• Venezuela Increasingly Looks Like A War Zone

  Over the years, we have repeatedly poked fun at the transformation of Venezuela into a “socialist utopia” – an economy in a state of terminal collapse, where the destruction of the currency (one black market Bolivar is now worth 107 times less than the official currency’s exchange rate) and the resulting hyperinflation is only matched be barren wasteland that local stores have transformed into now that conventional supply chains are irreparably broken.

  Just this past Wednesday we showed a clip of what is currently taking place inside Venezuela supermarkets, noting that “the hyperinflationary collapse in Venezuela is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro’s socialist paradise… and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).”

   

  Unfortunately, while mocking socialist paradises everywhere is a recurring theme especially once they have completely run out of other people’s money to burn through, what always follows next is far less amusing – completely social collapse, with riots, civil war and deaths not far behind.

  That is precisely what the video shown below has captured. In the clip, a demonstration against Venezuela’s poor transportation services quickly turned violent. End result: one person dead from a gunshot wound, more than 80 arrested and four shops looted on the Manuel Piar Avenue in San Felix.

  What is most distrubing is how comparable to an open war zone what was once a vibrant, rich and beautiful Latin American country has become.

  This is just the beginning: with the ongoing collapse of the economy, the resultant acts of social violence will only deteriorate and claim more innocent lives, until the “socialist utopia” ends as it always does: with the arrival of a military coup or a full blown civil war.

  

  

  

  

  

• American (Predatory) Capitalism Explained In 130 Seconds

  Now, more than ever, with Greece and Ukraine front and center, understanding how corporations take control of countries, and how capitalism drives the expansion of the Military Industrial Complex is crucial: “we have created a mutant form of predatory capitalism which has created an extremely unstable, unsustainable, unjust and very very dangerous world.”

   

  Source: http://www.studiojoho.com/

  

  

  

  

  

• Bubble Finance And A Tale Of Two Spheres

  Submitted by Doug Noland’s Credit Bubble Bulletin,

  In a tiny subsection of the analytical world, analysis is becoming more pointed and poignant. I appreciate Bill Gross’s August commentary, where he concluded: “Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC’s Rick Santelli, can convince the establishment that their world has changed.”

  I’ll include the names Russell Napier, Albert Edwards and David Stockman as serious analysts whose views are especially pertinent. I presume each will exert minimal effect on “the establishment.”

  Back to Bill Gross: “The BIS emphatically avers that there are substantial medium term costs of ‘persistent ultra-low interest rates’. Such rates they claim, ‘sap banks’ interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries.’ ‘…The reason [the Fed will commence rate increases] will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history.”

  Count me skeptical that central bankers are on the brink of “wising up.” These days I have less confidence in the Fed than ever. For one, they are hopelessly trapped in Bubbles of their own making. Sure, crashing commodities and bubbling stock markets incite a little belated rethink. Yet I’ve seen not a hint of indication that policymakers are about to discard flawed doctrine. Devising inflationary measures – clever and otherwise – will remain their fixation. For a long time now, I’ve identified inflationism as the root cause of precarious financial and economic dynamics that will end in disaster. It’s been painful to witness the worst-case scenario unfold before our eyes.

  Ben Bernanke (and his cohorts and most of the economic community) believes much of the hardship from the Depression would have been averted had only the Fed aggressively printed money after the 1929 stock market crash. Modern-day inflationism rests on the premise that central banks (in a fiat world) can control a general price level. This view ensures that Credit and speculative Bubbles, while potentially problematic, are not to be overly feared. Discussion of mal-investment and economic imbalances is archaic and irrelevant. And somehow the view holds that Bubble risk pales in comparison to “The Scourge of Deflation.”

  After all, central bankers can always reflate system Credit and spur a generalized inflation. Stated differently, it is believed that central bankers and their electronic printing presses have the power to inflate out of deflationary Credit and economic busts. And repeated bouts of reflationary policies over recent decades have seemingly confirmed the merit of conventional doctrine. It has evolved to the point where the primary issue is whether policymakers have the determination to reflate sufficiently.

  The onus, I suppose, is on my analysis (and other “contrarians”) to convince readers that This Time Is Different. Especially over the past three years, unprecedented central bank “money” printing has corresponded with heightened disinflationary forces globally. As I note repeatedly, the upshot has been unprecedented divergence between inflating securities/asset market Bubbles and deflating fundamental economic prospects. This divergence was widened notably over recent weeks. The fact that egregious monetary inflation has been pulled to the heart of contemporary “money” and Credit – central bank Credit and sovereign debt – is as well fundamental to the “End is Nigh” Thesis.

  The work of the great Hyman Minsky plays prominently throughout my analytical framework. In particular, I appreciate his keen focus on “financial evolution.” Over time, it is inherent in finance (i.e. Credit and markets) to gravitate from the cautious and stable to the aggressive and increasingly unstable. It’s human, Credit and market nature. Minsky’s “Financial Instability Hypothesis” and the late-stage “Ponzi Finance” dynamic are more pertinent today than ever.

  Finance has evolved profoundly over the past thirty years. Evolution in central bank monetary management has been equally momentous. Over time, the increasingly unhinged global fiat financial “system” turned acutely unstable. The Fed, in particular, resorted to market intervention and nurturing non-bank Credit expansion in order to sustain booms, inflated asset markets and deep structural economic maladjustment. This required the Federal Reserve’s adoption of doctrine ensuring liquid and stable securities markets – a historic boon to leveraged speculation, the evolving (and highly leveraged) derivatives marketplace and securities prices generally.

  Fed and global central bank backstops buttressed the historic expansion in market-based finance. The proliferation of interlinked global market Bubbles drove outrageous policy experimentation. In time, the resulting globalized Bubble in market-based finance and speculation ensured that bolstering securities markets developed into the chief priority for the Fed and fellow global central bankers and officials. Just look at the Chinese over recent weeks.

  Long-time readers know I am particularly fond of the “Financial Sphere vs. Real Economic Sphere” framework. It is valuable to view these as two separate but interrelated “Spheres,” with contrasting supply/demand, price and behavioral dynamics. In simplest terms, throwing excess “money”/liquidity at these respective “Spheres” over an extended period will foster disparate dynamics and consequences. And, importantly, over recent decades the Fed and global central bank policies have gravitated toward increasingly desperate “Financial Sphere” intervention and manipulation. The crisis response to the 2008/2009 crisis and then again in 2012 were decisive.

  From Russell Napier “Most investors still believe that we live in a fiat currency world. They believe central bankers can create as much money as they believe to be necessary. Such truths are on the front page of every newspaper, but they may contain just as much truth as the headlines of their tabloid cousins. A belief in this ability to create money is the biggest mistake in analysis ever identified by this analyst. The first reality it ignores is that money, the stuff that buys things and assets, is created by an expansion of commercial bank, and not central bank, balance sheets. The massively expanded central bank balance sheets have not lifted the growth in broad money in the developed world above tepid levels. Until that happens, developed world monetary policy must be regarded as tight and not easy.”

  This is thoughtful and important analysis. I’ll approach it from my somewhat contrasting analytical framework. From CBB day one, I’ve tried to significantly broaden how we define and analyze “money” and so-called “money supply”. I draw from Mises’ “fiduciary media” and inclusion of financial instruments with the “functionality” of traditional narrow definitions of money supply (i.e. currency, central bank Credit and bank deposits). For me, the perception of a safe and liquid store of (nominal) value is critical.

  Moneyness is a market perception. The epicenter of danger lies in “money’s” virtual insatiable demand. It is prone to over-issuance. There is a powerful proclivity for government intervention, manipulation and inflation. The perception of moneyness is, in the end in a world of fiat, self-destructive.

  After the past almost seven years, I don’t question central banks’ capacity to create “money.” And my framework doesn’t ascribe special status and power to commercial bank “money” or balance sheets. Besides, U.S. M2 “money supply” has inflated about $2.5 TN in three years, or 20%. Over three years U.S. Commercial Bank Liabilities have inflated the same $2.5 TN, or almost 20%.

  The past three years have witnessed historic “money” and Credit expansion on a global basis. The fundamental problem is that global central bank (and governmental) policies over 30 years have profoundly distorted and undermined market incentive structures. This issue is not insufficient “money” – central bank, bank or otherwise. Finance has, however, been incentivized to flow in excess chiefly into the Financial Sphere, where it enjoys comforting policymaker control and support. As global maladjustment and imbalances (which engender disinflationary pressures) mount, why invest in the Real Economy Sphere when it appears so much safer and easier to chase returns in inflating central bank-supported securities market booms?

  Why would company managements not use abundant corporate cash flow to repurchase shares when waning returns make it increasingly difficult to justify Real Economy investment? Why proceed with major new investment plans when ultra-easy M&A finance favors acquisitions? Why not just join The Crowd throwing “money” at tech startups and biotech where real economic returns are irrelevant anyway? Why not just “invest” in ETFs shares that buy shares in companies that repurchase their shares? Better yet, why not invest in “safe” bond funds that invest in safe companies that safely borrow “money” to buy back their shares and make acquisitions? Above all, don’t just sit there in “money” that returns near zero when there’s been such a proliferation of “money-like” financial instruments and products with the promise decent yields and returns? You see, it’s just not a quantity of “money” issue.

  This vein of analysis offers layers of progressive complexity. Financial Sphere Bubbles over time engender major structural maladjustment. Throughout equities and debt markets, Bubble Dynamics ensure liquidity flows in progressive excess to the hot asset classes, sectors and products. If the Fed, central banks or the Chinese government seek to underpin such dynamics, momentum will eventually climax with precarious Terminal Phase “blow off” excess. This played prominently in techland in the late-nineties, housing/consumption during the mortgage finance Bubble period, in commodities and EM in the post-2008/09 crisis “global reflation trade,” and more recently (most conspicuously) in tech and biotech.

  I have argued that it is a perilous myth that central bankers these days control a general price level. They instead incentivize massive financial flows into securities markets and fashionable sectors. Over time, ramifications and consequences reach the profound. For one, excess liquidity promotes over/mal-investment. It’s only the scope and nature that remain in question.

  If major Bubble flows inundate new technology investment, the resulting surge in the supply of high-margin products engenders disinflationary pressures elsewhere. Policy responses to perceived heightened “deflation” risks then only work to exacerbate Bubbles, mounting imbalances and structural fragilities. This was a critical facet of “Roaring Twenties” analysis that was lost in time.

  Bubbles categorically redistribute and destroy wealth, and I will turn more optimistic when policymakers finally “wise up” to this harsh reality. On the one hand, progressively destabilizing Financial Sphere monetary disorder ensures deep economic maladjustment (i.e. excessive Bubble-related spending in tech, housing related, EM, commodities and China). On the other, serial securities and asset market booms and busts spur destabilizing wealth redistributions – a boon to some and economic hardship (boom and bust collateral damage) to many. Both work to foster economic stagnation – deep structural impairment impervious to central bank reflationary measures.

  Reflationary policies and attendant inflated market Bubbles can hold the consequences at bay for a while. Importantly, resulting monetary disorder works to exacerbate both Financial Sphere and Real Economy Sphere maladjustment with potentially catastrophic consequences. Economists have traditionally debated “money illusion” (notably Irvine Fisher and JM Keynes). “Wealth illusion” is today more appropriate. The U.S. economic structure remains viable – these days the “envy of the world” – only so long as perceived wealth from securities markets remains grossly inflated. The consumption-based U.S. economy requires record household sector perceived wealth (inflated Household Net Worth). And this requires ongoing loose financial conditions, strong Credit growth and buoyant financial flows.

  Because of the importance of the data, I wanted to circle back briefly to document key data released in last month’s Q1 2015 Z.1 “flow of funds” Credit report.

  As a proxy for the “U.S. debt securities market,” I combine Fed data for outstanding Treasury, Agency, Corporate and muni debt securities. I then combine this with Total Equities to come to my proxy of the “Total Securities” markets. During Q1, Total Securities jumped $759bn to a record $73.195 TN. Total Securities as a percentage of GDP jumped five percentage points to a record 414%. For perspective, this ratio began the nineties at 183%, concluded 1999 at 356% and then rose to 371% to end 2007.

  The value of U.S. Household (and non-profits) assets jumped $1.611 TN during Q1. By largest categories, Financial Assets jumped another $1.07 TN and Real Estate assets increased $500bn. And with Household Liabilities little changed for the quarter, Household Net Worth (assets minus liabilities) rose $1.6 TN to a record $84.925 TN. Over the past year, Household Net Worth inflated about $4.6 TN, with a two-year gain of $12.6 TN. Since the end of 2008, Household Net Worth has ballooned a stunning $28.4 TN, or 50%.

  One cannot overstate the integral role the inflation in Household Net Worth has played in the Fed’s reflationary policymaking. Household Net Worth ended Q1 at a record 481% of GDP. This compares to 447% to end Bubble Year 1999 and 476% in Bubble Year 2007.

  As was the case again during Q1, during the inflationary boom period, strong inflationary biases ensure that “wealth” increases a multiple of underlying Credit growth. This dynamic was on full display during both the tech and mortgage finance Bubble episodes. I recall being amazed at how $1 TN of mortgage Credit growth would fuel a $4.0 TN inflation in Household Net Worth. This “virtuous” dynamic turned vicious during the bust. The amount of new Credit required just to stabilize an inflated and maladjusted system becomes enormous.

  There is now chatter of the Chinese government intervening in the stock market to the tune of $100bn in a single session. We’ve seen how, despite repeated bailouts and debt reductions, the Greek black hole grows only bigger. Meanwhile, with commodities in freefall, it was another ominous week for EM. And these examples provide apt reminders of inflationism’s biggest flaw: once commenced, it’s about impossible to rein in. I would add that “money” printing will never resolve the issue of structural maladjustment. Monetary inflation will, however, ensure only greater quantities of “money” will be required come the inevitable bust. And those quantities will eventually bring to question confidence in “money.” Read monetary history.

  

  

  

  

  

• Welcome To Planet Obama

  “Opposite”-land…

   

  

  
  

  Source: Townhall.com

  

  

  

  

  

• This Coal Mine Valued At $630 Million In 2011 Just Sold For One Dollar

  The following photos are from Australia’s Isaac Plains coking-coal mine.

  

  

  

  

  

   

  Why is Isaac Plains relevant? Well, in 2011 at the height of the Australian mining boom, Japanese conglomerate Sumitomo thought it has spotted a bargain, and a SMH reports, it approached Tony Poli, the founder of mid-tier miner Aquila Resources with an offer: it would buy its 50% stake in Isaac Plains, at the time Aquila’s only producing mine, for $430 million.

  Market participants thought Aquila’s stake might fetch $300 million at best but Sumitomo was confident it would make a strong return, and offered almost 50% above fair value, especially since Brazil’s legendary mining company Vale owned the other 50% stake.

  Net, the total value of the Isaac Plains mine in 2011 just just about $630 million.

  It turns out Sumitomo was very, very wrong, and within a few years the writing was on the wall. In September 2014, Sumitomo and Vale shuttered the mine citing the downturn in the international coal market. Sumitomo said it would also take a writedown worth ¥30 billion ($11 million) on its Australian coal investments.

  And as SMH tongue in cheekly adds, Isaac Plains was added to the long list of coal mines up for sale – but at a price. That price was finally revealed on Thursday: the princely sum of $1.

  Why the complete collapse in price of the mine? Simple: blame China.

  As Bloomberg explains, “a slump in the price of coking coal, used to make steel, to a decade low is forcing mines to close across the world and bankrupting some producers. Alpha Natural Resources Inc., the biggest U.S. producer, plans to file for bankruptcy protection in Virginia as soon as Monday, said three people with direct knowledge of the matter. It was valued at $7.3 billion in 2008.”

  

  At the peak of the Chinese commodity bubble, which in turn resulted in a golden age for Australia’s mining companies, production from Isaac Plains hit a peak output was 2.8 million tons a year, with coal sold to steelmakers in Japan, South Korea and Taiwan.

  However, in the past year, with the bursting of the Chinese housing bubble, and the dramatic cooling off of China’s shadow banking system, the commodity demand of Chinese ghost cities has gone on hiatus, and so has the production of mines such as Isaac Plains:

  Coal’s demise is just part of a broader slump in commodity prices, which fell to the lowest in 13 years this month. The benchmark price for coking coal exported from Australia has slumped 24 percent this year to $85.40 a ton on Friday, according to prices from Steel Business Briefing. The quarterly benchmark price peaked at $330 a ton in 2011, according to Bloomberg Intelligence.

   

  The closing of Isaac Plains and a second mine in Australia shut last year, Integra Coal, led to a 7.2 percent reduction in Vale’s total coal output in the first half of 2015. It took a $343 million writedown on its Australian coal assets, part of total impairments of $1.15 billion last year, Vale said Feb. 26.

  Still, Vale’s and Sumitomo’s complete wipeout loss is someone else’s gain, in this case the new owner of Isaac Plain, which acquired the assets for a nominal tip, and merely had to fun ongoing spending and any debt obligations.

  The new owners of Isaac Plains, Stanmore Coal, hope to restart production in the first half of 2016 and estimate the mine could operate for another three years.

  The market took notice when the news of the dramatic purchase hit: Stanmore remains a minnow with a market capitalization of just $30 million. But with its shares up nearly 70 per cent on Thursday, investors have taken to the deal.

  Still, as SMH adds, sluggish coking and thermal coal prices will continue to weigh heavily however regardless of how quickly they can restart production. Metallurgical coal has fallen another 25 per cent since January to about $US82 a tonne, from more than $US300 in 2011, while thermal coal has lost 8 per cent since January to languish around $US59 a tonne, compared to about $US150 three years ago.

  Then again, with Stanmore’s cost basis virtually nil, it would be a fool not to take the discarded assets. As Kiril Sokoloff’s 13D wrote recently, “Buy when they give it away. What are they giving away now?” and recount how in 1977, “we were walking uptown in New York City with a friend who worked for a prominent trust company. He told us that the trustees of an estate had just sold a triplex on East End Avenue for $1. The reason? The $3,000 per month maintenance was “depleting the assets of the estate”.

  Last week, Glencore sold the Cosmos nickel mine for AU$24.5 million. In 2008, Xstrata Plc paid AU$3.1 billion for Jubilee Mines to gain control of Cosmos—the Perth-based company’s flagship operation.

   

  For what it’s worth, Javier Blas tweeted this week that, based on data from Citi Research, 90% of all M&A that miners did since 2007 has been written off. Makes you wonder about the current M&A boom…

  All of which makes the researcher wonder if investors are missing the big picture:

  There is a giant infrastructure investment boom just getting started in Asia and along the Silk Road. Wasn’t the whole commodity boom of the last decade based on infrastructure investment in China? Now, it will expand to all of Asia and beyond.

   

  It is interesting to note how little is being written in the West about One Belt, One Road (see related themes). China Development Bank notes that the number of cross-border projects underway in the Silk Road effort already amount to $980 billion. Reportedly, Asia’s infrastructure needs are close to $8 trillion by 2020.

  It remains to be seen if China can rebound, and if purchases such as Stanmore’s $1 acquisition of a site that has a resource of 30 million metric tons will be lucrative. At current prices, every incremental ton produced loses money. But maybe prices will rebound.

  For now, however, one thing is certain – the biggest winner is not Stanmore despite its suddenly soaring stock price, but Tony Poli, the person who sold Issac Plains at the absolute top to the naive Japanese conglomerate:

  [Poli] could barely believe his luck when Sumitomo came knocking. Then in 2014 Aquila was acquired by Baosteel and Aurizon for an eye watering $1.4 billion.  It gave the two companies access to Aquila’s West Pilbara iron ore project, but the timing could barely have been worse. Iron ore prices have slumped by more than half in the last 12 months leading to speculation Aurizon may be forced to eventually take a writedown on the value of the Aquila deal on its balance sheet.

  All of which is a very timely reminder: it is never an actual profit, until it has been booked. And as noted above, for 90% of all M&A deals in the past decade, the only thing booked is 100% losses.

  

  

  

  

  

• Gold And The Grave Dancers

  Submitted by Pater Tenebrarum via Acting-Man.com,

  The Asset They Love to Hate …

  Back in the 1960s, Alan Greenspan wrote a well-known essay that to this day is an essential read for anyone who wants to understand the present-day monetary and economic system (which is a kind of “fascism lite” type of statism, masquerading as capitalism) and especially the almost visceral hate etatistes harbor toward gold. Greenspan’s essay is entitled “Gold and Economic Freedom”, and as the title already suggests, the two are intimately connected.

   

  

  Alan Greenspan in the mid 1970s – although he later turned out to be a sell-out, his understanding of economics undoubtedly dwarfed that of his successors at the Fed (and we are not just saying this based on the essay discussed here).

  Photo credit: Charles Kelly / AP Photo

  What makes Greenspan’s essay especially noteworthy is that it manages to present both theory and history in a concise, easy to understand manner. There isn’t a word in it we would change. At one point, Greenspan provides a brief history lesson. Yes, the (relatively) free banking era in the United States in the 19^th century involved fractional reserve banking and as a result, there were frequent boom and bust cycles. However, since there was no “lender of last resort” with an unlimited money printing capacity, these business cycles were sharp and brief, and the market economy quickly righted itself every time:

  “A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.”

  (emphasis added)

  Alas, these relatively harmless business cycles provided interventionists with an opening to implement their central planning wet dreams, even though their ideas were based on what can charitably only be called appalling economic ignorance. This economic ignorance informs the monetary system to this day and we have nothing but contempt for these planners and their intellectual handmaidens.

  We cannot quantify it with any precision, but we believe it can be taken as a given that they have retarded economic progress by an order of magnitude, for reasons of compounding alone. Based on historical data, we would estimate that average real annual growth would have been at least twice as large since 1913 than it has actually been if the economy had remained free. Compounded over more than a century, this is basically the difference between what we have today and the universe of Star Trek.

   

  

  US GNP per capita in the decades before the establishment of the Federal Reserve: equitable and strong growth, unmatched before and ever since – in spite of fairly frequent boom-bust cycles click to enlarge.

  As Greenspan notes:

  “But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913.”

  (emphasis added)

  At the conclusion of his essay, Greenspan makes clear why the welfare/warfare statists just hate gold with a passion bordering on hysteria:

  “Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.”

   

  […]

   

  In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

   

  This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

  (emphasis added)

  This always was and remains true.

  Bought Off Intellectuals

  All the “justifications” for today’s system we hear from the supporters of the centrally planned fiat money dispensation are nothing but propaganda. This propaganda includes a number of historical lies (such as the old canard that “governments had no choice but to abandon the gold standard if they wanted to rescue the economy”), commingled with theoretical assertions that have been thoroughly refuted countless times.

  One of the latter is that an economy allegedly cannot grow unless the money supply grows as well (the truth is that any money supply is as good as any other, and in a free market prices would simply adjust). Another is that central banks need to be able to apply their “scientific monetary policy” to make up for the alleged deficiencies of the free market. In reality, central banking and fiat money have slowed real economic growth to a crawl and have produced boom-bust cycles of ever greater amplitude. Something like the “Great Depression” would never have been possible without a Federal Reserve and two heavily interventionist governments coming to power in a row (first Hoover’s and then FDR’s).

  The assertions listed above and similar ones are reiterated sotto voce by countless mainstream economists and the entire mainstream financial press at every opportunity. Hoever, this should be no surprise: The Federal Reserve has practically bought off the entire economics profession (incidentally, so have other central banks and assorted state-funded institutions).

  “The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession

   

  […]

   

  One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past

   

  […]

   

  A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009. That’s a lot of money for a relatively small number of economists.

  (emphasis added)

  In a free market, the market value of thousands of today’s hyper-specialized macroeconomists would be a tiny fraction of what they get paid by the State. In an unhampered free market economy, many of them would probably be forced to actually perform productive jobs. There would of course still be room for economists, but only the most committed and talented among them would could hope to receive funding. Absolutely no-one would bother paying for central planning advice or statist propaganda, that much is absolutely certain. Obviously these economists are highly unlikely to bite the hand that feeds them.

  As Hans-Hermann Hoppe has noted in this context:

  “There are almost no economists, philosophers, historians, or social theorists of rank employed privately by members of the natural elite. And those few of the old elite who remain and who might have purchased their services can no longer afford intellectuals financially. Instead, intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand (“tenured”), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen.

   

  What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today’s intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the state, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”

  (emphasis added)

   

  

  Economist Hans-Hermann Hoppe – a strongly committed enemy of the State, as the following quote illustrates: “[The State is] an institution run by gangs of murderers, plunderers, and thieves, surrounded by willing executioners, propagandists, sycophants, crooks, liars, clowns, charlatans, dupes and useful idiots – an institution that dirties and taints everything it touches”.

  Photo via libertarianin.org

  Given that intellectuals have great influence – the masses typically follow their lead, whether consciously or not – we shouldn’t be surprised that this “viciously statist propaganda” has become a hallmark of the mainstream press as well. This brings us back to the topic of gold.

  Premature Grave Dancing

  Readers may have noticed that there simply is no other asset that provokes more intense hatred in the mainstream press than gold. When the gold price declines as it has done since 2011, the press is literally brimming over with Schadenfreude, grave dancing exercises and anti-gold tirades. The lengthy preamble above is an attempt to explain why this is the case.

   

  

  Intense grave dancing – the poor fellow at the bottom is Mr. Gold

  Engraving by Michael Wolgemut

  Simply put, gold is the one asset that provides the most reliable indictments of central economic planning and the abominable monetary and economic system that has been forced on us by the etatistes. In spite of its innumerable failures, socialism and its close cousin, modern-day corporatism (i.e., crony socialism), remains highly popular with the intellectual class, as it provides it with influence and money beyond its wildest dreams.

  Unfortunately, it is even more popular with big business. The handful of large corporations that are controlling the press these days are not exactly big fans of the free market and its unfettered competition either. Established big business organizations prefer to keep upstart competition suppressed by means of obtaining privileges from the State. One would think that business should be against the over-regulation that characterizes today’s bureaucratic Leviathan State. This is not the case: Since it harms small emerging competitors more than established businesses, they are actually in favor of it.

  Needless to say, the most powerful industry of modern times, the fractionally reserved banking cartel, is one of the biggest beneficiaries of the system and as such provides sheer unlimited funding to keep things right as they are.

  When gold’s fall accelerated recently, we have seen an outpouring of doom-saying and thinly disguised contempt in the mainstream press that actually puts everything seen before into the shade. In a way this is surprising; after all, gold is a completely unimportant asset, right? Just think about this for a moment. If another currency, such as e.g. the yen, suffers a big decline, is it subjected to even remotely comparable vitriol in the press? Here are a few examples from the last week or so (with a few comments by us interspersed):

  From Bloomberg (Bloomberg belongs to a limousine socialist, and is well-known for its pro-central banking/ pro-money printing and anti-gold editorial line. Some of the most ludicrous articles about gold ever published have appeared on Bloomberg):

  Gold Slump Not Over as Speculators Go Net-Short for First Time – apparently Bloomberg’s authors have yet to hear about contrarian signals.

   

  Gold Is Only Going to Get Worse (“Our survey shows a majority of traders and investors aren’t optimistic”) – indeed, Bloomberg seems to be blissfully unaware of contrarian sentiment analysis.

   

  Gold Could Fall to the $1,000 Mark (video)

   

  Good Luck Bargain Hunting for Gold Miners – naturally, gold miners are even more doomed than gold itself…

   

  From the Wall Street Journal:

  Let’s Get Real About Gold: It’s a Pet Rock – actually, as we have previously pointed out, it’s a door stop, not a pet rock. We should perhaps mention here what Jason Zweig, the author of this WSJ article, wrote in 2011 right at gold’s peak. From Mr. Zweig’s WSJ Article of September 17, 2011:

   

  “Growing numbers of investing experts have been declaring that gold is a bubble: an insanely overvalued asset whose price is bound to burst. There is no basis for that opinion.”

   

  With respect to gold miners (which since then are down by more than 80%) he opined:

   

  “But there is one aspect of gold investing where it is possible to make rational estimates of value: the stocks of gold-mining companies. And, by historical standards, they seem cheap—based not on subjective forecasts of continuing fiscal apocalypse, but on objective measures of stock-market valuation.”

   

  This is really a textbook example of how market sentiment works.

   

  From Marketwatch:

  The carnage isn’t over in gold, other metals-mining stocks

   

  Study predicts gold could plunge to $350 an ounce (i.e., here come the extreme predictions, the inverse of the vast bullish consensus and the extreme bullish predictions that were made at the peak by gold bulls)

   

  And all of this was finally crowned with the following pronouncement in the Washington Post:

  Gold is doomed

   

  Interestingly the author of this article, Matt O’Brian, actually gets one thing right, although his conclusion remains utterly wrong – he writes:

   

  “When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing.”

   

  That’s exactly what it is Mr. O’Brian. The wrong conclusion he comes to is this one:

   

  ”But economists do, for the most part, know what they’re doing.”

   

  Yes, in some parallel universe perhaps. That people can profess such beliefs after the twin debacles of the tech and housing bust and after yet another giant asset bubble has been blown by these “economists who know what they are doing” is truly stunning. How blind and naïve can one possibly be? This article is a good example of statist propaganda. Our wise leaders know what they are doing! How can anyone doubt it!

  Just to make this clear, we are not critical of people making bearish forecasts on gold. This is perfectly legitimate, especially as gold’s fundamental drivers have at best been stuck in “neutral” for much of the time over the past few years. Occasionally, gold’s fundamentals have switched to slightly more bullish, and then have quickly flipped back again to slightly more bearish, while its technical condition wasn’t much to write home about.

  Gold primarily has vast bullish potential. The factors that are currently slightly bearish could very easily and quickly flip to outright bullish. Gold bulls have the laws of economics on their side: the greatest post WW2 experiment in global money printing on a grand scale is apodictically certain to fail and will likely result in one of the greatest economic busts of modern times.

  Still A Contrarian’s Dream

  We find the reactions in the press interesting for the following reasons:

  Firstly, as mentioned above, we find it absolutely fascinating that gold is getting so much attention. The etatistes are apparently truly afraid of gold. If it were up to them, it would probably still be illegal (just a guess, mind).

  Secondly, we also find it fascinating (and a bit depressing) how woefully uninformed the commentary on gold generally is, and this does not only apply to gold bears, but to gold bulls as well. There is hardly any market about which more nonsense is written than the gold market.

  We have discussed this at length in previous articles on this blog, such as “Misconceptions about Gold”. Robert Blumen has contributed two excellent essays on the theoretical background that explain how exactly the gold price is formed (in “What Determines the Price of Gold” and “Misunderstanding Gold Demand”). In a somewhat dated “Update on Precious Metals” we provided a list of the most important fundamental drivers of the gold price (you’ll have to scroll down a bit to the section Fundamental Drivers of the Gold Market). We should also mention Keith Weiner’s frequent “Monetary Metals Supply and Demand” reports, which delve into the nitty-gritty of whether or not the metals are moved by developments on the physical side or the actions of futures speculators.

  In spite of all this information being available for free on the intertubes, we notice that even gold bulls are still wasting time talking about things like jewelry demand and mine supply. Others keep going on about central bank buying and gold buying in China, often asserting that “demand evidently exceeds supply”, even in the face of a declining price. Demand and supply are always in balance. Price informs us about the relative urgency displayed by demanders and suppliers, and when the price declines, it indicates that the former aren’t sufficiently enthusiastic. The fact that gold moves from warehouse A (in, say, New York) to warehouse B (in Shanghai) has nothing to do with it.

  Thirdly, we regard the excessive grave dancing, and the utter conviction with which gold is declared to be “doomed” as an outstanding contrary indicator. It means that a major trend change has to be very close. This is not to say that gold cannot fall further in the short term – technically it certainly continues to look weak, and the price attractor at $1,040-1,050 presumably still beckons. However, we believe that the long term outlook has greatly improved by the three waves of extreme bearish sentiment we have seen since 2013 (at the summer 2013 low, the late 2014 low and currently).

  Even in the short term, it seems that chances are very good that a substantial rally will develop. For instance, the Daily Sentiment Index (DSI) of futures traders has recently fallen back to a record low of just 5% bulls on two consecutive occasions. A recent report by EWI contained the following chart illustrating the situation:

   

  

  From 98% bulls at the top to just 5% bulls back-to-back – how sentiment on gold moves from one extreme to another – click to enlarge.

   

  A similar message is conveyed by sentimentrader’s gold optimism index, an average of the most important gold sentiment surveys and positioning data, which we already shown in Bill Bonner’s recent article “Gold Miners, RIP”. Currently the “Gold Optix” is at its second-lowest level in history, undercutting even the low recorded in the year 2000, at the bottom of a 20 year bear market:

   

  

  Gold market participants haven’t even been this bearish back in the year 2000 – click to enlarge.

   

  As might be imagined, other market positioning and sentiment data all convey a similar message: small speculators hold a large net short position in gold futures, managed money is net short gold futures, Rydex precious metals assets are close to “wipe-out” territory, closed end bullion funds trade at vast discounts to their net asset value, GLD keeps losing gold, etc., etc.

  In short, everybody knows gold can only fall further and is positioned accordingly. If there is one truism about markets one needs to be aware of, it is this one: What “everybody knows” isn’t worth knowing. Naturally, all those who have maintained a somewhat positive view on gold in recent years (including yours truly) look like idiots right now – but there is considerable potential that assorted gold haters will be invested with this particular mantle over coming years. Don’t worry, we’ll needle them right back. 🙂

   

  Conclusion

  As we have already mentioned in our missive on the recent “Gold Panic”, when everybody in a market is looking in the same direction, it is time to pay close attention. Contrarians should really love the current juncture in the gold market. At the very least, a playable counter-trend move should be close at hand, and perhaps a long term turn is actually finally in the offing. After all, the market has by now finally more or less replicated the mid-cycle decline of 1974-1976.

  Lastly, we are actually gratified by the fact that assorted etatistes still seem so preoccupied with gold. This is a sign that gold remains an important monetary asset, one that continues to stand tall as an indictment of central economic planning, socialism and corporatism in all its forms. Even after having declined by roughly 45% from its 2011 high, gold is still up by more than 3,000% against the US dollar since the latter was cut loose from its tie to gold by Nixon’s default in 1971. This means that even with gold under pressure for four years running, the dollar has still crashed by 97% against it since 1971.

  There is little question which currency is more useful to preserving value and protecting savers and property rights, and which one is more useful for the depredations of a greedy and insatiable Leviathan State. Hence all the gold hate pouring forth in the mainstream press. It will be interesting to see what happens once the collapse of fiat money against gold resumes – especially as we think it will do so with a real bang.

   

  

  What remains of the gold stash of the Bank of England

  Photo credit: Caters News

  

  

  

  

  

• The Cyber Wars Begin: Obama Says US "Must Retaliate" Against China For Historic Data Breach

  On Friday, we highlighted a “secret” NSA map which purports to show every Chinese cyber attack on US targets over the past five years. “The prizes that China pilfered during its ‘intrusions’ included everything from specifications for hybrid cars to formulas for pharmaceutical products to details about U.S. military and civilian air traffic control systems,” intelligence sources told NBC, who broke the story. 

  

  The release of the map marked the culmination of a cyber attack propaganda campaign which began with accusations that North Korea had attempted to sabotage Sony, reached peak absurdity when Penn State claimed Chinese spies had taken control of the campus engineering department, and turned serious when Washington blamed China for what was deemed “the largest theft of US government data ever.” “Whether all of this is cause for the Pentagon to activate the ‘offensive’ component of its brand new cyber strategy remains to be seen,” we said yesterday.

  As it turns out, the Office of Personnel Management breach will indeed be used to justify a cyber “retaliation”against China, because as The New York Times notes, “the hacking attack was so vast in scope and ambition that the usual practices for dealing with traditional espionage cases [do] not apply.” Here’s more:

  The Obama administration has determined that it must retaliate against China for the theft of the personal information of more than 20 million Americans from the databases of the Office of Personnel Management, but it is still struggling to decide what it can do without prompting an escalating cyberconflict.

   

  The decision came after the administration concluded that the hacking attack was so vast in scope and ambition that the usual practices for dealing with traditional espionage cases did not apply.

   

  But in a series of classified meetings, officials have struggled to choose among options that range from largely symbolic responses — for example, diplomatic protests or the ouster of known Chinese agents in the United States — to more significant actions that some officials fear could lead to an escalation of the hacking conflict between the two countries.

   

  That does not mean a response will happen anytime soon — or be obvious when it does. 

  So the US will do something, it just doesn’t yet know what or when or even if anyone will notice, but one thing is clear: “this aggression will not stand, man.”

  The problem with “symbolic” responses is that they are merely, well, symbolic, and any real retaliation risks escalating the “cyberconflict.” Then again, not doing anything also risks prompting an escalation:

  But over recent days, both James Clapper Jr., the director of national intelligence, and Adm. Michael S. Rogers, director of the National Security Agency and commander of the military’s Cyber Command, have hinted at the internal debate by noting that unless the United States finds a way to respond to the attacks, they are bound to escalate.

   

  Mr. Clapper predicted that the number and sophistication of hacking aimed at the United States would worsen “until such time as we create both the substance and psychology of deterrence.”

   

  This echoes the rhetoric from the DoD’s “cyber strategy” released in April which says that “deterrence is partially a function of perception [and] works by convincing a potential adversary that it will suffer unacceptable costs if it conducts an attack on the United States.” 

  For now at least, it looks like criminal charges are off the table. 

  The Justice Department is exploring legal action against Chinese individuals and organizations believed responsible for the personnel office theft, much as it did last summer when five officers of the People’s Liberation Army, part of the Chinese military, were indicted on a charge of the theft of intellectual property from American companies. While Justice officials say that earlier action was a breakthrough, others characterize the punishment as only symbolic: Unless they visit the United States or a friendly nation, none of them are likely to ever see the inside of an American courtroom.

   

  “Criminal charges appear to be unlikely in the case of the O.P.M. breach,” a study of the Office of Personnel Management breach published by the Congressional Research Service two weeks ago concluded. “As a matter of policy, the United States has sought to distinguish between cyber intrusions to collect data for national security purposes — to which the United States deems counterintelligence to be an appropriate response — and cyber intrusions to steal data for commercial purposes, to which the United States deems a criminal justice response to be appropriate.“

  Instead, the US may look to remove the so called “great firewall” which Beijing uses to censor content it considers to be subversive or otherwise objectionable.

  One of the most innovative actions discussed inside the intelligence agencies, according to two officials familiar with the debate, involves finding a way to breach the so-called great firewall, the complex network of censorship and control that the Chinese government keeps in place to suppress dissent inside the country. The idea would be to demonstrate to the Chinese leadership that the one thing they value most — keeping absolute control over the country’s political dialogue — could be at risk if they do not moderate attacks on the United States.

  So perhaps there’s a silver lining in all of this: China’s 650 million internet users may, if only for a split second, be free to surf the web without the Politburo filter.

  Of course if the US really wanted to do some cyber damage, the Pentagon could hack into China’s National Bureau of Statistics and see what the country’s real GDP figure looks like, and if that doesn’t teach them a lesson, maybe the best option would be to breach China Securities Finance Corporation and hit the “sell” button. 

  Finally, for those interested to monitor the global cyber war in real time, you can do so via Norsecorp by clicking on the following map.

  

  

  

  

  

  

• 11 Red Flags As We Enter The Pivotal Month Of August 2015

  Submitted by Michael Snyder via The Economic Collapse blog,

  

  Are you ready for what is coming in August?  All over America, economic, political and social tensions are building, and the next 30 days could turn out to be pivotal.  In July, we saw things start to turn.  As you will read about below, a major six year trendline for the S&P 500 was finally broken this month, Chinese stocks crashed, commodities crashed, and debt problems started erupting all over the planet.  I fully expect that this next month (August) will be a month of transition as we enter an extremely chaotic time in the fall and winter. 

  Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015…

  #1 Puerto Rico is going to default on a 58 million dollar debt payment that is due on Saturday.  Even though this has serious implications for the U.S. financial system, Barack Obama has said that there will be no bailout for “America’s Greece”.

  #2 As James Bailey has pointed out, the most important trendline for the S&P 500 has finally been broken after holding up for six years.  This is a critical technical signal that will likely motivate a significant number of investors to sell off their holdings in the weeks ahead.

  #3 The IMF is indicating that it will not take part in the new Greek debt deal.  As a result, the whole thing may completely fall apart…

  Leaked minutes of the fund’s latest board meeting, which took place on Wednesday, showed staff “cannot reach agreement at this stage” on whether to take part in the new €86bn (£60bn) bailout for Greece. The document said there were doubts over the capacity of the Athens Government to implement economic reforms, as well as the over the sustainability of the country’s sovereign debt pile, which is now projected to hit 200 percent of GDP.

   

  The German Chancellor, Angela Merkel, only sanctioned a new Greek deal earlier this month on the condition that the IMF takes part.

  #4 Italy is going down the exact same path as Greece, but Italy is going to be a much larger problem for Europe because it has a far, far larger economy.  This week, we learned that youth unemployment in Italy has reached a 38-year high of 44 percent, and Italy’s debt to GDP ratio has now hit 135 percent.

  #5 The Canadian economy has officially entered a new recession.  This is something that was not supposed to happen.

  #6 The price of oil plummeted close to 20 percent during the month of July.  It was the worst month for the price of oil that we have seen since October 2008, which just happened to be during the height of the last financial crisis.

  #7 Commodities just had their worst month in almost four years.  As I have written about previously, we witnessed a collapse in commodity prices just before the stock market crash of 2008 too.

  #8 Thanks to Barack Obama, the U.S. coal industry is imploding, and some of the largest coal producers in the entire country have just announced that they are declaring bankruptcy…

  On Thursday, Bloomberg reported that the biggest American producer of coking coal, Alpha Natural Resources, could file for bankruptcy as soon as Monday.

   

  Competitor Walter Energy filed for bankruptcy earlier this month, and several others have done the same this year.

  #9 For the month of July, the Shanghai Composite Index was down 13.4 percent.  Despite unprecedented government intervention to prop up the market, it was the worst month for Chinese stocks since October 2009.

  #10 A major red flag that a recession in the United States is fast approaching is the fact that Exxon Mobile just announced their worst earnings for a single quarter since 2009.  Compared to the same time period one year ago, Exxon Mobile’s earnings were down 51 percent.

  #11 Chevron is another oil giant that has seen earnings plunge.  In the second quarter of this year, Chevron’s earnings were down an eye-popping 90 percent from a year ago.

  And in this list I didn’t even mention the economic chaos that is happening down in South America.  For full coverage of that, please see my previous article entitled “The South American Financial Crisis Of 2015“.

  To a certain extent, I can understand why most Americans are not alarmed about the months ahead.  The relative stability of the past several years has lulled most of us into a false sense of security, and the mainstream media is assuring everyone that everything is going to be just fine and that brighter days are ahead.  At this point, many believe that it is patently absurd to suggest that we could see an economic collapse in 2015.  But of course even though the signs were glaringly apparent, very few of us anticipated the financial crisis of 2008 either.

  A few weeks ago, I authored a piece entitled “The Last Days Of ‘Normal Life’ In America“, and I stand by every single word of that article.  I truly believe that the era of debt-fueled prosperity that we have been enjoying for so long is coming to an end, and our standard of living will never again get back to this level.

  Just yesterday, I had the chance to go over and stock up on some emergency supplies at a dollar store.  It always astounds me what you can still buy for a dollar.  The combined cost of raw materials, manufacturing, packaging, shipping and retailing most of these items shouldn’t be less than a dollar, but thanks to having the reserve currency of the world we are still able to go to these big box stores and fill up our carts with lots and lots of extremely inexpensive merchandise.

  Unfortunately, this massively inflated standard of living is going to come crashing to a halt.  This next financial crisis is going to destroy the system that is currently producing such comfortable lifestyles for the vast majority of us, and that will be an extremely painful experience.

  So enjoy this summer for as long as it lasts.  Even though August threatens to be pivotal, it is going to be nothing compared to what will follow.

  Fall and winter are coming.

  Prepare while there is still time to do so.

  

  

  

  

  

• Furious Americans Demand Extradition Of Cecil-Killing Dentist As Poachers Kill Lion's Brother

  Update: The status of Cecil’s brother is now the subject of a “dispute” between conservationists.

  *  *  *

  There’s a lot going on in the world, but you wouldn’t know it if you tuned in to the nightly news because according to the mainstream media, the only thing that happened anywhere last week is that a dentist shot a lion. 

  

  (Cecil the lion is the one on the right)

  That’s right folks, Walter killed Cecil and some folks – scratch that – a lot of folks are unhappy about it.

  In fact, hundreds of protesters papered Dr. Palmer’s office with subtle messages like “rot in hell” and “there’s a deep cavity waiting for you.”

  

  

  

  As Reuters reports, Cecil’s untimely demise has the potential to put a dent in a lucrative industry by leaving a bad taste in the mouths of big game hunters, who may now hesitate before participating in this “archaic bloodsport”. Here’s more:

  Hunters longing to shoot big game in the African wild may choose a different target after public backlash against a Minnesota dentist who killed Zimbabwe’s Cecil the lion just outside a national wildlife preserve.

   

  African hunts are booked months in advance and pricey affairs, often costing $8,000 to $50,000, with approval needed from U.S. and U.N. agencies to bring back trophies such as the head of a lion to the United States.

   

  “It has left a bad taste in their mouths,” said James Jeffrey, a Houston-based international hunting agent with more than 12 years experience.

   

  “They read all those books and it is people’s dreams to go over there and do it. Some of these guys have worked their whole lives to do this one hunt,” he said.

   

  Eleven African countries issue lion hunting permits. Of them South Africa’s hunting industry is the biggest, worth $675 million, according to the Professional Hunters Association.

   

  Americans make up the bulk of non-African hunters, with 15,000 going to the continent on hunting safaris each year, according to John Jackson, president of Conservation Force, a lobby group that says regulated lion hunting helps protect the animal by giving reserve owners a financial incentive to deter poachers and cultivate stock.

   

  Supporters argue the money generated from hunts bolsters the coffers for conservation in emerging African countries that want to use their limited finances for social programs.

   

  Critics see the hunts as an archaic bloodsport, hurting species such as lions, which an academic study in 2012 said had seen a population fall of nearly 70 percent in the last 50 years.

  In response to the killing, Zimbabwe has now put a halt to big game hunts pending an investigation. From AP:

  Zimbabwean wildlife authorities say they have suspended the hunting of lions, leopards and elephants in an area favoured by hunters following the killing of a lion popular with tourists.

   

  The National Parks and Wildlife Authority said Saturday that bow and arrow hunts have also been suspended unless they are approved by the authority’s director.

   

  The authority says it is also investigating the killing of another lion in April that may have been illegal. It says it only received the information this week.

  And don’t expect the controversy to dissipate any time soon because in what is either a deliberate attempt on the part of an enterprising poacher to capitalize off the incident or else an incredibly ill-timed coincidence, Cecil’s brother Jericho was killed today by hunters. Here’s Sky News:

  The brother of Cecil the lion, Jericho, has been shot dead by poachers, the Zimbabwe Conservation Task Force has said.

