ nowadays would rather auction their inventory wholesale than restructure it the more traditional, painstaking way,” The Journal says, adding that “the latest round is a giant dump of soured loans on Alibaba Group’s popular Taobao e-commerce platform by China Huarong Asset Management Co., the nation’s largest distressed-debt buyer by asset size.” 

  Huarong intends to sell some CNY51.5 billion worth of nonperforming loans on Taobao. This follows Cinda’s listing of CNY4 billion worth DAs and as Barclays notes, is “in line with [the] view that AMCs in general will more frequently resort to a “wholesaling model” for distressed asset disposal (i.e. quick sale of acquired NPL to other parties, thereby earning slimmer margins as opposed to gains on asset value appreciation), given the increasing NPL supply amid the current credit cycle.”

  In other words, loans are going bad so quickly in China that AMCs need to resort to “wholesaling” in order to keep pace.;Here’s Barclays full take on the news:

  • We believe most of the reported distressed assets should be NPL from banks to be disposed of under the TDA model. According to media report (cnfol.com, 12 Dec 2015), the RMB51.5bn worth of distressed assets consist of debt claims to over 2,360 borrowers and 97% of these assets are lending secured by pledges, collaterals or guarantee. In terms of geographical distribution, 60% of the assets are from Zhejiang, Guangdong and Jiangsu province, according to the news report, consistent with the overall NPL formation trend we have observed in recent years.
  • The size of Huarong’s reported Taoba listing (RMB51.5bn) is larger than its outstanding TDA (RMB34.6bn) by the end of 1H15. According to news reports, it represents Huarong’s entire distressed asset book — which is unlikely to include the restructured distressed assets (RDA), in our view. Even if the company had not disposed of any TDA since 1H15, it would imply that it had acquired RMB16.9bn TDA so far in 2H15, exceeding the amount of RMB16.5bn acquired in 1H15. In comparison, Cinda’s listing of RMB4bn worth of distressed assets accounted for only 7% of its TDA balance as of 1H15 (RMB60bn).
  • We believe such a “wholesaling model” should reduce inventory risks for AMCs, thanks to the much faster asset turnover rate. In addition, it may provide more visibility on the operating trend of the business. As noted in our report (China Cinda Asset Management Co., Ltd.: Oversold high growth story, 13 Oct 2015), out of the RMB1bn worth of distressed assets Cinda auctioned on Taobao, 87% were successfully sold. However, given little disclosure on the acquisition cost, it is difficult to estimate the realized return rate on the disposed assets, which is quite sensitive to the assumption of acquisition cost (Figures 1 and 2).
  • In our view, the much larger size of Huarong’s reported Taobao TDA auction size compared to Cinda’s suggests that Huarong has a relatively weak franchise in the traditional NPL disposal business, as it may lack other means to dispose of the bulk of distressed assets acquired in recent years. Moreover, we believe AMCs should only dispose of assets that have relatively low appreciation potential under the new “wholesaling model” and aim to realize higher return rate on assets that have higher appreciation gain potential, which would generate sustainable income in the future even as it takes a longer time to dispose them of. As noted, we believe Cinda has a stronger franchise and strategic focus in the traditional NPL disposal business than Huarong in terms of both volume and return rate, thus we prefer Cinda given its higher probability of positive earnings surprise amid the NPL cycle.

  

  Apparently, business is good if you’re one of China’s big four bad banks. “Cinda said its first-half profit this year rose 47.7% to 7.8 billion yuan from a year earlier,” WSJ notes, while “Huarong’s net profit in the same period rose 39.4% to 9.87 billion.” In all, “profit at China’s Big Four asset management firms rose 27.6% last year.” 

  Of course all of this is completely opaque. There’s no way to determine what price the AMCs get at auction and although WSJ says “there are few signs that [AMC purchases from banks] have been outright bailouts of state lenders [given that] analysts estimate bad banks have been buying distressed assets at 40 cents on the dollar or less,” there’s no question that these operations are part of the larger effort to artificially suppress the offical bad loans data.

  The takeaway, of course, is that NPLs are soaring in China which is a harbinger of more trouble to come in 2016. On the bright side, you now know where to go if you want to bid on $8 billion is nonperforming loans to Chinese corporates.

  

  

  

  

  

  

• The New York Times Just Memory-Holed This Devastating Obama Admission

  By Sean Davis, co-founder of The Federalist

  

  The New York Times Just Memory-Holed This Devastating Obama Admission

  “Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino.”

  A story published by the New York Times late Thursday night caused some major media waves. The story, which was written by reporters Peter Baker and Gardiner Harris, included a remarkable admission by Obama about his response to the recent terror attacks in Paris and San Bernardino, California.

  By Friday morning, however, the entire passage containing Obama’s admission had been erased from the story without any explanation from the New York Times. Here’s the passage that was included in the story when it was published Thursday night, courtesy of CNN’s Brian Stelter:

  Obama needs more cable news in his media diet? Revealing comment in a private meeting with newspaper columnists… pic.twitter.com/iUHz6Ey38g

  — Brian Stelter (@brianstelter) December 18, 2015

  In his meeting with the columnists, Mr. Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino, and made clear that he plans to step up his public arguments. Republicans were telling Americans that he is not doing anything when he is doing a lot, he said.

  The version of the New York Times story that was published early Thursday evening indicated that Obama knew he was out of touch with the country on terrorism, and he thought that was due to not watching enough television. Obama critics immediately pounced on the stunning admission from the president, expressing shock that he would claim that a lack of TV time was the real reason for him not understanding Americans’ anxiety about terrorism.

  As of Friday morning, however, the passage containing Obama’s admission was gone. Newsdiffs.org, a web site which captures changes made to online news stories, indicates that the major revision to the NYT story happened late on Thursday night, several hours after the story was published (text with a red background and strike-through is text that was eliminated from the story; text with a green background is text that was added to the story since its last revision):

  

   

  Hey @peterbakernyt @GardinerHarris: Why did you delete the newsworthy part of your story? https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  NYT: Oh that part embarrassed the boss? So sorry, we’ll delete it ASAP.
  https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  The unexplained deletion of that major passage wasn’t the only significant change made to the story since it was first published. New York Times editors also changed the story’s headline four separate times, according to Newsdiffs.org. Each headline revision either put Obama in a better light or put the GOP in a worse one.

  The original headline when the story was first published was “Obama Visiting National Counterterrorism Center.” Less than two hours later, the headline was “Obama, at Counterterrorism Center, Offers Assurances On Safety.” Then the headline was changed to “Frustrated by Republican Critics, Obama Defends Muted Response to Attacks.” Two hours later, the headline was once again revised to “Under Fire From G.O.P., Obama Defends Response to Terror Attacks.” The most recent headline revision, which accompanied the deletion of the passage where Obama admitted he didn’t understand the American public’s anxiety about terrorism, now reads, “Assailed by G.O.P., Obama Defends His Response To Terror Attacks.”

  

   

  @allahpundit WaPo characterized the exchange the same way, so NYT/WH can’t claim off record/out of context. pic.twitter.com/5r47zT8emW

  — Sean Davis (@seanmdav) December 18, 2015

  The addition (116 words) was much longer than the deletion (66 words) of the section that made Obama look bad. https://t.co/CAqgHVDbyN

  — Sean Davis (@seanmdav) December 18, 2015

   

  Baker and Gardiner, the two reporters who authored the NYT story, have yet to explain why Obama’s admission about being out of touch with the public on terrorism was deleted from their story.

  UPDATE: The New York Times claimed in a statement late Friday morning that its deletion of the Obama passage was not “unusual” and that it was merely “trimmed for space in the print paper”:

  Statement from NY Times re: deleting that passage about President Obama not recognizing anxiety over terrorism. pic.twitter.com/PwZngc88G2

  — T. Becket Adams (@BecketAdams) December 18, 2015

  The problem with this explanation is that it doesn’t make any sense when you review the first major online revision, which Newsdiffs.org archived at 10:21 p.m. EST. In that version, only one substantive revision was made: the paragraph about Obama not watching enough cable TV was removed and replaced with two paragraphs about Obama’s plan to combat ISIS.

  The section that was removed contained 66 words. The section that was added in its place contained 116 words. If the New York Times was indeed “trimming for space” in that particular revision, it will need to explain why its revision to that section added 50 words.

  

  

  

  

• Inflation Watch – New Yorker Edition

  Hedonically-adjusted words for the wealthy…

   

  

   

  h/t @BCApplebaum

  

  

  

  

  

• Teflon Trump

  In 13 succinct words, Donald Trump summed up reality in American politics…

  The last thing our country needs is another BUSH! Dumb as a rock!

  — Donald J. Trump (@realDonaldTrump) December 18, 2015

  Crushing the hopes and dreams of 'the establishment', The Donald continues to surge in popularity as nothing 'sticks' to hit no matter what he says…

  

  Source: The Economist

  As The Hill reports, Presidential candidate Donald Trump is enjoying his largest lead over the GOP field following Tuesday's presidential debate, a new poll finds.

  The post-debate survey from Public Policy Polling (PPP) released Friday shows the real estate mogul with 34 percent support nationally among GOP voters, up 8 points from a mid-November poll.

   

  Trump's favorability has also grown. He's rated at 51 percent favorable, 37 unfavorable.

   

  “As the year comes to a close Donald Trump is just getting stronger,” Dean Debnam, president of PPP, said in a statement.

  “His support for the nomination is growing but so is his overall favorability which suggests his ceiling could be higher than often assumed.”
   

  *  *  *

  And finally, this…

  Thank you @jimmykimmel for the great book. Grandpa @realdonaldtrump is making good use of it!!! #WinnersArentLosers pic.twitter.com/LLYQVzOlYZ

  — Donald Trump Jr. (@DonaldJTrumpJr) December 18, 2015

  

  

  

  

  

• Europe, Turkey Close Airspace To Russian Warplanes Flying Anti-ISIS Missions, General Says

  Exactly a month ago, Russia took it up a notch in Syria by deploying Tupolev Tu-95 Bears, Tu-22 Blinders, and Tu-160 Blackjacks in the fight against anti-Assad elements including ISIS and al-Nusra.

  The first footage of the strategic long-range bombers in action surfaced on November 17 and served notice that Moscow is willing to double down on its commitment to the fight even if securing key cities like Aleppo proves more challenging that The Kremlin originally anticipated.

  According to Gen. Anatoly Konovalov, deputy commander of Russia’s long-range aviation force, Moscow’s long-range warplanes have carried out 145 sorties against terrorist targets since mid-November. “In total, long-range aviation aircraft in Syria have carried out around 145 mission sorties, some 1,500 bombs have been dropped and about 20 cruise missiles have been fired,” Konovalov said. 

  Those who have followed the Syrian conflict might recall that in early September (so before Moscow made Russia’s involvement “official”) the US pressured Greece to deny Russia use of its airspace on supply runs to Latakia. Subsequently, Bulgaria said it had “enough serious doubts about the cargo of the planes” to refuse overflight privileges.  

  Well in the course of detailing Russia’s long-range bomber missions, Konovalov noted that the Tu-160s were forced to fly from the airfield of Olenegorsk in Russia’s northwestern Murmansk Region.

  

  

  Why is this notable, you ask? Here’s Konovalov again: “Europe didn’t let us fly; Turkey didn’t let us fly, but we showed that even is such conditions we’re capable of coping with the task using airfields on the Russian territory.”

  In other words, Europe and Turkey declined to allow Russia to use their airspace on the way to conducting airstrikes against the very same terrorists that attacked Paris just four days before the long-range warplanes were deployed to the fight in Syria. “Russian pilots had to leave for Syria from Russia’s northernmost Olenegorsk military airport in order to bypass Europe and then cross the Mediterranean Sea toward Syria,” Sputnik adds.

  As for the EU, the refusal likely stems from the long-running dispute over Ukraine and the attendant economic sanctions which are of course part and parcel of generally frosty relations between Brussels and Moscow. As for Turkey, it’s fairly obvious why Ankara is seeking to make life difficult for the Russians. The two countries are embroiled in an intense war of words following Erdogan’s move to down a Russian fighter jet near the Syrian border and like closing the Bosphorus, hampering Russian bombers’ path to Syria by declning overflight is just one more way for Ankara to impede Moscow’s efforts to shore up Assad. 

  At the end of the day, this is still more evidence that when it comes to “cooperation” in the war on terror, one side isn’t doing its part.

  

  

  

  

  

• Global Trade Snapshot – "The Pain Is Getting Worse"

  Via SouthBay Research,

  Whether measured in volumes (container throughput via Hong Kong) or in dollars (US Import/Exports), the pain is the same: 16 months of steady collapse in global trade.  

  

  The pain is getting worse. 

  

  More containers are leaving the US and going back to China empty.  From the Port of Long Beach (a major US/China trade port):

  • After unloading cargo in the US, over 60% of inbound containers are leaving empty
  • The rate is the highest since the recession began in 2007
  • More empty containers than export containers: since June 2014, every month with only one exception, there have been more empty outbound containers than loaded export containers  

  The global trade slowdown was kicked off in late 2013 when the Chinese government took steps to cool the credit markets.  The bursting of the credit bubble drove a collapse in commodity prices.  Copper, for example, quickly tumbled because 60%~80% of copper imports were used as collateral for loans.

  

  And not just copper.  Commodity-backed loans quickly fell out of favor and physical demand began to drop.  In 2013 iron ore imports to China surged 20%+.  They have fallen -5% since then. 

  The bubble was popped, taking demand – and global trade – down with it.  

  Put differently, China was on a super cycle fueled by a combination of (1) a capital-intensive infrastructure build-out, (2) increasing penetration of global manufacturing, (3) a credit bubble, and (4) corporate gambling on real estate, commodities, and other assets.  Government measures popped the hot-money and flattened public sector spending.  Commodities and other assets have crashed back to earth, with much pain on the way.

  Signs of a Bottom.  But what comes next?

  From China (Hong Kong) to Europe, Taiwan and Korea a bottom has formed.

  

  For the US: No Bottom

  • Materials and Agriculture in bad shape
  • Other Exports contracting at faster pace ($ and units) 

  A strong dollar contributes to further US trade deterioration. 

  Separating the materials pain from other export pain

  

  US export headline figures are bad…

  • YTD (-$87B) Y/Y
  • For 2015, likely to contract (-$100B) Y/Y
  • Cuts GDP by -0.7% 

  …But concentrates on commodities

  Of the (-$87B drop), most is materials and commodity (i.e. price drops are the big issue)

  • Food/Petroleum/Steel: 70% or (-$61B)
  • Related equipment: 8% or (-$7B).  

  US Exports (ex Food, Autos & Oil) are shrinking Faster

  Strip out Food, Petroleum & even Auto exports.  Food & Petroleum because price collapses distort the value of trade.  Autos because auto exports are mostly sub-assemblies shipped to Canada and Mexico and re-imported to the US as cars and trucks.  What remains is a true view of demand by US trading partners. 

  Strong dollar dulls trade

  While total US exports have steadily contracted Y/Y every month in 2015 (except for January), the pace accelerated beginning in August, when the dollar strengthened against global currencies: o Jan-July (7 months): -$27B o Aug-Oct (3 months): -$23B 

  Going Forward: Trade Remains Under Pressure

  The two engines of growth – China and the US – are stalling again.

  Chinese demand is falling back again

  The most recent US-China trade data comes out of the Port of Long Beach (November cargo data).  Long Beach is a primary port for China/US trade.  We've already noted the acceleration in empty containers, indicative of even lower China imports from the US.  

  Further analysis shows:

  • Trend reversal: export growth has shifted from slight growth to contraction
  • Nominal export volumes are below last year's levels and the lowest since 2011.  

  

  KEY TAKEAWAYS

  • Best case: A bottom has formed and current activity reflects bouncing off the bottom
  • Worst case: China demand is slowing again, with no change likely until late 1Q 2016

  US Private Sector demand: No Longer Just Stalling

  • US core goods demand growth has stalled
  • Signs of contraction are popping up  

  

  In a sign of falling consumer and factory demand, US imports (ex Autos, Oil & Cell Phones) have contracted for the 1st time in 2.5 years.   The trend has shifted from stalling to contraction.  No wonder the BDI has fallen again
   

  Charting US 'demand' for stuff

  From railcar shipments to truck freight, the story is consistent: once we remove the impact of high volume commodities like oil and coal, cargo shipments are heading below last year's levels.

  

  The railcar shipment story reflects the overall global slowdown that began May 2014.

  The recent contraction is mostly driven by a collapse in coal shipments, but the general story is no growth in demand.    

  The slowdown is also echoed in truck shipping activity.

  Trucking activity is a critical data point because ~70% of all goods in the US move by truck.  It is a window into near-term (30~60 day) demand.

  Offered here are two different views of trucking conditions today.

  

  Cass is a company providing logistical support to truckers.  Their Freight Index measures cargo shipments.

  Note that 2015 shipments have been less than last year's, and have fallen to 2013 levels as of August.

  Another view comes from DAT (another trucking support company).  They measure demand in terms of a Load-to-Truck ratio (cargo shipment volumes relative to available truck capacity).  

  

  Again, evidence of decelerating domestic demand and at 2013 levels.

  Taken together, the trucking data is consistent with 4Q 2015 GDP of  < 1%.

  

  

  

  

  

• Despite Lifting Of Export Ban, Moody's "Bombshell" Sparks Panic In Energy Credit Markets

  The Senate and House passed the spending bill this week, which the President signed into law on the same day. Embedded in the law is a provision to lift the 40-year old crude export ban. The lifting of the crude export ban is a historic milestone, but seemingly less relevant for US E&Ps, Midstream and Oilfield Services as compared to a year and a half ago when WTI-Brent spreads were close to $9.00/bbl vs. the current spread of $0.80/bbl. Nevertheless, there is still a negative long-term impact on refiners should spreads re-widen.

  As BofAML notes,

  Moody’s dropped a bombshell on the market this week as it lowered its oil and natural gas price deck and subsequently placed 29 investment grade and BB rated US E&P companies under review for possible downgrades. The review reflects Moody’s expectations that industry fundamentals will remain weak through at least 2017. Moody's expects to conclude most reviews over the next several months. Companies may be downgraded 1-2 notches and some ratings could be confirmed as well. Moody's continues to assess single B and lower rated companies. We believe the price deck outlook will also have ramifications for Oilfield Service Ratings.

  Looking into 2016, we expect additional downgrades, which could lead to $30bn+ of Investment Grade Energy bonds falling into the High Yield Index if prices remain weak. Notably S&P and Fitch would have to take similar actions for falling angel scenario to play out.

  

   

  US high yield energy underperformed this week The BofAML US HY Energy Index sharply underperformed the BofAML US HY Master II Index this week, returning -5.4% vs. -1.4%. The underperformance was led by E&Ps and OFS, which returned -8.1% and -4.3%, respectively. Midstream & Distribution and Refining underperformed more modestly, returning -3.0% and -1.7%, respectively. Within the high yield energy space, single B rated energy performed the worst returning -6.7%, with by C rated and BB rated, returning -6.1% and -4.5%, respectively. These returns significantly underperformed the broader high yield market as C, single B and BB rated high yield returned -2.4%, -1.3% and -1.1%, respectively. Energy equities also significantly underperformed the broader market driven by E&Ps, Midstream MLPs and Oilfield Services returning -10.7%, -6.6% and -5.5%, respectively, vs. -0.5% for the S&P 500 while Refiners underperformed less dramatically, returning -2.9%.

  

   

  The news this week that Moody’s has made a sharp reduction to its oil and natural gas price assumptions is a pre-cursor to a series of negative credit rating actions, in BofAML's view. They anticipate a combination of outright downgrades and/or changes in outlooks to negative that could exaggerate the spread widening seen among investment grade producers over the past few weeks.

  In other words, the credit crisis just spread contagiously from HY to IG…

  

  

  

  

  

• As Wall Street Vultures Circle The Next Junk Bond Fund Casualty, A Familiar Name Emerges

  Now that all the suspense surrounding the Fed’s rate hike is gone, and only questions about the future of risk assets and deflation remain in a “Policy Mistake” world, the market’s attention is turning back to the disturbing topic which spread like wildfire two weeks ago when first Third Avenue, and then several more mutual and hedge funds announced they would liquidate while imposing redemption “gates.”

  To be sure, the spin doctors scrambled to make the Third Avenue junk bond fund collapse a unique, one-off situation, however subsequent fund flow data released late last week suggested that the pain for debt (and especially high yield) funds is only beginning. As we wrote on Thursday night, in a development that is certain to further exacerbate the (in)stability of the bond market, Bank of America wrote that there was  “Carnage in Fixed Income” as a result of the largest outflow from junk bond funds in at least a year.

  

  It wasn’t just junk: as the FT chimed in, investment grade – that all important category for funding stock buybacks – was also slammed as “investment grade bond funds in the US have been hit with a record wave of redemptions, a week after two high-yield funds announced they would shutter and another barred withdrawals as the credit market showed further cracks.” This was the largest outflows since Lipper began tracking flows in 1992.

  And despite rising briefly, bond prices resumed their fall over the past week following the fading euphoria from Yellen’s rate hike decision (which is very adverse for all fixed income products) the combination of redemptions and further price declines will quickly turn quite deadly for many funds who have been scrambling to juggle both sliding AUMs and droppinh prices, and are hanging on by a thread. 

  So in what may be an attempt to create some more volatility (after all a flatter yield curve means that only a surge in volatility can help bank profits) Citi’s William Katz writes that he “spent the last few days combing AUM releases, prospectuses, Morningstar, Simfund, and Statements of Additional Information in an effort to gauge High Yield dynamics across our Coverage universe” and specifically to determine which mutual fund(s) will follow Third Avenue next into the twilight zone.

  And so Wall Street has set its sights on the next junk bond fund casualty, a name which is well-known to most equity market participants: none other than Waddell and Reed (WDR), the fund which rose to infamy in the aftermath of the May 2010 Flash Crash, after it was initially blamed by the SEC as the culprit behind the Dow’s 1000 point crash, at least until the entire fiasco was re-blamed this past April on an Indian spoofer out of London, Nav Sarao who now faces life in prison just so the regulators can keep attention away the real market destabilizing, high frequency trading culprits.

  According to Citi, while the sector faces varying risks within the category that are likely to amplify attrition in the near term, Waddell seems most vulnerable for four key reasons:

  1. large percentage of U.S. Retail AUM;
  2. greatest percentage of LT AUM;
  3. among worst in class performance metrics; and,
  4. perhaps most worrisome, the highest allocations to CCC+ or lower rated investments within the largest Retail HY funds at the firm level – the latter potentially problematic should liquidity remain scant and/or credit take a further turn for the worse.

  To be sure, Citi does not want to be blamed for inspiring a bond fund panic, and caveats its forecast by saying that “the whole sector is overweight risk as all the players are overweight CCC+ or lower rated securities versus HYG (BLK’s HY ETF). While WDR is most at risk to elevated attrition, in our view, the Group at large could face a pick-up in redemptions, particularly given: 1) move by the Fed to raise interest rates; 2) aging economic cycle; and, 3) adverse seasonality before considering longer term ramifications associated with the pending DoL Fiduciary Reform proposal. That said, C’s strategists see some improvement in HY returns into ’16, suggesting attrition pressure could alleviate into the new year; though we see APAM, FII and TROW as the largest incremental beneficiaries.“

  Disclaimer in place, the writing of Waddell’s epitaph resumes: “Why is WDR in the worst shape? Four reasons: 1) HY is among highest percentage of U.S. Retail; 2) the category also amounts for among the highest percentage of LT AUM; 3) performance is among worst in class; and, 4) WDR is in the top three most levered to the highest risk investments in HY, with 46% of the portfolio rated CCC+ and below vs. a median of 22% for peers.”

