• When The Elites Wage War On America, This Is How They Will Do It

  Submitted by Brandon Smith via Alt-Market.com,

  The consequences and patterns of war, whether by one nation against another or by a government against the citizenry, rarely change. However, the methods of war have evolved vastly in modern times. Wars by elites against populations are often so subtle that many people might not even recognize that they are under attack until it is too late. Whenever I examine the conceptions of “potential war” between individuals and oligarchy, invariably some hard-headed person cries out: “What do you mean ‘when?’ We are at war right now!” In this case, I am not talking about the subtle brand of war. I am not talking about the information war, the propaganda war, the economic war, the psychological war or the biological war. I am talking about outright warfare, and anyone who thinks we have already reached that point has no clue what real war looks like.

  The recent exposure of the nationwide Jade Helm 15 exercise has made many people suspicious, and with good reason. Federal crisis exercises have a strange historical tendency to suddenly coincide with very real crisis events. We may know very little about Jade Helm beyond government admissions, claims and misdirections. But at the very least, we know what “JADE” is an acronym for: Joint Assistance for Deployment and Execution, a program designed to create action and deployment plans using computer models meant to speed up reaction times for military planners during a “crisis scenario.” It is linked with another program called ACOA (Adaptive Course of Action), the basis of which is essentially the use of past mission successes and computer models to plan future missions. Both are products of the Defense Advanced Research Projects Agency (DARPA).

  As far as I know, no one has presented any hard evidence as to what “HELM” really stands for, but the JADE portion of the exercise explicitly focuses on rapid force deployment planning in crisis situations, according to the government white paper linked above. This fact alone brings into question statements by the Department of Defense that Jade Helm is nothing more than a training program to prepare military units for “foreign deployment.” This is clearly a lie if Jade Helm revolves around crisis events (which denotes domestic threats), rather than foreign operations.

  Of course, if you also consider the reality that special operations forces ALWAYS train like they fight and train in environments similar to where they will fight, the entire notion of Jade Helm as a preparation for foreign theaters sounds absurd. If special operations forces are going to fight in Iraq, Iran or Syria, they go to training grounds in places like Kuwait. If they are training in places like Fort Lauderdale, Florida (including “infiltration training”), then there is no way around the fact that they are practicing to fight somewhere exactly like Fort Lauderdale with a similar culture and population.

  I would further note that Jade Helm exercises are also joint exercises with domestic agencies like the FBI and the DEA.  Again, why include domestic law enforcement agencies in a military exercise merely meant to prepare troops for foreign operations?  I often hear the argument that the military would never go along with such a program, but people who take this rather presumptive position do not understand crisis psychology.  In the event of a national catastrophe many military personnel and government employees may determine that they will do what is "best for them and their families".  And if following orders guarantees the security of their families (food security, shelter, etc), then they may very well follow any order, no matter how dubious.  Also, a large scale crisis could be used as a rationale for martial law; otherwise well meaning military men and women could be convinced that the loss of constitutional freedoms might be for the "greater good of the greater number".  I believe some military will indeed resist such efforts, but of course, Jade Helm may also be a method for vetting such uncooperative people before any live operation occurs.

  So if Jade is actually a crisis-planning system for the military and the military is training for domestic operations, what is the crisis it is training to react to? It’s hard to say. I believe it will come down to an economic disaster, but our economic and social structures are so weak that almost any major event could trigger collapse. Terror attacks, cyberattacks, pandemic, a stiff wind, you name it. The point is the government expects a crisis to occur. And with the advent of this crisis, the ultimate war on the American people will begin.

  Why wait for a crisis situation? With the cover of a crisis event, opposition to power is more easily targeted. For my starting point on the elite war strategy, I would like to use the following presentation on guerrilla warfare by Max Boot, Council on Foreign Relations senior fellow and military adviser, at the elitist World Affairs Council.

  I would first point out that Boot claims his work is merely a historical character study of interesting figures from the realm of insurgency and counterinsurgency and is not “polemical.” I’m afraid that I will have call horse hockey on that. Boot is direct adviser to the Department of Defense. His work and this presentation were obviously a study of guerrilla tactics from the perspective of counterinsurgency and an attempt to explore strategic methods for controlling and eradicating guerrillas and “terrorists.”

  Any defense the American people might muster against elitist dismantling of constitutional liberties would inevitably turn to "insurgency". So using CFR member Boot’s views on counterinsurgency as a guideline, here is how the elites will most likely wage open war on those within the American population who have the will to fight back.

  Control Public Opinion

  Boot stresses the absolute necessity for the control of public opinion in defeating an insurgency. Most of his analysis is actually quite accurate in my view in terms of successes versus failures of guerrilla movements. However, his obsession with public opinion is, in part, ill-conceived. Boot uses the American Revolution as a supposed prime example of public opinion working against the ruling powers, claiming that it was British public opinion that forced parliament and King George III to pull back from further operations in the colonies.

  Now, it is important to recognize that elitists have a recurring tendency to marginalize the success of the American Revolution in particular as being a “fluke” in the historical record. Boot, of course, completely overlooks the fact that the war had progressed far longer than anyone had predicted and that the British leadership suffered under the weight of considerable debts. He also overlooks the fact that pro-independence colonials were far outnumbered by Tories loyal to the crown up to the very end of the war. The revolution was NEVER in a majority position, and public opinion was not on the revolutionaries’ side.

  The very idea of the American Revolution is a bit of a bruise on the collective ego of the elites, and their bias leads them to make inaccurate studies of the event. The reality is that most revolutions, even successful ones, remain in a minority for most, if not all, of their life spans.  The majority of people do not participate in history.  Rather, they have a tendency to float helplessly in the tides, waiting to latch onto whatever minority movement seems to be winning at the time.

  Boot suggests that had the Founding Fathers faced the Roman Empire rather than the British Empire, they would have been crucified and the rebellion would have immediately floundered because the Romans had no concern for public opinion. This is where we get into the real mind of the elitist.

  For now, the establishment chooses to sway public opinion with carefully crafted disinformation. But what is the best way to deal with public opinion when fighting a modern revolution? Remove public opinion as a factor entirely so that the power elite are free to act as viciously as they wish. Engineered crisis, and economic crisis in particular, create a wash of other potential threats, including high crime, looting, riots, starvation, international conflict, etc. In such an environment, public opinion counts for very little, if people even pay attention at all to anything beyond their own desperation. Once this is achieved, the oligarchy has free reign to take morally questionable actions without fear of future blowback.

  Control The Public

  Another main tenet Boot describes as essential in defeating insurgency is the control of the general population in order to prevent a revolution from recruiting new members and to prevent them from using the crowd as cover. He makes it clear that control of the public does not mean winning the “hearts and minds” in a diplomatic sense, but dominating through tactical and psychological means.

  He first presents the example of the French counterinsurgency in Algeria, stating that the French strategy of widespread torture, while “morally reprehensible,” was indeed successful in seeking out and destroying the insurgent leadership. Where the French went wrong, however, was their inability to keep the torture campaign quiet. Boot once again uses the public opinion argument as the reason for the eventual loss of Algeria by the French.

  What Boot seems to be suggesting is that systematic torture is viable, at least as a hypothetical strategy, as long as it remains undetected by the overall public. He also reiterates this indirectly in his final list of articles for insurgency and counterinsurgency when he states that “few counterinsurgencies (governments) have succeeded by inflicting mass terror, at least in foreign lands,” suggesting that mass terror may be an option against a domestic rebellion.

  Boot then goes on to describe a more effective scenario, the British success against insurgents in Malaya. He attributes the British win against the rebellion to three factors:

  1)  The British separated large portions of the population, entire villages, into concentration camps, surrounded by fences and armed guards. This kept the insurgents from recruiting from the more downtrodden or dissatisfied classes. And it isolated them into areas where they could be more easily engaged.

  2)  The British used special operations forces to target specific rebel groups and leadership rather than attempting to maneuver through vast areas in a pointless Vietnam-style surge.

  3)  The British made promises that appealed to the general public, including the promise of independence. This made the public more pliable and more willing to cooperate.

  Now, I have no expectation whatsoever that the elites would offer the American public “independence” for their cooperation in battling a patriot insurgency, but I do think they would offer something perhaps more enticing: safety.

  I believe the British/Malayan example given by Boot would be the main methodology for the elites and the federal government in the event that a rebellion arises in the U.S. against planned shifts away from constitutional republic or martial law instituted in the wake of a national emergency.

  Isolate Population Centers

  There is a reason why certain American cities are being buried in technologically sophisticated biometric surveillance networks, and I think the Malayan example holds the key. Certain cities (not all) could be turned into massive isolated camps, or “green zones.” They would be tightly controlled, and travel would be highly restricted. Food, shelter and safety would likely be offered, after a period of disaster has already been experienced. A couple months of famine and lack of medication to the medically dependent would no doubt kill millions of people. Unprepared survivors would flock to these areas in the hopes of receiving aid. Government forces would confiscate vital supplies in rural areas whenever possible in order to force even more people to concentrate into controlled regions.

  I have seen the isolation strategy in action in part, during the G20 summit in Pittsburgh. More than 4,000 police and National Guard troops locked down the city center, leaving only one route for travel. The first day, there were almost no protesters; most activists were so frightened by the shock-and-awe show of force that they would not leave their homes. This is the closest example I have personally experienced to a martial law cityscape.

  Decapitate Leadership

  The liberty movement has always been a leaderless movement, which makes the “night of long knives” approach slightly less effective. I do not see any immediate advantage to the elites in kidnapping or killing prominent members of the movement, though that does not mean they will not try it anyway. Most well-known liberty proponents are teachers, not generals or political firebrands. Teachers leave all their teachings behind, and no one needs generals or politicians. The movement would not necessarily be lost without us.

  That said, there is a fear factor involved in such an event. The black-bagging of popular liberty voices could terrorize others into submission or inaction. This is why I constantly argue the need for individual leadership; every person must be able and willing to take individual action without direction in defense of his own freedoms, if the need arises. Groups should remain locally led, and national centralization of leadership should be avoided at all costs.

  According to the very promoters of Jade Helm exercises, training will center on quick-reaction teams striking an area with helicopter support, then exfiltrating within 30 minutes or less. Almost every combat veteran I have spoken with concerning this style of training has said that it is used for “snatch and grab” — the capture or killing of high value targets, then exfiltration before the enemy can mount a response.

  Fourth-Generation Warfare

  The final method for war against the American people is one Boot does not discuss: the use of fourth-generation warfare. Some call this psychological warfare, but it is far more than that. Fourth-generation warfare is a strategy by which one section of a population you wish to control is turned against another section of the population you wish to control. It is warfare without the immediate use of armies. Rather, the elites turn the enemy population against itself and allow internal war to do most of their work for them. We can see this strategy developing already in the U.S. in the manipulation of race issues and the militarization of police.

  The use of provocateurs during unrest in places like Ferguson, Missouri, and Baltimore suggests that a race war is part of the greater plan. I believe law enforcement officials have also been given a false sense of invincibility. With military toys and federal funding, but poor tactical philosophies and substandard training, LEOs are being set up as cannon fodder when the SHTF. Their inevitable failure will be used as a rationalization for more domestic military involvement; but in the meantime, Americans will be enticed to fight and kill each other while the elites sit back and watch the show.

  4th Gen warfare also relies on fooling the target population into supporting measures that are secretly destructive to the people.  For example, liberty movement support for controlled opposition such as Russia or China, or liberty support for a military coup in which the top brass are elite puppets just like the Obama Administration. Think this sounds far fetched?  It has already happened in our recent history!  Marine Corp Major General Smedley Butler was hired by corporate moguls to lead a paid army in a coup against Franklin D. Roosevelt (also an elitist puppet) in 1933.  Butler luckily exposed the conspiracy before it ever got off the ground.  Both sides were controlled, but the coup if successful could have resulted in popular support for the expedient erosion of the Constitution, rather than a slow erosion which is what took place.  This is the epitome of 4th Gen tactics – make the people think they are winning, when they are actually helping you to defeat them.

  Know Thy Enemy

  I have outlined the above tactics not because I necessarily think they will prevail, but because it is important that we know exactly what we are dealing with in order to better defend ourselves. Such methods can be countered with community preparedness, the avoidance of central leadership, the application of random actions rather than predictable actions, etc. Most of all, liberty champions will have to provide a certain level of safety and security for the people around them if they want to disrupt establishment efforts to lure or force the population into controlled regions. Crisis is the best weapon the elites have at their disposal, and exercises like Jade Helm show that they may use that weapon in the near term. The defense that defeats crisis is preparation — preparation not just for yourself, but for others around you. War is coming, and while we can’t know the exact timing, we can assume the worst and do our best to be ready for it as quickly as possible.

  

  

  
  
  

  

• China To Establish Yuan-Denominated Gold Fix In Bid To Upend London Benchmark

  A long time ago, in a financial galaxy far, far away, a “fringe” blog raised the topic of gold market manipulation during the London AM fix. Several years later (which, incidentally, is about average in terms of the lag time between when something is actually going on and when the mainstream financial media finally figures it out and reports on it), it was revealed that in fact, shenanigans were likely afoot and indeed, regulators are still trying to sort out what happened. 

  Via WSJ earlier this year:

  The precious-metals probes are the latest example of regulatory scrutiny into how the world’s biggest financial institutions influence widely used benchmarks. Until last year, prices for gold, silver, platinum and palladium were set using a decades-old practice of once- or twice-a-day conference calls between a small group of banks. The process for setting each of the price “fixes” has since been overhauled…

   

  Last year, the FCA fined Barclays £26 million ($40.2 million) for lax controls after one of its traders allegedly manipulated the gold fix at the expense of a client…

   

  Swiss regulator Finma settled last year allegations of foreign-currency manipulation with UBS. The regulator said it found “serious misconduct” among precious-metals traders at UBS, including “front running,” or trading ahead of, the silver-fix orders of one client…

   

  More than 25 lawsuits have been filed against Barclays, Deutsche, HSBC, Bank of Nova Scotia and Société Générale over their alleged role in setting the gold fix. 

  The ‘fix’ for the ‘fixed’ gold fix (only in the world of corrupt high finance is such a hilariously absurd passage possible) is supposedly a new system whereby the fixings are derived electronically, but as Reuters notes, there’s a new kid on the block when it comes to benchmarking the price of gold. Here’s more:

  China conducted trial runs for the planned launch of a yuan-denominated gold fix last month, three sources familiar with the matter said, in a sign the world’s second-biggest bullion consumer was moving closer to creating a benchmark price.

   

  The state-run Shanghai Gold Exchange (SGE), on whose international platform the fix will be launched, conducted the trial with major Chinese banks and a few foreign banks, the sources said this week…

   

  China plans to launch a yuan gold fix this year through trading of a 1 kg contract on the SGE, Reuters reported in February.

   

  “The launch of the fix is towards the end of the year … Banks were invited in April to test the fixing process,” said one of the sources directly involved in the process.

   

  The SGE will act as the central counterparty, unlike the London fix where the bullion banks settle trades amongst themselves, the source said.

   

  If the Chinese fix becomes a success, it could add to the pressure on the London benchmark, which is used worldwide by producers, refiners and central banks to price holdings and contracts, although the two could exist side-by-side.

  The ironic conclusion: the currency ‘manipulating’, GDP fabricating, soon-to-be global superpower is now set to challenge the century-old gold price fixing regime which is under fire for being just as corrupt as every other ‘benchmark’ has proven to be since we first suggested that LIBOR was rigged some six years ago. But don’t worry: China promises that yuan hegemony is not something Beijing is interested in establishing.

  

  

  
  
  

  

• The Complete UK Election Preview

  The UK General Election will be held tomorrow. The polls close at 10 pm. We should have a pretty clear picture of the overall seat count by 5 to 6 am on Friday morning. The result, as SocGen notes, is almost certain to be a hung parliament.

  Then the fun will really start.

  The leader of the incumbent Conservative/ Liberal Democrat coalition (David Cameron) stays in power until or unless it becomes clear that he does not have the ability to form a new government. Most polls are showing that the Conservatives will win the most seats but fall far short of an absolute majority. That will then lead to a contest between them and the Labour party to negotiate with the other parties to form some type of formal or informal coalition. The first test of the new government will be the vote on its legislative programme which is then presented in the Queen’s speech (tentatively scheduled for 27 May). That vote should be in the early part of June.

   

  The main concern for the markets should be whether or not a Conservative-led coalition is formed that is sufficiently supportive of the Conservative’s plans to allow them to hold the promised Brexit referendum by the end of 2017.

  Here are the possible outcomes (along with SocGen's probabilities)…

  

   

  As a reference, here are 2010's results:

  

   

  And here are the key features of tomorrow's election relative to that result…

  1) A reduction in Conservative seats and an increase in Labour seats;

   

  2) A major fall in support for the Liberal Democrats who could easily see the number of seats won fall to less than 30;

   

  3) A surge in the SNP seats from 6 to maybe even more than 50;

   

  4) The poor performance of the UKIP (UK Independence Party), despite its heavy influence on Conservative party policy in recent years. As the chart above shows, they won NO seats in 2010. They currently have two seats as a result of defections from the Conservative party but they will be lucky to win even one more seat than that. So, in the absence of the most unlikely outcome of the Conservatives being only one or two seats short of a stable government, UKIP would have no role in the formation of the next government.

  The opinion polls show Conservative and Labour to be neck and neck

  

   

  SocGen concludes, there is a real choice between the broad fiscal plans of the Conservative and Labour parties.

  Labour would cut the deficit more slowly to allow a higher level of net investment than the Conservatives plan. That is a defensible position, worthy of debate at a time when financing costs are at record lows.

   

  However, the key point for the markets is that both major parties have plans to continue austerity at a pace that would satisfy the markets. Certainly, the Labour party has been accused of being anti-big business but that is something that, if true, would only have a gradual impact on the economic future of the UK.

   

  

   

  More immediately worrying for the financial markets would be if the Conservatives were able to construct a form of coalition that allowed them to deliver the promised Brexit referendum by the end of 2017. That would create lasting uncertainty that could damage business and investor confidence.

  Deutsche Bank believes UK politics alone are unlikely to derail the recovery or meaningfully change foreign appetite for UK assets, in the short term at least and lays out 7 predictions for post-election UK…

  Rather than try to guess the outcome, however, in this note we make a few broad brush predictions about what the post-election UK will look like for investors. Our conclusion is that while the politics is extremely uncertain, the policy mix may undergo less rather than more change. Politics alone are unlikely to derail the recovery or meaningfully change foreign appetite for UK assets, in the short term at least.

   

  

   

  For GBP, once the initial uncertainty over government formation has passed, the focus should quickly turn back to the monetary policy outlook. On that front, we still see the risks lying in earlier rate cuts from the Bank of England than the market expects. For this reason we see value in using election uncertainty as an opportunity to position into EUR/GBP shorts.

   

  Prediction #1: Fiscal policy will be easier, but the deficit will fall
  At the Budget in March, forecast tightening over the next five years fell from 5.5% GDP to 4.4% as the coalition abandoned its goal of a GBP 23bn surplus by 2019-20, but the next two years were still projected to be roughly as austere as at the start of the coalition.1 After the election, there is reason to think this may change.

   

  In the first place, Labour policy is less tight than implied by current forecasts. As the IFS notes, the party’s plans mean only moderate reductions in departmental spending may be required. Under the increasingly likely probability the SNP holds influence over the next parliament, policy could be easier still. The party currently advocates rises of 0.5% public spending in real terms. Note that even under SNP plans, Treasury analysis suggests that the deficit would continue to fall.3 If the Conservatives were to remain in office, current forecasts may not materialize. The party eased off austerity in the middle of the last parliament as growth suffered, and there are question marks over where additional cuts implied by their deficit plans will come from. The party may also be helped by the improving growth outlook. Receipts have started to improve in recent months, and the OBR’s current growth projections are on the pessimistic side of official forecasters. In sum, and as our economist has noted, it may be helpful to look through the very noisy political debate on the deficit, and focus instead on the underlying improvement in the public finances. This has important implications for sterling, because the Bank of England’s inflation and growth projections as of the February Inflation Report are currently predicated on the very austere fiscal path outlined in the December Autumn Statement. Easier fiscal policy should provide the bank with more scope for monetary tightening.

   

  Prediction #2: There will be no fiscal crisis, whatever the outcome
  Even if fiscal policy were loosened, there seems little chance of a fiscal crisis. In the first place, the structural deficit has halved over the last five years. Perhaps more importantly, the markets’ understanding of fiscal risks has moved on since 2010, when a genuine loss of investor confidence in the UK finances was arguably on the cards. As the Eurozone crisis has shown, debt and deficits are much more relevant when countries lack an independent monetary policy. A lack of market concern is reflected in credit spreads, which remain at pre-crisis lows. Third, the external environment is very favorable for UK assets. The ECB’s QE program had driven yields of core fixed income negative across the curve. One of the obvious beneficiaries should be the UK. The spread between 10-year UK and German yields is currently the widest on record. Today’s Bank of England data showed massive (GBP 26bn) foreign buying of gilts in March, more than reversing outflows in the first two months of the year.

   

  Prediction #3: The UK will remain one of the most attractive destinations for foreign investment
  The last few years have been very positive for foreign investment. FDI inflows to the UK have totaled over 8% of GDP since the fourth quarter of 2012, financing around half of the current account deficit. The policy mix has played an important role. The corporation tax rate has fallen from 28% to 21% over the last five years, seeing the UK leapfrog above every OECD country save Switzerland in terms of corporate tax competitiveness. On the margin, a Labour-led administration would imply a moderately less positive investment climate than a Conservative one, but the policy mix is not set for wholesale change. The party favors keeping the corporation tax rate at its current low level (against another 1% cut proposed by the Conservatives). We doubt that other Labour party policies such as a mansion tax, changes to the non-domicile status of taxpayers and rises in the top rate of income tax, will result in a foreign exodus. Significant changes to the tax treatment of non-doms and foreign purchases of UK property were made by the current coalition government over the last five years with no apparent effect on foreign investors’ appetite for UK assets.

   

  Prediction #4: A new Scottish referendum won’t happen anytime soon
  Last year’s Scottish independence referendum generated panic among investors as it became apparent that a ‘yes’ vote was a real possibility, with potentially destabilizing consequences for the UK banking system and economy. But even if the SNP were to hold the balance of power after the next election, it seems unlikely that a new referendum would materialize soon. The party made no mention of another referendum in its manifesto released earlier this month. This should not be surprising – recent polling suggests that the issue ranks extremely low on Scottish voters’ priorities. Even if the SNP wished to reintroduce the question over the next five years, the party’s leverage over a future Labour government may be overestimated (see Prediction #6). A more likely date for the issue to be reintroduced is after the Scottish parliamentary elections in May next year, assuming the SNP holds on to its majority in the Scottish parliament. But it is also worth pointing out that a future referendum would likely be less destabilizing than last year’s events. Precisely because of uncertainty in September, authorities and businesses are now much better informed about the risks of a Scottish exit, particularly with respect to risks concerning the banking sector.

   

  Prediction #5: An EU referendum may be good for the UK economy
  Under the Conservatives, a referendum on the UK’s membership in the European Union would likely be held before 2017 following a renegotiation of the UK’s terms of membership. A ‘Brexit’ could have severe consequences for UK growth performance and foreign investment, and the potential impact on business confidence leading into a referendum has been widely noted.6 Less commented on, however, are the potential benefits that a renegotiation could bring to the British economy. As our economists have argued, the UK is uniquely placed to benefit from reforms to the EU Single Market and the Department for Business Innovation and Skills has estimated that the potential gains for British exports could add up to 7% GDP.7 A referendum may be an ideal bargaining chip for the UK to remodel aspects of the EU in its favor. Of course, this would depend on an ‘in’ vote, but polls currently suggest a majority in favor of staying in, particularly after a successful renegotiation.

   

  Prediction #6: A Labour minority government would be more stable than you might think
  If no party wins a majority next Thursday, the UK faces the prospect of a coalition or minority government. In the event that SNP support is required to pass legislation in the House of Commons, an increasingly probable outcome given the latest opinion polls in Scotland, the latter seems the more likely option. Labour has ruled out a formal deal with the nationalists. Some have argued that if the SNP held the balance of power, the result could be destabilizing, but the party’s leverage may be less than thought. Even if the SNP found Labour uncooperative on key policy issues, it would not be rational for them to bring down the government with a vote of no-confidence.

   

  

   

  This would cause a new election, a possible future Conservative government, and damaging Labour accusations that the SNP had voted down a ‘progressive’ administration (we outline the SNP’s options on a decision tree on the previous page). The party also looks set to perform exceptionally well next week, with some polls suggesting a near clean sweep of Labour’s seats. It is unclear why the party would want to risk these with a new election.

   

  Prediction #7: There may be less change rather than more
  Precisely because no party is likely to have enough seats for a majority, it is difficult to envisage sweeping changes to the policy mix. The last five years have seen the deficit cut in half, the employment rate reach a record high and UK growth accelerate above any other advanced economy. Major challenges remain, however. The current account deficit has reached a record, meaning much-vaunted ‘rebalancing’ has failed to occur. Productivity has also been the weakest among any G10 country. This has important implications for wage growth, which has been very slow relative to previous recoveries. Indeed, the current fracturing of the UK’s political environment can indirectly be attributed to imbalances in the labour market. Pollsters find that a key explanatory variable behind support for the UK Independence Party (UKIP), for example, is lack of a university degree. 8 It is unclear whether any major party has the solutions for these issues, but also doubtful that it will have the electoral resources. On the other hand, the doom-laden predictions of certain commentators are unlikely to materialize.

  *  *  *

  Finally, Goldman simplifies the decision process to three potential outcomes. While there is a whole range of potential outcomes to the May 7 election, each of the most likely governmental combinations falls into one of three broad groupings:

  1. A Conservative-led government (either on its own or in coalition with the LibDems). This is likely to be perceived as the most ‘market-friendly’ outcome, partly because it would come closest to maintaining the status quo and also because the Conservatives’ stated aim is to reduce the budget deficit through cutting current expenditure rather than by raising taxes. Set against this, the Conservatives’ commitment to hold a referendum on EU membership by 2017 and the increased risk of exit would likely be negative for investment spending and UK assets.

   

  2. A Labour-led government (either on its own, with the implicit support of the SNP, or in a formal coalition with the LibDems) would shift the balance of further fiscal adjustment away from spending cuts to tax increases. Labour’s proposals include: raising the top rate of income tax from 45% to 50%; raising the headline corporation tax rate from 20% to 21% (offset by measures designed to help small businesses); increasing the ‘Bank Levy’ on banks’ balance sheets, applying a second ‘one-off’ tax on bank bonuses, removing the non-domicile tax status and introducing a ‘Mansion Tax’ on residential properties worth more than £2 million. At the same time, a government of this complexion would be less likely to contemplate a referendum on Britain’s EU membership.

   

  Of the potential Labour-led government combinations, financial markets would likely respond more favourably to a Labour/LibDem coalition than to a minority Labour government supported by the SNP on a confidence and supply basis. (The Labour party has ruled out a formal coalition with the SNP.) In this scenario, concerns are likely to emerge that reliance on the SNP would pull the Labour government away from the centre to the left of the political spectrum, as well as raising the spectre of distributional policies favouring Scotland at the expense of the UK as a whole.

   

  3. It is also possible that there will be no clear outcome to the election. If no party (or coalition of parties) is able to form a stable government, a second election could be called shortly after the first or a minority government might attempt to struggle on. Again, the lack of clarity surrounding such an impasse would likely be damaging for UK growth and assets.

  *  *  *
  The Bottom Line is that at the macro level the implications of the election may be less pronounced than many anticipate. Monetary policy has been de-politicised through the Bank of England’s independence. Moreover, the formation of a coalition government is likely to involve convergence towards centrist positions, while a minority administration that pursues policies outside the mainstream would be unlikely to survive given its fragile parliamentary basis. In either case, the political system is unlikely to deliver radically different macroeconomic outcomes.

  Sources: Bloomberg, Goldman Sachs, Societe Generale, and Deutsche Bank

  

  

  
  
  

  

• Weak Dong Forces Vietnam Central Bank To Devalue Currency (Again)

  Having put off the decision to devalue the Vietnamese currency in March, the Dong has pressured the weaker limit (1% trading band) of the reference rate ever since. This has led to Vietnam’s central bank devaluing the dong reference rate to 21,673 (from 21,458) for the 2nd time this year. This is the softest the dong has ever been relative to king dollar, pushing them deeper into the currency wars.

  • *VIETNAM CENTRAL BANK DEVALUES DONG
  • *VIETNAM DEVALUES DONG REFERENCE RATE TO 21,673 PER DOLLAR

   

  

   

  As Bloomberg notes,

  The State Bank of Vietnam devalued the dong for the second time this year in a bid to spur exports and accelerate economic growth.

   

  The central bank weakened its reference rate by 1 percent to 21,673 dong per dollar. The Vietnamese currency is allowed to trade as much as 1 percent either side of the daily fixing, which was also cut by 1 percent on Jan. 7.

  Chart: Bloomberg

  

  

  
  
  

  

• Peter Schiff: The Embarrasment Of Fed Transparency

  Submitted by Peter Schiff via Euro Pacific Capital,

  Over the past decade or so, "transparency" has become one of the buzzwords that has guided the Federal Reserve's culture. The word was meant to convey the belief that central banking was best done for all to see in the full light of day, not in the murky back rooms of Washington and New York. The Fed seems to be on a mission to prove that its operations are benevolent, fair, predictable, and equitable. Part of that transparency movement took shape in 2007 when the Fed began publicizing its Gross Domestic Product (GDP) forecasts, which previously (to the frustration of investors) had been kept under wraps. Most of the Fed's policy moves are tied to how strong, or how weak, it believes the economy will be in the coming year. As a result, its GDP forecast is perhaps the single most important estimate it makes.

  So the good news for investors is that the Fed now tells us where it thinks the economy is headed. The bad news is it has been consistently, and sometimes spectacularly, wrong. Talk about the blind leading the blind.

  In the eight years that the Fed has issued GDP forecasts in the prior Fall, only once, in 2010, did the actual economic performance come in the range of its expectations (referred to as its "central tendency.") And even in that year, Fed forecasters did not manage to put the ball through the goal posts. Instead it just hit the upright (the low end of its range: 2.5% in actual growth vs. a central tendency of 2.5% to 3.5%). In all other years the Fed missed the mark completely on the downside. The tale of the tape tells the story:

  

  The biggest misses clearly came during the recession years of 2008 and 2009. The Fed clearly had no idea that trouble was brewing, or that the trouble would last once it started. In 2008 the actual growth came in 2.1% below the low end of its forecast range and 2.5% below the midpoint of its estimates. In 2009 it was 2.6% below the low end and 3.2% below the midpoint. 2011 wasn't much better, with the Fed missing by 1.4% and 1.7% for the same criteria. The rest of the years had more pedestrian misses of less than a percentage point. But it never really hit the mark, and it consistently overbid by a significant margin.

  And while we are only a few months into 2015, it doesn't look like they will be on target this year either.

  

  With first quarter growth at just a scant .2% annualized, the remaining three quarters of the year would have to average 3.4% annualized just to get to 2.6% for the full year (the low end of the Fed's range). Furthermore, the latest data, such as the spectacular increase of the trade deficit in March (to $51.4 billion, the largest month over month growth on record and the biggest monthly gap since the crisis month of October 2008), and today’s report showing the largest consecutive quarterly decline in productivity in more than 20 years, will likely force a downward revision to Q1 GDP. With April data looking even weaker than what was seen in February and March, a strong second quarter rebound, like the one seen in 2014, seems increasingly unlikely. In other words, good luck getting to 2.6%. But even if we do get there, it is no cause for celebration. 2.6% growth would be indicative of a struggling economy (recall that for the 20th Century, annual growth averaged well north of 3%).

  In the seven full years since the Fed brought rates to zero, and at times showered the markets with trillions of dollars of QE cash, GDP growth has averaged just 1.1%. Even stripping out the recession years of 2008 and 2009, to focus only on the five "recovery" years of 2010-2014, gives us an average GDP of 2.2%, a rate that has been below the central tendency every year. 

  So what do we make of this? Are Fed economists just horrible forecasters? And if so, why not hire others who more competent? Or is something more troubling going on? The most benign explanation is that they simply failed to anticipate a string of unfortunate events that have supposedly prevented a real recovery from taking hold. First it was the European debt crisis, then it was the high energy prices, then it was Syria, then Ukraine, then the Polar Vortex, then it was the low energy prices, then it was the European recession, the strong dollar, and then another bad winter. Apparently, unbeknown to Fed forecasters, the world is a tricky place fraught with economic, political and meteorological crises. But hasn't that always been the case?

  A more troubling possibility is that the Fed simply doesn't understand how its policy tools really impact the economy. It expects that zero percent interest rates and quantitative easing will stimulate aggregate demand, encourage consumers to spend and businesses to hire, thereby initiating a virtuous cycle that will propel the economy back to healthy growth. Since it believes its medicine will cure the patient, it builds a favorable outcome into its forecasts, which biases those forecasts in an upward direction. Based on that assumption, it's a bit of a headscratcher to the Fed as to why the economy has failed to deliver as expected. So cue the long litany of excuses.

  But what if that's not the way it works?  What if, as I have argued many times, that stimulus in the form of zero percent interest rates and QE bond purchases, act more like economic sedatives than stimulants? What if, as I have argued, that these crutches prevent an economy from finding the solid footing needed to build a real recovery? This would explain why we have failed to recover after seven years of policies expressly designed to spur recovery.

  A more sinister possibility is that the Fed is not really forecasting at all but cheerleading. The fact that all its forecasts have missed on the high side reveals that its misses may not be random. If the Fed were just wrong, one would expect some of its forecasts to be too low. An obvious explanation is that the Fed may be using its "forecast" to talk up the economy. By forecasting strong growth, the Fed may be hoping to engender optimism, with more spending and hiring hopefully to follow. Kind of like a field of dreams recovery — if the Fed forecasts it; it will come. Plus the Fed may be hesitant to issue a somber assessment of future growth even if it expects it, fearful that its forecasts become self-fulfilling as businesses and consumers cut back to reflect that forecast. If so, its economics "forecasts" would be in actuality just another policy arrow in its quiver, and should never be taken seriously.

  Another inconvenient fact that needs to be ignored in the string of GDP reports is the consistently low inflation numbers that the Fed uses. Remember, to get a sense of real growth, the bean counters need to subtract inflation from the nominal figures. Now I have always argued that the CPI itself has consistently underreported inflation, but I have also explained how the Fed's preferred gauge of inflation used in the GDP report, called the GDP deflator, is consistently lower than the CPI (a trend that goes back to 1977). But the GDP report for First Quarter 2015 really kicks that trend into another dimension.

  To arrive at the .2% annualized GDP estimate, the Fed assumed inflation was running at minus .1% annually (Bureau of Economic Analysis). With the exception of two quarters during the depths of the Great Recession (2nd and 3rd Quarters of 2009), we have to go all the way back to the First Quarter of 1952 to find a negative deflator (BEA). If positive inflation data had been used, growth in Q1 would have come in negative.

  Based on what we have seen thus far in the year, fantasies about a 2015 recovery should be evaporating. But, as of March 18, the Fed continues to hold to 2.5%-3.0% GDP forecasts and tangential assumptions that rate hikes will begin the second half of this year and will continue throughout next year. (A February 12th survey of economists by the Wall Street Journal shows a consensus 2.2% Fed Funds rate by year end 2016). With these assumptions baked into portfolio dispositions investors risk being caught wrong footed when the ugly truth is finally accepted.

  

  

  
  
  

  

• Two-Thirds Of Workers Plan To Fund Retirement With Inheritance, HSBC Finds

  With more than 80% of America’s non-farm workers laboring under non-existent wage growth, and with central bank policies serving not only to exacerbate the gap between the wealthy and everyone else while wiping out what’s left of the Middle Class in the process, but also creating conditions whereby pension funds are unable to meet their obligations without assuming inordinate amounts of risk, the idea of a comfortable retirement could become more elusive than ever in the new paranormal. Exacerbating the problem are rock bottom yields on traditional savings vehicles and risk-free assets, and the simple fact that generally speaking, people just aren’t saving enough in a world driven by rampant consumerism. Here’s NY Times on the latter issue:

  On average, a typical working family in the anteroom of retirement — headed by somebody 55 to 64 years old — has only about $104,000 in retirement savings, according to the Federal Reserve’s Survey of Consumer Finances.

   

  That’s not nearly enough. And the situation will only grow worse.

   

  The Center for Retirement Research at Boston College estimates that more than half of all American households will not have enough retirement income to maintain the living standards they were accustomed to before retirement, even if the members of the household work until 65, two years longer than the average retirement age today.

   

  Using a different, more complex model, the Employee Benefit Research Institute calculates that 83 percent of baby boomers and Generation Xers in the bottom fourth of the income distribution will eventually run short of money. Higher up on the income scale, people also face challenges: More than a quarter of those with incomes between the middle of the income distribution and the 75th percentile will probably run short.

  Fortunately, some forward-thinking members of the world’s workforce have devised a clever workaround (no pun intended): they’ll just rely on funds they imagine they’ll receive when family members die. According to a new study commissioned by HSBC (which has in the past developed its own innovative take on the ‘tax advantaged’ retirement savings plan), one in three working age people are banking on an inheritance to partially or fully fund their retirement. Here’s more:

  Many working age people are banking on receiving an inheritance. Almost two thirds (66%) of those who have received or expect to receive an inheritance believe that it will help to fund their retirement, while more than a quarter (27%) expect it will completely or largely fund it.  

  Unfortunately, these expectations don’t match up particularly well with reality:

  Less than a third (32%) of working age people have received an inheritance. While this is more understandable among younger working age people, the proportion of older people who have received an inheritance is also lower – just over a third (36%) of working age people aged 45-64 have received an inheritance, while for those aged 65+, the proportion is still less than half (48%). 

  And the gap between perception and reality may be growing because ironically, nearly a quarter of those surveyed — and this is the same pool of respondents wherein 66% are betting on an inheritance to retire — indicated that they believe “it is better to spend all your money and let the next generation create their own wealth.” In other words: “I expect the previous generation to fund my retirement, but I’ll be damned if I’m going to pay for my kids to quit working.”

  

  

   

  HSBC draws the following conclusion regarding working age people’s assumptions about inheritances:

  To avoid disappointment in later life, working age people need to consider what happens if an inheritance is lower than expected – or doesn’t come at all. 

  And if the survey results presented above are any indication, that conclusion goes double for the children of those who participated in the study. 

  *  *  *

  

  

  
  
  

  

• There Will Be No 25-Year Depression

  Submitted by Bill Bonner via Acting-Man.com,

  Good and Bad News

  Today, we have bad news and good news. The good news is that there will be no 25-year recession. Nor will there be a depression that will last the rest of our lifetimes.

  The bad news: It will be much worse than that. On Monday, the Dow rose another 43 points. Gold seems to be working its way back to the $1,200 level, where it feels most comfortable.

  “A long depression” has been much discussed in the financial press. Several economists are predicting many years of sluggish or negative growth. It is the obvious consequence of several overlapping trends and existing conditions.

   

  

  Newspaper from October 24 1929, a.k.a. “Black Thursday” – at this point, the panic had just begun with the market losing 11% in one day. On the next two trading days (Friday and Saturday – at the time, the market was open on Saturdays) the market rebounded slightly, then came “Black Monday” and “Black Tuesday”, which erased all doubt about the seriousness of the situation

   

   

  Old People Are Dead Wood

  First, people are getting older. Especially in Europe and Japan, but also in China, Russia and the US. As we’ve described many times, as people get older, they change. They stop producing and begin consuming.

  They are no longer the dynamic innovators and eager early adopters of their youth; they become the old dogs who won’t learn new tricks.

  Nor are they the green and growing timber of a healthy economy; instead, they become dead wood. There’s nothing wrong with growing old.

  There’s nothing wrong with dying either, at least from a philosophical point of view. But it’s not going to increase auto sales or boost incomes – except for the undertakers.

   

  

  Mr. Hislop is looking forward to booming business

  Photo credit: State Library of Queensland

   

  The Cure for Debt? More Debt!

  Second, most large economies are deeply in debt. The increase in debt levels began after World War II and sped up after the money system changed in 1968-71.

  By 2007, US consumers reached what was probably “peak debt.” That is, they couldn’t continue to borrow and spend as they had for the previous half a century. Most of their debt was mortgage debt, and the price of housing was falling.

  The feds reacted, as they always do… inappropriately. They tried to cure a debt problem with more debt. But consumers were both unwilling and unable to borrow. Their incomes and their collateral were going down. This left corporations and government to aim only for their own toes.

  Central banks created more money and credit – trillions of dollars of it. But since the household sector wasn’t borrowing, the money went into financial assets and zombie government spending.

  Neither provided any significant support for wages or output. So, the real economy went soft, even as the cost of credit fell to its lowest levels in history.

   

  

  In order to revive the credit creation machinery, the Fed has monetized incredible amounts of debt, via Saint Louis Federal Reserve Research. With the end of QE 3, its balance sheet has begun to subtly decline … click to enlarge.

   

  The Cronies Are in Control

  Third, the developed economies have been zombified. The US, for example, is way down at No. 46 on the World Bank’s list of places where it is easiest to start a new business. And only one G8 country – Canada – even makes the top 10.

   

  

  How to get ahead in the world of today….

  Cartoon by Stahler

   

  Paperwork. Expenses. Regulation. High taxes. High labor rates. Entrenched competition with aging, loyal customers. All are endemic from Boston to Berlin to Beijing.

  Leading industries – heavily controlled and regulated, including defense, education, health and finance – are practically arms of the government. All are protected with high barriers to entry and low expectations. Competition is barely tolerated. Innovation is discouraged. Mistakes are forgiven and reimbursed.

  Meanwhile, the masses are encouraged to become zombies too, with generous rewards for those who 1) do nothing, 2) pretend to work or 3) prevent other people from doing anything. After all the zombies, cronies and connivers get their money, there is little left for the productive economy.

   

  

  How it all works in crony heaven – until it doesn’t anymore – via bastiatinstitute.org

   

  The Solution Begins When Markets Crack

  Typically, these problems – too much debt, too many zombies, and too many old people – lead to financial crises. Then, they are “solved” by either inflation or depression. And the solution begins when markets crack.

  Markets never go up forever. Instead, they go up, down and even sideways. They breathe in and out. And after sucking in air for the last 30 years, US financial assets are ready to exhale. Legendary asset manager Bill Gross comments:

  “When does our credit-based financial system sputter/break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress.”

  When that happens, problems begin to take care of themselves, in one of two ways…

  A quick, sharp depression wipes out the value of credit claims. Borrowers go broke. Bonds expire worthless. Companies declare bankruptcy. The whole capital structure tends to get marked down as debts are written off and financial assets of all kinds lose their value.

  Or, under pressure, the feds print money. Debts are diminished as the currency loses its value. The zombies still get money, but it is worth less. Inflation adjustments cannot keep up with high rates of inflation. Pensions, prices and promises fade. Either way, the slate is wiped clean and a new cycle can begin. But what rag will clean the slate now? Stay tuned…

   

  

  You knew there would eventually be a picture of the living dead.

  

  

  
  
  

  

• Japanese Bond Yields Spike Most In 2 Years On Return From Golden Week Holiday

  As Japanese markets re-open after Golden Week, the bond market is extremely active (which in itself is unusual given its total lack of liquidity). Playing catch up to the rest of the world’s igniting bond markets, 10Y JGB yields are up over 6bps (and even the 20Y is trading). The last few days have seen yields spike from 28bps to 43bps – a colossal move only seen before in May 2013 (after the initial euphoria of QQE).

  Biggest absolute yield swing in bonds since May 2013…

  

   

  Which drags yields to 2-month highs…

  

   

  Charts: Bloomberg

  

  

  
  
  

  

• Ultra-Secrecy Surrounds Barack Obama's New Global Economic Treaty

  Submitted by Michael Snyder via The Economic Collapse blog,

  Barack Obama is secretly negotiating a global economic treaty which would destroy thousands of American businesses and millions of good paying American jobs.  In other words, it would be the final nail in the coffin for America’s economic infrastructure.  Obama knows that if the American people actually knew what was in this treaty that they would be screaming mad, so the negotiations are being done in secret.  The only people that are allowed to look at the treaty are members of Congress, and even they are being banned from saying anything to the public.  American workers are about to be brutally stabbed in the back, and thanks to all of this secrecy and paranoia they won’t even see it coming.

  The name of this new treaty is “the Trans-Pacific Partnership”, and it is being touted as perhaps the most important trade agreement in history.  But very few people in this country are talking about it, because none of us are allowed to see it.  An article that was just released by Politico detailed the extreme secrecy that is surrounding this trade agreement…

  If you want to hear the details of the Trans-Pacific Partnership trade deal the Obama administration is hoping to pass, you’ve got to be a member of Congress, and you’ve got to go to classified briefings and leave your staff and cellphone at the door.

   

  If you’re a member who wants to read the text, you’ve got to go to a room in the basement of the Capitol Visitor Center and be handed it one section at a time, watched over as you read, and forced to hand over any notes you make before leaving.

   

  And no matter what, you can’t discuss the details of what you’ve read.

  This treaty is going to affect the lives of every man, woman and child living in this nation, and yet it is deemed so “important” that none of us can know what is in it?

  Are you sure that we still live in a Republic?

  This treaty will cover 40 percent of the global economy, and U.S. officials hope that the EU, China and India will become members eventually as well…

  Right now, there are 12 countries that are part of the negotiations: the United States, Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  These nations have a combined population of 792 million people and account for an astounding 40 percent of the global economy. 

   

  And it is hoped that the EU, China and India will eventually join as well.  This is potentially the most dangerous economic treaty of our lifetimes, and yet there is very little political debate about it in this country.

  If the EU, China and India did eventually join the treaty, that would essentially make it a trade agreement for the entire planet.

  This is a really big deal, and it should be openly debated by the American people.  But instead, Barack Obama has chosen to shroud the entire process with as much secrecy as possible.  Not only that, he also wants Congress to give him fast track negotiating authority.  If Congress does that, they would essentially be saying that they blindly trust Obama to negotiate a good treaty for us.  At the end of the process, Congress would be able to vote the treaty up or down, but would not be able to amend it.

  That sounds insane, right?  Well, if you can believe it, Republicans in the Senate are quite eager to give Barack Obama this authority.

  And this is not just an economic treaty.  The following is an excerpt from one of my previous articles…

  It is basically a gigantic end run around Congress.  Thanks to leaks, we have learned that so many of the things that Obama has deeply wanted for years are in this treaty.  If adopted, this treaty will fundamentally change our laws regarding Internet freedom, healthcare, copyright and patent protection, food safety, environmental standards, civil liberties and so much more.  This treaty includes many of the rules that alarmed Internet activists so much when SOPA was being debated, it would essentially ban all “Buy American” laws, it would give Wall Street banks much more freedom to trade risky derivatives and it would force even more domestic manufacturing offshore.

