• Paul Craig Roberts: 9/11 Fourteen Years Later

  Authored by Paul Craig Roberts,

  Millions of refugees from Washington’s wars are currently over-running Europe. Washington’s 14-year and ongoing slaughter of Muslims and destruction of their countries are war crimes for which the US government’s official 9/11 conspiracy theory was the catalyst. Factual evidence and science do not support Washington’s conspiracy theory. The 9/11 Commission did not conduct an investigation. It was not permitted to investigate. The Commission sat and listened to the government’s story and wrote it down. Afterwards, the chairman and co-chairman of the Commission said that the Commission “was set up to fail.” For a factual explanation of 9/11, watch this film:

   

  Here is a presentation by Pilots For 9/11 Truth:

  And here is an extensive examination of many of the aspects of 9/11.

  Phil Restino of the Central Florida chapter of Veterans For Peace wants to know why national antiwar organizations buy into the official 9/11 story when the official story is the basis for the wars that antiwar organizations oppose. Some are beginning to wonder if ineffectual peace groups are really Homeland Security or CIA fronts?

  The account below of the government’s 9/11 conspiracy theory reads like a parody, but in fact is an accurate summary of the official 9/11 conspiracy theory. It was posted as a comment in the online UK Telegraph on September 12, 2009, in response to Charlie Sheen’s request to President Obama to conduct a real investigation into what happened on September 11, 2001.

  *  *  *

  The Official Version of 9/11 goes something like this:

  ??Directed by a beardy-guy from a cave in Afghanistan, nineteen hard-drinking, coke-snorting, devout Muslims enjoy lap dances before their mission to meet Allah. ??Using nothing more than craft knifes, they overpower cabin crew, passengers and pilots on four planes.

  ??And hangover or not, they manage to give the world’s most sophisticated air defence system the slip. ??

  Unfazed by leaving their “How to Fly a Passenger Jet” guide in the car at the airport, they master the controls in no-time and score direct hits on two towers, causing THREE to collapse completely. ??

  The laws of physics fail, and the world watches in awe as asymmetrical damage and scattered low temperature fires cause steel-framed buildings to collapse symmetrically through their own mass at free-fall speed, for the first time in history.

  ??Despite their dastardly cunning and superb planning, they give their identity away by using explosion-proof passports, which survive the destruction of steel and concrete and fall to the ground where they are quickly discovered lying on top of the mass of debris.

  Meanwhile in Washington

  ??Hani Hanjour, having previously flunked Cessna flying school, gets carried away with all the success of the day and suddenly finds incredible abilities behind the controls of a jet airliner. ??Instead of flying straight down into the large roof area of the Pentagon, he decides to show off a little. ??Executing an incredible 270 degree downward spiral, he levels off to hit the low facade of the Pentagon. ?Without ruining the nicely mowed lawn and at a speed just too fast to capture on video.

  ??In the skies above Pennsylvania ??

  Desperate to talk to loved ones before their death, some passengers use sheer willpower to connect mobile calls that would not be possible until several years later.

  ??And following a heroic attempt by some to retake control of Flight 93, the airliner crashes into a Pennsylvania field leaving no trace of engines, fuselage or occupants except for the standard issue Muslim terrorist bandana.

  ??During these events

  ??President Bush continues to read “My Pet Goat” to a class of primary school children.?

  In New York

  ??World Trade Center leaseholder Larry Silverstein blesses his own foresight in insuring the buildings against terrorist attack only six weeks previously. ?

  In Washington

  The Neoconservatives are overjoyed by the arrival of the “New Pearl Harbor,” the necessary catalyst for launching their pre-planned wars.

  

  

  

  

  

• Visualizing China's Mind-Boggling Consumption Of The World's Raw Materials

  Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.

   

  

  Courtesy of: Visual Capitalist

   

  The country consumes a big proportion of the world’s materials used in infrastructure. It consumes 54% of aluminum, 48% of copper, 50% of nickel, 45% of all steel, and 60% of concrete. In fact, the country has consumed more concrete in the last three years than the United States did in all of the 20th century.

   

  China is also prolific in accumulating precious metals – the country buys or mines 23% of gold and 15% of the world’s silver supply.

   

  With many mouths to feed, China also needs large amounts of food. About 30% of rice, 22% of corn, and 17% of wheat gets eaten by the Chinese.

   

  Lastly, the country is no hack in terms of burning fuel either. Notably, China uses 49% of coal for power generation as well as metallurgical processes in making steel. It also uses 13% of the world’s uranium and 12% of all oil.

  These facts really hit home to show how important China is to the global consumption of raw materials. If China is unable to navigate its tricky transition to a consumer-driven economy and has a “hard landing”, it will be unlikely to see any growth in commodity prices triggered from the demand side. That said, supply is equally as important and it tells a different story: with companies like Glencore cutting copper production by 400,000 tons to better service its massive debt, the floor for commodities could be in.

  

  

  

  

  

• The Human Cost Of Socialism In Power

  Submitted by Richard Ebeling via EpicTimes.com,

  The attempt to establish a comprehensive socialist system in many parts of the world over the last one hundred years has been one of the cruelest and most brutal episodes in human history.

  Some historians have estimated that as many as 200 million people may have died as part of the dream of creating a collectivist “Paradise on Earth.” Making a better “new world” was taken to mean the extermination, the liquidation, the mass murder of all those that the socialist revolutionary leaders declared to be “class enemies,” including the families, the children of “enemies of the people.”

  The Bloody Road to Making a New Socialist Man

  We will soon be marking the hundredth anniversary of the Bolshevik Revolution in Russia (November 1917) under the Marxist revolutionary leader, Vladimir Lenin. In Soviet Russia, alone, it has been calculated by Russian and Western historians who had limited access to the secret archives of the Communist Party of the Soviet Union and the KGB (the Soviet secret police) in the 1990s, that around 68 million innocent, unarmed men, women and children were killed over the nearly 75 years of communist rule in the Soviet Union.

  The communist revolutionaries in Russia proudly declared their goal to be destruction and death to everything that existed before the revolution, so as to have a clean slate upon which to mold the new socialist man.

  The evil of the Soviet system is that it was not cruelty for cruelty’s sake. Rather it was cruelty for a purpose – to make a new Soviet man and a new Soviet society. This required the destruction of everything that had gone before; and it also entailed the forced creation of a new civilization, as conjured up in the minds of those who had appointed themselves the creators of this brave new world.

  In the minds of those like Felix Dzerzhinsky, Lenin’s close associate and founder of the Soviet secret police, violence was an act of love. So much did they love the vision of a blissful communist future to come that they were willing to sacrifice all of the traditional conceptions of humanity and morality to bring the utopia to fruition.

  Thus, in a publication issued in 1919 by the newly formed Soviet secret police, the Cheka (later the NKVD and then the KGB), it was proclaimed:

  “We reject the old systems of morality and ‘humanity’ invented by the bourgeoisie to oppress and exploit the ‘lower classes.’ Our morality has no precedent, and our humanity is absolute because it rests on a new ideal. Our aim is to destroy all forms of oppression and violence. To so, everything is permitted, for we are the first to raise the sword not to oppress races and reduce them to slavery, but to liberate humanity from its shackles . . .

   

  “Blood? Let blood flow like water! Let bloodstain forever the black pirate’s flag flown by the bourgeoisie, and let our flag be blood-red forever! For only through the death of the old world can we liberate ourselves from the return of those jackals.”

   

  

  Death and Torture as Tools of Winning Socialism

  The famous sociologist, Pitirim A. Sorokin was a young professor in Petrograd (later Leningrad, and now St Petersburg) in 1920 as the Russian Civil War that firmly established communist rule in Russia was coming to its end. He kept an account of daily life during those years, which he published many years later under the title, Leaves from a Russian Diary – and Thirty Years After (1950).

  Here is one of his entries from 1920:

  “The machine of the Red Terror works incessantly. Every day and every night, in Petrograd, Moscow, and all over the country the mountain of the dead grows higher . . . Everywhere people are shot, mutilated, wiped out of existence . . .

   

  “Every night we hear the rattle of trucks bearing new victims. Every night we hear the rifle fire of executions, and often some of us hear from the ditches, where the bodies are flung, faint groans and cries of those who did not die at once under the guns. People living near these places begin to move away. They cannot sleep . . .

   

  “Getting up in the morning, no man or woman knows whether he will be free that night. Leaving one’s home, one never knows whether he will return. Sometime a neighborhood is surrounded and everyone caught out of his house without a certificate is arrested . . . Life these days depends entirely on luck.”

  This murderous madness never ended. In the 1930s, during the time of the Great Purges instituted by Soviet dictator Josef Stalin to wipe out all “enemies of the revolution” through mass executions, there were also sent millions to the GULAG prisons that stretched across all of the Soviet Union to be worked to death as slave labor to “build socialism.”

  Before being sent to their death or to the forced labor camps, tens of thousands would be interrogated and cruelly tortured to get confessions out of people about non-existent crimes, imaginary anti-Soviet conspiracies, and false accusations against others.

  Stalin personally sent instructions to the Soviet secret police that stated that in obtaining confessions from the accused, “the NKVD was given permission by the Central Committee [of the Communist Party] to use physical influence … as a completely correct and expedient method” of interrogation.

  When Stalin was told that this method was bringing forth the desired results, he told the NKVD interrogators, “Give them the works until they come crawling to you on their bellies with confessions in their teeth.” Then, in another purge, this one after World War II, Stalin simplified the instructions even more: “Beat, beat and, once again, beat.”

  Thousands of the victims wrote letters to Stalin from their exile and hardships in the labor camps, all of them persuaded that it had all been a terrible mistake. If only Comrade Stalin knew, he would set it all right and they would be freed and restored as good, loyal Soviet citizens ready to once again work to “build socialism.”

  

  Stalin’s Personal Hand in Building Socialism Through Blood

  But Stalin knew. He personally signed off on tens of thousands of death warrants and orders for tens of thousands more to be sent to their horrifying fate in the GULAG camps.

  Domitri Volkogonov, a Soviet general-turned-historian, gained access to many of the closed Soviet archives in the 1980s, and wrote a biography of Stalin, entitled, Triumph and Tragedy (1991), meaning Stalin’s “triumph” to power and the resulting “tragedy” for the Soviet people. Volkogonov told a Western correspondent at the time:

  “I would come home from working in Stalin’s archives, and I would be deeply shaken. I remember coming home after reading through the day of December 12, 1938. He signed thirty lists of death sentences that day, altogether about five thousand people, including many he personally knew, his friends . . .

   

  “This is not what shook me. It turned out that, having signed these documents, he went to his personal theater very late that night and watched two movies, including “Happy Guys,” a popular comedy of the time. I simply could not understand how, after deciding the fate of several thousand lives, he could watch such a movie.

   

  “But I was beginning to realize that morality plays no role for dictators. That’s when I understood why my father was shot, why my mother died in exile, why millions of people died.”

  Soviet central planning even had quotas for the number of such enemies of the people to be killed in each region of the Soviet Union as well as the required numbers to be rounded up to be sent to work in the labor camps in the frigid waste lands of the Siberia and the Arctic Circle or the scorching deserts of Soviet Central Asia.

  A Russian lawyer who had access to some of the formerly closed Soviet archives of the Central Committee of the Communist Party of the Soviet Union in the 1990s told at the time:

  “Recently I read a Central Committee document from 1937 that said the Voronezh secret police, according to the ‘regional plan,’ repressed in the ‘first category,’ nine thousand people – which means these people were executed. And for no reason, of course.

   

  “Twenty-nine thousand were repressed in the ‘second category – meaning they were sent to labor camps. The local first secretary [of the Communist Party], however, writes that there are still more Trotskyites and kulaks who remain ‘unrepressed.’

   

  “He is saying that the plan was fulfilled but the plan was not enough! And so he asked that it be increased by eight thousand. Stalin writes back, ‘No increase to nine thousand!’ The sickness of it. Its’ as if they were playing poking [and upping the ante in tragic human lives].”

   

  

  The Victims of Socialism Literally Reduced to Burnt Ash

  In the last years of the Soviet Union, a Russian historian took The New York Times correspondent, David Remnick, to the Donskoi Monastery in Moscow, which in the 1930s was used as a burial ground for the thousands regularly killed on Stalin’s orders in the capital of the Red Empire. In his book, Lenin’s Tomb: The Last Days of the Soviet Empire (1993), Remnick told what the Russian historian explained:

  “See this gate? . . . Well, every night trucks stacked with bodies came back here and dumped them in a heap. They’d already been shot in the back of the head – you bleed less that way . . . They stacked the bodies in old wooden ammunition crates.

   

  “The workers stoked up the underground ovens – right in through the doors – to about twelve thousand degrees centigrade. To make things nice and official they even had professional witnesses who counter-signed the various documents.

   

  “When the bodies were burned they were reduced to ash and some chips of bone, maybe some teeth. They then buried the ashes in a pit . . . When the purges [of the 1930s] were at their peak . . . the furnaces worked all night and the domes of the churches were covered with ash. There was a fine dust of ash on the snow.”

  The Kalitnikovsky Cemetery in Moscow also served as dumping ground for thousands of tortured and executed bodies in the 1930s. That same Russian historian told David Remnick:

  “In the purges, every dog in town came to this place. That smell you smell now was three times as bad; blood was in the air. People would lean out of their windows and puke all night and the dogs howled until dawn. Sometimes they’d find a dog with an arm or a leg walking through the graveyard.”

   

  

  Enemies of Socialism Sent to Torture in the Mental Ward

  The nightmare of the socialist experiment, however, did not end with Stalin’s death in 1953. Its form merely changed in later decades. As head of the KGB in the 1970s, Yuri Andropov (who later was General Secretary of the Communist Party of the Soviet Union after Leonid Brezhnev’s death in 1982), accepted a new theory in Soviet psychiatry that said that opposition to the socialist regime was a sign of mental illness.

  Why? Because only the mentally disturbed would resist the logic and the truth of Marxian dialectical determinism and its “proof” that socialism and communism were the highest and most humane stage of social development. Those who criticized the system, or who wanted to reform or overthrow the Soviet socialist regime were mentally sick and required psychiatric treatment.

  In his book, Russia and the Russians (1984), former Moscow correspondent for the Washington Post, Kevin Klose, told the story of Alexei Nikitin, a coal mine worker who complained to the Soviet government about the safety and health environment in the mines of the Soviet Union. He was arrested, tried, and found guilty of subversion and committed to a Soviet mental institution.

  Various drugs were proscribed as treatment to bring him to his proper socialist senses. Explained Kevin Klose:

  “Of all the drugs administered [at the mental institution] to impose discipline, sulfazine stood at the pinnacle of pain . . . ‘People injected with sulfazine were groaning, sighing with pain, cursing the psychiatrists and Soviet power, cursing with everything in their hearts,’ Alexei told us. ‘The people go into horrible convulsions and get completely disoriented. The body temperature rises to 40 degrees centigrade [104 degrees Fahrenheit] almost instantly, and the pain is so intense they cannot move from their beds for three days. Sulfazine is simply a way to destroy a man completely. If they torture you and break your arms, there is a certain specific pain and you somehow can stand it. But sulfazine is like a drill boring into your body that gets worse and worse until it’s more than you can stand. It’s impossible to endure. It is worse than torture, because, sometimes, torture may end. But this kind of torture man continue for years.’

   

  “Sulfazine normally was ‘prescribed’ in a ‘course’ of injections of increasing strength over a period that might last up to two months . . . The doctors had many other drugs with which to control and punish. Most of them eventually were used on Alexei . . . At the end of two months, Nikitin was taken off sulfazine but regular doses of . . . other disorienting drugs continued the entire time he was imprisoned.”

  The significance of these accounts is not their uniqueness but, rather, their monotonous repetition in every country in which socialism was imposed upon a society. In country after country, death, destruction, and privation followed in the wake of socialism’s triumph. Socialism’s history is an unending story of crushing tyranny and oceans of blood.

  

  Socialism as the Ideology of Death and Destruction

  As the Soviet mathematician and dissident, Igor Shafarevich, who spent many years in the GULAG slave labor camps for his opposition to the communist regime, said in his book, The Socialist Phenomenon (1980):

  “Most socialist doctrines and movements are literally saturated with the mood of death, catastrophe, and destruction . . . One could regard the death of mankind as the final result to which the development of socialism leads.”

  That twentieth century socialism would lead to nothing but this outcome was understood at the time of the Bolshevik victory in Russia. It was clearly expressed by the greatest intellectual opponent of socialism during the last one hundred years, the Austrian economist, Ludwig von Mises.

  Near the end of his famous 1922 treatise, Socialism: An Economic and Sociological Analysis, Mises warned that:

  “Socialism is not in the least what is pretends to be. It is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build, it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created . . . Each step leading towards Socialism must exhaust itself in the destruction of what already exists.”

  When voices are raised today calling for socialism in America, including by those attempting to win a major party candidacy to run for the presidency of the United States, it is important – no, it is crucial – that the history and reality of socialism-in-practice in those parts of the world in which it was most thoroughly imposed and implemented be remembered and fully understood. If we do not, well, history has its own ways of repeating itself.

  

  

  

  

  

• The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

  Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner?

  This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable.

  

  Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it’s moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters:

  China’s push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable.

   

  A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI).

   

  And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.

   

  “The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity.

   

  “China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”

  To be sure, some people do not and China’s recent adventures in propping up both the stock market and the yuan have, in the minds of many, served to reinforce the notion that when things aren’t going Beijing’s way, it will simply force the issue. Some fear the same thing could well happen with RMB crude futures:

  “The market doesn’t like the idea of a benchmark dominated by the world’s biggest consumer, where the regulator is suspected of having the goal of lowering prices,” said an executive with a non-Chinese exchange in Asia, speaking at the same event.

  But skeptics may have to choose between the lesser of two (perceived) evils because as we saw last month in Singapore, pricing off Dubai leaves everyone subject to perplexing anomalies like what happens when mysterious trading between two Chinese SOEs ends up throwing the market into backwardation at a time when common sense dictates that everyone should be doing the contango tango.

  The current benchmark for pricing oil in Asia in the absence of a derivatives contract is the Dubai crude assessment, run by Platts, part of McGraw Hill Financial, where trading in a specified time-frame is used to assess a daily price.

   

  Yet traders have been concerned at heavy trading by China’s state-owned Chinaoil and Unipec, which pushed up Middle East grades even as other grades were being pressued lower, and left other companies struggling to take part.

  Essentially, it looks like Chinaoil and Unipec may be gaming the Platts Dubai MoC (although no one knows exactly why) and that has implications for all kinds of people including (obviously) Saudi Arabia, Iran, and Iraq, as well as refiners and traders like Mercuria and Glencore. The hope is that a RMB contract will help solve the “problem.”

  In any event, it makes no more sense to exclude the world’s largest oil buyer from crude benchmarking than it does to keep the world’s largest producer and consumer of gold out of the gold price-setting process, which is why, in short order, China will be heavily involved in both. And as for widespread adoption of the new contract, that, like the internationalization of the yuan and the demise of the petrodollar, is only a matter of time:

  “One-by-one, the oil-majors will start to participate, then others will follow,” said an executive with a Western oil major. “While it might take some time to establish itself due to choppy markets and regulatory hurdles as well as the fact that it would introduce a foreign exchange element to crude futures, it is overdue for a Chinese contract to established.”

  

  

  

  

  

• Fourth Turning: Crisis Of Trust

  Submitted by Jim Quinn via The Burning Platform blog,

  “Imagine some national (and probably global) volcanic eruption, initially flowing along channels of distress that were created during the Unraveling era and further widened by the catalyst. Trying to foresee where the eruption will go once it bursts free of the channels is like trying to predict the exact fault line of an earthquake. All you know in advance is something about the molten ingredients of the climax, which could include the following:

  • Economic distress, with public debt in default, entitlement trust funds in bankruptcy, mounting poverty and unemployment, trade wars, collapsing financial markets, and hyperinflation (or deflation)
  • Social distress, with violence fueled by class, race, nativism, or religion and abetted by armed gangs, underground militias, and mercenaries hired by walled communities
  • Cultural distress, with the media plunging into a dizzying decay, and a decency backlash in favor of state censorship
  • Technological distress, with cryptoanarchy, high-tech oligarchy, and biogenetic chaos
  • Ecological distress, with atmospheric damage, energy or water shortages, and new diseases
  • Political distress, with institutional collapse, open tax revolts, one-party hegemony, major constitutional change, secessionism, authoritarianism, and altered national borders
  • Military distress, with war against terrorists or foreign regimes equipped with weapons of mass destruction” 

   The Fourth Turning – Strauss & Howe – 1997

  September 2015 marks the seventh anniversary of this Fourth Turning Crisis. The economic, social, cultural, ecological, political, and military distress propagates by the minute as the globe is besieged by economic turmoil, increased human suffering, and endemic corruption of the political and ruling classes. The Federal Reserve/Wall Street created global economic implosion was the spark which catalyzed this fourth Crisis period in U.S. history in September 2008. Neil Howe in a 2012 essay assessed the beginning of this Fourth Turning and why 9/11 was not the catalyst:

  “Pending stunning new developments, I believe the catalyst occurred in 2008.  It’s a date that is looking better and better as time goes by.  The year 2008 marked the onset of the most serious U.S. economic crisis since the Great Depression.  It also marked the election of Barack Obama, which could yet turn out to be a pivotal realignment date in U.S. political history. In fact, if I had to give the catalyst a month, I would say September of 2008.  The global Dow was in free fall.  Banks were failing.  Money markets froze shut.  Business owners held their breath.

  9/11 will go down as one of the more famous crisis precursors in American history.  A crisis precursor is an event that foreshadows a crisis without being an integral part of it.  Other such precursors in American history include the Stamp Act Rebellion (1765), or Bleeding Kansas (1856), or perhaps the Red Scare (1919).”

  The initial spark has triggered a chain reaction of unyielding responses by those in power, including: handing $700 billion of taxpayer funds to the Wall Street bankers whose reckless pervasive greed and fraudulent derivative products caused the worldwide conflagration, 0% interest rates for the last seven years, a quadrupling of the Federal Reserve balance sheet to $4 trillion through QE to infinity, government stimulus spending which increased the national debt from $10 trillion to $18 trillion in seven years, ongoing $600 billion annual deficits, using fraudulent accounting to disguise the insolvency of the Too Big To Fail Wall Street banks, and a conscious choice by corrupt politicians and captured government regulators to not prosecute one criminal banker.

  None of these initial responses have solved any of our pervasive problems or averted further emergencies. Not only haven’t these responses resolved the intractable economic conundrums facing the world, but they have exacerbated the next round of monetary disasters rapidly approaching. Strauss and Howe predicted the initial catalyst event would not worsen into a full-fledged catastrophe because the powers that be would find a way to avert the initial danger and stabilize the situation “for a while”. The key point was those benefiting from the existing corrupt world order would do whatever it took to temporarily forestall a calamity which would result in their downfall, loss of power, and ultimate imprisonment. They have successfully delayed the regeneracy phase of this Fourth Turning by turning on the monetary debt spigot full throttle.

  

  It is highly unlikely we will have a resolution to this Crisis period for at least another ten years, so if you think the worst is over you are badly mistaken. If the climax is somehow accelerated like the Civil War, it will likely result in bloody wars, with a horrific death toll. The five year lull can be viewed as the world passing through the eye of an immense hurricane. There will always be ebbs, flows and lulls within a 20 year long Crisis, as seen in previous Fourth Turnings.

  The Boston Tea Party catalyst spark occurred in December 1773, but the fireworks didn’t get going until 1775 and the regeneracy Declaration of Independence event in 1776. The Civil War Fourth Turning had no lulls. The catalyst election of Abraham Lincoln to the regeneracy event of the First Battle of Bull Run was only nine months. The acceleration did not allow for cooler heads to prevail. The result was ghastly death and destruction. The 1929 Stock Market Crash catalyst was followed by a three year lull until FDR’s election and New Deal programs marked the regeneracy.

  

  In my previous four part article Fourth Turning – The Shadow of Crisis Has Not Passed written early in 2015 I attempted to explain generational theory, provided evidence we are still early in this Crisis, pondered the potential clash between the citizens and our debased, dysfunctional, captured government, and contemplated the kind of war which will thrust the world through the gate of history towards an uncertain future. The misconceptions regarding generational theory and the Fourth Turning keep a vast swath of otherwise lucid thinkers from understanding the implications of generational mood changes which drive the cyclical nature of history. The cognitive dissonance and normalcy bias of most Americans blinds them to the lessons of history and leaves them vulnerable to the winter that has beset the nation.

  The Fourth Turning is not a prophecy or some Nostradamus like predictions. It’s a logical theory based upon the average time span of a long human life and the four phases of that life: childhood, young adulthood, mid-life, and old age. The interaction of generations during their phases of life is what produces the profound mood changes throughout history. The dramatic events during the course of antiquity are less important than how society responds to them. The reaction is substantially determined by the season of the saeculum and the generational mood that aligns with that season. We’ve entered the Winter season, with bitterly cold days ahead and intense blizzard-like conditions forecast for the next decade.

  

  The ignorance of linear thinking advocates regarding the cyclical nature of history is either due to their “progressive” public educational brainwashing or their intellectual inability to grasp the obvious. Our daily existence is cyclical with 24 hours in a day, 365 days in year based upon earth’s orbiting the sun, 12 months divided into four seasons, and the circle of life – birth through death is the ultimate cycle perpetuating life on this planet. There are dozens of astronomical, mathematical, religious, sleep, agricultural, social, economic and war cycles known to man. Martin Armstrong has a cycle theory predicting the collapse of government between 2016 and 2020. The Kondratiev Wave theory and Elliott Wave Theory are preached by “experts” and followed by millions. Of course, many of these “experts” are busy selling their predictions in newsletters to make a buck.

  The thought leaders in academia, politics, business, and mass media perpetuate the myth of never ending linear progress created by technological advances and the ever increasing intellectual evolution of mankind. The hubris of these people is incomprehensible when viewing history. The myopic delusions of these arrogant egotists are easily shattered by the horrific regressions of history. Were the Great Depression and the 65 million people killed during World War II progress for mankind? Was Stalin’s murder of 20 million Russian peasants a linear progression? Was Mao’s Great Leap Forward murder of 45 million Chinese peasants really a leap forward? Was the death of 5% of the U.S. male population in the space of four years during the Civil War really progress?

  Mankind and civilization do not advance in a straight line. Progression and regression alternate in a cyclical fashion. As generations die out, memories of the previous cycle are forgotten, and the mistakes are repeated again. Human nature does not change. Good, evil, greed, fear, bravery, honesty, arrogance, sacrifice, and truth intermingle to drive humans through the cycles of history.

  

  Strauss & Howe were economists and historians who attempted to make some sense out of the seemingly convoluted twists of history. They deciphered a pattern which could be traced back for centuries based upon the age and alignment of generations throughout history. They never attempted to capitalize on their work by selling newsletters or peddling their predictions about the future. When they published their work in 1997 they couldn’t predict the exact events which would drive the next Fourth Turning, but they could estimate the general timing and the core elements which would drive the crisis: debt, civic decay, and global disorder. These areas were neglected, denied, and unaddressed during the Unraveling period from 1984 through 2008. To read their words now, eighteen years after they were written and eleven years before this Fourth Turning struck, is haunting, as they describe precisely where we stand today:

  “As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

  “But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

  The Fourth Turning – Strauss & Howe – 1997

  

  Regeneracy – Where Art Thou?

  The regeneracy during a Fourth Turning is when a sense of urgency about institutional dysfunction and civic vulnerabilities coalesce the nation or large blocs of the homeland behind a strong leader to tear down the existing social, economic and cultural order and replace it with something different. The different can be better or far worse. The Declaration of Independence, First Battle of Bull Run, and election of FDR marked the regeneracy in prior American Fourth Turnings. They all occurred within four years of the initial catalyst. It is now seven years into this Fourth Turning and a clear regeneracy event has not materialized. This has been a frustrating development for those who are impatient to get this Fourth Turning moving at a quicker pace. But, each Fourth Turning will proceed at its own pace dependent upon events, the country’s reaction to those events, and the leaders we choose during the Crisis.

  Neil Howe, in his 2012 essay pondered the regeneracy issue and described it more as an era than an event. It requires something dramatic that unifies the country or causes the people to break into separate unified factions.

  “I think it’s pretty obvious that the regeneracy has not yet started.  So how long do we need to wait for it?  And how will we know when it starts?  Those are good questions.  I recently went back over The Fourth Turning to recall how we dated the stages of the each of the historical 4Ts.  And I found that we were very explicit about dating the other three stages (catalyst, climax, and resolution) for each 4T.  But we were always a bit vague about dating the regeneracy, treating it more like an era than a date.  There is a reason for this.  We may like to imagine that there is a definable day and hour when America, faced by growing danger and adversity, explicitly decides to patch over its differences, band together, and build something new.  But maybe what really happens is that everyone feels so numb that they let somebody in charge just go ahead and do whatever he’s got to do.  I’m thinking of how America felt during the bleak years of FDR’s first term, or during Lincoln’s assumption of vast war powers after his repeated initial defeats on the battlefield.

  The regeneracy cannot always be identified with a single news event.  But it does have to mark the beginning of a growth in centralized authority and decisive leadership at a time of great peril and urgency.  Typically, the catalyst itself doesn’t lead directly to a regeneracy.  There has to be a second or third blow, something that seems a lot more perilous than just the election of third-party candidate (Civil War catalyst) or a very bad month in the stock market (Great Power catalyst).

  We are still due for such a moment.  We have not yet reached our regeneracy.  When it happens, I strongly suspect it will be in response to an adverse financial event.  It may also happen in response to a geopolitical event.  It may well happen over the next year or two.  Given the pattern of historical 4Ts, it is very likely to happen before the end of the next presidential term (2016).”

  As previously stated, The Fourth Turning does not predict what series of events will trigger a regeneracy. It lays out a generational framework regarding how generations will react to the events. As Howe points out, the regeneracy requires a 2^nd or 3^rd blow which seems even more perilous than the initial shock. His suspicion that it will be in response to an even worse financial debacle than 2008 and very likely to happen before the next election in 2016 appears to be dead on. The oblivious trusting masses will again be shocked and bewildered when the second devastating shock wave of this Crisis strikes in the next twelve months. The next global financial meltdown, caused by the Federal Reserve, along with central bankers in Europe, Japan and China, will create a fearful panic and an intense urgency for a strong self-assured leader who promises to rescue the nation from peril. The panic will coincide with the presidential election in November 2016.

  The “Great Divider” Barack Obama squandered his chance to be the leader who united the nation when he proved to be nothing more than a captured political hack, bowing down to the corporate fascist establishment, while stirring wide spread resentment with his culture war rhetoric and inability to inspire confidence with his toothless hope and change sloganeering. His failure to reign in or prosecute the greedy sociopathic Wall Street criminals, his acquiescence to the military industrial complex by expanding our war mongering and sowing chaos in the Middle East, and his total disregard for fiscal restraint as the country’s long term financial picture rapidly deteriorates, proved that he would not be the Fourth Turning Grey Champion leader.

  In retrospect, neither McCain nor Romney would have united the country, as they are both crony capitalist establishment figures. The mood of the country has darkened substantially in the last year as people are fed up with their deteriorating economic circumstances, sick of both political parties, and angry at the unrestrained illegal immigrant invasion on our southern border.

  I’m beginning to believe the nation will not be unified behind a common cause when the coming financial eruption unleashes molten lava of chaos, punishing economic distress, civil strife, class warfare, race wars, and ultimately global war. As Strauss and Howe foretold, the establishment (aka corporate fascist military industrial surveillance state) has seen a sequential loss of popular trust as their blatant corruption, sociopathic stranglehold on the levers of power, and unrelenting greed have angered the critical thinking aware citizens of this country. The next leg down in this Greater Depression will sever the remaining trust, disintegrating any remaining support for the existing civic order. What comes next will be heavily dependent upon whether the 5% to 10% of liberty minded believers in the Constitution are able to gain the trust of the masses. The odds will be long, but no longer than they were during that bitter winter at Valley Forge in 1777-1778.

  

  “It could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. Before long, America’s old civic order will seem ruined beyond repair.” – The Fourth Turning – Strauss & Howe – 1997

  In Part 2 of this article I will ponder possible Grey Champion, prophet generation leaders who could arise during the regeneracy, try to assess which channels of distress are likely to burst forth with the molten ingredients of this Fourth Turning, and lastly make some guesses about potential climaxes.

  

  

  

  

  

• Bank Of Japan Buying Power Runs Dry: "If They Don't Increase Now, It's Going To Be A Shock!"

  Since 2010, The Bank of Japan has 'openly' – no conspiracy theory here – been a buyer of Japanese stock ETFs. Their bravado increased as the years passed and Abe pressured them from their independence to 'show' that his policies were working to the point that in September 2014, The BoJ bought a record amount of Japanese stock ETFs taking its holdings to over 1.5% of the entire market cap, surpassing Nippon Life as the largest individual holder of Japanese stocks.

  Having stepped in a stunning 76% of days to ensure the market closed green, it appears, as Bloomberg reports, time (or money) is running out for Kuroda and the BoJ having spent 78 percent of its allotment as of Sept. 7. "They've only got a little bit left in their quota," notes one trader, "The BOJ had a big role in supporting the market," he implored, "if they don’t increase purchases now, it’s going to be a shock."

   

   

  

   

  As Bloomberg reports,

  On Sept. 8, as the stock market slumped, investors were surprised to find the Bank of Japan, normally a buyer of exchange-traded funds on the Tokyo bourse, absent.

   

  What happened? The central bank, which is authorized to purchase about 3 trillion yen ($25 billion) in equity ETFs a year, is running out of ammunition, having spent 78 percent of its total as of Sept. 7. Because the BOJ usually buys on days the market falls, it sped up amid a rout in the Topix index.

   

  Now it must slow down for the rest of 2015 or increase its allotment, according to Mitsubishi UFJ Morgan Stanley Securities Co.

   

  …

   

  “They’ve only got a little bit left in their quota,” said Seiji Arai, a strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “I think they’ll vow to increase yearly purchases by 1 or 2 trillion yen in October.”

   

  With just 670 billion yen to go until its limit, the central bank has shrunk the amount it buys each time by 15 percent from its first purchase of the year to 31.7 billion yen in September. It stuck to that amount with a purchase on Thursday.

   

  As the Topix recorded its worst monthly loss since 2012, the central bank purchased 302 billion yen in ETFs. Without that, the rout would have been much worse, according to Arai.

  As he concludes – so perfectly summing up the farce that so many call "markets"…

  “The BOJ had a big role in supporting the market,” he said. “If they don’t increase purchases now, it’s going to be a shock.”

  

  

  

  

  

• It's Official: The Next Recession Will Definitely Not Happen In 2018

  Last month we remarked on PhD economists’ uncanny ability to make bad predictions.

  As a rule, the only people worse at their jobs than weathermen are economists and the only real difference between the two professions is that when the weatherman gets it wrong, you get caught in the rain without an umbrella, but when an economist that someone installed in the Eccles Building gets it wrong, there’s the very real potential for the financial universe to collapse. Here’s how we summed up the profession: 

  If PhD economists were serious about getting things right, they would have a tough job. That goes double for PhD economists charged with making policy decisions based on their conclusions. 

  That’s because economics (like sociology and political science and astrology) isn’t a real science. It’s a pseudo-science. And as is the case with other pseudo-sciences, it’s flat out impossible to discover laws and immutable truths, no matter what anyone told you in your undergrad economics course. 

   

  Of course PhD economists aren’t really serious about getting things right, which means that in reality, their jobs are remarkably easy. Here’s the job description: make predictions that are almost never right and then make up any reason you want to explain away the fact that you were wrong. These explanations run the gamut from intentional obfuscation via opaque statistical tinkering (“residual seasonality”) to comically absurd attempts to turn common sense into an excuse for poor outcomes (“snow in the winter”). 

  We delivered that stinging indictment of the pseudoscience that is economics on the way to noting that back in January, some 75% of experts said the Fed would have hiked by now. Considering that rather abysmal track record, we encourage you to take the following with a grain of salt (or two grains, or a whole shaker full). 

  Via Bloomberg:

  Some advice for President Barack Obama’s successor: bring a plan to fight the next recession.

   

  That’s one conclusion drawn from a survey of economists Sept. 4-9, where the median forecast of 31 respondents has the next downturn occurring in 2018.

   

  

   

  Assuming the collective wisdom of economists is right—which is a generous assumption given that predicting business cycles isn’t exactly a cakewalk (ZH: manipulating business cycles isn’t a “cakewalk” either and economists try that too) —it puts the current expansion on track to have a lifespan of about nine years. That’s a pretty good run, though the honor of the longest expansion on record would still belong to the decade that ended in March 2001.

   

  The survey suggests that the next U.S. president will have just one calendar year to get settled before a downturn occurs. They may want to solicit some advice from Obama, who took office in January 2009, during the deepest recession in the post-World War II era.

  So there you have it, rock solid proof that there will be no recession in 2018. However things are looking pretty scary for 2021 and 2022 because as you can see from the graph shown above, only 1 economist is betting on a downturn in either of those years, meaning a recession is a virtual certainty. 

  As Bloomberg goes on to note, the economists surveyed “said there’s a 10 percent chance of a U.S. recession within the next 12 months,” which is particularly amusing because if anyone was being honest at the BEA (i.e. if someone hadn’t brought out “residual seasonality” to explain why GDP data needs to be double-adjusted), the US would have been one quarter of bad “weather” away from a recession earlier this year.

  It’s also worth noting that the experts polled don’t seem to think much of the myriad risk factors staring them squarely in the face; risk factors like a rapidly decelerating China, slumping global demand, chronically depressed global trade, a worldwide deflationary supply glut, and a veritable meltdown in emerging markets. Indeed some of those factors were recently cited by Citi’s pet rock-hating chief economist Willem Buiter who, as Bloomberg also points out, this week “assigned a 55 percent chance to some form of global recession in the next couple years.” Which brings us to the punchline. The fourth sentence from the top in the Buiter’s note predicting better than even odds for a global recession reads as follows: 

  Economics isn’t rocket science, and even rockets frequently land in the wrong place or explode in mid-air.

  

  

  

  

  

• Inside Ground Zero Of Canada's Recession

  In the past year, we have extensively profiled the collapse of ground zero of Canada’s oil industry as a result of the plunge in the price of oil, in posts such as the following:

  • “Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years”
  • “Canada’s Biggest Oil Casualty To Date: Calgary’s Nexen Shutters Oil Trading Desk”
  • “The Canadian Housing Bubble Has Begun To Burst”
  • “Canada’s Oil Patch Confidence Crashes“
  • “Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk“
  • “The Stage Is Set For A Massive Housing Market Correction in Canada’s Oilpatch“

  Since then it has gotten far, far worse for Canada. In fact, as of September 1 it culminated with the first official recession in 7 years.

  

  And it’s only downhill from there. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch. To wit:

  The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton. In a report released Tuesday, the real-estate brokerage’s chief economist Andrew Nelson said, “the fall in oil prices has had a negative impact on the energy-reliant markets (in Western Canada),” which has contributed to rising vacancy rates and falling rental prices in Alberta’s two largest cities.

   

  Vacancy rates jumped over the course of the second quarter. In Calgary’s case, Colliers reported the downtown vacancy rate rose to 13 per cent from 10 per cent, while Edmonton’s vacancy rate increased to 11.2 per cent from 10.6 per cent.

   

  A glut of new buildings under construction in both cities could push those numbers up even higher. “Canada is also in the midst of an ill-timed supply surge that caused vacancy rates to rise even in markets with positive absorption in (the second quarter),” the report noted.

   

  There are 5.2 million square feet of office space under construction in Calgary right now, which is the largest amount of new commercial space being built in any city in Canada and could further push up vacancy rates.

   

  Edmonton, a city with a current total of 17 million square feet of office space, is in the middle of its own building boom with over 2 million square feet of space under construction.

  There is a silver lining:

  Some observers see at least a partial silver lining in the numbers. In recent years, Calgary Chamber of Commerce director of policy and research Justin Smith said, commercial real estate costs downtown Calgary were “going through the roof” and “accelerating at a pace far beyond the Canadian average.”

   

  He said those escalating costs made it difficult for some companies to stay in downtown Calgary and noted that even large companies like Imperial Oil Ltd. and CP Rail Ltd. moved their head offices to the suburbs.

   

  The uptick in vacancy rates, he said, could provide some relief to smaller companies looking to do business downtown, as rental rates are projected to fall as vacancies rise.

   

  * * *

   

  Weakening demand for office space in both Calgary and Edmonton has resulted in large quantities of commercial real estate coming back on the market this year.

   

  The report showed that 1.7 million square feet of office space has become available in Calgary’s downtown core, thanks in part to thousands of layoffs in the oil patch and a decline in the need for commercial space.

   

  That is the largest quantity of newly empty space in any downtown in North America, including Houston, an oil and gas town where 1.6 million square feet have become available this year.

  Who said deflation is a bad thing? Well, all the rich people for one, whose liabilities are denominated in fixed value debt, yet whose equity value and whose cash flow has just crashed through the floor, forcing them liquidate assets.

  Which means that for all the pain in the oil sector, one industry is booming: pawn shops.  As CBC reports, “some of the newly rich and long time wealthy in Calgary’s once hot economy are now looking for fast cash because of the economic downturn, and they’re turning to pawn shops.”

  ?”Right now we have one, two…10 Rolexes for sale, two Panerais, a few Tag Heuers,” said John Sanford, one of the owners of Rocky Mountain Pawn on Macleod Trail, as he counts the luxury watches in a glass case.

   

  He has 100 more in a back room. He will have many more because “the economy has changed his clientele too, as formerly well-paid people are telling him they’ve been laid off or plan to leave town.”

  “People have come in and they’ve said, ‘That’s it, I’m heading back to Ottawa, Montreal,'” he said.

  About six months ago, high-end items started rolling in to his shop, such as a 5.1-carat diamond — a $200,000 stone — and designer hand bags “whether it be Louis Vuitton, Chanel or Gucci.”

