• Why Preppers have it all wrong

  Prepping has not only gone mainstream, it’s infected even the billionaire culture as referenced recently on a ZH article:

  When it comes to “prepping”, many among the elite take things to an entirely different level.  As you will see below, the elite are willing to pay big money for cutting edge home security measures, luxury bomb shelters and superyacht getaway submarines. Some of the things that the elite are demanding for their own protection go beyond even what we would see in a James Bond film, and serving the prepping needs of the elite has become a multi-billion dollar business.  Meanwhile, the media outlets that the elite own continue to mock the rest of us for getting prepared.  All the time we see headlines like this one that appeared in a major American news source: “Preppers: Meet the paranoid Americans awaiting the apocalypse“.  Well, if we are paranoid for setting aside some extra food and supplies for the future, what does that make the people that you will read about in this article?

  Financial prepping has been the mantra of the ‘hedge’ fund community since it started to exist.  Instead of just blindly buying stocks and hoping the market always goes up, ‘hedge funds’ provided a ‘hedge’ in case the market actually didn’t go straight up.  Of course, this is now just for lazy investors, now it’s possible to buy options for almost any situation, and insurance companies will sell insurance for anything – even being abducted by aliens (over 30,000 policies sold in Europe according to Geico).

  Description of the prepper & background

  So let’s take the average prepper, metaphorically speaking.  You have your safe house, stockpile of supplies, food, ammo, tools, toilet paper, shortwave radios and other electronics powered by cranks, etc. etc. etc. (depending on how deep your infection).

  Financially speaking, you keep your savings in a combination of cash (US Dollars, Euros, and Swiss Francs), gold, silver, bitcoin, and bearer bonds.  If you are really savvy, you’re holding the paper on several nearby farms in a fair deal whereby they pay down their principle in cash and interest & fees in milk, beef, and in the summer vegetables.

  You own several properties in the names of charities you’ve setup just for this purpose… ok you get the idea.  Take it to the extreme.  The estute prepper has done all this and more – he’s ready for anything!

  The problem

  Now the calamity comes – whether it be a global pandemic, alien invasion, terrorists, the United Nations with foreign troop invasion – take your pick.  It’s really bad, but you survive – because you are ready for anything!  So now you’ve survived – NOW WHAT?  

  Do you come out of your bunker after the smoke has cleared?  What will you do all day?  What will other survivors do?  Will you try to communicate with other preppers?  What if in the process of that communication – you discover that you are a little more prepared than they, and they trick you into a meet whereby they kidnap you and force you at gunpoint to give up your safe location and supplies?  

  What if there is a secret group of ‘anti-preppers’ who are right now preparing for ways to steal from preppers, based on their security flaws and lack of planning?  

  What if there is a group right now setup by the government, who is monitoring preppers, that within 24 hours of said ‘calamity’ will be taken into custody (or otherwise dealt with).

  What is to stop the military from seizing your supplies, and forcing you to join their chain gang?  

  The problem is that in order to really be ‘prepared’ – one must strive to be a stronger fighting force than the strongest army in the world (be it whatever you think in your opinion) because in a real crisis, the only currencies are 1) intelligence and 2) accelerated lead.  Accelerated lead is a quickly depleting resource whereas intelligence can grow and be self-replicating.  

  Prepping generally speaking is a good thing, to use example of global pandemic – if everyone in the world is prepared and follows WHO guidelines, the pandemic will not exist!  Probably the same could be true with financial markets.

  The point here is to realize that like with anything – the popularization of ‘prepping’ has warped the purity of the concept.  

  The idea itself – very noble.  But in practicality, in reality, if there is an apocalypse, where are you going to go shopping with your gold and silver coins?  

  Especially in America where we like to do things to extremes (like eating for example) – we’ve taken prepping to a new fangled art form.  But it’s this ‘new level’ that is the snake oil – not the concept of prepping.

  Just in case

  Mossberg sells a package “Just in Case” that includes survival kit, shotgun, all neatly packaged in a waterproof tube (that also can double as a flotation device).  It’s a great analogy for the prepping movement.  It’s a great thing to have – JUST IN CASE.  99% of buyers of this will never use it.  

  But – IT’S BETTER TO HAVE IT AND NOT NEED IT, THAN TO NEED IT AND NOT HAVE IT!  -The Avid Prepper

  Financial Prepping

  What can one do to financial prepare themselves?  This completely depends on the situation, and depends on the extent you want to prepare for.  As a general rule, you just want to be more prepared than your neighbor, but only a little.  That means – forget about the kevlar suit that can withstand 1,000F burns, or the bitcoin wallet that can only be opened with one time pad; each hidden in 2 secure locations in Europe.

  Also, forget this naive idea about hoarding physical gold or cash – as if it will help you.  You’re just painting a target on your back!  Where will you spend this cash?

  Some reasonable prepping steps to be a ‘pure prepper’ 

  • Have a healthy options portfolio
  • Take the other side (even if you don’t agree with it)
  • Invest in some really crazy ideas – if everyone you know says ‘don’t do it – it’s crazy’ – DO IT!
  • Invest and trade LOCALLY, at least a little.
  • Keep multiple accounts open with different TYPES of brokerage firms/banks – not only the same institution where your 401k is.  Not all of them will die.
  • Participate in some class action lawsuits for securities or similar cases – even if you won’t get a big payout.  When the dollar bubble really pops, you’ll have a friend who can help you get 20 cents on the dollar from Bank of America.
  • Make some foreign connections, who may not be in the same predicament as most in America
  • As much as possible, try to do things for yourself.  Having your deck resurfaced?  Do it yourself!  Do your own research – don’t rely on a service (and certainly not your broker!)  
  • Educate yourself!  Learn a foreign language, or study that course in wreath making you’ve been putting off for so long.  Remember, although the world is a large place – the majority of nuclear fuel rods are made by hand by Samurais in Japan:

  Although Japan Steel Works is a major corporation with 5,000 employees, it also maintains a samurai sword blacksmith, in a small shack on a hill above the factory in Muroran, where a single craftsman still hammers steel into broadswords, as the company has done since 1917.

  Just remember.  For those who think the apocalypse is coming – there are just as many who believe it’s already here.  Just ask some Detroit residents.  

  

  Looks like the Zombies have already invaded and destroyed our cities.  

   

  

  

  

  

• Methods For Fighting Back Against Collectivist Tyranny

  Submitted by Brandon Smith via Alt-Market.com,

  In any examination of historical precedence, it is easy to see that the sheer number of collectivist and tyrannical systems have far outweighed any experiments in individual liberty. I have explored the reasons for this in numerous articles, including recent pieces such as “How To Stamp Out Cultural Marxism In A Single Generation” and “The Tools Collectivists Use To Gain Power.” To summarize, there is a driving desire among weaker-minded people to seek control over other people in the name of arbitrary standards of safety as well as arbitrary standards of “civil” conformity. While such people proclaim publicly that they do what they do for the “greater good,” in reality they seek only to satiate a private lust for power.

  In the darkest corners of their souls, many people have personal aspirations to attain godhood in their own little worlds. And if they cannot achieve such godhood outright on their own, then they will join a mob with similar aspirations so that they can at least feel omnipotent through vicarious tyranny.

  This is why collectivism and individualism are mutually exclusive. A collectivist uses force or manipulation to compel the masses to accept a society that follows his personal ideology. An individualist adheres only to the tenets of natural law and the non-aggression principle. He believes force is justified only when the personal liberties of an individual are threatened by others. And he demands that if he participates in any society, it be voluntary. Collectivism is society through coercion. Individualism promotes society through voluntary cooperation. The two philosophies cannot coexist.

  I'll say it again because there are some people out there with severe reading comprehension issues; the definition of collectivism requires the prioritization of the group over the rights of the individual.  Collectivism by its very nature denies or destroys individualism and individual choice in this prioritization.  Collectivism therefore requires the engineered organization of individuals predicated by COERCION, or force.  Period.  If a group organizes voluntarily, then it is NOT collectivist.  If a group is organized through force and manipulation, then it IS collectivist. Period.  Bananas are yellow.  Oranges are orange.  The sky is blue.  Two plus two equals four.  And, collectivism compels participation by force, while voluntary community does not.

  There is no rational debate to be made against this clear dichotomy.  It is truly amazing how some folks cannot seem to grasp the very obvious difference between collectivism and voluntary community; the same people that will likely still attempt to argue that collectivism and individualism are "not mutually exclusive" after reading this very article.

  I certainly would never make the claim that most collectivists are intelligent…

  The collectivist threat is not merely due to environmental factors alone. As the psychologist Carl Jung outlined in his collected papers titled “The Undiscovered Self,” at any given point in history at least 10% of the human population has inherent (but often latent) psychopathic tendencies. Less than 1% of these people will actually act out their full psychopathy under stable social conditions. However, in times of great distress or political and economic upheaval, the psychopathic 10% are given a kind of playground in which to let the devil out; Jung called this the “collective shadow.”

  As I have explained in the past, these are the “useful idiots” within any society. They are the reason why there will never be a time now or in the future in which collectivist oppression will not be a potential threat, and why individualists will have to remain forever on guard. That said, they are only a part of the bigger problem. In almost every instance of mass tragedy or despotic government, an elitist minority pulls the strings of the useful idiots, aiming them like a shotgun at individualists in order to clear a path for total centralization. The elites are another horror altogether.

  These are the men and women who EMBRACE their psychopathy. It is not latent or subconscious; it is a fully integrated and accepted part of their psychological life. They have found that psychopathy can be an effective tool for gaining power and influence when average people around them are less vigilant or less confrontational due to fear or apathy. And contrary to popular belief, psychopaths CONSTANTLY organize into effective working groups, some of them vast and global in scope, as long as there is the promise of mutual benefit involved.

  This is not to say that they organize around “gain” alone. Elitists have their own pervasive ideology and their own rationalizations for seeking control of others.

  They see themselves as “philosopher kings” as described in Plato’s 'Republic,' exemplary and “special” people who are born with the inherent genetic capacity to rule over the masses with the utmost clarity. They believe they know what is best not only for you, but for the human experiment in total. Their goal is to construct a sociopolitical apparatus that will allow them to have complete overreaching influence over every aspect of every individual life, up to and including the erasure of that life if they think it serves their ends.

  "…You would be forcibly fed, clothed, lodged, taught, and employed whether you like it or not. If it were discovered that you had not character and industry enough to be worth all this trouble, you might possibly be executed in a kindly manner…” — George Bernard Shaw, Fabian socialist, from 'The Intelligent Woman’s Guide to Socialism and Capitalism'

   

  "My conclusion is that a scientific society can be stable given certain conditions. The first of these is a single government of the whole world, possessing a monopoly of armed force and therefore able to enforce peace. The second condition is a general diffusion of prosperity, so that there is no occasion for envy of one part of the world by another. The third condition (which supposes the second fulfilled) is a low birth rate everywhere, so that the population of the world becomes stationary, or nearly so. The fourth condition is the provision for individual initiative both in work and in play, and the greatest diffusion of power compatible with maintaining the necessary political and economic framework.” — Bertrand Russell, member of the Fabian Society, from 'The Impact Of Science On Society'(Note: Russell believed that individuals should be given at least the illusion of choice within minor aspects of society in order to maintain their willing participation.)

   

  "The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. … [I]t remains a fact that in almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons… It is they who pull the wires which control the public mind, who harness old social forces and contrive new ways to bind and guide the world.” — Edward Bernays, father of modern propaganda, from 'Propaganda'

  Elitists are rarely as open about their true intentions as the men quoted above. They often entice the public with fantastical promises if collectivist systems are supported, including: equality of wealth and prosperity; reduction of labor and increases in leisure time; incredible technological advances; universal education; universal healthcare; the end of nationalism, resulting in the end of war, resulting in infinite global peace; etc.

  When they are not able to sell the public on a particular aspect of collectivism, they will create artificial divisions and artificial crises in order to engineer chaos. As per the Hegelian dialectic, when we are thoroughly tenderized by fear and disaster, the elites return to the scene with a “solution” to their original crime, a solution that usually involves more collectivism.

  So how do individualists fight back against collectivism, elitists and the useful idiots they exploit? Here are some practical strategies that anyone can employ in his daily life.

  Stop Participating In False Paradigms

  Yes, in the everyday world there are leftists and right wingers, liberals and conservatives, Republicans and Democrats. People subscribe to particular ideologies and philosophies backed by fundamental differences in belief. These divisions between regular people are indeed real. However, it is important to realize that at the gatekeeper level in these systems, the leadership in both parties subscribe to the same goals. They are not divided. They are part of the elitist structure. And while their rhetoric differs cosmetically, in policy and in action they will always work to destroy individual liberty and promote collectivism, whether they claim to be on the right or the left.

  This reality also applies to supposed conflicts between nations. If two nations appear to be at odds with each other, yet the leadership of each nation remains in league with the same international elitists (bankers, Fabians, globalists, etc.), then their conflict is a sham designed as theater for the masses.

  Refuse to participate in false paradigms. Point out the inconsistencies of BOTH parties or sides and identify how each works against individualism and toward collectivism. Do not affiliate with any group or institution that has a demonstrated history of antagonism towards individual freedom or that partners with known collectivist (globalist) organizations and frontmen. If you are going to fight for any side, make sure it truly represents liberty through its actions and associations.  Rhetoric is meaningless.

  Decouple From Dependency On Corrupt Systems

  As our economic situation becomes more and more dire, people are much more apt to become dependent on the system for survival, and this is an intentional result. I would not expect, for example, that the 94 million people in the U.S. who have been unemployed for so long they are no longer counted by the Bureau of Labor Statistics should refrain from government aid or cut themselves off from welfare measures and become immediately self-reliant. They should, however, consider working toward that goal over time; and so should everyone else.

  This is not quite as impossible as it seems. Can you produce or repair items that act as survival necessities? Can you teach a necessary skill? If so, then you are already well on your way to independence. Once you have a necessary skill, trade is possible outside the controlled economic framework. The more individuals involved in an alternative economy, the more diversity of skill sets will be available and the more prosperous that voluntary community will become.

  The ultimate achievement in my view would be similar in aspects to the American agrarian models of the past with the integration of helpful technology: completely voluntary communities in which free trade is the foundation; the existence of grid water and grid power is unnecessary; food production is local and ample rather than reliant on national or international freight systems and the artificial scarcity of corporate farming models; and security is provided by each individual for himself, as well as for the community, through voluntary neighborhood watches or militias.

  All of this starts with each individual taking action to become a producer, rather than a wage slave or welfare slave.

  Organize Locally With People Of Like Mind

  Again, organizing voluntarily is counter to collectivism.  Collectivist systems cannot be defeated unless you are willing to establish a competing model that works better while maintaining freedom. This is not hard to do, considering collectivist models are failure-driven machines that devour people and use them as fuel to move society as a whole towards a “greater good” which is neither great nor good.

  As outlined above, independent localism is the answer. It is a voluntary structure that encourages self-reliance and preparedness, while making production and innovation the mainstays of a healthy society. It rewards personal success and achievement, rather than punishing it. And, it helps a larger percentage of wealth to keep cycling locally, rather than being siphoned out of communities by governments or government-chartered and protected corporations.

  Localism always starts small, with families, friends and neighbors. But as your organization continues to make life better for those involved, it will inevitably attract more participants.  The redundancy of localized economies would also protect people from economic collapse.  In fact, without the forced interdependency of centralized collectivist economic models, large scale financial crises would probably become a thing of the past.

  Educate Children Privately

  I’ve been saying it a lot lately, and I’ll say it again: Public schooling as it stands today is an apparatus for brainwashing, nothing more. With the dismal world ranking of U.S. students in math, science and reading, I hardly see what service public education is actually performing in America. The only service public schools do seem to excel at is indoctrination, with children now being immersed in collectivist lessons through Common Core and being conditioned into pacifism and fear through insane zero-tolerance policies.

  The only working solutions available for parents today are to decouple from the federally dominated public school system and place their children in a well-vetted private school or to home-school. Any sacrifice, financial or otherwise, is worth it to save American children from a vicious system of propaganda and conditioning that could conceivably suppress their individualism and warp them into collectivist monsters.

  Arm And Train For Self-Defense

  I think it should be pretty obvious that there is a simple reason behind the collectivist habit of attempting to disarm common people: Armed people are harder to manage or control.  If an armed population was not a threat to collectivists then they would not keep trying to disarm everyone. Therefore, if you are not armed and trained in self-defense, then you are not a threat to collectivists.

  You can be the most brilliant of thinkers with pristine logic and truth on your side; but without the means and ability to destroy an attacker or tyrant, you are nothing in the grand scheme. Intellectual warriors are not really warriors. And as a writer, I will say in all honesty that the threat of the pen is not mightier than the threat of the sword.

  Keep in mind, though, that it is not enough to merely purchase a firearm or shoot at the range. Team tactics and training are essential for free people, which is why they are so admonished by collectivist elements in our society. Train with friends and family or with your Community Preparedness Team, as I do through Oath Keepers; but learn tactical methodologies and how to fight with others. Present a viable danger to collectivists, or be subsumed by them.

  Remove The Elitist Hierarchy

  Eventually, the fight between individualism and collectivism will become physical rather than informational. There is no way around it. The more individuals begin to decouple from the corrupt system and construct their own alternative framework, the more violent collectivists will turn in response. The virtue of self-defense requires that tyrants be cut off from their means to project violence onto others.

  While it is impossible to stop the inherent nature of psychopathy other than to participate in communities where psychopaths are not welcome or encouraged, there is the matter of organized elitism to deal with.

  Any fight for freedom from collectivists will require the removal of command and control. This is the only way that humanity can be given breathing room to rebuild without remaining under constant preplanned threat. There are, in fact, many organizations that openly work toward collectivist oligarchy, from central banks (this means central bankers in ALL nations, not just in the West), to the Council On Foreign Relations, to Tavistock, to the Rand Corporation, to the International Monetary Fund or the Bank for International Settlements, to Bilderberg, to the Fabian Society, etc. These institutions need to be dismantled by any means necessary and the participants removed from positions of control. Make no mistake; it will take a war before such people give up the reins of power. This is the inevitable cost of individualism and the inevitable cost of freedom.

  

  

  

  

  

• Visualizing The Worst US/NATO Collateral Damage Disasters In History

  Early last month, the US did something tragically stupid. The Green Berets, operating in Kunduz in an attempt to beat back Taliban insurgents who have racked up a series of gains prompting Obama to cancel a planned troop drawdown, called in an AC-130 gunship strike and laid waste to a hospital. 

  Why they did that is the subject of some debate but Doctors Without Borders claims the US and its spec ops knew it was a hospital and while Washington doesn’t necessary dispute that contention, the military claims the Taliban were using the facility as an operating base and firing on the soldiers. Whatever the case, dozens were killed and then just weeks later, the Saudis hit an MSF facility in Yemen. 

  With that in mind we present the following infographic which details the worst instances of “collateral damage” from US/NATO military operations throughout history.

  
  

  

  

  

  

  

• Is It Time To Renounce U.S. Citizenship While You Still Can?

  Submitted by Nick Giambruno via InternationalMan.com,

  The number of people abandoning the “greatest country in the world” just hit a record high…

  The U.S. government recently reported that 1,426 people renounced their U.S. citizenship in the third quarter. That’s a record quarterly high. Like all government statistics, I view this one skeptically. Many observers think the actual number is much higher.

  Still, with another quarter left in 2015, the number of Americans who renounce U.S. citizenship this year could easily top the previous annual record set last year.

  I recently spoke with a consultant who gave up his U.S. citizenship. He’s now a citizen of Dominica, a small Caribbean country, and splits his time between Asia and South America.

  He said he was leaving a sinking ship for a better life elsewhere. On top of that, the U.S. government is placing an increasing number of hurdles on Americans who want to renounce their citizenship. So he thought it was time to do just that.

  This isn’t how the average person sees things. Unthinking Americans are puzzled when they read about the increasing number of people renouncing their citizenship.

  As you can see in the chart below, this trend is exploding. And it has important implications for your personal freedom and financial prosperity.

  

  This trend really shouldn’t surprise anyone. The U.S. tax system is the most rapacious in the world. It’s also the most aggressively enforced. For many, the benefits of U.S. citizenship no longer outweigh the costs.

  The U.S. is the only country in the world that successfully taxes its citizens no matter where they are in the world…even if they leave and never step foot in the country again. It’s called citizenship-based taxation.

  If you’re a U.S. citizen, you should think of citizenship-based taxation as a ball and chain attached to your leg.

  Nearly every other country in the world taxes people based on residency, not citizenship. For example, if you’re a Canadian citizen and leave Canada to live in Dubai, the Canadian government won’t force you to pay taxes on the income you earn in Dubai. However, if you’re a U.S. citizen, you have to pay taxes to the U.S. government no matter where you live and work.

  Only one other country in the entire world, Eritrea, has citizenship-based taxation.

  Eritrea is a tiny, mostly unknown, country in East Africa. It levies a 2% flat tax on the income of Eritrean citizens who live abroad. Unlike the U.S., Eritrea is an impoverished country. Its government has a hard time enforcing its tax system within its own borders, let alone the rest of the world. Many Eritreans who live abroad have never even heard of this tax, and those who have don’t worry too much about paying it.

  The U.S., on the other hand, does have the ability to enforce its Byzantine tax system literally anywhere in the world. When you consider the reach of the U.S. government and the penalties for not paying (which can only be described as cruel and unusual), it’s no surprise Americans are terrified. And they should be… or they aren’t paying attention.

  The U.S. government threatens Americans with years in prison and outrageous fines if they don’t file a litany of complex forms correctly… even if they don’t owe taxes in the first place. U.S. citizens are in the uniquely unfavorable position of having the world’s worst tax policies and a government that relentlessly enforces them everywhere on the planet.

  For many, it’s a tight and suffocating tax leash. Renouncing your U.S. citizenship is the only way to free yourself from U.S. taxation while you’re still breathing. It’s only logical that an increasing number of people are taking this step.

  UN Resolution 2023

  The media routinely condemns Eritrea for its attempts to tax nonresident citizens. Even the United Nations has weighed in. In Resolution 2023, the UN Security Council condemned Eritrea for “using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals.”

  The U.S. government supported Resolution 2023, even though it does the very same thing on an industrial scale.

  When you think about, it’s actually not fair to compare an impotent country like Eritrea and its relatively modest 2% expat tax to the monstrous U.S. tax system.

  Of course, I’m not endorsing the UN. I dislike bureaucracies of any sort…especially ones with a global reach. But it’s noteworthy that they would even bother to weigh in on the repressive practice of citizenship-based taxation.

  Unfortunately, the UN is being opportunistic. They don’t care about the tax burdens of Eritreans. If they did, they’d condemn citizenship-based taxation consistently.

  But the UN hasn’t made so much as a peep about the U.S.’s racket. If you listen for it, you’ll only hear the crickets chirping.

  This isn’t surprising. Even though it’s clearly a double standard, it’s easy to understand why it exists. As the world’s sole superpower and issuer of the premier reserve currency, the U.S. isn’t accountable to anyone.

  No other country has the courage or incentive to call the U.S. out. It’s a heck of a lot easier to push around some small, impoverished African country than it is to stand up to the U.S. juggernaut.

  The Exit Tax – A Form of People Controls

  Desperate governments always try to control money with capital controls and individuals with people controls.

  Take Cuba, for example. After Castro came to power, his government made Cuban citizens apply for exit visas before they left the island. They were not easy to get. The Soviet Union, North Korea, and others have also used similar restrictions.

  Preventing people from leaving has always been a hallmark of authoritarianism.

  It’s hardly shocking that productive people are fleeing the U.S. tax system. The U.S. government doesn’t like this one bit. Naturally, it would prefer to squeeze every last drop out of its best milk cows.

  To keep them from leaving, the U.S. government has imposed a so-called Exit Tax on Americans who renounce their citizenship.

  Eduardo Saverin, the billionaire cofounder of Facebook, is a notable example. By renouncing his U.S. citizenship, Saverin escaped paying an estimated $700 million plus in future income and estate taxes. He could not, however, escape the Exit Tax.

  For the Exit Tax, the U.S. government deems you to have sold everything you own on the day before you renounce citizenship at a price equal to its “fair market value.” Any appreciation in your investments or home and any deferred income becomes taxable.

  The Exit Tax is a big impediment to leaving. But, as the growing number of Americans renouncing their citizenship shows, it’s not always an effective one. I expect the U.S. government to impose much harsher restrictions – more people controls – in the future.

  The Canary in the Coal Mine

  I think the growing number of Americans renouncing their citizenship is an important sign of what’s to come. It’s never a good thing when a society’s most productive members flee for greener pastures.

  Many of these former Americans grew tired of the government treating them as piggy banks for the social program du jour.

  Social Security, Medicare, Medicaid, and the entire U.S. government are broken and bleeding money. Like most governments that get into financial trouble, I think American politicians will keep choosing the easy option…money printing on a massive scale. This has tremendous implications for your financial security.

  Politicians are playing with fire and inviting a currency catastrophe. 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.

  

  

  

  

  

• The 60-Second Summary Of Europe's Latest Crisis

  Since the creation of the European Union, and its mutant cousin, the common currency Eurozone, it seems that Europe has been in a state of constant crisis… which, as a very prophetic AIG presentation foresaw has been precisely the point from day one.  But while Greece is no longer a source of stress, now that the insolvent Mediterranean country gave up and conceded its sovereignty to its European overlords, Europe now finds itself in what many say is a far more serious crisis – one in which the cultural sovereignty of Europe itself is at risk from an unprecedented wave of mideast migrants which are entering the continent by the thousands every single day.

  For those who have not been keeping up, and also for those who have, here courtesy of ohboywhatashot, is a “60 second summary” snapshot of how this latest crisis is affecting at least 23 countries across the old continent, and how while the European Union is gradually becoming a “Disunion”, one thing as usual reigns: chaos.

  

  

  

  

  

  

  

  

• So You Want To Be A Modern "Trader": Here Are The Requirements

  Igor Oystracher’s 3Red trading firm may not exist much longer after the recent vicious crackdown against the company’s spoofing practices profiled a month ago in “Russian College Dropout Busted For 1,316 Spoofs Of Everything From E-Minis, To Copper, To VIX“, an assault orchestrated by none other than king of HFT market-manipulation, Citadel itself, but for now he is busy looking for new trader meat…. ideally with pimples.

  Back in 2010 we predicted that as a result of the advent of HFTs as the most profitable form of market manipulation on Wall Street, old school rolodex-and-phone, carbon-based traders were a dying breed and on their way out. Little did we know just how accurate we would be.

  Below is a “help wanted” ad for a “trader” by none other than the abovementioned 3Red spoofers.  We put trader in quotation marks because… well, just read the ad and you will see.

  Here are the required skills you must have to be a successful “trader” in the new normal. For all those who satisfy the requirements, best of luck and may the best man (or vacuum tube) win, preferably in less time than it takes to frontrun a Bank of Japan E-mini “buy” order.

  

  h/t @sellputs

  

  

  

  

  

• "Currency War By 1000 Cuts" Continues – PBOC Weakens Yuan For Longest Streak Since Lehman

  Amid warnings from Daiwa Capital Markets that policy-makers "will sacrifice Yuan stability" in order to manage the deterioration in the economy (trade and industrial production data confirming the weakness), The PBOC weakened the Yuan fix for the 8th straight day. This is the longest streak of weakness since August 2008.

   

  As Bloomberg notes,

  Chinese policy makers will sacrifice yuan stability as it is clear that growth is being impeded by currency being stronger than it needs to be, according to Daiwa Capital Markets.

   

  PBOC will allow currency to weaken to 7.5000 per dollar by end of next year, representing a 15% drop from yesterday’s closing level of 6.3665

   

  “The authorities need to stop intervening in the currency market for the purpose of making the currency stable, as a strong currency is offsetting the policy easing so far,” Kevin Lai, HK-based Chief Asia ex-Japan economist, says in interview

   

  Still, any currency weakness wouldn’t be without challenges: it would increase debt burden of companies that have borrowed in foreign currency.

  And sure enough…

  

   

  • *CHINA WEAKENS YUAN FIXING FOR 8TH DAY, LONGEST RUN SINCE 2008

  

   

  Charts: bloomberg

  

  

  

  

  

• 21 Signs That Americans May Be The Unhappiest People In The World

  Submitted by Michael Snyder via The End of The American Dream blog,

  How can we possibly be so miserably unhappy?  For a nation that supposedly “has it all”, we sure are depressed.

  In America today, suicide rates are soaring, antidepressant use is skyrocketing and virtually every new survey that comes out shows that we are deeply dissatisfied about something.  But we live at a time when there are more things to enjoy than ever before. 

  When I was growing up there was only a handful of television channels to choose from, but now there are hundreds.  We have more movies than we could ever possibly watch, more books than we could ever possibly read, and the greatest video games ever made are at our fingertips.  With all of the entertainment that surrounds us, you would think that Americans would be happier than ever before, and yet we continue to become even more depressed.  Everywhere I go, I see people that look like they have had the life completely sucked out of them.

  So why is this happening?  The following are 21 signs that Americans are the unhappiest people in the entire world…

  #1 A scientific study that was just released found that U.S. adults are becoming less happy over the years…

  “Adults over 30 are less happy than their predecessors,” concludes a study published online Thursday in the journal Social Psychology and Personality Science, which examined happiness data from more than 50,000 adults, gleaned from the General Social Survey, carried out by NORC at the University of Chicago, a nonpartisan, independent research organization, which has collected information about American adults since 1972.

   

  From 2010 to 2014, adults over 30 had an average happiness score of just 2.18, compared with 2.24 a decade ago. That’s significant considering happiness scores were measured on a tiny scale from just 1 to 3, with 1 being “not too happy” and 3 being “very happy.”

  #2 Young people are also becoming increasingly depressed.  Just check out what one study conducted at San Diego State University discovered…

  Americans are more depressed now than they have been in decades, a recent study has found. San Diego State University (SDSU) psychology professor Jean M. Twenge analyzed data from nearly 7 million adolescents and adults from across the country and found that more people reported symptoms of depression — including sleeplessness and trouble concentrating — compared to the 1980s.

   

  Twenge’s findings show that teenagers in the 2010s experience memory trouble 38 percent more often than their 1980s counterparts. Teens are also 74 percent more likely to have trouble sleeping and twice as likely to see a professional for mental health issues. College students in the study reported feeling overwhelmed by academic and personal demands 50 percent more often than their 1980s counterparts.

  #3 Back in 1987, 61.1 percent of all Americans reported being happy at work.  Today, 52.3 percent of all Americans say that they are unhappy at work.

  #4 A different survey found that 70 percent of all Americans do not “feel engaged or inspired at their jobs”.

  #5 One survey of 50-year-old men in the U.S. found that only 12 percent of them said that they were “very happy”.

  #6 The number of Americans diagnosed with depression increases by about 20 percent each year.

  #7 According to the New York Times, more than 30 million Americans take antidepressants.

  #8 Doctors in the United States write more than 250 million prescriptions for antidepressants each year.

  #9 The rate of antidepressant use among middle aged women is far higher than for the population as a whole.  It is hard to believe, but right now one out of every four women in their 40s and 50s is taking an antidepressant medication.

  #10 Compared to children in Europe, children in the United States are three times more likely to be prescribed antidepressants.

  #11 In America today, there are 60 million people that abuse alcohol and there are 22 million people that use illegal drugs.

  #12 America has the highest rate of illegal drug use on the entire planet.

  #13 One recent poll found that 71 percent of Americans are dissatisfied with the direction that things are going in this country.

  #14 America has the highest divorce rate in the world by a wide margin.

  #15 America has the highest percentage of one person households on the entire planet.

  #16 100 years ago, 4.52 people were living in the average U.S. household, but now the average U.S. household only consists of 2.59 people.

  #17 According to the Pew Research Center, only 51 percent of all American adults are married.  Back in 1960, 72 percent of all adults in the United States were married.

  #18 The suicide rate in the United States is now the highest that it has been in 25 years.

  #19 According to one absolutely shocking study, 22 military veterans kill themselves in the United States every single day.

  #20 The suicide rate for Americans between the ages of 35 and 64 rose by close to 30 percent between 1999 and 2010.  The number of Americans that are killed by suicide now exceeds the number of Americans that die as a result of automobile accidents every year.

  #21 The rate of suicide is highest during the holidays that come at the end of the year, and 45 percent of all Americans say that they dread the Christmas season.  The following comes from a Psychology Today article…

  We are told that Christmas, for Christians, should be the happiest time of year, an opportunity to be joyful and grateful with family, friends and colleagues. Yet, according to the National Institute of Health, Christmas is the time of year that people experience the highest incidence of depression. Hospitals and police forces report the highest incidences of suicide and attempted suicide. Psychiatrists, psychologists and other mental health professionals report a significant increase in patients complaining about depression. One North American survey reported that 45% of respondents dreaded the festive season.

  So why in the world is this happening?

  We have one of the highest standards of living in the world and we are surrounded by massive amounts of entertainment.

  Yet we are severely depressed.

  And during the “happiest time of the year” we get even more depressed.

  Clearly something has gone very wrong.

  Even more entertainment is not going to fix us, and neither will more drugging.

  

  

  

  

  

• Record Number Of Women Now Live In Parents' Basement, Lack Of Weddings Blamed

  It was less than two months ago that we brought you “The Mystery Of The ‘Missing Inflation’ Solved, And Why The US Housing Crisis Is About To Get Much Worse.” In it, we documented the inexorable rise of rents in America which, thanks to the housing crisis, has gone from being  a society of homeowners to a society of renters, wiping out two decades of “progress” on the homeownership rate in the short span of seven years. 

  

  Of course to a certain extent (scratch that, to a “great” extent), the market sowed the seeds of its own destruction by creating ever more “creative” was to allow everyone, even those who couldn’t document their income, to realize the American dream. 

  Now, the surge in demand for rentals coupled with the fact that because the cost of capital on Wall Street is zero allowing PE to compete with everyday homebuyers has left millennials effectively stuck between rents the can’t afford and homes they don’t qualify for. Throw in a post-crisis economy that churns out waiters and bartenders thanks in part to the fact the very same $1.2 trillion in student loans that are weighing heavily on recent graduates’ finances and you have the perfect setup for a return to mom and dad’s basement. 

  On Wednesday, Bloomberg is out noting that at an astounding 36.4 percent, the number of women age 18 to 34 living with their parents is now the highest since record keeping began more than seven decades ago:

  Some 36.4 percent of women age 18 to 34 lived with their parents or relatives in 2014, the highest since records began in 1940, according to a report released Wednesday by Pew Research Center in Washington. While the share of young men was even greater at 42.8 percent, it wasn’t quite as high as it was some 75 years ago.

   

  

  But the punchline here is that the Pew Center blames this rather alarming statistic on school and weddings: 

  College enrollment rates for both full- and part-time students have generally increased over the past couple decades, and some students may be trying to offset stiff tuition costs by bunking with their parents. 

   

  Eternal happiness can wait. Millennials are much less likely to be married than their parents were at their age, and marriage often serves as an impetus to move out. 

  We’ll close with Pew’s take on the economy and Harvard’s. Note the vastly divergent “opinions.” We’ll let you decide who’s right:

  Pew: 

  The increase is puzzling considering the improved state of the economy and an improving job market that has helped more young people earn enough to venture out on their own. Here are some of the longer term forces that could be at play.

  Harvard: 

  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.

  

  

  

  

  

• Aussie Bonds Crushed After "Everything Is Awesome" Best October Job Gains Since 2007

  China must be fixed because 'seasonally-adjusted' Aussie full-time employment just surged 58,600 MoM (almost quadruple expectations of a 15k rise). This is the best monthly gain in jobs since September 2012 and best October since 2007 – which all makes perfect sense. The resultant bloodbath in Aussie bonds (3Y +13bps to 6 month highs is worst day since Jan 2014) is all too real however. The question is – will this "good news" be jawboned down by RBA in order to give them some easing room?

   

  Aussie job gains explode…

  

   

  The best October since 2007…

  

   

  Crushing Aussie bonds…

  

   

   

  Charts: bloomberg

  

  

  

  

  

• Social Security: The Long Slow Default

  Submitted by Kirby Cundiff via The Mises Institute,

  When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system.

   

  When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) – also known as Social Security – the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.

  Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”

  The “Primary Insurance Amount”

  The way that Social Security benefits are calculated is complicated, and can, of course, be modified at any time.

  The amount of monthly income a Social Security enrollee receives is called the Primary Insurance Amount. The current Primary Insurance Amount (PIA) benefit formula was created in 1979 and is based on two “bend points.”

  For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, his PIA will be the sum of:

  (a) 90 percent of the first $826 of his average indexed monthly earnings (AIME), plus,
  (b) 32 percent of his average indexed monthly earnings (AIME) over $826 and through $4,980, plus,
  (c) 15 percent of his average indexed monthly earnings (AIME) over $4,980,

  where the Average Indexed Monthly Earnings (AIME) is currently the average of the Social Security recipients top thirty-five years of income during his lifetime divided by 12.  

  Significantly, each year’s monthly income is expressed in 2015 dollars using the Consumer Price Index (CPI).

  Benefit Cuts Since the 1970s

  By the late 1970s, it became obvious that the Social Security system was going to have significant solvency problems since the ratio of workers to retirees decreased from around 40-to-1 in 1945 to around 3-to-1 in 1980, and most of the money paid into the system had been spent on other government programs.

  Payroll taxes were therefore increased, and a series of changes were made to the Primary Insurance Amount (PIA) payment formula to cut the benefits that Social Security enrollees would receive. 

  The PIA formula before 1979 was even more complicated than the one used in 2015. It had ten bend points, but gave more credit to high income workers. According to Robert J. Myers in his book Social Security, the changes in the benefit formula in 1979 resulted in, on average, a 7 percent reduction in monthly Social Security payments for new retirees. Under that current benefit formula, if a Social Security enrollee has a life-time income over $2 million, he will very likely have a negative return on his investment. For lifetime incomes between $0.5 million and $2 million, the enrollee has a chance to break even. Enrollees with a lifetime income less than $0.5 million have a good chance of still benefiting from the Social Security system. The number of years included in the earnings base (the number of years of income averaged to determine the monthly benefit payment) was gradually increased from twenty-three years, for people born in 1917, to twenty-nine years for people born in 1923 to thirty-five years, for people retiring in 2015. 

  For mothers who took time off from their career, people who spent a long time in graduate school, and people whose income was much larger during later parts of their life, this resulted in a significant decrease in benefits. (See The Social Security Book by Jack and Erwin Gaumnitz.)

  Using the CPI to Keep Payments Down

  Since the 1970s, the AIME used to determine the PIA has been indexed using the Consumer Price Index (CPI). So the higher the CPI, the larger a recipient’s monthly Social Security benefits will be. Social Security benefits for current retirees are also increased annually by the CPI. This means that one way the government can lower benefit payments is by under-estimating the inflation rate. The Bureau of Labor Statistics (BLS) has redefined how the CPI is calculated several times since the 1980s, lowering the CPI in each case. According to economists at Shadow Government Statistics, the CPI currently underestimates the inflation rate by at least 4 percent per year. If this is the case, Social Security recipients receive a 4 percent reduction in their buying power each year.

  “Mini-Defaults” in the Social Security System

  The US government knows it cannot keep up its end of the original Social Security bargain. So, to address its insolvency issue, the federal government simply responds by reducing benefits while increasing taxes. Increasing the retirement age, for example, is an easy way to reduce benefits.

  The retirement age was increased from sixty-five for those born in 1937 or before to sixty-seven for those born in 1960 or after. Since enrollees do not get maximum benefits until age seventy, it could be argued that seventy is really the current full retirement age.

  The taxable earnings base (the maximum income that is subject to Social Security taxes) and Social Security tax rates have increased drastically since the system was first created. The taxable earnings base was $3,000 in 1937, $25,900 in 1980, and $118,500 in 2015. The Old-Age and Survivors Insurance (OASI) tax was 2 percent in 1937, 9.04 percent in 1980, and 10.98 percent in 2015. This number includes both the employer and employee portion. When the 1.42 percent Disability Insurance tax and the 2.9 percent Medicare tax is added, the total payroll tax is currently 15.3 percent.  

  In 1983, legislation was passed to tax Social Security benefits for the first time. Currently, if a taxpayer’s provisional income is more than $25,000 on a single return or $32,000 on a joint return, their Social Security benefits will be taxed at between 50 percent and 85 percent of their normal tax rate.

  Further Tax Increases and Benefits Cuts are Likely in the Near Future

  According to the Social Security Administration, by 2033 future payroll taxes will only cover around 77 percent of estimated benefits. It is therefore likely that even further benefit cuts and tax increases will occur in the near future. Increasing Social Security tax rates from 12.4 percent to 15.5 percent and eliminating the taxable maximum (i.e., making all income subject to Social Security taxes) is currently being considered. Other tax increases being proposed include taxing contributions to flexible spending accounts and creating a national Value Added Tax (VAT).

  Further cuts to Social Security benefits are also on the table. Proposals to cut benefits include increasing the retirement age from sixty-seven to seventy years, increasing the number of years included in the earnings base from thirty-give to thirty-eight or forty, and increasing the percentage of Social Security benefits that are subject to income taxes. Redefining the CPI index to further underestimate the inflation rate is also on the table.  

  Social Security has long been sold to the public on the notion that what a worker will receive back is what he or she pays into the system. For decades, however, the government has been changing the terms of this “agreement” as part of an effort to avoid outright default. This long, slow method of piecemeal default, however, is likely to continue.

   

  

  

  

  

  

• The Forced Collective Suicide Of European Nations

  You are witnessing what will be shown to future generations as the reason for the fall of an Empire. At current immigration levels and disappearing birth rates native Europeans are destined to become a minority in their own countries within decades. This is already the case for many of Europe's largest cities.

  Because of this injustice, far-right parties everywhere in Europe are gaining astonishing amounts of support, becoming the biggest parties in some countries.

  The following brief documentary lays out the rising fear across Europe of the so-called "refugee" crisis, as the narrator concludes,  "patriotism, the most basic and fundamental trait of any nation that wants to survive, has become something to be ashamed of."

   

  

  

  

  

  

• The ECB Should Stop QE Before Draghi Causes A "Financial Crisis", German "Wise Men" Warn

  Back in July, Germany’s economic “wise men” took a look at bailout “success” and “failures” and came to a rather disconcerting conclusion. Here’s what the Council of Economic Experts said in their report:

  A permanently uncooperative member state should not be able to threaten the existence of the euro. In view of this, the Council of Economic Experts recommends that the withdrawal of a member state from the currency union must be possible as an utterly last resort.

  Yes, “a permanently uncooperative member”, and by “uncooperative” they of course meant states which do not subscribe to the German brand of fiscal rectitude and who may seeking to rollback previously agreed upon austerity measures. To be sure, there’s a whole to be said for honoring one’s commitments, especially when those commitments came with billions in loans attached to them, but the report served to underscore the extent to which Berlin effectively controls the eurozone by wielding the purse string. 

  Anyway, one thing we know about Germany is that officials have a low tolerance for anything that even looks like irresponsible fiscal policy or other types of shenanigans that could, in the end, create crises which is why no one was surprised to see Wolfgang Schaeuble give a number speeches over the past several months in which in incorrigible finance minister derided money printing and ZIRP. 

  Well don’t look now, but the same Council of Economic Experts is out with their latest annual report and they are not happy with ECB QE and contend that the further expansion of the central bank’s balance sheet could risk sparking a new financial crisis. Here’s more:

  Another important debate centres on the current low interest rate environment in the euro area. In January 2015, the European Central Bank (ECB) further eased its already very accommodating monetary policy by introducing a new sovereign bond-buying programme. Recently, it put forth the possibility of further easing. Core inflation has, however, stood near 1 % for months, and has recently risen slightly. Simple interest rate rules, such as the Taylor Rule or a rule that explains past ECB interest rate decisions quite well, suggest that monetary policy should be tightened given the current economic outlook. 

   

  While the risk of deflation is currently low, there are risks for the development of the economy in the longer term. The ECB’s bond buying programme has created favourable financing conditions and provides member states with an incentive to defer much-needed budget consolidation and structural reforms. However, further structural reforms to strengthen markets and competitiveness are crucial for a self-sustaining economic recovery.

   

  In addition, monetary policy is leading to a build-up of risks to financial stability which could pave the way for a new financial crisis.

   

  Persistently low interest rates erode the earnings of banks and life insurance companies, and raise the appetite for taking risks. Although there are so far no signs of excessive credit expansion, some sectors, like real estate, are showing some signs of exaggerated prices.

   

  Macroprudential policy alone cannot guarantee the stability of the financial system. It is important to avoid delaying an exit from the low interest rate environment for too long. A timely end to monetary policy accommodation could effectively prevent the further build-up of risks in the financial system. 

   

  Considering current economic developments and balancing deflation risks against the risks to longer-term economic developments and financial stability suggest that the ECB should slow down the expansion of its balance sheet, or even end it earlier than announced.

  Apparently nobody asked Peter Bofinger for whom “cash in an anachronism.”

  So, contrary to what the ECB said in minutes from its April policy meeting, intentionally driving down borrowing costs for fiscally irresponsible member states isn’t at all compatible with budget reform and indeed, suggest that was outright absurd in the first place. Recall what we said: 

  This of course highlights something rather absurd about the ECB’s asset purchase program specifically, and about Brussels’ stance on fiscal discipline more generally. Namely, there’s something quite contradictory about telling governments to tighten their belts while promising to buy any and every piece of paper their treasury departments care to issue. In fact, it’s probably fair to say that a €1.1 trillion QE program simply cannot peacefully coexist with a strict, currency bloc-wide austerity policy.

  And of course now, Draghi is set to double down in December with either an expansion of PSPP, another depo cut, or both.

  Also, it’s worth noting that if the wisemen think the current program is embedding an enormous amount of risk, just wait until the ECB starts monetizing muni bonds, corporate bonds, and stocks. 

  Finally, while we agree with the Council’s take on PSPP, we’d be remiss given recent political events in the periphery if we didn’t remind you of the following quote from their July “special report”: 

  “Firstly, the crisis response averted a systemic crisis and thus maintained the cohesion of Monetary Union. Secondly, the time was used to implement reforms to make Monetary Union more resilient against economic crises. Thirdly, the economic situation in Ireland, Portugal, and Spain has improved markedly.”

  Tell that to Portugal’s Costa and the new government in Lisbon.

  

  

  

  

  

• If You Run A Hedge Fund, This Is The One Chart You Never Want To Show To Your Investors

  2015 has been tough for Bill Ackman, as we noted previously, having extended his year-to-date losses to 21.2%.

  But Q3 was particularly noteworthy in its unhedged magnificence. As the following table shows, of all his positions, his only positive contributors to returns added a whopping 0.1%, not so much his other 13 positions…

  Pershing Square's Q3 Contributors to Returns…

  

  It appears Bill Ackman is taking the "Zero Hedge" mantra to heart.

   

  And for many of the names, things have got considerably worse since the end of Q3…

  

   

  And now – with the Valeant-Allergan transactions under question – one wonders what related liquidations may do to Q4's returns.

  Charts: Bloomberg

  

  

  

  

• Female Senator Says Men Should "Just Shut The Hell Up"

  In an age of "safe spaces", media oppression, and the resurgence of the right not to be offended, leave it to an American Senator to move the free speech repression amplifier knob to 11. As The Hill reports, Sen. Claire McCaskill (D-Mo.) says men should "just shut the hell up" on a number of issues…

   "It's not that women don't value your thoughts, it's just that we don't value all of them," McCaskill tells male viewers. "The world doesn't need your opinion on everything."

   

   

  McCaskill lists a number of issues where "women no longer need to hear men's opinions on," including Star Wars, pantsuits, selfies, "Scandal" creator Shonda Rhimes, curtains and carbs.

  Finally – after getting significant pushback from social media on her hypocritical comments – McCaskill went full 'teenage girl' excuse: "I was just kidding."

  It's a joke silly. Love your bro pic. https://t.co/QTtskdotrX

  — Claire McCaskill (@clairecmc) November 10, 2015

    Joking, or not, we can only imagine the fallout if a male senator said the same of women? And just one more thought – what would happen if this 'joke' was said aloud on the Mizzou campus? 

  

  

  

  

  

• "The Populist Upsurge is Real" When A Liberal College Professor Finds Common Ground With The Tea Party

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  People are going to be pissed off no matter who wins this election and that is a very important social dynamic I believe is vastly under appreciated by the majority of mainstream pundits and analysts out there.  This is also very distinct from the environment that prevailed in 2008.  Four years ago, the financial markets were crashing and the economic future of America was circling the toilet bowl, yet a majority of Americans embraced the potential of a young, inexperienced biracial politician from Illinois who was saying all of the right things.  Despite the gigantic disappointment he has proven to be as President, there is no denying that he had all of the Democrats and most Independents under his spell on this day four years ago.

   

  Fast forward to 2012 and the county isn’t “divided” as mainstream media talking heads like to say.  The country is pissed off.  Genuine and legitimate frustration permeates the land from sea to shining sea and rightly so.

   

  – From my 2012 pre-election article: The Seventy Percent

  Robert Reich is Professor of Public Policy at the University of California at Berkeley. I know of the man mainly from his frequent appearances on CNBC when I used to watch the channel (I’m proud to say I haven’t tuned in, even for five minutes, for several years now). He was always held up as the token “liberal,” always more than eager to spar with CNBC’s endless parade of crony capitalist heroes and “socialism for the rich” supporting statists. During my post Wall Street years, I have from time to time come across his musings, but none have struck me like the insightful post he published three days ago.

  The post is titled, What I Learned on My Red State Book Tour, and it’s an extremely important that all Americans read it. Here are a few excepts:

  I’ve just returned from three weeks in “red” America.

   

  It was ostensibly a book tour but I wanted to talk with conservative Republicans and Tea Partiers.

   

  I intended to put into practice what I tell my students – that the best way to learn is to talk with people who disagree you. I wanted to learn from red America, and hoped they’d also learn a bit from me (and perhaps also buy my book).

   

  But something odd happened. It turned out that many of the conservative Republicans and Tea Partiers I met agreed with much of what I had to say, and I agreed with them.

   

  For example, most condemned what they called “crony capitalism,” by which they mean big corporations getting sweetheart deals from the government because of lobbying and campaign contributions.

   

  I met with group of small farmers in Missouri who were livid about growth of “factory farms” owned and run by big corporations, that abused land and cattle, damaged the environment, and ultimately harmed consumers.

   

  They claimed giant food processors were using their monopoly power to squeeze the farmers dry, and the government was doing squat about it because of Big Agriculture’s money.

   

  I met in Cincinnati with Republican small-business owners who are still hurting from the bursting of the housing bubble and the bailout of Wall Street.

   

  “Why didn’t underwater homeowners get any help?” one of them asked rhetorically. “Because Wall Street has all the power.” Others nodded in agreement. 

   

  Whenever I suggested that big Wall Street banks be busted up – “any bank that’s too big to fail is too big, period” – I got loud applause.

   

  In Raleigh, I heard from local bankers who thought Bill Clinton should never have repealed the Glass-Steagall Act. “Clinton was in the pockets of Wall Street just like George W. Bush was,” said one.

   

  Most of the people I met in America’s heartland want big money out of politics, and think the Supreme Court’s “Citizens United” decision was shameful.

   

  Most are also dead-set against the Trans Pacific Partnership. In fact, they’re opposed to trade agreements, including NAFTA, that they believe have made it easier for corporations to outsource American jobs abroad.