  In its evaluation of Waddell’s risk, Citi first gauges its exposure:

  In Figure 1, we show Active Retail High Yield AUM relative to Total Retail LT AUM. Here AB (11%) and WDR (10%) have the highest level of Retail HY exposure, while IVZ (1%), AMG (1%), and BEN (1%) are seemingly least impacted.

  

   

  Next, Citi highlights Active Retail High Yield AUM relative to Total LT AUM (Retail + Institutional). Here WDR has the highest level of total exposure to HY followed by FII with 8% and 6%, respectively. Citi does however note that AB becomes less at risk when looking at its HY exposure against total assets.

  

   

  Another problem emerges when looking at flagship HY funds at each company relative to Total LT retail AUM. WDR has the highest leverage to one fund (High Income at 10%) followed by AB (High Income at 9%).

  

   

  Next, Citi looks at flow dynamics, and shows AUM and flows for each of the funds. It notes three key observations: 1) majority of YTD Fund flows have been negative with a few exceptions; 2) BlackRock High Yield Bond Fund has been the biggest gatherer of net flows with $3.2B of inflow YTD (as of 11/30); while, 3) Waddell’s High Income Fund has seen the highest level redemptions with $1.9B of outflow (as of 11/30).

  

   

  Finally, Citi breaks down the credit quality of each fund based on percentage of the portfolio with a credit rating of CCC+ or lower. All respective fund portfolios have a higher percentage of CCC+, or lower rated, products compared to HYG. HYG is used as the proxy for the HY index, as investors use the ETF as a proxy for overall High Yield performance and sector/credit rating exposure.

  Citi finds that AMG’s Third Avenue Focused Credit had the highest percentage of its portfolio levered to CCC+ or lower at 76% followed by Artisan’s High Income (55%) and WDR High Income (46%). On a comparable basis, HYG has a ~9% allocation to CCC+ or lower.

  

   

  Here is how Waddell stacks up by industry and credit quality relative to the HYG benchmark.

  

   

  In short, for Waddell And Reed the shorting sharks are circling, desperate for the drop of blood that will set them over the edge, even as the Wall Street vultures are once again circling above, sensing that the next risk-flaring catalyst is about to keel over and die.

  How to profit from this imminent death, in true Wall Street fashion? For all those who would like to repeat the Third Avenue paradigm and short the bonds most widely held by Waddell, in the process accelerating the fund’s demise and unleashing a liquidation scramble which would send the bond prices even lower, here is the list of top bonds held by WHIAX.

  

   

  Finally, here is Citi explaining why the demise of Third Avenue is just the beginning of an avalanche that will have dramatic consequences for the entire junk bond space: “The mismatch between FI and dealer inventory leaves very little room for error, particularly should either credit further deteriorate and/or liquidity further dry up, the latter certainty not aided by the Fed raising ST rates.“

  

  

  

  

  

  

• Huge Fukushima Cover-Up Exposed, Government Scientists In Meltdown

  Submitted by Sean Adl-Tabatabai via InvestmentWatchBlog.com,

  Fukushima radiation just off the North American coast is higher now than it has ever been, and government scientists and mainstream press are scrambling to cover-up and downplay the ever-increasing deadly threat that looms for millions of Americans. 

  

  Following the March 2011 meltdown at Japan’s Fukushima Daiichi nuclear power plant, reactors have sprayed immeasurable amounts of radioactive material into the air, most of which settled into the Pacific Ocean. A study by the American Geophysical Union has found that radiation levels from Alaska to California have increased and continue to increase since they were last taken.

  Naturalnews.com reports:

  The highest levels yet of radiation from the disaster were found in a sample taken 2,500 kilometers (approx. 1,550 miles) west of San Francisco.

   

  “Safe” according to whom?

   

  Lead researcher Ken Buesseler of Woods Hole Oceanographic Institution was one of the first people to begin monitoring Fukushima radiation in the Pacific Ocean, with his first samples taken three months after the disaster started. In 2014, he launched a citizen monitoring effort – Our Radioactive Ocean – to help collect more data on ocean-borne radioactivity.

   

  The researchers track Fukushima radiation by focusing on the isotope Cesium-134, which has a half-life of only two years. All Cesium-134 in the ocean likely comes from the Fukushima disaster. In contrast, Cesium-137 – also released in huge quantities from Fukushima – has a half-life of 30 years, and persists in the ocean, not just from Fukushima, but also from nuclear tests conducted as far back as the 1950s.

   

  The most recent study added 110 new Cesium-134 samples to the ongoing studies. These samples were an average of 11 Becquerels per cubic meter of sea water, a level 50 percent higher than other samples taken so far.

   

  Instead of presenting the findings as an alarming sign of growing radiation, however, Buesseler emphasizes that the Cesium-134 levels detected are still 500 times lower than the drinking water limits set by the U.S. government. The news site The Big Wobble questions whether Buesseler and Woods Hole’s heavy financial reliance on the U.S. government – Woods Hole has received nearly $8 million in research funding from several government agencies – plays any role in this emphasis.

   

  Situation still worsening

   

  The reality, however, is that radiation along the West Coast is expected to keep getting worse. According to a 2013 study by the Nansen Environmental and Remote Sensing Center in Norway, the oceanic radiation plume released by Fukushima is likely to hit the North American West Coast in force in 2017, with levels peaking in 2018. Most of the radioactive material from the disaster is likely to stay concentrated on the western coast through at least 2026.

   

  According to professor Michio Aoyama of Japan’s Fukushima University Institute of Environmental Radioactivity, the amount of radiation from Fukushima that has now reached North America is probably nearly as much as was spread over Japan during the initial disaster.

   

  The recent Woods Hole study also confirmed that radioactive material is still leaking into the Pacific Ocean from the crippled Fukushima plant. Cesium-134 levels off the Japanese coast are between 10 and 100 times higher than those detected off the coast of California.

   

  Without directly challenging the U.S. government’s “safe” radiation limits, Buesseler obliquely references the fact that any radioactive contamination of the ocean is cause for concern.

   

  “Despite the fact that the levels of contamination off our shores remain well below government-established safety limits for human health or to marine life,” he said, “the changing values underscore the need to more closely monitor contamination levels across the Pacific.”

  *  *  *

  Don't worry though Olympians, everything will be fine in a few billion or so years.

  

  

  

  

  

• The Natural Gas Market Play

  By EconMatters

  

    

  Bearish Sentiment

   

  A lot of bearishness has been priced into the natural gas market due to many factors including robust production, bulging inventories, and mild weather on average across the country. Natural gas in the futures market reached a low of $1.68 MMBtu for Henry Hub on the January contract this past week. Natural gas closed trading on Friday at around $1.77 MMBtu.

   

  These prices for natural gas are the lowest in 15 years and the questions that accompany such lows are the following: How low can prices go, do these low prices create a buying opportunity, what kind of timeframe is involved, and what is the best strategy for capitalizing on a rebound in natural gas prices.

   

  

  How Low

   

  In regard to how low natural gas can go, back in 2012 traders and analysts were talking about sub $1 MMBtu natural gas based on the fact that the derivative product`s markets related to natural gas production were actually booming for the specialty gases. Hence a producer was incentivized to produce natural gas below costs because the margins were so high for the specialty gases associated with producing natural gas in the drilling process. In 2012 natural gas for the front month contract in Henry Hub futures dipped briefly below $2 MMBtu around the time when traders were discussing sub $1 natural gas.

  Read: NRG Energy is a Free Roll on Natural Gas Prices

  Given the fact that even the best traders and market analysts have no idea the exact low point for any market, let us just use this $1 MMBtu price for the worst case scenario for how low natural gas prices can go. I firmly believe in the rationality of financial markets in the longer term, and from this follows the old trading axiom that there is no cure for low prices like low prices. I don`t think there is that much more money to be made from the short side of the natural gas market over the same three year time frame.

   

  

  Buying Opportunity

   

  Therefore I view the current price of natural gas as a buying opportunity over a three year time horizon. I realize that I cannot predict the bottom in the market, and I am not going to try and be perfect regarding timing the turn in the market. However, I do predict given the decline in oil and gas drilling rigs, the economics of producing below longer term costs, and the fact that markets often lead the fundamentals, that this represents a buying opportunity in natural gas. I am basically buying when everyone else and their grandma is selling the natural gas market. I am sure corporations, wildcatters and trading firms are all making business decisions based upon these low natural gas prices, and they are not from the bullish side of the equation. I want to be on the other side of this trade given my three year time horizon.

   

  

  Timeframe

   

  As I mentioned the timeframe for this trade or investment decision to play out is three years. Do I think the natural gas market will put in a bullish move more towards the front end of this timeframe? I would say the probabilities are sufficient to suggest that I may be trading around a core position that has substantial profits during this 3 year time frame, as a year is an eternity in a market like natural gas. Natural gas can easily move to $5 MMBtu in a reduction in production and an extremely hot summer, followed by an overly brutal winter heating season.

   

  The market can really trend, it can spike, it can retrace, and it can do all kinds of strange things. Remember two winters ago? I am confident the investment makes money over a three year time frame, and it is up to the individual where and when to take profits on the trade. It may make sense to reallocate capital after a nice fifteen month`s trending move in natural gas, or it may make sense to just ride the trade well past three years if circumstances dictate.

   

  

  Upside Variables?

   

  There are so many unpredictable variables like more Power Generation continuing to transfer from coal based to natural gas, the economy starts growing 3 to 4% instead of 2%, demand outstrips existing capacity in the electricity market, demand for a period outstrips supply in natural gas, an insane hurricane season knocking production offline and doing damage to natural gas infrastructure.

   

  Read: The Irony of Keystone XL

  What I do know is one way or another natural gas somehow finds its way back to the $5 MMBtu level even during the shale revolution. I expect that sometime over the next three years natural gas finds its way back to this ‘natural gravitational’ market price. It may even make several trips up to $5 MMBtu over the course of the next three years. It was just over $7 MMBtu two winters ago after the last crushing of the market back in 2012 to below $2 MMBtu. It took just two short years to really move well above the $5 level.

   

  

  Best Strategy

   

  The best strategy for playing this move depends on a trader`s resources. Most traders are not going to employ swaps, options or other derivatives due to resource constraints and sophistication concerns. Investors could buy futures and just roll over the positions each month, buy back dated futures contracts, or even buy stocks highly correlated to the price of natural gas. But with bankruptcy and individual company specific concerns I would stay away from this option until more visibility on the ramifications of sub $2 natural gas plays out on companies` balance sheets.

   

  You don`t want to be forced out of the trade due to factors outside of your control like management incompetence that wipes out your equity stake before natural gas prices recover which is open-ended to a large extent. Rolling over the futures contract may be more than the average investor is willing to stomach, and the volatility of the front month futures contract may create havoc on one`s sleeping bliss after a poor inventory report. The back month futures contracts have some premium factored into them as well, and liquidity concerns are involved.

   

  

  UNG ETF

   

  I would recommend using the UNG ETF, it has been around since 2007, has decent volume, consists of natural gas futures contracts, and roughly tracks the price of the natural gas market over the last eight years. It isn`t going to totally fall apart like some of those poorly constructed ETFs that are supposed to track markets but inevitably lose value over time regardless of long term price returns of the underlying assets being tracked.

  Read: Obama Put Taiwan on ISIS Radar

  In short, this instrument will do what an investor needs to accomplish to track any rebound in natural gas prices over the next three years without being margined out of the market or having to worry about timing this rebound perfectly. I would not worry about trying to scale into a position based upon price. If one is using size on this investment then a nice Algo buying program will suffice for next week`s action. We are not trying to pick a bottom here, we expect that prices can go lower, but the current price represents value for us over a three year time frame both from a trading an investment standpoint.

   

  

  The question here is can I make money at these prices if I buy right now over the next three years. Am I going to be able to stay in this trade until the turn plays out in the natural gas market? And will I be able to at least double my initial investment over this timeframe if this is my longer term goal? My analysis is that the affirmative case can be made for these questions. The minimum profit goal is 20% on this investment play. An investor should not be looking to take any profits on this play until this minimum profit threshold is met.

   

  Therefore, assuming an investor has an average position price in UNG around $7 a share, the minimum profit target would be $8.75 a share for any timeframe during this three year investment window for justifying taking off this trade from a profit perspective. This trade profile is built upon being rewarded for taking risk and providing liquidity to a market that is basically in freefall mode. A 5% profit target on the trade is just poor risk reward trade management. Keep this in mind when thinking about profit targets for this investment.

   

  Therefore unless I have a better opportunity with the same risk to reward profile for this investment capital over the next three years then this is a good place to park some capital and put it to work for me. I realize this play seems highly contrarian in the current market environment, and this is a positive, it means that I am being paid for taking this risk, and my upside reward is what makes this play worthwhile in my trading book.

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

  

  

  

  

• "Most Liberal" US College Unleashes Demands For "Deconstructing The White Supremacist, Capitalist System"

  The manifesto for the micro-aggressives has been unleashed on an unknowing "safe-space"-seeking, politically-corrected, American public. Students at no lesser liberalist college than Oberlin, Ohio, have released 14 pages of full social-justice-warrior-tard warning that they are "not polite requests, but concrete and unmalleable demands."

  As DailyCaller.com reports, the list, which bubbled up online over the past three days, is no less than 14 pages in length, and includes a staggering 50 demands, many of which divide into several sub-demands. Not only are the demands numerous, but they are quite severe and are paired with stern rhetoric. The document opens as follows:

  Oberlin College and Conservatory is an unethical institution. From capitalizing on massive labor exploitation across campus, to the Conservatory of Music treating Black and other students of color as less than through its everyday running, Oberlin College unapologetically acts as [sic] unethical institution, antithetical to its historical vision. In the 1830s, this school claimed a legacy of supporting its Black students. However, that legacy has amounted to nothing more than a public relations campaign initiated to benefit the image of the institution and not the Africana people it was set out for…

   

  [T]his institution functions on the premises of imperialism, white supremacy, capitalism, ableism, and a cissexist heteropatriarchy. Oberlin College and Conservatory uses the limited number of Black and Brown students to color in its brochures, but then erases us from student life on this campus. You profit off of our accomplishments and invisible labor, yet You expect us to produce personal solutions to institutional incompetencies. We as a College-defined “high risk,” “low income,” “disadvantaged” community should not have to carry the burden of deconstructing the white supremacist, patriarchal, capitalist system that we took no part in creating, yet is so deeply embedded in the soil upon which this institution was built.

  After continuing in this manner for a while and outlining some broad goals (such as “the eradication hegemony in the curriculum”), the document begins to reel off demands, warning that they are “not polite requests, but concrete and unmalleable demands.” If Oberlin doesn’t capitulate, the document warns of a “full and forceful response,” though, despite the detailed demands, what the “response” would be remains entirely undefined.

  • A 40 percent increase in the number of black students in the school’s jazz department by 2022 (demands related to the jazz department are in general very numerous).

  • The elimination of the school’s No Trespass list, which bars certain individuals deemed unsafe from entering campus, because it includes blacks in disproportionate numbers.
  • The creation of a bridge program that will recruit recently-released prisoners to enroll at Oberlin for undergraduate courses
  • “A more inclusive audition process in the Conservatory that does not privilege Western European theoretical knowledge over playing ability.”
  • Adding Africa-centric course requirements for all departments that have existing Western civilization-themed course requirements. For example, history majors are required to take a U.S. history course, so they should also be required to take a course on African history prior to 1800.
  • The establishment of special, segregated black-only “safe spaces” across campus, including in the central library and the school’s science building.
  • An $8.20/hour stipend for black student leaders who are organizing protest efforts
  • The creation of a school busing system for Oberlin, Ohio’s K-12 schools, paid for by the college.
  • The immediate firing of eight college employees for various offenses, including music theory professor Allen Cadwallader for “the racist undertones of his course as well as the way in which he treats black Jazz who take his course, which is rooted in white supremacy.”

  While the long list of demands clearly involved a substantial amount of effort, one interesting aspect is its authorship is not totally clear. The original Google Docs post of the demands (which has since been deleted) credits them to ABUSUA, a black student group, but that group doesn’t appear to have much of a public online presence, and there’s also no outside evidence of them taking credit for it. But some other Oberlin organizations, like its pro-Palestine group, have publicly endorsed the demands, and there was also an online document collecting signatures which, according to the blog Legal Insurrection, surpassed 400 before also being taken down.

  Whatever the demands’ origin, it’s not a huge surprise that they’ve popped up at Oberlin. Two years ago, the school had a series of hate crimes faked by liberal students, and earlier this year an appearance by feminism critic Christina Hoff Sommers prompted students to create a special “safe space” for students who felt emotionally traumatized by her lecture.

  The full list  of "demands" are presented below. Enjoy.

  

  

  

  

  

• Is This How The Dollar Gets Replaced?

  Submitted by Chris via CapitalistExploits.at,

  I’m sitting here at my desk, laptop open, 7 browser tabs open, a half dozen documents open, emails popping in every few minutes, Skype messages coming in, and bunch of PDF reports open for review. A smartphone collects calls and texts coming in, and next to this is a Kindle with 3 books I’m reading at the moment. That’s just the technology.

  Then I have a fly buzzing around, annoying the dog sitting at my feet. And as I look outside the window, a jasmine bush in full flower attracts bees collecting nectar from it.

  Taking it all in it struck me why we are wired for narrow-minded thinking. Why the majority misses some of the biggest changes that have taken place. Changes that have taken place right under our noses.

  You see, in order to make sense of everything around us our brain has to simplify it. Thousands of auditory, tactile and visual inputs every minute bombard us. In order to survive we have to narrow down and focus on what’s important. It’s a human trait which ensures survival and it’s been around ever since our grubby-looking ancestors were to be found running from lions in the savannah.

  Our brain has to quickly categorize, file, and trash information. It sure is an efficient search and retrieval system. But in its search for efficiency the brain looks at a particular piece of information, goes and rummages around in the back and retrieves anything similar as a reference point.

  The more instances of our brain coming up with such reference points, the greater our reinforcement of that particular item or topic. If we’re staring at a strange round-shaped object trying to figure out what it is, our brain searches diligently for information on round shaped objects – baseball, cricket ball, tennis ball… you get the picture. It then attempts to match those retrieved pieces of data with what we’re looking at.

  The default in our brain is therefore to something which already exists, or something which looks like something which already exists. It is far easier for our brain to compute this and takes far less work.

  Remember the brain is an absolute energy hog, consuming a quarter of your body’s energy even while it accounts for barely 2% of your body weight and it therefore is constantly attempting to conserve energy.

  This explains why drastic, revolutionary, disruptive answers to existing problems very rarely come from existing channels or are identified by those who are embedded in the particular sector experiencing the problem.

  To prove my point consider that Uber wasn’t conceived of by a taxi driver. Paypal wasn’t birthed by a banker. Airbnb wasn’t the product of hoteliers, and Instagram wasn’t the brainchild of a photographer. All have disrupted industries in their own right and yet none look remotely like the industry which they disrupt.

  What Does All This Have to Do With the Dollar and Currencies?

  Ask nearly anybody what will replace the mighty greenback and you’ll get a mishmash of politically inspired views. The Chinese renminbi, gold, or an SDR currency are all popular. I’m sure you’ve heard the arguments before.

  I submit to you that the future of currency will be none of the above. It will not be a centralized currency. In fact, it may not be one currency at all. It will not be coercive, and it will be transacted on the blockchain and will be market driven.

  The dollar will be replaced by asset transfers sitting on the blockchain protocol. This is the world’s largest distributed computing project on Earth. It’s a global payment platform which doesn’t require any centralized authority for its functionality, and it’s as close to incorruptible as anything the world’s ever seen, including Mother Theresa.

  New technology is often misunderstood. Anything new and different is initially going to be misunderstood. Well-meaning critics dismiss it together with self-interested critics whose profit stream is connected in some way.

  This is true of Bitcoin and its underlying architecture – the blockchain.

  Ask yourself why today we use fiat currency and I think there are essentially two main reasons:

  1. We trust it long enough to hold it for periods of time, and
  2. The alternatives aren’t as liquid.

  What happens when alternatives start rearing their heads and they don’t require trust. Note: I said DON’T require trust not that are trustworthy. There is a difference. Certain fiat currencies have been trustworthy for brief periods of time but the blockchain provides a trustless system. That solves the first reason why fiat currencies are used.

  What happens when you add liquidity to alternatives?

  The answer is that market forces take hold and the consumer makes the decision to transact based on what’s best for him. Couple that with frictionless transactions and liquidity can explode faster than Uber grabbing market share of the taxi industry.

  I’ve not even mentioned the fact that you can stand in the Sahara desert and transfer an asset to Hong Kong on your smart phone for free, in seconds, and far more securely than any transaction you’ve ever conducted. I’ve not mentioned that the functions of authentication, validation, escrow and delivery are handled seamlessly and for close to zero cost.

  I’ve not mentioned that the blockchain is asset agnostic. What this means, and this is important for the dollar, is that if you wish you can trade your 1965 Ford Mustang on the blockchain; and you should, because quite frankly, old cars are horrible, noisy, uncomfortable and bring down the neighborhood. I know, I’ve got a neighbour who stores a gazillion of these horrible things.

  Why is this important for the dollar?

  In case it isn’t obvious. A world where money is decentralized means a world where nothing you’ve ever seen before will become the new norm and the new norm is unlikely to include a scrap of paper issued by a bankrupt government.

  I very much look forward to it.

  “We want a whole sequence of companies: digital title, digital media assets, digital stocks and bonds, digital crowdfunding, digital insurance. If you have online trust like the blockchain provides, you can reinvent field after field after field.” – Marc Andreeson

  

  

  

  

  

• The Market Has Spoken: The Fed Made A Policy Mistake And "Quantitative Failure" Looms – What Comes Next

  Now that the Fed’s rate hike is in the history books and Yellen is eager to demonstrate that the Fed is confident enough in the US economy by unleashing the first tightening cycle in nearly a decade, market participants are dramatically shifting their attention, from the rate hike as a bullish key catalyst in the “renormalization” timeline (“buy stocks” because the Fed wouldn’t risk recession if it wasn’t confident in the economy), to the actual consequences of the Fed’s dramatically changed reaction function, which as we explained previously, was far more hawkish than the market initially expected. 

  Most important however, as we have repeatedly discussed ever since August, is the market’s obsession with whether the Fed just made a critical “policy mistake.” As Bank of America’s Michael Hartnett, one of the foremost skeptics that the Fed is doing the right thing, explained previosly, “the “tail risks” to “deflationary expansion” are high. Like a game of Jenga, a bull market built by central banks can collapse if further BoJ/ECB QE and Fed hikes engender US dollar spikes & US EPS & EM/commodity swoons, FX-wars & volatility rather than a fullblown recovery.“

  The threat, therefore, is that after “Quantitative Success” pushed up stocks from 666 to over 2,100 in 6 years, the opposite may be on deck now, hence the neo-narrative of Quantitative Failure and the dual risk that:

  • Fresh attempts at QE in Japan & Europe are met with investor rebellion in the absence of clear signs of economic improvement.
  • Fed tightening into a “deflationary expansion” proves a “policy mistake” by causing harmful US dollar appreciation.