  

  Some of the items Calgarians are pawning to weather the recession.
  (Kate Adach/CBC)

  For some the current recession, Canada’s second since the great financial crisis, is already worse than the last one: “in the 2008 recession, some pawn shops had to close because they were giving out more money than they were able to make up in sales, Sanford says.” Not this time, though: this time, Sanford is being careful about the items he takes in because fewer people are buying.

  “And whether it be Louis Vuitton, Chanel or, you know, Gucci, it’s special and sometimes the person is pawning it, getting that $400 or $500, and they truly are going to be back for it.”

  

  Gucci and Louis Vuitton goods are just some of the designer items at
  Calgary pawn shops. (Kate Adach/CBC)

  And this is what it looks like when recent millionaires are scrambling for any source of cash: there has been a steady stream of customers, including a woman pawning Vera Wang earrings for about $3,000, or a man who can’t find steady work as a truck driver so he’s putting some art work on loan for short-term cash.

  “That’s a good grocery bill for a month, so — yeah — it’s very important to get that $200,” said Robert Huntington, who has used the pawn shop for the third time this year. He intends to pay back the money he borrowed from the pawn shop, plus rent, and eventually get his art work back — one of the many customers hoping to reclaim their items when things turn around, says Sanford.

  Good luck to him, and in retrospect perhaps deflation isn’t good for everyone: certainly not those whose cash outflows are greater than their current inflows, and have debt. They may not survive.

  For everyone else in Canada’s recessionary ground zero, strap in because it is only going to get worse. And if Goldman’s $20 oil price target is correct (unlike its $200 price target 7 years ago) it will get a lot worse.

  

  

  

  

  

• $20 Oil? Goldman Says It's Possible

  We’ve long framed collapsing crude prices as a battle between the Saudis and the Fed. 

  When Saudi Arabia killed the petrodollar late last year in a bid to bankrupt the US shale space and secure a bit of leverage over the Russians, the kingdom may or may not have fully understood the power of ZIRP and the implications that power had for struggling US producers. Thanks to the fact that ultra accommodative Fed policy has left capital markets wide open, the US shale space has managed to stay in business far longer than would otherwise have been possible in the face of slumping crude. That’s bad news for the Saudis who, after burning through tens of billions in FX reserves to help plug a yawning budget gap, have now resorted to tapping the very same accommodative debt markets that are keeping their competition in business as a fiscal deficit on the order of 20% of GDP looms large.

  But even with a gaping hole in the budget and an expensive proxy war raging in Yemen, it’s not all bad news for Saudi Arabia as evidenced by King Salman’s lavish Mercedes procession upon arrival in DC last week and as evidenced by the fact that, as The Telegraph reports, non-cartel output is beginning to fold under the pressure of low prices. Here’s more: 

  Oil produced outside the Orgainsation of the Petroleum Exporting Countries (Opec) is slowing at its fastest rate in 20 years as lower prices hit higher cost producers such as the North Sea and US shale drillers, a leading energy think tank has warned.

   

  The Paris-based International Energy Agency (IEA) has said that lower production in the US, Russia and the North Sea would result in output outside Opec dropping to 57.7m barrels per day (bpd) in 2016. The majority of the declines would come from US light crude, which is expected to decline by 400,000 bpd.

   

  “The steep declines in US crude oil production seen since the end of June has created some optimism that we are now finally seeing that start of a steep decline,” said Bjarne Schieldrop, chief commodities analyst at SEB.

   

  Oil prices have plunged 50pc this year with Brent crude trading well below $50 per barrel, a level which makes it uneconomical for many producers. Opec, under pressure from Saudi Arabia, has allowed oil prices to fall in an effort to protect its shrinking market share especially from the rise of shale oil drillers in the US.

  So mission (partially) accomplished we suppose, and with banks set to reevaluate credit lines to US producers next month (i.e. the revolver raids are coming), it likely won’t be long before the competition starts to dry up. The only remaining question then, is how low will oil go in the near- and medium-term and on that point we go to Goldman for more:

  Oil prices have declined sharply over the past month to our $45/bbl WTI Fall forecast. While this decline was precipitated by macro concerns, it was warranted in our view by weak fundamentals. In fact, the oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop. 

   

  
  

  So a persistent global deflationary supply glut driven by lackluster demand. Nothing new there, and in fact, that exact confluence of factors was tipped to send oil to $25 in these very pages more than nine months ago. Now back to Goldman:

  Given our updated forecast for a more oversupplied oil market in 2016, we are lowering our oil price forecast once again. Our new 1-, 3-, 6- and 12-mo WTI oil price forecast are $38/bbl, $42/bbl, $40/bbl and $45/bbl. Our 2016 forecast is $45/bbl vs. $57/bbl previously and forwards at $51/bbl. As we continue to view US shale as the likely near-term source of supply adjustment given the short cycle nature of shale production, we forecast that US Lower 48 crude & NGL production will decline by 585 kb/d in 2016 with other non-OPEC supply down 220 kb/d to end the oversupply by 4Q16.

   

  
  

  Got it. And just how low, in a worst case scenario, could crude go? 

  This creates the risk that a slowdown in US production takes place too late or not at all, forcing oil markets to balance elsewhere or as they have historically cleared, through a collapse to production costs once the surplus breaches logistical and storage capacity. Net, while we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around $20/bbl Brent prices, on our estimates. While such a drop would prove transient and help to immediately rebalance the supply and demand for barrels, it would likely do little for the longer-term capital imbalance in the market with only lower prices for longer rebalancing the capital markets for energy. 

  So there you have it, a collapse to $20 Brent, but while the Saudis may have won the battle, the war is not yet over:

  The levers to force HY producers into lower production, such as borrowing basis redeterminations, debt maturities and hedge coverage, are significantly less binding for IG E&Ps. It is instead management’s focus on balancing capex and cash flow and investors’ willingness to finance funding gaps that are the levers of adjustments for this cohort of companies. And while HY debt markets may be once again shutting, tentative signs of greater discipline by US IG E&Ps have so far only translated in stabilizing production guidance rather than pointing to the decline that our global oil balance requires.

   

  As a result, the sharp intensification in producer financial stress observed recently – with forward oil prices and energy equity share prices at multi-year lows (and credit spreads at highs) – is unlikely to yield sufficient financial stress in the short-term. So while this deterioration in financial conditions is finally reflecting the markets’ decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than previously expected, we now believe that such stress needs to remain in place well into 2016 and up until evidence emerges that US shale production growth is actually required.

   

  

  And speaking of war, the obvious risk to any forecast that calls for sharply lower crude is that some mid-air “accident” in Syria takes the “proxy” out of “proxy war”, in which case crude soars as Russia and Iran square off against a US coalition that would swiftly include Saudi Arabia in what would very likely be the precursor to a wider conflict the scope of which we haven’t seen since 1939. 

  Oh, and for all the muppets out there, Goldman has upgraded European oil producers:

  Dividends may be cut, but with over coverage now yielding 6% on average this is becoming priced in. We expect returns and FCF to trough in 2016, and improve in 2017/18 driven by higher oil prices and falling costs. Even with this, valuations do not yet look compelling, but we move to a Neutral Coverage View from Cautious.

  

  

  

  

  

• It Begins: Europe Flooded With Reports Of "ISIS Terrorists" Posing As Refugees

  While the US is looking back at the 14 year anniversary of what is widely accepted as the biggest terrorist event in modern US history, in Europe it is time to look forward to what may be the advent of domestic “terrorism” in the coming months, whether real or false flagged.

  Earlier this week, one of our contributors Erico Tavares pointed out something disturbing, namely that in Europe’s perpetual search for “crises” on which to capitalize in its relentless encroachment to a European superstate, the current migrant crisis may be a blessing in disguise (assuming, of course, it wasn’t premeditated from day one as others have suggested).

  Why blessing? Because just like the US Patriot Act which allowed a massive expansion of the US government apparatus while obliterating civil and privacy rights (highlighted earlier today), confirmed a decade later by Edward Snowden, was a regulation in search of a terrorist event, so Europe’s next superstate expansion will require a comparable anti-terrorism “rush” in which the population voluntarily hands Europe’s supra-government even more rights to centrally-plan as it sees fit.

  Which means that as part of the refugee crisis in which tens of thousands of innocent Syrians have been displaced and seeking European asylum, it was only a matter of time before one or more was “found” to be ISIS terrorists in order to perpetuate the fear and crisis narrative. A crisis which Brussels would never go to waste.

  That time has arrived following a report by German RTL and carried by NewObserver that “an ISIS terrorist posing as an “asylum seeker” has been arrested by German police in a “refugee” center in Stuttgart, and German customs officers have seized boxes containing Syrian passports being smuggled into Europe.”

  So it begins.

  According to RTL, the terrorist is a 21-year-old Moroccan using a “false identity” who had registered as an asylum seeker in the district of Ludwigsburg. He was identified after police linked him to a European arrest warrant issued by the Spanish authorities. He is accused of recruiting fighters for ISIS, where he acted as a contact person for fighters who wanted to travel to Syria or Iraq.

  This arrest of the alleged bogus “asylum seeker” comes at the same time that a German finance ministry spokesman said that
  “boxes” of fake Syrian passports, destined for sale and distribution to the hordes of nonwhite invaders seeking to settle in Europe as bogus “war refugees,” had been seized.”

  That news, carried in a report by the German Tagespiegel newspaper, also revealed that 10,000 fake Syrian passports were seized by police in Bulgaria, on their way to Germany.

  The finance ministry official said both genuine and forged passports were in the packets intercepted in the post. Possession of these passports is a vital part of claiming “asylum” as “war refugees.”

   

  The Tagespiegel also revealed that the fake Syrian passports are being sold for about $1,500 each—and the fact that many of the “refugees” can afford to buy multiple passports is yet another indication of the bogus nature of their claims to be “asylum seekers.”

   

  Significantly, the Tagespiegel article continued, “It is not only Syrians who are interested in Syrian passports. Refugees from Iraq, Afghanistan, and Pakistan want to become Syrian in order to secure their recognition as asylum seekers in Western Europe. According to press reports, nine out of ten refugees who came from Macedonia to Serbia claimed they were Syrians.”

  Setting the expectations was the head of the EU frontier police, Fabrice Leggeri, who in a recent interview with the Europe 1 TV station said that the trade in fake Syrian passports originated in Turkey. “There are people who are now in Turkey, buying false Syrian passports because they have obviously realized that it is a windfall since Syrians get asylum in all Member States in the European Union,” he said. “People who use false Syrian passports often speak in Arabic. They may originate in North Africa or the Middle East, but have the profile of economic migrants.”

  And then just to ratchet the fear factor, earlier this week Hungary’s most watched national TV channel, M1, reported Tuesday that at least two “terrorists” were uncovered via photographs on social media after entering Europe as refugees.

  RT has more:

  “Islamist terrorists, disguised as refugees, have showed up in Europe. [The] pictures were uploaded on various social networks to show that terrorists are now present in most European cities. Many, who are now illegal immigrants, fought alongside Islamic State before,” the report said.

  The Hungarian channel broadcasted collections of photographs of the two men from social media. The first set depicted two individuals with weapons and the second set showed them smiling as they arrived in Europe.

  A breach in the “terrorism has arrived” narrative emerged it was revealed that the man claimed to be an Islamic State militant had previously given an interview to AP, saying that he was a former Syrian rebel commander. “The AP reported that his name was Laith Al Saleh, 30, and he “led a 700-strong rebel unit in Syria’s civil war.” The news agency’s photos taken on August 15 showed Al Saleh among other refugees waiting to board an Athens-bound ferry on the Greek island of Kos.”

  And then it gets awkward: AP reported that he was a member of the Free Syrian Army, which is fighting against the Syrian government forces of President Bashar Assad, as well as against terrorist groups in the region.

  Actually, the US-funded and supported FSA’s only purpose was the same as that of ISIS – to crush the Syrian army and overthrow the elected president so Qatar can break Gazprom’s monopoly on European gas imports.

  But now the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.

  But ignore the facts, and focus on the propaganda, which as RT further adds is in full crisis mode: A recent article in the UK Express Daily claimed that IS “smuggled thousands of covert jihadists into Europe.” It cited a January BuzzFeed interview with an IS operative who said the militants have already sent some 4,000 fighters into Europe under guise of refugees.

  These speculations have not been confirmed by Western security officials, although that’s only temporary: as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions throw in for good effect.

  Certainly expect a version of Europe’a Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.

  And since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.

  

  

  

  

  

• "They're Making Idiots Of Us!": Eastern Europe Furious At West For Doing Gas Deals With Russian Devils

  Back in June, when Greece was still predisposed to waving around an MOU for participation in the Turkish Stream natural gas pipeline in a desperate attempt to play the Russian pivot card and force Brussels to blink, we remarked that the Turkish Stream MOU with Greece wasn’t the only preliminary energy deal Gazprom inked at the St Petersburg International Economic Forum. 

  The company also signed a memorandum of intent with Shell, E.On and OMV to double the capacity of the Nord Stream pipeline — the shortest route from Russian gas fields to Europe — to 110bcm/year.

  That, we said, proves Russia is making progress in efforts to facilitate the unimpeded flow of gas to Europe even as the crisis in Ukraine escalates.

  Nearly three months later and Ukraine isn’t happy. Neither is Slovakia. Here’s Bloomberg:

  Eastern European nations set to lose billions of dollars in natural gas transit fees are lambasting western Europe for striking another pipeline deal with Russia that will circumvent Ukraine.

   

  The prime ministers of Slovakia and Ukraine criticized an agreement between western European companies from Germany’s EON AG to Paris-based Engie with Russian pipeline gas export monopoly Gazprom PJSC to expand a Baltic Sea link. Western European leaders and companies are “betraying” their eastern neighbors, Slovakia’s

   

  Robert Fico said after meeting Ukraine’s Arseniy Yatsenyuk in the Slovak capital of Bratislava on Thursday.

   

  Gazprom and EON, Engie, Royal Dutch Shell Plc, OMV AG and BASF SE signed an agreement last week to expand Nord Stream by 55 billion cubic meters a year, or almost 15 percent of current EU demand. Ukraine, already struggling to avoid a default amid a conflict with Moscow-backed separatists in its east, is set to lose $2 billion a year in transit fees while Slovakia would lose hundreds of millions of euros, the leaders said.

   

  Russia is trying to cut how much gas it ships via Ukraine’s Soviet-era pipelines as international courts arbitrate in pricing disputes between the nations, echoing spats that caused supplies to Europe to halt several times during the past decade. Russia currently ships about a third of its Europe-bound gas via Ukraine, down from about two-thirds in 2011, when the Nord Stream pipeline under the Baltic Sea started supplying Germany directly.

   

  
  

   

  Nord Stream-2, set to start supplying Europe in 2019, completely neglects Polish interests and hurts the EU’s unity in the face of Russian President Vladimir Putin’s “aggression” in Ukraine, Polish President Andrzej Duda said on Wednesday. Ukraine’s Yatsenyuk called the project “anti-Ukrainian and anti-European” on Thursday.

   

  “They are making idiots of us,” Fico said. “You can’t talk for months about how to stabilize the situation and then take a decision that puts Ukraine and Slovakia into an unenviable situation.”

  Well, sure you can.

  In fact, when it comes to making grand public declarations about “stabilizing” unstable geopolitical situations and then turning around and doing something completely destabilizing, the West (and especially the US) are without equal, as evidenced by all manner of historical precedent including Washington’s efforts to help sack Viktor Yanukovych whose ouster precipitated the conflict in Ukraine in the first place. And make no mistake, to the extent there’s energy and money involved, that’s all the more true which is why it isn’t at all surprising that Western Europe would facilitate a deal that lets Gazprom bypass a war zone if it means getting natural gas to countries that “matter” in a more efficient way.

  Now that doesn’t mean the EU won’t cover its tracks by filing anti-trust charges against Gazprom or by publicly decrying the Kremlin’s alleged role in fueling Ukraine’s civil war, but what it does mean is that the interests of war-torn nations and their beleaguered masses simply don’t matter when there’s natural gas involved.

  Just ask a Syrian refugee.

  

  

  

  

  

• More American Cronyism: US Government Selling Visas To Fund Luxury Apartment Buildings

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  – From the Wall Street Journal article: How a U.S. Visa-for-Cash Plan Funds Luxury Apartment Buildings

  Another day, another story highlighting just how completely corrupt and sleazy the U.S. economy has become.

  I’ve covered the issue of EB-5 visas before, and how a program that was initially supposed to help high unemployment neighborhoods attract investment, has become another scheme to further enrich America’s crony capitalist class.

  Before we get into the meat of this post, here are a few excerpts from last year’s piece, How NYC’s Biggest Real Estate Project in a Generation is Being Financed by Selling Green Cards to the Chinese:

  Developer Related Cos. says it has raised roughly $600 million from the families to build the foundation for three skyscrapers at the West Side project, a 17-million-square-foot colossus of office, retail and residential space set to open over the next decade.

   

  To finance the concrete-steel platform, Related tapped a little-known and at times controversial federal visa program known as EB-5, which offers green cards to foreign families who invest at least $500,000 in U.S. projects that create at least 10 jobs per investor.

   

  At times the program has invited scrutiny. The U.S. Securities and Exchange Commission last year warned of “fraudulent securities offerings” related to the EB-5 program, in which investors put money into nonexistent projects. The program also has come under fire because it can be difficult for investors overseas to discern safe investments from risky ones, and if the investment fails to create the required jobs, they don’t get a green card. In addition, claims of jobs created are difficult to verify and the program administrator has been criticized for not having an effective system for doing so.

   

  Developers are embracing the program largely because it provides low-cost capital. Money borrowed through the EB-5 program carries much lower interest rates, sometimes half of what companies typically pay, executives said. That is because investors are primarily seeking green cards, not a profit, and generally are willing to accept low returns, EB-5 advisers said.

  While that article explained the recent explosion in EB-5 visa popularity, it failed to highlight the fact that this money was supposed to disproportionately help struggling areas. In reality, it’s all being funneled to luxury construction. Here’s how.

  Also from the Wall Street Journal:

  NEW YORK—The cluster of luxury apartment buildings and office towers rising in a development west of midtown called Hudson Yards seems a world apart from the low-income housing projects of upper Manhattan.

   

  But for purposes of an immigration program that helps finance Hudson Yards, it and Harlem’s Manhattanville public-housing towers are in the same district: a stringy one connected by three Census tracts that run along the Hudson River.

   

  Merging, on paper, the affluent midtown neighborhood and the struggling one uptown placed Hudson Yards in a community with an overall high unemployment rate, positioning developer Related Cos. to gain low-cost financing from foreigners seeking green cards.

   

  The program through which that happens, known as EB-5, enables foreign nationals to obtain U.S. permanent-resident status by putting up money for new business ventures that create American jobs. It gives ventures in high-unemployment and rural areas a special status to encourage investment. But as the program’s popularity has soared in recent years, the bulk of immigrant investment is going to projects that are located, like $20 billion Hudson Yards, in prosperous urban neighborhoods.

   

  A primary concern is that the use of EB-5 financing for high-price condo and office towers sops up the program’s capacity and leaves poorer communities out in the cold. No more than 10,000 visas that lead to permanent-resident status can be given out each year under the program. It hit the limit in the fiscal year ended Sept. 30, 2014.

   

  Though statistics aren’t made public on individual projects, a recent paper by two New York University professors tracked 25 large business startups that have turned to the EB-5 program to raise a total of more than $4.5 billion in financing. Twenty-two were urban real-estate projects, including 14 in prime Manhattan neighborhoods and others in Seattle and on the Las Vegas Strip.

   

  Related is the single largest user of EB-5 financing. By its own measure, it accounts for about 20% of the dollars being raised through the program today. The closely held company used the program to raise $600 million for a first phase of Hudson Yards last year and is in the process of raising another $600 million for a new office tower and a retail hub.

   

  The coming debate in Congress stands to bring the program its greatest scrutiny since it was created in 1990.

   

  Things began to change in 2009, amid two shifts. The agency overseeing the program—the U.S. Citizenship and Immigration Services unit of the Department of Homeland Security—let the job-creation tally count more construction jobs if they last at least two years. And banks all but shut off credit for construction projects amid the economic slump.

   

  Real-estate developers discovered EB-5. Money from foreign investors, primarily Chinese, began to pour into major developments around the U.S., typically supplementing more-senior debt. A hotel and apartment project in Washington raised more than $40 million through the program. A W hotel in Hollywood raised $20 million. A planned 16-tower apartment project connected to Brooklyn’s Barclays Center basketball arena took in $229 million.

   

  Lenders have since returned to real estate, but developers are attracted by another aspect of EB-5 financing: low cost. Because the foreign investors are after a green card, they have been willing to accept very low interest rates on money they lend, typically for four or five years. Developers save even though they face other costs to use the program.

   

  Many of such projects could easily have been financed on the private market, according to Gary Friedland, who wrote the NYU paper with fellow professor Jeanne Calderon. “It’s a profit enhancement,” he said. “The original argument was more of a ‘but for’ argument,” in which EB-5 was meant to spur projects that wouldn’t otherwise have happened. “That focus has been lost.”

   

  At least 80% of EB-5 money is going to projects that wouldn’t qualify as being in Targeted Employment Areas without “some form of gerrymandering,” estimates Michael Gibson, managing director of USAdvisors.org, which evaluates projects for foreign investors.

   

  Increasingly, the money appears to be flowing to the flashiest projects, which the investors often see as safest, EB-5 professionals say. Among those getting EB-5 money are an office building set to host Facebook Inc. near Amazon.com Inc.’s Seattle headquarters, a boutique hotel in high-end Miami Beach, and a slim Four Seasons condo-hotel in lower Manhattan that sports a penthouse with an asking price above $60 million. In all of them, geographic districts were crafted to include higher-unemployment areas.

   

  Meanwhile, some wanting to raise money for projects in rural areas and low-income parts of cities say they find it increasingly hard to compete. Evan Daniels has been trying for four years to raise about $40 million through the EB-5 program for a door-manufacturing plant in the rural southwestern Missouri town of Lamar.

   

  “The harder we worked on this, the more we found the money was going to L.A. and New York,” he said.

   

  In China, one pitch is speed in obtaining green-card approvals from U.S. Citizenship and Immigration Services. Related’s main broker has advertised that EB-5 investors receive initial approvals 11 months faster than the standard wait. That would mark a big advantage, because the average wait is about 14 months. It is unclear how its applications would be processed so quickly. USCIS declined to comment on Related’s applications.

  So the U.S. government is subsidizing the wealthiest developers to build projects for the wealthiest Americans. Someone must have taken a class taught by the Federal Reserve.

  Recall the post from earlier this year: Number of NYC Apartments for Rent Above $50k/Month Triples Since ’08; 82% of U.S. Construction = Luxury Units. Now we know why.

  

  Just another day in the imperial Banana Republic.

  

  

  

  

  

• To Hike Or Not To Hike (Fed, Economists, & Market Divided)

  No matter what, it's going to be a close-call…

  Fed members notably split

  

   

  And investors’ conviction of rate hikes in 2015 has been drifting…

  

   

  Market pricing of the timing of lift-off has fluctuated in a wide range this year:

  • Market has priced 20-100% hike odds by Sept.
  • Odds of 2015 hike fluctuated between 50-100%

  Key data releases have led to big shifts in market pricing as Fed emphasised data dependence

  • Strong January employment data led markets to fully price hike by September
  • Dovish March and June FOMC meetings led to lower odds of a hike this year

  Current market pricing suggests 30% odds of a hike in September and 75% chance of lift-off this year

  Low market pricing likely lowers chances of a hike in September

  • Fed would like to avoid surprising the market
  • Hiking against market expectations in September means greater volatility and more tightening of financial conditions than desired

  Economisseds remain split…

  

   

  But then again – they have been clueless…

  

   

  And as Ransquawk notes, the various banks are also split down the middle on whether The fed should hike or not next week…

  NO HIKE: BarCap, BNP, Credit Ag, Credit Suisse, HSBC, GS

   

  HIKE: BoFA, Deutsche Bank, JPM, RBS, Wells Fargo

  Here's why Deutsche Bank thinks they should raise rates in September…

  

  *  *  *

  Finally, this is the most important chart for the next few days…

  

  h/t @Not_Jim_Cramer

   

  Simply put – The more you buy stocks, the higher the probability of a turmoil-creating rate-hike next week – that's the Dow-Data-Dependent Fed at work folks!!

  

  

  

  

• Wal-Mart Wage Hike Debacle Continues As Suppliers Forced To Layoff Employees Amid New Fees

  Earlier this year, in “What Happens After A Mega Corporation Raises Its Workers’ Wages,” we detailed the plight of Wal-Mart’s supply chain in the wake of the retailer’s decision to raise the pay floor for its lowest-paid employees. Here’s a recap: 

  When mega-corporations such as WalMart and McDonalds, whose specialties are commoditized products and services and who have razor thin margins, yet which try to give an appearance of doing the right thing, by raising minimum wages, they start flexing their muscles, and in the process trample all over the companies that comprise their own cost overhead: their suppliers and vendors. Take the case of WalMart: the world’s biggest retailer “is increasing the pressure on suppliers to cut the cost of their products, in an effort to regain the mantle of low-price leader and turn around its sluggish U.S. sales.” 

   

  What WalMart is doing is borderline illegal: it is explicitly telling its vendors “this is what you will do with your excess cash.” Of course, we say borderline because WMT’s action is perfectly legal in the confines of the pure law. However, in the context of an economy that is sputtering, WMT’s vendors have no choice but to comply or risk losing what is certainly their largest revenue stream and risk bankruptcy. 

   

  The irony is that while WMT (or MCD or GAP or Target) boosts the living standards of its employees by the smallest of fractions, it cripples the cost and wage structure of the entire ecosystem of vendors that feed into it, and what takes place is a veritable avalanche effect where a few cent increase for the lowest paid megacorp employees results in a tidal wave of layoffs for said megacorp’s vendors.

  As those who frequent these pages are no doubt aware, quite a bit has happened in Wal-Mart world since we penned those words. First there were “plumbing” problems which, for at least five locations, were so intractable as to necessitate store closures. Then came the mid-level management rumblings as the rest of Wal-Mart’s employees suddenly realized that an across-the-board wage hike for the lowest-paid workers meant the wage hierarchy was suddenly and irreversibly distorted. Shortly thereafter, a memo circulated at an Arkansas recruiting firm indicated a raft of layoffs could be in store for the Bentonville home office. Finally, unable to make up the $1 billion cost of the wage hikes and unable to pass that cost on to customers without surrendering the “low price leader” crown, Wal-Mart began cutting hours. 

  Now, we get still more evidence that the world’s largest physical retailer is attempting to make up for the cost of hiking wages by pressuring its suppliers only this time, the supply chain is pushing back. Here’s Bloomberg with more:

  After years of meeting demands for ever cheaper prices, many Wal-Mart Stores Inc. suppliers are saying no to new margin-squeezing storage fees and a payment schedule that could delay for months how quickly some are paid.

   

  The world’s largest retailer says the changes, laid out for vendors starting in June, reflect a push to simplify its relationships with suppliers, put them all on the same footing and reduce costs so it can offer customers the lowest prices. But some vendors see the new policy as an attempt by Wal-Mart to fatten its margins and offset wage hikes for store workers earlier this year.

  And whereas before, Wal-Mart was “merely” asking suppliers to do everything possible to lower prices (i.e. dictating how vendors will use FCF), this time, Wal-Mart is actually adding new fees:

  Vendors were already feeling added pressure from Wal-Mart to cut costs after the retailer told them earlier this year to dial back on marketing and promotions and use the savings to lower their prices, he said.

   

  Traditionally Wal-Mart has largely avoided the extra fees some other retailers charge, so the policy change was a surprise, said Leon Nicholas, a senior vice president at Kantar Retail, which advises dozens of Wal-Mart suppliers.

   

  “What is so shocking this round is that they are being aggressive not in asking suppliers to take costs out of the system so the supplier can lower prices, but instead adding cost into the system,” Nicholas said. “It looks as though they are trying to have it both ways and trying to pad their own margins where they are facing cost pressure.”

  As for suppliers who don’t comply, well, they’ll be “punished”:

  Wal-Mart could punish suppliers that don’t agree to all or some of the new terms by cutting back shelf space for a product, giving it less favorable placement in the store or dropping a supplier all together.

  Just as we predicted back in April, the end result of Wal-Mart’s push to score public opinion points by making the meager wages of its lowest paid workers look a little less meager will be the elimination of jobs along the supply chain:

  A smaller supplier, notified of the fees late last month and given two weeks to accept, said it won’t be able to make a profit on its Wal-Mart business under those terms unless it fires workers or cuts wages and benefits.

  So there, once again, is economics 101 at work and as we noted late last month, it should have been abundantly clear from the start that if ever there were an employer that could ill-afford a $1 billion across-the-board pay raise without immediately making up the difference by either firing some employees, cutting hours, or squeezing the supply chain it’s Wal-Mart, because after all, they’re the “low price leader”, and you don’t hold on to that title by passing labor costs on to customers. 

  In the end, suppliers may be trying to push back, but they’re unlikely to cut their noses of to spite their faces by creating a contentious relationship with the company that’s responsible for their largest revenue stream which is why ultimately, it’s vendors’ employees who will suffer so that Wal-Mart’s cashiers can make $9/hour instead of $8. We’ll close with the following lament from Leon Nicholas (quoted above): 

  “You can push and push, but at the end of the day you know where the power lies.”

  

  

  

  

  

• Weekend Reading: Rooting For The Bull?

  Submitted by Lance Roberts via STA Wealth Management,

  This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.

  However, as I addressed yesterday:

  “Since the ‘debt ceiling debt default’ crisis in 2011, the markets have traded within a much defined bullish trend.

   

  That trend was decisively broken this summer, and the market has yet to regain its footing. While the market ‘bulls’ expect the markets to recover and move back to all-time highs, there is also a possibility of failure that should not be ignored."

  

  "If the market rallies back to the bullish trend channel, and fails, it will likely lead to a continuation of the current correction.

   

  Could the market re-establish a new bullish trend channel at a lower level? Yes. However, as discussed in Tuesday’s missive, the internal deterioration in the market is more consistent with the development of more major bull market peaks rather than just a correction within a bullish trend. 

   

  In every market cycle throughout history, there have been times where it was vastly more beneficial to “err to the side of caution.

   

  This is very likely one of those times.”

  This weekend’s reading list is dedicated to the views on the issues surrounding the current market environment and the Fed. While it is always more fun to root for a continuation of the bull market, it is a far different matter to bet on it and be wrong. 

  ---

  THE LIST

  1) Monetary Policy Lags – Fed Must Act Soon by Richard Fisher via The Financial Times

  “Policymakers should focus on the direction of price changes over the medium term. This is easier said than done; you cannot be certain whether the latest inflation numbers reflect a long-running trend or a passing storm. The Fed tries to get around this by focusing on “core” inflation measures that leave out food and energy prices, which are volatile in the short term. The idea is to silence the noise in the inflation numbers, while leaving the signal.

   

  But the Fed’s favored measure does not do as good a job as it could; while less noisy than the headline inflation rate, it has also been persistently low. Over the past 10 years, looking only at data that would have been available to policymakers in real time, conventional core PCE inflation has averaged 1.65 per cent, nearly 30 basis points below headline inflation’s 1.94 per cent average. Setting policy using this measure is like navigating using a compass: it has a systematic bias and is influenced by local anomalies in the earth’s magnetic field.”

  Read Also: What Jackson Hole Missed On Inflation by Bob Eisenbeis via Cumberland Advisors

   

  2) The Fed Is About To Unleash Deflation by Deutsche Bank via ZeroHedge

  “Breaking down the breakeven and real yield components verifies that central bank liquidity has been more associated with real yields then breakevens, however the relationship is perverse! Real yields have tended to fall when balance sheet expansion is slowing while breakevens have generally been stickier. This suggests that risk assets drive (real) yields and that breakevens anticipate a (delayed) liquidity injection.

   

  Right now the decline in Central Bank liquidity suggests 5y5y should be closer to 2 percent or below not 3 percent or above. And this is before the Fed has tightened and China has potentially ‘finished’ its adjustment.”

  

  VIDEO: David Stockman: Why Fed Reserve Actions Will Have Disastrous Long-Term Consequences.

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  3) The Stock Market’s Wake Up Call by Eric Nelson via Servo Wealth Management

  “Until recently we had gone several years without a double-digit decline in US stocks.  For long-term investors, that length of time can lead to a false sense of security and entitlement—believing that stocks should always go up and they have a right to consistently-positive returns.  But that has never been the case; if it were, long-term historical and future returns wouldn’t be as high as they have been or are expected to be.  The chart below looks at the periodic returns of stocks, bonds and balanced portfolios from 1928-2014, net of inflation.”

  

  Read Also: 5 Reasons The Markets Are Going Haywire by Matt Turner via Business Insider

   

  4) The Stock Market Is In All-Or-Nothing Mode by Matt Egan via CNN Money

  “Investors have been taken on a wild ride this summer that's been nearly unprecedented.

   

  The craziness was punctuated by the Dow's 1,000-point nosedive on August 24, its largest intraday point decline on record.

   

  But here's an even more telling sign of the swings: Bespoke Investment Group tracks "all or nothing days," which occur when at least 80% of the S&P 500 advances or declines. In other words, herd mentality drags nearly the entire market in one direction or the other.

   

  During the 12 trading sessions between August 20 and September 4, there were eight all or nothing days, according to Bespoke. There have only been two other times since 1990 that there were as many all or nothing days in that short of a period. These events have been extremely rare.”

  Read Also: Use The Coming Stock Market Rally To Sell by Ken Goldberg via TheStreet.com

   

  5) Baby, It’s Cold Outside by Doug Kass via Kass’ Korner

  “As for Wall Street, baby it’s really cold outside these days – and the market appears to me to have pneumonia. But it’s not as if this brutal season came upon us without warning, as there were clear indications of a blizzard ahead… 

  • Market leadership was narrowing and breadth was deteriorating.
  • Transports, cyclical and industrials had already entered a bear market.
  • The price of numerous forward-economic-looking commodities (i.e.. copper and oil had plunged.
  • Volatility had exploded in many asset classes (stocks, bonds, currencies and commodities).
  • Signposts of slowing global economic growth were numerous, led by moderating growth in China, the current engine of worldwide growth.
  • Corporate profit-growth expectations were steadily eroding.
  • Credit spreads were widening.
  • Easy U.S. monetary policy was losing its impact, and inertia on our leaders’ part was the mainstay of fiscal policy.
  • Malinvestment and overvaluations were sprouting up in many different asset classes.
  • Despite all of these fundamental and technical faults, sentiment was unaffected and the “bull market in complacency” continued as valuations rose ever higher.
  • The chasm between financial asset prices and the real economy widened. “

  Read Also: Where Is The S&P 500 Heading Now?by J C Parets via All-Star Charts

  ---

  Other Reading

  • What You Witnessed Wasn’t A Crash by John Hussman via Hussman Funds
  • Rates Sadly Reflect The Fed, Not The Economy by Joseph Calhoun via Alhambra Partners
  • The Corporate Revenue Recession Spreads by Wolf Richter via Naked Capitalism
  • The Best Investment For The Next 12-Months by Jesse Livermore via Philosophical Economics
  • If It Looks Like A Bear… by Jesse Felder via The Felder Report
  • Definitions Every Investor Should Know (Funny)by Ben Carson via A Wealth Of Common Sense

  ---

  “Perhaps the foremost lesson which I have learned is that emotions rule the world, rather than statistics, information, or anything else.” – Roger Babson

  Have a great weekend.

  

  

  

  

  

• Stocks & Bond Yields Surge'n'Purge Thanks To "Asian Intervention Week"

  In case you were unaware of what happened this week… this should explain it… The 3 Storms of Li, Zhou, and Kuroda stepped in!!

   

  Before we get started – let's get this off our chest:

  Asia Intervention Week anyone?

  • ChiNext (+11.1%) – best week in 4 months
  • Shenzhen Composite (+6.4%) – best week in 2 months

  It looks like they finally killed it…

  

   

  Yes – Yes you did!

  

  • Nikkei 225 (+2.7%) – best week in 2 months
  • Copper (+6%) – best week in 4 months
  • Offshore Yuan (+0.9%) – best week in 6 months
  • USDJPY (+1.3%) – biggest jump (JPY's biggest weakening) in 4 months
  • USD Index down 6 days straight – longest streak in 5 months

  That bled over into some US markets:

  • VIX (-11.6%) – biggest weekly drop in 2 months
  • Dow Transports (+3.1%) – biggest week since last week of July
  • S&P Tech Sector (+2.75%) – best week in 2 months
  • S&P Biotechs (+5.5%) – best week in 2 months

  *  *  *

  Equity futures markets provide perhaps the most clarity on the week's swings (since most of the action takes place before and after the US sessions)…

  

   

  An afternoon ramp dragged everything green for the day… Of course – we warned the bears!!!

  

   

  And so from Friday, cash equity indices all closed green for the week… Trannies and Small Caps soared over 3 weeks – the easiest to short squeeze!!

  

   

  Energy was the week's loser while Tech and homebuilders surged…

  

   

  Once again VIX was plugged into the close to ensure a green close…

  

   

  Once again though, The VIX Slam has lost its momo mojo…

  

   

  Put-Call ratios (average over the last 2 weeks) are at their hghest since March 2007

  

   

  Treasusry yields massively round-tripped on the week… 2Y yields ended very modestly lower with 30Y up just 7bps (well off its 3.037% highjs on 9/9)

  

   

  The USD Index has fallen for 6 straight days – its longest streak since April… as EUR (and AUD) strength handily beat JPY weakness…

  

   

  With a 'Death Cross' looming amid a coiling USD Index making lower highs…

  

   

  Despite the week's USD weakness, commodities (in general) were lower (with WTI worst)… Gold down 3rd week in a row.

  

   

  Oil and Vol remains notably decoupled post-Andy-Hall's month-end malarkey…

  

   

  The exception being copper… Which lifted thanks to China intervention early in the week…notice anything odd?

  

   

  Copper had its best week (up almost 6%) in 4 months… the last time it had a rip-fest week like this marked the early May highs and led to a serious decline…

  

   

  Charts: Bloomberg

  Bonus Chart: Brazil Banged Back To 2005…

  

  

  

  

  

• Friday Humor: Instructions To Traders In The Event Of A Cyber Attack

  Presented with no comment…

   

  

   

  h/t @Erdal_Ozkaya

  via ModernTrader.com

  

  

  

  

• Interbank Credit Risk Is Rising Ominously Again In America

  We have been anxiously reminding investors of the drip-drip-drip increases in market-perceived credit risk for US financials for much of 2015. Having risen to almost 90bps amid the chaos of 2 weeks ago (almost double the lowest levels post-Lehman hit in June of last year), it appears systemic counterparty risk is very much on the rise. What is more concerning however, as Alhambra's Jeffrey Snider notes, the TED spread has exploded higher (since China's devaluation) indicating, as convention has it, a marked increase in perceptions of interbank credit risk.

  "Credit" risk perceptions have risen rapidly…

  

   

  And now the ominous TED Spread is flashing warning signals about the US Financial system…

  

   

  As Alhambra's Jeffrey Snider notes:

  With t-bills settled down again (another clue as to how disruptive the “dollar” run became at its worst), the TED spread has exploded higher indicating, as convention, a marked increase in at least perceptions of interbank credit risk.

   

  The TED spread now is where it was in the weeks just following the flash crash (Greece/euro) in later May 2010, and equal to October 2011 after the SNB pegged to the euro and the Fed reproduced dollar swaps globally.

   

  This is significant and seems to be underappreciated everywhere but places like VIX (and especially longer VIX futures).

  *  *  *

  Despite some modest amelioration in the last week – after massive seemingly coordinated intervention, perhaps, investors will start paying attention now.

  

  

  

  

  

• The Iran Deal (In Perspective)

  Presented with no comment…

   

  

   

  Source: Investors.com

  

  

  

  

  

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• US Military Admits It "Misplaced" Black Plague Samples

  Back in May, the US military was forced to admit that it had done something really stupid and what’s great about the story is that it requires very little in the way of explanation and/or added color to explain why what happened can be fairly classified as an example of sheer governmental incompetence. Put differently: this story speaks for itself. Here’s a recap: 

  According to CNN, “four lab workers in the United States and up to 22 overseas have been put in post-exposure treatment, a defense official said, following the revelation the U.S. military inadvertently shipped live anthrax samples in the past several days.” The army apparently thought they were shipping samples rendered inactive by gamma radiation last year, but that clearly was not the case because when a Maryland lab received their sample last Friday they were able to grow live Bacillus anthracis. The lab reported their concerns to the CDC. By Saturday afternoon, labs in Maryland, Texas, Wisconsin, Delaware, New Jersey, Tennessee, New York, California and Virginia were notified that the US military had accidentally mailed them the deadly bacteria. A sample sent to a US base in South Korea was destroyed on Wednesday.

  That came just a few months after the CDC admitted to mishandling an Ebola sample, potentially exposing a dozen people to the deadliest virus known to mankind.

  Needless to say, the story grabbed headlines across the country as Americans struggled to understand how it’s possible that the US army could possible have managed to unknowingly jeopardize dozens of lives by FedEx-ing live anthrax to nine states and one foreign country. 

  Well don’t look now, but the DoD is out warning that the army might have also mishandled samples of the black plague which isn’t known to be dangerous unless you count the time it wiped out 60% of Europe’s entire population. Here’s more from CNN:

  The U.S. Department of Defense is looking into possible mishandling of bubonic plague and equine encephalitis samples at its laboratories, a Pentagon spokesman said Thursday.

   

  The new inquiry is part of an investigation into the mishandling of anthrax at Department of Defense labs, Pentagon spokesman Peter Cook said.

   

  The department hasn’t determined whether samples containing plague bacteria and specimens of the deadly virus were shipped from its labs, Cook said.

   

  The latest investigation started after CDC inspectors found a sample of the plague in a freezer outside of a containment area on August 17 at the Edgewood Chemical Biological Center in Maryland, Cook said.

   

  Investigators are working to determine whether the sample posed an “infectious threat,” Cook said. Army tests found it was not infectious.