   

  Heartland Republicans and progressive Democrats remain wide apart on social and cultural issues.

   

  But there’s a growing overlap on economics. The populist upsurge is real.

   

  I sincerely hope Donald Trump doesn’t become president. He’s a divider and a buffoon.

   

  But I do hope the economic populists in both parties come together.

   

  That’s the only way we’re going to reform a system that’s now rigged against most of us.  

  The above is both depressing and encouraging, but mostly encouraging. It’s depressing because Robert Reich is a man who clearly means well. He isn’t trying to grab as much money and power as possible, rather, he genuinely seems to want the best thing for this country. Despite all of that, it wasn’t until he actually visited “red states” and talked to people who he assumed he had very little in common with from a public policy perspective that he discovered their common ground. In other words, an intelligent, thoughtful and well meaning professor had been so successfully siloed into partisan group think, he wasn’t able to see the bigger political picture. If that was the case for Mr. Reich, imagine how divided and conquered the general population is?

  Writing the above isn’t meant as a critique of Mr. Reich, we are all constantly learning. That said, the obvious overlap between “progressives” and “tea partiers,” has been obvious for years. This is why I’ve always posted the following venn diagram whenever possible:

  

  Of course, it’s not just me saying it. Ralph Nader actually wrote a book titled, Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State. While I agree with Ralph’s prediction in the long run, what is “stopping” this alliance from flexing its muscle in the present day? The longer we wait to confront the major issues of the day, the more pain and suffering the population will have to deal with. So what’s taking so long?

  I believe there are two primary drivers behind our current predicament.

  The first is human nature. People are tribal. Generally speaking, most individuals will ultimately gravitate toward an ideology that helps them understand the world around them, and will then cling to that ideology and defend it to the bitter end against those who disagree (those people become their “enemies” and are easily vilified). This can manifest in many different forms, from religion, to political party partisanship, to nationalism. Such unbending adherence to one ideology or another leads to most of the conflict and irrationality we see around us. This is because once someone has “committed” to an ideology, they close themselves off to even hearing other points of view. At that point, learning and critical thinking ends, and dogmatism takes over. To help those in finance understand what I’m trying to say, it’s very much like when you are in a losing stock position, but can’t get yourself to close out the trade and cut your losses. It’s the exact same seemingly insurmountable emotional commitment at play.

  One of the ways I’ve tried to prevent this mindset from infecting my own psyche, is by shunning political labels entirely. In my early days of writing many people characterized me as “libertarian,” although I never personally embraced such a label. As discussed earlier, once you embrace a label you end up defending a side more so than thinking critically. You have committed the sin of identity politics, and from that point forward you feel it is your duty to defend other “libertarians” and wage war against those who you perceive to be “on the other side.” Although discarding political labels confers obvious advantages, many people simply can’t do it. Why?

  Again, back to human nature. Most people feel a need to identify with, and become part of, a larger group. Unfortunately that larger group is almost never “the human race” as it should be. Why? Because if people tried to identify with everyone then they couldn’t feel special. People like to feel special, and that they’re a small part of a bigger struggle against other groups of humans who are in the wrong. Not in the wrong about specific policies mind you, but in the wrong merely because those other humans have not chosen to identify with the particular group you have aligned yourself with. You can usually tell identify who these brainwashed people are, because they constantly critique other people as “libtards” or “tea party wackos.” There’s no need for these loaded labels, but many people love to use them anyway. Why? Because with a single word they can be dismissive and degrading without ever having to talk to the other side and discuss real issues.

  Which brings me to the second reason American citizens have yet to unite on the greatest issues of national importance, despite the fact that a vast majority of the population agrees on them: Status quo propaganda.

  The status quo are deeply unethical and corrupt, but they aren’t stupid. They know how to divide and conquer people, and through the media, they are doing a great job of keeping citizens of these United States angry at each other, as opposed to angry at them.

  Robert Reich’s experience presents the perfect example. He admits he didn’t realize how much he has in common with “red state” tea partiers until he went out and talked to them. The problem here is that it’s not exactly feasible all for coastal people to travel to the heartland and vice versa in order to come to a mutual understanding. Most people depend on the media for information about the world around them and “those other people out there.”

  Unfortunately, the media intentionally misinforms people and makes them distrustful of “the others.” Fox News will make it seem like liberals are child-sacrificing heathens who simply want to get everyone to have an abortion while taking away their Christmas tress. Likewise, MSNBC makes it seem like it’s an indisputable fact tea partiers are ignorant, racist schmucks who want to shoot everything that moves and turn American into a Taliban-like Christian theocracy. Of course, neither of these things are true.

  The truth is, the American public is tricked into thinking they disagree with each other on the big issues, when in reality there’s enormous overlap. Until we stop being tricked, the status quo will continue to suck the economy dry through their religious-like embrace of corruption and crony capitalism. Unfortunately, the people who could benefit the most from reading this post, will never see it.

  

  

  

  

  

• Obama's Word Or Damocles' Sword

  Forget Damocles’ Sword, it is Obama’s Word that hovers catastrophically over the US economy’s ‘head’…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Why It Absolutely, Positively Does Not Matter

  Submitted by Simon Black via SovereignMan.com,

  I’ll admit that when I was a kid, I used to spend hours watching wrestling on television.

  Hulk Hogan, the Macho Man Randy Savage… I loved all the old-school guys from the WWF, as they used to call it back in the 1980s.

  It was mesmerizing, a bit like I’d imagined gladiator combat would be.

  But I’ll never forget when the dream completely collapsed.

  My father took me to a live match when they came to our town and we had great seats near the front row.

  For the first time it was obvious to me, even from a young age, that it was all fake.

  I was devastated. I had actually believed that there were good guys versus bad guys beating each other up in the ring.

  It turned out to be a complete hoax, something that’s known today as “sports entertainment”.

  In fact, it’s essentially the same with elections today, which I see as “political entertainment”.

  Watching Hilary Clinton debate Bernie Sanders—or like yesterday evening, Jeb Bush against Donald Trump—doesn’t strike me as too different from when Hulk Hogan faced off against Andre the Giant in Wrestlemania.

  It’s all fake. It’s sound bites, jabs and jibes, and pointless banter completely devoid of any real substance.

  Having lunch yesterday with a good friend from the UK, he asked if I thought that any political candidate was worth it.

  I told him that I’m sure they’re all very nice people. Many of them might even mean very well and have very good intentions.

  I’ll also admit that occasionally they have decent ideas and that there are small steps in a positive direction.

  But the truth is, none of it really matters.

  As I explained to my friend, the United States objectively speaking is far past the point of no return.

  The government’s own financial statements prove beyond all doubt that they are flat broke to the tune of more than $60 trillion, and that they lose hundreds of billions of dollars more every year.

  In 2013, for example, the government lost $805 billion according to the Government Accountability Office.

  Every major pension program is either already insolvent or desperately unfunded.

  This isn’t Simon Black’s analysis; the Treasury Secretary of the United States of America himself tells us that the Social Security’s Trust Funds are nearly out of money.

  The Federal Reserve is nearly insolvent, and on a mark to market basis is likely already insolvent.

  The FDIC, which is supposed to support the entire US banking system, admits that it fails to meet the minimum capital requirements as required by law.

  US banks are precariously illiquid and exposed to trillions of dollars worth of very high-risk assets. Something that even the Fed and the FDIC do not consider to be “sound”.

  So to presume that a single individual is going to ride in on a white horse, wave a magic wand and fix all this is just a childish fantasy.

  The hope is that “the right person” can at least start to steer the ship in the right direction.

  This is the delusion every election cycle; people end up believing the entertainment is real, and that the right person can start to fix everything.

  Then a few years later, they realize that the ‘right person’ is almost exactly like the last person.

  Not to mention, ‘righting the ship’, mathematically speaking, is an impossibility.

  The government now spends almost all of its tax revenue just to pay interest on the debt, and the mandatory programs, like Social Security and Medicare.

  Both of which, by the way, are expenses that grow every year.

  There is no way out. It’s like trying to change directions for a ship that’s already half-sunk.

  At that point, it really doesn’t matter who’s the captain of the ship. All that matters is if you have a seat on a lifeboat.

  This is not intended to be a downer.

  It’s a little dose of reality, but in it there’s actually good news. Because all the tools and resources exist for you to build your own lifeboat.

  You don’t need to rely on a government to fix the problems that they themselves created.

  Rational people have a plan B.

  And with a little bit of planning, backed up by small, common sense action, you can ensure that you’re an amused spectator to this bizarre entertainment, rather than a victim of it.

  

  

  

  

  

• Ackman's Terrible Year Just Got Even Worse With News He Will Be Sued For Collusive Insider Trading

  It was in April 2014 when Valeant first revealed the collusive scheme it had hatched with financier Bill Ackman: upon consultation with Ackman, Valeant’s soon to be embattled CEO Michael Pearson would announce a hostile takeover bid of Allergan (this is before the company was acquired by white knight Actavis), but not before Ackman would load up on $4 billion in AGN shares (mostly in the form of calls) to generate massive profits when the news of the hostile offer not by Ackman but by a technically unrelated party was either leaked or announced.

  At the time we said this smacks of criminal, and collusive, insider trading. From our April 22, 2014 post:

  In yet another page of the activist investor’s sleaze book, last night Bill Ackman showed that when it comes to unethical way to generate “alpha” he truly may have no equal, when we learned that together with serial-acquirer and emplyee terminator Valeant, Ackman’s Pershing Square would join in on a debt-funded (thank you ZIRP) acquisition of botox maker Allergan.

   

  Nothing about that is odd. Where the story, however, would becomes a near-criminal farce if the US actually had a regulator which itself was not an agency designed to promote and reward criminality (in hopes of getting a job there as a kickback), is that as Valeant was preparing to announce its bid, Pershing Square – well aware of what was coming – was buying, and buying, and buying Valeant stock. Actually, scratch that – Ackman bought almost no stock: in fact he only bought some $76 million in AGN stock in late February. The balance: all call options, accumulated on an almost daily basis through March all the way until April 21, the day the news was leaked.

   

  As Bloomberg explained, Ackman began buying Allergan stock Feb. 25 and then in March switched to over-the-counter call options to accumulate his stake, regulatory filings show. A buying pause April 9 and 10 helped lower the price, before Ackman resumed in earnest April 11, according to two people familiar with the matter.

   

  Valeant was interested in the unusual arrangement with Ackman because the hedge fund could amass more of Allergan’s shares before making a public disclosure, said a person familiar with the matter. The shares rallied the most since 2009 in the six days before the stake and bid were disclosed yesterday, soaring 22 percent, and trading volume last week approached the highest level in a year.

   

  Why? Because Ackman had accumulated so many calls, it was in his interest at this point to leak the “news” about not his but Valeant’s involvement, which is always happy to trade off its balance sheet and future growth prospects in exchange for a pop in the stock price here and now, even if that means firing thousands of workers, and actually cutting back even more on the company’s own internal organic R&D spending.

   

  Or said otherwise, if you know your “partner” is about to submit a takeover bid for a company, wouldn’t you buy every call option you can find ahead of the announcement? That is precisely what Ackman did.

   

  Here is what Ackman’s furious call buying spree, which in turn pushed the stock price ever higher based on delta-hedging desks.

   

  

   

  And this is the total amount of calls Ackman bought. Remember: he only bought $76 million in AGN stock on February 25 and 26.

  

   

  Needless to say, Ackman made off like a bandit with a profit on his $4 billion initial stake in the hundreds of millions if not billions, once AGN stock soared.

  Naturally, we screamed bloody murder but we assumed that because this is such a glaring example of insider trading we must have missed something – some massive loophole because not even Ackman would be so dumb as to engage in such a blatant frontrunning of material news in which not he but someone else was the acquiror of a company.

  Sure enough, the very next day NYT‘s William Cohan scrambled to Ackman’s defense:

  Mr. Ackman is no fool. Rather, he is brazenly intelligent — he once volunteered to me, unsolicited, his breathtaking SAT scores – and before leaping into this particular abyss he consulted, deliberately, with Robert Khuzami, the former head of enforcement at the S.E.C., who is now a $5 million-a-year-man at Kirkland & Ellis, the Wall Street law firm. Mr. Khuzami assured Mr. Ackman that buying nearly $4 billion of Allergan’s shares knowing that Valeant intended to start a hostile takeover at a premium to market did not violate the S.E.C.’s rule 10b5-1 about insider trading.

  Robert Khuzami, who served as General Councel of the criminal disaster that is Deutsche Bank until 2009 and whom we profiled years ago, is shown below in this photo from his SEC days:

  

   

  Alas, as recent events involving Ackman’s investment in Valeant have demonstrated, not only is Ackman’s intelligence suddenly very much in question, but so is his entire research methodology: how many other managers would allocate billions into a company they never fully diligences and which has cost Ackman over $2 billion in losses if it wasn’t for two things: hubris and laziness.

  And now we get a second confirmation that Ackman may not only not have been “brazenly intelligent” but was downright stupid when moments ago we learned that a District Judge in Santa Ana, California, David Carter, has said Valeant and Ackman must both face a lawsuit accusing them of insider trading in Allergan before making an unsuccessful takeover bid for the maker of Botox.

  In other words, the judge has tacitly admitted that precisely what we said Ackman (and Valeant) criminally did with Allergan, is what may have happened.

  As Reuters reports the Judge rejected arguments by Valeant, Ackman and Ackman’s Pershing Square Capital that the lawsuit should be dismissed because their activity was not fraudulent.

  The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan.

   

  Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile.

  Again, exactly as we said happened on April 22, 2014.

  Naturally, Valeant and Ackman said there was no intent to defraud, and that they breached no duties by sharing information before the takeover bid became public.  

  But the judge, without ruling on the merits, found “serious questions” as to whether “substantial steps” had been taken toward a possible hostile bid, which would have required Valeant to disclose more or Ackman to stop his buying.

  “Plaintiffs must plead defendants knew they were in possession of material nonpublic information at the time of the trade and that they acted with the intent to deceive, manipulate, or defraud,” Carter wrote. “Plaintiffs have alleged both elements.”

  And now it’s off to court. Valeant spokeswoman Laurie Little said the Laval, Quebec-company was disappointed with the decision, and believes it complied with securities laws. “We look forward to presenting evidence to establish that we did nothing improper,” she added. 

  Valeant’s adversary in court, and the lead plaintiffs on the insider trading suit, are the State Teachers Retirement System of Ohio, the Iowa Public Employees Retirement System, and Allergan employee Patrick Johnson.

  * * *

  But the biggest irony in all this is that the only reason Ackman proceeded with an action that clearly is collusive insider trading, is that he got a greenlight by a former SEC head of enforcement that this was legal!

  Let that sink in: the person whose job it was to be the first line of defense against blatantly criminal activity greenlight precisely the action that a district judge now says stinks of insider trading.

  No wonder said SEC enforcer Robert Khuzami, formerly of Deutsche Bank (wink wink), is currently paid a $5 million salary at Kirkland and Ellis to defend Wall Street criminals.

  * * *

  We look forward to the lawsuit and will be amused to find if, as we expected all along, Ackman is forced to repay the billion or so in illegally obtained proceeds. Considering the state his hedge fund finds itself in, he too may soon need a loan from Valeant.

  And speaking of Valeant, today’s news was hardly welcome – the stock closed down another 6% at the lows.

  

   

  While Ackman is not a publicly traded corporation, we are confident his value followed the same intraday trajectory. But a bigger question is what happens to Pershing Square: since Ackman made over $1BN on his AGN long; if found guilty of insider trading he will have to sell more of Pershing Square’s already distressed holdings, largest among them, ironically, being Valeant stock.

  Will LPs wait around until the end of the lawsuit or will they frontrun (or frontbike) Ackman’s own selling of his own stake from his own fund?

  

  * * *

  Full District Court Judge ruling below:

  

  

  

  

  

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• What’s Different about Monetary Policy?

  by Keith Weiner

   

  Many people agree that it’s important to move to a free market in money (i.e. the gold standard). They also say that it’s just as important to fight bad taxes and regulation. In their view, government interference in the economy is like friction in a car. The more friction you add, the slower the car goes. One source of friction is much the same as any other.

  Let me explain why it doesn’t quite work that way, using a few examples.

  Suppose the government imposes an expensive tax on employers based on the number of full-time employees. Full time is defined as working at least 30 hours per week. Employers respond to this tax by reducing the hours of as many employees as possible below the threshold. The law still harms employers, but less than intended. If the law were a bullet aimed at the chest of the employer, it ends up causing a flesh wound.

  Another example is a law that makes it illegal for startup companies to pitch their deals to non-accredited investors. Accredited investors form organized groups that entrepreneurs can safely go to and raise capital. It’s cumbersome, and it leaves some entrepreneurs out in the cold, but as with the employer tax, everyone works to minimize the damage.

  Both the employer tax and the investment regulation fit the analogy of friction that slows down the economy. However, our monetary system causes a different kind of effect.

  For over three decades, the interest rate has been falling. This causes all asset prices to rise. Rising asset prices incentivize people to consume their capital (as I’ve written in
  many
  articles). In short, it’s a process of converting someone’s wealth into someone else’s income. The owner of the wealth would never consume it, but the recipient of income is happy to consume most of it.

  Everyone has seen traders and money managers driving expensive cars and dining in high end restaurants. There’s nothing wrong with making a lot of money and spending it. The problem I am describing is not that they make a lot of money, but that the money they make does not come from producing anything of value. It’s other people’s life savings that they are driving and eating.

  This is the difference between monetary policy and tax or regulatory policy. Monetary policy makes people excited to destroy their wealth. There is no other kind of government intrusion in the market that sets off such a feeding frenzy of self-destructive behavior.

  How does it do this? It makes it profitable to do so. Why does someone hand over his wealth to someone else for consumption? He buys an asset in the hope that it will go up further in price. So long as asset prices are rising, people exchange their capital for a chance to win cash in the falling interest rate game.

  Most people would say that the problem is when assets fall again. They miss the point. The destruction occurs when the price is rising, and winners are spending their profits which are others’ accumulated savings. The accounting catches up eventually when prices fall back down, and then losses are taken.

  The goal of my writing is to help people come to a clear understanding and diagnosis of the problem.

  Let’s end with a sobering quote, made doubly significant by who said it and who he was quoting.

  “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.” – John Maynard Keynes

   

  Do you support the gold standard? Please come and be counted. Show the legislature and governor in Arizona that honest money is popular! Please come to the Monetary

  Innovation Conference in Phoenix on Nov 17 (Keith Weiner is a speaker). At the conference, speakers will discuss gold and how innovators are using it to solve real problems for real people. Please click here to register.

  

  

  

  

• China's 'Nasdaq' Rises For 6th Straight Day As Commodities, Freight Index Collapse

  The PBOC weakened the Yuan fix for the 7th straight day – the longest such streak of 'devaluation' since 2012 – which appears to have helped fuel yet another day of gains for China's most-levered Shenzhen and ChiNext stock indices (even though the USDollar is losing altitude against Asian FX). At the break we note that the lower beta CSI-300 and Shanghai Composite are diverging lower. Meanwhile, over in real economy land, Copper is hitting new lows, nickel is weak, zinc is down, and China Containerized Freight Index just hit a new record low… but when has any of that ever mattered?

   

  PBOC devalued the Yuan Fix for the 7th straight day – that is the longest streak since May 2012…Currency war death by a thousand cuts?

  

   

  But The USDollar is losing ground against Asian FX in general overnight…

  

   

  High-beta Shenzhen is now up 6 straight days…almost entirely retracing the drop from China's devaluation…

  

   

  But Shenzhen (red) and ChiNext (yellow) are notably diverging from Shanghai Composite (blue) and CSI-300 (green) in the last few days…

  

   

  However, amid all this exuberant releveraging and stability, Commodity prices are plunging and Containerized Freight (i.e. exports) costs have hit record lows…

  

   

   

  Charts: Bloomberg

  

  

  

  

  

• The Deep State: The Unelected Shadow Government Is Here To Stay

  Submitted by John Whitehead via The Rutherford Institute,

  “Behind the ostensible government sits enthroned an invisible government, owing no allegiance and acknowledging no responsibility to the people.” ? Theodore Roosevelt

  America’s next president will inherit more than a bitterly divided nation teetering on the brink of financial catastrophe when he or she assumes office. He will also inherit a shadow government, one that is fully operational and staffed by unelected officials who are, in essence, running the country.

  To be precise, however, the future president will actually inherit not one but two shadow governments.

  The first shadow government, referred to as COG or continuity of government, is made up of unelected individuals who have been appointed to run the government in the event of a “catastrophe.”

   

  The second shadow government, referred to as the Deep State, is comprised of unelected government bureaucrats, corporations, contractors, paper-pushers, and button-pushers who are actually calling the shots behind the scenes right now.

  The first shadow government, COG, is a phantom menace waiting for the right circumstances—a terrorist attack, a natural disaster, an economic meltdown—to bring it out of the shadows, where it operates even now. When and if COG takes over, the police state will transition to martial law.

  Yet as I point out in my book Battlefield America: The War on the American People, it is the second shadow government, the Deep State, which poses the greater threat to our freedoms. This permanent, corporatized, militarized, entrenched bureaucracy is unaffected by elections, unaltered by populist movements, and beyond the reach of the law.

  This is the hidden face of the police state.

  These two shadow governments, which make a mockery of representative government and the “reassurance ritual” of voting, have been a long time in the making. Yet they have been so shrouded in secrecy, well hidden from the eyes and ears of the American people, that they exist and function in contravention to the principles of democratic government.

  As the following makes clear, these shadow governments, which operate beyond the reach of the Constitution and with no real accountability to the citizenry, are the reason why “we the people” have no control over our government.

  The COG shadow government plan was devised during the Cold War as a means of ensuring that a nuclear strike didn’t paralyze the federal government.

  COG initially called for three teams consisting of a cabinet member, an executive chief of staff and military and intelligence officials to practice evacuating and directing a counter nuclear strike against the Soviet Union from a variety of high-tech, mobile command vehicles. If the president and vice president were both killed, one of these teams would take control, with the ranking cabinet official serving as president.

  This all changed after the attacks of September 11, 2001, when it became clear that there would be no warning against a terrorist attack. Instead of waiting until an attack occurred to mobilize part-time bureaucrats and activate evacuation schemes, George W. Bush opted to change COG and establish a full-time, permanent shadow government, stationed outside the capital, run by permanently appointed (not elected) executive officials.

  COG has since taken on a power—and a budget—of its own.

  Incredibly, under the Obama administration, the plans for the shadow government have expanded and grown far more elaborate and costly than many realize. It is what investigative journalist William M. Arkin refers to as “the latest manifestation of an obsession with government survival.”

  In much the same way that the nation was taken hostage after 9/11 by color-coded terror alerts and “See Something, Say Something” campaigns that transformed us into a fearful, watchful nation of suspects, the government’s efforts to prepare us for a so-called national disaster have, in turn, left us a constant state of near-emergency and acclimated us to the sight of militarized police, military drills on American soil, privatized prisons, the specter of internment camps, and the erosion of constitutional rights, especially as they pertain to so-called “extremists,” domestic or otherwise.

  Study the COG plans carefully, however, and you’ll find that the concern isn’t so much about protecting our government as it is about protecting the nation’s governmental elite.

  As Arkin reports: “Countless billions have been spent on this endeavor over the years, a secret orgy of preparedness going on behind the scenes, one that ensures Washington can defend itself, take care of its own, and survive no matter what.”

  To this end, the government has invested heavily in the “architecture of fear”: massive underground bunkers—the size of small cities—which are sprinkled throughout the country for the government elite to escape to “in case of an imminent nuclear strike so that they can set up a kind of Administration-in-exile, directing every order of business from retaliation to recovery.”

  These bunkers, strategically located around the nation’s capital and in key states, represent a who’s who on the shadow government’s payroll, with every department and agency represented, from the Department of Education and the Trademark Office to the Small Business Administration and the National Archives.

  No sector has been overlooked: military, surveillance, counterintelligence, scientific, political, judicial, corporate contractors, as well as computer programmers, engineers, fire fighters, craftsmen, security guards, branch chiefs, financial managers, supply officers, secretaries and stenographers, all of whom have been entrusted with special ID cards allowing them clearance into the doomsday survival sites. They’ve even included individuals tasked with patent and trademark processing. They even have contingency plans to save priceless works of art.

  The Federal Relocation Arc near Washington DC will reportedly serve as the emergency bunker for “every Cabinet department (and every government organization deemed essential).” Site R, a 700,000-foot facility inside Raven Rock Mountain near Camp David, will serve as a backup Pentagon. Peters Mountain near Charlottesville, Va., is the likely site for the nation’s domestic spies to hide out. Congress will retire to a subterranean facility near the posh Greenbrier resort in West Virginia, which served as an internment facility for Japanese, Italian and German diplomats during World War II. And a 600,000-square-foot complex inside Virginia’s Mount Weather is expected to be the primary relocation site for the White House, the Supreme Court and much of the executive branch.

  Built into the side of a mountain, Mount Weather, near Bluemont, Va., is staffed 24 hours a day, seven days a week. This self-contained facility contains, among other things, a hospital, crematorium, dining and recreation areas, sleeping quarters, reservoirs of drinking and cooling water, an emergency power plant, a radio/television studio and a full-time police and fire department.

  There is also an Office of the Presidency at Mount Weather, which regularly receives top-secret national security information from all the federal departments and agencies. This facility was largely unknown to everyone, including Congress, until it came to light in the mid-1970s. Military personnel connected to the bunker have refused to reveal any information about it, even before congressional committees. In fact, Congress has no oversight, budgetary or otherwise, on Mount Weather, and the specifics of the facility remain top-secret.

  These facilities reinforce a troubling government mindset that treats the American people as relatively insignificant and expendable. Because you know who’s not on the list of key-individuals-to-be-saved-in-the-eventuality-of-a-disaster? You and me and every other American citizen who is viewed as a mere economic unit to be tallied, bought and sold by those in power.

  Not to worry, however. The government hasn’t completely forgotten about us.

  In the event of a “national emergency”—loosely defined as “any incident, regardless of location, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the U.S. population, infrastructure, environment, economy, or government functions”—the executive branch and its unelected appointees will be given unchecked executive, legislative and judicial power.

  In such an event, the Constitution will effectively be suspended, thereby ushering in martial law.

  However, writing for Radar magazine, Christopher Ketcham suggests that the government won’t have completely forgotten about the rest of us. In fact, Ketcham believes that the government also has plans to imprison hundreds of thousands of “potentially suspect” Americans in detention camps.

  Ketcham describes a program created by the Department of Homeland Security that relies on a database of Americans who might be considered potential threats in the event of a national emergency. Referred to by the code name Main Core, this database reportedly contains the names of millions of Americans who, “often for the slightest and most trivial reason, are considered unfriendly, and who, in a time of panic, might be incarcerated. The database can identify and locate perceived ‘enemies of the state’ almost instantaneously.”

  Sounds unnervingly like the objectives of the government’s new Domestic Terrorism Czar and the Strong Cities network, which will be working to identify and target potential extremists, doesn’t it?

  Under Ketcham's scenario, if a terrorist attack occurs, the president will declare a national emergency, activating COG procedures and throwing the country into martial law with the shadow government at the helm. The administration will then round up the “dangerous” Americans listed in Main Core and place them in one of the many internment camps or private prisons built for just such an eventuality.

  For all intents and purposes, the nation is one national “emergency” away from having a full-fledged, unelected, authoritarian state emerge from the shadows. All it will take is the right event—another terrorist attack, perhaps, or a natural disaster—for such a regime to emerge from the shadows.

  As unnerving as that prospect may be, however, it is the second shadow government, what former congressional staffer Mike Lofgren refers to as “the Deep State, which operates according to its own compass heading regardless of who is formally in power,” that poses the greater threat right now.

  Consider this: how is it that partisan gridlock has seemingly jammed up the gears (and funding sources) in Washington, yet the government has been unhindered in its ability to wage endless wars abroad, in the process turning America into a battlefield and its citizens into enemy combatants?

  The credit for such relentless, entrenched, profit-driven governance, according to Lofgren, goes to “another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.”

  This “state within a state” hides “mostly in plain sight, and its operators mainly act in the light of day,” says Lofgren, and yet the “Deep State does not consist of the entire government.”

  Rather, Lofgren continues:

  It is a hybrid of national security and law enforcement agencies: the Department of Defense, the Department of State, the Department of Homeland Security, the Central Intelligence Agency and the Justice Department. I also include the Department of the Treasury because of its jurisdiction over financial flows, its enforcement of international sanctions and its organic symbiosis with Wall Street.

   

  All these agencies are coordinated by the Executive Office of the President via the National Security Council. Certain key areas of the judiciary belong to the Deep State, such as the Foreign Intelligence Surveillance Court, whose actions are mysterious even to most members of Congress. Also included are a handful of vital federal trial courts, such as the Eastern District of Virginia and the Southern District of Manhattan, where sensitive proceedings in national security cases are conducted.

   

  The final government component (and possibly last in precedence among the formal branches of government established by the Constitution) is a kind of rump Congress consisting of the congressional leadership and some (but not all) of the members of the defense and intelligence committees. The rest of Congress, normally so fractious and partisan, is mostly only intermittently aware of the Deep State and when required usually submits to a few well-chosen words from the State’s emissaries.

  In an expose titled “Top Secret America,” The Washington Post revealed the private side of this shadow government, made up of 854,000 contract personnel with top-secret clearances, “a number greater than that of top-secret-cleared civilian employees of the government.”

  Reporting on the Post’s findings, Lofgren points out:

  These contractors now set the political and social tone of Washington, just as they are increasingly setting the direction of the country, but they are doing it quietly, their doings unrecorded in the Congressional Record or the Federal Register, and are rarely subject to congressional hearings…

  The Deep State not only holds the nation’s capital in thrall, but it also controls Wall Street (“which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater”) and Silicon Valley.

  As Lofgren concludes:

  [T]he Deep State is so heavily entrenched, so well protected by surveillance, firepower, money and its ability to co-opt resistance that it is almost impervious to change… If there is anything the Deep State requires it is silent, uninterrupted cash flow and the confidence that things will go on as they have in the past. It is even willing to tolerate a degree of gridlock: Partisan mud wrestling over cultural issues may be a useful distraction from its agenda.

  Remember this the next time you find yourselves mesmerized by the antics of the 2016 presidential candidates or drawn into a politicized debate over the machinations of Congress, the president or the judiciary: it’s all intended to distract you from the fact that you have no authority and no rights in the face of the shadow governments.

  

  

  

  

  

• Which 2 Nations Received 75% Of America's $5.9 Billion Foreign Military Financing?

  According to the U.S. State Government 2013-2015 Foreign Assistance report, an estimated $5.9 billion was spent on foreign military funding alone in fiscal year 2014.  This is equivalent to 17% of the estimated $35 billion spent on total global aid discussed in our previous article. U.S. foreign military aid to countries ranged from $200,000 to $3.1 billion. Of the top 10 recipients, two countries received 75% of the $5.9 billion. 

   

  Take a look on the map below to see who is getting the most foreign military financing from the U.S….

  

   

  Below is a ranking of the the top 10 recipients and their respective world regions.

  • Israel: $3.1B (Middle East)

  • Egypt: $1.3B (Africa)

  • Iraq: $300M (Middle East)

  • Jordan: $300M (Middle East)

  • Pakistan: $280M (Asia)

  • Lebanon: $75M (Middle East)

  • Philippines: $50M (Asia)

  • Colombia: $29M (Latin America)

  • Tunisia: $20M (Africa)

  Research conducted by the World Bank shows that the on average, countries spend approximately 2.2% of GDP on the military. Israel, Iraq, Jordan and Pakistan allocated above average spending towards their military in 2014. The data shows that each country spent approximately 5.2%, 4.3%, 3.5%, and 3.4% of GDP, respectively, on military expenditures. These countries are also part of the top 5 recipients of U.S. foreign military financing, totaling $4.0 billion. 

  Funding by World Region

  Approached from a different perspective, approximately 87% of the $5.9 billion was distributed among two of five world regions. The Middle East tops this list, followed by Africa.

  • Middle East: 64%

  • Africa: 23%

  • Asia: 7%

  • General Programs: 4%

  • Europe: 1%

  • Latin America: 1%

  An interesting point to note is that while the Latin American region received only 1% of foreign military financing, Colombia made the top 10 list with $28 million. The second highest recipient in Latin America was Mexico, with $7 million of U.S. funding. On the other hand, Africa received roughly 23% of military aid; however, five African countries made the bottom of the list, receiving $200,000 each (Cote d’Ivoire, Guinea, Botswana, Tanzania, and Uganda). Of the 74 countries that received U.S. foreign military funding, not all received aid in proportion to its geographic region.

  Past, Present, and Future

  Allocation of foreign military financing may differ over time as the social, economic, and political climate changes across the globe. In the past three years; however, foreign military financing has been relatively consistent, with $5.7 and $5.9 billion distributed in 2013 and 2014, respectively, and $5.6 billion requested in 2015. Additionally, Israel, Egypt, Iraq, Jordan, and Pakistan made the top 5 in all three years, receiving roughly the same amount of aid year over year. It is difficult to predict future foreign military financing allocations; however, if remaining consistent, five countries will receive approximately 89% of these distributions, leaving 69 other countries to receive the remaining 11% of funds

   

  Source: HowMuch.net

  

  

  

  

  

• On The Verge Of The Great Unraveling, Looking Back From 2050

  The future remains eternally unknown and invariably holds its surprises. Fortunately however, it will prove far less unknown because among our number we happen to have one, John Feffer, with the ability to channel a geo-paleontologist who’s had some experience with the world 35 years from now and so, unlike the rest of us, can look back on our planetary fate from what turns out to be a distinctly dystopian future.

  Submitted by John Feffer via TomDispatch.com,

  Splinterlands, The View From 2050

  Let me start with a confession. I’m old-fashioned and I have an old-fashioned profession. I’m a geo-paleontologist. That means I dig around in archives to exhume the extinct: all the empires and federations and territorial unions that have passed into history. I practically created the profession of geo-paleontology as a young scholar in 2020. (We used to joke that we were the only historians with true 2020 hindsight).  Now, my profession is becoming as extinct as its subject matter.

  Today, in 2050, fewer and fewer people can recall what it was like to live among those leviathans. Back in my youth, we imagined that lumbering dinosaurs like Russia and China and the European Union would endure regardless of the global convulsions taking place around them. Of course, at that time, our United States still functioned as its name suggests rather than as a motley collection of regional fragments that today fight over a shrinking resource base.

  Empires, like adolescents, think they’ll live forever. In geopolitics, as in biology, expiration dates are never visible. When death comes, it’s always a shock.

  Consider the clash of the titans in World War I. Four enormous empires — the Ottoman, Austro-Hungarian, Russian, and German — went into that conflict imagining that victory would give them not just a new lease on life, but possibly even more territory to call their own. And all four came crashing down. The war was horrific enough, but the aftershocks just kept piling up the bodies. The flu epidemic of 1918-1919 alone — which soldiers unwittingly transported from the trenches to their homelands — wiped out at least 50 million people worldwide.

  When dinosaurs collapse, they crush all manner of smaller creatures beneath them. No one today remembers the death throes of the last of the colonial empires in the mid-twentieth century with their staggering population transfers, fierce insurgencies, and endless proxy wars — even if the infant states that emerged from those bloody afterbirths gained at least a measure of independence.

  My own specialty as a geo-paleontologist has been the post-1989 period. The break-up of the Soviet Union heralded the last phase of decolonization. So, too, did the redrawing of boundaries that took place in parts of Asia and Africa from the 1990s into the twenty-first century, producing new states like East Timor, Eritrea, South Sudan. The break-up of the Middle East, in the aftermath of the U.S. invasion of Iraq and the “Arab Spring,” followed a similar, if far more chaotic and bloody pattern, though religious extremism more than nationalist sentiment tore apart the multiethnic countries of the region.

  Even in this inhospitable environment, the future still seemed to belong to the dinosaurs. Despite setbacks, the U.S. continued to loom over the rest of the planet as the “sole superpower,” with its military in constant intervention mode.  China was on the rise.  Russia seemed bent on reconstituting the old Soviet Union. The need to compete on an increasingly interconnected planet contributed to what seemed like a trend: pushing countries together to create economies of scale. The European Union (EU) deepened its integration and expanded its membership. Nations of very different backgrounds formed economic pacts like the Association of Southeast Asian Nations (ASEAN) and the North American Free Trade Agreement (NAFTA). Even countries without any shared borders contemplated such joint enterprises, like the Organization of Petroleum Exporting Countries (OPEC) and, later, Brazil, Russia, India, China, and South Africa (the “BRICS” nations).

  As everyone now knows, however, this spirit of integration would, in the end, go down to defeat as the bloodlands of the twentieth century gave way to the splinterlands of the twenty-first. The sense of disintegration and disunity that settled over our world came at precisely the wrong moment. To combat a host of collective problems, we needed more unity, not less. As we are all learning the hard way, a planet divided against itself will not long stand.

  The Wrath of Nations

  Water boils most fiercely just before it disappears. And so it is, evidently, with human affairs.

  Just before all hell broke lose in 1914, the world witnessed an unprecedented explosion of global trade at levels that would not be seen again until the 1980s. Just before the Nazis took over in 1932, Germans in the Weimar Republic were enjoying an extraordinary blossoming of cultural and political liberalism. Just before the Soviet Union imploded in 1991, Soviet scholars were pointing proudly to rising rates of intermarriage among the many nationalities of the federation as a sign of ever-greater social cohesion.

  And in 2015, just before the great unraveling, the world still seemed to be in the grip of what was then labeled “globalization.” The volume of world trade was at an all-time high. Facebook had created a network of 1.5 billion active users. People on every continent were dancing to Drake, watching the World Cup final, and eating sushi. At the other end of the socio-economic spectrum, more people were on the move as migrants and refugees than at any time since the end of World War II.

  Borders seemed to be crumbling everywhere.

  Before 2015, almost everyone believed that time’s arrow pointed in the direction of greater integration. Some hoped (and others feared) that the world was converging on ever-larger conglomerations of nations. The internationalists campaigned for a United Nations that had some actual political power. The free traders imagined a frictionless global market where identical superstores would sell the same products at all their global locations. The technotopians imagined a world united by Twitter and Instagram.

  In 2015, people were so busy crossing borders — real and conceptual — that they barely registered the backlash against globalization. Officially, more and more countries had committed themselves to diversity, multiculturalism, and the cosmopolitan ideals of liberty, solidarity, and equality. But everything began to change in 2015, a phenomenon I first chronicled in my landmark study Splinterlands (Dispatch Books, 2025). The movements that came to the fore in 2015 championed a historic turn inward: the erection of walls, the enforcement of homogeneity, and the trumpeting of exclusively national virtues.

  The leaders of these movements — Donald Trump in the United States, Hungarian Prime Minister Viktor Orban, Russian President Vladimir Putin, French National Front Party leader Marine Le Pen, Indian Prime Minister Nahendra Modi, Japanese Prime Minister Shinzo Abe, and Egyptian President Abdel Fattah el-Sisi, to name just a few — were not members of a single party. They did not consider themselves part of a single movement. Indeed, they were quite skeptical of anything that smacked of transnational cooperation. Personally, they were cosmopolitans, comfortable in a variety of cultural environments, but their politics were parochial. As a group, they heralded a change in world politics still working itself out 35 years later.

  Ironically enough, at the time these figures were the ones labeled “dinosaurs” because of their focus on imaginary golden ages of the past. But when history presses the rewind button, as it has for the last 35 years, it can turn reactionaries into visionaries.

  Few serious thinkers during the waning days of the Cold War imagined that, in the long run, nationalism would survive as anything more significant than flag and anthem. As the historian Eric Hobsbawm concluded in 1990, that force was almost spent, or as he put it, “no longer a major vector of historical development.” Commerce and the voracious desire for wealth were expected to rub away at national differences until all that remained would be a single global marketplace of supposedly rational actors. New technologies of travel and communication would unite strangers and dissolve the passions of particularism. The enormous bloodlettings that nations visited on one another in the nineteenth and twentieth centuries would surely convince all but the lunatic that appeals to motherland and fatherland had no place in a modern society.

  As it turned out, however, commerce and its relentless push for comparative advantage merely rebranded nationalism as another marketable commodity. Although travel and communication did indeed bring people together, they also increased the opportunities for misunderstanding and conflict. As a result, nationalism did not go gently into the night. Quite the opposite: it literally remapped the world we now live in.

  The Fracture Lines

  The fracturing of the so-called international community did not happen with one momentous crack. Rather, it proceeded much like the calving of Arctic ice masses under the pressure of global warming, leaving behind only a herd of modest ice floes. Rising geopolitical temperatures had a similar effect on the world’s map.

  At first, it was difficult to understand how the war in Syria, the conflict in Ukraine, the simmering discontent in Xinjiang, the uprisings in Mali, the crisis of the Europe Union, and the upsurge in anti-immigrant sentiment in both Europe and the United States were connected. But connected they were.

  The initial cracks in that now-dead global system appeared in the Middle East. As a geo-paleontologist, I must admit that I wasn’t particularly interested in those changes themselves, only in their impact on larger entities. Iraq and Syria, multiethnic countries forged in the post-colonial fires of Arab nationalism, split along ethnic and confessional lines. Under the pressure of a NATO air intervention led by the U.S., Libya similarly fell apart when its autocratic leader was killed and its arsenals were pillaged and sent to terror groups across a broad crescent of crisis. The fracturing then continued to spread — to Yemen, Egypt, Saudi Arabia, Lebanon, and Jordan. People poured out of these disintegrating countries like creatures fleeing a forest fire.

  This vast flood of refugees by land and sea proved to be the tipping point for the European Union. Having expanded dramatically in the 2000s, the 28-member association hit a wall of Euroskepticism, fiscal austerity, and xenophobia. As they reacted to the rising tide of refugees, the anti-immigrant forces managed to end the Schengen system of open borders. Next to unravel was the European currency system as the highly indebted countries on the periphery of the Eurozone reasserted their fiscal sovereignty.

  The Euroskeptics took heart from these developments. In 2015, the anti-immigrant Democratic Party in Sweden leaped to the top of the opinion polls for the first time. Once the epitome of tolerance and social democracy, Sweden led the great turn in Scandinavia away from the European mainland. On the heels of local elections and those for the European Parliament, the far-right National Front of Marine Le Pen became the most popular French party and, with its newfound power, began to pry apart the informal pact with Germany that had once been the engine for European integration. Euroskeptical parties consolidated power in Poland, Portugal, Hungary, and Slovakia. Desperate to curry favor with its hardcore constituents, the British Conservative Party sponsored a referendum that guided Great Britain out of the EU. What had once been only scattered voices of dissatisfaction suddenly became a rush to the exits. The EU survived for some years more — until the Acts of Dis-Integration of 2028 — but only as a shell.

  The unrest in the Middle East and the unraveling of the EU had a profound impact on Russia. The last of that country’s Soviet-era politicians had been attempting to reconstruct the old federation through new Eurasian arrangements. At the same time, they were trying to expand jurisdiction over Russian-speaking populations through border wars with Ukraine, Georgia, and Moldova. But in their grab for more, they were left with less. Mother Russia could no longer corral its children, neither the Buryats of the trans-Baikal region nor the Sakha of Siberia, neither the inhabitants of westernmost Kaliningrad nor those of the maritime regions of Primorye in the far east. Moscow’s entrance into the Syrian conflict on the side of Damascus contributed to an upsurge in separatist sentiment in the trans-Caucasus republics of Chechnya and Dagestan. In the Second Great Perestroika of 2031, Russia divided along the lines we know so well today, separating its European and Asian halves and its industrial wastelands in the north from its creeping deserts in the south.

  China found itself on a similar trajectory. A global economic slowdown frayed the unstated social contract — incremental improvements in prosperity in exchange for political quiescence — that the Communist Party had developed in the wake of the Tiananmen Square protests of 1989. Beijing’s crackdown on anything that smacked of “terrorism” only pushed the Uighurs of Xinjiang into open revolt. The Tibetans, too, continued to advance their claims for greater autonomy. Inner Mongolia, with almost twice as many ethnic Mongolians as Mongolia itself, also pulled at the strings that held China together. Taiwan stopped talking about cross-Straits reunification; Hong Kong reasserted its earlier status as an entrepôt city. But these rebellions along the frontiers paled in comparison to the Middle Uprising of the 2030s. In retrospect, it was obvious that the underemployed workers and farmers in China’s heartland, who had only marginally benefited from the country’s great capitalist leap forward of the late twentieth century, would attack the political order. But who would have thought that the middle could drop so quickly out of the Middle Kingdom?

  The United States, as we all know, has not fallen apart. But the American empire (which U.S. leaders took such pains to deny ever existed) has effectively collapsed. Once the U.S. government went into receivership over its mountainous debt and its infrastructure began to truly collapse, its vast overseas military footprint became unsupportable. As it withdrew, Washington deputized its allies — Germany, Japan, South Korea, Saudi Arabia, and Israel — to do the same work, but they regularly worked at cross-purposes and in any case held their own national interests above those of Washington.

  Meanwhile, U.S. domestic politics remained so polarized and congealed that Congress and the executive branch could not establish a consensus on how to re-energize the economy or reconceive the “national interest.” Up went higher walls to keep out foreigners and foreign products. With the exception of military affairs and immigration control, the government dwindled to the status of caretaker. Then there was the epidemic of assault rifles, armed personal drones, and WBA (weaponized biological agents), all easily downloaded at home on 3-D printers. The state lost its traditionally inviolable monopoly on violence and our society, though many refuse to acknowledge the trend, drifted into a condition closely approximating psychosis. An increasingly embittered and armed white minority seemed determined to adopt a scorched-earth policy rather than leave anything of value to its mixed-race heirs. Today, of course, the country exists in name alone, for the only policies that matter are enacted on a regional basis.

  The centrifugal forces first set in motion in 2015 tore apart the great multiethnic nations in a terrifying version of Yugoslavization that spread across the planet. Farseeing pundits had predicted a wave of separatism in the 1990s. They were wrong only in terms of pace. The fissures were slower to appear, but appear they did. In South Asia, separatist movements ate away at both India and Pakistan. In Southeast Asia, Indonesia, Malaysia, and Myanmar fractured along ethnic lines. In Africa, the center could not hold, and things inevitably fell apart — in the Congo, the Central African Republic, Nigeria, and Chad, among other places.

  There was much talk in the early twenty-first century of failed states like Afghanistan, Iraq, Somalia, Yemen, and Haiti. Looking back, it’s now far clearer that, in a certain sense, all states were failing. They had little chance against the governance-eroding winds of globalization from above and the ever-greater upheavals of non-state actors from below.

  Perhaps under the best of environmental conditions, these forces would have pushed empires, federations, and trade pacts to the edge but no further. As it happened, however, despite conferences and manifestos and sort-of-binding agreements, the global thermometer continued to rise. The effects of climate change turned out to be the proverbial tipping point. Water shortages intensified conflict throughout China, as did food shortages in Russia. The tropics, the islands, the coastlines: all were vulnerable to the rising waters. And virtually every country entered into a pitched battle over drinking water, clean air, indispensible minerals, and arable land.

  All of us have our own personal climate-change disaster stories. For instance, I lost my home in Hurricane Donald, which destroyed so much of Washington, D.C. and its suburbs in 2029. I started all over in Nebraska only to be forced to move again when the Oglala aquifer gave out in 2034, precipitating what we now call the Midwest Megadrought. And like so many others, I lost a loved one only three years ago in that terrible month of superstorms — 7/47 — which devastated such a large swath of the planet.

  What no one anticipated was the impact climate change would have on nationalism. But how else would people divvy up increasingly precious natural resources? National sentiment proved to be the go-to principle for determining what “our” people deserved and those “others” didn’t. As a result, instead of becoming an atavistic remnant of another age, nationalism has proved to be this century’s most potent ideology. On an increasingly desperate planet, we face not the benevolence or tyranny of one world, but the multiple confusions of many worlds.

  All That Was Solid

  It was not only the multiethnic nation-state that proved untenable in our century. Everything seemed to be fracturing.

  The middle class shattered. The promise of a stable job and income — the iron rice bowl in the East and the ironclad pension in the West — disappeared into a maelstrom of inequality in which the super-rich 1% effectively seceded from society while the poorest of the poor had nowhere to turn. Back in 2015, pundits loved to promote new trends like the “sharing economy” of millions of employees turned entrepreneurs or the “long tail” of a splintering consumer market. But the bottom line was grimly straightforward: the forces that could have acted to countervail the fissiparous competition of the market gradually disappeared. Gone was the guiding hand of the government. Gone were the restraining pressures of morality.

  Technology certainly played a role in this transformation, first when computers and cell phones untethered individuals from fixed workplaces and then when biochips turned each individual into his or her own “work station.” The application of market principles to every facet of existence whittled away the public sphere in favor of the private one. Such dynamics at the social level also contributed to the great fracturing that took place in the international sphere.

  Yes, I can anticipate your criticism. Perhaps it’s true that, in 2050, we are at a nadir of cooperation and some new form of centralization and globalization lies ahead. Clearly, the jihadis, who operate their mini-caliphates around the world, dream of uniting the faithful under a single banner. There are diplomats even today who hope to get all 300-plus members of the United Nations to agree to the sort of institutional reforms that could provide the world with some semblance of global governance. And maybe a brilliant programmer is even now creating a new “killer app” that will put every single person on the same page, literally.

  As a geo-paleontologist, I am reluctant to speculate. I focus on the past, on what has actually happened. Anyone can make predictions. But none of these scenarios of future integration seems at all plausible to me. “That’s the way the cookie crumbles,” we used to say when I was a kid. And a cookie can only crumble in one direction.

  Still, I would be remiss if I didn’t point out something that many have noted over the years. We have been fragmenting at precisely the time when we should be coming together, for the problems that face the planet cannot be solved by millions of individuals or masses of statelets acting alone. And yet how can we expect, with desperate millions on the move, the rise of pandemics, and the deepening of economic inequality globally, that people can unite against common existential threats? Only today can we all see clearly, as I wrote so many years ago, that the rise of the splinterlands has been humanity’s true tragedy. The inability of cultures to compromise within single states, it seems, anticipated our current moment when multiplying nation-states can’t compromise on a single planet to address our global scourges. The glue that once held us together — namely, solidarity across religion, ethnicity, and class — has lost its binding force.

  At the beginning of the great unraveling, in 2015, I was still a young man. Like everyone else, I didn’t see this coming. We all lived in a common home, I thought. Some rooms were in terrible disrepair. Those living in the attic were often exposed to the elements. The house as a whole needed better insulation, more efficient appliances, solar panels on the roof, and we had indeed fallen behind on the mortgage payments. But like so many of my peers, I seldom doubted that we could scrape together the funds and the will to make the necessary repairs by asking the richer residents of the house to pay their fair share.

  Thirty-five years and endless catastrophes later on a poorer, bleaker, less hospitable planet, it’s clear that we just weren’t paying sufficient attention. Had we been listening, we would have heard the termites. There, in the basement of our common home, they were eating the very foundations out from under us. Suddenly, before we knew quite what was happening, all that was solid had melted into air.

  

  

  

  

  

• Inside The Fukushima Radioactive Wasteland: A Trip Through The "Exclusion Zone"

  One month ago, we showed an eerie, drone’s-eye-view of the radioactive wasteland that is Fukushima, courtesy of the following video clip showcasing the toxic area located just 200 miles away from the venue of the 2020 summer Olympics.