  For signs of the first look no further than the market’s profound disappointment with the BOJ announcement on Friday morning, which sent the Japanese Yen plunging at first, only for the carry currency to soar once the market realized that the BOJ’s ability to intervene in markets may be far more constrained than had been anticipated, as we showed yesterday…

  

   

  … and of course, the ECB’s historic disappointment on December 3 when Mario Draghi promised the sun, moon and stars and delivered… almost nothing, likewise sending the EUR soaring and crushing countless macro hedge funds.

  But how to determine if the Fed made a mistake, and more importantly if the market thinks the Fed made a mistake? We presented Hartnett’s answer to that key question as well, saying that upon a rate hike:

  • Watch the long-end
  • If the long-end concurs with the Fed’s view of economic recovery, then banks, cyclicals and value stocks will receive a bid. Asset allocation toward “strong
    dollar” & “Fed tightening plays” will harden, with the exception that value will likely outperform growth
  • If the long-end rallies, signaling a policy mistake, then cash, volatility, gold & defensive growth will be the way to go.

  So what happened since the Fed hike? Well, after a one-day kneejerk rebound in risk, coupled with a drop in vol, gold and virtually no reaction in the long-end, the result, as shown below, has been a very disturbing one for the Fed. 

  As can be clearly seen, the market has responded not only by endorsing a deflationary outcome with the 30Y jumping, WTI sliding, but also stocks tumbling, with the Thursday and Friday drop in the S&P matching the worst plunge in the market since the ETFlash crash of August 24.

  

   

  In short, the market has spoken: this is a “policy mistake”, or as Bank of America – which also explained recently in 8 very charts why the Fed just launched the next Bear Market – called it “Quantitative Failure.”

  The question then becomes: what happens next when the “boxed in” Fed realizes it has erred, and scrambles to undo the damage, any last trace credibility be damned? Here is Hartnett’s answer to that as well:
  

  Since the risk of Quantitative Failure brings with it the risk of more extreme policies/politics in 2016, the natural hedges are gold & volatility. Gold in particular will be interesting to watch in coming months. The Fed’s determination to raise rates means gold prices should fall. If in contrast gold rises with Fed hikes that’s a clear sign of a “policy mistake” and investors anticipating the need for more inflationary policies next year.

  In other words, as we have said for the past 2 years, since the Fed does not ever have the option of waving the white flag of surrender and admitting defeat (at least as long as there is fiat currency left for its to print and debase) it will have no choice but to unleash even more violent, “unorthodox”, inflation-stimulating policies in the coming months (such as the monetary paradrops we discussed here in September and October). When that happens, the biggest winner will be the one asset class that as of this moment has never been more hated, the one whose hedge fund net short position has never been greater: Gold.

  

  Gold rose 1.5% on Friday while risk was turmoiling, but is still below the FOMC announcement price. That means that while risk assets have started pricing in the Fed’s misstep, gold and its record hedge funds shorts are still mostly unaware.

  

  

  

  

  

• Spreading The Christmas Fear, Ho Ho Hobama

  Comply, you cynics!

   

  

   

  Source: Ben Garrison

  

  

  

  

  

• Hedge Fund Gold Positioning Has Never Been This Extreme

  Having closed lower for 8 of the last 9 weeks, gold has become the momentum-chasing hedge fund community's latest target. Despite empirical data showing no relationship between higher rates and 'lower' gold, the meme continues as Managed Money added to its already record short position in gold futures this week, pushing the leveraged bets to the most extremely bearish in history.

   

  

   

  As we recently concluded,

  Our assessment is that one simply cannot afford to ignore the fact that gold provides insurance against a potential blow-up of the global fiat money and debt bubble – regardless of its near to medium term price performance. Its performance is in any case only negative in USD terms – in no other currency can gold be deemed to be in a significant bear market. In fact, as we have recently pointed out, it is already making new all time highs in some fiat currencies.

   

  Gold’s characteristic as a hedge/insurance against the consequences of policymaker machinations has recently gained additional importance in light of the fact that the echo bubble is clearly fraying at the edges already. Sooner or later there will be another full-blown crisis, at which point gold ownership will definitely be of great advantage. It is often said that the only certainties in life are death and taxes, but that is not quite true. There is another apodictic certainty: all booms driven by credit expansion will eventually blow up.

  

  

  

  

  

• Market Shudders As Brazil Risks "Succumbing To Fiscal Populism" With New FinMin

  The decision to approve a 2016 budget guidelines bill that targets a 0.5% primary surplus as opposed to a 0.7% surplus may have been the last straw for (former) Brazilian FinMin Joaquim Levy.

  Speculation had been swirling for months that Levy’s exit was imminent as Brazil’s intractable political crisis made pushing unpopular austerity measures through Congress all but impossible for the University of Chicago-trained economist.

  “In many ways, Levy’s task was daunting from the moment he took office,” Bloomberg notes. “Not only was the country already sliding into recession — the result of plunging prices for Brazil’s commodity exports and four years of Rousseff’s interventionist policies — but a corruption scandal emanating from the state-run oil giant was spreading fast.” Here’s a look at the recession in historical context:

  

  Well, the nightmare came to an end for Levy on Friday when the finance ministry announced that he would step down and Rousseff announced the confirmation of Planning Minister Nelson Barbosa as the new FinMin.

  

  (Levy and Barbosa)

  Barbosa, who holds a PhD degree in Economics from the New School for Social Research in New York and a Master’s degree and BA in Economics from the Federal University of Rio de Janeiro is, to quote Goldman, “an experienced public servant [and] is widely believed to have been one of the intellectual forces behind the so-called “New Economic Matrix” developed and implemented at the Ministry of Finance under former Finance Minister Mantega.”

  “In essence” Goldman continues, the idea is that “growth and development will emanate from fiscal expansion, lower interest rates, currency devaluation, trade protection, national content rules and import substitution policies.” Right. So not exactly what the market might have wanted to see in a country that desperately needs to double down on fiscal rectitude.

  “Levy leaving is a clear negative,” Phillip Blackwood, managing partner at EM Quest Capital LLP told Bloomberg on Friday as the BRL real extended losses and stocks closed at six-year lows. Here’s some historical context on the fiscal situation:

  

  Barbosa sought to calm market jitters, telling reporters that he is committed to fiscal adjustment and the countries fiscal goals will not change with Levy’s exit. Obviously that’s a bit difficult to believe because if the fiscal goals Levy advocated had been compatible with the direction the government intends to move in going forward, he wouldn’t have been forced out in the first place.

  For their part, Moody’s (which is the last of the big three ratings agencies to maintain an IG rating for Brazil) says Levy’s ouster “complicates fiscal consolidation.” As a reminder, from Credit Suisse: 

  

  Meanwhile, Eurasia says the President’s choice of Barbosa “certainly reinforces [an] increasingly bearish outlook should Rousseff in fact win the impeachment battle.”

  The new FinMin “now faces the daunting challenge of convincing investors and rating companies that he has the political support and personal conviction needed to shore up fiscal accounts,” Bloomberg adds. “While Rousseff says she backs measures to raise taxes and cut spending, her allies are reluctant to tighten the belt amid surging unemployment and shrinking wages.” Here’s some further color from BofAML: 

  Naturally, the focus turns now to the direction of the fiscal policy under the new FinMin, which should affect the recovery in confidence and thus growth. With mounting downside risks to growth that heavily weigh on the government’s revenues and the ongoing challenges in passing fiscal measures in Congress, tangible results over statements will now be needed to improve expectations over primary fiscal results ahead.

   

  Monetary policy may feel additional pressures to control inflation expectations under a less intense fiscal contraction, and our perception is that the risk for a hike in January continues to increase. 

   

  The continuing depreciation of the BRL should play against inflation expectations also, further increasing BCB’s pressures to deliver hikes ahead. 

  So in other words, Barbosa’s appointment will put more pressure on the BRL which will in turn force Copom to get more aggressive with procyclical measures to control inflation which is precisely the opposite of the “New Economic Matrix” tenets as outlined by Goldman above. 

  In short, this isn’t good from the market’s perspective and you can bet the BRL and the Bovespa will likely trade lower up to and until Rousseff and Barbosa can establish some degree of credibility when it comes to managing a rapidly deteriorating fiscal situation. On that note we close with one last quote from Goldman: 

  Our, and the market’s, main concern is that the complex political picture, the beginning of impeachment proceedings against President Rousseff, and growing pressure from some political parties and social movements close to the government for a new policy direction may lead the administration to, at best, soften its commitment to fiscal austerity, and at worst, succumb to the temptation of fiscal populism.

  *  *  *

  Bonus: selected charts from Credit Suisse:

  

  

  

  
  

  

  

  

  

  

• On "Average", Stocks Are Testing The Post-2009 Uptrend

  Via Dana Lyons' Tumblr,

  At this moment, an index that tracks the average stock move is testing the uptrend since 2009.

  We talk often about the Value Line Geometric Composite (VLG). To refresh, the VLG is an unweighted index of about 1700 stocks that essentially tracks what the median stock in the market is doing. As such, we believe it is the truest measure of the health of the broad market. Most recently (on Monday), we noted that the VLG was testing what we have called a “pass/fail” level on its chart. That is, the response of the VLG at this level may tell us a lot about whether the next big move in the market is up or down. It may even, arguably, dictate the fate of the post-2009 cyclical bull market for the broad market of stocks. The VLG passed the test on September 29. We’ll see if it can pass it again here.

  Well, the VLG has a sister index called the Value Line Arithmetic Index (VLA). What the VLA does is track the average move of the same ~1700 stocks. So it is similar to the VLG but can be more heavily influenced by big movers. Like the VLG, the Value Line Arithmetic Index is testing a key price level as well. Specifically, it closed today right at the Up trendline extending from the 2009 low.

   

  

   

  Now, like the VLG, we are not aware of any investable instruments tied directly to the VLA (there used to be a VLG futures contract). Thus, you may wonder why we bother looking at the index – and how could we reasonably apply technical analysis to the VLA chart.

  To answer the 2nd question, in our extensive experience, it’s because prices tend to adhere closely to basic technical tools even though no one is trading the index directly. Witness the post-2009 Up trendline, extending from 2009 and up through the 2011 lows. At the late September low, the VLA held precisely at the trendline. Is that mere coincidence? We don’t think so.

  So why bother looking at the index anyway? Well, precisely because it does tend to follow some of the basic TA and charting tools. Therefore, the behavior of the VLA can be very instructive regarding the health of the broad stock market. For example, when the index was the first to break out to all-time highs in 2010 = healthy. When the VLA failed to make a new high along with the major averages in May = unhealthy. When the VLA failed to get closer than 7% from its April high during the post-September bounce = really unhealthy.

  Therefore, although nobody is trading the index, we can still glean valuable information from it. And the information we’ve been getting from the VLA points to an unhealthy state of affairs in the broad market. Importantly, we will watch the present test of the post-2009 Up trendline. If the VLA can hold here, perhaps a year-end rally can still materialize.

  If the trendline fails to hold (like it did for the VLG in August), then the market may be in for a further decline. And considering the magnitude of the trendline being broken, it may not be just your “average” decline.

  *  *  *

  More from Dana Lyons, JLFMI and My401kPro.

  

  

  

  

  

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• The New York Times Just Memory-Holed This Devastating Obama Admission

  By Sean Davis, co-founder of The Federalist

  

  The New York Times Just Memory-Holed This Devastating Obama Admission

  “Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino.”

  A story published by the New York Times late Thursday night caused some major media waves. The story, which was written by reporters Peter Baker and Gardiner Harris, included a remarkable admission by Obama about his response to the recent terror attacks in Paris and San Bernardino, California.

  By Friday morning, however, the entire passage containing Obama’s admission had been erased from the story without any explanation from the New York Times. Here’s the passage that was included in the story when it was published Thursday night, courtesy of CNN’s Brian Stelter:

  Obama needs more cable news in his media diet? Revealing comment in a private meeting with newspaper columnists… pic.twitter.com/iUHz6Ey38g

  — Brian Stelter (@brianstelter) December 18, 2015

  In his meeting with the columnists, Mr. Obama indicated that he did not see enough cable television to fully appreciate the anxiety after the attacks in Paris and San Bernardino, and made clear that he plans to step up his public arguments. Republicans were telling Americans that he is not doing anything when he is doing a lot, he said.

  The version of the New York Times story that was published early Thursday evening indicated that Obama knew he was out of touch with the country on terrorism, and he thought that was due to not watching enough television. Obama critics immediately pounced on the stunning admission from the president, expressing shock that he would claim that a lack of TV time was the real reason for him not understanding Americans’ anxiety about terrorism.

  As of Friday morning, however, the passage containing Obama’s admission was gone. Newsdiffs.org, a web site which captures changes made to online news stories, indicates that the major revision to the NYT story happened late on Thursday night, several hours after the story was published (text with a red background and strike-through is text that was eliminated from the story; text with a green background is text that was added to the story since its last revision):

  

   

  Hey @peterbakernyt @GardinerHarris: Why did you delete the newsworthy part of your story? https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  NYT: Oh that part embarrassed the boss? So sorry, we’ll delete it ASAP.
  https://t.co/uc7L9yEhaa pic.twitter.com/ME8WJauXZ5

  — Phil Kerpen (@kerpen) December 18, 2015

  The unexplained deletion of that major passage wasn’t the only significant change made to the story since it was first published. New York Times editors also changed the story’s headline four separate times, according to Newsdiffs.org. Each headline revision either put Obama in a better light or put the GOP in a worse one.

  The original headline when the story was first published was “Obama Visiting National Counterterrorism Center.” Less than two hours later, the headline was “Obama, at Counterterrorism Center, Offers Assurances On Safety.” Then the headline was changed to “Frustrated by Republican Critics, Obama Defends Muted Response to Attacks.” Two hours later, the headline was once again revised to “Under Fire From G.O.P., Obama Defends Response to Terror Attacks.” The most recent headline revision, which accompanied the deletion of the passage where Obama admitted he didn’t understand the American public’s anxiety about terrorism, now reads, “Assailed by G.O.P., Obama Defends His Response To Terror Attacks.”

  

   

  @allahpundit WaPo characterized the exchange the same way, so NYT/WH can’t claim off record/out of context. pic.twitter.com/5r47zT8emW

  — Sean Davis (@seanmdav) December 18, 2015

  The addition (116 words) was much longer than the deletion (66 words) of the section that made Obama look bad. https://t.co/CAqgHVDbyN

  — Sean Davis (@seanmdav) December 18, 2015

   

  Baker and Gardiner, the two reporters who authored the NYT story, have yet to explain why Obama’s admission about being out of touch with the public on terrorism was deleted from their story.

  UPDATE: The New York Times claimed in a statement late Friday morning that its deletion of the Obama passage was not “unusual” and that it was merely “trimmed for space in the print paper”:

  Statement from NY Times re: deleting that passage about President Obama not recognizing anxiety over terrorism. pic.twitter.com/PwZngc88G2

  — T. Becket Adams (@BecketAdams) December 18, 2015

  The problem with this explanation is that it doesn’t make any sense when you review the first major online revision, which Newsdiffs.org archived at 10:21 p.m. EST. In that version, only one substantive revision was made: the paragraph about Obama not watching enough cable TV was removed and replaced with two paragraphs about Obama’s plan to combat ISIS.

  The section that was removed contained 66 words. The section that was added in its place contained 116 words. If the New York Times was indeed “trimming for space” in that particular revision, it will need to explain why its revision to that section added 50 words.

  

  

  

  

• The Farsi Awakens

  If you like your nuclear-capable weapons, you can keep your nuclear-capable weapons…

   

  

   

  Source: Investors.com

  

  

  

  

  

• When All Else Fails, Erdogan Calls Israel

  Submitted by Shoshana Bryen via The Gatestone Institute,

  • Erdogan came to office in 2003 with a policy of "zero problems with neighbors," but has since led Turkey to problems with most, if not all, of them.

  • Turkey's foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help.

  • Israel has weighed the price and found it acceptable: Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will buy Israeli gas.

  • The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey's last five years of diplomatic endeavor.

  The announcement of the restoration of Israel-Turkish relations should be seen in the context of Turkey having nowhere else to go.

  Turkey's relations with Israel have been strained, to put it mildly, since 2010 when, through a non-profit organization, Turkey funded the 2010 Gaza Flotilla aimed at breaking the Israeli-Egyptian blockade of the Hamas-ruled Gaza Strip.

  After a bloody confrontation, which ended in the deaths of nine Turks, Turkey demanded that Israel be tried in the International Criminal Court (ICC) and subjected to UN sanction. The ICC ruled that Israel's actions did not constitute war crimes. In addition, the UN's Palmer Commission concluded that the blockade of Gaza was legal, and that the IDF commandos who boarded the Mavi Marmara ship had faced "organized and violent resistance from a group of passengers," and were therefore required to use force for their own protection. The commission, however, did label the commandos' force "excessive and unreasonable."

  Turkey's President Recep Tayyip Erdogan had already in the past show hostility towards Israel. Already in 2009, then Prime Minister Erdogan denounced Israel's President Shimon Peres publicly at the Davos World Economic Forum. "When it comes to killing, you know very well how to kill. You know very well how to kill." When Hamas was thrown out of Damascus, Erdogan invited Hamas leaders Khaled Mashaal and Ismail Haniyeh to put the terrorist organization's "West Bank and Jerusalem Headquarters" in Istanbul.

  Speaking at the Paris rally in January 2015, after the murderous attack on the Charlie Hebdo offices and the terrorist murder of four Jews in a kosher supermarket, Turkey's Foreign Minister Ahmet Davutoglu said, "Just as the massacre in Paris committed by terrorists is a crime against humanity, Netanyahu… has committed crimes against humanity." Erdogan, speaking in Ankara, said he could "hardly understand how he (Netanyahu) dared to go" to the march in the French capital. Just last month, Davutoglu told an audience, "Israel kneels down to us."

  Not exactly.

  Turkey's foreign policy choices and current crises have combined to make Erdogan reach out to Israel for help. Erdogan came to office as Prime Minister in 2003 with a policy of "zero problems with neighbors," but has since led Turkey to problems with most, if not all, of them. Alon Liel, former Director General of the Israeli Foreign Ministry said, "Turkey didn't do very well in the last five years in the region. Turkey needs friends."

  That is an understatement.

  Turkey helped Iran evade international sanctions, but has since fallen out with the Islamic Republic of Iran over its support of Syria's Bashar Assad. A Muslim Brotherhood supporter, Erdogan was close to Egypt's former President, Muslim Brotherhood member Mohamed Morsi, and has been an outspoken adversary of President Abdel Fattah el-Sisi. Turkey was and remains a conduit for arms and money for various parties to the Syrian civil war. The U.S. has demanded that Erdogan seal Turkey's border with Syria, which he has not done. Turkey also has bombed Kurdish fighters; deployed its forces to Iraqi territory and declined to remove them; and sold ISIS oil on the black market. There are allegations that the Turkish government knew sarin gas was transferred to ISIS across Turkish territory. In November, Turkey shot down a Russian military jet, in the biggest move down the current slide of Turkish-Russian relations, which began when Vladimir Putin stepped in to prevent the collapse of Syria. [This is on top of historical animosity between Turkey, the successor to Muslim Ottoman rule, and Russia, the self-proclaimed defender of the Christian Orthodox Church.]

  Russia, furious at the downing of its plane, instituted a series of economic sanctions against Turkey, the most important of which is suspension of the TurkStream project, designed to boost Russian gas exports to Turkey. Turkey is the second-largest importer of Russian gas, after Germany.

  As a corrective to all of Turkey's "problems with neighbors," Erdogan raised the possibility of renewed relations with Israel — which is currently finalizing the mechanism for developing large offshore natural gas fields. Erdogan told Turkish media last week that normalization of ties with Israel would have benefits for Turkey. Insisting that Israel must still end the blockade of Gaza (not happening), apologize, and pay reparations for the flotilla, Erdogan nevertheless made clear his desire for progress — or at least for Israeli gas.

  Which way will Turkish President Erdogan go on Israel? Left: Erdogan (then Prime Minister) shakes hands with then Israeli Prime Minister Ariel Sharon, on May 1, 2005. Right: Erdogan shakes hands with Hamas leader Ismail Haniyeh on January 3, 2012.

  It's not as if Turkish-Israel relations were ever entirely severed. Since the flotilla confrontation, Turkey-Israel trade doubled in the past five years, to $5.6 billion. While arms deals signed prior to 2010 have been put on hold, trade in civilian chemicals, agricultural products, and manufactured goods has increased. And, in one of those "only in the Middle East" stories, Turkish businesses have been shipping goods to Israel by sea, then trucking them across the country to Jordan and beyond, in order to avoid having to ship overland through Syria.

  The basis for increased trade, including gas sales, is there, and Israel has weighed the price and found it acceptable. Israel will pay Turkey $20 million; Turkey will expel the Hamas leadership from Istanbul and will purchase Israeli gas.

  After entering office in 2003, Erdogan offered Turkey as a model for democratic governance in a Muslim country. President Obama called him one of the foreign leaders with whom he was most comfortable. But Turkey's was always a double game. The restoration of relations with Israel is less a political reconciliation than an admission of the utter bankruptcy of Turkey's last five years of diplomatic endeavor.
   

  

  

  

  

  

• "It's Hot Out There" – Here's Why In One Visualization

  “It’s not just warm, but very warm,” exclaims one east coast ski resort owner, adding “I can’t remember it ever being like this here.” But why? As WSJ reports, two weather occurrences – the Arctic Oscillation and El Niño – are combining to shake up temperatures from coast to coast in the U.S., bringing springlike conditions to the Northeast for much of this month and leaving parts of the West colder and wetter than usual.

  Typically this time of year, Arctic Oscillation would bring cold air to the Eastern U.S., bringing temperatures down. But so far this year, the oscillation has stayed much farther north, allowing warm air from the south to fill the void, said Mike Halpert, deputy director of the National Oceanic and Atmospheric Administration’s climate prediction center.

   

  

   

  The other factor is El Niño, a periodic climate cycle in which sea surface temperatures over the eastern Pacific become warmer than usual. The effects from changes in Arctic Oscillations generally last only a few weeks, but the balmy weather in the Northeast could continue because of the El Niño effect, experts say.

   

  El Niños push the subtropical and polar jet streams, which help define weather around the world, to the north. The result is that the southern U.S. gets rain that normally falls in Central and South America, while the Northeast and Midwest get a reprieve from winter as the polar jet stream is pushed up into Canada.

  “If people are nervous, they should be nervous.”

  The current El Niño is on track to rank among the top three strongest since record-keeping began in 1950, according to federal climatologists.

  “The El Niño impact is not dominating yet,” said Bill Patzert, a climate scientist with NASA’s Jet Propulsion Laboratory in Pasadena, Calif. “It’s like the tale of two climates here.

  And since every failure of central planning to achieve its  seasonally-adjusted  economic targets must be blamed on something, even something as ridiculous as the weather, regardless if it is “too cold” like in the past two years, or “too hot”, now we know why Q4 GDP will be crap!

  

  

  

  

  

• Peter Schiff: "Mission Accomplished"

  By Peter Schiff of EuroPacific Capital

  

  Mission Accomplished

  On May 1, 2003 on the flight deck of the USS Abraham Lincoln then President George W. Bush, after becoming the first U.S. president to land on an aircraft carrier in a fixed wing aircraft (in a dashing olive drab flight suit), declared underneath an enormous “Mission Accomplished” banner that “major combat operations” in Iraq had been concluded, that regime change had been effected, and that America had prevailed in its mission to transform the Middle East. 13 years later, after years of additional combat operations in Iraq, and a Middle East that is spiraling out of control and increasingly disdainful of America’s influence, we look back at the “Mission Accomplished” event as the epitome of false confidence and premature celebration.