   

  “That’s the scientific work that’s being done at this particular time, determining exactly what happened there, and whether or not … there was mislabeling,” he said.

   

  Yersinia pestis, the same type of bacterium that was responsible for the plague pandemic that wiped out 60% of the European population between the 14th and 17th centuries, maintains a foothold in the United States and around the globe in rodents and the fleas that live on them.

   

  Today, the infections are treatable with antibiotics if they’re caught early enough. Since 1970, there have been anywhere from a few to a few dozen cases of plague every year in the United States, most of them occurring in Western states, according to the Centers for Disease Control and Prevention.

  Yes, only “a few to a few dozen cases of plague” per year, but that bubonic dearth is nothing the US military can’t fix with a few “mislabed” samples and a FedEx account.

  For their part, Fred Upton (chairman of the House Energy and Commerce Committee) and Frank Pallone (ranking Democrat) are incredulous: “Anthrax being mishandled is disconcerting enough, but now the mishandling also includes [the] plague.” Here’s a bit more from USA Today:

  The Pentagon’s most secure laboratories may have mislabeled, improperly stored and shipped samples of potentially infectious plague bacteria, which can cause several deadly forms of disease, USA TODAY has learned.

   

  The Centers for Disease Control and Prevention flagged the practices after inspections last month at an Army lab in Maryland, one of the Pentagon’s most secure labs. That helped prompt an emergency ban on research on all bioterror pathogens at nine laboratories run by the Pentagon, which was already reeling from revelations that another Army lab in Utah had mishandled anthrax samples for 10 years.

   

  Army Secretary John McHugh ordered the research moratorium on Sept. 2, Pentagon officials say, out of an abundance of caution.

   

  The suspect specimens, which may be live despite being labeled as killed or weakened, indicate a wider range of dangerous bioterror pathogens being handled using sloppy safety practices at laboratories operated by the U.S. military. They also further illustrate the risks faced by other scientists who rely on pathogen “death certificates” to know whether or not a provided sample is still infectious and can be worked with safely without special protective equipment. An ongoing USA TODAY Media Network investigation has revealed numerous mishaps at government, university and private labs that operate in the secretive world of biodefense research prompting growing concern in Congress and among biosafety experts.

  And while all of the above may look, on the surface, like cause for concern, you shouldn’t worry because ignorance is bliss and the US government is doing its best to make sure that you remain in the dark about anything that might actually be important: 

  Pentagon spokesman Peter Cook: “We’re trying to be as forthcoming as we can be right now without alarming the public.”

  

  

  

  

  

• A Libertarian Stand On Immigration: Refugees and Migrants In A World Of Government Meddling

  Submitted by Per Bylund via The Mises Institute,

  [Updated Author’s Note: The issue of immigration has only become more pressing over the ten years that have passed since this article’s original publication. And, unfortunately, the libertarian movement has not reached a consensus on this issue.

   

  But it should be easy, considering how government is at both ends of the problem: government is the number one reason people choose to escape their countries, whether because of governments’ war or devastating poverty due to the lack of opportunities in regulated markets; and government is the reason ordinary people, in a desperate state because their lives have been forcefully uprooted, have a hard time choosing where to lead their lives in peace. The desperation is due to the so-called “failings” of their own governments, and augmented by ours.

   

  I too have fled my country, though not because I’m fearing for my life but because I sought a better life and greater opportunities. While the immigration issue generally focuses on people from poor countries with little skill or education, it is hardly the case that governments welcome people at the other end of the spectrum: the highly productive, highly educated, and hard-working. On the contrary, government is the least forgiving, least reasonable, and most costly when it deals with non-citizens — those who cannot hold government officials accountable in any sense and do not have a voice. This should make immigration a prime target for the libertarian argument for freedom, peace, and property.

  Immigration Controls and the State

   The pre-1914 world saw no immigration issues or policies, and no real border controls. Instead, there was free movement in the real sense; there were no questions asked, people were treated respectfully and one did not even need official documents to enter or leave a country. This all changed with the First World War, after which states seem to compete with having the least humane view on foreigners seeking refuge within its territory.

  The “immigration policies” of modern states is yet another licensing scheme of the twentieth century: the state has enforced licensing of movement. It is virtually impossible to move across the artificial boundaries of the state’s territory in the search for opportunity, love, or work; one needs a state-issued license to move one’s body, be it across a river, over a mountain, or through a forest. The Berlin Wall may be gone, but the basic principle of it lives and thrives.

  Immigration controls are not different from other kinds of licensing even though it has been awarded a special name. Licensing has the same result regardless of what is licensed: licensing of physicians causes poor health care at higher cost just as licensing taxi businesses causes poor and untimely service at high cost — licensing on movement means restricted freedom and higher taxes for people (whether “citizens” or “foreigners”). From a libertarian point of view it should be clear that all licensing needs to be done away with, including licensing for immigrants.

  Yet the immigration issue seems to be somewhat of a divide within libertarianism, with two seemingly conflicting views on how to deal with population growth through immigration. On the one hand, it is not possible as a libertarian to support a regulated immigration policy, since government itself is never legitimate. This is the somewhat classical libertarian standpoint on immigration: open borders.

  On the other hand, the theory of natural rights and, especially, private property rights tells us anyone could move anywhere — but they need first to purchase their own piece of land on which to live or obtain necessary permission from the owner. Otherwise immigration becomes a violation of property rights, a trespass. This is an interpretation of a libertarian-principled immigration policy presented by Hans-Hermann Hoppe a few years ago, which since then has gained increasing recognition and support.

  To a non-libertarian bystander, the discussion of the two alternatives must seem quite absurd. What is the use of this libertarian idea of liberty, if people cannot agree on a simple issue such as immigration? I intend to show that the libertarian idea is as powerful as we claim, and that there is no reason we should not be able to reach consensus on the immigration issue. Both sides in this debate, the anti-government-policy as well as the pro-private-property, somehow fail to realize there is no real contradiction in their views.

  The Open Borders Argument

  The people advocating “open borders” in the immigration issue argue state borders are artificial, they are creations based on the coercive powers of the state, and therefore nothing about them can be legitimate. As things are, we should not (or, rather: cannot) regulate immigration. Everyone has a right to settle down and live wherever they wish. This is a matter of natural right; no one enjoys the right to force his decision upon me unless it is an act of self-defense when I am violating his rights.

  In a world order based on natural rights, this would be true. It is a golden rule, a universal rule of thumb proscribing that I’ll leave you alone if you leave me alone; if you attack me or try to force something or someone on me, I have a right to use force to defend myself and what is mine.

  The problem with this idea is that it has too much of a macro perspective. While arguing there should be no states and therefore no state borders, it presents arguments with an intellectual point of departure in the division of mankind into territorial nationalities and ethnicity. It is simply not possible to make conclusions on immigration to, say, the United States, if we start our argument from the libertarian idea. What is “immigration” in a world with no states?

  The Pro-Property Argument

  A less macro view on immigration is taken for granted in the pro-property argument. Here, the individual’s natural right to make his own choices and his right to personal property is the point of departure. Since we all have in our power to create value through putting our minds and bodies to work, we also enjoy a natural right to do as we please with that which we have created and place ourselves wherever we have property owners or guests. Or, as Hoppe puts it, “[i]n a natural order, immigration is a person's migration from one neighborhood-community into a different one.”

  Consequently, the immigration issue is in real terms solved through the many choices made by sovereign individuals; how they act and interact in order to achieve their goals. There can simply be no immigration policy, since there is no government — only individuals, their actions and their rights (to property). The “open borders” argument is therefore not only irrelevant, since it has a macro point of view; it also fails to realize property rights as a natural regulation of movement. Since all property must be owned and created by the individual, government cannot own property. Furthermore, the property currently in government control was once stolen from individuals — and should be returned the second the state is abolished since property rights are absolute. There is consequently no unowned land to be homesteaded in the Western world, and so “open borders” is in essence a meaningless concept.

  Libertarian Utopia

  Immigration will thus be naturally restricted in a free society, since all landed property (at least in the Western world) is rightfully owned by self-owning individuals. Just like Nozick argues in his magnum opus Anarchy, State, and Utopia, a society based on natural rights should honor property rights in absolute terms, and therefore the rightful owners of each piece of property should be identified despite the fact that humankind has been plundered by a parasitic class for centuries.

  What is to be considered just property when the welfare-warfare state is eventually abolished is not at all clear. Can one take for granted that the subjects (citizens) of a certain state have the right to an equal share of what is currently controlled by the government? Are they, at all, the rightful owners to what they currently control with the state’s legal protection? If we intend to seek the just origin of property, we need to roll back all transactions until the times before the modern state, before monarchies and feudalism, and probably to a time before the city states of ancient Greece. If we do, how should we consider the produced values of the generations we’ve effectively dismissed?

  There is probably no way to sort out this unbelievable mess along the lines of absolute property rights. It should be dealt with this way, but I dare say it will be a practical issue when we get to that point, rather than a philosophical one.

  A State Immigration Problem

  Another problem of immigration and property arises from the social welfare system financed by money extorted from citizens. With the open borders argument, private property rights might be undermined even further if immigrants are entitled to special rights such as housing, social security, minority status and rights, etc. Also, immigrants will automatically become part of the parasitic masses through enjoying the common right to use public roads, public schooling, and public health care — while not paying for it (yet).

  The concept of private property rights seems to offer a solution to this, but it is not really a way out: it is not as simple as “private property rights — yes or no?” Private property rights is a philosophical position offering a morally superior fundamental framework for how to structure society, but it does not offer guidance in what to do with non-property such as that currently controlled by government.

  It is deceivingly simple to claim all of the state’s subjects have just claims to “state property” since they are entitled to retribution for years of rights violations. This is, however, only part of the truth. It is also a matter of fact that all private production to some degree is part of the rights violation process, with direct state support through subsidies, tax breaks, patent laws, police protection, etc., or indirectly through state meddling with currency exchange rates, “protective” state legislation, through using publicly-owned and maintained property and services for transportation, and so on. There is simply no such thing as just private property anymore in the philosophical sense.

  Therefore, it is impossible to say immigrants would be parasites to a greater degree than, e.g., Bill Gates: the Microsoft Corporation has benefited greatly thanks to state regulation of the market, but has also been severely punished in a number of ways. We are all both victims and beneficiaries. Of course, one might argue that forced benefits are not really benefits, but only one aspect of oppression. Well, in that case it would also be true for immigrants, who too are or will be victims of the state (but perhaps not for as long as you and I).

  A Libertarian Stand on Immigration

  We must not forget libertarianism is not a teleological dogma striving for a certain end; it rather sees individual freedom and rights as the natural point of departure for a just society. When people are truly free, whatever will be will be. Hence, the question is not what the effects of a certain immigration policy would be, but whether there should be one at all.

  From a libertarian point of view, it is not relevant to discuss whether to support immigration policy A, B, or C. The answer is not open borders but no borders; the libertarian case is not whether private property rights restrict immigration or not, but that a free society is based on private property. Both of these views are equally libertarian — but they apply the libertarian idea from different points of view. The open borders argument provides the libertarian stand on immigration from a macro view, and therefore stresses the libertarian values of tolerance and openness. The private property argument assumes the micro view and therefore stresses the individual and natural rights.

  There is no conflict between these views, except when each perspective is presented as a policy to be enforced by the state. With the state as it is today, should we as libertarians champion open borders or enforced property rights (with citizens’ claims on “state property”)? Both views are equally troublesome when applied within the framework of the state, but they do not contradict each other; they are not opposites.

   

  

  

  

  

  

• China Fixes Yuan Stronger After Premier Li Says "No QE" Amid Record High, Surging Pork Prices

  Despite the biggest intervention surge in offshore Yuan on record ("predatoring" any excess speculative fervor on PBOC actions in the spot market), a 'PBOC Advisor' noted that "long-term FX intervention was not their target." The Hong Kong Dollar is pressuring the strong-end of its range against the USD, trapped between the USD peg and weak economy (like so many others). Chinese stocks continue to tread water as China's Premier Li rules out QE (perhaps because pork prices are already at record high prices and are rising at a record pace), exclaiming that there "well be no hard landing," but BofAML expected 50-100bps more RRR cuts this year. PBOC strengthened the Yuan Fix tonight (just modestly).

  Despite this…

  • *PBOC ADVISER SAYS LONG-TERM FOREX INTERVENTION NOT TARGET: NEWS

  Offshore Yuan surged by the most on record overnight (removing all the devaluation premium)…

  

   

  After last night's major devaluation, PBOC strengthens Yuan:

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3719 AGAINST U.S. DOLLAR

  

   

  And officials proudly crowed that…

  • *AT LEAST 47 FOREIGN CENTRAL BANKS HAVE YUAN RESERVES: FIN. NEWS

  And in other FX news:

  • *HONG KONG DOLLAR TOUCHES STRONG END OF PERMITED RANGE TO USD

  China's Premier ruled out Quantitative Easing since he implored thare will no hard landing.

  He said during a speech at the World Economic Forum in Dalian on Thursday that quantitative easing alone could not solve structural problems in economic growth and that it would lead to negative and spillover effects.

   

  *CHINA'S INDUSTRIAL SLOWDOWN MAY BOTTOM OUT SOON: ECO INFO DAILY

  Perhaps this is why…

  

  But BofAML says forget Pork.. we need moar… (via ForexLive)

  • There is still room for one to two interest rate cuts (25bp each) in the rest of the year
  • But we believe the chance for aggressive rate cuts is very small, given rising CPI inflation and capital outflow pressures
  • Domestic liquidity has become tighter partly due to capital outflows and PBoC ' s FX intervention
  • We expect at least 50 – 100bp in RRR cuts in coming months to offset the liquidity drain
  • The PBoC will also likely use multiple tools … to flexibly manage domestic liquidity
  • Targeted credit support to key infrast ructure projects and SMEs are likely to expand

  Two words – "Social Unrest"

  *  *  *

  Chinese stocks trod water overnight amid close-to-zero volume…

  

   

  and are flat so far today:

  • *FTSE CHINA A50 INDEX FUTURES FALL 0.2% IN SINGAPORE
  • *CHINA'S CSI 300 STOCK-INDEX FUTURES RISE 0.3% TO 3,310

   

  Charts: Bloomberg

  

  

  

  

  

• In Major Humiliation For Obama, Iran Sends Soldiers To Support Russian Troops In Syria

  When Zero Hedge first reported ten days ago that Russian troops, in their bid to support the Assad regime in its ongoing confrontation with various ISIS, Al Nusra, and other US-supported groups in what has become the proxy war of 2015 (one which even comes with thousands of refugees for dramatic media impact) had been quietly massing in Syria and have set up a forward operating base near Damascus, there were those who were openly skeptical.

  Then, just a few hours ago, Bloomberg finally confirmed that “top officials were scheduled to meet at the National Security Council Deputies Committee level to discuss how to respond to the growing buildup of Russian military equipment and personnel in Latakia” and that Russia is “set to start flying combat missions from a new air base inside Syria.”

  So yes, for whatever reason (and the reason as we explained is clear: natural gas pipelines) Russia is making not only its increasing support for Assad known, but also that it is in Syria and that any further US-funded and supported incursions by ISIS or whatever is the media scapegoat terrorist organization du jour, will not be tolerated.

  To be sure, none of this is in any way a surprise to the US – just as the US is using ISIS as a pretext to invade or pressure any mid-east nation it desires “in order to hold the jihadist terrorist scourge”, so Russia is now using ISIS as a comparable excuse to intervene. After all, if ISIS is the friend of humanity, then surely Russian aid will be welcome. That it is not, had made it abundantly clear that not only is ISIS just a convenient diversion, but the reasons for a Syrian invasion and deposition of Assad, are purely political and entirely in the realm of real-politik. Also, Russia’s return to Syria in greater numbers is no surprise to anyone in the Pentagon – this was merely the long-awaited escalation of the foreplay that started when ISIS mysteriously emerged on the scene just over a year ago.

  But in the latest twist in what we have been warning for months has the makings of the biggest proxy shooting war in years, one that will come as a major humiliation to the Obama administration, today we find out that none other than America’s most recent diplomatic sweetheart in the Gulf region, Iran, has deployed ground soldiers into Syria in the past few days in cooperation with Russia’s President Vladimir Putin.

  This answers our question from earlier this week:

  So as the coalition drives towards Sana’a – which the Saudi-owned al-Hayat newspaper says will be “liberated” after a “decisive battle” in Marib – and as Turkey, the US, Saudi Arabia, Jordan, and Qatar mull options for the final push to oust Assad in Syria, the only remaining question is whether Iran will remain on the sidelines and allow the Houthis to be routed and Assad deposed, or whether, like Moscow, Tehran finally decides that the time for rheotric has come to an end.

   

  And on that note, we’ll close with the following from AP: “Iran’s foreign minister on Monday criticized demands for the resignation of Syrian President Bashar Assad, saying such calls have prolonged the Arab country’s civil war. Mohammad Javad Zarif went so far as to say that those who have in the past years demanded Assad’s ouster “are responsible for the bloodshed in Syria.”

  And so, Iran appears to have picked its side, and knowing that it has Obama wrapped around its finger as part of Obama’s huge “diplomatic coup” of restoring relations with Iran as part of the Nuclear Deal (since any backtracking would further embarrass the US president) and can pivot in any direction in the Syrian conflict, it has decided to side with Russia and Syria.

  According to Ynet, a further said that the increased military involvement in Syria was “due to Assad’s crisis and under Russian-Iranian cooperation as a result of a meeting between Soleimani with Russian President Vladimir Putin.”

  Where things get even more complicated, is that while Israel would do everything it can to turn public opinion against Iran, especially if it is now involved in the Syrian debacle, Israel still has cordial relations with Russia: “We have dialogue with Russia and we aren’t in the  middle of the Cold War,” said the source. “We have open channels with the Russians.”

  So what does Iran joining the conflict really mean?  “It’s hard to forecast whether Russia’s presence will decide the fate of Syria, but it will lengthen the fighting and bloodletting for at least another year because ISIS won’t give up,” said the source.

  In other words, unless even more foreign powers intervene, you know “to stop ISIS” by focusing all their firepower on attacking or defending Assad, the Syria conflict will drag on indefinitely with an unknown outcome. Which in turn begs the question: how long will Israel keep out of the war, and if it decides to join whether it be using one of the more traditional, false flag methods to enflame public opinion against Iran. Who will be collateral damage then.

  One thing is certain: with the GOP unable to block the Iran nuclear deal in the Senate, should it emerge and be confirmed, that Iran is indeed present, then Obama will be faced with the biggest diplomatic headache in his administration’s history, namely the explanation of why he is scrambling to restore diplomatic connections with a regime that couldn’t even wait for the Iran deal to be formally passed before it turned its back on its newest “best friend” in the Oval Cabinet, and promptly side with the KGB agent who over the past two years has emerged as the biggest US enemy in three decades.

  Furthermore, it also means that now Russia suddenly has the media leverage in its hands: a few “leaked” photos of Iran troops to the press and the phones in the US Department of State will explode.

  But the most important news is that, as we warned previously, with every incremental party entering the Syria conflict, the probability of a non-violent outcome becomes increasingly negligible. And now that Iran is involved, it means that both Israel and Saudi Arabia will be dragged in, whether they like it or not.

  

  

  

  

  

• Anyone Who Believes The COMEX Numbers Is Very Naive (They Are Much Worse!)

  Via Investment Research Dynamics,

  “The information in this report is taken from sources believed to be reliable; however, the Commodity Exchange, Inc. disclaims all liability whatsoever with regard to its accuracy or completeness. This report is produced for information purposes only.”

  – disclaimer now posted on the Comex gold and silver daily warehouse stock report as of Monday, June 3, 2013 – Investment Research Dynamics – June 4, 2013

  Yesterday we published an article detailing the Comex gold futures to deliverable physical gold ratio that is now north of 200:1.  But an erudite colleague of mine, John Titus of “Best Evidence,” correctly pointed out that:  “They are probably bluffing.  In other words, the real number is significantly higher than 200:1.”

   

  

  For the record, John does more thorough research on the economic numbers and reports that he studies than anyone I’ve ever come across.  And he does it with the trained analytic eye of a seasoned patent litigation attorney.

  Let’s put everything in perspective.  The numerical reports from which fancy graphs and and dry detailed data presentations are created originate from the Too Big To Fail Banks. I’ve said for quite some time that IF the bullion banks who control the Comex and the LBMA are submitting honest data reports for the Comex and LBMA, it would be the only business line in which they do not hide the truth and report fraudulent numbers.  What is the probability of that?

  JP Morgan was recently caught stuffing proprietary Comex futures short-sell trades into the “Managed Money” account category of the COT report.  The CFTC scolded JPM and slapped them with a whopping $650,000 – LINK.    Does anyone really believe that the CFTC wrist-slapping corrected any fraudulent data reporting by the likes of JP Morgan?  Really?

  Put your “think like a criminal hat” on for a moment.  You know that the people who care about this sort of thing already know that the there’s a paper vs. physical problem in the market.  So just show them a number that they’ll buy into and that will be “the number.” Most analysts will accept that number at face value and use that in their articles and blog posts.  That number then becomes accepted in goldbug circles as the “real” number.

  But the truth of the matter is that they are more than likely reporting numbers they want us to see, not the real numbers.  For instance, the silver market is now seizing up from lack of supply.  Please see this report from Greg Hunter and David Morgan if you are still skeptical:   Retail Silver Has Seized Up.

  Yet, the Comex bank custodians are reporting over 51 million ounces of silver available fore delivery – LINK.  In fact, CNT – an official supplier to the U.S. mint – is showing 13.3 million ounces of deliverable silver.   So why is there’s a shortage of silver at the U.S. mint? IF that silver were actually in the vault, the U.S. mint could buy a spot contract – September has a silver contract open – and take immediate delivery.  

  Also, why did the CME, unannounced, start slipping that little accuracy disclaimer into its daily gold and silver inventory reports in 2013?   I’ll let you draw your own conclusion about the truth.

  The silver market is seizing up which means that there’s a severe shortage of silver available.  It is also showing up in the LBMA wholesale market based on the backwardation in gold and silver forward contracts that have been observed for several weeks.  It means that any visible inventories reports from ETFs and Comex/LBMA banks custodial vaults are fraudulent.  That includes SLV reports.

  It also means that the recent discovery that the LBMA altered its gold refining flow statistics, revising what was originally reported to be 6,601 tonnes of gold cleared by the LBMA in 2013 down by 2,000 tonnes to 4600 tonnes, are likely off the mark.  That’s a big miss, given that the total global mine production annually is around 2500 tonnes.

  The significance of this is that it’s easier to explain how 4600 tonnes of gold was refined into bars and sent to Asia than 6600 tonnes, given that the total global supply of gold from mine production + scrap production was reported to be slightly more than 3000 tonnes.

  From where did that extra 1600 tonnes come?  The REAL question is, from where did the extra 2600 tonnes come if we use the original number?  And is the 6600 tonne number a good number?  Was the real number even higher?

  The obvious conclusion is that the supply deficits in gold and silver are being remedied by hypothecating gold and silver bars from allocated accounts held at bullion banks, including the accounts held in behalf of the gold/silver ETFs,  like GLD and SLV.  This is why ABN Amro and Rabobank stopped allowing their physical gold account investors to take physical delivery of the gold they thought they have invested in – the gold was not there to deliver.  This also occurred in 2013.

  Now for the final blow to any skeptics.  You’ll note that the LBMA revised down the amount of gold it cleared from refineries in 2013.   But you’ll also note that the Comex inventory report disclaimer at the top of this post was first inserted into the daily Comex inventory reports in June 2013.  See any coincidences?  Bueller…

  Bill Murphy and GATA have maintained for years that the fraud and corruption in the precious metals market would eventually be revealed as the biggest financial fraud scheme in history.  It would seem that the cracks in the wall of this scheme are growing wider and it’s becoming easier to see rays of truth.

  History tells us that all Ponzi schemes and market interventions fail.   I believe we are on the cusp of a massive failure in the scheme to cover up the truth about the precious metals market.

  

  

  

  

  

• We Now Know What Happened At 6:12 AM This Morning

  In a day in which the total breakdown of the market and the sheer dominance of various HFT algos was painfully obvious for any remaining carbon-based trader forms to see, we started off with not one but two E-mini trading halts following ridiculous buying slams.

  

  This is what we asked first thing this morning:

  Anyone waking this morning will glance at US equity futures and happily note its unchanged-ness relative to weakness in Asia overnight. But behind the scenes of the last 12 hours was a total and utter farce of price discovery failure. S&P 500 e-mini futures have been halted twice (0551ET anbd 0612ET) in what one market observer exclaimed “looks like manipulation to me.” So what exactly happened at 6:12am?

  We now know.

  As Nanex shows, what happened at 5:51 am and at 6:12 am, the ES breaks were nothing more than an aggravated case of HFT spoofing – the same infringement which will likely send Navinder Sarao behind bars for years – which first sent the E-mini soaring higher so fast, it broke the velocity logic circuit, and then it smashed the E-mini lower.

  Here is the first spoofing instance, which prompted Eric Hunsader to declare the manipulator “busted.” Indicatively, the entire move amounted to just about 20 S&P points on the way up, or about 0.4%.

  

   

  And the second one: what goes up must come down.

  

   

  In summary: what we do know: a nearly 1% move up and down in the S&P due to blatan – and illegal – spoofing manipulation; what we don’t know: the identity of the spoofer.

  What is certain: if the culprit is a central bank or one of its trading agents like Citadel, the CFTC will never follow up. If it is some Indian living in his parents’ basement in a London suburb, you can run but you can’t hide.

  

  

  

  

  

• Goldman Fears "Government Shutdown" Is Looming As Lew Urges Congress "Raise Debt Limit ASAP"

  With Treasury Secretary Jack Lew sending a letter to Congress this evening demanding they raise the debt limit as soon as possible, warning that cash balances have dropped below the "minimum target," it is perhaps less than surprising that Goldman Sachs is warning that a government shutdown at the end of the month has become much more likely over the last several weeks. While out-months in VIX (beyond the prospective shutdown) remain elevated, Goldman finds a silver-lining claiming that the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. We shall see…

   

  As Goldman explains…

  • While it is a close call, we still think it is slightly more likely that Congress will avoid a shutdown and pass spending legislation just before the current funding expires on September 30.
  • More importantly, while the risk of a shutdown is real and the outcome of the political debate is hard to predict, the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. Unlike 2013, a shutdown in October would be unrelated to raising the debt limit, and it would probably also be shorter in duration. If so, it would probably have little effect on output or personal income, though it could dent confidence.

  A government shutdown at the end of the month has become much more likely over the last several weeks, in our view. Federal spending authority expires on September 30, and with little hope of resolving differences on full-year spending bills by then, Congress will need to pass a “continuing resolution” to avoid a lapse in funding that would result in a partial government shutdown.

  While the parties have disagreed on 2016 spending levels for some time, a shutdown only recently emerged as a risk, mainly because the controversy surrounding whether to block funds to the Planned Parenthood organization has created the sort of binary issue that has caused or threatened to cause shutdowns in the past. Some Republicans want to use the upcoming spending bill to block the organization from receiving federal funds, while Democrats generally oppose such a move. Unlike budget disagreements, which can be settled by meeting halfway, these issues are harder to resolve because one side basically needs to give up on their position.

  More generally, the political environment at the moment seems ripe for fiscal conflict. We are still closer to the last election than the next one, and it is not a coincidence that recent major fiscal disruptions occurred in 2011 and 2013—odd years—when upcoming elections were still more than a year off. In the 2013 experience, public sentiment toward Republicans dropped sharply during and after the shutdown (Gallup’s Republican favorability measure hit a 20-year low), but a year later Republicans won the majorities in the House and Senate. Some lawmakers may conclude from this that voters’ memories are short and the political price for a shutdown more than a year before the next election is low. Anti-establishment political sentiment is also running high; “outsider” candidates are performing surprisingly well in the contest for the Republican and, to a lesser extent, Democratic nomination, and efforts to remove House Speaker Boehner (R-OH) from his position as Speaker have resurfaced.

  Ultimately, the outlook hinges on House Republican leaders. In the next week or two, the House looks likely to pass a continuing resolution that defunds Planned Parenthood. The Senate already considered legislation dealing with that topic and failed to muster 60 votes, suggesting that only a “clean” funding bill can pass there. As has been the case several times before, this will put House leaders in the position of accepting a “clean” bill that the Senate will eventually pass, thereby averting a shutdown, or insisting on their version, which the President would surely veto in any case.

  There is more than one way that Congress could still avoid a shutdown at the end of the month. The most obvious option would be for House Republican leaders to bring “clean” spending legislation to a vote, with the expectation that it would pass with substantial Democratic support. To satisfy conservatives, the House could also vote on separate legislation to enact the specific policy changes some lawmakers are demanding, potentially via the reconciliation process, which requires only 51 votes in the Senate and therefore would allow congressional Republicans to send such a bill to the President’s desk (it would nevertheless be vetoed, but the effort might be enough to satisfy House conservatives). A second option would be to split off the controversial issues from the funding for other agencies, limiting the scope of any potential shutdown, similar to the strategy used in late 2014 to extend spending authority in the face of Republican opposition to the President’s executive action on immigration. However, it seems unlikely that congressional Democrats would support such a move this time around.

  So will a shutdown occur? With a few weeks to go until the deadline, the outlook is very murky but our best guess is that Congress will narrowly avoid it. While there are several considerations that make a shutdown possible, as noted above, support for the current effort is still fairly limited. Prior to the 2013 shutdown, for example, 80 House Republicans signed on to the effort to oppose spending legislation unless it blocked funding for the Affordable Care Act (ACA, or Obamacare). By contrast, only around 30 have signed on to the current effort, though that number may rise.

  More importantly, while the probability of a shutdown of some kind seems to us to be approaching 50%, we think the probability of a shutdown that has a significant effect on the financial markets or real economy is much lower, for two reasons.

  First, unlike the 2013 shutdown, which coincided with the deadline to raise the debt limit, the next deadline to raise the debt limit is unlikely to be reached until at least mid-November. As shown in Exhibit 1, shutdowns that overlapped with debt limit deadlines—the 1990 and 2013 shutdowns—have tended to result in a stronger reaction in financial markets than other shutdowns where the debt limit deadline was not about to be reached.

  Exhibit 1: Shutdowns create volatility mainly when they overlap with a debt limit deadline

  

  Source: Bloomberg, Congressional Research Service, Goldman Sachs Global Investment Research

  Second, a potential shutdown would probably be very short. In 2013, the shutdown ended up lasting longer than initially expected, in large part because the only natural deadline was the debt limit deadline, which was 2.5 weeks after funding lapsed. While one might argue that the lack of any deadline could lead to an even longer potential shutdown this year, it is more likely in our view that it would simply result in a decision to end the shutdown soon after it began, as has been the case with nearly every other government shutdown. In the 12 instances since 1980 that the federal government has shut down due to a funding lapse, the shutdown has lasted more than a week only twice. In 2013, we estimated that each week that all agencies were shut down would reduce real GDP growth in the quarter by around 0.2pp, though most of this effect would be reversed in the following quarter (after the first week, most civilian defense employees returned to work, reducing the economic effect of the final two weeks of what turned out to be a three-week shutdown).

  It is too early to predict with any certainty whether a shutdown will occur, let alone how long it might last, but as the situation stands today, it seems likely to us that if a shutdown does occur it would have a smaller effect than the one in 2013.

  

  

  

  

  

• Nomi Prins: Mexico, The Fed, & Counterparty Risk Concerns

  Submitted by Nomi Prins via NomiPrins.com,

  On August 27th, I had the opportunity to address the Aspen Institute, UNIFIMEX and PWC in Mexico City during a Q&A with Patricia Armendariz. Subsequenty, on August 28th, I gave the opening talk at the annual IMEF conference. The main issues of concern to local Mexican banks, as well as to Mexico's central bank, are:

  1) How the Federal Reserve's (and to a lesser extent ECB's and People's Bank of China) policies and actions have, and wlil continue to impact their currency and interest rate levels, and

   

  2) The risks posed by the structural, and ongoing problems of too-big-to-fail banks, which remain as much a US as a Mexican problem as manifested by heightened economic, market and financial stress.

  I posted the slides from my talk here, including the ten main risks that Mexico (and really all countries) are facing today, as well as the four factors of volatility that I have spoke about many times before. Much uncertainly emanates from central bank policy and the associated artificial stimulation of mega banking institutions and capital markets throughout the world. There is no foreseeable remedy to the long-term damage already caused, and that will continue to grow in the future.

  What follows is a related piece that I co-authored with researcher, Craig Wilson that first appeared in Peak Prosperity:

  Too big to fail is a seven-year phenomenon created by the most powerful central banks to bolster the largest, most politically connected US and European banks. More than that, it’s a global concern predicated on that handful of private banks controlling too much market share and elite central banks infusing them with boatloads of cheap capital and other aid. Synthetic bank and market subsidization disguised as ‘monetary policy’ has spawned artificial asset and debt bubbles – everywhere. The most rapacious speculative capital and associated risk flows from these power-players to the least protected, or least regulated, locales.  

  The World Bank and IMF award brownie points to the nations offering the most ‘financial liberalization’ or open market, privatization and foreign acquisition opportunities. Yet, protections against the inevitable capital outflows that follow are woefully inadequate, particularly for emerging markets.

  The financial world has been focused largely on the volatility of countries like China and Greece recently. But Mexico, the third largest US trading partner (after Canada and China), has tremendous exposure to big foreign banks, and the largest concentration of foreign bank ownership of any country in the world (mostly thanks to NAFTA stipulations.)

  In addition, the latitude Mexico has provided to the operations of these foreign financial firms means the nation is more exposed to the fallout of another acute financial crisis (not that we’ve escaped the last one).

  There is no such thing as isolated “Big Bank” problems. Rather, complex products, risky practices, leverage and co-dependent transactions have contagion ramifications, particularly in emerging markets whose histories are already lined with disproportionate shares of debt, interest rate and currency related travails.

  Mexico has benefited to an extent from its proximity to the temporary facade of US financial health buoyed by Fed policy, but as such, it faces grave dangers should any artificial bubble pop, or should the value of the US dollar or US interest rates rise.

  There are other clouds forming on Mexico’s horizon. In the past month, the Mexican stock market has fallen 6 percent. Its highs were last seen in September, 2014. Shares in the nation’s largest builder, Empresas ICA SAB, just fell to a 12-year low as lower growth expectations.

  

  (Source)

  Because of currency misalignments based on central bank machinations, the Mexican Peso sits near all time lows vs. the US dollar. The Central Bank of Mexico just announced a currency boosting round of $8.6 billion of Pesos over the next two months, with likely more to come. This impinges upon its reserves. (Source)

  Mid-level Mexican financial firms will struggle with access to credit should the air in the tires of this global liquidity boosting exercise continue to leak out. Other problems loom on Mexico’s horizon based on a host of interrelated factors.

  These include the potential of capital flight, liquidity loss, over-reliance on external debt and investors, oil price declines (oil revenues account for about one-third of Mexico’s federal government budget), economic downturn in the US or Mexico, and rising volatility due to central bank policy shifts impacting interest rates and currency relationships, geo-politics, credit defaults, or additional big bank crimes.

  The high concentration of large banks in Mexico and in the US presents extra systemic risk. Local Mexican firms and individuals, as well as foreign investors should consider these co-mingled factors and hedge against them for protection.

  Capital Flight due to US Rate Hikes, Real or Anticipated

  The possibility of US rate hikes, or even the threat of them, could freeze demand for non-US stocks and bonds – everywhere. If we learned anything from the US financial crisis, economic hardship in Greece and other Southern European countries, and the rout in the Chinese stock market, it’s that capital flight, particularly leveraged capital flight, can crucify an economy, especially high debt burdens accentuate the process.

  Mexico, though somewhat protected from financial upheaval during the first leg of the 2008 financial crisis, may be the next victim of capital’s mercurial tendencies for that very reason. Mexico’s relative stability and liberalized financial markets have invited more foreign capital through these channels, which means more can leave to return to headquarter countries, or seek opportunities elsewhere, in emergencies.

  In addition, heightened “de-risking” (or the reducing of counter-party agreements and cross-border remittances between the US and Mexico) will impact future remittance flows. Though de-risking practices are officially designated to thwart money launderers and drug-dealers – the true effect of the closing of bank branches or reduction of services that enable remittance flows burdens the population and the local banks that rely on them.

  Big Bank Concentration and Counterparty Risk

  Mexico’s domestic bank concentration problems have marginally improved since the financial crisis, but not by much. As of 2014, just five of Mexico’s private sector banks hold 72 percent of all financial assets. The top two, Banamex, a unit of Citigroup Inc., and BBVA Bancomer, a unit of Spain's Banco Bilbao Vizcaya Argentaria SA, hold 38 percent of all assets. (Source) (Source)

  Concentration has accelerated in the US. Since the financial crisis, the Big Six US banks (JPM Chase, Citigroup, Bank of America, Goldman Sachs, Wells Fargo and Morgan Stanley) have grown in terms of assets, deposits, cash, trading assets and derivatives volume.

  In terms of counter-party risk, from a credit and derivative perspective, the fewer banks operating in any sphere, the greater the risk that a collapse in any one of them triggers a domino effect in the others. The main foreign banks in Mexico, and those engaging in business with Mexican banks, can quickly close services and shift capital and credit from the country, or place barriers to retrieve it, in a pinch.

  Ongoing US Bank Bailouts and Mexican Fallout

  The US Federal Reserve buying program, though officially over, has rendered the Fed the largest hedge fund in the world, with a $4.5 trillion book of securities, more than a dozen times the figure of seven years earlier. The mortgage backed securities component remains at about $1.5 trillion, up from zero seven years ago.

  Mexico was fortunate not to have been on the US bank radar screen to receive, or be induced to borrow against, the $14 trillions of dollars of toxic US-bank made assets. US bankers mostly focused on selling these subprime assets into Europe. Thus, Mexico escaped the fallout that countries like Greece and Spain felt.  

  Still, Mexico’s financial conditions are showing increasing signs of weakness, despite comparatively low inflation and, as a result, the ability to keep interest rates around 3 percent (the same as in Chile) below those in Columbia and Peru.

  Aside from business problems, the amount of people living in poverty in Mexico increased from 49 million in 2008 to 53 million in 2012. In addition, Mexico came in last of the 34 countries examined by the Organization for Economic Co-operation and Development OECD for inequality. The combination of poverty and inequality on the ground, plus incoming instability on a business and banking basis could prove a disastrous mix in Mexico (and in the US) in the face of possible rising interest rates, a strengthening dollar in the near-term, or enhanced volatility.

  EM Debt Defaults and Bond-Stock Divergence

  Credit default risk looms as well. The amount of corporate and bank debt issued since the Fed embarked on its zero-interest rate and QE policy and pushed it on the world, has escalated. Thus, rising interest rates or corporate defaults in the US would impact Mexican (and other EM) corporate bond prices and default rates.

  The divergence between credit-risk as reflected by rising high-yield bond spreads (up from seven year lows in mid-2014) and equities is predominantly predicated on the 60 percent drop in oil prices this year, which as of August 20^th, hit a six and a half year low. The energy sector represents 15 percent of the high yield market.

  Energy stocks have dropped nearly thirty percent. If commodity prices continue falling, other sectors and the stock markets would be more effected. Countries reliant on oil revenues, such as Mexico where 30 percent of the federal budget is based upon them, are impacted directly from profit loss and secondarily by defaults. (Source)

  According to a recent report issued by the Institute of International Finance,  “Corporate Debt in Emerging Markets: What should we be worried about?”, emerging market (EM) non-financial corporate debt rose to a record high of 83 percent of GDP, up from 67 percent in 2009.  The total size of the EM non-financial corporate bond market has more than doubled to $2.4 trillion in 2014 vs. 2009.

  Between 2015 and 2017, about $645 billion of that debt is set to mature with US dollar denominated bonds comprising $108 billion of that figure. Meanwhile, the volume of non-performing loans and general debt payment burdens have risen on US dollar strength, meaning EM banks, particularly those exposed to high degrees of foreign-currency lending, are increasingly in trouble.

  

  Figure 1 – Source: BIS, IMF, OECD, McKinsey, IIF; Brazil, China, Czech Rep., Hungary, India,
  Indonesia, Mexico, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey.

  The low or zero interest rate policies from the FED, ECB and even EM central banks have propelled this issuance, particularly in the EM non-financial corporate segment, even in countries where public debt issuance hasn’t also skyrocketed.

  Of the $1.7 trillion EM in non-financial corporate debt raised since 2009 in  the international markets, about 30 percent ($510 billion) was in foreign currency, 80 percent of that ($430 billion) was in US dollars. The more reliant on external borrowing, the less stable a borrowing country’s financial situation becomes, and the more prone its firms are to downgrades or defaults as a result of external or internal weakening.

  The report notes that higher foreign-currency risk exists in countries like Brazil, Mexico and Korea. In addition, a number of EM countries are holding cash reserves in domestic bank accounts from large percentages of proceeds raised offshore. They would be forced to withdraw from these funds to support currency weaknesses to service debt, which could increase the funding risk of EM banks.

  What This All Means

  This level of global inter-connected financial risk is hazardous in Mexico, where it’s peppered by high bank concentration risk. No one wants another major financial crisis. Yet, that’s where we are headed absent major reconstructions of the banking framework and the central bank policies that exude extreme power over global economies and markets, in the US, Mexico, and throughout the world.

  Mexico’s problems could again ripple through Latin America where eroding confidence, volatility, and US dollar strength are already hurting economies and markets.

  The difference is that now, in contrast to the 1980s and 1990s debt crises, loan and bond amounts have not just been extended by private banks, but subsidized by the Fed and the ECB.  The risk platform is elevated. The fall, for both Mexico and its trading partners like the US, likely much harder.