   

  But while the scenery from above was dramatic, what about life on the actual ground? Because just like with Chernobyl, the world may have been eager to move on and leave the wasteland on its own, the empty ghost towns that neighbor ground zero remain stuck in time. This is the “exclusion zone,” and it’s one of the most radioactive places on Earth.

  Inside the zone, chunks are ripped out of buildings, totaled cars lie on the street, and clocks are stopped at the moment the tsunami struck. Nature is slowly taking over the houses and possessions of those who once called this place home.

  “I feel like I’m in a parallel world,” says Norikatsu Nakazato, who is only rarely allowed to visit his family’s 110-year-old house. “I don’t think I’ll be able to live here again in this lifetime.”

  Fusion’s Tim Pool took a trip to the heart of the exclusion zone in October to talk with Nakazato and other survivors who refuse to leave, one of whom gives the following poignant answer when asked why he won’t leave and whether he is scared. He answer is no, because “I just gave up.“

  

  

  

  

• Finland To House Refugees In Shipping Containers

  First the good news: with a cold winter about to slam Europe where thousand of refugees make their way north every day, and where many of these migrants have been scrambling to find any form of lodging ahead of the first snow, Finland has decided to generously provide much needed housing facilities.

  The bad news: said facilities are empty shipping containers and tents. Neither has heating.

  According to Reuters Finland, like Germany, has seen an acceleration in the influx of migrants this month, following a modest slow down last month, the interior ministry said on Tuesday. As a result, the Nordic nation “is preparing to house asylum seekers in tents and shipping containers.”

  The country took in just over 7,000 refugees in October – about 3,800 fewer than in September – but just last week more than 2,000 asylum seekers arrived. It expects 30,000-35,000 migrants to arrive this year, mostly from Iraq, compared with just 3,600 in 2014.

   

  “Even with new centers being opened, the reception capacity will not be sufficient, and authorities are preparing for the use of tent and container accommodation,” the ministry said in a statement.

   

  Afghanis were the biggest single group in those who arrived last week, according to ministry figures. Finland recently stopped processing asylum claims from Afghanis out of security concerns, but has narrowed asylum criteria for Iraqis and Somalis based on its assessment that the security situation has improved in both countries.

  Living in a shipping container may hardly be as comfortable an option as residing in NJ’s bankrupt Revel casino, but it is better than nothing, which is what migrants in neighboring Sweden have to look forward to. Reuters notes that Sweden, which expects 190,000 asylum seekers this year, last week warned it could no longer guarantee finding accommodation for newly arrived refugees, and applied for EU emergency aid to cope with asylum seekers.

  The worst news, however, is for residents of San Francisco: as reported previously, they too have the opportunity of living in a shipping container box, however unlike Finland’s migrants they get to pay $1000/month for the privilege.

  This is what a thousand dollars rents you in San Francisco.

  

  

  We conclude with some good news: if Finland ever runs out of empty shipping container boxes, it should just kindly ask for the port of Long Beach to send it some. After all, as we wrote a month ago, a third of all containers “shipped” from the largest west coast port are empty as a result of an accelerating global recession. At least this way instead of fooling economists about the “recovering” state of the US economy, those thousands of containers, or as they are better known in Helsinki and San Francisco “houses”, could save some lives.

  

  

  

  

  

• Dear Striking Fast-Food Workers: Meet The Machine That Just Put You Out Of A Job

  Today, U.S. fast-food workers will strike across 270 cities in a protest for higher wages and union rights that they hope will catch the attention of candidates in 2016 elections, organizers said.

  The walkouts will be followed by protests in 500 cities by low-wage workers in such sectors as fast food and home and child care, a statement by organizers of the Fight for $15 campaign said on Monday.

  The protests and strikes are aimed at gaining candidates’ support heading into the 2016 election for a minimum wage of $15 an hour and union rights, it said.

  The strikes and protests will include workers from McDonald’s, Wendy’s, Burger King , KFC and other restaurants, the statement said.

  And while we sympathize with their demands for higher wages, here is the simple reason why they will be very much futile.

  Dear fast food workers of the US – presenting you nemesis: the Momentum Machines burger maker.

  According to a recent BofA reported on how robotics will reshape the world, San Francisco start up Momentum Machines are out to fully automate the production of burgers with the aim of replacing a human fast food worker. The machine can shape burgers from ground meat, grill them to order with the specified amount of char, toast buns, add tomatoes, onions, pickles, and finally place it on a conveyor belt.
  

  The robot is shown below. It occupies 24 square feet, and is much smaller and efficient than most assembly-line fast-food operations. It provides “gourmet cooking methods never before used in a fast food restaurant” and will deposit the completed burger into a bag. It does all of this without a trace of attitude.
  

  
  

  According to public data, the company’s robot can “slice toppings like tomatoes and pickles immediately before it places the slice onto your burger, giving you the freshest burger possible.” Unlike human workers, the robot is “more consistent, more sanitary, and can produce ~360 hamburgers per hour” or a burger every 10 seconds.

  Furthermore, future generations of the device “will offer custom meat grinds for every single customer. Want a patty with 1/3 pork and 2/3 bison ground to order? No problem.”

  As the company’s website adds, “our various technologies can produce an ever-growing list of common choices like salads, sandwiches, hamburgers, and many other multi-ingredient foods with a gourmet focus.”

  But most importantly, it has no wage demands: once one is purchashed it will work with 100% efficiency for years. And it never goes on strike.

  As the company’s co-founder Alexandros Vardakostas told Xconomy his “device isn’t meant to make employees more efficient. It’s meant to completely obviate them.”

  

  The company’s philosophy on making millions of fast food workers obsolete:

  The issue of machines and job displacement has been around for centuries and economists generally accept that technology like ours actually causes an increase in employment.

  The three factors that contribute to this are

  1. the company that makes the robots must hire new employees,
  2. the restaurant that uses our robots can expand their frontiers of production which requires hiring more people, and
  3. the general public saves money on the reduced cost of our burgers. This saved money can then be spent on the rest of the economy.

  This is a major problem for the US economy, which once built on a manufacturing backbone, has seen the fastest jobs growth in recent years for workers employed by “food service and drinking places” i.e., fast food workers, waiters and bartenders.

  

   

  Finally, for those complaining that there will be no “human touch” left to take the orders, robots have that covered too:

  

   

  And now it’s time to calculate how many tens if not hundreds of billions in additional welfare spending these soon to be unemployed millions in low-skilled workers will cost US taxpayers.

  

  

  

  

  

• Supreme Court Justice Slams Cops For "Shoot First, Think Later" Mentality

  Submitted by Carey Wedler via TheAntiMedia.org,

  On Monday, the United States Supreme Court ruled to exonerate a Texas state trooper who, against orders from his superior, lethally fired his gun at a driver involved in a high speed chase. Though the majority opinion argued the officer acted reasonably, Justice Sonia Sotomayor issued a scathing dissent against the decision.

  The 2010 case involved Israel Leijas Jr., who had had been stopped by a Tulia, Texas, officer and informed he was wanted on a previously issued warrant. Leijas sped away, commencing a chase that reached speeds from 85 to over 100 miles per hour. As the chase began, the initial officer warned that Leijas might be intoxicated.

  Leijas reportedly called police multiple times from his cell phone during the chase to warn officers he had a gun and would fire at them if they attempted to capture him.

  Though officers planned to put spikes on the road at three different locations in an attempt to halt Leijas’ vehicle, Texas Department of Public Safety State Trooper Chad Mullenix wanted to shoot directly at the car to stop it. When he radioed his superior, Robert Byrd, to ask for permission, he was told to stand by until the car passed over spikes situated near an overpass where Mullenix was located. Byrd wanted to see if the spikes would effectively stop the vehicle before taking further action.

  Moments before the car reached the spikes, however, Mullenix began firing at the vehicle — in direct defiance of Byrd’s orders. The car skidded into the spikes and flipped two and a half times. Though Leijas was killed in the vehicle, authorities determined he had not been killed by the crash, but by Mullenix’s bullets. The officer shot six times, hitting Leijas in the upper body four times.

  Leijas’ family sued, arguing Mullenix used excessive force in violation of the Fourth Amendment. Mullenix argued he was entitled to the qualified immunity often granted to public officials when they act in the line of duty. Though Mullenix initially prevailed after several court battles, in 2014, the Fifth Circuit Court of Appeals overturned the prior ruling. Instead, it decided Mullenix was not entitled to immunity because the immediacy of the risk Leija posed was disputable.

  On Monday, the Supreme Court overturned that decision, finding Mullenix entitled to immunity and therefore exonerated of his charges. In its unsigned per curiam ruling, the court said, “The doctrine of police immunity protects ‘all but the plainly incompetent or those who knowingly violate the law,” NBC reported, noting the court added “its previous rulings have never said that the use of deadly force during a dangerous car chase is automatically a constitutional violation.”

  That conclusion was likely all but decided before the case even reached the Supreme Court. The court ruled on Mullenix v. Luna using only written briefings. It never heard verbal arguments or conducted a trial, which indicates “a sign that a majority of the justices considered the issue so clear cut that further briefing and courtroom argument were unnecessary,” NBC explained.

  Only one justice, Sonia Sotomayor, objected to the opinion — and in doing so, indicted a philosophy that permeates police conduct in the United States.

  She first noted that Mullenix “fired six rounds in the dark at a car traveling 85 miles per hour. He did so without any training in that tactic, against the wait order of his superior officers, and less than a second before the car hit spike strips deployed to stop it.”

  She argued that had the majority on the court correctly interpreted the case, they would have been left “with no choice but to conclude that Mullenix ignored the longstanding and well-settled Fourth Amendment rule that there must be a governmental interest not just in seizing a suspect, but in the level of force used to effectuate that seizure.”

  Sotomayor concluded:

  “By sanctioning a ‘shoot first, think later’ approach to policing, the Court renders protections of the Fourth Amendment hollow.”

  In spite of her captivating dissent, the Supreme Court ruling signals an ominous future for further police brutality cases brought before the nation’s highest court.

  

  

  

  

  

• Did Someone Try To Sabotage Russia's North Stream Gas Pipeline With An Underwater Drone

  When last we visited the Nord Stream pipeline story we noted that the prospect of doubling the line’s capacity in conjunction with Western O&G companies was effectively allowing Moscow to adopt a hardline approach in talks with Ankara.

  Turkish autocrat President Recep Tayyip Erdogan is keen on seeing Syria’s Bashar al-Assad pushed aside and, as everyone who doesn’t live in a cave knows, Russia and Iran are keen on preserving the Assad government. This makes for a rather awkward scenario. Ankara and Moscow have established deep trade ties and when Russian jets venture into Turkish airspace whilst attempting to bomb some of the very same militants Turkey has supported, the relationship becomes strained. That goes double when Turkey shoots down Russian drones. 

  Now obviously, there are very real questions about whether Erdogan can support Ankara’s assertion that Turkey can survive without Russian gas. The idea that either Russia or Turkey would jeopardize the Turkish Stream based on differences of opinion about the President of Syria is to a certain extent absurd (although what happens to that President may shape the future of energy transports from the Mid-East to Europe), but whatever the case, the Nord Stream has become key for the Russians and as we documented in the hilarious “They’re Making Idiots Of Us!”: Eastern Europe Furious At West For Doing Gas Deals With Russian Devils,” Ukraine and Slovakia aren’t pleased with Moscow’s memorandum of intent with Shell, E.On and OMV.

  Here’s a look at the Nord Stream:

  

  Well, in what certainly may be a coincidence but in what also looks remarkably suspicious given the current geopolitcal circumstances, an underwater drone “rigged with explosives” (to quote RT) was spotted near the Nord Stream by Sweden. Here’s more: 

  An unmanned military underwater vehicle rigged with explosives was spotted on the seabed in the vicinity of the Nord Stream gas pipeline in the Baltics on Friday, Swedish media report. The device is expected to be disarmed on November 9.

   

  An abandoned expendable remotely-operated mine clearance underwater vehicle allegedly with explosives onboard has been detected in multinational waters of the Baltic Sea by the Swedish Navy, Svenska Daglabet reports.

   

  The discovery was made during a routine check of the Nord Stream pipeline. Since it was discovered in the Swedish economic zone, north of the island of Gotland, the Nord Stream pipeline operator immediately notified the Swedish military.

   

  The type of ROV (remote operated vehicle) found near Gotland is typically used to disarm big unremovable munitions found on seabed, as the drone is blown up along with the dangerous object.

   

  The national identity of the drone has not been verified so far, as many countries use UUVs of a similar construction, Stolpe said.

  So, here’s a drone equipped with explosives that shows up near the Nord Stream just as the expansion of the pipeline’s capacity threatens Ukraine and Slovakia and gives Russia negotiating leverage with Ankara in the middle of war in a country that shares a border with Turkey.

  Maybe it’s nothing, but bear in mind this is Russia’s go-to pipeline at this juncture and since no one seems to want to come forward and claim they own the drone, one is certaily left to wonder if this could possibly have been an attempt at sabotage. 

  

  

  

  

  

• Guest Post: Can Europe Survive This Invasion?

  Submitted by Patrick Buchanan via Buchanan.org,

  “A modern day mass migration is taking place … that could change the face of Europe’s civilization,” warned Hungarian President Viktor Orban.

   

  “If that happens, that is irreversible. … There is no way back from a multicultural Europe,” said Orban. “If we make a mistake now, it will be forever.”

  Orban acted on his beliefs. He erected a 110-mile fence on the Serb border, redirecting hundreds of thousands of migrants away from Hungary to Croatia, thence to Austria and Germany.

  Sunday, after a third of a million had passed through, Croatia replaced a center-left with a rightist party. A fortnight ago, the right-wing eurosceptic Law and Justice Party won a landslide victory in Poland.

  Support for Angela Merkel, who has opened Germany to a million migrants, is plummeting. Bavaria’s CSU, sister party of Merkel’s CDU, is in rebellion. Bavaria has been the main port of entry for the hundreds of thousands of arriving migrants.

  Europe is undergoing the greatest mass migration since World War II, when 14 million Germans were driven out of Prussia and eastern Germany and Central and Eastern Europe.

  That mass migration halted after two years. But no end is in sight to the migrations from Africa and the Middle East.

  As long as Europe’s borders remain open, they will come. And the people who wish to come number not just in the millions but the tens and scores of millions. And they know how to get there.

  The routes — through Turkey to the Balkans on land, or across a few miles of the Med to the Greek islands, or from Libya to Lampedusa and Sicily, or into the Spanish enclaves on the Moroccan coast, or out to the Canary Islands — are arduous but not impossible.

  Why should they not come?

  Why should Arabs and Africans not flee the tyranny, terror, poverty and war that are their lot to come to Europe, live the good life, and have life’s necessities provided for their families by the munificent welfare states of northern Europe? And what is to stop them?

  Jean Revel’s “The Camp of the Saints” is proving more prophetic than Aldous Huxley’s “Brave New World” or Orwell’s “1984.”

  Considering the crises facing Europe, the question is no longer: Will the EU survive? It is Orban’s question: Will European civilization survive the century?

  This year, the EU monetary union, the eurozone, avoided breaking apart because Athens capitulated and accepted austerity, and the hard-bargaining Germans agreed to a bailout.

  How long will Greeks and Club Med members of the EU accept austerity? How long will Germans bail out nations whose people like to work fewer hours while enjoying superior social benefits?

  Under the Schengen Agreement, there are to be no barriers to trade and travel, to the movement of goods and people inside the EU.

  Yet, across Europe, fences are going up, borders are being re-established, anti-immigrant and anti-EU parties like the National Front of France’s Marine Le Pen, are gaining converts.

  If the mass migrations are not halted, the rise of nationalist regimes at the expense of Europe’s liberals and leftists is inevitable.

  With birth rates in this smallest and least populated of continents below replacement levels for decades, Europe is aging, shrinking and dying, as it is being invaded and altered forever.

  Optimists point to how America absorbed the 15 million that arrived in the Great Wave of immigration from 1890 to 1920.

  But they ignore the differences. America’s immigrants were Europeans from Christian nations coming to a country with a history of assimilation. And the Great Wave stopped in 1924, for 40 years.

  Unlike America, Europe has never known mass immigration. And those pouring into Europe are Arab, African and Muslim, not European Christians or Jews. They come from other civilizations and cultures. And they are not all assimilating but rather creating enclaves in Europe that replicate the lands whence they came.

  Last year, the Swiss voted to cut back on immigration.

  This year, with the UK Independence Party growing in popularity, Prime Minister David Cameron is demanding reforms in the EU charter, before the British vote on whether to leave the EU altogether.

  With migrants in the thousands milling around Calais and the entrance to the tunnel to Dover, Brits must be wondering whether it was wise to dig that tunnel beneath the Channel to their island home.

  The threats raised by the mass migration into Europe rise to the level of the existential.

  Can a civilization survive the replacement of the people who created it by people of other races, religions, and civilizations?

  Ask the Native Americans.

  Will Europe remain Europe if she is repopulated by Arabs, Muslims, Asians and Africans? What will hold Europe together? Free trade?

  In 1981, when Solidarity was crushed by the Warsaw regime on the orders of Moscow, Americans took up the cry — “Let Poland be Poland.”

  One day soon, a voice will arise across the Atlantic calling for an end to this invasion, by force if necessary, and declare: “Let Europe be Europe!”

  

  

  

  

  

• Microsoft Just Gave Brazilian Consumers A Stunning Inflationary Wake Up Call

  Day after day, investors hear about "foreign currency impacts" on earnings… which are dutifully shrugged off by pandering protagonists on mainstream media – "if you just ignore the currency effect, everything is awesome."

  Well the truth is – unless you have lived it and seen it, you have no idea of the massive impacts that a soaring dollar (and collapsing currencies across the emerging markets – which every firm still believes is the engine of global economic growth).

  So here, for some terrifying clarification, is Microsoft's latest product pricing announcement:

  

   

  So – for various countries from Russia to Brazil and from Algeria to New Zealand, while maintaining its USD purchase price, Microsoft has adjusted its loal price "to reflect fluctuations in the currency exchange rate."

  In the case of Brazil shown above as an example – the local price of a Microsoft product just went up from BRL 6.5 to BRL 10.3…

  That is an enormous 58% inflation in local pricing!!

  How would you imagine that will affect local demand? And this is happening in every country and for every US corporation's products.

  *  *  *

  Is The Fed about to hike rates, sending the Dollar even higher, and simultaneously crushing global demand?

  h/t ForrestM

  

  

  

  

• Son Of Billionaire Steel Magnate Plunges To His Death Amid Demise Of UK Industry

  Angad Paul, chief executive of Caparo Holdings, had done a lot of things in his 45 years. 

  He created the world’s fastest road-legal car, for instance. The Caparo T1.

  

  He also executive produced the classic “Lock, Stock, and Two Smoking Barrels“:

  

  Aside from supercars and gangster movies, Paul was, to quote FT, one of the Midlands’ leading industrialists as the head of Caparo Holdings. He was the son of Lord Paul, the 84 year old billionaire steel magnate who’s one the UK’s wealthiest people. Paul replaced his father as CEO nearly two decades ago. He was married to lawyer Michelle Bonn, 40, in 2005, and lived at his family’s home in Marylebone with his parents, Lord and Lady Paul

  

  We’re using the past tense here because on Sunday, Paul tragically fell from “high up” at his home in London. He was pronounced dead at the scene. Here’s the statement from a Met spokesperson:

  “London ambulance service and London’s air ambulance both attended and the man, believed to be in his mid-40s, was pronounced dead at the scene.

   

  “London fire brigade have also been called to the scene to assist with the recovery of the body. The man’s next of kin has been informed, although we still await formal identification. Enquiries into the circumstances of the incident continue but it is being treated as non-suspicious at this stage.”

  The timing of the “accident” raises questions. Caparo was placed in administration last month in what was characterized as a “shattering, devasting hammer blow” to the UK’s steel industry. For those who might have missed it, The Telegraph reported the following in mid-October:

  “The crisis in Britain’s steel industry could be about to claim another victim, with parts of Labour peer Lord Paul’s Caparo empire under enormous pressure.

   

  Caparo Industries, a major producer of steel products with 1,800 staff across 20 sites, was understood to be looking at all funding options over the weekend.

   

  Lord Paul – one of the country’s 50 wealthiest people, with a fortune estimated at £2bn – has a large stake in the privately-owned business through its parent company, Caparo Group. 

  And then, two days later, there was this (again from The Telegraph):

  Britain’s beleaguered steel industry has been dealt a “shattering” and “devastating hammer” blow after Caparo Industries went into administration, with doubts over the future of its 1,700 staff.

   

  The global business, which has about 20 sites in the Midlands as well as operations sites in India and the US, filed for administration as pressure on the steel industry intensifies.

   

  The problems at Caparo, first revealed on Monday by The Telegraph, came ahead of an announcement expected on Tuesday from Tata that it will slash up to 1,200 jobs at its steel plants in Scunthorpe and Scotland. It follows the closure of SSI in Redcar with the loss of 2,000 jobs.

   

  Britain’s largest union, Unite, warned of a “domino effect” in the steel industry, as it renewed calls for the Government to step in to support the sector following Caparo Industries’ collapse.

   

  “This is yet another hammer blow for steel and manufacturing communities already reeling from the closure of Redcar and job losses at Tata,” said Tony Burke, the union’s general secretary. “Ministers need to ask themselves how many more steel firms need to go to the wall before they step in. Failure to act could lead to a ‘domino effect’ taking hold across the industry.”

  Finally, more color from FT:

  Caparo, which comprises about 20 companies, was placed in administration last month, leading to the loss of 323 jobs and the closure of Black Country plants at Darlaston, Dudley and West Bromwich.

   

  Its activities range from the forging and pressing of metal products for aerospace, automotive and other industries. It also produces fastenings, wire, tubes and other accessories.

   

  The UK company is part of a global network of businesses under the Caparo name, with operations in China, India and the US.

   

  In addition to steel, Caparo’s global business is also involved in product development, materials testing services, hotels, media, furniture and interior design, financial services, energy and private equity investment.

   

  PwC, the administrators, said at the time of their appointment that 1,700 West Midlands jobs were at risk.

  It isn’t difficult to guess how this came about. Excess capacity in China (a topic we’ve covered exhaustively) and the now ubiquitous exported deflation effectively killed the industry: 

  Business Secretary Sajid Javid has called for an EU-wide emergency summit on steel. This is due to be held with the next fortnight. At the event he is expected to campaign for European consent to the UK’s early introduction of the energy compensation package and for co-ordinated EU action to stop China dumping excess steel on international markets.

   

  

  

   

  From BNP, earlier this year: 

  

  As a reminder, ArcelorMittal just reported a massive loss attributable to the same dynamic. As we noted on Friday, the obvious implication of China’s excess capacity problem is that the country will simply export its deflation…

  

  Given that, it shouldn’t come as any surprise that the world’s biggest steelmaker suspended its dividend and cut its outlook.

  Here’s more from Bloomberg: 

  The world’s biggest steelmaker on Friday cut its full-year profit target and suspended its dividend, putting the blame on the flood of cheap steel from China’s loss-making mills. The market is being overwhelmed with material coming from the nation’s state-owned and state-supported producers, a collection of industry associations said Thursday.

   

  “It is obvious that we are operating in a very challenging market,” Chief Financial Officer Aditya Mittal said on a call with reporters. “This is essentially the result of very low export prices out of China that are impacting prices worldwide.”

   

  The steel industry has been roiled by the slowest economic growth in two decades in China, the biggest consumer.

   

  The flood of cheap exports from the nation has drawn complaints from Europe and the U.S. that the shipments are unfair. Bloomberg Intelligence estimates Chinese steel shipments overseas will exceed 100 million metric tons this year, more than the combined output of Europe’s top four producing countries.

   

  While demand for steel in the company’s largest markets of the U.S. and Europe is recovering, producers’ profits are being hit by slumping prices because China has been pushing excess supply onto the world market as its economy slows.

  So again, we’re seeing disinflation (the exact opposite of what DM central bankers intended when they decided to expand their balance sheets into the trillions) as global growth and trade enters a new era, characterized by a systemic slump in demand. Here’s the damage in terms of the Arcelor’s equity:

   

  And here’s more from The New York Times on the impact of Chinese “dumping: 

  “The Chinese are dumping in our core markets,” Mr. Mittal said. “The question is how long the Chinese will continue to export below their cost.”

   

  The company’s loss for the period compared with a $22 million profit for last year’s third quarter.

   

  ArcelorMittal, which is based in Luxembourg, also sharply cut its projection for 2015 earnings before interest, taxes, depreciation and amortization — the main measure of a steel company’s finances. The new estimate is $5.2 billion to $5.4 billion, down from the previous projection of $6 billion to $7 billion.

   

  On a call with reporters, Aditya Mittal, Mr. Mittal’s son and the company’s chief financial officer, said that a flood of low-price Chinese exports was the biggest challenge for ArcelorMittal in the European and North American markets.

   

  The company estimates that Chinese steel exports this year will reach 110 million metric tons, compared with 94 million tons last year and 63 million tons in 2013. ArcelorMittal produced 93 million metric tons of steel in 2014.

  Of course when the standing government policy is to roll over bad debt and avoid SOE defaults at all costs, uneconomic producers can and will continue to produce. This means the deflationary impulse ArcelorMittal cites isn’t likely to dissipate anytime soon.

  So, it would appear that Paul is the latest “casualty” of the worldwide commodity downturn, the global deflationary supply glut, and the habitual exportation of deflation. It will be interesting to see what, if any, impact this rather morbid wake up call has on Downing Street’s “courting” of Xi.

  

  

  

  

  

• The Most Important Earnings Report You Should Know About

  Submitted by Andrew Zeitlin of Moneyball Economics

  The Most Important Earnings Report You Should Know About

  

  ROK: Better than CAT as a barometer of macroeconomic/industrial trends

  All industrial equipment uses semiconductors, and ROK (Rockwell Automation) is the premier industrial automation focused semiconductor company.

  Factories and mines are hostile environments: lots of dust, heat, chemicals, liquids and vibrations. Less than ideal conditions for delicate components like semiconductors. But increased automation means more semiconductors, and ROK specializes in making hardy components.

  ROK as best barometer

  1. Breadth of industrial customer base: hard to find a company that touches more capital intensive projects.
  2. Upstream in the demand chain: ROK demand comes in before CAT demand. In fact, that CAT extractor needed ROK chips

  Correlation to US Industrial Production

  ROK revenues strongly correlate to the US Industrial Production. That’s because much of the business is cyclical.

  The advantage comes with ROK’s forward guidance: it’s 1:1 with developments in the manufacturing space and with regional growth.

  The latest data says: US is deteriorating rapidly and so is China.

   

  Latest Earnings: Bad News

  Nothing pretty on today’s earnings call

  3QCY Revenue dropped (-10%)

  FY2016 Sales guidance lowered to -4% y/y

  “As we progressed through the quarter, conditions softened. And September was especially weak, particularly in the U.S. product businesses….September typically is the strongest month of the year.”

        – Keith Norbusch, ROK CEO

   

  The accelerating pace of contraction and regional distribution is very noteworthy

  

  • Canada, Latin America, US: Exposure to commodities is the general trend. The pace and timing of the slowdown reflects the lag in capital intensive projects. This means that the worst has not hit yet and the pain will continue at a faster pace into 1Q 2016.
  • Asia Pacific (aka China): Collapse.
  • EMEA: Good news as signs of a bottom are in place. Maybe.

  Forward Guidance

  “There appears to be a general slowdown in U.S. industrial customer spending, both capital and operating spending”

        – Theodore Crandall, ROK CFO

  Secular trends remain healthy (industrial growth continues) but near-term customers are pushing out spending. And there is no visibility.

   

  Our view: producers are still adapting to China’s real level of demand.

  At this stage, small cuts in spending (CAPEX & OPEX) until we get to 1Q 2016 and clearer visibility to Chinese demand. This is driving poor visibility.

  When does it change? MAYBE in 12 months. Maybe. And that’s based on nothing but hope. There is no customer ordering or data that ROK uses to base their 2H 2016 call for improving conditions.

  “we’re not expecting to see sequential growth until the second half of the year (2016)”

        – Theodore Crandall, ROK CFO

  Every manufacturer is looking at two options.

  • Plan A: Hold steady. Stop hiring, stop CAPEX
  • Plan B: Cut CAPEX, Cut Payrolls, Cut Orders

  Plan B is ready to go starting in January, pending customer order outlook.

  The silver lining:

  Per the ROK CFO, weaker sales means lower commissions, which equals a margin and EPS tailwind! (That was actually said on the earnings call.)

  Goodbye wage inflation.

  

  

  

  

  

• "No More Bets": New York Shuts "Illegal Gambling" Fantasy Sports Sites

  A little less than a month ago, Nevada shut down fantasy sports sites, effectively telling the likes of DraftKings and FanDuel to apply for a gaming license or face a decade in prison.

  As we noted at the time, the move came on the heels of an announcement by the FBI and the Justice Department that the US was investigating whether the business models of daily fantasy-sports sites violate a Congressional exemption around the legality of transfers from financial institutions to online gambling sites.

  Sites like DraftKings and FanDuel rely on a loophole for “games of skill” which effectively allows them to say that betting on the “skills” of others is itself a “skill.”

   That is, if I know more about how the skills of say, one NFL player stack up against the skills of another NFL player, well then I too have a “skill”, and so therefore, sites which pay me to play my skills against the skills of other fans can exploit a Congressional exemption on financial companies transferring money to online gambling sites.

  Obviously, that’s a ridiculous loophole and it looks like everyone who isn’t getting their cut (i.e. state and local goverments) have had just about enough of it because now, New York attorney general Eric Schneiderman is set to shut down FanDuel and DraftKings in NewYork. Here’s The New York Times:

  The New York State attorney general on Tuesday ordered the two biggest daily fantasy sports companies, DraftKings and FanDuel, to stop accepting bets in New York, saying that their games constituted illegal gambling under state law, according to people with knowledge of his investigation.

  
  

  The cease-and-desist order by the attorney general, Eric T. Schneiderman, is a major blow to a multibillion-dollar industry that introduced sports betting to legions of young sports fans and has formed partnerships with many of the nation’s professional sports teams. Given the New York attorney general’s historic role as a consumer-protection advocate, legal experts say the action will most likely reverberate in other states where legislators and investigators are increasingly questioning whether the industry should operate unfettered by regulations that govern legalized gambling.

  
  

  Fantasy sports companies contend that their games are not gambling because they involve more skill than luck and were legally sanctioned by a 2006 federal law that exempted fantasy sports from a prohibition against processing online financial wagering. That view is increasingly being challenged as fantasy sites have begun offering million-dollar prizes and bets on individual sports, such as golf, mixed martial arts and Nascar races, magnifying the element of chance and making the exemption more difficult to defend.

  
  

  On Tuesday afternoon, as news of the attorney general’s order began to trickle out, DraftKings sent an email to its players, saying, “Attorney General Eric Schneiderman is considering preventing New Yorkers from playing daily fantasy sports,” and added: “Hey, New York, protect your right to keep playing daily fantasy sports. Contact the attorney general today!”

  
  

  Sabrina Macias, a spokeswoman for DraftKings, said: “We’re disappointed he hasn’t taken the time to meet with us or ask any questions about our business model before his opinion.” She said the company had 500,000 users in New York State.

  
  

  In a statement, FanDuel said: “Fantasy sports is a game of skill and legal under New York state law. This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, co-workers and players across the country.”

  Right FanDuel, that’s exactly what this is and we’re not sayng that’s at all justified, but you shouldn’t exactly be surprised.

  Frankly, this is a lot like multi-level marketing or (gasp) selling drugs. That is, it’s not that it necessarily should be illegal – after all, in a free society people should be allowed to do as they please with their money and their free time – but the fact is that it ultimately is illegal, which means that when you’ve gotten away with it for years, you can’t really play the “what’s going on here?!” card as though you had no idea this was coming. 

  Anyway, weigh in as you will, but right or wrong the government is out to put an end to this industry and if you’re a betting man (or woman) we wouldn’t recommend wagering on FanDuel or DraftKings being able to fend this off.

  From here on out, please just stick to such legalized, and “regulated” gambling at the state lottery, and the stock market of course.
  

  In short.. “All. Bets. Are. Off”…

  

  

  

  

  

• Caught On Tape: University of Missouri Media Professor Incites Mob Violence Against Reporter For Doing His Job

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Meet Melissa Click. Assistant Professor of Mass Media at the University of Missouri, and woman who was caught on video asking for “muscle” in order to physically remove a reporter from reporting on a story in a public place. Yes ladies and gentleman, welcome to America’s college campuses.

  If you haven’t seen this video, you must watch it immediately, and trust me, you need to watch it from beginning to end to truly understanding how dangerous Melissa’s Click’s request is. She is essentially advocating a mob of student inflict violence upon another student merely for taking pictures in public.

   

  Thanks to this, what began as protests against systemic racism at the school has morphed into another prime example of how college campuses have devolved into ignorant, pro-censorship intellectual wastelands.

  Now that you’ve watched the video, here’s some background on the incident and the key players involved from the New York Times:

  COLUMBIA, Mo. — A video that showed University of Missouri protesters restricting a student photographer’s access to a public area of campus on Monday ignited discussions about press freedom.

   

  Tim Tai, a student photographer on freelance assignment for ESPN, was trying to take photos of a small tent city that protesters had created on a campus quad. Concerned Student 1950, an activist group that formed to push for increased awareness and action around racial issues on campus, did not want reporters near the encampment.

  Reporters are supposed to go precisely where they are not wanted. Was “Concerned Student 1950” also opposed to reporters trying to get near the front lines during the Ferguson protests? The police demanded their space as well, and by these students’ twisted, infantile logic, the police should get their way.

  Protesters blocked Mr. Tai’s view and argued with him, eventually pushing him away. At one point, they chanted, “Hey hey, ho ho, reporters have got to go.”

  Yes, in 2015 students are so mentally damaged that they think it’s rebellious and brave to chant slogans against the First Amendment.

  “What is so hard about respecting our wishes?” one protester asked.

   

  “Because I have a job to do,” Mr. Tai answered. That elicited a retort: “We don’t care about your job.”

   

  As the video nears its end, the person taking the video, Mark Schierbecker, emerged from the scrum and approached a woman, later identified as an assistant professor of mass media, Melissa Click, close to the tents. When he revealed that he was a journalist, Ms. Click appeared to grab at his camera.

   

  She then yelled, “Who wants to help me get this reporter out of here? I need some muscle over here.”

  This woman should be filing for unemployment benefits yesterday.

  As the video circulated online, Mr. Tai, who won an award in June for Best Single Photograph in a college journalism awards program, received widespread support, much of it from members of the news media.

  Indeed, this is what Mr. Tai generously had to say about the incident on Twitter:

  I don't have any ill will toward the people in the video. I think they had good intentions though I'm not sure why it resorted to shoving.

  — Tim Tai (@nonorganical) November 10, 2015

  *  *  *

  For more on how American college campuses have become havens for censorship and unimaginable idiocy, see:

  From Protesting Vietnam to Demanding “Safe Spaces” – What Happened to America’s College Kids?

  Speechless – UCLA Engages in Absurd, Anti-Intellectual and Dangerous Attack on Campus Free Speech

  Rutgers University Warns Students – “There is No Such Thing as Free Speech”

  A Professor Speaks Out – How Coddled, Hyper Sensitive Undergrads are Ruining College Learning

  Statists Declare War on Free Speech – College Students Banned from Handing Out Constitutions in Hawaii

  California Student Banned from Handing Out Constitutions on Campus

  A Winter Wonderland of Fear – Cities Across the U.S. Move to Ban Unregulated Sledding

  Brave New World Revisited…Key Excerpts and My Summary

  Here We Go…Slate Magazine Bashes the First Amendment

   

  

  

  

  

  

• It's Not The Record High Debt That Is The Biggest Risk, It's This

  Earlier today, Bloomberg “discovered” that “Corporate America Has Quietly Re-levered“, reporting that “one of the biggest post-financial crisis imbalances sits on corporate balance sheets” citing a Goldman report.

  Actually it hasn’t been quiet at all: while to some this is news, our readers have been well-aware of this trend since January 2014 when we first reported that “Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Above Its 2008 Peak“, and then most recently this weekend when on Sunday we reported, again very unquietly, that “Corporate Leverage Is At Record Levels.”

  

   

  Furthermore, as we further noted in “Why The Stock Buyback Spree Is Ending” that “the 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general.”

  Two days later, Goldman also confirmed this observation: “So, does this mean the levered re-cap is dead? In our view, the answer is yes for the broad market, though legacy Tech should prove an exception given substantial balance sheet capacity“

  Goldman added even scarier overtones overnight, when it said that “like a bad dream, imbalances have been building the last few years. Corporates have levered up and the M&A boom has driven goodwill to multi-year highs. With the United States on the verge of the first interest rate hikes in almost a decade, we question the sustainability of these trends. Companies that have “manufactured earnings” vs. generating organic growth and reinvesting in their businesses are in the spotlight with investors rewarding high-returning stocks while punishing those with weak balance sheets, outsized buybacks and/or EPS growth.”

  Bloomberg wasn’t too far behind in admitting what we have said three years ago when in November 2012 we revealed “Where The Levered Corporate “Cash On The Sidelines” Is Truly Going“, i.e., buybacks.

  

  * * *

  But while even Goldman has admitted that rising leverage and the soaring buybacks are, “like a bad dream”, the major problem for corporate imbalances, the truth is that surging debt is not the full story, nor is it the scariest aspect of this story.

  The real risk is that while debt is rising on both a relative and an absolute basis, EBITDA, or cash flow, of both junk companies as well as Investment Grades, has been declining for at least one year. Or rather, while junk-rated companies have seen their EBITDA decline consistently over the past 5 years, the big inflection point came in early 2014 when IG EBITDA also plateaued, and has been declining since.

  

  It is this ongoing decline in actual cash flows, which tracks the third consecutive quarter of declining Y/Y revenues (the decline in EPS is far slower as hundreds of billions in shares have been removed from the market, keeping the EPS ratio higher than where it would be) that is the biggest risk to both the S&P500 and the market, if such a thing still existed.

  Even Goldman is unable to provide a counterfactual case:

  Now, the counter-argument one hears is that the cost of this debt has never been this cheap with the average interest rate paid dropping from close to 6% to 4% in 2015. Put another way, as debt has more than doubled, the amount of interest expense has only gone up by 40%. This is all good until you normalize EBITDA. Indeed, if EBITDA was at “normalized levels” (which we define as median NTM EBITDA from 1Q07-2Q15), leverage would move to 1.75X, over 30% higher than the average over the last 10 years.

  But here is the real kicker: with even Goldman admitting that buybacks as a shortcut to creating “engineered” earnings will no longer work and instead may be punished by investors, companies refuse to accept this. Certainly don’t tell that to McDonalds, which earlier today defied S&P to announce a major debt increase to boost shareholder returns, even if it meant its A rating would be lost as it was downgraded to BBB+. Contrary to Goldman’s take, it was rewarded by shareholders.

  So even as cash flows continue to decline, companies will engage in this one and only line of defense against sellers and shorters as in a world where 2% growth is the new norm (and that with the benefit of $13 trillion in central bank liquidity). And instead of investing in the future, replenishing their asset base, this asset stripping of corporations to reward shareholders will continue.

  Until it can’t, an threshold which will certainly be catalyzed by any Fed rate hike(s).

  At that point, desperate for cash companies (loaded to the gills with debt) will again try to access the bond market and be unsuccessful. It is then when the bulk of the S&P, cash flows declining, will resort to the oldest form of capital raising in the book – selling equity. From that point onward, it will be all downhill for the market.

  The only question is how many savvy shareholders will try to frontrun it and sell while they still can, not when they have to, and are competing with management to find willing buyers.

  

  

  

  

  

• The Rise Of Trump & Sanders – Distrust & Anger Ripples Across America

  Authored by Paul Brandus, originally posted Op-Ed via MarketWatch.com,

  The ‘wasted generation’ may not bother voting, for good reason

  One year from now, we’ll elect a new president. It’ll be the first opportunity for what I call the wasted generation to vote – not that many will bother. What do I mean by wasted generation?

  I’m talking about the 15.6 million Americans born between 1995 and 1999 – the first generation of the post-World War II era to grow up in a land of diminished economic expectations, corrosive cynicism and institutional distrust.

  Think about it. Born during the petty, partisan end of the Clinton era, they were barely out of their diapers when the towers fell on 9/11 and elementary, middle school and high schoolers while their country fought, at the same time, the two longest wars in its history. They came into the world just as their parents’ incomes were probably peaking — median wages, adjusted for inflation, topped out in 1998 and 1999 — and their Moms and Dads have since been squeezed by the two most devastating stock collapses since the Great Depression and a housing collapse of historic proportions. Now they’re heading off to college or already there, and can expect to rack up nearly $29,000 in debt before even graduating.

  Older Americans may remember better times. But for this group—and tens of millions born after them—it’s all they’ve known. Cynicism, war, economic stagnation—this is their “normal.” This is what we have bequeathed them. Is it any wonder polls show that young Americans don’t trust government or big corporations? They don’t trust organized religion. They don’t trust us—the media—either, and I don’t blame them.

  They don’t trust the financial system, either. When you’re 20 and have a 40-to-50 year investment horizon, you should be plowing cash into stocks—but when the market crashes 50% like it did between March 1999 and October 2002—only to be eclipsed just five later by a 57% bloodbath, it makes it easier to understand their skittishness. No surprise, then, that anti-establishment candidates like Democrat Bernie “the markets are rigged” Sanders and Republican Donald “make America great again” Trump are popular with this young, emerging slice of the electorate.

  On Facebook, for example, nearly two million people like Sanders’s page — 600,000 more than Hillary Clinton. As for Trump, one poll showed Republican millennials backing him by a 3-to-1 margin over anyone else.

  This may sound like one of those generation gap stories, where older folks complain about the “kids” doing their own thing and the kids not trusting “anyone over 30.” It’s not. From sea to shining sea, distrust and anger ripples across America: Only about a quarter of us think the country is on the right track; it hasn’t topped 50% since December 2003.

  But it’s the corrosive effect on the millennials that’s most bothersome. Based on two decades worth of data, the Pew Research Center, a respected Washington think tank, notes that “generations carry with them the imprint of early political experiences.” In other words, it’s going to be awfully hard for millions and millions of young Americans to overcome the wide distrust they have—and again, the only thing they’ve known—of establishment institutions; the economic and political implications in the years ahead could be huge.

  Here’s the way millennials see it:

  Those that can scrape together the means to go to college know there’s now a school shooting once a week in this country.

   

  Thanks to that average $29 grand in debt and uncertain job prospects, an increasing number of them will move back in with Mom and Dad when they graduate.

   

  Invest in stocks? Even if millennials didn’t think the market was fixed they don’t have the dough.

   

  Buy a home? What a joke: the number of first-time home buyers is at its lowest level in three decades.

   

  Only a handful of these kids will have steady employment with the same company over the course of their careers; many will have multiple employers — few of which will offer pensions.

   

  Millennials don’t expect Social Security to be around in 40 years and unless painful changes are made to shore up the system, it won’t be.

   

  The slow-moving and undeniable effects of climate change will affect them far more than the rest of us; and while we bicker about the cost of action, we’re too ignorant to realize that the cost of inaction is likely to be far greater.

  Older age groups like to criticize millennials: they’re spoiled, have a sense of entitlement. Actually, the rest of us should look in the mirror. We’re leaving those who will follow one hell of a mess.

  

  

  

  

  

• America's Most 'Unequal' Big Cities Exposed

  Thanks in large part to Fed policies, if Neel Kashkari is to be believed, America as a whole has become a significantly more unequal country in the last five years. In fact, as a recent report finds, "if you look at the long-term trend, there's a really steady increase in inequality." But inequality is all about location, location, location; and, as Bloomberg reports, the idea that hard work leads to prosperity is increasingly becoming an American pipe dream, in some places more than others.

  Bloomberg ranked big cities – those with populations of at least 250,000 – based on their inequality as measured by the Gini coefficients calculated by the U.S. Census Bureau (a Gini index of zero reflects absolute equality, while an index of one represents complete inequality).

  New Orleans is the most unequal city in America, according to the Bloomberg ranking.

   

  

   

  Areas with high levels of income inequality also often have diverse populations and high levels of residential segregation, according to a report last year from Mark Mather and Beth Jarosz at the Population Reference Bureau, a Washington-based non-profit group. New Orleans has both of those factors, with blacks making up 60 percent of the population in 2014 and often living in starkly different areas than whites.

   

  "New Orleans has some very clear neighborhood segregation going on," Jarosz said in an interview. "The fact that it is the most unequal among the cities is not terribly surprising."

   

  Inequality happens when there's a concentration of people at the highest and lowest ends of the income spectrum without much middle-ground in between. Big cities are often hotbeds for such conditions because they attract rich individuals who can afford the cost of living — think rents in New York City or Los Angeles — as well as lower-income households who need access to services that large municipalities can often provide.

   

  "You get this concentration both of poverty and of wealth in the same space," Jarosz said.

   

  Places with wide ranges of educational attainment also run into inequality issues, with higher levels of schooling linked not only to a person's ability to get a job, but what type of job and what they'll be paid.

  *  *  *

  The U.S. as a whole has become a more unequal country in the last five years, with its Gini index climbing to 0.48 last year from 0.469 in 2009.

  "The overall story is that inequality has been rising steadily for about the past three decades," Jarosz said. While changes from year to year are often small or nonexistent, "if you look at the long-term trend, there's a really steady increase in inequality."

  Racially diverse cities also often exhibit higher levels of inequality, as minorities have lower incomes and higher poverty rates, Jarosz said. The median income for non-Hispanic white households was $59,622 in 2014, compared to $42,748 for Hispanic families and $35,481 for blacks, according to data from the Census bureau's American Community Survey.

   

  

  

  

  

  

  

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• Chinese Stocks Longest Win Streak Since Bubble Peak After CPI, Commodities Tumble; Philippines Exports Crash

  A busy night in Asia began with a total collapse in Philippines Exports (-24.7% YoY – the biggest miss since Lehman). This was quickly followed by a 0.3% drop (deflation) in CPI MoM (thanks to a drop in pork -1.9%, eggs -6.9%, and veggies -5.6%) which sparked buying in stocks (because moar stimulus). Chatter of a few large fund houses under investigation stymied the rally quickly but as nobody was summoned stocks recovered, then rallied strongly back into the green on renewed chatter of Stock Connect occurring sooner than expected. With CSI-300 (China's S&P 500), up at the break, this is the longest winning streak since the peak of the bubble in May. And finally Shanghai Copper and Nickel tumbled to new multi-year lows, dragging Bloomberg's Commodity Index to fresh 16-year lows.

  Philippines Exports crash, miss by most since Lehman..

  

   

  Then China inflation data hit… CPI missed +1.3% YoY, the lowest since January (with a 0.3% drop MoM – the most since March) ; PPI tumbled 5.9% – its 44th monthly decline in a row...

  

   

  A choppy morning in China leaves Shanghai Composite higher at the break…

  

   

  Leaving CSI-300 set for the longest win streak since the peak of the bubble…

  

   

  Shanghai Copper hit a new 6-year low (and nickel tumbled)…

  

   

  Leaving Bloomberg's Commodity Index at fresh 16 year lows…

  

   

  Charts: Bloomberg

  h/t @SimonTing

  

  

  

  

  

• JS Kim Issues Critical Warning About Newly Introduced Global Banking "Gold Programs"

  JS Kim Issues Critical Warning About Newly Introduced Global Banking “Gold Programs”. Could Bankers Be Duping Us into Yet Another One of Their Reverse Alchemy Schemes?

  
  

  Indian Prime Minister Narendra Modi launched a 3-pronged scheme to allow gold to become an important part of the Indian economy – a gold monetization and bank deposit scheme, the issuance of bank and federal gold-backed bonds, and a gold coin and bullion selling program, in which an initial 15,000 5gm gold coins, 20,000 10 gm coins, and 3,750 20gm bullion bars will be made available to the Indian public.

   

  The only aspect of this 3-pronged program, however, that I deem trustworthy at this point, until proven otherwise, is the gold coin and bullion selling program. Why? The answer is simple. The other 2-aspects of this 3-pronged program advocate against our advice at SmartKnowledgeU to specifically hold all of your gold in physical form only and outside of the global banking system. Both the gold monetization scheme and the gold-backed bond scheme require depositing physical gold at a bank and receiving digital credits and paper in return. If bankers never commit fraud and always keep 100% of the gold allocated specifically to the depositor, and we can be 100% guaranteed of this stipulation always being enforced at all times, then I would not have a problem with India’s gold monetization program and gold-backed bond program. The only problem is that history tells us that bankers will always commit fraud under these circumstances. Consequently, why should we take their word this time around that they will not commit fraud again and use the gold deposits to undermine and suppress the price of gold against the gold depositors’ best interests?

   

  For example, we already know, beyond a shadow of a doubt, that the gold derivatives futures markets in New York and London are entirely fraudulent and that pricing mechanisms in these markets literally have zero relationship to the supply and demand determinants of physical gold. The UK Financial Conduct Authority fined Barclays Bank £26 million and banned Barclays banker Daniel Plunkett for artificially engineering a gold “puke” in gold futures markets to plunge gold prices on a specific day to ensure that they would cheat their client out of a payment of £2.3 million. Furthermore, this fraud would never have even been exposed had it not been for the client’s sophistication in understanding and identifying the fraud executed by the Barclays banker. I literally have witnessed other bankers execute the exact same pattern of fraud executed by Barclays banker Plunkett dozens of times in the past, and for which no banker was arrested or prosecuted. Given the history of banker fraud in gold paper derivative markets in which banks use paper markets to plunge gold prices, Indian citizens must ask themselves this pressing question, “Do I really want to give up the security of holding my physical gold outside of the banking system and then deposit it with the very bankers that have been repeatedly proven to execute fraud against my best interests?”

   

  A second example of very likely fraud executed by bankers in gold derivatives markets is the gold GLD ETF (along with the silver SLV ETF). Bankers have always refused and/or failed to provide any proof that their paper gold ETF, the GLD, which they claim to be 100% backed by gold, is actually 100% backed by gold instead of just fractionally backed with gold rehypothecated many times, as is almost certain to be the case. And when bankers attempted to assuage concerns of GLD holders that their paper purchases were actually 100% backed by physical gold held in their vaults, as they claimed, they failed miserably, as the serial number of a bullion bar they claimed was part of the vaulted gold that backed GLD purchases failed to match serial numbers of bullion bars contained on the GLD ETF bullion bar list.

   

  In fact, 2 years before the potential scam of the GLD was revealed to the world through this mismatch of gold bar serial number fiasco, I reported on our SmartKnowledgeU blog multiple reasons why people should question the legitimacy of banker claims that the GLD and SLV ETFs were fully backed by physical holdings after I inspected the prospectuses of both paper vehicles that contained a plethora of questionable language and banker claims. By the way, since 2009, bankers have removed a lot of the shady language that was first contained in the original prospectuses of the GLD and SLV. However, just because they have removed the questionable statements that orginally appeared in the prospectuses, this certainly does not mean that bankers are now operating both investment vehicles honestly.