   

  The image of W on the flight deck comes to mind in much of the reaction to this week’s decision by the Federal Reserve to raise interest rates for the first time in nearly a decade. While many in the media and on Wall Street talked of a “concluded experiment” and the “dawning of a new era,” few realize that we are just as firmly caught in the thickets of failed policy as were Bush, Cheney, and Rumsfeld in the misunderstood quagmire of 2003 Iraq.

   

  In its initial story of the day’s events, The Washington Post (12/16/15) declared that by raising the Fed Funds rate to one quarter of a percent The Fed is “ending an era of easy money that helped save the nation from another Great Depression.” Putting aside the fact that 25 basis points is still 175 points below the near 2.0% rate of core inflation that the government has reported over the past 12 months (and should therefore be considered undeniably easy), the more important question to ask is into what environment the Fed is apparently turning this page.

   

  Historically, the Fed has begun its tightening cycles during the early stages of expansions, when the economy had enough forward momentum to absorb the headwinds of rate increases. But that is not at all the case this time around.

   

  Prior to the recent Great Recession, there had been six recessions since 1969, and over those episodes, on average 13.3 months passed from the time the recession ended to when the Fed felt confident enough in the recovery to raise rates. (The lag time was just 3.5 months in the four recessions between 1971 and 1991). (The National Bureau of Economic Research, US Business Cycle Expansions and Contractions, 4/23/12) 

   

  But after the recession of 2008 – 2009, the Fed waited a staggering 78 months to tighten the monetary levers. Those prior tightening cycles also occurred at times when GDP was much higher than it is today. Over the prior six occasions GDP, in the quarter when the Fed moved, averaged a robust 5.3%. While the current quarterly GDP is still unknown, the data suggests that we will get a figure between 1% and 2% annualized. (Bureau of Economic Analysis)

   

  Another key difference is the level of unemployment at the time the hikes occurred. As they started tightening much earlier in the expansion cycles, unemployment at the times of those prior recoveries tended to be high but falling. The average unemployment rate at the time the six prior tightenings occurred was 7.5%. But that average rate had fallen to 5.1% (a level that most economists consider to be “full employment”) an average of 42 months after the initial Fed tightening. In other words, those expansions were young enough and strong enough to absorb the rate hikes while still bringing down unemployment. (Bureau of Labor Statistics; Federal Reserve Bank of NY)

   

  Our current unemployment rate has already fallen to 5.0% (mostly because workers have dropped out of the labor force). Few economists allow for the possibility that it could fall much lower. This is particularly true when you acknowledge the rapidly deteriorating economic conditions that we are seeing today.

   

  As I stated in my most recent commentary, there is a growing troth of data that shows that the U.S. economy is rapidly losing momentum. Some data points, such as the inventory to sales ratio and the ISM manufacturing data suggest that a bona fide recession may be right around the corner (among them, this week’s truly terrible manufacturing PMI and industrial production numbers, a very weak Philly Fed Outlook, the weakest service sector PMI of the year, a big drop in the Kansas City Fed Manufacturing Index, and the announcement that the Third Quarter current account deficit had “unexpectedly” increased 11.7% to post the widest gap since the fourth quarter of 2008, are just the latest such indicators).

   

  Given that the U.S. economy has, on average, experienced a recession every six years, the 6.5-year longevity of the current “expansion” should be raising eyebrows, even if the data wasn’t falling faster than a bowling ball with wings.

   

  So what happens when the Fed postpones its first rate hike until the death throes of a tepid recovery rather than doing so at the beginning of a strong one? If unemployment starts ticking up during an election cycle, can anyone really expect the Fed to follow through with its projected additional rate hikes and allow a full-blown recession to take hold prior to voters casting their ballots? All of this strongly suggests that this week’s rate hike was a “one-and-done” scenario that does nothing to extricate the Fed from the monetary trap it has created for itself.

   

  Another big question is why the Fed decided to move in December, after doing nothing for so long. Clearly the markets were surprised and confused by the Fed’s failure to pull the trigger in September, when the economy appeared, at least to those who chose to ignore the bad data, to be on relatively solid footing. At that time, the Fed suggested that it needed to see more improvement before green lighting a liftoff. And while I tend not to place much stock in the pronouncements of most economists, one would be hard-pressed to find anyone who would claim that the data in December looks better than it did in September.

   

  A much more likely explanation is that through its rhetoric the Fed had inadvertently backed itself into a corner. Even though the Fed would have preferred to leave rates at zero, the fear was that failure to raise them would damage its credibility. After having indicated for much of the past year that they had believed that the economy had improved enough to merit a rate increase later in 2015, to continue do to nothing would suggest that the Fed did not actually believe what it was saying. This was an outcome that they could not abide. If we could doubt them about their economic pronouncements, perhaps they have been equally disingenuous with their professed ability to shrink their balance sheet over the next few years, contain inflation if it ever reared its ugly head, or to prevent financial contagion from spreading during a new recession.

   

  In truth there should be very little confidence that a new era has begun. A symbolic 25 basis point credibility-saving gesture, coming just two weeks before year-end, is really a non-event. It’s the equivalent of a credibility Hail Mary, with the Fed desperately trying to infuse confidence into a “recovery” that for all practical purposes has already ended.

   

  The question will be whether such a small move will be enough to push an already slowing economy into recession that much sooner. Over the past seven years the U.S. economy has become dependent on zero percent interest rates. But as with the famous Warren Buffet bathing suit maxim, these dependencies won’t be fully revealed until the tide rolls out and those zero percent rates are taken away. The bigger question is how quickly the Fed will reverse course. Will it move once it becomes painfully obvious to everyone that we are headed into another recession, or will it wait until we are officially knee deep in a contraction that is even bigger than the last one?

   

  The new rounds of rate cutting and Quantitative Easing that the Fed will have to unleash will echo the military “surge” in Iraq in 2007. Those fresh troops were needed to roll back the chaos that the Administration had ignored for so long. But just as that surge only bought us a few years of relative calm, look for the gains brought about by our next monetary surge to be even more transitory. That is a development for which virtually no one on Wall Street is preparing.

  

  

  

  

  

• "Quad Witches, Bitches" – Stocks Crash On OpEx

  CNBC was awash with "Remain Calm" comments today as yesterday's carnage extended into today post-option-expiration misery.. "I would call this a rather stable sell-off" and stocks are "in a bit of a funk" were among them… but for those buying the well-sponsored rip post-Yellen, here's what you get:

  Quad-Witch Bitches:. The last two days are the worst since Black Monday for stocks, and just as we warned a week ago, Yellen's confidence-inspiring rate-hike was undone by 'technicals' in the so-called market:

  The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market's read through of monetary policy but by the "pin" in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the "psychological" stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

   

  Whether this happens remains to be seen, and we are confident the Fed's "arm's length" market-moving JV partner, Citadel, is currently scrambling to prevent any imminent selloff. However, considering Kolanovic' track record of hinting at key risk inflection risk, it is quite likely that whatever the ultimate closing price on December 16 and, more importantly, December 18, volatility may very soon have an "August 24" type event.

  The "quad's" outcome – bloodbath. 

  

   

  With S&P 500 Futures breaking the 2,000 level after-hours…

  

   

  Post-Yellen, bonds are outperforming notably.

  

   

  Post-Fed… not exactly confidence-inspring…

  

   

  The Dow is down 700 points from post-Yellen exuberance… Nasdaq broke 5,000; Dow nears 17,000; and S&P 2,000 was defended with valor…

  

   

  Leaving everything Red for the week…

  

   

  Trannies are down 18% YoY… the fastest accelerating drop since Lehman…

  

   

  FANGs all red post-Fed…

  

   

  Stocks caught down to credit markets – as credit crashes…

  

   

  Equities still have a long way to go…

  

   

  Treasury yields (most notably the longer-end) ripped lower after the Fed… but remain higher on the week…

  

   

  With a dramatic "policy error" style flattening of the yield curve…

  

   

  The USDollar rose over 1% on the week but the last 24 hours has seen some fading as carry trades were unwound en masse, driving JPY higher…

  

   

  Commodities were very mixed this week. Silver, gold, and copper surged today

  

   

  Silver's best day in 11 weeks…

  

   

  Crude collapsed to fresh cycle lows…

  

   

  Charts: Bloomberg

  

  

  

  

• Canadians Sell Cans Of "Rocky Mountain Air" To Choking Chinese

  The Chinese are so desperate for clean air – amid the most disgusting pollution in history – that they have turned to buying cans of fresh air to breathe during the most smog-filled days. With low oil prices crushing their economy, Canada has begun to export another resource as CNBC reports Alberta-based Vitality Air is selling "Rocky Mountain air" to the Chinese for $10 to $20 per can.

  Facing this…

  

  

  

   

  The Chinese have turned to this…

  

   

  Canada may be struggling with low oil prices, but China's latest environmental crisis is proving to be a lucrative opportunity for another of its natural resources – Rocky Mountain air.

  Alberta-based Vitality Air has been cashing in on Beijing's worsening air quality problems, selling aluminum cans of "fresh clean air and oxygen" from the picturesque Rocky Mountains for around $10 to $20 each.

   

  Vitality Air's China representative Harrison Wang said told MailOnline that they sold out almost instantly after marketing the product on China's e-commerce website Taobao. They'll be sending another 700 bottles to China in the coming weeks, topping their first 500-bottle shipment.

   

  "We have sold everything, and we now have a bunch of customers and people wanting to be our distributors," Harrison said.

  As CNBC reports,

  Founders Moses Lam and Troy Paquette admitted to Canadian media that the project first started as a joke, selling their first sealable food bag of air for 99 cents on eBay. The then sold a second bag that raked in $168 Canadian dollars ($122).

   

  They launched Vitality Air shortly afterward.

   

  But for those who are still laughing at the idea of selling air that usually comes for free, the website reminds us that bottled water also used to be a punchline: "The truth is we've begun to appreciate the clean, pure and refreshing taste of quality water," the website reads. "Air is going the same way."

   

  "Just like bottled water, premium air is a growing industry because people are noticing the difference."

  *  *  *

  How long before Canadian air is taxed…?

  

  

  

  

  

• On Conspiracy Theories

  Submitted by HardScrabbleFarmer via The Burning Platform blog,

  “In many nations, rational people end up believing crazy things, including (false) conspiracy theories. Those crazy thoughts can lead to violence, including terrorism. Many terrorist acts have been fueled by false conspiracy theories, and there is a good argument that some such acts would not have occurred in the absence of such theories. The key point—and, in a way, the most puzzling and disturbing one—is that the crazy thoughts are often held by people who are not crazy at all.”

  Cass Sunstein- White House Office of Information and Regulatory Affairs

  If you don’t know who Cass Sunstein is, or what he does now would be a good time to do some research. Not only because of his position with the White House and the power that entails, but because he understands quite clearly what problems are posed by people who, in his own words are, “…neither ignorant, not ill-educated. On the contrary they can be spectacularly well informed…”

  Conspiracy theories are, in short, the belief that others conspire in secret to commit criminal acts. They do, no secret there. In fact the majority of prisoners in Federal Penitentiaries are serving time not for a specific crime, but for conspiracy to commit a felony, more simply discussing their intentions with another person in secret. It must be difficult indeed to simultaneously prosecute large numbers of people for the very activity that you are assigned to debunk and then somehow explain to people that it’s dangerous to believe in them. Yes, yes, you can imagine them saying, other people do engage in conspiracies, but we never would and you’d have to be crazy to even consider it.

  Point taken, Mr. Sunstein.

  Prior to the advent of the Internet there were few places where people could openly engage in any discussion of the misgivings they had about certain events. Mailing lists, fringe publications, but no open forum for expressing doubt and discovering the fundamental and underlying reasons behind such thoughts. Mr. Sunstein has often argued that the reason most people believe in conspiracy theories is because it makes them feel safe, a notion that is as hard to believe as the one that says the government would never engage in a conspiracy. If anything, the dawning realization that those entrusted to care for and protect you are engaged in a pattern of behaviors that are not only dangerous, but wantonly destructive to the very values and beliefs we hold most dear. To believe in a conspiracy committed by a government that is powerful, that is actively spying on it’s own people without legal justification and that appears immune to the law is not reassuring or comforting, it is terrifying. It is also, based on what we actually know for a fact, common sense

  Let’s begin by covering a few basics-

  Operation Northwoods

  In 1962 the Department of Defense acting in cooperation with the Joint Chiefs of Staff submitted a paper detailing covert operation by either the CIA or other Government operatives to commit acts of terrorism against innocent American civilians, specifically to either hijack US commercial aircraft, shoot down commercial aircraft, attacks and kill US soldiers at Guantanamo or an attack on the Organization of American States with the intent of blaming the actions on Cuba in order to destabilize or overturn the government. These plans were signed and submitted by a host of top ranking US Military officials including the Chairman of the Joint Chiefs of Staff Lyman Lemnitzer and submitted to the Secretary of Defense, Robert McNamara who would later play a large role in the US war in Viet Nam.

  None of the people involved in the research, planning, drafting or submission of this authorized government conspiracy was ever charged with a crime or held accountable. In fact the chief defense has always been that it was rejected by then President John F Kennedy, rendering further discussion null and void. Think about it for a moment and decide for yourself what the implications of such a plan mean for people who are, in the words of Cass Sunstein, spectacularly well informed, i.e conspiracy theorists. The government of the United States of America, using top secret clearance and taxpayer dollars actively plotted to murder innocent Americans in acts of terror in order to instigate a war on false grounds. To know this, according to the leading expert on conspiracy theories, makes us feel safer.

  Incontrovertible proof that the government does in fact engage in criminal conspiracies that target innocent civilians in order to promote government sanctioned programs or military actions while it’s criminal participants escape justice has now been established as a fact, not a theory. Why this important piece of American history is unknown to most people is not puzzling, it is because it has been deliberately pushed off to the side, dismissed as irrelevant or pointless because it didn’t happen. Conspiracy theories do not require action, however, only the conspiracy.

  One of the greatest issues the Government has in dealing with the conspiracies currently circulating is the ease with which the Internet allows them to propagate. While the vast majority of Americans have never heard of the Gulf of Tonkin, quite a few have heard the term “9/11 was an inside job” or know that something is not quite right about Sandy Hook. The ubiquitous nature of cell phone cameras has given people the ability to see for themselves without having to look through the lens of the MSM and depend upon sanitized news coverage to inform them of the details of various events taking place around the troubled world. The time when the government was kept in check by the 5th estate has long ago ceased to restrain them. The news organizations have become a tool of the establishment rather than a check on their power. The only option left is for either whistle blowers to come forward or citizen journalists to investigate on their own time and dime.

  The MSM

  Proof TV Media 100% Fake – Fake/Green Screen Compilation…

  The Illusion of the Mainstream Media (MSM). #BreakTheIllusion

  The sheer number of poorly faked news stories gives rise to the legitimate question, how many fake stories were done well? Why would any news organization feel that it is necessary to use false coverage to report actual news? It makes no sense to falsify something in order to tell the truth, so something else must be in play. The participants and producers are clearly aware of what they are doing when they use props or green screens, and since they are doing it without informing the viewing public it wouldn’t be unfair to call it a conspiracy. The more often these events are uncovered the less trust anyone feels in the institutions and representatives that commit these frauds on an unsuspecting population. Whether it is for altruistic or evil ends is irrelevant, the duplicity is it’s own crime and since it is done in secret, involving multiple parties we are left with little room to consider it as anything other than a conspiracy. That isn’t a theory, it’s a fact.

  We live in an era that seems to be on the cutting edge of human civilization due to the proliferation of technically sophisticated gadgetry, but in many ways were are as ignorant and intellectually shallow as we have ever been, pacified by our good fortune, stable diets and creature comforts, bereft of the intellectual curiosity that has been the hallmark of cultures at their zenith. Grand sounding memes have been the trademark of great cultures, from Pax Romana to Rule Britannia. They are utilized to galvanize a people or a nation and lead them to greater heights and achievements or they serve as an epitaph on the gravestones of Empires, like Blood and Soil or Liberte’, Egalite’, Fraternite’. Numerous cultures experience a tumultuous birth, a meteoric rise and blossoming and slowly and inexorably decline into decadence and degeneracy.

  Those who sit at the top of an empire in decline often employ the same tactics that their predecessors have used throughout history in order to remain in power; suppression of dissent, violent retaliation against those who resist, open condemnation of those who are often the most stalwart supporters of the earlier forms of the same government and eventually the emptying of the treasury and plundering of resources while the masses suffer. The employ various techniques of coercion and dependency as well as draconian measures in security and intelligence. One of the hallmarks of a failing regime is the way they turn a blind eye to the flagrant criminality of those at the top while increasingly stifling even the mildest forms of dissent at the bottom. Employing men like Cass Sunstein to float the idea that conspiracy theories are the seedbed of violent terrorist cells is only the beginning.

  Many people believe that the restriction on free speech, the rise of the PC movement, the talk of microaggressions and safe spaces are about protecting marginalized minorities when in fact they are nothing more than tools used to entrench the positions of power, to eliminate resistance to their aims and objectives and to silence, once and for all every voice that fails to sing in the chorus of the State. The reason men like Cass Sunstein are employed by the State is because the veil has begun to fall. When people begin to question the veracity of the government, the next step, logically, is to question the legitimacy of the institutions that keep it in power. It is not a safe or reassuring thing to believe that your government is capable of plotting to kill you or those you love for it’s own ends, it is frightening, and demoralizing. It is also the first step in reclaiming our sovereignty. Just as no rational person would want to remain in a relationship with someone who repeatedly lies and cheats, neither would they be expected to offer allegiance to a State that would do worse.

  Few people live in the natural world, experiencing the outdoors daily through all weather, dealing with real issues of life and death, the cycles of the seasons, the endless tasks associated with meeting our most fundamental needs, from feeding ourselves to teaching our own children the values and lessons that resonate with how we wish to live. For the rest of our population there is endless hours of mindless distraction, inhumane workplaces in unnatural environments far removed from the basic needs of life. We spend more time with people we hardly know than the ones we love the most, we eat food that we have no connection with and that fails to nourish, we depend more and more on a government that is further and further away from us, both in distance and in understanding, in short we have become disconnected from our own lives. Perhaps the first step in rectifying our situation is to begin to look at the world not as it could be, but how it is. To see things for what they are, to discard the falsehoods, no matter how pleasant they may seem in order to embrace the truth regardless of how painful it may be. And that’s not a theory, that’s a reality.

  In closing I offer a speech filled with optimism in the face of desperation, hope in a time of bitter loss, and an appeal to the better part in all of us that calls out to be heard in times like these.

  No man thinks more highly than I do of the patriotism, as well as abilities, of the very worthy gentlemen who have just addressed the House. But different men often see the same subject in different lights; and, therefore, I hope it will not be thought disrespectful to those gentlemen if, entertaining as I do, opinions of a character very opposite to theirs, I shall speak forth my sentiments freely, and without reserve. This is no time for ceremony. The question before the House is one of awful moment to this country. For my own part, I consider it as nothing less than a question of freedom or slavery; and in proportion to the magnitude of the subject ought to be the freedom of the debate. It is only in this way that we can hope to arrive at truth, and fulfil the great responsibility which we hold to God and our country. Should I keep back my opinions at such a time, through fear of giving offence, I should consider myself as guilty of treason towards my country, and of an act of disloyalty toward the majesty of heaven, which I revere above all earthly kings.

  Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.

  I have but one lamp by which my feet are guided; and that is the lamp of experience. I know of no way of judging of the future but by the past. And judging by the past, I wish to know what there has been in the conduct of the British ministry for the last ten years, to justify those hopes with which gentlemen have been pleased to solace themselves, and the House? Is it that insidious smile with which our petition has been lately received? Trust it not, sir; it will prove a snare to your feet. Suffer not yourselves to be betrayed with a kiss. Ask yourselves how this gracious reception of our petition comports with these war-like preparations which cover our waters and darken our land. Are fleets and armies necessary to a work of love and reconciliation? Have we shown ourselves so unwilling to be reconciled, that force must be called in to win back our love?

  Let us not deceive ourselves, sir. These are the implements of war and subjugation; the last arguments to which kings resort. I ask, gentlemen, sir, what means this martial array, if its purpose be not to force us to submission? Can gentlemen assign any other possible motive for it? Has Great Britain any enemy, in this quarter of the world, to call for all this accumulation of navies and armies? No, sir, she has none. They are meant for us; they can be meant for no other. They are sent over to bind and rivet upon us those chains which the British ministry have been so long forging. And what have we to oppose to them? Shall we try argument? Sir, we have been trying that for the last ten years. Have we anything new to offer upon the subject? Nothing. We have held the subject up in every light of which it is capable; but it has been all in vain.

  Shall we resort to entreaty and humble supplication? What terms shall we find which have not been already exhausted? Let us not, I beseech you, sir, deceive ourselves. Sir, we have done everything that could be done, to avert the storm which is now coming on. We have petitioned; we have remonstrated; we have supplicated; we have prostrated ourselves before the throne, and have implored its interposition to arrest the tyrannical hands of the ministry and Parliament. Our petitions have been slighted; our remonstrances have produced additional violence and insult; our supplications have been disregarded; and we have been spurned, with contempt, from the foot of the throne. In vain, after these things, may we indulge the fond hope of peace and reconciliation. There is no longer any room for hope. If we wish to be free² if we mean to preserve inviolate those inestimable privileges for which we have been so long contending²if we mean not basely to abandon the noble struggle in which we have been so long engaged, and which we have pledged ourselves never to abandon until the glorious object of our contest shall be obtained, we must fight! I repeat it, sir, we must fight! An appeal to arms and to the God of Hosts is all that is left us!

  They tell us, sir, that we are weak; unable to cope with so formidable an adversary. But when shall we be stronger? Will it be the next week, or the next year? Will it be when we are totally disarmed, and when a British guard shall be stationed in every house? Shall we gather strength by irresolution and inaction? Shall we acquire the means of effectual resistance, by lying supinely on our backs, and hugging the delusive phantom of hope, until our enemies shall have bound us hand and foot? Sir, we are not weak if we make a proper use of those means which the God of nature hath placed in our power.

  Three millions of people, armed in the holy cause of liberty, and in such a country as that which we possess, are invincible by any force which our enemy can send against us. Besides, sir, we shall not fight our battles alone. There is a just God who presides over the destinies of nations; and who will raise up friends to fight our battles for us. The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave. Besides, sir, we have no election. If we were base enough to desire it, it is now too late to retire from the contest. There is no retreat but in submission and slavery! Our chains are forged! Their clanking may be heard on the plains of Boston! The war is inevitable²and let it come! I repeat it, sir, let it come.

  It is in vain, sir, to extenuate the matter. Gentlemen may cry, Peace, Peace²but there is no peace. The war is actually begun! The next gale that sweeps from the north will bring to our ears the clash of resounding arms! Our brethren are already in the field! Why stand we here idle? What is it that gentlemen wish? What would they have? Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!

  Patrick Henry

  

  

  

  

  

• MSNBC Anchor Stunned By Trump-Putin Lovefest

  Following Vladimir Putin's 'endorsement' of The Donald, explaining his hope for "a more substantial, deeper relationship," with America, Trump has reciprocated the show of respect by thanking the Russian president for the "great honor." This mutual back-patting stunned MSNBC anchor Joe Scarborough, who exclaimed, Putin "is a person who kills journalists, political opponents and invades countries," to which Trump responded, silencing Scarborough, "he's running his country, and at least he's a leader, unlike what we have in our country."