   

  

  

  

  

  

• Sep 11 – David Tepper: Good Time To Take Money Off The Tablev
  Follow The Market Madness with Voice and Text on FinancialJuice

   

  EMOTION MOVING MARKETS NOW: 15/100 EXTREME FEAR

  PREVIOUS CLOSE: 13/100 EXTREME FEAR

  ONE WEEK AGO: 11/100 EXTREME FEAR

  ONE MONTH AGO: 9/100 EXTREME FEAR

  ONE YEAR AGO: 42/100 FEAR 

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 23.39% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 24.37. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
   

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B) 

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC)

   

  MEME OF THE DAY – HEY GIRL…

   

  UNUSUAL ACTIVITY

  RHT @$.75 .. SEP 72.5 CALL Activity 3300+ Contracts

  IP SEP WEEKLY2 42.5 CALLS @$.62 on offer 1300+ Contracts

  KHC SEP 70 PUT ACTIVITY 2K+ @$.50 on offer

  KRO Director Purchase 967 @$6.905 Purchase 1,033  @$6.909

  TTS SC 13G/A .. Tremblant Capital Group .. 11.69%

  More Unusual Activity…

   

  HEADLINES

   

  US Import Price Index (MoM) (Aug): -1.80% (est -1.60%, prev -0.90%)

  US Import Price Index (YoY) (Aug): -11.40% (est -11.10%,rev prev -10.50%)

  US DOE Crude Inventories (WoW) (Sep 04): 2570K (est 900K, prev 4667K)

  US DOE Cushing Inventories (WoW) (Sep 04): -897K (est 400K, prev -388K)

  US EIA Natural Gas Storage Change (Sep 04): 68 (est 77, prev 94)

  US Wholesale Inventories (MOM) (JUL): -0.1% (EST 0.30%, prev 0.90%)

  US Wholesale Trade Sales (MoM) (Jul): -0.3% (est 0.10%, prev 0.40%)

  US Initial Jobless Claims (Sep 05): 275K (est 275K, rev prev 281K

  US Continuing Claims (Aug 29): 2.26m (est 2.253m, rev prev 2.259m)

  US Kansas City Fed LMCI Index (Aug):-0.12(Prev -0.23)

  CA New Housing Price Index (YoY) (Jul): 1.3% (est 1.30%, prev 1.30%)

  CA Capacity Utilization Rate (Q2): 81.3%% (est 81.70%, rev prev 82.60%)

  BoE leaves rates unchanged, McCafferty dissents again in 8-1 vote

  ECB Liikanen: Bond purchases will be extended if needed

  ECB Praet: Recovery hinges on full implementation of QE

  David Tepper: Good time to take money off the table

   

  GOVERNMENTS/CENTRAL BANKS

  US’s Boehner: Fall Budget Talks To Discuss Disc Spending Hike –MNI

  BoE leaves rates unchanged; McCafferty dissents again in 8-1 vote –Rtrs

  ECB Liikanen: Bond purchases will be extended if needed –ForexLive

  ECB Praet: Cyclical recovery hinges on full implementation of QE –ForexLive

  Riksbank’s Skingsley: Economic activity is improving –Riksbank

  Reuters poll sees RBNZ cutting interest rates again in October –ForexLive

  Greek Interim FinMin: There will be no bail-in of Greek bank deposits –BBG

  GEOPOLITICS

  Putin To address Syria and ISIS in UN speech later this Month –Rtrs

  FIXED INCOME

  US sells 30-year bonds at 2.980% vs 2.990% WI –ForexLive

  Apple and Shell sell over E1bn of debt –FT

  European banks flock to issue dollar bonds –FT

  FX

  USD: USDJPY shows a reluctance above the 200 day MA –ForexLive

  GBP: BoE Minutes see considerable uncertainty over impact of GBP on inflation –ForexLive

  GBP: BoE Minutes see considerable uncertainty over impact of GBP on inflation –ForexLive

  EUR: EUR/JPY onto 136 handle on strong rally –FXstreet

  CNY: PBoC Adviser Huang: Yuan should not be pegged to USD –BBG

  CNY: PBoC Lowers Criteria For Cross Boarder Yuan Pooling –Business News

  CNY: China Premier Li: No basis for persistent yuan depreciation –FXStreet

  ENERGY/COMMODITIES

  WTI futures settle +4% at $45.92 per barrel

  Brent futures settle +2.75% at $48.89 per barrel

  US DOE Crude Oil Inventory Change (WoW) (Sep 04): 2570K (est 900K, prev 4667K)

  US DOE Cushing Crude Inventory Change (WoW) (Sep 04): -897K (est 400K, prev -388K)

  US DOE Gasoline Inventory Change (WoW) (Sep 04): 384K (est -150K, prev -271K)

  US DOE Distillate Inventory Change (WoW) (Sep 04): 952K (est 900K, prev 115K)

  US DOE Refinery Utilization (WoW) (Sep 04): -1.90% (est -0.50 %, prev -1.70%)

  US EIA Natural Gas Storage Change (Sep 04): 68 (est 77, prev 94)

  CRUDE: Saudi Arabian oil output down 100k bpd in August

  CRUDE: Kuwait: OPEC Not Keen To Shoulder Impact Of Price Decision

  AGS: World food prices fall sharply in August, extending slide –Rtrs

  LNG: LNG pipeline project could see more delays –Washington Times

  US shale giants turn to 2016 with somber outlook –RTRS

  EQUITIES

  S&P 500 unofficially closes up 0.5% at 1,952

  DJIA unofficially closes up 0.45% at 16,327

  Nasdaq unofficially closes up 0.8% at 4,795

  David Tepper: Good time to take money off the table –CNBC

  M&A: GE plans to sell asset management arm –FT

  M&A: EU to rule on $16.7bn Intel/Altera deal by 14/Oct –Rtrs

  M&A: Avon shares surge on deal report –FT

  BANKS: EU’s Vestager Confident’ of reaching agreement with Italy on bad bank –Rtrs

  INSURANCE: Lloyd’s of London H1 profit drops as competition bites –Rtrs

  TECH: Google rolls out Android Pay in US –Rtrs

  TECH: Dell says to invest $125 bln in China over five years –CNBC

  INDUSTRIALS: GE to decide on new location for HQ in Q4 –CNBC

  TECH: 3M to could spin off or sell its health information systems business –MW

  CRA: Moody’s affirms Glencore’s Baa2 ratings with negative outlook

  EMERGING MARKETS

  China is a source of global growth, not risk, says Li Keqiang –FT

  Fitch: US Money Market Funds’ Exposure to China Slowing

  Brazil Rousseff Promises New Fiscal Effort; Analysts Skeptical –MNI

   

  Brazil credits resilient after junk rating –Rtrs

  

  

  

  

  

• Presenting 3 Chinese "Endgame Scenarios"

  As we’ve tried to make abundantly clear in the wake of China’s adoption of a new currency regime in August, Beijing’s attempt to strike some kind of illusory compromise between a free floating currency and a currency that’s completely controlled by the PBoC was doomed from the word go. “Whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term,” BNP’s Mole Hau wrote last month, and as we said then, less of a role for the market means more of a role for the PBoC and that, in turn, means burning through FX reserves. 

  Complicating the situation further is the fact that FX reserve drawdowns work at cross purposes with RRR cuts by sucking liquidity from the market meaning each intervention necessitates some manner of short-term liquidity injection (e.g. reverse repos, etc.) or else more RRR cuts.

  Of course policy rate cuts and liquidity injections are seen by the market for what they are: attempts to ease. And unfortunately for China, that’s true whether or not the net effect of the push and pull on money markets is easing or not, and that perception on the part of the market leads to downward pressure on the yuan at which point the entire thing starts over again in a nightmarish, FX reserve-depleting circle.

  Add in stepped up efforts to close the gap between the onshore and offshore spot and you have yourself a rather untenable situation and as with all things untenable, there will, sooner or later, be an endgame. 

  Against this backdrop, we present Daiwa’s list of China’s three possible endgame scenarios (via Bloomberg): 

  China’s balance sheet under serious contractionary pressure as money leaves and Fed decision looms, resulting in three endgame scenarios, Daiwa analysts Kevin Lai and Junjie Tang write in note dated Sept. 9.

  • Scenario 1: PBOC actively intervenes by selling FX reserves to support CNY; a painful credit crunch ensues; companies come under pressure to liquidate assets to pay debts in classic case of “debt deflation”
  • Scenario 2: Govt. stops FX intervention and prints massive amounts of money; interest rates and reserve ratio potentially slashed; moves put significant downward pressure on CNY and implications of a currency crisis would be global 
  • Scenario 3: China muddles through between scenarios 1 and 2, where PBOC tries to manage an “orderly” downward adjustment for CNY; stimulus wouldn’t ultimately be large enough to have any meaningful impact

  So the commentary on Scenario 1 there seems to suggest that ultimately, China will not be able to wholly or effectively offset the liquidity crunch caused by the FX reserve burn, triggering a contractionary nightmare. Scenario 2 looks like a rehash of Citi’s recent suggestion, which for those who missed it (or for anyone in need of some Thursday comic relief), was this: 

  As regards funding the fiscal stimulus, only the central government has the deep pockets to do this on any significant scale. The first-best would be for the central government to issue bonds to fund this fiscal stimulus and for the PBOC to buy them and either hold them forever or cancel them, with the PBOC monetizing these Treasury bond purchases. Such a ‘helicopter money drop’ is fiscally, financially and macro-economically prudent in current circumstances, with inflation well below target and likely to fall further.

  Scenario 3 is probably what will end up playing out, but frankly, it’s not entirely clear that 3 is that much different from 1, because as we noted at the outset, the market doesn’t like the whole “orderly downward adjustment” idea, precisely because it telegraphs further devaluation which leads traders to speculate on more yuan weakness and that speculation necessitates more reserve liquidations. 

  In short, the only “scenario” that doesn’t result in an “endgame” is for everything to suddenly be fixed overnight, or, as SocGen recently put it, “for the RMB to appreciate compared to its current value will require a very positive environment for EM coupled with a cessation of capital outflows and a vibrant cyclical growth and an export recovery.” That, obviously, is laughable so all we can say to the PBoC (and also to the Fed, who must consider all of the above when weighing liftoff) is “good luck.”

  

  

  

  

  

• Caught On Tape: Donald Trump Asked About Libertarianism

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  *Note: This post originally maintained Trump was saying “be careful” to Nick Gillespie, when in reality he seems to have been talking to others walking with him in the crowd with equipment. The post has been changed to reflect this realization.

  Reason’s editor in chief Nick Gillespie recently caught up with Donald Trump on the campaign trail and asked him about libertarianism. This is what ensued:

   

  This exchange is troubling from several different angles.

  First off, Trump does his typical dance in which he avoids questions he doesn’t want to answer by giving a simplistic jingoistic response.

   

  He is clearly uncomfortable with the question. Why?

  Overall, the above exchange is kind of unnecessary since it’s abundantly clear Trump is anti-liberty and anti-freedom.

  Let’s recall what he said should be done with Edward Snowden. From a Washington Times story in 2013:

  Edward Snowden, the man at the heart of the NSA information leaks, is nothing but a “traitor” — and America ought to recreate history in dealing with him, real estate mogul Donald Trump said on a “Fox & Friends” interview.

   

  In other words, execute him, Mr. Trump implied.

   

  “I think Snowden is a terrible threat, I think he’s a terrible traitor, and you know what we used to do in the good old days when we were a strong country — you know what we used to do to traitors, right?”

  For more on the “real” Donald Trump, see:

  Rand Paul Op-ed Blasts Donald Trump – Calls Him a “Fake Conservative” and Wannabe “King”

  Will Donald Trump Run as a 3rd Party Candidate?

  Donald Trump the Demagogue

  You’re Fired – Trump Campaign Tweets Photo of Trump’s Head Next to Nazi Soldiers

  Meet the Immigrants Building Trump’s International Hotel in Washington D.C.

  

  

  

  

  

• The UN's "Sustainable Development Agenda" Is Basically A Giant Corporatist Fraud

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  This Agenda is a plan of action for people, planet and prosperity. It also seeks to strengthen universal peace in larger freedom. We recognize that eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development.

   

  All countries and all stakeholders, acting in collaborative partnership, will implement this plan. We are resolved to free the human race from the tyranny of poverty and want and to heal and secure our planet. We are determined to take the bold and transformative steps which are urgently needed to shift the world onto a sustainable and resilient path. As we embark on this collective journey, we pledge that no one will be left behind. The 17 Sustainable Development Goals and 169 targets which we are announcing today demonstrate the scale and ambition of this new universal Agenda. They seek to build on the Millennium Development Goals and complete what these did not achieve. They seek to realize the human rights of all and to achieve gender equality and the empowerment of all women and girls. They are integrated and indivisible and balance the three dimensions of sustainable development: the economic, social and environmental.

   

  – From the Preamble to the UN’s 2030 Agenda for Sustainable Development

   

  *  *  *

   

  UN records reveal that the intergovernmental body has already marginalised the very groups it claims to be rescuing from poverty, hunger and climate disaster.

   

  Records from the SDG process reveal that insiders at the heart of the UN’s intergovernment engagement negotiations have criticised the international body for pandering to the interests of big business and ignoring recommendations from grassroots stakeholders representing the world’s poor.

   

  Formal statements issued earlier this year as part of the UN’s Post-2015 Intergovernmental Negotiations on the SDGs, and published by the UN Sustainable Development Division, show that UN ‘Major Groups’ representing indigenous people, civil society, workers, young people and women remain deeply concerned by the general direction of the SDG process?—?whereas corporate interests from the rich, industrialised world have viewed the process favourably.

   

  This allegation is borne out by UN records, which show that its own Major Groups representing the very people the global institution professes to be empowering?—?poor people in developing countries?—?are increasingly sceptical of the SDG agenda.

   

  – From Nafeez Ahmed’s recent article: UN Plan to Save Earth is “Fig Leaf” for Big Business

  On September 25th, Pope Francis will address the United Nations General Assembly in New York City. To much fanfare, the Pope will celebrate the unveiling of the UN’s Sustainable Development Agenda 2030.

  A key plank of this agenda relates to the UN’s “Sustainable Development Goals,” or SDGs. While this sounds all warm and fuzzy, several well meaning participants have become horrified by the extent to which multi-national corporations have influenced the entire process. So much so, that insiders are claiming the UN is actually marginalizing the very people it claims to be saving. The poor, the weak, and the voiceless.

  In an invaluable piece of investigative reporting, Nafeez Ahmed writes the following:

  UN records reveal that the intergovernmental body has already marginalized the very groups it claims to be rescuing from poverty, hunger and climate disaster.

   

  At the end of this month, the UN will launch its new 2030 Sustainable Development agenda for “people, planet and prosperity” in New York, where it will be formally adopted by over 150 world leaders.

   

  The culmination of years of consultations between governments, communities and businesses all over the world, there is no doubt that the agenda’s 17 Sustainable Development Goals (SDGs) offer an unprecedented vision of the interdependence of global social, economic and environmental issues.

   

  But records from the SDG process reveal that insiders at the heart of the UN’s intergovernment engagement negotiations have criticised the international body for pandering to the interests of big business and ignoring recommendations from grassroots stakeholders representing the world’s poor.

   

  Formal statements issued earlier this year as part of the UN’s Post-2015 Intergovernmental Negotiations on the SDGs, and published by the UN Sustainable Development Division, show that UN ‘Major Groups’ representing indigenous people, civil society, workers, young people and women remain deeply concerned by the general direction of the SDG process?—?whereas corporate interests from the rich, industrialised world have viewed the process favorably.

   

  Among the ‘Major Groups’ engaged in the UN’s SDG process is ‘Business and Industry.’ Members of this group include fossil fuel companies like Statoil USA and Tullow Oil, multinational auto parts manufacturer Bridgestone Corporation, global power management firm Eaton Corporation, agribusiness conglomerate Monsanto, insurance giant Thamesbank, financial services major Bank of America, and hundreds of others from Coca Cola to Walt Disney to Dow Chemical.

   

  Despite claims that the UN’s previous Millennium Development Goals (MDG) have succeeded in halving global poverty since the 1990s, there is good reason to question this narrative.

   

  Today, 4.3 billion people live on less than $5 a day. Although higher than the World Bank poverty measure at $1.25 a day, the development charity ActionAid showed in a 2013 report that a more realistic poverty measure would be under $10 a day.

   

  Yet far from decreasing, since 1990 the number of people living under $10 a day has increased by 25%. Global poverty has not reduced?—?it’s got worse.

  But all we know what has gotten better…a lot better. Corporate profits.

  I asked Hickel why, despite so much internal criticism from UN stakeholders within the SDG process itself, these concerns had not impacted on the text of the SDG ‘Zero Draft.’ “In an early version of the Zero Draft, there was a commitment to replace GDP with an alternative measure of economic well-being. But somehow that disappeared from the final text,” said Hickel. “I don’t know what happened behind the scenes.” 

   

  This allegation is borne out by UN records, which show that its own Major Groups representing the very people the global institution professes to be empowering?—?poor people in developing countries?—?are increasingly skeptical of the SDG agenda. 

   

  The civil society statement also points to parallel efforts by Western governments to forge new ‘free-trade’ agreements, such as the Transatlantic Trade and Investment Partnership (TTIP) along with proposed Investor-State Dispute Settlement (ISDS) clauses.

  Yep, sounds exactly like the “free trade fraud” being perpetrated on the global populace at the moment. The current status quo strategy is to put a “nice spin” on what are essentially corporatist takeovers. See:

  U.S. State Department Upgrades Serial Human Rights Abuser Malaysia to Include it in the TPP

  Forget the TPP – Wikileaks Releases Documents from the Equally Shady “Trade in Services Agreement,” or TISA

  Julian Assange on the TPP – “Deal Isn’t About Trade, It’s About Corporate Control”

  Trade Expert and TPP Whistleblower – “We Should Be Very Concerned about What’s Hidden in This Trade Deal”

  As the Senate Prepares to Vote on “Fast Track,” Here’s a Quick Primer on the Dangers of the TPP

  These new trade and investment frameworks are being negotiated by governments in secret without public accountability. The UN’s civil society group notes that the ISDS clauses “empower corporations to sue governments for reducing the value of investments through regulations that promote human rights, the environment, and labor standards.”

   

  Yet the SDGs offer little to protect vulnerable communities in the face of such corporate encroachment.

  Surprised? You shouldn’t be. This whole thing is just corporatist PR.

  On 25th March, the Indigenous Peoples Working Group told a Major Group dialogue hosted by the Trusteeship Council Chamber at UN headquarters that the SDG process “is in jeopardy of excluding Indigenous Peoples from the agenda.”

   

  The SDGs make no clear reference to the human right to water, for example, effectively providing “an open door for turning water into a commodity.”

   

  The UN workers group particularly opposes the emphasis on public-private partnerships, which it describes as “an expensive and inefficient way of financing infrastructure and services, since they conceal public borrowing, while providing long-term state guarantees for profits to private companies.”

  As I have maintained for years, the moment you hear “public-private partnership” run for the hills. You are being screwed over in unimaginable ways. See:

  Meet Cyber P3 – The U.S. Military’s Public-Private Partnership to Create Corporate/Government “Cyber Soldiers”

  Wall Street Teams Up with U.S. Intelligence Cronies in Bid to Form Fascist “Cyber War Council”

  Bread and Circuses – The Shady, Slimy and Corrupt World of Taxpayer Funded Sports Stadiums

  A Deep Look into the Shady World of the Private Prison Industry

  In fact, despite overwhelming support from UN member states for a more robust and transformative approach, the report reveals that “a vocal minority, including the Vatican and Saudi Arabia, has once again blocked consensus.”

   

  The failure of the SDG process to incorporate such criticisms from the UN’s own Major Groups representing marginalized communities, is a direct result of entrenched power disparities within the UN itself.

   

  According to an expert report circulated to UN officials, a detailed analysis of SDG documents reveals that the entire process has been “fundamentally compromised” by corporations with a vested interest in continuing business-as-usual.

   

  In addition to mis-framing the structural origins of poverty, the report shows that the very concept of “development” deployed within the UN’s SDG documents derives from a “specifically neoliberal and corporatist conception of how the world does and should work.”

   

  Despite acknowledging “deep problems and contradictions when relying on GDP growth to tackle poverty”, the SDG agenda still leaves “undifferentiated, perpetual growth” as the prime basis of development.

   

  Hidden between the lines of the SDG vision, then, is a great delusion?—?the unflinching blind faith of the rich industrialised elite in the unquestionable perfection and immortality of neoliberal capitalism as a ‘way of life.’

   

  According to Brewer, by removing all discussions about power from the SDG process, “the increasingly unpopular neoliberal agenda remains fully in place.”

   

  The total omission of corporate and banking power from SDG texts, despite their unprecedented prevalence in the UN process, “is very telling in its own right,” he told me. “We know that multinational corporations are the most powerful political actors, and that they are profoundly concentrated vehicles for wealth consolidation.”

   

  This is why, Alnoor Ladha explained, TheRules.org did not engage in the formal UN civil society SDG process.

   

  “The process is a sham,” he said. “They will co-opt our engagement and say they have consulted us. All of the civil society groups that have tried to reform the SDGs have been co-opted by the UN, including the more critical voices.”

   

  In other words, the SDG stakeholder engagement process draws selectively on the input of civil society groups to promote its public legitimacy, while systematically ignoring the voices that challenge the wider political and economic structures in which the entire process is embedded.

  The above represents only excerpts from Dr. Ahmed’s piece, which can be found in its entirety here.

  

  

  

  

  

• What Bubble? 6 Castles That Are Cheaper To Rent Than An Apartment In NYC Or SF

  As we have noted numerous times in the past, there is a Bull market in serfdom.

  

   

  America's Renter Nation has never spent more of its paycheck on rent and as Zumper notes, with rent prices in San Francisco and New York at the highest in the nation, affordability does not seem to exist in these two metropolitan areas. For some idea of the scale, there are actually castles in France and Italy that can be rented for about the same price as average apartments in these cities…

  All of the castles on this list have at least five bedrooms (one has eleven), while the correspondingly priced apartments in San Francisco or New York range from a studio with a murphy bed to a four bedroom.

  1. Antic Castle, Tuscany, Italy- 11 bed, 11 bath, $4,040/month

  Nestled on a private hill and surrounded by trees and vineyards, this massive eleven bed castle can comfortably house up to twenty five guests. Built in the Middle Ages, this former aristocratic residence has been renovated to include modern day luxuries such as air conditioning, central heating, and satellite television. However, the 17th century stone fireplaces and beautiful terracotta floors still exude a warm, historical charm.

   

  

  

  

  Or you can rent…

  Stuyvesant Town, New York City, NY- 2 bed, 1 bath, $4,000/month

  Newly renovated, this contemporary two bedroom apartment has spacious bedrooms with generous closets, an adorable kitchen with modern appliances, and a stylish bathroom with a sparkling tub. Along with concierge service, this apartment building also comes with a fitness center, residents lounge, and on-site laundry. Having twenty five guests may be a little tight, however.

   

  

  

  

   

   

  2. Chateau Le Mur, Comblessac, France- 8 bed, 5 bath, $2,800/month

  Sitting on 180 acres, this fifteenth century, eight bedroom castle is immense and fit for royalty. You can take in the stunning views of the scenic dairy farms nearby from the balcony or sunbathe in the bountiful garden. Inside, there are multiple, large fireplaces, medieval themed kitchens, and a knight’s armor at the door to greet you.

  

  

  

   

  Or you can rent…

  Upper East Side, New York City, NY – 2 bed, 1 bath, $2,995/month

  Recently renovated, this cozy two bedroom apartment has glossy hardwood floors, new fixtures, and a minimalist kitchen. The bedrooms are compact, but with large windows to let in an abundance of natural light, the rooms feel much bigger than they are.

  

  

  

   

  3. Chateau Arfeuilles, Region Auvergne, France- 6 bed, 3 bath, $6,525/month

  Sophisticated and elegant, this six bed castle has been carefully decorated so each room is unique but the entire interior still exudes a tasteful charm throughout. The kitchen is fully equipped with modern appliances, there are two living rooms, one with a television, and every bedroom has a chandelier hanging from the ceiling. If you want to enjoy the sun, you can bask by the pool or lounge in one of the terraces.

  

  

  

   

  Or you can rent…

  Hell’s Kitchen, New York City, NY- 4 bed, 2 bath, $6,700/month

  In a brand new building, this stylish four bedroom apartment has shiny oak floors throughout, a natural calacatta marble backsplash in the kitchen, and porcelain walls in the shower. There is a large rooftop sun deck, private storage available, and 24/7 security in the lobby.

  

  

  

   

  4. Ringuette, Region Aquitaine, France- 7 bed, 2 bath, $2,925/month

  On a piece of land that covers over 200 acres, this magnificent seven bed castle can accommodate up to twelve people. The spacious kitchen has a wood stove and the living room has a large fireplace. Outside, there is a lush, walled garden covered with vines and flowers, a private swimming pool, and a beautiful courtyard formed by the structures of the castle.

  

  

  

   

  Or you can rent…

  Lower Haight, San Francisco, CA- Studio, 1 bath, $3,000/month

  With just over 400 square feet, this snug studio apartment comes fully furnished with designer fittings. If you wanted to entertain guests, the Becker Murphy bed can be lifted up and hidden away. The kitchen has modern appliances and the bathroom comes with a tub. Some building amenities include a fitness center and a landscaped roof deck.

  

  

  

   

  5. Perrier, Périgord, France- 6 bed, 5 bath, $4,940/month

  Fully restored, this tremendous six bedroom castle has a double fireplace in the living room, a large kitchen, and a game room with a billiard table. Outside, you can take in the stunning views of the countryside in the garden that covers three acres, play football in one of the several lawns, or relax and enjoy the sun in the private pool.

  

  

  

   

  Or you can rent…

  Laurel Heights, San Francisco, CA- 3 bed, 2 bath, $4,995/month

  With plenty of windows, this bright three bedroom apartment lets in plenty of natural light. Dark, hardwood floors run throughout the home and the spacious master bedroom has a large walk-in closet. The kitchen has a breakfast bar that opens up into the dining room area and there is a wood-burning fireplace in the living room.

  

  

   

  6. Manoir de la Motte, La Motte, France – 5 bed, 3.5 bath, $6,064/month

  Tucked in an abundance of trees, this five bed, nineteenth century castle is a hidden, romantic escape from the world. All of the bedrooms are meticulously decorated with embroidered sheets and beautiful draping over the beds. You can take a hike through the lush forest or relax and enjoy the peaceful ambiance in the private garden.

  

  

  

   

  Or you can rent…

  NOPA, San Francisco, CA- 3 bed, 2.5 bath, $6,300/month

  With 1,750 square feet of space, this three bedroom condo feels like a single family home. It has a recently remodeled kitchen with new appliances, a quaint garden with lemon and plum trees, and adorable pastel walls throughout the home. There are glossy hardwood floors in the living room and kitchen and soft beige carpet in the bedrooms.

  

  

  

  Source: Zumper.com

  *  *  *

  With buying out of the question for mnost (hint – Student loans and affordability) and renting becoming increasingly unaffordable, the entire household formation "upside case" is now collapsing on itself, something we've discussed on a number of occasions. Recall the rise in "parental co-residence rates":

  

  

  Note that this situation has the potential to become self-fullfilling. That is, as homeownership becomes increasingly unrealistic, demand for rentals will only increase, driving further increases in the cost of rental housing. The question then becomes this: what happens when a family that can't afford a down payment can no longer afford to pay the rent?

  

  

  

  

  

• "If It Bleeds, We Can Kill It" – Top Performing Hedge Fund Manager Compares China To The Predator

  It is no accident that over the years, and especially in the past few months, we have been profiling what in our opinion is one of the few, truly worthy hedge funds, Horseman Global, which despite (or maybe due to) being net short stocks since the start of 2012 (and long bonds), has outperformed 99% of its peers and has generated tremendous returns during its lifetime.

  Just last month, in “Short For Three And A Half Years And Outperforming 98% Of Traders: This Hedge Fund Did It“, we explained how in July the fund generated a 7% return, just as all the beta-levered, momentum-monkey, hedge fund hotel residents were losing steam.

  One month later, and following a ghastly August in which virtually everyone lost money, the $2.5 billion Horseman was up a whopping 9.4%, and is now up 17.7% for the year.

  

  And no, you can’t allocate the funds you redeemed from Ackman to Horseman at this moment: “Due to a high level of interest in the fund, we are again soft closing the fund. Any investment into the fund will need approval.”

  But it was not easy, as the following story from Russel Clark, Horseman’s CIO, recounts in the fund’s monthly letter.

  Being bearish on China for the last few years has reminded me of the 1987 action classic “Predator”. In the film, a special ops force are ordered on a mission to an unnamed South American jungle.

   

  However, while trying to complete their mission they are slowly hunted down by an alien creature. At each stage, they think they have managed to trap it, but it continually defies anything any of them have seen before. It moves and lives in the trees! It can turn itself invisible! It has infra-red and heat vision! It has a shoulder mounted laser rifle! Needless to say most if not all of the members of the team succumb to its abilities….

   

  For bears, much like the alien in Predator, the Chinese government has continually used special abilities that were previously unknown. The first surprise came in 2008/9 when China embarked on an immense stimulus program, where decade’s worth of infrastructure investment was fast tracked to counteract the global slowdown, a punishing period for anyone short at the time.

   

  Eventually, the infrastructure boom came to an end, and there seemed to be an excess of housing in the market. Many funds were bearish on Chinese property developers in 2011, only to see the government promote housing investment. Many property stocks, went on to rally 300% or more. Your fund had been short property names, but having been caught on the wrong end of policy before, managed to avoid getting caught in this attack on bearishness.

   

  Then in 2014, with the real exchange rate of the Renminbi surging as both Japan and Europe devalued their currencies via Quantitative Easing, it seemed that China was running out of options. If they cut interest rates to promote growth, then they would have to devalue. And yet, somehow the government was able to manufacture a stock market boom. This meant that capital that would usually leave China as interest rates were cut stayed in China to participate in the stock market.

   

  Bearish investors in China had been picked off relentlessly and seemingly effortlessly by the government and the central bank. But then just as suddenly, the stock market started to sell off and the pressure on the currency began to build. This led to the small devaluation we saw in the Renminbi in August.

   

  The People’s Bank of China (‘PBOC’) has fallen into a classic emerging market trap in my view. There was some pressure on the exchange rate, but they were unwilling to raise rates to defend the currency, so chose to devalue. However, as they wished to promote stability they devalued by a relatively small amount, in the hope that this will reduce capital outflows.  

   

  In this they are completely wrong. The small devaluation will do nothing for the export sector, but creates huge amount of fear in the investing public, that has previously assumed the exchange rate was “safe”. Contrary to reducing pressure, the small devaluation will actually increase the capital outflow, and the pressure on the exchange rate. If the PBOC had really wanted to reduce capital outflow, it would have needed to move the exchange rate much more significantly.

   

  In my experience, in the mind of the international investment community, small devaluations tend to encourage even more capital outflow, which in turn leads to even larger devaluations. Or to borrow a line from Predator, “If it bleeds, we can kill it”.

  In the movie, the Predator dies.

  As for the punchline, Clark goes out in style: “Your fund remains long bonds and short equities.”

  

  

  

  

  

• Iran Cuts Crude 'Selling Price' To Asia To 3-Year Low

  In what appears to be a bid to lure Asian buyers to lock in longer-term supplies, Reuters reports that Iran has cut its quarterly selling price (for its flagship 'light' crude) to its lowest (relative to Saudi) since Q4 2012. According to recent tanker loading data, Iran's oil sales in September are set to hit a six-month low, and this price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since U.S. and European sanctions aimed at its nuclear program cut its crude oil exports by more than half.

  Iran has cut its relative prices notably over the past year…

  

  Iran set its official selling price (OSP) for Iranian Light crude for October at a 25 cents a barrel premium to Oman/Dubai, down 35 cents from the month before, two sources with knowledge of the matter said on Thursday.

  This puts Iranian Light OSP at a 15-cent premium to Saudi's Arab Light in the fourth quarter, the lowest quarterly price since the last three months of 2012, according to Reuters data.

  As Reuters reports,

  Asian buyers have called for lower prices amid a supply glut that has made it tougher for Iran to elbow its way to higher sales volumes despite optimism over the deal that eased some of the sanctions in exchange for curbs on Tehran's nuclear work.

   

  An executive at a North Asian oil refiner said it is in talks with the National Iranian Oil Company for next year's term supply, but that Iran's crude prices have been uncompetitive.

   

  …

   

  Iran sets its OSPs every quarter at differentials to Saudi prices, following discussions with key customers.

   

  In the fight for market share, Iran and fellow members of the Organization of the Petroleum Exporting Countries, including Kuwait and Iraq, have dangled carrots in the form of extended credit and free oil deliveries in addition to outright price cuts to increase their sales.

  *  *  *

  Time for another sit down in The White House with The Sauds…

  

  

  

  

  

• Why Apple’s Launch Event Was "Creepy As Hell"

  Submitted by Doug Litowitz

  Apple’s Launch Event Was Creepy As Hell

  Yesterday all eyes were on Apple’s product launch.

  This is because Apple has become a bellwether for the stock market as a whole.

  Legendary short seller Jim Chanos spoke candidly to CNBC, explaining that institutional investors and hedge funds are treating Apple stock as a “hedge fund hotel” where they can buy a single name and ride it upwards as opposed to concocting complex trading systems as they did in the past. Indeed, SEC filings by hedge funds bear this out, and so the product launch attracted a huge audience, generating play-by-play reporting on CNBC and Yahoo Finance.

  By the end of trading, Apple stock declined nearly 2%, indicating that investors were not impressed.

  To paraphrase poet Horace, the mountain shuddered and gave birth to a ridiculous mouse.

  I too watched the entire product launch. The Apple Watch doesn’t do much more than other devices and it looks ugly next to a Rolex; the new iPhone has a few tweaks that don’t amount to much; the new iPad Pro tablet is unwieldy with a humor-inducing stylus; and the Apple TV box is interesting for voice-activation but not that different from what others are already offering in streaming content.

  That would be the end of my story.

  But I am feel obliged to confess that I found the event creepy as hell from a psychological and cultural perspective.

  After two hours of watching their best and brightest, my mind was reeling with associations of cults, lifestyle gurus, and new-age hokum.

  The Man At The Helm

  Let’s start with the venue, which was the first thing CEO Tim Cook mentioned in his opening remarks. It was held in San Francisco at the Bill Graham Civic Center. Stop right there. What makes Apple so “civic” that it needs a public forum, instead of launching products from its own headquarters? 

  

  Apple doesn’t seem particularly “civic” to me, and not to the Senate Subcommittee that has been investigating how they avoid paying taxes while sticking you and me with their tab. They move corporate entities offshore to avoid taxation that would benefit the civic community, and they run sweatshops in China instead of hiring Californians drawn from the, uh, civic community.

  So it’s a cheap trick to hold the launch in a civic center named after a man who launched free health clinics and free festivals to celebrate the counterculture against big corporations like, well, Apple. You cannot squeeze out some kind of imprimatur of good citizenship by holding a product launch in a “civic” center.  I’m not buying it.

  The second problem is that Tim Cook took the stage dressed – or rather underdressed – in blue jeans and an ill-fitting blue shirt with a plain belt.  The outfit looked like it was thrown together at the last minute from the clearance rack at Kohl’s. This man is worth hundreds of millions of dollars and runs the most profitable company in the world. I refuse to believe that he is too busy (or too cheap) to stop at Nordstrom Rack and drop $800 on a pair of Armani slacks, a Zegna dress shirt, a Hugo Boss tie, and Allen Edmonds’ belt and shoes.

  Cook recently came out as gay, which took courage, and I applaud that. But that only makes his choice of outfit more bizarre. Is he playing against type, to make the point that gays can be slobs too? Or is he saying that gays are harmless and will conform seamlessly? Regardless of his sexuality, there is no reason to dress that way except to brainwash us into thinking that he is so laser-focused on product development that ‘clothes be damned.’ Again, I’m not buying it.

  Steve Jobs could get away with wearing a turtleneck sweater because he had a maverick personality to back it up. To put it crudely, when you watched Steve Jobs, you knew that he was an SOB on some level, that he wasn’t there to impress you as much as to impress himself, and he knew that you knew it. He had demons. But sometimes a bad guy is good, so to speak. We all knew that Jobs’ refusal to dress ‘appropriately’ was the flipside of a loner genius with a unique vision who wasn’t going to conform. He was half-crazy but headed to unexplored territory. The first guy who does that is authentic; the second guy is not. CEO Tim Cook is the second guy.

  Cook’s persona is creepy, almost mortician-esque. He has an unconvincing forced jubilance, wedded to a lurking, hunchbacked rigidity. His body seems superfluous, a nuisance. The white hair and nerdy glasses round out a kind of depthless, mealy look that betrays a measure of cruelty. His arms hang useless, as if he has to exert every ounce of willpower to raise them when the script calls for mock exultation.

  I watched him closely for 30 minutes and then it hit me.

  Cook IS a computer.

  Or at least, he’s more like a computer than a human.

  Intelligent, desexualized, emotionless, disembodied, apolitical, steely, gimmicky, and lacking in charisma. He wants us to become cybernetic, to sync our entire lives to Apple so that we become computers like him.  The technology does not have some higher purpose like social justice, or eradication of disease, or ending poverty. The bar is much lower: you can now get the weather and read CNN headlines on your watch – what a great day in Western Civilization! Cook and his ‘team’ (as he refers to the thousands of people who do the actual work under extreme stress) don’t have any appreciation for the downside of technology.  

  Missing Apple’s Man Upstairs

  Steve Jobs understood minimalism.

  Sometimes less is more. And he had a weird belief system that made him something of a Luddite – he would not let his own kids use the iPad, he forced them to talk face-to-face, and he ridiculed college kids who wanted to go to Silicon Valley just to make money.  For all his eccentricities, he knew that there was an outside world and that bigger things were at stake.

  

  Cook is the other extreme – he thinks that technology improves everything, and that every little gimmick is noteworthy. In his world, the Apple Watch and the new iPhone are miraculous contributions because they let you change the channel on the Apple TV without getting off your butt and fetching a remote.

  As an illustration of how the Apple Watch changed people’s lives, he tells us how the watch helped a man keep to an exercise schedule. Does he think we’re so dumb we believe this was never possible until the invention of this watch?  Also he showed how a doctor could tilt the watch forward and check his daily schedule of rounds; ironically, this task was something that my own father could handle with a small notebook and a pencil in the 1960s, as a doctor at San Francisco General Hospital no less.

  The Apple Launch soon became a drone-fest, with Cook introducing another man who was dressed virtually identically to Cook, who introduced another guy dressed the same, and then a woman dressed similarly, then again another guy, like Russian matryorska dolls popping out of each other. They were all in the same uniform, or rather anti-uniform, in some kind of California-forced-conformity/anti-conformity. The last time I saw so many people looking like that, it was the mass suicide at Heaven’s Gate.  

  They were all being ‘authentic’ by wearing the same thing and telling us that we were ‘revolutionary’ by consuming their products. It’s the same line used by the guy at the mall who sells Anarchy T-shirts for $20. Soon, these words lose their meaning: authentic people dressed alike, humans wearing machines to supposedly make them more human, freedom by buying more products. Do they believe this stuff themselves?

  And then there is Siri, who featured prominently in the show.

  “SORRY… I DIDN’T GET THAT…”

  To all the idiots in the audience, let me remind you that Siri is not a human person.

  It is a search engine with a voice. To attribute wisdom to Siri, or to think that Siri is your servant or your friend, is to mistake a THING for a HUMAN. Apple shamelessly encourages this category mistake by having its spokesmen talk to Siri as a person, in the same way that a psychotic ventriloquist converses with his dummy. There is nothing more pathos inducing, more cringe-worthy, than a grown human being asking a machine what is the meaning of life.  

  

  I have saved the most disturbing phenomenon for last. The audience spent most of its time looking at computers and smart phones on their laps, and taking pictures of each other and the event. They were present, and yet they weren’t. What a spectacle. Thousands of people celebrating how the computer will set them free and let them connect to anyone and anything, but each lost in their own computer world, incapable of connecting with anything outside themselves.

  Mercifully, it ended with Cook giving a shout out to the Apple workers in the audience, who responded like cult members fed sugar and gumballs all week. And then, in a fawning introduction, he introduced the band One Republic, who gave a kind of generic performance that would offend nobody, in a hall that hosted revolutionary bands like Jimi Hendrix, Janis Joplin, and the Grateful Dead.

  Lest I be called a killjoy, let it be noted that I am typing this on a MacBook Air. I have an iPhone 6, and an iPad Mini. I am an Apple person, as it were. But just because I buy the products doesn’t mean that I buy the mythology surrounding them.

  I know that for every connection I make online, there is a connection I lose in the real world. For every song I can record playing guitar and singing into my MacBook, there is a place where I could be playing with real people. And I have been to China and seen the factories, so I know that for every machine I buy, there is someone getting rich, someone getting cheated, someone unhappy, a miserable executive, a ruined life in a dirty dormitory. For everything there is a trade off, that’s life. And there are limits to what technology can do. The Apple Watch can show my appointments today, and the Apple TV can find all the movies starring Jason Bateman, but I am not going to stand up and clap for it, for the simple reason that it cannot help us end violence, or reduce poverty, or provide health care, or spark an economic recovery.  I don’t clap for my refrigerator either.

  The Apple Launch is a closed circle of fawning sycophants, thrilled with gimmicks, adapted to computers, programmed, a throng of identical authentic individuals chained to their machines and congratulating themselves on being ‘connected,’ led by a human that resembles a robot.

  Two hours of watching the Apple Launch actually made the Manson Family seem homey.

  

  

  

  

  

• Mapping A Migration: An Infographic Look At Europe's Refugee Crisis Response

  Well, it’s official, Washington can add “out of control refugee crisis” to the list of bad foreign policy outcomes stemming from America’s Mid-East meddling.

  That list also includes things like accidentally arming an Iran-backed militia with a half billion in sophisticated weapons in Yemen, sponsoring the nullification of a democratic election outcome in Turkey, abandoning support for one Egyptian despot only to see the new US-backed despot sentenced to death after being overthrown in a military coup, and training a group of Syrian freedom fighters who later metamorphosed into a black flag-waving band of marauding jihadists bent on establishing a medieval caliphate. 

  And that’s all in the space of, let’s call it five years.