   

  Various Indian government officials are pushing their potential reverse alchemy schemes upon the public, urging them to turnover their physical gold holdings to bankers in exchange for digital credits to bank accounts and the issuance of paper certificates. PM Modri has claimed that gold bonds can “empower women”, a claim that reeks of the 1960s and 1970s women’s liberation “right of women to work” movement that succeeded in doubling the tax base for the Rothschild banking cartel. Finance Minister Arun Jaitley has already announced that interest earned on physical gold deposited into the banking system will be exempt from all taxes. On the surface that appears to be a fantastic benefit to Indian citizens, but before Indians embrace this benefit, they must question whether or not the physical gold they turn over to bankers will actually be kept in bank vaults or if it will be hypothecated hundreds of times and leased into the open market to suppress the price of gold as Central Bankers have historically chosen to do when given access to physical gold. This is a question Germans wished they had asked of themselves before they turned over their physical gold to US Central Bankers for holding.

   

  In 2011, German Central Bankers employed by the Bundesbank announced that they were holding 3,396 metric tonnes of gold on behalf of the German people. They revealed that 45% of these holdings, or 1,536 tonnes, was being held by US Federal Reserve bankers. In 2012, the German government, under extreme pressure from its citizens to prove that US Central Bankers actually still had their gold and had not sold it off in the open market or leased it out to their puppet bullion banks on Wall Street in previous years to suppress the price of gold, demanded the repatriation of just a tiny fraction, or 150 tonnes of the 1,536 tonnes held by US Central Bankers. During the first year after Germany’s repatriation request, US Central Bankers returned a paltry 5 tonnes of gold out of the 150 tonnes requested. After this insult, Germany increased the request for 300 tonnes to be returned by 2020, which was still less than 20% of their gold held by US Central Bankers. In 2014, US Central Bankers returned 85 tonnes to Germany, and earlier this year, an additional 90 tonnes had been confirmed as returned to Germany. Still, there are many questionable irregularities with the return of even this small fraction of Germany’s gold to date thus far.

   

  In 2014, the 5 tonnes of gold returned to Germany came in the form of melted down and recast gold bars, thereby confirming that the gold returned to Germany was not the gold Germany had deposited with US Central Bankers. If this gold was not Germany’s gold, whose was it? Was it gold stolen from Iraq or Libya?

  Since Germany only asked for less than 20% of their gold back from US Central Bankers, why is it taking 8 years for US Central Bankers to return it?

  Why can it not be returned in a few weeks time, as is entirely logical if the US Federal Reserve bankers actually still have it?

  Why has Germany not requested for all of its 1,536 tonnes of gold to be returned, and why did they only ask for a paltry 300 tonnes be returned?

  This is not a broke and bankrupt post-WWII Germany of which we are speaking and certainly Germany can build vaults secure enough to store all 1,536 tonnes of its gold. As there is absolutely no reason for Germany not to hold 100% of its gold within its domestic borders, why are they continuing to allow other countries to keep their gold?

  Finally, why did the Bundesbank release statements that all of the gold returned to them in 2014 and 2015 matched serial numbers, fineness and weight of bars given to the US Central Bankers for holding when in 2013 none of the bars matched?

   

  Though German Central Bankers released their gold bar list, only because of extreme public pressure to do so, the gold bar list contained bar melt/inventory numbers, fineness, and weight, but still lacked refinery names, refinery numbers and manufactured years. In other words, the bar list released by the Bundesbank was still far from transparent.

   

  So Indian citizens, with tons of historical precedent from which not only to draw, but also from which to learn, one would be advised to weigh bankers’ claims that physical gold deposited with a bank will remain there with extreme skepticism. Unless you can be given written assurances in any contract you sign with a banker that they will expressly not use the gold deposited with them to suppress the price of gold, you should refrain from participating in their physical gold into paper gold programs. With gold bonds ranging from 1-3 years, 5-7 years, and up to a whopping 12-15 years, with penalties for early withdrawals, if I had to guess, I would say there is a 99.9999% chance that your gold is going to be sold off into the open market during the duration of these bonds, even if bankers claim in the bond prospectuses that the gold that backs these bonds will never leave their vaults.

   

  The only way I would trust any “gold program” other than one in which I can buy physical gold coins and bullion and hold it outside the banking system, were if these following conditions existed, in writing, in the contracts that describe these programs and in Indian law:

   

  • (1) the bank keeps the specific allocated gold bullion bars and coins I deposit at a bank in their vaults 100% of the time in my name only, with a way to verify this process, such as serial number engravements on all deposited gold,
  • I am allowed to verify the physical location and the purity of said gold bars and coins at any time I desire by means of an independent, not a bank, auditor at the bank’s expense, and
  • the punishment to a banker were he to ever violate either of the above two conditions (for both stored coins and bullion) is the same as outlined in the US Coinage Act of 1792 below:

  Section 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.

  
  

  Even if PM Modri and Finance Minister Jaitley’s intentions are pure with their newly instituted gold programs, if they have not instituted severe punishments to uphold the integrity of their gold programs to ensure that fraud does not occur, then their trust that bankers will uphold these gold programs honestly is misplaced and naïve. Without such regulations in place, this leaves their gold programs incredibly open to banker fraud, which history has already informed us will happen. The only way to ensure the integrity of such programs is to adopt the same punishments for banker fraud as contained in the US Coinage Act of 1792. And even so, if such punishments were adopted, I would still have second, third, and fourth thoughts, were I Indian, of willingly putting my physical gold into the hands of bankers. Every time the public has done so, such programs have ended very poorly for the people with no benefit to them despite false and hollow banker promises of many benefits to the people.

   

  Recall that bankers duped South Koreans, including very sadly even my own grandmother, to hand over physical gold in a “Collect Gold for the Love of Korea” campaign during the 1997 SE Asian Financial Crisis. Bankers took advantage of the extreme nationalism of Korean citizens to trick them into willingly handing over 8 tonnes of gold for zero compensation in just the first week of the program. The final amount of collected gold was kept hidden from the public and never revealed after the bankers reached their target early in their campaign and they successfully robbed South Korean citizens of their gold and much of their life savings. Since all the collected gold was sold off and immediately given to IMF bankers to pay down interest on IMF debt, the program would have been much more appropriately called “Collect Gold for the Love of Bankers”. I wonder how much gold Koreans would have willingly donated to “save their country” if they knew they were saving not their country, but only bankers.

   

  In conclusion, even if Modi’s and Jaitley’s intentions are pure, bankers will corrupt their gold programs without severe penalties to discourage this fraud. Of this I have zero doubt. The collective history of banker fraud in LIBOR markets, Forex markets, gold and silver derivative markets, and the resultant billions of Euros and dollars that they have already paid as an indictment for their crimes, has proven to us that there is no fine that can be imposed upon them that will stop their fraud. And if severe punishments are not in place to protect Indian citizens, then Indian citizens, I urge all of you just to continue what you have been doing and to ignore the allure of these newly introduced gold programs. Despite the claims of politicians and bankers of how wonderful it will be for you to convert your physical gold into digital bits on a hard drive on a bank’s server and into paper certificates, keep converting your digital and paper rupees into physical gold and physical silver whenever you can, and keep possession of your family’s wealth outside of the banking system.

  
  

   

  Recall that politicians in India have a recent history of colluding with the Reserve Bank of India (RBI) to prevent Indian citizens from converting their digital rupees into physical gold. In early 2012, the Indian government raised import taxes on gold by 900% from a mere 1%  to a massive 10% within a little over a year’s time. Furthermore, by 2013, they had raised import taxes on gold jewelry to a stifling 15% in an attempt to stop Indian citizens from converting unsound digitial and paper rupees into the sound money of gold. Politicians, when working with bankers to establish gold programs, do not deserve the benefit of any doubt because of their past history, and unless their gold programs live up to the conditions I’ve stated above, we should be wary to reject them. India may very well be a testing ground for bankers to discover if they can convince people to turn their physical gold into digital and paper gold, and they may very well attempt to spread these programs to other countries worldwide if they achieve success with them in India. If similar “gold programs” are introduced in your country, you now know why you should remain highly skeptical of them as well.

   

   

  Other related SmartKnowledgeU posts released in the past week:

  SKU_Vlog_010: If This Doesn’t Convince You to Exit the Global Banking System, Then Nothing Will

  Is This the Gold and Silver Mining Stock Washout For Which We’ve Been Waiting All Year?

  SKU-Vlog_002: What is the Fair Value of Gold? Ounces Over Dollars

  To receive notification of our articles when we release them, please bookmark our SmartKnowledgeU blog, subscribe to our SmartKnowledgeU free newsletter, and subscribe to our SmartKnowledgeU YouTube channel.

   

  About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent research, consulting and education company that focuses on analyzing the fraud of the global banking and investment industry to formulate low-risk, high-reward wealth preservation strategies for clients in more than 30 countries worldwide. Our mission is to restore integrity to our monetary system through a return to sound money worldwide. This year, all of our fee-based services have yielded positive returns ytd because of our focus on identifying banker executed fraud in gold and silver markets and of predicting lower trends for gold and silver for the duration of this year.

  

  

  

  

  

• When You're Popular, You Don't Need Freedom of Speech

  Submitted by Andrew Syrios via The Mises Institute,

  Free speech is not something that people would normally see as a realm of economics, but in many ways, an economic understanding of the support and opposition to free speech can shed a lot of light on what’s happening now in the West.

  The first thing that needs to be noted is that the left is winning the culture war. Even though more people identify as “conservative” than “liberal” in the United States, more people now identify as “liberal” than in the past by a substantial margin. Attitudes toward gay marriage shifted extremely quickly toward the left while support for legal abortion stayed mostly steady. And obviously the media, academia, and Hollywood are far to the left as a study by the non-partisan political analytics firm Crowdpac found (and as anyone who watches anything other than Fox News can tell after about five minutes).

  Now, some of this is certainly good, such as the shifting views on marijuana legalization. Some is troubling, such as the growing popularity of socialism.

  Regardless though, the left, having ascended to cultural dominance, is no longer in need of free speech. After all, no one ever got in trouble for agreeing with the conventional wisdom. As Noam Chomsky said, “Even Goebbels was in favor of free speech he liked.”

  On the other hand, the right is behind the eight ball in the culture wars and thereby supports the concept of free speech because they need it lest their very opinions be outlawed. In an economic sense, this could be called the “diminishing marginal utility of free speech.”

  The law of diminishing marginal utility states that while keeping consumption of other products constant, there is decline in marginal utility that a person derives from consuming an additional unit of that product. In this case, the product is free speech. New leftists may have proposed unfettered free speech back in the early 1960s, but that was just because the right was the one in power culturally at the time. Free speech had a high utility to the left at the time and low utility to the right.

  Now the situation has reversed. The right is at the disadvantage so it appeals to free speech. The left is ahead and no longer needs free speech, so it has discarded it.

  If that statement sounds hyperbolic, just think of all of the campus speech codes and the ever expanding list of mostly trivial microagressions that can be taken for “hate speech.”  Here is just a small sampling of examples to illustrate how absurd this has become:

  • Brendan Eich was forced to resign as CEO of Mozilla after a massive backlash for having opposed gay marriage.
  • A candidate in the European elections was arrested in Britain for quoting a passage from Winston Churchill about Islam.
  • Gert Wilders, a politician in the Netherlands, was tried on five counts including “criminally insulting Muslims because of their religion.”
  • Conservative radio host Michael Savage was banned from the airwaves in Britain.
  • Both Mark Steyn and Ezra Levant were dragged in front of the Canadian Human Rights Commission on charges of being “Islamophobic.”
  • A man was fired because someone eaves dropped on his joke about dongles and caused a fuss about it on social media.
  • A group called Color of Change applied enough pressure to get Patrick Buchanan fired from MSNBC for expressing politically incorrect opinions in his book Suicide of a Superpower.
  • The “Pickup Artist” Julien Blanc was barred from entering Britain for making sexist comments.
  • A student at Purdue University was found guilty of “racial harassment” for reading (yes, reading) a book called Notre Dame Vs the Klan in which — it should be noted — the Klan is the bad guy.

  Indeed, the list goes on endlessly, and is perhaps best summed up by the almost unconscionable lack of self-awareness required by University of Manchester feminists who recently censored the anti-feminist columnist Milo Yiannopoulos from participating in a debate on — you guessed it — censorship.

  Of course much of this is just social pressure or the decisions of private institutions, which is permissible (albeit not condoned) under a libertarian framework. But much of it does involve outright government force, or the longing to use it. For example, Adam Weinstein wants to literally “Arrest Climate-Change Deniers.”

  Indeed, while many believe that the youth of today are the most politically tolerant in history, they are actually the least. As April Kelly-Woessner notes, “political tolerance is generally defined as the willingness to extend civil liberties and basic democratic rights to members of unpopular groups.” Which groups are unpopular, is not the question being asked.

  So, for example, someone who believes that a man should be able to marry his pet goat is not necessarily politically tolerant. What would make him tolerant in this sense is whether he is willing to recognize the rights (particularly regarding speech) of those who disagree with him and his marital proclivities.

  In this respect, political tolerance has declined substantially. For the first time since it was measured, the political tolerance of young people has fallen below that of their parents and as Kelly-Woessner again notes, “… is correlated with a ‘social justice’ orientation,” at least for those under forty.

  Indeed, the inability to tolerate political views that run counter to one’s own, particularly on the left, has become so ridiculous to be comical. Just take, for example, Judith Shulevtiz’s description of the “safe space” set up at Brown University because of a debate between the feminist Jessica Valentia and Wendy McElroy where McElroy was likely to criticize the term “rape culture.”

  The safe space … was intended to give people who might find comments “troubling” or “triggering,” a place to recuperate. The room was equipped with cookies, coloring books, bubbles, Play-Doh, calming music, pillows, blankets and a video of frolicking puppies, as well as students and staff members trained to deal with trauma.

  Well, at least they actually let the debate happen.

  But the left has not always had a monopoly on anti-free speech thought and legislation. Nor does the right seem to be opposed to it when it can push such things through today. Helen Thomas was fired from the White House Press Corps for saying “The Jews should get the Hell out of Palestine.” Shirley Sherrod was fired for allegedly anti-white statements, a Kansas woman was fired for a fifty-word Facebook post that was considered anti-American-soldier, and the right went into a fervor over Jeremy Wright’s “chickens coming home to roost” comment.

  Whereas liberals want to ban words such as “slut” and, at least in Sheryl Sandberg’s case, “bossy” too, conservatives used to all but ban those “seven words you couldn’t say.”

  When the right had more cultural authority, alleged communists were being dragged in front of the House Committee on Un-American Activities, Civil Rights activists were harassed, and the Motion Picture Production Code banned Hollywood directors from showing things such as miscegenation.

  But that was then and this is now. As the pendulum of cultural prominence swung from one side to the other, the left and right swapped their support for free speech.

  Nevertheless, I don’t want to draw a false equivalence here and say the right would be just as bad as the left if they were winning the culture wars. Much of the ideology on the left, at least the far left, is derived from the likes of Herbert Marcuse and other cultural Marxists who explicitly wanted to limit the free speech of “oppressor classes.”

  Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?

  

  

  

  

  

• Sickening Images Of China Plagued By "Extremely Hazardous" Record Smog As Winter Heating Season Arrives

  "Today’s haze is pretty severe and choking – when I walked out the door I thought someone’s house was on fire," exclaimed one resident as AFP reports a huge swathe of China is engulfed by acrid smog Monday after levels of dangerous particulates reached around 56 times World Health Organization maximums, in what environmental campaigners said were the highest figures ever recorded in the country.

   

  Spot the 'Winter' difference…

  

   

  As The Guardian details,

  Residents of north-eastern China donned gas masks and locked themselves indoors on Sunday after their homes were enveloped by some of the worst levels of smog on record.

   

  Levels of PM2.5, a tiny airborne particulate linked to cancer and heart disease, soared in Liaoning province as northern China began burning coal to heat homes at the start of the winter.

   

  

   

  “The air stings and makes my eyes and throat feel sore when I’m outdoors,” one woman, who had ventured out to buy a face mask, was quoted as saying. “As for what exactly we should do, I don’t know,” she added.

   

  

   

  The Associated Press said Sunday’s smog represented one of the worst episodes of air pollution recorded in China since authorities began releasing air quality data in 2013.

   

  

   

  There was indignation on social media as China confronted its latest “airpocalypse”.

   

  

   

  “The government knows how severe the smog problem is, so why haven’t they tackled it?” one critic wrote on Weibo, China’s Twitter.

   

  

   

  “What’s the point of having an environmental protection department? The precondition for developing the economy is not damaging the environment. Our leaders are all well educated. Can’t they understand this simple truth?”

   

  

   

  Others reacted with resignation. “Other than reporting it, what can the government do?”

   

  

   

  Shenyang, a major industrial centre since the days of Mao Zedong, has been attempting to clean up its act in recent years by relocating factories and starting to use natural gas instead of coal to heat homes.

   

  

   

  But on Monday doctors in Shenyang were dealing with the consequences of the latest bout of toxic pollution to hit their city.

   

  Yang Shenjia, who works at the Liaoning Jinqiu Hospital, said there had been a sudden influx of patients suffering from breathing complaints over the past two days. “The respiratory department’s inpatient wards are full,” the doctor told Xinhua.

   

  

  *  *  *

  Finally, and perhaps the most ironic of all, is the juxtaposition of the images above of a coal-smoke-plagued China with 'official' data that coal usage is collapsing amid China's "successful" reforms of the Coal industry in line with the newly signed Climate Change agreements with President Obama…

  Coal consumption is poised for its biggest decline in history, driven by China’s battle against pollution, economic reforms and its efforts to promote renewable energy.

   

  Global use of the most polluting fuel fell 2.3 percent to 4.6 percent in the first nine months of 2015 from the same period last year, according to a report released Monday by the environmental group Greenpeace. That’s a decline of as much as 180 million tons of standard coal, 40 million tons more than Japan used in the same period.

   

  The report confirms that worldwide efforts to fight global warming are having a significant impact on the coal industry, the biggest source of carbon emissions.

  Call us old-fashioned but color us skeptical that any of that is true given the record levels of coal pollution that is choking reality out of Chinese lives.

  

  

  

  

• The Russian Question – How The War Party Has Demonized Putin & Co

  Submitted by Justin Raimondo via AntiWar.com,

  It’s 2018, and President Hillary Clinton has announced that the Russians have violated her “no fly zone” over Syria. Damascus is about to fall, as jihadists – some armed and supported by the United States – gather in a final assault on the city. In the fog of war, a Russian fighter jet nearly collides with a US warplane sent in to fulfill the US “responsibility to protect” the “moderate” rebels.

   

  Meanwhile, in Ukraine, the newly-elected ultra-nationalist government has declared its intention to take back Crimea, and the freshly-rearmed Ukrainian military – with the neo-Nazi Azov Brigade in the lead – moves into the city of Mariupol, which has just voted to secede from Ukraine and asked for Russian protection. In Kalingrad, the isolated Russian outpost completely surrounded by Poland and Lithuania on the Baltic Sea, groups funded by the EU are staging demonstrations demanding reunification with Germany. In the midst of all this, Vladimir Putin announces Russia’s withdrawal from the INF treaty, Russian forces converge on the border with the Baltic states, and President Clinton puts US nuclear forces in Germany – which have just undergone a second “upgrade” – on high alert.

   

  Since the US-Russian verification and information exchange, mandated by the INF treaty, has been suspended since 2016, both countries are flying blind as far as monitoring the actions and intentions of the other.

   

  It is near midnight in a small town in eastern Germany, as NATO radar picks up indications that what may be a Russian fighter squadron is headed for Kaliningrad, and NATO’s missile defense system – just installed in Poland last summer – readies its response. The world teeters on the brink of World War III, as Hillary Clinton gets that call at 3 a.m.….

  Given the resumption of the cold war with Russia, some variation on the scenario described above is not only entirely possible, it is nearly inevitable. The INF treaty signed by Ronald Reagan is in danger of falling apart at the seams as NATO moves its forces ever closer to the Russian border and the Russians respond in kind. The US-EU coup d’etat in Ukraine, Georgia’s imminent entry into NATO, the “upgrading” of US nuclear weapons in Germany, and the radical uptick in anti-Russian rhetoric by US military and political figures has returned us to a danger we thought ended with the implosion of the Soviet empire: the threat of nuclear war.

  Accusations that Russia has violated the terms of the INF Treaty are not quite true, but what is clear is that the US and its NATO allies are prepositioning heavy weaponry on their eastern frontier and doubling the size of our “Response Force” in Europe. The Russian response has been largely rhetorical: in terms of facts on the ground, their much-touted nuclear modernization effort still puts them many miles behind the US. As Adam Mount, Stanton Nuclear Security Fellow at the Council on Foreign Relations, puts it:

  “Even if Russia were somehow to accelerate its nuclear modernization efforts, the U.S. Department of Defense recognizes that Russia “would not be able to achieve a militarily significant advantage by any plausible expansion of its strategic nuclear forces, even in a cheating or breakout scenario under the New START Treaty.”

   

  “To summarize: Russia could deploy many more missiles and still remain behind the United States in numbers of launchers and under the New START caps. Even if it cheated on the New START treaty and deployed still more, the Pentagon does not believe that this would significantly affect the strategic balance.”

  The United States withdrew from the Anti-Ballistic Missile Treaty in 2002, installed anti-ballistic missile systems in two east European countries, and has aggressively moved to expand NATO to the point that they are standing before the gates of Moscow. The Treaty on Conventional Armed Forces in Europe, signed by President George Herbert Walker Bush and then Soviet leader Mikhail Gorbachev in the winter of 1990, was effectively breached by the construction of permanent US military bases in Bulgaria and Romania, and the installation of US ABM facilities: the general atmosphere produced by the new cold war caused the Russians to formally withdraw from the treaty in 2007.

  The encirclement of Russia is a key element of Putin’s justified paranoia: not only in Europe but also in Central Asia, the Americans are on the march, as John Kerry’s recent trip to the region demonstrates. There Kerry canoodled with Central Asian despots like Islam Karimov, whose bloody dictatorship is a model for tyrants everywhere, making stops in Kazakhstan, Kyrgyzstan, Tajikistan, and Turkmenistan as well as Uzbekistan, where the USA maintains a military base not far from the Tajikistan border. Manas Air Base, near Bishkek, Kyrgyzstan, has been a key link in the supply chain servicing US troops in Afghanistan. Kerry’s Uzbekistan sojourn was marked by a news conference in which a Washington Post reporter was hustled out of the room by US and Uzbek security for asking inconvenient questions about Karimov’s horrendous human rights record.

  But human rights are only an issue for Washington in this context insofar as they can be used to indict Putin: the arrest and imprisonment of, say, journalists in Ukraine for questioning government policies is not even mentioned by our State Department, let alone protested.

  The anti-Russian hysteria sweeping Washington doesn’t discriminate as to party: while Hillary Clinton has been vocal about the alleged Russian “threat,” and hasn’t backed down from her “no fly zone” advocacy since the Russian intervention, GOP presidential hopeful Marco Rubio has done her one better by openly coming out for shooting down Russian planes in Syrian skies. Falsely claiming that the US isn’t modernizing its nuclear arsenal, Rubio wants to install more ABM sites throughout eastern Europe, and says Ukraine should be allowed to join NATO – setting the stage for a full-on showdown with the Russians. Rubio’s “vision for Europe” would send us back to the 1950s, when the specter of all-out war between the superpowers haunted the headlines.

  This retrograde vision is shared by most of Rubio’s Republican rivals, with the exception of Sen. Rand Paul – who is far behind in most polls. With Mrs. Clinton waxing hawkish when it comes to Putin’s Russia, and even Bernie Sanders echoing cold war propaganda – he supports US aid, including military aid, to Ukraine, and “freezing Russian assets all over the world” –   the political atmosphere here in the US does not bode well for Russo-American relations.

  With the general collapse of the post-cold war arms agreements with Moscow, and escalating tensions with the Kremlin in eastern Europe and the Middle East, the danger of a military confrontation between the US and  Russia is as great as it has ever been. This represents a shift by the Washington elite away from their seemingly eternal “war on terrorism” to a Russia-centric policy targeting Putinism rather than Islamism as the main danger to US interests.

  What is needed is a grassroots movement to counter the hysterical cold war propaganda being beamed at us by the “mainstream” media. We’ve been warning against the dangers posed by a new cold war with Russia for years, and the latest developments simply underscore how right we were.

  While grassroots campaigns can't hope to match the Washington think-tanks monetarily, it does have one huge advantage, and that is the natural unwillingness of the American people to be drawn into another cold war. Popular support for arming Ukraine and provoking the Russians is very low, and no one wants a nuclear showdown with the Kremlin. Significantly, the less Americans know about Ukraine the more they support US intervention – which just underlines how important our educational campaign is

  The demonization of Putin has been relatively successful, but the reality is that Russia has come a long way since the days of Stalin, and the willingness of the American people to engage in another international crusade against the Kremlin is highly problematic, at best. We have enough problems here at home that need addressing.

  What is desperately needed is a revived grassroots movement to reduce our nuclear weapons arsenal and rebuild the arms agreements with Russia that have been gathering dust in the wake of the new cold war. Do we really want another version of the Cuban missile crisis?

  I was struck by what one participant in the recent “Realism and Restraint” conference, co-sponsored by The American Conservative, the Charles Koch Institute, and the Georgetown University political science department, had to say at the outset of the event. In the first panel, Kori Schake, a research associate at the Hoover Institution who thinks US foreign policy must necessitate the recreation of the British Empire, raised a question that was meant as a litmus test of the other panel members’ views. What, she wanted to know, “should we do about Russia?”

  That we need to “do something” about Russia is in itself an assumption that hardly anyone in the foreign policy community “mainstream” questions. Undergoing economic convulsions and suffering from a rapidly falling birth rate, Russia is in no position to challenge the policy of US “primacy” so lovingly advanced by Schake and her fellow neocons. The reality, however, is that the policy of global hegemony pursued by our foreign policy elites requires the subjugation of Russia – which is, after all, a nuclear power. And that represents a dire threat to the peace of the world.

  The Russian question is, today, the main issue before us – and how we answer it will make the difference between war and peace.

  The War Party never rests: their cold war propaganda campaign is off and running.

  

  

  

  

  

• What's Wrong with Class War?

  From time to time, I will hear someone on the news cautioning participants in a conversation that they are saying things in support of “class warfare.” Inevitably, that shuts the conversation even quicker than calling someone a racist (or trotting out some stomach-churning childishness like references to ‘the N word”) . Apparently any notion that doesn’t glorify socioeconomic stratification in our society is denigrated as “class warfare”, and all parties go scurrying for cover.

  This has irked me for quite some time, but it never occurred to me to mention it on Slope until today, when I saw the following letter to the editor in that centerpiece of superb journalism, the Palo Alto Daily Post. The emphasis in yellow I added, although I encourage you to read the entire letter:

  

  Now, let me say at the outset I understand what this person is saying, and in a certain world, I would actually agree with him. That “world” would have……..

  • Had no TARP or any other bailout in 2008;
  • Would have allowed any business facing bankruptcy (Goldman Sachs, Morgan Stanley, etc.) to have done so;
  • Would have seen hundreds, if not thousands, of white collar zillionaires tossed into prison, led by Lloyd Blankfein and Dick Fuld;
  • Would have passed draconian regulation following the financial crisis to assure it never happening again;
  • Would provide simple-to-understand information to the public laying out what had happened and who the perpetrators are, just so Joe Six-Pack had a sporting chance of understanding what actually took place (I assure you, in the real world, Mr. Six Pack has no clue)

  In case you didn’t notice, we don’t live in a world anything like that. Instead, the rich got richer (much, much richer), none of them went to jail, and it’s as if nothing had ever happened (with the sole exception of Madoff, who was some kind of sacrificial lamb in the whole thing). So the notion that we live in some kind of meritocracy in which everyone plays by the rules is just plain wrong. The game is heavily, heavily, heavily tilted toward the “haves”.

  If, in fact, it was pretty much a dog-eat-dog world (even if the “dog” in question is Lloyd Blankfein or Goldman Sachs), I’d align pretty squarely with the letter writer’s main point, which is not to pick on folks who have made it to to the top. After all, if you’re a so-so actor working at your local playhouse doing musicals in the summer, should you shoot arrows at Kevin Spacey just because he’s a rich, successful actor? No, you shouldn’t. Because he’s undoubtedly a hell of a lot better actor than you are, and he deserves his success.

  Let’s stay in fantasy world for another moment and pretend there were no bailouts and there was no moral hazard. Should we agitate for punitive taxes against Bill Gates, Warren Buffett, Mark Zuckerberg, and other billionaires, simply because they are billionaires and we are not? Again, no. If we’re all playing by the same rules, and the system is fundamentally fair, then I say: good for you, billionaires! Well-played!

  As it is now, though, things are far afield from the level playing field I’m pretending might exist, thus, I really have no beef with someone like Bernie Sanders trying to raise hell and take on the rich corporations and rich individuals as well as specific issues like offshore tax havens and the ridiculous carried interest tax rate.

  To compare someone like Bernie Sanders to bloodthirsty monsters like Stalin and Pol Pot is too ludicrous for words. I’ve heard of slippery slopes before, but good lord, this guy must be totally off his rocker. And as for the mewing about how we should never engage in talk that might incite class warfare? My response is: the class war is already started, and it’s the rich that fired the first shots.

  

  

  

  

  

• What An Industrial Depression Looks Like: Photos From An Australian Heavy-Machinery Auction

  Two weeks ago, when looking at the latest Caterpillar retail sales data…

  

   

  … we said that “If Caterpillar’s Data Is Right, This Is A Global Industrial Depression.”

  Today we get visual evidence of this, courtesy of an Australian heavy industrial equipment auction where machines such as a Caterpillar 992C wheel loader, which normally costs $2.9 million, can now be bought for just $15,000, a 99% discount!

  As Australia’s ABC reports, now that the commodity bubble has burst for good, auctioneers are hard at work selling tens of millions of dollars of suddenly useless coal mining machinery for just a fraction of its original market value.

  The reason is known: the severe downturn in the Australian resources sector (courtesy of China’s whose commodity imports are declining with every passing month) has led to a massive oversupply of equipment, and much of it is unsuitable for use in any other industry. This means unwanted excavators, trucks and sundry heavy machinery will end up as scrap, if not sold at auction.

  ABC’s reporter visited just one such auction in New South Wales, which was owned by Big Rim, a mining services contractor which also collapsed after the miners it serviced also closed.

  What he saw was stunning:

  “At the moment we’ve probably got the worst downturn I’ve seen in 25 years,” said Chris Hassall, whose company is conducting the auction.

  Peter Turner’s Gold Coast company Turner Engineering used to compete for contracts with Big Rim. “I’d be interested in at least 50 per cent of what’s here, and there are at least 100 machines here,” he said.

  One of those machines was a large water tanker which Peter Turner was running the ruler over. “It’s not worth a lot. It’s worth $75,000 or something, but you can’t build the tank for that.”

  Worse, when the auction began the owners of a once-thriving business were hoping this fire sale would at the very least cover their debts. No such luck as the photos of the epic discounts on the equipment show.

  “Some of the old equipment that was working in the last two years is now redundant, won’t go back to work,” said auctioneer Chris Hassall.

  “We had 20 trucks in the Hunter Valley recently that 18 months ago were probably worth $600,000 each. We’ve just cut ’em up, returned about $40,000.”

  It’s prices like these which help explain why shares of the Kerry Stokes-controlled Seven Group are less than half what they were two-and-a-half years ago. Seven holds the largest Caterpillar franchises in both Australia and China.

  Coupled with the mining downturn, with good second hand machinery so cheap, it is little wonder new sales have been hit hard.

  For the sellers it was a bloobath; however at least some of the buyers were happy. “Contractor Peter Turner had been hoping to pay $75,000 for a water tanker, and in the end paid a little more at $77,500.”

  As ABC concludes, “it was a day which displayed the stark reality of a coal mining industry which has gone from boom to bust in a very short space of time.”

  Unless China ravenous appetite for all possible commodities returns, the industrial depression, already the worst Australia has seen in 25 years, will only get worse.

  And this is what an industrial depression looks like in numbers:

  Was: $2.9m | Now: $15,000: Caterpillar 992C wheel loader

  

   

  Was: $1.4m | Now: $50,000: Hitachi EX1200 hydraulic excavator

  

   

  Was: $2.7m | Now: $46,000: Caterpillar D11N crawler tractor

  

   

  Was: $900,000 | Now: $47,500: Caterpillar 775D rear dump truck
  

  

   

  Was: $200,000 | Now: $2,000: Large workshop with water tank

  

  

  

  

  

• As Q3 Earnings Season Winds Down, A Summary Of Where We Stand And The 4 Main Themes From Conference Calls

  With the third quarter earnings season almost over, and 90% of companies
  having reported, here is a quick look at where we stand and what has
  emerged as the 4 main themes during earnings calls.

  As of this moment, 71% of companies have beaten earnings expectations and just 44% have beaten top line estimates. The current consensus estimate is for a 2.2% decline in Q3 EPS across the S&P500.

  The improvement in bottom line beats were to be expected: as we showed this summer, the reason why companies aggressively beat expectations is because of the even more aggressive sandbagging and guiding down ahead of earnings. As the following chart shows, since 2011 the average EPS cut prior to reporting has been 4%, while the average beat: 3.3%.

  

  What is far more surprising is why so many companies missed the top line, and as Deutsche Bank says, “that’s a weaker trend compared to what we’ve seen in the last two quarters.” How does Q3 compare to prior quarters: in Q1 earnings and sales beats stood at 73% and 48% respectively, before improving slightly to 75% and 49% in Q2.

  If we take a look at the aggregate moves, the obvious weakness is at the sales line where YoY aggregate sales are -5.0%.

  And while Q3 will be the first earnings recession with two negative EPS quarters in a row, recall that the S&P500 already is in a revenue recession.

  According to FactSet, the blended revenue decline for Q3 2015 is -3.7%. If this is the final revenue decline for the quarter, it will mark the first time the index has seen three consecutive quarters of year-over-year revenue declines since Q1 2009 through Q3 2009. It will also mark the largest year-over-year decline in revenue since Q3 2009 (-11.5%).

  

  Furthermore, it is not just energy: while five sectors are reporting year-over-year growth in revenue, led by the Telecom Services and Health Care sectors, another five sectors are reporting a year-over-year decline in revenue, led by the Energy and Materials sectors.

  Should Q4 revenue also post annual declines what then: a revenue depression?

  Meanwhile, over in Europe and with 318 Stoxx 600 companies having now reported, 48% have beaten earnings expectations and 45% sales expectations. That’s well down on both Q1 (57% and 72% respectively) and also Q2 (61% and 67% respectively) this year although it’s worth noting that the data is a little less reliable for European companies given not all have earnings expectations are on Bloomberg.

  * * *

  That’s the quantitative summary. For the qualitative one we go to Goldman Sachs, whose Beige Book summarizes the 4 key themes observed during the numerous earnings calls. Here is the punchline:

  • Theme 1: Divergence between consumer and industrial economies Many firms noted that the consumer economy continued to experience steady but unspectacular growth, while pockets of the industrial economy lagged and confronted recession-like conditions.
  • Theme 2: Early signs of inflation, particularly in the labor market Consumer-facing firms highlighted upward pressure on wages. Goods and services inflation remained limited, although some companies preemptively initiated price increases.
  • Theme 3: Buybacks remain a popular use of cash Use of cash was an important topic of management discussions. Many firms increased buyback authorizations and emphasized plans to return cash to shareholders, while others engaged in M&A.
  • Theme 4: Foreign exchange headwinds expected to continue A strong US dollar continued to weigh on earnings, particularly for companies with significant international exposure.

  Some additional company-level details.

  Theme 1: Divergence between consumer and industrial economies

  The economy continued to diverge along two paths: (1) consumer-facing companies experienced steady, positive growth; (2) industrial companies operated in a challenging, low-growth economy. The consumer economy benefited from solid, though not spectacular, US economic growth and an improving labor market. In contrast, the industrial economy experienced some recession-like conditions as a result of low oil prices and weak global demand.

  Consumer Economy

  Equity Residential (EQR)

  It’s no secret that fundamentals remain very good. Demographic picture is incredibly favorable. The economy continues to improve, perhaps not at the rate many would like, but improve nonetheless, which is generating job growth…

  Southern Co. (SO)

  Industrial sales are a leading indicator; commercial sales are typically your lagging indicator. Well, it looks as if the leading indicator is slowing and the lagging indicator is what’s really carrying the day.

  Ford Motor Co. (F)

  …we’re expecting North America to have a very, very strong year with top-line growth and also a full year profit that will be higher than what we achieved last year…so a really strong performance from North America driving the overall company.

  Apple Inc. (AAPL)

  …our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500.

  Starbucks Corp. (SBUX)

  Our fast-growing Americas segment continues to deliver industry-leading growth…and it opened 612 net new stores over the past 12 months.

  Industrial Economy

  Fastenal Co. (FAST)

  The industrial environmental is in a recession. I don’t care what anybody says because nobody knows that market better than we do with the number. We touch 250,000 active customers a month.

  Illinois Tool Works (ITW)

  …it’s a tale of two economies: industrial and consumer. We continue to see solid organic growth in our consumer-facing businesses, such as Automotive, Food Equipment, and parts of Specialty and Construction, which represents about 60% of our total revenues… on the other hand, our industrial-facing businesses, like Welding, Test & Measurement/Electronics, declined in the high single digits organic.

  E.I. du Pont and Co. (DD)

  Things have clearly softened up. You just look at every industrial company that’s reported this quarter. Having said that, I don’t think things are in any draconian situation. I think it’s just a low-growth to no-growth environment across some of the industrial spaces.

  3M Co. (MMM)

  Our U.S. Industrial business, which experienced softer end market conditions and a challenging year-on-year comparison, declined organically.

  Caterpillar Inc. (CAT)

  We anticipate between now and 2018 about $1.5B of annual cost reduction…we plan on reducing about 4,000 to 5,000 of our non-production workforce before the end of 2016.

  American Electric Power (AEP)

  Starting with GDP, you can see that the estimated 1.6% growth for the AEP service area is about 0.5% less than the estimated growth for the U.S. This is not surprising considering the impact of falling oil prices, especially in our Western footprint. While the nation benefits from lower fuel prices, the regional economies supporting the shale plays are  experiencing the direct impact of lost jobs.

   

  Theme 2: Early signs of inflation, particularly in the labor market [don’t shoot the messenger, it’s Goldman’s propaganda]

  Companies continued to see early signs of inflation, particularly in the labor market. Some consumer-facing firms and particularly food and retailing companies responded to mandatory wage changes and provided additional benefits to employees, placing upward pressure on wages. A limited number of companies highlighted preemptive price increases while others raised prices in response to food inflation.

  Wage Inflation

  Chipotle Mexican Grill (CMG)

  Labor costs were 22.2% of sales in the quarter, an increase of 100 basis points from last year, and year-to-date labor costs were up 40 basis points…Labor de-leveraged versus last year by 100 basis points as a result of wage inflation, with our hourly wages up nearly 5% over last year, along with the cost of adding enhanced benefits such as tuition reimbursement, paid sick leave, and increased paid vacation for our hourly restaurant employees as we discussed during our Q2 earnings call.

  McDonald’s Corp (MCD)

  The incremental labor cost in the U.S. related primarily to our decision to invest in our people by raising wages and providing paid time off for employees at our company-operated restaurants, as well as providing educational assistance to all eligible U.S. restaurant employees effective July 1. These costs, along with wage increases mandated by several states during H1, impacted third quarter U.S. margins by about 400BPS.

  Union Pacific Corp (UNP)

  Labor inflation was about 4% for the third quarter, driven by agreement wage inflation as well as higher pension and other benefit expense. For the fourth quarter, we expect labor inflation to also be about 4%.

  On the other hand, some firms are using technology to reduce wage costs in an attempt to maintain margins:

  PepsiCo Inc. (PEP)

  …we have installed packaging automation across approximately a third of our snacks plants worldwide, enabling us to reduce packaging labor costs in these facilities by at least 50%.

  Goods and Services Inflation

  Costco Wholesale (COST)

  I think the pressure on the fresh food side is us. When you’ve got some inflation on some of the commodity items like eggs or nuts, you’ve got a – we’re not changing the price of a 16-pack of muffins or a slice of pizza or a hot dog.

  FedEx Corp. (FDX)

  As we announced yesterday, we’ll be raising rates at FedEx Express, Ground and Freight by an average of 4.9% on January, the 4th of 2016. … we’re also updating certain fuel surcharge tables at FedEx Express and Ground effective November, the 2nd of 2015.

  Illinois Tool Works. (ITW)

  …the big driver of price here is new products that get launched that solve some pretty challenging problems for sophisticated customers, and then you see that – Food Equipment’s a good example and Automotive and others. That’s really the main driver of price here.

  UnitedHealth Group (UNH)

  Rather than wait for our own experience with our new members to fully develop, we increased rates and repositioned certain products market-by-market for 2016, and we expect improved performance next year.

   

  Theme 3: Buybacks remain a popular use of cash

  Companies continued to contemplate how best to use their cash, as many firms increased buyback authorizations and others engaged in M&A. Increased buyback authorizations were popular, despite some companies reiterating their commitment to other uses of cash. However, some companies paused buybacks as M&A activity also continued at a rapid pace.

  Buybacks

  United Technologies (UTX)

  …we’re going to keep driving the share repurchase agenda as long as we feel that there’s a significant discount between the intrinsic value of UTC and the share price. We continue to see that today, of course, that’s why our board recently authorized a new $12B share repurchase program…

  Phillips 66 (PSX)

  In addition, we announced an incremental $2 billion of share repurchase authorization. Today, we’ve completed $6 billion of the $9 billion in share repurchases authorized by our board…

  Alphabet, Inc. (GOOGL)

  As we announced today, our board has authorized us to commence a repurchase of our Class C capital stock of up to $5 billion. This decision is consistent with our overall capital management framework and complements a disciplined capital allocation program. Our primary uses of capital will, of course, remain CapEx and M&A across the breadth of our business.

  E.I. du Pont and Co. (DD)

  In the quarter, we entered into an accelerated share repurchase agreement to enable our $2B share repurchase commitment for 2015. In the quarter, we received and retired an initial delivery of about 29mm shares, which represents 80% of our $2B commitment.

  Johnson & Johnson (JNJ)

  Just this morning, we announced a $10 billion share repurchase program. We are very well positioned to drive continued growth in shareholder value with our exceptional financial strength, including our strong balance sheet and cash flow…as we have discussed before, we have a well-known and disciplined capital allocation strategy that starts with paying dividends, followed by value-creating M&A, and then we consider other ways to return value to shareholders, such as through a share repurchase program.

  Visa Inc. (V)

  Finally, we did not repurchase stock in the quarter due to the Visa Europe conversations that were underway… now that we’ve announced the Visa Europe transaction, we can resume our stock buyback. It is fully our intent to step up the pace of buybacks immediately to make up for buybacks not completed in Q4 FY 2015.

  M&A

  Aetna, Inc. (AET)

  Our ability to repurchase shares was constrained by the proposed Humana acquisition, and we did not repurchase any shares during the quarter. We did, however, distribute $87 million through our quarterly shareholder dividend.

  Walgreens Boot Alliance Inc (WBA)

  …as we are paying cash for the acquisition, we have taken the decision to suspend our share repurchase program and intend to redeploy that cash to partly fund the transaction. This means that in 2016 we will not enjoy the earnings accretion of the buybacks we originally planned.

  Gilead Sciences (GILD)

  …I’ve seen these cycles go up and down over the years. And when there’s a deal to be put together and it’s timely, it can be done. And so I don’t think it changes the overall outlook for M&A at all. I just think from my perspective, it’s about the same as it was in the beginning of the year.

   

  Theme 4: Foreign exchange headwinds expected to continue

  The strong US dollar continues to be a drag on top- and bottom-line results, particularly for companies with significant international exposure. Managements generally expect the foreign exchange headwinds to persist into 2016.

  Johnson & Johnson (JNJ)

  …but to give you an idea of the potential impact on earnings per share, if currency exchange rates for all of 2015 were to remain where they were as of last week. Then our reported adjusted EPS would be negatively impacted by approximately $0.60 per share.

  Monsanto Co. (MON)

  We currently estimate ongoing EPS headwinds of $0.35 to $0.40 from currency, $0.50 to $0.85 from year-over-year Ag productivity pricing declines, and $0.20 to $0.30 from elevated cost of goods for corn and the planned Xtend launch.

  Costco Wholesale (COST)

  In terms of a year-over-year EPS comparison, a few items of note, and the biggest item of note, FX. In Q4 year over year, the foreign currencies where we operate were weaker versus the U.S. dollar, resulting in our reported foreign earnings this year in Q4 being lower by about $53 million after tax or $0.12 a share than these earnings would have been had FX exchange rates been flat year over year.

  PepsiCo Inc. (PEP)

  We now expect foreign exchange translation to negatively impact net revenue and core EPS growth by approximately 10 percentage points and 11 percentage points respectively…

  Procter & Gamble (PG)

  The headwind from foreign exchange has increased since the start of year. We now expect FX will have a five to six percentage point impact on all-in sales growth.

  McDonald’s Corp (MCD)

  Currency translation is expected to be a headwind for the final quarter of 2015, as the U.S. dollar remains strong against nearly all of the world’s other major currencies. Based on current exchange rates, we expect currency translation to negatively impact fourth quarter EPS by $0.08 to $0.10.

  Visa Inc. (V)

  The fiscal year 2015 impact of exchange rates was a 2.5 percentage point drag on net revenues, higher than we had anticipated at the start of the year. If we look at where the dollar is today and the basket of currencies we are exposed to, the FY 2016 impact looks to be 3 percentage points.

  American Express (AXP)

  Like other U.S. companies with a significant global footprint, our reported results are being significantly impacted by changes in foreign exchange rates. Over the past year, the dollar has strengthened significantly year over year against the currencies that we are most exposed to outside the U.S…. The dollar’s strength will have an impact on our performance for the balance of the year and could impact 2016 as well.

  3M Co. (MMM)

  Foreign exchange impacts reduced sales by 7.4 percentage points, with notable year-onyear declines in the euro, yen, and Brazilian Real. These currencies devalued versus the U.S. dollar by 15%, 14%, and 37% respectively. In dollar terms, worldwide sales declined 5.2% versus the third quarter of 2014.

  Simon Property Group (SPG)

  And the other impact we’ve had on the negative side is that we’ve lost certain amount of percentage rent from the outlet business because of the fact that the strong dollar has also hurt tourism shopping.

  Microsoft Corp. (MSFT)

  Based on the current rates and the forecasted geographic mix of revenue, we expect 4 points of negative impact on total revenue in Q2.

  Sherwin-Williams (SHW)

  Unfavorable currency translation decreased earnings per share, $0.09 in the quarter.

   

   

  

  

  

  

  

• About That Surge In Retail & Construction Jobs

  As one witty observer noted over the weekend, "no one with an IQ greater than their shoe size, save corrupt, captured American economists, buys the fake October unemployment report," and while we agreed with the pretext of his thesis, we thought a quick sanity check on the sudden surges in Retail employment and Construction jobs and wage growth would help clarify a few things for those who 'believe' in miracles. As the following two simple charts show, we have seen this odious pattern of mal-investment, mis-allocation, and erroneous executuve extrapolation before… and it did not end well.

  First – Retail..

  Something stinks. Retail stock prices have been plunging (despite the promises of increased spending amid expectations of wage growth – which today NYFed admitted was at its lowest on record) and just tonight we see Banana Republic see Same Store Sales collapse 15% and Gap overall down 4%.

  We have seen this before…

  

  Coincidence we are sure.

  Second – Construction.

  Having already pointed out the anomalous surge in construction jobs weekly payrolls print, we thought exposure of the raw underbelly of the construction industry would help. As Framing Lumber prices crash over 21% year-over-year, it just seems odd that construction jobs would keep surging onwards and upwards as if nothing had happened. Of course, this 'confidence' in the face of market-implied doom has been seen before…

  

  And did not end well.

  *  *  *
  So apart from Retail and Construction sectors entirely decoupling – in an almost perfect replay of the lead-up to the last crash – it seems everything is on target for a rate hike.

  

  

  

  

  

• "Grieving" Mother Of Murdered 9-Year-Old Spends Online Donations On New Car

  Having very recently pointed out the growing epidemic of "online begging," seeing a mother use an online donation platform to raise funds to "lay her son to rest" seems like a laudible and donation-worthy cause. However, as ABC7 reports, the 'grieving' mother of murdered Chicago 9-year-old Tysham Lee used the funds to purchase a 2015 Chrysler 200 and after facing a torrent of abuse attempted to defend her seemingly callous act – "Y'all don't know nothing about me."

   

   

  As ABC7 reports,

  The mother of a 9-year-old boy fatally shot earlier this week is being accused of spending money donated through a GoFundMe effort intended for funeral expenses on a new car.

   

  Karla Lee strongly denies the claim and commented on those who have taken to social media to criticize her.

   

  The mother of slain Tyshawn Lee says it's simply not true. She said she did not use money donated to help pay for her son's funeral to buy a new car.

  Karla Lee posted several videos to Instagram Saturday morning after a flurry of social media posts accused her of using money from her son’s GoFundMe account to buy the car. Lee says she used her own money.

  The emotional 26-year-old says she bought the car to protect herself so she wouldn't become a target by walking or taking the bus.

   

  "I told them I was scared and I was fearing," she said. "Too bad if y'all don't understand that."

   

  “I got this s*** for my protection…I’m pretty sure that’s something my son would have wanted me to do,” she said in one of the videos. In another video, she says she was afraid of being targeted if she took public transportation.

   

  "Y'all don't know nothing about me," she said. "For y'all to be bashing me like that, and I just lost my child."

  Lee is defending herself after heavy criticism on social media accusing her of using donated money from a GoFundMe page. While she admits to buying a car, she says she used her own money to make the down payment for the 2015 Chrysler 200.

  Lee said the controversy began after the dealership where she bought the car posted her purchase on Facebook without her knowledge. The post was deleted after negative reactions by supporters who donated.

   

  "Once again, it just looks offsetting that out of nowhere you're driving around in a new car," said Aundra Lewis.

   

  More than $17,000 was raised in four days through the donation page, which was created by a friend of Lee's to "Help Karla lay her son to rest."

  *  *  *

  We have no comment, the story speaks for itself. One can only imagine in this mother's mind, a brand new Chrysler was considered 'deserved, fair' given the loss of her son.

  

  

  

  

  

• University Of Missouri President Resigns After Claims He "Enabled A Culture Of Racism"

  For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white (79% white and 8% black) flagship campus of the Missouri's four-college system. Today, amid a campus in open revolt and at least 30 black football players announcing that they would not play until the president was gone, AP reports that Mizzou President Tim Wolfe has resigned effective immediately urging students and faculty "to heal and start talking again to make the changes necessary." Protestors demanded that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.

   

  Tensions have built dramatically over the past few months…

   

  And now, as AP reports, the president of the University of Missouri system resigned Monday with the football team and others on campus in open revolt over his handling of racial tensions at the school. President Tim Wolfe said his resignation was effective immediately. He made the announcement at the start of what had been expected to be a lengthy closed-door meeting of the school's governing board.

  The complaints came to a head a day earlier, when at least 30 black football players announced that they would not play until the president was gone. One student went on a weeklong hunger strike.

  Wolfe took "full responsibility for the frustration" students had expressed and said their complaints were "clear" and "real."

   

  "This is not the way change comes about," he said, alluding to recent protests, in a halting statement that was simultaneously apologetic, clumsy and defiant. "We stopped listening to each other."