  “It is always a great honor to be so nicely complimented by a man so highly respected within his own country and beyond,” the GOP presidential front-runner told supporters at a rally in Columbus, Ohio.

  "I have always felt that Russia and the United States should be able to work well with each other towards defeating terrorism and restoring world peace, not to mention trade and all of the other benefits derived from mutual respect,” he added. However, as The Hill reports,"Morning Joe" co-host Joe Scarborough was not impressed…

  Putin "is a person who kills journalists, political opponents and invades countries"

  To which Trump responded…

  "Certainly over the last couple of years they've respected him as a leader. I think he's up in the 80s, where you see Obama is in the 30s and low 40s — and he's up in the 80s," Trump said of Putin's popularity.

   

  "I don't know who does the polls, maybe he does the polls," Trump added.

  "You obviously condemn Vladimir Putin killing journalists and political opponents, right?" Scarborough asked.

  "Well I think our country does plenty of killing also, Joe, so…" Trump said, trailing off.

   

  “I would get along with him,” Trump said in September. “I would get along with a lot of the world leaders that this country is not getting along with.”

   

  He's also said Putin does not respect President Obama."Oh sure, absolutely," Trump responded.

  GOP rivals such as former Florida Gov. Jeb Bush have gone after Trump over his endorsement from Putin, who critics have blasted over his country's response to events including the situation in Ukraine.

  "To get praise from Vladimir Putin is not going to help Donald Trump," Bush told CNN on Thursday evening.

  “I would get along with him,” Trump said in September. “I would get along with a lot of the world leaders that this country is not getting along with.” He's also said Putin does not respect President Obama.

   

  

  

  

  

  

• Argentinians Are Now Poorer Than Citizens Of Equatorial Guinea After Massive Devaluation

  On Wednesday evening, Argentina’s FinMin (and former head of global FX research at JP Morgan) Alfonso Prat-Gay abolished currency controls, fulfilling new President Mauricio Macri’s promise to unify the official and black market peso rates.

  The move came on the heels of central bank governor Alejandro Vanoli’s forced resignation. Macri has accused Vanoli of endangering the country’s finances by racking up some $17 billion in dollar futures which the new government attempted to renegotiate ahead of the deval.

  “For those interested in a case study of what happens after a dramatic devaluation, you now have front row seats for what is likely to be a 25-30% peso plunge,” we said two days ago. Yesterday, the peso did indeed take a nosedive as the parallel rates converged on 14 ARS/USD. 

  

  What does this mean for Argentinians, you ask?

  Well, as FT reports, “Argentines woke up on Thursday richer than Poles, Chileans and Hungarians [but] by bedtime they were not only poorer than all three, but also more pecunious than Mexicans, Costa Ricans and the good people of Equatorial Guinea.”

  

  In dollar terms, the sharp peso plunge pushed the country down eleven slots on the list of richest nations in GDP per capita terms. As the following table shows, Argentineans are now worse off than citizens of Chile, Poland, Equatorial Guinea, Hungary, Lebanon, Panama, Croatia, Kazakhstan, Costa Rica, Malaysia, and Mexico.

  

  More generally, the devaluation will cost the country some $167 billion in GDP. “[This is] just the latest ignominy to hit the seemingly accident-prone nation, which just over a century ago was the seventh-wealthiest country in the world on a per capita basis, ahead of the likes of Denmark, Canada and the Netherlands and five times wealthier than Brazil,” FT goes on to say.

  

  While the devaluation is likely the right move from a long-term perspective, in the short-run things will be painful. “The peso devaluation is a bitter pill for Argentinian households who kept their savings in pesos and for multinationals who had reported peso cash balances at the official exchange rate on financial disclosures,” Bill Adams, senior international economist at PNC Financial Services Group says.

  And with that, we’ll close with a few passages from one of the world’s greatest economic minds. This is from May 3, 2012: 

  “…press coverage of Argentina is another one of those examples of how conventional wisdom can apparently make it impossible to get basic facts right.

   

  Articles about Argentina are almost always very negative in tone — they’re irresponsible, they’re renationalizing some industries, they talk populist, so they must be going very badly. 

   

  Matt Yglesias, who just spent time in Argentina, writes about the lessons of that country’s recovery following its exit from the one-peso-one-dollar ‘convertibility law’. As he says, it’s a remarkable success story, one that arguably holds lessons for the euro zone.”

   

  

   

   

  

  

  

  

  

• CEO To Yellen: "Let Us Tell You What We Are Seeing!!"

  With Financial Stress Index near cycle highs and macro data collapsing (in Services and Manufacturing) even CEOs are questioning Janet Yellen’s timing…

  “I don’t mean to make anybody too worried about this stuff, right?

   

  …

   

  We can speak less about stuff and pretend like everything’s just always great. I don’t think – I don’t think that’s the right way to build partnerships. I think, we tell you when things are working, we tell you when things are not working, we tell you when we make changes, we tell you when the changes are working, we tell you when the changes are not working.”

   

  …the areas that are affected by oil… the Texas markets specifically…In the first half of the year, they were pulling down total Company sales a little under 2 points…

   

  In Q3, that accelerated to 4 points, and that’s meaningful, right? It’s not just meaningful to us, I’d say it’s meaningful to anybody who’s thinking about what the US economy ought to look like…

   

  It makes me think hey, should we be calling Yellen… and saying, let us tell you what we are seeing.“

  – Restoration Hardware CEO Gary Friedman (Home Furnishing)

  h/t Avondale Asset Management

  

  

  

  

  

• Yet Again, The Media Got The Facts Wrong About The San Bernardino Attacks

  Submitted by Derrick Broze via TheAntiMedia.org,

  On Wednesday, the Director of the Federal Bureau of Investigations said the agency has no evidence the married couple accused of killing 14 people in San Bernardino, California earlier this month had any connection to an active terror cell. This admission from the FBI directly contradicts media reports that immediately claimed the San Bernardino shooters were linked to Daesh (ISIS) via social media.

  Speaking at a counterterrorism conference in New York, Director James Comey said Syed Farook and Tashfeen Malik were inspired by Daesh, but were not directly involved with any specific terror group. Reuters reports that Comey believes Daesh has “revolutionized” terrorism by using social media to spread propaganda to inspire small-scale attacks.

  “Your parents’ al Qaeda was a very different model than the threat we face today,” Comey said.

  Despite the admission the couple had no connection to Daesh, Comey said Farook and Malik had shown support for “jihad and martyrdom” in private communications as early as 2013, but never in public on social media. The director also stated the FBI has “hundreds” of ongoing investigations in every state in the nation that involve potential Daesh-inspired terror plots.

  Comey also repeated his calls for ending encrypted communication based on the premise that Daesh uses encryption to plan terror attacks. “We are not going to break the Internet,” he said while challenging technology companies to stop creating services that cannot be accessed by law enforcement. Comey’s calls for breaking encrypted communications echo the recent efforts of police chiefs and attorney generals across the United States.

  Another piece of the puzzle that must be considered pertains to conflicting eyewitness accounts of the San Bernardino shooting. Although the oldstream media quickly accepted the narrative of a Muslim couple radicalized by anti-American sentiment and radical Islam, there was at least one conflicting account that should be investigated.

  Shortly after the shooting, witness Sally Abdelmageed talked to CBS News about what she saw.  Abdelmageed works at the Inland Regional Center and saw the shooters enter the building. She told CBS’s Scott Pelley that she saw what appeared to be three white men dressed in military clothes.

  “We saw three men dressed in all black military attire, with vests on, holding assault rifles, and they opened up the doors to building 3 and one of them starts to spray and shoot all over the room,” Sally Abdelmageed told Pelley.

  When asked to provide more detail about the shooters she said, “I couldn’t see a face, he had a black hat on, from my view all i could see was a black hat. A black long sleeve shirt, possibly gloves on, he had black cargo pants, the kinds with zippers and big puffy pockets. He had a huge assault rifle and extra ammo. I just saw three.”

  “You’re certain you saw three men?” Pelley asked.

  “Yes, it looked like their skin color was white. They looked like they were athletic and they appeared to be tall.”

  Her account matches the original report from Southern California’s Fox 11, which tweeted that police were searching for “3 white males dressed in military gear.” Another eyewitness expressed doubt that Farook was the culprit.

  Whatever the truth is, it seems obvious the government will use this crisis to add more fuel to the fire that is the global War on Terror. This fire — and the insanity it breeds — threatens to consume the planet, leaving behind a scorched Earth devoid of common sense and critical thinking. Avoiding catastrophe and further division of the people is going to take each and every awakened soul.

  

  

  

  

  

• Islamic Blitzkrieg Coming To Germany, Arrested Jihadist Warns

  On Thursday, German authorities arrested Leeth Abdalhmeed at the refugee shelter in Unna-Massen. Abdalhmeed is suspected of having links to a Sunni terror organization.

  According to WSJ, “German authorities were alerted by a Syrian national who had seen an article on a website connecting Mr. Abdalhmeed with Islamic State.” Apparently, Abdalhmeed is actually Leith Abdul Hamid, a “midranking” Islamic State official from Deir Ezzour (where Paris “mastermind” Abdelhamid Abaaoud was Emir of war) who “ran a money-transfer operation for the terror group and was responsible for smuggling medicine and ammunition from Turkey” (where else?). 

  “We mustn’t regard refugees with a general suspicion. But it’s also true that concerns aren’t unfounded that some potential threats might be among refugees,” Wolfgang Bosbach, a lawmaker with Chancellor Angela Merkel’s Christian Democratic Union party said this week.

  As we and countless others have documented, the Paris attacks served to undermine the goodwill Europeans had shown towards the millions of asylum seekers flooding into the EU from the war-torn Mid-East. A subsequent bomb scare in Hannover that triggered the evacuation of two soccer stadiums didn’t help matters and now, German lawmakers and voters alike are pressuring Merkel to reconsider Berlin’s open-door refugee policy.

  In her keynote speech at the CDU party congress in Karlsruhe earlier this week, the iron chancellor committed to “appreciably reducing the number of refugees,” entering the country.

  Now that Berlin has promised to send 1,200 troops, a warship, and six Tornado surveillance planes to the fight in Syria, you can expect Germany to become a prime target for future ISIS attacks. 

  Indeed, a new piece from Spiegel documents the story of “Harry S.”, a jihadist from Bremen who, after returning to Germany following a three month stint in Islamic State-held territory in Syria, says the group is intent on carrying out further attacks in Western Europe and is constantly asking foreign-born fighters if they are willing to return to their home country to wage jihad.

  Harry, who made an appearance in an ISIS video depicting an execution near the ancient city of Palmyra, is now “reformed” and sharing information with German public prosecutors.

  Here’s more from the story:

  On several occasions, IS members tried to recruit volunteers for terrorist attacks in Germany. In the spring, just after he first arrived in Syria, he says that he and another Islamist from Bremen were asked if they could imagine perpetrating attacks in Germany. Later, when he was staying not far from Raqqa, the self-proclaimed Islamic State capital city, masked men drove up in a jeep. They too asked him if he was interested in bringing the jihad to his homeland. Harry S. says he told them that he wasn’t prepared to do so.

   

  Harry S. was only in IS controlled territory for three months. Yet he might nevertheless become a vital witness for German security officials. Since the Nov. 13 attacks in Paris, fear of terrorism has risen across Europe, including in Germany, and security has been stepped up in train stations and airports. And the testimony from the Bremen returnee would seem to indicate that the fear is justified. Harry S. says that, during his time in the Syrian warzone, he frequently heard people talking about attacks in the West and says that pretty much every European jihadist was approached with the same questions he had been asked. “They want something that happens everywhere at the same time,” Harry S. says.

   

  A large man with broad shoulders, Harry was trained as a fighter in Syria. He claims to have been drilled in training camps together with 50 other men: sit-ups, hours of standing in the sun and forced marches lasting the entire day. Those who gave up were locked up or beaten. His Kalashnikov, it was driven home to him, should become like his “third arm” and he was told to keep the weapon in bed with him while sleeping.

   

  
  

   

  The insights of the Bremen convert into Islamic State are of interest for security officials. Harry S. is the first returnee who can offer insight into the roles played by two notorious German-speaking jihadists who have joined Islamic State: Mohamed Mahmoud, an Islamist from Austria, and the former Berlin rapper Denis Cuspert (aka Deso Dogg). Rumors that they were recently killed in Syria have thus far not been confirmed by German officials.

   

  Mahmoud initially attracted attention in Vienna for his radical Internet postings and spent four years in prison there. He then moved to Germany, where he founded a Salafist group called “Millatu Ibrahim” together with Cuspert. The association was banned by the German Interior Ministry three years ago, whereupon several members went underground, only to reappear as members of Islamic State in Syria and Iraq.

   

  Harry S. met both Cuspert and Mahmoud in Raqqa. He sat together in a mosque with Cuspert and says the former rapper had just come back from the front. S. said his impression was that Cuspert was more important to Islamic State as the “hero” of propaganda videos used to attract Western recruits than as a fighter. Mahmoud, he said, had more influence and would hold ideology training sessions on Fridays in Raqqa. Mahmoud, Harry S. says, is “really dangerous,” adding that he had never before met such a disturbed person. After the executions in Palmyra, S. says, Mahmoud was proud of what he’d done.

   

  There is proof of the executions in Palmyra that Harry S. claims he saw. In the summer, Islamic State released a five-and-a-half minute video that was edited in some parts like a horror film. It was the first German-language execution video released by IS and it depicts two men kneeling between antique columns with Mahmoud and another Islamist from Germany standing behind them, weapons in hand. “Merkel, you dirty dog,” Mahmoud calls into the camera. “We will take revenge.” Then they shoot the prisoners in the head; a jihad hymn plays in the background.

   

  Harry S. likewise makes a brief appearance in the video. Clad in camouflage, he carries an Islamic State flag across the picture.

  Below, find two screenshots from the execution video mentioned above (Mahmoud is the one on the left):

  

  

  And here is the video featuring the vocals of “Deso Dogg”:

  Needless to say, if “Harry S” is correct and a few Leeth Abdalhmeeds manage to slip through undetected at German refugee camps only to carry out coordinated attacks, TIME magazine’s newly-minted person of the year will suddenly become the most unpopular figure in all of Germany thanks to TIME’s runner-up:

  

  Put simply: all it will take to destroy the legacy of the most powerful politician in the world (with the possible exception of Putin and Xi) is one night of terror perpetrated by a handful of extremists, and as we’ve been keen to note, the odds of a few “bad apples” slipping through go up by the day:

  

  On the “bright” side, one or two well placed passports in the wake of an attack will surely be enough to win over the 146 lawmakers in the Bundestag who voted against German military action in Syria.

  

  

  

  

  

• The Market’s Gamblers Are Pumping Air

  Submitted by David Stockman via Contra Corner blog,

  The Fed pricked the financial bubblethis week  as expected. Janet Yellen’s press conference couldn’t have been more perfect for our investment thesis at my new research publication, Stockman’s Bubble Finance Trader. It confirmed that the money printers have come to a stark dead end.

  The fact is, the global economy is deflating rapidly and the U.S. is sliding into recession. But our Fed chairman is clueless about what’s happening. She and her posse of money printers are going to get bushwhacked by reality in the year ahead.

  She insisted repeatedly that the “economic fundamentals” are sound yesterday. Even though practically everything that matters is going south. This includes business investment, exports, retail sales, industrial production, inventory ratios, commodity prices, freight volumes and much more.

  Our Keynesian school marm hangs all of her groundless optimism on the completely misleading and heavily medicated jobs numbers put out by the Bureau of Labor Statistics.

  But here’s the thing: You can’t keep saying that the US labor market is in the pink of health when there are 102 million adult Americans without jobs. Or when there are still 3% fewer full-time, full-pay breadwinner jobs than there were 16 years ago when Bill Clinton was still in the White House.

  So here’s where we stand after yesterday’s watershed moment…

  Yellen officially admitted that, after the lunacy of free money for 84 months running, the Fed is out of excuses. And that it will start draining up to $1 trillion per day from the Wall Street swamp of liquidity.

  If the Fed doesn’t follow through on this huge draining action, interest rates won’t go up, even by its trivial 25 basis points target. Its credibility would be shattered.

  But if it does start heavily draining liquidity, it will catalyze the current sell off in the massive $2.6 trillion high yield market. That in turn will pull the props out from under the stock market. Here’s why: massive debt financed stock buybacks and mergers and acquisition (M&A) deals have inflated equities to their current nosebleed heights.

  Beyond that, Yellen also admitted the Fed is out of dry powder when she stumbled and stammered on a question about the business cycle being long in the tooth. She was also reminded of the obvious fact that the Fed can’t slash interest rates in response to a recession, because it’s still effectively at the zero bound.

  So there were two takeaways yesterday. First, the clarification that the Fed has three ways to lose. And our Bubble Finance Trading strategy wins regardless. (We just sold our first position for a 73% gain this morning. And that in about a month’s time.)

  The market will plunge sharply in the coming months if…

  • The Fed fails to raise interest rates as now promised; or…
  • If it drains liquidity as now proposed; or…
  • If it is confronted with the recessionary forces and bursting bubbles that it absolutely does not see on the path ahead.

  As I warned earlier this week, the “market” staged a relief rally after the Fed’s announcement. But that was as phony as a $3 bill. It was just the work of the robo-machines and fast money traders trying to bang loose some buy orders above the 50-day and 200-day moving averages. Both are right in the 2070 range where the S&P 500 stalled out after the press conference ended.

  But here’s the more relevant chart:

  

  The S&P 500 has been chopping and turmoiling on the flat-line for a full year since it first hit yesterday’s closing price in early December 2014.

  It’s tried to rally 34 separate times since QE ended in October 2014, and has failed each time. Like Pavlov’s famous dogs, the market has been trained to buy-the-dips, and for years was handsomely rewarded.

  But that is no longer working. It’s only a matter of time before the buy-the-dips mantra morphs into “sell the dead cat bounce”. Like today’s action.

  In a selfish sense, these flagging efforts by the casino players to levitate another last gasp “rip” are welcome. They give you a chance to pick entry prices for our Bubble Finance Trader recommendations that offer even more upside when the inexorable bursting of the bubble fully incepts.

  They may even succeed in generating one last Santa Claus rally before next year’s recessionary forces spook the remaining gamblers out of the casino. Gamblers, we might add, who no longer have a friend at the Fed.

  Like Wile E. Coyote, they are just pumping air and don’t even know it…

  

  

  

  

  

• Japan Still Leads The Way Towards Our ENDGAME

  

  Successful investors live by a golden rule: what the mainstream financial media talks about is not important. They focus on what they don’t hear instead. So forget about Yellen for a second. Let go of Draghi, oil, the South African rand and Syria. That’s all in the now. But investing is about the future.

  We are convinced there is one proverbial elephant in the room in particular that will shape our future. And that elephant is Japan. The ‘widowmaker’ trade has been claiming financial lives for multiple decades now. That is, short JGBs, or Japanese Government Bonds, was so obvious a trade that it never worked. The 10-year yield currently trades at 0.3%, which is close to the all-time low. We’re still waiting for the shoe to drop.

  Will it ever drop? We believe it will. ‘Drop’ might not be the appropriate word. The accumulation of imbalances might trigger a cascade of events that will shake the world at its core. Let’s investigate some data.

  

  Japan’s debt-to-GDP ratio has hit a unprecedented 230%. You probably knew that. But it doesn’t keep you awake at night. We are genetically wired to focus on acute danger. If a tiger approaches us, we focus. But if stands still and doesn’t move for years, we turn around in search for other dangers. Wise investors remind themselves constantly of the tiger though. They never let their guard down.

  What about the pace at which debt-to-GDP is ramping up? The budget deficit tells us all we need to know.

  

  For six years in a row already, Japan scored around minus 8%. And given the flattish GDP, these annual percentages head straight to the public debt pile. Japan’s long term potential real GDP-growth rate is simply close to zero, given the demographics. The latest quarterly print was a minus 0.3%. This makes the debt grow even faster.

  The GDP leads us to the approach that governments used time and again in history to reduce debt loads: nominal GDP-targeting. Also known as inflation-targeting, financial repression, money printing, and monetary stimulus. The Bank of Japan (BoJ) is working hard in that respect. It already owns over 30% of the total JGB market. In a few years, Japan Macro Advisors (JMA) projects the BoJ might be holding over 60% of the total market given its current policies.

  

  What does that look like from a total balance sheet-perspective? With the BoJ also buying all kinds of non-JGB assets, the other central banks’ balance sheets just pale in comparison. We are witnessing a truly historic experiment.

  It doesn’t take an Einstein to figure out that this is totally unsustainable. The BoJ-policies will have consequences. The most likely scenario is that inflation slowly develops at first. Commodity prices could turn. The yen could take another beating. And then suddenly, inflation accelerates.

  Now, there has always been a lack of ‘demand’ for stuff in Japan. It has always been lucrative to hold cash. Yens were safe. Every year, you could buy more stuff. But as inflation develops, the growing flock of elderly will realize their government benefits are just paper promises. When the price of everything rises, as already happened in the Japanse stock market, they will realize their savings are losing value. Money will then become the hot potato. The velocity of money will rise. Suddenly, ‘demand’ will appear. Inflation accelerates. 

  Hyperinflation is a possibility. It is not yet well-understood how this develops. There are multiple theories on the process. But historically, nearly all hyperinflations have been caused by government budget deficits financed by money creation. And that condition for sure is present in Japan.

  Once the bond market realizes what is happening, the game is over. The JGB market will crash. The ‘widowmaker’ will make millionaires of the ones still hanging on. There will be a fiscal crisis. Panic develops. A banking crisis ensues, as yen denominated asset prices and the yen itself both crash.

  Japan leads the way

  The most scary prospect is that Japan is our leading indicator. Remember what we heard after the financial crisis. The US was not Japan. Europe was not Japan. There was not going to be deflation here. We were smarter. We learned Japan’s lessons. Well, as we’re heading into 2016 you would be hard-pressed to find anyone who would deny that the US, and especially Europe, both struggle with anemic growth and deflation. Despite all the extraordinary efforts of the Fed and ECB.

  Japan does lead our way. One morning, Japan’s experiment will reach its logical conclusion. The sun will rise in the East and the world will be a different place. That morning might arrive sooner than you think.

  >>> Protect Your Wealth: Download our Exclusive Gold Report

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• ISIS Axis Assemble! Turkey To Establish Military Base In Qatar

  As we never tire of reminding readers, it’s critical to understand that the conflict in Syria, as interesting and important as it is in isolation, is part of larger story. As we documented in “Mid-East Coup: As Russia Pounds Militant Targets, Iran Readies Ground Invasions While Saudis Panic,” an epochal shift is taking place in the region

  Preserving the Assad government is absolutely critical for Iran. Syria serves as a key link between Tehran and Hezbollah in Lebanon and were Damascus to fall to a Western puppet government, Iran’s so-called “Shiite crescent” would wane. Riyadh, Doha, and Ankara know this of course and would like nothing more than to push the Iranians out of the Arab Peninsula, and ideally, undercut Tehran’s influence in Iraq as well.

  The conflict in Yemen is the same story. Iran backs the Houthis and just about the last thing the Saudis, Qatar, and the UAE want to happen is for Iran to effectively establish a colony on Riyadh’s southern border with a cozy view of the  Bab-el-Mandeb. That explains why the Gulf monarchies have put so much effort into driving the Houthis back and why the they won’t likely stop until Sana’a is recaptured (even if a few MSF hospitals and a UNESCO world heritage site have to be destroyed along the way).