  We can’t consume our way to prosperity, and we can’t borrow and spend our way to prosperity.  In order to be prosperous as a nation, we have got to create at least as much wealth as we consume.  But instead, we are doing just the opposite.  We are consuming wealth like mad even while our economic infrastructure is being absolutely gutted.  We have lost thousands of businesses and millions of jobs already, and this new treaty will make things much worse.

  And of course eventually even the ultra-cheap labor on the other side of the planet will be replaced.  This is something that is already happening in China.  Just today there was a news story about a new manufacturing facility in China that will use only robots…

  Construction work has begun on the first factory in China’s manufacturing hub of Dongguan to use only robots for production, the official Xinhua news agency reported.

   

  A total of 1,000 robots would be introduced at the factory initially, run by Shenzhen Evenwin Precision Technology Co, with the aim of reducing the current workforce of 1,800 by 90 percent to only about 200, Chen Xingqi, the chairman of the company’s board, was quoted as saying in the report.

   

  The company did not give a figure for the investment in the factory, but said its production capacity could reach a value of 2 billion yuan (US$322 million) annually.

  All of this is very bad news for American workers.  Whether it is ultra-cheap labor on the other side of the globe or new technology, big corporations are constantly looking for ways to produce things less expensively.

  But in order to have a middle class, we have got to have middle class jobs.  The middle class in the United States is steadily disappearing, and neither political party seems very concerned about this at all.

  Even without this new trade treaty, our trade deficit with the rest of the planet continues to grow even larger.  We just learned that the monthly U.S. trade deficit for March rose to $51.4 billion.  That was the largest monthly trade deficit since October 2008.  If you will remember, in October 2008 we were experiencing the worst financial crisis since the days of the Great Depression.

  And if you take oil out of the number, our trade deficit for the month of March would be the worst ever recorded.

  Thank you Barack Obama.  Your trade policies are really “working”.

  Because the trade deficit was much worse than expected, that is going to push the GDP number for the first quarter into negative territory…

  Greg Daco of Oxford Economics says he expects the wider than expected trade deficit to prompt the government to revise its estimate of 0.2% growth in U.S. gross domestic product for the first quarter to a 0.5% contraction.

  That means that if we have another contraction in the second quarter, we will officially be in a recession.

  In fact, we could be in a recession right now (according to the official government definition) and not even know it yet.

  One of the biggest reasons why the U.S. economy has been struggling so much in recent years is due to our trade policies.  If we had balanced trade with other nations, our cumulative economic growth since mid-2009 would have been nearly 20 percent higher…

  Since rising trade balances subtract from economic growth, the increase in this real non-oil goods deficit has now cut cumulative U.S. economic growth after inflation by a stunning 19.49 percent since the recovery technically began in mid-2009.

  Are you starting to see why I get so fired up about trade?

  But instead of encouraging big corporations to do what is right for the American people, our system greatly rewards companies like Apple that proudly send jobs offshore.  The following is an excerpt from an outstanding article by Andrew Zatlin…

  Nine years, a trillion dollars in sales, and almost no taxes paid. That’s just the starting point for wondering about Apple’s actual contribution to the US economy.

   

  Apple’s success drags down the US GDP.  The behemoth that is Apple sold almost 200M phones last year, none of which were made in the US or used components made here. Instead of exporting $100B in iPhones, the US imported $50B. That $150B swing matters in terms of balance of trade, GDP and jobs. If you wanted to improve the US economy, there’s no better place to start than with Apple and smartphones.

   

  Apple undermines the US manufacturing base. Assembly matters and manufacturing matters more. There was a time when Apple could have assembled phones and tablets in the US, but that would mean spending an extra $5 per phone since that’s approximately the extra labor cost to build that $700 phone here instead of in Vietnam or China. Assembly may not be a competitive, value-add step but it does employ a lot of people.

   

  Unfortunately, it would also cut Apple’s profits by $1B, shrinking the company’s annual net income from $45B to $44B. Apple wouldn’t notice a drop in profits of $1B because it’s not putting its cash to use: Apple has $200B in cash conveniently parked outside of the US, not doing anything. On the other hand, assembling in the US would employ tens of thousands of people.

  You can read the rest of that great article right here.

  Our trade policies matter.  Decades of incredibly foolish decisions have ripped our economic infrastructure to shreds, and we are slowly but steadily committing national economic suicide.

  Now, Barack Obama is absolutely determined to deliver the finishing blow, and it is all being done in secret.

  When are you going to wake up and start getting angry America?

  

  

  
  
  

  

• The End Of The "Reflation" Trade? China To Focus On Fiscal Stimulus, Avoid Monetary Policy

  One of the biggest, if not the driving, factor behind the latest bout of the “reflation trade” which has sent bond yields surging (not to mention sending the Chinese stock market into outer space) in a deja vu rerun of the “Great Rotation” of 2013 and 2014, was constant chatter of imminent monetary easing by the People’s Bank of China, and perhaps with good reason: with the Chinese economy hard-landing and growing according to some estimates as low as 1.6%, the Chinese housing market tumbling faster than that of the US in the great financial crisis, the media has been flooded with recurring reports of Chinese QE any minute.

  To be sure, the PBOC has given plenty of ammunition for such speculation, having cut both its interest and Reserve Ratio rates twice in 2015.

  

  As a result of constant jawboning that the PBOC may not only cut rates even more but proceed to launch QE (which it will ultimately, just not for a while), both the Shanghai Composite has been trading at multi-year highs and oil has found a bid strong enough that in the past two months it has surged by some 50% on hopes that Chinese demand will finally come back once the local economy is so weak it leaves the PBOC no other choice.

  However, two things suggest that the great “reflation” trade is ending.

  Overnight, Xinhua reported that after months of plunging housing sales, the all important Chinese housing market, where the bulk of Chinese net worth is located, is rebounding sharply: sales volume of new homes in China’s major cities posted a solid gain in April with the support of the recent policy easing, the latest industry report showed.

  New home sales in China’s 30 major cities including Beijing, Shanghai, Guangzhou and Shenzhen surged 15.1 percent in April from the previous month to 16.57 million square meters, also representing an increase of 30.8 percent from the previous year, according to the report released by E-house China R&D Institute, a leading property consultancy.

  Of the tier-one cities, Beijing witnessed the strongest new home sales growth at 70.7 percent in April compared with a year earlier, noted the report released Wednesday.

  Xinhua recounts that China’s property market took a downturn in 2014 due to weak demand and an excess of unsold homes. In late March, China’s central bank cut the minimum down payment requirement for second home buyers to 40 percent.

  Business tax will be exempt for sales of homes purchased more than two years ago, instead of the previous requirement of five years, the Ministry of Finance announced. These easing measures have bolstered the recent rebound of the real estate market, analysts said.

   

  Policy easing should further lift home transactions in the months ahead, with a strong rebound expected in the second quarter, predicted Yan Yuejin, a researcher with the institute.

  In other words, what the PBOC has already done may be quite sufficient to claim victory for the near to mid-term future, to where no additional easing, much of which has been factored into global asset prices, is forthcoming.

  But where things get dangerous for the liquidity-addicted, risk-on crowd, is a report just released by Reuters, according to which, China is “likely to resort to fiscal stimulus to revive growth after a run of monetary policy easings proved less effective, policy insiders said.“

  “They are very worried. If they don’t take bolder measures, it will be very hard to achieve the full-year growth target, and there is risk the slowdown may get out of control,” an economist at a well-connected think-tank said of top policymakers.

   

  “Fiscal policy will become more forceful, and infrastructure investment will accelerate, while monetary policy will be more flexible,” said the economist.

  Confused by the 5% drop in the Shanghai Composite in the past two days and the worst 6-day run since June 2013?

  

  This may explain it:

  The emerging view is that the direct impact of government spending would work where monetary policy, including two cuts in interest rates and two cuts in bank reserve requirements since November, has not.

   

  The government is eyeing “a package of measures to stabilize growth and control risks”, said a senior economist at the cabinet’s Development Research Centre think-tank.

   

  “There is no big problem in employment. They (top leaders) are more worried about financial risks and debt risks.”

  If true, expect the dramatic doubling in Chinese stocks to promptly deflate because while fiscal stimulus is indeed great for the economy it does absolutely nothing for a market that desperately needs constant liquidity injections merely to stay at the same level, nevermind keep rising.

  The level of fiscal stimulus detail provided by Reuters suggests that indeed hopes for more PBOC interventions have been officially snuffed. To wit:

  The National Development and Reform Commission (NDRC), the country’s top planning agency, is already speeding up investment projects in several key sectors, including water conservation, environmental protection, power grids and health care.

   

  And President Xi Jinping is spearheading the integration of Beijing with Tianjin and Hebei province, aiming to create a growth driver similar to the Yangtze River Delta around Shanghai and Pearl River Delta in Guangdong, the sources said. The government has said the new metropolis would require investment of 42 trillion yuan ($6.8 trillion).

   

  “It’s hard to boost consumption while external demand is weak, so the only thing they can do is boost investment,” said Lu Zhengwei, chief economist at Industrial Bank.

   

  The NDRC has been struggling to lure private investment into such projects, adding more pressure on the government to spend.

  Needless to say, China already has a massive overcapacity problem as a remnant of its late 2000s policy of a massive, debt-fueled spending binge that has now left the country with trillions of (mostly undisclosed) bad debt, and a mountain of shadow liabilities the Politburo is desperate to eliminate. Reuters confirms as much: “Stimulus plans will, nevertheless, be restrained by the fact that China is still struggling with a mountain of local government debt from the 4 trillion yuan ($645 billion) stimulus rolled out in 2008/09 to cushion the impact of the global crisis.”

  Which means that while monetary stimulus is now firmly on the backburner, not even fiscal policy will match the massive stimulus dumps seen in previous years, which in turn suggests that anyone hoarding oil over hopes that China will reemerge as a massive source of demand will be disappointed.

  As for the sudden bout of the great reflation trade… well, just keep an eye on Chinese stocks – leaking inside information in the Middle Kingdom is usually encouraged, and if someone is aware of the PBOC’s plans, or lack thereof, it will sweep like wildfire through the market, and lead to an avalanche of selling as the liquidity tsunami is drained.

  

  

  
  
  

  

• Repatriation Of Gold From Fed Suggests Historic Vote Of No Confidence

  Submitted by Seth Mason via Solidus.Center blog,

  Since 2012, there’s been an unprecedented call from foreign nations to repatriate their gold from Federal Reserve vaults in the U.S. This is an incredible development given many countries’ 71-year reliance on the Fed as a custodian for their bullion. Over the last few years, countries including, but not limited to, Germany, the Netherlands, France, Belgium, Austria, Poland, Ecuador, Finland, Switzerland, Venezuela, and Romania have either formally requested repatriation of their gold or are in discussions with the Fed about it. Some of these nations, mind you, have held more than 50% of their entire reserves of bullion in the U.S. since 1944, when the Dollar became the world’s reserve currency.

  Something huge must of happened in the last few years to prompt such action. That something may be a break in foreign gold holders’ trust in the Fed as a custodian of their precious metals.

  There’s evidence that, in recent years, the Fed has been leveraging some of its foreign gold holdings to lower skyrocketing gold prices as part of its grand scheme to “engineer” an economic recovery from the 2008 Financial Crisis. This is to be expected. After all, the Fed has spent the past 7 years throwing everything but the kitchen sink at the chronically-ill American economy and its epidemic of long-term unemployment and underemployment: It’s bailed out the Too Big to Fail banks to the tune of $14 trillion. It’s printed more than $4.2 trillion. It’s crushed down interest rates to zero and has kept them there. Naturally, the good people at the Eccles Building would include leveraging their foreign gold holdings in their campaign to prop up the economy. After all, high gold prices are a proxy for fears about the future of the economy, and prices reached generational highs in late summer 2011–3.5 years into the Fed’s post-crisis “recovery”.

  (Interestingly, gold prices began their long journey downward from their summer 2011 peak just after the Economic Cycle Research Institute called a double dip recession and the Bureau of Economic Analysis–if you believe government data–reported that we narrowly missed a second recession due to GDP growth hovering just above zero.) Gold prices are supposed to rise when economic data are bad!

  So, if the Fed has been leveraging its foreign gold holdings in order to lower the price of bullion, it’s quite possible that it simply doesn’t have in its possession the amount of foreign gold it should. Again, this isn’t a stretch. In fact, it’s Occam’s Razor: Hypothecation is a common practice in the precious metals world, and, recently, the Fed has been flat-out refusing foreign nations from auditing their gold and will only return large holdings on installment plans.

  Pretty suspicious behavior, particularly given the long history of foreign nations continuing to store their gold in Fed vaults during times in which repatriation would have made more sense.

  Consider the following:

  The Fed became a popular custodian of foreign gold during World War II, when threats of appropriation of valuable assets by invading empires were an unfortunate reality in much of the Allied world. In 1944, through the Bretton Woods Agreement, much of the globe came to the consensus that the U.S. Dollar would become the world’s de facto reserve currency and that the Dollar would be backed by foreign and domestic gold physically held by the Fed.

  Then, in 1971, Bretton Woods was repealed, and the Dollar was decoupled from gold. One would think that the foreign nations that held gold at the Fed would have recalled much of their bullion at this time. Not only was the gold not needed to back the world’s reserve currency any more, but the threat of appropriation by foreign empires had diminished significantly. Three decades had passed since WWII, the Khrushchev Era of the Cold War had ended years earlier, and the West had begun to develop diplomatic and trade relations with the Soviet Union and China. But, despite these favorable conditions for repatriation, few nations called for it. It wasn’t worth the cost or effort: The price of gold at the time was at an inflation-adjusted 20th Century low of $210. (2015 dollars – See chart at end of article. Prices likely higher due to use of Bureau of Labor Statistics data, whose methodology has been altered several times to discount inflation.)

  But the financial incentives for repatriation significantly improved by the end of the 1970s, to say the least. By January 1980, with the Fed’s home country mired in stagflation and shocked by an oil crisis, the price of gold skyrocketed to an all-time record inflation-adjusted high of $2100 (a record that remains today, even after the Financial Crisis). Decades removed from the threats of appropriation of WWII and early Cold War-era empires, the late ’70s and early ’80s would have been a great time to repatriate bullion from the Fed. But there were simply few calls.

  More astonishingly, there were few calls for repatriation in the early 2000s, when Alan Greenspan’s post-tech bubble recession and Al-Qaeda’s devastating attacks on the world’s then-largest financial complex–LOCATED JUST BLOCKS FROM WHERE THE FED WAS HOLDING THE GOLD–sent bullion prices skyrocketing. If there were an ideal time for mass calls of repatriation, it was then. But the calls just didn’t come.

  Nor did they during the 2008 Financial Crisis, an event which plunged the U.S. into its worst recession since the Great Depression and sent gold prices skyrocketing again…after a 10 year run-up since Greenspan’s tech bubble. Nor did they come when it appeared that Greece’s collapse was imminent and was going to jeopardize the future of the EU. Nor did they come when it appeared that the U.S. was going to go over the Fiscal Cliff.

  No, they’ve only come recently, during a period of time in which the possibility that the Fed has been depressing gold prices has come to light and in which the Fed has been suspiciously prohibiting foreign nations from auditing their gold.

  

  (Click to enlarge chart.)

  Given all of this history, the recent massive calls for repatriation suggest that foreign gold holders have lost trust in the Fed as a custodian of their precious metals.

  

  

  
  
  

  

• Meet The FBI's Secret 'Eye In The Sky' Overseeing The Baltimore Riots

  As the controversy surrounding the upcoming Jade Helm military exercises has made abundantly clear, Americans are growing more distrustful of a federal government they perceive as being increasingly willing to infringe upon the civil liberties of US citizens. Fears that Washington is conducting clandestine activities aimed at gathering intelligence about the US populace and the notion that we are witnessing a creeping militarization of US cities has many Americans on edge and as the following story from the Washington Post makes clear, it’s not paranoia if they’re really watching you. 

  Via WaPo:

  As Benjamin Shayne settled into his back yard to listen to the Orioles game on the radio Saturday night, he noticed a small plane looping low and tight over West Baltimore — almost exactly above where rioting had eruptedseveral days earlier, in the aftermath of the death of a black man, Freddie Gray, in police custody.

   

  The plane appeared to be a small Cessna, but little else was clear. The sun had already set, making traditional visual surveillance difficult. So, perplexed, Shayne tweeted: “Anyone know who has been flying the light plane in circles above the city for the last few nights?”

   

  That was 9:14 p.m. Seven minutes later came a startling reply. One of Shayne’s nearly 600 followers tweeted back a screen shot of the Cessna 182T’s exact flight path and also the registered owner of the plane: NG Research, based in Bristow, Va.

  @scanbaltimore It’s registered to NG Research: http://t.co/mCWpUzvndp
  For some other info: http://t.co/cbCehxiCS0 pic.twitter.com/eGXFIKXCgr

  — Pete Cimbolic (@pete_cimbolic) May 3, 2015

  

  As it turns out, Shayne had unwittingly uncovered a secret FBI overhead surveillance campaign carried out over Baltimore during the riots that set the city ablaze late last month. The operation involved two planes circling the city, and as WaPo notes, if equipped with the latest technology, the aircraft would have been capable of monitoring “dozens of city blocks” at a time. The revelations have prompted the ACLU to demand answers as to the legality of what an unnamed official calls FBI “aerial support”:

  Civil libertarians have particular concern about surveillance technology that can quietly gather images across dozens of city blocks — in some cases even square miles at a time — inevitably capturing the movements of people under no suspicion of criminal activity into a government dragnet. The ACLU plans to file information requests with federal agencies on Wednesday, officials said.

   

  “A lot of these technologies sweep very, very broadly, and, at a minimum, the public should have a right to know what’s going on,” said Jay Stanley, a senior policy analyst at the ACLU specializing in privacy and technology issues.

   

  A government official familiar with the operations, speaking on the condition of anonymity to discuss matters not approved for public release, said the flights were aerial support that Baltimore police officials requested from the FBI.

   

  Flight records maintained by the Web site Flightradar24 show two Cessnas — one a propeller plane, the other a small jet — flying precise formations over the part of West Baltimore where the rioting had occurred. The smaller Cessna conducted flights in the area on Thursday, Friday and Saturday, always after dark. The planes used infrared technology to monitor movements of people in the vicinity, the official said.

   

  

  
  

   

   

  Last year, the Post outlined how Cessnas can be outfitted with technology “that can track every vehicle and person across an area the size of a small city, for several hours at a time.” The camera setups the Post profiled are developed by Persistent Surveillance Systems (PSS). Here’s a schematic:

  

  The company’s Chief Technical Officer Ross McNutt told the Chicago Tribune that PSS was not involved in the Baltimore operation, noting that “the kinds of sensors used in most government surveillance flights can see at least a five-block-by-five-block area. What they need is a system that follows people back to the house they came out of.“

  Nevertheless, it’s worth noting that these systems have been deployed over Baltimore before. Here’s WaPo from last February:

  Already, the cameras have been flown above major public events such as the Ohio political rally where Sen. John McCain (R-Ariz.) named Sarah Palin as his running mate in 2008, McNutt said. They’ve been flown above Baltimore; Philadelphia; Compton, Calif.; and Dayton in demonstrations for police. 

  If that’s a little too ambiguous for you, have a look at the following slide from a company presentation delivered in January 2014 by the very same Ross McNutt:

  

   

  Just what is this PSS ‘eye’ that the company swears was not ‘in the sky’ over Baltimore, you ask? A good place to start in terms of answering that question might be a product called the “NightHawk” which employs infrared technology that provides “wide area surveillance capability with persistent coverage of areas as large as 4 square kilometers.” 

  

  The NightHawk “integrates seamlessly” with the company’s HawkEye II wide area surveillance sensor which PSS markets to law enforcement with this rather compelling sales pitch:

  Have a Crime Spike?  Criminals on the run?  Gang or Drug Networks you need to shut down? [ZH: Rioters burning down your city?]  Do you have limited manpower and/or limited intelligence assets?

  PSS can help – and fast.

   

  Whether your objective is to monitor a single intersection, several city blocks, or a whole city, PSS’s HawkEye II gives the capability and the flexibility to meet your mission requirements.

   

  To get an idea of what the Hawkeye II is capable of in terms of both scope and detail, have a look at the following images from the portion of the company’s webpage dedicated to its law enforcement customers:

  

  

  *  *  *

  Besides the Baltimore Police Department, PSS has conducted operations in conjunction with police in Dayton, Los Angeles, and Philadelphia, and while we can’t say for sure whether Baltimore was indeed under the watchful eye of the PSS “NightHawk” last month, we think it’s safe to say that if you want to watch those who may be watching you, PSS is a good company to keep an eye on. 

  

  

  
  
  

  

• 7 Person CFTC Team Charges Gold Manipulators Identified First On Zero Hedge With Gold And Silver Spoofing

  Last Tuesday, as part of our ongoing effort to help the clueless commodity regulator, the CFTC, do its jobs of identifying, preventing and punishing manipulators, we wrote “Dear CFTC: Here Is Today’s Illegal “Spoofing” In Gold Futures” in which we presented “3 examples of spoofing in gold futures which, you’ll note, aren’t difficult to spot if one is willing to expend the tiniest effort.”

  The gold spoofing was obvious, and as as the following Nanex charts showed, a cursory glance revealed how large buy and sell orders push prices up and down without every transacting.

  

  2. Another set of instances appear about 50 minutes after the first set (shown in chart 1).

  

  3. Another set of spoofing instances appear about an hour after the second set (shown in chart 2).

  

   

  We go the spoofing right, but we got our audience wrong because the very next day it was not the CFTC, but the exchange on which said manipulation was taking place, the CME, that issued an order denying access to the alleged spoofers we had identified just hours before, Heet Khara and Nasim Salim, and which would be barred from trading on the CME for a period of 60 days.

  Fast forward to today when, humiliated at having its job done not only by a for-profit exchange but a tinfoil fring blog first, the CFTC finally did its job and charged United Arab Emirates residents Heet Khara and Nasim Salim with “Spoofing in the Gold and Silver Futures Markets.” Note: “and silver” – this is important.

  Here is the full CFTC order:

  Court Issues an Ex Parte Restraining Order Freezing Defendants’ Assets and Preserving Records

   

  Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement action in the U.S. District Court for the Southern District of New York against Heet Khara and Nasim Salim, residents of the United Arab Emirates.  According to the CFTC’s Complaint, Defendants engaged in unlawful disruptive trading practices known as “spoofing” in the gold and silver futures markets by placing bids and offers with the intent to cancel them before execution.

   

  Based on Defendants’ pattern of unlawful spoofing conduct and the potential for dissipation of Defendants’ assets, on May 5, 2015, U.S. District Judge Deborah A. Batts issued an Order freezing and preserving assets under Defendants’ control and prohibiting them from destroying documents or denying CFTC staff access to their books and records. The court scheduled a hearing on the CFTC’s motion for a preliminary injunction for May 19, 2015.

   

  The Complaint alleges that between at least February 2015 and at least April 28, 2015, Defendants Khara and Salim, both individually and in a coordinated fashion, regularly placed larger aggregate orders for gold and silver futures contracts on the Commodity Exchange, Inc. (COMEX) opposite smaller orders and cancelled the larger orders after the smaller orders were executed.

   

  CME Group Inc.’s (CME Group) Market Regulation Department identified the disruptive trading practices and initiated an investigation.  On or about April 30, 2015, CME Group issued notices summarily denying Defendants Khara and Salim’s access to all CME Group markets and any trading platforms owned or controlled by CME Group.  CME Group Inc. operates four self-regulatory organizations and designated contract markets, which are the Chicago Mercantile Exchange Inc., Board of Trade of the City of Chicago, Inc., New York Mercantile Exchange, Inc., and COMEX.

   

  CFTC Director of Enforcement Aitan Goelman commented: “Protecting the integrity and stability of the U.S. futures markets is critical to ensuring a properly functioning financial system.  Aggressive prosecution of spoofing is an important part of that mission.  Today’s actions make clear that the CFTC will partner with self-regulatory organizations to find and swiftly prosecute those who engage in such disruptive trading practices, wherever they may be.”

   

  In its ongoing litigation, the CFTC is seeking preliminary and permanent injunctive relief, civil monetary penalties, and equitable relief including trading and registration bans and disgorgement. 

  Curious where your taxpayer dollars go? It took the CFTC seven (7) well-paid manipulation sleuths to figure out what was revealed on the pages of Zero Hedge on the day of the manipulation, without us ever having accepted a single taxpayer dollar.

  CFTC Division of Enforcement staff members responsible for this matter are Patryk J. Chudy, David Oakland, Neel Chopra, Katie Rasor, Trevor Kokal, Lenel Hickson, and Manal Sultan.

  Finally:

  The CFTC thanks and acknowledges the assistance of the CME Group in this matter.

  You are welcome.

  And perhaps in retrospect it is time for the CFTC to revise its announcement from September 25, 2013…

  The @CFTC Closes Investigation Concerning the Silver Markets. http://t.co/JZRliwfW6P

  — CFTC (@CFTC) September 25, 2013

  … in which it said:

  “The Commodity Futures Trading Commission (CFTC or Commission) Division of Enforcement has closed the investigation that was publicly confirmed in September 2008 concerning silver markets. The Division of Enforcement is not recommending charges to the Commission in that investigation. For law enforcement and confidentiality reasons, the CFTC only rarely comments publicly on whether it has opened or closed any particular investigation. Nonetheless, given that this particular investigation was confirmed in September 2008, the CFTC deemed it appropriate to inform the public that the investigation is no longer ongoing. Based upon the law and evidence as they exist at this time, there is not a viable basis to bring an enforcement action with respect to any firm or its employees related to our investigation of silver markets.”

  Because, you see, had the “woefully underbudgeted” CFTC, which needed at least 7 employees to discover what took Nanex and Zero Hedge about 10 minutes of work, not closed its particular investigation, it would have caught not only this but countless other instances of gold and silver manipulation…

  The good news, of course, is that with a UK spoofer, working out of his parents’ basement, having been charged with causing the Flash Crash, and now two Arabs found guilty of manipulating gold and silver, both the S&P and the gold markets are once again completely unrigged, the CFTC is on top of everything, and investors should, please, come right back in.

  

  

  
  
  

  

• It Begins: US Government Issues $700,000 Fine Against A Digital Currency

  Submitted by Simon Black via Sovereign Man blog,

  Well, it was bound to happen sooner or later.

  Our beloved amigos at the US Financial Crimes Enforcement Network (FinCEN), have just issued the first-ever ‘civil enforcement action’ against a virtual currency.

  The offending criminal mastermind in this case? Ripple Labs.

  If you’re not familiar, Ripple is a virtual currency platform that was once the darling of Silicon Valley, attracting top VC firms like Google Ventures and Andreessen Horowitz.

  Ripple’s technology allows users to conduct financial transactions with one another — sending and receiving payments in cryptocurrencies like Bitcoin, as well as fiat currency.

  Imagine Bitcoin meets Paypal… and you have the basic idea.

  As part of its technology, the parent company Ripple Labs also created a native virtual currency called ‘XRP’, which is the second largest in the world after Bitcoin when measured by market capitalization.

  Because of all of these features, Ripple Labs qualifies as a ‘money service business (MSB)’ according to FinCEN… which makes them subject to all sorts of regulations.

  At the top of the list is the Bank Secrecy Act (BSA), which, contrary to its name, requires banks and MSBs to betray their customers’ financial secrets to the US government.

  Specifically, the BSA mandates that all banks and MSBs file ‘suspicious activity reports’ if they “know, suspect, or have reason to suspect” that a transaction of $2,000 or more is ‘suspicious’.

  And in the age of the USA PATRIOT Act, suspicious transactions are BIG BUSINESS for Uncle Sam.

  Last year a record 2.4 MILLION suspicious activity reports were filed. That’s a 40% increase from 2013’s record year of 1.7 million.

  As you can imagine, Ripple Labs failed to register with FinCEN as an MSB, nor did it submit suspicious activity reports.

  In its complaint, FinCEN describes several of the oooooh-so-nefarious violations.

  According to FinCEN, “In January 2014, a Malaysian-based customer sought to purchase XRP from [Ripple Labs], indicating that he wanted to use a personal bank account for a business purpose.”

  HOLY JIHAD BATMAN!!!! Someone wanted to use a personal bank account for business purposes?!?! NUKE THE SON OF A BITCH!

  I mean, seriously. This is the complete nonsense that keeps financial bureaucrats up at night: some guy in Malaysia wants to buy digital currency with his personal funds.

  Whoop-dee-doo.

  But what’s really wild is that Ripple actually DENIED the transaction. They just didn’t file the SAR.

  So… even though Ripple didn’t actually ENGAGE in said ‘suspicious activity’, failing to file the SAR (with the appropriate TPS report cover sheet) was enough to land them in hot water.

  End result — Ripple was dinged with a $700,000 fine.

  Now, $700k is a pittance compared to the $9 BILLION that BNP Paribas was slammed with last year for doing business with countries that were former enemies-turned-BFFs of the US government — namely Cuba and Iran.

  But it’s still a ridiculous penalty for having done nothing wrong.

  Of course, it’s never about right or wrong. It’s about sending a message. And that’s exactly what FinCEN is doing.

  By going after Ripple (a major player in the industry), FinCEN is trying to scare all the smaller players into ratting out their customers.

  This, after all, is what desperate, bankrupt governments have done for millennia —

  Step 1: Track down where everyone’s money is.

  Step 2: Take it.

  You don’t see rich, stable countries doing this sort of thing. In fact, the exact opposite.

  An official from Hong Kong’s Treasury recently stated that: “the Government does not consider it necessary to introduce at the moment new legislation to regulate trading in such virtual commodities or prohibit people from participating in such activities.”

  Night and day difference.

  We’ll continue to see these steps in the US and in Europe. Tracking down virtual currency transactions. Banning cash. Anything they can do to keep your money trapped in the system where they can keep their eyes on it.

  It’s all the more reason to move a portion of your savings out of that system and into somewhere safe.

  

  

  
  
  

  

• Mapping Income Mobility: The Best (And Worst) Places To Grow Up

  A new study from Harvard economists Raj Chetty and Nathaniel Hendren seeks to quantify the financial impact of where America’s children are brought up. More specifically, Chetty and Hendren measure “the percentage earnings gain from growing up in each county [in America] relative to an average place for children in low-income families.” 

  The goal of the study (and its predecessors) is to determine the most effective way to imporove economic outcomes for low-income children. Here, the researchers “focus on families who moved across areas to study how neighborhoods affect upward mobility.” Unsurprisingly, Chetty and Hendren “find that every year of exposure to a better environment improves a child’s chances of success.” Interestingly, the economists have actually quantified the improvement in order to “estimates of the causal effect of each county in America on upward mobility.”

  The map below, from NY Times, shows “how much extra money a county causes children in poor families to make” compared to national averages for low-income households:

  

  Click here for interactive map

  More from NY Times:

  Raj Chetty and Nathaniel Hendren [have had] huge consequences on how we think about poverty and mobility in the United States. The pair, economists at Harvard, have long been known for their work on income mobility, but the latest findings go further. Now, the researchers are no longer confined to talking about which counties merely correlate well with income mobility; new data suggests some places actually cause it.

   

  Across the country, the researchers found five factors associated with strong upward mobility: less segregation by income and race, lower levels of income inequality, better schools, lower rates of violent crime, and a larger share of two-parent households. In general, the effects of place are sharper for boys than for girls, and for lower-income children than for rich.

   

  “The broader lesson of our analysis,” Mr. Chetty and Mr. Hendren write, “is that social mobility should be tackled at a local level.”

  We’ll leave you with the following screenshots from the interactive map (presented with no comment):

  

  

  

  

  
  
  

  

• Why The Fed Will Do QE4 (In 4 Ugly Charts)

  While The Fed and its apologists (except for Jim Bullard) remain firmly attached to the idea that it is the 'stock' (or absolute level) of Fed Assets that represents the amount of policy-easement and not the 'flow' (rate of change), we have explained numerous times that this is complete rubbish. With the Federal Reserve balance sheet hitting 6-month lows this week, we thought the following 4 pictures would paint more than a thousand words on why The Fed will need to restart the flow soon… or the game is up.

   

  The quiet, subtle decline in the Federal Reserve's balance sheet continued in April. As of May 1st, Gavekal notes the Fed's balance was at $4.47 trillion. While undoubtedly still incredibly large, the Fed's balance sheet is about $45 billion less than its peak level on January 16, 2015.  Total assets at the Fed are back to levels last seen on October 17th. Total assets at the Fed have declined by nearly $29 billion over the past three months. On a rolling three-month basis, the Fed's balance sheet has been declining for the last two months.

  

  And the three-month difference in total Fed assets has produced some interesting relationships since QE started. Below are some economic indicators that caught our eye…
  

  

  

  

  All suggesting it is indeed the flow.. and not stock that has pumped everything… and now that it is officially in decline, Yellen is going to need to find an excuse to crank the flow once again…

  Source: Gavekal

  

  

  
  
  

  

• Does The Stock Market Matter?

  Submitted by Omid Malekan,

  Today marks the five year anniversary of the Flash Crash, the day in 2010 when the US stock market fell drastically in a matter of minutes then recovered most of the losses.

  

  Unlike sharp declines in the past, the Flash Crash happened for apparently no reason. Since then the government has launched multiple inquiries into what happened and recently charged a trader for alleged market manipulation. Figuring all of this out is considered a priority because the stock market is an important part of the economy and has an important place in economic policy.

  But does the stock market really matter? And if it does, should it?

  Stock market relevance to policy dates back to the crash of 1987, when Fed Chairman Alan Greenspan decided the Fed should respond boldly to market machinations. That emphasis on the importance of stocks was at the core of the Greenspan Fed and was continued by his successors Ben Bernanke and Janet Yellen.

  

   

  Along the way economists increasingly factored stocks into their theories and the Wealth Effect – the idea that when people feel rich from their investments they spend more – gained prominence.

  The 2008 financial crisis cemented the importance of stocks in economic management. Policy makers monitored falling stocks as if they were a good barometer for economic activity and reacted accordingly. In 2010, in an editorial defending the Fed’s then controversial Quantitative Easing program, Chairman Ben Bernanke pointed to rallying stocks as evidence the policy was working. In 2012 Assistant Attorney General Lanny Breuer, the man who presided over the Justice Department’s Criminal division in the aftermath of the financial crisis, said when considering prosecution of a bank executive they took into account the impact on the bank’s shares and financial markets. More recently Fed President Bill Dudley has stated that how the market reacts will play a role in how quickly the Fed raises interest rates back to normal.

  The first thing we should recognize about the stock market is that it’s a pretty bad indicator for the economy. Today stocks trade at all time highs, but that’s not the case for any meaningful metric of the economy, like employment, GDP growth or wages. Real median household income, perhaps the purest measure of the vitality of the middle class, has steadily declined…

  

   

  …while the stock market has rallied during the recovery.

  

   

  The second thing we should realize is that stocks only matter to a small and peculiar subset of the population: large corporations and the wealthy. The employees of the S&P 500, the index consisting of the 500 largest public companies in America make up only 15% of all employed persons. Most jobs in this country are created by companies that can’t participate in the stock market. As for the minority that do, there is no evidence that higher stock prices lead to hiring. If companies added and subtracted employees based on volatile individual stock prices they would constantly be firing and hiring people in almost random fits that might have little to do with their actual business.

  Shareholders also consist of a minority of the population, in this case the highly affluent. Most shares are not owned by average Americans, but rather executives and founders. Think of people like Mark Zuckerberg and Warren Buffet. Some academics estimate the top 10% in terms of wealth own over two-thirds of all stocks. Scan down a list of the world’s richest people and you will see why. Meanwhile, the most recent Gallup survey shows almost half of all Americans don’t own any stocks.

  Given this reality, it should come as no surprise that the post-crisis era has seen a surge in the economic disparity between the haves and the have-nots. As policy makers have focused increasingly on stocks, they have committed resources to elevating the market thus improving the lot of the rich and powerful. Most of the Fed’s post-crisis programs for example would have been considered a failure if they weren’t constantly validated by a surging Dow Jones Industrials Index. There is a moral imperative to help the majority that has been left behind by this recovery, and it starts with paying closer attention to economic factors that measure their well being.

  There is also a practical benefit to shifting our attention away from the stock market. Any market that can yo-yo 10% within a day for no apparent reason, or undergo multiple booms and busts in a 20 year period should not be given too much credibility. The wealth-effect on the way up always turns into the wealth-destruction effect on the way down.

  If we can look away from the daily machinations of the unpredictable market we are more likely to work on the sort of structural reform that pays off in the long run, even if it doesn’t make the market go up today.

   

  

  

  
  
  

  

• Late-Day Buying Scramble Saves Dow's Year After Yellen Yanks Punchbowl

  Translating what Janet Yellen (and Lockhart) said today to stock investors….

   

  Before we start – Trannies are trading 2% below the levels pre-EndQE3 and The Dow was rescued late on into the green YTD for 2015…

  

   

  UNRIGGED!!!! Every time the Dow lost YTD green, VIX was smashed… and look at the close!!!

  

   

  Stocks have now given up all the exuberant gains post March payrolls

  

   

  Volume is back…

  

   

  The epic late-day ramp was a desparate effort to get The Dow into the green YTD… managed to get Small Caps comfortably green (because you Fight The Fed)

  

   

  Futures show the swings today more clearly…

  

   

  On the week, Nasdaq remains the laggard, Small caps outperforming

  

   

  The initial driver was the weak ADP print which sparked selling in the USD, then Yellen's comments really pulled the rug…

  

   

  Shale stocks continue to slide post-Einhorn (even despite this morning's meltup in crude after DOE inventory draw). Worst still for the frackers, Gartman said "The frackers are going to ramp back up, there is no question at all"

  

   

  Treasury yields are up 8 days in a row – the longest stretch of increases since 9 days in a row in March 2012. (note the big AAPL issue today whioch may be the driver of the recent weakness in US sessions as ratelocks hit an illiquid market)

  

   

  10Y yield closes above its 200DMA…

  

   

  The dollar slipped once again…

  

   

  Commodities (except for Crude) saw muted activity today…

  

   

  But crude pumped and dumped after the EOD draw…

  

   

  Just as an aside, this is what happened in European bond risk today…

  

   

  Charts: Bloomberg

  Bonus Chart: What's worse than worst?

  

   

  

  
  
  

  

• Top NSA Official Who Created the Global Surveillance System: Fire the U.S. Intelligence Agencies … Hire Anonymous, Instead

  William Binney is the high-level NSA executive who created the agency’s mass surveillance program for digital information. A 32-year NSA veteran widely regarded as a “legend” within the agency, Binney was the senior technical director within the agency and supervised thousands of NSA employees.

  Binney sent Washington’s Blog an article from Monday showing that a member of the cyber collective Anonymous tipped off Texas police to the imminent shootings by Muslim extremists.

  Binney comments:

  This is the objective of intelligence agencies that I worked in – predict intentions and capabilities in advance. I agree with my VIPS [i.e. Veteran Intelligence Professionals for Sanity] associates, hire Anonymous and fire the bums we got including the intelligence committees and the FISC [U.S. Foreign Intelligence Surveillance Court].

   

  After all, when was the last time our “intelligence community” predicted anything like this in advance????

  Binney and other top NSA whistleblowers have previously explained that the intelligence agencies should have stopped 9/11, the Boston Marathon bombing, the Paris shootings and other terrorist attacks.  But corruption prevented them from  stopping the attacks.

  Veteran Intelligence Professionals for Sanity – a group composed of former high-level military and intelligence officials – recently called for independent intelligence analysis to keep our country safe.

  

  
  
  

  

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• Everything That Is Wrong With Banking Today

  Here is the latest SmartKnowledgeU Podcast #5: “Everything Wrong With Banking Today”.

   

  

  To listen to this podcast on YouTube, please click the above image and then click the link “Watch this video on YouTube.”

   

  For those of you that would like a downloadable mp3 file of any of our podcasts to listen to at your leisure on your smartphone or iPod, please visit https://www.apple.com/itunes, log in to iTunes and then search the iTunes store for the “smartknowledgeu podcast” which will contain
  all of our downloadable podcasts for free. To be informed of when we release future podcasts, merely subscribe to our YouTube channel here or subscribe to our podcast channel on iTunes.

   

  The topic of our upcoming Podcast #6 next week will be “Deciphering the Language of Lies”, in which we address why the use of the world “failure” and “mistake” in association with our global financial and political leaders most definitely muddies and obscures the truth about them, and why it is of utmost importance to stop using these two words in conjunction with them if we want the truth about their deliberately engineered path of economic destruction and collapse to take root and eventually go viral among the masses.

  

  
  
  

  

• Florida Man Faces 15 Year Sentence For Sex On A Beach (But Still No Bankers In Jail)

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

   

  A jury Monday found a couple guilty of having sex on Bradenton Beach after only 15 minutes of deliberation.

   

  The convictions carry a maximum prison sentence of 15 years.

   

  Both Caballero and Alvarez will now have to register as sex offenders.

   

  Ronald Kurpiers, defense attorney for the couple, said his clients were “devastated,” by the verdict.

   

  Though Dafonseca hinted that they’d be speaking with the judge about whether or not 15 years was appropriate for Caballero, Kurpiers said the judge would have no discretion.

  “That’s what he’ll get,” Kurpiers said.

   

  – From the Miami Herald article: Couple Found Guilty of Having Sex on Florida Beach

  This is what “justice” looks like in the Oligarch States of America. If you’re a pleb who gets caught having consensual sex on the beach, you’re immediately convicted and face up to 15 years in the gulag. Meanwhile, if you’re a banking executive responsible for crashing the global economy, you’re rewarded with trillions in taxpayer bailouts and backstops and given free reign to continue your crime spree. Criminal charges are never considered, despite the extreme negative impact your actions have on society at large, and you’re always given a slap on the wrist via deferred prosecution agreements, or DPAs. Don’t believe me? Let’s look at an excerpt from last year’s post titled, The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally:

   

  These agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

   

  The Justice Department is leaning on these toothless agreements more and more. Of the DoJ’s 283 deferred prosecution agreements since 2000, half have come since 2010, Reilly found in a working paper for BYU Law Review.

   

  Why has the DoJ been so keen on deferred prosecution since 2010? It coincides exactly with investigations into the 2008 financial crisis.

  With that in mind, let’s take a look at what 40-year old Jose Caballero faces in Florida for “sex on the beach.” From the Miami Herald:

  A jury Monday found a couple guilty of having sex on Bradenton Beach after only 15 minutes of deliberation.

  The convictions carry a maximum prison sentence of 15 years.

   

  Jose Caballero, 40, and Elissa Alvarez, 20, were charged with two counts each of lewd and lascivious behavior for having sex on a public beach on July 20, 2014.

   

  Video played in the courtroom during the 1- 1/2-day-long trial showed Alvarez moving on top of Caballero in a sexual manner in broad daylight. Witnesses testified that a 3-year-old girl saw them.

   

  Both Caballero and Alvarez will now have to register as sex offenders.

   

  The state will ask for jail time for Alvarez and prison time for Caballero. Dafonseca said due to Caballero being out of prison less than three years before committing another felony, he’s looking at serving the maximum time of 15 years.

   

  Ronald Kurpiers, defense attorney for the couple, said his clients were “devastated,” by the verdict. Though Dafonseca hinted that they’d be speaking with the judge about whether or not 15 years was appropriate for Caballero, Kurpiers said the judge would have no discretion.

   

  “That’s what he’ll get,” Kurpiers said.

   

  Ed Brodsky, elected state attorney for the 16th judicial district, joined Defonseca in prosecuting the case. When asked why the case was an important one to the state attorney, Dafonseca said it was important that the community knew what wouldn’t be tolerated on public beaches.

   

  “We’re dealing with basically tourists, that came from Brandon and Riverview and West Virginia, and they’re here on the beaches of Manatee County, our public beaches,” Dafonseca said, referring to the witnesses. “So you want to make sure that this isn’t something that just goes by the wayside. And that it is well known to the community, what will be tolerated and what won’t be.”

  So this is where Florida draws the line, how brave! In reality, Florida is known for tolerating and encouraging some of the most statist behavior in America, which is why the state is so often highlighted on this site. Recall:

  Girl Gang Raped during Spring Break in Florida as Crowds Stand Around and Do Nothing to Stop It

  Video of the Day – Watch as Florida Parents are Treated Like Children for Questioning School Curriculum

  Protecting and Serving – Florida Police Raid 90-Year-Old Woman’s Home; Find No Drugs but Wreck Home

  90-Year-Old WW2 Veteran and Two Clergymen Face 60 Days in Jail for Feeding the Homeless in Florida

  Florida Cop Rapes 20-Year Old Woman at Gunpoint While on Duty

  I could go on, but let’s go back to the Miami Herald.

  Family members of the couple defended the two outside the courthouse, saying the crime did not deserve this kind of attention.

   

  “He’s a great person,” said Caballero’s mother of her son, declining to give her name. “There are other things out there we need to worry about, and they’re still loose, people who have done worse stuff.”

  Indeed.

  This story demonstrates how completely and totally broken the U.S. justice system is. Should this couple have been having sex in public and in broad daylight? Absolutely not. Should there be some sort of punishment? Absolutely.

  That said, the punishment should fit the crime in a just civilization, and 15 years behind bars for public sex is more akin to what you’d expect in Saudi Arabia. It’s particularly appalling when compared with the license to commit fraud and steal, which politically connected oligarchs have been granted. After all, who was really harmed by this couple’s act? Sure, some tourists may have had their day temporarily ruined or inconvenienced. A three-year-old girl may have seen something, but would probably have no way of understanding what it was. On the other hand, criminal bankers have demonstrably ruined the lives of hundreds or millions, if not billions, of people across the globe. Yet not a single TBTF executive has been prosecuted. They were bailed out instead.

  Meanwhile, what about the pastor who faces only four months for molesting a little girl. Yes, you read that right. Our society is so completely fucked up, that two people irresponsibly making love in public will have their lives ruined, while a religious authority caught molesting a little girl receives a slap on the wrist. From RawStory:

  A northern California pastor will serve no more than four months in jail for molesting a 9-year-old girl multiple times.

   

  Venije Singkoh, a pastor at churches in San Francisco and Concord who also held services at his Daly City home, pleaded no contest to a misdemeanor count of child sexual annoyance.

   

  He had initially been charged with three felony counts of child molestation after investigators said he held the girl on his lap and kissing her inappropriately.

   

  The girl told her mother and father that the 70-year-old Singkoh used his tongue while kissing her, and the family called a church meeting to confront the pastor.