   

  He urged students, faculty and staff to use the resignation "to heal and start talking again to make the changes necessary."

   

  A poor audio feed for the one board member who was attending the meeting via conference call left Wolfe standing awkwardly at the podium for nearly three minutes after only being able to read the first sentence of his statement.

  For months, black student groups have complained of racial slurs and other slights on the overwhelmingly white flagship campus of the state's four-college system. Frustrations flared during a homecoming parade Oct. 10 when black protesters blocked Wolfe's car, and he did not get out and talk to them. They were removed by police.

  Black members of the football team joined the outcry on Saturday night. By Sunday, a campus sit-in had grown in size, graduate student groups planned walkouts and politicians began to weigh in.

   

  Until Monday, Wolfe did not indicate that he had any intention of stepping down. He agreed in a statement issued Sunday that "change is needed" and said the university was working to draw up a plan by April to promote diversity and tolerance.

   

  The Tigers' next game is Saturday against Brigham Young University at Arrowhead Stadium, the home of the NFL's Kansas City Chiefs, and canceling it could cost the school more than $1 million.

   

  "The athletes of color on the University of Missouri football team truly believe 'Injustice Anywhere is a threat to Justice Everywhere,'" the players said in a statement. "We will no longer participate in any football related activities until President Tim Wolfe resigns or is removed due to his negligence toward marginalized students' experience. WE ARE UNITED!!!!!"

   

  Head football coach Gary Pinkel expressed solidarity on Twitter, posting a picture of the team and coaches locking arms. The tweet said: "The Mizzou Family stands as one. We are united. We are behind our players."

   

  A statement issued by Pinkel and Missouri athletic director Mack Rhoades linked the return of the protesting football players to the end of a hunger strike by a black graduate student who began the effort Nov. 2 and has vowed to not eat until Wolfe is gone.

   

  "Our focus right now is on the health of Jonathan Butler, the concerns of our student-athletes and working with our community to address this serious issue," the statement said.

   

  After Wolfe's announcement, Butler said in a tweet that his strike was over.

  The protests began after the student government president, who is black, said in September that people in a passing pickup truck shouted racial slurs at him.

  In early October, members of a black student organization said slurs were hurled at them by an apparently drunken white student.

   

  Also, a swastika drawn in feces was found recently in a dormitory bathroom.

   

  Many of the protests have been led by an organization called Concerned Student 1950, which gets its name from the year the university accepted its first black student. Its members besieged Wolfe's car at the parade, and they have been conducting a sit-in on a campus plaza since last Monday.

   

  Two trucks flying Confederate flags drove past the site Sunday, a move many saw as an attempt at intimidation. At least 150 students gathered at the plaza Sunday night to pray, sing and read Bible verses, a larger crowd than on previous days. Many planned to camp there overnight, despite temperatures that had dropped into the upper 30s.

  Also joining in the protest effort were two graduate student groups that called for walkouts Monday and Tuesday and the student government at the Columbia campus, the Missouri Students Association. The association said in a letter Sunday to the system's governing body that there had been "an increase in tension and inequality with no systemic support" since last year's fatal shooting of Michael Brown in Ferguson, which is about 120 miles east of Columbia.

  The association said Wolfe heads a university leadership that "has undeniably failed us and the students that we represent."

   

  "He has not only enabled a culture of racism since the start of his tenure in 2012, but blatantly ignored and disrespected the concerns of students," the group wrote.

   

  Concerned Student 1950 has demanded, among other things, that Wolfe "acknowledge his white male privilege," that he is immediately removed, and that the school adopt a mandatory racial-awareness program and hire more black faculty and staff.

   

  One of the sit-in participants, Abigail Hollis, a black undergraduate, said the campus is "unhealthy and unsafe for us."

   

  "The way white students are treated is in stark contrast to the way black students and other marginalized students are treated, and it's time to stop that," Hollis said. "It's 2015."

  *  *  *

  A victory for cultural marxism or a righteous move to accelerate an end to serial racism (absent "safe spaces")?

  

  

  

  

  

• The Re-Enserfment Of Western Peoples

  Authored by Paul Craig Roberts,

  The re-enserfment of Western peoples is taking place on several levels.

  One about which I have been writing for more than a decade comes from the offshoring of jobs. Americans, for example, have a shrinking participation in the production of the goods and services that are marketed to them.

  On another level we are experiencing the financialization of the Western economy about which Michael Hudson is the leading expert (Killing The Host). Financialization is the process of removing any public presence in the economy and converting the economic surplus into interest payments to the financial sector.

  These two developments deprive people of economic prospects.

  A third development deprives them of political rights. The Trans-Pacific and Trans-Atlantic Partnerships eliminate political sovereignty and turn governance over to global corporations.

  These so called “trade partnerships” have nothing to do with trade. These agreements negotiated in secrecy grant immunity to corporations from the laws of the countries in which they do business. This is achieved by declaring any interference by existing and prospective laws and regulations on corporate profits as restraints on trade for which corporations can sue and fine “sovereign” governments. For example, the ban in France and other counries on GMO products would be negated by the Trans-Atlantic Partnership. Democracy is simply replaced by corporate rule.

  I have been meaning to write about this at length. However, others, such as Chris Hedges, are doing a good job of explaining the power grab that eliminates representative government.

  There is more than enough evidence from past trade agreements to indicate where the TPP — often called "NAFTA on steroids" — will lead. It is part of the inexorable march by corporations to wrest from us the ability to use government to defend the public and to build social and political organizations that promote the common good.

   

  Our corporate masters seek to turn the natural world and human beings into malleable commodities that will be used and exploited until exhaustion or collapse. Trade agreements are the tools being used to achieve this subjugation. The only response left is open, sustained and defiant popular revolt.

  The corporations are buying power cheaply. They bought the entire US House of Representatives for just under $200 million. This is what the corporations paid Congress to go along with “Fast Track,” which permits the corporations’ agent, the US Trade Representative, to negotiate in secret without congressional input or oversight.

  Corporations are taking control of what policies are approved or blocked in the U.S.

   

  We cannot sit around while corporations decide what is "good" for America or not! This is a democracy, not a plutocracy! Contact your representatives and let them know that you do not want them to vote in favor of TPA!

  In other words, a US corporate agent deals with corporate agents in the countries that will comprise the “partnership,” and this handful of well-bribed people draw up an agreement that supplants law with the interests of corporations. No one negotiating the partnership represents the peoples’ or public’s interests. The governments of the partnership countries get to vote the deal up or down, and they will be well paid to vote for the agreement.

  Once these partnerships are in effect, government itself is privatized. There is no longer any point in legislatures, presidents, prime ministers, judges. Corporate tribunals decide law and court rulings.

  It is likely that these “partnerships” will have unintended consequences. For example, Russia and China are not part of the arrangements, and neither are Iran, Brazil, India, and South Africa, although seperately the Indian government appears to have been purchased by American agribusiness and is in the process of destroying its self-sufficient food production system. These countries will be the repositories for national sovereignty and public control while freedom and democracy are extinguished in the West and the West’s Asian vassals.

  Violent revolution throughout the West and the complete elimination of the One Percent is another possible outcome. Once, for example, the French people discover that they have lost all control over their diet to Monsanto and American agribusiness, the members of the French government that delivered France into dietary bondage to toxic foods are likely to be killed in the streets.

  Events of this sort are possible throughout the West as peoples discover that they have lost all control over every aspect of their lives and that their only choice is revolution or death.

  

  

  

  

  

• Obama's Trade Deal Will Bankrupt Canada's Farming Industry "Overnight", Expert Says

  Earlier this month, in “Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever,” we took a close look at Canada, where slumping crude prices are beginning to take a serious toll. As we noted, citing BofAML, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.

  

   

  Citing Sharma’s data Bloomberg wrote that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

  

  Well now, on the heels of the Obama administration’s rejection of the “dangerous” Keystone Pipeline (which comes as oil tankers continue to derail across the country), some critics say The White House’s controversial new trade deal could end up costing beleaguered Canada massive job along with the “overnight” collapse of their agriculture industry. Here’s more, from Sputnik:

  There are also major concerns over the effects the trade deal will have on Canadian agriculture industries.

   

  Dr Sylvain Charlebois, professor of distribution and food policy at the University of Guelph’s Food Institute in Canada, told Sputnik there were many unanswered questions in the deal.

   

  “I think overall, reading the deal, there are some very strong elements to support Canada’s membership into this partnership. However, there are a lot of unknowns unfortunately, particularly in the area of agriculture.”

   

  Dr Charlebois said that Canada’s protectionist supply management scheme, which works to protect local industries, would be thrown out under the TPP, with concerns over how this would impact local producers.

   

  “Canada has supply management, particularly with poultry, milk and eggs, so we basically produce what we need in Canada. Now the Trans-Pacific Partnership would compromise the equilibrium we have between supply and demand domestically […] allowing milk from other member countries to come into the Canadian market.”

   

  “What would happen to quotas for example? But most importantly, what would happen to processing? So there’s lots of questions being asked by farmers and processors, and now with the changing government, hopefully we’ll get some clarity on these issues.”

  Charlebois goes on to say that the dairy, egg, and poultry sectors may indeed collapse “overnight”:

  The supply management scheme has been in place since the mid-60s in order to protect Canadian agricultural sectors from larger US corporations. 

   

  As a result, Dr Charlebois says the local industries have become complacent and inefficient, and would not be able to survive under the TPP if it was implemented immediately. “Overnight if we were to eliminate tariffs on imports, we would likely see the dairy sector in Canada, and perhaps the poultry and egg sectors, collapse overnight.

   

  “We’re just not competitive so we need to give it some time for these sectors to adapt and change their modus operandi to make sure they do become more productive and efficient over the next 15 years or so.”

  So, with Canada already stinging from plunging crude, some are now suggesting that TPP could be set to cripple the country’s economy even further. Meanwhile, Jim Balsillie, former co-CEO of BlackBerry – which is of course “dominating” the global smartphone market – thinks this is the “worst thing Canada has ever done”: 

  “I’m not a partisan actor, but I actually think this is the worst thing that the Harper government has done for Canada… I think in 10 years from now, we’ll call that the signature worst thing in policy that Canada’s ever done. It’s such brilliantly systemic encirclement.

   

  I’m just in awe at its powerful purity by the Americans… We’ve been outfoxed.”

  Yeah ok, maybe, but let’s just be honest, the Obama administration has never “outfoxed” anyone on anything. In fact, if recent geopolitical outcomes have taught us anything, Obama and Kerry couldn’t “outfox” their way out of a wet paper bag, so to the extent they’ve designed some kind of cunning trade policy with the aim of bankrupting the Canadian dairy industry it would out of character, but again, stupidity sometimes produces unpredictable outcomes. 

  Anyway, incompetence and naïvety do have a way of creating unexpected consequences so we hope, for Canada’s sake, that the The White House doesn’t end up bankrupting everything chicken-related north of the border but if it does, don’t worry, because that same incompetence will invariably end up starting a world war in Syria which will swiftly drive crude prices through the roof and then it’s problem solved for the Canadians…

  

  

  

  

  

• Ron Paul: Does The Bell Toll For The Fed?

  Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Last week Federal Reserve Chair Janet Yellen hinted that the Federal Reserve Board will increase interest rates at the board’s December meeting. The positive jobs report that was released following Yellen’s remarks caused many observers to say that the Federal Reserve’s first interest rate increase in almost a decade is practically inevitable.

  However, there are several reasons to doubt that the Fed will increase rates anytime in the near future. One reason is that the official unemployment rate understates unemployment by ignoring the over 94 million Americans who have either withdrawn from the labor force or settled for part-time work. Presumably the Federal Reserve Board has access to the real unemployment numbers and is thus aware that the economy is actually far from full employment.

  The decline in the stock market following Friday’s jobs report was attributed to many investors’ fears over the impact of the predicted interest rate increase. Wall Street’s jitters about the effects of a rate increase is another reason to doubt that the Fed will soon increase rates. After all, according to former Federal Reserve official Andrew Huszar, protecting Wall Street was the main goal of “quantitative easing,” so why would the Fed now risk a Christmastime downturn in the stock markets?

  Donald Trump made headlines last week by accusing Janet Yellen of keeping interest rates low because she does not want to risk another economic downturn in President Obama’s last year in office. I have many disagreements with Mr. Trump, but I do agree with him that the Federal Reserve’s polices may be influenced by partisan politics.

  Janet Yellen would hardly be the first Fed chair to allow politics to influence decision-making. Almost all Fed chairs have felt pressure to “adjust” monetary policy to suit the incumbent administration, and almost all have bowed to the pressure. Economists refer to the Fed’s propensity to tailor monetary policy to suit the needs of incumbent presidents as the “political” business cycle.

  Presidents of both parties, and all ideologies, have interfered with the Federal Reserve’s conduct of monetary policy. President Dwight D. Eisenhower actually threatened to force the Fed chair to resign if he did not give in to Ike's demands for easy money, while then-Federal Reserve Chair Arthur Burns was taped joking about Fed independence with President Richard Nixon.

  The failure of the Fed’s policies of massive money creation, corporate bailouts, and quantitative easing to produce economic growth is a sign that the fiat money system’s day of reckoning is near. The only way to prevent the monetary system’s inevitable crash from causing a major economic crisis is the restoration of a free-market monetary policy.

  One positive step Congress may take this year is passing the Audit the Fed bill. Fortunately, Senator Rand Paul is using Senate rules to force the Senate to hold a roll-call vote on Audit the Fed. The vote is expected to take place in the next two-to-three weeks. If Audit the Fed passes, the American people can finally learn the full truth about the Fed’s operations. If it fails, the American people will at least know which senators side with them and which ones side with the Federal Reserve.

  Allowing a secretive central bank to control monetary policy has resulted in an ever-expanding government, growing income inequality, a series of ever-worsening economic crises, and a steady erosion of the dollar’s purchasing power. Unless this system is changed, America, and the world, will soon experience a major economic crisis. It is time to finally audit, then end, the Fed.

  

  

  

  

  

• Venezuela Default Countdown Begins: After Selling Billions In Gold, Caracas Raids $467 Million In IMF Reserves

  In late October, when describing Venezuela’s desperate steps to keep itself afloat for a few more months, we reported that in order to fund $3.5 billion bond payments in early November, Maduro’s government had engaged in something that is the very definition of insanity: selling the country’s sovereign (and pateiently repatriated by his deceased predecessor) gold to repay creditors.

  Specifically, in the past several months, Caracas has quietly parted with 19% of its gold holdings: “Central bank financial statements posted this week on its website show monetary gold totaled 91.41 billion bolivars in January and 74.14 billion bolivars in May.  At the strongest official exchange rate of 6.3 bolivars per U.S. dollar, which the bank uses for its financial statements, that decline would be equivalent to $2.74 billion.”

  But while ridiculous, Venezuela’s decision to liquidate some of its gold is perhaps understandable under the circumstances: Venezulea relies on crude oil for 95% of its export revenue, and with prices refusing to rebound, the only question is when do all those CDS which price in a Venezuela default finally get paid.

  What is even more understandable is what Venezuela should have done in the first place before dumping a fifth of its gold, but got to do eventually, namely raiding all of the IMF capital held under its name in a special SDR reserve account.

  Recall that this is precisely what Greece did in July when everyone was speculating when it would default. Now its Venezuela’s turn.

  The details: Reuters reports that Venezuela withdrew some $467 million from an IMF holding account in October, according to information posted on the fund’s web-site, as the OPEC nation seeks to improve the liquidity of its reserves amid low oil prices and a severe recession.

  Venezuela holds part of its reserves with the International Monetary Fund in an instrument called Special Drawing Rights (SDR), a basket of international currencies made up of the euro, Japanese yen, pound sterling and U.S. dollar.

   

  The withdrawal will allow Venezuela to use the funds for imports or debt service, but does not change its total reserve holdings as SDRs are already accounted for.

  Needless to say, it is far wiser to use up all paper “assets” to repay “paper” liabilities, before resorting to hart money. By then, it is usually game over anyway, so our advise to Mr. Maduro: just default now, and save your gold.

  Referentially, the country’s international reserves as of Thursday stood at $14.819 billion: and dropping fast.  At this rate of depletion, we give Venezuela a few more months before the army takes over.

  

   

  Finally, the central bank’s most recent financial statements as of May, showed that 58% of reserves were held in gold.  It is unclear how much, if any, were held in “toilet paper”.

  

  

  

  

  

  

• EM Exodus: Emerging Economies See Half Trillion In Capital Flight

  When Janet Yellen and the rest of the Eccles cabal decided to stay on hold in September, the “new” reaction function was all anyone wanted to talk about. 

  Of course, the idea that the Fed was to that point “data dependent” (versus market dependent) was something of a joke in the first place, but the specificity the FOMC employed when referring to global financial markets still took some observers off guard. The worry for the Fed revolved primarily around the possibility that a hike could accelerate EM capital outflows at a time when a series of idiosyncratic factors (like a civil war in Turkey, a political crisis in Brazil, and the 1MDB scandal in Malaysia) had already pushed the emerging world to the brink of crisis. Enormous outflows from China as a result of the yuan deval didn’t help.

  In short, the theory was that even a “symbolic” 25 bps hike had the potential to trigger an EM exodus that would make the taper tantrum look like a walk in the park as a soaring dollar exacerbated an already tenuous scenario playing out across the space. 

  Now, as we look back at Q2 and Q3, we learn that all told, well more than a half trillion in capital fled EM over six months.

  Here’s JP Morgan who calls the capital flight “unprecedented”: 

  Recent capital outflows from EM have raised fears of a potential credit crunch, which if it materializes, could exacerbate the economic downshifting of EM economies. On our estimates $360bn of capital left China during the previous two quarters and an additional $210bn left from the rest of EM.

   

  

   

  This of course led directly to a massive FX reserve drawdown and indeed, over the past 18 or so months, the end of the so-called “Great Accumulation” of USD assets has come to a rather unceremonious end. Here are two graphics from Goldman which demonstrate the scope of build and subsequent unwind:

  

  

  

  

  But for anyone who’s concerned about the effect this might have on tightening global monetary conditions or otherwise amplfying a “liftoff”, don’t worry because while QT may indeed be QE in reverse, Goldman thinks it can’t possibly be as “negative” as QE was “positive”given the fact that it’s inherently limited by how much EMs have to sell whereas QE is only limited by central planners’ collective imagination:

  Countering widespread worries about QT, Zach Pandl of our US Economics Research team argues that the impact of EM reserve selling does not amount to QE in reverse. Even if the pace of dollar-denominated asset sales lines up roughly with the Fed’s Treasury purchases over the main phase of QE, the former won’t pack the same punch.

   

  Specifically, QT lacks the signaling value of QE, actually works to weaken the dollar (as does QE), and is finite because reserves can only decline to zero (in contrast to theoretically unlimited asset purchases—a key source of QE’s potency).

  Or, summed up…

  

  

  

  

  

  

• Video: U.S. Apache Attack Helicopter Follows Behind ISIS Convoy … Doesn’t Fire a Single Shot

  This video from LiveLeak purports to be an Apache attack helicopter following a huge ISIS convoy of white pickup trucks crossing from Iraq to Syria … and – instead of attacking – more or less "escorting" it across the border:

  What do you think?

  

  

  

  

• The Courage To Print Money

  Submitted by Tim Price via SovereignMan.com,

  If you’ve seen the movie The Usual Suspects, you know that wonderful line “The greatest trick the Devil ever pulled was convincing the world he didn’t exist.”

  We believe the greatest trick central bankers ever pulled was convincing the world they were acting in the interests of anyone other than the banks.

  With that in mind, it’s almost surreal to see former Fed Chairman Ben Bernanke making victory laps around the world to celebrate the launch of his new book, curiously entitled The Courage to Act.

  Does it really take courage for unelected economic bureaucrats to print up trillions of dollars of taxpayers’ money in order to bail out Wall Street banks?

  I’m sure it will certainly take courage if the taxpayer finally wakes up to the ruse before it fails.

  And sooner or later, every ruse does fail, even when run by the world’s most powerful cartel.

  The Fed, along with its cousins in Europe and Asia, is up against a force of nature in the form of the free market. A banking cartel can clearly achieve a lot in its own interest, but in the fullness of time, the market will win out.

  To suppose otherwise is to believe that central planning works. As if putting Janet Yellen in charge of the Soviet Empire would have somehow averted the fall of Communism.

  Here in the UK, we have a crime known as High Treason: the crime of disloyalty to the Crown. “Adhering to the sovereign’s enemies, giving them aid or comfort” is a High Treason offence.

  So is “counterfeiting money”.

  Destabilizing the monetary system to the point of potential collapse would probably qualify, we think, perhaps on both grounds.

  So the next time a central banker (the Bank of England’s Chief Economist), or one of their banker buddies, proposes that the abolition of physical cash or the introduction of negative interest rates, is in the best interests of the taxpayer and not the banks, they should be grateful that we no longer have the death penalty for High Treason.

  

  

  

  

  

• Shares Of World's Largest Miner Plunge To Seven-Year Low After Massive Toxic Mudslide Engulfs Brazilian Village

  Ok, so if you’re the world’s largest mining company, one thing you don’t want is a global deflationary supply glut brought on by depressed demand from China and a worldwide excess capacity problem. 

  Another thing you don’t want is for a tailings dam to burst, sending a river of toxic mud into a nearby village in South America.

  Well, BHP Billiton is now dealing with both of those issues and the market is punishing the stock, which hit a seven-year low on Monday as analysts and investors alike attempt to figure out how the company intends to clean up a spectacular (in a bad way) mess in Minas Gerais. 

  

  Here’s what happened, in BHP’s words: 

  The Samarco operations include a three tiered tailings dam complex. Within this complex, the Fundão dam failed and the downstream Santarém dam has been affected. This resulted in a significant release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream. The third dam in the complex, the Germano dam, is being monitored by Samarco. At this time, there is no confirmation of the causes of the tailings release.

  Samarco is jointly operated with Brazilian giant Vale and BHP has been keen to note that the joint venture is “responsible for the entirety” of the Minas Gerais operations. After the company’s operating license was revoked on Monday, its debt plunged, with some $2.2 billion in paper due 2022, 2023, and 2024 hitting record lows.

  

  For those who might have missed it, the following images will tell you pretty much all you need to know about what happened:

  

  

  

  

  

  

  

  

  

  

  (via WSJ)

  And here’s Deutsche Bank’s take, which underscores the significance:

  BHP and Vale’s 30Mtpa Samarco iron ore mine in Southern Brazil (50/50 JV) has suffered a catastrophic tailings dam failure. The mine represents c. 10% of our BHP earnings and 3% of NPV, we now assume the mine is shut until FY19. Pellet production was recently expanded to 30Mtpa at a cost of US$3.2b. Media reports have stated that there is a significant and tragic loss of life. Based on public images of the failure we estimate that the dam contained over 300Mt or 150Mm3 of tailings and Samarco could be down for years while the clean-up costs may exceed US$1b. This accident will add further pressure to BHP’s cash flow, growth and safeguarding of the progressive dividend

   

  At around 0530am AEST on Nov 6, Samarco’s largest tailings facility failed causing slurry to race through the open pit and down the valley into the local village of Bento Rodrigues and into local waterways. The media is reporting that between 15 and 17 people have died and 45 others are missing. Samarco states in its FY14 sustainability report that it employs a management system referred to as “Failure Modes and Effects Analysis (FMEA) system” to control tailings dam failure risks. It could be months before Vale, BHP, State and Federal governments complete their assessment of the incident. The clean-up, community support, litigation and rebuilding of the tailings dam (if approved and deemed feasible) could mean that Samarco is shut for years. The mine employs 3,100 people and is one of the largest employers in the region. Samarco contributed US$369m to BHP earnings in FY15 and before this incident we estimated it would contribute US$308m in FY16. We have assumed the mine is shut until FY19, the workforce remains employed, and BHP’s share of the clean-up and dam rebuild costs US$500m. We have excluded any recouping of costs from insurance at this stage. 

  Of course this is the sellside penguin brigade so naturally, all of that somehow translates to a “Hold“:

  

  As WSJ notes: 

  Brazilian officials on Sunday raised the death toll to three people, two of whom were found in the path of the mud flow, and a third who died while receiving medical treatment. That number is expected to rise, as at least 28 people are now confirmed missing.

   

  “BHP Billiton will continue to work with Samarco, Vale, the local communities, local authorities, regulators and insurers to assess the full impact of this tragic incident,” BHP said.

   

  The shutdown will reduce BHP’s iron-ore production this fiscal year—cutting into profit when falling commodity prices already are already making it more difficult for the company to keep its promise to maintain or lift shareholder dividends. Samarco last year accounted for roughly 3% of BHP’s underlying earnings.

  Right, so in other words, this is an unmitigated disaster. 

  On the “bright” side, the fallout could take some excess supply offline, and could impact prices. Here’s more, via Bloomberg:

  • Deactivation of production at Samarco Mineracao mine, a JV between BHP Billiton and Vale, is likely to pressure iron-ore prices, Christopher Tuck, mineral commodity specialist at U.S. Geological Survey’s National Minerals Information Center, says in interview in Rio.
    • “Any deactivation, on this scale, will have an impact on seaborne trade. The varying factor that would affect prices is the length of time this mine remains inoperable. The larger time it remains idled, the greater the likelihood it will have an impact on prices’’
    • Potential impact on price of pellets much more significant than effect on overall market
    • Short-term idling could level off prices through end of 2015; if output is halted long-term, prices could increase slightly

  We suppose the takeaway here is that an already abysmal backdrop for BHP just got a lot worse, which means you may want to brace yourself if you’re a shareholder and if you’re a Brazilian villager, just hold your breath and wait for your compensatory check from Samarco – we’re sure it’s in the mail.

  

  

  

  

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• A 14 Handle on Silver. Again. 14 Nov, 2015

  What’s the difference between the Supply and Demand Report 1 November and the Supply and Demand Report 8 November? Just a minor punctuation change. Last week, we asked (rhetorically) if silver would have a 14 handle again.

  This week, the market answered. Why yes, yes we can!

  Silver closed the week, trading at $14.78. This is down $0.76 from last Friday and almost 20 cents under our fundamental price from that date. The price of gold also dropped, $52. This is quite a discount to what we calculate as its fundamental price.

  So what happened? It’s always a challenge to explain a market price move in terms of a concurrent or preceding event, and financial reporters get it wrong all the time. In this case we feel pretty confident that the driver was the nonfarm payroll report, as the price of gold plunged about $15 within a minute of the release of the data on Friday.

  Why? What has the payroll data got to do with the price of tea in China or the price of gold in New York? Traders (likely not hoarders, but speculators) are trying to figure out if the Fed will: (A) cut interest rates, (B) hold them steady, or (C) hike them. If they are to hike, then everyone wants to know when. Since the Fed has said it wants to see full employment as one measure of a recovery before risking a rate increase, the market looks to the Bureau of Labor Statistics for hints.

  Such is life in a centrally planned world, where the most important price of all—the price of money—is administered.

  There’s only one flaw in this approach. The price of gold does not correlate to the money supply or to the interest rate. In the 1970’s, we had a rapidly rising price of gold and skyrocketing interest rates. In January of 1970, one could have bought gold (if one was not an American—in America, it was illegal) gold for $36.56. By December 1979, the price was up to $593.84 which is a 16-fold increase. More than half of this gain occurred from 1977-1979, which saw the price rise from about $132 to $594.

  During that same period 1977-1979, the interest rate on the 1-year Treasury went from under 5% to almost 12%, well over a double.

  As to more recent years, let’s look at a graph of 2001 through present, overlaying the gold price with the interest rate.

                The Price of Gold and Fed Funds Rate
  
  

  Here’s a trick question. If we told you the next interest rate trend, how would you bet on the price of gold?

  You can’t.

  We can tell you that our theory calls for a continuation of the 34-year trend: interest rates are falling worldwide. Although we can’t predict what the Fed will say at their next meeting, we don’t expect any major hikes, because the Fed cannot do it. We would have thought a 25bps increase was possible, but it seems even that meager rise would cause too much difficulty.

  As to predicting the price of gold, we have a different methodology. Read on for our picture of supply and demand fundamentals…

  First, here is the graph of the metals’ prices.

                The Prices of Gold and Silver
  
  

  We are interested in the changing equilibrium created when some market participants are accumulating hoards and others are dishoarding. Of course, what makes it exciting is that speculators can (temporarily) exaggerate or fight against the trend. The speculators are often acting on rumors, technical analysis, or partial data about flows into or out of one corner of the market. That kind of information can’t tell them whether the globe, on net, is hoarding or dishoarding.

  One could point out that gold does not, on net, go into or out of anything. Yes, that is true. But it can come out of hoards and into carry trades. That is what we study. The gold basis tells us about this dynamic.

  Conventional techniques for analyzing supply and demand are inapplicable to gold and silver, because the monetary metals have such high inventories. In normal commodities, inventories divided by annual production (stocks to flows) can be measured in months. The world just does not keep much inventory in wheat or oil.

  With gold and silver, stocks to flows is measured in decades. Every ounce of those massive stockpiles is potential supply. Everyone on the planet is potential demand. At the right price, and under the right conditions. Looking at incremental changes in mine output or electronic manufacturing is not helpful to predict the future prices of the metals. For an introduction and guide to our concepts and theory, click here.

  Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio barely moved this week, upwards. 

  The Ratio of the Gold Price to the Silver Price
  
  

  For each metal, we will look at a graph of the basis and cobasis overlaid with the price of the dollar in terms of the respective metal. It will make it easier to provide brief commentary. The dollar will be represented in green, the basis in blue and cobasis in red.

  Here is the gold graph.

                The Gold Basis and Cobasis and the Dollar Price
  
  

  We’re still in the same mode. As the price of the dollar rises (i.e. people sell gold, i.e. the price of gold as measured in dollars falls) the scarcity of gold rises (i.e. the cobasis). The red and green lines continue together. Unlike the Fed Funds Rate and the price of gold, there is no an uncanny correlation between the cobasis and the dollar price.

  This means that sometimes, speculators are selling futures (typically purchased with leverage) and sometimes they are buying. They have no effect on the price at which supply and demand would clear.

  Which, as the price of gold dropped by $52, we calculate moved by only $2. Up. Does this mean gold will trade at almost $200 higher by tomorrow morning? Probably not. So what does it mean? It means gold is on sale, offered at a discount thanks to speculators that are going to lose a large number of dollars one of these days.

  Now let’s look at silver.

  The Silver Basis and Cobasis and the Dollar Price
  
  

  The silver price did fall relatively quickly, less than a month since we noted the market price was above the fundamental.

  This week, the market price fell hard. The graph shows that the scarcity of silver rose even hard (though bear in mind that silver has much more of a cobasis distortion field than gold, as the near contract tends to tip into temporary backwardation before gold does, and deeper).

  The fundamental silver price fell about a dime this week, thus putting the market price under the fundamental. While that’s a better place to be, if one is a silver bettor, we wouldn’t bet either way on silver right now. The action is going to depend on whether momentum continues to carry the price lower, or whether there’s a sharp rebound as speculators jump to the other side. Maybe those with razor-sharp technical models can make a buck here. That’s not for us.

   

  Do you support the gold standard? Please come and be counted. Show the legislature and governor in Arizona that honest money is popular! Please come to the Monetary

  Innovation Conference in Phoenix on Nov 17 (Keith Weiner is a speaker). At the conference, speakers will discuss gold and how innovators are using it to solve real problems for real people. Please click here to register. After the conference, we may put on a Monetary Metals seminar if there is sufficient interest. Please click here if interested (different link).

   

  © 2015 Monetary Metals

  

  

  

  

• Photographer Captures Amazing Time-Lapse Video Of Trident Ballistic Missile Launch

  Earlier today, we reported that just after 9pm local time on Saturday evening, a dramatic white light lit up not only all of California, but stretches of Arizona and Nevada, in what was subsequently revealed to be an unannounced launch of a Trident II (D5) missile from the Kentucky, an Ohio-class ballistic missile submarine situated off Point Mugu. But while the entire internet was throttled under the weight of millions of snapshots and short underexposed clips of the missile flight being uploaded to YouTube, Facebook and Twitter, one person captured the whole event in its dramatic entirety on time-lapse photography.

  That person was Justin Majeczky, who was conducting time-lapse photography above the Golden Gate bridge, when he noticed an unexpected object in his viewfinder: an ICBM.

  The result, first noted by Foxtrot Alpha, is 3 minutes of breathtaking imagery that not only catches the missile emerging from the horzion following its submarine launch, but disappearing far off into the sky on its long voyage to the Marshall Islands.

  

  

  

  

  

• What America Has Devolved To: "Online Begging Has Become The New Economy"

  With a record 46.7 million Americans living in poverty (9.4 million more than before the financial crisis), it is perhaps not entirely surprising that the need for 'help' is surging. However, as NYTimes reports, there is a spreading epidemic on social-media that smacks of anything but providing for the needy – and one man whose mailboxes have been increasingly filled with monetary requests, has a theory about it all – "I think online begging has become the new economy."

  “I woke up to four new people today asking me for money on four different donation platforms,” one friend said. “One was my ex-babysitter announcing her wedding and where I could send cash. No invitation to the wedding. Just cash.”

   

  “I’m a believer in giving to real charities: medical research, school drives, the Red Cross, et cetera,” said Heidi Knodle, owner of a picture framing store in San Francisco. “I’m tired of people asking for a vacation, funds for a wedding or their college tuition.”

  Of course, there are plenty of worthy causes and worthy donation recipients, as The New York Times' Judith Newman explains,

  A visit to GoFundMe or YouCaring yields site after site of people whose homes were wiped out by natural disasters. People with diseases I’d never heard of, with no insurance and staggering medical expenses. Kids trying to pay for their parents’ funerals. Parents with seriously ill children wanting a trip to Disney World, and sick animals owned by people who couldn’t afford the vet bills.

  One man had set up a fund for a friend who needed to take a couple of months off while his wife died of brain cancer.

  But then, there were others. Many, many others…

   Education funds are great, but do I really want to pay for a friend to travel to Peru to become a shaman?

   

  Should the woman who has lost a lot of weight (good for you!) ask her friends to pay for $2,500 worth of laser skin tightening? What about the girl seeking $600 for her “personal development journey”? (Not much to ask, but she was so beautiful, I didn’t understand why she didn’t develop herself into a model and make a whole lot more than that.)

   

  Another woman was asking for help with the legal bills for her divorce, as her new husband had bolted to Israel. She was a little dramatic in her plea: “My life — the innocent, carefree life which I had known, and the blissful happy life of hopes and dreams shattered overnight. Instead of partaking of gourmet meals and donning my kalla/bridal trousseau, chaos and turmoil, sprinkled with vicious gossip became my daily food and clothing.”

   

  The requests continued.

   

  Sponsorship for a child’s figure skating lessons from a mother who, according to the friend who got daily reminders to donate, just renovated her kitchen.

   

  Money for a power generator for a guy in Brooklyn who holds parties for artists, writers and musicians in a shack in his backyard, who said he is doing a project on “the history of shacks.”

   

  A talented writer who was having a rough patch put up a “birthday plea” for $2,000 – no, make that $200,000. A guy who needs a new MacBook after someone spilled a drink on his. The woman who just asked for $20,000 for plastic surgery because she had children early and “struggles with body image issues.”

   

  Or take the recent page of Larry Paciotti, a.k.a. the famous pornographic film director/drag queen Chi Chi LaRue, who was asking for $40,000 to extend his stay in rehab at Betty Ford. One non-funder on his funding page called the request “a gross abuse of fame … Larry has plenty of personal resources available to secure this funding on his own.”

  And that, of course, is at the heart of the backlash: the sneaking suspicion that someone of considerable (or at least ample) means and/or connections is asking for help.

  As Newman sums up perfectly,

  Here’s the question I can’t stop asking myself: Has social media made our craving for attention and validation overwhelm all other considerations? There is nothing new about asking your friends for help (remember rent parties?), but that help was confined to a small group of people you actually knew.

   

  Now, no such boundaries exist. Your 4,000 Facebook friends should know if you can’t pay for your rent — or your plastic surgery. And who knows? They may just pay up.

   

  There was a time when there were needs, and there were wants, and we knew the difference. Now?

   

  Now I’m not so sure.

  Welcome to the new normal… where the Free Stuff Army has now morphed with the cult of narcissism into "The Begging Economy" where everyone expects that a required standard of living – because it's fair and deserved – should be paid for by someone else… and never ever paid back… and if you disagree, you are an extremist, racist bigot oppressing the minorities and under-privileged who deem the latest iPhone and Caramel Vanilla 3-pump extra-hot fuzzychino to be their forefathers' given right.

  

  

  

  

  

• What's in Store for the Global Energy Markets?

  By Chris at www.CapitalistExploits.at

  After the series of articles discussing the shale oil industry I received a lot of feedback discussing both shale oil and energy in general, including the following from a reader discussing electricity in Europe:

  Chris,

   

  Here’s the puzzle I am trying to figure out:

   

  Will there be mean reversion with regards to electricity wholesale prices in Europe/Germany and if so, how should one play it?

  • wholesale electricity prices – the main value driver for electricity producers – have been driven down to levels not seen for more than a decade in Europe (currently below EUR 30/MWh for delivery 2016/2017/2018).
  • this is due to substantial overcapacity in production (and sluggish demand due to the weak European economy).
  • this overcapacity in production is coming from Germany, which decided to turn off its nuclear power plants by 2022 and to massively support renewables.
  • so far the business model for operating a renewable power plant (wind, photovoltaics, biomass, water) in Germany (and other European countries) essentially was:
    you will receive X EUR/MWh for the electricity produced by your renewable power plant for the next 20 years (you don’t need to worry about who is going to buy that electricity or whether actually anybody needs that electricity).
  • the latest data I have shows that Germany (more precisely it’s consumers and households) is paying on average something like 160 EUR/MWh for its renewable electricity (n.b. that is roughly 5 times the price where wholesale prices are now).
  • on average means: there are power plants of different renewable technologies (wind, photovoltaics, biomass, etc.) and of age (the costs of new installations have come down substantially during the past; e.g. during the last 5 years the costs of a turn-key utility scale photovoltaics plant came down from lets say 3.600 EUR/kW to 1.000 EUR/kW).
  • even if one takes the cost reductions of the past years into account total costs per MWh for newly installed wind turbines or photovoltaic plants (the main technologies at work here) are somewhere around EUR/MWh 60-80 for wind and EUR/MWh 80-100 for utility scale PV
  • as of now Germany covers roughly 30% of electricity production from renewables and wants to get to 40-45% by 2025 and 55-60% by 2035.
  • Germany realized that this is going to be rather expensive and tries to redefine the renewable business model as described above and change the design of it’s electricity market.
  • at the same time European utilities are getting killed because of the low wholesale prices (see for example the following article: http://www.economist.com/news/briefing/21587782-europes-electricity-prov…).
  • utilities like Germany’s E.On an RWE are trapped because they can not shut down capacities – which would be good for wholesale prices and profitability of the remaining plants – because they (a) need a business model and (b) need the cashflow to service their debt.
  • the really interesting thing about this technological shift is that conventional power plants need a fossil fuel to burn which comes at a cost – in other words SRMC of conventional power plants are linked to the price of oil, gas or lignite/coal or whatever is burned.
  • the current low wholesale price is due to the low coal prices worldwide.
  • virtually all gas power plants have been crowded out of the European market as those would need a wholesale price of more than 60 EUR/MWh in order to be profitable.
  • renewable power plants (wind, photovoltaics) on the other hand have SRMC of zero, as there is no cost associated with the input (wind or irradiation).
  • so one has a big lump sum up-front investment (sunk cost) with only minor operating expenses during operation.
  • this means that in the short run any price above zero is good enough for a renewable power plant.
  • in the long run renewables need to earn total costs (60-100 EUR/MWh).
  • In a commodities market general competitive strategy dictates that cost leadership is the way to go – one has to be a low cost producer to stay in business.
  • All this leaves us in this rather bizarre situation in Europe (again!? probably the main reason you are investing not in the developed world!?) where renewables are entering the market with total costs of 60-100 EUR/MWh and are crowding out conventional power plants (mainly oil, gas and lignite) with similar or lower total costs.

  The really big question here is, what happens:

  1. to all those unprofitable over capacities in the market, or
  2. if RWE or E.On go bust?

  Somebody will be there to pick up those assets for pennies on the dollar (Euro) and will hence have a different cost structure (in terms of total cost NOT SRMC) than is prevailing today.

   

  I’d say that lots of people in the utilities world like to say that we will see stronger wholesale prices once Germany switches off it’s nuclear power plants – the forward prices for wholesale electricity do not reflect this so far.

   

  I have to admit that I see a strong case for rising wholesale prices medium turn (and I am not from the utilities world).

   

  The rationale is that if nobody earns total costs at this level prices will have to reflect costs at some point in time.

   

  Nevertheless, this whole situation with built over capacities (which are mostly sunk cost) reminds me very much of your point in case about the “dot-com” bubble and the infrastructure that it created and helped to make internet affordable faster than otherwise possible.

   

  I strongly believe that one needs to “shoot your darlings” when investing.

   

  Which means not to search for the 23rd argument in favour of one’s opinion but to look for arguments that falsify one’s investment thesis.

   

  Have you come across this mess in Europe’s electricity market or anybody who has his focus on that?

   

  What am I missing here?

  I share the above with readers as I found it quite an interesting puzzle with many moving pieces. I’m largely unencumbered by any in-depth knowledge of the dynamics at work in European electricity. More educated minds may have some insights.

  Here is what I do know with a caveat that I’m not an expert in this sector.

  Energy is much more global than ever before. Infrastructure for things such as the transportation and storage of energy has meant that there exists a much closer relationship between energy costs in Europe say and those in South America or Asia. From that perspective I look at some major drivers taking place globally. Drivers which affect energy in general and wholesale electricity pricing downstream.

  Firstly, the age of oil as the world’s dominant driver of energy has been in decline for the last 15 years. While it is still the largest, with coal close on its heels, its overall share of the energy mix has nevertheless been in decline. Electricity today makes up a larger and larger portion of this mix.

  However, electricity comes from multiple sources including oil, so it’s a little more difficult to quantify without writing a 30-page report on the topic.

  We’ve discussed solar previously and alerted readers to this sector last year. Take a look at the cost structure for solar below:

  

  As the cost of anything falls, typically the usage grows as it becomes increasingly cost effective, and this is exactly what we’re seeing in both solar and wind. This cost base is bound to collapse even further in the next few years.

  Why? China is one answer. We all know what China did to the commodity boom of yesteryear, and while that particular game is over, I believe China is set to change the landscape on solar in the coming years and here’s why.

  China has a huge air pollution problem, largely due to coal fired power generation. They are aggressively addressing this problem and they’re doing it by building solar infrastructure… lots of it.

  How much? China will build more solar infrastructure this year (2015) than existed in the entire world in 2008. I find it hard to imagine that this build out doesn’t impact the cost decline curve of solar.

  From Reuters:

  Apple announced Wednesday it will build 200 megawatts of solar energy projects in China and work with local suppliers to source more renewable energy, its latest moves to green its Chinese supply chain amid criticism that its local partners are heavy polluters.

   

  As part of Wednesday’s announcement, major Apple supplier Foxconn said it will build 400 MW of solar energy projects by 2018, starting in Henan province.

  To put this into perspective, consider that in 2013 China had 11.3 GW connected to the grid, followed by Japan with 6.9 GW connected, and the US in third place had 4.8 GW connected.

  China is planning on adding a whopping 100 GW by 2020 and Japan already just added a whopping 9 GW in 2014, adding more in 2014 than they previously had in total.

  As this additional infrastructure build-out in solar, wind and nuclear continues, I think it’s fair to extrapolate that low energy prices on a look-forward basis are in the cards. Additionally, the cost of solar will continue to fall and the quality will continue to rise. The guy sitting in Ghana may not think it affects him that China is building a ton of solar infrastructure but if he’s even modestly educated and understand economics he’ll be able to understand why the solar panels he’s buying in Accra are falling in price and likely increasing in quality and efficiency. This affects wholesale electricity providers, some more and some less, depending on particular countries.

  I’m not sure about wholesale electricity prices in Europe or how best to participate (if at all) as per the comments from our reader.  We are however long solar, synthetically short oil by being long the USD across multiple strategies – a trade which we began telling you about in late 2014 and which we believe has a lot more juice left in it. I won’t rehash all the reasons for that as they’re detailed in depth on our site and in reports we’ve sent to those on our mailing list.

  – Chris

  PS: If you enjoyed this note then you might also want to receive future write-ups just like this one as well as periodical subscriber-only free reports and more (no spam, though). We’re consistently building upon our investment framework, shared with you in these notes and we welcome the widest possible participation, as well as your thoughts and comments. You can join us HERE.

   

  “China is now the largest wind power market in the world. They have increased their power generation from renewables from really nothing 10 years ago – and now it’s 25%.” – Maria van der Hoeven, Former Executive Director of the International Energy Agency

  

  

  

  

• Three Ads That Summarize The Current State Of The Subprime Housing Market

  If 2014 was the year that saw the return of No Income, No Job, No Assets (NINJA), and Stated Income, Stated Assets (SISA, or “plug in random numbers”) mortgage loan applications, then the current three recent ads shown below, courtesy of KGBinvestor, demonstrate just how further down the subprime rabbit hole we have fallen in 2015.

  One can only imagine what happens in 2016.

  Consider:

  • No seasoning is now pretty much standard for all prior bankruptcies
  • Loans are issued up to 80% LTV, and in some cases up to 97% for conventional loans
  • FICO scores of 500 only need 10% down; FICO scores of 580 (subprime) – only 3.5% down
  • Tax returns aren’t needed
  • Got caught fabricating your tax returns (4506-T) – no problem there either.

  In short: every little trick mortgage lenders had during the first subprime bubble is now back.

  And here are three ads showing how subprime is not only back, it’s as bad as it ever was.

  

  

  

  h/t @KGBInvestor

  

  

  

  

  

• Goldman Now Thinks "The Economy Might Start To Overheat Unless Growth Slows From The Current Pace"

  Remember when a month ago Goldman “called it” on the question whether there would be a rate hike in 2015, when, in response to the rhetorical question of “What is your own view of the appropriate liftoff date?” chief economist Jan Hatzius said the following:

  A: Our own answer to that question has long been 2016. In fact, our own view is similar to that of Chicago Fed President Charles Evans, who recently shifted his call from early 2016 to mid-2016. Although it is definitely possible to rationalize a December 2015 liftoff using various forms of the Taylor rule, there are two good reasons to delay the move longer. First, the risk of hiking too early is bigger than the risk of hiking too late when inflation is so far below target and we have spent so much time stuck at the zero bound. Second, we have seen a sizeable tightening of financial conditions. At this point, our “GSFCI Taylor rule” suggests that the FOMC should be trying to ease rather than tighten financial conditions. Our own view in terms of optimal policy is quite strongly in favor of waiting well into 2016.

  Well, the gambit worked and while the “rate hike delay thesis” sent markets soaring in October on one after another piece of bad news as “bad news was good news”, the tables have now turned, and following the “stellar” October jobs report, it is time to attempt “good news is good news” for a change, and engage in the most hypocritical game of revisionist history, and pitch a rate hike as the bullish catalyst this economy has needed all along – because if only the Fed has raised rates in 2009 instead of engaging in QE2, Twist, QE3 and keeping ZIRP until now, the middle class would be thriving… just ignore the S&P at 2100.

  So here comes Goldman, not two months after it said that the Fed should think about easing, with what can only pass for Sunday evening humor saying that 7 years to the day after it landed on the zero bound on December 16, 2008, the Fed will hike because, “the economy might start to overheat by late 2016/early 2017 unless growth slows from the current pace“.

  And just like that the economy goes from needing “further easing” to being on the verge of overheating.

  One can’t make it up.

  Here is Goldman who did make it up:

  Friday’s numbers have dispelled the earlier fears of a sharp labor market slowdown. Although the 271k payroll gain in October benefited from a couple of special factors—including a bounceback in sectors such as retail trade and business services from earlier weakness—the trend still looks to be close to 200k, well above the 85k “breakeven” pace that we think is needed to keep the unemployment rate stable. In the household survey, the headline unemployment rate edged down and the U6 underemployment rate dropped another 0.2pp to 9.8%, on top of the 0.3pp decline in September. We regard U6 as reasonable “shorthand” for broad labor market slack, and it is now less than 1pp above our estimate of its structural rate.

   

  The better data combined with steadfast communication from Chair Yellen have increased our confidence that the FOMC will hike the funds rate on December 16, after exactly seven years at the zero bound. Nothing is ever certain, but it would now probably take major downside surprises in the data or markets to dissuade the leadership from starting the normalization process next month. Barring such surprises, the data over the next month probably matter mostly for the path of rates after the first hike, not the rate decision in December itself.

   

  Is it a good idea to tighten monetary policy at this point? We still have some sympathy for the “risk management” approach recently laid out by Governor Brainard and others. The main reason is that financial conditions look tighter than warranted in the current economic environment and could tighten further as the dollar appreciates. Nevertheless, the case for waiting has become less compelling, as the risks to the outlook have clearly diminished and our baseline view of the economy now implies a clear need for higher rates before long. In particular, the continued rapid pace of labor market improvement—best illustrated by the 1.7pp drop in U6 over the past twelve months—suggests that the economy might start to overheat by late 2016/early 2017 unless growth slows from the current pace. In addition, we expect both core inflation and the equilibrium funds rate to recover gradually in coming years. Putting these pieces together in a Taylor-type rule—even one that focuses on U6, puts greater weight on labor market slack than Taylor’s original formulation, and assumes a depressed near-term equilibrium funds rate—implies that the FOMC should start the normalization process. All in all, we can now see a decent case for a December liftoff.

  And this, according to the Fed’s 2016 GDP “central tendency” forecast is what economic overheating looks like.

  

  

  

  

  

  

• The Fly In The Buyback Ointment: Corporate Leverage Is At Record Levels

  We’ve gone out of our way over the last year to explain that whatever monthly flow was lost to the taper was promptly recouped by corporate management teams via an endless stream of ZIRP-induced buybacks. 

  Put simply, thanks to the now ubiquitous global hunt for yield, anything that even looks like a creditworthy company can borrow for nothing and then promptly funnel the proceeds into EPS-inflating buybacks. That’s great from a myopic, “let’s worry about this quarter first and longevity later” perspective, but in the long-run, it can’t possibly work as all you’re doing is leveraging the balance sheet to explain away a poor top line.

  

  

  Indeed, this has become a hot-button issue on the campaign trail as Hillary Clinton, at the likely behest of Cheryl Mills, is out to attack the “tryanny of the next earnings report.”

  

  Still, “investors” are stupid (sorry, the filter is off tonight) and algos just scan headlines, so as long as the bottom line looks good, the equity continues to rise. But with Eccles QE gone (for now anyway) and with the cost of capital expected to rise in December (hold your breath), the question is this: what happens to quarterly earnings once the buyback bonanza beat is history? 

  Citi is now out questioning just how long PMs are going to entertain the proliferation of financial engineering now that i) we’re in a revenue recession, and ii) coporate leverage is sitting at record highs.

  *  *  *

  From Citi

  Corporate leverage continues to push higher. In Figure 3 we present the debt-to- EBITDA ratio for the average non-fin in the IG and HY markets. We see that in IG leverage rose from 1.8x to 2.1x over the past twelve months, and in HY it rose from 4x to 4.4x (Figure 3). Note that in both markets, at current levels gross leverage for our sample set is well north of the ‘09 highs. Unfortunately, we see little chance that it will decline in the near-term, or even stabilize for that matter, as the earnings backdrop appears to be too soft.