  In short, this is an all-out regional Sunni vs. Shiite proxy war with the US backing the Sunnis and Russia backing the Shiites. If Iran and Russia win, Tehran will have cemented its foothold in Syria and Iraq just as international sanctions are lifted. If the Saudis win, the status quo will be preserved only with a “friendly” government in Damascus and a restored Hadi regime in Yemen. 

  With the stakes so high, it’s no wonder that all sides are sparing no expense. The Saudis are pouring resources into the Yemen fight even as Riyadh’s fiscal deficit has ballooned to some 20% of GDP in the face of slumping crude prices. Qatar and Turkey are funneling weapons and money to proxy armies in Syria and Ankara is apparently willing to risk its international reputation on the way to facilitating the ISIS oil trade. Meanwhile, Russia is all-in on the air campaign in Syria and Iran has committed Hezbollah, thousands of Iraqi Shiite militiamen, and its most important generals to Assad’s cause.

  As Hezbollah advances on Aleppo under cover of Russian airstrikes, the anti-Iran/anti-Assad nexus is getting concerned. Recall that in October, Qatar hinted at direct military action in Syria when Foreign Minister Khalid al-Attiyah told CNN that “if a military intervention will protect the Syrian people from the brutality of the regime, we will do it [along with] our Saudi and Turkish brothers.”

  Well don’t look now, but Turkey is set to establish a military base in Qatar in order to help the countries “confront common enemies.” As Reuters reports, “establishment of the base, part of an agreement signed in 2014 and ratified by Turkey’s parliament in June, intensifies the partnership with Qatar at a time of rising instability and a perceived waning of U.S. interest in the region.”

  

  “The two countries have provided support for the Muslim Brotherhood in Egypt, backed rebels fighting to overthrow Syrian President Bashar al-Assad and raised the alarm about creeping Iranian influence in the region,” Reuters goes on to note, adding that “3,000 ground troops would be stationed at the base – Turkey’s first overseas military installation in the Middle East – as well as air and naval units, military trainers and special operations forces.”

  The deal also opens the door for Doha to establish its own base in Turkey in the future. “Turkey and Qatar face common problems and we are both very concerned about developments in the region and uncertain policies of other countries,” Turkey’s ambassador to Qatar Ahmet Demirok said. “We confront common enemies. At this critical time for the Middle East cooperation between us is vital.”

  Yes, “more cooperation” is “crtical.” Because the current level of cooperation apprently hasn’t created enough instability and outright carnage. 

  Bear in mind that this comes just as speculation is running high regarding the possibility that the US, Saudi Arabia, Qatar, and Turkey may soon look to send in tens of thousands of ground troops to Iraq (and possibly Syria). The takeaway is this: even as Germany (and next France) seem to be moving towards a more cooperative approach when it comes to coordinating with the Assad government in the war on terror, Saudi Arabia, Qatar, and Turkey’s resolve to see the Syrian government fall has only hardened. The question is whether the US will continue to back its allies in the region or follow Germany down a more conciliatory path when it comes to dealing with the Syrian “problem.”

  

  

  

  

  

• Weekend Reading: All About Janet

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Well… she did it. After eleven years of maintaining emergency rates in order to boost asset prices, valuations, speculative debt accumulation back to pre-financial crisis levels, Janet Yellen officially hiked rates this past week.

  More interesting was that while banks are getting paid more on excessive reserves, and hiked the lending rates, they have not offered to share any of their new found income with savers. Of course, that revelation should not really surprise anyone at this point.

  However, as I discussed earlier this week, there is a nagging question as to why they would raise interest rates at this late juncture in the economic cycle.

  “With economic growth currently running at THE LOWEST average growth rate in American history, the time frame between the first rate and next recession will not be long.

  

  However, as I have stated many times in the past, it is quite likely the Fed is already well aware that we are very late in the current economic cycle. For them, the worst of all possible outcomes is being caught at the “zero bound” of interest rates when the next recession begins which removes one of the more effective policy tools at their disposal.

  For investors, there is little “reward” in the current environment for taking on excess exposure to risk assets. The deteriorating junk bond market, declining profitability and weak economic underpinnings suggest that the clock has already begun ticking. The only question is how much time is left.

  This week’s reading list is a compilation of opinions on the Federal Reserve’s latest actions and the myriad of potential outcomes that are expected. How you choose will be very important, so choose wisely.

  ---

  1) Yellen, You’re Nuts by Karl Denninger via Market Ticker

  “The effective fed-funds rate has been running at 0.15% for a bit now. To ‘raise rates’ to 0.25% the net change in system liquidity required is about 60%.

   

  This is math folks. It’s the reason The Fed has a monstrous balance sheet; they had to in order to influence rates the way they wanted to on the way down. But to reverse that policy you must unwind that which you did in exactly the same sort of fashion.

   

  So how much does The Fed have to drain themselves? I don’t know and neither do they. But that they have to reduce the amount of the ‘overfill’ in the liquidity pool by some 60% isn’t conjecture, it’s arithmetic.

   

  We’ll see if the EFF actually moves in coming days as they “desire” and where the drain comes from. But this much is certain: If the rate does move, the drain will have occurred somewhere.”

  But Also Read: Fed Raises Key Rates by Binyamin Appelbaum via NY Times

   

  2) Yellen Takes A Huge Gamble by Ambrose Evans-Pritchard via The Telegraph

  “The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world.”

  

  But Also Read: Fed Finally Raises Rates, Pent-Up Risks Emerge by Greg Ip via WSJ

   

  3) Overoptimistic Fed Strains Credibility On Forecasts by Lindsay Dunsmuir via Reuters

  “But Fed policymakers have a mixed record in predicting the nation’s economic health, casting doubt on their ability to set a rate path that will keep one of the longest-running yet most anemic recoveries in modern history on track.

   

  An analysis of the rate-setters’ year-ahead projections over the past five years shows they have generally overestimated real GDP growth and inflation, while underestimating improvement in the unemployment rate.”

  
  But Also Read: A Fight For The Soul Of The Fed by Jeff Spross via The Week

   

  4) Rate Hike Marks Start Of Correction by Michael Gayed via Market Watch

  “Several signs are flashing red, indicating that a correction may be about to begin just as the Fed begins hiking rates. The zero-interest-rate policy has created massive distortions and a surprisingly large number of false positives when tracking historically proven leading indicators of corrections and volatility.

   

  Perhaps the time has come for the bull market in risk management to make a comeback as the Fed slowly takes the punchbowl away. Regardless of one’s opinion, quantitative inter-market relationships which over time have shown their worth are signaling to watch out.”

  But Also Read: How The Fed Just Launched The Next Bear Market by Tyler Durden via Zero Hedge

  

  5) Rate Hike And The Potential For Recession by Edward Harrison via Credit Writedowns

  “So let me give you a scenario here. In an environment in which earnings are shrinking and oil prices are declining, capital investment gets cut. And then the question becomes how much residential investment and consumer consumption growth can overcome this factor.

   

  In a Goldilocks scenario low rate lock-in behavior causes borrowers to pull forward their borrowing decision, pushing up credit growth while the energy sector works through its malaise and the baton is passed to wage growth to do the heavy lifting of maintaining consumer spending . That’s what the Fed hopes will happen.

   

  In a worst case scenario, the real economy effects of the oil sector and the earnings slowdown hit the frothy commercial real estate and REIT sector, which in turn begin the widening of the contagion begun by energy high yield. Combine this with the sudden stop to lower quality energy credits I believe is inevitable and you likely have stall speed – or even recession. And that’s where subprime auto ABS, student loan securitization and US munis come into the picture for the US domestic economy. Those markets get hit in recession.”

  But Also Read: Rate Hike Will Help The Economy by Drew Greenblatt via Inc.

  ---

  MUST READS

  • Record Outflows Slam Debt Funds by Tyler Durden via Zero Hedge
  • The Collapse Of The Galactic Economy by Jed Rosenberg via Bloomberg
  • The US Has A Serious Start-up Slump by Robert Samuelson via Real Clear Markets
  • Every Central Bank Has Regretted Hiking Rates by Matt O’Brien via The Atlantic
  • Paul Ryan Throws In A $1.1 T Towel by Stephen Bannon via Brietbart
  • Seven Thoughts On The Markets by David Merkel via Aleph Blog
  • Unintended Consequence Of Negative Rates by Wolf Richter via Wolf Street
  • The Fed’s Real Policy Error by John Hussman via Hussman Funds
  • Is This A Replay Of 2008 by Paul La Monica via CNN Money
  • When The End Of The Bubble Begins by David Stockman via Contra Corner

  ---

  “Where are the customer’s yachts?” – Fred Schwed, Jr.

  

  

  

  

  

• 'Twas The Hike Before Christmas

  “Christmas at my house is always at least six or seven times more pleasant than anywhere else. We start drinking early. And while everyone else is seeing only one Santa Claus, we’ll be seeing six or seven.”

  – W.C. Fields.

  ‘Twas the hike before Christmas, and all over the shop
  Short end traders were waiting for prices to drop.
  Bloomberg and Reuters, the FT all there
  To capture the moment – if Yellen would dare.

   

  Stockbrokers slept fitfully, dreaming of when
  Fed policy meant lower rates, thank you Ben;
  The hedgies, meanwhile, partied on in their yachts,
  With barely a thought of ascending Fed dots.

   

  Commodities managers searched in despair
  For solace, in cupboards, but cupboards were bare.
  BRIC managers looked at each other in shock,
  With a new acronym for EM markets – COCK.

   

  The dollar was rallying, higher and higher –
  For frontier debt markets, a funeral pyre.
  There were sellers of iron ore, zinc, copper and gold;
  What was mined or extracted got ruthlessly sold.

   

  And CNBC then went live with its anchors
  Though all in the market considered them disappointing,
  The cameras all turned to report news from Janet,
  The Fed chief who lived on a different planet.

   

  “Information received since we met in October.”
  But by now there was nobody left who was sober;
  So when she announced her first quarter-point hike,
  Since nobody heard her, all markets did spike.

   

  The Nasdaq went higher, the S&P too;
  The bond market loved it, and Treasuries flew.
  The Far East went mental and over in China
  The rally in mid-caps could not have been finer.

   

  At which point a figure in red fled the room,
  Concerned that he’d caused an untenable boom.
  The Santa Claus Rally* was with us all right –
  “Happy Christmas to all, and to all a good night!”

  *Ends December 24th.

  Source: SovereignMan.com
  

  

  

  

  

  

• The Exception

  “Exceptional” American…

   

  

   

  Source: Townhall.com

  

  

  

  

  

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• Financial Warfare & The Big Reset: Koos Jansen Interviews Willem Middelkoop

  Submitted by Koos Jansen via BullionStar.com,

  The very reason I became interested in gold after the financial crisis in 2008 was because of Dutch gold guru, author, journalist, entrepreneur, and fund manager Willem Middelkoop. When I started reading his books I was immediately obsessed with economics and the gold market – along with thousands of others across the world.  Who would have thought that I would become a precious metals analyst a few years later?

  It was an honor to have contributed to Willem’s latest book The Big Reset with translations from Chinese policy makers that stimulate their citizenry to accumulate physical gold and my initial research into the Shanghai Gold Exchange that revealed Chinese gold demand was approximately twice a large as what was previously thought in the English-speaking world.

  When The Big Reset was first released in January 2014 I’ve conducted an interview with its author about the inevitable reset of the international monetary system (the interview was published in two parts on this blog – one, two). Since then a lot has happened in the global realm of economics and at the same time The Big Reset became an international best seller. As we speak The Big Reset has been translated in Dutch, German and Chinese and is expected to appear in Portuguese, Arabic, Polish and Vietnamese.

  To keep up with the most recent developments Willem has added 70 pages in the revised edition of The Big Reset. For me a reason to have another chat with him about what he saw has happened in the past two years:

  The Big Reset

  J: Is it a coincidence that after the financial crisis more tensions between the West and East emerged and is there a financial war played by the US?

  WM: Economic warfare aims to capture or otherwise control the supply of critical economic resources or destroying a country’s currency.  The US understands better than anybody else that a country can sometimes be hurt more by doing this than by bombing its infrastructure. A recent example of financial economic warfare was the sudden crash of the price of oil and value of the ruble soon after the annexation of the Crimea by Russia, in the second part of 2014. In less than six months the price of oil halved. This large drop could not be explained by fundamentals like supply and demand. Some market commentators said it reminded them of the Cold War era when the US and the former USSR competed not only in a military way, but also tried ‘to play the economy’. Because the USSR was increasingly more dependent on food imports, especially grain, the export of oil had to bring in enough dollars. The US decided to use its influence on Saudi Arabia (OPEC) and persuaded them to expand the supply of oil, making the oil price plunge in the 1980s. It would soon prove to be a fatal attack for Russia and the Soviet Union collapsed in 1991. The fact that Saudi Arabia in 2014 again increased its oil production fuelled rumours of a new economic war against Russia. The collapse of the oil price led to collapse of the Russian ruble. The Russian Sberbank, confirmed that it had come under a financial economic attack in December 2014. Herman Gref, CEO of Sberbank, disclosed a foreign-based attempt to provoke a bank run during the December ruble crisis. In an interview he said that about $6 billion had been withdrawn from the Sberbank in a single day after a massive information attack, with people receiving text messages saying Sberbank was facing problems paying out deposits. Thousands of SMS-messages were sent, including a large number of mailings done from foreign websites.

  

  Willem Middelkoop

  J: What more do you see around the world in terms of financial warfare?

  WM: In May 2015, the US had a number of high-ranking FIFA officials arrested in Switzerland in connection to a bribery case. Most observers did not understand that the US action was designed to pressure FIFA, ‘urging it to consider removing Russia as host of the 2018 FIFA World Cup because of its role in the Ukraine crisis and occupation of Crimea.’ China and Russia were also shocked to learn how the SWIFT international payment system was used as a means to attack Russia. In 2014, the United Kingdom pressed the EU to block Russia from the SWIFT network as a sanction for the Russian aggression in Ukraine. China responded quickly and launched its own alternative, the China International Payment System (CIPS). In addition, by 2012 SWIFT disconnected all Iranian banks from its international network. Alastair Crooke, a former MI6 official is one of the few individuals who has been very open about the purpose of this kind of financial and economic warfare.

  J: Is this all meant to defend the US dollar hegemony?

  WM: In a book, ‘Treasury’s War,’ the tool of exclusion from the dollar-denominated global financial system is described as a ‘neutron bomb.’ When a country must be isolated, a ‘scarlet letter’ is issued by the US Treasury that asserts that such-and-such bank is somehow suspected of being linked to a terrorist movement – or of being involved in money laundering. The author of ‘Treasury’s War’ Juan Zarate, chief architect of modern financial warfare and a former senior Treasury and White House official, writes this scarlet letter constitutes a more potent bomb than any military weapon. With Ukraine we have a substantial, geostrategic conflict taking place, being part of a geo-financial war between the US and Russia.

  J: What’s China’s roll in this?

  WM: It has brought about a close alliance between Russia and China. China understands that Russia constitutes the first domino; if Russia is to fall, China will be next. These two states are together moving to create a parallel financial system, disentangled from the Western financial system. That’s why both are accumulating so much physical gold. It includes replicating SWIFT and creating entities such as the Asian Infrastructure Investment Bank. One of the principal tools in the hands of Washington to control the global system was always the International Monetary Fund (IMF). Nations have to go to the IMF to ask for financial help, when in difficulties, but recently it was China – and not the IMF – which bailed out Venezuela, Argentina and Russia as their currencies crashed. China became concerned when the ruble crashed late 2014, and intervened to halt a run on the currency. The IMF and the World Bank are no longer at the center of the global financial order.

  J: Why is this dollar hegemony so important for the US?

  WM: ‘Great nations have great currencies and great currencies can give countries great power so they can even grow into empires’, political scientist Jonathan Kirshner once said. In order to maintain its monetary hegemony, the United States must weaken any potential competitors who will possibly challenge the US monetary hegemony. Wars in the Middle East are fought to strengthen the dollar’s position and fight regimes that have been supporting Russia. General Wesley Clark, the Supreme Allied Commander of NATO during the 1999 War on Yugoslavia, confirmed in an interview that the US had decided to work toward regime changes in seven countries, in order to secure US interest in the region before any new world power might arise.

  J: Through the dollar the US has unlimited powers?

  WM: Any country, like the US, that issues the dominant world reserve currency has almost limitless power to finance other countries. It gives the monetary hegemony ‘exorbitant privilege,’ as the French remarked in the 1960s. Because it can print the world currency the US can buy anything it wishes without having to worry about its liabilities. While the Soviet Union collapsed because they had to import food with hard-earned dollars from their oil exports, in the 70s and 80s, the US could start the Korean War and the Vietnam War with freshly printed greenbacks. By ‘obliging’ foreign central banks to keep their monetary reserves in Treasury bonds, the US in fact forced them to finance US military spending abroad, as Michael Hudson explains in his book ‘Super Imperialism’.

  In this new form of imperialism, the US is able to rule not through its position as world creditor, but as world debtor. America’s weakness as a debtor country has indeed become the foundation of the world’s monetary and financial system. A Chinese market commentator once remarked: ‘World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy … a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US … Everyone accepts dollars because dollars can buy oil.’ Only when dollar-holding nations decide to buy natural resources instead of US treasuries, is the dollar’s reserve currency status in danger. This is exactly the exit strategy China and Russia seems to be playing right now. In recent years, the Russians have sold most of their dollar holdings, while they tripled their gold position. The Chinese have stopped buying extra US Treasuries since 2010 while they have imported and invested in huge amounts of gold. These developments signal the first stages of the US dollar’s decay.

  

  

  

  

  

• Markets Brace For More Fund Liquidations As Record Outflows Slam Debt Funds

  Among the fixed income community, this week’s most important number, more so than the pre-telegraphed 25 bps increase in the Fed’s interest rate, was the weekly report of capital flows in and out of bond funds by Lipper/EPFR, which came out moments ago and which following last week’s junk bond fund fireworks involving Third Avenue and several other gating or liquidating funds, was expected to be a doozy.

  It did not disappoint: in the words of Bank of America, there was  “Carnage in Fixed Income” as a result of the largest outflows from bond funds since Jun’13 ($13bn) with outflows concentraing, as expected, in illiquid & low-quality assets.

  The details showed a broad revulsion to all aspects of the fixed income space, from Investment Grade, to Junk to bank loans. To quote Bank of America:

  • Huge $5.3bn outflows from HY bond funds (largest in 12 months)
  •  $3.3bn outflows from IG bond funds (outflows in 4 of past 5 weeks) (2nd biggest in 2 years)
  • $2.2bn outflows from EM debt funds (largest in 15 weeks) (outflows in 20 of 21 weeks)
  • Huge $1.8bn outflows from bank loan funds (largest in 12 months) (outflows in 19 of past 20 weeks)

  Bloomberg, which cited BofA numbers, and yet which had different totals was nonetheless close enough. It reported that investors “pulled $3.81 billion from U.S. high-yield bond funds in the past week, the biggest withdrawal since August 2014, according to Lipper.”

  The FT’s numbers were even more different:

  Investment grade bond funds in the US have been hit with a record wave of redemptions, a week after two high-yield funds announced they would shutter and another barred withdrawals as the credit market showed further cracks.

   

  Investors withdrew $5.1bn from US mutual funds and exchange traded funds purchasing investment grade bonds — those rated triple B minus or higher by one of the major rating agencies — in the latest week, according to fund flows tracked by Lipper.

   

  The figures, the largest since Lipper began tracking flows in 1992, accompanied another week of $3bn-plus withdrawals from junk bond funds.

  Whatever the real number, the result is clear: investors have launched a feedback loop where lower bond prices lead to more redemptions which force more selling, leading to more redemptions and so on.

  As Bloomberg reminds us, the average yield on junk bonds jumped to more than 9 percent on Dec. 14 for the first time since 2011, according to Bank of America Merrill Lynch indexes. And yet despite endless laments that there is “not enough yield”, investors couldn’t get out fast enough. It appears investors aren’t “starved for yield”… they are simply “starved for safety in numbers.”

  “The negative headline feeds upon itself,” Ricky Liu, a money manager at HSBC Global Asset Management told Bloomberg. “And if you are in a poorly performing retail fund, there is also the concern that there could be more pain to follow. The commodities space is still a pretty big part of high yield and there is no relief there yet.”

  The visual breakdown: junk bonds.

  

   

  Bad news for buybacks: Investment Grade outflows soared in the last week to the highest in over a year driven entirely by redemptions from mutual funds, and offset by a small injection in IG ETFs.

  

   

  Total fixed income fund flows.

  

  But the one category that was certainly the most interesting, is the one we highlighted earlier today when we said “the one asset class that has so far slipped through the cracks, but which will be very closely scrutinized in the coming weeks now that rates are rising: leveraged loans.” The reason: the underperformance in leveraged loans so far this year is on par if not worse than that of junk bonds.

  

   

  Result: bank loan funds just recorded their 2nd biggest outflow since August 2011.

  

  And longer term.

  

   

  The bottom line: as new investor liquidity evaporates and as billions are redeemed first from the junk bond universe, then investment grade and then loans, the debt crisis which was unleashed in anticipation of the Fed’s rate hike, is about to get much worse, and lead to even more prominent hedge fund “gates” and liquidations, while in the equity space, the lack of Investment Grade dry powder means that buybacks are about to grind to a halt.

  

  

  

  

  

• All Of The World’s Money And Markets In One Visualization

  By Jeff Desjardins of Visual Capitalist and the Money Project
  

  How much money exists in the world?

  Strangely enough, there are multiple answers to this question, and the amount of money that exists changes depending on how we define it. The more abstract definition of money we use, the higher the number is.

  In this data visualization of the world’s total money supply, we wanted to not only compare the different definitions of money, but to also show powerful context for this information. That’s why we’ve also added in recognizable benchmarks such as the wealth of the richest people in the world, the market capitalizations of the largest publicly-traded companies, the value of all stock markets, and the total of all global debt.

  The end result is a hierarchy of information that ranges from some of the smallest markets (Bitcoin = $5 billion, Silver above-ground stock = $14 billion) to the world’s largest markets (Derivatives on a notional contract basis = somewhere in the range of $630 trillion to $1.2 quadrillion).

  In between those benchmarks is the total of the world’s money, depending on how it is defined. This includes the global supply of all coinage and banknotes ($5 trillion), the above-ground gold supply ($7.8 trillion), the narrow money supply ($28.6 trillion), and the broad money supply ($80.9 trillion).

  All figures are in the equivalent of US dollars.

  

  Courtesy of: The Money Project

  

  

  

  

  

• We Disappeared Some Folks: Details Emerge In China's Sweeping Probe Of Stock Market Rescue

  It was exactly one week ago today when we reported that Guo Guangchang, a self-styled Chinese Warren Buffett worth some $7 billion, had disappeared. 

  

  For those who follow developments in China’s capital markets, it was obvious what had happened. Guo was swept up in Xi’s campaign to root out misconduct tied to the country’s equity market meltdown and subsequent government-engineered rescue effort. 

  Dubbed “kill the chicken to scare the monkey,” the witch hunt has ensnared a number of high profile government officials and bankers tied to Beijing’s plunge protection “national” team, which poured in excess of CNY1.5 trillion into Chinese stocks in Q3 in a desperate attempt to push back against an epic unwind in the half dozen backdoor margin lending channels that helped push stocks to nosebleed valuations earlier this year.