  Examples of the criminal application of “justice” is an everyday occurrence in America today. I’ve outlined too many examples to list them all, but here are a few:

  The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

  American Justice – FBI Lab Overstated Forensic Hair Matches in 95% of Cases, Including 32 Death Sentences

  New Report – The United States’ Sharp Drop in Economic Freedom Since 2000 Driven by “Decline in Rule of Law”

  DEA Agents Caught Having Drug Cartel Funded Prostitute Sex Parties Received Slap on the Wrist; None Fired

  TSA Agents Caught Gaming System so Male Screener Could Grope Attractive Passengers; No Criminal Charges Filed

  

  

  
  
  

  

• Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse

  Last month, courtesy of Andrew Zatlin’s Vice Index, we flagged the disturbing Q1 rise in traveling hookers. We call the trend disturbing not because we have a prima facie inclination to look with disdain upon all things escort-related but because, as Zatlin notes, when escorts are forced to take their show on the road it means the phones have stopped ringing locally, and if you’re inclined to believe that trends in all-cash businesses are a good leading indicator for trends in consumer spending in general, depressed spending on gambling, alcohol, and other “fun” things does not bode well for economic growth going forward. As you can see from the graph below, The Vice Index hit its lowest level in more than a year in March:

  

  Given this — and given the fact that whatever discretionary income Americans do have is apparently being chanelled into TD Ameritrade accounts — it should perhaps come as no surprise that gaming revenue on the Las Vegas strip fell nearly 10% in March after sliding 4.4% in February. 

  

  Meanwhile, the situation in Macau continues to deteriorate at a rather remarkable pace, as gaming revenue fell 39% last month, the eleventh consecutive monthly decline which looks good only in comparison to March’s 39.4% decline and February’s 49% drop. Of course in the deluded minds of China’s millions of newly-minted day traders, a 39% decline represents “stabilization” and so, as Bloomberg reports, casino shares rose in Hong Kong on the news:

  Wynn Macau Ltd. rose 4.8 percent to HK$16.54 by the close of trading, the biggest gain since April 9. Sands China Ltd. gained 3.3 percent and Galaxy Entertainment Group Ltd. advanced 3.1 percent, while the Hang Seng Index was little changed.

   

  Gross gaming revenue in the world’s largest gambling hub fell 39 percent to 19.2 billion patacas ($2.4 billion) last month, meeting a median estimate of a 39 percent decline from eight analysts surveyed by Bloomberg. The drop has slowed for a second consecutive month.

   

  “Investors are really just focused on trying to find stabilization or a bottoming,” said Vitaly Umansky, an analyst at Sanford Bernstein. “As long as things aren’t deteriorating, things seemed to be fairly consistent, that’s probably a decent sign from an investor’s perspective.”

  Right. As long as things “aren’t deteriorating” and revenues are only falling by 40% that’s a “decent sign.” Unfortunately, some industry heavyweights don’t seem to share the view that the market is set to turn the corner any time soon. Take Steve Wynn for instance who, on the way to slashing WYNN’s dividend by nearly 70%, had the following to say about the company’s outlook for Vegas and Macau and about the so-called “recovery” in the US economy:

  Well, the numbers in the first quarter are out. I think the trends in Macau were beginning to be very visible in the fourth quarter, but our hopes for an improvement in the Chinese New Year turned out to be incorrect. And the repositioning of the market and the degradation of the volumes in VIP, have continued even into April. Most of my remarks now are going to include what we’ve seen in the first four months, not just the first three months, because the trends that were clear in January, February and March have continued into April and as we look at the whole year in Las Vegas and Macau, certain simple truths emerge.

   

  It is no secret that there’s been a change in mainland China in attitudes towards a number of things that have impacted Macau. That has not – nothing has changed since this all began last October. And the depression of the VIP market continues…

  So as we look backwards for the fourth quarter and especially during the last four months, and understand what’s happening, both in Las Vegas because of the Asian impact on Baccarat, and we look back and then we extrapolate and try predict the future, or at least understand what most likely will be the future, it is foolhardily and immature and unsophisticated to issue dividends on borrowed money. We only distribute money that’s free cash flow based upon our earnings that trail…

   

  If you were to ask me, since we’re making forward-looking statements, what will the second quarter look like in Las Vegas? Weak. Do you hear me? Weak. So I’m trying to lower expectations here. This notion of a big recovery is a complete dream. I don’t think Las Vegas is experiencing a great recovery. I think it’s still very patchy and I think that that’s probably our non-casino revenue in the first quarter was flat. I’d be thrilled if it was flat in the second quarter.

  Besides being a stinging indictment of the pitiable state of the US economy, that’s a fairly unambiguous message from someone who knows a thing or two about this industry and even as the likes of Deutsche Bank called the Las Vegas commentary “overdone”, the bank had the following to say about the outlook for the gaming industry:

  [With] market trends showing very limited signs of improving, and more headwinds than tail winds on the horizon (potential visitor traffic curbs, a full smoking ban, and uncertainty around table allocations), visibility is worse than ever in our view. 

  Despite the malaise and despite the fact that, as we noted earlier this year, Beijing’s corruption crackdown has likely motivated China’s habitual (and filthy rich) gamblers to move permanently away from the dark-lit Macau gambling parlors to multiple-monitor lit trading desks, there will always, always be BTFDers  — especially when you’re talking about Hong Kong-listed shares. With that in mind, we’ll close with this quote provided to Reuters by Matthew Ossolinski, chairman of Ossolinski Holdings:

  “What is the worst that could happen? [Gaming] stocks go down before they go up. But they will go up. We are preparing for a 100 percent increase in shares within the next three years.”

  

  

  
  
  

  

• Hong Kong 'Loophole' May Have Flooded China With Radioactive Japanese Foods

  And the ‘incidents’ just keep coming for Japan. Lax safety checks at Kwai Chung container terminal – the only sea entry point for food from overseas – have allowed banned imports from Japan to enter Hong Kong, according to Democratic Party lawmaker Helena Wong Pik-wan. As The South China Morning Post reports, radioactive contaminated food may have been entering the city unnoticed for years because of deficiencies in safety controls on fresh produce since the ban following the Fukushima nuclear power plant incident in 2011.

   

  

   

  Democratic Party lawmaker Helena Wong Pik-wan said, as The Soth China Morning Post reports, food safety surveillance was too relaxed at the Kwai Chung container terminal – the only sea entry point for food from overseas – as it relied heavily on the importer taking the initiative.

  Radioactive contaminated food may have been entering the city unnoticed for years because of deficiencies in safety controls on fresh produce brought in by sea.

   

  Food imported by sea does not go through routine checks at the dock as the Food and Environmental Hygiene Department has no food inspection checkpoint at the terminal. Food imported by air, however, is tested for radiation at the airport.

   

  Food imported by sea is inspected by health officers only when it is moved to storage areas by importers, according to the department. This would allow some food importers to avoid inspection, Wong said.

   

  She cited a case in January, when 10 boxes of Japanese carrots from Chiba, one of five prefectures from which imports of vegetables and fruits have been banned since the Fukushima nuclear power plant incident in 2011, entered the city by sea.

   

  One box was sold and two other boxes were found for sale in the Yau Ma Tei wholesale fruit market when food safety officers acted on a complaint.

   

  “It has exposed… loopholes in our food safety system,” Wong said. “We do not know if there is more banned food being sold in the city that has not been discovered by the government.”

  The loophole is significant…

  Since importers are only required to complete the import declarations within 14 days after the importation under the Import and Export Ordinance, “some small importers” would not bother to alert food inspectors and simply sell their perishable produce before health officers obtained the details of the declaration, a source said.

   

  “If the health officers want to conduct checks after getting the details of the import declaration, but the imported food is already distributed in the market for sale, how can the health officers trace the food and conduct checks?” the source said.

  Hong Kong imported 15,093 tonnes of vegetables and fruit from Japan by sea last year, about 0.8 per cent of total vegetables and fruit imports by sea.

  Since March 2011, the department had stepped up surveillance of fresh produce imported from Japan such as milk, vegetables and fruits, to examine radiation levels, a spokesman said.

   

  Kowloon Fruit and Vegetable Merchants Association vice-chairman Cheung Chi-cheung said importers had to notify the department for inspection whenever they picked up the goods. He also did not comment on whether there might be a loophole in the inspection system.

  *  *  *

  Once again it seems Japanese falsehoods are at the center of another potential international issue… no we are not devaluing our currency… no Fukushima is safe… no radiation leaks are under control… no the economy is proceeding on a moderate pace of recovery… no the US alliance is not antagonistic, we are pacifists… and now no the food we sent you is not radioactive…

  

  

  
  
  

  

• The Mistake Everyone Is Making About Fed Rate Hikes

  Submitted by Lance Roberts via STA Wealth Management,

  With the Federal Reserve now indicating that they are "really serious" about raising interest rates, there have come numerous articles and analysis discussing the impact on asset prices. The general thesis is based on averages of historical tendencies as discussed recently by David Rosenberg in his daily commentary:

  "Equity bull markets never die simply of old age.  They die of excessive Fed monetary restraint – but the Fed hasn't even started to raise rates yet.

   

  In the past six decades, the average length of time from the first tightening to the end of the business cycle is 44 months; the median is 35 months; and the lag from the initial rate hike to the end of the bull equity market is 38 months for the average, 40 months for the media."

  So, why fear a Fed rate hike at this point? According to Rosenberg, there are still at least three years left to the current business cycle. Right? Maybe not.

  First, averages and medians are great for general analysis but obfuscate the variables of individual cycles. To be sure the last three business cycles (80's, 90's and 2000) were extremely long and supported by a massive shift in financial engineering and credit leveraging cycle. The post-Depression recovery and WWII drove the long economic expansion in the 40's, and the "space race" supported the 60's.

  

  Currently, employment and wage growth is extremely weak, 1-in-4 Americans are on Government subsidies, and the majority of American's living paycheck-to-paycheck. This is why Central Banks, globally, are aggressively monetizing debt in order to keep growth from stalling out. If the Fed starts hiking rates in September and the next recession doesn't occur for another three years, as David suggests, this would be the single longest economic expansion in history based on the weakest economic fundamentals.

  Secondly, what David's analysis misses is the level of economic growth at the beginning of interest rate hikes. The Federal Reserve uses monetary policy tools to slow economic growth and ease inflationary pressures by tightening monetary supply. For the last six years, the Federal Reserve has flooded the financial system to boost asset prices in hopes of spurring economic growth and inflation. Outside of inflated asset prices there is little evidence of real economic growth as witnessed by an average annual GDP growth rate of just 1.2% since 2008, which by the way is the lowest in history….ever.

  While David is statistically correct in his analysis, it is based on nominal GDP. The chart and table below compares real, inflation-adjusted, GDP to Federal Reserve interest rate levels. The vertical red bars denote the quarter of the first rate hike to beginning of the next rate decrease or onset of a recession.

  

  If I look at the underlying data, which dates back to 1943, and calculate both the average and median for the entire span, I find:

  • The average number of quarters from the first rate hike to the next recession is 11, or 33 months.
  • The average 5-year real economic growth rate was 3.08%
  • The median number of quarters from the first rate hike to the next recession is 10, or 30 months.
  • The median 5-year real economic growth rate was 3.10%

  However, note the BLUE arrows. There have only been TWO previous points in history where real economic growth was below 2% at the time of the first quarterly rate hike – 1948 and 1980. In 1948, the recession occurred ONE-quarter later and THREE-quarters following the first hike in 1980.

  The importance of this reflects the point made previously, the Federal Reserve lifts interest rates to slow economic growth and quell inflationary pressures. There is currently little evidence of inflationary pressures outside of financial asset prices, and economic growth is weak to say the least.

  Therefore, rather than lifting rates when average real economic growth was at 3%, the Fed will not start this process at less that half that rate.

  

  Think about it this way. If it has historically taken 11 quarters to go fall from an economic growth rate of 3% into recession, then it will take just 1/3rd of that time at a rate of 1%, or 3-4 quarters. This is historically consistent with previous economic cycles, as shown in the table to the left, that suggests there is much less wiggle room between the first rate hike and the next recession than currently believed.

  Recessions & Bear Markets

  Rosenberg's premise is that if historical averages hold, and since major bear markets in equities coincide with recessions, that the current bull market in equities has three years left to run. But this also may be a bit overly optimistic.

  Another David, David Bianco, weighed in on this issue previously. To wit:

  "'Stocks typically sell-off on the first of a series of rate hikes, but the magnitude and duration of the sell-off depend on conditions. During early cycle hikes the initial sell-off was generally small, quickly recovered and further S&P gains came in next three months and longer (like 2004, 1983, 1972). But many sell-offs on late cycle hikes became corrections or even bear markets. Unfortunately, it's only in hindsight do we know where we are in the cycle."

  While the markets, due to momentum, may ignore the effect of "monetary tightening" in the short-term, the longer-term has been a different story.

  As shown in the table below, the bulk of losses in markets are tied to economic recessions. However, there are also other events such as the Crash of 1987, the Asian Contagion, Long-Term Capital Management, and others that led to sharp corrections in the market as well.

  

  The point is that in the short-term the economy and the markets (due to momentum) can SEEM TO DEFY the laws of gravity as interest rates begin to rise. However, as rates continue to rise they ultimately act as a "brake" on economic activity. Think about the all of the areas that are NEGATIVELY impacted by rising interest rates:

  1) Debt servicing requirements reduce future productive investment.

  2) The housing market. People buy payments, not houses, and rising rates mean higher payments. (Read "Economists Stunned By Housing Fade" for more discussion)

  3) Higher borrowing costs which leads to lower profit margins for corporations.

  4) Stocks are cheap based on low-interest rates. When rates rise, markets become overvalued very quickly.

  5) The economic recovery to date has been based on suppressing interest rates to spur growth.

  6) Variable rate interest payments for consumers

  8) Corporate share buyback plans, a major driver of asset prices, and dividend issuances have been done through the use of cheap debt.

  9) Corporate capital expenditures are dependent on borrowing costs.

  Well, you get the idea. If real economic growth was near historical norms of 3%, then I would completely agree with Mr. Rosenberg. However, at current levels, the window between a rate hike and recession has likely closed rather markedly.

  Lastly, it isn't just recessions that have impacted stocks prices in the past. This is something that I addressed more deeply in "Don't Fear Rising Interest Rates? Really?"

  "Do Rising Interest Rates Lead To Higher Stock Prices? This claim falls into the category of 'timing is everything.' The chart below has been circulated quite a bit to support the "don't fear rising interest rates" meme. I have annotated the chart to point out the missing pieces.

  

  While rising interest rates may not "initially" impact asset prices, it is a far different story to suggest that they won't. In fact, there have been absolutely ZERO times in history that the Federal Reserve has begun an interest rate hiking campaign that has not eventually led to a negative outcome.

  What the majority of analysts fail to address is the "full-cycle" effect from rate hikes. While equities may initially provide a haven from rising interest rates during the first half of the rate cycle, they have been a destructive place to be during the last half.

  What is clear from the analysis is that bad things have tended to follow the Federal Reserve's first interest rate increase. While the markets, and economy, may seem to perform okay during the initial phase of the rate hiking campaign, the eventual negative impact will push most individuals to "panic sell" near the next lows. Emotional mistakes are 50% of the cause as to why investors consistently underperform the markets over a 20-year cycle.

  For now the bullish trend is still in place and should be "consciously" honored. However, while it may seem that nothing can stop the markets current rise, it is crucial to remember that it is "only like this, until it is like that." For those "asleep at the wheel,"there will be a heavy price to pay when the taillights turn red.

   

  

  

  
  
  

  

• China Faces End Of "Migrant Miracle" As Demographic Ceiling Imperils Economy

  Exactly four years ago we began to discuss the idea that China is fast approaching its so-called “Lewis Turning Point,” which is defined simply as the moment in time when surplus rural labor is fully absorbed into the urbanizing economy leading to rising wages and falling productivity. At the time, SocGen suggested that “China [was] still some time away from reaching the type of urbanisation rates that characterised Lewis turning points in Japan and South Korea during their most rapid periods of industrialisation and wage growth.” 

  We revisited the issue in 2013, and began to discuss the idea that although urbanization had indeed contributed to productivity gains, the country faced offsetting demographic headwinds in the form of a shrinking working-age population. Additionally, we pointed to research from SocGen which suggested that from 2015 forward, the labor force in China is expected to contract. 

  Here we are in 2015 and sure enough, demographics in China are once again set to become a talking point, as the two trends mentioned above (urbanization and a decline in the working age population) play out against — and feed into — slumping economic growth. Here’s FT with more:

  China’s labour force is shrinking and the “migrant miracle” that powered its industrial rise is mostly exhausted, removing the factors that propelled the country’s meteoric development, according to leading economists.

   

  The transformation will lead to slower growth, reduced investment and a loss of export competitiveness, they warn, increasing the urgency of implementing ambitious economic reforms aimed at finding new sources of expansion.

   

  “Now we are at the so-called Lewis inflection point. I made this forecast in 2006, and today there is no need to change it,” said Ha Jiming, chief investment strategist for private wealth management at Goldman Sachs in Hong Kong…

   

  “The working-age share of China’s population peaks this year at 72 per cent, then it will start to fall rapidly, even more rapidly than what we saw in Japan in the 1990s,” he added.

   

  Cai Fang, vice-president of the Chinese Academy of Social Sciences, a think-tank that advises the government, estimates that China’s potential gross domestic product growth decreased from 9.8 per cent in 1995-2009 to 7.2 per cent in 2011-15 and 6.1 per cent from 2016-20.

   

  A shrinking labour force is one of the main drivers. Since Deng Xiaoping launched market reforms in 1978, 278m migrant workers from rural villages have moved to work in the cities.

   

  But reallocating labour from farm to factory — resulting in higher overall growth as workers’ productivity soars — is now mostly complete.

   

  “From 2005 to 2010, the growth rate of migrant workers was 4 per cent. Last year it was only 1.3 per cent. Maybe this year it will contract,” said Mr Cai.

  For China’s economy — which, you’re reminded, may be growing far less rapidly than the official numbers suggest even as the official figures represent the slowest growth rate in six years — the above has serious ramifications. First it stands to reason that as the supply of new low wage workers shrinks, wages will rise, an eventuality which forces producers to pass higher costs on to customers thus undercutting export competitiveness at a time when exports are already under pressure from slumping global demand and the yuan’s link to the dollar. 

  This dynamic is exacerbated by a projected decline in the overall number of working-age citizens. Here’s FT again:

  The dwindling flow of migrants is one aspect of China’s shrinking labour force. But the slowdown in urbanisation is coinciding with a rapid ageing of the population, another key shift underlying the Lewis Turning Point.

   

  China’s one-child policy created a “demographic dividend” for the economy between roughly 1980 and 2014. Now that dividend is turning into a deficit. The population of Chinese aged between 15 and 64 peaked in 2013, Mr Cai notes. The ratio of children and elderly to working-age Chinese — the dependency ratio — began rising in 2011. 

   

  The one-child policy was introduced in 1979, but the birth rate kept rising into the 1980s. Annual births in China hit 25m in 1987 and have steadily dropped ever since, hitting about 20m a year by 1997 and falling to 16m last year.

   

  “Starting in two or three years, you’re going to see another substantial, precipitous drop in young labour entering the labour market,” says Wang Feng, an expert on Chinese demographics at the University of California Irvine and Fudan University in Shanghai.

  Putting all of this together, China is faced with a new reality wherein the very conditions that have supported the country’s rapid economic growth may now be set for a wholesale reversal, as rising wages and a shrinking labor pool transform the industry-based economy (previously characterized by large trade surpluses and widespread inequality) into a service and consumption-based economy characterized by declining export competitiveness and falling rates of savings and investment. FT notes that the acceleration of economic reforms can help to ameliorate what is likely to be a painful transition and as you’ll see in the video below, the suggested solutions echo those we highlighted two years ago — namely, the creation of a sustainable social safety net, and the facilitation of labor mobility. 

   

  

  

  
  
  

  

• What Happens If You Defy Curfew: A Shocking 90-Second Clip From The Streets Of Baltimore

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  On Saturday night, a man whose name still seems to be unknown, but who was wearing a “F##k the Police” t-shirt, came out in front of police past the official curfew. This is what happened next:

   

  As Mike noted previously, the situation in Baltimore is very serious and all Americans should be paying very close attention; but Baltimore is just a Microcosm of America.

  Baltimore, Maryland is in many ways the perfect microcosm for these United States of America. If you still don’t get that, you’ll be in for a rude awakening in the years ahead.

  A gradual erosion of the Constitution and the civil rights of the citizenry, the abuse of power by people in authority, perverse financial incentives that lead to horrible outcomes, zero accountability, and a ubiquitous surveillance state apparatus; Baltimore has it all. Yet all of these troubling traits have also come to characterize early 21st century America.

  As tends to be the case, the populations that have been victimized the longest and most systemically — in Baltimore and across the U.S. — are the poor, weak and disenfranchised.  Like a cancer, corruption, theft, and blatant abuse of the citizenry by the powerful will spread and spread until it consumes everything unless the tumor is removed. It has now spread so deeply and so dangerously throughout American life, the general public will soon have no choice but to confront it and do something about it, or face a total extinction of opportunity and suffer the same desperate fate as the people out in the streets of Baltimore.

  David Simon, creator of the excellent hit HBO series “The Wire,” recently sat down for an interview with former New York Times reporter Bill Keller to explain the situation in Baltimore as he sees it; its origins and what is needed to fix it. As you read, think about the many parallels to the U.S. economy in general; the endless criminal maneuverings within the centers of power in Washington D.C. and Wall Street, the forever spinning revolving door of corruption, the marauding gangs of cronies making impossibly large piles of money based on connections, fraud and rigged markets as opposed to adding value, the idiocy of the war on drugs, the fraudulent accounting, and the overbearing surveillance state. Increasingly, when America looks in the mirror Baltimore and Ferguson are staring right back. We just haven’t admitted it yet.

  Now, from the Marshall Project:

  Bill Keller: What do people outside the city need to understand about what’s going on there — the death of Freddie Gray and the response to it?

   

  David Simon: I guess there’s an awful lot to understand and I’m not sure I understand all of it. The part that seems systemic and connected is that the drug war — which Baltimore waged as aggressively as any American city — was transforming in terms of police/community relations, in terms of trust, particularly between the black community and the police department. Probable cause was destroyed by the drug war.

   

  Probable cause from a Baltimore police officer has always been a tenuous thing. It’s a tenuous thing anywhere, but in Baltimore, in these high crime, heavily policed areas, it was even worse. When I came on, there were jokes about, “You know what probable cause is on Edmondson Avenue? You roll by in your radio car and the guy looks at you for two seconds too long.” Probable cause was whatever you thought you could safely lie about when you got into district court.

   

  Then at some point when cocaine hit and the city lost control of a lot of corners and the violence was ratcheted up, there was a real panic on the part of the government. And they basically decided that even that loose idea of what the Fourth Amendment was supposed to mean on a street level, even that was too much. Now all bets were off. Now you didn’t even need probable cause. The city council actually passed an ordinance that declared a certain amount of real estate to be drug-free zones. They literally declared maybe a quarter to a third of inner city Baltimore off-limits to its residents, and said that if you were loitering in those areas you were subject to arrest and search. Think about that for a moment: It was a permission for the police to become truly random and arbitrary and to clear streets any way they damn well wanted.

   

  How does race figure into this? It’s a city with a black majority and now a black mayor and black police chief, a substantially black police force.

   

  What did Tom Wolfe write about cops? They all become Irish? That’s a line in “Bonfire of the Vanities.” When Ed and I reported “The Corner,” it became clear that the most brutal cops in our sector of the Western District were black. The guys who would really kick your ass without thinking twice were black officers. If I had to guess and put a name on it, I’d say that at some point, the drug war was as much a function of class and social control as it was of racism. I think the two agendas are inextricably linked, and where one picks up and the other ends is hard to say. But when you have African-American officers beating the dog-piss out of people they’re supposed to be policing, and there isn’t a white guy in the equation on a street level, it’s pretty remarkable. But in some ways they were empowered.

   

  Back then, even before the advent of cell phones and digital cameras — which have been transforming in terms of documenting police violence — back then, you were much more vulnerable if you were white and you wanted to wail on somebody. You take out your nightstick and you’re white and you start hitting somebody, it has a completely different dynamic than if you were a black officer. It was simply safer to be brutal if you were black, and I didn’t know quite what to do with that fact other than report it. It was as disturbing a dynamic as I could imagine. Something had been removed from the equation that gave white officers — however brutal they wanted to be, or however brutal they thought the moment required — it gave them pause before pulling out a nightstick and going at it. Some African American officers seemed to feel no such pause.

  This is another fascinating microcosm considering how Barack Obama has done absolutely nothing to help the black community or poor in this country. It took a black President to so shamelessly hand everything to a handful of oligarchs and further oppress black communities.

  What the drug war did, though, was make this all a function of social control. This was simply about keeping the poor down, and that war footing has been an excuse for everybody to operate outside the realm of procedure and law.

   

  “The drug war began it, certainly, but the stake through the heart of police procedure in Baltimore was Martin O’Malley.”

  In case you aren’t aware, Martin O’Malley was the ambitious Mayor of Baltimore who had his eyes dead set on the Governor’s seat. So much so that he cooked the crime books of Baltimore to create a crime “miracle,” and destroyed city police work in the process. Mr. O’Malley has recently discussed possibly running against Hillary in the 2016 Democrat primary.

  But that wasn’t enough. O’Malley needed to show crime reduction stats that were not only improbable, but unsustainable without manipulation. And so there were people from City Hall who walked over Norris and made it clear to the district commanders that crime was going to fall by some astonishing rates. Eventually, Norris got fed up with the interference from City Hall and walked, and then more malleable police commissioners followed, until indeed, the crime rate fell dramatically. On paper.

   

  How? There were two initiatives. First, the department began sweeping the streets of the inner city, taking bodies on ridiculous humbles, mass arrests, sending thousands of people to city jail, hundreds every night, thousands in a month. They actually had police supervisors stationed with printed forms at the city jail – forms that said, essentially, you can go home now if you sign away any liability the city has for false arrest, or you can not sign the form and spend the weekend in jail until you see a court commissioner. And tens of thousands of people signed that form. 

  Unsurprisingly, the rule of law often dies at the hands of an ambitious politician.

  The situation you described has been around for a while. Do you have a sense of why the Freddie Gray death has been such a catalyst for the response we’ve seen in the last 48 hours?

   

  Because the documented litany of police violence is now out in the open. There’s an actual theme here that’s being made evident by the digital revolution. It used to be our word against yours. It used to be said — correctly — that the patrolman on the beat on any American police force was the last perfect tyranny. Absent a herd of reliable witnesses, there were things he could do to deny you your freedom or kick your ass that were between him, you, and the street. The smartphone with its small, digital camera, is a revolution in civil liberties.

   

  In these drug-saturated neighborhoods, they weren’t policing their post anymore, they weren’t policing real estate that they were protecting from crime. They weren’t nurturing informants, or learning how to properly investigate anything. There’s a real skill set to good police work. But no, they were just dragging the sidewalks, hunting stats, and these inner-city neighborhoods — which were indeed drug-saturated because that’s the only industry left — become just hunting grounds. They weren’t protecting anything. They weren’t serving anyone. They were collecting bodies, treating corner folk and citizens alike as an Israeli patrol would treat Gaza, or as the Afrikaners would have treated Soweto back in the day. They’re an army of occupation. And once it’s that, then everybody’s the enemy. The police aren’t looking to make friends, or informants, or learning how to write clean warrants or how to testify in court without perjuring themselves unnecessarily. There’s no incentive to get better as investigators, as cops. There’s no reason to solve crime. In the years they were behaving this way, locking up the entire world, the clearance rate for murder dove by 30 percent. The clearance rate for aggravated assault — every felony arrest rate – took a significant hit. Think about that. If crime is going down, and crime is going down, and if we have less murders than ever before and we have more homicide detectives assigned, and better evidentiary technologies to employ how is the clearance rate for homicide now 48 percent when it used to be 70 percent, or 75 percent?

   

  Because the drug war made cops lazy and less competent?

   

  How do you reward cops? Two ways: promotion and cash. That’s what rewards a cop. If you want to pay overtime pay for having police fill the jails with loitering arrests or simple drug possession or failure to yield, if you want to spend your municipal treasure rewarding that, well the cop who’s going to court 7 or 8 days a month — and court is always overtime pay — you’re going to damn near double your salary every month. On the other hand, the guy who actually goes to his post and investigates who’s burglarizing the homes, at the end of the month maybe he’s made one arrest. It may be the right arrest and one that makes his post safer, but he’s going to court one day and he’s out in two hours. So you fail to reward the cop who actually does police work. But worse, it’s time to make new sergeants or lieutenants, and so you look at the computer and say: Who’s doing the most work? And they say, man, this guy had 80 arrests last month, and this other guy’s only got one. Who do you think gets made sergeant? And then who trains the next generation of cops in how not to do police work? I’ve just described for you the culture of the Baltimore police department amid the deluge of the drug war, where actual investigation goes unrewarded and where rounding up bodies for street dealing, drug possession, loitering such – the easiest and most self-evident arrests a cop can make – is nonetheless the path to enlightenment and promotion and some additional pay. That’s what the drug war built, and that’s what Martin O’Malley affirmed when he sent so much of inner city Baltimore into the police wagons on a regular basis.

  So much of what was said there characterizes the perverted culture in Washington D.C. and on Wall Street. People are financially incentivized to commit fraud, crime and deceive customers. Those people are then promoted and train the next class. And the beat goes on…

  The second thing Marty did, in order to be governor, involves the stats themselves. In the beginning, under Norris, he did get a better brand of police work and we can credit a legitimate 12 to 15 percent decline in homicides. Again, that was a restoration of an investigative deterrent in the early years of that administration. But it wasn’t enough to declare a Baltimore Miracle, by any means.

   

  What can you do? You can’t artificially lower the murder rate – how do you hide the bodies when it’s the state health department that controls the medical examiner’s office? But the other felony categories? Robbery, aggravated assault, rape? Christ, what they did with that stuff was jaw-dropping.

  Now for the accounting fraud. Looks like Baltimore authorities learned well from Wall Street.

  So they cooked the books.

   

  Oh yeah. If you hit somebody with a bullet, that had to count. If they went to the hospital with a bullet in them, it probably had to count as an aggravated assault. But if someone just took a gun out and emptied the clip and didn’t hit anything or they didn’t know if you hit anything, suddenly that was a common assault or even an unfounded report. Armed robberies became larcenies if you only had a victim’s description of a gun, but not a recovered weapon. And it only gets worse as some district commanders began to curry favor with the mayoral aides who were sitting on the Comstat data. In the Southwest District, a victim would try to make an armed robbery complaint, saying , ‘I just got robbed, somebody pointed a gun at me,’ and what they would do is tell him, well, okay, we can take the report but the first thing we have to do is run you through the computer to see if there’s any paper on you. Wait, you’re doing a warrant check on me before I can report a robbery? Oh yeah, we gotta know who you are before we take a complaint. You and everyone you’re living with? What’s your address again? You still want to report that robbery?

   

  They cooked their own books in remarkable ways. Guns disappeared from reports and armed robberies became larcenies. Deadly weapons were omitted from reports and aggravated assaults became common assaults. The Baltimore Sun did a fine job looking into the dramatic drop in rapes in the city. Turned out that regardless of how insistent the victims were that they had been raped, the incidents were being quietly unfounded. That tip of the iceberg was reported, but the rest of it, no. And yet there were many veteran commanders and supervisors who were disgusted, who would privately complain about what was happening. If you weren’t a journalist obliged to quote sources and instead, say, someone writing a fictional television drama, they’d share a beer and let you fill cocktail napkins with all the ways in which felonies disappeared in those years.

   

  I mean, think about it. How does the homicide rate decline by 15 percent, while the agg assault rate falls by more than double that rate. Are all of Baltimore’s felons going to gun ranges in the county? Are they becoming better shots? Have the mortality rates for serious assault victims in Baltimore, Maryland suddenly doubled? Did they suddenly close the Hopkins and University emergency rooms and return trauma care to the dark ages? It makes no sense statistically until you realize that you can’t hide a murder, but you can make an attempted murder disappear in a heartbeat, no problem.

   

  But these guys weren’t satisfied with just juking their own stats. No, the O’Malley administration also went back to the last year of the previous mayoralty and performed its own retroactive assessment of those felony totals, and guess what? It was determined from this special review that the preceding administration had underreported its own crime rate, which O’Malley rectified by upgrading a good chunk of misdemeanors into felonies to fatten up the Baltimore crime rate that he was inheriting. Get it? How better than to later claim a 30 or 40 percent reduction in crime than by first juking up your inherited rate as high as she’ll go. It really was that cynical an exercise.

   

  So Martin O’Malley proclaims a Baltimore Miracle and moves to Annapolis. And tellingly, when his successor as mayor allows a new police commissioner to finally de-emphasize street sweeps and mass arrests and instead focus on gun crime, that’s when the murder rate really dives. That’s when violence really goes down. When a drug arrest or a street sweep is suddenly not the standard for police work, when violence itself is directly addressed, that’s when Baltimore makes some progress.

  But nothing corrects the legacy of a police department in which the entire rank-and-file has been rewarded and affirmed for collecting bodies, for ignoring probable cause, for grabbing anyone they see for whatever reason. And so, fast forward to Sandtown and the Gilmor Homes, where Freddie Gray gives some Baltimore police the legal equivalent of looking at them a second or two too long. He runs, and so when he’s caught he takes an ass-kicking and then goes into the back of a wagon without so much as a nod to the Fourth Amendment.

   

  So do you see how this ends or how it begins to turn around?

   

  We end the drug war. I know I sound like a broken record, but we end the fucking drug war. The drug war gives everybody permission to do anything. It gives cops permission to stop anybody, to go in anyone’s pockets, to manufacture any lie when they get to district court. You sit in the district court in Baltimore and you hear, ‘Your Honor, he was walking out of the alley and I saw him lift up the glassine bag and tap it lightly.’ No fucking dope fiend in Baltimore has ever walked out of an alley displaying a glassine bag for all the world to see. But it keeps happening over and over in the Western District court. The drug war gives everybody permission. And if it were draconian and we were fixing anything that would be one thing, but it’s draconian and it’s a disaster.

  This is true about the drug war, but even more true about the “war on terror.” Also endless, also used to justify anything.

  Medicalize the problem, decriminalize — I don’t need drugs to be declared legal, but if a Baltimore State’s Attorney told all his assistant state’s attorneys today, from this moment on, we are not signing overtime slips for court pay for possession, for simple loitering in a drug-free zone, for loitering, for failure to obey, we’re not signing slips for that: Nobody gets paid for that bullshit, go out and do real police work. If that were to happen, then all at once, the standards for what constitutes a worthy arrest in Baltimore would significantly improve. Take away the actual incentive to do bad or useless police work, which is what the drug war has become.

  So much of what’s been happening in Baltimore for decades is now also business as usual within the highest corridors of American power. As I’ve said time and time again, incentives are the key variable here. If you’re rewarded for fraud and white collar crime, you will get more of it. If you jail the perpetrators of it, you’ll get less of it. TBTF Wall Street execs and private equity guys don’t want to sit in a jail cell for a decade, believe me. They’d sell 50 Picassos and 30 sharks soaked in formaldehyde before that ever happened.

  The sad part is we aren’t even trying to change the incentive structure of status quo criminality. This is because the current generation of power players were trained and molded by the same types before them. This is all they know. Money and power are their gods. Crime is their religion. We have no choice but to stop them.

  

  

  
  
  

  

• Rant Time

  May 5 – Gold $1193.80 up $6.20 – Silver $16.56 up 14 cents

  Rant Time

  “When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.” … Billy Graham

  GO GATA!

  As is almost always the case, the price of gold was leaned on at the standard PLAN A time in London when The Gold Cartel traders reported for work, but their nudge was thwarted pretty quickly. Gold took off again going into the Comex trading hours and managed to reach $1200 where it was stopped dead in its tracks. James Mc early this morning…

  Rules are rules

  Bill,
  Yesterday’s circled number was $1186.30, and while gold slightly exceeded it, and the 1% rule at the end of the day there was a clear gravitational pull bringing it back. After the 6:00 PM access trade opened it was clearly being held in check for the next 7 hours right around $1186. Cartel rule #1 is also apparent today; with the high tick so far exactly today’s circled number of $1198.70. As of 10:10 AM gold is getting the kitchen sink thrown at it at +1%. As always any big nearby number such as $1200 is irrelevant. It’s all about control, and the fact that $1200 is nearby is just coincidence. The cartel has proven over and over they will stop gold rallies at ANY number, as long as it is the prescribed percentage.

  As tiresome as it is to talk about there are 2 big looming potholes for gold. The first arrives this week in the form of NFP Friday which is usually a cartel biggie. The next one arrives 3 weeks from today on May 26th, which is June option expiration. If history is a guide I am issuing a full Washington General warning for both days. Fleecing idiots trading paper gold and executing MOPE to perfection has been the winning formula for the crooks. Never mind an exploding trade deficit (with the implications of negative GDP leading to QE-MOAR) or any other bullish news for gold. For the cartel rules are rules.

  The outrageous manipulation on a daily basis has rendered all analysis akin to being on a ride through a carnival funhouse. The cartel’s use of distorted mirrors, strobe lights and smoke make any critical examination virtually useless. Is COT data accurate? Is Comex warehouse inventory data accurate? What % of Comex trading is merely HFT algos disrupting flow? What % of the commercials are cartel banks, and what portion are true hedgers and/or mines? Who is behind the gigantic O.I. in silver? Who is behind the enforcement of the cartel rules? Just what the hell is going on at Ft. Knox, or anywhere gold is allegedly stored? As CP pointed out years ago gold secrets are a higher priority than even nuclear secrets.
  James Mc

  The silver action is intriguing, when not annoying. Much focus here of late on that price action and what it all might mean. The biggie today is that it was stopped again, like yesterday, right at its massive downtrend line…

  

  After making a $16.68 high, JPM and allies put the damper on the price for the rest of the Comex session, like they did yesterday. CLEARLY, it must blow through $16.70 to BEGIN to do what so many of us are waiting for. To get back into the big leagues silver must then take out $18.50, with the next stop at $22. Once those objectives have been cleared, silver will have completed one of the largest bases imaginable, which should support a MOON SHOT.

  The next three hours of trading on the Comex will be a predictable yawn … you can take that one to the bank. The good news is that this week has been a winner so far and each time the bums slam the gold/silver prices, they refuse to stay down.

  The AM Fix: $1187.40. The PM Fix: $1197.

  The gold open interest fell 9002 contracts to 401,699. The silver open interest was down 2436 contracts to 175,374.

  With hours to kill as gold and silver have no chance of getting anywhere further, it is rant time.

  Another six degrees of separation story that might hit home with some Café members. First off…

  Six degrees of separation is the theory that everyone and everything is six or fewer steps away, by way of introduction, from any other person in the world, so that a chain of “a friend of a friend” statements can be made to connect any two people in a maximum of six steps. It was originally set out by Frigyes Karinthy in 1929 and popularized by a 1990 play written by John Guare.

  ***

  Perhaps this ramble may be of assistance and value to Café members. There is no doubt that Six Degrees theory is valid in so many different ways.

  Friday night I began to have a pain in my abdomen and it was hard to sleep. On Saturday morning the pain was intense on the lower right side of the abdomen and appeared to be spreading. As a former pro football athlete, you are trained to overcome pain and move on. Figuring it would go away, I lifted weights for an hour and then walked a few miles to pick up a pair of new sneakers (sorely needed).

  After having some trouble sleeping Saturday night, the pain was worse when I got up early on Sunday. I wished I could call my superb doctor of many years (still a competitive rower and only a few years younger than me). That is what I would have done if he was open, but not the case on Sunday.

  I hate going to hospitals and seeing doctors … did not even have health insurance until a few years ago. But, had nothing else to do on Sunday morning, so I thought I should go to Baylor Hospital’s Emergency room after all the whackos had cleared out from too much nonsense on Sat night.

  Never have been to an emergency room in my life. Was clueless what to expect. Figured to be hanging around for hours waiting to be seen … was prepared for anything. Never was so surprised … the efficacy of their operation at Baylor was THE BEST. Was seen after 15 minutes. No filling out a zillion pieces of paper, just the basics of who I was and on to what my so-called emergency was.

  They got me a room quickly, which had to be rearranged because the last patient was a psycho and they had taken most everything out of the room that the nutcase could use to hurt the staff. It was amusing watching the orderly move so much back in to make it feel more than a detention cell.

  When taking my shirt off to put on my nightgown, the attending nurse (who had been asking me numerous health questions) noticed a rash on my lower back on the right side. “What rash?” I queried. She showed me. Immediately, she said, “SHINGLES,” which made no sense to me. The pain was in my abdomen, but it WAS only on my right side.

  This cool young doctor came in and told me what the drill would be … an MRI and all blood tests imaginable, and that it would take hours. So, I ended up watching Law and Order on the tube and enjoyed the morning after being wheeled around to get MRI’d in this big tube thing.

  Thought I was handling it all quite well … possibly in wait for the doctor to come back and tell me I have an inoperable cancer of the stomach, or that I would need to be admitted immediately for some other urgent surgery. Handling it well, right?…

  *My blood pressure was sky high on the first go around and the doctor was concerned (it went back down to a normal area, which it has been for some time).

  *Then could not get into the men’s room near me because of a lady in distress, so I went to the next one. Got lost coming out and ended up at the other side of the ER layout. When asking where to go, I kept getting sent to another room, where this lady was dealing with her own issue. What the heck? Turns out she was a Murphy too. What are the odds of that?

  After a few laughs, I was led back to my room and waited for the doctor. The first few words out of his mouth could change my life forever and there was nothing to do but wait to hear what the pain was all about.

  Before I could think “the dread” further, he opened the door and quickly said, “All your tests are NORMAL.” They were the sweetest words I ever heard. BUT, he said he thought the nurse was right that it was SHINGLES, so he gave me some medicine to be taken immediately.

  No matter, I was not going on Death Row and didn’t have to quickly go home and get my laptop to do my daily commentary when I woke up from a surgery. (I actually almost brought it to the ER when I first went in anticipation of the worst.)

  Now, I know how painful shingles is supposed to be. Everyone, for the right reasons, shudders on hearing of it because it is so painful … BUT compared to hearing my pancreas, appendix, liver, or kidney was blowing up, this news was a delight to hear.

  Trying to keep this as short as possible, the doctor gave me two meds (pills) for shingles, which I began to take immediately. One was a steroid of sorts. What an eye opener. Feeling very good yesterday, I went to my gym. My weightlifting was the strongest in memory. My bike ride was the fastest in a long time. No wonder some of these famous athletes hit so many home runs. No wonder Lance Armstrong did what he did. What I took were three rinky-dink pills and I could feel the new strength in 24 hours. What a stunner!

  On my way out of the gym, I ran into this sharp lawyer whom I have gotten to know and we did the usual cordial hellos and “How are you doing?” This time when he did his friendly query, I responded by saying I spent four hours in the ER at Baylor on Sunday. Naturally, he scrambled over to find out what was going on.

  So glad I brought it up. He then told me that his wife, whom I have met briefly, had the same thing … shingles, and that the pain was nowhere near where her rash was, just like me if that is what I have. He went on to say how painful it was, but she beat it. And, if that is what I have, so will I … no matter what lifestyle changes that requires.

  While in purgatory here, waiting to find out really what I have, my hope it is that it is SHINGLES, because that is something I can deal with and it is up to me to beat any immune issues that caused the problem.

  What I have learned in this process and perhaps might be of help down the road to some Cafe member…

  *Go to Google about any ailing symptoms you might have. When it came to what to do about stomach pain, they said follow your gut about whether to go to an emergency room. What a true hoot that was. The Google drill can give you some greater clarification of what you are dealing with and how to respond without wasting time.

  *When you have terrible, unexplained pain, deal with it and don’t wish it away. The faster we confront our health demons, which we all have, the better chance of a satisfactory outcome.

  *Don’t be afraid of the ER at a major hospital, silly as that may sound to most of you. I was shocked at how good the experience was. Baylor got right to my ER issue.

  *Thank goodness for quality health insurance. How lucky I was all those years with my own self insurance program. That could have been a distant memory, very quickly. My entire ER experience cost $69.

  That’s it. If all I have is SHINGLES, I am a lucky guy. It can be beat. Perhaps that old football slogan of “no pain, no gain,” learned all too well making it to a starting wide receiver with the Patriots so long ago, will take on a new meaning after all these years.

  As for Six Degrees of Separation … when I can be directed into another patient’s room by mistake twice, another Murphy, how can this not relate so quickly to all of us and confirm that fabulous notion. Most important to me is that it appears that I will be around to do all I can on behalf of GATA to defeat The Gold Cartel and their heinous price suppression, market manipulation maneuvers.

  On that note, it is ironic that the more GATA is proved correct, the more we are shunned. It appears that Jack Nicholson’s famous quote, “You can’t handle the truth!!” in the movie A Few Good Men, is so apropos for the mainstream media gold world, leading gold/silver company executives, and most of the entire gold/silver industry.

  And that is the way it appears it will be until this market manipulation nonsense blows up and the decimated U.S. public is clamoring for answers. An essence of what GATA has had to say all along is that interference in the free market process, by manipulating the prices of gold and silver, was going to end badly because it has ruined free market price discovery. It has been deliberate and nefarious.

  GATA was initiated back early in 1999 to expose the price manipulation scheme, to inform the public in a myriad of ways … one of those being going to Congress numerous times. Can you say House Speaker Hastert, or James Saxton of the Joint Economic Committee, or Ron Paul? We have been there and done that …including a visit with James Silvia of the Senate Banking Committee.

  The meeting with Hastert was on May 10, 2000, nearly 15 years ago…

  GATA Delegation Makes Significant Progress in Washington

  On Wednesday at 11:30, the Gold Anti-Trust Action Committee consisting of Chris Powell, Reginald Howe, Frank Veneroso, a State Senator and myself met with one of the most powerful politicians in Washington. It was only going to be a 15 minute meeting. It lasted 45 minutes.

  At the end of the meeting, we were excused from the room for several minutes. When the people we met with returned, we were told that they were going to try and set up a meeting with another influential politician at 2 o’clock, but that we would have to call at 1:30 to confirm.

  We were stunned to learn at 1:30 that this politician had said, “I am aware of the issue,” and that he wanted to meet with the GATA delegation. The meeting took place and six members of his staff also attended. What was most remarkable is that this politician left the floor of Congress to attend our hastily arranged, unscheduled meeting.

  This politician asked many questions and was very focused on what we had to say. So much so, that he was annoyed when a staff member left to deal with some other pending issue, saying that this was more important. He told us he had read our biographies before coming to the meeting and was a bit taken aback when he was handed the “Gold Derivative Banking Crisis” document to him with his name and state on it.