  Until recently, rising corporate leverage was primarily the result of companies desire to bolster shareholder value at the expense of bondholders — issue bonds and buy stock or issue bonds and buy a company. But in recent quarters declining earnings have been an important reason for the upward trend (Figure 4).

  

  The 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging (Figure 5). In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general. 

  But there are signs that this may be changing. Recent conversations that we’ve had with equity PMs suggest that they have become far more focused on revenue growth, and are placing far less of a premium on any financially engineered EPS growth.

  Why might equity investors be less impressed with financially engineered growth now than they were a short while ago? One of the key reasons may simply be because default risk has risen, and historically when default risk rises buybacks tend to fall.

  This relationship exists in part because equity holders have a claim on future cash flows. While buybacks increase that cash flow stream itself (per share), they also lower the probability of equity holders actually receiving that cash flow stream. After all, should a company default equity holders may very well end up with no claim at all. 

  Figure 5 highlights the relationship between buybacks and the default rate over time at the macro level, and in Figure 6 we show the debt outstanding and share price relationship for a specific issuer (DAL). Note that we can find any number of examples where more debt equates to a lower share price rather than a higher one.

  

  Given that we are clearly moving into a higher default environment we believe that equity investors may be inclined not to reward stocks that have large buyback programs. And if this is the case, corporate managers will have a diminished incentive to borrow money to finance buybacks.

  *  *  *

  Got it. So what Citi is saying is that now that corporate leverage is at record levels, the game is officially up and once the defaults start and the cost of capital begins to rise, no sane equity investors (of course nowadays the idea of a “sane” or even a “human” equity investor is an oxymoron) will ever buy into the story nor even think about throwing money at a secondary. 

  Needless to say, that’s bad news for corporates that have to this point relied on ZIRP to stay afloat and it’s also bad news for anyone betting on fresh highs on the S&P. This will only get worse as pressure from Presidential candidates overwhelms the whims of the 2 and 20 crowd when it comes to dictating how corporate management teams finagle the bottom line and so, if Citi is correct, expect PM’s to be less impressed with EPS “beats” going forward which means either Janet Yellen will need to step back in to provide the bulge bracket with the monthly dry powder they need to fire up the prop desks, or else it may be time to take profits.

  

  

  

  

  

• The War On Cash Is Advancing On All Fronts: "First They Came For The Pennies…"

  Submitted by Don Quijones via WolfStreet.com,

  The War on Cash is advancing on all fronts. One region that has hogged the headlines with its war against physical currency is Scandinavia. Sweden became the first country to enlist its own citizens as largely willing guinea pigs in a dystopian economic experiment: negative interest rates in a cashless society. As Credit Suisse reports, no matter where you go or what you want to purchase, you will find a small ubiquitous sign saying “Vi hanterar ej kontanter” (“We don’t accept cash”):

  Whether it’s for mulled wine at the Christmas market, a beer at the bar, even the smallest charge is settled digitally. Even the homeless vendors of the street newspapers Faktum and Situation Stockholm carry mobile card readers.

  A similar situation is unfolding in Denmark, where nearly 40% of the paying demographic use MobilePay, a Danske Bank app that allows all payments to be completed via smartphone. With more and more retailers rejecting physical money, a cashless society is “no longer an illusion but a vision that can be fulfilled within a reasonable time frame,” says Michael Busk-Jepsen, executive director of the Danish Bankers Association.

  World’s Biggest Cashless Laboratory

  While Sweden and Denmark may be the two nations that are closest to banning cash outright, the most important testing ground for cashless economics is half a world away, in sub-Saharan Africa.

  In many African countries, going cashless is not merely a matter of basic convenience (as it is in Scandinavia); it is a matter of basic survival. Less than 30% of the population have bank accounts, and even fewer have credit cards. But almost everyone has a mobile phone. Now, thanks to the massive surge in uptake of mobile communications as well as the huge numbers of unbanked citizens, Africa has become the perfect place for the world’s biggest social experiment with cashless living.

  Western NGOs and GOs (Government Organizations) are working hand-in-hand with banks, telecom companies and local authorities to replace cash with mobile money alternatives. The organizations involved include Citi Group, Mastercard, VISA, Vodafone, USAID, and the Bill and Melinda Gates Foundation.

  In Kenya the funds transferred by the biggest mobile money operator, M-Pesa (a division of Vodafone), account for more than 25% of the country’s GDP. In Africa’s most populous nation, Nigeria, the government launched a Mastercard-branded biometric national ID card, which also doubles up as a payment card. The “service” provides Mastercard with direct access to over 170 million potential customers, not to mention all their personal and biometric data.

  The company also recently won a government contract to design the Huduma Card, which will be used for paying State services. For Mastercard these partnerships with government are essential for achieving its lofty vision of creating a “world beyond cash.”

  A New Frontier

  In India an even more ambitious project is under way: the Unique Identification Authority of India (UIDAI), which aims to create a centralized voter enrolment system for 1.2 billion people. It will be the largest identity platform and biometric database in the world. There’s only one snag: according to its creators, the only way to make the system work effectively will be through the widespread adoption of electronic payment systems, side by side, as always, with biometric recognition systems.

  Given that cash is still king on the subcontinent, the government may have its work cut out. Finance minister Arun Jaitley has repeatedly underscored the need to transform India into a cashless economy, supposedly to “rein in the problem of black money.” However, with its huge informal economy, India remains the largest producer and consumer of currency notes after China (as well as the biggest consumer of gold).

  Here’s more from India’s Financial Express:

  Currently less than 5% of all payments are done electronically. Results from the ICE 360 Cash Survey 2014 show that cash is the preferred mode of payment even in Delhi, the most affluent and developed metropolis. Nearly 73% of all purchases by Delhi consumers are paid for in cash and only 17% by card.

  Naturally the Indian government will do all it can to change this situation. In an article in the Daily Mail Nandan Nilekani, one of the technocrats behind UIDAI, urges the government to lead the way. “The government must be the initial driver, using the heft and reach of its social security schemes to drive the adoption of an electronic payments model,” Nilekani asserts. “As momentum grows, private players can step in.”

  Those private players will no doubt include banks. After all, in a world where every transaction – or at least every “official” transaction – must be electronic, the power of banks over individuals is likely to dramatically increase, as Brett Scott warns in an article for The Guardian:

  With this comes the specter of bank surveillance, where every transaction you ever partake in is authorized and recorded by a privately run commercial bank, giving it a transaction-by-transaction history of your entire commercial life. If such a bank does not like an enterprise – such as Wikileaks – it can just freeze it out.

  The New Cost of Doing Business

  An oft-overlooked benefit of cash transactions is that there is no intermediary. One party pays the other party in mutually accepted currency and not a single middleman gets to wet his beak.

  In a cashless society there will be nothing stopping banks or other financial mediators from taking a small piece of every single transaction. They would also be able to use – and potentially abuse – the massive deposits of data they collect on their customers’ payment behavior. This information is of huge interest and value to retail marketing departments, other financial institutions, insurance companies, governments, secret services, and a host of other organizations.

  Another very important perk of cash is that it significantly limits central banks’ ability to continue conducting arguably the greatest financial heist of the modern age, i.e., negative interest rate policy (NIRP). The only way that central banks can maintain negative interest rates ad infinitum is by abolishing cash altogether, as the Bank of England chief economist Andrew Hadlaine all but admitted. As long as cash exists, there’s no way of preventing depositors from doing the logical thing – i.e. taking their money out of the bank and parking it where the erosive effects of NIRP can’t reach it.

  So in order to save a financial system that is morally beyond the pale and stopped serving the basic needs of the real economy a long time ago, governments and central banks must do away with the last remaining thing that gives people a small semblance of privacy, anonymity, and personal freedom in their increasingly controlled and surveyed lives.

  The biggest tragedy of all is that the governments and banks’ strongest ally in their War on Cash is the general public itself. As long as people continue to abandon the use of cash, for the sake of a few minor gains in convenience, the war on cash is already won.

  A war conducted by bankers, politicians, academics, even startup guys.

   

  

  

  

  

  

• BRICs Finally Broke: Goldman Pulls The Plug On "Revolutionary" Acronym Fund After 88% Loss

  Back in February 2013, 12 years after coining the term BRIC (Brazil, Russia, India and China) as an acronym for the world’s strongest source of emerging market growth, Goldman’s Jim O’Neill retired, but not before some very (traditionally) optimistic words of parting, namely that there is “clear evidence things are doing better economically.”

  This is what Goldman said in his retirement announcement:

  Jim is an influential economist and thought leader, and is regarded as an expert in the world’s foreign exchange and bond markets. Importantly, he has identified revolutionary economic trends, defining the concept of the BRICs which has become synonymous with the emergence of Brazil, Russia, India and China as growth opportunities of the future. Jim’s BRIC thesis has challenged conventional thinking about emerging markets and, as a result, has had a significant economic and social impact.

  Nearly three years later, things are not only not doing better economically, with the entire world now engaged in outright, or quasi QE (with helicopter money to follow as Adair Turner infamous warned) just to support global asset prices, but the very emerging markets that made up the BRICs, have devolved to a state of economic freefall. And nowhere is this more obvious than in Goldman’s decision to pull the plug on the infamous fund that bears the name of Goldman’s most bullish acronym in history.

  According to Bloomberg, Goldman’s bank’s asset-management unit folded its money-losing BRIC fund, which invests in Brazil, Russia, India and China, and merged it last month with a broader emerging-market fund. Goldman Sachs pulled the plug on the nine-year-old product because it doesn’t expect “significant asset growth in the foreseeable future,” according to a filing to the U.S. Securities and Exchange Commission.

  The BRIC fund lost 21% in the five years through Oct. 23, the last trading day before the merger. Its assets declined to $98 million at the end of September after peaking at $842 million in 2010, according to data compiled by Bloomberg.

  

  As Bloomberg reports, “the downfall of the BRIC fund, which had lost 88 percent of its assets since a 2010 peak, also underscores how the strategy of bundling disparate countries into a single investment theme is losing its appeal among investors.”

  Perhaps it has sentimental value, but instead of liquidating the BRIC fund outright, Goldman will instead let it be merged into its larger EM Equity Fund:

  The BRIC fund is being swallowed up by the Emerging Markets Equity Fund as part of Goldman Sachs’s efforts to “optimize” its assets and “eliminate overlapping products,” the New York-based bank said in the Sept. 17 filing.

   

  Instead of liquidating the fund, Goldman Sachs opted for the merger because it will give investors access to “a more diversified universe” of developing nations. The bank pointed out that the emerging-market fund has outperformed in the one-, three- and five-year periods.

  As it turns out, the BRICs was nothing more than investing in flow momentum, because while it worked for many years…

  In the decade following the creation of the BRIC moniker, the group surged as a global economic power, amassing 40 percent of the world’s foreign reserves. MSCI Inc.’s BRIC Index returned 308 percent in the 10 years through 2010, compared with a 15 percent gain in the Standard & Poor’s 500 index.

  While the four countries still account for more than one fifth of the global economy, their growth prospects have dimmed. In a December 2011 report, Dominic Wilson, then chief markets economist at Goldman Sachs, said the economic potential for BRICs probably peaked because of a smaller supply of new workers.

  The predicament has become even more striking this year. Brazil is reeling from a corruption scandal and the worst recession ina quarter century, while Russian companies are locked out of global capital markets because of international sanctions. In China, the government was caught off guard by a stock crash this year that wiped out $5 trillion in market value. Even in India, where growth accelerated, Prime Minister Narendra Modi is struggling to push through reforms.

  … All it took was the end of the Petrodollar and China’s hard(ish) landing to kill all the wind in the sails of the BRICs – something nobody noticed (as we duly noted) a year ago, and which ultimately manifested itself in the EM debt crisis of the late summer, precipitated by the soaring dollar and leading to China’s devaluation and record capital outflows.

  And now that it’s all over, the Mondey morning quarterbacking begins: “The BRIC acronym didn’t make any sense in the first place because you just randomly group four countries which are completely different,” said Xavier Hovasse, who oversees $2.3 billion emerging market assets at Carmignac Gestion. “If you restrict your investment universe too much, it’s more difficult to perform. I am not surprised that those funds are collapsing.”

  And to think it was only 2 years ago when not a cloud was in sight.

  Andrew Williams, a spokesman for Goldman Sachs, declined to comment on the fund’s closure. O’Neill, who stepped down as the chairman of Goldman Sachs Asset Management in 2013 and became commercial secretary to the U.K. Treasury in May, also declined to comment, Bloomberg notes.

   

  

  

  

  

  

• From Protesting Vietnam to Demanding "Safe Spaces" – What Happened To America's College Kids?

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  I grew up hearing stories of protest. About those years, a decade or so before I was born, during which America’s youth rebelled against the prevailing establishment, and forever changed the nation’s course in some meaningful ways.

  Of course, many of you will accurately state that not much about the imperial state has actually changed since those days of protest, and that in fact, the out of control abuse of power both abroad and at home has gotten far worse in the subsequent decades. I will concede this point, but want to add a caveat. Certain things really did change, particularly with regard to racial discrimination in these United States. Not to say things are perfect, but to discount the significant gains achieved in this regard would be unfair.

  Nevertheless, as far as the “shadow government” is concerned, not much has changed. Other than the fact that the status quo learned important lessons from those years of rebellion, and was forced to operate even more secretly than it did before. As an example, the military-industrial complex learned that it couldn’t have genuine journalists running around war zones after images taken in Vietnam shocked the nation and helped turn popular sentiment against it. As such, reporters in war zones these days are nothing more than propagandists and imperial shills. Indeed, increasingly effective propaganda and a captured corporate media has probably been the single most important tool used by the shadow government to maintain and consolidate control over all these years. In a nutshell, people have been dumbed down, as well as mentally and emotionally castrated, to the point of being almost unable to rebel against anything of real importance.

  Which brings me to the point of this post. The reason I brought up the civil disobedience and activism of the 1960’s, is because it did at least represent a true conflict with that generation’s status quo, and it did in fact attempt to tackle some of the pressing issues of power, justice and freedom that existed at the time. This is in stark contrast to what passes as “activism” on college campuses today, which essentially amounts to “pro-censorship” students vigilantly defending an entirely invented and unconstitutional right to “not be offended.” Whereas the 60’s movements, for all their failings, were at least ostensibly about freedom (of the mind and body), today’s college movements are strikingly focused on shackling the mind, and turning campuses in unintellectual, zombie-filled wastelands.

  Of course, while someone like myself might be tempted to just laugh off such infantile and pathetic “activism,” it is in fact one of the most dangerous trends facing modern American society. You’d think that a culture in which the most vibrant source of college protest centered around the defense of a non-existent right to not be offended, would be one where all other issues of national importance had been successfully addressed.

  You’d never know there was an ongoing surveillance state panopticon systematically spying on everyone and trampling their constitutional rights. You’d never know that the U.S. government has special forces in 135 countries as it launches new wars almost every other week. You’d never know that the Federal Reserve, Washington D.C. and Wall Street had colluded to redirect all wealth into the hands of a few oligarchs via a centrally planned, criminally corrupt economic and financial system. You’d never know any of this, because America’s youth are focused on creating safe spaces for their precious feelings.

  So this begs the question. Does intent matter? For all its failings, at least the 60’s protesters actually attempted to confront real issues, and sometimes even paid the highest price for doing so. Today’s college youth are not only not confronting any of the pressing issues of the day, but they aren’t risking anything at all, because they are the establishment.

  For example, in almost all cases where coddled, thin-skinned students claim their feelings are hurt, school administrators bend over backwards to appease them, legality notwithstanding (see: Speechless – UCLA Engages in Absurd, Anti-Intellectual and Dangerous Attack on Campus Free Speech). In fact, if anyone is being discriminated against, it’s those rare and courageous professors who publicly stand up to this unconstitutional nonsense. Which brings me to today’s post about an ongoing incident at Yale.

  As the always excellent Lenore Skenazy explains in her post: Mob of Yale Students Scream Profanities about Halloween Costume Insensitivity:

  A Halloween message signed by 13 college administrators asked Yale students to be sensitive about the costumes they chose, so as not to demean, alienate or “impact” any groups or individuals.

   

  But when the associate Master (faculty head) of one of the dorms on campus, early childhood educator Erika Christakis, wrote her own note to students suggesting that maybe we don’t want the authorities deciding what costume is or is not sensitive enough, you’d think she’d endorsed genocide.

   

  Students, hundreds of them, insisted they  longer felt “safe.” They protested. They screamed. They demanded her ouster,  even though in her letter, Christakis bent over backwards to say that she knows that the costume guidelines came from “a spirit of avoiding hurt and offense.” What’s more:

   

  I laud those goals, in theory, as most of us do. But in practice, I wonder if we should reflect…on the consequences of an institutional (which is to say: bureaucratic and administrative) exercise of implied control over college students.

  …As a former preschool teacher…it is hard for me to give credence to a claim that there is something objectionably “appropriative” about a blonde-haired child’s wanting to be Mulan for a day….

   

  Even if we could agree on how to avoid offense – and I’ll note that no one around campus seems overly concerned about the offense taken by religiously conservative folks to skin-revealing costumes– I wonder, and I am not trying to be provocative: Is there no room anymore for a child or young person to be a little bit obnoxious… a little bit inappropriate or provocative or, yes, offensive?

  Well said, but here’s what happened next…

  Over 700 angry Yalies (my alma mater) signed a petition saying that Christakis’ “offensive” letter “trivializes the harm done by these tropes” (stereotypes) and “invalidated” those hurt.

   

  As the days passed, the outrage mounted, a until a mob surrounded Christakis’ husband, the sociologist/doctor/professor Nicholas. He is seen in this video being screamed at by a student swearing at him and insisting he and his wife step down, because their job is not to create an intellectual space, but a “safe space” for students.

  Watch the video:

   

  Did you hear that? She claimed, in a completely unhinged rant, college “is not about creating an intellectual space.”

  I have a two week year old infant at home, and I’ve yet to see him throw a temper tantrum anywhere in the ballpark of that student’s performance. Which confirms my belief, that my new role as father is the most important job I’ve ever taken on in my life, and one I take very seriously.

  As such I want to leave you with the following question:

  With students being coddled in a fantasy world of “safe spaces” and fear of “micro-aggressions,” can we really expect them to grow up to be adults capable of confronting real issues of money, power and imperial aggression?

  

  

  

  

  

• What Comes Next: 41, 43, …

  Presented with no comment…

   

  

   

  Source: Townhall.com

  

  

  

  

  

• Officials Secretly Added Cancer-Causing Chemicals to City’s Water Supply

  Submitted by Cassius Methyl via TheAnti-Media.org,

  In 2013 and 2014, the City of Sacramento performed a water treatment experiment at the expense of residents of the city “to save money,” according to a local news investigation.

  Area residents were never informed about the toxic chemical contamination of their water that resulted from the experiment. “Cancer, miscarriages, and birth defects” are the consequences of consuming those chemicals, but the extent to which Sacramento residents are likely to experience these symptoms is not yet known.

  City officials allowed the experiment to continue for an entire year — despite knowing early on that very process was creating carcinogens. For how long that contamination will be suspended in the water supply is up in the air.

  Officials experimented on the water with a new added chemical to aid in removing sediment, silt, and other impurities in the water supply: aluminum chlorohydrate (ACH). It was due to replace the chemical known as ALUM that was regularly used to take the larger particles out of river water to treat it. Both chemicals weigh down the sediment to make it easily removable.

  However, the addition of ACH to the city’s water supply wound up being ineffective as a treatment — so an excessive quantity of chlorine was added to the water, as well.

  An astonishing failure, the combination of excess chlorine and aluminum chlorohydrate ended up yielding carcinogenic toxins known as “DBPs” — disinfection byproducts. Specifically, these are in the class of chemicals known as THMs, or Trihalomethanes.

  According to Water Research, THMs are in the same chemical class as chloroform; and, although this water experiment ended about a year ago, the THMs remain in Sacramento’s water supply in levels that exceed EPA regulations. Several readings of THM levels provided to ABC10 exceeded 80 parts per billion, the EPA limit.

  The ABC10 investigation says “data showing dozens of readings in excess of the EPA standard of 80 parts-per-billion during the year-long trial. In the Westlake neighborhood, near Sleep Train Arena, during a two-month period between August and October 2013, 11 of 13 readings were above EPA limits. Then in March of 2014, readings were way up across the city. Some people were drinking water with DBP levels above 130 parts-per-billion.”

  Sacramento’s Utility Director, Bill Busath, told ABC10 the entire issue had to do with saving money: “There was an expectation that we would be able to save quite a bit of money.”

  Bob Bowcock grew up working in the water treatment industry. His description, as reported by ABC10, is telling:

  “This community was basically looked at as a laboratory guinea pig, in that they were exposed to violation level trihalomethanes for up to one year without any proper notification whatsoever […] Every corner you turn, on this particular project, it’s red flag, red flag, red flag. It’s like peeling back an onion. There is just another layer. The closer you get to the center, the stronger the smell.”

  According to an ABC10 news report:

  “Pregnant women and unborn babies, Bowcock said, are especially vulnerable to DBPs. In first trimester pregnancies, there’s a significant rise in miscarriages, and in third trimester there’s evidence of low birth weight,” he said, describing how the DBP-tainted water is even more dangerous when its mists are breathed in while showering or washing dishes.”

  This isn’t the only  water contamination that affects greater Sacramento — Northside residents need to be aware that McClellan Air Force Base is rumored to be the source of contaminated water, as a “chromium plume” of groundwater contamination radiates from out from the base.

  Our water, in other words, is polluted with cancer-causing chromium-6.

  According to a June article from the Sacramento Bee:

  “Water from six of 11 wells in the Rio Linda-Elverta district tested above the state’s maximum contaminant levels for chromium-6 […] Wells closest to the former McClellan Air Force Base have the highest levels of hexavalent chromium, or chromium-6, a known carcinogen […] Exposure to chromium-6 can lead to skin irritation, occupational asthma, and kidney and liver damage, according to the National Institute for Occupational Safety and Health.”

   

  A woman from North Sacramento lamented: “I know [the water] gave me cancer.”

  Rio Linda resident, Anna Marie Tomlinson, hasn’t touched her tap water in years — because she was the fourth person on her block to get cancer. “I drank it every day,” she said.

  How do we allow officials to blindly add chemicals to our water supply? Unfortunately, most of us probably weren’t even aware the first chemical, ALUM, had been added to our drinking water — much less the insane chemical soup that resulted as a byproduct of this reckless experiment.

  

  

  

  

  

• Defense Secretary Suggests Putin Might Nuke America, Says US Will "Defend International Order"

  Defense Secretary Ash Carter is a funny guy. We’re not out to disparage him personally (although we’ll happily disparage Washington’s foreign policy for which he is partially responsible), but he sure does have an uncanny ability to land himself in situations that end up generating amusing photo ops. Here are just two examples from last week: 

  “Show me some love”…
  

  “Just listening to Kenny Loggins in my headphones with my water bottle and yeah, since you asked, that’s my aircraft carrier down there”…

  

  Of course to be fair to Carter, Washington hasn’t exactly put him in a good position. After all, what the US is doing in Syria is deplorable and with the passing of MANPADS and anti-tank missiles to Sunni extremists near Aleppo, the whole “strategy” now borders on the bizarre, especially in light of what happened over the Sinai Peninsula last weekend and also taking into account Washington’s relationship with Siite militias battling ISIS in Iraq. 

  Meanwhile, the situation in the South China Sea is just downright silly, as Washington and Beijing risk starting World War III over 3,000 acres of sand that Beijing piled on top of reefs in the Spratlys. 

  Still, when you’re the face of The Pentagon, you’ve got to champion the narrative and that narrative now revolves around two things, i) a resurgent Russia, and ii) the rise of China. 

  Put simply (and colloquially), more than one US military strategist believes the US and NATO would be “annihilated” in a Balkan battle with the Russians and when it comes to China, well, getting into a maritime dispute in the South Pacific (which is the right way to analyze this by the way, because it’s not like Beijing is going to sail into San Francisco and invade the US mainland) might be a horrible idea:

  

  So, against that backdrop, and with Russia’s dramatic intervention in Syria in mind, Ash gave a keynote speech during the annual Reagan National Defense Forum in southern California, on Saturday. 

  Below, we present the “highlights” as documented by the DoD and the video clip courtesy of AP. Enjoy your Sunday evening US foreign policy briefing and please do note that Carter suggests Putin wants to nuke America:

  “In the face of Russia’s provocations and China’s rise,” Carter said, “we must embrace innovative approaches to protect the United States and strengthen that international order.”

   

  Russia is violating sovereignty in Ukraine and Georgia and is trying to intimidate the Baltic states, and in Syria it is prolonging a civil war, the secretary added.

   

  “At sea, in the air, in space and in cyberspace, Russian actors have engaged in challenging activities,” he told the audience, noting that Moscow’s nuclear saber-rattling raises questions about Russian leaders’ commitment to strategic stability.

   

  “We do not seek to make Russia an enemy,”Carter said. “But make no mistake. The United States will defend our interests, and our allies, the principled international order, and the positive future it affords us all.”

   

  Carter said the United States is modernizing its nuclear arsenal to ensure America’s nuclear deterrent, investing in new unmanned systems, a new long-range bomber, and innovation in technologies like the electromagnetic rail gun, lasers and new systems for electronic warfare, space, cyberspace, and others.

   

  “And we’re accordingly transforming our posture in Europe to be more agile and sustainable,” the secretary said.

  

  

  

  

  

• Are Guns Safer Than Prescription Drugs?

  Submitted by Ryan McMaken via The Mises Institute,

  The DEA released new drug overdose data yesterday. According to the DEA press release:

  DEA Acting Administrator Chuck Rosenberg today announced results from the 2015 National Drug Threat Assessment (NDTA), which found that drug overdose deaths are the leading cause of injury death in the United States, ahead of deaths from motor vehicle accidents and firearms.  In 2013, more than 46,000 people in the United States died from a drug overdose and more than half of those were caused by prescription painkillers and heroin. 

  These are 2013 numbers, so let's compare to other causes of death in the United States, according to the Centers for Disease Control.

  A drug overdose, with a death rate of 13.9 per 100,000, is almost four times as common as a cause of death than gun homicides (3.6 per 100,000). Death from prescription drugs (7.2 per 100,000) is twice as common as gun homicides.

  

   Those are the total numbers. If you prefer your stats in the often used format of x per 100,000, here you go:

  

  Obviously,  homicides aren't exactly a leading cause of death in the US, and gun homicides, even less so. Accidental death by firearms (0.2 per 100,000) is a small blip.

  For all those concerned parents who think little Johnny is likely to get gunned down on the street would be better advised to keep tabs on their prescription painkillers, as Johnny is far more likely to die from popping those than from any gun in your house or in the hands of a school mate.

  And, of course, one is almost three times as likely to die in an auto accident (death rate of 10.7 per 100,000) than as a result of a homicide.

  Moreover, nothing listed here is even in the top ten of causes of death in the US. You're much, much more likely to die from suicide, or "influenza and pneumonia"than anything listed above.

  

  Many people don't fear heart disease like they fear gun violence because they feel they have some control over it, and often judge their risk of an untimely demise by a heart attack to be much lower than it actually is. Simultaneously, they greatly overestimate their chances of dying due to homicide or a gun accident .

  On the other hand, one might raise the argument that homicides are different than the other causes of death here because they are intentional, and they affect innocent third parties. That's fair enough, although this claim does not work for drunk driving which affects third-party innocents. The fact that drunk driving deaths occur through negligence rather than malice (usually) is small comfort to the dead and their families.

  As a noted recently in this Mises Daily article, alcohol poses far more of a public health risk to society than firearms do, and drunk-driving deaths (10,076) are similar in number to gun homicides (11,208). And yet, the response to drunk driving (which results in the deaths of innocents due to the actions of another) is nothing like the response to gun violence. The proper response to drunk driving, we are told, is to target the crime of careless driving, and to focus most especially on those who have been known to use automobiles carelessly. Those who have a history of abuse are barred from engaging in further risky behavior. Everyone else is free to purchase alcohol in enormous amounts, until proven guilty of an alcohol-related crime. 

  The response to gun homicides, on the other hand, is to restrict access to guns for everyone without any due process first.

  If policymakers responded to drunk driving the way they respond to gun violence, we would be forced to endure nationwide bans on fast cars and automobile engines that can exceed speed limits. We would be hearing demands for laws shrinking the overall number of automobiles sold each year. "More cars equal more fatalities! We are awash in cars," we would be told. (We do hear about this for environmentalist reasons, though.)

  But the fact of the matter is that gun violence is simply not a leading cause of death in the US, and those things that are more likely to kill us or our children — such as prescription drugs and alcohol — are approached with caution and demands for a "measured" approach.

  Of course, it may not be purely coincidental that the pharmaceutical industry appears to be wealthier and more influential than the gun lobby.

  

  

  

  

  

• CEO Of World's Largest Shipping Company: "Global Growth Is Worse Than Official Reports"

  Last week we reported that, as measured by its three primary means of transportation, global trade is in nothing short of freefall: to wit – “China Container Freight At Record Low; Rail Traffic Tumbles, Trucking Slows Down.” The slowdown in this most important metric of global growth (or lack thereof), one which unlike asset prices can not be manipulated by central banks through “printing” was confirmed when Maersk, the world’s biggest container shipping company, reported it would cut shore-side headcount by about 4,000, a reduction of about 17%.

  As reader Joe points out, they also declined to execute options for additional 19,000 TEU mega ship new-builds and a couple of smaller 3,600 TEU feeder vessels, and will postpone a decision on building some large 14,000 TEU vessels. He adds that industry analysts have been critical of Maersk’s counter-intuitive expansion over the past few years in a recessionary climate, during which the container carriage capacity that Maersk brought on line is credited with driving ocean transport rates down.

  It is unclear whether Maersk was able to capture additional market share with their larger and likely more efficient mega-ships by driving less efficient operators out of business, or if the recession killed off their competitors. What is certain is that Maersk’s pricing strategy merely accelerated the “deflationary” climate experienced across the globe over the past several years, as companies have rushed to cut prices in an attempt to put competitors (who have survived this far thanks to global ZIRP policies which have pushed debt to unprecedented levels around the globe) out of business.

  What is also clear is that Maersk is not just making it up. In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.“

  Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.“

  Impossible, you say, the IMF would never lie or be overly optimistic in a transparent attempt to boost consumer optimism, and thus spending. Actually, it would.

  As Reuters recently pointed out, “the International Monetary Fund, World Bank and Organization for Economic Cooperation and Development have not just been wrong; for years they have all been wrong in the same direction, persistently forced to revise down predictions that proved too rosy. “There’s an inbuilt ‘optimism bias’,” said Stephen King, senior advisor to HSBC and a former economic adviser at the British treasury. “But facts have to dominate a forecast eventually.”

  It’s worse than that, because after 7 years of screaming “recovery” nobody believes it anymore, and meanwhile for CEOs such as Andersen, the world is on the verge of a global recession.

  The IMF on Oct. 6 lowered its 2015 global gross domestic product forecast to 3.1 percent from 3.3 percent previously, citing a slowdown in emerging markets driven by weak commodity prices. The Washington-based group also cut its 2016 forecast to 3.6 percent from 3.8 percent. But even the revised forecasts may be too optimistic, according to Andersen.

  The punchline: “We conduct a string of our own macro-economic forecasts and we see less growth – particularly in developing nations, but perhaps also in Europe — than other people expect in 2015,” Andersen said. Also for 2016, “we’re a little bit more pessimistic than most forecasters.”

  A little as in 0.2% or as in 2%, which would mean that the world GDP is currently, as we have long claimed, in a recession and not just in dollar terms.

  

  On second thought no need to wait for the answer: as noted above, Maersk’s on Friday reported a 61 percent slump in third-quarter profit as demand for ships to transport goods across the world hardly grew from a year earlier. The low growth rates are proving particularly painful for an industry that’s already struggling with excess capacity.

  Here is the damage, as we showed last Thursday in a chart of China’s containerized freight index. As of the latest data point, it just hit an all time low!

  

   

  Trade from Asia to Europe has so far suffered most as a weaker euro makes it tougher for exporters like China to stay competitive, Andersen said. Still, there are no signs yet that the global economy is heading for a slump similar to one that followed the financial crisis of 2008, he said.

  Still, despite the historic collapse in profit, the Maersk CEO remains optimistic:

  “We’re seeing some distortions amid this redistribution that’s taking place between commodity exporting countries and commodity importing countries,” he said. “But this shouldn’t lead to an outright crisis. At this point in time, there are no grounds for seeing that happening.”

  We are confident that Mr. Andersen will be the first to advice when said distortions do lead to an “outright crisis.”

  

  

  

  

  

• Greece May Open Border Fence With Turkey, Accept Refugees In Exchange For Release Of Bailout Cash

  As part of its third bailout from this summer when the party that was elected on an anti-austerity, “no more debt” platform caved to Europe’s every demand (under the threat of deposit confiscation and bank failure) and promised to unleash even more “austerity”, while raising Greek debt to 200% of GDP over the next few years, Athens was supposed to get its first €2 billion installment of the first €26 billion tranche for discretionary spending purposes sometime around now.

  Unfortunately, it isn’t, if only for the time being, for the simple reason that – surprise – it hasn’t implemented most of the reforms demanded under the terms of the Third bailout agreement.

  According to Reuters reports, the country and its international creditors “remained at odds over the treatment of non-performing loans at Greek banks, a government official said on Sunday, holding up part of the first installment of aid under a multi-billion-euro bailout.” 

  Furthermore, “discussions have stumbled over how to foreclose on non-performing loans at Greek banks. Athens insists resolving the issue should not result in thousands of Greeks at risk of losing their homes.”

  According to Kathimerini, the key issues being discussed over the weekend were the criteria that apply to home repossessions, the rules governing the 100-installment payment plan for unpaid taxes and the coalition’s continuing efforts to find a fiscal measure to replace the 23 percent value-added tax rate on private education, which it agreed in the summer but has since pledged to scrap.

  On the issue of primary residence repossessions, the Greek government is trying to find a formula that would protect at least half of local homeowners, compared to the proposal from the institutions, which would lead to just 20 percent not facing the threat of losing their home if they do not keep up with their mortgage repayments.

   

  The two sides’ positions on the installment scheme, which allows taxpayers who have amassed debts to the state to pay them off in up to 100 tranches, also differ substantially. Greece’s lenders want those who enroll in the scheme to be removed from it if they miss a payment by more than a day, compared to the current 26-day grace period they have been given. Athens is mulling the possibility of gradually reducing the limit from 26 days and linking it to the performance of the country’s economy.

  Greece’s progress in meeting the terms of the bailout is due to be assessed at a meeting of euro zone finance ministers, known as the Eurogroup, on Monday. “There is a distance with lenders on that issue, and I don’t think that we will have an agreement soon,” a government official told Reuters.

  Reuters adds that the Greek Prime Minister Alexis Tsipras and European Commission President Jean-Claude Juncker discussed the bad-loans issue by telephone on Sunday. French President Francois Hollande and German Chancellor Angela Merkel also talked about it by phone, another government official said.

  The problem is that having done what it always does, namely kicked the can since the summer, the creditors are actually demanding credible reform. That may be a challenge: public dissent already stirring over broad terms of the bailout – a nationwide strike has been called for Nov. 12 – the official said Greece would stand its ground.

  “This call is the first step for the issue to be solved at a political level,” the government official told Reuters. “We will use all the time (we have at our disposal) to reach an agreement and discussions might continue on Monday morning if required.”

  Yes, this means that the endless Greek soap opera may be coming back for another season, even though this time it is assured to be an utter and total flop and zero viewership, following this summer’s anticlimatic and farcical conclusion.

  Perhaps realizing that another wave of social unrest and failure to obtain creditor cash may well lead to a violent social upheaval, Tsipras seems to be contemplating a Plan B, one which would see Greece accept thousands of refugees destined for Europe in exchange for getting the earmarked cash without any reform.

  Kathimerini reports that Citizens’ Protection Minister Nikos Toskas suggested that the Greek government would be willing to consider opening a safe passage for refugees through the fence on the Evros border in northeastern Greece if there is an agreement with Turkey, Bulgaria and the European Union.

  

  “We can’t just open everything when there is a danger that everything will close in Europe,” said Toskas in reference to other eastern and central European countries installing fences at their borders. 

  Well, you can… if there is enough incentive, like allowing the government to reneg on most of its promised reforms (avoiding another period of social unrest) and instead getting a few billion in wire transfers in exchange for accepting several thousand Syrian refugees.

  Everyone wins… except the Greek people of course, but they lost long ago.

  

  

  

  

  

• "US Debt Is 3 Times More Than You Think" Warns Former Chief US Accountant

  In a shocking admission for most of mainstream America, the former U.S. comptroller general says the real U.S. debt is closer to about $65 trillion than the oft-cited figure of $18 trillion, thanks to unfunded liabilities which simply cannot be ignored. As The Hill reports, unless economic growth accelerates, he warns, "you’re not going to be able to provide the kind of social safety net that we need in this country," adding unequivocially that Americans have "lost touch with reality" when it comes to spending.

  As The Hill reports,

  Dave Walker, who headed the Government Accountability Office (GAO) under Presidents Bill Clinton and George W. Bush, said when you add up all of the nation’s unfunded liabilities, the national debt is more than three times the number generally advertised.

   

  “If you end up adding to that $18.5 trillion the unfunded civilian and military pensions and retiree healthcare, the additional underfunding for Social Security, the additional underfunding for Medicare, various commitments and contingencies that the federal government has, the real number is about $65 trillion rather than $18 trillion, and it’s growing automatically absent reforms,” Walker told host John Catsimatidis on “The Cats Roundtable” on New York’s AM-970 in an interview airing Sunday.

   

  The former comptroller general, who is in charge of ensuring federal spending is fiscally responsible, said a burgeoning national debt hampers the ability of government to carry out both domestic and foreign policy initiatives.

   

  “If you don’t keep your economy strong, and that means to be able to generate more jobs and opportunities, you’re not going to be strong internationally with regard to foreign policy, you’re not going to be able to invest what you need to invest in national defense and homeland security, and ultimately you’re not going to be able to provide the kind of social safety net that we need in this country,” he said.

   

  He said Americans have “lost touch with reality” when it comes to spending.

   

  Walker called for Democrats and Republicans to put aside partisan politics to come together to fix the problem. 

   

  "You can be a Democrat, you can be a Republican, you can be unaffiliated, you can be whatever you want, but your duty of loyalty needs to be to country rather than to party, and we need to solve some of the large, known, and growing problems that we have,” he said.

  *  *  *

  Of course, that is to say nothing of the other unfunded liability – America's Pension Ponzi, as we detailed previously...

  Just how big of a problem is this you ask? Well, pretty big, according to Moody’s which, as we noted last month, contends that the largest 25 public pensions are underfunded by some $2 trillion. 

  It’s against that backdrop that we present the following graphic and color from Goldman which together demonstrate the amount by which state and local governments would need to raise contributions to "bring plans into balance over time."

  

  From Goldman:

   

   

  Unfunded pension liabilities have grown substantially. There are several factors behind this, led by lower than expected investment returns and insufficient contributions from state and local governments to the plans. The two issues are related. The assumed investment return is used as a discount rate to determine the present value of liabilities. The higher the discount rate, the lower the estimated liability, and the lower the periodic payment into the fund a state or local employer is expected to make. There is, of course, no clear answer about what the discount rate ought to be, though the fact that the average assumption used by private plans has continuously declined for more than a decade suggests that the rates have probably been too high and that the current average assumption of 7.7% may come down further.

   

  Contributions have also generally been lower than necessary to stabilize or reduce unfunded liabilities because of the rules around how those unfunded liabilities are amortized. Payments into pension plans are generally meant to account for the future cost of benefits accrued during the current year, as well as catch-up payments equal to some fraction of the unfunded liability left from prior years. Many plans target payment amounts that would work off this underfunding over 30 years, though some use shorter periods. However, the amounts of these payments are often backloaded, with the result that even if the “required” payment is made in full the unfunded liability often grows.

   

  A separate but related issue is that some states have simply declined to make even the “required” contribution, which is probably lower than it should be in any case due to the factors just noted. For example, over the last few years New Jersey has made on average only around 40% of the expected payment. New accounting rules promulgated by the Government Accounting Standards Board (GASB) will penalize underfunded plans with a lower discount rate, but the change is fairly minor and, in any case, affects only the accounting; it will not impose any new legal requirements to make the contributions.

   

  If state and local governments are ultimately forced to devote more resources to these obligations, the effect on state and local spending would be noticeable. Exhibit 8 shows the states’ pension contributions, as a share of gross state product, with two potential additions. The first is the level that would be required to simply meet the “actuarially required contribution.” To bring the plans back into balance over time, further contributions would be necessary. In aggregate this would raise government pension contributions by something like $100bn per year (0.6% of GDP), lowering spending in other areas (or raising taxes) by a similar amount. In theory, OPEB costs could push this adjustment a bit higher.

  

  

  

  

  

• What Can Yellen Really Do?

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  For one, eurodollar futures are “obliged” to take account of any threats from the FOMC even though, in the end, they might only be self-fulfilling. Because the Fed has very little actual ability to condition money markets, none of that is truly “real” but there remains the unknown and money dealing agents still seem reticent about any kind of (further) showdown. Where the eurodollar curve was shriveled toward nothing up to the September payroll report released on October 2, the October payroll report has advanced the recent run of Yellen’s apparently restored resolve.

  At pivotal points on the curve, such as the June 2018 maturity, that has obliterated the “dollar” run trend that began back around July 6. However, as the fuller curve displays, that seems to be only a change in policy perceptions and not especially much more than that.

  

  Again, the entire curve had been flattening up to October 2 before meandering throughout October while trying to survey that FOMC resolution. The October FOMC seems to have reversed further doubts and pushed expectations back toward a rate hike. However, as the eurodollar curve today demonstrates, that amounts only to a shift in that policy view rather than a complete outlook.

  

  Even in the shorter maturities, the curve is still inside where it was at the eurodollar outbreak of the last “dollar” wave/run. Further out, though, the curve remains much, much flatter. Again, that suggests eurodollar “obligations” about policy decisions and not wanting to contest that fate directly. In terms of economic progression, that flatter curve continues the trend.

  That much we can observe directly via commodities. Copper as of yesterday’s close revisited the lowest closing price since August 26; matching that day’s multi-year low. So far this morning, copper is trading down to $2.241 at the December maturity, which is in the same range as it was on the morning of the global liquidations of August 24.

  

  Crude oil prices continue to be similarly unresolved, trading more so in a conspicuous range both on the front and toward the rear. The shorter end of the WTI curve is, as always, being directed by the “dollar”, or at least perceptions of what that might be. Thus, the lack of discernable trend echoes what was in eurodollar futures. The fact that WTI has continued on much the same sideways line even after the front end of the eurodollar curve succumbed to Yellen madness bolsters the eurodollar case – only a policy shift. The back end of the WTI futures curve continues to be almost pinned in the same very narrow price range, marrying “dollar” with physical economy.

  

  That physical economy according to domestic crude oil continues to be grim and getting more so. Inventories that had started to rise, coincidentally, around the week before August 24 have surged of late. The reported domestic crude oil stocks have neared again their 80-year highs despite production cuts from the summer largely holding. Less production and rising inventory, especially given this time of year, equates to “something” about demand.

  

  With crude stocks moving up solidly despite inventories being still almost one-third above the “cycle” trend from 2009 through 2014, the economics of that behavior suggest the opposite of what the FOMC would like to project.

  

  And that would seem to bridge the eurodollar curve’s front and back ends, aligning it with commodities more generally. In that view, eurodollar futures are suggesting exactly what they have been for almost a year and a half – that the Fed might or might not act, but if they do it won’t alter the economic course but only wield the potential to make a bad (and growing more so) physical and general economy situation that much worse.

  In the end, it may not as much matter except as a test of these kinds of perceptions. The history of FOMC decisions during this “dollar” run dating back to last year has been quite the same; hint with greater magnitude at imminent rate hikes only to relent and recoil at what is wrought (and, really, what is rot underneath).

  

  

  

  

  

• Officials Are "90% Sure" There Was A Bomb On Doomed Russian Passenger Plane

  It’s now been more than a week since a Russian passenger jet plummeted to the Earth at 300 miles per hour in the Sinai Peninsula and to be sure, we’ve made no secret of our suspicions that an explosion was the likely culprit. 

  Of course you needn’t be an Egyptian forensics expert or some kind of flight safety guru to come to the conclusion that a “technical failure” probably wasn’t responsible for the what happened. Sadly, the fact that body parts were littered in an 8 kilometer radius supports the contention that the aircraft did indeed explode and over the course of the last several days, both Washington and London both said that intercepted “chatter” points to ISIS. 

  And then there’s the fact that IS Sinai insists they “destroyed” the plane. 

  On Sunday, we got still more evidence that an explosive device may have been planted on the flight. Reuters, citing sources familiar with the black box investigation, now says officials are “90% sure” that a bomb was responsible. Here’s more: 

  Investigators of the Russian plane crash in Egypt are “90 percent sure” the noise heard in the final second of a cockpit recording was an explosion caused by a bomb, a member of the investigation team told Reuters on Sunday.

   

  His comments reflect a higher degree of certainty about the cause of the crash than the investigation committee has so far declared in public.

   

  Lead investigator Ayman al-Muqaddam announced on Saturday that the plane appeared to have broken up in mid-air while it was being flown on auto-pilot, and that a noise had been heard in the last second of the cockpit recording. But he said it was too soon to draw conclusions about why the plane crashed.

   

  Asked to explain the remaining 10 percent margin of doubt, the investigator declined to elaborate, but Muqaddam cited other possibilities on Saturday including a fuel explosion, metal fatigue in the plane or lithium batteries overheating.

  So, it’s either the metal “expired” (so to speak), some batteries overheated, or the plane was blown up by terrorists. You can draw your own conclusions there. 

  If you, like David Cameron and US intelligence officials, do indeed believe that an “explosive device” was on board, then the next question to ask is how it got there. According to Sharm El Sheikh workers who spoke with WSJ, there’s speculation this was an inside job:

  Airport workers here say they have faced intensive questioning in recent days from Egypt’s internal security agency, a sign the government is now exploring the prospect that airport insiders might have facilitated a terror attack that brought down the Russian plane that crashed last weekend.

   

  The workers say officials from Egypt’s Ministry of Interior, the internal security agency, have questioned them about their actions and whereabouts on Oct. 31, the day the plane crashed in the Sinai Peninsula, killing all 224 people on board.

   

  At the same time, Egypt’s military has assigned guards for airplanes staying overnight on the tarmac of Sharm El Sheikh International Airport, according to workers, as international carriers resumed flights this weekend to ferry stranded vacationers back home.

   

  “Normally, policemen are not allowed on the tarmac,” said a person familiar with the security arrangements. “Recently, they’re being asked to spend nights beneath jets.”

   

  In the Egyptian civil aviation ministry’s first public briefing since last weekend’s crash, agency chief Ayman Al Moqadem confirmed that there had been a mysterious sound heard on the final second of the cockpit recorder, but shed no light on what the pilots discussed during the 23 minutes after takeoff and before Metrojet Flight 9268 went silent.

  To be sure, none of this is particularly surprising given everything we’ve learned over the past several days and at a certain point, one has to ask how many officials need to come out and confirm that this was indeed a bomb before someone finally delivers definitive proof, but regardless of whether the story is starting to get repetitive, it still has far-reaching implications – and not just for Russia’s campaign against Islamic extremists. Here’s Bloomberg: 

  “If this turns out to be a device planted by an ISIL operative or by somebody inspired by ISIL, then clearly we will have to look again at the level of security we expect to see in airports in areas where ISIL is active,” U.K. Foreign Secretary Philip Hammond told BBC Television’s Andrew Marr show on Sunday.

   

  Emirates airline, ranked world No. 1 by international traffic, is already looking at its security procedures in anticipation of tighter rules, President Tim Clark told reporters in Dubai on Sunday.

   

  “As we speak, we’re reviewing our procedures in terms of security and ramp handling and access to our aircraft,” Clark said. “We have 22 cities in Africa, multiple cities in west Asia — India, Pakistan, et cetera — all of these will have to be reviewed to make sure we’re as safe as we can be.”

   

  Britain banned commercial flights to and from Sharm el-Sheikh on the Red Sea in the wake of the crash, leaving thousands of vacationers stranded. Other countries, including Russia, followed and travel warnings ensued with Norway, Finland and Denmark all advising against all non-essential trips. Hammond said those trying to get home on unscheduled flights face delays of two to three days at most.

   

  Egypt’s benchmark EGX 30 Index of stocks slumped 2.6 percent at the close in Cairo, the most in two months.

  In short, this is likely to cause a global rethink of airline security and importantly, this is a veritable disaster for an Egyptian tourism industry which was still stinging from a September “incident” that saw the military accidentally engage a group of Mexicans having a barbecue after mistaking them for ISIS. 

  It will be interesting to watch the Egyptian economy over next six or so months because frankly, the above suggests Cairo could be in for a bumpy ride. 

  Finally, note that the al-Sisi government recently signed new legislation widening Cairo’s surveillance authority and the President isn’t exactly known for having a sterling record on human rights (he’s a Mubarak disciple after all). If this ends up hobbling the economy, expect al-Sisi to crack down, setting the stage for more of the same in terms of social unrest, coups, and counter-coups. 

  

  

  

  

  

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• "A Thin-Skinned Minority Is Ruining This Nation": Professor Crushes "Political Correctness" Wave Sweeping America

  In a time where college students are offended by pretty much everything, The Federalist Papers reports that one professor at UNC-Wilmington decided to cut through the rhetoric and let his students know that they aren’t the special snowflakes liberals and their parents would have them believe.

  His epic class introduction has gone viral, and for good reason: this is the most common sense lecture to come out of any college in a long time.

  Welcome back to class, students! I am Mike Adams your criminology professor here at UNC-Wilmington. Before we get started with the course I need to address an issue that is causing problems here at UNCW and in higher education all across the country. I am talking about the growing minority of students who believe they have a right to be free from being offended. If we don’t reverse this dangerous trend in our society there will soon be a majority of young people who will need to walk around in plastic bubble suits to protect them in the event that they come into contact with a dissenting viewpoint. That mentality is unworthy of an American. It’s hardly worthy of a Frenchman.

   

  Let’s get something straight right now. You have no right to be unoffended. You have a right to be offended with regularity. It is the price you pay for living in a free society. If you don’t understand that you are confused and dangerously so. In part, I blame your high school teachers for failing to teach you basic civics before you got your diploma. Most of you went to the public high schools, which are a disaster. Don’t tell me that offended you. I went to a public high school.

   

  Of course, your high school might not be the problem. It is entirely possible that the main reason why so many of you are confused about free speech is that piece of paper hanging on the wall right over there. Please turn your attention to that ridiculous document that is framed and hanging by the door. In fact, take a few minutes to read it before you leave class today. It is our campus speech code. It specifically says that there is a requirement that everyone must only engage in discourse that is “respectful.” That assertion is as ludicrous as it is illegal. I plan to have that thing ripped down from every classroom on campus before I retire.

   

  One of my grandfathers served in World War I. My step-grandfather served in World War II. My sixth great grandfather enlisted in the American Revolution when he was only thirteen. These great men did not fight so we could simply relinquish our rights to the enemy within our borders. That enemy is the Marxists who run our public universities. If you are a Marxist and I just offended you, well, that’s tough. I guess they don’t make communists like they used to.