  

  Guo’s detention (he was allegedly met by authorities when he arrived in Shanghai on a flight from Hong Kong) sent shockwaves through Chinese markets. “His disappearance will fuel anxieties in the private sector that the anti-corruption crackdown launched by President Xi Jinping three years ago is being extended to high-profile entrepreneurs,” FT noted last week. 

  Guo has since resurfaced, but the crackdown – which, you’re reminded, is led by Fu Zhenghua, a former Beijing police chief responsible for orchestrating an infamous prostitution bust, a campaign against “popular bloggers whose sometimes anti-establishment comments drew the ire of party leaders,” and a decree prohibiting police officers from drinking alcohol outside of their homes – continues unabated. On Thursday, we get still more details about Beijing’s comical crusade courtesy of WSJ who notes that the focus of the probe has shifted squarely to members of the national team. 

  “Communist Party graft busters have been taking officials, one by one, to a hotel close to the [CSRC’s] headquarters to press them to come clean or report on others,” The Journal says, adding that “the investigators also have set up shop on the top floor of the agency’s 22-story headquarters in downtown Beijing, banned agency officials from leaving China and set up a hotline and red mailbox in the lobby for anonymous tips.”

  We’re also now beginning to understand the connection between Guotai Junan Chairman and CEO Yim Fung, Citic executives Jun Chen, Jianlin Yan, Xu Gang, hedge fund manager Xu Xiang, and CSRC vice chairman Yao Gang. Here’s more from The Journal: 

  Authorities have arrested or put under corruption probes major figures including executives at well-connected brokerage Citic Securities Co. and a highflying hedge-fund boss suspected of insider trading.

   

  The CSRC has grown in importance as China’s leadership seeks to turn the nation’s underdeveloped capital markets into a viable corporate funding source. 

   

  The top official accused so far is Yao Gang, 53 years old, until recently its vice chairman and a rising star within the party.

   

  On Nov. 13, the commission said Mr. Yao was taken away for “suspected serious violation of party discipline.” The officials with knowledge of the matter say investigators are probing whether Mr. Yao leaked classified information about the government’s market rescue to executives at brokerages including Citic Securities and Guotai Junan Securities Co. so they could buy stocks before they were purchased by state funds.

   

  “The focus of the investigation is on him potentially having enabled those big brokerage executives to make a killing at the expense of the nation’s interest,” one of the officials said. “Another question is whether he received any personal gains in return.”

  Apparently, Yim Fung has known Yao Gang for at least 15 years. Both worked at Guotai, and “they’ve been friends since then.” Beijing is also probing CFS, the state-sponsored margin lender under CSRC’s control.

  At this point, it’s not entirely clear what Xi is trying accomplish. We already know selling and especially short selling can “get you buried real quick” (to quote Black Mass) in China, and it now appears front running (in this case buying ahead of the plunge protection team) is a one way ticket to a Politburo prison as well. 

  With 15% of the market still halted, and with further yuan turbulence dead ahead, China may want to consider whether abducting executives and hauling them off to clandestine interrogation sessions in hotel rooms is the right approach when it comes to promoting the liberalization of capital markets and projecting the “right” image to the rest of the world on the eve of the yuan’s SDR inclusion.

  

  

  

  

  

• Gold & The Federal Funds Rate

  Submitted by Pater Tenebrarum via Acting-Man.com,

  Wrong Assumptions

  It is widely assumed that the gold price must decline when the Federal Reserve is hiking interest rates. An example is given by this recent article on Bloomberg, which informs us that SocGen believes “gold will be a casualty of Federal Reserve policy”. Never mind that the assumption that the Fed will now be able to simply embark on a “normal” rate hike cycle is in our opinion utterly absurd. It will only do that if the inflation genie unexpectedly gets out of the bottle, and is guaranteed to remain “behind the curve” if that happens (more on this further below).

   

  

   

   

  It seems logical enough: gold has no yield, so if competing investment assets such as bonds or savings deposits do offer a yield, gold will presumably be exchanged for those. There is only a slight problem with this idea. The simple assumption “Fed rate hikes equal a falling gold price” is not supported by even a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one!

  Let us look at exhibit one – the 1970s:

   

  

  So the gold price is falling when the Fed hikes rates? Not in the 10 years depicted above, when it did the exact opposite. It rose by 2,350% over the decade, and the vast bulk of the increase happened while the FF rate rose sharply. Gold did however plunge by almost 50% in a mid cycle correction from late 1974 to mid 1976 – while the FF rate actually went down – click to enlarge.

   

  So the guessers at SocGen might actually have improved their statistical odds a bit if they had said “now that the Fed is hiking rates, gold prices should rise”. The reality is though that even if they knew perfectly well what the Fed was going to do next year – which they don’t, as not even the Fed itself knows – they could not possibly make a correct gold price forecast based on that information.

  Let us look at a few more historical data – here is the gold price and the FF rate from 2001 to 2015. The best interpretation one can come up with on the basis of the raw data is that there simply exists no fixed correlation:

   

  

  Gold and the FF rate since 2001: What the gold price ends up doing seems to have very little to do with the federal funds rate – click to enlarge.

   

  It Simply Isn’t That Simple

  Now, if you have taken the time to read the article at Bloomberg we linked to above in its entirety, you will have noticed that it actually offers no analysis whatsoever. The SocGen analyst quoted by Bloomberg is simply parroting the current consensus.

  In August of 2011, the same guy would probably have told us why gold was certain to go higher over the next year (this is beside the fact that Wall Street loves to hate gold – after all, a rising gold price most of the time coincides with bad business for WS).

  The way markets – and the economy for that matter – appear to be analyzed most of the time is as follows: a ruler is applied to the most recent tred in the data, so as to be able to extrapolate a target. Then stuff is made up to provide “reasons” for the forecast. This is quite an easy exercise, because at any given time, statistical data can be used to support just about any forecast.

  This is why one first needs a correct theory – theory will help to constrain one’s forecasts (certain things are simply not possible) and can be used to properly interpret historical data. The data are practically useless by themselves. Naturally even a reasonably good grasp of theory will by no means ensure that one will be able to make a correct forecast – especially not in terms of timing. Considerable uncertainties will attend any attempt at prediction.

  However, we can be absolutely certain that 99% of mainstream financial and economic analysts will fail to correctly forecast turning points in prevailing trends. The analysts quoted by Bloomberg will never tell us when the trend is going to change.

  Once the trend has changed, they will however begin to “explain” the new trend to us at some point and forecast its continuation – after it has been underway for about three years. In the case of gold it may take a bit longer – last time they realized it was in an uptrend, the trend was about to celebrate its 10^th birthday 🙂

  Obviously, things are not as simple as these analysts are making them out to be.

   

  The Fundamental Drivers of Gold

  We have recently made an updated list of the most important fundamental drivers of the gold price – not necessarily in order of their importance. Moreover, many of these drivers are obviously not independent of each other. Here is the list:

  1. real interest rates, as determined by the difference in market-derived inflation expectations and nominal interest rates
  2. the trend in credit spreads
  3. the steepness of the yield curve
  4. the trend of the US dollar
  5. faith in the banking system’s solvency
  6. faith in the monetary authority
  7. faith in government more generally (with a special focus on fiscal policy)
  8. the trend in risk asset prices
  9. the relative performance of financial stocks vs. the broad market
  10. the rate of change in money supply growth
  11. the demand for money and the desire to increase precautionary savings
  12. the trend in economic confidence in general
  13. the trend in commodity prices

   

  Below we show a simple chart that serves as a quick explanation why the trend in the federal funds rate as such is not relevant to the gold price. It is “simple” in the sense that while it is connected with point one of the above list of fundamental gold price drivers, it doesn’t employ a proper calculation of real interest rates (which would involve deducting expected price inflation rates from nominal interest rates).

  Instead we have merely calculated the real federal funds rate by deducting the annualized rate of change of CPI from the nominal FF rate. This has not only saved us a bit of time (since the proper calculation mentioned above involves more steps), but it also keeps the focus on the one interest rate the Fed actually controls.

   

  

  The “real” federal funds rate vs. the gold price. This obviously provides a much better explanation than the simple (and completely wrong) formula “FF rate up/gold down, FF rate down/gold up” – click to enlarge.

   

  If one looks at the above chart more closely – readers can easily zoom in and out of it by constructing their own version at the Fed’s FRED database (in order to illustrate the point, we will show a close-up of the 1970s period below though) – one can see that even the real FF rate is only part of the explanation, or rather, insufficient as an explanation of the gold price trend.

  In particular once can see that there are considerable leads and lags involved. These partly reflect market expectations of future trends in the fundamental backdrop and partly the influence of the other gold price drivers listed above. In short, it is the totality of contingent circumstances that needs to be considered when attempting to forecast the future trend of the gold price.

  One has to adopt a holistic view of the economy and try to make an educated guess of the future evolution of the fundamental backdrop – always keeping in mind that there is a limit with respect to what can be known about the future. After all, new information constantly emerges – the only true “constant” in the market economy is the fact that is is subject to unceasing change.

   

  

  A close-up of the real FF rate in the 1970s and the gold price reveals significant leads and lags in the negative correlation between these data series. These are based on market expectations as well as the other drivers of the gold price – click to enlarge.

   

  Central Planning Quandary

  We can conclude that it is simply incorrect that a rising federal funds rate “guarantees” further declines in the gold price. On the contrary, one could well argue that the decline in the gold price since 2011/12 very likely already more than fully discounts a period of rising rates.

  One also needs to keep in mind that the Fed finds itself in quite a quandary. It has just begun to hike rates based on the trend in a lagging indicator of the economy (i.e., employment). At the same time, leading economic indicators are already indicating that a recession is probably fairly imminent. How likely is it that a true “rate hike cycle” will even happen?

  If the Fed is correct that CPI statistics will soon show rising price inflation (which they may well, mainly due to base effects), it will be in an even bigger quandary. Any attempt to stay “ahead of the curve” will immediately lead to a dramatic implosion of the asset bubbles it has fostered with its ultra-loose monetary policy in recent years. The economy will be taken right down with them (actually, we believe it is even more likely that the economy will tank before the stock market does).

  What one really needs to consider when thinking about the gold price is whether the idea that the economy is back to “business as usual” has any merit. The answer to this question is a clear and unequivocal no. Globally, the level of debt in the economy has increased by around 60% since the “great financial crisis” of 2008. In the US alone, the broad true money supply has grown by almost 115% since then (as of November 2015).

  In spite, or rather because of these bubble-blowing efforts, the economy has produced the by far weakest recovery of the entire post WW2 period. Nota bene that this applies to the US economy, which has actually stood out as the best performing developed market economy in recent years. Meanwhile, all indications are that this weak recovery will soon succumb to another cyclical recession.

  A recession could easily turn into a truly catastrophic bust if market confidence in the monetary authorities and the sustainability of the huge global debtberg evaporates – which will inevitably happen one of these days. What encore can the authorities offer when (not if) that happens?

  Obviously, gold bulls have been wrong for the past four years and they may well be wrong for a while longer – we don’t think it is very likely, but obviously we cannot rule it out. Then again, prior to that the bears were wrong for 11 years running and gold is still up more than four-fold since late 1999/2000. How much has the S&P 500 gained since 2000? There is a good reason for this discrepancy, and that reason hasn’t disappeared – on the contrary.

   

  Conclusion

  Our assessment is that one simply cannot afford to ignore the fact that gold provides insurance against a potential blow-up of the global fiat money and debt bubble – regardless of its near to medium term price performance. Its performance is in any case only negative in USD terms – in no other currency can gold be deemed to be in a significant bear market. In fact, as we have recently pointed out, it is already making new all time highs in some fiat currencies.

  Gold’s characteristic as a hedge/insurance against the consequences of policymaker machinations has recently gained additional importance in light of the fact that the echo bubble is clearly fraying at the edges already. Sooner or later there will be another full-blown crisis, at which point gold ownership will definitely be of great advantage. It is often said that the only certainties in life are death and taxes, but that is not quite true. There is another apodictic certainty: all booms driven by credit expansion will eventually blow up.

  

  

  

  

  

• Dear Janet, Explain This!

  Having been unable – or unwilling – to answer various reporters' questions with regard the 'odd' timing of The Fed's rate hike yesterday, we thought we would offer just one more chart to question the credibility of the central planners. Plucked from The Fed's own research, last week saw the largest surge in St.Louis Fed's Financial Stress Index (FSI) since August… and as Yellen proclaimed "all clear" the FSI was screaming "Danger" even louder than it did in September – when The Fed folded.

  So, Financial Stress was surging and higher than in September when you folded… WTF Janet?

  

   

  Financial market stress rose sharply in the latest reporting week. For the week ending Dec. 11, the St. Louis Fed Financial Stress Index (STLFSI) measured -0.691, up from the prior week’s revised value of -0.835. Last week’s increase was the fifth in the past six weeks and the largest since the week ending Aug. 28, 2015.

  

  Source: St.Louis Fed

   

  So, Janet, explain that!!

  

  

  

  

  

• Martin Shkreli, "America's Most Hated", "Price Gouging" Biotech Mogul Arrested For Securities Fraud, Released On $5 MM Bond

  Update: Shkreli was released on a $5 million bond after a hearing Thursday, and had his travel restricted to parts of New York. It was not immediately clear how he pleaded to the charges.  Evan Greebel, whom the SEC said was Shkreli’s lawyer, also faces a count of wire fraud conspiracy. He was arrested Thursday and released on a $1 million bail.

  It is unclear if somehow Shkreli got 2.5x leverage on repackaged Collateralized Wu Tang Obligations.

  * * *

  The “most hated man in America” just got arrested for securities fraud.

  • SHKRELI, CEO REVILED FOR DRUG PRICE GOUGING, ARRESTED FOR FRAUD
  • N.Y. LAWYER EVAN GREEBEL ARRESTED IN SHKRELI INVESTIGATION

  MOMENTS AGO: Martin Shkreli leaving FBI after being processed by officials in New York following his arrest.
  https://t.co/qGNZOusfgV

  — CNBC Now (@CNBCnow) December 17, 2015

  Shkreli, the baby faced, former Jim Cramer protege and serial biotech mogul who famously raised the price of a toxoplasmosis drug by 5000% in September, igniting a media and political firestorm in the process, is accused of using Retrophin (a company he founded and ran until he was ousted by the board) as a kind of slush fund. As an aside, you’re reminded that Retrophin once raised the price of a drug used to treat a rare condition that causes reoccurring kidney stones from $1.50 a pill to $30.

  Retrophin claims that after Shkreli’s hedge fund, MSMB Capital, went bust after a $7 million loss on a “disastrous” trade with Merrill Lynch four years ago, he used a series of complex transactions involving Retrophin to pay back MSMB’s investors.

  “Retrophin sued Shkreli in August for misuse of company funds,” Bloomberg recounts. The company “claims he engineered numerous transactions between investors in MSMB and the biotechnology firm.” 

  Retrophin goes on to allege that “Shkreli paid some [MSMB] investors through fake consulting agreements and others through unauthorized appropriations of stock and cash”

  At one point, Shkreli allegedly decided to reclassify a $900,000 investment MSMB made in Retrophin as a loan. So basically, he invested in himself and then decided later that he had actually loaned himself money and needed to pay himself back. Retrophin did indeed pay back the “borrowings” and Shkreli subsequently used the funds to “settle another unrelated legal dispute.”

  As Bloomberg goes on to note, “The Securities and Exchange Commission, which according to court documents opened an investigation into Shkreli in 2012, is expected to file a parallel civil complaint against him, according to people familiar with the matter.”

  While Shkreli is known for laughing in the face of criticism and ridicule, this one might be hard to shrug off. It’s at least possible he could end up banned from running a public company, meaning Turing and KaloBios would need to find new executives (maybe Joe Campbell’s KBIO short will pay off after all).

  

  “Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies,” said Senator Susan Collins, a Maine Republican who ran the recent hearing into the soaring cost of specialty drugs.

  On the bright side for Shkreli, he’ll have plenty of time to listen to the one-of-a-kind Wu-Tang album he bought in May for $2 million if he ends up incarcerated.

  Incidentally, we predicted this might happen way back in September when we said that while “we doubt the SEC will investigate his shorting activity of biotech indices – we are confident the young ‘hedge funder’ will have bigger headaches to deal with soon enough.”

  And as for the ultimate punchline – drumroll – Shrekli had planned a meeting just two days ago with lawyers for incarcerated rapper “Bobby Shmurda” who Shrekli planned to bail out of jail. We’ll close with the following quote from Shkreli, who spoke to Vanity Fair: 

  “We’re actually in discussion to try to bail out Bobby Shmurda. Forget whether you think he’s guilty or not, the guy should not be sitting in jail right now. He deserves a fair trial. He deserves good lawyers. He doesn’t have good lawyers. His label is hanging him out to dry and so I have a conference call tomorrow morning with them (December 15). I’ll show up with $2 million bail money no fucking problem.”

  Better save that $2 million in bail money Martin. You may need it for yourself.

  

   

  Meanwhile, Jim Cramer is getting nervous:

  I hired summer interns from NYC School system program. They sent me this kid Shkreli for a summer. It was part of a program to help kids

  — Jim Cramer (@jimcramer) December 17, 2015

  I did not work at Cramer Berkowitz when they hired Shkreli as an analyst. I had left the firm; It kept my name. Didn’t know him. Period

  — Jim Cramer (@jimcramer) December 17, 2015

  .@ReformedBroker It’s insane. I hired poor high school kids as interns from the NYC program. Trashed for it here! https://t.co/S7te8snLmF

  — Jim Cramer (@jimcramer) December 17, 2015

   

  Full indictment:

  Sh Krel i Indictment

  

  

  

  

  

• ISIS, Al Qaeda And The CIA: The Documented Connection

  The Middle East is fertile ground for conspiracy theories, and one growing to towering heights these days says the US created the Islamic State.  But while the US may well have aided ISIS in its formative days with covert supplies of weapons and CIA funding (directly or indirectly, via Turkey leading political families) the one nation most responsible for iteration after iteration of “terrorist organizations” is Saudi Arabia which “created” not only the Islamic State, but al-Qaeda, al-Nusra, and many other Sunni Jihadist groups in Thailand, the Philippines, Indonesia, India, Pakistan. 

  The US has long been aware of this, of course, and it has provided material support to some of them in the distant past, for example to the Taliban in the war against Russia.  But the more reasonable among us have questioned recent claims that the US intentionally created the Islamic State, a group of the same lineage as the Saudi terrorists responsible for 9/11. 

  Those rejecting a direct link between the US and the Islamic State instead ask a perfectly logical question: why would the US allow a country ruled by monarchs with dark-age-sensibilities get away with attacking us on 9/11, funding al-Qadea in Iraq (a group that killed a few thousand US soldiers), and now the Islamic State?  Two answers: fat, senile Saudi kings are preferable to the Islamic monsters that would replace them in a regime change, and the Bush family/Carlyle Group would prefer not to kill the goose that lays the golden egg. 

  Thanks to the resurrection of “J Pierpont Morgan”, these doubts and questions are no longer reasonable.  They are, in fact, irrelevant.  Because J Pierpont Morgan, apparently experiencing a Scrooge-like transformation, has seen the light.  Yesterday he tweeted three public source documents that conclusively show a Senior CIA Spy- a major figure in operations from South America to the Middle East-is lobbying the US Government to destroy Iraq and formally create an independent Sunnistan on behalf of a Sunni terrorist. 

  Senior CIA spy turned consultant hired by Sunni Iraqi insurgent to destroy Iraq, create formal Sunni-jihad-istan pic.twitter.com/EQasbBp4kB

  — J Pierpont Morgan (@pierpont_morgan) December 17, 2015

   

  That terrorist joined the Iraq insurgency in 2004 under the Al-Qaeda Iraq banner, and was given hundreds of millions of dollars by the CIA and CENTCOM to defect, joining the US-led coalition in the now famous “Surge.”  Known as H.E. Shaykh Abdalrazzaq Hatem al-Sulayman, this self-described prince is the head of a 4 million strong (mostly Sunni) tribe in Anbar, and lived the high life on US taxpayer money- that is until Obama declared AQ and AQI dead, bolted from Iraq and pivoted toward Asia.  No CIA.  No Surge.  No money.  Just the wasteland that is Anbar, and a Baghdad government intent on consolidating power at Sulayman’s expense. 

  His Eminence, with his children in need of Bugatti supercars, flats in London, multiple Vertu mobiles, and an entourage of slaves, did what any good dad would: he created an insurgency called The Anbar Tribes Revolutionary Council in 2013, and solicited funds from Sunni Monarchs and individuals throughout the GCC.  The goal: destroy Baghdad and restore the Sunni to power in Iraq.  His allies: the Ba’ath and ISIS.

  In late 2014 Sulayman connected with Jonathan Greenhill, “former” Senior Operations Officer at the CIA who set up shop in DC as a lobbyist.  Makes sense.  CIA Spy since the early 1980s, probably living oversees under non-official-cover, comes home to lobby Congress.  Anyway, Mr. Greenhill incorporated the Greenhill Group, and Sulayman retained him.  One wonders how Sulayman became aware of Greenhill’s lobbying venture. 

  

  

   

  Mr. Greenhill’s LinkedIn page says he “conceptualized and executed one of the Agency’s most successful counterterrorism covert action operations while leading a CIA Base in an exceptionally dangerous, high stress war zone environment.”  Might that be the Surge?  Might Mr. Greenhill have played a role in funneling hundreds of millions of dollars to members of the AQ Iraq insurgency like Sulayman? 

   

  

   

  Oddly enough, Mr. Greenhill has a Facebook page too.

  Who knows?  What we do know is one of the most important spies in the CIA, one with a major role in the Near East (probably Iraq), definitely was retained as a lobbyist by Sulayman.  And Sulayman retained him to “create an autonomous Sunni region in Iraq or an independent Sunni State.”  In other words, destroy Iraq by formally creating and recognizing Sunni-Jihadi-stan.  Or a safe-zone for Sunni terrorists.  Or what it actually is, a caliphate.  It was recently written in the Washington Post that many Shia Iraqis harbor the conspiratorial belief the US created the Islamic State to destroy Iraq.  Conspiracy theory becomes conspiracy fact. 

  h/t @pierpont_morgan

  

  

  

  

  

• Artist's Impression Of The Fed Rate Hike Hangover

  Data-dependent… and unrepentent!

   

  

   

  Source: Investors.com

  

  

  

  

  

• "Let Them Fly There Now": Putin Threatens To Shoot Down Turkish Jets In Syria, Calls Erdogan An Ass Kisser

  It’s been nearly a month since Turkey shot down a Russian Su-24 in what not only represented the most serious escalation to date in Syria’s five year conflict but also marked the first time a NATO member has engaged a Russian or Soviet aircraft in at least six decades.

  The “incident” – which came several weeks after Ankara downed what certainly appeared to be a Russian drone – infuriated The Kremlin, setting off a war of words that culminated in a lengthy presentation by the Russian MoD which purported to prove that illicit Islamic State oil flows through Turkey. Both Putin and a number of other Russian officials have implicated Erdogan and his family in the trafficking of illegal crude and there’s speculation that Ankara’s brazen move to fire on the Russian warplane stemmed from Erdogan’s desire to “punish” Russia for disrupting what Deputy Minister of Defence Anatoly Antonov sarcastically called “a brilliant family business.” 

  As for the Russian foreign ministry, Sergei Lavrov canceled a planned trip to Turkey and Maria Zakharova went so far as to reference Turkey’s infamous political blogger Fuat Avni (a pseudonym) on the way to suggesting that Ankara had been planning to shoot down a Russian fighter jet for at least a month.