  This knowledgeable politician said that he and his staff would look into our contentions and suggested that we might meet again. After this very intense one hour meeting, he returned to Congress which was in session.

  From there, we went on to meet with Dr. John Silvia, the Chief Economist of the Senate Banking Committee. I could tell he had spent some time on our presentation because he had highlighted material that I had sent to him. Frank, Reg and Chris did a terrific job (as they did in all the meetings) explaining what we have learned through our extensive research. That meeting also lasted an hour and Dr. Silvia took copious notes.

  Yesterday, I passed out 88 of the documents to the staff of all the Senators and Representatives on the banking committees. They were told to look for an open letter to all of them in Monday’s Roll Call.

  That was some schlep. For the Senate I went to the Dirksen, Russell and Hart buildings. For the House I went to the Rayburn, Longworth and Cannon buildings. It took me the entire day, but was well worth it. Congressman Lee Terry of Nebraska could not have been nicer and said he would read the document on his way back to his native state this weekend.

  I was struck by how different all the buildings were. AND HOW BIG. Most were about 100 yards long and were circular for traffic flow. I made the mistake of buying new shoes for the trip. Now, my feet are all blistered. Big booboo.

  My last stop was the Rayburn Building and I smiled as I went by The Gold Room.

  It was the opinion of the entire Gold Anti-Trust Action Committee delegation that the trip was far more fruitful than any one of us dreamed possible. However, as we all know, that was just our first salvo. There is much to be done to win the day and we are already planning our next course of action.

  When our adversaries realize how far we have come, we know that they will go all out to discredit us. If yesterday’s meetings were any indication of making a serious impact on those who count in Washington, the other side has their work cut out for them!

  Bill Murphy

  ***

  Our afternoon meeting was with Spencer Bachus, Chairman of the House Subcommittee on Domestic and International Monetary Policy at the time.

  So where are we now, almost 15-years later? That will depend on who you talk to.

  Taking on the richest and most powerful people in the world is not an easy task. Never in my wildest dreams did I believe GATA could have come up with so much documentation about how valid our claims are and have it so ignored. No one in the world could have done a better job at documenting the evidence of the gold price suppression scheme than Chris Powell. No finer guy than him, or more dedicated and diligent in getting the facts out there.

  Think about it. GATA has held four incredibly successful conferences; in Durban, South Africa; in Dawson City in The Yukon; right outside of Washington, D.C.; and in London at the Savoy Hotel, which 400 people attended from 38 countries. To a person they said it was the finest conference they ever attended.

  Little did all of us know at the time what The Gold Cartel had in mind, as that was in August of 2011. One month later, gold soared more than $260 to over $1900 and has been going down ever since.

  At the same time, other asset prices have soared due to money creation. What no one EVER asks in the mainstream Muppet world is why would gold and silver get bombed at the same time other assets as stocks, diamonds, real estate, and art took off? The incongruity of it all makes no sense, unless you know what GATA knows and the enormous effort that The Gold Cartel is doing to affect their own reality. That (their) reality will go on until the blowup, which is only a matter of time.

  So, GATA carries on to win the day on all this nonsense, which is going to hurt so many innocent people who have no idea what the rich and powerful have done to enrich their own fortunes. Few seem to care at the moment what GATA has to say, BUT THEY WILL when all heck breaks loose.

  GATA will win the day in the end and we need your support to carry on. What we are dealing with is historic… and will DWARF the Madoff and Enron scandals, etc. in terms of the enormity of it all.

  At some point GATA’s efforts are going to prove out by revealing how thwarting the free market process was disastrous. You never know exactly when our efforts will pay off for all of us who believe in exposing the truth about the financial world’s machinations. With all so copacetic for the moment, few care. As said, that is all going to change.

  GATA needs your help to spread awareness about what is really going on behind the scenes. Most everyone is clueless. Despite what we are encountering, GATA intends to carry on … and, as we do, it will expose the biggest financial scandal in American history.

  The facts could not be clearer right now of what GATA explained when we went to Washington in 2000. Back then this topic was not even on the radar screen. To win the day we need your support to keep on keepin’ on. Having stayed on this obvious mission for so long, it is only a matter of time now before the importance of what GATA has claimed for so long makes it to center stage. The rich and powerful will not change their stance, but as things get ugly for the regular people like you and me, they are going to demand answers to the dramatic chaos.

  We need some firepower to deliver that message to the world as it manifests itself. The world will want to know what happened and why, hopefully so it does not happen again. From what I know, all of us support various causes because we believe it will make a difference. While so few care now, thanks to the decimation of the gold/silver industry, courtesy of the antics of The Gold Cartel, GATA is still standing tall and telling it like it is.

  If you agree and want to support GATA’s efforts, go here:

  http://www.gata.org/node/16Going to send this to zerohedge because it is a prominent truth teller and a brilliant resource. May this be another feather in their cap. If anyone in zerohedge land would like to chat further on this monumental issue, you can reach me at midasnh@aol.com.

  ***

  As expected many hours ago, it was a vintage Gold Cartel day … total lockdown … and that was despite a weak dollar, oil rising above $60 per barrel, and a stock market that was crushed. As usual, nothing matters except what The Gold Cartel can get away with. James Mc had it pegged at 9:30 this morning.

  The shares didn’t like the action either. The XAU lost .53 to 72.93. The HUI lost 1.30 to 178.71.

  Guess it was a good day for a rant.

  MIDAS

  Bill Murphy
  www.Lemetropolecafe.com

  

  
  
  

  

• CFR Says China Must Be Defeated And TPP Is Essential To That

  Submitted by Eric Zuesse

  CFR Says China Must Be Defeated And TPP Is Essential To That
  

  Wall Street’s Council on Foreign Relations has issued a major report, alleging that China must be defeated because it threatens to become a bigger power in the world than the U.S.

  This report, which is titled “Revising U.S. Grand Strategy Toward China,” is introduced by Richard Haass, the CFR’s President, who affirms the report’s view that, “no relationship will matter more when it comes to defining the twenty-first century than the one between the United States and China.”

  Haass gives this report his personal imprimatur by saying that it “deserves to become an important part of the debate about U.S. foreign policy and the pivotal U.S.-China relationship.” He acknowledges that some people won’t agree with the views it expresses.

  The report itself then opens by saying: “Since its founding, the United States has consistently pursued a grand strategy focused on acquiring and maintaining preeminent power over various rivals, first on the North American continent, then in the Western hemisphere, and finally globally.” It praises “the American victory in the Cold War.” It then lavishes praise on America’s imperialistic dominance: “The Department of Defense during the George H.W. Bush administration presciently contended that its ‘strategy must now refocus on precluding the emergence of any potential future global competitor’—thereby consciously pursuing the strategy of primacy that the United States successfully employed to outlast the Soviet Union.”

  The rest of the report is likewise concerned with the international dominance of America’s aristocracy or the people who control this country’s international corporations, rather than with the welfare of the public or as the U.S. Constitution described the objective of the American Government: “the general welfare.”

  The Preamble, or sovereignty clause, in the Constitution, presented that goal in this broader context: “in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity.”

  The Council on Foreign Relations, as a representative of Wall Street, is concerned only with the dominance of America’s aristocracy. Their new report, about “Revising U.S. Grand Strategy Toward China,” is like a declaration of war by America’s aristocracy, against China’s aristocracy. This report has no relationship to the U.S. Constitution, though it advises that the U.S. Government pursue this “Grand Strategy Toward China” irrespective of whether doing that would even be consistent with the U.S. Constitution’s Preamble.

  The report repeats in many different contexts the basic theme, that China threatens “hegemonic” dominance in Asia. For example:

  “China’s sustained economic success over the past thirty-odd years has enabled it to aggregate formidable power, making it the nation most capable of dominating the Asian continent and thus undermining the traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.”

  The report never allows the matter of America’s “hegemonic control” to be even raised. Thus, “hegemony” is presumed to be evil and to be something that the U.S. must block other nations from having, because there is a “traditional U.S. geopolitical objective of ensuring that this arena remains free of hegemonic control.” In other words: the U.S. isn’t being “hegemonic” by defeating aspiring hegemons. The report offers no term to refer to “hegemony” that’s being practiced by the U.S.

  The report presents China as being supremacist, such as what (to quote again from the report) “historian Wang Gungwu has described as a ‘principle of superiority’ underwriting Beijing’s ‘long-hallowed tradition of treating foreign countries as all alike but unequal and inferior to China.’ Consistent with this principle, Henry Kissinger, describing the traditional sinocentric system, has correctly noted that China ‘considered itself, in a sense, the sole sovereign government of the world.’” America’s own ‘Manifest Destiny’ or right to regional (if not global) supremacy is not discussed, because supremacism is attributed only to the aristocracies in other countries, not to the aristocracy in this country.

  Rather than the “general welfare,” this document emphasizes “U.S. Vital National Interests,” which are the interests of America’s aristocrats, the owners of America’s large international corporations.

  This report urges:

  “The United States should invest in defense capabilities and capacity specifically to defeat China’s emerging anti-access capabilities and permit successful U.S. power projection even against concerted opposition from Beijing. … Congress should remove sequestration caps and substantially increase the U.S. defense budget.”

  In other words: the Government should spiral upward the U.S. debt even more vertically (which is good for Wall Street), and, in order to enable the increased ‘defense’ expenditures, only ‘defense’ expenditures should be freed from spending-caps. Forget the public, serve the owners of ‘defense’ firms and of the large international corporations who rely on the U.S. military to protect their property abroad.

  The report says that China would have no reason to object to such policies: “There is no reason why a China that did not seek to overturn the balance of power in Asia should object to the policy prescriptions contained in this report.” Only a “hegemonic” China (such as the report incessantly alleges to exist, while the U.S. itself is not ‘hegemonic’) would object; and, therefore, the U.S. should ignore China’s objections, because they would be, by definition ‘hegemonic.’ Or, in other words: God is on our side, not on theirs.

  “Washington simply cannot have it both ways—to accommodate Chinese concerns regarding U.S. power projection into Asia through ‘strategic reassurance’ and at the same time to promote and defend U.S. vital national interests in this vast region.”

  The authors make clear that U.S. President Obama is not sufficiently hostile toward China: “All signs suggest that President Obama and his senior colleagues have a profoundly different and much more benign diagnosis of China’s strategic objectives in Asia than do we.”

  Furthermore, the report ends by portraying Obama as weak on the anti-China front: “Many of these omissions in U.S. policy would seem to stem from an administration worried that such actions would offend Beijing and therefore damage the possibility of enduring strategic cooperation between the two nations, thus the dominating emphasis on cooperation. That self-defeating preoccupation by the United States based on a long-term goal of U.S.-China strategic partnership that cannot be accomplished in the foreseeable future should end.”

  The report’s “Recommendations for U.S. Grand Strategy Toward China” urges Congress to “Deliver on the Trans-Pacific Partnership, … as a geoeconomic answer to growing Chinese economic power and geopolitical coercion in Asia,” but it fails to mention that the Obama Administration has already embodied the authors’ viewpoint and objectives in the TPP, which Obama created, and which cuts China out; it could hardly be a better exemplar of their agenda. The authors, in fact, state the exact opposite: that Obama’s objective in his TPP has instead been merely “as a shot in the arm of a dying Doha Round at the World Trade Organization (WTO).” They even ignore that Obama had cut China out of his proposed TPP.

  Furthermore, here is what President Obama himself told graduating West Point cadets on 28 May 2014:

  “Russia’s aggression toward former Soviet states unnerves capitals in Europe, while China’s economic rise and military reach worries its neighbors. From Brazil to India, rising middle classes compete with us, and governments seek a greater say in global forums.” He was saying that these future military leaders will be using guns and bombs to enforce America’s economic dominance. This is the same thing that the CFR report is saying.

  His speech also asserted: “I believe in American exceptionalism with every fiber of my being. … The United States is and remains the one indispensable nation. That has been true for the century passed and it will be true for the century to come.” (That even resembles: “Henry Kissinger, describing the traditional sinocentric system, has correctly noted that China ‘considered itself, in a sense, the sole sovereign government of the world.’” Obama is, in a sense, saying that America is the “sole sovereign government in the world.”)

  He made clear that China is “dispensable,” and that the U.S. must stay on top.

  However, there is a difference between Obama and the CFR on one important thing: Obama sees Russia as the chief country over which the U.S. must dominate militarily, and China as the chief country to dominate economically. But in that regard, he is actually old-line Republican, just like his 2012 opponent Mitt Romney is. The only difference from Romney on that is: Obama wasn’t so foolish as to acknowledge publicly a belief that he shared with Romney but already knew was an unpopular position to take in the general election.

  Furthermore, whereas the CFR report ignores the public’s welfare, Obama does give lip-service to that as being a matter of concern (just as he gave lip-service to opposing Romney’s assertion that Russia is “our number one geopolitical foe”). After all, he is a ‘Democrat,’ and the authors of the CFR report write instead as if they were presenting a Republican Party campaign document. No ‘Democrat’ can be far-enough to the political right to satisfy Republican operatives. The pretense that they care about the public is therefore far less, because the Republican Party is far more open about its support of, by, and for, the super-rich. Mitt Romney wasn’t the only Republican who had contempt for the lower 47%. But even he tried to deny that he had meant it. In that sense, the CFR’s report is a Republican document, one which, quite simply, doesn’t offer the public the lip-service that Obama does (and which he politically must, in order to retain support even within his own party).

  Perhaps on account of the CFR report’s condemning Obama for not being sufficiently right-wing — even though he is actually a conservative Republican on all but social issues (where China policy isn’t particularly relevant) — the report has received no mention in the mainstream press, ever since it was originally issued, back in March of this year. For whatever reason, America’s ‘news’ media ignored the report, notwithstanding its importance as an expression of old-style imperialistic thinking that comes from what many consider to be the prime foreign-affairs mouthpiece of America’s aristocracy — the CFR. The report’s first coverage was on 2 May 2015 at the World Socialist Web Site, which briefly paraphrased it but didn’t even link to it. Then, two days later, Stephen Lendman wrote about the CFR report. He briefly paraphrased it and passionately condemned it. He did link to the report. But he didn’t note the WSWS article, which had first informed the public of the CFR report’s existence — an existence which, until the WSWS article, all of America’s ‘press’ had simply ignored.

  The present article is the first one to quote the CFR report, instead of merely to paraphrase and attack it. The quotations that were selected are ones presenting the report’s main points, so that readers here can see these points stated as they were written, rather than merely as I have interpreted them. My interpretation is in addition to, rather than a substitute for, what the report itself says.

  

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

  

  

  
  
  

  

• Is the Next Round of the Crisis at Our Doorstep?

  Stocks have officially entered their worst period of the year.

   

  The old adage “sell in May and go away” does have some merit. According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026 as of 2008. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26 in 57 years.

   

  In contrast, $10,000 invested in the S&P 500 on November 1st and sold April 30th over the same time period would have grown to $372,890. Out of 58 years, you would have had 45 positive and only 13 negative.

   

  Put simply: the period from May to November has historically been a very weak one for stocks. All traders and trading models know this. It is not surprising that after failing to force stocks to breakout to the upside before May, we’re now seeing a sharp sell-off.

   

  The S&P 500 is now at the lower trendline for the bearish rising wedge pattern that it has been carving out since November. This is critical support and we need to hold here otherwise 2050 comes into play very quickly.

   

  

   

  The Fed’s FOMC meeting has come and gone, and the Fed has pretty much broadcast that any rate hikes that might be coming will do so later this year, i.e. not in June. This leaves verbal intervention to hold stocks up. Look for some Fed official to come forward with a blatantly dovish comment in the next few days.

   

  The bigger issue concerns the fact that bond yields are rising across the board. The UK’s Gilts, US Treasuries, and German Bunds have all dropped sharply in the last month, pushing their yields higher.

   

  

   

  Remember, the biggest issue for global Central Banks is containing the $100 trillion bond bubble. Most developed nations need rates to remain next to zero for their debt loads to be serviceable.

   

  So if bond yields begin to rise, it can very quickly become a real mess. Indeed, we fully believe that when this happens we will have officially entered the second round of the Great Crisis that began in 2008.

   

  Watch this situation closely!

   

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

   

  You can pick up a FREE copy at:

   

  http://www.phoenixcapitalmarketing.com/roundtwo.html

   

   

  Best Regards

   

  Phoenix Capital Research

   

   

  

  
  
  

  

• US Economic Confidence Crashes Most Since July To Lowest Since December

  Despite record-er stock prices, weather excuses for current economic weakness, and The Fed promising that growth is here and everything will be awesome, it appears the message has not reached the US Consumer. Gallup's U.S. Economic Confidence Index plunged 9 points last week (the largest week-to-week drop since last July) to its lowest weekly score since December. The main driver was a collapse of hope as 'outlook' fell to November lows.

   

  

   

  Americans' Ratings of Current Conditions, Economic Outlook Both Down

  Gallup's Economic Confidence Index is the average of two components: Americans' ratings of current economic conditions and their views of whether the economy is improving or getting worse. The theoretical maximum of the index is +100, if all Americans say the economy is "excellent" or "good" and "getting better." The theoretical minimum is -100, if all Americans say the economy is "poor" and "getting worse."

   

  

   

  For the week ending May 3, 24% of Americans said the economy is excellent or good while 29% said it is poor, resulting in a current conditions score of -5 — down four points from the previous week and the lowest current conditions score since December. The economic outlook score saw a sharper drop of eight points, to -12 — its lowest reading since November. The latest outlook score is the result of 42% of Americans saying the economy is getting better, and 54% saying it is getting worse.

  The recent dip in Americans' economic confidence — which is being dragged down largely by the lower economic outlook component — is likely the culmination of a variety of economic factors.

  Though stocks rebounded by last Friday, the previous week had been fraught with market losses in the Dow Jones industrial average and Standard & Poor's 500 market indexes. Meanwhile, the prices Americans were paying for gas increased in the latter half of April, with the U.S. Energy Information Administration reporting an increase of 17 cents per gallon over two weeks. Gallup has found that Americans' confidence in the economy is related to how much they pay at the pump. Additionally, the recent report that the nation's GDP grew a lackluster 0.2% in the first quarter — a disappointing figure compared with previous quarterly growth — may have dampened consumers' economic hopes.

  Source: Gallup

  

  

  
  
  

  

• OFFiCiaL BLoGGeR BeN SeaL AND FiLe PHoTo..

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• SEC Commissioner Furious At Deutsche Bank's "Decade Of Lying, Cheating, And Stealing"

  Last week we commented on the latest travesty in the legal system when Deutsche Bank paid $2.5 billion to settle charges that it had manipulated LIBOR, EURIBOR and various other -BORs. As usual in situations such as this one, not a single banker went to prison, but there was some hope that Deutsche Bank’s gross criminal conduct would at least land it on the SEC’s “bad actors” list, which is like the Dodd-Frank equivalent of ‘time out’ and restricts the offender from participating in exempt securities offerings.

  Not to worry: as we reported as part of its settlement, Deutsche Bank, as well as every other criminal financial institution, had – deep in the fine print – inserted language that exempted the offender from such stigma. As the WSJ noted, “the language allows the banks to avoid asking the SEC for a waiver—a process that has become fraught with uncertainty amid commissioner disagreements over whether to allow financial firms to avoid a “bad actor” ban…”

  

  We concluded that “It’s good to be TBTF” because clearly no matter how many laws are violated and how much money is stolen (LIBOR was the reference security for nearly $1 quadrillion in global rate-sensitive derivatives), i) nobody ever goes to prison, ii) there are absolutely no negative consequences, and iii) the cost of running a criminal organization is tiny – the settlement usually amounts to far less than 1% of the gains reaped from years of illegal activities.

  Frankly, at this point one should just sit back and watch in amusement, because until the revolution and/or war predicted by Paul Tudor Jones arrives and the guillotines start working overtime, nobody in a position of wealth or power will be held accountable.

  That same message was, in rough terms, what prompted SEC commissioner Kara Stein, a Democrat, to write her “dissenting statement” regarding granting Deutsche Bank the waiver for ineligible issuer status.

  Here are the choice excerpts:

  I respectfully dissent from the Commission’s Order (“Order”), approved on May 1, 2015, by a majority of the Commission. The Order grants Deutsche Bank AG a waiver from ineligible issuer status triggered by a criminal conviction of its subsidiary, DB Group Services (UK) Ltd. (collectively with Deutsche Bank AG, “Deutsche Bank”), for manipulating the London Interbank Offered Rate (“LIBOR”), a global financial benchmark. This waiver will allow Deutsche Bank to maintain its well-known seasoned issuer (“WKSI”) status, which would have been automatically revoked as a result of its criminal misconduct absent a Commission waiver.

   

  With these WKSI advantages comes a modicum of responsibility. WKSIs must meet the very low hurdle of not being ineligible. This means that, among other things, they have not been convicted of certain felonies or misdemeanors within the past three years. In granting this waiver, the Commission continues to erode even this lowest of hurdles for large companies, while small and mid-sized businesses appear to face different treatment.

   

  This criminal scheme involving LIBOR manipulation was designed to inflate profits, and it was effective. It created the impression that Deutsche Bank was more creditworthy and profitable than it actually was. Accordingly, the conduct affected its financial results and disclosures. Because LIBOR plays such an important role in the worldwide economy, manipulation of it goes to the heart of many aspects of Deutsche Bank’s disclosures. Interest rates represented to clients and the public also were clearly false. Based on this conduct, I do not find any basis to support the assertion that Deutsche Bank’s culture of compliance is dependable, or that its future disclosures will be accurate and reliable.

  Even the SEC is shocked that the CFTC is an organization that caters exclusively to keeping criminal bankers out of prison, rather than getting them in it:

  In addition, the Commission adopted rules disqualifying felons and other “Bad Actors” from Rule 506 offerings on July 10, 2013. Based on the criminal conduct in this case, I expected to receive a request from Deutsche Bank AG for a waiver from the automatic disqualification contained in Rule 506. After all, the final CFTC order was “based on a violation of any law that prohibits fraudulent, manipulative, or deceptive conduct.” It should therefore trigger an automatic disqualification absent a waiver.

   

  However, based on a loophole contained in Rule 506(d)(2)(iii), the CFTC has intervened and prevented the bad actor disqualification question from even coming before the Securities and Exchange Commission. The CFTC saw fit to opine on the SEC’s Rule 506 jurisprudence about whether Deutsche Bank AG should receive a waiver from automatic disqualification under SEC rules. It is unclear to me what, if any, analysis went into this decision and what prompted the CFTC to insert language into its final order stating that a bad actor disqualification “should not arise as a consequence of this Order.”The implications of the CFTC’s actions here — and in other actions — are deeply troubling. The Commission should closely review this provision and how it is being used.

  Don’t worry: former CFTC chief Gary Gensler will soon be US Treasury Secretary – then it will be his job to make sure no criminal with a net worth over a few million dollars ever has to face the US “judicial” system.

  In the meantime, the CFTC will never do its actual jobs and root out maniupulation and rigging in precious metal markets…

  The @CFTC Closes Investigation Concerning the Silver Markets. http://t.co/JZRliwfW6P

  — CFTC (@CFTC) September 25, 2013

  … instead leaving it to fringe blogs):

  As for the piece de resistance:

  Deutsche Bank’s illegal conduct involved nearly a decade of lying, cheating, and stealing. This criminal conduct was pervasive and widespread, involving dozens of employees from Deutsche Bank offices including New York, Frankfurt, Tokyo, and London. Deutsche Bank’s traders engaged in a brazen scheme to defraud Deutsche Bank’s counterparties and the worldwide financial marketplace by secretly manipulating LIBOR. The conduct is appalling. It was a complete criminal fraud upon the worldwide marketplace.

  Dear Kara, are you really confused why “complete criminal fraud” by a bank goes unpunished? Here is a hint: go to OpenSecrets, type in Deutsche Bank, and you will find just who the German bank paid off to avoid any true penalty. To your great surprise you may even find that the biggest beneficiary of DB’s generosity in 2014 is, drumroll, the Democratic National Convention…

  

   

  … not to mention over $3 million donated in the last two decades to America’s “two” parties (of which 61% went to democrats).

  

  

  

  
  
  

  

• 96% Of Americans Expect More Civil Unrest In U.S. Cities This Summer

  Submitted by Michael Snyder via The Economic Collapse blog,

  Are you ready for rioting, looting and mindless violence in major U.S. cities all summer long?  According to a brand new Wall Street Journal/NBC News poll, 96 percent of all Americans believe that there will be more civil unrest in America this summer.  That leaves only 4 percent of people that believe that everything will be just fine.  In this day and age, it is virtually impossible to get 96 percent of Americans to agree on anything.  So the fact that just about everyone agrees that we are going to see more civil unrest should really tell you something. 

  The anger that has been building under the surface for so many years in this country has finally started to erupt.  If you have been following us for a while, you know that this is something that I have been warning about for a very long time.  Many people may have thought that I was exaggerating when I talked about the civil unrest that was coming to American cities.  But I was not exaggerating at all.  In fact, if anything I was downplaying it.  In the years to come, we are going to see things happen in our cities that are going to absolutely shock the world.

  Ever since the violence first erupted in Baltimore, what has surprised me more than anything has been the level of hate that I am seeing all over the Internet.  I am seeing white people openly proclaim how much they hate black people.  I am seeing black people openly proclaim how much they hate white people.  I am seeing things said about the police that are absolutely horrifying.  Yes, there has been a tremendous amount of police brutality in this nation.  In fact, I have been one of the leaders in writing about it.  But most police officers are just trying to serve their communities the very best that they can.  So why is there so much hate for anyone that is a police officer these days?

  If all of this hate continues to grow, it is going to eat our nation alive.  Why can’t we just learn to forgive one another, love one another and work together to rebuild our once great nation?

  I know that what I just said is going to mostly fall on deaf ears.  But it needs to be said.

  I wish that we could change course as a nation and avoid all of the rioting, looting and senseless violence that is coming.  Unfortunately, I don’t see that happening, and neither does the rest of the country…

  Americans are bracing for a summer of racial disturbances around the country, such as those that have wracked Baltimore, with African Americans and whites deeply divided about why the urban violence has occurred, a new Wall Street Journal/NBC News poll has found.

   

  A resounding 96% of adults surveyed said it was likely there would be additional racial disturbances this summer, a signal that Americans believe Baltimore’s recent problems aren’t a local phenomenon but instead are symptomatic of broader national problems.

  What happened in Ferguson set the precedent, and now what has happened in Baltimore has provided the spark for a national movement.  Similar “demonstrations” are popping up all over the nation, and a number of them have already turned violent.

  For example, check out what happened in Seattle on Friday night…

  Demonstrations turned violent in Seattle after night fell, with police reporting that protesters hurled rocks and wrenches at officers and damaged 25 vehicles. Police reported that an “explosive device” was thrown at officers, and a trash bin was pushed down a hill toward police.

   

  Three officers were injured, two seriously enough that they were taken to a hospital, Seattle police said on Twitter. At least 16 people were arrested Friday night, police said.

  And just down the coast in Portland, we also witnessed some very ugly violence…

  One Portland, Oregon, police officer was injured by a protester, according to police. Portland Police reported on Twitter that protesters were throwing “projectiles” and “incendiary devices” at officers.

   

  Police used pepper spray on protesters who tried to march on a bridge Friday afternoon and later sheriff’s deputies used stingballs, filled with tiny rubber balls, on protesters who were throwing chairs at police, according to the department.

  These protesters are just copying what they saw in Baltimore.  And things would not have ever gotten so bad in Baltimore if the police had not been ordered to stand down and let the riots spiral out of control.  Now, we have learned that many police officers were so outraged by this that they want Baltimore Mayor Stephanie Rawlings-Blake to immediately resign…

  During a Baltimore-based radio talk show on Thursday, a man who identified himself as a Baltimore police officer named “Jeff” called into the program and said fellow police officers were organizing to push out the city’s mayor.

   

  “There is right now over 50 of us officers who are immediately asking for [Baltimore Mayor] Stephanie Rawlings-Blake to step down for what she did to us Monday,” the caller told WBAL radio host Derek Hunter.

   

  The Baltimore mayor has denied giving “stand down” orders and blamed the media for misinterpreting her comments about providing “a space” for protesters to loot.

   

  “Any other time in my career, if somebody were to throw a brick or a block at me, we would take immediate actions to pull our weapons on them. Numerous times on Monday when our officers were being injured, our commanders are telling us ‘stand down, stand down.’  You had no idea what it did to us as police officers to sit there,” said the self-described “21-year veteran” of the Baltimore police department.

  Scenes of protesters attacking police were broadcast all over the nation, and it was inevitable that we would start to see “copycat attacks” against the police start to happen.  In New York City, a plainclothes police officer was shot in the head on Saturday…

  A plainclothes New York City police officer was shot in the head and critically injured while in an unmarked police car Saturday as he and his partner attempted to stop and question a man they suspected of carrying a gun, officials said.

   

  Officer Brian Moore and his partner, Erik Jansen, noticed Demitrius Blackwell “walking and adjusting an object in his waistband” when they pulled up on him in their car, exchanging words with him before he turned and suddenly fired at least two rounds into the car, police Commissioner William Bratton said.

   

  “The man immediately removed the firearm from his waistband and turned in the direction of the officers and deliberately fired several times at the vehicle, striking Officer Moore in the head,” Bratton said at a press conference at a Queens hospital. The 25-year-old Moore was undergoing surgery but listed in stable condition.

  We are seeing the same thing when it comes to racially-motivated violence.  This is something that we witnessed in Baltimore, and now all over the nation people are being attacked just because of the color of their skin.

  For instance, one young man in California attacked a random passerby with a baseball bat…

  A Fontana man accused of beating a passerby with a bat in an apparently random attack in Rialto, leaving the victim with life-threatening injuries that he was not expected to survive, was charged Wednesday with attempted murder allegedly committed as a hate crime.

   

  Jeremiah Ajani Bell, 22, was arrested Monday, a day after a daylight assault on 54-year-old Armando Barron, who was walking down the street when he was attacked.

  So why did this happen?  Well, apparently it was because the passerby had the wrong skin color…

  “It appears he was targeting anybody who wasn’t black,” Rialto police Detective Sgt. Paul Stella said Wednesday.

  We witnessed an even more disturbing example of racially-motivated violence just the other day in South Carolina…

  Witnesses and police say a mob of 60 black teens took to the streets of Charleston, South Carolina, to unleash attacks on unsuspecting drivers and pedestrians, all but one of whom were white.

  And of course police in some areas of the country are also using unnecessary violence.  Just consider what happened to a group of peaceful protesters in Denver on Wednesday…

  With much of the nation focused on the police abuse protests happening in Baltimore and New York City, the Denver police and their actions against a group of protesters on Wednesday has largely gone unnoticed.

   

  But police were dressed for war. Paramilitary style. And they weren’t going home without using a few cans of pepper spray and filling up a paddy wagon.

   

  Video that surfaced shows a group of about 100 protesters walking the streets of downtown Denver where they were met with line of motorcycle cops who forced the group on to the sidewalk.  One overzealous officer can be seen breaking away from the pack chasing down pedestrians, using his motorcycle as a large weapon.

  It’s war on the streets of America, and this is only just the beginning.

  As we enter the next major economic downturn, people are going to become angrier and even more desperate.  And desperate people do desperate things.  The next few years are not going to be a good time to be living in urban areas.  Even if you only have peace and love in your heart, that doesn’t mean that you won’t get caught in the crossfire as the violence escalates.

  For years, most of our politicians have been preaching hate and division.  For years, the mainstream media has been preaching hate and division.  For years, Hollywood has been preaching hate and division.

  Now we have a nation that is deeply, deeply divided and that is filled with hate.

  Things didn’t have to turn out this way, but they did.  I hope that you are getting ready for what comes next.

  

  

  
  
  

  

• Israeli Soldiers Describe How They "Shot Innocent Civilians Because They Were Bored"

  On July 12 of 2014 we reported that “after conducting countless sorties and bombing raids aimed at Hamas operatives in Gaza during the fifth day of Operation Protective Edge, but resulting in well over a hundred innocent civilian deaths in the past week, Israel, realizing it is not generating any brownie points with the international “humanitarian” media, finally did what it had threatened to do over the last few days – launch a ground assault.”

  The ground assault promptly led to a mini-war in the Gaza Strip that left more than 2,100 Palestinians dead, of which 80% civilians, and reduced vast areas to rubble: a “war” which many speculated was a predetermined massacre by highly skilled, trained, and ethically drained Israeli soldiers who used civilians for target practice.

  Yesterday we got confirmation of that when a group of Israeli veterans released what the WaPo describes as “sobering testimony from fellow soldiers that suggests permissive rules of engagement coupled with indiscriminate artillery fire contributed to the mass destruction and high numbers of civilian casualties in the coastal enclave.”

  In a 242-page report titled “This is How We Fought in Gaza 2014” which was accompanied by videotaped confessions that aired on Israeli TV, the organization of active and reserve duty soldiers, called Breaking the Silence, gathered testimonies from more than 60 enlisted men and officers who served in Gaza during Operation Protective Edge.

  What they described was nothing short of mass butchery of civilians and a flaunting of the Fourth Geneva Convention: among the actions described by the soldiers are “reducing Gaza neighborhoods to sand, firing artillery at random houses to avenge fallen comrades, shooting at innocent civilians because they were bored and watching armed drones attack a pair of women talking on cellphones because they were assumed to be Hamas scouts.”

  According to the Washington Post, the director of the group, Yuli Novak, called the rules of engagement in the offensive “the most permissive” it has seen and amounted to an “ethical failure . . . from the top of the chain of command.” Novak called for an independent investigation.

  Some more details from the narrative that may have been fit for a barbaric middle-age crusade but has no place in our “civilized” times:

  The soldiers said they were told by commanders to view all Palestinians in the combat zones as a potential threat, whether they brandished weapons or not. Individuals spotted in windows and rooftops — especially if they were speaking on cellphones — were often considered scouts and could be shot.

   

  A first sergeant serving in the Mechanized Infantry in Gaza told the group, “If we don’t see someone waving a white flag, screaming, ‘I give up’ or something — then he’s a threat and there’s authorization to open fire.”

  The Israeli army, the IDF, promptly tried to downplay the claims stating that the testimonies in the report are anonymous and impossible to independently verify. The Israel Defense Forces (IDF) declined to address details in the report and said that Breaking the Silence “does not provide IDF with any proof of their claims.”

  “This pattern of collecting evidence over an extended period of time and refusing to share it with the IDF in a manner which would allow a proper response, and if required, investigation, indicates that contrary to their claims this organization does not act with the intention of correcting any wrongdoings they allegedly uncovered,” the Israeli military stated.

  Just like in the case of Edward Snowden, the natural response was to attack the messenger: members of Breaking the Silence are viewed by many Israelis as “anti-military”, which it appears is a bad thing. 

  The group says its mission is to tell the Israeli public what the IDF hides and what serving in the occupied West Bank and in wars in Gaza and Lebanon is really like. After graduating from high school, all Israeli men and women — except those who get deferments because of religious study or for medical reasons — must serve in the military.

  Develop a conscience, however, is clearly frowned upon.

  In an interview with The Washington Post, a young tank gunner whose testimony is included in the report described how he and others fired cannon and machine gun bursts at random travelers on a main Gaza highway simply because they were bored and wanted to prove how good their aim was.

  “I am ashamed of this,” said the 21-year-old, who served in a Hamas hot spot near the town of Al Bureij in central Gaza.

  The gunner said he fired his Browning machine gun at a man pedaling a bicycle but missed because of the distance.

  “War crime is a big word,” he said in an interview at a Tel Aviv apartment Sunday. “I didn’t rape and kill anybody, but yeah, I shot at random civilian targets sometimes, just for fun, so yeah.”

   

  The same soldier said a friend in his unit was killed by shrapnel to the neck from a Palestinian mortar round and described how a burst of small-arms fire once breezed by his head.

  Yehuda Shaul of Breaking the Silence conceded that Gaza was a dangerous,
  chaotic landscape for Israeli troops. But he said the military had
  contributed to needless death and destruction with “a guiding military
  principle of minimum risk to our forces, even at the cost of harming
  innocent civilians.”

  In other words, all out, brutal war, without the pleasantries of sparing civilians – a war passed on by countless generations, and in which both sides have no interest in taking the first step to end. Which is why it never will.

  Below is a sampling of the soldiers’ quotes explaining how they fought in Gaza:

  • “If you shoot someone in Gaza it ?s cool, no big deal”
  • “The lives of our soldiers come before the lives of enemy civilians”
  • “Rules of engagement were, in effect, to shoot to kill upon any identification”
  • “The instructions are to shoot right away… Be they armed or unarmed, no matter what”
  • “The civilian was laying there, writhing in pain”
  • “I really, really wanted to shoot her in the knees”
  • “We expect a high level of harm to civilians”
  • “Go ahead – his wife and kid are in the car too? Not the end of the world”
  • “People that look at you from the window of a house, to put it mildly, won ?t look anymore”
  • “We want to make a big boom before the ceasefire”
  • “They were fired at – so of course, they must have been terrorists…”
  • “Lots of innocent people were hurt in that incident, lots”
  • “What the hell, why did you have to shoot him again?”

  Full report (pdf)

  

  

  
  
  

  

• "We Will Evolve Through Crisis, Not Proactive Change…"

  Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

  I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

   

  Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

   

  I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

   

  In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

   

  I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simply not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

  *  *  *

  Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

  Here’s the short version:

  [..] … we are going to evolve through crisis, not through proactive change.

  And here it is in its context:

  ‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

  SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

  Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

  I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

  And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

  This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

  Jacques Cousteau was once quite blunt about it:

  The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

  Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

  That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

  First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

  In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

  And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

  It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

  And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

  Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

  Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

  We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

  However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

  In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

  Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

  Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

  Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

  Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

  Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

  You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

  Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

  So how do we deal with problems that are global? It’s deceptively simple: We don’t.

  All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

  There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

  Erwin Schrödinger described it this way, as quoted by Herman Daly:

  Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

  The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

  So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

  The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

  We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

  Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

  The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

  Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

  Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

  We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

  Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

  We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

  We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

  As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.

  

  

  
  
  

  

• Government Using Subprime Mortgages To Pump Housing Recovery – Taxpayers Will Pay Again

  Submitted by Jim Quinn via The Burning Platform blog,

  

  It seems hard to believe, but your government is purposely recreating the mortgage debacle of 2007 and putting you on the hook for the billions in losses coming down the road. In their frantic effort to generate the appearance of economic recovery they are willing to gamble with taxpayer’s money while luring unsuspecting blue collar folks into buying houses they can’t afford. During the previous housing bubble, greedy Wall Street bankers, deceitful mortgage brokers, and corrupt rating agencies colluded to commit the greatest control fraud in the history of mankind. This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up.

  The FHA, created during the first Great Depression, is supposed to be self-sustaining through mortgage insurance premiums charged to homeowners, just like Fannie, Freddie, Medicare, Social Security, and student loan lending were supposed to be self- sustaining through taxes, fees, and interest. This agency was supposed to promote homeownership for lower income Americans, but has been used by politicians as a tool to capture votes, payoff crony capitalist benefactors, and as a Keynesian stimulus tool designed to kindle a fake housing recovery. They entered the fray at the tail end of the last Fed/Wall Street created housing bubble, insuring a huge number of subprime mortgage loans from 2007 through 2009. The taxpayer has already had to bail out this incompetent, politically motivated, joke of an agency to the tune of $1.7 billion in 2014.

  Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. Mark to fantasy accounting hasn’t just benefitted the criminal Wall Street cabal, but also the bloated pig government housing agencies – Fannie, Freddie and the FHA. The FHA’s share of new loans with mortgage insurance stood at 16.4% in 2005 and currently stands at 44.3%. This is a ridiculously high level considering the percentage of first time home buyers is near all-time lows and low income buyers have lower real median household income than they had in 2005. Distinguished congresswoman Maxine Waters, who once declared: “We do not have a crisis at Freddie Mac, and particularly Fannie Mae, under the outstanding leadership of Frank Raines.”, prior to them imploding and costing taxpayers $187 billion in losses, thinks the FHA is doing a bang up job. Her financial acumen is unquestioned, so you can expect another bailout in the near future.

  “Above all, we must strive to have a healthy, viable FHA that can continue to facilitate homeownership for first-time and low-income home buyers, while standing ready in the unfortunate event of another housing downturn.”

  How could politically motivated government apparatchiks insuring subprime mortgages with down payments of 3.5%, using weak underwriting standards, easing restrictions on borrowers with past foreclosures, in a housing market poised to drop by 20% when this next Fed/Wall Street housing bubble pops possibly go wrong? The entire faux housing recovery, which has driven average home prices up 30% since 2012, has been driven on the high end by The Wall Street hedge fund buy foreclosures in bulk and rent scheme, along with hot money cash from Chinese and Russian oligarchs, while the low end is being propped up by Fannie, Freddie, and the FHA with their brilliant idea to insure 3.5% down payment mortgages to future foreclosure aspirants.

  We have the employment to population ratio at 35 year lows. We have had stagnant real wage growth since 2008 as low paying service Obama jobs have replaced higher paying production jobs. We have real median household income at 1989 levels and still 9% below the 2008 peak. We have mortgage applications 56% below the 2005 peak and hovering at 1996 levels. We still have 4 million homeowners underwater in their mortgages. We have housing starts languishing 40% below the long-term average. We have the home ownership rate of 63.8% at quarter of a century lows. We have mortgage rates at all-time lows. And we have home prices soaring far above the inflation rate and wages because the Federal Reserve, in collaboration with the Federal government decided to create another housing bubble (along with stock and bond bubbles) to rectify the disastrous consequences of their last housing bubble.

  

  This is the absolute perfect point in time when the FHA thinks it is necessary for them to lure low income, low IQ, credit challenged dupes into the housing market. Risky mortgages are increasingly being underwritten by thinly capitalized non-banks and guaranteed by the FHA. In 2012 the large Wall Street banks represented 65.4% of FHA-backed loans. That number is now 29.6%, as even the risk seeking Wall Street criminal banks have come to their senses and realize loaning money to people that won’t be able to repay them will end badly – AGAIN. In their place, dodgy mortgage brokers (non-banks) now represent 62.2% of the FHA lending. Of course, once these low life mortgage brokers make the loans, Wall Street will package them, get a AAA rating from their bitches at S&P or Moodys, and then peddle them to yield seeking pension plans and life insurance companies. Sound familiar?

  If you thought the FHA was supposed to help young, employed, first time home buyers who have a limited credit history, you would be badly mistaken. There is a reason first time home buyers only make up 29% of all home buyers, near the all-time low. Over history, when the housing market was not being manipulated by warped Federal Reserve monetary policies and government intervention, first time home buyers accounted for 40% to 45% of all home sales. Even with all-time low mortgage rates, courtesy of the Fed’s ZIRP, the lack of jobs, crushing student loan debt, low wages, and over-priced homes has kept traditional young buyers out of the market. But, the FHA’s goal is to convince anyone who can fog a mirror to get into the housing market before it’s too late.

  

  To get some perspective on how the FHA is actively creating the next multi-billion dollar taxpayer bailout, you need to understand FICO credit scoring. Here are the categories:

  • Excellent Credit: 781 – 850
  • Good Credit: 661-780
  • Fair Credit: 601-660
  • Poor Credit: 501-600
  • Bad Credit: below 500

  The average FICO score of all Americans is 687, barely above the Fair Credit level. The average for Americans getting a mortgage is 724, down from 750 in 2012, as the reckless mortgage brokers have taken share from the banks. It is only rational that people with good credit should be the only people borrowing hundreds of thousands of dollars for 30 years. Not in the eyes of the FHA and their politician overseers, who buy votes by doling out free shit to their constituents. Why not houses? You can get an FHA loan with a credit score as low as 500, so long as you have a 10% down payment. And once you hit a 580 credit score, you only need a 3.5% down payment. Credit scores below 600 mean that you have significant derogatory information on your credit report. In other words, you have proven to be a deadbeat. Credit scores below 600 are the result of missing multiple payments on credit cards and auto loans; having multiple collection items or judgments; and potentially having a very recent bankruptcy or foreclosure. Sounds like someone I’d loan money to.

  After financial institutions lost hundreds of billions (covered by American taxpayers at the point of a gun through TARP) by peddling low or no down payment mortgages for $500,000 McMansions to deadbeats with no willingness or means of repaying, the percentage of low down payment mortgages rationally plunged from 77% to 60% for first time buyers. Low down payment mortgage loans are a high risk proposition. It wasn’t that long ago when a borrower had to put up 10% to 20%. If you can’t save enough for a 10% down payment then you probably shouldn’t own a house. If your down payment is less than 8%, you are immediately underwater as the costs to sell a home usually total 8% of the selling price. The percentage of first time buyer mortgages with a low down payment mortgage has risen to 66% in the last year and is headed higher, as the FHA is pushing hard on their 3.5% down payment loans.

  

  As a general risk guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28% of your gross monthly income. Total debt to income generally cannot exceed 43% of your gross monthly income. These guidelines have worked for decades in assessing whether a borrower can afford a mortgage. Why would an arrogant bureaucratic agency, controlled by politicians like Mel Watt and Maxine Waters, follow standard industry risk standards when they are only gambling with taxpayer funds? The FHA is exempt from the qualified mortgage requirement of a 43% debt-to-income ratio. Many loans have a debt-to-income ratio above 55%. Even worse, the FHA only looks at mortgage payments in their calculation. What do you think the odds are of a borrower with a 580 credit score, making $3,000 per month with a $1,500 monthly mortgage payment, of defaulting? They would be high under normal circumstances, and will be off the charts after the next financial bubble bursts and millions are put out of work again.

  People who are serial defaulters with 580 credit scores cannot expect to get the lowest rates. They should expect to see interest rates that are at least three percent higher than interest rates awarded to borrowers with good credit. Even the 3.5% down payment requirement is flexible for the FHA. The FHA is perfectly willing to accept a gift or inheritance as a down payment. So, you could have no savings, a 580 FICO, a 50% debt-to-income ratio and a gift from your parents and that would be sufficient to get you a loan. And it gets better. The transaction can be designed with the buyer paying a higher price but getting a credit for closing costs that covers the 3.5% down payment and other fees. Therefore, a serial deadbeat can purchase a house with a government guarantee without putting up one dime of their own cash. Sounds like a great deal for the taxpayer.

  I have personal experience with a current FHA mortgage transaction as my 79 year old widowed mother is in the midst of selling the 900 square foot row home that she has lived in for 58 years in the first ring of suburbs outside of Philadelphia. It was once a vibrant middle class neighborhood of working folk, but has been gradually decaying as the old guard dies off and is replaced by lower class Section 8 tenants. She is selling ten years too late as prices have dropped 30% since 2005. She asked $72,900 and received an offer within two weeks of $66,000, with a $4,000 closing credit. My siblings and I didn’t expect her to get an offer in the 60s, as the dump next door was sold for $30,000 and went Section 8 a couple years ago. Anyone buying this house is destined for another 30% loss over the next ten years. So we told her to take the offer before it was too late.