   

  The organisation wrote on Facebook: “It is with huge disgust and sadness that we have just been informed that Jericho, Cecil’s brother, has been killed at 4pm today.

   

  “We are absolutely heart broken.”

   

  It is thought Jericho had been protecting Cecil’s cubs.

  And because the story obviously needed to get sadder still, those cubs will now likely die as well. 

  Via The Daily Mail:

  Before his death there had been concerns Jericho would not be able to hold the territory of Cecil’s cubs alone and could be chased away by rival lions. 

   

  Unprotected, the lionesses and cubs are now under threat and [must] move away or be killed.

   

  Last week Mr Rodrigues, told the Daily Mail Online Jericho was keeping the cubs safe from any rival males.

   

  

  (Jericho and Cecil in better times)

  As for Palmer, Zimbabwe is looking to have the dentist extradited from the US. “Environment minister Oppah Muchinguri said the dentist should be handed over to Zimbabwean officials to face justice, adding that she understood prosecutors had started the legal process to make that happen,” the Daily Mail notes. 

  And for anyone who thinks getting Palmer sent back to Zimbabwe will be like pulling teeth (so to speak), the public outcry may end up pressuing The White House into action, because as you can see from the screengrab below, a peitition to have Palmer extradicted has received the necessary number of signatures to warrant a response from The President:

   

  

   

  So in the end, we suppose the only question for Obama will be how to explain the fact that, as we reported on Thursday, the death of Cecil, as well as countless other lions, elephants, rhinos and other animals, is solely as a result of the Zimbabwe government’s corruption. A corruption, which the US government knew all about, and despite the fact that Washington knew US hunters were killing not only elephants but lions, the government’s only real concern was the “serious risks that Americans could be implicated in smuggling and poaching operations.”

  

  

  

  

• Did We Just Hit The Threshold For Short Covering In Gold?

  Two weeks ago we noted something that has never happened before in gold – hedge funds, according to CFTC, had a net short position for the first in history. The past week saw a very surprising negligible shift of just 11 contracts as the short position shrank to 11,334 contracts. However, the aggregate net long position has dropped to a level that in the past has represented a threshold for signficant short-covering (21% and 17% rallies respectively). So with hedgies as short as they have ever been in history and aggregate positioning at a historically crucial level, one wonders if gold is due for a bounce…

   

  Hedgies remain the most short they have ever been in gold…

   

  

   

  This is what happened the last time gold saw a 'low' net long position…

  

   

  and now, the aggregate net position in gold futures appears to have hit a threshold that in the past has created a significant short-covering rally…

  

   

  The last 2 times aggregate net long positions were this low, gold rallied 21% and 17%…

  Did we just reach that short-covering threshold once again?

  

  

  

  

  

• The Great Greek Fudge

  Submitted by Pieter Cleppe of Open Europe

  

  The Great Greek Fudge

  A third Greek bailout involving loans from the European Stability Mechanism (ESM), the eurozone’s bailout scheme, is now being negotiated. The start was quite rocky, with haggling over the precise location in Athens where negotiations need to take place and Greek officials once again withholding information to creditors. Therefore, few still believe that it will be possible to conclude a deal in time for Greece to repay 3.2 billion euro to the ECB on 20 August. Several national Parliaments in the Eurozone would need to approve a final deal, which would necessitate calling their members back from recess around two  weeks before the 20th, so it’s weird that French EU Commissioner Pierre Moscovici still seems so confident that the deadline can be met.

  If indeed there is no deal, Greece is likely to request a second so-called “bridge loan” to allow it to pay the ECB, firmly within the Eurozone tradition of the creditor providing the debtor cash in order to pay back the creditor. France, which is most eager to keep Greece inside the Eurozone, is afraid that bilateral bridge loans from Eurozone countries wouldn’t be approved by the more critical member states, as this would risk France having to foot this bill on its own, perhaps with Italy. Not exactly a rosy prospect for socialist French President Hollande, who’s already struggling to contain the far right anti-euro formation Front National.

  The only European fund practically available to provide a bridge loan is the European Financial Stabilisation Mechanism (EFSM), a fund created in May 2010, which has been raising 60 billion euro on the markets, with the EU’s €1 trillion Budget as collateral. The EFSM belongs not just to Eurozone member states, but to all EU member states. How on earth did the UK, which isn’t part of the Eurozone, agree to bail it out in 2010, one may wonder? The reason is that the decision to create the EFSM was taking precisely at the time of the power vacuum in the UK. Labour had just lost the election and the Conservatives were still busy negotiating a coalition with the Lib Dems. Outgoing Labour Chancellor Alistair Darling claimed to have “consulted” likely new Chancellor George Osborne, but it remains muddy who precisely gave the expensive OK. In order to correct this, PM Cameron secured a declaration from other EU leaders in December 2010 that the fund wasn’t going to be used any longer, until it was used after all, in July 2015, to provide Greece with a first bridge loan. Then not only the UK, but also the Czech Republic and Poland protested heavily, only backing down when they secured special guarantees against possible losses and a commitment that it would be illegal in the future to provide loans to Eurozone countries with the EFSM without also providing such guarantees to non-euro states.

  EU Finance Ministers are currently busy implementing the legal change, through a “written procedure”, which should be finalized before the middle of August. The Council declared in July that an “agreement” on this legal change was needed “in any case before” Greece can request a second bridge loan. Another “written procedure” is needed for that, but it’s unlikely that Finance Ministers will manage to decide this in smoke-filled rooms. With Polish elections coming up on 25 October, local opposition parties may once again rail against Polish PM Ewa Kopacz, who promised voters they wouldn’t be exposed to this. Also the UK may use this as an opportunity to extract concessions related to its own agenda for EU reform. Perhaps the French government’s sudden openness to this agenda and its welcome stance that “we need a fair treatment of the ‘out’ countries” may have been linked to the British approval for a first bridge loan.

  As always in the Eurozone, the safest bet is on another fudge, at least when it comes to the bridge loan.

  More questionable is how the IMF’s statement that it “cannot reach staff-level agreement [to participate to a third Greek bailout] at this stage” will play out, given that Greece no longer meets two of the four IMF criteria for a bailout: ability/willingness to implement reform and debt sustainability. It will only decide whether to take part in the bailout after Greece has “agreed on a comprehensive set of reforms” and after the Eurozone has “agreed on debt relief”, meaning it may even only join next year or not at all, of course. This is a problem, given that a number of Eurozone states, especially Germany and the Netherlands, have explicitly linked their willingness for a third Greek bailout to participation by the IMF. Former EU Commissioner for Monetary Affairs Olli Rehn has suggested that many countries demand IMF involvement in bailouts because they don’t trust the Commission.

  It’s not entirely clear what will be sufficient for the IMF: its President, Christine Lagarde, has discussed a write-down on the value of the country’s debt but ruled out a straight “haircut”, while mentioning an extension of debt maturities, an extension of grace periods and a maximum reduction of interest rates. The IMF carries the legacy of its former Director Dominique Strauss-Kahn, who managed to overcome opposition within the fund against taking part in the first Greek bailout in 2010. The IMF only issues loans to countries when there is prospect for debt sustainability, which clearly wasn’t the case for Greece in 2010, but the interests of supposedly “systemic” banks were considered to be more important. Now the IMF, which has never taken straight losses on loans it has issued, may be experiencing this in case of Grexit.

  As opposed to the IMF, which has completely ruled out the idea of taking losses on its lending to Greece, and contrary to the picture painted by some, Germany has made some noices suggesting it may be open to cutting its losses in Greece. German Chancellor Merkel has not only been open to extending debt maturities and lowering interest rates, but her Finance Minister Wolfgang Schäuble has said that “if you think the best way for Greece” is debt relief, then “the best way forward” is to leave the euro, adding that “a real debt haircut isn’t compatible with the membership of the currency union”. So Germany is willing to accept debt relief, if there is Grexit.

  Some have questioned Schäuble’s claim that debt relief wouldn’t be legally banned within the eurozone, as for example Financial Times columnist Wolfgang Munchau, who recently wrote: “In its landmark Pringle ruling — relating to an Irish case in 2012 — the European Court of Justice (ECJ) said bailouts are fine, even under Article 125, as long as the purpose of the bailout is to render the fiscal position of the recipient country sustainable in the long run.”

  This sounds a bit like a stretch. The ESM is very much conceived as a “European IMF”, hence the ECJ’s use of the term “sustainable”, reminiscent of the IMF’s condition to provide cash. Just like the IMF, the ESM has been set up to issue “loans”, not to provide “transfers”. Obviously, a loan with an artificially low interest rate partly counts as a “transfer”, but even for the rather politicized judges of the European Court of Justice there is an end to stretching the meaning of words.

  Therefore, apart from the case where the ECJ would completely remove the meaning of the words of its previous rulings and the ESM Treaty, EU law doesn’t allow the “loans” made to Greece to just be forgiven, as much as proponents of a Eurozone transfer union like Mr. Munchau may regret this.

  After PM Tsipras threatened with an internal referendum in his own left-wing populist Syriza party, it looks like he has secured the necessary domestic support for a third Greek bailout.

  Obstacles remain, but much of the protest in “creditor countries” seem to have been overcome. In Finland, where the coalition was at risk at some point, Foreign Minister Timo Soini has said that it “would make no sense” for his Eurosceptic Finns party to leave the Finnish coalition over this. In the Netherlands, the governing VVD party, which is skeptical to the Greek deal, has provided tacit consent for negotiations to start. In Germany, despite all the noice, Merkel enjoys a comfortable majority to get on with the third range of transfers.

  The third bailout is likely not to be sufficient to cover all Greek funding needs in the next few years, also given that expecting 50 billion euro from privatizing Greek state assets looks a little rosy. This is a problem which can be solved near the end of the bailout period, once Greece has made it through the difficult year 2015. In 2016 and 2017, the country needs to make debt repayments “only” amounting to around 6 billion euro each year.

  The IMF may in the end just back down and join in, given how it already bent its rules twice to agree to Greek bailouts. It would have been expected to provide between 10% and a third of the funding of the new bailout which may amount to 86 billion euro (and possibly more), so if the IMF wouldn’t back down, Germany and France would see their bill for the third bailout rise with another 1.7 billion and 1.3 billion euro respectively. A lot will depend on how the IMF will calculate “debt sustainaibility”. Speaking in the Dutch Parliament, Eurogroup chief Jeroen Dijsselbloem said on 16 July that the Eurozone already “agreed with the IMF to look at “debt service”, not merely at the debt to GDP levels”. In other words: because Greece’s interest burden as a percentage of GDP is even lower than the one carried by Portugal, Italy, Ireland and Spain, one can ignore the fact that its debt to GDP is at the horrendous level of 180% now. This of course overlooks the difficulty to boost that GDP, given the tax hikes and the capital controls which will be hard to remove as a result of the talk about “Grexit”. Still, a fudge looks on the cards.

  It isn’t a good idea to let the bill of Eurozone taxpayers grow even bigger, to burden an economy already crippled by debt with even more debt and to intervene deeply into domestic Greek policy choices. Opting for Grexit may have been the wisest choice for everyone. The opportunity was there, given that many Greeks had already taken their savings out of banks anyway. Also, many of the reasons to think Greece still may leave the Eurozone, like the difficulty to unwind capital controls, remain in place. We have come close, but Grexit seems to have been avoided for now. But it’s unlikely to have been referred “ad kalendas Graecas”- “until pigs can fly”.

  

  

  

  

  

• "Asia Crisis, Tech Bubble Burst, Lehman"… And Today

  While over the past several months many have been focused – finally – on the bursting of China’s 3 bubbles (credit, housing and investment), in the context of its 4th burst bubble, the stock market which the politburo is desperately trying to patch up every single day, a far scarier picture has emerged within the entire Emerging Market space, where Brazil has rapidly become a “ground zero” case study for what has moved beyond mere recession and is an accelerated collapse into economic depression, as we discussed previously.

  Bank of America notes overnight that “capitulation is already visible in bond/bank/FX correlations and “forced selling” of crowded EM growth trades.” Here is what BofA’s Michael Hartnett has to say about the EM capitulation/collapse phase:

  Despite muted asset returns, 2015 has seen the emergence of two big trends: the risk of a bubble in US health care & technology; and the crash in EM/Resources/Commodities.

   

  The journey from hubris to humiliation in EM has taken roughly 5 years. Back in late 2010, when Sepp Blatter announced that Russia & Qatar would follow Brazil as hosts of the FIFA World Cup, both China & India were on course for >10% GDP growth, EM spreads were significantly lower, and the market cap of EM ($3.7 trillion on December 1st 2010) was twice the market cap of US banks, and exceeded the combined market cap of US tech & health care. Today, the market cap of EM equities is the same, while the combined market cap of US tech, health care and banks is over $10 trillion.

   

  Note that the classic sign of crisis and capital flight, higher interest rates, falling currency, and falling bank stocks are now visible in Brazil (and elsewhere). Indeed, the correlation between Brazilian bond yields and Brazilian financials/BRL turned sharply negative during each of the past 3 systemic crises (Asia ‘98, Tech ‘02 & Lehman ’08) and is doing so again today (Chart 3).

  In other words, while the S&P continues to exist in its own inert bubble, where stocks no longer are able to discount anything and merely float on the sea of $22 trillion in liquidity created by central banks, for Brazil, the correlation between key assets classes reveals that the local situation is on par with the three greatest crises of the past two decades: the Asia Crisis, the bursting of the Tech bubble, and of course, Lehman.

  

   

  While it is naive to blame much of this on the strength of the US dollar, one thing is obvious, as BofA notes: “Structural inflection points in both EM/DM (Chart 6 & Table 3) have tended to coincide with major geopolitical events and/or policy shifts that have started or ended a multi-year move in the US dollar, e.g. Bretton Woods ‘70s, LatAm debt crisis ‘80s, Asia crisis ‘90s, Lehman 200.8”

  

  So for those who are seeking the inflection point in deciding how and whether to invest in EM, “asset allocation to EM awaits an “event” (e.g. Fed hikes, China deval, bankruptcy/ default) to create narrative of US$ peak & unambiguous EM value).”

  

  For the time being, the dominant narrative is that the US has a ways to go and will go even higher if and when the Fed starts its hiking cycle (even if riots break out among the BRIC nations which, like Brazil, are facing economic devastation).

  Unless, of course, the first rate hike is precisely the catalyst that ends the past year’s dollar surge, as the market prices in the failure of the Fed’s hiking cycle and begins trading in anticipation of the admission of such failure which will lead to an end of rate hikes once the US economy slides into all out recession (the plunge in globla trade is the biggest flashing red light in that regard) and corporate profitability moves beyond GAAP recession into all out depression, ultimately culminating with the launch of QE4 and monetary policy reverting back to square one.

  

  

  

  

  

• The Latest Government Trust Fund To Go Bankrupt

  Submitted by Sovereign Man

  The Latest Government Trust Fund To Go Bankrupt

  On June 6, 1932, President Herbert Hoover imposed the first ever national gasoline tax in the United States, initially set at 1 cent per gallon.

  It was a major success for the federal government; the tax on gasoline alone was responsible for over 15% of their 1933 tax revenue.

  What’s curious is that the Senate Finance Committee issued a report the following year stating that the federal gasoline tax should be repealed. But that never happened.

  Instead it went up.

  Under President Eisenhower, the tax increased to 3 cents per gallon. Under Reagan, 9 cents.

  It’s risen steadily through the years to a level of 18.4 cents for every gallon of unleaded fuel, and 24.4 cents per gallon of diesel.

  All of this tax revenue is –supposed– to go to the Federal Highway Trust Fund, something established back in the 1950s to finance the care and maintenance of the nation’s highways.

  And now it, too, is insolvent.

  Earlier this week I told you about Social Security’s Disability Insurance Trust Fund (DI), which will become insolvent in a matter of months.

  The DI problem (just like the rest of Social Security) has been a long time coming.

  But rather than form some meaningful solution, Congress has instead opted to commit financial fraud by commingling DI monies together with the other Social Security funds.

  Now comes the Highway Trust Fund.

  The difference between DI and the Highway Trust fund is that this one won’t be insolvent in a matter of years or months. Their own data shows that it may very well be toast… today.

  Once again- Congress to the rescue.

  Having waited until almost quite literally the last minute, their solution is to… wait for it… kick the can down the road.

  Congress has now passed a 90-day stay of execution for the Highway Trust Fund, which only delays the inevitable.

  Over the next three months they’ll sit down to the task of figuring out who to steal from.

  They’re either going to raise taxes on you.

  Or they’ll raise taxes on someone else, the costs of which will ultimately be passed on to you.

  Or they’ll simply default on their obligations to the residents of the United States to maintain the federal highway system.

  None of this should come as a surprise. This is what happens when nations go bankrupt: one by one, its major institutions fall into insolvency.

  Today it’s the Highway Fund. Tomorrow it’ll be the Pension Benefit Guarantee Corporation (we’ll talk about that one soon) and the United States Postal Service.

  Then it’ll be Social Security and Medicare. Then the Federal Reserve. And eventually it’ll be the United States government itself.

  The signs are everywhere– every single one of these hallowed institutions is flat broke.

  It’s no longer some wild assertion to say that. Their own financial statements show that they’re insolvent. And it’s not hard to figure out what happens down the road.

  Bankrupt governments invariably resort to plundering the wealth of their citizens. Inflation. Higher taxes. Confiscation of assets. Indebting unborn generations. And defaulting on the benefits promises they made to voters.

  

  

  

  

  

• Head Of Collapsed Mt.Gox Exchange Arrested With Half A Billion In Bitcoin Still Unaccounted

  Back in its 2013 heyday, when bitcoin soared from below $100 to over $1000 in the span of a few months (in no small part thanks to the collapse of the Cyprus banking system) there was only one real Bitcoin exchange: Magic: The Gathering Online Exchange, or Mt. Gox as it was better known, which had become the world’s largest hub for trading the digital currency. And then, as mysteriously as it had appeared, Mt. Gox went dark, and filed for bankruptcy after nearly half a billion dollars worth of bitcoin “disappeared.”

  We wrote at the time:

  For a case study of a blistering rise and an absolutely epic fall of an exchange that i) was named after Magic: the Gathering and ii) transacted in a digital currency which many have speculated was conceived by the NSA nearly two decades ago and was used as a honeypot to trap the gullible, look no further than Mt.Gox which after halting withdrawals for the second (and final time) has finally done the honorable thing, and filed for bankruptcy. As the WSJ reports, “Bitcoin exchange Mt. Gox said Friday it was filing for bankruptcy protection after losing almost 750,000 of its customers’ bitcoins, marking the collapse of a marketplace that once dominated trading in the virtual currency. The company said it also lost around 100,000 of its own bitcoins. Together, the lost bitcoins would be worth approximately $473 million at market prices charted by the CoinDesk bitcoin index, although the price of Mt. Gox bitcoin had fallen well below that index after it stopped bitcoin withdrawals in early February.”

   

  The punchline: speaking to reporters at Tokyo District Court Friday after the bankruptcy filing, Mt. Gox owner Mark Karpelès said technical issues had opened the way for fraudulent withdrawals, and he apologized to customers.

   

  “There was some weakness in the system, and the bitcoins have disappeared. I apologize for causing trouble.”

  In other words, oops sorry, several hundred million in Bitcoin is unaccounted for but blame the “system weakness.” This promptly led to various artistic interpretations on the Mt. Gox logo, such as this one:

  

  Some were confused if Karpeles was going to get away with nothing more than an excuse, even if – as many speculated – he had personally fabricated exchange data entries and embezzled millions of dollars for his own account.

  As a reminder, when it filed for bankruptcy in February 2014, Mt. Gox said 750,000 customer bitcoins and another 100,000 belonging to the exchange were stolen due to a software security flaw. The lost funds represented the equivalent of $480 million at the time of the bankruptcy filing. Mt. Gox also said more than $27 million was missing from its Japanese bank accounts. Karpeles, who had blamed hackers for the loss, later said he had recovered 200,000 of the lost bitcoins.

  Earlier today we got the answer when nearly 18 months after his infamous apology, Mark Karpeles was arrested in Tokyo. FT reports that Japanese police have arrested Mark Karpelès, the head of the bankrupt Japan-based bitcoin exchange Mt Gox. The arrest charge is that he made an illegal entry to the system in February 2013 and increased the balance of his account by $1 million.

  And yet, a year and a half after the exchange insolvency, nobody truly knows what happened:

  The alleged crimes involved are hard to pin down, say police sources, because of the absence of a specific laws governing the virtual currency. Police have acknowledged privately that there technical elements of the alleged disappearance of nearly $500m that “are still not properly understood”.

   

  Asked by Mt Gox to look into the matter in March Last year, the Tokyo Metropolitan Police were not able to begin their investigation until three months later. Even then, say people close to the investigation, the two police departments in charge — the cyber crime unit and the white-collar crime unit — did not properly share information.

   

  The year long investigation, say legal experts, has culminated in an arrest that will allow police to hold Mr Karpelès without charge for 23 days. If he continues to deny any wrongdoing during that time, police may alter the charge, and hold him for another 23 days.

  While Karpeles may very well be guilty of embezzlement and massive fraud against his clients, could it be the still undetermined “crimes” relating to a virtual currency will become just the excuse to keep unsavory suspects detained and/or under arrest for an indefinite period of time? Because being held for up to 46 days without any charge seems a little Guantanamoish.

  As the FT adds, “the case has exposed both the complexities of crime relating to the bitcoin virtual currency, and the profound difficulties encountered by the Japanese police as they have attempted to investigate the Mt Gox.”

  Seemingly the complexity was not as big as that encountered by US regulators and police who 7 years after the greatest criminal systemic collapse, and after the statute of limitations has now expired, have yet to arrest anyone for a multi-trillion systemic crime far greater than Karpeles’ $500 million embezzlement.

  As for the former Mt. Gox head, today’s arrest will hardly come as a surprise as it was expected for over two weeks: Japanese journalists had been encamped outside his Tokyo home for several days. Footage of him being led from his home to a police car showed Mr Karpelès wearing a T-shirt and a baseball cap.

  Mt. Gox bitcoin firm head arrested – The Japan News http://t.co/t4xFsyCsNy
  #mtgox #Bitcoin #?????? pic.twitter.com/A2M8Lyz7px

  — The Japan News (@The_Japan_News) August 1, 2015

  Mr Karpelès could, if found guilty, face up to five years in prison or a fine of as much as Y500,000 which at today’s exchange rate is just over $4000.

  So let’s do the math: steal $500 million which only you know where it is, spend 5 years in prison, and be fined $5000. Sounds like a pretty good deal…

  Anyone curious for more, there was an AMA this morning with a person representing to be Ashley Barr, the first Mt. Gox employee which gives more insight into Karpeles various pathologies. It can be found here.

  

  

  

  

  

• Greece May Miss ECB Payment As Germany Says Bailout Timeline Is Unrealistic

  Greek PM Alexis Tsipras won a hard fought victory over party rivals on Thursday when Syriza’s central committee voted to postpone an emergency congress until after formal discussions on the country’s third bailout program are complete. 

  Syriza has been grappling with bitter infighting since more than 30 MPs in Tsipras’ parliamentary coalition defected during a vote on the first set of bailout prior actions, forcing the PM to rely on opposition votes to clear the way for formal discussions with creditors. The party dispute was exacerbated by reports that ex-Energy Minister and incorrigible Grexit proponent Panayiotis Lafazanis (along with several Left Platform co-conspirators) planned to storm the Greek mint and seize the country’s currency reserves. 

  Fed up, Tsipras told 200 members of Syriza’s central committee on Thursday that essentially, they could either hold a party referendum on the bailout on Sunday or wait until September to sort things out, leading us to note that “were Syriza to vote on whether or not Greece should follow through on the agreement with creditors, the market could be in for an event that is far more dramatic and important than the original referendum.” 

  Lafazanis refused to go along with the idea. “How many referenda are we going to hold? We’ve already done one and we won with 62 per cent of the vote”, he said. Ultimately, the party approved a September congress. This gives Tsipras some “breathing space,” FT notes, “but Thursday’s highly charged debate signalled that the Left Platform, which supports an end to austerity and a ‘Grexit’ from the euro, would continue to oppose a fresh bailout.”

  And the party’s radical leftists aren’t alone in their opposition to the third program for Athens. On Thursday, FT reported that according to “strictly confidential” minutes from the IMF’s Wednesday board meeting, the Fund will not support the new bailout until the debt relief issue is decided and until it’s clear that Greece “has the institutional and political capacity to implement economic reforms.”

  Somehow, all of this must be worked out in the next three weeks. Greece must make a €3.2 billion payment to the ECB on August 20 and if the bailout isn’t in place by then, it’s either tap the remainder of the funds in the EFSM (which would require still more discussions with the UK and other decidedly unwilling non-euro states) or risk losing ELA which would trigger the complete collapse of not only the Greek economy but the banking sector and then, in short order, the government. The question is whether Germany can be reasonably expected to take it on faith that i) the Greek political situation will not eventually result in Athens walking back its austerity promises, and ii) that the IMF will eventually hold up its end of the deal once Berlin approves some manner of debt re-profiling for the Greeks. 

  Now, according to Focus magazine, there are questions as to whether the timetable for cementing the bailout agreement is realistic. German lawmakers may now have to postpone a Bundestag vote and Athens has already discussed the possibility of taking a second bridge loan from the EFSM, Focus says. Here’s more (Google translated):

  The timetable for the negotiations on a third aid package in favor of Greece is to look for an internal assessment of the federal government any more. According to the already contemplated for mid-August special session of the German Bundestag must be moved, according to government sources in Berlin.

   

  The objective pursued by the EU Commission scheduling is too closely knit, criticize experts.This was reported in its latest issue of FOCUS.

   

  Accordingly, the negotiations should be completed before August 10.On August 11, the euro zone finance ministers would approve the results before the agreement of other euro countries ratified and approved by the Parliament in Athens.Also, the Bundestag must still approve.

   

  Due to delay Greece threatens a serious cash problem.The government in Athens must, at the latest on August 20, 3.2 billion euros, the European Central Bank to transfer (ECB), which should be possible without new loans from the third aid package barely.

   

  Therefore already searched in circles of the EU Commission for ways to temporarily raise money from another pot. Speaking here a renewed bailout from the European Financial Stabilisation Mechanism is (EFSM)

   

  This is difficult, however, because the EU states will again require an indemnity outside the euro-zone in this case. As early as September Greece must further loans operate: The International Monetary Fund (IMF) then expected repayments totaling € 1.56 billion in four tranches.In addition, running on 4 September from short-term government bonds in the amount of 1.4 billion euros, which Greece must also refinance.

  And here’s the summary from Bloomberg:

  German parliament meeting that was considered for mid-August might have to be postponed as European Commission’s schedule for aid talks is “much too tight,” Focus magazine reports, citing unidentified people in German govt.

   

  Greece has to pay EU3.2b to the ECB by Aug. 20, which it may not be able to do without third aid package.

  In other words, Greece will likely need yet another bridge loan from the EFSM and that will once again require the approval of non-euro countries that will, for the second time in a month, be asked to put their taxpayers at risk in order to keep the ill-fated EMU project alive and preserve the now thoroughly discredited notion that the currency union is “indissoluble.” 

  And make no mistake, Greece and its EMU “partners” had better hope things go smoothly after August because one more bridge loan and the EFSM is tapped out, which means Brussels will have to devise some other circular funding mechanism in the event the third program (which is itself nothing more than a dressed up ponzi scheme) isn’t in place by September. 

  Or, summarized in one picture:

  

  

  

  

  

  

• German Government Launches Investigation of Journalists for Treason

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  If it were up to the Federal Attorney General and the President of the German Domestic Security Agency, two of our reporters would soon be in prison for at least two years. Today, we were officially informed about investigations against our Markus Beckedahl, Andre Meister and an unknown“ party. The accusation: Treason.

  – From Netzpolitik.org:  Suspicion of Treason“: Federal Attorney General Announces Investigation Against Us In Addition To Our Sources

  Widespread outrage across Germany is erupting following the revelation that the nation’s Attorney General has launched an investigation into treason charges for two journalists working for Netzpolitik.

  The charge is treason. The crime is journalism.

  We learn from The Guardian that:

  Germany has opened a treason investigation into a news website a broadcaster said had reported on plans to increase state surveillance of online communications.

   

  German media said it was the first time in more than 50 years journalists had faced treason charges, and some denounced the move as an attack on the freedom of the press.

   

  “The federal prosecutor has started an investigation on suspicion of treason into the articles … published on the internet blog Netzpolitik.org,” a spokeswoman for the prosecutor’s office said. 

   

  The public broadcaster ARD reported Netzpolitik.org had published an article on how the BfV was seeking extra funding to increase its online surveillance, and another about plans to set up a special unit to monitor social media, both based on leaked confidential documents.

   

  “This is an attack on the freedom of the press,” Netzpolitik.org journalist Andre Meister, targeted by the investigation along with editor-in-chief Markus Beckedahl, said in a statement. “We’re not going to be intimidated by this.”

  Cory Doctorow at Boing Boing accurately notes the shadiness and hypocrisy of it all:

  The German prosecutors who dropped all action against the US and UK spy-agencies who trampled German law and put the whole nation, up to and including Chancellor Angela Merkel, under surveillance, have decided instead to open an investigation into the bloggers at Netzpolitik, who revealed the wrongdoing.

   

  Netzpolitik are an important source of independent news, analysis and campaigning for privacy and freedom in Germany. This is a genuinely shameful moment for the nation. We stand with Netzpolitik and its supporters around the world.

  While this is horrible news, there is a silver lining. The main reason the German government feels a need to go overtly fascist, is because they are scared shitless. They are scared of the truth, of the light and of their own citizens. Such a corrupt and compromised government can’t last very long.

  Additionally, we should commend the bravery of the journalists involved. As reported by the Intercept:

  Asked if Netzpolitik would continue to report using materials gained from whistleblowers, Meister replied, “That’s our job, so of course we will continue to report about publicly relevant information, which obviously includes information from whistleblowers from state and private entities. As a matter of fact, just [yesterday] we have exposed the new ‘cyber strategy’ of the German Federal Military ‘Bundeswehr’ about offensive cyber attacks.”

   

  “If anything, all the support is showing that we must be doing the right thing, so we will continue what we do and maybe even step up the pace. … To paraphrase a Google engineer after yet another NSA leak: ‘Fuck those guys!'”

  Bravo. These guys deserve our complete and total support.

  *  *  *

  For related articles, see:

  Standard & Poor’s Warns on Germany as Anti-Euro Political Party Soars in Popularity

  Video of the Day – “End the Fed” Rallies are Exploding Throughout Germany

  Martin Luther King: “Everything Adolf Hitler did in Germany was Legal”

  

  

  

  

  

• Chinese Company Replaces Humans With Robots, Production Skyrockets, Mistakes Disappear

  “I believe that anyone who has a job and works full time, they should be able to pay the things that sustain life: food, shelter and clothing. I can’t even do that.”

  That rather depressing quote is from 61-year old Rebecca Cornick. She’s a grandmother and a 9-year Wendy’s veteran who spoke to CBS News. Rebecca makes $9 an hour and her plight is representative of fast food workers across the country who are campaigning for higher pay. 

  The fast food worker pay debate is part of a larger discussion as “states and cities across the country [wrestle] with the idea of raising the minimum wage,” CBS notes, adding that “right now, 29 states have minimums above the federal $7.25 an hour [and] four cities, including Los Angeles, have doubled their minimum to $15.”

  Proponents of raising the pay floor argue that it’s simply not possible to live on minimum wage and indeed, there’s plenty of evidence to suggest that they’re right. Opponents say forcing employers to pay more will simply mean that companies will fire people or stop hiring and indeed, as we highlighted on Friday, it looks as though WalMart’s move to implement an across-the-board pay raise for its low-paid workers may have contributed to a decision to layoff around 1,000 people at its home office in Bentonville. 

  “The reality is that most business are not going to pay $15 dollars an hour and keep their doors open,” one Burger King franchisee told CBS. “It just won’t happen. The economics don’t work in this industry. There is a limit to what you’re going to pay for a hamburger.” 

  Yes, there’s only so much people will pay for a hamburger which is why Ronald McDonald has made an executive decision to hire more efficient employees at some locations:

  

  With all of that in mind, consider the following from TechRepublic who tells the story of Changying Precision Technology Company, which has replaced almost all of its human employees with robots to great success:

  In Dongguan City, located in the central Guangdong province of China, a technology company has set up a factory run almost exclusively by robots, and the results are fascinating.

   

  The Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to produce parts for cell phones. 

   

  The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse.

   

  There are still people working at the factory, though. Three workers check and monitor each production line and there are other employees who monitor a computer control system. Previously, there were 650 employees at the factory. With the new robots, there’s now only 60. Luo Weiqiang, general manager of the company, told the People’s Daily that the number of employees could drop to 20 in the future.

   

  The robots have produced almost three times as many pieces as were produced before. According to the People’s Daily, production per person has increased from 8,000 pieces to 21,000 pieces. That’s a 162.5% increase.

   

  The increased production rate hasn’t come at the cost of quality either. In fact, quality has improved. Before the robots, the product defect rate was 25%, now it is below 5%.

  So to anyone planning on picketing the local McDonald’s in an attempt to secure a 70% wage hike, be careful, because this “guy” is ready to work, doesn’t need breaks, and never makes a mistake:

  

  Let’s just hope he doesn’t become self aware.

  

  

  

  

  

• Don't Exaggerate Significance of SNB's Loss

   

  The Swiss National Bank reported a record CHF50.1 bln loss. It has got the chins wagging, but the real implications are minor.  The losses are not realized and are unlikely to be repeated.  In fact, if the SNB’s report had covered the month of July, the loss would likely have been smaller.  

   

  More of the SNB’s loss stemmed from the valuation of its foreign currency holdings in the face of franc appreciation, especially after the cap was abandoned in mid-January.  Here in July the franc fell nearly 3% against the US dollar and about 1.3% against the euro.  These two currencies account for nearly 3/4 of the SNB’s reserves.  The franc fell 2% against sterling and 1.5% against the yen.  These four currencies together account for nearly 90% of the reserves.  

   

  It addition to the currency valuation markdown, the SNB reported a CHF3.2 bln euro loss on its gold holdings.   Gold lost another 5% in July in franc terms.  These losses reduce the SNB’s equity to CHF3.425 bln, which amounts to just shy of 6% of its assets. 

   

  There are two implications, and they have nothing to do with the solvency of the Swiss National Bank.  The first implication, and one that central banks are sensitive to is reputational risk.  If the central bank losses money, doesn’t it undermine its credibility to manage the country’s economy?  While it is difficult to show that the SNB’s reputation has been harmed, its performance provides its critics with fodder. 

   

   Switzerland’s parliamentary election will be held in mid-October.  These losses allow for a politicalization of monetary policy that may not be particularly helpful.  A couple of parliamentarians are pressing the SNB to adopt a new cap for the franc (euro floor) at CHF1.15.   While this is highly unlikely to be implemented, it illustrates the frustration with the franc’s appreciation. 

   

  The SNB appears to have been given a free pass on its effort to stem the rise of the franc.  In 2013, Switzerland’s current account surplus was 10.7% of GDP.  Last  year, it fell back to 7%.  The OECD expects its to be 10.1% of GDP this year and 10.5% next year.   Countries with such substantial surpluses often come under international pressure to reduce the imbalance.  

   

  However, a closer inspection of the Swiss current account composition suggests that it is not particularly sensitive to currency appreciation.  There are three main drivers of the Swiss current account surplus and trade is not one of them.  

   

  First, the largest contributor is from investment income.  These are mostly coupon and dividends on foreign portfolio investment.  In this context we note Japan is evolving in the same direction.  Its investment income often overwhelms the trade balance on the current account.  

   

  Second, financial services are important but are not driven by currency fluctuations.  Third, officials point to what is called “merchanting.”  It is the sales of goods that do not cross Swiss borders.  This arises primarily from the commodity trading businesses that are located in Switzerland.  This activity can account for 1/4-1/3 of the Swiss current account surplus. 

   

  The other implication of the SNB’s loss is that it may be unable to make its customary payout to the federal government and cantons.  Some cantons depend on payment from the SNB to reach their fiscal targets.  The failure to make a payment in 2013 due to the fall in gold saw criticism heaped on the central bank. 

   

  The record loss of the SNB is embarrassing, and it gives its critics fresh ammunition ahead of the national election.  It could squeeze the finances of a few cantons, but it already has distributed CHF1 bln earlier this year based on last year’s profits.  Its losses, largely an accounting function and not realized, is of little economic or financial consequence. 

  

  

  

  

  

• Near-Term Dollar Outlook

  The unexpectedly record low increase in Q2 US Employment Cost Index unwound the some of the dollar’s weekly gains and neutralized the near-term technical outlook.  Next week’s nonfarm payrolls are still critical, and the weakness may put even greater burden on the jobs data to demonstrate that slack is indeed being absorbed.  

   

  The Dollar Index was poised to challenge the three-month high set on July 21 near 98.15, but the sell-off following the ECI report reversed the gains scored on the back of the FOMC statement and Q2 GDP (and upward revision in Q1).   The five-day moving average barely crossed below the 20-day average for the first time since late-June.  It did not close below 96.40 (a retreacement objective and 100-day moving average), but instead finished the week and month near the middle of the 96.00-98.00 trading range.  

   

  The euro’s five-day moving crossed above the 20-day average a day before the FOMC statement.  After the Q2 GDP data and a threat that the Greek government would collapse saw the euro briefly trade below $1.09.  It rebounded with the help of month-end demand and signs that the Greek government will survive until at least September.  Before the weekend, nearly covered the entire week’s range.   Both the RSI and MACDs are consistent with a further push higher in the euro, but how fast it reversed the pre-weekend gains, and the relatively soft close suggests the bears are still in control.  Initial support is seen near $1.0950.  It may require greater confidence of a September rate hike before the $1.08 level can be breached.     

   

  The dollar was pushing above JPY124.50, the upper end of its range since mid-June and was stopped cold by the disappointing ECI.  The fact that Japan’s CPI excluding food and energy rose to 0.6% also discourage ideas that the BOJ the needs to provide additional stimulus. Support for the dollar is seen in the JPY123.00-JPY123.30 area.   A break that could signal a move into the JPY122.00-JPY122.50  band. 

   

  Since the middle of July, sterling has tried and failed to rise above $1.5700 a handful of times.  The technical indicators suggest the bulls may have been luck next week.  The BOE meeting is expected to see 2-3 hawkish dissents to what is anticipated to be a majority decision to keep policy on hold.  The minutes and the inflation report, with an update in macro-forecasts will be announced at the same time.   Before the weekend, sterling traded on both sides of Thursday’s range.  Even though it finished the week at its highest close in two week, it was still neutral.  A move above $1.57 would encourage a run toward $1.5800.   Support is seen in the $1.5540-$1.5560. 

   

  The Australian dollar nearly posted a potential key reversal before the weekend by making fresh multi-year lows (~$0.7235) before rallying to new highs for the week (almost $0.7370), but like sterling, the close was neutral.  The 20-day moving average is found near $0.7380, and the Aussie has not closed above this average since June 25.  It also roughly corresponds with the top end of a near-term down channel.   There is a bullish divergence in the RSI, and the MACDs are turning higher.  The market may be poised test the downtrend line drawn off May, June and July highs. It is found near comes in near $0.7420 by the end of next week.  If the RBA cuts rates next week, especially given that it would surprise participants, the modestly positive technical developments would likely be negated.  

   

  News that the Canadian economy unexpectedly contracted in May sent the Canadian dollar lower.  This was partly masked by US dollar weakness.  The greenback failed to take out the July 24 multi-year high just above CAD1.3100.  The US dollar closed on its highs, however, and additional near-term gains are likely.   The next important technical target is some distance away at CAD1.3450.  Support is seen near CAD1.2940.  

   

  The September light crude futures contract has fallen for seven consecutive weeks.  It has consistently recorded lower highs and lower lows.  The MACDs are trying to turn, but the RSI has drifted lower.  Initial support is seen near $46.70 and then $45.   Resistance is seen near $50. 

   

  The fact that the US 10-year yield was little changed on the week masks the 12 bp increase seen in the first four sessions last week.  Yields reversed lower on Thursday, and the weak ECI on Friday, pushed the 10-year yield below 2.20% for the first time since July 7-9, which itself was the first time since the beginning of June.   Although the 2.0% level is more significant, yields may find support near 2.08%-2.14%.   The 2.30% area likely represents the near-term cap. 

   

  The S&P 500 flirted with the 200-day moving average at the start of the week.  By the end of the week, it was about 2.5% above the lows set on Monday. Nevertheless, the close before the weekend was poor, on session lows.    Over the past three months, buying interest has dried up near 2130.  The S&P 500 has been in a broad 2040-2135 range since early February.  It is not clear what is going to drive it out of that range. 

   

  Observations based on the speculative positioning in the futures market:  

   

  1.  There were no significant (more than 10k contracts) adjustments to gross speculative currency positioning in the CFTC reporting week ending July 28.  The run-up to the FOMC meeting may have deterred activity.  

   

  2.  A clear pattern was speculators to reduce short euro, yen and sterling positions, and expand the short position in the other currencies.  Similarly, speculators cut gross long Australian and Canadian dollar futures.

   

  3.  The divergence of monetary policy, which we argue is the key driver, also benefits sterling, where the BOE is also expected to raise rates.  The net short sterling position is the smallest since last November.  We would not be surprised if it turned positive in the coming weeks.  The net position in the Swiss franc is moving in the opposite direction.  Speculators have been net long francs since mid-March.  It is on the verge of turning short.  

   

  4. The net short Canadian dollar position (56.1k contracts) is the largest since March 2014.  It is likely to grow further.  The net short Mexican peso position continues to grow, setting a new record each time it does.  

   

  5.  Speculators turned to a net long US 10-year Treasury futures position in the previous reporting week and grew it further over the past week to stand at 65.6k contracts.  The bulls added 31.9k contracts, lifting the gross long position to 491.5k contracts.  The bears covered 6.3k short contracts, leaving 425.9k.

   

  6. Bulls and bears added to gross positioning the light sweet crude oil futures.  The gross longs rose by 11.6k contracts to 476k.  The gross shorts increased 21.9k contracts to 232.6.  This resulted in a 10.3k contract reduction in the net long position, leaving 243.4k contracts.  

  

  

  

  

  

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• Paying In A Broken World

  Submitted by Tom Chatham via Project Chesapeake,

  It is a common reaction to ask, how much is that, when we see something we want or need. The question is answered with some monetary figure that people will recognize and use to determine if they can afford it. But what happens when the monetary system we know becomes so dysfunctional that common monetary values mean little.

  This could happen due to massive inflation, currency collapse or a frozen banking system that prevents you from accessing your funds. If you have no way to pay for something, it does not matter how much or little it costs. It will be out of your reach unless you have some means to pay.

  Some people keep cash on hand for just such a problem. They know they will be able to pay cash when everything else stops working. That will work for a time but eventually paper currency will be looked on as a diminishing asset as physical goods become more valuable to those that need them. Paper currency is not much different than a check you write on your account. If the account is empty your check is no good.

  The same can be said for those entities that issue paper money. If they are bankrupt or shut down, the value of their printed certificates will be worth the same as the bad check. Nobody will want to accept it after they realize it may not be honored for the value it supposedly holds. While a local store may accept it out of habit, eventually businesses will figure out the truth.

  In times like this alternative forms of money may become more viable to local individuals such as gold and silver. But, that may take some time and most people will not own any of these precious metals for trade. Some may resort to direct barter with some of the things they have amassed over the years to get the necessities they need and under these circumstances values will be variable and disconnected from reality at times.

  Some people have stored barter items for this eventuality rather than precious metals and there is nothing wrong with that if it gives them the feeling of safety they desire. One of the reasons they desire goods instead of metals is the fear that governments will call in precious metals as they did in 1933 and that is a legitimate fear but must be taken with some reflection on the facts.

  In 1933, gold and silver coinage was the circulating currency in the nation meaning most people had some in their possession. That is not the reality today as very few people have any knowledge of the value of metals and do not have them in their possession. The fact that the government can call in metals does not mean they will be able to relieve you of them.

  In 1933, on the river where I grew up, there was a store on the bank of the river that did a good business with all of the ships that came by. When the gold was called in in 1933, the store owner did not want to turn it in so he kept it hidden away. At the time he had a small chest full of gold coins. He kept that chest of coins until the 1970’s when gold was legal to own again and then he sold it for a good profit. This is a true story and just one example of how hard it would be for the government to call in all of the metals in private hands.

  It does not matter what you hold your savings in only that it will retain value when conventional paper currencies become a despised possession. When that happens you need the ability to buy the things you need with what you physically have on hand. The question you must answer is what will you have on hand when that day comes.

  

  

  

  

  

• XOM

  

  

  

  

  

• The World Map Of Hubris & Humiliation

  The journey from hubris to humiliation in EM has taken roughly 5 years. As BofAML notes, despite muted asset returns, 2015 has seen the emergence of two big trends: the risk of a bubble in US health care & technology; and the crash in EM/Resources/Commodities. The two trends are best exemplified by the "Map of Hubris & Humiliation" which shows among other things that the market cap of MSCI Russia is currently equivalent to Intel’s, while the market cap of Netflix equals that of MSCI Chile.

   

  

   

  Back in late 2010, when Sepp Blatter announced that Russia & Qatar would follow Brazil as hosts of the FIFA World Cup, both China & India were on course for >10% GDP growth, EM spreads were significantly lower, and the market cap of EM ($3.7 trillion on December 1st 2010) was twice the market cap of US banks, and exceeded the combined market cap of US tech & health care.

  Today, the market cap of EM equities is the same, while the combined market cap of US tech, health care and banks is over $10 trillion.

   

  Source: BofAML

  

  

  

  

  

• Ron Paul: "All Wars Are Paid For Through Debasing The Currency"

  Submitted by Mac Slavo via SHTFPlan.com,

  

  And at some point, all empires crumble on their own excess, stretched to the breaking point by over-extending a military industrial complex with sophisticated equipment, hundreds of bases in as many countries, and never-ending wars that wrack up mind boggling levels of debt. This cost has been magnified by the relationship it shares with the money system, who have common owners and shareholders behind the scenes.

  As the hidden costs of war and the enormity of the black budget swell to record levels, the true total of its price comes in the form of the distortion it has caused in other dimensions of life; the numbers have been so thoroughly fudged for so long now, as Wall Street banks offset laundering activities and indulge in derivatives and quasi-official market rigging, the Federal Reserve policy holds the noble lie together.

  Ron Paul told RT:

   

  Seen from the proper angle, the dollar is revealed to be a paper thin instrument of warfare, a ripple effect on the people, a twisted illusion, a weaponized money now engaged in a covert economic warfare that threatens their very livelihood.