  Of course the US has a habit of dragging its European allies along for the ride and the conflict in Syria is no different only this time around, not only will Western Europe be expected to join (or at the very least verbally sanction) the invasion of a sovereign Middle Eastern country at the possible cost of thousands of soldiers’ lives, it will now also have to cope with an unprecedented flow of asylum seekers fleeing the carnage in Syria. The EU’s first stab at tackling the migrant crisis came on Wednesday in the form of a compulsory quota system that seeks to distribute some 160,000 refugees. Because the “plan” has been the subject of some confusion and a lot of criticism, we thought it useful to provide an overview of the proposal and on that note, we turn it over to The New York Times:

  The president of the European Commission offered a plan on Wednesday to share the burden of resettling 160,000 people in Greece, Hungary and Italy, the three countries where the most migrants have arrived in Europe.

   

  The plan assigns each member state a number of people based on its economic strength, population, unemployment and the number of asylum applications it has approved over the last five years.

   

  Based on the proportions outlined in the proposal, here are countries that have already approved asylum applications at a rate:

   

  

  

  

  

  

  

  

• Paul Krugman Is "Really, Really Worried" That He Might Have Screwed Up Japan

  Late last year, a very important and very “powerful” man took a field trip to Japan to observe Keynesian insanity prowling around in its natural habitat…

  

  That’s right, last November Paul Krugman – the mere mention of whom is enough to strike terror in the hearts and minds of the sane – found himself in a limousine with Japanese economist Etsuro Honda who was intent on securing the Nobel laureate’s help in convincing Prime Minister Shinzo Abe to delay a planned (and prudent) sales tax hike. As a reminder, here’s how Bloomberg described the “historic” series of events:

  When Japanese economist Etsuro Honda heard that Paul Krugman was planning a visit to Tokyo, he saw an opportunity to seize the advantage in Japan’s sales-tax debate.

   

  With a December deadline approaching, Prime Minister Shinzo Abe was considering whether to go ahead with a 2015 boost to the consumption levy. Evidence was mounting that the world’s third-largest economy was struggling to shake off the blow from raising the rate in April, which had triggered Japan’s deepest quarterly contraction since the global credit crisis.

   

  Honda, 59, an academic who’s known Abe, 60, for three decades and serves as an economic adviser to the prime minister, had opposed the April move and was telling him to delay the next one. Enter Krugman, the Nobel laureate who had been writing columns on why a postponement was needed.

   

  It was in a limousine ride from the Imperial Hotel that Honda told Krugman, 61, what was at stake for the meeting. The economist, who’s now heading to the City University of New York from Princeton University, had the chance to help convince the prime minister that he had to put off the 2015 increase.

   

  The concept of outside opinion influencing Japanese decision-making is known as gaiatsu, or foreign pressure, in Japanese, and has historical precedent since at least the arrival of U.S. Commodore Matthew Perry’s squadron in 1853 in Tokyo Bay, which led to an opening in the nation’s trade policies. Gaiatsu also has been used as cover by Japanese officials when they’ve pushed through controversial measures.

   

  Krugman plays down his role, saying the Nov. 6 meeting with Abe “was very straightforward.”

  But Honda tells a different story:

  “That nailed Abe’s decision — Krugman was Krugman, he was so powerful.”

  Yes, “Krugman was Krugman,” which means everyone in attendance was subjected to 40 minutes of crisply-worded nonsense and unlike Deputy Riksbank Governor Per Jansson – who, earlier this year, suggested that Krugman “write fewer articles and have more of a look at the data” after Krugman essentially accused Sweden’s central bank of being an evil cabal of job-hating heretics motivated by an overwhelming (not to mention completely inexplicable) desire to perpetuate global inequality by enriching creditors at the expense of impoverished debtors – no one had the good sense to tell him to shut up. 

  Sure enough, the tax hike was delayed. 

  Just days earlier, Krugman penned the following laughably ridiculous words in a blog post explaining why Japan should avoid doing anything that could be mistaken for a rollback of Abenomics:

  When I see, say, the IMF inserting into its latest Japan survey a section titled “Maintaining focus on fiscal sustainability” my heart sinks (and so, maybe, does Abenomics); [even though] it’s hard to argue against sustainability.

  It sure is, but Krugman will do it and powerful people will unfortunately listen and by the time everyone realizes that efforts to micromanage economic outcomes and smooth out the business cycle by cranking up the printing presses and gluing rates to the zero lower bound have failed it will be far, far too late to normalize which of course is precisely what’s unfolding across the world today. 

  We retold the story presented above because on Thursday a very funny thing happened: Paul Krugman told an audience in Tokyo that he is “really, really worried” that Abenomics might fail. Here’s Bloomberg:

  Nobel laureate Paul Krugman said risks of failure are growing for Prime Minister Shinzo Abe’s “Abenomics” campaign to end Japan’s two-decade slump.

   

  “I’m still really, really worried,” Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

   

  “Japan has spent a long time in this deflationary trouble,” said Krugman, who helped convince Abe to delay another planned increase in the nation’s sales tax after a hike in April last year pushed the world’s third-biggest economy into a recession.

   

  Japan needs to reach a point where everyone believes that it has pulled out of deflation, he said. “And then if that can be believed, then it may be able to stay out of trouble thereafter,” he said.

  Reading that, we’re reminded of BoJ cheif Haruhiko Kuroda, who, back in June, hilariously likened himself and his fellow DM central bankers to Peter Pan when he said the following about what’s needed to perpetuate the central bank omnipotence myth:

  “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.” 

  What Krugman and Pan are both tacitly admitting, is that Abenomics has demonstrably failed and the only thing that can save Japan now is for everyone to suspend disbelief in the face of voluminous evidence that what Kuroda and Abe (at Krugman’s behest) are doing simply isn’t working.

  And because “Krugman is Krugman”, we’re never more than one Google search away from a hilarious soundbite from the New York Times blog archives, and so it’s with great pleasure and with everything said above in mind, that we leave you with the following excerpt from a Krugman classic entitled “Why Keynes Is Slowing Winning” ca. 2014:

  “Why does the tide finally seem to be turning? Partly, I think, it’s just a matter of time; after six years it’s becoming hard not to notice that the anti-Keynesians have been wrong about everything. And the refusal of almost everyone on the anti-Keynesian side to admit any kind of error has gradually made them look ridiculous.”

   

  
  

  

  

  

  

  

• Kerry Picks Clinton Donor To Be State Department's "Email Czar"

  Via JudicialWatch.org,

  The new “email czar” appointed by Secretary of State John Kerry to oversee the burgeoning Hillary Clinton email scandal is a Clinton campaign donor who recently made a generous contribution, according to federal records obtained by Judicial Watch.

  Her name is Janice Jacobs, a former career diplomat assigned by Kerry this week to be the State Department’s “Transparency Coordinator,” according to a mainstream news report. Jacobs will be in charge of responding to public-record requests involving the secret email account that Clinton used exclusively to conduct official government business. She will also handle congressional requests “faster and more efficiently,” and will improve the State Department system for keeping records.

  Kerry reportedly assigned an “email czar” in an effort to ensure that the State Department promptly responds to an onslaught of record requests without directly undercutting Clinton and the Democratic Party’s presidential front-runner. Ego also played a role in the appointment because aides cited in the story said Kerry has been annoyed at the distraction the Clinton email controversy has caused for his agency, which has at times “overshadowed his diplomatic efforts.”

  Kerry could not have picked a better team player. Jacobs is a big Clinton fan who contributed $2,700 to the Hillary for America presidential campaign fund, Federal Election Commission records obtained by JW show. Can we really expect her to be fair and objective as the new gatekeeper of Clinton’s records? Besides being an admirer and campaign donor of the former Secretary of State, Jacobs has a long history as a State Department insider serving as Deputy Assistant Secretary for Visa Services and Assistant Secretary for Consular Affairs until retiring last year.

  No cabinet secretary has ever established their own external communication system in an effort to circumvent both the unclassified and classified government systems. Judicial Watch has been a leader in exposing the Clinton email scandal and has a number of lawsuits pending in federal court. JW was also the first to report that Clinton likely also used unauthorized electronic equipment—an iPad and an iPhone—as Secretary of State after being warned not to. A veteran State Department official told JW in March that on at least half a dozen occasions Clinton’s top aides asked the State Department’s Office of Security Technology to approve the use of an iPad and iPhone. Each time the request was rejected for security reasons.

  

  

  

  

  

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• Economic Crisis: How You Can Prepare Over The Next Six Months

  Submitted by Brandon Smith via Alt-Market.com,

  I wouldn’t say that it is “never too late” to prepare for potential disaster because, obviously, the numerous economic and social catastrophes of the past have proven otherwise. There simply comes a point in time in which the ignorant and presumptive are indeed officially screwed. I will say that we have not quite come to that point yet here in the U.S., but the window of opportunity for preparation is growing very narrow.

  As expected, U.S. stocks are now revealing the underlying instability of our economy, which has been festering for several years.  Extreme volatility not seen since 2008/2009 has returned, sometimes with 1000 point fluctuations positive and negative in the span of only a couple days.  Current market tremors are beginning to resemble the EKG of a patient suffering a heart attack.

  Stocks are a trailing indicator, meaning that when an equities crash finally becomes visible to the mainstream public, it indicates that the economic fundamentals have been broken beyond repair for quite a while. What does this mean for those people who prefer to protect themselves and their families rather than wait to be drowned like lemmings in a deluge? It means they are lucky if they have more than a few months to put their house in order.

  The process of crisis preparedness is not as simple as going on a gear-buying bonanza or making a few extra trips to Costco. That is better than nothing; but really, it’s a form of half-assed prepping that creates more of an illusion of survivabilty rather than providing ample security in the event that financial systems malfunction.

  Much of what’s listed in this article will include training and infrastructure goals far beyond the usual standards of beans, bullets and Band-Aids.

  Market turmoil has only just begun to take shape around the globe; and as I explained in my last article, the situation is only going to become exponentially worse as 2015 bleeds into 2016. I certainly cannot say for certain how long our system will remain “stable,” primarily because our current collapse could easily move faster or slower through the influence of outside or engineered events (a slower progression without any black swan-style triggers would likely end in total breakdown within the span of a couple years, rather than a fast progression ending in the span of a few months). What I can do is give you a conservative timeline for preparedness and offer examples of actions anyone can accomplish within that period. For now, my timeline is limited to six months or less, meaning these preparations should be undertaken with the intent to complete them in half a year. If you get more time than that, thank your lucky stars for the extension.

  Find Two Family Members, Two Friends and One Neighbor Of Like Mind

  Here is the bottom line: If you are going the route of the lone wolf or secret squirrel isolated from any community, then you are already dead. You might as well hand your food and supplies over to someone else with a better fighting chance. The lone wolf methodology is the worst possible strategy for survival. And if you look at almost every collapse scenario in history from Argentina to Bosnia to the Great Depression, it is always the people with strong community who end up surviving.

  Going lone wolf is partially useful only if you have zero moral fortitude and you plan to rob or murder every other person you come across and then run. This is not the smartest idea either because it requires a person to constantly seek out violent contact in order to live day to day. Eventually, the lone wolf’s luck will run out no matter how vicious he is.

  I’ve noticed that those people who promote lone wolf survivalism tend to lean toward moral relativism, though they rarely come right out and admit what their real plans are. I’ve also noticed that it is the lone wolves who also often attempt to shame average preppers into isolationism with claims of “OPSEC” (operations security) and warnings of neighbors ready to loot their homes at the first sign of unrest. “Don’t talk to anyone,” they say. “Your only chance is to hide.” One should consider the possibility that the lone wolves prefer that preppers never form groups or communities because that would make their predatory strategy more successful.

  Without community, you have no security beyond the hope that people will not find you by chance. You also have limited skill sets to draw from (no one has the knowledge and ability to provide all services and necessities for themselves). And you will have no ability to rebuild or extend your lines of safety, food production, health services, etc. once the opportunity arises. If you cannot find two family members, two friends and one neighbor to work with you in the next six months, then you aren’t trying hard enough; and thus, frankly, you don’t deserve to survive. I’ve heard all the excuses before: “Everyone around me is blissfully ignorant,” “My family is addicted to their cellphones,” “All my friends are Keynesians” and so on. It doesn’t matter. No more excuses. Get it done. If I can do it, you can.

  Approach Your Church, Veterans’ Hall Or Other Organization

  What do you have to lose? Find an existing organization you belong to and see if you can convince them to pre-stage supplies or hold classes on vital skills. Keep your approach nonpolitical. Make it strictly about preparedness and training. If you can motivate a church or a veterans’ hall or a homeschoolers’ club to actually go beyond their normal parameters and think critically about crisis preparedness, then you may have just saved the lives of dozens if not hundreds or people who would have been oblivious otherwise. Making the effort to approach such groups could be accomplished in weeks, let alone six months.

  Learn A Trade Skill

  Take the next six months and learn one valuable trade skill, meaning any skill that would allow you to produce a necessity, repair a necessity or teach a necessary knowledge set. If you cannot do this, then you will have no capability to barter in a sustainable way. Remember this: The future belongs to the producers, and only producers will thrive post-collapse.

  Commit To Rifle Training At Least Once A Week

  Set aside the money and the ammo to practice with your primary rifle every week for the next six months. Yes, training uses up your ammo supply; but you are far better off sending a couple thousand rounds down range to perfect your shooting ability rather than letting that ammo sit in a box doing nothing while your speed and accuracy go nowhere.

  Also, think in terms of real training methods, including speed drills, movement drills, reloading and malfunction clearing, and, most importantly, team movement and communications drills. Shooting a thousand rounds from a bench at the range is truly a waste of time and money. Train in an environment that matches your expected operational conditions. Make sure you are learning something new all the time and make sure you are actually challenged by the level of difficulty. If you are not getting frustrated, then you are not training correctly.

  Create A Local Ham Network – Expand To Long Distance

  A 5-watt ham radio can be had for about $40. With the flood of low-cost, Chinese-made radios on the market today, there is simply no excuse not to have one. If you want to get your ham license, then by all means do so and expand the number of available frequencies you can legally use. If you don’t have a license, practice on non-licensed channels such as MURS channels (yes, MURS is only supposed to be operated at 1 watt or less; I won’t tattle on you to the Federal Communications Commission if you use 5 watts).

  A 5-watt handheld ham radio can easily achieve 30 miles or more depending on the type of antenna used. With repeaters, hundreds of miles can be covered. With a high frequency (HF) rig, hundreds or sometimes thousands of miles can be covered without the use of repeaters (though HF radios are far more expensive).

  During a national disaster, there is no guarantee that normal communications will continue. Phone and Internet connections can be lost through neglect, or they can be deliberately eliminated by government entities. A nation or community without communications is lost. Find friends and family and set up your communications network now. Over time, your network may grow to cover a vast area; but it has to start with a core, and that core is you.

  Learn Basic Emergency And Combat Medical Response

  We are lucky in my area to have a few people with extensive medical knowledge in our Community Preparedness Team. I have received training in multiple areas of emergency and combat medical response, and I am grateful for access to such people because there is always more to learn in this field. If you do not have people on your team with medical experience, then you will have to seek out such classes where you can.

  Local EMT classes are a good start, but these courses are very limited in scope and do not cover treatment as much as they cover the identification of particular problems. Almost no community courses I can think of delve into combat medical response. If you can’t find a private trainer in your area, then you will have to settle for Web videos. Purchase extra supplies such as Israeli or OLAES bandages and practice using them. Learn your CAT tourniquet until you can use it in the dark. My team even shot a Christmas ham and then pumped fake blood through it to simulate a wound for our blood-stopping class.

  If you already have solid people with medical training, try focusing in a niche area like dental work. At the very least, learn your trauma-response basics and store your own medical supplies. Do not assume that you will have access to a hospital when you need it.

  Store At Least One Year Of Food – Then Store Extra

  With your current food stores can you make it at least one year without a grocery supply source? Can you make it through at least one planting and harvest season with 2000 – 3000 available calories per person? Do you have extra food for people you might wish to help?

  Imagine you or your community come across an ER surgeon during a crisis situation, but he did not prepare. Are you going to “stick it to him” and let him starve because he didn't see the danger coming, or are you going to want to keep that guy and his skill sets around? Food preparedness is not as straightforward as it seems. You have to think in terms of your own survival, yes, but also in terms of individual aid. During a full spectrum collapse food is the key to everything. This is why governments like ours set up provisions for food confiscation. They know well that food is power. Without extra supply, communities struggle to form because people become hyper-focused on themselves and lose track of the bigger survival picture. Governments understand that if they can offer limited food to the desperate, they can control the desperate. Do what you can to make sure there are no desperate people within your sphere of influence and you remove the establishment's best mode of control.

  Plan Your Food Independence In Advance

  To survive you must become your own farmer. Period. Do you know how to do this in your particular climate? Have you accounted for pest control and bad weather conditions? Have you extended your growing season with the use of greenhouses? Are you planning your crops realistically? What provides more sustenance, a field of tomatoes or a field of potatoes? A planting box full of lettuce or of carrots? What crops can be stored the longest and are the hardiest against poor conditions? What gives you the best bang for your buck and for your labor?

  I realize that the current growing season is almost at an end, but that does not mean you can't spend the next six months planning for the next season. Condition your soil for planting now. Store extra fertilizer and compost. Be ready for pests. Learn the square foot method as well as barrel planting. Take note of the space you have and how you can best use it. Stockpile seeds for several years of planting.

  Train Your Mind To Handle Crisis

  Panic betrays and fear kills. The preparedness culture is built upon the ideal that one must defeat fear in order to live. How a person goes about removing uncertainty from the mind is really up to the individual. For me, combat training and mixed martial arts is a great tool. If you get used to people trying to hurt you in a ring, it's not quite as surprising or terrifying when it happens in the real world. If you can handle physical and mental trauma in a slightly more controlled environment, then fear is less likely to take hold of you during a surprise disaster.

  Six months may be enough time to enter a state of mental preparedness, it may not be, but more than anything else, this is what you should be focusing on. All other survival actions depend on it. Your ability to function personally, your ability to work with others, your ability to act when necessary, all rely on your removal of fear. Take the precious time you have now and ensure you are ready to handle whatever the future throws at you.

  

  

  

  

  

• AsiaPac Stocks, FX Tumble As China Devalues Yuan Most In 4 Weeks, Sees "No Need For Massive Economic Stimulus"

  Losses from the US session extended following comments in one of the government's official mouthpieces that "China doesn't need massive stimulus." A BoNZ rate cut (blaming China's devaluation) sent Kiwi tumbling, Ringgit hit a fresh 17 year low against the USD, Japanese stocks collapsed over 650 points so far, and Chinese stocks are opening notably lower. Volume remains de minimus (99% below average) in Chinese futures trading as China devalues the Yuan by the most since Aug 13 and injects another 80 billion Yuan liquidity.

   

  US weakness did not help but once this hit early on in the Asia session…

  • CHINA DOESN’T NEED MASSIVE ECONOMIC STIMULUS: FINANCIAL NEWS

  Adding:

  • *CHINA FACES DOWNWARD PRESSURE IN 2-3 YEARS: PBOC ADVISOR HUANG
  • *CHINA YET TO FIND NEW GROWTH PILLARS: PBOC ADVISOR

  Losses grew.

  *  *  *

  The Bank of New Zealand cut rates:

  • *NEW ZEALAND CUTS KEY INTEREST RATE TO 2.75% FROM 3.00%
  • *WHEELER: SIGNIFICANT YUAN DEVALUATION WOULD BE BIG WORRY
  • *RBNZ SAYS FURTHER NZD DEPRECIATION IS APPROPRIATE

  Slamming Kiwi lower…

  • *NEW ZEALAND DOLLAR DROPS MORE THAN 2% FOLLOWING RBNZ RATE CUT

  

   

  The Maysian Ringgit dropped another 1% in the early trading – to its weakest since 1998…

  • *MALAYSIA'S KEY STOCK INDEX OPENS DOWN 0.7% AT 1,592.16
  • *MALAYSIAN RINGGIT DROPS 1% TO 4.3728 PER DOLLAR

   

  

   

  Japanese stocks opened down 550 points at the cash open having fallen all day during the US session… Now down 650 points

  

   

  Broad AsiaPac stocks are lower…

  • *MSCI ASIA PACIFIC INDEX DROPS 2.2%, EXTENDING LOSS

  And China opens weaker (despite Fink's help)…

  • *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 0.5% TO 3,308.4

  

  As China injects another 80 billion Yuan…

  • *PBOC TO INJECT 80B YUAN WITH 7-DAY REVERSE REPOS: TRADER

  And then devalues The Yuian by th emost since 8/13…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3772 AGAINST U.S. DOLLAR
  • *CHINA WEAKENS YUAN FIXING BY 0.22% TO 6.3772/USD

  

   

  Perhaps the recent Treasury selling gave them enough to hold the Yuan down here?

   

  Charts: Bloomberg

  

  

  

  

  

• Is This The End Of The Idea Of America?

  Politicians learned long ago that it's easier to just import non-Americanized voters to vote for you, than, as FutureMoneyTrends notes, to get naturalized citizens who still cherish the idea of America to vote for things like national healthcare systems, higher taxes on business owners, and the catering to every little tribal group that declares themselves a minority.  

   

   

  As SHTFPLan's Mac Slavo concludes, with Europe’s immigrant crisis coming to a head and similar events having played out in the United States last summer, it should be clear that what’s happening is an orchestrated detonation of First World nations…

  The cultural genocide going on in this country… where school teachers, politicians and community leaders believe we have something to be ashamed about.

   

  Humanity is ugly. And America’s history is no different. But let’s not pretend that blacks weren’t slave owners and slave distributors. Native Americans went to war all the time over land and killed other native Americans.

   

  And no, La Raza, California, Arizona and Texas are not yours. At least not for now. And please, if Mexico’s borders really did control those states you would just be flooding into Colorado, Idaho and Wyoming. Because if California, Arizona and Texas were Mexico, those states would be shit.

   

  Although given enough time – and they’ll be there – California is already looking pretty third-world with a rapidly shrinking middle class.

   

  In southern California, drive down a street where Mexicans are migrating to and you’ll notice a boom in window security bars.

  It is only a matter of time before the middle class is wiped out and America begins to resemble the poverty, violence and tyranny so often associated with the countries from which many illegal migrants originate.
   

  

  

  

  

  

• Will China Invade Alaska, Canada? Will Russia?

  Authored by Bernie Quigley, originally posted op-ed at The Observer,

  The theory of 65-year cycles points to a critical moment in China's evolution

  Five Chinese navy ships are currently operating in the Bering Sea off the coast of Alaska, the Wall Street Journal reported Wednesday, marking the first time the U.S. military has seen them in the area. Why the sudden interest?

  Because the Chinese have been studying the cycles. From generational theorists William Strauss and Neil Howe, they have learned that political/cultural cycles last only 65 years, and then they collapse, cycles first observed by Taoist monks and Roman philosophers. And China is exactly 66 years advanced since the Chinese Communist Revolution of 1949. In terms of generational cycles, China is on the eve of destruction. (In terms of the Strauss/Howe theory, so are we.)

  The Chinese have been studying Western theories and economic cycles like the Elliott Wave, which suggests that the life cycle of a dominant currency has its limitations, and the American dollar cycle has ended. They have been studying economist Harry Dent, investment gurus Jim Rogers, Marc Faber and libertarian Ron Paul, seen often here only in the shadows, and understand that America is at a full economic transition, potentially a catastrophic cultural turning.

  They have been reading Nicholson Baker’s day-by-day account, Human Smoke: The beginnings of WWII, the End of Civilization. They understand fully without Western sentimentality or illusion what comes next at the end of the economic cycle: Total war.

  And they know that they have every advantage, for so many reasons. The first might reach back to 1913, when the 17th Amendment was approved in America. It focused power in New York and Washington and nullified the natural rise and development of states and regions into indigenous republics or “laboratories of democracy,” the phrase used by Justice Louis Brandeis. But created in time a vast meandering horde wandering without fences, formed by Hollywood light and sound, answering to no one, or anyone. It was one of the early Tea Party initiatives to put the fences back, but it is now too late and not enough.

  They understand the “lessons of Vietnam”: Here in the age of the individualized common man where every woman or man can be emperor, it is not just the rich who will not fight, not just the connected who will avoid service (Dick Cheney had five military deferments in the Vietnam era). Almost no one will fight and those who do will be despised.

  And although nostalgico generations celebrating Franklin D. Roosevelt (like Bernie Sanders) still romantically view us as unified (largely European) minions formed by great Hollywood figures; Frank Capra, Howard Hawks, Gary Cooper movies like Sergeant York, we no longer are. We view ourselves today as “totalitarian lite” benevolent world conquerors and everybody wants to be like us (except the Chinese and Russians). Senator from Arkansas Tom Cotton today calls for “global military dominance.” But we have no temperament for war. Scholarly studies report that, just one percent of current residents of New Jersey have served in military since Vietnam.

  Secretary of State John Kerry’s appeasement of the Ayatollahs in the Iran deal comes as no surprise. Not to China, which carefully plans its next steps in the now permanent relationship with the war-weary and wary West.

  Jim Webb, warrior/scholar and former Senator from Virginia, who is running for president has been watching this a long time.

  “From this point forward,” he wrote in the Wall Street Journal back in 2001, “no one should doubt that our over investment in the economy of a nondemocratic and ever more aggressive nation has seriously compromised our ability to conduct foreign policy in the world’s most dynamic region. And the fact that we have become vulnerable to a Chinese military modernized through the benefits of our own technology should give all of us pause.”

  

  Chinese missiles are seen on trucks as they drive next to Tiananmen Square and the Great Hall of the People during a military parade on September 3, 2015 in Beijing, China. (Photo: Kevin Frayer/Getty Images)

  Webb prefaced his article with a quote from Sun Tzu, in The Art of War: “Draw them in with the prospect of gain, take them by confusion. Use anger to throw them into disarray.”

  It is safe to say today that we are now passed the “draw them in” phase and entering into the “take them by confusion” phase and that is what the Chinese ships are doing off the Alaskan coast. Soon ahead, the “use anger to throw them into disarray” phase.

  Possibly we would come together in defense today if an outside invader approached the United States (Lower 48) either from China on one side, or Russia on the other. But would Americans in the Lower 48 defend Alaska? Canada? Or would we instead deal Canada away to avoid war below and “find peace”? As our long, intimate, historic relationship with Israel disintegrates almost overnight, General Secretary of the Communist Party Xi Jinping thinks he knows the answer.

  Most Americans who have never seen Dougie Gilmour crawl off the ice with a broken leg in his last day on ice, have never been to Tim Hortons or canoed the mystic Canadian wilderness, think Canadians are silly, preoccupied only with hockey. Scott Walker, Governor of Wisconsin, who wants to be president, fully personifies this dangerous American narcissism: He wants to build a fence not only across the border with Mexico, but one across the border with Canada as well. But Canada, and Alaska, are absolutely vital to America’s defence, even to our very existence.

  Time to read again, John McPhee’s Coming into the Country. Time to read again, Margaret Atwood’s Survival: A Thematic Guide to Canadian Literature. Time to read again, Sun Tzu’s The Art of War.

  That President Obama is the first American president to cross into the Arctic Circle is astonishing. That tells the Chinese, and the Russians who planted the flag at the North Pole and declared it to be their own well back in 2007, virtually everything they need to know about our relationship with the Great White North.

  That is where they must start in the next phase of civilization between China, Russia and North America: Using “anger to throw them into disarray.”

  

  

  

  

  

• "Where Is Everyone Going?" Presenting Goldman's Immigration Flow Chart

  As discussed here on Tuesday evening, people flows (i.e. immigration and migration) are grabbing international headlines these days thanks in large part to i) the massive influx of asylum seekers entering Western Europe from war-torn Syria, and ii) GOP frontrunner Donald Trump’s outspoken position on illegal immigration in the US. These two issues are part of a larger discussion about how demographics affect societal and economic outcomes or, as we put it yesterday, “demographic shifts, whether gradual or sudden, whether wholly domestic or emanating from some exogenous shock (like say a horrible US foreign policy outcome) matter – and they matter a lot.”  

  Regardless of one’s position on immigration in the US or the EU’s response to the worsening migrant flow from the Mid-East, understanding “where everyone is going” (so to speak) may be more critical now than at any time in recent history. 

  With that, we present the following flowchart from Goldman which shows, in analyst Hugo Scott-Gall’s words, “net people outflow and inflow countries (in grey and blue respectively), with major people flows highlighted. Size of the box depicts size of net inflows/outflows; note that line colours are only meant to make flows easier to follow.”

  

  

  

  

  

  

• Guest Post: So You Really Want To Make "Syrian Refugees" An Election Issue?

  Submitted by Mark Jeftovic via The Libertarian Party Of Canada,

  Thomas Pynchon once wrote:  ‘If they can get you asking the wrong questions, they don’t have to worry about the answers.’  Words to live by for the  the major political parties in Canadian Federal politics.

  The refugee crisis in Syria, Iraq and spilling into Europe has become an election issue, with each of the major parties pulling magic numbers out of their ears around “how many” is the “right number” of refugees to admit to Canada, which once again underscores the Libertarian criticism that the both major political parties espouse largely uniform campaign platforms in which the issues are for the most part homogenous while the really important questions are rendered conveniently out-of-scope (and even the NDP’s, sniffing a faint shot at power, are pivoting off their principles in order to get it)

  If we peer behind the veil of mainstream media oversimplification we find that the humanitarian crisis we are faced with today are the straight line consequences of a decades-old policy on the part of the West (defined as the US, the UK, Israel and including complicit Canada) to subvert and destabilize the very nations that are submerged in civil war and strife.

  A String of Coup D’Etats

  Syria and Iran were both once full-on democracies who’s duly elected governments committed the literal, mortal sins of offending Western corporate powers. Iran’s Mohammad Mosaddegh wanted to audit the books of the Anglo-Iranian Oil Company and was instead overthrown and replaced with the Shah. We’re all aware how that turned out why Iran is so fond of the West to this day.

  

  Foreign Policy FTW

  Syria’s plight is not as well known, our (meaning the West’s) first political coup d’etat against their elected government was in 1949, when the CIA over throws  Shure al-Quwatly and replaces him with the first of many military strongmen in Syria, Colonel Husni al-Zaim.  “America’s Boy” as he was dubbed, wasn’t so strong after all and was deposed and executed after 2 months in power. No fewer than 5 more military coup’s were sponsored over the years in Syria, so many that there is even a Wikipedia page  “List of Military Coups in Syria” (1954, 1961, 1963, 1966 and 1970).

  When not actively overthrowing the elected governments of Syria and Iran, the west has been for decades, offering up policies designed to justify them and other initiatives that will destabilize and subvert the autonomy of “the target nations”.

  A Multi-Decades Policy of Destabilization and Subversion

  Via various think tanks and policy institutes, white papers are authored by the same recurring personages to shape the direction of mid-east policy. They have names which overlap heavily with the US Neo-conservative movement which ended up having a much stronger effect on the direction of Canadian politics than many would care to admit.

  The rationales for these behaviours is usually the same: “when the citizens of these countries see where their improperly aligned leaders have gotten them, they will embrace democracy” (considering at least two of the targets in question started out as democracies in the first place, it brings to mind the parable of the Harvard MBA and the fisherman).

  As far back as 1982, Oded Yinon publishes “A Strategy for Israel in the Nineteen Eighties” in Hebrew in the journal Kivunium.

  “The paper, published in Hebrew, rejects the idea that Israel should carry through with the Camp David accords and seek peace. Instead, Yinon suggests that the Arab States should be destroyed from within by exploiting their internal religious and ethnic tensions: “Lebanon’s total dissolution into five provinces serves as a precedent for the entire Arab world including Egypt, Syria, Iraq, and the Arabian peninsula and is already following that track. The dissolution of Syria and Iraq later on into ethnically or religiously unique areas such as in Lebanon, is Israel’s primary target on the Eastern front in the long run, while the dissolution of the military power of those states serves as the primary short term target. Syria will fall apart, in accordance with its ethnic and religious structure, into several states such as in present day Lebanon.”

  A decade later,  Princeton University professor  Bernard Lewis describes the process of “Lebanonization”  in his Foreign Affairs article “Rethinking the Middle East” when “[the] state then disintegrates into a chaos of squabbling, feuding, fighting sects, tribes, regions and parties.”

  The thrust of the article argues that “the West and Islam have been engaged in a titanic ‘clash of civilizations’ and that the US should take a hard line against all Arab countries.”

  Then in 1996 Lewis’ protege, Richard Perle, is lead author on a position paper for Benjamin Netanyahu entitled “A Clean Break: A New Strategy for Securing the Realm” that advocates abandoning the previous peace process in favour of destabilizing Syria and Iraq and exploiting mid-east tensions.

  After 9/11 Richard Perle becomes a chief architect of “The global war on terror” and with it came things like “slam dunk” WMDs in Iraq (which were never found) and the Saddam Hussein / bin Laden axis (which did not exist). Today, Iraq is in shambles and not a single WMD was ever found there. Anybody who read former UN weapon’s inspector Scott Ritter’s “War on Iraq: What Team Bush Doesn’t Want You To Know“, published more than a year ahead of the Iraq invasion, already knew that there were no WMD there. Everybody now has the hindsight to see that the entire Iraq war was premised on lies but few talk about it in polite company.

  Canada Gets With the Program…

  One could argue that “peace keeping”, in the context we are all supposed to understand it (creating a multi-national coalition in a hot spot to prevent a global thermonculear war from erupting) was a Canadian invention with Lester Pearson’s solution to the Suez Crisis which earned him the Nobel Peace Prize.

  In those days, both major parties would be headed by leaders with strong convictions about what was “the right thing to do” for the world at large and for Canada as a nation. Whether it was Pearson’s aforementioned statesmanship during the Suez Crisis or Deifenbaker’s stance, very much ahead of its time, on the issue of South African Apartheid. As a nation we seemed to have some kind of functional moral compass which had important divergences from both our UK and US “allies”.

  Today, not so much.

  While Chretien did manage to keep Canada out of the disastrous and criminal invasion of Iraq, he did join in the occupation of Afghanistan, which seemed a turnkey, off-the-shelf intervention just waiting for an excuse to happen. Ostensible reasons for the invasion aside (i.e. like that it was actually legal), the one big outcome of the invasion (and our participation in it) has been the steady increase in heroin output of that country ever since.

   

  

   

  On a parallel track to neo-Con flavoured designs on a “new American Century” south of the border, the co-opting of Canadian diplomacy began in earnest during the 90’s with the country’s largest corporate interests positioning for a “Grand Bargain” with the US, it was once again 9/11 that provided the catalyst for putting these policy tracks into overdrive.

  The Canadian Council of Chief Executives (CCCE) sent a delegation to Washington in April 2003 where they received their marching orders from US overseers, namely DHS Secretary Spencer Abraham and (once again) Richard Perle (congenially known within the beltway by now as “The Prince of Darkness”). The latter delivered a particularly moving lecture* to the corporate elite in attendance that Canada had to unambiguously “get with the program” and step up as an unwavering ally of US foreign policy. This included dramatically increasing military and security commitments.  This was framed as the “ante” for having the next round of Free Trade talks with the USA. (*detailed in Ricardo Grinspun and Shamsin Yamsie’s “Who’s Canada? Continental Integration, Fortress North America, and the Corporate Agenda“)

  The meeting is considered a defining moment in Canada/US relations. The Paul Martin Liberals quietly adopted the CCCE agenda and which was then embraced more aggressively by Team Harper.

  Again we have the incumbent parties following the same path, largely dictated by an external power along which we find ourselves today: party to the latest military engagement in Syria, actively complicit in ubiquitous surveillance both at home and abroad and none of it open to discussion, debate or alternatives among the citizens of Canada.

  ISIS did not arrive on a comet from deep space

  To borrow a phrase coined by David Stockman in his book about the (mal)response to the 2008 Gobal Financial Crisis, “ISIS did not arrive on a comet from deep space”.

  Rather, they are the consequences of deliberately executed campaigns of intervention and subversion designed to produce exactly the kind of humanitarian crisis occurring now. Granted, it gets messy when the fallout from grand stratagems fail to confine themselves to the target countries of Syria, Iraq and Iran, but these “deep-policy” ideologues have a track record for underestimating “blowback”.

  The rise of ISIS then, is hardly surprising. Nor is their meteoric ascent within their sphere of operations. For decades, we’ve been usurping any democratically elected governments in the target countries, instead propping up strongmen and authoritarian regimes, inducing various factions into war with each other (supplying both sides), dropping and droning bombs from the sky and occasionally stepping in with boots-on-the-ground military invasions.

  Now we’re shocked when another reactionary, fundamentalist, West-hating movement steps into the vacuum?

  Former NATO Secretary Generals Javier Solana and Jaap de Hoop Scheffer lamented that any further intervention and escalation in Syria would have precisely the opposite effects of their ostensible intentions:

  “Rather than secure humanitarian space and empower a political transition,Western military engagement in Syria is likely to provoke further escalation on all sides, deepening the civil war and strengthening the forces of extremism, sectarianism and criminality gaining strength across the country. The idea that the West can empower and remotely control moderate forces is optimistic at best. Escalation begets escalation and mission creep is a predictable outcome if the West sets out on a military path [emphasis added].”

  Today in Syria, the situation tragically comic as the West supplies it’s “anti-Assad rebels” with weapons, who often end up switching allegiances to ISIS.

  The truth is that what Solana & Scheffer were cautioning against has been going on since  at least 1949 (the date of the first of six Western engineered military coup d’etats in Syria) and what we have today is the result of it.

  Conclusion: Sooner or later….

  “Sooner or later, everyone sits down to a banquet of consequences…” – Robert Louis Stephenson

  So if you really want to make “refugees” the election issue “du jour”, one can waste a lot of time watching the mainstream incumbent parties bicker over the “right” number of refugees to allow into Canada or how much taxpayer money to throw at aid, or even whether more Canadian “boots on the ground” should be headed over there on various “peace keeping” escapades.

  OR,

  You could ask the really hard hitting questions like

  • Why is there a refugee crisis in the first place?
  • Would there be one if Western foreign policy wasn’t one of destabilization and subversion going back for decades?
  • Could what we call “terrorism” possibly be an asymmetric response to our pre-emptive (and often brutal, often bloody, often murderous) subversion of foreign governments whom we deem unfavourable to our interests?

  And, given the newer data points such as 1) the arrival of Russia’s military in Syria and 2) Canada’s deployment of military trainers to the Ukraine, another good question could be

  • Would you mind very much if we got into a shooting war with Russia?

  Finally:

  • Given Canada’s complicity in this mess, both under Conservatives and Liberal regimes, should either of those parties be taken seriously in their earnest looking hand wringing?

  The major parties are happy to serve up easily digestible over-simplified “solutions” to these election issues.

  It takes a Libertarian to ask the truly relevant, albeit uncomfortable questions like “what was our part in it?” and to face the unpleasant facts that our society, our country isn’t an ubermoral saviour to these “Arab savages” rending their own societies apart, but that we are were actually complicit in implementing and profiting from policies and actions that helped cause it and we are collectively happier to be ignorant of that.

  Now you can wonder how many of these refugees we should take in.

  *  *  *

  Mark Jeftovic is the Libertarian Party candidate for Parkdale / High-Park in the upcoming federal election.

  

  

  

  

  

• David Stockman Sums It All Up In 3 Minutes

  Stockman unleashes truthiness hell on Bloomberg TV: "Federal Reserve [actions] will have disastrous long-term consequences… when you deny price-discovery in the market for so long, it is a massive subsidy to speculation… In an era of peak debt, the only thing zero interest rates achieve is create an enormous incentive for Wall Street to gamble more and more recklessly…"

   

  195 seconds… watch, listen, and think…

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• Guess Who Was Buying Stocks (Again)?

  Corporate buybacks, based on BofAML's client flows, are at the highest four-week-average level in 18 months as the irrationally non-economic buyers of last resort pile in to tumbling prices to maintain their CFO's and CEO's year-end performance bonuses. While hope remains that this pick-up will continue, the demise of the corporate credit market suggests the last greater fool just entered the market…

  So who was buying? Simple! Companies, again!

  

   

  But do not expect it to last…

  

   

  It's hard to justify blowing cash on buybacks when the cost of financing is surging… and liquidity is drying up for even the best issuers.

  This week's calendar (of corporate issuance) looks huge (as evident in higher yields thanks to rate-locks) but it all seems desperate last-minute deals (with decent concessions) ahead of The Fed's decision.