  My brother and I met the realtor at her house after work a couple weeks ago. We sat around the dining room table that had seen so many family gatherings over the last half century and discussed the particulars of the deal and the buyer’s background. It was an enlightening glimpse into the Federal government’s futile attempt to engineer a housing recovery on the backs of hard working tax payers with good credit. The buyer is a 20 something guy living with his parents, with a girlfriend and a young kid. He reportedly makes $29,000 per year. His girlfriend was not on the mortgage application. The only logical explanation is she has bad credit. He is putting 3.5% down and getting an FHA guaranteed mortgage. The $4,000 closing credit will cover his 3.5% down payment and closing costs. He evidently has no money to put down when purchasing this home. Sounds promising.

  As a high risk borrower he will be lucky to get a 5.5% rate mortgage. In a world where risk mattered, it should be 7.5%. He should thank Ben and Janet for encouraging this type of mal-investment across the country with their 0% interest rate policy. His monthly cost to own this home would be approximately $800, or about 33% of his monthly gross income. Of course, no one brings home their gross income. The $800 would be about 40% of his take home pay after taxes. He did arrive at the house in a nice car, so it is very likely he has at least one auto loan of $20,000 or more. If he doesn’t have a dime to put down on the house, he is likely acting like a true American and rolling a $10,000 credit card balance at 17% interest. His total debt payments assuming a six year auto loan at 3% and making the minimum payments on his credit card would total at least 55% of his monthly gross income. Lucky for him, the FHA doesn’t worry about his non-mortgage debt payments.

  So this guy comes home each month with about $2,000 of income and pays out $1,300 in debt payments, leaving him $700 to pay for health insurance, food, utilities, cable, cell phones, entertainment, and any vices he and his baby momma may have. If this isn’t a recipe for default, nothing is. No bank in their right mind would loan this man $66,000 for 30 years at 5.5%. That’s where the crooked nonbank mortgage companies enter the scene, just as they did when their patron saint Angelo “the tan man” Mozilo was roaming the land doling out billions in subprime mortgages while cashing in his stock options in 2005. Remember back in the glory days from 2002 through 2007 when mortgage company fronts, staffed by used car salesmen, pizza delivery guys, and convicted criminals peddled no-doc, negative amortization, liar loan, subprime slime to every Juan, Bubba and Lakeisha, filling the derivative pipeline for Wall Street to destroy the financial system? They’re back.

  These parasites don’t worry about individual risk, financial risk, or systematic risk. They care about upfront fees and their ability to package their toxic subprime mortgages and dump the risk on someone else before it all blows up again. They are willing to issue mortgages to people unlikely to repay because there is a big difference between the risk that faces the company, and the risk that faces the blood sucking founder of the mortgage front. It’s a perfect opportunity for shysters and scumbags. You set up a mortgage company, and take extraordinarily opulent commissions on all loans you book. In this Fed created paradise of low interest rates, investors are desperate for yield. An FHA loan provides the opportunity for an investor to receive a good yield and a guarantee from the Federal government – aka YOU THE TAXPAYER.

  The conscienceless CEO and executives of these MBS machines revel in the vast commission revenue as the loans are booked. These companies retain little or no capital on their balance sheets. Instead, they pay dividends to the owners as quickly as possible, before the bottom drops out. When the next Fed induced financial crisis happens the mortgage company will go bankrupt, but the slimy owners will walk away unscathed. These fly by night operations are booking as much business as possible before the music stops playing. When the music stops, the taxpayer will be on the hook again, as the FHA will need a $25 billion to $50 billion bailout. The FHA is flying under the radar, still in the shadow of equally insolvent Fannie and Freddie. Their mission is supposedly to help lower income people achieve the American Dream, but their politically motivated actions today will lead to millions of borrowers experiencing an American Nightmare and taxpayers footing the bill for their crackpot Keynesian scheme, aided and abetted by the Janet Yellen and her Fed cronies.

  

  The FHA has $64 billion of liabilities on their balance sheet supported by $3 billion of capital. They are currently accelerating their guarantees to subprime borrowers with 3.5% down mortgages. Fannie and Freddie will purchase mortgages with only 3% down payments. Wall Street issued $1 trillion of mortgage backed securities last year, with the Fed buying 20% of the issuance as part of QE3. If this sounds like a replay of the waning days of the last Fed induced housing bubble, it’s because it is. Both debacles have been fueled by the mal-investment created by an easy money, excessively low interest rate environment, designed to benefit bankers, billionaires, politicians and mega-corporations. The Fed already has $1.7 trillion of Wall Street generated toxic mortgage debt on its bloated balance sheet. By the time this imminent catastrophe runs its course, there will be another trillion of toxic mortgages polluting their insolvent balance sheet.

  To paraphrase H.L. Mencken, anyone who wants the government and Federal Reserve to create a housing recovery, deserves to get it good and hard, like a four by four to the side of their head. Subprime mortgages, subprime auto loans, and subprime student loans driven by preposterously low interest rates are the liquefying foundation of this fake economic recovery. Most rational people would agree that loaning money to people who will eventually default is not a good idea. But it is the underpinning of everything the Fed and government apparatchiks have done to keep this farce going a little while longer. It will not end well – Again.

   

  

  

  
  
  

  

• Following "Terrorist-Fighting" Ban On Cash, France Passes "Le Patriot Act"

  In its efforts to 'protect' its citizens from terrorists, France deemed it necessary in March to "fight against the use of cash and anonymity in the French economy,"  and drastically reduced the public's freedom and privacy to spend. Today, that freedom and privacy took another blow as the French government passed "Le Patriot Act" dramatically beefing up the government's spying powers.

   

  First a ban on cash… French Finance Minister Michel Sapin brazenly stated  that it was necessary to "fight against the use of cash and anonymity in the French economy." He then announced extreme and despotic measures to further restrict the use of cash by French residents and to spy on and pry into their financial affairs.

  These measures, which will be implemented in September 2015, include:

  Prohibiting  French residents from making cash payments of more than 1,000 euros, down from the current limit of  3,000 euros.

   

  Given the parlous state of the stagnating French economy the limit for foreign tourists on currency payments will remain higher, at 10,000 euros down from the current limit of 15,000 euros.

   

  The threshold below which a French resident is  free to convert euros into other currencies without having to show an identity card will be slashed from the current level of 8,000 euros to 1,000 euros.

   

  In addition any cash deposit or withdrawal of more than 10,000 euros during a single month will be reported to the French anti-fraud and money laundering agency Tracfin.

   

  French authorities will also have to be notified of any freight transfers within the EU exceeding 10,000 euros, including checks, pre-paid cards, or gold.

  *  *  *

  And now, as Bloomberg reports, a 'ban' on personal privacy…

  A proposed French law beefing up the government’s spying powers following the Charlie Hebdo terrorist attacks in Paris sailed through the lower house of parliament.

   

  The National Assembly said 438 lawmakers voted in favor, 86 against, and 42 abstained. The bill now goes to the Senate which can suggest amendments but not overturn the assembly’s vote.

   

  The wide margin of victory came even as mounting opposition to the bill united business leaders, the Communist Party, Internet activists and lawyers. The country’s two main parties — the ruling Socialists and former President Nicolas Sarkozy’s UMP — back it as necessary to combat terrorism, even though some prominent members of both parties voted against it.

   

  The bill has generated heated rhetoric: the head of the Paris Bar and a former head of the country’s business lobby said it will seriously undermine constitutional liberties while Prime Minister Manuel Valls accused opponents of being naive about the threats facing France. The fallout from the disclosure in 2013 of massive surveillance by U.S. authorities, and the enduring negative reputation of George W. Bush’s 2001 “Patriot Act” have added to the controversy.

   

  “This law doesn’t go as far as the Patriot Act because that was never its founders’ intention and because even if they wanted to copy their American counterparts, the French services lack the means to listen to everyone permanently,” said Eric Denece, director of the French Center for the Study of Intelligence.

  The proposed law sets rules on how investigators can tap phone lines, locate people through mobile phones, intercept e-mails, take secret photographs and enter homes to place microphones without preliminary approval of a judge. It also creates a new independent body overseeing surveillance activities. And for the first time, it gives France’s top administrative court the power to order an end to surveillance.

  Opponents have focused on its supposed lack of effective oversight, its wide definition of threats facing France, and the use of algorithms to analyze communication patterns.

   

  “Serious flaws include expansive powers for the prime minister to authorize surveillance for purposes far beyond those recognized in international human rights law; lack of meaningful judicial oversight; requirements for private service providers to monitor and analyze user data and report suspicious patterns; prolonged retention periods for some captured data; and little public transparency,” Human Rights Watch said in a April 6 statement.

  Don't forget – it's for your own protection.. and if you do not agree – you're a terrorist too:

  Valls rejected the criticism in his speech to parliament.

   

  “The law is strictly focused on preventing serious threats,” he said. “The criticisms and postures that evoke a French Patriot Act or a police state are irresponsible lies.”

  *  *  *

  Feel safer now?

  

  

  
  
  

  

• Oil Rises After API Reports First Inventory Draw In 16 Weeks

  For the first time since the first week of January, API reports a 1.5 million barrel inventory draw (against last week’s 4.2mm build). This also comes with a 336k draw from Cushing following on from last week’s 162k draw. Oil prices have responded by pushing higher, though it appears most of this was priced in.

  If DOE confirms this draw, then this will be the first draw since the first week of Jan…

  

   

  Which appears to have been largely priced in today…

  

   

  Charts: Bloomberg

  

  

  
  
  

  

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• How Chinese Oligarchs Used Fake Trade Invoices To Launder Almost $1 Trillion Globally

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

   

  Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

   

  Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

   

  – From the Global Financial Integrity Report: Illicit Financial Flows from Developing Countries: 2003-2012

  While the U.S. government loves to target and imprison small time so-called “money launderers” such Bitcoin pioneer Charlie Shrem, the real money launderers, the ones who help drug cartels and pump criminally sourced money into foreign real estate thus pricing out domestic populations worldwide, face no consequences whatsoever. I’ve explored this hypocrisy on many occasions, most recently in the post, Some Money Launderers are More Equal than Others Part 2 – CEO of BitInstant is Arrested. Here’s an excerpt:

  Last May, I wrote an article titled: Some Money Launderers are “More Equal” than Others, which likened the U.S. government to the pigs that ruled the roost in George Orwell’s classic novel Animal Farm. In that article, I decided to compare the way the “authorities” used money laundering laws against Liberty Reserve, versus the way they tip-toed around massive money laundering for Mexican drug cartels that HSBC engaged in. Since I wrote that article, JP Morgan has been fined tens of billions of dollars for a cornucopia of criminal activities. Meanwhile, we have yet to see a single executive arrested or put behind bars. Why?

   

  I think it is quite obvious. The United States’ “economy” has devolved into nothing more than a state-sanctioned criminal racket. A handful of oligarchs and the corporations they control, are immune from prosecution no matter what they do. They have a complete and total license to steal with impunity. Meanwhile, if a peasant is caught stealing 10 dollars or found with a dime bag of weed, it is jail for life. ‘Merica.

   

  So now I turn your attention to the breaking news that Charlie Shrem, the impressive, young and very talented kid behind Bitcoin exchange BitInstant, has been arrested.

  Shrem now sits in a prison cell for his victimless non-crime. This is how the United States Attorney’s Office for the Southern District of New York proudly announced the charges against Shrem:

  

  Yes, you read that right. ONE MILLION DOLLARS. Meanwhile, big banks launder billions for drug cartels, and corrupt Chinese launder trillions into overseas real estate, yet take a look at who ends up in prison. A 24-year old innovator and entrepreneur who harmed no one by “laundering” a million bucks. You only need to ask yourself two questions to understand what is going on here:

  1. Who poses a greater risk to society, Charlie Shrem or HSBC executives?
  2. Who poses a greater risk to the status quo’s rigged system, Charlie Shrem or HSBC executives?

  Now you know why one person sits in jail, while the others remain free. The U.S. justice system is a compete and total joke.

  But I digress. This post is supposed to be about illicit Chinese funds and how it’s basically a total free for all. Much of this money has entered U.S. real estate, helping to price out American families who can barely afford rent at this point (see: 1 in 4 Renters Use Half Their Pay for Housing). I’ve focused on this issue often over the past couple of years. For example, in the post, Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering, I wrote:

  American citizens already have a hard enough time affording a home. Squeezed out by financial oligarchs buying tens of thousands of properties for rental income, and faced with real wages that haven’t budged since the mid-1970s, the demographic of U.S. citizens that historically dominated the new home market has been forced to live in their parents’ basements. Just to kick em’ when they’re down, Americans now face the impossible task of competing with laundered Chinese money.

   

  While this trend may not be new, it is certainly accelerating. According to the National Association of Realtors in its annual report on foreign home purchases, transactions from Greater China (includes Hong Kong and Taiwan) were up 72% in the past year to $22 billion. In some California communities, 90% of real estate buyers are from China. Yes, 90%. Naturally, many of them are buying multi-million dollar homes in “all cash” transactions.

  There have been several studies looking at how this money is laundered, but a report from Global Financial Integrity (GFI) released last December points out that fake trade invoices, i.e., misinvoicing trade transactions or trade-based money laundering, seems to be the primary vehicle used. Quartz dug into the data and provided some interesting commentary and telling charts. Here are a few excerpts:

  China’s capital account might be closed—but it’s not that closed. Between 2003 and 2012, $1.3 trillion slipped out of mainland China—more than any other developing country—says a report (pdf) by Global Financial Integrity (GFI), a financial transparency group. The trends illuminate China’s tricky balancing act of controlling the economy and keeping it liquid.

   

  GFI says the most common way money leaks out in the developing world is through fake trade invoices. The other big culprit is “hot money,” likely due to corruption—which GFI gleans from inconsistencies in balance of payments data.

   

  In China, both activities have picked up since 2009. In fact, $725 billion—more than half of the outflows from the last decade—has left since 2009, just after the Chinese government launched its 4 trillion yuan ($586 billion) stimulus package.

   

  Even after that wound down, the government encouraged investment to boost the economy, prodding its state-run banks to lend. Since loan officers dish out credit to the safest companies—those with political backing—this overwhelmingly benefited government officials and their cronies.

   

  That’s left small private companies so starved for capital that they’ll pay exorbitant rates for shadow-market loans, which a lot of China’s sketchy trade invoicing outflows likely sneaked back in to speculate on shadow finance and profit from the appreciating yuan. Corrupt officials, meanwhile, shifted their ill-gotten gains into overseas real estate and garages full of Bentleys.

  The paragraphs above are particularly telling. Just like in the U.S., the so-called government “stimulus” in China achieved nothing more than to stimulate an oligarch crime spree. Hence the global boom in $100 million real estate, art and everything extremely high-end. As intended, the bailouts and stimulus on a global basis went directly to the 0.0001%.

  Finally, here are a couple of choice passages I found from the GFI report itself:

  This report, the latest in a series of annual reports by Global Financial Integrity (GFI), provides estimates of the illicit flow of money out of the developing world–as a whole, by region, and by individual country–from 2003-2012, the most recent ten years of data availability.

   

  The vast majority of illicit financial outflows is due to trade misinvoicing.

  Can you believe it’s not Bitcoin after all!

  Save for a brief slowdown during the financial crisis, illicit financial flows have been allowed to grow unchecked over the past decade. In 2012, illicit outflows reached a staggering new peak of US$991 billion.

  Read that twice, and then read it again. The banker bailouts bailed out the criminals and their criminal global financial system, which then ramped to new heights of corruption and fraud in the subsequent years.

  Illicit financial flows from developing countries are facilitated and perpetuated primarily by opacity in the global financial system. This endemic issue is reflected in many well-known ways, such as the existence of tax havens and secrecy jurisdictions, anonymous companies and other legal entities, and innumerable techniques available to launder dirty money—for instance, through misinvoicing trade transactions (often called trade-based money laundering when used to move the proceeds of criminal activity).

  Now, here are a couple of the main conclusions from the report:

  Our estimates show that the developing world lost US$991.2 billion in illicit financial flows in 2012, over ten times the amount of official development aid received by these countries in that year, and greater than the amount of net foreign direct investment received. From 2003 – 2012, US$6.6 trillion left developing country economies illicitly.

   

  Illicit outflows from developing countries increased at a trend rate of 9.4 percent per annum in real terms over the time period from 2003 to 2012. Though growth rates of IFFs tended to be higher before the financial crisis, their volume continues to climb. Over this time period, illicit financial flows were equivalent to 3.9 percent of developing world GDP on average.

  That is what Oligarchy looks like.

  *  *  *

  For related articles, see:

  Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

  Open the Floodgates – Chinese Inquiries on U.S. Real Estate Soar 35% After Easing of Visa Rules

  Corrupt Chinese Politicians are Buying Billions in U.S. Real Estate

  Welcome to Arcadia – The California Suburb Where Wealthy Chinese Criminals are Building Mansions to Stash Cash

  How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese

  

  

  
  
  

  

• Federal Reserve 1 – 0 Saudi Arabia

  Since we last updated the state of Saudi Arabia’s reserve stash, things have gone from bad to worse. It appears the battle to crush US Shale producers is taking its toll as The FT reports, Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans (and thus social stability) despite lower oil prices. All the time The Fed remains ‘easy’, no matter how negative US Shale cashflows are, the muppets will buy their debt and keep the mal-invested market alive. Saudi reserves are now their lowest in almost 2 years (but they have plenty more to chew through to out-wait The Fed).

  Saudi Reserves have dropped to 2 year lows and fallen by the most ever in the last 2 months…

  

   

  As The FT reports,

  The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

   

  The latest data show Saudi’s foreign reserves dropped by $16bn to $698bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

   

  As one analyst noted,  “There is a need to rationalise spending,” as King Salman promised a bonus payment for military personnel engaged in the kingdom’s month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers.

   

  …

   

  “The [military] bonuses are not an encouraging sign,” said Steffen Herthog of the London School of Economics. “It shows the knee-jerk reaction to political challenges is to distribute more money.”

  *  *  *
  The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic.

  *  *  *

  Simply out, as long as The Fed keeps ZIRP, it will cost Saudi Arabia.

  

  

  
  
  

  

• Ron Paul Warns The "USA Freedom Act" Is Just Another Name For Lost Liberty

  Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

  Apologists for the National Security Agency (NSA) point to the arrest of David Coleman Headley as an example of how warrantless mass surveillance is necessary to catch terrorists. Headley played a major role in the 2008 Mumbai terrorist attack that killed 166 people.

  While few would argue that bringing someone like Headley to justice is not a good thing, Headley’s case in no way justifies mass surveillance. For one thing, there is no “terrorist” exception in the Fourth Amendment. Saying a good end (capturing terrorists) justifies a bad means (mass surveillance) gives the government a blank check to violate our liberties.

  Even if the Headley case somehow justified overturning the Fourth Amendment, it still would not justify mass surveillance and bulk data collection. This is because, according to an investigation by ProPublica, NSA surveillance played an insignificant role in catching Headley. One former counter-terrorism official said when he heard that NSA surveillance was responsible for Headley's capture he “was trying to figure out how NSA played a role.”

  The Headley case is not the only evidence that the PATRIOT Act and other post-9/11 sacrifices of our liberty have not increased our security. For example, the NSA’s claim that its surveillance programs thwarted 54 terrorist attacks has been widely discredited. Even the president’s Review Group on Intelligence and Communications Technologies found that mass surveillance and bulk data collection was “not essential to preventing attacks.”

  According to the congressional Joint Inquiry into Intelligence Activities before and after the Terrorist Attacks of September 11, 2001 and the 9/11 Commission, the powers granted the NSA by the PATRIOT Act would not have prevented the 9/11 attacks. Many intelligence experts have pointed out that, by increasing the size of the haystack government agencies must look through, mass surveillance makes it harder to find the needle of legitimate threats.

  Even though mass surveillance threatens our liberty, violates the Constitution, and does nothing to protect us from terrorism, many in Congress still cling to the fiction that the only way to ensure security is to give the government virtually unlimited spying powers. These supporters of the surveillance state are desperate to extend the provisions of the PATRIOT Act that are set to expire at the end of the month. They are particularly eager to preserve Section 215, which authorizes many of the most egregious violations of our liberties, including the NSA’s “metadata” program.

  However, Edward Snowden's revelations have galvanized opposition to the NSA’s ongoing violations of our liberties. This is why Congress will soon vote on the USA FREEDOM Act. This bill extends the expiring surveillance laws. It also contains some “reforms” that supposedly address all the legitimate concerns regarding mass surveillance.

  However, a look at the USA FREEDOM Act’s details, as opposed to the press releases of its supporters, shows that the act leaves the government’s mass surveillance powers virtually untouched.

  The USA FREEDOM Act has about as much to do with freedom as the PATRIOT Act had to do with patriotism. If Congress truly wanted to protect our liberties it would pass the Surveillance State Repeal Act, which repeals the PATRIOT Act. Congress should also reverse the interventionist foreign policy that increases the risk of terrorism by fostering resentment and hatred of Americans.

  Fourteen years after the PATRIOT Act was rushed into law, it is clear that sacrificing liberty does little or nothing to preserve security. Instead of trying to fool the American people with phony reforms, Congress should repeal all laws that violate the Fourth Amendment, starting with the PATRIOT Act.

  

  

  
  
  

  

• "Oh It's Gonna Blow Up Tonight" – Baltimore In Turmoil After Latest Gun 'Incident'

  The latest out of Baltimore appears to be that although police are denying that the man who was taken to the hospital (identified as Robert Tucker) was shot or even injured, no one on the ground trusts anyone else, a situation would has the potential to spontaneously combust at any given time…

  No matter official BPD account, locals say trust so broken w/police they won’t believe anyway. As 1 said, situation here ‘to be continued’

  — Hannah Allam (@HannahAllam) May 4, 2015

  Doctors have withheld information concerning his both his condition and what exactly happened to Tucker. #RobertTucker #BaltimoreUprising

  — Benjamin Jancewicz (@benjancewicz) May 4, 2015

  Sen Pugh has brought #RobertTucker, to his family and he is okay yet is twitching, limping, and unable to speak #BaltimoreUprising

  — Benjamin Jancewicz (@benjancewicz) May 4, 2015

  Update: Baltimore police now claim they did not shoot anyone and the person in question was arrested for handgun possession.

  MORE: #Baltimore PD claims on Twitter man not shot, was only arrested for handgun possession http://t.co/T82pRJ5zrA pic.twitter.com/Gd34AYGmSa

  — RT America (@RT_America) May 4, 2015

   

   

  #Baltimore Police say the man who was arrested for having a revolver was transported to the hospital, but he was not shot or injured.

  — WJZ | CBS Baltimore (@cbsbaltimore) May 4, 2015

  And the video:

   

  Broadcast live streaming video on Ustream

   

  And then this:

  #Baltimore police: Gun discharged, no one shot http://t.co/Li5ouPMWuX — @evanperez reports pic.twitter.com/869YPYaaKM

  — Jake Tapper (@jaketapper) May 4, 2015

  So a gun did go off after all?

  * * *

  Just as things in Baltimore were quieting down, here is McClatchy’s reporter Hannah Allam with an update on what may likely rekindle local violence and push the local riots to the next level.

  At corner of north & penn in Baltimore – police appear to have shot young man. Riot police back on scene, ppl stumbling away w/spray in eyes

  — Hannah Allam (@HannahAllam) May 4, 2015

  ‘here we go again!’ Crowd yelling. #Baltimore pic.twitter.com/AjVXfpUYCM

  — Hannah Allam (@HannahAllam) May 4, 2015

  ‘We’ll be back under martial law tonight!’ EMTs take body away on stretcher. Witnesses saying he’s alive #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Bystanders: ‘another black man shot in the back while he was running away.’ ‘Oh it’s gonna blow up tonight’ #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Man turns corner and sees huge police presence & angry crowd & cordons: ‘Man, I can’t get home AGAIN?!’ #Baltimore

  — Hannah Allam (@HannahAllam) May 4, 2015

  Videographer & I happened to be here for b-roll for a story. Police chopper was overhead saying to step away from police. Next thing: chaos

  — Hannah Allam (@HannahAllam) May 4, 2015

  Within seconds, vans of police showed up, also EMTs. My colleague got photos of the boy who was shot: ‘he doesn’t look good,’ she said.

  — Hannah Allam (@HannahAllam) May 4, 2015

  Crowd angry Billy Graham ministers on scene: ‘What do you want us to pray for? What?!’ & ‘Jesus ain’t gonna stand between me and a bullet!’

  — Hannah Allam (@HannahAllam) May 4, 2015

  * * *

  Perhaps just to make sure CNN’s ratings spike again, here is the president with a little racially-unifying helping hand:

  • OBAMA: MEN OF COLOR TOO OFTEN FIND INJUSTICE IN LAW ENFORCEMENT

  Well…

  

  

  

  

  
  
  

  

• How The Shanghai Composite Can Rise 461% From Here

  If there’s one capital markets-related story that just never seems to get old it’s the unrelenting rally in Chinese stocks. The country’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders. Unfortunately, Chinese regulators threw a bit of cold water on the party last month, suggesting a move to curb margin lending may be in the cards. 

  Nevertheless, a new note from Macquarie suggests the margin madness may be just getting started. Because investors can borrow 86 yuan for every 100 yuan they have in collateral, margin debt could “theoretically” balloon from 1.7 trillion yuan to a hilarious 9.4 trillion yuan, a 461% increase. Here’s more via Bloomberg:

  Openings of Chinese brokerage accounts have surged in recent months as has the take-up of margin accounts which offer investors the ability to borrow against their stock portfolios…

  

   

  How high could the whole thing go, you ask? The Macquarie analysts estimate that, at an extreme, investors could borrow RMB 85.7 for every RMB 100 of collateral in their portfolios. That suggests the theoretical ability to increase margin finance loans from the current 1.7 trillion yuan to as much as 9.4 trillion yuan, or 461 percent higher than the current level. While it’s doubtful that would ever happen (banks, after all, do not have unlimited lending capacity and the government has already instituted some curbs on margin lending) even a moderate increase in margin borrowings could be meaningful. At 3.2 percent of total market cap, China’s margin debt has already eclipsed bubble-era Japan as well as pre-Asian Financial Crisis Korea…

  

  One word: parabolic:

  

  *  *  *

  And, as if on cue, Shanghai Securities News is reporting that some Chinese brokers are set to raise their margin trading requirements: 

  Huatai Securities and Tebon Securities raised margin requirement for margin trading and short selling to control risks, Shanghai Securities News reports, without citing anyone.

  Haitong Securities cut the amount that clients could use securities as collateral for margin trading and short selling.

  We suspect this will not be welcome news to China’s legion of rabid day traders.

  

  

  

  
  
  

  

• Stephen Roach Derides Central Bankers' Mass Delusion

  Authored by Stephen Roach, originally posted at Project Syndicate,

  The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.

  The rise and fall of post-World War II Japan heralded what was to come. The growth miracle of an ascendant Japanese economy was premised on an unsustainable suppression of the yen. When Europe and the United States challenged this mercantilist approach with the 1985 Plaza Accord, the Bank of Japan countered with aggressive monetary easing that fueled massive asset and credit bubbles.

  The rest is history. The bubbles burst, quickly bringing down Japan’s unbalanced economy. With productivity having deteriorated considerably – a symptom that had been obscured by the bubbles – Japan was unable to engineer a meaningful recovery. In fact, it still struggles with imbalances today, owing to its inability or unwillingness to embrace badly needed structural reforms – the so-called “third arrow” of Prime Minister Shinzo Abe’s economic recovery strategy, known as “Abenomics.”

  Despite the abject failure of Japan’s approach, the rest of the world remains committed to using monetary policy to cure structural ailments. The die was cast in the form of a seminal 2002 paper by US Federal Reserve staff economists, which became the blueprint for America’s macroeconomic stabilization policy under Fed Chairs Alan Greenspan and Ben Bernanke.

  The paper’s central premise was that Japan’s monetary and fiscal authorities had erred mainly by acting too timidly. Bubbles and structural imbalances were not seen as the problem. Instead, the paper’s authors argued that Japan’s “lost decades” of anemic growth and deflation could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.

  If only it were that simple. In fact, the focus on speed and force – the essence of what US economic policymakers now call the “big bazooka” – has prompted an insidious mutation of the Japanese disease. The liquidity injections of quantitative easing (QE) have shifted monetary-policy transmission channels away from interest rates to asset and currency markets. That is considered necessary, of course, because central banks have already pushed benchmark policy rates to the once-dreaded “zero bound.”

  But fear not, claim advocates of unconventional monetary policy. What central banks cannot achieve with traditional tools can now be accomplished through the circuitous channels of wealth effects in asset markets or with the competitive edge gained from currency depreciation.

  This is where delusion arises. Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises.

  Consider the US – the poster child of the new prescription for recovery. Although the Fed expanded its balance sheet from less than $1 trillion in late 2008 to $4.5 trillion by the fall of 2014, nominal GDP increased by only $2.7 trillion. The remaining $900 billion spilled over into financial markets, helping to spur a trebling of the US equity market. Meanwhile, the real economy eked out a decidedly subpar recovery, with real GDP growth holding to a 2.3% trajectory – fully two percentage points below the 4.3% norm of past cycles.

  Indeed, notwithstanding the Fed’s massive liquidity injection, the American consumer – who suffered the most during the wrenching balance-sheet recession of 2008-2009 – has not recovered. Real personal consumption expenditures have grown at just 1.4% annually over the last seven years. Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible.

  “It might have been worse,” is the common retort of the counter-factualists. But is that really true? After all, as Joseph Schumpeter famously observed, market-based systems have long had an uncanny knack for self-healing. But this was all but disallowed in the post-crisis era by US government bailouts and the Fed’s manipulation of asset prices.

  America’s subpar performance has not stopped others from emulating its policies. On the contrary, Europe has now rushed to initiate QE. Even Japan, the genesis of this tale, has embraced a new and intensive form of QE, reflecting its apparent desire to learn the “lessons” of its own mistakes, as interpreted by the US.

  But, beyond the impact that this approach is having on individual economies are broader systemic risks that arise from surging equities and weaker currencies. As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify. In the meantime, politicians are lulled into a false sense of complacency that undermines their incentive to confront the structural challenges they face.

  What will it take to break this daisy chain? As Chinese Premier Li Keqiang stressed in a recent interview, the answer is a commitment to structural reform – a strategic focus of China’s that, he noted, is not shared by others. For all the handwringing over China’s so-called slowdown, it seems as if its leaders may have a more realistic and constructive assessment of the macroeconomic policy challenge than their counterparts in the more advanced economies.

  Policy debates in the US and elsewhere have been turned inside out since the crisis – with potentially devastating consequences. Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for healthy recovery. On the contrary, it promises more asset bubbles, financial crises, and Japanese-style secular stagnation.

  

  

  
  
  

  

• BaSiC INKSTiNCT…

  

  
  
  

  

• Peak Oil Optimism

  Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal…

   

  As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

  Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

   

  

   

  While the focus remains on geopolitical worries the speculative data are pointing to an increased risk of a setback. A gross long of 322 million barrels only requires a small change in the fundamental or technical picture to turn into a rout. 

  

  *  *  *

  Shortly after this note, it appears Goldman also sees the same thing…

  Goldman strategists John Marshall and Katherine Fogertey, in note, say have seen evidence from option markets that energy/oil positioning has “moved overly bullish in recent days.”

   

  Investors willing to pay increasingly high prices for calls relative to puts, citing decline in put-call skew

   

  Sees shift as “sharp contrast” vs overly bearish positioning from March 18

  *  *  *

  Trade accordingly.

  

  

  
  
  

  

• Ira Sohn Conference Picks And Pans Summary

  In what was perhaps the most uneventful Ira Sohn book-talking conference in years, some of the biggest hedge fund names came, and as expected, talked their book. There were few surprises, perhaps with the exception of David Einhorn who may have pulled an Ackman and revealed his disdain for Pioneer Natural Resources, which sent the name and the fracking sector lower if only briefly. Indicative of the broader state of the “market” Einhorn was also the only person who pitched a short.

  Einhorn’s problem, perhaps in line with all those who hated Chesapeake in 2012 is that he still thinks fundamentals matter when in reality a money-losing corporation can exist in perpetuity if it merely finds enough yield-starved junk bond investors – those who bought the Greek 5 year bonds a year ago shoud suffice – to fund the endless cash drain with other people’s money.

  It remains to be seen if the Pioneer will now surge in an attempt to force squeeze Einhorn, the way Icahn did with Herbalife over Ackman’s infamous short.

  Corvex’ Keith Meister pushed for a breakup of Yum Brands Inc. and Jeffrey Gundlach pitched buying Puerto Rican bonds.

  The following table is a 1 minute summary of what all the market participants pitched or panned.

  

  Curious for more? Both Reuters, and WSJ’s Moneybeat did a comprehensive update for those who still believe alpha exists in centally-planned markets.

  

  

  
  
  

  

• Gates Says Bet On Yuan As IMF Calls Currency Fairly Valued

  We’ve talked extensively about China’s currency conundrum which has put Beijing between a rock and a hard place as it seeks to combat rapidly decelerating economic growth (which, according to some estimates, is running as low as 3.8%). Facing rising capital outflows (totalling $300 billion over the past four quarters alone) on the one hand and falling exports on the other, there appears to be no ‘right’ answer, as devaluing the yuan to prop up exports risks throwing gasoline on the capital outflow fire, but failing to devalue in the face of a dramatic slowdown in the export-driven economy may ultimately prove to be completely untenable. This is all complicated by recent strength in the dollar and perpetual pressure on the euro and yen exerted by the potent one-two monetary insanity punch from the Draghi-Kuroda tag team. Meanwhile, China is keen to give the yuan a more prominent role in the global economy via the AIIB and Silk Road Fund and is also pushing for SDR inclusion by the end of the year. 

  Against this backdrop, the IMF is out suggesting that the currency — which, as we have noted on multiple occasions over the past several months, has appreciated to the tune of 14% on a REER basis in the last 12 or so months — is closing in on being fairly valued. Predictably, Washington does not agree. Here’s more from WSJ:

  The International Monetary Fund is close to declaring China’s yuan fairly valued for the first time in more than a decade, a milestone in the country’s efforts to open its economy that would blunt U.S. criticism of Beijing’s currency policy.

   

  The fund’s reassessment of the yuan—set to be made official in IMF reports on China’s economy due out in the coming months—follows years of IMF censure of Beijing’s management of the currency.

   

  The IMF’s latest view undermines the Obama administration’s pressure on China over its management of the currency and could undercut congressional efforts to inject yuan concerns into pending trade legislation.

   

  “It takes the rug out from under the feet of U.S. critics of Chinese currency policy,” saidEswar Prasad, a Cornell University economist and former China official at the IMF. “The U.S. relied to a significant extent on what was seen as the IMF’s objective assessment.”

   

  The Obama administration disagrees with the IMF, maintaining a view that the yuan, also called renminbi, remains “significantly undervalued.”

   

  The shift at the IMF comes as Beijing is increasingly challenging the established global order. In recent months, China has won broad support for its new Asian Infrastructure Investment Bank, an entity that would rival the World Bank, the IMF’s sister institution. China is also pushing plans to create a modern “Silk Road” by better connecting its economy with those in the rest of Asia, the Middle East, Africa and Europe. Chinese officials have asked the IMF to include the yuan in the elite basket of currencies that comprise the fund’s emergency-lending reserves, a decision the fund will consider later this year.

   

  The yuan is roughly pegged to the dollar, and as the U.S. currency has appreciated against most other major currencies, it has helped push up the value of the yuan. In nominal terms, the yuan’s appreciation has leveled off. But accounting for inflation, the value of the currency has risen by more than 10% in the past year alone.

   

  As China’s economy cools, some economists don’t rule out Beijing depreciating the yuan again to help juice exports and prop up its expansion.

   

  
  

   

  Here’s a bit of color from Barclays on what SDR inclusion means for Beijing in terms of flexibility to devalue…

  On a fundamental basis, the case can be made that China’s “reluctant easing” should include a more significant move in the currency, but our view is that, ahead of the SDR review later this year, China will refrain from devaluing the CNY and even from moving USDCNY fixings notably higher. Such moves might not be welcomed by China’s major trade partners, who might be inclined to see it as currency manipulation. 

  …and here’s a look at the yuan’s rising importance in global trade…

  

  What the above underscores is that although Beijing faces some tough choices in terms of whether or not China will eventually be forced, by slumping economic growth, to devalue, the evidence continues to mount that the yuan will play an increasingly important role in the world economy going forward, an eventuality that try as it may, the US will not be able to head off by branding the country a “currency manipulator.”

  And meanwhile…

  • BILL GATES SAYS `PROBABLY WOULD PICK’ CHINESE CURRENCY: CNBC
  • GATES SAYS HE LOVES DOLLAR, WOULD PUT HIS BET ON YUAN

  

  

  
  
  

  

• The Financial System Broke Last Year… We've Just Yet to Feel It

  Global Central banks’ reputations are on borrowed time.

   

  ALL of the so called, “economic recovery” that began in 2009 has been based on the Central Banks’ abilities to rein in the collapse.

   

  The first round of interventions (2007-early 2009) was performed in the name of saving the system. The second round (2010-2012) was done because it was generally believed that the first round hadn’t completed the task of getting the world back to recovery.

   

  However, from 2012 onward, everything changed. At that point the Central Banks went “all in” on the Keynesian lunacy that they’d been employing since 2008. We no longer had QE plans with definitive deadlines. Instead phrases like “open-ended” and doing “whatever it takes” began to emanate from Central Bankers’ mouths.

   

  However, the insanity was in fact greater than this. It is one thing to bluff your way through the weakest recovery in 80+ years with empty promises; but it’s another thing entirely to roll the dice on your entire country’s solvency just to see what happens.

   

  In 2013, the Bank of Japan launched a single QE program equal to 25% of Japan’s GDP. This was unheard of in the history of the world. Never before had a country spent so much money relative to its size so rapidly… and with so little results: a few quarters of increased economic growth while household spending collapsed and misery rose alongside inflation.

   

  This was the beginning of the end. Japan nearly broke its bond market launching this program (the circuit breakers tripped multiple times in that first week). However it wasn’t until late 2014 that things truly became completely and utterly broken.

   

  We are, of course, referring to the Bank of Japan’s decision to increase its already far too big QE program, not because doing so would benefit the country, but because it would bring economists’ forecast inline with governor Kuroda’s intended inflation numbers.

   

  This was the “Rubicon” moment: the instant at which Central Banks gave up pretending that their actions or policies were aimed at anything resembling public good or stability. It was now about forcing reality to match Central Bankers’ theories and forecasts. If reality didn’t react as intended, it wasn’t because the theories were misguided… it was because Central Bankers simply hadn’t left the paperweight on the “print” button long enough.

   

  At this point the current financial system was irrevocably broken. We simply had yet to feel it.

   

  That is, until, January of 2014, when the Swiss National Bank lost control, breaking a promise, and a currency peg, losing an amount of money equal to somewhere between 10% and 15% of Swiss GDP in a single day, and showing, once and for all, that there are problems so big that even the ability to print money can’t fix them.

   

  Please let this sink in: a Central bank lost control last week. This will not be a one-off event. With the Fed and other Central banks now leveraged well above 50-to-1, even those entities that were backstopping an insolvent financial system are themselves insolvent.

   

  The Big Crisis, the one in which entire countries go bust, has begun. It will not unfold in a matter of weeks; these sorts of things take months to complete. But it has begun.

   

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

   

  You can pick up a FREE copy at:

   

  http://www.phoenixcapitalmarketing.com/roundtwo.html

   

   

  Best Regards

   

  Phoenix Capital Research

   

   

   

  

  
  
  

  

• Hillary Loves Bill

  …lots of bills…

   

  

   

  Source: Townhall

  

  

  
  
  

  

• Two-Thirds Of US Millionaires Fear "They Will Lose It All" If The Market Crashes

  It’s not easy being a millionaire in the New Normal.

  No really, because even though over the past 7 years every single Fed action has catered exclusively to the wealthiest 1% within polite US society, desperate to make them wealthier in hopes their combined trilions in net worth will magically “
  “trickle down”, according to another voyeristic UBS study into America’s high net worth public, while “millionaires enjoy a great deal of happiness and appreciation for what they’ve earned… many feel compelled to strive for more, spurred on by their own ambition, their desire to protect their families’ lifestyle and an ever-present fear of losing it all. With memories of the financial crisis still lingering, most millionaires don’t have enough wealth to feel secure. As a result, many feel stuck on a treadmill, without a real sense of how much wealth would make them satisfied enough to get off.”

  It gets better.

  UBS observers that “Millionaires’ constant striving comes mainly from pressure they feel to maintain the high standard of living they have established for their families, whom they value above all else. At the same time, millionaires worry this very lifestyle may be spoiling their children, causing them to lack motivation and feel entitled.”

  And so the Fed is also to blame for a whole generation of spoiled Millennials. But the punchline: “Millionaires feel stuck on a treadmill they can’t get off…” The reason:

  Though two-thirds of millionaires say achieving financial security is the whole point of working to build wealth, only the very wealthy (those with $5 million or more) feel they have enough to be secure. Half of millionaires with less than $5 million—and 63% of those working with children at home—believe that one wrong move, such as a job loss or market crash, would have a major impact on their lifestyle. For individuals with at least $5 million, only 34% feel they couldn’t withstand a setback.

  

   

  And so perhaps the biggest irony of the New Paranormal is revealed, one on which the entire failed central planning experiment was built on: by making the wealthy wealthier by means of a rigged, broken, manipulated market which everyone now realizes has zero basis in reality (stocks jump on bad econ data, soar on catastrophic data out of hopes of even more central bank liquidity), or fundamentals (not a day passes without the CFTC, SEC, or some other regulators humiliated by constant HFT spoofing or quote stuffing), they feel compelled to save even more than if the bulk of their wealth had been accumulated using honest means and ways.

  In other words, instead of facilitating some mutated trickle down, the Fed succeeded in forcing the most upwardly mobile segment of society to spend as little as possible! And then the St. Louis Fed wonders why the US middle class is disappearing, something we first predicted would happen in 2009.

  But what if millionaires had nothing to worry about: what if the Fed could guarantee that the stock market which it nearly singlehandedly tripled from its March 2009 lows would never crash, what would the millionaires above do with all that free time and disposable income?

  UBS’ answer: “the overwhelming majority of millionaires (87%) would do things differently. As much time and energy as they spend on their careers, they would rather enjoy a wider range of experiences, such as traveling and spending time with family. They would also be more likely to take chances, since many regret not taking enough chances in the past. Ultimately, millionaires are unlikely to step off the treadmill unless faced with a major life event (e.g., a health scare, retirement).”

  

   

  Unclear which of these is “blow it all on hookers.”

  Oh wait, for the answer we go to the next panel of questions in which we find that “They regret relationship mistakes and not spending enough time with family”

  

  And there it is: if the Fed wants to boost the sagging Vice index which consists of such components as hookers, booze and gambling – which is precisely what the above millionaires would first and foremost spend their money on – all it has to do is assure America’s depressed millionaires that the market will never again drop. Ever. Pretty much precisely what it has been doing for the past 7 years.

  

  

  
  
  

  

• Leaking Las Vegas: Forced Rationing Looms As Lake Mead Faces Federal "Water Emergency"

  Submitted by Wolf Richter via WolfStreet.com,

  Leak Mead – on your left, when you drive from Las Vegas across the Hoover Dam – is the largest reservoir in the country when at capacity. It’s fed by the Colorado River which provides water for agriculture, industry, and 40 million people in Nevada, Arizona, California, and Mexico, including Los Angeles, San Diego, Phoenix, and Las Vegas. Now after 15 years of drought, the “lake” – a mud puddle surrounded by a huge chalky bathtub ring – is threatening to run dry.

  It’s considered “operationally full” when the water level is at 1,229 feet elevation above sea level. On May 2, the water level was down to 1,078.9 feet above sea level, the lowest since it was being filled in May 1937. It’s down 15 feet from the same day a year ago. Over the last 36 months, the water level has dropped 44.8 feet. It’s down 150 feet from capacity.

  

  If the water level is below 1,075 feet elevation – 4 feet below today’s level – by January 1, 2016, it will trigger a federal water emergency. And water rationing. Las Vegas Review Journal reported that forecasters expect the level to drop to 1073 feet by June, before Lake Powell would begin to release more water. Assuming “average or better snow accumulations in the mountains that feed the Colorado River – something that’s happened only three times in the past 15 years,” the water level on January 1 is expected to be barely above the federal shortage level.

  Even with these somewhat rosy assumptions of “average or better than average snow accumulations,” the water level would begin set new lows next April. But if the next winter is anything like the last few, all bets are off.

  If the level drops below 1050 feet, one of the two intake pipes for the Las Vegas Valley, which gets 90% of its water that way, will run dry. A new $817-million tunnel is being built by the Southern Nevada Water Authority to create a new drain to get the last drop out of the bathtub. It should be ready by September.

  The LA Times explains what water rationing would mean for the states:

  Las Vegas has long been at a disadvantage when it comes to Lake Mead water. A 1922 Colorado River water-sharing agreement among seven Western states — one still in effect nearly a century later — gives southern Nevada the smallest amount of all; 300,000 acre-feet a year, compared with California’s 4.4 million annual acre-feet. An acre-foot can supply two average homes for one year.

   

  This summer, officials will make their projection for Lake Mead water in January 2016. If the estimate is below 1,075 feet, rationing kicks in: Southern Nevada would lose 13,000 acre-feet per year and Arizona would lose 320,000 acre-feet. California’s portion would not be affected.

  Note the last sentence – that California would not be affected. Keeping lawns green in LA is top priority.

  “Between Lake Mead and Lake Powell, you have over 50 million acre feet in storage when they’re full,” explained Pat Mulroy, former general manager of the Southern Nevada Water Authority from 1991 until she retired in 2014. “To have them both go down to a quarter of their capacity is a pretty scary proposition,” she said.

  Here she is, via Brookings, on the water crisis at Lake Mead, with ghostly images of the lake and of Hover Dam sitting high and dry:

   

  To get through the drought, residents and growers in California’s Central Valley have been pumping water from aquifers to take a shower, fill a glass with water, irrigate almond orchards, or do a million other things. But now, it turns out, even those aquifers, whose water levels are already dropping, are threatened by something else.

  

  

  
  
  

  

• Fed Admits Yellen "Met With" FOMC Leaker In 2012, DOJ Probe Begins

  Just two weeks ago we pointed out the fact that The Fed had seemingly ignored Congressional demands for details with regard the 2012 FOMC Statement leak. Now we know why they missed the deadline:

  • *YELLEN SAYS SHE MET WITH MEDLEY GLOBAL ANALYST IN JUNE 2012
  • *YELLEN SAYS SHE DIDN'T GIVE MEDLEY CONFIDENTIAL INFORMATION

  So she met with the analyst that leaked the statement… but didn't say anything?