  The former Congressman and presidential candidate explained:

  Almost all wars have been paid for through inflation… the practice always ends badly as currency becomes debased leading to upward pressure on prices.

   

  “Almost all wars, in a hundred years or so, have been paid for through inflation, that is debasing the currency,” he said, adding that this has been going on “for hundreds, if not thousands of years.”

   

  “I don’t know if we ever had a war paid though tax payers. The only thing where they must have been literally paid for, was when they depended on the looting. They would go in and take over a country, and they would loot and take their gold, and they would pay for the war.”

   

  As inflation has debased the currency, other shady Wall Street tactics have driven Americans into a corner, overwhelmed with debt, and gamed by rigged markets in which Americans must make a living. The economic prosperity, adjusted for the kind of reality that doesn’t factor into government reports, can’t match the costs of a military industrial complex that has transformed society into a domestic police state, and slapped Americans with the bill for their own enslavement.

   

  Dr. Paul notes the mutual interest in keeping the lie going for as long as the public can stand it… and as long as the gravy keeps rolling in:

   

  They’re going to continue to finance all these warmongering, and letting the military industrial complex to make a lot of money, before it’s admitted that it doesn’t work, and the whole system comes down because of the debt burden, which would be unsustainable.”

  Unsustainable might be putting it lightly. The entire thing is in shambles from the second the coyote looks down and sees that he’s run out over a cliff.

   

  

  

  

  

  

• Goldman Warns "The Global Economy Is Going Round In (Smaller & Smaller) Circles"

  Amid the collapse in commodities, crashing Chinese stocks, the weakest US wage growth in US history, and a data-dependent Fed; Goldman Sachs fears the new normal is 'shorter-and-faster' business cycles with no persistence primed by monetary policies. Most wprryingly, they conclude, will short business cycles beget shorter business cycles?

   

  

   

  As Goldman notes,

  Cycles: Shorter and faster

   

  Another factor keeping capex weak is poor visibility on global growth.

   

  The rate of change in our economists’ Global Leading Indicator, which tracks ten early indicators of global activity, suggests that cycles are becoming shorter over the last few years, i.e. neither positive nor negative data points persist for too long.

   

  This uncertainty provides a reason for companies to delay long-term capex and instead opt for as-a-service alternatives that provide greater flexibility. But, extending this argument on outsourcing capital intensity to its extreme would also imply shorter capex cycles for the users. If the advent of ERP software led to more efficient supply chains and shorter inventory cycles, we wonder if the rise in tech-driven services business models could do the same for capital investment cycles.

  In other words, will short business cycles beget shorter business cycles?

  

  

  

  

  

• The IMF Experts Flunk, Again

  Submitted by Steve Hanke via The Cato Institute,

  My Globe Asia column in May was titled “Greece: Down and Probably Out.” Well, it’s out. Yes, Greece descended from drama to farce rapidly.

  If all goes according to plan, the left-wing Greek government will come to an agreement with the so-called troika — the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF) — over the details of a third bailout program by August 20th. This rescue package will probably be worth €86 billion (U.S. $94.5 billion). So, since 2010, Greece will have received three bailouts worth a whopping €430 billion (U.S. $472.2 billion). This amounts to a staggering €39,000 (U.S. $42,831) for every man, woman, and child in Greece.

  Like past bailouts, the third one will fail to stop Greece’s economic death spiral. The experts from the EC, ECB, and particularly those from the IMF have been wrong about the prospects for the Greek economy since day one. The experts have failed to embrace a coherent theory of national income determination. Indeed, they have often engaged in ad hoc theorizing that has, at times, appeared to be convoluted and politically motivated. The result has been a series of wildly optimistic forecasts about the course of the Greek economy followed by wrongheaded policies.

  What has been missing from the experts’ toolkit is the monetarist model of national income determination. The monetary approach posits that changes in the money supply, broadly determined, cause changes in nominal national income and the price level (as well as relative prices — like asset prices). Sure enough, the growth of broad money and nominal GDP are closely linked. The data in the following chart speak loudly to the linkage.

  

  Greece’s monetary tune started to be played by the ECB in 2001, when Greece was allowed to adopt the euro on false pretenses. Yes, the experts at the Hellenic Statistical Authority had cooked the Greek books, and the experts at Eurostat knew the Greek data were phony. Still, Greece was allowed to enter the eurozone.

  Following the Northern Rock fiasco and bank run in September 2007 and the bankruptcy of Lehman Brothers in September 2008, the ECB allowed the supply of state money to grow. Then, in 2009, Jürgen Stark, the ECB chief economist, convinced the President of the ECB Jean-Claude Trichet that state money (the monetary base) was growing too rapidly and that excessive inflation was just around the corner. In consequence, the ECB withdrew its non-standard measures (read: credit facilities) to Greek banks in the spring of 2010. As the accompanying chart shows, that fateful ECB withdrawal marked a turning point in the growth of broad money in Greece. It, and the Greek economy, have been contracting ever since. This was in spite of a massive fiscal stimulus (a fiscal deficit of 12.7% of GDP) in 2009, prior to the October elections. Money dominates. The important thing to watch is the growth of broad money.

  

  Shortly after the October 2009 victory of the Panhellenic Socialist Movement brought George Papandreou to power, his government passed a so-called austerity budget in which the fiscal deficit was supposed to be squeezed down to 9.4% of GDP.

  Greece was clearly in trouble and needed a helping hand. But, the EC and ECB were untrusting of the Greek government. So, in March 2010, the IMF was called in to negotiate loan conditions for new Greek financing. Dominique Strauss-Kahn (DSK) was the IMF’s managing director and was preparing to run for the French presidency as the Socialist candidate. DSK was more than willing to give his socialist brothers in Athens a helping hand. In 2010, Greece received a massive bailout.

  Just how massive? Normally, the IMF is limited to lending up to six times a country’s IMF quota subscription to that country. However, if the IMF judges a country’s debt to be sustainable, then that country can qualify for “exceptional access,” and the IMF credit extended to such a country can exceed the 600% limit. Thanks to DSK and the IMF experts, the debt sustainability reports were rosy, until recently. The IMF, as well as the other members of the troika, extended credit to Greece, and did so generously.

  The following table tells the tale. Greece holds the record for the highest IMF credit level relative to a country’s quota.

  

  The first and second bailouts of May 2010 and February 2012 did boost the growth rate of state money. But, bank money, which accounts for the lion’s share (over 80%) of total money (M3) contracted at a very rapid rate. In consequence, the money supply (M3) has generally plunged since the bailouts, and so has nominal (and real) economic activity. And the worst is yet to come: note that the last dismal data for state and bank money in Greece are for June. Since then, things have deteriorated, with bank closures and the imposition of capital controls. This spells more trouble for Greek banks that produce over 80% of Greece’s money and for the economy.

  The four big Greek banks were already in trouble (as of Q1 2015). The accompanying table presents the Texas Ratios for the four banks that make up 87% of bank assets in Greece. Ratios over 100% mean that, if nonperforming loans must eventually be written off, a bank will become insolvent. If current data were available, I believe the nonperforming loans would be much higher than in the first quarter of 2015. In addition, with the collapse of the money supply and little chance of a recovery in the production of bank money, a high percentage of nonperforming loans will be written off. In consequence, the Greek banking system will be insolvent. This means that calls for a fourth Greek bailout are right around the corner.

  

   

  The IMF failures in Greece bring back vivid memories of the Asian Financial Crisis of 1997-98. On August 14, 1997, shortly after the Thai baht collapsed on July 2nd, Indonesia floated the rupiah. This prompted the IMF to proclaim that “the floating of the rupiah, in combination with Indonesia’s strong fundamentals, supported by prudent fiscal and monetary policies, will allow its economy to continue its impressive economic performance of the last several years.”

  Contrary to the IMF’s expectations, the rupiah did not float on a sea of tranquility. It plunged from 2,700 rupiahs per U.S. dollar at the time of the float to lows of nearly 16,000 rupiahs per U.S. dollar in 1998. Indonesia was caught up in the maelstrom of the Asian crisis.

  By late January 1998, President Suharto realized that the IMF medicine was not working and sought a second opinion. In February, I was invited to offer that opinion and began to operate as Suharto’s Special Counselor. I proposed as an antidote an orthodox currency board in which the rupiah would be fully convertible into the U.S. dollar at a fixed exchange rate. On the day that news hit the street, the rupiah soared by 28% against the U.S. dollar. These developments infuriated the U.S. government and the IMF.

  Ruthless attacks on the currency board idea and the Special Counselor ensued. Suharto was told in no uncertain terms — by both the President of the United States, Bill Clinton, and the Managing Director of the IMF, Michel Camdessus — that he would have to drop the currency board idea or forego $43 billion in foreign assistance.

  Why all the fuss over a currency board for Indonesia? Politics. The U.S. and its allies wanted a regime change in Jakarta, not currency stability. Former U.S. Secretary of State Lawrence Eagleberger weighed in with a correct diagnosis: “We were fairly clever in that we supported the IMF as it overthrew [Suharto]. Whether that was a wise way to proceed is another question. I’m not saying Mr. Suharto should have stayed, but I kind of wish he had left on terms other than because the IMF pushed him out.” Even Michel Camdessus could not find fault with these assessments. On the occasion of his retirement, he proudly proclaimed: “We created the conditions that obliged President Suharto to leave his job.”

  As the Indonesian episode should teach us, the IMF’s management can be very political and often neither trustworthy nor competent. Greece offers yet another chapter.

  

  

  

  

  

• Al-Qaeda Attacks CIA-Trained Syrian "Freedom Fighters"; Commander Captured

  Attempts to make sense of the prolonged, bloody conflict in Syria which threatens Turkey’s southern border and long ago spilled over into Iraq, are everywhere and always complicated by the constantly shifting alliances among the various groups fighting for control of the country. 

  For instance, commentators were taken off guard in April when al-Qaeda affiliate al-Nusra appeared to be working in tandem with rival ISIS in a push to control the Yarmouk refugee camp in Damascus. The siege – which transformed the camp into what Ban Ki-Moon called “the worst circle of hell” – also saw Palestinian militiamen forge awkward alliances with the Assad regime in the face of the militant assault. 

  Just this week, Turkey began bombing raids on ISIS targets, marking a departure from the country’s previous position and leading many to question why, given widespread suspicion that Turkey has been cooperating with ISIS for some time, Ankara would suddenly decide to go on the offensive (as we’ve shown, Erdogan’s motivation is purely political, but the official line is that a suicide bombing in Suruc forced the President’s reluctant hand). Turkey has also funnelled money to ISIS’ rivals in Syria in an effort to support any and all efforts (well, aside from those of the YPG) to overthrow Assad.

  As for the US, it’s virtually impossible to say which groups the CIA has or hasn’t supported over the course of the war and indeed, many suspect US intelligence of funding and training the very militants who eventually became ISIS (a suspicion that was recently confirmed in a leaked Pentagon document).

  Through it all, Syrian President Bashar al-Assad has desperately clung to power although a speech delivered last Sunday suggested that the strongman’s grip on the country had weakened materially in the face of a manpower shortage.

  Amid the chaos, the one thing that is abundantly clear is this: the US, Turkey, Saudi Arabia, and other parties with a vested interest in the trajectory of Syria’s political future all want Assad gone, and for Washington, openly supporting the various groups battling the regime is now virtually impossible given the now widespread acknowledgement that nearly everyone the US has trained or armed over the course of the civil war either already was or has since become an “extremist” (however one wishes to define that admittedly amorphous term). 

  The US effort to recruit and allign with “moderate freedom fighters” reached peak absurdity in May when the Pentagon announced that it would train “appropriately vetted” combatants who would help “meet the needs of Syrian opposition forces.”

  How has that program been going you ask?

  Not well.

  In fact, the US has only managed to recruit and train 54 people in three months- and that, believe it or not, is not the most embarrassing part. 

  Here’s The New York Times with more:

  A Pentagon program to train moderate Syrian insurgents to fight the Islamic State has been vexed by problems of recruitment, screening, dismissals and desertions that have left only a tiny band of fighters ready to do battle.

   

  Those fighters — 54 in all — suffered perhaps their most embarrassing setback yet on Thursday. One of their leaders, a Syrian Army defector who recruited them, was abducted in Syria near the Turkish border, along with his deputy who commands the trainees. They were seized not by the Islamic State but by its rival the Nusra Front, an affiliate of Al Qaeda that is another Islamist extremist byproduct of the four-year-old Syrian civil war.

   

  The abductions illustrate the challenges confronting the Obama administration as it seeks to marshal local insurgents to fight the Islamic State, which it views as the region’s biggest threat.

   

  
  

  So al-Nusra which, as The Times also notes, “dealt a more serious blow to the CIA program last year, attacking and dismantling its main groups, the Syrian Revolutionaries Front and Harakat Hazm, and seizing some of their American-supplied, sophisticated antitank missiles,” has now captured the commander and deputy commander of the new US “force”, marking a terribly humiliating blow to the latest ill-fated CIA -backed effort to locate and train the “good guys.” Reuters has more on the story:

  Al Qaeda’s Syria wing said on Friday it had detained members of a Syrian rebel group who had just returned from U.S. training, in a direct challenge to Washington’s plan to train and equip insurgents to combat the hard-line Islamic State group.

   

  In a statement that appeared to contradict comments from the Pentagon, Nusra Front said the men it was holding had entered Syria several days prior and had been trained under the supervision of the Central Intelligence Agency.

   

  It described them as agents of America and warned others they should abandon the programme. It also said a U.S.-led coalition had mounted air strikes against Nusra Front positions during fighting between the group and the rebels.

   

  Syrian opposition sources and a monitoring group said earlier this week that Nusra Front had detained the leader of the U.S-trained rebel “Division 30” and a number of its members. The Pentagon cast doubt on the reports on Thursday, saying no members of the “New Syrian Force” had been captured or detained.

   

  
  

   

  “We warn soldiers of (Division 30) against proceeding in the American project,” Nusra Front said in a statement distributed online. “We, and the Sunni people in Syria, will not allow their sacrifices to be offered on a golden platter to the American side.” 

  So ultimately, the CIA’s newest band of “freedom fighters” who are supposed to be fighting ISIS, are now fighting al-Nusra which is receiving funding from Turkey which as of last week, is now allied with the US in a fight against ISIS, only Turkey isn’t really fighting ISIS, it’s fighting the PKK which backs YPG which is really fighting ISIS and everyone involved is fighting Assad who would probably find the whole thing comically absurd were it not for the fact that it is ultimately his head that everyone is after.

  It goes without saying that all of this serves to make Washington look absolutely ridiculous and indeed, this may mark a new record low for US foreign policy gone horribly awry. 

  

  

  

  

  

• Bernie, The Koch Brothers, & Open Borders

  Submitted by Jeff Deist via The Mises Institute,

  Presidential hopeful Bernie Sanders recently raised the ire of both progressives and libertarians with his remarks concerning immigration:

  “Open borders? No, that’s a Koch brothers proposal,” Sanders said. “That’s a right-wing proposal, which says essentially there is no United States.”

   

  “It would make everybody in America poorer — you’re doing away with the concept of a nation state, and I don’t think there’s any country in the world that believes in that,” Sanders said. “If you believe in a nation state or in a country called the United States or (the United Kingdom) or Denmark or any other country, you have an obligation in my view to do everything we can to help poor people.”

  In just a few sentences, Sanders manages to demonstrate a hodgepodge of nativist, nationalist, protectionist, and socialist sentiments. But for anyone wondering why he wandered off the progressive narrative on immigration, it’s because protectionist labor unions pay him better than, say, La Raza.

  If Bernie Sanders sounds like Donald Trump when it comes to “taking our jobs,” consider that both are statists who reflect the widely and deeply held belief that nations are defined by states. This may be an uncomfortable reality for libertarians, but it is reality nonetheless.

  National borders by definition are political boundaries. They mark the edge of a particular territory over which a political entity — a state — claims exclusive jurisdiction.

  Since political borders require states, “open borders” is an oxymoron. Nothing controlled by government is “open,” whether we’re talking about the New York City taxi market or federal ethanol subsidies or the Brownsville, Texas border bridge.

  Open borders can exist only if states do not exist. States require borders because they are defined by borders.

  So from the statist perspective, Sanders is right: you can’t have large centralized states and unregulated borders, because those borders are at the heart of the state’s identity and its raison d’etre: control. The political technocrats who run modern nation-states have zero incentive to cede control over the flow of humans entering (or in some cases leaving) their territories. If anything, the political impulse is ever and always to expand the state’s zone of control by pushing borders outward.

  Immigration is a tricky issue for libertarians precisely because the very concepts of states, borders, and “public” land (the commons) are wholly inconsistent with a political and legal philosophy based on self-ownership and property rights. It’s hard to speak rationally about immigration under the present circumstances, because we’re so far from a free society that we risk piling one kind of illibertarian “solution” upon another.

  While the understandable libertarian impulse is to comport our principles with the innately human desire for free migration, we too often forget that the Noble Immigrant archetype is rooted in a statist view of immigration: one controlled by the state, in which public space trumps private property and free association. The benefits and detriments of immigration are weighed only in terms of their impact on the state.

  In a libertarian society, there is no commons or public space. There are property lines, not borders. When it comes to real property and physical movement across such real property, there are owners, guests, licensees, business invitees, and trespassers — not legal and illegal immigrants.

  Admittedly, it might be quite difficult to establish rightful (lawful) property owners under some sort of Lockean homesteading analysis — even in a nation as young as the US. While libertarians generally are absolutist regarding unfettered immigration, they will entertain “halfway” arguments about the most libertarian path available in a statist world on other topics (for example, see Sheldon Richman’s cogent argument analogizing access to public roads with access to publicly-issued marriage licenses). But if Hans-Hermann Hoppe offers an interim argument for dealing with the societal costs imposed by immigrants given our current system of “public goods” and entitlements, he is considered a wrongheaded statist. The same progressives and left-libertarians who champion tort liability for corporations when it comes to environmental damage fall strangely silent on the externalities caused by human migration.

  Let’s be clear: the tendencies of a society based on property rights may well make progressives and left-libertarians quite unhappy. Such a society necessarily entails freedom of association and its corollary, the right to exclude. Free association might well result in regions that develop naturally based on (gasp) shared familial, economic, linguistic, social, and cultural interests. Contra the DNC, government is not “the only thing we all belong to.”

  This is not to say that a libertarian concept of naturally arising “nations” entails a clannish retreat into suspicious enclaves. Surely a free society would have regions where market demand for the cosmopolitan benefits of life in a multicultural society prevails (imagine a stateless Singapore). But multicultural social democracies with vast welfare states, like Western Europe and the US, did not arise through the “market.” They are big-government constructs, and they are quickly becoming unsustainable. Multicultural welfare states are a recipe for disaster.  

  Unfortunately, it appears for now we are stuck with the likes of Mr. Sanders and his faulty concept of nation-states. But if we want to advocate for a freer society, we need to apply first principles rather than sentimentality. There is a deep-rooted and natural human preference for the familiar face over the stranger, and human migration in a free society is likely to reflect this reality.

   

  

  

  

  

  

• Should It Be A Crime To Shoot Down A Drone Over Your Property?

  A Hillview man has been arrested after he shot down a drone flying over his property – but he's not making any apologies for it. "I just think you should have privacy in your own backyard," said William Merideth, 47, "I went and got my shotgun and I said, "I'm not going to do anything unless it's directly over my property."" That moment soon arrived, "within a minute or so, here it came… it was hovering over top of my property, and I shot it out of the sky." Merideth was arrested and charged with first degree criminal mischief and first degree wanton endangerment…

  WDRB 41 Louisville News

  As WDRB reports, Hillview Police say they were called to the home of 47-year-old William H. Merideth after someone complained about a firearm, Sunday night at a home on Earlywood Way, just south of the intersection between Smith Lane and Mud Lane in Bullitt County, according to an arrest report.

  When they arrived, police say Merideth told them he had shot down a drone that was flying over his house. The drone was hit in mid-air and crashed in a field near Merideth’s home.

   

  Police say the owner of the drone claimed he was flying it to get pictures of a friend’s house — and that the cost of the drone was over $1,800.

   

  Merideth was arrested and charged with first degree criminal mischief and first degree wanton endangerment. He was booked into the Bullitt County Detention Center, and released on Monday.

   

  WDRB News spoke with Merideth Tuesday afternoon, and he gave his side of the story.

   

  “Sunday afternoon, the kids – my girls – were out on the back deck, and the neighbors were out in their yard,” Merideth said. “And they come in and said, ‘Dad, there’s a drone out here, flying over everybody’s yard.'”

   

  Merideth’s neighbors saw it too.

   

  “It was just hovering above our house and it stayed for a few moments and then she finally waved and it took off,” said neighbor Kim VanMeter.

   

  VanMeter has a 16-year-old daughter who lays out at their pool. She says a drone hovering with a camera is creepy and weird.

   

  “I just think you should have privacy in your own backyard,” she said.

   

  Merideth agrees and said he had to go see for himself.

   

  “Well, I came out and it was down by the neighbor’s house, about 10 feet off the ground, looking under their canopy that they’ve got under their back yard,” Merideth said. “I went and got my shotgun and I said, ‘I’m not going to do anything unless it’s directly over my property.’”

  That moment soon arrived, he said.

  “Within a minute or so, here it came,” he said. “It was hovering over top of my property, and I shot it out of the sky.”

   

  “I didn’t shoot across the road, I didn’t shoot across my neighbor’s fences, I shot directly into the air,” he added.

  It wasn’t long before the drone’s owners appeared.

  “Four guys came over to confront me about it, and I happened to be armed, so that changed their minds,” Merideth said.

   

  “They asked me, ‘Are you the S-O-B that shot my drone?’ and I said, ‘Yes I am,'” he said. “I had my 40 mm Glock on me and they started toward me and I told them, ‘If you cross my sidewalk, there’s gonna be another shooting.'”

  A short time later, Merideth said the police arrived.

  “There were some words exchanged there about my weapon, and I was open carry – it was completely legal,” he said. “Long story short, after that, they took me to jail for wanton endangerment first degree and criminal mischief…because I fired the shotgun into the air.”

  Merideth said he was disappointed with the police response.

  “They didn’t confiscate the drone. They gave the drone back to the individuals,” he said. “They didn’t take the SIM card out of it…but we’ve got…five houses here that everyone saw it – they saw what happened, including the neighbors that were sitting in their patio when he flew down low enough to see under the patio.”

   

  Hillview Police detective Charles McWhirter says you can’t fire your gun in the city.

   

  “Well, we do have a city ordinance against discharging firearms in the city, but the officer made an arrest for a Kentucky Revised Statute violation,” he said.

   

  According to the Academy of Model Aeronautics safety code, unmanned aircraft like drones may not be flown in a careless or reckless manner and has to be launched at least 100 feet downwind of spectators.

   

  The FAA says drones cannot fly over buildings — and that shooting them poses a significant safety hazard.

   

  “An unmanned aircraft hit by gunfire could crash, causing damage to persons or property on the ground, or it could collide with other objects in the air,” said FAA spokesman Les Dorr.

  Merideth said he’s offering no apologies for what he did.

  “He didn’t just fly over,” he said. “If he had been moving and just kept moving, that would have been one thing — but when he come directly over our heads, and just hovered there, I felt like I had the right.”

   

  “You know, when you’re in your own property, within a six-foot privacy fence, you have the expectation of privacy,” he said. “We don’t know if he was looking at the girls. We don’t know if he was looking for something to steal. To me, it was the same as trespassing.”

  For now, Merideth says he’s planning on pursuing legal action against the owners of the drone.

  “We’re not going to let it go,” he said. “I believe there are rules that need to be put into place and the situation needs to be addressed because everyone I’ve spoke to, including police, have said they would have done the same thing.”

   

  “Because our rights are being trampled daily,” he said. “Not on a local level only – but on a state and federal level. We need to have some laws in place to handle these kind of things.”

  So, should it be a crime to shoot down drones over your private property?

  *  *  *

  Finally, as an addenda, we note, as The BBC reports, the law isn't always in favour of drone pilots.

  Over the weekend, Californian officials agreed to offer a total of $75,000 (£48,000) in rewards for information that would help catch drone operators who flew their vehicles over recent wildfires in San Bernardino County.

   

  The flight of hobbyists' drones near to wildfires caused firefighting aircraft to be grounded for safety reasons, leading to the faster spread of the fires.

   

  District attorney Mike Ramos said in a statement: "We want to know who was flying drones, and we want them punished.

   

  "Someone knows who they are, and there is $75,000 waiting for them."

  *  *  *

  

  

  

  

  

• NATO Member Busted Supporting ISIS … Now Declares War Against ISIS, But Instead Bombs Its Political Rival (the Main Force …

  Turkey Enabling ISIS

  NATO member Turkey has been busted supporting ISIS.

  The Guardian reported this week:

  US special forces raided the compound of an Islamic State leader in eastern Syria in May, they made sure not to tell the neighbours.

   

  The target of that raid, the first of its kind since US jets returned to the skies over Iraq last August, was an Isis official responsible for oil smuggling, named Abu Sayyaf. He was almost unheard of outside the upper echelons of the terror group, but he was well known to Turkey. From mid-2013, the Tunisian fighter had been responsible for smuggling oil from Syria’s eastern fields, which the group had by then commandeered. Black market oil quickly became the main driver of Isis revenues – and Turkish buyers were its main clients.

   

  As a result, the oil trade between the jihadis and the Turks was held up as evidence of an alliance between the two.

   

  ***

   

  In the wake of the raid that killed Abu Sayyaf, suspicions of an undeclared alliance have hardened. One senior western official familiar with the intelligence gathered at the slain leader’s compound said that direct dealings between Turkish officials and ranking Isis members was now “undeniable”.

   

  “There are hundreds of flash drives and documents that were seized there,” the official told the Observer. “They are being analysed at the moment, but the links are already so clear that they could end up having profound policy implications for the relationship between us and Ankara.”

   

  ***

   

  However, Turkey has openly supported other jihadi groups, such as Ahrar al-Sham, which espouses much of al-Qaida’s ideology, and Jabhat al-Nusra, which is proscribed as a terror organisation by much of the US and Europe. “The distinctions they draw [with other opposition groups] are thin indeed,” said the western official. “There is no doubt at all that they militarily cooperate with both.”

   

  ***

   

  One Isis member says the organisation remains a long way from establishing a self-sustaining economy across the area of Syria and Iraq it controls. “They need the Turks. I know of a lot of cooperation and it scares me,” he said. “I don’t see how Turkey can attack the organisation too hard. There are shared interests.”

  While the Guardian is one of Britain’s leading newspapers, many in the alternative press have long pointed out Turkey’s support for ISIS.

  And experts, Kurds, and Joe Biden have accuses Turkey of enabling ISIS.

  Has Turkey Changed Its Ways?

  On Tuesday, Turkey proclaimed that it will now help to fight ISIS.

  Don’t buy it …

  Colonel Lawrence Wilkerson – former chief of staff to Colin Powell, and now distinguished adjunct professor of Government and Public Policy at William & Mary – asked yesterday:

  What is [Turkish president] Erdogan’s ultimate purpose? He hates Assad. He’d love to bring him down. Is that why he’s doing this?

  There’s also the Kurds …

  As Time Magazine pointed out in June:

  Ethnic Kurds—who on Tuesday scored their second and third significant victories over ISIS in the space of eight days—are by far the most effective force fighting ISIS in both Iraq and Syria.

  And yet Turkey is trying to destroy the Kurds. Time writes:

  Since [Turkey announced that it was joining the war against ISIS] it has arrested more than 1,000 people in Turkey and carried out waves of air raids in neighboring Syria and Iraq. But most of those arrests and air strikes, say Kurdish leaders, have hit Kurdish and left wing groups, not ISIS.

   

  ***

   

  Kurds are an ethnic minority that live in parts of Syria, Iraq, Turkey and Iran. They have been persecuted for decades — from Turkey’s suppression of Kurdish identity and banning of Kurdish language to Saddam Hussein’s use of chemical weapons on Kurdish communities. Their leaders, from the numerous different parties and rebel groups that represent them, have long sought an independent Kurdish state encompassing that territory and have fought against their respective governments to try to achieve that.

   

  ***

   

  Hoshang Waziri, a political analyst based in Erbil, says the Kurds’ recent territorial gains in Syria along Turkey’s border and their increasing political legitimacy in the eyes of the West, have made the Kurds a bigger threat to Turkey than ISIS. “The fear of the Turkish state started with the Kurdish defeat of ISIS in Tel Abyad,” says Waziri.

   

  ***

   

  “The image in the West of the Kurds as a reliable ally on the ground is terrifying for Turkey,” says Waziri. “So before it’s too late, Turkey waged its war — not against ISIS, but against the PKK.”

   

  ***

   

  Some see the war against ISIS simply as a cover for an attack on Kurdish groups. Of the more than 1,000 people Turkey has arrested in security sweeps in recent days, 80% are Kurdish, associated either with the PKK or the non-violent Kurdish Peoples’ Democratic Party (HDP), says ?brahim Ayhan, a member of parliament for the HDP.

   

  ***

   

  Ayhan says the AKP needs a state of “chaos” to perusade voters that it is the only bulwark against chaos. As of yet no new government has been formed in Turkey and if that doesn’t happen in the next few weeks, new elections will be called. By that time Ayhad fears many of the leaders of his HDP party will be in jail and some even worry the HDP will be outlawed. At the same time, Erdo?an and his AKP hope they will have shown only they can defend Turkey from internal and external threats.

  The Wall Street Journal reports:

  Turkey’s military activity against Islamic State does not stem from sudden realizations about threats from ISIS but appears designed to elicit international support for its fight against the Kurds.

   

  The Kurdish Workers’ Party, known as the PKK, was locked in a bloody war with the Turkish state from the mid-1980s until 2013. The cease-fire has, for all intents and purposes, been destroyed. Turkey is battling both ISIS and the PKK under the guise of fighting terrorism. Yet Turkish attempts to conflate ISIS and the PKK–even in the wake of the suicide bombing in a Kurdish border town that killed 32 young people–effectively ask people to overlook some salient facts:

   

  The Kurds are Islamic State’s ideological opposites. The Kurds have been fighting ISIS in Syria and Iraq for some time; in particular, the Kurdish People’s Protection Unit (YPG) in northern Syria has been among the most effective forces at repelling ISIS efforts to take control of the Syrian-Turkish border. Kurdish military resistance in Syria and, to a lesser extent, the Kurdish autonomous government in Iraq have shouldered the lion’s share of the ground conflict against Islamic State, standing their ground at high cost and with limited support from the Western coalition.

   

  ***

   

  A declaration of a state of emergency in Turkey would give the Justice and Development Party (or AKP), which lost its parliamentary majority in June elections, more flexibility to crack down on political opponents such as the Kurdish majority People’s Democratic Party. More than 1,300 people have been detained recently under the guise of cracking down on domestic PKK and ISIS elements in Turkey.

   

  The AKP has declared the peace process with the Kurdish separatists dead and is trying to discredit the only recognized political representatives of the Turkish left and the Kurdish population; the Kurdish People’s Democratic Party won a 13% share of the Turkish parliament in the June elections–a sign of its rising popularity not only among Kurds but also with increasingly disgruntled Turkish liberals.

   

  ***

   

  If a governing coalition isn’t formed, early elections will be held. The AKP appears to be hoping for that–under the thinking that a majority of voters would seek to maintain the status quo in a time of uncertainty and potential civil war, and that AKP’s standing in parliament would, in turn, be strengthened.

  So Turkey isn’t really going after ISIS … instead, the ruling party is going after its main political threat – the Kurds – and continuing its long-term effort to overthrow Syria’s Assad.

  

  

  

  

• Congress Passes Bill In 15 Minutes To Revoke Americans' Passports Without Due Process

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The “war on terror” is a status quo fraud perpetuated by the oligarch-controlled mainstream media and authoritarian members of Congress as a way to systematically strip the American public of its freedom and civil rights in the name of fighting an outside enemy. This tried and true tactic has been used by statists throughout history, and history is indeed repeating itself here in the “land of the free.”

  Of course, I’ve spent innumerable hours writing on this topic for many years, even before I started this website. Here are a few recent examples:

  The “War on Terror” Turns Inward – DHS Report Warns of Right Wing Terror Threat

  More “War on Terror” Abuses – Spying Powers Are Used for Terrorism Only 0.5% of the Time

  How the Department of Homeland Security Monitored and Tracked Peaceful “Black Lives Matter” Protests

  Moving along, today’s story is so incredible it’s almost hard to believe. It appears our so-called “representatives” recently took fifteen minutes to pass a bill that allows the Secretary of State to revoke Americans’ passports with no due process. Did you know about this? Well neither did I, and what’s worse, these members of Congress are so cowardly they passed the bill with a voice vote to avoid going on record. Talk about anti-American.

  First, from Reason:

  On Tuesday, without much notice, and after a whopping 15-minute debate, the U.S. House of Representatives passed via voice vote the Foreign Terrorist Organization Passport Revocation Act of 2015. Its intent: “To authorize the revocation or denial of passports and passport cards to individuals affiliated with foreign terrorist organizations, and for other purposes.” Some of the bill’s sparse details:

   

  The Secretary of State may refuse to issue a passport [or revoke a previously issued one] to any individual whom the Secretary has determined has aided, assisted, abetted, or otherwise helped an organization the Secretary has designated as a foreign terrorist organization

   

  How does today’s John Kerry or tomorrow’s John Bolton make such a determination? The bill doesn’t say.

  Don’t we have laws, courts and due process in this country? Guess not.

  It was also covered by Police State USA:

  A bill passed by the U.S. House of Representatives would allow the government to restrict Americans’ travel through the revocation of passports based upon mere suspicions of unscrupulous activity.  This bill represents another dangerous step forward in the war on terror and the disintegration of American due process.

   

  H.R. 237, the “FTO (Foreign Terrorist Organization) Passport Revocation Act of 2015,” will allow the U.S. Secretary of State the unchecked authority to prohibit individuals from traveling internationally.  According to the bill, the Secretary may unilaterally revoke (or refuse to issue) a passport from “any individual whom the Secretary has determined has aided, assisted, abetted, or otherwise helped an organization the Secretary has designated as a foreign terrorist organization pursuant to section 219 of the Immigration and Nationality Act (8 U.S.C. 1189).”

   

  The bill did not bother to define what the terms “aided, assisted, abetted, or otherwise helped” actually mean, in legal terms.  The power has been left open-ended so that it can mean whatever the secretary wants it to mean.  Needless to say, a bill like this would be easily abused.

   

  The travel restriction requires no presumption of innocence for the targeted individual; no explanation; no public presentation of evidence; no opportunity for a defense; no checks and balances on the power.  The bill does not outline any appeals process for the targeted individual.  The only stipulation is that the Secretary of State must issue a report to the Senate Committee on Foreign Relations and the House Committee on Foreign Affairs — “classified or unclassified.”  The bill does not state that either committee can reverse the secretary’s decisions.

  What’s really disturbing though, is that as I was researching this bill, I came across the fact that Congress is also sneaking in a provision to the highway-bill that would allow the IRS to revoke Americans’ passports if they owe the agency $50,000. Here’s some excellent coverage on the matter from the Ron Paul Institute:

  Just the other day we wrote about a US House “suspension” bill that would give the Secretary of State the authority to cancel your passport if he decided that you had “aided” an organization that he rules is terrorist. There is no definition of what “aided” means, no chance to dispute the Secretary’s decision, no trial or presentation of evidence, and in fact any evidence the government has can be classified as secret so that you may not see it. In effect the Secretary of State can unilaterally consign you to internal exile and there is nothing you can do about it.

   

  Because Members of the US House were too cowardly to go on record voting for such an anti-American piece of legislation, the bill passed by a voice vote.

   

  Today the US Senate plans to one-up its counterparts on the lowlier side of Capitol Hill. Buried inside the US highways funding bill is a provision to revoke or deny issuance of a US passport to anyone who has a large outstanding tax debt to the US Internal Revenue Service. According to a Senate Finance Committee summary (PDF) acquired today, the measure provides for:

   

  Revocation or denial of passport in case of certain unpaid taxes. This provision would authorize the Federal government to deny the application for a passport when an individual has more than $50,000 (indexed for inflation) of unpaid federal taxes which the IRS is collecting through enforcement action. It would also permit the Federal government to revoke a passport for such individuals. Before revocation, however, the Federal government would be allowed to limit a previously issued passport only for return travel to the United States or to issue a limited passport that only permits return travel to the United States. The provision would be effective on January 1, 2016, and is estimated to raise $0.398 billion over 10 years.As can be seen from the summary, this measure threatening to imprison Americans within (or outside) US borders is simply viewed as a means by which to raise revenue. The hoped-for increase in revenue coming from this threat is considered an “offset” to the money being spent on the highway bill — in other words the threat to imprison US citizens within their own country or freeze them out is considered appropriate incentive to force them to pay what the government claims it is owed.

   

  Unconvinced that the US government would do such a thing? Check the bill coming to the Senate Floor. Section 52102 of the Highway Funding bill, to be taken up by the Senate today,  states:

   

  If the Secretary receives certification by the Commissioner of Internal Revenue that any individual has a seriously delinquent tax debt in an amount in excess of $50,000, the Secretary shall transmit such certification to the Secretary of State for action with respect to denial, revocation, or limitation of a passport pursuant to section 52102(d) of the Transportation Funding Act of 2015.

   

  The use of citizenship rights as a weapon against Americans is becoming increasingly common as Washington is ever more desperate for control of its passport holders.

  Indeed, Congress does seem rather obsessed in creating various loopholes by which the government can snatch American citizens’ passports and restrict travel without due process. It makes you wonder if Ron Paul was right in 2011 when he stated: “Border Fence Will Be Used To ‘Keep Us In'”

  

  

  

  

  

• July Jangles Markets' Nerves: Treasury Yields Tumble, Stocks Fumble, & Commodities Crumble

  No excuse needed…

  This seemed to sum the talking heads up today…

  Everyone who loves the ECI index is now searching for another index to like

  — GreekFire23 (@GreekFire23) July 31, 2015

   

  Everything was awsome today after the worst wage growth in US history sent stocks soaring.. and then they unleashed The Bullard:

  • 1408ET *FED'S BULLARD SAYS "IN GOOD SHAPE" FOR SEPT HIKE: DJ VIA CNBC

  Complete chaos today…

  

   

  With cash indices ending mixed (Nasdaq desparately clinging to green and Small caps ripped on biotech reach for safety lol!!!)

  

   

  A complete disconnect between yields and stocks until Bullard spoiled the party…

  

   

  Today across bonds, stocks, and gold…

  

   

  Stocks were rolling over hard and then…

  • The Market Broke – 1532ET *NYSE HAVING BINARY GATEWAY LATENCY ISSUE ON IP 159.125.64.138

  And so VIX was slammed…to ensure S&P holds the all-important 2100 level…

  

   

  *  *  *

  Year-to-Date… Dow's down, Bonds down-er, Crude down-est… as The US Dollar is up 7.5%…

  

   

  Trannies are still the big laggards with Nasdaq leading…

  

   

  Led by Healthcare (Biotechs) as Energy remains the biggest loser…

  

   

  *  *  *

  It was quite a month!!

  Bonds hot, commodities cold, stocks meh…

  

   

  Bonds had their best month since January… (TLT +4.3%) – 2s30s biggest flattening (-23bps) since January

  

   

  Stocks managed – after this week's epic surge – to get into the green for July…Trannies best month since Feb (up 4.1%) but Small Caps (Russell 2000) fell for the first time since April…

  

   

  Commodities worst month since Sept 2011… to the lowest since April 2002

  

   

  • WTI Crude's worst month since Oct 2008 (down 20.5%) – lowest close since March 2015
  • Copper's worst month since Jan 2015 (down 10%) – lowest close since June 2009
  • Gold's worst month since June 2013 (down 6.5%) – lowest monthly close since Jan 2010
  • Silver's worst month since Sept 2014 (down 6%) – lowest monthly close since July 2009

  

  *  *  *

  On the week, Stocks soared…

  

   

  As VIX "Matterhorn"-ed…

  

   

  Bonds soared…

  

   

  The dollar ended the week unchanged…

  

   

  and all but silver slipped in commodities…

  

   

  Did we just reach the threshold for gold short-covering?

  

   

  And crude was crushed back to a $46 handle…

  

   

  Finally – despite all the huffing and puffing over how China saved the world again with their intervention, Chinese stocks suffered their worst week in the last 5, crashing 9-12%…

  

  The Shanghai Composite closed July down 14.4% – the worst month since August 2009.

   

  Charts: Bloomberg

  Bonus Chart: "Smart" Money Flow Continues To Signal Rotation To Weak Hands…

  

   

  

  

  

  

• "We Want The Names Of Anyone Who Sold" – China's Market Witch Hunt Enters Twilight Zone

  Having claimed 'foreign interests' were "waging an economic war" against China, it was ironic that the most outspoken of Chinese SOEs is now under investigation for 'selling' shares when it was told not to. As Reuters reports, China is extending its dragnet for "malicious sellers" to Hong Kong and Singapore as the witchhunt blame-mongery continues, Rather ominously, the China Securities Regulatory Commission (CSRC) has demanded trading records to try to identify those with net short positions who would profit in case of further falls in China-listed shares, three sources at Chinese brokerages and two at foreign financial institutions said. Even more incredibly, as Bloomberg reports, despite total ignorance by US regulators, China is 'daring' to crackdown on market manipulation via 'spoofing'.

  China is pressing foreign and Chinese-owned brokerages in Hong Kong and Singapore to hand over stock trading records, sources told Reuters, extending its pursuit of "malicious" short sellers of Chinese stocks to overseas jurisdictions.

  The markets regulator, the China Securities Regulatory Commission (CSRC), wants the trading records to try to identify those with net short positions who would profit in case of further falls in China-listed shares, three sources at Chinese brokerages and two at foreign financial institutions said.

   

  At its regular press conference on Friday, the CSRC said it had not directly contacted top executives at Hong Kong brokerages. It also noted that it was normal, in the course of an investigation, to reach out to "relevant parties".

   

  The regulator has declared war on "malicious short sellers" or those it deems are trying to profit from a fall in share prices, rather than adopt a short position as a financial hedge.

   

  "The implied threat by the CSRC is that anything that is not a hedge is a no-no," said a source in Hong Kong with knowledge of the requests. This person added that foreign brokers were likely to comply as best they could with the requests.

   

  "When the CSRC makes an offer, you cannot refuse it."

   

  …

   

  The CSRC has no regulatory power in Hong Kong or other jurisdictions, such as Singapore and the United States, where investment products tracking mainland shares are listed, and can be legally shorted.

   

  But market sources worry that Chinese regulators are intent on suppressing any attempt to profit from China's sliding markets, including trying to suppress even legal investment behavior by referring to it as "malicious" or otherwise irregular.

   

  At the same time, the government is trying to rally retail investors who dominate trading in China to put money back into the market, a task made more difficult if investors offshore are making bets on falling prices.

  As we have detailed in depth previously, spoofers make money by feigning interest in buying or selling at a certain price, creating the illusion of demand in an attempt to make other traders move the market. The spoofer cancels the original order and buys or sells at the new price to make a profit. And so as Bloomberg reports, spoofing has become the latest target in China’s campaign against stock-market manipulation after a $3.5 trillion selloff.

  “It certainly looks like spoofing is at play here,” said Bernard Aw, a strategist at IG Asia Pte Ltd. in Singapore. “Given that this practice is seen as market manipulation, it is not surprising to see CSRC stepping in.”

   

  The practice, which involves placing then canceling orders to move prices, is suspected in 24 accounts on the Shanghai and Shenzhen stock exchanges, the China Securities Regulatory Commission said on its microblog. The bourses have restricted the accounts and regulators are investigating program traders, who have recently had an “obvious” impact on the stock market, the CSRC said.

   

  China’s focus on spoofing follows a probe of “malicious” short selling, part of the government’s unprecedented effort to shore up investor confidence.

   

  “The public isn’t happy about the market plunge so the regulator needs to take some actions as a response, and that’s part of the government’s plan to prop up the market,” said Zhang Haidong, the chief strategist at Jinkuang Investment Management in Shanghai. “Whether it’ll be effective remains to be seen.”

  *  *  *

  As one trader noted,

  Spoofing "works on the way up and the way down, so it’s interesting it’s only a problem when it causes equity prices to fall."

  And so, just as we have remarked previously, this kind of manipulation will be tolerated in the US markets until such time as stocks begin to tumble then it will be scapegoated as the sole reason why equity confidence collapsed.

  

  

  

  

  

• 5 Things To Ponder: Mentally Conflicted

  Submitted by Lance Roberts via STA Wealth Management,

  I had a very interesting conversation with one my colleAgues yesterday about the markets and the economy. Essentially the discussion centered around the markets remaining near their all-time highs as economic data remained soft. Much like the "300" that defended Greece against the massive invading force of Persia, it is only a question of time before the battle is lost.

  As I discussed on Monday in "When Will We Ever Learn…"

  "The capacity for optimism is seemingly limitless, but the "sting" of failure is quite transient.

   

  While it is in those failures that valuable lessons are taught, studies have shown that humans tend to suppress or substitute new memories over time.

   

  George Santayana once said:

   

  "Those who cannot remember the past are condemned to repeat it."

   

  The phrasing itself certainly is catchy, and is often used in the financial media due to its underlying truth. If history is a guide to the results of previous actions, and those results were painful, then history should guide not only policy making (public and private) but our own behaviors as well.

   

  It's hard to disagree with. Over the history of the financial markets (all the way back to the 1600's) speculative investing has repeatedly led to booms and busts.

   

  Importantly, each of these "bubbles" involved an excessive level of speculation around some specific asset.

   

  Of course, it is all rather obvious in hindsight. Valuations were high, the Fed was hiking interest rates and the love affair with stocks and leverage had reached historically high levels.

   

  Today, there are many signs that the markets are once again approaching a "danger zone." Margin debt is once again at historically high levels; valuations are the second highest in history and the "love affair" with equities has pushed stocks to record highs. But these areas are really just a reflection of the excesses that are building elsewhere in the financial system."

  The disconnect between economic underpinnings, market internals and "bullish" investor optimism leaves many investors/advisors "mentally conflicted." If they "sell" too soon, they might miss a further advance in the market. But if they wait too long, well, they have lived through that scenario previously.

  This week's reading list is a smattering of conflicting views about the markets and the economy. As always, it is extremely valuable to analyze both sides of every argument. This reduces confirmation bias and leads to a better assessment of potential flaws that may exist in your investment thesis.

  ---

  1) The US Stock Market And A Major Recessionary Warning? by Pater Tenebrarum via Acting Man Blog

  "The deterioration in market internals is e.g. evident in new high/new low ratios that are inconsistent with a market making new highs, and a growing divergence between prices and advance/decline statistics. Also, an ever smaller percentage of stocks remains above important moving averages. Below is a chart depicting several of the most widely followed market internals (high/low percent, advance/decline line, S&P 500 stocks above 200 day and 50 day EMA).