   

  Unbelievably, a student once complained to the Department chairwoman that my mention of God and a Creator was a violation of Separation of Church and State. Let me be as clear as I possibly can: If any of you actually think that my decision to paraphrase the Declaration of Independence in the course syllabus is unconstitutional then you suffer from severe intellectual hernia.

   

  Indeed, it takes hard work to become stupid enough to think the Declaration of Independence is unconstitutional. If you agree with the student who made that complaint then you are probably just an anti-religious zealot. Therefore, I am going to ask you to do exactly three things and do them in the exact order that I specify.

   

  First, get out of my class. You can fill out the drop slip over at James Hall. Just tell them you don’t believe in true diversity and you want to be surrounded by people who agree with your twisted interpretation of the Constitution simply because they are the kind of people who will protect you from having your beliefs challenged or your feelings hurt.

   

  Second, withdraw from the university. If you find that you are actually relieved because you will no longer be in a class where your beliefs might be challenged then you aren’t ready for college. Go get a job building houses so you can work with some illegal aliens who will help you gain a better appreciation of what this country has to offer.

   

  Finally, if this doesn’t work then I would simply ask you to get the hell out of the country. The ever-growing thinned-skinned minority you have joined is simply ruining life in this once-great nation. Please move to some place like Cuba where you can enjoy the company of communists and get excellent health care. Just hop on a leaky boat and start paddling your way towards utopia. You will not be missed.

  *  *  *

  Professor Adams – having tenure – is more open to attack the ongoing Cultural Marxism that is sweeping across the nation. But, as we previously noted, there are very few legitimate cultural divisions in the world. Most of them are arbitrarily created, not only by political and financial elites, but also by the useful idiots and mindless acolytes infesting the sullied halls of academia.

  It is perhaps no mistake that cultural Marxists in the form of "social justice warriors", PC busybodies and feminists tend to create artificial divisions between people and “classes” while attacking and homogenizing very real and natural divisions between individuals based on biological reality and inherent genetic and psychological ability.

  This is what cultural Marxists do: divide and conquer or homogenize and conquer, whatever the situation happens to call for.

  They do this most commonly by designated arbitrary "victim status" to various classes, thus dividing them from each other based on how "oppressed" they supposedly are.  The less statistically prominent a particular group is (less represented in a job field, media, education, population, etc.) in any western society based on their color, ethnicity, sexual orientation, gender, etc., generally the more victim group status is afforded to them by social justice gatekeepers.  Whites and males (straight males) are of course far at the bottom of their list of people who have reason to complain and we are repeatedly targeted by SJW organizations and web mobs as purveyors of some absurd theory called "the patriarchy".

  Although cultural marxism does indeed target every individual and harm every individual in the long run, my list of personal solutions outlined in this article will be directed in large part at the categories of people most attacked by the social justice cult today.

  …

  It is not enough anymore to simply continue pointing out the insanity of political correctness; we must also take useful steps toward reversing the destruction already wrought.

  And so, here are my solutions, which must be enacted by individuals in their daily lives regardless of the potential backlash. Do you have leftist leaning friends or family members? It doesn’t matter. Are you employed in a workplace crawling with social justice ideologues? Stop seeing them as part of the equation because they do not matter. Worried about losing a relationship if you make a stand? Say good riddance. This is what must be done by free thinkers if they are to counter and reverse the collectivist nightmare of cultural Marxism.

  Feel no shame: Social justice relies on shaming tactics, usually by slandering an opponent with a label that does not really apply to him, in order to control his arguments and behavior. If you don’t care about being called a bigot, a racist, a sexist, a misogynist, a homophobe, etc., then there is not really much that they can do to you.

   

  Do not self-censor: This does not mean you should go out of your way to be antagonistic or act like an ass, but the thought police have power only if you give power to them. Say what you want to say when you want to say it, and do it with a smile. Let the PC police froth and scream until they have an aneurism. Cultural Marxists are generally weaklings. They avoid physical confrontation like they avoid logic, so why fear them?

   

  Realize there is no such thing as white privilege or male privilege: In reality, there is only institutionalized “privilege” for victim-status groups. There is no privilege for whites, males, white males or straight white males. When confronted with such claims, demand to see proof of such privilege. Invariably, you will get a long list of first world problems and complaints backed by nothing but easily debunked talking points and misrepresented statistics. People should not feel guilty for being born the way they are, and this includes us “white male devils.”

   

  Demand facts to back claims: Cultural Marxists tend to argue on the basis of opinion rather than fact. Present facts to counter their claims, and demand facts and evidence in return. Opinions are irrelevant if the person is not willing to present supporting facts when asked.

   

  Do not play the game of "unconscious bias": If social justice cultists can't counter your position with facts or logic, they will invariably turn to the old standby that you are limited in your insight because you have not lived in the shoes of a – (insert victim group here).  I agree.  In fact, I would point out that this reality of limited perception also applies to THEM as well.  They have not lived in my shoes, therefore they are in no position to claim I enjoy "privilege" while they do not.  This is why facts and evidence are so important, and why anecdotal evidence and personal feelings are irrelevant where cultural Marxism is concerned.

   

  Let cultural Marxists know their fears and feelings do not matter: No one is entitled to have teir feelings addressed by others. And, a person’s fears are ultimately unimportant. Whether the issue is the nonexistent “rape culture” or the contempt cultural Marxists feel over private gun ownership, their irrational fears are not our concern. Why should any individual relinquish his liberties in the name of placating frightened nobodies?

   

  Demand that society respect your inherent individual rights: Collectivism’s ultimate propaganda message is that there is no such thing as inherent rights or liberties and that all rights are arbitrary and subject to the whims of the group or the state. This is false. I have written extensively in the past on inherent rights, inborn psychological contents and natural law, referencing diverse luminaries, scientists and thinkers, including Thomas Aquinas, Carl Gustave Jung, Steven Pinker, etc., and I welcome readers to study my many articles on individualism.  Freedom is an inborn conception with universally understood aspects. Period. No group or collective is more important than individual liberty. No artificial society has preeminence over the individuals within that society. As long as a person is not directly impeding the life, liberty, prosperity and privacy of another person, he should be left alone.

   

  Maintain your rights; they do not hurt other people: PC cultists will invariably argue that every person, whether he knows it or not, is indirectly harming others with his attitude, his beliefs, his refusal to associate, even his very breathing.  "We live in a society", they say, "and everything we do affects everyone else…".  Don’t take such accusations seriously; these people do not understand how freedom works.

   

  Say, for instance, hypothetically, that I refuse to bake a gay wedding cake for a couple and I am accused of violating their rights in the name of preserving my own. I would immediately point out that no one is entitled to a gay wedding cake, baked by me or anyone else and I have every right to choose my associations based on whatever criteria I see fit. Now, a corrupt government entity may claim I do not have that right. But the fact is I do, and no one — not even government — can force me to bake a cake if I don’t want to. Also, I would point out that the gay couple in question has every right in a free society to bake their OWN damn cake or open their own cake shop to compete with mine. This is how freedom works. It is not based on collective entitlement; it is based on personal responsibility.

   

  Refuse to deny the scientific fact of biological gender: Gender is first and foremost a genetic imperative. Society does not determine gender roles; nature does. A man who chops up his body and takes hormone pills to look like a woman is not and will never be a woman. A woman who tapes down her breasts and gets a short haircut will never be a man. There is no such thing as “transgendered” people. No amount of social justice or wishful thinking will ever allow them to reverse their genetic proclivities. Their psychological and sexual leanings do not change their inborn biological reality.

   

  By extension, we should refuse to play along with this nonsense. I will never refer to a man in a wig and dress as a “woman.” I will never refer to a woman with identity issues as “transgendered.” They are what nature made them, and we should not police our pronouns just to falsely reassure them that they can deny nature.

   

  Deny the illusion of Utopian equality: There is no such thing as pure equality.  Society is not a homogeneous entity, it is an abstraction built around a group of unique individuals.  Individuals can be naturally gifted, or naturally challenged.  But there will always be some people who are more apt towards success than others.

   

  I have no problem whatsoever with the idea of equality of opportunity, which is exactly what we have in this country (except in the world of elitist finance which is purely driven by nepotism).  I do have a problem with the lie of universal equality through engineered means.

   

  Standards of success should not be lowered in order to accommodate the least skilled people to facilitate artificial parity.  For example, I constantly hear the argument that more people with victim group status should be given greater representation in positions of influence and regard within our culture, from science and engineering, to media, to business CEO's, to politics, etc.  The key word here is "given", rather than "earned".  There is nothing wrong with one group of people excelling in a field more than another group, and there is nothing wrong with inequality when it comes to individual achievement.  We must begin refusing to reward people for mediocrity and punishing success simply because the winners are not part of a designated victim group.

   

  If you are a man, embrace your role: I am a man and cannot claim to know what specific solutions women should take to counter cultural Marxism. I would love to read an article written on the subject by a woman in the Liberty Movement.  I will say that men in particular have a considerable task ahead in terms of their personal endeavors if they hope to repair the destruction of social justice.

   

  For thousands of years, men have been the primary industrial force behind human progress. Today, they are relegated to cubicles and customer service, to video games and Web fantasies, to drug addictions and a lack of responsibility. If we have any chance of undoing the damage of cultural Marxism, modern men must take on their original roles as producers, inventors, entrepreneurs, protectors, builders and warriors once again. They should do this for their own benefit, and not for the validation of others.

   

  You don’t have to prove to anyone you do "manly things", just go out and do them. Most importantly, become dangerous. Men are meant to be dangerous beings. That does not mean we are meant to be indiscriminately violent (just as women aren’t meant to be indiscriminately violent), but we are supposed to be threatening to those who would threaten us. Modern society has NOT removed the need for masculinity and I believe people will begin realizing this the more our culture sinks into economic despair. Train in martial arts, learn tactical firearms handling, go hunting and don’t take lip from people. In my opinion, every man should know how to kill things, even if he never plans on using those abilities.

   

  Home-school your children: It’s simple, if you don’t want your kids propagandized, if you truly want them to be free from collectivist conditioning, then you will make the sacrifice and extract them from public schooling. With the introduction of Common Core into U.S. schools in particular, there is no other recourse but home schooling to prevent the brainwashing of cultural Marxism. If you do not do this, you are relying on the hope that your children will escape with their critical thinking abilities intact. Some do, and some don’t. Others turn into mindless social justice zombies. You can give them an advantage by removing them from a poisonous environment, and that is what matters.

  The insane lie that cultural Marxists seem to have conned themselves and others into believing is that their “activism” is somehow anti-establishment. In fact, social justice is constantly coddled and supported by the establishment. From politicians to judges to media pundits to the blogosphere, the overwhelming majority of people in positions of traditional power (even in supposedly conservative circles) have been more than happy to become the enforcers of the social justice warrior agenda, an agenda representing a minuscule portion of the public. There is no establishment for the PC army to fight; the establishment bias works vastly more in favor of their ideology than any other. Cultural Marxists ARE the establishment.

  *  *  *

  Finally, still having trouble with 'Social Justice Warriors'? Who ya gonna call?

  

   

  Source: Ben Garrison

  

  

  

  

  

• A Descent Into The Tunnels Deep Under New York City

  At first glance, what happens hundreds of feet below the streets of Manhattan has very little to do with finance, until one considers the depressed costs of housing along the warzone that has been the 2nd Avenue Subway line for the past five years, or the millions wasted each day due to traffic gridlock along construction zones, or the billions in overtime pay which unionized labor makes sure it gets paid by doing nothing most of the day and then working for a few hours at night.

  The last is acutely relevant right now, because as we explained earlier, suddenly the fate of the December rate hike is in the hands of America’s 6.4 million construction workers, tens of thousands of whom dig the countless tunnels deep under Manhattan.

  Courtesy of Reuters, here is a glimpse of what is taking place right now deep under New York, and a snapshot of the people whose paycheck will determine whether Janet Yellen hikes rates by 25 bps next month.

  The following photos show so-called “sandhogs” working in various tunnels in the East Side Access project, more than 15 stories beneath Midtown Manhattan where workers are building a new terminal for the Long Island Railroad, the United States’ busiest commuter rail system, as seen during a media tour of the site in New York, November 4, 2015.

  Two enormous caverns, each several city blocks long, will house eight tracks and platforms, serving an estimated 162,000 customers a day, officials from the Metropolitan Transportation Authority said during a tour of the planned station on Wednesday. REUTERS/Mike Segar.

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  Source: Reuters, Mike Segar

  

  

  

  

• Legendary US Army Commander Says Russia Would "Annihilate" US In Head-To-Head Battle

  Late in September, we brought you “US Readies Battle Plans For Baltic War With Russia” in which we described a series of thought experiments undertaken by The Pentagon in an effort to determine what the likely outcome would be should something go horribly “wrong” on the way to landing the US in a shooting war with Russia in the Balkans. 

  The results of those thought experiments were not encouraging. As a reminder, here’s how Foreign Policy summed up the exercises:

  In June 2014, a month after he had left his force-planning job at the Pentagon, the Air Force asked David Ochmanek – deputy assistant secretary of defense for force development – for advice on Russia’s neighborhood ahead of Obama’s September visit to Tallinn, Estonia. At the same time, the Army had approached another of Ochmanek’s colleagues at Rand, and the two teamed up to run a thought exercise called a “table top,” a sort of war game between two teams: the red team (Russia) and the blue team (NATO). The scenario was similar to the one that played out in Crimea and eastern Ukraine: increasing Russian political pressure on Estonia and Latvia (two NATO countries that share borders with Russia and have sizable Russian-speaking minorities), followed by the appearance of provocateurs, demonstrations, and the seizure of government buildings. “Our question was: Would NATO be able to defend those countries?” Ochmanek recalls.

   

  The results were dispiriting. Given the recent reductions in the defense budgets of NATO member countries and American pullback from the region, Ochmanek says the blue team was outnumbered 2-to-1 in terms of manpower, even if all the U.S. and NATO troops stationed in Europe were dispatched to the Baltics — including the 82nd Airborne, which is supposed to be ready to go on 24 hours’ notice and is based at Fort Bragg, North Carolina.

  To be sure, the fact that this is even under consideration is somewhat surreal. Sure, no one took Hillary Clinton serioulsy when she presented Sergei Lavrov with the now infamous “reset” button (which actually didn’t say “reset” because thanks to a “typo” the prop said “peregruzka” which means “overcharged”), but with a Nobel Peace Price-winning President in The White House, no one expected things to deterirotate to the point that NATO was seriously contemplating a war with the Russians. 

  

  Nevertheless, Moscow’s intervention in Syria has the West concerned that for the first time in nearly thirty years, The Kremlin doesn’t fear a direct confrontation. 

  The problem for The Pentagon isn’t so much that the US has fallen behind in terms of spending money on expensive war toys (i.e. we don’t necessarily doubt that Washington has the best technology).Rather, the US seems to have fallen behind in terms of its ability to fight a conventional war against a formidable foe, presumably because there really haven’t been any formidable foes in decades. 

  Well now, it seems entirely possible that the US may have to fight a conventional war against the Russians (and possibly the Iraninans) and that means you can no longer depend on the fact that on a warrior-for-warrior basis, a handful of SEAL Team Six members can pull off battlefield miracles, because no matter how elite your spec ops are, you can’t pit twelve guys against four thousand and expect them to win. 

  It’s with all of this in mind that Washington is beginning to assess whether the US could hold its ground against Russia in a conventional standoff. According to retired Army Colonel Douglas Macgregor, American forces would get “annihilated.” Here’s more, via Politico: 

  For those villagers eagerly snapping pictures on the side of a road in the Czech Republic in late September, the appearance of the line of U.S. “Stryker” armored fighting vehicles must have seemed more like a parade than a large-scale military operation. The movement of some 500-plus soldiers of the 2nd Cavalry Regiment from Vilsack in Bavaria to a Hungarian military base was intended to strengthen U.S. ties with the Czech, Slovak and Hungarian militaries and put Russia’s Vladimir Putin on notice. 

   

  But not everyone is convinced. “This Stryker parade won’t fool anyone in Moscow,” says retired Army Colonel Douglas Macgregor. “The Russians don’t do many things well, but they have been subverting, destabilizing, invading and conquering their neighbors since Peter the Great. And what’s our response: a small unit of light armored trucks.”

   

   Viewed by many of his colleagues as one of the most innovative Army officers of his generation, Macgregor, a West Point graduate with a Ph.D. in international relations (“he can be pretty gruff,” a fellow West Point graduate says, “but he’s brilliant”), led the 2nd Cav’s “Cougar Squadron” in the best-known battle of Operation Desert Storm in February 1991. In 23 minutes, Macgregor’s force destroyed an entire Iraqi Armored Brigade (including nearly 70 Iraqi armored vehicles), while suffering a single American casualty. Speaking at a military “lessons learned” conference one year later, Air Force General Jack Welsh described the Battle of 73 Easting (named for a map coordinate) as “a stunning, overwhelming victory.”

   

  In the wake of the battle, however, Macgregor calculated that if his unit had fought a highly trained and better armed enemy, like the Russians, the outcome would have been different.

   

   In early September he circulated a PowerPoint presentation showing that in a head-to-head confrontation pitting the equivalent of a U.S. armored division against a likely Russian adversary, the U.S. division would be defeated.

   

  “Defeated isn’t the right word,” Macgregor told me last week. “The right word is annihilated.” The 21-slide presentation features four battle scenarios, all of them against a Russian adversary in the Baltics — what one currently serving war planner on the Joint Chiefs staff calls “the most likely warfighting scenario we will face outside of the Middle East.”

   

  “Macgregor scares the hell out of the Army,” says a senior Joint Chiefs war planner. “What he has proposed is nothing less than the dismantling of the Big Green Machine, getting the Army to embrace a future of lighter, more agile forces than the big lumbering behemoth which takes forever to spool up and deploy. I’ll bet the armor and airborne guys are furious. Reform my ass: Macgregor has walked into the zoo and slapped the gorilla.”

  Yeah well, the US has already “walked into the zoo” and slapped the Russian grizzly bear. It sounds to us like Macregror may have a battle plan that actually isn’t a joke, which means it will be promptly dismissed by The Pentagon. 

  After all, it’s all about covert ops these days. And that’s working so well for Washington in the Mid-East. Why fix something that isn’t broken right?…

  Read the full Politico story here

  

  

  

  

  

• Why The Stock Buyback Spree Is Ending

  “Sluggish activity will spur firms to repurchase shares in an effort to boost EPS growth”

        – Goldman Sachs

  Back in April 2012, we predicted that the Fed’s “visible hand hand is forcing corporate cash mismanagement”, stating explicitly that the Fed’s ZIRP and QE, “is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road.”

  It is now three years later, and according to the latest Factset snapshot, revenue growth in Q3 is set to decline 3.7% from a year ago a quarter where corporate earnings are poised for their first recession since 2009. As we predicted, companies not only did not invest sufficiently in capex, R&D and other forms of organic, and thus revenue growth, but instead unleashed the biggest shareholder-friendly tsunami in history, with record buybacks, M&A, and dividends in the years following.

  Sure enough, as can be seen in the chart below, after spending 55% of total cash proceeds on organic growth in 2009 (capex and R&D), since then shareholder-friendly strategies have taken over again, and Goldman now expects that organic growth will account for only 40% of total cash spend, with Buybacks, Dividends and Cash Acquisitions accounting for 60% of total use of cash proceeds.

  

  Furthermore, according to the latest forecast by Goldman’s David Kostin, this surge in buybacks will continue for the simple reason that with Capex spending set for its first decline since 2009 (mostly due to the commodity crunch forcing countless energy companies to put capital expansion on indefinite hiatus), investors will have nothing else to reward, so may as well forego even more future revenue growth and demand an immediate cash out right here, right now.

  

  From Goldman:

  Managements will remain committed to returning cash S&P 500 firms will return more than $1 trillion to shareholders in 2016 with buybacks and dividends each growing by 7%. We expect high cash return strategies to outperform given modest GDP growth, low rates, and slim equity returns. A similar macro environment in 2015 rewarded stocks with high cash returns to shareholders while firms investing in capex lagged.

  

  Ah, the efficient “market”: rewarding companies that instead of investing in the future, and growth, promptly cash out and engage in a slow-motion (ideally debt-funded) LBO. For those confused why sales are down 3.7% in Q3 and set to tumble in the years ago, there is your answer.

  Goldman continues:

  Share repurchases will exceed $600 billion (+7%) in a low growth, low return market. Our economists expect modest US GDP growth of 2.4% in 2016. Sluggish activity will spur firms to repurchase shares in an effort to boost EPS growth. We expect S&P 500 will deliver a 3% total return in 2016.

  Here is Goldman confirming what we predicted would happen all the way back in April 2012:

  During the recent zero interest rate regime, investors rewarded firms returning cash to shareholders via dividends and buybacks over those investing for growth via capex and R&D. The effects of a slow recovery in aggregate demand suggested that the returns from investing in physical assets (capex) were unlikely to generate outsized profits. With few productive capex opportunities, many firms prioritized returning cash to shareholders and these stocks outperformed.

  And that’s why revenues are sliding, earnings are now officially in a recession, and millions more layoffs are coming regardless of the BLS’ endless data fabrication as companies do everything in their power to keep margins as high as possible to offset the topline contraction.

  And while Goldman admits that during periods of rising yields, the stocks of companies that invest in CapEx and R&D outperform the “buybackers”, it also says that this time it’s different.

  However, we expect stocks with high total cash returns will outperform in 2016 despite the bear flattening yield curve environment. Although the Fed will be tightening, interest rates will remain low on a historical basis. The muted pace of economic expansion in the US, the uncertain prospects for global growth, and a low expected S&P 500 return, will leave investors searching for yield.

  So buy stocks the buy their own stock. Got it. Only…. any time Goldman tells its client to do something, the opposite usually happens. Could that be the case again?

  Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back.

  Corporate leverage continues to push higher. In Figure 3 we present the debt-to- EBITDA ratio for the average non-fin in the IG and HY markets. We see that in IG leverage rose from 1.8x to 2.1x over the past twelve months, and in HY it rose from 4x to 4.4x (Figure 3). Note that in both markets, at current levels gross leverage for our sample set is well north of the ‘09 highs. Unfortunately, we see little chance that it will decline in the near-term, or even stabilize for that matter, as the earnings backdrop appears to be too soft.

   

  

   

  The 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general. As Citi’s Equity Strategists highlighted in March, companies that spent more on shareholder handouts and less on investments have tended to get higher price/earnings ratios in the market.

  But not for much longer, because if the Fed does indeed launch a tightening cycle, it means game over for the one trade that has worked the best in the past 3-4 years. Which also explains why Goldman is now aggressively pushing clients to buy companies that are the most notorious “Total Cash Returners” – because Goldman’s prop desk has a lot of these to sell, as Citi also admits: “In sum, we feel strongly that the pace of buybacks will ebb.“

  

  

  

  

  

• The Politics of Dystopia Redux

  Submitted by Erico Matias Taveras via Sinclair & Co.,

  Dystopia: a community or society that is undesirable or frightening.

  Nouriel Roubini recently penned an article titled “Europe’s Politics of Dystopia”, citing the rise of nationalistic movements across Europe as a harbinger of terrible things to come. It seems that the renowned Dr. Doom – one of the few economists to have anticipated the 2008 financial crisis – is back in the limelight with some more dire warnings.

  Ah, but this time he’s late. In case you have been hibernating, the European Union (EU) is already in a complete state of disarray. Everywhere you look – economy, politics, security, society, demographics – there are very serious problems with no credible solution in sight.

  This does not bode well for the future of the EU, starting with those who will be living in it.

  Out of the top-10 OECD countries with the highest youth unemployment rate, 8 are EU member states, each with high double digit figures. Politicians might still blame the Eurozone financial crisis for this dire situation, but this is nothing new: the economic growth rates of member states have been very poor for over a decade now. The fact is that the EU has consistently failed to promote policies that can provide decent employment opportunities to its youngest citizens.

  That first step in the job ladder is hugely important for the future prospects of any generation. This one is particularly important since their contribution is badly needed to pay for their elders’ welfare, as well as all the fiscal largesse to “stimulate the economy” facilitated by the ECB’s monetization of unprecedented levels of debt. Some of that stimulus found its way into the housing market. Good for the economy you say, but terrible if you need to find cheap housing to start a life.

  One consequence for this generation is easy to predict: no job + expensive housing = put off starting a family.

  Europe’s demographics is a complicated issue, but the current situation is alarming. Less babies means less people to pay for Europe’s generous welfare and retirement systems. Instead of addressing these problems head on, EU politicians prefer to let them fester. Populism trumps everything. After being elected President of France, François Hollande even lowered the retirement age!

  Europeans are so desperate for new blood that they will take in virtually anybody, showering them with social benefits while demanding little integration into their societies in return. The result is growing pockets of alienated minorities, portraying a disintegrating social fabric especially in the richest member states. Sweden is an interesting case study in this regard. For decades it has been the most welcoming country in the world for refugees, but the failure to properly integrate them is evident in rampant crime and declining social performance statistics.

  Sweden also showcases the current vigor of the EU’s diplomatic relations – or lack thereof. Earlier this year, Swedish foreign minister Margot Wallstrom dared to criticize Saudi Arabia for its appalling human rights record. A sensible and courageous position you might say, but one which got her into hot water with her own peers back home, no doubt reflecting pressure from the Saudis. Even the Swedish king, largely just a political figurehead, chastised her for such conduct. It turns out that one bright spot of European industry is the burgeoning arms sales to such repressive regimes (perhaps because there’s no need to fake emissions?). That they might actually end up in the hands of extremists is of no concern.

  And now the EU is facing yet another gigantic crisis, unable to stop the flow of millions of migrants pouring in. There had been plenty of forewarning that something big was brewing, even by Europe’s laxist immigration standards. But once again EU leaders were caught totally on the back foot. The response was completely disjointed as a result, creating even more discord among member states.

  Witnessing this situation, Chancellor Angela Merkel publicly announced a few months ago that Germany would take them all in. Whether this was to polish her image after the economic disaster that her government imposed on the Greeks, reverse the ageing demographics at home or just atonement for her country's past, we can't say. What we do know is that estimates of the number of migrants into Germany this year alone quickly snowballed from 400,000 to 800,000 to 1.5 million. The latest report suggests that 14 million could settle between now and 2020, in which case German society will be irreversibly impacted, perhaps even sooner than that.

  According to official statistics, only 1 in 5 migrants arriving in Germany in 2015 are actually from Syria. So contrary to popular belief the majority of migrants are not refugees; rather, they are young men seeking a better life. And why wouldn't they come, when Merkel is doling out her fellow taxpayers' money? Whether they will find a job is a different matter, as the foreign worker unemployment rate is already much higher than that of the natives.

  The cost for Germany to deal with all of this is enormous, with estimates suggesting that over the next twenty years it could easily rival the also enormous reunification cost with East Germany. And it’s the childless Germans who will foot the bill.

  Facing criticism and divisive tensions seldom seen at home, Merkel had to act. First she tried to ‎spread these migrants all over Europe, claiming that this was the “fair thing” to do. Several countries refused. Then she went to Turkey to negotiate a deal to stop the influx at the source. Sensing weakness and in no mood to deal with Europe's migration problems, President Erdogan promptly demanded a hefty sum of cash to think about it and a fast track to join the EU (even the new Islamist government in Libya is now threatening to flood Europe with migrants, so this crisis has become a great way to hold the EU hostage – thanks to the EU itself).

  The latest plan is to provide welfare benefits only to Syrian refugees, speed up processing times and tighten some border controls here and there. What to do with the hundreds of thousands of other migrants with “weak cases” was not disclosed. We speculate that they will not return home after all they went through, and as such might be condemned to a life in limbo. This pussy footing will also not stop the millions of others already on their way.

  The security risks are staggering. Rather than protecting its borders, allowing Germany to eventually regain control of the situation and provide adequate care to those who are already there, Merkel prefers to risk the social fabric and the safety of her fellow citizens. Think about what a million plus of unemployed and alienated young men can do roaming around the country.

  And why can’t she do it? Because she fears those same “politics of dystopia” proposed by Roubini. Each member state reinstating its borders is an intolerable step back in her quest to abolish their national identities. In her mind the solution to every EU problem is more EU, and for sure much less Germany, France, UK and whomever else.

  Perhaps this could make sense if member state nationalism was replaced by a powerful new sense of European identity. But who wants to embrace the basket case that the EU has become? With some of the least charismatic world leaders to boot? Even its own currency is flawed, promoting deep structural imbalances among member states. [even its own currency is flawed!!!]

  Worse, getting rid of nationalism makes the EU vulnerable to being taken over by other ideologies. Perhaps the most menacing to Europe right now is the rise of political Islam. Any Islamo-phobe will tell you that the demographics are on their side, especially once all these new migrants settle in. ‎It would be ironic that the most liberal continent on the planet might end up adopting the least liberal religion in the coming decades.

  With all of this unfolding, it is natural for the EU’s allies and trading partners to be apprehensive about the prospects of it staying together. The US has even warned the UK of dire commercial consequences if it votes itself out in the forthcoming referendum. Well, forcing someone to stay against their democratic will is not a great solution either. Not that the voice of the people across member states matters in Brussels anyway.

  Now, we don’t highlight all of this because we like to see Europe in the dumpster. Quite the opposite. It pains us to see what is going on and the lack of leadership to confront what are truly existential threats. The world needs a strong Europe. And for that to happen, the current political, social and economic guidelines need to change.

  Roubini does have a point. There are politics of dystopia at work in Europe. But he puts the blame squarely on the wrong side.

  The EU doesn't need any nationalists to destroy its future prospects. It’s doing absolutely fine on its own.

   

  

  

  

  

  

• Putin's Multi-Millionaire Media Mogul Dies Of Mysterious "Heart Attack" In Luxury DC Hotel

  Dear Sergei Lavrov and Maria Zakharova: you may want to avoid staying at The Dupont Circle in DC for the foreseeable future even though the following images may seem quite inviting…

  

  

  Yesterday evening, a variety of mainstream wires reported that Mikhail Lesin, a close ally of The Kremlin and the man credited with “inspiring” the creation of Russia Today, was found dead on an “upper floor” in the hotel. Lesin was Russia’s Minister of Press, Television and Radio from 1999 to 2004 and also served as Putin’s media adviser. In 2013 he assumed a role as an executive at Gazprom-Media. 

  

  

  

  Apparently, no one knows why Lesin was in Washington, and as of Friday evening, authorities weren’t ready to reveal the identity of the 57-year old Russian national they found dead at the Dupont. But officials in Washington and Moscow confirmed that the deceased was indeed Lesin and Vladimir Putin “expressed his sincerest condolences”, RT says. From The Kremlin: 

  “The president has a high appreciation for Mikhail Lesin’s massive contribution to the creation of modern Russian mass media. 

   

  In the West, Lesin is most widely known for his role in conceiving Russia Today (now RT), a state-run English-language television network which offers an alternative, non-Western view of global events by encouraging viewers to ‘Question More’. Since its launch in 2005, RT has expanded across continents, broadcasting in multiple languages, and successfully presenting the Russian point of view on world events, something even its harshest critics have admitted. Lesin’s role in RT’s creation is arguably his greatest accomplishment.”

  As of now, Lesin’s death has been written off to the ubiquitious unexplained “heart attack.” Here’s WaPo:

  Lesin was the former executive of Gazprom-Media, the state-run holding company that controls much of the Russian press. RIA Novosti, a state news agency, quoted a family member confirming the death and saying it was from a heart attack.

   

  Russia Today, without providing a source, suggested that Lesin had been suffering from a prolonged illness.

  We’re no doctors, and we’re also not trying to suggest that Lesin wasn’t sick, but what’s particularly odd about the mainstream media’s coverage of this story (and by the way, this applies to the Russian media as well), is that no one seems to think it’s strange that a Russian media mogul died in a DC hotel room from an apparent “heart attack” just as relations between Washington and Moscow have deteriorated to a post-Cold War low and just as sites like RT and Sputnik are becoming increasingly prominent among Western readers amid The Kremlin’s air campaign in Syria. And to top it all off, no one knows why Lesin was in the city in the first place. Nope, nothing strange about any of that. 

  It’s also worth noting that US lawmakers have called for an investigation into Lesin’s fortune. Via ABC: 

  Sen. Roger Wicker (R-Miss.), called on the Justice Department to launch an investigation into Lesin over allegations of corruption and money laundering.

   

  In a letter to then-Attorney General Eric Holder, Wicker said Lesin had “acquired multi-million dollar assets” in Europe and the United States “during his tenure as a civil servant,” including multiple residences in Los Angeles worth $28 million.

   

  “That a Russian public servant could have amassed the considerable funds required to acquire and maintain these assets in Europe and the United States raises serious questions,” Wicker wrote.

  Here’s the actual letter:

  Les in Letter

  Consider that, and then consider the following comments from John Kerry with regard to RT (note that America’s top diplomat hilariously accuses foreign media of “distorting what is happening or not happening”): 

  Here’s how RT’s Editor-in-Chief Margarita Simonyan responded at the time:

  ???????????, ??? ???????????? ????? ? ??? ??????? ? ???????????? ??? ??? ?????? ????? ?????? ?? ? ??? ??????????, ????? ?????? ??????????.

  — ????????? ???????? (@M_Simonyan) April 25, 2014

  Translation: “Surprisingly, Secretary Kerry at this difficult and humiliating [time] for his homeland no longer worr[ies] about anything except our television channel.”

  And further: “We are planning to write an official request to the State Department for concrete examples of when RT has distorted facts. It’s unfortunate that the head of the State Department knows so little about what’s going on in Ukraine at the moment.”

  Here’s Simonyan on Lesin (from Friday): 

  ????? ????. ???????? ??????????. ??????????, ???, ??? ???? ? ?? ????, ??????????? ???????. ??? ??? ????????? ?????????? ???????……….

  — ????????? ???????? (@M_Simonyan) November 6, 2015

  So in any event, Lesin was not a man that was particularly popular inside the Beltway where he inexplicably was staying last week. 

  Still, there are all kinds of questions here and determining what actually “is or is not happening” (to quote John Kerry) is difficult. Consider the follwoing from Sputnik: 

  Between 2004 and 2009, Lesin served as an advisor to the Russian president, charged with overseeing the development of media and information technology, including the creation of Russia Today. Lesin’s resignation in 2009 was unexpected, and widely rumored to have been the result of a perceived conflict of interest between his activities in business and his work as a civil servant.

   

  Lesin first came to prominence in the media industry in the early 1990s. He created the advertising agency ‘Video International’, which would go on to become a multi-billion dollar firm, and the largest player in the Russian advertising field by the end of the 1990s, a position it has maintained to this day. Coming onto the scene of the Russian media market during Russia’s difficult post-Soviet transition, Lesin and his partners effectively had to figure out from scratch how the advertising field, which never existed in the Soviet Union, actually worked.

   

  Before becoming press minister in 1999, Lesin briefly headed the Kremlin’s public relations office (1996-1997), and serve as vice-president of the All-Russia State Television and Radio Broadcasting Company (1997-1999) as it transformed into a major media holding. He was believed to have been given the position for his loyalty to president Yeltsin during the 1996 re-election campaign, during which he created the iconic ‘Vote with your heart’ and ‘I believe, I love, I hope’ campaign advertising commercials.

   

  During his tenure as press minister, Lesin would participate in one of the loudest media scandals of the early 2000s –the transfer of oligarch Vladimir Gusinsky’s media holding company Media Most’s assets to state energy giant Gazprom.

   

  To be sure, Lesin was not without his sins, and was involved in the dirty media games of late 90s Russia. As RIA Novosti recalled, the media guru was rumored to have played a key role in the creation of a secret tape compromising former Prosecutor General Yuri Skuratov. Hidden camera video of the prosecutor general, who was known as a bitter adversary of Yeltsin, and who was conducting an aggressive investigation into several large cases of government corruption, was broadcast on federal television, featuring Skuratov rolling around in bed with two young women, who turned out to be prostitutes. Ultimately, the scandal resulted in the prosecutor general’s resignation.

  And then there’s this, from last December (again, via Sputnik): 

  The head of Russia’s Gazprom-Media holding, Mikhail Lesin, has officially turned in his application to resign, Gazprom’s press service said Friday.

   

  “Mikhail Lesin has turned in a request to remove him from the post of Gazprom-Media chairman citing family issues. This request will be considered at the next Gazprom-Media board meeting,” the press service said.

  At the time, Forbes Russia said “individuals” claimed that the decision was made personally by President Vladimir Putin. For the sake of brevity we won’t go into the entire story, but we encourage readers to do their own research on Ekho Moskvy and Lesin.

  The takeaway here is that Lesin was most assuredly a “somebody”, and when a “somebody” dies in a DC hotel room of a mysterious “heart attack” and no one knows what that “somebody” was doing in DC in the first place, you may want to start asking questions with regard to the official narrative regardless of where that narrative originates.

  Of course we could be wrong.

  But in honor of RT, we’ll simply close by saying that it never hurts to “question more.”

  

  

  

  

• Biderman: "Welcome To The First Global Recession Created By Central Bankers"

  Tensions in the global stock markets appear to have calmed. In sharp contrast stands the real economic development. Even in the US there are more and more signs of an accentuated weakness (outlier jobs data aside). "Things are crazy," says Charles Biderman summing up this bizarre situation. "We’re seeing the impact of the global slowdown on the US and that’s going to continue" adds the TrimTabs founder, and, in contrast to the mainstream view on Wall Street, he doesn’t think that the Fed is going to raise interest rates (and is more likely to start a new stimulus program). "Ultimately there will be a major correction," he warns and any new stimulus will merely serve the drug-addicted market.

  Chjristoph Gisiger, of Finanz und Wirtschaft, interviews TrimTabs' Charles Biderman…

  Mr. Biderman, the US economy is sending mixed signals. How concerning is this situation?

  The global slump is impacting the US economy more significantly than people realize. Our real-time data on the economy is declining and wage growth is the lowest it’s been all year. The TrimTrabs Macroeconomic Index for the US peaked in January and has weakened recently. It was up every year since 2011 but now it’s down year to date.

  Is it even thinkable that the US will fall into recession?

  It’s obvious that we’re in a significant slowdown. According to the technical definition, a recession is two quarters with negative growth in a row. So will the economy grow below zero? Could be. But anyway: What’s the big difference between minus 0,1% or plus 0,1% growth given how lagged the data is from the quarterly GDP numbers?

  What does this mean for the Federal Reserve and its intention to raise interest rates?

  Very few people would even consider this possible. But what I really think is going to happen is that the next Fed move is not going to be a hike. The next Fed move will be another form of easing. They’re not going to call it Quantitative Easing or QE, since QE has a bad reputation by now. So they’ll call it something else. I don’t know what they are going to do exactly. But it’s not going to be a tightening. As the global economy goes into a recession and the US follows, the Fed is going to do something.

  For more than a year, the Fed is trying to prepare the financial markets for a rate hike. What would that do to the credibility of the central bankers if they back off now and actually take a U-turn?

  Who says they have any credibility? The real problem is that the people who run the central banks are either economists or bankers.

   

  If you look at the record of global economists, they’ve been consistently wrong on the market and on the economy. At least in the United States, 95% of the economists surveyed have said at the start of each of the last five years that interest rates are going to end the year higher. Although they have been wrong each year, people keep listening to them. And when it comes to bankers, consider this: I went to Harvard Business school. The top students there went to firms like McKinsey, Boston Consulting or to the top Hedge Funds. So where did the graduates go who couldn’t get the top jobs? They went to the banks. So what you end up with is people just as greedy but not as smart.

  The Fed already blinked at the September meeting. Why are they so hesitant to make a move?

  ]If the economy continues to slow down going into an election year, the Fed will be under tremendous pressure to do something. They will not let the economy and the stock market slump. That’s why I think there will be further easing.

  Why are today’s stock markets so heavily focused on monetary policy?

  A simple way to look at market valuations is earnings divided by interest rates or cash flow divided by interest rates. So even if you raise interest rates only a quarter of a point that lowers the value of stocks. Also, once the Fed starts raising, it keeps raising. That decreases the attractiveness of flow trades into the stock market because now you can earn some money on your other assets. Right now, if you’re a corporation, your cash earns nothing. So you might as well use some of it to reduce your share count or to do a takeover. Both have been essential drivers of the bull market.

  When it comes to the real economy, cheap central bank money seems not to be that beneficial.

  Governments are creating headwinds for growth. So the best thing central banks can do to promote growth is to cut interest rates to zero or even lower. That can work for a little while. But now it’s creating a global recession because of all the excess capacities. Even if it doesn’t cost to build a new plant or drill new wells, when demand dries up you’re not making a profit. So even if interest rates are at zero you’re still losing money and you have debt on top of it. That’s why I say: Welcome to the first global recession created by central banks.'

  What should investors do in this environment?
  All there is in a market is transactions: In the stock market, shares are sold for money. So if you track the number of shares outstanding and the amount of money available to buy shares, you should have a good sense of the market. And then you also have to understand that in every market the house has always an edge – or else the market wouldn’t exist.

  What do you mean by that?
  In the stock market, the house are the companies. They started markets to raise money. So they know more than investors by definition. And if companies are shrinking their share count with buybacks or cash-takeovers I want to be buying too. On the other hand, if companies are growing their share count, I want to be selling as well.

  So what are you observing right now with respect to supply and demand?
  Our data shows that buybacks are still growing. Recently they have slumped somewhat but they are still much higher than share sales.

  And what’s going on with regard to cash-takeovers? It looks like that 2015 will set a new record for mergers & acquisitions.
  A big cash takeover boom is typically what happens when companies cannot grow internally. So how do you keep growing if demand for your product is not growing? You buy a competitor, you cut costs and you add to profits. You can always cut overhead if you buy a competitor. And you have zero interest rates, so you can buy your competitors to keep growing. But that’s not real growth. Also, this is what happens on the top of the cycle when the economy is turning weak.

  Why are you so pessimistic when it comes to the economic outlook?

  It’s not rosy and the main problem why sustainable economic growth is not possible is all the headwinds to growth. From the United States to Europe and Japan: Everywhere you have hostile tax policies, regulations and a lot of anti-competitiveness from existing businesses. Ontologically speaking, growth occurs when something new happens. But in the United States for example, the ratio between companies dying and starting is now on the negative side for the first time ever.

  So what does all that mean for the stock market outlook?
  I don’t disagree at all with anybody who says the market’s overvalued and we’re way ahead of ourselves. So ultimately there will be a major correction. But that could be years from now. Even since the Fed ended QE, the market is still up a little bit. The reason for that is that the share count keeps going down. And as long as the share count keeps dropping, I expect the stock market to keep modestly rising. And when the Fed, instead of raising interest rates, announces some form of more easing next year that’s going to pop the market again.

  

  

  

  

  

• "$19,000 Premiums, Up 4x Since Passage": The 'Crippling Effect' Of Obamacare On The Middle Class

  The past month has seen a veritable litany of reports that have slammed Obamacare, from sources on both the left and the right. Some examples:

  • In Latest Obamacare Fiasco, Most Low-Income Workers Can’t Afford “Affordable Care Act”
  • The Stunning “Explanation” An Insurance Company Just Used To Boost Health Premiums By 60%
  • Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why
  • Obama Promised Healthcare Premiums Would Fall $2,500 Per Family; They Have Climbed $4,865
  • Largest Health Insurer On Colorado Exchange Abruptly Collapses
  • Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud

  As we have warned over the years, all of this was expected, and is precisely what happens when the government tries to take over a critical industry. It may have had “good intentions” but the result has been a total failure.

  And nowhere is it seen better than from the laments of those whom it was supposed to benefit, such as Ed Elliott, who has laid out precisely what the “Affordable Care Act” means for the US: “This is crippling effect of ACA on small biz owners & middle class. $19000/yr premiums up 4x since passage.“

  This is crippling effect of ACA on small biz owners & middle class. $19000/yr premiums up 4x since passage. #tyranny pic.twitter.com/irHW4Oms2m

  — Ed Elliott (@gunsntoolz) October 30, 2015

  Still curious why the US middle class is expiring (even as the 1% are thriving), and has no discretionary income left at all? Simple: all of said “discretionary income” was spent to cover a soaring tax which was supposed to make life better for everyone.

  h/t @noalpha_allbeta

  

  

  

  

  

• The Fate Of The December Rate Hike Is In Their Hands

  Following the “blockbuster” jobs report from Friday, bond yields soared across the curve as experts everywhere decided that this time it’s different, that this is it: with soaring October jobs, not to mention the biggest annual jump in wages, the Fed was out of excuses.

  We would like to make three points.

  First, the October jobs reports was good, certainly at the headline level, but there is one more payrolls release from the BLS before the December 16 FOMC decision; its impact will be far greater on the FOMC’s decision especially if it now shows a sharp decline in jobs (before Friday, five of the past six payrolls reports had missed expectations).

  Second, as we showed yesterday, while the Establishment survey reported an unexpected jump in jobs in October jobs, which rose by 271K, far above the highest estimate even putting the very Fed to shame after St. Louis Fed’s Bullard explicitly talked down market expectations the night before while trying to convince the market that slowing jobs is not bad for the economy, a deeper look revealed that the Household survey suggested a far less optimistic picture, with 378,000 of the increase in employed falling in the 55 and over age group, while males 25-54 saw their jobs decline by 119,000.

  

   

  But while this suggests that the headline jobs number may have gotten far ahead of itself and upon reflection will be revised well lower, it does not explain how the October report also showed the biggest jump in average hourly earnings, which rose by 2.5% in October from a year ago, the highest annual increase since the crisis.

  

   

  Which bring us to the third, and most important point. Where did the wage growth come from?

  And therein lies the rub, because after the very disappointing job wage growth in September, October’s jump in wages suggests the economy may just be strong enough to weather a rate hike.

  There is one problem with this.

  To find where this increase in wage growth came from, we broke down the weekly payrolls increase (Y/Y %) by the 10 constituent industries that make up the private payrolls (excluding government). What we found was surprising.

  Instead of some broad rebound in October wage growth (red bar in the chart below), and certainly not due to payrolls for mining and logging workers, which is plunging, the entire jump in October average hourly wages can be attributed to just one industry – the one highlighted with a yellow in the chart below: construction.

   

  

   

  What this chart shows is that of the 120.7 million private payrolls in October, 4 industries (Mining and Logging; Trade, Transportation and Utilities; Financial Activity; and Leisure and Hospitality) employing 51.3 million workers saw a drop in the annual wage growth rate, which means they dragged down the average hourly earnings, one industry, Manufacturing (which employs 12.3 million), saw no change in its weekly payrolls, and another five industries, which employ 57 million, saw a modest increase in October weekly wages.

  And yet nobody was as instrumental to the October wage jump as the Construction industry. That said, nobody was as instrumental to the miss in September wages as the Construction industry because not only did weekly hours for Construction workers drop, so did weekly payrolls. All of this was offset, and then some, was offset in October.

  So what is going on here?

  The impact of Construction jobs on weekly payroll growth is seen best in the chart below which shows that if one excludes the contribution from Construction, annual wage growth is not improving at all, and in fact is roughly where it has been for the past year, nowhere near close to the blockbuster print revealed on Friday.

  

   

  Furthermore, as the next chart below shows, the annual growth in weekly
  payrolls for Construction workers appears to have finally topped out, and after four
  years of increases, 2015 has been the first year in which the pace of
  growth declined – clearly weekly payroll growth for Construction workers
  is slowing in the second half of 2015. And yet, October weekly payrolls soared, and
  at 8.1%, increased at the same pace as last year,
  offsetting the recent drop.

  

  Is this sustainable?

  The chart above also shows that in the New Normal, not only has there never been such a sharp drop in September Construction weekly payrolls, there has also never been as sharp a jump in October weekly payrolls.

  So what happens in November? That, dear readers, is the 25 basis point question – if Construction payrolls rise as the same pace as October, a December rate hike is assured. If however, this industry which employs just 5.3% of the US private workforce, “reverts to the slowing mean” in November, and after a torrid October we have a disappointing November (see red question mark above), then all buts are suddenly off again.

  Which is why the fate of the December rate hike is suddenly in the hands of some 6.4 million construction workers. If their wages jump in November, a rate hike it is. If their wages suddenly disappoint as the winter is about to unfold, then watch as the yield on the 2Y plunges in a microsecond when the next payrolls report is released as the December rate hike is once again put on indefinite hiatus.

  

  

  

  

  

• The Looming Death Of Small Business In America (In 1 Simple Chart)

  The latest small business survey from NFIB shows mounting pressures for small business resulting from limited pricing power and modestly rising wages (in fact the worst pressure since 2008's crash and 1999/2000's plunge).

   

  

  Chart: JPMorgan

  Absent a substantial growth pick-up that helps top-line sales (extremely unlikely in a surging USDollar, slumping global economy), the hopes and dreams of continued wage growth in 2016 will be dashed on the minimum-wage-driven, Obamacare-slayed bankruptcy shores of middle America.

  Is it any wonder that small business optimism is crashing?

  

   

   

  

  

  

  

  

• These Are The 20 Worst Cities In The US – Spot The Common Theme

  A new analysis by WalletHub has compared and classified 1,268 of America’s small cities in the U.S. to find the ones where residents don’t have to give up much by avoiding the “bright lights” and the soaring rent. Its data set include a total of 22 metrics, ranging from housing costs to school-system quality to the number of restaurants per capita.

  Why live in a small city? Inevitably, life in a small city demands some tradeoffs such as shorter business hours, a heavier reliance on cars and fewer dating opportunities.  It does bring benefits – tighter communities, less competition, shorter commutes and an actual backyard with a white picket fence. And from a purely financial standpoint, living in a small city creates a sense of greater wealth because of cheaper cost of living — one of the main draws for in-movers, especially those seeking to raise a family.

  According to the Economic Policy Institute, a two-parent, two-child family would need to earn $49,114 a year “to secure an adequate but modest living standard” in Morristown, Tenn., compared with $106,493 in Washington. So even with a lighter wallet, a family or soloist can enjoy a comparable, or even better, quality of life for much less in a cozy place like Morristown.

  What was the full ranking methodology?

  To find the best small cities in America, WalletHub’s analysts compared 1,268 cities across four key dimensions: 1) Affordability, 2) Economic Health, 3) Education & Health and 4) Quality of Life. For our sample, we chose cities with a population size between 25,000 and 100,000 residents. “City” refers to city proper and excludes surrounding metro areas. Next, it compiled 22 relevant metrics, which are listed below with their corresponding weights.

  To obtain the final rankings, a score between 0 and 100 was attributed to each metric. The weighted sum of the scores was then calculated and used the overall result to rank the cities. Together, the points attributed to the four major dimensions add up to 100 points.