  

   

  *  *  *

  Some background…as a reminder, ProPublica explains the leak…

  The Federal Reserve sprung a previously unreported leak in October 2012, when potentially market-moving information about highly confidential monetary deliberations made its way into a financial analyst's private newsletter.

   

  The leak occurred the day before the scheduled public release of meeting minutes that shed new light on the Fed's decision to embark on a third round of bond buying to boost the economy, ProPublica has learned.

   

  …

   

  The newsletter containing the leaked material came from an economic policy intelligence firm called Medley Global Advisors whose clients include hedge funds, institutional investors and asset managers. On Oct. 3, 2012, Regina Schleiger, an analyst with the firm, sent clients a "special report" titled "Fed: December Bound."

   

  The report focused on the Sept. 12-13 open market committee meeting, where the panel had approved what's called "QE3," a new program of large-scale purchases of mortgage-backed and Treasury securities.

   

  Typically, the Fed chairman holds a news conference following the meetings to help explain the committee's actions. But when Bernanke did this on Sept. 13, he did not reveal the depth of disagreement within the committee about how effective the bond-buying program would be and whether it was worth the cost.

   

  Schleiger wrote, however, that the minutes due out the next day would reveal "intense debate between Federal Open Market Committee participants."

   

  Schleiger also revealed that the Fed would likely continue buying longer-term Treasury bonds beyond December. As part of a program dubbed Operation Twist, the Fed had been selling short-term Treasuries to buy longer-term ones.

   

  Schleiger wrote that the committee would likely continue buying long-term bonds even after it sold all the shorter-term Treasuries. This information was not contained in the minutes and proved to be accurate.

   

  Her newsletter also explained in uncommon detail both how Fed staff constructed the minutes and various policy options that were recommended and the thinking of the leadership – Bernanke and vice chairs Janet Yellen and Bill Dudley.

   

  "It's not unusual for board staff to pull all-nighters working on the final draft of the policy recommendations, once these has [sic] been commented on," Schleiger wrote. "This one took until after midnight."

  Which resulted in an internal probe ordered by Bernanke that inevitably found no wrongdoing.. and so Congress took up the matter.

  But now, as The Wall Street Journal reports, The Fed has ignored that request…

  The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations.

   

  In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found  a “few” Fed staffers had contact with Medley before the report, but did not identify them.

   

  Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

   

  The deadline passed without any response by the Fed, a committee spokesman said Wednesday.

   

  The Fed declined to comment. Medley did not respond to a request for comment.

  *  *  *

  And now we know why they delayed (as Bloomberg adds),

  Federal Reserve Chair Janet Yellen said on Monday that the U.S. Department of Justice has joined the investigation into a leak of confidential monetary-policy information in 2012.

  “The Board’s Inspector General and the Department of Justice are in the midst of an investigation into this matter,” Yellen said in a letter to Representative Jeb Hensarling, chairman of the House Financial Service Committee.

  “We are cooperating fully with them and look forward to the results of their investigation,” she said.

  Yellen said she would also provide the names of Fed personnel who had contact with Medley Global Advisors, which published a report on deliberations of a September 2012 closed door meeting of the Federal Open Market Committee, one day before minutes of the meeting were made public.
   

  *  *  *

  The Justice Department has opened a formal investigation into the FOMC leak (and we suspect sworn testimony coming).

  @zerohedge pic.twitter.com/i2zt2XLTi0

  — Rudolf E. Havenstein (@RudyHavenstein) May 4, 2015

  Full letter below:

  

  

  
  
  

  

• One Man's Message To Americans – "Start Giving A Damn!"

  Submitted by Thad Beversdorf via FirstRebuttal.com,

  I find it shocking how often I have people tell me the Constitution is out of date and is no longer relevant or necessary.  Then there are the vast majority of people that think about the Constitution the same way they think about religion; it makes us feel good to believe in it and we’ll even worship it on a holiday or two   The reality is that those who seem to get very worked up to the point that they are willing to act in defense of the Constitution even against the highest levels of government make up a very small minority of Americans.  This is a real problem.

  You see if people gave a damn the government couldn’t get away with negating the Constitution.  But the vast majority of people just don’t give a damn and so the government very easily provides ridiculous and false legal sounding arguments to explain away why they have become a higher law than the Constitution. Now I’ve tried to understand why it is that we Americans are so damn apathetic about everything the government and government officials do.

  Let me give a couple examples for which our apathy just boggles my mind.   We know they took us into wars on false pretenses resulting in the wrongful deaths of thousands of American soldiers and hundreds of thousands of innocent civilians and yet we’ve prosecuted no one.  Hell they’ve admitted to hacking into millions of our home webcams and downloading videos and pictures of us in our most private moments and maintaining those downloads on government servers and then sharing these files with foreign governments.

  But because today’s American is simply a shell of a citizen none of the criminal atrocities creates even a stir from us.  Sure we all read about these atrocities and we are angered in the moment but it passes rather quickly and we fall back into our self induced ignorant bliss.  Only two things can get Americans to formidably rise up.  The first is a very direct and immediate impediment to our comfort.  For example try cutting back on the monthly social welfare checks.  You’ll have riots.   The second way is if the mainstream media relentlessly instructs us to be upset about a particular issue.  Outside of that there is absolutely nothing the new American won’t move past like water off a duck’s back.

  What we’re finding out is that, and it sounds slightly over-dramatic but isn’t at all, unless we are willing to fight and die to win back the freedom our forefather’s fought and died to secure for us and all future generations we will continue to feel our chains grow heavier and shorter.  The simple reason is because our government is very much willing to kill to keep its ever encroaching control.  A free population is the antithesis to a political class.  And make no mistake the American federal government is the largest and most powerful group of aristocrats the world has known.

  This group of traitors (and I mean that in the very technical sense of the word) not only behave according to a separate set of laws they have actually gone so far as to legislate a separate set of laws.  This in itself is a direct breach of the very Constitution they swear to defend.  Their intent is clear and that my friends is treason.  They are directly negating the very basis of the American concept for their own personal self interest and they are doing so by defrauding American citizens into believing their intent is to represent the will of their constituents.  Treason, Treason, Treason!  What else would you call it?

  Now are you ready to fight and die to win the freedoms back for your children and grandchildren?  Hell No!  No, not at all!  And that’s kinda the problem because again the government is willing to kill to ensure your kids and grandkids don’t have the freedoms Americans were guaranteed.  The fuck of it is Americans have become so damn brainwashed that despite the founding fathers telling us explicitly our government would end up enslaving the rest of us to solidify their own power and wealth we ignore it. These were the guys that figured out the British were effectively enslaving us and decided to rise against it and create the greatest damn nation the world has ever known.  They literally created fucking America!!!  I mean holy shit, imagine having that on your CV.  And we pay them no mind, like they’re bat shit crazy and not relevant in our intellectual new world.

  Today’s legislators rarely discuss the founding fathers or the Constitution beyond the very thin idea that they know we expect them to defend it.  That is, like freedom and apple pie, they love it during the campaign cycle.  However, ask them why then they continue to legislate against the Constitution and well they don’t want to talk about the Constitution anymore.  And we the people ,like apathetic morons , buy into the bullshit they feed us because we simply don’t care.  It’s to the point they can pretty much do anything knowing they can bullshit us with any damn nonsense that pops into their swollen heads.  And so they do things like hack into our webcams, take nude pictures of us and send them to foreign governments and tell us it’s for our own good.  We don’t give a shit because 1. it doesn’t impede our immediate comfort and 2. the press isn’t telling us it’s something to be concerned about.

  The danger of being apathetic until it impacts our immediate day to day is that we allow the government to take away all the freedoms we are not currently using.  What I mean by that is we so far have not had to face what it means to be powerless and in chains.  But only because we haven’t yet ventured out far enough so as to reach the end of our chains.  Like a sleeping dog that isn’t aware he’s been shackled until he wakes and tries to chase a bird, we are asleep and unaware of the shackles placed around our ankles.

  Some will say “wait, it isn’t apathy it is a trade off between safety and freedom”.  But the truth is freedom and safety are not conflictual we’ve only been led to believe so.  Fear has replaced freedom here in America and that is not by chance but by strategy of a government that has its own agenda, separate from its oath to uphold and defend the Constitution.  So while we should have prosecuted these recent governments for treason we’ve instead rewarded them the rights of dictatorship.

  The Constitution is our freedom keeper but once the Constitution is made subordinate the precedent is set and in our legal system precedence is king.  The strength in the Constitution is just that, it’s strength.  Once we allow an exception to the Constitution’s superseding authority it no longer has any authority.  Unfortunately that exception has already been made.  With it, the destruction of the Constitution and the end to a guaranty of freedom.  Our corrupt government has created ‘legislation’ providing them a legal basis to imprison us without due process.  This is a fact.

  This desecrates one of the most important axioms of America, in fact, due process is the very idea we are sold to spend $1 trillion per year fighting multiple simultaneous major theatre wars.  Yet here at home it no longer exists.  But remember our loss of due process is for our own good.  Giving a federal legislator or policy maker absolute discretion over our fate is in our best interest.  You and I have agreed with these propositions.  And you and I will have to adhere to being placed in prison for life if that is the will of our president or any delegate who will benefit by accusing us of being a national security threat.

  Just by the fact the threat exists fulfills its objective.  People will not want to bring attention to themselves and thus will avoid protesting the wants of those who now have the authority to impede their freedom.  That in itself impede’s their freedom.  This is the one thing I really wish people could see.  What seem like issues too narrow or small to get worked up over are just marks of the snake bite.  Two very small holes in the skin but those holes are the gateway for the real killing agent to spread and overtake the whole system.

  In March alone our beefed up and militarized public service workers killed more than 180 citizens they were meant to serve and protect on American soil.  That makes them an infinitely higher risk to our safety than the foreign terrorists to whom we’ve handed our Constitution.  That’s exactly what we’ve done.  If you listen to the terrorists’ videos that was their goal.  They wanted to end the freedom and free will that America seems to be jamming down the throats of societies around the world.  And so they won the moment Americans accepted to trade away its freedoms for safety.  That was their goal and they have achieved it.

  Let’s look at Edward Snowden’s situation to see how one loses one’s freedom.  Snowden is a man that knowingly sacrificed his own freedom to expose the corruption and criminality of our policy makers and their respective agencies.  He is also a citizen that has been deemed a threat to national security.  Why would a man who exposed the criminal enslavement of Americans and citizens around the world be deemed a terrorist rather than a hero??  Because he is a threat to the power and control and really the entire system of those who can now legally classify him as a threat, removing his right to due process.

  In effect, these political criminals can now legally lock away any prosecutor at will.   This is a gross conflict of interest and the hero that exposed this conflict of interest is now a victim of it.  Edward Snowden not only informed America, he recognized that he would be the first example so that Americans would see, first hand, the sort of corruption that has infected our system.  I can only infer he made himself known because he believed seeing it actually happen would get Americans to rise up and correct the moral transgression.  And what did we the people do in response to Snowden’s incredibly brave and patriotic action?  Absolutely nothing!!!  We force this hero to live in exile.  We don’t even demand the corruption to stop.  We do nothing.  How very American of us.  And why do we do nothing?  Because it doesn’t impede our immediate comfort and the media hasn’t told us we need to be concerned about the issue.

  The lives of Americans have become so easy and so secure that we no longer recognize living in a utopia of freedom comes not with costs but with obligations.  We seem to believe that paying taxes indemnifies us of our real obligations as citizens who have been handed a beautiful gift and who are responsible for passing on that precious gift to future generations of Americans.   And that is a mistake that will have historians writing of us as we write of Eve in the garden of Eden.  Our lack of principles resulting in the suffering of all future generations having destroyed a gift we obviously didn’t deserve.

  

  

  
  
  

  

• When Not To Go To Court (Spoiler: When The Judge Is Hungry)

  With social unrest on the rise, knowing more about the judicial system is crucial for everyone…

   

  In the following chart, the dotted line represent food breaks.

  As is very clear, the best time to go to court is right after a food break (the circled points below indicate the first decision in each session)

  

   

  And the worst time to face the judge for your latest ‘strike’ – when he is hungry…

   

  Source: Extraneous Factors In Judicial Decision – PNAS

  

  

  
  
  

  

• ADB "Boosts Firepower" As China-Led Bank Grabs Center Stage

  “I don’t think there will be major change to the world of development finance [because of the creation of the AIIB], although there can be interpretations as to the symbolic meaning of this.”

   — Takehiko Nakao, Japanese head of Asian Development Bank 

   

  One can hardly blame Nakao for putting on a brave face. After all, the China-led Asian Infrastructure Investment Bank represents not only a major shift away from the multilateral institutions that have dominated the post-war global economic order, but also a move by Beijing to establish what we have described as a Sino-Monroe Doctrine. Speaking to the latter point, President Xi Jinping’s recent pledge to invest $46 billion in Pakistan (53% more than the US has invested in 13 years) as part of Beijing’s Silk Road initiative, gives us a window into what the future may hold in terms of China’s growing regional influence.

  But as Washington learned in March, belittling China’s power grabs is a fool’s errand, especially when they are disguised as infrastructure development initiatives. In the end, resistance is futile, but old habits die hard, which is why it’s not surprising that the ADB is now beefing up its lending capacity while simultaneously paying lip service to the AIIB. 

  Via Bloomberg:

  The Japan-led Asian Development Bank unleashed measures that could help it hold its ground as a resource for regional economies, even as China’s Asian Infrastructure Investment Bank gains prominence.

   

  The ADB overhauled a four-decade-old development fund to boost its annual lending and grant approvals by 50 percent, to as much as $20 billion, the bank said at its annual meeting in Baku, Azerbaijan that started May 2. It will also set aside money to support public-private partnership projects and work with the AIIB “for Asia,” the ADB said.

   

  “Now that the China-led AIIB is becoming a reality, the Japan-led ADB wants to ensure that it will still remain a key funder for infrastructure programmes in less developed Asia,” said Wai Ho Leong, a 

   

  Singapore-based economist at Barclays Plc. “Given the development needs across Asia, there is sufficient room for both players.”

   

  For almost 50 years, Asian nations from India to Vietnam and Indonesia have benefited from funding from the ADB, which is dominated by Japan and the U.S. That relationship is set to change as the rise of the AIIB, the first major multilateral development bank in a generation, provides an avenue for China to strengthen its presence in the world’s fastest-growing region.

   

  On its side, the ADB is boosting its own firepower.

   

  In a move it described as “groundbreaking,” the lender said it will combine the lending operations of the bank’s Asian Development Fund with its ordinary capital resources balance sheet, with the merger taking effect in 2017. The fund was established in 1973 to provide concessional loans and grants to poorer countries, while OCR loans are provided to middle-income countries at market-based rates.

   

  The initiative will increase ADB assistance to poor countries by as much as 70 percent, and together with cofinancing, enable the bank’s annual assistance to reach as high as $40 billion in the coming years from $23 billion in 2014, it said.

  Clearly, this looks quite a bit like an institution trying to play catch up now that a competing player has entered the market. Similarly, The White House is now scrambling to correct the ‘misconception’ that Washington tried to demean the initiative and worked behind the scenes to discourage US allies from supporting Beijing. 

  Via WSJ:

  The U.S. never opposed a new China-led infrastructure bank, President Barack Obamasaid Tuesday, challenging a common narrative that Beijing out-maneuvered Washington by persuading key U.S. allies to sign up as founding members.

   

  “We’re all for it” if the Asian Infrastructure Investment Bank incorporates strong financial, social and environmental safeguards, Mr. Obama said…

   

  “Let me be very clear and dispel this notion that we were opposed or are opposed to other countries participating in the Asia infrastructure bank,” he said at a press conference with Japanese Prime Minister Shinzo Abe. “That is simply not true.”

  With that in mind, we’ll leave you with the following quote provided to NY Times last October by a senior Treasury official:

  “How would the new institution add value? How would the Asian Infrastructure Investment Bank be structured so that it doesn’t undercut the standards with a race to the bottom?” 

  Doesn’t sound too much like an administration that was “all for it” to us. 

  *  *  *

  As a reminder, here are all of the countries that have signed on to participate in the China-led institution:

  

  

  

  
  
  

  

• Volumeless Stocks Test Record Highs On Downbeat Data

  Last week's message to TPTB… (appears to have been heard loud and clear)…

   

  Another day, another rally on even weaker volume (with UK and Japan away on holiday) and shitty data… Spot The Difference…

  

   

  Who could have seen this coming?

  But the best news is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows – all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.

  after China's dismal data, Germany's surprise, and US Factory Orders printing weakest YoY growth run since 2008…

  

   

  Small Caps spurted higher at the open – thanks to Gartman's suggestion of shorting – but the excitement faded back as the day wqore on…

  

   

  Social Media never bounced…

  

   

  And Shale plays stumbled on Einhorn but that was an awesome opportunity to BTFD!

  

   

  Credit markets remain less exuberant…

  

   

  Treasury yields ended the day higher once again with the selling poressure coming (once again) during the US session

  

   

  (even as Bunds sold off during the EU session)

  

   

  The dollar closed modestly higher with EUR fading 0.5% – note just how dead USDJPY was – with Japan on Golden Week…

  

   

  Chaos in commodities early on left gold and silver up, crude and copper down

  

   

  From the 8amET "moment" – once again…

  

   

  Some context for Silver's move…

  

   

  Charts: Bloomberg

  

  
  
  

  

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• Why The Powers That Be Are Pushing A Cashless Society

  We Can’t Rein In the Banks If We Can’t Pull Our Money Out of Them

  Martin Armstrong recounts the push to ban cash … and argues that the goal of those pushing a cashless society is to prevent bank runs:

  The central banks are indeed taking up these growing signs and are planning drastic restrictions on cash itself. They see moving to electronic money will first eliminate the underground economy, but secondly, they believe it will even prevent a banking crisis.This idea of eliminating cash was first floated as the normal trial balloon to see how the people take it. It was first launched by Kenneth Rogoff of Harvard University and Willem Buiter, the chief economist at Citigroup. Their claims have been widely hailed and their papers are now the foundation for the new age of Economic Totalitarianism that confronts us. Rogoff and Buiter have laid the ground work for the end of much of our freedom and will one day will be considered the new Marx with hindsight. They sit in their lofty offices but do not have real world practical experience beyond theory. Considerations of their arguments have shown how governments can seize all economic power are destroy cash in the process eliminating all rights. Physical paper money provides the check against negative interest rates for if they become too great, people will simply withdraw their funds and hoard cash. Furthermore, paper currency allows for bank runs. Eliminate paper currency and what you end up with is the elimination of the ability to demand to withdraw funds from a bank.

   

  ***

   

  In many nations, specific measures have already been taken demonstrating that the Rogoff-Buiter world of Economic Totalitarianism is indeed upon us. This is the death of Capitalism. Of course the socialists hate Capitalism and see other people’s money should be theirs. What they cannot see is that Capitalism is freedom from government totalitarianism. The freedom to pursue the field you desire without filling the state needs that supersede your own.

   

  There have been test runs of this Rogoff-Buiter Economic Totalitarianism to see if the idea works. I reported on June 21, 2014 that Britain was doing a test run. A shopping street in Manchester banned cash as part of an experiment to see if Brits would accept a cashless society. London buses ended accepting cash payments from July 2014. Meanwhile, Currency Exchange dealers began offering debt cards instead of cash that they market as being safer to travel with. The Chorlton, South Manchester experiment was touted to test customers and business reaction to the idea for physical currency will disappear inside 20 years.

   

  France passed another Draconian new law that from the police parissummer of 2015 it will now impose cash requirements dramatically trying to eliminate cash by force. French citizens and tourists will then only be allowed a limited amount of physical money. They have financial police searching people on trains just passing through France to see if they are transporting cash, which they will now seize. Meanwhile, the new French Elite are moving in this very same direction. Piketty wants to just take everyone’s money who has more than he does. Nobody stands on the side of freedom or on restraining the corruption within government. The problem always turns against the people for we are the cause of the fiscal mismanagement of government that never has enough for themselves.

   

  In Greece a drastic reduction in cash is also being discussed in light of the economic crisis. Now any bill over €70 should be payable only by check or credit card – it will be illegal to pay in cash. The German Baader Bank founded in Munich expects formally to abolish the cash to enforce negative interest rates on accounts that is really taxation on whatever money you still have left after taxes.

   

  ***

   

  Complete abolition of cash threatens our very freedom and rights of citizens in so many areas.

   

  ***

   

  Paper currency is indeed the check against negative interest rates. We need only look to Switzerland to prove that theory. Any attempt to impose say a 5% negative interest rates (tax) would lead to an unimaginably massive flight into cash. This was already demonstrated recently by the example of Swiss pension funds, which withdrew their money from the bank in a big way and now store it in vaults in cash in order to escape the financial repression. People will act in their own self-interest and negative interest rates are likely to reduce the sales of government bonds and set off a bank run as long as paper money exists.

   

  Obviously, government and bankers are not stupid. The only way to prevent such a global bank run would be the total prohibition of paper money. This is unlikely, both in Switzerland and in the United States because the economies are dominated there by a certain “liberalism” to some extent but also because their currencies also circulate outside their domestic economies. The fact that but the question of the cash ban in the context of a global conference with the participation of the major central banks of the US and the ECB will be discussed, demonstrates by itself that the problem is not a regional problem.

   

  Nevertheless, there is a growing assumption that the negative interest rate world (tax on cash) is likely to increase dramatically in Europe in particular since it is socialism that is collapsing. Government in Brussels is unlikely to yield power and their line of thinking cannot lead to any solution. The negative interest rate concept is making its way into the United States at J.P. Morgan where they will charge a fee on excess cash on deposit starting May 1^st, 2015. Asset holdings of cash with a tax or a fee in the amount of the negative interest rate seems to be underway even in Switzerland.

   

  ***

   

  The movement toward electronic money is moving at high speed and this says a lot about the state of the financial system. The track record of the major financial institutions is nearly perfect – they are always caught on the wrong side when a crisis breaks, which requires their bailouts. The fact that we have already seen test runs with theory-balloons flying, the major financial institutions are in no shape to withstand another economic decline.

   

  For depositors, this means they really need to grasp what is going on here for unless they are vigilant, there is a serious risk of losing everything. We must understand that these measures will be implemented overnight in the middle of a banking crisis after 2015.75. The balloons have taken off and the discussions are underway. The trend in taxation and reduction of cash seems to be unstoppable. Government is not prepared to reform for that would require a new way of thinking and a loss of power. That is not a consideration. They only see one direction and that is to take us into the new promised-land of economic totalitarianism.

  People can’t pull cash out of their bank accounts – for political reasons, because they’ve lost confidence in the bank, or because “bail-ins” are enacted – if cash is banned.

  The Government Can Manipulate Digital Accounts More Easily than Cash

  Moreover, an official White House panel on spying has implied that the government is manipulating the amount in people’s financial accounts.

  If all money becomes digital, it would be much easier for the government to manipulate our accounts.

  Indeed, numerous high-level NSA whistleblowers say that NSA spying is about crushing dissent and blackmailing opponents … not stopping terrorism.

  This may sound over-the-top … but remember, the government sometimes labels its critics as “terrorists“.  If the government claims the power to indefinitely detain – or even assassinate – American citizens at the whim of the executive, don’t you think that government people would be willing to shut down, or withdraw a stiff “penalty” from a dissenter’s bank account?

  If society becomes cashless, dissenters can’t hide cash.  All of their financial holdings would be vulnerable to an attack by the government.

  This would be the ultimate form of control. Because – without access to money – people couldn’t resist, couldn’t hide and couldn’t escape.

  

  
  
  

  

• Legal Corruption In The US: Meet The 1% Of The 1% Who Drive American Politics

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  That said, my greater source of personal concern, outrage and sympathy beyond this particular case is focused neither upon one night’s property damage nor upon the acts, but is focused rather upon the past four-decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore and cities and towns around the U.S. to third-world dictatorships like China and others, plunged tens of millions of good, hard-working Americans into economic devastation, and then followed that action around the nation by diminishing every American’s civil rights protections in order to control an unfairly impoverished population living under an ever-declining standard of living and suffering at the butt end of an ever-more militarized and aggressive surveillance state.

   

  The innocent working families of all backgrounds whose lives and dreams have been cut short by excessive violence, surveillance, and other abuses of the Bill of Rights by government pay the true price, and ultimate price, and one that far exceeds the importances of any kids’ game played tonight, or ever, at Camden Yards. We need to keep in mind people are suffering and dying around the U.S., and while we are thankful no one was injured at Camden Yards, there is a far bigger picture for poor Americans in Baltimore and everywhere who don’t have jobs and are losing economic civil and legal rights, and this makes inconvenience at a ballgame irrelevant in light of the needless suffering government is inflicting upon ordinary Americans.

   

  – Commentary by Baltimore Orioles COO, John Angelos, on the root causes of the unrest

  Earlier this week, I published a post titled, Charting the American Oligarchy – How 0.01% of the Population Contributes 42% of All Campaign Cash, which I think is one of the most important articles I’ve written all year. The key point of the piece is that demonizing the 1%, or 3.2 million American citizens, is divisive and counterproductive. Strategically it’s stupid because there will be many decent, intelligent, motivated people within this class who should be recruited as allies rather than demonized with superficial slogans. Moreover, you should never judge anyone based on their wealth and status alone, you should judge each person by their individual actions.

  In that post, I highlighted the fact that 25,000 American adults are essentially calling all the public policy shots in the U.S. I went on to argue that the real players are probably the 0.001%, or the 2,500 wealthiest American adults. Even within this extraordinarily wealthy data pool, we still must be careful not to judge them together. Just think about the enlightened commentary made by John Angelos, COO of the Baltimore Orioles and son of the team’s owner, I referenced at the top. The fact that someone of his privilege and wealth understands exactly what is happening in America, and also has the balls to say it, is incredibly encouraging. We must recruit such people to join forces with us rather than alienate them with catchy soundbites.

  The good news is that with modern technology we can data-mine the 0.001%, or even the 0.01%, better than ever in order to get a sense of who the really bad players are. Naturally, this would be much harder to do with a pool of several million, but that’s probably unnecessary anyway due to the extreme concentration of wealth and power in America today.

  Several organizations are already doing such data mining, and one study that caught my eye yesterday is a joint analysis by the Center for Responsive Politics and the Sunlight Foundation. We should all be indebted to them for doing this, as the revelations and the wealth of information provided serves as an invaluable resource to anyone trying to avert multi-generational oligarch dictatorship.

  The analysis focused on 31,796 people, roughly 0.01% of the American population, who collectively contributed $1.18 billion during the 2014 elections, or an estimated 29% of total donations. These donors were mostly male and mostly city dwellers, but most disturbingly, were dominated by Wall Street. Yes, the industry that received trillions in taxpayer backstops and bailouts is not only doing better than ever, but remains in complete and total control of the American political process.

  From OpenSecrets.org:

  In the 2014 elections, 31,976 donors — equal to roughly one percent of one percent of the total population of the United States — accounted for an astounding $1.18 billion in disclosed political contributions at the federal level. Those big givers — what we have termed the Political One Percent of the One Percent — have a massively outsized impact on federal campaigns.

   

  They’re mostly male, tend to be city-dwellers and often work in finance. Slightly more of them skew Republican than Democratic. A small subset — barely five dozen — earned the (even more) rarefied distinction of giving more than $1 million each. And a minute cluster of three individuals contributed more than $10 million apiece.

  Particular attention should be given to the $10 million plus donors, for obvious reasons.

  The $1.18 billion they contributed represents 29 percent of all fundraising that political committees disclosed to the Federal Election Commission in 2014. That’s a greater share of the total than in 2012 (25 percent) or in 2010 (21 percent).

   

  That’s one of the main takeaways of the latest edition of the Political One Percent of the One Percent, a joint analysis by the Center for Responsive Politics and the Sunlight Foundation of elite donors in America.

   

  When former Sunlight Fellow Lee Drutman first reported on the One Percent of the One Percent, he noted that these deep pocketed donors were increasingly playing the role of “political gatekeepers.” Candidates needed their backing — and cash — as did the parties and super PACs that depended on the support of the politically active elite.

   

  Now, in the first full midterm since the Supreme Court’s Citizens Uniteddecision, our joint analysis finds that the influence of the One Percent of the One Percent has only continued to grow.

   

  Wall Street maintained its perch as the most influential sector among the One Percent of the One Percent, both in the number of donors that made the list and the money given. Individuals that listed a job in securities spent about $175 million in 2014, of which $107.5 million went to committees supporting Republicans.

   

  The most jarring difference between the One Percent of the One Percent in 2014 and 2010, the last midterm cycle, is how “top heavy” the donor list has become. A small subgroup of these elite donors is the driving force behind its growing share of political money.

   

  In 2010 only 17 individuals contributed a total of $500,000 or more, while members of the $1 million-plus club numbered only nine. In 2014, the number of $500,000 and up donors ballooned to a whopping 135, and 63 people gave more than $1 million.

  Those 63 people are the ones that really matters.

  The rising numbers of donors who gave at least $500,000 reflects, in part, the sharp uptick in liberal giving to outside spending groups, which can take money in unlimited amounts. In a change from both 2012 and 2010, more than half of the One Percenters’ contributions to outside groups went to those that supported Democrats and attacked Republicans. Liberals have learned to love the super PAC.

  Can we finally admit that this is a bipartisan oligarchy?

  The donors at the very top of the money pyramid provided the financial fuel for many of the attack ads and other messages from independent organizations that filled the airwaves last year. A previous analysis by CRP found that the country’s top 100 donors accounted for 39 percent of the $696,011,919 raised by super PACs in the 2014 elections.

   

  Compared to the population at large, men are heavily overrepresented among top political donors. We were able to reliably ascertain a gender for about 95 percent of the donors in 2014. Of those, just under 75 percent were men, who accounted for 78 percent of the total contributions, almost exactly the same ratios as in 2012 and 2010.

   

  

   

  Among the economic sectors defined by the Center for Responsive Politics, the finance, insurance and real estate category (FIRE) remains the best represented among the One Percent of the One Percent.

  Unsurprisingly, these are the industries generally characterized as the most “rent-seeking.”

   

  The loneliest sector in our analysis? That distinction goes to labor, which accounted for 75 donors and $349,795 in contributions in our .01% data.

  Just in case you wondered why real wages haven’t budged in decades. Labor doesn’t pay off the politicians, so it gets scraps, if that.

  But that doesn’t mean that Wall Street has shortchanged Democrats: The securities and investment industry had the second-largest representation among individuals in the One Percent of the One Percent who gave to Democrats and liberal outside groups. In fact, the top five industries by party are similar — both also include real estate and miscellaneous finance in the top five. Donors from the oil and gas and manufacturing industries round out that list for Republicans.

  Bear that in mind when Hillary disingenuously attacks Wall Street. Like Barry, she doesn’t mean it for a second.

  While environmental giving surged among the .01 percent, the largest drop between our 2010 and 2014 lists goes to pro-Israel interests and donors in the insurance industry. In the case of the latter, their contributions surged during consideration of the Patient Protection and Affordable Care Act, or Obamacare, in the last midterm cycle.

  That is hilarious. They got what they paid for and then moved on.

  What about the Vampire Squid itself? Unsurprisingly…

  Goldman Sachs, the global investment bank, was the most prolific organization on our 2014 list, with more employees among the One Percent of the One Percent’s list of super donors than any other organization we could identify. The bank is a seasoned player in the Washington influence game. Goldman has kept the top spot on our list for the past three election cycles and was also the number one contributor on Fixed Fortunes 200, Sunlight’s ranking of the top 200 most politically-active companies in the country. Several other financial titans join it in the top 10 including Citigroup and the Blackstone Group investment firm.

  Look who else is in there, the biggest financial corporate welfare baby of them all, Citigroup. As is Blackstone, best known for buying up Americans’ foreclosed real estate after the crisis, merely to rent it back to the broke citizenry while behaving like slumlords (see: A Closer Look at the Decrepit World of Wall Street Rental Homes).

  Many of the names on the list, of course, are stalwarts who have been among the nation’s top donors in nearly every recent election cycle. Eleven of 2014’s top 20 names were in the top 20 in 2012, and none of the top 20 were new to the .01 percent. Sheldon Adelson and his wife may not have matched his record-setting sum of more than $93 million in contributions in 2012, but in 2014, he alone still threw in $5.8 million. Liberal super donor Tom Steyer gets the award for most dramatic ascent into the topmost tier of the super donors. He gave “only” $115,000 in 2012 (ranking him No. 1,458), before claiming the top spot in 2014 with his $73 million in donations. On the other hand, Oracle founder Larry Ellison went in the opposite direction: He was No. 19 in 2012, with donations of $3.1 million, but only gave $94,300 in 2014.

  I’ve focused on the specific danger represented by Sheldon Adelson several times in the past. See:

  Sheldon Adelson – The Dangerous American Oligarch Behind Benjamin Netanyahu

  Inside the Mind of an Oligarch – Sheldon Adelson Proclaims “I Don’t Like Journalism”

  Neo-Con Republicans Make Pilgrimage to Vegas to Kiss the Ring of Oligarch Sheldon Adelson

  A review of the top zip codes on our One Percenters list finds much of the money comes from donors who live near population hubs like New York, San Francisco, Chicago and Washington. Of the 50 zip codes that produced the most money from the .01 percent, 14 were in New York, 8 in California and 5 each were in Texas and Illinois.

  Also important, is the surge in relevance of super PACs in this oligarch bribe scheme.

  The 2010 midterm cycle saw more than $38.6 million of the nearly $732.8 million spent by the One Percent of the One Percent go to outside groups, or about 5 percent of their total contributions. In 2012 contributions to super PACs and hybrid super PACs accounted for about 30 percent of the $1.7 billion contributed, and in 2014, that share inched up again 31.5 percent of this group’s spending, for about $373 million.

  Now here’s the best chart of them all:

  

  Our list of the 10 candidates who received the highest percentage of the money from elite donors includes many candidates from wealthy states, and nationally-known candidates like Sens. Cory Booker, D-N.J., and Ted Cruz, R-Texas, as well as new members who won high-profile races in 2014 like Sens. Dan Sullivan, R-Alaska, and Tom Cotton, R-Ark.

  When I first read the above, I thought, let’s just find out who is most beholden to 0.01% donations and they are probably the most corrupt. Then I saw that Justin Amash is in that category, and I consider him to be one of the few honorable, brave and constitutional members of Congress. This just further proves the dangers of generalization, and the need to really look deep within the data and couple that with the elected representative’s actions.

  *This analysis relies on donor ID’s and industry and sector codes researched and assigned by the Center for Responsive Politics. In cases where two donors tied for overall contributions, both donors were included. The number of donors was expanded from previous years to reflect 2014’s larger population.

   

  These figures represent all the political contributions to traditional political action committees, super PACs, party committees and political committees affiliated with federal candidates. In keeping with previous reports in this series we did not include contributions to 527 political organizations that are not registered with the Federal Election Commission. These totals do not include contributions to politically active nonprofit organizations, also known as “dark money” groups, which do not publicly disclose their donors. Note that some totals for the 2010 and 2012 cycles in this analysis differ from what was originally reported; for this study, we used the most recently updated data available.

  As if it’s not bad enough, if we include dark money it’s probably far worse. To illustrate just how bad it really is, here’s a great five minute video from Represent.Us

  

  

  
  
  

  

• TEPCO Admits Fukushima Is Leaking Again – Over 600x 'Safe' Radiation Levels

  Having killed a robot by underestimating the level of radiation present in the Fukushima power plant, and after delaying its previous admission of a leak, Tokyo Electric Power Co. (TEPCO) has quickly admitted that the nuclear plant has sprung another leak. As EFE reports, a small quantity of radioactive water has leaked from a storage tank with 70 microsieverts per hour of beta-ray-emitting radioactivity detected on the surface where the water had leaked, far exceeding the recommended maximum exposure of 0.11 microsieverts per hour. But apart from that it’s “contained.”

  As RT reports,

  A total of 40 milliliters of water was discovered, Tokyo Electric Power Co. (TEPCO), the plant’s operator, said on May 1.

   

  The company believes that the liquid leaked from the storage tank, Japan’s Asahi Shimbun paper reported Saturday.

   

  TEPCO stated that it placed bags of sand around the tank to prevent water from contaminating other areas.

   

  The wet patch measuring 20 square centimeters was discovered by one worker at around 9:30am local time on May 1, it added.

   

  According to TEPCO, seventy millisieverts per hour of beta ray-emitting radioactivity were detected on the surface where the water had leaked.

   

  The leak was detected on the same day as tests began in preparation for the construction of a 1.5-kilometer-long frozen soil wall around the reactor buildings.

   

  A project is aimed at preventing further leaks of radioactive water into the sea from the Fukishima plant.

   

  …

   

  In late April, the water transfer pumps at the Fukushima plant were shut down due to a power outage, leading to the leaking of radioactive water into the Pacific Ocean.

   

  It was preceded by a series of toxic leaks in February, which saw around 100 tons of highly radioactive water leaked from one the plant’s tanks.

  *  *  *
  Good luck at The Olympics…

  

  

  
  
  

  

• What Bubble? Wall Street To Turn P2P Loans Into CDOs

  So far this year, around $38 billion in auto loan-backed ABS issuance has hit the market, around a quarter of which is backed by subprime loans. Meanwhile, America’s $1.3 trillion pile of student debt is likewise being sliced, packaged, and sold even as real delinquency rates (i.e. the rate for students in repayment and stripping out those borrowers in IBR payment plans whose calculated payments are zero) are probably at least 40% if not far higher. All told, around $76 billion in ABS deals went off in Q1 and for 2015, the total should come in at around $200 billion. While that’s a far cry from the $750 billion or so that came to market in 2006, it’s still on par with last year, which saw the highest total since the crisis.

  

  As far as the collateral pools backing the deals, there’s cause for concern. For instance, Moody’s recently warned that some $3 billion in student-loan backed paper was in danger of default, while Skopos Financial (to whom we introduced readers last week), brought a $150 deal to market backed by loans to borrowers whose FICO scores ranged from just 350 to 500. Now, it appears Wall Street is set to feed its securitization machine with a new kind of debt: peer-to-peer loans. You read that correctly. Soon enough, the pool of micro loans that are facilitated by sites like LendingClub will be used to create CDOs. 

  Via Bloomberg:

  Barely a decade old, “P2P” has gone mainstream and is now being co-opted by some of the big financial players it was supposed to bypass.

   

  Investment funds can’t get enough of this business, which involves lending to people over the Internet and hoping they pay you back. Investors are snapping up the loans directly, while the banks are bundling them into securities, much as they did with subprime mortgages.

   

  Now peer-to-peer lending and its Internet enablers like LendingClub Corp., the industry leader, are being pulled into the high-octane world of derivatives. While many hail Wall Street’s growing involvement, others warn investors could get carried away, as they did during the dot-com era and again during the mortgage mania. The new derivatives could help people hedge their risks, but they could also lure speculators into the market.

   

  “It feels like the year 2000 again,” said Frank Rotman, a partner at QED Investors, an Alexandria, Virginia-based venture-capital firm that has invested in Prosper Marketplace Inc., Social Finance Inc. and 13 other P2P lending platforms. “Everyone is chasing ’it,’ but they don’t know what ’it’ is, and that is kind of scary.”

   

  Of course voracious demand is a direct product of central bank policies that have sent investors searching far and wide for yield and they’ve apparently become so desperate they’re now willing to gamble on the payment streams generated by loans made on peer-to-peer platforms.

  It’s easy to see why investors are so enthusiastic. In today’s low-interest-rate world, high-quality P2P loans yield about 7.6 percent. Two-year U.S. Treasuries, by comparison, were yielding a mere 0.6 percent on Friday.

   

  And the same dynamic that drove the housing market off a cliff (and that very soon will do the same for the subprime auto market) is at play with peer-to-peer loans.

  But P2P’s rapid growth also raises questions about the potential risks, including whether the firms involved might lower their standards to stay competitive. During the mortgage boom, Wall Street’s securitization machine fueled questionable lending practices. Derivatives tied to the debt were blamed for spreading their risks around the globe, and then amplifying investors’ losses when the housing market crashed.

  But don’t worry says Mike Edman (who readers will recall knows a thing or two about derivatives), everything will be fine as long as you embed a credit default swap thus allowing investors to bet against the loans by buying protection — this would ‘balance things out’.

  Edman, who runs New York-based Synthetic Lending Marketplace, or SLMX, has some high-profile experience. In the early 2000s, he helped invent a kind of credit-default swap that enabled some Wall Street firms to bet against U.S. subprime mortgage bonds.

   

  But Edman sees little resemblance between the boom-era mortgage market of and the current peer-to-peer market. He said his derivatives will help investors hedge their bets and also improve the pricing of the underlying loans.

   

  Indeed, Edman said the ability to short the loans could curb some of the enthusiasm for this asset class before any of the debt sours.

  This sets up a scenario wherein sophisticated investors could theoretically choose the credits they want to bet against and, with the help of Wall Street, structure a synthetic deal which would then be sold to clueless investors on the premise that a 5% yield is hard to come by these days (so the investor who structured the deal would be buying protection on the tranches while everyone else would be selling protection and picking up the CDS premium, while the bank plays the middle collecting hefty fees).

  We wonder what role LendingClub and other peer-to-peer sites will end up playing in this process and whether the online component and relatively small amounts being lent have the potential to turn the whole thing into an underwriting standard nightmare once these tech startups realize they can get paid for providing securitizable assets.

  

  

  
  
  

  

• Socialists, Central Banks & Credit Is Not Capital

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  It may just be fitting that it is May Day weekend, the old remembrance of the once “great” destructive force of international communism. Of course, it still resonates largely because its proponents view it from the standpoint of actual purity. Stalin, you see, never really practiced it; as such it has supposedly never really been tried. Repeating that lie long enough has left generations susceptible to the same cowing interpretations.

  Normally, these fascinations with Marx and Marxism are left to the ivory towers of academia, who have apparently taken heart to the KGB’s “liberation ideology” and brought it to America’s college youth. I don’t mean for this to be such a political discussion, but it is somewhat unavoidable. After all, one of the most trending topics on Twitter earlier this week, just in time for May Day itself, was #ResistCapitalism.

  The open spaces for this backlash are provided neatly by the recovery that doesn’t exist outside of various DSGE and GARCH models central banks employ to tell us how well they have done. Today’s youth are being inundated with Marxism that once appeared ridiculous in obviousness, but now contains, seemingly, some righteous prescription. This is not just “inequality” but it isn’t apart from it either, as stock bubbles and the very real lack of wage opportunity sharpen this great sense of divide.

  From the perspective of anyone who appreciates actual freedom and free markets, there is an easy answer to the problem – that all these neo-socialists that don’t appreciated the irony of being “afforded” the opportunity to resist and renounce capitalism by all its very successful fruits. They are confused over the nature of capitalism itself, as maybe should not be so unappreciated or unexpected since it has been buried for some decades now. The smartphone technology and the internet fabric that draws it all together, the very means with which the Marxists gather each other for more comforting online serenades about how much better the world would be under more “equal” terms, is actually more ancient. The capitalism revolution of the information age was birthed and came of age long before Alan Greenspan started directing key economic variables from his computer.

  The last two generations have seen nothing but the financial version and have heard it proclaimed and embraced as the true avatar of capitalism. If you were to ask anyone at Occupy Wall Street (if they could be resurrected out of their own anarchical self-destruction) the target of capitalism’s most dire edges, the name of the movement itself gives off the very answer – they view JP Morgan and Goldman Sachs as the true leading lights of capitalism.

  That was never the case before in our history. Banking has always played a special role, and a vital one, but that was because of true money and not so much the dedication that modern pretenders have for debt and credit. The financial domination that came about starting in the 1980’s was unique to the capitalist tradition even though central bankers have claimed to be fully compatible. It is somehow taken as such because the Fed can intrude massively – but only up to a self-determined point. A point, by the way, that keeps getting moved further and further into what was once free asset markets.

  And that is largely the unappreciated factor of the “recovery” such that it actually exists in the real world that is abhorred about it, that central banks do not represent capitalism at all in the 2010’s, if they had at all prior to 2007. They have absconded with the label and betrayed everything about it. The attempts to kill each and every currency, including the modern “dollar”, are not at all consistent with actual capital. Capitalism itself produces and describes a stable currency not one that is manipulated at the whims and will of a central elite authority.

  The purpose of all this intrusive nature through finance is actually to dethrone the defining quality that makes capitalism so useful in society’s advance – dynamic destruction. The central bank, as any central government, abhors discord and disorder, and thus appeals of all its tools to deny dynamic processes in favor of what it thinks amounts to stability. And, indeed, that is exactly what they have produced and exactly what the young Marxists are railing about.

  The fires in Baltimore right now are certainly caused by decades of progressive policies being carried out, that the “investments” of government are the only ones to be made. But what Baltimore has become on a smaller scale, like that of Detroit, has been leaking into the wider system for some time too. The results are exactly the same – if you analyze the major problems of these large inner cities where disturbance is so sharply turning up the common feature is stability; in other words, these places don’t ever change despite the untold promises and unimaginable millions (maybe billions) spent on that direction.

   

  If you are to describe the US (and global economy) right now, stability is exactly the problem. The socialization of money has taken place for exactly that reason, discounting the role of variability in fostering actual economic growth and sustainable advance. Monetary policy is dedicated to a “smooth” existence, one without too much peaks and valleys – and we have certainly attained that if only after an impossibly deep valley. That is the “deflationary vortex.”

  Socialism’s essential appeal is “order”, including the idea of “equality” (of result) within that order. Central banks have been agents with which to attain it, especially that while they heighten the divisions among the supposed rich and poor, they have also guided a massive increase into that latter category. The equality of result has been, through heavy and repeated monetarism, to make more Americans impoverished and thus fulfilling at least parts of the expectations of socialism’s effects.

  For all the supposed divisions with the economics apparatus, it remains highly restrictive to anything but a financial-led recovery. And that is precisely the problem as it relates to socialism. That isn’t capitalism, at all, and the continued reverence for all things banking and interbank are killing whatever chances there are to break free of this malaise before the socialist impulse turns rapidly more intense. The true disappointment of 2008 was that the same framework was left in place, and thus another true crisis might well be necessary to finally get beyond it. However, the longer this goes on, and the tighter Marxists twist capitalism toward the Fed, ECB and BoJ, the greater the possibility that free markets do not come out the other side – at all.