  In an effort to ensure that the downing of a Russian warplane in Syria was a “one and done” event, Moscow deployed the Moskva off the coast of Latakia and sent in the S-400 air defense systems (which were rumored to have already been in place). 

  Those moves rattled the US and its partners who fear that a nervous Putin might “inadvertently” shoot down an American, French, or British warplane. Indeed Putin ratcheted up the rhetoric last week. While not detailing ‘who’ he was focused on, the President told a session of the Defense Ministry’s collegium that “I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed.”

  Well, in case that wasn’t clear enough, Putin took it a step further on Thursday. 

  During his annual news conference in Moscow, the Russian President literally dared Erdogan to send Turkish F-16s into Syrian airspace. 

  As Bloomberg reports, “President Vladimir Putin signaled that Russia is ready to shoot down any Turkish military aircraft that strays into Syrian airspace.” 

  “Turkey constantly violated Syrian airspace in the past. Let them fly there now,” he said, pointing out that Russia’s most advanced air-defense system, the S-400, is covering all of Syria.

  

  (in case the S-400s and the Moskva should prove insufficient, Putin always has the “hands on” option)

  “This is the 11th press conference Putin will have with Russian and international journalists during the three terms he has served as head of state,” Sputnik notes. “These large press meetings, held once a year, usually last several hours. Almost 1,400 journalists have received accreditation for this year’s event.” 

  As for whether The Kremlin thinks the US was in any way involved in the downing of the Russian warplane, Putin said he wasn’t aware of any American involvement, but did suggest (literally) that Erdogan may have been trying to kiss Washington’s ass or, in Bloomberg’s more politically correct terminology, “Turkey may have been trying to curry favor with the largest member of NATO”.

  Putin: “If someone in Turkey decided to kiss Americans on a certain body part, I don’t know whether it was right or not.”

  Watch the full video below.

  For those who missed it, here’s an infographic look at the S-400:

  

  

  

  

  

• America, It's Over! Yale Students Sign Petition To Repeal First Amendment

  Satirist Ami Horowitz tests the waters at Yale University to see if today's Ivy League students would actually sign a petition to repeal the First Amendment…

  It goes exactly how you might think it would…

   

  Within an hour on the Yale campus, Horowitz collected over 50 signatures from student who wanted to repeal a significant part of the Constitution.

  The petition to “blow up” the First Amendment (which protects freedom of speech, freedom of religion, freedom of assembly, freedom of the press, and freedom of petition), was met with such comments as "I think this is fantastic, I absolutely agree," and "excellent," or "I love it."  

  And as DailyCaller noted, one female student ironically agreed with Horowitz when he suggested, "I think the Constitution should be one big safe space."

  *  *  *

  To sum it all up… America, It's Over!

  

  

  

  

  

• Dramatic Footage Of Reporters Mugging Martin Shkreli At Brooklyn Courthouse

  The last time the frenzied media was mugging an alleged financial criminal with utter abandon took place 7 years ago, when days after the Lehman collapse, respected “fund manager” Bernie Madoff was found to be nothing but a $60 billion Ponzi scheme.

  

   

  And while we don’t know if the emergence of the latest “financial criminal of a generation”, America’s most hated man Martin Shkreli, who earlier today was arrested and is facaing both civil and criminal charges and up to 20 yeasr in prison, is indicative of another Lehman-like even, what we do know is that a scene such as the one which unfolded in front of a Brooklyn courthouse, where dozens of reporters mugged the diminutive and scandalous figure after he posted a $5 million bond to be released back into society, is something that has not happened since Bernie Madoff’s time.

  MOMENTS AGO: Martin Shkreli leaves court in large media scrum, makes no comment about his case.
  https://t.co/V1quu2usTh

  — CNBC Now (@CNBCnow) December 17, 2015

  Also earlier the FBI took an opportunity to explain that since there was no seizure warrant at Shkreli’s arrest, the infamous Wu-Tang clan album still remains in Shkreli’s possession.

  #Breaking no seizure warrant at the arrest of Martin Shkreli today, which means we didn’t seize the Wu-Tang Clan album.

  — FBI New York (@NewYorkFBI) December 17, 2015

  Ironically, while it took just months for the full wrath of the US government to crack down on Shkreli, Madoff, whose $60 billion ponzi scheme, somehow operated for three decades and had to blow up on its own before the authorities got involved. Odd how that happens.

  But who cares about Madoff: when talking about financial criminals of unmatched skill and the highest calibre, there really can be only one.

  Jon Corzine on Martin Shkreli: “amateur”

  — zerohedge (@zerohedge) December 17, 2015

  The one seen with Hillary Clinton in the photo below…

  

   

  … The same Hillary Clinton who, incidentally, sealed Shkreli’s fate:

  Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. -H https://t.co/9Z0Aw7aI6h

  — Hillary Clinton (@HillaryClinton) September 21, 2015

  

  

  

  

  

  

• Thursday Humor: Lawyer For Martin Shkreli Hike Fees 5,000%

  Earlier today, the “most hated man in America”, serial biotech entrepreneur and former Jim Cramer protege Martin Shkreli was arrested by the FBI. 

  

  As Shkreli reminded the world earlier this week while discussing an absurd plan to free an incarcerated rapper, coming up with $2 million in bail money is “no fucking problem,” so we assume he’ll be able to afford an OJ-esque legal team. 

  Or will he…

  *  *  *

  A bit of humor, via The New Yorker:

  A criminal lawyer representing Turing Pharmaceuticals chief Martin Shkreli has informed his client that he is raising his hourly legal fees by five thousand per cent, the lawyer has confirmed.

  Minutes after Shkreli’s arrest on charges of securities fraud, the attorney, Harland Dorrinson, announced that he was hiking his fees from twelve hundred dollars an hour to sixty thousand dollars.

  Shkreli, who reportedly received the news about the price hike while he was being fingerprinted, cried foul and accused his attorney of “outrageous and inhumane price gouging.”

  “This is the behavior of a sociopath,” Shkreli was heard screaming.

  For his part, Shkreli’s lawyer was unmoved by his client’s complaint. “Compared to what he pays for an hour of Wu-Tang Clan, sixty thou is a bargain,” he said.

  

  

  

  

  

  

• Refining ISIS Oil: Images From A Syrian Cottage Industry

  From the time Turkey ambushed and downed a Russian Su-24 near the Syrian border late last month, the world has developed a fascination with Islamic State’s illicit and highly lucrative oil smuggling business. 

  Although there are multiple accounts which purport to explain how the group ultimately gets its oil to market, the general consensus is that there are a series of trafficking routes that all converge on the Turkish port of Ceyhan. The Russian defense ministry says it’s identified at least three such routes and a report by Al-Araby al-Jadeed documented the path the illegal crude takes from northern Iraq to the southeast coast of Turkey.

  While no one has yet offered any conclusive evidence to prove that Turkish President Recep Tayyip Erdogan and his family are behind the trade, there’s quite a bit of circumstantial and anecdotal evidence to tie Ankara to “Raqqa’s Rockefellers” (if you will).

  And while everyone loves watching Russian MoD clips of oil tankers barreling across the Turkish border without so much as slowing down, what you don’t see that often are images from the various cottage industries that have grown up around Islamic State’s oil trade. 

  Below are several pictures of a makeshift refinery near Idlib (the site of Tuesday’s Russian airstrike on a fuel market) which Reuters says runs on Islamic State oil. 

  

  Men work at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015. The refinery site, owned by Yousef Ayoub, 34, has been active for 4 months. Ayoub says that he gets the crude oil from Islamic State-controlled areas in Deir al-Zor province and Iraq. The price for a barrel of crude oil varies and is controlled by the Islamic State, but it is currently at $44 dollars per barrel, he said. 

  

  A youth works at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015. Islamic State is looking at potentially vulnerable oil assets in Libya and elsewhere outside its Syria stronghold, where the militant group controls about roughly 80 percent of the oil and gas fields, a senior U.S. official said.

  

  A worker shows off the final fuel product at a makeshift oil refinery site in Marchmarin town, southern countryside of Idlib, Syria December 16, 2015.

  

  

  

  

  

  

  

  

  

  

  

  

• How The Fed Just Launched The Next Bear Market: BofA's Unexpected Conclusion In 8 Charts

  While the afterglow of exuberance remains in stocks, BofAML's Michael Hartnett is less than impressed by what comes next…

  As Fed hikes rates for the first time in 3,460 days, officially ending the era of extreme, abnormal monetary policy in the form of QE and zero rates, what do we see?

   

  Risk assets were very oversold going into the Fed hike…they now bounce.

   

  But the Fed hike follows significant tightening of liquidity; negative blowback is more and more visible, e.g. credit crunch causing less stock buybacks.

   

  And global banks being at all-time relative lows indicate Fed tightening into deflationary expansion, as does the narrow breadth of economic growth, wealth and asset price gains.

  Rising rates and falling profits are not a good combination for asset prices, so we will turn sellers of risk in early 2016.

  
   

  The FOMC In 8 Charts

  The Fed hiked 25bps, thus officially ending an unprecedented era of ZIRP and QE.  Some quick thoughts:

  The BofAML Global Breadth Indicator is on the verge of a tactical "buy" signal (Chart 2). Combined with high cash levels (5.2% in the Dec FMS = "buy signal") and the largest UW of US stocks since Jan'08, this suggests the final "pain trade" of a painful year is a squeeze higher in the most oversold risky assets.

  

   

  The rate of growth of global liquidity (CB balance sheets + global FX reserves) is now shrinking (Chart 3). In the past 15 months, liquidity has unambiguously tightened as Fed QE3 ended, US real rates rose (see USGGT05Y INDEX), and China/OPEC FX reserves fell. Excess liquidity caused excess returns. But returns have been low and volatile in 2015 (cash is outperforming stocks and bonds for the 1st time since 1990) and we think the Fed hike will simply extend this backdrop…at least until stronger US data signals Quantitative Success.

  

   

  Credit and commodities were two big "QE winners". The Fed hike coincides with a marked deterioration in the credit cycle, as evidenced by the widening of credit spreads. Rising rates and spreads means lower debt issuance, which in turn means less money for stock buybacks. Last week's S&P downgrade of Yum was driven by its announcement of a stock buyback program likely to be funded by even more debt. If companies cannot now issue debt to fund buybacks, this marks an important turning point for the stock market. Note wider credit spreads have gone hand in hand with underperformance of the stock buyback theme in recent months (Chart 4). We would thus take profits in any short-term bounce in stocks.

  

   

  In every cycle, higher rates punish financial excess. The commodity crash of 2015 was driven by the combo of tighter liquidity (thus strong $) and excess supply (driven by tech disruption and the zero rate policies of recent years). The widening of Saudi Arabia's CDS (Chart 5) indicates the crash and its secondary impact are still being felt.

  

   

  The end of QE3 in the autumn of 2014 sparked a bull market in QE "losers" such as the US dollar, volatility and cash, and a bear markets in QE "winners", such as EM, commodities & credit. The bear market in EM, commodities, credit would be irrelevant were the Fed hiking into a strong economy and a strong EPS trend. But the Fed is hiking at the same time as global bank stocks are at all-time relative lows versus global stocks (Chart 6). The absence of a bull market in bank stocks and a bear market in government bonds indicates the Fed is hiking into a very "deflationary expansion", hints at Quantitative Failure, and puts great onus on corporate earnings to support asset prices in 2016.

  

   

  Unfortunately US corporate profits are currently falling 4.7% YoY and this has historically been associated with negative US payroll growth (Chart 7).

  

   

  And while the overall stock market looks healthy, it betrays a fragile, deflationary bull market with increasingly narrow leadership (Chart 8).

  

  The Fed's hike still leaves US and global interest rates close to "depression era" levels (Chart 9) and history is littered with examples of central banks struggling to escape from zero rates (Fed 1937, BoJ 1994 & 2000). We will turn sellers of risk in early '16 because rising rates and falling profits are ultimately not a good combination for asset prices.
   

  

  

  

  

  

• A Big, Fat "Policy Error" Or Worse? Find Out Tomorrow

  On Tuesday, the day before Yellen’s historic rate hike, the S&P closed at 2,043. Today, the day after a Fed announcement which everyone cheered overnight as simply fantastic, perfect, “dovishly goldilocks”, and countless other superlatives because it sent the market surging, the S&P closed at…. 2,042. In the process all the euphoric gains from the widely telegraphed Yellen announcement and press conference have been completely wiped out, not just for stocks…

  

   

  … but also for the most “sensitive” asset class in recent weeks, junk bonds which suffered a bruising wipeout today.

  

   

  … and then there is the one asset classess that has so far slipped through the cracks, but which will be very closely scrutinized in the coming weeks now that rates are rising: leveraged loans.

  

   

  All of which begs the question: did algos finally figure out precisely what we said first thing this morning, namely that the market completely ignored what was a hawkish hike..

  Yesterday, in a carbon-copy response to what happened in December 2013 when the Fed announced the Tapering of QE, stocks first sold off then, as if to validate the Fed’s decision as being accurate, saw a dramatic buying surge which pushed them to close just off the highs. With bonds and gold selling off while the dollar rebounded, the Fed could not have asked for – or engineered – a better reaction, while markets, as Bloomberg’s Richard Breslow points out, ‘chose to hear the parts of the statement and press conference that they wanted to.”

   

  That was the easy part. The hard part now is how to ween the market away from the old narrative, the one which has pushed the S&P to record highs over the past 7 years on bad economic news, and to renormalize the market’s own “reaction function” to that of the Fed. The problem is that from day one there is a major discrepancy between the two: as previously observed, the Fed did not deliver the desired dovish hike, and kept its 2016 year-end fed funds rate unchanged at 1.4% suggesting 4 rate hikes in the coming year, and which as Breslow notes means “being less dovish than the meeting previews suggested is now a sign of bullishness on the economy.” This sets the Fed on a collision course with the market because “with the market pricing fewer hikes than the Fed suggests, someone is going to end up being wrong. If we do get four hikes next year, markets (read equities) will need to deal with a hawkish surprise. If the Fed is forced to backtrack, there goes the full-speed ahead theme.”

   

  What this explicitly means is two things: bad economic news is no longer good for the market – after all the dominant paradigm now is one of strong dollar=strong economy=strong S&P (ignoring that the stronger the dollar, the worse the earnings recession sets up to be, the sharper the full economic recession), and that as Breslow concludes, the “Fed needs to focus on the real economy and get out of the QE mindset. I suspect that will be easier said than done.”

  … and that as a result, what Yellen has done, now that the kneejerk reaction is over, is policy error, pure and simple? To be sure, the pancaking of the 2s30s screams “error” and an imminent global deflationary wave:

  

   

  Or maybe it has nothing to do with the Fed, and everything to do with tomorrow’s quad witching. We warned about just this in last week’s “Beware The “Massive Stop Loss.” Recall:

  [The Fed’s rate hike] falls at a peculiar time—less than 48 hours before the largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.

  And what is the number one rule about broken markets? All stops get taken out.The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days!

  This is how we concluded:

  “The irony will be if, regardless of what the Fed does, the subsequent move is driven not by the market’s read through of monetary policy but by the “pin” in this massive $1.1 trillion option expiry, the biggest in many years, one which if recent market action is an indicator, suggests the stop loss strike level will be taken out in the process setting the “psychological” stage for market participants who will look at the drop in the market, and equate it with a vote of no confidence in what the Fed is doing, potentially forcing the Fed to backtrack in less than 2 days! “

  If so, tomorrow’s already illiquid expiration may be an event for the ages, one which may culminate with a Kervielesque-rate cut just days after the historic first ratae hike, only this time the Fed can’t do a 75 bps rate cut in response to one panicked futures trader, so 25 will have to suffice.

  Or perhaps it is neither the Fed, nor tomorrow’s market technicals, and the reason is an old and familiar one. Dennis Gartman.

  This is what the “world-renowned commodity king” said in his overnight letter:

  What then do we make of this? How then are we to invest? What then are we supposed to do? … All we know is that the trend remains upward and it was for that reason that although we were cautious and recommended openly that it was wise, ahead of the Fed’s to become neutral of equities (a position obviously we wish we had not taken, with the benefit of hindsight), we did not and would not recommend being short of the equity market. As we have said for years, and shall say as long as we are able to write TGL on a daily basis, in a bull market there are only three positions that one can have: Aggressively long of equities; modestly long of equities, or neutral of them. As of earlier this week, ahead of the Fed meeting, we advocated neutrality. Now we have to suggest the middle course once again. We’ve really no choice.

   

  There we sit this morning, knowing yet again that these things do not end well, but knowing too that it is better to be modestly long than otherwise.

  The rest is history.

  So tune in tomorrow when, if the JPM “Gandalf” is right again, things are about to get very exciting.

  

  

  

  

  

• Time For A Rate Cut? Dollar Surge Sparks Stocks, Credit, Crude Purge

  From this – "See, rate hikes are awesome…"

  To this…

   

  US equities quickly tumbled as the NY session opened, erasing Yellen's gains, then trod water… then ended the day "NOT OFF THE LOWS"

  

   

  FANGs puked into the close…

  

   

  Leaving S&P, and Dow back in the red for 2015…

  

   

  And while stocks are up for the week, they have just managed to clawback losses from last Thursday's pre-3rd-Avenue close…

  

   

  The concentration (or lack of breadth) is becoming ridiculous…

  

   

  Stocks caught down to credit markets today, which did not explode as exubersatly as stocks yesterday… Today's 24bps decompression in HYCDX is the biggest (ex rolls and last Thursday) widening since October 2014.

  

   

  HYG broke below support…

  

   

  But we note that the tip of the spear in credit continues to utterly collapse…

  

   

  The Long-Bond is now the best-performing asset post-Fed, and crude worst with Gold notably weak…

  

   

  Treasury yields tumbled with the long-end outperforming…

  

   

  Cough "policy error" cough…

  

   

  With the curve smashing 2s30s back below 200bps to 9-month lows…

  

   

  And financials waking up to reality just a little…

  

   

  The USDollar was well bid today… extending gains from the immediate "sell the news" reaction after The Fed…

  

   

  Rallying against all the majors…

  

   

  Of serious note in FX markets was the 9th consecutive weakening of The Yuan… (longest streak since 2008)

  

   

  And the collapse of the Argentine Peso… plunging 30% to catch up with its unofficial rate…

  

  

   

  And some volatility in Mexican Peso as they raised rates…

  

   

   

  USDollar strength sparked weakness across the entire commodity complex with gold and silver suffering…

  

   

  And crude testing new cycle lows…

  

   

  And gold tumbled near cycle lows…

  

   

  Charts: Bloomberg

  Bonus Chart: Well, ok it's not a chart…but still…

  "Who is: Martin Shkreli?" $KBIO pic.twitter.com/jWrLKQmVj3

  — Jeopardy! Stocks (@JeopardyStocks) December 17, 2015

  

  

  

  

• WTF Headline Of The Day: Saudi Millionaire Edition

  Presented with no comment…

   

  

   

  

   

  Read more here…

  

  

  

  

• 3 Things: Tick-Tocks, Stocks, & Shocks

  Submitted by Lance Roberts via RealInvestmentAdvice.com,

  Yesterday, Janet Yellen announced the first hike in the Fed Funds rate in eleven years from .25% to .50%. When asked about why the Fed decided to raise rates now, Ms. Yellen responded by suggesting that the “odds were good” the economy would have ended up overshooting the Fed’s employment, growth and inflation goals had rates remained at low levels. She then went on to state that it was a “myth” that economic growth cycles die of “old age.”

  While such an optimistic outlook for economic growth was certainly welcomed by the markets, both of her statements expose the challenges that lie ahead for the Fed.

  Tick-Tock, The Fed Starts The Clock

  Ms. Yellen is correct in stating that economic growth cycles do not die of “old age.” It is historically the impact of an exogenous impact that ultimately slows economic growth rates into a recessionary cycle. What Ms. Yellen failed to explain is that historically it has been the “tightening” of monetary policies that have been the “exogenous impact” to the economic growth cycle. 

  Looking back through history, the evidence is quite compelling that from the time the first rate hike is induced into the system, it has started the countdown to the next recession. However, the timing between the first rate hike and the next recession is dependent on the level of economic growth at that time. As I stated earlier this week:

  “When looking at historical time frames, one must not look at averages of all rate hikes but rather what happened when a rate hiking campaign began from similar economic growth levels. Looking back in history we can only identify TWO previous times when the Fed began tightening monetary policy when economic growth rates were at 2% or less.

   

  (There is a vast difference in timing for the economy to slide into recession from 6%, 4%, and 2% annual growth rates.)”

  

  “With economic growth currently running at THE LOWEST average growth rate in American history, the time frame between the first rate and next recession will not be long.”

  Given the reality that increases in interest rates is a monetary policy action that by its nature slows economic growth and quells inflation by raising borrowing costs, the only real issue is the timing.

  As Sam Zell noted yesterday:

  “I think this interest rate hike is too late, this economy is closer to falling over than it is to going up. I think there’s a high probability that we’re looking at a recession in the next twelve months.”

  Looking at the historical data above, Zell’s timing appears to be just about right.

  Fed Rate Hikes And Bull Markets

  The other common meme this morning, following yesterday’s rate hike decision is that “stocks have nowhere to go but up.”

  Again, this is a timing issue. If you have a very short-term view, history suggests that stocks do rise on average following an initial rate hike. However, as shown in the chart below, historically rate hikes have occurred when earnings growth was on the rise, not peaking and deteriorating.

  

  Furthermore, as explained by Jason Goepfert of Sentiment Trader yesterday:

  “The S&P 500, gold and 10-year Treasury note yield are all up by more than 0.5% on the day. The knee-jerk assumption from that would be that traders are pricing in higher inflation.

   

  This is occurring on a day the FOMC raised its Federal Funds target rate. If we go back to 1971 and look for every time all three rallied at least 0.5% on a day the Fed hiked rates, we get the following future performance.”

  

  However, if we step our time frame out to longer-term, since we are all supposed to be long-term investors, the outlook becomes rather grim.

  

  In every single instance when the Fed has started a rate hiking campaign, that campaign ended in a market correction or worse. (The Fed then began lowering rates immediately to stop the ensuing carnage.)

  With corporate profits deteriorating, economic growth weak and the dollar surging, the Fed is very late to the game. This puts the time frame between now and the next recession at the very short end of the scale.

  Growth So Bright, Lower Outlook

  One thing that is always interesting is comparing what the Fed “says” during their press conference and then looking at the history of their own forecasts.

  During yesterday’s press conference, Ms. Yellen made several references, as noted above, about the strength of the economy and that despite the surging dollar and collapsing oil prices, everything should continue to improve. The problem is that is NOT what was reflected in their forecasts released along with their announcement.

  The table/chart below shows the history of the Fed’s average range of their estimates going back to 2011 when they started releasing their forecasts as compared to what actually occurred.

  

  Currently, economic growth forecasts for 2016 and 2017 are at their lowest rate since the Fed began predicting for those two years. Furthermore, it is worth noting that for 2015, the Fed had originally estimated growth to be 3.35% rather than the current run rate of 2.2%.

  Furthermore, they lowered their long-term outlook to just 2.05% from 2.25% at the last release.

  

  Yes, please meet the “worst economic forecasters” ever. And while the mainstream media quickly laps up the optimistic outlook of the Fed, you might want to consider their own record of forecasts when making long-term investment bets.

  Based on statistical history combined with the current underpinnings in the market, the outlook really isn’t as bright as Ms. Yellen suggests.