   

  What this essentially tells us, is that capitalization-weighted indexes are held up by an ever smaller number of big cap stocks. A the time of writing, a strong short term rebound in the stock market is underway. However, the underlying problems with trend uniformity and internals depicted below remain in place."

  

  Read Also: Several Reasons To Remain Bullish On Stocks by Chris Ciovacco via Ciovacco Capital

   

  2) "Extreme Fear" Is Back For The Stock Market by Heather Long via CNN Money

  "What's going on? Investors are spooked by the same factors that have been around for months: China's slowdown, Greece's possible exit from the euro, and the Federal Reserve's first interest rate hike expected in September.

   

  None of this is new, but it's getting real. On Monday, China's Shanghai Composite index fell a whopping 8.5% — its worst single day decline since February 2007. While America investors don't have a lot of exposure to China's stock market, they do have exposure to China's economy since so many U.S. businesses are now operating there.

   

  China's economic slowdown is the bigger concern. The stock market plunge is seen as more of a warning sign to the rest of the world."

   

  Read Also: The Secret For Beating The Market by Nouriel Roubini via Project Syndicate

   

  3) The S&P 500 And Stock Buybacks by Ironman via Political Calculations

  "How different would the value of the S&P 500 be if not for the amount of stock buybacks that have taken place in the U.S. stock market since the end of 2008?

   

  What we see from our highly simplified, back-of-the-envelope math is that through the end of the first quarter of 2015, the most recent for which S&P has reported data at this writing, the value of the S&P 500 would be about 324 points, or nearly 16%, lower if not for the progressive impact of share buybacks over the last seven years."

  

  Read Also: Putting The "Buy Back" Craze Into Context by Eric Bush via GaveKal Capital

   

  4) When Will The Next Recession Start? by Ed Yardeni via Dr. Ed's Blog

  "I doubt that the business cycle is dead, though I suspect that inflation may be dead. As inflation remains subdued and central banks continue to provide ultra-easy monetary policies, the next recession may very well be a long ways off. If inflation makes a sudden comeback, a possibility I can't dismiss, then all bets are off. A meltdown in China's financial markets and economy might also trigger a global recession, which is why I am concerned about the renewed weakness in commodity prices, as I discussed last week."

  Read Also: Recession Ahead? Gross Output and B2B Data by Dr. Mark Skousen via MSkousen.com

  Read Also: Leaked Fed Staff Forecast Reflects Gloomier Outlook by Binyamin Appelbaum via New York Times

   

  5) Investors Should Raise Cash by Michael Kahn via Barron's

  "But what I find more interesting is that the last time the market suffered a significant correction, aside from last year's Ebola-inspired mini-panic, the industrials broke down first. That was in the summer of 2011 and the industrial sector broke down about a week before the broad market did (see Getting Technical, "Industrial Stocks Are Shutting Down," August 1, 2011). Although we cannot make a rule out of so few observations, it probably is a good idea to keep cash levels higher than normal."

  

  Read Also: Its A Bounce For This Key Market Gauge, Or Else by Dana Lyons via Tumblr

  ---

  Other Interesting Reads

  Sometimes, Investors Win By Not Losing by Joe Calhoun via Alhambra Partners

  Am I Too Bearish, Or Are you Too Bullish by Jesse Felder via The Felder Report

  Jeremy Grantham's 10 Issues To Watch by Jeremy Grantham via ZeroHedge

  6 Great Investors Explain What Makes Stocks Rise by Lauren Rublin via Barron's

  ---

  "I have always found it valuable to study my mistakes" – Edwin Lefevre

  Have a great weekend.

  

  

  

  

  

• "You've Got Jail"

  Forget The White House… Hillary is heading to The Big House…

   

  

   

  Source: Investors.com

  

  

  

  

  

• Is This The Top? Private Equity "Exits" Surge To Record Highs

  After a slow first quarter of 2015, the private equity industry experienced a revitalization in Q2-2015. Investment dipped by less than 1 percent to $112 billion, holding strong at the second highest Q2 level since 2007, fundraising fell to $30 billion. . Meanwhile, as ValueWalk details, exit volume exploded last quarter to $125 billion – the highest level on record – raising the question: "if everything is so awesome, why the smartest people in the room selling to the public at the heaviest pace ever?"

  Via Valuewalk,

  Some key metrics of the private equity industry in the second quarter of 2015 are:

  U.S. Private Equity Investment Volume Decreases

  Quarterly U.S. private equity investment deal volume fell slightly from $113 billion in Q1-2015 to $112 billion in Q2-2015.

  Current Level – $112 B

  Quarterly Change % – -1%

  Equity Contributions Hold Steady

  Total equity financing for U.S. leveraged buyouts remained at 42% in Q2-2015.

  Current Level – 42%

  Quarterly Change % – 0%

  U.S. Fundraising Levels Fall

  Quarterly U.S. private equity fundraising volume declined from $38 billion in Q1-2015 to $30 billion in Q2-2015.

  Current Level – $30 B

  Quarterly Change % – -21%

  Dry Powder Increases

  Callable capital reserves (“dry powder”) of global buyout funds increased from $431 billion in December 2014 to $467 billion as of the end of June 2015.

  Current Level – $467 B

  Quarterly Change % – +8%

  Exit Volume Jumps

  U.S. private equity exit volume grew from $70 billion in Q1-2015 to $125 billion in Q2-2015.

  Current Level – $125 B

  Quarterly Change % – +80%

  Fig 1 The four-quarter average for exits took a sharp turn upwards in 2015-Q2, while the average for investments and fundraising decreased.

  

  Fig 2 U.S. private equity investment volume contracted by 1% from the previous quarter.

  

   

  Fig 3 The proportion of equity financing for U.S. leveraged buyouts remained at 42%.

  

  Fig 4 Capital raised by U.S. private equity funds declined from the previous quarter to $30 billion.

  

  Fig 5 Global callable capital reserves (“dry powder”) of buyout funds increased to $467 billion as of June 2015.

  

  Fig 6 U.S. private equity exit volume grew from previous quarter levels to $125 billion.

  

   

  So – to summarize – funding levels are falling, dry powder is rising, and exit volume are at record highs… Still want to buy stocks with both hands and feet!!!!

  

  

  

  

  

• Friday Humor: The Trump White House & Cabinet

  Having told Jimmy Kimmel that he "would love to" appoint Sarah Palin to his cabinet, The Washington Post asks (and answers), just what would a trump cabinet look like?

  Because Trump is busy poring over poll numbers and reviewing tape from focus groups, we went ahead and cobbled it together for him.

  Vice President: Oprah Winfrey, per Trump's past suggestion. Would she run with Trump? If Donald Trump can convince the Hispanic vote to come out for him, which he insists he can, he can certainly convince Winfrey to join his ticket. He has great negotiators.

   

  Secretary of the Interior: Sarah Palin. Granted, Palin would probably like something a little more substantive than this, but what other candidate can brag about having toured the country hunting various animals for a TV show? In case Palin declines, maybe reach out to that dentist.

   

  Attorney General: His go-to counsel, Michael Cohen.

   

  Secretary of Homeland Security: Joe Arpaio. Trump's campaign shot into the stratosphere after his appearance with Arpaio at an immigration event in Arizona. This has the added benefit of helping to keep the Department of Justice off Arpaio's back.

   

  Secretary of State: We know that Trump thinks that Hillary Clinton was the worst secretary of state in American history. He clearly wants the opposite of that. So how about Vladimir Putin, whom Trump has repeatedly praised? He's pretty opposite.

   

  Secretary of Housing and Urban Development: Ivanka Trump. Public housing is basically just a no-frills hotel, right?

   

  Secretary of Health and Human Services: Dr. Oz.

   

  Secretary of Transportation: Christophe Georges, president of Bentley Motors.

   

  Secretary of Energy: Manoj Bhargava.

   

  Secretary of Education: Michael Sexton, former president of Trump University, which was a thing.

   

  Secretary of Agriculture: Secretary of Agriculture: Tom Fazio, Trump's golf course architect. Who knows more about proper watering and vegetation maintenance than this guy? Also, the imminent desertification of swaths of California sounds much better if you think about the process as "the creation of challenging new sand bunkers."

   

  Secretary of the Treasury: Donald Trump. Sure, it's more common for the president to appoint someone else to this position, but who's better at managing money than Donald Trump? No one. He's the best.

   

  Secretary of Veterans Affairs: Donald Trump. Sure, it's more common to etc., etc. But who cares more about the veterans than Donald Trump? No one.

   

  Secretary of Defense: Donald Trump. Sure, etc., etc., etc., ISIS, etc. No one.

   

  Secretary of Labor: Position will be left unfilled.

  Interest in Trump is rising notably…

  

   

  And finally…

  Artist's impression of The Trump White House…

  

  h/t ZH Member 38BWD22

  

  

  

  

  

• Will FTC Probe Of Largest For-Profit College Lead To Another Billion Dollar Taxpayer Bailout?

  In late April we predicted that for-profit college closures would trigger the next multibillion dollar taxpayer-sponsored bailout in America. 

  At the time, Corinthian Colleges had abruptly shuttered what remained of its campuses, marking an unceremonious end to a slow motion wind down that had been in the works for quite some time. 

  As we noted then, delinquencies and defaults on student loans are far worse for borrowers that attend for-profit colleges. This, along with poor graduation rates and allegations of deceptive marketing practices, has led to increased government scrutiny of the for-profit sector, scrutiny which ultimately caused Corinthian to wind down operations last year amid allegations it falsified job placement rates.

  The company received nearly $1.5 billion per year in financial aid funding from the government, meaning the US taxpayer was subsidizing federal loans to students who very well may have been getting a subpar education and were thus even more likely to get behind on their loans and eventually default. Corinthian was able to sell off many of its campuses in November and although the writing had been on the wall for quite sometime, the sudden closure of its remaining physical campus still came as a surprise to students and faculty.

  The reason this matters is that the law allows students to apply for debt relief from the Department of Education when the school they attend is closed and found to have defrauded attendees. Here’s an excerpt from a Reuters piece that ran shortly after the closures:

  More than 50 consumer and labor organizations sent a joint petition on Tuesday to U.S. Secretary of Education Arne Duncan, urging him to cancel federal student loans owed by 78,000 who attended Corinthian schools.

   

  The groups, including the National Consumer Law Center, said the Department of Education had the authority because Corinthian misrepresented its job placement rates and defrauded students by enrolling them in high-cost, low-quality classes.

  What’s critical to understand here is that, as noted last month, “these institutions rely heavily on federal student loans for their very existence [and] tuition rates at for-profit colleges are, on average, double the rates charged by large public universities, a fact which explains why nearly 90% of students at for-profit schools have taken out loans to pay for their education.”

  So these students are i) almost certain to have borrowed from the government, and ii) their loan balances are almost certain to be higher, on average, than loan balances for students at public universities.

  When you combine this with the government’s ongoing crackdown on the for-profit sector and the fact that if the government closes a for-profit school, the students are eligible for debt relief, you have the perfect recipe for massive taxpayer-funded bailouts of heavily indebted students. 

  Anyone who thought we were exaggerating when we predicted a multibillion dollar hit for taxpayers got a rude awakening when, early last month, the government announced plans to write off nearly $4 billion in loans for students that attended Corinthian.

  The takeaway, as we wrote way back in April, is this: The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with hundreds of billions of loans they now know can be legally discharged. 

  Well, sure enough, the government is now looking into University of Phoenix parent Apollo Education. Here’s Bloomberg: 

  Apollo Education Group Inc., owner of the University of Phoenix for-profit college chain, fell as much as 9.4 percent after U.S. regulators began investigating possible unfair advertising and marketing.

   

  The Federal Trade Commission demanded information on enrollment, recruiting, financial aid, tuition and other business practices from 2011 to the present, Phoenix-based Apollo said in a filing with the Securities and Exchange Commission. Apollo said it will cooperate fully.

   

  The FTC and other government agencies are examining the practices of for-profit colleges amid concerns they are recruiting students with misleading pitches about the value of their education. Downers Grove, Illinois-based DeVry Education Group Inc., another for-profit college chain, received a similar notice from the FTC last year and said it is cooperating.

  From the filing:

  Apollo Education Group, Inc. announced that it received yesterday a Civil Investigative Demand from the U.S. Federal Trade Commission. The Demand indicates that it relates to an investigation to determine if certain unnamed persons, partnerships, corporations, or others have engaged or are engaging in deceptive or unfair acts or practices in or affecting commerce in the advertising, marketing, or sale of secondary or postsecondary educational products or services or educational accreditation products or services. The Demand requires Apollo to produce documents and information regarding a broad spectrum of the business and practices of its wholly-owned subsidiary, University of Phoenix, Inc., including in respect of marketing, recruiting, enrollment, financial aid, tuition and fees, academic programs, academic advising, student retention, billing and debt collection, complaints, accreditation, training, military recruitment, and other compliance matters, for the time period of January 1, 2011 to the present.

  We’re quite sure we’ll be discussing this extensively sooner rather than later, but for now we’ll close with an excerpt from US News & World Report on Corinthian’s bankruptcy and a screenshot from Apollo’s latest 10-Q. Bearing in mind that the Corinthian closure may cost taxpayers $3.6 billion, see if you can determine why a government mandated shutdown of Apollo could present a problem.

  In court documents, Corinthian listed total assets of $19.2 million and total debts of more than $143 million. At its peak during 2013, the company operated more than 100 campuses in states such as Arizona, California, Hawaii and Oregon, and enrolled more than 81,000 students, according to court documents.

  

  

  

  

  

  

• Spot The Greek Referendum

  When fiat fragility shows its fecklessness, it appears people turn to the alternatives…

   

  

   

  As Grexit fears loomed, Bitcoin transactions surged, as we noted here, amid efforts to avoid capital controls. As Reuters reported,

  Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country.

   

  "When people are trying to move money out of the country and the state is stopping that from taking place, bitcoin is the only way to move any value," said Adam Vaziri, a board member of the UK Digital Currency Association.

   

  "There aren't any other options unless you buy diamonds, and that's very difficult to move."

   

  But Marinos said the bitcoin buyers' main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency. If voters reject the demands of international creditors in a referendum on Sunday, this becomes much more likely.

   

  "A lot of people are keeping all the bitcoins they buy on our platform, until they understand what to do with them," Marinos said. "In their eyes, now they have bitcoins, they're safe."

  *  *   *

  Source: Goldman Sachs

  

  

  

  

  

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• Liar Loans Pop up in Canada’s Magnificent Housing Bubble

  Wolf Richter   www.wolfstreet.com   www.amazon.com/author/wolfrichter

  For a long time, the conservative mortgage lending standards in Canada, including a slew of new ones since 2008, have been touted as one of the reasons why Canada’s magnificent housing bubble, when it implodes, will not take down the financial system, unlike the US housing bubble, which terminated in the Financial Crisis.

  Canada is different. Regulators are on top of it. There are strict down payment requirements. Mortgages are full-recourse, so strung-out borrowers couldn’t just mail in their keys and walk away, as they did in the US. And yada-yada-yada.

  But Wednesday afterhours, Home Capital Group, Canada’s largest non-bank mortgage lender, threw a monkey wrench into this theory.

  Through its subsidiary, Home Trust, the company focuses on “alternative” mortgages: high-profit mortgages to risky borrowers with dented credit or unreliable incomes who don’t qualify for mortgage insurance and were turned down by the banks. They include subprime borrowers.

  So it disclosed, upon the urging of the Ontario Securities Commission, the results of an investigation that had been going on secretly since September: “falsification of income information.” Liar loans.

  Liar loans had been the scourge of the US housing bust. Lenders were either actively involved or blissfully closed their eyes. And everyone made a ton of money.

  So Home Capital revealed that it has suspended “during the period of September 2014 to March 2015, its relationship with 18 independent mortgage brokers and 2 brokerages, for a total of approximately 45 individual mortgage brokers,” who’d together originated nearly C$1 billion in single-family residential mortgages in 2014. That’s 5.3% of the company’s total outstanding loan assets, and 12.5% of its total single-family mortgage originations in 2014.

  That’s a big chunk. The company, however, didn’t disclose why it took so long to disclose this.

  It said an “external source” had warned it about income falsification on mortgage applications submitted by a number of brokers. Its investigation did not find any evidence of falsified credit scores or property values, it said.

  It’s not hard for a lender to require income verification. Not requiring it is precisely what US lenders had done before the Financial Crisis. Add a little encouragement from a broker, and that’s how you get perfect liar loans.

  Home Capital had already announced on July 10 (Friday afterhours!) that in Q2, originations of high-margin uninsured mortgages had plunged 16% and originations of lower-margin insured single-family mortgages had plummeted 55% because it had axed some brokers. Its shares plunged 20% the following Monday and another 4% the next day [read… Largest “Alternative” Mortgage Lender in Canada Plunges, Denies “Systemic Problem” in Housing Market].

  At the time, HCG was the fourth most shorted stock in Canada. By July 29, the day before the current announcement, HCG had risen to the second most shorted stock. Today, massive short-covering set in, and shares soared 13%, but remain 42% below where they’d been during the halcyon days last November.

  “Everyone had their ideas about what transpired in the past six months; this corroborates some suspicions but dispels some others,” Shubha Khan, an analyst at National Bank Financial told the Financial Post, adding – with Canadian understatement – that there were “still some questions.”

  Among them, whether these insured liar loans would continue to be insured; and whether this was an isolated problem, rather than an industry issue in the Canadian housing market. In other words, is it just the tip of the iceberg?

  Housing bubbles are money generators. Temptations are huge. Falsifying mortgage applications is easy if no one checks them. It’s a mad scramble to extract as much money as possible for as long as possible – but with a devastating aftermath.

  Now liar loans are coming out of the Canadian woodwork. The much touted down-payment requirements in Canada have already fallen apart. Don’t have the money for even 5% down? Solutions are openly promoted, for example:

  It is not a problem anymore!!! Canada Mortgage & Financial Group (CMFG) has a new product that now allows you to borrow your down payment from any source…. The only amount you need to show on your own is 1.5% of the purchase price….

  With regulators breathing softly down their necks, banks might have become more careful in lending to people to buy homes that are among the most overpriced in the world. What has that accomplished? The rise of alternative lenders in the shadow banking system. They’re not subject to the same regulations as banks.

  “There’s a lot more that can be hidden from the public, things that are not right could not be noticed early on,” Michael Dolega, a senior economist at TD Economics, told the Huffington Post of Canada. “The quality is slipping, and it’s far more questionable for some of these smaller lenders, but at the same time I think it’s still better than it was in the U.S., when it went south pretty quickly.”

  Yes, this time it’s different.

  But the patterns are crystallizing: Home Capital Group with liar loans on its books, CMFG with ultra-low down-payment loans on its books…. In banking, bad deals are made in good times.

  Even the Bank of Canada, in its most recent Financial System Review in June, fretted over the risks in the shadow banking system due to its “less regulated nature” and outright “opacity,” and considered it a “particularly important vulnerability” to financial stability. While the sector is still relatively small, it would impact the overall economy, it said.

  But it’s not so small anymore – estimated at 10% of Canada’s mortgage market and growing rapidly: A report by CIBC (Canadian Imperial Bank of Commerce), cited by the Huffington Post, found that lending by alternative lenders had doubled since 2012, and as of the Q3 last year, was still growing 20% year-over-year.

  This comes at the worst possible time for Canada. The economy likely shrank in the first half. Hence, the Conference Board of Canada just downgraded growth to 1.6% in 2015, worst since 2009. It sees some deep problems, after a 15.5% plunge in business investment in Q1:

  Oil and gas firms are expected to chop their investment by almost one-third…. Outside the energy sector, firms remain hesitant to invest. Purchases of machinery and equipment suffered a substantial decline in the first quarter of the year, and a decline in building permits suggests a downturn in commercial construction in 2015. Overall, business investment will drop by close to 7% this year.

  Household spending is also expected to weaken, despite savings for consumers at the gas pump and federal tax cuts. Soft employment growth, weak wage gains, high level of household debt and job losses in oil producing provinces will combine to limit growth in consumer spending to 2.1% in 2015.

  That would be the optimistic scenario. It assumes that the magnificent housing bubble can be maintained; but all bets are off if it takes liar loans, among other underwriting schemes, to maintain it. And when the housing bubble deflates, all these schemes that are forgiven as long as prices rise will turn into an unappetizing mess.

  The problems are already spreading in the Canadian real estate sector. Read… Epic Glut of Office Space Crushes Hope in Canadian Oil Patch

  

  

  

  

• Debt Slaves: 7 Out Of 10 Americans Believe That Debt "Is A Necessity In Their Lives"

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

  Could you live without debt?  Most Americans say that they cannot.  According to a brand new Pew survey, approximately 7 out of every 10 Americans believe that “debt is a necessity in their lives”, and approximately 8 out of every 10 Americans actually have debt right now.  Most of us like to think that “someday” we will get out of the hole and quit being debt slaves, but very few of us ever actually accomplish this.  That is because the entire system is designed to trap us in debt before we even get out into the “real world” and keep us in debt until we die.  Sadly, most Americans don’t even realize what is being done to them.

  In America today, debt is considered to be just part of normal life.  We go into debt to go to college, we go into debt to buy a vehicle, we go into debt to buy a home, and we are constantly using our credit cards to buy the things that we think we need.

  As a result, this generation of Americans is absolutely swimming in debt.  The following are some of the findings of the Pew survey that I mentioned above…

  *”8 in 10 Americans have debt, with mortgages the most common liability.”

   

  *”Although younger generations of Americans are the most likely to have debt (89 percent of Gen Xers and 86 percent of millennials do), older generations are increasingly carrying debt into retirement.”

   

  *”7 in 10 Americans said debt is a necessity in their lives, even though they prefer not to have it.”

  Most of us wish that we didn’t have any debt, but we have bought into the lie that it is a necessary part of life in America in the 21st century.

  It has been estimated that 43 percent of all American households spend more money than they make each month, and U.S. households are more than 11 trillion dollars in debt at this point.

  When it comes to government debt, that is easy for us to blame on someone else, but all of this household debt is undoubtedly something that we have done to ourselves.

  It all starts at a very early age for most of us.  When we are still in high school, we are endlessly told about how important a college education is.  All of the authority figures in our lives insist that we should just try to get into the best school that we possibly can and to not even worry about how much it will cost.

  So many of us go into staggering amounts of debt before we even get out into the working world.  We had faith that the “good jobs” that were being promised to us would be there when we graduated.

  Unfortunately, in this day and age those “good jobs” end up being a mirage more often than not.

  But whether or not we can find a good job, we still have to pay off all that debt.

  According to new data that was recently released, the total amount of student loan debt in the United States has risen to a grand total 1.2 trillion dollars.  If you can believe it, that total has more than doubled over the past decade.

  Right now, there are approximately 40 million Americans that are paying off student loan debt.  For many of them, they will keep making payments on this debt until they are senior citizens.

  Another way that they get you while you are still in school is with credit card debt.

  I got my first credit card while I was in college, and nobody ever taught me about the potential dangers.

  Today, the average U.S. household that has at least one credit card has approximately $15,950 in credit card debt.

  So let’s say that you have that much credit card debt and you are paying an annual interest rate of 17 percent.  If you only pay the minimum payment each month, it will take you 229 months to pay your credit card off, and during that time you will have paid $13,505.82 in interest charges.

  In other words, you will almost have paid twice as much for everything that you originally bought with your credit card by the time it is all said and done.

  This is why banks love to give you credit cards.  If they can get back nearly twice as much money as they originally give you, they get rich and you get poor.

  Most of us get loaded down with even more debt when we go to buy a vehicle.  Instead of saving up and getting what we can afford, many of us end up getting the largest loans that we can qualify for.

  In a previous article, I discussed the fact that the average auto loan at signing in America today is approximately $27,000.  In order to get the monthly payments down to a level where we can afford them, many of these auto loans are now being stretched out for six or seven years.  In fact, the number of auto loans that exceed 72 months has hit at an all-time high of 29.5 percent.

  It is the same thing with home loans.

  In the old days, it was extremely rare for a mortgage to be stretched over 30 years, but today that is pretty much the standard.

  Sadly, most people don’t understand how much money this is costing them.

  If you take out a $300,000 mortgage at 3.92 percent and stretch it over 30 years, you will end up paying back a grand total of $510,640.

  In other words, you will pay for two houses by the time you are done.

  Yes, we all need somewhere to live, and there are definitely negatives to renting as well.  But it is very important that we all understand what is being done to us.

  And I haven’t even discussed one of the most insidious forms of debt yet.

  Have you noticed that most doctors and most hospitals will never tell you how much something is going to cost in advance?

  They get us when we are at our most vulnerable.  When there is something wrong with us physically, we are often desperate to get help.  So we don’t ask too many questions and we just go along with whatever they say.

  But then later we get the bill and we are often completely shocked by what they have charged us.

  If you are completely unethical, it is a great business model.  People that are extremely desperate and needy come to you and you don’t even have to tell them how much your services are going to cost.  And then once they leave, you send them an absolutely outrageous bill for whatever you feel like charging.

  Frankly, I don’t know how a lot of people working in the medical field live with themselves.  In their extreme greed, they are ruining the lives of millions of ordinary American families.

  One very disturbing study found that approximately 41 percent of all working age Americans either currently have medical bill problems or are paying off medical debt.  And collection agencies seek to collect unpaid medical bills from about 30 million of us each and every year.

  Most of us will spend our entire lives paying off debt.

  That is why we are called debt slaves – our hard work makes others extremely wealthy.

  

  

  

  

  

• Secret Memo Reveals US Was Aware Of Americans Killing Zimbabwe Lions; Only Concern Was Getting Caught

  Over the past 3 days, it appears that the only thing Americans can talk about, whether around the watercooler, in the office or during prime time TV, is the tragic death of Cecil the Zimbabwe lion, and his “monster” killer, Minnesota dentist Walter Palmer. The reality, of course, is that despite engaging in the rather anachronistic pursuit of self-gratification through shooting at animal prey, in this case a bow and arrow, in a day and age of online apps and cyberspace, Palmer, a self-professed avid big-game hunter, did nothing illegal in his opinion having relied on local guides and was said to believe the hunt was legal.

  “I have not been contacted by authorities in Zimbabwe or in the U.S. about this situation, but will assist them in any inquiries they may have,” Palmer said but by then the witch hunt was on: not only were crowds of people stalking out his office but investigators have knocked on the front door of Palmer’s house, stopped by his dental office, called his telephone numbers and filled his inbox with e-mails. There is even a petition, with over 155,000 signatures, demanding Palmer be extradited to Zimbabwe where he would “face justice” alongside his two guides who are already said to be in custody.

  Not surprisingly, Palmer has prudently disappeared until tempers cool off and/or an arrest warrant is issued for his arrest.

  In the grand scheme of things, this is yet another grand, and convenient distraction du jour for the US public to rally around with a cry of fake (or in some TV talk show hosts, almost real) indignation while preaching moral superiority (killing one lion is apocryphal but killing millions of hamburgers and pork burritos every year is, well, meh) while the US economy continues to disintegrate under everyone’s feet.

  However, where this particular episode rapidly crossed the surreal threshold, is when news hit overnight that Obama administration officials are offering to help the Zimbabwean government investigate the high-profile killing.

  Yes, the president would show the American people just what a humanitarian he is, and do what he does best: dispense “fairness” and “justice.”

  Only… this being the US government, what really happened is another grotesque instance of unparalleled hypocrisy promptly backfiring.

  Presenting “QUIET DIPLOMACY” SUSPENDS ELEPHANT HUNTING IN NATIONAL PARKS – FOR NOW” – a Confidential memo sent on October 23, 2008 by the current US ambassador to Zimbabwe, James D. Mcgee, to the CIA, and released by Wikileaks.

  In it we read that, as usual, there is none more culpable of the recent event in Zimbabwe, which incidentally is and has been quite permitted by the local authorities as long as everyone’s palms are appropriately greased, than the US government, which years ago was fully aware that Americans were killing lions in Hwange National Park, but that its concern was not with the dead animals – no matter how hard the administration tries to feign empathy for the beheaded lion here and now – but with Americans getting caught in the act. As has just happened.

  But first, here is some background on how legal local poaching, whether it is for lions or elephants is. From the formerly classified memo:

  Meeting with poloff and conoff on October 10, Bown said that it was unclear “how legal” these hunting operations were, since it appeared the hunters had permits issued by Parks to kill the animals, despite the provision in the National Parks Act that prohibits commercial hunting.  The photographic safari operators indicated Parks had given several local and South African hunting companies concessions to kill elephants in Hwange if they met specific criteria: (1) total ivory weight less than 30 pounds, (2) young/adolescent males, (3) isolated areas (i.e. away from watering holes and main roads), and (4) controlled by Parks staff.  Parks has never publicly stated these criteria or explained the operation.  Frustrated photographic safari operators weighed and photographed many of the tusks at the Park’s ivory store in Hwange and found that many were over 30 pounds each.  In one case, an operator claimed an American hunter killed an elephant with tusks weighing over 120 pounds.  Photos also show some elephants were killed very near main roads and close to watering holes.  In at least one reported case, a vehicle drove around the animal before the hunter killed it at close range.  In emails to Mtsambiwa and Nhema, safari operators decried the unethical hunting both in terms of the detrimental ecological impact and the negative impact it would have on their own businesses.

   

  … the safari operators also  reported that some of the hunting guides had been issued hundreds of hunting permits for elephants in Hwange and other national parks in mid-to-late August.  Normally, hunting permits are offered in an auction to all professional hunting guides.  In contrast, Bown said these recent permits were issued through a non-transparent process to professional hunters of ill-repute, including some South African operators.

  So both the Zimbabwe ambassador and the CIA knew Zimbabwe was permitting and flaunting its own “regulations” when it comes to poaching if the fee is good enough. And, since American citizens were involved, the fee most certainly was:

  Despite Mtsambiwa’s assurances at our August meeting that Parks was only planning a management/training exercise for Parks staff, in early September poloff received an email  from an American citizen in California, asking about an advertisement for an elephant hunt in Zimbabwe to hunt five elephants over ten days for USD 6,000 as part of a culling exercise.  The meat from the animals would go to local villagers and hunters were expected to help with on-site butchering of the animals.  This price is significantly less than most elephant hunting packages.  Normally, elephant hunting excursions in Zimbabwe cost about USD 1,000 per day, plus a fee for each animal killed.  The hunting operation was to be led by Zimbabwean Headman Sibanda and was arranged by Thomas Powers Internationale, based in Colorado.

  Where was the disgust then? Oh yes, elephants are not cute animals about which Broadway musicals are written.

  However, there is a problem, because reading on we find that not only did the government know about everything that was going on involving US poachers, quite legal and paying very well, involving the hunting of elephants, but also, drumroll, lions.

  Bown, Save Valley Conservancy Director Clive Stockil and other conservationists opined in conversations with us that hunting permits were issued by Parks under intense pressure from its politicized board and ZANU-PF.  Bown believed this frantic last grab at hunting revenue was one more aspect of ZANU-PF insiders’ efforts to strip assets and fill their pockets before losing power to the MDC.  She said that the same small group of hunters involved in this operation had been consistently involved in unethical and marginally legal hunting.  Bown had no evidence that they were involved specifically with sanctioned individuals within the Mugabe regime, but believed such connections were likely.  According to Bown, the Zimbabwean professional hunters involved include Guy Whitall, Tim Schultz of African Dream Safaris, Headman Sibanda and Wayne Grant of Nyala Safaris, Evans Makanza, Alan Shearing, Buzz Charlton and James Macullam of Charlton Macullum Safaris, A.J. Van Heerden of Shashe Safaris, Barry Van Heerden of Big Game Safaris, and Lawrence Boha.  (COMMENT: Numerous conservationists have suggested the Van Heerden brothers are involved in suspicious hunting and land deals with the Director of the Central Intelligence Organization, Happyton Bonyongwe, although none have provided proof of the relationship.  END COMMENT.)  

   

  Additionally, one safari operator accused an American, by name, of killing a lion illegally and then smuggling its hide out through South Africa.  Given the rampant smuggling of other animal products across Zimbabwe’s southern border (reftel), this is not unlikely.  As reported in reftel, American hunting dollars are vital to Zimbabwe’s conservation efforts, but there are also serious risks that Americans could be implicated in smuggling and poaching operations.

  And there you have it: while blaming Walter Palmer is easy, the truth is that at its core, the death of Cecil, as well as countless other lions, elephants, rhinos and other animals, is solely as a result of the Zimbabwe government’s corruption. A corruption, which the US government knew all about, and which also knew that US hunters were killing not only elephants but lions.

  The government’s only real concern: the “serious risks that Americans could be implicated in smuggling and poaching operations.”

  And now that an American has been implicated in poaching, what does the government do? It generously offers to “help the Zimbabwe government investigate the killing” of Cecil. Even though both Zimbabwe and the US government have tacitly approval of just this kind of behavior for years. Until something went wrong.

  Come to think of it, that’s precisely what happens in the US capital markets too: as long as stocks go up, nobody cares about criminal behavior and bubble blowing (just don’t get caught spoofing an ES sell orders). But once the real selling begins…

  

  

  

  

  

• Chinese Stocks Extend Yesterday's Plunge Despite Regulators "Asking" Insurers To Stop "Net Sales"

  Following last night's afternoon session plungefest (with ChiNext's biggest drop in a month), as it appeared the government experimented with 'free' markets briefly, regulators have "asked" insurance companies to be "net sellers" of stocks going forward. With margin debt dropping for the 4th day in a row (to fresh 4-month lows), Markit noted that accusations of foreigners short selling shares is “overblown” by Chinese market regulators and not the cause of a recent rout in the stock market, according to the SCMP. The requests and threats appear to not be working as CSI-300 futures open down 0.7%.

  As a reminder, this is how things ended last night…

   

  

  *  *  *

  And tonight we are seeing losses extend…

  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 1% TO 3,777.15
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 1.4% TO 3,655.67

  

   

  *  *  *

  More measures…

  China Insurance Regulatory Commission asked insurers to try their best to avoid net sales of equities in near future, Shanghai Securities News reports, citing an unidentified person from an insurer.

  And refutations to China's claims that foreign sellers were "waging economic war"

  Accusations of foreigners short selling shares is “overblown” by Chinese market regulators and not the cause of a recent rout in the stock market, South China Morning Post cites financial data co. Markit analyst Relte Stephen Schutte as saying.

  • Official data shows minimal short selling of individual shares with shorting of domestic ETFs at only 1.2% of total domestic ETFs under management, Schutte is cited as saying

  *  *  *

  On a more sombre note, the first major casualty of the Chinese stock market disaster has happened as Caixin reports well-known fund manager, Liu Qiang, a 36-year-old fund manager at Ruilin Jiachi,  jumped to his death from a high-rise in downtown Beijing, angry the government intervened in the stock market rout, people who knew him say…

  Several people close to Liu said he suffered from depression and returned to work in April after spending three years in the southwestern province of Yunnan where he was seeking treatment for depression. "He has had a very tough time in recent years," one of Liu's friends said.

   

  

   

  Some of Liu's friends said he had been very frustrated by the government's efforts to support the bourse amid recent turmoil because he believed this upset market order. He thought that "the rules and order of the market had been broken … and was desperate, feeling that he was at his wit's end," one of his friends said.

   

  Publicly available data show that the fund he managed, which invests in stocks and futures, had lost about 18 percent of its value this year and would be liquidated if losses exceeded 20 percent. But a person close to Liu said most of the fund's investors were his friends who agreed with his belief in long-term investment. They were not eager to liquidate the fund, he said.

   

  In a blog dated July 7, Liu wrote: "The stock market disaster has turned many of my investment principles upside down … and made me doubt many times whether I'm still suitable for the market."

  *  *  *

   

   

  

  

  

  

  

• "Greed Is King" – What We Learned Talking To Chinese Stock Investors

  Authored by J.J. Zhang, originally posted at MarketWatch.com,

  Though Greece has dominated the news recently, its overall market impact has been surprisingly muted. Instead, the real market mover and shaker for the last couple of months has been China.

  By now, many are familiar with the facts and numbers of the Shanghai market situation. But recent events have also shed a light on a less well known dynamic — the individual behavioral habits and viewpoints of Chinese market participants.

  During a short stay in Shanghai a few weeks ago on unrelated business, I had an opportunity to witness the ground zero of the China market frenzy at its peak and its nascent plunge. Chinese retail investors make up 85% of the market, a far cry from the U.S. where retail investors own less than 30% of equities and make up less than 2% of NYSE trading volume for listed firms in 2009.

  Combined with the highest trading frequencies in the world and one of the lowest educational levels, describing China’s market as immature is an understatement. As many readers know, mental irrationality is often cited as the No. 1 cause of poor returns.

  Using the opportunity to interview some China market participants, both in Shanghai and elsewhere, here are a few observations of how they think and act — and the potential lessons that await.

  Bubbles can be surprisingly predictable

  During the housing bubble run-up and subsequent recriminations, a common excuse was the impossibility of predicting and diagnosing bubbles. However, bubbles can often be characterized by several irrational behaviors and metrics and the recent China bubble is no exception. Almost everyone in the financial industry knew the Shanghai market was in a bubble. Interestingly, from my interviews with everyday participants, they knew it as well, many agreed that the market was crazy and was likely in a bubble. It was not a question of if, but when, the bubble would pop.

  Chasing bubbles in China isn’t new

  An interesting counterpoint to the bubble awareness is that, frankly, Chinese participants are used to chasing bubbles. Whether a cultural phenomenon or something else, over the last decade there’s been a continual hopping of investment from one big money-making scheme to the next. Whether it was real estate a decade ago, gold half a decade ago or wealth-management products a few years ago, there’s a continual cycle of money rotation into the “hot” investment, with each failing eventually in some way. It’s simply stock’s turn. As one interviewee said: “The Chinese market is not for investing, it’s for gambling.”

  Early birds get the worms

  This goes completely against most prudent and established norms. While the standard advice is to avoid “hot” bubbly assets, in China the experience has actually been to jump in early and fully instead. Many of the bubbles or “hot” investments mentioned earlier have in truth made many of the people I’ve talked to a lot of money. China real estate today is a poor investment but those who got in early doubled or tripled their investments. Similarly with wealth-management products, more people have benefited from their high-interest-rate payouts than have suffered. While the Shanghai market has dropped 20%-30% from its peak a few weeks ago, it still represents a 100% gain from a year ago and a 30% gain over the last 6 months. Those participants who jumped in early are still more than happy.

  Greed is king

  Despite recognizing it’s a bubble, almost everyone was still all-in on stocks. Why? Quite simply — greed with a dash of jealously. Seeing constant market gains in the news along with daily sharing and boasting from friends and family getting rich is simply too tempting and thus caution was thrown to the winds. Subsequently, this fueled a massive amount of equity exposure followed by leveraging and margin borrowing to go even more all-in.

  But fear is the emperor

  The only emotion more powerful than greed is fear. Almost everyone I talked to was still all-in on stocks but everyone had a foot halfway out the door, ready to bolt at the first sign of trouble. While not uniquely a China problem — market drops are almost always more violent than the initial rise — in China, it’s several times more volatile. Look no further than solar-panel firm Hanergy’s Hong Kong listed stock, which lost 47% in one hour, or the numerous days the Shanghai market rose or dropped by 5% or more.

  Moral hazard in government rescues is real

  During the most chaotic moments of the financial crisis, bailout discussions always raised the specter of moral hazard. While it didn’t play a major role in the subsequent U.S. recovery, moral hazard in China is fast becoming a deep problem. Many market participants I talked to said they were confident in the Chinese government to step in eventually to maintain order and prevent mass panic. They know the government’s legitimacy relies heavily on economic progress and fear any contraction. So far, they’ve been right — the government has announced a never-ending stream of interventions over the last few weeks to stem the selloff and panic, with the latest being the implementation of a half-trillion-yuan fund to purchase stock and shore up the market. Of course, the question is: When does a problem become too big for the government to control?

  Maturity takes time

  Perhaps the last lesson I took away from my Shanghai experience: Maturity takes time. Just as kids grow from naïve adolescence to rowdy teenage years to eventual maturity, so will China and its market participants. While stocks have been a part of U.S. culture and wealth creation for several generations now, in China this is really the first generation where participants both have the money and the ability to invest in stocks.

  Perhaps in another generation, after several years of painful lessons and surprising opportunities, it’ll look completely different.

  *  *  *

  [ZH: Just like US investors have learned…

  

  ]

  

  

  

  

  

• Donald Trump's Soaring Popularity "Is The Country's Collective Middle Finger To Washington"

  Submitted by Paul Brodsky, via Macro-Allocation.com,

  Donald Trump’s ascendance as the early GOP front-runner is symbolic of a greater global trend: growing pushback against institutional political and economic power.

  To many centrist politicians and mainstream political observers, Donald Trump is a boastful, insensitive egomaniac spouting populist rhetoric. Whether such a characterization is true is not worthy of debate, which may explain why the rantings of enraged career political pundits have no impact on Mr. Trump’s popularity among Republican voters in Iowa, New Hampshire, and across America. It seems no amount of ink or air time spent tarring and feathering Trump’s reputation sticks; in fact it seems to help Teflon Don in the polls, where he leads a crowded field of career politicians.

  Donald Trump is a threat not only to the nattering nabobs in the press corps and the Republican Party. His day in the sun may be symbolic of a broader dynamic: the declining power held by historically powerful institutions. Ask yourself if Trump’s campaign is making a mockery of the political process or exposing the mockery that the political process has become. A not-insignificant percentage of Americans away from the coasts, are looking past his utter lack of decorum and political savvy to hitch their wagons to his outrage.

  Let’s forget, for a moment, about our personal politics, preferred policies, and individual candidates we may be excited to elect. Are we supposed to forget that the Supreme Court, through its 2010 decision that corporate donors should be treated legally as individual donors under the First Amendment, effectively subordinated individual voters into mere supporting targets to which political aspirants have to appeal? Most importantly, are we supposed to nod our bobble heads in agreement with the heads of the national parties to choose a candidate they find acceptable based on which will appeal to the best funded special interests?

  Is anyone really polling in favor of Donald Trump or is he conveniently filling the role of the not-so-quiet counterfactual?

  I recently texted one of the premier Sunday morning political pundits with these thoughts and he texted back:

  “That’s what I am arguing internally. This is the country’s collective middle finger to Washington.”

  As an investment strategist and consultant observing our current global economy and markets, it is difficult not to extrapolate this sense of helplessness against powerful institutions. Tell us again why six years of central bank financial repression is serving the interests of the greater factors-of-production? As investors, should we care about widening wealth and income gaps that are clearly part-and-parcel with central bank policies devoted to maintaining asset values (see here and here)?

  Should we expect free, democratic markets that create, form and price capital efficiently – not that treat financial assets as balance sheet collateral for credit?

  Who can voters elect to again have an economy that puts producers over rentiers, or to have markets that price value? I’m sure it’s not Donald Trump (a rentier’s rentier!), but I’m also sure it’s not the heads of the Democrat and Republican Parties. Who can investors elect to keep the rentier thing going? Is that really what investors should want? It’s complicated.

  Read more here…

  

  

  

  

  

• Why Do So Many Working Age Americans Choose Not To Enter The Workforce?

  Via ConvergEx's Nick Colas,

  Today we look at a unique dataset – Gallup’s annual poll of job satisfaction – to see what it can tell us about secular trends in employment, consumer confidence and spending.  This annual survey of +1,000 people active in the U.S. workforce goes back to the late 1980s, so it is a useful lens with which to consider issues like labor force participation rates that have shifted unexpectedly over the period.

   

  Most surprising news first: Americans express a broad satisfaction with their jobs, regardless of economic conditions. The very worst reading since 1989 was in 2011 when “Only” 83% of respondents said they were either “Somewhat” or “completely” satisfied with their jobs.  The peak was in 2007 at 94%, and last year (August 2014) it was 89%.

   

  The key takeaway is that declining labor force participation rates since the year 2000 (67% then, 62.6% now) aren’t because of any systemic disaffection with the American workplace. 

   

  The other notable takeaway: workers are (strangely, we must say) satisfied with what they earn. Those expressing “Complete” satisfaction with their paystub hit a high last year (31%) not seen since 2010 and 2006…  Wage inflation?  What for?

  You could call it the “Mystery of the Missing Worker” – why do so many people of working age chose not to enter the workforce?  Here are the numbers, as of the most recent Employment Situation report:

  • 250 million: the total number of people of working age in the United States. 
  • 149 million: the total number of people in that population that have a job.
  • 8 million: the number of people who want a job but do not have one.
  • 93 million: the number of people who don’t work, and don’t want work.

  To put some context around that last number, it is 30% of the entire U.S. population.  This is the same as the current population of the entire West Coast (CA, OR, and WA) AND New York State AND Florida.  Plus another 10 million people.  Economists measure this with the Labor Force Participation rate, and it has been in decline since February 2000, when it peaked at 67.3%.  It is now 62.6% and last month was a new low back to the 1970s. People of working age increasingly do not consider themselves part of the labor force.  Most economists chalk this up to the demographics of an aging workforce even though virtually all the literature on the topic in the early 2000 predicted participation would continue to increase. 

  We recently took a long look at a dataset that doesn’t often see the light of day but does provide some useful takes on how workers view their jobs.  It comes from the Gallup organization and is an annual survey of +1,000 employees since 1989 on their perceptions of job satisfaction in all its forms, from health and safety concerns to compensation to job security.  The complete data set can be found here, and the charts below highight the trends…

  

  But here are the important takeaways.

  #1: Americans are consistently satisfied with their jobs, although the readings vary slightly through a given economic cycle. The highest ever combined responses of “Completely Satisfied” and “Satisfied” was in 2007 at 94%. The worst since the start of the survey in the late 1980s was 2011, at 82%.  Last year – the results come out every August – the combined reading was 58% “Completely” and 31% “Somewhat” Satisfied, for a total of 89%.

   

  #2: They also feel relatively secure in their positions.  Last year some 88% reported being “Completely” (58%) or “Somewhat” (31%) satisfied by the security offered by their jobs and, implicitly, their employers.  The worst readings were in 2009 at 80% total and in the early 1990s at 79%.

   

  #3: Workers also report high levels of satisfaction with what they receive in terms of compensation.  Back in 1991 – the worst year in terms of general reported satisfaction for this question – “only” 66% of respondents were completely or somewhat satisfied with their pay stubs.  Even during the Financial Crisis and its aftermath that number troughed at 70% in 2011. Last year a total of 75% of respondents were satisfied with what they received for compensation.

   

  #4: Workers who respond to the Gallup survey last year have the biggest gripes about health insurance benefits (only 61% satisfied), retirement planning (only 63% satisfied) and chances for promotion (68%).

   

  #5: Conversely, workers reported exceptionally high levels of satisfaction in their relations with co-workers (95% completely or somewhat satisfied), physical safety (93%) and the flexibility of their hours (90%).