  As all good socialists, central banks have locked the global economy onto but a single path without any possibility of choice. And to do so they have, ironically, taken cues from today’s communists. The lack of recovery is, they say, that pure Keynesianism has never been tried, as even all that Keynes-type stimulus done throughout the years was “not the right” amount or type. And so it is being prepared that we go all through it again, with updated formulas, regressions and theories that don’t amount to the slightest bit of “science” as they are never permitted to be countermanded by actual observation.

  That is, I think, the true appeal of the entire endeavor to begin with, as socialism in all these forms promises not only order and equality but a scientific, and thus objective, means to describe and deliver it. None of those characteristics are true, of course, as even the most complicated and elegant econometrics is essentially a prevarication and twisting of inescapable subjectivity into what can only look like science to those that don’t understand the mathematical limitations – and they are numerous. If there were truly science at the end of all this socialization of money, they wouldn’t be repeating, to all exclusions, the same thing over and over.

  Bernanke argues against the Journal, and Krugman is associated in both and against both, but in reality their disagreements are truly superficial amounting only in the degree to which the same thing has or hasn’t happened; there is no difference between any of them in the formal processes they wish to see.

   

  The Fed has been saying, all along, that the recovery must either be financial in character or nothing at all. If it isn’t driven by credit and debt then they don’t want it. And so they haven’t got it.

  Despite the radical alteration as to what is taught in “business” schools, credit is not capital and it will never be. No amount of math will make it so, but the longer it remains operative the greater the potential we all end up with something even worse.

  Happy May Day Weekend…

  

  

  

  
  
  

  

• WSJ Slams Bernanke's Rambling Blog Post: "Stop Blaming Everyone" For Your Mistakes

  The mainstream is beginning to sound a lot like some fringe blog… A week after the world's largest sovereign wealth fund unleashed a tirade against high-frequency trading and monetary policy distortions, The Wall Street Journal has penned an Op-Ed ramping up its war against Bernanke (and The Fed). What next? Cats living with dogs, mass hysteria, the dead rising from the grave?

  Bernanke threw the first punch… and it landed. Now The Wall Street Journal counters with a colossal combination…

  It’s nice to know we’re being read, and Thursday’s editorial on “The Slow-Growth Fed” sure got a rise out of Ben Bernanke. The former Federal Reserve Chairman turned blogger turned Pimco adviser wrote to defend the central bank and by implication his policies as innocent of responsibility for subpar economic growth.

   

  This is fun, so let’s parse the Revered One’s arguments. First, Mr. Bernanke accuses us of “forecasting a breakout in inflation” at least since 2006. The central banker is getting into the polemical swing, but he’s wild with that one. We’re not always right. But we’ve been careful not to join some of our friends in predicting inflation from the Fed’s post-crisis policies. We’ve written that we are in uncharted monetary territory with risks and outcomes we lack the foresight to predict.

   

  Our view has been that the Fed’s first round of quantitative easing was necessary to stem the financial panic—and that it worked. We were skeptical of the later bouts of QE, and in our view these have been notably less successful in helping the economy return to robust health. Asset prices are up and the wealthy are better off, but the working stiff is still waiting for the economic payoff.

   

  Mr. Bernanke defends the Fed’s over-optimistic economic growth forecasts by saying the central bank has been overly pessimistic about unemployment. “The relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met,” Mr. Bernanke writes.

   

  Now, that’s over-optimism. One reason the jobless rate has fallen to 5.5% is because so many people have left the workforce. The labor participation rate has plunged to 1978 levels during this supposedly splendid expansion. Most economists acknowledge that if the participation rate had stayed constant, the jobless rate would still be close to 8%. The failure to attract the long-term unemployed into the job market is one reason the Fed continues to hold interest rates so low.

   

  Mr. Bernanke’s other defense is the counterfactual that it could have been worse: “It seems clear that the Fed’s aggressive actions are an important reason that job creation in the United States has outstripped that of other industrial countries by a wide margin.”

   

  That’s conveniently unprovable, not least because it doesn’t correct for non-monetary variables. The structural policy impediments to growth in Europe and Japan are far worse than in the U.S., yet Mr. Bernanke implies that the main policy difference is that they waited too long to try QE.

   

  We learned in school that something isn’t a theory if it can’t be tested. Mr. Bernanke’s theory of post-crisis monetary policy is that if it’s working, then do more of it. And if it’s not working, then do more of it too. This isn’t data-driven monetary policy.

   

  Mr. Bernanke also says that we “argue (again) for tighter monetary policy.” If lifting the fed-funds rate to 50 or 100 basis points after six years of near-zero policy is tighter money, then we plead guilty.

   

  But perhaps Ben should consult Stanley Fischer, the Fed’s current vice chairman, who recently said on CNBC that “we are going to be changing monetary policy from the most extremely expansionary we’ve been able to do in all of history to an extremely expansionary monetary policy.” That doesn’t sound like a return to tight money. Lifting rates off zero means beginning an inevitable return to monetary normalcy that lets markets set rates and allocate capital.

   

  We can understand that Mr. Bernanke doesn’t like being tagged with any responsibility for poor economic results. He absolved himself for any mistakes before the financial crisis too. But sooner or later he and the Fed have to stop using the financial crisis as the all-purpose excuse for slow growth. Even President Obama has stopped blaming George W. Bush for everything. Maybe Mr. Bernanke should stop blaming everyone else too.

  *  *  *

  Ouch!

  

  

  
  
  

  

• HFT + Inept Regulators + Fed Distortion = More Flash Crashes

  Submitted by Adam Taggart via PeakProsperity.com,

  As luck would have it, we had Joe Saluzzi lined up to record a podcast the day the news broke recently that the suspected culprit for the 2010 flash crash, Navinder Singh Sarao, had been arrested. Saluzzi is co-founder of Themis Trading LLC, long-time cautionary on the dangers of high-frequency algorithmic trading, and co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio.

  In this discussion, Joe shares his suspicions about Sarao (a contributor to the crash, but highly unlikely to be the actual cause) and then provides his expert assessment of what has been done in the intervening years since the flash crash to safeguard the market against a similar failure (precious little). In his opinion, a winner-take-all high-tech arms race, clueless and toothless regulators, and central bank price distortion are conspiring to make us more vulnerable — not less — to another systemic breakdown:

  What’s happened is the markets have evolved and they've obviously embraced computerization and technology. Some things have been very good for the markets and brought down cost. But regulators don’t seem to have evolved. They don’t seem to have caught up with times and they don’t necessarily have the eyes and ears out there to monitor things on a micro-second or nano-second level.

   

  Just as an example: the FCC has proposed putting together a consolidated audit trail. This came about after the flash crash back in 2010. And we’re five years into this and they’re still out for bid, waiting for someone to bid on the project, and it’s nowhere near completion. And even when it does get completed, it’s still not going to be an all-encompassing view. They won’t be able to see futures, because the CFTC monitors that group. So it will be an incomplete set. It will be better than what they have now — which is called Midas, basically a bunch of a direct data feeds that are supplied by the exchanges. And Midas, by the way, was built by a high frequency trading firm named Trade Works that still gets paid by the FCC over couple million dollars a year for this thing. So it makes you wonder how they're properly equipped to monitor it. And when you see cases like spoofing pop up and you’re like “How could they have missed it”? As you mentioned Eric Hunt from Nanex, he sees this stuff all the time and he tweets it. I mean if I was a regulator I would just follow Eric and I’d say: "There’s an example right there, I don’t have to do the work, I’ll just follow Eric, he’s doing the work"

   

  (…)

   

  What happened to the price discovery mechanism? Is it really being set by fundamental investors who have looked at a company and its long term aspects, or is it now being set by Fed policy or some algorithm that’s tied to one currency pair or another?

   

  And we're getting bubbles in certain areas because no one is really looking at valuations. All they care about is “Okay I made money today and I start fresh tomorrow because every night I go home flat and I start the game all over again”. That’s a scary thought. That’s a scary thought that these multi assets are now playing into each other and the correlation is so tight that when one market sneezes they all catch a cold really, really quickly.

   

  I think we have to blame central bank intervention. How can we not? It’s all around the world. They’re setting interest rates at a ridiculous level. Quantitative easing is distorting all sorts of prices of assets. How do you price things anymore when you have such a giant manipulator out there?

  Click the play button below to listen to Chris' interview with Joe Saluzzi (40m:53s)

  

  

  
  
  

  

• Varoufakis' Father Defends His Son After EU Praises "Significant Progress" Without Finance Minister

  It has been a bad week for the Greek finance minister: first, under pressure from Europe, Tsipras was forced to sideline the “combatied” Varoufakis from future Troika negotiations, then his wife had to protect him from an attack by “young anarchists”, and now – adding insult to injury – an anonymous Greek government official as well as EU sources told AFP, Bloomberg and Reuters that, without Varoufakis present, Greece and its creditors have made “significant progress” and that there were “encouraging” signs from meetings over the weekend.

  As a reminder, Greece is so desperate to get access to any money, last week its pensioners crashed a pension fund board meeting and formed long lines outside domestic banks demanding access to their cash which as delayed due to a “technical glitch.”

  But the far bigger problem is that in the coming three months Greece will need to make billions in interest and maturity payments to Europe.

  Which is why having shown Varoufakis who is boss, Europe is now once again in generous mood and will likely give Greece just enough cash with which Greece can repay what it owes to, well, Europe.

  According to AFP, the talks, which began Thursday, were the first led by economist and junior foreign minister Euclid Tsakalotos, who last week replaced the controversial Varoufakis as head of Greece’s team of negotiators.

  After months of acrimonious deadlock, “the revamped (Greek) Brussels group have clearly improved the process, with a clear schedule for the discussions… and with more experts present with more details,” one source said.

   

  “Talks are constructive,” the source added. “I would even dare to say encouraging.” They will continue on Monday and could last until at least Wednesday, “which is a good sign”, the source said.

  But while the Eurogroup has moved on from negotiating with Varoufakis, the Finance Minister still is confident he is in charge.

  “Yes, I’m in charge. I’m still responsible for the talks with the Eurogroup,” he told the weekly Die Zeit on Thursday.

   

  “I’m supported by various government members, not least by good friend Euclid Tsakalotos. The fact that some media are portraying as if he is replacing me in the talks is just another proof of how low journalistic standards have sunk,” he said.

  …

   

  Varoufakis claimed on Saturday that Greece could manage without a new “loan” if its debt was restructured.

   

  Asked if it could do without bailout funds, Varoufakis told the Efimerida ton Sindakton daily: “Of course it can. One of the conditions for this to happen though, is an important restructuring of the debt.”

   

  He also took a swipe at the eurozone, warning that if it “doesn’t change it will die”, adding that “no country, not only Greece, should have joined such a shaky common monetary system.”

  Varoufakis is of course right. However, unless it gets some funds in the next days, if not hours, Grece will die first as the latest debt repayment schedule shows:

  

   

  The reason why the Troika hatest Varoufakis: he tells the truth, even if he can’t quite make up his mind how to get what he wants: “he said it was “one thing to say we shouldn’t have joined the euro and it is another to say that we have to leave” because backtracking now would lead to “a unforeseen negative situation”.

  Sadly for Varoufakis, his star is now setting almost as fast as it rose, and while last week it was his wife who rushed to his defense, now it is his father’s turn: “the maverick economist’s 90-year-old father, who still heads one of Greece’s leading steel producers, Halyvourgiki, jumped to his son’s defence, claiming his European counterparts were jealous of him.

  Giorgos Varoufakis told the Greek daily Ethnos that the minister’s critics “want to run him down because he is competent. He is not like them. That is why they attack him.

   

  “Yanis is a very good boy, and is always telling the prime minister what to do, which is why he adores him,” he added.

  And is also why Varoufakis’ days as finance minister are numbered as long as Greece believes its future remains with the Eurozone, where the finance minister had made nothing but enemies.

  

  

  
  
  

  

• Why Deflation Is Unlikely

  Submitted by Alasdair Macleod via GoldMoney.com,

  Financial markets are becoming aware that the US economy is stalling, so investors increasingly take the view that with demand likely to stagnate or even fall, prices for goods and services will soften. This is already threatening to be the situation in a number of other advanced nations, with negative interest rates to combat it becoming commonplace. For this reason, gold and silver priced in dollars are expected by many traders to drift lower.

  Putting the prices of precious metals to one side for a moment, there are some serious issues with this analysis. Let us assume for a moment that the US economy does stall; the text-books tell us supply and demand for goods and services will rebalance at lower prices. This was what effectively happened in the wake of the Lehman Crisis, when energy, metals and precious metal prices all fell sharply and large discounts for manufactured capital goods became available. This does not mean that second time round (and a sliding US economy could create the sort of financial strains that make Lehman look like a walk in the park), the same thing will happen again. Indeed, for next time the central banks already have a plan to contain the situation based on their experience in the Lehman Crisis. It involves the rapid expansion of money, which to the Federal Reserve System (“Fed”) at least has been proven on recent experience to have little or no inflationary consequences whatever.

  We therefore know something we did not know in the wake of August 2008, when the imminent collapse of the global banking system drove everyone to increase their cash balances. This time we know that last time’s guarantees of $13 trillion, or whatever sum you care to think of, will yet again be provided by the Fed, backed by hard cash on demand. Forget bail-ins; they are for dealing with one-off bank insolvencies, not a wider systemic crisis.

  Of course it’s tempting to think that a new financial and economic crisis will drive us towards selling anything we can for cash. However, this has not necessarily been the experience of previous monetary inflations: after printing money fails to raise the animal spirits, the consensus often expects a fall in prices, only for the opposite to happen. This was certainly the case in Germany and Austria after the First World War, when economic burdens from the combined destruction of infrastructure and wealth, the loss of productive lives, the end of military spending and the burden of reparations were all expected to overwhelm their respective economies. The result was people briefly preferred to hold onto their savings rather than spend. How wrong they were.

  The political situation then was very different from that of today, but there was an important economic similarity. The rapid acceleration of growth in money supply failed to stimulate the Germanic economies in the preceding seven years. It’s the same today. The mistake is the one identified by Frederik Bastiat nearly 200 years ago with his fallacy of the broken window. We see the dynamics of a failing economy and draw our conclusions from that observation alone. We disregard the previous monetary inflation, and we have yet to see the more rapid expansion of money and credit to come. This is why we do not anticipate the growing certainty that the purchasing power of money will fall and not increase, embarking on the same value-path as the German mark and Austrian crown in 1920-23.

  If a financial crisis is to be averted, the best we can hope for is an economy moving sideways rather than expanding. But there are dangers to this hope, partly from markets that are dangerously over-valued, and partly from the limitations on further private sector debt creation. In short, we are living with a situation that is highly vulnerable to an exogenous shock.

  Meanwhile, the prices of gold and silver reflect the deflationary view to the exclusion of the likely outcome. There is no doubt that many dealers believe that gold and silver are merely commodities, otherwise they would be chasing their prices upwards in a dash for cash. Future historians should be puzzled. Perhaps someone will write a history with a snappy title, such as “Extraordinary Popular Delusions and the Madness of Crowds.”

  

  

  
  
  

  

• Obamanomics Summed Up

  Just keep banging the same old drum…

   

  

   

  Source: Townhall

  

  

  
  
  

  

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• EURO SPY CaM

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  THE REGISTER–According to local media reports Thursday, German intelligence agency BND (the Bundesnachrichtendienst) has helped the US National Security Agency (NSA) spy on the European Commission and French authorities since 2008.

  “When it comes to our role in the world, in a way, it’s good that people are interested in us,” said the ever-sardonic Commission spokesman Margaritis Schinas.

  

  
  
  

  

• Filipinos Asked To Turn Off Fridges To Save Power For Pacquiao-Mayweather Fight

  If there is one thing more likely to incite wide-spread social unrest in the Philippines than watching Manny Pacquiao lose to Floyd Mayweather tonight, it is Filipinos not being able to watch it all… and that is why, as The South China Morning Post reports, residents of the western Philippines are being asked to turn off their refrigerators so there will be enough electricity to watch tonight's fight. However, Rante Ramos, secretary of the electrical cooperative on the island of Palawan, warned, even with help, there is likely to remain a power shortfall and "some circuits may inevitably be switched off."

  As The South Cina Morning Post reports,

  Residents of the western Philippines are being asked to turn off their refrigerators so there will be enough electricity to watch this weekend’s fight between local boxing legend Manny Pacquiao and Floyd Mayweather Jnr.

   

  Rante Ramos, secretary of the electrical cooperative on the island of Palawan, posted the appeal on Facebook on Wednesday, saying that the area faced a power shortfall that might result in an outage on Sunday when the long-awaited fight airs in the Philippines.

   

  “Truth is, come May 3… Palawan grid would still be 2-megawatt short of power supply. Some circuits may inevitably be switched off,” he warned.

   

  “Collectively we can do something. On May 3, let’s all voluntarily switch off or disconnect as many appliances as we could,” he said, asking that about 15,000 homes switch off their refrigerators for a few hours.

   

  He also urged people not to use their washing machines, air-conditioners and irons until the fight is over.

   

  Palawan’s capital of Puerto Princesa has been suffering daily power outages lasting two to three hours due to a supply shortfall.

   

  However the entire nation is eagerly anticipating the “fight of the century” between Pacquiao, regarded as a national figure, and unbeaten American Mayweather to finally answer who is the better pound-for-pound boxer of their generation.

   

  

   

  The fight is going to be shown live in public on widescreen TVs in the city, sponsored by two candidates who are running for mayor in Puerto Princesa elections on May 8.

   

  It will also be shown on a pay-per-view basis in many bars and hotels of the popular resort city.

  *  *  *

  While for now the odds favor Mayweather, here are some champs explaining just how Pacquiao can pull this off…

  

  

  

  
  
  

  

• Paul Craig Roberts: "Insanity Grips The Western World"

  Authored by Paul Craig Roberts,

  Just as Karl Marx claimed that History had chosen the proletariat, neoconservatives claim that History has chosen America. Just as the Nazis proclaimed “Deutschland uber alles,” neoconservatives proclaim “America uber alles.” In September 2013 President Obama actually stood before the United Nations and declared, “I believe America is exceptional.”

  Germany’s political leaders and those in Great Britain, France, and throughout Europe, Canada, Australia, and Japan also believe that America is exceptional, which means better than they are. That’s why these countries are Washington’s vassals. They accept their inferiority to the Exceptional Country — the USA — and follow its leadership.

  It is unlikely that the Chinese think that a handful of White People are exceptional in anything except their diminutive numbers. The populations of Asia, Africa, and South America dwarf those that comprise Washington’s Empire.

  Neither do the Russians believe that the US is exceptional. Putin’s response to Obama’s claim of American superiority was: “God created us equal.” Putin added: “It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation.”

  If all countries are exceptional, the word loses its meaning. If America is exceptional, it means others are inferior for lacking this designation. Inferiors have less rights and can be bullied into submission or bombed into oblivion.

  The Exceptional Country is above all the others and, therefore, doesn’t have to be concerned about how it treats them. Obviously, Americans and their vassals think America is exceptional as the millions of people murdered, maimed, and dislocated by Washington’s wars in eight countries in the 21st century has not resulted in condemnation of Washington. Merkel, Hollande, Cameron and the puppets in Canada, Australia, and Japan still suck up, holding tight to Washington.

  Instead, Russia and Iran, countries that, unlike the US, are not militarily aggressive, are portrayed in the White People’s Media as threats and are condemned.

  The White Media claims, and has claimed since February 2014, that there are Russian tanks and troops in Ukraine. Putin has pointed out that if this indeed was the case, Kiev and Western Ukraine would have fallen to the Russian invasion early last year. Kiev has been unable to defeat the small breakaway republics in eastern and southern Ukraine and would stand no chance against the Russian military.

  Recently a brave news organization made fun of the White Media’s claim that Russian tanks have been pouring into Ukraine for 14 months. The parody pictured Ukraine at a standstill. All traffic on all roads and residential streets is blocked by Russian tanks. All parking places, including sidewalks and people’s front and rear gardens have tanks piled upon tanks. The entire country is immobilized in gridlock.

  Although a few have fun making fun of the gullible people who believe the White Media, the situation is nevertheless serious as it concerns life on planet Earth.

  There is little sign that Washington and its vassals care about life on Earth. Recently, the largest political group in the European Parliament–the European People’s Party–expressed a cavalier opinion about life on Earth. We know this, because, if we can trust Euractive, an online EU news source, the majority EU party believes that declaring the EU’s readiness for nuclear war is one of the best steps to deter Russia from further aggression. The aggression to be stopped by Europe’s declaration of its readiness for armageddon is the alleged Russian invasion of Ukraine, and the “further aggression” is Putin’s alleged intention of reestablishing the Soviet Empire.

  It must be disappointing to the Russian government to see that leaders of the European Union prefer to endorse nuclear war than to challenge Washington’s propaganda.

  When I read that the governing party in the European Parliament thought non-existent aggression had to be stopped by a declaration of readiness for nuclear war, I realized that money could buy any and every thing, even the life of the planet. The European People’s Party was speaking on behalf of Washington’s propaganda, not on behalf of Europe. Europe’s nuclear war with Russia would end instantly with the destruction of every European capital.

  The crazed vice-president of the European People’s Party, Jacek Saryusz-Wolski revealed who the real aggressor is when he declared: “Time of talk and persuasion with Russia is over. Now it’s time for a tough policy.”

  Clearly, the European Parliament is a great danger to life on the planet. Is it realistic to think that Russia will allow herself to become a concubine of Washington?

  

  

  
  
  

  

• Michael Moore: "Disarm The Police… & Release Black Inmates Jailed For Drug Offenses"

  Michael Moore took to Twitter this week to outline his list of demands following the riots in Baltimore: Disarm the police and open prisons.

  As The Washington Times reports, Moore unleashed his own brand of trolling…

  “Imprison u, shoot u, sever your spine, crush your larynx, send u to war, keep u poor, call u a thug, not let u vote. But u can sing for us,” the liberal film director tweeted to his 1.83 million followers.

   

  His comments comes amid violent unrest in Baltimore since the death of Freddie Gray, a 25-year-old black man who died after suffering a severe spinal injury while in police custody. More than 200 people were arrested in clashes with police Monday and Tuesday and more than a dozen officers injured.

   

  “Here’s my demand: I want every African-American currently incarcerated for drug ‘crimes’ or nonviolent offenses released from prison today,” Mr. Moorecontinued. “And the rest who r imprisoned- I don’t believe 50% of them did what they’re accused of. Lies. Greed. A modern day slave system. Poor whites 2.”

   

  “Next demand: Disarm the police,” he wrote. “We have a 1/4 billion 2nd amendment guns in our homes 4 protection. We’ll survive til the right cops r hired.”

   

  “Local cops now militarized. Founding Fathers said NO army policing on our soil. Why do cops have tanks? Oh, right – the Enemy: The Black Man,” Mr. Moore concluded.

  *  *  *

  

  *  *  *

  While most responses on Twitter appeared of the “you f##king idiot”-type, one law enforcemenmt official had a more profound idea…

  @nranews @MMFlint Start pilot project by doing it in his neighborhood. Set up transitional inmate housing where he lives.

  — David A. Clarke, Jr. (@SheriffClarke) April 30, 2015

  

  

  
  
  

  

• Major U.S. Retailers Are Closing More Than 6,000 Stores

  Submitted by Michael Snyder via The Economic Collapse blog,

  If the U.S. economy really is improving, then why are big U.S. retailers permanently shutting down thousands of stores?  The “retail apocalypse” that I have written about so frequently appears to be accelerating.  As you will see below, major U.S. retailers have announced that they are closing more than 6,000 locations, but economic conditions in this country are still fairly stable.  So if this is happening already, what are things going to look like once the next recession strikes?  For a long time, I have been pointing to 2015 as a major “turning point” for the U.S. economy, and I still feel that way.  And since I started The Economic Collapse Blog at the end of 2009, I have never seen as many indications that we are headed into another major economic downturn as I do right now.  If retailers are closing this many stores already, what are our malls and shopping centers going to look like a few years from now?

  The list below comes from information compiled by About.com, but I have only included major retailers that have announced plans to close at least 10 stores.  Most of these closures will take place this year, but in some instances the closures are scheduled to be phased in over a number of years.  As you can see, the number of stores that are being permanently shut down is absolutely staggering…

  180 Abercrombie & Fitch (by 2015)

  75 Aeropostale (through January 2015)

  150 American Eagle Outfitters (through 2017)

  223 Barnes & Noble (through 2023)

  265 Body Central / Body Shop

  66 Bottom Dollar Food

  25 Build-A-Bear (through 2015)

  32 C. Wonder

  21 Cache

  120 Chico’s (through 2017)

  200 Children’s Place (through 2017)

  17 Christopher & Banks

  70 Coach (fiscal 2015)

  70 Coco’s /Carrows

  300 Deb Shops

  92 Delia’s

  340 Dollar Tree/Family Dollar

  39 Einstein Bros. Bagels

  50 Express (through 2015)

  31 Frederick’s of Hollywood

  50 Fresh & Easy Grocey Stores

  14 Friendly’s

  65 Future Shop (Best Buy Canada)

  54 Golf Galaxy (by 2016)

  50 Guess (through 2015)

  26 Gymboree

  40 JCPenney

  127 Jones New York Outlet

  10 Just Baked

  28 Kate Spade Saturday & Jack Spade

  14 Macy’s

  400 Office Depot/Office Max (by 2016)

  63 Pep Boys (“in the coming years”)

  100 Pier One (by 2017)

  20 Pick ’n Save (by 2017)

  1,784 Radio Shack

  13 Ruby Tuesday

  77 Sears

  10 SpartanNash Grocery Stores

  55 Staples (2015)

  133 Target, Canada (bankruptcy)

  31 Tiger Direct

  200 Walgreens (by 2017)

  10 West Marine

  338 Wet Seal

  80 Wolverine World Wide (2015 – Stride Rite & Keds)

  So why is this happening?

  Without a doubt, Internet retailing is taking a huge toll on brick and mortar stores, and this is a trend that is not going to end any time soon.

  But as Thad Beversdorf has pointed out, we have also seen a stunning decline in true discretionary consumer spending over the past six months…

  What we find is that over the past 6 months we had a tremendous drop in true discretionary consumer spending. Within the overall downtrend we do see a bit of a rally in February but quite ominously that rally failed and the bottom absolutely fell out. Again the importance is it confirms the fundamental theory that consumer spending is showing the initial signs of a severe pull back. A worrying signal to be certain as we would expect this pull back to begin impacting other areas of consumer spending. The reason is that American consumers typically do not voluntarily pull back like that on spending but do so because they have run out of credit. And if credit is running thin it will surely be felt in all spending.

  The truth is that middle class U.S. consumers are tapped out.  Most families are just scraping by financially from month to month.  For most Americans, there simply is not a whole lot of extra money left over to go shopping with these days.

  In fact, at this point approximately one out of every four Americans spend at least half of their incomes just on rent…

  More than one in four Americans are spending at least half of their family income on rent – leaving little money left to purchase groceries, buy clothing or put gas in the car, new figures have revealed.

   

  A staggering 11.25 million households consume 50 percent or more of their income on housing and utilities, according to an analysis of Census data by nonprofit firm, Enterprise Community Partners.

   

  And 1.8 million of these households spend at least 70 percent of their paychecks on rent.

   

  The surging cost of rental housing has affected a rising number of families since the Great Recession hit in 2007. Officials define housing costs in excess of 30 percent of income as burdensome.

  For decades, the U.S. economy was powered by a free spending middle class that had plenty of discretionary income to throw around.  But now that the middle class is being systematically destroyed, that paradigm is changing.  Americans families simply do not have the same resources that they once did, and that spells big trouble for retailers.

  As you read this article, the United States still has more retail space per person than any other nation on the planet.  But as stores close by the thousands, “space available” signs are going to be popping up everywhere.  This is especially going to be true in poor and lower middle class neighborhoods.  Especially after what we just witnessed in Baltimore, many retailers are not going to hesitate to shut down underperforming locations in impoverished areas.

  And remember, the next major economic crisis has not even arrived yet.  Once it does, the business environment in this country is going to change dramatically, and a few years from now America is going to look far different than it does right now.

  

  

  
  
  

  

• Goldman Explains The "Self-Fulfilling Loop" Driving Bund Yields

  Last week, we witnessed a rather dramatic sell-off in German Bunds. The rout was attributable to a confluence of factors including, but not limited to, data which appeared to show that euro loans to the private sector rose for the first time in three years, position squaring, the frontrunning of expected positive EGB supply in May, and the suggestion from yet another financial market heavyweight that Bunds represent a compelling short opportunity especially when you can leverage your position and achieve a positive carry along the way. 

  Despite the sell-off and despite the fact that net supply in Germany is expected to be (barely) positive in May, it will turn sharply negative to the tune of €12 billion and €15 billion in June and July, respectively, suggesting rising Bund yields may be a transient phenomenon especially considering the fact that when supply is deeply negative, private market holders should theoretically be able to charge the Bundesbank as much as they want all the way to the depo rate floor, a dynamic which should put pressure on yields (at least for maturities of 5 years and up) going forward. 

  Against this backdrop, Goldman is out summarizing the dynamics of the supply/demand equation for Bunds. Here’s more:

  Unlike other large economies, however, the German government sector was running a surplus of 0.7% of GDP in 2014. On current fiscal policies, as the economy expands this will likely expand, implying an even lower issuance of bonds and larger scarcity effects. We calculate that the Bundesbank will remove 80% of the central government’s gross issuance of government bonds over the next year, compared with 40% in Italy, Spain and France (where redemptions and the new deficit are larger). If the amount the Bundesbank removes from the bond market is couched in budget surplus equivalent terms (i.e., a reduction in net issuance of securities), it would be in the order of around 6% of German GDP. Going by historical relationships, a surplus of this size would lower 10-year Bund yields by 60-70bp, controlling for short rates and macro conditions. Even so, Bund yields should not trade lower than 50-75bp – which suggests there are also other factors depressing yields.

   

  

  
  

  PSPP then, will soak up more than three quarters of gross supply in Germany, which is twice as much in percentage terms as what NCBs will take down in Italy, Spain, and France. Meanwhile, some 40% of purchase-eligible German bonds are in foreign hands…

  The breakdown of ownership is also playing in favour of lower yields. Two-thirds of German government debt – the risk-free asset par excellence – is held by non-German residents. No official statistics are available for how the share in the hands of foreigners is divided between other residents of the Euro area and investors outside the currency union. Combining data on foreign balance sheets with anecdotal information, we believe that as much as 40% of the stock of German securities may now be held by investors residing outside EMU. A broader diversification across the Euro area sovereign markets has been held back by the large credit rating gap that still exists between the core countries and the periphery, and ongoing tensions surrounding Greece. 

  Finally, Goldman reminds us that the structure of PSPP has a tendency to create sell-fulfilling prophecies…

  Last but not least, the ECB has stated that bonds yielding less than negative 20bp (i.e., the deposit rate) would not be eligible for purchase. Alongside this, it has set constraints on how much of each specific security it wishes to own. As the decline in yields that has followed the liquidity injections has made its way to intermediate maturities, the market has extrapolated that the Bundesbank would have to purchase a larger share of longermaturity bonds to fill its quota. This is a self-reinforcing expectations loop, where lower yields beget lower yields. Given its nature, the loop can also switch direction. As yields rise, more bonds become eligible for central bank purchases, and the price action goes into reverse. What we have seen in recent days has offered a taster of these dynamics, especially at the very long end of the German yield curve. 

  We would note that this type of feedback loop could be rather dangerous in a market that is becoming structurally very thin — that is, combining collapsing market depth with a “self-reinforcing expectations loop” that can quickly push long-end yields higher at the drop of a dime seems to be a decidedly risky proposition. Combine this with the fact that supply is set to go negative again in June and July which could push yields quickly lower, and the stage is set for a volatile summer in the Bund market.

  

  

  
  
  

  

• The Secret Mountain Our Spies Will Hide In When Washington Is Destroyed

  Submitted by William M. Arkin via PhaseZero,

  

  It’s after midnight. From this mountaintop perch, he can still see the radioactive remains of what used to be Washington, D.C., illuminating the horizon as he exits the helicopter. The nuclear glow serves as stark proof that the intelligence community failed to foresee and prevent the worst, but at least someone was smart enough to build this mountain bunker in rural Virginia for him and his fellow spies to regroup and survive. He opens the reinforced steel door and begins his descent.

  This isn’t paranoid conspiracy fiction. This exact scenario was played out this week.

  America’s Preparathon, yesterday’s national pep rally—brought to you by the Department of Homeland Security—tipped me off to this real underground bunker north of Charlottesville, Virginia. The bunker’s purpose is completely secret, though I was easily able to verify that it has been expanded and spiffed up in the years since 9/11 at a cost of tens of millions of dollars. It serves as a compact parable for everything that is wrong with government.

  Yesterday’s Preparathon was described by its sponsor FEMA as “a grassroots campaign for action.” Washington’s definition of action is lining up and marching, saluting, and following orders. But there’s a secret definition, written between the lines of the Constitution and public laws: Officialdom evacuating from disorderly and disobedient America before the citizenry catches up or catches on. 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.

  

  Its called continuity of government, and it’s been refined over the years to anticipate foreign invasion, nuclear war, catastrophic accident, rioting and citizen unrest, an electromagnetic pulse above the capital, a catastrophic failure of critical infrastructure, a malicious hacking of the electrical grid, terrorist attack, hurricanes and earthquakes, an asteroid from space—you name it. The spigot opened after 9/11, gushing tax dollars into this subterranean world of never again, but just in case. If our all-seeing, all-knowing national security establishment fails…well, the White House and the Generals and the Departments large and small all have plans to depart the capital city and recover.

  But what about the spies?

  And so as it goes in Washington, the self-interested predictors of world events decided after 9/11 that they, too, needed their own continuity operation. That’s right: the very people who will fail to predict the Big One will need somewhere to go and keep writing their reports.

  Which brings us to Peters Mountain. This year, for the first time, the office of the Director of National Intelligence announced that it would be participating in the Preparathon with something called the National Intelligence Emergency Management Activity (NIEMA). The DNI merely describes NIEMA as providing “the framework, platforms, and systems to enable the Director of National Intelligence to lead an integrated and resilient [intelligence community] enterprise capable of sustaining the ‘intelligence cycle’ under any crisis or consequence management event, both at our headquarters and at our alternate operating locations” (my emphasis).

  But job descriptions, contracting documents, insider resumes, and furtive discussions with Washington sources reveal that this little-known “activity” is a $100-million-a-year disaster playpen. At its 24/7/365 Response Operations Center (at a classified location), watch officers provide what’s referred to as “situational awareness and crisis support” to the nation’s leaders; and when that fails, they evacuate to their classified alternate facility, which sources say is in Albemarle County in central Virginia.

  There is really only one candidate—a mysterious facility atop Peters Mountain, roughly 16 miles east of Charlottesville—and it’s undergone a $61 million plus renovation since 2007.

  For decades, there’s been speculation about just what Peters Mountain is, this Cold War artifact on the outskirts of Washington, part of a string of “hardened” communications nodes built to survive nuclear war in the 1950s. It’s a favorite of internet conspiracy types, but no one seems to know what it is, other than the fact that the land it’s on is officially owned by AT&T. And if that’s not clear, there’s an AT&T logo newly installed on the top of the mountain itself, a helicopter pad built for this don’t-pay-attention-to-us blank spot on the map.

  “I always heard stories about how it was a Nuclear Missile base, or a super communications hub. But the coolest one was the rumor that on 9/12/2001 Anti-Aircraft Artillery went up the mountain and has not come down. There is a big paved road that goes to the top off of Turkey Sag Rd. [sic] which is a gravel road and tractor trailers are always going up the mountain with covered loads. There are all sorts of Gov’t signs about private property and no trespassing. From Gordonsville at night the top of the mountain is lit up like a Christmas Tree with a lot of blue lights which I thought was weird. and you can see vehicles driving around.”

  

  I went down a rabbit’s hole of research trying to confirm that this indeed is an intelligence community bunker, scouring the records of Albemarle County and pulling the planning, construction and tax records for the land parcel, which is indeed described as belonging to AT&T, though it is listed as “vacant residential land” of no value.

  

  The building permits that have been submitted to the county since 2007— B200701545AC dated 07/03/07; B201302542ATWR dated 10/29/13; and B201402314AC dated 11/12/14 — amount to $61,124,583.00 in interior and exterior alterations, including the building of that helicopter pad, a new bunker entrance, “alteration to interior spaces,” and installation of two new satellite dishes.

  So this vacant residential land of no value, which has seen tens of millions of dollars in construction activity, is obviously something other than its cover. The county itself, in its useful GIS property viewer, shows the “vacant” residential land clearly houses several buildings.

  

  

  Google and Bing each have satellite views of the mountain top, showing the same structures and the progress of construction since 2007.

  

  

  The two large structures on top of the mountain, to the left of the helicopter pad, are assumed to be vent stacks and hardened power and communications antennae. Two satellite dishes added after 9/11 are also now apparent, suggesting autonomous and enduring communications.

  

  Nothing in the federal budget or in the county records suggests any government occupation, and nothing refers to NIEMA or the intelligence community. That again comes from sources who have worked for the DNI and its continuity activity. They describe the national Warning, Alert, and Mobilization System (WAMS) which would alert a select group of civilian executives from across the intelligence community to deploy to the bunker. The alert would come from “The Communicator” Automated Notification System and would take two forms: alerts for everyone and alerts for the “core” participants. Because Washington is notorious for traffic congestion, those so-called core participants, those who have to move away from Washington within minutes of notification, would congregate and board helicopters which would take them away.

  We sent a Gawker scout out to look at Peters Mountain Road this morning, to see if indeed there were men with guns and U.S. government insignia warning hikers to stay clear.

  

  “Road closed” to him meant road closed, and he declined to drive further. County maps do not show the road as being closed or restricted in any way (bottom left hand corner, parcel 36-11A SCC). I guess that’s the prerogative of those who live in the shadows.

  

  The bunker is built. It’s regularly exercised. It’s ready to go, joining Mount Weather and Raven Rock and the Olney bunkers that dot the west, north, and east of the capital. As the government —and now the intelligence community—button-up to protect themselves during a disaster, the helicopter pilots and drivers and the guards and the rest of the unchosen (even those who work for the same organizations) are supposed to just stay outside, always a scenario I find difficult to imagine. How would this exactly work, this glorious evacuation of a select few? “Honey I’m off to a secret mountain to survive Armageddon, good luck?”

  And as for the local officials and people of Charlottesville, huddled in darkness without electricity, staring up at the blue-lit mountain glowing in the night on generator power? Well, they will just have to wait for the report to be written that it’s all clear, or for the one that says it’s all over, in which case Peters Mountain will be a lonely island, prepared for a future of nothingness. And there’s a report on that too, required to be submitted every 12 hours: It’s called the IC Health and Status report—health and status of the intelligence community, that is.

  

  
  
  

  

• 1%-ers Encounter An Unexpected Parking Problem At The Kentucky Derby

  “Sir, we know you spent $13,000 on a seat for the Derby but as you can see, we are full. Please take your Citation over to Lexington. We hear they have some spots.”

  

  Source: NBC

  

  

  
  
  

  

• Buffett Loses A Bet, Fails To Pay… Again

  On a day full of exultation for The Oracle of Omaha, we could not help but see the irony of Warren Buffett losing yet another bet and not paying up…

  The two richest men in the world face off. Buffett doesn't pay up. pic.twitter.com/m0PMUZpWWU

  — Chris Dignam (@Chris_Dignam) May 2, 2015

  Now where have seen this before? Rolfe Winkler explains… Buffett's Betrayal… (from 2009)

  When I was 14, Warren Buffett wrote me a letter.

   

  It was a response to one I’d sent him, pitching an investment idea.  For a kid interested in learning stocks, Buffett was a great role model.  His investing style — diligent security analysis, finding competent management, patience — was immediately appealing.

   

  Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company’s annual meeting.  I was hooked.  Today, Buffett remains famous for investing The Right Way.  He even has a television cartoon in the works, which will groom the next generation of acolytes.

   

  But it turns out much of the story is fiction.  A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

   

  Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money.  The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

   

  To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. (Click chart to enlarge in new window)

   

  

   

  Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed.

   

  And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.

  Banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity.  With $7 billion at stake, Buffett is one of the biggest of these shareholders.

   

  He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.

   

  Keeping this in mind, I was struck by Buffett’s letter to Berkshire shareholders this year:

   

  “Funders that have access to any sort of government guarantee — banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella — have money costs that are minimal,” he wrote.

   

  “Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that … are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.”

   

  It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.

   

  Elsewhere in his letter he laments “atrocious sales practices” in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.

   

  Conveniently, he neglects to mention Wells Fargo’s toxic book of home equity loans, American Express’ exploding charge-offs, GE Capital’s awful balance sheet, Bank of America’s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachs’ reckless trading practices.

   

  And what of Moody’s, the credit-rating agency that enabled lending excesses Buffett criticizes, and in which he’s held a major stake for years?  Recently Berkshire cut its stake to 16 percent from 20 percent.  Publicly, however, the Oracle of Omaha has been silent.

   

  This is remarkably incongruous for the world’s most famous financial straight-shooter. Few have called him on it, though one notable exception was a good article by Charles Piller in the Sacramento Bee earlier this year.

  Buffett didn’t respond to my email seeking a comment.

   

  What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but he’s chosen to spend his considerable political capital protecting his own holdings.

   

  If we learn one lesson from this episode, it’s that banks should carry substantially more capital than may be necessary.  You would think Buffett would agree. He has always emphasized investing with a “margin of safety” — so why shouldn’t banks lend with one?

   

  Yet he mocked Tim Geithner’s stress tests, which forced banks to replenish their capital. Why? Is it because his banks are drastically undercapitalized?  The more capital they’re forced to raise, the more his stake is diluted.

   

  He points to Wells Fargo’s deposit funding model being more robust than investment banks’, but that’s no excuse for letting tangible equity dwindle to three percent of assets.  At that low level, the capital structure would have collapsed were it not for bailouts.

   

  And by the way, the strength of Wells’ funding model is a result of FDIC insurance, among the government subsidies Buffett complains about in this year’s letter.

   

  To me this feels like a betrayal.  There’s a reason he’s Warren Buffett and not, say, Carl Icahn.

   

  As Roger Lowenstein wrote in his 1995 biography of Buffett, “Wall Street’s modern financiers got rich by exploiting their control of the public’s money … Buffett shunned this game … In effect, he rediscovered the art of pure capitalism — a cold-blooded sport, but a fair one.”

   

  But there’s nothing fair about Buffett getting a bailout, about exploiting the taxpaying public for his own gain.  The naïve 14-year-olds among us thought he was better than this.

   

  What would Ben Graham say?

  *  *  *

  America, F##k Yeah!!

  

  

  

  
  
  

  

• Texas Republican Blasts Governor's "Embarrassing" & Irrational Response To Jade Helm

  On Thursday, we reviewed the official, unclassified Jade Helm 15 slide deck and remarked on some of the more amusing aspects of the US Special Operations Command’s upcoming two-month-long fake covert invasion of Texas, New Mexico, Colorado, Utah, Arizona, Nevada, and California. For those unfamiliar, Jade Helm is a training exercise wherein Green Berets, Navy SEALS, Marines, and other members of the armed forces will “practice core special warfare tasks, which help protect the nation against foreign enemies.” 

  Essentially, the states listed above were chosen because the army figures the landscape approximates the terrain and environmental conditions US armed forces may face in a modern overseas conflict, but predictably, the government didn’t do the best job of explaining things and in a particularly awkward section of the presentation entitled “Why Texas?”, the Spec Ops Command stumbled through a hilariously condescending account of why the Lone Star state was perfect for the drills. Here is how we summarized it:

  Next is the section entitled “Why Texas?” wherein the US Army Special Operations Command first explains how patriotic Texans generally are, then hilariously proceeds to suggest (in as polite a manner as possible) that the Lone Star state 1) resembles the type of desert wasteland soldiers might expect to encounter in a modern overseas conflict, 2) is just underdeveloped enough in many areas to give trainees an idea of what it might be like to be operating undercover in a hostile Middle Eastern country, 3) is home to the type of xenophobia which will make the locals approximately as skeptical of “outsiders” as the inhabitants of an occupied country might be but who are at the same time just gullible enough to be tricked into trusting the “invaders,” and best of all 4) is home to social and economic conditions that any normal American would consider “unfamiliar.” 

  Ultimately, some concerned citizens hailing from Bastrop voiced their skepticism about the exercises to Lt. Col. Mark Lastoria at an information session last Monday. Among the theories floated by the crowd: the government is preparing to confiscate Texans’ guns, the army is gathering intelligence on the way to instituting martial law in Texas, and the Special Ops Command may bring in ISIS fighters (presumably to make the exercises more realistic). In the end, Governor Greg Abbott got wind of these voters’ concerns and took the rather unusual step of calling on the Texas Guard to supervise the Jade Helm drills, prompting us to remark that “you now have a Texas governor pitting the Texas Guard against the US Special Operations Command amid fears the federal government — possibly in conjunction with Wal-Mart — is using special forces to gather intelligence on the way to taking over the state.” Our concerns about the creeping militarization of US communities notwithstanding, we can’t help but find the entire spectacle entertaining.

  Now at least one Texas Republican seems to think the Governor’s move might have marked Jade Helm’s full retard moment because as you can see from the following letter, 16-year Texas House member Todd Smith thinks the decision to have the state guard monitor the US military is nothing short of preposterous.

  Dear Governor Abbott, 

   

  Let me apologize in advance that your letter pandering to idiots who believe that US Navy Seals and other US military personnel are somehow a threat to be watched has left me livid. As a 16 year Republican member of the Texas House and a patriotic AMERICAN, I am horrified that I have to choose between the possibility that my Governor actually believes this stuff and the possibility that my Governor doesn’t have the backbone to stand up to those who do. I’m not sure which is worse. As one of the remaining Republicans who actually believes in making decisions based on facts and evidence- you used to be a judge?- I am appalled that you would give credence to the nonsense mouthed by those who instead make decisions based on internet or radio shock jock driven hysteria. Is there ANYBODY who is going to stand up to this radical nonsense that is cancer on our State and Party? It is alarming that our State Republican leadership is such that we must choose between DEGREES of demagoguery. I know that in many cases you are the better of the two demagogues (see the Lieutenant Governor driven nut job rant regarding your Pre-K program as a recent example). Having been there, I also know that politicians are not always able to speak their mind because they represent large groups of people and not just themselves. But this bone that you have thrown to those who believe that the U.S. Military is a threat to the State of Texas is an embarrassing distance beyond the pale. You are Governor of Texas! This is an open request—from a ghost of our State’s recent Republican past—that you act like it. Enough is enough. You have embarrassed and disappointed all Texans who are also informed, patriotic Americans. And it is important to rational governance that thinking Republicans call you out on it.

   

  Sincerely, 

  Todd Smith

   

  Below is Smith’s letter followed by the original from Abbott to Texas Guard commander “Jake” Betty.