  Charts: Bloomberg

  

  

  

  

  

• Sep 10 – Hilsenrath: Agreement on September Hike Eludes the Fed

   

  EMOTION MOVING MARKETS NOW: 13/100 EXTREME FEAR

  PREVIOUS CLOSE: 13/100 EXTREME FEAR

  ONE WEEK AGO: 10/100 EXTREME FEAR

  ONE MONTH AGO: 14/100 EXTREME FEAR

  ONE YEAR AGO: 42/100 FEAR

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 23.44% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 26.23. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
  

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)

  CRUDE OIL (CL) | GOLD (GC)

   

  MEME OF THE DAY – DUBAI GOLD DEALER OLYMPICS

   

  UNUSUAL ACTIVITY

  RHT @$.75 .. SEP 72.5 CALL Activity 3300+ Contracts

  IP SEP WEEKLY2 42.5 CALLS @$.62 on offer 1300+ Contracts

  KHC SEP 70 PUT ACTIVITY 2K+ @$.50 on offer

  KRO Director Purchase 967 @$6.905 Purchase 1,033  @$6.909

  TTS SC 13G/A .. Tremblant Capital Group .. 11.69%

  More Unusual Activity…

   

  HEADLINES

   

  Bank of Canada Holds Interest Rate at 0.5%

  US JOLTS Job Openings (Jul): 5.753m (est 5.3m, rev prev 5.323m)

  US MBA Mortgage Applications (Sep- 04): -6.2% (prev 11.30%)

  Larry Summers: A Fed hike is an unnecessary risk –FT

  Hilsenrath: Agreement on September hike eludes the Fed –WSJ

  S&P cuts China 2016 growth view to 6.3%, 2015 unch

  CA Housing Starts Aug: 216.9K (est 190.5K; rev prev 193.3K)

  CA Building Permits (MoM) Jul: -0.60% (est -5.00%; rev prev 15.50%)

  UK NIESR GDP Estimate (3M/3M) (Aug): 0.50% (rev prev 0.60%)

  ECB’s Praet: QE is largely producing desired effects

  ECB’s Mersch: QE helping bank funding

  BoJ’s new measure of core CPI accelerates in July

  BOJ considering trimming price outlook, export view

   

  GOVERNMENTS/CENTRAL BANKS

  Bank of Canada Holds Interest Rate at 0.5% –WSJ

  Larry Summers: A Fed hike is an unnecessary risk –FT

  Hilsenrath: Agreement on September hike eludes the Fed –WSJ

  ECB’s Praet: QE is largely producing desired effects –ForexLive

  ECB’s Mersch: QE helping bank funding –Rtrs

  BoJ’s new measure of core CPI accelerates in July –Rtrs sources

  BOJ said to be thinking about trimming price outlook, may also cut export view –ForexLive

  S&P cuts China 2016 growth view to 6.3%, 2015 unch –BBG

  EU’s Juncker: Greece must respect bailout, or there will be EU reaction –Rtrs

  COMMENT: FT’s Martin Wolf makes the case for keeping rates low –FT

  GEOPOLITICS

  Iran’s Supreme Leader Rules Out Negotiations With U.S. Beyond Nuclear Issues –WSJ

  U.S. Voices Concern Over Russia?s Buildup in Syria –WSJ

  FIXED INCOME

  US Tsy yields fall as buyers return to market –Rtrs

  US sells 10-year notes at 2.235% vs 2.245% WI –ForexLive

  NY banking regulator in US Treasury market probe –FT

  FX

  EUR: Dollar rises with stock rallies that sting euro –Rtrs

  JPY: Dollar rises against yen as Abe promises tax cuts –MW

  GBP: Pound’s prospects murky after UK setback –FT

  EM FX: Emerging Market Currencies Strengthen in early play –WSJ

  ENERGY/COMMODITIES

  WTI futures settle 3.9% lower at $44.15 per barrel

  Brent futures settle 3.9% lower at $47.58 per barrel

  CRUDE: EIA lowers 2016 US demand growth forecast –ForexLive

  CRUDE: Saudi Arabia August oil output dips slightly –CNBC

  CRUDE: North Sea faces ?12bn investment collapse from oil price slump –Tele

  METALS: Gold Prices Tread Water Ahead of Federal Reserve Meeting –WSJ

   

  EQUITIES

  S&P 500 unofficially closes down 1.4% at 1,942

  DJIA unofficially closes down 1.4% at 16,256

  Nasdaq unofficially closes down 1.2% at 4,756

  TECH: Apple launches new iStuff, shares softer

  M&A: KKR to Buy Stake in London Hedge-Fund Firm Marshall Wace –WSJ

  TECH: Alibaba Braces for Sales Slowdown as China?s Growth Falters –WSJ

  TECH: Tax concerns on Yahoo’s Alibaba stake spinoff prompt target cuts –Rtrs

  INDUSTRIALS: Lockheed Martin to Cut 500 Information Systems Jobs –ABC

  RETAIL: Barnes & Noble sales fall for 5th straight quarter –Rtrs

  CRA: Fitch Affirms BT At ‘BBB’; Outlook Positive

  ASIA EQUITIES: Japan Shares Jump Most in Seven Years –WSJ

  BANKS: Credit Agricole may pay about $900 million in U.S. sanctions probes – Rtrs sources

  F&B: McDonald’s moving to ‘cage-free’ eggs in US, Canada over 10 years –Rtrs

  CSUITE: United Continental: CEO Exit ‘Might Just Be What It Needs’ –Barrons

  EMERGING MARKETS

  Chinese Primer Li: Economy Faces Downward Pressure –BBG

  Chinese Primer Li: China Doesn’t Want Currency War, Reassures on Growth –Rtrs

   

  China Is Changing How It Reports GDP to Meet IMF’s Standard –BBG

  

  

  

  

  

• Russia Sends More Tank Landing Ships, Military Aircraft To Syria

  On Wednesday, Jean-Claude Juncker unveiled Europe’s preliminary “plan” to try and cope with the massive influx of asylum seekers fleeing the violence in war-torn Syria. Brussels’ approach to the crisis will reportedly involve a list of so-called “safe countries of origin.” As WSJ reported earlier today, migrants from those countries who are denied asylum will be subject to fast-track repatriation.” Here’s what we said about the proposed “safe” countries list:

  Because there are “safe” countries of origin that must mean there’s a list of “unsafe” countries of origin as well, and we can only assume that list includes Syria, which Europe will make safer by bombing it. 

  That was a reference to reports out earlier this week that suggested French President Francois Hollande’s response to Europe’s biggest refugee crisis since World War II would involve bombing the very place from which the refugees are fleeing. Here’s what Bloomberg (and Hollande himself) said on Monday:

  Hollande is seeking a response to Europe’s biggest refugee crisis since World War II in tune with public opinion that remains largely hostile to a massive increase in immigration.

   

  “I’ve asked the minister of defense to begin reconnaissance flights over Syria from tomorrow that would allow for strikes against the Islamic State,” Hollande said at a press conference in Paris on Monday. Hollande, who ruled out sending troops, said Syrian leader Bashar al-Assad is an impediment to peace in the country.

  In many ways, this looks like a replay of the infamous YouTube chemical weapons videos which were supposed to serve as the original pretext for Western strikes on the Assad regime. That is, the US and its allies are determined to find the right mix of propaganda to justify a ground incursion and this time around, that mix will apparently include heart-wrenching pictures of migrants. As we said on Tuesday, the real tragedy here is that now, the pitiable plight of Syria’s beleaguered masses will be used as an excuse to cause them still more pain and suffering.

  Well sure enough, on Wednesday, we got still more evidence that Western Europe is set to join the US and Turkey (and soon Saudi Arabia, Jordan, and Qatar) in conducting bombing raids in Syria. Here’s WSJ:

  Faced with a burgeoning refugee crisis in Europe sparked by global extremism, U.S. and European officials said Tuesday there is a growing consensus that the multinational military campaign against Islamic State must focus more on targeting the group’s nerve centers in Syria.

   

  With thousands of people flowing into Europe every day, France and England are both poised to set aside long-standing reservations and join Washington in carrying out airstrikes against Islamic State in Syria.

   

  Western nations and U.S. allies also are responding to rising concerns about extremists in Syria planning attacks on European targets, such as a thwarted attempt last month by a lone gunman to kill passengers on a Paris-bound train.

   

  That attack was a key factor for France in deciding to launch reconnaissance missions over Syria. French President François Hollande said Monday that his military is poised to carry out airstrikes in Syria.

   

  On Tuesday, government officials in London said the British military also is prepared to continue targeting Islamic State extremists in Syria suspected of plotting attacks in England. The pledge came after the U.K. announced its first targeted airstrikes in Syria, which killed two British extremists.

   

  Prime Minister David Cameron has renewed his push to convince a reluctant Parliament to clear the way for England to carry out broader airstrikes against Islamic State, also known as ISIS or ISIL, which has established its de facto capital in the city of Raqqa, Syria.

  How France and the UK plan to explain, if pressed, the logic behind the idea that dropping more bombs on Syria should leave Syrians more predisposed to reminaing in the country as opposed to fleeing to Europe is anyone’s guess, but even WSJ is starting to pick up on the fact that the timing here looks rather convenient, as the UK and France are now set to throw their respective air forces into the mix just as Russia moves to provide Assad with badly needed reinforcements at Latakia. Here’s WSJ again:

  As Europe deepens its involvement, Russia appears to be increasing its military role in Syria. U.S. military officials said Tuesday that Russia has sent in new planes, personnel and equipment in what appears to be an effort to set up a new air hub on the Syrian coast.

   

  American officials are concerned the Russian buildup is an attempt by Moscow to provide more air support for embattled Syrian President Bashar al-Assad, but Moscow’s intentions aren’t yet clear. The moves by Moscow could increase the risk that members of the U.S.-led coalition could face off against Russian jets in the skies above Syria.

  Speaking of Russia and their expanded presence, it now looks as though the Kremlin may soon abandon all pretense that its soldiers are not in Syria to fight – although obviously, no one on either side is yet prepared to drop the ISIS charade that has served, from the beginning, as the smokescreen politicians use to keep the public hyptnotized and blissfully unaware of their respective governments’ real geopolitical agendas. Here’s Bloomberg:

  Russia said it’s ready to look at measures to fight Islamist insurgents in Syria if the conflict worsens, rejecting U.S. criticism of its deepening military involvement in the Middle Eastern country.

   

  “Russia has never made a secret out of its military cooperation with Syria,” Foreign Ministry spokeswoman Maria Zakharova Zakharova said in Moscow. “Russian specialists are helping Syrians to use Russian equipment. It’s difficult to understand the anti-Russian hysteria in this regard.”

  And then from Reuters:

  Russia has sent two tank landing ships and additional aircraft to Syria in the past day or so and has deployed a small number of forces there, U.S. officials said on Wednesday, in the latest signs of a military buildup that has put Washington on edge.

   

  The two U.S. officials, who spoke to Reuters on condition of anonymity, said the intent of Russia’s military moves in Syria remained unclear.

   

  U.S. officials have not ruled out the possibility that Moscow may be laying the groundwork for an air combat role in Syria’s conflict to bolster Syrian President Bashar al-Assad.

  And still more: 

  Russian military experts have expanded their presence in Syria over the last year, a Syrian military official said on Wednesday, pointing to a deepening of ties which Washington fears may be a buildup to support President Bashar al-Assad.

   

  “Russian experts are always present but in the last year they have been present to a greater degree,” the Syrian official said. “All aspects of the relationship are currently being developed, including the military one,” he said.

  Finally, Germany has now “warned” Moscow to tread lightly in its support of Assad:

  Germany’s foreign minister warned Russia on Wednesday against increased military intervention in Syria, saying the Iran nuclear deal and new U.N. initiatives offered a starting point for a political solution to the Syrian conflict.

  Has you can see from the above, ISIS – the reason everyone involved cites when asked to explain their interest in intervening militarily in Syria – tends to get lost in the shuffle. That’s not a coincidence. Rather, it simply reflects the fact that, as we noted over the weekend, neither side cares too much about what does or doesn’t happen to Islamic State unless the group’s fate somehow matters in determining whether a post-civil war Syria is still governed by Assad. In short, ISIS has played its role. The Assad regime is destabilized and Damascus is up for grabs. From here on out, it’s all about whether a coalition comprised of the US, Turkey, Saudi Arabia, Jordan, and Qatar ends up in a direct military conflict with Russia and the Assad regime. 

  If you need a bit of anecdotal evidence to support that assessment, just ask people on the ground, many of whom can’t seem to understand, what with all the fanfare about stepped up airstrikes and a more determined coalition, why no one seems to be fighting ISIS. Once more, from WSJ:

  Islamic State fighters intensified their advance in recent days on a town in northern Syria close to a vital supply route for Syrian rebels near the border with Turkey, according to opposition rebels and local residents.

   

  A number of rebel factions are struggling to stave off the militants, who have been gradually encircling the town of Marea about 15 miles south of the Turkish border. Marea is a key town along a 60-mile stretch of the border that Turkey and the U.S. want to clear of Islamic State fighters and the group’s offensive appears aimed at thwarting those efforts.

   

  On Friday, Islamic State briefly entered the town, only to be beaten back by rebels, Marea residents and rebels said. But the rebels have lost three villages.

   

  Though the U.S. and Turkey have said they want to oust Islamic State from this area, rebels in the Marea area say they are battling the militants on their own and complain they have not received much support from either country.

   

  “We are fighting ISIS by ourselves,” said Abu Firas, referring to Islamic State by one of its acronyms. near Marea in the last month.

  Marea is near the so-called “ISIS-free” zone that the US and Turkey sought to establish last month after Erdogan effectively traded Washington access to Incirlik (which gives the US army a forward operating base for what will eventually be a ground incursion in Syria) for NATO’s acquiescence to the extermination of the Kurdish opposition in Turkey. Of course ISIS might have already been routed from the area were it not for the fact that Washington and Ankara have literally forbidden the Kurdish YPG from continuing their highly successful offensive along the Turkish border due to Turkey’s disdain for anything and everything Kurd-related. Given that, one would think that the very least Turkey would do, if it were genuinely concerned about ISIS that is, is make a concerted effort to stop towns like Marea from being captured but instead, Turkish President Recep Tayyip Erdogan’s army is off chasing the PKK in the mountains of Northern Iraq. 

  If you think this is a “friggin’ mess” (to quote the Pentagon) now, just wait until the UK, France, and Germany get involved in the face of an increasingly obstinate Russia. 

  This folks, is the worst circle of foreign policy hell, and it’s brought to you exclusively by governments’ never-ending struggle to gain leverage over one another by controlling the distribution of the world’s energy supply.

  

  

  

  

  

• Brazil Cut To Junk By S&P, ETF Falls 5% Post-Mkt

  It’s not as if the writing wasn’t on the wall, and don’t say we didn’t warn you. 

  Brazil, whose economy officially slid into recession in Q2 – a quarter during which Brazilians suffered through the worst inflation-growth outcome (i.e. stagflation) in over a decade – and whose efforts to plug a yawning budget gap are complicated by political infighting and a growing public outcry against embattled President Dilma Rousseff, has been cut to junk by S&P. 

  • BRAZIL CUT TO JUNK BY S&P; OUTLOOK NEGATIVE

  

  Unsurprisingly, the iShares MSCI Brazil ETF is trading sharply lower AH on the announcement:

   

  S&P’s move comes as the country’s finance minister fights for his political life and as deficits on both the current and fiscal accounts paint a bleak picture, especially in the face of persistently low commodity prices, China’s move to devalue the yuan, and the impossible dilemma facing the central bank which, like its “LA-5” counterparts, can’t hike to combat a plunging currency for fear of exacerbating FX pass through inflation and can’t cut to boost the economy for fear of jeopardizing the 2016 4.5% inflation target.

  

  Expect this to get far, far worse before it gets better. Here’s the headline dump: 

  • S&P SEES BRAZIL REAL GDP CONTRACTION OF ABOUT 2.5% THIS YEAR
  • S&P SEES BRAZIL REAL GDP CONTRACTION OF 0.5% IN ’16
  • S&P SEES BRAZIL REAL GDP MODEST GROWTH IN 2017
  • BRAZIL GOVT DEFICIT TO RISE TO AVG 8% GDP IN ’15, ’16, S&P SAYS
  • BRAZIL WON’T HAVE PRIMARY FISCAL SURPLUS IN ’15, ’16: S&P

  Here’s a look at the country’s twin deficits:

  

  Followed by a more granular look at the Brazilian nightmare:

   

  And in the wake of the most recent GDP data and last week’s confirmation of the budget blues, here’s what Barclays had to say about the economy and the fiscal situation:

  We now forecast a 3.2% fall of real GDP in Brazil in 2015, to be followed by a 1.5% contraction the next year. The downside surprise in Q2 and the deeper recession in the second half of this year also imply a negative contribution to next year’s growth. Household consumption should continue contributing negatively to headline growth, together with fixed asset investment. 

   

  

   

  The disappointment with fiscal execution, coupled with the lack of capacity of the government to negotiate structural changes in how expenditures grow, leads us to expect a fiscal primary deficit for this year and next of 0.3% and 0.5% of GDP, respectively. For 2015, the fiscal measures approved in Congress were reduced meaningfully from the original proposal and are contributing with only 0.53% of GDP to the fiscal balance. Even including those, we forecast total real fiscal revenues to fall 3.2%, as the growth slowdown is having the biggest negative contribution on this year’s result.

   

  

   

  The implication is a downgrade in less than one year. We believe the rating agencies will take off the investment grade rating in H1 16, starting likely in April by S&P, given the increased pace of deterioration of the macroeconomic juncture and the disappointment relatively to the agencies’ forecasts. Moody’s could follow suit in the second half of the year, if it becomes clear that the country will fail to achieve real GDP growth and the primary surplus as percentage of GDP near 2%, as the agency expects for 2017. At this point, it is very hard to foresee any meaningful change in the political and/or economic scenario that could avoid such an outcome.

   

  

  Finally, here’s S&P with more color:

  The negative outlook reflects our view that there is a greater than one–in–three likelihood that we could lower our ratings on Brazil again. We anticiapte that within the next year a downgrade could stem in particular from a further deterioration of Brazil’s fiscal position, or from potential key policy reversals given the fluid political dynamics, including a further lack of cohesion within the cabinet. A downgrade could also result from greater economic turmoil than we currently expect either due to governability issues or the weakened external environment. 

  *  *  *

  

  

  

  

  

  

• Czech Politician Has "Solution" For Refugee Crisis – Concentration Camps

  Following Hungarian cameramen kicking 10-year-old girl refugees, and Czech police hauling immigrants of trains and writing numbers on their arms, it appears the horrors of the past are quickly forgotten when it comes to 'solutions' for the present. As The Jerusalem Post reports, the leader of the Czech 'nationalist' National Democracy Party, has called for refugees to be placed in Terezin – a former Nazi concentration camp – "Why build tent camps for the aliens? We have the beautiful fortress town of Terezin where the aliens could concentrate before they are taken home by trains." Police are investigating whether his comments constitute a criminal act and Czech Jewish leaders have refused to comment on the incident.

  As The Jerusalem Post reports, police in the Czech Republic are investigating comments made on Facebook by an extremist politician calling for refugees to be placed in Terezin, the former Nazi concentration camp.

  Adam Bartos, the leader of the fringe yet vocal far-right nationalist National Democracy Party, published the comments about the site, located in the central European country, on Monday.

   

  

   

  Reacting to the establishment of a refugee camp near the country’s border with Slovakia, Bartos wrote, “Why build tent camps for the aliens? We have the beautiful fortress town of Terezin where the aliens could concentrate before they are taken home by trains.”

   

  A police spokeswoman told the Czech News Agency on Monday that the police will probe whether or not the comments constitute a criminal act. According to Czech law, hate speech and comments inciting national, racial or religious hatred can carry penalties of up to three years in prison.

   

  Bartos is under investigation for four incidents involving allegedly racist, anti-Semitic and violence-inciting remarks. He also keeps a blog titled Hall of Jewish Fame that critics say lists politicians, journalists and other public figures of supposedly Jewish origin.

   

  Bartos’ party failed to gain seats in the European elections last year, the only campaign it has run in under his leadership.

  Terezin, also known as Theresienstadt in German, is located some 40 miles northwest of Prague.

  The town was turned into a concentration and transit camp by the Nazis in 1941. Roughly 144,000 Jewish people were sent there during the Holocaust, most of whom were later transported to extermination camps in occupied Poland. Some 33,000 died in the Terezin camp.

  

  Publicizing the camp for its rich cultural life, the Nazis used the camp as a propaganda tool to fool the Western allies.

  Czech Jewish leaders have refused to comment on the incident.

  *  *  *

  The situation appears dreadful everywhere…

  Absolutely appalling conditions in Hungary detention camps 4 asylum seekers, kept in crowded pens like cattle. pic.twitter.com/Hhr5gMi4SJ

  — Peter Bouckaert (@bouckap) September 9, 2015

  Having unveiled its €780 Million "Compulsory" Refugee Quota Plan, we suspect the union of European nations will be torn asunder as these unfortunate "collateral damage" from American empire-building are tossed around like hot unwanted potatoes… (as we noted before)

  The refugee issue can and will not be solved by the EU, or inside the EU apparatus, at least not in the way it should. Nor will the debt issue for which Greece was merely an ‘early contestant’. The EU structure does not allow for it. Nor does it allow for meaningful change to that structure. It would be good if people start to realize that, before the unholy Union brings more disgrace and misery and death upon its own citizens and on others.

  However this is resolved and wherever the refugees end up living, we, all of us, have the obligation to treat them with decency and human kindness in the meantime. We are not.

  

  

  

  

  

• In Ironic Twist, Stock Crash Leads To First CNBC Ratings Increase In Years

  If CNBC’s intention when moving its Squawk Box crew from Englewood Cliffs in NJ to the Rock Center in Manhattan, not to mention hiring Andrew Ross Sorkin four years years ago (there has been a 23% decline in total viewership since then) was to boost the popularity of the sagging flagship program which is celebrating its 20th anniversary this year, it failed.

  Yet where CNBC won, is in the irony department, because while its ratings had sunk so law at the end of 2014 that – as we first reported – CNBC was forced to ask Nielsen to “stop” counting its viewers, in the past several month Squawk Box’s viewership had experienced a renaissance of sorts. Why? For the same reason CNBC’s viewers had all but disappeared: the recent surge in volatility as a result of the first market correction since 2011, following the most artificial, laughable and central-bank orceshtrated rally in history.

  Ironic, because it is precisely CNBC’s constant cheerleading of what little viewers it had left that pushed the market to such nosebleed levels that on August 24 it suffered its second flash crash in just five years.

  It is even more ironic, because instead of a rational, objective coverage of the newsflow, the constant stream of cherry-picked, “double-seasonally adjusted” good news is precisely why viewers had left the Comcast cable station in droves, realizing the disconnect between the economy and stocks is simply too ridiculous to stomach, and that they are being lied to with every instance of the “BTFD” dogma.

  As a result, it wasn’t until the much dreaded market crash that viewers finally came back. At least some of them.

  

   

  The same pattern is visible when looking at the entire CNBC viewership, for both the 25-54 demographic and total audiences. Still, for what many – and certainly google trends – said was the most dramatic crash since 2008, the recent rebound is simply far too little, and certainly too late.

  

   

  In any event, now that CNBC’s advertisers have seen it can be done, don’t be surprised if suddenly the channel’s “cautiously optimistic” tone undergoes a dramatic transformation for the more objective and/or nuanced. After all, in a day and age when “apps are the next big thing on TV”, suddenly every CNBC anchor is expendable unless revenue quotas are met.

  

  

  

  

  

• Stocks, Commodities, Bond Yields Plunge As "Rally Fueled By Hope" Crushed

  Reuters summed it up (because there really was absolutely nothing at all new from Japan or China)…

  

  h/t @StockCats

  While deadlift fails and etrade babies would be appropriate, the idea of pride coming before the fall (as evidenced by so many talking heads in the last 2 days on mainstream media) seemed summed up perfectly as follows (forward to 2:10 and enjoy):

   

  Before we start, let's apportion some blame – Tim Cook…

  

  Oops…

  

   

  We did warn you…

  AAPL better wrap this up soon or the market will flash crash

  — zerohedge (@zerohedge) September 9, 2015

  But it all started in Asia with some major JPY dumpage (paging Mr. Kuroda) to ramp Nikkei almost 8 ridiculous percent!!

   

  

   

  Japan is already down 500 Points from overnight highs…

  

   

  And the disappointment is a clear inflection point in the markets…

  

   

  But still higher since Friday (for now)…

  

   

  We are going to need some more help from Asia…

  

   

  Dow Futures give us better context for this dead-cat-bounce…

  

   

  Today's ramp was a perfect stop-run to last week's highs…

  

   

  With OPEX looming, one wonder how this relationship will change this week..

  

   

  Still could be worse…

  

   

   

  Treasuries extended losses early on as rate-locks dominated amid heavy corporate issuance but as AAPL rolled over and the "hope/hype" faded, bond yields collapsed…

  

   

  The US Dollar ended unch on the day, driven as usual by EUR, but JPY strength and AUD weakness broke the back of the recent exuberant carry-driven idiocy…

  

   

  JPY carry momo lost its mojo…

  

   

  Despite some weakness in the dollar, commodities rolled over as reflation/stimulus hype faded quickly…

  

   

  With crude crumbling back to the week's lows, closing with a $44 handle…

  

   

  Charts: Bloomberg

  

  

  

  

• Martin Armstrong: "Hillary's Dream Is Evaporating Rapidly"

  Submitted by Martin Armstrong via ArmstrongEconomics.com,

  

  Hillary’s dream of becoming the first woman president is evaporating rapidly. She leads Bernie Sander by only 8 point in New Hampshire when she was supposed to be the big name and her coronation as the next Democratic candidate was claimed to be the safest bet in Washington. But her obstruction of justice has violated everything from Treason taking money from foreign government for her “charity” to dodging subpoenas which was an obstruction of justice and violating the Freedom of Information Act. Her trust rating collapsed to 28%, showing that even Jeb Bush would clean her clock. Bill will come to the rescue to try to raise more money for her, but this not about money.

  As I have stated, there was NO POSSIBLE WAY that the FBI would have started an investigation into Hillary and her obstruction of justice (treason) for conducting personal business intermixed with state business from a private server… unless all along, those of us who understand the interworking of Capitol Hill could read between the lines that Obama supported Biden, not Hillary. I expect Biden to announce he is entering by October. Hillary seems not to fear prosecution whereas any other unwanted candidate would back off with the onset of an investigation into criminal activity. The talk of the town is when will Biden enter. Now the press is picking up saying it’s time for Joe.

  Why did Ross Perot back out of running for president? There was, of course, the lame excuse that was a total lie.

  Perot eventually stated the reason was that he received threats that digitally altered photographs would be released by the Bush campaign to sabotage his daughter’s wedding. Regardless of the reasons for withdrawing, his reputation was badly damaged. Many of his supporters felt betrayed and public opinion polls would subsequently show a large negative view of Perot that was absent prior to his decision to end the campaign^.

   

  Source: Wikipedia

  There was the rumor that there were threats of investigating his airport. His airport does not handle tourists, only cargo. It was alleged that a lot of illegal things were going in and out of his hub. Yet, then there was the Clinton connection. A deal was allegedly promised to Perot that Hillary’s healthcare proposal would give his computer company the contract for the entire healthcare system she was designing. That failed to get through, but allegedly Perot was a ringer to swing the election to Clinton in 1992. This was just another one of those corruption views with the Clintons that people would say you better count your fingers after shaking hands.

  Perot was in the running, but his campaign did not seem focused on winning. What did emerge was Bill Clinton, who suddenly soared from third in the polls to becoming President of the United States. Perot blamed the Republicans for creating doctored pictures of his daughter. Those claims or excuses were pretty crazy. Any doctored photo would have been detected.

  Moreover, I was even asked by leading members in the Republican Party to meet with Perot. I was in Tokyo and agreed to fly to Dallas for a meeting on my way home. That meeting was scheduled for the weekend that he pulled out of the race. They would NEVER have asked me to fly to Texas to meet with him if they were trying to blackmail him with doctored photos nobody ever saw of his daughter. It was a total surprise to them and I landed in Dallas before I could change my flight.

  Perot, claiming to be a fiscal conservative, made no sense when he suddenly blamed Republicans knowing those allegations were benefiting Clinton. Perot exited, then reentered, based upon allegation that the Clintons’ offered him a deal he could not refuse — the biggest contract in computing history. He dropped from 39% before his crazy exit to 19% after reentering, so those votes were key to getting Clinton elected.

  Larry Nichols, Clinton’s key inside man who knew what was going on back then, was the a key witness for the prosecution during his impeachment. Nichols allegedly admitted that Perot was a “ringer” to win the election for Clinton.

  The legacy of the Clinton’s behind the curtain has also been one of questioning everything, two, three, if not four to ten times. The lack of honesty between the words seems to be catching up. Hillary and Bill have been rather notorious for doing whatever it takes to win while lining their pockets at the same time. So it is no surprise that Hillary may fight to the end without ever fearing prosecution for anything she has ever done is in the past.

  

  

  

  

  

• Mom And Pop "Will Probably Get Trampled": Alliance Bernstein Warns On Bond ETF Armageddon

  Right up until China threw the financial world into a frenzy by devaluing the yuan right smack in the middle of a stock market meltdown that Beijing was struggling to contain, bond market liquidity was all anyone wanted to talk about. 

  Of course we’ve been talking about it for years (literally), as have a few of the sellside’s sharper strategists, but earlier this year the mainstream financial news media caught on, followed in short order by the rest of the Wall Street penguin brigade, and before you knew it, even the likes of Jamie Dimon were shouting from the rooftops about illiquid corporate credit markets. 

  The problem, in short, is that the post-crisis regulatory regime has made dealers less willing to warehouse bonds, leading to lower average trade sizes, sharply lower turnover, and a generalized lack of market depth. That in turn, means that trading in size without triggering some kind of dramatic move in prices is more difficult. 

  But that’s not the end of the story. 

  Seven years of ZIRP have i) herded yield-starved investors into riskier assets, and ii) encouraged corporates to take advantage of voracious demand and low borrowing costs by issuing more debt. The rapid proliferation of ETFs and esoteric bond funds has encouraged this phenomenon by giving investors easier access to corners of the bond market where they might normally have never dared to tread. These vehicles have also given investors the illusion of liquidity. 

  Ultimately then, the picture that emerges is of an increasingly crowded theatre (lots of IG and HY supply and plenty of demand) with an ever smaller exit (dealers increasingly unlikely to inventory bonds in a pinch). 

  With that as the backdrop, we bring you the following excerpts from a new paper by Alliance Bernstein:

  We agree that low liquidity is a risk—but by focusing on regulations, we think most investors are underestimating the gravity of that risk. While new regulations have contributed to the problem, there are sev- eral less obvious causes that have the potential to make the liquidity crunch worse.

   

  Some stem from global central bank policies: easy money has driven government bond yields to record lows and forced yield-hungry small investors to crowd into the same trades. Another driver is caution by large institutional investors, who are less and less willing to take the long view in bonds and ride out short-term market volatility.

   

  While regulatory changes have reduced the supply of liquidity, these trends have drastically increased the potential demand for it. None on its own is likely to trigger a major market crisis. But taken together, they’re creating a lot of dry tinder. And the next shock to hit markets— that prompts everyone to sell—might be the spark that sets every- thing ablaze. With volatility in fixed-income markets rising, investors can’t afford to take this risk lightly. 

  And here’s some further color on central banks’ role in creating these conditions (note the bit about what happens when markets that are driven solely by central bank liquidity suddenly reverse course):

  When liquidity evaporated in 2008, central banks worldwide stepped in to provide it by slashing interest rates and eventually buying huge amounts of government bonds. These were emergen- cy policies, for use in an emergency. They were designed to flood the financial system with money, encourage risk-taking and get the economy moving again. Investors responded as policymakers hoped they would—by charging into riskier assets to earn a decent return. 

  If rallies are being driven by central bank liquidity rather than fundamentals, it follows that sell-offs should be, too. In fact, over the past two years, markets have undergone a series of sell- offs—one might call them miniature fire sales—in which bonds, stocks, commodities and other assets have all declined. None of these episodes have lasted as long or done as much damage as the sharply correlated declines in 2008—at least, not yet. Still, the pattern is disturbing.

  Ironically, central bank policies that were applied with the best intentions and designed in part to boost liquidity are helping it to dry up. These easy money policies aren’t over yet. But with the Federal Reserve likely to raise interest rates later this year, the beginning of the end is in sight. 

  Finally, here’s a bit more on the relationship between reduced dealer inventories, increased access to the bond market for “mom-and-pop”, ETF liquidity, and what happens when someone yells “fire”:

  While banks have been retreating from the bond market, investors have been charging into it. This is a direct result of central banks’ easy money policies: by driving interest rates to record lows, these policies pushed investors—even income-starved mom-and-pop investors—into riskier assets, such as high-yield bonds and emerging-market debt, to earn a decent return. In 2014, retail-oriented mutual and exchange-traded funds owned nearly 23% of the US high-yield market, up from 15% in 2006. Retail ownership of investment-grade bonds more than doubled over the same period.

   

  The result: large numbers of investors are crowded into the same trades. That causes prices to trend strongly in one direction, but may leave the market vulnerable to a sudden correction if everyone wants to sell at once.

   

  The fact that small investors are playing a bigger role in these mar- kets is important, because they tend to move into and out of assets often, depending on the latest headline or price trend. In recent years, investors have charged into—and out of—various assets, including high-yield bonds and emerging-market debt, with alarming frequency (Display 4).

   

  

   

  What’s more, a great many investors—and we suspect this even goes for some large ones—are venturing into riskier corners of the credit markets because central banks’ low-interest-rate policies have made it hard for them to find income elsewhere. Many are taking on more risk than they ordinarily would. When interest rates start to rise, government bonds or even cash may suddenly look more attractive, potentially causing a rush for the door.

   

  In theory, investors can exit an open-ended mutual fund or an ETF at will. But the growing popularity of these funds forces them to invest in an ever larger share of less liquid bonds. If everyone wants to exit at once, prices could fall very far, very fast. A lucky few may get out in time. Others will probably get trampled.

  Note that the last passage there is precisely what we began warning about earlier this year and indeed, the relationship between retail flows, ETFs, and shriking dealer inventories was recently the subject of a live debate between Carl Icahn and Larry Fink during which Icahn called BlackRock a “dangerous company” for providing the vehicles through which investors have been allowed to crowd into bonds.

  For an in-depth look at what we’ve called “ETF Phantom liquidty” see our complete guide here, but for now, recall that as Howard Marks warned earlier this year, an ETF “can’t be more liquid than the underlying and we know the underlying can become quite illiquid.” This means that in the event flows into HY (or any other type of fund for that matter) suddenly become largely non-diversifiable (i.e. unidirectional), fund managers will either need to meet redemptions with borrowed cash or else venture into the illiquid markets for the underlying bonds and risk tipping the first dominoe on the way to a firesale. 

  With that, we’ll close by reiterating the fact that no fund manager in the world will be able to line up enough emergency liquidity to avoid tapping the corporate credit market in the event of panic selling in the increasingly crowded market for bond funds. In other words, when the exodus comes, the illiquidity that’s been chasing markets for the better part of seven years will finally catch up, and at that point, all bets are officially off.

  

  

  

  

  

• Economy In Pictures: Is It Strong Enough?

  Submitted by Lance Roberts via STA Wealth Management,

  I have written extensively about the data behind the headline media reports. I have also discussed the importance of the relationship between the underlying data trends relative to broader macroeconomic perspectives.  However, it is sometimes helpful just to view the various economic indicators and draw your own conclusions outside of someone else's opinion. 

  With the economy now more than 6-years into an expansion, which is long by historical standards, the question for you to answer by looking at the charts below is:

  "Are we closer to an economic recession or a continued expansion?"

  

  How you answer that question should have a significant impact on your investment outlook as financial markets tend to lose roughly 30% on average during recessionary periods.  However, with margin debt at record levels, earnings deteriorating and China struggling with a sinking economy, this is hardly a normal market environment within which we are currently invested.

  Therefore, I present a series of charts which view the overall economy from the same perspective utilizing an annualized rate of change. In some cases, where the data is extremely volatile, I have used a 3-month average to expose the underlying data trend. Any other special data adjustments are noted as well.

  ---

  Leading Economic Indicators

  

  Durable Goods

  

  

  Investment

  

  

  

  ISM Composite Index

  

  Employment & Industrial Production

  

  

  

  To understand more about the difference between the BLS employment report with and without the Birth/Death adjustment read this.

  

  Retail Sales

  

  

  Social Welfare

  

  The Broad View

  

  Economic Composite

  (Note: The Economic Composite is a weighted index of multiple economic survey and indicators – read more about this indicator)

  

  If you are expecting an economic recovery, and a continuation of the bull market, then the economic data must begin to improve markedly in the months ahead. The problem has been that each bounce in the economic data has failed within the context of a declining trend. This is not a good thing and is why we continue to witness an erosion in the growth rates of corporate earnings and profitability. Eventually, that erosion combined, with excessive valuations, will weigh on the financial markets which is potentially much of what we are witnessing now.

  For the Federal Reserve, these charts make the case that continued monetary interventions are not healing the economy, but rather just keeping it afloat by dragging forward future consumption.  The problem is that it leaves a void in the future that must be continually filled. 

  The question on everyone's mind is whether the economy is strong enough to withstand rate hikes by the Federal Reserve? In my opinion, the answer is no. The economy continues to ebb and flow between weak growth and no growth. This puts the Federal Reserve at risk of a policy mistake that could trip the economy into an outright recession. While there have certainly been positive bumps in the data, as pent-up demand is released back into the economy, the inability to sustain growth is most concerning.

  But then again, that is just what I see. 

   

  

  

  

  

  

• Greenspan: “Debt, Deficits and Entitlement Programs Are All Coming to a Head In a Few Months, All Over the World”

  Former Fed chief Alan Greenspan told CNBC last week:

  Debt, deficits and entitlement programs are all coming to a head in a few months, all over the world.

  This is very interesting, given that financial luminaries such as Ray Dalio, Kenneth Rogoff, Bill Gross, Kyle Bass, BCA Research and John Mauldin think that we’re at the end of a debt supercycle.

  

  

  

  

• How To Beat Every Hedge Fund in Just 2 Trades & 4 Hours A Day

  Forget Risk-Parity… ignore volatility-targeting… Risk management is for losers, value-investing is for dummies, and chasing momentum is for suckers… The path to successful trading in the new normal is easy… and involves just 4 simple steps…

  Step 1: Put on Pants;

  Step 2: Buy S&P 500 Futures at Midnight ET;

  Step 3: Sell S&P 500 Futures at 4amET;

  Step 4: Go back to bed…

   

  

   

  Probably the most stunning chart we have ever seen – note the red line’s performance – minimal drawdown, maximal return…

   

  h/t @NanexLLC

  

  

  

  

  

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• Japan's Nikkei 225 Just Gained 1000 Points In 20 Hours

  Presented with little comment aside to ask, just what did The G-20 agree to behind the scenes?

   

  After ripping 500 points instantly at Japan’s open yesterday, then crashing back 900 points lower, Nikkei 225 Futures have now soared over 1000 points off last night’s lows…

  

   

  6% in 20 hours? makes perfect sense!!

  Because – despite what G-20 said… China does not seem to have got the message…

  • FORMER CHINA SAFE OFFICIAL SEES FOREX INTERVENTION NECESSARY

  

  

  

  

  

• "Give Me Liberty Or Give Me Death": The Loss Of Our Freedoms In The Wake Of 9/11

  Submitted by John Whitehead via The Rutherford Institute,

  “Since mankind’s dawn, a handful of oppressors have accepted the responsibility over our lives that we should have accepted for ourselves. By doing so, they took our power. By doing nothing, we gave it away. We’ve seen where their way leads, through camps and wars, towards the slaughterhouse.” ? Alan Moore, V for Vendetta

  What began with the passage of the USA Patriot Act in October 2001 has snowballed into the eradication of every vital safeguard against government overreach, corruption and abuse. Since then, we have been terrorized, traumatized, and acclimated to life in the American Surveillance State.

  The bogeyman’s names and faces change over time, but the end result remains the same: our unquestioning acquiescence to anything the government wants to do in exchange for the phantom promise of safety and security has transitioned us to life in a society where government agents routinely practice violence on the citizens while, in conjunction with the Corporate State, spying on the most intimate details of our personal lives.

  Ironically, the 14^th anniversary of the 9/11 attacks occurs just days before the 228^th anniversary of the ratification of our Constitution. Yet while there is much to mourn about the loss of our freedoms in the years since 9/11, there is virtually nothing to celebrate.

  The Constitution has been steadily chipped away at, undermined, eroded, whittled down, and generally discarded to such an extent that what we are left with today is but a shadow of the robust document adopted more than two centuries ago. Most of the damage has been inflicted upon the Bill of Rights—the first ten amendments to the Constitution—which has historically served as the bulwark from government abuse.

  Set against a backdrop of government surveillance, militarized police, SWAT team raids, asset forfeiture, eminent domain, overcriminalization, armed surveillance drones, whole body scanners, stop and frisk searches, roving VIPR raids and the like—all sanctioned by a corrupt government run by Congress, the White House and the courts—a recitation of the Bill of Rights now sounds more like a eulogy to freedoms lost than an affirmation of rights we should possess.

  As I make clear in my book Battlefield America: The War on the American People, the Constitution has been on life support for some time now and all efforts at resuscitating it may soon prove futile.

  We can pretend that the Constitution, which was written to hold the government accountable, is still our governing document. However, the reality we must come to terms with is that in the America we live in today, the government does whatever it wants, freedom be damned, and “we the people” are seen as little more than cattle to be branded and eventually led to the slaughterhouse.

  Consider the state of our freedoms, and judge for yourself whether Osama Bin Laden was right when he warned that “freedom and human rights in America are doomed,” and that the “U.S. government will lead the American people in — and the West in general — into an unbearable hell and a choking life.”

  Here is what it means to live under the Constitution today.

  The First Amendment is supposed to protect the freedom to speak your mind, assemble and protest nonviolently without being bridled by the government. It also protects the freedom of the media, as well as the right to worship and pray without interference. In other words, Americans should not be silenced by the government. To the founders, all of America was a free speech zone.

   

  Yet despite the clear protections found in the First Amendment, the freedoms described therein are under constant assault. Increasingly, Americans are being arrested and charged with bogus “contempt of cop” charges such as “disrupting the peace” or “resisting arrest” for daring to film police officers engaged in harassment or abusive practices. Journalists are being prosecuted for reporting on whistleblowers. States are passing legislation to muzzle reporting on cruel and abusive corporate practices. Religious ministries are being fined for attempting to feed and house the homeless. Protesters are being tear-gassed, beaten, arrested and forced into “free speech zones.” And under the guise of “government speech,” the courts have reasoned that the government can discriminate freely against any First Amendment activity that takes place within a government forum.

   

  The Second Amendment was intended to guarantee “the right of the people to keep and bear arms.” Yet while gun ownership has been recognized by the U.S. Supreme Court as an individual citizen right, Americans remain powerless to defend themselves against SWAT team raids and government agents armed to the teeth with military weapons better suited for the battlefield than for a country founded on freedom. Police shootings of unarmed citizens continue to outrage communities, while little is really being done to demilitarize law enforcement agencies. Indeed, just recently, North Dakota became the first state to legalize law enforcement use of drones armed with weapons such as tear gas, rubber bullets, beanbags, pepper spray and Tasers.