  Frankly, when we started to look at these numbers we expected to see a mirror of the volatility common in consumer confidence surveys.  A few points here:

  • Consumer confidence as measured by the Conference Board peaked in 1966/67 and again in the late 1990s at readings of +140. 
  • Troughs occurred in the early 1970s, late 1970s/early 1980s and post September 11 at readings of 50 or so. 
  • The Financial Crisis took us down to below 30 in 2008 and readings struggled to get past 70 until 2013. 

  We therefore thought that Americans would feel broadly the same about their work situations as they did the economy as a whole – that things are still pretty bad and the past was much better than the present.  This turned out not to be the case.  Yes, they express some marginal disaffection when times are hard, but the trough reading during and after the Financial Crisis was 83% satisfied with their jobs.  Hardly a pitchforks and barricades kind of number.  

  In short, we can’t blame lower participation rates on the nature of work – broadly speaking – offered in the American economy.  In Internet parlance, the American workplace gets 4 ½ stars and a lot of recommendations.  Perhaps, in the words of Yogi Berra: “No one goes to that restaurant any more.  It’s too crowded”.

  *  *  *

  Of course, when work is punished in the Entitlement State Americans live in… what else should we expect but 30% of the employable to sit at home? As we previously explained,

  This isthe painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.

   

  This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, "the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045."

   

  

   

  We realize that this is a painful topic in a country in which the issue of welfare benefits, and cutting (or not) the spending side of the fiscal cliff, have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for most Americans who find themselves in a comparable situation: either being on the left side of minimum US wage, and relying on benefits, or move to the right side at far greater personal investment of work, and energy, and… have the same disposable income at the end of the day.

  

  

  

  

  

• China Says US "Militarization" Of South China Sea Shows Washington "Wants Nothing Better Than Chaos"

  If you follow geopolitics you’re well aware that China has become a magnet for maritime conflict and controversy over the past six or so months. 

  It all started earlier this year when satellite images showing the construction of what appeared to be a 10,000 foot runway (long enough to accommodate military aircraft) atop a newly constructed island in the contested waters of the South China Sea touched off an international firestorm as the US and its allies accused Beijing of seeking to redraw maritime boundaries and expand its naval capabilities at the expense of regional security.

  China vigorously denied the accusations, pointing to the fact that other nations had undertaken similar land reclamation efforts in the Spratlys. 

  The situation escalated meaningfully when the PLA threatened a US spy plane, prompting Washington to remind Beijing that artillery stationed on “sand castles” would certainly not be enough to deter the US Navy from navigating wherever it chooses whenever it chooses to do so.

  The “conflict” subsided briefly after a propaganda campaign by Beijing put a humorous spin on the entire ordeal, but China found itself right back in the spotlight last week after Japan essentially accused it of stealing natural gas by positioning rigs too close to a demarcation line that separates the two countries’ exclusive economic zones. 

  For the latest on China’s seaborne exploits we go to Reuters, who notes that Washington and Beijing are back at each other’s throats over the Spratly issue, only this time it’s China which is accusing the US of militarizing the region. Here’s more:

  China’s Defence Ministry on Thursday accused the United States of “militarizing” the South China Sea by staging patrols and joint military drills there, ramping up the rhetoric ahead of a key regional security meeting in Malaysia next week.

   

  China has been angered by U.S. navy and air force forays through waters it claims as its own, especially this month, when U.S. Navy Admiral Scott Swift said he joined a routine surveillance flight.

   

  The United States has also stepped up military contacts, including drills, with regional allies such as the Philippines, which also has claims in the South China Sea.

   

  The United States was hyping up the “China threat” and attempting to sow discord between China and other claimant countries, Defence Ministry spokesman Yang Yujun told a news briefing.

   

  “China is extremely concerned at the United States’ pushing of the militarization of the South China Sea region,” he said.

   

  “What they are doing can’t help but make people wonder whether they want nothing better than chaos.”

  Well yes, one “can’t help but wonder” that about a lot of what Washington does foreign policy wise (especially in the Middle East), although we suspect that this particular issue can be chalked up to a combination of curiosity and the irresistible temptation on the part of the Pentagon to prove to China that no matter what Beijing says, the US will continue to fly, sail, and conduct war games in the region if for no other reason than to spite Xi Jinping. 

  But the atmosphere isn’t completely hostile because as Reuters also notes, China is fine with “certain U.S. officials taking civilian flights over the South China Sea to enjoy its beauty.”

  

  

  

  

  

• Least Transparent Ever: IRS Used "Wholly Separate" Message System To Hide Communications

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  

  Barack Obama promised to have the “most transparent administration ever,” but as with pretty much every other promise he’s made over the years, the exact opposite is what has occurred.

  From Hillary Clinton using her own private email server while Secretary of State, to the latest revelations that the IRS (which intentionally targeted American citizens based on their political views), used a “wholly separate” instant messaging system in order to conceal their internal communications. Of course, not only is there no transparency, but as is the case with all shady and undemocratic “elite” behavior, there is no accountability.

  In the latest bit of information to emerge, we learn from Americans for Tax Reform that:

  The IRS used a “wholly separate” instant messaging system that automatically deleted office communications, according to documentation released by the House Oversight Committee on Monday. The system appears to have been purposefully used by agency officials responsible for the targeting of conservative non-profits, in order to evade public scrutiny.

   

  The system, known as “Office Communication Server” or OCS was used by IRS officials, including many in the Exempt Organizations (EO) Unit, which was headed by Lois Lerner.

   

  As the Oversight Committee report states, the instant messaging system did not archive any communications, so it is not possible to know what employees of the EO unit discussed on it.

  However, in an email uncovered by the Committee Lerner warns her colleagues about evading Congressional oversight:

  “I was cautioning folks about email and how we have had several occasions where Congress has asked for emails and there has been an electronic search for responsive emails – so we need to be cautious about what we say in emails.”

   

  Lerner then asks whether OCS is automatically archived. When informed it was not, Lerner responded “Perfect.”

   

  While it is possible to set the instant messaging system to automatically archive messages, the IRS chose not to do so, according to one employee interviewed by the Committee.

  This is not what freedom looks like.

  

  

  

  

• This Is The 714 Sq. Foot Hovel In LA That Can Be Yours For Just $1.1 Million

  Submittted by Dr. Housing Bubble

  Venice is an interesting place.  I’ve always enjoyed the unique atmosphere and it can be argued that Venice was one of the leading hipster enclaves in Southern California.  It was cool before it was cool to be cool.  Similar to San Francisco, old homes are being sold for ridiculous amounts of money.  We recently featured a home in Venice that had 0 beds going for over $1 million.  That is how crazy things are getting in SoCal.  But there is definitely more of a feeling of “get out at the top” versus “I’m buying to ride some more appreciation” sentiment.  Venice has gotten wildly expensive.  Even just a few years ago visiting friends in Venice you were entering questionable neighborhoods where it didn’t seem safe.  But hey, who needs safety when you can live the life of luxury in a crap shack?  Is it any wonder why there is a steady migration out of California by the middle class?  Let us take a look at a home in Venice and get your thoughts on it.

  Venice in California

  Perception is everything when it comes to real estate.  Beverly Hills was able to garner fame and notoriety because at least the homes looked nice.  At least you were getting a home that looked like a million dollars.  Right now the big marketing push is “up and coming” neighborhoods.  Get in before you are priced out forever and are destined to a life of eating out of food trucks.

  The home we are going to look at today was built back in 1904.  You read that correctly.  1904, as in 111 years ago.  Let us take a look at this place:

  

   

  1130 Electric Ave, Venice, CA 90291

  1 bed 1.5 baths 714 sqft

  I love places that have more restrooms/bathrooms than actual bedrooms.  This place has 1 bedroom and is listed at 714 square feet.  I love the first few lines in the ad:

  “Old School Venice living at its finest! Don”t miss the opportunity to own one of the most unique properties off Abbot Kinney! This bright happy bungalow is loaded with charm and character in one of the most desirable locations around.”

  This is definitely old school.  Take a look inside:

  

   

  This place screams dual income hipster household.  I love that the place is pitched as old school but the price is definitely new school:

  

  The last recorded sales price was $450,000 back in 2010.  It was then listed for $799,000 back in 2011 but was removed shortly after.  What justified a $349,000 increase in one year?  Apparently nothing.  But then in 2014 it was listed for $1,500,000!  Bwahahaha!  They bought for $450,000 in 2010 and were asking for $1 million more just because.  Of course that didn’t work.  They had to drop it down to $1,250,000 back in November of 2014.  Then down to $1,165,000.  And now it is listed at $1,100,000.  This is still $650,000 more than what they paid for in 2010.  So what justifies a 144% increase in five years?

  This is full on mania and with inventory building up, people are starting to crunch the numbers more carefully.  I’m curious, how does someone justify a 144% increase on this place?  As we all know, real estate is essentially a game of musical chairs, especially in boom and bust California.  Someone is trying to cash in on a lottery ticket here for Venice.

  No mania here folks.  This is all reasonable and makes complete sense.

  

  

  

  

  

• Does This Look Like An Accidental Relationship To You?

  Submitted by Ben Hunt via Salient Partners Epsilon Theory blog,

  I figure not one Epsilon Theory reader in a thousand has seen “Suddenly, Last Summer”, but let me tell you … it’s got everything. Katherine Hepburn in a phenomenal performance as bizarro Aunt Vi. Elizabeth Taylor cavorting in the surf. Montgomery Clift. Lobotomies. Pedophilia. Cannibalism. Honestly, it’s kind of what you would expect if Gore Vidal took a Tennessee Williams script and just went gonzo with it. Which, in fact, is exactly what happened.

   

  The subtext, as with so much of Southern Gothic in general and Tennessee Williams in particular, is mendacity and its crushing psychological damage.

  

  I found this quote, where Katherine Hepburn is trying to convince Montgomery Clift to lobotomize Elizabeth Taylor so that she’d forget her former life and be less fearful and anxious … less volatile, in other words … to be an eerily apt description of what Central Bankers have tried to do with markets.

   

  We endured an event last summer that, just as in the movie, ultimately brings all the mendacity out of the shadows and into the open. When Yellen declared last summer that the Fed had now firmly embraced a tightening bias, followed by the rest of the world declaring that they were doubling down on extraordinary monetary policy easing, the entire world was set on a path where all of the political fragmentation – all of the deep fissures within and between countries – would be inexorably revealed. Suddenly last summer, the mask of global monetary policy cooperation was ripped away, and the investment world will never be the same.

  

   

  Here are two Bloomberg charts that show what I mean. On the top is a 5-year chart of DXY – the trade-weighted dollar index. On the bottom is a 5-year chart of WTI crude oil spot prices. Does this look like an accidental relationship to you? Can we just stop with all the hand-wringing about how there’s suddenly too much oil in the world, or how the Saudis are trying to crush US shale production, or any of the other spurious supply-and-demand “explanations” for why oil prices have collapsed? Seriously. Can we just stop?

   

  Monetary policy divergence manifests itself first in currencies, because currencies aren’t an asset class at all, but a political construction that represents and symbolizes monetary policy. Then the divergence manifests itself in those asset classes, like commodities, that have no internal dynamics or cash flows and are thus only slightly removed in their construction and meaning from however they’re priced in this currency or that. From there the divergence spreads like a cancer (or like a cure for cancer, depending on your perspective) into commodity-sensitive real-world companies and national economies. Eventually – and this is the Big Point – the divergence spreads into everything, everywhere. Some things will go up, and some things will go down. But the days of ALL financial assets inflating in lock-step … the days of everything, everywhere going up together … that’s over.

   

  For a lot of active investment managers, this is great news.

   

  For a lot of politicians and central bankers – particularly the weaker ones, either in resources or in willpower (yes, I’m looking at you, Alexis Tsipras) – this is terrible news.

   

  For investors? Well, it’s a mixed bag. Certainly it’s a more difficult bag, where so many of the learned behaviors of the past five years that worked so well in an environment of monetary policy coordination will fail miserably in an environment of monetary policy competition. But it beats getting a lobotomy. I think. We’ll see.

  

  

  

  

  

• Now It's Personal: Koch Brothers "Freeze Out" Donald Trump

  "He's not going away," warns one Republican committee member, adding "there are people who think his candidacy is a flash in the pan or a flash in the moment, but I think that underestimates his appeal." As Reuters reports, Trump has surged since suffering a slight downtick in the wake of the McCain furor, rocketing to 24.9% on Tuesday (compared to his closest rival, former Florida governor Jeb Bush, who trails at 12%). With everyone asking 'what can derail this?', perhaps, there is something. As Politico reports, the massively influential Koch brothers are freezing out Donald Trump from their influential political operation – denying him access to their state-of-the-art data and refusing to let him speak to their gatherings of grass-roots activists or major donors.

   

  As Reuters reports,

   Predictions of his demise were apparently premature. Instead, Trump is gaining momentum ahead of next week's first Republican debate, a new Reuters/Ipsos opinion poll shows.

   

  The poll shows Trump with his greatest support yet nationally, as nearly a quarter of Republicans surveyed said he would be their choice as the party's presidential nominee in 2016. He has opened up a double-digit lead over his closest rival, former Florida governor Jeb Bush, who trails at 12 percent.

   

  "I’m proud to be in first place by such a wide margin in another national poll," Trump said in a statement to Reuters.

   

  Trump has surged since suffering a slight downtick in the wake of the McCain furor. The five-day rolling online poll had the real-estate mogul and reality TV star at 15 percent among Republicans on Friday before rocketing to 24.9 percent on Tuesday.

   

  …

   

  But perhaps of greater concern to establishment Republicans, Reuters/Ipsos polling also shows that in a three-way race with Trump running as an independent in the general election, Trump would drain support from the Republican nominee and allow the Democrat, likely Hillary Clinton, to skate to victory.

   

  Trump has refused to rule out a possible independent run. In a matchup with Clinton and Bush, he would essentially tie Bush at about 23 percent among likely voters, with Clinton winning the White House with 37 percent of the vote. (About 15 percent of those polled said they were undecided or would not vote.)

   

  It is that scenario that should keep party strategists up at night.

  Which prehaps explains, as Politico reports, The Koch brothers decision to freeze-out The Donald from their operations…

  Despite a long and cordial relationship between the real estate showman and David Koch, as well as a raft of former Koch operatives who are now running Trump’s presidential campaign, the Koch political operation appears to have concluded that Trump is the wrong standard-bearer for the GOP. And the network of Koch-backed policy and political outfits is using behind-the-scenes influence to challenge Trump more forcefully than the Republican Party establishment — by limiting his access to the support and data that would help him translate his lead in the polls into a sustainable White House campaign.

   

  The Koch operation has spurned entreaties from the Trump campaign to purchase state-of-the-art data and analytics services from a Koch-backed political tech firm called i360, and also turned down a request to allow Trump to speak at an annual grass-roots summit next month in Columbus, Ohio, sponsored by the Koch-backed group Americans for Prosperity, POLITICO has learned.

   

  …

   

  Continued stiff-arming by the powerful Koch network could limit Trump’s ability to build a professional campaign operation to mobilize supporters ahead of primaries and caucuses.

   

  “The good news is that Donald Trump doesn’t need the Koch brothers, and he can do this perfectly without their assistance,” said Josh Youssef, who’s chairing Trump’s campaign in Belknap County, New Hampshire. Of the Kochs, Youssef said: “Their motivations are clearly not to break the mold of political insider-ship. Their goal is to keep the wheel spinning. Trump’s bad for business for them.”

   

  Still, the Koch network’s rejections of Trump are telling because of the relationships between Trump and his aides, and the Kochs and their operation.

  *  *  *

  We conclude with the two opposing views from within the Republican party…

  "The activists are doubly angry," Geer said. "He's capturing that anger. They're looking for a voice, and he happens to be here at the right time.”

  and

  "The curtain has not been pulled back yet," Feehery said. "In time, people will see Trump is not who they want to have as a nominee. But that’s going to take awhile."

  

  

  

  

  

• "Why Commodities Defaults Could Spread", UBS Explains

  UBS has been keen to warn investors about just how perilous the situation in high yield has become – which works out nicely, because we’ve been saying precisely the same thing ever since it became readily apparent that between investors’ hunt for yield and energy producers’ desire to take advantage of low rates and forgiving capital markets in order to stay solvent, the market was setting up for a spectacular implosion. 

  Lots of supply (hooray for record issuance!), a gullible retail crowd (bring on the secondaries and find me a junk bond ETF!), and a lack of liquidity in the secondary market (down with the prop traders!) have conspired to create a veritable nightmare scenario and with commodity prices (especially crude) set to remain in the doldrums for the foreseeable future, the question is not whether there will be defaults in HY energy, but rather what the fallout will be for the broader market. 

  Or, as we put it in “The Junk Bond Heat Map Has Not Been This Red In A Long Time,” at some point, investors (using other people’s money) will tire of throwing good money after bad hoping to time the bottom tick in oil just right (and if oil tumbles in the $30, that may be just that moment) at which point the commodity capitulation which we noted previously, will spread away from just commodities and junk bonds, and spread to all sectors and products, including stocks. 

  Here with more on the contagion risk from commodities defaults is UBS.

  *  *  *

  From UBS

  Credit contagion: why commodity defaults could spread

  In the wake of the commodity price swoon one of the recurring questions is will the stress in commodity markets spillover to other sectors? 

  First, regular readers will recall our HY energy default forecast of 10-15% through mid- 2016. Simply framed, the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis. In our view, sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries. 

  How large are contagion risks to the broader HY market? And what are the transmission channels? Historically, investors in the limited contagion camp would probably point to the early 1980s. In this cycle commodity price defaults spiked with the drop in oil prices yet average default rates (IG & HY) increased only moderately amidst a favorable economic environment. In our view, however, the parallels in terms of the credit and asset price cycles are a stretch versus the current context. In the last three cycles, commodity price defaults have either led or coincided with a broader rise in corporate default rates (Figure 2). 

  

  But why should there be contagion from commodity sectors to other segments?

  There is a clear pattern of default correlation dependent on fluctuations in national or international economic trends. Commodity price weakness is symptomatic of weak economic growth in China and emerging markets – with possible spillover risks for commodity related sovereigns (oil exporters) and corporates.

  In addition, distress in one sector affects the perceived creditworthiness as well as profits and investment of related firms in the production process. For example, exploration and production firm defaults could negatively affect suppliers and customers which would include oil equipment and service, metals, pipeline, infrastructure, and engineering firms. Furthermore, related literature points to the significance of the supply/demand balance for distressed debt; our theory is that there is a relatively finite pool of capital for distressed assets, implying greater supply of distressed paper pushes down valuations of like assets. Unfortunately, a rise in the supply of stressed bonds typically coincides with a decline in demand for such assets. This self-reinforcing dynamic historically leads to a re-pricing in lower quality segments. 

  

  

  

  

  

• Twist Those Dirty Bags!

  From the Slope of Hope: Greetings from Whole Foods Market in Palo Alto. There are times when I simply have to get away from my home office, since even I have limits as to how many hours I want to stay in the same place. I come to Whole Foods often enough to notice that a fair number of insane people come here. I divide them into (a) insane people without money and (b) insane people with money.

  The insane ones without money are the more obvious ones. They are the ones yammering to themselves, or dressed in really peculiar outfits, or otherwise looking semi-homeless. The ones with money require a more discerning eye (or, in my case, a good memory). FLASH update: at this very moment, one of group (b) sat next to me and is having a business meeting on speakerphone. Astonishing. (It’s a very typical conversation: “I’m just trying to keep my day job while trying to raise money for my pet project.”)

  Today was really annoying from a trading perspective. It started off profitable, got really profitable, and then withered into a small loss. A market that isn’t “allowed’ to go its natural direction gets to be irksome. We’ve been trapped in a fairly tight range for the entire year.

  I’m still pretty comfortable shorting this market, and on Thursday I increased my positions from 62 to 80. I’ve still got 64 other prospects, but their price isn’t where I’d want them to be to short them. There are five charts that I think speak to the good prospects for bearishness. My favorite of them I shared this morning with my (beloved) Slope Plus members, but here are the others:

  The Dow Jones Composite has painted out a beautiful series of lower highs. My fervent wish, of course, is that the recent surge we have been dealing with is just another opportunity to disappoint our bullish friends.

  

  The S&P 100 has quite clear broken its wedge pattern:

  

  Similarity, the Russell 2000 broke its own wedge and has a pretty decently-formed head and shoulders top in place:

  

  And my intent is to remain stalwart in the face of bullish bluster and nonsense until we get a VIX spike to the mid-20s. I know that seems impossible, but…..that’s my benchmark.

  

  Another guy just sat down to replace the one earlier, and he’s talking to someone about his startup. My God, this place has lost its mind. But it’s doing so with money, so people forgive the insanity.

  

  

  

  

  

• Shorting The Buyback Contradiction

  Submitted by Michael Lebowitz via 720Global.com,

  “To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality”  ?  Ayn Rand

  The positive short?term price action of buybacks lures unsuspecting investors on the promise that such a shell game is sustainable. Many on Wall Street support such activities as it promotes rising stock prices, ultimately bolstering their wallets. However, clear?headed reason would argue that unless one is an executive whose compensation is tied to metrics influenced by the effects of share buybacks, there are few instances that support this use of corporate resources. 

  Those who promote buybacks base their support on the fact that fewer shares outstanding, a by?product of the share repurchases, produces more earnings per share (EPS) as the numerator in the EPS equation is unchanged while the denominator is smaller. In “Corporate Buybacks; Connecting Dots to the F?word” we point out that most investors fail to consider the use of assets required to execute the buyback and the current valuation of those companies. Even more worrisome they fail to fully understand the implications of spending corporate capital to repurchase (often expensive) shares instead of investing it in the future growth of companies. The obscured shortcomings of share repurchases actually highlight a blatant contradiction. Share repurchases boost EPS, making valuations appear cheaper, however at the same time they reduce the ability of companies conducting such buybacks to grow future earnings. Recognition of this circumstance presents significant opportunities for those willing to embrace the “realm of reality”. This article uses logic and mathematical analysis to demonstrate the serious price distortions share buybacks are creating and offers specific trade recommendations to capitalize on those distortions.

  Distortion

  Buybacks distort financial ratios that many investors rely upon to evaluate stock prices. This is most evident in the widely used price to earnings ratio (P/E). This straightforward ratio simply divides the price per share of a company by its earnings per share. The resulting multiple tells an investor the price one must pay for each dollar of earnings. Investors calculating P/E can use a wide variety of historic, current or estimated future data for the denominator, earnings per share. On the other hand the numerator, price, is a known number – the current equity price of the company in question. Therefore, when using P/E as a valuation technique, the validity of the earnings per share input should be given careful consideration. 

  The reality is that stock buybacks distort EPS data and produce lower P/E ratios, thus making the shares optically cheaper. As an example, consider a company with a $20 price per share, $1 EPS and plans to buyback half of their outstanding shares. Upon completion of the buyback, the company’s P/E will drop from 20 to 10 as the price remains at $20 but EPS will double to $2, due to the reduced share count.  This P/E distortion (an investor now only needs $10 to claim $1 of earnings instead of $20 prior to the buyback) will likely lead investors to conclude that the equity is cheap. However, investors have failed to consider the use of cash to purchase the stock and the now impaired ability of the company to fund and produce future growth. 

  Analysis

  For this analysis, we considered publicly traded companies listed on U.S. stock exchanges with a market capitalization greater than $5 billion. To quantify the distortions to P/E created by share repurchases, a buyback “adjusted” P/E is calculated. This adjusted P/E ratio normalizes EPS, the denominator, by assuming NO shares were repurchased since 2011. Normalizing EPS in this way reduces the denominator and therefore increases the P/E ratio. Comparing the current P/E to the adjusted P/E gives one some sense for just how much buybacks may be distorting values. To illustrate, the adjusted P/E of the company used in the example above would be 20, instead of the post buyback P/E of 10.  The distortion of P/E highlights how buybacks may lead investors to misinterpret value and then misallocate investment capital.

  Of the over 600 companies analyzed, including 99 which did not conduct buybacks, the average adjusted P/E was 3.99 higher than the average non?adjusted P/E. Based on the trailing 12 month S&P 500 P/E of 18.25 currently present in the market, investors are unknowingly invested in an adjusted market P/E which is over 20% higher than they assumed. Buyback distortions are larger than ever and not limited to any one industry grouping. The table below shows the average distortion to P/E by industry.  

  

  The following tables expand the analysis by detailing the P/E distortion for individual companies. Company specific analysis was limited to the S&P 100 to ensure we highlight widely held companies that can be easily traded from the short side and have liquid option offerings.

  Within the S&P 100 six companies were selected based upon a combination of large P/E distortions and the magnitude of recent share buybacks versus total outstanding shares. 

  

  The Contradiction

  When investors pay an above?market P/E for shares they are frequently betting that the company will deliver higher future earnings growth than the market. The table below uses the adjusted P/E of the six companies to calculate the annualized required EPS growth. The required EPS growth is the pace at which earnings must rise in order to align the adjusted P/E with the current market price to earnings ratio without requiring a discounting of current share prices. In other words, how much does EPS have to grow to reduce the company’s P/E to equate it with a market average P/E? Revenue growth is a sound proxy for earnings growth as a company cannot grow earnings more than sales in the long run. In the table below, annualized revenue growth is also included for the last 3 and 5 years. 

  

  Consider the large gap between the required EPS growth rates and historical revenue growth rates. The transparency of the adjusted P/E reveals that the required EPS growth hurdle has risen to seemingly unachievable levels. Given these large differences, investors should be alarmed that these companies have limited and continue to constrain their ability to grow by using cash for buybacks. Using these resources for the purposes of buybacks makes them unavailable for projects that might generate those earnings! Those that believe buybacks are a vote of confidence by management in the company should carefully reconsider that opinion and the inherent conflicts buybacks create. 

  Trade Recommendation and Conclusion

  Aggressive investors can take advantage of this analysis by shorting the six highlighted companies on a market neutral basis and countering the short positions with long positions in companies offering fair valuations.  Conservative investors may want to sell holdings in these firms or shy away from future purchases in them. 

  P/E ratios calculated with past, present and future EPS along with many other valuation techniques currently register in the extreme upper tiers of historical readings (click here to reference “Courage” in which we illustrate the currently rich valuations). Investors in companies or indices containing a significant number of companies conducting buybacks should carefully consider the effects, distortions and long term ramifications of share buybacks.  

  The contradiction of buybacks is apparent; a company should not have a higher P/E multiple resulting from buyback actions when those actions at the same time reduce the company’s ability to achieve the additional growth required to justify the higher P/E multiple. 

  The best way to avoid the permanent impairment of capital is to never overpay for an asset.

  

  

  

  

  

• "Moscow Must Burn": Ukraine's "Christian Taliban" Pledges Anti-Russian "Crusade"

  “Like the majority of Ukrainian people, I think (the new leadership) is bad … They steal a lot. When Yanukovich was stealing, that was bad. But these people are clearing up when the country is at war, so they are guilty on two counts. This is marauding.”

  Those are the words of Dmytro Korchynsky, the commander of “Saint Mary”, a volunteer battalion that, like Ukraine’s official forces, is fighting to subdue the Russian- backed separatists who control the eastern part of the country. 

  Korchynsky – who spoke to Reuters – shares his generalized disaffection for the Poroshenko government with other Ukrainians who feel that little has changed since the ouster of Viktor Yanukovich. 

  “The (Maidan) revolution was interrupted by the aggression (in the east) and the patriots left Maidan and went to the east to protect Ukraine. Only 10 percent of people in positions of power are new; the rest are all the same, pursuing the same schemes they always did”, says Serhiy Melnychuk, an MP and volunteer battalion founder who also sat down with Reuters. 

  Over the course of the last year, Ukraine has become the battleground for a proxy war between Russia and the West. It’s one of several pieces currently in play on the geopolitical chessboard, and its citizens, like those of Yemen and Syria (fellow pawn nations), have been forced to endure a humanitarian crisis while more “consequential” countries sort out how the spoils will be divided and how borders will be redrawn.

  Some Ukrainian nationalists however, have chosen to take matters into their own hands, taking up arms against the separatists and likening themselves to a “Christian Taliban” bent on ensuring that “Moscow burns.”

  Here’s more from a Reuters special report on Ukraine’s “maverick battalions”:

  From a basement billiard club in central Kiev, Dmytro Korchynsky commands a volunteer battalion helping Ukraine’s government fight rebels in the east. 

   

  A burly man with a long, Cossack-style moustache, Korchynsky has several hundred armed men at his disposal. The exact number, he said, is “classified.”

   

  In the eyes of many Ukrainians, he and other volunteer fighters are heroes for helping the weak regular army resist pro-Russian separatists. In the view of the government, however, some of the volunteers have become a problem, even a law unto themselves.

   

  Dressed in a colorful peasant-style shirt, Korchynsky told Reuters that he follows orders from the Interior Ministry, and that his battalion would stop fighting if commanded to do so. Yet he added: “We would proceed with our own methods of action independently from state structures.”

   

  Korchynsky, a former leader of an ultra-nationalist party and a devout Orthodox Christian, wants to create a Christian “Taliban” to reclaim eastern Ukraine as well as Crimea, which was annexed by Russia in 2014. He isn’t going to give up his quest lightly.

   

  “I would like Ukraine to lead the crusades,” said Korchynsky, whose battalion’s name is Saint Mary. “Our mission is not only to kick out the occupiers, but also revenge. Moscow must burn.”

   

  Most of Ukraine’s almost 40 volunteer battalions grew out of squads of protesters who battled the Berkut riot police during the protests on Kiev’s Independence Square, or Maidan Nezalezhnosti, which began in November 2013. 

   

  
  

   

  After the protests toppled President Viktor Yanukovich, pro-Russian separatists rose up in the east of Ukraine in April, 2014, demanding independence from the new government in Kiev, which they called a “fascist regime.” In response, several leaders of the Maidan protests raced east with fellow protesters to try to stop the rebel advance.

   

  Numerous brigades and battalions formed haphazardly, with most leaders accepting anyone willing to fight. Serhiy Melnychuk, who founded the Aidar battalion in eastern Ukraine and is now a member of parliament, said he signed up people between the ages of 18 and 62 and “from the homeless to pensioners.”

   

  Irregular though theses forces were, some acquired weapons from the Defense Ministry, officials and battalion leaders said. Others received money and equipment from wealthy oligarchs. They became powerful forces in the struggle against pro-Russian separatists. 

   

  In his billiard club headquarters, commander Korchynsky of the Saint Mary battalion made his disdain for the government plain. “Like the majority of 

  Ukrainian people, I think (the new leadership) is bad … They steal a lot. When Yanukovich was stealing, that was bad. But these people are clearing up when the country is at war, so they are guilty on two counts. This is marauding.”

   

  He said the revolution that began with the Maidan had been interrupted, but would one day be completed. He did not say when.

   

  If so, he will have to confront Poroshenko. On July 16, the president, decried the problems posed by unspecified “internal enemies” of the country.  He told parliament: “I will not allow anarchy in Ukraine.”

  So in the end, we suppose the question is whether US weapons shipments to Kiev will be handed out to Ukraine’s “Christian Taliban” and whether they, like their namesake, will one day turn those weapons back on the US once the Russians have been expelled. 

  Scratch that. The real question is this: what does George Soros think?

  

  

  

  

  

• LinkedIn Pumps'n'Dumps As Revenue Growth Rate Continues To Slow

  Despite early exuberance at beating top and bottom lines (and users), it appears those looking for hyper-growth opportunities are selling into the machines. An initial 12% spike in the stock after hours has been completely destroyed into the red as investors realize growth rates continue to tumble, capex is rising, and organic growth is slow.

  Pump… and Dump!

  

   

  as Revenue growth rates continue to tumble…

  

   

  Charts: Bloomberg

  

  

  

  

  

• Another Day, Another V-Shaped Manic-Melt-Up Recovery In Stocks (To Unchanged)

  After 3 days of magical buying on no volume after heavy volume dumps, this seemed appropriate… "if you don't buy the dip, then you are a f##king idiot"

   

  First things first… Fed Funds Futures prices tumbled (implying a big shift higher in rates expectations)…

  

   

  Chinese stocks plunged overnight as no late-day rescue arrived…

  

   

  But more importantly in the US, another day, another opening dip, and another melt-up V-Shaped Recovery…

  

   

  Stocks and bonds decoupled again today…once again triggered as Europe closed…

  

   

  Credit markets notably decoupled also…

  

   

  But despite the best efforts of JPY and VIX, stocks were mixed by the close…

  

   

  With cash indices ending with Trannies & Dow red, S&P unch, and Nasdaq the winner (even with AAPL lower)

  

   

  On the week, Trannies remain the biggest gainer and Small Caps the least…

  

   

  Faceplant…machines did their best to anchor FB around VWAP all day…

  

   

  It's all about the MOMO…

  

  h/t JC O'Hara at FBN Securities

   

  Away from stocks, Bonds rallied notably with yields tumbling into the red for the week… (notice the considerable flattening post-GDP)

  

   

  The US Dollar surged higher – enabling JPY carry to save the day in stocks and driving EUR back down to a 1.08 handle (following The IMF's "non" to Greece)

  

   

  Dollar strength took the shine off commodities with crude and copper fading…

  

   

  As Gold was clubbed overnight once again…and ramped when The IMF said "Non" to Greece…

  

   

  And Crude lost some of yesterday's squeeze higher…

  

   

  Charts: Bloomberg

  

  

  

  

• Brazil's Economy Slides Into Depression, And Now Olympians Will Be Swimming In Feces

  Back on December 29 of last year, we explained how under the burden of its soaring current account deficit, and its its first primary fiscal deficit since 1998, not to mention numerous corruption scandals and a dysfunctional monetary policy, the Brazilian economy “just imploded.” We also noted the main reason for the Latin American collapse: Brazil had for the past decade become China’s favorite source of commodities, and now that China suddenly no longer needed commodities, the Brazilian economy went into freefall.

  We followed this up a month later with “Brazil’s Economy Is On The Verge Of Total Collapse” which repeated more of the same, only this time the situation was even worse.

  It took the rating agencies 7 months to figure out what our readers had known since 2014, when two days ago S&P downgraded Brazil’s credit rating from Stable to Negative citing, what else, the “sharp deterioration of the growth and fiscal consolidation outlook and heightened political/institutional friction” adding that “the negative outlook reflects the agency’s view of a “greater than one–in–three likelihood that the policy correction will face further slippage given fluid political dynamics and that the return to a firmer growth trajectory will take longer than expected.”

  In other words, Brazil is about to become the next BRIC to follow Russia into junk territory:

  

   

  Goldman followed up S&P with a report in which it said “There is nothing so bad it couldn’t get worse!” tongue in cheekly because it noted that “records show that over the last 11 years we cannot find a period with a strictly-worse growth-inflation outcome than that of 2Q2015 . That is, since 1Q2004 there has not been a single quarter in which we had simultaneously higher inflation and lower growth than during 2Q2015 (i.e., there are no data points in the lower right quadrant in Exhibit 1). In fact, in 96% of the 46 quarters between 1Q2004 and 2Q2015 the economy was delivering simultaneously higher growth and lower inflation than during 2Q2015 (upper left quadrant of Exhibit 1). Finally, during the remaining 4% of the quarters, the economy was performing better in one component—recording lower growth (4Q2008 and 1Q2009) but also much lower inflation than currently (located in lower-left quadrant).

  Exhibit 1: 2Q2015 – A sour macroeconomic spot: Very High Inflation and declining growth

  

  In short, the Brazilian economy has never been worse and just to hammer that point home, Goldman added a chart which makes it quite clear that Brazil is not in a recession: it is almost certainly in a depression at this moment – note the recession bar on the chart below and where it is now.

  

  One can debate what is causing this until one is blue in the face, and Goldman does, repeating once again that it is the collapsing current and fiscal accounts that are the culprits for Brazil’s depression…

  The sizeable current account deficit and rapidly widening fiscal deficit are also a significant source of market concern. We repeated the same exercise above, this time with a two-dimensional vector that contains the fiscal and current account balances vs. growth and inflation. The two deficits together are now tracking at over 12% of GDP of GDP, by far the worst combined outcome in more than a decade. Exhibit 3 shows that over the last 11.5 years (since Jan-04) we cannot identify a month with a strictly-worse fiscal-CA deficit outcome than that of May-14 (lower left quadrant is empty). In fact, at 7.9% of GDP the fiscal deficit is now the widest it has ever been since Jan-04, and there were only a few months (5 out of 137 months in the sample) were the current account deficit was marginally wider than currently.

   

  

  … but it doesn’t really matter: whether it is China, whether it is runaway stagflation, whether it is simple politician greed and corruption, Brazil has passed the recession phase and its economy is in absolute free fall.

  The result is that the local central bank is about to lose control: despite soaring inflation, overnight the central bank Monetary Policy Committee hiked the Selic policy rate by another +50bp, to 14.25%. This was the sixth consecutive 50bp rate hike following the initial 25bp hike on October 29. What made this hike unique is that the policy statement was modified by adding a sentence that openly indicated that the tightening cycle ended yesterday, and that the policy rate will remain at the current level for a prolonged period of time.

  

  In other words, Brazil’s central bank has given up on fighting inflation and is instead hoping to stabilize what little is left of the economy.

  Unfortunately, it may be too little too late, and now both the market…

  

  … and the local population as the following Evercore ISI chart of consumer confidence shows…

  

  …have finally figured out what it means when your economy snaps shut as your biggest trading partner suddenly shuts its doors.

  Unfortunately, it is getting even worse, as a cursory scan of headlines in just the past 24 hours reveals:

  • Brazil downgrade threat is a real danger sign
  • As Brazil’s Economy Goes In Reverse, Illusion Of Prosperity Fades With It
  • New Scandal Emerges in Brazilian Hideaway
  • Brazil indicts Italy’s Saipem for bribery with Petrobras
  • Italy’s Saipem Implicated in Petrobras Corruption Scandal
  • Brazilian police probe nuclear submarine program

  But the Brazilian economy hit its metaphorical, and literal, bottom earlier today when AP reported that, with the Brazil Olympics of 2016 just about 1 year away, “athletes in next year’s Summer Olympics here will be swimming and boating in waters so contaminated with human feces that they risk becoming violently ill and unable to compete in the games.“

  An AP analysis of water quality revealed dangerously high levels of viruses and bacteria from human sewage in Olympic and Paralympic venues — results that alarmed international experts and dismayed competitors training in Rio, some of whom have already fallen ill with fevers, vomiting and diarrhea.

  In other words, competitors in Brazil’s olympic games will be swimming in shit.

  How is this possible? Simple: the government promised it would fix everything, and the IOC believed it. Now, the moment of truth arrives and it is literally covered in feces.

  Brazilian officials have assured that the water will be safe for the Olympic athletes and the medical director of the International Olympic Committee said all was on track for providing safe competing venues. But neither the government nor the IOC tests for viruses, relying on bacteria testing only.

   

  Extreme water pollution is common in Brazil, where the majority of sewage is not treated. Raw waste runs through open-air ditches to streams and rivers that feed the Olympic water sites.

   

  As a result, Olympic athletes are almost certain to come into contact with disease-causing viruses that in some tests measured up to 1.7 million times the level of what would be considered hazardous on a Southern California beach.

   

  Despite decades of official pledges to clean up the mess, the stench of raw sewage still greets travelers touching down at Rio’s international airport. Prime beaches are deserted because the surf is thick with putrid sludge, and periodic die-offs leave the Olympic lake, Rodrigo de Freitas, littered with rotting fish.

   

  “What you have there is basically raw sewage,” said John Griffith, a marine biologist at the Southern California Coastal Water Research Project. Griffith examined the protocols, methodology and results of the AP tests.

   

  “It’s all the water from the toilets and the showers and whatever people put down their sinks, all mixed up, and it’s going out into the beach waters. Those kinds of things would be shut down immediately if found here,” he said, referring to the U.S.

  As AP notes, more than 10,000 athletes from 205 nations are expected to compete in next year’s Olympics. Nearly 1,400 of them will be sailing in the waters near Marina da Gloria in Guanabara Bay, swimming off Copacabana beach, and canoeing and rowing on the brackish waters of the Rodrigo de Freitas Lake. They will all be delighted to learn about the “quality” of the water they will be swimming in: “Everybody runs the risk of infection in these polluted waters,” said Dr. Carlos Terra, a hepatologist and head of a Rio-based association of doctors specializing in the research and treatment of liver diseases.

  The AP commissioned four rounds of testing in each of those three Olympic water venues, and also in the surf off Ipanema Beach, which is popular with tourists but where no events will be held. Thirty-seven samples were checked for three types of human adenovirus, as well as rotavirus, enterovirus and fecal coliforms.

   

  The AP viral testing, which will continue in the coming year, found not one water venue safe for swimming or boating, according to global water experts.

  The irony is that most countries go broke after the Olympics, when the spending on infrastructure and facilities dries up. Brazil may be the first nation in recent history to have imploded before the Olympics.

  In the meantime, just like Greece, Brazil promised to stars and the moon…

  In its Olympic bid, Rio officials vowed the games would “regenerate Rio’s magnificent waterways” through a $4 billion government expansion of basic sanitation infrastructure. It was the latest in a long line of promises that have already cost Brazilian taxpayers more than $1 billion — with very little to show for it.

  Rio’s historic sewage problem spiraled over the past decades as the population exploded, with many of the metropolitan area’s 12 million residents settling in the vast hillside slums that ring the bay.

  … and delivered, well, 1.7 million times the normal amount of crap. And now reality comes crashing back with a bang:

  As the clock ticks down, local officials have dialed back their promises. Rio Gov. Luiz Fernando Pezao has acknowledged “there’s not going to be time” to finish the cleanup of the bay ahead of the games.

   

  Rio Mayor Eduardo Paes has said it’s a “shame” the Olympic promises wouldn’t be met, adding the games are proving “a wasted opportunity” as far as the waterways are concerned.

   

  But the Rio Olympic organizing committee’s website still states that a key legacy of the games will be “the rehabilitation and protection of the area’s environment, particularly its bays and canals” in areas where water sports will take place.

  Just don’t hold your breath. Or actually, if you want to avoid the smell, hold it.

  We end with a note of hope for our Greek readers: yes life is bad, and it won’t get better for a long time, but it could always be get worse: you, too, could be swimming in feces.

  

  

  

  

  

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• Affirmatively Destroying America's Neighborhoods In The War On Suburbia

  Submitted by Bob Livingston via PersonalLiberty.com,

  Few of us understand patient gradualism. We live and have our being within a few years and mostly in an unconscious automated state of mind.

  But people in power are long-term planners. They absolutely understand human nature and how to channel it to the evolution and refinement of the authoritarian state.

  Authoritarianism is based on long-term planning. Authoritarianism is a philosophy of collectivism. Some call it democracy. Some call it communism. Some call it fascism. Some call it National Socialism. But whatever you call it, it is all collectivism or authoritarianism; and in its ultimate form it is globalism.

  The goal is perfect docility and perfect harmony with authoritarianism (economic, social and spiritual). Until the people accept collectivism under some pretext, they are not docile and completely subdued. Once they do, rebellion and confrontation are impossible. This is the ultimate goal of the globalists, and the American system is nearing this state.

  As I told you last week in “Why is the war on the Confederacy still going on today?,” the dismantling of the middle class has become the appointed, full-time task of the largest government alphabet soup agencies and Wall Street on behalf of globalism. The purpose behind this is that if those big middle-class producers and consumers can be decimated once and for all, then they can join the ranks of low-wage workers and more readily accept government largess and, thereby, become “hooked” on collectivism.

  Collectivism is a certain means of social, economic and religious control. Politicians regularly espouse individualism, human liberty and democracy at the same time. Impossible! Individualism and human liberty are opposite to democracy and any other form of collectivism. The collectivist mentality or the mass collective mind is the spirit of the New World Order.

  But something is standing in the way. Despite the years of indoctrination through the public (non)education system and mass programming by the national propaganda media and public (i.e., government) policy, rural Middle and Southern middle-class Americans — the “Red States” of “flyover country” — continue to resist the globalists’ dreams of a socialist/Marxist “utopia” and egalitarianism. That’s because they are, by and large, more independent and more self-reliant and also demand equitable reward for their labor and product, placing them in competition for resources and goods with the global elite.

  Efforts to remove this obstacle are behind the current war on the middle class and individual liberty and the spirit of individualism through the attempts to whitewash Southern culture from existence and distort the true nature of the Confederate cause by casting it and Confederate symbols as racist and treasonous. The bigoted elites in the District of Criminals and pointy-headed “thinkers” in the prestigious institutes of learning continually promulgate the meme that whites — rural whites in particular and Southern whites specifically — are backward, racist buffoons riding in trucks looking for blacks to lynch while ridiculously clinging to their guns and religion.

  The purpose is to stir up racial animosity and manipulate the people against one another. Manipulating minorities who are naturally drawn to socialism is basic political strategy to cover government crime and justify government politics and plunder.

  The principle of government is that political power is maximized by forcibly leveling every individual to the same status of conformity, collectivism, egalitarianism and serfdom.

  The truth goes deeper. Because of perceived social, cultural, racial and psychic inferiority, minorities desire to parasite on government force and socialism to subvert those they envy and wish to imitate. (This includes all so-called minority groups, not just racial minorities.)

  Last summer, there was an invasion of illegals from Central and South America stemming from the immigration policies and statements of President Barack Obama. Over the ensuing months, the Obama regime shipped those illegals into communities and cities across the country and immediately began efforts to grant them some sort of legal status in order to ultimately provide them with voting rights in a back-door effort to change the local demographics and, therefore, the voting outcomes in these communities from a conservative bent to one more socialistic.

  Third World immigrants are attracted to cradle-to-grave nanny state socialism because it is what they know and all they have known. They are also more accepting of gun control and the police state. They have no understanding of or experience with individual liberty or the concept of natural rights.

  Gaining voting “rights” for non-citizens is the main driver of the federal opposition to voter ID laws.

  The Obama regime attempted but failed with a mass social re-engineering scheme in 2010. That effort, fueled by corruptocrat Sen. Chris Dodd (D-Conn.), sought to fulfill the United Nation’s Agenda 21 plan, adopted at the Earth Summit in Rio de Janeiro in 1992 and signed onto by “New World Order” President George H.W. Bush.

  Using a typical government “carrot-and-stick” policy, the bill sought to award or deny grants from the federal treasury to cities based on their compliance with amending or passing zoning laws to restrict housing in rural areas and force the residents into city centers.

  The stick, in addition to denial of the funds, would be bad publicity generated by “Green” organizations working on behalf of the federal government criticizing local government officials for turning down free money and neglecting so-called “Green” initiatives.

  Now comes Obama’s speciously titled Affirmatively Furthering Fair Housing edicts from the Department of Housing and Urban Development. This extra-constitutional rule change has been in the works for more than two years, but has been largely glossed over by the MSM. It seeks to do the reverse of the Dodd bill. That is, rather than drive the suburbanites into the cities, it seeks to move inner-city minorities into the suburbs.