  Letter to Governor Abbott

  Abbott Jade Helm

  

  

  
  
  

  

• Charlie Munger Compares Greece To a "Frivolous, Drunken Brother-In-Law"

  Having previously effused over gold and holocaust jews, bailouts, and handouts, Buffett & Munger took aim at Europe, well more implicitly Greece, during today’s annual octagenerian-fest.

  • Munger on Euro strains: You shouldn’t create a partnership with your drunken, shiftless brother in law.
  • And Buffett’s (implicit Grexit) retort: the euro can and probably should survive but it will take some changes…

  As he previously said, Germany must stop Greek dog peeing on its rug.

   

  

   

  Buffett added…

  • *BUFFETT SAYS EURO IN ITS PRESENT FORM WON’T WORK
  • *BUFFETT SAYS EURO IS FLAWED BUT CAN BE CORRECTED

  With just a little hard austerity or Grexit?

  *  *  *

  And here are some previous pearls of wisdom to the plebes coutesy of Chuckie Munger:

  Stop whining about bailouts: “Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”

   

  Stop whining for moar handouts: “There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be…  At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’“

   

  Gold: “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939 but civilized people don’t buy gold – they invest in productive businesses.”

  *  *  *

  So they are both well worth listening to, we are sure.. since they have so much money.

  

  

  
  
  

  

• The High Cost Of Centrally Planning The Global Climate

  Submitted by Ryan McMaken via The Mises Institute,

  Since I’m not a person who follows the climate-change debate or climate science in detail, I don’t get involved in discussions over temperature readings or climate trends. On the other hand, I find it’s a very bad idea to leave the science of economics and political economy up to climate scientists and their friends in politics who tend to be woefully deficient in their knowledge of how economies work or how scarce goods and amenities can be preserved, obtained, or manufactured.

  It seems that for the global warming lobby, all that is necessary to set everything right is to hand control of the global economy over to governmental central planners. In their minds, the machinery of government only needs to be set in motion, and everything will be done with righteous precision to preserve the climatological status quo by increasing the cost of energy and cutting economic activity. The costs of such a venture, whether in money or in human lives and human comfort, need never be considered, because, we are told, the only alternative is the total destruction of planet earth.

  This “Follow Us or Die!” routine is a propagandist’s dream of course, but in real life, where more rational heads — on occasion — prevail, the costs of any proposed government action must be considered against the costs of the alternatives. Moreover, the burden of proof is on those who wish to use government, since their plan involves using the violence of the state to carry out their proposed mandates.

  For the sake of argument, let’s say that global climate change is occurring and that the sea level is rising. This still leaves several unanswered questions for the global warming enthusiasts:

  1. What is the cost of your plan to various populations in terms of the standard of living and human lives?
  2. Is the cost of your plan greater than or less than the cost of other solutions, such as the gradual relocation populations from coastal areas.
  3. Can you show that your plan has a very high probability of working, and if not, why should we implement it when we could spend those same resources on other more practical solutions and more immediate needs such as clean water, food, and basic necessities?

  All too often, the response to questions such as these are angry diatribes about how we must act now. But of course, such a position is similar to that of a person who, upon seeing that winter is approaching demands that everyone build the winter shelter his way immediately. “Can’t you people see it’s getting colder?” he says. “If we don’t build the shelter my way, we’ll all freeze.” When faced with questions of whether or not his shelter plan is really the best way to proceed, or if a different type of shelter might be more cost effective, or if others would rather build their own shelter, he angrily declares “you winter deniers don’t care if we all die.”

  Naturally, if the group then goes ahead with their belligerent companion’s shelter plan, they may find in the end that the shelter fails to keep out the cold or is structurally unsound. In that case, the group is actually much worse off because it expended large amounts of valuable resources that should have been applied elsewhere.

  The True Costs of Global Climate Regulation

  Here’s a representative paragraph from a publication that claims it disproves the “myth” that economic controls will have a negative impact on the economy:

  In the long term, unless we drastically reduce the rate at which we are still emitting greenhouse gases, we are very likely to incur huge costs as a result of climate change. Part of these costs will be in adaptation, and the inevitable disruption. In part costs will escalate due to turmoil and uncertainty throughout the economic world. There will also be costs that cannot be quantified, particularly when we try to value a human life and its loss.

  What are these “huge costs”? How many of them will come from “disruption” and how many will come from “adaptation.” If we look more deeply into the proposed plans, we find the attempts at estimating such costs are based on wildly speculative computer models. There is nothing more than the assumption that their course of action is superior to the course of action preferred by others. But again, the burden of proof is on those who wish to use government coercion against others.

  Moreover, even the mainstream research recognizes that the proposed cuts in carbon emissions, such as cutting “CO₂ emissions to 80 percent of 1990 levels,” are purely arbitrary. Indeed, they must be arbitrary because the people who advocate for such measures have no idea how much carbon emissions should be cut to accomplish their goals, or indeed, if any level of cuts would accomplish their goals, ever.

  What we do know, on the other hand, is that fossil fuel energies are behind most of the enormous progress made in the developing world. They make mechanization, transportation, and industrial economies possible. It is the rise of factories and other industrial operations that have pulled countless millions of Chinese (to name one example) out of the drudgery of low-productivity agricultural work and into factories where they can earn more than ten times as much. These workers send money back to elderly family members and they make possible the enormous savings rates that are driving the Chinese economy.

  This work is safer, more productive, and provides access to more and better food, better medical care, and better housing, than does agricultural work.

  Fossil fuel energy is a key factor in all of this, and to propose that the rug now be pulled out from under these people displays a callousness toward humanity that is truly unnerving.

  But, the global warming lobby may say, “the effects of global warming will hurt them.” Perhaps. And if so, they need to prove to us that the costs of global warming will be greater than the costs of making these people less productive, poorer, and possibly destitute.

  Less Energy Use Means Less Clean Water

  A second major factor here in the necessity of energy is fresh water. The California drought has reminded us that fresh water is a scarce resource, even if the government likes to treat it as if it were not. But even as larger populations demand more water, fresh water can be produced through the use of energy via desalinization and pump-based aqueducts.

  Today, most such schemes are still uneconomical because the problem of water scarcity can usually be solved through cheaper means such as importing food from wetter climates and through cheaper aqueduct systems that are primarily gravity-based.

  In the future, however, as water does become more and more scarce as populations grow, the most practical answer will indeed become more energy-intensive solutions.

  By centrally planning and artificially limiting energy usage, however, what the global warming lobby wants to do is raise the price of water processing, and by limiting the use of such methods, also inhibit technological progress by preventing practical experience in the use of water processing and fresh water production.

  Bizarrely, many of these same people claim that government regulation of water is necessary because “rich people” will hoard all the water, but by raising the cost of water processing, the global warming lobby is ensuring more monopolistic control over water and higher prices for everyone.

  “But global warming is causing droughts!” some will say. Perhaps. But those people still have yet to prove that their plan will end droughts and produce sufficient water for everyone. They still can’t even prove that droughts like the California drought are due to global warming. And, needless to say, the proposition that global controls on energy will make water flow from the hillsides in some distant future is pure speculation. But, in the meantime, we know the effect on the cost of living for ordinary people will be enormous. In other words, the global warming lobby wants humanity to abandon a real bird in the hand — developing technology in water production — for two very theoretical birds — a future without droughts — in the bush.

  An Experiment Built on the Backs of the Most At-Risk Populations

  Thus, a world of carbon controls and other central plans designed to prevent global warming, is a world of greater expense for everyone when it comes to food, water, and any basic necessity that involves the expenditure of energy. Which is to say, most everything. Naturally, the people in the least industrialized and poorest parts of the world will suffer the most. The global warming lobby likes to point out that their global warming policies are primarily directed at the richest countries. But if they think that will spare the developing world, they’ve only made clear that they don’t understand how global economies work. Crushing economic activity and consumption in the developed world only serves to lower wages and economic growth in the developing world.

  Like the man who hysterically demands that everyone build a winter shelter his way or die, the global warming lobby thinks that its highly speculative, unproven, massively expensive, and poverty-producing plan is the prima facie solution to everything. Naturally, they want to use the coercive power of the state to force everyone to conform to their plans as well, and if a billion poor people have to pay a steep price, well, that’s a price that wealthy and upper middle-class academics and activists are willing to have the poor pay.

   

  

  

  
  
  

  

• Did A Tap On The Shoulder "Prevent" The US Economy From Sliding Into Recession?

  The US Ministry of Truth has been hard at work the last month and nowhere is that more evident than in the blatant "tap on the shoulder" that The National Association of Credit Managers must have got this week… to revise their catastrophic indicators back to 'stable'…

   

  Two weeks ago we highlighted what was a stunningly clear indication of the looming recessionary environment (that The Atlanta Fed is now also seemingly suggesting and is consistent with the worst collapse in macro data since 2008). The largest spike in 'credit application rejections' indicated a credit crunch and "serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward."

  According to the CMI, the Rejections of Credit Applications index just crashed the most ever, surpassing even the credit crunch at the peak of the Lehman crisis.

   

  This can be seen on the chart below.

   

  

   

   

  And without any new credit entering the economy, a recession is all but assured.

  More details on what may be the most critical and completely underreported indicator for the US economy. The report continues, with such a dire narrative that one wonders how it passed through the US Ministry of Truth's propaganda meter:

  By far the most disturbing is the rejection of credit applications as this has fallen from an already weak 48.1 to 42.9. This is credit crunch territory—unseen since the very start of the recession. Suddenly companies are having a very hard time getting credit. The accounts placed for collection reading slipped below 50 with a fall from 50.8 to 49.8 and that suggests that many companies are beyond slow pay and are faltering badly. The disputes category improved very slightly from 48.8 to 49, but is still below 50. This indicates that more companies are in such distress they are not bothering to dispute; they are just trying to survive. The dollar amount beyond terms slipped even deeper into contraction with a reading of 45.5 after a previous reading of 48.4. The dollar amount of customer deductions slipped out of the 50s as it went from 51.8 to 48.7. The only semi-bright spot was that filings for bankruptcies stayed almost the same—going from 55.0 to 55.1. This is the one and only category in the unfavorable list that did not fall into contraction territory and that suggests that there are big, big problems as far as the financial security of these companies are concerned.

  Which NACM summed up thus:

  The rejections of credit applications is as miserable as it has been since the depths of the recession—going from 45.9 to 42.0.These are very bad readings and it will take a good long while to climb out of this mess.

  *  *   *

  Soon after we exposed this shocking hole in the US economic growth meme, the sell-side banks exploded into a fit of narrative recomposition and excuse-finding…

  Goldman Sachs "narrative"…

   

  Credit standards tightened sharply during the Great Recession and have gradually eased over the past few years. However, a recent sharp deterioration in the NACM Credit Managers’ Index—a series which has typically not generated much market interest—has prompted questions about whether credit standards are tightening anew.

   

  The NACM index captures terms of trade credit extended to businesses by suppliers. As such, it does not reflect directly on credit standards imposed by commercial banks on C&I, CRE, mortgage, or consumer loans. The recent downturn in the index appears to be partly related to more cautious credit extension from suppliers to smaller energy sector firms. Even so, the extent of the recent weakness is surprising.

   

  Despite a reasonable narrative for credit tightness in the energy sector, the fact that the NACM index is a diffusion index should naturally down-weight extreme changes among a limited subset of respondents. As a result, the extent of recent weakness appears surprising. According to our equity analysts, large producers of industrial machinery have generally not indicated significantly tighter terms of trade credit, and auto dealers do not seem to be facing difficulty obtaining floor plan financing (i.e. financing inventories). In addition, C&I loans—the closest analog to the coverage of the NACM index with regard to bank lending—has continued to grow at a healthy rate according to the Fed’s weekly H.8 release, although changes in credit conditions are likely to show up in loan growth only with a lag. Finally, credit-related questions in the NFIB's small business survey revealed a slight tightening in March, but not nearly as much as suggested by the NACM index.

   

  Overall, absent deterioration in the SLOOS data—which is more comprehensive and in our opinion probably more reliable—we would be reluctant to read too much into the recent volatility in the NACM index with regard to broader credit conditions.

   

  UBS "narrative" before…

   

  Credit is the lifeblood of the world economy, and we believe the retrenchment of lenders from extending new credit is a highly reliable leading indicator of future problems for borrowers and the economy at large.

   

  ...recent monthly surveys from the National Association of Credit Management’s Credit Managers Index (CMI) paint a picture in stark contrast. Simply put, measures of trade credit (the financing of receivables and inventories) have deteriorated sharply from January to March and are at their worst level since the financial crisis. We believe this data point should not be dismissed, and is an indication of the negative credit ramifications from dollar strength and falling EM demand.

   

  It may indicate that stressed borrowers are reaching for a lifeline and getting rejected. This was seen during the financial crisis when demand for trade financing increased even as banks cut supply.

   

  And UBS "narrative" after…

   

  The severe drop in the NACM credit market index has been revised away. In a recent economic comment titled "Credit Controversy", we had called attention to the National Association of Credit Management Credit Market Index, which plummeted in March. That weakness has now been partly revised away, and April data suggest stabilization. The credit market index has certainly softened, but its decline more closely resembles earlier soft spots during the current expansion. Before this revision, it had more closely resembled the runup to the credit crisis.

   

  And BofAML "narrative" destroying NACM data…

   

  Periodically an obscure economic indicator or survey pops up on the radar screen, suggesting something big is happening in the economy. The latest example is the Credit Manager’s Index.

   

  Before we hit the panic button, consider four facts. First, it only deals with trade credit – credit a firm extends to its customers (typically other firms) to facilitate sales. It is not a measure of bank credit or credit more broadly in the economy. To the extent that a lack of trade credit would ultimately hurt sales, the recent decline may be self-limiting. Second, it appears to be a relatively ad hoc survey, so it is possible that the addition or exclusion of a few key respondents could significantly move the index – although the group that puts it together suggests that is not the case.

   

  Third, it fell largely because of a collapse in just two of the ten components in this index: “amount of credit extended” and “rejection of credit applications” (where a drop in the former means less credit extended while a drop in the latter means a larger number of rejected applications). So there is apparently some sort of minicrunch in trade credit according to this sample. Finally, despite its alleged great prediction record it didn’t drop below 50 in 2008 until after the recession had started. The “rejection of credit applications” component, that is signaling disaster today, didn’t drop below 50 until the middle of the recession.

   

  In sum, like many such indicators this survey probably is useful for members of the narrow industry it covers. However, there is a good reason why macroeconomists like us had never heard of the survey.

  *  *  *

  And so – after all that – we get April's data from NACM. If ever there was a more clear indication of a firm getting a major tap on the shoulder to 'fix' the data or face 'consequences' this was it. Against a background of detrimental commentary from Goldman Sachs, BofAML, and UBS, NACM revised (massively) the last two months data, in their words, "to be "more consistent with the numbers that had been seen throughout the past year," instantly removing any looming recessionary indicator (along with any credibility they had). NACM explains their "revisions":

  The big declines in amount of credit extended in February and March have been revised from 52.1 and 46.1 respectively to 60.5 and 60.6 – more consistent with the numbers that had been seen throughout the past year.

   

  The numbers for rejections of credit applications went from 48.1 in February to 51.4 and March went from 42.9 to 2.6.

   

  The remainder of the categories were unchanged…

  NOTE: How exactly does one revise survey respondents answers from the last two months? Ask then again now how they felt in Feb? Did they lie at the time about the credit application rejections? The CMI polls 1,000 trade credit managers across the US and asks respondents to qualitatively assess changes in lending conditions from prior months. The index constructed is a diffusion index, similar to PMI indices (any readings greater than 50 indicate an economy in expansion, any readings less than 50 indicate an economy in contraction).

  This leaves us with this chart as the plainest indication yet of the smoke and mirrors bullshit being pulled on every gullible non-skeptical American about the state of their nation:

  

   

  And, for those who shrug this off as "well, it's just seasonal adjustments" or "well,  it's just Zero Hedge conspiracy stuff again," here is none other than the NACM last month destroying their own future credibility by removing any doubt that the collapse in the data was an aberration…

  We now know that the readings of last month were not a fluke or some temporary aberration that could be marked off as something related to the weather.

   

  There is quite obviously some serious financial stress manifesting in the data and this does not bode well for the growth of the economy going forward. These readings are as low as they have been since the recession started and to see everything start to get back on track would take a substantial reversal at this stage.

   

  The data from the CMI is not the only place where this distress is showing up, but thus far, it may be the most profound.

  You decide – does this look like a normal 'revision' (that remember only took place in the two sub-indices that showed dramatic weakness and none of the others) – or is this a giant "tap on the shoulder" from someone to 'fix it or you're f##ked!"?

  

  

  
  
  

  

• Presenting The Most Overvalued Housing Market In The World In One Chart

  Submitted by Jeff Desjardins of Visual Capitalist

  Canada has the Most Overvalued Housing Market in World

  In every inflating bubble, there’s usually two camps. The first group points out various metrics suggesting something is inherently unsustainable, while the second reiterates that this time, it is different.

  After all, if everyone always agreed on these things, then no one would do the buying to perpetuate the bubble’s expansion. The Canadian housing bubble has been no exception to this, and the war of words is starting to heat up.

  On one side of the ring, we have The Economist, that came out last week saying Canada has the most overvalued housing market in the world. After crunching the data in housing markets in 26 nations, The Economist has determined that Canada’s property market is the most overvalued in terms of rent prices (+89%), and the third most overvalued in terms of incomes (+35%). They have mentioned in the past that the market has looked bubbly for some time, but finally Canada is officially at the top of their list.

  Of course, The Economist is not the only fighter on this side of the ring.

  Just over a month ago, the IMF sounded a fresh alarm on Canada’s housing market by saying that household debt is well above that of other countries. Meanwhile, seven in ten mortgage lenders in Canada have expressed “concerns” that the real estate sector is in a bubble that could burst at any time. Deutsch Bank estimates the market is 67% overvalued and readily offers seven reasons why Canada is in trouble. Even hedge funds are starting to find ways to short the market in anticipation of an upcoming collapse. Canada’s housing situation could give rise to the world’s next Steve Eisman, Eugene Xu, or Greg Lippmann.

  On the opposing side of the ring, who will contend that the Canadian housing market is just different this time? Hint: look to the banks and government.

  Stephen Harper, Canada’s Prime Minister, has tried to dispel fears. He recently told a business audience in New York that he didn’t anticipate any housing crisis in Canada.

  Just this week, the Bank of Canada also tried its best to deflate housing bubble fears. “We don’t believe we’re in a bubble,” says Stephen Poloz, the Bank’s Governor. “Our housing construction has stayed very much in line with our estimates of demographic demand.”

  Poloz suggested that housing costs do not necessarily have to contract to match the incomes of Canadians. Instead, he expects growth in the economy to raise wages and make housing more affordable.

  Strangely enough, by the Bank of Canada’s own estimate, the housing market is overvalued by as much as 30%. It is hard for housing to become more affordable when prices are rising in double digits in a year. Combine this with the fact that household debt rates keep setting new records, and one side of the fight might get tilted sooner than later.

   

  

  Courtesy of: Visual Capitalist

  

  

  
  
  

  

• The Most And Least Popular GM Car Models, And Everything Inbetween

  One month ago Zero Hedge showed “The “Mysterious” Source Of Surging Demand For GM Cars.” In short, it was the US government.

  

   

  Which is why we were eagerly looking to learn whether the Y/Y jump in GM’s April government sales would be in the 20%, 30% range or more. To our surprise, it was neither, for the simple reason that GM did not report it. One does wonder why any time this website spots a troubling trend, and shortly thereafter it is quietly pulled: first with the gold physical shortage indicator GOFO, and now this.

  Then again, perhaps it was merely an oversight and GM will promptly resume reporting the purchasing data of its single biggest customer… and rescuer: Uncle Sam.

  Until then, we will present something far more politically correct, and a series which GM can not possibly hide under the rug: the total year to date sales of its various vehicles ranked from most to least popular.

  A quick look at the list below reveals why economists are praying, for consumers’ sake, that oil and gas prices stay low and remain “unambiguously good” for all those who rushed to buy gas guzzling trucks and SUVs.

  Because if the plunge in oil and gas prices failed to spur a spending spree in the US in the first quarter, then a surge right back to historic price levels will hardly do miracles for American discretionary income once it again costs ~$100 to fill up one’s gas tank.

  

  

  

  
  
  

  

• Baltimore PD Releases Charged Cop Mugshots; Attorney Says Case Is "Politically Motivated"

  Following two weeks week of growing anger over the death of Freddie Gray which led to violent riots in Baltimore, and peaceful protests from New York and Philadelphia all the way to the West Coast, yesterday the state’s Attorney Marilyn J. Mosby charged six Baltimore officers with Gray’s death, leading to their prompt arrest, following by all just as quickly posting bail and being released. 

  The Baltimore PD released their mugshots, which reveal a rather broad racial mix: three white, two black, and one Hispanic, officer Caesar Goodson, who incidentally as the driver of the police van, is facing the most serious charge of second-degree murder. To repeat, not what one would call a racially homogeneous group.

  

   

  As noted previously, here is the breakdown of the charges against the officers:

  • Officer Caesar Goodson Jr. was charged with second-degree murder, manslaughter, second-degree assault, two vehicular manslaughter charges and misconduct in office.
  • Officer William Porter, Lt. Brian Rice and Sgt. Alicia White were all charged with involuntary manslaughter, second-degree assault and misconduct in office.
  • Officer Edward Nero was charged with second-degree assault and misconduct in office, and Officer Garrett Miller was charged with those charges plus false imprisonment.
  • Goodson, facing the most serious charges, could potentially be sentenced to as much as 63 years of prison. The others face a max sentence of between 20 and 30 years.

  They are scheduled to appear in court for a preliminary hearing in Baltimore City District on May 27, at 1:30 p.m.

  Mosby says the officers involved failed to get Gray medical help even though he requested it repeatedly after he was arrested April 12. She called Gray’s arrest illegal, saying the switchblade he was carrying in his pants was actually a legal knife.

  “I was sickened and heartbroken by the statement of charges we heard today,” Baltimore Mayor Stephanie Rawlings-Blake said. She added that there is no place for racism and corruption in the police department, and all of the officers have been suspended.

  Gray suffered a severe neck injury inside of the police van and died a week later. The state medical examiner’s office said it sent the autopsy report to prosecutors Friday morning. Gray’s death was ruled a homicide.

  Yet even this case could not avoid the taint of corruption and “political motivation”: according to WUSA9 state Attorney Mosby rejected a request from the Baltimore police officers union asking her to appoint a special independent prosecutor because of her ties to attorney Billy Murphy, who is representing Gray’s family. Murphy was among Mosby’s biggest campaign contributors last year, donating the maximum individual amount allowed, $4,000, in June. Murphy also served on Mosby’s transition team after the election.

  As The Hill reports further, an attorney for one of the six Baltimore police officers charged in the death of Freddie Gray on Friday suggested the case was politically motivated and cautioned against a “rush to judgment.”

  “I’m not going to get caught up into the politics. That’s what’s getting us, I believe, here today,” said Michael Davey, who is representing one of the officers but spoke for all those charged.

  “I believe that the publicity in this case is a driving force to a rush to judgment and causing this prosecution to move so quickly,” he added.

  Davey said the process of bringing the charges was too swift, criticizing Baltimore City State’s Attorney Marilyn Mosby.

  “In my 20-year career as a law enforcement officer and 16 years as an attorney, I have never seen such a rush to file criminal charges which I believe are driven by forces separate and apart from the application of law and the facts of this case as we’ve heard them,” Davey said.

  “Let me state in no uncertain terms that Lt. Rice and all of the officers involved at all times acted reasonably and in accordance with their training as Baltimore police officers,” he added. “No officer injured Mr. Gray, caused harm to Mr. Gray, and [they] are truly saddened by his death. These officers did nothing wrong.”

  Gray, a 25-year-old black man, suffered a fatal spinal injury while in police custody, and later died.

  Mosby’s office alleges that Gray was fatally injured when officers restrained him — using shackles and cuffs — in a police van without strapping him in with a seat belt. Six officers have been charged on a range of counts, the highest being a second-degree murder count for the driver of the van.

  Davey reiterated the union’s support for appointing a special prosecutor in the case. Mosby rejected those calls on Friday morning, saying that a special prosecutor would not be accountable to voters.

  Gene Ryan, president of the Fraternal Order of Police Baltimore City Lodge 3, was asked about reports that there is low morale among Baltimore police officers.

  “I can tell you they’re not happy,” he said. “This decision to charge the officers is going to make our job even harder.”

  The Gray case has brought longstanding concerns about how police in Baltimore treat minority communities to national attention.  In New York, the NYPD turned their back on mayor de Blasio following the shooting death of two cops in December: it remains to be seen in the Baltimore police force follows in New York’s footsteps and decides to “tone back” enforcement efforts for the next several weeks or months.

  

  
  
  

  

• A Hill Street Blues Financial World – Be Careful, Its Dangerous Out There

  Submitted by David Stockman via Contra Corner blog,

  We heard from several central banks in the last few days, and what they had to say was just one more reminder that we are in a Hill Street Blues financial world. So, hey, let’s be careful out there—-and then some!

  The Fed’s policy statement Wednesday, for example, was mainly just another trite economic weather report which could have been written after watching CNBC with the sound turned off. But the statement did hint that maybe 78 months of ZIRP won’t be enough, after all. Having stripped out all calendar references relative to the timing of its upcoming monetary body slam, whereupon Wall Street gamblers will be be charged the apparently usurious sum of 25 bps for their poker chips, it hinted at another reason for delaying the dreaded day:

  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.

  That’s right. If they don’t see enough inflation soon, they will keep Wall Street rampaging at the zero bound even beyond June. It is no longer worth mentioning that there is not a shred of evidence that the US economy would grow faster at a 2.0% CPI inflation rate versus the actual rate of 1.0% recorded over the last three years.

  Stated differently, exactly how is it that the tiny dip in the CPI owning to cheaper gasoline during the second half of 2014 once again delayed the promised nirvana of “escape velocity” for the fifth year running? Indeed, the very same Keynesian economists who insisted that the oil price collapse would cause consumer spending to surge are now urging the Fed to delay raising rates because inflation is too low and the US economy has once again stalled-out.

  

  Nor is it worthwhile to mention that the slight CPI dip shown above reflects the oil price plunge working its way through the price chain and that this short-term price shock is already abating, as reflected in the CPI upturn in March. Indeed, if you look at the Fed’s preferred index, the PCE deflator less food and energy, it has been as smooth as the skin on a baby’s bottom for years. So there is no evidence of a step-change toward some kind of drastic deflation that can possibly justify dithering even longer on the rate issue.

  In fact, the trend rate of annual change in the PCE-ex food and energy index has been 1.7% since the year 2000, and it has continued to post within a hair of that during the most recent three years. To wit, the annual increase was 1.4% during the year ending in March 2015 compared to 1.3% during the year before that and 1.4 percent during the LTM period ending in March 2013.

  So there just plain ain’t no deflation crisis, nor any change of  CPI trend other than the oil plunge, which ironically was caused by the central banks themselves. They accomplished this, first, by inflating a global boom that exaggerated the sustainable demand for oil; and then by generating a panicked scramble for yield among money mangers that led to $500 billion of cheap debt flowing down the well bores in the shale patch, and a resulting flood of excess supply on the world petroleum market.

  

  So what the Fed is doing is simply further inflating the financial  bubble on the self-serving theory that asset inflation doesn’t count. Well, it seems only yesterday that the Fed’s “maximum employment” objective was bushwhacked by the 2008 bubble meltdown on Wall Street and the Great Recession which followed.

  Yet the inhabitants of the Eccles Building stubbornly insist that there are no worrisome bubbles yet evident. Well, here’s one from Janet Yellen’s own backyard courtesy of Dr. Housing Bubble. The median house price in San Francisco is now $1.1 million, and it has been stair-stepping higher like clockwork during each of the Fed’s QE money printing phases.

  Indeed, if you had been idling your time in a median priced condo in San Francisco for the past 48 months you could have cashed out this winter at a 72% gain. That’s a $462,000 profit for standing around the basket during the Fed’s monumental money printing campaign.

  And yet this is about much more than windfalls to existing property owners who have been smart enough to sell before the next crash. The insane appreciation shown below is only symptomatic of what is happening in the entire US economy.

  That is to say, for every instance of windfall gains there are associated disruptions, deformations and malinvestments that reduce societal equity today and generate dead-weight economic losses tomorrow. Tens of thousands of working income families have been flushed out of San Francisco for no good reason; they just can’t afford the soaring rents. Likewise, its commercial landscape is teeming was “cash burn” startups that in due course will vacate their posh office suites and leave busted leases behind when the VC cash dries up.

  That’s what bubbles do, and San Francisco has proved that more than once in the present era of central bank driven financial inflation.

  

  There is no mystery, of course, as to where the buying power that propelled this price explosion came from. San Francisco is ground zero for the social media and biotech bubbles.

  The cascades of cash which have tumbled out of these bubbles are mind-boggling. The billions of venture capital flowing into these sectors support booming start-up payrolls, mushrooming networks of vendor support services and prodigious on-line advertising outlays. The latter generate more of the same in the next tier of startups which burn the advertising revenues that were funded by their  “advertising customers” VC cash. And when this pipeline of start-ups is eventually pushed into the delirious IPO markets, the brokerage accounts of the selling entrepreneurs are suddenly flush with cash and stock—-all the better to collateralize jumbo loans to buy condos, townhouses and lofts and renovate them in style.

  Needless to say, this is not capitalist creation at work—–even though venture capital risk-taking and homeruns for inventors and innovators are the sum and substance of real prosperity and growth.  What is wrong here is not the process or even some of the outcomes likes Apple and Google.

  The evil lies in the context in which today’s venture capitalism is being played out. Namely, an artificial financial casino fostered by central bank falsification of prices and valuations—a milieu where blind greed and mindless start-up activity run wild without the disciplining forces of honest and free capital markets.

  There could be no better illustration of this deformation than the flaming valuation mania in the biotech sector. Yes, there are plenty of interesting breakthroughs happening in the biotech world these days, but that has been true for more than a decade. It does not begin to explain how the biotech index soared by 6X since the March 2009  bottom and by nearly 300% just in the last 48 months depicted in the housing graph above.

  Here’s actually why. At its peak a few weeks ago, the NASDAQ biotech index of 150 companies was valued at nearly $1.1 trillion. Yet the LTM net income of the entire group was only $21 billion, meaning that the index was trading at 50X profits.

  And that wasn’t the half of it. Among these 150 biotechs there were just 25 companies that had any profits at all. This latter group included  big cap giants like Gilead, Amgen, Shire, Biogen, Celgene and 20 others, which among them had $30.5 billion of net income and accounted for $780 billion of the total index market cap. At the implied PE multiple of 26X, even these profitable companies were valued at pretty sporty levels.

  But there’s no denying the bubble mania when it comes to the remaining 125 companies in the index. These companies were valued at $280 billion, but posted aggregate losses of nearly $10 billion in the most recent LTM reporting period.

  So, yes, there is a stupendous bubble in biotech. In this instance, it amounts to well more than one-quarter trillion dollars of bottled air. Its a direct result of six years of free ZIRP money to the carry trade gamblers and Wall Street’s self-evident confidence that the Fed is petrified of a hissy fit and will not hesitate to keep the juice flowing indefinitely—– even if it’s called a 25 bps increase in the money market rate, eventually.
  

  IBB data by YCharts

  As to the social media stocks, the mania is even more extreme. This week three of the high flyers—–LinkedIn, Twitter and Yelp—-took a pasting because their gussied up “ex-items” results did not meet expectations and their forward guidance had a whiff of confession that beanstalks don’t grow to the sky, after all.

  But the real numbers are downright lunatic, and notwithstanding $20 billion of combined market cap loss in the last few weeks, their valuations remain in the realm of rank speculation. To wit, at their recent stock price peaks, the combined market cap of these three social media high flyers was $75 billion. Not surprisingly, in 2014 they had a combined loss of nearly $600 million, which will only get worse on an LTM basis after the further Q1 deterioration just reported.

  Moreover, during the 3-5 years for which there are filed financial statements, in fact, the three amigos have chalked up $1.6 billion in net losses. Needless to say, that makes sense only in a bubble context. The three went public during 2011-2013 as the Fed latest party started to roar, and initially were valued at about $30 billion based on virtually no revenues and deep losses. And as the losses mushroomed in the interim, their combined valuation, naturally, more than doubled!

  In fact, of course, these social media companies may or may not have a future as operating businesses, but as financial enterprises they are the very embodiment of the “cash burning machines” that have fueled the false economy of San Francisco and similar bubble finance precincts from Los Angeles to Boston and Wall Street.

  During 2014, the three social media high flyers burned nearly $3 billion in cash as measured by cash from operations less investments in CapEx and acquisitions.  That cash burn doubles to nearly $6 billion during their brief lifetimes as SEC filers.

  Only in a central bank fueled casino is a $6 billion cash burn worth $75 billion of market cap. That is, until it isn’t.

  Self-evidently, the monetary politburo is completely lost. The escape velocity that it promised is now fast turning into a flat-line at best. Based on the Atlanta Fed’s Nowcast—which was dead on during Q1, first half GDP growth will post at less than 1%, and that’s if the mountain of inventory build-up in recent quarters does not succumb to panicked liquidation orders from the C-suites in the face of an unexpected “black swan” event in the casinos.

  Perhaps it is time for the monetary politburo to throw in the towel, and admit it is clueless. If it should ever be so inclined, Pater Tenebrarum has composed a brilliantly fitting statement:

  “In spite of lots of “incoming information”, we still haven’t the foggiest clue what we are doing or what any of it means. We’re all praying that this sucker doesn’t blow up into our faces before we’ve sailed off into retirement. As to us ever shrinking the balance sheet again or actually doing something that might be remotely reminiscent of tightening, forget it dude. Do you think we want to be blamed for another crash?”

  Yet in the central bank fueled bubble category, the Fed has plenty of company around the world. Below is pictured an even bigger one—–that is, Mario Draghi’s sovereign bond bubble.

  The fact is, inflation has already bottomed in Europe, and it never was rational to price 10-year bonds based on the inflation run-rate of the last 90 days. Nevertheless, the 10-year German bund soared just two weeks ago to a bubble peak yield of 5 bps! In the last several days, however, it has “corrected” to 35 bps because some big time bond managers finally said “enough” and declared the German bund the short of a lifetime.

  It surely is, and so is the entire $100 trillion bond market of the world—including sovereigns, corporates and junk. The central banks have not repealed the law of supply and demand. But what they have done is expand their balance sheets from around $6 trillion before the 2008 financial crisis to upwards of $21 trillion today.

  Folks, that’s the fattest bid in human history. By scooping up $15 trillion of public debt and other securities with credits conjured from thin air, the central banks have given rise to price falsification on a monumental and planetary scale.

  This week Draghi said its all working because the year/year CPI in Europe came in at zero after registering a hairline negative during the precious four months. Can he spell “oil”?  Does he have a clue that his “whatever it takes”  ukase and $1.2 trillion QE campaign has generated a front-runners buying frenzy like never before—– but also one which could turn on a dime, as occurred in the German bund market this week?

  If Europe had a Sergeant Phil Easterhaus, he would now be issuing a more bracing reminder than merely to be “careful” In  fact, the $2 trillion of Eurozone sovereign debt now trading at subzero rates will soon enough comprise the subprime bonfires of the next crash.

  German 10-Year Bund Yield

  

  Travel a little north of Frankfurt and you get more of the same. This week Sweden’s exchange rate momentarily rallied because the central bank took a breather and did not lower its policy rate from (0.25%) to (0.4%).  Really? The currency market gamblers were actually buying a two-bit currency that its issuer has pledged to destroy because Sweden doesn’t have enough inflation?

  Well, does this look like a country that has been parched for lack of inflation?  The graph shows that Sweden’s consumer price level has risen by 22% since the turn of the century. Do the apparatchiks at the Riksbank actually believed that Sweden’s over-taxed citizenry has been harmed by the slight flattening of the inflation trend in recent years, which has allowed their stagnating wages to at least retain their purchasing power?

  There is danger out there, indeed.

  

  But no survey would be complete without an update on the dangerous lunacy emanating from the central bank of Japan. Having achieved exactly zero inflation since the launch of his bond buying spree in March 2013, Kuroda reiterated once again that his monetary Kamikaze campaign knows no limits:

  “The price trend is steadily improving and is expected to keep doing so,” Kuroda said at a press briefing after the decision….but reiterated he won’t hesitate to act (i.e. print even more yen) if the 2 percent target proves hard to reach.

  Faced with a flood of yen, not surprisingly the central bank of South Korea has also cut is policy rate several times in the last few months and is now on a bee-line from its current 1.75% level to the zero bound.

  And not to be daunted by its existing $28 trillion pyramid of debt, the People’s Printing Press of China this week announced that it would be taking a leaf from the ECB’s play book. That is, it would soon launch a large campaign to fund China’s bankrupt local governments with newly printed cash via direct loans against the so-called “collateral” of  newly issued local government bonds—-the proceeds of which are being used to pay off the banks and the shadow lenders, alike.

  The Ponzi is breathtaking. Upwards of 40% of local government revenue in China is derived from selling land at massively inflated prices to feed China’s credit driven construction binge. Now the due bill is coming in on these white elephants and the local governments, which built endless highways, bridges, airports and high rises, cannot even remotely service the $3 trillion of debt they incurred in minting “GDP” in line with Beijing’s quotas.

  Never mind. The suzerains in Beijing are fixing to crank up the printing presses for another blistering round of credit fueled prosperity.

  Surely, the red capitalism bubble in China is ground zero for the next financial conflagration. But when it happens, even Sgt. Easterhaus would surely lose his cool and flee the station.

  

  

  
  
  

  

• Markets Are Stirring: Complacency Meets Froth

  Via Scotiabank's Guy Haselmann,

  Froth

  Peering into the froth of a cappuccino, I noticed various sized bubbles. I guess there is a fine line between froth and bubbles. As I continued my gaze, both eventually disappeared. Stirring made the frothy bubbles disappear more quickly. Markets are beginning to stir (more later). Unsustainable states ultimately end.

  Discussions about ‘froth’ are growing as financial asset price appreciations have surged with central bank stimulus programs; and now that the Fed is the first major central bank to contemplate ‘stimulus reduction’.

  • Froth-generating central banks do not have unlimited means to power markets forever (regardless of what they might say), and their efforts may even become counter-productive over time.

  The best illustration of market ‘froth’ was outlined in yesterday’s Financial Times in an article by James Mackintosh (page 13) about China.  Before I quote him directly, a few facts are helpful.  The Shanghai index is up almost 100% year-over-year.   At the current pace, the number of Chinese IPO’s could set a record this year.  There are trading rules.  IPOs are only allowed to rise a maximum of 44% when floated.  Other stocks are only allowed to rise by a daily maximum of 10%.

  Mr. Mackintosh writes that Beijing’s online video company Baofeng Technologies is “a leading example of the IPO excess”.  He writes that this IPO “jumped the maximum-allowed 44% a month ago when floated, and has risen by the daily-maximum of 10% every day since.  It has risen 17-fold in 26 trading days”. 

   

  

   

  The FT article continues, “Every one of the 29 IPOs this month has risen by the daily limit each day since.  The worst performing IPO from earlier in the year has doubled in price”

  This indiscriminate demand is reminiscent of the dotcom euphoria in 2000.  I remember many companies trading at several thousand times revenues.  A P/E could not be used for comparison, or determined, because many of those companies did not have any earnings.

   

  Central Bank Hyperactivity

  The Chinese IPO frenzy and enormous equity market gains since 2009 are the direct result of central bank uber-accommodative experimentation.  However, there is no ‘free lunch’. Whatever the benefits gained from the wealth effects of asset appreciation will have negative macro effects on the other side; when stimulus programs are withdrawn. This is one key reason why the FOMC is so fearful of raising rates despite being ‘close-enough’ to both of their dual mandates. Unfortunately, waiting longer only increases those risks. Trying to mitigate the negative macro impacts are one reason the Fed pounds the table about a slow and atypical hiking pace.

  QE works by distorting financial markets and influencing investor behavior.  In this regard, it has been wildly successful. However, increases in recent market volatility might be a warning sign of QE’s limits.  Higher volatility is signaling one of a few possibilities, such as:  a looming hike from the most important central bank in the world (the Fed); a divergence in policy actions amongst the major central banks; additional global QE has become ineffective or counter-productive; or markets have recognized a change in the skew of their risk/reward determination after years of chasing central bank policy.

  Central banks opportunistically create a perception of success, irrespective of the consequences or market direction resulting from them. Initially ECB QE was deemed successful, because the Euro weakened, yields fell and, and equities soared.  However, in the last two weeks success has been ballyhooed as markets reversed sharply.  Can both characterizations be accurate?  The former was viewed as a successful outcome due to the easing of financial conditions. The market reversal was also viewed as a successful outcome, since the reversal was explained as a rise in expectations for economic growth and inflation. 

  • Is ECB QE more or less successful if yields fall or rise?  Would a better measurement stick be the level of the Euro or the percentage change in equity markets?  Should the focus be on German indicators or those from the southern periphery countries? 

  The ECB’s QE program ran into immediate denunciation on launch. The purchase program began when yields had already fallen dramatically.  Yields fell so far in fact, that several trillion of notional debt had dipped into negative yields. The fact that the program was sized to buy twice the amount of net issuance of the Eurozone had something to do with it.  The largest amount of purchases targeted Germany who, unlike the US, does not run a budget deficit (i.e. has a negative supply of net Bunds).

  • This design also created strains in ‘repo’ markets from collateral shortages, and caused abnormal capital flight from investors not willing to accept a negative yield.  Was this the main cause of the dramatic and sharp rise in yields or was it due to better than expected economic data?

  The highly-anticipated ECB QE was announced on January 22.  The Euro and Bund moved that day from 1.16 to 1.12 and from 0.52% to 0.44%, respectively.  The 10-yr Bund moved to 0.36% the next day.  The Bund moved inside of 0.05%, but the yield soared back in the past 10 trading sessions, ironically, to 0.36%. Does that say anything about the ECB QE?   The Euro moved below 1.05 in April, but traded near 1.13 today.  The Dax returned 22.03% in Q1, but fell 4.28% in April.

   

  Volatility

  In percentage terms, a move from 0.05% to 0.36% is extraordinary and can wreak havoc on portfolios. Higher market volatilities should be expected and adjusted-for accordingly.  Volatility is likely to rise further and stay elevated for the balance of the year (particularly if/when the Fed begins ‘lift off’).

  Commodities and EM currencies have also experienced some incredible price movements this year.  In April for example, Iron Ore fell to a six-year low and then rallied 25%.  It then fell 6%, a few days ago, after China changed a tax law.

  Correlations have also broken down in the past few weeks, damaging CTA performance and causing wild price swings.  Their crowded positions in the trifecta of long dollars, long stocks, and long bonds, caused huge stop-losses to be triggered late in the month.  Poor market liquidity is exacerbating these flows.   Big losses in one area of a portfolio can often cause managers to take action in other seemingly unrelated areas.

  Given such an extended period of time of market complacency resulting from aggressive central bank accommodation (which has chased investors into similar positions), positional unwinds probably have much farther to run. 

  A strong employment number next Friday could provide such a catalyst as the market is forced to raise the odds of a June hike from its current 5% probability, to something much higher.  Markets will be cautious about such, since unemployment claims fell yesterday to a 15-year low and employment reports have consistently added over 200k jobs every month for over a year (except for a weather-distorted miss last month).

  “The line it is drawn / The curse it is cast / The slow one now / Will later be fast / As the present now / Will later be past / The order is rapidly fadin’ / For the times they are a-changin’.”  -Bob Dylan
   

  

  
  
  

  

• The Final And Ultimate Crisis Will Be a Crisis of Faith

  The final and ultimate round of the Crisis that begin in 2008 will occur when faith is lost in the Central Banks.

   

  The entire rally in stocks post-2009 has been due to Central Bank intervention of one kind or another. Whether it be by cutting interest rates, printing money, buying bonds, or promising to do more/ verbal intervention, the Fed and others have done everything they can to push stocks higher.

   

  As a result, today, more than 90% of market price action is based on investors’ perceptions of what the Central Banks will do… NOT fundamentals. For instance, if bad economic data hits the tape, the market tends to rally because investors believe this will result in the Fed having to print more money.

   

  Again, the primary driver of stocks is no longer fundamentals, but Central Bank intervention.

   

  There are many problems with this, not the least of which is the fact that we now know that Central Bankers will openly LIE about what they’re doing. Consider the recent revelations concerning ECB President Mario Draghi’s claim that he will do “whatever it takes” to hold the EU together.

   

  Geithner: [T]hings deteriorated again dramatically in the summer which ultimately led to him saying in August, these things I would never write, but he off-the-cuff – he was in London at a meeting with a bunch of hedge funds and bankers. He was troubled by how direct they were in Europe, because at that point all the hedge fund community thought that Europe was coming to an end. I remember him telling me [about] this afterwards, he was just, he was alarmed by that and decided to add to his remarks, and off-the-cuff basically made a bunch of statements like ‘we’ll do whatever it takes’. Ridiculous.

   

  Interviewer: This was just impromptu?

   

  Geithner: Totally impromptu…. I went to see Draghi and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.

   

  http://blogs.ft.com/brusselsblog/2014/11/11/draghis-ecb-management-the-leaked-geithner-files/

   

  Here is former Secretary of the Treasury, Timothy Geithner, stating openly that Mario Draghi had “no plan” and was simply bluffing when he claimed, “we’ll do whatever it takes.”

   

  Draghi  was not only being deceptive (he didn’t have a plan); he was actually lying in the sense that the ECB couldn’t “do whatever it takes.” The OMT policy he talked about creating is in fact illegal based on EU law. He couldn’t do anything then and he can’t now.

   

  And yet, EU stocks have rallied hard, EU sovereign bond yields have fallen, and the world has proclaimed that the EU Crisis is “over”… all based on this lie.

   

  If you think Draghi is somehow unique in this regard amongst Central Bankers, thinking again. Recently Bank of Japan Governor Haruhiko Kuroda increased the Bank of Japan’s QE program, not because it would benefit Japan’s economy, but because doing so would make his colleagues’ forecasts better match his own.

   

  Put simply, the folks who are supposed to be holding the financial system together have been caught openly lying and spending money just to suit their own egos. The consequences of this have not yet been felt. But the seeds of the next crisis have already been sown in these revelations.

   

  The next time stuff hits the fan, will the world be as trusting in Central Banker proclamations? Will we continue to believe these folks are omnipotent? Or will their phony promises accomplish nothing?

   

  We’ll find out.

   

  If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis "Round Two" Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

   

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  Best Regards

  Phoenix Capital Research