   

  The Third Amendment reinforces the principle that civilian-elected officials are superior to the military by prohibiting the military from entering any citizen’s home without “the consent of the owner.” With the police increasingly training like the military, acting like the military, and posing as military forces—complete with military weapons, assault vehicles, etc.—it is clear that we now have what the founders feared most—a standing army on American soil. Moreover, as a result of SWAT team raids (more than 80,000 a year) where police invade homes, often without warrants, and injure and even kill unarmed citizens, the barrier between public and private property has been done away with, leaving us with armed government agents who act as if they own our property.

   

  The Fourth Amendment prohibits the government from conducting surveillance on you or touching you or invading you, unless they have some evidence that you’re up to something criminal. In other words, the Fourth Amendment ensures privacy and bodily integrity. Unfortunately, the Fourth Amendment has suffered the greatest damage in recent years and been all but eviscerated by an unwarranted expansion of police powers that include strip searches and even anal and vaginal searches of citizens, surveillance and intrusions justified in the name of fighting terrorism, as well as the outsourcing of otherwise illegal activities to private contractors. Case in point: Texas police forced a 21-year-old woman to undergo a warrantless vaginal search by the side of the road after she allegedly “rolled” through a stop sign.

   

  The use of civil asset forfeiture schemes to swell the coffers of police forces has also continued to grow in popularity among cash-strapped states. The federal government continues to strong-arm corporations into providing it with access to Americans’ private affairs, from emails and online transactions to banking and web surfing. Coming in the wake of massive leaks about the inner workings of the NSA and the massive secretive surveillance state, it was revealed that the government threatened to fine Yahoo $250,000 every day for failing to comply with the NSA’s mass data collection program known as PRISM. Meanwhile, AT&T has enjoyed a profitable and “extraordinary, decades-long” relationship with the NSA.

   

  The technological future appears to pose even greater threats to what’s left of our Fourth Amendment rights, with advances in biometric identification and microchip implants on the horizon making it that much easier for the government to track not only our movements and cyber activities but our very cellular beings. Barclays has already begun using a finger-scanner as a form of two-step authentication to give select customers access to their accounts. Similarly, Motorola has been developing thin “digital tattoos” that will ensure that a phone’s owner is the only person who may unlock it. Not to be overlooked are the aerial spies—surveillance drones—about to take to the skies in coming years, as well as the Drive Smart programs that will spy on you (your speed, movements, passengers, etc.) while you travel the nation’s highways and byways.

   

  The Fifth Amendment and the Sixth Amendment work in tandem. These amendments supposedly ensure that you are innocent until proven guilty, and government authorities cannot deprive you of your life, your liberty or your property without the right to an attorney and a fair trial before a civilian judge. However, in the new suspect society in which we live, where surveillance is the norm, these fundamental principles have been upended. Certainly, if the government can arbitrarily freeze, seize or lay claim to your property (money, land or possessions) under government asset forfeiture schemes, you have no true rights. That’s the crux of a case before the U.S. Supreme Court challenging the government’s use of asset forfeiture to strip American citizens of the funds needed to hire a defense attorney of their choosing.

   

  The Seventh Amendment guarantees citizens the right to a jury trial. However, when the populace has no idea of what’s in the Constitution—civic education has virtually disappeared from most school curriculums—that inevitably translates to an ignorant jury incapable of distinguishing justice and the law from their own preconceived notions and fears. However, as a growing number of citizens are coming to realize, the power of the jury to nullify the government’s actions—and thereby help balance the scales of justice—is not to be underestimated. Jury nullification reminds the government that it’s “we the people” who can and should be determining what laws are just, what activities are criminal and who can be jailed for what crimes.

   

  The Eighth Amendment is similar to the Sixth in that it is supposed to protect the rights of the accused and forbid the use of cruel and unusual punishment. However, the Supreme Court’s determination that what constitutes “cruel and unusual” should be dependent on the “evolving standards of decency that mark the progress of a maturing society” leaves us with little protection in the face of a society lacking in morals altogether. For example, a California appeals court is being asked to consider “whether years of unpredictable delays from conviction to execution” constitute cruel and unusual punishment. For instance, although 900 individuals have been sentenced to death in California since 1978, only 13 have been executed. As CBS News reports, “More prisoners have died of natural causes on death row than have perished in the death chamber.”

   

  The Ninth Amendment provides that other rights not enumerated in the Constitution are nonetheless retained by the people. Popular sovereignty—the belief that the power to govern flows upward from the people rather than downward from the rulers—is clearly evident in this amendment. However, it has since been turned on its head by a centralized federal government that sees itself as supreme and which continues to pass more and more laws that restrict our freedoms under the pretext that it has an “important government interest” in doing so. Thus, once the government began violating the non-enumerated rights granted in the Ninth Amendment, it was only a matter of time before it began to trample the enumerated rights of the people, as explicitly spelled out in the rest of the Bill of Rights.

   

  As for the Tenth Amendment’s reminder that the people and the states retain every authority that is not otherwise mentioned in the Constitution, that assurance of a system of government in which power is divided among local, state and national entities has long since been rendered moot by the centralized Washington, DC, power elite—the president, Congress and the courts. Indeed, the federal governmental bureaucracy has grown so large that it has made local and state legislatures relatively irrelevant. Through its many agencies and regulations, the federal government has stripped states of the right to regulate countless issues that were originally governed at the local level.

  If there is any sense to be made from this recitation of freedoms lost, it is simply this: our individual freedoms have been eviscerated so that the government’s powers could be expanded, while reducing us to a system of slavery disguised as a democracy.

  The film V for Vendetta is a powerful commentary on how totalitarian governments such as our own exploit fear and use mass surveillance, censorship, terrorism, and militarized tactics to control, oppress and enslave.

  As the lead character V observes:

  Where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen? Who’s to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn’t be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to the now high chancellor, Adam Sutler. He promised you order, he promised you peace, and all he demanded in return was your silent, obedient consent.

  How will you have it? Will you simply comply while the train heads down the track to a modern-day Auschwitz? Or will you become a free person and resist? To quote Patrick Henry, “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! — I know not what course others may take; but as for me, give me liberty or give me death!”

  

  

  

  

  

• "August Sucks" MIT Quant Warns New Strategies "Are Creating Volatility"

  "August Sucks," concludes MIT Quant guru Andrew Lo, reflecting on the systematic-trading strategy effects on markets, and it's not going to get better any time soon. As he explains to Bloomberg, "algorithmic trading is speeding up the reaction times of these participants, so that’s the choppiness of the market. Everybody can move to the left side of the boat and the right side of the boat now within minutes as opposed to hours or days." As we have noted many time, Lo explains how "crowded trades have got to the point of alpha becoming beta," warning that volatility-targeting strategies (such as Risk-Parity) are not only "exaggerating the moves," but he cautions omniously reminiscent of the August 2007 quant crash, "I think they are creating volatility of volatility."

   

  Bloomberg interviews MIT Quant guru and Chairman of AlphaSimplex Group LLC, Andrew Lo…

  Question: What does this volatility look like to you? Is this another quant meltdown?

  Lo: I’m not sure I’d characterize it as just a quant meltdown. I think that makes it a little bit too cut and dried. Probably there are a number of different factors, including algorithmic trading, that plays into it. We have a number of different forces that are all coming to a head. And because of the automation of markets and the electronification of trading, we’re seeing much choppier markets than we otherwise would have five or 10 years ago. But it’s many forces operating at different time scales, all coming to a head.

  Question: Is systematic trading exaggerating the moves?

  Lo: I think it’s doing two things. One it can be exaggerating the moves if it lines up with what the market wants to do. So if the market is looking to sell because of an impending recession, then I think we’re going to see a lot of the algorithmic trading going in the same direction. And if the time horizon matches, you will see that kind of cascade effect. At the same time, I think algorithmic trading can play the opposite role. They can dampen some of the market swings if they’re going opposite to the general trend… The one thing that is true, though, is that algorithmic trading is speeding up the reaction times of these participants, so that’s the choppiness of the market. Everybody can move to the left side of the boat and the right side of the boat now within minutes as opposed to hours or days.

   

   

  

   

  Question: When you talk about exaggerating the effect, is that mostly CTAs and momentum players or is it not that simple?

  Lo: I think that over the course of the last few weeks, that’s actually a pretty decent bet: That there are trend followers that are unwinding because of some underperformance and concerns about the change in direction of the market. But, for example, what happened in August 2007 was equity market neutral strategies that unwound. So I think it really varies depending on the nature of the strategies that are getting hit and the money going into and out of those strategies, and how that’s affecting market dynamics.

  Question: A lot of focus has fallen on risk parity strategies. The notion that, as volatility picked up, there was a lot of deleveraging going on, especially with futures and ETFs. Does that make sense to you from what we’ve seen?

  Lo: Well, it certainly looks that way. Part of the challenge of risk parity is that it ignores anything about expected returns. The idea behind risk parity is not a bad one, which is to focus on risk and to manage your portfolio so as to try to stabilize that risk. But the problem with equalizing it across all asset classes or investments is that not all investments are created equal at all points in time. So there are certain strategies that end up doing worse than others during periods of times. And if you end up equalizing your volatility across those strategies, you might end up getting hit pretty hard as some of the equity risk parity strategies got hit over the course of the last few weeks.

  Question: Is risk parity looking like a crowded trade?

  Lo: I think there’s definitely a case in point of the idea of alpha becoming beta. The idea that once you start popularizing a particular investment approach, and it becomes so popular, that in and of itself creates these kinds of shock waves. So for example if the strategy itself underperforms, now we have a larger number of investors that are going to be unwinding that strategy and that will create a kind of cascade effect where the strategy will underperform even more as people start to take money out of the strategy. There are a number of examples. Risk parity, of course, is the most recent. But before that trend following, before that value investing, growth investing, earnings surprise, earnings momentum, any kind of a strategy can become a crowded trade. And when it does you have to just make sure that the risk premium associated with that trade is commensurate with the potential risks of getting hit with these unwinds.

  Question: Are volatility targeting strategies part of the story? Have they become so popular that they’re exaggerating the moves?

  Lo: Not only are they exaggerating the moves, but I think they are creating volatility of volatility. So it’s making the market quite a bit more complicated and the dynamics now are much more different and much more difficult to manage if you’re not aware of how these dynamics play out.

  Question: What about when you get a big rebound? What do you suppose that is? Is that actually value-type of investors seeing the drops and coming in, or is it just another systematic trading function?

  Lo: These rebounds are a confluence of a number of phenomena. One, you’re seeing that once selling pressure declines, investors will naturally become more optimistic and will come back into the market. That’s a common phenomenon. But I think that a rather newer phenomenon is the fact that these algorithms, because they operate at such high frequencies, when the price moves beyond a certain threshold, the algorithms will kick around and flip and go the other way. It’s happening at a rate that’s faster than it’s been anytime in the past because we haven’t had the technology to be able to do that.

   

  And finally what we’re seeing is expectations shifting more rapidly because unlike five or 10 years ago we now have very big players in the financial markets, actively trying to move markets. In particular, I’m thinking about central banks and governments that are trying to manage economies by engaging in quantitative easing or other kinds of financial market transactions. When you have a small number of very big players that are going to be trying to move markets for political or long-term economic reasons, it becomes much, much harder to understand what’s happening. So people are all sort of trigger happy when small pieces of information hit the market, they tend to start moving money very quickly and in large size.

  Question: Is that type government intervention something that algos can’t anticipate? Is that sort of an Achilles heel of algo strategies?

  Lo: Absolutely. That event risk is something most algorithmic trading strategies really can’t manage yet. I say "yet" because in five or 10 years maybe natural language processing and artificial intelligence will have allowed them to read the news, interpret it and make judgments the way George Soros or Warren Buffett can. But I think we’re still a few years away from that

  Question: Are a lot of momentum strategies able to turn on a dime that quickly? We’ll see this intraday drop of several hundred points, then it turns on a dime…

  Lo: I think that it’s hard for momentum strategies to be able to move that quickly. In fact, some of the strategies that do move that quickly end up getting whipsawed. The real challenge in operating in these markets is that risk management would have you cut risk in the face of losses. The problem is that if you cut risk too quickly and by too much, you may end up missing out on the rebound, in which case you’ve locked in your losses and you might be getting back in the market exactly at the worst time. So you’re getting hit on both ends. What this atmosphere creates is a much more complicated challenge to risk managers to figure out what is the right frequency with which they need to cut risk and put it back. And I think everybody is trying to figure out what that optimal frequency is. But until we get a sense of who’s involved in the markets and driving these frequencies, it’s going to be anybody’s guess. And as a result a lot of people are going to be surprised over the next few weeks and months.

  Question: Any other observations you have from the last couple of weeks that you think people might be interested in?

  Lo: Yeah. August sucks.

  

  

  

  

  

• China Panics: Calls On US To "Jointly Ensure Global Stability", Exclaims "Economic Outlook Is Very Bright"

  Hot on the heels of The World Bank demanding The Fed not hike rates, China issued a statement "calling on US to jointly ensure global economic stability," tonight following a farcical intervention last night on record low volumes and a small devaluation of the Yuan. Foreign Minister Wang added "China and U.S. should also properly handle disagreements and safeguard current international order," just as another minister spewed forth "China’s economic outlook is very bright," – well apart from the record debt, collapsing asset values, and masssive over-capacity, you mean. Further measures detailing the new capital restrictions for forward FX transactions were announced (which will likely do for CNH what regulators did to Chinese index futures). Chinese stoicks are extending their gains in the pre-open on vapid volume as China leaves Yuan practically unchanged.

   

  As a reminder, here is last night's (and Monday's) epic farce of a "market"… after dropping 100s of billion of Yuan to "stabilize" the market already, why not do some more…

  

   

  On the lowest volume EVER!!!

  

  And then have the balls to issue a ststement, demanding this…

  • *CHINA CALLS ON U.S. TO JOINTLY ENSURE GLOBAL ECONOMIC STABILITY

  China and the U.S. should jointly ensure global financial and economic stability, Chinese Foreign Minister Wang Yi said when meeting with a former U.S. National Security Council official.

  China and U.S. should also properly handle disagreements and safeguard current international order, as China President Xi Jinping is scheduled to visit the U.S. later this month, Wang said Sept. 7

  

  But the propaganda did not stop there…

  Liu He, director at the Office of China’s Central Leading Group on Financial and Economic Affairs, said that China’s economic outlook is “very bright” and the country will overcome current difficulties, Zhejiang Daily reports, citing Liu who commented during a trip to Zhejiang province.

   

  Middle class is on the rise and domestic demand is “huge”

   

  China needs to stabilize market expectation while working on reforms

  Margin Debt dropped – after rising yesterday for the first time in over 2 weeks.

  But stocks are extending gains in the pre-market futures trading…

  • *CHINA'S CSI 300 STOCK-INDEX FUTURES RISE 2.8% TO 3,364

  

   

  As PBOC leaves Yuan practically unchanged…

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3632 AGAINST U.S. DOLLAR

  

  Charts: Bloomberg

  

  

  

  

  

• US Aerial Surveillance Impaired Off The East Coast Until October 1st Due To "Military Activities"

  Submitted by Mike Krieger via Liberty Blitzkrieg blog, 

  A notam issued Sept. 1 announced that, beginning Sept. 2, both ADS-B surveillance and TCAS may be unreliable in Virginia, North Carolina, South Carolina, Georgia, and Florida, as well as in airspace extending approximately 200 nautical miles off shore. The situation is expected to last through Oct. 1 as a result of military exercises in the area.

   

  But similar military exercises in the past have caused no interference with civilian ADS-B or TCAS, and AOPA is asking the FAA to explain both why the notam was issued so late and what has changed to raise these new concerns.

   

  “We are working to get answers for our members,” said Rune Duke, AOPA director of air traffic and airspace. “This notam has caused considerable alarm and much confusion, while giving pilots little time to prepare. The long duration, ambiguous language, and short notice of this notam are all cause for serious concern. We have spoken with representatives of the FAA and the Department of Defense and will continue to pursue this until we get the answers pilots need.”

   

  – From the Aircraft Owners and Pilots Association release: AOPA Seeks Answers About ADS-B Notam

  This is not my area of expertise, so I encourage readers to do their own research and decide for themselves whether or not this concerning. Given the fact so many people are extremely skittish about “something happening” this month, I thought it was curious enough to share.

  In a nutshell, it appears that aerial surveillance across much of the East Coast will be impaired until October 1 due to “military activities.” We learn from the NBAA (National Business Aviation Association) that:

  TCAS, ADS-B Unreliable in Southeast U.S. Beginning Sept. 2

  Sept. 1, 2015

   

  Due to military activities, the TCAS and ADS-B surveillance may be unreliable in the airspace over Virginia, North Carolina, South Carolina, Georgia and Florida, and extending approximately 200 nautical miles offshore, from 1 a.m. EDT (0500z) Sept. 2 until midnight EDT (0459z) on Oct. 1.

   

  Pilots are advised that the traffic alert and TCAS may fail to establish tracks on nearby aircraft and may fail to receive traffic alerts (TA) or resolution advisories (RA). Operators should be aware that tracks may first appear within close proximity to their aircraft, and may immediately go into TA/RA status.

   

  Pilots are advised to maintain an increased visual awareness in this area. If operators believe that an aircraft should have triggered an alert, the incident should be reported to air traffic control as soon as possible.

   

  This is due to a late notice Department of Defense exercise, and NBAA has voiced its concern to the FAA that these sort of significant impact tests need much more notice to operators in the NAS.

  The NOTAM numbers are as follows:

  • 5/2817 New York Center (ZNY)
  • 5/2818 Washington Center (ZDC)
  • 5/2819 Jacksonville Center (ZJX)
  • 5/2820 Miami Center (ZMA)
  • 5/2834 NY Oceanic (ZWY)

  Text from the ZNY NOTAM:

   

  FDC 5/2817 (KZNY A0369/15) ZNY VA..SPECIAL NOTICE…DUE TO MILITARY ACTIVITIES ON 1030/1090 MHZ, THE TRAFFIC ALERT AND COLLISION AVOIDANCE SYSTEM (TCAS) AND AUTOMATIC DEPENDENT SYSTEM BROADCAST (ADS-B) SURVEILLANCE MAY BE UNRELIABLE IN THE AIRSPACE OVER THE STATES OF VIRGINIA, NORTH CAROLINA, SOUTH CAROLINA, GEORGIA, AND FLORIDA, AND EXTENDING APPROXIMATELY 200NM OFFSHORE. PILOTS ARE ADVISED THAT THE TRAFFIC ALERT AND COLLISION AVOIDANCE SYSTEM (TCAS) MAY FAIL TO ESTABLISH TRACKS ON NEARBY AIRCRAFT AND MAY FAIL TO RECEIVE TRAFFIC ALERTS (TA) AND/OR RESOLUTION ADVISORIES (RA). FURTHER, PILOTS ARE ADVISED THAT TRACKS MAY FIRST APPEAR WITHIN CLOSE PROXIMITY TO THEIR AIRCRAFT AND MAY IMMEDIATELY GO INTO TA/RA STATUS. FALSE ALERTS ARE NOT EXPECTED TO BE GENERATED BY THIS MILITARY ACTIVITY AND ANY ALERTS SHALL BE TREATED AS REAL. PILOTS ARE ADVISED TO MAINTAIN AN INCREASED VISUAL AWARENESS IN THIS AREA. IF THE PILOT BELIEVES THAT AN AIRCRAFT SHOULD HAVE TRIGGERED AN ALERT, THE INCIDENCE SHOULD BE REPORTED TO AIR TRAFFIC CONTROL AT THE EARLIEST OPPORTUNE MOMENT. SFC-FL500 1509020500-1510010459

  Apparently, this is concerning enough that AOPA (Aircraft Owners and Pilots Association) is asking for answers. From AOPA.org:

  September 4, 2015 

  By  Elizabeth A Tennyson

   

  AOPA is trying to get to the bottom of ambiguous notam language and determine why the aviation community was given just one day’s advance notice of military exercises that could make Automatic Dependent Surveillance-Broadcast (ADS-B) and TCAS unreliable along a significant portion of the East Coast for a month.

   

  A notam issued Sept. 1 announced that, beginning Sept. 2, both ADS-B surveillance and TCAS may be unreliable in Virginia, North Carolina, South Carolina, Georgia, and Florida, as well as in airspace extending approximately 200 nautical miles off shore. The situation is expected to last through Oct. 1 as a result of military exercises in the area.

   

  But similar military exercises in the past have caused no interference with civilian ADS-B or TCAS, and AOPA is asking the FAA to explain both why the notam was issued so late and what has changed to raise these new concerns.

   

  “We are working to get answers for our members,” said Rune Duke, AOPA director of air traffic and airspace. “This notam has caused considerable alarm and much confusion, while giving pilots little time to prepare. The long duration, ambiguous language, and short notice of this notam are all cause for serious concern. We have spoken with representatives of the FAA and the Department of Defense and will continue to pursue this until we get the answers pilots need.”

   

  The wording of the notam has led many general aviation pilots to believe that ADS-B-based traffic information might not be available to them. But the notam does not specify any interference with 978 MHz ADS-B systems, which are most commonly used by light GA aircraft.

   

  As a result pilots should continue to have access to TIS-B and FIS-B services. The greatest impact will be on aircraft using 1090 MHz ADS-B systems or TCAS, which are primarily used by larger, faster aircraft operating in the flight levels. Air traffic controllers will help ensure separation between military and civilian traffic during the exercises, and no delays or reductions in ATC services are anticipated.

  At the very least, this is certainly something to be aware of… especially inlight of Chinese warships in The Bering Sea for the first time ever.

   

  

  

  

  

  

• British Airways Boeing 777 Catches Fire On Take Off From Las Vegas

  Prior to China’s “shocking” decision to devalue the yuan, the market was already set to subject the FOMC’s September meeting to an unprecedented amount of scrutiny.

  Now that the consequences (i.e. $100 billion in UST liquidation over just two weeks) of Beijing’s near daily FX interventions are becoming clear, the world is now transfixed, as Janet Yellen attempts to determine what hundreds of billions in reverse QE entails for US monetary policy. As noted on Monday, there’s quite a bit of confusion in the market as everyone searches for clues as to what might happen should the Fed decide that despite mounting headwinds and unprecedented uncertainty, it is indeed time for “liftoff.”

  On Tuesday, we got a sneak peak at what “liftoff” might end up looking like courtesy of British Airways: 

  

  More from The Guardian: 

  A British Airways jet has caught fire at Las Vegas airport, sending smoke billowing into the air.

   

  The plane – a Boeing 777 – could be seen with flames around its fuselage.

   

  There were 159 passengers and 13 crew on board. Two people were treated for minor injuries as a result of the fire, which involved a flight that was due to fly from the US city’s McCarran airport to Gatwick.

   

  It was not immediately clear what had caused the blaze, which was quickly put out by emergency services.

   

  Dramatic images of flight 2276 were shared on social media by members of the public at the airport, which is five miles south of downtown Las Vegas.

  Thankfully, all passangers are apparently safe – we just hope, for the sake of investors the world over and especially for anyone still holding EM assets, that we’ll be able to say the same thing for markets should the Fed attempt to “take off” later this month. 

  VIDEO: Fire engulfs plane on Las Vegas runway. Minor injuries reported. @CNN‘s @jimsciutto has more. http://t.co/3jkxphWBL5

  — OutFrontCNN (@OutFrontCNN) September 8, 2015

  More visuals:

  

  

  

  

  

  

  

• The Fed Is About To Unleash Deflation: Deutsche Bank Shows How

  When it comes to the Fed’s upcoming rate hike, only one simple shorthand matters: higher rates means less liquidity, and vice versa.

  What does that mean for inflation/deflation and bond yields? According to the following simple and understandable analysis by Deutsche Bank, nothing good.

  Here is the TL/DR version: “5y5y is well correlated with changes in global liquidity and based on recent trends should be closer to 2 percent.”
  

  

  Here is the extended explanation:

  Breaking down the breakeven and real yield components verifies that central bank liquidity has been more associated with real yields then breakevens, however the relationship is perverse! Real yields have tended to fall when balance sheet expansion is slowing while breakevens have generally been more sticky. This suggests that risk assets drive (real) yields and that breakevens anticipate a (delayed) liquidity injection.

   

  

   

  This is corroborated by also considering the curve. Like real yields 5s10s is well correlated (positively) with real yields. Note that prior to the crisis the relationship looked more “normal” in that expanding liquidity drive yields lower and vice versa. So something has changed since the crisis—this we think is very important and again, will revisit below.

   

  

   

  The relationship between 5s10s and 10s in real terms screams 5y5y! And indeed we overlay 5y5y to liquidity there is a very tight, almost scary, relationship. The relationship even predates the crisis. Tighter liquidity essentially forces the 5y5y nominal rate lower reflecting some combination of a flatter curve and higher yields with a steeper curve and lower yields. Fundamentally we think this ultimately speaks to a lower terminal policy rate so that it doesn’t really matter whether the term structure is trying to shift higher or lower but the curve will more than compensate so that if the trend is towards less central bank liquidity, the terminal rate is falling.

   

  Right now the decline is central bank liquidity suggest 5y5y should be closer to 2 percent or below not 3 percent to above. And this is before the Fed has tightened and China has potentially “finished” its adjustment.

   

  

   

  And of course the breakdown in 5y5y between real and inflation reinforces the story that it is the real rate not inflation expectations that drive this result. And this is again consistent with the risk asset concern that it is the lack of liquidity that undermines risk assets that in turn drives real yields lower, despite keeping breakevens relatively inflated. One conclusion is that if investors believe that liquidity is likely to continue to fall one should not sell real yields but buy them and be more worried about risk assets than anything else. This flies in the face of recent concerns that China’s potential liquidation of Treasuries for FX intervention is a Treasury negative and should drive real yields higher. It is possible that if risk assets do very well then maybe the correlation with interest rates is broken. But like all these relationships for us, it is easier to work with the correlations that currently persist rather than to predict random breaks. And the potential breaks should be more cheaply hedged rather than making for a core portfolio allocation. I.e. cheap SPX calls based on rates lower. More generally the simple point is that falling reserves should be the least of worries for rates – as they have so far proven to be since late 2014 and instead, rates need to focus more on risk assets.

   

  

  Deutsche Bank’s summary (which we expanded upon over the weekend):

  This reinforces our view that the Fed is in danger of committing policy error. Not because one and done is a non issue but because the market will initially struggle to price “done” after “one”. And the Fed’s communication skills hardly lend themselves to over achievement. More likely in our view, is that one in September will lead to a December pricing and additional hikes in 2016, suggesting 2s could easily trade to 1 ¼ percent. This may well be an overshoot but it could imply another leg lower for risk assets and a sharp reflattening of the yield curve.

  To be sure, the Fed may be clueless when it comes to forecasting, but it certainly understands (or should) the relationship between liquidity and 5 Year, 5 Year forward inflation expectation rates. As a result, Yellen and company surely realize that a rate hike – a contraction in liquidity – will result in a further steep decline in forward inflation expectations, and the associated negative implications for risk assets, coupled with lower real and nominal yields, leading to further deflation and an even greater need for “unorthodox” policy measures, i.e., QE4. 

  Which is why, just like when we first presented this peculiar Fed conundrum over the weekend, the only question is whether the Fed is working to unleash deflation on purpose, or by accident?

   

  

  

  

  

  

• Social Security Disability Fund Will Be Broke Next Year

  Submitted by Veronique de Rugy via Mercatus Center,

  The 2015 annual report from the Social Security Board of Trustees shows that the program’s disability component is in immediate trouble. Data from the latest report show that the disability fund will be depleted as soon as next year and unable to pay full benefits to beneficiaries.

  This week’s first chart uses that data to show total income, expenditures, and assets in the Social Security Disability Insurance (DI) trust fund going back to 1980. The chart shows that the trust fund has been operating under deficits since 2009, as shown by the decline in the trust fund (green bars) and ever-growing gap between the payments (red line) and receipts (blue line).

  

   

  Those deficits have been financed by redeeming nonmarketable government securities that were accumulated over the years when the program was bringing in more revenue than was being paid out. The government spent the surpluses on other government programs and credited the fund with the securities. But because the securities are nonmarketable, the government had to use general federal revenues to “redeem” them once the DI fund started to run deficits in order to cover the difference. With the illusion of the DI trust fund about to disappear, policymakers have no choice but to finally confront the financial imbalance that actually began years ago.

  That means confronting the growth in disability benefits, which have exploded over the past decade. The second chart shows the dramatic inflation-adjusted rise in benefits since the program’s inception, which have doubled in real terms (from $70 billion to about $142 billion) between 1998 and 2014.

  

   

  It will be tempting for policymakers to avoid the politically difficult decision to rein in benefits by a temporary fix, like raising payroll taxes or shifting “assets” from the regular Social Security trust fund to the DI component. These short-term fixes would worsen the Social Security system’s long-term structural imbalance, while inflicting damage on the US economy.

  

  

  

  

  

• "Some People Just Don't Fit In The Economy" Buffett Explains: "We'll Send Them Off To Afghanistan"

  Not to be outdone by his partner Charlie Munger (who offended many with his comments that “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939,”), Berkshire Hathaway’s Warren Buffett – having already taken on Europe, comparing Greece to a “dog peeing on the carpet” of Europe,
  suggesting Germany stop “rewarding behavior you want to get rid of” – takes aim at the military. Speaking on Bloomberg TV, the octagenerian oracle of offense just unfriended every American veteran…

  “You want everybody educated to their potential. You want people to reach their potential. That still won’t work for some people in a highly developed market system.

   

  I mean if this were a sports-based system, you could give me a PhD in football, and I could practice eight hours a day, and I might be able to carry the water from, not onto the field, but from the locker room to the bench. There’s just some people don’t fit well into a highly skilled market-based economy.

   

  They’re perfectly decent citizens. We’ll send them off to Afghanistan, but they are not going to command a big price.”

  *  *  *
  So just the words of a funny old man who is losing his marbles, or an elitist “crony” oligarch who knows there are no consequences for his words or actions?

  On the bright side, at least he did not mention illegal immigrants.

  Interview below:

  
  

  //

  

  

  

  

  

• "Desperate" Chicago Schools Need Half Billion To Avoid Mass Layoffs, Partial Shutdown

  Last month, we noted with some incredulity that Illinois is now paying lottery winners in IOUs. Long story short, the state’s inability to pass a budget means big winners will have to wait on their prize money, a ridiculous situation which prompted one Illinoisan to remind state officials that “if we owed the state money, they’d come take it and they don’t care whether we have a roof over our head; our budget wouldn’t be a factor.” State Rep. Jack Franks agreed, noting that the “government is committing fraud on the taxpayers.”

  The lottery debacle is just the latest example of Illinois’ deepening fiscal crisis which was catapulted into the national spotlight in May when a state Supreme Court decision that struck down a pension reform bid prompted Moody’s to cut the city of Chicago into junk territory. Since then, the media has been awash with tales of the labyrinthine, incestuous character of the state’s various state and local governments and the deplorable condition of the state’s pension system. 

  The fallout from the budget crisis is far-reaching in the state with the latest example being Chicago’s public school system (the third-largest in the country), which opened this week with a budget shortfall of nearly a half billion dollars. Here’s WSJ with the story:

  Chicago Public Schools—with 394,000 students and nearly 21,000 teachers—has closed more than half of a projected $1.1 billion shortfall through cuts, borrowing and other means, but is looking to the state to come up with the rest. The school board warns of deep cuts later this year if Illinois, which faces its own fiscal crisis, doesn’t deliver an additional $480 million in the coming months, representing roughly 8% of annual district spending.

   

  “It is like the board is a desperate gambler at the end of their run,” said Jesse Sharkey, vice president of the Chicago Teachers Union, in a recent speech.

   

  “We are really now at a point where further cuts would reach deep into the classroom,” said Forrest Claypool, who was named chief executive of the city schools in July.

   

  Since 2011, the school board has made nearly $1 billion in cuts—including $200 million this year that involved eliminating 1,400 positions, mostly through layoffs. Enrollment declines, due to shifting demographics and Chicago’s shrinking population, have led to school closings, including nearly 50 elementary schools in 2013 alone.

   

  Mayor Rahm Emanuel has clashed with the teachers union, which went on strike three years ago and is currently without a contract. Another strike isn’t out of the question as the two sides are wrestling over the district’s effort to get teachers to pay more of their pension costs.

   

  A group of parents, educators and activists with the support of union leaders launched a hunger strike Aug. 17 in a push to reopen a closed high school in a historically black neighborhood on the city’s South Side. The group argues the board concentrates money in Chicago’s wealthy, predominantly white neighborhoods. Hispanic and black students make up a vast majority of enrollment in city schools, and more than 85% of students are considered economically disadvantaged.

   

  
  

   

  “There is a priorities crisis,” said Jitu Brown, a community organizer and parent who is participating in the hunger strike.

  Of course one problem is a sharp increase in pension costs thanks to a “holiday” the board decided to take from 2011 through 2014:

  The district’s pension costs have more than doubled in recent years after the board took a partial “holiday” for three years from paying the amount needed to put the retirement system on a path to long-term solvency.

  And all the classic options – raising taxes, taking on new debt to payoff the old debt, etc. – have apparently been exhausted:

  At first, the board drained reserves and paid off old debt with new, but those options are running out. The district also is raising property taxes as much as it can under a state cap. At the same time, Mr. Emanuel is weighing a much larger increase to confront the city government’s own pension problems, but that wouldn’t go to the schools.

  Which means asking the ineffectual state legislature for $480 million, but thanks to gridlock in Springfield, there are no assurances that aid is forthcoming and that, in turn, means that once it’s all said and done, the third largest school system in the country will be forced to layoff thousands and implement what amounts to a partial shutdown. 

  Senate President John Cullerton, a Chicago Democrat who sponsored the legislation, said without it the schools would see the layoffs of 3,000 teachers, increased class sizes and a shortened academic year. “We have to resolve this,” he said.

  Yes, this has to be resolved and because we want to help, we suggest Governor Bruce Rauner not do things like squander hundreds of thousands of dollars in taxpayer money on celebrity budget gurus like Donna Arduin, who, until she was dismissed two Fridays ago for not being very guru-ish when it came to Illinois’ budget, was making $30,000 a month or, more than half of what a Chicago public school teacher makes in a year. 

  

  

  

  

  

• British Navy Admits "It Was Us, Not The Russians" That Damaged Irish Trawler In April

  Back in April, European and US officials were quick to blame "The Russians" when a British fishing trawler's nets became entangled in a submarine. The incident, one of many, was rapidly escalated as further excuse to increase NATO forces across Europe and as evidence of Russia's aggression. There's just one small problem… As The Daily Mail reports, in this case, it wasn't the Russians – The Royal Navy has finally admitted one of its submarines damaged an Irish fishing trawler in April – five months after the Russian vessel was blamed for the incident.

  From another incident in April blamed on The Russians, a bit more color from Live Leak:

  Angus Macleod, who has fished Scottish waters for more than 30 years, told how crewmembers became alarmed when their nets began to “overtake” his 62-foot trawler, Aquarius.

   

  Speaking to the Sunday Express last night, he said: “We were midway through a trip when the boat started to slow down by around two-thirds of a knot, which can happen when the pots start to collect. 

   

  “We started to haul the nets in, and suddenly there was an external force pulling our nets ahead of the boat with some considerable force. This is something we’ve never experienced before. We always have to be ahead of the nets to keep our propeller clear.

   

  "We caught up with them, and we continued hauling, but the nets ran forward again. The starboard net continued to lead out aft. We had to do this several times, and the winches which were hauling in the nets were beginning to strain.”

   

  Mr. Macleod, 46, added: “At the time we just went through what needed to be done to get out of that situation. We had to keep our propeller clear – that’s our main propulsion. But afterwards we sat down as a crew and we discussed what we’d seen. There is little doubt in our minds that this was caused by a submarine.”

  But now, as The Daily Mail reports, another incident from April that was blamed on The Russians has now been admitted the fault of The Royal Navy…

  The Royal Navy has finally admitted one of its submarines damaged an Irish fishing trawler in April – five months after a Russian vessel was blamed for the incident.

   

  The Karen was towed at 10 knots during the April 15 incident 18 miles from Ardglass on the south-east shore of Northern Ireland and the vessel was left badly damaged, but the crew escaped unharmed.

   

  Nato exercises were held that week in northern Scotland leading to speculation that the alliance's drills may have attracted Russian interest.

   

  …

   

  The 60-foot boat's captain Paul Murphy was pictured holding a snapped steel cable on board his boat following the alarming incident.

   

  

   

  At the time the Navy said none of its submarines were in the Irish Sea and Armed Forces Minister Penny Mordaunt told Parliament a UK vessel was not responsible.

   

  Now Ms Mordaunt has been forced to make a U-turn and revealed it was in fact a British submarine which snagged the boat.

  Once again officials simply lied!

  While we doubt any apologies for apportioning blame to the Russians wil be forthcoming, The Daily Mail does note some local politicians demanding justice…

  South Down MP Margaret Ritchie said: 'Fishermen must be confident that their vessels will not be damaged by submarine activity and where incidents do take place, the Government will own up to it immediately.

   

  Sinn Fein Stormont Assembly member Chris Hazzard said fishermen deserved to be able to work in an environment where they did not have to worry about submarines sinking their boats as fishing was already a dangerous occupation.

   

  'The British Government and MoD must now explain their actions, if any disciplinary measures will be taken arising out of this incident and how it will avoid similar incidents in the future.'
   

  

  

  

  

  

• MI6 "ISIS Rat Line" & The Threat To India

  Originally posted at GreatGameIndia.com,

  The prosecution of a Swedish national accused of terrorist activities in Syria has collapsed at the Old Bailey after it became clear Britain’s security and intelligence agencies would have been deeply embarrassed had a trial gone ahead, the Guardian reported.

  Bherlin Gildo was due to stand trial at London’s Old Bailey accused of attending a terrorist training camp between 2012 and 2013 and possessing information likely to be useful to a terrorist. But the case against him was dropped and he was cleared of the charges after a wrangle between lawyers and the British and Swedish security services.

  On 1^st June 2015, writes Seumas Milne the trial in London of a Swedish man, Bherlin Gildo, accused of terrorism in Syria, collapsed after it became clear British intelligence had been arming the same rebel groups the defendant was charged with supporting.

  The prosecution abandoned the case, apparently to avoid embarrassing the intelligence services. The defence argued that going ahead with the trial would have been an “affront to justice” when there was plenty of evidence the British state was itself providing “extensive support” to the armed Syrian opposition. That didn’t only include the “non-lethal assistance” boasted of by the government (including body armour and military vehicles), but training, logistical support and the secret supply of “arms on a massive scale”.

  Reports were cited that MI6 had cooperated with the CIA on a “rat line” of arms transfers from Libyan stockpiles to the Syrian rebels in 2012 after the fall of the Gaddafi regime.

  Interestingly, a recently declassified secret US intelligence report, written in August 2012, uncannily predicts – and effectively welcomes – the prospect of a “Salafist principality” in eastern Syria and an al-Qaida-controlled Islamic state in Syria and Iraq. In stark contrast to western claims at the time, the Defense Intelligence Agency document identifies al-Qaida in Iraq (which became Isis) and fellow Salafists as the “major forces driving the insurgency in Syria” – and states that “western countries, the Gulf states and Turkey” were supporting the opposition’s efforts to take control of eastern Syria.

  Raising the “possibility of establishing a declared or undeclared Salafist principality”, the Pentagon report goes on, “this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran)”.

  However this is only the latest in a string of such cases.

  Psychological Warfare – How MI6 Controls ISIS

  For months it was in the news that 400 Britons had joined the jihadis in Syria. Foreign Secretary William Hague himself said so. However, the number of these British jihadis is much larger and it has been revealed that some of them were trained to be Sunni jihadists by a jihad-seeking Saudi mullah in a British mosque under the watchful eyes of the MI6.

  The Independent in June 2014 reported Birmingham MP Khalid Mahmood saying at least 1,500 Britons, if not more, have joined the terrorist-led jihad in Syria and Iraq, rejecting the 400 figure handed out by Hague, and 500 such jihadis referred to by U.K.’s anti-terror chief Sir Peter Fahy. “I imagine 1,500 certainly would be the lower end. If you look across the whole of the country, there’s been a number of people going across,” Mahmood said.

  What is even more revealing is the report that some of these jihadis were trained by a Saudi preacher operating from within a Cardiff mosque.

  The DailyMail in June 2104 pointed to Mohammed al-Arifi, who has called for holy war to overthrow Bashar al-Assad’s regime, spoke at the Al Manar center in Cardiff, Wales. Although banned from entering Switzerland because of his extremist views, al-Arifi has visited the U.K. several times. A Sunni Muslim, he has been accused of stirring up tensions with Shi’a Muslims, reportedly calling it evil and accusing adherents of kidnapping, cooking and skinning children. A source close to the Yemeni community in Cardiff told Mail Online:

  “These boys were groomed [at Al Manar] to fight the Shi’as, fight these people, fight those that’s where it started. The teaching [at Al Manar] helped the people recruiting. If someone tried to recruit me, I wouldn’t go unless I’m convinced. But once they’re groomed, all it takes is someone to say ‘come and I’ll take you.’”

  This reminds us of the teenage jihadist schoolboy from Coventry ‘fighting alongside ISIS terrorists in Iraq and Syria’ dubbed ‘Osama Bin Bieber‘.

  Last year German officials in an operation raided two containers passing through Hamburg Port and seized 14,000 documents establishing that Osama bin Laden was funded by UK Queen’s bank Coutts, which is part of the Royal Bank of Scotland.

  Following the accusations DailyMail in it’s 23 June 2014 report titled Queen’s bank forced to deny that Osama Bin Laden had an account there after 14,000 documents seized from Cayman Islands branch reports that the Queen’s bank has denied claims in European newspapers that Osama Bin Laden ever held an account with the organisation.

  In 2012, Coutts was fined £8.75million for ‘serious and systematic’ failings when handling money from suspected criminals or foreign despots.