  The AFFH will have the federal government imposing preferred racial and ethnic composition on neighborhoods in exchange for federal funds provided or denied. It will change zoning laws, require a certain amount of government-subsidized housing in rural areas in order to achieve “racial balance,” control transportation and business development and remove the authority of state and local governments in the areas of zoning, transportation and education.

  As National Review’s Stanley Kurtz writes:

  Fundamentally, AFFH is an attempt to achieve economic integration. Race and ethnicity are being used as proxies for class, since these are the only hooks for social engineering provided by the Fair Housing Act of 1968. Like AFFH itself, today’s Washington Post piece blurs the distinction between race and class, conflating the persistence of “concentrated poverty” with housing discrimination by race. Not being able to afford a freestanding house in a bedroom suburb is no proof of racial discrimination. Erstwhile urbanites have been moving to rustic and spacious suburbs since Cicero built his villa outside Rome. Even in a monoracial and mono-ethnic world, suburbanites would zone to set limits on dense development. Emily Badger’s piece in today’s Washington Post focuses on race, but the real story of AFFH is the attempt to force integration by class, to densify development in American suburbs and cities, and to undo America’s system of local government and replace it with a “regional” alternative that turns suburbs into helpless satellites of large cities. Once HUD gets its hooks into a municipality, no policy area is safe. Zoning, transportation, education, all of it risks slipping into the control of the federal government and the new, unelected regional bodies the feds will empower. Over time, AFFH could spell the end of the local democracy that Alexis de Tocqueville rightly saw as the foundation of America’s liberty and distinctiveness.

  To accomplish its goals, HUD will dig into the racial balance ZIP code by ZIP code looking for areas of segregation, with the segregation threshold being nonwhite populations of 50 percent or more. Federally funded cities deemed overly segregated will be pressured to change their zoning laws to allow construction of more subsidized housing in affluent areas in the suburbs and relocate inner-city minorities to those predominantly white areas. HUD’s maps, which use dots to show the racial distribution or density in residential areas, will be used to select affordable-housing sites, according to the New York Post.

  To employ this policy, the federal government has undertaken a massive Orwellian-style data collection initiative, prying into the medical records, credit card purchases, mortgage business records, IRS filings, employment records, educational records and local government policy initiatives searching for racial “inequalities” for the Justice Department to prosecute.

  The only way to resist this tyranny is for local governments to eschew all federal monies including Community Development Block Grants going forward. Of course, local residents always pressure their community leaders to accept government monies under the auspices that they have paid their “taxes” and want a return on their “investment.” But once the Feds get their hooks into the local community through the distribution of money from the federal treasury, they can exert total control over local government’s functions regarding housing, zoning and regulations far more than they do already.

  The globalist agenda is the most comprehensive program for world fascism and world collectivism ever conceived. Its basis is esoteric deception, as carried out pragmatically by mass politics, international mass banking and the mass media. It operates as a whole — as an organism. Today’s democratic globalists make the communists and the Nazis look like amateur totalitarians.

  

  

  

  

  

• Hackers Claim John McCain Knew ISIS Execution Videos Were Staged

  In a rather stunning note, CyberBerkut, a Ukrainian group of hackers, claims to have hacked John McCain’s laptop while he was in the Ukraine, and as Techworm reports, what they have released from his June visit appears to be a fully staged production of an ISIS execution video…

   

  As Techworm reports, according to the hackers, they broke into the laptop of one of the American politicians, Senator McCain and after found a video with staged IS execution, which they decided to show to the world community.

  It so happened that Senator John McCain had visited Ukraine on a official visit somewhere in the first week of June 2015. The hacktivists belonging to CyberBerkut somehow managed to access his laptop.

  Here is what CyberBerkut said to John McCain…

  “We CyberBerkut received at the disposal of the file whose value can not be overstated!

   

  Dear Senator McCain! We recommend you next time in foreign travel, and especially on the territory of Ukraine, not to take confidential documents. In one of the devices of your colleagues, we found a lot of interesting things. Something we decided to put: this video should become the property of the international community!”

  According to the hackers, they broke into the laptop of one of the American politicians, Senator McCain and after found a video with staged IS execution, which they decided to show to the world community.

  The video they released is below..
  

  From the video it can be seen that the entire set including the hostage is stage managed.  An actor dressed as an executioner of IS is holding a knife to behead the prisoner, and the “victim” depicts to be suffering.

  It may be recalled that IS have been repeatedly publishing the videos of the executions of hostages and if this video is true, the victims may in fact be alive.

  The authenticity of this video has not been independently verified.

  *  *  *

  Metabunk.org has attempted to debunk the hacker's claims…

  The video shows a very brightly lit stage with simulated desert floor and a greenish backdrop. A film crew and multiple lights surround the stage, but they are strongly backlit. The video has no audio, and is very low resolution so no details can be made out. The kneeling man wears a head cover, to suggest that the head could be replaced by a computer generated image, or separately recorded video.

   

  The video appears to be an attempt to replicate one of the "Jihadi John" beheading videos of 2014. In particular it appears to be an attempt to replicate the video of James Foley. None of those videos show actual beheadings, and instead show Jihadi John sawing at the neck with no apparent blood, and then they cut to a shot of a decapitated head posed on top of a body. This led to speculation that the videos were faked.

   

  However we can tell it is not a video of the faking of any of the Jihadi John videos for a number of reasons.

   

  

  *  *  *

  While it is easy to point the finger at the pro-Russian hacker collective (and consider their motives in damaging US – especially McCain – influence) and deny the video's truth, one can't help but wonder – given just how well produced the final videos were in many cases, just who is behind the scenes of the widely known to be funded by US sources ISIS… just another conspiracy theory?

  

  

  

  

  

• Chinese Stocks Open Lower As Margin Debt Tumbles To 4-Month Lows, Regulators Probe Officials' Sales

  Following last night's afternoon session melt-up at the hands of a $100bn injection into China's sovereign rescue fund, Chinese stocks opened higher but faded fast, with no follow-through from yesterday's farce. With Warren Buffett's favorite indicator flashing red for China (and US) stocks, and so many rural Chinese citizens "just hoping to get out at breakeven," any assistance in levitating the nation's stocks are simply being sold into as margined traders unwind their positions. One such leveraged 'citizen' is none other than State-Owned-Enterprise GM Yang Shengjun, whose firm was ironically among the most vocal in blaming the crash on "malicious foreign sellers trying tio start an economic war" and is now under investigation for dumping his own shares… do as I say Chinese people, not as I do.

  A reminder of last night's farce…

  

  The good news…

  • *SHANGHAI EXCHANGE MARGIN DEBT DECLINES TO FOUR-MONTH LOW

  

  So at least – whether through forced liquidation or common sense – the leverage is being unwound.

  *  *  *

  And tonight, for now…

  • *CHINA'S CSI 300 INDEX SET TO OPEN DOWN 0.4% TO 3,915.78
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN DOWN 0.4% TO 3,773.79

  with no follow-through from yesterday's excitment…

  

   

  But, as Forbes notes, Chinese stocks are as bubblicious as US stocks (or vice versa) according to Warren Buffett's favorite indicator of equity market valuation…

  

   

  And do not forget the most important chart in China right now…. just as in The US – must keep stocks above 200DMA at all costs…

  

  There was at least one malicious seller… (as WSJ reports)

  A listed arm of China’s state-owned aerospace and defense company and its two largest shareholders are under investigation for potential violation of stock-selling rules, according to the securities regulator.

  AVIC Heibao Co., a manufacturing subsidiary of Aviation Industry Corp. of China, known as AVIC, said Wednesday that shareholders Jincheng Group and AVIC Investment Holdings had received notice of the investigation from the China Securities Regulatory Commission. The regulator didn’t disclose further details of the investigation.

  In addition, AVIC Capital Co., AVIC Heibao’s trading arm, dismissed General Manager Yang Shengjun on Wednesday, after AVIC Capital told the Shanghai Stock Exchange that AVIC Heibao is being probed by the regulator for selling shares on Tuesday.

  The massive irony is…

  The investigation comes after AVIC Chairman Lin Zuoming this month criticized foreign short sellers for deliberately instigating “an economic war against China” and pledged to prop up the market by buying shares. Short sellers bet that a stock’s price will fall. AVIC couldn’t immediately be reached for comment.

   

  AVIC Heibao said on June 30 that its top shareholder, Jincheng Group, had sold 3.39 million shares in the company for 78.8 million yuan ($12.7 million), while AVIC Investment Holdings, its second-largest shareholder, had shed all of its 16.8 million shares for 431.4 million yuan from June 5 to June 29. The two shareholders dumped a combined 5.86% of the company’s total issued shares.

  Do as your leaders say Chinese people… not as they do.

  And amid all this carnage… USDCNY has been deadstick…

  

  Charts: Bloomberg

  

  

  

  

  

• If Spending Is Our Military Strategy, Our Strategy Is Bankrupt

  Submitted by Mark Mateski via The Mises Institute,

  Even today, few deny the long arm of US military might. After all, the US military exhausted the Soviet Union, crushed Saddam Hussein, and drove Osama bin Laden’s al Qaeda into hiding.

  To what should we attribute these triumphs? Some would say US planning and foresight. Others would mention the hard work and dedication of US soldiers, sailors, and airmen. Still others would point to the application of superior technology. All would be correct to some degree, but each of these explanations disregards the fact that for more than a lifetime, the United States has wildly outspent its military competitors.

  For many years, the United States spent more on defense than the next ten big spenders combined. It turns out that’s no longer true, according to Jane’s and PPGF. But whether the current count is seven or nine, we must acknowledge that US dominance was purchased at a high cost.

  The High Cost of Big Debts

  The first cost is the accumulation of debt. While many will admit to the numbers, few will publicly concede the long-term threat they pose to national and international security. Among the few, Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, has for several years consistently declared that “The single biggest threat to national security is the national debt.” While US defense spending is currently declining, these charts illustrate that the US share of global defense spending has remained strong (1) regardless of the irregular ups and downs of external events and (2) largely independent of the debt burden.

  The second cost is the accumulation of commitments and expectations. Despite the drawdown of troops from Iraq and Afghanistan, senior US policy makers remain staunchly determined to maintain a high level of global engagement. If you doubt it, read the recently published 2015 U.S. National Military Strategy. Among other things, it underscores the US commitment to countering agents of instability, whether “violent extremist organizations (VEOs)” or nation states, the standout examples being Russia and China. Not surprisingly, the strategy has prompted headlines such as “China Angered by New U.S. Military Strategy Report,” “Pentagon Concludes America Not Safe Unless It Conquers the World,” and “Pentagon’s New Military Strategy Calls for Preserving US Dominion of the World.”

  Yes, these criticisms arrive from predictable quarters, but in this case the perception is reality, and the reality is that US policy makers continue to pursue a strategy laden with unavoidably expensive commitments — commitments guaranteed to antagonize Russia and China. (All of which stimulates a risky reinforcing feedback loop.) As Patrick Tucker at Defense One quipped, “The United States is preparing for never-ending war abroad.” Despite this, don’t expect to find any references in the published strategy to “debt,” an oversight that ignores Mullen’s warning and validates David Stockman’s statement that “We’re blind to the debt bubble.”

  Our Military “Strategy” Amounts to Little More than Big Spending Plans

  The third cost — one we rarely discuss — is the dangerous yet unspoken conceit held by a generation of senior US officers and policy makers: the belief that they are innately superior strategists. Just ask the Soviet Union, Saddam Hussein, and Osama bin Laden! But what if in reality spending was the primary driver and arbiter of these outcomes?

  It is suggestive that in cases where the sheer weight of US firepower proved unable to secure a decisive victory (Korea and Vietnam are canonical examples), the United States’s cash-poor but tactically savvy opponents still managed to frustrate and confound front-line US forces. As H. John Poole, a retired Marine colonel, combat veteran, and prolific author, has remarked:

  For America’s wartime units, firepower has been and still is the name of the game. This game has some less-than-ideal ramifications. Since WWI, far too many units have not matched up well — tactically — with their Eastern counterparts. As unlikely as this may seem to today’s active-duty community, it is nevertheless well documented. (Global Warrior, 2011, p. xxii)

  On this count, “cyberwar” is a prime illustration of another domain in which spending doesn’t guarantee proportional dominance. The recent OPM hack is a painful example, and if practitioners like Richard Stiennon (There Will Be Cyberwar) are correct, more is coming.

  As a rule, US policy makers minimize these counterexamples. Commentators like John Poole who point out weaknesses and alternatives tend to be written off by Washington apparatchiks as well-meaning but misguided zealots. And to be fair, from the mainstream perspective Washington’s argument in support of the status quo is actually quite strong — as long as the money continues to flow. For those who discern the uncomfortable truth that the US debt addiction is unsustainable, the picture looks very different. Alternatives to spending-as-strategy exist, but they require policy makers and strategists to rethink their dearly held assumptions of economic and strategic superiority. It requires a unique mind and stout internal mettle to do this, and so far this decade, we have seen little evidence in Washington of this type of insight and character. Let’s hope that the anticipation of crises yet-to-be pushes hitherto overlooked reformers to the front of the national security debate.

  I’ll close by restating the problem via analogy: US global superiority in military affairs is actually the superiority of a rich kid who thinks he’s really smart but in reality is merely just rich. When the seemingly endless flow of money slows (as it inevitably will), the mask of cleverness will fall. Everyone who resented the kid will be waiting at the edge of the playground for this day of reckoning, and because no one else will have been so dependent on spending-as-strategy, the erstwhile rich kid will find it tough going.

  

  

  

  

  

• Total Collapse: Greece Reverts To Barter Economy For First Time Since Nazi Occupation

  Months ago, when Alexis Tsipras, Yanis Varoufakis, and their Syriza compatriots had just swept to power behind an ambitious anti-austerity platform and bold promises about a brighter future for the beleaguered Greek state, we warned that Greece was one or two vacuous threats away from being “digitally bombed back to barter status.”

  Subsequently, the Greek economy began to deteriorate in the face of increasingly fraught negotiations between Athens and creditors, with Brussels blaming the economic slide on Syriza’s unwillingness to implement reforms, while analysts and commentators noted that relentless deposit flight and the weakened state of the Greek banking sector was contributing to a liquidity crisis and severe credit contraction. 

  As of May, 60 businesses were closed and 613 jobs were lost for each business day that the crisis persisted without a resolution. 

  On the heels of Tsipras’ referendum call and the imposition of capital controls, the bottom fell out completely as businesses found that supplier credit was increasingly difficult to come by, leaving Greeks to consider the possibility that the country would soon face a shortage of imported goods. 

  On Tuesday, we brought you the latest on the Greek economy when we noted that according to data presented at an extraordinary meeting of the Hellenic Confederation of Commerce and Entrepreneurship, retail sales have fallen 70%, while The Athens Medical Association recently warned that 7,500 doctors have left the country since 2010. 

  Now, the situation has gotten so bad that our prediction from February has come true. That is, Greece is reverting to a barter economy. Reuters has more:

  Wild boar and power cuts were Greek cotton farmer Mimis Tsakanikas’ biggest worries until a bank shutdown last month left him stranded without cash to pay suppliers, and his customers without money to pay him.

   

  Squeezed on all sides, the 41-year-old farmer began informal bartering to get around the cash crunch. He now pays some of his workers in kind with his clover crop and exchanges equipment with other farmers instead of buying or renting machinery.

   

  Tsakanikas is part of a growing barter economy that some Greeks deplore as a step backward from modernity, but others embrace as a practical means of short-term economic survival.

   

  When he rented a field this month, he agreed to pay with part of his clover production.

   

  “It’s a nightmare. I owe many people money now – gas stations and firms that service machinery. I have to go to the bank every single day, and the money I can take out is not enough,” said Tsakanikas, who also grows vegetables and corn on 148 acres (60 hectares) of farmland.

   

  “I’ve begun bartering in some forms – it existed in the past but now it is growing… Times have become really tough, and friends and relatives help each other out.”

  So Greece, the birthplace of Western civilization and democratic governance, is now literally sliding backwards in history.

  The nation – which has already suffered the humiliation of becoming the first developed country to default to the IMF and which was nearly reduced to accepting “humanitarian aid” from Brussels when a Grexit looked imminent a few weeks back – is now transacting in clover, hay, and cheese. Here’s Reuters again:

  Tradenow, a Website started three years ago to facilitate barter of everything from food to technology, says the number of users and the volume of transactions have doubled since capital controls came into effect on June 29.

   

  “Before capital controls, we were reaching out to companies to encourage them to register,” says Yiannis Deliyiannis, the company’s chief executive. 

   

  “Now companies themselves are getting in touch with us to get registered.”

   

  He rattles off a list of firms using the site to strike deals with suppliers: a car repairs shop that exchanged tyres with another firm for a new shower cubicle, a burglar alarm provider offering services in return for paper and advertising, an Athens butcher that trades daily meat supplies for services.

   

  In the lush yellow and green fields outside Lamia dotted with cotton, peanut and olive groves, barter is also flourishing on an informal basis outside the online platforms.

   

  Kostas Zavlagas, who produces cotton, wheat, and clover recounted how he gave bales of hay and machine parts to another farmer who did not have cash to pay him.

   

  “He is going to pay me back in some sort of product when he is able to, maybe in cheese.”

  Yes, “maybe in cheese”, but certainly not in euros, especially if the growing divisions within Syriza render Athens unable to pass a third set of prior actions through parliament next week.

  Should the vote not pass, it’s not clear if Greece will be able to obtain the funds it needs to pay €3.2 billion to the ECB on August 20 – a missed payment would endanger the liquidity lifeline that is the only thing keeping any euros at all circulating in the Greek economy.

  On the bright side, “barter has been a part of everyday life for Greeks for a long time” economist Haris Lambropoulos told Reuters. The only difference is that now, “it is a more structured and organised phenomenon.”

  Maybe so, but this is one “structured and ordered phenomenon” that many Greeks would likely just as soon do without and indeed, the new barter economy is drawing comparisons to a period in Greece’s history that has gotten quite a bit of attention over the course of the last few months, and on that note, we’ll give the last word to Christos Stamatis, who runs the barter website Mermix:

  “Of course, a barter economy is something that we shouldn’t aspire to and should be a thing of the past – the last time we had it on a large scale was when we were under [Nazi] occupation.”

  

  

  

  

  

• In Latest Market-Rigging Scandal, ITG Busted For Frontrunning Clients In Its Dark Pool

  Last year, first in the aftermath of NYAG’s lawsuit against Barclays followed promptly by Michael Lewis’ “Flash Boys” (which over a year later is still a better seller than “GS Elevator’s” attempt to be this generation’s Tucker Max) exposing High Frequency Trading for being nothing more than a sophisticated gimmick enabling market rigging and bulk order frontrunning while pretending to “provide liquidity”, the revulsion against HFTs hit a fever pitch that forced Virtu to postpone its IPO.

  Several months later, because the market kept going higher, people quickly forgot why they were angry at a bunch of vacuum tubes, and Virtu not only re-IPOed (adding another year without a single trading day loss to its roster) but it was taken public by that “humanitarian” protagonist of Flash Boys, Goldman Sachs itself (which was so aghast at the scourge that is HFT it almost, almost, ended its own dark pool and HFT ambitions… before it decided to double down on HFT).

  However, since the market is once again on the verge of a terminal liquidity seizure with its associated side-effects (see China for details), the authorities needed to remind the “market” just who the scapegoat will be when the next crash finally does come. Which is why earlier today in an unexpected “preliminary second quarter guidance” release, ITG, owner of the Posit dark pool, was just busted with a $22.6 million potential SEC settlement for what appears to have been blatant frontrunning of company clients in its own prop trading pod.

  From the release:

  During the second quarter of 2015, ITG commenced settlement discussions with the Staff of the Division of Enforcement of the SEC (the “SEC Enforcement Division”) in connection with the SEC’s investigation into a proprietary trading pilot operated within ITG’s AlterNet Securities, Inc. (“AlterNet”) subsidiary for sixteen months in 2010 through mid-2011. The investigation is focused on customer disclosures, Form ATS regulatory filings and customer information controls relating to the pilot’s trading activity, which included (a) crossing against sell-side clients in POSIT and (b) violations of ITG policy and procedures by a former employee. These violations principally involved information breaches for a period of several months in 2010 regarding sell-side parent orders flowing into ITG’s algorithms and executions by all customers in non-POSIT markets that were not otherwise available to ITG clients.

  This would not be the first time a dark pool was busted for admitting it abused fragmented markets to frontrun clients. As Bloomberg reminds us, last year, the agency fined Liquidnet Holdings Inc. $2 million for not living up to client secrecy standards. In 2011, Pipeline Trading Systems LLC agreed to pay $1 million, in part because it had a proprietary trading unit that was secretly trading against client orders. Then there was of course NY AG Schneiderman’s lawsuit against Barclays alleging the UK bank which has been busted for manipulating pretty much everything under the sun at least once falsely claimed that it closely monitored and shut off certain types of traders.

  Still, the $22 million proposed settlement would be a record for a private Wall Street trading platform, surpassing the $14.4 million that UBS Group AG agreed to pay in January. More importantly, as Bloomberg also observes, the latest lawsuit “shows the steps authorities are taking against alternative trading systems such as dark pools.”

  In other words, everyone now knows HFTs are fair game for rigging and manipulation, and with the banks having already been bled dry by over a quarter trillion in litigation charges, it is now the HFTs’ turn to pay their kickbacks to the government for allowing them to frontrun sheep for 7 years since the advent of Reg NMS.

  What is particularly amusing in this case is that while everyone knows that when it comes to HFT’s, it is never called “rigging” – the proper nomenclature is “glitch”, so now we learn a new term to use instead of “criminal frontrunning” – drumroll… trading experiment, or as it is known in legal parlance “proprietary trading pilot.“

  From Bloomberg:

  ITG disclosed the discussions and potential fine in a statement Wednesday, saying the situation concerned an experimental market-making unit that a subsidiary ran in 2010 and 2011. The division traded using information not available to other customers of ITG’s private stock-trading system, which is against Securities and Exchange Commission rules.

   

  ITG Chief Executive Officer Bob Gasser said the firm shut the trading experiment and hasn’t run a similar one since.

  So let’s get this straight: ITG had an in house prop trading group, or “pilot”, which operated for nearly two years, whose only signal was client order flow, which it would frontrun, and make millions in profits. In other words, once again precisely what we have claimed since 2009. But oh yes, not everyone is guilty of such manipulation. Only Liquidnet… and Pipeline… and ITG… and countless other ATS and HFT firms for whom clients are better known as either “easy money” or muppets.

  And yes, we get the “trading experiment” narrative: calling it “criminal market manipulation and order frontrunning scheme” just does not sound like something the Modern Markets Initiative would spend millions of dollars to get Congressmen to agree on.

  But where the ITG client frontrunning case goes truly surreal and takes the cake, is that in addition to the fine, it also announced that one of its directors, Kevin O’Hara resigned effective immediately. This is what he said:

  Dear Maureen:

  This letter serves to inform you that, effective immediately, I resign from the Board of Directors (“Board”) of Investment Technology Group, Inc. (“ITG”), and the attendant Board committees of which I am a member: Compensation, Technology, and Capital.

   

  It has been my pleasure and an honor to serve the shareholders, clients, and employees of ITG, and to work alongside fellow directors over the last number of years. And, those years have witnessed ITG weather the slings and arrows of existential challenges: the 2008-09 financial crisis (and, subsequent, “Great Recession”), industry hyper-competition, and a highly dynamic regulatory environment.

   

  However, as you know, over the last several months, continuous fundamental, strategic and vital differences of opinion and direction have transpired at the Board level and, in particular, between me and the Board’s leadership. Although I believe in the importance of the governance concept of “loyal opposition,” alas, to everything there is a season. I do hope that my service in such role has, at the very least, furthered and continues to further the breadth of substantive deliberation and the process of decision-making by the Board.

   

  I wish the very best for ITG and its employees.

   

  Best Regards,

   

  Kevin J.P. O’Hara

  So some board member quit the day his company was busted by the SEC for more market rigging and frontrunning its clients. Is that the punchline?

  No. This is:

  Mr. O’Hara worked in the Division of Enforcement of the U.S. Securities and Exchange Commission and as Special Assistant United States Attorney at the U.S. Department of Justice

   

  

  And now proceed to laugh, or cry.

  

  

  

  

  

• Meanwhile In Venezuela… The Socialist Paradise Has Arrived

  As we recently warned, the hyperinflationary collapse in Venezuala is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro's socialist paradise… and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).

   

   

  As we previously concluded, and seemingly confirmed by the above video,

  Venezuela’s hyperinflation is reaching its final stages. It is probably already far too late for the government to stop the complete collapse of its currency. The bolivar is in the process of transforming from a medium of exchange to tinder for wood-stoves. Venezuelans who had the presence of mind to convert their savings into gold or foreign currency in good time are likely to survive the conflagration intact.

   

  Those who bought stocks on the Caracas stock exchange seem to have successfully side-stepped the effects of the devaluation as well, but they need a plan for the post-inflation adjustment crisis, which will bankrupt a great many companies very quickly. Also, the government can simply close the market down at any time if it doesn’t like what is happening there, so there is the ever-present danger of even more government interference as well.

   

  It is quite fascinating to see that in spite of numerous examples throughout history, governments never seem to learn. They all believe they can somehow overrule economic laws by diktat. This is not only true of Venezuela’s government, but of practically every government in today’s world. Central planning of money has been adopted everywhere. Venezuela merely shows us what the end game for every fiat money system looks like.

   

  At some point the State is overwhelmed by the promises it has made to its citizens. When it can no longer pay by means of confiscating private wealth, the printing press is always the last resort. Recently one actually gets the impression that it is often the first, rather than the last resort.

  In developed countries, people believe that the planners have everything in hand, and that their “price stabilization” rules will protect them from such outcomes. However, it should be clear that these rules will simply be abandoned in extremis. The independence of central banks exists only on paper – it will mean nothing in a perceived “emergency”. It is almost comical in this context that gold is being sold while most of the world’s major central banks are seemingly hell-bent on aping John Law’s Banque Générale Privée.

  

  

  

  

  

• 4 Mainstream Media Articles Mocking Gold That Should Make You Think

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  For those of you who have been reading my stuff since all the way back to my Wall Street years at Sanford Bernstein, thanks for staying along for the ride. I appreciate your support immensely considering that I essentially no longer write about financial markets at all, and for many of you, that remains your profession and primary area of interest.

  There are many reasons why I stopped commenting on markets, but the main reason is that I started to recognize I wasn’t getting it right. In fact, in some cases I was getting it spectacularly wrong. Whenever this happens, I try to isolate the problem and fix it. In this case there was no fix, because much of why I was no longer getting it right was rooted in the fact that my heart, soul and passion had moved onto other things. My interests had expanded, and I started a blog to express myself on myriad other matters I deemed important. Providing relevant market information needs intense focus, and my focus had shifted elsewhere. I recognized that I wasn’t intellectually interested enough in centrally planned markets to provide insightful analysis, and so I stopped.

  This doesn’t mean I won’t start up again. When central planners do lose control, I may indeed become far more interested in opining on such matters. Time will tell. In the interim, financial markets do still play an important role in the bigger picture of social, political and economic trends I passionately care about. The stability and increase in financial assets (stocks and bonds) is of huge importance to the propaganda machine, in particular keeping the non-oligarchic, non-politically connected 1% in line and believing the hype (see: The Stock Market: Food Stamps for the 1%).

  So while I won’t claim to know when the paradigm shift will begin in earnest, I do rely on people who have gotten macro forecasts right, and there is no one better than Martin Armstrong. Years ago, he was saying that nothing goes up in a straight line and that gold would experience a severe correction before beginning its real bull market. We are seeing his prediction unfold before our very eyes. What he also said is that as gold approached the $1,000 per/oz mark or even below, everyone would proclaim that “gold is dead” and start making comically bearish statements. In a nutshell, negative sentiment would plunge to levels not seen in years, if not more than a decade. We are starting to see this now.

  Here are four mainstream media articles that provide some evidence we may be approaching a sentiment low. Some of them I’m sure you’ve seen, others perhaps not. What amazes me is how they’ve all come out within the last two weeks.

  1) From the Wall Street Journal: Let’s Be Honest About Gold: It’s a Pet Rock 

  Here are a few choice excerpts:

  Gold is supposed to be a haven amid hard times and soft money. So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?

   

  Many people may have bought gold for the wrong reasons: because of its glittering 18.7% average annual return between 2002 and 2011, because of its purportedly magical inflation-fighting properties, because it is supposed to shine in the darkest of days. But gold’s long-term returns are muted, it isn’t a panacea for inflation, and it does well in response to unexpected crises—but not long-simmering troubles like the Greek situation. And you will put lightning in a bottle before you figure out what gold is really worth.

   

  With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.

   

  Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.

   

  So, if buying gold is an act of faith, how much money should you put on the line?

   

  Anything much above that is more than an act of faith; it is a leap in the dark. Not even gold’s glitter can change that.

  Think about some of the words and phrases used in this WSJ article:

  “Pet rock.”

   

  “Greenhorns in gold (greenhorn means a person who lacks experience and knowledge).”

   

  “It is time to call owning gold what it is: an act of faith.”

   

  “Gold bugs often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance (this is actually true in many ways).”

  Condescending as the entire article is to gold owners, he even goes so far to quote the Hebrew Bible!

  Moving on.

  2) From the Washington Post: Gold is Doomed

  When you think about it, a bet on gold is really a bet that the people in charge don’t know what they’re doing. Policymakers missed yesterday’s financial crisis, so maybe they’re missing tomorrow’s inflation, too. That, at least, is what a cavalcade of charlatans, cranks, and armchair economists have been shouting for years now, from the penny ads that run on the bottom of websites — did you know that the $5 bill proves the stock market is on the cusp of crashing? — to Glenn Beck infomercials and even hedge fund conferences. Indeed, John Paulson, who made more fortunes than you can count betting against subprime, has been piling into gold for six years now, because he thinks “the consequences of printing money over time will be inflation.” They all do. Goldbugs act like the Federal Reserve’s public balance sheet is a secret only they have discovered, and that it’s only a matter of time until prices explode like they did in the 1970s United States, if not 1920s Germany.

   

  But economists do, for the most part, know what they’re doing. Sure, they missed the crash coming in 2008, but that wasn’t because they didn’t understand how bank runs work. It was because they didn’t understand that unregulated lenders had become vulnerable to runs. And the economists who haven’t forgotten their history knew that this inflation fear mongering was all wrong too. Specifically, there’s a difference between the central bank buying bonds, a.k.a. printing money, when interest rates are zero and when they’re not. In the first case, money and short-term bonds both pay the same amount of interest — none — so, as Paul Krugman has explained over and over again, printing one to buy the other won’t change anything. Banks won’t lend out any new money, and will just sit on it as a store of value instead. That’s what happened when interest rates fell to zero in 2000s Japan, and it’s what is happening now in the U.S., U.K., Japan, and Europe.

   

  It almost makes you feel bad for the goldbugs, until you remember that some substantial number of them are just trying to scare seniors out of their money. But the ones who aren’t really thought the 1970s showed that gold went up when inflation did, so the fact that gold was going up now meant inflation couldn’t be far behind. They didn’t understand that the price of gold doesn’t depend on how much inflation there is, but rather on how much inflation there is relative to interest rates. So now that rates are rising, gold, as you can see below, is falling. Wait a minute, rates are rising? Well, yes. The Federal Reserve hasn’t actually raised rates yet, but it has talked about it enough that markets have reacted as if it already did. That’s been enough to make real rates positive again.

  While I agree that many gold bugs do deserve the criticism they get, it’s interesting to see the way in which the Washington Post demonizes them as:

  “Just trying to scare seniors out of their money.” 

  But the purpose of the above article is less about demonizing gold bugs, and more about praising the existing system of crank central planners that no one other than starry eyed pundits and thieving oligarchs actually support (see: “Revolution is Coming” – The Top 20 Responses to Jon Hilsenrath’s Idiotic WSJ Article).

  Here are some examples:

  But economists do, for the most part, know what they’re doing.

   

  Paul Krugman has explained over and over again, printing one to buy the other won’t change anything. 

  This story is far from over, as the Fed has yet to raise interest rates. Talk to me about victory when rates normalize.

  Moving along to the next article:

  3) From Bloomberg: Gold Is Only Going to Get Worse

  The problem for gold isn’t just that prices are dropping. For many, the metal also has lost its charisma.

   

  Prices will drop to $984 an ounce before January, according to the average estimate in a Bloomberg News survey of 16 analysts and traders. That would be the lowest since 2009 and a 10 percent retreat from Tuesday’s settlement. Speculators are shorting the metal for the first time since U.S. government data began in 2006, and holders of exchange-traded products are selling at the fastest pace in two years.

   

  “Gold is out of fashion like flared trousers: no one wants it,” said Robin Bhar, an analyst at Societe Generale SA in London. “It’s not going to collapse, but we think it is going to be at a lower level in the not-too-distant future.”

   

  “Gold is a weird relic of antiquity,” said Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “It’s not a commodity that has much fundamental demand. It’s pretty, so people use it for jewelry. But it’s unlike iron ore or oil, or copper, or corn. There’s not specific end-use for it. People just like it, so it becomes a discussion about fervor.”

  Let’s once again highlight some of the terminology used.

  The metal also has lost its charisma

  So now it’s magically turned into a human being as opposed to a pet rock.

  Speculators are shorting the metal for the first time since U.S. government data began in 2006

   

  “Gold is out of fashion like flared trousers: no one wants it.

   

  “Gold is a weird relic of antiquity.”

  Finally, for the last article. This one takes on more of the tone from the WSJ article, basically just calling gold buyers imbeciles.

  4) From Market Watch: Two Reasons Why Gold May Plunge to $350 an Ounce.

  CHAPEL HILL, N.C. (MarketWatch) — Gold bugs, who have just begun to digest bullion’s more than $100 drop over the past month, need to prepare for the possibility of an even bigger decline.

  That, at least, is the forecast of Claude Erb, a former commodities manager at fund manager TCW Group, and co-author (with Campbell Harvey, a Duke University finance professor) of a mid-2012 study that forecast a plunging gold price. They deserve to be listened to, therefore, since — unlike many latter-day converts to the bearish thesis — they forecast a long-term gold bear market when it was only just beginning.

   

  You might think that, with gold now trading more than $500 lower than when the study was released, Erb would declare victory and leave well enough alone. But Erb is doing nothing of the sort. Earlier this week, he told me that the gold community now needs to consider the distinct possibility that gold will trade for as low as $350 an ounce.

   

  Erb uses the five well-know stages of grief to characterize where the gold market currently stands. Those stages are denial, anger, bargaining, depression and acceptance, and he argues that the gold-bug community currently is in the “bargaining” stage.

   

  Erb imagines them saying the functional equivalent of: “So long as gold stays above $1,000 an ounce, I’ll go to church every Sunday.”

   

  Over shorter terms measured in years, according to their research, you must take seriously the possibility that gold won’t just drop below $1,000 an ounce but, eventually, to a far, far lower price as well.

  Some choice quotes to think about:

  The gold community now needs to consider the distinct possibility that gold will trade for as low as $350 an ounce.

   

  Erb uses the five well-know stages of grief to characterize where the gold market currently stands.

   

  “So long as gold stays above $1,000 an ounce, I’ll go to church every Sunday.”

  This is pretty much peak condescension, and once again, notice the religious imagery.

  Gold won’t just drop below $1,000 an ounce but, eventually, to a far, far lower price as well.

  I didn’t write this article to “call the bottom in gold” or anything like that. I merely want to flag these four articles due to the hyperbolic nature of some of the statements made (they are exhibiting pretty much exactly the same behavior as the gold bugs they mock do). I do think that something is happening on the sentiment front that warrants we are closer to the bottom that the mid-stages of a bear market.

  While I certainly accept that gold prices could fall further from here, I don’t think they will go anywhere near $350/oz, or $500/oz. If Claude Erb cares to make a public bet with me on that, he can find me here.

  

  

  

  

  

• Presenting Jeremy Grantham's "10 Topics To Ruin Your Summer"

  When last we checked in with Jeremy Grantham, the GMO co-founder was still bubble watching, reiterating his outlook from November that although stocks can always go higher in the “strange, manipulated world” that we call the “new paranormal”, “bubble territory” probably isn’t far off given that the Yellen Fed is “bound and determined” to facilitate the inexorable rise of asset prices. 

  More specifically, bubble territory for Grantham is around S&P 2250, and because “the Greenspan/ Bernanke/Yellen .. Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006,” there’s no good reason to think we won’t reach a bubble-defining two sigma event before all is said and done, even if that means launching QE4 in the event liftoff’s first 25bps baby steps result in a 1937 redux.

  Grantham also bemoaned the lack of capex spending and the myopia exhibited by corporate management teams, noting the “current extreme reluctance to make new investments in plant and equipment (how old-fashioned that sounds these days) rather than [plowing money] into stock buybacks, which may be good for corporate officers and stockholders, but bad for GDP growth and employment.”

  In GMO’s latest quarterly missive, Grantham is back with another dose of inconvenient truthiness, this time in the form of “ten quick topics to ruin your summer.”

  In short, this is a list of what Grantham – who points out how fortunate he is to “have an ideal job [with] no routine day-to-day responsibilities [which leaves him] free to obsess about anything that seems both relevant and interesting” – thinks you should worry about going forward:

  1. A new era of lower trend GDP growth
  2. Resource scarcity
  3. Oil
  4. The environment
  5. Food shortages
  6. Income inequality
  7. The death of “majoritarian electoral democracy” 
  8. The Fed
  9. Asset bubbles
  10. The limits of humankind 

  Here are some excerpts from Grantham’s thoughts on each topic:

  *  *  * 

  From GMO

  1. Pressure on GDP growth in the U.S. and the balance of the developed world: count on 1.5% U.S. growth, not the old 3% 

  • Factors potentially slowing long-term growth:
  • Slowing growth rate of the working population
  • Aging of the working population
  • Resource constraints, especially the lack of cheap $20/barrel oil
  • Rising income inequality
  • Disappointing and sub-average capital spending, notably in the U.S.
  • Loss of low-hanging fruit: Facebook is not the new steam engine
  • Steadily increasing climate difficulties

  Partially dysfunctional government, particularly in economic matters that fail to maximize growth opportunities, especially in the E.U. and the U.S.

  Mainstream economists, with their emphasis on highly theoretical models, have been perplexed by the recent chain of disappointments in productivity and GDP growth and would disregard all or most of these factors as theoretically unsatisfactory. 

  2. The age of plentiful, cheap resources is gone forever

  After every historical major rally in commodity prices, there has been the predictable reaction whereby capacity is increased. Given the uncertainties of guessing other firms’ expansion plans, the usual result is a period of excess capacity and weaker prices as everyone expands simultaneously. 

  In agriculture, we also had a global sell-off following three consecutive years in which extremely hostile grain-growing weather had driven prices to panic levels of triple and quadruple their previous lows. 

  All in all I am still very confident, unfortunately, that the old regime of irregularly falling commodity prices is gone forever.

  3. Oil

  Among commodities, oil has been king and still is. For a while longer. Oil has driven our civilization to where it is today. It created the surplus in our economic system that allowed for scientific research and rapid growth. Now, as we are running out of oil that is cheap to recover, the economic system is becoming stressed and growth is slowing.

  4. Climate Problems

  Both the actual climate and the associated politics seem to be changing more rapidly these days, with the seriousness of the situation becoming better appreciated. Visible changes in the climate have also been accelerating, with many more records than normal of droughts, floods, and, most particularly, heat. Last year was the hottest year ever recorded, and this year, helped by an El Nin?o, has gotten off to a dreadful start. January was the second hottest January ever. February and March were outright records. April was in third place, but both May and June were back in first place. This consistency with volatile climate is unusual and ominous. If kept up, 2015 will be the hottest by a lot.

  5. Global food shortages

  The world’s population continues to grow, and the increasing middle class of the emerging countries, especially China, is rapidly increasing its meat consumption. Both trends put steady pressure on our grain and soy producing capabilities at a time when productivity gains have been irregularly slowing for several decades and show every sign of continuing to slow.7 Both overland and underground water supplies are stressed. Weather for farming becomes increasingly destabilized with increased droughts and radically increased flooding events. Flooding particularly increases soil erosion, which still continues at 1% a year, close to 100 times natural replacement rates. Insects and weeds are apparently becoming resistant to chemicals faster than chemists can respond. 

  6. Income inequality

  Over the last few years, we have been presented with data showing that the U.S. is the most unequal society (or one of the two or three worst) in both income and wealth in the developed world. It is also one of the less economically mobile ones, especially for mobility out of the poorest quintile. Neither situation applied or even nearly applied 40 years ago.

  7. Trying to understand deficiencies in democracy and capitalism

  Democracy

  “The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.” This is the killer conclusion of a paper last fall by Gilens and Page.11 Based on the study of almost 1,800 policy issues for which income breakdowns were available, and defining the “Elite” generously as those above the 90th percentile, it finds that “majoritarian electoral democracy” is largely a thing of the past. 

  Capitalism: a failure to be inclusive (and feathering the corporate officers’ nests)

  I have previously gone on at length about the critical, perhaps even deadly, deficiency in capitalism in dealing with long-term issues of the commons – damages to our common air, water, and soil. I would now like to take a swipe at capitalism’s increasing failure to be inclusive. Capitalism has steadily dropped its baggage of stakeholders, with the exception of senior corporate officers in first place and stockholders in second. Interest in local communities, cities, states, and countries of origin has been largely put aside as has the previous jewel in the crown of responsibilities to workers, the defined benefit pension fund. At a time of provable abnormally high corporate profits as a percent of GDP, corporations have argued that defined benefit pensions are not affordable. That they are dropping them should come as no surprise, for defined contribution plans (in general less attractive to employees than defined benefit plans) are much cheaper and easier on accounting predictability. What is surprising is why they adopted defined benefit plans in the first place, when they did not have to. And why did they have, in the 1935 to 1985 window, a sense of a social contract, suggesting that other things mattered besides maximizing short-term profits? Good ethics but bad capitalism? Actually, my colleague, James Montier, argues that a single-minded emphasis on relatively short-term share value maximization is a bad business idea; and I agree. Loyalty from workers, community, and country and an image as a company with worthwhile values is very probably a better business proposition. A longer-term focus certainly is. The best strategy, as Montier argues, is probably to concentrate on the highest possible customer satisfaction at a reasonable profit.

  8. Deficiencies in the Fed

  A counter-productive job description, badly executed. 

  9. Investment bubbles in a world that is, this time, interestingly different

  Two significant items seem to be different this time. First, profit margins in the U.S. seem to have stopped mean reverting in the old, normal way, and second, some real estate markets have bubbled up and then stayed there at high prices. Both seem surprising events, even against what I would call “the laws of nature,” or at least the usual laws of capitalism. What is going on? 

  10. Limitations of homo sapiens 

  After reading all of this you may think that I am particularly pessimistic. It is not true: It is all of you who are optimistic! Not only does our species have a strong predisposition to be optimistic (or bullish) – it is probably a useful survival characteristic – but we are particularly good at listening to agreeable data and avoiding unpleasant data that does not jibe with our beliefs or philosophies. Facts, whether backed by 97% of scientists as is the case with man-made climate change, or 99.9% as is the case with evolution, do not count for nearly as much as we used to believe.

  For that matter, we do a terrible job of planning for the long term, particularly in postponing gratification, and we are wickedly bad at dealing with the implications of compound math. All of this makes it easy for us to forget about the previously painful market busts; facilitates our pushing stocks and markets on occasion to levels that make no mathematical sense; and allows us, regrettably, to ignore the logic of finite resources and a deteriorating climate until the consequences are pushed up our short-term noses. 

  Full letter (PDF)

  

  

  

  

  

• Bill Gross Explains (In 90 Seconds) How It's All A Big Shell Game

  “There is no doubt that the price of assets right now is a question mark… and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs… and probably points down“

   

  As Gross tweeted…

  Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where’s the real pea (price)?

  — Janus Capital (@JanusCapital) July 29, 2015

  This clip carries a public wealth warning…

   

  

  

  

  

  

• Hillary Saves Capitalism!

  Submitted by Bill Bonner via Bonner & Partners,

  The Fed’s EZ money is creating hard times. It led to overconsumption… then overproduction… and now to a big bust.

  Just what you’d expect.

  And what you’d expect next is more crashing, sliding, and busting up in the world’s markets… followed by more EZ money.

  Eventually, it will explode into consumer price inflation. But that could still be far in the future.

  *  *  *

  We keep our political coverage balanced at the Diary. On the Republican’s side, there is an unusually rich assortment of fools and knaves. And on the Democrat’s side, there is Ms. Clinton.

  We don’t know what we would do without her.

  How would we know, for example, how long we should hold an investment without her to tell us?

  She seems to believe that today’s average holding period is too short. It causes an obsession with short-term results that she calls “quarterly capitalism.”

  CNBC reports:

  

   

  How will “working to end short-termism” help working families?

  How many months of holding an investment is acceptable to the Democratic Party’s front-runner?

  A Crony Unmasked

  Why would anyone even think that Ms. Clinton – who has never held an honest job in the private sector – could possibly have any idea about how to save capitalism… or how long an investment should be held?

  These questions leave us panting, sweating… and in need of a drink.

  All Ms. Clinton knows about capitalism is what the cronies tell her when they are slipping her cash. Wall Street is a major financial contributor to her campaign. They know she can be bought. She won’t disappoint them.

  Hillary still has to grandstand for the benefit of the Democratic masses. But she’s clearly on the side of the cronies and the zombies. And they both hate capitalism.

  Why?

  Because capitalism is a zombie killer.

  Capitalism is not a wealth distribution system, as supply-side economist and techno-utopian guru George Gilder makes clear in his latest book, Knowledge and Power. It’s an information system… a knowledge system… in which entrepreneurs take risks and find out what works.

  They learn how to build better things… putting old zombie manufacturers out of business. They figure out how to cut costs and increase quality, too… squeezing out the cronies and forcing the zombies to get to work.

  They discover the knowledge that makes us wealthier.

  Naturally, the zombies and cronies try to put capitalism out of business. Typically, their candidates claim to be “improving” or “saving” capitalism from itself.

  What they are really doing is saving the crony lobbyists and zombie voters from real capitalism.

  

  

  

  

  

• Hillary Does It Again: What "Everyday American" Would Pay $600 For This Haircut?

  There are plenty of 'everyday Americans' out there with perfectly good haircuts, styled by perfectly good hairdressers, in perfectly good Main Street salons… so why is self-proclaimed populist person-of-the-everyday-American Hillary Clinton getting a $600 haircut at Bergdorf Goodman's Fifth Avenue store in NYC?

   

  As PageSix reports,

  Hillary Clinton put part of Bergdorf Goodman on lockdown on Friday to get a $600 haircut at the swanky John Barrett Salon.