  The dimensions are as follows:

  Affordability – Total Points: 25

  • Housing Costs ((median annual household income divided by median house price) plus (median annual household income divided by median price of rent): Full Weight (~8.33 Points)
  • Cost of Living: Full Weight (~8.33 Points)
  • Homeownership Rate: Full Weight (~8.33 Points)

  Economic Health – Total Points: 25

  • Unemployment Rate: Full Weight (~5 Points)
  • Median Household Income: Full Weight (~5 Points)
  • Percentage of Residents below Poverty Level: Full Weight (~5 Points)
  • Population Growth: Full Weight (~5 Points)
  • Income Growth: Full Weight (~5 Points)

  Education & Health – Total Points: 25

  • School-System Quality (WalletHub’s “Best & Worst School Systems” Ranking): Full Weight (~6.25 Points)
  • Percentage of Residents with a Bachelor’s Degree or Higher: Full Weight (~6.25 Points)
  • Percentage of Population with Health-Insurance Coverage: Full Weight (~6.25 Points)
  • Number of Pediatricians per 100,000 Residents: Full Weight (~6.25 Points)

  Quality of Life – Total Points: 25

  • Average Commute Time: Full Weight (~2.5 Points)
  • Percentage of Residents Who Walk to Work: Full Weight (~2.5 Points)
  • Mean Hours Worked per Week: Full Weight (~2.5 Points)
  • Number of Restaurants per 100,000 Residents: Full Weight (~2.5 Points)
  • Number of Bars per 100,000 Residents: Full Weight (~2.5 Points)
  • Number of Coffee Shops per 100,000 Residents: Full Weight (~2.5 Points)
  • Number of Museums per 100,000 Residents: Full Weight (~2.5 Points)
  • Number of Fitness Centers per 100,000 Residents: Full Weight (~2.5 Points)
  • Percentage of Millennial Newcomers: Full Weight (~2.5 Points)
  • Crime Rate: Full Weight (~2.5 Points)

  And now the results. A an interactive breakdown of the cities in the top of the ranking (shown in blue) and at the bottom (in orange) is shown below:

  Source: WalletHub

   

  And while he full list can be found at the following link, here are the two extremes.

  First, the 20 best cities:

  

   

  But more importantly, here are the worst – spot the common theme.

  

  Source

  

  

  

  

  

• A Nation Of Immigrants: Where America's Newest Citizens Come From

  As mass migration (otherwise known as refugee crises) remains a topic of concern for much of the world, an increasing number of the world's population is choosing to become American citizens (even as those renouncing American citizenship hits record highs). As MarketWatch notes, nearly 800,000 people decided to become American citizens in the last 12 months and more than a third of them came from Asia…

   

  

   

  Asians comprised the biggest group of new Americans by region, according to recent data from the Department of Homeland Security, edging out those from North America, in which DHS includes those from Central America and the Caribbean.

  Mexicans remain the single largest group of foreigners who were naturalized as citizens. But by state they are the biggest group in only 24. Among the remaining 26 states plus the District of Columbia, 10 other nationalities claim the top spot, as this map shows.

  In nine states, Indians made up the biggest group of naturalized citizens. Those from the Dominican Republic, who nationwide topped those from China for the first time in at least a decade, are the biggest group in five states, the DHS data show.

  One of those states is New Jersey. For two years running, Dominicans have made up the biggest group of naturalizations each year, narrowly exceeding the number of Indians.

  Here’s the breakdown by state for the 2013 fiscal year.

  

   

  Read more here…

  

  

  

  

  

• The End Of Rebalancing: Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse

  Submitted by Bryce Coward via Gavekal Capital blog,

  Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth.

  Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.

  

   

  Is this sustainable? Of course not. As we have been saying for several years now, Chinese growth is going much lower as the economy rebalances from being an investment led model to a consumption led model. One of the signs we’re looking for to indicate that the transition is taking place is actually a slowing of new loan growth and improvement in the indicator in chart 1. We’ve got exactly the opposite so far, which is an indication of the Chinese pushing on the debt string even more to fuel growth rather than accepting slower growth still, but a rebalanced economy.

   

  

   

  This, in a perverse way, probably increases the risk of the dreaded hard landing as the chances of a credit “event” rise even further.

  

  

  

  

  

• One Day After Obama Kills Keystone XL Pipeline Another Buffett-Owned Oil Tanker Train Derails In Wisconsin

  It must be somewhat ironic for the U.S. progressive moment that a day after Obama officially slammed the seal shut on Transcanada’s Keystone XL pipeline after a seven year “review” (and days after the company itself withdrew its application, something which the admin ignored just so it could have the final say on the mater), moments ago an oil tanker train derailed north of Alma, Wisconsin along the Mississippi River 80 miles south of Minneapolis, with at least 32 cars off the tracks.

  The train belongs to BNSF – a company owned by Warren Buffett, and best known being directly involved in most of the recent oil train accidents. As such, this is the latest accident involving a “safe” Warren Buffett-owned train carrying toxic commodities, in a year where this “safe” Buffett-endorsed medium of transportation has already seen a record number of accidents.

  As an reference point, here is a smattering of comparable headlines from just this year:

  • Massive Fire Rages After Another Buffett-Owned Oiltrain Derails In North Dakota, Town Evacuated
  • Dramatic Explosion Footage: Warren Buffett-Owned Oil Freight Train Derails, Bursts Into Flames
  • Train Carrying Toxic Gas Derails In Tennessee, Catches Fire; Thousands Evacuated

  And here is the latest one.

  

  

  According to Fox9, the Buffalo County sheriff’s office says 32 cars derailed north of Alma around 8:50 am prompting several road closures and a voluntary evacuation of the affected area, according to the Buffalo County sheriff’s office. There are no reports of fire, smoke or injuries, BNSF Railway  told the Associated Press.

  Highway 35 is closed between North Main Street and Riverview Dr. in Alma, WI to Highway 35 and Spring Creek Road. Highway 37 is closed from County Road S to Highway 35. The Buffalo County sheriff’s office says it is unknown when the roads will reopen.

  RT adds that some tankers containing denatured alcohol, according to the sheriff’s office. A voluntary evacuation has been announced.

  Emergency crews are working with BNSF and the La Crosse hazmat regional team to evaluate the derailment and determine when roads can reopen and people can return to their homes

  Buffalo Co Sheriff has Hwy 35 closed north of #Alma about a 1.5 miles from #train #derailment #news8 pic.twitter.com/4r8bWqe3RZ

  — Kyle Dimke (@news8dimke) November 7, 2015

  The cause of the accident is not yet clear. There have been no reports of injuries. The derailment has prompted several road closures, according to the Buffalo County sheriff’s office.

  #BREAKING: Train derails near Alma, Wis., voluntary evacuations underway (Photo: WRDN 1430/Facebook) pic.twitter.com/CJTKoc4P8v

  — Grasswire Now (@GrasswireNow) November 7, 2015

  In July, more than 5,000 people in eastern Tennessee were evacuated after a freight train carrying “highly flammable and toxic gas” derailed and caught fire. Several firefighters were injured while battling the flames.

  This is what we said in May:

  There have been two massive BNSF oil train derailments in the US in the past two months pic.twitter.com/uLUUV2ZCds

  — zerohedge (@zerohedge) May 6, 2015

  And now make that 3 in the past 8 months. But at least the environment is safe because Obama finally pulled the plug on the “dangerous” Keystone XL pipeline.

  

  

  

  

  

• Making The World A More Dangerous Place

  Submitted by Chris Martenson via PeakProsperity.com,

  Without any doubt, the Middle East has been a very long-simmering region of violent religious and tribal enmity.

  In that regard, perhaps today is no different than 1,000 years ago. But given the importance of the remaining oil in the Middle East to the next 20 years of global economic health, the violence and chaos seen there recently is hugely important to the entire world.

  But it’s also equally without doubt that the US and NATO are inflaming the situation by provoking conflicts and supplying military weapons and training to various extremist groups — therefore deserving much of the blame for the current tensions, despair and mayhem happening in Iraq, Syria, Yemen, and Libya.

  Forget anything you might read about “brutal dictators” that need to go or the importance of “democracy” to the region. That's dumbed-down pablum for the masses and has literally nothing to do with the motivations of the (clinically insane) external power brokers actually driving the events on the ground and crafting the narrative that is faithfully scribed and re-told by the media. In fact, disturbingly often, the scribed narrative is exactly opposite of the truth.

  On The Path To War

  If a wider war breaks out between the US/NATO and either Russia and/or China, then massive systemic shocks will result to the economy, oil prices, and the global financial system.

  Some comfort themselves with the belief that such a war would not be in the interest of the true powers that now drive the politics of most countries. Others worry that chaotic systems and events sometimes have a life of their own, regardless of what 'the powers that be' may want. We have entered such a time.

  While predicting the outbreak of war is not my intent here, I do want you to be appraised of the risks. We all should note that the elevated tensions across the globe are as good a reason as any to get our houses in order. As we reinforce often here at Peak Prosperity: when it comes to such preparations, we vastly prefer to be an entire year early than a single day late.

  Good planning begins with good intelligence. But sadly, if you feel relatively well-informed because you read a lot of newspapers or watch a lot of news, you may be among the most misinformed of them all.

  Certainly, the events in the Middle East over the past decade have been almost impossible to analyze or understand from a logical perspective.

  But the pattern has been clear enough: a rough justification of the need for military force is raised by the US adminstration and, within weeks, money and war material are mobilized to do exactly that. Libya, Iraq, and Syria are recent examples of such.

  However, none of this is any surprise to those paying attention. General Wesley Clark warned about the US’s military objectives in the Middle East back in 2007 in an interview with Democracy Now!. It's difficult to read this transcript without concluding that the US was going to manufacture whatever justifications it needed in order to carry out a larger strategy that, inexplicably to rational observers, seemed intent on inflaming and toppling governments across the Middle East — a monstrous war crime by any historical standard:

  About ten days after 9/11, I went through the Pentagon and I saw Secretary Rumsfeld and Deputy Secretary Wolfowitz. I went downstairs just to say hello to some of the people on the Joint Staff who used to work for me, and one of the generals called me in. He said, “Sir, you’ve got to come in and talk to me a second.” I said, “Well, you’re too busy.” He said, “No, no.” He says, “We’ve made the decision we’re going to war with Iraq.”

   

  This was on or about the 20th of September. I said, “We’re going to war with Iraq? Why?” He said, “I don’t know.” He said, “I guess they don’t know what else to do.” So I said, “Well, did they find some information connecting Saddam to al-Qaeda?” He said, “No, no.” He says, “There’s nothing new that way. They just made the decision to go to war with Iraq.” He said, “I guess it’s like we don’t know what to do about terrorists, but we’ve got a good military and we can take down governments.” And he said, “I guess if the only tool you have is a hammer, every problem has to look like a nail.”

   

  So I came back to see him a few weeks later, and by that time we were bombing in Afghanistan. I said, “Are we still going to war with Iraq?” And he said, “Oh, it’s worse than that.” He reached over on his desk. He picked up a piece of paper. And he said, “I just got this down from upstairs” — meaning the Secretary of Defense’s office — “today.” And he said, “This is a memo that describes how we’re going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran.” I said, “Is it classified?” He said, “Yes, sir.” I said, “Well, don’t show it to me.” And I saw him a year or so ago, and I said, “You remember that?” He said, “Sir, I didn’t show you that memo! I didn’t show it to you!”

  (Source)

  Seven countries in five years. 

  Poking The Bear – Part IV

  Actually, I don’t know how many times the US has poked the bear (Russia) over the past two years, so I thought I’d use “Part IV” to get the point across.  It might be a much higher number.

  First there was Ukraine, where the US and other western parties conspired to overthrow the sitting elected government and putting in place the current crop of ultra-nationalist thugs and Nazi sympathizers that now infest the halls of power in Kiev. The situation there is an unfortunate mess, one the West fomented.

  Naturally the West was none too pleased when Russia, quite predictably, responded and sought to protect the roughly 8 million Russian speaking citizens living in eastern Ukraine with military support. Money and military aid and the ubiquitous US “advisors” flooded in to help the Kiev militarily dominate eastern Ukraine – ironic, as a few of Ukraine's current leaders were caught on tape saying they’d prefer to nuke the region in an ethnic cleansing.

  Then, when the people of Crimea voted to rejoin Russia (perhaps you would, too, if your "elected" leaders dreamed of nuking you), the US reacted as if this were some kind of foul play. That's a strange sort of needle to thread for a country that prides itself of on “spreading democracy” (even by force, if necessary). You’d think that people voting and exercising their free rights would top of the list of acceptable things to the US — but unless the election outcome is exactly in alignment with US wishes, that’s just not the case.

  Similarly, an almost comical (were it not so serious) attempt to malign Russia was made by the US State Department this week. In the aftermath of the US’s own bombing of the Afghan hospital in Kunduz, this charge was leveled against Russia:

  U.S. believes Russian bombing in Syria hit hospital: State Department

  Oct 29, 2015

   

  The United States has "operational information" that leads U.S. officials to believe Russian military aircraft hit a hospital while carrying out bombing raids in Syria, the State Department said on Thursday.

   

  Since the start of the Russian bombing campaign on Sept. 30, various reports from media and civilian groups have charged that Russian warplanes have hit hospitals with their air strikes.

   

  Asked at a briefing whether the United States had evidence that Russian bombing had hit Syrian hospitals, State Department spokesman John Kirby said, "Yes, we've seen some information that would lead us to believe that Russian military aircraft did hit a hospital.

   

  "We have seen some press reporting to that end, we have seen some Syrian civil society groups say that," Kirby said.

   

  "I would tell you that we have other operational information that leads us to believe that Russian targeting has not only not been focused on ISIL (Islamic State) but has, in fact, caused collateral damage and some civilian casualties, to include some civil infrastructure."

  (Source)

  Um…. “some press reporting” and “other operational information?” Good grief, that’s lame. Is that all the State Department has?  How about some pictures? Ballistics evidence? Satellite photos? Anything??

  Watching this RTTV reporter trying to get something credible out of a State Department spokesperson on the matter is simply cringe-worthy:

   

  The video is also notable for the arrogance on display. Assertions are useless without evidence, and in this age of satellites and drones, evidence of a destroyed hospital should be remarkably easy to come by. Yet not only did the State Department not share any such evidence, it went on to further claim that Russia had been targeting civilian infrastructure, which was another awkward charge for to lob given the news of the week prior:

  Warplanes of US-led alliance attack power plant in Aleppo

  Oct 18, 2015

   

  A military source told SANA that warplanes of the Washington alliance violated Syrian airspace and attacked civilian infrastructure in Mare’a, Tal Sha’er, and al-Bab in Aleppo countryside on Sunday.

   

  The source added that the warplanes attacked the biggest electric power plant that feeds Aleppo city, which resulted in cutting off power from most neighborhoods in Aleppo city.

   

  This transgression comes only 8 days after two F-16 warplanes belonging to the alliance targeted two power plants in al-Radwaniye area east of Aleppo city, cutting off power from the area.

  (Source)

  I’ve seen this information presented in various sources and nobody has denied it yet. But neither have I seen pictures, so perhaps this is disinformation too…though Putin is on record as saying "On Sunday, the American aviation bombed out an electrical power plant and a transformer in Aleppo. Why have they done this? Whom have they punished there? What’s the point? Nobody knows,"

  Given that charge, you’d think at least a denial from the US was in order. But none has been made. If the allegation is true, though, then it fits a larger pattern of the US criticizing other countries for doing the very same things it does.

  Even more seriously, back in June the US rattled its sabers by announcing this:

  U.S. Is Poised to Put Heavy Weaponry in Eastern Europe

  Jun 13, 2105

   

  RIGA, Latvia — In a significant move to deter possible Russian aggression in Europe, the Pentagon is poised to store battle tanks, infantry fighting vehicles and other heavy weapons for as many as 5,000 American troops in several Baltic and Eastern European countries, American and allied officials say.

   

  The proposal, if approved, would represent the first time since the end of the Cold War that the United States has stationed heavy military equipment in the newer NATO member nations in Eastern Europe that had once been part of the Soviet sphere of influence. Russia’s annexation of Crimea and the war in eastern Ukraine have caused alarm and prompted new military planning in NATO capitals.

  (Source)

  These moves are indicative of worsening relations with Russia. They show an over-reliance on military options and a woeful lack of diplomatic outreach, at least any that are being reported in the news.  Of course, the risk of all this being interpreted by Russia as 'overtly hostile' is pretty much 100%.

  “The Enemy Of My Enemy Is My Friend”

  If you are having similarly hard time trying to understand the US’s policy in the Middle East, you're not alone. The shifting alliances in play there are really hard to keep track of.

  Turkey has been aiding the so-called Syrian rebels (more on those rebels in a minute) but maintaining its long-standing hatred of the Kurdish people.  The US has been arming the Kurds and Syrian rebels while maintaining a mutual relationship with Turkey. 

  Iraq has been struggling with ISIS and accepting help from Iran to deal with them. This puts the US and Iran on the same side of the battle, if you believe that the US is actually trying to stop ISIS rather than covertly helping it. Why would it possibly help ISIS? Because ISIS is battling Assad’s government in Syria.

  Crazy, huh?

  Now, let’s talk about those so-called “Syrian rebels.”   The term "rebels" implies that these are Syrians fighting their own government. That’s significantly untrue. Consider this:

  20,000 Foreign Fighters Flock to Syria, Iraq to Join Terrorists

  Feb 10, 2015

   

  WASHINGTON — Foreign fighters are streaming into Syria and Iraq in unprecedented numbers to join the Islamic State or Iraq and Syria (ISIS) or other extremist groups, including at least 3,400 from Western nations among 20,000 from around the world, U.S. intelligence officials say in an updated estimate of a top terrorism concern.

   

  Nick Rasmussen, chief of the National Counterterrorism Center, said the rate of foreign fighter travel to Syria is without precedent, far exceeding the rate of foreigners who went to wage jihad in Afghanistan, Pakistan, Iraq, Yemen or Somalia at any other point in the past 20 years.

  (Source)

  There are dozens of reports indicating that the US, through the CIA and other outfits, has been responsible for a big part of both recruiting and training these foreign fighters, who draw from such nations as Pakistan, Afghanistan, Saudi Arabia, Chechnya and Qatar (among many others). 

  In short, anyone and everyone who could be used to topple the government of Syria is being drafted.

  I knew how ridiculous the claim of “Syrian rebels” was when I saw this picture showing the prominent ISIS leader Shishani, a well-known Chechen who was reportedly trained and backed by the US while in Chechnya.  

  

  (Source)

  But sharp eyes will also easily pick out the fact that he’s surrounded by people clearly not of Syrian origin. In fact, it looks more like a UN diversity conference than a Syrian rebel group.

  For the sake of appropriate context, imagine if China were funding “rebels” to attack and fight inside the US, and that these “rebels” were sourced from Mexico, Nicaragua, Argentina, and Peru. 

  These images and reports clearly show the pattern in play: the US and Turkey have been funneling vast amounts of arms, money and training to so-called opposition groups that, in many cases, consist of mercenaries and jihadists from a very wide range of different countries. Therefore, the US has directly supported and incubated some of the most brutal terror organization on the face of the planet — a list including ISIS and the Al Nusra front, both of which are well-documented for having committed horrible civilian atrocities.

  That this happened was not exactly news to those inside the beltway. A secret 2012 Pentagon report, since uncovered, detailed exactly this dynamic and predicted the rise of ISIS:

  Pentagon report predicted West’s support for Islamist rebels would create ISIS

  May 22, 2105

   

  A declassified secret US government document [a US Defense Intelligence Agency (DIA) document then classified as “secret,” dated 12th August 2012] obtained by the conservative public interest law firm, Judicial Watch, shows that Western governments deliberately allied with al-Qaeda and other Islamist extremist groups to topple Syrian dictator Bashir al-Assad.

   

  The document reveals that in coordination with the Gulf states and Turkey, the West intentionally sponsored violent Islamist groups to destabilize Assad, and that these “supporting powers” desired the emergence of a “Salafist Principality” in Syria to “isolate the Syrian regime.”

   

  According to the newly declassified US document, the Pentagon foresaw the likely rise of the ‘Islamic State’ as a direct consequence of this strategy, and warned that it could destabilize Iraq.

   

  The 7-page DIA document states that al-Qaeda in Iraq (AQI), the precursor to the ‘Islamic State in Iraq,’ (ISI) which became the ‘Islamic State in Iraq and Syria,’ “supported the Syrian opposition from the beginning, both ideologically and through the media.”

   

  The formerly secret Pentagon report notes that the “rise of the insurgency in Syria” has increasingly taken a “sectarian direction,” attracting diverse support from Sunni “religious and tribal powers” across the region.

  (Source)

  Well, of course the Defense department knew that arming and funding violent jihadists was going to lead to some crazy sectarian unpleasantness.  How could they not? 14 years in Afghanistan and Iraq taught them plenty about the region and its sectarian dynamics.

  But make no mistake: the US worked hard to attract regional jihadists to Syria to fight their war for them.  That was not an oddity to be curiously noted, but a feature of the program. Why? Because there was not enough legitimate internal Syrian opposition to Assad to get the job done. An angry mob had to be recruited.

  Said another way: Syria’s bloody civil unrest is not entirely the result of a natural social uprising, but was fostered with a great deal of external meddling.

  Why This Is Worth Our Full Attention

  Tensions are as high as they’ve been in decades. Neo-con hotheads with a track record of shooting first and not caring to ask questions later are still driving US foreign policy. Russia is signaling that it has had enough of American intervention that destabilizes volatile parts of the world.  China is flexing its muscles as well.

  This is all happening while global economic system is not nearly as robust as advertised. And history shows that nations always react more aggressively during leaner times.

  With so many sensitive flash points that the West has its fingers in these days, the risk of one or more of them erupting into a full-scale war between the major world powers is not dismissible. And given the huge cost should that come to pass, it makes all the sense in the world to take precautionary measures in advance.

  In Part 2: How Things May Well Get Ugly Quickly we zero in on the largest risks to monitor and the likely range of forms of retribution the US could face (from financial and cyber war to a full-blown shooting war) should the situation worsen.

  We're not trying to drum up fears that war is imminent. But what we are saying is that the risk is substantial enough, and the potential cost high enough, that it's worth making some pre-cautionary preparations at this time. 

  Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

   

  

  

  

  

  

• "The 2008 Crisis Didn't Come From Nowhere," Jim Grant Slams The Fed's Utopian World Of "Economic Sleepwalking"

  Central bank’s experimental policies are only hurting America instead of leading the nation into financial prosperity, exclaims James Grant, editor of Grant's Interest Rate Observer. "The Fed is a relic of the age of command and control. The Fed is an anachronism,” Grant tells Bloomberg TV in this excellent interview, "The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U.S. economy." Central bankers, Grant adds, by pressing rates to nothing, have given rise to this "very pleasant kind of inflation we call bull markets." While bull markets are great insofar as they reflect what is actually going on, "they are very dangerous to the extent that they are the artificial creation of artificial interest rates."

  "We are in a regime of price administration. Price control is a policy that has failed for millenia. When prices are manipulated, manhandled, and otherwsise distorted, real decisions follow and the real decisions are distorted… there's bricks, mortar, and human lives attached to these [interest rate decisions]… and that's why they matter"

  "How do they know the funds rate ought to be zero?"

   

  "The world's central bankers went to the same schools, talk the same language, have the same world view.

   

  They have shared conditions. They believe, for example, that an average of prices, which they believe they can calculate, must rise at two percent a year unless the world fall into something they choose to call deflation.

   

  They believe that they can see into the future. They believe that they have the knowledge and the dexterity to manipulate interest rates to the benefit of society.

   

  The central banks no more than the rest of us can see into the future.  They are managed by human beings who do their best but who cannot — underscore — cannot see into the future and improve it before it happens. That's their conceit. But it is not given to mankind to do such things.

   

  They try. They have every good intention. But they are appliers of an outdated scheme of command and control. They don't know what they do."

  Bloomberg TV Interview…

  Some further highlights…

  On the consequences…

  The anger in the political process right now across both parties is evident for example, in the otherwise seemingly baffling popularity in the polls of Donald Trump. He is the — to my mind, he is the candidate of the thwarted and frustrated people who don't know exactly what is happening, but know full well that something is wrong, that something certainly is different.

   

  Donald Trump speaks to them in a way that I think is very destructive. But that's one consequence of the set of policies that have delivered us into this world of economic sleepwalking.

  On repeating the same mistakes…

  "the 2008 financial crisis didn't come from nowhere. It came, in my opinion, from the socialization of credit risk and from the manipulation of prices."

   

  "We are under the governance of former tenured economics faculty who think they know more than they can possibly know,"

   

  “Let us at least revert, if not to some perhaps Utopian dream of a perfect monetary standard, at least let us get out of the business of the suppression of interest rates, the administration of prices and the government sponsorship of asset bull markets."

  On the stock market…

  "Now, there is inflation and inflation. There is an inflation that is registered at the supermarket and the cash register. And there is inflation that is registered on the stock markets and in the real estate markets.

   

  And the central bankers, by pressing rates to nothing, have given rise to this very pleasant kind of inflation we call bull markets. Bull markets are great insofar as they reflect what is actually going on.

   

  They are very dangerous to the extent that they are the artificial creation of artificial interest rates."

  

  

  

  

  

• The Mangled End Of Markets: An Unambiguous Signal Of Malfunction If Not Distress

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  While the stock market had one of its best months in years, it was, like the jobs report, uncorroborated by almost everything else. The junk bond bubble, in particular, stands in sharp and stark refutation of whatever stocks might be incorporating, especially if that might be based upon assumptions of Yellen’s re-found backbone. Do or do not, corporate junk remains unimpressed and therefore depressed against the same background drowning as has been in place going back to June 2014.

  At yesterday’s close, the S&P/LSTA Leveraged Loan 100 index had fallen back to only a few fractions above its early October multi-year lows. That price action was matched by other high yield, high risk bond views.

  

  Retail junk debt prices have been somewhat more responsive which isn’t surprising given the mood in general stocks (or at least the narrowing segment of stock markets and indices that are rising). Though more so than institutional, even retail junk prices have begun to turn around again of late.

  

  Undoubtedly, part of that is due to what can only be termed and categorized as atrocious liquidity conditions. The mortgage REIT ETF REM suggested a quarter-end liquidity bottleneck at the end of September before rising as HYG (the two are well-correlated). However, in recent days REM has sunk almost to that late September nadir, suggesting, firmly, that “dollar” funding and perceptions are continue to be far more problematic than the unspecifiable euphoria elsewhere.

  

  The recent turn toward “hawkish” opinions about FOMC predilection has sparked some noteworthy returns in “dollar” proxy currencies, especially the franc. The Swiss currency had been trading in bouts of appreciation which tied closely to upwelling in fear and safe haven demand. Around October 21, however, the franc suddenly fell under a sustained bout of depreciation that has brought it to parity with the dollar. That is almost the same disastrous level that forced the SNB to noisily and dangerously abandon the euro peg back on January 15.

  

   

  Whether that relates to the changing views of monetary policy isn’t fully clear, but it would be a reasonable assumption especially as this return is matched by other currencies such as the Indian rupee.

  

  Of course, behind all this is the “dollar” which continues to press devilishly in the same perturbed direction. I examined this morning the commodity and even eurodollar futures view of that, but the most concerning parcel has to be interest rate swaps. As noted on several prior occasions, swap spreads have been sinking fast and to unprecedented levels. Though mainstream commentary will provide plausible-sounding excuses, mostly about corporate or even UST issuance, that is only because these places will not even consider that Janet Yellen has it all wrong; thus, they only search for possibilities that allow that narrative to remain undisturbed even though that narrative itself can never account for negative spreads.

  Again, the swiftness of the erosion is remarkable and down the entire swap curve. Even the 2-year spread unthinkably has flirted with zero:

  

  The fact and observation of a negative swap spread is simple dealer balance sheet capacity; for a swap rate to fall below its correspondent maturity UST can only be related to a significant reduction in offered money dealing capacity. As I wrote just a few weeks ago:

  A negative swap spread…assaults conventional financial sense. To most, a negative spread is nonsense and leads to so much consternation about how to interpret the situation when it has arisen. Unfortunately in 2015, especially after July 6, it has been near-universal across far too many maturities.

   

  

   

  While on the surface it would suggest that the “market” in swap derivatives is pricing more risk of UST’s than swap counterparties, the only real inference about such compression is the nonsense itself. In other words, the nonsense nature of negative swap spreads is precisely the point – for them to be negative in the first place, let alone highly so (like the 30s again), is a pretty unambiguous signal of malfunction if not full distress. It is only great imbalance that can change the information content of a market price into meaninglessness; therefore we can interpret that case as some great reduction in balance sheet capacity since it is dealer capacity that determines the nature of the spreads.

  This is not a revelation to anyone paying even slight attention to what has been taking place in global, eurodollar banking of late. The banks themselves have all but declared that they want out, with the events of this last “dollar” run convincing them to do so at all possible haste. If banks are withdrawing capacity and swap spreads have turned not just nonsense but insanity, then we can only conclude taking banks at their word.

  Investment Grade Bonds:

  

   

  And Junk Bonds:

  

   

   

  That brings us back to dear Janet. What is most notable on the charts above showing all the swap spread maturities is the inflection surrounding the September FOMC, not the October meeting. In other words, spreads turned quickly downward where the Fed chickened out and thus confirmed the dead recovery (and the end of “transitory”). That they continued to be negative even after supposedly the FOMC revisited their nerve more than suggests what I explained this morning – that the background recovery and “dollar” baseline has been set and that any changes in monetary policy are secondary if not further remote. Thus, all Yellen et al can do is make a bad (and growing far worse) situation that much worse. I believe that is why they intermittently seem to gain resolve only to lose it closer to their own call for action.

  This view is all the more pressing given that the likely specifics of the balance sheet capacity withdrawal emanating from those very banks that followed Yellen toward her recovery idea in the first place – Deutsche Bank and Credit Suisse, perhaps even Goldman Sachs. That means that this descent into economic and financial darkness is being driven by the same firms that were once completely, utterly and fully onboard the recovery and its most optimistic case. Their “betrayal” then simply completes and confirms the recovery’s mangled and explicit end. As I wrote back in late September, ignore swap spreads at your own peril; a sentiment increasingly applied beyond the “dollar” into the real economy as one follows the other here and across the globe.

  

  

  

  

  

• What Janet Knows

  What Janet knows, as The Burning Platform's Jim Quinn exclaims, is that a 1% increase in interest rates would increase the interest on the National Debt from $400 billion per year to $600 billion per year, a 50% increase.

  

  Source: Ben Garrison

  Interest rates back at NORMAL historical rates that we had as recently as 2007 would increase the interest on the National Debt to $1 trillion per year, a 150% increase.

  Plus, the National Debt increases by $1.5 billion per day, so our interest bill goes up by $35 million per day already.

  Do you really think Yellen is going to be increasing interest rates?

  

  

  

  

  

• The Next Level of John Law Type Central Planning Madness

  Submitted by Pater Tenebrarum via Acting-Man.com,

  Cries for Going Totally Crazy are Intensifying

  What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs), one has to be in favor of central economic planning and support policies fully in line with today’s economically illiterate orthodoxy. Meet Maurice Obstfeld, who has just taken the mantle.

   

  

  New IMF chief economist Maurice Obstfeld (left) and fellow monetary crank Haruhiko “Peter Pan” Kuroda, governor of the BoJ

   

  For all we know the man is merely misguided and otherwise a nice person (in fact, he’s laughing a lot in photographs and seems a personable enough fellow). But his proposals could eventually affect the lives of countless people in the whole world, so he is fair game for robust criticism. We personally believe that he and other members of our “enlightened” technocratic ruling class should resign without delay and start looking for productive work instead of parasitizing and hampering the ever shrinking class of genuine wealth producers, but it seems unlikely that they will be interested in our opinion.

  There once was a time when monetary cranks of the sort in charge nearly everywhere today were laughed out of the room. Today they are perfectly free to drive what is left of the market economy over the cliff. Mr. Obstfeld turns out to be yet another in a long list of luminaries belly-aching about (non-existing) “deflation” – this is to say, the alleged danger that the purchasing power of consumer incomes and savings might increase at some point. Allegedly, this remote eventuality has to be guarded against at all costs.

  According to the WSJ:

  “The Bank of Japan and other central banks around the world may need to try radical new easy-money policies to stave off the rising specter of deflation and revive sickly economic prospects, the International Monetary Fund’s new chief economist warns.

   

  “I worry about deflation globally,” new IMF Economic Counselor Maurice Obstfeld said in an interview ahead of an annual IMF research conference that focuses this year on unconventional monetary policies and exchange rate regimes. “It may be time to start thinking outside the box.”

   

  Weak—and in some cases falling—price growth has plagued Japan, Europe, the U.S. and other major economies since the financial crisis. Plummeting commodity prices are exacerbating the so-called “lowflation” and deflation problems that curb investment, spending and growth.

   

  Surveying several dozen of the largest economies around the world, Mr. Obstfeld said the number of countries experiencing low inflation is rising. Combined with slowing emerging market output, ballooning government debt and monetary policy constrained by the lower limits of interest rates, the deflation risk is fueling fears the global economy could be fast stuck into a deep low-growth mire.

  (emphasis added)

  We don’t deny that global economic prospects look dim at the moment. However, this is the direct result of the policies Mr. Obstfeld supports and recommends. It has absolutely nothing to do with the fact that government-doctored CPI data are for once indicating a minor slowdown in the pace of inflationary robbery by the State (from the point of view of consumers, price inflation is in essence a hidden tax).

  To illustrate how utterly inconsequential the recent slight decline in the rate of change of CPI is in a larger context, consider simply the long term trend in US CPI. We have contrasted it with quarterly annualized GDP growth rates, because they show something important: the steeper the trend in money and credit supply expansion and consequent “price inflation” has become over time, the more real GDP growth has actually slowed (about the only thing GDP data are remotely useful for are historical comparisons and even those have to be taken with a grain of salt: today’s GDP data are actually overstating growth relative to the data employed in past decades). One would expect positivist mainstream economists to take note of such empirical facts and perhaps even wonder if there could be a connection – we have yet to see that happen though.

   

  

  CPI “inflation” vs. real GDP growth – the blue trend line is mainly meant to serve as a visual aid

   

  An even starker illustration is provided by economic growth in the decades prior to the establishment of the Federal Reserve. We have written about this previously in Presidential Musings About Inequality. Here is the relevant passage:

  “[…] the period of the greatest real economic growth in the US, a period that was marked by sharp growth in the real incomes of the broadest possible swathe of the population, was that otherwise dreaded age of the ‘robber barons’, the Gilded Age, in the decades  prior to the founding of the Federal Reserve. Prices during that era of extremely small money supply growth were almost continually in a mildly declining trend, thereby inexorably raising the real incomes of workers and the then up and coming middle class. It is interesting in this context to look at the Wikipedia entry on the Gilded Age, which is full of complaints about the poverty of the time and the two crisis that ‘interrupted growth’. At first one gets the impression that it must have been a truly terrible time (even the term ‘Gilded Age’ was actually meant to be sarcastic). However, a few paragraphs in, one finds the following:

   

  “During the 1870s and 1880s, the U.S. economy rose at the fastest rate in its history, with real wages, wealth, GDP, and capital formation all increasing rapidly. For example, between 1865 and 1898, the output of wheat increased by 256%, corn by 222%, coal by 800% and miles of railway track by 567%. Thick national networks for transportation and communication were created. The corporation became the dominant form of business organization, and a scientific management revolution transformed business operations. By the beginning of the 20th century, per capita income and industrial production in the United States led the world, with per capita incomes double that of Germany or France, and 50% higher than Britain. The businessmen of the Second Industrial Revolution created industrial towns and cities in the Northeast with new factories, and hired an ethnically diverse industrial working class, many of them new immigrants from Europe.

   

  Wealthy industrialists and financiers such as John D. Rockefeller, Andrew W. Mellon, Andrew Carnegie, Henry Flagler, Henry H. Rogers, J. P. Morgan, Leland Stanford, Charles Crocker, Cornelius Vanderbilt of the Vanderbilt family, and the prominent Astor family would sometimes be labeled “robber barons” by their enemies. Many of these captains of industry, in addition to building up the American economy, participated in immense acts of philanthropy. Andrew Carnegie, who gave away over 90% of his wealth, said philanthropy was their duty–it was the “Gospel of Wealth”. Private money endowed thousands of colleges, hospitals, museums, academies, schools, opera houses, public libraries, and charities. John D. Rockefeller, for example, donated over $500 million to various charities, slightly over half his entire net worth.

   

  This emerging industrial economy quickly expanded to meet the new market demands. From 1869 to 1879, the US economy grew at a rate of 6.8% for NNP (GDP minus capital depreciation) and 4.5% for NNP per capita.

   

  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled. Real wages also increased greatly during the 1880s. Economist Milton Friedman states that for the 1880s, “The highest decadal rate [of growth of real reproducible, tangible wealth per head from 1805 to 1950] for periods of about ten years was apparently reached in the eighties with approximately 3.8 percent.”

   

  Not so terrible a time after all! […] 1. ‘deflation’ (declining prices) is not inimical to economic growth, as the Federal Reserve and its apologists maintain (the opposite appears to be the case), and 2. the less central economic planning there is and the sounder the money employed, the more economic growth and economic advancement of the poor and middle class strata of society can be expected.

  It should actually not be necessary to draw on such empirical examples. One must always keep in mind that economic history cannot possibly replace sound economic theory, as it is always subject to a multitude of interlocking contingent forces and factors. The fact remains however: 1. during the Gilded Age, money was by and large sound, even though the banks operated with fractional reserves (which was the cause of the relatively harmless boom-bust cycles in the period). 2. Moreover, government was but a footnote in the lives of most people. Its spending amounted to approximately 4% of total economic output. It should therefore be no surprise that real GDP per capita has never again grown at a comparably fast pace:

   

  

  Real GNP growth per capita during the “Gilded Age” – it has never again been greater or more equitable. All of this happened under the dreaded gold standard, with no central bank, IMF or other central planners in sight – click to enlarge.

   

  So what does Mr. Obstfeld’s “radical, thinking out of the box” policy epiphany consist of? It appears he wants central banks to go John Law on us:

  “So, what would be thinking outside the box for Mr. Obstfeld? One option is a proposal by Adair Turner, a member of the Bank of England’s Financial Policy Committee, for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply. By contrast, the increased money supply resulting from recent central bank bond-buying programs is meant to be temporary.

   

  In a paper prepared for the IMF conference, Mr. Turner contends Japan will be forced to use such “monetary financing” within the next five years and says the policy should become a normal central bank tool for all economies facing stagnation.

   

  Such an option would be highly provocative to fiscal hawks and those who fear giving central banks too much power, especially when many economists question both the returns and financial-turmoil side effects from existing easy-money policies. The provocative nature of the proposal underscores the extent of the deflation-related anxiety among some policy makers, however.

   

  Perhaps a little less controversial option is for central banks to consider overshooting their inflation targets.

   

  “You can always, always deal with high inflation,” Mr. Obstfeld said.  But, “at the zero lower bound, our options are much more limited. In order to bring inflation expectations firmly back to 2% in the advanced countries, where we’d like to see it, it’s probably going to be necessary to have some overshooting of the 2% level, or at least to entertain that as a possibility,” he said.

  (emphasis added)

  Both of these proposals, namely overt central bank financing of government spending and declaring official “inflation targets” obsolete and aiming for an overshooting of same have been peddled by assorted snake-oil sellers for several years already. It apparently hasn’t dawned on these geniuses yet that neither governments nor central banks can create even one iota of real wealth. If these ideas were implemented, they would transform a budding disaster into an intractable catastrophe – essentially the economic equivalent of an asteroid strike, as opposed to a mere earthquake (see, we always manage to smuggle in an asteroid strike somewhere…:)).

  If not checked in time, such extreme monetary interventions can lead to crack-up booms and the eventual collapse of the underlying currency system (the German term Ludwig von Mises used to describe the phenomenon is actually even more descriptive: “Katastrophenhausse”, literally, “the catastrophic boom”). The hubris of today’s planners is evident in Obstfeld’s assertion that it “you can always deal with high inflation”. This is incredibly naïve, and yet, it is a belief that is widely held by our modern-day monetary cranks. They all think they are in possession of an inner Volcker just itching to be released at the critical moment.

  What is the end result of a crack-up boom? In the worst cases, the subsequent stabilization crisis can last decades. For instance, the contemporaneous collapses of the South Seas and Mississippi bubbles in England and France in 1722 led to a continent-wide bear market and on-and-off depression lasting 68 years. Half of Europe was instantly bankrupted (in France it was eventually decided to do it all over again by instigating yet another hyperinflation after the French Revolution; the gentlemen responsible were all highly educated and convinced they were on top of things. It would be easy to just stop printing, they eloquently argued).

  In the stabilization crisis after the Weimar hyperinflation a number of positive developments were actually discernible initially: for instance, the production structure quickly realigned itself away from the early stage malinvestments of the crack-up boom toward an increase in consumer goods production, with a more sensible production-consumption balance reasserting itself. However, many other symptoms of the final stage of the inflation crisis (such as high unemployment) only improved slowly. Still, considering that the entire banking system had to start from scratch and massive amounts of phantom wealth had to be liquidated, things developed surprisingly well at first.

  Unfortunately, the roaring 20s boom was underway concurrently in the US and before the German economy had a chance to truly heal itself, the inflationary boom in the US collapsed, taking the whole world with it. Ultimately the National Socialists took power, establishing their Zwangswirtschaft (aptly called the “Vampire Economy” by Guenter Reimann). This was eventually followed by the most devastating war in history. Ah, but this time “it’s going to be different” of course, because Obstfeld and his central planning buddies have “everything under control”.

   

  The so-called “lowflation” (yes, they even invented a new term for this) that has Obstfeld et al. so exercised – click to enlarge.

   

  Egging Them on From the Sidelines

  In case more Orwellian language should be needed to invest this hoary inflationism with new clothes, Citigroup has seen fit to provide it in late September. In an article that appeared at Bloomberg at the time, we were informed that “Citi’s answer to dwindling central bank firepower is ‘Cold Fusion’”. What does “Cold Fusion” mean? Exactly the same – fiscal spending financed by permanent debt monetization. There are a few funny (if at the same time cringeworthy) passages in the article.

  First we are told that in order to “create growth”, we not only need more money printing, but more Keynesian deficit spending as well. Maybe this is proposed because it has worked so well in Japan over the past 26 years? Who knows, but all that darn “austerity” must definitely end!

  “It’s time for central bankers to ask for help. As the International Monetary Fund prepares to downgrade its outlook for the world economy again, monetary policy makers are running low of ammunition to fight a fresh downturn. Bank of America Merrill Lynch calculates they have reduced interest rates more than 600 times since the 2008 collapse of Lehman Brothers Holdings Inc. with the Reserve Bank of India extending the run on Tuesday by cutting its benchmark more than expected.

   

  While the European Central Bank and Bank of Japan haven’t ruled out buying even more bonds, there are doubts over how much more quantitative easing can achieve given yields are already around record lows and inflation still remains beneath the target of most policy makers. Even easier monetary policy may just end up propelling asset markets rather than economies. That leaves economists and investors increasingly looking toward governments to lead the rescue efforts should the China-led slowdown in emerging markets infect developed nations. BofA Merrill Lynch sees a 25 percent chance of a recession-like slump this year.

   

  “Monetary policy is basically exhausted in terms of producing real growth and even inflation,” billionaire Bill Gross of Janus Capital Management LLC told Bloomberg Television this month. “Fiscal policy is the second piece of the leg that has to take place in order to get us back to where we want to go.”

   

  […]

   

  Austerity is still the order of the day in Europe despite the rise of protest parties and another congressional showdown over debt is looming in the U.S. Gross public debt of around 117 percent of gross domestic product globally versus 81 percent in 2007 may still slow the hand of politicians.”

  (emphasis added)

  Let us take a brief look at that terrible austerity that is the “order of the day” in Europe.

   

  

  Europe – a collection of numerous de facto bankrupt states (with the exception of the smaller ones to the left of the chart – several of which are however home to mind-boggling private sector credit bubbles). All this terrible austerity has left the euro zone with record public debt, both in absolute terms and relative to economic output (debt-to-GDP ratio as of the end of 2014: 92.3%) – click to enlarge.

   

  Citigroup’s analysts have correctly recognized that it is difficult for insolvent governments to spend even more. Already a number of them are artificially propped up by the rest, in a comical arrangement that is a bit akin to Worldcom trying to prop up Enron.

  So naturally, not only will central banks have to call on governments for help, but the same must concurrently happen vice versa as well. So this is what Citi calls “Cold Fusion”. We think it would be better to call it a high level Three Card Monte (other terms come to mind as well, but are not printable; something involving a circle for instance).

  “The medicine may nevertheless need to be stronger than the traditional prescription. If the world economy enters a downdraft, Steven Englander, global head of G-10 FX strategy at Citigroup Inc., proposes a more revolutionary response, akin to the “helicopter money” once advocated by Milton Friedman.

   

  In what he calls “cold fusion,” politicians would cut taxes and boost spending. Central banks would then cover the resulting increase in borrowing by purchasing more bonds as part of a commitment to permanently expand their balance sheets. The easier fiscal policy would be covered by QE Infinity.

   

  “Politically it is difficult for central banks to outright endorse monetization of government debt, but faced with another slump and armed with ineffective policy tools, we expect that central banks will quickly give the wink and nod to fiscal measures,” Englander said in a report to clients last week.

   

  The upshot would be greater purchasing power would be injected straight into the economy, increasing activity and inflation. Long-term bond yields would rise, yet short-term yields adjusted for inflation would turn negative.”

  Once again, this proposal is in principle no different from what John Law proceeded to do when confronted with the combination of an exhausted French treasury and a moribund French economy in the early 18^th century.

   

  The Nature of the Problem

  We will try to lift the veil of economic ignorance attending these proposals a bit further. In an (unfortunately hypothetical) unhampered free market economy, there would be no “economic policymakers”. This would have the great advantage that interest rates and prices would actually be meaningful. In other words, the price signals in such an economy – which one can safely assume would employ sound money – would be genuine instead of being incessantly distorted.

  Since gross market interest rates would reflect actual society-wide time preferences (plus an entrepreneurial or risk premium emerging on a case-by-case basis), such an economy would boast of an intertemporally well-coordinated structure of production that would actually be aligned with the wishes of consumers. Businessmen wouldn’t be continually misled by the falsification of prices that results from the manipulation of the money supply and interest rates. As a result, entrepreneurial errors wouldn’t be regularly committed on a system-wide basis (this is not to say that there would be no such errors whatsoever, but there would no longer be enormous capital malinvestment across entire sectors of the economy). In short, this would be the ideal state of affairs.

  In the present-day hampered market economy, “normal” boom-bust cycles primarily are the result of the expansion of commercial bank credit to the business sector. Too many of the wrong things will be produced (which ones precisely depends on the discrete points at which newly created money enters the economy, which is mainly a question of contingent circumstances). This is actually the nature of malinvestment: it is not “overinvestment”, it is investment in the wrong lines.

  Since real capital is scarce, this implies that too few of the things consumers actually want will be produced concurrently. In practice, a shift of production factors toward more long-term oriented investment projects (the higher stages of the production structure) will occur, while capital maintenance in the middle to lower stages – the products of which are temporally closer to consumption – will be neglected (it is easy to understand why: the lower the time discount, the more the net present value of durable capital goods increases and the more profitable long term investments appear to be).

  Consumer demand will actually be higher than indicated by market interest rates, while at the same time, real savings will be lower than indicated by market interest rates: they won’t suffice to sustain and complete all the new long term projects that are undertaken (think of the many half-completed “ghost apartment complexes” left standing in Spain after the real estate bust). Eventually this discrepancy must come to light and a bust will ensue (this moment can be delayed by additional credit expansion, but not forever).

  Many businessmen may well be aware of the artificial nature of the boom, but they will still be tempted to go along, either because they believe they will be able to predict its end in timely fashion, or simply because they see no other way of staying in business. However, during the boom, capital will necessarily be consumed. Many of the accounting profits posted during the boom period will later be revealed as illusory and give way to large impairments and losses.

  What happens in the event of fiscal deficit spending? Deficit spending tends to lead to intra-temporal distortions in the production structure. Once again scarce resources will be employed in the wrong lines; bureaucrats will simply be groping in the dark and allocate resources without the ability to contrast the prospective results of their investments with the opportunity costs involved. Since all those actually producing genuine wealth have to compete for the same scarce resources, their activities will be necessarily restricted. The outcome is once again a production structure that is out of line with actual consumer wishes. Living standards must necessarily erode relative to what would have been the case otherwise.

   

  

  A famous real-life example of wasteful government spending: a road to nowhere near Kyoto.

   

  Moreover, government possesses no resources of its own. Every cent it spends has to be taken from the private sector, either by means of borrowing, taxation or inflation. Once these funds have been obtained, they are no longer available to the private sector. If one asserts that economic growth can be produced in this manner, one needs to believe that government bureaucrats are better at spending and investing these funds than the people they have been taken from. This belief strikes us as obvious nonsense. Of the three methods of funding fiscal spending, the one now under consideration – inflation – is by far the worst.

  However, we can rest assured that the great many private sector cronies infesting our state-capitalist system are salivating over the prospect of arrogating some of this coercively obtained loot to themselves.

   

  

  Always ready to obtain some of the loot – politically well-connected cronies

   

  As the Bloomberg article notes in passing:

  “[…]there is plenty to spend on with the B-20, a group of international business leaders, calculating that 100 million new jobs and $6 trillion of activity could be generated if governments met the infrastructure needs of their economies by 2030.”

  There it is again, the infrastructure canard. Building pyramids is also “activity” – but it makes no sense, because it wastes scarce resources. While pyramids, once built, are able to provide monument services, these stand in no relation to the costs involved. These so-called “necessary infrastructure projects” are for the most part no different (Poland’s ghost airports immediately spring to mind).

  We have discussed this topic on several previous occasions in the context of the EU’s investment dirigisme (see eg. “EU Planning to Spend Money it Doesn’t Have”, “The Stalinesque 4-Year Plan” and the addendum “Zwangswirtschaft”, which discusses a reader comment on the ominous parallels with Hitler’s economic plan, aiming to make Germany self-sufficient).

  The main point is precisely the one made above: investing in such projects necessitates choices. Resources must be withdrawn from other employments or will no longer be available for future alternative employments in the private sector. Since most of these (namely those turning out to be profitable) would have been in line with consumer wants, many of these wants will have to remain unsatisfied. For lack of capital, a number of entirely new products may never see the light of day. It is impossible to gauge the total impact on prosperity and progress, but the cumulative effect over time is presumably quite significant.

  Politically well connected cronies will end up benefiting to the detriment of everybody else in society. Relative impoverishment on a society-wide basis is the inevitable outcome – and that is actually the best case. Since the proposal entails financing of deficit spending by the monetary authority with money created ex nihilo, the far greater danger remains though that should it be adopted, the situation will eventually spiral completely out of control.

   

  Conclusion

  The fact that the new IMF chief economist is explicitly arguing in favor of policies like so-called “helicopter money” probably makes it more likely that they will indeed be adopted at some point. He is after all a freshly appointed bureaucrat and not a retired one like e.g. Adair Turner, who is merely sniping from the sidelines. Presumably Obstfeld’s opinions also carry more weight than the theoretical proposals forwarded by academics who are currently not in a policymaker role.

  It seems unlikely that anything of this sort will happen in the near future, but one only needs to look at how Japan’s policies have evolved over time – over the years, one previous taboo after another was eventually shoved aside by the BoJ in favor of ever crazier experimentation. Note that it wasn’t hindered by legacy legal restrictions either – the laws and regulations were simply altered. This is relevant to the issue, as most central banks are currently not allowed to fund deficit spending by governments directly.

  The strength of this prohibition varies between the important currency areas, but one must assume that once the taboo falls in one of them, the others will follow suit, especially when another severe economic bust strikes. As we always say, the lunatics are running the asylum. One shouldn’t underestimate what they are capable of.

  The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.