  ISIS Leader a Psychological Operation

  Hamid Dawud Mohamed Khalil al Zawi, most commonly known as Abu Abdullah al-Rashid al-Baghdadi was the leader of umbrella organizations composed of eight groups and its successor organisation, the Islamic State of Iraq – ISIS. However, in July 2007, the U.S. military reported that al-Baghdadi never actually existed. The detainee identified as Khaled al-Mashhadani, a self-proclaimed intermediary to Osama bin Laden, claimed that al-Baghdadi was a fictional character created to give an Iraqi face to a foreign-run terror group, and that statements attributed to al-Baghdadi were actually read by an Iraqi actor.

  According to Brigadier General Kevin Bergner, Abdullah Rashid al-Baghdadi never existed and was actually a fictional character whose audio-taped declarations were provided by an elderly actor named Abu Adullah al-Naima as a form of psychological warfare as reported in the New York Times. Brigadier General Kevin Bergner currently serves with the National Security Council staff as Special Assistant to the President and Senior Director for Iraq. Prior to this assignment, he served as the Deputy Commanding General for Multi-National Forces in Mosul, Iraq. He also served as the Director for Political-Military Affairs (Middle East) on the The Joint Staff in the Department of Defense.

  What about the ISIS threat to India?

  At the Indo-UK Counter Terrorism Joint Working Group meeting held in London on January 15-16 this year the British officials warned their Indian counterparts of a possible terror attack by ISIS on Indian soil.

  Than on July 28, USA Today revealed the end-of-days as according to the Islamic State (ISIS). The newspaper sourced a 32-page doomsday document to some “Pakistani citizen with connections inside the Pakistani Taliban.”

  An investigative story published by the USA Today and reported by American Media Institute refers to a 32- page Urdu document obtained from a Pakistani citizen with connections inside the Pakistani Taliban.

  “The document warns that ‘preparations’ for an attack in India are underway and predicts that an attack will provoke an apocalyptic confrontation with America,” the report said. The document, according to the report, was independently translated into English by a Harvard scholar and verified by several serving and retired intelligence official.

  The document was reviewed by three US intelligence officials, who said they believe the document is authentic based on its unique markings and the fact that language used to describe leaders, the writing style and religious wording match other documents from the ISIS, USA Today added.

  However, India’s Ministry of Home Affairs termed “rubbish” the alleged ISIS document which hinted that the terror group was preparing to attack India to provoke confrontation with the US. “It’s rubbish,” Joint Secretary, Internal Security-I, MA Ganapathy told reporters said.

  If indeed the document was a fraud it raises serious questions given the MI6 & CIA links to ISIS; considering that the doomsday threat and the attack plan both emanated from the same source that is alleged to have created the threat in the first place. However, no explanation was provided by the Home Ministry as to why they chose to term it ‘rubbish’ nor an explanation sought from the western governments, intelligence agencies or the media for publishing such a sensitive and false report that took the entire global media in a whirl.

  On the other hand last month, India’s Home Ministry announced it was working on a national anti-ISIS strategy. Many intelligence inputs followed after the publication of those reports and arrests made all across India. Reportedly, the appeal of ISIS radicalism had ramped up in ten Indian states.

  Last month a British doctor was arrested in Jammu & Kashmir for planting IEDs. Police said Baba who is a physiotherapist has lived in London since 2006. He returned to the valley three months ago.

  Why is it that from Al Qaeda to ISIS to terrorists in J&K, all links end up in Britain? More importantly, why such leads are not pursued by Indian Intelligence Agencies? Surprisingly enough even the intelligence inputs we so actively act upon are also provided by the same countries. How could we formulate a strategy to orient our security agencies to counter a threat that we choose to ignore or do not even attempt to understand?

  As is the case with any of the terrorist group many of these groups are controlled not only by the states that sponsor terrorism but by the nations that sponsor the states that sponsor terrorism too. So though all evidence eventually leads to North Western frontier of India, we do not attempt to learn about who instigates these groups, their actions, their mode of acting and the previous track record that should guide us in doing what we as third neutral sovereign country should do. We totally ignored this angle and even the most rudimentary of forensic investigation in our approach to the Mumbai Train Blasts (a sequel to Spanish Train Bombings and the beginning of the 26/11 Mumbai Attacks). We hope we do a beginning in this new direction.

  By the later years of the Reagan regime, a preferred nomenclature suited to U.S. interests became standardized for the Third World. In the case of nations to be rolled back (e.g., Nicaragua), governments were called terrorist and the insurgents were labeled democratic. In the case of countries to be supported against “communist” insurgencies (e.g., El Salvador and the Philippines), the governments were called democratic and the insurgents were labeled terrorists. “

   

  – from the book Rollback by Thomas Bodenheimer and Robert Gould

  One recent phenomenon emerging since dissolution of soviet era is, if there is more than one geo-political player involved in any target nation say Nigeria or Indonesia or India; then the turf war between the geo-political players is spilling in to the target countries. Just like in case of East India Companies whenever their parent countries (England, France, Holland etc) went to war in Europe, their representatives in African and Indian colonies also went to war. So whenever one geo-political player feels their turf is violated in any target countries then they do not hesitate to eliminate the others or their supporters in the target countries.

  Depending on the theatre of concern these sabotage operations are called by various names and many governments in order to prevent them do various preventive actions. Unfortunately in India there is no comprehensive study of terrorism keeping the above perspective. Our excessive determination and focus on Islamic or Jihad terrorism though suits our emotional need it only comprises of less than one fourth of terrorist acts perpetuated on the soil of India since more than three decades. Subversion, sabotage, assassinations, abductions, facility bombings, symbolic target bombings though done by all terrorist groups we are confined and concerned only about Jihadi terrorism which is making our response to over all terrorism and its prevalence in India ineffective.

  Seumas Milne writes this western habit of playing with jihadi groups, which then come back to bite them, goes back at least to the 1980s war against the Soviet Union in Afghanistan, which fostered the original al-Qaida under CIA tutelage. Infact, it’s not just a western habit and it dates far back than 1980s since before World War I where the roots to using modern fundamentalism as a tool of warfare lay.

  

  

  

  

  

• Goldman Explains Why Europe's Refugee Crisis Is Actually A Blessing

  While it’s in no way out of the ordinary for a sitting Democrat to trumpet a set of beliefs that diverge markedly from the views espoused by the GOP frontrunner in the lead-up to an election, the extent to which the Obama administration’s position on immigration differs from Republican hopeful Donald Trump’s vision for border control is truly remarkable. The President has of course pushed for reforms which shield non-violent immigrants from deportation while Trump argues that anyone who didn’t come to the country via legal channels should be politely shown the door. 

  The fact that these two positions are so diametrically opposed underscores the extent to which immigration will likely be the most rancorous, contentious and divisive topic on the campaign trail on the way to elections in 2016 and make no mistake, this debate has very real implications for the US economy. 

  As we’ve shown, since December 2007, according to the Household Survey, only 790,000 native born American jobs have been added. Contrast that with the 2.1 million foreign-born Americans who have found a job over the same time period. In August, a whopping 698,000 native-born Americans lost their job. This drop was offset by 204,000 foreign-born Americans who got a job during the month. 

  

  The immigration debate in the US and the jobs data shown above highlight the extent to which demographics are critical if we want to understand social and economic outcomes. Looking beyond the American political circus and the US jobs market, Japan is staring down a well-documented demographic nightmare while, as discussed here previously, China faces the end of its “migrant miracle” as the country approaches its Lewis turning point. Meanwhile, migrant flows have become perhaps the most talked about issue across Europe.

  The point: demogrpahic shifts, whether gradual or sudden, whether wholly domestic or emanating from some exogenous shock (like say a horrible US foreign policy outcome) matter – and they matter a lot.

  It’s with that in mind that we turn to Europe, where a refugee crisis sparked in large part by Syria’s four-year old, bloody civil war recently reached a tipping point and the scramble to find a workable solution both in terms of allocating asylum seekers and finding the funds to accommodate them has become the single most pressing challenge facing European policy makers. Here’s the latest from BBC:

  Germany can cope with at least 500,000 asylum seekers a year for several years, Vice Chancellor Sigmar Gabriel has said.

   

  Germany expects more than 800,000 asylum-seekers in 2015 alone – four times the 2014 figure. Mr Gabriel reiterated that other EU states should share the burden.

   

  The UN’s refugee agency, UNHCR, says a record 7,000 Syrian migrants arrived in Macedonia alone on Monday and 30,000 were on Greek islands.

   

  The migrants, mainly Syrians, are engaged in a long trek which takes them from Turkey, across the sea to Greece, through Macedonia and Serbia, and then to Hungary from where they aim to reach Austria and Germany.

   

  
  

   

  The migrant influx has unsettled European governments and prompted diverse responses.

   

  Hungary’s conservative leadership is building a border fence to try to keep them out, but German politicians have expressed pride in crowds who welcomed new arrivals.

   

  A Greek minister said on Monday that the island of Lesbos, which sits off the Turkish coast, was “on the verge of an explosion” due to a build-up of 20,000 migrants.

   

  The EU is due to unveil proposals on Wednesday to distribute 160,000 refugees among member states on a mandatory basis.

  And while it may be difficult for anyone to find the silver lining amid the chaos (especially when pictures of dead children are being trotted out as proof of why the West urgently needs to intervene further in Syria thus ensuring the situation becomes even more unstable than it was before), the implications of such a dramatic migration will be felt for generations to come and in some respects Goldman says more immigration may in fact be just what Western Europe needs. Here’s more:

  Whichever way we slice the data, the growth in working age population stands out as a key driver of economic growth for most countries. A healthy dependency ratio, a skilled workforce, together with strong institutions and an absence of major resource imbalances is usually the formula for country-level success. But with most DMs weighed down by ageing populations, a key question is this – can people inflows can counter challenging demographics? The short answer is yes, but only up to a point…

   

  The rising concerns on ageing have unsurprisingly been accompanied by more accommodative policies on immigration; the number of countries with stated plans to grow their populations via immigration has gone up to 22 as of 2013, from 10 in 2010 (note that immigrants also tend to have higher fertility rates).

   

  But for many countries, people inflows are only part of the solution. In order to maintain current levels of retirees/working age population ratios in 2025, immigration rates in Western Europe need to be 7x-8x higher than current run rate (based on UN estimates), while in Japan and Korea, the requirement goes up to a highly improbable 26x and 58x current levels. 

   

  

   

  Now consider what was said above about the magnitude of Germany’s refugee accommodation (i.e. that the country is set to take in some 500,000 asylum seekers per year), and then consider the following from the same Goldman note:

   

  Obviously, it’s far too early to draw any sort of concrete conclusions about what effect – positive or negative – the influx of Syrian refugees will have on Western Europe. Moreover, the societal and economic impact of people inflows is at least to some extent dependent upon what skills immigrants bring with them. To expand on Goldman’s discussion of the so-called “skill fill”, the question might be this: to what extent can immigrants help fill skills gaps in DM economies created by deteriorating demographics? Of course we must also consider what effect second- and third- generation immigrants may end up having on receiving countries’ economies (i.e. does the original migration end up vicariously conferring a substantial benefit on the society of the receiving country and if so, how?).

  We’ll leave those questions to readers and simply close by pointing out (again) the tragic irony inherent in France’s suggestion that the proper response to the current refugee crisis is for the French military to bomb Syria. That either represents an utter inability on the part of the French government to understand the West’s role in destabilizing Syria in the first place, or, more likely, the latest example of how one way or another – via YouTube gas attack videos or via heart-wrenching pictures of desperate migrants fleeing the violence – the US and its allies are determined to find the right mix of propaganda to justify a ground incursion. And that’s the real tragedy here: the pitiable plight of Syria’s beleaguered masses will be used as an excuse to cause them still more pain and suffering.

  

  

  

  

  

• Mystery Buyer Of US Treasurys Revealed

  Back in March 2014, we first revealed something quite stunning: a new, seemingly ravenous, and completely unexpected buyer of US Treasurys had emerged in the face of “Belgium” which was buying tens of billions in US paper at a weekly clip, without any explanation.

  One year later, this website first confirmed that the identity of the “Belgian” buyer was none other than China, which had been using Belgian-based clearer Euroclear as an offshore venue for its bond purchases, and which starting in March 2015 had commenced dumping the US paper it accumulated so dramatically in 2013 and 2014, in advance of what has become the biggest story of the summer: China’s liquidation of its FX reserves, read US Treasury holdings, in defense of its devaluing currency.

  

  

  And while we knew that China was selling – and following the record selling of FX reserves in August, so does everyone else – an even more interesting question emerged: who is buying?

  Thanks to the WSJ we now have the answer: “A little-known New York hedge fund run by a former Yale University math whiz has been buying tens of billions of dollars of U.S. Treasury debt at recent auctions, drawing attention from the Treasury Department and Wall Street.“

  The hedge fund in question, Jeffrey Talpins’ Element Capital Management, which according to the WSJ has become “the largest purchaser in dozens of government-bond auctions over the past 10 months, people familiar with the matter said. The buying is part of an apparent effort by the fund to use borrowed money to exploit small inefficiencies in the world’s most liquid securities market, a strategy that is delivering sizable profits, said people close to the matter.”

  

  Jeffrey Talpins of Element Capital and his wife

  For those unfamiliar, and Talpins certainly is not a household hedge fund name, “Mr. Talpins is an intense and reserved trader formerly at Citigroup Inc. and Goldman Sachs Group Inc. He is known for a tenacious style that can grate on rivals and once tested the patience of former Federal Reserve Chairman Ben Bernanke.”

  According to the NYT, in 2005, Trader Monthly named Mr. Talpins one of the top 30 traders under 30, when he was still an employee of Vega Asset management. “Youth is not wasted on this crop, any of whom could be a billionaire by 40,” the magazine said. “Or, then again, they could be belly up and bust.”

  Back in 2010 the FT profiled Element Capital, then at just $1.5 billion, saying that fixed-income relative value trading, “the hedge fund strategy pioneered – and made notorious – by Long Term Capital Management is returning to prominence amid one of its most successful years yet.” It added that “fixed-income relative value trading – shunned by investors after the collapse of LTCM in 1998 – has been one of the industry’s few outperformers this year, thanks to massive pricing anomalies caused by fiscal stimulus packages and unconventional central bank monetary policies around the world.”

  As of the end of June, Element Capital, a $1.5bn relative value fund run by Jeffrey Talpins, was up 10.75 per cent. High returns have been driven by government bond markets flush with arbitrage opportunities, managers said.

  By 2014, Element had grown substantially, and according to a Bloomberg note, last July it attracted the head of North America sales at RBS, Richard Tang: “Tang, who has spent almost two decades at the bank, is one of 16 members of the Treasury Borrowing Advisory Committee that the U.S. government consults with on its debt sales. His departure was confirmed by Sarah Lukashok, a Stamford, Connecticut-based spokeswoman for Britain’s largest state-owned lender. He will be joining New York-based Element Capital, which manages about $4.3 billion in its macro fund, said the people, who asked not to be named because the move wasn’t public.”

  In other words, Element is not only growing its AUM exponentially, it now also employs a member of the TBAC, which we profiled in November 2011 as “The Supercommittee That Really Runs America.”

  Not only that, but according to a November 2014 presentation to the Wharton Investment and Trading Group, the fund, then already at a $5 billion AUM, boasting it “has delivered exceptional returns to investors over its 9+ year track record, with annualized performance greater than 20% and a Sharpe ratio greater than 2.“

  Quite an impressive performance for a smallish relative-value hedge fund, one that begs the question: just how much leverage is involved (an important question for later).

  So why is this relatively obscrue hedge fund in the news? Well, it appears that the mystery buyer of all China’s bond sales is none other than Element:

  Element has been the largest bidder in many of the 62 Treasury note and bond auctions between last November and July, these people said. At many recent auctions, some of which involved sales of more than $30 billion of debt, Element purchased about 10% of the issue, these people said. That is an unusually large figure, analysts said.

  And while Element may have grown substantially, some wonder how its most recent AUM of $6 billion can sustain this ravenous buying spreed.

  Element’s activity has raised questions because the cumulative purchases far exceed the hedge fund’s $6 billion in assets under management. Treasury officials, who frequently meet with large auction participants, have asked Element about its activity, said someone close to the matter.

   

  “Their buying is eyebrow-raising,” said a trader who once worked for a firm that deals in government securities and witnessed Element’s bidding. These primary dealers often know the identity of other auction bidders. Element “never shared its strategy, but we often asked,” the trader said.

  And this is where it gets tricky, because as the WSJ admits, the US Treasury “likes to know who is buying its bonds and why, partly because it prefers long-term holders such as pension funds, insurance companies and central banks. Treasury officials fear purchases by trading-oriented funds could result in sales that increase market swings and potentially drive up borrowing costs.

  “If you’re issuing debt, your preference is those ‘sticky investors,’” said Scott Skyrm, a managing director at Wedbush Securities.

  Which brings us back to the “how much leverage is involved” question, because one bad day for Element and suddenly the fund could be forced to unwind its giant Treasury book into what is already a very illiquid market.

  Which leads to the question of just what is Element’s strategy: “Element had been shorting, or betting against, bonds in anticipation of higher interest rates but has been exiting from that wager, according to someone close to the matter. That is one reason the fund has been a big buyer of Treasurys lately.”

  It appears that is not only macro considerations that drive Element’s trading strategy, but also market mispricings between the primary and secondary market: “people who have worked with the firm or are close to Mr. Talpins said there is another reason: Element is among the last to embrace “bond-auction strategies,” trading maneuvers that have become less popular since the financial crisis.”

  These trades aim to take advantage of the effects of supply and demand in the $12.8 trillion Treasury market. Demand for these bonds often fluctuates based on factors including investor perceptions of economic growth and market risk, while supply can be affected by regular auctions of different-maturity Treasury securities. A burst of new supply tends to slightly depress prices for short periods, sometimes for less than an hour.

  Element’s auction arbing strategy is relatively simple: “In the past, Wall Street dealers and hedge funds scored profits shorting “when-issued” bonds. These are contracts conferring the right to purchase Treasury securities when they are sold days later at auction. Then, these traders would buy bonds during Treasury auctions at the slightly lower prices and use these newly purchased bonds to close out their short sales.”

  The difference between the higher price at which they sold the Treasurys and the lower price they paid at auction was their profit.

  Which incidentally explains our “discovery” earlier this summer why Treasury auctions that took place at a time when the OTR was trading “special” led to dramatic outperformance during the actual auction: it was hedge funds like Element that did all in their power to squeeze the market and send the high yield deep inside the When Issued.

  The reason why Element has become the dominant player in this market is because most of its competitors disappeared after 2008:

  After the 2008 financial crisis, bank traders pulled back as regulators discouraged trading risks. Some hedge funds also began shying away from bond-auction strategies. Wall Street banks have significantly cut back their lending to hedge funds.

   

  The pullback by rivals has left Element with a large presence in bond auctions to complement strategies such as in foreign-currency derivatives, people close to the matter said. In 2008, the firm gained 35%, these people say, even as financial markets crumbled. The next year, Element was up 79%. Last year it rose just 2.9%.

  And with nobody left to compete, and the Treasury market as illiquid as it is, it meant huge potential profits for Element: sure enough, the hedge fund “was up 18.5% through July of this year, an investor said, beating most hedge funds and overall markets. Some recent gains came from bullish wagers on the U.S. dollar, according to the person.”

  So can anything go wrong with this strategy? Yes, plenty. 

  Once in a while, the prices of bonds being auctioned jump, rather than fall, for reasons such as bad economic news that prompts an investor flight to safety. Hedges sometimes don’t work out. And the strategy relies on inexpensive borrowing because each trade usually yields minimal profits.

   

  In the 1990s, hedge fund Long Term Capital Management used leverage to profit from small discrepancies in the Treasury market before a market reversal swamped the firm. LTCM used much more leverage than Element does.

  Only problem is nobody knows just how much more leverage, and whether Element’s leverage isn’t slowly but surely creeping up to Merton and Merrywether levels.

  Still, luminaries such as Yale professor Robert Schiller vouch for Talpins:

  Mr. Talpins graduated in 1997 from Yale, where he was a research assistant for Robert Shiller, the Yale economist who later won a Nobel prize in economics. In a 1996 letter, Mr. Shiller wrote that in terms of overall performance, he “put Jeffrey first out of the 52 Yale undergraduates” who attended his course Economics 252, Finance, Theory and Application.

   

  “I thought he was particularly bright,” recalls Prof. Shiller.

  Others, however, were less than enthused about Talpins. Such as former Fed chairman Ben Bernanke:

  A year or so ago, Mr. Talpins was among 20 investors invited by a Wall Street firm to a private meeting with Mr. Bernanke, after his departure from the Fed. Mr. Talpins peppered Mr. Bernanke with about 10 successive questions, according to several people in the room.

   

  Mr. Talpins elicited some detailed answers, such as who is in the room during interest-rate discussions. But he also asked questions that exasperated some investors because they seemed irrelevant. Mr. Bernanke looked increasingly weary under Mr. Talpins’s barrage, one participant said. “Jeff was persistent and it got a little uncomfortable,” said another participant. “It was like, ‘Dude, let it go.’”

  But the biggest risk by far is that now that the “mystery buyers” has been exposed, it won’t take long for the other, much bigger players – i.e., all the central banks who have been desperate to push yields lower to “confirm” the self-fulfilling narrative that the economy, and inflation, are growing – to inflict the proverbial “max pain” upon Element. In fact, if Talpins is indeed very long TSYs, and has lot of leverage embedded in the trade, one may expect a concerted shorting effort to find out just how much leverage is incorporate in the trades, and push it to the point of breaking. After all, hedge funds exposed with massive positions rarely survive an onslaught by their peers who seek to do just that – inflict “max pain” (see Ackman and Herbalife).

  If so, China’s selling of TSYs may very soon inflict precisely the kind of damage on US paper not because it is selling, but because the biggest “mystery” buyer of US paper has just been revealed and whose continued ability to keep buying unimpeded is now suddenly very much in question.

  What’s worse, if the result of a coordinated attack on Talpins leads to an LTCM-type blow up, hang on to your hats because the recent volatility in the equity market will be nothing compared to what is coming to the MOVE, TYVIX and US Treasurys…

  

  

  

  

  

  

• "The World Is Running Low On Interventionist Ammo" SocGen Warns "China Is The Dominant Black Swan"

  When it comes to crisis, SocGen notes that there is an abundance of case studies; and against the backdrop of the uncertainty shock delivered by China and the subsequent market tumult, market participants have been looking to the history books for clues as to what could happen next. While individual crises create their own risks, SocGen warns, the overriding risk  is that markets are taking less comfort today from the idea that central banks may step in with further QE-style liquidity injections to save the world.

  Running low on monetary policy ammunition

   Before considering the individual risk scenarios, an overriding risk is that markets are taking less comfort today from the idea that central banks may step in with further QE-style liquidity injections. We see this as a reflection of two factors.

  First, the tremendous amounts of liquidity injected to date have produced less-than-spectacular economic results. This also fits the findings of academic literature suggesting diminishing returns from subsequent rounds of QE.

   

  Second, central banks have clearly become more concerned about the potential risks to financial stability from indefinitely inflating asset prices, suggesting that they may be slower to step in.

  This raises the important question of how policymakers would respond to new downside shocks. Fiscal expansion in the advanced economies, and not least infrastructure investment, would be our advice, but in a downside risk scenario, we fear that this tool is likely to be deployed all too slowly and central banks be further overburdened.

  

  China is the dominant black swan

  On the major risks that we see over the coming year, one positive is that we have taken Grexit off the chart. Medium-term, we still consider a Grexit a high risk scenario, but for now euro area policymakers seem content to have given the can a good kick further down the road.

  China hard landing (30% probability): The recent market tumult offered a flavour of the type of market response a China hard landing might trigger. In such a scenario we would expect to see a further, and this time, sharp decline of the RMB. We defined a hard landing as a 2pp negative real growth shock to our baseline real GDP outlook. In 2015, that sets hard landing at 5%, in 2016 at 4%.

   

  China’s financial integration into the global economy is low, making a replay of the 2008 crisis – that was transmitted primarily via financial channels – less likely. To our minds, such a scenario would bear a greater similarity to a “classic” EM crisis, such as the 1997 Asia crisis. However, today emerging economies account for around 40% of global GDP. This is twice the level that prevailed in 1997. The pullback in demand in emerging economies would make such a scenario the third deflationary shock of the past decade, following the 2007/08 subprime crisis and the 2011/12 euro area debt crisis.

   

  New global recession (10% probability): A China hard landing or a much-deeper-thanexpected downturn in emerging economies in general, both have the possibility to trigger a global recession. How business, consumers and policymakers respond to such a shock would determine whether recession in the advance economies would follow or not. We see a 1-in-3 chance that a China hard landing would trigger global recession. Another critical assumption is that oil prices remain at the current very low level. If there were a positive oil price shock, this could also trigger a recession.

   

  Advanced consumers save the energy windfall gain (25% probability): For the OECD economies, we estimate that the oil burden (price times demand divided by GDP) will decline by around 1.5pp compared to previous year averages. For energy consumers, this marks a windfall gain. Our baseline assumption is that the bulk of it will be spent. Should consumers prove more cautious, this would lower our growth outlook considerably, knocking 0.5-1.0pp off our baseline and pushing the major advanced economies back to “stall speed” levels.

   

  Fed behind the dots (10% probability): When questioned about Fed policy in relation to the economic conditions in the rest of the world, Vice Chair Fischer noted that ensuring a stable US economy would be the Fed’s greatest contribution – we agree! Should the Fed keep rates too low for too long, the danger is that, once wages and inflation pick up, markets will do the job with a disorderly bear steepening of the yield curve delivering negative ramifications for financial markets globally and not least for emerging economies.

   

  Brexit (45% probability): A date has yet to be set for the referendum and it is still unclear what concessions Prime Minister Cameron will obtain from his European Union partners. Striking is how little attention markets are paying to this topic. We see three possible explanations for this. First, markets believe Brexit would do no real harm. Second, markets see only a very low probability of such a scenario materialising. Third, it’s still too far away in terms of timing (the deadline is end-2017 but the UK government is hinting that it might be held next year) and too vaguely defined to focus on. In our opinion, the third explanation is the most likely. At some point, this will hit the radars and we see substantial volatility given our view that Brexit could take as much as 1pp off growth over the next decade and that the vote (as polls suggest) will be fairly close.

  But on the bright side, US domestic demand dominates the white swans

   Our previous white swan of higher-than-expected price multipliers described a scenario under which the multiplier effects that translate factors, such as lower oil prices, low interest rates and FX depreciation (where present) to the real economy turn out to be higher than we discount in our baseline scenario. In a nutshell, consumers and corporates decide not only to spend all the windfall gains of lower oil prices but take the opportunity of low interest rates to increase leverage to consume and invest. In our new GEO, we have split this risk of this positive outcome into several parts:

  US invest more … and win productivity (20% probability): Investment, be it capex or residential, has generally disappointed forecasts including our own. Looking ahead, we expect a sharp pick-up in residential investment. Our forecast on capex, albeit positive, holds room for upside surprise. This would also underpin productivity gains and thus ultimately real wage growth.

   

  Higher-than-expected price multipliers in Europe and Japan (15% probability): On the external front, euro and yen have failed to deliver any significant boost to export volumes. Accommodative credit conditions have yet to deliver a major boost to domestic demand. Finally, while lower oil prices have been a positive, the multiplier effect on consumption and investment remains lower than many had hoped. Should multipliers prove stronger then expected this could deliver upside surprise, notably to our still-below-consensus euro area growth forecast but also offers some potential upside to our above-consensus outlook for Japan.

   

  Fast track reform (10% probability): At the risk of sounding like a broken record, we once again highlight the need for structural reform. We are in the good company of central bankers in making this call. Nonetheless, the probability of it actually materialising remains disappointingly low, all the more so given a busy electoral agenda ahead.

  Source: Societe Generale Cross-Asset Research

  

  

  

  

  

• It Really Is As Simple As That

  Six years after we first explained the only thing that matters for this “market”, JPMorgan finally figured it out, and in doing so proudly joined the ranks of the “tinfoil hat, conspiracy theorists” unable to grasp the finer nuances of the Magic Money Tree theory.

  

  Now, who else can’t wait for the Fed’s first rate hike in nearly a decade?

  

  

  

  

  

• "Liar Loans" Are Back! 2008 Here We Come

  Earlier this year, as the US auto sales miracle unfolded on the back of record loan terms and record high average monthly payments, we continually argued that underwriting standards were likely to deteriorate going forward as competition for the finite pool of creditworthy borrowers heats up. 

  Helping to drive (no pun intended) the shift towards looser lending standards is the proliferation of the originate-to-sell model – the same originate-to-sell model that helped steer the US housing market right off a cliff in 2007/2008. The concept is simple: if you’re making loans with the intention of carrying them on your books, you’re likely to care far more about the creditworthiness of the borrower than you are if you’re simply going to ship the loans off to Wall Street to be run through the securitization machine and then sold off to investors via MBS. That same dynamic is now at play in the market for car loans. Auto-backed ABS issuance should come in at around $125 billion this year – that’s up 25% from 2014 and accounts for more than half of total consumer loan-backed supply.

  As was the case during the lead up to the housing market collapse, this dynamic embeds an enormous amount of hidden risk in the paper backed by the shoddy loans. This paper is very often highly rated because despite what happened in 2008, the idea still exists that although one risky loan may be properly viewed as a speculative investment, a whole bunch of pooled risky loans are somehow safe as can be. 

  But even as alarm bells are going off in the subprime auto market and also in the market for student loan-backed paper, there hasn’t been as much concern for the MBS market where apparently, everyone seems to think that market participants (lenders, borrowers, and Wall Street gamblers) have learned their lesson. Of course no one ever, ever learns which is why we weren’t at all surprised to hear that “liar loans” – a relic of the good old days – are back and, in keeping with everything said above, are creeping into mortgage-backed paper. Here’s Bloomberg with the story of Velocity Mortgage Capital LLC:

  The pitch arrived with an iconic image of the American Dream: a neat house with a white picket fence.

   

  But behind that picture of a $2.95 million home in Manhattan Beach, California, were hints of something darker: liar loans, those toxic mortgages of the subprime era.

   

  Years after the great American housing bust, mortgages akin to the so-called liar loans — which were made without verifying people’s finances — are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street.

   

  The Manhattan Beach story — how the mortgage on that house was made and subsequently packaged into securities with top-flight credit ratings — recalls a time when borrowers, lenders and investors all misjudged the potential danger.

   

  The story begins earlier this year, when a TV producer bought the cream-colored home. His lender, Velocity Mortgage Capital LLC, says it writes mortgages for people buying homes only for business purposes, such as renting them out, and requires all customers to sign documents stating their intentions.

   

  Soon Velocity was bundling the $1.92 million mortgage and hundreds of other loans into securities through Wall Street’s securitization machine. Kroll Bond Rating Agency featured a picture of the house in a report on the $313 million deal, most of which was rated AAA. Marketing documents for the offering, which was managed by Citigroup Inc. and Nomura Holdings Inc., characterized the buyer as an “investor.”

   

  But when a reporter recently knocked on the door in Manhattan Beach, the buyer answered and said he never planned to rent out the place. Nor, he said, had he signed documents stating he would. He was living in the house with his family.

  So he lied. Got it. Bloomberg goes on to explain that Velocity essentially takes advantage of the fact that mortgages made for “business purposes” are exempt from federal regulations designed to ensure that lenders are verifying borrowers’ finances. 

  But don’t worry, because there are safeguards in place. Velocity, for instance, ensures that borrowers are telling the truth by … taking their word for it. Here’s Bloomberg again:

  Chris Farrar, Velocity’s chief executive officer, says his company takes steps to ensure customers really are buying homes for business purposes. These include having every borrower hand write and sign letters testifying to their plans.

  And then there’s Kroll which, you’re reminded, also plays a rather large role in rating subprime auto deals, who doesn’t seem to be all that interested in knowing whether or not Velocity has done enough due dillegence:

  In assigning AAA grades, Kroll partly relied on Velocity’s promise to buy back any loans that fell short of the standards, said Nitin Bhasin, a Kroll managing director.

   

  “That’s a question for Velocity, I think: How do they make sure when they’re making a loan that it’s not owner-occupied,” Bhasin said.

  Bhasin is correct. It is a question for Velocity. And one you’d think Kroll would want a very concrete answer to before assigning an AAA rating especially given what we learned in the lead up to the crisis about investors’ strange propensity to, you know, rely on ratings agencies to do their jobs before giving a deal the triple-A stamp of approval. 

  And because we wouldn’t want anyone to think that the problem is confined to a handful of “liars” taking out mortgages for “business purposes,” we’ll leave you with the following from FT who reports that the ZIRP-induced hunt for yield has opened the door for the triumphant return of subprime non-Agency RMBS:

  For “subprime”, read “non-prime”.

   

  Yield-hungry investors are ready to endorse a revival of bonds backed by riskier US residential mortgages, as lenders warm to housebuyers who do not meet strict borrowing guidelines introduced after the financial crisis.

   

  But the now toxic label of subprime mortgages has been dropped. Instead, Angel Oak Capital is in the process of pricing a deal for a bond offering of so-called “non-prime mortgages” — a term funds are using to describe mortgages that do not meet government standards. Lone Star Funds completed a deal worth $72m in August.

  

  

  

  

  

• Sep 9 – World Bank Warns Fed to Delay Rate Rise
  Follow The Market Madness with Voice and Text on FinancialJuice

   

  EMOTION MOVING MARKETS NOW: 13/100 EXTREME FEAR

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  ONE WEEK AGO: 9/100 EXTREME FEAR

  ONE MONTH AGO: 10/100 EXTREME FEAR

  ONE YEAR AGO: 47/100 NEUTRAL

  Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 22.74% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.

  Market Volatility:  NEUTRAL The CBOE Volatility Index (VIX) is at 24.88. This is a neutral reading and indicates that market risks appear low.

  Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating extreme fear.

  PIVOT POINTS

  EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY 
   

  S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B) 

  EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL) 

  CRUDE OIL (CL) | GOLD (GC)

   

  MEME OF THE DAY – DUBAI GOLD DEALER OLYMPICS

   

  UNUSUAL ACTIVITY

  RHT @$.75 .. SEP 72.5 CALL Activity 3300+ Contracts

  IP SEP WEEKLY2 42.5 CALLS @$.62 on offer 1300+ Contracts

  KHC SEP 70 PUT ACTIVITY 2K+ @$.50 on offer

  KRO Director Purchase 967 @$6.905 Purchase 1,033  @$6.909

  TTS SC 13G/A .. Tremblant Capital Group .. 11.69%

  More Unusual Activity…

   

  HEADLINES

   

  US LMCI Change (Aug): 2.1 (est 1.5, rev prev 1.8)

  US NFIB Small business Optimism (Aug): 95.9 (est 96.0, prev 95.4)

  US Consumer Credit (Jul): $19.1bn (est $18.6bn, prev rev 27.02bn)

  World Bank warns Fed to delay rate rise

  Democrats have enough Senate votes to stifle Iran opposition

  OECD: Stable growth momentum in OECD area

  UK FinMin Osborne: UK debt To GDP uncomfortably high

  France to nominate former BNP banker as BOF governor

  EZ GDP SA (QoQ) (Q2 P): 0.4% (Est 0.30%, Prev 0.30%)

  GE Current A/c Balance (Jul): EUR 23.4 Bln (exp 21.5 Bln, prev 24.4 Bln)

  GE Exports SA (MoM) Jul: 2.4% (exp 1.0%, prev rev -1.1%)

  GE Imports SA (MoM) Jul: 2.2% (exp 0.7%, prev rev -0.8%)

  Indonesia gets green light to rejoin OPEC

  Global M&A hit the $3 trillion mark

   

  GOVERNMENTS/CENTRAL BANKS

  World Bank warns Fed to delay rate rise –FT

  OECD: Stable Growth Momentum Confirmed In OECD Area

  UK FinMin Osborne: UK Debt To GDP Ratio Uncomfortably High –MNI

  France to nominate Francois Villeroy de Galhau as BOF governor –MNI

  Riksbank’s Jochnick: Sees Rapid SEK Strengthening As A Risk To Inflation

  Fitch: Euro Zone Ratings May Not Return To Pre-Crisis Levels –Rtrs

  Greek cbank: Banks’ AQR to finish this month –Rtrs

  GEOPOLITICS

  Democrats have enough Senate votes to stifle Iran opposition

  FIXED INCOME

  US sells 3-year notes at 1.056% vs 1.055% WI –ForexLive

  ECB Calls for Common EU Approach on Debt Write-Offs –NYT

  ECB: German Law Disqualifies Bank Bonds as Collateral –BBG

  Italian Bonds Rise as Traders Increase Odds for More QE From ECB –BBG

  Credit ratings bolster risky bank bonds –FT

  FX

  USD: Dollar mixed as reviving risk appetite drags on yen, euro –Rtrs

  EM currency defences hold against sell-off–FT

  ENERGY/COMMODITIES

  WTI futures settle 0.25% lower at $45.94 per barrel

  Brent futures settle 4% higher at $49.52 per barrel

  CRUDE: Indonesia gets green light to rejoin OPEC –FT

  CRUDE: WTI, Brent diverge –WSJ

  CRUDE: WTI Falls Again Due to Oversupply Concerns –MW

  CRUDE: Brent rises on data, but oversupply concerns weigh –ET

  METALS: Copper Prices Jump Higher on Supply Cuts, China Data –WSJ

  METALS: Gold bounces after 4-day losing streak –FXstreet

  EQUITIES

  S&P 500 unofficially closes +2.5%

  DJIA unofficially closes +2.4%

  Nasdaq unofficially closes +2.7%

  M&A: global M&A hit the $3 trillion mark –WSJ

  M&A: Media General to buy media company Meredith for $2.34bn

  M&A: Potash might be prepared to make hostile K+S bid –Handelsblatt

  M&A: Mylan Says It Will Launch $27.14B Bid for Perrigo –ABC

  M&A: GE wins EU approval to buy Alstom’s power unit –Rtrs

  M&A: Microsoft finalizes Adallom deal –Forbes

  M&A: Blackstone Agrees to Buy Strategic Hotels for About $4bn –WSJ

  BANKS: European Banks May Face EUR26Bln Capital Shortfall On New Rules – JPMorgan

  BANKS: Buffett banks BoA’s Moynihan –MW

  TECH: Berkshire’s Buffett says bought some IBM shares in Q3 –ET

  TECH: Verizon to test 5G in 2016 –FW

  EMERGING MARKETS

  PBOC: Forex Reserve Drop Partly Due to Intervention –WSJ

   

  China Plans to Reform SOEs Through Mergers, Share Sales-Document

  

  

  

  

  

• Fed Hike Will Unleash "Panic And Turmoil" And A New Emerging Market Crisis, Warns World Bank Chief Economist

  If it was the Fed’s intention to make the upcoming rate hike seem like a welcome event, one that presaged a new Golden Age in the US (and global) economy because, lo and behold, the wise Fed would never hike unless the economy is flourishing and thus create a self-fulfilling prophecy in which the rate hike itself – an event of tightening financial conditions even when inflation expectations are the lowest they have been in years – becomes a catalyst for growth, then it has failed spectacularly.

  First, it was the IMF warning a rate hike would be a big mistake, then Larry Summer (who for some reason progressives thought was hawkish when it was a choice between him and Aunt Janet), then even China got into the fray saying the Fed should delay its rate hike as it could push emerging markets (such as China) into crisis.

  But it wasn’t until today that we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and “responsibility”, when the World Bank’s current chief economist (a position previously held by such ‘luminaries’ as Larry Summers, Joseph Stiglitz and Stanley Fischer), Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned.

  While apparently the World Bank economist is unfamiliar with the concept of reflexivity, and does not understand that the only reason the global economy is not on “surer footing” is because of the 12+ month , near endless pricing in of the Fed’s first rate hike since 2006,  which has unleashed an unprecedented capital flight out of all emerging markets, a record series of rate cuts across the globe including NIRP in Europe, and China’s first official currency devaluation in years not to mention the first stock market correction in 4 years, what is critical is that by making this statement, Basu destroys with just two words the narrative that i) the Fed knows what it is doing and that ii) contrary to logic, a rate hike at a time when the world clearly and desperately needs, and is addicted, to global central bank liquidity, will lead to even further asset price plunges.

  In fact, Basu may have just admitted, in not so many words, that Deutsche Bank’s sinking feeling that the Fed’s rate hike is nothing but a “controlled demolition” of the market, one which would send global equities 20-40% lower, is spot on.

  This is what else Basu told the FT:

  Rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences.

   

  His warning highlights the mounting concern outside the US over the Fed’s potential “lift-off”. It follows similar advice from the International Monetary Fund where anxieties have also grown in recent weeks about the potential repercussions of a September rate rise.

   

  That means that if the Fed’s policymakers were to decide next week to raise rates they would be doing so against the counsel of both of the institutions created at Bretton Woods as guardians of global economic stability.

  And just in case casually tossing the words “panic in turmoil” was not enough, Basu decided to add a few more choice nouns, adding a rate hike “could yield a “shock” and a new crisis in emerging markets… especially as it would come on the back of concerns over the health of the Chinese economy that have grown since Beijing’s move last month to devalue its currency.”

  He said that, even though it had been well-advertised by the Fed, any rise would lead to “fear capital” leaving emerging economies as well as to sharp swings in their currencies. The likely strengthening in the dollar would also hamper US growth, he said.

  Finally at least one person in a position of authority realized just what Quantitative Tightening means:

  “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.

  Precisely, and as a reminder between the Fed’s tightening and China’s QT, the world would suddenly find itself starting at a finacial liquidity abyss, and abyss which for Deutsche Bank means the S&P could trade at “half its value.”

  His conclusion: “The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this I feel it is going to affect countries quite badly,” he said.

  And if someone should know (clearly not the Fed whose predictions have become the butt of all jokes even for tenured economists), that would be the chief economist of the World Bank.

  But fear not: recall that over the weekend Goldman made it very clear that a September rate hike (and maybe December) is not coming. And what Goldman wants, Goldman always gets, even if it means the Fed ends up losing all credibility in the process.

  Finally, just in case there is still any confusion what a Fed rate hike means, we repeat what Bank of America said last week:

  Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero [or negative] interest rates policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.

   

  As noted above, a rate hike with a stroke ends this era.