   

  Clinton, with a huge entourage in tow, was spotted being ushered through a side entrance of the Fifth Avenue store on Friday.

   

  A source said, “Staff closed off one side of Bergdorf’s so Hillary could come in privately to get her hair done. An elevator bank was shut down so she could ride up alone, and then she was styled in a private area of the salon. Other customers didn’t get a glimpse. Hillary was later seen with a new feathered hairdo.”

   

  Clinton regularly sees salon owner John Barrett, who charges regular mortals $600 for a cut and blow-dry. Hair color can cost an extra $600.

   

  And let’s not forget that her husband, Bill Clinton, was famously caught up in a 1993 controversy known as “Hairgate” when he got a $200 haircut on Air Force One as it was idling for an hour at LAX, shutting down two runways and diverting numerous flights.

   

  Read more here…

  *  *  *

  Maybe she should ask for her money back?

  

   

  The "Something About Mary" look?

  

   

  Still could be worse…

  

  

  

  

  

  

• 1 In 5 US Stocks Now In Bear Market

  With the major US equity markets within 1-2% of their record highs, Gavekal Capital notes that underneath the headline indices, stock markets are extremely tumultuous. Rather stunningly 21% of MSCI USA stocks are at least 20% off their recent highs, and 68% of Canadian stocks are in bear markets, but the real carnage is taking place in Emerging Markets.

  This is only the third time since the summer of 2012 that this many stocks are in a bear market. The most interesting aspect of this internal correction is the fact that the headline index is a mere 1.8% off the 200-day high. On October 10, 2014 when 21% of MSCI USA stocks were in a bear market, the headline MSCI USA index was 5.4% off the 200-day high. And on November 8, 2012 when 21% of the MSCI USA stocks were in a bear market, the headline index was 6% off the 200-day high.

  

  The pain felt in US stocks is nothing compared to many markets around the world. Just a reminder that this all based on USD performance.

  Canadian stocks have been getting pummeled. 68% of Canadian stocks are in a bear market. This is the greatest percentage of stocks in a bear market since 2011.

  30% of MSCI Hong Kong stocks are in a bear market and 29% of MSCI Singapore stocks are in a bear market as well.

  

  

  

  The true carnage is taking place in the emerging markets, however, where nearly 2/3 of all EM stocks are at least 20% off its 200-day high.

  Some of the worst countries in EM are Brazil (82%), China (82%), Indonesia (77%), and Russia (81%).

  

  

  

  

  

   

   

  Source: Gavekal Capital

  

  

  

  

  

• The War On Cash: Why Now?

  Submitted by Charles Hugh-Smith via The Mises Institute,

  You’ve probably read that there is a “war on cash” being waged on various fronts around the world. What exactly does a “war on cash” mean?

  It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.

  These limits are broadly called “capital controls.”

  Why Now?

  Before we get to that, let’s distinguish between physical cash — currency and coins in your possession — and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e., officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank. Cash in hand cannot be chipped away by negative interest rates or fees.

  Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks (i.e., a bank holiday).

  When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.

  Inflation and Negative Interest Rates

  Mr. Buiter, for example, recently opined that the spot of bother in 2008–09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6 percent negative interest rate on cash: in effect, taking 6 percent of the depositor’s cash to force everyone to spend what cash they might have.

  Both cash in hand and cash in the bank are subject to one favored method of expropriation, inflation. Inflation — the single most cherished goal of every central bank — steals purchasing power from physical cash and digital cash alike. Inflation punishes holders of cash and benefits those with debt, as debt becomes cheaper to service.

  The beneficial effect of inflation on debt has been in play for decades, so it can’t be the cause of governments’ recent interest in eliminating physical cash.

  So now we return to the question: Why are governments suddenly declaring war on physical cash, the oldest officially issued form of money?

  Why They Hate Cash in Hand

  The first reason: physical cash has the potential to evade both taxes as well as officially sanctioned theft via bail-ins and negative interest rates. In short, physical cash is extremely difficult for governments to steal.

  Some of you may find the word theft harsh or even offensive. But we must differentiate between taxes — which are levied to pay for the state’s programs that in principle benefit all citizens — and bail-ins, i.e., the taking of depositors’ cash to bail out banks that became insolvent through the actions of the banks’ management, not the actions of depositors.

  Bail-ins are theft, pure and simple. Since the government enforces the taking, it is officially sanctioned theft, but theft nonetheless.

  Negative interest rates are another form of officially sanctioned theft. In a world without the financial repression of zero-interest rates (ZIRP — central banks’ most beloved policy), lenders would charge borrowers enough interest to pay depositors for the use of their cash and earn the lender a profit.

  If borrowers are paying interest, negative interest rates are theft, pure and simple.

  Why are governments suddenly so keen to ban physical cash? The answer appears to be that the banks and government authorities are anticipating bail-ins, steeply negative interest rates and hefty fees on cash, and they want to close any opening regular depositors might have to escape these forms of officially sanctioned theft. The escape mechanism from bail-ins and fees on cash deposits is physical cash, and hence the sudden flurry of calls to eliminate cash as a relic of a bygone age — that is, an age when commoners had some way to safeguard their money from bail-ins and bankers’ control.

  Forcing Those With Cash To Spend or Gamble Their Cash

  Negative interest rates (and fees on cash, which are equivalently punitive to savers) raise another question: why are governments suddenly obsessed with forcing owners of cash to either spend it or gamble it in the financial-market casinos?

  The conventional answer voiced by Mr. Buiter is that recession and credit contraction result from households and enterprises hoarding cash instead of spending it. The solution to recession is thus to force all those stingy cash hoarders to spend their money.

  There are three enormous flaws in this thinking.

  One is that households and businesses have cash to hoard. The reality is the bottom 90 percent of households have less income now than they did fifteen years ago, which means their spending has declined not from hoarding but from declining income.

  

  While corporate America has basked in the glory of sharply rising profits, small business has not prospered in the same fashion. Indeed, by some measures, small business has been in a six-year recession.

  

  The bottom 90 percent has less income and faces higher living expenses, so only the top slice of households has any substantial cash. This top slice may see few safe opportunities to invest their savings, so they choose to keep their savings in cash rather than gamble it in a rigged casino (i.e., the stock market).

  The second flaw is that hoarding cash is the only rational, prudent response in an era of financial repression and economic insecurity. What central banks are demanding — that we spend every penny of our earnings rather than save some for investments we control or emergencies — is counter to our best interests.

  A War on Cash Is a War on Capital

  This leads to the third flaw: capital — which begins its life as savings — is the foundation of capitalism. If you attack savings as a scourge, you are attacking capitalism and upward mobility, for only those who save capital can invest it to build wealth. By attacking cash, the central banks and governments are attacking capital and upward mobility.

  Those who already own the majority of productive assets are able to borrow essentially unlimited sums at near-zero interest rates, which they can use to buy more productive assets. Everyone else — the bottom 99.5 percent — is reduced to consumer-serfdom: you are not supposed to accumulate productive capital, you are supposed to spend every penny you earn on interest payments, goods, and services.

  This inversion of capitalism dooms an economy to all the ills we are experiencing in abundance: rising income inequality, reduced opportunities for entrepreneurship, rising debt burdens, and a short-term perspective that voids the longer-term planning required to build sustainable productivity and wealth.

  Physical Cash: Only $1.36 Trillion

  According to the Federal Reserve, total outstanding physical cash amounts to $1.36 trillion.

  Given that a substantial amount of this cash is held overseas, physical cash is a tiny part of the domestic economy and the nation’s total assets. For context: the US economy is $17.5 trillion, total financial assets of households and nonprofit organizations total $68 trillion, base money is around $4 trillion, and total money (currency in circulation and demand deposits) is over $10 trillion (source).

  Given the relatively modest quantity of physical cash, claims that eliminating it will boost the economy ring hollow.

  Following the principle of cui bono — to whose benefit? — let’s ask: What are the benefits of eliminating physical cash to banks and the government?

  Benefits To Banks and the Government of Eliminating Physical Cash

  The benefits to banks and governments by eliminating cash are self-evident:

  1.  Every financial transaction can be taxed.
  2.  Every financial transaction can be charged a fee.
  3.  Bank runs are eliminated.

  In fractional reserve systems such as ours, banks are only required to hold a fraction of their assets in cash. Thus a bank might only have 1 percent of its assets in cash. If customers fear the bank might be insolvent, they crowd the bank and demand their deposits in physical cash. The bank quickly runs out of physical cash and closes its doors, further fueling a panic.

  The federal government began insuring deposits after the Great Depression triggered the collapse of hundreds of banks, and that guarantee limited bank runs, as depositors no longer needed to fear a bank closing would mean their money on deposit was lost.

  But since people could conceivably sense a disturbance in the Financial Force and decide to turn digital cash into physical cash as a precaution, eliminating physical cash also eliminates the possibility of bank runs, as there will be no form of cash that isn’t controlled by banks.

  So, when the dust has settled who ultimately benefits by this war on cash, government and the central banks, pure and simple.

  

  

  

  

  

• What Is The Fair Value Of Gold?

  Having detailed yesterday the manipulation in the precious metals markets that implies the bear market in bullion is an artificial creation, we thought the following 'rational' chart effort at 'valuing' gold may provide some frame of reference for the level of riggedness occurring…

  Gold fair value, measured by a GDP-weighted average of global central bank's balance sheet expansion, as of Jul 2015

  

  Source: @CarpathiaCap

   

  As we concluded previously,

  Clearly the demand for physical metal is very high, and the ability to meet this demand is constrained. Yet, the prices of bullion in the futures market have consistently fallen during this entire period. The only possible explanation is manipulation.

   

  The manipulation of the gold price by injecting large quantities of freshly printed uncovered contracts into the Comex market is an empirical fact.

   

  The sudden debunking of gold in the financial press is circumstantial evidence that a full-scale attack on gold’s function as a systemic warning signal is underway.

  It is unlikely that regulatory authorities are unaware of the fraudulent manipulation of bullion prices. The fact that nothing is done about it is an indication of the lawlessness that prevails in US financial markets.

  Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market.

  There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.

  

  

  

  

  

• Congress Proposes Fraudulent New Law To "Fix" Social Security

  Submitted by Simon Black via SovereignMan.com,

  On January 31, 1940, the very first Social Security check ever delivered went to Ms. Ida May Fuller, a former legal secretary who had recently retired.

   

  Ms. Fuller had spent just three years paying into the system, contributing a total of $24.75 to Social Security.

   

  Yet her first check was for nearly that entire amount. Quite a return on investment.

   

  She went on to live past 100, collecting a total of $22,888.92, over 900 times the amount she contributed to the program. Her story is quite the metaphor.

  If you’re not familiar, Social Security is comprised of two primary trust funds: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).

  Essentially, all of the taxes paid in to Social Security end up in one of these two trust funds.

  The trust funds then ‘manage’ the money to generate a rate of return, and then pay out distributions to program recipients.

  Now, the funds are overseen by a Board of Trustees which is obliged to submit an annual report on the fiscal condition of the program. It ain’t pretty.

  The Disability Insurance (DI) fund is particularly ugly. In fact, the trustees themselves wrote in the 2015 annual report that

  “[T]he DI Trust Fund fails the Trustee’s short-range test of financial adequacy. . .”

   

  and,

   

  “The DI Trust Fund reserves are expected to deplete in the fourth quarter of 2016…”

  In other words, one of the two Social Security trust funds is just months away from insolvency.

  When people think about Social Security, they think that all the problems are decades away.

  Wrong. This is next year.

  The other trust fund, OAS, is projected to “become depleted and unable to pay scheduled benefits in full on a timely basis in 2034.”

  Which means that if you’re 47 or younger, you can kiss Social Security goodbye.

  Bear in mind, these aren’t my calculations. Nor are they any wild assertions. They’re direct quotes from the trustees themselves.

  And, just who are these trustees? The Secretary of the Treasury of the United States of America. The Labor Secretary. The Secretary of Health and Human Services.

  Some of the most senior officials in the US government sign their name to an official report stating that these funds are nearly insolvency– one of them even NEXT YEAR.

  Not to worry, though. Congress is on the case.

  Late last week, several dozen members of Congress introduced the “One Social Security Act”, HR 3150, to solve this problem.

  And let me tell you, their solution is bold. Fearless. And brilliant.

  HR 3150 attacks the looming insolvency of Disability Insurance by eliminating the fund altogether.

  So instead of having two separate funds for two distinct purposes of Social Security, the legislation aims to combine them into one unified fund.

  That way, with just one fund, there won’t be any separate reporting about DI’s insolvency.

  It’s genius! They make the problem go away by eliminating the requirement to report it.

  There’s just one small issue. Legally, they have a word for this. It’s called fraud.

  You and I would go to prison if we commingled funds like this. But in the hallowed halls of Congress, this is what passes as a solution.

  This is so typical– solving problems by pretending that they don’t exist and destroying any element of transparency and accountability.

  This pretty much tells you everything you need to know about government.

  Look, it’s a hard reality to swallow. But the government’s own data show that these programs are not going to be there for you.

  And the story smacking us in the face right now demonstrates precisely how politicians intend on ‘solving’ the problems.

  These people aren’t the solution. They’re the problem.

  And don’t think that ‘voting the bums out’ will affect anything. Elections merely change the players, not the game.

  The only way forward is to invest in yourself, particularly in your business and financial education. Make plans based on the assumption that Social Security doesn’t exist.

  And if, by some miracle, it’s still there by the time you retire, you won’t be worse off for having built a larger nest egg thanks to the financial acumen you developed.

  

  

  

  

  

• If Varoufakis Is Charged With Treason, Then Dijsselbloem Should Be As Well

  In the aftermath of this weekend’s infamous leak of Yanis Varoufakis audio recording with members of OMFIF in which the former finmin admitted to asset managers that in his tenure as a finmin he had engaged in preparations for a return to the Drachma, Greece has been gripped by a media frenzy debating whether Varoufakis will be charged with treason for daring to even contemplate how an exit from the EMU would take place.

  To be sure, Varoufakis may have poured the initial gasoline on the fire when he admitted to Ambrose Evans-Pritchard shortly after the recording surfaced that “the context of all this is that they want to present me as a rogue finance minister, and have me indicted for treason. It is all part of an attempt to annul the first five months of this government and put it in the dustbin of history.”

  His concerns were certainly justified: yesterday Kathimerini reported that Greek Supreme Court prosecutor Efterpi Koutzamani on Tuesday took two initiatives in the wake of revelations by former Finance Minister Yanis Varoufakis that he had planned a parallel banking system: she forwarded to Parliament two suits filed against the former minister last week by private citizens and she appointed a colleague to determine whether any non-political figures should face criminal charges in connection with the affair.

  The legal suits were filed last week by Apostolos Gletsos, the mayor of Stylida in central Greece and head of the Teleia party, and Panayiotis Giannopoulos, a lawyer. Giannopoulos is suing Varoufakis for treason over his handling of talks with Greece’s creditors. Gletsos, for his part, accuses Varoufakis of exposing the Greek state to the risk of reprisals.

   

  As there is a law protecting ministers, the judiciary cannot move directly against Varoufakis. It is up to Parliament to decide whether his immunity should be lifted so he can stand trial. The first step would be to set up an investigative committee.

   

  A third suit was expected to go to Parliament after a group of five lawyers said they were seeking an investigation into whether any non-political figures should face criminal charges in connection with the Varoufakis affair. The charges would involve violation of privacy data, breach of duty, violation of currency laws and belonging to a criminal organization. It was the lawyers’ move that prompted Koutzamani to order an investigation.

  As a further reminder, during the telephone call Varoufakis detailed his plan for a parallel banking system, which would involve a childhood friend, a professor at Columbia University, to hack into the ministry’s online tax system.

  Varoufakis did not name the head of the General Secretariat for Information Systems, Michalis Hatzitheodorou, but the description of his role at the ministry and his background suggested he was referring to him.

   

  In a statement on Tuesday, Hatzitheodorou rebuffed as “absolutely false” reports regarding any type of intervention in the ministry’s information systems. The GSIS, and the current general secratary, have not planned much less attempted any type of intervention in its systems, the statement said. It added that the GSIS has enacted procedures with strict specifications which guarantee the security of personal data and make such interventions by anyone impossible.

  What makes matters confusing, is that the core allegation made by Varoufakis, namely that the Troika controls Greece tax revenues and had to be sabotaged, was strictly denied: European Commission spokeswoman Mina Andreeva on Tuesday described as “false and unfounded” Varoufakis’s claims that Greece’s General Secretariat for Public Revenues is controlled by the country’s creditors.

  In other words, if Andreeva is right, then Varoufakis’ transgression of threatening to hijack the Greek tax system was merely hot air, and the former finmin is guilty of nothing more than self-aggrandizement.

  On the other hand, if Greece does find it has a legal basis to criminally charge Varoufakis with treason merely for preparing for a Plan B, then it brings up an interesting question: if Varoufakis was a criminal merely for preparing for existing the Euro, then comparable treason charges should also be lobbed against none other than Varoufakis’ nemesis – Eurogroup president and Dutch finance minister Jeroen Dijsselbloem.

  Recall from the November 28 post that “Netherlands, Germany Have Euro Disaster Plan – Possible Return to Guilder and Mark“, to wit:

  The Dutch finance ministry prepared for a scenario in which the Netherlands could return to its former currency – the guilder. They hosted meetings with a team of legal, economic and foreign affairs experts to discuss the possibility of returning to the Dutch guilder in early 2012.

   

  At the time the Euro was in crisis, Greece was on the verge of leaving or being pushed out of the Euro and the debt crisis was hitting Spain and Italy hard. The Greek prime minister Georgios Papandreou and his Italian counterpart Silvio Berlusconi had resigned and there were concerns that the eurozone debt crisis was spinning out of control – leading to contagion and the risk of a systemic collapse.

   

  A TV documentary broke the story last Tuesday. The rumours were confirmed on Thursday by the current Dutch minister of finance, Jeroen Dijsselbloem, and the current President of the Eurogroup of finance ministers in a television interview which was covered by EU Observer and Bloomberg.

   

  “It is true that [the ministry of] finance and the then government had also prepared themselves for the worst scenario”, said Dijsselbloem.

  This is precisely what Varoufakis was doing too.

  “Government leaders, including the Dutch government, have always said: we want to keep that eurozone together. But [the Dutch government] also looked at: what if that fails. And it prepared for that.”

   

  While Dijsselbloem said there was no need to be “secretive” about the plans now, such discussions were shrouded in secrecy at the time to avoid spreading panic on the financial markets.

  Again, precisely like in the Greek scenario.

  In fact, if throwing people in jail, may round up Wolfi Schauble as well:

  Jan Kees de Jager, finance minister from February 2010 to November 2012, acknowledged that a team of legal experts, economists and foreign affairs specialists often met at his ministry on Fridays to discuss possible scenarios.

   

  “The fact that in Europe multiple scenarios were discussed was something some countries found rather scary. They did not do that at all, strikingly enough”, said De Jager in the TV documentary. “We were one of the few countries, together with Germany. We even had a team together that discussed scenarios, Germany-Netherlands.”

   

  When the EU Observer requested confirmation from Germany, the German ministry of finance did not officially deny that it had drawn up similar plans, stating simply: “We and our partners in the euro zone, including the Netherlands, were and still are determined to do everything possible to prevent a breakup of the eurozone.”

   

  * * *

   

  This is quite a revelation. At that time the German finance minister Wolfgang Schauble had said that the Euro could survive without Greece. Whether it could survive without the Dutch is another matter entirely.

  Fast forward 3 years when Greece, too, was making preparations for “preventing the breakup of the eurozone” in doing precisely what Schauble wanted as recently as three weeks ago: implementing a parallel currency which would enable Greece to take its “temporary” sabbatical from the Eurozone.

  So one wonders: where are the legal suits accusing Dijsselbloem and Schauble of the same “treason” that Varoufakis may have to vigorously defend himself in a kangaroo court designed to be nothing but a spectacle showing what happens to anyone in Europe who dares to give Germany the finger, either literally or metaphorically.

  The answer: nowhere, and they will never appear, because if Varoufakis is indeed sued it will not be because he did something that other much more “serious” Eurocrats haven’t considered or done before, but simply to crucify the Greek and make him into a dramatic example for any other “peripheral” (or even core, ahem “Madame Frexit“) European who would even consider taking a comparable action on their own and pushing Europe’s artificial, and now expiring, monetary union to the edge of collapse.

  Then again, considering just how badly Europe misjudged the third season of the Greek bailout tragicomedy, it may want to be careful: the last thing it wants is to create a martyr against what increasingly more are calling a fascist oligarchy operating, conveniently enough, out of Belgium, Frankfurt and Berlin, one whose next item on the agenda is taking advantage of the Greek crisis and finally doing away with European state sovereignty altogether handing over control of Europe to a “parliament”, one which if the ECB is any indication, will also be run by a few Goldman bankers.

  

  

  

  

  

• China Rescue, VIX Crash, & Fed Pump Squeeze Shorts Most In 6 Months, Trannies Bounce Most Since 2011

  Summing up the talking heads opinions on China, Twitter, Yelp… and so on..

   

  Overnight exuberance in the afternoon session in China….

  China market makes me laugh $ASHR $SHSZ300 @prchovanec pic.twitter.com/GQkD1bLr6p

  — Walt Hudson (@WaltHudson) July 29, 2015

  Provided the first momo pump in US stocks (but that faded back to unch ahead of the open and dismal housing data), FOMC prep sent us spiking before investors realized that while dovish it basically suggests the economy is crap…

  

   

  Cash indices never looked back with a small pump'n'dump after the Fed statement…

  

   

  This is Trannies best 2-day ramp since 2011…

  

   

  Leaving everybody happy since Friday…

  

   

  All about avoiding a red print Year-To-Date…

  

   

  TWTR was clubbed like a baby seal…

  

   

  VIX crushed to 11 handle briefly…The Matterhorn Pattern completed…

  

   

  Which is no big surprise…

  

   

  Treasury yields ended the day higher, with the curve steepening modestly… initialk kneejerk was bonds rallied after FOMC…

  

   

  The US Dollar surged after FOMC – despite its dovish tone…

  

   

  Silver jumped but gold was flat as copper and crude popped…

  

   

  Saudi rumors on production cuts, US inventory draws, and the biggest US production drop since Oct 2013 sent crude soaring but The Fed pissed in the pool party arguing that things are not quite as awesome as they hoped…

  

   

   

  Charts: Bloomberg

  Bonus Chart: Data Dependent Fed misses window…

  

  Bonus Bonus Chart: Remember this…

  Economists in the latest WSJ survey expect the Fed to raise interest rates around Sept. 2010. http://t.co/nR6lfyTZPt pic.twitter.com/IQ8MQTatCN

  — Rudolf E. Havenstein (@RudyHavenstein) July 29, 2015

  

  

  

  

• This Is The Reason Why Facebook Is Sliding After Hours, Dragging Nasdaq Futures Lower

  Moments ago, Facebook reported Q2 earnings and just like Twitter, it beat across all key financial metrics:

  • Revenues of $4.04 billion beat consensus $3.99 billion
  • Non-GAAP EPS of $0.50 also beat consensus of $0.47 (GAAP EPS was a different story, at half the non-GAAP).
  • Monthly active users (MAUs) – MAUs were 1.49 billion as of June 30, 2015, an increase of 13% year-over-year, and above the 1.475billion expected.

  So all is well, and FB stock should be soaring. Alas for FB longs it isn’t and at last check the stock was down by $5 or about 5% after hours, because algos were focused on one particular user growth metric:

  • Daily active users (DAUs) – DAUs were 968 million on average for June 2015, an increase of 17% year-over-year.

  This number was a fraction less than the 970.5 million consensus estimate, and because it brought up nightmare visions of what happened to Twitter stock overnight, which since earnings has plunged to near all time lows, is forcing traders to sell or short, if only now, and ask questions later.

  

   

  Ironically, the one chart the algos should be looking at is the one showing the Y/Y decline in real operating income, masked by the endless fudging of non-GAAP adjustments…

  

   

  … an dthe collapse in GAAP operating margins:

  

   

  The reason for this massive divergence? Some 19% of Facebook revenues are stock-based compensation: magically everyone continues to pretend this is irrelevant.

  

  Whatever the reason, the stock is not happy…

  

   

  And since FB, with its $270 billion market cap, has become a huge component of the Nasdaq, the broader tech index is not too happy either.

  

   

  That said, we wouldn’t be at all surprised if there is a complete kneejerk reversal during the conference call: yesterday TWTR had spiked 10% on the initial results, only to crash today. Perhaps Facebook will pull a mirror image…

  

  

  

  

  

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• Supply And Demand In The Gold And Silver Futures Markets

  Authored by Paul Craig Roberts and Dave Kranzler,

  This article establishes that the price of gold and silver in the futures markets in which cash is the predominant means of settlement is inconsistent with the conditions of supply and demand in the actual physical or current market where physical bullion is bought and sold as opposed to transactions in uncovered paper claims to bullion in the futures markets. The supply of bullion in the futures markets is increased by printing uncovered contracts representing claims to gold. This artificial, indeed fraudulent, increase in the supply of paper bullion contracts drives down the price in the futures market despite high demand for bullion in the physical market and constrained supply. We will demonstrate with economic analysis and empirical evidence that the bear market in bullion is an artificial creation.

  The law of supply and demand is the basis of economics. Yet the price of gold and silver in the Comex futures market, where paper contracts representing 100 troy ounces of gold or 5,000 ounces of silver are traded, is inconsistent with the actual supply and demand conditions in the physical market for bullion. For four years the price of bullion has been falling in the futures market despite rising demand for possession of the physical metal and supply constraints.

  We begin with a review of basics. The vertical axis measures price. The horizontal axis measures quantity. Demand curves slope down to the right, the quantity demanded increasing as price falls. Supply curves slope upward to the right, the quantity supplied rising with price. The intersection of supply with demand determines price. (Graph 1)

  

  A change in quantity demanded or in the quantity supplied refers to a movement along a given curve. A change in demand or a change in supply refers to a shift in the curves. For example, an increase in demand (a shift to the right of the demand curve) causes a movement along the supply curve (an increase in the quantity supplied).

  Changes in income and changes in tastes or preferences toward an item can cause the demand curve to shift. For example, if people expect that their fiat currency is going to lose value, the demand for gold and silver would increase (a shift to the right).

  Changes in technology and resources can cause the supply curve to shift. New gold discoveries and improvements in gold mining technology would cause the supply curve to shift to the right. Exhaustion of existing mines would cause a reduction in supply (a shift to the left).

  What can cause the price of gold to fall? Two things: The demand for gold can fall, that is, the demand curve could shift to the left, intersecting the supply curve at a lower price. The fall in demand results in a reduction in the quantity supplied. A fall in demand means that people want less gold at every price. (Graph 2)

  

  Alternatively, supply could increase, that is, the supply curve could shift to the right, intersecting the demand curve at a lower price. The increase in supply results in an increase in the quantity demanded. An increase in supply means that more gold is available at every price. (Graph 3)

  

  To summarize: a decline in the price of gold can be caused by a decline in the demand for gold or by an increase in the supply of gold.

  A decline in demand or an increase in supply is not what we are observing in the gold and silver physical markets. The price of bullion in the futures market has been falling as demand for physical bullion increases and supply experiences constraints. What we are seeing in the physical market indicates a rising price. Yet in the futures market in which almost all contracts are settled in cash and not with bullion deliveries, the price is falling.

  For example, on July 7, 2015, the U.S. Mint said that due to a “significant” increase in demand, it had sold out of Silver Eagles (one ounce silver coin) and was suspending sales until some time in August. The premiums on the coins (the price of the coin above the price of the silver) rose, but the spot price of silver fell 7 percent to its lowest level of the year (as of July 7).

  This is the second time in 9 months that the U.S. Mint could not keep up with market demand and had to suspend sales. During the first 5 months of 2015, the U.S. Mint had to ration sales of Silver Eagles. According to Reuters, since 2013 the U.S. Mint has had to ration silver coin sales for 18 months. In 2013 the Royal Canadian Mint announced the rationing of its Silver Maple Leaf coins: “We are carefully managing supply in the face of very high demand. . . . Coming off strong sales volumes in December 2012, demand to date remains very strong for our Silver Maple Leaf and Gold Maple Leaf bullion coins.” During this entire period when mints could not keep up with demand for coins, the price of silver consistently fell on the Comex futures market. On July 24, 2015 the price of gold in the futures market fell to its lowest level in 5 years despite an increase in the demand for gold in the physical market. On that day U.S. Mint sales of Gold Eagles (one ounce gold coin) were the highest in more than two years, yet the price of gold fell in the futures market.

  How can this be explained? The financial press says that the drop in precious metals prices unleashed a surge in global demand for coins. This explanation is nonsensical to an economist. Price is not a determinant of demand but of quantity demanded. A lower price does not shift the demand curve. Moreover, if demand increases, price goes up, not down.

  Perhaps what the financial press means is that the lower price resulted in an increase in the quantity demanded. If so, what caused the lower price? In economic analysis, the answer would have to be an increase in supply, either new supplies from new discoveries and new mines or mining technology advances that lower the cost of producing bullion.

  There are no reports of any such supply increasing developments. To the contrary, the lower prices of bullion have been causing reductions in mining output as falling prices make existing operations unprofitable.

  There are abundant other signs of high demand for bullion, yet the prices continue their four-year decline on the Comex. Even as massive uncovered shorts (sales of gold contracts that are not covered by physical bullion) on the bullion futures market are driving down price, strong demand for physical bullion has been depleting the holdings of GLD, the largest exchange traded gold fund. Since February 27, 2015, the authorized bullion banks (principally JPMorganChase, HSBC, and Scotia) have removed 10 percent of GLD’s gold holdings. Similarly, strong demand in China and India has resulted in a 19% increase of purchases from the Shanghai Gold Exchange, a physical bullion market, during the first quarter of 2015. Through the week ending July 10, 2015, purchases from the Shanghai Gold Exchange alone are occurring at an annualized rate approximately equal to the annual supply of global mining output.

  India’s silver imports for the first four months of 2015 are 30% higher than 2014. In the first quarter of 2015 Canadian Silver Maple Leaf sales increased 8.5% compared to sales for the same period of 2014. Sales of Gold Eagles in June, 2015, were more than triple the sales for May. During the first 10 days of July, Gold Eagles sales were 2.5 times greater than during the first 10 days of June.

  Clearly the demand for physical metal is very high, and the ability to meet this demand is constrained. Yet, the prices of bullion in the futures market have consistently fallen during this entire period. The only possible explanation is manipulation.

  Precious metal prices are determined in the futures market, where paper contracts representing bullion are settled in cash, not in markets where the actual metals are bought and sold. As the Comex is predominantly a cash settlement market, there is little risk in uncovered contracts (an uncovered contract is a promise to deliver gold that the seller of the contract does not possess). This means that it is easy to increase the supply of gold in the futures market where price is established simply by printing uncovered (naked) contracts. Selling naked shorts is a way to artificially increase the supply of bullion in the futures market where price is determined. The supply of paper contracts representing gold increases, but not the supply of physical bullion.

  As we have documented on a number of occasions, the prices of bullion are being systematically driven down by the sudden appearance and sale during thinly traded times of day and night of uncovered future contracts representing massive amounts of bullion. In the space of a few minutes or less massive amounts of gold and silver shorts are dumped into the Comex market, dramatically increasing the supply of paper claims to bullion. If purchasers of these shorts stood for delivery, the Comex would fail. Comex bullion futures are used for speculation and by hedge funds to manage the risk/return characteristics of metrics like the Sharpe Ratio. The hedge funds are concerned with indexing the price of gold and silver and not with the rate of return performance of their bullion contracts.

  A rational speculator faced with strong demand for bullion and constrained supply would not short the market. Moreover, no rational actor who wished to unwind a large gold position would dump the entirety of his position on the market all at once. What then explains the massive naked shorts that are hurled into the market during thinly traded times?

  The bullion banks are the primary market-makers in bullion futures. They are also clearing members of the Comex, which gives them access to data such as the positions of the hedge funds and the prices at which stop-loss orders are triggered. They time their sales of uncovered shorts to trigger stop-loss sales and then cover their short sales by purchasing contracts at the price that they have forced down, pocketing the profits from the manipulation

  The manipulation is obvious. The question is why do the authorities tolerate it?

  Perhaps the answer is that a free gold market serves both to protect against the loss of a fiat currency’s purchasing power from exchange rate decline and inflation and as a warning that destabilizing systemic events are on the horizon. The current round of on-going massive short sales compressed into a few minutes during thinly traded periods began after gold hit $1,900 per ounce in response to the build-up of troubled debt and the Federal Reserve’s policy of Quantitative Easing. Washington’s power is heavily dependent on the role of the dollar as world reserve currency. The rising dollar price of gold indicated rising discomfort with the dollar. Whereas the dollar’s exchange value is carefully managed with help from the Japanese and European central banks, the supply of such help is not unlimited. If gold kept moving up, exchange rate weakness was likely to show up in the dollar, thus forcing the Fed off its policy of using QE to rescue the “banks too big to fail.”

  The bullion banks’ attack on gold is being augmented with a spate of stories in the financial media denying any usefulness of gold. On July 17 the Wall Street Journal declared that honesty about gold requires recognition that gold is nothing but a pet rock. Other commentators declare gold to be in a bear market despite the strong demand for physical metal and supply constraints, and some influential party is determined that gold not be regarded as money.

  Why a sudden spate of claims that gold is not money? Gold is considered a part of the United States’ official monetary reserves, which is also the case for central banks and the IMF. The IMF accepts gold as repayment for credit extended. The US Treasury’s Office of the Comptroller of the Currency classifies gold as a currency, as can be seen in the OCC’s latest quarterly report on bank derivatives activities in which the OCC places gold futures in the foreign exchange derivatives classification.

  The manipulation of the gold price by injecting large quantities of freshly printed uncovered contracts into the Comex market is an empirical fact. The sudden debunking of gold in the financial press is circumstantial evidence that a full-scale attack on gold’s function as a systemic warning signal is underway.

  It is unlikely that regulatory authorities are unaware of the fraudulent manipulation of bullion prices. The fact that nothing is done about it is an indication of the lawlessness that prevails in US financial markets.

  

  

  

  

  

• The End Draws Near For Syria's Assad As Putin's Patience "Wears Thin"

  Early last month in, “The Noose Around Syria’s Assad Tightens” we outlined the latest developments in the country’s prolonged civil war. Here’s what we said then: 

  The US-led alliance realizes very well that as long as Assad has to fight three fronts: i.e., the Nusra Front in the northwestern province of Idlib and ever closer proximity to Syria’s main infrastructure hub of Latakia, ISIS in the central part of the nation where militants recently took over the historic town of Palmyra, and the official “rebel” force in close proximity to Damascus, Assad’s army will either eventually be obliterated or, more likely, mutiny and overthrow the president, putting the Ukraine scenario in play.

  In short, the US and its Middle Eastern allies are simply playing the waiting game; watching for the opportune time to charge in and “liberate” Syria from whatever army manages to take Damascus first, at which point a puppet government will be promptly installed. 

  And make no mistake, the new, U.S.-backed regime will present itself as fiercely anti-militant and will be trotted out as Washington’s newest “partner” in the global war on terror. Of course behind the scenes the situation will likely resemble what happened in Yemen (Obama’s “model of success”) where, according to one account, Abdullah Saleh and his lieutenants not only turned a blind eye to AQAP operations, but in fact played a direct role in facilitating al-Qaeda attacks even as the government accepted anti-terrorism financing from the US government. 

  Of course no one in Washington will care to know the details, as long as the new regime in Syria is receptive to things like piping Qatari natural gas to Europe via a long-stalled pipeline, a project which will do wonders for breaking Gazprom’s energy stranglehold and robbing Vladimir Putin of quite a bit of leverage in what is becoming an increasingly tense standoff with the EU over Ukraine.

  On Sunday, Assad gave a speech in which he attempted to address concerns about the recent setbacks his army has suffered at the hands of the various groups fighting for control of the country. Here’s more from the LA Times’ Special correspondent Nabih Bulos reporting from Beirut: 

  Syrian President Bashar Assad delivered a sober assessment of the state of his forces on Sunday, acknowledging a manpower shortage and conceding troop withdrawals from some areas, but asserting that the military was not facing collapse.

   

  “Are we giving up areas?” Assad asked as he posed a series of questions about the government’s strategy. “Why do we lose other areas? … And where is the army in some of the areas?”

   

  The Syrian president endeavored to provide answers. But it was an open question whether his responses would reassure loyalists worried that the government could be losing its hold on the embattled country.

   

  The president also thanked his allies — notably Iran — while taking the West to task for supporting “terrorists,” the Syrian government’s standard term for the armed opposition fighting to wrest control of the country.

   

  The core areas under government control include the capital, Damascus, and the strategic corridor north to the cities of Homs and Hama and west to the Mediterranean coast, a pro-government stronghold.

   

  Syrian authorities have been actively seeking to increase military recruitment in recent months, a sign of the shortage of fighters across a sprawling battlefield that stretches from the country’s northern fringes to its southern tip, and from its western borders to its eastern frontier.

   

  In Damascus and other cities, prominent recruiting billboards depict stern-looking young men and women in full military gear exhorting others to enlist.

   

  “Our army means all of us,” declares one billboard.

   

  Other signs posted prominently depict soldiers providing vital security for children and families.

   

  Another billboard takes a more confrontational approach, asking a man who is watching a computer screen: “Sitting there and looking? What are you waiting for?”

   

  The presidential speech comes as the thinly stretched Syrian army has suffered a string of setbacks in the last few months, squeezing government forces into defensive positions in Syria’s northwest and in the south.

   

  Assad blamed the retreats on a lack of manpower, asserting that steps would need to be taken “to raise the [capacity] of the armed forces… primarily through calling the reserves in addition to recruits and volunteers.”

   

  One such step, Assad said, was the granting of an amnesty on Saturday to soldiers who had defected, so long as they had not joined armed opposition groups. The amnesty was also extended to draft dodgers, many of whom have left Syria to escape military service.

   

  Despite conceding setbacks, Assad maintained a confident tone, insisting that Army recruitment numbers had increased in the last few months and that “there is no collapse… and we will be steadfast and will achieve the missions.”

   

  “Defeat … does not exist in the dictionaries of the Syrian Arab army,” he insisted.

  Maybe not yet, but that could change quickly, especially if Assad were to lose the support of his most important ally, Vladimir Putin.

  As we noted last month, the key outstanding question is this: what is the maximum pain level for Russia, which has the greatest vested interest in preserving the Assad regime?

  We could have an answer to that very soon, as slumping commodities prices, falling demand from China (which was recently cited as the reason for “indefinite” delays to the Altai pipeline joint venture which would have delivered 30 bcm/y of Siberian gas to China), and economic sanctions from the West are squeezing Moscow and may ultimately prompt Putin to “consider the acceptability of other candidates” for the Syrian Presidency. Here’s WSJ with more:

  And with Russia’s economy battered by a plunge in oil prices and Western sanctions, the government may be considering both the strategic and economic benefits of changing its stance on Mr. Assad.

   

  But Fyodor Lukyanov, chairman of a Kremlin foreign-policy advisory council, said Russian policy makers are likely considering possible alternatives to the Syrian president.

   

  “They are looking at the acceptability of other candidates at this point,” he said, adding that he had not heard any names.

   

  If Moscow does provide an opening to broker a negotiated exit for Mr. Assad, it would be a dramatic turn in the conflict.

   

  Mr. Assad’s other major international backer, Iran, shows no signs of wavering in its crucial military and financial support for the Syrian regime. But the long-sought nuclear deal between Iran and six world powers reached earlier this month has also opened up the possibility of broader political cooperation between Tehran and the West on other regional issues such as the war in Syria.

   

  Hadi al-Bahra, a senior member of the Turkey-based opposition umbrella group the Syrian National Coalition, said his alliance discussed Mr. Assad’s political fate with Russian officials for the first time in a meeting last month led by Russia’s Deputy Foreign Minister Mikhail Bogdanov. Ahmed Ramadan, another senior coalition member, also attended that meeting in the Turkish capital Ankara.

   

  “We have been speaking with the Russians from the very beginning and we have not heard one word of criticism of Assad,” Mr. Ramadan said. “But now, the Russians are discussing the alternatives with us.”

   

  In addition to the Syrian opposition, Mr. Assad’s regional adversaries such as Saudi Arabia and Turkey have argued his ouster is essential to resolve the Syrian conflict and halt the spread of Islamic State militants.

   

  The Obama administration recently has pursued Russian cooperation on its goal of ousting the Assad regime based on intelligence assessments that the Syrian president is weakening. President Barack Obama spoke with Russian President Vladimir Putin on June 25 and July 15 on an array of issues including Syria.

   

  An exchange in a meeting last month between Mr. Putin and Syrian Foreign MinisterWalid al-Moallem suggested Moscow’s patience with Damascus might be running thin.

   

  According to an official Russian transcript carried on the Kremlin’s website, Mr. Putin pointed out the regime’s recent military setbacks and suggested Mr. Assad join forces with regional rivals Saudi Arabia and Turkey. Mr. Moallem said the idea was farfetched.

   

  Russia has financial and political incentives to change course on backing Mr. Assad. The country has been politically isolated by Western sanctions. Lower oil prices and sanctions have taken a toll on the economy.

  So, as the Assad regime weakens in the face of dwindling manpower and is forced to resort to a military recrutiment drive complete with billboards designed to shame men into taking up arms against the various armies competing to conquer Damascus, Russia has not only seen the writing on the wall, but may be prepared to finally cut Assad loose. As for what happens next, see here. 

  *  *  *

  Full Assad speech from Sunday

  

  

  

  

  

• Drivers, Beware: The Costly, Deadly Dangers Of Traffic Stops In The American Police State

  Submitted by John Whitehead via The Rutherford Institute,

  “The Fourth Amendment was designed to stand between us and arbitrary governmental authority. For all practical purposes, that shield has been shattered, leaving our liberty and personal integrity subject to the whim of every cop on the beat, trooper on the highway and jail official. The framers would be appalled.”—Herman Schwartz, The Nation

  Trying to predict the outcome of any encounter with the police is a bit like playing Russian roulette: most of the time you will emerge relatively unscathed, although decidedly poorer and less secure about your rights, but there’s always the chance that an encounter will turn deadly.

  The odds weren’t in Walter L. Scott’s favor. Reportedly pulled over for a broken taillight, Scott—unarmed—ran away from the police officer, who pursued and shot him from behind, first with a Taser, then with a gun. Scott was struck five times, “three times in the back, once in the upper buttocks and once in the ear — with at least one bullet entering his heart.”

  Samuel Dubose, also unarmed, was pulled over for a missing front license plate. He was reportedly shot in the head after a brief struggle in which his car began rolling forward.

  Levar Jones was stopped for a seatbelt offense, just as he was getting out of his car to enter a convenience store. Directed to show his license, Jones leaned into his car to get his wallet, only to be shot four times by the “fearful” officer. Jones was also unarmed.

  Bobby Canipe was pulled over for having an expired registration. When the 70-year-old reached into the back of his truck for his walking cane, the officer fired several shots at him, hitting him once in the abdomen.

  Dontrell Stevens was stopped “for not bicycling properly.” The officer pursuing him “thought the way Stephens rode his bike was suspicious. He thought the way Stephens got off his bike was suspicious.” Four seconds later, sheriff’s deputy Adams Lin shot Stephens four times as he pulled out a black object from his waistband. The object was his cell phone. Stephens was unarmed.

  If there is any lesson to be learned from these “routine” traffic stops, it is that drivers should beware.

  At a time when police can do no wrong—at least in the eyes of the courts, police unions and politicians dependent on their votes—and a “fear” for officer safety is used to justify all manner of police misconduct, “we the people” are at a severe disadvantage.

  According to the Justice Department, the most common reason for a citizen to come into contact with the police is being a driver in a traffic stop. On average, one in 10 Americans gets pulled over by police. Black drivers are 31 percent more likely to be pulled over than white drivers, or about 23 percent more likely than Hispanic drivers. As the Washington Post concludes, “‘Driving while black’ is, indeed, a measurable phenomenon.”

  As Sandra Bland learned the hard way, the reason for a traffic stop no longer matters. Bland, who was pulled over for allegedly failing to use her turn signal, was arrested after refusing to comply with the police officer’s order to extinguish her cigarette and exit her vehicle. The encounter escalated, with the officer threatening to “light” Bland up with his taser. Three days later, Bland was found dead in her jail cell.

  “You’re doing all of this for a failure to signal?” Bland asked as she got out of her car, after having been yelled at and threatened repeatedly. Had she only known, drivers have been pulled over for far less. Indeed, police officers have been given free range to pull anyone over for a variety of reasons.

  This approach to traffic stops (what I would call “blank check policing,” in which the police get to call all of the shots) has resulted in drivers being stopped for windows that are too heavily tinted, for driving too fast, driving too slow, failing to maintain speed, following too closely, improper lane changes, distracted driving, screeching a car’s tires, and leaving a parked car door open for too long.

  Motorists can also be stopped by police for driving near a bar or on a road that has large amounts of drunk driving, driving a certain make of car (Mercedes, Grand Prix and Hummers are among the most ticketed vehicles), having anything dangling from the rearview mirror (air fresheners, handicap parking permits, troll transponders or rosaries), and displaying pro-police bumper stickers.

  Incredibly, a federal appeals court actually ruled unanimously in 2014 that acne scars and driving with a stiff upright posture are reasonable grounds for being pulled over. More recently, the Fifth Circuit Court of Appeals ruled that driving a vehicle that has a couple air fresheners, rosaries and pro-police bumper stickers at 2 MPH over the speed limit is suspicious, meriting a traffic stop.

  Unfortunately for drivers, not only have traffic stops become potentially deadly encounters, they have also turned into a profitable form of highway robbery for the police departments involved.

  As The Washington Post reports, “traffic stops for minor infractions such as speeding or equipment violations are increasingly used as a pretext for officers to seize cash from drivers.” Relying on federal and state asset forfeiture laws, police set up “stings” on public roads that enable them to stop drivers for a variety of so-called “suspicious” behavior, search their vehicles and seize anything of value that could be suspected of being connected to criminal activity. Since 2001, police have seized $2.5 billion from people who were not charged with a crime and without a warrant being issued.

  “In case after case,” notes The Washington Post, “highway interdictors appeared to follow a similar script. Police set up what amounted to rolling checkpoints on busy highways and pulled over motorists for minor violations, such as following too closely or improper signaling. They quickly issued warnings or tickets. They studied drivers for signs of nervousness, including pulsing carotid arteries, clenched jaws and perspiration. They also looked for supposed ‘indicators’ of criminal activity, which can include such things as trash on the floor of a vehicle, abundant energy drinks or air fresheners hanging from rearview mirrors.”

  If you’re starting to feel somewhat overwhelmed, intimidated and fearful for your life and your property, you should be. Never before have “we the people” been so seemingly defenseless in the face of police misconduct, lacking advocates in the courts and in the legislatures.

  So how do you survive a police encounter with your life and wallet intact?

  The courts have already given police the green light to pull anyone over for a variety of reasons. In an 8-1 ruling in Heien v. North Carolina, the U.S. Supreme Court affirmed that police officers can pull someone over based on a “reasonable” but mistaken belief about the law.

  Of course, what’s reasonable to agents of the police state may be completely unreasonable to the populace. Nevertheless, the moment those lights start flashing and that siren goes off, we’re all in the same boat: we must pull over.

  However, it’s what happens after you’ve been pulled over that’s critical. Survival is the key.

  Technically, you have the right to remain silent (beyond the basic requirement to identify yourself and show your registration). You have the right to refuse to have your vehicle searched. You have the right to film your interaction with police. You have the right to ask to leave. You also have the right to resist an unlawful order such as a police officer directing you to extinguish your cigarette, put away your phone or stop recording them.

  However, as Bland learned the hard way, there is a price for asserting one’s rights. “Faced with an authority figure unwilling to de-escalate the situation, Bland refused to be bullied or intimidated,” writes Boston Globe contributor Renee Graham. “She understood her rights, but for African-Americans in encounters with police, the appalling price for asserting even the most basic rights can be their lives.”

  So if you don’t want to get probed, poked, pinched, tasered, tackled, searched, seized, stripped, manhandled, arrested, shot, or killed, don’t say, do or even suggest anything that even hints of noncompliance when it comes to interactions with police.

  One police officer advised that if you feel as if you’re being treated unfairly, comply anyhow and contest it in court later. Similarly, black parents, advising their kids on how to deal with police, tell them to just obey the officer’s orders. “The goal,” as one parent pointed out, “is to stay alive.”

  It seems that “comply or die” has become the new maxim for the American police state.

  Then again, not even compliance is a guarantee of safety anymore. “Police are specialists in violence,” warns Kristian Williams, who has written extensively on the phenomenon of police militarization and brutality. “They are armed, trained, and authorized to use force. With varying degrees of subtlety, this colors their every action. Like the possibility of arrest, the threat of violence is implicit in every police encounter. Violence, as well as the law, is what they represent.”

  In other words, in the American police state, “we the people” are at the mercy of law enforcement officers who have almost absolute discretion to decide who is a threat, what constitutes resistance, and how harshly they can deal with the citizens they were appointed to “serve and protect.”

  As I point out in my book Battlefield America: The War on the American People, this mindset that any challenge to police authority is a threat that needs to be “neutralized” is a dangerous one that is part of a greater nationwide trend that sets the police beyond the reach of the Fourth Amendment. Moreover, when police officers are allowed to operate under the assumption that their word is law and that there is no room for any form of disagreement or even question, that serves to chill the First Amendment’s assurances of free speech, free assembly and the right to petition the government for a redress of grievances.

  Frankly, it doesn’t matter whether it’s a casual “show your ID” request on a boardwalk, a stop-and-frisk search on a city street, or a traffic stop for speeding or just to check your insurance. If you feel like you can’t walk away from a police encounter of your own volition—and more often than not you can’t, especially when you’re being confronted by someone armed to the hilt with all manner of militarized weaponry and gear—then for all intents and purposes, you’re under arrest from the moment a cop stops you.

  Sad, isn’t it, how quickly we have gone from a nation of laws—where the least among us had just as much right to be treated with dignity and respect as the next person (in principle, at least)—to a nation of law enforcers (revenue collectors with weapons) who treat us all like suspects and criminals?

  Clearly, the language of freedom is no longer the common tongue spoken by the citizenry and their government. With the government having shifted into a language of force, “we the people” have been reduced to suspects in a surveillance state, criminals in a police state, and enemy combatants in a military empire.

  

  

  

  

  

• Chinese Stocks Rise After Government Injects $100bn Into Sovereign (Rescue) Fund; Sell-off 'Blame' Shifts To Hong Kong

  Despite the reassurances from western media and talking heads that China is unimportant (both its stock market and economy), Asian economies continue to show signs of contagion from China's slowdown as Thai exports weaken and Hong Kong trade tumbles. But it is the blame game that is top of mind tonight as Chinese regulators switch attention to Hong Kong brokers in their "investigation into malicious sellers." As SCMP's George Chen notes, first they blame a "foreign force," and now they blame Hong Kong, always careful not to blame themselves. After 3 down days, Chinese stocks look are opening slightly higher as there is little follow-through from yesterday's PPT rescue or today's panic-buying in US markets especilaly in light of an additional $100bn injection into the sovereign (rescue) fund.

  Just throw another 100bn at it…

  BREAKING: Chinese Gov injects US$100B to sovereign fund's direct investment subsidiary to buy assets abroad – Caixin pic.twitter.com/Y3OzOUfBEv

  — George Chen (@george_chen) July 29, 2015

   

  As a reminder, China closed on the weaker side overnight…

  

  But it appears the PPT save overnight and extension through the US session is not helping China at the open…

  • *CHINA'S CSI 300 STOCK-INDEX FUTURES LITTLE CHANGED AT 3,683

  

   

  Update: Buying pressure arrived shortly after the open ..

  • *CHINA'S CSI 300 INDEX SET TO OPEN UP 0.8% TO 3,839.96
  • *CHINA SHANGHAI COMPOSITE SET TO OPEN UP 0.7% TO 3,689.82

  

  Not exactly the follow-through they would have hoped for…

  But here is the chart everyone is looking at…

  

  *  *  *

  As SCMP's George Chen explains, blame continues to project outward…

  

  Though as we saw yesterday,. any strength is being used by locals to sell (not short) into government strength as one farmer exclaimed – fighting back tears, "I have have ruined my entire family… I will nevere touch stocks again."

  *  *  *

  Furthermore, while Western media continues to stress how unimportant Chinese stocks (and the Chinese economy now apparently) is to US stocks and the US economy… it is, as Gavekal Capital explains, crucially important and more evidence  is building of a slowing Chinese economy permeating the rest of Asia…

  Today’s edition of our diary of weak Asian economic stats focuses on the recently released trade and industrial production numbers out of Thailand and the trade numbers from Hong Kong. The Thai economy is feeling the pain of the Chinese slowdown acutely even in the most high level economic statistics.

   

  

   

  

   

  Meanwhile the Hong Kong trade figures, which we view more as a proxy for Chinese trade given its intermediary port position connecting China with the rest of the world…

   

  

   

  …paint the picture of the weakest trade by volume since 2013.

  *  *  *

  But apart from that – everything is awesome judging by US equities.

  

  

  

  

  

• Ron Paul Slams Gen. Wesley Clark: Is He Kidding, Internment Camps?

  Submitted by Ron Paul via The Ron Paul Institue for Peace & Prosperity,

  Last week, Retired General Wesley Clark, who was NATO commander during the US bombing of Serbia, proposed that “disloyal Americans” be sent to internment camps for the “duration of the conflict.” Discussing the recent military base shootings in Chattanooga, TN, in which five US service members were killed, Clark recalled the internment of American citizens during World War II who were merely suspected of having Nazi sympathies. He said: “back then we didn’t say ‘that was freedom of speech,’ we put him in a camp.”

  He called for the government to identify people most likely to be radicalized so we can “cut this off at the beginning.” That sounds like “pre-crime”!

  Gen. Clark ran for president in 2004 and it’s probably a good thing he didn’t win considering what seems to be his disregard for the Constitution. Unfortunately in the current presidential race Donald Trump even one-upped Clark, stating recently that NSA whistleblower Edward Snowden is a traitor and should be treated like one, implying that the government should kill him.

  These statements and others like them most likely reflect the frustration felt in Washington over a 15 year war on terror where there has been no victory and where we actually seem worse off than when we started. The real problem is they will argue and bicker over changing tactics but their interventionist strategy remains the same.

  Retired Army Gen. Mike Flynn, who was head of the Defense Intelligence Agency during the US wars in Afghanistan and Iraq, told al-Jazeera this week that US drones create more terrorists than they kill. He said: “The more weapons we give, the more bombs we drop, that just … fuels the conflict.”

  Still Washington pursues the same strategy while expecting different results.

  It is probably almost inevitable that the warhawks will turn their anger inward, toward Americans who are sick of the endless and costly wars. The US loss of the Vietnam war is still blamed by many on the protesters at home rather than on the foolishness of the war based on a lie in the first place.

  Let’s hope these threats from Clark and Trump are not a trial balloon leading to a clampdown on our liberties. There are a few reasons we should be concerned. Last week the US House passed a bill that would allow the Secretary of State to unilaterally cancel an American citizen’s passport if he determines that person has “aided” or “abetted” a terrorist organization. And as of this writing, the Senate is debating a highway funding bill that would allow the Secretary of State to cancel the passport of any American who owes too much money to the IRS.

  Canceling a passport means removing the right to travel, which is a kind of virtual internment camp. The person would find his movements restricted, either being prevented from leaving or entering the United States. Neither of these measures involves any due process or possibility of appeal, and the government’s evidence supporting the action can be kept secret.

  We should demand an end to these foolish wars that even the experts admit are making matters worse. Of course we need a strong defense, but we should not provoke the hatred of others through drones, bombs, or pushing regime change overseas. And we must protect our civil liberties here at home from government elites who increasingly view us as the enemy.

  

  

  

  

  

• Trump Is "The Best Thing To Happen To Politics In A Long Time," Mark Cuban Says

  Make no mistake, Donald Trump has made an enormous splash in the early days of the race for the GOP Presidential nomination.

  Need proof? You could check out the polls…

  

  ..or just have a look at the cover of the latest New Yorker…

  

  …or simply tune in to the nightly news where you’re sure to hear the latest sound bite from the incorrigible billionaire, whose main advantage may be that he is simply “gaffe proof“, which would explain why a series of statements which would have likely amounted to political suicide for anyone else, have only served to boost his popularity.

  In any event, it appears as though Trump can now count on the support of a fellow billionaire because as The Hill reports, Mark Cuban now says “The Donald” is “the best thing to happen to politics in a long time.” Here’s more from Cuban:

  Up until Trump announced his candidacy the conventional wisdom was that you had to be a professional politician in order to run. You had to have a background that was politically scrubbed. In other words, smart people who didn’t live perfect lives could never run. Smart people who didn’t want their families put under the media spotlight wouldn’t run. The Donald is changing all of that. He has changed the game and for that he deserves a lot of credit. 

  And here’s Trump’s response:

  Thank you @mcuban for your nice words. I am rapidly becoming a @dallasmavs fan!
  https://t.co/sLXkCh9qfg

  — Donald J. Trump (@realDonaldTrump) July 28, 2015

  And just to prove that this is truly a man for whom the traditional rules of politics absolutely do not apply, we’ll close with the following two tweets:

  A nation WITHOUT BORDERS is not a nation at all. We must have a wall. The rule of law matters. Jeb just doesn’t get it.

  — Donald J. Trump (@realDonaldTrump) July 28, 2015

  .@realDonaldTrump leads w/ Hispanics. Huckabee & Christie – who supported in-state tuition 4 illegals -scrape bottom. http://t.co/9TofdCJLPz

  — Ann Coulter (@AnnCoulter) July 28, 2015

  

  

  

  

• The True Minimum Wage Is $0 Per Hour

  Submitted by Jeffrey Snider via Alhambra Investment Partners,

  The minimum wage is not what is commonly referred, as is being proven again as parts of the US experiment directly with this boundary. In New York, fast food workers have been given a $15 per hour minimum wage which is being celebrated by the same fast food workers who will bear the brunt of the experimentation. Some of them will be happy with the results, but there will be clear losers – the full wrath of redistribution is usually unseen which is why it persists.

  Twitter had been having fun on the other side of the country with a similar minimum wage diktat, as the University of California system mandates also a $15 per hour rate. Professors, who overwhelmingly lean in a favorable direction, are being shown this mathematical reductionism up close. One physics professor who in one tweet reiterated his support took the next to realize the logic of it.

   

  Napolitano raises University of California minimum hourly wage to $15. It's a good thing but I cannot pay $15 to my undergrad researchers!

  — Asantha Cooray (@acooray) July 22, 2015

  I now pay six undergrads/year starting at $9-$10/hour with raises maxing out around $13 as seniors. At $15 it'll be 3-4 students.

  — Asantha Cooray (@acooray) July 22, 2015

   

  He currently pays $9-$10 per hour for six undergrad assistants now, but in order to conform to the new “minimum wage” command he will only be able to afford four, maybe three. In other words, the true minimum wage is $0 per hour.

  To think it is any different for a fastfood restaurant is naïve. Business owners paying their workers more by arbitrary government setting will not bring in offsetting revenue (a very close microcosm of all that belies “aggregate demand”). The cost of the law will be felt by fewer hours being worked, leading to rationing of the business operations (checkouts and those cooking in the back, meaning longer wait times and worse service) and, where possible, rising prices. None of this is surprising or especially insightful.

  And yet in 2015, six years into recovery, there is still a huge and heavy undercurrent of discontent that breaks out into this kind of nonsensical “solution.” There has been a resurgent trend toward Marxism already (dating back to Occupy Wall Street that survived in sentiment beyond that pitiful outbreak) that flares up here and there with the next great Marx replica (Picketty being the last, global vestige). In a real recovery, none of this counterproductive meandering would stand a chance. If the labor market were growing as it should, in sharp contrast to how it has been presented over the past year, minimum wage laws would be the furthest from the mainstream.

  The same goes with the sudden outbreak of robot envy/fear. In the case of fastfood workers, they may find themselves actually staring into that reality as beyond the short-term automated technology may be more cost-effective, and productive, than unskilled at $15. But by and large, in the overall economy, this raging tinge of disgruntlement about technology and jobs is of the same deficient impulse. In a truly functioning economy robots are quite welcome. Instead, what we have now, and have had for a decade and a half or more, gives way to this:

  The bleakest news involves manufacturing and service jobs. He reports that Foxconn, the primary maker of Apple products, plans to deploy up to 1 million robots in its factories. A chief Nike executive, meanwhile, thinks the solution to rising wages in Indonesia is “engineering the labor out of the product.” This would not only be more affordable, it might also silence criticism about horrendous working conditions in international factories that make beloved American products. Self-checkout aisles at the grocery store, Redbox movie rental kiosks, and touchscreen ordering at restaurants are all examples of the same trend.

   

  For those who claim that these changes simply move jobs from one sector of the economy to another, Ford points to statistics. Blockbuster once employed roughly 60,000 employees nationally. Redbox, in the entire Chicago area, has a staff of seven. A comparison between Google and General Motors is another instructive example. After adjusting for inflation, General Motors earned a profit of around $11 billion in 1979, when it employed 840,000 workers. Google, in 2012, earned almost $14 billion and employed fewer than 38,000 people. He offers many other examples suggesting that not every job lost in one area is gained in another.

  The relevant comparison is not GM to Google but rather GM to first Japan and then China, with all of Google, Silicon Valley and the like added to Wall Street and its legions of mathematicians, accountants, lawyers and offshoot day traders and house flippers (along with the burger flippers, bartenders and hospitality workers “serving” asset inflation) to pick up the “slack.” Monetary redistribution is entirely the problem, not shipping off low wage jobs overseas (and getting lower price products in return) and having the government artificially price the entirety of the bottom rungs.

  Innovation is the spur to all of it, so long as it doesn’t become entangled in exactly these kinds of socialist misdirections. In other words, the fear of robots is somewhat justified right now but only because innovation has run aground in the decades since financialism re-charted the overall economic course. The last time machines were “taking jobs” in such huge numbers it worked out very well not just for Americans but the rest of the world. There was once background fear of tractors as farming industrialized and reconstituted the entire workforce.

  In 1820, out of the estimated 2.88 million American workers, 2.07 million (72%) were farm workers. By 1880, non-farm workers outnumbered those in agriculture; in 1910, the number of farm workers in the US peaked in absolute numbers, amounting to then just less than a third of all labor; today, very few are employed in agriculture. Innovation through industrialization absorbed labor into new and once “impossible” endeavors, industry and products that were prior scarcely believed realistic and certainly beyond the reach of all but the richest. True economic growth, labor specialization as its core, should be welcomed even though it is highly messy and dynamic. The general upheaval is, over time, unquestionably received in higher living standards for everyone.

  The fear today should not be ATM’s removing tellers from bank branches, just as there are no more elevator operators working in moving cages amongst the nation’s taller buildings. The anxiety now is instead really about the serious lack of innovation that suddenly appeared right around the time hard money, and thus financial restraint, was banished so that various control elements could endeavor upon their utopian ideals of redistribution.

  In other words, across now more than a century of monetary recalculations, the object remains the same – to become what Marx called that “third party”, to be the wielder of a mathematical code that will break the conventions of the past and lead to a more or even most perfect economic existence. The problem, universally, is that value is not just some convention to be deciphered, it is essential and immutable. Monetarists have believed that money was that object, pliable and a perfect substitute across ages, but money is just the expression of a much deeper ethos, a physical stand-in for the dimension of value. Political socialism is to transform individuals into a cohesive singular entity; monetary socialism is to do the same, centered always on redefining value. We live today not with free market capitalism, or even a functioning eurodollar standard anymore, but what looks very much like the inevitable end of the third age of socialist monetary experimentation. Value, beaten, battered and bastardized, so far survives.

  Each of these ages of socialist economic direction has pressed further and further into the economic foundation. Where once an entire system of economy was redistributed by market forces into global modernism, we now live in communal fear of every form of job being “taken” toward even the slightest difference (what would have been slight hyperbole just a few years ago isn’t so much now). Perhaps the greatest rebuttal of these socialist ages is that now workers cling to mostly stasis of every kind (fastfood jobs are now as careers?), as job and labor opportunities are almost ancient concepts applied only to past remembrances of what it all used to be like (especially among the millennials; how must the economy look to all those stuck in school, endeavoring as college-educated baristas and living at home with mom and dad until after 30). There is no economic confidence because there has been no reason for it; the more that this is planned out by these kinds of intrusions into economic inner-workings the farther away from the utopian agenda (but not the totalitarian offshoot) we “progress.”

  

  The economy has shrunk and with it the means to be hopeful about what should be natural – opportunity. Robots are not the problem, per se, and the minimum wage will always be zero; it is this “secular stagnation” of serial asset bubbles that have robbed the economy of its organic and natural vitality and spreadable vigor. Fix the obvious incongruity, monetarism most especially, of redistribution by government directive and economic growth will engulf and subsume what is really unnatural economic angst expressed in all these various and quickening counterproductive “solutions.”

  

  Some disquiet about the uneven progress of market beneficence has always been present, but what is unique about especially the past six to eight years is its pervasiveness and persistence. In other words, there will always be some that fear dynamism because, again, the widespread benefits aren’t readily apparent right away; but when so many are convinced in the opposite something is very, very wrong. The first step is to stop making the economy shrink and let opportunity, real opportunity not linked to asset market gambling and the fake recovery efforts, again take hold.

  

  

  

  

  

• Caught On Tape: The Moment Diver Discovers $1 Million In Gold From 300-Year-Old Spanish Shipwreck

  Following the latest mass media assault on gold, capped with such trollbait pearls as “Gold is doomed” or the classic “Let’s Be Honest About Gold: It’s a Pet Rock” by the inimitable Jason Zweig (imitable perhaps only by the September 2011 version of Jason Zweig when, days after gold hit its all time high just shy of $2000, he famously said “Is Gold Cheap? Who Knows? But Gold-Mining Stocks Are“… since then gold-mining stocks are down 80%) we were more shocked that someone would actually bother to look for the worthless pet rocks (of which China allegedly just bought 600 tons) than actually finding them during a random dive in the sea.

  Which is precisely what happened.

  For several weeks the Schmitt family had a million-dollar secret on their hands. Last month, it recovered $1 million worth of sunken Spanish coins and jewels off the Florida coast.

  The Schmitts are subcontractors to 1715 Fleet-Queens Jewels LLC which since 2010 has the salvaging rights to a fleet of Spanish ships, aka the “1715 Fleet“, that wrecked off the Florida coast some 300 years ago. While $50 million has been pulled in from the fleet’s resting place so far, this is so far the biggest single haul.

  “One of the most amazing recoveries in 1715 Fleet History. Congratulations to the entire Schmitt family and the crew of the Aarrr Booty,” said 1715 Fleet on its Facebook page Monday.

  Some more details from the Fleet Society’s website: “Gold and silver in great quantity was homeward bound to Philip V when a hurricane destroyed his fleet along Florida’s coast. Some recovery in the aftermath still left much to be recovered beginning in the 1960’s and ongoing to this day.”

  “The treasure was actually found a month ago,” said Brent Brisben of 1715 Fleet-Queens Jewels LLC. Keeping the news under wraps was “particularly hard for the family that found it. They’ve been beside themselves.”

  The timing of 1715 Fleet’s announcement coincides with the 300th anniversary of the Spanish treasure fleet’s shipwrecks off the coast of Florida.

  Among the precious items recovered:

  • 51 gold coins
  • 40 feet of ornate gold chain
  • A single coin called a Royal made for the king of Spain, Phillip V. Only a few are known to exist, and the coin — nicknamed “Tricentennial Royal” — is dated 1715. Brisben said the extremely rare silver-dollar-sized coin is worth “probably around half a million dollars itself.”

  Queens Jewels owner Brent Brisben told the Daily News this discovery is of the biggest single hauls taken from the ship.

  Or, as the WSJ would call it, a whole bunch of pet rocks.

  Brisben gives 20% of everything found to the state of Florida and then splits the remaining treasure equally with the contractor that finds it. Brisben said he and his family will keep everything they have and save it for a special collection for the public.

  It’s believed there is still $400 million worth of treasure located below, he said.

  As the WSJ’s sister publication, MarketWatch adds, “the discovery comes almost 300 years to the day that the fleet wrecked. As for the history, the ships were sent to America to fetch gold and silver and under pressure to get back quickly, as the Spanish crown needed to replenish its coffers to finance wars. Sailing from Havana, Cuba on July 24, 1715, the ships crashed during a hurricane a week later near present-day Vero Beach, Fla. The Spaniards returned a few times, salvaging a great chunk of that treasure.”

  Three hundreds years later wars are financed by long strings of 1s and 0s, backed by the full faith of a government whose total unfunded obligations amount to over 5x the total amount of goods and services produced by said government.

  Back to the discovery, whose key components are shown below.

  

  Fifty-one gold coins and 40 feet of gold chains were found from a Spanish ship of the 1715 Fleet

  

  The total value of the haul is more than $1 million.

  

  About $50 million worth of treasure has been discovered since the 1960s.

  * * *

  But the biggest drama was the actual moment when Schmitt discovered the gold, captured conveniently in the video below.

  

  

  

  

  

• Today's Anti-Capitalists Ignore The Fundamental Problems Of Socialism

  Submitted by Jonathan Newman via The Mises Institute,

  Anti-market and pro-socialist rhetoric is surging in headlines (see also here, here, and here) and popping up more and more on social media feeds. Much of the time, these opponents of markets can’t tell the difference between state-sponsored organizations like the International Monetary Fund and actual markets. But, that doesn’t matter because the articles and memes are often populist and vaguely worded — intentionally framed in such a way to easily deflect uninformed attacks and honest descriptions of what they are actually saying. In the end, they can all be boiled down to one message: socialism works and is better than capitalism.

  While most of it comes from the Left, the Right is not innocent, since the Right appears to be primarily concerned with promoting its own version of populism, which apparently does not involve a defense of markets. “Build bigger walls at the border,” for example, is not a sufficient response to “All profits are evil!”

  Instead of stooping to this level or simply resorting to “Read Mises!” (a more fitting response), we must show, yet again, that socialism — even under well-meaning political leaders — is impossible and leads to disastrous consequences.

  The Necessity of Profits, Prices, and Entrepreneurs

  Socialism is the collective ownership (i.e., a state monopoly) of the means of production. It calls for the abolition of private ownership of factors of production. Wages and profits are two parts of the same pie, and socialism says the profit slice should be zero.

  The inherent theoretical problems of socialism all emanate from its definition, and not the particulars of its application. However, the supporters of socialism define “collective,” as no exchange of the factors of production. And without exchange, there can be no prices, and without prices there is no way to measure the costs of production.

  In an unhampered market economy, the prices of the factors of production are determined by their aid in producing things that consumers want. They tend to earn their marginal product, and because every laborer has some comparative advantage, there is a slice of pie for everybody.

  If technological changes make certain factors more productive, or if education and training makes a laborer more productive, their prices or wages may be bid up to their new, higher marginal product. An entrepreneur would not like to hire or buy any factor at a price that exceeds its marginal product because the entrepreneur would then incur losses.

  Entrepreneurial losses are more important than many realize. They aren’t just hits to the entrepreneur’s bottom line. Losses show that on the market, the resources used to produce something were more highly valued than what they were producing. Losses show that wealth has been destroyed.

  Profits give the opposite signal. They represent economic growth and wealth creation. A profitable line of production is one in which the stuff that goes into producing some consumer good costs less than what consumers are willing to pay for the consumer good.

  As such, profits and losses are more than just important incentives, or cover in a conspiratorial capitalist class system; they are the only way to know that wealth is being created instead of destroyed in any line of production.

  Under socialism, there is a single owner that does not bid factors away from some lines of production and toward others. Nobody is able to say, with any shred of certainty, that a particular tool or machine or factory could be used to produce something else in a more effective way. Nobody knows what to produce or how much to produce. It’s economic chaos.

  Without Markets, We Can’t Know What or How to Produce

  Profits and losses guide and correct entrepreneurs in the process of producing things they expect consumers will demand. Without this information, including the costs of production specifically, entrepreneurs cannot engage in economic calculation, the estimation of the difference between future revenues and the costs of production necessary to gain those future revenues.

  Laborers are put to work in areas where they don’t have a comparative advantage. Farmers are sent to factories, and tailors are sent to the mines. Workers are in the wrong lines of production and have the wrong tools. Every morning, the economy looks like Robert Murphy’s capital rearranging gnomes just ransacked it.

  The Polish film Brunet Will Call lampooned situations like this throughout the movie, with consumer and capital goods in the most unlikely places. A butcher pulls an automobile’s clutch cable out of his freezer, and gives it to the main character, who pays for it with information on the whereabouts of a double buggy for someone’s newborn twins (at the flower shop, obviously).

  So the failure of socialism is not conditional on the culture, time, or place of the victims. Socialism is flawed at its core: the “collective” ownership of the means of production. As such, there is no way to enact a functioning, growth-inducing version of socialism anywhere. In practice, however, the theoretical problems of socialism give way to civil unrest, which is met with state force and results in a death toll higher than any official war ever fought.

  Without profit motives to produce, quotas must be put in place. With quotas, even in the cases where workers don’t lie about their production, chaos still reigns. For example, if a nail production quota is based on the number of nails, workers produce a lot of tiny, unusable nails. A nail quota based on weight would encourage workers to produce massive, but still unusable nails — a situation lampooned by this cartoon in Krokodil during the 1960s.

  Endless queues stretched across the USSR, filled with people looking for shoes even though shoe production in the USSR exceeded that of the US. The problem was all the shoes were too small, because shoe production was measured by number, with no regard for the sizes or designs consumers demand.

  The Wake of Socialism

  Some cases are funny; others are not. About seven million people died of starvation in the USSR just in 1932–33 (middle-of-the-road estimate based on manipulated data). The authors of The Black Book of Communism (1999) estimate the deaths of close to 100 million people are attributable to communist and socialist regimes. That’s more than 200 times the number of US deaths in WWII (and a case could be made that their deaths are attributable to socialism, too).

  Even today, in Cuba, the average wage is about $20 a month. In North Korea civilians are routinely rounded up by the dozens for public execution for the crime of watching South Korean TV smuggled into the country.

  When people are hungry and unhappy, the state cannot survive if the people know others are better off. The state uses propaganda, misinformation, and censorship to make an already captive citizenry even more confused and submissive.

  So count me surprised to hear fresh calls for socialism in 2015 — if the strong economic calculation argument and astronomical death toll haven’t turned the Left off of socialism, I don’t know what will. The idea is both bankrupt and deadly in both theory and practice.

  

  

  

  

  

• The Rise Of The Yuan Continues: LME To Accept Renminbi As Collateral

  As far-fetched as the notion may be to those who are wedded – by choice, by misguided beliefs, or by virtue of being completely beholden to the perpetuation of the status quo – to idea that the dollar will forever retain its status as the world’s reserve currency, the yuan is set to play a critical role in global finance, investment, and trade going forward. 

  We’ve long argued that the BRICS bank, the AIIB, and to an even greater extent, the Silk Road Fund, will help to usher in a new era of yuan hegemony in international investment and trade. A number of recent developments support this, including Beijing’s push for the renminbi to play an outsized role in loans doled out through the AIIB, the denomination of loans from the BRICS bank in yuan, and China’s aggressive investment in Pakistan and Brazil via the Silk Road initiative (here and here).

  As for financial markets, China recently confirmed the impending launch of a yuan denominated gold fix which conveniently dovetailed with the LBMA’s acceptance of the first Chinese banks to participate in the twice-daily auction that determines London gold prices.

  Now, in the latest sign of yuan proliferation and penetration, the renminbi will be accepted as collateral by the LME along with the dollar, the euro, the pound, and the yen.

  Here’s WSJ with more:

  China’s domestic stock market may be in turmoil but the country’s currency, known as the yuan or renminbi, is making a seemingly relentless push deeper into the global financial system.

   

  The latest step: the London Metal Exchange, the world’s largest venue for trading metals where $15 trillion of metals was traded last year, is set to accept yuan as collateral for banks and brokers that trade on its platform.

   

  The Chinese currency joins the U.S. dollar, the euro, the British pound and Japan’s yen, which are all currently permissible as collateral on the LME’s platform.

   

  “In the commodities area, it makes absolute sense to start providing renminbi-denominated services,” said Trevor Spanner, chief executive of the LME’s clearing house business. “The renminbi is on its way to becoming one of the world’s most widely used currencies” he said.

   

  While largely a technical change, the LME move marks another milestone for China’s currency.

   

  The yuan is now the fifth most used currency for international payments, ranking number seven a year ago, according to data from the Society for Worldwide Interbank Financial Telecommunication, a provider of payments services.

   

  A Bank of England survey on Monday showed that trading in yuan rose 25% in London in the six months to April this year, even as trading volumes in other currencies fell by 8% on average over the same period.

  The takeaway: irrespective of any damage China’s recent interventions into its domestic equity markets may have on the country’s SDR push, and regardless of whether the PBoC cash injection into CSF spooks the market and serves to accelerate short-term capital outflows, the internationalization of the yuan isn’t likely to be meaningfully derailed.

  We’ll leave you with the following quote from Dan Marcus, CEO of London-based currency trading platform ParFX who spoke to WSJ:

  “The rise of China’s currency on global markets is arguably the most significant development in currency trading since the introduction of the euro in 1999.”

   

  

  

  

  

  

• There May Be Hope For The U.S. Yet: Caitlyn Jenner's Reality Show "No Ratings Bonanza"

  While (hopefully) not high on the agenda of readers more interested in what Janet Yellen will say tomorrow (and thus leak today) one of the more anticipated media events of recent days was Caitlyn Jenner’s new reality TV show “I am Cait” which premiered last night on E! and which supposedly chronicles former Bruce Jenner’s adjustment to life as a woman and transgender spokesperson.

  And while many were expecting blowout numbers from an America addicted to brain candy and passive-aggressive exhibitionism, the results were enough to inspire confidence that there may be some hope yet left for the United States.

  

  On one hand, TVline reports that “I Am Cait” topped Sunday cable rating with 2.7 million total viewers and a 1.2 demo rating – on par with Keeping Up With the Kardashians‘ most recent season premiere and leading the night in the demo (tying Adult Swim’s 11 pm Family Guy rerun).

  On the other, according to Reuters, despite its impressive Sunday-night cable topping viewership, the number of people who tuned in was a vast drop from the 17 million people who watched the former Olympic champion come out as a transgender woman in an April TV interview.

  It adds that “the first episode was no ratings bonanza. According to Nielsen data, almost three times as many Americans watched “Celebrity Family Feud” on ABC that night. The audience for “I am Cait” also suffered a marked drop from the almost 8 million people who watched the ESPY awards show on television two weeks ago on which Jenner, 65, was presented the Arthur Ashe courage award.”

  Not surprisingly, according to Nielsen Talent Analytics, which surveys about 1,000 Americans on a weekly basis, Jenner’s transition has not been universally welcomed, especially among older Americans. Then again using shock value to further a (well paid) personal agenda is nothing new: Donald Trump is currently using it with great effect and crushing the presidential primary field where nobody is quite sure how to respond to what some have said is the biggest trolling of the country by a presidential candidate in history. Which considering how broken the left-right political model is, may have come just on time to force America to re-evaluate just how applicable a “representative” political model that mainly panders to corporations and bankers actually is.

  And back to Bruce, pardon Cait, her “offensiveness” rating has gone from 16 percent to 26 percent since the initial coming-out interview in April, according to Nielsen, although those under 34 years old were more likely to consider Jenner successful (38 percent to 42 percent) and a role model (13 percent to 19 percent) now than a year ago.

  So maybe not hope for all, but some hope still.

  But don’t cry for Bruce: his show is sure to eventually become a monetary goldmine rivaling that other exercise in celebrity trolling, “Keeping Up With the Kardashians.” According to Business Insider, a 30 second ad spot in the premiere cost between $90,000 and $200,000, approaching the $344,000 which category killer “Big Bang Theory” charges for 30 seconds of its ad time.

  This means that Caitlyn’s take home from each episode is certainly in the hundreds of thousands of dollars, if not higher.

  

  

  

  

  

• 3-Year-Old London Child Deemed "Extremist"; Placed In Government Reeducation Program

  Submitted by Mike Krieger via Liberty Blitzkrieg blog,

  The United Kingdom has gone batshit crazy. There’s simply no other way to put it. I warned about Britain’s “war on toddler terrorists” earlier this year in the post: The War on Toddler Terrorists – Britain Wants to Force Nursery School Teachers to Identify “Extremist” Children. Here’s an excerpt:

  Nursery school staff and registered childminders must report toddlers at risk of becoming terrorists, under counter-terrorism measures proposed by the Government.

   

  The directive is contained in a 39-page consultation document issued by the Home Office in a bid to bolster its Prevent anti-terrorism plan.

   

  The document accompanies the Counter-Terrorism and Security Bill, currently before parliament. It identifies nurseries and early years childcare providers, along with schools and universities, as having a duty “to prevent people being drawn into terrorism”.

  Never fear good citizens of Great Britain. While your government actively does everything in its power to protect criminal financial oligarchs and powerful pedophiles, her majesty draws the line at toddler thought crime. We learn from the Independent:

  A three-year-old child from London is one of hundreds of young people in the capital who have been tipped as potential future radicals and extremists.

   

  As reported by the Evening Standard, 1,069 people have been put in the government’s anti-extremism ‘Channel’ process, the de-radicalization program at the heart of the Government’s ‘Prevent’ strategy.

   

  The three-year-old in the program is from the borough of Tower Hamlets, and was a member of a family group that had been showing suspect behavior.

   

  Since September 2014, 400 under 18s, including teenagers and children, have been referred to the scheme.

  The fact that this story broke on the same day that chairman of the UK’s Lords Privileges and Conduct Committee, Lord John Sewel, was caught on video snorting cocaine off the breast of a prostitute with a £5 note, is simply priceless. You just can’t make this stuff up.

  From the BBC:

  Lord Sewel is facing a police inquiry after quitting as House of Lords deputy speaker over a video allegedly showing him taking drugs with prostitutes.

  The footage showed him snorting powder from a woman’s breasts with a £5 note.

   

  In the footage, Lord Sewel, who is married, also discusses the Lords’ allowances system.

   

  As chairman of committees, the crossbench peer also chaired the privileges and conduct committee, and was responsible for enforcing standards in the Lords.

   

  Lord Sewel served as a minister in the Scotland office under Tony Blair’s Labour government.

  Tony Blair, why am I not surprised:

  

  He has been a member of the Lords since 1996, and is a former senior vice principal of the University of Aberdeen.

  Here’s a clip, in the event you’re interested:

   

  The UK government is so far gone that it insists on protecting the public from toddlers, rather than protecting toddlers from powerful sexual predators. In case you need a reminder:

  In Great Britain, Powerful Pedophiles are Seemingly Everywhere and Totally Above the Law

  In Great Britain, Protecting Pedophile Politicians is a Matter of “National Security”

  Former BBC Host “Sir” Jimmy Savile Exposed as Major Player in Massive Pedophile Ring

  

  

  

  

  

• Could Trump Win?

  Submitted by Patrick Buchanan via Buchanan.org,

  The American political class has failed the country, and should be fired. That is the clearest message from the summer surge of Bernie Sanders and the remarkable rise of Donald Trump.

  Sanders’ candidacy can trace it roots back to the 19th-century populist party of Mary Elizabeth Lease who declaimed:

  “Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master.”

   

  “Raise less corn and more hell!” Mary admonished the farmers of Kansas.

  William Jennings Bryan captured the Democratic nomination in 1896 by denouncing the gold standard beloved of the hard money men of his day: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

  Sanders is in that tradition, if not in that league as an orator. His followers, largely white, $50,000-a-year folks with college degrees, call to mind more the followers of George McGovern than Jennings Bryan.

  Yet the stagnation of workers’ wages as the billionaire boys club admits new members, and the hemorrhaging of U.S. jobs under trade deals done for the Davos-Doha crowd, has created a blazing issue of economic inequality that propels the Sanders campaign.

  Between his issues and Trump’s there is overlap. Both denounce the trade deals that deindustrialized America and shipped millions of jobs off to Mexico, Asia and China. But Trump has connected to an even more powerful current.

  That is the issue of uncontrolled and illegal immigration, the sense America’s borders are undefended, that untold millions of lawbreakers are in our country, and more are coming. While most come to work, they are taking American jobs and consuming tax dollars, and too many come to rob, rape, murder and make a living selling drugs.

  Moreover, the politicians who have talked about this for decades are a pack of phonies who have done little to secure the border.

  Trump boasts that he will get the job done, as he gets done all other jobs he has undertaken. And his poll ratings are one measure of how far out of touch the Republican establishment is with the Republican heartland.

  When Trump ridicules his rivals as Lilliputians and mocks the celebrity media, the Republican base cheers and laughs with him.

  He is boastful, brash, defiant, unapologetic, loves campaigning, and is putting on a great show with his Trump planes and 100-foot-long stretch limos. “Every man a king but no man wears a crown,” said Huey Long. “I’m gonna make America great again,” says Donald.

  Compared to Trump, all the other candidates, including Hillary Clinton and Jeb Bush, are boring. He makes politics entertaining, fun.

  Trump also benefits from the perception that his rivals and the press want him out of the race and are desperately seizing upon any gaffe to drive him out. The piling on, the abandonment of Trump by the corporate elite, may have cost him a lot of money. But it also brought him support he would not otherwise have had.

  For no group of Americans has been called more names than the base of the GOP. The attacks that caused the establishment to wash its hands of Trump as an embarrassment brought the base to his defense.

  But can Trump win?

  If his poll numbers hold, Trump will be there six months from now when the Sweet 16 is cut to the Final Four, and he will likely be in the finals. For if Trump is running at 18 or 20 percent nationally then, among Republicans, it is hard to see how two rivals beat him.

  For Trump not to be in the hunt as the New Hampshire primary opens, his campaign will have to implode, as Gary Hart’s did in 1987, and Bill Clinton’s almost did in 1992.

  Thus, in the next six months, Trump will have to commit some truly egregious blunder that costs him his present following. Or the dirt divers of the media and “oppo research” arms of the other campaigns will have to come up with some high-yield IEDs.

  Presidential primaries are minefields for the incautious, and Trump is not a cautious man. And it is difficult to see how, in a two-man race against the favorite of the Republican establishment, he could win enough primaries, caucuses and delegates to capture 50 percent of the convention votes.

  For almost all of the candidates who will have dropped out by then will have endorsed the last man standing against Trump. And should Trump be nominated, his candidacy would make Barry Goldwater look like the great uniter of the GOP.

  Still, who expected Donald Trump to be in the catbird seat in the GOP nomination run before the first presidential debate? And even his TV antagonists cannot deny he has been great for ratings.

  

  

  

  

  

• Twitter Surges, Then Fades After Hours On User Growth Confusion: The Full Quarter In 6 Charts
  • *TWTR’S NOTO: THIS IS BOTH A PRODUCT ISSUE AND A MARKETING ISSUE
  • *TWTR: DOESNT SEE SUSTAINED GROWTH IN MAUS UNTIL REACH MASS MKT
    

  

   

  With many expecting Twitter to disappoint yet again after several quarters in which the company’s stock had a step-down reaction to earnings, moments ago TWTR beat virtually all-non-GAAP estimates, from revenue, to EPS, to EBITDA:

  • TWITTER 2Q REV. $502.4M, EST. $481.9M
  • TWITTER INC 2Q ADJ. EPS 7C, EST. 4C
  • TWITTER 2Q ADJ. EBITDA $120M, EST. $103.3M

  More importantly, everyone was focusing on user growth which on a headline basis was not bad…

  • TWITTER 2Q AVG. MAUS 316M INCL SMS FAST FOLLOWERS,VS 308M IN 1Q

  However, just like on previous quarters, TWTR decided to use a gimmick when counting users, to wit:

  “Average Monthly Active Users (MAUs) were 316 million for the second quarter, up 15% year-over-year, and compared to 308 million in the previous quarter. The vast majority of MAUs added in the quarter on a sequential basis came from SMS Fast Followers. Excluding SMS Fast Followers, MAUs were 304 million for the second quarter, up 12% year-over-year, and compared to 302 million in the previous quarter.”

  

   

  It took algos a few minutes to digest this fact, and as a result what was initially a solid 10% spike after hours, fizzled almost entirely, and as of this moment the stock had cut its after hours gains notably.

   

  

   

  Going back to the quarter, the non-GAAP numbers were generally not bad as follows.

   

  

  

  

  

   

  But are they good enough to justify a $25 billion market cap, especially when one remembers that virtually all the “profit” is in solidly in the non-GAAP arena.

  

  

  

  

  

  

• American Enterprise in a Nutshell

  

  

  

  

• 'Investors' Panic-Buy Stocks After Confidence Collapse Sparks Biggest Short-Squeeze In 6 Months

  China closes weak… Europe weak… US Consumer Confidence collapses… Energy credit risk increases dramatically… and stocks rip led by Energy in yet another epic short squeeze…

   

  We can't help but think this happens…

   

  It seems some think China was up last night… sure it was up off the lows… but is this really the backbone of a face-ripping rally in US Stocks…?

  

   

  And Japanese stocks hit a 2-week low…

  

   

  US Stocks traded weaker into the open… but once Consumer Confidence collapsed, Energy stocks went into full short squeeze mode and exploded everything higher…

  

   

  With cash indices all soaring…

  

   

  Getting everything back to green from Friday briefly… before Nasdaq and Small Caps faded back…and then a final ramp to get Nasdaq green on the week!

  

   

  As the big triple short squeeze hit…

  

   

  This was the biggest short squeeze in 6 months

  

   

  Much was made of the ramp in Energy stocks…  best day for Energy sector since Dec 2014…

  

   

  Well we've seen this before… BTFD once, shame on me… Energy Credit ain't buying it…

  

   

  And neither is WTI Crude!!!

  

   

  Yet another breadth indicator flashes red…

  

   

  Treasury yields rose on the day but rallied after the weak confidence data…

  

   

  The USDollar closed higher but once again flipped its regime at the EU close…

  

   

  Commodities all rose on the day with Copper and Crude popping most…

  

   

  WTI Crude tested a $46 handle overnight before its mini melt-up ahead of API tonight…

  

   

   

  Charts: Bloomberg

  Bonus Chart: No Corrections Allowed…

  Here are all the pullbacks in the $SPX since 1928. Been awhile without a 10% correction, but it can go longer. $SPY pic.twitter.com/00klDVOVrJ

  — Ryan Detrick, CMT (@RyanDetrick) July 28, 2015

   

  Bonus Bonus Chart: The Collapse in Confidence Is Not Good News…

  

   

  Bonus Bonus Bonus Chart: You Are Here…

  

  

  

  

  

• China and Greece Signal a New Round of Deflation

  Stocks rallied today because the Fed meets today and tomorrow and traders are conditioned to play for a rally into Fed meetings. Also, stocks had fallen for four days straight prior to this and so we were oversold in the near-term.

  The larger picture concerns the bursting of China’s stock bubble as well as the ongoing 3rd Greek bailout drama.

  Regarding China, anyone who actually bothered performing real analysis could have seen that the economic data coming out of that country was totally bogus. Indeed, back in 2007, current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

  With that in mind, China’s rail volumes had been collapsing at a pace not seen since the Asia Financial Crisis!

  

   

  Despite this, 99% of analysts believed China’s GDP was growing at 7%+. Those people piled into Chinese stocks and commodities… and they’ve since been eviscerated as the Chinese stock bubble burst and commodity prices plunged to 13-year lows.

  

   

  China has been the largest driver of global economic growth since 2009. With that country flirting with outright deflation, it's only a matter of time before global GDP tanks.

  As for Greece… the negotiations regarding a third bailout have officially begun. However, things have grown more complicated as former Greek Finance Minister Yanis Varoufakis revealed that Greece had a “Plan B” in place that would allow it to switch from the Euro to the Drachma “at the flip of a switch.”

  Germany was already fed up with Greece’s debt problems before this. Now that it’s clear Greece is ready to pull the nuclear option and leave the Euro, Germany’s economic council has backed a plan to kick out “uncooperative” Eurozone members.

  When both sides in a negotiation begin to believe that not agreeing is the best solution, it’s only a matter of time before things break down in a serious fashion. This is why for many investment banks, a Grexit remains the “base case” scenario for this situation.

  At the end of the day, both China and Greece are signaling that a new round of deflation has begun in the markets. Stocks are bouncing today, but a tectonic shift has begun.

  It is now clear that Central Banks have lost control of some markets… and this loss of control will be spreading in the coming months, culminating in a market Crash that will make 2008 look like a picnic.

  If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.

  We are making 1,000 copies available for FREE the general public.

  We are currently down to the last 15.

  To pick up yours, swing by….

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

  Best Regards

  Phoenix Capital Research

   

   

  

  

  

  

• Why Your Portfolio Does Not Perform Like The Indices (In 1 Simple Chart)

  The average S&P 500 stock is no longer keeping pace with the market’s moves… as breadth becomes focused on a shrinking pool of FOMO stocks.

   

  

   

  Just add this to the list of charts that are flashing bright red “it’s over” signals…

   

  Chart: FBN Securities

  

  

  

  

  

• Greece's Biggest Mistake Explained (In 1 Cartoon)

  Seriously…

   

  

   

  Source: Townhall.com